Earnings Call: H2 2015

Mar 4, 2016

Summary

2015 EBITDA rose 8% but adjusted net profit fell amid weak hydro and Iberian market conditions. 2016 guidance calls for EBITDA above EUR 3.6bn, net profit of at least EUR 900m and lower net debt, supported by recovery and new capacity.

Good. Good morning, everybody. Thanks for being present today for the 2015 results. I am here with the CFO, Nuno Alves, and our Head of IR, Miguel Viana. Let's start on slide 2 with the big numbers. I would like to start by highlighting the fact that our EBITDA rose by 8% in the period, including gains resulting from several value accretive deals achieved in 2014 and 2015. We will discuss later the importance of these deals and the nature of these deals. Excluding these gains and our non-recurrent, our adjusted EBITDA increased by 2% when compared to 2014. Where does this growth come from? Supported, of course, by the additional contribution of long-term contracted generation capacity, 1.8 gigawatts, both in renewables and in Brazil. This, of course, translates to 8% increase on our installed capacity in 2015. We also show and stress that our 2015 EBITDA was very penalized by weak hydro production and low energy management. As you will see, they tend to be related. By the way, 2016 has started very differently. It is a negative impact that becomes particularly significant at the bottom line. So growth, new additions, and a very bad hydro year in Iberia. Our net debt rose 2% to EUR 17.4 billion. But here, I want to be very clear. We have closed, with a delay of two weeks, what was expected to be at the end of December, a deal in the U.S. market, tax equity. This would bring our debt to, according to our guidance, below EUR 17 billion to EUR 16.9 billion. So we reached the figure that we have proposed. In terms of major investment, we need to stress that these figures include a EUR 600 million impact from Pecém acquisition that, of course, was not foreseen. But it is a good way to solve a problem is to tackle this opportunity, I believe, and I think it is transforming a problem into an opportunity. This was partly compensated by 50% equity content of the hybrid issued in last September. Third, despite the 8% increase on EBITDA, net profit fell by 12% to EUR 913 million. This decline is basically justified by the referred negative of the adverse weather and market environment in Iberia, so it is clearly down in Iberia. But also because of an extraordinary result, slightly above EUR 100 million of EDP Asia on financial results in 2014. So we need to, taking this out, we would be more or less in the same figures. Regarding dividends, the proposal of the management to the shareholders' meeting, they are going to vote, of course, is EUR 0.185 per share, flat to 2014, and fully in line with our commitment on a predictable and sustainable dividend policy. Let's talk about non-recurrent. This year we have a lot, but I would like to say that they are related. What I would like to stress is that they are related to our asset allocation strategy. Firstly, we have the acquisition of the remaining 50% stake in Pecém, which has a long-term PPA contract. A defensive mode triggered by Enel's financial troubles, as you know. It was agreed at the peak of Brazil's hydro crisis. By the way, the assets in the turnaround is impressive. Availability recovered from 71% in 2014 to 88% in 2015. Since the acquisition was agreed, Pecém performance has been clearly above our expectation, not only in operational terms, but also in terms of market and regulatory developments. The outlook for years ahead was clearly improved. The EUR 132 million accounting gain booked in 2015 results from what we deeply believe to be a value accretive deal in the short, medium, and long term. So it's those one-offs that, by the way, have a permanent impact in the future. Positive. Secondly, we have the EUR 85 million gain in the disposal of the Gas Murcia distribution network in Spain. Something that was out of our region, so it was out of our focus. But clear here, what I want to recall is that we bought this asset at the EV/EBITDA 9.4 times in 2009 as a remedy for Gas Natural acquisition of Unión Fenosa. Although we like networks, given the limited geographic synergies, as you know, we are concentrated in the north of Spain. We sold in 2015 at a multiple of 13 times. So we bought at 9.4, and we sold at 13. I think it's important, we have already in 2016 reinvested 50% of the cash proceeds in acquiring a LPG gas network in our incumbent region at a multiple of 8.9. So I think that the relation of these multiples shows how we know how to proceed in what concerns asset reshuffling. Finally, at EDP level, we have the combined impact from asset split of ENEOP, which of course reinforces the rates of long-term contractor renewals in our portfolio, and some write-offs, mostly related to the focus on wind development efforts in the regions with the soundest fundamentals. Clearly, as it was already stressed in EDP Renewables, we have been very focused in key markets with key fundamentals, and I think this is a difference to other players. We consider that these deals and their impact on earnings reflect our investment strategy focused on long-term contracts and regulated activities in our core markets, but focused also, and mainly, of course, in value creation. In any case, when you talk about deals and people talk about badwill, I think it's always better to buy with badwill than with goodwill. I think that some of the real problem on those acquisitions were the problem of the sector and not our problem. Let's see slide 4, regarding our investment plan. As you can see, our focus, as it was expected in any case, continues to be on long-term contract renewals and in regulated networks in our core markets. We are now finishing our new hydro pump storage in Portugal. Two plants are starting operations in the first half 2016, Salamonde 2 and Baixo Sabor. The last two under construction will be ready by end of 2016. I'm talking about Venda Nova 3 and Foz Tua. By the way, the conclusion of this plant will prompt a decline in our total amount of net investment from EUR 1.7 billion in 2015 to around EUR 1.3 billion as committed in 2016. So it shows clearly the commitment with the CapEx discipline that we have been stating all the years in the past, and we are now reaffirming this discipline on the CapEx side. In renewables, we are now working to deliver more than 600 megawatts of wind capacity under PPAs in 2016. Of course, mostly in the U.S., where we have been establishing partnerships with long-term financial investors, but also in Mexico. We are building our first wind farm with the PPA together with a strong local partner. In Brazil, with partnership with CTG, we are building both wind power plants and two hydro plants, all with PPAs, with fixed prices updated to inflation. By the second quarter of 2016, we plan to start operation of Vaca Muerta wind farm and Cachoeira Caldeirão hydro plant. This one will start operations more than six months ahead of schedule. In regulated networks in 2016, we plan to maintain the level of CapEx in our current portfolio. Additionally, we are acquiring, as I've mentioned, the Repsol LPG network and some minority stakes in our Iberian gas network. So focused on a disciplined approach on regulated networks. In thermal generation 2016, we are finalizing the investment of the DeNOx environment upgrade of two most efficient coal plants in Spain. These works will imply a two-month outage of the plant in 2016, and after they are finished, 80% of our coal fleet will comply with the more rigorous European legislation in terms of emissions. Overall, we continue totally focused on deliver our investment on time, on cost, in technologies that make sense, and in regions where it makes sense. So we continue committed to the execution of some capital recycling deals, namely in the execution of our partnership with CTG. Under which we have already agreed, as you know, on the sale of 49% stake in wind farms in Poland and in Italy. The closing of this deal and respective cash-in is expected to happen in the second half of 2016. We will continue to look for potential new asset rotation deals with financial investors, namely EDP Global. By the way, let's talk a little bit about the cash-in CTG. We expect EUR 700 million for this year that will lead us at the end of this year of towards the total amount of EUR 1.7 billion since the beginning. So exactly what we have been announcing and committing to the market. So the partnership is going as agreed. Slide five. Hydro. I think hydro is a key element, and especially when we see on a normalized basis, we really need to consider this hydro situation in Iberia. Showing more in detail the year-on-year performance in terms of hydro, we can see that EDP production in Iberia fell by 38%, with the hydro coefficient in Portugal standing 26% below the historic average. This strong decline had a negative impact on our average generation cost, and also results on an energy management lower than expected. Why? Because as you know, hydro and energy management are related. We like volatility, and I think that clearly the beginning of 2016 is going, I would say, very well. In Brazil, our hydro production fell by 23% year-on-year due to a 15% hydro deficit. And of course, this is related with the significant GSF losses in 2015, as a whole, when considering the clear recovery observed in the second part of the year. So even with the second half much better, the first half, as we have seen, was quite bad. We had losses of GSF in 2015. It was a critical element to understand, as we have already stated this, because the beginning of the year is always the key. January, February, and March are the key months to see how it goes. Slide 6. Let's talk a little bit about adjusted EBITDA. Adjusting for the previous referral of recurrent items in 2015 and the ones in 2014, our adjusted EBITDA shows a 2% increase. As I mentioned, supported by capacity expansion, wind and Pecém mainly, and by some year-on-year improvement in either situation in Brazil or the second half. in Iberia, our regulated network activities suffered with the decline of the regulated return on assets at our electricity distribution business, while our generation supply operations were, as I have mentioned and stressed, affected by the weak hydro, and of course, related also lower energy management results. The impact of Forex is slightly negative by 1%, with the negative impact from the Brazilian real being mostly compensated by the stronger dollar versus the euro. On to slide 7, efficiency. OpEx. It is always important to talk about what depends on us also. Efficiency improvement is going to be one of the key priorities in 2015, and we can see that our operating cost decreased by 1%, excluding the impact of capacity expansion in EDPR and EDP Brazil. The positive performance in terms of cost is very significant, especially if we see that local inflation in Brazil was 10% in the period. When you compare to inflation, I think that we must consider these figures very significant. With these results of our OpEx III, corporate-wide efficient program has achieved $117 million of accumulated annual cost savings, and we are now starting to design a new efficient program. OpEx four is like the movies. It is a never-ending movie. It is critical for us. OpEx four, which we will share with you in our next Capital Markets Day in May. Slide 8. Adjusted net profit. I would like to spend a moment on this. People tend to do simple math, and I think that we should go through this simple math. Overall, our adjusted net profit decreased 17% from $905 million to $750 million. I would like to highlight that more than two-thirds of this decline was justified by the adverse weather and market conditions affecting our generation and supply in Iberia. With strong weight on either and long in clients. This is important to stress. We are talking more than $100 million. We estimate that the negative impact from this factor is, of course, as I have mentioned, $110 million, and we expect to recover a big chunk in 2016 based on the normalization of other conditions. We can say already this because we are in March, and so we have already seen the figures of January and February. Note that these prospects are reinforced by the recent performance, 50% above the average. Other significant impact on adjusted net profits was a negative impact from GSF losses in Brazil, and a slight negative impact from Forex at earning level and $18 million costs after taxes with the early payment of more expensive debt, which will have a positive impact on financial costs from the next year. If you pick the EUR 750, I would say that the normalized figure base that you can see for the future would be EUR 850. Of course, you take the one-offs, you take everything out, and then if you put a normal hydro, you would consider a normalized EUR 850 million. We have not put it on the slide, but clearly it is the figure that makes sense to see as a basis for the year. Slide 9, guidance. We can say that in terms of EBITDA, we now expect to reach an EBITDA slightly above 3.6, so in line with the consensus. Why? Recovery of generation and supply conditions in Iberia. Positive impact from capacity additions, namely neither in Brazil. Especially because new hydros that were there in 2015, they were there in 2015, but the water was not there. Not only we have new hydros in 2016, but also the new hydros in 2015 were there, but unfortunately, they were not producing. They were there on the asset front, but they were not producing cash flow. EDP new capacity, and of course, in Brazil, the 12 full months of Pecém and the start of Cachoeira Caldeirão, we are more than six months ahead of schedule. So we have these two positives, and in Brazil, if you want, our vision is clear that the eventual negative impact from Forex will be compensated by the positive impact from the end of the hydro crisis. So we have lower currency, but better hydro. Overall, we expect this to be balanced. In terms of net profit, we expect to reach a figure of EUR 900 million or above of reported net profit without material impact from non-recurrent items, and taking into account our expectation of a decline in average cost of debt. From 0.7 to 4.5 in 2016. In line what we have been telling previously. When you see the figure in 2015, of course it was impacted with the acquisition of Pecém. That was not in our budget, when we were talking in 2014 about 2015. We take the path of decline of absolute net debt in 2016. So, the target is maximum 16.5, we should be there or below, based on the previously referred free cash flow growth. The decline on investment from 1.7 to 1.3, and the execution of some tariff deficit securitization, and our partnership that I have already mentioned, CTG, in line with our previous guidance. Slide 10, wrapping up. I think that it shows that EDP continuous focus on reinforcing our different profile among European utilities. We want to maintain a clear visibility on growth based on what we know and do better, and what we have been delivering in the recent past. Which is greenfield renewables with PPAs, regulated networks in our core markets. These growth will continue to increase the value of our portfolio. With high quality assets in well diversified markets and with competitive technologies. It is important, this growth strategy continues to be executed under strict financial discipline. We are guided by our financial deleverage objectives in order to preserve our low risk profile, and EDP access to competitive cost of funding. No doubt about this commitment from us. Finally, both our growth objective and financial deleverage targets are essentially subject to the achievement of attractive returns. At the level of the new project, clearly the new business portfolio, but also important of sharing this return with the shareholders. We want to keep sharing this return with the shareholders through an attractive and sustainable dividend policy. It is the reason why we will be proposing the EUR 0.185 in the next annual shareholder meeting, and we will keep this floor for this year, and we will propose this, and I expect the shareholders to vote EUR 0.185. As usual, I will pass now to Miguel Viana for the detailed analysis, and then we go directly to the Q&A. Miguel? Thank you, António. Starting in page 12, regarding the performance of the electricity market in 2015. We can see that electricity demand went up by 1.6% in Iberia, with a split between 1.8% up in Spain and 0.3% in Portugal, on a mixed effect from economic recovery and mild weather conditions. Hydro production minus 34%, which was compensated by an increase of 27% of thermal production, with coal continuing more competitive than gas. Gas demand up 6%, supported essentially for demand for electricity production. This environment leads to the pool price increase by 19% to EUR 50 per megawatt hour, with gas extending its role as the marginal technology in terms of the Iberian market. In this environment, as you can see next page, our electricity generation operations in Iberia were marked by a strong increase in coal and gas production, which compensated the decline in hydro volumes. PPA, in terms of our generation plants under PPA CMEC, the gross profit deviation versus market increased to EUR 160 million, following hydro volumes 35% below average year, and coal benefiting from higher load factors and higher margins. We would like to highlight EDP's liberalized activities in Iberia have a market position that is characterized by a significant weight of hydro in generation mix. A long position in sales to final clients versus our own production in the market. Meaning that our energy management gains tend to be reduced in dry years. That was exactly what happened in 2015 with our performance in the liberalized activities being penalized by weak hydro production with lower gains in energy management. As you can see in page 15, our generation and supply Iberia, EBITDA, adjusted, went down 11% or minus EUR 112 million year-on-year. This was a result of average generation costs up 22%. Immaterial energy management gains in 2015, and also with the mini hydro special regime production going down by 45%. This includes also generation taxes increased by EUR 25 million on high thermal production. This was partially balanced by our electricity supply business in electricity, in which EBITDA recovered on lower costs with ancillary services and energy losses. Looking forward, the recent decline in energy markets reinforces the value of EDP's long position in clients. Note that forward electricity prices in Iberia continue better supported than in Northern Europe. The reasons are that gas is the key marginal technology in Iberia, and you also have to consider the existence of specific power generation taxes in Portugal and Spain. Another important fact in recent market changes is, of course, the commodity prices and the coal being more competitive than gas. Regarding EDP, if you see on page 17, our hedging position regarding forward sales and for the acquisitions for 2016. We have currently forward sales of electricity amounting to 27 terawatt hour, which were sold at an average selling price of 55 euros per megawatt hour, so fully in line with 2015, and mostly hedged through residential and SMEs clients. In these sales, we have to highlight also the improvement in terms of thermal spreads locked in versus previous years. So versus 2015, as we have already closed the sales for respectively, 100% of coal sourcing commitment, and very important, around 90% of our gas sourcing commitments for this year. Moving to the EBITDA performance of our regulated energy networks in Iberia, we can see that our EBITDA in this division went down 1%, or down 4% when adjusted for non-recurrent issues. Reflecting in electricity in Portugal, a decline in terms of the rate of return on asset base from 8.26% in 2014 to 6.34 in 2015, which was just partially compensated by efficiency improvements. In electricity in Spain, slightly higher regulated revenues along with increased cost efficiency, while Gas Iberia was marked by the EUR 89 million gain on the disposal of Gas Murcia, but also the negative impact from the consolidation of these assets, which in 2014 had contributed with EBITDA around EUR 14 million. In page 19, we can look at the performance at EBITDA level of EDP Renováveis, with an EBITDA growth ex one-offs of 20%, backed by higher prices and capacity additions. By major geographies in North America, the EBITDA went up 29%, impacted by stronger U.S. dollar, or excluding non-recurrent effects, EBITDA in local currency, so in dollars, rose 10%, supported by a 9% growth of production and stable average selling prices. Regarding Europe and Brazil, EBITDA up 25%, also including some one-offs. Excluding these one-offs, adjusted EBITDA rose 12%, impacted by an 8% increase in production, recovery in coal prices in Spain, and lower prices in Romania. Moving now to Brazil. The fourth quarter 2015 was marked by GSF insurance agreement closed in December 2016, and I would say the end of the hydro crisis, which leads to a very significant decline in the spot price in Brazil. As you can see on the left chart, GSF insurance agreement has reduced significantly EDP Brazil risk profile, providing a significantly lower downside risk in extremely dry years with immaterial impact on upside potential in wet years. In terms of market environment, the improvement of rainfall in the beginning of 2016 has lead hydro reservoirs to be today above 50%, and recently, the government and regulator have announced that the extraordinary tariffs, which were associated to the dry weather, to be removed. So the Brazilian consumers will pay extraordinary tariff, which is called the yellow flag, during this month, during March 2015. In April 2016, there will be a green tariff, meaning that consumers will not pay any more extra cost associated to the abnormal dry situation. Demand continues slowing down. It was more negative in the first months of 2016, also penalized by mild weather and reflecting the slowdown of the macro environment. Inflation forecast for 2016 is now 7.7%. Given that our activity is essentially inflation linked, this will partially compensate the negative impact from the devaluation of BRL versus the euro. In terms of EBITDA performance of EDP Brazil, we can see that adjusted EBITDA in local currency went up 59%, fully in line with the increase of reported EBITDA. Reported EBITDA includes some positive one-offs, namely from Pecém acquisition in the second quarter of 2015, but also in the fourth quarter, the sale of EDPR Brazil. In distribution, it includes also a positive accounting of 2013 regulatory receivables. Looking at adjusted, you can see that absolute figures are smaller. The growth is exactly the same. Generation growing more, 95%, given the full consolidation of Pecém since last May, and also benefiting from a decline of the negative impact from GSF losses, which went down from close to 400 million to around 300 million reais in 2015. Distribution EBITDA going up 30% on tariff increases, cost control and inflation impact on assets terminal values. Regarding the evolution of regulatory receivables in the Portuguese electric system, we can see that in 2015 it showed a tariff surplus of EUR 66 million. The first year of a tariff surplus in Portugal, leaving the electric system debt at EUR 5.2 billion. So better than our previous forecast of EUR 5.3 billion, reflecting a clearly good performance in terms of system debt during 2015. For 2016, electric system debt is now expected to fall below EUR 5 billion, despite the weaker demand and lower pool price in the first month of the year. Moving to the amount of regulatory receivables in EDP's balance sheet. We can see on page 23 that it fell slightly by EUR 27 million, reflecting EUR 79 million decline in Portugal, a EUR 68 million increase in Spain, following the recognition of our share of tariff deficit in gas system, and a slight decline in Brazil, mostly related with the devaluation of the Brazilian real. Moving to page 24, we can see in terms of net debt, the negative impact from Pecém consolidation was partially balanced by the hybrid issued 50% equity content. It is also important to highlight that if we include the EUR 0.5 billion proceed in January 2016 from some U.S. wind deals, namely one asset rotation and one tax equity investment that were agreed in late 2015 and supposed to be cashed in late 2015, but that were postponed by a couple of weeks. Our adjusted net debt would be below EUR 17 billion, more precisely EUR 16.9 billion, fully in line with our previous guidance. Financial debt profile by currency and maturity. We can see on page 25 that we maintain a breakdown per currency, which reflects that our investments and operations are funded in local currency to mitigate Forex risk, providing us a natural hedging in terms of currencies. During the year 2015, we have take advantage of market opportunities to extend our average debt maturity from four years, by the end of 2014 to close to five years. So 4.8 years by end of 2015. In terms of our financial liquidity, by December 2015, it covered refinancing needs beyond 2017, based on EUR 1.3 billion of cash and equivalents and EUR 4.1 billion of available credit lines totaling EUR 5.4 billion of available financial liquidity. Financial results. Net financial cost increased by EUR 261 million in 2015. At level of net interest cost, no material changes, penalized essentially by the appreciation of the dollar and the impact in terms of the interest that we pay for our dollar debt. Average cost of debt was flat at 4.7%. Forex includes EUR 35 million of losses, mostly related with mark to market of U.S. dollar versus zero and the dollar versus real. In terms of capital gains, we had a different situation in 2014 versus 2015. In 2014, a significant capital gain of EUR 118 million, while in 2015 we have just an impairment in terms of our equity stake in BCP, which has a negative impact of EUR 22 million. And finally, we have lower capitalized financial costs, mostly related with the hydro projects under construction in Portugal. And the other line, including the early repayment of more expensive debt, which will have a positive impact on future cost of debt. And also a decline in terms of gains of tariff debt securitization related with the gradual decline in terms of the remuneration of regulatory receivables in Portugal. Finally, in slide 28 and reaching the net debt breakdown 2015 versus 2014. We have already talked about the 8% increase of EBITDA. Amortization and provisions also increasing EUR 31 million on new installed capacity, namely EDPR and Pecém. Financial results, we have already referred also, but I would highlight that associates are also penalized by the weaker performance of Pecém in the first part of 2015. Income taxes. We had essentially flat effective income tax rate and also a lower tax impact on the gains of the sale of Gas Natural Fenosa Pecém acquisition and also the Eneva consolidation. I would highlight also that these net profits in 2014 and 2015 include the extraordinary energy tax, so 0.85% on EBITDA assets in Portugal. And we can see a significant increase in terms of the net profit attributable to non-controlling interests, essentially reflecting the increase of net profit both at EDP Brazil and EDPR, on gains at our subsidiaries where we have minority stakes. Overall net profit going down by 12%, or adjusted net profit going down 7% year-on-year. With this, we conclude the presentation. I think we can now pass directly to the Q&A session. Thank you. As a reminder, you can submit the question via the web in the Q&A tab. Otherwise, if you just press star 1 on your telephone and wait for your name to be announced. We can go now to the Q&A session, please. We would like to take questions on the One moment. Your first question comes to the line of Alberto Gandolfi. Please go ahead. Oh, hi. Good morning. It is Alberto Gandolfi, UBS. Thanks for taking my questions. I have three, please. The first one is, you talked about a normalized net income of EUR 750 million, but you said if we adjust for hydro, it will be EUR 850 million. Could you please go through that once more for me, please? Because as I understand, I think you talk about EUR 95 million impact negative for Brazil, but Brazil, you have almost 50% minorities. Portugal, the liberalized impact, as I understand from the press release, was also much smaller. So I did not quite understand how to get the extra EUR 100 million. It is quite important as a base for the forecast. The second question I wanted to ask you is, how do you see the securitization process evolving in 2016? How do you think of the receivables? And particularly, can you give us some color on what you are hearing from the government, from the political side? Any risks of changes in hydro the tariff scheme, social tariff, or anything like that you think might impact your business and perhaps increase also the receivables? Lastly, given that you are, yes, deleveraging, but your balance sheet is still relatively, you might say, suboptimal compared to your original target. Given what is going on from a macro perspective, would you be more comfortable with accelerating your debt reduction? Could you do so via some sort of change in your perimeter, being with EDPR, being with Brazil, or be with more disposals? Can you a bit elaborate on, let's say, your contingency plan if the credit situation were to worsen? Thank you. Thank you, Alberto. Going through from the 750 to 850. Just the weather conditions normalized hydro would bring you more than EUR 80 million in Portugal and Spain, so that be market, and around EUR 20 million in Brazil. So just these two will present EUR 100 million. Of course, if you include the possibility of having energy management, it means that we feel comfortable with those figures moving from 750 to 850. I specially mentioned this because when we compare 2015 with 2014 was a very wet year, 2015 a very dry year, and now in 2016, we are back to normal. When I go out in the morning and I see rain, I am pleased, and it was the case in 2016 at the beginning. So at least EUR 100 million is easy just because of the rain. Even if you take account of the energy management, it is very easy to go to this normalized of 850. In what concerns the suboptimal balance sheet and the question of those kinds of deals, you do not announce it, of course. But we do not see at this stage any reason to change our relation with renewables, our relation with Brazil. We are really focused on discipline on the CapEx side, on delivering the visibility on the cash flows and on the new projects to explain the market exactly what we are doing on a very detailed basis, project by project. We have been doing clearly an effort whenever, even if it is small, it does not make sense on our portfolio, we sell it. So we do not see in this moment any need for any plan B, and we are focused on what we have been mentioning. In what concerns securitization, Nuno, would you like to give a word? Yeah, just a couple words on the tariff deficit and the securitization. I guess the good news is that the slide on the tariff deficit has not changed for the last three years, so the numbers that we've been showing for 2016 and 2017 are still the same. The only one that changed was that the actual number for 2015 was EUR 100 million less than what was expected. We continue to view the tariff deficit as a resolved issue, and in turn, this system will get to a zero balance by the end of the decade. That's still our main target. As far as securitization, we have as an objective to securitize at least EUR 800 million throughout 2015, as we've had in the last couple of years. We've ended up doing a little bit more than that. If we can do more than that, we'll be happy again. There continues to be investors interested on the securitization that understand the asset and that the current prices are welcoming more of it. I would expect to see some transactions done in the first half of this year for sure on that front. You mentioned some on the politics have changed the tariff deficit. I frankly can say I have not heard any comment on any change that would have an impact on the tariff deficit as such. I'm not concerned of it right now. Thank you. Alberto, and also to stress, and I think it's important. I think the tariff deficit occupied, I would say three years ago and two years ago, 12, probably half of the questions were on the sustainability of the system. The system in Portugal has proven to be totally sustainable. The measures that were taken in the past prove it. The figures are exactly where we have stated, and I think this also takes any pressure to take measures sector driven wise. The sector doesn't need any measures. Another issue is the fiscal stuff, but sector-wise, there is no need for any measure because the sector has proven to be totally sustainable. Thank you, Albert. Next question. Thank you. Your next question comes the line of Carolina Dores. Please go ahead. Hi. Good afternoon. Thanks for taking my questions. I have three. One is a bit more detail on the guidance, if I may. Because you mentioned guidance is on net profit is reported but no material impacts of one-off. If you can give a bit more detail of what type of one-off, if any, you are expecting for this year. Second, if you could comment on the government's plan in regards to the social tariffs in Portugal and what you are doing to stimulate the consumers to migrate into the social tariffs, and how much of the cost is included in your guidance for 2016. And finally, I know this is a bit more forward-looking, but I was thinking about the mid 2017, 2018 when the CMEC lose the fixed return. Given current power prices, I would imagine that the hit on EBITDA will be something close to EUR 200 million, given where power prices currently are. Could you talk a bit about the number? Is this an estimate that makes sense or not? Thank you very much. Thank you, Carolina. In terms of guidance, the reason why we mention the 900 without one-offs is at this stage, we don't foresee any one-offs. If anything, if we have one-offs, we'll be probably, as we have proven in the past, typically positive. At this stage, we don't anticipate anything. The guidance that makes sense is Without without the one-offs. In what concerns the government plan of the social tariff, as you know, we have finally reached 100,000 at the end of the year. We are now at around slightly above 110,000. We estimate of the overall targets of 500 households. That means that the structural target of this, households and not clients, as we have always mentioned. We anticipate that at the end of the year, we will be more or less at half of the target. So reaching probably 250,000 clients. We have included a cost in our budget, around EUR 12 million, I believe EUR 12 or EUR 13 million, in the budget for this social tariff program. In what concerns CMEC, we will be talking on Investor Day on the return on this, but I would tell you that the key issue, as we have been stating with the CMEC, is not the hydro as you know. The normalized, or let's say the proxy price of the hydro under the CMEC is probably not very different from the realized price, but we will be discussing this in detail. So this figure, the only thing that I can tell you today is it looks too big. It's clear too big. Thanks. Can we go to the next question, please? The next question comes the line of Martin Young. Please go ahead. Good afternoon to everybody. I'll just limit it to two questions. The first gets back to the issue of the tariff deficit. My understanding is that part of the plan to eradicate this is based on a positive evolution of demand and a positive evolution of tariffs. Could you just sort of talk about that in the context of the decline in demand that we've seen in the first few months of 2016? I believe that there is a decline even on a weather and working day adjusted basis. The second question relates to the wider political environment in Iberia. Just wondered if you could share some thoughts on how you feel Spain might develop given the uncertainties politically there, and also give an updated view on where you see the extraordinary tax in Portugal going. Thank you. Hello? Okay, Martin, thank you. In what concerns the demand, January, February in Portugal, not adjusted for temperature and working days is +0.1%. Okay. We are more exposed to temperature effects than Spain, by the way. In Spain, the adjusted was minus 2.1, so it was slightly positive in Portugal. It is true that is below what we need on a yearly basis, but what I can tell you is, it depends mainly on two variables, this and the other is the tariff increase. The overall tariff increase, as you know, was on the high part of the range of the 1.5%-2% above inflation. Demand is on the lower part of the range that we need. The tariff adjustment is on the range, but on the high part of the range. At this stage, we don't see any reason to see any material impact on the tariff deficit that would be on the wrong direction. In what concerns political environment in Iberia, Spain is difficult to foresee what will happen. I will concentrate in Portugal. As I've mentioned, the good news in Portugal is that structurally the sector is balanced. The tariff deficit is being reduced. There is no need for measures in what concerns the rationale balance in the sector itself. As I've mentioned earlier, let's go to the fiscal part. The first change is, of course, as we have already stated in previous meeting, is that the special contribution that was expected to be reduced at least of 50%, it was not the case. It will last for 2016. It has a difference of half of it, so we are talking about EUR 30 million. What we have been stating very clearly is that we expect temporary measures to be temporary. Extraordinary measures should be taken out. This government is already reducing extraordinary measures elsewhere, that these movements should be as a bulk, so everything should be moving in the same direction. What I can tell you is we will act accordingly with this reality in the right place and with the right people. But in any case, I expect this to evolve clearly in the future, and we will be working accordingly to what should be done in this front. At this stage, the only thing that we know is it will stay for 2016, and we will act accordingly to this. Other stuff, it was a social tariff, and I don't see any other issue that has been discussed under, let's say, the political framework in Portugal. Thank you. Thank you, Martin. We can go to the next question, please. Your next question comes from Javier Garrido. Please go ahead. Yeah, good morning. First question would be a clarification on your guidance. If I understand correctly, around EUR 900 million of net income assumes that the extraordinary energy tax is still in place in Portugal, in 2016. Is that correct? Then the second question would be on the hydro plants that are moving from the CMEC to the free market, in 2016. Those plants were getting EUR 52 per megawatt hour prices in CMEC. You are saying that you have sold forward 90% of your output at EUR 55 per megawatt hour. Is the EUR 55 a comparable number with the EUR 52, I.E., will you be making EUR 3 per megawatt hour more on these plants, or are not the numbers comparable? Thank you. Thank you, Javier. The answer is yes to the first. The guidance takes into account the fact that the special tax on the sector will stay in 2016. It would not make sense otherwise, even if in the future this could revert or whatever. At this stage, we, and of course, include in our guidance the full tax for 2016. In what concerns the hydro, it is true when we say, and I think it is an important element. The commodity cloud is hanging over a lot of sectors, but we are not the number one, but we are probably in the top three of the sectors the electricity could be affected by this commodity cloud. It is very important to see that we have taken measures for 2016, namely in having sold all the generation at this price that we have mentioned. We can compare the 55 with the 52. Okay. Thank you. We can go to the next question, please. The next question comes in line of Elchin Mammadov. Please go ahead. Hi there, Elchin Mammadov from Bloomberg Intelligence. I have three questions. The first one is on guidance. If I look on the consensus estimates, your EBITDA guidance is in line or could be even better than consensus. However, if I look at net income, it is well below. Where do you think this discrepancy is? Is it in tax, is it in depreciation, or is it in the interest part? The second question is for outlook for demand in Brazil and Iberia for this year and next. How do you think weather-adjusted demand is going to develop? The final one is on renewables. If you could give a bit more color on which areas you are looking at going forward. Are you going to step up the investment in North America given the extension of PTC? Yeah. Thanks a lot. Thank you. What I would like to tell you is, if you see the consensus, we are talking about 910, I think, or 11. Our number is perfectly in line, and I do not see any mismatch between the EBITDA guidance and the net profit guidance and the relation with the numbers that we are giving today. I have those numbers in front of me. For the outlook for the demand, as you know, Brazil, we expect 3% down, Iberia 1% up overall. I think it makes sense relates to the GDP expectation for those countries, for those regions. In terms of renewable, the answer is yes, we are mainly focused on the U.S. market. It has been clearly where it is probably in 2016 will be already the number one place where we are going to invest overall in the group. Then Mexico, Brazil, and then Europe. We have been focusing where we have good resource, good structural basis for wind, and we have stability and visibility. We have a lot of options to do in this market. Clearly, I would like to stress the difference between us and some of the other players. We are not going all over the place. We have been focusing on where you have wind, where you have stable regulation, when you have visibility, and where you do not tend to find funny things are in the sector. Thank you. We can go to the final question on the phone. The final question on the phone line comes from José Ruiz. Please go ahead. Yeah, good morning. Thanks for taking my question. It's about the fiscal measures in Portugal. If you could be more specific on this comment about the IMI, the regional tax on hydro plants. Thank you. Okay. The question of IMI relates to a discussion about if the hydro plants are part of the public domain or not. The story proves that if you go down to the, I think it's the 70s, I was seeing this yesterday. They are mentioned as being part of the public domain, where they should not be paying any IMI. In any case, the figures are not enough to change our guidance for the year end. We will work, of course, very thoroughly on this to protect our interest and what makes sense. But in any case, the figures will not change our guidance, just to assure. There are other things that, of course, are material, like the special contribution. That's not the case of IMI. Thank you. We can go to the question that we have in terms of the web from Manuel Palomo, Exane BNP. If you could comment on the hedging levels in Iberia, so volumes and prices, if possible, for 2016 and 2017, maybe. Essentially, as we have said, so 2016, in terms of thermal spreads, we are fully covered in terms of coal. In gas, more than 95% of the commitments, I would say that gas, it's a very important position. Forward sales, 27 terawatt hour of energy sold at EUR 55, as we have said. In practical terms, I would say that January and February, very strong months in terms of hydro. Which puts a good prospects in terms of lower generation costs and in terms of energy management. Having also a slightly short position in terms of the market in 2016 is something also very, very positive. For 2017, we can talk by the time of the Investor Day, but I can say that we have already started to hedge some thermal spreads, but we can talk more about that in the Investor Day. I think this is what we have to say in terms of hedging policy. I will pass now to our CEO just for conclusion and final remarks. Thank you for your presence, also for your patience. Namely, when you have a lot of one-offs, sometimes it can be time to go through the figures. Hopefully, we will also help to go you through this task. Clearly, I want to share this with you. I think that we understand exactly what are the conditions that basically mark the factor. I think that our asset allocation policy, our risk approach, our pressure on what depends on us is being very clear. Even when you see through these one-offs that, by the way, are positives, I prefer positives than negatives, that were a kind of rule of the game for the sector for a while. I think that we are doing what we need to do. The question of 2016 is, some of the key elements that were negative in 2015 are starting at this stage as we speak. We are still at the beginning, but looking rather positive, so getting better than the previous year and some of the 2014 flavor, namely in what concerns the weather. Thank you for this. Also, I would like to stress the commitment with the financials and the commitment with sharing with the shareholders the results and the clear policy in terms of dividend. 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.