Edp Sa S/Adr

and regulated asset base and organic growth in Brazil as well. Additionally, there's a 71 million euros capital gain resulting from the transmission deal closed in the first quarter this year, leading to a total impact of 0.1 billion euros from the network segment to the group's EBITDA. Excluding these capital gains, electricity networks represents an important 30% of total EBITDA. Finally, I would like to highlight here our efforts on efficiency in a growth context. OPEX registered a slight reduction in absolute terms versus the first half last year, reaching $966 million in the first half this year. So very tight cost control, which allowed us to keep OPEX stable against inflation and in a business that is growing. So we move to slide 11. The line EBITDA grew 4%. and improved performance year on year. And this is reflecting 10% growth in installation or in the installed capacity year on year. Better wind resources with renewables index in line with long-term average versus minus 5% or 5% below the average last year. This is supporting naturally a 5% increase in electricity generation. And with a solid average selling price, pretty much flat year on year, supported by the higher prices in US and the hedging strategy that partially offset the decline in electricity prices in Europe. Additionally, the first half this year positively impacted by around 171 million euros of asset rotation gains versus the absence of gains in the first half last year, which were much more back and loaded throughout the year. If we now move to slide 12, going through the EBITDA for generation and supply business, hydro clients and energy management recurring EBITDA broadly resilient with only a 4% drop year on year in a context of a 56% drop year on year of electricity spot prices in Iberia that came down to around 39 euros per megawatt hour in this first half of the year. And this is also the reflection or the outcome of the very solid strategy, hedging strategy that we have for this business. Also, we benefited from strong hydro volumes, which, of course, allows us to keep this recurring EBITDA, as I mentioned, broadly resilient. EBITDA in 2024 compared to 2023 also reflects the implementation of the coal-free strategy with the deconsolidation of Abonio, a coal plant in the north of Spain, the same coal plant in Brazil, whose contribution to EBITDA last year amounted to 66 million. I would also like to highlight that for the full year, we expect that the EBITDA from the integrated business in Iberia will be in line with 2023 numbers, which was around 1.4 billion euros. If you now look to the networks on slide 13, networks Epita increased 15% year-on-year. In Iberia, Epita increased 10 million euros backed by an increase in regulated revenues of 5% year-on-year and a diligent OPEX management in Portugal. In Spain, Epita stood relatively stable with revenues increased due to the RAB growth compensating higher maintenance costs. And in Brazil, Epita increased 102 million, for which contributes both the organic growth and operations, including lower overcontracting in the distribution business in this first half of the year, and the capital gain of 71 million euros from the asset rotation of two transmission lines. With this, I would like to move to the financial costs on slide 14. Financial costs in recurring terms increased 8% year on year, with the first half 2023 being positively impacted by 37 million euros from the settlement of US dollar pre-hedge. Cost of debt decreased from 4.8% in the first half last year to 4.6% in the first half of this year, following the decline of the Brazilian denominated or Brazilian real denominated cost of debt and rebalancing the US dollar euro denominated debt as part of the strategy to reduce the dollar in the mix. As you can see in the right-hand side of the slide, the dollar weight over total debt decreased from 35% last year to 22% in the first half this year, Also highlighting that if we were to exclude the Brazilian real debt, average cost of debt was 3.3% this year compared to last year, 3.1%. So despite the average cost of debt decreasing overall, financial results reflect the higher average debt in the period, which was offset by capitalized financial expenses due to higher volumes of construction activity in the renewables, particularly in the renewables. So if we now look to slide 15, I would like to highlight again our strong financial liquidity positions. So as of June this year, we had around 9 billion euros of available liquidity, of which 1.1 billion cash equivalent, and the remaining 7.1 billion of available credit lines, covering refinancing needs until 2027, as one can see on the right-hand side of the slide. Also important to highlight here that currently most of our debt is fixed. So around 78% of the debt is fixed. And finally, we continue to be active in the debt capital markets. And as you may have seen, we issued 750 million euros of hybrid notes in May this year. The final maturity date, May 2054 at the 4.875% yield. So keeping active in the market business as usual. I would like now to highlight an aspect that impacts the balance sheet, which is regarding the regulatory receivables. So on slide 16, as you know, in 2023, we faced an increase in regulatory receivables in Portugal up to 2 billion, resulting from deviations in the electricity wholesale price that was being verified during the year versus the regulator's assumption for the tariffs, which we then securitized in December of 2023. This year, until the end of the first half, we experienced also some deviations that led to this regulatory receivable stock in the balance sheet to stay at 0.4 billion, and this includes 0.2 billion of securitizations. I guess the good news this year is that there was an exceptional tariff revision from June onwards, which includes excess tariffs increased from 40%. hour and this is expected to seize regulatory receivables growth for the remaining of the year and therefore we expect to that the stock that we currently have in the balance sheet to remain stable and we are naturally considering that we will be securitizing it until the year right so commenting on the net debt evolution we've closed the first half of 2024 with 17.4 billion euros net debt. And the main drivers throughout the last six months were strong organic cash flow of 1 billion, dividend payment 0.8 billion, regulatory working capital of 0.1 billion, as I just explained, net cash investments amounted to 1.9 billion, again, mainly from the investment in renewables, and including 0.7 billion of asset rotation proceeds. The asset rotation in Italy that achieved financial closing already in July is not captured by the 17.4 billion number. But obviously, if we had received that still by the 30th of June, the net debt for the period would actually have been at 17.1 billion. Towards the year end, as we bring U.S. projects online, we'll be closing tax equity funding. We also expect to conclude some of the ongoing asset rotation transactions. And as I just mentioned as well, the tariff benefit securitization is expected to be cashed in by year-end as well. So overall, we maintain solid credit ratios, namely the FFO net debt at around 19%, and remain fully committed to our BBB credit rating. So finally, recurring net profit amounted to €775 million, a very strong bottom-line figure. If we exclude capital gains, the underlying net profit shows a strong 15% increase versus last year. And this is the result of the EBITDA growth. DIN provisions pretty much in line with last year. Net financial costs increasing 32 million year on year. Again, if we were to exclude the first half impact of that positive effect of 37 million euros from the settlement of the US dollar pre-hedge, we would have a broadly in line net financial cost. Income tax is pretty much in line as well with last year, and this follows the lower effective tax rate due to the tax treatment of asset rotation gains versus no gains recorded last year. And an important decrease in non-controlling interests, primarily supported by EDP Brazil. If you remember, we successfully took it out of the market and buy out the minorities by beginning of the, so let's say in July, so beginning of the second half of the last year. So we still have that positive impact here as we look year on year to the first half of 2024. So finally, just to highlight that if including asset rotation gains, net profit showing a very strong increase, 50% versus last year, compounding the positive performance of the underlying business and the asset rotation strategy. And with this, I would hand over to Miguel for final remarks. Thank you.

Thank you. So just to wrap up before going to Q&A, I think first, I just wanted to highlight the value of GDP's diversified and balanced portfolio. We're talking about hydro, we're talking about client solutions, energy management, EDP renewables, wind and solar, electricity networks. So I think these underpin our performance, which is extremely strong for this first half and shows some of the value of the diversification and that all of these different businesses are pulling their weight. If we actually go then through some of these points here on the slide. So first, the first half numbers are very good. I don't think there's any other way to say it. 50% up net income growth year on year. Good generation supply business in Iberia, good growth in renewables. EDP Brazil minorities buyout obviously also helps to this. So we remain confident in our 1.3 billion net income guidance for 2024. I think we're also, we touched on this, I just wanted to reiterate that good efforts on the efficiency side in terms of keeping a flat OPEX despite inflationary environment and growth. So I think that was also an important effort. And as you know, we've committed to keeping that OPEX flat over the next couple of years. On the network side, clearly this is, you know, brings or continues to bring stable low risk cash flow. It contributes around 31% to EBITDA. We had very positive developments, mainly in Brazil. I mean, with the concession renewal process ongoing, I think the market was perhaps already discounting that risk or discounting the sense of not considering the risk, but the fact that we actually have that visibility on that process and it doesn't have any additional financial burden, I think is extremely good news, and a good precedent also for other geographies. On the asset rotation side, good execution, around 0.8 gigawatts of wind and solar rotated in the first half, so three transactions, a good multiple of around 1.6 million euros per megawatt. Capital gains of around 171 million and 0.4 billion of proceeds from the transmission asset rotation deal in Brazil. Overall, I think continuing to deliver on the asset rotation transactions. Balance sheet, we certainly talked about that, but just to reiterate, I mean, solid balance sheet, good FFO net debt at around 19%. I mean, yes, we recognize there's a net debt or seasonal increase now, and that includes the dividend payment also in May, working capital issues, we've gone through that, but I just wanted to reaffirm our commitment to the BBB and to, let's say, converge into the $16 billion or around $16 billion plus at the end of the year. And finally, on the investment plan, very much focused on leading the energy transition. I think the fact that 97% of our capex is all allocated to renewables or electricity networks is, I think, worthy of note. And also the fact that we're doing good progress on all of the key ESG metrics. So again, reiterating this data point of 98% of our total generation output came from either hydro, wind, or solar sources. So I think that really shows how we've done this energy transition in a very successful way. So I'll stop there. I'll turn it over to Q&A and be back in a second.

Ladies and gentlemen, the Q&A session starts now. As a reminder, if you wish to ask a question, please press star followed by five on your telephone keypad. Thank you.

We have the first question from Pedro Alves from CaixaBank. Pedro, please go ahead.

Hi, good afternoon. Thank you for taking my question. The first one, on the low voltage concessions in Portugal, there has been some news flow in Portuguese press. So can you please guide us on the process of the auction? What are your expectations? and whether you will participate. There is also some news that we will be facing competition in the process, so any visibility on that would be helpful. And then also in Portugal, we also got some news of the new public financing model for the social electricity tariff. I guess there will be no material impact, but eventually that can eventually ease any pressure on your supply margins. So if you can guide us on that, that would also be helpful. Thank you.

Sure. Great question. So on the low-voltage concessions, as you know, there has been recent news flow, as you mentioned. I think the key point is that the previous government had set out or approved some documents which foresaw the process, let's say, being launched and worked on over the next year, so that by mid-2025, that process would then formally take place and there would be some sort of tender or process. The new government has come in and they have just set up a task force or a committee to, at least that's what we've read also in the press, so probably the same news that you've seen, set up a committee to basically look at this low voltage concession renewal process and come to some sort of additional conclusions either to confirm or to change some of the parameters in relation to the process. I mean, the only comment I'd make here, first of all, the basics is that, as you know, we've been managing these concessions, I think, very successfully for the system. We've improved dramatically the quality of service over the last many years. We've reduced dramatically the OPEX per customer associated with the network. So we've managed to have better quality of service with lower cost to the customer. I think that's really important to stress. It just shows the value of managing these concessions on an integrated basis. Now, the terms that came out approved by the previous government set out some sort of criteria, which we think, quite frankly, didn't make a lot of sense because they basically meant that the process was not or it wasn't particularly attractive for new operators. I mean, the worst case scenario is we get the 1.2, 1.3 billion of RAB back if we don't participate in the process or if we're not successful in the process. And let's say that would be the worst case scenario. The other scenario is we do, you know, there is a rational process which is put in place. It makes sense. We participate, we win, in which case we would carry on managing the low voltage concessions going forward. So let's say that's a little bit of the news flow and our comments on this. On the second point, the social tariff, as you say, again, probably we're reading the same news, but apparently some of the social tariff could be financed by the public budget. As you know, Europe says that there are essentially two ways to finance the social tariff. You either finance it through the public budget or you socialize it between the different suppliers and the consumers, essentially, at the end of the day. I think either model works. It's really a political decision, and so either can work, and they're recognized by the European directive. What didn't work was the previous model, where it was disproportionately allocated to EDP and in a way which was not rational. So I think the new model made sense. If the government wants to change it in the direction, apparently, that we've read in the press, I think it can also make sense. I'm not going to speculate about impacts that it might have, because honestly, I think it's very early. We don't have any detail on it. So I can't actually estimate the values. I wouldn't assume anything different from what we had previously, but let's see if any additional news comes up.

Thank you, Pedro. So we have the next question from Javier Garrido, GP Morgan. Javier, please go ahead.

Thank you, Miguel. Good afternoon. More than a question, it's a friendly challenge, if I may. Can you let us know what can go wrong in the second half of the year? I know that we cannot take your first half, as you said. But still, the performance in the first half has been very strong. Your reservoirs are where they are. So what can go wrong in the second half of the year? Because otherwise, It seems that your guidance of 1.3 billion looks a bit conservative, doesn't it? Thank you.

Hi, Javier. So, well, as you say, I think we're keeping the guidance. I think the point is that if you look at our results, which are good, but you take out the asset rotation gains, you're sort of in the 500s, million of underlying. So what can go wrong is, well, I don't think it's a question of going wrong. I think it's a question of do the asset rotation gains come in this year or next year? Do we, let's say, that will depend on the timing of those transactions. So if you take the 775 and you add on an extra 500 plus of the underlying, if you assume, let's say, second half equal to the first half or roughly you'd get to the 1.3. So I think it's not a question of going wrong, it's a question of how we manage also the asset rotation transactions.

Okay, that's clear.

Thank you, Javier. The next question comes from the line of Alberto Gandolfi from Goldman Sachs. Alberto, please go ahead.

Thank you. Good evening. And thanks for taking my questions. The first one is that at the cost of something very obvious, could you please tell us how many asset rotation gains are you including in the 5 billion EBITDA and the 1.3 billion at the bottom line? The second question is, can you help me a little bit with the bridge 24 to 25? So should we expect in a normal year, perhaps three and a half, four tarawa reduction in hydro? versus 24 versus your guidance? And are you telling us there's a 30 euro megawatt hour decline on the hedged prices, which probably is 30 euros on the overall achieved prices on the hydro? And of course, that would be the big building block. Then anything else that needs to normalize other than that, we just, I guess, need to just estimate ourselves growth in EDPR and networks. And the last question, again, we briefly touched upon that when we did a call on EDPR, but I wanted to ask you more broadly. You have this big exposure in the United States in renewables. You have this big presence in Iberia. Can you tell us what you are seeing in terms of power demand? Do you see an inflection in the United States like other local utilities are talking about? Do you think some of the drivers are applicable to Europe? If so, how would this change the way of conducting business? I'm thinking of renewable returns, PPAs, investments in the grid, volumes, so revenues in retail. Can you maybe give us just a very qualitative high-level overview? Thank you.

Hi, Albert. So in relation to the first one, the asset rotation gains, what I'd say is that we expect to have around 300 million on average over this period. We obviously had a very strong 2023, around 460. We're off to a very great start for 2024 in terms of first half numbers. But we will do around 300 million on average over this period, 23, 24, 25, and beyond. So as you know, if we get better than that, that's great. But we're not trying to maximize asset rotation gains just for the sake of it. I mean, for the sake of it as in, obviously, we want the best results possible in each transaction. But we're not just going out selling all the assets at the same time just to have an absolute amount. The second question, maybe I'll leave it to Hui. I'll just touch on the third question. So on power demand, definitely in the US, we are seeing increased power demand or increased demand for renewable projects, which is what we sell. So we're not, as you know, we're not an integrated utility in the US. So I can't really speak too much for, let's say, what other types of demand they're seeing on the networks. But certainly in terms of renewable projects, there is a great amount of demand. And I think that's flowing through in terms of, let's say, the project returns and in terms of the willingness to contract in the short term for projects for 25, 26, 27, that sort of timeframe. So that's clear for us. And that's why I've mentioned on previous calls, on the ADPR call, that the U.S. is doing well. It's doing well operationally. are doing better operationally than it has over the last two years, but it's also doing well in terms of the projects and the PPAs that we're contracting. Is it applicable to Europe? I mean, I think certainly there is some flow through. I think we certainly, and I've talked about this, we do get, or we are seeing a greater number of calls, particularly coming out of people like the data center guys, et cetera, trying to get access to the network, trying to contract more power. But I'd say, let's say, not as high as in the US, and more focused, I think, at this point still on getting connection to the networks to actually then be able to build up the projects. And then they would start working on the power demand. So I think that the network, at least in Iberia as far as we see, continues to be one of the main bottlenecks to doing that. But certainly more bottlenecks because there's more demand and so people trying to get more access to that. while you're on the second question.

Sure. Thank you, Miguel. So I think that for 2025, I mean, the way we ran the numbers when we updated the guidance for 2026, We basically took forward curves for 2025. So if you go back to the, let's say, late April, beginning of May, and you take the forward curves to 2025 in Iberia and different markets, that's pretty much what we used. In EVPR, we estimated around 50 euros per megawatt hour average selling price for 2025-26 for the fleet as a whole. normalized volumes on the hydro side. So we're considering a P50. So we did not consider that, for example, as of today, we have around 80% of the reservoirs on the hydro side in Iberia. But for the purpose of the 2025, we just consider a sort of a P50 scenario for the entire generation. So not considering that we may end up the year with a higher or above average reservoir levels. And then for the renewables is just basically taking today's split and considering that the additions that we will have throughout 2024, they will not be up and running from day one in some cases. So typically the Q4 additions, they will have a ramp-up phase. You can take a view that the ramp-up takes between three to six months, depending on the projects. But that would give some additional volumes on the renewable side based on the current installation rate. And then on an OPEX level, basically considering a flat OPEX throughout the period. As a rotation, as Miguel just said, even for 2025-2026, again, actually for the average. So the way we look is that for the entire period, the sort of average 300 or approximately 0.3 billion, 300 billion.

Thank you. Thank you. So the next question comes from Arthur from Morgan Stanley. Arthur, please go ahead.

Thank you for taking my question. The first one, on your numbers in H1, I noticed that the tax rate looked quite high on the second quarter in particular. I was wondering if there was something specific going on there and if that will still be the case at the end of the year or if that tax rate should normalize by the end of the year. That's the first question. The second one is just on Portugal. You talked earlier about the municipal concession renewal. The other topic, I believe, is the regulatory review for next year. I was wondering if you expect the same type of return uplift as industry players are talking about for the Spanish regulatory review, the returns in Portugal are not that different from what we see in Spain at the moment. Thank you very much.

I'll take the second question. So on the Portuguese regulatory review, so as you say, that will be kicked off, I guess, over the next year or so, so applicable for 26 onwards. I think the key difference between the Portuguese regulation and the Spanish one is that the Portuguese has, the rate of return is indexed to the Portuguese bond. And that's being, so it's the Portuguese bond plus spread. And that's been pretty much the methodology over the last couple of regulatory periods. And we believe that it will continue to be also that, let's say that methodology going forward. So then we can discuss the spread and, you know, let's say the rate of return, but it is this sort of sliding which I think is good because it means it keeps it sort of indexed versus the Spanish one, which is fixed then for a long period. Let's see if they change that now, but at least for the current period, it's flat. So I think it will depend on where the Portuguese bond is. I mean, if it stays roughly where it is over the next 12 months or so, the regulatory, let's say the returns would stay roughly in line with what they are now. or a little bit higher. Quite frankly, we've made the case, because we believe it to be true, that the return is low, particularly in a context when it is necessary so much more investment to deal with the energy transition, with all these connections that we're talking about, that I mentioned when Alberto also asked me about the increased demand. So we think more investment, but you also require higher return to remunerate that investment. So that's certainly something that's we will be advocating for with the regulator, because we think it's fair and it would align Portugal more also with other markets throughout Europe.

Hi, Arthur. So the tax rate. So basically it's... strong results in Portugal, strong results in Brazil, but also some deferred taxes that will be normalized by your rent. So by your rent, I would expect it closer to sort of 25%, or if you want full year, tax rate around the 25.

Thank you very much.

Thank you, Arthur. So we have the last question from the phone, George Guimarães from GB Capital. George, please go ahead.

Good afternoon. I have two questions, if I may. So the first one is around the tax outlook in Portugal. On top of the typical update on sales, if you can give us some color on what could be the potential impact if the corporate tax rate in Portugal is finally reduced according to the original Portuguese government plan. So this would be This would be the first one. The second one, it's your view about the liberalized margins in Iberia. Can we assume that the current supportive outlook, supportive situation for margins may stay for longer than originally anticipated? And the final one is just a clarification. I believe you mentioned in the beginning of the call that most of the gains with asset rotation were already booked in first off. This mostly refers to EDP because of Brazil or also to EDPR. Thank you very much.

So I didn't quite catch the second one, but I'll answer the first and the third. But if you could just clarify what So it was in relation to the liberalized margins in Iberia, and then I didn't quite catch the question.

My question is whether when you originally designed your plans, if the margin evolution in Iberia has been more favorable than what you considered originally, or if it has stayed stable versus your original expectations.

So, listen, in relation to the first one, so as you say, in relation to the sales, there's not much, nothing new. It's been contested in court, and we believe it doesn't make sense. We're in 2024. This is the extraordinary tax from 2014. I mean, it should have finished a long time ago. Certainly not extraordinary anymore. But in relation to the corporate tax, as you say, I think what I've seen announced is that the expected corporate tax rate would reduce from around 21% to around 15% over four years or something like that. So, I mean, it will impact us to the extent that our profits in Portugal would also be impacted by this corporate rate. I don't think there's, as you know, we then, this is just a nominal, let's say marginal tax rate, because we then have an additional nine and a half percent, what they call the DREM in Portugal. So our actual tax rate in Portugal is significantly higher than this nominal rate. On the second question, the liberalized margins in Iberia, well, and actually, sorry, still on the first question, as you know, Portugal, if you add up the corporate tax rate of the 21% plus the nine and a half, it's actually one of the highest tax rates in the OCDE. So it makes sense that if Portugal wants to be more competitive, it should also be competitive on the tax side to attract more investments, more companies. On the second question, so I'd say stable margin evolution. I don't think there's been any change versus where we were just a couple of months ago when we went to the market in May. There is a seasonality issue that impacts the margins sometimes on the liberalized market, but let's say it's a seasonal impact into a year, but it doesn't change the way we're thinking about margin evolution over the medium term. And in relation to the third point, yes, I think more than half of our gains were in the first half, both EDP and GDPR. And so I think that's, yes, you understood correctly. I think certainly more than half are part of our gains in the first half. And then we'll see what happens in the second half in terms of capital gains.

Thank you very much.

Thank you. Thank you, George. So we have run all the questions by phone. And so we have one question by the web. It comes from Alex from Bank of America regarding the EBITDA from the integrated business in Iberia, Ipsflat. in the flat fuel 2024 versus 2023 and regarding for 2026 guidance what should we expect for hydro normalization and from the activity of clients and energy management

Hi Alex, it's Rui here. So thank you for the question. So as I, I think I mentioned that earlier in the call. So as I said, we took the, for our view, for our expect or for our guidance, we took a view that we will get forward prices in 2025 that average 50 euros from about our price at renewables and normalized volumes will, at the hydro and as well as on the renewable fleet. So if, you know, translating that into numbers, 2023, 2024, We expect around the same level of EBITDA contribution from this segment. So that's close to 1.4 billion. For, I would say, the remaining years, 25, 26, we expect it to normalize. If we include Brazil, that's probably around the 1.1, excluding Brazil, that's going to be around 0.9 billion. So the ballpark, those are the numbers that we expect to have for this integrated business.

We don't have more questions. Miguel, if you want, for the closing remark, please.

Okay, so I just reiterate to close. First, great set of results, I think, in the first half. I think it shows the strength of the EDP business, the value of the integrated portfolio, and it sets us up well, I think, not only for the 24 guidance delivery on EBITDA and net income, but also for 25 and beyond. I'd just like to say that we continue to see great projects coming in through EDPR and which will continue to drive future growth for the 25 and beyond. I think these numbers, the first half, also show the value of our beer and hydro business. Not just the flexibility of hydro in general, but also the value of pump storage. I mean, looking at the margin of the peak off peak. And as you know, this will become more and more relevant as we go forward and we have a high penetration of renewables. I think our networks business also great news in terms of having more visibility on the concession renewals in Brazil. In general, I think we'll have then the regulatory discussions, which you guys mentioned, both in Portugal and Spain over the next 12 months or so. But I think there is potential then for more medium-term growth in the networks once you raise the cap on investment and hopefully have more interesting remuneration, right? So good results. Looking forward to delivering for the rest of the year. Last thing I'd say, I hope you all have a great couple of weeks off. And I look forward to seeing you either in September during the roadshow or at the very latest at the third quarter results call. So thank you very much for listening and talk to you soon. Thanks.