The Company cements its place as Spain’s leading energy group and the 5th largest worldwide

IBERDROLA RECORDS €1,506 MILLION PROFIT IN FIRST SIX MONTHS OF 2009, DRIVEN BY INTERNATIONAL GROWTH

• Ebitda rose 4.7% to  €3,435 million, of which two thirds came from new businesses and the international area

BUSINESS PERFORMANCE

• Geographical diversfication and efficiency gains boosted operating profit, despite falling demand in all markets, lower prices and the impact of the sterling/euro exchange rate
• Income rose in all areas during the period, with the exception of liberalized business in Spain
• Despite declining demand, production was stable  while distributed energy grew 14.3% and generation capacity by 2,400 MW
• IBERDROLA has established the foundations for growth in the medium term through new wind, hydro and nuclear projects around the world

SOLID FINANCES

• Sales of non-strategic assets totalling €1.3 billion,  in addition to the recent capital increase of €1.325 billion, helped the Company to maintain its ‘A’ rating and face  programmed investments with a solid balance sheet
• Equity funds totalled €28,212 milllion. Debt (excluding the tariff deficit) is projected to fall €6 billion by the end of the year and financial gearing to decline to 48%

IBERDROLA recorded a net profit of €1,506.4 million in the first half of 2009, a decline of 23% over the same period last year, reflecting lower extraordinary income, weak demand in all markets, lower prices and the negative impact of the sterling/euro exchange rate.

Despite the adverse economic environment, Ebitda rose 4.7% to €3,435 million, thanks to international growth, effective management of the businesses, improved efficiency, a solid balance sheet and investments over the past few years. New  business and international activities now account for two thirds of total Ebitda.

Energy business in Spain contributed 36% to Ebitda, ScottishPower 24%, Iberdrola Renewables 17%,  Energy East 6%, Latin America 13% and other activities 4%. All businesses registered growth, with the exception of liberalised in Spain, which was affected by the steepest fall in demand in the past 40 years as well as low prices. Overall revenues rose 9% to €13,109 million, gross margin by 10.9% to €5,451.3 million and operating cash flow by 3.4% to €2,355 million while net operating profit (Ebit) fell 1.2% to €2,337.8 million.
 
IBERDROLA’s management objectives during the period have been to optimize Group finances, thereby underpinning balance sheet strength and future investments. The measures taken include new efficiency gains, with operating costs falling 7.5% (excluding Energy East), meeting asset divestment targets, and an accelerated capital increase a month ago of €1,325 million.

The Company as a result cut its financial gearing from 52.2% at the end of the first quarter to 48.4% (excluding the tariff deficit impact). The year end goal is to reduce this to 48% and Group debt by €6 billion over December 2008 to €25-26 billion, which would mean a €6 billion reduction in the year. These steps plus liquidity that stood at €10.6 billion at the end of June 2009 will facilitate continued investments in planned hydro-electric and wind projects and making associated purchases from suppliers, thus contributing to economic recovery.

Significant regulatory improvements occurred in IBERDROLA’s markets. In the United States, incentives were approved for wind power, through which the Group should be able to obtain $500 million this year, while the UK has announced a route map to achieve its climate change goals giving priority to renewables, nuclear power and carbon capture, three areas where the Company is focused in that country.

In Spain, the tariff deficit has been resolved, as a result of which the Group is confident of obtaining €2,875 million that correspond to it before the end of the year. Among other measures leading towards a total market liberalization have been the introduction of a new TUR tariff and the social voucher (bono social).

Energy planning in Spain

IBERDROLA is hopeful that the current energy debate and the planning process to take place this Autumn will lead to a model that reduces external dependence while meeting emission reduction goals with a more competitive generating mix.

Increased deregulation and improve regulatory safeguards are vital to secure the stable investment environment needed to help drive economic recovery.
The strength of IBERDROLA’s international model has enabled it to maintain overall production at around 70 billion kilowatt hours (kWh), of which more than half was generated by power stations outside Spain. The Company has continued to diversify and expand its generating assets throughout the world to 43,925 megawatts (MW), a rise of 6% over the same period last year achieved with low CO2  emissions and flexible costs. Distributed electricity rose 14.3% to 100,290 million kWh, of which more than half was outside Spain.

The Company’s solid first half results, amid adverse economic conditions, vindicate strategy in recent years where the friendly integrations with ScottishPower and Energy East, and the stock market debut of Iberdrola Renovables, have consolidated its position among the world’s top five utilities.

For the rest of the year, the plans are to consolidate in the United States and the United Kingdom, markets that are in line with the Group’s priority of diversifying into more liberalised markets that are better placed to achieve economic recovery.

The Company has established the basis for growth in the coming decade with significant hydro and nuclear generation projects, to add to positive prospects for wind power especially in the United States. Specifically, it is developing 3,000 MW in hydro potential with 1,050 MW in Spain, 1,000 MW in Brazil and 1,134 MW in Portugal, and has signed an agreement with GDF Suez and Scottish & Southern to compete for the new nuclear build programme in the UK.

Investments since 2000 have exceeded €63.7 billion, generating wealth and employment. IBERDROLA has created more than 35,000 indirect jobs, it has spent €24 billion on procurements and now has nearly €88 billion in assets, as well as equity of around €28,212 million.

As a result, IBERDROLA has become Spain’s largest energy group, international leader in wind power and one of the world’s five largest global electricity companies as well as one of the largest in the IBEX 35 by market capitalization.

Key operating aspects in the first half of 2009

1) SPAIN: FALL IN PRICES AND DEMAND

IBERDROLA was affected in Spain during the first half of the year by adverse operating conditions, marked by a sharp fall in wholesale market prices (32%) and a 6.4% drop in electricity demand, the steepest fall in 40 years.  This led to a 7.2% decline in Ebitda for liberalised business to €718.9 million, partially compensated by a 9.1% rise in Ebitda in regulated business to €507.1 million.

Production fell 4% to 32,144 million kWh in the period, but less than the 7.6% drop for all electricity providers in Spain. It included increases of 7% in hydro production to 5,306 million kWh and 6% in renewable energy to 4,994 million. Installed capacity rose 2.2% to 26,631 MW.

Thanks to a larger contribution from clean technologies, nearly 70% of production in Spain in the first half was emission free. The level of CO2 emissions per kWh generation fell significantly to 150 grammes from 157.

2) PRODUCTION MAINTAINED, INCREASED CAPACITY AND DISTRIBUTION

The international diversification in recent years has permitted the Company to offset production dips in certain markets due to seasonality and programmed shutdowns at certain power stations. With the integration of ScottishPower and Energy East the Group has expanded its generating assets around the world and increased its customer base.

As a result, Group electricity production was stable in the first half at 69,847 million kWh, recording a slight decline of 1.4%, thanks to strong performance from renewable energy and hydro. Spain accounted for 54% of all energy produced during the period (37,703 million kWh), of which elsewhere 18,529 million came from Latin America (down 2.3%), 13,020 million from the UK (a decline of 2.9%), 5,376 million from the U.S. (up 12.6%) and 778 million kWh from the rest of the world (up 35.3%).

IBERDROLA continued to diversify and expand its generating assets in the first half of 2009, achieving a 6% rise in installed capacity to 43,925 MW. Combined cycles accounted for 30% of the total, hydro for 22.1%, renewables for 22.8%, thermal for 10.7%, nuclear for 7.6%, fuel oil for 4.1% and co-generation for 2.7%.

3) IBERDROLA RENOVABLES, GROWTH ABROAD

The Company consolidated its leadership in the world wind power sector* in the first six months, with Ebitda rising 6% to €581.6 million and net income falling 23% to €148.5 million, amid low wholesale prices in Spain.

Capacity rose 25.8% over last year to 10,003 MW, with more than half of the new megawatts (1,121 MW) installed in the United States, where capacity stood at 3,104 MW at June 30 having risen 56.6% in the 12 month period. A major part of group expansion is focused on this market, due among other factors to the favourable regulatory framework there. 

In the United Kingdom, another priority market for Iberdrola Renovables, installed capacity rose 48.8% to 790 MW, while in Spain it rose 347 MW over the 12 months to 4,730 MW. The Company also has 342 MW in mini-hydro capacity and 50 MW from the Company’s first solar thermal plant at Puertollano (Ciudad Real). In all they amount to 5,124 MW, 51.2% of the total.

Output at the renewable energy subsidiary rose 23.7% to 10,585 million kWh, of which 44% (4,658million kWh) corresponds to wind power in Spain. It rose 57.5% in the United Kingdom and 45.3% in the U.S.

4) UNITED KINGDOM: SOLID PERFORMANCE FROM SCOTTISHPOWER

ScottishPower has become one of the principal drivers of growth for IBERDROLA. Ebitda came to  €828.6 million in the period, accounting for 24% of the Group total, despite the impact of sterling depreciation.

Installed capacity in the United Kingdom rose by 4% in the period to 6,826 MW, thanks to the startup of 259 MW in renewable energy. Electricity production rose 2.9% to 13,020 million kWh, with renewable sources again standing out with a rise of 57.5% to 833 million kWh.

5) UNITED STATES: ENERGY EAST CONSOLIDATES FOR FIRST TIME IN HALF YEAR

IBERDROLA, which completed the integration of Energy East in September 2008, included its results for the first time in a complete half year. It contributed €234.8 million to Ebitda in the period, making up 6% of the Group total.

IBERDROLA’s presence in the United States has been strengthed not only by the acquisition of Energy East but also by the strong growth of its renewables subsidiary. The Group now has installed capacity of 4,038 MW in the country, 1,449 MW more than a year ago, of which 3,104 MW are from wind power.

With this increase in capacity, IBERDROLA increased production in the country by 12.6% to 5,376 million kWh. Energy distributed came to 17,478 million kWh, 17.4% of the Group total.

6) LATIN AMERICA: STABLE CONTRIBUTION

Gross operating profit in Latin America came to €422.7 million, a slight decline of 1.7% and accounting for 13% of the total for the period.

With installed capacity of 5,554 MW, the Company generated  18,529 million kWh in the period, a rise of 2.3%, and accounting for 26.5%  of total Group production. Distributed energy came to  15,301 million kWh (+0.1%), making up 15.2% of the total.

* Source: New Energy Finance.