Earnings Call: Q3 2018

Nov 9, 2018

Good morning, ladies and gentlemen. Thank you all for standing by. Welcome to today's EDP Conference Call nine ms-eighteen Results. I would now like to hand over the call to your speaker today, Anthony Mexia. Please go ahead. Good morning, ladies and gentlemen. First of all, thanks for being with us today in this conference call for the presentation of EDP's nine months results for 2018. We'll begin with the presentation providing an overview of the results and the main development of the first nine months of the year, and then we'll move to Q and A section. Our CEO, Antonio Mexie and our CFO, Miguel Stuehl, will be available to answer your questions. We'd like to highlight that we are taking questions submitted via the web, so please ask your question only through our webpage, www.edp.com. We expect this call will last no more than sixty minutes. Now I'll give the floor to our CEO, Antonio Mexia, who will give us an update on the main highlights of the period. Thank you, Miguel. Good morning, everybody. Thank you very much for participating in this results conference call. So over the these first nine months of 2019, EDP has basically continued to execute its strategy of growth in renewables in Brazil, also implementation of efficiency improvement measures and preserving the low risk profile of our business. Due to a lot of extraordinary results, I will start with the recurrence. Our recurrent EBITDA for the first nine months decreased by 6% year on year to €2,420,000 and this includes a 6% negative impact for ForEx due to year on year depreciation of Brazilian real and U. S. Dollars versus the year. But does it mean that excluding ForEx, recurrent EBITDA would be flat year on year. And why? In Portugal, our performance was changes announced in last year, so known by everybody, which had a negative impact of EUR 169,000,000 in our EBITDA. On the positive side, we continue to perform well on OpEx, which showed a 1% nominal increase excluding ForEx in a period of significant expansion of activity including nominal OpEx decline of 2% in Iberia and 1% in Brazil as you'll see. In terms of renewable resources, hydro production and we will be detailed in this showed a significant recovery, but on the other hand, the relevant wind resource for our wind farms stood at the six years record low in the third quarter. And so we continue to see decline in revenues per megawatt as expected in renewables. So until now good water and bad wind in the sense that the wind was not blowing. Finally, our operations in Brazil showed a strong performance benefited from significant operational improvements both in distribution and generation and I stress this from the successful low risk integrated approach of our hedging strategy in energy markets. All in all, our recurring net profit grows 2% to EUR $570,000,000 positively impacted by the 14% decline of interest costs following the decline on cost of debt by 40 basis points to 3.7%. Note at this level that the reported net profit is significantly penalized by in this period by the EUR $285,000,001 off provision that we have decided to do now due to an alleged past overcompensation in the contractual CEMEX revenues at some of our generation assets in Portugal. On this subject, as we have already stated, EDP finds itself impaired by this administrative decision and is therefore taking necessary measures to protect its rights and interests including all legal means. This material negative one off in third quarter and the seasonal positive one offs in the third quarter of last year from the gain of the Cela TruGas justify the sharp year on year decline on the reported net profit. Finally, our net debt stood at EUR 14,500,000,000.0 in September 2018, 4% lower than September, reflecting the 7% growth of our recurring organic free cash flow to EUR 1,000,000,000, the payment of EUR 700,000,000 annual dividend to shareholders in last May and the acceleration of the net expansion CapEx to EUR 1,000,000,000 from which more than 90% was allocated to renewables with long term contracts. So in more detail on the Slide three, in terms of the renewables, what we see, We saw a gradual improvement of hydro resource in Iberia since the beginning of the year. And after two very dry months of January and February, hydro production for the first nine months managed to improve to 20% above historical average. These compares to a very dry period last year, which justifies 87% increase year on year of the hydro production. On the other hand, as I've mentioned, over the first nine months this year, wind resources evolved in the opposite direction reaching about them in the third quarter over six years record low, with wind resource is being 11% below long term average. So moving to Brazil, in Brazil EBITDA in local currency grew 19% propelled by our low risk hedging strategy volume and energy prices, good results from our program from reduction of commercial losses, always important in Brazilian distribution and the maintenance of high availability levels in generation, which is particularly important in the current high power price environment. So this is there's more value to be there when you are needed. In renewables, EBITDA excluding ForEx impact went down 9% year on year, reflecting not only wind resources 4% below long term average in accumulated period of the first nine months, but also the decline in the average revenue per megawatt hour, a trend that as you know associated with the increasing competitiveness of renewables project more recently commissioned and also the expiration of PTCs for wind farms in U. S. That have reached the end of the ten years period and as was already totally expected and shared with you. Finally, recurring EBITDA in Iberia fell slightly by 1% as the positive impact from the 83% increase of hydro production was fully offset by the EUR53 million increase of taxes in generation also known and the EUR116 million decline of regulated revenues in distribution also already known. Strong performance on operating costs on the Slide five. I'd like to stress this. Moving here what we see. Our operating costs excluding ForEx impact showed a 1% nominal growth in a period in which our generation capacity grew by 3% and the number of customer connected to our distribution grids rose by 1%. Region by region in Iberia, OpEx fell by 2% in nominal terms and almost 3% in real terms particularly remarkable considering the 1% increase both in the average installed capacity and the number of energy supply customers. In Brazil, OpEx in local currency decreased by 1% in normal terms or almost 5% in real terms, considering the local inflation of 3.5% in the period of expansion in activity with a 2% increase in the number of customers connected to distribution. In renewables, core OpEx per megawatt, including ForEx and one offs rose 3% year on year reflecting essentially the buildup of our strategy and ongoing investment that you see as strategic and that we are sure that will allow us to achieve very significant efficiency improvements in the near future. So we are explaining the self performance strategy and the important medium term of this choice. On Slide six, overall our recurrent net profit rose 2% to as I mentioned to EUR $570,000,000 benefiting from lower financial cost and the natural dilution of at bottom level of ForEx impact given our low risk approach of funding operations in local currency. Recurrent net profit increased by 4% in Iberia as the hydro recovery and OpEx nominal reduction was not totally offset by the adverse regulatory change already mentioned in Portugal. Note that the weight of Portuguese operation on reported net profit went down from 19% last year same period to 6% in the first September 2018, showing the impact of these regulatory measures having on the profitability of our operations in Portugal. The contribution of Brazil, our consolidated net profit rose almost 50% or EUR 29,000,000 following the 80% increase profit in local currency. The growth of Brazil contribution compensated this time the EDPR contribution reinforcing as we have also always stressing our view of the value of diversified portfolio of EDP. Moving to the guidance on Slide seven. We maintain our guidance for EDP EBITDA in the region of EUR 3,400,000,000.0, which reflects what? First, the seasonal improvement of renewable resources in the first quarter of the year, the recent recovery of the Brazilian real and also the positive impact from some sell downs of stake at some of our renewable assets, in line with the capital optimization and value crystallization strategy that in recent years as we can recur part of our renewables activity. Regarding net profits, we maintained the previous guidance of a reported net profit between 500,000,000 and 600,000,000 that reflects the one off CEMEX provision, which has EUR 200,000,000 net impact in net of tax. We also maintain our guidance for recurring net profit in the region of €800,000,000 fully in line with what we said in the conference call of the first half results. Now I would like to talk about each of the business basically. On Slide eight, what we see, a strong improvement of fundamentals in Iberia. And I would like to highlight three key issues. One the first one is energy prices over the last twelve months, we saw strong and steady recovery also because of CO2, while we have more than doubling this period. This together with the recovery of thermal costs such as gas and coal has contributed to an increase of the electricity price in Iberia for 2019 by more than EUR 14 megawatt hour. So we are talking about a 30% increase. This is obviously positive news for the long term performance of our renewable portfolio also in Iberia where we have a combined annual production of hydro and wind above 20 terawatts hour. Second, we have also seen positive developments regarding the demand recovery with accumulated electricity consumption growing by almost 5% in Iberia over the last four years. Note that is that in the first nine months of twenty eighteen, gross demand in Portugal was above 3% year on year. On top of that, the recent announcement of Spanish government regarding reduction of marginal taxes in generation is a positive signals to reduce the fiscal burden in the system with positive impacts for companies and consumers. And finally, I would like to highlight the recent improvement of visibility regarding the next regulatory period in Spain for the allowed returns to electricity networks and renewables energy as recently published by CNMC. Brazil, regarding the execution of our long term strategy of low risk and profitable growth, let me update on the evolution of our operations in Brazil. First, we have implemented an integrated hedging in energy market through the utilization of several instruments such as the GSF insurance option by keeping uncontracted some residual generation volumes, by closing financial position in forward energy markets and last but not least by the optimization of the positions in energy markets by our generation assets and by our supply division. This strategy allows us to keep a low exposure to volatility in hydro volumes, GSF and the energy prices PLD and even to beat significantly these adverse factors through the optimization of our integrated market positions as it was the case in the first nine months. Second, regarding new investments, our expansion CapEx in Brazil is now focused on the delivery of five new transmission lines, a total expected investments of BRL3.1 billion, of which 95% to occur between 2019 and 2021 and with expected commissioning dates at the end of that year. At the moment of awarding of 2016 and 2017 transmission auctions, we were assuming that this project will provide us return on equity rates in the 12%, 14% range. But since then, we have managed to improve the profitability in a significant way of these projects, which we now see at the top end of this range. Why? Because profitability improvements came from both anticipation of construction schedule and from the funding conditions more competitive than in our assumptions, improving significantly the expected NPV shareholders versus our initial assumptions. So, cutting on execution time and improving funding does clearly give good signs. Proves the experience of Santo Line, the most advanced one has now achieved close to 80% of the completion and is seventeen months ahead in terms of construction schedule. Our second most advanced line located recently secured a competitive funding of BRL1.2 billion for ten years, which covers 99% of expected CapEx. I think it's a striking figure. Moving to renewables. We continue to focus our continue to be focused on the execution of our organic growth, securing long term contracts and EDP Renewables has currently secured 3.4 gigas of PPAs and feed in tariffs for new wind and solar capacity to be commissioned over the next years. This year, we expect to install a total of 0.9 gigas of which 0.2 were commissioned in the first nine months of the year and we have currently 900 megawatts under construction of which 700 to be commissioned in the last quarter and to enter to start operations at the 2019. For 2019 and 2020, we have secured long term contracts for 1.7 gigas of new capacity of which almost 60% in U. S. Taking advantage of the last couple of years in which the new wind farms in U. Will be entitled to 100% of the PTCs incentives for the next ten years. Moreover, we have already secured long term contracts for one gig of renewal capacity to be commissioned post 2020 being relevant and I would like to stress this that solar projects represents already 40% of these contracts of new capacity, reflecting our strategy positioning in the increasing competitive renewables technology. Regarding offshore wind, the Murray East project in UK in which EDPR has almost a 57% stake will be equipped with 109.5 megawatt vessel turbines and is now reaching the final investment decision stage in line with the schedule to reach full commissioning in 2022. In France, the development of our two projects, Normouchy and Le Crepeorte, with a total capacity of nine ninety two megawatts in which EDPR has a 43% stake is advancing well with the granting of several required permits and we continue to track and track to reach a final investment decision by 2020 with commissioning expected to occur between 2023 and 2024. A final word before I pass to Miguel about the current context. As you know, we are still in a period of strong regulatory restriction regarding what we can comment with the market on everything that is somehow related to the preliminary offer announced by China Three Gorges the past May 11. Still an update of the process we can comment on the following. First, there are clear signals that CTG is doing the work in the context of the offer. The competition authority in Brazil, the CAD has recently considered approval. Also as stated by the European Competition Commission this week, a pre notification to the European Union merger control was filed as well. So the process is progressing. There are several necessary regulatory approvals in different where EDP operates, which the offer is conditioned and the process is ongoing. Second point, European of EDP Executive Board of Directors continues to be the one state in our report after the offer, which was released in the markets to the market on the June 9. Third, and this is very important to stress, management and everybody in the company, we continue to totally focus on shareholders value creation while keeping sound financials. As we have seen before, we have secured low risk projects in excess of our targets 2020 and securing growth post 2020. We and before you ask me, we keep of course, we maintain dialogue with CTG and expect to update the market in the first quarter twenty nineteen following further clarity on the offer. So let's be clear, we are doing what is expected from us. Thank you. And now I will pass the word to Miguel. Good morning, everyone. Now move back to nine months twenty eighteen results, just walk you through some of the additional slides. If you move to Slide 13, what we can see is that our focus on renewable energies has continued in this period with with the renewables installed capacity increasing by 3%. It means that the renewable energy in total now weighs 74% of EDP's installed capacity and two thirds of the generation mix, so already very skewed to renewable energy. In line with this, the renewable production increased 25% in the nine months of 2018 also benefiting from the strong recovery of hydro resources in Iberia over the last year, again reinforcing this idea of very much a CO2 free portfolio. If we move to the next slide, talking about EDP Renewables. The average capacity has increased 6%. The EBITDA of EDP Renewables decreased 12% to €869,000,000 including a negative ForEx impact of 3%. Excluding the ForEx, EDPR EBITDA would have decreased by 9% year on year as a result of several different variables, which I'll just talk about. On one hand, as I mentioned, the installed capacity rose 6%. However, this increase of the portfolio was offset by much weaker wind resource in the period, as Antonio mentioned just a little earlier. It was 4% below the P50 scenario and it hit the six year low, as was mentioned. EBITDA was also impacted by the 8% decrease in the average selling price excluding ForEx. This was mostly due to lower prices in Spain, Poland, Romania and The U. S. And also the termination as mentioned of the ten year old PTCs in The U. S. Led to a decrease in 11% of these revenues. Moving on to Slide 15. So you're talking about generation supply in Iberia. So excluding twenty seventeen share of lower Chemex final adjustment, EBITDA increased by 24% to €640,000,000 boosted by the strong recovery of the hydro resources since March 2018. So as a result, the hydro production has increased by 87% to 11.1 terawatt hours in these first nine months and accounted for 42 of EDP's own production. This prompted a 20% decrease in the average sourcing cost to €26 per megawatt hour, which can also be seen here. So overall, the performance of generation supply ended up being limited by the increase of regulatory costs, which was also up 29%. This is as a result of changes in Portugal announced already last year, which had impact obviously over the course of this year. And also by the end of the Quebec deviation revenues, which were still in place in the 2017. And we talked about this in a previous call. Slide 16, EDP Brasil EBITDA in local currency reached 1,952,000.000. That's a 19% increase, mostly fueled by the efficiency improvements, but also the successful hedging strategy in Energy Markets. In terms of efficiency, the trajectory of decreasing nontechnical losses in this most recent quarters was in our DISCOs. Our percent coal plant also had a very strong performance in these nine months as we were able to manage availability levels well above the contractual benchmarks and that translated into an availability premium of BRL98 million in the period. It was compared to a penalty of BRL13 million in the nine months of 2017. Finally, worth noting that these good results came mostly from the integrated energy management strategy, which reached a net amount of BRL186 million in the nine months and represented an increase of BRL135 million. So moving on to Slide 17, talking about regulated networks. So excluding the gas distribution networks, which were sold last year, the EBITDA from the regulated networks in Iberia fell 19% year on year to €477,000,000 So this decrease reflects mainly the performance in Portugal. That represents 77% of the EBITDA in this segment. So the OpEx in Portugal had a very good performance. It basically dropped by 4% year on year despite the 4% growth in volumes distributed. So I think here a very strong focus on cost reduction, OpEx efficiency and that's definitely something we will maintain going forward. However, this still was not enough to compensate for the impact of the regulatory review in Portugal, which mostly justify the 12% decrease in regulated revenues. In relation to Spain, to electricity distribution in Spain, so here the EBITDA was EUR108 million, reflecting essentially relative to stable, but just also reflecting this prudent accounting approach to a possible regulatory change in the asset base, what we've called the divisive. Moving on to Page 18 and talking about net debt. And I think there are also some questions on that. So net debt, 14,500,000,000.0 as of September, reflecting approximately EUR 1,000,000,000 of recurring organic cash flow. So the dividend coming out of this €700,000,000 is paid in the first half. And obviously, though then we have our net expansion activity in this period, which has resulted in this increase versus end of year net debt. So regarding this expansion activity, just note that it's mostly dedicated to construction of new wind capacity and transmission in and also transmission in Brazil. It also includes investment in Soesque, the sale of 20% stake of the Moray offshore wind farm in Scotland and also the sale of Costa Rica, which is a small hydro plant in Brazil. So the net debt was also positively impacted by the reduction in regulatory receivables during this period of approximately EUR 200,000,000, prompted by the sale of the tariff deficits and also just a general good performance of electricity system debt that had approximately €500,000,000 surplus in the period. As a result, the stock of debt in the electricity system reached €4,200,000,000 in September 2018, benefiting from this increase in demand in Portugal and also past cost cuts. So moving on to liquidity on Slide 19, liquidity and debt maturity profile. Here essentially the key issues are the total available liquidity is around EUR6.3 billion as of September, including EUR1 billion of cash and equivalents and EUR5.3 billion of available credit lines. So this covers our refinancing needs beyond 2020, so relatively prudent. I would like to highlight that on top of the €750,000,000 bond issue that we did back in June had a yield of 1.67%. We also did the securitization of the €900,000,000 of, let's just say, tariff deficits in Portugal. But then I guess the news from this quarter is really that EDP issued its first ever green bond EUR 600,000,000, seven year maturity and a yield of 1.96, in which I think was very well received by the market. Moving on to financial costs here. The net financial cost decreased 25% year on year, essentially as a result of first 14% decline in the net interest cost of around €71,000,000 resulting from a 40 basis points lower cost of debt and also a 11% year on year decrease on average debt. Secondly, a positive impact of €52,000,000 from results of ForEx and derivatives that were essentially tied to the evolution of the dollar against the euro. Finally, also included in these financial results, the €50,000,000 gain on the sale of a 20% stake in The U. K. Wind offshore project, which is part of our recurring sell down strategy. And we also had the negative sign of €15,000,000 from Badwill related with the acquisition of Selesc. Moving on to the final slide, so Slide 21. Reported net profit amounted to €297,000,000 in the nine months of 2018. Obviously, the significant year on year decline was very influenced by the one off impact, and Antonio mentioned that earlier in the call. So essentially, we had €558,000,000 from the sale of the gas distribution in Spain last year, which was booked in the third quarter, which obviously was a one off. And this quarter, we decided to take EUR $285,000,000 provision against the alleged passed over compensation on the contractual CMEK revenues of some of our generation plants in Portugal. Excluding the gas distribution in Iberia in the nine months of 2017 and these one off impacts, net profits in the September of 2018 increased to 2% to €570,000,000 So as we've seen over the course of this presentation, it essentially benefited from the strong improvement in financial results in associates, which increased by a total of €156,000,000 in the nine months. So overall, this positive evolution of financial results together with the underlying growth in Brazil and hydro recovery more than compensated the decline in EBITDA prompted by the regulatory changes in Portugal, retail wind resources and ForEx. So I think this is the summary essentially of our presentation. And we'll now turn it over to Q and A. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Thank you. I will start. So let's try to pull the question. So disposal of small hydro question by Carolina Dores from Morgan Stanley asking about the strategy, depending if we are going to keep this on. Manuel Palomo asking us to explain the rationale and why they are not considered core. And Roy Diaz talking about multiples of the transactions and asking if there is anything that makes these assets so attractive. So first of all, I would like to grant that agreed sales not yet closed, but cash not yet closed or cashed. We are talking about EUR300 million. We are talking about the mini hydro in Portugal. As you see EV164 for 103 megawatts. Brazil, talking about the price of million, 132 megawatts and the 50% of the electric, EUR 55,000,000. So what does it show? We are trying to reduce everything that is either subscale or as is in the case of Brazil very far away from the rest of our business. And in the case of Portugal, the rationale is of course in these subscale elements crystallizing value, reduce also our exposure to a market where if anything we are basically too big and also having more money to reinvest where we make the difference. So I think it's more or less obvious. It goes also in the same direction as we have seen, we have sold port cash in Portugal. So it makes I believe if you had all this, it shows clearly a strategy of focus. In terms of the multiples, let's be clear, it was a very dry year. So the multiple, let's be fair on an average year with typical hydro will be more towards eight and not 13 times. Okay? So as you remember, last year was very, very dry. And so if you pick a normal year, it will be a multiple of a little bit more than eight. So second question from regulation in Spain, market reform from Stefano Bezata and the question of windfall profits. Based on our discussion with the Spanish government, what should we expect from the upcoming reform on the energy market in particular, how do you expect the remuneration of hydro and nuclear can be changed. So basically, Spain for us is not very material. But as can imagine, but I would like to start by reinforcing some of the things that were said by other companies. Looking at this and then talking about easily about windfall profits is basically wrong, not to say more than wrong. Typically, assets are not fully amortized. They can be old, but they are not amortized. They cannot they are not young from the last week, but they And so they need to be amortized according to the user's life. And by the way, a lot of those operators, including ourselves, they did a lot of investment to replace equipment. So none of these, the first thing that I would like to stress is if this stock doesn't make any sense. But going back to Portugal, as in Spain is not a critical issue for us, we have a net asset book of hydro plants of EUR4.8 billion, so it shows that clearly they are not amortized. The number of years that we still have of hydro concessions on average weighted by megawatt is up to 2,056. Third element of our hydro plants already paid extra device $300,000,000 be more exact $328,000,000 the clawback, the social tariff, the sales already paid, all these together represents $328,000,000. A detail that is very relevant is the CapEx in the new hydro in the last ten years was close to EUR 3,000,000,000, so clearly not amortized. And finally in Portugal, the concessions were bought, paid by the operators, including of course EDP and in Spain, it was not the case. So if anything this by the way, it does make sense to talk about in for profits and even less in Portugal. So just to be clear about this question. So moving to the third one, Javier Garido, JPMorgan regulation, what do you expect when do you expect us to update the calculation of clawback in Portugal? How do you think this calculation can change following the change in generation taxes recently approved in Spain? Of course, the clawback was there because of the tax in Spain. So once the tax in Spain goes, it's obvious that the clawback must go. So and by the way, we cannot expect that the clawback could be again, because there is a distortion that was already existed when social tariff and sales were not considered part of the mechanism. So clearly, expectation is Portugal follows Spain because Quebec existed to eliminate distortion between the two markets. So typically as peer review of the Quebec adjusts as part of the rule, we look forward to know in detail the 2019 tariffs and clearly what we expect is the clear alignment to the Spanish situation. So we should know this very, very quickly. And the signals that we have is of normality, it's what I want to share with you, Javier. First question from also from you, from Javier. We have seen recently a significant increase in clean, darkened and sparked spreads in Iberia. Do you think these higher spreads will persist in 2019? When would you benefit from the increase in light of your hedging policy? Hedging policy, we have 17 terawatt hours for contracted declines for 2019 at EUR 58 per megawatt hour average price more €3 versus 2018 and this does not include index volumes of two terawatt hours. Already secured average thermal spread at high single digits per megawatt for around 40% of expected coal production. Thermal spreads for 2019 are tighter than 2018. But clearly, when we talk once again, this 58, as you know the difference between us and the others when we talked about 58 and not when you compare these to excludes realized price profiling, supply margin, ancillary services and grid losses, which altogether can add between ten and fifteen to our final average selling price for the next year. So let's compare apples with apples just to remind you also Javier about this. Fifth question, CTG offer, Caroline Doris from Morgan Stanley. First, besides Brazil as the CTG transaction received any other regulatory approval. The question is yes. I don't want to talk because it's not from us to talk about this, but clearly in a lot of countries, as you know, I believe there were 14, so a lot of them. And as I mentioned, they had already been the pre filing in Europe, because the most important is, of course, Europe, everything that is competition and then Berlin and U. S. And this I have conveyed is, we see that they are doing what is expected for them in those filings. The rest of course, the smaller ones are already behind us. So typically, they are focusing in what they need to focus. Let me see if I may handle all the questions. No. Miguel, you can Okay. So some questions here on balance sheet and from Rui Diaz and Manoppolo and also Carolina Dores. So essentially around the targets and evolution of debt, I mean clearly there has been a drag on the results from regulatory changes. I think that's clear. We have also managed to balance growth, the dividend policy and deleverage. One of the questions here is relating to how we would address the issue of the leverage. And I think what we've managed to show is that we have attractive growth opportunities. We continue to pay down debt. We continue to invest. We have been doing asset rotations where we are selling assets when we think we can crystallize value and reinvesting that capital back into the business into new opportunities that can create growth and value. The question here from Palomo specifically talked about the free cash flow in the nine months is €1,000,000,000 The CapEx net is €1,000,000,000 Hence, the dividend continues to be paid through debt. So how do you effectively achieve your guidance? I would think a little bit about this slightly differently. I think about it as the free cash flow pays the dividends and part of the expansion CapEx and the rest of the CapEx is financed through debt, but it's because projects, you're financing growth, you're financing future cash flows. And essentially, if we're doing this in a profitable and value creating way, then it makes sense. Overall, we expect the our net debt EBITDA ratio to keep coming down over time and trending towards our guidance. So that is something which has been done obviously over And we will manage this balance between deleverage, growth and dividends. And I think that's we'll do what creates most value for the company and for the shareholders. Caroline asked specifically, given EDPR's accelerating investments above the level of the strategy plan, what level of net debt do you expect for twenty eighteen, nineteen? So we finished the third quarter with 14,500,000,000.0 We expect this to come down in the fourth quarter to 14,000,000,000 or even possibly below. And going forward, for it to be relatively stable to decreasing over time. So I mean that's the trend and that's how we're managing the business going forward. Maybe just a comment maybe on the mini hydros, which was also mentioned, I would just like to answer also one of the questions which came up or a specific one, which is mini hydros in Portugal have a relatively short residual average concession of around fourteen years and quite a high tariff. So that also explains the multiple, which is being put forward. As I say, it depends very much on the hydrology and Antonio has talked about that. But also bear in mind, the shorter residual average concession life and the higher tariff. I'll pass back to Antonio. You, Miguel. Going back to a question on Vicorino Doge, does EDPR EBITDA in first quarter include capital gains from disposals? If so, can you clarify? Carolina, note that our sell down strategy in renewables is considered as a recurring part of our business. I would say a second business line of our renewables since the biggest since several years ago. And some gains from sell downs will occur in fourth quarter. This is reflected in our guidance. And so it's day to day business now. It makes a lot of sense because you crystallize value, you can de risk, you fund new growth. So and you have always a gain between the moment where you invest at 6% and then you place at a lower remuneration. So clearly, were lower yields. So it's make a lot of sense and it's included in guidance. I have a question from Juan Reich from Argos Media. What is EDP view on the Portuguese energy regulator has proposed changes to increase efficiency in the local electricity market, especially opening up the purchase of PR special regime output to third parties companies and thus ending EDP universal SU, so last resort exclusivity and transferring the task of putting together the daily schedule generation from this special regime from EDP into RAN. Though this, if it's the case, both, it would be good news. So because of course, the first is associated with the creation of tariff deviations and the second is of course the responsibility of calculating the rights, the resources. So if it's the case, it's basically good news and it should be like this by the way. Also from Alfalda Pombeiro from GP Capital, Regarding your strategic update plan, are you thinking about presenting it in the near future? As I already told you, Mafalda and everybody, we maintain a continuous dialogue with, of course, CTG. You know our report. You know what is expected from us. We have stated what we are working on and expect to update the markets, including because of these regulatory issues that were mentioned prior and the implications of this at the beginning of next year following further clarity. So, clear we'll be talking about the future in the first quarter. Just another two questions here on more around the balance sheet and rating. So one question from Eric Haj from Zurich. Given the significant increase in debt, are you still committed to investment grade ratings? The answer is yes, definitely. So that is a strong commitment by management to be investment grade. Another question from Carolina specifically on the level of regulatory receivables that we expect to have in twenty eighteen, nineteen. So this is stable to decreasing. To be honest, there's quite a lot of appetite in the markets for this. We can sell these regulatory receivables when we want. It depends on market conditions, on price, we will go on doing that as we see the opportunity to do it. But it's clearly something which we've been managing and you've seen the conditions in which we've been able to do it over the last couple of months. So we expect to continue doing that going forward. So thank you, Miguel. As final remarks, I would like to say that, of of course, we are in a period where we are under an offer, but we are doing what we need to do and what we committed with everyone in the market. Visibility on the growth, I think it's important. We have been able to everywhere we have committed in renewables in Brazil, we have been committed clearly to give visibility almost with the earmarked projects and of course goals and trying to anticipate everything. We did anticipate our targets and we will anticipate the targets for renewables. We are anticipating the targets for Brazil. So visibility on growth is something that I think that we have been performing rather well. Efficiency, it's true. We have been once again always doing more than we have at least slightly more than we have committed and we are very focused on this and I think the figures already show this. Focus and assets reshuffling, you have very sometimes smaller, sometimes bigger, but you see everywhere that we are moving in the directions that we you should expect from us, selling subscale business. Sometimes these deals take a lot of time, but they are meaningful in because they prove what we really want that we don't have any constraints in what concerns looking at the assets and there is no motion there is what we do, what we need to do. And biomass, the mini hydro is in Portugal, in Brazil and also what we are doing in terms of calm downs, asset reshuffling in EDP Renewables shows that we are very focused on this and this clearly is part of the business. The asset reshuffling in a changing world is clearly part of the business and will be each time more part of the business because the sector is changing so fast that you need to work on this. We keep also very focused on the markets and the importance of clients for the hedging, the question of the supply and how you treat not only retail, but also your industrial clients providing solutions, all the digital revolution that we don't show it a lot, but I think it's clearly one of the things that we have been presenting results and this shows appears on our not only in our market shares in the markets where we are obvious. What we have been doing in this in slides, the solar and solutions for clients in Iberia. In Portugal, we have a market share that is really, really approve of this, but also in Brazil, but also in other European countries where we already started with our strategy of integrating supply with the renewables part. So it shows that we are anticipating what we need to anticipate and we are doing I'm sure that you are you would like me to give more details on the offer, but it's what it is. It's we are restrained, but we are not absolutely zero restraints in what concerns many of the company, give visibility about its future and we will be meeting soon. So thank you again and have a nice weekend. Bye bye. So that does conclude our conference for today. Thank you all for participating. You may all disconnect.