EDP Energias de Portugal S A : Results Handout 9M20
10/29/2020 | 12:15pm EST
Date: Friday, October 30th, 2020, 11:30 am (UK/Portuguese time)
Lisbon, October 29th, 2020
EDP - Energias de Portugal, S.A. Headquarters: Av. 24 de Julho, 12
1249 - 300 Lisboa, Portugal
Main highlights for the period
Consolidated Financial Performance
Profit & Loss Items below EBITDA
Cash Flow Statement
Consolidated Financial Position
Net Financial Debt
Client Solutions & Energy Management
Income Statements & Annex
Income Statement by Business Segment
Quarterly Income Statement
Generation Assets: Installed Capacity and Production
Regulated Networks: Asset and Performance indicators
Financial investments, Non-controlling interests and Provisions
Main highlights for the period
Key Operational Data
Installed capacity (MW)
Weight of Renewables (1)
Weight of Renewables (1)
Specific CO2 emissions (g/KWh)
Customers supplied (thousand of contracts)
Customers connected (thous.)
Income Statement (€ million)
Other operating costs (net)
Joint Ventures and Associates (2)
Income taxes & CESE (3)
In 9M20, EDP's net profit dropped 8% YoY to €422m, with electricity prices and demand falling significantly vs. the same period of last year, despite some recovery in 3Q20. After electricity distributed in Portugal experienced a sharp 11% decline in 2Q20, the 3Q20 was broadly in line with the previous year (+0.3%), leading to an overall decline of 3.4% in 9M20, in line with the trends also observed in Spain and Brazil. In 9M20 the COVID-19 pandemic had a negative impact of €54m on net profit, excluding forex impact, mainly due to the decline of electricity demand and increase of provisions on clients' debts overdue.
Net profit in 9M20 was also penalized by non-recurringcosts of €247m (after taxes), mainly related to conventional generation in Portugal including (i) costs related to the anticipated closure of Sines coal plant, planned for the first days of 2021, (ii) provision on the alleged overcompensation regarding CMEC plants' participation in the ancillary services market in 2009-2013, which was included in the recent regulated tariffs' proposal for 2021, (iii) the extraordinary energy tax in Portugal (CESE). This context justified a negative reported net profit of €23m in Portugal in 9M20, which follows 2 consecutive years of losses in conventional activities in our domestic market. Regarding CESE, given the current pandemic and following EDP's periodic assessment on ongoing legal proceedings based on the likelihood of success and associated costs, EDP decided to withdraw the litigation with the Portuguese State related to CESE. This decision will not have any impact on EDP's financial statements, given that this cost has been annually accounted since its
introduction in 2014 and EDP is up to date with all due payments. EDP continues to assume a gradual decline of the CESE contribution over the next few years, in line with the expected sustained decrease of the electricity system's debt, as outlined in the State Budget proposal.
Recurring net profit increased 14%, to €669m in 9M20, driven by the recovery of hydro resources in Iberia to close to normal levels (compared to the dry 9M19), and by our risk management policy in energy markets, with positive results supported by the high volatility in the period. These effects more than offset the devaluation of the Brazilian Real against the Euro (-23% in average terms), wind resources 9% below the long-term average (P50) and lower YoY gains on the asset rotation strategy in renewables to €200m in 9M20, mostly associated to the establishment of the wind off-shore JV with Engie. EBITDA decreased 2% YoY to €2,625m in 9M20.
Excluding forex impact, EBITDAex-forexincreased 3% YoY. As of September 2020, EDP had more than 20 GW of renewables'
installed capacity, and a pipeline of long-term contracted projects under construction or development of 6.5 GW, of which 0.7 GW were contracted during 2020. EDP's contribution to decarbonize the economy accelerated during the 9M20, with a 10% increase in renewables production and a 47% reduction YoY on specific CO2 emissions. Following the decision to anticipate the closure of the Iberian coal plants, EDP has reinforced its commitment to decarbonization, contributing to limit global warming to "no more than 1.5ºC", a commitment authenticated by the global independent initiative "Science Based Targets". In electricity networks, growth was concentrated in Brazil: in transmission, 79% of total capex in the 6 projects is already executed. The EBITDA in Iberian electricity
Net Profit (EDP Equity holders)
Key Performance indicators (€ million)
Recurring EBITDA (4)
Clients solutions & EM
networks was penalized by the lower regulated rates of return (to 6.0% in Spain and 4.85%, before energy tax (CESE), in Portugal). In the client solutions and energy management segment, results were supported by the good performance of our energy management activity, which mitigated the reduction in the load factors of thermal power plants. In clients' services in Portugal and Spain, the penetration rate of new services increased to 19.3% (+0.7 p.p). The financial results in 9M20 improved 7% YoY. Excluding the one- off cost, related with the repurchase of the hybrid bond, net financial interests improved 21%, with the positive impact of the lower
average cost of debt to 3.2% (-80 bp YoY).
Net debt decreased by 6% YTD to €13.0 Bn inSep-20, with a positive impact from the €1 Bn rights issue concluded in Aug-20. Recurring organic cash flow increased 36% to €1.4 Bn in 9M20, driven by decline in financial costs and lower payments to TEIs and minority interests. Net expansion investments increased 34% to €1.2 Bn, 89% of which in renewables. The 9M20 Adjusted Net Debt / EBITDA ratio fell to 3.4x as of Sep-20, vs. 3.6x in Dec-19. In 2020, EDP has already issued €2.2 Bn green bonds, at an average cost of
Recurring net profit (4)
1.7%, with the green financing currently representing 30% of EDP's debt. The financial closing of several transactions announced
during the last 12 months is expected to occur before the end of 2020, namely the disposal of 2 CCGTs and B2C supply in Spain, the
sale of 6 hydro plants in Portugal, the 2 asset rotation deals in Europe and USA, as well as the Viesgo acquisition in Spain and
Key Financial data (€ million)
consequently the partnership with Macquarie for electricity distribution in Spain. These transactions will contribute to reinforce even
more EDP's low-risk profile and focus on the energy transition.
Net debt/EBITDA (x) (5)
(1) Including Wind, Solar, Hydro and mini-hydro capacity;
(2) Full details on page 27; (3) CESE: Extraordinary contribution from the energy sector; (4) Excluding one-off impacts as per page 3 (EBITDA) and page 4 (Net profit);
(5) Net of regulatory receivables; net debt excluding 50%
of hybrid bond issues (including interest); temporary effect of the anticipated sale of 2020 tariff deficit; and based on trailing 12 months recurring EBITDA.
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EBITDA (€ million)
Wind & Solar
Client solutions & EM
- Adjustments (1)
EBITDA in 9M20 amounted to €2,625m (-2% or -€51m YoY), largely reflecting the adverse ForEx
impact (-€120m due to 23% depreciation of BRL against Euro) and one-off cost related to the anticipated shutdown of Sines coal plant (-€22m). Excluding ForEx impact, recurring EBITDA, amounting to €2,647m, advanced by 3% YoY, reflecting normalisation of hydro resources and successful hedging strategy in energy management in Iberia, on the one hand; lower EBITDA in wind and solar on deconsolidation of renewables assets sold during 2019 in accordance to the execution of our asset rotation strategy, asset rotation gains lower YoY and weaker wind resources, on the other hand.
RENEWABLES (60% of EBITDA, €1,572m in 9M20) - EBITDA was 6% lower YoY (-€93m YoY)
reflecting on the one hand the strong recovery of hydro resources in Iberia to close to normalized levels vs. the very dry 9M19, coupled with our hedging strategy and on the other (i) the de- consolidation effect of wind assets sold (-€96m YoY), (ii) lower gains on asset rotation strategy (- €26m YoY to €200m in 9M20); (iii) weaker-than-average wind resources in the period (with a negative impact of ~€100m in the period vs. normalized level) and (iv) the unfavorable impact of the Brazilian Real depreciation (-€36m YoY).
NETWORKS (25% of EBITDA, €664m in 9M20) - EBITDA declined by 12% YoY (-€87m YoY), driven
by: (i) 23% depreciation of BRL against the Euro (-€55m); (ii) in Brazil, the YoY unfavorable impact from last year's gain booked in the wake of the higher asset base recognized in the regulatory revisions (justifying a 8% YoY decline in local currency EBITDA); (iii) lower regulated rate of retun in Portugal (-29bps to 4.85%) and in Spain (-50bps to 6.0%). OPEX in Iberia went down 5% supported by successful tight cost control, as well as a lower number of realized operations due to the restrictions imposed by the pandemic.
CLIENT SOLUTIONS & ENERGY MANAGEMENT (15% OF EBITDA, €400m in 9M20) - EBITDA rose by 39%
YoY (+€113m YoY). In Iberia, our successful hedging strategy prompted for an increase in hedging results which more than offset the lower output in thermal plants and a normalization of the operating conditions in supply after the adverse market environment in 2Q20. In Brazil, EBITDA performance largely reflected the BRL depreciation against the euro (-€24m), while local currency performance was driven by weaker performance on energy management and Pecém's positive contribution (PPA remuneration based on availability). Overal, our coal fired power production decreased 64% YoY with the weight of coal in the generation mix decreasing from 18% in 9M19 to 7% in 9M20 and coal weight in EDP group's revenues falling from 7% in 9M19 to 5% in 9M20.
As final remarks, and relative to Portugal, it is worth to mention:
EDP's decision, following periodic litigation assessment, to file a complaint with the European Commission to assess the compliance relative to the future of the Social Tariff funding mechanism, fully supported by ordinary regime generators, with the rules and principles of European Union law. On this, since 2011, EDP has already been charged more than €460m (including ERSE's estimate for 2021). EDP doesnot question the existence of the Social Tariff, and agrees with its purpose, but cannot, in light of the current regime, conform with the terms in which the legislator enshrined its method of financing.
On the 22-Oct, EDP became aware of the final amounts of clawback to be paid. Although the regulation in force determines the consideration of CESE, Social Tariff and ISP as internal off-market events when calculating the amounts payable (Order No. 12424-A/2019), only the ISP was considered, inducing the payment of higher amounts by electricity producers. Based on this, EDP will take judicial action.
Non-recurringitems: (i) In 9M20, €22m cost related to the forced burning of coal due to the early shutdown of the power plants in Iberia.
(1) Adjustments for one-off impacts, described above(*); (2) Includes Poland, Romania, France, Belgium, Italy and UK.
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Profit & Loss Items below EBITDA
Profit & Loss Items below EBITDA (€ million)
Amortisations and impairments
Net financial interest
Capitalized financial costs
Unwinding of long term liabilities (1)
Net foreign exchange differences and derivatives
Effective Tax rate (%)
Extraordinary Contribution for the Energy Sector
Non-controlling Interests (Details page 27)
Net Profit Attributable to EDP Shareholders
In the 9M20,provisionsamounted to €129m, including €30m related to the decision to anticipate the shutdown of Iberian coal plants booked in 2Q20 and €73m booked in 3Q20 on the alleged overcompensation regarding CMEC plants participation in the ancillary services market in 2009-13, which was deducted from value of the 2015 annual CMEC adjustment recently approved by the government, which EDP will legally challenge in accordance with EDP's appeal after the condemnatory decision by the Competition Authority on the same subject.
Amortisations and impairments were 1% higher YoY, at €1,107m, impacted by a €77m impairment on Sines coal plant and new capacity commissioned, which was partially mitigated by de-consolidation of assets sold and held for sale and ForEx impact (-€32m).
Excluding the €57m one-off cost booked in 1Q20 related to the repurchase of a €750m hybrid bond (5.4% coupon), net financial interests improved 21% YoY to -€363m in 9M20, prompted by a 5% YoY decline in the average debt and a 80bps YoY decline in avg. cost of debt to 3.2% (vs. 4.0% in 9M19). This decline was prompted by the proactive debt management over the past quarters and declining benchmark interest rates, particularly in Brazil (CDI and TJLP). Capitalised financial expenses, at €41m in 9M20, are mainly related to transmission in Brazil and renewables capacity under construction.
Income taxes amounted to €173m, representing an effective tax rate of 20% in 9M20 following the past few quarters' specific impacts from asset rotation gains on wind offshore joint-venture and renewables operations in North America.
Non-controllinginterests fell 16% YoY to €222m in 9M20, including €148m related to EDPR (-6% YoY) and €80m related to EDP Brasil (-30% YoY). This decrease is evenly explained by the 25% decline of EDP Brasil net profit on the back of the Brazilian Real depreciation and by EDPR's 7% decline of net profit, on weaker wind resources and lower asset rotation gains YoY (details on page 27).
Overall, net profit amounted to €422m in 9M20 (-8% or -€38m YoY), impacted by adverse ForEx impact (- €44m), the one-off costs related to liability management (-€45m) and provision on ancillary services (- €50m). Adjusted by one-off impacts(*), recurring net profit increased 14% YoY, to €669m in 9M20, as the strong results on our energy management business in Iberia, improvement of hydro resources and strong performance on financial results; more than offset the impact on our 51% share in EDP Brasil net profit from Brazilian Real depreciation, the weaker wind resources and the impact from Covid-19lockdown.
Lastly, note that following the periodic assessments of the company's ongoing legal proceedings, evaluating the ongoing legal proceedings based on the likelihood of a positive outcome, as well as the human and financial costs required, and taking into account the current public health and economic crisis caused by the COVID-19 pandemic, the litigation related to CESE has been considered for a possible withdrawal and the relevant legal procedures will be carried. Note that EDP based its judicial actions, among other aspects, on the fact that the amounts paid relating to the CESE were not being utilized for the reduction of the System's tariff debt, contrarily to the legal provision. However, the legislation has been followed since 2019 and the amounts paid are being directed towards the reduction of this debt. The withdrawal of these legal actions will have no impact on EDP's financial statements, considering the full payment has already been made2.
Non-recurringitems impact at net profit level: (i) -€125min 9M19, related to the extraordinary contribution for the energy sector (-€66m) and the provision for Fridão (-€59m); (ii) -€247min 9M20, including the liability management costs (-€45m), impairment and provisions on our Iberian coal plants (- €89m), provision related to CMEC plants' ancillary services in 2009-2013 period (-€50m) and the extraordinary contribution for the energy sector (-€63m).
Includes unwinding of medium, long term liabilities (TEIs, IFRS-16, dismantling & decommissioning provision for generation assets, concessions) and interest on medical care and pension fund liabilities. (2) To date, EDP has paid €388m of CESE, related to the years 2014-19. The
claims regarding the non-recognition of the payment of the CESE in terms of corporate income tax, totalling €86 million, should also be considered.
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