EDP, S.A. (EDP) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Thanks for attending EDP's First Half '23 Results Conference Call. So we have today with us our CEO, Miguel Stilwell d'Andrade; and our CFO, Rui Teixeira, which will present you the main highlights of first half '23 financial performance. We'll then move to the Q&A session, in which we'll be taking your questions both by phone or written questions that you can insert from now onwards at our web page. I'll give now the floor to our CEO, Miguel Stilwell d'Andrade.

Thank you, Miguel. Good morning, everyone, and thank you for attending today's conference call. So I wanted to talk about EDP performance in the first half. I suggest we go to straight into Slide 3, which has a summary basically of the key highlights. And what I'd say is we had a very strong performance in the first half. I mean we had an EBITDA of EUR 2.5 billion. It's the highest over the last decade, an increase of 24% year-on-year and essentially reflects a couple of different issues. First, the recovery of the integrated margin in Iberia. So as the electricity and gas sourcing costs have reduced from peak levels, that's allowed the margin to expand. There's been a good recovery of hydro generation, 68% year-on-year, 68% up year-on-year. It's slightly below expected, so slightly below what would be an average hydro year. But I think the important thing is that we've -- it's better -- certainly better than last year, which where we had a terrible drought. And also, we've been able to keep the storage levels at record high levels. And I think that means we're going into the summer and then into the autumn with very good hydro storage levels. Resilience of the electricity networks in Brazil, just generally networks globally representing around 30% of total EBITDA, that's been also a strong source of stability. On the EBITDA side, on the renewable side, penalized by weaker wind and solar performance. We talked about that on Wednesday on the call. As I mentioned at the time, the El Niño weather event, it's leading to much lower wind resources in the U.S., particularly in Central America. Lower generation and obviously, not having had asset rotation gains in the first half of 2023 means that, that was impact -- EDPR was impacted by that. As you know, we've -- since this week, we've already announced 2 asset rotation transactions. They'll be coming in the second -- or being booked in the second half of the year. So we're not seeing that in the first half results, and I'll talk a little bit about that later on. Overall, recurring net profit at over EUR 500 million, so a strong increase, 72% up on the first half of last year, driven by the EBITDA growth, mitigated to a certain extent by higher effective tax rate in line with the previous quarter since the profits are coming from geographies with higher marginal tax rates. Now let's go to Slide 4 and talk about something that we commented in the Capital Markets Day, and I think it is an important milestone for the company. The buyout of the EDP Brazil minorities. So we launched the tender offer. As you know, we announced that on the day of the capital markets, it was at a 22% premium. On July 11, we had the results of the auction of the tender offer, and it allowed us to increase our stake in EDP Brazil from 56% to 88% and to move forward with the delisting of the company. We then went further. We continued buying shares in the market under the Brazilian, sort of let's say, regulations and tender offer processes. And we managed to achieve the 95% squeeze-out threshold, which means that we will reach 100% stake when the process is concluded in the next few weeks. So we will essentially take EDP Brazil private as was the intention. As you know, we raised EUR 1 billion for this at the time and now we've successfully concluded the transaction ahead of schedule. The shares that were acquired, as you know, for a price of BRL 23.73 per share. It's, as I mentioned, a 22% premium versus the previous day was offer launch, and it's already deducted of the dividend, which was paid in the meantime. I think it's worth mentioning that in this context, in these months that the tender offer lasted, there has been positive developments in the electricity sector and the macro environment in Brazil. We started with positive news from the distribution concession renewal. So it's a proposal in line with previous renewals. And that's something that's under discussion in Brazil at the moment, but positive prospects. It will certainly reduce the sector risk perception that was very visible, by the way, the performance of the index and the various different utilities in Brazil. And so the overall Brazilian utilities index has increased by around 25% since the offer launch. On the macro, we're seeing a decrease in interest rates with a 10-year bond yields down 270 basis points since the offer launch, and the SELIC rate is expected also to be cut in the short term. On the currency, we have also positive developments. We have a strengthening Brazilian real on the back of positive market momentum. And so we've had a 5% depreciation since the euro -- since the offer launch. Important to mention that we locked in the euro, Brazilian exchange rate for the full acquisition of EDP Brazil minorities. So when we raised the EUR 1 billion at the Capital Markets Day, we locked in essentially the Brazilian real. And so that's led to around EUR 40 million savings on the FX versus if we hadn't done that. So overall, positive prospects on economic growth also in Brazil with the GDP growth revised upwards from 1.9% to 2.5%. So honestly, I think it was good timing and very well executed. We move on to Slide 5. Here, just to talk about the impact that this will have on the EDP overall consolidated results. So EDP Brazil earnings will be fully consolidated in the second half of the year and will have a significant contribution to the earnings growth. You can see that there on the left-hand side of the chart. We expect an impact on net profit of around EUR 90 million to be recorded this year and around EUR 120 million from 2024 onwards. So considering the EUR 1 billion investment and the mentioned earnings contribution, this represents a 12% return on equity. So a significant return and I think a healthy investment. Our strategy overall in Brazil, we've talked about in the past, but it's never too much to reiterate it. It's fully aligned with the energy transition, and in fact, with the Brazilian, let's say, government objectives. In fact, President Lula just announced yesterday that in August, they'll be coming out with, let's say, more significant proposals to drive the energy transition in Brazil. It's already done a lot, but it's -- obviously, there's still a lot they continue to do. So we'll -- on our side, we'll be very much focused on electricity networks. We'll be pursuing organic growth in distribution and transmission and also on the renewable side, where we're scaling up both solar B2B business, so utility scale and distributed generation. But then we're also working on reshuffling the portfolio. And this is something we said we were going to do, and we're doing it and we'll be showing concrete results in the short term. We will be coal-free by 2025. So the same sale process is ongoing, and we should be able to communicate that shortly. We're also progressing in the asset rotation of the transmission. We're looking for further reduction of the exposure to hydro following the Mascarenhas power plant disposal in 2022. So we expect our overall group exposure to Brazil to converge to our target long-term level over the next few years. Finally, we expect this transaction to bring operating and financial synergies between EDP Brasil and EDP Renewables Brazil that will be materialized in 2024. And those are not included in the net profit numbers that you see there on the chart. Moving on to Slide 6 and talking about integrated generation and supply in Iberia. So here, we had a strong recovery in the first half. We had a long position on clients in the context of a decreasing pool price. That allowed us to optimize our generation and buy electricity in the market to deliver to our clients. So for 2023, we expect to continue with a slightly long position on clients and an improvement of integrated margin versus 2022. 85% of the margin is already locked in, and that leaves us confident for the remaining part of the year. For 2024, we already have an expected long position of close to 8 terawatt hours relating to B2C clients. And we've already sold around 50% of baseload generation volumes at a price, which is higher than EUR 65 per megawatt hour. I think it demonstrates our strong position in clients and our advanced hedging position. So positive prospects for 2024 also here. All in all, I think it shows the value of having a diversified and integrated portfolio and also allowing us to optimize the energy sourcing costs for our customer needs. Now if we move to Slide 7, just talking a bit about EDP renewables. And I know, I've talked about that on Wednesday, but just to give you a brief recap. So well on track for the 8.9 gigawatts on for the execution of the secured capacity, 8.9 gigawatts already secured, which represents more than 50% of the target capacity. In terms of the forecast additions for 2023, we're expecting to add around 3 gigawatts concentrated very much in the end of the year. So all in all, for '23 and '24, as mentioned earlier, we're expecting capacity additions to range from 3.5 to 3.9 gigawatts per year on average. And that will depend essentially on the pace of recovery of the U.S. solar supply chain issues, and the timing of the transmission line license in Colombia, which is as I say, is 500 megawatts. And so it's obviously quite binary what year falls in. As we mentioned in the EDPR call, we will and we have continued to work toward diversifying our supplier base. For 2024, the solar equipment is well diversified. We have 8 different module suppliers for the U.S. We have 5 for Europe. And for 2025, we have more than 4 suppliers per region. As you know, our big issue this year was already last year, but this year is around the 900 megawatts of LONGi panels specifically, which are having difficulties in importing into the U.S., and that's moving the projects to 2024. I would just also like to highlight that we have 5 gigawatts of capacity under construction, of which some sizable projects are expected post 2023, namely the offshore project in the U.K. and France and the project I mentioned in Colombia. On Slide 8, talking about asset rotation. I think definitely one of the strong highlights of this call. When we spoke just 2 days ago at the EDP renewables conference call, we already signed the asset rotation of 257 megawatts in Spain, very attractive multiples. But just yesterday, we signed another transaction in Poland. And so overall, improving our asset rotation metrics significantly when compared to similar deals closed last year. So contrary to a lot of expectations and a lot of questions that we get, we continue to see a healthy asset rotation market, and we also continue to see very healthy transaction multiples. So clearly, asset rotation for '23 expected to surpass the EUR 0.3 billion guidance that we provided in the Capital Markets Day. Overall, the ratio of capital gains of capital employed over the 40%, which is the '21, '22 average. And I think, again, we have a high-quality portfolio. We're seeing interest from now more strategic players rather than infra fund who value assets with merchant exposure to pool prices and also this repowering and hybrid optionality, which we have in our portfolio. So all in all, positive deals. We are pursuing other transactions with good prospects, both in Europe, LatAm and North America, we'll give visibility on that over the coming months. And so wrapping up, upgrading the provision of capital gains for the end of the year to more than EUR 300 million and proceeds of more than EUR 1.5 billion to achieve around 25% of the target proceeds for the full business plan horizon. Moving on to Slide 9. Just a quick word on Solar DG. So last month, we had the opportunity to have some of you on our off-site -- Solar DG off-site and talk about the strategy for the business. We are accelerating the Solar DG business. We've deployed capacity 30x versus 2019, reaching close to 1.6 gigawatts peak in the first half of 2023. On track to delivering the business plan commitment of 4 gigawatt peak additions in the period of the business plan until '26. And that's a 1.3 gigawatt peak capacity already secured across our 4 regional hubs. When we spoke at the Capital Markets Day, we've made a strong bet on Solar DG, targeting an investment of around EUR 2.5 billion over the business plan period. It's about 12% of our total investment in renewables, and it's going to translate into strong EBITDA growth going from around 0 in 2022 to around EUR 0.3 billion in 2026, so tripling over the business plan horizon. The technology itself, as we've mentioned, it's significant upside in terms of time to market, good flexibility in terms of grid connection and also dependent on the system operator, less dependency on permitting or supply chain issues. And so good also cost savings for clients versus, let's say, fully loaded energy cost from the grid. So it's a good nice business, and it's growing at a very healthy pace. On Slide 10, I just wanted to touch on something which comes up or has been coming up -- questions that have been coming up recently, which is the regulated receivables. So in 2023, we are seeing an increase in regulatory receivables. It reached about EUR 0.9 billion in the first half. The increase comes mainly from deviations in the electricity wholesale price, actually verified in the first half of '23 versus the regulatory assumptions. If you look at the actual numbers, and so you can see them on the slide there, the first half electricity wholesale price in Iberia was at around EUR 88 per megawatt hour. The regulatory assumption, which was underlying the negative access tariffs for 2023, assumed a EUR 213 per megawatt hour wholesale price. So obviously, a big difference there. The regulator has rectified these assumptions as of the end of the first half. They made an exceptional update of tariffs in which they increased the access tariffs and reduced the pool price assumption, so they're decreasing the amount of the deviation versus the actual market conditions. So we expect that this update to the tariffs will positively impact the amount of regulatory receivables in our balance sheet and will decrease the pace of regulatory working capital increase. So I think the regulator there took quick action to try and obviously adjust to the market conditions. So another point I just wanted to make on this slide is that looking at the past level of regulatory receivables. I think one thing is very clear. We've had positive and negative fluctuations in the past. They were always well managed by us through securitizations. This year will not be different. We expect to securitize the deficit deviations until the end of the year and to reduce the negative impact you currently see in net debt. So this is a short-term issue. It's something that we've seen in the past. We've dealt with it in the past. I think all of you have seen that very clear evidence of that. So we don't expect 2023 to be any different from that. On Slide 11, and just before I hand it over to Rui, just a couple of comments on more on the ESG side and also what we're seeing in terms of the energy transition. The first is the normalization of the hydro conditions in Iberia. So that, together with a decrease in the thermal activity, means that the renewables, so hydro, wind and solar accounted for 80% of our total generation. So a 10 percentage point increase year-on-year. So we are truly becoming an all-green company. Revenues from coal decreased 2 percentage points year-on-year to 4.5%. So that's a trend we expect to continue over the next quarter. So we're fully on track to deliver on our coal-free commitment, meaning 0 contribution of coal power generation to our revenues by '25 year-end. I'm sure we'll be anticipating that. This significant decline of thermal generation has also improved our alignment with the EU taxonomy to 73% on revenue. So 19 percentage points higher year-on-year and around 97% of our CapEx is fully aligned with that taxonomy. Another consequence of the reduced thermal generation was the decline of Scope 1 and Scope 2 emissions by 47% versus 2020 levels. So we're on track, perfectly on track to achieve our ambition of reducing these emissions by 95% by 2030 compared to 2020 levels. And apart from our -- the strong metrics I just mentioned, I think it's also important just to highlight a couple of innovation projects, which are extremely relevant. One was the Alqueva's floating solar. It was distinguished under the innovation category in the European Sustainability Energy Awards for 2023 by the European Commission. I think it really reinforces the pioneering work we're doing here. Some of you might have seen this either online or maybe even physically. I think it's -- I mean the concept of having hybrids of putting together wind, solar, hydro, batteries, this is really becoming something of substance and material, and I'm sure it will scale up over time. Also in June, we received authorization to start the first hybrid project in Spain, adding to the project we had in Portugal, which was commissioned earlier this year. So as I say, beginning to ramp up, no longer just innovation projects, but becoming a reality. And finally, just to say on the hydrogen front, we had 2 projects awarded funding from the EU Innovation Fund. So we've now got a total of around EUR 200 million already awarded to EDP hydrogen projects in both Spain and Portugal. So again, I think showing good progress on these areas. Smaller scale for now, but definitely, we're at the beginning of an interesting, let's say, S-curve for these technologies. With that, I'll stop here and turn it over to you, Rui, and then I'll come back at the end for closing remarks. Thank you.

Thank you, Miguel, and good morning to you all. So I'd like to take us through now the first half results and starting by Slide 13. Recurring EBITDA increased 24% year-on-year to EUR 2.5 billion in the first half of this year. The recurring EBITDA for Renewables, Clients & Energy Management was up by EUR 0.5 billion. This is mainly driven by improved energy management results due to the lower electricity and gas sourcing costs versus the peak levels that we saw in 2022. And this is mitigating the decrease in wind and solar EBITDA due to the absence of asset rotation gains in the first half of this year, as Miguel said, we'll be booking this in the second half as well as the lower wind resources that we have already mentioned 2 days ago. Moreover, in electricity networks, EBITDA flat year-on-year, driven by the growth in Brazilian networks, namely the growth in transmission businesses, which mitigated the decrease year-on-year on networks in Iberia's EBITDA. So if you move now to Slide 14. As we already mentioned, hydro generation has strongly recovered from the very weak levels of last year. We have reached 4.7 terawatt hours of hydro generation in the first half this year. That's a 68% increase year-on-year. The increase resulted hydro generation above average in the first quarter and slightly below average in the second quarter. But more than stressing this increase year-on-year, I think it's worth to highlight that we were able to maintain our reservoir levels at around 80% of the maximum capacity as of today, very close to the maximum levels of the last 10 years for this time of year and higher than the historical, so leaving us confident in terms of hydro production for the rest of the year. If we now move to Slide 15 on integrated generation and supply, we had a strong rebound versus 2022 due to improved results in Iberia. So as you recall, Hydro Client Solutions and Energy Management segment in Iberia in the first half last year was negatively impacted by the hydro shortfall in the context of record high electricity spot prices with the increasing sourcing costs, which led EBITDA to stay at EUR 126 million last year. So on the contrary, in the first half this year, we have electricity and gas sourcing costs lower given the decrease in electricity and gas spot prices, and this allows us to purchase in the market at the low spot prices. Hydro resources in Portugal up versus a very dry first half last year. And finally, we have a positive year-on-year comparison with no material negative impact from mark-to-market on energy contracts in the first half this year that in 2022 was mostly related to the derivatives of the Cheniere gas contract. So that being said, we reached an integrated EBITDA in Iberia of EUR 0.82 billion. Regarding Brazil, I would say flattish EBITDA, only minus EUR 6 million, reflecting lower volume from the sale of Mascaranhes hydropower plant in the fourth quarter last year despite better hydro conditions. So moving on to Slide 16. EBITDA from EDPR decreased 22% year-on-year, and this was mainly driven by the absence of asset rotation gains on a year-on-year basis, which amounted to EUR 99 million in the first half last year. And as I said, no -- still this year -- no booking of asset rotation gains this semester, so into the second half. Lower wind resources with renewables index 5% below the long-term gross capacity factor, again, mainly driven by the El Niño weather event in U.S. despite the 10% growth in installed capacity year-on-year. The retroactive change of regulated revenues in Spain in the second quarter this year that amounted to EUR 52 million. Again, this is no cash and no impact on value. Lower energy prices, minus 8% year-on-year, mainly driven by lower pool prices on the back of the lower reference price in Spain for the record assets, together with the lower electricity markets year-on-year across Europe. Year-on-year performance was out in Europe and North America and was partly compensated by a positive contribution in South America and APAC. So now if we move to Slide 17. Electricity networks EBITDA is stable year-on-year, reflecting mainly a 4% increase in Brazil with transmission expansion and the tariff updates to inflation being offset by higher -- the higher overcontracting costs. In Iberia, EBITDA decreased 4%. In Portugal, EBITDA decreased EUR 2 million year-on-year with the increase in the rate of return on RAB being mitigated by the increase in OpEx. In Spain, EBITDA decreased EUR 14 million from higher OpEx as a result of inflation impacting the O&M and personnel costs and most importantly, given that in first half 2022 was impacted by a recovery of revenues from previous years. We continue to focus on the digitalization and efficiency of our electricity networks. The total number of installed smart meters increased to 7 million across geographies in the first half this year. And such leverage -- and this is leveraged by the rollout of smart meters, the volume of telemetered energy in Portugal and Spain already represents 86% and 99%, respectively. So now looking at the financials on the cost of debt on Slide 18. Cost of debt at 4.8%, and this includes the Brazilian real denominated debt. So that's a 30 basis points up versus the first half 2022. If we exclude the Brazilian denominated debt, the Brazilian real denominated debt, cost of debt at 3.1% in the first half this year, pretty much flat quarter-on-quarter and comparison with 2.7% last year. Increase year-on-year, mostly due to U.S. dollar-denominated debt given the higher interest rate environment and the Brazilian cost of debt is pretty much stable year-on-year. Excluding FX differences and derivatives, adjusted net financial interest decreased 4% year-on-year to EUR 418 million. So I'd like also to build on the strong financial liquidity position that we show on Slide 19. As of June this year, we have more than EUR 9 billion of available liquidity, of which EUR 3 billion cash equivalents and the remaining EUR 6 billion of available credit lines. Actually just today, we announced a sustainability-linked revolving credit facility in the amount of EUR 3 billion, replacing the current RCF in the amount of EUR 2.1 billion, thus strengthening our liquidity position by approximately EUR 1 billion. With this RCF, we have now enough liquidity to cover refinancing needs beyond 2026, as we can see from the graph on the left-hand side of the slide. On the right-hand side of the slide, we can see that currently, most of our debt is fixed, around 74% and denominated in U.S. and euros. As we have stated in previous conference calls, in 2022, we pre-hedged the benchmark interest cost for EUR 1 billion and $1 billion on the new debt issues for 2023 and 2024. For the EUR 1 billion this year, we have successfully executed a senior bond emission by -- we issued a EUR 750 million green bond to which 75% of euro interest rate pre-hedging was allocated. So the bond was priced at 3.875%. But since we already had the 5-year mid-swap pre-hedge for the amounts to be refinanced in 2023 at 1.8%, this led to an implicit yield of 2.5% in this senior bond issuance. So definitely extremely low yield under current market conditions. On the U.S. dollar, more recently, we have been revising our funding strategy by currency and resulted in the decision to reduce the weight of U.S. dollar funding. So we have settled the U.S. dollar pre-hedge, which translated into a gain of EUR 37 million in our financial results. So now if we move to Slide 20, net debt increased to EUR 15.2 billion as of June this year, and this is mainly impacted by recurring organic cash flow of approximately EUR 0.4 billion on the back of a strong EBITDA performance in the first half of the year and including the settlement of the anticipation of regulatory remuneration in 2022 amounting to EUR 0.3 billion. If we exclude this impact, organic cash flow stood at EUR 0.7 billion. The regulatory working capital at EUR 2 billion from the reversal of the cash inflow effect that we registered last year, 2022, together with the increase in deviation from the actual wholesale prices versus what the regulator was estimating. Net expansion investments amounting to EUR 2 billion; and finally, EUR 2 billion from equity capital increases, of which EUR 1 billion in EDP, EUR 1 billion EDPR and a dividend payment of EUR 0.8 billion in May this year. Finally, despite the increase in net debt, the strong performance in the first half this year and the referred EUR 2 billion equity raise led to an improved credit ratios with net debt to EBITDA at 3.2% -- sorry, 3.2x and an FFO over net debt at 19% in the first half this year, so both improving year-on-year. So all in all, solid financial ratios, sustaining the recent upgrade by Moody's to Baa2 with stable outlook. On the net profit on Slide 21 and just before returning to Miguel, I would like to highlight that recurring net profit amounted to EUR 517 million, an increase versus last year when we recorded a EUR 301 million net profit. So reflecting really the strong performance on the operations side from the -- particularly from the integrated generation position supply business and electricity networks. Below EBITDA, I would like to highlight that financial costs effectively up on the back of the higher cost of debt and higher income taxes from higher effective tax rate related to no asset rotations in the first half this year and higher weighting results from Iberian operations in Brazil, 2 regions that have effective tax rate above the portfolio average. With this, I would now hand over to Miguel for the closing remarks, and thank you very much for your time today.

Thank you, Rui. So now just moving to Slide 23 and just talking a little bit about the rest of 2023. First, we're expecting recurring EBITDA around EUR 5 billion, recurring net profit around EUR 1.1 billion. So sound performance by the integrated portfolio and backed obviously by the improved market conditions. Also, as we mentioned, the asset rotation execution continues to have a good solid contribution. So we're expecting asset rotation gains above EUR 300 million this year. And also, we obviously have the full consolidation of EDP Brazil contributing with close to EUR 200 million in net profit in 2023, around EUR 90 million. Net debt for the year expected at EUR 15 billion with a positive contribution of these asset rotation proceeds I mentioned, but also assuming the tariff deficit securitizations by the end of the year. So we're talking also a net debt EBITDA of around 3, which is obviously a very healthy solid balance sheet. So all in all, very confident for the rest of 2023 with the diversification and the resilience of our portfolio backing this earnings guidance. If I move on to the next slide and just some closing remarks before going on to Q&A. First, the results for the first half were very much supported by the hydro and supply conditions normalizing in Iberia. But even so our hydro was below, let's say, an average, in any case, we were able to store it and take advantage of the volatility in the energy prices. This mitigated the weaker wind resource and regulatory impact at the EDPR level. Secondly is that we had an important -- or we took an important step in the execution of our strategy when we successfully finished the tender offer for EDP Brasil minorities. So we have reached 95% stake, which is a squeeze-out threshold. We are moving to 100% and so we'll have the process concluded in the third quarter of 2023. And so we'll be consolidating EDP Brasil from the second half or for the second half of 2023 onwards, translating in a return on equity of 12% on this investment at least. For the first half of '23, it's also very much impacted by a strong recovery of integrated generation and supply business in Iberia. So that's the third point. This long position in clients is expected to persist in 2023, and we've got 85% of our integrated margin already locked in, so confident for the remaining part of the year. On renewables and regarding capacity deployment, since the CMD, we've already reached around 9 gigawatts secured, so more than 50% of the target, we expect to install around 3 gigawatts in our key markets, and we're reinforcing our strategy to diversify the solar supply chain, as you know, to avoid further constraints. So that's been one of the big issues that we had in the first half of this year or that we're having in 2023 in general. In terms of asset rotation, so this fifth point, very attractive multiples for the 2 transactions that we just recently announced this week. The asset rotation gains over capital employed above 40%. So the average of '21/'22 definitely shows or above the 40% that we had for '21/'22, which shows the value of our renewables portfolio. And finally, just to say, our integrated portfolio, the network's resilience, the strong asset rotation execution, the fact that we have 100% earnings consolidation in EDP Brasil in the second half support the earnings outlook of around EUR 1.1 billion recurring net profit. So with that, I just stop here. I know we can move to Q&A and then I'll have some closing remarks, but thank you.

[Operator Instructions]

So the first question comes from Alberto Gandolfi from Goldman Sachs.

I'll stick to three. The first one is on full year guidance, and I'm really trying to understand the underlying earnings power. So I wanted to test one thing. You just talked about asset rotation gains over capital employed of circa 40%. You also had historically about probably EUR 1 billion proceeds leading -- or less than EUR 1 billion, leading to EUR 300 million asset rotation gain. If now you're targeting EUR 1.5 billion or higher, should we just take proportionally a ratio and say EUR 1.5 billion is EUR 450 million gains for the second half? And the second part of the question is that if that is the case, you delivered recurring net income in excess of EUR 500 million for the first half. EUR 450 million gains at EDPR level would be EUR 300 million for your bottom line. So we're above EUR 800 million. So you're telling us that you expect an underlying recurring net income for EDP before gains for the second half below EUR 300 million. How realistic is that? It sounds prudent considering the reservoir level that you have and the pricing you see on the screen. The second question is on net debt. Would you mind maybe elaborating a little bit more on a bridge between H1 and year-end? Because I guess at the end of June, you had not spent yet about EUR 1 billion to buy out Brazil. So if you can give us any indication on securitization, the total amount of disposals, not just asset rotation, but the total amount of disposals you do expect to close for the second half, that will be extremely helpful. And last question, we discussed that on the EDPR. I was just trying to get a bit deeper on -- you said in that call that you saw U.S. PPA prices up 70% since 2020. We've done the same calculation. And I guess the question to you though is this clearly means higher absolute returns. Does it also mean greater value creation? Or in any case, it's higher absolute returns, which is already good enough? And maybe if you can give us any idea of what these higher returns look like? How big is that?

Alberto, thanks for your questions, of course very insightful as usual. So in relation to the first one, I'd say your -- for the question around the asset rotation gains of CapEx of around 40% to EUR 1.5 billion, does that translate into roughly EUR 450 million? I mean, approximately, if you want to use that as a guideline, that's okay. In relation to, I guess, the other part of that question, so what does it mean for the remainder of the year? Yes, I mean, that's, let's say, taking a -- I'm not sort of the prudent approach, but it's what we're guiding to. And obviously, if we can beat that, we will certainly do that. But let's say that's what I'd say for this at the moment. But your EUR 1.5 billion to EUR 450 million, probably not too far off from what we expect for the full year. On the second point, Rui, do you want to take that?

Sure. Alberto. So I mean, broadly -- I would say, broadly speaking, what we will be doing is maximizing that securitization between now and the end of the year. Just with a quick note. So the regulator will propose the, let's say, a draft on the tariffs by October 15, and then it's a final decision by December 15. So it's likely -- this is likely to be really a year-end event, but that's something that we have in our -- as a main objective for this year is to securitize pretty much in line with, I mean, the same process we did over the last years. And then secondly, we are counting definitely on closing the asset rotations that we just announced and closing in the second half. We have a couple more going on in the Americas. If they go according to plan, we would be announcing those throughout the second half and closing it by the end of the year. And as you know, we also have the Pecém, the coal plant, which is in the final stages of negotiation. Actually, this -- in the first half books, we are keeping it as an asset available for sale. So I would say that, yes, we will be counting on those proceeds as well as the debt securitization and then it's the CapEx expansion just going in the normal rate. So that's why we are targeting that we actually will be close or around this EUR 15 billion of net debt by the year-end.

And Alberto, on the third point on the absolute returns, yes, so that's exactly how we see it. The absolute returns have been going up, primarily as a function of cost of capital as well. So keeping sort of our spread over cost of capital as cost of capital goes up, pushes up the absolute returns as well. And obviously, that's a good thing, as you say. And so just to reconfirm also that the higher PPA prices are reflecting that higher cost of capital and they're reflecting higher CapEx. In terms of relative value creation, as you know, we typically guide to the 200-plus basis points of spread above the cost of capital. So that we expect that to stay roughly the same or increase. Many times, we also use a multiplier 1.4x. So as cost of capital goes up, that spread also goes up. I think the bottom line, as you rightly point out, and that's our view as well is higher absolute returns, definitely a good thing. So I wouldn't argue with that. And I think that is what we're seeing in terms of the investment decisions we're taking.

We have now a question from Javier Garrido from JPMorgan.

Actually, a few of them were the ones that Alberto just made, and I'm scratching my head still with the guidance as he's probably doing to. But anyway, on the performance in the first half, is there any item trading gain or trading mark-to-market that should reverse in the second half of the year, just to have a feeling of what could happen in the second half with 85% of hedging that you have already locked in. The second question is on the integrated margin with the current power prices? I mean '23 is a bit of a strange year because wholesale power prices have declined. But if wholesale power prices stay stable where they are now, more or less, how do you see your integrated margins in '24? Particularly, do you see them consistent with your guidance, your targets for 2024? And then finally, a very specific question after this impairment on Pecém, what's the book value of Pecém, please?

Javier, sorry, I just didn't catch the third question. So could you just repeat that?

What is the book value of Pecém after the impairment?

Okay. Okay. So in relation to the first point, there's no specific trading gain that would be reversed in the second half. I mean the only thing I'd say there perhaps is that on the supply side, so we typically lock in client prices, which are stable throughout the year or fixed. And then you have a sourcing, let's say, schedule or sourcing cost, which can vary throughout the year. So in certain quarters, you can have a higher margin and other quarters, you have lower margins. But that's not a question of trading gains. It's simply a question of the sourcing costs, how they're spread throughout the year. In terms of the second question, so the integrated margin with the current power prices, as you say as well, there's definitely a gain as car prices are coming down, as I just mentioned also on the previous question. So that's being captured here. In relation to 2024, I mean, I think we're relatively comfortable with the guidance that we've seen when we came out in the Capital Markets Day. And so obviously, we will provide further information over the next quarters as we go on locking more of that 2024 margin. But I'd say it hasn't deviated significantly from what we were seeing originally. In terms of Pecém, I think the book value is currently around or slightly above EUR 100 million at the moment. So I think with the impairments that were done in this first half or actually in this last quarter, as we moved it to mark-to-market, that should bring the expected sale price to around the book value or let's say, the adjusted book value. So hopefully, that -- just bear in mind that we deconsolidated EUR 150 million of debt already in the first half of 2023, okay? So that's also take that into account when you're looking at the values. So if you look at the assets for sale, EUR 150 million deconsolidated debt, book value slightly above EUR 100 million question.

Our next question comes from Manuel Palomo from BNP Paribas.

I will stick to two given that some of my questions have been already answered. Question number one, I understand that the very strong performance of the liberalized business is partly explained by your pumping hydro assets. So I wanted, if possible, to give us some reference about volumes generated from pumping assets and also spreads, at least the reference about how the spreads today compared with the spreads in previous years, if it's possible? And then secondly, I'd like to have a bit of detail on 2 specific items in the balance sheet and the evolution up to the year-end. One is the lease liability. What is your expectation, I guess, that maybe a steady growth to the year-end? And also, more importantly, the tax equity investor agreements, what is your expectation towards the year-end, given that a big chunk of the growth will -- should come from the U.S.

Manuel, I'm sorry, I apologize. But again, maybe it's a sound here in our room. But could you just repeat the second and third question?

Well, there were two actually.

Yes. The pump hydro I got, and I'll answer that. Just on the second and third.

The other one is whether you could give us some visibility about the expected amount of lease liabilities by year-end and also more importantly, the amount of TEIAs, tax equity investor agreements, by year-end, given most of your growth will come from the U.S.

Got it. Thanks. So in relation to the first part, yes, we're seeing a higher margin -- so on pumping, pump storage. We're seeing higher margin per megawatt hour. The volumes are slightly lower year-on-year versus 2022. But in absolute terms, we're talking about an EBITDA contribution in the mid-double-digit million euros for the full year 2023. So the slightly lower volumes, it's actually part of a very conscious strategic decision. So as we mentioned during the presentation, we have very high reservoir levels in Portugal. It's close to the highest of the last 10 years. It's around 80%. And so that gives us good confidence now for the summer period and for the autumn. And so hydro has good potential also for the next years. I mean just a little bit of detail on that. So the unit margin of pumping goes from around EUR 20 per megawatt hour in the first half to around EUR 50, so in 2022 to around EUR 50 in 2023. But then we have slightly lower volumes, but the overall EBITDA increases. On the other two questions, Rui, balance sheet.