Earnings Call: H2 2016

Mar 3, 2017

Summary

2016 EBITDA reached EUR 3,759m and net profit EUR 961m, beating revised guidance; recurring EBITDA grew 6% and net debt fell 8%. The 2017 outlook remained intact, supported by capacity growth, hedging and lower financing costs.

Hello, good morning, everybody. Thanks to be on the phone for the conference call on our 2016 results. My first words would be to highlight that I like the figures that we have in front of us. We have full delivery of all our commitments for the year in all the key financial metrics. The first page, I think, it shows it rather well. in May, when we met in Investor Day, we had given a guidance that was already, at that moment, slightly above consensus. We revised the guidance in July, and we are now presenting figures that in our lines are better than the guidance that we have given, revised in July. I think it's important to show that this comes not only from above the line and also from below the line. I know that there are people that don't like below the line, especially when there are positives, but clearly you have to deliver this. Deliver above the line, and we will see that we have done it, and we have also delivered. To deliver, you need to do it below the line. Let's go through this presentation and to show exactly why I mean that these figures are good. Our EBITDA reached EUR 3,759 million, supported by a good performance of energy management, hydro production in Iberia, and a 6% increase in average installed capacity, reflecting the commissioning of new hydro and wind capacity. Our net profit stood also above our provision guidance at reaching 961, benefiting from the outperformance at EBITDA level, but also the 14% decline of interest cost. Below EBITDA, in 2016, we have several negative one-offs on financial results, mostly related to the anticipated payments of some more expensive debt, and a similar amount of positive one-offs at the tax level, which together compensate each other, resulting in an almost neutral impact at net profit level. Basically, I believe that a lot today will be about one-offs and about debt. Let's start with the debt. We have also outperformed on our commitment for net debt. Of course, strongly due to a strong free cash flow generation and the 62% decline on regulatory receivables, taking advantage of the strong appetite in credit markets for tariffs, debt, and sales. Let me help you in these figures. When you see the 15.9, we have to consider four elements that I would like to stress. The first one is EUR 300 million extra payments in terms of taxes, where obviously, not only it's already paid, but due to the fact that they have a positive, interesting present value, we are doing what we need to do management-wise. It was a management decision that creates value. But of course, in the short term, you see this impact in the debt side of EUR 300 million, but it makes all the sense. The second is EUR 100 million provisions that were transferred to the pension fund. As everybody knows, or at least they should know, EV doesn't change, and in any case, it's positive. You have also EUR 100 million of prepayment of debt or early debt, more expensive, that I believe it's also, again, a good management decision, and it should be taken into account. Finally, you have EUR 300 million of FX effect. Clearly, you have EUR 800 million, 500 of them that makes a lot of sense management-wise. It was decisions that we have taken that create value for the shareholders, and of course, affect this. Trying to read this without taking in attention what makes sense for the shareholder value creation, I believe it is not the best way to look at it. In what concerns the dividend, I think also the last line in the first page, as we have stated, we propose an increase of 3% to EUR 0.19 per share. That corresponds to a payout of 72% inside the target payout range for the year. We are doing exactly what we have committed in May, once again, in Investor Day. I believe that we have been doing this for the last 10 years. I think it should be reassuring that when people do what they say for a decade, I think, especially at the dividend policy, but everywhere, it helps a lot of people feeling relaxed. Now of concerns slides 2. Let us start with recurring EBITDA. We can see that excluding one-offs, recurring EBITDA grew 6% based on the portfolio expansion and efficiency improvement, and including a 1% negative impact from Forex. Let us move business by business. EDP Brasil recurring EBITDA reflect a 4% average depreciation of the real versus the euro, and then 3% decrease of recurring EBITDA in local currency, penalized by demand decline in distribution, in the regions where we operate, but it was overall in Brazilian market. EDPR contribution to EDP increased 8% as a result of a 11% increase on average installed capacity and wind volumes 4% below historical average. Sometimes we speak about weather, and we have seen people have talked a lot, and we have talked a lot about rain in the beginning of the year, but then we have lower wind than usual, and as we see, the last quarter, also weather-wise, was not fantastic. It is important to see, what is recurrent or non-recurrent. Clearly, in EDPR, we have this effect. Regarding our Iberia business, it grew by 9% above the EBITDA growth of the whole group, supported by the strong contribution of energy management, the growth in hydro production, the increase on regulated revenues in electricity distribution in Spain. I think it is a good news also, where our market share, in terms of new revenues, was much bigger than our market share in terms of the part of the sector that we have. Finally, the good performance in terms of operating costs, as we can see in the next page. Moving into costs. In terms of efficiency, the measures associated to our OPEX IV achieved EUR 105 million of savings in 2016, 22% above the target presented last May. Once again, this good performance was supported by all key business areas. In Iberia, which represents 58% of our operating costs, total OPEX remains flat, despite the 1% increase of average installed capacity and the 2% growth in number of customers. At EDPR, the ratio for OPEX per megawatt installed decreased by 5%, reflecting not only the economies of scale, but also the good results from the insourcing strategy of parts of the O&M services, mainly in U.S. Finally, in Brazil, operating costs in local currency on a pro forma base comparison decreased 2% year-on-year when adjusted for inflation as a result of a 4% increase of pro forma OPEX in local currency and a 6.3% inflation in the same period. I like to talk about costs because we have now the ratio of net OPEX over gross margin on 27%, the lowest ever, and I believe that is clearly a reference in the industry. Let us move into slide 4 with net interest costs. Last year was also marked by a steady decline of net interest costs, a 14 percentage reduction as a result of a 5% decline on average debt and a 30 basis points reduction on average cost of debt. As you can see in the chart, we continue to access the credit markets for long-term maturity at the marginal cost of debt much lower than the 4.4 average cost of debt showed in 2016, and also clearly below the 5% average of our debt that was reached and will reach maturity in 2016 and 2017. Taking into consideration the prepayment of some of the more expensive debts over 2016 and 2015, namely through the bond buyback closed in the last quarter and the prepayment of project finance at EDPR and EDP original levels, we expect to decrease our average cost of debt to 4.3 in 2017. I think that clearly it was a good year in what concerns liability management. On slide 5, let us go to the second topic that I like to address here clearly after that. Recurring net income. Net profit, and we have two ways to show it, on the left and on the right. If you see, we have an increase of 23% of EUR 169 million, supported mainly, as you can see, by the growth of recurring EBITDA, but also by the improvement of recurring financial results. At the EBITDA level, there was a significant contribution from our Iberian operations, as we have already mentioned, demonstrating the value of portfolio diversification. As to the recurring financial results, the contribution to earnings growth was prompted by the 14% decline on net interest costs, which offset the reduction in financial revenues related to regulatory receivables and assets under construction. Let us take another 30 seconds. Even if you put the recurring net profit at 850, a figure that, by the way, we have mentioned in May, taking into consideration the hydro situation. Basically, you would have also 8% increase on recurring net profit. You can pick those numbers, either 8, either 23. In any case, both of them are clearly above the 3% that we have committed on average to grow between 2016 and 2020 in the business plan. Whatever the perspective, whatever the viewpoint, we are clearly above what we have committed last May. Outlook for 2017. We continue highly confident that we will continue to deliver financial performance fully consistent with the targets established in the business plan. 2016 has proved it very strongly, and we feel comfortable to do this until 2020. In Iberia, our EBITDA performance will benefit from further growth of activity. In generation, average hydro capacity will continue to increase, with one hydro plant commission in the first quarter 2017, and the last one that still remains under construction, expected to be commissioned by the summer. In the supply business, we continue to see a low single digit in terms of the number of contracts. In terms of market environment, we will have a tough year-on-year comparison, the strong performance in 2016. Of course, it's raining a lot and a lot of wind outside the room where we are speaking. Although the market environment in the first 2 months of 2017, marked by low hydros, were not favorable to our portfolio, hydro, we don't anticipate any deviation from our previous expectation for 2017. Let's be clear. Given our strong hedging positions for the year, namely in terms of fuel procurement costs and increasing EBITDA contribution from our thermal plants. We will continue to also focus on delivering our commitment in terms of control of operating costs, not only Iberia, but in all the subsidiaries. At EDP Renováveis level, the expected increase between 7% and 9% of the average installed capacity, benefiting from the capacity additions in 2016 and 2017, will support a sound EBITDA growth, while at the level of EDP Brasil, the positive impact from the Escelsa review will support EBITDA growth and distribution. In EUR terms, we expect a positive impact from the Brazilian real appreciation, taking into consideration the strong performance versus the EUR over the first 2 months of the year. Clearly, what we see in the first 2 months is the portfolio value. The fact that we have a diversified portfolio has been very important for us in the past, is important in the present, and is important for the future. At earnings levels, as we have already said, we expect further positive contribution from the decline in the average cost of debt, expected to decrease at least 10 basis points. Moving to slide 7. I would like to say on track to deliver the 2020 targets. We are clearly very well on track, I would say we are more advanced than we expected in May in what concerns delivering those targets. The delivery of renewables capacity additions continues evolving as scheduled in terms of timing and as budget in terms of cost supporting and the growth of recurring EBITDA. Note that the growth of 6% in 2016 is the double of our target, as I already mentioned. Regarding the leverage, we moved faster than planned regarding the reduction of regulatory receivables, taking advantage of the market conditions. Improving significantly our non-adjusted net debt/EBITDA ratio and reducing our absolute net debt figure by 8%. I think that nevertheless, the negative Forex impact on both sides, net debt and EBITDA, the anticipation of CapEx in order to secure comfortable safe harbor growth options in U.S., that as we have been explaining in the area of renewables. Third, some one-off tax and pension fund payments imply that our adjusted net debt remains still just slightly below four times. But once again, totally consistent with our 2020 targets close to three times. Regarding efficiency, we are already ahead of the targets presented in May, and we expect to continue to outperform those targets in the next couple of years in order to be able to beat the EUR 200 million targets for 2017 of annual saving, more than the EUR 700 total cost saving for the period. Finally, in terms of delivery of attractive returns, we were ahead of our EPS target for 2016, and we expect to continue to benefit from our diversified portfolio of high-quality assets over the next couple of years, allowing us to be confident on the delivery of our sustainable and predictable dividend policy, where we have been always doing what we have prior said. Our commitments are always delivered based on the target payout between 65% and 75%, with a dividend floor of EUR 0.19 per share. Clearly, when we look into a utility, what do I like to see? Asset allocation. Are you putting the money where it makes sense? Are you going for projects where the returns are feasible, or are you diving into the pool just to show megawatts? It's not our case. Clearly, I think allocation is in the right place and the right dose. Are you doing what you need to do cost-wise because it's what you need to do? We are doing cost-wise what you need to do. Are you doing also below the line, everything that you need to do, interest rates, tax, everything? Are you doing what we need to do and we are supposed to do? Yes, we are doing. Clearly it shows that as we have been doing in the last 10 years, once again, it was a number that I saw yesterday, in the last decade, we have been around for more or less 10 years. We are the second-best utility in total return to shareholders in terms of integrated utilities, and it's our intention is to keep the same track record. I think that 2016 figures are good figures. I like what I see in front of me, but I also agree that we need, and I've tried to do this already, but then Miguel will go through the third presentation, focusing on some of the issues that probably people need to be really well explained, namely one-offs and below the line. Thank you, Miguel. Go through and then I'll come back for the final remarks. Thank you, António. I will start with the capacity of generation in terms of our portfolio. Our installed capacity increased by 4% or 6% on average, following an increase in terms of the weight of wind and hydro in Portugal, 0.8 and 0.4 gigawatts respectively, and also the shutdown of one coal plant in Spain. Regarding electricity production, it increased by 10%, following the improvement of hydro resources in Iberia and the new wind and hydro capacity additions. We reached the end of the year with hydro and wind representing 72% of capacity and 65% of the output. Looking to the market environment, in Iberia in 2016, we see that electricity demand went up 0.6%. Hydro production also increased by 42% on strong growth of hydro production, so 33% above historical average in terms of average hydro year. These strong hydro volumes justify a 21% year-on-year decline in terms of the average pool price to EUR 40 per megawatt hour in 2016. Moving to the EBITDA performance of the main business areas, we can see, starting with generation and supply in Iberia, we had an EBITDA growth of 13% year-on-year, following the referred hydro resources above average. Our hydro capacity increased 7%, and our hydro production in liberalized market increased by 98%, but also a good energy management result with a decline in terms of the average sourcing cost by 23%, following average generation cost decline of 30%, and the hydro weight in generation mix reaching 43%. We have also benefited, obviously, from the long market position on clients, with electricity production in 2016 representing 56% of electricity volume sold to clients. Moving to regulated networks here, our EBITDA went down 4%, impacted by this one-off gain of EUR 89 million of the sale of Gas Murcia in 2015. Adjusted for this, EBITDA went up 5%, supported by improved remuneration of electricity distribution in Spain, and also a good performance in terms of costs. Moving to EDPR. In renewables, EBITDA went up 3%. Nevertheless, excluding some gains in 2015, related mostly with ENEOP. The contribution of EDPR to EDP's adjusted EBITDA increased by 8%, based on 11% average capacity increase, mostly in U.S., but also with some contribution already from Brazil and smaller from Mexico, installed at the end of the year. Also a wind production, which was 4% below historical average, with a strong decline in terms of wind resources in the fourth quarter 2016. Finally, in Brazil, also our recurrent EBITDA in local currency decreased 3%. Here excluding the gains on assets and acquisitions, which were quite significant in 2015 and still relevant in 2016. The recurrent 3% decline includes strong growth in generation, following a strong decline in terms of hydro deficit costs, which were very significant in 2015, but almost immaterial in 2016. Also, the consolidation since May 2015, so we have full contribution in 2016. Distribution, we had a decline, given that our operations were penalized by lower demand in the regions of our concession areas. A demand decline of 5%, which was also one of the reasons for higher losses regarding over-contracted energy volumes in distribution. Moving to the evolution of Portugal's electricity system debt receivables. We can see that the system generated a net surplus in 2016, a surplus of EUR 118 million, which is the second year in a row of a tariff surplus. For 2017, this surplus is expected to increase to EUR 0.5 billion according to the regulators forecasts. The market evolution in the first two months of the year show that until now, the numbers in the market are more optimistic than the numbers that the regulator assumed for this year. We have a stronger demand, so 1.5% demand growth. Pool prices are higher, and the renewable volumes are lower, meaning that the cost of the regulated system with the over cost with the renewables and with special regime production, should be lower than assumed for this year. At least this is indication that we have from the first two months of the year. At level of EDP balance sheet, regulatory receivables in 2016 went down by EUR 1.5 billion. Big contribution from Portugal, a decline of EUR 1.2 billion, following the significant amount of sales of regulatory receivables to third parties, and also the referred system tariff surplus in 2016. We had also the contribution from Brazil with a decline of EUR 0.3 billion, following energy costs below tariff assumptions in Brazil. Moving to net investments. Our net investments decreased by 30% to EUR 1.2 billion, impacted by close to EUR 1 billion of sales of minority stakes in wind farms in U.S. and in Europe. While our amount of CapEx went up by 10% to close to EUR 2 billion, reflecting expansion investments, significant growth in wind due to investments related with the safe harbor clause in U.S. Also a decline in expansion CapEx in hydro in Portugal, following the stage of conclusion of the works in the four hydro plants that we are finishing in 2016 and 2017. Maintenance investments were mostly related with networks, but included also, in 2016, a significant amount of pluriannual works in Iberian generation, which were concentrated in 2016. Moving to our debt profile. The mix of consolidated debt by currency was quite stable, so close to 70% euros, 20% dollars, less than 10% in reais. We have extended the average debt maturity from 4.8 years in 2015 to five years in 2016. Regarding financial liquidity, it amounted to EUR 5.3 billion, including EUR 1.5 billion of cash and equivalents and EUR 3.7 billion of available credit lines covering the refinancing needs beyond 2018. In terms of financial results breakdown, we have already seen the very strong performance in terms of net interest costs. We can see also that excluding one-offs, namely the EUR 74 million in 2016 related with the anticipated payment of more expensive debt. We can see that net financial results went down by 5% following the already referred 14% decline of net interest costs with a strong positive contribution. Which were then partially mitigated by a decline of EUR 64 million on financial revenues related with regulatory receivables, mostly related with the 62% decline of the amount in balance sheet and also the lower returns of these receivables. Also a 26% reduction in terms of the amounts of capitalized interest related with the commissioning of the hydro plants in Portugal. Other financials include some negatives in 2015 and 2016. In 2015 related with the Forex, and in 2016 related essentially with energy derivatives at EDPR level. Moving to the next slide 21 on the evolution of net debt. We can see that net debt went down by 8%, EUR 1.5 billion, which is explained by EUR 1 billion of recurring organic free cash flow. Here we are including interest costs, recurring taxes, maintenance CapEx. Also obviously, the EUR 0.7 billion of cash dividends paid to shareholders, paid in May 2016. Then we have EUR 0.1 billion net impact, which includes here, as we referred before, not only the expansion CapEx, the disposals, the tax equity investment proceeds, which are fully in line with the business plan, but also EUR 0.3 billion of one-off tax payments done in 2016, EUR 0.1 billion of extraordinary contribution to the pension fund in Portugal, and also EUR 0.1 billion of costs with prepayment of debt. On top of this, we had obviously the already referred significant contribution of decline of regulatory receivables, EUR 1.5 billion reduction, and also the negative impacts from the stronger real and stronger dollar, which impacted the net debt negatively by EUR 0.3 billion. I would highlight that our net debt/EBITDA ratio goes down from 4.4 to 4.2, supported on decline of regulatory receivables. Adjusted net debt/EBITDA has slightly increased from 3.8 to 4.0. Also, I would highlight that this ratio is significantly penalized by the Forex evolution, given that although the real has been stronger in the recent months, the truth is that our EBITDA in 2016 is penalized by 1% because of the real average depreciation, namely at beginning of 2016, and also we have the full negative impact on Forex in our debt. Finally, regarding net debt breakdown, we can see that following the EBITDA performance, 4% decline but 6% growth on recurrent financial results and income taxes with a flat effective tax rate adjusted for non-recurrent and financial results with improvement of 5% excluding non-recurrent issues, result on a net profit increasing by 5% or the recurrent net profit increasing by 23%. Following the presentation, we can go to the Q&A session, please. Thank you. As a reminder, if you wish to ask a question on the phone line, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the hash key. Again, that's star one if you wish to ask a question on the phone line. Your first question on the phone line comes in the line of Rui Dias. Please go ahead. Hi, good morning, everyone, and thank you for your time and for taking my questions. I have three questions. The first one is regarding your 2017 outlook. Could you just please give us a bit more detail on the expected EBITDA evolution in Iberia, particularly? Q4 was extremely weak. Q1 has been weak as well, and I guess that the question is how well do you think 2017 could go based on the current market conditions? This will be the first question. Secondly, regarding your 2020 targets, and apologies if I'm missing something here, but if we combine your EBITDA growth targets with cost savings, lower debt and lower cost of debt, I can't match your bottom line growth targets. It looks too conservative, unless you expect some negative impacts in the meantime that would offset an otherwise stronger performance. You could give us some color on that. Also, you are assuming a cost of debt of 4.2%, just slightly below 4.4% that you recorded in 2016. But given that you have 60% of total debt to refinance until the end of 2020 at probably half or at 25% discount to this current debt cost, isn't this also too conservative, this 4.2%? Finally, final question on natural gas. I understand that there are no talks to sell these assets at the moment, but is this option on the table? Under the scenario that you would sell the assets, where would make sense from a strategic point of view to allocate the potential proceeds? Thank you very much. Hi, Rui. Here is Miguel Viana on the performance of 2017 in terms of outlook in Iberia. I would say that on the regulated part of the business, no news. We will continue to do our work in terms of efficiency. If something, the rate of return can be slightly better in terms of evolution of 10-year bond yield, but not a big impact. On the generation and supply, the first 2 months, as we said, and it is public, it is below the average production in terms of hydro. So we are in Portugal the first 2 months, 0.63 of average production for this month. But it is also true that the thermal production has been doing very well. We benefit this year from procurement of fuel at very competitive costs with the closing of fuel procurement in the beginning of 2016. Part of what we lose from lower hydro production, we will compensate with very healthy margins in thermal, given the good hedging that we did. Having said this, I think the portfolio effect that was referred, even if generation supply can be slightly lower than what was the base case, I would say that we have other areas, namely Brazil, which is doing quite well. Take care of the 2020 targets and interest rate. As far as 2020, what António mentioned over the call was that right now we are ahead of the game. But we see no reason, and it is too early to start changing 2020 targets. So we are ahead of the game, and we intend to keep it that way, but it is too soon to change. Now on the specific on the interest rate, we had guided in 2016, 4.4% for 2016 and 2017. We have already reduced the 2017 to 4.3%. If rates stay where they are, you are right, probably the 4.2%, 2018-2020 average rate is too high right now. I would have to agree, but we are not revising. We are revising 2017 already to 4.3%. If we see fit, then we will do it later on. But looking at it today, it looks a little bit too conservative. You are right. And about your first question and the answer of Miguel. Clearly, it means that we feel comfortable with the consensus of EBITDA for 2017, and we do not have any reason, even with lower rain in January, to change anything. Clearly, again, I want to stress this. We feel comfortable with the EBITDA for 2017. In what concerns Naturgas, it is our duty to, of course, study all the options concerning our asset portfolio. I think that we have been doing this in a rather good way. We are watching, of course, what is going on in the market. We are curious about what is happening in the gas sector in Spain. We are following it attentively. But all I can say today is that we have not taken any decision concerning whether or not to go ahead with any eventual sale of Naturgas. We follow this very attentively, as you can imagine, but we have not today taken any decision. Thank you. Thanks very much. We can go to the next question, please. Thank you. Your next question comes to the line of Stefano Bezzato. Please go ahead. Yes, hi. Good morning. Two questions, if I may. The first one is on the taxes. Given that you are showing the energy taxes a non-recurring item, what is the likelihood of this tax to be removed, and what could be the timing? Is there any update there? The second question is on the securitization of the Portuguese receivables. Do you have a target for this year? In general, how do you see the interest in the market given the recent increase in interest rates? Thank you. Okay. Let me start with the tariff deficit. The target is to do roughly about EUR 1 billion of securitization. The market is at least as good as it was last year. We continue to see demand, and the prices are, if anything, tightening as compared to last year. We see no reason, at least for now, not to do the EUR 1 billion that we have planned for the year. In as far as taxes are concerned, I am not sure I understood fully the question, but let me try to give some color on it. Part of it is nothing different from what was done in the past, which is, you pay up front, and then you have a lower cost on the taxes going forward. Essentially, what you are having here is, you pay the certain amount up front. That's cash out, and you have to book the present value of the fair value of those cash flows. And that's why you book a positive. So essentially, the interest rate or the IRR that we have by paying up front and getting a tax reduction going forward is a positive today, and that's why you book a gain. But in terms of cash, it's a negative up front. Actually, my question was on the energy tax on the EUR 62 million. But I think that what Nuno mentioned, I think it's once again very important because it's value creation. In what concerns the sales, what we have today as a sign is that as the extraordinary measures are being, let's say, reduced or eliminated elsewhere, we expect movements as it was already the case. As you know, when we presented, we have considered that we would do in May, we talked about keeping the 100% tax in 2016 and the reduction in 2017 and 2018. So, and vanishing until 2020. So we have no reason as we speak to believe that that perception and that movement will be done. So we expect a progressive reduction until canceling in 2020. We have to see if it happens, but we have no reason to change our vision that we have presented May last year. Thank you very much. We can go to the next question, please. Thank you. Your next question comes on the line of Jorge Guimarães. Please go ahead. Hello. Good morning, everyone. Sorry, just like to go back to the guidance issue. Your subsidiary, EDPR, just changed its depreciation policy from 25 to 30 years. That should, on its own, would allow for an increase in guidance. This question is related also to what Rui asked before. You are maintaining the guidance. Can you help me on explaining all this math? Because it seems to me that on an underlying basis, you are reducing your earnings guidance for next year, or at least not raising it as substantially as it would. Is it related to this tax anticipation effect of receiving now and then the tax rate increasing much faster over the next years? Is it financial cost? What am I missing on this? Sorry to be so direct on this question, but well, as of now, stock is down 5%, so maybe this is related to that. I don't know. Thank you very much. Thank you for the question. It is a good question and the answer is also very clear. When in May, we are told that we were analyzing that option. We have not rushed it. It had no impact in 2016. But when we talked in May, we already considered the impact for 2017, 2018 onwards of that revision. Eventually, slightly below what is now reality, but it was already included in the guidance. It means that it was already in the figures that we shared with you up to 2020 last May. We are not revising elsewhere anything. It was already there, as we have mentioned in May, and I just want to reassure this, that was already included in the management presentation. But thank you for the question. It helps us to clarify. We can go to the next one, please. Your next question comes a line of Carolina Dores. Please go ahead. Hello. Good morning, everyone. Thanks for taking my questions. I have three. First one, could you walk us through what you expect for deleveraging 2017? I understand probably your FFO should theoretically improve because you do not have as much one-off payments as you had in 2016. On the other hand, I am not sure if you are counting on as many disposals, so a bit of color of that would be helpful. Second question, Nuno, what are you expecting for tax rate for 2017? My third question is that commodities have moved a bit. If you can comment on what, ideally for 2018, because it is a full year without CMEC, what do you expect to be the cliff on EBITDA coming from the roll-off of the CMEC? Thank you very much. Tax rate for 2017, roughly 20%. Right now, in as far as the debt, all we are saying is every year going forward, we will see the debt reduction. What we are talking about or as a number today, we would expect to see EUR 300 million-EUR 400 million lower in 2017. In what concerns the CMEC, we have no reason to change what we have been sharing is that the cliff should be around EUR 50 million in the year of post CMEC, Carolina, as we have shared already 6 months ago. Okay, thank you. Thank you. We can go now to the questions on the- On online. Online. We have one question from James Sparrow, BNP. Can you show the movement in adjusted debt and explain the increase in adjusted debt to EBITDA? Essentially, the number goes up slightly, but that has to do, if you leave the extraordinaries of 2015 in the EBITDA, it goes up a little bit. If you take them out, then it improves. It's just a question of the big gain that we booked in 2015 in relation to the Brazilian asset. In terms of ratios, it improved slightly from one year to the other. On the last question, spot prices in Portugal, January, February, they've been above last year's. What's the outlook for 2017? Essentially, as most of you know, since the fourth quarter of 2016, and until today, we had several aspects which pushed the spot prices up. Namely, the nuclear stoppage in France which made the Iberian Peninsula be going from a net importer to a net exporter, so increasing the prices. On top of that, as we have already mentioned, there has been a lot less rain than average, pushing the prices up. But if we look at the prices for the days coming, we are back to the 40s. That is the level at which we would expect it to normalize during the year. I do not know if we have more questions on the line. We have one more. I think we have one more. So for our last one. One line here. Neil. Your next question on the phone line comes the line of Neil Beddle. Please go ahead. Thank you. Hi, folks. Apologies if I'm going to ask the same questions that have been asked before. I'm not sure whether I am or not, to be perfectly honest. I'm looking purely at the cash flow for the year. One of it is to do with the tax aspect of it. So your tax actually paid has gone up quite significantly to over EUR 620 million for 2016 from 140 odd. Is that an ongoing thing? I assume that relates to what you were talking about, that you pay tax up front and then the IRR is better. But is that something that you do on an annual basis? Is this just a one-off for 2016 and then the tax payment will actually go down quite significantly for, say, the next 2, 3 years or however long? The other question was just on the securitization of the regulatory receivables, which looks to me as if it accounts for a fairly significant proportion of the improvement in working capital. Am I right in assuming that if you continue to securitize at the EUR 1 billion level that you were talking about, we'll see a similar improvement in working capital for 2017? If that's the case, does that actually mean that the regulatory receivable is then effectively eradicated in 2017? Or does it continue to increase by about EUR 1 billion for you so that it takes a longer term to actually eventually get repaid? Okay. Let me try to answer both questions. As far as the tax, yes, this year was an extraordinary payment in 2 places, in Portugal and in Spain. So cash-wise, was Portugal and Brazil where there were extra measures that were taken, and we took advantage of those. These are not repeat transactions, so the government is not going to put this up again next year. Even though part of the payment is over 3 years, the majority of it was this year. So I would not expect this to be continuous, and I would not expect for the government to keep on doing it. Even if it did, we would not have the assets to do it. So there's a limit to what you could do. To answer that one, you should not expect this current level of taxes to be maintained cash-wise. Okay. So it should go back to more historic levels, should it? Yes, it should go back to about EUR 300 million-EUR 350 million a year. That is why we say there is an extraordinary cash payment of about EUR 300 million this year. Right. Okay. Okay, great. As far as the tariff deficit is concerned, what you have is the system is still generating roughly EUR 1 billion of deficit which has to be paid for, but you have a surplus. The surplus today in the system is EUR 500 million, sufficient to pay the EUR 1 billion, and then it generates a surplus of EUR 500 million. Meaning that if we sell EUR 1 billion by the end of the year, we will end up with the same amount. I know this is kind of confusing but what you are having is every year the surplus gets bigger and bigger, and that is why we show the system deficit going down from EUR 5 billion to EUR 4.5 billion next year, and then we will keep on going bigger and bigger. In essence, what you are going to have is the deficit that we need to sell being smaller and smaller in every year to remain the same in the balance sheet, but we are not expecting it to disappear prior to 2020. Okay. That is what we have been guiding, and that remains still the best guess today, is that the system will still have a deficit by 2020, and at that point in time will disappear. Oh, okay. All right. Would I be right in assuming that will come down by, I don't know, something like EUR 200 million-EUR 300 million every year or something like that? If it is- The deficit? Yeah. The system deficit? On the- On my balance sheet. Yeah. Yes. Yes. Got you. Okay. That's great. Thanks a lot, Nuno. Ta. Okay. Thank you. Cheers. We go now to some final remarks just to conclude. Thank you, everybody, for being here. Once again, just to stress that both above the line and below the line, we have beaten guidance and consensus. Talking about consensus, we feel comfortable with the consensus and the key metrics of EBITDA, net profits and debt, and even beating clearly these numbers. As we speak, we expect 2017 to be a good year. Thank you very much and see you soon. Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect.