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Iberdrola to invest €24 billion in 2016-2020 with projected average earnings growth of 6% per annum


Having anticipated energy transition, the group maintains commitment to a sustainable model with the creation of jobs and value for society

Iberdrola to invest €24 billion in 2016-2020 with projected average earnings growth of 6% per annum

  • 88% of investments will be allocated to Networks (46%), Renewables (33%) and Regulated Generation (9%) businesses which jointly will account for 81% of the group’s EBITDA by the end of the period
  • Thus, the company enters a new stage, with 70% of planned investments – €17 billion – earmarked for growth, 90% of which already committed
  • By currency, investments will be split in US dollars (43%), GB pounds (35%), euro (20%) and other currencies (2%) providing geographical balance to results
  • Average annual increases of 6% in EBITDA and net profit will enable improved shareholder remuneration on a sustainable and incremental basis, in line with results

FY 2015 results

  • Investments reach €3.2 billion (+13.2%) of which 62% was allocated to growth
  • Iberdrola closes 2015 with 1,750 new employees and 550 new interns hired, having generated 360,000 jobs in the countries where it has operations
  • The Group recorded a net profit of €2,422 million in 2015 (+4.1%) and an EBITDA of €7,306 million (+4.9%), having reached a year in advance the targets set in its 2014-2016 Outlook
  • These results make it possible to propose to the General Shareholders’ Meeting, which has been called for 8th April, the approval of a 4% increase in annual shareholder remuneration to €0.28 gross per share

Commitment to society

  • Group emissions, which now stand 30% below the European industry average, will be reduced 50% by 2030. The company will be carbon-neutral by 2050
  • In 2015, the company made purchases of goods and services worth €7.5 billion to over 17,600 suppliers
  • Iberdrola’s contribution to tax and fiscal authorities amounts to €5.52 billion across the globe

Iberdrola is to invest €24 billion in 2016-2020, according to the new Outlook presented today by the company. The group will continue building a business model based on the creation of long-term value that will enable it to maintain is strong financials and offer a sustainable return to its shareholders.

Some €22 billion – over 90% of planned investments – will be allocated to projects to which it has already committed, out of which 60% are under construction. Also, €17 billion – 70% of total – will be on initiatives focusing on growth. 

As regards the business profile, Iberdrola will continue to focus on regulated areas that provide stable, predictable and long-term earnings. Thus, 88% of the €24 billion total investment will be allocated to regulated activities or long-term contracts: 46% to Networks, 33% to Renewables and 9% to Regulated Generation.  The remaining 12% will be invested in Generation and Retail.

By currency, the company will continue diversifying its business and boosting the process of internationalisation began more than a decade ago now.  43% of planned investments will be made in US dollars, 35% in GB pounds, 20% in euros and the remaining 2% in other currencies, providing geographical balance to results.

The following are some of the main investments to which Iberdrola has already committed:

  • United Kingdom: transmission and distribution infrastructure under regulatory frameworks that have already been approved - until 2021 and 2023, respectively - and an increase in renewable capacity with the commissioning of 1,070 new megawatts (MW) in offshore wind power and 450 new MW in onshore wind power.
  • United States: following the completion in record time of the merger between Iberdrola USA and UIL Holdings Corporation,  AVANGRID, the new US sub-holding, which operates within stable tariff regimes in the states of New York, Maine, Connecticut and Massachusetts, will be developing new networks infrastructure projects in the state of New York and installing over 750 MW of renewable capacity.  AVANGRID, which is listed on the New York Stock Exchange with a market cap of over US$12 billion, distributes electricity via seven utilities in four states. It is the second wind power operator in the United States and its emissions level is almost zero. 
  • Iberia: in Spain, where there is a stable tariff framework for electricity distribution by 2019, Iberdrola will continue to deploy smart grids. In Portugal, the company will continue to develop the Alto Tâmega hydroelectric project, which will see its capacity increased by an additional 1,160 MW of storage capacity.
  • Mexico: in keeping with its commitment to this country after the approval of the energy reform, Iberdrola plans to commission new combined cycle and cogeneration plants with long-term contracts for a total capacity in excess of 1,600 MW.
  • Brazil: the company has approved tariff frameworks for networks up to 2017, 2018 and 2019 and it plans to go on contributing to the development of clean energies in the country, with 180 new MW under construction.  It will also be increasing its hydroelectric capacity via its stake in Neoenergia.

Once these investments are complete, Iberdrola expects that by 2020, 81% of its gross operating profit (EBITDA) will be from regulated businesses or long-term contracts (compared to the current rate of 75%) and over 60% will be generated in dollars and pounds.

In terms of how profits will evolve, Iberdrola expects both EBITDA and net earnings to increase by an average of 6% per year until 2020. On the other hand, funds from operations (FFO) accumulated over the 2016-2020 period will amount to €34.5 billion, exceeding investments in all businesses.

Also, the company will continue to strengthen its balance sheet whilst enhancing its financial ratios. Notably, by 2018, its net debt/ EBITDA and funds from operations (FFO)/ net debt ratios are expected to stand at a maximum of 3.6 times and a minimum of 22%, respectively. Moreover, by 2020, the former of these ratios will be reduced to 3.1 times.

Improved shareholder remuneration

Thanks to the favourable business performance, Iberdrola will be in a position to increase its shareholder remuneration in line with earnings growth. 

Pay-out – the percentage of profit allocated towards shareholder remuneration – will be within the 65% to 75% range and the Iberdrola Flexible Dividend scheme, enabling shareholders to choose between receiving their remuneration in cash or in the form of new shares in the group free of charge, will be maintained.

Also, Iberdrola will be implementing share buyback schemes so that the number of shares in its corporate stock will remain at 6,240 million. 

As the first step in the upward trend for shareholder remuneration, it is expected that the annual return for 2015 will be at least €0.28 gross per share, 4% higher than the €0.27 paid in previous years.

Remuneration will consist of the €0.127 gross per share already paid out last January (through the second capital increase implemented within the Iberdrola Flexible Dividend scheme approved by the AGM on 27 March 2015), plus a cash payment of €0.03 gross per share payable next July, and a payment of at least €0.123 gross per share to be approved by the General Shareholders’ Meeting on 8th April.

Also, an attendance premium of €0.005 gross per share will be paid to shareholders who attend the meeting in person or delegate their representation.

Furthermore, the company will be proposing a maximum 2.46% reduction in its share capital, so as to avoid the dilutive effect of the Iberdrola Flexible Dividend scheme, thereby helping to maintain earnings per share.

Long-term sustainable model

The Outlook for 2016-2020 will continue to strengthen the Iberdrola business model, which is based on sustainability and long-term visibility, while at the same time maintaining a strong commitment to society and fostering development in the regions where the group has operations.

This model, which combines strategy, execution and values to deliver results, is the same one that has made it the first European utility by market capitalization, with a total shareholder return (TSR)1 of 240% between 2001 and 2015.

In this regard, having already generated some 360,000 jobs worldwide2, the company hired 1,750 new employees and provided training to 550 young interns in 2015. The company’s annual purchases from over 17,600 global suppliers amount to some €7.3 billion. 

This value creation is completed by the group’s fiscal contribution which amounts to some €5.52 billion per year on a global scale, including direct and collected taxes.

This will all be accompanied by a strong commitment to society and the environment:  Iberdrola plans to reduce the intensity of its emissions by 2030 by 50% compared to its specific emissions for 2007, to become carbon-neutral by 2050 and to go on creating stable, high quality employment through its investments and purchases from suppliers.  Nowadays, the company’s emissions are already 30% lower than the average for the European sector. 

Iberdrola records profit of €2,422 million (+4%) in 2015

Iberdrola recorded a net profit of €2,421.6 million in 2015, 4.1% more than the previous year.  EBITDA rose to €7,305.9 million, i.e. a 4.9% increase on 2014. Of this amount, the regulated businesses contributed 75%.

These good results are the consequence of the positive business performance, particularly in Renewables, where EBITDA increased by 18.6% to €1,572.3 million, driven by the recovery of prices in Spain and the good performance in Latin America and the United Kingdom, where the contribution of West of Duddon Sands offshore windfarm has been particularly noteworthy.

In turn, EBITDA improved by 1.9% in the Networks business, rising to €3,601.6 million with a significant increase of regulated assets in Britain and the US. Regulated Generation in Mexico grew by 30.1% due to greater activity with private customers. Lastly, Generation and Retail business fell by 4% due to reduced production in Spain and non-recurrent costs in the UK.

Revenues increased by 4.6% in 2015, amounting to €31,418.7 million and the gross margin climbed to €12,842.7 million, up 5.4% on the previous year.  Iberdrola has also continued to make progress in enhancing its efficiency, with a 1.6% reduction in net operating expenses, not including the effect of exchange rates.

Funds from operations (FFO) increased by 8.2% to €5,906.7 million, exceeding investments in all businesses, which stood at €3,223 million in the year, up 13.2% on the previous period.  Of this amount, 91% was allocated to regulated areas and 62% to growth projects.

Earnings for the year were affected by the value adjustment of Longannet power plant due to its upcoming closure, which generated a provision for impairment of €230 million, and by a €170 million rate reduction in the United Kingdom. The effects of consolidating AVANGRID in the last quarter should also be taken into account, as they represent a negative impact of €60 million on EBITDA and €45 million on the group’s net profit. 

As regards changes in the balance sheet, Iberdrola has continued to improve its gearing, which dropped to 40.7% at the end of the year, compared to 41.8% in 2014. This was possible due to the generation of positive cash flows and despite the UIL Holdings merger and the depreciation of the euro. The latter two factors had a negative impact on debt, which stood at €28.067 billion at the end of December. 

These results mean that IBERDROLA has reached the targets it had set itself for 2016 a year ahead of schedule, both in terms of net profit and net debt/ EBITDA and FFO/ EBITDA ratios, if the effect of the merger with UIL Holdings Corporation is excluded.

Evolution by business: growth in all areas

The Networks business recorded an EBITDA of €3,601.6 million (+1.9%), affected by the lower extraordinary results in Brazil compared to 2014.

EBITDA for this area is €1,449.6 million in Spain, driven by the efficiency measures that have been implemented.  In the United Kingdom, EBITDA rose to GBP826.4 million and in the United States, to US$859.9 million.  In Brazil, the Networks area recorded an EBITDA of RS$884.4 million. 

Generation and Retail recorded an EBITDA of €2,320 million in 2015 (+1.2%), driven by the improved business in Mexico, where the higher output and contract renegotiation took EBITDA to US$ 505.8 million.  In Spain, the year was marked by the lower output (-8.8%) and EBITDA stood at €1,502.3 million. 

In the United Kingdom, this business recorded an EBITDA of GBP305.5 million, affected by the costs associated to the closure of Longannet power plant, the increased carbon levy and the rise in non-energy costs.

The Renewables area increased its EBITDA by 18.6% to €1,572.3 million by the end of 2015.  In Spain, EBITDA for this business rose to €473.2 million, in a financial year in which the lower output was compensated by the recovery in prices.

Performance in the United Kingdom was marked by the positive performance of operations, with a 19.3% increase in output, lifted by the positive contribution of West of Duddon Sands offshore As a result EBITDA rose to GBP317.7 million. 

Meanwhile, in the United States, Renewables EBITDA, US$554.7 million, was affected by the 4.1% drop in output. In Latin America, EBITDA rose to €69.9 million, thanks to the increase in capacity in Mexico (+60%) and Brazil’s output (+17.4%). Elsewhere in the world, the figure recorded for EBITDA was €92.1 million, boosted by a 7.4% increase in output.

In 2016, Iberdrola anticipates EBITDA growth in Networks, Generation and Retail whereas Renewables earnings will remain stable. This positive performance will carry an increase in net profit.

1 Total shareholder return (TSR): includes dividends received by shareholders and share appreciation.
2 Source: Analistas Financieros Internacionales (AFI).