Ignacio Galán – Chairman & CEO José Luis San Pedro – COO José Sáinz Armada – CFO

Carolina Dores – Morgan Stanley Virginia Sanz – Deutsche Bank

Good morning everyone. Thank you very much for your interest in IBERDROLA. We'd like to welcome you to the presentation of the results for the first semester of 2013. The event is structured in a similar way to previous events. We will first begin with a review of both the results and the main highlights in the semester by the Chairman, followed by the Managing Director and the CFO. After this we will continue with questions and answers and we will first take the questions from the room, then we will have the questions received via the web and we will end up with the questions over the telephone. Since sometimes the quality of the telephone isn't ideal, we suggest that you use the website for the questions to prevent possible interpretation errors by us. The presentation will last between 75 and 90 minutes. Before starting with the Chairman's speech, I would like to announce with a certain amount of pride the launching of the APP in the relationships with IBERDROLA investment. This is a tool to access the company's financial information adapted to iPad, iPhone and Android devices in Spanish and English, which is available to be downloaded via the various app shops. You will be able to know the share value, have relevant news and information on the company, access the usual investors pack as well as results videos from Investors Day et cetera, a real-time followup of our presentations, information on dividends and you will also have access to the events schedule related to investors held on a monthly and quarterly basis. In the presentation that we've handed out and sent out via mail, you will see that there is a slide that has been repeated three times. It's not a printing error, it's a requirement of José Luis San Pedro, our COO as a matter of maintaining the flow of the presentation. In others words, it's not a mistake, it's been done on purpose. And finally, I hope that you will find this presentation useful. Without further ado, I'll hand the floor over to our Chairman and CEO, Mr. Galán. Thank you very much. Ignacio Galán: Good morning everybody. As usual, many thanks for attending this results presentation. And as usual I have with me today José Luis San Pedro, the Chief Operating Officer and José Sáinz Armada, the CFO. And today's presentation will be divided as follows. Firstly, I will briefly describe the main highlights of the period, the first half of the year and then the Chief Operating Officer will later comment on the details of the recently announced regulatory reform in Spain. And next, José Sáinz Armada will analyze the profit and loss account in detail and give a quick overview of the Group's financial position. And finally, I will draw a number of brief conclusions, after which we shall be pleased to answer any questions. Group performance throughout the first half of the year has allowed us to offset the impact of the sharp increase in levies during the period, mainly fiscal measures for energy sustainability in Spain and energy efficiency programs in the United Kingdom. Thus, the recurring net profit rose 2.8% to €1.4 billion. It is worth mentioning the good operational performance of our businesses, as shown in the gross margin with a 5.8% increase to almost €6.7 billion. In addition, cost control programs implemented by the company have been reflected in a reduction in net operating expenses which have helped us to improve our efficiency by 7.6%. All in all, Group EBITDA has been similar to that of the previous year, exceeding €4 billion and net profit reduces by only 2% to €1.7 billion, after asset based adjustments have been included, as we will later explain. But IBERDROLA has also made further progress towards its net reduction commitment with a decrease of more than €3 billion compared to June 2012, despite having to continue financing almost €2.2 billion in tariff deficit. Firstly, debt reduction has been possible thanks to the receipt of payment of investments agreed in previous quarters, as has been the case with our stake in Medgaz pipeline and wind farms in France. And we have secondly the closure of additional sales of non-core assets such as the Chilean hydroelectric plant, Licán. Thus far, we have completed transactions worth €1.2 billion of ongoing divestment plan with €800 million having already been received. As I said, the gross margin rose 5.8% in the first half of the year to almost €6.7 billion. Despite a fall in demand, a 2.5% rise in Group production has contributed to this result. I would like to stress the fact the 71,000 GW tower produced 57% are completely emission-free. And in Spain, this percentage is up to 92%. This has allowed a 50% reduction of emissions which at the end of the first half represent 227 grams per KW hour, which is more than 30% below our European peers average. The increase in gross margin has been coupled with a reduction of 2.2% in net operating expenses, resulting in an improvement of efficiency. In this regard, IBERDROLA has consolidated itself as a benchmark within the still has the best operational performance in terms of installed capacity and electricity points of supply per workforce. Nevertheless all this has been offset by the sharp increase in levies which as of June 30th, 2013, amounted to €863 million, which is 79% higher than the same period of the previous year. This is mainly due to the introduction of local taxes in Spain that impact both traditional and renewable technologies and the energy efficiency programs in the United Kingdom. As a result, the EBITDA remains similar to that obtained in the previous year and amounts to more than €4 billion. The regulated business provided 76% of the total, which is an increase of 2.4% versus the 7.2% fall in non-regulated businesses. Thus, renewables' EBITDA has grown by 10.5% thanks to a 10.1 increase in production, particularly in Spain and the United Kingdom, exceeding the average increase in installed capacity. EBITDA in [grid] fell slightly by 0.8%, mainly due to both the impact of tariff review for our distribution companies in Brazil and the extra charges for electricity supply as a consequence of the drought in the country. In the generation and supply business, EBITDA has decreased by 6.1% despite a 12.4% increase in gross margin. This is due to the increase in levies, which for this particular business are 145% higher than those in the first half of 2012. The exchange rate impact was also a factor marked by the depreciation of the Brazilian real 10.9%, the British pound 3.2% and the U.S. dollar 0.7%. Discounting this aspect, the EBITDA would have increased by 0.9% in the first half of the year. As regards cash flow, and this is in line with one of the strategic pillars of our 2012-2014 guidelines, all of our businesses have generated cash flow in excess of the investments made. So operating cash flow amounts to €3.2 billion. And after deducting investments made in the period, this figure comes to almost €1.8 billion. To the Group's operational performance in the period, we have to add solid financial management thanks to which recurring net profit has increased 2.8% to €1.4 billion. Finally, net profit amounted to €1.7 billion, registering a 2% decline compared to the same period of the previous year. This result includes a provision on the value of our investment in gas and renewable activities in the States and Canada, resulting from narrowing margins in gas storage, as a consequence of the rapid development of shale gas in the country, which also has an impact on the renewables market. In that sense, we have concentrated our assets in the States on those with better prospects for growth. On the other hand, various Spanish companies from the Group have decided to carry out asset value adjustments according to Law 16/2012 of December the 27th with a positive after-tax effect, as the CFO will later explain. But before finishing, I would like to refer to the contribution that IBERDROLA has made in terms of the public coffers in the countries in which it operates. This has increased over the years and at the year-end of 2012 the figure was €5.3 billion, including both owned and managed contributions and the later while the administration wouldn’t have corrected this if it were not for the activities of the company. Under this amount 49% corresponds to Spain although the country’s net profit share was only 30% of the group’s total in 2012. And total payments will presumably increase in 2013 due to the fact that so far this year Iberdrola has already contributed €2.7 billion to the public administrations with a 24% rise in comparison to the first half of 2012 and with a significant increase in payments – of payments in Spain which already account for 56% of the total. I would now give a brief overview of the regulatory situation both in Spain and the United Kingdom. And in Spain, following a long period of regulatory uncertainty and many parcel decisions, the government approved on July the 12th the package of measures which do not only remove the problem of structural tariff deficit but also provide mechanisms to avoid deficits in the future. In addition, it also determines that in the event of a temporary deficits these will be financed by all stakeholders, which will reduce Iberdrola’s obligation by one third relative to funding of the past. And these measures include an extension of state’s guarantee by €4 billion to cover the extra 2012 deficits to be securitized in the next few weeks. However, the scope of this package of measures has some limitations for failing to take into account basic elements of energy policy such as economic and environmental targets, demand forecast, for the planning of network infrastructures, or definition of the target energy mix. Moreover and in order to remove the tariff deficit the solution proposed requires unequal efforts that burden the parties who are neither responsible for generating the problem nor for planning it, because the real problem of the Spanish electricity sector is, on the one hand, the exponential increase of incentives to immature and inefficient technologies, such as solar power plants which contribute only 4% of the total energy mix while resulting in a 30% increase of the total energy costs for the system. And on the other hand, the inclusion of items that have nothing to do with the supply in the electricity bill. The Secretary of State for Energy recently gave a speech in which he stated and I quote, “Electricity in Spain is expensive due to a series of energy policy decisions taken in the past decade, which have burdened the system with costs it should not assume. In relation to the development of solar technologies when these were still not mature enough, the Secretary of State also stated that in Spain, and I am quoting him again, “We have invested at the time we shouldn't have and in a way we shouldn't have, the country has paved the learning curve for the rest of the world.” In his opinion the measures adopted in the past in order to boost these technologies and this is another quote, “had meant the transfer of revenues from consumers towards specific technologies or policies, likewise the Minister for Industry, Energy and Tourism recently stated, I quote, “That in Spain the average price to produce 1 MW hour is €50. If energy is produced through solar technologies average price is €450. We all pay the difference through the electricity bill.” And that was the quote. Therefore the solution to the problem is to be found within the factors which are creating it, avoiding transferring revenues from the more efficient to the more inefficient sectors. In that sense and according to the statements, it doesn’t seem to be reasonable to proceed with the closing or decommissioning of facilities that operate at €50 at the expense of those which operate at €450. On the other hand, this should not increase the obligations we have. On the other hand, the new package of measures establishes returns for regulated activities which are insufficient overloads in the cost of capital. Thus investment is discouraged in the sectors such as distribution and employment intensive sector of highly qualified workforce, so with the public service obligations. This is not the case in other countries where the development of these infrastructures is encouraged, thus promoting investments both in upgrades and in the extension of the grid which results in higher energy efficiency levels, a better service and in the long run lower cost of supply. But in any case the government will have to make an effort to establish a dialogue with all the stakeholders and during the approval process of the bill in order to correct some of the shortcomings I've just described. In the United Kingdom, in the networks business, so we have stable and predictable regulatory framework both for transmission and distribution with remuneration frameworks in force until 2021 and 2015 respectively. In addition, progress has been made towards the definition of the forthcoming remuneration and investment frameworks in distribution which is called RIIO-ED1 until 2023 for which Iberdrola has already submitted its proposal to the regulator. In all cases, the return on investment is referenced to the cost of capital and WACC, perhaps profitability target agreed with the regulatory. In effect of this, Iberdrola plans to invest in the UK nearly €10 billion in the next decade in grids. As regards to generation, the electricity market reform process continues with the aim of establishing a sufficient remuneration scheme for new capacity to be built. Although a system of auctions has been established for capacity payments so that will start in 20 14, it would be necessary to stop imposing non-supply cost obligations on to agents which in the long-term will increase the electricity bill. As regard to renewable technologies, in the UK there is a regulatory stability with remuneration to fund until March 2017 and a new 15-year framework based on contracts for the difference with the strike price as already set by the administration and which will be adjusted for inflation, although first impressions are that this is just a regime of adjusted prices, especially for offshore wind. We hope that the consultation process will allow for sufficient profitability to ensure the development of these technologies. Next, the chief operating officer José Luis San Pedro will explain the regulatory measures announced by the government of Spain. Chairman & CEO: Good morning everybody. As usual, many thanks for attending this results presentation. And as usual I have with me today José Luis San Pedro, the Chief Operating Officer and José Sáinz Armada, the CFO. And today's presentation will be divided as follows. Firstly, I will briefly describe the main highlights of the period, the first half of the year and then the Chief Operating Officer will later comment on the details of the recently announced regulatory reform in Spain. And next, José Sáinz Armada will analyze the profit and loss account in detail and give a quick overview of the Group's financial position. And finally, I will draw a number of brief conclusions, after which we shall be pleased to answer any questions. Group performance throughout the first half of the year has allowed us to offset the impact of the sharp increase in levies during the period, mainly fiscal measures for energy sustainability in Spain and energy efficiency programs in the United Kingdom. Thus, the recurring net profit rose 2.8% to €1.4 billion. It is worth mentioning the good operational performance of our businesses, as shown in the gross margin with a 5.8% increase to almost €6.7 billion. In addition, cost control programs implemented by the company have been reflected in a reduction in net operating expenses which have helped us to improve our efficiency by 7.6%. All in all, Group EBITDA has been similar to that of the previous year, exceeding €4 billion and net profit reduces by only 2% to €1.7 billion, after asset based adjustments have been included, as we will later explain. But IBERDROLA has also made further progress towards its net reduction commitment with a decrease of more than €3 billion compared to June 2012, despite having to continue financing almost €2.2 billion in tariff deficit. Firstly, debt reduction has been possible thanks to the receipt of payment of investments agreed in previous quarters, as has been the case with our stake in Medgaz pipeline and wind farms in France. And we have secondly the closure of additional sales of non-core assets such as the Chilean hydroelectric plant, Licán. Thus far, we have completed transactions worth €1.2 billion of ongoing divestment plan with €800 million having already been received. As I said, the gross margin rose 5.8% in the first half of the year to almost €6.7 billion. Despite a fall in demand, a 2.5% rise in Group production has contributed to this result. I would like to stress the fact the 71,000 GW tower produced 57% are completely emission-free. And in Spain, this percentage is up to 92%. This has allowed a 50% reduction of emissions which at the end of the first half represent 227 grams per KW hour, which is more than 30% below our European peers average. The increase in gross margin has been coupled with a reduction of 2.2% in net operating expenses, resulting in an improvement of efficiency. In this regard, IBERDROLA has consolidated itself as a benchmark within the still has the best operational performance in terms of installed capacity and electricity points of supply per workforce. Nevertheless all this has been offset by the sharp increase in levies which as of June 30th, 2013, amounted to €863 million, which is 79% higher than the same period of the previous year. This is mainly due to the introduction of local taxes in Spain that impact both traditional and renewable technologies and the energy efficiency programs in the United Kingdom. As a result, the EBITDA remains similar to that obtained in the previous year and amounts to more than €4 billion. The regulated business provided 76% of the total, which is an increase of 2.4% versus the 7.2% fall in non-regulated businesses. Thus, renewables' EBITDA has grown by 10.5% thanks to a 10.1 increase in production, particularly in Spain and the United Kingdom, exceeding the average increase in installed capacity. EBITDA in [grid] fell slightly by 0.8%, mainly due to both the impact of tariff review for our distribution companies in Brazil and the extra charges for electricity supply as a consequence of the drought in the country. In the generation and supply business, EBITDA has decreased by 6.1% despite a 12.4% increase in gross margin. This is due to the increase in levies, which for this particular business are 145% higher than those in the first half of 2012. The exchange rate impact was also a factor marked by the depreciation of the Brazilian real 10.9%, the British pound 3.2% and the U.S. dollar 0.7%. Discounting this aspect, the EBITDA would have increased by 0.9% in the first half of the year. As regards cash flow, and this is in line with one of the strategic pillars of our 2012-2014 guidelines, all of our businesses have generated cash flow in excess of the investments made. So operating cash flow amounts to €3.2 billion. And after deducting investments made in the period, this figure comes to almost €1.8 billion. To the Group's operational performance in the period, we have to add solid financial management thanks to which recurring net profit has increased 2.8% to €1.4 billion. Finally, net profit amounted to €1.7 billion, registering a 2% decline compared to the same period of the previous year. This result includes a provision on the value of our investment in gas and renewable activities in the States and Canada, resulting from narrowing margins in gas storage, as a consequence of the rapid development of shale gas in the country, which also has an impact on the renewables market. In that sense, we have concentrated our assets in the States on those with better prospects for growth. On the other hand, various Spanish companies from the Group have decided to carry out asset value adjustments according to Law 16/2012 of December the 27th with a positive after-tax effect, as the CFO will later explain. But before finishing, I would like to refer to the contribution that IBERDROLA has made in terms of the public coffers in the countries in which it operates. This has increased over the years and at the year-end of 2012 the figure was €5.3 billion, including both owned and managed contributions and the later while the administration wouldn’t have corrected this if it were not for the activities of the company. Under this amount 49% corresponds to Spain although the country’s net profit share was only 30% of the group’s total in 2012. And total payments will presumably increase in 2013 due to the fact that so far this year Iberdrola has already contributed €2.7 billion to the public administrations with a 24% rise in comparison to the first half of 2012 and with a significant increase in payments – of payments in Spain which already account for 56% of the total. I would now give a brief overview of the regulatory situation both in Spain and the United Kingdom. And in Spain, following a long period of regulatory uncertainty and many parcel decisions, the government approved on July the 12th the package of measures which do not only remove the problem of structural tariff deficit but also provide mechanisms to avoid deficits in the future. In addition, it also determines that in the event of a temporary deficits these will be financed by all stakeholders, which will reduce Iberdrola’s obligation by one third relative to funding of the past. And these measures include an extension of state’s guarantee by €4 billion to cover the extra 2012 deficits to be securitized in the next few weeks. However, the scope of this package of measures has some limitations for failing to take into account basic elements of energy policy such as economic and environmental targets, demand forecast, for the planning of network infrastructures, or definition of the target energy mix. Moreover and in order to remove the tariff deficit the solution proposed requires unequal efforts that burden the parties who are neither responsible for generating the problem nor for planning it, because the real problem of the Spanish electricity sector is, on the one hand, the exponential increase of incentives to immature and inefficient technologies, such as solar power plants which contribute only 4% of the total energy mix while resulting in a 30% increase of the total energy costs for the system. And on the other hand, the inclusion of items that have nothing to do with the supply in the electricity bill. The Secretary of State for Energy recently gave a speech in which he stated and I quote, “Electricity in Spain is expensive due to a series of energy policy decisions taken in the past decade, which have burdened the system with costs it should not assume. In relation to the development of solar technologies when these were still not mature enough, the Secretary of State also stated that in Spain, and I am quoting him again, “We have invested at the time we shouldn't have and in a way we shouldn't have, the country has paved the learning curve for the rest of the world.” In his opinion the measures adopted in the past in order to boost these technologies and this is another quote, “had meant the transfer of revenues from consumers towards specific technologies or policies, likewise the Minister for Industry, Energy and Tourism recently stated, I quote, “That in Spain the average price to produce 1 MW hour is €50. If energy is produced through solar technologies average price is €450. We all pay the difference through the electricity bill.” And that was the quote. Therefore the solution to the problem is to be found within the factors which are creating it, avoiding transferring revenues from the more efficient to the more inefficient sectors. In that sense and according to the statements, it doesn’t seem to be reasonable to proceed with the closing or decommissioning of facilities that operate at €50 at the expense of those which operate at €450. On the other hand, this should not increase the obligations we have. On the other hand, the new package of measures establishes returns for regulated activities which are insufficient overloads in the cost of capital. Thus investment is discouraged in the sectors such as distribution and employment intensive sector of highly qualified workforce, so with the public service obligations. This is not the case in other countries where the development of these infrastructures is encouraged, thus promoting investments both in upgrades and in the extension of the grid which results in higher energy efficiency levels, a better service and in the long run lower cost of supply. But in any case the government will have to make an effort to establish a dialogue with all the stakeholders and during the approval process of the bill in order to correct some of the shortcomings I've just described. In the United Kingdom, in the networks business, so we have stable and predictable regulatory framework both for transmission and distribution with remuneration frameworks in force until 2021 and 2015 respectively. In addition, progress has been made towards the definition of the forthcoming remuneration and investment frameworks in distribution which is called RIIO-ED1 until 2023 for which Iberdrola has already submitted its proposal to the regulator. In all cases, the return on investment is referenced to the cost of capital and WACC, perhaps profitability target agreed with the regulatory. In effect of this, Iberdrola plans to invest in the UK nearly €10 billion in the next decade in grids. As regards to generation, the electricity market reform process continues with the aim of establishing a sufficient remuneration scheme for new capacity to be built. Although a system of auctions has been established for capacity payments so that will start in 20 14, it would be necessary to stop imposing non-supply cost obligations on to agents which in the long-term will increase the electricity bill. As regard to renewable technologies, in the UK there is a regulatory stability with remuneration to fund until March 2017 and a new 15-year framework based on contracts for the difference with the strike price as already set by the administration and which will be adjusted for inflation, although first impressions are that this is just a regime of adjusted prices, especially for offshore wind. We hope that the consultation process will allow for sufficient profitability to ensure the development of these technologies. Next, the chief operating officer José Luis San Pedro will explain the regulatory measures announced by the government of Spain. José Luis San Pedro: Good morning everyone. The proposal to change the system that regulates the Spanish electricity sector is being implemented in the royalty decree law that has already been passed, a draft electricity sector bill proposal for a further seventh royal decrees, a ministerial order regarding transmission and distribution charges and three ministerial orders. I am going to try to be brief at discussing this package but I doubt I will be successful. I'll focus on the most important aspects of this normative package, including the contents of the adopted royal decree and the various proposals that are still in the pipeline. The draft bill that is passed through parliament will contain a significant amount of what has been implemented in the royal decree, and therefore the latter may be amended by the act of the eventually passed. Main elements in the reform, I would say that the ultimate goal of this change in the regulations is to remove the structural tariff deficit in the year 2014 and guarantee that this situation does not arise again in the future. As I will explain later on, I believe that this goal has already been achieved. Moreover to guarantee that it does not happen again in the future, this regulatory package has defined limits of a possible temporary deficits that may emerge at some point in the future for reasons that do not fall under the scope of the regulator and which are always of a temporary or cyclical nature. Another goal pursued by this change in regulation is to ensure from the moment it is published in the official Spanish Gazette, the securitization of the tariff deficit for the year 2012 providing the necessary state guarantees and defining the conditions for calculating the final amount of this deficit. Finally, it provides that if temporary or cyclical tariff deviations emerge in the future they will be funded by income generated by all of the regulated activities, a measure that we have been calling for, for many years. Iberdrola would have to fund approximately 13% of this deficit compared to the current percentage of 35%. There are two issues that I would describe as being the least positive aspects in this regulatory process. First of all, it caps the transfer of regulated costs from the sector to the national state budget at about €900 million and from this we have to deduct the taxes collected from the latest increase in tolls. There are two basic reasons for the existence of a structural deficit in the electricity tariff since 2005. On the one hand, costs derived from social policies defined by the government and entirely unrelated to the cost of supply were transferred to the sectors cost. Some examples of this were the support provided to insular electricity systems, government policy backing Spanish coal, bonuses for disadvantaged consumers et cetera. On the other hand, the government applied inefficient regulatory measures such as those that followed the application of excessive incentives to non-mature renewable technologies and poor management in developing energy policies in the light of the high penetration achieved by renewable energies. Therefore the party that is most responsible for this deficit that is now the object of tentative removal is the government, the main driving force behind the increasing cost for the system. However, the contribution from public funds that is envisaged in this royal decree is much lower than the consequences derived from poor regulatory policies in the past. As a consequence of this, the regulator has applied cost reductions to activities belonging to the ordinary regime, activities that are directly linked to supply and whose costs are significantly lower than the European average and which did not cause this structural deficit that we have endured for the last eight years. As for the second least positive aspect of the reform, I believe that the regulation system is the fundamental tool that enables the regulatory institutions to vouch for the effective application of a particular energy policy. And in the midst of all the regulatory changes that are afoot, I find it striking that the energy policy to the implemented in the country from now on has not been defined. In fact I believe that many of the measures which I will now comment on in greater detail are actually at odds with the energy targets already being set in the majority of European countries and which the European community will very soon be defining for the 2030 horizon. The cost sharing arrangement. According to figures taken from the presentation used by the Minister at the cabinet press meeting on 12th July last, the cost sharing arrangement from early 2012 would be as follows: State 9% excessive if we discount the subsequent tax collection, consumers 19%, companies 72%. This arrangement is very far removed from the third, third, third arrangement repeatedly announced by the government and the companies are obviously having to make a disproportionate contribution. If we analyze the entire period since the tariff deficit took on a structural status in 2005 until this year, we will find that the various governments have gradually reduced the company's income figures in more or less orthodox ways. But always with the goal of reducing costs that would allow them to remove the deficit although this was no in fact achieved. Measures such as allocating operators the second part of the nuclear fuel cycle, reducing income through the allocation of CO2 emission rights free of charge et cetera. And this have required that the companies provide in excess of €119 billion. The vast majority of these costs have been borne by the traditional activities in the sector such as generation under the ordinary regime, or distribution with almost €17 billion in total. IBERDROLA's cumulative contribution to date towards reducing the tariff deficit amounts to €5.3 billion. And I move on to the general principles for remuneration of regulated activities. The royal decree provides that remuneration for these activities will be based on what it refers to as the cost of an efficient and well-managed company, to which a reasonable rate of return will be applied with the same standard criteria for the whole of the Spanish territory. The rate of return will be updated every six years in order the economic cycles may be taken into account. These principles raise many questions and are the object of free interpretation. Personally speaking, I believe that the reference to an efficient and well-managed company means that something like standard costs will be applied to determine a company's rate of return. I believe it is a good principle for regulation as long as the definition of the standard is transparent and non-discriminatory and that the criteria that define efficiency and good management are applied with a view to the future and not to the past. The definition of the standard costs that will be used and how they will be assessed requires the implementation of highly efficient regulatory principles. And as it stands, our experience in recent years does not encourage us to harbor too many hopes. Remuneration scheme for renewables. The royal decree regulating Remuneration for renewable energy's co-generation and waste management maintains many of the aspects already regulated by the old royal decree 661 such as the classification of facilities priority in access to the market, the need for a registration with control centers et cetera. However it has done away with the incentive for reactive power but maintains the penalties for non-compliance. And it has also done away with the incentive for efficiency at co-generation plants. And all this may mean a drop in Remuneration of some €3 per MW hour. It also provides for the creation of a new register in addition to the administrative register that is already in operation to contain the information needed to decide on the remuneration for each facility. The Remuneration scheme is described in the royal decree which is 92 pages long. It is extremely complicated and at the moment, as I will go on to explain, it is not possible for us to make even an approximate assessment of the Remuneration that may be expected for each of the technologies. First of all it provides that the facilities that used to receive some form of incentive in the past will be able to hold on to a grant if necessary to guarantee a rate of return on assets of 7.5% before taxes for the remainder of the lifetime of the project. It is hard to interpret how the excess or shortfall in the rate of return obtained by facilities already in operation will be calculated. We would do well to remember that the economic report that accompanied royal decree 661 of 2007 which has now been canceled by this royal decree and the renewable energy action plan for 2005-2010 that preceded it both refer to the principle of a reasonable rate of return. And the government itself estimates that the reasonable rate of return should be between 7 and 8% after tax in relation to the net asset value. It is hard to understand how this reasonable rate of return estimated by the government itself is now 30% lower in a scenario where both the cost of debt and above all, the cost of capital is much higher than they were when royal decree 661 was published. This very drastic drop in what is meant by a reasonable rate of return which should, let us not forget, be calculated at market prices, cannot be allowed without further explanation. To calculate the rate of return for each facility standard cost will be defined. I presume these will be linked to investment costs, operating and maintenance costs and market prices. It is my understanding that income received is not liable for standardization, because it depends on the availability of the renewable source, which is something entirely unrelated to how the company is managed. We will continue with the remuneration for renewables. The parameters that are needed in order to redo all these calculations will be defined in a ministerial order classified according to type of technology, capacity, years in operation, electricity system etc. and some of these parameters may be reviewed every three years with incentives being changed after every six years. Once the standard costs have been defined, which is not yet the case, the rate of return for each facility will then be calculated on the basis of the remaining lifetime depending on the estimated costs of the market price. In my opinion, to base the remuneration payable to a facility on the basic detail of the price of energy for the remaining lifetime of that facility 10, 15, 20 or 25 years is an absolutely arbitrary decision. I would be able to come up with the result they asked before. And I have no idea how they’re going to address this excessive margin for discretion. And I don't know how they’re going to calculate the standard costs and therefore I have no idea to what remuneration or grant each type of facility or technology will be entitled. I'm sorry I cannot be more precise. In addition, there is also the possibility that with adequate compensation the state may authorize the closure of facilities that are costly to the system. And this will depend on how this royal decree is implemented a posteriori. I am going to move on to comment on the remuneration for the distribution activity. The royal decree law provides a provisional methodology for 2013 and 2014 with a regulated asset value based on the implicit RAV recently calculated by the Spanish National Energy Commission. A rate of return is defined for the net asset equivalent to the yield on 10-year Spanish government bonds with the spread of 200 basis points. Throughout the year 2013, that is this year and from July 1 to December 31 this spread will be reduced to 100 basis points. From the year 2015 onwards the royal decree provides that a new remuneration scheme will be developed subject to review every six years. According to the proposal, this remuneration will be placed on standard unit investment and operating costs which will be applied to the asset value. The incentives for enhancing quality and reducing losses of being maintained, and a new incentive for combating fraud is being created. This new methodology will come into force in 2015 at the earliest. There will be a supervision for investment plans with a maximum ex-ante limits of being defined for global annual investment and for each company. Three negative comments regarding the approach to remuneration for distribution in the royal decree. First of all, the royal decree considers that the technological and operational risks associated to the activity of distribution is lower than for renewable activities and to be more specific, it claims that is much lower than in the case of renewable energies and that is the reason why the remuneration for this asset is being reduced by hundred basis points, which entails a drop in remuneration of over 13%. I don't personally understand how the risks have been measured but it strikes me that there must be some mistake. The distribution activity in itself is facing a major changes in terms of technology and management with the investments plan in smart grid, management of distributed energy, compact substations, all of these represent a considerable technological risk which is going to be required aside from the significant economic resources that this process of change will require in its staff. And there are also significant operational risks in terms of logistics, storms, flooding etc. I don’t exactly know which risks have been taken into account in the evaluation of the risk related to renewable activities. I hope that this measure will be corrected in the short term. Secondly, the cost of the capital used is assessed according to the rate of return for Spanish government bonds. Government bonds may be useful in assessing cost of debt if the spread is calculated according to the company's risk. However the rate of return on government bonds is not useful in assessing the cost of capital of a business that is dependent on many other variables. Therefore the use of government bonds is totally inefficient and represents unnecessary risk both for the regulator and to a regulated companies alike. In fact, if the cost of capital value is not effectively measured, then the value allocated by the regulator based on the government bond may end up being higher than the market, which would be a regulatory failure or lower than the market value in which it would stifle business development. This is a serious a regulatory failure, particularly in a business that as a public service is obliged to invest on a permanent basis. In all of the countries -- in all of the countries where Iberdrola has a distribution activities, return on investment is based on the cost of the capital used, that is on the WAAC as is the case in the United Kingdom and Brazil. It is also used in Germany, Italy, France, Finland, in practically every country where there is a rational regulation system. The European Regulators’ Group, ERGEG proposes the WACC methodology as a mechanism for calculating remuneration. In the case of the United States, financial costs constitute a pass-through and the cost of capital is decided according to market prices. Therefore the use of government bonds to measure cost of capital in industrial companies is [HDL] of regulation for which we have found no rational ground. And carry on with the distribution activity, thirdly, the rate of return on capital proposed in this royal decree does not cover the cost of capital and in my opinion neither does it meet the guidelines of the European directive that regulates incentives for investment. According to this European directive, the regulator should remunerate the distribution activity while maintaining the principal of sufficient income and adding some incentives for attracting investments in building infrastructure, thereby ensuring the company's financial stability above all. In this slide we can see that the cost of capital noted in this royal decree for these distribution facilities is 6.5% from 2014 onwards before tax and in nominal terms. The logical interpretation of such a low remuneration for the capital used is evident. The government does not want investment in the distribution activity during the next regulatory period which we should remember will last for six years. The slide shows the cost of capital used in the distribution activity. The cost assigned to equity and the sovereign risk premium for each country. We cannot find the reasons for applying to Spain, a country with the highest risk premium of all the countries included in the presentation, the minimal remuneration for the cost of capital. Moreover, in these other countries, it is not only the cost of liability that is defined, but very logically the regulator has also defined the structure of the liability, how it should be leveraged to match the allocated cost of capital. And the commitment to guaranteeing that the remuneration will enable the company to hold on to a particular rating. In other words, it ensures its financial stability. And it is also immediately apparent that the WACC in Spain should be between 9 and 10% before tax. Therefore the proposed rate of return destroys 300 basis points of value. The royal decree seems to have forgotten all of this, putting across the [message] that we should get into as much debt as possible and that we shouldn't invest. It is also overlooking another obligation that is guaranteeing the economic financial sustainability of the business. And I don't think that this remuneration will guarantee the sustainability. This again is a very serious regulatory failure and the impact for IBERDROLA in 2013 is estimated to amount to some €115 million, a similar figure expected for 2014. And I'll finish with this distribution activity. Distribution constitutes an irreplaceable link in the electricity supply chain. And it is inconceivable for regulations not to guarantee economically sustainable development of this activity. To halt the activity of distribution for so long will have severely detrimental consequences for the country which will take a long time to offset. Moreover, the distribution activity all over the world is facing a very significant and highly costly technological overhaul, in order to enable distributed generation, self-consumption, provide incentives for improving efficiency, investing in smart grids et cetera. This paralyzation will also have a negative impact on the Spanish manufacturers of equipment and services, some of which are world leaders in their technology. And this will unnecessarily lead to higher unemployment levels. I'm not going to move on to capacity payments. The capacity payment was initially set up to remunerate the fixed capacity that each facility made available to the system operator. And this was assessed at just over €40,000 per MW year. This figure was then reduced to €26,000 per MW, a 35% drop. And now it is being reduced yet again by a further 60% down to €10,000 per MW only applied to the case of combined cycle power plants. These reductions were made coinciding with the time that the system needed more fixed capacity guarantees. This paradox is one of the consequence of changing the regulations without having an overarching energy plan for guidance purposes. The royal decree proposal regulating this incentive on investments for future power plants which will come into line in 2017 will be based on the results of wholesale market auctions launched by the system operator depending on prospective 10 year analysis and possible non-compliance with the coverage rate below a particular threshold for the new capacity over the following four years. The environmental targets, to which all the member states of the European Union have committed with a view to reducing CO2 emissions and increasing output with renewable energy and the targets that the EU is likely to impose for the 2030 horizon means that a significant increase in output from renewable energies in Europe may be predicted. This reality is being acknowledged in the energy policies of most member states and even the European itself which was reluctant to considering capacity payments as an unjustified intervention on the market. And it is now reconsidering its position. Countries like the UK, Germany, France and Italy are defining capacity payment systems and they are likely to be set up in the rest of the European countries as well. Since combined cycle power plants are going to be guaranteeing power capacity and they are going to be in operation for a very short number of hours, these capacity payments will tend to ensure that a significant proportion of these facilities fixed overheads are covered. To reduce capacity payments in Spain, as proposed in this royal decree would be at cross-purposes. If Spanish energy policy is to be based on a significant contribution from renewable energies, it is going to need even more than in other European countries, a firm capacity contributed by the power -- combined cycle power plants. And this measure is at odds with the decisions being made by all of the countries in Europe in this regard. The impact for IBERDROLA in 2013 of this measure will be around €40 million, that will rise to 50 in 2014. As well as the incentive for future investments, the royal decree also regulates the possibility of temperature -- closure of facilities, referred to as hibernation. The total amount of power for hibernation, some 6000 MW according to the ministry, will be defined by the system operator. And this amount will be allocated to the various operators by means of an auction procedure for which only the combined cycle power plants can sign up. The social bonus. The social bonus has already been defined as a measure intended to protect the most vulnerable consumers. The task of funding this social bonus was initially awarded to five companies. As usual, the UNESA member companies with various participation coefficients. The High Court of Justice ruled that this was an unjustified and discriminatory measure and canceled this form of funding by these companies. Well this new royal decree once again raises the issue of the social bonus being funded by companies, providing that this will be allocated to vertically integrated business groups, that is once again the UNESA member companies. And the distribution will be dependent on points of supply and the number of retail consumers. I believe that the system for funding social bonus is once again being based on insufficiently justified and discriminatory measures. Moreover the social bonus is once again the consequence of a social policy by the government that is entirely justified but which in my opinion is entirely unrelated to the cost of electricity supply. In fact the cross criteria to qualify for it are still the same, with the only difference that the criterion of conditionality on recipients income has been added. The impact of this funding on IBERDROLA will be €15 million in 2013 and it will rise by a further 40 million in 2014. Interrumptibility. The interrumptibility service will be allocated in an auction procedium managed by the system operator. A [priority] its design will be similar to that of other auctions in the Spanish system. According to estimates made by the ministry as well as adding rationality to the system, and I agree, this change will allow reducing costs by €200 million and the rest will be funded on an equal basis by market players and consumers. And therefore it’s taken out of the regulated tariff and the tariff deficit will be reduced by €750 million. The above includes the most relevant aspects that we have detected in a quick reading, and an urgent reading. But the regulatory package as a whole includes many other aspects that are new or which amend existing regulations as regards connections, rising obligations, rule of infringements and penalties, administrative permits, supply, transmission, non-mainland generation etc., which I haven’t had time to go into during this presentation. Economic impact. Despite the limited time that we have had to analyze all the proposed changes – all these pages weigh 5 kilos and the lack of information available in some cases it is possible to read some initial conclusions regarding the possible economic impact of the package of measures as a whole. The adjustment risk range in IBERDROLA for all of the efforts required is around f €170 million in 2013. According to the company's current forecast for 2013 and without including the adjustments to IBERDROLA’s renewable energies this figure will be increased by a further €90 million in 2014. All of the efforts are required will remove the tariff deficit from 2014 onwards. It will be possible to comfortably cover the possible tariff imbalance expected for 2013 with this part of the extraordinary €2.2 billion loan currently under consideration in parliament. Any possible temporary deficits that may emerge in the future involving much lower amounts will be funded by all of those that received regulated income and this takes a significant amount of financial pressure off those that are currently responsible for funding the deficits. Moreover the economic sustainability measures that are expected to be introduced guarantee that if the temporary or cyclical deficits exceed 2.5% of the total regulated income or if the cumulative deficit exceeds 10% of this income, access tariffs will be automatically adjusted. And I think that this will guarantee the problem -- guarantee to the problem of the deficit will no longer persist. And I will now move on to the conclusions. I will end this presentation with some general conclusions. Most of this package of measures is currently at the public consultation stage before further processing may continue. This means that the various proposals may undergo many changes before they're finally passed. Even the draft bill, already adopted – no sorry, even the draft bill when tabled in Parliament may include changes that may affect the royal decree law that has already been passed and ratified. In other words, my appraisal today is not a definitive one. It will help to continue to adapt and include more thorough analysis, not to mention the changes that may be brought in before the regulations are actually passed. This comprehensive package of measures is effective in eliminating the structural deficit. In other words, significant deficit amounts are not expected to be generated in the years to come and any temporary or cyclical deficits that may arise will be funded again by all of the players with regulated activities. However, the effort has not equally been distributed between government businesses and consumers as announced by the government over a year and a half ago. Consumers, and most of all, companies in the sector have clearly been penalized as they have been asked to allocate a disproportionate part of these costs and in the activities of the sector it is surprising that these measures penalize those that are the most efficient, such as distribution and the ordinary regime generation both of which are absolutely necessary in order to guarantee the supply of electricity. In conclusion, I would say that the absolute prioritization of the goal of removing the deficits with these regulatory changes means that the focus has been put on aspects related to pure economic adjustment applied more for legal reasons than for rational reasons, these regulatory changes which were designed without the necessary collaboration of experts from the sector nonetheless have far reaching technical consequences. This means that we have missed a wonderful opportunity to achieve a form of sectorial regulation in keeping with the goals of our country's energy policy. This would have allowed us to tackle the huge technological challenges facing the sector in the coming years with greater guarantees. For example, distributed energy, self-consumption, penetration of renewables, smart grids, change in functionality of combined cycle power plants and energy efficiency measures. And that’s all. Thank you very much. José Sáinz Armada: Thank you [José Luis]. To move on quickly to the results, the most outstanding point is increasing 2.8% in recurring net profit. However we have to point out that regarding the EBIT, there has been a drop of 65.3% due to the inclusion of 1.657 billion gross because of the write-off basically of gas and renewable assets as I will detail later on. €1.538 billion are included from the positive tax impact in the reevaluation of the balance sheets which IBERDROLA group has undertaken as I shall also explain – as explained on the slide the modification of IAS 19 which establishes a new more conservative methodology to calculate the pension obligations as of 2013 means that 2012 also has to use the same methodology with a negative impact of €54 million in financial expenses with regarding net profits amount of 37 million which in terms of a comparison the net profit for 2012 re-expressed under these conditions is 1.763 billion versus 1.8 billion that IBERDROLA declared or reported at the end of 2012. The sales figure fell 0.9% to $16.836 billion and procurement 4.9% to 10.160 billion due to the lower cost of re-production mix, because of the higher hydraulic and wind power production in the year. Consequently the gross margin grew 5.8% to €6.676 billion with a negative impact because of the exchange rate of 113 million and another 60 million because the loss of the free CO2 allowances with all businesses in countries providing growth except Brazil. The net operating expense improved to 2.2% thanks to the efficiency plans that the group is carrying out and including €35 million positive impact because of the exchange rate. The efficiency measures represent a reduction of 0.8% in personnel expenses and a drop in net external services of 3.5%. The levies paid by the company grew 80% to €864 million. The business in Spain carries €291 million in levies of which 252 corresponds to the tax measures for energy sustainability that the government approved in 2012. Regarding gross margin, there are also more than €5 million in taxes because of the green tax. Additionally there are 48 million in the unfavorable comparison with 2012 since this included 100 million from the reimbursement of the social bonus and this is not offset this year by €52 million in positive impact from the revision of the green tax (inaudible). The business in the UK had €95 million more in levies because of the energy efficiency program in 2013 versus 2012 where 75% was charged in the second half of the year. Consequently the comparison will improve in the second semester. By businesses, the network EBITDA fell 0.8% to €1.965 billion since the 32.9% drop in Brazil has not been offset by the growth of 9.9% in the rest of the geographic areas. Brazil will improve during the year. The drop in June was 32.9 as I said, versus 51% in March. The exchange rate minus €54 million has also had an effect. Excluded this effect EBITDA would go up 1.9%. Breaking down the gross margin by countries. In Spain, there is a 6% increase because of the tariff order 2013 which as José Luis San Pedro explained will change in the second half of the year. In the UK, there are greater revenues linked to a higher asset base which represents an increase in the gross margin of 6.3%. And since April, the [IRT1] has come into effect. In the United States, greater revenues as a result of the rate cases, the contribution from the main line, positive IFRS impacts partially offset by the loss in the contribution of the company sold in 2012, meaning that the gross margin increased by 3.7%. Therefore the gross margin in these areas increases 5.3% while in Brazil, it drops 23% in spite of the 5.8% increase in demand due to the tariff review at Elektro which reduces the gross margin by €70 million and new energy with an impact of 21 million. And because of the drought effects with -- and internal costs with an impact of €47 million of which 43 will be recovered in the annual tariff review. The GON improved 3% due to energy efficiency improvements and positive impact in the United States which offset a negative adjustment in the United Kingdom of €30 million. And limited GON growth in Brazil because of the greater demand and inflation. Regarding the generation and retail business including Spain, UK and Mexico, EBITDA fell 6.1% to 1.172 billion, affected by the increase in levies which are multiplied by 2.4 times, representing 225 million or rather going from €225 million to 552 million. Sweeping aside, as the Chairman said, all the growth in the business which had had an increase of 12% regarding gross margin and all the efficiency improvement with a reduction of 5.9% in the operating expenses. The operating improvements as a result of hydrology in Spain and a greater customer base in the UK have offset the effects of demand weakness in Spain, a drop of 3.8% which if adjusted is 2.6% and the absence of free CO2 allowances. And this takes us to an increase in gross margin of 12%. In Spain, in particular, the gross margin grew by 13.9%, thanks to the fact that production has been 5.1% higher because of the increase of 110% in hydraulic production which offsets the lower thermal production 67% less and nuclear production 6.9% less. Additionally the margins have increased due to lower costs associated to a production mix in a hydraulic production context. In the UK, gross margin grew 12.7% because of a greater customer base, representing 8%, a more favorable climate for the business and the increase in tariffs to recover the greater non-energy costs suffered by the UK such as the efficiency programs and the disappearance of CO, the price floor additional costs for transmission and distribution. The EBITDA for the renewable business grew 10.5% to €937 million as a result of greater production, 10% more, which increases the gross margin 12.5% and cost control with a reduction of 4% in net operating costs. This good development has made it possible to offset levy increases which in Spain multiplied by four. We went from 17 million to 70 million. The operating capacity increased 3.5% to 14,028 MW and the average load factor improved 1.9 percentage points to 30.6%. And this means an increase in output of 10%. The average price increased 1.7% to €69.9 per MW in spite of a reduction of 3.5% in the final price in Spain basically because of the change in the regulated tariff according to royal decree 2/2013 which is offset by an increase in prices in the rest of the geographic areas. Regarding efficiency, the net operating costs over operating capacity improved by 4%. The financial performance improved 15.2% to €568 million, thanks to the fact that interest spending is €12.9 million less as a consequence of the 4.4% drop in the average debt with an average cost of around 4.66%. And because the financial results improved by 89 million, 50 million associated to the recognition of the tariff deficits spread in previous years and 54 million in positive results because of derivates, mainly because of the exchange rate due to the results hedging policy followed by the Group. In Brazil, the Group has a hedging level of 87% of the expected results this year; in dollars 85% and in pounds 70% which enables us to reduce the volatility of our accounts in 2013. As a result of this, the net recurring profit improved 2.8% to €1.402 billion. Since the EBITDA fell slightly 0.9%, affected by the exchange rate, but this is offset by the currency hedging policy. The Group EBIT as I said fell 64% due to the inclusion of €1.657 billion more as non-recurrent provisions mainly related to write offs for gas assets in the United States and Canada and renewables particularly in the United States. In the case of gas assets, it is accepted that the business will not continue to grow for the time being and therefore the whole pipeline is being provisioned as well as the goodwill fund paid out in the day when the business was more valuable before the appearance of shale gas. In the case of renewables, there has just been adjusted to the line regarding more modest growth than was expected because of the low energy prices in the United States. Regarding the net profits, the impact of the write offs made is offset by the positive tax impact resulting from the balance sheet revaluation that the company has undertaken. The value of certain company assets in Spain has been increased by €6.3 billion. According to the revaluation coefficients established by Law 6/2012 with the aim of including the inflation effects in the value of the assets, the amortization of this increase in value is physically deductible or tax-deductible and represents a positive impact for the company of €1.854 billion, which is the value of future tax deductions. In exchange for this there is a payment of 5%, 5% tax over the €6.3 billion, which is equipment to €316 million. The net result of both effects is charged as a gain after taxes of 1.538 billion. In summary this is a purely financial operation which creates value for the group and also has a limited impact on cash in 2013 and a positive impact as of 2015. Consequently the reported net profits fell 2% by offsetting the effect of the write-off carried out with the positive tax effect the resulting from the balance sheet revaluation, the 2% reduction in net profits versus the increase in recurrent profits is due to the fact that in June 2012 the non-recurring impact provided a net profit of 399 million,72 million more than the net nonrecurring impact accounted for as of June 2013, the details of which can be seen on the slide. Regarding the financial position of the Group, during the first semester there has been a reduction in the tariff deficit pending collection of €256 million totaling at the end of the quarter 2.153 billion. Of these 1.43 billion refer to the export deficit for 2012, which will be securitized before the end of the year and the royal decree 9/2013 defines the amount of the export deficit to be assigned to further as 4.1 billion for securitization, the rest will be recovered through the measures approved to reduce the deficit and through a 2.2 billion credit line approved by the government to eliminate the deficit in 2013. And important to highlight that according to the new draft from 2014 on, IBERDROLA will only fund around 10 to 15% of the [just ruled] deficit that may occur. The financial strength of the Group continues to improve. Our debt has been reduced at the end of June to more than 3.2 billion versus June 2012 and by more than 1.4 billion since December 2012 and is currently now at 28.8 billion. As a result IBERDROLA has reduced its leverage by up to 45% from 48.3% last year. The solvency ratios also improved significantly. The FFO over debt net which is 21.1% versus 19.6 one year ago, an improvement of a point and a half. The retail cash flow over net debt improved two points to 18% and the net debt over EBITDA ratio improves up to 3.7 times from 4.1 times one year ago. There is also a 262 million reduction in the net debt because divestments already carried out but not collected and the collection of which is planned for the third quarter. Including these divestments and the pending securitization of tariff deficit, the net debt for the group would be €26.32 billion with €800 million still pending in divestments to be made in 2014. IBERDROLA has maintained its liquidity around €12 billion of which 2.1 cash -- a reduction in cash of 1.1 billion versus March as a result of the liquidity optimization policy started by the group and 9.8 billion credit lines, something that had not been use of. With this position we continue to have ensure liquidity over a three year period and over four years under scenarios of great distress. IBERDROLA has a comfortable debt maturity. Up to December 2014 we have maturities amounting 23.1 billion or 26% of the total liquidity available. The average maturity of our debt is still over six years in line with the company's objective and now the chairman will close this presentation. Ignacio Galán: Well, thank you very much. The results that we’re presenting today show that we've optimized the management of the group from an operational perspective and from a financial point of view too, which has contributed to reducing the impact of the various external factors of a regulatory and tax nature that have characterized this period. Thus the increase in the gross margin due to the good operational performance of our business together with the operating efficiency improvements have allowed us to offset the sharp increase in levies and also maintained EBITDA in similar levels to those reached in the first half of 2012. And on the other hand, the recurring net profit has risen by 2.8% and net profit has fallen 2% to €1.7 billion. As regard to the group’s financial management, in this first semester as the CFO pointed out we've been striving to strengthen our balance sheet. And the progress achieved in our divestment plan and generated cash flow have led us to reduce our net debt by €3.2 billion in comparison to the first half of the year 2012. Last our leverage has been reduced from 48.3 to 45%, including the financing of the tariff deficit. In addition, liquidity amounts to €12 billion providing coverage to financial needs for the next 36 months. So all in all, we feel confident about the company’s ability to maintain its shareholder remuneration policy of the closing date – on the closing date of the fiscal year. Without a doubt, the second half of the year will be marked by regulatory developments especially in our country in which we trust that some of the aspects that I have mentioned will be considered throughout the package of measures approved by the government. Thank you very much. And now we are ready to answer your questions. Thank you very much.

Any questions from the room? Carolina Dores from Morgan Stanley. Carolina Dores – Morgan Stanley: Good morning and thank you for giving me this opportunity. I have three questions, first, will this energy reform change your targets for 2014, especially (inaudible) PPAs and whether you will maintain the same dividend policy for 2014? Second question refers to the changes in the generation restriction market that government is currently contemplating, do you expect any negative impact from this reform? The third question is what is your expected timing of the energy reform, when do you think will have a greater visibility regarding the parameters for renewable energies? Ignacio Galán: Well as regards the timing, what we usually have is that more or less it will be around October, the date that we’ve been given when we will have all the aspects of the define that are now pending, definition that is standard and price pathways etc. So we think that in October, and I am turning this to the first question, as soon as we have this information we will carry out this revision and we will hold the investors day more or less at that point in time, we will be able to give you a much more adjusted or accurate outlook for 2014 and we will give you some future projections as we do that every year. So in short, and as a function of what we have in October we will have all the data available for the questions you just put to me on dividends and changes etc. so that we can provide the information with absolute transparency. As regards the generation restrictions – José Luis San Pedro: The changes regarding restrictions is that the market procedure will not be used at those points where they are less than three suppliers that is one or two, and in that case it is said that the fuel cost and the startup and shutdown cost will be considered. In other words, in many areas where there may be restrictions and where there are only one or two actors that can offer or supply their remuneration and that will probably be reduced compared to the one they can obtain now. In other words, the situations that are being considered are situations where the recovery of the fixed cost for combined cycles is becoming more and more difficult.

Next question. (inaudible) Donna right behind Carolina.

Good morning. Thank you for answering my question. I have a question regarding regulation and another regarding dis-investments. As to regulations you’ve explained how in the remuneration of regulated activities return would be below (inaudible) levies you see, do you think there is any chance that during the public consultation phase, this might change or will this remain – these proposals remain as they stand? Second, regarding remunerations, the outstanding 800 million, will this be postponed to 2014? Ignacio Galán: Well, the first question is easy and I think that I have pointed this out before and I'm convinced that many of these inefficiencies that have got into the system are all that we have of the whole proceedings, but I hope that if things are reasonable, things we will be analyzing the reasonable, then we will do as much as we can for to be so, not only because of impact that companies have but also because of the image of the country and doing things that are not very rationale like the data and the figure regarding the remuneration of what the regulated activities of all of our environment and countries where they have lower risk premiums. And in the case of Spain it doesn't seem to be a reasonable, there have been no rational. So I hope and trust that these things will be debated, analyzed, and eventually modified. And although while perhaps we should set a path to make sure that we can out of that situation in which there is a lack of coherence or lack of rationality because it’s not rational to have 300 basis points without capital costs. So the indicator is pretty negative. But regarding divestitures, oh yes, we are working on this and the objective we have is until 2014 and there will be things that we will be doing but by the end of 2014 we want everything to be covered, we are not postponing anything but rather we are still on the path toward achieving these goals. It’s a continuous action by having continuous divestitures too.

Good morning. [Carrel Avil] from JP Morgan. The first question regards the regulation in the UK, have you already sent the business plan for the distribution business, there's a lot to discuss with the regulatory yet but based on this business plan how will the distribution revenue will – and be scheduled for the next year? Second, the liberalized business forward prices have fallen considerably in this first six months of the year, could you elaborate – tell us to what extent is the forward price reference for the forward portfolio says or what is the [possible income] that you think can be achieved in the coming years? Third question as to exchange rates from what you have told us, you have an 80% coverage on evolution of exchange rate. Could you elaborate a little bit about the evolution of this coverage, at least an approximation, and what’s your degree of coverage exchange rate for next year? Ignacio Galán: Well the first question, knowing how much the first – how much does our business plan represent, we are currently carrying out discussions and you cannot divide the fast track or not but we are now in the very early stages. And this is something that I will ask my coworkers to have a look that I haven’t got the specific data here on me. But I have to say that at this point in time we have transmission until 2020. We have distribution until 2015 and we are negotiating from 15 to 23 and we've just sent our plan and we will have the first inputs for the plant by the month of October. Am I right or am I wrong, please correct me. If I am wrong. But in any case we will have this -- as for the month of November we will carry out the discussion process but if we move into the fast track which has certain advantages, the results will be of a certain kind, if we did not end up via the fast track the results will be different and we won’t have that until January and February next year, until 2015. So in other words, there is a negotiation process from now until the end of 2014. So it will be a lengthy process in which we will adjust a number of variables. So it’s really difficult to give you any figures right now but in any case if you are very, very interested, we could have a look and see what we can give you. On the second issue, perhaps you could say something.

The evolution of forward prices has been quite generalized, has not only been the case in Spain, but as you know there has been a 7% drop in Brent prices, 15% in gold, and nearly 50% in CO2 process. So this has been a generalized drop. In Spain, we continue to maintain a differential with Germany and this is the reference which will have – they are something to do with some degree of internationalization forward sales have been in parallel to the fall in forward prices, not so much so as the commodities. But of course, they have fallen too just like when commodities come rise, selling price does not really follow the same increase. So this is really netting out of the ordinaries, they are normal for markets. Ignacio Galán: The hedging or coverage until the end of the year, where there is no hedging for additional years. So because for our accounting, so there are speculative derivatives that are – we use mark to market at the end of the year. So for next year at December 31 we would have profit or loss but the following year, there wouldn't be a coverage or hedging. So the hedging is always done for the whole year -- at the beginning of the year, therefore the hedging is until the end of 2013. Virginia Sanz – Deutsche Bank: Good morning. My name is Virginia Sanz from Deutsche Bank. I have a question regarding the impairments on renewable energy in the US. This is the second time they have done this income with impairments. But – will this be the final – the last time we see impairments on the P&L or are more impairments contemplated or expected for the future? No improvements occur in the renewable market in Spain. Do you think there might be some impairments for wind energy in Spain? José Luis San Pedro: Well we are not able to assess the impact of renewables according to the model that have been submitted, that’s going to be very difficult for us to see whether we need impairments or no but let’s see what the outcomes are like and based on those outcomes we would be able to make whatever adjustments have to be made. As regard to the United States, well things are moving at a certain speed and if somebody would've said 3 years ago that we are selling power for $70 or $80 per MWH and there are states in the United States that are now operating between 30 and 35. So it will all depend in those states if we have cleaned up those states in which there were prices and therefore less possibilities of building some wind farms considering the prices that are currently in force. But there will be other states where – while they are still attractive and have more reasonable conditions. But if in the future if all of them dropped all, if others go up in the future we will see what has to be done. But this will depend to a large extent on the policy that president Obama designs for these products. But right now he's presented a number of measures to provide incentives for the reduction of emissions etc. and incentives for renewables and depending on the final outcome in the Senate this will make some of these issues more or less attractive. So the best vision we have is we have done until now, what will happen in one year will depend on whatever happens in one year. So we're adjusting things according to the vision we establish at each point in time.

Next question from the room. There are no more questions. We will move to website, there are questions. Andrew Morgan from [Credit Suisse] says that we have pinpointed a number of inconveniences, difficulties for the development of (inaudible) what can we do to change the strength? Ignacio Galán: What I have said that – we already said this, through the process of negotiations that I think to be submitted on the 31st if I am not mistaken. Until the 31st which is so when you can submit all the allegations to, all of these documents that have been produced by the administration to solve any deficiencies we see in the system. I trust and hope that some of these considerations will be taken into account and then throughout the parliamentary process as the director general just said, we then have to look into the royal decree, and that will be possible to include through the different parliamentary groups that we will be able to include amendments. And of course, this is why I said that in the second half the year we are going to have a significant regulatory activity to try to improve whatever we can in those things that we believe are not completely efficient.

The next question comes from [Lawssen Seve from Berenberg First] Do you get varying legal actions taken against the decisions that the government may take which may be considered as unfair in this regulatory framework? Ignacio Galán: Well, I think that this company always has some very clear targets, in other words, defending the interests of its shareholders and over the last few years and now presently we've always considered something that if there is anything that is negative for the shareholders’ interest we then implement whatever legal actions have to be taken to defend our company. And there are lot of things that are currently in progress and those things that we consider that are not fair or are not reasonable, well for those things we then resort to the mechanisms that the company has to find the suitable path ways to achieve a reasonable solution from the point of view -- from the legal perspective, from the point of view of distribution.

We have two questions regarding hibernation of capacity, one from [Larsson Still] and (inaudible) from Banca. First, what is the capacity that you think might be shut down as a result of the new regulation and – he sort of wants to know what is the benefit of hibernating combined cycle power plants? Ignacio Galán: Well the maximum amount as I said 6000 MW and this is possibly something we will be involved in the process and we would do as much as we possibly can to implement reasonable term, 6000 MW with capacity surpluses is a substantially small figure and perhaps some of the power plants will not really hibernate but some of them might even be closed down over the next few years as is happening in Germany and Italy or Belgium or France even. So How much capacity is to be removed and how much does hibernation represent, well, as the director general said that will be based on an auctioning process and what advantages, does it all the advantages at an accounting level, under hibernation you do not have to amortize anything and you have no fixed costs in terms of start for 80 hours and then depending what happens in the auction we hope that we will receive some kind of economic compensation and how much could it be? Well this will depend on prices that are given.

I have three questions, one from Larsson, [Leslie Wahab], BNP Paribas, that is regarding the company’s plans for the future. First, when do we contemplate to review, when to expect to review the figures, I think we have already answered that. After the publication of this new reform, do you think this is – and considering its impact on your future profits, do you think we can maintain the commitment – to maintain the script dividend by €0.30 per share and the final question is, after the regulatory reforms do you think it would be necessary for the company to reduce costs, just to speed up the disinvestment process? Ignacio Galán: We have already mentioned the cost reduction process, our efficiency has improved by 7.6% and expenses are being reduced and although practically all the items are benchmarked at the European level, we got to continue on this lines and we've been working this for many years and the company will try to achieve much more efficiency in all. As regard the future outlook the 2014 and other years and as regards the dividend policy etc., etc. we are going to be waiting until those dates arrive which is when we will have clear cut information on the impacts that can occur and those areas are not yet (inaudible) during the investors day, we can give you an outlook and our forecast for the future. As regards divestitures, as I said many times our plan is two billion in divestments, we’ve already achieved 1.2 and before the end of 2014 we will be cover the other 800 million. This is the plan we have up and running unless an alternative plan is submitted, this is what we are doing and we are not going to modify it. What about the future prospects? Well, we'll talk about this on the investors as soon as we have the data on the effects that arise from reform in those areas that we've not been able to assess until now like renewable for instance.

We have one question left regarding the returns of renewable energy, according to the royal decree but the question is quite complicated, I don’t really understand the question. So we will just question personally once we’ve understood completely his question. Okay. We have a few more questions from the website. There are few more questions over the telephone but I am afraid we are out of time. So we have wrap up. Ignacio Galán: Well, thank you all very much indeed. I hope to see you again in the month of October so that I can talk about the future prospects. Thank you very much.