Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- EDP SA (EDPFY, Financial) achieved 98% of its generation from renewable sources, reflecting a strong commitment to becoming coal-free by 2030.
- The company reported a 50% increase in net profit, reaching EUR0.8 billion, driven by strong growth in renewable generation and lower energy sourcing costs.
- Asset rotation gains contributed EUR243 million, significantly boosting the financial performance compared to no gains in the first half of 2023.
- EDP SA (EDPFY) maintained a solid balance sheet with EUR9 billion in available liquidity, covering refinancing needs until 2027.
- The company successfully executed several asset rotation transactions, including deals in the US, Canada, Brazil, and Italy, at attractive multiples.
Negative Points
- Despite strong performance, the company faces an environment of lower electricity prices, which could impact future profitability.
- The regulatory review process in Portugal and Spain could introduce uncertainties and potential changes in returns for the electricity networks.
- The company's net debt increased to EUR17.4 billion, driven by investments in renewables and dividend payments.
- There is a risk that asset rotation gains may not be as significant in the second half of the year, potentially impacting overall financial performance.
- The tax rate in Portugal remains high, and any changes in corporate tax rates could affect the company's profitability.
Q & A Highlights
Q: Can you guide us on the process of the low-voltage concessions auction in Portugal and whether EDP will participate?
A: The previous government had set out a process for the auction to take place by mid-2025. The new government has set up a task force to review this process. EDP has successfully managed these concessions, improving service quality and reducing costs. If the process is rational, EDP will participate. Worst case, EDP would get EUR1.2 billion to EUR1.3 billion of RAB back if not successful.
Q: What can go wrong in the second half of the year that might affect the EUR1.3 billion net income guidance?
A: The main factor is the timing of asset rotation gains. If these gains are realized in the second half or next year, it could impact the net income. The underlying business performance remains strong, and the guidance is based on achieving these gains.
Q: How many asset rotation gains are included in the EUR5 billion EBITDA and EUR1.3 billion net income guidance?
A: EDP expects around EUR300 million on average in asset rotation gains over the period. The first half of 2024 had strong gains, but the company aims for consistent gains without maximizing absolute amounts.
Q: What is EDP's view on power demand in the US and Europe, and how does it affect renewable returns and investments?
A: In the US, there is increased demand for renewable projects, leading to strong project returns and willingness to contract for future projects. In Europe, there is also demand, particularly from data centers, but network access remains a bottleneck. Overall, the demand for renewables is strong in both regions.
Q: Why was the tax rate high in the second quarter, and will it normalize by year-end?
A: The high tax rate was due to strong results in Portugal and Brazil, along with some deferred taxes. It is expected to normalize to around 25% by year-end.
Q: What is the outlook for the liberalized market margins in Iberia?
A: The margin evolution has been stable and in line with original expectations. There is no significant change anticipated in the medium term.
Q: What is the potential impact of a reduced corporate tax rate in Portugal on EDP?
A: If the corporate tax rate is reduced from 21% to 15% over four years, it will positively impact EDP's profits in Portugal. However, the actual tax rate is higher due to additional taxes, making Portugal's tax rate one of the highest in the OECD.
Q: What should we expect for Hydro normalization and client energy management activity in 2026 guidance?
A: For 2025, EDP expects normalized volumes and forward prices for hydro and renewables. The integrated business in Iberia is expected to contribute around EUR1.4 billion in 2024, with normalization to around EUR1.1 billion including Brazil, or EUR0.9 billion excluding Brazil, in subsequent years.
Q: Can you clarify the statement that most asset rotation gains were booked in the first half of 2024?
A: Yes, more than half of the asset rotation gains were booked in the first half of 2024 for both EDP and EDPR. The company will see what happens in the second half regarding additional gains.
Q: What is EDP's view on the regulatory review for the Portuguese market?
A: The Portuguese regulatory review will be based on the Portuguese bond rate plus a spread. EDP believes the current return is low and will advocate for a higher return to support necessary investments for the energy transition.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
