Increased contribution from international businesses, which made up 2/3 of net income due to an increased contribution from traditional operations and renewables in the U.S.
Further progress with liquidity rising to €10,166 million and leverage improving to 45.3% at the end of September from 47.4% at the same time last year. The Company maintains its projection of improved Ebitda and recurring net income for 2010 and of repeating or improving dividend.
IBERDROLA posted net earnings of €2,069.6 million in the first nine months of 2010, an increase of 2% and one of 6.7% in like for like terms (excluding lower extraordinary gains of €229 million against €304 million last year). Diversification again allowed the Group to smooth over diverging performance in different markets, with gains nevertheless in all businesses.
A substantial balance sheet improvement this year, added to the imminent placing of the tariff deficit in Spain, will give the company sufficient liquidity to continue its growth path, focused mainly on regulated business in the U.S. and the UK, as well as on renewables where it is targetting emerging economies such as Mexico, Brazil and Eastern Europe.
IBERDROLA achieved positive performance during the period due to higher production, efficiency gains and a strengthened balance sheet. A rise of 16.1% in revenues to €22,978.5 million and of 9.2% in gross margin to €8,674.5 million lifted Ebitda by 12.4% to €5,562.6 million, Ebit by 9.1% to €3,568.4 million and operating cash flow by 14% to €3,956 million.
Gross operating income (Ebitda) rose in all businesses, notably in Renewables (+19%), regulated business (+16%) and liberalised business (+5%). Of total group Ebitda, 49% came from regulated business, 30% from liberalised, 17% from renewables and 4% from other businessses.
The company’s asset base worldwide permitted a 10.2% rise in global energy production to 115,158 million kilowatt hours (kWh), driven by increased output from energy sources free of CO2 emissions, notably hydro (+106%), wind energy (+20%) and nuclear (+13%). The company continued to diversify and expand its generation fleet, marked by low CO2emissions and flexible costs, which totalled 44,455 megawatts (MW) at September.
The company focused in the first nine months on optimising its balance sheet structure with a 10% efficiency gain across all businesses and a 2.2% drop in the ratio of net operating costs to gross margin.
It increased liquidity to €10,166 million) a figure which will improve further with the imminent placement of the tariff deficit in Spain. Gearing fell to 45.3% from 47.4% at the end of September 2009 (excluding the tariff deficit impact), with net adjusted debt (excluding the deficit) standing at €25,677 million.
First nine months results endorse the company’s strategy in recent years. The €62 billion invested between 2000-2009 have made it Spain’s leading energy group, one of the top companies in the IBEX 35 by capitalization, world leader in wind power and among the top global energy groups.
2010 projections
For the year as a whole, the company expects to increase Ebitda and recurring net income as a result of improving conditions. Positive factors include stabilizing demand, increased installed capacity, efficiency gains, adjusting investments to cash flow generated, securitization of the tariff deficit in Spain and an improved debt profile. This will enable the Company to maintain or increase dividend.
IBERDROLA thereby is meeting the economic situation in the best possible situation, with a generation mix mostly decoupled from raw materials price trends, and a diversified asset base. In coming years, it aims to drive its industrial growth plans through sustainable and high added value energy projects in its reference markets in the Atlantic area.
The company will focus on zero-emissions energy such as renewables, hydro and nuclear, smart grids and electric vehicles, where the regulatory framework is favourable. High potential markets identified by the company for the present and future include the U.S. (transmission, distribution and renewables), the UK (transmission, distribution, combined cycles gas, carbon capture, nuclear and wind, both onshore and offshore), Brazil (distribution, hydro and wind), Mexico (combined cycles and wind), and Spain (hydro and wind).
IBERDROLA plans to invest €18 billlion for this purpose in the 2010-2012 period, governed by criteria of prudence, returns and low risk. The objective is to achieve incremental cash flow that will strengthen the balance sheet and provide resources for investment to continue growing in high-potential markets, and thereby reaffirm projections up to 2012.
Key aspects of the period
1. Spain: Growth in clean energy production
Production rose 14% to 55,088 million kWh, with a notable contribution from large hydro installations which rose 134.4% to 16,202 million kWh and renewable energy which rose 20% to 8,196 million kWh. Nuclear produced 19,547 million kWh and combined cycle gas 8,359 million kWh.
Emissions fell 43% in the period from 168 grammes of CO2 per kWh to 96 grammes. As a result of clean energy programmes, 80% of total IBERDROLA production in Spain was free of CO2 emissions.
Traditional business in Spain generated €2,169.2 million in Ebitda in the period, of which €1,241.6 million came from liberalised business (+23.4%), and €927.6 million from regulated businesses whose income rose 10.2% from efficiency gains and despite lower revenues.
Regarding regulatory aspects, the company considers it imperative to improve legal safeguards and regulatory stability in Spain in order to carry out planned investments. The group is due €4,421 million from the tariff deficit, and hopes to receive this shortly.
2. Increased production, capacity and distribution
The international diversification strategy followed in recent years and increased contributions from clean generation technologies led to a 10.2% rise in total electricity production in the first nine months to 115,158 million kWh.
There was a significant increase from hydro power stations, where production rose 106.1% to 17,791 million kWh, contributing 15.4% of total group energy generated. Renewable energy again increased production (+20.2% to 18,091 million kWh) as well as its weighting which now stands at 15.7%.
Combined cycles generated 44,566 million kWh, maintaining their top weighting (38.7%), and nuclear plants rose 12.8% to 19,547 million kWh for a 17% weighting. Group emissions came to 244 grammes of CO2 per kWh, 13% down on the same period last year, while 48% of total IBERDROLA production was free of CO2 emissions.
IBERDROLA continued to diversify its international generation assets during the period with total installed capacity standing at 44,455 MW. By technology, this breaks down into combined cycles 29.6%, hydro 22.1%, renewable energy 27%, thermal 10.6%, nuclear 7.5%, cogeneration 2.8% and fuel oil 0.4%.
In foreign markets, the company has 6,948 MW of installed capacity in the UK, 5,278 MW in the U.S., 5,555 MW in Latin America and 1,189 MW in the rest of the world. In Spain it came to 25,487 MW.
The company intends to continue its commitment to basic energy business that preserves the environment, with the startup of new renewable energy and hydro installations both in Spain and abroad.
3. IBERDROLA RENOVABLES, increased wind farm production
The company, world leader in wind power
recorded a gross operating profit (Ebitda) of €972 million in the period, a rise of 19.4%. Gross margin rose 18.6% to €1,411.6 million, of which half came from international business, while net earnings rose 7.1% to €179.4 million.
Electricity output rose 20.2% to 18,091 million kWh, with increases of 29.6% in the U.S., 18.2% in Spain and 21.9% in the rest of the world. Wind energy provided 96% of total production. Installed capacity came to 12,006 million MW while operating capacity was 16.1% higher at 11,434 MW, with 52.8% of the growth coming from the U.S. The company put 1,254 MW of new capacity into operation in the period, while more than half of total capacity is outside Spain, in line with the company’s strategy of diversifying its generation assets in high-potential markets.
4. United Kingdom: Affected by seasonality
ScottishPower Ebitda was 9.9% lower at €989 million, reflecting a declining performance in liberalised business which was partially offset by higher revenues from networks as a result of new investments.
IBERDROLA increased its installed capacity in the UK to 6,946 MW, due to startups of new renewables installations. Electricity production rose 7.7% to 20,240 million kWh.
5. United States: IBERDROLA USA posts improved results
IBERDROLA USA contributed 9.5% to group Ebitda in the first nine months, representing an increase of 56.4% to €528.8 million, due fundamentally to efficiency measures implemented this year. Business will be supported by the recent revision of electricity tariffs in New York state for the company’s two subsidiaries there, offering stability to the businesses to 2014.
IBERDROLA’s presence in the U.S. was also helped by a significant growth in the renewables subsidiary. The Group has installed wind turbines capacity in the country of 5,278 MW, an increase of 885 MW over the previous year, of which 4,314 MW is wind power. As a result of this increased capacity, the company achieved a 20.8% rise in production to 9,820 million kWh.
The company is present in 23 states where it carries out regulated activities (electricity and gas networks), gas storage, conventional general and wind power.
The company recently initiated construction on one of the key projects that will be undertaken in coming years in electricity transmission in the U.S. This initiative, which will benefit electricity interconnections between Massachussets, New Hampshire and Maine, as well as between this last mentioned state and Canada, represents a project value of $1.4 billion.
6. Latin America: Increased contribution from Brazil
Gross operating income from Latin America rose 14.4% to €738.1 million, accounting for 13% of total group Ebitda in the period. This improvement was due to a 9.5% increase in demand and improved currency factors in Brazil. With installed capacity of 5,555 MW, the company generated 28,529 million kWh in the period (+1.7%).
