Ebitda was stable at €4.05 billion, a slight decline of 0.9%
Taxes and levies rose 79% over the same period last year to €863 million
Cost reduction enabled Group efficiency to improve by 7.6%
Continued progress in meeting 2012-2014 strategic outlook goals: divestments surpass €1.2 billion
Lower investments and sales of non-core assets helped reduce debt by €3,225 million and improve gearing to 45% compared with 48.3% at the end of June last year
IBERDROLA recorded net earnings of €1,728 million in the first half of 2013, down 2% on the same period last year. Gross operating profit (Ebitda) held at levels similar to last year, standing at €4,051 million, a slight decline of 0.9%.
Gross margin improved 5.8% to €6,676.4 million, with increases across all businesses and countries where IBERDROLA operates, except in Brazil which was negatively impacted by a tariff review at Elektro and excess energy costs resulting from adverse climate factors.
Recurring net profit rose 2.8% to €1,402 million, with strong business performance offsetting a sharp increase in levies and taxation that rose 79% during the period to €864 million compared to the €481 million corresponding to the first half of 2012. This amount includes taxes on generation in Spain, amounting to €252 million, and the impact of €95 million from energy efficiency programmes in the UK.
The Company continued to improve operating efficiency with a 7.6% gain compared to the same period last year. Net operating expenses declined 2.2% to €1,762 million driven by efficiency programmes in effect.
IBERDROLA recorded the best operational ratios among the leading European utilities by market capitalization and thereby strengthened its position as a benchmark for the sector. At the end of 2012, the ratio of installed megawatts (MW) to workforce was 1.5 for Iberdrola compared to 0.9 MW for the average of European utilities. The Company was also first in the ranking of installed MW to renewables workforce at 7.2 and in points of supply to networks workforce at 1,650 against 2.3 and 805, respectively, for the average of the other major 5 European utilities.
Net operating profit (EBIT) was 65.3% down at €881.7 million due primarily to writeoffs of development costs related to the renewables project portfolio, reflecting uncertainty arising from current market conditions as well as an adjustment of asset values in the US and Canada. These adjustments are reflected in provisions which stand at €1,657 million.
Financial costs were 15.2% or €568 million lower mainly as a result of a reduction in the average outstanding balance of net debt and a positive impact from currency hedging.
Corporate taxation registered a positive €1,460.5 million, a consequence of the Law 16/2012 offering the option of effecting a balance sheet adjustment that allowed a revaluation of assets for tax purposes in line with pre-determined coefficients that incorporate inflation.
Some of Iberdrola's subsidiaries in Spain have opted to take this option and revalue certain assets. According to norms governing balance sheet adjustments, the amortization of revalued amounts is tax deductible from 2015 and throughout the remaining life of those assets. It also establishes payment of a 5% tax on the amount revalued in the financial year of the adjustment in order to be eligible.
As a result of this balance sheet adjustment, Iberdrola increased the value of some assets for tax purposes in Spain by €6,323 million. The amount tax deductible against this revaluation came to €1,854 million while the 5% tax represented €316 million. As a result, the net amount under Corporate Taxation came to €1,538 million. Under IFRS norms both the 5% tax and the entire fiscal savings accruing from the asset adjustment should be incorporated into this year's accounts, independently of whether the savings are realised from 2015 and over the remaining life of the revalued assets.
Net earnings were 2% lower at €1,728 million, but improved business performance enabled the Company to maintain shareholder remuneration levels in 2013.
IBERDROLA contributed a total of €5.3 billion to public finances in 2012 in the countries where it operates through taxes and other levies, of which 49% was in Spain even though the country accounted for only 30% of Group net earnings last year.
This sum is likely to increase by the end of 2013 with the Company having already contributed €2.7 billion in the first six months, a rise of 23% over the same period last year with a significant increase in outlays in Spain which now accounts for 56% of the total.
Strategic Outlook goals achieved, solid finances
During the period, IBERDROLA made further progress in strengthening its balance sheet, enjoying liquidity of €11,945 million by end June, enough to meet financing needs for 36 months.
Net Group adjusted debt came to €28.8 billion, a reduction of €3,225 million against the same time last year, not taking into account €2,153 million pending repayment from the tariff deficit. Including this amount, debt stood at €26.65 billion against €29.32 billion in the first six months of 2012.
IBERDROLA also continued to advance in its non-strategic asset divestment plan, with €1.2 billion sold to date of which €800 million has been received. Gearing, including the tariff deficit, stood at 45% at the end of June compared to 48.3% in June last year, and excluding the tariff deficit, it was 43.1% and 46.1% respectively.
This progress has enabled the Group to improve its financial ratios, with the relation of funds from operations (FFO) to net debt and that of retained cash flow to net debt standing at 21.1% and 18%, respectively – both including the tariff deficit.
Key operating aspects of the period
1) NETWORKS BUSINESS: GROWTH IN ALL AREAS EXCEPT BRAZIL
Ebitda from IBERDROLA’s networks businesses in the first six months was 0.8% lower than the same period last year at €1,965 million. Of this total, 62% came from outside Spain with all regions except Brazil growing in the first half.
Gross margin for this business was 1.5% lower at €2,855.6 million. By countries, relevant factors included a tariff adjustment in Spain and higher revenues in the UK resulting from a larger asset base. In the United States, revenues rose with a contribution from the electricity transmission line in Maine. In total, gross margin from these areas rose 5.3% to €2,315 million.
In Brazil, however, gross margin was down 22.9%, with a 5.8% increase in demand offset by a tariff adjustment for Elektro producing a negative impact of €70 million in the first half, as well as the effect of extra energy supply costs of €43 million that are expected to be recouped through tariff adjustments.
2) GENERATION AND RETAIL: LEVIES INCREASE 144.8%
Generation and retail recorded Ebitda of €1,172 million in the first six months, a decline of 6.1% impacted by a 144.8% rise in levies and taxation from €327 million to €552.7 million.
This sharp increase in levies and taxation, which rose 2.4 times in the period, absorbed a strong performance from this business where gross margin rose 12.4% and costs were reduced by 5.9%.
By countries, production rose 5.1% in Spain helped by increased rainfall benefitting hydro, but the result suffered a €208 million negative impact from new taxes on generation in Law 15/2012.
In the UK, performance was helped by increased production plus improved results from retail where the customer base rose 7.3% and colder temperatures also led to increased demand. Nonetheless, energy efficiency programmes had a negative impact of €95 million.
3) RENEWABLES: EBITDA ROSE 10.5%
Gross margin from renewables rose 12.5% in the first half of the year to €1,32 million, driven by a 10.1% rise in production reflecting a 3.5% increase in operating capacity to 14,028 MW and a high average load factor of 30.6% compared to 28.7% in the same period last year.
Ebitda from renewables was 10.5% higher at €937.5 million, while a 0.4% reduction in net operating costs also helped the improvement in gross margin.
Tax and levies rose to 142.2% or €58.7 million, due principally to fiscal measures approved in Spain under Royal Decree 2/2013.