EDP - Energias de Portugal, S.A.

Miguel Viana - Head of Investor Relations António Mexia - Chief Executive Officer Nuno Alves - Chief Financial Officer

Rui Dias - UBS Antonella Bianchessi - Citi Carolina Dores - Morgan Stanley Stefano Bezzato - Credit Suisse Isidoro del Álamo Molina - BBVA

Hello. Good morning, everybody.

Thanks for being with us today to talk about the first nine months results of EDP. As usual, I'm here with Nuno Alves, the CFO, and our Head of IR, Miguel Viana.

So I will go through the first nine slides, and what I would like to start in the first one is stating that I believe we are presenting good quality results, in line with guidance and with no surprises. I think that, by the way, nowadays is good in this sector.

I would like to highlight the strong growth of our recurring EBITDA, which showed a 10% year-on-year increase. And I would like you to note that this EBITDA still includes a negative ForEx impact of 2% year-on-year, resulting essentially from the 11% average depreciation of the Brazilian real, against the euro, over this period.

If the real is very strong today, in the same period year-to-year, we have still a lower real. As you know, due to seasonality of hydro and wind production, the third quarter is normally the less relevant for EDP and our performance.

Even so, in the third quarter alone, our recurring EBITDA showed a small growth of 1%, compared year-on-year. Overall, this performance is fully consistent with last July's upgrade of our guidance, for the full year, to €3.75 billion.

EBITDA growth was the major driver for the 17% growth, year-on-year, of our recurring net profit to €661 million. I think it's also a strong figure.

Our reported net profit stood at €615 million, a 16% decline year-on-year, which reflects essentially the significant gain booked in the second quarter of last year, with the acquisition of an additional 50% in Pecem in Brazil. Once again, at net profit level, this performance is also fully consistent with last July upgrade of guidance for 2016, net profit to around €950 million.

Another significant development was the 56% decline on regulatory receivables in EDP balance sheet, supported by €2 billion tariff deficit sale, as we speak we are already above this, but in the period it was €2 billion, from which €800 million sold in the third quarter, taking advantage of the current favorable credit market conditions. Regarding efficiency, our ratio of OpEx over gross profit showed a significant improvement from 27% to 26% in the first nine months, reflecting efficiency improvements across all major business areas.

We will see this in detail later. Finally, EDP's net debt decreased by 8%, or by €1.4 billion versus last December to 2016, fully line in, and consistent, with our guidance for the year, at the end of the year of 2016, as a net debt figure for end of December.

So overall, I would say that our strong performance in the first nine months of 2016 is totally aligned with our commitment for the year, and with the delivery of the 2020 business plan targets presented to you last May. Going into the Slide 2, recurring EBITDA, so let's see how this 10% growth on recurring was delivered.

First, generation and supply in Iberia; we see a 17% year-on-year growth, following a first half of year marked by clear improvement of hydro conditions and by positive results from a successful energy management strategy and also, a first quarter with a more stable year-on-year performance despite outage of coal, Soto 3 and Abono. They will build still until the end of the year, but this, of course, is not affecting our guidance, because it was already considered by us.

We also continued strengthening our position on retail and small and medium enterprise customers, as you know, the ones that we prefer a key component of our hedging strategy, with our portfolio of electricity and gas contracts in free markets increasing by 10% year-on-year. Our installed capacity increased by 1%, following the commissioning in January of two hydro, Baixo Sabor and Salamonde II, which more than compensated the shutdown, at the same time, of Soto 2 coal plant.

Moving to regulated networks in Iberia; we see a 4% growth in recurring EBITDA. The positive performance was supported by 18% increase of regulated revenues for our electricity distribution network in Spain, according to the terms of regulatory review, and a 2% year-on-year, and I think it's important to highlight this, a 2% year-on-year reduction of controllable operating costs.

Regarding renewables, contribution to our recurrent EBITDA, it increased by 14% as a result of 13% increase of average installed capacity, following new additions commissioned in U.S. and Brazil and the consolidation of ENEOP wind farms in Portugal.

In Brazil, the recurring EBITDA in local currency grew 29% year-on-year, with a strong growth in generation supported by the full contribution of Pecem in 2016. Hydro generation benefited from the end of the losses associated with hydro deficit following the hydro insurance deal closed in 2015, I think it was a good decision, and a decline in spot electricity prices driven by, of course, improved hydro reservoir levels.

Let's go and move to Slide 3 with costs. Here, I would like to highlight our good performance in terms of efficiency.

With operating costs increasing 3% year-on-year, that compares with the 7% increase on average installed capacity. Why?

Also because are very focused on this, and our OpEx IV corporate efficiency program is already ahead of schedule with €76 million of savings achieved until the end of the third quarter. Once again, this good performance was supported by all key business areas.

In Iberia, which represents ##% of our operating costs, total OpEx increased by 1%, reflecting the 1% increase of installed capacity and a 2% growth in our total number of clients in Iberia and the 1% natural headcount reduction. At EDPR, the ratio of core OpEx per megawatt, a key variable, installed decreased by 5% year-on-year, reflecting not only economies of scale, but also the good results from the in-sourcing strategy of parts of our O&M services, namely in the U.S.

as explained previously. Finally, in Brazil, operating costs in local currency, on a pro forma basis, when you compare including Pecem for the whole nine months of 2015, decreased 7% year-on-year, when adjusted for inflation as a result of a 6% increase on pro forma OpEx in local currency and the 8% inflation in the period.

So it shows that Brazil is performing very well in this front. Going into regulatory update in Portugal; I would like to start by updating you on the proposal released two weeks ago in Portugal by the regulator and by the government and on electricity tariffs and state budget for 2017.

As you can see, regulated revenues from our distribution and last resort supply activities in Portugal for 2017 show an expected 1% growth year-on-year, fully in line with our expectations. The rate of return set at 6.5% in 2016 should not suffer a material change for 2017 as a result of the predefined indexation to the 12 months average 10-year Portuguese Government bond yield.

On the negative side, the government's proposal for the 2017 state budget maintained the share of the extraordinary tax of 0.85% on assets applied to the energy sector, which is costing us €62 million per year. Of course, I would like to consider that, when in last May we met in Capital Markets Day, we had already included this for 2017 guidance, but we can talk a little bit later about this.

On the size of electricity system debt, the regulator estimates that the overall debt will decrease significantly, over 2017, by around €550 million, fully in line with the forecast that we have presented last May. The system debt reduction for next year results from a 1.2% increase on average retail tariffs, and includes €140 million expected clawback proceeds from the one-off cap on special regime feed-in tariffs only for next year that the government wants to impose on some older renewable assets.

Note that EDP does not have material exposure to these older assets that are subject to this – from the short cut and we estimate an impact between €10 million and €20 million at EDPR level. Overall, the decisions announced provide a significant improvement on the visibility on our regulatory and fiscal framework in Portugal for the next 12 months.

The good news is, we see clearly the tariff deficit evolving in the direction that we have anticipated. Slide 5, low interest rate environments clearly.

So regarding interest rate, we continue facing a lower interest rate environment for a longer than the previously expected period. On this subject, I would like to stress that we continue to be focused on delivering what we defined in our business plan; namely, we continue to be fully committed to the delivery of our financially deleveraged targets for the next years, preserving the clear investment-grade credit profile of our business.

In the credit markets, our strategy has been to take advantage from the current environment to reduce gradually our average cost of funding, but also to reduce our interest rate exposure, concentrating on new funding deals in longer maturity in fixed rate, so lowering costs and increasing maturities. As a result, over the last 21 months we have already managed to extend our average debt maturity to five years, compared to four years two years ago, and we have extended the period of coverage of our shorter term maturity with financial liquidity from above 24 months to currently above 40 months.

Even if it's today less relevant, I think that we need to highlight this. Regarding investment and disposal, we maintain our conservative approach.

We continue executing the investment program previously announced; focus on wind power and PPA genres. Over the last years, we have persistently developed a diversified number of potential wind farms projects in this market, and we are now in the position of reaping the fruits of that consistent work, taking advantage from the clear visibility of the PTCs framework and the year 2020.

Note that we are not considering the current low interest rate scenario long-term investment decisions, as we believe that this is the better approach to protect the value of our assets in the long run; namely, in the eventual scenario and probable scenario of increase on interest rates. Sooner or later it will arrive.

So clearly, here I think that we are different from other players in the market. Finally, regarding disposals, we continue to see increasing interest from long-term investors, such as pension funds and infrastructure funds, on long-term contracted or regulated assets, not only in U.S., but also in Europe, and namely in Spain and also in Portugal.

This environment is, of course, favorable to the execution of the disposal considering our business plan; namely, the EDPR asset rotation deals and some other opportunistic small-sized disposal without affecting the low-risk profile of the Company. As you know, we have already mentioned this in our Investors Day last May.

Slide 6. Let’s go for our growth investments.

We have strong visibility on our gross CapEx up to 2018, with our new wind and other projects in the construction, or already contracted, representing a 13% increase on our electricity generation capacity until 2018, through the commissioning of an additional 3.7 gigawatts. Regarding new hydro in Portugal, we are now finishing the two last remaining plants under construction.

At EDPR, we have already secured 90% of our target growth until 2018, and I think it's good, while, at EDP Brazil we keep on track to deliver Sao Manoel hydro plant by late 2018. In all these projects, our focus is now on execution on time, and at cost, in order to protect the investment returns.

Regarding disposals, following the recent completion of the sale of 49% stake in wind farms in Poland, in Italy to CTG, we have already executed 60% of the planned amounts of EDPR asset rotation and the CTG deals from 2016 up to 2020. With CTG we maintain further deal options in the onshore wind in Portugal, and offshore in Europe.

So what's concerned our partnership with CTG, we are fully in line with our commitment. We also continue exploring other small-scale opportunistic deals that were already contemplated, as I mentioned, in the business plan.

Moving to Slide 7, supply activity. Here, I would like to highlight is the continuous strengthening of our energy supply platform, namely in the retail segments.

We managed to continue to increase the number of clients in the free market at a double-digit rate in a period of slowdown of switching of electricity customers to the free market. As you know, our current market share on the retail is around 85%, but it's interesting to mention that our market share in the third quarter was 90% of the new clients.

Moreover, after the go-live in 2015 of significant investment that we made in CRM system, we have reached significant improvements on customer satisfaction, resulting in 27% reduction in the number of claims per customer, with more customers and much less claims. We have also continued to increase the penetration rate of our electricity and gas dual offer and other services, with very good results.

We consider that an integrated view of energy supply and electricity generation is critical strategy in order to reduce exposure to volatility in wholesale energy markets, and to preserve our low-risk business profile. Regarding wholesale prices, we saw recently a significant increase but more evident in the short-term; for instance, not only Iberia but also for our neighbor friends.

For the fourth quarter 2016, we don’t any material impact from this move as our electricity production and supply are almost fully hedged. For 2017, we have already contracted 29 terawatt hours of electricity sales, mostly with final clients, at prices around €55 per megawatt hours.

And we also closed a significant part of fuel costs below current market levels, which led us to be confident on our generation supply activities in Iberia for 2017. And I would like to also to highlight that for 2017, as you see there, the forward prices are better than in the business plan, so above €44 and in the business plan we were considering €42.

In Slide 8, let’s move to Brazil. Finally, on Brazil, just some words to recall that the Brazilian real is, for now, the best performing currency in the year versus the euro.

So if you assume the average currency rate of October 2016, it was at [€3.51], this represents a 20% appreciation if you compare to first quarter 2015. I would also like to recall you that, in our business plan, we took a more conservative approach of the evolution of the Brazilian currency when you compare to the current levels.

I remember people in May eventually saying that we were optimistic about the Brazilian real; basically, if anything, we were pessimistic. Regarding EDP Brazilian operations, over the next 12 months we expect to benefit from the recent favorable regulatory review at Escelsa.

Moreover, we consider that we are now more protected from managing market risks; namely, given what we mentioned, the GSF insurance, which became more relevant in the moment of recovery of electricity prices. Cost of funding; we are in the middle of the process of paying down our most expensive debt in Brazil that was costing us around 17%, with the cash proceeds from the successful capital increase.

And we are finally seeing a reduction in market interest rates after the Brazilian Central Bank cut of interest rates for the first time in four years. On the growth side, the Company is now well positioned to explore relatively small-sized opportunities, as it was the case of the recent participation in the electricity transmission auction, in which we were awarded with a relatively small transaction aligned across the Escelsa concession region and makes a lot of sense for our operations in that state.

Overall, all these developments allowed us to continue positive on the performance of our operations in Brazil for the last quarter and also for 2017. So for me, last Slide, about the overall performance.

What can we say? Overall, we consider that our performance in the first nine months shows that we remain on track to deliver both our 2016 financial guidance, the new guidance, and our medium-term targets.

In terms of focused growth, we grew by 10%. We maintain a clear visibility on growth, with our average installed capacity growing on average 7%, wind and hydro.

This growth strategy continues in a strict financial discipline, with net debt going down by 8% compared to year end, 2015. So we are able to reinforce our distinctive profile amongst European utilities with the high-quality assets and competitive technology on the one hand and, of course, long-term contracted and regulated activities on the other hand.

If we see hydro and wind represents almost 70% in the first nine months. And in what concerns long-term contracted, we see that 85% of EBITDA in the first nine months were regulated or long-term contracted.

Efficiency; we are on target delivering quicker than expected the new improvements, the commitments. And finally, in terms of our recurrent net profit, that increased by 17% year-on-year.

All of this underpins our commitment to deliver attractive and sustainable returns to our shareholders and allows us to reiterate our commitment on the 3% growth, or the 2016 dividend to be paid in 2017 to the level of €0.19 per share. So thank you, and let's go now with Miguel to do the details and more detailed presentation.

Then I'll come back for the Q&A. Thank you.

Thank you, António. Going more into detail to our nine months 2016 performance, you can see that installed capacity increased 2% or 7% on average terms, following additions of 0.5 gigawatts in wind, 0.3 gigawatts in hydro in Portugal, and also reflecting the shutdown of 0.2 gigawatts of coal in Spain.

This has led to the weight of hydro and wind in our portfolio to increase to 71%, while the total electricity production increased by 15%, following the improved hydro resources in Iberia and also the wind capacity additions. In terms of EBITDA and EBIT performance, our reported EBITDA in the nine months 2015 included €424 million of positive one-offs.

That justified the 3% year-on-year decline of EBITDA. On a recurring basis, EBITDA was up by 10% year-on-year, and our recurring EBIT was up by 15%, supported by all business divisions as we have seen.

Looking to the market dynamics of the Iberian energy market, so namely electricity and gas in the first nine months of the year, we can see that electricity demand was up by 0.2%, plus 0.1% in Spain, and plus 0.3% in Portugal, following the recovery in the third quarter to 0.6% year-on-year. Hydro production increased by 51%, following an improvement of the hydro coefficient, mainly in Portugal, from 0.78 to 1.66 which, together with strong wind, leads to coal and gas power plants production to go down by 29%.

Regarding gas demand, it went down 1% in Iberia, essentially due to the decline of the electricity production usage of gas, minus 9%, and the average pool price went down 32% to €34 per megawatt hour. By major divisions, and starting for our EBITDA performance in terms of generation and supply Iberia, the EBITDA has increased by 15%, supported by a 111% growth of hydro production, and also a decrease in terms of sourcing cost by 33%, highly supported by the 40% reduction on the average generation cost.

This decline in average generation cost is due to higher weight of hydro in generation mix, which has increased from 28% to 51%. Other a positive contributions were our long market position on clients, and also the active management of strong volatility in energy markets, which had a positive result in the first nine months of 2016.

Moving to regulated energy networks in Iberia, EBITDA went down 8% year-on-year, essentially following the €89 million gain in the first nine months of 2015 on the sale of Gas Murcia, while the adjusted EBITDA goes up 4% supported by improved regulation for electricity distribution in Spain, and also some efficiency improvements, mostly in Portugal. Moving to EDP Renovaveis, we can see that the average installed capacity went up 13%.

Production was 20% year-on-year, and the average prices are going down 7%. Excluding the one-off in the first nine months 2015, namely the €40 million due to ENEOP badwill, and also some write-offs, EDPR's contribution to EDP recurring EBITDA went up 14% to €847 million in the first nine months of 2016.

Finally, at level of EDP Brasil, and in local currency, we can see that EBITDA went down €16 million following the one-off impact of Pecem in the first nine months of 2015; and of Pantanal in the first nine months of 2016. If you exclude these one-offs, EBITDA of EDP Brasil in local currency, on a recurrent basis, went up by 19%, following the full consolidation of Pecem, so nine months in 2016 versus after May in 2015.

Hydro production showing EBITDA improvement of 23%, following the hydro deficit costs significant in the first nine months of 2015, and immaterial in the first nine months of 2016. And finally, in distribution, a 5% decline on EBITDA, penalized by lower demand, and losses on over-contracted volumes, partially offset by concessions revaluation.

Moving to the evolution of Portugal electricity system regulatory receivables; it showed a €99 million surplus in the third quarter 2016 alone, leading to an accumulated €14 million decline of the debt in the first nine months of 2016. As we said before, a significant decline is expected now for the fourth quarter 2016, benefiting from the higher pool price environment.

At level of EDP balance sheet, net regulatory receivables decreased by close €1.4 billion, as you can see in Slide 19, with the major contribution to this decline coming from Portugal. In Portugal, we had a decline of €1.1 billion following €2 billion from sales, and €900 million of additional receivables attributable to EDP created in the period.

In Brazil, the €0.3 billion decline is explained by the decline of the energy cost, and recovery of past deviations. Moving to net investments; they decreased 53% year-on-year.

Here, I would say the essential impact by the asset rotation deals in the first nine months of the year, which totaled €0.4 billion, CapEx went down much less just 5% to €1,160 million following the decrease in hydro CapEx in Portugal. Expansion investments continue 100% concentrated in wind and hydro; wind with PPAs and feed-in tariffs, hydro in Portugal with pump and storage, and hydro in Brazil with PPA inflation linked.

While our maintenance investment, which also showed an increase, are now moistly allocated to a regulated energy networks, namely Portugal, Spain and Brazil. Regarding net debt, in Slide 21 we see that this showed an 8% decline, or a €1.4 billion decline in the first nine months of the year, strongly supported by the €1.4 billion decline on regulatory receivables during the period.

Adjusted net debt stood flat, year-on-year, at €14.9 billion, even post the full payment of the annual dividend, which occurred in the second quarter 2016. Regarding financial debt profile by currency and maturity, we saw no material change in the debt breakdown by currency, as our investments and operations are funded in local currency to mitigate ForEx risk; while, in terms of average debt maturity, it was extended once again from 4.6 years, in September 2015, to five years in September 2016.

Looking to financial liquidity versus refinancing needs, in Page 23, we see that by September 2016 we had €1.7 billion in terms of cash and equivalents, and €4.1 billion in terms of available credit lines, totaling €5.8 billion of financial liquidity, which covers our refinancing needs beyond 2019. Financial results; it showed an increase of net financial costs by €13 million year-on-year.

In terms of breakdown, we had a positive impact from the decline in terms of net interest costs, a positive impact by €89 million, following the decline in average net debt by €0.5 billion, and also a decline in terms of average cost of debt from 4.7% to 4.5% in nine months 2016. Revenues on regulatory receivables went down by €48 million following the decline in terms of the amount of regulatory receivables in our balance sheet, as we have already seen, and also the lower interest rate that these regulatory receivables are paying to EDP.

We had also a €22 million decline on capitalized financial costs, following the previously referred commissioning of two hydro plants in Portugal; while, in other financial costs, we had an increased in costs with tax equity investors, plus €10 million year-on-year, following our continued investment in wind in U.S., a new tax equity deals. And also we had a reduction by €15 million on revenues on loans to associates, following the full consolidation of ENEOP since September 2015.

I would like to also highlight that the first nine months of 2016 other financial results include a one-off for BCP impairment, €31 million, and includes also a significant amount of debt prepayment fees amounting €26 million, mostly at EDPR level. Finally, moving to net profit breakdown, we can see that, in terms of depreciations, it increased the cost of deprecation by €33 million, following the increase of installed capacity at EDPR in Brazil, Pecem, and hydro in Portugal.

Income taxes; we had a low effective tax rate in first nine months of 2015, due to one-off gains in Pecem and Gas Murcia, and a higher than normal effective tax rate in the first nine months of 2016. We maintained the line of extraordinary energy tax in Portugal flat at €61 million, which represents 0.85% on net fixed assets in Portugal.

And non-controlling interest, a significant decline, following a lower impact from one-off, namely at Brazil, following the Pecem badwill in first nine months of 2015. So finally, in the last Slide, you can see that, excluding one-off at net profit level, we have a 17% increase of our recurring net profit from €564 million to €661 million.

With this, we conclude our presentation, and we can move now to the Q&A session.

Hello, good morning everyone. And thank you for taking question.

I just have one question, and it's regarding your current dividend policy which you presented on your Capital Markets Day in May, because there were a few things that came in above your expectations since then. For example, you generated more cash than originally expected, which allowed to improve your debt reduction target for the full year.

The Brazilian real increased by roughly 10% since then as well. The latest debt refinancing came in also at lower cost then you were probably expecting and, at least in my view, this is likely to continue.

And achieved power price in Iberia, at least for now, remain above the expected levels that you also presented in May. So overall, with all these positives, what would prevent you from being a bit generous on your 2017 dividends, and perhaps deliver a payout ratio at the top of the range, which will be clearly above current market expectations?

Thank you.

I think that the name of the game of the dividend policy, thank you, Rui, is credibility and visibility with clear rules. When have presented the strategy some years ago of a floor and then explaining, of course, dividend payout ratios and between specific brackets, I think that we have introduced a good concept.

We have committed already what will be paid in 2017 based on 2016. I think that the fact that we are above what was expected in 2016 just makes us comfortable with that commitment.

And the evolution, as you know, is we want to share growth with our shareholders. We have been doing this for the last 10 years and the only thing is it gives additional credibility for how we wish to share that with our - but it doesn’t make sense at this stage to change what I've already committed for next year.

Of course, for the future, the better the future, the brighter this policy will be.

Very clear. Thank you.

We can go to the next question, please.

Hello, good morning. I have a very simple question.

Can you help us in understanding how you will be able to reach your target in terms of net profit in 2016? So what you expect in Q4 to basically support the net profit.

And the other question is, when we look at the financial charges, because of a lot of bits and pieces, the real cost of debt is not coming down. Can you elaborate on what you expect, going forward, and what we should expect for 2017?

And last, again on the situation of the power prices in Spain and the peak in the gas demand and CCGT because of the outage in France, how does it play, how you are positioned considering the forward sales and so on and so forth? Thank you.

Well, let me start with the net income and the guidance for €950 million. As we mentioned in previous phone calls, and as we've had in the past, we continue to expect to end the year with a tax rate of below 20%.

We've had some negatives in the tax in the first nine months; that will be more than compensated in the fourth quarter and that will help us reach the €950 million level. But the tax rate will come up similar to what we've had in the last few years.

And as far as the interest rate that we have, I think we will end up the year as we had guided, at 4.4%. What we stated is that, as the debts mature and we issue new ones, what you will see is that rate slowly will come down.

If you ask me today and if the market stays where it is, what we'll have will be better impact in 2017, 2018 and 2019 as we go, because rates today are significantly lower than they were six months ago. So what you can expect is when we guided 4.4% and 4.2% for 2018, those numbers for 2017 and 2018 might come out a little lower, but this has to do with when you do new issuance and when you pay maturities it will come down.

But until then, the move will be this one.

Now what concerns the power pricing in Spain, we are basically hedged for the 2016, so it has no impact on our figures. For 2017, this movement is important in the sense that it will help us in what concerns the [indiscernible] season where you basically close most of your clients between now and the year-end.

So it will help, especially the slightly better forwards than expected, will help us in closing the positions that we have not yet closed. In any case, we don't have any problem with what concerns the coverage of what we bought in terms of gas and coal, so I think it's an important issue for us.

We can go to the next please.

Hi, good morning everyone. Thanks for taking my questions.

I have two questions. First, on the opportunities that you see in Brazil, you won a small transmission project.

Is transmission the new focus in Brazil, or this was just a one-off? I'm just wondering on what you could look to acquire or to invest there.

And second, you already touched about hedges; I just wanted to confirm if 2017 you were hedged on coal, especially from Sines which come off of the CMEC by midyear. Thank you very much.

Thank you, Carolina. Opportunities in Brazil; you know Brazil well.

First, the important thing, as a general statement, is we will not take opportunities that will unbalance us, in terms of size that would represent any change to our commitments in terms of deleveraging. As you know, we have done a very successful rights issue.

We have presented the idea that we will be doing rather small-scale adjustments in our portfolio. Why transmission and specially this transmission?

Because it's small, it's in the state where we have the distribution company. It's a voltage that makes a lot of sense in terms of also making the quality, the service of our distribution, of Escelsa.

So in terms of size, in terms of economies of scale, in terms of integration of what operations we have, it makes more sense. In terms of looking more into this transmission, transmission has a very clear regulatory framework; in certain cases even slightly better than the distribution in Brazil with lower risk.

And so, keeping in mind the scale of what we can do, we will be looking into this area as something that makes sense, if it fits into our portfolio.

Regarding the issue of coverage of fuel procurement, so we have around 70% of fuel needs procured for 2017, obviously at significantly lower cost than what you have today in the market. So this protects significantly our margins for next year.

So, essentially, if the availability of the plants is okay, we are quite protected. Obviously, we have this remaining 30% that we can still have some upside on the contracting season that is going on for energy contracts for 2017.

We can go now to a question in the web, regarding the question from Stefano Bezzato, Credit Suisse. What is your expectations for the future evolution of historical tariff deficit?

And when do you expect it to be erased? Then he does two additional questions.

Has the recent budget law changed your expectation regarding the impact of the special energy tax in the coming years? And the final question is, are you planning new disposals?

In particular, given recent press articles, could the gas grid in Portugal be considered non-strategic?

Okay, tariff deficit evolution, as we showed in the presentation and as we've seen from the regulator, for the 2017 year-end number, we're pretty much on line with what we've been guiding since three years ago. We would expect the system deficit to go to 4.4, 4.5 by year-end 2017, so that continues to be right on target.

And our expectation is that, by 2020/2021, the deficit should be all paid off and no longer be an issue. So we have no reason to change our expectation in that matter.

So it continues to generate a surplus, which will get bigger and bigger every year. We'll see how it's managed by the regulator, going forward, but no expectation for change.

In what concerns the maintenance of the sales at 100% of its level, it was already, as you know in May, as I've stated in our guidance and in the business plan for 2017, we have included a case that was the final decision. Of course, we would like to have a small signal that we see that we have, at least, a postponement of the [increase] that I believe will be progressive and not one stroke of sales.

So it does not change our expectations in what concerns the future. I think it's consistent, in a way, with the fact that they are taking extraordinary measures first out of people and then out of companies.

But let's be clear, we will act accordingly to the fact that the decision was not taken for the budget of 2017 to protect our rights. In what concerns new disposals, and especially the question of gas, we have nothing to add today in what relates what we have told last May.

Last May, national distribution in the north of Portugal was included as one of the possible disposals, what we call tactical disposals. And clearly, it was already in the list and as we speak, I have nothing to add on this.

So I repeat what I told in May; we are looking into tactical disposals, adjusting our portfolio when it makes sense, so nothing new. Thank you, Stefano.

With regards to the next question on the web, Isidoro from BBVA. He asks, your results in the liberalized activities in the third quarter on a standalone basis are flat year on year, despite higher volumes in hydro output and higher sales to customers.

Could you explain the flattish performance?

So, Isidoro, yes, it’s true, but you can see if you look to the production, on the third quarter 2016 versus third quarter 2015, you can see that we had significant improvement in terms of hydro production but also a significant reduction in terms of coal production. As you know, we are now in the stage of doing the environmental upgrade of our coal plants in Spain, Abono 2 and Soto 2, and this implies some outages, which had also some impact and some costs in the third quarter.

So it's better in hydro but slightly better in coal; overall year-on-year flat. I don't know if we know if we have more questions on the line.

End of Q&A

If we don't have any more questions, thank you for those that raised the questions. I really want to reaffirm the fact that, the first nine months, we've performed better than it was presented in the Investors Day.

I think it's mainly due to things that we did manage well. I think it's important, so it's a structural movement of the recurring net profits to the €950 million that we have revised in terms of guidance when we met last time.

And if anything, we have also in front of us, in the different levels, information that gives us additional visibility for 2017. So we keep comfortable with what we have stated in May and with the guidance and the market expectations for the future.

So I think that we are in a good moment and we will confirm this again next time we meet. Thank you for all being here with us today and see you soon.

Bye-bye.