Spain: Iberdrola to Focus on Network and Renewables

IBERDROLA projects average Ebitda and net earnings for the 2012-2014 period in line with the €7.65 billion and €2.8 billion recorded in 2011, enabling it to continue remunerating shareholders at a gross annual average of about €0.3 per share.

The Group will achieve this through a strategy focused on moderating investments, which will be directed mainly to networks and renewables, as well as on efficiency gains, and divesting non-core assets and in non-core countries to overcome the adverse impact of falling demand, new regulatory measures and higher taxes.

During a meeting today with analysts in London, the company set goals for the three-year period based on strengthening its finances with a reduction in debt of around €6 billion.

To achieve this, it expects the government to refund it around €3 billion owed from the tariff deficit, and will continue its programme of asset divestment amounting to about €2 billion, of which it has already sold assets valued at €300 million and is in the process of closing other agreements for €1.5 billion. The programme will prioritise divestments with less impact on Ebitda and net profit.

In parallel the Company intends to continue to build up its liquidity with the goal of reaching the end of 2014 with financing needs covered for the following 24 months. Today liquidity stands at around €11 billion, enough to cover needs for the next three years. It will also work to improve financial ratios – net debt/Ebitda, operating cash flow/net debt – and limit currency and interest rate risk.

 Investments projected at €12.3 billion (€10.5 billion net)

IBERDROLA plans to moderate the level of investment effort, allocating €12.3 billion gross, €10.5 billion net, down about 30% on the 2009-2011 period, with a focus on projects with a short development time frame, that offer certainty and profitability, and generate positive cash flow in the short term.

The Group will thus concentrate on two areas: it will devote 59% of net investments to electricity transmission and distribution networks and 25% to renewables, 13% to generation and 3% to other businesses.

As a result, the company expects that by 2014 regulated business (networks (52%), regulated generation in Mexico (5%) and renewables (20%) will contribute 77% of Group Ebitda against 68% in 2009. The main objective is for all businesses to generate positive cash flow, through the following strategy:

Networks: carry out investments in line with regulatory frameworks in effect in each country where the Group operates.

Generation: align activities to conditions in each country, prepare sites for future opportunities and achieve efficiency gains in O&M.

Renewables: concentration on strategic markets and investments in onshore and offshore wind farms.

Iberdrola will focus this new phase in the UK, which accounts for 42% of total investments, followed by Latin America, mainly Brazil, which will receive nearly 23%.

Iberdrola will thus concentrate on the Atlantic area, tailoring its investments to economic and regulatory conditions in each country:

•  UK: a new growth phase in transmission and distribution and preparing traditional and renewable generation projects in the future.
• US: growth scenario in networks, with new efficiency measures as well as geographical concentration for renewables businesses.
• Spain: facing a new adjustment phase in costs and investments to reflect the new regulatory framework, optimising operations and maintenance in electricity production and maximizing efficiency.
• Latin America: in Brazil, a period of growth is expected in transmission and distribution, as well as regulated generation: hydro and wind. In Mexico, the company is prepared for new opportunities that arise from collaboration between the public and private sectors.

The company, already among Europe’s most efficient electricity groups, also plans new efficiency measures. It plans a workforce reduction between 2012-2014, under a programme already under way. At the same time, it will apply wage restraint, linking remuneration to results and not inflation. Finally, it will also continue to reduce the cost of external services and seek synergies from the Single Corporation project which has involved the creation of global business areas coordinated with a local focus.

The company will also continue to foment corporate social responsibility with a view to consolidating its corporate governance standards. In 2012 it was named best in Spain for corporate governance by World Finance magazine, was sector leader in the Dow Jones Sustainability Index with 30% lower CO2 emissions per kWh than the average for the European electricity sector,and received an award as one of the best corporations to work according to the Spanish Merco survey and Brazil’s Você, as well as figuring among the five most innovative companies in Europe according to the European Commission’s 2011 R&D Scoreboard.

Through significant debt reduction, management and control of investments, divesting non-core assets and continued efficiency gains, the group expects to close 2014 having established a basic platform for renewed growth in the future.

 Major projects

 2012-2014:

Electricity transmission: in addition to smart grid implementation in different markets, Iberdrola will continue developing major transmission and distribution infrastructure in the US, including the inter-connection with Canada through the Maine Power Reliability Program, and in the UK including the first subsea cable between Scotland and England.

Renewable energy: the Group expects to bring 1,450 megawatts (MW) of new capacity on stream through offshore wind farms including West of Duddon Sands which is due to begin operations in 2014, and at least 10 onshore installations in Brazil to add to the Rio do Fogo wind farm that is already operational.

Hydro generation: the company has 2.4 GW in projects under way in Brazil: the Teles Pires plant, through Neoenergia, whose 900 MW is projected to come on stream in 2014, and Baixo Iguaçu and Belo Monte plants amounting to 1,500 MW which will start up between 2015 and 2016.

 After 2015:

From 2015, and in addition to the networks projects referred to as well as others in the US and UK, and the hydro projects in Brazil, Iberdrola will advance with offshore and onshore wind projects in the UK, Germany, France, Mexico and Brazil. It also plans to develop 1,900 MW of combined cycle gas capacity in the UK.

[mappress]

Press release, October 24, 2012; Image: iberdrola