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Sharply Higher Regulatory Costs Bring Iberdrola UK Ebit From Liberalised Business To A Negative €27 Million In First 9 Months


The impact of regulatory measures in the UK and Spain, additional energy costs in Brazil and exchange rate factors, estimated at €1.01 billion, have led the Company to cut interim dividend by 10%


  • The Company incurred an additional €96 million in the UK's environmental and energy efficiency scheme (ECO), compared to the same period last year

  • Levies in the UK came to €264 million in the first nine months

  • Despite the sharp narrowing of margins on UK generation and supply business, the Company remains committed to invest in renewing energy infrastructure in the country

  • The purchase price of next scrip dividend will amount to a minimum of €0.125/share payable in January 2014 under the Program "Iberdrola Scrip Dividend"

A combination of sharply higher non-energy costs in Iberdrola's UK liberalized business has led to squeezed margins and a negative €27 million result for Ebit (earnings before interest and tax), the Company said in announcing group nine-month results today.

The Company was announcing a 3% reduction in group nine months net earnings to €2,275 million, with gross operating earnings 4% lower at €5.54 billion, hit by a €1.01 billion negative impact from regulatory measures in Spain and the UK, additional energy costs in Brazil and exchange rate factors.

Although the Company was able to offset €770 million of this negative impact, through increased production and the impact of investments in networks, as well as a 2.9% cut in net operating expenses, it has decided to cut its interim dividend by 10% to a gross  €0.125 per share.

The Company continues to regard a sustainable remuneration policy as one of its main priorities, but has been obliged to adjust to the new regulatory reality and resulting increase in costs in Spain and the UK and make this small adjustment to dividends this year. Payout will be set at between 65-75%, in line with other regulated companies, and the Company expects to maintain its scrip dividend option for shareholders. Under this option, the subscription rights are priced at a gross €0.125 per share.

In the UK, the principal factors behind the liberalised business result at ScottishPower for the first nine months included a €96 million increase in environmental and energy efficiency costs under the UK Government's ECO programme compared to the previous CERT/CESP scheme that expired at the end of 2012.

In addition, the Company has faced and additional €53 million in costs from the elimination of free emission rights, €66 million from increased access fees for electricity and gas, €55 million from lower renewables obligations (ROCs) and €25 million from the new carbon price floor.

Also contributing to a lower result was the closure of the Cockenzie coal-fired power station an production halts elsewhere, which were offset by increased combined cycle gas generation with tighter margins.

Despite the squeeze on margins in the UK, the Company remains committed to investing in improved energy infrastructure in the country and will invest around £1.3 billion there in 2013. Over the next 10 years it will spend just under £8 billion on transmission and distribution projects in the UK in addition to major generation projects under way in onshore and offshore wind.

At Group level, Iberdrola recorded net 9-month earnings of €2,274.8 million, down 3% on the same period last year, reflecting the impact of regulatory measures in Spain and the UK and exchange rate factors. Gross margin was up 1.8% at €9,459.2 million, while efficiency improved by 4.6 percentage points after cutting net operating costs by nearly 3% with reductions in all businesses. Gross operating profit (Ebitda) was 4.1% lower at €5,542 million.

Net debt was €3.31 billion lower than the same period last year at €28.55 billion, while gearing was reduced from 48.4% to 44.9%. This figure incorporated €2,024 million pending payment from the tariff deficit. The Group was able to achieve these results despite higher taxation which absorbed operating gains during the period. Over the first nine months, this item rose 45% to €1,267.6 million, of which €792 million came from Spain where the tax burden has doubled between January and September.

Regulated businesses – networks, renewables and Mexico generation - accounted for 78% of Ebitda, with factors including the depreciation of the pound, dollar and Brazilian real which had a negative impact of €150 million. Excluding exchange rate factors, Ebitda was 1.5% lower.

Regulatory measures in Spain had a negative impact of €503 million in Ebitda, of which €363 million correspond to generation and supply, €79 million to networks and €61 million to renewables. This final figure excludes the impact of Royal Decree Law 9/2013 on remuneration of renewable technologies, which is pending implementation.

Solid balance sheet and dividend policy sustained

Iberdrola continued to make progress during the nine months in strengthening its balance sheet and realizing its 2012-2014 strategic outlook. At the end of September, Group net adjusted debt – excluding the €2,024 pending reimbursement from the tariff deficit – came to €26,526 million. Including the deficit amount, the debt stood at €28.55 billion.

The Company thus reduced debt by €3.31 billion over the past 12 months, meeting 50% of its objective of a €6 billion in the period 2012-2014. Gearing stood at 43.1% excluding the deficit, against 45.9% for the same period last year. Results from financial operations improved to bring net financial expenditure at €879.7 million, fruit of steps that have reduced average debt by 6.8%, improved financial costs and developed a currency hedging programme which nearly offset negative exchange impacts.

Key operational aspects of the period


Ebitda from networks came to €2,805.7 million in the period, a decline of 3.2% over the same period last year. This reflected a tariff revision and the drought in Brazil which brought a 27.8% drop in Ebitda from this country which was insufficient to compensate for a 4.5% improvement in the rest of the world.

Excluding the exchange rate effect, Ebitda from networks would have repeated performance in the first nine months of 2012 when it rose 0.6%. Gross margin was up 3% in the UK due to increased revenues resulting from a larger asset base following investments made there, and 3.4% in the US where the Maine transmission line project contributed to increased income while in Spain it held at +0.4%.
In Brazil, gross margin dropped 19.4%, despite a 5.9% increase in demand. The tariff revision had a €30 million negative impact while additional costs deriving from the drought came to €26 million.


Ebitda from generation and supply was nearly 9% down at €1,531.6 million. A 6.1% rise in gross margin to €3,403.5 million was insufficient to compensate for a 67.3% rise in taxation to €810.9 million. Levies in Spain doubled to €625.6 million while taxes on generation in Spain came to €320 million.

Net operating expenses in this business declined 6.4% due to cost reduction plans implemented mainly in Spain. Gross margin in the UK fell 0.6% due to the carbon price floor and higher non-energy costs and Ebitda there accounted for just 12% of the total.


Renewables business recorded a 2.5% increase in Ebitda to €1,211 million, of which 53% was from outside Spain where taxation increased by 3.5 times.

This positive performance was due mainly to a 6.4% increase in production and to cost control, which helped reduce net operating costs by 3.4%. Gross margin rose 5.4% to €1,759.2 million, while operating capacity came to 13,857 megawatts (MW), with new installed capacity compensating for divested assets.