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Transcript of Strategic pillars
- 1. 2012-2014 OutlookIgnacio S. Galn, Chairman and CEO
2. AgendaMacro Environment and Strategic Pillars2012-2014 Financial ProjectionsConclusion2 3. The Global Environment A complex macro environmentGDP CAGR (2012-2014)5%4% Latam UK +1.0%3%US US +2.4%UK2%Spain -0.6% 1% SpainLatam +3.7% 0%2011 2012E 2013E 2014EBrazil+3.2% -1%Mexico+3.6%-2% driven by fiscal consolidation in Europe and the USSource: IMF3 4. The Electricity Sector The electricity sector is an important driver of the economy Contribution of the European electricity sector % EU GDP5% Annual InvestmentEur 50 Bn750,000 Employment direct jobs and is ready to continue playing this roleusing only private capitalSource: Eurostat and Eurelectric 4 5. The Electricity SectorHowever, the sector is being affected by regulatory uncertainty, particularly in the Euro zoneLack of a clearenergy policy+ Unstable andunpredictableregulatory frameworks+Increasing taxation 5 6. Regulatory Outlook Regulation must pursuea transparent and objective model defined ex-ante Which energy sources do we want to use?Energy Policy How much are we willing to pay for it? Rational planning Approved investment plans Stable Networks Recognised expenses + efficiency sharing mechanism employment Objective, transparent and secure returns Efficiency Competitive market with no political interventionimprovementsGeneration Elimination of externalities and discriminatory taxation No legal & Supply Definition of remuneration for backup technologies(capacity payments)actions Lower financial costs Reasonable and predictable returnsRenewables Cost efficient technologies Most countries follow these guidelines 6 7. Regulatory Outlook - SpainSpain has traditionally had an ex-post model, requiring reactive decisions...Investments and costs are adjusted in response to changes in the frameworkResulting in considerable litigationNegative impact on auxiliary industry(initiated and discontinuous procurements) Jeopardizing stable employmentMore difficult access to capital marketsand higher financial costs... but current Government plans to change it to an ex-ante model7 8. Regulatory Outlook - Spain Government intends to modify the Electricity Act to attain1... An objective, transparent and stableregulatory framework Homogeneous treatment of all generation technologiesReasonable returns for renewable energiesNew remuneration scheme for regulated activities(distribution and transmission)Further liberalisation in order to eliminate the Tariff Deficit and to reach an economically andenvironmentally sustainable electricity system, with a balanced energy mix1. Declarations by Minister of Industry, Energy and Tourism in Congress on September 26th, 2012 8 9. 2012-2014 Strategic PillarsIberdrola reaffirms its strategic pillarsFinancialStrategicDebt reductionInvestments lower thancash flow generationStrong liquidity positionFocus on core businessesSolvency ratios improvementDivest non strategic assetsLow exchange rate Continue improving efficiency and interest rate risk 9 10. 2012-2014 Strategic ApproachPreparing the Companyfor the next phase of economic growthInvestment Criteria Security ProfitabilityExecution period Focused onBalance sheetregulated business strengthening 10 11. BusinessesAll businesses must generate positive cash flows... Investments allocated by country according toNetworksregulatory frameworksGeneration Adjusting plant operations to the countrys framework Preparing sites for future growth opportunities & Supply Optimising efficiency in O&M Concentrating presence in core countriesRenewables Iberdrolas first offshore wind farm to start operation... and maximise efficiency11 12. Countries Focus on the Atlantic Area, prioritising investmentsaccording to economic and regulatory conditions Growth in transmission activities (RIIO-T1) up to 2021UK Negotiating new distribution framework (RIIO-ED1) up to 2023 Optimising existing regulatory framework (DPCR5 and RIIO-T1)Growth Preparing for future growth opportunities in generation and in on- and offshore wind projects Growth in medium-term transmission activitiesUS Optimising efficiency sharing mechanism up to 2014Growth Geographic concentration in renewables Revising investments and costs according to the amended regulatory Spain framework Optimising operation and maintenance of generation plantsRe-alignment Maximising efficiencyLatin Brazil: America Growth in distribution, transmission and regulated generation (hydro and renewables)Growth Mexico: medium term opportunities from further opening of sector12 13. AgendaMacro Environment and Strategic Pillars2012-2014 Financial ProjectionsConclusion13 14. 2012-2014 OutlookGeneral hypothesesEnergy prices2013 and 2014 forward prices in European marketsDemand Evolution in line with GDP by countryCommodities Consistent with the International Energy AgencypricesExchange rates In line with market consensusInterest ratesConservative hypotheses based on market conditions14 15. 2012-2014 Net Debt Eur 6 bn Net Debt reduction...Net Debt (Eur bn)Drivers: 32-6 bn Lower investments26DivestmentsPositive Free Cash Flows Tariff Deficit securitization 20112014 ... without increasing the share capital11. Excluding scrip dividends 15 16. 2012-2014 Investments Significant reduction of investments: Eur 10.5 bn in the period1...Annual Investment (Eur bn)2012-14 Investment (Eur bn)8.2Eur 10.5 Bn4.7 3.8 ~Eur 3.5 bn p.a. Growth~60% Recurring~40%2009 20102011 20122013 2014 Organic Non organic 2012-2014 37% less than in previous three year period 2009-20111. Net of grants and capitalised costs (capitalised costs 2012-2014 of Eur 1.8 bn, consistent with those corresponding to period 2009-2011) 16 17. 2012-2014 Investments Focused by businesses and countries on Networks and UKInvestments by BusinessInvestments by Country Other Generation & Latam & Other 3% Supply UK13%23% 42% 25%US 59% 16% Renewables 19%NetworksSpain17 18. Investments up to 2020 Maintaining medium and long term commitments Main investment projectsGrowth projects investment2012-2014pipeline 2015-onwards MPRP, US, 2015-2016 Wind projects, 1,450 MW: Main Power Connection Project, US West of Duddon Sands offshore, UK, 2014 Western Maine Project, US Whitelee extension onshore, UK, 2012-14 Energy Highway Initiative in New York, US Onshore, Brazil, 2012-2013 RIIO-T1 transm. and RIIO-ED1 distrib., UK1 Hydro generation in Brazil: Eastern HVDC and transmision, UK 900 MW (Teles Pires), 2014 Smart meters and smart grids 1,500 MW (Baixo Iguau and Belo Monte), 2015-2016 Gas combined cycles, 1,900 MW in UK RIIO-T1 transmission and DPCR5 Off- and onshore wind distribution, UK1projects, UK, Germany, France, Mexico, Brazil MPRP, US, 2012-2014 Hydro generation, 1,500 MW in Brazil (Baixo Smart meters and smart gridsIguau and Belo Monte), 2015-2016 to secure future growth1. Distribution UK: DPCR5 up to 2015 and RIIO-ED1 from 2015 to 2023 and Transmission UK: RIIO-T1 up to 202118 19. EBITDA Evolution 2014Maintaining EBITDA in period 2012-2014, with growingcontribution of Regulated and Renewables Businesses EBITDA 2009EBITDA 2014Renewables Renewables Networks Networks20%20%42%52%28%38% Generation Generation& Supply& Supply6% --- Regulated business1 which in 2014 represent 77% of total EBITDA1. In 2009, Regulated business includes networks (42%) and Mxico regulated generation (6%)2. In 2014, Regulated business includes networks (52%) and Mxico regulated generation (5%)19 20. 2012-2014 Divestments Identified divestment opportunities up to Eur 5 bn, to be implemented according to financial needs Non core assets already divested: ~ Eur 300 MResults contribution Hartford Steam Divestment US Gas suppliers 2% EBITDA impactPlan Gas distributors in Spain Gas Natural MexicoEur 2 bn Euskaltel Negligible NetCore assets in non core countriesProfit impactAdvanced stage: > Eur 1.5 bnOther possible Additional non core assets and Up to minority stakes in infrastructures and othersEur 3 bnPrioritised on disposals with lower impact on EBITDA and Net Profit 20 21. 2012-2014 Cash Flow Retained Cash Flow + Deficit Securitisation exceeding Eur 18 bnEur bn 18.2-3.1+3.0-10.515.1 +2-1.8 6-1.81FFO Dividends (cash)RCFDeficitInvestmentsDivestments Working Capital Debt reductionSecuritization& other driving a debt reduction of Eur 6 bn211. Capitalised costs 2012-2014 consistent with those corresponding to three year period 2009-2011 21 22. 2012-2014 Financial Position Strengthening our financial ratios and reducing leverage to 40% in 2014 Net Debt/EBITDAFFO/Net Debt4.1x >22%19.1%3.2x20112014 20112014 Strong liquidity position: Eur 11 bnTarget: covering more than 24 months of financial needs22 23. 2012-2014 EfficiencyIberdrola, already a benchmark in efficiency Benchmark1Personnel: headcount reduction -1,200 employeesNet Op. Expenses/Gross Margin #1 Salaries linked to resultsWorkforce /Installed MW #1External services: costs reductionWorkforce /Users#1 Synergies from integration of global businesses Procurement, IT,Net Op. Expenses/Workforce#2 Marketing, ... One Corporate CentreThese measures allow the Company to absorb effect of inflationand increased activity, maintaining costs flat in 2012-20141. Source: Ernst & Young and own estimates from public information. Including Iberdrola, EDF, GDF-Suez, E.ON, RWE and Enel 23 24. AgendaMacro Environment and Strategic Pillars2012-2014 Financial ProjectionsConclusions24 25. ConclusionsIberdrola has alternatives/options of financial management to face unexpected scenarios throughA wide range of possible disposals ready to be executedtotally or partially, as required Subsidiaries outside the Euro zone with debt capacity and easy access to capital marketsScrip dividend adding flexibility whilst maintaining the debt reduction target25 26. Conclusions Despite negative ... thanks to the measuresexternal factors .