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Iberdrola will invest €32 billion between 2018 and 2022, building the foundations for sustainable growth in the next decade

21/02/2018

Iberdrola will invest €32 billion between 2018 and 2022, building the foundations for sustainable growth in the next decade

  • Over 90% of capex will be allocated to networks (50%), renewables (37%) and contracted generation in Mexico (4%), business areas which will represent over 80% of Ebitda in 2022
  • The plan includes growth of Neoenergia in Brazil, a developing area along with the United States, improving the balance of EBITDA by currency: 35% in euros, 29% in dollars, 20% in pounds sterling and 16% in Brazilian reais
  • In 2022, net profit is forecast to be between €3.5bn and €3.7bn and the company’s shareholder remuneration policy will be maintained, growing in line with results. Expected net income would imply reaching a dividend of €0.4 per share

2017 Earnings

  • 2017 Results: net profit of €2.804 billion (+3.7%)
  • Net operating profit (Ebitda) was €7.319 billion during the period (-7.3%), due to the poor performance of business in Spain as a result of the low hydroelectric production during the period.
  • This figure includes an extraordinary expense item for efficiency plans, in the amount of €203 million, which will contribute to the group's future efficiency. Excluding this item, the group's adjusted Ebitda would have been €7.522 billion.
  • By business, Networks Ebitda increased 3.6% to €4.288 billion, and Renewables grew 6.1%, to €1.592 billion. However, the Generation and Retail area reduced their Ebitda by 29%, to €1.601 billion due to low hydroelectric production in Spain as a result of the drought, as well as the low margins and high expenses of government obligations in the United Kingdom.
  • The group's investments continued to grow reaching €5.891 billion, 38% more than in the previous year. Of this amount, 90% was allocated to regulated businesses or long-term contracts and 72% was in growth projects.

ScottishPower Results: Full Year 2017

SP Energy Networks:

  • EBITDA: £776.6m - compared to £799.1m for the Full Year 2016 (down 2.8%)

The EBITDA for SP Energy Networks is in-line with the current phasing of investments in the distribution and transmission networks. SP Energy Networks invested £617 million during 2017, across the distribution and transmission networks, delivering power to 3.52 million homes and businesses.

Generation and Supply:

  • EBITDA: £121.9m - compared to £240.3m for the Full Year 2016 (down 49.3%)

Production from thermal generation in the United Kingdom fell by 27.8% over the twelve month period of 2017 to 7,259 GWh, compared to 10,060 GWh of the previous year, due largely to the closure of the Longannet coal-fired plant. Higher non-energy costs impacted retail margins, and domestic power volume was down 6.7%. The gas business also posted poorer results because of narrower margins and volumes (-7.7%) – the latter due to warmer weather during 2017. Retail customer numbers at the end of 2017 were 5.1 million, down from 5.3 million at the end of 2016.

The Generation business posted Ebitda of £23.4 million, down 36.2% from £36.7 million in 2016. The Supply business posted Ebitda of £98.5 million, down 51.6% from £203.6 million in 2016.

ScottishPower Renewables:

  • EBITDA: £316.1m - compared to £218.5m for the Full Year 2016 (up 44.6%)

At the end of 2017, the renewable capacity installed in the United Kingdom amounted to 2,666 MW, with an increase of 94 MW in wind energy compared with the close of 2016. Renewables output increased to 4,880 GWh from 3,688 GWh at the end of 2016, an increase of 32.3%. Offshore wind production increased by 13%, amounting to 820 GWh. Hydroelectric production increased by 19% to 701 GWh, compared to 590 GWh at the close of 2016.

The £650 million two-year programme to construct 8 new onshore windfarms in Scotland was completed in 2017. ScottishPower Renewables also achieved the milestone of 2 gigawatts of wind energy capacity in the UK

Keith Anderson, ScottishPower Chief Corporate Officer, said: “Completing our £650 million investment in UK onshore wind in 2017 led to a good performance from the Renewables business, delivering a significant increase in green electricity production. We now have more than 2 gigawatts of wind power capacity, and the £2.5 billion East Anglia ONE offshore windfarm is well in to construction. Over £600 million was also invested in to our Networks business last year, as we continue to deliver smart and efficient grids capable of supporting the UK’s future energy needs. As anticipated, Generation and Supply continued to face challenges, predominantly in light of increasing input costs, reduced demand. challenging market conditions and political uncertainty.”

Iberdrola Outlook 2018 - 2022

Iberdrola will invest €32 billion over the period between 2018-2022, setting solid foundations for sustainable growth in the next decade. More than 90% of total amount will be allocated to regulated activities or long-term contracts, in line with the group’s strategy of investing in businesses with stable and predictable returns. Thus, €15.5 billion (nearly 50% of total) will be invested in networks, €11.5 billion (37% of total) in renewables and €2.8 billion (9%) in generation and retail. The remaining 4%, some €1.4 billion will be allocated to contracted generation .

The bulk of planned investments – 75% – are already committed or practically secured. By currency, 38% will be in US dollar, 25% in euro, 19% in British pound and 18% in Brazilian reais. 

Ignacio Galan, Iberdrola and ScottishPower Chairman, said: “Despite recent political and regulatory uncertainty, the UK remains a core investment destination for our company. ScottishPower will deliver around €6.1 billion of investment in green and smart infrastructure over the next 5 years. We will focus on increasing our renewable energy capacity, enhanced grid networks and smart technology for customers.

“The UK, like the rest of the world, is at a tipping point. After 25 years of encouraging people to use less electricity, now we know that the best way to tackle climate change is to use more over the next 25 years. But as we close our final coal power stations and build more renewables this electricity will be cleaner and more affordable than ever.  More and smarter power will enable us to decarbonise faster as we electrify the economy where it matters most now – in transport and in heating. Underpinned by stable and sensible Government policies, companies like Iberdrola will invest to deliver an energy system capable of meeting these challenges.

“The plan we are presenting today is fully consistent with our strategy over recent years, while seizing the opportunities provided by the new digital environment. In essence, it is a plan that maintains focus on growth in specific opportunities in regulated and long-term contracted businesses which offer earnings visibility, while maintaining a geographically balanced portfolio and exploring growth beyond those frontiers.”

Thanks to these investments, the company expects renewable capacity to increase by 24% from 2017 year-end to 36,200 megawatts (MW). Its storage capacity will also grow from the current 80 gigawat/hour (GWh) to 100 GWh at the end of the period (+25%). 

In networks, the company’s regulated asset base will increase to €40 billion mainly in Brazil and US, a 38% growth from year-end 2017.

Also, contracted generation capacity will grow to 10,600 MW, over 82% above current figures. In retail, the number of customer services will expand by 9 million to 32 million in 2022 (+40%).  

As a result, the group expects that 35% EBITDA in 2022 will be generated in euros, 29% in dollars, 20% in sterling pounds and the remaining 16%, in Brazilian reais.

The company's plans are fully in line with the three main pillars of the transformation process that the energy sector is currently experiencing: decarbonisation, which entails a strong electrification process for the economy; technological advances, which are helping reduce costs and create new business opportunities; and greater consumer connectivity, which gives consumers more importance and capacity for interaction.

These three trends strengthen Iberdrola's focus on its three core businesses: more renewable, more and smarter networks and more smart-solutions for the consumer.  The company will accelerate the creation of value in these three areas through five strategic pillars:

  • Profitable growth: investments will target a portfolio of projects that combine the creation of long-term value with obtaining cash flows in the short- and medium-term.
  • Operating Excellence: With net operating expenses already 23% below the average for its European competitors, Iberdrola will continue enhancing its efficiency levels. In this regard, Iberdrola will implement a €1 billion savings plan, executed through synergies, digitilisation and the implementation of best practices in areas such as procurement, operation and control.
  • Customers at the focal point of all activities: networks will be increasingly smarter, adapting to the new needs of consumers, such as the incorporation of electric vehicles. In renewables, tailor-made renewable generation contracts will be implemented for these technologies, new technology solutions will be promoted to best adapt to customer habits, and energy sales contracts to industrial consumers will be shored up.
  • Capital optimisation: the group will implement an asset rotation plan in the amount of €3 billion euros, open to possible agreements with partners for renewable projects ("partnering green"). This will all be combined with active management of its debt, as the company has been doing.
  • Digitilisation and Innovation: Iberdrola expects digitilisation-related initiatives to contribute an additional €600 million to its Ebitda for 2022. This growing contribution will be possible thanks to operational improvements, the transformation of processes and new products and services.

Profit outlook 2018-2022

Iberdrola's plans for 2018-2022 will let the company continue increasing its profits. According to the group's plans, Ebitda will be between €11.5 billion and €12 billion at the end of the period. It is expected that 84% of the group's gross operating profit (Ebitda) for 2022 will come from regulated activities or with long-term contracts.

By business, and above the mentioned range of €11bn-12bn the contribution to the Group's Ebitda is at 50% for networks, 27% for renewables, with the contribution from the wholesale and retail at 16% and contracted generation at 7%.

The company expects that efficiency, measured by net operating expense ratio over gross margin, will improve from 31% in 2017 to 26% in 2022, assuming an accumulated savings of over €1 billion during the period.

Additionally, the workforce will remain stable with around 35,000 employees, although a 10% turnover is foreseen, where natural retirements will allow the organisation to be updated, to attract young talent and to continuously train its professionals to successfully address the demands of the new competitive environment and digitalisation.

With regard to funds from operations (FFO), they will reach €42 billion in the period, which will exceed the investments made in all businesses. The group's financial solidity measured with the ratio of funds from operations (FFO) over net debt will reach 24%, up from 21.5% in 2017.

At the end of the period, Iberdrola will keep ongoing investments in the amount of €9 billion which will ensure the sustainable generation of results beyond 2022 and will lay the foundations for its growth in the next decade. Therefore, as a result, net profit will be between €3.5 billion and €3.7 billion in 2022.

To view Iberdrola's full press release and supporting documentation, please click the links below: