Results reflect Group’s ability to generate cash flow in a difficult economic environment

IBERDROLA FIRST HALF EARNINGS RISE 6.6% TO €1,563.6 MILLION WITH RECURRING PROFIT UP 9.4%

• Ebitda rose 4.4% to exceed €4 billion for the first time in a 6 month period, while strengthening the balance sheet and maintaining liquidity of over €10.35 billion, thereby underpinning the A rating

 BUSINESS PERFORMANCE

• Overwhelming shareholder support at the recent AGM endorsed the Group’s sustainable growth model



• Process of optimising group activities continued with the Elektro acquisition and merger with Iberdrola Renovables



• Production was nearly  74,600 million kWh in the period, during which wind generation exceeded hydro and nuclear for the first time



• Ebitda from Brazil rose more than 28%, while IBERDROLA USA rose 39% excluding the sale of the gas distribution firms in Connecticut

RESULTS

• With a 1.5% rise in first half revenues to €15,550,1 million, gross margin rose 3% and costs were 3.2% lower, improving efficiency by 6 percentage points



• Leverage improved to 44% from 46% as a result of a €1.5 billion reduction in debt to €25,779 million, excluding the tariff deficit, and a rise of more than €800 million in equity to more than €32.2 billion



• With these results IBERDROLA is in a position to confirm positive prospects for 2011 and 2012

IBERDROLA’s first half earnings rose 6.6% from the same period last year to €1,563.6 million, with recurring profit up 9.4% at €1,448.4 million. These excellent results, achieved in a very difficult economic and financial environment, reflect the benefits of international expansion and a 6-point improvement in efficiency, reflecting a new organizational model which drove a 3.2% net reduction in operating costs.

The strong performance resulted in Ebitda exceeding €4 billion for the first time in a six month period. Operating cash flow rose 6.4% to €2,944 million and balance sheet strengthened with debt reduced to €25,779 million and liquidity increased to €10.35 billion.

Overwhelming shareholder support at the recent AGM for IBERDROLA’S sustainable growth model, which has been built on with the acquisition of Elektro and the merger with Iberdrola Renovables. In the light of these results, the Company reaffirms positive prospects for 2011 and 2012.

IBERDROLA production came to nearly 74,600 million kWh in the period, of which more than half was CO2 emission free. Installed capacity was more than 45,300 megawatts (MW). Despite the difficult operating environment, revenues rose 1.5% to €15,550.1 million, driving a 3% rise in gross margin to €6,113.6 million, while net operating costs fell 3.2%. This enabled a 6% improvement in operating efficiency deriving from a new organizational model that has brought synergies and economies of scale.

As a result of increased business activity and higher efficiency, Ebitda rose 4.4% to €4,004.8 million.

Gross operating profit was supported by improved results from more stable businesses – regulated (+18%) and renewable energy (+11%) – which offset more volatile businesses such as liberalized (-15%) which were affected by a lower contribution from the UK and higher taxation, mainly in Spain. Regulated businesses provided 47% of Ebitda, liberalized business 32%, renewables 20%, and other areas 1%.

This record high Ebitda level in the first half, with a rise of 5.7% in like for like terms to €4,054 million – is the fruit of the Company’s low-risk growth model. Ebit rose 5.1% to €2,626.7 million. The model is based on core business (more than 45,300 MW of operating capacity and 30.7 million customers), a focus on clean energy with 13,000 MW of installed wind capacity and efficiency based on synergies and economies of scale in expenses and purchasing, as well as competitive financial management.

The Group achieved production of 74,591 million kWh in the period, above the average for the past three years for this period, of which more than half was CO2 emission free. Hydroelectricity reserves in Spain came to more than 72% at June 30.

The first half was key to the process of optimizing group businesses, with the objective of enhancing the business portfolio, making it more international and consolidating its financial strength. In this context falls the acquisition of Brazilian distribution company Elektro for $2.4 billion, overwhelmingly approved by the AGM and completed on July 8, and the share investment of a new strategic partner, Qatar Holding with 6.16% via a capital increase.

Progress continued to be made in the first half towards strengthening the balance sheet, with a reduction in net adjusted debt (excluding the tariff deficit) to €25,779 million from €27,209 million at the end of the first half of 2010. Equity stands now at €32,312 million, against €31,489 million at the end of June last year. As a result, leverage was reduced to 44%.

Increased liquidity: €10.35 billion

During the first half, IBERDROLA enhanced its financial profile as a result of improving its financing conditions, increasing the average life of the debt and increasing liquidity.

Results from financial operations rose 23.6% to €524.2 million, largely due to geographical diversification which enabled the Company to obtain better conditions than those of the Kingdom of Spain. Transactions in Spain, the U.S., the UK and Brazil have lengthened average maturity of the debt from 6 to 6.4 years. IBERDROLA has also increased liquidity to €10.35 billion, enough to meet financial requirements for the next 24 months.

With the programme of tariff deficit bonds under way in Spain, IBERDROLA has recovered €2.1 billion this year which leaves the outstanding balance 33% lower at €3,505 million against €5,249 million at the end of 2010.

These results underline the success of strategy followed in recent years by IBERDROLA. The international expansion has led the Group to be present in more than 40 countries and to diversify its businesses to the more deregulated markets and best placed to take advantage of economic recovery. The Company is now the leading energy group in Spain, one of the top listed companies on the IBEX35, world leader in wind power and the fifth largest electricity company worldwide by market capitalization.

Key operating aspects in the first half of 2011

1) GROUP PRODUCTION ABOVE AVERAGE LEVELS

International diversification and increased clean energy output saw the Group achieve overall production of 74,591 million kWh in the first half of 2011, above the average for the last three years.

Significant advances were registered in renewable energy, which generated 16.8% more to reach 15,017 million kWh, accounting for 20.1% of the total. Fort he first time it exceeded that from nuclear plants (12,258 million kWh, or 16.4% of the total) and hydro (10,727 million kWh, or 14.4%).
Combined cycle gas plants produced 27,952 million kWh, making up the largest amount with 37.5% of the total. Of total Group output, 51% was CO₂ emission free. Emissions came to 234 grammes of CO₂ per kWh, 4.1% lower than in the same period last year.

IBERDROLA continued to diversify its generation fleet around the world, with total capacity standing at 45,333 MW. By technology, combined cycles represented 29.1% of total capacity, renewable energy 28.6%, hydroelectricity 21.4%, thermal 10.4%, nuclear 7.4%, cogeneration 2.7% and fuel oil 0.3%.

A substantial amount of capacity is located outside Spain, with 7,015 MW in the UK, 5,769 MW in the U.S., 5,852 MW in Latin America and another 1,166 MW in the rest of the world. In Spain, IBERDROLA capacity was 25,530 MW.

The Company's focus on clean energy has led it to becoming a leading actor in the fight against climate change, a policy that will continue in coming years with new renewable energy and hydroelectricity installations coming on stream.

2) STRONG PERFORMANCE IN REGULATED BUSINESSES

Ebitda for the regulated businesses of IBERDROLA rose 18.4% in the first half of 2011 to €1,892 million. Spain contributed €780.4 million, a rise of 25.3% and accounting for 41.2% of the total, supported by a improved remuneration framework.

Ebitda from the UK rose 13.2% to €412.5 million making up 21.8% of the total. This performance reflects a 20% rise in investments and improved efficiency.

In the U.S., Ebitda for this business rose 2.1% to €335 million, reflecting efficiency measures in place which offset the impact of the sale of gas subsidiaries in Connecticut. Excluding this asset sale, gross operating earnings would have risen 39%.

Last September, IBERDROLA USA began construction of one of the most important electricity transmission projects in this country, the Maine Power Reliability Program (MPRP) which will benefit electricity connections between Massachusetts, New Hampshire and Maine, and between this last-named state and Canada, with a total estimated investment of $1.4 billion.

Gross operating earnings in Brazil rose 28.8% to €364.1 million, accounting for 9% of Group Ebitda during the period. This increase reflects a 4% rise in demand from the Company's subsidiaries in the country, new hydro capacity on stream and improved exchange rate factors, as well as the incorporation of Elektro which contributed €80 million in just two months.

IBERDROLA closed the acquisition of this Brazilian distribution company in the second quarter for $2.4 billion, ratifying its strategy of growth in Brazil. Elektro is one of the leading electricity distributors in the country, with operations in the states of Sao Paulo, where it is the third largest distributor, and Mato Grosso, supplying more than 11,500 GWh in 2010 to 2 million customers through a network of 105,800 kms.

This acquisition reinforces IBERDROLA's strategic focus on Brazil, a country with one of the highest growth potentials in the region, providing a platform for continued expansion in Brazil, where it has been present since 1997, in the event that attractive business opportunities arise.

3) LIBERALIZED BUSINESS AFFECTED BY HIGHER TAXATION

Ebitda of the liberalized business fell 14.7% in the first half to €1.29 billion, affected mostly by higher taxation in Spain and tighter margins in the UK, as well as the sale of the Guatemala subsidiaries in 2010.

In Spain, Ebitda from liberalized business increased 2.1% to €931.8 million as a result of a 7.6% rise in basic margin and despite a 37.9% rise in taxation to €265.5 million, nearly 70% more than that paid in the first half of 2009 (€158.6 million). This figure now represents 28% of gross operating earnings in Spain.

The Company again increased installed capacity in Spain, rising to 25,530 MW from 25,271 MW at the end of June last year. Production came to 34,504 million kWh with a significant contribution from nuclear power (12,258 million) and large-scale hydro (9,624 million), as well as from renewables (5,857 million). Combined cycles produced 4,553 million kWh, cogeneration plants 1,372 million and thermal plants 840 million.

Emissions stood at 102 grammes of CO per kWh, well below the average for the Group of 234 grammes. Of total production in Spain, 80% was emission free.

Capacity in the UK rose 2.4% to 7,015 MW and production came to 11,566 million kWh. Ebitda fell 53.7% due to tighter margins and lower sales of electricity and gas.

Ebitda in Mexico fell 14.7% to €176.2 million but was in line with the same period last year if the sale of the Guatemala assets last year and exchange rate factors are discounted.

4) RECORD HIGH PRODUCTION IN RENEWABLE ENERGY

Renewable energy business showed a gross operating profit of 785.1 million in the first half, a rise of 11.1% due to new capacity brought into commission. IBERDROLA increased installed capacity by 13.8% to 12,977 MW in the period, and over the past 12 months has brought on stream 1,577 MW in operating capaity, of which 57% or 900 MW was in the U.S., 275 MW in Spain, 176 MW in the UK, where it has recently achieved 1,000 MW, and 226 MW in the rest of Europe and Latin America.

As a result of this diversification of the generation fleet, more than half of total capacity (55%) is now outside Spain.

Renewable energy production rose 16.8% to 15,017 million kWh with significant increases in the U.S. (+37.9%), the UK (+67.5%), Latin America (+54.5%) and the rest of the world (+10.7%). Wind power continued to be the mainstay of the renewable business, contributing 97% of total generation.

5) OTHER BUSINESSES

Ebitda from other Group businesses in the period rose 37.7% to €67.3 million, with IBERDROLA ENGINEERING AND CONSTRUCTION accounting for 85%.