Transcript 9M21

Company Participants

• Miguel Stilwell d'Andrade, Chief Executive Officer
• Rui Manuel Rodrigues Lopes Teixeira, Chief Financial Officer
• Miguel Viana, Head of Investor Relations

Miguel Viana: Good morning, ladies and gentlemen. Thanks for attending EDP first nine months, 2021 Results Conference Call. We have today, with us our CEO Miguel Stilwell d' Andrade, and our CFO Rui Teixeira which will present you the main highlights of nine months 2021, financial performance and update on strategy execution. We'll then move to the Q&A session in which we'll be taking your questions, both by phone or recent questions that you can insert from now onwards on our webpage. This call should last close to 60 minutes. I'll give now the floor to our CEO, Miguel Stilwell d' Andrade.

Miguel Stilwell d'Andrade: Thank you, Miguel. Good morning everyone and thank you for participating. So I'm sure it's been a long week for all of with a lot of results calls this week. So we're trying to, just a brief presentation and then turn it over for Q&A.

If we go to slide 3 so what we can see that in the first nine months of the year. We continue to accelerate growth. We had gross investments, increasing by 15%, EUR2.7 billion. We remained the third greenest utilities in Europe with over 75% of our total production from renewable energy. And you have seen, for those of you that attended the call on Wednesday, we are planning to expand with the new Asia Pacific platform for the Group out of Singapore, and I'll talk about that. We've ramped up the renewables deployments. We have 3.9 gigawatts of capacity installed or under construction we've also accelerated our growth in electricity networks.

So in Spain integration of Viesgo continues to move forward at a good pace and ahead of the initial plan and in Brazil, the EBITDA growth was supported by the execution of our investments in transmission project greenfield transmission projects. We've also reinforced the CapEx on the distribution networks. And we've had a positive impact from the updates of the regulated revenues in the recent tariff revision.

Overall recurring EBITDA at around EUR2.5 billion in the period 1% decline year-on-year, but that includes a negative ForEx impact of minus 4%. So Strip that out, that's a recurring EBITDA, ex- ForEx increase of around 3%. Obviously, the high energy prices in Europe is something that we've been talking about a lot. There's been a lot of press about this and a lot of you have written about this. It had a negative impact on the results of our energy management division, mostly due to an increase of energy sourcing costs.

Also upfront negative mark-to-market of hedging positions. Note that this should be compensated by higher unhedged operating margins in the near future. For the third, the shorter-term impact which will then unwind. Also worthy of note that from an integrated risk management perspective. Part of the negative energy management performance is offset by the positive results in the hydro generation in Iberia as well as in the supply division.

So it's good to look at this on an integrated perspective in this period, we continue to be affected by the wind resources, which are below average. As we discussed in the EDPR call the asset rotation gains our below the amount recorded last year. Although we expect more gains in the fourth quarter from transactions that we were already but I've already been agreed and that announced we are pending the final approvals for the financial closing. So when we can actually registered on the account overall net profit reaching EUR510 million without any material net impact from non-recurring items and we continue on track to deliver the 2021 guidance of around EUR800 million, net income.

If we move to Slide 4, we're taking a step back and saying, we continue to see a policy environment which is highly supportive of the energy transition and so for EDP, we remain completely committed to this ambition and this is particularly relevant given that the COP26, which is taking place now in Glasgow and just looking at some of the news flow coming out of that clearly, it is solidifying the need to elevate global commitments measures to fight climate change are being put forward. Nobody said this is going to be easy. So this is going to be something, which requires a lot of steps every year, with people coming together, reiterating their targets and continue to increase the level of ambition. So and I think that's also something that's relevant to note. Also note that the Association of Southeast Asian nation also as restated their target of 23% of primary energy coming from renewable sources by 2025 versus the 14% in 2018.

So this global fight against climate change. I mean, it calls for a strong fundamentals, it calls for a huge growth in renewables that was highlighted by the International Energy Agency, which came out with a report saying that should be looking at annual global clean energy investments of around $4 trillion by 2030 per year. four times as much as the EUR1 trillion invested in 2020 to limit the global warming to 1.5 decrease by 2050. So, I mean obviously staggering numbers in Europe, European Commission's toolbox to tackle the increase in energy costs. It has reinforced the need to deploy renewables to develop energy efficiency solutions and also to continue to build that grid across the continent.

So this will depend also on the deployment of the EUR750 billion from the European next generation funds and that process is now moving to the stage of application of projects at the national level, and I'm sure we'll have more visibility on that and talk about that during 2012.

In the US two legislative packages the first, the $1.2 trillion infrastructure bill and also the more recent $1.5 trillion Build Back Better framework this includes good visibility, which is not pretty consolidated of fiscal incentives for the clean energy investments namely the 10-year ITC and PTC extensions and tax credits. Total amount of $320 billion. So, which we believe that that will support the renewables medium-term growth targets in the US okay.

Moving on to slide 5 and just talking a little bit about Sunseap, so we Sunseap. The acquisition of Sunseap on Wednesday and we explained that in-depth on the EDPR conference call we really believe that this solidifies the status of EDP as a truly global clean energy player allows us to

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expand our presence into Asia-Pacific region. But it becomes the EDP fourth regional hub after to Europe and Europe, North America, South America and now Asia Pacific and just to note about Sunseap, it's a solar focused player. So it's present in 9 Asian markets. Worth highlighting Singapore and Vietnam strong asset base. It's got capabilities on solar DG. But it's also expanding operations and centralized solar. The strategic acquisition has an implied if you of EUR870 million and it gives us around 700MW of secured capacity, so 540MW of operational or under construction capacity and an additional 130MW already contracted, very young assets under two years old and 20-year contracted revenues with 76% of PPAs and 24% regulated with an average price of EUR75 per megawatt hour so low risk stable long-term cash flows fully aligned with our EDPR strategy and the pipeline of around 5 gigawatts which will support the strong growth over the next years. So clearly here price includes not only the operational under construction assets they already contracted assets and also the pipeline that we expect to develop over the next couple of years.

Moving on to Slide 6, so here the If you step back and looking more global EDP Group. We continue to accelerate growth of 2.5 gigawatts of gross capacity added in the last 12 months. 8 gigawatt so far secured. So 75% of our target capacity additions until 2033 and as I've mentioned before, 4.1 gigawatts of PPAs in which we are advanced stages of negotiation so, we'd be able to secure this capacity with attractive returns and in line with our investment criteria of the around

1.4 times WAC or above 2% spread so all in all, spread over WACC for the 8 GW secured is roughly 300 basis points. And from a risk perspective, we continue to focus investments on long-term contracted assets and contracted cash flows, which represent typically around 60% of the NPV of the project. This is absolutely key for the asset rotation strategy and that's I believe why investors come to us and like the portfolio that we put together it's just long-term predictable cash flow.

If we move forward to Slide 7. So we continue to be well protected from a CapEx cost inflation we've discussed that in previous quarters. In terms of material exposure is limited to around 10% of our secured capacity for new projects. We are seeing the PPA market and the option to price adjust so this it's the sector wide increase in CapEx so from that perspective, it's not impacting our competitiveness when bidding for new projects. And so the return thresholds are being preserved because everyone is obviously feeling the same impact in relation to supply chain our scale both in the short and medium term procurement of equipment allows us to continue to have strong long- term relationships with our key suppliers. And so we continue to actively monitor and manage any supply chain disruption, and that's something certainly on the wind side, we have a very good feeling for. And on the solar side, but a bit more uncertainty, but also something that we are managing.

On slide 8 and the asset rotation so 9 months into the business plan, we have 2.3 billion of proceeds transactions already agreed this represents 30% of the target from 2021, 2025 plan so good solid execution by our teams in such a short period importantly, it is a great performance in terms of the multiples achieved so links back to that discipline in terms of investment returns and also in terms of the profile of these assets. So clearly strong appetite from the private markets for these type of renewable asset. Overall, we are on track to deliver the capital gains, north of EUR300 million this year. The final amount it will depend on the exact timing of the regulatory approvals and the closing of the transaction.

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If we move on to Slide 9. So talking a little bit about the Portuguese electricity distribution on October 15 of the usual. We had the release of the proposal by for the 2022 to 2025 regulatory framework for electricity distribution remuneration. So for your period in the past and used to be three years it's move to four years. The proposal establishes a slight decline of regulated revenues in 22 around EUR10 million year on year. Which resulted from the decrease in around 45 basis points of the rate of return on the regulated asset base. So, it's now at around 4.3% which is lower than in other neighborhood countries however, this is on a sliding scale with a floor of around 4% and this rate of return can change based on the evolution of the Portuguese 10-year bond yield. So there is a natural hedge on the trend of the long-term interest rates. So they go up there is the adjustment for this rate of return to increase so limited downside and the pending on how bond yields go in Portugal it will follow that bond yields up the regulatory framework proposed also provides an annual update to inflation to the GDP deflator. This is corrected by an efficiency factor of 0.75% which is applied to the regulated asset base of around EUR2.8 billion and also be accepted OpEx and CapEx base.

So overall, despite the low rate of return. We believe that the limited change on the regulated revenues. The medium-term indexation to long-term yields the update to inflation of this reinforces the medium-term visibility. Of the remuneration of this activity. Okay.

Still in Portugal, talking about the regulatory framework. Also, on the they offer for the consumers so the Portuguese regulated presented a proposal with the 0.2% increase for 2022 end user tariffs for residential and SME segment. This is a remarkable achievement if we consider the strong increase of the wholesale electricity prices, both in spot and forward markets the main explanation for this and this is certainly a contrast for some other markets. But the main explanation for this year in Portugal is that there has been a significant volume of generation contracted at stable feed in tariffs with an average price of around EUR90 per megawatt hour.

So what was previously over cost ended being the surplus. These generation volumes mostly from renewables more than cover the consumption in the residential and SME segments in Portugal which means that the residential consumers are the off-takers of this feed in tariffs. So they have a slight long position in the wholesale electricity market, which is benefiting and allowing the tariffs, not to increase So the spread inversion between feed in tariffs in wholesale prices enable the 52% reduction of grid access tariffs and overall 50% system debt decline between 2020 in 2022, I think this is really worth highlighting because certainly I know one of the things that, sometimes we get asked the sustainability of the overall electricity system debt and you can see a very significant decrease in the debt this year. To around EUR1.7 billion.

Moving on to Slide 11. I'm talking about electricity spot prices, I mean these are obviously extremely high where there is a strong backwardation of the forward prices so, we see an increasing demand from corporate clients for longer-term contract to smooth out basically this it's short term spike and lock in these longer term sort of lower prices. The recent spike in energy prices it means that most consumers, especially the industrials are looking for ways to reduce exposure to volatile energy prices. And so we've experienced the increase, a significant increase of multi-annual contracts which give long-term stability to selling prices so currently we have hedged around 50% of the expected baseload generation for 2022 to 2025 at an average of EUR60 per megawatt hour so this is an upside to the average selling price of EUR47 per megawatt hour,

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which we had assumed in the business plan. So I think this is something which is worth highlighted.

Moving on to Slide 12, a little bit about Brazil. So significant developments in Brazil's portfolio. We talked about the reshuffling be given visibility on that. I think it's good. It shows value crystallization of some of the assets there and also improve the growth prospects for operations in Brazil. So more concretely on the transmission asset rotation strategy in this quarter we bought a controlling stake in Celg-Transmission with almost 760km of lines in the region of Goias. We expect strong electricity demand growth in the coming years here and we sold roughly 440km at a very attractive multiple at a higher multiple than what we were buying. So we've also added two greenfield transmission projects, one in the secondary market. And another in the latest regulatory auction.

So, and I think it's also the value of being some asset rotation in the Brazilian portfolio. In the meantime, we've also engaged in advanced negotiations for the disposal of roughly 0.5 gigawatt hydro assets we've talked about that. So the line with the commitment to reduce hydro exposure in Brazil. Finally, Brazil also announced an additional amount of its share buyback program up to around 4% of its share capital with the objective to optimize capital structure and maximize shareholder value.

Moving on to ESG and before I turn it over to Rui so first absolutely committed to ESG. We've been a top performer across the different metrics internationally recognized the rankings in some of you will have seen the recent event we did on the team both EDP and EDPR maintains top 10 positions in the recent rebalancing of the S&P Global Clean Energy Index. In terms of our developments towards the energy transition, 76% of GDP total generation now comes from renewables in the first nine months of 2021 revenues aligned with the EU taxonomy rose to 66%. So it gives visibility on achieving the 2025 target of 70% so not only if we committed to. ESG The excellence. But we've also been focused on providing transparency regarding EDP, ESG profile. So an example of that was our ESG Day that we did hopefully that enables us to show what our strategy for the coming years and also the top management's engagement with all of these matters at all levels. With that being said, I'll pass the word to Rui Teixeira for more detailed breakdown of the nine months results and then I'll come back to from some closing remarks. Thank you.

Rui Manuel Rodrigues Lopes Teixeira: Thank you, Miguel. And good morning to all. So now let's we'll come to EDP performance for the nine months 2021. Let's move to slide 15. So recurring EBITDA decreased 1% to EUR2.5 billion if you were to exclude the ForEx impact the performance would be a 3% increase year-on-year.

The recurring EBITDA from renewables platform was down 4%. This was penalized by weaker wind resources for asset rotation gains when we of course we compared to last year. Adverse ForEx impact of EUR95 million mainly due to the 11% depreciation of the Brazilian real versus euro on the positive side. This performance in the wind and solar was partially offset by the good performance in the hydro I also on the positive side, electricity networks recurring EBITDA increased by 40% benefiting from the integration of Viesgo which had a EUR148 million EBITDA

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