Redeia Corp U/Adr

Good morning, ladies and gentlemen. We're starting our presentation for the results of the first half of 2024. We welcome all those who follow us over the phone and on the website. With us are Roberto García Merino, Chief Executive Officer, and Emilio Cerezo, Chief Financial Officer. I now give the floor to our CEO, Roberto García Merino. Thank you, Sol.

And good morning, everyone. Welcome. And thank you for attending this presentation, where we're going to be sharing the most relevant milestones of the first half of the 2024 financial year with you, looking at Redella's performance and the results of the group's performance over the period. We'll wrap up giving you our vision for this year and reviewing progress in achieving the targets under our current 2021-25 strategy plan. Moreover, at the end of the presentation, we'll open the floor to Q&A and we hope to answer any questions you might have. So, let me start the presentation by identifying the highlights of the period. Electricity grids are essential in the transformation towards a more efficient, more resilient and environmentally responsible system. And at Redella, we know that we have a unique opportunity leading the deployment of transmission grids to achieve an emission-free model. We continue to make progress then in our commitment to fight against climate change and proof of this is the percentage of renewables we've got in the first half of 2024 in our national generation mix. That's continued to increase to average levels of around 60%. Now with this boost to renewables, 78.4% of the energy generated in the first half of the year came from emission-free sources. The mainland generation structure continues to be led by wind energy, although we've also seen a notable advance in photovoltaic solar energy, PV energy that is. And I'd like to highlight that on the 21st of June, PV solar energy beat its daily production record. putting out 201 gigawatt hours which accounted for 26.8 percent of the total output of the day and i should also note that we're observing a possible change in trend in the evolution of demand with growth in the last six months of close to one percent after many months of flat performance as well as a reduction in electricity prices in the spot market with figures well below the average values of 2022 the year when russia invaded ukraine thanks to the availability of hydro, wind and PV energy well above the usual levels. This success is underpinned by a sound electricity transmission grid and the flexibility measures implemented by the system operator, in which we are a world pioneer. Thus, the mainland grid has integrated around 98% of renewable production. Or, to put it another way, the level of spillage due to grid restrictions has been around 2%. That's well below the 5% established by European regulations. From a global perspective, as a roadmap for a decarbonized economy and a country that's integrated and energy cohesive with Europe, we have the National Integrated Energy and Climate Plan, known as the NIEC, whose update is expected to be approved very soon. with ambitious goals such as achieving a 32% reduction in greenhouse gas emissions against 1990, reaching 48% of renewable energy in the final use of energy, or 81% of renewable energy in electricity generating, whilst reducing energy dependence to 51%. So that's how Spain is moving forward on its path towards compliance with the Paris Accord, a historic milestone to combat climate change and accelerate actions and investments for a sustainable future. To meet the PNEIC targets and to incorporate the energy policy defined at state and European level, the Ministry for Ecological Transition and Demographic Challenge has initiated a new electricity planning process for 2025-30. This planning will set out the development needs of the electricity transmission grid up until 2030, reinforcing existing infrastructures and promoting new facilities. The process is structured in six stages and we're currently in the stage of preliminary studies. Having gone through the initial stage of proposals, which will last until next October, when the initial development proposal will be finalised and actually sent to the Ministry. Final planning should be approved in 2025, we think. In a context in which the relevance of grids for the energy transition has become so important, we can say that Redella's investment drive is and will be fundamental in coming years. There, during the first six months of 2024, we have invested over 420 million euros in the TSO. That's 19% higher than the investment made in the same period of 2023. And that highlights the actions related to international interconnections, links between islands and energy storage, making progress towards meeting the goal of getting 1 billion euros investment by the end of the year. That's the largest investment ever made in the history of Red Electrica. I'd like to highlight that the recent approval of the modification of specific aspects of the current planning has increased investment by 489 million euros. That's yet another sign of the need for grid development as this amount has been allocated to a set of urgent actions, 23 of which are intended to meet requests for new high power demands. nine actions for storage and renewable generation, three to cover operational needs, and 38 to meet needs arising in the execution of the planning itself. In addition, the addendum to the Spanish Recovery, Transformation and Resilience Plan, which channels the European Next Gen funds, includes an item to finance the development of electricity infrastructures in the transmission grid of 931 million euros. The application of these funds has yet to be regulated under royal decree, but that royal decree should be published in 2024. In this context of heavy investment, the incorporation of improvements in the remuneration model for the next regulatory period starting in 2026 is essential to obtain a reasonable return on this deployment of essential infrastructures for the energy transition in Spain. During the first half of the year, we've seen numerous advances in the regulatory field, starting with the approval at the beginning of the year of a timeline set by the CNMC, which included the modification of circular 2 slash 2019 to make certain adjustments to the methodology for calculating the TRF, adapting it to the challenges of the energy transition and to enable efficient investment in networks. In addition, a set of public consultations on various regulatory issues were held between May and July, which established some changes between this year and 2025. First of all, the CNMC opened a specific public consultation on the financial remuneration rate for the next regulatory period, that's 2026 to 31. and another specific consultation on the review of the methodology for calculating the remuneration of the electricity transmission activity for the next period. The purpose of this is to ensure that the methodology finally adopted will be properly adapted to changes stemming from the decarbonization process, ensuring a balance between the development of infrastructures, efficient use of existing grids and the incorporation of the new features expected of them, associated to digitalisation and the new figures emerging in the electricity market. Also, the Ministry has opened a public consultation on the modification of the network investment limit. And finally, talking about regulatory developments, you should note that the public hearing has begun on the draft bill to re-establish the National Energy Commission with the aim of having a specialist regulator and supervisor. This adds to the attempts of the Spanish energy system to decarbonize As you can see, there have been many important milestones over this period and we expect the second part of 2024 to continue to be full of relevant events for the TSO. In coming months, we expect the final resolution of the transmission remuneration for the years 2022 and 23 and the draft of the new planning for the period 2025 to 30. Already by the end of the year, the hearing process for the modification of the circular where the financial remuneration rate for the next regulatory period will be established. Moreover, from a group perspective, we've continued to strengthen our diversification businesses. At international level, following the commercial operation of our latest projects in Peru, Chile, and Brazil, we continue to consolidate our activity and promote our sustainable development outside Spain. In our satellite business, as you know, the entry into operation of the new Amazonas Nexus satellite put into service a year ago stands out. And we also made progress in the commercial deployment of the ONICON Rural Demand Programme, which guarantees access to broadband connection in the rural areas where there's a limited access to traditional networks. So to wrap up on our diversification businesses, to talk about fiber optic business, we can say it's maintaining its sound and stable business model in order to offer universal connectivity with a contractual structure that accompanies the current macroeconomic environment. And now, I'd like to say that recently, We have got the performance that is now going to be discussed with the earnings that we got for this first half of the year. As I was saying, I want to talk about the earnings that we got in the first half year. And these results have been, as you all know, marked by the end of the regulatory useful life of the pre-1998 assets. The yearly impact on revenues of this amounts to approximately 260 million euros and that generates a negative hit on all the different lines of the group's income statement. However, the results obtained in the first half of the year are online with what we were expecting and in line with market expectations. CAPEX in the first six months was also very high. with more than 457 million euros investment, of which 421 million euros are for investment of TSO investment. And that confirms our objective of exceeding 1 billion euros of investment by the end of the year. Also, following the approval of the general shareholder meetings, a final dividend was paid against the 2023 earnings of 0.7273 euros per share. It was paid out on the 1st of July, fulfilling our market commitments reaching a total dividend against last year's earnings of €1 per share. If we look at the income statement as a whole, we can see the impact of what's been going on with the pre-98 assets we already mentioned. However, if we get a like-for-like basis that is eliminating the effect of these assets in both years, that is the investment remuneration obtained in 2023 and 2024, the income associated with the life extension incentive, which we call REVU, or R-E-V-U, we can say that the performance of our business has been positive, with growth in all the key lines on the profit and loss account and a net profit growing over 5%. A breakdown of EBITDA in the first half of the year shows that, with the exception of the TSO, all businesses contributed positively, especially the international transmission business, which grew by more than 12%. I'd also like to highlight that 80% of the group's EBITDA comes from regulated businesses, both here in Spain and worldwide in the international markets. In short, if we disregard the adjustment of pre-98 acids, which we already knew about from 2013 and are already included in all of our estimates and plans, the results for the first half of the year are positive and allow us to foresee a year-end in line with the commitments made at the beginning of the year. which we'll discuss later. So I'll now hand over to Emilio Cerezo who will analyze these earnings in more detail.

Thank you, Roberto. Taking a deeper look at the evolution of revenues, these declined by 10.9% affected by the aforementioned pre-'98 effect where the positive performance in the rest of businesses. on a like-for-like basis, excluding the effect of pre-'98 assets, we observed a growing performance of revenues by 1.6%. In international business, we can basically highlight the positive performance of Brazil, partially offset by lower revenues from projects for third parties and from TEN in Chile. In the satellite business, I would highlight the contribution of the Amazonas Nexus satellite, operational since July 23, as well as the contribution of its investee, Hisdesat, which has shown positive results during the first half of the year. Also growing are revenues from the fiber optic business, favored by the positive effect of inflation linked to nature of their main contract. If we focus on the evolution of other operating expenses, OPEX grow by 4.1%. However, excluding expenses that have a counterpart in other operating income, we do observe that operational expenses are contained and were reduced by 1%. As a matter of fact, the first thing we observe is a higher expenses with a counterpart in other operating income, such as chair Soria and projects for third parties. Other external costs are reduced by 3.9 million due to a lower asset maintenance at the CEO, that's about 6 million, as a consequence of the completion of an extraordinary plan in 2023, partially offset by higher expenses for European projects of the system operator. During the second half of the year, Further costs will be reduced, says the aforementioned plan, was mostly run during the second half of 2023. On the other hand, staff expenses grow by 0.8 million euros due to a higher average headcount and offset by the non-recurring effect of new collective bargain agreement during the first half of 2023. Revenues and expenses brings us to an EBIT showing a reduction of 13.8% compared to the previous year. Without the impact of pre-'98 assets, this performance would have been 3.5% higher. The positive contribution of all groups' businesses has enabled this performance. And to wrap up the income statement, our net profit was €269 million, or 24% lower than the one recorded during the first half of the previous year, and matching our estimates. Standardizing this figure, as we have done in the rest of the income statement, our growth would be 5.2%. This can be explained by several reasons beyond the EBITDA performance. On the one hand, the amortizations show an increase, mainly at Hispasat, due to the new satellite and service AMZ Nexus. And on the other hand, the financial result took a slight dip due to the higher average cost of debt, which went from 2.11% to 2.22% at the end of June 2024. partially offset by higher financial income coming from efficient financial management for placing existing liquidity. The corporate income tax went down due to lower profit before taxes and minority interests did increase by 1.9 million euros. Going into investments during the first half of the year, 457 million euros were invested, out of which 421 million are investments in the TSO, exceeding the investment made in the previous year by 19% and consolidating the significant effort made by the company to accelerate investment in the transmission network. about strategic TSO projects, we can highlight the following. First of all, the electricity interconnection between Spain and France through the Bay of Biscay, which continues to progress with the aim of reaching the commissioning milestone for the first link in 2027. We also continue to make progress in the Peninsula-Suta interconnection. As a matter of fact, in June, we got the administrative authorization to authorize civil works for said interconnection. As for the Galicia-Portugal interconnection access, during May, the BRS station was commissioned. and the rest of planned actions remain as planned for the rest of 2024 to complete the strengthening of the international connection with Portugal. And finally, about storage in the Canary Islands, civil works continue on the reversible hydroelectric plant to integrate renewable energies into the electricity system in Gran Canaria to store this energy so that it can be used at the appropriate times. The evolution of international business involved only 2 million euros investment, half of which were devoted to a control center in Chile along with the ENI group. Investment in the satellite business totaled 7.8 million euros, mostly linked to satellite capacity leasing. I would like to insist that over 92% of our investments are eligible under the European taxonomy, thus reinforcing our commitment to sustainability. In addition, I would like to conclude this section on OPEX by adding that we do have long-term framework agreements with our main supplier, which allows us to move ahead on our scheduled plan to optimize and streamline the procurement process while minimizing risks in the supply chain. about our balance sheet net financial debt for the group at the end of the first half stands at 5.1 billion euros 130 million above december 2023 are the operating cash flow generating during the first half of the year exceeded 460 million euros mainly due to two factors first the generation of cash flow from operations of €693 million, including the collection of the 2022 income tax refund for €193 million, coming mostly from the capital gain after the sale of Riantel. And the second one is the increase in working capital for €230 million as a consequence of the refund of part of the excess tariffs collected in previous years. The outstanding amount at the end of the first half of the year reaches €166 million and is expected to be repaid in oncoming months. Considering all of the above and the investments made during the year plus the payment of dividends, the net financial debt goes up by 2.7%, showing solid financial ratios and maintaining a credit rating of A- by Standard & Poor's and Fitch. On the makeup of our financial debt, I must highlight the diversification in terms of sources of finances, with 92% of it at fixed rate until maturity and with a clear predominance of euros over other currencies. Thanks to this structure, we have maintained a competitive average cost of debt in the present environment at 2.22%. During the next four years, we will face maturities of approximately 3.2 billion euros, mostly covered by our solid liquidity position, which was reinforced after the recent issue of a green bond for 500 million euros through Radea Corporation, which contributes to linking 66% of our financing to sustainable criteria. Having analysed at the end of the first half of the year, I will now give the floor back to our CEO for him to explain our vision for the end of 2024 and the progress of our strategic plan 2021-2025.