Shareholder remuneration policy maintained with new round of Iberdrola Flexible Dividend programme allowing scrip dividend payments

IBERDROLA 9 MONTH EARNINGS ROSE 3.5% TO €2,143 MILLION

The Company recorded Ebitda of €5,586 million, consolidated liquidity at more than €9.6 billion and improved its outlook to stable on its A- and A3 ratings, amid widespread downgrades

BUSINESS PERFORMANCE

• More than 50% of Ebitda came from regulated business, which increased by 11.5% to €2.84 billion, with a strong contribution from Brazil
• Iberdrola’s renewables capacity totalled more 13.500 MW with a rise of 12% in the period
• Brazil accounted for €634 million in Ebitda, a rise of  51.1%, with Elektro contributing €196 million in one quarter
• The net contribution from liberalized business declined as a result of higher taxation in Spain and tighter UK margins

RESULTS

• Group revenues exceeded €23 billion for the first time in a nine month period
• IBERDROLA improved its financial result, lengthened average debt maturities to 6.4 years and covered its financial needs for 24 months with €9.6 billion in liquidity
• The Company confirmed the confidence of markets with more than €6.5 billion raised during the period

IBERDROLA recorded net earnings of €2,143 million in the first 9 months of 2011, a rise of 3.5% on the same period last year. Ebitda was 0.4% higher at €5,586 million, despite divestments in Connecticut and Guatemala last year.

The results were achieved in a difficult economic environment helped by the fruits of international expansion in recent years and to solid performance by regulated and renewables businesses which made up 69.3% of Ebitda and compensated for poorer results from liberalised businesses.

There was a significant contribution from business in Brazil, which increased Ebitda by 51.1% to €634 million, to which consolidation of Elektro accounted for €196 million in one quarter.

The Company sustained a comfortable liquidity position during the period, in excess of €9.6 billion, which allowed it to cover financing requirements for the next 24 months. The Group also succeeded in extending the average life of its debt - which totalled €28,310 million excluding the tariff deficit - to 6.4 years.

IBERDROLA, despite the complex operating conditions of the past nine months, surpassed €23 billion in revenues for the first time in a 9-month period, reaching €23,368 million, a rise of 1.7%. Gross margin, was 1.8% higher at €8,827 million, with net operating costs contained at a 0.4% rise to €2,589 million, reflecting the positive impact of the new organizational structure introduced at the start of the year.

This performance enabled Ebitda to reach €5,586 million, a rise of 0.4%, reflecting good performance from regulated business which rose 11.5% and renewables which were up 6.6%, compensating for a 14.6% decline in liberalised businesses which were affected by a slowdown in the United Kingdom, higher taxation in Spain, and the impact of one-off divestments in Guatemala last year.

Of total Ebitda, 50.8% was from regulated business, 30.5% from liberalised, 18.5% from renewables and 0.1% from other businesses. This reflects the success of Group strategy centred on a diversified business model and low-risk activities. Ebit was 1.5% lower at €3,515 million.

Group production was 5.8% lower at 107,822 gigawatt hours (GWh), essentially due to lower hydro output (-22.3%) and cogeneration (-23.8%). Renewables production, however, was 14.5% higher at 20,712 GWh.

During the period, two key milestones were achieved with the acquisition of Elektro in Brazil, a transaction that closed in April for $2.4 billion, and the merger by absorption with Iberdrola Renovables which completed on July 8.

Solid finances and "A" rating consolidated

In the reporting period, IBERDROLA progressed in moves to strengthen its financial base, achieving a liquidity position of more than €9.6 billion at the end of September. This enables the Company to meet its financing needs for the next 24 months.

Net adjusted debt, excluding the €3,204 million pending payment from the tariff deficit - was €28.31 billion, while gearing stood at 47.2% excluding the deficit. In line with its commitment to maintaining a solid balance sheet, IBERDROLA improved its financial result by 19.7%.

On the strength of this, IBERDROLA succeeded in raising more than €6.5 billion from the markets during the period. These operations enabled the Company to lengthen its average debt maturity to 6.4 years.

The Group consolidated its “A” rating in a period of widespread downgrades, and recently Standard & Poor’s improved its outlook from negative to stable.

Shareholder remuneration policy maintained

The Board of Directors of IBERDROLA yesterday considered a new round in the Company’s Iberdrola Flexible Dividend programme for what would have been the regular 2011 interim dividend disbursement. Once fully approved by the Board, the Company thus again offers its shareholders the opportunity to obtain free shares with no fiscal retention, and at a value at least equal to last year's.

Shareholders can also opt for a cash equivalent per share, selling their rights to IBERDROLA shares at a minimum gross price of €0.143 per share.

Key operating aspects in the 9 months

1) GROWTH IN REGULATED BUSINESSES

Ebitda from Regulated Business rose 11.5% to €2.84 billion in the first nine months. By geographical area, Spain accounted for €1,174 million or 41.3% of the total, Brazil for €634 million (22.3%), the United Kingdom for €593 million (20.9%) and the United States for €439 million or 15.5%.

All regions except the United States, which fell 16.9%, showed increases in regulated businesses: in Spain by 11.4%, in Brazil 51.1% and in the UK 8.5%. The decline in the United States reflected essentially a negative €30 million impact from Hurrican Irene, which will be recovered in subsequent years, and the one-off impact of the sale of the Connecticut Gas subsidiary.

Strong growth of regulated business in Brazil, where IBERDROLA is now the leading electricity distributor in the country with 11.5 million customers, is due in large part to the consolidation from June of Elektro – which contributed €196 million to Ebitda of regulated businesses – to the rise of the Brazilian currency, increased demand and new hydro capacity. In the UK, revenues rose 8%, driven by an 8% rise in investments and by increased efficiency.

2) LIBERALIZED BUSINESS AFFECTED BY HIGHER TAXATION

Ebitda from liberalized businesses came to €1,706 millones, a decline of 14.6%, resulting mostly from poorer performance from this activity in the UK and from increased taxation in Spain.

In Spain, Ebitda from liberalised business was €1,217 million, down 2%, reflecting mostly a 27.2% fall in hydro production and increased taxes which rose 33.3% over the same period last year to €398.6 million. In the past two years taxes on liberalised business in Spain have nearly doubled and now account for 33% of Ebitda.

In the UK, Ebitda from this business fell 47.8% to €229 million as a result of lower production and tighter margins for electricity. The Group anticipates an improvement in the final quarter following an increase in prices in effect since August 1.

Liberalised business in the Mexico region, a country where IBERDROLA is the leading prívate sector producer of electricity, declined 18.3% to €260 million, reflecting the divestment in Guatemala last year and negative exchange rate factors.

3) RENEWABLES BUSINESS MAINTAINS GROWTH TREND

IBERDROLA renewables business generated Ebitda of €1,036 million, an increase of 7% over the same period last year. The Group consolidated its world leadership in this sector, with a 12% rise in installed capacity worldwide to more than 13,500 MW.

Production rose 14.5% during the period to 20,712 GWh. This was achieved despite lower wind load factors in Spain, reinforcing the Group’s ability to offset poorer performance in the home market with international expansion.

In the United States, where the Company is the number two wind power operator, active in 23 states, IBERDROLA has now surpassed  5,000 MW in installed capacity having incorporated 524 MW since January.

IBERDROLA is also a leader in offshore wind development, with a project pipeline of more than 10,000 MW which includes its first offshore project in the UK at West of Duddon Sands which will have a capacity of 389 MW.

Elsewhere, it is developing the East Anglia Array, which will be one of the largest offshore wind farms in the world with a capacity of 7,200 MW, as well as the 400 MW Wikinger project in the Baltic Sea off the German coast, and the Argyll Array, also in the UK, with a 1,800 MW capacity.

4) OTHER BUSINESSES

Ebitda from other Group businesses came to €58 million, a decline of 22.4%. Iberdrola Engineering and Construction contributed 82% of the total, while the real estate subsidiary continued to be affected by the downturn in construction.

IMPORTANT INFORMATION

This announcement is not an offer for sale of securities in the United States, nor in any other jurisdiction. The securities referred to herein may not be sold in the United States absent registration or an exemption from registration under the US Securities Act of 1933, as amended.

FORWARD-LOOKING STATEMENTS

This communication contains forward-looking information and statements about IBERDROLA S.A., including financial projections and estimates and their underlying assumptions, statements regarding plans, objectives and expectations with respect to future operations, capital expenditures, synergies, products and services, and statements regarding future performance. Forward-looking statements are statements that are not historical facts and are generally identified by the words “expects,” “anticipates,” “believes,” “intends,” “estimates” and similar expressions.
 
Although IBERDROLA, S.A. believes that the expectations reflected in such forward-looking statements are reasonable, investors and holders of IBERDROLA, S.A. shares are cautioned that forward-looking information and statements are subject to various risks and uncertainties, many of which are difficult to predict and generally beyond the control of IBERDROLA, S.A., that could cause actual results and developments to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements. These risks and uncertainties include those discussed or identified in the public documents sent by IBERDROLA, S.A. to the Comisión Nacional del Mercado de Valores.

Forward-looking statements are not guarantees of future performance. They have not been reviewed by the auditors of IBERDROLA, S.A. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date they were made. All subsequent oral or written forward-looking statements attributable to IBERDROLA, S.A., or any of its members, directors, officers, employees or any persons acting on its behalf are expressly qualified in their entirety by the cautionary statement above. All forward looking statements included herein are based on information available on the date hereof. Except as required by applicable law, IBERDROLA, S.A. undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.