Iberdrola's (IBDSF) CEO Ignacio Galan on Q1 2016 Results - Earnings Call Transcript

| About: Iberdrola S.A. (IBDSF)
This article is now exclusive for PRO subscribers.

Iberdrola S.A. (OTCPK:IBDSF) Q1 2016 Earnings Conference Call April 27, 2016 7:30 AM ET


Ignacio Cuenca - Director of IR

Ignacio Galan - Chairman and CEO

Jose Sainz - CFO

James Torgerson - Avangrid, CEO



Good morning, ladies and gentlemen. First of all, we would like to offer a warm welcome to all of you who have joined us this morning. We are delighted you are able to be with us for the presentation of our 2016 first quarter results.

The presentation will as usual follow our customary format. Firstly, we will begin with an overview of the results and the main developments during the period given by the top management that usually we have with us, our Chairman and CEO, Mr. Ignacio Galán; Mr. Francisco Martínez Córcoles, business CEO; and finally the CFO, Mr. José Sáinz.

Afterwards we will move onto the Q&A session. We would also like to point out that we are only going to take questions submitted via the web. So please ask your question only through our webpage www.Iberdrola.s. We expect that the [call] will last no more than 60 minutes hoping that you find the presentation both useful and informative. Now without further ado, I will hand over to our Chairman and CEO, Mr. Ignacio Galán. Thank you very much again. Please, Mr. Chairman.

Ignacio Galan

Thank you very much Ignacio. Good morning everyone and thank you very much for participating in the result presentation. As we anticipated in the Investor Day in February, the first quarter of the year has been marked by a reasonable operational performance of our businesses, although the result has been affected by one off – typical factors that will be fully offset during the rest of the year meeting our 2016 result growth objectives.

Net profit has grown 3.3% to 869 million despite extraordinary items. EBITDA reached [2008] million and underlying EBITDA, excluding extraordinary items [Indiscernible] remained stable. Net investment increased by over 50% to almost 900 million as we proceed with the implementation of our strategic plan. Over 70% of the investment are allocated to growth.

Operating cash flow reached 1.7 billion, with a 2.3 growth rate. Finally recurring net profit increased by 0.1% to 837 million in-line with the outlook for the whole year presented in February.

The €2 billion of EBITDA can be attributed particularly to a good performance of renewable businesses and a strong contribution from our activities in the United States, where EBITDA increased by 21% although it was negatively influenced by the changed rate and the accounting rules of IRS compared to the US GAAP.

In Networks, EBITDA fell 3.7% mainly because of the high temperature in the United States this winter, which led to lower gas demand affecting mainly two of our gas distribution in Connecticut and Massachusetts.

In the months ahead, the overall performance of Networks is going to improve as no recurring impact from the first quarter will be reversed or [Indiscernible] during the rest of the year as we explain later by the CFO.

The Renewables business has recorded a good performance. We had 3.1% growth thanks to the higher onshore output which increased 11% in Spain, and 14% United States, while the United Kingdom wind production was 27% lower after last year record production.

For our Regulated Generation activity Mexico CFE has reduced [reference] tariffs on [Indiscernible] indexes, resulting in lower turnover and still positive margin levels. Nevertheless, this tariff has already been increasing by 12%.

In Generation & Supply, EBITDA has been affected by typical factors like compensation of our customers in the UK for the already resolved service issues in countries during the introduction of our new IT system for the comparison with a positive effect of CNMC and Eco-tax reduction in Spain during 2015.

In addition, we have experienced a decrease in our wholesale gas operation. The energy produced by our company was 2.4% higher than in 2015 mainly due to the 41% increase in hydroelectric production. We expect to improve further through the year as our results are at almost record level of 9.2 GWh, which will compensate the negative impact of this quarter.

Consistent with the 24 billion investment plan over the next five years, net investment have already increased by 51.1% to almost 900 million, of which more than 70% are allocated to [grow] and over 90% to regulated activities.

The operating cash flow has increased 2.3% to 1.7 billion. After deducting our growth investment this figure amounts to €800 million.

I will now briefly review the main projects underway to show our progress in the execution of our 2016-2020 plan. In Networks, the United States Federal Energy Regulation Commission has approved the new [Indiscernible] defining cost and remuneration for the first three projects under negotiation.

In May, we are being awarded with a new project, the extension of the [Copper Mills station] in order to ensure the reliability of electric system in the Greater Boston area. In the United Kingdom, the construction of our transmission and distribution project [Indiscernible] is in line with regulatory objectives. And we have achieved higher incentive for service improvement initially targeted.

In Spain, the regulator has approved the remuneration proposal for the distribution activity in 2016, the final [Indiscernible] has a base of €8.6 billion. Remuneration has been increased by 2.3% compared to 2015 to 1750 million.

In Renewables, we have achieved significant milestone offshore. We are laying the first foundation of 350 MW wind farm Wikinger in the Baltic Sea of Germany, and we have signed the order to Siemens to supply the turbines for our [Indiscernible] project with 740 MW. In relation to our offshore wind farm we have completed the commissioning of Black Law Extension, reaching a total of over 1600 MW of installed wind capacity in the United Kingdom. In total, we have 1150 MW of onshore wind under construction in the United Kingdom, United States and Brazil.

Finally, concerning contracted generation in Mexico we completed the commissioning of our cogeneration plant [Indiscernible] and we are being granted another combined cycle Topolobampo II in the State of Sinaloa, with that 890 MW to almost 2,500 of additional capacity under construction.

When completed in 2018 our total installed power in Mexico will reach almost 8000 MW. Other highlights of the first quarter include our annual general meeting held on April 8 [Indiscernible]. Let me reiterate my gratitude to all shareholders for the massive support given once again this year, which resulted in the approval of all the proposals including the agenda with an average support of almost 99%.

It was agreed by the General Assembly, the board of directors yesterday approved the execution of a new additional Scrip dividend program in July, which will amount to at least €0.123 euros per share. Additionally the company will pay €0.03 in cash to total €0.153 with represents 7% increase compared to the remuneration of July 2015, reaching with these a committed annual shareholder remuneration of €0.28 per share.

Moreover to avoid the Scrip dilution effect the board also approved a 2.46 reduction of the company share capital in order to maintain the total number of outstanding shares of 6,240,000.

On 14th of April we completed the second Green Bond issue. The demand for this bond with a 10-year maturity and coupon of 1.12% was four times oversubscribed. The funds will be allocated to refinance wind farm investment in the Spain, United Kingdom and Portugal.

Finally, Standard & Poor's upgraded our credit rating to BBB+ and Moody’s improved our outlook to positive from stable further reaffirming our solid financial position and maintaining our rating at the highest amount in Spanish industrial groups. Good progress also continuous to be made on the integration of our American company Avangrid.

The strong performance has been recorded in US GAAP in all businesses during the first quarter with a 24% growth and net profit reaching $212 million and EBITDA up 8% to $575 million. A credit facility of $1.5 billion has also been executed. These [system] performance allow us to improve our earnings per share 2016 guidance from $2 per share to $2.1, $2.2 per share.

To conclude, we confirm our guidance for the full year 2016, which will be in line with what we have anticipated on the investor day. We expect a strong performance in our Networks activity throughout the year. These together with expected performance in Renewables in the Generation and Supply will contribute to the achievement of our [Indiscernible] assuming no significant variation in the current it generates.

I will now hand over José Sáinz, who will present the group result in further detail. Thank you.

Jose Sainz

Thank you very much Chairman and good morning to everybody. Let me start highlighting what the Chairman has said regarding net profit grew 5.1% and reported net profit 3.3%. Despite a 6% decrease in EBITDA with several negative impacts that I will now explain including minus 71 million in FX, having compensated by gains in the evaluation of our FX hedges accounted for the net financial expenses.

UIL contribution at EBITDA is €107 million net and €30 million at the net profit level. So as we have commented first quarter of 2016 has been affected by several impacts that are around €237 million, some of them already anticipated. And as the Chairman has stressed 2016 guidance is maintained. All these impacts will disappear or be significantly reduced as the year passes by.

In the liberalized business in Spain and Mexico have had a combined negative impact of 133 million as a consequence of positive court rulings in Spain in the first quarter of 2015, lower gas trading activity and weak quarter in Mexico driven by lower margins in the private client business.

In the regulated business, we have been affected by very mild weather conditions and other impacts in the US that you see in the IFRS accounts but not in the US GAAP and positive settlements that we had in Spain in the first quarter of 2015.

Starting by the gross margin, revenues decreased 6.8% to €8.2 billion while procurements fell 12.2% to 4.5 billion due to the better generation mix as a consequence the gross margin increased 1% to €3,650 million. Excluding the UIL contribution of 228 million, gross margin would have fallen 5.3%.

Net operating expenses were up 11.3% to 950 million, basically as a consequence of the consolidation of UIL that added €98 million. Net personnel expenses grew 14%, and 2.1% excluding UIL. Net external services were up 7.9% and decreased 2.6% excluding UIL. So excluding UIL net operating expenses were flat.

In the first quarter of 2015 we included a positive 20 million impact linked to CNMC fine reversal that the Chairman has mentioned and in this quarter we include €23 million customer compensation in the UK ruled yesterday by Ofgem. Those impacts are offset by a 25 million positive impact in the first quarter due to the fact that the [premium] last year we accounted in the first quarter. This year will be accounted in the second quarter and 21 million one-off positive impacts at the Renewables business.

Levies grew 10.9% to €691 million driven by the 37 million positive impact of the court ruling accounted in the first quarter of 2015, 22 million from the consolidation of UIL and other impacts mainly linked to the US property taxes.

Analyzing the different business and starting by Networks, its reported EBITDA fell 3.7% to €932 million as a consequence of the abovementioned nonrecurring efforts during this quarter more than offsetting the UIL contribution. Net operating expenses rose 40% mainly by the UIL consolidations and taxes were up 19% due to the above mentioned new parameters and the increase in the US property taxes due to the MPRP transmission line.

In Spain, EBITDA fell 2.9% to €387 million due to €29 million of positive settlements accounted in the Q1 of 2015 worsening our gross margin evolution. This negative impact will be recovered during 2016 in line with a new distribution remuneration. In the UK, the EBITDA fell 3.6% to 223 million pounds with 10 million pounds decreasing gross margin affected by the new profiling of the RIIO-ED1 applicable from April 1, 2015.

In the US EBITDA was 5.8% up to $226 million including $117 million from the UIL consolidation. Partially offset by $38 million lower IFSR EBITDA linked to under collection that we have had this quarter due to the very mild weather conditions another affect that will be recovered through the year as most of our US business is the coupled from the evolution. Other negative impacts account $45 million will be diluted throughout 2015. As you can see in the slide, EBITDA in US GAAP is 90% higher than IFRS so in US GAAP we have put or we have shown $430 million while in IFRS we have declared $226 million in this quarter. Finally electro EBITDA fell 5% to 221 million with a 7% lower energy circulated reducing gross margin by 1% and inflation rate increasing net operating expenses by 6%.

Generation & Supply EBITDA fell 18% to €640 million affected by positive ruling last year and also due to positive contribution from our guys and other trading activities in Q1 2015 which affects very negatively the comparison of the Spanish business. As already mentioned UK 2016 results include 23 million Euros of customer compensation rules by them and Mexico had a bad quarter.

So in Spain, the EBITDA fell 31% to €296 million , with a 10% decrease in gross margin with lower gas trading and other trading activities gone 65 million less. This was a very strong trading result in the first quarter of 2015 which was not repeated in the following quarters. This strong trading results in the first quarter of 2015 offset the 5.2% higher output as a consequence of better hydro conditions. Hydro reserves today are at maximum levels with more than 9 terawatt which make us confident of the improvement of the business during 2016.

Net operating expenses increased 15% due to a 20 million reversal of the CNNC fine accounted for in the Q1 of 2015. Levis increased another 14% also affected by unfavorable comparison with the first quarter of 2015 that accounted for 37 million of a positive court ruling on taxes. In the UK EBITDA remained flat at 173 million pounds with 3.5% increase of gross margin compensated by our 12% increase in net operating expenses affected by the 23 million customer compensation already mentioned.

Wholesale generation business gross margin increased 51% due to higher gas output and lower procurement cost. But the retail business gross margin decreased 3% because the higher unitary margins in gas didn't compensate to start 19% lower gross margin in retail power. Due to increase in non-energy related cost and lower volumes with milder weather conditions than last year. In Mexico EBITDA fell 15% to $113 million affected by lower margins in contrast with private customers as a result of the follow of CFE tariff in 2015. In April CFE tariff increased by 12% thus EBITDA will recover in the next quarters.

In the US EBITDA reached $18 million due to a better performance of the gas business. Renewable EBITDA increased 3.1% to 441 million Euros with Spain and the US business growth offsetting a weaker performance in the UK. Spain has been the largest EBITDA contributor with 39% followed by the UK and the US which around 25% each. Gross margin fell 0.7% but net operating expenses improved 13.9% with 21 million of positive one-offs.

In Spain EBITDA reached 174 million Euros, an increase of 16.8% driven by 9.4% higher output. In the UK EBITDA fell 24.7% with 83 million pounds. As a consequence first of lower output second of lower prices and third of lower LECs which were removed in August 2015. In the US EBITDA increased 30% for $115 million as a result of 14% higher output and lower operating expenses including 11 million one-off more than offsetting lower merchant prices due to mild weather conditions.

In Latin America EBITDA remained flat at 24.5 million Euros mega fee affected by the Brazilian devaluation. The local currency Mexico EBITDA improved 7.1% as a consequence of additional capacity, but Brazil is down 24% despite growing 5% in local currency due to 39% Brazil devaluation. In the rest of the world EBITDA reached 29 million Euros 4.1% up.

EBITDA fell 7% to 1,250 million Euros, amortizations decreased 46.9 million driven by the closer of Longannet, 32 million and the extension of the useful life of wind farms in lined with industry standards in the US and our proven track record as a matter of fact we are confirming that we have wind farms of over 23 years old which are performing very well.

Provisions grew 12.9 million including an 8 million non-recurring positive impact accounted for in Q1 2015. UIL contributed amortizations and provisions with 40 million Euros. Net financial expenses improved 52.6% to 114 million Euros thanks first to a 19 million reduction in debt related cost driven by cost improvement of 68 basis points lowering our cost of debt from 44 – 22% to 35.5% and 136 million lower loan debt related cost including 74 million of market value of our positive FX hedges that is mainly in the bond and in the dollar that reverse is 60 million negative that we have in FX hedges in the first quarter of 2015.

So the two FX combined increase the contribution by 90 million plus another million Euros of improvement in commodity derivates and other which includes interest accrued from court rulings. Reported net profit increased 3.3% to 860 million Euros driven by lower net financial expenses already explained, lower taxes due to lower tax rate in Spain and in the UK offsetting the 6% EBITDA decrease. Recurring net profit increased 5.1% to 836 million Euros with lesser non-recurrent results than in the first quarter of 2015 which included the sale of our stakes in [indiscernible] and this year includes the sale of stake in gas pipeline in the US, 37 million of non-recurring positive tax gain and 11 million of non-recurring negative provisions.

Regarding the financing. 2015 Q1 reported net debt on a pro forma basis includes 2,319 million Euros of UIL debt. As a consequence on a pro forma basis our first quarter 2016 net debt decreased 351 million Euros to 28,274 million thanks to a 700 million favorable exchange rate impact more than compensating 356 million Euros of cash flow needs driven by higher investments and dividends payments. On a reported basis our debt increase from 26.3 billion to 28.3 billion. On a pro forma basis our leverage ratio improved reaching 41.3% versus 41.7% in Q1 2015 as our equity continued to increase while our debt decreased.

On a reported basis our leverage ratio gross is from 41.2% to 41.3%. All pro forma financial ratios including the 12 months of UIL improved. Our net debt to EBITDA reached 3.77 times from 3.81, our FFO our net debt reached 21.8% from 20.3% and our cash flow over debt improved to 19.2%.

The group maintains a very comfortable liquidity position and continues to adapt its new financing mix scenario improving financial cost and extending the maturity of our debt. Iberdrola has available liquidity of 8.6 billion covering 27 months of financing needs. Our current debt average maturity is 6.5 years and we keep a comfortable maturity profile.

Before finishing you have in the annex slide one, in which you will find the July script given calendar, on that slide that reconciles EBITDA from US GAAP to IFRS. You have questions on these matters our exceptional IR team led by Matthew will try to answer them as they have become big experts in translating from US GAAP to IFRS.

Thank you very much.

Question-and-Answer Session

Q - Unidentified Analyst

The U.S. GAAP and IFRS issue, thank you very much for the confidential put on us. Hopefully the international accounting standard board will not away our passports after the first delivery. And now moving into the Q&A session we have several questions from the web and the first one is coming from [indiscernible] from Morgan Stanley.

Despite the hydro output even stripping out one-offs, the liberalized business in Spain was weak in Q1 what has driven this and do you expect better margins in the Q2?

Unidentified Company Representative

So, looking here, that goes already in the explanation – which is roughly 65 million.

Unidentified Company Representative

Yes, it has been the gas trading that we had last year and carbon rice that we sold. So it account for about 80 million Euros where this most of the affect. And for sure in the rest of the year all the negative effect of the Q1 will be offset.

Unidentified Company Representative

The second set of questions –

Unidentified Company Representative

I am sorry Mathew. There is another minor effect that has been the concentration of or the occasion of one nuclear refilling out in the first month in January that has been [Almaras] so this will for sure will not be in the rest of the year.

Unidentified Company Representative

and with that I think we [indiscernible] which I think has not been in the previous year such number so which I think that is going to help us in the year because that is an excessive production potential has related to the year.

Unidentified Analyst

Okay [indiscernible] we have a couple of questions. First is could you provide your achieved price in the electricity sales in Spain during Q1 2016 could you also please comment on the current status of your forward sales in domestic liberalized business volume and prices and the second question is related to cost of it what is what expectations in terms of cost of data in the end of the year?

Unidentified Company Representative

You reply the first one and you reply the second one.

Unidentified Company Representative

Okay. In terms of 2016, all the volumes are we forecast to say has been closed and the prices are around 60 exactly 59 and I was not asked about that for 2017 we have 75% of the volumes already closed for the hedged, and the prices are about 58 and with these 25% that is going to come this price will go to probably 59 or so too.

Unidentified Company Representative

The cost of that will be around 3.3%.

Unidentified Analyst

Okay we have now a set of questions related to the longer useful life of the renewal assets coming from different analysts. The first one is [indiscernible] JP Morgan. The longer useful life of assets was already included in the 2016 guidance. This is the first one. The second one is from -- with distinction of the useful life of the sensible works to 40 years is there a result of useful life for 30 years, have you complete the reprisals of the useful life of the assets or could we see changes in the life for other companies of the farms later this year. And finally the [indiscernible] which is expected impact from the changing in the depreciation from this extension of useful life.

Unidentified Company Representative

So, well I think, according to country rules we have to revise time to time what is the reality of the situation of our asset. We have in this moment certain wind farms mainly in Britain which is really 22 years old and we are seeing this 20-23 years old are in perfect situation so I think it's we are not any plan to make any change on the run we are planning to continuous in one in the same manner we are really doing up to now. So for another site we are seeing the certain components of the wind farms precisely the same kind of material we are using another activities in the group such as foundations, towers, roads, transformers, lines etcetera, etcetera.

What we are depreciating another areas -- so as consequence of that I think we are saying let's keep already on the same manner what is let's say the rotating parts and let's try to adapt the fix part the part which are not rotating to a situation more according with a level of depreciation we have been in other areas in another areas of the company.

And globally certain numbers by chance are rising numbers which is similar of the depreciation rates which is being applied by another competitors which is around the 30 years what I said is by chance because what we make is an analysis separating with these rotating parts and then those which are fixed back but as a whole the number in the question we have been passed is roughly these numbers of average around 30. What is the impact in the accounts? The impact in the accounts I think roughly in terms of profit will be under rate of 100 million Euros net profit more in the during the year.

Unidentified Analyst

The next question comes from [indiscernible] and its related to Mexico. Can you just explain the weak results in Mexico where margins are recordable, can tariff fall further and what is the maximum revenues at the risk for the period 2016/2017?

Unidentified Company Representative

So, I think I mentioned already. I think the first quarter in Mexico has been mainly affected for those which are not ready which are linkage to the price of CFE which is representative certain percentage of the total production. Has been affected for the reduction of rates of CFE which are related to -- so in April the rate has been increased by 13% which I think that is going to affect positively to the rest of the year. So that's why we are seeing already the rest of the year that is going to have better performance so the fact we already expecting that a growth in the year in the range of 5% to 6% in Mexico which I think in the following year that is going to increase heavily in the moment of the rest of the power plant which are under construction, this moment as I mentioned 2005 megawatt which is going to start already coming into in operation during the 2017 and 2018 so the first one is small one has already coming to in the operation that is going to help us running the second part of the year. But the rest is going to massively to be in service during 17 into 18 that is going to increase heavily the result in Mexico according with the lines we presented to you in the investor day.

Unidentified Company Representative

Yes, around 20% of EBITDA is linked to this type of private line contacts. So 80% is pure CFE regulated tariff so that doesn't move. So these are 100, these around EBITDA around 500 million we have 100 million done basically varies due to the spreads between the oil and gas because the shift tariff is more linked to the oil. So that is basically what makes some of the situations as the chairman has said tariff is increasing now 12% so that obviously we will take the results higher. But so that you can make this analysis you have 100% sorry 100 million which is affected by the spread between the oil and the gas.

Unidentified Analyst

Okay the next set is coming from [indiscernible], the first one is what is expected the new frame to the distribution and the second one from generation can you update us on your latest view on the necessity to close the generation capacity in Spain how do you see in Europe on the necessity to bear capacity payments to generation up and running?

Unidentified Company Representative

So, I think on the last question I think recently has already been presented their result of the commissioner of competition commissioner of all the analysis of the capacity payments and affect into the market I think the position has been already positive in the sense [indiscernible] good tool for securing the service across Europe we are making certain way how to be made and they are making already the point that should be their best solution should be something similar that one which is already being in -- for all those ones but as well may certain comments in a manner we can already affect to a way which other countries is being taking this indirect capacity mechanism which is the internal [indiscernible] so I think they are already looking for a way which should be capacity mechanism should be a good one and this producing the service of security of supplying capacity or [indiscernible] have to be managed in a manner which is absolutely market driven ways.

Related to distribution I think I mentioned in my speech so I think this has been improved by the commission welfare commission for this year which is 1.65 which I mentioned already. We had certain increased over previous year and we as well as make already based on the in our case in the range of 8.6 billion Euros for our [indiscernible] which is more or less in line with already yes expecting. Related to the close of power generation so I think it's certain thing is going to affect certain is depending how the I was already last week in New York of the agreement in the United Nations to put a price to the carbon rice is already and putting a price to carbon at certain those power plant which could be already more pollutant they already to more risk to be forced to be closed earlier than those ones which are already not so pollutant.

So that's why probably the excessive capacity in -- will be affect much more for those one which is already coal producers than those one which is gas pipe producers so I think we will take what is going to happen with the price of carbon so I think the first yesterday I think the day before yesterday certain things is already moving up but the position on worldwide there is carbon have to be more priced to make already to force to make from technologies more pollutant to technologies cleaner technologies renewal time and that the way Europe is already according with the commissioner [indiscernible] already the plans for improving this system is going to work in – is going to be presented that during the year and they recent mechanism as well as in way of refining so that is moving in the direction of less, less emission and those which are more eminent are those ones which I think probably is going to be the first one which is going to be close worldwide I think that is the position.

Unidentified Analyst

Two questions they talked about increasing dividend of 28 cents and the amortization of the shares issued in the last script. Now could you tell us how much the complementary payment will be and when that will be and the second question congratulations for our increased results? And he would like to know your impression of the company in the first four months of margin what is that you have seen there what have you found there?

Unidentified Company Representative

As mentioned in my presentation what we did in July basically an increase 7% and remuneration and dividend over and above the remuneration paid in 2015 basically what we found basically the same model you can choose shares or cash and shareholder chose remuneration in shares, these will be 29, July for this year -- hold the dividend in cash this would be paid out on 21, July that's where we stand today. But the important thing is 7% increased in dividend payment dividend payout to complement 2.8 years for shares being the final dividend as approved by the GM in the end of April.

Regarding second question the US I was actually in States last week and the integration of UIL is moving ahead very well. It's in fact I had of a forecast results are Q1 which was presented yesterday were very good. There was an increase of 24% in profit to $212 million this has even led them to increase their earnings per share for this year from $2 raising it up to $2.1, $2.2 so that's an increase of 5% to 10% over and above while there is just reporting couple of month ago [indiscernible] today is second when operator -- United States and regulated business on a lot -- country and assertions is in future in a couple of years this company was to grow over and above the average for the group, the rest of the operations that we have in other countries.

Unidentified Analyst

We have question from [indiscernible] JP Morgan the first one coming from, the increase in EPS guidance is a fully due to the lower DNA, depreciation and amortization and renewals [indiscernible]. The second one is the impact of volume impact in the USA so how this consumption affects our profit and loss account and the final one coming from [indiscernible] and is related to the expansion in the USA can you update on your target profitability while investing in wind project in USA in terms of IR, how dangerous it is expansion in the scenario of the electricity prices and if we can compare the profitability in the network projects with renewal ones in terms of IRR?

Unidentified Company Representative

So many questions I don't know which one to reply. I remember the last one. I will try to you repeat, one by one. So the latest one I notice so that one related renewal that is the latest one.

Unidentified Company Representative

The second one or the first one was the effects in EPS guidance increasing how depends on the depreciation increase or reduction or extension of useful life or how underlying things and the third one is the effect of impacts of whether volumes in the EBITDA this lower consumption of whether impact on USA.

Unidentified Company Representative

And I will try to reply the last one. So United States renewable. I think in this moment we already United States we have in the range of 5000 or 6000 megawatt, not only wind and solar. In this moment something that has 750, 100 megawatt of wind farm which will be running operation during mostly – most of them will be in service during next year. So, what is our, how we make a choice of this one.

First we analyzed case by case to find out the customer for buying then to produce so I think recently we have already designed SAPPA for 20 years I think we have -- with wind farm we are making North Carolina so that is the way I think we make another one for utility, I know the one which we are going to make in new Mexico, which is going to be California to be bought there for another utility in California so etc I think we have already lot of wind farms which is already in the [indiscernible] and these wind farms which is in development before we decide to head one of those we have to look for a customer to buy a set of customers to buy then which is going to be produced across the year with reasonable profitability with our normal rates, range of 200 basis points that these more or less what we are staking for each of the ones.

So in this moment I think they are apart at least 117, 100 megawatt in construction, in the pipeline which I mentioned is in the range of 6000 which are very close to we would like to be those one which is on the range of 1.7, 1.8 megawatt 1800, 1700 megawatt we can already be easily to be already start the construction. But I think we have to look we are looking for potential buyers of those one can produce. But I think we will not assume to build anyone up to the moment we have already to close with somebody we can early take this [indiscernible] there the opportunities are there. And there are certain one which can be already very roughly but I think the point is negotiation in certain cases. They are left some kind to be already put it in the second one is in related to the weather conditions. I don't know if you have already about weather.

Unidentified Company Representative

Yes, I assume the question is related to the mild weather conditions that affect the demand, if this is the case then according to the information I have here in United States in this quarter has been 9 million Euros. Another thing we can do it…

Unidentified Company Representative

Related to FX what was the question.

Unidentified Company Representative

No, I think we have answered all.

Unidentified Company Representative

That's it okay, thank you.

Unidentified Analyst

The next one comes from [indiscernible] and its related to Brazil. He is commenting that result of the first quarter has been relatively week due to the combination of a weak power demand FX. How do you see this during the rest of the year and taking a step back do you see an opportunity to expand in Brazil generation inorganically even the weak industrial landscape and of assets by your competitors in the area?

Unidentified Company Representative

So, I think on the in terms of the situation in Brazil I think on the acquisition of certain inorganically so I think our plan is already in -- and our plan is to make organic things so in that we continue and this planning we are not already looking in inorganic opportunity in Brazil for the time being. So related to the result reply…

Unidentified Company Representative

Again, if you the question is related to the effect of the electricity demand this is again nine and we have to take to bear in mind that the Brazil is 4% of our EBITDA and that 1% of the decrease in demand or the demand reduction is about 15 million, so it is not that much. [Cross Talking] exactly 3 million Euros. So the total effect in this quarter has been 9 million Euros.

Unidentified Company Representative

The next one comes from [indiscernible] and its related to power and he is asking about, you can elaborate the reasons behind the 18 million sterling company is taking to solve this.

Unidentified Company Representative

Well, I think that is very [indiscernible] already happen last year we were reporting during the whole 2015 then we have already invested heavily in IT system we have invested close to the 100 million pounds precisely for having a better billing system we can already provide better service to the citizen as most of the IT systems so you can never be sure then they will upgrade properly from the [indiscernible] we have certain let's say headaches during the year we have been solving across the second part of the year in particle in these moment, saying that we have already being compensating most of the customers has been already affected and it seems according with this agreement we may that still there are, we had not enough compensated that is what has been made.

I think a compensation for those customers we have as consequence of the modification and transformation of the billing system we have been already has been affected now we will pay for those ones. I think those things have already been settled and things are already absolutely mentioned in their report as well we are talking we make all the necessary for correcting this one because the reason why we made this one precisely for making better service.

The point is that transforming the traditional system we have the new one we have we saw for certain problems of the adaption and the customer has been affected for these for the transformation but today the problem is solved and the situation is absolutely better and the services is already more than and we are really we have to be compensated according with this agreement we again to those customers where they feel there is no enough compensation because of [indiscernible] really being has been affected because of this situation.

Unidentified Analyst

Okay and the last question comes from [indiscernible] and it is related to something that happened already yesterday we have seen that the France is proposing the introduction of free carbon price flow do you think that the adaption of the national carbon price flow will be the way forwarding Europe and secondly have something specifically to Spain that is probably quite difficult to be answered right now. But as looking France do you hear that the proposal scheme could hit power export to France including Spanish exports?

Unidentified Company Representative

Well, France has been living -- has been a success in power 195 countries has really agreed that things something had to be done in order to correct the trend of global warming in the planet last week in Friday was a really -- United Nations precisely for almost in this presence was 116 countries, has really formally said included of course Spain. In that one and all the countries commit to do the necessary for reducing their emission for in the years to come.

So France continue being already living and the minister of energy [indiscernible] to write the letter to be discussed in Europe to be discuses we will precisely propose certain mechanism how to make already that happened so which I think is no different with European union European commission is already doing their best I think I mentioned before commissioner of energy climate change is already revising. All the mechanism of necessary rule for the mechanism of markets available for keeping a price of the CO2 in the line which can already help to obtain the target which is already reducing emission in technology for wanting. We can already make already the necessary transformation of the economy for making the things cleaner and most efficient.

So the price of the for price is nothing different what is already today so think in European commission is called in, already talking about markets that there is by market require gas a flow for this price to intervene so which I think is already France is doing it's already trying to accelerate this process to make it as soon as possible because there is some [indiscernible] so European union has been already leaning all these moves.

So the climatic change, so they will like to go there with already something done, and I think we are present very much therefore France is already with due respect recently I met the Ministers [indiscernible] precisely for talking about these things and I think we see that the positive manner which I think by the ways something which is already happening in Britain in this moment, we have the flow if I remember on the range of 1,800 pounds for carbon.

Unidentified Company Representative

This meeting is about 60 minutes of length of this presentation. It's time to close. Please Mr. Chairman.

Unidentified Company Representative

So thank you very much for attending this presentation, so I think once again we are a company which we were announcing to you in February. We continue already this in line I think this quarter is already affected for certain things, but I think the how the company performing give us a tranquility that is going to go in line with what we already said in February. So thank you very much we have the opportunity to meet [indiscernible] in the July when we make the result. Thank you.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.


If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!