Operating results improve, fruit of investments and a solid business model
IBERDROLA GROUP OPERATING EARNINGS ROSE 11.7% TO €3,835.6 MILLION IN FIRST HALF 2010
Growth achieved thanks to investments (€2,145 million) in markets offering greater stability, above all the US and UK
Output grew 14.2% to 79,791 million kWh, with an increase in CO2 emission-free generation
Efficiency improved 9% in all businesses and operating cash flow rose 15% to €2.71 billion
BALANCE SHEET STRENGTH
Iberdrola consolidated balance sheet strength and improved gearing to 45.8% from 48.4% in the first half of 2009
The Company maintains expectations of higher Ebitda and recurring net profit in 2010 compared with previous year
IBERDROLA recorded gross operating profit (Ebitda) of €3,835.6 million in the first half of 2010, a rise of 11.7%. Diversification enabled the Group to balance unequal performance across markets, with improved Ebitda in all markets and gross margin in all businesses.
The results are the fruit of Group’s investments, higher output and efficiency gains. Ebit rose 6.9% to €2,498.1 million, gross margin by 8.9% to €5,935 million, net recurring income by 7.3% to €1,324.2 million, revenues by 16.9% to €15,318.5 million and operating cash flow by 15% to €2,710 million.
Net income declined 2.6% to €1,467.2 million, reflecting lower capital gains in the period (€83 million against €223 million). In like for like terms, earnings would have risen 7.3%. Investments rose 2% to €2,145 million, allocated to markets offering greater stability, essentially the US and the UK.
The contribution of new businesses (renewables and international) to Ebitda came to more than 63%, against 37% for Spain. By business, Ebitda for renewables rose 21.5% and Iberdrola USA by 40%, while by geographical area, Spain contributed 37%, ScottishPower 20%, Iberdrola Renovables 18%, Iberdrola USA 9%, Latin America 13% and others 3%.
The productivity of Iberdrola assets around the world enabled it to increase global production by 14.2% to 79,791 million kilowatt hours (kWh), reflecting higher output from CO2 emission-free technologies, above all hydro (+119%), wind (+22%) and nuclear (+11%). The Company has continued to diversify and expand its generation fleet, with low emissions and flexible costs, with installed capacity standing at 43,855 megawatts (MW).
Iberdrola operations in the first half of 2010 focused on consolidating its financial foundations. The balance sheet structure was strengthened through a 9% efficiency gain across all businesses.
The Company enjoys comfortable liquidity (€9.4 billion), covering financial needs till mid 2012. Iberdrola reduced its gearing during the period to 45.8% from 48.4% (excluding the tariff deficit impact), and net adjusted debt stands at €26,573 million (excluding the deficit).
During the first half, the Company successfully implemented a new shareholder remuneration plan, named the Flexible Iberdrola Dividend, coinciding with payment of the final 2009 dividend. The option of choosing free shares, with no fiscal cost, was accepted by 64.1% of shareholders, representing a pioneering scheme in Spain’s non-financial sector.
First half results underline the positive impact of strategy followed in recent years, and of the more than €62 billion invested between 2000 and 2009. This enabled Iberdrola to triple its installed capacity, multiply output by 2.7 and clean energy by 11 times, double quality of service ratios, provide jobs for 33,000 people, create more than 35,000 indirect jobs, carry out purchases valued at €27 billion, invest €100 million a year in R+D and build one of the world’s largest energy engineering companies.
The group has expanded operations to more than 40 countries and diversified its businesses into deregulated markets with more attractive prospects for economic recovery. The international profile of the Company has enabled it to rise to become the leading energy group in Spain, one of the top companies on the IBEX 35 index by market capitalisation, world leader in wind power and one of the leading global electricity groups.
For the year as a whole, the Company expects to increase Ebitda and recurring net earnings as a result of a stabilisation of demand as well as other factors including efficiency gains, adapting investments to cash flow generated, securitization of the tariff deficit in Spain and an improved debt profile. The Company is thus well placed to meet the difficult economic conditions with a generation mix for the most part not dependent on raw material prices and a diversified asset portfolio.
In coming years, the Company will base its growth strategy on sustainable energy projects with high added value in its reference markets of the Atlantic Area. The focus will be on CO₂-free energy sources such as renewables, hydro-power, nuclear, smart grids and electric vehicles.
To achieve this, investments totalling €18 billion are projected between 2010-2012, of which €9 billion will be in renewables (mainly wind power), €6.3 billion in networks and €2.7 billion in electricity generation and energy marketing in world markets.
Key aspects in first half 2010
1) SPAIN: INCREASED CLEAN ENERGY OUTPUT
Production rose 21% to 38,892 million kWh with a major contribution from hydro power which rose 151.6% to 13,351 million kWh and renewable energy which increased 23.9% to 6,189 million kWh) Nuclear power produced 12,650 million kWh and combined cycle gas 5,077 million kWh.
Emissions declined 48% from 154 grammes of CO2 per kWh to 80, while 82.8% of the Company’s output in Spain was emissions free.
Ebitda from traditional business in Spain in the period stood at €1,451.5 million in the period, of which €912.5 million was from liberalised business (+26.9%) and €539 millioin was from regulated business which increased 6.3% as a result of efficiency gains and despite lower revenues.
With regard to regulatory aspects, the Company urges a rapid resolution that provides juridical security for the sector while offering consistency with European legislation and market principles. The Group is owed €4,169 million from the tariff deficit, which it hopes to receive in the coming months.
2) INCREASED PRODUCTION, CAPACITY AND DISTRIBUTION
Production rose 14.2% to 79,791 million kWh, in the context of a modest recovery in demand and with an increased contribution from clean generation technologies. The figures are also a reflection of the international expansion strategy followed in recent years.
In particular, hydro power increased 119.1% to 14,420 million kWh, contributing 18.1% of all energy generated by the Group. Renewable energy also rose by 21.5% to 12,858 million kWh, and its weighting in overall Group output rose to 16.1%. Nuclear rose 10.6% to 12,650 million kWh, nearly 16% of the total.
Group emissions came to 238 grammes of CO2 per kWh, a decline of 14% on the same period last year, with 50% of all Iberdrola production free of CO₂ emissions.
The Company continued to diversify its generation assets around the world with installed capacity standing at 43,855 MW, of which combined cycles accounted for 30%, hydro for 22.4%, renewable energy for 26%, thermal sources for 10.7%, nuclear 7.6%, cogeneration 2.8% and fuel oil 0.4%.
The Company expanded capacity strongly abroad, where it has 6,852 MW in the UK, 4,841 MW in the U.S., 5,555 MW in Latin America and another 1,125 MW in the rest of the world. In Spain, Iberdrola ended the period with 25,482 MW in capacity.
The Company will continue to prioritize basic energy development in coming years with an emphasis on environmental protection, with the commissioning of new renewable energy installations and hydro plants.
3) IBERDROLA RENOVABLES: INCREASED CAPACITY AND PRODUCTION
Net earnings rose 6.5% to €158.1 million in the first half, driven by investments, the Group’s geographical diversification that offset uneven performance across markets. Gross operating profit (Ebitda) rose 21.5% to €706.7 million, driven by wind business which contributed an additional €107.4 million compared to the same period last year. Gross margin rose 20.5% to €998.2 million.
Electricity generation rose 21.5% to 12,858 million kilowatt hours (kWh), with a 22% rise in Spain, 27% in the United States and 32% in the rest of the world. Operating capacity came to 11,215 megawatts, a rise of 16.5%, with a 51% rise in the United States. More than half of total capacity is outside Spain, as a result of the diversification strategy.
4) UNITED KINGDOM: AFFECTED BY BUSINESS SEASONALITY
ScottishPower Ebitda declined 7% to €771 million reflecting lower performance from liberalised business which was partially offset by increased revenues from networks reflecting new investments.
Iberdrola increased its installed capacity in the United Kingdom by 0.3% to 6,852 MW with new renewables installations commissioned. Electricity production rose 9.2% to 14,224 million kWh.
5) UNITED STATES: INCREASED CONTRIBUTION FROM IBERDROLA USA
Iberdrola USA contributed 9% to Group Ebitda in the period, representing €328.1 million, an increase of 39.8%. Iberdrola’s performance in the United States was also strengthened by the significant growth of its renewable energy subsidiary. The Group now has installed capacity in the country totalling 4,841 MW, a rise of 803 MW from the year before, of which 3,877 MW are wind power.
Sustained by this increased capacity, Iberdrola increased production by 22,8% in the U.S. to 6,599 million kWh. Distributed energy came to 14,960 million kWh, 14.7% of the Group total. The Company operates in 23 states through regulated activities (electric and gas networks), gas storage, conventional generation and wind power.)
The Company recently announced the start of one of the key projects in the United States in the field of electricity transmission. The project, which will benefit electricity interconnections between Massachusets, New Hampshire and Maine, as well as between Maine and Canada, represents an investment of $1.4 billion whose cost will be met by customer tariffs in New England.
The Group expects to finance the project with approximately $1.3 billion in funds to be obtained from the sale of non-core assets in the states of Connecticut and Massachusetts: the Connecticut Natural Gas Corporation (CNG), The Southern Connecticut Gas Company (SCG) and The Berkshire Gas Company (BGC).
6) LATIN AMERICA: INCREASED CONTRIBUTION FROM BRAZIL
Gross operating income in Latin America rose 15.7% to €489.2 million, representing 13% of total Group Ebitda. The increase reflecte dan increase of 9.5% in demand and improved currency Exchange factors in Brazil.
With installed capacity of 5,555 Mw, the Company generated 19,047 million kWh, a rise of 2.8%, while distributed energy rose 9.9% to
16.816 million kWh, 16.6% of the total.
* Source: Bloomberg New Energy Finance