Edp Sa S/Adr

Good morning. We welcome you to the EDP first half 2025 results presentation conference call. During the presentation, all participants will be in a listening-only mode. There will be an opportunity to ask questions after the presentation. If you wish to ask a question during the Q&A session, you may do so by pressing the star key followed by 5 on your telephone keypad. If you're experiencing any difficulty in listening to the conference at any time, please make sure you have your headset fully plugged in, or alternatively, please try calling from a different device. I now hand the conference over to Mr. Miguel Viana, head of IR and ESG. Please go ahead, sir.

Good morning, ladies and gentlemen. Thank you for attending EDP's first of 25 results conference call. We have today with us our CEO, Miguel Spudunrad, and our CFO, Lete Scherer, which will present you the main highlights of our strategy execution and financial performance in the first half of 2025. We'll then move to the Q&A session, in which we'll be taking your questions both by phone or written questions that you can insert from now onwards at our webcast platform. I'll give now the floor to our CEO, Mikhail Sturlanderad.

Thank you, Miguel. Hello, everyone. Thank you for attending our first half results conference call. I just say we had a strong and solid set of of results here in the first half. And I think this is setting us up well for the full year, which is why we also have a slight provision of the guidance upwards. And so if we go into slides, into the first slide, and I can do a quick recap basically of our first half. First, underlying net profit increased by 27% year on year, reaching 752 million. So that shows, I think, the value of the integrated business in Iberia. And we'll go more into depth in that later on. Solid delivery by EDPR, which we talked about yesterday, and also resilient electricity networks. Integrated business in Iberia had good results. We had a structural increase in demand for flexible generation. We had good hydro volumes, well above average. But we also had solid results from our electricity networks segment. We had EBITDA growing 6% year on year, excluding asset rotation gains and FX. And again, that shows a strong operational performance across all geographies. So again, we went into quite a lot of detail on the call yesterday on that. The wind and solar fronts, underlying EBITDA was up 20% year-on-year, supported by the ramp-up of new capacity added in the fourth quarter. Asset rotation gains in material this semester, only 9 million compared to 143 million in the first half of last year. Again, strength of our underlying performance. And so overall, just a strong set of results showing the value of our integrated model. If we move forward to the next slide, slide four, talking a little bit about the flex gen demand and also the need for more investment. Clearly, we're seeing a shift in market dynamics. I mean, there's much more value being placed on flexible generation assets. I mean, the value of flex gen is becoming very clear when you look at the final electricity price in Spain. And we see that the share attributed to ancillary services and restrictions has been steadily increasing. So from around 5 euros per megawatt hour back in 2015 to around 18 euros per megawatt hour in the first half of 2025. At the same time, we're also seeing a growing momentum around new remuneration schemes for this type of assets. And so just to highlight that in Spain, there were around 700 million euros in grants for energy storage that submitted this month. And there was also the launch of a new capacity mechanism, which is currently under public consultation. So we'll see the result of that over the next couple of months. All of this going hand in hand with the need for additional investment in electricity networks. So particularly in Iberia, our main market, I think it's pretty clear to everyone. I think that's a market consensus that it's key to support and to accelerate investments in grids. First, there's more electrification of the economy, particularly in industry heating and electric mobility. There's also a lot more development of data centers and green hydrogen projects. And so just looking at some of some key data points and looking at EDP's numbers, we've seen an increase of around 126% in e-mobility related supply points in the first half of 2025 versus the first half of 2023, so in a two-year space. And we continue to see a rise in electricity demand with electricity distributed by EDP increasing 3% year-on-year in the first half of 2025. Also, increasing penetration of intermittent renewable technologies like wind and solar. And as you know, in Iberia, clearly, A lot of resources for that, so abundant resources on both of those. And in our distribution companies, we've seen an increase of 18% in renewables connected to the grid in the first half of 25 versus the first half of 2023. Finally, as we stressed in previous presentations, I mean, we think it's really critical to invest in a more modern and digital grid. So in Portugal, for example, I think I've given this number before, but it's worth reiterating. around 45% of transformers are over 40 years old. So I think that just shows the urgency of having an infrastructure renewal in both Portugal and Spain. If we move on to the next slide and talk about hydro. So we had really strong hydro resources in Iberia in the first half. Hydro inflows were 41% above the long-term average. So even higher than the level seen in the first half of 2024, which was already quite strong. Despite that, hydro generation was lower year and year. And that's because the rainfall was primarily used to establish reservoir levels, mostly during the first quarter, which started the year at around 60%. And that was already significantly below the 80% that we'd seen at the beginning of 2024. So we use a lot of that rain to replenish the reservoirs. You can see that on the left-hand side of the slide, the year-on-year delta in hydro production was largely stored in the reservoirs, and so now we're at 83% in July, so well above historical averages and the highest levels in the past decade. So positioning us well, I think, for the next couple of months. So even though we had lower generation year-on-year, the hydro output remained above average, and the uncontracted volumes were sold at higher prices year-on-year with the Iberian pool price reaching 62 euros per megawatt hour versus 39 euros per megawatt hour in the first half of 2024. Contracted volumes, however, were sold at a lower price, namely 70 euros per megawatt hour versus 90 euros per megawatt hour in the first half of last year. So that was already pretty much expected. I mean, as you know, we go on forward hedging and obviously the hedges for this year were lower than last year, but that was already baked into, I think, to everyone's estimates. Overall, the strong performance in the first half of the year combined with the high reservoir levels gives us very strong confidence for the remainder of the year. If we move on to slide six, so as I mentioned, a strong first half of the year, meaning that we update our guidance for the segment in 2025 to the top end of the range we'd previously given. And so at the time of the last results conference call, we'd said that integrated Iberian EBITDA of around 1.1 to 1.2 billion. We're now expecting to be more towards the 1.2 billion with the bulk of it already locked in. So around 80% margin locked in. Key drivers for the delivery of this guidance are high weight of locked in margin. So assuming the normalized volumes and going forward. The strong first half, but with some normalization already seen in the second quarter. As usual, third quarter, which just naturally has lower hydro volumes. I mean, July was lower than average, but in general, this quarter is lower. And then towards the second half of the year, we expect higher sourcing costs. So in line with the trend we've experienced in the second quarter, we expect that the system operator will continue to call on thermal generation, which as you know, has lower margins in terms of the ancillary services. So this combined with the summer months will lead to a lower weight of hydro generation in the total generation mix. So increasing our sourcing costs for the second half of the year. Then on the last quarter, we've already faced some costs with ancillary services on the supply side, which we expect to persist in the second half of the year. On the positive side, we have very strong reservoir levels, as I mentioned, and we are seeing an increase in the Spanish future power baseload forward prices at more than 70 euros per megawatt hour in the second half of 2025. So some positives, some negatives, I think, driving us through this second half. If we move to electricity networks in Iberia on side seven and the regulatory outlook, I'd say the first point I wanted to make here is that it's really important to have a supportive framework and adequate returns to enable the investments for the energy transition. As you know, in Spain, the regulator launched a public consultation proposing a 6.46% return for the next regulatory period. together with the phase transition to a Totex model starting in 2029. However, we believe that these returns or the proposed returns are clearly short of European average, where the returns for electricity networks are above 7%. So we hope that the ongoing discussions will result in an improved return that Spain could converge to this benchmark. The proposal from the regulator is currently under public consultation. We'll be submitting our comments by early August. And by the end of the year, we should have the new regulatory framework and investment limits approved. I mean, hopefully well before that, we'll have better visibility on these issues. In Portugal, the need for higher returns is equally important. And as you recall, we have proposed a 50% increase in high and medium voltage investments. which has already received a favorable opinion from the regulator without any material impact on the end user tariffs. However, the implementation is still subject to the final regulatory framework and return definitions. As I just mentioned, in relation to Spain, the same is true for Portugal. So the return rate in Portugal should clearly be adjusted to ensure that the required investments are attractive and can be executed. We need a more modern and more digital and an expansion of the grid infrastructure. And I think it's important to note that in Portugal, we still have the extraordinary tax, although that's not applicable to new investments and meters that are not remunerated. So clearly there needs to be an upward adjustment of the returns if we are to see this additional investment. Regarding the key milestones for Portugal, in relation to the regulated revenues framework for 2026 to 2029, We should get visibility on that on the 15th of October. So the regulator will release the proposal for the regulated revenues in 2026 and the assumptions also for the new regulatory period. December 15th, as usual, is when we would have the final decision. But hopefully the proposal will already reflect the key guidelines and numbers. If we move on to slide eight and talking a little bit about networks in Brazil. A couple of important points here. First, we recently signed, so earlier this month, the 30-year concession extension for EDP Spiritszent. So that's now in place until 2055. This was really important. I know we'd already got and we'd flagged some visibility that this was going to be extended, but we've now actually signed the contract with the presence of the government and the state governor. And we've been working obviously very closely with the Brazilian government to get this done. The concession for Speed Center was expiring now in July, so it was really important to get this extension actually formally approved and signed, and that's been done. They've been renewed with no upfront financial burden, but obviously with clear performance standards in terms of quality, efficiency, and financial metrics. I think one of the interesting things about Brazil is they've extended the concessions because they recognise that we've managed them well. We've provided good quality of service, we've provided good investments, you know, contributed to the electrification of the economy. And so, I think we are reference players in the sector, and our operations are clearly aligned with the regulated requirements. So, that was very positive news there. We also expect EDP's São Paulo concession to be extended, from 2028 to 2058 under similar terms. That renewal has also been approved by the regulator. We're still pending the signature, but the regulator has already given the green light on that. Looking ahead, the tariff review for EDP-HP is scheduled for August 2025. They're setting the regulatory parameters for the period 25 to 2030. So the regulatory period has been extended from three years to five years. And just some preliminary figures from the public consultation, I think they show a return on RAB increasing from 7.15% to 8.03%, and also a 46% increase in the regulated asset base. So good recognition of the investments that we've executed over the last couple of years. All in all, I think reinforcing long-term visibility and stability of our distribution business in Brazil and supporting our investment plan of around 3.3 billion reais in electricity distribution in Brazil 2025 and 2026. If we move now to slide 9 and wind and solar, again, just quickly highlighting a couple of comments here because we already touched on some of these in yesterday's call. We're on track to deliver the 2 gigawatts of new wind and solar capacity in 2025. 70% of it planned for the fourth quarter. The execution is progressing on time and on budget, so I think highly confident on that. Looking ahead to 2026, we already have good visibility. It was up to one and a half gigawatts capacity additions of which 65% is already secured, mostly in low risk markets of the US and Europe. And the rest is under advanced negotiation. On the asset rotation side, execution also progressing very well. As you know, we targeted around 2 billion euros of proceeds for 2025. We've already closed a significant percentage of this. in Spain, US, Belgium, France, more recently Greece. The remaining 1.3 billion is already under binding bids. As we've previously stated, we expect around 0.1 billion in gains. Most of the proceeds concentrated obviously in the second half of the year, more towards the end of the year. Besides the wind and solar transactions, I just also wanted to highlight that We are successfully executing our capacity additions plan and ensuring we have the financial flexibility to reinvest in future growth. I just wanted to touch here very quickly on the issue, one of the issues which was raised around data centers. I mean, we have strong connections with a lot of the big tech. We have assets and expertise that allow us to really benefit from and support the expected data center growth. The focus has been on our side in promoting loads, well, either just supply contracts as we've been doing with many of the solar and wind projects having PPAs directly with the big tech, but we've also been promoting load co-location with renewable development. So leveraging on shared grid connection, infrastructure and land and empowered land opportunities. I think we do have a good portfolio. That's very suited for co-location opportunities in both the US and Iberia. I mean, in the US, we have renewable assets with mixed technologies, with scale, so we can facilitate connection to large data center developments. I mean, they obviously have a wide geographic footprint. Some of our assets are located near existing or potential data center hubs. And our assets can also operate as a door to electricity grid through our substations and power lines, so reducing costs and time to market. And that's something we've been working on and there's even some public news recently in Texas, for example, relating to that. In Iberia, we have several renewable assets under development that may connect directly to data centers or in Spain be leveraged to secure grid connections for demand. So we also have several plots of land on the sites of thermal power plants, some of them in good connections, good location for data centers. Recently, for example, we also did or we have an agreement with merlin to do a 100 megawatts actually behind the meter sort of um with a direct connection to a data center that's been developed there so i think we have a lot of good examples of the way that we are continuing to serve this demand growth um that's coming out from um from the data center growth if we move forward to opex um here again very strong performance really delivering a lot of efficiency gains. We've done a big organizational simplification and streamlining, and we are also investing heavily in digital and just sort of automating several of the processes. I mean, this is an ongoing, continuous process that we are driving throughout the company. We actually reduced nominally OPEX, so it decreased to around 930 million in the first half of 2025, down from 960 million in the first half of 24, despite 3% inflation in this period, and despite a tremendous growth of megawatts and grids in this period. So the 6% decrease in real terms at the same time that we are significantly growing the company. So this is really significant gains in productivity and efficiency. We are obviously working very much on the supplies and services side, but we're also working on our workforce structure, making sure it's aligned with our future growth trajectory. You can see the number of employees actually decreased 5% year on year, and there's been just an overall decrease in headcount since the first half of 2023. If you look at the OPEX over gross profit, clearly the trend is very positive. We're decreasing from 26% down to 24% in the first half of 2025. And again, very focused on having lean operations, centralized procurement, implementation of AI and digital-driven initiative to optimize O&M, decision-making, customer experience, and all of this while making a really strong effort to keep also the human side of the business. So we are very focused on keeping talent making sure people are engaged, making sure they're adapted, making sure that there's full dedication to being enablers of this transformation. So we're focused on making sure that we have the best people to actually drive this change and drive these productivity gains. Looking ahead, definitely committed to embedding this culture of continuous improvement, leveraging technology and data to unlock further efficiencies and making sure that we keep our cost base agile and scalable as we grow and continue to drive these economies of scale Looking at 2025, we're upgrading the guidance for 2025 following the strong performance in the first half of this year. So the integrated business in Iberia has continued to outperform, as I mentioned, and that's the key driver for this upgrade in guidance. So contributing to around 1.2 billion of EBITDA, as I mentioned, above average hydrogen generation and strong demand for FlexGen. Electricity networks, we're seeing solid underlying growth. supported by higher electricity consumption and the inflation update on regulated revenues. Wind and solar, we're targeting around 1.9 billion of EBITDA, and we expect to deliver around 100 million in asset rotation gains in the second half of the year. And so as a result, putting all of this together, we're saying that our recurring EBITDA, we now expect it to be in the 4.8 to 4.9 billion euro range, net profit 1.2 to 1.3 billion euro range, and net debt remaining at 16 billion, around 16 billion, assuming 2 billion in asset rotation proceeds and a billion in tax equity proceeds. Obviously, and I've mentioned this before, we will be doing the capital markets day on November 6th this year, and we will be able to provide additional color and visibility on not just 2025, but 26 and beyond, and sort of talking a little bit about the strategy and the growth outlook. And with that, I'll just stop there and pass it over to Roy to go through some of the financial numbers in more detail. Thank you.