Iberdrola Sa S/Adr

Buenos dias, señoras y señores. 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 half 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 Alán, Executive Chairman, Mr. Armando Martínez, 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 web page, www.iberdrola.com. Finally, being aware of the busy week of results you are having, we hope that today's event will last no 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.

Thank you, Ignacio. Good morning, everyone, and thank you very much for joining this result presentation. In the first half of 2023, net profit reached 2,521 million euros, up 21 percent, or 28, excluding a non-cash provision related to Mexico transaction, as Pepe will explain later on. A bid that grew 70% to 7,561 million euros, mainly driven by higher investment in networks and renewables. The recovery of the retail deficit generated in previous years in the United Kingdom and the normalization of renewable output and prices in the European Union and mainly in Iberia. We continue accelerating the execution of our strategic plan with investment of more than 10.5 billion euros in the last 12 months, driving 10% increase in net worth asset base to 40 billion and more than 2,500 megawatts of new renewable capacity reaching 41,250 megawatts globally. We have also continued securing a diversified portfolio roto market. As of today, we have 135 terawatt hours contracted through PPAs and regulated mechanisms like CFDs with an average duration of two years. And with our retail customers in Iberia and the UK. As regards to our asset rotation and partnership plan of 7.5 billion euros, which has already been completed, the sale and purchase agreement for the transfer of 60% of our business in Mexico was already signed and we expect to close this transaction before the year end. On top of this, just two days ago, we signed a new agreement with Masdar to co-invest in Baltic Eagle in Germany. Masdar has now taken 14% stake in this offshore wind farm that will be fully operational next year. Operating gas flow reached 5.7 billion euros, up to 21% increase, including the impact of the collection of hydrocarbons in Spain in the first half of the last year. This has led to a further improvement of our financial ratios with FFO net debt reaching 24.9%. We have also continued reinforcing our liquidity, which amounts to 20.3 billion euros after having issued 3.4 billion euros of new green financing in the last three months. As you know, last April we had the Annual General Meeting with a quorum of 72%, an average favorable vote of 90% of our shareholders, who will receive tomorrow the payment of our final dividend for a total remuneration of 0.501 euros per share, up 11.6% already above the dividend floor planned for 2025. As mentioned, EBITDA was 70% to more than 7.5 billion, thanks to a strong performance in the UK and European Union. Net worth contributed to 41% of the group EBITDA, driven by higher asset base in all geographies, with an overall growth of 10% year-on-year. Also, the positive impact for an annual tariff increase in the US, UK and Brazil. And in these last two countries, we also continue to benefit from regulatory protection against inflation. Energy production and customers represent 15% of Group EBITDA. The key drivers in this business were the normalization of renewable output and price in the European Union, as well as the cash recovery of the deficit accumulated over the previous year and the improvement of business conditions in the retail activity in the UK. Production and customers were also affected by the update of the parameters of the regulated regime applicable to certain renewable assets in Spain, so-called RICOR, which had a non-cast-one-off impact of 86 million euros. As you know, this has no effect on the regulated profitability of these assets. Over the last six months, we have also made significant progress in the execution of our strategic plan. We increased our investment by 8% to reach €10.5 billion year-on-year. 40% of total investment were dedicated to networks and 45% on renewables. Biography, around 25% of the investment were made in Spain, reaching 3.5 billion, driven by new renewable capacity. Followed by the United States with 2.5 billion, Latin with almost 2 billion, and 1.5 billion were invested in the UK, and the remaining 1.5 billion in other countries, mainly offshore wind in Germany and France, as well as onshore wind and solar in Australia. We expect investment will accelerate in the last month of the year, mainly in offshore wind and networks, to reach between 11 and 12 billion by the year end. Networks investment were up 24% in the first half, with increase in all geographies. As a result, our asset base reached 40 billion euros, a 10% increase year on year. Over the last month, we've also seen significant progress in the implementation of our strategy plan with new tariff framework driving increases in investment in most geographies. In the United States, a new rate case was already approved in Maine until June 2025, the first multi-year framework in many years, with investment in line with our expectations and return equity of about 9%. In New York, AvantGrid filed a joint proposal together with the staff of the regulator and other parties. Once approved, tariffs will be applicable for three years with return on equity above as well 9% and an airing sharing mechanism. It will also increase investment reaching 6.5 billion euros in the five years from 2022 to 2026. The settlement, which would be applicable in retracting PAM from May 1st, also includes regulatory protection against uncollectibles. All in all, we expect our English operating result in Maine and New York to increase around 50% in the second half compared to the first half. In Brazil, new rate cases in Bahia and Rio Grande do Norte were closed in April until 2028, and there are parliamentary reviews already under public consultation and will be closed by August with effect until 2027. As a result, the energy network business operating result will increase around 7% in the second half compared to the first half. In the UK, a few days ago, we submitted to Objen the detailed figures for the Easterling transmission project, expecting final approval by autumn. With a total investment for Scottish power of £1 billion, we will gradually increase our asset base from 2026 to 2030, providing the returns of Rio T2 framework from the beginning of the construction. Finally, over the last weeks, Avangrid has progressed in the additional multi-billion transmission opportunities. In New York, driven by the Climate Change and Climate Protection Act, another project linked to its participation in the Transco joint venture with a total investment for Avangrid of around $3 billion until 2030. In New England, the company received full authorization to move forward on the construction and NCC interconnection project between Massachusetts and Canada, and now we are restarting again the construction. In renewables, we have put in service more than 2,500 new megawatts in the last two months, reaching 41,150 megawatts of renewable capacity worldwide. Additions include 1,500 of solar PV in Spain, United States, Brazil, Australia and Portugal, 900 MW of onshore wind in Brazil, US, Spain, Australia, Greece and Poland, as well as the first 14 offshore wind turbines of Saint-Bric in France, totaling 112 MW in operation at this moment. On top of that, we are progressing in the construction of 7,100 MW that we will derive additional investment of around 12 billion euros Biographies? 4.5 billion euros will be allocated to projects in the United States, including offshore wind and different solar PV projects. We will invest additional 3.5 billion euros in the UK, mostly related to 1,400 megawatts Anglia III offshore wind farm. Also in offshore wind, we expect investment in 1.3 billion euros in Germany, more related to the Baltic Giggle wind farm, and 700 million euros in France, corresponding to the final stage of some projects I mentioned before. Iberia will receive around 1.5 billion euros in the period, with the remaining investment located in different countries like Australia. 3,000 megawatts, or 45% of this capacity under construction, correspond to a short-wind project of all of them progressing on track. In France, I repeat again, Saint-Bric has started producing clean energy with more than 50% of the jacket and one-third of the turbines already installed. First spot was already reached three weeks ago. In the United States, the installation of monopiles and transition piece has begun on Binger Wind 1 project, and the sport cable is now fully deployed. Manufacturing of turbines is progressing, and we expect clean energy will start flowing into the Massachusetts grid during the second half of this year. Back in Europe, Baltic Eagle, our German project in the Baltic Sea, continues progressing on track with monopiles and transition pieces already being installed. We expect to start installing turbines in early 2024 and to reach first export by mid-next year. As highlighted during the first quarter result presentation, BaltiGiggen and Bindacker have already secured sale of 100% of the production for 15 years at an average price of around 80 euros. In addition, we have around 3,800 megawatts of projects secured. They will come online up to 2028, including Commonwealth with Empire City Wind in the United States. For the first project, we have reached an agreement with the distribution companies of Massachusetts for the cancellation of the actual PPA, driving by the very significant increasing cost, since the project was auctioned. This will allow us to participate in the auction in the state in the future. In Connecticut, we are also negotiating to reach a reasonable solution. We remain optimistic on moving forward with these two projects once operational will add more than 2,000 MW of wind capacity in the United States. As these 3,000 MW of projects under construction are secure, we are obtained at zero seabed cost. On top of this, we have CBET rights for more than 10,000 additional megawatts in UK, United States for the end of this decade and early 2030. As a cost, this on average is only 5% of the price paid in recent action in our core markets. You know what I mean. In other words, thanks to our position as a first mover in the industry, we have a secure pipeline of projects that will allow us to increase our capacity and obtain attractive returns, giving our competitiveness against other projects that we will need to make profitable digital investment, making security better. Market development over the last two years have demonstrated the relevance of the DBSF portfolio route to market to provide the stable and predictable revenues and hedge fund, hedge fund production. As of today, we have 135,000 hours contracted through Per annum, long-term PPAs and other regulated contracts represent 70% of our sales with an average duration of three years, with the remaining 30% directed to our portfolio of retail customers in the UK and Iberia, with an increased average duration that is currently around three years. 90% of this energy, more than 120 terawatt hours per annum, is covered by our own production. In the last months, we have continued to see major development of our PPA activities. As mentioned, we have secured 100% of the production of our offshore wind project, the Baltic Eagle and Windacker, at competitive prices for 50 years on average with customers like Holcim. And we have reached new multi-country agreements with large global companies like Vodafone, joint incorporation like Amazon, Meta, Heineken, Mercedes-Benz or Renault. We are choosing Iberdrola to secure clean energy at competitive prices across different geographies. We believe that apart from providing visibility and predictability of revenues, a long-term contracting strategy is also extremely positive for the system, as it gives price stability to industrial and commercial customers, reducing their exposure to short-term price volatility, and supports a massive build-up of new renewable capacity. For this reason, we firmly think that energy policy and regulation needed to continue promoting these long-term PPAs to the stable natural framework based on market mechanism. This was one of the pillars of the electricity market reform published by the European Commission months ago, and very recently the Industry and Energy Committee of the Parliament has also approved its proposal following the same principles. Vortex recognized the proper functioning of the electricity market in the last years and proposed new measures to increase long-term contractual liquidity and to avoid distortion. rolling out major market intervention. The proposals do not consider any cap to nuclear or renewable technologies and promote PPAs, only allowing the implementation of voluntary CFDs with no retroactivity for existing facilities. They also recognize the need to establish clear and common rules to define what constitutes an emergency crisis, including sustaining minimum market price of 180 euros per megawatt hour. The Industry and Energy Committee also introduced measures to promote capacity mechanisms and flexibility open to new investment in existing facilities. as well as specific mention to the need for higher investment in networks to meet increasing demand and connect new renewables. All in all, these are balanced proposals in line with the suggestions from different industrial associations, like Electric of Wind Europe. We expect approval by the plenary of the Parliament in September, followed by the publication of the European Council proposal and the beginning of trilogies among these three institutions. Our two listed subsidiaries, AvantGrid and Energia, presented the results yesterday. In the first, AvantGrid had a bid that reached $1.3 billion, with an investment of $2.7 billion in the last 12 months. As mentioned, over the last quarter, we have seen major progress in abandoning rate cases in Maine and New York. In addition, the major agreement with P&M Resources on New Mexico was extended at least until December 2023, with a possible three additional months. In renewables, Avangrid has an opportunity to repower 4,600 megawatts from its current fleet to maximize the advantage offered by the Inflation Reduction Act. We are talking about installing more efficient turbines that will extend the usable life of our wind farms at half the cost of new assets with the same tax incentive. Avangrid is expecting to start work in the first 400 by the year end. On top of that, the company continued adding new capacity of around 410 MW in the first half. In Brazil, Neonergia Binda reached R$ 6.3 billion up to June, with around R$ 9.6 billion invested in the last 12 months. Neonergia completed the co-investment agreement with GIC in transmission, receiving R$ 1.2 billion for 50% of its operational asset. and the process for the renewal of concessions for distribution companies continues with a positive outlook. In renewal, the company commissioned another 560 wind megawatts. Moving to asset rotation and partnership, we have already reached 7.5 billion euros included in our plan to 2025. Major developments in the last quarter include the signature of sale and purchase agreements related to our Mexico transaction with expected closure before the year end. And just two days ago, we announced a new co-investment agreement with Mazda for our 475 MW Baltic Eagle offshore wind farm, which is under construction in the Baltic Sea. Mazda will hold 14% stake in this asset. We are also progressing in our joint vehicles for investment in renewable in the Iberian Peninsula. With Norges Bank, with the first operational already transferred, and with MAFRE, this last joint venture already has 500 MW in projects. In Brazil, apart of the deal with GIC, we are also progressing in the swap of the staking hydro asset with electrobras we are expected to close before the year end. Our partnership with CAP and Shell in offshore wind also continues moving forward as planned. And the joint company established with BP to promote electric mobility in the Iberian Peninsula is about to start operation. Most of the cash linked to all these deals will be received along the second half. This will improve even more our financial strength by AIRN. Together with cash flow generation, which in the first half reached 5.7 billion up to 21%, excluding the hydro-cannol collection in Spain last year. This has resulted in additional improvement of our financial ratios. FFA on net debt increased by 20 basic points up to 4.9%. On 28th of April, we held our annual general meeting with a quarter of 72%, an average favorable vote of 98% in our proposal, which includes corporate management and result matters related to corporate governance and sustainability system remuneration and changing the board of directors. Let me take the opportunity to thank again all our shareholders for the involvement and support. Following the AGM, we recently announced a total shareholder remuneration of €0.501 per share, €11.6 up. This means reaching already the dividend floor planned by 2025. A supplementary dividend of 0.16 euros per share will be paid tomorrow, on top of the interim dividend of 0.18 euros paid in February, and the engaged dividend of 0.05 euros per share paid after the annual general meeting. I will now hand over the CFO who will present the group financial results in further detail. Pepe.

Thank you, Chairman. Good morning to everybody. Before entering into the numbers, let me point to two non-cash impacts that need to be explained and affect the first half results. First is the impact on our regulated renewables in Spain, the famous or the well-known RECORE. Price estimates for these technologies have been lowered by the government, affecting 1.6 terawatt-hours. And as a consequence, we had to account 86 million euros of a negative one-off at the BIDDA level. This is a pure accounting, non-cash effect that will be reverted during the regulatory life of these assets. So profitability of these assets is guaranteed at 7.4%, regardless of the price level. From now on, this impact will evolve according to the reference price level and the price curve. If the situation remains similar in terms of price outlook, similar to June, no new impacts will be expected in our accounts. With higher prices, this impact would be reduced and the opposite if prices go down. And second, and more important, the Iberdrola Mexico reorganization. So after the announced divestment of our Mexican business for part of our Mexican business for $6 billion, assets and liabilities have been reclassified as held for sale. According to the IAS 12, we need to register the difference between the tax and the accounting value of the shares, with a total... 140 million euros negative impact at income tax level with no cash impact. The capital gain, as we have announced, will be significant and will be registered once the transaction is closed. Hopefully before the year end. More than upsetting, or more than hopefully, we are expecting to do it before the year end. More than upsetting these negative temporary impacts in our accounts. As the chairman has explained, EBITDA was 17% up to 7.6 billion euros, and reported net profit grew 21.5% to 2.5 billion euros, 28% up, excluding the already mentioned 140 million tax impact of the Mexican transaction. FX evolution now has had a slightly negative effect on our EBITDA results. The dollar rose against the euro by an average of 1.9%, the real by an average 1%, but did not offset the 4.6% depreciation of the pound. Nevertheless, as its usual, FX impacts are covered at the net profit level. Revenues increased 7.5% to 26.3 billion euros, mainly due to the UK, driven by higher tariffs and the full recovery of past SVT costs. Procurements decreased 2.9%, reaching 14.1 billion euros, as last year we had to buy electricity. due to renewables and nuclear shortfall in Spain at a very high prices. This year the situation has been reverted due to a normalized production. As a consequence, gross margin rose by 23% to 12.1 billion euros. Reported net operating expenses increased 16.6% to 2.9 billion euros, but excluding 80 million euros of U.S. pension one-off and 100 million euros linked to reconciliation effects in the U.S. that are recognized at the gross margin level and other minor impacts, net operating expenses increased 7.5%. Reported net personal expenses grew 16.9%, but excluding U.S. pension, the positive one that we have mentioned, the reconciliation impacts and other minor items, they grew 6.5%. Reported external services increased 11%, but 6.8%, excluding reconciliation impacts that we have mentioned. And reported other operating income fell 5.6%. Analyzing the results of the different business and starting by networks, it's a bid that reached 3,127 million euros, affected by several non-recurring items that impacted last year. As I mentioned, the EBITDA increased 34% to 845 million euros, affected by 195 million positive one-off in Q2 of 22 related to a legal case that was reversed at the end of 22. Excluding this, the EBITDA would have grown 2.2%. In Brazil, EBITDA... grew 3% to R$ 5,179 million, driven by distribution tariff adjustments, partially compensated by the deconsolidation of transmission assets included in the GIC deal from April 1st. In the U.S., IFRS EBITDA was 47% down to $666 million, due to a negative impact corresponding to the $550 million positive one-off booked in the second quarter of 2022 linked to the New York order, and $87 million from the pension provisions balance. Both of them were accounted in IFRS, but not in US GAAP. The US GAAP EBITDA fell 3% to $897 million. affected by the delay in the final approval of the New York rate case that, as the chairman has mentioned, will have a retroactive effect or will be applicable since May 1st. Finally, in the UK, EBITDA increased 10.3% to £513 million, thanks to the ED2 tariffs applicable from April onwards and higher asset base, especially in transmission. Energy production and customer business EBITDA reached 4,458 million euros. In Spain, the EBITDA was 2,060 million euros, 46% up, with higher production, especially in hydro and in nuclear, and lower energy purchases at much lower prices than we had to pay last year. And more gigawatts are sold in the free market due to, again, in market share. We have increased the market share from 22.6% to more than 27% in 12 months. In addition, there is a 100 million positive effect in the gas management. versus the first half of 22, and a negative due to the 1.2% tax in revenues that we account in the Levy's item of 216 million. In the UK, EBITDA increased 149% to 1.1 billion pounds, thanks to the collection of 297 million past tariff deficit, which had a negative impact last year. In renewables, there is a 31% lower onshore wind output that reduces a little bit this growth. In the U.S., EBITDA increased 12.1% to $393 million, driven by a 2.4% higher output due to new installed capacity, as the chairman has mentioned, and better prices. In Mexico, EBITDA fell 3% to $453 million due to a lower contribution from renewable assets with lower volumes, partially compensated by the new capacity in operation since May 22. In Brazil, EBITDA fell 10.5% to 838 million reais as contribution from new renewable capacity installed is offset by lower contribution from the thermal business. Finally, in the rest of the world, EBITDA grew 2.5% to 212 million euros due to a higher capacity in operation. EBITDA was up 25% to 4.9 billion euros. Depreciation and amortizations plus provisions grew 5% to 2.6 billion euros, mainly due to the higher asset base and activity, and bad debt evolution due to the increased customer billing. Net financial expenses have been up to 111 million to 1,127 million euros. Debt-related costs increased. grew 243 million euros. 123 of this 243 increase is due to a higher average net debt, mainly due to the growth in capex. And 118 million is due to a higher cost of debt, 60 basis points to 505%, and 82 bips if you exclude Brazil. As a matter of fact, the cost of debt in Brazil is starting to fall as it is linked to inflation, and we expect that this will continue to happen during the rest of the year. Excluding Brazil, the cost of debt was 3.68%. Despite interest rate increases of 202 basis points, our growth was 82 bps, as I mentioned. A cyber dollar has 75% debt fixed, excluding NEO and forward stat swaps. 10% of the cost increase is linked to the increasing debt in non-euro currencies, as is the dollar, the Australian dollar, and the pound. This has been partially... offset by 32 million positive non-debt-related results, mainly linked to the FX hedges. Our reported credit metrics remain solid. 12 months FFO increased 9.7% to 11.3 billion, above 8.6% average adjusted net debt growth. As a consequence, FFO adjusted net debt rose to 24.9%. Our adjusted net debt to EBITDA improved to 3.16 times, and our adjusted leverage ratio was 43%. The 1 billion hybrid issued in March covered the amortization of the one maturing May, thus having a negative effect on our debt in the second quarter versus the first quarter of 1 billion. 45.3 billion euros adjusted debt net is not yet including cash inflow from ongoing deals expected to be cashed in before the year end, totaling over 6 billion that will drive expected foreclosures. full year debt to be around 42 billion. Our diversified portfolio provides flexibility to target the markets in the right timing, achieving very favorable conditions. Our new financing as today is 3.4 billion. During the first half of 23, Iberdola continued reinforcing its financial strength with 3.4 billion of green financing, reaching 50.7 billion of ESG financing and liquidity covering 21 months of needs and maintaining six years of average debt. Iberdola continues to be the leading private group in green bonds. Net profit grew 21.5% to $2,520 million, below the 25% EBITDA growth, with lower equity method coming from avant-garde due to the offshore CIP reorganization in 22 of around $218 million. That increases the tax rate but reduces the minority interest. And 140 million euros in taxes due to one of negative link to the Mexican transaction. Net profit would have been 28% up excluding this impact. Now the chairman will conclude the presentation. Thank you very much.