Annual General Meeting convened for March 22 with pre-tax attendance bonus of €0.005 per share

IBERDROLA EARNS €2,841 MILLION IN 2012 DRIVEN BY INTERNATIONAL GROWTH

• Net profit from international business rose 35% to €1,979 million and contributed 70% to the total


• In Spain, which only made up 30% of net profit, earnings fell 36% to €862 million, back at 2000 levels despite having invested €20 billion in the country since 2001

KEY FINANCIAL ASPECTS

• Group revenues rose 8.1% to more than €34.2 billion


• Ebitda came to €7,726.6 million, on the back of growth in all international businesses and 75% was from regulated areas


• Liquidity was above €12 billion, enough to cover financial needs for more than 3 years


• Divestments came to €850 million and investments to €3,259 million, allocated mostly to regulated businesses


• Debt declined nearly €1.4 billion and gearing improved to 47.1% including the tariff deficit


• All businesses generated positive cash flow, and operating cash flow rose 2.5% to €6,196 million


• IBERDROLA will maintain shareholder remuneration at around €0.3 per share before tax in line with dividend policy announced last October and will reduce capital following a share buyback, thereby improving EPS

IBERDROLA net earnings rose 1.3% in 2012 to €2,840.7 million, driven essentially by strong performance in international business which now accounts for 70% of the total and rose 35% to €1,979 million. In Spain, net profit fell 36% to €862 million, falling back to 2000 levels despite the Company having invested more than €21 billion in the country since then.

At the same time, the Board of Directors has approved a proposal to call an Annual General Meeting for next March 22, with a pre-tax attendance bonus of €0.005 per share.

With these results, the Group becomes one of the few European companies to have maintained stable performance since the beginning of the crisis. Since 2008, its net profit has been above €2.8 billion year after year and the 2012 figure was after value adjustments of €428.7 million relating mostly to renewable energy asset, specifically development costs at wind farms, the Alberta Hub pipeline and a portfolio of Gamesa assets.

Gross operating profit (Ebitda) rose 1% to €7,726.6 million. By business areas, Ebitda increased in generation and retail by 3.7% to €2,355 million, and in renewables where it rose 13.8% to €1,620.3 million while networks stood at €3,773.7 million. Regulated business made up 75% of total Group Ebitda.

In renewables, Ebitda rose 13.8% and excluding thermal business in the U.S. it would have increased by 15.8%. These results derive from increased operating capacity (+4%) and a higher load factor which led to production increasing by 10.7% in all geographic areas, together with higher prices and improved efficiency. Total installed capacity was more than 14,000 megawatts (MW) and production was close to 32.000 GWh.

Operating cash flow rose 2.5% to €6,196.4 million with revenues rising 8.1% to €34,201 million while gross margin increased 4.6% to €12,578 million thanks mainly to increased international activity and exchange rate impacts. Operating profit (Ebit) declined 2.8% to €4,376.9 million.

Progress in meeting 2012-2014 Outlook objectives

During the year IBERDROLA made good progress towards objectives set in the 2012-2014 Outlook announced last October. Non-strategic divestments were concluded worth €850 million of the €2 billion planned for asset sales in the three years, which the Company considers sufficient to meet its objectives. Among these operations were the sales of renewables assets in France and Germany, gas assets in the U.S. and Mexico and stakes in Medgaz and Euskaltel.

At the same time, the Group continued to moderate investments, which came to €3,259 million, of which 61% went to networks, underlining IBERDROLA’S focus on businesses with secure and predictable revenues.

In line with 2012-2014 objectives, the Company continued efforts to strengthen the balance sheet, ending the year with liquidity of €12,043 million, enough to meet financing needs for more than three years. It also reduced debt by €1,381 million to €30,324 million. Excluding the €2,409 million pending receipt from the tariff deficit, IBERDROLA’s debt stood at €27,915 million.

Gearing, excluding the deficit, improved to 45%. Including the deficit it stood at 47.1%. Average life of the debt was 6.2 years with an average cost of 4.51%. The Group again improved its financial ratios: funds from financial operations (FFO) to net debt came to 20.4% and retained cash flow (RCF) to net debt to 17.1%, including the tariff deficit.

Key operating aspects by country

1) SPAIN: NET EARNINGS FELL 36% TO LEVELS OF 2000

Ebitda in Spain fell 5.2% to €3,695 million, while net profit fell 36% to €862 million, back to levels of the year 2000, despite IBERDROLA having invested more than €21 billion in the country since 2001. Spain contributed only30% to group net profit. This above all reflects regulatory measures in new legislation (Royal Decree 13/2012 of last March), tax measures from Law 15/2012 and lower production, with a negative impact in networks and generation, respectively.

In this respect, the year was marked by a 10% cut in remuneration for distribution and by increases in local taxes amounting to 12.3%. By businesses, Ebitda from networks fell 13.3% to €1,348.3 million, mostly reflecting lower regulated revenues with a negative €233 million impact from applying Royal Decree mentioned above.

In generation and retail, business in Spain was hit by a 15.5% drop in production including a nearly 40% fall in hydro. However, a Supreme Court ruling on financing the social tariff contributed to Ebitda rising 2.2% to €1,605.4 million.

These regulatory measures approved by the Government in 2012 have not contributed to a definitive solution for the tariff deficit, the main problem affecting the sector, as they have had a negative impact on activities that are in fact the most efficient.

In any event, the Government has taken some positive steps to securitize the 2012 tariff deficit and avoid accumulation of additional deficit in 2013. These steps are aimed at guaranteeing reasonable returns for regulated activities, establishing incentives for distribution through reduced leakages and improved quality of service, recognizing financial costs of financing previous tariff deficits and a credit line for the industry ministry up to €2.2 billion. It is nonetheless vital to continue taking additional structural measures to ensure elimination of the tariff deficit beyond 2013.

2) UNITED KINGDOM: GROWTH IN ALL BUSINESSES

In the United Kingdom, Ebitda for regulated and liberalised businesses rose 12.3% to €1,297.9 million, in large part due to a stable regulatory framework, in particular networks where it will be in effect until 2021.

On the basis of this regulatory stability, IBERDROLA has set investments in the country at €4,385 million between2012-2014, 42% of the total and focused on networks and renewables. Since 2008, investments in the country have increased 30% and in 2013 are projected at €1.6 billion, 61% higher than the average for 2010-2012. Of this year’s investments, around 47% will be in networks and just over 40% in renewables.

In 2012, investments came to €1.16 billion, with a positive impact on new job creation. During the year, ScottishPower announced plans to recruit 300 new engineers and technicians, responding to needs for new network projects as a first wave of a total of 1,500 new jobs to be created. Among the main projects is a new 400 km high voltage subsea cable – the HVDC project - linking Scotland and England.

By business areas, all activities recorded improved results. Ebitda from networks rose 12.6% to €937.7 million (+6% in pound sterling terms) due mainly to increased revenues from a larger asset base and appreciation of the pound against the euro.

In generation and retail, Ebitda rose 11.8% to €360.6 million (+4% in pound sterling terms), due to lower costs and improved prices compensating a fall in production. However, there was a 134.5% increase in costs related to the government’s environmental and energy efficiency programmes (CERT/CESP).

In retail, the Customer base increased 7% to 5.6 million, with ScottishPower improving its customer satisfaction returns in the principal consumer rankings (USwitch, Which?, Ofgem).

While the regulatory framework in the United Kingdom is positive for networks, there is nonetheless a need to make progress on legislation currently in the UK Parliament to reform the electricity market. This will provide the necessary certainty for investment in major generation projects.

3) US BUSINESS: GROWTH IN NETWORKS

Ebitda from networks business in the United States rose 20.5% to €660.2 million. At the end of 2012, the group’s subsidiary Iberdrola USA had 1.86 million points of supply in the U.S. with a volume of distributed energy totalling 31,573 GWh, a rise of 1.2% over 2011.

Factors in the positive performance have been higher revenues and exchange rate movements which offset the effect of non-strategic asset sales during the year and the impact of Storm Sandy which came to €48 million.

In this regard, the Iberdrola USA subsidiaries CMP, NYSEG and RG&E each received the Emergency Recovery Award as well as the Emergency Assistance Award from the Edison Electric Institute (EEI) for their actions in the aftermath of Hurricane Sandy. The EEI’s Emergency Recovery and Assistance Awards are given annually in recognition of extraordinary efforts to restore electricity supplies following severe weather.

These subsidiaries were recognized by EEI for their extraordinary efforts to restore electricity supplies and for the support and assistance they provided to fellow utilities in Connecticut, New York and New Jersey following the super storm.

Among important achievements during the year, Central Maine Power completed 50% of its major transmission project, the Maine Power Reliability Program, which involves upgrading the interconnection between New England and Canada with a total investment of $1.4 billion. The 50% mark was completed with installation of a new 345kv substation at Lewiston in December.

Elsewhere, CMP also completed the installation of 620,000 smart meters for its customers, the first project of its type in the state of Maine and one of the largest in the United States.

4) BRAZIL Y MEXICO: CONTRIBUTION CONTINUES TO INCREASE

Brazil, in the regulated business area, achieved Ebitda of €827.9 million, a decline of 7% that reflected a tariff review for Elektro last August, as well as depreciation of the Brazilian real and the negative impact of drought during the period. Compensating this was a 4.6% increase in demand and the impact of consolidating Elektro for the full 2012 year.

In this market, where it has become the leading distributor of electricity by number of customers, the Group expects growth in the coming years in transmission and distribution as well as regulated generation (hydro and wind). Of the €10.5 billion in net investments set by IBERDROLA for 2012-2014, 23% or €2,415 million, will go to Latin America, mainly Brazil.

In Mexico, Ebitda rose 5% to €380.1 million, helped by improved margins and an appreciation of the dollar.

In coming years, the Company will seek new opportunities that may arise from any opening of the Mexican energy sector that promotes public and private sector collaboration.

Annual General Meeting

The Board of Directors approved at a meeting late yesterday in Bilbao a proposal to call an Annual General Meeting for next Friday March 22 on first call and Saturday 23rd on second call. It also agreed to pay a pre-tax attendance bonus of €0.005 per share (€5 per 1,000 shares) to shareholders present or represented at the AGM.

The Board also decided to propose total shareholder remuneration for the 2012 year of around €0.3 per share before tax. This includes the €0.143 per share gross corresponding to the share purchase rights for shares paid in January under the Iberdrola Flexible Dividend plan, which offers investors the option of receiving free shares or obtaining cash by selling their free subscription rights, either to the Company or in the open market. In the context of a new edition of this plan to enter effect this summer, the Company will commit to acquire rights at a minimum of €0.127 per share before tax.

In this context, one of the points of the agenda for the next AGM will be approval of two free capital increases, the first with a maximum reference market value of €883 million and the second for up to €1,021 million to cover the issue of free shares that shareholders request.

Reduction of share capital by 2.4%

The Board also will propose a share capital reduction of 2.4%, to be carried out immediately through the amortization of around 87.9 million shares from treasury stock, representing 1.4% of the capital, and the acquisition of treasury stock of up to a maximum of 1% of share capital – 62.8 million shares – through a repurchase plan.

The Company’s improved finances, following asset disposals and tariff deficit securitization, allow it to put this share repurchase plan into effect, which will improve shareholder remuneration.

This plan, which will in addition include 0.1% assigned to meet obligations relating to a share plan for employees, will remain open until May 31 at the latest. Approval of this proposal will bring benefits to all IBERDROLA shareholders, who will see earnings per share (EPS) improve.

Also to be submitted for shareholder approval will be the naming of Manuel Lagares Gomez-Abascal as proprietary director representing Banco Financiero y de Ahorros, S.A., announced by the Company last August 21.

After submitting the annual accounts to the AGM, approval will also be sought for the Board’s actions during the year, as well as the re-election of Ernst & Young as auditors for 2013. Elsewhere, the Board will propose a number of modifications to the bylaws to adapt them to recent legislative changes and introduce technical improvements. Finally, there will be a consultative vote on the Annual Report on remuneration of Board Directors.

IBERDROLA, ready to achieve its goals

IBERDROLA will seek growth in 2013 in the United Kingdom, the United States and Latin America where the company is concentrating its investments. At the same time, it will continue to reduce debt while generating positive cash flow in all businesses, with sufficient liquidity to cover financing needs for three years and divesting non-strategic assets.
Regarding business areas, the Company is targeting growth in networks in the UK and US, increased customer base and sales in the UK and higher hydro and wind production in Spain.

In this context, the Group is well prepared for any adverse circumstances thanks to a strong balance sheet, international diversification and a low-risk business mix focused on stable and predictable activities.

The Company is confident of meeting objectives set for 2012-2014, which aim at strengthening finances while sustaining profits. Strategy will therefore be aimed at cutting debt, moderating investments, divesting non-strategic assets and markets, and improving efficiency.