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.

Thank you very much, Pepe, for your clarity and your presentation. In November 2022, you remember, we presented in London a strategy prioritizing financial strength. in order to protect ourselves from macro instability and to have at the same time the possibility to continue growing. One year later, the figures we have presented today confirm that our analysis was right and we are executing our plan ahead of estimates. As a result, today we are increasing once again our 2023 net profit growth outlook to double digit excluding capital gains from asset rotation. It is excluding capital gain for asset rotation. In the next three months, we expect to continue improving our performance based on ongoing investment in networks with impact of the new rate case and tariff increase in U.S., Brazil, and U.K. As well, the increase in production driven by new capacity that will continue on us to reduce energy purchase. and the ongoing improvement of retail conditions, mainly United Kingdom, and also expect to maintain net debt at $42-43 billion due to the cash flow operation, asset rotation and partnerships. All this is based on the delivery of the key pillars presented in our Capital Market Day of last November. We are delivering growth in net worth, increasing our regulated assets by 9% to €41.3 billion, close to 2025 target. We are also delivering selective growth in renewables to optimize our supply-demand balance, with our 2025 installed capacity targets well advanced, especially in offshore wind. We continue increasing our focus on A-rate countries, with more than 80% of our EBITDA coming from continental Europe, the UK and US or Australia. And we are optimizing even more our financial strength, as Pepe mentioned, thanks to operating cash flow and the cash proceeds from asset rotation expected by December, which will be sufficient to cover all our 2024 debt maturities. All this allows us to reaffirm today our 2025 target and our commitment to continue increasing our dividends in line with results. We will update you on all our outlook for the coming years in the next Capital Market Day will be held in March 2024. Thank you very much, and now we will answer any questions you may have. Thank you.

The financial professionals have asked the question that I will now put to the senior managers that are attending this event. Gonzalo Sánchez-Bordona from UBS, Peter Vistiga, Bank of America, Jose Ruiz, Barclays, Meike Becker, HSBC, Manuel Palomo, Exxon BNP, Pedro Alves, CaixaBank, Rob Pulein and Artur Sidbon from Morgan Stanley, Javier Garrido, JP Morgan, Fernando Lafuente, Alantra, Alberto Gandolfi, Goldman Sachs, James Brand, Deutsche Bank, Fernando García, Royal Bank of Canada. Hadmet Farman, Jefferies, Jorge Alonso, Societe General, Jorge Guimarães, JV, Javier Suarez, Mediobanca, and finally Markip Takkuem from Berenberg. First question is related to the guidance 2023. Can you help us understand the drivers of the guidance upgrade? Can you give us an indication of EBDA for the full year?

So I think I tried to explain during my presentation. So I think just to try to summarize again, I think there are new investment in networks. Asset base has already grown by 9% year on year, reaching 41.3 billion euros, RAP. In Brazil, there are new rate cases in Brazil, which provide higher EBITDA second half toward the first one. In all places, Coelho-Bacosan in April, Electros in August, and Taris-Jansman in Brazil, in Brasilia, I think, from August as well or something else. In U.S., as I mentioned, the new rate case on New York, which are already affecting positively, been retroactive from May 1st. I think it's producing an effect of $150 million, $190 million, with Pepe mentioned. Maine as well, it's from July. UK, we have additional revenues for an investment of Rio T2 and Rio E2. I think in production and customers, I think normalization of wind factor, we have already had very, very low wind factor in most countries in the first half of the year. Also now, we have already seen then the Then finally rain in Spain, we have already better hydro conditions, apart of the pumping storage we have been making now, we have already as well. So more rain and hydro reserves are in line even higher than the average of the historical we had already. We have already put in service, I mentioned, 3,100 additional capacity of renewables, and we will put some more in service during the coming months. We continue recovering the tariff deficits of UK, which with some adjustment as well on the price cap. And as Pepe mentioned, it's the optimization of financial profile, I think, which is helping the asset rotation and partnership, which are making then our needs financially diminished. And those are the main thing, which the consequence is then the 2023 net profit guidance to double-digit growth, and that is what makes already this consideration.

It's related to the same topic. Which one-off should be excluded from the new 2023 net profit guidance?

What should be excluded? I think the asset rotation, yeah, yeah, I think that's clear. So I think that, as I mentioned before, in this result are not at all included any special capital, extraordinary capital gains. So I think that is just excluding whatever thing we can have already for capital gains for another provision that we can make for another part. But I think mainly it's capital gains. It's asset rotation, capital gains.

Next question is related to net debt guidance. What is your net debt expectation for 2023, as we mentioned in the presentation? And could you please help us to build a bridge to the 42-43 guidance net debt from current Euro 48 billion?

Pepe, can you reply to that?

Basically, what we are expecting is that the net debt from the previous presentation, we're talking about 42 now, we have had some impact from FX as the dollar... is slightly stronger than what we had expected so that was the change from 42 to 42 43 billion basically um what we are expecting is to collect you know around 6 billion euros coming from our mexican deal before the end of the year. So that will drive the fall in net debt from these levels to the 42, 43 billion that we are mentioning.

Next, can you please explain the non-recurring impacts of Brazil in nine months that you mentioned in your speech?

I think, Pepe, you can really explain that.

Yeah, we have two impacts of a similar amount. One is a negative one that has to do with some extra costs that we are accounting in our transmission business, basically driven by one transmission line. And, you know, an important part of these costs are coming from the fact that during COVID, you know, the Brazilian administration was closed, so we had an important delay on the authorizations, especially environmental authorizations, and that delay obviously impacted our costs, you know, and obviously that has the delay in the authorizations that we had not expected due to the COVID is an important reason of an important part of this delay. But in terms of numbers, over 200 million have to do with extra costs that we are accounting in this quarter in transmission line. And we are accounting this at the EBITDA level. And a similar amount we are accounting at the... and the equity line, and basically has to do with a profit that we are accounting due to the exchange in our hydro plants. We have actually, as the chairman has said, got control of Dardanellos, and we are giving to Electrobras, it was... And that is, you know, that are the two impacts.

Next question is related to the avant-garde. Are you satisfied with the performance of avant-garde in the first nine months of the year?

Well, as we mentioned, I think the result has been impacted by the delay in the New York case. We find it has been approved, which is already retroactive from May, as Pepe mentioned already. But I think, Pepe, you would like to add anything? I think we are expecting 190 million extra, which will be accounted for quarter of the year. So I think that makes already the result similar to those we were expecting.

Next, how does the rise in interest rates affect the profitability of assets and projects under implementation? And how does it affect the cost of debt?

So I think it was already mentioned around 85% of our debt is already a fixed rate, excluding Brazil. And I think once we cash the operation from Mexico, I think it's around 100%. Pepe, correct to me the numbers? Yes, that's right. If I'm not correct. Yeah, that's right.

And in the projects, when we start a project, we tend to have our debt already fixed. And we are not expecting an increase in the financial cost this year from the levels that we are at right now. So we had a total cost of 498, and we are expecting to end the year in a similar term.

A little bit more detail on the 1 billion euros cash inflow you expect for court rulings?

So I think that is a positive news. I think we've been investing according with the Spanish law, as most Spanish companies. International expansion has been already with certain tax allowances. And I think there were already some decision on the European Commission who was against this thing. But finally, the court of the European Court, the European Supreme Court was already saying that we did the things properly. And I think we've been forced And to be paid already with a month, we had already been forced to pay in advance. So I think that represents something like 600 to 700 million plus taxes, which I think we are expecting to cash in the next month. I don't know, Gerardo, you would like to add anything on that one?

Yes, it's correct, Chairman. The European Supreme Court has decided that there was a state aid, but we had legal confidence and we need to be paid those 700 million, even in the case that the European Commission decides to appeal the decision of the court.

You cannot already about the decision of the court?

And the other case is the case that has been resolved by the Supreme Court of Spain about the remuneration of the distribution companies. The administration considered that we have been overpaid or overremunerated, but the Supreme Court has decided that we have been remunerated correctly during the last year. nine or ten years, and the final effects are that we have to recover 230 million in cash, that no negative impacts will be produced in P&L, and we will avoid a decrease of 500 million in our asset base.

Next question is related to Spanish politics. Can you please comment on the latest agreement between PSOE and SUMAR to extend the energy tax? What is your understanding of the proposal included to set a minimum tax rate of 15% for companies?

Well, first, we will expect when the government will be formed, we will see what is the final program of the government. Now it's already a discussion between different partners, with potential partners of the government, and we still are pending another one, and we will see the whole program. We will make the comments about that one.

Next is the market reform, European market reform. Could you please share your views on the recently agreed market reform? Accordingly, yes.

Well, I think I was trying to be very transparent on that one. I think the European Council agreement, I think, is in line with the proposal of the Commission and the Parliament, which I think that's positive. It's consistent, in our opinion, that is consistent, balanced and focused. I think I'm defending PPAs as key mechanisms to provide stable prices for the long term. We were defending that for many, many years. It's defending no intervention, no caps, need to preserve current market pricing and avoid distortions, which I think that's positive. Has a common and clear objective to define what is a crisis situation, which I think not everyone can really define what is an energy crisis. I think it's non-national intervention and mechanism. I think one is in a standard crisis situation will be defined by European Commission. CFDs or auctions which can't be transformed into CFDs continue to be voluntary. I think it's including a few specifications for certain member states, especially France, on existing new capacity, and how to redistribute the differences between the excess of CFD toward the price agreed, to avoid market distortion. And there are positive aspects as well, like the promotion of capacity mechanisms, and support already flexibility measures. And something which is very important, which I think again, I think the last communication of the European Commission already existing has been our flag for many years, the need of investing more in networks. So I think European Commission is defining more investment in networks. An international agency is defining to invest more in networks. And I was already using in my previous result presentation the words of a former vice president of the European Commission that without networks will be no renewables and with renewables will not be already a new transition. So networks is a key pillar of the new transition. Now it's fully defined and that is included as well. in this presentation. So I think the analysis, in my opinion, is positive, is defending market mechanism, no intervention, and more clarity for whatever things related how the European market has to perform and how to incentivize the investment in renewables, in networks, and introducing capacity mechanism to make ready to give the license.

We have now several questions related to the PNM deal. What is the latest on PNM acquisitions? Which is the expected timing for conclusions? Could Iberdola may consider to revisit the offer if current process is unsuccessful? And could you also share the plan B if PNM is not successful?

So as you know, right now we are expecting for the Supreme Court of New Mexico to decide Once the Supreme Court decides if it is successful for our interests, then it will pass it to the Commission of New Mexico that has to approve it. We are expecting that to happen probably during the first half of October. of next year. And regarding, you know, the case, you know, the plan B is basically to tell that at this moment we have lots of opportunities right now in the U.S. We have six billion to invest with the New York rate case. We are also, as you know, restarting NECC. the transmission line, we have a big opportunity of repowering in our renewable assets. And, you know, with the latest news on the offshore auctions that we have seen, you know, we have still, you know, a lot of possibilities of developing offshore in the US. So, you know, I think that there is plenty. We've never seen so many opportunities in the US as we have right now.

Okay.

Now is a question related to U.S. offshore. Have your views in U.S. offshore wind changed? Do you see troubles and other developers as an opportunity for Iberdola? Will you participate in the accelerated New Year actions?

Well, I think as I mentioned during my presentation, we have a positive view on the future of offshore wind. We have already, as I mentioned, the project which are in construction, all of them has PPA signs for 26, 27. That is going to generate 1.2, 1.3 extra additional EBITDA to make a total contribution of our offshore business by today 700 to 2 billion or close to 2 billion EBITDA by 26, 27. As you know, we have additional sites, secure with permits, with very reduced CBET cost, very competitive. As I mentioned, it's on the range of 60 euros per kilowatt store, more than 600, even in some cases more than that. I'm talking at an average. I think certain people have already paid over a billion per megawatt, which I think in our case is very cheap, so that may be very competitive. Also, I think the recent auctions in New York are already making more realistic prices. And as well, it has introduced something which we've been claiming, which is revision formula products. In the moment, the FID is made, so which I think you can adjust the price according with the price of the different components of the CAPEX in the moment you start the construction. So nothing continues. And that's why I think we continue on this one. But I think what is important is to transmit all our offshore wind farm. which are under construction, 100% CAPEX secure, 100% of the export price is already fixed with the terms, fixed terms and the conditions. And I think that is why I think we have no risk in those ones for already making that this project will be fully successful. And for the rest, we have already the development. We have a great opportunity seeing what is the approach of New York. Others, I think Ireland recently as well make changes as well the way where the auction is made. And we hope then in Britain in the next auction as well is going to change the terms for making already some kind of revision formula for making already something more realistic instead to go to a fixed price as we were already in the past.

Well, the next question is related to the same topic that you have already mentioned about Park City win and Commonwealth win. What is the forecast update for Commonwealth for both offshore power plant in the U.S.?

Well, I think both. I think we are free for going to the next auction. And surely the next auctions are already in terms, attractive terms. We'll be in condition to participate if we see the condition are already attractive. But I think we are absolutely two projects which are already... very low cost and very low capex spend it, to those one, I insist on that one of the terms, 10 times less than most of our colleagues and competitors, and they are absolutely free to go to the auction if the terms of the auction are already enough attractive, which I expect it will be.

Next is related to the supply chains. Regarding offshore, of the project expected to be in operation by 2026. Out of this, what is the proportion with the CAPEX and the financing secured?

So I insist again, I think the CAPEX is fully secure, close, signed and agreed. So I think there's no any risk on that one. I think 100% of the supply chains is granted and 100% of the terms of the export of energy is fully agreed. So I think we are, let's say, many of those turbines are under installation in this moment. I think in the case of Binger Wind, the first turbine has been installed. In the case of St. Brugge, I was personally visiting the installation and they are part of the wind farm. It's exporting electricity already now. In the case of Attic Eagle as well, I think they are already almost, all the foundations are completed, the substation is there, so which I think the things are already going according to the schedule and according to the cost. So I think that is what I can already say. I think we are very confident that the thing is going well because we were very active In signing, all terms, either in financing, either in purchasing equipment, either in installation equipment, to make already the things according with the terms of the auction or the terms with the schedule. I said, for instance, in the case of Binger Wind, I think we just signed recently already the ITC, the largest ITC never been signed. The tax equity, sorry. The largest tax equity never been signed for a project in the United States. So it's 1.2 billion. We just signed for this one, which I think that already we gave us the comfort that not only technically the things has been clearly defined and prepared, but as well the finance is already secured.

Next is asset rotation. The presentation talks about further asset rotation. Is there a Euro target you have in mind?

Asset rotation. So, well, I think we make already, yes, when we present in our investor day last year, the 7.5 billion of the investment in asset rotation, certain of, let's say, of you were sceptic about the numbers. So once again, we demonstrate that when we commit to something, we make already that a reality. So that is already done in this moment. But I think we continue already seeing the possibilities and opportunities under the same profile. The profile is how we can accelerate. We have plenty of projects that Pepe mentioned already. And I think we would like to optimize the financial profile using partnership on this one. We can be good for our partners and good for us as well. So I think we are in talks for another ones as well. And I think in terms of the asset rotation, always we are open to see there are opportunities. Then somebody will be ready. to pay for some of our assets more than those that we can already expect to make another money. But I think there are not any new targets on that line. The target is the target, but I think there are opportunities, so we are open to look for these opportunities. But in the case of partnership, I mentioned... I think we are already very proud to have already a tier one of partners in which with those ones we are already signing alliance for already extending and expanding our existing joint ventures for broader and larger projects together. So which I think probably in the next few months we will announce another new project that we can already make extend the existing alliance with our existing partners.

Question 15. Are you still planning to sell a minority stake in avant-garde sensor renewables? Can we expect something until year-end?

We are analysing opportunities and this is one that we have analysed and we are waiting to see the possible offers but we are not expecting to see anything before year-end.

Mexico on Mexican deal, there have been press reports that Iberdrola will reinvest the sale proceeds in Mexico in renewables. Could you please explain whether there is any specific commitment to reinvest proceeds from the sale of Mexico in the country?

Well, there are not any obligation of agreement to reinvest in Mexico. Saying that, I think you know that Mexico has been for years a strategic country for us. It continues to be a strategic country for us. I think we'll be more than delighted to have the opportunity to continue expanding our footprint in the country. We are keeping almost 50% of our, after the transaction, 50% of our assets in the country, mostly in renewables. We have several projects in renewables. Certain of those projects in renewables, thanks to this agreement, have been put into service, like the project of a wind farm, which is... Santiago, which is 140, 130 megawatt now is in operation. So, and I think we have another project. We are already asking for permits for another one. And we'll be more than delighted to continue making things there. So, but I think there are not any obligation, but we'll be more than delighted to continue investing in Mexico as we did in the last 20 years.

Another one in concrete regarding East Anglia III. Can you comment on the possibility of selling the minority stake in East Anglia III as per press rumors?

Well, as already mentioned, I think we are very proud to have already this bench of tier one of partners. I think it's each of the project in which we had already in this moment in construction. can already – we can already potentially reach agreement on that one. In the case of Isangler 3, we are talking with some of those to see the possibility of already making some partnership, but I think nothing still is concluded. But I think whatever of our existing project are ready – able to make some kind of partnership with certain of those what we have already this strategic alliance. In this particular case, that one of those can already become one of our partners as well.

Next question related to capital allocation. Could you provide an update in terms of your capital allocation following recent disposals? Has something changed versus November 2022 capital markets day?

Yes.

Well, I mean, we are not changing the capital allocation strategy, basically to continue investing in networks and in renewables with a selective approach, as we mentioned. So nothing has changed and we continue with the same strategy.

Next is related to PP as well, tax rate. What is the expected tax rate for full year 2023? And also, what could be expected for 2024?

Well, we are always somewhere between 23% and 24%, so that is basically what we are expecting.

And finally, the last question is about renewables expansion. There has been lots of discussion recently about a potential slowdown in renewables expansion in power generation. Is there any change in your willingness to invest in renewables?

No, well, I think I would like to insist what was our strategy when we defined last year. And I would like to insist our priority is to keep and to maintain our financial solidity. The second one was to grow a network. and to be as a priority and to be selective in renewables. And third one is to already to look already to invest mostly in countries with a rating. And that is our strategy. We continue the same basis. First priority, financial solidity. Pepe has already insisted during the whole presentation about what we are doing for keeping our financial solidity. So we are keeping already. We are trying that by the year end, our debt will remain at the same level of previous year, even if we are paying increase in our dividend, even if we are investing on the range of 11, 12 billion euro during the period, thanks to asset rotation and thanks to the cash flow generated. Second, our priority is investment in networks. Why networks? First, because it's already stable, predictable, and because we have the service obligation. And I think both things, service obligation and profitable, stable, and predictable makes ourselves prioritize that one. And that's why we are increasing our asset base during the last month by 9% in this one. And renewables. We are investing. We put already in service 1,300 megawatt. We have 7,100 in construction. We have already almost all our... We have all our offshore wind farm. We are in the plan already now in the late stage of construction. I think they can start generating cash flow by 2024, and they will reach almost 2 billion by 2026, 2027. But we are more selective. And I think that was the strategy, selected in the sense of looking for those which are more profitable and looking for early partners in order not to stop the construction, but already to continue in the terms which will not affect our financial solidity and our profitability.

Okay, thank you, Mr. Chairman. Now, please let me now give the floor again to Mr. Gallant to conclude this event.

So thank you very much for your attention, and I think, as always, our investor relations team will be available if there will not be enough clearings of our question. I hope that we try to be very clear, but if there are any doubts, I think the investor relations team Tim will be ready to reply to all of you. So thank you very much. And I think put into your agendas March next year is our investor day already will be held in London. Thank you. Thank you very much. Bye.