Earnings Call: H2 2013

Feb 28, 2014

Summary

2013 EBITDA held near flat and net profit edged down 1% despite regulatory pressure, supported by cost control, energy management and Brazil. 2014 guidance pointed to ~€3.5bn EBITDA, lower net debt and continued deleveraging.

Good morning, ladies and gentlemen. Thank you for standing by, and welcome to EDP's 2013 year-end results conference call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question and answer session, at which time, if you wish to ask a question, telephone participants will need to press dial 1 on your telephone, and web participants may submit a question by typing it in the Ask a Question box, then clicking Submit. I must advise you that this conference is being recorded today, on Friday the 28th of February, 2014. I'd now like to hand the conference over to your first speaker today, Mr. António Mexia. Please go ahead, sir. Yes. Hello, good morning, everybody. Thank you for being present in this conference about the 2013 year-end results. As usual, I will start with the key highlights. Then I'll pass the ball to Miguel Viana, that will go through the presentation. I will wrap up, and then we will proceed to Q&A. What to say about 2013? I think it was a year where basically what was expected that we do because it depends on us, we have done it. This is very important in a moment where both in the regulatory front, but also in the market development, it was a very challenging, a very tough year. Even in this context, we were able to keep the EBITDA flat at EUR 3.617 billion. So flat year-on-year. When we see block by block, when you consider the Iberian operation, without Wind Power, so the traditional business, we see the EBITDA going down 3%. Basically it was the impact of what everybody knows, and we will have soon a slide about this long process now that finished about regulatory changes in Portugal and Spain, but also tough market conditions, even if at the end of the year, we have seen, and it's confirmed at beginning of year, a market recovery. So in terms of market evolution, I think that we are now much better. But in any case, throughout the year it was not very exciting. But of course, the major negatives on the Iberian were the regulatory measures with huge impact that were offset by typical three things. Strong hydro volumes, but mainly what I think that we have been showing to the market consistently, good energy management figures. Also, I would like to stress this, a very tight cost control. Our OPEX in Iberia decreased by 4% on a year-on-year rate. So basically, we have done a compensation in Brazil with a growth of 24% in reals, 9% in euros because of the real depreciation that, by the way, impacted in the last quarters. Also, we have seen in the last quarter lower CD funding that, as you know, was critical last year in Brazil to avoid the creation of the tariff deficit. So Brazil improvement compared to 2012, and this helps, of course, the EBITDA evolution. In terms of renewables, you have an increase of capacity by 5%, the EBITDA only grows by 1%. The key reason is, of course, the adverse regulatory change in Spain that were already accounted. Reforms presented in January led to the booking of the impact on 2013 second half, and also in terms of environment, 2013 also include this figure. 2013 already includes the impact of the recently announced package in Spain. Overall, we reach EUR 1 billion 5 million net profit with a small decrease of 1% year-on-year, EUR 0.275 earnings per share. Based on this, we will propose, as we have committed and we have always stated, a dividend of EUR 0.185 fully in cash, keeping the same amount that was paid last year. When we presented the dividend policy, we talked about the ratio and of course the floor and EUR 0.185 respect this policy. Other issues that are very important to consider. In terms of receivables, we are also flat. It was our commitment. We delivered also in this front. We had a EUR 1.5 billion securitization, more than two-thirds of it from Portugal. We cashed EUR 1.5, and the increase was slightly lower. Typically, we are the same level of the previous year, and it was a strong commitment from us. In what concerns CapEx, once again EUR 2 billion. We kept the amount that was foreseen and indicated to the market. At the disposal level, you already know this, EUR 600 million between gas transmission asset sale, plus the EDPR assets in the CTG agreement, and also some sales to pension funds in the U.S. We also, even if it was not cash, we gave, last December, the visibility about the rest for the first billion, the rest for half of the commitment of the CTG deal. Cash-wise, of course, what was signed in December will only have impact this year. Overall, we have a net debt decrease by EUR 800 million, 4%, to EUR 17.5 billion. You see a significant free cash flow improvement supported by efficiency, by new capacity, by the flat receivables, and of course, by the execution of those disposals. Our commitment to down the financials is going in the right direction and as foreseen. Also important, we have done funding deals with a total of EUR 4.6 billion in 2013, including the securitization in Portugal. We have more than EUR 5 billion cash and available credit lines. It means that we are covered throughout the middle of 2015. We have visibility about the funding of the company until the middle of next year. Overall, what we have seen is, once again, a pressure on the sector by regulatory/legal measures that were basically compensated by what depends on us: energy management, cost control. I think it's good news because when you do what depends on you, it's always better. It's also the result of what we have been stressing throughout last years. Low risk profile of our portfolio. More than 85% of regulated and long-term contracted. Also the fact that in terms of asset allocations, those are technologies and the market that we have been focusing in helps a lot. This low risk approach plus the efficiency allowed us to have a 2013 that I believe is good in the context of that immense pressure, especially on the Spanish market. Then we can talk a little bit more about this. But at this stage, of course, we have much more visibility about the future than three or six months ago, and I think it's good news. So we know now what happens. We know exactly what was the impact. I think that in the sector, as you will see, we performed rather well in terms of market share and the slice of the subsidies that we will receive. I think it shows that we have been managing well the regulatory front, of course, relatively to others in what concerns a difficult environment. So doing what we need to do in terms of management, in terms of costs, in terms of regulatory front, has enabled us to have 2013, resilient, I think it's the key word, resilient on a challenging regulatory market environment. So Miguel, please go through the presentation, and we will start, of course, with the regulatory measures in Iberia. Exactly. As it was already referred by the CEO, 2013 was marked by several adverse regulatory developments in Spain and Portugal. Overall, we estimate that regulatory cuts in Portugal and Spain between 2012 and 2014 to have an impact of more than EUR 300 million per year on EDP's earnings before taxes. The second part of the year, as you can see in slide 5, was marked by a recovery of electricity demand in Portugal. We had an increase of 2% in the third quarter and 2.2% in the fourth quarter, leading 2013 electricity demand to increase 0.2% year-on-year or becoming flat when adjusted for temperature and working days. Moving to page 6, we can see that in terms of operating headlines, installed capacity of EDP Group went down by 2%, following the decommissioning of Setúbal coal oil plant in Portugal, commissioning of 0.4 gigawatts of wind capacity, mostly in Poland and Romania, and also the commissioning of the second group of Pecém. Power production went up by 12%, especially due to the rainy and windy weather conditions in Iberia during 2013. In terms of the EBITDA breakdown, we can see that the EBITDA fell by 0.3% year-on-year in 2013, impacted by declines at level of regulated networks and long-term contracted generation operations in Iberia, and growth in terms of the liberalized operations in Iberia, EDP Brazil, and EDP Renewables. Overall, long-term contracts and regulated activities continue to represent more than 85% of the EBITDA of EDP Group. In page eight, we can see that in terms of EBITDA breakdown by market, EBITDA growth in Brazil and in U.S. was partially offset by the lower EBITDA in Iberia, and also in the rest of Europe. Excluding ForEx impact, which was negative by EUR 97 million, EBITDA would have risen by 2% year-on-year. Regarding efficiency, the ratio OpEx over gross profit was stable at 28% in 2013, as operating costs went down by 2% year-on-year. In Iberia, operating costs went down by 4%, clearly below inflation in the period, both in Portugal and Spain. At the level of EDPR, operating costs went up by 2% in euro terms, in line with increase of installed capacity. While in Brazil, operating costs went up 17% in local currency, reflecting the structuring of operations, and also the commissioning of our new coal plant of Pecém. Overall, EDP accomplished its Opex III target savings in 2013 of EUR 120 million, anticipating by one year its target for 2014. Moving to CapEx on page 10, we can see that the CapEx went down 2% year-on-year to below EUR 2 billion, in line with our plan, including EUR 1.3 billion of expansion CapEx related mostly with hydro and Brazil hydro development, and also with wind expansion out of Iberian Peninsula, and still with a slight decline in terms of our maintenance CapEx. Moving to regulatory receivables, we can see on page 11 that they remained essentially flat at the level of impact on net debt of EDP at the level of EUR 2.7 billion. In terms of breakdown, in Portugal, regulatory receivables went up by EUR 225 million, reflecting EUR 1.2 billion increase in terms of tariff assets and deviations, and the securitizations done in the period of EUR 1 billion. In Spain, the regulatory receivables went down by EUR 160 million, reflecting more than EUR 300 million of tariff deficit and almost EUR 500 million of securitization done by FADE. While in Brazil, the slight decline was justified by the cash received from CDE, more than compensating the negative tariff deviations in the period. Regarding the evolution of regulatory receivables at the level of Portuguese electric system, after a EUR 0.6 billion increase in the first half of 2013, driven by declining demand, strong wind production, and high special regime premiums. We can see that in the second half of the year, there was only an increase of EUR 0.2 billion, benefiting from demand recovery and normalization of wind production and oil prices. Overall, electric system receivables went up by EUR 0.8 billion in 2013, standing still EUR 0.1 billion below our previous guidance provided in the nine-month results. In terms of net debt breakdown. In terms of currency, our net debt includes 75% denomination in euros, 17% denomination in dollars, and 7% denomination in reais. In terms of interest rates breakdown, we have 55% of floating debt and 45% of fixed-rate debt. Regarding the evolution of net debt over 2013, we can see that the net debt reduction of EUR 800 million was explained by EUR 1.9 billion of free cash flow, the payment of dividend of EUR 0.7 billion, expansion CapEx, and net investments of EUR 1.2 billion. A positive impact in terms of ForEx of EUR 0.4 billion, and also the changes in terms of consolidation premiums of EUR 0.4 billion related with the new joint venture with CTG for hydro development in Brazil. By December 2013, EDP had a liquidity financial position of EUR 4.4 billion, including EUR 2.3 billion of available credit lines and EUR 2.2 billion of cash and equivalents. In terms of average debt maturity, it was at 3.9 years by December. Overall, as you can see on page 17, we had a total liquidity position of December 2013, plus the U.S. dollar bond issue issued in January 2014, representing a total of EUR 5.1 billion of sources of funds, which covers EDP's refinancing needs until mid-2015. Note that these figures do not include EUR 140 million proceeds from the securitizations in Portugal closed in January 2014, and also the already agreed cash proceeds from the disposal of Jari hydro project in Brazil. Overall, if we look to net profit breakdown, we have EBITDA almost flat year-on-year. An increase in terms of D&A reflecting also an impact from EUR 67 million in 2013 related with special regime in Spain, non-recurrent, so one-off. An increase in terms of cost of debt by 40 basis points to 4.4%. Lower income taxes impacted in 2013 by asset tax revaluation in Spain. Also an increase in terms of minority interests at EDPR level, and overall resulting in the net profit of EUR 1,005 million or a 1% decline versus 2012. Regarding the dividend proposal for 2013, the proposal is of a dividend of EUR 0.185 per share, in line with the previous two years, and representing also a payout ratio of 67%, fully in line with the peer group average. By business area, we can see that operations in Iberia face the market environment marked by strong hydro and wind volumes, which was clearly positive for EDP's generation mix. Also low prices, which, taking into account EDP's long position in clients, provided the conditions to achieve good energy management results. In terms of electricity and thermal power demand in Iberia, although electricity demand in Portugal was positive by 0.2%, as we talked before, in Spain it was still negative by -2.2%, resulting in electricity demand in Iberia going down by 1.8%. Nevertheless, this evolution was not homogeneous over 2013. In fact, in the fourth quarter, we had flat demand, even with a slight increase of 0.1%, versus a decline of 0.5% in the third quarter, and a 3.7% decline in the first half of 2013. Overall, the thermal power production decreased 30%, reflecting the impact from lower demand, but most importantly, the strong hydro and wind resources in 2013. Regarding EDP's liberalized energy activities in Iberia, production went up by 1%, reflecting the increase of the weight of hydro production from 16% to 32%, and also reflecting a strong decline in terms of thermal load factors on the back of lower residual thermal demand. EBITDA in liberalized energy activities in Iberia went up by 11%, positively impacted by a 16% decline in terms of average generation costs, our long position in clients, and also the 3% decline in terms of average electricity purchasing costs. Overall, this division was also negatively impacted by the referred regulatory changes, and also the low thermal plant profitability in the period. Moving to long-term contracted generation in Iberia, EBITDA went down by 9%, impacted by the decommissioning of Setúbal fuel oil plant, and just partly compensated by the strong increase in terms of mini hydro production in 2013. EBITDA in regulated energy networks went down by 3%, both as reported and also as adjusted, reflecting essentially a lower return on RAB in distribution of electricity in Portugal, which went down from 10.05% in 2012 to 8.56% in 2013 on indexation to five-year CDS of Portuguese Republic. Finally, moving to our listed subsidiaries, EBITDA at EDP Renováveis went up 1%, as it was already referred. EBITDA in Iberia was flat, reflecting strong wind conditions, but also the negative impact from the new generation taxes and from the recent cuts in terms of remuneration in renewables in Spain. EBITDA in the United States went up by 7%, and EBITDA in other markets went down 7% year-on-year. Finally, EDP Brazil, in local currency, EBITDA went up by 24%, or 7% when adjusted for non-recurrent effects. Note that in distribution, our EBITDA was 16% below what would be normalized in 2012, but was 15% what would be the normalized level in 2013. Excluding Pecém negative contribution and also some one-off gains, EBITDA from generation and supply and others went up by 11%. Just to focus a little bit more on the two major divisions in Brazil, we can see that regarding distribution, the reconciliation between the 41% growth reported, EBITDA growth, and the 3% that would be a normalized growth, shows that the low EBITDA reported in the fourth quarter 2013 was explained by almost no CDE contributions in this quarter. So we have the negative deviation of BRL 123 million and just a BRL 2 million contribution from CDE in the fourth quarter 2013. Regarding EBITDA in generation in Brazil, the highlight goes obviously to Pecém 1, which was still on ramp-up stage, still affected by penalties on low availability, but already with a clear positive EBITDA in the second half of 2013. In terms of outlook, and in slide 32, moving to some updates in terms of market environment in Iberia in the first two months of 2014, we can see that the negative impact from electricity demand is now much lower than what it was in 2013. Demand in Iberia went down just by 0.8% as a result of continuing recovery in Portugal, +3.2% year-on-year, and lower decline of demand in Spain in the period -1.6%. The major change versus the same period last year is the higher hydro production, which almost fully justifies the 47% decline in terms of residual thermal demand. This market environment justifies the 46% decline in the average pool price in the period, as you can see in slide 33. This market environment also explains the significant decline in terms of off-peak prices, which leads to an increase in terms of price volatility and creates, obviously, some arbitrage opportunities. Overall, in terms of EDP liberalized activities, in terms of forward contracting for 2014, we have already sold and closed spreads for 100% of our expected coal production. We have already closed the spreads for 80% of our commitment in terms of gas sourcing, and we have already contracted mostly with the final clients, 23 terawatt-hours of electricity sales at an average contracted price of EUR 55 per megawatt-hour. In terms of prospects for the evolution of regulatory receivables in Portugal, we would say that this should be positively impacted, obviously, for the 2.8% tariff increase implemented in Portugal since 1st of January 2014. The beginning of 2014 is showing also positive signs in terms of power demand and in terms of CO2 prices, which went up significantly in the last two months. It is also true that the strong volumes in terms of Wind Power production and low coal prices, which imply higher special regime payments, should have a slight negative impact. Overall, we expect the system receivables to peak at EUR 5.3 billion by December 2014, becoming flat in 2015 and converging to zero by 2020. Note also that EDP keeps a significant amount of securitizable deficits with relatively short maturities, a low risk, and adequate remuneration. Moving finally to an outlook on market environment in Brazil. We can see that hydro reservoir levels are currently lower than expected. They were at 40% at the end of January versus 37% at end of January 2013 and 76% at end of January 2012, a scenario that leads to the recent strong increase in spot electricity prices. This situation should be compensated by the expected renewal for 2014 of the system implemented in 2013. Essentially, the upfront cash payment by CDE Fund to distributors, which are currently facing a huge and unexpected increase of electricity procurement costs. I will now move to our CEO for the outlook of 2014 and final remarks. Thank you, Miguel. One key element is, of course, what is our vision for the evolution of EBITDA 2014. I would say that we are comfortable, of course, taking into account the ForEx changes because of our assets, mainly we are talking about Pecém. We are comfortable with the consensus, and as you see, we see the EBITDA around 3.5, as we mentioned in slide 37. We are there. The consensus, what we see is that the liberalized activities are supposed to be slightly above 10%. The increase here is also due to the fact of three new hydro plants that were transferred from the CMEC to the market. Of course, these will have a positive impact because implicit tariff on the CMEC is lower than the market price. We have also here the impact from regulatory measures, especially in Spain. But we have also to mention the strong hedging for 2014. The 23 terawatt-hours sold forward at an average selling price of EUR 55. In Brazil, you have, of course, the uncertainty on the lack of rain and what will be the degree of utilization of CDE or other mechanism that, as you know, has been conveyed by the Brazilian authority that they will compensate in the market. Until now, a solution is not yet presented, but everybody expects that because of the size of the issue, we will have something similar to what was done last year, even if it's not in the same degree, but we expect something on that direction. Then, of course, the 50% stake at Pecém. We have, as you see, the disposal of 50% of Jardim do Tejo. The closing will be expected towards the end of this semester. At Wind Power, we have the impact of the new additions in 2013. We will be developing mainly in U.S., new PPAs throughout 2014, new projects. But of course, here we will have what was already considered in the accounts for the last 6 months in 2013, the impact of the regulatory framework of wind farms in Spain. As you know, our market share of the revenues compared through the market share of the production, and especially of the installed capacity, it's interesting for us. In a difficult environment, I think it's a rather relatively good result. If we see distribution year-to-date Portugal, evolution of 5-year CDS would result on 8.4% return on RAB, slightly lower than last year where it was 8.56%, so not a big change. As you've seen, the long-term contract reduces the relative weight because of the 3 hydro plants that go into the market, they finish the CMEC. So visibility is the keyword now that we know what was decided in Rumstein and implemented. Overall, what I would like to finish with is, of course, a resilient performance. I think resilience is the key word enhanced by this diversification. Strong improvement in efficiency. Of course, the new additions are focused where it makes sense. But clearly, I think one of the key message that was clear for 2013 and will be, of course, kept tight in control in 2014 is the cost control. So this issue is always important, but even more important when the environment is tough. So keeping the lowest profile, of course, was a driver and will keep going on. We expect receivables not to increase. It means that the net in our balance sheet increase that we expect, of course, will be compensated by sales. So our commitment is not to have more. Then probably in the Q&A, we'll go through this detail. Not to avoid questions on this, I will give this opportunity to discuss later, but typically, we have done a good job in 2013. We have sold 1.5. The commitment is the same for 2014. We will go through the disposals that were announced with CTG. The net debt reduction by EUR 800 million. Our commitment for 2014 is that the debt will go, again, down compared to the 2013 figures. Finally, just to mention that we will propose to the shareholders annual meeting the dividend of EUR 0.185. I think it makes all the sense. It respects the commitments. It's one of the cornerstones of our policy. It has given credibility. Today we have the improvement of the visibility, medium term free cash flow potential enhances the value of this. Our quality mix, the returns and diversification effect and the risk management. I think 2016 proves that we have been delivering as always on this front. 2014, a challenging year, but this policy will, of course, deliver once again, the difference between us and the rest of the sector. Thank you. Let's proceed for the Q&A. Thank you. As a reminder, ladies and gentlemen, if you wish to ask a question, telephone participants may press star followed by 1 on your telephone and wait for your name to be announced. Web participants may submit a question by typing it in the Ask a Question box and clicking Submit. Your first question on the telephone line comes from Alberto Gandolfi. You can ask your question. Good morning, everyone. It's Alberto Gandolfi, UBS. I have four, but very quick one. The first one is going to slide 35 where you're talking about 2014 expected in Portuguese regulatory receivables. Can you explain more in detail what does that dark gray bar mean really? Because I was expecting something like EUR 600 million-EUR 700 million increase in your regulatory receivables. It looks like we have from EUR 2.4 billion to EUR 5.3 billion. So what type of increase do you expect? How much do you expect to securitize? Point one. Point two, I would have expected on this maybe faster securitization given the drop in the Portuguese bond yields. I would expect more appetite for this type of product. So why haven't you accelerated the securitization of the receivables? Still talking about the debt, you say 2014 below 2013. Can you please elaborate the key assumptions behind this statement? Particularly, you're going to answer already the asset securitization from the first question, but can you also talk a little bit about the disposals you have in your mind and the cash flow generation? When it comes to final question, can you talk a little bit about outlook for Brazil, please? There's several moving pieces, the currency deviations from yet another year of drought, but full contribution of Pecém. Then you have also the organic growth. Can you talk a little bit about what you are seeing, what you're expecting for the full year? I'll stop here. Thank you so much. Alberto, this is Nuno Alves. Let me talk. I will handle the receivables and the debt. I will try to explain. What you have in slide 35 is a Our expectation, which we had shown and been showing quarter by quarter since 2013, the evolution of the Portuguese deficit going forward. We had expected a slightly higher number at the end of the year, but it is not meaningful, the difference. So we maintain the guidance for end of the year system deficit at EUR 5.3 billion. Now, the amount that you will have, lighter gray and darker gray, is going to depend on how much we securitize. Let me try to answer the question on what we intend to do and amounts of what we are trying to do, and maybe even why we do not do more. Clearly, we have already done close to EUR 140 million this month. We are very ready to go for a market transaction the second half of March, beginning of April at the latest. We have mandated the banks. We are just waiting for final approvals. We intend to start the roadshow in about two to three weeks' time. We want to do a market transaction the same way we did it last year. Clearly, we do have an expectation that the response is going to be stronger than last year. So we will see how it comes. But clearly, our expectations are high that we will do a market transaction sometime within the next month or so. The planned amount for that transaction is going to be at a minimum EUR 500 million. We will see where the appetite is, but that is our goal right now. Let me turn to, and I know it is a little bit complicated and some people like it, some people do not like this discourse, but why do not we do more? The issue is, from a shareholder supervisory board standpoint, the message that we have is that we should not allow it to increase in the balance sheet, but we do not have a target to lower it to. What we have is an asset that is paying us, in some cases more than 5%, in some cases just less than 5% per year of an asset that we recognize probably as the safest asset you can have in Portugal. And the issue is if we sell it, lose that carry that we are having as a financial income today, and we exchange it for one of two things. Either we do bank deposits, which as you know, do not pay anything anymore, or we go and buy our debt, which has improved significantly. And even in that case, if we buy the 2016 bonds, we will probably get less than 2%. So by every time we are selling, we have a negative carry of 3%. We try to have a balance here between selling at least as much as will be the increase of the year in the balance sheet, but do not sell the whole thing because we would, in the end up losing some type of money. We did EUR 1 billion in 2013. Our expectation for 2015 is somewhere maybe a little bit less, maybe a little bit more than that, but I would say EUR 700 million upwards. That would be the target for this year, and that is our best expectation as of today. As far as the guidance for that for 2014. Clearly, first of all, we have to adjust the year-end number because we already know that we will not consolidate per se, and that by itself will lower debt somewhere to the region EUR 17.2. Just by that would fall EUR 300 million or something like that. Considering that if you put in there that the sale of the regulatory receivables will be the same size of the new deficit that is generated, be it in Portugal or Spain. Considering that zero, then we would expect that to fall from disposal of assets. We have already contractually agreed with CTG to sell part of the hydro assets, and we will continue to look for other transactions that are part of the program with CTG. We will see if we can close them or not in 2014. But we do have the expectation that number will be positive. Since our cash flow that we do have is going to be very close to zero after dividends and CapEx, we should lower debt. That will depend clearly on how much we dispose of assets. Clearly, our expectation, and we can predict today, is that net debt year-end of 2014 will be lower than 2013 on a pro forma basis. Alberto, first question, outlook for Brazil. If you look at page 37, you have already a ballpark figure in terms of 60%. Of the outlook. It gives you already an idea of what we see. Of course, the issue for Brazil, as you have mentioned, you have a lot of moving parts. Positive moving parts, it is the same. Currency, as you have seen, it was already worse, but then it improved. But clearly, the big issue is what will happen in terms of tariff deficit creation or not, and CDE intervention or not. At this stage, and all the signals is that we will have some kind of government intervention in the positive way. We do not know what will happen, and I think everybody is waiting for, I think throughout March, and able to see what happens with the rain in Brazil. Typically at this stage, we have no reason to change what was our vision, because it depends on that moving part that we do not know what will be the impact in terms of CDE or a proxy to that kind of intervention. I think that we will need at least till end of March to see what will happen. Can I just make it crystal clear? Sorry to follow up. Question for Nuno here on slide 35. You talk about a target of about EUR 700 million securitization. If you were to succeed on this EUR 700 million, your year-end regulatory receivables on balance sheet from Portugal would remain at about EUR 2.4 billion, broadly unchanged. This is correct, right? That is exactly correct, because part of the amounts that we securitize go on to pay the existing over. The increase of the system deficit will always be smaller than the increase on the balance sheet. If we did not sell anything, the balance sheet increase would be more than the EUR 500 million, because part of the deficit, which we do not own, has to be paid through the tariff on a yearly basis. Sure. EUR 400 million, EUR 500 million of new deficit in Portugal means that we will have to finance EUR 700 million, EUR 800 million. Sure. Thank you. Thank you, Albert. Next question, please. Your next question comes from Stefano Bezzato. Please ask your question. Yes. Hi, Stefano Bezzato from Credit Suisse. I got four questions if I may. First of all, going back on the leverage, do you still plan to reach 3x net debt EBITDA by the end of 2015? Does this still seem reachable to you? If not, are you ready to consider new disposals on top of what you have in your plan? Are you ready to live with a higher leverage, maybe also in consideration of your highly regulated profile? The second question is on regulation. We have seen recent press articles commenting on possible new government intervention in the coming weeks, in particular in terms of ancillary services, if I am not mistaken. Can you shed some light on what do you expect here and the potential impact? The third question on your P&L targets. Given the recent and ongoing disposals of minority stakes to CTG, could you give us a bit of an indication of what you expect in terms of level of minorities on your P&L going forward? Finally, last question, you mentioned you are happy with the current consensus in terms of EBITDA for 2014. What about net income? Consensus is currently below EUR 900 million. Would that be comfortable for you as well? Thank you. Okay. Let me start with the leverage and the 3x, because there is also some questions on that issue on the internet. Let me try to address it. Clearly, and we have been stating this for a while, after all the regulatory changes that we have had and which we have shown will amount on a recurrent basis to more than EUR 300 million per year out of the Portugal plus Spain forward. Out of normal business, the 3x in 2015 will not be achieved. We do not want to let to try to get as close to the 3x as we can. Clearly, we are not going to start disposing of assets just to meet that number. If we find opportunities that do create value, we will do so. So we will maintain the target of trying to get as close to 3x as we can by 2015. But we clearly know that unless we do some sale, which is sizable, we will not reach that number. We are also working on, as you know, on a 2017 plan, which we intend to present in London on May 14th. At that point in time, we will be ready to give you further guidance on that leverage and how we intend to handle basically bringing the numbers after all these regulatory changes into the P&L and balance sheet of EDP and try to translate When we will get to the 3 times if we don't do anything apart from the extraordinary. But clearly, we maintain the goal of getting to 3 times as fast as we can, and clearly before the end of the CMECs, which is in 2017. So that goal is still EDP's goal, but clearly we also have to state today that unless something unexpected today, we will not get it in 2015. In what concerns price in Portugal and the new measures and then about profits. Let's be clear. The Portuguese government measures still started before we got a clear visibility on the package, well before the neighbor country. Ancillary services is the last technical issue that is under discussion, creating incentives for a balanced intervention in the market. I think that's good. Auto-regulation, I think it makes all the sense. We have already included in our vision for 2014 the impact of this, and it could be between EUR 10 million and EUR 15 million. So clearly, we are working together with government and regulator, and we see this as a totally normal optimization measure in the system, very different from the rest of the package. In terms of current consensus, when I talked that I was comfortable about EBITDA, I'm also comfortable, eventually even more comfortable with the net profit. It means that we expect to do slightly better. In what concerns levels on minorities, Nuno. In terms of minorities, the minorities will increase from about EUR 12 million in 2013 to about EUR 26 million in 2014. And most of that has to do with the minority sale of the assets in Portugal to CTG. The other sales of Brazilian assets will not have an impact in the minorities because we will no longer consolidate them. It will be a financial investment. So what you'll have is that profit, but we don't account for it today. Thank you very much. Next question, please. Next question comes from the line of Carolina Torres. Please ask your question. Hi, good morning. Thanks for taking my questions. I have two. First one is on Brazil, specifically on Pecém. The availability of the plant in 2013 was around 60%, I think 61%. What sort of availability do you expect in 2014? Based on that availability, what is your exposure to the spot market on that plant? Because my understanding is that if you underperform, you would have a high exposure to the high spot prices, which you wouldn't be able to pass through, specifically on Pecém. My second question, it's on the disposal plan with China Three Gorges, because you announced EUR 1 billion of disposals in December. I want to know, one, if the co-CAPEX with São Manoel is also part of the transaction, so you are now closer to EUR 1.2 billion then. And second, if you could give a little bit more visibility on the timeline of the remaining EUR 800 million to EUR 1 billion. If Spain is next, when you would expect to announce that? Thank you very much. Okay, Carolina. Thank you. We have a clear improvement, and just to give you an idea, in February, the availability of the plant was around 90%, so we are really in a different environment today. The critical issue that I would like to mention is what concerns the penalties you have seen in the accounts of Pecém in 2013 because of the availability. It is important to see that we won a preemptive move in the court because ANEEL wanted to change the reference periods for that availability from a 5 years average into almost a daily average. Clearly, it shows that they need to respect the contract, the measure is so they can no longer see these on a daily basis, but they must see it on the period that was contracted when we were awarded that concession. It presents a major change, I believe, positive for us because they can no longer today apply any penalty. But in any case, the good news is that the machines are running and the availability is around 90% on February. In what concerns the disposals. By the way, the penalty was called for those that like the Adomp, and you probably know that name. In what concerns the disposals, São Manoel will be part of what we call the co-investment part of the EUR 2 billion that was committed. As you know, part of the EUR 2 billion was disposals and part would be co-investments, buying in what concerns new projects, and São Manoel will be, of course, included. So the share of São Manoel that was considered by CTG is included in the EUR 2 billion. What concerns next steps, of course, now that we have visibility about Spain, we are working back into the table, looking into those assets. That is the obvious move. But we keep considering alternatives to be sure that we will give additional visibility about the second billion on the wind farm. We will be looking into also other markets to speed up that second stake, including eventually Brazil. So we have been clearly no taboos, but also being pragmatic about what makes sense at each moment. Of course, now we are looking back into Spain, but let us see what makes sense. Okay. Let me answer some questions that came through the internet, and there are several. They are mostly on the debt side. This question on the China Development Bank, EUR 1 billion remaining drawdown. The answer to this remains the same. Right now, we do not need it. The backup is still there. If things go nasty again, we clearly would use it. But as of right now, markets are working well, and we can finance easily in the market, so there is no need to use it. So we will maintain it as a backup for bad days if they come again. If they are not, we probably will not use it at all. There are questions here regarding the rating of EDP. I do not think there is much new there. I think we are at the same stage we were two or three months ago. Clearly, agencies have been approaching it differently, if I may say so. We have noticed a little bit more openness of S&P to re-look at the way the methodology works with the republic caps or not on the companies. So we see that as a positive, even though there is no near-term expectation of a change. But clearly, I think that there is an appetite there to be a little bit more flexible than the other rating agencies as of today. So we are in that boat that we are still kept by Portugal, clearly as a cost to us. Let us hope that the country itself keeps on improving, and one of these days, it gets recognized by the rating agencies that the sovereign issue is no longer what it used to be. If that is the case, I think that is the time that EDP will be upgraded. In terms of CTG increasing the stake at EDP, António, I do not know if you want to say something about that. As you know, they have a standstill and a lock-up period until May 2016. So it is a question that, until then, it does not make any way through. So it is not the case. They have publicly announced that they are pleased that they cannot move in any case, so I think it is simple to answer. Finally, there is a question here on the rundown on the PPA Max. They will run down till 2017, a little bit more this year. There is some more to go at the end of 2015. But the bulk is in 2017, and if you need it, the investor relations division will give you the total breakdown, asset by asset, how it winds down. But clearly, it is going to be a slow decrease till 2017, and then in one go, it will go to zero. We can go back to questions if there is any. Can go to the next question in the phone line, please. Your next question comes from the line of Gonzalo Sánchez-Bordona. Please ask your question. Hi, good morning. This is Gonzalo Sánchez-Bordona from BPI. I have a few quick questions for me. One on the CapEx outlook. I want to confirm that you keep your CapEx targets of EUR 1.7 billion for 2014 and EUR 1.5 billion for 2015. Second question would be on the OPEX evolution. We have seen that you have anticipated your OPEX savings program by one year to 2013, so just wanted to know if you have any additional programs for this year, and how do you see your OPEX evolving during 2014 after the drop that we have seen in 2013? Finally, on the strategic plan, I have read somewhere in the news today that your plan for 2014 to 2017 will be focused on the leverage. I just wanted to know after what you've discussed on the net debt EBITDA target of 3x for 2015, or as close as possible to that target, if that is a target that you are comfortable with also for 2017, or if you believe that a comfortable leverage for you would be lower than that. Thank you. Just to reassure, CapEx outlook EUR 1.7 billion 2014, EUR 1.5 billion 2015, that's clear. We keep that in front of us. In what concerns OPEX, we want the costs flat in 2014, even with increase of activities and installed megawatts. I think that's also good news. In any case, we will be probably in May talking about more long-term vision for that OPEX line, but for 2014 it's flat. In what concerns the net debt, I think that's clear. Our commitment is going in the direction, going down in terms of net debt to EBITDA. Nuno has already said why we are not 3x in 2015, but clearly we are going in that direction onwards. We will give precise figures in May, but what we wanted to reassure everybody is that deleveraging is at the core of our strategy. The balance between growth and deleveraging was key, is key, and will be key, because we have a clear understanding about keeping this low risk approach. We are, of course, aware that after 2017, with the end of the PPAs in Portugal, even if our growth is mainly through long-term contracted, so you replace long-term contracted with long-term contracted, in terms of growth, except for the Ibios project in Portugal. The commitment is in that direction, and we'll be discussing when exactly we will reach that figure in May. Thank you. We can go to the last question, please. Your final question comes from the line of Charles Fishman. You can ask your question. Thank you. Two questions. One is, you now have two years in a row with a dividend payout ratio slightly over 65%. At one time, you wanted to stay below the 65%. Is that a policy that's not going to be really as critical going forward? Then my second question on slide 5, you now have two quarters in a row of strong demand growth in Portugal. I was wondering if you could give a little more color, where is that demand growth coming from and what your outlook is for 2014? Thank you. These are good questions. The first in terms of payout ratio. I think that our policy of having a range of payout and the floor makes sense. By the way, I think it was followed by other players in the market. In what concerns the range, I think it also makes sense. We are today at the average of the sector, so it means that it's a quite sane policy. The idea is, of course, to soon as we see profits going back up again, we'll share these with the shareholders. So typically, dividend policy and that visibility, I think it's a key element, and we will keep this payout ratio. As concerns demand in Portugal, I think it's a good front. We have seen that the last quarter, an increase of 2%, slightly above 2%, and we have seen at the beginning of the year also. It shows that you have a recovery, also export led in Portugal, and I think it is good news, especially because the increase of demand comes from the industrial side and especially the big industrial. So the large size export-driven industrial. All of this is good news and sound news, better than expected six months ago. We ended up 2013 even with year-on-year slight increase against what we expected. It was a decrease, so better than we expected. This figure is of course important for our P&L, but especially important for the sustainability of the system. We have been talking about tariff deficit in Portugal. We have already stated how it peaks and then how it goes down, but one of the critical elements for the stability of the system that we firmly believe is demand. The demand assumption in terms of growth that are included in the model for this to be safe until the end of the decade is clearly today surpassed by reality. We have been seeing increases of demand that are above what was included in the model in terms of sustainability of the system. So good news in the short term, but also good news in terms of the tariff deficit reduction and sustainability until the end of the decade. Certainly. Thank you. In what concerns, just to wrap up, I think that just to say that we feel comfortable with 2013 year-end figures. We are now more comfortable with the visibility because we know one of the key issues was about the Spanish regulation. Now we have visibility, so we are comfortable with 2014 more than we were before, and we are comfortable with the consensus. It is going to be a challenging year, but I think that we have, again, in 2013, proved that we do what depends on us. Regulatory management, energy management, cost front, and even in the project that was delayed, and where we were not doing exactly what was expected. It was the case, for example, the coal fire plant in Brazil. We are now where we were supposed to be. Clearly overall, we are facing the market and taking all the measures in all the fronts that we need to take for us to feel comfortable and for everybody, especially the investors, to feel comfortable. Thank you for your presence and see you soon. Ladies and gentlemen, that does conclude our conference for today. Thank you all for participating. You may now disconnect your lines.