WEBVTT 1 00:00:00.945 --> 00:00:03.855 Hello and welcome to this Vidcast, which is devoted 2 00:00:03.855 --> 00:00:05.015 to Iola. 3 00:00:05.755 --> 00:00:09.055 The company is the European leader in renewable energy 4 00:00:09.795 --> 00:00:12.575 and we are going to discuss its development project 5 00:00:13.075 --> 00:00:15.255 and the financing strategy 6 00:00:17.105 --> 00:00:18.605 in December, 2022. 7 00:00:19.205 --> 00:00:22.165 I describe the remarkable strategic shift 8 00:00:22.185 --> 00:00:24.925 of the company towards green energy 9 00:00:25.665 --> 00:00:29.325 and we observe that ESG criteria are 10 00:00:29.845 --> 00:00:33.285 absolutely not incompatible with financial performance 11 00:00:33.285 --> 00:00:34.325 and value creation. 12 00:00:35.185 --> 00:00:37.245 Now a little bit less than three years later, 13 00:00:37.435 --> 00:00:38.805 it's quite interesting 14 00:00:38.885 --> 00:00:42.765 and relevant to make an update of the financial metrics 15 00:00:42.905 --> 00:00:45.845 of the company and its strategic shift. 16 00:00:48.055 --> 00:00:50.065 It's quite interesting to observe the evolution 17 00:00:50.065 --> 00:00:51.865 of the revenues generated by the company 18 00:00:52.715 --> 00:00:55.625 first period 20 13 20 17, stability 19 00:00:55.925 --> 00:00:58.025 around 30 billion euros. 20 00:00:58.975 --> 00:01:02.465 Then increased growth in the revenues from 2017 21 00:01:02.565 --> 00:01:06.425 to 2021 from 30 billion to 40 billion. 22 00:01:07.215 --> 00:01:08.665 Then in 2022, 23 00:01:08.805 --> 00:01:11.625 an outstanding growth which is predominantly due 24 00:01:11.625 --> 00:01:14.265 to the increase in the prices of energy. 25 00:01:14.965 --> 00:01:17.025 Now as a combination of price drops 26 00:01:17.125 --> 00:01:18.265 and assets disposal, 27 00:01:18.965 --> 00:01:22.225 the revenues went down in 2324. 28 00:01:22.885 --> 00:01:26.385 Now the revenues are about 45 billion euros, 29 00:01:28.295 --> 00:01:31.565 which is remarkable throughout the period 2013 to today 30 00:01:32.145 --> 00:01:34.365 is the increase in the return on sales. 31 00:01:35.035 --> 00:01:39.005 EBIT divided by sales it was less than 10% in 2013 32 00:01:39.505 --> 00:01:43.365 and more than 20% in 2024 more than doubling 33 00:01:44.105 --> 00:01:47.685 As far as cash operating profit is concerned ebitda, 34 00:01:47.915 --> 00:01:52.405 it's up from 20% plus to a little bit less than 40%, 35 00:01:52.865 --> 00:01:55.565 so again, a dramatic increase in the 36 00:01:55.565 --> 00:01:56.725 commercial profitability. 37 00:01:59.015 --> 00:02:01.625 It's very interesting to observe that at the end of the day, 38 00:02:01.625 --> 00:02:05.625 the capital markets bought their strategic shift of ber. 39 00:02:06.645 --> 00:02:09.305 The stock price of the company from 2012 40 00:02:09.325 --> 00:02:13.265 to today went up from about four euros per share 41 00:02:13.725 --> 00:02:16.345 to about 14 euros per share. 42 00:02:17.125 --> 00:02:19.625 In the meantime, the IEX Certifi five, 43 00:02:19.645 --> 00:02:22.905 the stock market index was quite stable 44 00:02:23.135 --> 00:02:26.225 with some variability around the mean obviously. 45 00:02:26.805 --> 00:02:29.945 So IBA draw is a good case for the capital investors. 46 00:02:32.265 --> 00:02:34.875 When you look at the evolution in the recent years 47 00:02:35.335 --> 00:02:36.395 of revenues 48 00:02:36.495 --> 00:02:38.835 and cash operating profit ebitda, 49 00:02:38.905 --> 00:02:42.355 there's something which at first sight looks like a paradox. 50 00:02:42.915 --> 00:02:43.995 Revenues are down 51 00:02:44.335 --> 00:02:46.195 and EBITDA as a percentage 52 00:02:46.195 --> 00:02:49.195 to sales is up at the end of the test. 53 00:02:49.195 --> 00:02:51.235 This is explained by two facts. 54 00:02:51.535 --> 00:02:53.915 The first fact is revenues are down 55 00:02:53.915 --> 00:02:55.515 because of assets disposal 56 00:02:55.815 --> 00:02:59.115 and there's no reason why the ebit, DA as a percentage 57 00:02:59.185 --> 00:03:01.245 to revenue should be affected by that, 58 00:03:01.535 --> 00:03:04.125 especially if you sell non-profitable assets. 59 00:03:04.665 --> 00:03:07.685 But in the meantime, the sales price as far 60 00:03:07.685 --> 00:03:10.365 as energy is concerned, are dramatically down, 61 00:03:10.815 --> 00:03:13.005 which is a reason why revenues are down, 62 00:03:13.025 --> 00:03:16.845 but the supplies, the cost of supplies for hybrid draw is 63 00:03:17.485 --> 00:03:18.845 dramatically dropping. 64 00:03:19.265 --> 00:03:21.645 As a consequence, a gross margin is up. 65 00:03:21.865 --> 00:03:24.285 As a consequence, the EBIT D as a percentage 66 00:03:24.285 --> 00:03:25.485 to revenues is up. 67 00:03:27.835 --> 00:03:29.535 The company is permanently 68 00:03:29.675 --> 00:03:32.295 and massively investing in its business operations. 69 00:03:32.875 --> 00:03:36.815 The CapEx to revenue ratio lies between 12 70 00:03:37.155 --> 00:03:41.975 and 16%, 20, 24, little bit more than 68%, 71 00:03:42.675 --> 00:03:45.615 and if you calculate the investment capacity dividing 72 00:03:45.615 --> 00:03:47.495 capital expenditures by the precision 73 00:03:47.495 --> 00:03:50.535 and monetization, you get to figure which is each 74 00:03:50.535 --> 00:03:52.015 and every year more than one, 75 00:03:52.015 --> 00:03:55.575 significantly more than one about 1.5. 76 00:03:56.445 --> 00:03:58.695 This ratio is quite interesting to calculate 77 00:03:58.695 --> 00:03:59.855 because depreciation 78 00:03:59.855 --> 00:04:03.815 and ization is a consequence of past years CapEx, 79 00:04:04.395 --> 00:04:07.175 and when you take CapEx of the year divided by a kind 80 00:04:07.175 --> 00:04:09.055 of historical average of the last years, 81 00:04:09.595 --> 00:04:11.175 you observe the evolution, 82 00:04:11.235 --> 00:04:13.815 the growth in the investment of the company. 83 00:04:14.275 --> 00:04:16.495 So the company is investing more 84 00:04:16.715 --> 00:04:19.695 and more today than it was investing yesterday. 85 00:04:21.925 --> 00:04:24.345 The consequence of this investing strategy is 86 00:04:24.345 --> 00:04:26.265 that the assets turnover is low, 87 00:04:26.365 --> 00:04:28.225 the assets productivity is low. 88 00:04:28.655 --> 00:04:31.785 It's calculated dividing revenues by invested capital 89 00:04:32.245 --> 00:04:34.305 and it is 0.4. 90 00:04:34.805 --> 00:04:37.465 It does not mean that the company is poorly managed. 91 00:04:37.805 --> 00:04:40.745 It simply means that the company is operating in an industry 92 00:04:40.915 --> 00:04:42.985 which is extremely capital intensive. 93 00:04:43.735 --> 00:04:46.385 Then you remember that the return on sales eeb divided 94 00:04:46.445 --> 00:04:49.665 by revenues is about 20%, which is quite high, 95 00:04:50.205 --> 00:04:53.585 but when you multiply 20% by 0.4, 96 00:04:53.765 --> 00:04:55.825 you get a return on capital employed. 97 00:04:56.205 --> 00:05:00.065 The famous DUP point formula, which is 8%, 98 00:05:00.845 --> 00:05:03.665 the 8% is gradually increasing. 99 00:05:04.005 --> 00:05:08.665 It was only 4% in 2013, but it's not very high 100 00:05:09.125 --> 00:05:11.705 and it does not exceed the weight, leverage cost 101 00:05:11.705 --> 00:05:13.225 of capital by large. 102 00:05:13.475 --> 00:05:14.945 We'll see that in a few minutes. 103 00:05:17.285 --> 00:05:19.985 We always observe that the dynamics 104 00:05:19.985 --> 00:05:22.785 of value creation is the same as the dynamics 105 00:05:22.785 --> 00:05:25.025 of the operating profitability, the gross, 106 00:05:25.215 --> 00:05:28.825 because value comes from operating performance. 107 00:05:29.565 --> 00:05:31.425 Now, when you look at the evolution of the market 108 00:05:31.445 --> 00:05:34.305 to book enterprise value divided by a capital employee 109 00:05:35.105 --> 00:05:36.865 relative value creation and rose, 110 00:05:37.175 --> 00:05:38.945 they move in parallel directions. 111 00:05:39.525 --> 00:05:43.105 The rose is up and the market to book is up, 112 00:05:43.645 --> 00:05:47.385 but as 8% is absolutely not outstanding in terms 113 00:05:47.585 --> 00:05:48.785 of operating performance. 114 00:05:48.785 --> 00:05:51.305 Market book is relatively low. 115 00:05:51.975 --> 00:05:55.305 It's a bit more than one, which is about value creation, 116 00:05:55.685 --> 00:05:58.525 but it is a little bit less than 1.2. 117 00:05:59.105 --> 00:06:02.245 So the company is credible on a stock market, 118 00:06:02.785 --> 00:06:06.045 but the market to book is absolutely not outstanding. 119 00:06:08.115 --> 00:06:11.245 Another way to confirm the relative value creation 120 00:06:11.305 --> 00:06:13.765 and the financial performance of the company is 121 00:06:13.765 --> 00:06:15.765 to compare the evolution of the market 122 00:06:15.865 --> 00:06:20.165 to book without any growth in a free cash flow in the 123 00:06:20.165 --> 00:06:21.405 financial performance of the company 124 00:06:21.545 --> 00:06:23.205 and the act market to book. 125 00:06:23.865 --> 00:06:25.245 So theoretical market 126 00:06:25.305 --> 00:06:28.165 to book no growth is calculated dividing the R 127 00:06:28.215 --> 00:06:31.205 after tax by the weighted average cost of capital. 128 00:06:32.525 --> 00:06:36.005 Interestingly, in 2015 to 2017 129 00:06:36.705 --> 00:06:40.685 or in 20 23, 20 24, there's no gap 130 00:06:40.685 --> 00:06:42.645 between the actual market book 131 00:06:42.825 --> 00:06:46.205 and the no growth market book, which means that in the minds 132 00:06:46.205 --> 00:06:49.365 of investors there's no growth, no potential growth. 133 00:06:49.945 --> 00:06:53.085 But what happened during the period 2018 134 00:06:53.465 --> 00:06:55.805 to 2022 is quite interesting. 135 00:06:56.625 --> 00:07:00.205 The market to book no growth is up and up 136 00:07:00.345 --> 00:07:03.485 and then down, which means that the financial performance 137 00:07:03.485 --> 00:07:07.645 of the company is significantly higher as the actual market 138 00:07:07.665 --> 00:07:09.525 to book does not change very much. 139 00:07:10.105 --> 00:07:12.605 It means that the market is not quite sure 140 00:07:13.035 --> 00:07:16.165 that this increase in the performance is sustainable. 141 00:07:17.105 --> 00:07:19.565 At the end of the day, they are right 142 00:07:19.565 --> 00:07:22.325 because the market to book no growth is down 143 00:07:22.665 --> 00:07:26.005 and converges towards the actual market to book. 144 00:07:28.115 --> 00:07:29.695 But you remember, we observe 145 00:07:29.695 --> 00:07:33.375 that the return on capital employed was gradually up. 146 00:07:33.955 --> 00:07:38.695 So if return on capital employed divided by WAC is up 147 00:07:38.795 --> 00:07:41.695 and then down, it means that something happened 148 00:07:41.755 --> 00:07:44.895 to the weighted average cost of capital to the denominator. 149 00:07:45.595 --> 00:07:48.375 Now the WAC is calculated with interest rate, 150 00:07:48.565 --> 00:07:49.775 with risk premium 151 00:07:50.275 --> 00:07:52.615 and with the beta, the risk coefficient, 152 00:07:52.675 --> 00:07:54.495 the systematic risk coefficient, 153 00:07:55.085 --> 00:07:57.055 what do we observe in the long term? 154 00:07:57.715 --> 00:08:01.575 2013 to 2015, the beta is about one. 155 00:08:01.925 --> 00:08:06.055 Then it goes down to 0.5, which is a consequence of kind of 156 00:08:06.615 --> 00:08:09.095 remarkable predictability in the cash flow. 157 00:08:09.715 --> 00:08:13.175 And then if you observe what happens starting in 2022, 158 00:08:13.515 --> 00:08:17.295 the beta is up from 0.5 to 0.7 159 00:08:17.835 --> 00:08:20.695 and this is a reason why combined with the evolution 160 00:08:20.695 --> 00:08:24.815 of interest rates, the work is down and then is up. 161 00:08:27.105 --> 00:08:30.155 Then we look at the dynamics of the evolution of rose 162 00:08:30.495 --> 00:08:32.635 as opposed to work rose after tax. 163 00:08:33.255 --> 00:08:35.275 We observed that the rose, which is 6% 164 00:08:35.275 --> 00:08:37.955 after tax today, consequence of 8% 165 00:08:38.175 --> 00:08:41.315 before tax, is now exactly the same. 166 00:08:41.335 --> 00:08:42.875 By the way, the average cost of capital, 167 00:08:43.605 --> 00:08:45.635 those economic profit is kneel 168 00:08:46.135 --> 00:08:48.395 and it's kneel when it was about two, 169 00:08:48.395 --> 00:08:50.275 3% a couple of years ago. 170 00:08:51.335 --> 00:08:54.315 Why? Simply because that wack is up. 171 00:08:54.985 --> 00:08:58.605 Now the rose is down and that's very important 172 00:08:58.605 --> 00:09:01.485 because it has an impact on the financial performance 173 00:09:01.485 --> 00:09:04.845 of the company which converge towards zero, not 174 00:09:04.845 --> 00:09:07.725 because of bad operating performance, but 175 00:09:07.725 --> 00:09:10.685 because of a change in the capital markets performance 176 00:09:10.865 --> 00:09:12.045 and expectations. 177 00:09:14.735 --> 00:09:18.165 Let's conclude this first part, devoted to performance 178 00:09:18.745 --> 00:09:21.445 and evolution of relative value creation. 179 00:09:21.865 --> 00:09:23.445 The rose is up. 180 00:09:23.825 --> 00:09:27.485 The rose is not weakening even though the company is 181 00:09:27.515 --> 00:09:29.765 massively investing in its business operations, 182 00:09:30.385 --> 00:09:34.445 but the W is higher now because of interest rates and 183 00:09:34.445 --> 00:09:37.645 because of beta it was lower than higher 184 00:09:37.785 --> 00:09:40.885 and as a consequence, the financial performance 185 00:09:41.765 --> 00:09:45.965 measured instantaneously by economic profit is Neil. 186 00:09:47.845 --> 00:09:50.935 That was very much about the recent part of the company. 187 00:09:51.635 --> 00:09:53.695 Now what do we observe today? 188 00:09:54.355 --> 00:09:58.335 An acceleration of the economic and financial model. 189 00:09:58.915 --> 00:10:00.375 We some strategic shift 190 00:10:00.955 --> 00:10:02.175 and the question which is going 191 00:10:02.175 --> 00:10:05.495 to be raised from observing this evolution is 192 00:10:05.765 --> 00:10:09.775 what about preserving the values of the company in terms 193 00:10:09.795 --> 00:10:11.455 of green energy? 194 00:10:13.495 --> 00:10:17.105 What we observed about the past was definitely a strategy 195 00:10:17.585 --> 00:10:21.425 focusing on networks and renewables networks 196 00:10:21.425 --> 00:10:24.905 because there is a demand for smart grids and renewables 197 00:10:24.905 --> 00:10:27.905 because it's simply the mission statement of the company. 198 00:10:30.725 --> 00:10:33.625 It is interesting to observe over the last 10 years 199 00:10:33.645 --> 00:10:38.145 or so, the evolution of the segments, liberalized, 200 00:10:38.445 --> 00:10:41.385 energy supply, renewables, networks. 201 00:10:42.215 --> 00:10:43.225 What happens is 202 00:10:43.375 --> 00:10:47.265 what was very dominant in 2016 was liberalized energy 203 00:10:47.365 --> 00:10:50.905 supply, which was accounting for 60% of the revenues. 204 00:10:50.955 --> 00:10:55.185 Today it's down to about 45% year after year. 205 00:10:55.405 --> 00:10:57.385 The relative share of the segment is down. 206 00:10:58.295 --> 00:11:01.985 Renewable energy was absolutely marginal in 2016 207 00:11:01.985 --> 00:11:04.585 and now it's about 20% of the revenues and year 208 00:11:04.675 --> 00:11:06.545 after year it's growing. 209 00:11:07.495 --> 00:11:08.705 What about networks? 210 00:11:09.205 --> 00:11:14.185 It was about 30% in 2016 it went up and then down, 211 00:11:14.485 --> 00:11:18.025 but what we observed during the last two, three years is 212 00:11:18.025 --> 00:11:22.545 that it's definitely up there is a shift in 21, 22 213 00:11:22.855 --> 00:11:26.185 towards growth in the network business. 214 00:11:26.285 --> 00:11:27.665 In a smart grid business, 215 00:11:30.645 --> 00:11:32.745 AA has two sources of profit. 216 00:11:33.685 --> 00:11:36.505 The company is managing assets, a portfolio 217 00:11:36.525 --> 00:11:38.105 of assets projects. 218 00:11:38.575 --> 00:11:40.705 When the company is developing the project, 219 00:11:40.935 --> 00:11:42.745 it's predominantly financed by itself, 220 00:11:43.605 --> 00:11:46.145 but when the project gets to a kind of maturity, 221 00:11:46.935 --> 00:11:50.585 then the company sells some equity stakes at a profit. 222 00:11:51.595 --> 00:11:54.765 Accounting wise, this is supposed to be non-current profit, 223 00:11:54.915 --> 00:11:59.685 kind of exceptional item, but in reality it's very current 224 00:11:59.985 --> 00:12:02.445 and it's part of the business model of the company. 225 00:12:03.225 --> 00:12:05.565 The second source is about the a bit data generated 226 00:12:05.585 --> 00:12:07.125 by the operating segments. 227 00:12:07.675 --> 00:12:10.645 What we observe is lateralized segment 228 00:12:11.025 --> 00:12:12.925 is a bit volatile. 229 00:12:13.515 --> 00:12:17.485 Open market sometimes reasonably high, 2020, 230 00:12:17.915 --> 00:12:22.765 sometimes quite low, 2021, sometimes higher, 2024 231 00:12:23.145 --> 00:12:25.525 and it's 20% by far. 232 00:12:25.525 --> 00:12:27.205 It's not the highest return on sales. 233 00:12:27.265 --> 00:12:30.205 The best return on sales for the company is about renewable. 234 00:12:30.835 --> 00:12:34.125 Renewable is 40%, which is twice as much as lateralized, 235 00:12:34.745 --> 00:12:38.045 but if you observe in the past it was not 40%, 236 00:12:38.265 --> 00:12:39.965 it was 60% 237 00:12:40.625 --> 00:12:43.965 and there was a some kind of uncertainty about the evolution 238 00:12:44.025 --> 00:12:45.885 of the return on sales. 239 00:12:46.595 --> 00:12:48.405 Network is in between. 240 00:12:49.065 --> 00:12:53.725 The return on sales is a bit higher than 30%, which is not 241 00:12:53.745 --> 00:12:58.045 as high as renewables, but looks much more predictable 242 00:12:58.315 --> 00:13:02.605 because of contracts, because of a regulated environment. 243 00:13:03.145 --> 00:13:04.525 So the trend is okay 244 00:13:04.545 --> 00:13:07.765 and the stability is supposedly quarantined. 245 00:13:09.865 --> 00:13:13.845 Now, this is exactly the strategic choice which has been 246 00:13:14.245 --> 00:13:15.645 selected by the company 247 00:13:16.765 --> 00:13:21.605 networks investment from 2025 to 2028 as it is announced 248 00:13:21.625 --> 00:13:22.805 by the capital markets. 249 00:13:22.975 --> 00:13:25.525 Today is 37 billion. 250 00:13:26.515 --> 00:13:28.885 It's about predictable frameworks, 251 00:13:29.115 --> 00:13:31.085 it's about predictable cash flows. 252 00:13:31.625 --> 00:13:34.445 The investment is going to be predominantly UK 253 00:13:34.465 --> 00:13:37.605 and US for more than 70% of the 37 billion, 254 00:13:38.425 --> 00:13:41.645 and there's a kind of guaranteed weighted average nominal 255 00:13:41.665 --> 00:13:46.005 return of equity on these regulated 256 00:13:46.205 --> 00:13:47.205 networks investments. 257 00:13:47.205 --> 00:13:50.445 So basically it's about contract, it's about regulations 258 00:13:50.985 --> 00:13:55.125 and a kind of 9.5% return on equity, 259 00:13:55.175 --> 00:13:57.645 which is in the books in the contracts 260 00:13:59.685 --> 00:14:01.305 before the capital market there, 261 00:14:01.305 --> 00:14:03.345 which happened a few days ago, by the way, 262 00:14:03.765 --> 00:14:06.945 the company presented its result for the first semester 263 00:14:06.945 --> 00:14:07.945 of 2025. 264 00:14:08.725 --> 00:14:12.825 The profit is earned by 20%, which is outstanding networks. 265 00:14:13.085 --> 00:14:16.945 EBITDA is earned by 31% and networks. 266 00:14:17.005 --> 00:14:20.905 EBITDA is now more than 50% of the total ED generated 267 00:14:20.905 --> 00:14:25.225 by the company, energy production and so on and so forth. 268 00:14:25.565 --> 00:14:28.025 EBITDA minus 13%. 269 00:14:28.925 --> 00:14:31.185 Now we invest and we invest a lot. 270 00:14:31.655 --> 00:14:33.025 Investments are growing 271 00:14:33.445 --> 00:14:36.665 and growing at the rate of 14% for networks 272 00:14:37.165 --> 00:14:41.265 but not growing for renewables down by 1%. 273 00:14:41.805 --> 00:14:44.945 So the focus is definitely on networks against 274 00:14:44.945 --> 00:14:46.545 between quote renewable. 275 00:14:47.285 --> 00:14:50.785 In the meantime, the company says we are quite conservative 276 00:14:50.805 --> 00:14:52.685 in terms of financing strategy. 277 00:14:53.265 --> 00:14:54.605 The net debt is down 278 00:14:54.795 --> 00:14:57.965 because we generate operating cash flows and also 279 00:14:57.995 --> 00:15:01.365 because we generate some transaction asset rotation, 280 00:15:01.585 --> 00:15:05.005 we sell some equity stakes at a profit and against cash. 281 00:15:07.555 --> 00:15:10.375 Why invest in networks on smart grids? 282 00:15:10.375 --> 00:15:11.775 Because the demand is growing. 283 00:15:12.555 --> 00:15:15.455 If you look at the historical evolution of production 284 00:15:15.455 --> 00:15:19.095 and consumption of energy worldwide, 2015, 285 00:15:19.625 --> 00:15:22.175 about 25,000 terawatts 286 00:15:22.905 --> 00:15:25.175 today more than 30,000 287 00:15:25.755 --> 00:15:29.615 and the evolution towards 2030 is more than 288 00:15:29.715 --> 00:15:31.135 35,000. 289 00:15:31.795 --> 00:15:33.975 So there is a demand which is very much driven 290 00:15:34.155 --> 00:15:35.535 by data centers 291 00:15:36.155 --> 00:15:39.735 and data centers for artificial intelligence. 292 00:15:39.735 --> 00:15:44.495 So there is a huge impact of this industry of revolution on 293 00:15:44.495 --> 00:15:46.735 what happens in the smart grid business, 294 00:15:46.955 --> 00:15:48.255 in the energy business, 295 00:15:50.565 --> 00:15:53.665 in its financial communication, I be all assets. 296 00:15:53.885 --> 00:15:56.225 Of course there will be some storage, investment, 297 00:15:56.935 --> 00:15:58.545 battery and so on so forth. 298 00:15:58.615 --> 00:16:02.905 It's supposed to grow renewable investment plus 50% 299 00:16:03.245 --> 00:16:07.825 by 2030, but networks, investment expansion, 300 00:16:08.695 --> 00:16:13.505 replacement digitalization multiplied by two in 2030 301 00:16:14.185 --> 00:16:18.585 multiplied by three in 2035, we have to be part of the game. 302 00:16:20.865 --> 00:16:22.475 This is why communicated 303 00:16:22.535 --> 00:16:25.795 by the company when she presented the result 304 00:16:25.835 --> 00:16:28.595 of the first semester, 2025, we need funds, 305 00:16:29.175 --> 00:16:30.995 we need funding in order to be able 306 00:16:30.995 --> 00:16:34.115 to grasp this opportunity, which is unprecedented, 307 00:16:34.755 --> 00:16:38.435 networks investment outlook, we have to invest 308 00:16:39.025 --> 00:16:40.755 minimum 55 billion. 309 00:16:40.985 --> 00:16:44.235 Then later on they adjusted the figure to 58 billion 310 00:16:45.175 --> 00:16:47.035 and to find on that we need funds. 311 00:16:47.585 --> 00:16:49.115 It's going to be a great investment 312 00:16:49.115 --> 00:16:52.555 because it's about stable regulatory frameworks, 313 00:16:53.095 --> 00:16:57.435 return on equity again and again, 9.5%. 314 00:16:58.095 --> 00:16:59.555 We have to profit from that. 315 00:16:59.585 --> 00:17:01.795 It's going to be great for the earnings per share 316 00:17:01.895 --> 00:17:02.915 and so on so forth. 317 00:17:03.455 --> 00:17:07.795 But we have also to preserve our financial strengths 318 00:17:07.975 --> 00:17:10.275 and our ability to pay a dividend. 319 00:17:10.745 --> 00:17:12.035 This is why we need funds. 320 00:17:12.225 --> 00:17:15.995 This is why we are raising 5 billion from the equity market. 321 00:17:18.145 --> 00:17:21.365 The 55 billion announced when the company presented its 322 00:17:21.365 --> 00:17:24.445 result for the first semester was updated in a capital 323 00:17:24.445 --> 00:17:26.765 markets debt to 58 billion. 324 00:17:27.585 --> 00:17:29.805 We are not going to cash out 58 billion. 325 00:17:29.945 --> 00:17:31.365 We have financial partners. 326 00:17:31.365 --> 00:17:33.485 You're going to contribute up to 8 billion, 327 00:17:34.025 --> 00:17:36.485 but we have to finance 50 billion by ourselves. 328 00:17:36.985 --> 00:17:41.725 Now two thirds of these 50 billion are going to be devoted 329 00:17:41.745 --> 00:17:44.925 to networks, one third renewable energies 330 00:17:45.185 --> 00:17:46.365 and so on and so forth. 331 00:17:46.825 --> 00:17:48.605 So it's about two third for the networks 332 00:17:48.705 --> 00:17:51.445 and it's about almost two thirds for UK 333 00:17:51.865 --> 00:17:55.685 and US where the regulatory environment looks quite 334 00:17:55.685 --> 00:17:59.245 predictable and positive in terms of return and equity. 335 00:17:59.745 --> 00:18:03.885 So it's going to be about growth, actual growth of 70%. 336 00:18:04.335 --> 00:18:05.445 Again, UK 337 00:18:05.865 --> 00:18:10.835 and us, this massive investment in US 338 00:18:10.895 --> 00:18:15.875 and UK is explained by the company as a once in a century. 339 00:18:16.515 --> 00:18:20.035 Business opportunity networks, it's about growth, 340 00:18:20.525 --> 00:18:21.755 clear growth perspective, 341 00:18:22.415 --> 00:18:26.155 but growth with predictability, multiyear frameworks, 342 00:18:26.485 --> 00:18:27.675 there are contracts 343 00:18:27.695 --> 00:18:29.795 and we know how much we are going to sell 344 00:18:30.015 --> 00:18:33.315 and at which price in the medium term profitability. 345 00:18:33.645 --> 00:18:38.515 Again and again, 9.5 ROE and security 346 00:18:38.515 --> 00:18:43.075 because we are experiencing the gross in a rated 347 00:18:43.675 --> 00:18:47.195 countries, of course the company is going 348 00:18:47.195 --> 00:18:50.275 to keep on investing in renewable green energy. 349 00:18:50.785 --> 00:18:54.595 It's going to be about 21 billion out of 58, 350 00:18:55.455 --> 00:18:57.875 but then it's going to be partners contribution 351 00:18:57.895 --> 00:18:58.955 for 7 billion, 352 00:18:59.575 --> 00:19:02.315 and you remember that the total contribution from partners 353 00:19:02.335 --> 00:19:03.555 was 8 billion. 354 00:19:04.175 --> 00:19:08.075 So the partners are involved in the renewable S, not 355 00:19:08.095 --> 00:19:10.835 so much in the networks in the grids, 356 00:19:11.045 --> 00:19:12.435 which we keep for ourself. 357 00:19:13.175 --> 00:19:17.475 We are going to keep on building windmills on shore, shore 358 00:19:18.005 --> 00:19:19.275 solar storage, 359 00:19:20.185 --> 00:19:23.235 more than 90% in air rated countries, 360 00:19:23.505 --> 00:19:24.715 very predictable stuff, 361 00:19:25.335 --> 00:19:29.035 but 75 in projects already 362 00:19:29.165 --> 00:19:30.435 under construction. 363 00:19:31.135 --> 00:19:33.515 So it's not very much about new project, 364 00:19:33.985 --> 00:19:37.275 it's just about completing the existing projects 365 00:19:39.535 --> 00:19:42.395 and that's in new investment philosophy of the company. 366 00:19:42.855 --> 00:19:44.075 We want to go for growth. 367 00:19:44.615 --> 00:19:47.275 We enjoy very much predictability in the cash flows. 368 00:19:47.535 --> 00:19:48.755 We want to be profitable 369 00:19:49.015 --> 00:19:51.755 and we want to be operating in a safe environment. 370 00:19:52.415 --> 00:19:55.875 So networks is a key investment destination. 371 00:19:56.625 --> 00:19:58.515 Renewable is about completing 372 00:19:58.735 --> 00:20:02.115 and we are going to be quite selective in any case, 373 00:20:02.495 --> 00:20:05.275 we focus on a rated countries 374 00:20:05.305 --> 00:20:08.115 because the needs is investment and 375 00:20:08.115 --> 00:20:11.235 because the regulatory framework is attractive 376 00:20:11.655 --> 00:20:15.755 and predictable thanks to these conditions, we are going 377 00:20:15.755 --> 00:20:17.915 to be able to keep on growing the dividend, 378 00:20:18.375 --> 00:20:23.035 but we have to preserve our financial strengths. 379 00:20:25.435 --> 00:20:29.215 In addition to the allocation strategy information, 380 00:20:29.275 --> 00:20:31.135 the company is providing some financial 381 00:20:31.135 --> 00:20:33.135 metrics about the projects. 382 00:20:33.635 --> 00:20:35.775 As far as networks are concerned, the spread 383 00:20:35.775 --> 00:20:40.575 to work should be 200 basis points, 2% internet rate 384 00:20:40.575 --> 00:20:42.455 of return should be more than 8%. 385 00:20:43.545 --> 00:20:46.975 Renewables spread to work should be more than 2%, 386 00:20:47.265 --> 00:20:49.125 and the internal rate of return should lie 387 00:20:49.235 --> 00:20:53.525 between seven 12%, so it's WAC plus two 388 00:20:53.585 --> 00:20:55.445 or W plus more than two, 389 00:20:55.865 --> 00:20:59.365 and in the meantime, the company's endlessly repeating 390 00:20:59.635 --> 00:21:04.245 that return equity after tax is going to be 9.5%. 391 00:21:06.755 --> 00:21:08.815 As we have some financial metrics about the project, 392 00:21:08.965 --> 00:21:11.695 it's quite interesting to understand the consistency 393 00:21:11.695 --> 00:21:13.295 between internal rate of return, 394 00:21:13.635 --> 00:21:15.335 return equity, and return capital. 395 00:21:16.315 --> 00:21:18.255 The internal rate of return should exceed the work 396 00:21:18.275 --> 00:21:19.495 by at least 2%. 397 00:21:20.115 --> 00:21:23.615 The work is a weighted average cost of financial resources. 398 00:21:23.815 --> 00:21:27.815 Shareholders represent 56%, bankers, 44%. 399 00:21:28.555 --> 00:21:31.935 The shareholders expect 4% long-term government bond rate, 400 00:21:32.155 --> 00:21:34.535 but the beta times the equity market risk premium 401 00:21:34.595 --> 00:21:36.935 and the beta is now about 0.7. 402 00:21:37.555 --> 00:21:39.415 Equity market risk premium for US 403 00:21:39.415 --> 00:21:41.255 and UK investment, about 6%, 404 00:21:41.745 --> 00:21:44.255 3% is the apparent interest rate 405 00:21:44.435 --> 00:21:46.975 and 25% is the cost of taxes. 406 00:21:47.595 --> 00:21:49.895 And as interest expense tax deductible, 407 00:21:50.355 --> 00:21:52.175 we can calculate the cost of debt 408 00:21:52.315 --> 00:21:55.655 as interest rate multiplied by one minus the tax credit. 409 00:21:56.355 --> 00:21:58.735 The waac, all in all is 5.5%. 410 00:21:59.315 --> 00:22:02.175 Now, if the internal rate of return 411 00:22:02.275 --> 00:22:04.775 of all this project is 8% 412 00:22:04.775 --> 00:22:09.695 or more, then the internal rate of return exit or walk by 2% 413 00:22:09.915 --> 00:22:14.535 or more, and if the company is investing in 8% 414 00:22:14.975 --> 00:22:17.095 internal rate of return projects progressively, 415 00:22:17.115 --> 00:22:20.735 the row say should be 8% after tax. 416 00:22:21.755 --> 00:22:23.135 Now, what is the relationship 417 00:22:23.135 --> 00:22:25.215 between the return equity and rose A? 418 00:22:25.285 --> 00:22:26.535 It's named the leverage formula. 419 00:22:27.435 --> 00:22:30.655 Return equity is a function of the rose, A, the tax rate, 420 00:22:30.875 --> 00:22:32.815 the interest rate, and the financial structure 421 00:22:32.815 --> 00:22:34.975 of the company, the leverage of the gearing. 422 00:22:35.635 --> 00:22:38.455 Now, once you know the factors is the parameters, 423 00:22:38.455 --> 00:22:40.295 you can calculate the return on equity, 424 00:22:40.915 --> 00:22:43.175 but once you know the return on equity, 425 00:22:43.395 --> 00:22:44.455 you can calculate the 426 00:22:44.665 --> 00:22:48.095 after tax, which is consistent with the financial structure 427 00:22:48.315 --> 00:22:50.735 and the return on equity, and you get a Rosie 428 00:22:50.745 --> 00:22:52.815 after tax of 6.4%. 429 00:22:53.715 --> 00:22:58.215 Now it's WAC plus one, not WAC plus two. 430 00:22:58.835 --> 00:23:01.295 So there is a little bit of inconsistency 431 00:23:01.325 --> 00:23:02.975 between all these figures. 432 00:23:05.195 --> 00:23:07.695 Now, let's deep dive a little bit in the equity issue 433 00:23:07.695 --> 00:23:10.455 itself, the process is going to be accelerated, 434 00:23:10.805 --> 00:23:13.975 very accelerated by the way, book building offering. 435 00:23:14.915 --> 00:23:17.295 At the end of the process, you get the price. 436 00:23:17.675 --> 00:23:20.815 The price is going to be 15 point 15 euros, 437 00:23:21.145 --> 00:23:22.295 which shows a discount 438 00:23:22.475 --> 00:23:26.935 of 4.7% against the last stock price. 439 00:23:27.765 --> 00:23:31.255 It's accelerated, so it's reserved to qualified investors 440 00:23:31.715 --> 00:23:35.215 and the shareholders are going to abandon their preferential 441 00:23:35.815 --> 00:23:36.895 subscription, right? 442 00:23:37.475 --> 00:23:40.735 The announcement is going to be made on the 23rd of July. 443 00:23:41.435 --> 00:23:43.975 The quotation of the new share is going 444 00:23:43.975 --> 00:23:48.445 to happen on the 25th of July, so it's quite quick process. 445 00:23:50.915 --> 00:23:53.255 The capital increase, which is announced on the 446 00:23:53.255 --> 00:23:55.695 23rd of July, together with the earnings 447 00:23:55.695 --> 00:23:58.735 of the first semester is quite well received 448 00:23:58.735 --> 00:24:00.495 by the financial analyst community. 449 00:24:01.085 --> 00:24:06.055 Morningstar says, IBA, earnings guidance confirm 450 00:24:06.885 --> 00:24:09.855 5 billion Euro equity, good timing, 451 00:24:10.835 --> 00:24:12.415 but it seems that the investors 452 00:24:12.515 --> 00:24:16.135 and capital markets have a slightly more negative opinion. 453 00:24:16.875 --> 00:24:18.855 If you look at what happens as the stock price, 454 00:24:19.435 --> 00:24:23.375 the stock price went down When the announcement was made, 455 00:24:23.905 --> 00:24:27.775 there were quite a number of sale equity sales, 456 00:24:28.155 --> 00:24:30.215 and so as a consequence, stock price went down. 457 00:24:30.215 --> 00:24:34.215 Then it went up. Then I began, and then it went down, 458 00:24:34.395 --> 00:24:37.415 and today it's roughly at the same level as just 459 00:24:37.415 --> 00:24:38.855 before the announcement. 460 00:24:39.795 --> 00:24:44.175 That's okay, but in the meantime, the IEX was uh, by 461 00:24:44.875 --> 00:24:48.495 almost 10%, which means that the company still has 462 00:24:48.495 --> 00:24:51.935 to demonstrate the credibility of its new strategy 463 00:24:52.475 --> 00:24:55.775 and its ability to really make a high internal rate 464 00:24:55.775 --> 00:25:00.405 of return out of its project maybe in order 465 00:25:00.545 --> 00:25:04.605 to respond to the slightly negative consequence on the stock 466 00:25:04.605 --> 00:25:06.085 prices of this announcement. 467 00:25:06.865 --> 00:25:09.845 In the capital markets day, the company says, 468 00:25:09.985 --> 00:25:12.445 we don't need any additional capital 469 00:25:13.035 --> 00:25:16.645 with a 5 billion withdrawn, no problem, 100%. 470 00:25:16.785 --> 00:25:18.285 We are not going to visit you again. 471 00:25:18.835 --> 00:25:20.605 When we sell some equity stakes, 472 00:25:20.835 --> 00:25:24.365 when we generate cash flows, predictable, stable, et cetera, 473 00:25:24.435 --> 00:25:25.925 it's going to be enough, 474 00:25:26.425 --> 00:25:30.325 and then their plan is almost fully funded. 475 00:25:30.745 --> 00:25:32.925 So far, no liquidity risk. 476 00:25:35.385 --> 00:25:37.605 Of course, there will be some additional debt, 477 00:25:37.825 --> 00:25:40.645 but limited to 15% of the total funds, 478 00:25:41.185 --> 00:25:43.685 and when the company says This is how we are going 479 00:25:43.685 --> 00:25:45.325 to find on the 58 billion, 480 00:25:45.855 --> 00:25:47.805 there will be cashflow from operations, 481 00:25:47.805 --> 00:25:49.885 which they name funds from operations. 482 00:25:50.435 --> 00:25:52.005 Then there will be some additional debt. 483 00:25:52.465 --> 00:25:56.365 We sell equity stake, ation partnerships, 484 00:25:57.105 --> 00:25:58.765 the capital increase, which is done, 485 00:25:59.305 --> 00:26:01.765 the increase in the working capital is not going 486 00:26:01.765 --> 00:26:04.845 to consume a lot of money, which is about 4% of the funds, 487 00:26:05.785 --> 00:26:08.565 and we are going to remunerate our shareholders. 488 00:26:09.465 --> 00:26:10.685 If you look at the figures, 489 00:26:10.745 --> 00:26:13.325 it represents about 20 billion year. 490 00:26:14.545 --> 00:26:18.605 So at the end of the day, we increase that in order 491 00:26:18.785 --> 00:26:20.245 to finance the investment, 492 00:26:20.665 --> 00:26:24.925 but also in order to be able to remunerate the shareholders, 493 00:26:25.755 --> 00:26:27.765 then it's going to be funded. 494 00:26:28.305 --> 00:26:31.365 No problem in liquidity when you make this kind 495 00:26:31.365 --> 00:26:32.845 of communication is 496 00:26:32.845 --> 00:26:34.845 because you are very much aware about the evolution 497 00:26:34.845 --> 00:26:35.925 of your rating. 498 00:26:37.705 --> 00:26:40.525 Rating is very much about the financial structure 499 00:26:40.525 --> 00:26:42.245 of the company and its ability 500 00:26:42.265 --> 00:26:45.965 to repay its net financial debt with a limited number 501 00:26:45.985 --> 00:26:49.925 of years of EBIT DA, which is never leverage gearing. 502 00:26:49.925 --> 00:26:53.245 They divided by equity book value of equity. 503 00:26:53.955 --> 00:26:58.365 It's about one market value of equity is about 0.8. 504 00:26:58.875 --> 00:27:00.965 This is this financial structure, which I used 505 00:27:00.965 --> 00:27:03.885 to calculate the weighted average cost of capital, so a kind 506 00:27:03.885 --> 00:27:05.645 of balanced contribution of shareholders 507 00:27:05.745 --> 00:27:08.885 and bankers that divided by EBITDA. 508 00:27:08.985 --> 00:27:11.965 In 2022, it was about 4.5 509 00:27:12.705 --> 00:27:14.205 and then it's down and down. 510 00:27:14.395 --> 00:27:17.205 It's about 3.6, 3.7 today, 511 00:27:17.865 --> 00:27:21.765 but if we invest dramatically in the growth 512 00:27:22.505 --> 00:27:26.885 of the network segment, then debt is going to be up. 513 00:27:27.545 --> 00:27:31.645 If debt is up, there will be some financing problems maybe, 514 00:27:31.745 --> 00:27:33.285 but there will be a rating problem 515 00:27:33.825 --> 00:27:36.725 and we want to keep our rating to have access 516 00:27:36.745 --> 00:27:41.725 to the market in a very nice way, liquid and low cost. 517 00:27:44.055 --> 00:27:45.395 The financial strategy 518 00:27:45.535 --> 00:27:47.995 of the company is very well explained in the 519 00:27:47.995 --> 00:27:49.115 capital markets day. 520 00:27:49.335 --> 00:27:51.715 On top of it, it's a commitment with a rating, 521 00:27:51.715 --> 00:27:56.515 which is triple B plus, so it's not in the A zone, 522 00:27:57.055 --> 00:27:59.155 but it is extremely safe. 523 00:27:59.375 --> 00:28:01.515 Triple B plus for S and p 524 00:28:01.815 --> 00:28:04.995 and Fitch BAA one for Moody's. 525 00:28:05.735 --> 00:28:08.915 Now it's based on growing funds from operations, 526 00:28:09.415 --> 00:28:13.435 new investment stabilized, predictable asset 527 00:28:13.935 --> 00:28:15.075 and partnership plans. 528 00:28:15.335 --> 00:28:16.755 We sell some equity stakes, 529 00:28:16.755 --> 00:28:18.995 which is very much about the current activity 530 00:28:18.995 --> 00:28:21.555 of the company, and then we have liquidity. 531 00:28:21.575 --> 00:28:23.195 We have access to the debt market 532 00:28:23.585 --> 00:28:25.395 because we are a safe investment 533 00:28:26.095 --> 00:28:29.115 and we are extremely conservative in terms 534 00:28:29.135 --> 00:28:30.635 of financial strategy. 535 00:28:31.255 --> 00:28:34.875 Now we have access to a diversified portfolio 536 00:28:35.095 --> 00:28:36.915 of financing resources. 537 00:28:39.235 --> 00:28:41.315 Historically, IBA has initiated 538 00:28:41.415 --> 00:28:45.715 and completed a remarkable strategic transformation towards 539 00:28:45.805 --> 00:28:48.195 green energy, renewable energy, 540 00:28:48.935 --> 00:28:50.795 and the company has nicely demonstrated 541 00:28:50.795 --> 00:28:53.635 that ESG is absolutely compatible 542 00:28:53.865 --> 00:28:55.515 with financial performance. 543 00:28:56.615 --> 00:29:00.995 Of course, today, the company keeps on communicating on ESG, 544 00:29:01.565 --> 00:29:03.475 increasing social dividends. 545 00:29:04.315 --> 00:29:07.235 E, we are going to be carbon neutral by 2030 546 00:29:07.655 --> 00:29:09.195 as we pay our taxes. 547 00:29:09.735 --> 00:29:14.435 We invest in innovation, we create jobs at OLA 548 00:29:14.495 --> 00:29:15.835 and at our suppliers. 549 00:29:16.575 --> 00:29:18.755 Gee, we have the best practices in terms 550 00:29:18.755 --> 00:29:22.635 of corporate governance, so these criteria are still there, 551 00:29:23.175 --> 00:29:26.435 but you understand that the focus is a little bit more on 552 00:29:27.155 --> 00:29:28.435 demonstrating to the investors 553 00:29:28.435 --> 00:29:31.195 that we are grasping an opportunity, 554 00:29:31.195 --> 00:29:32.915 which is about networks. 555 00:29:35.235 --> 00:29:38.605 Financial value is created by profitable growth. 556 00:29:39.385 --> 00:29:43.285 The company is showing an outstanding investment case which 557 00:29:43.365 --> 00:29:48.125 combines growth, security, predictability, profitability. 558 00:29:48.955 --> 00:29:51.965 Even though there are a few questions about the calculations 559 00:29:51.965 --> 00:29:55.925 and the metrics, of course the company is still ESG, 560 00:29:56.025 --> 00:29:57.805 but if you look at the evolution 561 00:29:57.805 --> 00:30:02.005 of the investment in renewables, it's just completing 562 00:30:02.005 --> 00:30:03.125 what we have started. 563 00:30:03.865 --> 00:30:06.165 It may be a little bit less the future 564 00:30:06.265 --> 00:30:08.085 of the company, unfortunately. 565 00:30:08.855 --> 00:30:09.645 Thank you very much.