EDP, S.A. (EDP.LS) 2019-11-01 Earnings Call Transcript

Good morning, ladies and gentlemen. Thanks for being with us today for the Conference Call on EDP's 2019 Third Quarter Results. As usual, we will begin with a presentation by our CEO, António Mexia; and our CFO, Miguel Stilwell de Andrade which will provide us an overview of the results and the main developments of this period. We'll move to a Q&A session in which we will be taking your questions both by phone; and via our web page www.edp.com. Expect this call to last no more than 60 minutes. I'll give now the floor to our CEO, António Mexia.

So, good morning, everybody. Thanks as usual for those that are attending in this results conference call. So, the first slide that I want to share with you the Slide 3. Basically we have the key highlights. And the key highlights give us an overview of our performance over the first nine months. At EBITDA level, we see an increase by 10% to €2.66 billion with a strong growth across all our three business platform. That's important. In renewables over the last 12 months we have commissioned 0.9 gigawatts of new wind capacity. At the same time, we have been delivering our assets rotation strategy. We closed in the beginning of August an important deal involving an attributable capacity of 500 megawatts of wind farms in Europe. And in late July, we have announced an additional assets rotation deal in Brazil which is expected to be closed before the end of this year. In networks, we showed also a very sound growth mainly in Brazil. In distribution, the recent regulatory review implied a significant growth of our regulated asset base providing good visibility on returns over the next three years. And in transmission, we have four lines under construction and one additional under development in which we are managing to anticipate again causal and optimized funding conditions. And that will be added to our first line that is already operational since last December. On the other hand our performance this year is strongly affected by the weak hydro resources in Portugal which were 39% below long-term average in the first nine months of the year. That is very unique. Our recurring net profit increased by 7% to €585 million, reflecting operational performance, but also a temporary increase in financial costs, partially related to the €1 billion hybrid bond important for our structure issued last year -- last January; and higher weight of U.S. dollars and Brazilian real. Why? Because it's where we are growing. They justify the 4% average cost of debt in the period. Note that this average cost of debt does not yet reflect the recent significant decline of our refinancing costs as it was shown by our seven-year bonds issued in September at a record-low yield of 40 basis points. We have a strong potential from benefiting from this low interest rate environment with €4 billion of bonds maturing until 2022 that have coupons in the region of 4% to 5%. Our reported net profit stood at €460 million negatively impacted by an €87 million provision related to Fridão. This provision booked for preventive prudency reasons refers mainly to invest amounts since 2008 in addition to the €280 million down payment following the preliminary awarding of this hydro project concession to EDP. After the 2016 government's decision to suspend the project for a three years period, the Portuguese government decided not to move forward with the process. So, we now expect that the exact terms of the financial settlement should be now defined by an arbitrage process that as you know is a quicker system to have results. Our net debt fell by 5% year-on-year to €13.8 billion in September 2019 with expansion CapEx of around to €900 million partially compensated by assets rotation proceeds of €800 million and benefiting as well from a good performance on organic cash flow -- free cash flow which rose significantly to €1 billion. Now going into details, slide 4. As we can see our hydro production in Iberia fell as I mentioned by 47% year-on-year with low hydro resources which were 39% below or more than four terawatts-hour below the average historical average, which compares to 20% above average in the first nine months of 2019. So, clearly they are different years. As expected due to seasonality the third quarter had no material impact on these regulated sales. Regarding wind resources they were 4% below long-term average in the nine months which is exactly the same figure of the same period in the last year. Still, our wind production increased by 6% due to increased installed capacity and higher load factors in new wind farms. Moving to slide 5, EBITDA increased by 10% year-on-year. Going into detail we now spread for -- by business units. Firstly, from renewables, we have an increase by 7% with a major contribution from wind and solar where EBITDA boosted by 40% with assets rotation transaction here generating a €226 million gain. However, and that's important, even excluding these gains and exchange rate effect EBITDA from wind and solar increased by 11% year-on-year backed on our installed capacity and higher average selling price. For negative side, we have the hydro. So, the low impact -- the low volumes in Iberia implied a negative impact around €250 million on EBITDA, partially compensated by higher average price. Moving to networks, EBITDA increased by 18% mainly supported by robust growth in Brazil. We entered into a new regulatory period for both of our distribution concession in this country with the higher EBITDA coming from the recognition of a higher RAB, while the return on RAB is maintained at 8.1% until 2022 and until -- in Espírito Santo and 2023 in São Paulo, so good visibility until the end of our -- the business plan. Additionally, EBITDA was also backed on a 3% increase in electricity demand and the positive impact from tariffs updates. In transmission, we benefited from the rollout of the lines that we have under construction. In Iberia EBITDA increased backed by sound cost performance evolution with adjusted OpEx down by 4%. Lastly, in client solutions and energy management, EBITDA was 19% up supported by operations in Iberia following the normalization of the operating margins in the supply business after the adverse conditions that we faced in 2018 as well as the good results from energy management and hedging through forward sales and 84% increase in gas generation which far then compensated the strong decline in coal load factors, especially in the third quarter. On the other hand EBITDA from these activities in Brazil declined by €51 million, penalized by lower supply volumes and one rough impact in our coal plant in 2018 from the revision of contracted availability level. Moving to slide 6, OpEx, we continued to see a strong performance on operating costs. OpEx on a like-for-like basis showed a 1% nominal decline. In Iberia OpEx was flat but with 4% reduction in adjusted OpEx from networks in Portugal. In Brazil, OpEx in local currency increased 3% in nominal terms or almost minus 1% in real terms in a period of significant expansion of activity. At renewables at EDPR, adjusted core OpEx per megawatt, which excludes ForEx impact and one-offs in fact was flat year-on-year. Summing up, basically OpEx year-on-year evolution was slightly below inflation in all our key geographies, translating into savings in real terms despite increasing activities. Moving to slide 7 and net profits, our recurring net profit increased 7% year-on-year to €585 million, strongly supported by EBITDA improvement, mostly on renewables as we have seen and networks, and as I mentioned, before but partially penalized by high financial costs and income taxes. Regarding our reported net profit, it increased by 55% year-on-year to €460 million, following a year-on-year reduction of negative non-recurring items in Portugal, namely in the third quarter of 2018; the provision on the CMEC innovatory costs; and in the third quarter of 2019 the provision on some costs related to Fridão as already referred. EDPR, net profit increased 197% year-on-year, significantly impacted by gains from the assets rotation. In Brazil, net profit increased by 12% year-on-year in local currency propelled by strong growth in network, partially offset by lower results in energy management. In Spain, the lower net profit reflects the deterioration of gross margin from our coal plants as well as a positive fiscal impact in last year results. Finally, operations in Portugal posted a net loss of €33 million penalized by the low hydro resources by the provision of Fridão hydro project and the maintenance of heavy level of taxes and various other costs. And we will talk about these later. Slide 9, we are delivering our growth targets. So in terms of updates of our strategic plan I would like to highlight that we have reached 70% of long-term contracts agreed for our planned renewables addition at 2022. I remember in March, we were at 40%, when we talked in our strategic update, so we almost doubled since March our long term with a total of 4.9 gigawatts secured out of the seven gigas of our target. So since December 2018, we secured 2.4 of which 1.6 in North America both in wind and solar; 0.6 in LatAm, including 500 of wind in Colombia; and 0.3 gigas in Europe. The last three months, last quarter have been very intensive in adding 1.8 gigas of new contracts with visibility on delivering and prices. Overall, in the presentation of the first half results we had 40 -- 47 -- 46% of our 7 gigawatts target. And now three months later we have 70% so this clearly shows our strong focus on execution of our strategic plan and I believe gives visibility on our top first commitment in terms of the business plan. Still regarding with wind offshore. Yes, we were informed yesterday that our Mayflower wind offshore project in U.S. was awarded by Massachusetts state's with a 800 megawatt PPA and for 2025 a 20 years PPA. We are waiting for the Connecticut results, which will be announced soon. And the establishment of the JV with Engie for wind offshore is moving forward as expected from the first. The recent evolutions is good -- is good news. Moving to slide 10. On networks in Brazil, it's worth to highlight the very relevant outcome from the recent regulatory reviews of EDP Espírito Santo and now EDP São Paulo; and as I mentioned, providing visibility of returns 8.1% return on RAB, the same as the previous regulatory period until August 2022 and October 2023. Additionally, our EBITDA was enhanced through high regulated asset base which increased by 28% in Espírito Santo and 45% in São Paulo with respect to the first year of the previous regulatory period which was 2016 for Espírito Santo and 2015 for São Paulo. So clear here 99-plus of the investment was recognized. I remember that a decade ago, we had -- the level was 85%, 86%. And we have now best in class in Brazil by far. So finally we continue executing our growth in transmission which represents now a total investments of €3.9 billion in six projects. The first line is already operational. Four projects under construction and the most recent line in our portfolio in permitting stage. All conditions are met for the execution of transmission, once again and repeatedly ahead of schedule. Furthermore, better-than-expected funding conditions have also revealed as a clear driver of value enhancement. These driver are expected to double our expected NPV from this project. Slide 11, so regarding the execution of assets rotation strategy, we have agreed on two relevant transactions this year: the sale of our 51% stake in 997 megawatts in Europe, which was closed in July with €0.8 billion proceeds; and the sale of 137 wind farm in Brazil, which is expected to be closed in the first quarter of this year. The implicit valuation of these deals were higher than initially assumed in our plans reflecting the strong buyer's appetite for these kind of assets, providing the low interest rates context and current sustainable investment trend. These two deals represents €1.1 billion of proceeds or more than 25% of our target of €4 billion assets rotation proceeds between 2019 and 2022. Regarding asset disposals, we are working on the execution of our more than €2 billion proceeds target. We have a potential portfolio of about 1.7 gigas of merchant generation assets in Portugal, on which there is an ongoing due diligence process by a selected group of interest parties. Potential bidding offers are to be submitted by year-end while full execution and closing is expected in 2020. So we are exactly on track of what -- with what we committed in March and we repeated just before summer. Moreover, in line with what we defined in our strategic plan, we continue to develop other options, regarding disposal of assets which can be -- it can be complementary or as alternative to the ongoing process that I have just mentioned. Slide 12, [indiscernible] EDP was ranked as global leader within integrated utilities by the Dow Jones Sustainability Index which is a clear recognition of our commitment to pursue a transparent strategy aligned with the energy transition. Also to highlight that we have achieved the highest score 100 of 100 in nine categories namely climate strategy water-related risks and stakeholder engagement. I think basically it shows that we are competitive. So also in September within the scope of the UN, we were one of the 87 global corporations that have pledged to reduce emissions and ensure global warming does not exceed 1.5 after 2050, assuming as well a commitment with net zero emission by no later than 2050. We have already concrete targets to contribute to these achievements such as a reduction of specific CO2 emissions by 90% by 2030 versus 2005 and more than 90% share of renewable generation in our portfolio as we announced in the strategic update. Overall, we affirm our strong engagement with decarbonization by pursuing the best practice, aligning our strategy with energy transition and with transparent disclosure of ESG -- ESG metrics. We are well positioned for leading the energy transition, creating clear value for all our stakeholders. So moving to Slide 13. Now we have -- I have already mentioned the main highlights of the last quarter but I would like to share with you our current expectation for 2019 full year, the period that will be obviously marked by the low hydro volumes in Iberia as we have seen in previous slides. We expect to reach 2019 EBITDA close to €3.6 billion, slightly above what we shared with you at the first half results conference call, mostly due to the referred positive regulatory developments in Brazil and assuming renewables production close to historical average in the last two months of the year. Regarding net profit, we expect to reach a figure close to €0.8 billion, excluding non-recurring items in line with our previous expectation. Finally, I would like to stress that over these first nine months we have gained - we have very important steps to execute the full delivery of the strategic plan. So, I think that, one of the key highlights of today is that, we have been focusing on delivering what we have committed in terms of sustainable growth, and balanced business plan. Regarding accelerated and focused growth pillar. We have reached 4.9 gigas of long-term contracts for renewables capacity additions, which represents 70% as I mentioned. So I think that we have been clearly performing very well. In a moment where a lot of you and everybody asks, can you be competitive in a market where everybody now wants the same and is targeting the same areas? We have been proving that we are clearly, if anything ahead of the curve very well. In networks Brazil, we have now fully - the full visibility on regulatory returns for the period of our plan following the recent 36% average increase in RAB. We continue to focus on delivering the new lines ahead of schedule and of course in low costs. Regarding our strategy of continuous portfolio optimization, we have our assets rotation program as a clear driver of value through the monetization of fully valid renewables projects to reinvest in new projects in development stage. This has become a recurrent piece of our renewables business, and an important part of our strategy. I think that allow to grow faster. It de-risks. It gives you optionality, so I think it's clearly the best strategy. For this year, we have already crystallized €1.1 billion of value at valuations as I mentioned better than assumed in our plan and representing one-fourth of our targets up to 2022. Furthermore regarding asset disposal program, as I just mentioned and I want to stress this again, we are fully on track to deliver the target proceeds of more than €2 billion before the end of 2020, with visibility until the end of this year. Regarding cost of debt, it was penalized in the period by the increasing rates of hydro bonds and dollar and Brazilian reais the fact that they are bigger now than they were before but our most recent refinancing seven years green bond that we issued in September at a record low as I mentioned is a good example of what are the current prospects regarding the refinancing of the €4 billion bond maturity that we have until 2022. Most of them are paying interests well above the 4%. On the efficiency and digitalization front, we have achieved a 1% reduction of OpEx. So as a result of several initiatives under developing in order to continue always to improve our efficiency. So I believe that the last quarter, clearly shows in terms of growth visibility of regulatory assets in terms of efficiency, in terms of optionality shows that we are clearly delivering all our commitments. Now, I will pass to Miguel for a detailed analysis and then we can go back to the Q&A. Thank you.

Well, thank you António. Let's move on to slide 15. And here on slide 15 you can see that during the last 12 months we've built over 900 megawatts of wind farm about two-third of these additions coming through in North America. On the other hand though, we've sold 1.4 gigawatts of wind capacity of which 400 megawatts in North America related to the deal we announced in December 2018; and one gigawatt in Europe of which we had 51% so just 0.5 gigawatts net of minority the deal that António has already mentioned. So additionally, we also sold around 0.2 gigawatts of small hydro plants in the fourth quarter of 2018 in Portugal and Brazil. So obviously that's explains this movement that you can see here on the graph on the left side. So all together September 2019, we had 26.3 gigawatts of installed capacity of which 73% related to renewables sources. Concerning generation mix, so on the right-hand side. So the main highlight goes to the six terawatt hour reduction year-on-year on hydro generation mostly due to the weak hydro resources in Portugal, which we've talked about and which were 39% below long-term average. On the other hand, our generation from wind and solar increased one terawatt hour backed by the 3% increase in average capacity and the higher load factors from new additions, but it's also important to highlight that in this period thermal generation declined one terawatt hour, with gas generation almost doubling year-on-year from a low base; and finally replacing coal generation given that there's been an increase in CO2 prices and lower gas prices. So all together in the first nine months of 2019, we had 48 terawatt hours of electricity of with 64% from renewable sources which is big and which is very penalized by hydro scarcity in Portugal and doesn't reflect ongoing basis. Moving on to slide 16, so here wind and solar EBITDA increases 40% year-on-year to €1.2 billion, so significantly impacted by the €226 million asset rotation gain in Europe you can see here. Even excluding, this impact EBITDA would have grown by 14%. I think it's important to highlight. So it would have grown, excluding this impact driven by the increase in average installed capacity of 3% mainly in the U.S. and Brazil; and also the higher average selling price by 6% mainly in Brazil. But also benefiting from a 6% appreciation of the U.S. dollar versus the euro; and also benefiting from a 6% increase in electricity production. And despite stable deviation of wind resources versus the historical average on a year-on-year basis, the new wind farms have higher load factors than existing portfolio. So that explains basically the movements on the EBITDA in wind and solar. Moving on to slide 2017 and EBITDA from hydro. So here, you can see it's decreased with 34% year-on-year to €443 million mostly explained by the weak hydro resources in Portugal, as I mentioned the hydro coefficient 39% below historical average. So as a result the hydro generation in Iberia this year was almost half of the previous year at 5.9 terawatt hours. But this impact was slightly mitigated by a 3% increase in the average selling price, reflecting the hydro increased opportunity cost; as well as due to our forward sales hedging strategy. So furthermore pumping volume also rose 10% year-on-year optimizing production from the low reserves with stable pumping margins in the region of €15 per megawatt hour. In Brazil, Brazil EBITDA from hydro declined 40% year-on-year due to several factors: so first 8% decline of installed capacity, due to the disposal of the mini hydro plants by the end of 2018. Secondly, lower average selling price; and third our hedging strategy which allocated a higher percentage of our annual energy contracts to the second half of the year. Moving on to slide 18, and the regulated networks. So regarding our network activities EBITDA increased 18% to €749 million. In Brazil, EBITDA increased 59% propelled by both distribution and transmission operations and already discussed that. And both - António mentioned that. So in distribution the start of this new regulatory period implied a significant revision of the regulated asset base recognized by Enel, implying a €59 million increase from the update of the present value of our distribution concession residual asset value, but the results of the distribution operations also benefited from the annual tariff updates and the 3% increase year-on-year on electricity demand mostly in Espírito Santo state. In transmission, 2019 is the first year of material EBITDA contribution following the entrance into operation of our first-line in December 2018 as well as progressing construction work in the other four lines. In Iberia network, EBITDA performance was mainly supported by a 4% decline in OpEx, which EBITDA was also impacted by Portugal declining rate of return, which is obviously connect the evolution of Portugal's 10-year bond yield. Moving on to slide 19. So client solutions and energy management. This includes the supply energy management and thermal generation. EBITDA from these operations increased 19% year-on-year to €284 million. In relation to supply in Iberia, EBITDA improvements resulted from the normalization of operating margins starting from a particularly difficult 2018. It's something we've talked about already in the strategic update back in March and also increasing penetration of new service. So we had an increase of overall €64 million. Regarding thermal and energy management in Iberia, we have better results from energy management support for hedging operations. We've more than offset the duration of the coal load factors which can go from 80% in the third quarter of 2018, 22% in the third quarter of 2019. In Brazil EBITDA from these activities declined mainly due to lower volumes in supply and weaker results from the hedging strategy. For thermal last year's results were positively impacted by €25 million gain due to the downward revision of the contracted availability level. Excluding this effect thermal EBITDA was stable year-on-year. Going on to Slide 20 and talking about the Portuguese electricity system debt. So I think the key note here is that the regulator released the proposal for electricity tariff in Portugal for 2020 back on the 15th of October. The final proposal will be out on the 15th of December. So it's clear from this proposal that the Portuguese electricity system is following a sustainable path downward with continuous reduction in electricity system debt which is forecasted to reduce by €0.6 billion to $2.9 billion by 2020. So this is -- you can see this has come a long way since the peak a couple of years ago. So it's expected the tariff debt will continue to be gradually reducing until to be paid fully down by or before 2025. That's inline with our expectations. In São Paulo the regulator defined tariffs for the last resort consumers so proposing a decline of 24%, again demonstrating the financial sustainability of the electricity system in Portugal. For our distribution operations the rate of return on RAB is expected to be the same as in 2019 so 5.16% would be then adjusted after according to the Portuguese 10-year bond yield. Regarding the Fed, the extraordinary energy tax, but the amount referring to 2020 should be defined by the annual state budget. The first government proposal should be presented at the parliament by December 15. Typically this is done on the 15th of October, given however given we had elections at the beginning of October it's deferred by two months. So to conclude on this section, I'd just like to remind that the results of the recent Portuguese solar auction also with 1.3 gigawatts awarded at an average tariff of €21 per megawatt hour. I think it's also signed of the potential gains of the system, Pecem city system from the new renewal addition. So clearly we're talking about a sustainable system. And -- so I think some of the concerns we had two years ago are fairly open. Slide 21, net debt net debt at €13.8 billion in September 2019, so 2% rise versus December 2018, but it's a 1% decline year-on-year. So the main impacts on net debt are; first, recurring organic cash flow which is almost €1 billion which is a 1% decrease year-on-year. Despite the weak results from Hydro and they're offset by gain on the asset rotation. Secondly, the net expansion investments amounted to €0.9 billion as a combination of net expansion investments with a significant weight devoted to renewals and transmission. And then also on the other side €1 billion proceeds from asset rotation deals. Obviously there's also the payment in May of the annual dividend amounting to around €700 million. And then there's also the positive €500 million from the 50% equity content in the hybrid bonds issued in January. And then there's some other effects relating to exchange rates and some regulatory receivables. So overall adjusted net debt recurring EBITDA is 3.8 times down from the quarter. Slide 22 in talking about financial results. So here net financial costs stood at €545 million in the 9 months of 2019 so that's an increase of 23% in relation to the same period of last year. But this figure is highly impacted by some particular volatile items not relating to interest costs. So just to remind in the 9 months of 2018 so last year the one-offs were the IFRS 16 adjustment of €25 million, there's a Celesc badwill impact of €15 million, there’s a capital gains of €19 million mostly related to Temares project that we sold down last year. Then also both 2018 and 2019 there the results of net core and derivative mark-to-market which totaled a negative year-on-year impact of €24 million. So stripping that out as a result of the interest-related costs rose by 4%, €70 million basically justified on one hand by a 20 basis point decrease in the average cost of debt 4%. And there's also a difference in the mix because of the higher weight of U.S. dollars and Brazilian real in our overall consolidated net debt which is where we're doing most of our investment. And then there's also an impact of U.S. dollar appreciation. So if we look also at Slide 23, we've included the slide just to show that -- I mean EDP 5-year yields in euro are near 0 territory. I mean they've fallen 115 basis points since last September. Our U.S. dollar and Brazilian yields have also fallen by close the 200 and 300 basis points respectively. So this significant decline in our medium and long-term yields includes expectations regarding refinancing in the following years. So note that, we have €4 billion of bonds both euros and U.S. maturing until 2022, mainly several bonds with coupon rates in the region of 4% and 5%. You can see here on Slide 23. This number does not include the €750 million hybrid with the 5.375% coupon rate for the first call option in September 2021. But we also have almost €1 billion of debt in Brazilian reais which will mature by 2022 and which will also bring a significant opportunity to interest cost savings given where the penalty cost in reais has gone for last couple of months. So we expect to get some material savings in the near future just a low interest rate environment which means that our overall 4% great addition to our business plan. Now means, I think we can beat that going forward. To conclude, I'd just like to mention that we still have around €7.7 billion in liquidity which €5.9 million relating to available credit lines covers our refinancing need beyond 2022 protecting us from any volatility in the credit markets and also enabling us to manage basically the refinancing on some of the transactions that we expect over the next 12 months. So slide 24 last slide, from here you can see sort of the breakdown of the net profit in waterfall. Our EBIT rose by 36% following the 10% rise in EBITDA. As a reduction in the amount of provisions given that last year we had the €285 million of extraordinary provisions relating to the effect over compensation. And as a result and associates went down by €97 million due to the previously referred adverse year-on-year comparison of non-interest related items and also a 20 basis point decrease in the average cost of debt. Income tax expense increases by €95 million year-on-year with an effective tax rate of 15% on the nine months of 2019, so still a fairly low effective tax rate. And regarding non-controlling interest, this includes €158 million relating to EDP renewables and the €114 million relating to Brazil. So the total amount increases by €35 million closely reflects the increase of the net profit in the profit part. Overall net profit grows 7% to €460 million, while our recurring net profit grew 55% €585 million. So that concludes my section of the presentation. Now I'll turn it over to Miguel Viana to do the Q&A.

Thank you, Miguel. So we'll start here with some questions from the web. And then we built that to the sound. So the first question that we have from the web is from Andrew Moulder from CreditSights.

Now a question also from Jorge Alonso.

We have question from Arthur Sitbon from Morgan Stanley.

A question also from [indiscernible].

I mean, I think for net debt end of the year, we will be looking roughly in line with those of last year. I mean, obviously, this year the leverage space was slightly slower than expected just because there was also much weaker than average hydro conditions, but we should be close to €13.5 billion that's what we're aiming for. I think it goes also part of this question which was the tax impact for the freedom provision. I mean, this will be a deductible. And so the bottom line impact of the €87 million is around €60 million.

They asked for an update in terms of the total plant in Iberia.

We have a question also from [indiscernible] from Bloomberg. Load factors of coal-fired power plants in Iberia have sharply do you plan to book coal asset impairments anytime soon?

So as you know every year we revisit the issue. Typically in the last -- at the year-end. By then we always incorporate expectations for commodity prices as well as the remaining life of assets as is normal in order to access potential impairments. So we know coal plants have been working much fewer hours this year, which will certainly be factored in rather with the expectation for future role in the daily and ancillary markets. High C02 prices and lower gas prices have reduced core plant headroom. So clearly, we have been already doing some moves in the recent years. And we will repeat the exercise every year to go to give transparency to our expectations in what concerns this call. As you know, we are leaders in commitment of decarbonization, but of course in the transition and we need to evaluate exactly what does it mean in terms of the impact. So in any case non-cash. We will be having the exercise as you.

And we have a final question on the web before we move to a couple of questions on the phone. So it's regarding hydro EBITDA in terms of the positive impacts from hedging in this first nine months of the year. So what we have here essentially that our average selling price shows an increase of 3% as we show in our results release. This compares to the 10% decline of power prices. Obviously, there is here a positive impact from hedging, which we estimate in the region of €70 million. Obviously, you have further impacts namely the increase of realized premium versus base loads given that the load factors of hydro were lower than average. So finalizing here the answer of questions through the web. We'll move now to the phone where we have a couple of questions.

We are reaching one hour of the call, so I will just move to the final remarks by the CEO and we'll follow-up any more technical question through the IR team.

So, after this is my last comment that shows that, of course the industry is an exciting industry over the Albert [indiscernible]. It's going to be an exciting world because everything has been changing, as you know, business models, economics margin or cost of the adding technologies, the importance of the client. I think that as a final remark, I know that we have sometimes in EDP relative to our size. We have a lot of moving parts of small items provisions below the line whatever. So details especially in Iberia not to say mentioned Portugal. But I think that the big picture is, we know exactly what we want to do. We have been able clearly to deliver in very competitive markets with very -- either in solar, either now recently in offshore in new markets and also regulatory basis like challenging like in Brazil. We have been clearly best-in-class in what drives our growth and we have been humble enough, now that we need to keep our sound balance sheet and not going out of tune just because we have specific macro situation. So I think that we feel responsible on that balanced approach and keeping control of our story as leading the energy transition. So, thank you for your time and see you soon.

Essentially on the wake effect that was discussed in the last couple of days on the cause of our [indiscernible] and how do we see that in terms of our investment decisions?

So, thank you Miguel. Clearly I believe that we have presented our load factor expectations to investors based on 25 years of wind resource and predictive models between 2018 and since '94. And the conclusion is that, EDP has being experienced stable wind resources with very low volatility. And this was again explained yesterday by EDP Renewables. Finally, I believe that our internalization activity brings more value into the question. It means, that we have knowhow, example of calibrating models. But overall what I would like to say is that, we have been advanced well in the learning curve. We have suffered some of these problems, of course, but it was in 2007, 2008 so at the beginning of our development. So we have learned a lot of things in the last decade. So we are now very sure, very confident about what we have been showing and commitment that by the way proved by the recent figures.

And still in renewables, we have questions from [indiscernible] and also from [indiscernible] from Bloomberg.

Regarding the main power projects that we have won yesterday, if we get some more details on the next steps.

So, clearly this is very good news. As you know we were leaders in onshore in the U.S. We have been successful in Europe in offshore namely new day [ph] in France. But clearly, we wanted to our footprint. And we did it through a -- in a process that we have now consolidated our leadership positioning. And with returns that are respecting everything that has been shared with you. We are talking about 1.5 times return -- equity returns with double-digit even before any strategy of sell down. So these 20 years PPAs first now in marcuses with megawatts. And now we expect to even enhanced this if -- with the connected results shows that we have been very, very -- doing a very good job in the last year to be prepared to win this with very interesting returns in a state where the commitment is about doing more offshore winds and the investment in ports has been very significant. So the potential in that area is big and it shows that when we -- in last December, we auctioned for the site. We did it well. And then the team is the first to be congratulated with a fantastic job that -- it's very important for EDP.

In wind offshore but now on floating we have a different question also from Eric Mamado [ph] from [indiscernible].

In terms of South Korean partnership and how we see this evolution of floating technology?

So first of all Korea is wind power Korea active solution in EDPR is consortium. We had the ambition to develop an initial 500 megawatts floating. And why it's important? First, because the South Korean government falls for 13 gigawatts of offshore wind installed by 2030, so the potential is huge. And so we believe that we are adding value by combining, establishing the industry leaders in renewables and offshore project development. Going side with the local market and basically the industry expertise provided by the wind power career. And I would like to highlight that the wind float that we are developing, the wind plan technology that we've been developing throughout the last, I'll say mainly last five years with a new project in Portugal with 25 megawatts with turbines of 8.5, the biggest in this technology, with the floating technology. The learning curve on our side has been very relevant and we'll show that we are in the forefront of these new opportunities in floating offshore. And, of course, this plus the rest that we have just mentioned in the U.S., it means that now we are clearly already in the top five in the world of offshore and we want to go up in that ranking.

Regarding special energy tax in Portugal. If we have some expectation here some development.

Thank you. That question is relevant. As you know probably only in the 2020 public budgets, we will have visibility of who it is. But it's very relevant to mention that the system debt deleveraging is progressing and clearly indicates room for reduction already in 2020. So this is important. As you know budget proposal will be released by -- before Christmas and two relevant commitments were resumed last year is that -- and it was already included in the budget last year. To reduce the energy tax as the system deleverage and it's the case and to allocate two-thirds of the revenues from energy tax it’s 50/50. So I believe that we have everything to expect that reduction because both criteria are supposed to be not just mentioning the system that -- the system that declined by -- in the first nine months by €160 million since December 2018 to €3.7 billion. Clearly accelerating in the first quarter, but I remember that EDP share is 10%, only 10% of the total system at the end of September. For the full year, it will decline by -- typically by 3 -- €0.3 billion with a negative impact from weaker demand partially due to mild temperature. But it means that EDP regulatory receivables are expected to be broadly stable. And it's important to mention the 2020 debt proposal signals a decline again of €0.6 billion in the debt. So, it means that we will be well below the 2012 level and so all the conditions for the sales changing are there.

The guidance on 2019 EBITDA has increased, but recurring net profit outlook remains in line with what had been mentioned in the first half results conference call. Could you walk us through the moving parts below this level in the P&L if any of these items is more negative than expected?

So this is clearly the fact that what is growing in our company. The areas where we have minorities. So, renewables Brazil, so whenever you go from up there to down there, you have the impact of this where the growth is. As you know typically the negative impact in Iberia, it was the hydro and regulatory issues in Portugal. The first below average, the second already included in our vision. And, of course, below the line you have financial costs in 2019. And the fact the hybrid, the fact that we have increased the share of dollars and reais. But I would like to stress this. We will see the benefits of lower rates because of the fact that we have a big refinancing program relatively to the others. And by the way the average maturity was considered eventually a problem one or two years ago. Now it's an opportunity. So it's always like this in life. So you have an opportunity to have throughout the period 2022 impact of lower financial costs.

Regarding net debt guidance for the end of the year.

So I don't know Miguel if you want to share the same.

So the process as I mentioned and now I'd like to stress again, because I know that it's relevant after growth, after assets rotation in rubles of course disposable is probably one of the top three issues that we want to give full visibility. The process is progressing with no changes from what we said before. As we speak hydro assets in Iberia is the most likely option. We have alternative complementary disposals in Iberia are also being considered. If it says we it's always important to have plan B. So it means that we will keep the necessary flexibility eyeing on a reduction of exposure to the market. We will make sure that the process results in a clear benefit for our business plan execution and shareholder value. And finally, we remain confident of full execution before 2020 year-end and we expect to give visibility until the end of this year or maximum beginning of -- early, early 2020. So as you know the fundamentals are there. We have a very high market share in generation in Portugal. So it makes sense to everybody being aligned on this process. So it's diversity to generation players in Portugal. And process is going as everything that relates to Portuguese government and anything that relates to Brussels is going as normal. So we expect this process to be as we announced in March exactly keeping the pace.

[Operator Instructions] We will now take our first question from Alberto Gandolfi from Goldman Sachs. Please go ahead.

Thank you and good afternoon everyone. The first question please I have is on the hydro disposals. And as we are getting close to hopefully the conclusion of this. I was wondering if you're still sticking to your idea of dedicating all of the proceeds to paying down debt or if you see room sometime towards the end of the plan, perhaps to accelerate investments in maybe I don't know domestic renewables given the trends we are seeing in merchant solar or to grow dividends perhaps? The second question is -- and if you can't answer this I'm happy to take it offline. But is there an easy way to think about the non-cash items included in the EBITDA with all the new IFRS changes. I'm trying to figure out the cash conversion of EBITDA. And if not happy to take it offline. The third one is on European consolidation. I mean, recently the CFO of a company that is in the industry a similar market cap to yours says that he expects lots of M&A in the next few years in utilities as companies try to reposition for the next 10, 20, 30 years. You seem to own lots of assets that people would want for the next 10, 20, 30 years. So I'm wondering if proactively you think there could be value for shareholders from consolidation, if you were to merge with someone else, what would be the advantages? Why would that be the case and what's the value of scale I guess in developing renewables is the question. Thank you.

Thank you, Alberto. Typically, the second question will probably need to be a live answer than they should not be over the phone. But just it's of course a very interesting, but of course not obvious at all. But let's start with the first and then let's move to the second proceeds. As you know, we have tried very clear in this call to highlight that before, okay, you can have more rain, a little bit less rain, you can have some hurdles in terms of cash provision. We wanted clear to give the visibility about commitment delivering the key pillars of the business plan. Visibility on growth. I think that's better than anybody is expecting huge impact of new PPA signed in a very competitive market and entering new markets that are exciting and with very attractive returns. So, I'm talking about U.S. I'm talking about Colombia. Then the second pillar is about the asset rotation at better prices, than we expected, taking advantage of course of the market condition. But finally, the idea of proceeds of -- and reducing exposure to ideal market was always focused on the deleveraging and keeping that down. So, if anything we -- the first commitment is, put the balance sheet in a place where we have committed. And of course, this allow us to have additional flexibility, if it's the case to do some more. But we have not missed any opportunity because of lack of financial strength. We have been delivering everything that we need. And we have always been able to find business structure, business models and financial structure that will deliver that growth and sharing that growth with our shareholders. I think that even the assets rotation it's a good -- I think that we are a good set in what concerns the different valuations between public and private markets and EDP. I think, it's bridging very well the difference between both markets. So, let's do what we have been doing that I think it's clearly value-enhancing for the shareholders and adjust the speed of growth, but it will be of course just doing more as we have been doing until now. European consolidation. I remember, again, when I -- we started long ago in this industry that I was told by a lot of people, that we would not only have four utilities. It was 2006 or 2007 that we would only have four utilities in Europe. It was written by somebody that I will not -- it's not you. But the question is do I see room for people, trying to improve their positioning in management position? Clearly, yes. But what I would like also to answer is we have defined a strategy that permits -- that allows ourselves to control our destiny. It means that we know what we want. We have anticipated the trends. So, typically, we have done the partnerships that we need namely, we are building the partnerships that we need in offshore. We have been clearly being able to prove that we are able to grow now soundly in solar. So, I think that we control our destiny. And frankly, a lot of people probably need more out what we have and I need less what they have. So, frankly, I'm not over excited about that story.