João Manso Neto

Q1 What are the key takeaways of EDPR’s 2017 performance?

A1: The key message is that EDPR, once again, was able to execute its strategy and achieve its goals. And we did it in an environment that is increasingly more demanding. Amid several challenges, such as increased competition, regulatory uncertainty and tax reforms, our team was able to achieve very strong financial results. And we also crated growth opportunities to ensure that we achieve our long term targets. My first word goes to our great team, across all our geographies, that did a very good job.

Q2 Picking up on the financial results, what is more relevant in your point of view?

A2: From an operational point of view, in 2017, we were able to add 600 MW to our installed capacity, therefore finishing the year with 11,007 MW. This represented an increase of 6% versus 2016, which is significant. Our operation in North America was a strong contributor to this growth, with 424 MW entering into operation, but it is also important to mention the additional 127 MW that are now operating in Brazil. This is evidence of our capacity to diversify our strategy. On what regards electricity production, we produced a total of 27.6 TWh up 13% from our 2016 production, which was also a positive outcome. As a result, our net revenues increased by 11% to a total of €1,827m, from €1,651m in 2016.

In addition to the increased capacity, the positive evolution in revenues was explained by the higher load factor, that increased to 31.0% overall from 29.6% in 2016 (+1.4 p.p.). This was more than compensated by a slight price reduction of 2%, to €59.2 per MWh, having EDPR kept its hedging policy, which minimizes our exposure to the merchant markets. On the other hand, we continued to guarantee a distinctive performance of our assets, by achieving a 97.8% rate of energy availability, higher than 2016 and well above our 97.5 % target.

Looking at the financial results, we were able to reach a strong EBITDA of €1,366m. This represents an increase of €196m versus 2016, when the EBITDA was at €1,171m. This number was possible due to the already mentioned capacity growth in the United States and Brazil and also to our continuous efforts to become more efficient. In 2017 our Core Opex/Avg. MW decreased by 2%, which is better than our 1% annual reduction target until 2020.

One metric that we value highly, the Retained Cash Flow, which is the net cash generated by our assets, also improved significantly this year. While in 2016 we reached €698m of Retained Cash Flow, in 2017 we increased that amount by €416m, to a total of €1,114m. I would like to reinforce the importance of this metric because this is the amount, at the end of the day, that we have available for reinvestment, deleverage or distribution to our shareholders. By lowering the cost of debt in 2017, and optimizing our project finance position, we were able to achieve savings of approximately €40m. This is also a significant outcome of 2017.

On what regards the net income, given the positive impact of other lines in the profit and loss account, we reached a net income attributable to EDPR’s shareholders of €276m, which compares positively to the 2016 result of €56m. Considering recurrent Net Income, we achieved a result of €226m, 36% higher year on year.

Overall, on the financial side, EDPR was able to deliver a very strong result.

Q3 Putting aside the financial results, what would you like to reinforce about EDPR’s strategy?

A3: EDPR’s strategy is well defined. Our long term plan is to be a world leader in renewable energy sources such as wind onshore, wind offshore and solar. To achieve this we will keep the same strategic pillars that have guided us to here: Selective growth, self-funding business and operational excellence.

We believe that the world will keep moving towards renewable energy, and that is where we want to lead. In 2017 we took strong steps, not only to reinforce our position, but also to create additional avenues of growth for the company.

On what regards North America, we still consider it to be our key growth market, with long term contracts. In 2017 we were able to secure PPA’s for 450 MW, between wind and solar, in the United States and Canada. Furthermore, we fully expect to comply with our business plan targets. 86% of our 2020 target is already secured with PPA’s and we made investments under the safe harbor to secure options that cover more than our announced target.

On solar, we installed a solar farm of 60 MW, in South Carolina. Unfortunately, further solar development in the United States was temporarily hindered by the Suniva case. The recent decision to introduce import tariffs might affect short-term solar growth in the country, but market fundamentals are still strong.

Regarding Europe and Brazil, we are very close to achieve the growth target set up in the business plan for wind onshore. Our focus now will be in creating additional long term power sale contracts. In Europe, France and Italy are the markets where we expect to accelerate our growth on the short term, taking advantage of our development capacity, both for wind and solar.

Nonetheless, we actively search for investment opportunities in other geographies such as Portugal and Spain, where we have assets under construction. In Brazil, it is important to mention the A-6 2017 auction, where we secured 20-year PPA’s for 218 MW. Commercial operations are expected to occur in January 2023. In wind offshore we were awarded a Contract for Difference for the delivery of 950 MW of generation on our Moray Offshore Windfarm, in the UK. And, at the same time, we progressed further in developing our windfarms in France, Le Tréport & Noirmoutier, which add to 1 GW of generation capacity. Both these projects are joint ventures with strategic partners, but more importantly, we have secured Long Term Tariff contracts for their energy output. Given the relevance of wind offshore within our business we decided to create a specific organizational platform to support the development of this technology within EDPR, and we have a very qualified team focused in the construction of the wind farms we have an on scouting the market for new opportunities.

In conclusion, we are focused in developing selective and value accretive growth opportunities, with key priority to do it in geographies where we are already present. Nonetheless, we are paying attention to other geographies, where a market for potential private PPA’s develops.

Q4 You mentioned before one of the key strategic pillars of EDPR’s strategy, to be a self-funding business. How will EDPR manage to grow and respect this principle?

A4: ONe of the cornerstones of EDPR’s strategy is to maintain a solid balance sheet. To achieve this goal, we believe that our growth should be mainly funded by our own operational cash flow, complemented by tax equity and asset rotation operations.

This year, as I already mentioned, the retained cash flow rose to this year to of €1.1bn which is a very significant outcome. In addition, we attained outstanding results with tax equity funding, by executing a transaction of $507m, with better financial conditions that in previous years, after the execution of the recent Tax Reform. On the other hand, the asset rotation program together with the sale of minority stakes has also been critical to complement the overall strategy, yielding €2.7bn since 2012, when we designed and started to execute this pioneering strategy. The asset rotation strategy, allows us not only to reinforce our balance sheet but also to finance accretive growth.

While this assets rotation strategy has been very successful, the market and the investors are becoming increasingly diversified, so we do not exclude complementary approaches such as the build and transfer model or sell-down of majority stakes, in geographies where it may make sense. It is something that we should be comfortable to discuss, if the right opporunity arrives. Nonetheless, key for any of these potential self-funding strategies, is that we are able to find quality assets and that we develop them efficiently.

Q5 You already detailed some of the challenges the company is facing. Can you elaborate on that?

A5: Before going into that, it is important to make something very clear. Wind onshore, wind offshore and solar technologies are virtually unstoppable. There is no turning back. Today, wind onshore and solar are more competitive than gas and coal-fired plants in many places. More than that, we see a huge support for renewable energy across the globe, because people know that this is critical to face climate change. So, despite the challenges that we face on a yearly basis, in different countries and with different background and dynamics, we should rest assured that we are in the sector of the present and the future.

Elaborating on some challenges, and as mentioned before, I believe that regulatory uncertainty is one of the challenges that we face, in some geographies where we operate. And we are actively managing those risks in collaboration with our key stakeholders. Nevertheless, as the framework is increasingly market based, the trend is to have a progressively lower regulatory risk.

Then we have distributed generation, although we understand its value, mostly because of the empowerment it provides to customers, we also see some challenges in the way distributed generation is beig deployed around the world. Nonetheless, we need to look at the opportunity that this will create to efficient centralized plants… and we hold top tier assets in what relates to efficiency.

Lastly, we are facing increased competition, including non-utility players that want to be players in this market. Given the specific financial conditions of some of these new entrants, the levels of return are being pressured. This is why we have been so adamant in diversify our portfolio, because only by doing that we can ensure that we have the necessary growth opportunities to design a sustainability path for our company.

Q6 What do you believe to be distinctive between EDPR and other European utilities?

A6: I believe that several factors contribute to make EDPR distinctive from its competitors.

First, EDPR is present in all of the different phases of the value chain. We develop, we build and we operate wind and solar assets. More than that, we excel in our operations due to the excellent quality of our teams. Because we are good at what we do, we believe on the internalization of core activities, through our modular maintenance and self-perform models, for the wind-farms in which the full scope contracts already expired. Also, partially due to our self-funding strategy, we have a very solid balance sheet that is able to support the continuous growth of our operational footprint. Lastly, EDPR, as a renewable energy company, creates great expectations in its stakeholders about Sustainability. Responding to these expectations the company keeps commited to excel in all three pillars of sustainability – economic, environmental and social – implementing a strategy of best practices defined in our 2016-2020 Sustainability Roadmap.

To this factors, we need to add our values as a company, which I believe are pillars to what makes use distinctive. We believe that anticipation, flexibility and respect towards all our stakeholders are intrinsc values to our company. And we have been proving this to be true, by investing in renewable energy before others, by having a flexible investment strategy that allows us to quickly allocate investment where market condition are better and by supporting our local communities.

All of this translates to EDPR being a trustworthy company.

Q7 You mentioned that Sustainability is at the core of EDPR values. What can you highlight as the main achievements of 2017 in terms of Sustainability?

A7: Sustainability is at the core of our values and while having a global vision, we take pride in addressing local and global issues.

We are focused on improving Health & Safety ratio within the company. In 2017, the number of accidents registered for employees and contractor personnel reduced by 40% due to a greater focus on a proactive approach plus the realization of the benefits from OHSAS certification. While this is a good result, we still have not reached our main goal, which is to have zero accidents.

Locally, our teams provide strong support to the communities where we are inserted. 2017 was a hard year in terms of natural disasters such as Hurricane Harvey and fires in Portugal. Facing those difficult moments, we took immediate actions. In North America, we helped after Hurricane Harvey, providing among others, housing assistance, additional paid volunteer time and donations to charities. But we also try to be preventive, by reinforcing our commitment to biodiversity, approving a Forest Fire Prevention Plan that includes investment in partnerships with Local Communities in Spain and Portugal.

The preservation of the natural resources is one of the main concerns of EDPR. This is why the company is constantly promoting and searching new ways to create the perfect symbioses between its activities and the environment. For example, we are trying to tackle one of the main challenges of the industry, which is the lack of techniques to recycle wind turbine blades. If we are able to achieve this, we would be turning the wind business into a circular economy cycle, based on principle such as material and energy reduction, reutilization, recuperation and recycle. Note that, according to the Life cycle Assesment of EDPR’s main turbine suppliers, 80% to 90% of a turbine is recyclable. We are working with a startup – Thermal Recycling of Composites – to support the development of the R3FIBER technique, a viable, maximum-efficiency system for recycling wind turbine blades and implement a wind turbine blade recycling program.

Q8 We are witnessing a strong technological disruption across several industries. How do you see this impacting EDPR?

A8: We see this as an excellent opportunity to solidify the renewable energy production sector, by further lowering CAPEX and OPEX costs.

In particular, we are strengthening our data analysis capabilities, which can be impactful on what concerns the operational costs decrease, by achieving better results on predictive maintenance and accelerating the execution of corrective maintenance. We expect energy management to be highly impacted by a an increased ability to better analyze data, an opportunity that is clearly driven by new technologies. Also, we see a lot of potential in robotic process automatization, given the significant cost reduction and increased quality control it provides.

Also, we must not ignore the integration between renewable technology and batteries, in addition to hybrid farms. For these initiatives it is critical to be able to execute pilots, that will help us to escalate our ideas to a commercial viable product, only and only if, the market and regulatory frameworks are supportive.

It is important to mention that this analysis of new technologies is fully aligned with the digitalization effort of the EDP Group and is a core pillar of our Innovation culture.

Q9 What are the key perspectives for the future of EDPR?

A9: On the long term, I am very confident given that EDPR is a leader in a market that is the future of energy production. Climate Change is a reality, and it is our duty to further develop renewable energy to mitigate the impacts on climate. There is no doubt that, when in 2008 we began this journey, we made the right decision. Having said this, we know that there are short-term challenges that we need to overcome. And the best way to do it is to maintain loyal to the strategic principles that have brought us to this position of leadership, while maintaining a low risk profile.

We will be flexible, to make sure that we are able to differentiate our product from our competitors, and that we dominate and take advantage of new technologies such as solar photovolatic and offshore. And doing so while we increase our efficiency.

With the support from all our stakeholders, specially our team and shareholders, I am sure we will be successful.