Earnings Call: H2 2011

Mar 9, 2012

Summary

EBITDA rose 4% and net profit reached €1.125bn in 2011, supported by diversification and regulated networks. 2012 guidance called for mid-single-digit EBITDA growth, while leverage and receivables remained key watchpoints.

Good morning, ladies and gentlemen, and welcome to the EDP's 2011 year-end results conference call. At this time, all participants are in listen only mode until we conduct the question and answer session, and instructions will be given at that time. Participants may submit a question by typing it in the ask a question box and clicking submit. If anyone should require assistance during the conference, please press star then zero on your telephone keypad. Just to remind you, this conference call is being recorded. I would now like to hand over to the chairperson, Mr. António Mexia, the CEO of EDP. Please begin your meeting and I'll be standing by. Good morning, everybody. I need to present the results for 2011. I would like to, as usual, to start by the key message and then pass to Miguel for the full presentation, and I will come back for the Q&A. I firmly believe that the results of 2011 are solid. We had an increase of 4% of the day, and this sound growth is based on our diversified portfolio. We have now 58% of our EBITDA outside Portugal. Means that going global has been, of course, increasing our resilience and increasing the possibility to show figures that I believe are once again, quite different from the rest of the sector. How can we see this portfolio? We see Spain, and we consider Iberia and tough markets, Spain with better results, much better results, better regulation, better liberalized market in the last quarter, mainly through coal. Brazil eventually slowing down in the first quarter, so eventually having less exciting than everybody expected. Portugal more or less were what we could expect. Of course, renewables the balanced portfolio bringing also resilience to the results. Clearly diversification portfolio is critical for our results. In what concerns regulation, besides what happened in Spain, I also would like to stress that we closed the revision of 2012 and 2014 for distribution in Portugal. The return on RAB increased from 8.5% to 9.5%. Actually, and we will see this further on in the presentation, we are around 10.3%, but by itself brings EUR 25 million more. That more than compensates the lower demand that takes out EUR 10 million. Clearly, the fact that we have a lower sensitivity to our regulatory revenues and the fact that you take this to a formula where it increase according to the risk, I think it's interesting and brings you additional value. We have, of course, also continued focus on efficiency. We have a decrease year on year in Iberia in the more mature market of 4%, and overall we have just an increase of 2%, including, of course, wind power in Brazil. We keep the ratio of OPEX of gross margin at 27%. Once again, reference in the Iberian sector. Overall, you see a net profit increasing also by 4%, earnings per share EUR 0.31, and a global net profit of EUR 1.25 billion. Back to on this, we propose a dividend share as it was committed a while ago for EUR 0.185 per share. In terms of CapEx translates our commitment in terms of reducing because of the evolution of not only the energy market, but also commitment in terms of improving financials in the company. The CapEx fell 19% to lower than EUR 2.2 billion, especially because of the lower capacity additions in U.S. market. In disposal program, we reached EUR 440 million cash proceeds. Basically, we delivered more than 90% of our initial targets. This because we put on hold some of the deals that we were foreseeing because of the privatization. Namely, when we mentioned the beginning of the year sale of minority stakes in wind farms, we stopped all the deals that we have on the pipeline. Why? Because we needed to know exactly who would be the winner of the privatization process, and how this would fit in the joint strategy. Clearly, if you don't consider minority stakes on wind farm, we are better than the expected disposal program. At the same time, we sold but we also bought. Bought because we had some put options, and the investment on the put options was EUR 445 million. Because we have decided close to the end of the year to take a very good opportunity in the hydro opportunity through Jari that was not foreseen at the beginning of the year in Brazil. In terms of regulatory receivables, I would like to stress that we expected a decrease, but finally, we had an increase of EUR 2.2 billion, going up to EUR 1.6 billion by December 2011. Why? Basically, two reasons. Rising energy costs, and also slowdown of securitizations in Spain, even if the beginning of 2012 shows good results with already cashing in from EDP EUR 175 million. The net debt increased by 4%. We have a lot of 4% around. Net debt increased 4% to EUR 16.9 billion, but we kept net debt to over EBITDA stable at 4.1 year-on-year. Financial liquidity, always relevant since a while ago. We ended up December 2011 with more than EUR 4 billion in cash and equivalents, and credit lines, and also the fact that, as we mentioned, with the privatization of EDP, we have EUR 4 billion from the CTG deal due in minority sales in wind farms, plus firm funding of new credit line of EUR 2 billion. We have already told this, but I would like to stress, we have visibility of our financials until mid-2015. Overall, a sound year based on diversified portfolio. At the end of the year, the success of privatization with CTG, a strong shareholder, and especially also a strong partner of EDP enhances potential for EDP and all the stakeholders, of course, the shareholders in terms of growth options for investments, funding, and giving additional visibility at different levels for EDP business for the future. Miguel, please go through the presentation, and I'll come back. Thank you. Thanks, António. We will start with slide number 4, in which we show that in 2 years in a row, so in 2010 and 2011, EDP managed to deliver better than expected EPS versus what was the expectations of the market by January 2009, just after the start of this crisis. I would say that the performance is a little bit against what is the recent trend among European integrated utilities. Of course, the reason is also supported on the distinct profile of our business portfolio, namely the 85% long-term contracts and regulated activities in terms of our EBITDA with sustainable returns and having two-thirds of our generation fleet being hydro and wind. Moving to page 5, in terms of the demand performance in the major markets for EDP. We can see that we had a distinct performance between Brazil and the Iberian Peninsula. In Brazil, we had 3.6% growth in 2011, driven by the residential segment. Nevertheless, some slowdown in the fourth quarter of 2011, namely driven by the industrial segment, with demand in Brazil increasing just by 1.4% year-on-year in December. In terms of electricity demand in Iberia, it went down by 2.3% in 2011, with a decline even stronger in the fourth quarter of 2011 by 5% drop in both countries. In terms of gas, the lower demand from electricity generation justified a 6% decline in terms of gas demand in Iberia, which was even more accentuated in the fourth quarter, showing a 13% decline year-on-year. In terms of our operating figures in 2011, we show a 6% increase of installed capacity, so +1.2 gigawatts, with totally focused in terms of new wind and hydro capacity. Wind and hydro represented 63% of total capacity, and 62% of energy produced in 2011. In terms of EBITDA breakdown, you can see that Spain and EDP Renewables were the key contributors to EBITDA growth. Spain through regulated networks, with improvement in terms of regulation in distribution of electricity and improvement in terms of the performance of coal generation. EDPR, driven by capacity increase, which justifies the 2011 EBITDA growth. Note also the increasing rate of EBITDA out of Portugal, so 58% in 2011 versus 52% in 2009. In this 2 years period, the EBITDA growth drivers were clearly Brazil and EDPR. Of EBTA breakdown, but now in terms of activity. We can see that the 4% growth of EBTA can be also split by, once again, wind power growing by 12%, regulated networks 17%. A slight growth in Brazil, 1%, and declines in terms of liberalized activities in Iberia and in terms of long-term contracted generation. The ForEx impact was almost immaterial, so just -0.3. So EUR 13 million negative in Brazil and EUR 1 million positive in U.S. As we have announced in the third quarter of 2011, in 2011, we did the reclassification from operating to financial costs of the cost of carry with pensions and medical care responsibilities in ENEL. This has a positive impact on EBTA and a negative impact on financial costs of EUR 88 million in 2011. Excluding this reclassification on a pro forma basis, our EBTA increased 2% year-on-year in 2011. Moving to efficiency, we can see that our operating costs increased 2% year-on-year, but with different evolutions in terms of divisions. In Iberia, operating costs fell 4% versus inflation in Portugal and Spain above 3% in the period, reflecting headcount reduction and lower restructuring costs. In Brazil, operating costs increased 12%, which compares with the 8.7% inflation in the period, with significant non-recurrent network works, namely in the fourth quarter of 2011. At level of EDPR, the 14% increase in operating costs is essentially in line with the 11% increase of installed capacity. In terms of CapEx, we can see that the 19% decline in CapEx to EUR 2.2 billion is fully in line with our previous guidance and reflects also the reduction in terms of wind power capacity additions in U.S. Note that the 2011 expansion CapEx is fully allocated to wind, hydro, and Brazil generation. In terms of regulatory receivables, in 2011 we had an increase of EUR 204 million to EUR 1,647 million by December 2011 in terms of the weight in our net debt. As a combined impact from first, higher than expected system costs in Portugal and Spain, due to first higher than expected energy costs, but also lower hydro production and also weaker than expected demand. On the other hand, note that there was some securitizations in private placements in 2011. Namely in Portugal, we did a private placement of EUR 185 million in September 2011. In Spain, we had EUR 504 million of securitizations. Nevertheless, there was some slowdown in the second half of 2011. There was again, a restart of the process in the period of January and February 2012. The securitization done in this period in 2012 correspond to EUR 125 million attributable to EDP. In terms of net debt evolution, net debt increased 4% or EUR 0.7 billion in 2011, with increase being driven essentially by first regulatory receivables, which increased EUR 0.2 billion, as we referred before, versus an expected decline. This decline, which was initially expected, was reformed in an increase. Note also that we had this low second half of 2011 securitization in Spain and the high power prices, which explained this increase. Note also that this increase in net debt included an increase in terms of net financial investment above EUR 0.2 billion, including financial investments of EUR 0.7 billion, namely the payment of minority put options at Naturgas Energia. Include also the EUR 0.1 billion investment in the acquisition of construction rights in Jari Hydropower Plant in Brazil. Include also, in the case of any of the front payment for project finance of EUR 0.1 billion, which in 2012 was already approved by European Investment Bank. On the side of disposals, this size, as it was already referred by CEO, was lower, amounting to EUR 440 million, reference to the stake in EDP Brazil and the stake in Ampla. Overall, in terms of P&L, full breakdown. The referred 4% increase in EBITDA. Net depreciations and provisions went down by 4%, leading EBITDA to increase 10%. In terms of financial results, the cost of debt increased by 60 basis points from 3.5% in 2010 to 4.1% in 2011. Includes also EUR 58 million of impairment on financial stake in BCP, so a non-recurring impact. Of course the referred reclassification of interest cost with employee responsibilities, the EUR 88 million that we referred before. Capital gains, not significant in 2011, including essentially the impact from Ampla and Seaza. Income taxes reflecting one-off fiscal impact in 2011 in terms of the fiscal consolidation premiums in Iberia. Non-controlling interests increasing essentially due to better results at EDP Renewables and the disposal of our stake in EDP Brazil. We reduced our position in EDP Brazil from 65% to 51% in 2011, resulting in a net profit growth of 4% to EUR 1 billion and 125 million in 2011. Moving to business areas. On page 16, we can see that EBITDA in long-term contracted generation in Iberia fell by 6%, penalized by the end of Carregado PPAs in December 2010, with a negative impact of EUR 85 million. On a pro forma, adjusted for this impact, EBITDA increased 4% on higher inflation, high availability rates, and commissioning of 50% of Sines DeNOx facilities. In terms of operating performance in our liberalized energy activities in Iberia, on page 17, we can see that production declined by 11%, essentially due to lower utilization rates of combined cycles and lower hydro output. Note that there was a significant increase in terms of coal production due to more competitive costs and the new law on Spanish domestic coal that was published in 2011. In terms of financial performance in our liberalized energy activities in Iberia, you can see that the average selling price increased by 17% to EUR 57.5 per megawatt hour. Nevertheless, this increase was not enough to compensate the increase in average sourcing costs by 26% to EUR 49.7 per megawatt hour, meaning that the average unit margins fell 17% to EUR 8.8 per megawatt hour and justified a 13% decline in EBITDA in this business area. In terms of regulated networks, on page 19, you can see that EBITDA increased 17%, but nevertheless, adjusted for non-recurring issues, adjusted EBITDA increases by 4% to EUR 1 billion and 12 million of EBITDA in 2011. In terms of the major divisions, you can see that in terms of electricity in Portugal, the recurring EBITDA increases 1%, as low demand and low inflation input in tariffs balanced lower controllable costs. In terms of electricity in Spain, excluding the gain on the sale of electric transmission assets, recurring EBITDA increases by 3% on better regulation. In terms of Gas Iberia, our EBITDA increases by 11% on both increase of number of supply points and volume growth. Moving to terms of efficiency in regulated energy networks, we can see that EDP showed a 10% decline in terms of OPEX per kilometer of network, and a 9% decline in terms of OPEX per connected customers, and at the same time, showing higher quality of service. Equivalent interruption time in electricity distribution in Portugal went down by 35%, down to 75 minutes in 2011. In terms of commercial activity in Portugal and control over bill collection, which is a point that rises more interest in these days, there was no material change on customer collecting cycle, even considering the adverse economic environment. Note that the average collection period remains in line with previous years at 32 days. Regarding the performance of our subsidiary EDP Renewables, which has already reported its results. Installed capacity increased 11% to 7,157 megawatts, which implied and supported EBITDA growth of 12% to EUR 801 million. This growth was driven essentially by rest of Europe, Poland, Romania, Brazil, and Spain. In terms of Brazil, our EBITDA increased 1% in local currency with negligible ForEx impact, but including some non-recurring issues, namely in distribution. In distribution, EBITDA was down 9% year on year, penalized by annual deviations and slowdown in volume sold in fourth quarter 2011, driven by the industrial segment. Adjusted for these items, EBITDA in distribution increased 3% and puts adjusted EBITDA in Brazil increasing by 9%. In terms of assets and funding, in terms of our asset portfolio, our installed capacity increased by 88% in the last six years, driven by Greenfield wind and hydropower capacity additions, and increasing the average residual useful life of our portfolio from 16 to 24 years. In terms of our portfolio, in terms of average residual life, you can see that hydro and wind technologies with a longer useful life represent 65% of our total portfolio, providing a sustainable cash flow stream over the next 24 years on average without need of replacement CapEx. In terms of funding, during 2011, EDP accessed the diversified portfolio of funding sources. We raised EUR 3.6 billion through these diversified sources of funding. At the same time, during 2011, we made cash payments on debt maturities of EUR 2.7 billion. I would highlight in the first part, in terms of new funding deals, the EUR 200 million, three-year retail bond issue with 6% coupon, which was 1.4% oversubscribed, and the $124 million of new deals on tax equity investments in the U.S. In terms of debt profile, average debt maturity stands at 4.4 years. The weight of medium to long-term debt in our total gross debt breakdown, there was a slight increase. In terms of interest rates, we maintain a balanced mix between fixed rates and floating rates. In terms of financial liquidity, by December it totaled EUR 4.1 billion as a mix of EUR 1.7 billion of cash and EUR 2.4 billion of available credit lines, with the most sizable being our RCF of EUR 2 billion, which matures in November 2015. On top of that, in December, we closed the deal with CTG which should add a further EUR 4 billion of linked financial liquidity until 2005. Adjusted for CTG deal, our financing needs are now covered until mid-2015. In terms of short-term maturities for 2012, we have EUR 1.7 billion of bonds maturing in 2012, EUR 0.4 billion in terms of loans, which is perfectly comfortable in terms of the EUR 4.1 billion of currently available financial liquidity. In terms of credit ratings, EDP suffered recently some downgrades by S&P and Moody's, penalized by the maximum loss differential allowed between EDP and Portuguese sovereigns. Right now, EDP is one notch above Portugal by S&P and two notches above Portugal by Moody's. Nevertheless, we consider that these by-the-book credit agencies' methodologies, they are unable to reflect EDP's distinct credit profile. From this, we highlight here some points, namely geographical diversification, the high quality of our generation fleets, our resilient EBITDA, the fact of our operations in Portugal have a low sensitivity to economic cycle. The fact of adding now our funding needs covered till mid-2015 after the deal with CTG, and reinforcement of the shareholder structure following the privatization deal. Moreover, we consider that EDP's financial leverage is consistent with its low operating risk and long asset maturity, and that EDP has already affirmed that following CTG's deal, this deal reinforces EDP commitment to a target net debt to EBITDA below 3 times by 2015, based on focus on free cash flow and the credit profile strengthening by the partnership of CTG. Finally, in terms of outlook for 2012, first regarding regulatory placing Portugal. Following the final approval of distribution tariffs in December, we know that we have the regulated revenues in distribution of EUR 1.38 billion, which represents a 71% increase versus 2011. Nevertheless, we note also that the Portuguese Republic CDS 5 years is slightly above what was assumed for the calculation of the 9.5% return. This may imply a slight positive impact in terms of our EBITDA. Demand is slightly lower, but the positive impact from better rates is stronger than the negative impact from lower demand. In terms of regulatory receivables, the figure close to EUR 400 million was the amount assumed in the calculation of 2012 tariffs by years. We still have some securitizable receivables, namely EUR 141 million to be collected in 2013 and EUR 939 million to be collected between 2013 and 2016. Also, we highlight the liberalization process in Portugal with increasing liberalization and the recent approval of the liberalization schedule in February 2012 by the government. In terms of page 35, we do also an update in terms of the energy sector measures set by the MoU with IMF, European Commission, and European Central Bank, in which I would say that most of the points were already done and clarified. Namely, the part of privatization, the part of elimination of special rights, the part referred before in terms of liberalization. Also in terms of additions of new capacity in Portugal, it was announced the freeze of new license to any new capacity not licensed in Portugal. We would highlight that all MoU measures are based on respect of existing contracts, namely referring now negotiation on a voluntary basis, and that capacity payments are relevant for fair competition in Iberian market between generation in Portugal and in Spain. In terms of outlook for liberalized activities, despite weak demand, the low hydro reserves supports thermal production, namely coal, which has been working very strongly in January and February, and the low coal and fuel to costs have improved the clean dark spreads. On the other side, in terms of combined cycles, the higher oil prices are deteriorating the spark spreads. Overall, we expect that in terms of our liberalized activities in 2012, we have already committed all our coal sourcing commitments and for now, 80% of the gas commitments through sales in wholesale retail markets that you can see in this slide 37. In page 38, we can see that in terms of CapEx, we maintain our commitment, 2 billion EUR, from which the key components of expansion is Brazil hydro and wind as it was already in 2011. We expect to maintain the previous commitment. In terms of the CTG partnership, the closing of the deal is now expected to occur in April, and we maintain the target of the sale of the first EUR 800 million of equity minority stakes in wind farms to be concluded in the first 12 months after deal closing. In terms of EBITDA breakdown, we maintain our guidance of EBITDA middle single digit. Finally, for the last slide, I will pass again to the CEO for the final remarks. Just to finalize before the Q&A, I think that what we stated in slide 41, the last one, is really resilient business model that is a better solution in challenging environment as it is the case in the sector and of course in the financials market. We have a mix of sound operating performance in terms of EBITDA, in terms of efficiency, drivers, in terms of control of our financials, and of course, the existence of gross of debt that is lower than the average of the sector, even with our ratings. We see clearly an improvement on earnings per share. We see growth, of course, more in line what it makes sense in a moment like this, 6% year-on-year, 11% on wind power. This growth is selected. Basically, we are talking about wind, water in Portugal and Brazil. Overall, this sound operating performance and focus growth is kept in line with a low risk approach in terms of improved regulatory visibility in Portugal until 2014. In terms of financial liquidity, especially with the partnership with CTG. Lower CapEx, so we are adjusting our profile, make it more adequate in terms of overall environment. Of course, the increased value of this diversification as Miguel has been stressing along the presentation. In terms of guidance for 2012, I would like to start saying that even with this demand reduction, we keep the EBITDA middle single digit growth year-on-year as target and low single digits for the net profit. In what concerns the detail for the next years, we expect to present the business plan 2012 to 2015 next May with the full detail presentation of these figures, including already the impact of course, the partnership and the privatization process. So improving visibility on EBITDA medium term free cash flow. We keep on based on what? High quality asset mix, sustainable returns, diversified markets, and risk management. We keep the same guidance for 2012, what I think is positive in this industry. Let us go for the Q&A. Thank you, sir. Ladies and gentlemen, if you do wish to register a question at this time, please press star one on your telephone keypad, or alternatively, you can type your question into the ask question box and click submit in the presentation. The first question comes from the line of Pablo Cuadrado. Please go ahead with your question, announcing your company name, sir. Good afternoon to everyone. It's Pablo Cuadrado from Bank of America Merrill Lynch. I have a few questions. The first one is, looking to the electricity demand performance during the first months in Portugal, which has been very weak. I do not know if you can update us, which is the amount of the regulatory receivables that you expect by the end of this year? I know that the regulator talk about EUR 400 million, but I think with a better demand. If you can link that assumption as well with the net debt figure that you should expect for 2012. Second question is on the guidance. When looking to the bottom line guidance for this year, where you have presented that you are still percent or project some kind of growth. I was wondering whether you can give us the assumptions behind that guidance looking to the financial expenses, the tax rate, or if you're assuming potential book gains or not. Third question is, I was wondering whether you can provide us some also part of guidance on the liberalized profitability. If you expect unit margins to remain stable around EUR 9 per megawatt during this year, or you expect a further erosion there. The last one probably is a question for the capital market day, but I will try, is looking to the dividend and the payout implied in the 2011 accounts, which is around 60%. Assuming the dividend of probably EUR 0.2 per share, which will imply a higher payout, do you feel comfortable with a payout above 60%? Or you think that it is something that you could be adjusting in the future business plan? Hi, Pablo. It's Miguel Viana. First on the regulatory receivables in Portugal. The figures you have assumed by the regulator and in tariffs is 0.4. We just have two months until now, and we'll have to wait for the developments for the next 10 months. But obviously the first two months, they are not great, especially because of the dry period and the demand that is lower. But we still have 10 months going forward, so we do not have any update on this. I'll pass now to Mr. Mexia to further questions. In terms of guidance, as you all appreciate it, we intend to provide you five-year, four-year guidance to 2015 in May. We are currently elaborating that with the supervisory board and the new shareholder to see where we are going to go. Most of that information, we would prefer to wait for May to give it to you, with the exception which we can be fairly confident and there is not much you can do right now in as far as 2012 P&L numbers. For that, the guidance has been EBITDA, little single-digit growth. We are assuming then, which we have already made public last year, but this year, 4.3% average interest rate. We are assuming that the tax rate will probably be around 20% for the year 2012. Those are the main guidelines, and if you put all of that together, we should end up with a low single-digit growth on net income for 2012. The other elements and all the debt ratios we will leave for May. Yeah, there was another question on the unit margin for liberalized business. In terms of what is contracted, we do not see any reason to be much different from 2011 figure. Of course that will depend also on arbitrage opportunities and on the spot market evolution. With the current information that we have in terms of forward contracting, we do not expect any material change versus 2011 in terms of unit margin. Yes, Pablo. Also in terms of dividends, I think that one of our key message and feeling that we have in passing is that as we have been performing according to what was expected and typically overall better than the sector, we thought that it makes a lot of sense to share these with the shareholders. So keep the commitment of the dividend policy, especially now with additional visibility in what concerns the partnership with China Three Gorges, new shareholder, and all the deals that are involved. So it is the reason of the proposal of the 18.5%. In what concerns the future, of course, basically I would like to talk about this in May, but just be clear, for 2000, we have not adopted the scrip dividend for now because legally it is very complicated in Portugal. We have been working, but we need to be sure that we will have a legal framework in Portugal that will enable us to use these without any issue. We are working to have clear answers in terms of structure to be proposed, if it makes sense to include it in the proposal for next year. Overall, of course, we will, as repeating myself, we will propose this in May, but we are fully aware of what makes sense in dividend policy due to the growth expectations and of course, the conditions of the financial market. When we are able to share with the shareholders, it was the case until now, we do it. Then in May, we will see according to the next plan, what makes sense. Thank you very much. The next question comes from the line of Javier Garrido. Please go ahead with your question, announcing your company name. Good morning. It's Javier Garrido from JP Morgan. Actually, most of my questions have already been made by Pablo, but I would have still two smaller questions. Firstly, on Brazilian regulation, if you could update us, which is your expectation for the evolution of regulated revenues for your distributors in Brazil, particularly once the regulatory reviews are implemented in the annual updates? The second question would be on your depreciation run rate. There has been a significant increase in the fourth quarter, even stripping out the exception as in EDP Renováveis. Still, there has been an increase in the rest of the group. I was wondering if you could give us, if there is any additional exceptional there, or if we should take that as the ongoing rate for future quarters. Thank you. Hi, Javier. So in terms of Brazil regulation, I would say that the process is now quite closed. Our Bandeirante division in next October, the new tariffs that will be set between October 2012 and October 2013 will already reflect the new regulatory framework with retroactive impact. So with the adjustment, retroactive impact till October 2011. In the case of Escelsa, it will continue until the next regulatory review, which is in 2013. Sorry, '13. I will pass now on the depreciation to João. Javier, in fact, there are two extraordinaries in the fourth quarter. There is EUR 10 million in a decommissioning plant in Portugal. That is done, finished. There is, I do not know if that is what you were addressing, but there was on the EDPR accounts, there is a EUR 35 million goodwill on the Italian assets that was taken into depreciation line. So you have EUR 45 million extraordinaries on the fourth quarter. Right. Thank you very much. Welcome. The next question comes from the line of Bruno Silva. Please go ahead, announcing your company name. Good morning. Bruno Silva, BPI. I know you are trying not to disclose information that will only be approved for your strategic presentation. What I think would be important to have your opinion, not necessarily what you are effectively approving for the next strategic plan regarding potential asset rotation or rationalization. I am clearly thinking about, again, on Brazil distribution, if you believe that would make sense to tackle that opportunity or not. Also, in your opinion, with the changes in EDP shareholding structure, as well as the attractive upside of EDPR, would you say it is more or less likely today considering a buyout of EDPR? It is basically that I would just try to ask you also as a follow-up on previous questions on net debt guidance. You mentioned regarding regulatory receivables, the potential for securitization in Portugal. Do you believe that that would be feasible anytime soon? It is basically that. Thank you very much. Bruno, let me ask you, start by renewables. In what concerns renewables, we have already stated, and eventually I will repeat myself, that we have no intention to change our position in the times to come. There is no change in what concerns renewables as a listed company. In what concerns Brazil. Brazil, we have been very clear in the sense of we want profitable growth. We consider Brazil as an important market. I think that the new shareholder shares our vision. Clearly we will keep Brazil as a key market. We have been committed, but not stubborn. We have proven in the past that we make the moves that make sense. At this stage, we have nothing new to tell because we believe that there is still value of the current strategy of balanced portfolio growth, mainly in generation, including here also renewables. There is no change, and we do not see, by the way, nothing happening in the sector in Brazil. A lot of things have been talked about, consolidation, sales. Find that everybody is basically stuck in his corner, and we do not see any reason at this stage to move. In terms of, João, do you want to talk about securitization? In terms of the Portuguese tariff deficit, what you have today, we have two. We have EUR 140 million, which is due from the CMEC, which was at the end of last year postponed. Rather than receiving 2012, we will receive it 2013. It is a one year. The amount is not very large. It is a doable transaction, it is a question of price. I would expect to have it done this year. But it is a question of price, how much the buyer is willing to pay for that asset. As far as the larger one, which has to do with the renewables, which was delayed five years, that is about EUR 1 billion. That is five years. It is a little bit more complex. We are working on it to see if we come up with an alternative solution. But there might be also the possibility of selling it during this year, or at least to partially monetize that position. Thank you very much. The next question comes from the line of Javier Suarez. Please go ahead with your question, announcing your company name. Hi, good morning. This is Javier Suarez at Nomura. One question on regulatory update in both Portugal and Spain. In Portugal, we have seen this document from the Minister of Finance suggesting that the condition that currently applies to cogeneration and capacity payment could be modified. The document was also mentioning the possibility of doing some modification in existing contracts for the electricity sector. The question is, could you be so kind to explain us, in your view, to what this document is referring to, the possible implications for EDP? The second thing is in the regulatory front in Spain, the latest news that you have on what the government maintain, the timing, and the possible effect on your profitability on the Spanish market. Thank you. Okay, let's start by Spain. It's easier. Nobody knows. We have a lot of news, so trying to speculate today, it doesn't make any sense. Everybody's struggling. The only thing that makes us more comfortable is that you don't see anything retroactive. You see eventually them capturing value on, by the way, technologies where we are not directly involved. Typically, where eventually they perceive that they are going for profit, and it's not the case where we are placed. In what concerns Portugal. Cogeneration. Since the beginning, we have shown that it makes a lot of sense to change what is the framework. We totally agree and support this change, and we believe that they should be ambitious in what concerns limiting the benefits of cogeneration after the first 15 years. In what concerns capacity payment, I would like to stress that capacity payment today in Portugal, that was recently introduced, is much lower than, for example, in Spain. The difference between Spain is 30% higher than in Portugal. That even in other countries like Ireland, where you have intervention, you have a capacity in payment that is four times what is today in Portugal. In any case, we see eventual change in this. If they make sense in a system that would keep the rules of incentives in terms of availability and investment, we are ready to look for it. But we should bear in mind that in the context of Iberian market, rules should not be very different in this field from both sides of the border, and already Portugal is at disadvantage in the sense that it's lower. In terms of the CMEC. Here, once again, I will repeat myself. The approach is, of course, a negotiated approach, and we have been very clear since the beginning with everybody, including the market, what we can accept and what we will not accept. This has not changed. Eventually bearing the label of being stubborn. Here, we are stubborn in the sense that we have already stated what we can accept, and we are not ready to change the NPV of the contract. They are supported by a strong legal framework. By the way, the CMEC and the other PPAs were decided on a competitive basis, so we don't see any reason to change our position in what concerns flexible for short term. Eventually, cash-wise, gear open, NPVs, it's not on the table. Thank you. Thank you. Next question comes from the line of Alberto Gandolfi. Please go ahead with your question and announce the company name. Hi, good morning. It's Alberto Gandolfi, UBS. I have three on my side. One is more a follow-up on the CMEC. Just to be specific, your position of being NPV neutral is very clear. But what would be a near-term earnings or free cash flow impact that you would consider unreasonable and would not accept? Because the NPV neutrality can be achieved over 20, 30, 50 years. But for the near-term, cash flow makes a huge difference. Sticking to cash, in terms of the dividend payment, can you confirm that the May dividend will be entirely cash? Lastly, on refinancing and liquidity, you basically said that your refinancing is done until 2015 without doing anything. But if you did that, you have zero cash on balance sheet, and you would entirely use your credit lines, which typically are seen more as the backup. Out of that, perhaps about EUR 4 billion are not really something you would want to use, or you would impair your normal course of running the business. How are you going to think about this EUR 4 billion? What are you planning to do, and when? Thank you. Okay, Alberto. Thank you. Glad you're thinking that I might run out of money. I should do something. You're right. Because I care. 2015 with nothing. No. We will continue to do Other types of transactions. I think you're addressing this mostly has to do with the capital markets. Let's face it, we are in a new ground. We probably will have a few set of fixed income investors. I think with the urgency that we don't have currently in terms of refinancing, we would see it not before announcing our business plan, any intention to go to the capital markets, unless something changed drastically. Thank you. Part of the, not 2012, but 2013, in fact, all of the refinancing we have to do in 2013 are all banking lines. Our most immediate refinancing needs is going to renegotiate the syndicated loan club deal, which we have with those institutions to refinance the 2013 value. That alone, we're talking an amount of somewhere between EUR 1.5 billion to EUR 2 billion, which we intend to negotiate. Other than that, we will continue to utilize the various forms of refinancing we've done in the past. We have announced a project financed last week for the renewables business in Spain of almost EUR 200 million. We will probably go to the retail market again soon and do another bond. We are using export facilities and some other financing tools. We have various ways to refinance. As far as capital markets, it's on hold at least until we have the business plan out because I think it will be clearer and we think will help the fixed income investors to realize what our credit profile is going to be going forward. Roberto, in what concerns the dividend, it's going to be cash. As I stated before, so I confirm it. The scrip dividend was basically abandoned because it was not straightforward and the tax implications for different holders in different jurisdictions with different rates. Basically you need a framework, and this framework, we have started working this more than six months ago, almost nine months ago. As in Portugal, you don't have any legal framework. We would prefer to have one that is clear and does not create any mess. So this is going to be cash. In what concerns the CMEC, once again, very clear. We will not accept anything that will not be neutral in terms of NPV and, of course, we can only accept something in cash that is non-material and will not create any issue cash-wise. As Nuno has already mentioned, the CMEC issue of last year was postponed one year for EUR 140 million. We have accepted, we understood it was a soft landing by the way of a system that I want to stress it again, the figures are clear. Portugal will basically cancel deficits in the next two years and will repay all the debt associated with deficits or the stock by 2020 even before if you have increases on real prices of between 1.5% and 2%. So it's a sustainable position with moderate even below what the European Commission today foresees for increase on real prices of energy, electricity in Europe. So we feel comfortable with the sustainability. We are ready to help on the soft landing because you don't have a structural problem that you need to, especially in 2012, it's already the case in 2013, make the soft landing but it must be non-material and not jeopardize our cash position. If not, we will not accept anything and as you know it's based on the contractual contracts especially in the context of our privatization deal. If anything changes, it must be agreed between the parties. Thank you. Thank you. The next question comes from the line of Carolina Dores. Please go ahead with your question and announcing your company name. Hi, good morning. Carolina Dores from Morgan Stanley. I have two questions. One is a follow-up on Portuguese regulation. How much say do you have on capacity payments? Can this just be scrapped by the government or this has to be renegotiated as well? My understanding is that it is totally up for the government. Second question is on disposals. There are some articles in the press saying about you're selling your gas transport assets in Spain to Enagás. If you can make any comment on that. On disposals and about disposals on the newspapers, we cannot comment. As you know, we have been focusing the core business, and that's all what we can mention at this stage. In what concerns capacity payments Formally, capacity payment is not a contract. It's a framework that was established, started in, the basis is a legal document in 2003, decree law, that was then incorporated on the electricity law in 2007, and it was only formalized into formal implemented in 2010. Clearly, it was bearing in mind the existence of an integrated Iberian market. Any decision at this level should bear in mind this philosophy. Of course, it could be, in theory, it could change only by somebody writing something on the paper without asking anybody else. With all the implications that you have, the system that, of course, as everybody knows, especially on the thermal side, needs on the liberalized party needs is if not, you shut down plants and we have not been talking about this, but other players like Endesa and others have been mentioning the necessity of keeping this to the delivery of the system. If common sense prevails, we don't see any unreasonable change. Of course, we expect some change, but something that makes sense and keeps incentives and availability as the driver that was behind in any case of this measure. Okay. Thank you. Okay. We'll go now to the questions on the internet. We have one question from Andrew Molder from Credit Suisse. Andrew asks, now that you are below investment grade with both Moody's and S&P, are there any increased costs from using your credit lines? Are you seeing increased costs or additional warranties being required by any of your trade suppliers? The other question that Andrew does is, if we are considering to do any kind of bond issues in China now that we have CTG as a shareholder and if this is a market that EDP is looking to. I'll pass to Nuno to ask these questions. Okay. In as far as our club deals or capital market transactions, there's no rating triggers. There's no impact there on the existing syndicated loans or revolving credit facilities or any bond that we have outstanding. There's no issues there. Obviously, there has been, in cases where, for instance, in the U.S. PPA market where we have to post letters of credit with the utilities when you negotiate the PPA, you do have rating triggers, and in some cases, we have to post higher amounts of letters of credit because of the downgrade. I'm sure there's also been increased costs due to the rating triggers on put back credit charges by banks and all of that. But up until now, we haven't noticed any major impact due to the rating on anything. Most importantly, on the financing, there's no issues. As far as the Chinese market, I was there first week of February, I guess. I went to Beijing and I went to Hong Kong. That is one of the avenues we are looking at going forward. I probably would not expect it in the near term, but it's something we are considering, not for tomorrow, but later this year, maybe next year, we will probably start utilizing Hong Kong as a platform to reach one of. We go now for the last question. The next question comes from the line of Adrien Fourquet. Please go ahead with your question, announcing your company name. Yes. Adrien Fourquet from Deutsche Bank. I had three questions, basically. The first one is regarding the improvement in other operating costs that you've seen in Q4, which have gone to a EUR 41 million profit versus a EUR 85 million charge in Q3. I wanted to understand what it was related to and whether this would be recurring over 2012. The second one is about your guidance for 2012, whether that implies any capital gain included. The third one is on the maturity of your underwritten CP programs, if you could give us some details on that. Thank you. Adrien, just for the guidance on 2012 before passing to Nuno, there is no capital gain considered in the guidance. Okay? Nuno, for the improvement of other. Okay. I do not know if it is on the details that we put out on the addendum. I forget sure there is. On the other cost, there is some extraordinaries, other income, other costs. The most relevant one being the opposite what I just mentioned on the depreciation charge of the goodwill in the gain above the FTA, which has to do with exactly the same thing. So we have around EUR 50 million other income on the first quarter on the renewables business, and a 35 increase on the depreciation charge. So net is a 15 plus. The lines are different. But yes, I would assume the handout has all the details on this type of transaction. In as far as the guidance António talked about. CP program. We do have the European commercial paper and CP program, which we have had and used in the past immensely, as you probably are aware. For, I would say, half of last year, it came down to zero and it had no issuance. Currently, we have seen a little pickup since, I would say, December of last year. But we are nowhere the numbers we used to have. We used to run EUR 700 million-EUR 800 million, typically on average, of CP outstanding. We currently have probably around EUR 50 million, EUR 60 million, something like that. So much smaller amount. But I guess that is something that has hurt not just us, but most companies, including banks around the world. So it seems that CPs are not in favor today. Okay. Thank you very much. We have no further questions registered from the telephone lines. I hand the conference back to you, sir. Just to thank everybody for being present. Hopefully, we were able to demonstrate once more how we tend to deliver to what we commit. That we typically are very transparent in what guides our moves in terms of our targets, our challenges. 2011 was already a tough year for the sector, as everybody knows. We started even before 2011. But we have proven that we have been able to mix of diversification, cost control, focus, also deliver good results on regulatory fronts. Of course, there are challenges, but we believe that, especially in the context of the privatization and the partnerships with CTG, we have additional visibility today. We have additional muscle that we can use, especially in the commitments to be a financial improvement of the company with the ratios in 2015 committed. And we are going clearly in that direction already in 2012. Overall, we feel very comfortable that we will have an interesting Investor Day in May to present our messages, our targets and our ambitions for 2012-15. And we feel comfortable and today more comfortable than we felt six months ago, keeping EDP as an exciting company. So thank you for your presence and see you soon. Bye. Ladies and gentlemen, thank you for your participation. This concludes today's conference, and you may now disconnect your lines. Thank you and goodbye.