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 nine-month results presentation. As usual, we will follow the traditional format given in our events. We are going to begin with an overview of the results and the main developments during the period given by the top executive team that usually is with us. Mr. Ignacio Galán, Executive Chairman, Mr. Armando Martínez, CEO, and finally, Mr. Pepe Sainz, CFO. Following this, we will move on to the Q&A session. I would also like to highlight that we are only going to take questions submitted via the web, so please ask your question only through our webpage www.iberdrola.com. Finally, we expect that the two-day event will not last more than 1 hour and 15 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 nine months of 2023, net profit reached 3,637 million euros, up 17% or 22% excluding non-caste tax provision related to the Mexico transaction, as Pepe will explain more detail later on. EBITDA grew 13% to 10,783 million euros, driven by our ongoing strong operation performance, reflecting the higher production in our core geographies, mailing renewables, to the improvement of load factors, lower energy purchases, and higher operational efficiency. In addition, we continue accelerating in the implementation of our strategic plan with investment in 10.8 billion euros in the last 12 months, thanks to our ability to secure supply chains and secure projects. This has driven a percent increase in our network assets base to almost 42 billion euros, and the addition of 3,100 megawatts of new renewable capacity to reach a total of 41,300 globally. On top of that, we have continued increasing our financial strength thanks to our operational cash flow of 11.1 billion euros, leading to an FFO adjusted net debt of 23.2%. With 85% of our debt at fixed rates, excluding Brazil, as you know where regulation provides us a natural hedge to interest rates, and a liquidity of 20.2 billion euros enough to cover our financial needs for 21 months. This set of results has allowed the Board of Directors to approve an interim dividend of €0.2 per share, 11% more than last year. As you can see, we have continued delivering strong growth and profitability and reducing risk profile. Following the key pillars of the strategy presented in our last Capital Day a year ago, financial strength as key priority, growth focus on networks with selective investment in renewables, and a further increase in our present high-rating countries. EBITDA is up 13% to 10,783 million euros. In energy production and customs, renewable output and prices continue to normalize in the European Union, and we also recovered the costs corresponding to the deficit accumulated over the previous year in the retail business UK, where business conditions are improving. In networks, we had positive impact for an annual tariff increase in the US, UK and Brazil. In all these geographies, regulatory framework are also protecting us from high inflation. And we have continued improving our open national performance. In this business, our investment led to a 9% increase in our regulated asset base, as I mentioned, to €41.3 billion, with a balance break down. The US represents 31%, the UK 25%, and Spain and Brazil 22% each. We have already closed the tariff framework for 96% of our asset base to 2025, securing future predictable and stable growth across all geographies. In the case of distribution, in the U.S., the New York regulator has approved a new rate case until April 2026 for our distribution companies in this state, which represents almost 60% of our avant-garde regulated assets base. Total investment up to 2026, including 2022, has been recognized, reached $6.4 billion with a base return on equity of 9.2% and an earning sharing mechanism above this level. This rate case also improved the recovery of expenses related to storm and reconciliation of financial expenses. In addition, it includes risk mitigation measures for uncollectibles and will have retracted effect from May 1st. This will result in a combined positive one-off impact of $136 million after tax in local GAP that will be registered in the fourth quarter. AvantGrid also received approval for the new rate case until June 2025 in Maine, where the company has 14% of its regulated assets base. A new tariff was also approved in Connecticut until June 2024 for an additional 15% of its assets base. This rate case has been appealed by the company to improve some conditions. In Brazil, the process for renewal of distribution concessions for 30 years is progressing, following the reasonable proposal made by the Ministry of Mines and Energy. Over the last month, we have also moved forward in several growth opportunities in transmission, which could represent 5 billion euros in the second half of the decade. In New York, the Climate Leadership and Community Protection Act will drive significant additional investment until 2030. Construction works in the NCEC interconnection line in Maine were resumed in August in avant-garde respect to reach commercial operation by 2025. In the UK, a joint decision on the final plan for the Eastern Link One interconnection project is expected in November. Let me remind you that the regime already approved by the regulator will allow revenue recognition since the beginning of the construction. In renewables, we have continued growing through a strategy of selective investment in projects that improve our generation and supply balance. In onshore wind and solar, in the last three months, we have doubled our quartile installation piece, resulting 2,700 added in the last 12 months, to reach an onshore capacity of 40,000 megawatts contracted in high-rating countries. As we add 4,400 currently under construction, we reach a total of 7,100, reaching 60% of our target for 2025. In offshore wind, our performance over the last month shows that this technology can create significant value with our disciplined approach to acquisition of seabed rights, supply chain management, route to market, and construction. We will have 1,800 new megawatts operational by 2025. 500 correspond to Saint-Bruyc in France, with more than half already exporting energy today. 475 to Baalke-Giguel in Germany, and 800 to Binger Wind One in the U.S., with just close $1.2 billion to secure industrial taxation. which is the first one for an offshore wind farm and the largest ever made for a single renewable facility in the country. These three projects have secured revenues for 100% of their energy for 15 to 20 years, adding €800 million of EBITDA from 2025-26 on the top of the €700 million we have obtained from our existing offshore wind farms since 2022. In 2026, we will put in operation Isanglia III in the UK with 1,500 megawatt and SGFD for 15 years and Windacker in Germany with 300 megawatt of capacity and its revenues fully secured for 15 years through corporate PPAs already signed. Adding others 400 million euros of EBITDA per annum from 2026-2027. The bidder contribution of all these new projects is in line with the lower investment per megawatt. We are expecting 40% decrease in unitary cap as compared to the project in advanced construction that will be operative before 2025. In only three years, we will multiply our current installed capacity by four times, reaching close to 5,000 megawatts that will contribute to almost 2 billion euros per annum of EBITDA when completed in 2026-2027. We also continue increasing our pipeline to secure optionality for further selective growth, focusing on projects with the potential to deliver expected returns. We have 3,600 megawatts already with consent, including Commonwealth with and Park City with US, East Anglia 1 North and East Anglia 2 in the UK. And we have secure seabed rights for other 8,000 in UK and United States. Finally, we continue to develop opportunities in countries like Japan, Sweden or Norway. The average development and CBET cost for all these pipelines is around 60 euros per kilowatt, 10 times less than the 600 euros paid just for CBET in the last auction in US and Europe. We will continue moving ahead in this project under the same guidelines. Focus on high-rating countries, discipline of value creation, minimizing expenditure and the final investment decision, a conservative approach on supply chains, excellent project in construction, and development of hubs to reduce operating and maintenance costs. As more and more renewables enter the system to replace thermal generation, storage will have a key role to modulate supply and demand. In daily cycles, absorbing energy during the central hours of the day to the excess of solar PV production over demand and delivering it in the evenings when demand increases and solar production stops. Each of these two periods takes 6 to 11 hours per day. In addition, storage can also manage an occasional excess of wind energy. Also, in weekly cycles, the constant flow of renewable energy over the week and the deep change in demand between weekdays and weekends is creating an opportunity to store excess of energy on Saturdays and Sundays and gradually release it from Monday to Friday. Something similar happens in longer seasonal summer-winter cycles to the weather changes. PanHydro is the only technology that can provide all these services in optimal economic terms, as it can store energy for long cycles compared to the two to four hours of batteries. Although, both technologies can provide un-serious enemies to balance supply and demand on a real-time basis. All this makes hydro-pan storage a key technology for the energy transition. And like in networks or offshore wind, this will imply significant investment in opportunities. Iberdrola faced this scenario from a unique position. Several years ago, more than 20, we started transforming our hydro plants with reversible turbines, and today we have more than 100 million kilowatt hours on pump and storage capacity in operation in the Iberian Peninsula. 20 million kilowatt hours under construction. An additional pilot of project for up to 150 million kilowatt hours in various planning stages. We are also expanding battery storage and other geographies like United Kingdom of Australia. Regarding routes to market, as of September, we have already sold 90% of energy production up to 2025, and we expect to close a remaining 10% during the coming months. In addition, we have more than 300 terabit hours linked to long-term contracts for the second half of the decade, more so than multi-country agreements with large global companies like Vodafone, Meta, Amazon, Web Services, etc. This provides us stable and predictable revenues and visibility for the long term. It maximizes returns for new projects like our German offshore wind farms, which are fully contracted to long-term PPAs. Moving to supply chains, we've already secured 100% of our renewable investment to 2025. And our two new offshore wind projects that we will enter into operation in 2026. And in net worth, 85% of our needs to 2025 are covered as well. We have also achieved our target for asset rotation and partnership of 7.5 billion euros two years in advance, allowing us to reduce our financial needs and improve profitability with partners like the largest sovereign funds in the world, like Kia, Norges, GIC, or Masdar, or financial institutions like Credit Agricole, Mafre, and other companies like BP. We expect to continue closing the deal with these partners in the near future in transmission, onshore and offshore renewables, or electricity mobility. Our transaction with Mexico Infrastructure Partners is on track for closing before year-end, and we have only pending the permit from the Competition Authority. The asset swap with Electrobras in Brazil was closed a few weeks ago, allowing to consolidate 100% of the Dardanello hydro plant with a positive non-cash impact of R$ 1.5 billion. In Brazil, the alliance with GIC to co-invest in transmission was already materialized, including a first payment of R$ 1.1 billion. Our agreement to co-invest 1.2 billion euros in renewables with Norges Bank is also going well, with the first proceeds received, and we are preparing an expansion of this partnership to include new co-investments. In addition, the co-investment agreement related to our German offshore wind farm, Evaldi Giegel, has just received a permit from national authorities, and we are working to extend this alliance to other geographies with Masdar. Finally, our joint venture with BP for the deployment of charging infrastructure in Spain and Portugal for 1 billion euros has already obtained the Foreign Investment Authorization and is moving ahead to secure the permits from EU competition authorities. All in all, we expect to collect 6 billion euros of additional cash from this transaction in the fourth quarter of this year. which together with cash flow generation will allow us to close the year with a net debt of only 42 to 43 billion euros in line with last year's levels. We have also preserved our financial ratios with FFO to adjust the net debt at 23.2 and our liquidity exceeds 20 billion euros. Based in this financial position, last Tuesday the Board of Directors approved an interim dividend of 0.2 euros per share, with an increase of 11% versus 0.18 euros paid last year. This should allow us to exceed again in 2023 the dividend floor of 0.5 euros per share committed for 2025. Now let me analyze the recent agreement reached by the European Council on Electricity and Market Reform. This text is in line with the proposal from the European Commission and the European Parliament presented before summer and the suggestion from different industry associations like Euroelectric or WindEurope. The Council, the Commission and the Parliament recognize the adequate functioning of the market over the last years and propose some new measures to increase long-term contracting, diminishing volatility in the market with an increasing penetration of renewables and avoid future market intervention. No caps to nuclear or renewable technologies are allowed and regulated contracts at fixed prices are only allowed on a voluntary basis. As you know, the discussion on how the use of potential proceeds from the difference between the prices fixed and these contracts and market prices were finally given some flexibility to member states, always under the supervision of the European Commission to avoid market distortion. The proposal from the three EU institutions also established clear and common rules to define an emergency crisis including sustained minimum market price of 180 euros per hour during at least six months. The European Council has also included measures to promote capacity mechanisms and flexibility and recognize the need for higher investment in NERBOS in line with the Parliament's proposal. All in all, The reform is moving toward a system based on market principles and long-term contracting, as we always defended. We expect trial laws to move ahead in the coming weeks. In addition, just a couple of days ago, the Commission released its wind power action plan and a special communication on offshore renewables. We are analyzing its content in detail, but we welcome the effort to promote a technology in which Europe has been a leader for decades. We think it covers positive aspects like improving permitting and supply chains. It also mentions the relevance of networks. Finally, we also welcome the increase in offshore wind target capacity. So I will now hand over to the CFO, Pepe Saez, who will present the group financially starting for more detail.

Thank you, Chairman, and good morning to everybody. As the Chairman has explained, a bid that was 13.2% up to €10.8 billion and reported net profit grew 17.2% to €3.6 billion, 22% up, if you exclude the €160 million one-off tax impact of the Mexico transaction that will be reversed once we close the deal. FX evolution had a negative effect on our EBITDA results. The pound and the dollar depreciated against the euro by an average of 2.9% and 1.7%, while the real slightly appreciated. Nevertheless, the FX impact is more than covered at the net profit level due to our FX derivatives. Revenues decreased 1.9% to 37.2 billion euros, mainly due to energy production and clients in Spain. Procurements fell more, 14% to 20 billion euros. Last year, we had to buy electricity at very high prices due to renewables and nuclear shortfall in Spain. This year, the situation has been reverted due to abnormalized production. As a consequence, gross margin rose by 17% to 17.2 billion euros. Reported net operating expenses increased 14.5% to 4.3 billion euros, but excluding 83 million euros U.S. pension one-offs that had a positive effect last year. 90 million linked to reconciliation effects in the U.S. that are recognized at gross margin level. and other one-off negative impacts of 78 million euros in the US and UK, net operating expenses increased 6.5%. Reported net personal expenses grew 11.9%, but excluding the US pension positive one-off in 2022 and other minor items, it grew 5.2%. Reported external services increased 11.4% and 9.4%, excluding the above-mentioned reconciliation impacts and the negative extraordinaries in the US and the UK. Analyzing the results of the different businesses and starting by networks is a bid that reached 4.4 billion euros, affected by several non-recurring items, as we will explain. In Spain, EBITDA increased 20% to 1,247 million euros, affected by a 203 negative one-off in 22 related to a legal case that was reversed at the end of 22. Recently, the Spanish Supreme Court has ruled in our favor on this case, so we are expecting to collect around 230 million. Excluding the legal case, EBITDA would have been slightly positive. In the UK, EBITDA was up 13.3%. to £767 million, thanks to the ED2 applicable from April onwards and higher asset base, especially in transmission, and despite a negative £36 million that we have accounted in this quarter. And this is a one-off. In Brazil, EBITDA fell 3.7% to R$ 7,543 million, due to lower contribution from the transmission business that in Q3 included a one-off of around R$ 1.2 billion, basically driven by a transmission line Vale do Itaí. that we are going to claim to an L as the extra costs that we are accounting are related to some delays in the authorizations linked to COVID-19. So we had delays in the authorizations coming from the Brazilian administration, and we are claiming that to an L, and we are expecting to recover part of this negative one-off. It is also affected by the consolidation of transmission assets included in the EIC deal. And it is partially compensated by the increase in the distribution tariffs in Brazil that gave us another 700 million positive. Finally, in the U.S., IFRS EBITDA was 41% down to US$953 million, due to a negative impact of US$550 million positive one-off booked in 2022, linked to the recognition in the P&L in IFRS of regulatory assets, and US$87 million from pension provisions, both accounted in IFRS but not in US GAAP. As the chairman has said, in the fourth quarter, we expect to recover 150 million in IFRS and 195 million in US GAAP at the EBITDA level from the New York rate case approval, as its effects are recognized from May 1st of this year. Energy production and customer business EBITDA grew 34% to 6,374 million euros. In Spain, the EBITDA was 3,155 million euros, 37% 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 higher sales in the free market due to the gain in market share from 25% to more than 27% in 12 months. EBITDA includes a 1.2% tax in revenues that we account in the levies item and the amount is 213 million euros. In the UK, EBITDA more than doubled to £1,354 million, thanks to the full collection of £321 million of 2022 tariff deficit and better margins in our retail business. Higher offshore wind production, partially compensated lower onshore wind output. In the U.S., EBITDA increased 5.1% to $562 million, driven by a 4.1% higher output due to new install capacity and better margins, but negatively affected by the cancellation cost of Park City and Commonwealth offshore projects for $40 million. With these payments, all the costs for the cancellations of these projects have been already accounted. In Mexico, EBITDA fell 8.9% to $645 million due to lower contribution from renewable assets and contracted plants, partially compensated by the new capacity in operation since May 22. In Brazil, EBITDA fell 16% to $1,345 million as contribution from renewables. new renewable capacity in operation is offset by lower contribution from thermal business that last year was exceptionally strong. Finally, in the rest of the world, EBITDA fell 5% to 302 million euros due to lower prices partially compensated by a higher production due to larger installed capacity. EBITDA was up 20% to 6.8 billion euros. DNA plus provisions grew 12.7% to 4 billion euros, mainly due to the higher asset base and activity and bad debt evolution due to increased customer billing. Net financial expenses rose 287 million to 1,666 million euros. Debt-related costs grew 374 million, 158 due to the higher average net debt, and 229 due to the higher cost of debt. 75 basis points. to 498%, that nevertheless is below the 5.05% that we had in June. Excluding Brazil, the cost of debt was 371%. Cost of debt in Brazil is starting to fall, as it is linked to inflation. Cost of debt ex neo is below the 3.8% that we announced to be expected this year in our capital markets day in 22, thanks to our fixed rate policy and the PNM delay. The higher financial expenses have been partially offset by 87 million positive non-debt related results, mainly linked to FX hedges. Our reported credit metrics remain solid. 12 months FFO increased 3% to 11.1 billion euros or 11% if we exclude hydrocarbon recovery in 2022. Adjusted net debt grew to 47.9 billion. In Q3, net debt is impacted by dividend, tax payments and FX. As a consequence, FFO adjusted net debt stands at 23.2%. Adjusted net debt to EBITDA is 3.3 times and our adjusted leverage ratio was 44%. Ratios will be higher by year-end as we expect debt to end the year between 42 and 43 billion euros. 2023 and 2024 maturities will be fully covered thanks to already signed financing and expected proceeds coming from asset rotation and court rulings that will allow Iberdrola to recover 6 billion euros. that the two recent sentences that we have received, the first one of the European courts regarding goodwill, and the second one previously mentioned in networks in Spain, will allow Iberdrola to recover one billion euros in the next 12 months. Exposure to new fixed rate financing in 2024, if we exclude the PNM transaction, will be limited to around 1 billion euros due to the forward start swaps already signed back in previous years at lower costs than today. Upcoming asset rotation and partnerships and selective growth provides additional flexibility to fund investments. Our liquidity position... of over 20 billion euros, as the chairman has mentioned, covers 21 months and the average dead life is of six years. Our diversified portfolio provides flexibility to target different markets, achieving very favorable conditions. Our 23 financing of 6 billion is coming from seven different markets or sources of funds. During the nine months of 23, Iberdola did 5.3 billion of green financing, reaching 53 billion of ESG financing. Iberdola continues to be the leading private group in green bonds. Net profit grew 17% to 3,637 million. Equity methods result increased 24% thanks to the Brazil hydro plant asset swap with ElectroBus that the chairman has mentioned in his presentation. This is accounted in Q3, but I want to mention and to stress that this offsets the Brazilian transmission one-off at the EBITDA level of over 200 million euros. Positive offsets the one-off negative that we have accounted in the EBITDA for the transmission lines. In-contact is also affected by the positive one-off accounted in 22 in Brazil and by the negative one-off in Mexico to be reversed hopefully at the end of this year, or we expect to reverse it at the end of this year. Excluding the Mexico one-off, net profit grew 22%. I will finish my part of the presentation remarking that structurally Iberdrola business is protected from inflation and interest rate rises. As you can see in the slide, three out of our four network business are totally or partially adjusted to inflation. And our energy production and consumer business is partially protected in inflationary environments directly and indirectly. In addition, our financing to be close to 100% fixed inflation by the year end, excluding Brazil, obviously, reduces the financial cost increase. To conclude, Iberdrola is well positioned for the higher for longer interest rate environment. Thank you. And now the chairman will conclude the presentation.