Updating the company's strategy will imply selling assets to achieve shareholder return targets, reduction of debt and reinforcement in the renewables sector. CAPEX expected to reach 12 billion.
EDP wants to withdraw three billion euros until 2022 to compensate its shareholders. About two billion will be used to reduce the company’s debt while seven billion will be targetting investments, according to the strategic plan’s update for the next three years, which was published on Monday, a month after the Elliott fund proposed to EDP’s management a series of growth measures as an alternative to the takeover bid of China Three Gorges (CTG).
“We will allocate our funds to support attractive shareholder remuneration, deleveraging and significant growth,” the strategic plan sent to the Securities and Exchange Commission (CMVM) on Tuesday, showed. Since 2005, the electricity company has delivered about eight billion euros in dividends.
The goal is for the dividend not to fall below the current 19 cents line, which was the value delivered to shareholders for the 2017 fiscal year and what the company announced this Monday that it will propose for the 2018 fiscal year, despite the drop in profits. The payout ratio – which EDP anticipates will grow at an annual rate of 7% and exceed € 1 billion in 2022 – will stand at 75% and 85%, meaning it will get 10 percentage points above the previous target.
Regarding the net debt of the electric company, António Mexia’s target is to drop it to 11.5 billion euros, from the current 13.5 billion euros. This amount, which refers to the end of 2018, was known on Monday, and it already represents a decrease of 3% over the previous year, thanks to “an increase in international operations cash flows and the sale of tariff deficit in Portugal”. The debt-to-EBITDA ratio, now fourfold, may fall by as much as threefold.
Six billion euros coming from disposals and asset rotation
To achieve these goals (shareholder compensation, debt reduction, and growth), the electricity company will get financing through “portfolio optimization,” as the strategic plan shows. “We will generate more than six billion euros in sales revenue to reinvest in renewables and strengthen the balance sheet.” The turnover of assets could generate more than 4 billion euros and divestitures could lead to two billion euros in profits, bearing in mind that EDP wants to reduce its exposure to Iberia.
The opposite is to happen in the renewable energies, as EDP plans to reinforce this sector. The CAPEX forecasts until 2022 go up to 12 billion euros, with a special focus on this segment in North America (the US and Canada) and Europe. In annual terms, it will grow 60% to 2.9 billion, from the 1.8 billion estimated in the previous plan. 75% of the value of CAPEX is already ensured and the rest is being negotiated.
7 billion euros will be allocated to Investments in renewable energies, accounting to 75% of the total investment. Within three years, EDP expects renewable energy to represent more than 70% of its energy generation, while it represented 66% last year. Of the remaining amount, about 20% will be allocated to distribution networks and the other 5% to customer solutions.
At the same time as the document was sent to CMVM, CEO António Mexia is presenting the plan to investors, analysts and journalists in London.
EDP’s shares reacted positively on the Lisbon stock exchange. At 10:45 a.m. the company was rising 1.25% to 3.31 euros, five cents above the counterpart offered by China’s Three Gorges China in the takeover bid. Wind power adds 0.58% to 8.675 euros, up from 7.33 euros the Chinese group had offered.