4.1 Financial Capital

The company has an investment policy consistent with its strategic vision and financial policy. The main goals are:

• Ensure a return on capital through projects and investments preferably in regulated businesses, renewable assets or long-term contracts.
• Increase geographic diversification further balancing the contribution of the countries in which it does business.
• Tailor investment levels to the actual needs of each market.

• Total investment of €5,891 million, with almost 88% channelled into regulated businesses or long-term contracts.
• Almost €900 million was invested in the Networks Business in the United States and €2,300 million in Renewables, mainly in onshore wind farms in the United States and the Wikinger (Germany) and East Anglia 1 (United Kingdom) offshore wind farms. The investments in Mexico reached €700 million, including the construction of 3,400 MW at the Topolobampo 2 and 3, Escobedo and El Carmen facilities. All of them will commence operations between 2018 and 2020.

• Strict investment criteria based on earnings security, project profitability and strategic fit.
• Investments continue to be concentrated on regulated activities and long-term contracts.
• Net investment of more than €32,000 million over the 2018-2022 period, of which approximately 90% will be dedicated to regulated businesses, renewables or long-term contracts.
• By business, Networks will absorb 50%, €15,500 million. Investments in dollars will represent 38%, followed by 25% in euros, 19% in pounds and 18% in Brazilian reais.

• Iberdrola considers financial strength to be an essential factor that allows it to successfully face potential turbulence in the markets and to be in a position to exploit growth opportunities in the countries in which it does business.
• The financial policy seeks improvement in solvency ratios, balancing an increase in debt with the generation of additional cash flow from new investments.
• The debt structure is in line with the profile of the business, which is mostly regulated, and the composition thereof reflects the results obtained in the relevant currencies.

• Gross margin of €13,364 million (+3.5%).
• Net profit of €2,804 million (+3.7%). The positive impacts of the tax reform in the United States and the gain from the Siemens-Gamesa merger offset non-recurring aspects like the low hydraulicity in Spain, storms in the United States, and write-offs in the gas business in the United States. Efficiency measures were also provisioned.
• Adjusted net financial debt is €32,856 million, increasing €3,626 million over the year, as a result of the inclusion of Neoenergia (€2,817 million) and the investments made during 2017.
• Liquidity of €8,616 million, which covers more than 24 months of financing needs.

• During the 2018-2022 plan, the company will continue to grow and increase in profitability, reaching EBITDA of between €11,500 million and €12,000 million by 2022, and net profit of between €3,500 million and €3,700 million.
• Net investments of approximately €32,000 million, financed by cash flow generation (FFO) of €42,000 million.
• The new investment cycle will be funded while maintaining financial discipline: growth in cash flow, new financing schemes and rotation of assets.
• Optimisation of the liquidity position to cover financing needs for 18 months in a stress scenario.

• Notwithstanding the high efficiency levels that have been reached, the company believes that there is still a margin for improvement thanks to investments in digitisation and innovation.
• The implementation of best practices in all areas will allow for additional savings and an increase in synergies at the global level.

• Net operating expenses increased 20.3% to €4,170.6 million, mainly impacted by the consolidation of Neoenergia (€259.3 million), the costs of storms in the United States (€106.5 million) and the efficiency plans that have been provisioned (€162.4 million). Excluding such impacts and the exchange rate impact, NOE wouldhave increased by 7.1%.

• Additional efficiencies thanks to data analytics and artificial intelligence. Specific plans to transfer best practices to the networks processes in Brazil and the United States.
• Cumulative efficiency improvements of more than €1,000 million on homogenous terms, to achieve incremental EBITDA of ~€350 million by 2022.

• Iberdrola offers its shareholders an industrial enterprise for the long-term creation of value. The confidence of its shareholders enables Iberdrola to secure the resources needed to move its enterprise forward.

• Shareholder remuneration of 0.317 euro per share, equal to a dividend yield of 4.9%.
• Flexible dividend offering tax benefits, the repurchase of shares to avoid dilution, adding the cash payment option.

• Increase of dividend to 0.323 euro per share, with a charge to 2017 profits.
• Maintenance of the flexible dividend programme, adding the cash payment option.
• Target of maintaining the number of shares at 6,240 million, neutralising the capital increases associated with implementation of the flexible dividend programme.
• Growing shareholder remuneration, in line with the increase in results, converging on a pay-out ratio of between 65% and 75%.