Acciona SA

MAD:ANA

Earnings Call Transcript 2019-Q4

[José Manuel Entrecanales, Chairman and Chief Executive Officer]

Thank you for attending the results presentation of 2019, which you have probably been seeing in our release this morning and last night with results. Let me start by reviewing our performance relative to the financial targets we set ourselves a year ago.

I’m pleased to announce that, we have met or exceeded our own guidance. As you can see, reported EBITDA was up 9%, better than the flat to mid single-digit growth outlook. On a like-for-like basis, our EBITDA grew by 13%, exceeding a high single-digit growth guidance.

Regarding the ordinary profit, we said double-digit growth, the result was a 60% growth. We normally do not interpret 60% as double-digits within the guidance. That is guidance anyway. As for dividends, the Broad has proposed, that was ordinary I must clarify, everyone is aware of that, ordinary profit.

As for dividends, the Board has proposed a dividends of €3.85, which implies at 10% growth in-line with our guidance of double-digit growth. Regarding CapEx, we have invested a total of €1.2 billion relative to our target of €1 billion, taking advantage of some additional attractive opportunities and setting the pace for future growth in the coming years.

Finally, we have maintained our net debt-to-EBITDA ratio below four, as we guys did, which we believe to be a proven to leverage given our long data visible cash flows that derived from our large asset fleet and our portfolio of O&M contracts.

I always like to remind that this debt level includes a significant portion of investment that is not yet operative, work-in-progress, which gives us an additional buffer in terms of ratio, should we consider only the performing wholly operating assets, operating investments.

Now I would like to highlight some of the key events of last year from my view. On the energy side, the acceleration of the Spanish Renewable Energy sector brings significant development opportunities that contribute to us 13 gigawatts global pipeline. I will develop on that later. While our total installed renewable energy capacity broker through the 10 gigawatts mark.

In infrastructures, 2019 was successful year as we executed on most of our large energy EPC contracts. As you may remember, we have five major contracts, four of which have been - are close to completion.

We also achieved record backlog levels, and I think it is worth mentioning that, we consolidated our leadership position in reverse osmosis is the water sector. And in Australia we acquired, I would say somewhat opportunistically a portfolio of projects from Lendlease Engineering which allow us to accelerate our plan in the region and the region becoming ACCIONA’s largest international market for construction and under infrastructure.

All-in-all, I would say it will become a large international market. With respect to the ATLL, and we will be discussing that for like four years now. The early termination of the concession, we have managed to monetize our litigation while retaining significant upside.

In the real estate activity, we continue to see very attractive opportunities, particularly in partnerships with global financial investors, who often lack the footprint, the local footprint or the Greenfield skills and the execution capabilities and to whom we are a very useful partner as we help them develop their own investment objectives.

In Bestinver, we reinforced our position as the leading independent financial firm services from in Spain with a goal to continue to widening our range of products and expand our client base. But overall, I would like to mention the consolidation of the smart infrastructure sectors, infrastructure in the wide sense of the word, so including all sorts of infrastructure naturally energy also.

So when I say smart, I’m using it as an acronym for the infrastructures, which contribute to sustainability, mitigation, adaptation, resilience and transformation. Then, smart infrastructures will enable the transition to a low carbon economy and will contribute hopefully to show some of the humanity’s most daunting challenges, waste, mobility, water, housing, social infrastructure and all the other needs.

This trend is increasingly resonating with investors who growingly see ESG, which would be proxy not only as a defensive strategy, but also probably more even so, as a growth opportunity. We are in a unique position for grasping these opportunities, possibly as a sign of the evolution of our stock lately and by all means , our record CapEx this year €1.2 billion, 10 gigawatts of installed capacity and we see back flow of €8 billion.

That is all, I think signs of a healthy moment for our strategy. Our backlog of €8 billion, we will see later, we will go up to €11.1 billion I think, if very advanced contracts finally crystallized such as the Line 6, Paolo and the finalization of the Lendlease acquisition.

Taking a closer look at growth potential embedded in ACCIONA’s business. It is worth mentioning that, we are expecting a step change in the rate at which we add new renewable energy capacity. I believe we are entering a new phase within the energy transition in substitution market as well as an addition markets.

You are aware the substitution market would be those who have most of their and generation associate discovered and addition market would be those who need to add new energy, new capacity to cover demand. The treatment of the tool types of market is entirely different as one probably entails.

The first one mostly entails retirement of legacy generation capacity and the other one can take the leap frog and jump onto third generation in a faster pace. The energy transition is being moved among other reasons by sheer competitiveness of wind and solar. And of course, by policy efforts to curve, climate change. This translates into a major window of opportunity of I would say at least 10 years, for which we are in a very privileged position.

We have significant advantages such as geographical reach, agility, experienced technical capacity, operating excellence, and broadly recognized commitment to decarbonization and social progress of the places, where we are lucky to work in. We will continue to focus on less crowded, non-commoditized segments of the market.

In this context, we expect to double the pace of capacity additions over the next five years to around one gigawatt per annum. I would say to be on the safe side 0.8 gigawatts to one gigawatts. This translates into a projection of about five gigawatts of incremental capacity by 2024, split 50/50 approximately between wind and solar, reaching by then 15 gigawatts of total capacity and obtaining CapEx of approximately €4 billion.

In terms of returns, we are targeting in excess of 200 basis points above the risk-adjusted weighted-average cost of capital for each particular project, and we believe that is sustainable. This growth is supported by 13 gigawatts of pipeline, in which nine gigawatts are in an advanced development stage and 4 at an early stage.

Our improved visibility is driven by the acceleration of our development pipeline in the Australian market. Our success and PPAs in Latin America and Mexico and Chile mostly, Tenaska solar PV pipeline in the U.S. and that should reemergence of Spain as a growth market.

Having said that, as has always been the case, our Rodovia riding priority will continued to be value creation together with proven leverage and not capacity growth in itself. Hence, the actual level of capacity additions will depend on market dynamics as always has in a core regions naturally and the competitive environment, return expectations and a competitive mechanism of capital allocation within ACCIONA.

Turning to grow in the EPC business, I have already referred to the growing demand for smart infrastructures, sustainable mitigating adaptive resilient transforming infrastructures and our strong positioning in this market. Greenfield development is the DNA of ACCIONA and has been a profitable skill for over a 100 years of history.

However, not only it is a profitable business, when carefully managed that is despite this undisputable volatility I believe we know that, it is also a unique tool for generation of investment opportunities in the infrastructure market, which as you all know is a very scares capability, very demanded capability nowadays.

The EPC market is undoubtedly very competitive. However, I sense positive signals of rebalancing of risks in the activity given the lower number of players, the clients increasingly realizing that contract structure needs to improve in order to deliver satisfactory long-term outcomes for taxpayers and citizens.

Our current construction and water EPC backlogs stands at €8 billion, close to peak levels, and most likely we will see significant further growth with Line 6 project - and the Lendlease Engineering pipeline acquisition, once they fulfill their respective conditions present.

We have a large balance and well-diversified portfolio of contracts, which give us excellent revenue visibility for the next 24 months, most likely 36 months, if we crystallize goes through contracts as I mentioned. And I believe the nature the diversified nature of this portfolio. In most cases, they are slightly less size of contract as the past, say five years give it a better risk profile.

In the context of reacceleration of our growth for the next year, we are envisaging a total CapEx of about 1.5 billion, of which two-thirds will be directed to growing our renewable energy business.

Additionally, we will invest in Line 6 and other contestants will pay a portion of deferred consideration for the Lendlease pipeline, and we will grow our shared mobility business. In real estate, we will continue to invest to deliver the current pipeline and aim to further development of our strategic partnerships with global financial investors and as a key local partner.

In order to capture the growing flow opportunities at the same time maintain proven leverage we will accelerate capital recycling and being to rotate 500 million above 500 million worth of mature of yielding assets.

I would like now to draw your attention to the recently published European Union taxonomy or low carbon activities. The taxonomy will become a key driver for investment decisions and capital allocation. I think the market is already starting to wake up to it and in fact, it is expected to become compulsory in the Union by 2022.

In addition, there is a growing expectations that other countries in the economic regions outside the union will link himself to this taxonomy. As you are aware, the taxonomy is a classification of industrial activities that make substantial make significant or substantial or contribution at least positive contributions that is to plan the change mitigation in another patient.

The Union has designed it as a critical tool to help direct investment flows. Two sectors there are instrumental to achieving its environmental and climate targets. As I feel now, we are proud to lead the to lead the early adoption of a taxonomy by undertaking we have undertaken, undertaken and completed an auditor verified analysis of our own alignment to the taxonomy.

As should be expected after decades of strategic focus on sustainability. The results of such analysis is that we are firmly placed at the core of the low carbon transition with 83% of our EBITDA and 94% of our CapEx falling within the taxonomy standards.

It is a clear signal to our clients, capital provided and other ESG-conscious stakeholders that the majority of our activities contribute to the transformation of society towards a more sustainable model. These are activities poised for a strong road unless exposed to transition the disruption risk. The taxonomy underscores ACCIONA’s first sustainable solution business model.

I believe our strategy providing successful and the market up to today have increasingly recognizing our strengths and growth potential. And as you all already probably know, our total shareholder return over the last five years stand at 18% compounded, and that is significant compared to Index, which has a compounded growth of 2%, that would place as among the top four or five total shareholder return in the Index.

Before handing over to Jose Angel Tejero, Group CFO, let me share our guidance for 2020, most people you came here for today. EBITDA on a like-for-like basis, we expect a flat to single-digit growth with energy growing and infrastructure reducing its contribution, mainly because of the non-recurrence of the 2019 Sydney Light Rail settlement.

We expect high single-digit growth in ordinary net profit and we target moderate sustainable growth in the dividend. As I have already mentioned, total CapEx net of asset rotation is expected to be at around €1 billion and we naturally remained committed to the leverage ratio of below four.

As you can see and assuming recent microeconomic health - and don’t derail these plans. We have what appears to be is another strong year ahead of us while continuing to lay the basis for solid growth in the future.

Thank you for your attention after Tejero’s intervention, we will take questions. Thank you very much.

[Jose Angel Tejero, Chief Financial Officer]

Thank you so much. I would like to start reviewing the key financial metrics of the Group. Revenue reached us into €1 billion and our revenues are down almost down 10% and EBITDA revenues for third-parties as well as lower hydro output and disposal of thermal solar fleet in Spain.

Infrastructure revenues with flattish and the other business - the sale of [indiscernible] last year - a year before. I’m sorry. When looking at EBITDA, the comparison with this year is affected by significant changes in perimeter and the first implementation of IFRS 16 despite increasing adjusted EBITDA by 93 million.

The perimeters changes are related to the early termination of ATLL early in 2019 and the disposal during 2018 of the thermal solar business in Spain, as well as [indiscernible] construction in Brazil. All-in-all reported EBITDA grew by 9%, while on a like-for-like basis growth rate is higher at 13.2%.

Energy grew its EBITDA by 13% like-for-like visibly or high investment activity, partially offset by lower output in Spain. Infrastructure EBITDA grew 0.9% and 18% on a like-for-like basis, thanks to the supplemental [Sidney] (Ph) accelerating whether it is activity, why the maturity of big five construction contracts conservative to lower levels of production.

Reported earnings before tax and net profit are up by 7% reflected EBITDA growth, lower amortization and financial charges, and better equity accounted results. And despite the significant capital gains in excess of 100 million last year related to the disposals. In fact, excluding these capital gains net income is up by 60%, which is in the view an excellent result.

In terms of CapEx for the year it amounted to 1.2 billion relative to 1 billion total investment last year. As a responsibility in year 2019, were not significant in contrast to the last one. Net financial debt before IFRS adjustment grew by to 4.9 billion from 4.3 billion the year before.

IFRS 16 add 402 million to the net figure so that the reported net debt figure amounts to 5.3 billion. Net-debt-to-EBITDA including IFRS adjustment which is slightly detrimental to the ratio is up 3.92 and remains consistent with our leverage targets.

Looking at activities the sense of risk profile and capital intensity, you can see that the company’s EBITDA and capital employed continue to be re-dominated by long-term cash flows generation assets with a really strong component of contracted revenues.

In 2019, the weight of long-term assets business at the media level is to the close to 70% of the total. It fell relatively to 2018 given the early termination of 51 concession, but also the contribution of the game developing activities of future with a positive contribution of the [indiscernible].

Capital employed, excluding the equity accounted investment weeks eight billion reflecting high investment in energy and concessions in particular, and the long-term assets continue to represent more than 90% of the total.

Looking at the detail of our investments for growth in 2019 CapEx for new renewable energy capacity amounted to 509 million energy CapEx correspond to products in Chile, U.S., Mexico, and to a lesser extent.

As of December 2019, we had 835 megawatts under construction relatives to 685 megawatts as of September 2019. In addition which described an undiscovered increase for 99 million. With regards to infrastructure investment we reached 372 million with the biggest [indiscernible] 281 million for the Sidney concession followed by the equipment infrastructure business and also the investment in our growing mobility business in Spain.

Within [indiscernible], we saw our stake in this very short concession for 20 million. The net investment in real estate business amounted to €210 million, including the one-off landmark Mesena in Madrid, which will be Acciona’s future headquarters.

In terms of cash flow, our net debt evolution Operating cash flow amounted to €899 million relative to €665 million in the previous year, thanks to the high EBITDA, lower net debt interstate and better working capital. Net investment of €1.2 billion in 2019 compared to a positive in flow in 2018 of €398 million, including shares, driven by the €1.4 billion of divestments.

The movement of net debt also reflects the payment of the remaining which accounted to €192 million, relative to €172 million a year before. All-in-all operating cash flow cover around 60% of the combination of investment and dividends. And our net debt-to-EBITDA ratio stays below four as already mentioned.

Net debt related to work-in-progress not generating EBITDA has increased to just over €900 million relatives to around €600 million a year ago. Excluding this work-in-process net debt-to-EBITDA ratio will be at 3.3 times.

With respect to the individual components of the debt as of December 2019, the structure is largely unchanged. As mentioned that our debt continues to fall in both relative and absolute terms. It represents a 25% of gross debt in 2019 and now stands at 20%.

I would like to note that, gross corporate debt and the cash position at the year-end distorted by the requirement we have to sit aside €308 million as part of the regulatory requirements to demonstrate certainty of funds in the context of the Nordex then thereof. This cash deposit was cancelled in early January of our 1.44 by revolving credit facility.

Moving on to the key indicators of our debt to liquidity position. We present here the finger suggested to screw the Nordic center offers starting effect. Here, I would like to draw your attention on our average cost of debt that continues to decline.

We continuously strive to further strengthen also our funding structure to fit the needs of our international footprint, increasing our access to our alternative use of capital with more efficient cash management and lowering cost and model overall.

To review our 2019 our permitting activity in the commercial space in ENTL and bilateral markets, we have closed 1.31 other three financing transactions, including $400 million Australian dollar, 677 million [indiscernible] loan and 155 deals were signed in the German market among other. The average terms of these transactions has been five years.

2020 is a year with a limited underlying in maturities and our cost front rolling of commercial paper by [indiscernible] banks loans and grid lines. And the annual maturities of the project mix that ourselves cash flows. We will continue to take advantage of our very strong ESG intervention and stick to continue to move between 60% to 70% range off the turn in terms of floating vessels fixed, in terms of our total force.

Turning now to the performance each of the individual businesses in more detail. Let me start with the energy business. Revenue fell by 9.5% mostly due to the fact that last year we had significant EPC revenues related to total EBITDA period plan in Mexico, of which we own 50% as well as the sale of the Spanish thermal solar portfolio, a lower higher output.

EBITDA grow to close by close to 14% to 845 million, and by 13% on a like-for-like basis. The CSPC in the earlier part of 2018, in fact of the comparison by a negative 29 million, while they adoption of IFRS 16 under 39 million. The acceleration in the rate of new capacity installation also has allowed for the social of the development costs.

The spinning generation business fell by close to 2% in EBITDA terms to 433 million with a sales of CSP and lower output as the largest drivers. As [indiscernible] output fell by 5% relative to the previous year, I think almost 3.5% percent below what we consider to be a normal year.

Higher output in particular was 17% lower than the 2.1 terawatts hour average year on following a very good year in 2019. Where we generated almost 2.6 terawatts hour. In terms of prices in year 2019, the average food price fell by 17% in respect to 2018, down to 47.7 megawatts hour which was -.

I’m sorry, these decline in market prices did not have a major impact in our ACCIONA, we’re fully hedge in 2018. That did not allow us to capture the [indiscernible] in power prices from its below worse driven by carbon prices.

However, on the contrary, in 2019, we have close to two terawatts hours equivalent to 40% of our non regulated volumes, at prices close to 58 megawatt hour, significantly above the €48 megawatt hours at this price, translating into a pickup in our average price release.

All-in-all, I’m taking into account the regulatory incentives. Our average price for this Spanish business stays flat at around €73 megawatt hour, if we exclude the total impact of the disposal of a thermo solar assets in the spring last year. Looking at the international generational assets EBITDA increased by 14% to 435 million thanks to new capacity with 32 million of incremental EBITDA.

In terms of output for existing international fleet 2019 has been a year of low resource as well as also replacing 2019. Excluding the contribution of the new assets international output was 9% below our expectations with Mexico being particularly with.

In terms of 2020, expectations as we mentioned we expected growth in EBITDA in the energy business. This should be driven by the contribution for new assets, better output from existing assets compensated impact, by the impact or the delivery regulatory update in the spend.

We put the track around 50 million of the current proposed calculations we put a tracker around 50 million, and lower prices in the space. That will price in the same 2020 on the basis of actual price is expected to be in the low 40s.

In terms of our hedging position, we have so far has sales around 1.7 terawatts per hour and equivalent to close 40% of our non-regulated processes our prices was around €53 megawatt hour.

In terms of new energy capacity. In addition to the 471 megawatt selected in 2019, as of December we have 835 megawatts under construction. And there are another 301 megawatts of already approved projects that will start construction during the current financial year. Giving us 1.1 of absolute short-term disability.

The majority of these devices correspond to our current big four markets of U.S., Mexico, Chile and Australia, and we will start our first two plays within the new wave of investment in the Spanish market.

Moving briefly to infrastructure, as most of the key developments having already addressed revenues were broadly flat and EBITDA grew by 2.9%. On a like-for-like basis, EBITDA growth was 18% excluding the Sydney settlement and accelerating lower ESG activities.

While we are doing big size construction contrast contributed lower level of selections. These big five project represented between 40% to 45% of the structural revenues for the 2017 and 2018. As these project mature 2019 was close to 30% in terms of revenues.

The water business was affected by the early termination of ATLL, which contributed €94 million of EBITDA in 2018 and only €9 million this year. At ATLL the water business EBITDA grew from €19 million to €57 million.

With respect to the infrastructure backlog, the total backlog stands at €11.4 billion out of which €8 billion corresponds to construction water EPC. [indiscernible] reached record levels of €5.7 billion.

[indiscernible] plan in the UK for almost €500 million is the dissemination plan in Saudi Arabia for €400 million, a bridge replacement project in Canada for almost €350 million and another grade project in Norway for another €300 million. We get anywhere between 100 and 250 concerts in a year in construction alone. That allows us to be well diversified in terms of contract size.

Turning into other activities of the Group. Property development EBITDA grew from €9 million to €20 million. We delivered more than €500 units this year. This activity remain net investment phase, although the deliveries are gradually starting to pick up. The gross asset value stood at €1.1 billion, the vast majority of it, which will be generating revenues over the next five years.

And finally, reported EBITDA of €62 million, which is €10 million lower-than then the previous year on a slightly lower average funds under management and different product mix. Funds at year-end increased from 5.5 to 6.8 mostly on performance, and also with the addition of finance funds under management following the condition of the transaction in Q4.

And with that, we go conclude the presentation and [indiscernible] if you would like, we are ready to start -.

[José Manuel Entrecanales, Chairman and Chief Executive Officer]

We will take the questions. We will start with the floor.

[A -José Manuel Entrecanales]

We will take questions from the floor. Is there a microphone please? Yes coming. If we could have two microphones. I asked the floor is going to be easier but when we get the questions on air it becomes somewhat difficult to understand. So, kindly be try to be as clear and loud and slow as possible reasonably possible.

[UnidentifiedAnalyst]

I just have three questions. First one [Technical Difficulty] I was just wondering whether you are 500 million of other resources you would also consider potentially this product of the energy division from the distance we use interest normally for its full capacity but potentially for pipeline, other phrase are here.

[José Manuel Entrecanales, Chairman and Chief Executive Officer]

Now, I would also like to ask to limit your number of questions to three, because I mean, it is not only it is takes - we will manage to address more questions, but also because it is difficult for us to retain and we will try to answer all your question.

Starting from last. No, the answer is no. We are conducting analysis on how to - what is the strategy and services. That is all. Nothing firm to be to be explained yet. As for Spanish, Spain 2024 expected contributions to the 5G.

[Jose Angel Tejero, Chief Financial Officer]

25% of the growth should be in Spain it really depends on the next - but we are preparing it because 25 in the Spain. And for price, we believe if we do not disclose what our target price for budgeting is.

However, we are now seeing somewhat lower prices as we are seeing lower prices in the year as you all know is somewhat complex to budget among other regions which are kind of more reasons. We did the not know what the effect of the virus will be in prices. I mean, they will have some effect I suppose.

The first part of your question was base for the guidance, yes. The answer yes, 352 rate was -. Next question. Here, please.

[UnidentifiedAnalyst]

Hello, [indiscernible]. Nice quarter and congratulations for the result. And so, thank you for the presentation. I only have one question in regards to I think that last fiscal year, you told the guideline of four times. But, for the coming years, I would like to know if you very mind to go for alternative financing or you are willing to keep continuing with the current process.

[José Manuel Entrecanales, Chairman and Chief Executive Officer]

The first part of your question was on leverage on EBITDA to -.

[UnidentifiedAnalyst]

Four times and I would like to know.

[José Manuel Entrecanales, Chairman and Chief Executive Officer]

Below four times.

[UnidentifiedAnalyst]

And for coming year to keep that level in general as you bear in mind to keep the current sources that you have in mind as you go for alternative financing.

[José Manuel Entrecanales, Chairman and Chief Executive Officer]

I suppose you would be returning to convertibles or equity, because all the other sources would be the same ratio and wouldn’t change the ratio, not in the immediate nothing in planned as of today. Thank you.

[UnidentifiedAnalyst]

Thank you. [indiscernible] from Royal Bank of Canada. Three questions. Well, could you provide a breakdown of IFRS 16 impact in the depreciation and finance side et cetera? Second question given the overall investments that you have mainly in energy, could you provide, what is your expectation of a weigh of EBITDA in energy and conversations by 2020 for? A last question you are talking now already about 2020 hedge position. I would like to know a little bit more about your very strong supply position, your associates, markets. So, how are you now thinking going forward? Thank you.

[José Manuel Entrecanales, Chairman and Chief Executive Officer]

Okay. Let me answer it to what I cannot answer, which is our 2024 business split, because we did not provide guidance at four year time span.

[Jose Angel Tejero, Chief Financial Officer]

As IFRS 16, the impact on automatization has been minus 76 on the financial charges minus 22 compensated by an increased EBITDA of 26.

[José Manuel Entrecanales, Chairman and Chief Executive Officer]

And I’m not 100% sure I understand what you mean by natural hedge we have full hedges and we have about 81% in total in total generation covered by either regulatory coverage or other types of coverage 81% of total portfolio, 87% of the Spanish generation is covered that is in we are talking in revenues. To have ours will be different. But in revenues it is 87% and there is a mixture of regulatory assets and medium term hedges contracts. There is a question.

[UnidentifiedAnalyst]

Yes. And that percentage is going to explain at that level?

[José Manuel Entrecanales, Chairman and Chief Executive Officer]

Our aim is to maintain globally at least the maximum possible of 80% under hedged conditions or subcontracted conditions. Now, what happens is that often we undertake a construction of the plant without a PPA for example, within a market which is not regulated and the PPA comes later.

So, there may be some variations in the level which may not be always at the 80% level that is targeted, but in general, in the medium term, we will stay at that level, we will attempt to stay in that level. If we were to go beyond that level, then we would probably start reducing our execution, our new capacity implementation, if we were to go somewhat significantly below that level. Would you want to add something Jose.

[Jose Angel Tejero, Chief Financial Officer]

Yes, today we have 80% of our revenues are secured by contracts over the relation and to maintain this 80% of the revenues, secured for the long-term.

[José Manuel Entrecanales, Chairman and Chief Executive Officer]

But the main margin reflected.

[Jose Angel Tejero, Chief Financial Officer]

This is our optimal level of hedge.

[UnidentifiedAnalyst]

Hello [indiscernible]. Just two questions. One is about the, you are coming back to the Spanish market in terms of investment in renewables. How you see the markets evolving in the coming years in terms of installation and power prices. You are more confident today in this market in terms of the profitability you highlighted before. And the second question is about the ESG exposure of these very high levels and you are you have access now to the financing of the green bonds and what kind of advantage are you seeing in this kind of financing versus the conventional financing in terms of costs that you can quantify if possible? Thank you.

[José Manuel Entrecanales, Chairman and Chief Executive Officer]

The first question was the Spanish market. What percentage gross. our gross and power prices so you are basically referring I suppose to the underlying concern of excess installation affecting prices.

Yes. It is indeed a concern that we share. However, we believe the market will adjust and if that concern starts becoming a tangible reality, we believe that, the new escalation pace will reduced. At this stage with the present regulation, I think, it may be somewhat hard to attract 60 Gigawatts of installed capacity that are required for the [indiscernible] national plan of climate and energy. So yes, it is something that we have considered within our planning efforts. And as for your second question was ESG. I don’t seem to see much honestly.

[Jose Angel Tejero, Chief Financial Officer]

I think ESG financing is not reflected in better prices. I think that the future going to be an element of liquidity on binary. There are certain types of products that are actually never seeing any financing, because they don’t have a either a green characteristics or ESG characteristics. So, it is an element of market turning to type assets is going to be enabled to be financed by the material or not. And obviously we think we are in the right side of that market.

[José Manuel Entrecanales, Chairman and Chief Executive Officer]

I mean it is difficult to quantify because, there is an effect of obviously effect of supply demand, and we are in high demand, which in turn I suppose induces to better financing costs, but it would be very difficult to quantify how much of that is attributable to ESG, attributable to a somewhat better outlook for the company. What I feel now, for the investment capacity in renewables, there is also it is difficult to quantify. Okay. I don’t see any hands up. So, turn to the online questions.

[Operator]

Thank you. [Operator Instructions]. Our first question today comes from Manuel Palomo of Exane BNP Paribas. Manuel, please go ahead.

[ManuelPalomo]

Hi. Good morning everyone. Thank you for taking the questions. I will stick to two in the first turn. So, first one would be, on the excellent performance, I would say, of the generation of the energy EBITDA in the first quarter. could you please explain the significantly increase in EBITDA margin for the energy division, the fourth quarter that jams from an average of 50% EBITDA margin in the nine pounds to 75% into Q4? Is this due to the IFRS 16 changes or could you please quantify that impact? That would be my first question.

And second one, well it is a bit of a detail on the guidance. I have seen this, one of the of the new things that you are expecting is to do a number of divestments in the year 2020. And I wonder whether I could go with Jupiter some sunlight on your assumptions regarding those divestments in terms of associated EBITDA dilution and capital gains and whether these will be considered as ordinary or not ordinary? Thank you.

[José Manuel Entrecanales, Chairman and Chief Executive Officer]

Okay, and for the second question, we are referring mostly, we are focusing mostly on mature infrastructure concession assets and there is no in our guidance there is no extraordinary consideration in terms of bottom line.

But, of course, there is some degree of consideration in the reduction of the scope of EBITDA that could be attributable to this sale of this asset. So no, no capital gains. Yes. Marginal reduction in EBITDA derived from the sale of these assets.

[Jose Angel Tejero, Chief Financial Officer]

On the first question the EBITDA margin for the generation in Q4 has been 75% the impact of IFRS 16 in energy in the fourth quarter has been 26 million.

[Operator]

The next question comes from [Michael] (Ph) [indiscernible] from Bank of America Merrill Lynch. Your line is open.

[UnidentifiedAnalyst]

Hi good morning. Thanks for taking my questions. Just two please. Could you maybe comment a little bit more on how you plan to fund your CapEx growth to 2024. Seems like capital recycling is going to be important in 2020. What should we expect more of these beyond this year please. And the second one is on Corona Virus. So, do you see any impacts on operations either in your capacity to deliver construction projects on time on budget or maybe from the generals supply chain not being able to deliver or there is some time, and how much of that is embedded or captured in your 2020 guidance? Thank you.

[José Manuel Entrecanales, Chairman and Chief Executive Officer]

Okay, let me take the second question. We have done as you could imagine, the degree of analysis that one is that we are capable of thorough analysis. But as you can - suppose, it is a somewhat difficult analysis to make and what we expect in terms of CapEx and our capacity to deploy our expected target to meet targets in terms of installations.

We only see one, we only have on plant in Chile, which requires delivery of PV equipment, which may be a delayed. We do have some positive news in terms of restarting the production in China. But as you can imagine that, I wouldn’t mind, I don’t know. I mean, that is just news. So, that is just limited to this plant.

We can have some impact on some EPC water project and desalination equipment. We can’t yet quantify, but for this year, all other factors remaining equals, there is no signs of significant concern. So, that is where we stand now. Things are changing fast so, they can change for the better or naturally can change for the worse. We will keep an update about it.

Fund capital in the next five years. No, the budgeting is done without the need to rotate asset for funding the growth. However, we are somewhat opportunistic in this particular side and if we see that the opportunity arises and that it is convenient for any reason, do not be surprised if we were to sell assets.

And on the construction side, we are normally, as you know, more down to the rotating the assets on the infrastructure construction side, among other reasons, because the cycle is longer, the construction cycles longer. So, there would be the opportunity, if we find the opportunity, we may.

But, no, is not assumed what may be the case is that, we join up with partners and the KKR process is maybe helping us on that in the sense that KKR is analyzing possible interested parties for their acquisition, including ourselves at least partially, and that would bring in a very close partner who could be joining us in sharing some of the investment in new projects.

[Operator]

We now have a question from Oscar Nájar from Santander. Oscar, please go ahead.

[OscarNájar]

The first one, I would like to reconcile two things. The Slide six and Slide number 20. With the gigawatts that you are expecting to be earning the following years, your intention is to build one gig per year 2020 to 2024 in the Slide 20 you expect the commissioning is 1.1 gig yes for 2020 and 2021. So, first are you planning to accelerate construction in 2020 to 2021 in Spain, USA and [indiscernible]. And the second will be if not are you planning to be more than one 1 gig began 2022.

And the second question is regarding the CapEx. You said 1.5 billion growth this year 1.5 is for €1 billion is for. But this one billion seems a bit high compared with a 1.1 gig for next couple of years. I didn’t mean, disposable comment that you made about KKR as well or you just pure organic growth. Thank you.

[Jose Angel Tejero, Chief Financial Officer]

-13 about the difference between this Slide six and Slide 20. That EBITDA is the Slide six is that we are into growth by one gigawatt per year from now to 2024. And in the Slide number 20, we are talking about the megawatts that we are having today under construction and explaining which is in 2020, which is in 2021.

Yes to add one gigawatt per year we need to have in our hands something around 1.5 because it is not a clear growth strategy it is not yet 12 months not. So this is potentially the lack of figures. This is about the question one.

[José Manuel Entrecanales, Chairman and Chief Executive Officer]

And your first question. I think the short answer is that KKR is a possibility, but it is not the only possibility, there are a number of other cases where we have partners, which, in fact, we can buy and that would gap, your question gap the difference. Next question please.

[Operator]

We are now finished with the questions in the English room. We have no questions on the Spanish side. I will hand back to you.

[José Manuel Entrecanales, Chairman and Chief Executive Officer]

Well, thank you very much. Thank you.