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Roadshow Presentation Nine Months 2008 results

A flexible value creation model Anticipating market trends. Roadshow Presentation Nine Months 2008 results. Agenda. Highlights of the Period. Analysis of Results. Financing. Conclusion. Annex: Results by Business. 2. Highlights of the Period.

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Roadshow Presentation Nine Months 2008 results

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  1. A flexible value creation model Anticipating market trends RoadshowPresentation Nine Months 2008 results

  2. Agenda Highlights of the Period Analysis of Results Financing Conclusion Annex: Results by Business 2

  3. Highlights of the Period EBITDA reaches Eur 4,922 MM, growing +29.1% Positive evolution of all business units Strong contribution from ScottishPower and Renovables Low risk growth and value creation model Diversification by geography and business Flexibility in the management of the Strategic Plan Ability to adapt to new environment Far-sighted financial management, anticipating market trends Leverage below 50% after Energy East transaction Net Profit up 53.8% to Eur 2,481 MM 3

  4. Highlights of the Period - Internationalisation Output +23%: Growth in International and Renewables Output (GWh) Installed capacity (MW) +23% Cogeneration 1% Fuel 4% Coal 11% Hydro 24% 106,442 86,773 27% Latam 19,3% 27% 18% ScottishPower 13% 13% Renewables Wind 20% 11% CCGTs 31% Traditional Energy Spain 49% 42% Nuclear 8% 9M 2007 9M 2008 52% of emission-free capacity

  5. Highlights of the Period - ScottishPower ScottishPower EBITDA reaches Eur 1,373 MM, 28% of Group total Output increases 10% and energy distributed up 2% vs. 9M 2007 Synergies and cost cutting: Net Op. Expenses down 10% in homogeneous terms and local currency Demand stability Regulated Business contributes close to 50% of EBITDA Increasing results while planning the long term

  6. Highlights of the Period - Renovables • Achieving installation commitments: 2,000 MW in the year Capacity increases by 1,389 MW (+70.5%), to 8,487 MW Output up 83.6%, to 12,095 GWh EBITDA reaches Eur 768 MM, already accounting for 16% of Group total Continuing regulatory support: PTCs extension in USA Flexible business model, with ability to adapt to the current environment

  7. Highlights of the Period – Energy East • Completion of Energy East transaction, … Closed in shorter period than other previous transactions Funds obtained more than 1 year in advance of the closing date Approvals obtained under satisfactory conditions Regulated business: recurrent generation of Cash-flows Geographical diversification: AAA country and legal security Complying with Group’s financial criteria Positive impact in EPS and Cash-flow per share from the first year … becomes a further step in the execution of the Strategic Plan 2008-2010

  8. Highlights of the Period - Efficiency Efficiency improvement: Basic Margin increases 5% more than Net Operating Expenses, … Eur MM Growth 9M ´08 vs. 9M ´07 +34.3% 7,705.4 +29.3% 2,220.8 Basic Margin Net Op. Expenses … with strongperformance in Spanish and ScottishPower businesses 8

  9. Highlights of the Period - EBITDA EBITDA up 29.1% to Eur 4,922 MM EBITDA by business EBITDA growth MM Eur Renovables 16% Liberalised Spain 27% +25 4,921.9 +555 -63 Latam & others 15% +409 +184 3,811.6 Regulated Spain 15% Renov. 9M 2008 9M 2007 Non Energy Latam UK Trad. En. Spain UK 28% International and Renovables account for 90% of the growth

  10. Highlights of the Period – Net Profit Net Profit up 53.8% to Eur 2,481.3 MM … Net Profit (Eur MM) Cash-flow* (Eur MM) +53.8% +30.6% 2,481.3 3,448.1 1,613.0 2,640.3 9M 07 9M 08 9M 07 9M 08 … Generated cash-flow reaches Eur 3,448 MM (*) Net Profit + Amortizations –Equity income – Non recurrent items

  11. Highlights of the Period – Tariff Insufficiency Tariff Insufficiency Past-Present Future • Electricity Sector Law guarantees the principle of tariff sufficiency • Recognition of Deficits • In case of non compliance, the Spanish State would be liable • Commitment from the Government to its eradication before 2012 • Additive Last Resource Tariff simplifies its solution Effective liberalisation of 50% of the market from 1 July 2008

  12. Highlights of the Period Low risk growth and value creation model, diversified by business and countries… Partially regulated (Renovables) 14% Regulated 45% Liberalised 41% • Predictable revenues • Increasing cash-flows • Production sold • Institutional support • Spain: Growing importance of forward markets • UK: Production vs hedged market • Predictable revenues • Stable cash-flows • Legal security Spain United Kingdom Mexico Brazil USA (EAS) Spain United Kingdom USA Rest of World Spain United Kingdom … stable in revenues and cash-flow generation, with 85% of EBITDA generated in AAA countries 12

  13. Highlights of the Period Inelastic demand within the economic cycle Electricity demand* (1981-2007) % Output Liberalised Businesses Pool Spain Forward Spain + UK Spain: No fall in demand in the last 25 years 30% 70% USA and UK: Fall in demand never > 3% 70% of liberalised businesses production covered: Spanish forward markets and UK clients 13 *Source: 1981-2005 Energy Information Administration; 2006-2007 Economist Intelligence Unit

  14. Highlights of the Period Ability to adapt the Strategic Plan to the new environment… Normalised markets Current situation Organic investments Active portfolio management By business By countries • Flexibility of Eur 2,000 MM per year of less net investments • Investment criteria • Maximising the Net Present Value • Spain • USA • United Kingdom • Latam & others • Renewables • Regulated • Liberalised • Others Non organic investments: EAS … without changing Net Profit targets for 2010 14

  15. Highlights of the Period • Financial management with growth financed in advance • in order to maintain A rating Financing growth in advance (2007) Financial data* (Eur MM) ScottishPower 50% Debt-50% Equity Investments 2007-2008 Eur 30,000 MM IPO Renovables 20% capital increase Leverage 47.2% 9M ´08 vs. 54.3% in ´06 Energy East 100% Equity Available Liquidity reaches Eur 9,215 MM *Figures as of September 2008, including Energy East transaction. Leverage excludes tariff insufficiency

  16. Agenda Highlights of the Period Analysis of Results Financing Conclusion Annex: Results by Business 16

  17. Income Statement - Group International and Renewables account for 89% of Group EBITDA growth 9M 2008 9M 2007 Var. % Eur MM 17,808.0 11,376.5 +56.5 Net Sales 7,388.1 5,726.7 +29.0 Gross Margin 7,705.4 5,737.6 +34.3 Basic Margin -2,220.8 -1,717.4 +29.3 Net Op. Expenses 4,922.0 3,811.5 +29.1 EBITDA 3,316.7 2,522.4 +31.5 Operating Profit (EBIT) -759.9 -620.5 +22.5 Net Finance Cost 638.5 262.0 +143.8 Exceptional Items +Equity Income 2,481.3 1,613.0 +53.8 Net Profit 17

  18. Income Statement - Group Recurrent Proforma Income Statement* shows double digit growth at operating levels +13.4% Basic Margin +11.3% EBITDA EBITDA grows +16.1% in local currency, proving the better than expected operating performance 18 *Excluding MTM impact

  19. Net Sales - Group Net sales up +56.5%, to Eur 17,808.0 MM Eur MM Net Sales Procurements +6,431.5 MM +4,332.9 MM 17,808.0 11,376.5 9,964.5 5,631.6 9M 2008 9M 2008 9M 2007 9M 2007 Procurements up +76.9%, to Eur 9,964.5 MM 19

  20. Gross Margin - Group Group Gross Margin +29.0% to Eur 7,388.1 MM … Gross Margin by business Gross Margin (Eur MM) +1,661.4 MM Non Energy 7% Liberalised Spain 26% 7,388.1 Latam 11% 5,726.7 7,388.1 Eur MM Regulated Spain 16% Scottish Power 25% 9M 2008 9M 2007 Renovables 15% … with International and Renewables accounting for 51% of the Group Gross Margin 20

  21. From Gross Margin to Basic Margin Basic Margin up +34.3% including the net effect of CO2 allowances Eur MM Basic Margin: CO2 allowances net effect 7,843.6 +317.3 7,705.4 7,388.1 -455.5 +36.5% +34.3% +29.0% Basic Margin Gross Margin ex-CO2 CO2 allowances consumed Gross Margin reported CO2 allowances allocated CO2:Net Effect Eur -138.2 MM

  22. Net Operating Expenses - Group Net Operating Expenses up +29.3%, to Eur 2,220.8 MM, less than Basic Margin (+34.3%), maintaining the efficiency policy and cost control, … Eur MM Basic Margin vs Net. Op. Exp Net. Op. Exp. by origin % vs. 9M 2007 9M 2008 +34.3% +15.8% 1,363.1 Iberdrola +131.4% 7,705.4 Iberdrola Renovables 296.4 +29.3% +36,1% 2,220.8 561.3 Scottish Power Total Net. Op. Exp. Basic Margin 2,220.8 +29.3% … with non recurrent effects included in First Nine Months Operating Expenses 22

  23. Levies - Group Levies up by Eur 354.0 MM (+169.7%) … -562.7 -300.9 +169.7% -20.4 -208.7 -32.7 9M 2008 9M 2007 Higher activity Scottish Power CO2 rights clawback … driven by the inclusion of the CO2 rights clawback as an additional levy 23

  24. EBITDA - Group Group EBITDA +29.1% to Eur 4,922.0 MM … Eur MM 4,922.0 1,373.3 N/A 767.9 290.4 +113.7% 672.9 1,817.4 -17.8% +3.8% +29.1% 11.3% EBITDA Traditional Energy Spain* Scottish Power Latam Non Energy Renovables … driven by ScottishPower (Eur 1,373.3 MM) and Renovables (Eur 767.9 MM) 24 *Generation + Supply+ Gas + Distribution

  25. EBIT - Group Group EBIT up 31.5%, to Eur 3,316.7 MM Eur MM EBIT % vs. 9M 2007 9M 2008 +794.3 MM D&A -1,483.5 +27.5% 3,316.7 - Purchase Price Allocation* -166 2,522.4 -48 Renovables Provisions -121.8 -2.8% Total -1,605.3 +24.5% 9M 2008 9M 2007 D&A and Provisions up +24.5% 25 * Assets purchase prices allocation

  26. Net Finance Costs - Group Net Finance Costs: Eur -759.9 MM (+22.5%), … Net Finance Costs ( Eur MM) Average Cost of Debt +139.4 MM -759.9 -620.5 5.12% 5.16% 9M 2007 9M 2008 9M 2008 9M 2007 26

  27. PBT - Group PBT up 47.7% to Eur 3,195.3 MM… PBT vs. 9M 2007 9M 2008 +1,031.5 MM EBIT 3,316.7 +794.3 3,195.3 Net Fin. Costs -759.9 -139.5 2,163.8 Equity Method 71.1 +23.1 Non. Rec. Assets 567.4 +353.6 PBT 3,195.3 +1,031.5 9M 2008 9M 2007 27

  28. Net Profit - Group Net Profit reaches Eur 2,481.3 MM (+53.8%), … Net Profit Eur MM PBT 3,195.3 2,481.3 +47.7% +53.8% Lower Effective Tax Rate 20.2% 1,613.0 Lower Corporate Tax Rate One-off net tax provision release 9M 2007 9M 2008 … fully diluted EPS grows +53.8%, up to 0.50 Eur/share 28

  29. Agenda Highlights of the Period Analysis of Results Financing Conclusion Annex: Results by Business 29

  30. Tariff Deficit Tariff Deficit reaches Eur 1,947 MM at 9M 2008, … Eur MM +504 +1,947 +1,893 -450* -386 -64 Iberdrola Total Tariff Deficit H1 ´08 Funds collected July 1st ´08* Q3 Tariff Deficit Iberdrola Total Tariff Deficit 9M ´08 … that will be securitised as it is considered as quasi sovereign debt * Includes Eur 367 MM of 2007 Tariff Deficit + Eur 64 MM of interest + Eur 19 MM of 2008 tariff Deficit

  31. Financial Debt – Adjusted Leverage Leverage improves to 47.2% ex tariff insufficiency impact Net Debt and Equity* (Eur MM) Leverage 9M 2007 9M 2008 49.0% 48.5% Adjusted Net Debt 23,482 28,040 Tariff Insufficiency 795 1,947 Ex tariff insufficiency impact 47.6% Adjusted Net Debt Ex insufficiency 22,687 26,093 47.2% Equity 24,958 29,174 9M 2007 9M 2008 • Excluding Tax equity Investors (2007: Eur 658 MM, 2008: 665 MM) 31

  32. Financial ratios With an improvement in financial ratios … FFO* / Interest RCF**/ Net Debt FFO* / Net Debt 21.3% 5.2 16.2% 19.8% 15.1% 4.9 19.4% 4.6 14.6% 18.8% 14.1% 4.5 9M 2007 9M 2008 9M 2007 9M 2008 9M 2007 9M 2008 Including Tariff Insufficiency Excluding Tariff Insufficiency … even after the inclusion of Energy East NOTE: Not including TEI * FFO = Net Profit + Amortizations – Equity Income ** RCF = FFO – Dividends 32

  33. Financial Debt- Debt Analysis Financial Breakdown Summary* Currency Structure Interest Rate Structure Type of debt Loans in foreign currency 3% EMTN 3% 29% 33% 31% 7% 35% 25.3% 26.1% 2% 4% 34% 24% 65% 65% 14.4% 65% 65% 17.0% 56% 38% $ Market 9.0% Loans in Euros 6.4% Other bonds ECP 1.8% Dom.Com. Paper 9M 2007 9M 2008 9M 2007** 9M 2008** Capped Floating Real & Others GBP Fixed Dollar Euro *All figures include the impact of Energy East **After deducting tariff deficit. Including tariff deficit Q3 ´07 floating would have been 34.7%, and Q3 ´08: 37.2%.

  34. Financial Debt - Analysis by Maturity Iberdrola debt maturity profile* Average maturity of debt (Eur millions) 2,882 41 5.8 yrs 5.0 yrs 2,164 2,141 2,164 293 389 303 2,841 1,871 1,752 1,861 2009 2010 2011 2012 9M ‘07 9M ‘08 IBE ex EAS EAS Increasing average maturity of Debt to 5.8 years *Does not include credit line draw downs

  35. Liquidity Analysis* Strong liquidity remaining after EAS transaction Limit Withdrawn Available (Eur millions) 1,644 Cash & Short Term Fin. Invest. - 1,644 542 77 465 Credit Lines < 1 year 6,376 8,562 2,186 Credit Lines end ´09 Credit Lines 2< years <3 3,843 3,626 217 Credit Lines > 3 years 1,294 - 1,294 Total 15,885 6,670 9,215 *Figures include impact of Energy East transaction and EIB Eur 600 MM Credit Lines signed on 8 October 2008.

  36. Agenda Highlights of the Period Analysis of Results Financing Conclusion Annex: Results by Business 36

  37. Conclusions Strong evolution in the First Nine Months of 2008… Positive results from all business units Strong contribution from International Businesses … that allow us to reaffirm 2008 EPS growth above 27%, in line with DPS growth 37

  38. Conclusions A sound business model in the current environment, … Recurrent Cash-flows generation Diversification by businesses and countries Flexibility in investments Financial solidity … that allows us to maintain Net Profit target for 2010 38

  39. Agenda Highlights of the Period Analysis of Results Financing Conclusion Annex: Results by Business 39

  40. Results by Business Liberalised Business Spain Moderate demand growth (+2.0%) and higher pool prices … Ordinary Regime Output (GWh) Pool Price (*) & CO2 (**) GWh +2.8% 65.4 €/MWh +28.5 €/MWh 41,481 40,341 36.9 €/MWh -63% Coal + Fuel 23.3 €/Tn +21,9 €/Tn +58% CCGT -38% Hydro 1.4 €/Tn 9M ´07 9M ´08 +19% Nuclear +14.6 €/MWh Avg. Fuel Cost (€/MWh)(**) 51.6 37.0 … with production increasing in the period (+2.8%) (*)Average Pool price for the Spanish System. Excludes capacity payments and ancilliary services (**) Iberdrola CO2 and Thermal Fuels Average Cost 40

  41. Results by Business Liberalised Business Spain EBITDA increases +16.3%, to Eur 1,169.0 MM… EBITDA (Eur MM) Financial Highlights Eur MM +16.3% 9M 2008 % vs. 9M 2007 1,169.0 1,005.4 1,896.7 +27.0% Gross Margin Net. Op. Exp. -508.1 +15.2% EBITDA 1,169.0 +16.3% 9M 2007 9M 2008 41

  42. Results By Business Regulated Business Spain EBITDA up +7.9%, to Eur 719.9 MM Operating Highlights Financial Highlights Eur MM 9M 2008 % vs. 9M 2007 Higher regulated revenues Gross Margin 1,174.2 +5.7% Net Op. Exp. +3.9% -372.0 Cost Control EBITDA +7.9% 719.9 Improving from EBITDA increase of +3.6% in H1 ´08 42

  43. Results By Business Renovables EBITDA up +113.7%, up to Eur 767.9 MM Financial Highlights Operating Highlights Eur MM % vs. 9M 2007 9M 2008 Installed capacity increases 70.5%, up to 8,487 MW 1,085.2 +119.5% Gross Margin Production rises 83.6% to 12,095 GWh -296.4 +131.4% Net Op. Exp. 10.9% increase in average power price to 83.3 €/MWh EBITDA 767.9 +113.7% … with international businesses already accounting for over 40% of EBITDA 43

  44. Results By Business ScottishPower ScottishPower contributes Eur 1,373.3 MM or 27.9% of the Group´s EBITDA, … Eur MM MtM TOTAL SPW Corp. Wholesale& Retail Networks Gas (Canada) TOTAL 1,679.3 166.2 1,845.5 Gross Margin 979.2 678.8 22.9 -1.6 1,837.0 166.2 2,003.2 Basic Margin 1,136.9 678.8 22.9 -1.6 -561.3 - -561.3 Net Op. Exp. -487.6 -66.1 -8.1 0.5 1,207.1 166.2 1,373.3 EBITDA 638.4 556.8 14.3 -2.4 … despite Eur -214.5 MM of negative fx impact at EBITDA level 44

  45. Results By Business Latin America Latam EBITDA grows +3.8%, to Eur 672.9 MM Effect of currency evolution Financial Highlights Eur MM Eur MM 9M 2008 % vs. 9M 2007 +7.9% +3.8% 848.2 +3.5% Gross Margin 699.0 672.9 -173.4 +4.4% Net Op. Exp. 672.9 +3.8% EBITDA EBITDA In local currency Reported EBITDA 45

  46. Results By Business Latin America Brazil Mexico Business evolution Demand +5.6% +24.2% more production Lower recovery regulatory assets Tariff Revision Distribution Companies -14.2% exchange rate +5.1% exchange rate Contribution to financial statements 388.9 284.0 EBITDA (Eur MM) EBITDA (Eur MM) 46

  47. Results By Business Non energy + Engineering Results affected by real estate lower contribution Gross Margin Breakdown Financial Highlights (Eur MM) Iberdrola Inmobiliaria 9M 2008 % vs. 9M 2007 Engineering & Construction 17% 538.2 -1.0% Gross Margin IBV 11% 43% -242.4 +31.7% Net Op. Exp. 29% 290.4 -17.8% EBITDA Other Services 47

  48. Results By Business Iberdrola Inmobiliaria Iberdrola Inmobiliaria made Eur 77.9 MM EBITDA and Eur 40 MM of Net Profit in 9M 2008 … Gross Margin Breakdown Financial Highlights Eur MM Residential 9M 2008 % vs. 9M 2007 Rentals 11% 22% 90.4 -40.1% Land Gross Margin 15% 44% 33% -11.9 -29.4% Net Op. Exp. 51% 77.9 -40.6% EBITDA Properties … despite worse than expected market conditions 48 48

  49. Results By Business Engineering & Construction EBITDA up +2.2% to Eur 86.6 MM, despite lower activity in Spanish Networks, … Backlog Breakdown 9M ´08 Financial Highlights* Eur MM Eur MM 2,559 9M 2008 % vs. 9M 2007 17% 234.1 +30.9% Gross Margin 83% +56.0% Net Op. Exp. -144.6 Net Op. Exp 86.6 +2.2% EBITDA EBITDA Spain International … recovering from -1.3% loss in H1 ´08, due to higher activity and growth of international contribution 49 * Includes REE works

  50. Legal Notice DISCLAIMER This document has been prepared by Iberdrola, S.A. (the “Company”) exclusively for use during the presentation of financial results of the third quarter of the 2008 fiscal year. As a consequence thereof, this document may not be disclosed or published, nor used by any other person or entity, for any other reason without the express and prior written consent of Iberdrola, S.A. Iberdrola, S.A. does not assume liability for this document if it is used with a purpose other than the above. The information and any opinions or statements made in this document have not been verified by independent third parties; therefore no express or implied warranty is made as to the impartiality, accuracy, completeness or correctness of the information or the opinions or statements expressed herein. Neither Iberdrola, S.A. nor its subsidiaries or other companies of the Iberdrola Group or its affiliates assume liability of any kind, whether for negligence or any other reason, for any damage or loss arising from any use of this document or its contents. Neither this document nor any part of it constitutes a contract, nor may it be used for incorporation into or construction of any contract or agreement. Information in this document about the price at which securities issued by Iberdrola, S.A. have been bought or sold in the past or about the yield on securities issued by Iberdrola, S.A. cannot be relied upon as a guide to future performance. IMPORTANT INFORMATION This document does not constitute an offer or invitation to purchase or subscribe shares, in accordance with the provisions of the Spanish Securities Market Law (Law 24/1988, of July 28, as amended and restated from time to time), Royal Decree-Law 5/2005, of March 11, and/or Royal Decree 1310/2005, of November 4, and its implementing regulations. In addition, this document does not constitute an offer of purchase, sale or exchange, nor a request for an offer of purchase, sale or exchange of securities, nor a request for any vote or approval in any other jurisdiction. In particular, this communication does not constitute an offer to purchase, sell or exchange or the solicitation of an offer to purchase, sell or exchange any securities. The shares of Iberdrola, S.A. may not be offered or sold in the United States of America except pursuant to an effective registration statement under the Securities Act or pursuant to a valid exemption from registration.

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