Earnings Call: H2 2012

Mar 6, 2013

Summary

FY12 EBITDA fell 3% to €3.6bn and net profit declined 10%, as renewables growth partly offset pressure in Iberia and Brazil. FY13 EBITDA guidance was flat, with recovery expected in 2014 and a €0.185 cash dividend maintained.

Good morning, good afternoon, ladies and gentlemen, and welcome to the EDP 2012 year-end results conference call. The presentation will be followed by a question and answer session, first from the telephone lines and then from the web. Web participants may submit a question by typing in the Ask a Question box and clicking Submit. Telephone participants may ask a question by pressing star 1 on their telephone keypad when prompted. If anyone should require assistance at any point during today's conference, please press star followed by 0 on your telephone keypad. Just to remind you, this conference call is being recorded. I would now like to hand the conference over to your speaker today, António Mexia. Please begin your meeting, sir. Thank you. Good morning, everybody. Thank you for your presence in this conference about 2012 results. The first word that I would like to use is, of course, in a tough environment, especially due to challenging Iberian market conditions, not only in terms of demand but also in terms of the regulation, as everybody can recognize, but also due to non-recurrent items in Brazil, we presented resilient results with a decrease of 3% on EBITDA to EUR 3.6 billion. Of course, these negative effects on Iberian market and especially non-recurrent in Brazil, that all along the year people were not even mentioning whenever we met in one-on-ones on any conference, everybody was keeping this always on the bright side, but non-recurrent items exist. It was strongly compensated, but not totally, by healthy growth in renewables. Once again, resilience due to the portfolio effect. If in 2011 the bright news were coming out of Brazil, this year the good news were coming from renewable sector, compensating mainly for the lower Brazilian figures. In this year, we have an addition of 880 megawatts, typically wind, hydro, and Brazil, two-thirds of which in new hydro and wind. Clearly keeping the same focus on value creation projects on these two technologies that, as you know, in terms of earnings, are more protected than other technologies. Also a word to a continuous focus on efficiency. It's a pleasure to see people talking again about efficiency and about costs. We have been showing clearly the best net effects over gross margin in our Iberian market, and we see the cost growing below inflation and keeping EDP as reference in the sector in our market. We see also a decline in average cost of debt, 4% compared to 4.1% in previous year, in 2011. Clearly below the guidance in May 2012. Due to what? What for everybody, a strong decline in everybody, right? But also a lower margin cost of debt. I remember that along this period, a lot of people saying, "Okay, this number can only go north." What we see is that the number went south. It's good news for us, and I think it shows that we did the right strategy in terms of funding. The net profit was just slightly above EUR 1 billion, EUR 1.012 billion, with a decrease of 10% year-on-year, with an EPS of EUR 0.277 a share. Based on this, we will propose to the shareholders in our meeting, as committed and as is always the case in EDP, a dividend of EUR 0.185 a share fully in cash, the same that was the last year. That's clearly respecting what was committed previously, namely in our last Investor Day. In terms of highlights of the period, I would also like to start mentioning the fact that we were at the $2 billion CapEx, lower 7% year-on-year, namely for few expansion projects in wind power, especially in U.S. market. Clearly the fact that we went down the road once again as committed in what concerns the leveraging through disposals. We closed deals for EUR 800 million of disposal, out of which EUR 600 million will be received only in the first half of 2012, but it's clearly gas business, wind business, the deal with Enagás, the deal with Borealis, and the deal with CTG signed at the end of December. All of this as committed, showing that we don't have any hesitation of doing what we've told in terms of disposal. We must also recognize clearly the issue of regulatory receivables going up about more than EUR 1 billion in 2012 in Portugal. EUR 300 million of these EUR 1.1 billion increase due to a dry weather. Clearly, an increase that is slightly above what we would expect because of a very low dry year, where we were below half of what is a normal hydro year in Portugal. To be more exact, 48% of what is a normal year. Fortunately, this winter has been totally different. The electricity system sustainability agreement is being respected, and clearly we see receivables. We feel comfortable with the soft landing, and to be fully paid by 2020 based on what I was mentioning always, 1.5%-2% increase above inflation. As you know, it was a decision for 2013 by the regulator. In terms of net debt, basically, the increase is due to the increase of these regulatory receivables. It went up 8% to slightly above EUR 18.2 billion, the same as it was last quarter. We see the first quarter already changing. Why? Because of part of the disposals and even as you will see in the presentation of one of the cash grants that was received at the beginning of January. It was supposed to be received end of December. Clearly, here, the first quarter will show what we want to show. Also, I would like to mention and stress the strong liquidity position. Almost EUR 4 billion by December 2012. Almost EUR 6 billion, to be more exact, EUR 5.8 billion already considering deals settled up to February 2013. Clearly, one of the issues that was there, especially in the first half of 2012, is gone. The question of liquidity, the question of access to the debt market. We tackled the market for more than EUR 4 billion in the last 11 months. It shows clearly that we were able to solve one of the key questions that was raised by the market. A strong improvement of credit market, with lower cost of debt. In other words, the marginal cost of debt of EDP is clear today. Totally different from what was the vision 3 or even worse, 6 months ago. We see what? The low-risk profile delivering the results. The fact that we have the 85% regulator long-term contracted, even if we suffer in some regulated assets, is better than to be overexposed to merchant markets. So diversified markets and competitive assets. Once again, the portfolio effect. Risk control, low risk control efficiency, and clearly also in terms of creating optionality. The project of Jari in Brazil is going well, on time and on cost. We won the auction in Brazil. By the way, the only one that were able to win some hydro in Brazil with Cachoeira Caldeirão. Typically, we have been delivering also in attractive markets with attractive assets. Also, before I pass to Miguel, as usual, you see just after the first pages, the earnings delivered to shareholders versus main European integrated utilities. Sometimes I say that I should put these on T-shirts, but it's clear to show that we have been delivering as expected, and as you see actual data in 2011 compared to the consensus in 2009, and the world has changed a lot. What we see is that EDP is typically on the top, and it was exactly the same on an even tougher environment when we compare to actual date earnings per share 2012. Compared to what was the consensus in January 2010, we see everybody at the left, so lower than expected at that time. But clear with the figures that are very different from the KPIs, and only matched by companies with a very different profile. By the way, if it was not, and we assume that for the delay of Pecém at year-end and also the tariff deviation on Brazil, this figure would be again even much more positive. So visibility, visibility. It's a key word. Of course, we have been seeing changes, namely recently in Spain. We can always have something in front of us. But due to our profile, due to our asset allocation policy, due to our low-risk approach, I think that we have a very distinctive profile amongst European utilities. Our business model is clearly different, and we have a lower sensitivity to energy market. Of course, we suffer as everybody with changes that can occur whenever regulators or government don't need to be anti-cyclical. Clearly, 2012, a year where we were protected by our strategy, where we have suffered from regulation and non-recurrent element in Brazil. Miguel, if you can, and then we come back to the Q&A and final remarks. Thanks, António. Starting to move now to 2012 operating headlines, we can see that installed capacity rose 1% in 2012, while oil production declined 6%, mostly due to dry weather in Iberia and Brazil. In terms of the EBITDA breakdown by division, I would highlight the EBITDA decline in Brazil and Iberia markets and the 17% growth from EDP Renováveis, with long-term contracted and regulated EBITDAs maintaining a weight of more than 85% of EBITDA or EDP. Regarding EBITDA breakdown by geography, with EDPR EBITDA being also located by country, we can see that the major growth areas of EDPR were U.S. and rest of Europe, mainly Poland and Romania. Comparing to guidance provided at our May 2012 Investor Day, in 2012, the sum of EBITDA from Iberia and EDP Renováveis came much in line with May 2012 Investor Day guidance, meaning that one-offs in Brazil justify roughly 95% of 2012 EBITDA deviation versus the guidance provided by then. In terms of operating costs, they rose 3% year-on-year at consolidated level. In Iberia, operating costs rose 2%, impacted by higher commercial costs resulting from the ongoing energy supply liberalization process. At level of EDPR, operating costs 13% up, or 10%, excluding Forex, in line with the outputs growth of EDPR. While in Brazil, operating costs rose 5.8% in local currency, in line with inflation in Brazil. Note that in 2012, we have accomplished our OPEX III target savings of EUR 75 million, and we aim now to anticipate our 2014 targets for 2013. CapEx in 2012 fell 7% to EUR 2 billion, following a slowdown of wind power capacity expansion. Note that expansion CapEx in 2012 was 100% in new and renewable capacity, plus the new gas and coal plant in Brazil, which has a PPA with Brazilian Electricity system. Regarding the execution of our strategic partnership with CTG. On December 2012, EDP agreed with CTG the sale of a 49% minority stake in EDPR Portugal for a total cash-in of EUR 359 million. The regulatory approvals are expected to be concluded in the first half of 2013. Moving to regulatory receivables. They increased to EUR 1.1 billion in 2012, mostly explained by a similar increase in Portugal. This increase was driven by an increase of EUR 790 million, in line with previously defined by the regulator, and an increase of EUR 270 million due to extreme dry weather in 2012 in Portugal. Regarding the composition of our net debt, it continues to be essentially issued at building levels through both capital markets and bank loans, with investment operations funded in local currency to mitigate the Forex risk. Floating rates represent 56% of our debt, providing hedging on inflation. Our net debt rose EUR 1.35 billion in 2012, mostly driven by increase in regulatory receivables that I previously referred. Note that in the first half of 2013, we should collect EUR 0.6 billion of disposals, which include EUR 250 million received in February 2013, regarding the sale of gas transmission assets in Spain, and the previously referred EUR 360 million of minority stake in Portuguese wind farms, which is being disposed to CTG, which is pending regulatory approvals. Regarding the activity of EDP in credit markets, between July 2012 and January 2013, EDP raised EUR 4.5 billion of new long-term debt at competitive cost, benefiting from an improvement in credit market conditions. Regarding the evolution of net debt maturity profile, adjusted for the EUR 1.6 billion credit facility signed in January 2013, average debt maturity increased to 4.3 years by then. By 2012, our financial liquidity position was EUR 3.9 billion, including EUR 2.2 billion of available credit lines and EUR 1.7 billion of cash and equivalents. Adding to the five-year loan obtained in January 2013 in the amount of EUR 1.6 billion and the sale of gas assets in Spain, which was closed in February 2013, the adjusted financial liquidity stands now at EUR 5.8 billion, which covers refinancing needs beyond 2014. Note that this figure still excludes the impact from citizen investment in renewable minorities and also the China Development Bank EUR 1 billion commitment. Overall, we can see on page 19 that our net profits fell 10% year-on-year, reflecting the 3% decline on EBITDA. Financial results penalized by increase in average net debt but benefiting from cost of debt lower at 4.2 in 2012 versus 4.1 in 2011, and also lower impairments on financial stake in BCP, which was EUR 58 million in 2011 and EUR 5 million in 2012. Noncontrolling interests also lower, reflecting essentially the decrease of EDP Brazil net profit. By business areas, and moving now to slide 21, we can see that in 2012, Iberian electricity and gas markets were penalized by lower demand. -2.8% demand in Portugal and -1.2% in Spain. Nevertheless, smaller declines than in 2011. In this environment, EBITDA from our long-term contracted generation in Iberia fell 4% year-on-year, impacted by some negative one-offs, and also the lower mini-hydro output, which fell 42% year-on-year. Nevertheless, adjusted EBITDA fell just by 0.3%, supported by higher inflation, higher availability rates of our plants, and the commissioning of the DeNOx facilities at our Sines coal plant. In terms of operating performance at our liberalized energy activities in Iberia, our total production fell 13% due to very low utilization rates at our CCGTs, our gas combined plants, while higher coal production was driven by more competitive costs. Higher hydro output was essentially backed by capacity expansion as the hydro conditions were worse in 2012 versus 2011. EBITDA in our liberalized activities in the Iberian market fell 14%, reflecting a 13% decline in volumes produced, flat unit costs at EUR 39 per megawatt hour, and no capacity payments in Portugal since June 2012. We were also affected by strong growth in B2C client base, which implied an increase in commercial costs following market liberalization in Portugal, and also lower arbitrage opportunities in the stock market. On regulated energy networks in Iberia, EBITDA fell 4%, impacted by a EUR 37 million one-off in first quarter 2011 on the sale of our electricity transmission assets to Red Eléctrica. Adjusted EBITDA fell -1% year-on-year on lower regulated revenues from electricity distribution in Spain following the measures announced by the Spanish government in March 2012. Regarding a picture in terms of the evolution of overdue debts from customers in Portugal, we saw no material impact on customer collecting cycle, even considering the current adverse economic environment in the country. Moving to EDP Renováveis on page 27, we can see that EBITDA rose 17%, impacted by an increase of 6% of installed capacity and 10% increase in volumes produced. The increase in absolute terms of the EBITDA was EUR 137 million, driven by the rest of Europe, namely Poland and Romania, Spain, and the U.S., which roughly half of the positive impact comes from Forex. Regarding Brazil, we can see on page 28 that in 2012, market conditions were marked by strong electric demand. Although the growth in the Southeast region was penalized by a slowdown in terms of industrial consumption, and very important, the strong increase of spot prices, namely in the second half of the year. This strong increase in spot prices was driven by a strong decline in hydro reservoir levels due to dry weather and some delays in commissioning of new capacity, which requested the full dispatch of all available backup thermal plants, increasing the generation costs and also the spot prices. This environment affected the EBITDA performance of our subsidiary, EDP Brazil, which showed an EBITDA decline of 15% in local currency, analyzed by some non-recurrent events. In distribution, I would highlight the negative tariff deviations on high electricity acquisition costs, reflecting the higher spot price in the market. These higher costs will be passed through to customers in 2012 and 2014, so it's non-recurrent impact. We have also the recurrent negative impact from the cut on Bandeirante return on RAB from 10% to 7.5% since October 2011. In generation, the recurrent positive impact from PPA price inflation updates was not enough to compensate the negative impact from the delay of our Pecém plant. So adjusted for non-recurrent events, our EBITDA in Brazil fell 5% in local currency, reflecting essentially the cut on Bandeirante's return on RAB in the latest regulatory review. Regarding prospects for 2013 in Brazil. In distribution, the recovery of the negative tariff deviations is expected to be more concentrated in the second half of 2013 and in 2014, following the annual tariff updates of Bandeirante in October and Chesf in August. While in generation, we expect Pecém to have between 9 and 10 months of full capacity in 2013. Note that we expect in the first 12 months of full operation of Pecém to have an EBITDA contribution of roughly BRL 215 million or roughly EUR 85 million. Overall, we expect a significant recovery of EBITDA in Brazil in 2013 versus 2012, but still below what should be its normalized level. In terms of dividends, the executive board of EDP has proposed a flat dividend per share of EUR 0.185 for 2012, fully in cash, which puts EDP in top six dividend deals for 2012 at current share price levels amongst STOXX Europe 600 companies. In terms of outlook for 2013, and starting for macro assumptions, the European Commission has recently revised its GDP forecast. New forecast for Portugal and Spain are now -1.4% GDP in Portugal and -1.4% in Spain. As we know historically, there's a significant correlation between GDP and electricity demand evolution. On top of that, we have already the figures for the first two months of the year. In the Iberian market, the electricity demand went down by 6.4%, adjusted for temperature and working days, a slower decline in Portugal, -1.5, and slightly higher in Spain, -4.7. With this information, our new forecast in terms of electricity demand in Iberia for 2013 is now -2%, essentially reflecting the weak macro environment. Looking to thermal production in Iberia, also looking to the performance in the first two months, we see a decline in terms of utilization of thermal capacity by roughly 50%, slightly less, 46% decline. This reflects hydro production coming to normalized levels. The hydro factor in Portugal was very close from one in the first two months of the year. Renewables production increasing, not only due to new install capacity, but also due to very strong wind resources in January and February. Also the referred demand decline contributes to this lower production of thermal generation in the period. In page 35, we can see also some figures from the first two months of the year, which means I would highlight on the left end that power prices in the first two months were lower year on year, so 9% decline. Despite new generation taxes in Spain in 2013, the average pool price year to date is EUR 4.7 per megawatt hour, slower year on year. Also, I would highlight that the average pool price in Portugal is slightly below Spain, which is normal given the taxes and given the higher hydro and wind resources. Very important, I would highlight that although the power prices are lower, there is more volatility. We have high volatility of prices, which increase the arbitrage opportunities, mainly on pool purchases, pumped hydro storage, et cetera. How do we stand right now in terms of outlook for 2013 liberalized activities? We have 100% of our commitments of gas production fully closed. We have fully hedged our coal production. In terms of gas, we have covered already 80% of our commitments. We continue growing in terms of wholesale and retail sales of electricity and gas. I would say that we are quite protected, and we still have good placement in terms of markets to take advantage of some arbitrage opportunities which can happen mainly through replacement of thermal production by electric purchases, operation of the recently commissioned hydro pumping and repowering capacity in Portugal. In terms of outlook for regulatory signals in Portugal, we maintain the evolution as expected. Expect an increase in the region of EUR 500 million in 2013. In terms of the first two months of the year, I would highlight on the positive side the hydro production, which is much better than last year. Tariffs increases that were fully implemented. Market liberalization with number of clients in free markets increasing faster than expected. On the negative side, of course, demand, which is slightly worse than expected. Nevertheless, expect a stabilization during the year to -2% in 2013. All the measures that were announced by the government in May were already implemented. The cuts on CMEC, capacity payments, cogen, and the wind agreement. On the CO2 auction, we have the issue of lower prices in the market, which decrease the visibility in terms of the volumes and prices of CO2 auctions to be done in 2013. We can see in page 38 that Portugal continues to benefit from a cheaper and more mature mix of special regime technologies. We have less solar and more cogen versus Spain, so lower premiums and lower costs with the special regime, which gives an advantage in terms of the future evolution of regulatory signals in Portugal. In page 39, we highlight also the amount of deficit that we have available for securitization, and the maturity that they have. So we have essentially securitized assets with relatively short maturities. So 2.5 years on average, with a low risk and adequate remuneration, which we also consider a competitive advantage. In terms of CapEx, we maintain our guidance of EUR 2 billion, in line with 2012, reflecting the ongoing expansion in wind. So we expect to install 500 megawatts, mostly in Poland and Romania in 2013. The new hydro plants under construction, five hydro plants to be commissioned in 2014, 2016, and in Brazil, the conclusion of Pecém, and most importantly, the ongoing construction of Jari and start of construction of Cachoeira Caldeirão. I will move now to our CEO to EBITDA outlook and closing of the presentation. Thank you, Miguel. I think that breakdown of EBITDA of the company is always useful to understand the issue of visibility of our earnings, our results. What we expect for EBITDA 2013 is a flat year compared to 2012. As you know, 2013, as already foreseen, will be penalized by the shutdown of an important plant in Portugal, Setúbal. And of course, by the fact it will be the first full year of the impact of regulatory measures in Iberia. In what concerns EBITDA for 2014, we see it clearly above EBITDA of 2011. The key reasons are related to the fact that we will have the first hydros coming out of the CMEC. As you know, the implicit price on the CMEC is EUR 25. So these will be in the free market, of course, with the higher prices. And of course, the new idle capacity that will have impact. As you know, during 2014, we will have two new idles, one mid-year and the other towards the end of the year. And of course, wind capacity, and especially the consolidation of ENEOP. ENEOP, as you know, is the development of the project in Portugal when we won the bid where we have more or less 400 megawatts, one-third, 400 megawatts in the first phase. That will go up, and we will have in 2013 still not consolidating, and in 2014, it will be the first year of the consolidation of those wind farms after the full project is developed. So compared to the business plan in May, what I would like to stress is basically what is new. We don't see major changes except for what? In Spain, we had already considered the first wave of new measures. We had already considered the changes in Portugal. The numbers did not include what happened later. The taxes, and of course, part of the taxes will be passed to the market, but part of it will be, of course, supported by the company. Also, the recent renewable package in Spain. Then we can elaborate a little bit more on that, but of course, this will have, even if it's small, an impact compared to what we expected in May. The other figure that changed compared to what we talked about in May is, of course, Brazil, namely to rain. Unfortunately, now everything is getting better. The reservoirs are already above 40%. But the very dry rainy season had already an impact in 2012. Of course, we'll still have an impact in the first quarter of 2013. But we see this being normalized. When we see on a 5, 6 year period, typically 5 or 6 years in Brazil, basically idle tends to be slightly above what is a normal year, and suddenly sometimes you are below. It's the case with the very low rainy season. Clearly, we have an improvement also in terms of mini hydros compared to 2012 because of now finally, we have a normal rainy season in Portugal. Typically, we don't see major changes, and of course Pecém being fully commissioned during 2013. Of course, the full impact on a full year of both in 2014 will also contribute to a better year. So flat 2013. In what concerns what we see into the future is of course also in terms of consensus, in terms of profits. We don't see at this stage any major difference with the consensus. In what concerns debt, we feel comfortable with the consensus, with the securitization that we anticipate for 2013 compensating the increase that we have already mentioned in the last quarter in terms of receivables in Portugal peaking in 2013 and then going down. But we expect securitization deals more than compensate this in Portugal. So what we see is a resilient business model, of course, in a challenging environment. The fact that we will be, in terms of results, delivering what comes from a resilient performance enhanced by diversification. The fact that the capacity addition are concentrated in wind and hydro and in Brazil. We will keep the low-risk profile with a strong CapEx discipline lowering, as you see in 2012, keeping the commitment for 2013. We will do the disposal program. We will use, if it's needed, the flexibility in terms of investment in 2014 and 2015. We have a very comfortable liquidity, financial liquidity position. When we look, we have just presented figures where the earnings per share have been EUR 0.277 per share, earnings per share. We see a return on equity of 12.14%. We see delivering the dividend per share as committed fully in cash. We have clearly an improvement of the visibility of the medium-term free cash flow based on the mix, based on the returns, based on diversification, and based on the risk approach. So typically, keeping very much the spirit of, and the figures and the commitments of the business plan that we have presented to the market with the changes that I have just mentioned. Let's go for the Q&A. We can start for questions, please. Ladies and gentlemen, if you do have a question at this time, please press star one on your telephone keypad. Our first question comes from the line of Alberto Gandolfi. Please go ahead with your question. Thank you. Good morning. It's Alberto Gandolfi, UBS. I have four questions, please. Hopefully, quite brief. First one is if you can provide further color on the securitization process, which type of agents are effectively interested in acquiring these instruments and what's the process? Where are we in the process? What are the main risks to it, and how much would you expect to be done in 2013? Secondly, a little bit more like bigger picture question, I guess. Mostly rotating around CapEx. It seems quite obvious at this stage that the fundamentals are not just cyclically bad or the business cycle is quite longer than usual. Seems like something deeper, and also governments don't lose the opportunity to extract cash. Wouldn't it be more prudent to run the company on a lower gearing and, let's say, God forbid, variable rates were to go up, the earnings power could be in trouble. So why not more aggressive measures at this juncture? Third question is, talking about the Iberian liberalized business in 2013. I understand what you're saying on volatility, lower prices, add-on taxes. We should expect this business to be meaningfully down because of mostly taxes and an ongoing drop in demand in 2013. Am I right? Very last one. You talk about EBITDA is not normalizing until 2014. What is normalized figure in your mind, please? Thank you. Hi, Alberto. It's Nuno Rodrigues. I'll answer the first one on the securitization. Basically, we have started working on a process to try to, during 2013, to sell part of the receivable assets. What we are trying to do is to set up a vehicle, which will be rated as we've done in the previous two securitizations, and then access the market. The main obstacle or not to it is, are we going to maintain or is the market going to stay as it is today during the course of the year? If that is the case, we are fairly optimistic we will be able to securitize a good chunk of it. But that is the $6 million question. Are we going to have a reasonable market in terms of access and rates during the course of the year? But the expectation is still positive as the market has been performing well from the beginning of the year. What concerns Alberto, the question of CapEx. We have been stressing the fact that the sector, against what was the idea for a decade, can be cyclical, where regulators and governments seem to be nicer when they need new capacity. And we see already positive signs in Europe, even in markets that were unsuspected to have this new vision, like the British market. But clearly, we have been being sharp and smart in this. First, hydro. First, whenever you start with hydro, you don't stop it in the middle. So you need, by the way, to finish as soon as possible to start producing results. So basically, we don't stop hydros. And in any case, it's clearly a technology that is much more protected. In what? And in a long-term value creation, there is no doubt, especially due to the fact of two-thirds of what we are doing is repowering. With, of course, in terms of CapEx per megawatt, much lower than any other thing. Then the second layer of growth is renewables. And we have been proving that our growth has been coming from where? Where you make money, where you can create value, where prices are higher. And we have been quite responsible on downgrading the targets and even the development in markets that are not delivering value, like the U.S. And we were the first to stress this in the first row saying, until we can have visibility about this market, even with now the PTC extension, we have not heard going to the rooftop screaming that we are back again. And then, last but not the least, the focus on Brazil, where the investment in Jari and Cachoeira. We are talking of double-digit returns, very attractive projects that clearly you can control on time and on cost, and typically creating a difference. So once again, hydro mainly in Portugal and Brazil, then renewables in specific markets. But we will use the flexibility in 2014 and 2015 if we need to keep financials under control, to keep the commitment of net debt over EBITDA less than three times by 2015. We will use it. The question is, of course, we have already been reducing and at this stage, and we will be talking more and eventually different or not in several months, is we don't, at this stage, see any reason. And of course, we will not stop what makes nonsense to stop. But we have now CapEx over EBITDA around 55%, very different from 3 or 4 years ago. As we have mentioned, we will go typically to 50%. But once again, hydro, Brazil, and renewables is very different from investing other things because here you have visibility about the revenues and returns. Liberalized 2013, it will be worse. Of course, you still have demand destruction. Fortunately for us, the regulatory system, especially on Portugal, does not impose losses on the regulated part. But of course, the liberalized market with lower demand and taxes will be a weak 2013. But at the same time, as we have Alqueva II and the repowering that we have mentioned, enable us to compensate part of it. But of course, 2013 will be a non-exciting for the liberalized market. It's one of the reasons why we have kept our target in terms of the portfolio of liberalized business around 10%. So clearly, we put our money where we put our mouth. In terms of Brazil- Hi, Alberto. In terms of Brazil, so what we say in 2012 is the adjusted EBITDA is BRL 1.5 billion. Okay? So on top of that, and this has zero impact from Pecém, and it's slightly negative. So 12 months of Pecém, we expect BRL 215 million. So you should add that to the BRL 1.5 billion. We should have still some slightly negative, which is the revision of the return on RAB from Escelsa but it's much smaller, the negative of that revision versus the full commissioning of Pecém. So this is what I can give you to help you on the future normalized level. Thank you. Next question? Our next question comes from the line of Pablo Cuadrado. Please go ahead with your question. Hi. Good morning, everyone. It's Pablo Cuadrado from Bank of America Merrill Lynch. Just a few questions. First one is looking to the guidance of 2013. I think it's on slide 41. You mentioned that you're trying to have a EUR 66 million one-off in the Spanish distribution and gas transmission, sorry, Spanish gas business. I was wondering whether you can give a little bit more detail on the back of that. Second question as well is looking to the liberalized business. Q4 has only provided EUR 75 million of EBITDA, and I think that the cut on the capacity payments already started in Q3. I was wondering whether you can provide us that there was anything affecting Q4 of last year that was a bit special. Third question would be just to have your view again about the cost of debt going to 2015 after decreasing a bit in 2012. Last question is on the dividend. You have said that you feel comfortable with the current consensus approach on net income for 2013, which somehow is indicating that net profit should fall a little bit in 2013 as of 2012. That should trigger potentially the payout to a level closer to 70%, which is above the range that you provided last year. So do you feel totally comfortable setting that floor dividend of EUR 0.185, or do you think that if you break that range, you may have- Well, the cost of debt that we are estimating today for 2013, bear in mind it is still beginning of the year, would be roughly somewhere between 4.3% and 4.4% for the whole year. There will be an increase in 2013 on the cost of the funding. In what concerns the EUR 66 million, sorry, one-offs in 2013, we are talking basically on the, because of the value of the gas transaction that is associated with the one-off gain. Best estimate. Best estimate. Regarding the question on the liberalized activity. The EUR 75 million, you are right. It is abnormally low. We have some one-off here related with adjustments versus previous quarters. If you look to the total liberalized activities in 2012, in the four quarters, it is okay. But slightly higher costs, which were not accounted in previous quarters and some other non-recurrent adjustments inter-quarter. I would say that the recurrent level should be more in the region of EUR 80 million, in terms of this activity, adjusted for all these issues. I think we answered all the questions. Pablo. Pablo. Sorry, guys, I do not know if I missed the first part of the answers. I missed any comment from the dividend side. No, I started with the dividends. Eventually, I had a problem of communication. I started by dividends saying clearly that, it is the reason why I mentioned it first, even if it was your last question, to be very clear that we will not change the commitment with EUR 0.185 being the floor. Especially because we see 2014 being clear reversal, going back again to above EUR 1 billion. Clearly we do not see any reason, even if for one year you are outside the 55%-65%, to change the dividend policy. We did not spend all the time since 2006 building this 85% increase in dividend to change our credibility and our commitment that is set. It is totally sustainable, totally funded. It makes sense, so we will not change it. Right. Very clear. Thank you. We can go to the next question. Our next question comes from the line of Manuel Palomo. Please go ahead with your question. Hi, good morning. Manuel Palomo from Exane BNP. I just have a couple of questions. One is on the tax rate, which, I believe it was particularly low in 2012 and particularly in the last quarter. I would like you to share with us, what are your views on this and whether you could elaborate a little bit more on why it was so low and what is your expected tax rate for the coming years. The second question, which would be on the CTG deal and the update. If I am not wrong, we should see another announcement quite shortly, in order to accomplish with the commitments of, what is the thing, it was May this year when we should see another transaction. How is it going and whether we will see or what would you could update us later on this. The third question would be on the thermal production in Iberia. I wonder whether you, well, you have shared with us your views on the demand evolution, and I would like to ask you what is your view on the CCGTs production going forward after the low load factors that we have seen both in Spain and Portugal, and in particular once you start your operations in new hydro plants, and what to do with these assets. Thank you very much. Okay. As far as tax rate, you are right. We had a lower tax rate than probably was expected. Nonetheless, higher than in 2012. The expectations going forward will be for a slight increase, but not a very large increase in 2013 and going forward. But we continue to find ways to have a tax rate below what should be expected. What concerns CTG deal, we have been working with CTG. Until now, we have respected the deals. We expect 2013 to deliver what is more or less a total of EUR 1 billion, already considering the EUR 359 million already signed. So we are talking about additionally, during this year, we will be talking about north of EUR 600 million additional deals in 2013. We have people working on the assets. We have already identified countries. We have already been discussing issues. So we are on time as agreed to reach this target that is important for the 2013 figures. In what concerns the thermal production. Here, when we see what is going on and we see coal being the new kid in the block, the new old kid in the block, because everybody was expecting two years ago that they will be out of business. We are running full steam ahead, you can say, with lower capacity utilization of CCGT. We have been working on ancillary services. I think that we have the flexibility on take or pay that protects us in terms of this business. Of course, it is a non-exciting business, but typically when you have CO2 between three and five years, in the last weeks, it shows that coal will be the sexy fuel and the rest will have to wait for the replacement. But this will not be, of course, influenced by the new capacity, idle capacity in Portugal, because this will not represent any major change in what concerns the signals in terms of pool prices or CO2 prices that are giving the guidance for this kind of energy mix utilization. So basically, they will be shining for longer than we would like. But, of course, this will depend very much on the CO2 price. Thank you. Next question. Our next question comes from the line of Carolina Dores. Please go ahead with your question. Hi. Good morning. Thank you for taking my questions. I have two. First one, you talked about CapEx flexibility. For 2014 and 2015, when would be the latest time where you can take the decision of slow down CapEx? Because I thought you had to do it by January, or can you decide on doing a lower CapEx? I don't know, maybe June, July, and if 50% is the lowest you could go. Second thing is on the announcement that the regulator in Brazil has granted you part of the compensations for the losses of Escelsa. I see in the presentation that you expected a decision in the first half of 2013. Is there a hope that you can receive full compensation of the announcement of yesterday? Is the less than final decision from ANEEL? Thank you very much. The CapEx flexibility for 2014 and 2015, which we've said all along is we could, if needed, reduce the planned investments in 2014 and 2015 to the magnitude of EUR 200 million-EUR 300 million if conditions deteriorated. Those decisions for 2014, and because those CapEx cuts would be on the renewable side, they don't need to be done before the third quarter of this year. So once we've seen how the first half goes and what we have in our hands at that time, we'll make a decision for 2014 in the third quarter of 2013. In what concerns Brazil, the decision of yesterday is already basically included in the 2012 figures, so we will not have any change with it. Globally, Escelsa was clearly a problem for 2012 because of the delay. Fortunately, it's the opposite on the other projects, namely Jari and even Cachoeira Caldeirão. We have just started, but we see a very different mood. In what concerns Brazil, the key issue is about what they have been discussing about the funding of the tariff deviation created overall in the sector in January and slightly lower in February. As you know, companies have been discussing with the government the possibility of having revenues from somebody on the treasury buying part of this tariff deviation. As you know, if they buy part of the tariff deviation, then it will be considered in EBITDA. Because tariff deviation in Europe, because of legal, is on EBITDA. In Brazil is not on DBA. That's the critical issue, is to follow in the next weeks what will be the decision about if the government decides to use the energy money to buy part of this tariff deviation to ease the financial constraints of, it's not our case. But as you know, some of the smaller disco companies are facing problems because of this huge tariff deviation in general. That's the key issue. Pecém, basically we have number 1 working well. Number 2 is at the last phase, so we will have typically around 9 months of working of the second group. On Pecém, the only thing that we can expect is better news than in 2012. Brazil is about following tariff deviation and rain. Rain. Rain is the thing that makes everything, because even the Pecém delay in 2012, the cost of this delay was higher because no rain, and you had to buy energy with high PLD, higher than expected. Okay. I have a web question here from Andrew Mulder. Rather than read the question, the question relates to the CTG agreement and it's an update on it. Just to clarify, because there seems to be a little bit, but misunderstanding of what was supposed to occur and what has occurred and will occur. On the financing side, there was a commitment of EUR 2 billion to EDP. We have drawn EUR 1 billion in August, and there's EUR 1 billion left. The EUR 800 million that we received as a loan from Bank of China was not part of the agreement. That does not take up the position that was formally committed by the China Development Bank. So of the EUR 2 billion, EUR 1 billion was drawn, the other EUR 1 billion is still to be decided what to do. But the EUR 800 million clearly was not part of that package. In as far as the sale of the wind farms, EUR 360 million are done. The total amount of the investment that was committed upfront was EUR 2 billion, so there's EUR 1.6 billion left, of which we are expecting EUR 600 million in 2013 according to the plan. Next question, please. The question comes from the line of Stefano Bezze. Please go ahead with your question. Yes. Hi, Stefano Bezze, Credit Suisse. Two questions, if I may. First of all, can you please clarify what is the increase in operating cost due to the energy supply liberalization in Portugal? How much of this increase is to be considered a one-off related to the switching phase? The second question is on your D&A. 2012 includes EUR 53 million of impairments for renewables. Can you give us some guidance on what you expect in D&A in 2013, please? Let me start with the impairments. You are right. There were two or three impairments that affected the 2012 accounts out of the renewables area. Our expectation as of today is there won't be any impairments in 2013. We have just gone through all the impairment studies. All the rest is because they didn't have any impairments. Otherwise, we would have to book the impairment on the year. It doesn't mean that during the year, through circumstances, there won't be others created. But as of today, there's none. Stefano, regarding the commercial costs. Of course, all this liberalization process costs money. In the fourth quarter, there was a huge increase. In terms of costs, namely call centers, contracting costs, bills, closing new contracts, all that kind of stuff, which we estimate around EUR 5 million in the fourth quarter and EUR 10 million in the total year of increase, related with all this process, which of course implies an increase in the level of interaction requirements. Thank you. Next question, please. The question comes from the line of Gonzalo Sánchez-Bordona. Please go ahead with your question. Yes. Good morning, everyone. It's Gonzalo Sánchez-Bordona from BPI. I have only one question left. I was wondering what your view on changing the shareholding structure that we've seen today with Liberbank combining their stake with Grupo Masaveu. If you expect any other changes in the short term, especially I'm referring to Iberdrola, which has been saying for a long time that they could be sellers of their stake. Also, I would like to know if you would use your treasury shares as a way to facilitate the exit of any of your shareholders, if it was needed in order to avoid another high risk. Thank you. Okay, Gonzalo. I think that what we have seen today is good news. I think that this, together with the sale of the 4% of the government, represents clearly two overhangs out. Everybody has been mentioning the government will sell, Caixa Geral needs to sell, Novo Banco needs to sell, and basically this structure shows that they will stay in the company. They will commit that this new structure will allow the presence of these two Spanish group that will be working and keeping, at the minimum, the actual participation they have today. So I think it's good news. So you are right. The last one that is still hovering in there is the Iberdrola. But once again, they have been talking for at least five years about this. I have nothing new, and it's their decision. Anyway, I think that the recent past shows that today we are better, and we have seen the present increase of specific investors that are important in the stability of long-term value investors. I think that if anything, the shareholder structure today is sounder than it was, of course, six months ago or a year ago. Thank you. Next question, please. Thanks again, ladies and gentlemen. That is star one to register a question and hash or pound key to cancel. Our next question comes to the line of Michael Wrigley. Please go ahead with your question. Yeah, good morning. I want to ask about the goal of getting leverage to 3x by 2015. On an unadjusted basis, you have risen to 5x at the moment. Is it sale of subsidiaries to CTG or a recovery of EBITDA or something else that will get you to 3x by 2015? Secondly, on liquidity, I know you have adequate liquidity, but what are your issuance plans into the bond markets for the next 18 months? Thank you. Okay. The 3x net debt to EBITDA that we announced last May on the business plan, it is clearly the target. There is no reason today to change the expectations we have for 2015. What we have said all along is if require the extra measures than the ones that are previewed and announced on the business plan, we will do so in order to meet that goal. As of today, we still do not see any need for extra measures from other than the ones announced at that time. We will continue to expect EBITDA to grow. We will continue to expect the deleveraging to occur throughout 2015. And those two together should give us the adjusted, so excluding the sales or not sales of tariff deficits, ratios of 3x net debt to EBITDA. In terms of what was the second? Oh, issuing plans. Clearly, we are in a much stronger position today than we were six months ago. We have issued through the loan market or the bond market and other types, or through deleveraging. We have raised more than $1.5 billion in the last six months, which puts us in the position we are today. Nonetheless, we will continue to address the markets when we see fit. We had mentioned prior to these calls, so we have been talking about, we would like in 2013 to access the U.S. market. We have not been there for quite a while. We have needs in the future for the dollar-denominated funds. So we will try during 2013 to issue in the U.S. market. In as far as the Euro market, we will be more opportunistic. If we find an opportunity to extend the maturity at reasonable prices, we will access the Euro market, but that decision has not been made. So the U.S. market, it is something we would like to do. The Euro market is something if it comes in nice, we will do. Thank you very much. We can go now to the last question, please. Our final question comes from the line of Pin Vasya. Please go ahead with your question. Thanks. I had a long list of questions and they have all been answered. Thank you very much for the call. Once again, everybody, thank you. I have just noticed that the pictures that we have been seeing from us, and especially mine, were pictures taken in 2006 to 2007, very different times in the sector where people were talking about windfall profit. I do not know if you remember, where everybody was asking us to buy companies and to leverage ourselves to 7x the EBITDA. If you see, except in my case, except for the glasses, I do not look older, so it means that we have been protected by our low-risk approach and our asset management policy. Nuno Alves eventually whiter, but it looks the same because of the pre-financing strategy which we use in advance. Only Miguel looks older. Thank you very much and see you next time. Ladies and gentlemen, that does conclude our conference today. Thank you for participating. You may now disconnect your lines.