IBERDROLA Records First Quarter Earnings of € 878.6 Million

- Comparison with the same period last year is affected by higher taxation on generation in Spain and temporary additional energy costs in Brazil, among other factors
- Renewables and generation and supply drive a 5.5% rise in gross margin to €3,573 million
Group efficiency improved by 4.6%; Ebitda was 3.7% lower at €2,279 million, with 72% from regulated businesses
- For the first time, levies paid by the Company (€464 million) exceeded personnel costs (€434 million), particularly in the UK and Spain where they were 30% higher
- Net debt was reduced by €2 billion and gearing to 44.5%
- Continued progress in meeting parameters in the 2012-2014 Outlook: non-strategic asset sales came to €1.1 billion, most of which will be received in the second quarter
- Liquidity exceeded €12.2 billion, enough to cover financing needs for more than 3 years
- The company sees net profit ending the year at levels similar to 2012 and shareholder remuneration policy maintained, with the expected offsetting of some of the negative impacts incurred in the first quarter

IBERDROLA net earnings came to €878.6 million in the first quarter of 2013, a decline of 14.1%, while Ebitda was down 3.7% at €2,278.8 million. Regulated businesses accounted for 72% of total Ebitda. These results were conditioned by a series of temporary factors that distort comparison with the same period last year some of which will be offset in 2013 and 2014.

Specifically, these factors included additional energy costs in Brazil as a result of the prolonged drought there, the cost of energy efficiency programmes in the UK and the difference between a 1 percentage point reduction in corporate tax rates in this country in the first quarter of 2012 with a compensating effect from expected from a further cut in the second half of 2013. Discounting these factors, Group Ebitda would have risen 0.6% in the quarter, while net profit would have increased 2.8%.

Gross margin rose 5.5% to €3,573.1 million, driven by strong performance in renewables which rose 20.1% and in generation and supply which was up 11.1%. This offset poorer results in networks which declined 5.8%, mostly affected by the situation in Brazil. Operating efficiency improved 4.6%, with a decline in net operating costs against gross margin to 24.7% from 25.9%.

However, good business performance has been offset by increased taxes in the first quarter. For the first time, levies totalling €464 million (excluding court resolutions in Spain during the period favourable to the company), exceeded personnel costs of €434 million in the quarter. In particular, these levies exceed net personnel costs by more than 30% in Spain and the UK. In Spain, new tax levels approved by the Government in the final quarter of 2012 came to €122 million, including taxes on generation, levies on hydro and the nuclear tax.

At the same time, a positive impact from the reimbursement of €52 million in eco-taxes in Castilla- La Mancha during the first quarter was less than the €100 million positive impact of a Supreme Court decision regarding the financing of a fuel poverty scheme in Spain (bono social).

Elsewhere, operating cash flow stood at €1,732 million at the end of the first quarter, down 4.8%. In all businesses, operating cash flow exceeded investments executed in the period totalling €630 million: this comprised came to €414 million in networks, €42 million in generation and supply and €146.3 million in renewable and the rest in other business areas.

Progress in achieving parameters of 2012 – 2014 Outlook

In the first quarter, IBERDROLA progressed further in meeting the parameters of its 2012-2014 Outlook, as well as continuing to strengthen its balance sheet. Adjusted net Group debt at the end of March stood at €27.79 billion, excluding €1,918 million outstanding in reimbursement due from the tariff deficit. Including the deficit, the debt stood at €29.71 billion.

Compared to the same period last year, debt has already been reduced by around €2 billion, in line with the Group’s objective of cutting debt by €6 billion.

IBERDROLA has moved ahead with its non-strategic asset divestment plan, with sales to date of €1.1 billion, most of which will be disbursed in the second quarter of this year. Securitization of the tariff deficit carried out by government agency Fade since January2012 amounts to €2.8 billion, plus an additional €432 million corresponding to IBERDROLA from a new Fade issue on April 23.

As a result, gearing was reduced to 46.1%, including the tariff deficit, from 48.5% at the end of the same period last year. Excluding the deficit, this stood at 44.5% against 46.9%. This progress enabled the Company to improve financial ratios: the ratio of funds from financial operations to net debt standing at 20.6% and that of retained cash flow to net debt at 17.6%, also including the tariff deficit.

Key operating aspects of first quarter 2013

1. Networks business: peor comportamiento en Brasil

Ebitda from networks businesses came to €1,005.9 million, a decline of 6.1%. Efficiency gains, a broader asset base in the UK and higher contribution from the US as a result of higher revenues, including the Maine transmission line project, partially compensated performance in Brazil where Ebitda fell 51.6% against a 10.7% rise in other geographical areas.

In Brazil, despite a 5.4% increase in demand, a reduction in tariffs had a €39 million impact in the first quarter. Business there was also affected by additional costs relating to drought conditions which had a negative impact of €68 million and which will be recovered in the second half of 2013 and in 2014, as well as a 16% depreciation of the Brazilian real.

In the UK, the Group is adjusting the accounting value of its assets to meet new regulatory requirements in this country, resulting in a €17 million increase in operating costs.

2. Generation and Supply: taxes increase by 330%

This area recorded Ebitda of €749.7 million in the first three months, a decline of 9.5%. Higher production and a broader customer base in the UK helped offset the increase in taxes. Compared to the same period last year, levies on these businesses rose 330.4% to €252.1 million.

In Spain, a 6.6% fall in production was compensated by lower costs resulting from good hydro yields. Production was also lower in the UK (-15.4%) mainly due to the closure of the Cockenzie plant. Sales nevertheless increased as a result of a 7.3% higher customer base, lower temperatures and higher tariffs to reflect a rise in non-energy costs.

3. Renewables: ebitda rose 20.8%

Improved efficiency and good wind yields in the first quarter saw Ebitda rise 20.8% over the same period last year to €533.3 million. Wind production rose 16.7% to 9,877 gigawatt hours (GWh), while net operating costs against average production was reduced by 5.9%.

This solid operating performance enabled the Group to offset the negative effects of higher taxation and new regulatory measures. During the first quarter, levies applied to the renewables business rose 158.7% to €50.1 million. The new 7% tax on generation in Spain had a negative impact in this business of €26 million.

The new regulated tariff applied in Spanish wind farms as a consequence of Royal Decree Law 2/2013 translated into a 5.3% drop in final prices, equivalent to €13 million less.

IBERDROLA prospects for 2013

Progress towards meeting parameters set in the 2012-2014 Outlook, and the offsetting of some of the negative factors in the first quarter is expected to enable the Company to meet a series of projections for 2013, among them that of maintaining net profit at levels similar to 2012.

IBERDROLA also expects to maintain its policy of shareholder remuneration of around €0.3 per shares until the 2014 financial year, subject to approval by the AGM.

IBERDROLA’s liquidity position remained comfortable, standing at €12,261 million at the end of March, enough to meet financing needs for more than three years.

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