IBERDROLA Q1 PROFIT ROSE 8 4% TO 953 MLN DRIVEN BY INTERNATIONAL BUSINESS
Despite record production, net profit from wind business in Spain fell 91% and Ebitda by 63% as a result of new regulatory decisions
Negative impact of regulatory measures in Spain (-€260 million in gross margin) led to recurrent earnings - excluding divestments- falling 4.6% to €848 million. Businesses outside Spain grew 22.3% while Spain fell 25.2%
KEY ASPECTS OF THE PERIOD
- Gross margin was 1% higher at €3,386 million, helped by excellent results in gas business, higher production and a better generation mix that offset lower prices and the impact of regulatory measures in Spain
- Operational efficiency improved thanks to net operating expenses being held at €815 million
- Group Ebitda was €2,127 million, in line with the first quarter, despite a 21% rise in levies in Spain which now account for 64% of the total
- Brazilian government measures to compensate distributors for additional energy costs eliminate uncertainty created by the drought there
- First quarter performance allows the Company to confirm its 2014 projections and make progress towards objectives in its 2014-2016 Outlook
- Net debt was reduced by more than €3.1 billion and gearing improved to 42.1% from 45.5% in the same quarter last year (including the tariff deficit)
- The Board approved a 2.094% capital reduction, a new edition of the Iberdrola Flexible Dividend, and the Group's first integrated annual report
IBERDROLA net earnings rose 8.4% in the first quarter to 952.6 million, while recurring net profit excluding extraordinaries was 4.6% lower at €848 million. Ebitda was 0.3% lower at €2,126.5 million.
First quarter results reflect solid operating performance across the businesses, although affected by a €260 million impact on gross margin from regulatory decisions in Spain since July 2013. For 2014 as a whole, Iberdrola estimates the impact of these measures at €380 million.
Net profit growth in the quarter reflects the contribution of international businesses and includes extraordinary gains from the sale of an Iberdrola stake in EdP and assets in Brazil. In February, the company announced the sale of a 3.7% stake in EdP through a series of stock market transactions, reducing its shareholding from 6.6% to 2.9%. The remaining stake is subject to derivative arrangements that are triggered in May.
Iberdrola also sold assets in Brazil, notably a 22.6% direct shareholding in Itapebí Geração de Energia a Termopernambuco, 100% owned by Neoenergia. The Company thus now has a 39% indirect holding in Itapebí Geração de Energia through its 39% stake in Neoenergia.
Recurring net profit, excluding extraordinary gains of €105 million, was 4.6% lower at €848 million. Contributing factors were the regulatory and fiscal measures in Spain. Recurring profit from international businesses rose 22.3% and made up 62% of the total, while in Spain it fell 25.2% to account for 38% of this item.
Gross margin was 1% higher at €3,386.3 million, driven by an excellent result in gas business, a 9.1% rise in production and a better generation mix which compensated the negative impact of currency fluctuations, lower prices and regulatory decisions in Spain. Operating efficiency improved as a result of operating expenses remaining flat at €815 million, made possible by cost control and reduced operating and maintenance costs.
Levies rose 9.9% in the period to €444.6 million, of which 64% - €286 million - relates to Spain where they rose 21%.
Group Ebitda was in line with the previous period at €2,126.5 million (-0,3%), driven by good performance in generation and supply, which in turn was turn helped by a greater contribution from gas businesses and a more efficient generation mix in Spain and cold weather in the US. This helped offset the negative impact of measures in Spain on renewables and networks.
Net financial expenses were reduced by 20% to €213.8 million, while operating cash flow was 2.9% higher at €1,660.4 million, exceeding the level of investments in all businesses.
These results are for the first time adjusted for IFRS 11 accounting norms, whereby businesses are consolidated by the equity accounting method instead of the proportional method applied previously.
Solid balance sheet management
Iberdrola made further progress in balance sheet strengthening and improving its financial profile. Group debt was reduced by more than €3.1 billion compared to the end of March 2013. Net adjusted debt was down 9.8% in the quarter at €24,346 million. Including €1,372 million pending receipt from the tariff deficit the debt figure stands at €25,718 million, a reduction of 11%.
Gearing, including the deficit, improved to 42.1% from 45.5% in March last year, and on an adjusted basis excluding funding of the tariff deficit it stood at 40.8%.
This positive trend in debt management enabled the Company to continue improving its financial ratios. Net debt to Ebitda stood at 3.6 while the ratio of funds from operations (FFO) to net debt and of retained cash flow (RCF) to net debt was 23.2% and 20%, respectively.
Group liquidity stood at €10,936 million, enough to cover financial commitments for more than 27 months. Average debt life was extended to more than 6 years.
Elsewhere, the Board of Iberdrola yesterday approved a reduction in capital equivalent to 2.094%, as approved by the General Shareholders Meeting on March 28 in Bilbao, to compensate potential dilution from the issue of new shares resulting from the flexible dividend and help maintain earnings per share. The Board approved a new edition of the Iberdrola Flexible dividend to remunerate shareholders in July, and set July 3 as payment date for the €0.03 cash dividend approved at the recent AGM.
Key operating aspects in the first quarter
1)NETWORKS: BRAZIL, AN EXAMPLE TO FOLLOW
Ebitda from networks businesses was 2.4% lower at €876.8 million. Brazil performed strongly with Ebitda up 45.6% due to three factors: an 8.9% increase in demand, higher tariffs applied since August 2013 and compensation guaranteed by the Government for distributors affected by increased energy costs resulting from the drought and financed through the national budget and credit lines. Additionally, higher tariffs approved in April by the Brazilian regulator for distribution companies Coelba and Cosem will contribute positively for the rest of the year.
Solid performance was also registered in the UK, where Ebitda rose 14.9% as a result of increased revenues from an expanded asset base following investments.
However, these positive results in Brazil and the UK were offset by declines in Spain and the US. Ebidta from networks in Spain fell 8.9% due to lower revenues resulting from application of Royal Decree Law 9/2013 while in the US there was a 13.3% fall as a result of applying new accounting rules for consolidation and comparison with a one-off positive impact on operating expenses recorded in the first quarter of 2013.
2)GENERATION AND SUPPLY: DRIVEN BY PRODUCTION
General and supply business recorded Ebitda of €915.5 million, a rise of 24.3% over the same period last year, reflecting a larger contribution from gas businesses, increased production and a better generation mix in Spain, as well as lower operations and maintenance costs.
These factors compensated for lower demand in Spain and the UK and increased levies which rose 11.8% to €278.8 million. In Spain, Ebitda from generation and supply rose 23.4%, mainly due to a 30.6% increase in energy production from traditional sources and a more efficient generation mix.
In the UK, Ebitda rose 7.8%, despite introduction of the carbon price floor and the impact of increased non-energy costs.
3)RENEWABLES: REGULATORY MEASURES AFFECT RESULTS
Higher load factors and a positive contribution from the UK, US and Latin America were unable to offset the impact of regulatory measures in Spain and lower prices in the renwables business. Ebitda fell 27.1% as a result to €371.4 million.
By country, Ebitda in Spain was down 63% and net profit fell 91% as a result of the new regulatory and fiscal measures adopted by the government and despite record wind generation in the quarter. The impact of these new measures has especially affected wind installations, rather than other technologies such as solar energy.
In the UK, Ebitda from renewables rose 32%, thanks to a 39% increase in production which compensated for lower prices. In the US it rose 28% as a result of improved prices and better weather conditions.
In Latin America, Ebidta rose 52%, helped by an 11% rise in new capacity in Mexico. Ebitda from renewables businesses elsewhere fell 40%, as a result of the sale of wind farms in Poland in 2013.
First integrated annual report
The Board of Iberdrola approved the Group's first integrated annual report, whose objective is to offer reliable, relevant and concise information on the main strategic lines of the Company, and on how Iberdrola creates value on a sustainable basis.
The integrated report systemizes information on conditions in the markets where the Group operates, its business model, the regulatory environment, risks and opportunities of the different businesses, management of its assets to secure long-term value creation, its objectives and actions in community affairs, environment and the economy.
Consolidating 2014-2016 Outlook
Results in the first quarter enable Iberdrola to confirm its projections for the year while making continuing progress to fulfilling the parameters of its 2014-2016 Outlook. In the first quarter, the Company achieved good operating performance across the businesses and continued to apply efficiency measures to minimize the impact of regulatory measures in Spain.
In Brazil, the government has eliminated uncertainty hanging over the distribution sector by compensating the negative impact of the drought. In parallel, Iberdrola has continued efforts to strengthen its balance sheet, reducing debt and financial costs, while improving ratios.
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