Iberdrola Sa S/Adr

Buenos dias, señoras y señores. Buenos dias. Good morning, ladies and gentlemen. First of all, we would like to offer a warm welcome to all of you who have joined us today for our 2023 first quarter results presentation. As usual, we will follow the traditional format given in our presentations. We are going to begin with an overview of the results and the main developments during the period given by the top executive team that usually is with us. Mr. Ignacio Galán, Executive Chairman, Mr. Armando Martinez, CEO, and finally, Mr. Pepe Sainz, CFO. Following this, we'll move on to the Q&A session. I would also like to highlight that we are only going to take questions submitted via the web, so please ask your question only through our webpage www.iberdrola.com. Finally, And in order to be helpful for you, we expect that today's event will not last more than 60 minutes. Hoping that this presentation will be useful and informative for all of you, now, without further ado, I would like to give the floor to Mr. Ignacio Galán. Thank you very much again. Please, Mr. Galán.

Good morning, everyone, and thank you very much for joining today's conference call. On the first quarter of 2023, net profit reached 1,485 million euros, thanks to a strong operation performance. A big increase by 30% to 4,064 million euros, driven by the recovery of the retail deficit accumulated the previous years in the UK, A better operating performance in Europe, mainly due to the normalization of production after low hydro and wind factors registered last year, which oblige us to purchase energy in the wholesale market at very high prices. And growth related to new investment in networks and renewables, which in the last three months reached 10,400 million. Of that amount, 4,800 million were invested in networks, increasing and diversifying our asset base even more. and 4,600 in renewables. Fully in line with our strategic guidelines, we have combined this growth with an additional improvement in our financial strength. Our ratio FFO and adjusted net debt increased by 130 basic points to 25.3%. Driven by our strong cash flow generation, we exceed 3 billion euros in just three months. As you know, a few weeks ago, we reached an agreement to sell 60% of our business in Mexico, mostly gas generation assets that have CFP as sole customers, for 6 billion dollars. This will allow us to focus on renewables in our thousands of industrial and commercial customers in the country. In addition, we have continued to close new partnerships with world-leading investment funds. Yesterday, We announced a new deal with GIC, the serving fund of Singapore, to co-invest in transmission in Brazil in a similar transaction to one we announced with Norges Bank some months ago for renewables in Europe. Thanks to all this agreement in just three months, we have already reached our asset rotation target for 2025. Joining forces with Tier 1 partners, they will reinforce even more our investment capacity. Now that we need to accelerate decarbonization and self-sufficiency through investment in electrification is more evident than ever. The latest policies announced in Europe, United States, UK and Australia are fully aligned with these goals. All in all, these results show very significant process in our 2023-2025 plan after just three months of implementation in terms of profit, cash flow generation, asset rotation partnership and financial strength. Moving to operating results, EBITDA reached €4 billion up to 30%. The net worth business has benefited from higher asset bases in all geographies and higher revenues to the new tariff in the US and Brazil in accordance with the current regulatory frameworks, which also include clothes that protect our results from higher inflation. Earnings progression in customers reached an operating result of 2.5 billion euros, increasing its contribution to more than 60% to total EBITDA slightly above normal due to some non-recurring impact both in 2022 and 2023. In the UK, Scottish Power recovered the deficit accumulated along the last quarters in its retail business, and market conditions improved slightly thanks to increases in the tariff cap. Renewable production has increased due to higher resources and the contribution of new projects that began operation around 2022, mainly in the United States and the EU. A nuclear output has normalized in Spain after the unplanned outage of our cofrentes plant during the first quarter of last year. Both effects have resulted in much lower energy purchases to third parties this year compared to 2022 when prices were exceptionally high, as you know. Biographies, 80% of EBITDA comes from a rated countries with 42% correspond to EU and 36% to UK and United States combined. As mentioned, investment reached 10,400 million euros in the last 12 months with more than 90% allocated to networks and renewables. Network investment reached 4.8 billion, up to 22%. As a result, our asset base reached 39 billion euros as of March 2023, with an increase of 11% from previous year. Renewables account for 45% of the total investment, or more than 4.6 billion euros. As of today, we have already in operation our construction, 60% of our total capacity additions planned for 2025. We expect investment to accelerate in the coming quarters, reaching a total of 3 billion euros by the year end. This acceleration will be driven by our offshore wind project under construction in France, US, Germany, and UK, which will add 3,500 megawatts with a total investment of about 11 billion euros. All projects are progressing on schedule and on budget, with the first export of Saint-Bruyc in France and Billiard Wind US expected this quarter and the last quarter of the year, respectively. These two projects will double our current offshore wind capacity, reaching 2,600 megawatts. On top of this, we stepped back to EGIGEN in Germany to be operational in 2024, and Sangria III in the UK, and Bindaken in Germany starting production in 2026. We have already secured the supply chain in all these projects and the route to market for the period of 15 to 20 years through feed-in tariffs in Baltic Sandbrick or contracts for difference in East Anglia III and PPAs in our US and German projects. Let me highlight that in a few months we have sold 100% of the output of Indakker in Baltic Eagle, in Germany, through PPAs to commercial and industrial customers, showing that markets are moving in the same direction as the European Commission is in its proposal for the electricity market reform. As a result today, we can affirm that our offshore wind expansion plan is already secured to 2020 final front. We have secured supply chains for the construction period. We have also secured the resources required to build them on time and budget and to operate them efficiently. And we have secured revenues for at least 50 years at attractive prices, providing our access to all routes of market. As a result, we expect an average spread on WAC between 150 and 200 basic points in all those projects. Funds from operations have continued to show a strong evolution, exceeding 3 billion euros in the first quarter, driving a forging improvement in our financial ratios, with FFO auto-adjusted net debt increasing by 130 basis points to 25.3%. As Pepe will explain later on, net debt has remained flat over the quarter at 43.7 billion, with an average maturity close to six years. And around 75% of the debt is at fixed prices, or 87% if we exclude Brazil, securing a significant stability in our financial expenses in the current macroeconomic scenario. In addition, our liquidity position of $21 billion covers 22 months of financial needs. As we announced three weeks ago, we reached an agreement with Mexican infrastructure partners for the sale of 60% of our business in Mexico, a transaction fully supported by Mexican authorities and in compliance with the country's energy policy. The deal involved the sale of 13 plants that helped CFP as customer, almost 100% gas combined cycles. for a total price of $6 billion to be collected at the closing expected in four quarters of this year. The transaction will allow Iberdrola Mexico to remain fully committed to the country. Maintaining a business platform that generates in a bid around $400 million per annum, including 15 operational plans, nine of them renewables, and our commercial capabilities with thousands of Mexican industrial and commercial customers, and they can be sure that our commitment will then continue in the future. Even accelerating our growth thanks to our pipeline of more than 6,000 megawatts of renewable projects. So let me thanks again to all parties involved in this deal for their openness and attitude base of mutual dialogue. On top of this, just yesterday, Energy announced another very relevant co-investment partnership with GIC, the serving fund of Singapore, for co-investing in transmission in Brazil. The deal, based on a 50-50 co-ownership, will include our all eight operating assets, and the asset currency and the construction are their rich commercial operations. It also covered the option for GIC to co-invest in any new project, giving our Brazilian subsidiary even more access to new opportunities in the booming transmission sector in Brazil, which, as you know, will hold new tenders worth 51 billion Reais only in 2023, improving at the same time the energy financial position as well. And globally, this transaction adds an additional world leading fund to the group of partners that have decided to co-invest with us over the last months, including, of course, Norges Bank, Maffrey in Spain, or BP for charging infrastructure and green hydrogen, or joining another one like Shell. In addition, Two deals mentioned implied reaching in just three months, the 7.5 billion euros financial target, including our also rotation and partnership plan for 2023, 2025 plan. Providing Iberdrola even more access to new investment opportunities under profitable terms. This also shows our ability to reach agreement with tier one global companies who want to co-invest with Iberdrola. Over the last three months, we have continued to sign new PPAs with leading corporates providing them competitive electricity and helping them to meet their climate goals. Like Mercedes-Benz with a PPA linking to our offshore wind project in the Baltic Sea, Meta for Solar Energy in the United States, or Amazon Web Services has signed with us a PPA linking to our offshore facilities in the Baltic Sea as part of a global agreement that will be extended to other geographies. The ability to sign multi-country deals with global corporate customers is one of our key competitive advantages with the PPA market, which is booming, driven by the strategic decision of leading companies to secure competitive and stable prices and access to the most efficient decarbonization solutions. We already have multi-country agreements with companies from different industries like ABE, BIMBET, Telefonica, Holcim, Amazon, Web Services, Vodafone, or Heineken, apart from relevant agreements focused in a single country. We're talking about PPAs in more than 10 countries with an average duration of 10 years. which together with our feed-in tariffs and contract for differences linking mainly to offshore wind with an average tenure of 15 years and our access to retail SME market basically in UK and Spain with an average contract duration of three years have allowed us to hedge 95% of our current production for multi-annual period providing us visibility and stability at our traffic prices. I'm sure that the share of PPS in our portfolio route of market will continue to increase in the coming years, driven by regulatory incentives provided in all geographies from the U.S. to Europe. In the last days, our listed subsidiaries, Avangreta and Ionegia, had presented their first quarter result, showing a robust performance in both cases. In the U.S., a bank created a bid that reached $633 million US GAAP, with net profit $245 million. The company continues to accelerate growth in networks and renewables, with $2.7 billion invested over the last three months. And in progressing the new rate cases for its New York, Maine, and Connecticut subsidiaries, we will feel confident we'll be close in the coming months in terms in line with our assumptions. In addition, Avangrid and PNM Resources announced the extension of the merger agreement until July, allowing sufficient time for the New Mexico Regulatory Commission to assess the deal. And just last week, Avangrid received a positive unanimous decision from the main court to go ahead with the NCEC project of termination. In renewables, Avangrid continues to progress in its installed capacity expansion plan with 1,700 megawatts under construction. Half of short wind with wind construction progressing according to as mentioned. And half in all short wind. In Brazil, the energy EBITDA increased by 14% to 3,620 million reais. The net profit reached 1,215 million. driven by new investment of close of 10 billion reais in the last four months. Just last week, new multi-annual tariff reviews were approved for Bahia and Rio Grande do Norte, covering almost 60% of our Brazilian asset base in terms better than planned. And we have commission for new transmission assets. In renewable, we have reached 4,600 megawatts of installed capacity, including the Paraíba complex, which I had the opportunity to integrate with President Lula da Silva one month ago. Now, moving to the coronary context, after two years of crisis caused by gas prices, we see signs of a gradual normalization driven by a soft winter and the efficiency measures introduced in Europe. we have helped to reduce impact on industry and residential customers. As a result of these higher energy prices, we see record high storage levels and more normalized prices. However, the crisis is showing with all clarity that Europe's dependence on imported fossil fuels needs to be reduced quickly. For that reason, new energy policies in Europe, in all our key markets, are aiming to boost electrification through the acceleration of renewables and net-goals investment. In the EU, the European Commission has published its proposal for the Electricity Market Design Reform and Energy Zero Industry Act, based on explicit recognition of the proper functioning of the current electricity market over the last decades. The Commission proposed an evolution based on more single market and incentive to PPAs. This position goes back by 85% of the European stakeholders in the consultation made. The document does not allow any retroactive measures with voluntary CFD auctions only for new renewables investment. As regards any potential new stress situation, the text is again seeking for more unity. In this case, an emergency statement issued by the European Commission will be required based on a fixed criteria before any new measures is decided by Member States. In addition, the proposal includes new support mechanisms to storage and grid to incentivize flexibility services, recognizing the key role of these technologies for the sustainability of renewable-based electricity systems. As you know, following the standard process for the approval of legislation, the reform will require proposal both from the Council and the Parliament, followed by negotiation among these three institutions on the so-called trade logs, publication of the final legislation, and finally, implementation by each member state. This process, which usually takes around two to three years, is trying to be accelerated on this occasion. Iberdrola stands ready to continue collaborating with all the institution stakeholders to reach a balanced solution that maximizes energy security, strategic autonomy, decarbonization, competitiveness and affordability for all Europeans. The Commission also unveiled recently its proposal for Net Zero Industry Act, with the goals of building stronger supply chains in the EU, setting specific targets of European production and new measures to provide more regulatory flexibility and easier access to EU funds. The Act signals eight key net-zero technologies, including onshore and offshore wind, solar PV, storage, heat pumps, and smart grids. and sets targets for local production in each of them, from 40% of solar PV components to 85% for wind turbines of heat pumps. This regulation also calls for an improvement of the current approval procedures for electricity projects, including faster permitting and easier access to financing. Once approved, this new regulation will join the recent agreed renewable energy directive with increased renewable targets from the previous 32% to 42.5% share of the total energy consumption by 2030, which would mean more than 1,000 terawatt hours of additional renewable electricity. On the other side of the Atlantic, new relevant regulations have also been introduced, like the Inflation Reduction Act and the Infrastructure Investment and Jobs Act. The Inflation Reduction Act of the IRA has the clear goal of promoting electrification through more renewable networks. To that end, it increases the feasibility to tax credit for wind and solar PV, securing financial leverage for 10 years. and introduced clear and simple incentives to green hydrogen, promoting also local supply chains through PTCs and ITCs. The Infrastructure Investment Act, JOBS, and ACT introduced additional measures with similar goals, focusing on great infrastructure improvement to increase resilience and digitalization, specific support for EV charges, and easier financial and permitting for transmission projects. In the UK, the recent Powering Up Britain package reaffirms the target of full decarbonisation for the power sector by 2035, with an acceleration plan for renewables and networks investment, and increase decarbonisation ambition for transport, industry and heat, including new targets like the replacement of all natural gas boilers by 2035, By the way, very recently, Germany went further and advanced this target to 2025. In Australia, following the new legislation introduced by Prime Minister Van Ness, the country's emission reduction target is now set at 43% by 2030. This will require installing around 60 gigawatts of renewable capacity and huge increase in transmission and distribution networks. Before passing the floor to Pepe, let me now share some highlights of our progress in ESG issues following our commitment to social dividend. The transaction announced in Mexico means an additional step forward in our decarbonization effort, reinforcing our target to reach net zero scope one and two by 2030, and in all three scope by 2040. In terms of circular economy, we have announced new batteries and blades recycling plant. and the cross-sectional two phototype models manufacturing facilities, showing our focus on industrialization and local supply chains. We have also presented several innovation projects related to the funds, mostly focused on green hydrogen and green products. We hope the approval process will allow us to start investing as soon as possible and contribute to Europe's leadership ambition in this technologies who will be key to decarbonize our economy, increase our self-sufficiency, and create new jobs. In terms of governance, as you know, we will hold our general shareholders meeting in just two days. Glass-Lewis and ISS, two of the most relevant project advisors, have recommended a positive vote for all items in our agenda. We also continue to receive different awards in this case from the World Jurists Association in New York for making climate change one of the pillars of our governance sustainability system and for our defense of the rule of law. I will now hand over to the CFO who will present the group financially starting for the detail. Thank you.

Thank you very much Chairman. Good morning to To everybody, as the chairman has explained, a bid that was up 38% to 4.1 billion euros and net profit grew 40% to 1,485 million euros. FX evolution has had a positive effect on results. The dollar rose against the euro by an average of 5.4%, the real by 8.7%, more than compensating the pound depreciation of 5.4%. This will change in the following quarters, but we have already hedged our FX risk for the year. Let me highlight that the strong growth in Q1 is driven by higher production and higher sales, much lower energy purchases, and much lower prices than in the first quarter of 22. We had in this quarter a one-off effect, which is that the UK retail deficit was fully or almost fully recovered in this quarter versus our expectation to recover it during the year. And we had also a positive effect on gas management versus last year's first quarter. These results, as the chairman has said, will moderate through the year as next quarters will not be as strong, together with some additional one-off results in 2022 that will lower the difference. Let me point out that the big driver of the growth in profits this year is basically going to be our UK business. Revenues increased 27.2% to 15.5 billion euros and procurements 10 percentage points lower, 17% reaching 8.8 billion euros with less energy purchases at lower prices as I have just explained. In addition, gross margin is higher due to the increasing recognition on our IFRS accounts of higher than previous years reconciliation impacts in the U.S. As a consequence, gross margin rose by 43% to 6.7 billion euros, and 40% excluding FX and the above-mentioned reconciliation impacts, which have also an important effect in our net operating expenses. That increased 27% to 1.5 billion euros, but excluding the negative FX impact, 88 million US dollars for a pension one-off in the U.S. and 110 million euros linked to the above-mentioned reconciliation effects that are also recognized at gross margin level, net operating expenses increased 70%. So excluding these impacts, net personal expenses that on a reported basis increased 30%, grew 8.1%. Reported external services, that increased 22%, grew 7.4%, excluding the FX, 101 million euros of reconciliation impacts in the US, as I explained before. Reported operating income, other operating income, grew 15%. Analyzing the results of the different businesses and starting by networks, its EBITDA grew 4.5% to 1,659 million euros. In Spain, EBITDA increased 6.1% to 434 million euros due to the regularization on revenues linked to investments made in previous years. In Brazil EBITDA grew 18.7% to 3.3 billion reais driven by positive impacts in distribution from tariff adjustments and higher contribution from transmission assets. As the chairman has explained, tariff reviews for the next four years have been better than expected and those will continue to incentivize investments in Brazil. In the US, IFRS EBITDA was 14% down to $408 million due to a negative impact corresponding to the reversal of $99 million from pension provisions accounted only in IFRS in Q122, partially compensated by the recognition of bad debt costs associated to customer protection measures during the COVID called arrearages. US GAAP EBITDA increased 7.9% to $535 million. Finally, in the UK, EBITDA decreased 10.1% to £225 million with lower contribution from transmission assets affected by temporary remuneration effects to be recovered from Q2 onwards. Energy production and customer business EBITDA increased 77% to 2.4 billion euros. This growth, as mentioned, is influenced by several factors and will moderate through the year as next quarters will not be as strong. In Spain, EBITDA was 1,190 million euros with higher production thanks to higher output, especially in hydro and nuclear, with 3.1 additional terawatt-hours produced that have driven higher sales and low energy purchases at lower prices. In addition, there is a positive effect in gas management versus Q122 that will not repeat. during the next quarters. In the UK EBITDA increased 144% to 580 million pounds thanks to the collection of 275 million pounds past tariff deficit in Q1, which had a negative impact in 22, together with margin recovery partially compensated by lower onshore wind output. The exceptionally strong results of this quarter will come down through the year as we have collected in Q1 most of our 2022 deficit. In the US EBITDA increased 13% to $167 million thanks to 4.7% higher output due to new installed capacity and better prices. In Mexico EBITDA grew 3.7% to $223 million thanks to a new capacity in operation since May 2022. partially compensated by a lower wind load factor. In Brazil, EBITDA fell 2% to 412 million reais as contribution from renewable installed capacity is offset by lower contribution from thermal business. Finally, in the rest of the world, EBITDA grew 1.5% to 131 million euros with higher capacity in operation compensated by higher costs associated with international expansion. EBIT was 57% up to 2.7 billion euros. DNA plus provisions grew 10% to 1.3 billion euros, mainly due to the higher asset base and activity, and bad debt evolution due to the increased customer billing. Net financial expenses grew 111 million to 510 million euros. Debt-related costs grew 164 million. 74 million increase is due to higher average net debt, mainly due to growth in CAPEX, 68 million due to the higher cost of debt, 96 basis points to 5.08%, and 78 basis points, including Brazil, to 3.63%, despite interest rate increases of over 220 basis points. Brazil's cost increase is compensated at EBITDA level by revenues indexed to inflation. This has been partially offset by 53 million positive non-debt-related results, mainly linked to the FX hedges. Our reported credit metrics remain solid as for the last four quarters, average FFO increased 14% versus an 8% average adjusted net debt growth. As a consequence, FFO adjusted net debt rose to 25.3%, retained cash flow adjusted net debt remained stable at 21.2%, and our adjusted net debt to EBITDA improved to 3.1 times. Our adjusted leverage ratio was 42.2%. Adjusted net debt remained below 44 billion euros, similar to the levels of the end of 22 driven by our sustained cash flow generation. Given recent transactions in Mexico and Brazil, debt will improve versus guidance when we close these deals. Net profit grew 40% to $1,485 million, with lower equity method coming from Avangrid due to the offshore CIP reorganization in 2022 that increases tax rate but reduces minority interest this quarter. Taxes in 2023 are affected by the non-deductibility of the 1.2% tax in Spain. Now, the Chairman will conclude the presentation. Thank you.