In a recent earnings call, Iberdrola (OTC:IBDRY) (BME: IBE) announced significant growth in its 2024 first-half results, with a net profit surge of 64% to €4,134 million and a 27% increase in EBITDA to €9,614 million compared to the previous year. The results were notably influenced by extraordinary items, including a capital gain from a transaction in Mexico.
The company emphasized its strong operating performance across all sectors, highlighting record investments, particularly in electrification opportunities, and a nearly doubled cash flow from the previous year. Shareholders are set to receive an increased remuneration, with a dividend complement of €0.351 per share to be paid in late July.
Key Takeaways
- Net profit rose to €4,134 million, a 64% increase, with EBITDA up by 27% to €9,614 million.
- Extraordinary items such as capital gains from a Mexican transaction significantly impacted financial results.
- Record investments of €5,276 million were made, focusing on offshore wind and new transmission infrastructure in the US and UK.
- Shareholder remuneration increased by 11.4%, with a complementary dividend of €0.351 per share announced.
- The company is optimistic about electric mobility and has committed to expanding charging infrastructure.
- Iberdrola is investing in storage infrastructure to support the growing demand from sectors like data centers and electric mobility.
Company Outlook
- Iberdrola forecasts double-digit growth in reported net profit for the full year, excluding capital gains from asset rotation.
- Investments continue in pumped-store facilities and batteries to support the demand for storage infrastructure.
- The company is set to install at least 3,000 megawatts of storage by 2030 in strategic locations such as the US, UK, and Australia.
Bearish Highlights
- Solar production in Spain has decreased, although no curtailments have occurred.
- Increased competition in the retail sector has impacted customer numbers and margins.
Bullish Highlights
- Strong demand prospects in electrification, with substantial growth opportunities identified.
- Positive relations with the new UK and US governments are expected to support business operations.
- The Networks business reported a 5% increase in EBITDA.
Misses
- There will be no modifications to the current cap on distribution investment in Spain for the first quarter of 2025.
Q&A Highlights
- CEO Ignacio Galán confirmed the ongoing production of nuclear power plants, with output adjustments based on market conditions.
- The company welcomed competition in the retail sector, maintaining leadership with over 10 million power contracts in Spain.
- Regulatory framework discussions in the UK and Spain are ongoing, with positive signals for network investment in Spain.
- Construction of Vineyard Wind 1 continues despite a specific issue with one blade.
- CFO Pepe Sainz expects to end the year with net debt around €47 billion and clarified the impact of FX derivatives.
Iberdrola's financial performance in the first half of 2024 demonstrates the company's strong position in the energy sector, capitalizing on growth opportunities and maintaining a robust investment strategy. The company's focus on electrification, renewable energy, and infrastructure development, coupled with strategic partnerships and a positive outlook on electric mobility, position it well for continued success. With a commitment to shareholder value and a clear vision for the future, Iberdrola is navigating the evolving energy landscape with confidence.
Full transcript - Iberdrola (IBE) Q2 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 First Half Results Presentation. As usual, we will follow the traditional format given in our events. 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 Galán, Executive Chairman; Mr. Armando Martínez, 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 web page, www.iberdrola.com. We know that today is a complex day for all of you and with several presentations of results still to come. This is why our event will last about 45 minutes, 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 Galán. Thank you very much again. Please, Mr. Galan.
Ignacio Galán: For joining today's conference call. In the first 6 months, 2024 -- sorry. Good morning, everyone, and thank you very much for joining today's conference call. In the first 6 months of 2024, our reported net profit is up by 64% to €4,134 million, and our reported EBITDA reached EUR 9,614 million, a 27% increase versus the same period 2023. As we have informed, in the first quarter, reported results are affected by extraordinary item, both in 2024 and 2023. In 2024, we have included the capital gains from the Mexico transaction with a positive impact in €1.7 billion on EBITDA. At the net profit level, impact is €1,117 million due to taxes and the provision already reached last year. Half 1 2023 result also reflected the nonrecurring recovery of previous year retail deficit in U.K. with a positive impact of €337 million on EBITDA. Excluding all these items, recurring EBITDA grows 9% to €7,897 million driven by a strong operating performance in all businesses. In Renewables, production has already all-time high, thanks to the increase in offshore wind generation and record output in Iberia. And in Networks, business maintained its positive performance, thanks to the tariff increase in the U.S., the U.K. or Brazil and a further 7% increase in our asset rate base year-on-year. We have continued delivering all our trend with record investment of €5,276 million, 16% more than the first half of 2023. And we are already looking beyond 2026 to capture additional growth opportunities for electrification. We will drive huge increase in investment needs in the transmission and distribution networks, making the storage even more relevant to integrate a higher share of renewables in the system and increasing electricity demand very significantly in all industries, especially in data centers. We continue combining growth, financial and shareholder remuneration with FFO adjusted net debt at 25% and dividend up 11.4% year-on-year. As mentioned, the consolidation of the positive trends seen in the first quarter, plus additional investment, have driven 8% increase in our recurring EBITDA. In Networks, results reflect positive target adjustment in the U.K., the U.S., Brazil as well 7% year-on-year increase in our regulatory base to €43.3 billion. In Renewables, global energy production has reached a new record due to the additional installed capacity, including the full commissioning of Saint Brieuc offshore wind farm in France. And more than half of the capacity Baltic Eagle in Germany, which will be fully commissioned between the third and the 4 quarters of this year. Iberia maintained its good performance with pumping storage asset increasing its utilization rate to balance demand and production in the system, benefiting from price spread due to higher volatility. Retail market conditions continue to normalize gradually in Iberia and the United Kingdom, and we keep increasing our long-term PPA portfolio for industrial customers and environmental and increasing forward price as we see later. With the breakdown fully in line with the strategic priorities set in 2024-2026 plan. 56% of the investment were mainly the United States with an increase of 53% and the United Kingdom with an increase of 29%, driven by offshore wind and new transmission infrastructure. Iberia represent 90% of the total first half investment, followed by Latin America with 53% and France, Germany and Austria with 110% together. By businesses, Networks is already the first investment destination with 51% of the total, reaching €2.7 billion after 23% increase year-on-year, driven by the new rate cases in distribution, a 63% rise in transmission investment, mainly in the U.S. and U.K., to reach more than €1 billion in the last 6 months. As a result, 39% of our total network investment in the first half were mainly transmission. All in all, network asset base grew by 7% year-on-year with a significant diversification across our core geographies. Asset base in U.S. reached €13.3 billion, followed by United Kingdom with €10.8 billion, Brazil with €10.1 billion and, finally, with Spain with €9.1 billion. Transmission already accounted for 23% of this total asset base. In Renewables, investment grew by 10% to reach €2,167 million after adding 3,100 megawatts of new renewable capacity in the last 12 months. Offshore wind already represents 41% of the total renewable investment, driven by the construction of Vineyard Wind 1 in the United States, Saint-Brieuc in France, Baltic Eagle in Germany, with the remaining 59% focused in onshore renewals and storage in the U.S., Continental Europe, U.K. and Australia. The construction of all our offshore wind projects included in the 2024-'23 plan remains on track with 2,300 megawatts in operation after the full commission of Saint-Brieuc. Total capacity is expected to reach 4,800 in 2026, Baltic Eagle in Germany, Vineyard Wind in U.S. will be fully contributing to 2025 result in Sanger 3 in the U.K. and induce in Germany will fill operation in 2026. These will drive a total EBITDA of €1.8 billion by that year, more than doubling the contribution for full year 2024. On top of that, we continue working in growth opportunities beyond 2026 with 3.6 gigawatts of projects participating in ongoing auction. East Anglia 1 and East Anglia 2 taking part of the RCs in the U.K. with a total combined capacity of 1.7 gigawatts. And New England Wind 1 and 2 in the multiyear state auction in the United States within 1.9 gigawatts in total. The permits already received for this project and the progress is secured in the supply chains play us in a very competitive position in both auctions. We are also securing future growth through Seabed rights obtained at zero or close to zero cost. Today, we have more than 10 gigawatts of rights in countries like United States, U.K., Australia or Japan, all of them under our strict prudent approach. With an average deployment cost of €50 to €100 kilowatt, 5 times to 10 times lower than the prices paid in recent auction in Germany or the United States. Manual renewables continued showing a strong performance for the total increase of 49% in hydro production in Iberia, reaching 12,500 gigawatt hours. Out of the total, more than 3,000 watts came from production from our pumping storage facilities, which continued to rise year-after-year in the penalty of the rainfall conditions, playing an increasingly relevant role to provide stability to the system and generating positive margins between pumping during off-peak periods and production at peak demand hours. In our commercial activity, we have continued reinforcing our PPL (NYSE:PPL) sales with 3 terawatt hours signed in the last 12 months, for a total multi-annual contract portfolio of 35 terawatt hours per annum for the next years with Tier 1 customers from sectors with increased demand like technology, food, retail or automotive. After several years of market instability, we are now facing a more normalized environment with forward markets showing an increase in prices and in demand as well for 2025 and 2026, about the expectation included in our Capital Market Day of last March. Electrification is driving demand increases we have not seen for the last 15 years. The international agency is expecting global demand to increase by more than 4% in 2024 and 2025, as I mentioned before. As a result, the need of more reliable risk than we anticipated is now materializing. Today, there is full consensus on the massive need of network investment in this -- at the international agency is expect network investment will double globally already by 2030. And in Europe, the European Scientific Board, which you know is an advisory body of the European Commission, has stated the EU needs to double investment as well. In the U.K., National Grid (LON:NG) estimate the country must build by 5 times more transmission infrastructures than in the last 30 years. The initial conditions for the RIIO T3 framework published last week by again shows that the regulator is aware of this need. As you know, we will send our plan by December with a final decision expected by the end of 2025. The U.S. transmission and distribution investment are already increasing by almost 50% in the last 5 years. Our agreed in our particular case investment have increased even more, almost doubling during this period. The Institute expects a 20% increase in the last 2 years and the partner of Energy has recognized that the transmission grid must grow by at least 65% by 2035. All this is creating good growth opportunities for Iberdrola in all our core geographies. In Brazil, the distribution concession for the next 30 years with the Brazil renewable distribution consensus for next 30 years with a better reasonable term has signed by the presentative and we expect the signature of the new contract in the first quarter of 2025. Finally, in Spain, consultation isn't going to modify and eliminate the current cap on distribution investment. Electrification, together with a huge increase in clean energies to fossil fuel field plant, is making power systems more volatile in terms of energy flows due to renewable intermittency. This is creating a recurring need for storage infrastructure to balance the system. If we look at the Iberian market in the last 5 years, supply and demand dynamics has changed very significantly, resulting in an increase in trade spread between central hours with high renewable factor and low demand and morning and evenings when there is not solar production and demand increases. We anticipated a recurring need for additional store decades ago. As a result, today, we have now pumped-store facilities in operation with more than 100 million-kilowatt hours of historic capacity then provide from €300 million to €150 million of recurring EBITDA per annum. We have also 20 million-kilowatt hours additional under construction in Iberia. They will be in operation between 2026 and 2030 and more than 150 million gigawatt hours of additional projects. One of this projects, Alcantra 2, which 60 million-kilowatt hours of capacity, recently of €45 million new funds. We are also making investment in batteries in the U.S., in U.K. or Australia with plans to install at least 3,000 megawatts by 2030. Finally, we see growing demand prospects in sectors like data centers and electric mobility. Today, we have signed PPAs for more than 8 terawatt hours per annum with major technology companies like Meta (NASDAQ:META), Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Google (NASDAQ:GOOGL) or Amazon (NASDAQ:AMZN) to cover the demand of this data center in United Kingdom and Spain, Germany and United States, where demand from this industry is expected to multiply by three by 2030. This new opportunity has led us to create a company to facilitate the construction of new data centers for our customers. The prospects for electricity mobility are also very positive. The international estimated that by 2030, one of every five cars will be electric, driving a very significant growth in electric demand of 1,100 terawatt hours. As you know, we are progressing in deployment of charge infrastructure, for instance, in Spain with a joint venture with BP (NYSE:BP). In the flex this month, our cash flow reached €1,062 million, almost doubling last year figures. Excluding the cash received as part of Mexico transaction in 2024, cash flow was €5,125 million, 8% up in recurring terms. And our over adjusted net debt ratio reached 25%. Last 17th of May, we held our Annual General Meeting in Bilbao with a quorum of 75%, an average favorable both 98%. Let me take this opportunity to thank again all of our shareholders for their involvement and support. The AGM approved an increase of 11.4% in shareholder remuneration to €0.558 per share. And next July 29, we will pay a dividend complementary of €0.351 on top the dividend already paid of €0.202 to complete this -- 0.55 I mentioned before. In the engagement diving, additional €0.005 per year paid in June. I will now hand over to the CFO, who will present the group financial result in more detail. Pepe?
Pepe Sainz: Thank you very much, Chairman. Good morning to everybody. As the Chairman has said, in June '24 versus June '23, EBITDA reached €9.6 billion versus €7.6 billion; and net profit, €4,134 million versus €1,521 million, growing 27% and 64%, respectively. FX evolution has had a minor effect on results. Pound rose against the euro by an average of 2.8%; the real, 0.9%; and the dollar slightly depreciated. First half of '24 EBITDA is affected positively by the sale of the Mexican assets for €1.7 billion, registered as a lower net operating expenses. And the impact is post tax is €1,165 million and negatively by the recovery of the retail tariff deficit for €337 million in the first half of '23. The net profit, the impact is minus €558 million. In addition, in the second quarter of '23, Iberdrola provisioned €140 million of deferred taxes originated by the Mexican sale. This is obviously below the EBITDA level. As a consequence, on a recurrent basis, EBITDA grew 9% and net profit, 24% versus 23%. Although net profit growth, compared to the first half of '23, reported net profit is 18%. Following the trend of the first quarter, a 28% improvement in procurement costs, mainly energy production and client business versus a much lower decrease in revenues, 14%, thanks to our fixed price sales, has driven a 3% increase in gross margin to €12.5 billion, which is 4% the €337 million U.K. are deficit recovery and reconciliation revenues in the U.S. are excluded. As you can see in the slide, excluding Mexico capital gain, net operating expenses increased 7.7% and 2.8% excluding not only the Mexican capital gain, but also reconciliation impacts in the U.S. due to strong costs that are recognized at the gross margin level, €34 million of positive pension adjustment accounted for in Q2 and other minor impacts. Net personnel expenses increased 1.8%. But excluding the second quarter pension one-off in the U.K. and reconciliation impacts, net personnel expenses grew 3.5%. External services increased 11.4%, excluding expenses related to the Mexican transaction. Excluding also reconciliation impacts in the U.S. and other minor impacts, external services grew 1.7%. Other operating income included the €1.7 billion Mexican capital gain. Excluding it, other operating income increased 3.7%. Levies reached €1,466 million in the first half of '24 versus €1,658 million in the first half of '23, positively affected by sentences in Spain, €79 million of the hydro canon accounted for in Q1, and €183 million from the social bonus accounted for in Q2. As you can see in the slide, excluding court rules, levies grew 4%. The recovery of levies cannot be considered as an extraordinary item as it is a recovery of past expenses recorded as recurrent in our P&L. Iberdrola has more court-ruling spending that can impact positively in the levies amount in the future. Analyzing the results of the different businesses and starting by Networks, its EBITDA grew 5% to €3,269 million, driven by a higher regulated asset base and tariffs. In Spain, EBITDA fell 3.7% at June to €814.5 million due to the €27 million positive regularization of the investments recognized in the first quarter of '23. In the U.K., EBITDA increased 18% to GBP606 million with higher contribution in transmission, thanks to higher tariffs and higher asset base and, in distribution, thanks to the new ED2 framework. In Brazil, EBITDA grew 3% to BRL6,161 million, with higher demand more than offsetting lower inflation and lower contribution of transmission due to the consolidation of the assets as part of GIC agreement signed in the third quarter of '23. In the U.S., U.S. GAAP EBITDA increased 14% to $1,023 million, driven by the contribution of the new rate cases, mainly New York, thanks to higher tariffs. IFRS EBITDA was 1% up to USD673 million, improving the 15% fall in March with higher contribution from the rate cases more than compensated negative timing effects due to IFRS accounting of costs, mainly commodities that will be recovered in the next months and lower transmission revenues. '24 first half results or EBITDA of energy production and customer business reached €6.3 billion compared to EUR 4.5 billion last year, boosted by the already mentioned €1.7 billion Mexico and capital gain. Better performance, but partially -- and also better performance, but partially compensated by a higher comparison base due to a €337 million U.K. tariff asset recovered last year. As you can see in the slide, first half of '24 has had a better recurring operating performance than last year, 3%, excluding the Mexican capital gain and 12% excluding also the impact of the U.K. tariff asset. After the Mexican transaction, I want to point out that the business reached close to 90% emission-free generation in the first half, advancing in our decarbonization targets. In Iberia, EBITDA was €2,486 million, 20.7% up after a good second quarter with lower procurement costs and higher manageable renewable production, more than compensating lower prices and lower nuclear output and also helped by the already mentioned court rulings. In Iberia, our non-emitting production reached 92%. In the U.K., EBITDA fell 23% to GBP847 million, affected by the already mentioned first half '23 positive one-offs related to tariff resit recovery, GBP297 million or €337 million and another negative one-off issues at our offshore wind farm, East of Anglia 1 from €69 million accounted for mainly in Q2, offsetting the recurrent positive evolution of the business with higher contribution in wind onshore and better prices. In the U.S., EBITDA increased 22.6% to $482 million, thanks to the positive performance of our flexible generation fleet and better prices that improved results despite the 1% lower production. In the rest of the world, EBITDA grew 48.5% to €314 million, with a 34% higher production due to the gradual entry in operation of Saint-Brieuc offshore wind farm of around 500 megawatts and more onshore capacity installed in Poland and Australia. In Brazil, EBITDA decreased 1.7% to BRL825 million as a contribution of 261-megawatt hydro assets following the swap with Electrobas last year mostly offset the lower wind and thermal contribution. Finally, in Mexico, EBITDA reached USD 2.1 billion. Excluding the capital gain, EBITDA reached $239 million, affected by the deconsolidation of the assets sold in February 26 that still contribute around half of what they did before the sales. EBIT grew 14% to €6.9 billion, including €1.7 billion Mexican capital gain of 4.7%, excluding it compared to €4.9 billion reported in the first half of '23 and a 12.4% increase, excluding the U.K. tariff recovery in first half of '23. Depreciation and amortization grew 4%, driven by higher asset base in Networks and growth in Renewables, partially compensated by an 11% lower provisions driven by a 16% lower bad debt provisions. Net financial expenses improved 25% to €848 million. non-debt-related results got better by €271 million, including €29 million related to the social bonus court ruling accrued interest, €115 million capitalized interest linked to work in progress that reaches €14 billion and €118 million linked to FX derivatives compared to last year. And debt-related costs also improved €8 million as a consequence of €49 million reduction due to the lower cost of debt, minus 16 basis points to 4.89% despite the higher interest rates in the first half of '24, partially offset by a €36 million increase due to the €1 billion high average net debt versus '23. During these first 6 months, Iberdrola has done very successful operations in the capital markets in euros and Swiss francs, which allow us to diversify the investor base as well as maintain the duration of debt. Our reported credit metrics improved, mainly thanks to the €2.7 billion decrease in our adjusted net debt to €45.2 billion compared to December '23. In the first half, strong CapEx, €5.6 billion, and dividend payments, €1.6 billion, have been more than offset by strong FFO generation, €4.2 billion, and Mexican cash proceeds, €5.4 billion. As a consequence, FFO over adjusted net debt reached 25%. Our adjusted net debt to EBITDA improved to 3.06 times versus 3.32 times at December '23. And our adjusted leverage ratio decreased to 41.4% versus 44% at December '23. Net profit, excluding capital gain from Mexico, increased 18% versus reported first half of '23 net profit and 24% on a recurrent basis. And now the Chairman will conclude the presentation. Thank you very much.
Ignacio Galán: Thank you, Pepe. Today's results confirm a positive trend that we expect to continue during the rest of the year, driven by the impact of the tariff adjustment in the U.S. and U.K. and the higher asset base; the record renewable production with a strong contribution from pumping storage generation in Iberia; and capacity addition, mainly offshore wind, with Saint-Brieuc in France already fully operational. In the second half, we also see the impact of new investment in Networks and Renewables as well the positive contribution of our commercial activities, including new PPAs, and increasing market prices and higher demand. All this is leading us to increase our guidance on reported net profit for the full year to double-digit growth, excluding capital gains from asset rotation. And also, we expect these trends will allow us to continue beating our target in the coming years. So now we will be ready to answer any questions you may have for us. Thank you.
A - Ignacio Arambarri: The following financial professionals have asked the question that I will now put to the senior managers present on this event. Alberto Gandolfi from Goldman Sachs (NYSE:GS); Rob Pulleyn, Morgan Stanley (NYSE:MS); Meike Becker, HSBC; Fernando Garcia, Royal Bank of Canada (TSX:RY); Fernando LaFuente, Alantra; Manuel Palomo, BNP Paribas (OTC:BNPQY); Pedro Alves, CaixaBank; Gonzalo Sánchez-Bordona, UBS; Jorge Guimarães, JB Capital Markets; Javier Garrido, JPMorgan (NYSE:JPM); Jorge Alonso, Berstein; José Javier Ruiz, Barclays; Ahmed Farman and Arturo Murua from Jefferies; and finally, Marc Ip Tat Kuen from Berenberg. We would like also to point you out that we have concentrated the questions received so far by topic so that we can much more be efficient and keep to the schedule. If any of the questions you have asked remain unanswered, these pending questions will be done for you by the IR team. Now we can start with the Q&A session. Thank you. First question is related to the guidance 2024. We have received several questions about the guidance for 2024 on issues like the drivers for the upgrade, the baseline used on the expected evolution of the second half of the year.
Ignacio Galán: So, as I explained, our guidance for full year 2024 is now double-digit growth, as I mentioned. In net profit excluding our capital gains for Maserati. In the comparison, the profit, the reported net profit € 4,803 million of what we have in 2023. And when we said double digit, we expect growth will be intense. That means that the second half is going to be as well as good as it was already the first one. And why is this upgrade? First, because we have a first good half, so -- which is above initial expectation. The second is the consolidation in the second half, the trends already observed in the first half for -- plus the new investment we are planning to make this year, which all together is going to be close to €12 billion in 12 months. And also, in Networks, we have the new rate cases. The last year were already started in May. Now it's going to be applied during the second half completely. In production and customers is the new capacity. The power hydro, I mentioned that it is something which is becoming structural, a positive structure for us, which is a recurring business. And so, I think that for the second half -- and I think these trends, we expect to continue in 2025. I think the additional investment we are making in Networks and Renewables are going to generate new returns, higher prices and demand as well increases, as I was mentioning before, and a better interest rate environment. I hope that the rate of interest as is expected will continue slowing down as well.
Ignacio Arambarri: Second question on, is asking if now we have closed the Mexican transaction and giving the existing room in our balance sheet, will you do a large M&A transaction? Specifically, they would like to know about our interest in the British E&W. And in connection with this M&A topic, could you please provide some details on the situation of the buyback of [indiscernible] minorities?
Ignacio Galán: So, on E&W, as you know, that is a competitive process. Of course, the company is interested. This company is interesting for us. But as we have always done, we will maintain our prudent approach and profitability requirement. I think we are going to bid for it, but in a very, very reasonable terms. The process is now currently ongoing. And I think we will do as soon as there are any new information. Related to AVANGRID, the things are moving forward on track. So, we have already -- the Board has already approved the offer. It was already very transparent process on this one. Now we are going through the regulation, approval process in that the FERC is a regulatory commission of the different states where we have presence. We have continued dialogue with the SEC. I think the question for the parts are very reasonable, very similar of those, which is not yet special and same thing with regulators. All are giving us the indication that will be closed before the year-end.
Ignacio Arambarri: Next is related to elections. There have been different questions on recent and future elections in the U.K. and the U.S. with the potential Trump comeback. What is your view on how do you think it will affect Iberdrola's renewable development plan?
Ignacio Galán: We are already closely working with the new labor government. I think yesterday, we've attended a meeting with Prime Minister. We have been attending meetings with Russian Re, which is the Treasury Secretary with the Minister of Trade and Business. And I think the engagement with the government since the election has been -- and the message we received for they are very consistent. So, they are already very much focused in industrial strategy as a key pillar of this government. They are very focused in more investment in renewables and network infrastructure to promote growth. So, I think they are in [indiscernible] Yesterday, the Prime Minister even was mentioned, Scottish Power as a pioneer, a leader in the carbonization and the energy transition. They are planning to acceleration of permitting to make already that happen. They announced that they are going to make changes in tax policies. And more than all, I think, is my perception and what they said is they would like to be very much business-friendly. So, we will continue meeting with them in the next few weeks. And that is what I can say for the moment about our relation with them. In the case of United States, I think is -- the relation is going to be November. So -- but I think we have to a record of working with administration from both parties. So, for us, we've been with either the Democrats or Republicans on this one. You have to be aware that 80% of our business in the United States is Networks. And the network, the regulation depends of the states. So, it means I think we have already in this case, is the election probably is going to affect at all to our business. And in Renewables, our investments are already benefiting those ones which are in this moment in construction or completed is benefiting our rate credits. But I think these RA credits have been either approved, in most cases, even cash, so which -- and I think it's 10 years, we've been utilizing those ones. It's not due for us that one. For the new investment, we will be depending on the policies of the new government. Our expectation is positive, but I think we will see. So, we have always invested heavily under different administrations. And I think we hope that we will continue in the same track as well in the future, independently who will be the winner.
Ignacio Arambarri: Next is regarding the production in Spain. We have seen that solar production in Spain has decreased even though we have more installed capacity. Are you having curtailments or other technical issues? Additionally, nuclear production has decreased 17%, 1-7 percent versus H1 2023. Are they scheduled shutdowns?
Ignacio Galán: So, the first thing is, technically, we have not had curtailments. I think curtailments is -- happened when the system operator for generator to stop production. That has not already happened to us, and that is very unusual in Spain. So, first thing. The second one is our plans to produce of stock depending on the market condition. And I think even the nuclear power plant, traditionally, we are not stopping. Now as well, we stopped the compliant, of course, with the regulation or we diminish the power, depending on the market condition. I think in the moments of low prices, what we have already done is to increase the contribution of our pumping hydro facilities, which I think they are needed for balancing the system for supply and demand. And also, we have already obtained a good spread between peak and off-peak. That's why our pumping storage has become a recurring business, independently of the high or low rainfall. I think that is something which I would like to insist on that one. Traditionally, pumping is already used when they are already a situation of lowering fall, and we've been already using the existing water up and down. Now we see the independent that one, I think we can use our facility on that one. The fact this year, in 2024, as you have already seen, we have already produced more than 3 gigawatt hours, which is 7% more than previous year, we was dry years not -- we have not much rainfall. And I think is -- and also, we are already that why we have new storage in construction, but I think the fact is that the 61, the expectation is that will contribute in the range of €300 million to €150 million per annum EBITDA, which I think that is a very solid and growing business. And I think our expectation is this trend continue during the next year. But I would like to be clear, we have not curtailments, technically talking about. And when it happens is very initial in Spain, we have not read any of those ones. We stopped our plans or we reduced the power of our plant when the market conditions are not already as good as needed for the proper return of those power plants.
Ignacio Arambarri: Next is regarding the competition in Spain. How is the increase in competition in retail affecting your customer numbers and retail margins? And how worried are you about losing customers?
Ignacio Galán: So, I think it's -- and repeating for the last 24 years, the welcome competition, I strongly belief in competition. I think competition is something which is welcome. It forces the people to use the brain for having good ideas, for trying to do the best for achieving the target. So, it's clear, no countries in Spain and end the rest of the country's new entrants, they are gradually increasing the number of customers they get. I think that is obvious. But as well, they gain -- they are losing as well. I think they are gaining, but they are losing. The fact, the record we have already the churns then they are huge. So, in some cases, more than 100%. That is public information. So, which I think that is the rules of the market. Nevertheless, I can already would like you to remember that we had, in the last year, we have increased our number of customers. So, since 2022, we are increasing the number of customers. We continue being a leader in Spain since this moment. We have more than 10 million power contracts in this moment in the country. And now we can tell you is thanks to this competition, we are using our, let's say, talent for designing new products and services and taking marketing action, which are resulting very successful. So, our churn is very low and our loyalty of our customers are increasing.
Ignacio Arambarri: Next is regarding the regulatory frameworks in the U.K. and Spain, especially in the U.K. and Spain, which will review the regulatory frameworks in the following months? How do you see the evolution of both regulatory discussions?
Ignacio Galán: So, in the case of U.K., we are now in the process of the renegotiation of the new regulatory period of transmission, the RIIO T3 from '26 to '31. We are a process which starts now and will end by end of 2025. So, it's a long period of that one. That is true then the -- of Gen has already published recently the range of returns for our investment of our regulatory asset base for this period, '26 to '31, which is higher than the existing Tier 2. And that shows that the regulator is aware of the huge investment requirement is needed to attract the capital for making this investment, which I advanced to you, which is going to be much, much bigger than those ones we are making at present. But I think I insist on that one, still that this is in a process. There are a lot of things, issues to improve. And -- but I think as many analysts is commenting, the returns, which even if they are better than those what we have at present, I think, should be higher for already, promote investment and to raise the money, which is required for this huge investment we need to make. We are going to present our business plan in December 2024. And this is going to contain, as I mentioned, to contain a huge investment for the period '26 to 2031, which is much, much bigger than the present one. But as I said, the final decision is going to be by the end of 2025. In Spain, the current cap for investment in the distribution is in a, let's say, in discussion. Also, as well, we are in a process of talking about the rate of return for the next period. As you know, the investment levels in this moment in Spain is insufficient. So, it's needed more than that one. I would like to reach the target of the energy climate plan and the investment have to multiply by three. So, it means -- and I think the removing the cap is crucial on that one. As well, I think remuneration, as you -- as I mentioned for Britain, have to be in line with the other comparable countries. I would like to attract the massive capital requirement needed on this period as well. But we have seen positive signals. So, this one is government recognizing this need of network investment, which I think that's positive.
Ignacio Arambarri: Next question is #8 is regarding Vineyard Wind 1, there has been an issue with Tarvin. How will this affect the production of the wind farms? Does Iberdrola have any liability? Will GE provide any guarantee?
Ignacio Galán: So, I think this project, as you mentioned, is under construction. I think it's now is -- in the case of the blade, it's on the GE control. They're the suppliers, it's their control. I think according with the information we got from GE and the analysis they make, the root cause of this incident is not related to design, but it's a very specific issue in one particular blade in the manufacturing of this particular blade, which I think is -- that makes them we are quite satisfied. Of course, we have guarantees from our grid. Nevertheless, the construction continues in the rest of the installation. So, I think we have not stopped the installation of cables, of foundation or whatever, another thing which is needed for this process.
Ignacio Arambarri: Next regarding financial topics. First is the guidance, net debt for the year 2024. Where should we expect net debt for 2024 to be? And financial expenses, a clarification, could you explain more in detail, which are the main currencies affecting the FX derivative results? Moreover, could you give more color on what is included in other category in the same slide?
Pepe Sainz: Yes. In terms of net debt, as we have been commenting in previous results presentation, we are expecting to end the year with net debt of around €47 billion. That is the what we expect. Regarding the impact of FX derivatives, there is an important part that has to do with the with some hedges that we did with the Mexican transaction that are fully compensated -- at the -- and I see that there is also a question about the tax rate that are compensated the tax rate. We have to recognize the positive at the net financial expenses and the negative in the tax rate due to accounting considerations. What I can tell you is that at the profit level, the impact of FX is negative for the group in €40 million. So, the FX impact, the net profit, compensating the tax levels compared with the FX derivative positive side in the net financial expenses is a minus €40 million that also is part of the increase in the tax rate that you are seeing in the first 6 months. So, the FX in the first 6 months of the year for the group is negative for €40 million. And regarding other, as I have mentioned, as I explained, basically, it's two parts. €29 million, that has to do with the interest -- the accrued interest of the court rulings that have to be recognized at the level of the net financial expenses; and €20 million -- and around €115 million, that has to do with the capitalized interest, taking into account that at this moment, the group has a record investment in process of €14 billion. Obviously, as this -- all these investments start to be in operation, obviously, these interest rates will be part of the traditional cost of debt.
Ignacio Arambarri: And the final question is related to the hot -- today's hot topic to the market, data centers. What would you be -- what would be your business model to monetize this new trend?
Ignacio Galán: So, I think demand, as you know, that of data center is booming, and that is going to accelerate with artificial intelligence. So, in the case of United States, data centers will account close to 10% of the total electricity demand by 2030, even is going to be more, which is more than tripling the actual levels. And globally, demand as well in another country will more than double by 2026. So, I think that is a real driver of -- for demand increases, but as well for the need of new investment in grid infrastructure. It's not only a question of power, it's a question of power, it's a question of access to grid. So, I think it's good for us in both sense, in the sense of having new demand sources and having already the opportunity of expanding our grid for those which require to be connected. So -- which I think that is one of the reasons why -- in some countries, the investment in grid in grid infrastructure has already been more and more promoted as we've been mentioning the U.K. or United States and probably in Spain as well in the future. So -- but I think that is not new for us. We anticipate this trend. In this moment, we have more than 8 terawatt hours per annum signed with Amazon, Meta, Microsoft in different countries. So, I think probably Amazon in this moment is our large customer in the group. So -- and that is going to increase in the coming years. Because of our relation is so close with these companies is why we would like to facilitate the installation of their new data centers using our skills in different countries. That's why we started that in Spain, what we have already created a new company which is well advanced, which -- anything in the next few weeks, probably, you will know more details about that one, but I think is we are already just promoting, developing and preparing with all kind of means for facilitating that these companies have the means for install their own data centers in the places they will require. That will start with Spain, but I think there are other opportunities as well in the United States, in the East Coast, mainly Oregon, we have a big presence, and the West Coast and the East Coast as well and U.K. and probably in other countries as well. But I think now for us, that is not new. We are already with selling a lot of energy to these ones, especially in the States and other European countries as well. And -- but I think we are trying to facilitate and we have already created a company in Spain for facilitating the installation of the one, providing all the service they require for putting their equipment inside of the proper centers, but we are preparing for them.
Ignacio Arambarri: Just a reminder, we are going to host a webinar on September 16 about the data center topic. Now please let me now give the floor to Mr. Galán to conclude this event.
Ignacio Galán: So, thank you very much for taking part of this conference. As Ignacio mentioned before, our Investor Relations team will be available for any additional information you may require. Let me wish you a very nice holiday. Thank you very much, and see you soon. Thank you.
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