Acciona Sa

Good morning, ladies and gentlemen. Welcome to ACCIONA's first Have Results presentation for the year 2024. As usual, we will start with ACCIONA Energía and then we'll follow on to ACCIONA Results as a whole. On the table on my right, Rafael Mateos, CEO of ACCIONA Energía, To his right, Jose Entre Canales, Chief Financial Sustainability Officer at Acciona Energía. And to my left, Jose Ángel Tejero, Chief Financial and Sustainability Officer at Acciona SA. Global commitment to climate action is unquestionable. Despite slower than necessary, we are, however, advancing towards building a net-zero economy. Fossil fuel consumption declining, peak oil expected to happen within this decade, a consistent reduction in global emissions and renewables accounting for more than one-third of global generation by as early as next year. However, like All transformations, the energy transition is not linear and it has cycles. Some of them, like the one we have been through, involve challenges that require adjustment and adaptation that always offer opportunities for improvement and growth. First semester of 2024, as you all know, was characterized by a series of of exogenous factors that combine into an atypically negative period for the renewable energy sector. In Spain, weak electricity demand due to mild winter temperatures, exceptionally high hydro and wind production together with high LNG reserves have resulted in some of the lowest pool prices in the Spanish power market history. Consistently with these low prices, we have had to significantly reduce production, as it was often not economically viable. As for our non-Spanish operations, it has also been an adverse semester. In combination of weak volumes with grid output limitations, ACCIONA Energías However, substantial share of regulated and contracted volumes and our ability to actively manage our fleet have been crucial to navigate these unfavorable circumstances. As for the rest of the year, lower risk of excess energy in the market, normalized electricity prices, a reduction in curtailments, Good levels of our hydro storage and the absence of regulatory accountant one-offs should contribute to a significant relative improvement in the end-of-the-year results. Needless to say, but our assets are all long-term and nature-based. So, though difficult to forecast on a quarterly basis, highly predictable in the longer run. In fact, renewables are the most predictable source of electricity known to date, probably the most foreseeable P&L in the energy sector, and hence by far the fastest growing source of electricity in the world's highest and the world's highest infrastructure capex destination. Those are indeed Acción Energía's strengths and its greatest opportunities. 14 gigawatts of highly liquid renewable assets, P&L predictability, and an immense global investment opportunity by one of the best and most experienced teams in the sector. Going back to 2024, we reiterate our most recent EBITDA outlook and are on track to deliver another record year in capacity additions with significant growth in all levels of our pipeline. By the end of the year, we anticipate having approximately 15 gigawatts capacity prior to asset rotation of high-quality assets in various technologies and geographies that, as expected, are generating great interest from investors. Since we made public the asset rotation policy some six months ago, we have observed increasing market interest to the extent that we have received formal offers, many unsolicited, for approximately six gigawatts of our asset base, hence giving us considerable flexibility in optimizing the outcome. Certainly, we will prioritize those deals where we see the best value and strategic fit. Along those lines, today we have announced our first transaction. We have an obvious limitation regarding how much detail we can share on the possible transactions as each potential rotation is competing against the rest of the options. And as I said, we will prioritize in favor of those where we see the best value and strategic fit, regardless of region or technology. However, the successful completion of only a small portion of these asset rotations will allow us to comfortably deliver our targeted proceeds and fund our many growth opportunities while protecting our credit profile. And with this brief introduction, I give the floor to Rafael Mateo.

Thank you. Thank you, José Manuel, and good morning, everyone. Let me start by explaining where we put in the management focus at present. Firstly, we need to assimilate the close to 4.5 billion euros of cumulative investment carried out during the 2023-2024 period. Materializing these unprecedented levels of growth has been a great opportunity, but it has also involved very high work in progress depth while ABTDA lags behind, and it's also softer in the present environment. Secondly, there is a substantial value crystallization opportunity through asset disposal, given the disjuncture between private and public markets. Today's transaction announcement, our first rotation in this new phase, is a clear evidence of this. Thirdly, we are focused on our target of adding another 1.7 gigawatts for the second year and getting new projects with final investment decisions underway. The completion and connection of the McIntyre project is a critical milestone for the next 12 months. We are keeping a firm eye on the evolution on the renewable energy markets and preparing the company and the pipeline for the medium-long term. There is also an opportunity to work on efficiency and optimization of our geographical footprint. Another of our priorities for the year is to increase our long-term hedging in Spain. And finally, we are working hard to maximize our financial results for the year with a target of EBITDA around 1 billion euros. and the containment of the temporary increase in our leverage ratios in 2024. Starting with our capacity plans in the slide six, in the first half of the year we installed 442 megawatts of new capacity, of which more than 250 were in the McIntyre project in Australia. This huge project will start injecting energy into the grid towards the end of the year. The wind farm will be connected in a stage or hold points at a rate of around 150 megawatts every six weeks. In the second half of the year, our plan is to install approximately 1.25 gigawatts, completing McIntyre, the erection of the majority of the turbine fleet of 40 miles in Canada, and around half of each of Aldoga and Juna projects, which are two large solar projects that started the construction in late 23 and early 24 in Australia and India, respectively. These two projects should have around 500 megawatts in the year 2024. Also, Cotopedi in the Dominican Republic started the construction recently and we saw this stall, its entire capacity, 163 megawatts in the second half of the year. And we will also complete opal wind project in Croatia, as well as Logrochan, 50 megawatt biomass plant under construction now in Spain. For next year, 2025, we are aiming to offer around one gigawatt of new capacity. One gigawatt of capacity is still twice that we used to add on a yearly basis before the IPO. And it's the result of the timing of our pipeline. But we are also consciously happy to temporarily cap investment at that level in order to better synchronize our work in progress in our emitter. In terms of new developments, we are also advancing with our pipeline of battery storage projects in Erco, Texas, for which we have made a preliminary FID for two projects totaling 400 megawatts. We are also working hard to reach financial close by the end of the year or early 2025 for two wind farms in South Africa under PPA with private uptakers with 200 megawatts. Last Friday, we received the good news from Croatia. Our PV project, Promina, with 190 megawatts, was successfully awarded a 12-year PPA at the system operator Arxion at 57 euros megawatt-hour, implying a very attractive rate of return. This project will add new capacity during 26 and 27. Beyond 2025, as we said before at the full year result presentation, our approach to more capacity will be more flexible and probably more modest in the current environment of higher interest rate and elevated wind capex cost. We will focus our projects only in the best return projects in line with the opportunities in the asset disposal market and our credit rating commitments. We are seeing 1.25, 1.50 gigawatts of annual growth from 2026 and worse in the current situation in the markets, always in the combination with some healthy recurring asset rotation. And let me say that it's not a target, but it's more an indication of how we see our business plan for the future. Moving on the next slide, seven. Our total pipeline stands at 36 gigawatts that include 16 gigawatts of long-term opportunities. Our pipeline is of the right size and mix to support our expected growth path in the future. Let me say that we recently reduced the near team Brazilian development projects as we unfortunately didn't see this market being able to provide reasonable returns for us in the next few years. given the low hydro driving prices and the high capex and interest rates. And we decided recently to reduce our activity and development costs in this market. We are seeing more and more evidence on the problems that arise of the penetration of renewables energy increases, often with surplus of solar PV and transmission blades and electricity demand falling behind. This is what we call the new trilemma. This emerging conundrum is making us think hard about the markets where we want to deploy our best efforts in the markets with high electricity demand that can digest any renewable energy capacity that is constructed with little risk of annualization or lack of grid integration. Policy objectives with respect to renewable energy capacity growth should be more sophisticated in the future, attending the correct integration of this new capacity into the grid. because we see a deficit of wind power every day more because of the difficulty to obtain the social license. This wind deficit and the current challenge in developing wind projects is highlighting the extraordinary value of our operating assets and the opportunity to repower and increase the capacity in existing sites is the low-hanging fruit that we think regulators around the world will gradually grasp. Now, I'd like to spend a couple of minutes on the typical conditions that we have seen in the Spanish market during the spring. We have tried to illustrate the situation in the month of March, April, and May in the slide number eight. Spain saw an extremely high hydro generation during this quarter. exceeding in terms of reserves, not just the average in the last five years, but also above the peak levels on the 15, 16 hydro season that was the worst seen in the recent times. The situation this spring was quite unusual, and as the result, there were a large number of zero price hours, and for the first time, the market saw negative pricing as well, following the new Spanish electricity market price limits introduced in 2021. In the slide, we can see a couple of examples of two very different days, one spring day in May with strong hydro and wind, and the last Friday, which was a very typical hot summer day. Resulting from the penetration of solar PV, daily volatility has increased, and solar is obviously the most affected technology. But I'm very glad to say that ACCIONA Energia has very limited solar exposure in PV and all our plants solar in PV are contracted. Our plants are very modest in terms of additional solar investment in our home market, just hybrid projects or well-contracted plants. With respect to the operation of our fleet and the participation in the market during this tricky period, we have produced less than our potential with curtailments equivalent to 9% of the potential output. Some of these curtailments were imposed by the grid, but mostly our curtailments have been self-imposed as each asset has a minimum price below we think is not economically feasible to operate. We will keep the extra hour of useful life for later. Additionally, we have been very active in the ancillary services market during the first quarter as the transmission system operator requires more and more regulation on the part of the generators. particularly in situations like this. So let me say that during March, April, and May, we increased our ancillary services revenues by more than 60% relative to the same period in the past year. We think that such a combination of strong hydro and low demand was very unusual, but it's a warning sign about the dangers of excess investment in solar PV and the need to incentivize the demand growth. When the spring is over, the Spanish prices have recovered strongly to values closer to what the market expected. For the rest of the year, the prices are going to be around 80 euros per hour, driving by higher demand for power in the hot summer, as well as higher rush prices in Europe. The full year 24 price is expected to be close to 60 euros megatower and the forward market price sees more than 70 euros megatower for next year, which is a very healthy price. I want to also give you our views on the very topical and typical theme of data center implications for renewable energy production as a very positive driver for demand. Data centers and cloud computing are not new, but the recent emergence of artificial intelligence could result in a huge potential for electricity demand and power prices. As of today, Bloomberg say that there are 7,000 data centers around the world consuming just over 500 terawatt hour. That is equivalent to the consumption of Italy or Australia, to put the things in context. According with Bloomberg, in the next 10 years, we could see the demand from data centers multiplying by three, which we have estimate that is roughly equivalent to add another 400 gigawatts of new capacity generation. And green energy will be a key player in this new demand, not just because the hyperscalers want clean, but also because clean is affordable, fast, scalable, and adaptable. Batteries and other film renewables will act as a backup. For us, for Action Energia, we believe we are in a unique position to take advantage of this potential new electricity demand. We are already a player in this market with a long-term record with some of the key players, such as Google or such as Amazon, because we signed before close to 30 hours with them of contracts, PPAs, long-term PPAs. We see our company as a leading PPA partner for these types of companies, given our scale, experience, reliability, and long-term alignment with our clients. On top of that, our geographical footprint is very complementary with the main data center growth markets. Data centers are in a strategic capability, not just for Acciona Energia, also for Acciona Group, with more than 20 years of experience in constructing infrastructures, expertise in project development, concession, real estate, and expertise in the provision of water and energy demand solutions. to have in-house the access to all of these capabilities is no doubt a key differential factor for Acción Energía in this new market. In the slide 11, we want to update you as usual on the Spanish energy balance and the future hedging strategy. With respect to 2024, the year is basically set. We may increase some hedge volume for the last quarter of the year. But we are basically around 80% covered in between regulation, long-term PPAs, and financial derivatives. The average hedge price is around 80 euros megawatt hour, similar to the price we will obtain on the regulated volumes. That leaves us with two and a half megawatt hour merchant this year, where we expect to achieve 55, 60 euros megawatt hour, taking account the compliance. With respect to 2025, our current long-term contracted position is going to be higher to increase into 4 terawatt-hours, with prices in the low to mid-60s. And we have set ourselves the target of signing another 0.6 terawatt-hours of long-term as-produced contract based on our portfolio of existing wind assets. We have already signed a portion of this volume target, and we are close to signing the rest. in a market that is very hungry for clean energy. Clients that need energy now, today, need to go for us producing energy from our existing generation portfolio, and we can use our energy as a bridge to additionality that is providing energy to them from our existing assets until the greenfield projects is put in operation and then the PPA starts. Our target is to add another 0.3 terawatt-hours as us produce long-term contracts in 2025 and the same in the future, reducing in the future our use of short-term financial hedge. In this context, let me say that we have reinforced our commercial activity of the group as we are becoming more and more a customer-oriented business. In this respect, we recently did a full reorganization of our commercial unit to give the team the full preeminence and weight in between the organization to deliver the full potential in front of our customers. In the international front, the appetite for renewable energy PPAs remains strong. Our focus at the moment is in progressing and finalizing the PPAs on the commercial arrangements for projects as rated hogs in the U.S., Yuna in India, Kalayan in Philippines, or the two South African wind farms in South Africa. With that, let me hand over to Jose.

Thank you, Rafael. Good morning, ladies and gentlemen. Let me pick up on slide 12. As Rafael was saying, one key priority for us is to ensure we assimilate the high investment cycle of years 2023 and 2024 without compromising our investment grade ratings and our ability to fund our growth. This is not a structural challenge. but a temporary one. We want to contain the extent of the increase in leverage in 2024 and bring back the ratios to more normal levels by the end of 2025. Part of this is achieved by letting EBITDA play catch up with our indebtedness, reducing our work in progress as projects such as Macintyre start generating by the end of the year, but also as a result of more moderate levels of investment in 2025. Another key element of that equation is asset rotation. The strategy we announced at our four-year results is well underway, as evidenced by the transaction we announced today. Other positive developments so far this year include the following. The next to full monetization of the 30% stake in McIntyre with roughly $335 million already realized by early July. Secondly, we have continued to work on monetizing the tax credits related to our Union and Red Tail Hawk projects in the US, expecting around $250 million in the year, of which $40 million were received in the first half. and these two items have a material effect on our net investment cash flow for the year. Thirdly, in recent weeks Fitch reaffirmed its investment grade rating which stays unchanged at BBB- with a stable outlook. DBRS has also performed its annual review and we have been downgraded to BBB- from BBB- as a result of the situation of peaking gearing and lower energy prices. We consider BBB Flat to be a solid rating and we feel comfortable in being able to maintain it. All in all, we see this annual rating review of Fitch and DBRS as a success, given the tougher operating environment and the more stretched ratios in the short term. CapEx for 2025 is more modest, given the timing of our projects, and we are aiming at circa 1 billion euros as part of our commitment to bring back our ratios to more normal levels next year. Finally, a comment on asset rotation. This is a critical ingredient of our credit value crystallization and growth strategies. As the chairman mentioned, we have several processes and negotiations running in parallel with more than six gigawatts of assets currently on the table. We don't necessarily plan to execute on all of them, perhaps two or three deals in the year, but we do want to keep sufficient flexibility when it comes to delivering our 24 and 25 disposal objectives. We are finding a constructive environment and good levels of interest from potential investors across the vast majority of these processes and negotiations, as was the case in the transaction we signed last night. Moving on to the next slide, we have been active in prioritizing some transactions that we believe to be more attractive than others. This is the case with the hydro disposal we are announcing today. Following the receipt of binding offers last week, we have signed an SBA with Ella One Energy for the sale of 175 megawatts of hydro assets in Spain. This portfolio is composed of 23 hydro plants that are 100% owned by Acción Energía, located in Aragón, Cantabria, and Cataluña. 77% of the capacity is reservoir and the rest is run of river with an expected production of around 500 gigawatt hours per annum and the remaining concession life of 23 years. The portfolio is debt free and the price agreed is 287 million. The transaction is signed but subject to foreign direct investment approval for closing and we expect that to happen before the end of the year. Given that we received binding offers before we formulated our H-1 accounts, we are required to register the reversal of a past impairment affecting these assets related to the regulatory reform of 2013. As a result, we have recorded a pre-tax gain of $76 million below the EBITDA line as the book value of the assets has increased. This accounting treatment is consistent with the industry standard, and we believe it is the right way to do it. and it will reduce the expected capital gain at closing to around $95 million. This gain, the additional gain over and above the $76 million impairment reversal, that gain will be recorded at the BBDA level once the transaction is closed. In total, the capital gain from this transaction is approximately $170 million. We're very pleased with the outcome, and we believe it is an important step in showcasing the hidden value within our generation portfolio. I want to touch briefly on the work-in-progress topic, which I think is important to understand the temporary effect of the ramp-up in our investment in the last two years. The slide shows how debt associated with work-in-progress peaked in December 2023 at around 3 billion euros, and that as of June 2024, it stands a bit lower at 2.6. The way we have defined work in progress is the cash CapEx invested at each point in time, net of any proceeds received from partners like McIntyre or proceeds from tax equity or other subsidies. In the chart, we have highlighted that 1.8 billion of work in progress relates to assets that are under construction and that have thus not generated a single kilowatt hour of output and therefore no revenue. McIntyre is a particularly large item, or the largest item, with €1.1 billion of net investment diversed as of the end of June, netting off the first payment received in early May. The first payment from our partner, that is. Additionally, there is work-in-progress debt related to assets that have not been contributing for a full year, in which we adjust to better reflect reality. For example, as of June 2023, we had net investment in recently commissioned union projects in Redtail Hawk of almost 800 million, but these projects barely contributed to H1 EBTA, so we have included this investment in work in progress. The 2.6 billion of work in progress as of June represents 65% of the total investment in the underlying projects. Some are just completed, others are still early in their construction phase. This total investment is expected to generate around 350 million of recurring annual EBITDA. So 65% already invested would correspond to approximately 200 million of latent or embedded EBITDA that should come to light in the coming years. It is obvious that high and rising work in progress implies some mismatch between net debt and EBITDA. And as we pass the peak of this investment phase, work in progress will reduce and EBITDA will catch up. In terms of the outlook for the year, let me finish this section by turning to slide 15. In terms of operating metrics that drive EBDA, we see the following. Consolidated production at around 25.5 terawatt hours, lower than our initial expectations, given the output deviation so far this year due to the low international production in key markets such as Mexico and curtailments in Spain, which have not been fully compensated by the strong hydro production in Spain. This is on the basis of realized output to date and P50 for the rest of the year. In terms of achieved prices and on the basis of an average Spanish pool price of around 60 euros per megawatt hour in the year, we see a total achieved price of around 65 euros per megawatt hour, with Spain at circa 75 euros per megawatt hour and international at 55. We have around 3 terawatt hours of merchant exposure in Spain for the year, and as a whole, as Rafael was describing, so you can easily do the math of the sensitivity of our results to movements in Spanish pool price. Consistent with this, we see EBDA pre-capital gains at around 1 billion euros, probably with some moderate downside more than upside, given the evolution of generation volumes so far this year. We're still aiming at generating 200 to 300 million euros capital gains for the year. At closing, the sale of the hydro asset sale will deliver a capital gain of 170, as I was saying before, even if a portion is recorded below the EBDA line due to the accounting treatment of the transaction. And now let me briefly take you through the actual results of the first half. I'll be brief since this information has been available for some time. In slide 17, you can find the key financial operating metrics. As discussed, the financial results reflect lower than expected growth in output and lower prices. Consolidated capacity grew by 1.5 gigawatts in the last 12 months and consolidated output grew by 14% to 11.9 terawatt hours compared to the first half of 2023. While the average price fell by 27% to 62.7 euro per megawatt hour with flat international prices and a steep decline in Spain. which was also affected by the one-off booking of regulatory liabilities as more asset vintages go back to the regulatory accounting in the lower price environment that we have experienced in Spain. As a result, lower prices have not been offset by growing output. Generation revenues fell by 17% to $749 million, and total revenues, including supply business, are down 24% to $1.3 billion year-on-year. EBDA in turn fell by 39% to 419 million due to the Spanish business, whilst the contribution from the international business stayed relatively flat. Earnings before tax and attributable net profit fell to 98 million euros and 65 million euros respectively, reflecting the lower EBDA and high depreciation and net interest charges, as well as the negative contribution from the mark-to-market of PPAs and power derivatives. Non-recurring items in the P&L contributed to the negative delta. As in H1, last year we had 145 million positive gain arising from the full consolidation of Renomar. In this first half, we have a net positive of 44 million, reflecting on the one hand the impairment of the Taivilla project in Spain, which is being dismantled and repowered ahead of the end of its accounting useful life with a negative effect of around 30 million euros. which has been more than offset by the reversion of the impairment of the hydro perimeter we have just sold, and I was describing with a net positive effect of 76 million. Net investment cash flow in the period amounted to roughly 850 million and compares to just over 1.5 billion euros in the same period last year. Net debt increased by around 900 million relative to December 2023 and stands at 4.6 billion, reflecting the large investment effort as well as the payment of the dividend. Moving to slide 18, you can see our key ESG metrics for the period. I would highlight on the environmental front, the full alignment of our CAPEX with the EE taxonomy, our scope one and two emissions grew by 46% with more assets in operation that increase our energy consumption, our scope two, And in particular, the Cunningham battery storage, which has roughly a 15% energy losses between charge and discharge, and that is energy consumption contributing to scope two. In any case, our emission intensity per gigawatt hour is extremely low, and the ratio of emissions to emissions avoided is around one emitted to almost 400 avoided. Two thirds of our emissions are scope two, and those will be offset by year end with a purchase of guarantees of origin or certificates. With respect to social metrics, we are very sad to report a fatality in early July with an O&M worker who passed away while doing some works at a nacelle in one of our wind farms in Mexico. This is not captured in the data as of 30th of June, given the accident happened in July, but it is the negative highlight of the period and the accident is currently under investigation. In governance, we have audited 100% of all strategic suppliers, and we have run almost twice as many due diligence processes of business partners compared to last year. On slide 19, I will highlight that the majority of the cash outflow related to the investment during the period was concentrated in North America with the completion of the Redtail Hawk and Union projects in the U.S. and the ongoing construction of the 40-mile wind project in Canada. The figures for Australia reflect the first payment from our partner, Arc Energy, which reduces net investment during the period. For the full year, we expect to invest around 1.8 to 1.9 billion net of the McIntyre monetization and tax equity monetizations, and including the amount spent on buying back our own shares during January and February of 2024. On slide 20, we present the evolution of net debt with $277 million of operating cash flow, while investment amounted to almost $850 million and shareholder remuneration of more than $200 million, whether via dividends or the share buyback. Starting with a review of the operating results in Spain and international, on slide 21, we show you the revenue drivers for Spain. Consolidated output grew by 16%, partly due to the full consolidation of Renomar in late H1 of last year. The underlying volume growth is of 8% thanks to very good hydro production in the period. Close to 80% of output was regulated or covered by long and short-term hedges. The average achieved price falls by 43% to 64 euros per megawatt hour, with lower market prices and lower prices also in the contracted volumes due to the financial hedges. The regulated price recorded is 43 euros per megawatt hour and is penalized by the one-off regulatory liability accounting of around 60 million, which is booked in the period. This effect will be smooth as the year progresses and the banding uplift builds up, so we expect an average regulated price for the year as a whole of around 85 euros per megawatt hour. Moving to slide 22, the Spanish EBITDA falls to 154 million, driven by lower prices not offset by higher production and lower contribution from the equity accounted, which included Renomar last year. Switching now to the international business, the drivers are laid out on slide 23. On average, the international prices were relatively flat, with better prices in Chile and Australia and lower in the rest of our markets. In the US, the higher weight of solar PV reduces our average price, while in Mexico we had a positive capacity payment resettlement from last year. On the volume side, consolidated output grew by 12% thanks to new assets in operation, but this is somewhat lower than we expected and with a particularly poor resource in important markets such as Mexico and Australia and to a lesser extent in North America. All in all, generation revenues in the international portfolio grew by 11% to $371 million. EBDA in the international business stayed relatively flat. Mexico, our largest contributor, fell by 20%. As discussed, volumes were particularly weak in the first half, and we expect some improvement in the second part of the year. Chile improved significantly thanks to better generation margins and a tariff deficit revenue recognition ahead of our expectations, even if output was somewhat below budget. In North America, EBITDA grows less than we expect given the new assets in operation as output was weaker than expected. New assets like Union and Red Tail Hawk have started to operate during the first half and their contribution was quite small in the period with some delays in connecting Union. At the equity accounted level, the contribution is negative relative to positive contribution last year as the mode of PV asset in Portugal reached the end of its regulated tariff and is also now fully consolidated. Additionally, Puerto Libertad in Mexico was affected by a negative capacity payment resettlement in the period. With that, let me hand back to the chairman for the Q&A session. Thank you.