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.

Thank you, Pepe. This set of results confirms our capacity to execute our plans ahead of estimate, even in the current challenging macro scenario. With a 20% growth in net profit, excluding the excessional non-cash item in Mexico, operational cash flow reaching more than 4.7 billion euros in this month, 21% up. A further improvement in financial strength with a favor of adjusted net debt of 24.9%. Our asset rotation plan 2025 fully completed in just three months. and our dividend already above the floor plan for 2025. On top of this, we expect additional upside in the second half of the year. Driven by new rate cases in the United States and Brazil, with network operating results increasing by around 15% and 7% respectively in the second half compared to the first six months, a new regulatory arrangement protecting foreign collectibles in the U.S., Brazil, and the U.K., An ongoing increase of renewable production driven by low factory recovery together with higher installed capacity. And even stronger balance sheet due to the cash generation from business operations and asset rotations. All these allow us to increase our net profit growth outlook to the second time this year. to high single-digit, including additional capital gains for asset rotation. Excluding, sorry. So it's high single-digit, excluding asset rotations, capital gains. This already can be very, very important, I think, in the next few months. We are very confident that this will be the first step for the full delivery of the targets for 2025 and beyond. Thank you very much, and now we will answer your question. Thank you.

The following financial professionals have asked the question that they will now put to the senior managers present at this event. First is Manuel Palomo, ex-BMP, José Ruiz Barclays, Fernando García, Royal Bank of Canada, Alberto Gandolfi, Goldman Sachs, Rob Poulain, Morgan Stanley, Javier Garrido, JP Morgan, Peter Vistaga, Bank of America, James Brand, Deutsche Bank, Meike Becker, Bernstein, Jorge Guimaraes, J.B. Capital Markets, Fernando Lafuente, Alantra, Daniel Rodriguez, Bestinberg, Mark Frisney, Credit Suisse, Javier Suarez, Mediobanca, Ahmed Farman, Jefferies, and finally, Markip Tat-Quen from Berenberg. First question is related to the guidance 2023. Can you help us understand the drivers of the guidance upgrade? How much is this sustainable and what do you mean by additional upside in the second part of the year? This is a sentence included in slide 34.

I think I just mentioned, I think the new investment are increasing our asset base. We are reaching more than 40 billion euros unregulated. New rate cases in Brazil, in the United States, in Maine from July 1st and New York retroactivity from May 1st. as well with the higher capacity recovery collectibles. I think there's an amount of money will be included on that one for collecting that one. We expect, as I mentioned, increasing EBITDA in the year in May of 15%, 60% in the second half. As well, additional revenues for higher investment in the UK under Rio T2 and Rio E2 frameworks. In energy production and customer, I think it's higher renewable output due to hydro reserves in line to historical average levels. And as well, we expect the normalization of the wind factor under very low resource during the first half. We have another extra capacity already in operation in the last three months, and we are going to put some more in service. We will continue recovering the previous year deficit accumulated in the U.K. We got some in the first half, and we continue some more in the second. And as I mentioned, further optimization of financial profile of diversified ones, we will collect the asset rotation that we've been already making during these months. So that's why I think we make already our growth to high single digit for the second part of the year.

Second question is related again about the guidance. Can you please clarify one thing on the updated guidance? I'm assuming it does not consider the capital gains from Mexico's sale, but do you also eliminate the 140 negative impact in taxes booked in the first half of the year?

So certain is not included in Mexico. I think you can already complete that one, Pepe.

Basically what we are saying here is we are going to have a strong net impact capital gain. So this obviously excludes all the Mexican impact. The only thing is that we have to book this difference between tax and accounting due to the accounting rules now. And when we book the, you know, the capital gain, at the end of the year, obviously this is part of the total net capital gain. So we are excluding the net capital gain, which excludes this 140 million, and excludes the capital gain that we will book at the end of the year.

In other words, we are already putting the negative part of the deal and not the positive part of the deal. All the positive part of the deal will be the second half, and part of the negative part of the deal is booked in the first half of the year. The only negative part. The only one, yeah.

Next, pumping hydro assets seems to be doing very well. Could you compare the volumes on the spread compared to historical records about pumping?

Well, I think we've been for many years. I think you will reply to that one, Armando. But I think for many years we were commenting about the storage, storage, storage. I think we've been. First, we talk about when nobody talk about renewable, we talk about renewable. When nobody talk about grid networks, we talk about networks. We've been already for months talking about, for years talking about the storage, and now people are discovering the storage. I think that we have already 4,000 megawatts of storage. We have already 100 million of kilowatt hours already. We have capacity enough for providing electricity during 20, 30 hours for dozens of millions of people. I think we just completed Portugal last year, and we have several of those in Spain because we are already making reversal of that one. And we are benefiting of this one in this moment. We are using our premises of pumping for already making that one. But I think in terms of number, Armando, you mentioned the numbers, how much representing total percentage of our production in the first half.

Good morning to everybody. Okay, as the chairman is saying, we are seeing now, and you can see in the annex of the presentation that our reservoir levels is 33%. It's much in line with the average of the five years. So we are expecting a normalized year in terms of the hydro. And the chairman is saying pipe pumping storage is very important for us. And for this year, the six months, we have produced eight terawatt hours of hydro per Most of them, three terawatts is pumping hydro, so it's working very well and it's allowing us maintaining the reservoirs for the second quarter.

Next, what is your CAPEX expectation for the year as a whole, 2023, and how should we think of CAPEX for the next year, 2024? Could you consider delaying some of the investment included in your strategic plan considering the cost inflation suffer up to now?

Well, I think, as I mentioned, we are expecting between 11 and 12 billion by the year end, which I think is, as I already mentioned, that we are completing. We have 7,000 megawatts under construction at this moment. Some of them is going to be almost completed during the second part of the year, like Saint-Bruc in France and other ones. In networks, we continue increasing our investment. I think I mentioned the right cases of New York and Brazil. In the case of New York, we are increasing, in Maine as well, an important increase of CapEx. So I think that is what is going to drive that one. And I think relating to next year, I think still the numbers of the budget is not. But I think if I don't remember about the numbers we gave, that the plan of organic investment is on the same level, 10, 12 billion per annum. So I think it's going to be very different next year. then we are expecting for this year, for next, but still we have not the detailed numbers of the budget, but I think it's going to be very different, the organic one, as we are going to have during this year.

Next, about the debt at the end of the year. The net debt guidance for 2023 in the Q1 results presentation was below 50 billion included PNM. Does the new target of €42 billion imply an increase due to the higher capex, or does it mean expectations have not changed?

I think the expectation has significantly improved. Let me explain. We were expecting with the PNM deal... to have a debt of around, at the end of the year, of around 55, 56 billion. If you took away the impact of PNM, our debt, as we were saying, was around 49 billion. So what we were saying, below 50 billion, we're talking about in the high 40s. And now we are talking about 42 billion. So this has significantly improved PNM. Next, please, can you comment on the political situation in Spain and how it may impact Iberdrola?

So, as you know, we have already had the elections, so I think after this election, I think we have a process we have to make in the next few months. This process starts for the constitution of the chambers, and afterwards the elections of what is going to be the new government, the prime minister's new government. That is going to take still a few months, so I think that is not immediate. Now, once that will be already made, constitute this new bill or form this new government, I think we will know what is the policies that are going to apply. But I think in things which are affecting to ourselves, the most important thing is all the things related with the energy, let's say, European, common European rules of that one. And I think we are already a member of the European Union, and I think the rules which are going to be applied in Spain are those rules which are already just defined in Europe. By the way, I think Spain has already made a proposal on that one, and I think, as I mentioned, not only the European Commission has already defined their framework, but as well the European Parliament has already defined it. And by the way, that one, we were already hearing that one, The chair of this committee is already in Spanish, belonging to the Socialist Party, which I think means that the Spanish proposal in certain cases has been already approved as well. We will expect that one, and I think we are not expecting things which will be outside of those ones, which will be the common European rules.

Next, could you please share your views on the recent PNIEC draft sent by the government to the European Union? Do you see it as feasible? Would you rethink upwards or downwards your investment in Spain as a consequence of such an aggressive draft?

Well, I think we've been already pioneers in investing in renewables. We've been pioneers in decarbonizing. We've been pioneers in talking about the needs of investment in networks, to talk about investment in storage. And I think this plan is very ambitious. I think that means the record of construction of renewables per annum in Spain has been on the range of 5,000 megawatts in a year. Now this one represents more than 10,000 megawatts in a year. So I think it's very ambitious to be achieved. But for me, it is not a point of what is the ambition in terms of decarbonizing the economy is how what is going to be the demand generation of that one. So what is going to be the stimulus for already decarbonizing a lot of segment, a lot of sectors for already providing and supplying this electricity generated on that one? being difficult to build all those one but the most difficult or the thing which is going to need already to look to analyze in more detail is how is going to grow the demand what measure is going to be taken for the carbonation sector in the segment with makers already that to fit the offer with the demand and to make already attractive to make all these renewables because if they have no demand the renewable is going to be built so i think for me is that their point The second point, which I think is not, which is already on the documents of the European Commission related to the market reform, is the need of grid, more grid for connecting more renewables and for providing the service, electricity service for those areas where they would like to be the carbonized industry or in residence. So I think they already left that area which is needed already to put more emphasis in the need of more grid. And the third one is further clarity about storage. I think as a system very dependent, fully dependent on renewables or most dependent on renewables require First, demand for that one. And the second one, because if there are no demand, the investment is going to be made. It's clear. And the second one is related to the grid needed for that one in the storage. Storage for already for matching the needs of demand when they are not already available. enough renewable resources and storing the electricity when there is excess of production. So there are the three areas that we need. I'm sure that during the dialogue that is going to be maintained in the next few months, all these areas are going to improve.

One of our peers commented on the negative impact of curtailments on Spanish renewables output. Has this situation impacted Iberdrola? Do you believe this could be a problem in the future?

So the first thing is, the answer to the impact in Iberdrola is none. And why none? Because, you know, that is due to technical bottlenecks in the nodes of the grid. And fortunately, our renewables are located in areas where that bottleneck doesn't exist. So we have not already had an impact on that one. By the other side, I think when they are already situational, those ones, in some cases, are impacting to the market prices. And the impact to the market prices, I think, is when our storage works. That's why Armando was already mentioned, our pumping storage facilities are already producing more than other times because we are precisely, as I mentioned as well in the previous question, we are already in the moment there is excess of electricity, we are already pumping. for already using this in the moment they are already deficit of production. So there is no effect in our nodes and no problems of containment because our power plants are located in areas where they are not already bottlenecks in the nodes of the grid.

Next is some peers have been positive about faster renewables development in the European Union. Do you see the same and how confident do you feel about your 2025 targets? Number nine. About renewables and developments in the European Union.

I mentioned, I think the IRA has a lot of advantages. One of the main advantages is related to the capacity or the possibility of transforming our existing fleet of renewables, and wind in particular, to make repowered. What makes that we can already benefit of the full task credit or the full new production, which is more production than the previous one with the new technology, with the new power we make, with a capex, half of the new power plant. So I think that is the big advantage. being already a first mover in the United States gives us an advantage, then at least in this moment, the first analysis probably is going to be more, at least half of our total fleet is able today to be repowered. So I think that is a positive thing. So the things for already accelerating, to do something like in European Union, So I think that should be a good thing, I think. But nevertheless, Europe has not a high rate, but we have already fit for 55, and the funds will be allocated for the next generation funds. I think next generation funds, we are allocating 40% of this generation funds, we are already fully dedicated for energy transition. So it means I think if it's properly allocated, I think we have as much money as the Americans are planning for already improving already the mix of our generation in Europe. So I think I can tell you, for instance, that recently We just got 150 million subsidy for making already a green methanol project plant in Galicia, in the northwest in Spain. So precisely because of these funds, which is the Next Generation Fund. And I think we are expecting another similar one for green hydrogen, which has been approved by the European Commission. It's a huge project in the south part of Spain for making green. green hydrogen and green ammonia, and we are expecting as well something like that. I think the money is allocated. The point now is how to accelerate the procedures for making that happen as soon as possible.

Next is you highlighted that no caps to inframarginal technologies are considered in the power market reform in the European Union one. Do you still expect a Spanish price cap to end at the end of this year? And how much could you benefit from this in 2024?

So I think the European Commission has clearly assessed that emerging measures such as the cap on inframarginal technologies should not become part of the electricity market design. So I think that is not part of the design. If any situation, extraordinary situation is happening again, I think it's needed, and that has already been during several months. It has to be approved by European authorities. So I think it's not just because one day the prices are moving for whatever reason. In several months, in a consistent manner, there will be a situation of pricing which allows the member states to ask the European authorities to approve a European-level and extraordinary measures. But I think the existing measure is gone. That's it.

Next, are you seeing more interest from governments in promoting the development of transmission infrastructure? What is the current status of Iberdrola's big transmission project in the UK, US and Brazil?

Well, I think you don't mention one important project which is needed. It's more interconnection between Spain and France. So I think that is a crucial one. So unfortunately, that is not dependent on ourselves, but I think that is very needed. In those, then we have already managed for ourselves. I think the case of Britain, I think, you know, we just completed. We are the owner of the grid, of the transmission grid, of part of the transmission grid in Scotland. And I think we are reinforcing that one. But as well, we just completed two years ago an interconnection transmission line, a submarine one, the first one that has been made in Europe under these conditions between Scotland and Wales. That is what is called Western Link. Now is already another project, which is already just funded by the regulator, which is the Eastern Link. We are just providing the data of amount of money required, but that is going to be made under the Rio T2 conditions, so in the same condition, the framework of the existing transmission in UK. And that represents roughly a total investment of over $2 billion, which I think around $1 billion is part of it. Another part is national grid. So the same joint venture that we have already for the Western Link is the same joint venture for the Western Link. i think that is already ongoing i think we are in the process of this one i think the first order has been passed to vendors for is a high voltage dc and uh and the the the the first order of cable etc has been passed there are another projects or similar ones which is uh i think ncc the interconnection between canada and massachusetts now with all the permits all the approvals, and we are just proceeding and continuing the construction. There are certain potential deviations in the CAPEX because of the time lost, but I think the Parliament of Massachusetts has already approved the rules already for covering the framework for giving us the comfort to recover the extra costs we can incur as consequence of the time lost. They are new as well, another transmission in New York, as I mentioned, is New York Transco, which altogether can already represent $3 billion up to 2030 for injecting electricity into New York City. And I think we are as well in this with a joint venture with another colleague in the United States. And in the case of Brazil, as you know, we have already – we are building – So on transmission, 1,000 kilometers of transmission line in several other stations, we were already awarded in the auction in 2018, I think, or 2019. And I think that is construction. Besides in those ones, we make just a deal with GIC that we are already 50% successful. A partnership on this one for constructing that one. It was recently some auctions in Brazil. I think the prices without certain of our colleagues were offering were so low that we decide not to continue on this, not to participate in such a condition. So I think, you know, we are very concerned. We have a huge discipline, financial discipline, and I think same thing we did already in the auction for Sieverts in Germany that has been paid an important amount of money, which I'm very pleased that our colleagues of oil is already moving to this sector. But I think we saw that that is too expensive, and we are not seeing that with our vision is more conservative than the vision they have about the future prices, which I think That is make them not. But I think the main transmission is the project in Britain, as I mentioned, project in United States, NCC in Transco, and the existing project of transmission in Brazil. Altogether, I think it's a very important amount of money, what we are going to dedicate in the next few years, which is several billion euros. I think each of those projects is one, two, three billion each, which I think is a lot of money.

Next question is asking about an update on the PNM deal.

So, Gerardo, perhaps it's more, I think I can say on the side of the shareholders, on the side of the partners, I think the agreement has been established. So I think we agree with PNM to extend the agreement, the existing agreement, to year end, and with the possibility of extending it for a few months later on if it's needed. But I think, Gerardo, you can, the lawyer, you can already explain what is the legal framework. How did this?

Yes, we will have a hearing in September. It will take place in September 15.

A hearing with the Supreme Court?

In the New Mexico Supreme Court about the approval of our stipulation and we expect that the decision will be positive. because we think that we have a very, very strong case. So we expect to have enough time to complete the transaction on time. And also it's important to highlight that we have all the approvals. We have the federal approvals, Texas approvals, and 24 parties in New Mexico support the transaction. So we have, I think, good progress, and we'll see what happens in September.

We are optimistic that by the year end that will be completed.

Next question is related to the rate cases in the U.S. and Brazil. Can you give details on what upside you are expecting from rate cases in New York and Brazil? In New York, what have you proposed in terms of revenue growth and allowed cost of equity? When are decisions expected?

So as I mentioned, in New York, we have reached an agreement with a settlement, with the staff of the regulatory commission. We are expecting that in the next few months, I think, the decision will be taken. In any case, that is retroactive. As I mentioned, the terms are, I mentioned already, return on equity over 9%. And I think if that is approved, we will increase our, because of this one, our bid down the range of 50%, 60%. In the case of Brazil, that has been approved. In the case of Maine, it's fully approved. So I think that is done. I think as well is return on equity above 9%. And I think that is increasing our investment. I think very much toward what it was before. And that will provide already an increase in our contribution to our bid down the range of 20% to 30% extra per annum to what we have already in 2022. And in Brazil, it has been agreed, and for all there is one related to the North East. So, in the case of Sao Paulo, I think we are expecting already that we will reach an agreement. By August, for a period of 2027, another one reached up to 2028. In both cases, we are expecting increases, as I mentioned in revenues, the second half toward the previous one, the previous half, in 7% to 8%.

Okay, we have reached one hour of the presentation, but due to the high number of questions we have received, I hope that you will allow me to extend the presentation 15 minutes more. Next question is related to PPAs, and it's can you provide an approximated indication of where you see PPA price for offshore wind in Europe currently? Also, can you elaborate on PPA price trends on onshore solar in Europe and U.S. during Q2?

So you will give the numbers, Armando, but I think something which is important, when we start talking about the importance of PPAs and the visibility for industries and visibility for consumers, long-term visibility, I think it was something in many cases in Europe that was very normal in the States. In Europe it was not so common. So you remember last year when we were talking about the situation of prices, etc., we said, well, we have already fixed prices. It's already sold. And that is what we're already just telling you. We have 135 terawatt hours per annum already for the next few years already sold in advance. And that's very good. And what we are observing in Europe... and that is what I make already in my presentation, is increase in demand for largest consumers of signing agreements, launching agreements, we provide them stability and visibility. And that is good for them, it's good for us, because that gave us, well, this predictability for making already our investment in terms without avoiding risks or future risks. And I think the risk will be already to make... the things to make the construction and the delivery and the operation in a good manner. So I think that is what we are serving. That's why we are already signing with large corporations, multinational corporations, which are already same ones in the United States and in Europe, and in Europe across the different countries. And I think that is what we are seeing. And that is the rules that preside the European Commission in the new in the terms of the market reform being approved by the Committee of the Parliament and the European Commission, is trying to promote more PPAs, more PPAs to provide stability for the consumers and predictability for investors. So which are the prices that you are signing now, Armando?

We are seeing prices. We are very active in PPAs in Europe with multinational companies, and we are seeing prices around 70, 80 euros per megawatt-hour.

Next is a very short question. Are you comfortable in UK supply now? Sorry? Are you comfortable in UK supply now?

Well, I think it's, look, we are this year, I think we've been suffering during last year a situation very particular in retail. It's not normal in a country that because of the regulatory framework, 30 retailers has already failed. So I think now the situation is more stable, more predictable. We are recovering the deficit generated in the past, and the market in this moment is more stable. So I think, seeing the demand in this moment, I think you know we are short in energy, so which I think that is important to know. That's why we are already investing more and to make more renewables in the country. But I think we have not expected any problem in our projection on that one. I think our projection is already just conservative in this end. Nevertheless, you have to know that in Britain our business is networks. So I think 80% of our businesses' networks is where we have already more interest and more demand. In retail, this part is a very small part of our total thing. And in the case of production, most of our production is covered under regulated CFD tariffs, which I think as well has not been affected for everything related to demand on that one.

Next is regarding to the German offshore auction. Could you comment on your bid in the German offshore wind auction and your view on long-term power prices for 2030 and beyond?

So first I said welcome to our colleagues of oil companies to be already in the sector. So I think they are our partners in certain of them. You know we are partners with BP for electric charges for electric vehicles. We are partners of Shell for offshore in Britain. And I think I'm delighted that they are already being seen more optimistic prices that we are seeing. And that's why I think that allow themselves to already offer a higher condition for the seabed than we've been ready to offer for that one. So nevertheless, I think we have already plenty of seabed available in different countries. And so that's why we don't need to make already just this auto move. So, I think it's sure that the prices they've been offering of that one, which are already paying 30 or 40 percent of the capex already in terms of the 4 decibels, that's, let's say, is very good news for us, because it means those what we have already got at almost zero, that has much more value. So, I think that's positive.

Is Iberdrola seeing improvements in permitting from renewables in Spain or UK yet as peers have highlighted? The permitting process in Spain and the UK is improving or not?

The permitting. Well, not much, I would like to say. Not much. There are certain moves in trying to define areas in which will be already not needed to pass through the slow process we are already having at present. So there are some moves at European level in the different countries to try to accelerate this process. But the reality today is still, in my opinion, is too slow.

Next is regarding offshore. There have been companies dropping projects in the UK offshore for prices on returns. Where do you see offshore IRRs currently in the UK and in the North Sea or the Baltic Sea?

Well, it's true that I think you are commenting about some companies. I imagine you are talking about Vattenfall, which was our neighbor already in East Anglia. So I think they have already done precisely what we have already done in the United States, and there are very many others who have already followed us. I think the terms of the auctions already made a few years ago were absolutely different of the prices of today we have to pay for the equipment. The equipment is much more expensive. The inflation is affecting the labor. The cost of the vessels, et cetera, has increased, and that is a reality. What happened? I think in our case in East Anglia III, we had the fortune. to fix all those terms just a few days after we won already the auction. So in that make, then I will say we are in a different position than others in this respect. That is not already happening in the state because there is impossible to fix the terms. because when you gain an auction, still you have not the project itself, and it takes five, six, or seven years before you get the permits and you have all the proper design of the wind farm. In the case of Britain, it's different. I think when you make the auction, you have the consent, and the consent means you have an approved project. You have already made a deep analysis of all the terms of the CBET, on the transmission, etc., etc., And you are allowed to reach agreement with vendors of equipment just prior of the offer and fixing that one just 24 hours after you gain the auction. And that is what is happening. What are the 10? I would like to say in our case, if we go ahead, means that it's already reasonable returns. And you know the reasonable return for us is 100 basic points.

The US IRA is a positive. When would you expect to have clarity and could it cause an upswing in investments? You are considering repowering 4.6 GW on wind farms in the US. Should this decision trigger an impairment of the value of the existing assets? How much capital would you need and how much incentive do you get with the IRA?

Well, I just mentioned before, I think the importance of that one is that we can already build or repower the existing fleet a half of the cost of the half of the capex of the new one. And we will be allowed to receive the 100% tax credits and subsidies saying if we may brand it new. So we made more production with a new repower, much more production because we put already new turbines. And we will keep already quite a lot of existing equipment, which is tower and connection and transmission and all those things. And I think we received 100% of subsidy of that one. So that one is highly valuable, that one. I think that is possibly cash flow generated from the very beginning. And I think that gave already an extra value, very extra value to our fleet of megawatt, existing megawatt in the United States. So I think that is a big advantage for those who have been first mover in the state toward those ones which are now landing in the country. With the new one landing in the country, they are allowed to receive these IRA subsidies, but the capex they have to make is double than the capex we have now. The second thing is that we have already the customer. So the PPA, what is already assigned, we can already extend this PPA, of course, in the renegotiated terms, but we don't need to look for the customer because the customer exists. So I think the commercial side is done. And in economics, I just insist on that one, we can increase 20%, 30% of production of the existing ones with a CAPEX, which is half of the CAPEX or the brand new one.

One regarding U.S. offshore, the position of Iberdrola in U.S. offshore. What does Iberdrola stand on U.S. offshore wind? Number 20. The offshore... what is the position or what position regarding?

Well, in the United States, I mentioned, I think, Binger Wind, I mentioned already, the first offshore wind farm which has been built in the state, the first one which has been in operation, I think we are, in this moment, they are fixing the foundations, and I think that is going on. The cable is already made, and that is going on, and we expect, in the middle of this year, the first export of electricity. In another two projects I mentioned already, Massachusetts, we just got the agreement with the buyers, which are the distribution companies from Massachusetts, to cancel our existing contract. And I think that means that we can already make to the new auction if we like. We are free to make already new deals with that one. And in the case of Connecticut, which is another auction, we are negotiating new terms with with the regulator of Connecticut, with the government of Connecticut, for making that already viable.

Next question is, there has been talk about potential life extension for nuclear plants in Spain. Would you be open to this? And do you see the recent European Union discussion on mechanism to incentivize this going in the right direction?

Well, you know, in Spain we have already a protocol signed for closing, I think, up to 2035. So I think this protocol exists and I think it's something that we would like to respect, that one. But If the power plant are able to be extended as in other countries. So technically it's possible that this power plant continues their production and their activity. with certain investment, of course, then we will need to renegotiate the terms for making that already the viability of that one. So I think technically it's possible. Economically, it's a question of negotiating. And the system, well, it will be more relaxed if they exist, if they don't exist. So I think that's clear. But I think we are not making the energy policy. Those ones which are making the energy policy have to look already with that advantage. I think technically it's possible. Economically, it's a question of negotiating. They are not the country which are doing. And the system operator is that one we have to look if that is needed for the stability of the system or not. I think it's something which I think as engineer I can give you my opinion, but I will not give to you any opinion of that one.

Next is on asset sales following the very active first half of the year. Are you considering selling additional assets? If so, would you prefer minority stakes or entire assets?

I think we had completed 100% our asset rotation. So I think that's clear. We make already in our plan. We said that we are going to make 7 billion asset rotation and that is done. So which I think the plan is the plan. So, but I think in the plan was as well another area, which was partnership. And partnership, what means? It's co-invest with us. Co-invest in which terms? Co-invest in some terms in minority, equal, majority. It depends, case by case. But I think what we would like is to benefit or to use our capabilities, our experience, our know-how for already accelerating this. the growth without being forced to use already resources coming from our shareholders. And I think we would like to make these partnerships in such a way the others help to us to make our growth without being forced to us for increasing share capital for already benefiting of the potential demand, extra demand of renewable or transmission or whatever What we have today, and probably we are going to have tomorrow. That is our plan, and we will continue. We focus on partnership, but the investment is already done.

And finally, the last question comes from Stein Birkeland from Norges Bank, and it's related to updating him on the various green hydrogen projects of Iberdrola and how they are progressing.

so uh thank you i think is you know we have 60 projects in this moment of hydrogen in eight countries the project in spain we are praising us in brazil in australia in portugal in many countries so uh and i think is uh in the in the case of spain i think you know then we as i mentioned we've been awarded 150 million euros for making a green methanol project. We had already, before a small subsidy, already 5 million, 7 million, for making a test of that one. Now it's an industrial one. It's already 500 million capex of this power plant in the northwest of Spain for making that one. And we are expecting already the... big investment what we have for the planning to make in the center and in the south of Spain for making a green hydrogen to make green ammonia. The project is completed. There are similar one in Portugal. In the case of Spain has been approved the subsidies by the European Commission and we are expecting the allocation of the subsidies by European, by Spanish authorities. i imagine that the new government the moment will be formed i will they will accelerate all this thing but the money is being approved the project has been approved our project has been approved by a european commission and i think that is a question only to see if the amount of money has been allocated for spain for this proposal is going to be given to us totally partially etc etc we will expect that the new government is going to provide that one but the project is ready for that one And we continue with many, many other small ones that we continue making those ones in the areas of all kinds of things. But the last project you mentioned, those ones which require hundreds of billions of euros, are already ready, but pending of this support from the European funds, with the exception of green methanol, which has been just approved in that one in the last two weeks. So thank you very much for taking part in this conference call. I wish all of you a very good summer for those that have the chance to be on holidays. And I hope that after this result, we will take some time over the next week to continue already sharing whatever comments. Even if we'll be in holidays, our investor relation will be ready, as always, to be in touch with you, to reply to whatever question you like. And if there's any news, new news, further better or good news in the next few days or weeks, I think they will be ready to share with you, as always they do. Thank you very much, and have a good holiday. Thank you.