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Edited Transcript of EDPR.EP earnings conference call or presentation 24-Jul-19 12:30pm GMT

Half Year 2019 EDP Renovaveis SA Earnings Call

Aug 1, 2019 (Thomson StreetEvents) -- Edited Transcript of EDP Renovaveis SA earnings conference call or presentation Wednesday, July 24, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* João Manuel Manso Neto

EDP Renováveis, S.A. - Executive Vice Chairman & CEO

* Rui Antunes

EDP Renováveis, S.A. - Head of Planning & Control, IR and Sustainability

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Conference Call Participants

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* Fernando Garcia

RBC Capital Markets, LLC, Research Division - Analyst

* Javier Fernandez Garrido

JP Morgan Chase & Co, Research Division - Head of Utilities and Senior Analyst

* Jorge Guimarães

JB Capital Markets, Sociedad de Valores, S.A., Research Division - Analyst

* Meike Alina Becker

Sanford C. Bernstein & Co., LLC., Research Division - Research Analyst

* Sara Piccinini

Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to today's EDPR First Half 2019 Results Presentation. I would now like to hand the conference over to Rui Antunes, Head of IR. Please go ahead, sir.

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Rui Antunes, EDP Renováveis, S.A. - Head of Planning & Control, IR and Sustainability [2]

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Well, thank you very much. Good afternoon, ladies and gentlemen. And welcome to EDPR First Half 2019 Results Conference Call. Well, I have here with me, Mr. Manso Neto, the CEO of the company. We'll do this presentation as always. I'll start with some highlights from the period. We'll go into the detail in terms of the results. I'd like to show you also the execution of the business line. And by the end, we'll be opened to the Q&A session with you.

So now I'll hand over to Mr. Manso Neto for the highlights of the

period.

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João Manuel Manso Neto, EDP Renováveis, S.A. - Executive Vice Chairman & CEO [3]

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Good afternoon to ladies and gentlemen. Thank you for being here. Well, it's with the pleasure that we are able to announce today a rather positive results for the first half of 2019 after the first quarter, which has what explained in that moment was difficult, mainly because -- difficult because of the very low wind resources. In this quarter, I would say that we normalize the [resources], so it was more or less as we'll see over the average. But and so with this situation, we were able to deliver in all the dimensions that we have promised. In terms of the sell downs, we were able to as we have been announced in the market to make a very accretive transaction, which we are booking now in these results. And so the sell downs are definitely moving according to the plan. And either in terms of volumes and mainly in terms of impact, in terms of results. This is part of the [core business] of the company. Besides that, what we have seen is that we were able, in terms of operation, to have even excluding the sell downs, which are core, but more volatile, very stable set of results, in terms of top line in which the price policy in the hedging was important in terms of keeping the prices at interesting levels, and we did a strong recovery in some markets or also in terms of availability to slight better than last year. And finally, in terms of cost, which I would call your attention that we were able to reduce the cost per megawatt, the core OpEx per megawatt of about 2%. And finally, in terms of the growth. So we delivered in terms of the sell downs, we delivered in terms of the growth and we delivered in terms of operation. Being more specific, what we had present is a 33% load factor. So as I told, the second quarter was more or less normal, 99%. But on average, we are still below last year. On the other hand, the revenues went up as we not withstand the fact that the PTC's part of debt expires as known from the beginning, but with the growth of capacity. And the recovery of the pricing, we were able to have positive evolution in terms of revenue.

Finally, as I referred and we'll see it deeper, that reduction in cost per megawatt, mainly because of our stretch [of our land]. All in all, all this, but keeping what is something which is constant in our company, is to keep very low exposure to merchant prices. 93% of the revenues for this year are already fixed. And for the next year, it's more or less the same.

In terms of the growth, we built -- in this year, already 800 megawatts, 720 megawatts this year on a year-to-year, and this year was. And besides that, we have 1.3 gigas under construction, and we'll show that in more detail. So that strong signal in terms of complying with our 7 giga converted buildup until 2022, which means about 46% secured, which put it in a different way, we were able in the last -- this year, only this year to increase 800 megawatts of the pipeline, not the pipeline, to secure projects for -- until 2022. So 46%, we have just begun 2 months ago 3 months ago this business plan and already 46% secured. The EBITDA, because of this improvement of operations, improvement of materialization of the sell downs, we increased EBITDA by 40%, including the EUR 219 million of the sell down. But even without that, we have a strong improvement in EBITDA. Net profit, again, EUR 343 million, much more different than last year, and again, moved by the -- putting all this together.

Operations, strong operational results. We normally reach in the second quarter an ability to do profitable and equity sell-down transactions.

In terms of our financial, besides the sell down that I referred to, the net debt-to-EBITDA because of the fact that we have not yet booked the sell down amount and because of the growth, we increased EUR 570 million, keeping our balance sheet rather very strong, as you will see later on. The cost of debt continues to be improved -- improves and that we 3.8% cost of debt, not withstanding the fact we are putting more higher-yield currencies, less euros, more reais and more zlotys and more dollars. In terms of the tax equity investors, 6.8%. And as we told in the other previous presentations, we reached last year the lowest level of the lowest cost in the last 10 years. And operation cash flow from all this increased 11%. So all in all, strong results in delivering all the variables that -- all the Xs of our product.

Now Rui Antunes will move us through the details, and I will be back in the end.

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Rui Antunes, EDP Renováveis, S.A. - Head of Planning & Control, IR and Sustainability [4]

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Thank you, João. Let's all turn to Page 7. So here you can see, in terms of the full capacity that we built out in the last 12 months, 880 megawatts and half of them -- more than half of it's in United States. And then we have some projects being built that were built in Europe and also 1 project in Brazil. And today, we're at the halfway under construction, 1.3 gigawatts. So it's good progress in terms of the execution of the projects. And on the chart on the right, you can see the evolution of the installed capacity, the stock of the company from the megawatts that were built. We have 880 as I mentioned. We already sold over these last 12 months 160 as part of the package that was announced by the year-end of 2018. And also we already have announced in April this year a package portfolio of almost 1,000 megawatts, almost 500 megawatts net for EDPR. And that's already reached all the conditions for the transaction to conclude, and we expect the conclusion of this transaction very soon. So all in all, we will get after this transaction total portfolio of 10.8 gigawatts of installed capacity.

In Page 8, and here we can see the performance of load factor in the company. So we reached 33% of load factor. Its 1 percentage point below last year, but we'd like to see this performance vis-à-vis the long-term average for this metric, and we are at 96% of the average. So we have a negative 4% deviation here that impacts, of course, the top line of the company because we have seen lower wind speeds than the average. But you can see on the chart on the right, that there is a recovery on the second quarter, and the second quarter was already considered to be a normal quarter vis-à-vis the average. So most of the deviation comes from the start of the year in the first quarter.

Looking to Page 9, in terms of the electricity production. So it's a combination of higher megawatts that we have in operation and the load factor performance. So in terms of capacity growth, this brings us 1.1 more terawatt hour of production and the load factor makes a deviation 0.4. Nevertheless, this is a growth in terms of electricity production of 5%. On a regional basis, we see there is a 4% in Europe and 2% in U.S., which U.S. was where we have seen a weak load factor as well. So all being in the capacity, it was installed more than offset the weaker load factor, and then we can see a strong increase in Brazil given the project that was installed in Brazil last year.

Moving to Page 10. In terms of average prices, so positive performance of average prices for EDPR is a plus 5% of improvement vis-à-vis last year. Even if we take out the ForEx, there's a benefit, mostly because of the favorable dollar. That was stronger vis-à-vis last year. And the -- there is a 3% increase in terms of performance, in-build performance of the countries. You see performance on the by-regional level, on the left, it's positive in every region. But it's mostly in Europe. And there's a 3% better prices than last year. This is mostly in Spain that realized prices improved. And also -- and mostly in the rest of Europe, mainly in Poland and Romania, that we have seen a strong recovery of the prices, namely market prices and green certificate prices in Poland and market prices in Romania. The rest of the countries have, in U.S. and North America, a plus 1% improvement. And in Brazil, a plus 1% improvement as well.

Moving to Page 11. So total revenues of the company with the megawatts that we installed, we take performance and price performance. We can see that there is a 9% jump in revenues, and we surpassed the EUR 1 billion of revenues in the first half of the year. If we exclude the ForEx, there's a 6% improvement in terms of revenues, if we exclude ForEx. Of course, we have here the negatives of the load factor that took out EUR 28 million in the last year, but we have more megawatts, so it's EUR 71 million more. The average selling price that improved 5%, that's EUR 29 million more, excluding the ForEx here. The ForEx impact, that was EUR 27 million. And then we have the discontinuity that we have in the top line, which should be PTC's exploration for the projects that have reached 10-year life on the 11th year. These projects no longer receive the $34 per megawatt hour of PTCs. So a 9% improvement, 6% adjusted by ForEx, very good performance at the top line, despite the low wind speeds, when you compare with the long-term average and vis-à-vis last year.

Page 12. On the efficiency front. So here we can see total costs on the left on the OpEx graph. So total costs increased 1% vis-à-vis last year. Of course here, this -- the costs are impacted by the new accounting standard IFRS 16 that removes the leases costs out of the OpEx and includes these leases costs in the financial cost and then depreciation line. In comparable terms without this change, total cost has gone up 9%. And if we look at core OpEx, which is the cost that we control, instead of the minus 3% core OpEx, which are the control costs, they have gone up by 8%. Of course, we like to look at these on unitary basis, which is the core OpEx per average megawatt installed is what -- is where we see the efficiency of the company and core OpEx per megawatt installed declined on the adjusted basis by 2% and is ahead of what we've been forecasting to do for this year and ahead of the business plan that we have a target of minus 1% per year of the plan.

Page 13. So in terms of EBITDA, right. So that there's a very good performance in terms of revenues, efficiency on the costs, so the costs increased much less than the capacity that was installed and the growth in capacity. What is in these proceeds is the big export gains that we have booked this quarter. Given that the transaction that we announced in April, all the conditions are already met, and we are about to conclude the financial closing. And we booked a capital gain of EUR 219 million, not yet cash in the first half, but yes, very soon. So total EBITDA went up by 40% to EUR 961 million. And there is a very, very positive performance in terms of operational execution and strategic execution with the sell down. And also shows the underlying value of our product. So this capital gain is absolutely the underlying value that we create on our approaches.

Page 14, net profit of the company. Total net profit of EUR 343 million is times threefold's increase when we compare it with last year. And you see starting the EBITDA that is almost EUR 300 million above last year due to the capital gain from the sell-down transaction announced in April. Depreciation and amortization, that increases in line with capacity, with the new capacity that was installed. Plus by IFRS 16, that moves costs from OpEx to depreciation and financials. And EBIT, that improves by EUR 241 million. Financial expenses that are higher vis-à-vis last year in EUR 53 million. On one side, we have an increase of the average debt of -- our average financial debt of the company, given the investments that were done over the last 12 months. And also we have the IFRS 16 impact here that brings cost from the OpEx to the financial line and also we have the ForEx impact given that we have a cost in dollars, financing cost in dollars that increased due to the dollar, to the strength of the dollar.

Taxes, broadly in line with last year, and we have an effective tax rate of 10%. So the capital gain is tax exemption, that's why the tax rate is so low and assigned a low figure of 10%. And in minorities, there's a small decline of EUR 11 million. This reflects the top line performance of -- in this SPVs where we have minorities. So total net profits, EUR 343 million, EUR 200 million more than the one that we achieved 1-year ago for the same period.

Page 15, cash flow from operations. So we start with EBITDA. A very good jump in terms of performance. We removed some noncash items, we made some cash adjustments. So we are removing here the capital gains that is not yet cash. The rest is the typical cash, cash outflows in terms of paying taxes, paying interests and paying dividends to minorities. And we have our RCF of 490, but the RCF is not yet accounting for the capital gains, that should be finished first.

Page 16. In terms of balance sheets and change in net debts and tax equity liability. So from the RCF of almost EUR 500 million, we moved about EUR 1 billion of cash investments. So the investments that were done throughout the last 12 months that's -- we make all those payments were done in this first half. We pay the dividend -- already paid the dividend to EDPR minority shareholders and to the parent company, have some small deviation ForEx. And there is an increase on the net debt and tax equity basis of almost EUR 600 million. Nevertheless, we can see in terms of net debt-to-EBITDA ratio over the last 12 months over 3.5x. Of course, we are planning to receive a big cash inflow of about EUR 800 million, which is the transaction that was announced some months ago, the one that was announced in April. So this is -- I conclude here the details of the results.

I'll now hand over to João Manso Neto for the business plan execution.

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João Manuel Manso Neto, EDP Renováveis, S.A. - Executive Vice Chairman & CEO [5]

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Yes. Thank you very much, Rui. So I would say, if I had to quantify that business part of the question, I will use very simple words. We are totally on track, totally on track. Not only in what concerns of what we did, but also in what we are creating routes to do. Creating routes to do has to do with pipeline, with contracted pipeline has to do with people, has to do with different organizations that we have been introducing. What really we did? And what did we do? Again, a big performance, as I said in the beginning, was rather strong, even when we take out the things which were extraordinary or at normal, like the PTC extension -- phase out that you knew about, or the IFRS. We see that the performance of the company were able to grow 36% in terms of EBITDA, notwithstanding an average wind factor lower than last year. And even if you take out with what we should not because it's a corrugated business, that with capital gain we should see a strong evolution of EBITDA, notwithstanding this average low wind factor.

In terms of the growth, as you can see on Page 19, what you can see is that before -- 46% execution of the business plan, 800 megawatts secured this year. And interesting is that the guaranteed, confirmed pipeline and the certain pipeline that we are going to build, which has PPAs and has projects with acquisitions. You can see it's not only 3.3 gigs, which is an important number, but it's a number which is rather balanced for the years. And what is also interesting to see is that it's rather despite not in terms of continents, which you can see U.S., you can see European Union, you can see Brazil, but it's also in terms of technology. We begin to see here what we said from the beginning is that solar will tend to be more -- which has these labs here. It tends to be more and more important, and we are being able to secure long-term PPAs, mainly in U.S. and in Brazil.

So again, so we are now -- I can say that it's not just an objective but we are today already a player also. So on the other hand, we will see in the end of this period, the first megawatt got built in terms of offshore, which is an important part. And when I said before that we are on track, not only in what we did EBITDA or not only in terms of the growth but in terms of organization, I would call your attention to the fact that we were able, this quarter, to launch a joint venture with ENGIE, which will enable us to -- with a stronger pool of capital and human resources and ability to originate to a differently and to be one of the market leaders in the near future. As we have talked to the market, our objective is to grow -- move from a 1.5 gigas in construction and operational that we have today to about 5 to 7 and as a development from 4 to 5 to 10. And we are moving -- the joint venture will be in full force in the end of the year. As you know, we -- and when I say we, it's ENGIE and us, that's there together, all the people and all the assets. And then we'll see that we are working already together, and I'm very confident that we'll have results in the very near future.

And finally, what I would like to share with you as per the -- with the sell down, so here basically I repeated what I said before. Sell down is not a way of just of showing capital gains. Sell down makes sense because with the sell downs, we are able to provide to the investor a lower profitability than the one we are obtaining in the new projects. These cases are basically euro -- no, exclusively euro projects. We dedicated from about 4% to 5% IRRs, and we are investing in strong currency between 7% and 11% and this is always the policy. So clearly, capital gains is not a way -- only a way of generating cash to grow, but it's a way of generating cash and grow on equity way. And this is always like this. We're pleased, and it will be always like this. So as I said, in before moving to the Q&A, I would say, very positive results in terms of operations. The EBITDA and net profit showed the strong results in the operations and the business plan is on track and big attractions that we are not only doing, but creating conditions so we need to do it in the future. So basically, this is what Rui and I had to tell you. And now we'll be very available to answer to any questions that you may have.

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Questions and Answers

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Operator [1]

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Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions). And the first question comes from the line of Fernando Garcia from RBC.

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Fernando Garcia, RBC Capital Markets, LLC, Research Division - Analyst [2]

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I have just one question. It's regarding the installation phase of the company. So in 2019, so you are saying that you are going to install a 1.1 giga, if I am not wrong. So after taking into account that the 500 megawatt more or less sold in this year, that means our own net installation of 600 megawatts. This is pretty much in line to the net installation that you have in -- back in 2018, no? So my understanding after the Capital Markets Day is -- was that you were going to have overall growth in the installation phase of the company. Let me know if I am wrong, or if we are going to see this increase in the future years.

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Rui Antunes, EDP Renováveis, S.A. - Head of Planning & Control, IR and Sustainability [3]

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Clearly, that would provide us -- to provide the installation price in terms of the megawatts that we built. So we are showing you the megawatts that we built. The reason of the sell downs can be different year-on-year. It's not a steady reason of the sell downs, it's not that we are saying that for each year we are going to sell x megawatts, okay? So this is what it is. We are increasing much more vis-à-vis what we have in the past years, the new builds that we are doing, that's a fact.

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João Manuel Manso Neto, EDP Renováveis, S.A. - Executive Vice Chairman & CEO [4]

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And you see -- if you look at the numbers of the capacity that we have added plus the one that is already in construction. And I'm not saying that everything is going to be built to finish this year, but nonetheless, still gives you an idea that we are growing at a much higher pace than in the previous years.

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Operator [5]

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The next question comes from the line of Sara Piccinini from Mediobanca.

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Sara Piccinini, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst [6]

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The first one is on the EBITDA, if you can provide a clear number for the countries in Europe. So Spain and Portugal and Europe, without the capital gain? And also if you can indicate the EBITDA impact from the consolidation of these assets? The second question is on offshore wind, we have seen some delays in the authorization for the Vineyard project in the U.S. Do you see this risk affecting offshore projects? And finally, a question on, about [Puriosity] , you have recently sponsored an event on hybridization and repowering. What is your plan regarding repowering and do you think it is valuable to do with merchants given the significant potential to increase production?

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Rui Antunes, EDP Renováveis, S.A. - Head of Planning & Control, IR and Sustainability [7]

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Okay. In terms of the consolidation, these are full year. These assets will bring about EUR 160 million, EUR 170 million of EBITDA. In terms of the capital gain by country, like funding the full figure, the EUR 290 million, we are not providing the by-country level. We are not to disclose different number that we already is written on our reports that were -- that had a regulatory filing, okay? So this EUR 290 million is the total capital gain of the portfolio that we have sold.

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João Manuel Manso Neto, EDP Renováveis, S.A. - Executive Vice Chairman & CEO [8]

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And so regarding the offshore, you see today somebody who wants to be in this -- one of the features that anybody who wants to be a market leader in renewables is the ability to overcome permitting issues. And this is true in onshore. This is true in offshore. And one of the things that -- when you say that we are an integrated player, is that because we are able to, inside the plays, to see what's the better one to find the PPA, to build it in the middle, to develop and to obtain all the authorization. So everything is deep -- there's nothing that's easy in this world, but I would say that offshore is -- the bridge of offshore are no bigger than the other 2 in terms of permit, no bigger than in other places. In many places, it's even less difficult, so. But difficult always exists, and we are prepared for that. We are an integrated player. We are a long-term investor. And we'll be able -- so we don't -- difficulties are normal, and we are not impressed by that. The last question, sorry, I didn't know what it's about?

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Rui Antunes, EDP Renováveis, S.A. - Head of Planning & Control, IR and Sustainability [9]

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Buying and repowering merchants.

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João Manuel Manso Neto, EDP Renováveis, S.A. - Executive Vice Chairman & CEO [10]

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Let's see. Repowering to be -- as I have said, I think, a few times, repowering is a different way of saying that we are going to build a new wind farm, practically using interconnection and the roads, nothing much more than this. So repowering means building a new wind farm. So in order to make, to -- repowering to make sense, it means that we are able to forget the still -- the remaining life of the assets and to build the new one. And it's not easy that, to have all this -- and as our fleet is rather young, even for most -- even for the oldest wind farms. It's not easy that the merchant conditions justify an early rebound, with exceptions. And when the exception exists, we do it and that's what we are doing now. In Oviedo, we are making to develop, to repowering, it's because there were places with very high load factors and which -- it was, make sense to do it. So again, repowering is important, but it's going to be important, I would say, it's not, at least for us for now on a huge scale, but will tend to be important for the -- when we move much ahead in the remaining life of the assets. As you know, our asset life, it's about 8 years. We may have some of them, above [20 25]. But I would say that to justify an investment, we must be very confident that the earnings that are lose, when I destroy it and dismantle that, this previous part, is going to be compensated with future earnings. That's one point. Second point is that, as we know, our policy is that it is a little risk policy. When we make investments, we should have long-term agreements in force. So merchant for us is not the way of developing this sector. We should be based on long-term agreements or contracts that protects the investments in the long term.

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Sara Piccinini, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst [11]

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Clear. Can you please repeat the impact from the consolidation of the assets on the full year? I didn't understand the number.

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João Manuel Manso Neto, EDP Renováveis, S.A. - Executive Vice Chairman & CEO [12]

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EUR 160 million. EBITDA, of course.

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Operator [13]

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The next question comes from the line of Meike Becker from Bernstein.

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Meike Alina Becker, Sanford C. Bernstein & Co., LLC., Research Division - Research Analyst [14]

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I have 2 around the offshore wind joint venture with ENGIE. One is Asia. Would you mind expanding a little bit what markets you find specifically interesting? What you would be looking at? And the other is around technology because ENGIE has foot pointed out floating, becoming more and more interesting, so I was just wondering what your view is? And if that is actually a key to entering some of the Asian markets from your point of view?

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João Manuel Manso Neto, EDP Renováveis, S.A. - Executive Vice Chairman & CEO [15]

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Let's see, when we speak about Asia, the names, which in the markets are, more or less are not disclosing any -- first, in any confidential information in markets like Korea or Japan are the top one. And one of the reasons why we think that this joint venture is particularly well prepared to move, to be the year is because -- precisely because we believe since a long time ago in floating, in many of those markets. In case of Japan is very current -- is very clear. In some parts of Korea, it's also very clear that the solution is going to be more and more floating in which both companies have been pioneers. As you know, we have also an industrial -- we at EDPR and EDP have a commercial [infrastructure] in PPI, in the platform technology, but not exclusive, of course. But frankly, this is technology, and this is a market that we have believed for a long time. So we think that we are partially prepared to floating. But when we think about floating, let's not think only about Asia. If you look at even in Europe, if you think about many trends, if you think about Altantic Gas, in the end of the day, we are going to face floating. And if you think about with foreign things, so. This joint venture is going to be very flexible in terms of the technology, in terms of fixed floating, in terms of divestitures. So I would say the project rate is one of the strengths of our future joint ventures.

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Operator [16]

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The next question comes from the line of Jorge Guimarães from JB Capital.

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Jorge Guimarães, JB Capital Markets, Sociedad de Valores, S.A., Research Division - Analyst [17]

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I have 3. First, can you give us an update on the -- your position on the Portuguese Solar auction? Secondly, can you provide us with an outlook for price evolution, both in the U.S. and in Eastern Europe. And thirdly, it's a bit of a follow-up of what you were discussing about repowering. With what you know today of technology, do you prefer to -- I understand this should be on a case-by-case basis, but would you prefer repower the assets or extend them for 5- or 10-year period?

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João Manuel Manso Neto, EDP Renováveis, S.A. - Executive Vice Chairman & CEO [18]

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Okay. About Portuguese auctions, the only update that I can give you is that they will absolutely begin tomorrow and will end on Monday, and we will participate. And as we have publicly said, we are not -- we think that the long-term agreements with CfD is, the market CfDs are [the ways of] (inaudible), so we'll participate on the modality, on the model of fixed price. And this we are comfortable in that. So this is the only thing that I can tell you. And second point about the pricing outlook. Let's say, I believe that you have in Europe -- Eastern Europe, stability. The prices in those countries, in that -- the big recovery has to do with fundamentals. We exchange namely normalization of the green certificates in Poland. And so we believe that we expect to have stability. In U.S., depends on the submarkets. The fuel costs are going to be important, but in this moment, we don't -- our opinion is not different from what you see in the forward market. And I don't have any special insight on that. And that's why our policy is basically as we don't say, I think, that we have information in those cases, [if it's] from market, that we prefer [the edge], and this is our point. So if you look at, as I told you before, our policy is basically to have more than 90% of the position, that speculating about the market is not our expertise. Different case was the green certification in Poland in which we knew that the fundamentals were there and that the market would stabilize. Even in Romania, you see it, the story in Romania, it's a question of the price is fixed. The question of supply and demand, what I begin to see, is that the liquidity of this market has also improved. About the repowering and extension, I would say that, again, the extension depends on the cost benefits, of course. Depends a lot on the cost benefits. What I think is that the extension is something that normally, it's easier to justify in economical terms. And the small adjustments will tend to increase and does not -- don't require, they are small investments, which don't require in each investment. And repowering, yes, I told you when we make a repower, you have to be confident that the new wind farm is able to pay itself. And it's not only for itself, but also for the lost revenues that you have. And so this is -- sometimes it happens, we are doing it into wind farms in Galicia, but it's not in an exception. And if you think about future, let's say, we speak about repowered life extension, I think the biggest revolution that we are seeing in the short term is another one. And I'm not speaking about [French things], about simple things. The biggest improvement, and the best opportunity to put value on the plate is where we are, it's what we call hybridization. So if you -- -- if with this big and very ambitious objectives that you have in Europe in terms of renewables, and being [robbed], sometimes difficult to obtain the permits, being difficult to obtain the connection, the big simple, but big revolution is to utilize the maximum of our ability to utilize the capacity to inject power in network. How putting together a different technology. In a certain way, it's the concept of overpowering, if you would, more power than the ones that I can -- this, in my opinion, is a very, very big opportunity. In Portugal, the law -- the new law, I open the door to it. I expect that in Spain, it was heavy. In U.S., it's speeding up regulation, also this. And so I believe that this is something which makes all the sense from a macro point of view, but also from a developed point of view. The assets that we have, either, wind where we put solar. Or if you think about the group hydroplants that we can complement with either wind or solar [infrastructure], which I believe that in the next few years we will see that as a very big value. And this has much more value, might be in the short term than repowerings, in my opinion.

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Operator [19]

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(Operator Instructions) The next question comes from the line of Javier Garrido from JPMorgan.

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Javier Fernandez Garrido, JP Morgan Chase & Co, Research Division - Head of Utilities and Senior Analyst [20]

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I have a couple of additional questions on offshore. The first is whether there will be any accounting impact from the creation of a joint venture with ENGIE? And any gain will be realized or any other accounting impact that is worth noting? And then the second question is, operationally, you could update us on what has been your experience so far in Moray East, whether you have found bigger delays and especially there are, in general, what has been your experience in this first stages of the development and construction phase? And then the second question will be on the U.S. operations, you could update us on the trends for PPAs, that whether you have seen any meaningful changes throughout the year, particularly on corporate appetite for PPAs and on the prices that are being discussed? If you have noticed changes or any impact from incremental competition?

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João Manuel Manso Neto, EDP Renováveis, S.A. - Executive Vice Chairman & CEO [21]

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Let's see. About the P&L impact of the joint venture, we are still studying it, but it's not going to change the company and the goal is not to have capital gain or losses. So we do [take share]. So we are still studying. It's not going to change the company -- the results. So not -- should not be strongly material. And we are still studying different geographies, but it's not this which aim to make us doing or not doing a transaction. In terms of Moray East, it's moving perfectly well. As you know, when we bid, we did not bid based on the assets, it will be based on having agreements, supply agreements in the majority of the agreement. The financing -- as you do -- as you know, the financial growth already occurred. So the team is working, and no special -- no problems. In generical terms, we have the people in places developing the job as expected. And in the integration, that joint work with ENGIE, and also in this case, ENGIE, and also [DG] in this region has been very well. In fact, one of the features that we have is the ability to work with partners. And we are doing it. Finally, regarding U.S., so the market is competitive. But again, what I like in U.S. and I'm not saying, is the fact that the competition is not only by price, provided you have the proper pipeline. And what we see is that we have been able to put in value, our pipeline having projects in places where it's more difficult to have the permits. And so in these places, we are working, as you know, more than 50% of our new additions are with corporate PPAs. And frankly again, staffing new, we began back in 2014, '15, and you continue on that. But we said that I would like to call the attention to something that is not a surprise, but it's rather interesting in terms of the scope of demand and supply or free if you want, in winds. Two things, we see more and more the -- from in the classical and regulated utilities, an objective, not theoretical, but a short to mid-term objective of changing that portfolio on replacing in advance their coal fleets. And we have been able -- in the places where we are, to work with these utilities in order to provide them the products to replace the coal plants. And so this is a trend, which is clearly on track, even moving quicker. And the reason for that is basically economics and the fact that renewals are very, are clearly competitive, accelerated the movement. On the other hand, what we are also seeing from many of those in fields or some of them, the objective of being the owners of those assets. And in that case, our business model in those cases had flexibility enough for us to -- also to put our assets, our pipeline, as we have done. For a trend that I would call your attention, the U.S., namely in solar, is the strength of the community to try to segregate in California, which are -- is very strong and reliable of late. The regulation in California was done on an orderly way. And so we are seeing also these companies, these new entities, preclude PPAs. And interestingly, in many cases, putting together also storage. And in fact, we have already signed the first agreement, which starts, which for us, is something about. So I would say, market in the U.S., not only price, but have to have pipeline, and you have to make the flexibility to tackle the different requirements from the uptick.

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Operator [22]

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Thank you. As there are no further questions from the phone lines, I would like to hand the call over to Mr. Manso Neto and Mr. Antunes for closing remarks. Please go ahead.

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João Manuel Manso Neto, EDP Renováveis, S.A. - Executive Vice Chairman & CEO [23]

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Okay. So thank you very much for all for attending. So I expect that it was clear that, not only the results were positive, but the fundamental of the results are very solid, not terms of, because we are delivering all, at all, of their pillars of our strategy, operational sell down and then generating cash. And we are creating conditions for the future in terms of pipeline, in terms of organization on the multi-technology and multi-geographical, right? So thank you very much for attending. And we'll continue our work, and we'll be happy to be with you in the next quarters. Thank you very much.

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Operator [24]

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Ladies and gentlemen, that does conclude the conference for today. Thank you all for participating. You may now disconnect.