EXECUTION

ECONOMIC
FINANCIAL PERFORMANCE

Revenues increased 11% YoY to €1.8 billion and EBITDA summed €1.4 billion.

In 2017, EDPR’s revenues totaled €1,827 million, an increase of €176 million when compared with 2016 mainly due to higher MW in operation, positive impact from prices despite lower average selling price year on year (€59/MWh vs €61/MWh in 2016) mainly as a result of capacity additions mix (product vs price), along with higher wind resource which also propelled EDPR’s electricity output to an increase of 13% vs 2016.

Reported EBITDA increased by 17% year on year to €1,366 million leading to an EBITDA margin of 75%. If adjusted by non-recurring items, 2017 EBITDA increased 13% and EBITDA per MW in operation increased 7% to €134 thousand. Core opex (defined as Supplies and Services along with Personnel Costs) per average MW in operation decreased 2% year on year reflecting strict control over costs and EDPR’s asset management strategy.

Other operating costs decreased to €128 million, mainly explained by one-offs in 2016 despite 2017 higher capacity in operation.

Net profit reached €276 million.

All in all, Net Profit totaled €276 million and Adjusted Net Profit €226 million, if adjusted for non-recurring events (one-offs: 2016 +€110 million, including depreciation schedule adjustment to 30 years; 2017 -€50 million, mainly related to positive adjustments on asset rotation past transactions, impairment losses and one-offs in taxes).

Retained cash flow increased 60% YoY to €1,114 million, capturing assets’ cash generation capabilities.

Despite the challenging year EDPR was able to deliver a robust cash-flow generation. Following EBITDA cash-generation, income tax of the year, interests, banking and derivatives expenses and minority dividends/interest payments, 2017 Retained Cash-Flow increased 60% to €1,114 million. In 2017, RCF includes a non-recurrent event (+€1 million from bonus depreciation) in Tax Equity realized revenues, if adjusted by such event, RCF increased by % year on year.

Capital expenditures totaled €1,051 million reflecting the capacity added in the year, the capacity under construction and enhancements in capacity already in operation. Pursuing the strategic partnership between EDPR’s main shareholder (EDP) and CTG, in 2017 occurred the settlement of CTG – ENEOP transaction for a total amount of €247 million.

Net Debt totaled €2,806 million, €51 million higher year on year, mainly reflecting the investments done and changes from consolidation perimeter variations in Mexico.

INCOME STATEMENT

SOLID TOP LINE PERFORMANCE

EDPR revenues increased 11% year on year to €1,827 million, an increase of €176 million when compared with 2016 mainly due to higher installed capacity, positive impact from prices despite lower average selling price due to generation mix, along with higher wind resource year on year.

Other operating income amounted €95 million with the year on year performance
by a gain (+€29 million) following the sale of a stake and loss of control of
a UK offshore project and gains in past asset rotation transaction’s adjustments along with a revaluation gain related to the acquisition of assets.

Operating Costs (Opex) totaled €556 million, with higher capacity in operation. In detail, Core Opex totaled €428 million, with Core Opex per Avg. MW and per MWh decreasing by 2% and 5% respectively, reflecting strict control over costs and EDPR’s asset management strategy. Other operating costs decreased to €128 million, mainly explained by one-offs in 2016 despite 2017 higher capacity in operation.

EBITDA increased by 17% year on year to €1,366 million, leading to an EBITDA margin of 75% and unitary EBITDA per MW in operation totaled €134 thousand (+7% vs 2016). Adjusted EBITDA summed €1,339 million (+13% vs Adj. EBITDA in 2016 of €1,184 million) if adjusted by non-recurrent events.

Operating income (EBIT) increased 42% year on year to €803 million, driven by the positive top line performance as well as a 7% decrease in depreciation and amortization cost (including provisions, impairments and net of government grants) due to EDPR’s change in depreciation schedule that offset the negative impact from higher capacity in operation.

At the financing level, Net Financial Expenses decreased to €302 million mainly reflecting the lower Net interest cost of debt after favorable negotiations along with lower average debt and with yearly comparison impacted by a €30 million one off accounted (in 2016) in Other financial expenses mainly on the back of early cancelation and optimization of certain project finances.

In 2017, Pre-Tax Profit summed €504 million, with income taxes totaling €48 million. Effective tax rate was 10%, positively impacted by the outcome of the US tax reform by the end of the year. Non-controlling interests amounted to €180 million, increasing year on year in line with top line performance and changes in depreciation schedule along with EDPR settlement of previous minority stakes transactions. All in all, Net Profit totaled €276 million and adjusted Net Profit € 226 million (+36% vs 2016 adjusted at €166 million) if adjusted for non-recurring events.

BALANCE SHEET

Total equity increases by €322 million.

Total Equity of €7.9 billion increased by €322 million in 2017, of which €112 million attributable to non-controlling interests. The increased equity attributable to the shareholders of EDPR by €220 million is mainly due to €276 million of Net Profit and €96 million of Asset Rotation transactions, reduced by the €44 million in dividend payments.

Total liabilities decreased 9% by -€833 million, mainly due to a decreased in accounts payable (-€479 million), institutional partnerships (-€271 million) and financial debt (-€169 million).

With total liabilities of €8.3 billion, the debt-to-equity ratio of EDPR stood at 105% by the end of 2017, which is a decrease from the 121% in 2016. Liabilities were mainly composed of financial debt (39%), liabilities related to institutional partnerships in the US (15%) and accounts payable (28%).

Liabilities to tax equity partnerships in the US decreased 18% to €1,249 million, including +$507 million of new tax equity proceeds received in the 2017. Deferred revenues related to institutional partnerships primarily represent the non-economic liability associated to the tax credits already realized by the institutional investor, arising from accelerated tax depreciation, and yet to be recognized as income by EDPR throughout the remaining useful lifetime of the respective assets.

Deferred tax liabilities reflect the liabilities arising from temporary differences between the accounting and the tax basis of assets and liabilities. Accounts payables include trade suppliers, PP&E suppliers, deferred income related to investment grants received and derivative financial instruments.

As total assets totaled €16.2 billion in 2017, the equity ratio of EDPR reached 49%, versus 45% in 2016. Assets were 81% composed of net PP&E – property, plant and equipment, reflecting the cumulative net invested capital in renewable energy generation assets.

Total net PP&E of €13.2 billion changed to reflect €1,047 million of new additions during the year and €222 million from other (changes in Mexico consolidation perimeter and the acquisition of 50% stake in a Spanish wind farm partially offset by the loss of control over Moray (UK) and other impairments), reduced by €984 million from negative exchange differences along with €537 million from depreciation charges, impairment losses and write-offs.

Net intangible assets of €1.5 billion mainly include €1.3 billion from goodwill registered in the books, for the most part related to acquisitions in the US and Spain, while accounts receivable is mainly related to loans to related parties, trade receivables, guarantees and tax receivables.

STATEMENT OF FINANCIAL POSITION (€ MILLION)

CASH FLOW STATEMENT

STRONG OPERATING CASH-FLOW

In 2017, EDPR generated Operating Cash-Flow of €981 million, an increase of 13% year on year, reflecting EBITDA performance and reinforcing the generation capabilities of its assets in operation.

The key items that explain 2017 cash-flow evolution are the following:

  • Funds from operations, resulting from EBITDA after net interest expenses, share of profits of associates and current taxes, increased to €1,184 million.
  • Operating Cash-Flow, which is EBITDA net of income tax and adjusted by non-cash items and net of changes in working capital, was €981 million.
  • Capital expenditures with capacity additions, ongoing construction and development works totaled €1,051 million. Other net investing activities amounted to €29 million (cash-in).
  • Pursuing the strategic partnership between EDPR’s main shareholder (EDP) and CTG, in 2017 occurred the settlement of CTG – ENEOP transaction, for a total amount of €247 million.
  • Proceeds from new institutional tax equity financing structure totaled €4 5 million, related to the tax equity signed in the US for 363 MW of wind energy projects and 60 MW of Solar PV plants. Payments to institutional partnerships totaled €195 million contributing to the reduction of Institutional Partnership liability. Total net dividends and other capital distributions paid to minorities amounted to €115 million (including €44 million to EDPR shareholders). Forex & Other had a negative impact increasing Net Debt by €269 million, mainly reflecting the consolidation of Mexican wind farm, despite dollar depreciation vs Dec-16.
  • Retained Cash Flow, which captures the cash generated by operations to re-invest, distribute dividends & amortize debt, increased to €1,114 million. In 2017, RCF includes a non-recurrent event (+€1 million from bonus depreciation) in Tax Equity realized revenues, if adjusted by such event, RCF increased % vs 2016. Net Debt & Institutional Partnership Liability decreased by €220 million.

FINANCIAL DEBT

LONG-TERM AND STABLE DEBT PROFILE

EDPR’s Net Debt totaled €2.8 billion, an increase of €51 million vs 2016, mainly reflecting the investments done in the year and changes resulting from consolidation perimeter variations in Mexico.

Loans with EDP group, EDPR’s principal shareholder, accounted for 70% of the debt, while loans with financial institutions represented 30%.

As of December 2017, 42% of EDPR’s financial debt was Euro denominated, 46% was funded in US dollars, related to the company’s investment in the US and the remaining 12% was mostly related with debt in Polish Zloty and Brazilian Real.

EDPR continues to follow a long-term fixed rate funding strategy, matching the operating cash-flow profile with its financial costs and therefore mitigating interest rate risk. Accordingly, 84% of EDPR’s financial debt had a fixed interest rate. As of December 2017, 11% of EDPR’s financial debt had maturity in 2018, 12% in 2019, 28% in 2020 and 49% in 2021 and beyond. In 1Q17, EDPR renegotiated a maturity extension of €1.4 billion, which was initially contracted in 2009 with EDP and scheduled to mature in 2018.

In 2017, the average interest rate was 4.0% (flat YoY), reflecting EDPR’s €2.8 billion debt restructured and early amortized since 1Q16.

INSTITUTIONAL PARTNERSHIPS

Liabilities referred to Institutional Partnerships totaled €1,249 million (-€271 million vs 2016) reflecting the benefits captured by the projects and by the establishment of a new institutional Tax Equity financing structure along with forex translation.

 

EUROPE

REVENUES

In Europe, EDPR delivered revenues of €943 million, an increase of €30 million versus 2016, reflecting the impact

from higher electricity output that increased 4% versus 2016 to 11.7 TWh, and despite lower average selling price. European output benefited from capacity additions over the year along with higher load factor 31% (vs 30% in 2016). In 2017, European generation accounted for 42% of EDPR total output. In detail, the increase in revenues was mainly the result of higher revenues in Spain, France, Italy and Romania on the back of higher generation or higher average selling prices.

 

AVERAGE SELLING PRICE

In 2017, EDPR average selling price in Europe decreased 1% to €81 per MWh, mainly driven by a 17% lower average selling price in Poland, on the back of lower green certificate prices and a regulatory change in the substitution fee calculation method (now calculated as 125% of previous year GC avg. price).

NET OPERATING COSTS

Net Operating costs decreased €32 million, to €215 million, mainly explained by the increased in Other operating income totaling €66 million, with the increase year on year mainly explained by a capital gain following the sale, and loss of control, of a stake on an offshore UK project (€29 million) and gains in past asset rotation transaction’s adjustments along with a revaluation gain related to the acquisition of assets. Supplies and Services and Personnel costs increased year on year on the back of higher capacity in operation and Other operating costs decreased 5%, reflecting EDPR ́s strict control over costs.

In 2017, Core Opex (Supplies & Services and Personnel Costs) per average MW in operation totaled €39 thousand (+0.4% year on year) and Core Opex per MWh decreased 2% year on year to €17 benefited from the higher output in the year.

All in all, EBITDA in Europe totaled €729 million reflecting an EBITDA margin of 77% and leading to an EBIT of €437 million. In 2017, depreciations and amortizations (including provisions, impairments and net of amortizations of government grants) decreased by 5% YoY, reflecting the change in EDPR depreciation schedule from 25 to 30 years.

NORTH AMERICA

REVENUES

In 2017, Revenues increased $150 million to $930 million, (+19% year on year) on the back of the 20% increase in electricity output and a stable average selling price in the year.

AVERAGE SELLING PRICE

Average selling price in the region was flat year on year at $46 per MWh. In the US, reflecting capacity additions and different mix of load factors vs prices, the average price totaled $46 per MWh (-1% vs 2016). In Canada, EDPR average selling price was $112 per MWh (+2% vs 2016) and in Mexico average selling price was $60 per MWh.

NET OPERATING COSTS

Net Operating costs summed $254 million, $29 million higher vs 2016, mainly explained by higher Personnel costs and Supplies and Services, justified by the higher capacity in operation and the Operational and Maintenance strategy. Core Opex (Supplies and Services and Personnel costs) per average MW in operation decreased by 1% versus 2016 to $47 thousand, reflecting EDPR focus on efficiency and control over costs along with an increase in average MW in operation. Core Opex per MWh decreased by 4% to $15, also benefitting by the higher wind resource in the year.

INSTITUTIONAL PARTNERSHIPS AND GOVERNMENT GRANTS

Income from institutional partnerships was 17% higher year on year to $255 million, reflecting new tax equity partnerships and the output from projects generating PTCs, along with PTCs upward price revision to $24 per MWh.

EDPR completed $507 million of tax equity financing in exchange for an interest in the 100 MW Meadow Lake V, 99 MW Redbed Plains, 98 MW Quilt Block and 66 MW Hog Creek US wind farms along with 60 MW of three solar PV plants in South Carolina.

Due to the strong North America top line performance, EBITDA increased to $676 million (+22% year on year) and reached an EBITDA margin of 73% (+2pp vs 2016).

BRAZIL

REVENUES

In Brazil, EDPR reached revenues of R$226 million (+R$94 million vs 2016), representing a year on year increase of 71%, explained by an increased in electricity generation on the back of higher installed capacity and a stronger wind resource.

AVERAGE SELLING PRICE

The average selling price in Brazil increased to R$289 per MWh in the year, reflecting a temporary PPA unwinding at Baixas do Feijão wind farm (120 MW).

As of December 2017, EDPR had a total installed capacity of 331 MW in Brazil including 127 MW of new additions related to JAU & Aventura wind farms. Brazilian projects operate under programs with long-term contracts to sell the electricity produced for 20 years, providing long-term visibility over cash-flow generation throughout the projects’ life.

NET OPERATING COSTS

Net Operating costs totaled R$23 million, a decrease of R$12 million versus 2016 mainly due to higher Other operating revenues, that increased R$18 million related to adjustments in past minority stake sales transactions. Operating costs totaled R$47 million (+R$5 million vs 2016) in line with higher installed capacity. Reflecting the strict control over costs, higher average capacity in operation and increased efficiency, Core Opex totaled R$41 million, with Core Opex per Avg. MW and per MWh decreasing by 27% and 13% respectively, year on year.

Following the outstanding top line performance, in 2017, EBITDA reached R$203 million (vs R$97 million in 2016), with higher YoY EBITDA margin (90%; +17pp vs 2016).

OTHER REPORTING TOPICS

RELEVANT AND SUBSEQUENT EVENTS

The following are the most relevant events from 2017 that have an impact in 2018 and subsequent events from the first months of 2018 until the publication of this report.

  • Completion of sale of minority stake in Portuguese assets to CTG
  • Increase of EDP qualified shareholding over EDPR to 82.56%
  • Sale of a 23% stake in UK wind offshore project Moray Offshore Windfarm (East)
  • EDPR secures 125 MW long-term contract in Northern Indiana, US
  • EDPR consortium is awarded with long-term CfD for 950 MW in the UK
  • EDPR is awarded a long-term RESA for 248 MW of wind onshore in Canada
  • EDPR is awarded long-term contracts for 218 MW of wind at the Brazilian energy auction
  • EDPR completed $507 million funding of tax equity in the US for all its 2017 projects

For additional information on these events, please refer to Note 39 of EDPR Consolidated Annual Accounts.

INFORMATION ON AVERAGE PAYMENT TERMS TO SUPPLIERS

In 2017 total payments made from Spanish companies to suppliers, amounted to €173,264 thousand with a weighted average payment period of 51 days, below the payment period stipulated by law of 60 days.