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 2023 first half results presentation. As usual, we will follow the traditional format given in our presentations. We are going to begin with an overview of the results and the main developments during the period given by the top team that usually is with us: Mr. Ignacio Galan, Executive Chairman; Mr. Armando Martinez, CEO; and finally, Mr. Pepe Sainz, CFO. Following this, we'll move on to the Q&A session. [Operator Instructions] Finally, being aware of the busy week of results you are having, we hope that today's event will last no 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 Mr. Ignacio Galan. Thank you very much again. Please, Mr. Galan.

Thank you, Ignacio. Good morning, everyone, and thank you very much for joining the results presentation. In the first half of 2023, net profit reached EUR 2,521 million, up 21% or 28%, excluding a noncash provision related to Mexico transaction as Pepe will explain later on. EBITDA grew 17% to EUR 7,561 million, mainly driven by higher investment in Networks and Renewables; the recovery of the retail deficit generated in previous year in the United Kingdom; and the normalization of renewable output and prices in the European Union and mainly in Iberia. We continue accelerating the execution of our strategic plan with investment of more than EUR 10.5 billion in the last 12 months, driving 10% increase in Networks asset base to EUR 40 billion and more than 2,500 megawatts of new renewable capacity, reaching 41,250 megawatts globally. We have also continued securing a diversified portfolio route to market. As of today, we have 135 terawatt hours contracted through PPAs and related mechanisms like CFDs, with an average duration of 12 years and with our retail customers in Iberia and the U.K. As regard to our asset rotation and partnership plan of EUR 7.5 billion, that's already been completed. The sale and purchase agreement for the transfer of 60% of our business in Mexico was already signed, and we expect to close this transaction before the year-end. On top of this, just 2 days ago, we signed a new agreement with Masdar to co-invest in Baltic Eagle in Germany. Masdar has now taken 49% stake in this offshore wind farm. They will be fully operational next year. Operating cash flow reached EUR 5.7 billion, up 21% increase, including the impact of the collection of hydro canon in Spain in the first half of the last year. This has led to a [ 4D ] improvement of our financial ratios with FFO/net debt reaching 24.9%. We have also continued reinforcing our liquidity, which amounts to EUR 20.3 billion after having issued EUR 3.4 billion of new green finance in the last 12 months. As you know, last April, we had an Annual General Meeting with a quorum of 72%, an average favorable vote of 98% of our shareholders, who will receive tomorrow the payment of our final dividend for a total remuneration of EUR 0.501 per share, up 11.6%, already above the dividend floor plan for 2025. As mentioned, EBITDA was up 17% to more than EUR 7.5 billion, thanks to a strong performance in the U.K. and European Union. Networks contributed 41% of the group EBITDA, driven by higher asset base in all geographies, with inaugural growth of 10% year-on-year. Also the positive impact from an annual tariff increase in U.S., U.K. and Brazil. And in these last 2 countries, we also continued to benefit from regulatory protection against inflation. Energy production and customers represent 59% of group EBITDA. The key drivers from this business were: the normalization of renewable output and price in European Union; as well as the cash recovery of the deficit accumulated over previous year; and the improvement of business conditions in the retail activity in U.K. Production in customers was also affected by the update of the parameters of the regulatory regime applicable to serve renewable assets in Spain, so-called RECORE, which had a noncash one-off impact of EUR 86 million. As you know, it has no effect on the regulated profitability of these assets. Over the last 6 months, we have also made significant progress in the execution of our strategic plan. We increased our investment by 8% to reach EUR 10.5 billion year-on-year. 40% of total investment were dedicated to Networks and 45% of Renewables. By geography, around 25% of the investment were made in Spain, reaching EUR 10.5 billion, driven by new renewable capacity, followed by the United States with EUR 2.5 billion, Latam with almost EUR 2 billion and EUR 1.5 billion were invested in U.K. and the remaining EUR 1.5 billion in other countries, mainly offshore wind in Germany and France as well as onshore wind and solar in Australia. We expect investment will accelerate in the last month of the year, mainly in offshore wind and Networks to reach between EUR 11 billion and EUR 12 billion by the year-end. Networks investment were up 24% in the first half, with increase in all geographies. As a result, our asset base reached EUR 40 billion, a 10% increase year-on-year. Over the last month, we've also seen significant progress in the implementation of our strategic plan, with new tariff framework driving increases in investment in more geographies. In United States, a new rate case was already approved in Maine until June 2025, the first multiyear framework in many years, with investment in line with our expectation and net return on equity about 9%. In New York, AVANGRID filed a joint proposal together with the staff to the -- of the regulator and other parties. Once approved, tariffs will be applicable for 3 years with return on equity above as well 9% and an earning sharing mechanism. It will also increase investment, reaching EUR 6.5 billion in the 5 years from 2022 to 2026. The settlement, which will be applicable in retroactive pump from May 1, also includes regulatory protection against uncollectibles. All in all, we expect our [ net ] operating result in Maine and New York to increase around 50% in the second half compared to the first half. In Brazil, new rate cases in Bahía and Rio Grande do Norte were closed in April -- until 2028, and the Sao Paulo [ internal ] review's already under public consultation and will be closed by August with effect until 2027. As a result, the new Networks business operating result will increase around 7% in the second half compared to the first half. In the U.K., a few days ago, we submitted to obtain the detailed figures for the Eastern link transmission project, expecting final by autumn. With the total investment for ScottishPower of GBP 1 billion, it will gradually increase our asset base from 2026 to 2030, providing the returns on RIIO-2 framework from the beginning of the construction. Finally, over the last weeks, AVANGRID has progressed in the additional multimillion transmission opportunities. In New York, driven by the climate change, the Climate Protection Act, and others project linked to its participation, in the Transco joint venture, with a total investment for AVANGRID of around $3 billion until 2030. In New England, the company see full authorization to move forward on the construction NECEC's interconnection project [indiscernible] in Canada, and now we are restarting a year the construction. In Renewables, we have put in service more than 2,500 new megawatts in the last 12 months, reaching 41,250 megawatts of renewable capacity worldwide. Additions include 1,500 of solar PV in Spain, United States, Brazil, Australia and Portugal; 900-megawatt of onshore wind in Brazil, U.S., Spain, Australia, Greece and Poland; as well the first 14 offshore wind turbines of Saint-Brieuc in France, totaling 112 megawatts in operation in this moment. On top of that, we are progressing in the construction of 7,100 megawatts, the group will drive additional investment of around EUR 12 billion. By geographies, EUR 4.5 billion will be allocated to projects in United States, including offshore wind after different solar PV project. We will invest additional EUR 3.5 billion in the U.K., mostly related to 1,400 megawatt East Anglia 3 offshore wind farm. Also in offshore wind, we expect investment in EUR 1.3 billion in Germany, mostly related to the Baltic Eagle wind farm, and EUR 700 million in France corresponding to the final stage of Saint-Brieuc I mentioned before. Iberia will receive around EUR 1.5 billion in the period, with the remaining investment located in different countries like Australia. 3,000 megawatts or 45% of this capacity under construction, correspond to offshore wind project, all of them progressing on track. In France, I repeat again, Saint-Brieuc has started producing clean energy with more than 3% of the jacket and 1/3 of the turbines already installed. First export was already reached 3 weeks ago. In United States, the installation of monopiles and transition piece has begun on Vineyard Wind 1 project, and the export cable is now fully deployed. Manufacturing of turbines is progressing, and we expect clean energy will start flowing into the Massachusetts grid during the second half of this year. Back in Europe, Baltic Eagle, our German project in Baltic Sea, continues progression on track, with monopiles and transition pieces already being installed. We expect to start installing turbines in early 2024 and to reach first export by mid next year. As highlighted during the first quarter result presentation, Baltic Eagle and Windanker have already secured sale of 100% of the production for 50 years at an average price of around EUR 80. In addition, we have around 3,800 megawatts of projects secured. They will come online up to 2028, including Commonwealth Wind and Park City Wind in the United States. For the first project, we have reached an agreement with the distribution company from Massachusetts for the cancellation of the actual PPA, driven by the very significant increase in cost since the project was auctioned. This will allow us to participate in the auction in the state in the future. In Connecticut, we are also negotiating to reach reasonable solution. We remain optimistic on moving forward with these 2 projects. Once operational, will add more than 2,000 megawatts of renewable wind capacity in the United States. As these 3,000 megawatts of projects under construction are secure, we obtained a 0 seabed cost. On top of this, we have seabed rights for more than 10,000 additional megawatts in U.K., United States for the end of this decade and early 2030. As a cost, this, on average, is only 5% of the price paid in recent auctions in our core markets. You know what I mean. In other words, thanks to our position as first mover in the industry, we have a secure pipeline of projects that will allow us to increase our capacity and obtain attractive return, given our competitiveness against other projects that we need to make profit with these 11 investments made in securing seabed. Market development over the last 2 years have demonstrated the relevance of [ Iberdrola's ] portfolio of route to market, to provide the stable and predictable revenues and hedge fund of its own production, as of today, we have 135 terawatt hours contracted through per annum. Long-term PPAs and other regulated contracts representing 70% of our sales, with an average duration of 3 years, with the remaining 30% direct to our portfolio of retail customers in U.K. and Iberia with an increased average duration that is currently around 3 years. 90% of this energy, more than 120 terawatt hours per annum, is covered by our own production. In the last months, we have continued to see major development of PPA activities. As mentioned, we have secured 100% of the production of our offshore with probably the Baltic Eagle and Windanker at competitive prices for 50 years on average with customers like Holcim, and we have reached new multi-country agreements with large global companies like Vodafone joining corporations like Amazon, Meta, Heineken, Mercedes Benz or Renault, who are choosing Iberdrola to secure clean energy at competitive prices across different geographies. We believe that apart from providing visibility and predictability of revenues and long-term contracting strategy is all extremely positive for the system as it gives price stability to industrial and commercial customers, reducing their exposure to short-term price volatility, and support a massive buildup of new renewable capacity. For this reason, we firmly think that energy policy and regulation needed to continue promoting these long-term PPAs to the stable attractive framework based on market mechanism. This was one of the pillars of the electricity market reform published by the European Commission months ago. And very recently, the Industry and Energy Committee of the Parliament has also approved its proposal following the same principles. Both [ Acts ] recognize the proper functioning of the electricity market in the last years and propose new measures to increase long-term contracting and liquidity and to avoid disruption, rolling out major market intervention. The proposal do not consider any cap to nuclear or renewable technologies and promote PPAs, only allowing the implementation of voluntary CfDs with no retroactivity for existing facilities. They also recognize the need to establish clear and common rules to define what constitutes an energy emergency crisis, including sustaining minimum market price of EUR 180 per megawatt hour. The Industry and Energy Committee also introduced measures to promote capacity mechanism flexibility open to new investment and existing facilities as well as specific mention to the need for higher investment in networks to meet the increasing demand in connect new renewables. All in all, these are plans, proposals are in line with the suggestion from different industry associations like Eurelectric or WindEurope. We expect the approval by the plenary of the parliament in September, followed by the publication of [indiscernible] the plans and proposal and the beginning of [indiscernible] among these 3 institution. Our 2 listed subsidiaries, AVANGRID and Neoenergia presented their results yesterday. In the first, AVANGRID EBITDA reached $1.3 billion, with investment of $2.7 billion in the last 12 months. As mentioned, over the last quarter, we have seen major progress in AVANGRID rate cases in Maine and New York. In addition, the merger agreement with PNM Resources in New Mexico was extended at least until December 2023, with the potential of 3 additional months. In Renewables, AVANGRID has an opportunity to repower 4,600 megawatts for its current fleet to maximize the advantage offered by the Inflation Reduction Act. We are talking about installing more efficient turbines that will extend the useful life of our wind farms at 1/2 the cost of new assets with the same tax incentive. AVANGRID is expecting to start work in the first 400 by the year-end. On top of that, the company continued adding new capacity of around 410 megawatts in the first half. In Brazil, Neoenergia EBITDA reached BRL 6.3 billion up to June, with around BRL 9.6 billion invested in the last 12 months. Neoenergia completed the coinvestment agreement with GIC in transmission, receiving BRL 1.2 billion for 50% of its operational asset. And the process for the renewal of concession for distribution companies continue with a positive outlook. In Renewables, the company commissioned another 566 wind megawatts. Moving to asset rotation and partnerships, we have already reached EUR 7.5 billion, included in our plan to 2025. Major developments in the last quarter include a signature of sale and purchase agreement related to our Mexico transaction, with expected closure before the year-end. And just 2 days ago, we announced a new co-investment agreement with Masdar for our 475-megawatt Baltic Eagle offshore wind farm, which is under construction in the Baltic Sea. Masdar will hold 49% stake in this asset. We're also progressing in our joint vehicles for investment in renewable in Iberian Peninsula. With Norges Bank, with the first operation announcement already transferred, and with MAPFRE, this large joint venture already has 500-megawatt in projects. In Brazil, as part of the deal with GIC, we are also progressing in the swap of the stake in hydro asset with Eletrobras. We are expected to close before the year end. Our partnership with CIP and Shell in offshore wind also continues moving forward as planned. And the young company established with BP to promote electric mobility in the Iberian Peninsula is about to start operation. Most of the cash linked to all these deals will be received along the second half. This will improve even more our financial strength by year-end together with cash flow generation, which in the first half reached EUR 5.7 billion, up to 21%, excluding the hydro canal collection in Spain last year. This has resulted in additional improvement of our financial ratios. FFO on net debt increased by 20 basis points, up to 24.9%. On 28th of April, we held our Annual General Meeting, with a quorum of 72% and average favorable vote of 98% in all proposals, which include: corporate management and result matters; related to corporate governance and sustainability system; remuneration; and changing the Board of Directors. Let me take the opportunity to thank again all our shareholders for their involvement and support. Following the AGM, [indiscernible] announced a total shareholder remuneration of EUR 0.501 per share, 11.6% up. This means reaching already the dividend floor planned by 2025. A supplemental dividend of EUR 0.16 (sic) [ EUR 0.316 ] per share will be paid tomorrow on top of the interim dividend of EUR 0.18 paid in February and the engagement dividend of EUR 0.005 in per share paid after the Annual General Meeting. I will now hand over to the CFO, who will present the group financial result in further detail. Pepe?

Thank you, Chairman. Good morning to everybody. Before entering into the numbers, let me point to 2 noncash impacts that need to be explained and affect the first half results. First is the impact on our regulated renewables in Spain, the famous or the well-known RECORE. Price estimates for these technologies have been lowered by the government, affecting 1.6 terawatt hours. And as a consequence, we had to account EUR 86 million of a negative one-off at the EBITDA level. This is a pure accounting noncash effect that will be reverted during the regulatory life of these assets. So profitability of these assets is guaranteed at 7.4% regardless of the price level. From now on, this impact will evolve according to the reference price level and the price curve. If the situation remains similar in terms of price outlook, similar to June, no new impacts will be expected in our accounts. With higher prices, this impact would be reduced and the opposite if prices go down. And second and more important, the Iberdrola Mexico reorganization. So after the announced divestment of our Mexican business, for a part -- sorry, for part of our Mexican business for USD 6 billion, assets and liabilities have been reclassified as held for sale. According to the IAS 12, we need to register the difference between the tax and the accounting value of the shares with a total EUR 140 million negative impact at income tax level with no cash impact. The capital gain, as we have announced, will be significant, and will be registered once the transaction is closed, hopefully, before the year-end, more than offsetting, or more than -- hopefully, we are expecting to do it before the year-end. More than offsetting this negative temporary impact in our accounts. As the Chairman has explained, EBITDA was 17% up to EUR 7.6 billion and reported net profit grew 21.5% to EUR 2.5 billion, 28% up excluding the already mentioned EUR 140 million tax impact of the Mexican transaction. FX evolution now has had a slightly negative effect on our EBITDA results. The dollar rose against the euro by an average of 1.9%, the real by an average 1%, but did not offset the 4.6% depreciation of the pound. Nevertheless, as it's usual, FX impacts are covered at the net profit level. Revenues increased 7.5% to EUR 26.3 billion, mainly due to the U.K., driven by higher tariffs and the full recovery of past SVD costs. Procurements decreased 2.9%, reaching EUR 14.1 billion as last year, we had to buy electricity due to renewables and nuclear shortfall in Spain at very high prices. This year, the situation has been reverted due to a normalized production. As a consequence, gross margin rose by 23% to EUR 12.1 billion. Reported net operating expenses increased 16.6% to EUR 2.9 billion, but excluding EUR 80 million of a U.S. pension one-off and EUR 100 million linked to reconciliation effects in the U.S. that are recognized at the gross margin level and other minor impacts, net operating expenses increased 7.5%. Reported net personnel expenses grew 16.9%, but excluding U.S. pension, the positive one-off that we have mentioned, the reconciliation impacts and other minor items, they grew 6.5%. Reported external services increased 11%, but 6.8% excluding reconciliation impacts that we have mentioned. And reported other operation -- other operating income fell 5.6%. Analyzing the results of the different business and starting by Networks, its EBITDA reached EUR 3,127 million, affected by several nonrecurring items that impacted last year. In Spain, as I mentioned, the EBITDA increased 34% to EUR 845 million, affected by EUR 195 million positive one-off in Q2 of '22 related to a legal case that was reversed at the end of '22. Excluding this, the EBITDA would have grown 2.2%. In Brazil, EBITDA grew 3% to BRL 5,979 million, driven by distribution tariff adjustments, partially compensated by the reconsolidation of transmission assets included in the GIC deal from April 1. In the U.S., IFRS EBITDA was 47% down to USD 666 million due to a negative impact corresponding to the $550 million positive one-off booked in the second quarter of '22 linked to the New York Order, and $87 million from the pension provisions. Both of them were accounted in IFRS, but not in U.S. GAAP. The U.S. GAAP EBITDA fell 3% to $897 million, affected by the delay in the final approval of the New York rate case that, as the Chairman has mentioned, will have a retroactive effect or will be applicable since May 1. Finally, in the U.K., EBITDA increased 10.3% to GBP 513 million, thanks to the ED2 tariffs applicable from April onwards and higher asset base, especially in transmission. Energy production and customer business EBITDA reached EUR 4,458 million. In Spain, the EBITDA was EUR 2,060 million, 46% up, with higher production, especially in hydro and in nuclear, and lower energy purchases at much lower prices than we had to pay last year. And more gigawatt hours sold in the free market due to a gain in market share. We have increased the market share from 22.6% to more than 27% in 12 months. In addition, there is a EUR 100 million positive effect in the gas management versus the first half of '22, and a negative due to the 1.2% tax in revenues that we account in the levies item of EUR 216 million. In the U.K., EBITDA increased 149% to GBP 1.1 billion, thanks to the collection of $297 million past tariff deficit, which had a negative impact last year. In Renewables, there is a 31% lower onshore wind output that reduces a little bit this growth. In the U.S., EBITDA increased 12.1% to $393 million, driven by a 2.4% higher output due to new installed capacity, as the Chairman has mentioned, and better prices. In Mexico, EBITDA fell 3% to $453 million due to a lower contribution from renewable assets with lower volumes, partially compensated by the new capacity in operation since May '22. In Brazil, EBITDA fell 10.5% to BRL 838 million as contribution from new renewable capacity installed is offset by lower contribution from the thermal business. Finally, in the rest of the world, EBITDA grew 2.5% to EUR 212 million due to a higher capacity in operation. EBIT was up 25% to EUR 4.9 billion. Depreciation and amortizations plus provisions grew 5% to EUR 2.6 billion, mainly due to the higher asset base and activity and bad debt evolution due to the increased customer billing. Net financial expenses have been up EUR 211 million to EUR 1,127 million. Debt-related costs grew EUR 243 million. EUR 123 million of this EUR 243 million increase is due to a higher average net debt, mainly due to the growth in CapEx. And EUR 118 million is due to a higher cost of debt, 60 basis points to 5.05%, and 82 bps if you exclude Brazil. As a matter of fact, the cost of debt in Brazil is starting to fall as it is linked to inflation, and we expect that this will continue to happen during the rest of the year. Excluding Brazil, the cost of debt was 3.68%. Despite interest rate increases of 202 basis points, our growth was 82 bps, as I mentioned, as Iberdrola has 75% debt fixed, excluding NEO and forward start swaps. 10% of the cost increase is linked to the increase in debt in non-euro currencies as is the dollar, the Australian dollar and the pound. This has been partially offset by EUR 32 million positive nondebt-related results, mainly linked to the FX hedges. Our reported credit metrics remain solid. 12 months FFO increased 9.7% to EUR 11.3 billion, above 8.6% average adjusted net debt growth. As a consequence, FFO adjusted net debt rose to 24.9%. Our adjusted net debt to EBITDA improved to 3.16x, and our adjusted leverage ratio was 43%. The EUR 1 billion hybrid issued in March covered the amortization of the one maturing in May, thus having a negative effect on our debt in the second quarter versus the first quarter of EUR 1 billion. EUR 45.3 billion in adjusted net debt is not yet including cash inflow from ongoing deals expected to be cash in before the year-end, totaling over EUR 6 billion that will drive expected full year debt to be around EUR 42 billion. Our diversified portfolio provides flexibility to target the markets as the right timing -- in the right timing, achieving very favorable conditions. Our new financing as today is EUR 3.4 billion. During the first half of '23, Iberdrola continued reinforcing its financial strength with EUR 3.4 billion of green financing, reaching EUR 50.7 billion of ESG financing and liquidity covering 21 months of needs and maintaining 6 years of average debt. Iberdrola continues to be the leading private group in green bonds. Net profit grew 21.5% to EUR 2,520 million, below the 25% EBITDA growth with lower equity method coming from AVANGRID due to the offshore CIP reorganization in '22 that was around EUR 218 million. That increases the tax rate, but reduces the minority interest, and EUR 140 million in taxes due to the one-off negative linked to the Mexican transaction. Net profit would have been 28% up, excluding this impact. Now the Chairman will conclude the presentation. Thank you very much.

Thank you, Pepe. This set of results confirms our capacity to execute our plans ahead of estimate, even in the current challenging macro scenario. With a 20% growth in net profit, excluding the exceptional noncash item in Mexico, operational cash flow reached more than EUR 4.7 billion in this month, 21% up; a further improvement in financial strength, with a favorable adjusted net debt of 24.9%, our asset rotation plan 2025 fully completed in just 3 months, and our dividend already above the floor plan for 2025. On top of this, we expect additional upside in the second half of the year, driven by new rate cases, United States and Brazil, with Networks operating result increasing by around 15% and 7% respectively in the second half compared to the first 6 months, a new regulatory arrangement protecting for uncollectibles in U.S., Brazil and U.K. An ongoing increase of renewable production driven by load factor recovery together with higher installed capacity and an even a stronger balance sheet due to the cash generation from business operation and asset rotations. All this allow us to increase our net profit growth outlook to the second time this year to high single digit, including additional capital gains for asset rotation -- excluding, sorry. We are -- so it's high single digit, excluding asset rotations, capital gains, what is already can be very, very important, I think, in the next few months. We are very confident that this will be the first step for the full delivery of the targets for 2025 and beyond. Thank you very much, and now we will answer your question. Thank you.

The following financial professionals have asked the question that I will now put to the senior managers present on this event. First is Manuel Palomo, Exxon BNP; José Ruiz, Barclays; Fernando Garcia, Royal Bank of Canada; Alberto Gandolfi, Goldman Sachs; Rob Pulleyn, Morgan Stanley; Javier Garrido, JPMorgan; Peter Bisztyga, Bank of America; James Brand, Deutsche Bank; Meike Becker, Becker, Bernstein; Jorge Guimarães, JB Capital Markets; Fernando Lafuente, Alantra; Daniel Rodríguez, Bestinver; Mark Freshney, Crédit Suisse; Javier Suarez, Mediobanca; Ahmed Farman, Jefferies; and finally, [ Markipt Tatguin ] from Berenberg. First question is related to the guidance 2023. Can you help us understand the drivers of the guidance upgrade? How much is this sustainable? And what do you mean by additional upside into -- in the second part of the year? This is a sentence included in Slide 34.

So I think, as I just mentioned, I've seen -- the new investments are increasing our asset base. We are reaching more than EUR 40 billion in regulated new rate cases in Brazil, in United States, in Maine from July 1, the New York retroactivity from May 1, as well with a higher capacity recovery in collectibles, as there's an amount of money will be included on the [indiscernible] for collecting that one. We expect in, I think as I mentioned, increase in EBITDA in the year in Maine 15%, 16% in the second half. As well, additional revenues for higher investment in the U.K. under RIIO-T2 frameworks. In energy production and customer, I think, it's a higher renewable output due to hydro reserves, in line to historical average levels once -- and as well, we expect the normalization of -- we factor under very low resource during the first half. We have another extra capacity already in operation in the last 12 months, and we are going to boost from 1 more, so more in service. We will continue recovering in the previous year deficit accumulated in the U.K. that we got on it in the first half, and we continue some more in the second. And as I mentioned, further optimization of our financial profile of diversified, once we will collect the asset rotation that we've been already making during these months. So that's why I think we make already our growth to high single digit for the second part of the year.

Second question is related again about the guidance. Can you please clarify 1 thing on updated guidance? I'm assuming it does not consider the capital gains from Mexico sale. But do you also eliminate the EUR 140 million negative impact in taxes booked in the first half of the year?

So certain is not including Mexico. I think you can already complete that one, Pepe.

Basically, what we are saying here is we are going to have a strong net capital gain. So this obviously excludes all the Mexican impact. The only thing is that we have to book this difference between tax and accounting due to the accounting rules now. And when we book the capital gain at the end of the year, obviously, this is part of the total net capital gain. So we are excluding the net capital gain, which excludes this EUR 140 million and excludes the capital gain that we will book at the end of the year.

And in other words, we are already putting the negative part of the deal and not the positive part of the deal. All the positive part of the deal will be the second half. And part of the negative part of the deal is booked in the first half of the year.

That's the only negative part.

The only one. Yes.

Next, pumping hydro assets seems to be doing very well. Could you compare the volumes and spread compared to historical records? It's about pumping?

Well, I think we've been for many years -- I think you will reply that one, Armando. But I think for many years, we were commenting about the storage, storage, storage. I think within our -- first, we talk about -- when nobody talks about renewable, we talk about renewable. When nobody talks about grid networks, we talk about networks. We've been already for months talking about -- now 4 years talking about the storage and now people are discovering the storage. I think that we have already 4,000 megawatts of storage. We have already 100 million of kilowatt hours already. We have capacity enough for providing electricity during 20, 30 hours for dozens of millions of people. I think we just completed Portugal last year. We have several of those in Spain because we are already making revisal of that one. And we are benefiting of this one in this moment. We are using our premises of pumping for already making that one. But I think in terms of a number, Armando, you mentioned the numbers, how much representing total percentage of our production in the first half.

Good morning to everybody. Okay. As the Chairman is saying, we are seeing now -- and you can see in the annex of the presentation that our reservoirs levels is 33%, it's much in line with the average of the 5 years. So we are expecting a normalized year in the terms of the hydro. As the Chairman is saying, pumping storage is very important for us. And for this year, the 6 months, we have produced 8 terawatt hours of hydro, most of them, 3 terawatts, is pumping hydro. So it's working very well and it's allowing us maintaining the reservoirs of the -- for the second part.

Next, what is your CapEx expectation for the year as a whole, 2023? And how should we think EBIT CapEx for the next year, 2024? Could you consider delaying some of the investment included in your strategic plan considering the cost inflation suffer up to now?

Well, I think, as I mentioned, we are expecting between EUR 11 billion and EUR 12 billion by the year-end, so -- which I think is, yes, already mentioned that we are completing -- we have 7,000 megawatts under construction in this moment. Some of them is going to be almost completed during the second part of the year, like Saint-Brieuc in France or other ones. In Networks, we continue increasing our investment. I think I mentioned the rate cases of New York and Brazil. In the case of New York where it's increased, in Maine as well, an important increase of CapEx, so I think that is what is going to drive that one. And I think relating to next year, I think there's still the numbers of the budget is not. But I think, Pepe, if I don't remember about the numbers we gave, the plan of organic investment is on the same level, EUR 10 billion, EUR 12 billion per annum. So I think it's going not to be very different next year than we are expecting for this year, for next, but still, we have not the detailed numbers or the budget, but I think it's going not to be very different, the organic one, as we have already -- we are going to have during this year.

Next, about the debt at the end of the year. The net debt guidance for 2023 in the Q1 results presentation was below EUR 50 billion, including PNM. Does the new target of EUR 42 billion imply an increase due to the higher CapEx? Or does it mean its expectations have not changed?

Pepe?

No, I think the expectation has significantly improved. Let me explain. We were expecting with a PNM deal to have a debt of around -- at the end of the year of around EUR 55 billion, EUR 56 billion. If you took away the impact of PNM, our debt, as we were saying, was around EUR 49 billion. So what we were saying, below EUR 50 billion, we're talking about in the high 40s. And now we are talking about EUR 42 billion. So this has significantly improved the debt outlook for the end of the year. So from around EUR 48 billion, EUR 49 billion, excluding PNM, to around EUR 42 billion by the end of the year.

Next, please, can you comment on the political situation in Spain and how it may impact Iberdrola?

So as you know, we have already had elections. So I think after this election, I think we have a process. We have to be making in the next few months. This process starts for the constitution of the chambers. And afterward elections, of the -- which is going to be the new government, the Prime Minister and new government. That is going to take still a few months. So I think that is not immediate. Now once that will be already made constitute this new bill or form this new government, I think we will know what is the policies that are going to apply. But I think the things which has affected ourselves, the most important thing is all the things related with the energy, let's say, European, common European rules of that one. And I think we are already a member of the European Union, and I think the rules, which is going to be applied in Spain, are those rules, which are already just defined in Europe, by the way, which I think Spain has already made proposal on that one. And I think the -- as I mentioned, not only European Commission has already defined their framework, but as well the European parliament as well has already defined. And by the way, that one, we was already hearing that one. The Chair of this committee is already in Spain, it's belonging to the Socialist party, which I think is -- we are -- means that the European -- the Spanish proposal [ is synced ] and case has been already just approved as well. We will expect that one. And I think we are not expecting things which will be outside of those one; will be the common European rules.

Next, could you please share your views on the recent [ piniac ] draft sent by the government to the European Union? Do you see it as feasible? Would you rethink upwards or downwards your investment in Spain as a consequence of such an aggressive draft?

Well, I think as you know, we've been already pioneers in investing in renewable. We've been pioneers in the carbonizing. We've been pioneers in talking about the needs of investment in networks, to talk about investment in storage. And I think that this plan is very ambitious, is very ambitious. I think it's -- that means the record of construction, renewables per annum in Spain has been on the range of 5,000 megawatts in a year. And now this one represents more than 10,000 megawatts in a year. So I think is very ambitious to be achieved. But for me, it is not the point of what is ambition in terms of decarbonizing the economy. It's how -- what is going to be the demand generation of that one. So what is going to be the stimulus for already decarbonizing a lot of segment, a lot of sectors for already providing and supplying this electricity generated on that one. Being difficult to build all those one, but the most difficult of the thing which is going to need already to analyze in more detail is how it's going to grow the demand, what measure is going to be taken for the carbonation sector and the segment. We make sure already that to fit the offer with the demand and to make already attractive to make all this renewable because if they have no demand, the renewable is going not to be built. So I think for me is at this point. The second point, which I've seen is not -- which is already on the documents of the European Commission related to the market reforming so, is the need of grid more renewable -- sorry, more grid for connecting more renewables and for providing the service, electricity service for those areas that will like to be the decarbonized industry or residents. So I think they already left that area, which is needed already to put more emphasis in the need of more grid. And the third one is for the clarity about storage. I think as a system, very dependent, fully dependent on renewables, or most dependent on renewables require, first, demand for that one. And the second one, because if there have no demand, the investment is going not to be made is clear. And the second one is related to the grid needed for the one in the storage. Storage for -- already for matching the needs of demand when they are not already enough renewable reserves and storing the electricity going into an excess of production. So there is the 3 areas we are doing it. I'm sure that during the dialogue that is going to be maintained in the next few months, all these areas is going to improve.

One of our peers commented on the negative impact of curtailments on Spanish renewables output. Has this situation impacted Iberdrola? Do you believe this could be a problem in the future?

So the first thing is has -- the answer to the impact on Iberdrola is no. And why not? Because you know that is already -- that is the technical bottlenecks in the nodes of the grid. Unfortunately, our renewables are located in areas where that node doesn't exist. So we have not already had an impact on that one. By another side, I think when they are ready situation of those ones, in some cases, are impacting to the market prices and the impact to the market prices, I think, is when our storage works. That's why Armando was already mentioned our pumping storage facilities are already producing more than another time because we are precisely -- as I mentioned as well in the previous question, we are already in the moment their excess of electricity. We are already pumping water for already using this in the moment they are already deficit of production. So there is no effect in our nodes and no problems of curtailment because our power plants are located in areas where they are not already bottlenecks in the nodes to the grid.

Next is some peers have been positive about faster renewable development in the European Union. Do you see the same? And how confident do you feel about your 2025 targets? Number 9 about renewables and development in the European Union?

Yes. Yes. Well, I mentioned -- I think that already, I think, has a lot of advantage. One of the main advantage is related to the capacity of -- or the possibility of transforming our existing fleet of renewables and winds, particularly to make repower what makes then we can already benefit of the full tax credit or the full new production, which is more production than the previous one with the new technology, with the new -- the [indiscernible] power we make with a CapEx 1/2 of the new power plant. So I think that is the big advantage. So it means being already a first mover in the United States give us an advantage and at least, in this moment, in the first analysis, probably is going to be more. At least 1/2 of our total fleet is able today to be repowered. So I think that is a positive thing. So the things for already accelerating to do something like in European Union, so I think that should be a good thing, I think. But nevertheless, the Europe has not in [indiscernible], but we have already the Fit for 55 in the next -- and the funds we were allocated for the next-generation funds. I think next-generation funds were allocating 40% of these generation funds were ready fully dedicated for energy transition. So it means I think if it's properly allocated, I think we have as much money as the Americans as planning for already improving already the mix of our generation in Europe. So I think -- I can tell you, for instance, that recently, we just got EUR 150 million subsidy for making already a green methanol project plant in Galicia, the northwest in Spain, so precisely because of these funds, which is our next-generation funds. So -- and I think we are expecting another similar one for green hydrogen, which has been approved by European Commission. It's a big, huge project in the south part of the Spain for making green hydrogen and green ammonia. And we are expecting as well something like. I think the money is allocated. The point now is how to accelerate the procedures and for making that happen as soon as possible.

Next is you highlighted that no caps to infra-marginal technologies are considered in the power market reform, in the European Union one. Do you -- do you still expect Spanish price cap to end at the end of this year? And how much could you benefit from this in 2024?

So I think European Commission has clearly assessed the energy measures such as the cap on infra-marginal technologies should not become part of the electricity market design. So I think that is not part of the design. In any situation, extraordinary situation is happening again, I think it's needed in that it's already been during several months and has to be approved by European authorities. So I think it's not just because one day the prices are moving for whatever reason. It's several months in a consistent manner. They are already -- there will be a situation of pricing, which allowed the member state to ask the European authorities to approve a European level in extraordinary measures. But I think the existing measure is gone. That's it.

Next, are you seeing more interest from governments in promoting the development of transmission infrastructure? What is the current status of Iberdrola's big transmission project in U.K., U.S. and Brazil?

Well, I think you don't mention one important project which is needed is more interconnection between Spain and France. So I think that is a crucial one. It's unfortunate that is not dependent on ourselves, but I think that is very needed. In those that we are already, it's managed for ourselves, I think the case of Britain, I think you know we just completed. We are the owner of the grid, of the transmission grid or partner terms agreed in Scotland. And I think we are reinforcing that one. But as well, we have completed 2 years ago interconnection transmission lines, some are England. The first one who has been made in Europe and of these conditions between Scotland and Wales, that is what is called Western Link. Now it's already another project, which is already just funded by the regulator, which is the Eastern Link. We are just providing the data of amount of money required, but that is going to be made under RIIO-T2 conditions. So in the same condition, the framework of the existing transmission in U.K. and that is represent roughly is a total investment over EUR 2 billion, which I think around EUR 1 billion is our part of it; another part is National Grid. So the same joint venture that we have already for the Western Link is the same you have mentioned for the Western Link. I think that is already ongoing. I think we are in the process of this one. I think the first order has been passed to vendors for -- it's a high-voltage DC and the first order of cable, et cetera, has been passed. They are on other projects, or similar ones, which is, I think, NCC, the interconnection between Canada and Massachusetts. Now we have all the permits, all the approvals, and we are just proceeding and continue the construction. There are certain potential deviation in the CapEx because of the time loss. But I think the parliament of Massachusetts has already approved the rules already for covering the framework, for giving us the comfort to recover the extra cost we can incur as consequence of the time loss. [ They are a new] as well another transmission. New York, as I mentioned, is New York Transco, which, altogether, can already represent EUR 3 billion up to 2030 for injecting electricity into New York City. And I think we are as well in this with a joint venture with another colleagues in United States. And in the case of Brazil, as you know, we have already -- we are building [ sonar ] transmission, 1,000 kilometers of transmission line in several substation. We were already awarded in the auction in 2018, I think, or 2019, and I think that is contraction. Beside in those ones, we make just a deal with GIC that we are already a 50% partnership and there's one for constructing that one. It was recently some auctions in Brazil, I think the prices with certain of our colleagues where offerings were so low that we decide not to continue on this, not to participate in such a condition. So I think you know we are very -- we have a huge discipline, financial discipline. And I think same thing we did already in the auction for seabeds in Germany that has been paid an important amount of money, which I'm very pleased, and that our colleagues of oil is already moving to this sector. But I think we saw that, that is too expensive, and we are not seeing that done in our -- with our vision. It's more conservative than the vision they have about the future prices, which I think, that is make them not. But I think the main transmission is the project in Britain, as I mentioned, project in the United States and in CC Transco and the existing project of transmission in Brazil. Altogether, I think it's a very important amount of money what we are going to dedicate in the next few years, which is several billion euros. I think is -- each of those projects is EUR 1 billion, 2 billion, EUR 3 billion each, so -- which I think is a lot of money.

Next one is they are asking about an update on the PNM deal.

So Gerardo, perhaps is more -- I think I can say on the side of the shareholders, on the side of the partners, I think the agreement has been extend. So I think we've agreed with PNM to extend the agreement, the existing agreement to year-end and with the possibility of extending for a few months later on, if it's needed. But I think, Gerardo, you can -- a lawyer, you can already explain what is the legal framework how did this.

Yes, we will have a hearing in September. It will take place in September 15 about -- before the...