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Edited Transcript of ANA.MC earnings conference call or presentation 8-Nov-19 9:00am GMT

Nine Months 2019 Acciona SA Earnings Call

Madrid Nov 27, 2019 (Thomson StreetEvents) -- Edited Transcript of Acciona SA earnings conference call or presentation Friday, November 8, 2019 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Jose Angel Tejero Santos

Acciona, S.A. - Group CFO

* Raimundo Fernández-Cuesta Laborde

Acciona, S.A. - Global Director of Markets & IR

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Conference Call Participants

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* Fernando Garcia

RBC Capital Markets, Research Division - Analyst

* Fernando Lafuente Seseña

Alantra Equities Sociedad de Valores, S.A., Research Division - Research Analyst

* José Javier Ruiz Fernandez

Barclays Bank PLC, Research Division - Research Analyst

* Manuel Palomo

Exane BNP Paribas, Research Division - Analyst of Utilities

* Matteo Rodolfo

Goldman Sachs Group Inc., Research Division - Research Analyst

* Mikel Zabala

BofA Merrill Lynch, Research Division - Associate

* Oscar Nájar Ríos

Grupo Santander, Research Division - Equity Analyst

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Presentation

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Raimundo Fernández-Cuesta Laborde, Acciona, S.A. - Global Director of Markets & IR [1]

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Good morning, ladies and gentlemen. This is Raimundo Fernández-Cuesta. Thank you for attending our 9-months results conference call. Presenting today is José Ángel Tejero, our Group CFO; and myself. Over to you, José Ángel.

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Jose Angel Tejero Santos, Acciona, S.A. - Group CFO [2]

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Thank you, Raimundo. I would like to give you the high-level view of our results for the first 9 months of the year.

Our results show strong growth in EBITDA in terms of headline reported figures and also on a like-for-like basis. The comparison between the 2 periods continues to be affected by the significant perimeter changes, basically, the CSP, Trasmediterránea and Rodovia disposals last year; and the first time implementation of the new accounting rule IFRS 16.

The operating trends underlying our EBITDA during these first 9 months would be the following. Firstly, the low hydro generation volumes in Spain so far this year, which are offset by the higher power prices we have achieved. With respect to the international generation business, new assets in operation continue to drive the growth. In Infrastructure, the Sydney Light Rail global settlement more than compensates for the lower volumes coming from the large construction projects that are maturing or are completed, such as Quito Metro, Follo Line and Dubai. In addition, in Q3, we have started to see the positive impact of the ramp-up of the new desalination plant projects in the Middle East.

With respect to investing for growth, we want to highlight that ACCIONA is clearly accelerating. We have invested during the first 9 months of the year close to EUR 1 billion. We have exceeded, for the first time, 10 gigawatts mark in terms of total installed capacity and the 8 gigawatts consolidated capacity. During this year, we will add more than 450 megawatts of new renewable capacity. And we have full visibility for another 1.1 gigawatts for the next 2 years in our key markets, which, as you know, are U.S., Mexico, Chile, Australia and Spain. We have strengthened our project pipeline, which now reaches 9 gigawatts, including the recent acquisition for the Tenaska solar PV development portfolio of 3 gigawatts.

In the Infrastructure side, our EPC backlog construction includes Construction, Industrial and Water projects that amounts to EUR 8 billion, back at peak levels seen at the end of 2016 and the early of '17. The backlog at around 2x annual revenues give us good visibility.

And finally, it is an event past the September 30. It is well known that we have subscribed an accelerated capital increase of Nordex and subsequently announced a tender offer for all the shares that we do not own.

In Slide 4, you can find the key figures for the period. Revenues are down slightly relative to the previous year. Energy and the other activities show lower revenues due to lower EPC for third parties and the sale of Trasmediterránea, respectively, while Infrastructure increased its revenues marginally with activity picking up in the recently awarded water desalination projects in the Middle East. Reported EBITDA reached EUR 933 million, increasing by 5.6%. EBITDA on a like-for-like basis amounted to EUR 884 million and is up by 14.7%. Our net profit is up by close to 45% if we exclude the EUR 73 million post tax capital gains of last year mainly related to the sale of the thermal solar assets and Trasme. Otherwise, the reported number is down by 3.9%.

Total investment of EUR 982 million, including real estate inventories, is significant. And this is slightly higher than last year even if the 2019 figure included EUR 173 million related to the share buyback program. Net financial debt at the end of the period stood at EUR 5.2 billion, reflecting the high levels of investment and the payment of the 2018 dividend in Q3 of this year. Debt is relatively flat compared to September 2018.

Now let me hand it over to Raimundo.

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Raimundo Fernández-Cuesta Laborde, Acciona, S.A. - Global Director of Markets & IR [3]

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Thank you, José Ángel.

In Slide 5, we show the detail of the investment carried out during the first 9 months of the year. Investment in new renewable energy assets amounted to EUR 346 million with an acceleration of CapEx during Q3 relative to the first half of the year. The investment in Energy these first 9 months of the year represents in terms of the cash outflow mainly wind projects in the U.S., Chile and Mexico. As of September 2019, we have 685 megawatts under construction.

With regards to Infrastructure, investment reached EUR 369 million, including EUR 281 million for the Sydney Light Rail instrument. The net investment in property development inventories includes the one-off purchase of the landmark Mesena project in Madrid, which will be ACCIONA's headquarters.

In Slide 6, we present the drivers for the evolution of net debt between December 2018 and September 2019. Net debt increased from EUR 4.3 billion to EUR 5.2 billion as a result of EUR 426 million of operating cash flow, which is offset by EUR 982 million of total investment and EUR 277 million of financing cash flow, which includes the 2018 dividend payment in Q3 this year and the move in the mark-to-market of derivatives.

In Slide 7, you can find the overview of our debt and liquidity position. As usual, the maturity profile of the debt has been included in the appendix to this presentation. The overall picture has not changed substantially in recent quarters. Corporate debt as opposed to project debt remains to close to 80% of total, and our exposure to fixed rate is at almost 60%. If we assume the full drawdown from the ESG-linked syndicated loan arranged early this year, the underlying exposure is around 65%, which is in line with the ranges that we target.

Our average cost of debt continues to evolve favorably. And as we've mentioned in previous quarters, our initiatives to continue making our funding model more efficient include our regional cash pooling structuring outside of Spain, raising corporate debt and liquidity at the local level. And we're doing this, in particular, in big markets for ACCIONA such as Australia and in Chile, and we're making good progress in Mexico. And finally, we are constantly reviewing project and structures that could merit refinancing with corporate debt. We continue to work to extend the average debt maturity of our stock of debt without paying a premium.

Moving on now to the operating performance of our businesses. In Slide 8, you can find a summary of the Energy division. Revenues are down by 5.6%, the biggest driver here being the -- that last year, we had revenues from the EPC of Puerto Libertad PV plant in Mexico, which, as you know, is 50% owned by us. At the EBITDA level, year-on-year growth reached 6.7%. And on a like-for-like basis, that is excluding the CSP business we sold and the impact of IFRS 16, EBITDA growth year-on-year would be 10.3%.

Starting with the Spanish business. The summary is that EBITDA fell by 8.5% as a consequence of the sale of the CSP business last year. Otherwise, the lower hydro output was compensated by the higher prices we have achieved. Hydro production has fell by 45% relative to last year, which you will recollect it was a very good year. And we're almost 30% below what we call a normal year, normal year expected levels. All in all in Spain, our output is down 11% year-on-year and is 6% below the normal year.

In terms of prices in Spain, average pool prices for the first 9 months of the year were EUR 49.9 per megawatt hour, and they were 10% below last year's levels. The forwards for the rest of the year imply that the average pool price for 2019 will be EUR 49.3 per megawatt hour. ACCIONA's average achieved prices in Spain, including the regulatory income, increased by 7% to EUR 77.4 per megawatt hour. We were fully hedged last year at lower than market prices, what they turn out to be. And in 2018, the average pool price reached EUR 57 per megawatt hour, which was one of the highest in history, and we didn't capture that last year.

With respect to hedging levels for the whole of 2019, we are hedged consistent with our policy of covering up to half of the nonregulated volumes in Spain. We have hedged 1.9 terawatt hours at prices of close to EUR 58 per megawatt hour. As a reminder, our Spanish output on a normal year, on a consolidated basis, it's 10.2 terawatt hours. And out of that, just over 4.5 terawatt hours are nonregulated. For 2020, we're currently hedged at just over EUR 56 per megawatt hour for around 25% of our nonregulated volumes. With respect to the international business, EBITDA is up by 10% driven mainly by the contribution of new capacity, which added EUR 24 million during the period.

In Slide 9, we have included a summary of the capacity that we will add during 2019 as a whole and during the next 2 years, reflecting the acceleration in our capacity additions and what we think is excellent growth visibility. We added 390 megawatts during the first 9 months of the year. And in this slide, you can see that we expect to add for the whole of 2019 a total of 462 megawatts. We will have construction as of December this year of another 613 megawatts, and a further 493 megawatts will start construction during next year, 2020. This means that we currently have 1.1 gigawatts of projects that will be commissioned during the next 2 years in addition to the 462 megawatts that we will add this year.

As you can see, our key markets remain the U.S., Mexico, Chile, Australia but also Spain, with the first new investments in Spain in 2020, and that's in addition to the small repowering we completed recently. Growth beyond the next 2 years will feed from our 9 gigawatts of pipeline, which has been boosted by the recent acquisition of the Tenaska development portfolio in the U.S., which includes 20 PV projects, solar PV projects, that total 3,000 megawatts as well as battery storage projects in early stage of development. Our headline 9-gigawatt pipeline includes 1.6 gigawatts of the total Tenaska potential, so we have included all of it in that figure. We believe that 1.2 gigawatts of Tenaska projects could be taken to ready to build, implemented and made operational during 2020 and 2023 -- sorry, 2022 and 2023.

With respect to Spain, the 9-gigawatt figure includes around 3 gigawatts of Spanish pipeline, of which around half has already connection to the grid. And that's -- in terms of what we're going to be building next year, which is 75 megawatts, we expect to have a further 350 megawatts in ready-to-build state to be presented to our Investment Committee next year. Beyond 2020, in Spain, we expect to be able to originate between 400 and 600 megawatts ready to build per annum. And the actual investment that we undertake will depend on the state of the market and return expectations at that time.

Moving on to the Infrastructure division. In Slide 10, we summarize the main indicators and the evolution of EBITDA. Revenues increased marginally to EUR 3.7 billion. And EBITDA is up by 5.1% with an improvement in Construction and Industrial, which includes the positive impact from the Sydney settlement, and a lower contribution from Water and Concessions driven by perimeter changes, namely ATLL and the Rodovia. Services contributed higher EBITDA. And then when we look at the global backlog, the total backlog for the Infrastructure division, it amounted to EUR 11.4 billion at the end of September. That's relative to EUR 10.8 billion in December. Within that, the EPC component, EPC backlog stands very strong at EUR 7.9 billion relative to EUR 7.1 billion at the start of the year. New awards in terms of new EPC projects include the Shuqaiq desalination plant in Saudi Arabia for almost EUR 400 million; a new rail project in Norway for EUR 295 million, which is building upon the success of the Follo Line project; and the waste-to-energy plant in the U.K. for EUR 235 million; and many other projects. In Spain, the backlog continues to show an upward trend, having increased from EUR 1.5 billion at the start of the year to EUR 1.7 billion, and that is now representing 21% of the total EPC backlog of the group.

Moving on now to Slide 11, we show the performance of the individual activities within the Infrastructure business. To summarize, in Construction and Industrial, revenues are flattish, and EBITDA increases by 40% as the Sydney settlement comfortably offsets for some of the large international projects which are maturing or completing during the year. Concessions and Water, as mentioned, are affected by changes in perimeter. And just to note again that in Water, the execution of the new desalination projects in the Middle East are starting to pick up speed. And as we said, this was expected in the latter part of the year, and therefore, we're seeing increased contribution.

In Slide 12. On the Property Development business, you see that EBITDA reduced its small negative EBITDA by EUR 3 million. This business, as you know, is focused on the development of real estate projects in Spain, Mexico, Poland and Portugal and continues to be in deep investment phase, having sold in recent years the vast majority of the rental income-generating assets. ACCIONA has been investing almost EUR 400 million in development in the last 3 years, and this profit potential is, for the most part, embedded in the gross asset value that you can see in the slide, which we estimate to be currently at close to EUR 1.1 billion. And that includes EUR 100 million of gross capital gains embedded there. Our ready-to-build land bank represents 4,500 residential units, and that includes the 1,600 residential units that we've put in the market during the first part of the year.

On Bestinver, on Slide 13, reported EBITDA of EUR 46 million is down 11% year-on-year on the back of lower average funds under management relative to the first 9 months of 2018 and also the different product mix. Assets under management are up as of September relative to December last year principally due to the performance of the funds. The Fidentiis acquisition is still not reflected in this number as it is still pending regulatory approval, which we are hoping will come in -- or expect to come in this quarter, the last quarter of 2019.

And to conclude the presentation, let me hand back to our CFO.

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Jose Angel Tejero Santos, Acciona, S.A. - Group CFO [4]

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Thanks, Raimundo.

As closing remarks, we would like to highlight that our profits are growing strongly during the first 9 months of the year. This makes us confident about achieving our 2019 targets that we provided to the market at the start of the year.

We are investing significant amounts to secure the many value-enhancing opportunities that ACCIONA, as a global operator of energy and infrastructure, is creating. We are accelerating the rate of our capacity additions and currently enjoy visibility for 1.1 gigawatts of new additions for the next 2 years, mostly in our core markets. And of course, we have boosted our predevelopment pipelines.

In Infrastructure, our EPC backlog stand at peak levels. This gives us confidence on production and contribution for the next 2 years. We also see activity growing in our key markets.

And finally, let me reiterate our commitment to our financial policy for remaining below 4x net debt to EBITDA for this year.

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Raimundo Fernández-Cuesta Laborde, Acciona, S.A. - Global Director of Markets & IR [5]

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Okay. Now we would like to open the Q&A session. Kindly reminding you, as usual, to identify yourselves and the institution. (Operator Instructions) Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question today comes from Oscar Nájar from Santander.

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Oscar Nájar Ríos, Grupo Santander, Research Division - Equity Analyst [2]

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This is Oscar Nájar from Santander. I have 2 questions. The first one is regarding the like-for-like growth for this year that now is 14.7% including the EUR 100 million coming from Sydney. What are you expecting for the full year? Because the target is high single digits, so are you expecting that level or above as in the 9 months?

And the second question is regarding the net debt level. You have said a couple of times that you committed to the net debt/EBITDA of less than 4x. Now we are around 4.2x, so obviously, there have been some one-offs until now on the negative side. But how do you think would you achieve this? Will it be a strong cash flow generation in the fourth quarter and why? Or will it be an acceleration of -- on the EBITDA?

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Jose Angel Tejero Santos, Acciona, S.A. - Group CFO [3]

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Thanks, Oscar. We maintain our expectation on a like-for-like basis of a strong growth of EBITDA for the full year. And in terms of the net debt-to-EBITDA ratio, we confirm our expectation to be below 4x as EBITDA contribution for the -- in the last quarter is normally the best one of the year, the best part of the year. And also in terms of working capital behavior, also the last quarter of the year, it is also the best one in terms of behavior.

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Operator [4]

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The next question today comes from José Ruiz from Barclays.

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José Javier Ruiz Fernandez, Barclays Bank PLC, Research Division - Research Analyst [5]

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Yes. Two question on my side. The first one, if you could clarify the line at EBITDA from ACCIONA Energía. The development and construction now there is plus EUR 2 million positive. Could you also give us a guidance for the rest of the year?

And secondly, on the pipeline, you have announced post-2020 the 400 to 600 megawatts per year. Can you be more specific of the time line, so between 2021 and which of the year?

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Raimundo Fernández-Cuesta Laborde, Acciona, S.A. - Global Director of Markets & IR [6]

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Thank you. Yes, with respect to this line in the EBITDA of Energy, that normally reflects the development costs and also the allocation of ACCIONA head office costs to the business. That has declined. And on the side of the development costs, given the very accelerating activity in terms of new megawatts that are being added, this has allowed us to absorb most of -- more of these development costs. So that's what's driving that line.

In terms of your second question on the growth in Spain of the megawatts, we talked about 400 to 600 megawatts. Of course, we are ramping up the activity in Spain in terms of development. And in essence, the old projects that we have developed, we're pulling them back and developing additional greenfield projects. It's early to say what the average will be for the next decade, but we -- basically, as we said, we have these 3 gigawatts. We have already 75 already approved to be constructed beginning of this year, another 350 that will be put to -- expected to be put in front of our Investment Committee next year. And after that, again, we said that this 400 to 600 megawatts that we can -- we think, at this stage, we can generate in terms of opportunity on average. And how much we invest will depend -- I mean we are keen on investing in Spain, and we're confident on the outlook, but the final investment will depend on returns on the market.

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Operator [7]

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The next question today comes from Fernando Garcia from RBC.

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Fernando Garcia, RBC Capital Markets, Research Division - Analyst [8]

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It's Fernando Garcia from RBC. I have just one. I have -- I wanted to have a clarification regarding your pipeline. You said in the first half results that you have 7.5 gigawatt of pipeline, and then you added this 3 gigawatt of Tenaska. And now you are saying that your pipeline is 9 gigawatts. So I would like that you -- if you can build the bridge between the 7.5 and the 9, taking into account this additional 3 gigawatt.

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Raimundo Fernández-Cuesta Laborde, Acciona, S.A. - Global Director of Markets & IR [9]

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I understand your question, and I cannot build the bridge here. But what I can say, the pipeline is dynamic. We are adding constantly projects, so the projects are coming down. We don't put in the pipeline. Every single project that we have in mind or any idea or opportunity that we could have. We take what we think is something that we can work on and develop. And as we were progressing with the negotiations with Tenaska, we already have some of these projects already included. We've included more now that there's more tangibility. But we're not including all of Tenaska, only part of Tenaska, in the same way as not everything we're looking at in Spain is included there. So basically, I think we're comfortable to move from 7.5 to 9 gigawatts in terms of headline pipeline, reflecting the increased, I think, visibility of our PV plants in the U.S. and a lot of progress that we made in the last 6 to 9 months in the Spanish market to beef up our growth capabilities in our local market. Again, what is important is that our rate of additions at the moment, this is not just pipeline, this is what you're seeing that we are proving and constructing is clearly increasing. Thank you.

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Operator [10]

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The next question today comes from Mikel Zabala of Bank of America.

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Mikel Zabala, BofA Merrill Lynch, Research Division - Associate [11]

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Mikel Zabala from Bank of America. I have 2 questions, please. So you mentioned in your presentation that Water EPC is ramping up. Could you please comment on when do you see this contribution stabilizing or peaking and at which levels, please?

And the second one is you seem to include the Sydney settlement in your EBITDA like-for-like. Could you please comment on the year-on-year performance excluding this item? Is it flat? Is it mid-single digits? So any comments on that would be helpful.

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Jose Angel Tejero Santos, Acciona, S.A. - Group CFO [12]

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Thank you. On the second question, basically, on Construction business, we don't do cherry picking of the projects that we are performing. So the settlement of Sydney is a significant amount, but it's nothing different than any other commercial dialogue that we have with other customers in other projects.

Yes. On the Water projects, as you know, we had last year very significant awards in the Middle East. We see activity peaking also in the Southeast Asia region. And in the end, it's a matter of what is the level of our EPC portfolio. And as we -- as it stands now, we have secured work for 2 years of cooling activity at these levels on a global way in all our EPC activities. So we don't expect a reduction in the activity in the EPC business.

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Operator [13]

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(Operator Instructions) The next question today comes from Manuel Palomo from Exane.

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Manuel Palomo, Exane BNP Paribas, Research Division - Analyst of Utilities [14]

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I've got a follow-up. And also, I wanted you to please remind me another one. So the follow-up is on the Energy division. This development, construction and other has been, as far as I am concerned, negative for the last many, many quarters. And suddenly, in this quarter, it's positive by around EUR 15 million. I appreciate that you could be reducing the -- well, the corporate costs and other things. But I think that maybe there's something else that makes it positive in this quarter, so if you could clarify why the positive contribution in the quarter, that would be great.

And the second one, it's just a reminder. When I look at the -- in the P&L and looking at the profit and loss from changes in value of instruments at fair value, I see EUR 9 million. It was EUR 8 million in the first half. Could you please remind me what assets you have revalued?

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Raimundo Fernández-Cuesta Laborde, Acciona, S.A. - Global Director of Markets & IR [15]

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Yes. Manuel, let me start with the last question. This is the -- this movement is -- this is basically PPAs that are accounted through the P&L related to assets such as San Roman and Palmas Altas in the U.S., which they have a hedge and contracts also, for example, like the one we have in Chile, in Google. So this will depend on movement on power prices and how they fare relative to the PPA.

On the other question, again, this other and adjustments is basically development costs and the importation -- or allocation of head office costs. And you have to put that in relation, in particular, with the development cost with the slide that we have included, in 9, where we are, again, accelerating the growth and putting more assets on the ground. And that allows us to absorb most of those costs into the investments.

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Operator [16]

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The next question today comes from Matteo Rodolfo from Goldman Sachs.

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Matteo Rodolfo, Goldman Sachs Group Inc., Research Division - Research Analyst [17]

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Matteo Rodolfo here from Goldman Sachs. Just 2 questions from me. Number one, can you confirm whether the ATLL monetization is in any way contributing to the EBITDA of the Infrastructure division?

And secondly, going back to the 400 to 600 megawatts that you're planning to invest in the long term in Spain. Could you give us a bit more detail on whether this is mostly wind or mostly solar? And if so, whether you're looking to develop this on a largely merchant basis.

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Jose Angel Tejero Santos, Acciona, S.A. - Group CFO [18]

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Let me confirm to you that the ATLL monetization doesn't have or didn't have any impact on the EBITDA figures of the business. As we explained in the last quarter result presentation, the impact is -- in the balance sheet is accounted in the liability side as other current...

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Raimundo Fernández-Cuesta Laborde, Acciona, S.A. - Global Director of Markets & IR [19]

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Liabilities.

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Jose Angel Tejero Santos, Acciona, S.A. - Group CFO [20]

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Current liabilities. Yes, on the additional capacity in Energy, the idea is to be balancing our portfolio of -- from a portfolio that it is heavily weighted on wind, doing a transition to a more balanced portfolio to have more PV also contributing to our Energy portfolio.

Also, you were questioning whether that portfolio in the new addition were going to be merchant or with PPAs. Now the trends is customers and counterparties wants -- normally wants to be -- to see the portfolio and the assets already being built before contracting a new energy with counterparties. And the idea is that we would be adding initially the portfolio on a merchant basis but being complemented with a strong commercial activity to do -- to sell that energy on the long term.

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Operator [21]

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The next question today comes from Oscar Nájar from Santander.

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Oscar Nájar Ríos, Grupo Santander, Research Division - Equity Analyst [22]

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These are kind of follow-ups for a couple of questions you got regarding the orders in Energy. I think that the question mark here will be, do you see sustainable these new levels of much lower negative contribution of others? In the 9 months last year was minus 58. Now it's minus 24. Could you give us some idea of what should be the level we should take a look to in the future?

As a question, I would like to go to M&A. Regarding Nordex, would you remind us what should be the calendar for the takeover bid? And in the case of KKR, if you can give us some numbers or how the disposal of the KKR's assets in ACCIONA Energía Internacional is developing and if you are interested in this asset and how you will prefer to finance, with disposals or with net debt.

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Raimundo Fernández-Cuesta Laborde, Acciona, S.A. - Global Director of Markets & IR [23]

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All right. Oscar, so you have question on the other and adjustments line in Energy; and then on the M&A side, Nordex and KKR. On the others, that line, as you've seen, we are, again, accelerating our growth and the amount of assets we're putting on the ground. The more capacity is installed. The more activity there is, the more these costs are absorbed. So they -- so the trend that you're seeing, in our view, is sustainable.

Moving on to the M&A, let me start with the easy one, which is KKR, where there's no news to report. And then on Nordex, just to recap what we said at the presentation back on the 8th of October, we -- this is when we made the announcement. As you know, the obligation is to file the document, the offer document with BaFin, the securities or financial regulator in Germany, within 4 weeks. We did that. So the document was filed earlier this week. And from that, we expect normally between around 2 weeks or maybe a bit more for the document to be approved. And then you will have the acceptance, and additional acceptance periods have been announced within that document. We -- for obvious reasons that we filed this document, we cannot give you detail, but we stick to what we said back on the 8th of October, which is that we would expect this offer period -- or basically, the settlement of the transaction to take place in early 2020. And that's all we can say.

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Operator [24]

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The next question today comes from José Ruiz from Barclays.

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José Javier Ruiz Fernandez, Barclays Bank PLC, Research Division - Research Analyst [25]

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Yes. Just one follow-up question. On the Construction margin, you show 9.3% in the first 9 months. Could you provide us the figure without the Sydney Light Rail?

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Jose Angel Tejero Santos, Acciona, S.A. - Group CFO [26]

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I think that we make a mention on this before. Normally, on the Construction business, on all the EPC business, we don't do cherry picking on taking out one contract or another. Construction activity is an activity, in essence, has a volatility on contract-by-contract volatility margins. But we like to see the trend of all the projects during the time. And Sydney Light Rail is another contract like any other one in our portfolio.

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Operator [27]

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The next question today comes from Fernando Lafuente from Alantra.

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Fernando Lafuente Seseña, Alantra Equities Sociedad de Valores, S.A., Research Division - Research Analyst [28]

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Raimundo and José Ángel, 2 questions, please. The first one on CapEx, what is your expectations for the year on CapEx? What is the amount you expect to invest basically in Q4 and as of the end of the year?

And the second question, it's on M&A but on the disposal side. Press leaked like a few -- a couple of weeks ago that you could consider the sale of the Services division. Was wondering if you could give us a view of your assets. And what, in your opinion, could be sold or it's less core and what is not?

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Raimundo Fernández-Cuesta Laborde, Acciona, S.A. - Global Director of Markets & IR [29]

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This is Raimundo. Thanks, Fernando, for your questions. On CapEx, we expect potentially some residual CapEx in the last quarter but, in principle, not very significant. So...

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Jose Angel Tejero Santos, Acciona, S.A. - Group CFO [30]

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Except Nordex.

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Raimundo Fernández-Cuesta Laborde, Acciona, S.A. - Global Director of Markets & IR [31]

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Yes, except for, of course, the Nordex, the EUR 100 million capital increase that we subscribed on the 8th of October for Nordex. But I think in terms of the ordinary CapEx, Energy, Infrastructure, et cetera, should be relatively small.

In terms of disposals, there was an article out there, but I think we would just mention that we carry out on a regular basis the strategic reviews of the businesses we're doing. And within the Services activities, which has been looking at which assets, so businesses within this division fit with our strategy of having a clear and sustainable development component, differentiation, technical sophistication and growth and scalability potential. And that's all we can say at the moment. Thank you.

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Operator [32]

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(Operator Instructions) The next question comes from Manuel Palomo from Exane.

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Manuel Palomo, Exane BNP Paribas, Research Division - Analyst of Utilities [33]

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Another 2 questions for you, guys. First one is on real estate. Last year, if I recall well in the last quarter, you booked quite a decent gain in real estate. And I wonder whether this could be one of the sources of growth for the fourth quarter in the -- for the EBITDA. I mean is the real estate going to have a positive contribution by year-end? What is your expectation?

And the second one is just a clarification. When you talk about the net debt to EBITDA being below 4x, does it exclude IFRS impacts both at the EBITDA and the debt level, or includes it? Or how are you making this calculation?

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Raimundo Fernández-Cuesta Laborde, Acciona, S.A. - Global Director of Markets & IR [34]

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Let me start with the net debt to EBITDA. The headline ratio and our target of being below 4x is including IFRS, although we, of course, monitor both levels.

In terms of real estate, we're expecting a better contribution in the fourth quarter of this year because we had some back-end-loaded deliveries to the market.

With respect to what happened last quarter last year, and I think we've been explaining that result is in the presentation, is that because a lot of this -- we had some deliveries that were going to happen in early 2019 that were basically sold. And when the valuer comes and looks at these assets, the market value is basically what you sold them at since you're about to deliver them. So we had to increase the value of this work in progress, which is -- which comes through the EBITDA line. So basically, we were including the profit of these deliveries of the margin at the end of the quarter. Although the actual deliveries took place at the end of the year, they took place in early 2019. So that's why you see a big increase in revenues, but you don't see that EBITDA coming because it had come a quarter before. So that's the explanation.

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Operator [35]

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The last question today comes from Mikel Zabala from Bank of America.

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Mikel Zabala, BofA Merrill Lynch, Research Division - Associate [36]

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Just a follow-up on Construction and Industrial. So would you expect the current levels of EBITDA for the next year, for 2020, or do you expect them to further reduce or to recover to levels pre-2019?

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Jose Angel Tejero Santos, Acciona, S.A. - Group CFO [37]

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We normally do give guidance at the end of the year. At this moment, we are building up our internal budgets, so we cannot comment on this particular point.

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Operator [38]

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We have no more questions registered, so I now hand it back over to you, guys, for any closing remarks.

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Raimundo Fernández-Cuesta Laborde, Acciona, S.A. - Global Director of Markets & IR [39]

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Okay. Thanks for participating in this call, and we look forward to speaking to you soon. Thanks so much.