Iberdrola, S.A. (IBE) Earnings Call Transcript & Summary

[Foreign Language] 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 2020 first half results presentation. And more importantly, we hope that you, your family, friends and colleagues are all safe and well during this global pandemic. Now on to the reason why we are all here, our H1 results presentation, which will follow our normal format. Firstly, we will begin with an overview of the results and the main developments during the period given by the senior executive team that we usually have with us. Our Chairman and CEO, Mr. Ignacio Galán; Mr. Francisco Martinez Corcoles, Business CEO; and finally, the CFO, Mr. Jose Sáinz. 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 web page, www.iberdrola.com. Additionally, we expect that today's event will not last more than 60 minutes. Hoping that this presentation will be useful and informative for all of you. Now without further ado, I would like to give the floor to our Chairman and CEO, Mr. Ignacio Galán. Thank you very much again. Please, Mr. Galán.

Thank you, Ignacio. Good morning, everyone, and thank you very much for joining today's conference call. Over the last month, we have gone through some of the most challenging times in our lives. Fortunately, in Europe, the spread of the virus is now widely under control and other geographies are also showing positive signs. I hope you and your families stay well. The confinement measures that had to be implemented as a consequence of COVID-19 are having a profound economy impact. And now probably the main challenge we have ahead is to contribute to a quick and sustained financial recovery. Our first priority in these months has continued being the safety and welfare of all our employees, customers and society as a large. From the donation of health care materials worth more than EUR 30 million to the authorities of the countries where we operate, to the service to millions of people who depend of our operation to power their houses and businesses, I am proud to say we have delivered on our responsibilities. Thanks to the dedication and professionalism of all our employees who have always put their duties first, quality indicators has remained at normal levels during the crisis, and we have guaranteed the supply to critical infrastructures. My most sincere gratitude to all the women and men who work for Iberdrola Group, especially those who have been in the field over this month. They all make this company outstanding. Building on our investment in digitalization and technology, we have put in place all the necessary precautionary measures to maintain our operations and now to enable a safe return to the workplace. I am glad to say that just a few days ago, the international certification company, AENOR, has granted the Iberdrola Group a global quality certificate for the comprehensive system of measures we have put in place to manage the effect from COVID on all our stakeholders and especially of all our employees. As a consequence of these measures, employee infection rates has been much lower than the average rate in the countries where we operate, in some cases, up to 10x lower. However, we have sadly suffered the loss of 2 employees worldwide. Our thoughts and our support are for -- with their families. Now it's our responsibility to go back to normality, always in a safe manner and in line with local regulation applicable. In Continental Europe, we have already completed the reentry plans and all our employees are back in the office, which have been adapted to ensure social distancing. And similar plans are progressing in other geographies with approximately 50% of our office staff already in workplace in U.K. and United States, for example. The commitment of our workforce has also enabled us to maintain our ambition investment program. Despite lockdown measures in the first half, we increased investment compared to 2019, which as you know, was already a record year reaching EUR 3.6 billion in just 6 months. The close collaboration to our supply chains has been essential to achieve this. In order to help our suppliers maintain their activity and provide them the visibility they require up to June, we have awarded contracts totaling EUR 7 billion to them. Since the outbreak of this crisis, we have also focused on keeping security supply to the home industries we serve in all countries. Implementing measures to protect the special vulnerable group, including a free-of-charge service for in-home electric repairs, enabling a special energy service channel for them. It is our commitment to continue navigating this situation in full compliance with our model which seeks to balance and maximize the interest of all our stakeholders, including, of course, our hundreds of thousands of shareholders. And in the first half of 2020, we have delivered once again increasing results. 2020 adjusted EBITDA with excluded COVID impact exceed EUR 5 billion, which is a 4.2% increase year-on-year. Including COVID impact, reported EBITDA reaches EUR 4,819 million (sic) [ EUR 4,918 million ] Over the quarter, we have continued executing our plan. As mentioned, investment reached EUR 3.6 billion year-to-date. From April to June, even with lockdown in many of our countries, we have managed to increase investment versus first quarter. We've also continued improving efficiency with net operating expenses down 3% -- 3.3% year-on-year. And we have reinforced our financial position, thanks to our full access to market, having even increased our liquidity. In the last month, we have continued reinforcing our growth potential in the medium and long-term through transactions in Australia, France and Sweden, which create new development platforms for the company as well as with the new addition to our pipeline of renewable project, which is now close to 60,000 megawatts, reaffirming our unique position as first runners in the global transition to clean energy. This leadership is recognized by ESG agencies and specialized investors, which rank Iberdrola among the top performers. All in all, adjusted net profit rose by 7.5%, and reported net profit, which includes minus EUR 153 million of COVID-19 impact and the federal U.K. government decision to maintain corporate tax rate at 90% as well as capital gains from divestment, reached EUR 1,845 million, up 12% versus previous year. Focusing now on group operating performance, adjusted EBITDA increased by 4.2% to EUR 5,075 million, thanks to the positive evolution of Renewables and Generation and Supply. Renewables EBITDA was up more than 5% due to the contribution of new capacity installed over the last 3 months mainly in U.K., thanks to East Anglia ONE offshore wind farm now fully commissioned. The increase in production in United States driven by new capacity and the normalization of the wind resource and the improvement achieved in the availability our [indiscernible] as well as the increase of hydro production in Spain and Brazil by hydro reserve in Spain stand at more than 7.5 terawatt hours, 60% above previous year levels. Generation and Supply EBITDA reflects an increase in production as well as the impact of price hedge and lower procurement cost. In addition, despite market situation is still challenging, result in U.K. improved significantly year-on-year, thanks to the adjustment made in the tariff cap methodology in the fourth quarter 2019. However, additional adjustment will be required in the coming months to reflect the impact of COVID-19. Finally, network result continued to be affected by the transition to the new regulatory period in Spain, which we expect it to be offset in the future by the higher asset base, especially if the government continues to increase the investment cap was adjusted very slightly in a few months ago. In United States, despite the stable result in U.S. GAAP driven by the positive effect from the new rate cases in Connecticut and Maine, EBITDA in IFRS has been impacted by temporary adjustment related to the deviation in demand and energy cost versus assumption. As you know, these amounts are fully recognized as regulatory asset, and therefore, will be recovered in the future with positive impact in consolidated results in future as well. In Brazil, aside from tariff reviews, a higher efficiency has more than compensated foreign exchange evolution. All in all, COVID-19 has a total impact of EUR 157 million at EBITDA level. The operating situation we were standing to suffer due to the pandemic when we held the last result presentation in Generation and Retail market in Spain, U.K. in April is gradually normalizing. Monthly power demand has been consistently recovering by around 1.1% per week, moving in Spain from minus 18% in April, minus 25% during the worst week, to minus 5% in July. As a result, we are reaching levels closer to those registered before the crisis. Similarly, 2021 forward prices are moving upwards, having increased by around EUR 5 per megawatt hour in the last month. In any case, all our production for 2020 and most of 2021 output is already hedged. Regarding customer debt at Retail business, total rolling credit costs stand at 0.94% of total sales, 30 basis points above usual levels. Our CFO will give more details later on. In our regulated business, COVID-19 impacts are expected to be mostly covered by regulatory framework, and we have made significant progress over last month in United States and Brazil. In United States, we filed a joint proposal with the staff of the commission and 21 parties more for a new 3 years rate case in New York, which will imply more than doubling our investment in the state at a return on equity of around 9%, also improving cost recovery, for instance in the case of storm and vegetation management. We expect final approval by the Board -- of the regulator in October with full compensation of the delay of tariff adjustment from April to November. United States regulators are also launching initiatives to track all related expenses in order to allow recovery in the future years. In Brazil, an agreement was also reached to recover extra cost related to COVID-19 through end of balance sheet loan that will imply BRL 1,660 million for Neoenergia and an extraordinary tariff review is also already under negotiation that we expect will be finalized after summer. Thanks to all regulatory adjustment, we expect to recover most costs related to COVID between 2020 and the following years. The current circumstances have also led us to an extra effort on cost rationalization having achieved a decrease at net operating expenses of 3.3% to EUR 2,074 million even after the inclusion of EUR 33 million of one-off expenses mainly due to donation of medical equipment like ventilators related to COVID-19. All in all, the ratio net operating expenses to gross margin improved by 30 basis points year-on-year to 25.8%. As mentioned, gross investment reached EUR 3,582 million, driven by Networks and Renewables with increases about 4% in both cases. This business contributes to 90% of total gross investment. Lower investment in Generation and Supply, partially related to the slowdown of new commercial activity, fell by 17%. Let me highlight once again that quarter-on-quarter, our investment increased by 7% despite lockdown in most countries. This led us to maintain our expectation to invest close to EUR 10 billion in 2020. In terms of new capacity up to June, we have commissioned 1,600 megawatts, and we continue with our plans to install over 2,000 megawatt in the second half of the year, including close to 100 megawatt in Spain with 9 project under advanced construction; 500 megawatt in the United States, where we have 7 project progressing, with the rest corresponding to U.K., Mexico and other countries. We saw in the last 12 months, we have installed almost 5,000 megawatt and we have more than 7,500 megawatts already under construction for commercial operations mostly before 2021 year-end. Operating cash flow also grew in the first half, reaching EUR 3,922 million, allowing us to combine the acceleration of reinvestment with the reinforcement of our financial external liquidity. Our FFO to adjusted net debt ratio stand at 21.7%, an improvement of 110 basis points versus 12 months ago. In terms of access of capital market, despite the overall contraction of serving the debt market, in the last 2 quarters, we have been able to issue EUR 2,600 million of new green and sustainable financing, driving group total sustainable finances to close to EUR 23 billion now. Following this performance, credit agencies have recently confirmed the ratings for Iberdrola. This comfortable financial position allow us to continue looking for growth opportunity through the greenfield acquisition of the addition of new project to our pipeline. In both case, we are following the same strategy of the last 2 decades, integrating new companies in new countries and transforming them into platform for organic growth. That was the case in U.K., United States and Brazil, where we have multiplied investment by 2 or even by 3 since the integration in the group. In the last month, we have announced 3 transaction that replicate this model. In Australia, we are already have a 300-megawatt wind and solar fiber project under construction. And following 1 year of conversation, we launched the friendly takeover bid for Infigen, one of the country's large renewable developers and a company with a strong customer portfolio and deep know-how of the Australian PPI market. This company will add 1,100 megawatt to our installed capacity and a growing pipeline of project which today has already more than 1,000 megawatts. In France, we have reinforced our presence in the onshore wind market through the integration of Aalto Power, a renewable operator with 800 megawatt in operation of advanced development. Additionally, we have become 100% owners of the company developing the Saint-Brieuc offshore wind farm, which is 496 megawatt, as you know, which is progressing well to reach commercial operation by 2023. In offshore wind, we have also closed a transaction that create huge potential opportunity for the next decade in Sweden, a country with a clear plan of substituting nuclear power with renewables in the late '20s and '30s, reaching a project portfolio up to 9,000 megawatts that could start operating from 2099 (sic) [ 2029 ] , putting us in a position that reminds me what we did in U.K. 10 years ago when the East Anglia ONE auction was held. All these projects will further reinforce our renewable pipeline, which as today reaches 58,000 megawatt. 60% of these project are located in the United States and Spain. In United States, we have 20,000 megawatt in total, out of which 7,500 are offshore wind; 5,000 megawatt offshore wind; and 8,500 solar photovoltaic. In Spain, over the last year, we have increased our pipeline by 30% to reach 14,000 megawatt of solar photovoltaic and onshore wind. The remaining 40% is spread over Brazil, Mexico, Continental Europe, U.K., where we have already, as you know, 4,500 megawatt of offshore wind project and the rest of the world. Out of this total, we already had 7,000 megawatt of renewable capacity under construction, 80% which will be finalized by 2021 with 1,000 megawatt of onshore in Brazil completed in 2022 and the Saint-Brieuc offshore wind project in 2023. Additionally, we have 14,000 megawatt, which already had permits, most of which will be operating by 2024 and 37,000 megawatts more of pipeline in earliest stages of development we will mature from 2025. Let me highlight our pipeline in offshore wind, which amounts 12,000 megawatt in United States, U.K. and Continental Europe, with full seabed rights before including the transaction of Sweden. In order to assess the dimension of offshore wind pipeline, it's essential to understand that offshore wind generate around 5x the build-up per megawatt of other renewable technologies like -- for example, solar photovoltaic. You see Iberdrola taking a leading role in the acceleration phase we are entering. All countries are taking multiple measure to anticipate the investment in many cases driven by reconstruction plans. In Europe, the European Commission presented the long-term budget for the period '21 to '27 for EUR 1.1 trillion and the next-generation EU recovery plan with an allocation of EUR 750 billion, which -- of which more than half, EUR 390 billion, will be subsidies with the rest being loans with the different levels of conditionality, depending on countries. Close to EUR 460 billion, that is more than 25% of the combined amount, will be dedicated to green and climate-related investments. In Spain, the government has submitted a revised national climate and energy plan to Brazil and is also reaffirming the green ambition with a climate change and energy transition bill that is currently being discussed at Congress. In U.K., the Green Recovery fund was also approved. In the United States, around $3 trillion were approved by the federal government to provide relief in a wide range of areas in respond to COVID pandemic. A new PTC extension was also passed with 5 years of safe harbor. At the state level, we continue to see more and more ambition green target. For instance, New York has set an objective to reach 70% of renewal energy by 2030, with upcoming offshore wind ambitions, and Virginia has also increased offshore wind ambitions. Finally, in Brazil, an economic stimulus package was approved for around BRL 750 billion. As we anticipated in last result presentation, we are currently executing new Iberdrola Retribución Flexible program, which will amount to at least EUR 0.232 per share, either in cash or shares, and will be paid on the 4th of August. Adding up the interim dividend paid in February, total annual shareholder remuneration amounts EUR 0.40 per share, reaching already the floor set for 2022, 3 years in advance, reaffirming our model that seeks to create sustainable value for all our stakeholder, including, of course, our shareholders, a model that has made us a best-in-class company in ESG investors. After 20 years anticipating the transition to green and a more sustainable energy system, today, prestigious international entities, such as ROBECOSAM or MSCI, are giving us the highest rating and the largest investment fund in the world. BlackRock considered our bond as dark green, their highest green bond rating. Just a few days ago, we signed a new facility with the European Investment Bank and the ICO for a EUR 100 million, driving the total green and sustainable financing in the group for more than EUR 22 billion now. I will now hand over to the CFO, who will present the group financial result in more detail. Thank you.

Thank you, Chairman. Good morning to everybody. I will now go through the results. I would like to start explaining the 2 main COVID impacts considered in our accounts totaling EUR 228 million at the EBITDA level, EUR 157 million related to demand decrease, affecting both Generation and Supply up to EUR 92 million, and Network business, EUR 65 million. As I was saying, this is -- the EUR 157 million goes at EBITDA level. And another EUR 71 million of bad debt accounted for as provisions, reducing our EBIT: EUR 35 million in the Network business and EUR 36 million in Generation and Supply. In Networks, as the Chairman has said, we are expecting recovery of most of the impacts through the regulatory mechanisms. And in Generation and Supply, bad debt impacts will be managed through our commercial activity. And as also the Chairman has pointed out, we have submitted a proposal for recognition of impacts in the SVT tariff in -- to the U.K. regulator. Our reported first half EBITDA decreased 1.4% to EUR 4,918 million. Total adjusted EBITDA is up 4.2%. FX lowered our EBITDA by another EUR 92 million related basically to the real evolution that has depreciated 19% against the euro during this period. The dollar rose around 3%, and the sterling was flat. Reported net profit was 12.2% up to EUR 1,845 million and adjusted net profit is up 7.5%. Our adjusted results, already advanced by the Chairman, as we have explained already in the Q1, exclude the most relevant nonrecurring items, both in 2019 and 2020 first half, but not -- but does not consider any FX impact. As you can see in the slide, 2020 first half adjusted EBITDA is EUR 5,075 million, excluding the EUR 157 million COVID demand effect. First half 2019 adjusted EBITDA was EUR 4,868 million instead of the EUR 4,990 million reported as it excludes EUR 121 million of nonrecurring, EUR 89 million from our LNG contract sales that we did in the second quarter of 2019 and EUR 33 million from settlements in the Spanish Networks. As a consequence, adjusted EBITDA grew 4.2% instead of the 1.4% fall reported. If we would have added the FX impact, EUR 92 million, our adjusted EBITDA would have grown 6.1%. Adjusted net profit of EUR 1,670 million instead of the EUR 1,845 million reported exclude all the COVID net impacts in our accounts, EUR 153 million, net of impacts; the already mentioned on EBITDA level; and another EUR 71 million of bad debt net of taxes. Adjusted net profit also exclude the EUR 485 million of the Gamesa gain and another minus EUR 157 million of nonrecurring negative tax impacts, mainly due to the U.K. deferred tax impact as they did not reduce the tax rate to 17% from 19%. As a result, adjusted net profit grew 7.5% instead of the 12.2% growth reported. Revenues fell 9.9% due -- to EUR 16.5 billion, impacted by COVID and weather-related lower demand. And procurements fell 16.3%, reaching EUR 8.4 billion. As a consequence, gross margin was down 2.2% to EUR 8 billion, also affected negative by EUR 121 million of negative FX impact. Net operating expenses improved by 3.3% to EUR 2.1 billion. The improvement in net operating expenses is driven by cost containment and efficiency plan. Positive FX impact compensates the EUR 33 million of donations and other expenses related to COVID accounted for in the second quarter. Levies fell by 3.4% to EUR 1,057 million with lower output and prices in Spain being a key factor to this evolution. As you can see in the slide, Spanish taxes on Generation improved EUR 28 million. Analyzing the results of the different business and starting by Networks, its EBITDA fell by 10.6% to EUR 2.3 billion, considering EUR 65 million negative COVID impact on demand and EUR 140 million (sic) [ EUR 130 million ] of IFRS accounting effects in the U.S. that will start to be recovered from the second half of this year onwards. As you can see in the slide, Spain contributed 34%; the U.S., 23%; Brazil reached 21%, and the U.K. contributed another 21%. In Spain, EBITDA fell 5.5% to EUR 791 million due to a 50 basis points lower remuneration for this year, bringing down revenues by EUR 29 million and the impact of the mentioned EUR 33 million of positive settlements accounted for in the first half of 2019. Net operating expenses and taxes improved, compensating partially this fall. In the U.S., IFRS EBITDA was 25% down to USD 588 million, driven by $142 million negative temporary adjustments under IFRS as a consequence of difference in volumes and energy cost due to an extremely mild winter and storms that appeared in the second quarter. Most of these negative impacts will start to be recovered during the second half of this year and following years. U.S. GAAP EBITDA, excluding those accounting translation impacts, decreased just 0.9% or $144 million more than the IFRS EBITDA reported. In Brazil, EBITDA grew 4.2% to BRL 2.6 billion. Tariffs revisions in Coelba and Cosern from April and in Elektro from August, increasing contribution from transmission assets and cost [ contention ] due to efficiency plans have been almost compensated by BRL 150 million of COVID impact on demand, expected to be recovered mostly in the third quarter of this year. A BRL 1.7 billion COVID account as a balance sheet -- and as an off-balance sheet loan for NEO has already been approved by [ AML ]. Finally, in the U.K., EBITDA was 3.3% up to GBP 431 million, with higher revenues both in transmission and distribution as a consequence of the growing asset base due to investments, partially offset by GBP 20 million less revenues due to lower demand to be recovered in 2022. Renewables EBITDA grew 5.3% to EUR 1.2 billion, driven by the growth in the U.K. and the U.S. and despite weak conditions in the second quarter. Nevertheless, hydro conditions were good, and our level of reserve increased 55% year-on-year. Our average operating capacity increased 6.1% and our total installed capacity reached close to 33,000 megawatts or an increase of close to 8%. In Spain, EBITDA was EUR 301 million, 21% below last year despite an 18% higher output due to 51% higher hydro production and whereas higher PV capacity. But this was more than compensated by lower prices in our sales to our supply business. In the U.S., EBITDA increased 12.4% to $313 million, caused by a 21% higher output following the 791 megawatts increase in operating capacity and a higher wind resource and higher availability of our fleet. In the U.K., EBITDA was 54% up to GBP 329 million, with higher contribution both in offshore (sic) [ onshore ], 12% higher and offshore, especially, 270% more as a result of the East Anglia production which is ramping up as its 740 megawatts are already in operation. In Brazil, EBITDA decreased 12.6% to BRL 269 million, with 7.8% lower output and prices normalizing versus last year's extraordinary high levels. In Mexico, EBITDA decreased 14% to $39 million as a consequence of an 8% lower output. Finally, in the international business, mainly in Europe, EBITDA fell 3.4% to EUR 177 million due to higher development costs as business expands. Generation and Supply EBITDA was up 14.3% to EUR 1.3 billion, including EUR 92 million negative impact of COVID on demand. In Spain, the EBITDA was up 8% to EUR 813 million, with 16% lower output, but higher purchases at lower prices versus first half of last year. We continue our active management of our customer portfolio of energy and smart solutions. There are, as I mentioned, EUR 89 million negative nonrecurring from our LNG contract sale accounted for in the second quarter of last year. In Mexico, the EBITDA grew 3.7% to $423 million, thanks to higher sales as a consequence of an 8% increase -- production increase, partially compensated by a lower availability of one of our plants. In the U.K., the EBITDA grew 130% to GBP 112 million after SVT tariff was adjusted upwards. Some COVID impacts on demand are being negotiated to include it on the 2021 SVT review. Brazil added BRL 167 million to EBITDA in the context of business normalization after the one-off negative effect that lowered results in 2019. And in international business, EBITDA was EUR 6.4 million negative, improving versus last year, but still affected by initial development cost of our supply business in Europe. Nevertheless, we have reached 1,650,000 contracts, 52% more than 1 year ago. EBIT fell 10.6% to EUR 2.7 billion as provision grew 47% after including EUR 71 million of bad debt COVID provisions; EUR 35 million in Networks, that will be mostly recovered through regulatory mechanisms; and EUR 36 million in Generation and Supply to be managed through our commercial activity. In addition, our amortizations increased 7.6% due to the increase of the asset base and activity. Delinquency rate measured in our Supply business, measured as rolling credit cost versus billing, has grown from 0.8% in the first quarter of 2020 to 0.94% in the first half of -- in the first half due to the COVID impacts. Net financial expenses improved EUR 211 million to EUR 400 million, driven by EUR 182 million linked to one-off FX hedges, another EUR 72 million positive impact due to the lower cost of debt that improved 40 basis points to 3.23% and a EUR 43 million negative results due to higher average debt. As the Chairman has pointed out, our reported credit metrics improved compared to last year in spite -- despite of this mentioned debt increase. On a like-for-like basis, considering homogeneous criteria for debt in both periods, FFO adjusted net debt improved 1.1 percentage points to 21.7%. Adjusted net debt EBITDA improved to 3.7x from 3.8x. And our retained cash flow over our adjusted net debt improved to 20%. Our adjusted leverage ratio was 44.9%. As of today, we maintain ample liquidity of around EUR 14.6 billion, more than fulfilling the rating agencies' requirements with 30 months coverage of financial need in our base scenario and 33 months in the stress one. Our sources of financing continue to be highly diversified. Currently, the bond market is 63% of our sources. Weight of bank financing is 11%, giving us opportunity to increase this kind of funding if required, and supernational lenders have another 11% share. Up to date, the group has obtained EUR 5.6 billion equivalent of new funding in different markets and competitive levels, continuing with our green financing strategy. In the bond market, we have issued EUR 2.1 billion equivalent, EUR 1.1 million, $975 million and BRL 560 million. In the bond market, we have raised EUR 1.4 billion. And as the Chairman has said, we have recently signed a loan with the international -- with the European Investment Bank and ICO and further loans with the Banco Nacional de DeSarrollo of Brazil. The Iberdrola Group remains the world's leading private group in green bonds issued, the most preferred asset class for ESG investors due to the use of proceeds, strict reporting and external verification. Our current asset base and investment plan, focused in the energy transition, will allow the group to continue taking advantage of this green bond market. In 2020, Iberdrola signed new transactions totaling EUR 2.6 billion of green financing, maintaining our leading position, as the Chairman has pointed out. The group has a total of EUR 22.6 billion of green sustainable financing outstanding as of today. Reported net profit grew 12.2% to EUR 1.8 billion, affected by nonrecurring results with Siemens Gamesa capital gain, partially compensated by negative impact on taxes mainly in the deferred taxes in the U.K., as I explained previously. Adjusted net profit grew 7.5%, as I have detailed in Slide 21. And now the Chairman will end this presentation.

Thank you, Pepe. To conclude, over the last 6 months probably in the most challenging scenario indicates, Iberdrola has continued growing. And we have achieved this reaffirming the same model we have been implementing for 20 years. A model based on social market economy, on a strong belief of the benefit of balancing the long-term interest of employees, shareholders and societies at large. In moment like this, everyone needs to move from words to action. And the 40,000 employees of Iberdrola have proven their willingness to do it. Maintaining electricity supply with absolute normality in all our countries; providing visibility to our suppliers so that they can preserve jobs with EUR 7 billion awarded in just 6 months; dedicating EUR 33 million to the purchase and donation of health supplies in the countries where we are present; and progressing in the execution of our investment plan. Despite all restriction, we have started the construction of 350 new megawatt this month. And year-on-year, we have completed close to 5,000 megawatts, increasing our total installed capacity for more than 53,000 megawatt, almost 2/3 of which are Renewables. We have been able to combine this growth with efficiency measures, driving the net operating expenses down by 3.3% and with a strong financial position, as shown by all our solvency ratios and our available liquidity with the excess EUR 14 billion. Reported net profit grew 12% to EUR 1,845 million, despite the negative impact of EUR 553 million as a consequence of COVID-19. For the rest of the year, we are confident that we will continue to perform according to our plans. We maintain our target to invest EUR 10 billion in the year, installing totally 4,000 megawatt of new capacity. Results will also be supported by tariff reviews in Brazil and especially by the new rate cases in New York, which we expect to close in October with retroactive effect from April. And we will continue putting in place new efficiency measures. We have lived 3 months of a sharp contraction in economic activity. But our diversified business model has proven once again our capacity to resist external shocks. These are unprecedented times. And despite seeing clear signs of improvement in power prices, demand and overdue debt, it's still early to be certain about the evolution in the coming months. As explained earlier, regulators in all our market are also working on measures to mitigate impact. Taking all this into account, we are today maintaining our net profit guidance at mid-high single-digit growth with dividend growing in line with the net profit. We still have significant challenge ahead, but you can be sure that everyone in Iberdrola will continue to rise to them. Thank you very much. And now we reply your questions.

Now we are going to start with the Q&A session. And the first question comes from Harry Wyburd, Bank of America Merrill Lynch; Sam Arie, UBS; Alberto Gandolfi, Goldman Sachs; and Manuel Palomo, Exane BNP. And it is related to the wording of the guidance for the end of the year. Are we correct that there has been a small change of language of the guidance, now mid-high single-digit growth instead of previously high? Is it just the impact of COVID? Or is there something else driving the small shift? Does the update guidance mid-high single-digit growth in net profit includes or not the capital gains from the Siemens Gamesa stake? Are you downgrading your guidance? Are you comfortable with full year Bloomberg consensus of EUR 3.6 billion net income?

So my god, it's too many questions in only one. So when we met already 3 months ago, we were not aware about the strict lockdown measures which are going to be in place. In April, when we presented first quarter result, we had only a partial understanding of the situation. Today, the situation is different. The COVID, we know now. We've seen the impact in our accounts at net profit level represent EUR 153 million. EUR 153 million roughly in -- represent 4% to 5% of our annual net profit. So looking forward the full year, it should depends very much on certain factors, as I comment. What is going to be -- there are good signs of stabilization of the demand and power prices. But we don't know what is going to be the future evolution, depending how you're going to be the COVID behavior in the next month. Similarly, I think we are collaborating actively with the regulators. We expect to recover partially this impact. But I think we are in talks with them, still, we are not already confirmed for -- to recover during this year. So that why, I feel, in summary, our position is that we continue delivering increased result. But depending on the evolution of those factors, we could grow something like a mid- or high single digit. I think the fact today, this EUR 153 million represent 5% -- or almost 5%, 4% to 5% of our expected net profit. So I think we'll recover completely that one. The number should be the one, we repeat it, partially, it should be another one, if we succeed already in the negotiation with regulators to be registered this year, certain of these expenses in the account of the year, the result should one. If we are not succeeding, if we would register the following year, the results will be another one. So there are too many uncertainties around. Then it's impossible to say what is going to make. So -- but what is important is to say that our expectation is to continue delivering increasing results, which I think indeed with uncertainty period in we are living, I feel is really something very, very important to be said. So there are areas in which we are already -- is in our hands. I think, we have in our hands to increase the power. The installed power is in our hands already -- almost in our hands to get already the confirmation of our rate cases from New York. It's in our hands already to reduce already our expenses. But there are areas which is not in our hands, I insist on that one. So I think if any of you, you can guarantee to me that there is going not to be another infection, important infection in autumn, so -- but I think now we are not sure that, that cannot happen. We have already passed the worst period. And in the worst period, our net profit is growing by 12%. So -- and that is what I can already tell you for the time being.

Next question comes from Fernando Lafuente, Alantra. What should be the reasonable EBITDA performance for the full year?

Well, I think it's -- excluding the nonrecurring items, you saw that the adjusted EBITDA already grew by 4%. So I think -- I insist the same message I insist before. It -- now it seems that we are coming back to a greater normalization after the COVID impact during this quarter. So I think there are positive things, which is new rate cases, which is going to be already from April is -- we are already -- they started -- will be retroactive in April. We are in new megawatt regimen to be -- put it in operation to reach 4,000. But I think our feeling is that the EBITDA levels of growth in the year with all those if, if, if will be already in line similar of those one we have already been having at the adjusted terms during the first half of the year. So that's allowed ourselves to be in the range to middle to high single-digit range.

Third question comes from Fernando...

The net profit. Sorry, yes.

Sorry. Third question comes from Fernando Garcia, Royal Bank of Canada. How much of the COVID impact do you expect to recover through regulatory mechanism?

What -- you can repeat, I was...

Yes. How much of the COVID impact we expect to recover through regulatory mechanism?

So we feel that we are trying to get at least half of this. So I think it's -- we are already negotiating in the numbers. We are already thinking in this moment is to get something like EUR 180 million, EUR 200 million in the -- during the year. But I think now is that is what we have mainly just negotiating in Brazil, in the rate case new tariff review, which is mainly in Brazil and certain things what we expect as well to recover in other countries. But I think that is more or less the number we are expecting, and that is where our -- the numbers is based.

Fourth question comes from James Brand, Deutsche Bank; Jorge Guimarães, Haitong Capital Markets; and Jorge Alonso, Societe Generale. Could you provide some details on your expectation from the Brazilian tariff review? And where this should allow a full reset to take into account the volume and bad debt impacts from the crisis?

Well, I think from Brazil, I mentioned in the last opportunity we've already -- we joined together. I think now Brazil has already approved this -- they call counter COVID, this loan off-balance loan, which for Neoenergia is going to be awarded with BRL 1.6 billion. We expect that 95% of this amount will be already cashed in -- by the 31st of July and the rest, I think, during August -- or I think almost everything in the next 2 weeks. The tariff review now is under negotiation. The expectation is that this tariff review will be completed during the third quarter. So I think we don't know, it will be end of August, September, but during the third quarter is the expectation we are ready. And what we are expecting, it will recover all the extraordinary costs incurred, which is some hundreds of million reals in our account.

Question #5 is related to the Rio key position of the U.K. regulator, and it's come from Javier Suarez, Mediobanca; Fernando Garcia, Royal Bank of Canada; and Martin Young from Investec. The U.K. regulator has put out a tough regulatory proposal. Can you please comment on that and your comment to that regulatory document?

So we have been really surprised and disappointed by Ofgem draft proposal. It's especially surprising after 2 years of close collaboration, I think it's a surprise. I think we've been during 2 years talking and negotiating with Ofgem those terms. I think they have already recognized during these 2 years that our draft, our proposal, they recognize the best investment plan of those of other networks companies. And until very recent days, [ Ofgem ] has pointed publicly to average return around 4.8, so plus [ 14 ] incentives. And suddenly, they modified that 1 at 3.9 with no incentive or little incentive. I think also, I think this -- and especially as well surprise because this proposal goes against the government priorities and policies. The government priorities and policies is saying that they would like to increase investment infrastructures. And this proposal is reducing investment in infrastructures. This is already -- the government would like to increase the need of new jobs, and that is going in the opposite direction. If it's less investment, it's going to be less job involved from that one. Then the government is already -- the policy is net sale of target. And they are trying for these to increase electrification of the economy. With less investment, we are preventing the electrification of the economy. And I think the -- if there are less electrification, the emission is going to increase. And all this mess has been generating just because an extra cost for consumer but less than GBP 1 per customer per annum. So I don't know how -- in the regulated activities, how to mobilize the investment required if there are not a stability and predictability. A regulatory sector is not a sector you can give surprises, and that is a surprise. So you have to imagine the investment we are making in this is a stand for over 40 years. So I think we have to take a decision for the next 40 years. We've been investing heavily in the last years in the realty one, expecting a continuity in the terms and the condition, of course, adjusted to the circumstances, but continuity. And therefore, I think if the -- if they are not already predictability, I don't know how we can already convince investors and to raise money for making already the investment the country require. I'm sure that then is so strange, all we have already happened, that we will find out a solution. I'm sure the government of U.K. has been very clear about the climate policies and goals. And I'm sure they're going to help already to move in this direction. Trade unions as well, British trade unions, are very surprised. They are already calling for a solution to protect the thousands of jobs, not only in our companies, in the companies and their suppliers. I think we've been developing during the last 8 years as a British supply chain with employees based on a thousands of people without putting the jobs at risk. So -- and that is reasonable. The trade unions are already worried for what can already happen. So if nothing is changed, I think we will explore, as always, we did in defense of the interest of our shareholders, legal action, and we will explore as well the situation of cutting jobs as well.

Number 6 comes from Alex -- Alejandro Vigil, Cygnus; Stefano Bezzato, Crédit Suisse; Harry Wyburd, Bank of America Merrill Lynch; and Javier Suarez in Mediobanca. So it's related to Mexico. Regulatory risk in Mexico and investment plans of Iberdrola there.

Well, always I said that the energy policies is decided by governments. So I see no doubt on that one. And we have to be already -- we are in a country, we have to follow the government decision. So far, setting apart of all noise, the only measure which is confirmed, with impact to Iberdrola, has been the increase in transmission cost for renewables, which in the case of Iberdrola has a small impact in our financial result. And I think for which we have already asked a court of injunction like the rest of the sector. Many of those of the sectors has already some of those members and other people of the sector has already received a positive response for the court at this moment actually. Related to the -- to our future investment, I think the only plan what we have already in project was planned in Tuxpan, but I think Tuxpan is -- we have not still the gas contract. So I think we cannot take the decision up to moment. We cannot secure the gas for the next 20 years. So when we will have this contract ready, we will decide what to do. But at the time being, nothing has been stopped in this direction.

Question #7 comes from Antonella Bianchessi, Citi, and it's related to the -- an update on the forward sales from 2021 -- for 2021 and '22 in the -- in Spain.

Paco?

Thank you, Chairman. Well, as the Chairman mentioned during his speech, 100% of our production for 2020 is -- of our hedgeable production is close to above EUR 70 per megawatt hour as I mentioned during Q1. And for 2021, 90% of the production of hedgeable production is closed at similar prices. Now for 2022, we expect to close our production at similar prices, too, as the forward curve for 2022 is very in line with the one of 2021.

Number eight comes from Fernando Lafuente, Alantra. Where do you see debt leverage as of the end of 2020?

Pepe, you reply?

Yes. I think that we are expecting to be around EUR 39 billion in debt. Depends also if we finally do the Infigen acquisition, that will add another EUR 800 million to our debt. And our FFO for net debt will be, in principle, around 21.5% in our calculations and above 18% in the agency ratio -- the rating agency calculation. So well into the BBB+ rating.

Bernstein through Meike Becker is asking about the expected evolution of the CapEx during 2021 and 2022.

So as I commented during my speech, we see no reason to change our expectation. I think it's -- even in the tough condition we've been living in the second quarter, we have already managed to invest more than in the first quarter. And that is going to accelerate in the second half. I think in the -- for the detail of the future years, I think we will inform to you in the Capital Market Day. But I think just -- we have already talked about our pipeline. I think we have a huge pipeline. We have huge opportunities. We have customers ready to sell the energy. We have markets. We have new rate cases. We have people. So I think if now we are making EUR 10 billion, why not to continue in the same line in the future? So I think we have all the means for already continuing in the same direction. But the detail, we will provide to you in the Investor Day.

Number 10 comes from José Ruiz, Barclays; Harry Wyburd, Bank of America Merrill Lynch; and Manuel Palomo, Exane BNP, and it's related to our greenfield M&A in Australia. In the last improved offer price last night for Infigen, the final one, if you are successful in your bid for Infigen, would you expect this to have a material accretive impact on earnings? And would this impact your guidance -- is -- will be in your guidance? The strategy related to the strategy in Australia, if we are just focused on Renewables?

Well, the first thing is, as I explained, I think we've been already in talks with this company for the last 12 months. So I think it's -- suddenly, somebody makes already just a bid for it. And I think we've been forced to reply to this bid. And I think we are in this process. So I think for us, as I mentioned, is already a significant M&A. I think it's -- this company could give us is the opportunity and the possibility of growing faster in Australia, we are already doing this in Australia in this moment. We are building 300 megawatt of wind and solar, and that gave us the opportunity of starting with 1,000 megawatt with operation, plus our 300, plus in pipeline, we have already, as I mentioned, 1,000 or 1,500 megawatt more. So -- but I think that is in the short-term that I feel is not already going to affect to our -- not to our financial solidity, nor our result as a whole. But I think it's a good opportunity for future growth for the future years.