- Gross profit and EBITDA both grew 31% year-on-year fully reflecting output growth, but hindered by a below average wind resource and exposure to spot prices in the uS.
- Net Income in 2010 dropped 30% year-on-year to 80 million euros, following lower than expected top-line performance together with higher expenses associated to new investments.
- Cash-flow from operations continues to deliver strong growth 45% year-on-year to 567 million euros in 2010, clearly demonstrating an increased cash-flow generation capability of the existing assets.
- Cash-flow from operations (567 million euros) plus the monetization of tax credits in the US (398 milion euros) covered 69% of the 1.4 billion euros 2010’s capex. Additionally, new project finance in the period (191 million euros) increased this coverage to 83%.
- Net debt in Dec-10 was 2.8 billion euros. the 0.7 billion euros increase was mainly to cover the remaining capex not covered by cash-flow. Forex translation also had a 102 million euros impact.
In 2010, EDPR added 947 MW to its consolidated installed capacity, of which 347 MW in europe and 600 MW in the US, reaching 6,437 MW of installed capacity.
Load factors remained stable at 29%, one of the highest in the wind sector, even though impacted by the below average wind conditions in the US. Given the stability in load factors and the increase in the installed capacity, the 2010 electricity output increased 32% to 14.4 TWh. Both europe and the US showed strong output growth of 33% and 30%, respectively.
The average selling price for EDPR in 2010 remained stable at €58/ MWh, even though still affected by the spot electricity prices in the US. the stability in prices along with the unchanged load factor, led to a 31% year-on-year improvement in Gross profit to 948 million euros.
The 2010 operating costs increased by 29% year-on-year, in line with the Gross profit growth leading to stable EBITDA margin at 75% and an EBITDA of 713 million euros (31% above the one for 2009).
Depreciation and amortization charges (including compensation of subsidized asset’s depreciation) grew by 36% in 2010 to 423 million euros, fully reflecting the mW brought into operation in the period.
Net financial expenses of 2010 were 174 million euros, 140% above 2009. This is explained by the increase in interest costs as a result of I) a higher net debt, in line with the ongoing growth program, and II) an increase in interest rates reflecting the wider spreads on the debt contracted since 2009.
In 2010, net income backed 30% to 80 million euros following the lower than expected top line performance, together with higher expenses associated to new investments
Capital expenditures in 2010 amounted to 1,401 million euros, of which 539 million euros in europe, 783 million euros in united States and 72 million euros in Brazil, reflecting the conclusion of the construction of 947 mW and the 649 mW under construction.
EDPR’s optimal diversification led to a 88% coverage ratio for the 14.4 TWh produced in 2010
2010 capex decreased 24%, comparing to 2009, as a result of the capacity growth deceleration. from the 1,401 million euros used in 2010, 895 million euros were related to building of new installed capacity, while 406 million euros were assigned to under construction capacity
In 2010, EDPR’s operations generated a cash-flow of 567 million euros, delivering a solid 45% growth year-on-year, clearly demonstrating the increased cash generation capabilities of the existing assets. Given the growth cycle of the company, capex levels remained above the cash-flow generation, leading to a net Debt increase of 715 million euros in the period. But it’s important to highlight that the operating cash-flow already covers more than 40% of the growth capex vs. 20% in 2009.
Strong cash-flow generation capabilities, +45% year-on-year
The following are the key cash-flow items that explain the 2010 cash evolution:
- Funds from operations, resulting from EBITDA after net interest expenses and taxes increased 23% year-on-year. interest expenses outpaced the EBITDA growth given the company’s growth cycle and an EBITDA hampered by lower than expected load factors and low US spot prices;
- Operating cash-flow, adjusted by net financial costs, non-cash items (namely tax equity revenues) and net of changes in working capital, amounted to 567 million euros (+45% year-on-year);
- Investing activities amounted to 1,486 million euros which encompasses the capital expenditures and financial investments adjusted by equipment suppliers’ working capital;
- Cash reimbursements from the US treasury received in the US in lieu of the PTCs, pursuant to the American Recovery and Reinvestment Act of 2009, amounted to 169 million euros (225 million dollars). all 600 MW installed in 2010 applied for the 1603 federal Grant Program, of which 400 MW received the cash reimbursement directly and 200 MW closed institutional partnership agreements monetizing both cash reimbursement and MACRS (which proceeds are not in this line);
- Net cash from institutional partnerships in the US amounted to 228 million euros mainly related to the sale of the remaining stake in the Vento III deal (141 million dollars) and the establishment of a new institutional partnership structure in Meadow Lake II (84 million dollars) and in Kittitas Valley (99 million dollars);
- Net cash financial interest costs were 104 million euros. The remaining P&L interest costs were accrued in 2010;
- Forex translation increased net debt by 102 million euros as a consequence of the US dollar appreciation throughout 2010 (Dec-10 vs. Dec-09);
All in all, the combination of operating cash-flow (567 million euros) and tax credits’ monetization (398 million euros) covered 69% of the capex amount
At the end of 2010, EDPR’s gross financial debt was 3,534 million euros, being 79% of it loans with EDP Group, which are made through a fixed rate for 10 years, while external debt with financial institutions is mostly related to project finances with a long-term profile. Debt with financial institutional increased 191 million euros related to the polish and Brazilian projects.
Net debt of 2.8 billion euros, equal to 4.0x EBITDA
Consolidated Net Debt achieved 2,848 million euros in 2010, increasing from the 2,134 million euros by the end of 2009, mainly reflecting the capital expenditures in the period. Cash and cash equivalents include 424 million euros of cash and equivalents, 226 million euros of loans to EDP Group related companies and 36 million euros of financial assets held for trading.
As of December 2010, 53% of EDP Renováveis’ financial debt was in Euros, 41% in US Dollars and 7% in other currencies, mainly Zloty and Brazilian real. EDP Renováveis finances in local currencies for investments in non-euro currency geographies, such as the US, Poland and Brazil, reducing its financial exposure to forex changes.
91% of EDP Renováveis’ financial debt was negotiated at a fixed rate, which mainly represents the financing agreements with EDP. EDPR follows a long-term fixed rate funding strategy to match the operating cash flow profile with its financing costs.
In order to fully utilize tax benefits available to EDP Renováveis in the US, the company structures partnerships with institutional investors, which may include one or a portfolio of wind projects. These partnerships create two classes of shares and allocate the tax and other benefits among the two classes: shares retained by the company are typically called “class a interests” and institutional investor’s shares are typically called “class B interests”. institutional investors make upfront investments in the structure and in exchange receive the tax benefits, a portion of the operating cash-flow and income generated by the relevant wind farms. the company retains the most of the operating cash-flow generated, as well as the day-to-day operational and management control.
Liabilities referred to as institutional partnerships in the US increased to 934 million euros in 2010 from 835 million euros in 2009 reflecting mainly the closing of Vento III in June, the establishment of a new institutional partnership structure for meadow lake ii (99 MW) in September and for Kittitas Valley (101 MW) in December.
Net debt of 2.8 billion euros, equal to 4.0x EBITDA
EDPR successfully established several tax credit structures in 2010:
- 141 million dollars were received in 2Q 2010 related to the closing of the Vento III nstitutional partnership structure with Wells Fargo Wind Holdings LLC. Vento III was structured in December 2008 for 604 MW owned by EDPR in the US, comprising the Rattlesnake Road, Pioneer Prairie and Meridian Way wind farms, on which 376 million dollars had already been previously funded in 2008 by JP Morgan, New York life and GE Energy Financial Services.
- 84 million dollars received in September 2010 related to the institutional equity financing from JPM Capital Corporation in exchange for an economic interest in the Meadow Lake II wind farm (99 MW). The institutional equity agreement provides the investor with access to the accelerated asset depreciation (MARCS) benefits and to the cash reimbursement.
- 99 million dollars received in December 2010 through the Banc of America Capital Corp in exchange for a partial interest in the 101 MW Kittitas Valley wind farm, in the Washington State. The institutional equity agreement provides the investor with access to the accelerated asset depreciation (MACRS) benefits and to the cash reimbursement.
NET FINANCIAL EXPENSES
Net financial expenses reflect mainly financial interests in loans with EDP Group and bank loans, and accrued costs with the institutional partnerships liability.
The financial costs were 174 million in 2010, from 72 million euros registered in 2009. This evolution reflects the increased interest costs from a higher net debt, in line with the ongoing growth program, and the interest cost evolution reflecting the wider spreads on the debt contracted since 2009. interest costs associated to the construction of the wind farms are being capitalized.
December 2010 average interest rate was 5.2%, above the 4.8% registered in December 2009 reflecting the long-term duration profile of debt and the wider spread on the debt contracted since 2009 in line with current market prices.