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MarketScreener Homepage  >  Equities  >  Euronext Lisbonne  >  EDP - Energias de Portugal, S.A.    EDP   PTEDP0AM0009


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EDP Energias de Portugal S A : Transcript 9M20

10/30/2020 | 01:20pm EST

Company Participants

  • Miguel Stilwell de Andrade, Interim Chief Executive Officer and Chief Financial Officer
  • Miguel Viana, Head of Investor Relations

Miguel Viana: Good morning, ladies and gentlemen. I hope that you are all safe as well as your families and friends. Thanks for being with us today in the Conference Call on EDP's Results for the 9M20. As usual, we'll begin with the main highlights of these results, and then we'll provide an update on strategy execution. We will then move to our Q&A session in which we will be taking your questions both by phone and via our web page. The call is expected to last no more than 60 minutes. I'll give now the floor to our Interim CEO and also CFO Miguel Stilwell de Andrade.

Miguel Stilwell de Andrade: So hello, welcome everyone. It's nice to have you back. Thank you for attending EDP's third-quarter results call. I hope you're all well and safe as this pandemic rages on. First, I'd just like to take this opportunity to thank our EDP teams and I think our ability to adapt in the face of these unprecedented circumstances that we're living is being thanks not only to the measures we took as a Group but also definitely the individual actions of all those that work with us within the EDP Network and our supply chain partners, and together, we've remained alert and very aware of our responsibility towards all of our stakeholders. As we look to the future, EDP's investments in the energy transition can I believe -- played a key role in the recovery of the economies where we're operating as well as create much-needed employment.

Turning to our nine-month results. So I'm pleased to present a solid set of results this morning in a challenging period marked by the current COVID crisis. In the third quarter of 2020, we saw a recovery of electricity demand and electricity prices when compared to the remarkably lower levels we saw in the second quarter. EDP's positive performance in this volatile global economic environment is being very much supported by our resilient business model with more than 75% of our activities being long-term contracted and regulated, and also supported by conservative hedging policy in our energy markets. So as you know, EDP is being the first moving renewables our main growth driver. Today, we have more than 20 gigawatts of renewables installed capacity and despite COVID we've secured long-term contracts for over 700 megawatts in 2020. Looking ahead, we have currently 6.5 gigawatts of secured renewables additions providing a clear path for future growth.

In addition the strong public support for post COVID green economy -- economic recovery represents a crucial growth opportunity based on investments in new clean energy

infrastructures, which will help accelerate the decarbonization and the energy transition in Europe and in the US EDP's to main renewables development markets.

Over the last nine months, we've continued to execute our strategic plan with a proactive portfolio management, which aims to reinforce EDP's low risk profile in our alignment with the energy transition. This includes agreement with the acquisition of Viesgo, which we announced back in July for which we received antitrust approval from Brussels yesterday. As well as the disposal of the Castejón CCGT and the retail energy supply operations in Spain to total as agreed last May. The decision to anticipate the shutdown of our coal plants and Iberia was also very important in terms of accelerating our decarbonization target.

Finally, in August and September we announced two renewable asset rotation deals that we had planned for this year, which we closed at valuation multiples well above our initial expectations. So we continue to believe that all these transactions will close before year end. So you can see we will have a very busy next few weeks. We also maintain our commitments to sound capital structure and to our financial deleveraging targets with the execution of a EUR1 billion equity rights issue in August. In the debt markets, we issued EUR2.2 billion this year all green bonds at an average yield of 1.7% even including the hybrid emission. Green bonds already represent 30% of our total debt. So what's clear to me is that these challenging times can represent an interesting opportunity if we stay focused on our long-term strategic targets, but also maintain our flexibility to adapt to short-term circumstances and allowing us to deliver superior value to our stakeholders as the energy transition moves forward.

That's good to move to Slide four, the key highlights. But first, in the first nine months of 2020 our EBITDA fell 2% year-on-year to EUR2.6 billion. On one hand the EBITDA benefited from the recovery of the hydro resources in Iberia, but also robust results from our hedging strategy and in the energy markets. We saw a negative pressure on EBITDA from weak wind resources the depreciation of the Brazilian real and the contraction of electricity demand in our key markets versus the same period of last year.

Recurring net profit increased by 14% to around EUR700 million driven by Iberia and activities which compensated the lower net profit contributions by EDP Brazil and EDP Renewables. Furthermore, net profit benefited from the improvement in the average cost of debt by 80 basis points to 3.2%. Our reported net profit was down 8% to EUR422 million largely impacted by the non-recurring items I'll detail in the moment. Net debt went down by 6% year-on-year, or year-to- date actually EUR13 billion backed by higher recurring organic cash flow and the capital increase in August. So as a result the ratio of net debt to EBITDA was down to 3.4 times in September versus the 3.8 in September of 2019. So in this period we've also accelerated our contribution to decarbonization with the 47% reduction in our emission factor supported by 10% increase in the renewables production and 50% reduction in our total CO2 emissions.

Moving on to Slide 5. The third quarter showed clear signs of recovering the electricity demand in the City Markets where we have an integrated presence including distribution and supply. The demand in Portugal had a small growth in the third quarter compared with the same period of last year, while in Spain in our concession areas in Brazil, we saw declines of around 3% although this to represents a strong recovery from the previous quarter. Volumes evolution is particularly relevant for the short-term performance of our activities at distribution in Brazil, but also in supply


in Iberia. On prices, we saw recovery in the third quarter from the second quarter both in terms of spot and in terms of forward prices.

Moving on to slide 6, and talking a little bit about Hydro so as the utility was the strong focus on renewable energies, we are obviously exposed to the volatility of the renewable resources. On one hand in the first nine months of 2020, we saw good recovery of the hydro resources in Iberia. We had a very dry 2019 if you remember, and so now we're close to the historic average. But on the other hand, wind resources were 9% below the long-term average and this impacted our EBITDA by around EUR100 million. This volatility in renewable resources is one of the reasons why we think it's important to have a diversified portfolio, both in geography, but also in terms of technologies.

So moving on to Slide 7. So as I've mentioned before, consolidated EBITDA went down 2% year- on-year, but with this decline it was mostly driven by the Brazilian real depreciation in the period, excluding this impact EBITDA ex-forex increased by 3%. On Renewables, EBITDA fell 6% reflecting around 150 million decline in wind and solar EBITDA. So this brought about by weaker wind resources with the negative impact of close to 100 million in 2020 and a year-on-year decline of asset rotation gains, totaling 200 million in this first nine months of 2020. The decline of EBITDA from hydro in Brazil is mostly explained by the Brazilian real devaluation. On the positive side, we have Hydro Iberia EBITDA which increased EUR87 million supported by the recovery of the hydro production volumes.

Going on to networks. So, EBITDA decreased 12%, it's a 4% decrease if we exclude the adverse FX impact which accounted for most of the decline in Brazil. In local currency, the networks in Brazil showed an 8% EBITDA decline. Although, EBITDA from transmission more than doubled, it was based on the commission of new lines in the construction the EBITDA from distribution fell 24% year-on-year following last year's significant gains on the revaluation of the residual value of the distribution asset. So we discussed this last year and we highlighted in the presentation of the time, but also the 7% decline in electricity volumes. In Iberia, the EBITDA resolution reflected the decline in regulated returns. So 4.85% in Portugal and 6% in Spain. As you know, this is obviously following also the reduction in interest rates and in the case of Portugal -- the Portuguese bonds., and so it's more or less expected.

Finally, the strong improvement of EBITDA and client solutions energy management it's probably driven by the good performance of the energy management activity in Iberia. It's mostly Iberia. Consolidate EBITDA positively impacted by good OPEX performance in the period so, we had OPEX decreasing 4% like-for-like basis. It was obviously not just due to tight cost control it is also used to that but it's also supported very much by very fast acceleration of the digitalization fueled by all the changes associated with this pandemic. So it's natural that a part of this is as a result of less traveling and less cost associated with that.

Slide 8, moving on interest costs and financing costs. So the interest related costs went down 18% supported by an 80 basis points decline in the average cost of debt to 3.2%. So as you can see in the table on the right hand side, the yields paying the new bonds issued this year were clearly below the rate that we were paying in maturing debt, but we also saw a reduction in the benchmark interest rate in Brazil and the 5% decline of our average debt in the peer, which also contributed to this decline in interest cost. This is a downward trend that we expect to continue


over the next couple of years, and in Brazil I think it's worth highlighting that the Celiac is now at around 2% which is extraordinarily low levels.

Moving on to Slide 9. So I'm talking a little bit about cash flow and CapEx. So recurring organic free cash flow increased 36% to EUR1.4 billion. So it's almost twice the the EUR700 million annual dividend that we paid out in May, the net expansion investments rose by over 30% to EUR1.2 billion of which almost 90% was allocated to renewable project under construction or development.

Finally, the EUR1 billion equity rights issue that we did in August and also the EUR500 billion -- EUR500 million positive FX impact resulting from the Brazilian real and the U.S. Dollar versus the euro also contributed to the 6% decline in the net debt to 13 billion. Net debt over EBITDA ratio improving to 3.4 times so again low levels certainly by historic standards.

Note that we expect to cause a significant number of transactions before the end of the this year as I already mentioned. So the combine terms are not only fully aligned with our financial deleveraging commitments and we will also reinforce the weight of the long-term contracted and regulated activities in our portfolio.

Moving on to Slide 10. Recurring net profit increased 14% and the negative FX impacted EBITDA level is very diluted both at the EBIT level, even more so at the net profit level given that we're funding our operations and local currency and so this flows through the P&L. Below EBIT the positive impact from the lower net financing costs and also from lower non-controlling interest namely EDPR and EDP Brazil was partially offset by the slight increase of effective income tax. Reported net profit fell 8%, reflecting 250 million approximately of non-recurring costs in 2020. Mostly related to our conventional operations in Portugal. So in the third quarter, we made a provision of around EUR50 million after tax on the alleged overcompensation regarding the CMEC plans and the ancillary services. So, we will be contesting this decision in line with the recent appeal by EDP on the competition authority on the same subject.

So again, something that's that we will be contesting over the next couple of months. It's also worth noting that we've conducted a review on the various outstanding litigations, and let me just take a moment here to talk about two points in particular. First, in relation to the sales. We will be withdrawing the litigation against the Portuguese state, but this was done taking into account the current pandemic crisis and also following analysis we do periodically if the probability of success and the costs associated with these cases and the fact that the proceeds are being allocated to the system debt as we've always defended. So do we see some progress there. This issue will have no impact on financial results. It says the annual cost have been accounted every year since 2014, and EDP is up to date with all the sales due payment. The note, however that we expect assess to gradually decrease over the next few years in-line with the system debt as foreseen in the state budget.

The second point, I'd like to talk about which is social tariff. As you know, we've not been litigating on this or even though accumulated terms have been charged over EUR460 million including ERSE's estimate for 2021. We've all said, we understand and we agree with the social tariff but that we fundamentally disagree with the way it's being financed and I think we said that repeatedly over the years. We don't believe it's compliant with the EU directives and best practices. For example, the way it's done in Spain. So Spain as you know, has already had several


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EDP - Energias de Portugal SA published this content on 30 October 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 30 October 2020 18:19:04 UTC

© Publicnow 2020
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Sales 2020 14 257 M 17 299 M 17 299 M
Net income 2020 788 M 956 M 956 M
Net Debt 2020 13 206 M 16 024 M 16 024 M
P/E ratio 2020 26,5x
Yield 2020 3,60%
Capitalization 20 938 M 25 488 M 25 405 M
EV / Sales 2020 2,39x
EV / Sales 2021 2,49x
Nbr of Employees 11 760
Free-Float 68,5%
Duration : Period :
EDP - Energias de Portugal, S.A. Technical Analysis Chart | MarketScreener
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Technical analysis trends EDP - ENERGIAS DE PORTUGAL, S.A.
Short TermMid-TermLong Term
Income Statement Evolution
Mean consensus OUTPERFORM
Number of Analysts 19
Average target price 5,69 €
Last Close Price 5,31 €
Spread / Highest target 49,8%
Spread / Average Target 7,17%
Spread / Lowest Target -13,3%
EPS Revisions
Managers and Directors
Miguel Stilwell de Andrade Chief Executive Officer & Chief Financial Officer
Luís Filipe Marques Amado Chairman-Supervisory Board
Eduardo de Almeida Catroga Member-Supervisory Board
Felipe Fernández Member-Supervisory Board
Maria Celeste Ferreira Lopes Cardona Member-Supervisory Board
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