Spain: International Growth Helps Iberdrola Maintain Stable Profits During Crisis
IBERDROLA is one of the Spanish industrial groups that has best managed the effects of the current economic crisis. This reflects a strategy initiated just over a decade ago focused on international growth, with 54% of Ebitda originating outside Spain in the first quarter of this year, and also on core businesses of generation, networks and electricity distribution.
Chairman Ignacio Galán, addressing the Annual General Meeting at the Euskalduna Palace in Bilbao, said: “Despite the difficult environment, IBERDROLA is the only major electricity group in Europe and one of only two top Ibex companies to have maintained stable profits – more than €2.8 billion annually – and shareholder remuneration of more than €7 billion in the period.”
He said IBERDROLA represents a long-term industrial project that is creating jobs and wealth in all its markets, and that its performance is founded on a geographically diversified business model in which more than half of the businesses are outside the deeply affected eurozone. It also reflects a positive contribution of our regulated and renewables businesses, continuing efficiency gains and a solid balance sheet, Galán said.
He also pointed to the achievements in 2011 in which the Company has continued to diversify and grow its generation fleet around the world to more than 46,000 MW with production of more than 145,000 GWh of which more than half was outside Spain. Distributed energy rose 2.3% to a record 205,000 GWh, and emissions fell 4% from 2010 levels and 20% compared to 2007, to a level half the average for European electricity groups.
Engine for economic development
This operating performance led to revenues last year of €32.2 billion, Ebitda of €7.7 billion and net profit of €2.8 billion, with cash flow exceeding €6 billion for the first time. IBERDROLA again strengthened its finances, improving its debt profile to an average life of 6.3 years and maintaining liquidity around €10 billion, enough to meet financing needs for 30 months.
Galán also recalled that in 2011 IBERDROLA was again an engine for economic development in the countries where it operates, through its investments, purchasing and job creation. He said the Company invested €8.2 billion of which €4.2 billion were corporate transactions such as the acquisition of Elektro or the merger by absorption of Iberdrola Renovables approved at the last AGM, with the remaining €4 billion on organic growth.
The chairman referred to several projects developed last year in Spain: smart grids in 10 areas including Bilbao and Valencia, extension of the La Muela (Valencia) and San Esteban and San Pedro (Orense) hydro plants. In the UK, he mentioned the startup of 100 MW in onshore wind capacity and the project launch of the first offshore wind farm of 389 MW. In the United States, he referred to the interconnection with Canada, the smart meter project in Maine and 600 MW of new wind capacity installed, while in Brazil the Dardanelos hydro power plant began operations and work started on 10 wind farms totalling 300 MW.
In addition to these investments, Galán highlighted purchases of more than €5.3 billion from companies across the world that have contributed to creating or maintaining many thousands of jobs in suppliers, especially in Spain. Over the year, he said nearly 5,800 people joined the group, of which 1,900 were new hires and approximately 3,900 were from Elektro. As a result, the IBERDROLA workforce now stands at 33,000.
Galán highlighted the importance IBERDROLA places on training with 1.2 million hours accumulated in 2011, especially in health and safety courses which contributed to accident ratio fell 30% over 2010 and reinforced the company’s goal of achieving “zero accidents”.
Focus on environment and R+D+i
In line with the company’s commitment to respecting the ecosystem, running through all its businesses, IBERDROLA invested €1.3 billion in new clean generation helping avoid emissions totalling nearly 40 million tonnes of CO2. Galán said this commitment explains the company’s leadership in this field, “recognized by our continued presence in indices such as the Dow Jones Sustainability Index and the FTSE4Good”.
Also a priority is protection of the environment, though innovation projects in which the company invested €140 million in 2011 in areas such as smart grids and marine energy, “making us one of the biggest investors in innovation among the European utilities,” he said.
Elsewhere, he told shareholders that as a result of reforms last year to the company’s corporate governance, aimed at achieving an ordered and transparent set of norms in the defence of the general interest, “IBERDROLA is in the vanguard of best national and international practices.” He said it is important to recall that the courts have continually endorsed this goal as well as the modifications approved last year.
A return to the real economy
He also referred to the deep crisis affecting Spain, and whose solution he said required an “urgent commitment to continuing reforms, many of which are already been carried out by the government, with the goal of restoring productivity while achieving greater efficiency in public spending.” He also stressed the importance of modernizing legislation in the labour, financial and fiscal fields, greater social cohesion and resolving regional imbalances. Public sector administrations, companies and private individuals must reduce their exposure to debt and efforts made to revive the country’s industrial base, without which it will be hard to grow and create jobs.
Galán said it is vital therefore to “realize the strengths and enormous potential of the Spanish economy”, where he highlighted “the fact that the country can count on leading companies in key sectors with a major international presence.”
“Spain has the opportunity to transform its economic model into one that is more sustainable, more competitive, open and deregulated…and more focused on innovation and foreign markets. A model that creates value in the real economy, with more productive investment and less speculation.”
He said “it is vital to begin a process of reindustrialization, giving priority to sectors that can act as an engine for the productive apparatus. This should lead to sustaining and creating industrial projects over the long term, creating jobs and wealth, and providing the foundation for robust and sustained economic growth.”
For the IBERDROLA chairman these sectors include energy, which needs reforms that eliminate the regulatory risk it has suffered for years and a definitive solution for the tariff deficit. Despite the fact that Spain is highly competitive in traditional electricity operations, with conventional generation prices and electricity network costs below the European average, the final distribution price to residential customers is above the average. This is because around 50% of the final bill reflects costs unrelated to supply, which in other countries are financed by the national budget.
Galán said that since it took office, “the new government’s reforms are in the right direction and it is showing signs of a firm will to introduce measures that seek to prevent new deficit.” For IBERDROLA, some of these measures should be complemented by other that in addition to helping resolve this problem should also restore market confidence in their energy model with a real impact on the causes of the deficit and not on others that are unrelated such as traditional generation and distribution networks.
Offshore WIND staff, June 25, 2012; Image: Iberdola