Iberdrola (OTC:IBDRY) (BME: IBE) has reported a substantial increase in financial performance for the first nine months of 2024, with net profit up by 50% to EUR 5,471 million and EBITDA growing 23% to EUR 13,269 million.
The solid results were underpinned by improved performance across all business segments, particularly Networks, and supported by the company's strategic investments and commitment to renewable energy. Iberdrola has also raised its net profit outlook for the year to around EUR 5.5 billion.
Key Takeaways
- Iberdrola's net profit for the first nine months of 2024 soared to EUR 5,471 million, a 50% increase year-over-year.
- EBITDA rose to EUR 13,269 million, a 23% growth, with recurring EBITDA up 11%.
- The company's cash flow increased by 69%, resulting in a robust liquidity position of over EUR 22 billion.
- Investments reached EUR 8.6 billion, with a significant focus on Networks and renewable energy projects.
- Shareholder remuneration increased by 14% to EUR 0.23 per share.
- Iberdrola is compliant with the European Security and Market Authority's tightened ESG investment labeling.
Company Outlook
- Iberdrola raised its net profit forecast for the year to approximately EUR 5.5 billion.
- Capital Market Day scheduled for autumn 2025 to provide updated growth targets.
- Asset rotation expected to value at around EUR 2 billion by early 2025.
Bearish Highlights
- Regulatory concerns in Spain and potential impact of U.S. elections on operations are noted.
- Supply chain limitations, particularly in vessel availability for offshore projects, are acknowledged.
Bullish Highlights
- Strong performance across all business segments, especially Networks due to tariff hikes.
- Secured two new offshore wind projects totaling 1,100 megawatts, operational between 2028 and 2029.
- Nearly 85% emission-free energy production achieved during the period.
Misses
- Non-recurring items amounting to EUR 254 million, mainly linked to capitalized interest and regulatory assets.
- Reduction in foreign exchange contributions for 2024 compared to the previous year.
Q&A Highlights
- Executives confirmed established rate cases for 2025 and 2026 in the U.S. Networks sector.
- Demand for electricity is growing, driven by electrification in various sectors.
- Iberdrola is not pursuing additional mergers and acquisitions at this time, focusing on integrating recent acquisitions.
Iberdrola's strong financial performance is a testament to the company's strategic focus on Networks and renewable energy investments. With the company's interim dividend increase and a positive outlook for net profit, Iberdrola is positioning itself for sustained growth in the electrification and renewable energy sectors. Despite the challenges posed by regulatory concerns and supply chain limitations, the company remains confident in its operational strategy and future plans.
Full transcript - Iberdrola (IBE) Q3 2024:
Ignacio Arambarri: Good morning, ladies and gentlemen. First of all, we would like to offer a warm welcome to all of you who have joined us today for our 2024 Nine Months Results Presentation. As usual, we will follow the traditional format given in our event. We are going to begin with an overview of the results and the main developments during the period given by the top executive team that usually is with us. Mr. Ignacio Galan, Executive Chairman; Mr. Armando Martinez, CEO; and finally, Mr. Pepe Sainz, CFO. Following this, we'll move on to the Q&A session. I would also like to highlight that we are only going to take questions submitted via the web, so please ask your question only through our webpage www.iberdrola.com. Finally, we expect that today's event will not last more than one hour, hoping that this presentation will be useful and informative for all of you. Now, without further ado, I would like to give the floor to Mr. Ignacio Galan. Thank you very much again. Please, Mr. Galan.
Ignacio Galan: Thank you, Ignacio. Good morning, everyone, and thank you very much for joining today's conference call. In the first nine months, our reported net profit reached EUR5,471 million, up by 50%. We reported EBITDA reaching EUR13,269 million. In recurring terms, EBITDA increased by 11% to EUR11,551 million driven by external operating performance across all our businesses. We continue increasing our regulated profile with Networks' EBITDA up by 11%, thanks to a higher rate base and tariff increases especially in UK and United States. Energy production and customers is also up 11% as a result of new offshore, new capacity in France and Germany and a better contribution from Iberia. Investments in US and UK have significantly increased our exposure to A-rate countries, which now accounts 82% of our recurring EBITDA. We also made substantial progress to reinforce our financial strength with total cash flow of EUR13,821 million up 69% including the proceeds for asset rotation during 2024. Recurrent FFO increased by 13% to EUR8,888 million, leading to an FFO to adjusted net debt ratio to 25.3%. And our current liquidity position remains solid, totaling over EUR22 billion, more than enough to cover 20 months of financial needs. Investment continued accelerating over the last quarter with a clear focus on long-term growth. By September, organic investment are up 12% reaching EUR8.6 billion, more than half allocated to Networks, and we have recently completed key transaction in UK, US to continue strengthening our profile based on regulated activities long-term contracts with revenue secured for 15 to 20 years. Yesterday, we closed the acquisition of Electricity North West, strategically expanding our presence in Britain. On top of that, the purchase of Avangrid (NYSE:AGR) minorities was approved by more than 99% of the shareholders of the company at the Annual General Meeting. And in renewables, we won two new offshore wind projects, adding one 1,000 megawatts in UK and 100 megawatt in US. They will be operational between '28 and '29. All in all, Iberdrola performance up to September and our outlook to the end of the year have led us to increase our interim shareholder remuneration by 14% to EUR0.23 per share. As mentioned, reported EBITDA increased by 23% reaching EUR13,269 million, with an 11% growth in recurring trends guided by a strong performance across all business and geographies. Network recurring EBITDA also grew by 11%, thanks to tariff increases mainly in US, UK and Brazil in the high asset base. In renewables, we continue registering records of production. So far this year we have already more than 2,300 of new capacity, mainly offshore wind, including the full commissioning of 500 megawatts of St. Brieuc in France and the installation of all turbines of Baltic Eagle in Germany reaching total capacity of 476 megawatts as well. Our hydro reserves remained well above average levels and our pumped storage facilities are showing an excellent performance up 23% year-on-year. Finally, we will continue to grow our long-term PPA portfolio with the industrial customers providing a predictable revenue stream. This growing operating result was driven by new investment, mainly in Networks with EUR4,394 million invested, 25% up year-on-year. Although these 40% was allocated in the United States with around 25% invested in Brazil, a similar percentage in UK and the rest in Spain. Around 60% of Networks' investment correspond to distribution and the remaining 40% to transmission after a 70% increase in this activity due to the additional investment in the NECEC project in the United States. As a result, our Networks base grew by 7% up to September, reaching EUR47.6 billion after the closing of the ENW transaction. With the UK and United States as main contributors, together, both countries already represent 60% of our global Network assets. Investment in new power generation reached EUR4 billion, well-diversified by geographies and technologies with more than 50% allocated to UK and United States after a combined 35% increase in these two countries, mainly driven by offshore wind. We also made several moves to provide further growth over the second half of this decade, like the acquisition, as I mentioned, of Electricity North West, located between our two current UK distribution licenses in Scotland and England, in Wales, and seven relevant urban areas like Manchester and the purchase of Avangrid minorities, which we expect to finalize in the next two, three months. On top of this, the UK and United States continue providing us additional investment opportunities in transmission. In Britain, next December, we will present our plan for RIIO-T3 from 2026 to 2031, which investment then may triple the amount of the current regulatory period. In the United States, we have the transmission investment approved in New York that could reach $3 billion up to 2030. In offshore wind, we are on track to triple our installed capacity by 2030, reaching 6500 megawatts just with the project we already have under construction including the two new offshore wind projects of New England 1 and the coast of Massachusetts and East Anglia 2 in the United Kingdom. We have also finalized two storage facilities at Santiago Jares and Valparaiso in Spain, adding around 2 million kilowatt hours capacity. And we continue increasing our portfolio of long-term PPAs having signed since January more than 5 terawatt-hours per annum with Tier-1 companies from different industries like technology for an average of 15 years. As of today, we have already supplied 10 terawatt-hours per annum to take companies covering their energy needs related to data and artificial intelligence. Building on this long-term relationship with companies from the technology sector, we are in well advanced conversation for the creation of joint venture to facilitate then additional data center capacity in Spain. Iberdrola will contribute with land and network connection, participating also in the design and licensing processes and guaranteeing renewable energy supply 24/7 from our existing portfolio or new dedicated assets. The partner will hold the majority of JV being responsible for the construction, the operation, the commercialization of the data center. In just a few months, we have already secured 615 megawatts of capacity in first-class location around Madrid. In the region of Aragon in the northeast of Spain, we have pipeline for more than other 5 gigawatt hours. We expect to give you more detail soon on this business, what we already analyzed in other geographies given its potential as well. Implementing all these new investments and projects requires strong access to supply chains, especially in today's market conditions. In this context, our procurement, planning and processes have allowed us to secure already close to 90% of all our network and renewable supplies through 2026, including all contracts for our offshore wind project which cover logistics and installation, 85% of our onshore wind turbines and solar panels, and 95% of our procurement needs for transmission and distribution. Additionally, we have made significant progress for our procurement plan beyond 2026 with 90% of the key contract for our new offshore wind project East Anglia 2 and New England 1 already secured. Also in onshore renewables where bottlenecks are less severe, we have a framework agreement that enable us to secure supply chains as we reach final investment decision. And in Networks, we have framework agreement, firm offers and precontracts allowing us to secure the relevant investment expected in upcoming regulatory periods, which will increase more and more as electrification accelerates, particularly in our key geographies. As the Executive Director of International Agency recently stated, we are entering in the age of electricity or as I have repeated for years, the 21st century will be the century of electricity, just like 20th century was the century of oil and 19th century was the century of coal. Growth potential is immense, with electricity moving from 20% of the total energy consumption today to 40% in just two decades. As a result, the world energy outlook just published by International Agency predict that networks investment will grow from $330 billion to at least $700 billion per annum by 2030, with renewable investment more than doubling as well. Government and regulators on both sides of the Atlantic are recognizing the potential of electrification to improve strategic autonomy and competitiveness and reduce emission, leading them to implement new frameworks to attract the massive investment needed. That is the case in United States. The National Transmission Planning recommends multiplying the size of the transmission system by at least 2.5 times by 2050, and the federal administration continues creating new incentives. So far, the IRA and the Bipartisan Infrastructure Bill have led to more than EUR200 billion of investment. In United Kingdom, the new government has said very clearly that the power sector will be a key driver in its strategy to grow and in re-industrialization. As a result, they are preparing new measures to accelerate planning processes, facilitating the massive investment required to reach net zero by 2030. In renewables, up to 60 gigawatt hours in the case of offshore wind, according to the government target. In transmission, RIIO-T3 approval process is on track as mentioned and in distribution. In the European Union, the recent Draghi report stated that clean electrification can be a massive factor for European competitiveness, and the coming months the Commission will present its vision for a new clean industrial deal. In parallel, European Union continues to clarify which investment can and cannot be considered green, helping investors make informed decision in avoiding greenwashing. In this sense, the European Security and Market Authority, ESMA, recently issued new, more restrictive guidelines to label investment as ESG. As you can see in the annex to this presentation, Iberdrola meets all these guidelines. In Spain, the new energy plan submitted to Brussels confirms ambitious targets target for the new renewal deployment based on significant increase in demand and electrification. For the reason, the plan also calls for additional network investment. We expect the new regulation and the way in this business will create the right incentive to make this -- it happen. Finally, in Brazil, the government is making positive progress on the renewal of distribution concession and the draft terms for the new contract published by consultation are in line with our expectations. The process will be completed by the second quarter of 2025. Moving to financial structure, total cash flow reached EUR13,821 million, up 69%, with recurring funds from operation up 13% to EUR8,888 million after excluding the impact of asset rotation and the recovery of UK retail deficit in 2023. Cash generation has allowed us to improve adjusted net debt to EUR46.7 billion and we have over EUR22 billion in liquidity, which is sufficient to cover our financial need for more than 20 months. Given our excellent business performance and strong financial position, our Board has approved a 14% increase in interim shareholder remuneration reaching EUR0.23 per share will be paid by the end of January. As usual, on top of this figure, next summer we will pay a supplementary dividend that will be approved in the Annual Shareholders Meeting. I will now hand over to our CFO who will present the Group's financial results in further detail.
Pepe Sainz: Thank you, Chairman. Good morning to everybody. In the first nine months of '24, as the Chairman has said, versus last year, EBITDA reached EUR13.3 billion versus EUR10.8 billion in '23 -- in the first nine months of '23, a net profit of EUR5,471 million versus EUR3,637 million, growing 23% and 50% respectively. FX evolution has had a minor negative effect on results as they are already mostly hedged. The real has depreciated 4.5% and the dollar 0.2%, partially compensated by a 2.2% appreciation of the pound. A 25% improvement in procurement costs, mainly energy production and client business, versus a much lower decrease in revenues 11%, thanks to our fixed price sales, has driven a 5% increase in gross margin to EUR18 billion, improving the growth trend of the first semester where gross margin was up 3%. Net operating expenses, excluding Mexico capital gain rose 5.3% and 3.7%, excluding not only the Mexican transaction but also reconciliation impacts in the US due to the storm costs that are recognized at the gross margin level, positive pension adjustments and other Q3 impacts. Net personnel expenses increased 1.9%, but excluding pension one-offs in the UK and the US reconciliation impacts and other minor impacts, personnel expenses grew 4.5%. External services increased 7.3%. Excluding also reconciliation impacts in the US and other Q3 impacts, external services grew 1.6% and other operating income increased 2.5% on a recurring basis. On a reported basis, net operating expenses improved 34%. Reported levies reached EUR1,924 million in the first nine months of '24 versus EUR2076 million last year, improving 7%, positively affected by incentives in Spain, EUR79 million on the Hydro Cannon accounted for in Q1 and EUR183 million from the social bonus accounted in Q2. Excluding these court ruling, levies grew 5%, driven by the higher Hydro Cannon as we have been producing more hydro, the 7% tax on Spanish production and the windfall tax in the UK. Analyzing the results of the different businesses and starting by Networks, it's EBITDA grew 11% to EUR4,875 million, more than doubling the 5% growth in June after improving in Q3 in all countries, but especially in the US and Brazil. Brazil accounts 32% of total EBITDA, followed by Spain, the UK and the US, but if we consider recent ENW transaction, the UK will increase its weight to 27%. In Spain, EBITDA fell 1.7% at September to EUR1,226 million, improving versus the 3.7% fall in June, thanks to a higher asset base and diluting the negative impact of the EUR27 million positive one-off recognized in the first quarter of '23. In the UK, EBITDA increased 20.1% to GBP922 million with higher contribution in distribution, thanks to the new ED2 framework and almost 4% higher demand and better net operating expenses, thanks to a GBP58 million impact of a recovery of a provision made in Q3 '23. In Brazil, EBITDA grew 18%, improving the 3% rise in June to BRL8,910 million with higher demand and higher tariffs in distribution and transmission, positively affected by a BRL983 million negative one-off accounted in Q3 '23. In the US, US GAAP EBITDA increased 18.5% to $1,491 million, driven by the contribution of the new rate cases, mainly in New York. IFRS EBITDA was 14% up to $1,088 million with higher contribution from rate cases more than compensating the negative timing effect due to IFRS accounting of costs, mainly commodities that are being recovered. There is also a $27 million positive one-off in pension expenses in Q3 only in IFRS. '24 nine months energy production and customer business EBITDA reached EUR8.4 billion compared to EUR6.4 billion last year. As you can see in the slide, this has been a better recurring operating performance than last year. I want to point out that the business reached close to 85% production emission-free in the first nine months, advancing in our decarbonization targets. In Iberia, EBITDA was EUR3.7 billion, up 17.4%, with 5.7 terawatt hours higher manageable renewable production including pumping storage, lower procurement costs and already mentioned positive impact of court rulings, more than compensating lower prices and a 10.5% lower nuclear production driven by market conditions, 91% of the production in Iberia was non-emitting. In the UK, EBITDA fell 20% to GBP1,079 million affected by the already mentioned positive one-off related to tariff deficit recovery in '23 and another negative one-off issue at our offshore wind farm East of Anglia 1 that is already solved, not showing the recurrent positive evolution of the business with higher contribution in wind onshore and better prices, partially offset by the windfall tax. In the US, EBITDA increased 44% to $812 million, thanks to the positive performance of our flexible generation fleet and better prices that improved results despite the fact that renewable production was only slightly higher around 1%. In addition, net operating expenses improved 16%, benefited from the negative non-recurring break-up costs at the US offshore wind farms accounted in Q3 of '23. In the Rest of the World, EBITDA grew 48% to EUR448 million with 36% higher production due to the entry into operation of St. Brieuc offshore wind farm at full capacity since May and more onshore capacity installed in Poland, Greece and Australia. In Brazil, EBITDA decreased 7.8% to BRL1,240 million as the contribution of a hydro asset following the swap with Eletrobras and higher wind resource after a good Q3 is not enough to offset the lower thermal contribution. Finally, in Mexico EBITDA reached $2.2 billion. Excluding the transaction, EBITDA reached $306 million affected by the consolidation of the assets sold on February 26, but the remaining assets still contribute around half to the previous contribution. EBIT grew 33% to EUR9.1 billion and 14% on a recurring basis. D&A grew 6%, driven by higher asset base in Networks and higher provisions. Net financial expenses improved EUR514 million to EUR1,152 million. Debt-related costs improved EUR30 million as a consequence of a EUR69 million reduction due to a lower cost of debt, 14 basis points, EUR26 million linked to FX mainly due to Brazilian real depreciation, partially offset by a EUR65 million increase due to EUR0.5 billion higher average debt versus '23. And net debt-related results got better by EUR484 million including EUR230 million linked to FX derivatives. I want to point out especially due to the Mexico peso that was hedged due to the big transaction that we did which is fully compensated at the tax item. So there is a big gain here at the Mexican peso but it is fully compensated in the tax item and a lesser extent due to the real, and another EUR254 million related to capitalized interest driven by higher investments, especially East of Anglia 3 and one-offs. During these first nine months of '24, Iberdrola has done very successful operations in the capital markets which allow us to diversify the investor base as well as maintain the duration of debt. This is a trend that we expect to continue. And as the Chairman has said, as we comply with the new ESMA requirements, in the annex, you have the details of how Iberdrola complies with the new ESMA requirements as a genuine green investment to be included in the ESG funds. Our reported credit metrics improved, thanks to a EUR1.2 billion decrease in our adjusted net debt to $46.7 billion compared to September '23 together with the growth of our FFO as the Chairman has explained. As a consequence, FFO adjusted net debt reached 25.3% versus 23.2% one year ago. Our adjusted net debt to EBITDA improved to 3.1 times versus 3.3 times and our adjusted leverage ratio also got better to 42.6% versus 44.4% at September '23. Our previous guidance for '24 year net debt was EUR47 billion. For year-end, non-organic growth will be increasing net debt with the ENW acquisition EUR2.5 billion already paid yesterday. The acquisition of Avangrid minorities for EUR2.3 billion is expected to happen either at the end of this year or in the first quarter of '25. But we are also expecting to finalize more asset rotation between December and the first quarter of '25 for around 25 --sorry, for around EUR2 billion. That will be offsetting partially the impact of the non-organic growth acquisitions. We have different scenarios depending when Avangrid's minorities is finalized and when we will account for the asset rotation. But in any case -- let me stress that in any case, we will remain with a comfortable rating of BBB+/Baa1 rating level. Also helped by the improvement of our business profile with more regulated assets in countries with better ratings. Net profit excluding EUR1.2 billion net Mexico transaction was EUR4,300 million, increasing 18% versus the reported nine months of '23 net profit. On a recurring basis, net profit grew 22% from EUR3.5 billion in '23 to EUR4.3 billion in '24. In the annex, you have a slide also with the interim dividend calendar. Now, the Chairman will conclude the presentation. Thank you.
Ignacio Galan: Thank you, Pepe. The result we are presenting today reflects the positive signals of the last few quarters and consolidating strong double-digit growth trend across the key financial indicators, including operating profit, net profit and cash flow. This has allowed us to expand our business, enhance profitability and preserve our financial strength while increasing our interim shareholder remuneration by 14% to EUR0.23 per share. As a result of this positive momentum, today, we are raising our net profit outlook for the full year to around EUR5.5 billion without capital gains for an asset rotation growing in line with the interim dividend just announced. In the last quarters, we have expected to continue benefiting from higher Networks tariff, particularly in US and UK, and a higher asset base, thanks to accelerated investment in transmission and distribution as well as the contribution of 2,300 of new capacity -- megawatt new capacity including 1,000 megawatt from our new offshore wind farm in France and Germany while we continue securing long-term revenue through PPAs. To conclude, I'd like to announce that we will host our new -- next Capital Market Day in autumn 2025. By that time, we will be able to provide you with updated growth targets once we have the full integration of Electricity North West, the initial determination of the new transmission framework from '26 to 2031 also in the UK, and the Avangrid transaction completed. In addition, after summer, we will be able to report on further progress of the construction of our key project in different countries. However, let me advance that we expect to follow our trend of the last two decades with more investment, higher result and higher dividend, always preserving our strong financial position. In any case, in the coming quarters, we will continue updating you as usual. Now thank you very much and we can start now the Q&A session. Thank you.
A - Ignacio Arambarri: Now, in the Q&A session, the following financial professionals have asked the following questions. Alberto Gandolfi, Goldman Sachs; Arthur Sitbon, Morgan Stanley; Fernando Lafuente, Alantra; Fernando Garcia, Royal Bank of Canada; Philippe Ourpatian, ODDO; Pedro Alves, CaixaBank; Daniel Rodriguez, Bestinver; Peter Bisztyga, Bank of America; Manuel Palomo, BNP Paribas (OTC:BNPQY); Javier Garrido, JPMorgan; Victor Peiro, GVC Gaesco; Javier Suarez, Mediobanca (OTC:MDIBY); Jorge Guimaraes, JB Capital; James Brand, Deutsche Bank; and finally, Jorge Alonso, Bernstein. The first question is related to the guidance 2024, drivers and concepts included in this given guidance for the year 2024.
Ignacio Galan: As explained, our guidance for the full 2024 is now around EUR5,500 million, excluding capital gains from asset rotation. The basis of comparison of this result is net profit EUR4,803 million last year. So this growth we are expecting is in line, as I mentioned, with our interim dividend 14%, 15% and that is driven by the positive business trend or sale during the year, plus the new investment. I think we have already made EUR9.6 billion as you saw in the first nine months 2024. So Networks' new rate cases and higher rate basis in production and customers additional capacity. So I mentioned already a couple offshore wind funds which as you know, they are contributing in a very important manner to our result and as well the pump hydro contribution as a recurrent business.
Ignacio Arambarri: The next question is related to the guidance 2025. Given that in 2024 Iberdrola is growing at double-digit, the audience is wondering how sustainable this double-digit growth is. Also, what growth prospect does Iberdrola have for next year and which businesses are going to drive this growth?
Ignacio Galan: So, well, we are still in this moment working in the budget. So I think we will give details of the guidance in February. But when we will complete all this one is, let's say you have very clear details, all those things. Nevertheless, I think we can say that now we are a year ahead of our estimate, our CMD in March. So our updated guidance for 2024 is higher than that the one we fixed for 2025 in our CMD. And our expectation is that we will continue growing in 2025 clearly above this -- the numbers we provided in March. It was on the range of EUR5.3 billion, EUR5.4 billion, which is today we are announcing more for 2024. And I think that we are going to have more investment in Netwoks with higher tariffs. We will have more capacity fully in operation during the whole year. St. Brieuc, Baltic Eagle 12 months, higher prices that expected those ones we were planning, lower interest rates. And I think overall, I think we are, let's say optimistic that the numbers is going to be substantially higher than those we announced for 2024.
Ignacio Arambarri: Another question about targets, but in this case, about the plan 2024-2026 is still in place. The targets for this period were presented last March. However, since March, there have been several news and updates, ENW, energy prices, et cetera. We have received some questions on how these targets may change in the future.
Ignacio Galan: Well, as I mentioned, we are progressing one year ahead of our plan. So we are way ahead of our 2025 outlook. I think in 2024, we are reaching the numbers -- over the numbers for 2025. Also, we are increasing the dividend ahead of that -- what was planned. Also, we make all our asset rotation was planned for -- is already done. And also we have already closed relevant transactions. I think this summer was very busy. We made the ENW, we made the offshore in UK and United States. Many of those will be materialized after 2027, but I think it's already some good inputs. We will update all the numbers for the plan of -- after 2025 in autumn for 2026 and beyond. And once we have already, as I mentioned, completed ENW integration and we will have more detail of RIIO-T3 total investment required in the period. But I was saying for 2025, our -- we have positive feelings on the direction of the new targets. I think we are, let's say, optimistic about the numbers we will present to you in the next CMD.
Ignacio Arambarri: Next is related to the guidance given about the net debt at the end of this year. There are some cash inflows as -- and inflows in the last quarter of the year that will play an important role. But do you have in mind a range where the net debt may end at the end of 2024? Pepe?
Ignacio Galan: Pepe, can you?
Pepe Sainz: Yeah. Well, as I was mentioned, it will depend a lot when we finish -- when we complete the Avangrid transaction. If we have completed the Avangrid transaction together with the asset rotation, the debt will end up somewhere around EUR51 billion, more or less if you add the Avangrid and you deduct the asset rotation. The only thing is that we don't have a date for that. So this will depend a little bit on when this is approved. But assuming that we have approved the Avangrid transaction before the year-end and we have the asset rotation, then that will end up somewhere around EUR51 billion -- EUR50 billion, EUR51 billion. Okay.
Ignacio Arambarri: Next is related to the acquisition of ENW. Could you please update us on the calendar to close the transaction? If there are any approvals pending, how it will contribute to result in 2024? And from 2025 onwards, how will the company be consolidated?
Ignacio Galan: So I think it's a -- everything, I think, is progressing as expected. CMA has already published its standard limitation for these kind of deals. But I think this standard has already admitted some exception. They will know this exception which has been already agreed, important derogation on this standard limitation, including the appointment of two Independent Directors of the company who we will nominate in the next few days. The only companies affected for this restriction are ScottishPower Networks. And in other words, we have no restriction to the rest of Iberdrola businesses. We are going to continue collaborating with CMA during this process and we expect by the end of this quarter to have already all this clearance for that one. In our estimate is not considering in 2024 any contribution of ENW. In any case, I think it's -- in that period of time, it will be very, very small. I think one of the reasons we would like for making deal -- for making already this CMD in autumn next year is precisely once we will have insight of the company, we can already make more detail about how much this can already contribute to the Group, because the numbers we have already, as you can imagine, is already not as accurate as it will be when we will be inside. But I think we will keep you updated in the moment, we can already continue having more details of that one.
Ignacio Arambarri: Next question is related to politics. What's your view on the potential outcome in the United States election, and how do you think it could affect Iberdrola's plans if the Republican party wins?
Ignacio Galan: So we have a long track record in the United States. We are -- for many years, we've been with different administrations from both parties. I think we've been in times of President Obama, in times of President Trump, in times of President Biden. So I think we've been with both political parties. But I think you have to be aware that our main business in the United States is Networks, and Networks is regulated by a state. We have already our rate cases already secured for 2025, 2026 in distribution and transmission, which is dependent on those states. And already -- I think we are already working in some transmission investment for the second half of the decade, especially in New York, for close to EUR3 billion, which -- and EUR1.5 billion in New England, so which is NECEC. In renewables, I think the assets are under construction. It's awarded. We have already secured for those one the ITCs and the PTCs and the current legislation. So I think it's not new for us whatever scenario can be produced. In any case, we'll respect what America will decide, as always. So we will work with whatever administration and we have already done for many years.
Ignacio Arambarri: Next is related to Networks' regulation concretely in Spain, and a few days ago, some news came out on the return on investment to be below that companies currently are demanding. Do you think the new regulatory framework in Spain will make the investment attractive?
Ignacio Galan: Well, we are -- I think all the inputs in all the organization from the International Agency, from American administration, from the British administration. I was last week already in an Investment Summit of -- organized by the Prime Minister of Britain and European Union. Everybody is already just in transmit. We are perceiving a strong appetite to -- for increasing the investment in this sector. So I think there is a huge appetite for the technology companies to sign contracts for longer periods of time with prices -- forward prices above the actual one for securing more amount of energy. And also, I think we are perceiving a well, good appetite for repowering project what we have already positive situation with a portfolio more than 5 gigawatts to be already repowered. So I think we are already receiving positive trends and what we are seeing is big appetite, so -- everywhere. So I think that the money will move whatever they will make already more clear, stable, predictable and attractive frameworks, which I think another day in the meeting in London with this Investment Summit, it was -- this word was repeated several times for all the participants. Stability, predictability, rule of law. And that is what is making already the attractive business to move the investment from one side to another one, knowing that the demand of more electricity in this moment worldwide is huge, especially for new demand like data centers.
Ignacio Arambarri: Next is again related to Spain and its press noise about the government's intention to extend and make permanent the 1.2% revenue tax. What is your opinion on the subject and what would be the impact for Iberdrola? Have you included this tax in your projection for the years 2025 and 2026?
Ignacio Galan: So I think, I insist still we are not projecting on 2025-2026. So I think that should be a minor, very minor thing in our estimate compared with the whole business of the Group. Well, I think so far, as far as I know, nothing is approved. I think it's -- that has to pass a very long process, an uncertain process as well in the chambers, which we will see what is the result. So -- and of course, our projection for next years will be based in whatever should be real at that time. So now for the time being, it's not real. It's nothing in hand. It's just rumors and noises, but nothing is concrete. And the moment it will be completed, we introduce in our expectation, in our projection. But now we have much more things to include in our projection than this tax itself. But it's still uncertain that that will happen or will happen in the same manner it happened. So it's a long, long process. We have to be passed through the chambers still.
Ignacio Arambarri: Demand is currently one of the topics that has more market focus. The audience is sending question about whether the demand is recovering and which are the key drivers for a future demand increase in Spain and in other markets. Are data centers a game changer in the electricity demand? What would be the role of Iberdrola in this field?
Ignacio Galan: So, I think we are seeing they are increasing the demand in all markets. I think we show in our numbers of distribution, electricity in all countries is growing 2%, 3%. Traditionally we're growing in Brazil and not growing so much in the rest of the countries. Now it's growing almost in all of them. So it's -- mostly it's things of electrification of residential and industrial uses, in which industrial uses certain data center is an important driver in some countries. But there are other drivers as well which is electric vehicles which is as well transforming, the massive use of heat pumps for cooling and heating in homes. And I think -- and another one I think very -- many digital processes now we are electrifying. So I think there are certain of the data centers have huge consumption because it's 24/7, so -- which I think -- by the way, Iberdrola is very well positioned because we can already provide this 24/7 supply to the data centers, thanks of our pumping facilities, our hydro, our green and solar et cetera, et cetera. So the -- our point on this one is on the case of data center that is one of the reasons we would like to facilitate. I think we would like to help to our main customers with now are already these technological companies, but we would like to help because we would like to facilitate and to increase the demand with that represent. That's why we are running this business not because we are discovering the -- now, this means itself but I think it's part of one of our drivers for helping to increase the electricity demand as we are doing with the chargers, with the agreement we have already with BP (NYSE:BP) for expanding chargers in different geographies, because again, it's facilitating the electrification. But all the trends makes -- the electrification is the word which has been used by the Director of International Agency. We are coming to the century of the electrification which I think -- we assume that that is becoming a reality.
Ignacio Arambarri: Next is on fashion again also on data centers. What is your opinion of the use of nuclear facilities including SMRs to supply these data centers?
Ignacio Galan: So, I think data centers I mentioned is 24/7. I think you need already to work 24 hours, seven days a week, 360 days a year. So I think you need to really to have a very, very strong redundancies. So I think it's not a question only to have a power plant which is already providing a few hours per annum which can be the solar a few hours per annum some more which is onshore or much more hours per annum which can be offshore. But I think you need already to provide this in a continuous basis and to have already an alternative redundant system. Nuclear is providing 6,000, 7,000 a year which I think they provide this one not 24/7 but close to 24/7. So -- but the thing offshore is as well providing close to this 24/7 which is 5,000 hours or something like that. But I think nuclear is -- clearly can be a solution, no doubt, where the energy policy allows us to do so. So in terms of technically, I think it's possible in Europe to extend the life of the existing nuclear power plant. I think it's other ones are making other countries to extend life up to 80 years. So I think they are not in the reason why the European ones cannot be extended as well as being extended the United States ones. But I think that requires economic analysis and as well to have already energy policy which allow us to make that one and to make attractive to make this extension of life. But I think I insist in the case of Iberdrola with the alternative 24/7 as well. If the policy allows us to extend, we will be ready if the economics is already make attractive this extension. Technically, it's possible. And I think I understand perfectly why certain countries is already allowing to do so. Because I think that this is also energy of electricity. In a moment, the demand of electricity is growing in all the market and expected to grow even more. I think related to small modular reactors, we know the system will run for a few years. I still -- I think most of them are in the phase of demonstration project. And I think in my opinion, I think as many years ago since I studied engineering, nuclear engineering, so probably I'm not very much updated. But as far as I know, still is not in solution at greater scale. But I think they are going to be probably by the end of the decade. So I think what I read already is certain I think which has been signed and agreed is reactors will be in service by 2035. Something else. So I think it's by the middle of next century. But certain will be a solution as another one is as well. Then it's a question of cost efficiency. So if it's more -- this is more efficient than other alternative that will be used. If it's less efficient then not will be used. So -- and I think that my positive thing on that one is that the loan lights of the technology companies which are already trying to secure their electricity needs for longer and longer period. We have seen the appetite of those companies for signing PPAs and they would like to have secured then all our efforts in the digitalization. And the opportunities they are seeing in artificial intelligence and all this work are such that they would like to secure the energy sources for the next 15, 20 or 30 years. And I think they are signing without offshore. They are signing with onshore, they are signing with us pumping storage and they are signing already nuclear in the countries where they have not another facilities.
Ignacio Arambarri: Next is prices and energy sales in Spain and UK. Could you comment on what percentage of production you have locked in for 2025 and 2026 for Spain and UK and at what level of prices?
Ignacio Galan: Armando?
Armando Martinez Martinez: Good morning. In Spain, the entire production to be sold in 2000 -- this year 2025 is already committed. For '25, it's committed 85% and 75% for 2026. Prices are slightly better than 2024 this year and also slightly better than our expectations. In the UK, we have committed all our production this year and around 80% from the years '25, '26. And prices, again, are similar to 2024, similar as our expectation.
Ignacio Arambarri: Next is regarding the supply chains. The presentation highlights the investment in the offshore business. And are you seeing any bottleneck in the suppliers' materials, especially from the vessels? Are Chinese suppliers a reality today? Can they compete with European manufacturers?
Ignacio Galan: So we are aware of the limitation of the availability of vessels to install some specific components, not for all, but especially for foundation. I think every retail foundation are much bigger and I think the availability of vessels we can deal with such a huge foundation is -- we are having some restriction for offshore. We have already, as I mentioned, the availability of the vessels for the three projects we have under construction. And we are closing the contract for the new projects in UK and US, which we expect to have already, all those ones fully signed by this quarter. So the first -- the last quarter of 2024, I think we are in advance. But I think for those within construction, we are fully secure those ones -- in this one. I have to say that we are already being one of our, let's say, key competitive advantage. We have been planning in advance all our -- with anticipation, all our supply chain. We have standardized very many of our components and that is already facilitating and securing our supply. Related to Chinese manufacturers, we have not component with Chinese manufacturers. I think we are satisfied with existing ones, with those ones has been our traditional ones, Siemens Gamesa, Vestas, et cetera. But we've been working together for more than 20 years. As you know, the procurement of turbines is not an easy thing. It's a complex process with not only the turbine itself, it includes logistics, guarantees, maintenance. That is very different from solar panels. Solar panels, you go to the warehouse and you buy a panel and you install for your own. I think that is much more complex. A real, real engineering work will require tremendous skill and expertise. We have hundreds of engineers dedicated to that one. So I think it's not easy for a new vendor to come into the supply chains without passing through all these approvals, all the tests, and to give the security and the certainty. Then all this related not only the product itself, but the logistics, the guarantee, the maintenance, the support, et cetera, works properly.
Ignacio Arambarri: Next is a traditional one. Are you planning another M&A transaction in the horizon?
Ignacio Galan: So I think we've been -- we have enough with the implementation and the integration of ENW in this moment to build already all these new projects we have already won in the last few months. So I think for the time being, we are focused on that one and we are working hard in this integration. We are not already in this moment in another -- any another one.
Ignacio Arambarri: A couple of questions to Pepe. First is, could you give some more color on the non-recurring items EUR254 million in the financial results and which is the level of FFO, net debt -- net debt to EBITDA, you feel comfortable in 2025 and 2026?
Pepe Sainz: Okay. So let me try to explain first -- the first part is the, I would say the EUR484 million, which is linked to FX and to other things. EUR230 million is linked to FX derivatives. A lot of that, as I have mentioned, have to do with the Mexican transaction. So the positive impact at the financial level is fully compensated at the tax level. Take into account that we have to pay taxes for this transaction in Mexico so that our tax item is growing EUR740 million. A lot of that has to do with Mexico. More than EUR200 million of the growth of this tax has to do with the impact the FX -- the FX impact in the taxes that we have to pay. So, all in all, I have to say that despite that, you see EUR230 million linked to FX derivatives, the contribution -- the FX contribution in '24 is EUR50 million lower than the FX contribution that we had in '23. So, despite what you see, the FX contribution this year is lower than what we had last year. And then we have EUR254 million that is linked to capitalized interest and one-offs. Of this EUR254 million, EUR150 million are capitalized interest. Take into account that this group is every year investing more and more. And as we invest more and more, part of this cost -- financial cost, is capitalized. So that is one of the reasons. And the other is that we've seen higher interest rates and the tax or the interest. What we capitalize, this interest is slightly higher than in previous years. So that explains EUR150 million out of the EUR254 million. Then we'll have another EUR50 million that is linked to regulatory assets, a lot of it related to debt collections. When you are not collecting debt, especially in Networks, you get paid by the regulator. So that is a part of the EUR50 million, an important part of the EUR50 million of regulatory assets. And then there is some EUR50 million that are miscellaneous and some positive financial impact given the court sentences that we have been receiving, that we have to account part at the levied levels and part at the financial cost of delay of the payment is linked to the financial income. But I would say at least EUR150 million -- at least EUR250 million is linked to either capitalized interest and regulatory assets, especially debt collection delays.
Ignacio Arambarri: And regarding the expected…
Pepe Sainz: And regarding the -- well, I think that we are comfortable at levels of somewhere 22%, 23% and this is how we are expecting to end the year. That gives us a very comfortable BBB+ ratio given the profile of the Group.
Ignacio Arambarri: Being -- so trying to be on time. Last question is related to the Draghi plan. Have you gone through the Draghi plan and what do you believe is the role of the electrification in it? How much of it do you believe could be implemented?
Ignacio Galan: So I think the energy transition, he mentioned already clearly is an opportunity for Europe. So I think we need already in Europe more electricity, more energy security, more independence in our supply of electricity after the shocks we have already, the crisis we have already suffered the last few years. That means this needs -- we -- that can help to increase the competitiveness of the Europe -- of Europe. I think he's mentioned already, better prices and better prices mean less taxes, less charges, better mix of power generation, so less fossil dependence to avoid volatility. And I think that gave us well money. Another thing is the opportunity for industrial deal in Europe. So transforming the economy and economy more, let's say, clean, is opportunities for new industries, opportunities for new jobs. And that is what European Union is working now with this industrial deal. We would like to present in a hurry. So the consequence of that one is decarbonization. I think is -- the Draghi, what he's saying, Draghi -- and I think another day on the Investment Summit of UK was similar thing. I think it's a clear opportunity through the electrification and to use the energy transition for improving the European innovation, to improve the European competitiveness, to improve the European economy. And the consequence is that decarbonize also our economy. I think new jobs, new industrial - -new industries. And I think that is what the report of Draghi has mentioned. And the British is already looking forward as well in the same direction. And that is what the International Agency has mentioned already in the last report. So more demand of electricity than expected and more opportunities for those countries which are moving fast and they're moving in the right direction.
Ignacio Arambarri: Okay. Still there are a few pending questions that will be answered by us, the IR team. Now please let me now give the floor to Mr. Galan again to conclude this event.
Ignacio Galan: So thank you very much again for taking part on this conference call. I hope that we have already replied all your questions and in any case, our Investor Relations team will be available for clarifying whatever additional information you may require. Thank you very much and see you soon. Thank you.
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