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Integrated
Report
/
February
2016
The
energy
that
drives us
•
•
•
•
Comfort for homes
Sustainability for the future
Competitiveness for companies
Innovation for Infrastructure
Our goal is to offer a reliable, high-quality, and environmentally-friendly energy supply,
in order to:
• Improve the well-being of people.
• Drive the economic and social development of the communities in which we are present.
• Create sustainable value for our shareholders, employees, customers, and suppliers.
Mission
Vision
We create value in a
sustainable way and
we are committed to
We want to be one global energy
lider and create a better future
for people with the support of our
social return
human team
Values
The twelve values
inspire and guide the
group’s strategy and all
of its actions
Race in the Whitelee
wind farm
/ United Kingdom
Iberdrola’s Public Information
Iberdrola makes all of its public information available to our shareholders, employees, customers, suppliers, and society
in general to provide trustworthy and relevant information regarding the Company’s performance and its strategic lines
for the coming years.
Annual information
Integrated Report.
Prepared based on the recommendations of the International Integrated Reporting Council (IIRC).
Financial Report.
Prepared according to international financial reporting standards and externally audited.
Corporate Governance Report.
Prepared according to the form provided by the National Securities Market Commission of Spain.
Sustainability Report.
Prepared according to the Global Reporting Initiative (GRI) guidelines and externally assured.
Activities Report of the Consultative Committees of the Board of Directors.
Prepared according to Iberdrola internal standards.
Director Remuneration Report.
Prepared according to the form provided by the Spanish National Securities Market Commission.
Report on Compliance with Legal Provisions on the Separation of Regulated Activities.
Prepared according to Iberdrola internal standards.
Report on Related-Party Transactions with Directors and Significant Shareholders.
Prepared according to Iberdrola internal standards.
Annual Report on the Application of the Shareholder Engagement Policy and the Policy regarding Communication and
Contacts with Shareholders, Institutional Investors, and Proxy Advisors.
Prepared according to Iberdrola internal standards.
Report on the Independence of the Auditor in relation to the Audit Report for Financial Year 2015.
Prepared according to Iberdrola internal standards.
Additional information
Information on the corporate website www.iberdrola.com
Quarterly Results Report.
IBE Watch Fact Sheet.
Quarterly Shareholder Bulletin.
Innovation Report.
Biodiversity Report.
Greenhouse Gas Report.
About Us
Reputation and Sustainability
Press Room
Shareholders and Investors
Suppliers
Customers
Networks
Access the annual reports for financial year
2015 and supplementary documentation
regarding the Iberdrola group by scanning the
corresponding QR code using your smart
phone or tablet.
This icon refers to related information.
It also indicates the existence of other specific
reports where more information of interest can
be accessed.
Integrated
Report
/
February
2016
Table of Contents
1.
3.
2.
Iberdrola
Today
Business
Iberdrola’s
Model
Primary
and Strategy Businesses
Letter from the
Chairman & CEO
2.1
The Future of Energy
1.1
Iberdrola Today
1.2
Company
Performance
1.3
Key Figures
4
8
3.2
Networks
28
2.3
Iberdrola, a Different
Company 29
9
2.4
Asset Management
10
1.4
Presence by
Areas of Activity
2.2
Business Model
26
2.5
Value Chain
12
2.8
Comparative Results
and Awards 38
44
3.4
Renewables
3.5
Supply Costs
32
2.7
Capital and Business
Relationship 37
42
3.3
Wholesale and
Retail 49
30
2.6
Strategic Foundations
3.1
Regulatory
Environment
34
52
56
Notes:
— The company Iberdrola, S.A., parent company of the Iberdrola group, is referred to as “Iberdrola” or the “Company” in this report.
— The figures included in this translation follow the customary English convention, with figures in thousands separated by a comma (,) and decimals indicated
by a full stop (.).
— €M: millions of euros; $M: millions of dollars.
4.
5.
6.
Our
Assets
A
Framework
of Trust
About
this
Report
4.1
Financial Capital
5.1
Corporate Governance
Model 76
6.1
About this
Report 88
60
4.2
Manufactured
Capital 62
4.3
Intellectual Capital
4.4
Human Capital
4.5
Natural Capital
5.2
Three Lines
of Defence
64
82
5.4
Ethics and Social
Responsibility 84
66
68
4.6
Social and
Relationship Capital
5.3
Risks
80
70
Letter from the Chairman & CEO 4
Letter from the
Chairman & CEO
Dear friends:
For the third consecutive year, I am pleased to present
to you Iberdrola’s Integrated Report, which provides a
balanced reflection of the group’s performance, reflects
the most significant aspects affecting the performance
of the company, and presents its strategic lines for the
coming years.
In the near future, Iberdrola will be dealing with
an energy scenario characterised by strong growth
in global energy demand (30% increase by 2040,
according to forecasts by the International Energy
Agency), which must be supplied with clean and
efficient technologies to meet global commitments on
reducing emissions.
Ignacio S. Galán. Chairman & CEO of Iberdrola
© Adrián Ruiz
“In anticipation of the energy
transition, Iberdrola has committed
to sustainable solutions that require
greater electrification of the global
economy”.
/ Integrated Report 2016
Although it represents only 25% of global greenhouse
gas emissions, the electricity sector will play a decisive
role in efficiently facing these challenges because
of its enormous technological potential to contribute
to decarbonising the economy, thanks to renewable
energy. The forecasted 70% growth in electricity
demand by 2040 is also explained by factors like the
significant increase in the global population, heading
towards 10 billion inhabitants by the middle of the
century, mainly concentrated around urban areas, or
the fact that more than 1 billion people still lack access
to electricity supply.
In anticipation of the energy transition, Iberdrola has
committed to sustainable solutions that require greater
electrification of the global economy: more clean
energy, more storage capacity, more backup power,
more and smarter grids, and more digitisation.
Iberdrola will continue in this environment to develop its
sustainable business model, which is focused on growth
in regulated businesses and clean energy; geographic
diversification in countries with high credit ratings;
an increase in operational efficiency; the financial
strength to exploit growth opportunities in the markets
in which it does business; sustainable remuneration for
shareholders; and a firm social commitment that seeks
the creation of value for all of our Stakeholders.
5 Letter from the Chairman & CEO
A new growth phase
Outlook 2016-2020, which was recently presented
by Iberdrola, establishes a net investment programme
of 24,000 million euros, of which 17,000 million is
for investments in growth. Of that total amount, the
company already has investments of approximately
22,000 million euros in projects under construction or
committed to in the United Kingdom, the United States,
Mexico, Spain, and Brazil.
88% of the investments planned during the next five
years will be focused on regulated businesses or longterm contracts, mainly in the areas of networks and
renewables, which provide the safety, stability, and
visibility that characterise our business model and which
should generate 81% of the group’s Ebitda by 2020.
By line of business, Iberdrola will allocate 46% of total
investments to the areas of transmission networks and
electric power distribution, 33% to renewable energy,
and 9% to regulated wholesale generation. 12% of the
total will be allocated to the traditional wholesale and
retail business.
At the same time, we will continue improving
operational efficiency thanks to progress in automation
and digitisation in all businesses and processes,
maintaining a solid financial position that will allow us
to exploit opportunities for growth in our markets.
Based on the foregoing, we expect to obtain average
annual growth of 6% in both gross operating profit and
net profit of the group during 2016-2020.
This forecasted growth will allow us to increase
shareholder remuneration in an upwardly sustainable
manner, in line with results, with a payout of around
65-75%. Iberdrola will also maintain the flexible
dividend formula used in recent years, keeping the
current number of shares stable through buy-backs and
retirements of shares as part of this formula.
This strategy will be supported by the Company’s
traditional values and in strict compliance with the
principles of transparency and business ethics set out in
our Corporate Governance System, which incorporates
the main international recommendations in this field.
Firm commitment to sustainability
These strategic projections reaffirm our ongoing
commitment to economic and social development in
the areas in which we are present, in addition to the
well-being of their citizens. We will continue to act
as an engine of growth, wealth, and employment
with our business activities, our investments, and our
procurement from thousands of suppliers.
Iberdrola will continue to encourage the use of clean
energy and looking after the environment. Although our
“We will continue to act as an engine
of growth, wealth, and employment
with our business activities, our
investments, and our procurement
from thousands of suppliers”.
emissions per kWh generated are already some 30%
below the average for the European electricity sector,
we have set the goal of an additional 50% reduction
by 2030 and to be carbon neutral by 2050. And we
are headed on the right path, given that by the end of
last year, emissions intensity had already dropped 25%
compared to 2007, with 63% of our current installed
capacity being completely emissions-free.
The achievement of these goals is closely linked to
our wager on technological innovation, which will
continue to be a priority in order to maintain our lead
in the development of new products, services, and
business models that are transforming the industry. In
2015, we allocated 200 million euros to R&D, mainly
to initiatives relating to clean energy, offshore wind,
smart grids, digitisation, and new technologies, which
will allow Iberdrola to continue meeting the energy
needs of its customers, offering them new products
and services to improve their well-being and quality
of life.
This wager on innovation, which encompasses the
entire Company, pushes us to continue strengthening
the ongoing high-quality training of our workforce and
to contribute to training new generations through the
international scholarship programme, to which we have
allocated approximately 11 million euros and by which
more than 500 young people have engaged in masters’
and postgraduate studies at the best universities of the
countries where we do business.
In the coming years, we will continue with the
“Electricity for all” programme to keep bringing electric
power to people without it in emerging and developing
countries. Under this programme, we have already
contributed to almost a million and a half people being
able to access electricity in various countries of Latin
America and Africa.
Finally, in the area of social-welfare action, we will
strengthen our activities supporting vulnerable groups,
mainly through the Social Assistance Programme
and the Corporate Volunteering Programme. And
we will continue to encourage actions in the area
of art and culture as a part of our corporate social
responsibility, supporting the creation, preservation,
and dissemination of our historical artistic heritage.
Integrated Report 2016 /
Iberdrola Today 6
Drone inspection of wind farm
/ Spain
/ Integrated Report 2016
7 Iberdrola Today
1.
Iberdrola
Today
Integrated Report 2016 /
Iberdrola Today 8
1.1 Iberdrola Today
Our Activities
What We Are
• P roduction of electricity from renewable and
conventional sources.
The process of internationalisation carried
out in recent years has led Iberdrola to be one
of the leading electric companies, and among
the largest utilities in the world by stock market
capitalisation.
• P urchase/sale of electricity and gas on wholesale
markets.
• Transmission and distribution of electricity.
•S
upply of electricity, gas, and related energy
services.
• Other activities, mainly linked to the energy sector.
Iberdrola is one of the leading
electric companies in the world.
The corporate and governance structure is described
in chapter 5.1 of this report and consists of:
• Iberdrola, as a holding company.
•C
ountry subholding companies in the 5 main
geographic areas of activity.
•H
ead of business companies reporting to the
country subholding companies.
Presence focused on the Atlantic area
Iberdrola carries out its activities mainly in the five countries of the Atlantic area: Spain, the United Kingdom,
the United States, Mexico, and Brazil.
Iberdrola group 2015 data
46,471
MW
Installed capacity
14,787
MW
Renewable installed capacity
214,226 360,000
GWh
Electric power distributed
(1)
33.8
Million
users
136,794 30,938
GWh
Net production
People
Direct employment
(2)
(1) Takes into account 100% of Neoenergia.
(2) At 31 December 2015.
(3) Annual impact estimated by Analistas Financieros Internacionales (AFI), based on Iberdrola’s
business during the 2010-2015 period.
/ Integrated Report 2016
People(3)
Indirect and induced employment
11,630
€M Tax contribution (€M 5,520 direct +
€M 6,110(3) indirect and induced)
7,300
M€
Procurement awarded
3,223
M€
Investments
9 Iberdrola Today
1.2 Company Performance
Revenues (€M)
Ebitda (€M)
Net Profit (€M)
45,000
3,000
2,805
2,841
2,572
9,000
2,327
34,201
31,648
31,077
30,000
30,032
31,419
7,651
7,727
6,757
7,000
15,000
6,965
7,306
3,000
2011
2012
2013
2014
2015
Installed capacity (MW)
50,000
2,000
1,000
5,000
0
2,422
0
2011
2012
2013
2014
2015
2011
2012
2013
Net output (GWh)
Energy distributed (GWh) (1)
180,000
250,000
2014
2015
151,050
46,918
46,950
139,932
46,471
44,992
136,435
138,892
136,794
45,000
120,000
200,000
40,000
60,000
150,000
35,000
0
2011
2012
2013
2014
2015
Assets (€M)
214,873
212,617
214,226
2012
2013
2014
2015
100,000
2011
2012
2013
2014
2015
Employees
110,000
35,000
100,000
2011
Users (millions)
34.50
32,809
30,744
104,664
30,532
30,938
33.80
29,597
25,000
97,016
214,042
204,843
45,089
33.00
32.63
96,816
93,771
32.08
31.70
89,787
90,000
15,000
31.50
30.70
80,000
2011
2012
2013
2014
2015
5,000
2011
2012
2013
2014
2015
30.00
2011
2012
2013
* Note: Due to legal requirements, Iberdrola has applied International Financial Reporting Standard IFRS-11 to the financial information
for the financial years 2013 to 2015, which aspect should be taken into account in evaluating the historical performance of the Company.
(1)
Takes into account 100% of Neoenergia.
Integrated Report 2016 /
2014
2015
Iberdrola Today 10
1.3 Key Figures
2012
2013
2014
2015
Δ
annual
average
2011-15
Δ
20142015
Revenues
31,648.0 34,201.2
31,077.1
30,032.3
31,418.7
–0.2%
4.6%
Consolidated
Gross Margin
12,025.8 12,578.1
11,781.9
12,179.5
12,842.7
1.7%
5.4%
Financial
performance (€M)
2011
Consolidated
Ebitda
7,650.5
7,726.6
6,756.9
6,964.5
7,305.9
–1.1%
4.9%
Ebitda - Networks
(regulated)
3,825.4
3,773.7
3,346.5
3,534.7
3,601.6
–1.5%
1.9%
Spain
1,555.2
1,348.3
1,450.3
1,438.5
1,449.7
–1.7%
0.8%
United Kingdom
832.3
937.3
939.0
1,024.8
1,138.0
8.1%
11%
United States
547.7
660.2
718.2
772.0
774.4
9.0%
0.3%
Brazil
890.2
827.9
239.0
299.4
239.5
Ebitda - Wholesale
and Retail
(liberalised)
2,270.7
2,355.2
1,986.6
2,292.2
2,320.0
0.5%
1.2%
Spain
1,570.7
1,605.4
1,341.2
1,517.6
1,502.2
–1.1%
–1.0%
322.5
360.6
320.4
456.6
420.7
6.9%
–7.9%
15.6
9.1
–22.6
–32.0
–58.4
361.9
380.1
347.6
350.0
455.5
5.9%
30.1%
1,423.9
1,620.3
1,501.1
1,326.0
1,572.3
2.5%
18.6%
Spain
668.1
804.3
668.4
420.6
473.2
–8.3%
12.5%
United Kingdom
173.9
168.1
231.8
265.2
437.6
25.9%
65.0%
United States
417.5
412.2
448.0
495.3
499.5
4.6%
0.8%
13.7
37.2
34.1
38.2
43.0
33.1%
12.6%
United Kingdom
United States
Mexico
Ebitda Renewables
Mexico
–28.0% –20.0%
— –82.5%
Brazil
12.9
11.3
9.1
33.0
26.9
20.2% –18.5%
Other
137.8
187.2
109.7
73.7
92.1
–9.6%
25.0%
Ebitda - other
businesses
168.6
44.3
0.5
–17.0
–10.6
—
37.6%
Ebitda Corporation and
adjustments
–38.1
Amortisation
charge, provisions, –3,145.4
and other
Operating profit
(EBIT)
Financial result
Results from
companies
accounted for
using the equity
method
Gains on noncurrent assets
–66.9
–77.8
–171.4
–177.4
–46.9%
–3.5%
–3,349.7
–4,537.5
–3,023.6
–3,476.6
–2.5% –15.0%
4,505.1
4,376.9
2,219.5
3,940.9
3,829.3
–4.0%
–2.8%
–1,061.9
–1,100.3
–1,277.9
–1,122.4
–1,023.1
0.9%
8.8%
–34.5
–187.5
205.0
135.4
55.3
— –59.2%
2011
2012
2013
2014
2015
Δ
annual
average
2011-15
Δ
20142015
Ebitda - outside
eurozone (%)
48.3
51.0
49.5
54.0
56.0
3.8%
3.7%
Ebitda margin
(Ebitda/revenue)
(%)
24.2
22.6
21.7
23.2
23.3
–1.0%
0.2%
8.9
8.3
8.3
7.7
7.7
–3.5%
0.1%
NOE/Gross
margin (%)
29.2
30.1
29.4
29.8
29.8
0.5%
0.0%
Net financial
debt/ebitda
(multiple)
4.14
3.92
3.97
3.68
3.80
–1.9%
4.3%
Financial
leverage (%)
48.8
47.1
43.2
41.7
40.7
–4.5%
–2.5%
Funds from
operations (FFO)/
Net financial debt
(NFD)
19.1
20.4
20.8
21.3
21.0
2.5%
–1.2%
Retained
cash flow
(RCF/NFD) (%)
17.2
17.2
17.5
17.4
18.7
2.1%
7.5%
8.6
8.3
7.5
6.7
6.3
–7.5%
–6.0%
2011
2012
2013
2014
2015
Δ
annual
average
2011-15
Δ
20142015
28,465
25,753
28,922
35,756
41,507
9.9%
16.1%
5,882
6,139
6,240
6,388
6,337
1.9%
–0.8%
Share price (€)
4.84
4.20
4.63
5.60
6.55
7.9%
17.0%
Earnings per share
(EPS)
0.47
0.45
0.41
0.36
0.38
–5.2%
5.6%
Dividend per share
(DPS)
0.34
0.34
0.31
0.275
0.276
–5.1%
0.4%
Dividend
yield (%)
6.96
8.13
6.65
4.91
4.21
–11.8%
–14.3%
1,982
2,093
1,922
1,716
1,732
–3.3%
0.9%
71.1
65.4
65.5
73.8
71.5
0.1%
–3.1%
10.10
9.31
11.25
15.37
17.17
14.2%
11.7%
Net profit margin
(Net profit/
Revenues) (%)
Return on equity
(ROE) (%)
Stock market
performance
Stock market
capitalisation (€M)
Number
of shares
at year-end
(millions)
Total dividend
(including payment
in kind) (€M)
Payout
ratio (%)
Price/net earnings
per share (PER)
45.8
–13.9
–10.4
247.9
125.1
3,454.4
3,075.1
1,136.1
3,201.8
2,986.6
–3.6%
–6.7%
Corporate tax
–549.2
–206.5
1,466.7
–837.1
–527.1
1.0%
37.0%
Non-controlling
interests
–100.7
–27.9
–31.0
–38.2
–38.0
21.6%
0.5%
Net attributable
profit
2,804.5
2,840.7
2,571.8
2,326.5
2,421.6
–3.6%
4.1%
Total assets
97,016.5 96,816.4
89,786.8
93,771.4 104,664.1
1.9%
11.6%
Equity
33,207.8 34,084.8
35,288.6
35,790.5
40,956.1
5.4%
14.4%
Profit before
Tax (PBT)
Financial ratios
28.6% –49.5%
Net investments
4,002.0
3,259.0
3,053.0
2,848.0
3,223.0
–5.3%
13.2%
Funds from
operations (FFO)
6,047.0
6,196.0
5,619.0
5,459.0
5,906.7
–0.6%
8.2%
Net financial debt 31,705.7 30,324.4
26,836.3
25,618.4
28,067.1
–3.0%
9.6%
/ Integrated Report 2016
Sustainability Report
Quarterly Results Report
Consolidated Annual Financial Statements
* Note: Due to legal requirements, Iberdrola has applied International
Financial Reporting Standard IFRS-11 to the financial information for the
financial years 2013 to 2015, which aspect should be taken into account in
evaluating the historical performance of the Company.
11 Iberdrola Today
2011
2012
2013
2014
2015
Δ
annual
average
2011-15
Δ
20142015
46,918
46,950
44,992
45,089
46,471
–0.2%
3.1%
Net output (GWh) 151,050
139,932
136,435
138,892
136,794
–2.4%
–1.5%
Operating
performance
Installed capacity
(MW)
Electric power
distributed
(GWh) (1)
204,843
214,042
214,873
212,617
214,226
1.1%
0.8%
2011
2012
2013
2014
2015
Δ
annual
average
2011-15
Δ
20142015
Users
(millions)
30.7
31.7
32.1
32.6
33.8
2.4%
3.6%
Electrical power
27.5
28.1
28.5
29.0
29.7
2.0%
2.5%
Spain
10.8
10.9
10.9
10.9
10.9
0.3%
0.1%
3.2
3.5
3.5
3.5
3.5
2.3%
0.3%
22.2%
Social performance
United Kingdom
Environmental
performance
2011
2012
2013
2014
2015
Δ
medio
anual
2011-15
Emission-free
installed
capacity (%)
58.2
59.4
61.2
61.9
63.0
2.0%
Δ
20142015
1.8%
United States
1.9
1.8
1.8
1.8
2.2
3.7%
Latin America
11.7
11.9
12.4
12.8
13.1
2.9%
2.3%
Gas
3.3
3.6
3.6
3.6
4.1
5.4%
12.4%
Spain
0.8
0.8
0.8
0.8
0.9
2.7%
11.3%
United Kingdom
2.0
2.2
2.2
2.2
2.2
2.4%
0.0%
United States
0.6
0.6
0.6
0.6
1.0
13.3%
65.0%
32,809
30,744
30,532
29,597
30,938
–1.5%
4.5%
Renewable
energy installed
capacity (%)
29.7
Emission-free
production (%)
48.8
51.9
54.6
56.8
52.5
1.8%
–7.6%
Permanent
contracts (%)
98.0
98.0
98.5
98.5
98.4
0.1%
–0.0%
Renewable energy
production (%)
19.8
23.6
24.9
24.4
24.0
4.9%
–1.7%
Specific CO2
emissions (t/GWh)
81.2
79.8
79.4
79.0
76.6
–1.5%
–3.0%
248
264
226
212
225
–2.4%
6.1%
Employees
with collective
bargaining
agreement (%)
Fuel consumption
(M Tep)
20,172
19,236
18,968
18,849
19,001
–1.5%
0.8%
Employee
turnover (%)
6.2
10.6
6.6
8.6
7.0
3.1%
–18.5%
Environmental
investments (€M)
1,297.6
1,062.4
1,015.7
1,100.9
1,014.2
–6.0%
–7.9%
77/23
76/24
76/24
77/23
76/24
—
—
261.3
723.3
686.4
635.7
669.2
26.5%
5.3%
162
151
154
161
153
–1.5%
–5.5%
87.6
85.2
84.4
85.0
84.0
–1.0%
–1.2%
Injury rate (IR)
0.46
0.34
0.46
0.39
0.28
–11.7%
–28.2%
Hours of training
(millions of hours)
1.25
1.12
1.2
1.0
0.9
–7.0%
–9.0%
Hours of training
per employee (h)
47.1
44.2
44.7
38.7
38.6
–4.9%
–0.2%
116.2
51.7
91.7
65.0
46.0
–20.7%
–29.2%
Contributions
to society (€M)
34.7
37.7
31.6
34.0
38.0
2.3%
11.8%
Rural electrification
programmes (€M)
81.5
14
60
31
8
–44.0%
–74.2%
136
145
159
170
200
10.1%
17.6%
5,322
4,830
4,359
4,599
5,093
–1.1%
10.7%
78
84
87
92
94
4.8%
1.3%
1,078
1,233
1,202
1,326
1,536
9.3%
15.8%
9.9
8.9
12.0
10.7
10.8
2.3%
1.2%
91
90
86
87
85
–1.7%
–2.3%
Environmental
expenses (€M)
Energy produced
under certified
environmental
management
systems (%)
Water use/overall
production
(m3/GWh)
30.5
31.6
32.5
31.8
1.7%
–2.1%
620
699
976
509
533
–3.7%
4.7%
Direct CO2
emissions.
Scope 1 (kt)
36,193
35,461
31,846
30,217
31,752
–3.2%
5.1%
Indirect CO2
emissions.
Scope 2 (kt)
1,156
CO2 avoided
due to efficiency
initiatives (kt)
2,122
997
1,544
963
–4.5%
–37.6%
Number of
employees
Diversity
(men/women)
Ratio between basic
entry level wage
and local minimum
wage (%)
Funds for social
development (€M)
37,462
24,014
18,480
21,459
19,269
–15.3%
–10.2%
Investments
in R&D (€M)
SO2 emissions
(t/GWh)
0.295
0.366
0.217
0.154
0.125
–19.3%
–18.8%
General
procurement
(€M invoiced) (2)
NOx emissions
(t/GWh)
0.276
0.334
0.262
0.236
0.230
–4.5%
–2.5%
Sustainability Report
Quarterly Results Report
Consolidated Annual Financial Statements
(1) Takes into account 100% of Neoenergia.
(2) Supplies in the amount of 7,300 million euros were awarded
during 2015.
Procurement from
qualified suppliers
(%)
Number of
suppliers with
social responsibility
standards
Procurement in
sensitive
countries per
ILO (%)
Procurement from
local suppliers (%)
Integrated Report 2016 /
Iberdrola Today 12
1.4 Presence by Areas
of Activity
United States
Mexico
Brazil
/ Integrated Report 2016
13 Iberdrola Today
United Kingdom
Spain
Integrated Report 2016 /
Iberdrola Today 14
Iberdrola in Spain
Leading energy company.
Δ 2015 / 2014. GDP +3.2%. Electricity demand +1.8%.
Primary facilities and brands
Spain Subholding Company
Renewables business
Networks business
Wholesale and retail business
Real estate
Engineering
Foundation
2015 data
26,187
MW
Installed capacity(1)
6,106
MW
Renewable installed capacity
92,676 10,569
GWh
Electric power distributed
266,818 649
Km
Power lines
55,512 11.8
GWh
Net production
Employees
Million
users
€M
Investments
3,493
€M
Direct tax contribution
(1) Total MW managed. The International Financial Reporting Standard IFRS-11 is not being applied for operational purposes.
/ Integrated Report 2016
15 Iberdrola Today
195
89
1
78
8
21
6
2
Wind farms
5,753 MW
Hydroelectric plants
9,712 MW
Nuclear plants
3,410 MW
Mini-hydro plants
303 MW
Combined cycle gas plants
5,695 MW
Thermal plants
874 MW
Solar thermal plant
50 MW
Cogeneration plants
390 MW
Main offices
Electricity distribution
Area of influence
Integrated Report 2016 /
Iberdrola Today 16
Iberdrola in the United Kingdom
Leading wind producer. 3rd-leading network company.
Δ 2015 / 2014. GDP +2.2% / Electricity demand –1.2%.
Primary facilities and brands
United Kingdom Subholding Company
Renewables business
Networks business
Wholesale and retail business
Engineering
Foundation
2015 data
6,465
MW
Installed capacity(1)
36,213
GWh
Electric power distributed
6,696
Employees
1,630
108,234 1,461
Km
Power lines
€M
Investments
18,635
5.7
640
MW
Renewable installed capacity
GWh
Net production
Million
users
€M
Direct tax contribution
(1) Total MW managed. The International Financial Reporting Standard IFRS-11 is not being applied for operational purposes.
/ Integrated Report 2016
17 Iberdrola Today
33
1
1
3
1
4
Wind farms
1,629 MW
Hydroelectric plants
563 MW
1
Thermal plant
2,304 MW
Marine energy
1 MW
Cogeneration plant
1 MW
Underwater power line
425 Km
Combined cycle gas plants
1,967 MW
Main offices
Electricity distribution
Area of influence
Integrated Report 2016 /
Iberdrola Today 18
Iberdrola in the United States
Second-leading wind producer.
Electricity and gas distributor in New York, Maine, Connecticut and Massachusetts.
Δ 2015 / 2014. GDP +2.4% / Electricity demand –1.1%.
Primary facilities and brands
United States Subholding Company
Renewables business
Regulated networks business and sale of electricity and gas
Engineering
Foundation
2015 data
6,458
31,337
5,695
121,990 6,889
MW
Installed capacity(1)
MW
Renewable installed capacity
17,418
GWh
Net production
GWh
Electric power distributed
Km
Power lines
3.2
Million
users
2.4
BCM
Gas storage capacity
Employees
503
€M
Investments
563
€M
Direct tax contribution
/ Integrated Report 2016
(1) Total MW managed. The International Financial Reporting
Standard IFRS-11 is not being applied for operational purposes.
19 Iberdrola Today
54
2
1
9
1
2
Wind farms
5,645 MW
Hydroelectric plants
118 MW
4
Gas storage
facilities
Photovoltaic plants
50 MW
Cogeneration plant
636 MW
USA-Canada transmission line
708 Km
Combined cycle gas plants
9 MW
Main offices
Electricity distribution
Area of influence
Integrated Report 2016 /
Iberdrola Today 20
Iberdrola in Mexico
Leading private electricity producer.
Δ 2015 / 2014. GDP +2.5% / Electricity demand +2.9%.
Primary facilities and brands
Mexico Subholding Company
Renewables business
Generation business
Engineering
2015 data
5,449
38,866
494
367
801
175
MW
Installed capacity(1)
MW
Renewable installed capacity
GWh
Net production
Employees
€M
Investments
€M
Direct tax contribution
(1) Total MW managed. The International Financial Reporting Standard IFRS-11 is not being applied for operational purposes.
/ Integrated Report 2016
21 Iberdrola Today
7
Wind farms
367 MW
2
Cogeneration plants
201 MW
5
Combined
cycle gas plants 4,881 MW
Main offices
Area of influence
Integrated Report 2016 /
Iberdrola Today 22
Iberdrola in Brazil
Leading distributor in Brazil by number of customers.
Δ 2015 / 2014. GDP -3.8% / Electricity demand –2.1%.
Primary facilities and brands
Brazil Subholding Company
Renewables business
Networks business
Generation business
Engineering
Foundation
2015 data
1,169
MW
Installed capacity(1)
53,999
GWh
Electric power distributed(2)
3,747
Employees
246
579,042 109
4,802
13.1
MW
Renewable installed capacity
GWh
Net production
Km
Power lines
Million
users
€M
Investments
600
€M
Direct tax contribution
(1) Total MW managed. The International Financial Reporting Standard IFRS-11 is not being applied for operational purposes.
(2) Takes into account 100% of Neoenergia.
/ Integrated Report 2016
23 Iberdrola Today
11
Wind farms
246 MW
1
Combined cycle gas plant
211 MW
12
Hydroelectric plants
682 MW
6
Cogeneration plants
31 MW
Main offices
Electricity distribution
Area of influence
Integrated Report 2016 /
Business Model and Strategy 24
West of Duddon Sands offshore windfarm
/ United Kingdom
/ Integrated Report 2016
25 Business Model and Strategy
2.
Business
Model
and
Strategy
Integrated Report 2016 /
Business Model and Strategy 26
2.1 The Future of Energy
Opportunities for continued growth
The energy sector presents various opportunities for
growth over the long term.
Change in global installed power generation capacity (GW)
Source: World Energy Outlook 2015 – International Energy Agency
Coal
The electricity sector is experiencing a process of
transition in which rapidly growing economies must
supply electrical power in an accessible, affordable,
reliable, and sustainable manner.
The coming decades will see a scenario marked by
a 40% increase in energy demand through 2040
and by the commitments resulting from the Climate
Change Conference held in Paris. The energy
mix must thus be substantially changed, reducing
the consumption of fossil fuels and increasing the
contribution of electricity, mainly in sectors like
transportation.
Gas
Oil
Nuclear
Bioenergy
Hydroelectric
Wind
Solar
Other
–800
–400
0
400
800
1,200
Capacity added
Capacity eliminated
2015-2025
The future of electricity according to
the WORLD ECONOMIC FORUM 2016
2026-2040
2015-2025
1,600
Net change
2026-2040
2015-2040
“Hydroelectric generation, onshore and
offshore wind power, and solar photovoltaic
will spearhead this transformation, which
should be accompanied by improvements
in networks and back-up and storage
technologies.”
Ignacio Galán, at the WORLD ECONOMIC FORUM 2016
The technologies considered for further development
in the coming years are those that are sufficiently
mature to provide large-scale solutions at a
reasonable cost, including hydroelectric, with a 60%
increase in the next 25 years, and onshore and
offshore wind.
An investment of approximately $7 trillion will
be needed in OECD countries ($13 trillion in
non-OECD countries) through 2040 to satisfy the
growing demand for electricity and to meet the goals
of global energy policies.
Investment in electricity infrastructure within and outside of the OECD
NON-OECD
Source: The Future of Electricity Report, World Economic Forum 2016.
Indicates the investment required to meet
policy objectives
OECD
$MM 600,000
Indicates the investment required
to meet policy objectives
$MM 600,000
528 p.a.
451 p.a.
$MM 400.000
$MM 400.000
288 p.a.
266 p.a.
$MM 200.000
260 p.a.
244 p.a.
Transmission and
distribution
$MM 200.000
188 p.a.
Other renewables
Wind and solar
Hydroelectric
Nuclear
0
Fossil fuels
2000 - 06
2007 - 14
2015 - 25
≈$3 Billion (≈$3 Trillion)
/ Integrated Report 2016
2026 - 40
≈$7 Billion (≈$7 Trillion)
0
2000 - 14
≈$4 Billion (≈$4 Trillion)
2015 - 25
2026 - 40
≈$13 Billion (≈$13 Trillion)
27 Business Model and Strategy
Evolution of demand1,2
Growth in global electricity production (TWh)1
According to World Energy Outlook 2015, in a
central scenario, world energy use will increase by
more than one-third through 2040, led mainly by
India, China, Africa, the Middle East, and South East
Asia. Despite the use of more costly technology and a
foreseeable future increase in the prices of fossil fuels,
electricity will be more accessible in relation to GDP in
most of these regions.
The EU Roadmap forecasts that electricity will at least
double its share in final energy demand to 36-39%
in 2050, for which reason it would reduce carbon
emissions in heating systems and in the transport
sector.
Sources: 1.World Energy Outlook 2015 – International Energy Agency; 2. Energy Roadmap 2050
of the European Parliament.
2013
23,318 TWh
16%
Hydroelectric
41%
Coal
11%
Nuclear
22%
4%
Gas
The electricity sector is leading the
fight to eliminate CO2 emissions,
which causes a displacement towards
power generation technologies with
low CO2 emissions.
Oil
4%
Bioenergy
9%
Wind
4%
2040
39,444 TWh
Solar
30%
Coal
15%
Hydroelectric
12%
Nuclear
23%
Gas
Trends in production and use of electricity
Sectoral1,2
Technological2,3
Consumption1,2
• Generation based on renewable energy
will increase by some 8,300 TWh
(more than one-half of the increase in
total production) by 2040, reaching
50% in the EU, around 30% in China
and Japan, and more than 25% in the
United States and India; conversely,
coal will represent less than 15% of
electricity supply outside of Asia.
• T echnological advances and an
improvement in efficiency are positive
factors, but constant political efforts are
essential to improve energy trends.
•1
.2 billion people, or 17% of the global
population, currently lack access to
electrici­ty, and 2.7 billion people, or
38% of the global population, put
their health at risk by resorting to the
traditional use of solid biomass for
cooking.
• Preferences for policies favourable to
energy options low in CO2 emissions
will be strengthened by cost trends, as
the extraction of oil and gas becomes
increasingly more expensive, while the
costs of renewables and more efficient
end-use technology continue to fall.
• Unsustainable pressure on natural
resources. A world economy four times
larger than today is projected to use
80% more energy in 2050.
•S
mart grids will introduce home
automation to network management
and electricity demand management,
improving process efficiency.
• T echnological developments, such as
new renewable energies and advances
in distributed generation, can change
the current model of the electricity
markets.
•E
lectricity storage, as a still-embryonic
technological possibility, can open
up new vistas for the operation and
management of power systems.
• T echnological progress as a path
toward reducing emissions, both in
obtaining fuels and in producing
electricity and managing its use.
•U
niversal access to energy, as an
element to improve well-being. “World
electricity demand will grow by 80%
over the next 30 years driven by
improved efficiency and the expansion
of service to the 1.2 billion people
who still do not have access to power”
(Ignacio Galán).
• T he development of new uses and
applications for electricity may result
in new markets and opportunities:
electric vehicles, robotics in the use of
electricity, etc.
Sources: 1 World Energy Outlook 2015 – IEA; 2 Energy
Roadmap 2050 of the European Parliament; 3 World
Energy Outlook 2014.
Integrated Report 2016 /
Business Model and Strategy 28
2.2 Business Model
The purpose of the business model defined for the Iberdrola
group is the “supply of reliable, high-quality and
environmentally-friendly energy”, through a sustainable,
long-term industrial enterprise.
The model is built on three pillars: a framework of
trust based on an advanced governance model;
the Mission, Vision, and Values of the Iberdrola
group defined by the Board of Directors; and the
distinguishing factors that make Iberdrola a
different company.
The model’s competitiveness is achieved
through responsible management of
the tangible and intangible assets of
the Company. To apply this model,
Iberdrola has defined the activities
in which it seeks to be an active
player, structuring its management
into three global businesses: the
Networks Business; the Wholesale
and Retail Business; and the
Renewables Business, with a
Corporation as the group’s
central management unit.
The Corporation develops
the group’s strategy and
oversees its execution.
Networks
Business
Strategic Foundations / page 34
Wholesale
and Retail
Business
Renewables
Business
Value Chain / page 32
Management of tangible and intangible assets
Financial / Manufactured /
Intellectual / Human / Natural / Social and Relational
Framework
of Trust
To ensure the sustainability of its business model,
Iberdrola has implemented:
•A
Corporate Governance System consistent with
best international practices.
•C
orporate ethics, internalised by the management
units and the organisation as a whole.
•S
ocial Responsibility Policies, with a view to meeting
the expectations of Stakeholders.
•A
dvanced risk control, to maintain an optimal
“risk/opportunity” balance, taking advantage of
opportunities and mitigating risks.
/ Integrated Report 2016
The energy that drives us
Corporation
Framework of trust
Strategic Foundations / page 34
Supply
of reliable
and
high-quality
energy
Mission, Vision
and Values
Distinguishing
Factors
Competitiveness / page 30
Pillars / page 28
Mission, Vision, and Values of the
Iberdrola group
“We want to be the leading multinational group in
the energy sector at the forefront of a better future,
sustainably creating value with a quality service for
people...”.
This vision is based on twelve corporate values:
•
•
•
•
•
•
•
•
•
•
•
•
alue creation
V
Ethical principles
Good corporate governance and transparency
Development of our workforce
Social commitment
Sense of belonging
Safety and reliability
Quality
Innovation
Respect for the environment
Customer focus
Institutional loyalty
29 Business Model and Strategy
2.3 Iberdrola, a Different
Company
Iberdrola’s Primary Businesses
/ page 41
P
resence by Areas of Activity
/ page 12
Focus on basic
and regulated
businesses
International
diversification
Commitment to
clean and
competitive energies
Approximately 75% of Ebitda
comes from regulated businesses
and long-term contracts.
Approximately 55% of earnings
are generated outside of Spain.
•G
eneration and production of
largely emissions-free electricity.
Natural Capital
/ page 68
• L arge portfolio of offshore wind
generation projects and wave
and tidal power projects.
•C
lear goals for reducing
emissions.
Operational
efficiency
Financial strength
and solidity
of the group
Global, committed,
and qualified
workforce
In a comparative analysis of
six European companies in the
sector, according to a study by
Ernst&Young, Iberdrola leads in
three efficiency variables: net
operating expenses over gross
margin, workforce per unit of
installed power, and workforce
per number of users.
•S
trengthening of the balance
sheet due to growth in Ebitda
and operating cash flow, which
allows for continued strength in
solvency ratio levels.
•S
table and high-quality jobs,
with high level of training.
Iberdrola’s Primary Businesses
/ page 41
• L iquidity position that covers
financial needs for more than 18
months under a stress scenario.
F inancial Capital
/ page 60
•H
ealth and safety as values:
“accident reduction” goal.
• T he companies of the group
have been recognised: In Spain
for their reputation (Merco) and
in Brazil as the best company
to work for in Latin America
(Great Place to Work).
H
uman Capital
/ page 66
Integrated Report 2016 /
Business Model and Strategy 30
2.4 Management of Tangible
and Intangible Assets
F inancial Capital
/ page 60
Manufactured Capital
/ page 62
Intellectual Capital
/ page 64
Financial
Capital
Manufactured
Capital
Intellectual
Capital
What is it?
Financial resources
the company already
has or obtains through
financing.
Tangible assets or goods
used by the Company
to carry out its business
activities.
Intangible, knowledgebased assets.
Management
Approach
Create value for
shareholders through
sustainable growth.
Offer a competitive
supply of energy in
a safe and reliable
environment.
Consider innovation as
a strategic element of
the Company.
Significant
Aspects
• Balanced growth.
• P ower generation
assets.
• Promotion of R&D.
•S
ound financial
structure.
• Operational efficiency.
•S
ustainable results
and dividends.
/ Integrated Report 2016
• P ower transmission
and distribution
assets.
• Other assets.
•E
fficiency and new
products and services.
•D
isruptive technology
and business models.
31 Business Model and Strategy
The Iberdrola group holds valuable assets for the development of its business
model. The strategy defined by the Company transforms these assets to create
value for all its Stakeholders.
H
uman Capital
/ page 66
N
atural Capital
/ page 68
S
ocial and Relationship Capital
/ page 70
Human
Capital
Natural
Capital
Social and
Relationship Capital
Employee knowledge, skills,
experience and motivation.
Natural resources affected
by the Company’s activities.
Ability to share, relate,
and collaborate with its
Stakeholders, promoting
community development and
well-being.
Guarantee the availability of
a committed and qualified
workforce.
Ensure the sustainable use of
natural resources and contribute
to combating climate change.
Promote relations of trust
with Stakeholders, improving
the quality of life of people in
areas where the group has a
presence.
•G
lobal human resources
management.
• Environmental management.
• Stakeholder relations.
• Preservation of biodiversity.
• Goal of “accident reduction”.
• Prevention of pollution.
•C
ommunity support and
electricity access programmes.
• Talent management.
•O
perating excellence and
energy efficiency.
• Iberdrola group foundations.
• Waste management.
• Brand management.
•D
iversity, equal opportunity,
and reconciliation.
• Corporate reputation.
• Informational transparency.
Integrated Report 2016 /
Business Model and Strategy 32
2.5 Value Chain
Power
generation
Power transmission
and distribution
Electricity production through
the construction, operation,
and maintenance of generating
plants, and purchase/sale of
energy on wholesale
markets.
Construction, operation,
and maintenance of
electrical lines, substations,
transformer centres, and
other infrastructure, to
transfer electrical power
from production centres to
the end user.
Generating plants*
Electric grids*
* % of 2015 net output
* At 31 December 2015
34%
17%
Overhead lines
Combined cycle
Nuclear
5%
Cogeneration
4,000
High and medium voltage
transformer substations
29,857km
of transmission lines
8%
Conventional
thermal
36%
Renewables (Hydroelectric + wind)
/ Integrated Report 2016
856,461km
of distribution lines
33 Business Model and Strategy
Retail sale
of energy
Supply to end users of energy
and additional products and
services.
Users*
* % by sector at 31 December 2015
Underground lines
1.4 million
Medium to low voltage
distribution transformers
938 km
of transmission lines
188,828 km
of distribution lines
90.2%
Residential
5.8%
Retail
0.9%
Institutional
0.9 %
Industrial
Integrated Report 2016 /
2.2%
Other
Business Model and Strategy 34
2.6 Strategic Foundations
for 2016-2020
Market conditions
The global energy markets currently reflect geopolitical factors affecting the countries producing oil and gas.
Our scenario for the 2016-2020 period forecasts that current prices remain the same over the short term,
sustained by a stable climate in the economies of Europe and North America, followed by a soft recovery at the
end of the period. The diversification of businesses and countries will allow the Company to develop a strategy
of growth and value creation that conforms to this environment.
Challenges and opportunities
Challenges
Opportunities
•D
ecarbonisation in the energy sector. Demand for
cleaner and more sustainable energy.
• Management of a scenario of constant prices for
energy in the short term.
• Attainment of higher efficiency levels in all
businesses.
• Regulatory management in all businesses, with
special emphasis on transmission and distribution
businesses, and in the development of the single
market in Europe.
• Implementation of an investment plan focused on
growth in the businesses of regulated networks,
renewables, and long-term contracted generation.
•B
alanced business model focused on regulated
activi­ties and clean energy.
• Significant experience in the development and
construction of network and emission-free generation
projects.
• International diversification with a presence in
countries with a stable and predictable regulatory
framework that require investment in the electricity
and gas sectors.
• High quality of assets.
• Proven management capacity, culture of efficiency,
and results.
• Culture of innovation to implement digitisation in
relation to customers and the development of new
products and services.
Growth vectors 2016-2020
Investments
•U
nited Kingdom: Iberdrola continues with its growth
phase in the power transmission and distribution
businesses and with the start-up of onshore and
offshore renewable energy projects. Offshore wind
will become significant beginning in 2018.
•U
nited States: the Company, through AVANGRID,
is facing growth in the area of distribution networks
and also in transmission. It will also continue with
new onshore wind developments.
•M
exico: it will consolidate its position as the
largest private power generator in Mexico, taking
advantage of the opportunities arising from the
liberalisation of the sector.
•B
razil: experiencing a period of growth in
hydroelectric capacity.
•S
pain: maintenance and improvement of facilities.
Operational efficiency
• In all areas of activity.
.... expanding the geographic diversification of the Company and increasing
its presence in regulated businesses with low risk and the generation of
recurring cash flows.
T he Future of Energy / page 26
/ Integrated Report 2016
35 Business Model and Strategy
Strategic pillars
Iberdrola’s strategy for 2016-2020 will remain focused on balanced growth, ensuring its financial strength and
the sustainability of its dividend policy, the growth of which will be linked to the growth in results.
New investments will be concentrated in countries with high credit ratings and in businesses that are preferably
regulated or in long-term contracts, thus improving the profile of the Company.
1. Balanced growth
• Investments focused on businesses and countries
with stable and predictable regulatory frameworks.
• Net investment of more than €M 24,000.
Investments of more than approximately €M 22,000
are already awarded or under construction.
•O
f the total investments during the period, €M
17,000 are focused on growth and the rest on
maintenance and replacement.
•E
lectric power transmission and distribution
networks will account for 46% of net investments.
Of the overall amount, 33% will be dedicated to
renewable energy and 9% to regulated wholesale
generation. 12% of the total will be invested in the
liberalised wholesale and retail business.
• T he regulated businesses (networks, renewables,
and long-term contract) will account for 88% of all
planned investments.
Investment by business and currency 2016-2020
•G
eographically, Iberdrola will concentrate the
bulk of its growth in the international area. By
currency, 43% will be invested in dollars, 35% in
pounds Sterling, 20%* in the Euro zone, and 2% in
Brazilian reais.
From 2016 to 2020, investments
will be focused on countries with
stable regulatory environments
and the businesses of regulated
networks, renewables, and
generation under long-term
contracts.
F inancial Capital
/ page 60
* Includes the offshore wind farm in Germany: Wikinger
12%
Wholesale and
Retail
9%
Regulated
Wholesale
Generation
46%
Networks
33%
Renewables
2%
Reais
20%
Euros*
43%
Dollars
35%
Pounds
Integrated Report 2016 /
Business Model and Strategy 36
2. Financial strength
• 2015 results were higher than initially forecast
due to the good performance of the businesses,
especially the regulated and long-term contract
businesses, and the positive effect of the
appreciation of the dollar and the pound Sterling.
Ebitda reached €M 7,306 (+4.9%), with net profit
of €M 2,422 (4.1%).
• In the coming years, the efficient operation of
operating assets, together with the above-described
investment plan, will lead to sustainable growth in
the Company’s results, with an estimated average
annual increase of approximately 6% through 2020.
• As a result of the increase in investments, net debt
will grow some €M 1,000 annually during the first
years of the period, to reach approximately €M
31,000 in 2018/2019 thanks to the increase in
operating cash flow.
The profile of the Company’s
businesses, together with a
balanced investment plan, will
allow for sustained growth in
results of approximately 6%...
• Average annual operating cash flow (FFO) in
the amount of €M 6,900 will amply exceed
investments, which will reach an annual average
of €M 4,800. By business, cash flow generation
from the Liberalised and Networks businesses will
Ebitda by business (forecast to 2020)
be significantly greater than investments, while
Renewables will generate cash somewhat higher
than investments.
• Maintenance of the current financial model to provide
subsidiaries with an optimal capital structure giving
appropriate financial signals and which is consistent
with an investment grade rating, while respecting
current guidelines for structural subordination.
• Optimisation of liquidity position (around €M 8,000
- 9,000) to current market conditions in order to
improve financial costs, maintaining 18 months of
coverage even during stress scenarios.
•S
trengthening of financial ratios, with the following
medium-term goals:
• Net debt/Ebitda ≤ 3.6
• FFO/Net debt ≥ 22%
...resulting in the Company
proposing a sustainable
shareholder remuneration policy
linked to the growth in results.
3. Sustainable dividend
• Thanks to the strength of the results obtained in
2015, the Company has announced a proposed
increase in the annual divided to 0.28 euro per
share with a charge to financial year 2015.
• In the coming years, shareholder remuneration will
grow in line with the increase in results, converging
with a payout ranging between 65% and 75%.
Ebitda by currency (forecast to 2020)
* Includes the offshore wind farm in Germany: Wikinger
3%
Reais
19%
Wholesale
and Retail
36%
Euros*
36%
Dollars
8%
Regulated
Wholesale
Generation
23%
Renewables
50%
Networks
25%
Pounds
/ Integrated Report 2016
37 Business Model and Strategy
2.7 Capital and Business
Relationship
The value created by the business strategy and model of Iberdrola over time translates into an increase in its
capital, which in turn feeds back into a cycle of value creation, efficiently inter-relating the operations of the
businesses and the capital of the Company.
The chart below shows for each chapter its strategic focus and quantifies an aspiration or achievement of the
Company in this area.
This process creates shared value for both Iberdrola and for its Stakeholders, and constitutes a main vector for
achieving the Company’s goal to offer a reliable, high-quality, and environmentally-friendly energy supply.
Electricity
demand
Growth
Technological changes
and digitisation
Opportunities
Economic environment
GDP Growth
External Context
Commoditites
markets
Outlook
Supply costs
Prices and regulation
Financial
Capital
Framew
ork
Environmental management
and energy efficiency
50% reduction in CO2
emissions by 2030
compared to those
of 2007
(1) Annual impact estimated by Analistas Financieros
Internacionales (AFI), based on Iberdrola’s business during
the 2010-2015 period.
Mis
sio
n
Networks
Renewables
Wholesale and
Retail
sti
Di
Natural
Capital
t
ru s
ft
ng
n and Value
isio
s
,V
o
Strengthen trust and link
to the community
Direct tax contribution:
€M 15,700 in the
last 3 years
or
s
Social and
Relationship capital
Growth, financial strength,
sustainable dividend
Approximately 6% average
annual increase in net
profit between 2016
and 2020
uishing f act
Manufactured
Capital
Supply of safe and
competitive energy, with
a focus on networks and
renewables
Investment of €M 24,000
through 2020
Intellectual
Capital
Promotion of R&D
174% increase
in R&D investment over
the last 8 years
Human
Capital
Diverse workforce within
a stable and safe environment
360,000 direct,
indirect and induced
job positions1
Integrated Report 2016 /
Business Model and Strategy 38
2.8 Comparative Results
and Awards
Comparative analysis*
Comparative economic/financial
variables 2015
Comparative performance of total
shareholder return
Growth in Ebitda
ACGR (%)
Average comparables
Iberdrola
2.1%**
8.0%
31-Dec.-05 /
31-Dec.-15
Growth in capitalisation
Total growth (%)
Average comparables
Iberdrola
–30.5%
99.4%
Iberdrola held 5th place at the European level in
terms of stock market capitalisation for the last 10
years. It is now in first place.
Share price
31-Dec.-05 /
31-Dec.-15
31-Dec.-05 /
31-Dec.-15
Average
comparables
Eurostoxx
Utilities
Iberdrola
–9.1%
19.0%
64.2%
Iberdrola’s performance
31-Dec.-05 /
31-Dec.-15
Total growth (%)
Profitability (%)
Average
comparables
Eurostoxx
Utilities
Iberdrola
–55.1%
–30.2%
13.5%
Over the last 10 years, Iberdrola has tripled its assets,
has practically tripled its revenues, has doubled its
Ebitda and net profit, and has increased shareholder
remuneration by more than 20%, while maintaining
its financial strength.
Iberdrola
31-Dec.-05
31-Dec.-15
Multiple
Assets (€M)
30,479
104,664
3.4x
Revenues (€M)
11,738
31,419
2.7x
Ebitda (€M)
3,378
7,306
2.2x
Net Profit (€M)
1,382
2,422
1.8x
0.22
0.27
1.2x
3.8
3.84
1.0x
Dividends (€/share)
* Comparable companies analysed: Engie, EDF, E.On, Enel, RWE.
ACGR: Annual Compound Growth Rate, i.e. weighted average annual growth.
**Bloomberg data. For EDF, E.ON, and RWE, the 2015 Ebitda figures are the estimates
published by Bloomberg, due to the absence of final closing figures on the date of
preparation of this document. In addition, for Engie, the 2005 figure is for GDF (prior to the
merger of GDF and Suez SA).
/ Integrated Report 2016
Net Debt/Ebitda
39 Business Model and Strategy
Ignacio Galán at the
offices of Torre Iberdrola
/ Bilbao
External awards
For the Company:
For the chairman & CEO:
• Best European Utility (Institutional Investor Research):
2015, 2014, 2013, and 2011.
• Best European Utility CEO (Institutional Investor
Research): 2015, 2014, 2013, and 2011.
• Best Corporate Governance in Spain (World
Finance): 2015, 2014, and 2012.
• Responsible Capitalism Award (First): 2014.
• Best Corporate Governance among European
Utilities (Ethical Boardroom): 2015 and 2014.
• World’s Most Ethical Company Index (Ethisphere
Institute): 2016, 2015, and 2014.
• Leading Ibex 35 company in the tax transparency
ranking 2014, from Fundación Compromiso y
Transparencia.
• Euroshareholders Award for the best initiative in
favour of minority shareholders (AEMEC): 2015
• Best European utility in investor relations
(IR Magazine): 2015.
• Olimpia Award to recognise support and promotion
of sport among people with disabilities, given by the
Sports Council (Consejo Superior de Deportes): 2015.
• Commander of the Most Excellent Order of the British
Empire: 2014.
• Honorary Doctorate from the Universities of
Strathclyde (2013), Salamanca (2011) and
Edinburgh (2011).
For other members of the Company:
• Best European Utility CFO (Institutional Investor
Research): 2015, 2014, and 2012.
• Best European Utility Investor Relations (Institutional
Investor Research): 2015, 2014, 2013, 2012,
and 2011.
Other Awards / page 67, 85
Integrated Report 2016 /
Iberdrola’s Primary Businesses 40
West of Duddon Sands
offshore wind turbine
/ United Kingdom
/ Integrated Report 2016
41 Iberdrola’s Primary Businesses
3.
Iberdrola’s
Primary
Businesses
Regulation is a key factor in the sustainability of Iberdrola’s
activities.
Energy policies must set clear and predictable goals in order to
attract the investment needed to guarantee a safe, competitive, and
sustainable supply, developing its potential as a source of growth
and employment.
Integrated Report 2016 /
Iberdrola’s Primary Businesses 42
3.1 Regulatory Environment
European Union
Spain
•2
015 saw the formalisation of the Paris Climate
Change Conference (COP21) agreements, which
entail a multilateral commitment to implement
measures to reduce emissions in order to limit
the increase in temperature to a maximum of 2ºC
through 2100. These measures will involve a major
investment effort, which should be supported by
signals incentivising low-carbon technologies, and
the costs should be paid in accordance with the
“polluting party pays” principle.
•M
ost of the regulatory steps on electricity and gas
reform were already taken during 2013 and 2014,
eliminating the deficit in 2014.
• T here will be intensive regulatory activity by the
European Commission in 2016.
•M
ore far-reaching measures include expected
market design reform proposals, as well as a
directive on the safety of supply. There will also be
proposals to modify the frameworks for renewables
and energy efficiency, in line with the 2030 goals.
• F urthermore, there will be continued steps to reform
the emissions market and it will be completed with a
reform of the treatment of “diffuse” sectors.
•A
n energy efficiency fund is maintained by
which all energies (electricity, gas, and petrol)
contribute in proportion to their demand to the
costs of implementing the European goal of energy
efficiency for 2020.
•C
ontinuation of a regulated tariff applying to
approximately 90% of consumers.
United Kingdom
• T he investigation by the Competition and Markets
Authority (CMA) into the operation of the industry
continues. Its final conclusions and proposed
remedies are expected to be published in June
2016.
• T he provisional conclusions of the CMA indicate
that there is little concern about the wholesale
market or vertical integration, although competition
is considered to be weak in the Standard Variable
Tariff sector and in the SME market. There will
probably be reforms to deal with these problems.
• T he new British government has taken measures
to reduce the expected cost of the “green energy”
support frameworks, but only for future facilities.
Various support systems have been reduced or shut
down, while it can be expected that others will be
maintained.
/ Integrated Report 2016
43 Iberdrola’s Primary Businesses
United States and Canada
Brazil
• The State of New York, along with other states,
will continue to consider changes in the regulatory
model for utilities, taking into account technological
advances both in generation and distribution of
electricity.
• T he debate on the distribution of hydrological
risk opened the door to the possibility of the
renegotiation thereof (Law 13,2013/2015) based
on a voluntary decision of the generator and in
exchange for the payment of a premium into the
“tariff flag” account.
• In this context, in June the NY Public Service
Commission, within the framework of the Reforming
the Energy Vision (REV) process, published its
white paper proposing reforms in the regulatory
distribution model.
•D
uring 2016, litigation progressed in determining
whether the Environmental Protection Agency
(EPA) can implement two independent regulations
proposing a reduction in CO2 emissions for the
electricity generation sector with a 2030 horizon.
This process will have a considerable impact on
decision-making by electric companies.
Mexico
• T he new energy reform, the legislative development
of which will continue during 2016, ends the
state monopoly in the hydrocarbon and electricity
sectors. In the electricity sector, it will encourage
investment in new generation projects that will
operate in a competitive environment after the
creation of various markets. The share of clean
energy is forecast to increase by up to 35%
by 2024 with the creation of a clean energy
certification system, based on which certain supply
obligations will be determined. Furthermore,
contracts with individuals will also begin in the area
of networks, which are still under state ownership
and considered to be a public service.
•D
espite the difficulties at the beginning of 2015,
hydrological conditions improved and the possibility
of rationing was excluded, which has allowed for
a decoupling of the more expensive thermal plants
and a reduction of the additional amount charged
in the “red flag”. The price of energy in the spot
market has significantly decreased during the
course of the year, in line with the improvement in
hydrological conditions.
• T he concession of 29 hydroelectric plants that did
not adhere to Provisional Measure MP 579/2012
was terminated in 2015. At the end of the year they
were auctioned, including the obligation to pay a
fee for the award, which allowed the government to
collect R$M 17,000. The power from these plants
has been distributed among the players in the form
of contributions.
• T he requirements to renew the distribution
concessions were defined during the year, focusing
on quality and governance. 17 distributors have
renewed their concession contracts within this new
framework.
Integrated Report 2016 /
Iberdrola’s Primary Businesses 44
3.2 Networks
Regulatory environment of the business
Spain
United States
• The transitional remuneration methodology
approved in 2013 applied in 2015.
• T he current tariff conditions of NYSEG and RG&E
(New York) were extended during 2015, while
negotiations continued on the new terms to come
into effect in 2016.
• Base unit costs and the methodology for calculating
the pending remuneration parameters were
approved in December 2015. The first regulatory
period begins in 2016 and ends in 2019.
• In Maine, the first tariff agreement is being
negotiated for MNG. Furthermore, the terms of the
tariff agreement for CMP have been extended for
an additional year.
United Kingdom
• In 2016 Ofgem set the standards for the review of
outputs expected for the mid-period RIIO-T1. This
revision does not affect defined financial terms.
• T he DPCR5 regulatory distribution period ended in
March 2015 and RIIO-ED1 began for 2015-2023.
New tariff conditions for NYSEG
and RG&E, the gas and electricity
distributors in the State of New York
(USA), will come into effect in
2016.
/ Integrated Report 2016
Brazil
• T he indicators to be used in the 4th cycle of the
tariff revision for distributors were determined in
2015.
• T he 4th tariff cycle for Elektro came into effect in
August for the 2015-2019 period. The average
tariff increase from this review was 4.2% for these
four years.
• T he tariff agreements for the distributors of
Neoenergia will be in force through April 2017 for
Celpe and April 2018 for Coelba and Cosern.
• T he annual tariff update for 2015 was 11.43% for
Coelba, 9.57% for Cosern, and 11.25% for Celpe.
•C
oelba and Celpe have signed an agreement to
improve the quality of supply with the regulator
Aneel.
45 Iberdrola’s Primary Businesses
Denny substation, Scotland
/ United Kingdom
Integrated Report 2016 /
Iberdrola’s Primary Businesses 46
Objectives, risks, and principal activities
Objectives
Principal activities 2015
•S
atisfy supply under strict safety conditions, in
compliance with environmental requirements.
•S
pain: continuation of the STAR project for the rollout of smart grids, after already installing over 6.5
million meters. 11 new electric substations were
also placed into service.
• Increase quality in energy supply by investing in the
expansion and renewal of networks, improvement
of our processes, and use of the latest advances in
technology.
• Maximise efficiency in system operations.
• Zero accidents.
•U
nited Kingdom: the DPCR5 period ended in
March 2015, meeting the objective established for
this period.
•U
nited States: completion of construction phase for
the MPRP transmission project in Maine (700 km
of network, 5 new substations, and 6 expanded
substations).
Significant risks
• Regulatory uncertainty.
• Safety of individuals due to risk of accidents.
• Incidents with environmental impact.
• Major network incidents.
• Increased fraud.
• T echnological and cybersecurity risks affecting the
security of the facilities.
2015 saw the commencement of the first project
of IUSA Networks within NY Transco, a $1,700 M
initiative sought by New York electric transmission
companies to develop transportation infrastructure
in New York. Iberdrola’s has a 20% interest in NY
Transco.
•B
razil: improvement plan launched at Neonergia
to improve supply efficiency and quality. At Elektro,
development of facilities to meet demand and
connect new customers.
Outlook 2016-2020
• Increased regulatory visibility in all countries, with investments of €M 11,000, allowing for a 22% increase in
RAV*.
• Focus on digitalisation and grid automation (smart grids), service quality, and operational improvements.
• 2% increase in efficiency over the period (NOE/GM and NOE/RAV)*.
• Opportunities for selective growth in transmission.
*RAV: Regulatory Asset Value; NOE: Net Operating Expenditure; GM: Gross Margin.
Net Investment of €M 11,000 between 2016 and 2020,
mainly in the United States and the United Kingdom
4%
Brazil
2016-2020 cash flow generation to finance
investments (€ millions)
5,900
16,900
15%
Spain
11,000
32%
United
Kingdom
48%
United States
/ Integrated Report 2016
Operating Cash Flow
Net Investment
Free Cash Flow
47 Iberdrola’s Primary Businesses
Key figures of the Networks business
Spain
United
United
Kingdom
States1
Brazil
Total
Elektro
Neoenergia2
Item
Unit
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
Gross margin
€M
1,936
1,952
1,331
1,472
1,498
1,698
459
392
–
–
5,225
5,514
Ebitda
€M
1,438
1,450
1,025
1,138
772
774
299
240
–
–
3,534
3,602
Electric
power
distributed
GWh
90,741 92,676 36,564 36,213 31,302 31,337 16,933 16,190 37,077 37,809 212,617
214,226
Users
(Electricity)
Millions
Gas supply
2.2
2.4
2.5
10.3
10.6
28.8
29.7
–
– 38,261 36,325
–
–
–
–
38,261
36,325
–
–
–
0.6
0.8
–
–
–
–
0.6
0.8
304
346
729
847
432
429
78
71
–
–
1,541
1,693
3,906
3,801
2,894
2,851
4,133
5,113
3,801
3,486
4,050
4,338
18,784
19,589
10.8
10.9
3.5
GWh
–
–
Users
(Gas)
Millions
–
Investments
€M
Workforce
Nº
people
3.5
1.8
International Financial Reporting Standard (IFRS) 11 has been applied to the financial information for both 2014 and 2015.
(1) UIL included in users and workforce in 2015.
(2) Operational information is deemed to be 100% from Neoenergia.
Quarterly Results Report
Safety, quality of supply, and operational efficiency are the three strategic
pillars of the Networks business upon which the entire business rests.
Safety
Quality of supply
Efficiency
• Ongoing efforts to improve safety in
networks activities, which is reflected
in the decrease in the Incident Rate.
• Ongoing effort to improve supply
quality indicators.
• Increase in operating expenses
contained despite strong increase in
activity.
• Implementation of best practices at
all networks companies to reduce the
risks associated with operation.
• Strengthened measures to protect
against cybersecurity risks associated
with new grid management
technologies.
• Development of safety improvement
initiatives for all Networks personnel
and subcontractors.
• The service quality indicators between
January and December 2015 were
affected by poor meteorological
conditions in Spain and the United
States.
• Development of transmission and
distribution projects to ensure the
reliability of supply and optimise the
cost of energy.
• Network automation project in Spain
to improve operations.
• Implementation of best practices
throughout the networks
companies, mainly in the areas
of asset management, processes
and technology, control systems,
digitisation and automation, and
customer service.
• Emphasis on the fight against
electricity fraud in Spain, with
recovery of almost 420 GWh.
Integrated Report 2016 /
Works at the combined
cycle plant in Castellón
/ Spain
/ Integrated Report 2016
Iberdrola’s Primary Businesses 48
49 Iberdrola’s Primary Businesses
3.3 Wholesale and Retail
Regulatory environment of the business
Europe
United Kingdom
•A
n agreement was reached in 2015 on the
introduction of a Market Stability Reserve within the
European Emissions Market. With a start date of
2019, it will reduce the surplus of emission rights in
the market.
• T he auction in the 2019/2020 capacity market took
place in December 2015, with the participation of
both existing plants and new projects. The resulting
price was £18/kW and no combined cycle project
won the auction.
• T he REMIT(1) reporting obligations will enter
into force in 2016 to ensure the integrity and
transparency of the gas and electricity market.
• T he Carbon Tax, which applies to carbon emissions,
has been £18.08/t since April 2015. It will remain
constant until 2020.
REMIT: Regulation (EU) No 1227/2011 of the European Parliament and of the
Council of 25 October 2011 on wholesale energy market integrity and transparency.
(1)
• Implementation of Project TransmiT, which
establishes a new distribution of transmission
charges among generators. The changes will take
effect in April 2016.
Spain
• T he Royal Decree governing administrative,
technical, and financial conditions for internal
consumption was approved in October 2015. It
establishes the framework for this activity with legal
guarantees for consumers and producers, and
the charges for energy produced and internally
consumed, with exemptions for consumers of
<10kW.
• L aw 8/2015 amending the Hydrocarbon Sector
Act (Ley del Sector de Hidrocarburos) has created
an organised Iberian gas market (Mibgas), which
commenced operations on 16 December.
• T he new interconnection between Spain and France
entered into commercial operation in October
2015. In addition, the presidents of France, Spain,
and Portugal and the president of the European
Commission have signed a declaration committing
to promote the interconnections between the three
countries. In electricity, the goal is to reach 10% by
2020 using an undersea cable through the Bay of
Biscay and two connections in the Pyrenees.
Mexico
• T he Wholesale Electricity Market Rules (Bases del
Mercado Eléctrico) were approved in September
2015. The Electricity Market contemplates
capacity auctions and Clean Emissions Certificates
(Certificados de Emisiones Limpias) (CELs).
• T he Short-term Market commenced operations in
January 2016.
• T he market respects the contracts previously
established by Independent Power Producers and
for Self-supply Plants.
•A
s from August 2015, consumers with consumption
greater than 2MW can acquire their energy on the
market.
• T he current capacity availability service of the
generation facilities has been extended in 2016
until approval of the Royal Decree that will modify
capacity payments.
Integrated Report 2016 /
Iberdrola’s Primary Businesses 50
Objectives, risks, and principal activities
Objectives
Principal activities 2015
•O
perating excellence, safety, and respect for the
environment.
•S
pain: start-up of the San Pedro II (25 MW) and
Muela II (852 MW) hydroelectric plants. Continued
development of products and services adapted to
the needs of customers (Customised Plans, Smart
Solar, Iberdrola Smart Home ...).
• Risk identification and minimisation.
•S
afety and continuous improvement in operating
efficiency.
•C
ompetitive supply and excellence in service to
customers.
• Analysis of growth opportunities.
Significant risks
•R
egulatory uncertainty in the countries in which it
operates.
•O
perating risks: downtime of facilities and incidents
with environmental impact.
•M
arket risk: uncertainty regarding fuel prices and
revenues from the sale of electricity and gas.
• Credit, exchange-rate, and interest-rate risks.
• T echnological and cybersecurity risks affecting the
security of the facilities or the information of our
customers.
•U
nited Kingdom: the evacuation capacity of the
Longannet TP has been abandoned and its closure
has been requested for April 2016. Decrease in
variable rates for domestic gas customers (–4.8%),
effective as from February 2015, which will be
followed by an additional decrease (–5.4%)
beginning on 15 March 2016.
•M
exico: the construction programme for the
Baja California III CCGT (300 MW), 5th unit of
Monterrey CCGT (300 MW), and Ramos Arizpe
cogeneration (50 MW) plants continues on
schedule, with start-up in 2016. The San Juan del
Río (50 MW) and Dynasol (57 MW) cogeneration
projects also commence. CFE tender awarded for
the Escobedo CCGT (857 MW), with entry into
operation in 2018.
•B
razil: at year-end 2015, construction ended on
the Teles Pires hydroelectric plant, with a total
of 1,820 MW, of which 362 MW correspond
to Iberdrola, which holds its stake through
Neoenergia.
Outlook 2016-2020
• Investments of €M 5,100, mainly to increase installed capacity and to deploy smart meters in the United Kingdom.
• Start-up of 3,450 MW in Mexico, of which 1,600 MW are already under construction.
• In Retail, wager on digitisation, personalisation of products for the customer, and service excellence.
• Continuing improvement of operational processes and practices to increase efficiency.
Investment of €M 5,100 during the period,
of which €M 3,700 are for growth
2016-2020 cash flow generation to finance investments
(€ millions)
4,500
9,600
36%
38%
Spain
5,100
Mexico
26%
United Kingdom
/ Integrated Report 2016
Operating Cash Flow
Net Investment
Free Cash Flow
51 Iberdrola’s Primary Businesses
Key figures of the Wholesale and Retail business
Spain
United Kingdom
United States
and Canada
Mexico
Total
Item
Unit
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
Gross margin
€M
3,068
2,971
1,205
1,306
3
–20
457
584
4,734
4,842
Ebitda
€M
1,517
1,502
457
421
–32
–58
350
455
2,292
2,320
Installed capacity
MW
19,174
20,081
4,835
4,835
NA
NA
5,028
5,082
29,037
29,998
Net output
(excluding renewables)
GWh
47,844
43,616
15,810
14,925
NA
NA
35,175
38,128
98,829
96,669
Electricity contracts
Millions
10.4
10.4
3.3
3.3
NA
NA
NA
NA
13.7
13.7
Gas contracts
Millions
0.8
0.9
2.2
2.2
NA
NA
NA
NA
3.0
3.1
Products and services contracts Millions
4.4
4.9
0.1
0.1
NA
NA
NA
NA
4.5
5.0
Total retail contracts
Millions
15.7
16.2
5.5
5.5
NA
NA
NA
NA
21.2
21.7
Investments
€M
146
188
98
94
4
4
170
370
419
655
Workforce
Nº
people
3,478
3,395
2,505
2,491
114
108
434
489
6,531
6,483
Quarterly Results Report
International Financial Reporting Standard (IFRS) 11 has been applied to the financial information
for both 2014 and 2015.
The Wholesale and Retail business is focused on the safety of operations, the
loyalty of customers, and growth in Mexico, which will allow for the stability
of results and ensure the generation of funds for the group.
Efficiency
Growth in generation
Supply
• Optimisation of coal production,
with investments in low-cost NOX in
Spain.
• Mexico: Placement into service of
more than 750 MW in 2016-2017:
•C
ustomer loyalty-building in mature
markets through the development
of new products and personalised
services adapted to the needs of
customers.
• Facilitating operations in
complementary markets.
• Operating improvements to increase
the availability and energetic yield of
the Mexico facilities.
• Abandonment of evacuation capacity
of the Longannet TP as from April
2016.
Prices
• Minimisation of risks through
appropriate hedging of all
generation, including renewable
generation.
– Baja California III CCGT (300
MW).
– 5th Unit of Monterrey CCGT (300
MW).
– Kimberly Clark Ramos
cogeneration (50 MW).
•R
etail development in Mexico
pursuant to changes in legal
provisions on energy reform.
– Kimberly Clark San Juan del Río
cogeneration (50 MW).
– Dynasol cogeneration (57 MW).
• United Kingdom: Widespread
deployment of smart meters
beginning in 2016, to reach 100% of
customers by 2020.
Integrated Report 2016 /
Iberdrola’s Primary Businesses 52
3.4 Renewables
Regulatory environment of the business
Spain
United States
• T he terms and conditions for new renewable
capacity auctions were defined in 2015, which
means recommencement of investment in the wind
sector after various years without investments. This
auction was held on 14 January, with the award of
500 MW in wind and 200 MW in biomass.
• T he tax incentives for wind and solar power have
been extended once again. This time the extension
is for various years (through 2020 in the case of
wind and 2022 for solar), with a gradual reduction
that in the case of non-residential solar stays at 10%
until the deadline. This extension gives the project
portfolio greater visibility.
United Kingdom
•U
pon completion in 2016 of the various current
reforms to contain expenses, it is expected that
there will be more visibility regarding the changes
in the Levy Control Framework and the existing
margin for growth in offshore wind.
•2
016 will also be key for the definition of support
for the future development of onshore wind,
after moving forward the end of the Renewable
Obligation to April 2016, with a one-year grace
period.
The business will engage in
sustainable growth, based on onshore
and offshore wind investments in the
countries most important to the group.
• It is expected that government schemes to
encourage renewables will retain a relatively stable
framework.
Mexico
•A
Clean Energy goal of 35% by 2024 has been set
in the Energy Transition Act (Ley de la Transición
Energética).
• In the renewables area, there will be auctions of
clean energy certificates. The first will take place
in March 2016 with delivery in 2018. The second
auction, which may include capacity and clean
energy certificates for 2019, will also be held in
2016.
Brazil
• T he auction model for the development of wind and
solar energy is expected to be stable. 1.2 GW of
wind and 1.8 GW of photovoltaic were awarded
under this mechanism during 2015.
• T he proper development of the transmission grid
will be increasingly important for growth of the
renewables sector, as well as the mechanisms for
integrating areas such as the North East.
/ Integrated Report 2016
53 Iberdrola’s Primary Businesses
Working inside a wind turbine
/ United States
Integrated Report 2016 /
Iberdrola’s Primary Businesses 54
Objectives, risks, and principal activities
Objectives
Principal activities 2015
• Safety in operations.
•2
015 saw the start-up of a 202 MW wind farm in
the United States and two wind farms in Mexico
with a total of 136 MW.
•E
fficiency in operations to maximise the profitability
of the assets.
•E
fficiency in construction costs, with a particular
emphasis on offshore projects.
• P rofitable growth in onshore and offshore wind
investments in the countries that are strategic for the
group.
Significant risks
• P rice uncertainty due to competitive auctions in the
markets in which it operates.
• Prices of energy and green certifications.
• Operational and technological risk.
•R
isk of access to evacuation networks and limits on
production due to technical restrictions on networks.
• T here has also been commencement/approval of
the construction of 5 wind farms with a total of
746 MW in the United States, 8 wind farms with a
total capacity of 450 MW in the United Kingdom,
and six winning projects for 174 MW from the
2014 tenders in Brazil.
• In offshore wind, there is continued progress
on the construction of the 350 MW Wikinger
offshore projects in the Baltic Sea (Germany). In
addition, the East Anglia I offshore project in the
United Kingdom has been awarded a “contract
for difference” in the first auction of this kind in
the United Kingdom, with a maximum capacity of
714 MW.
•C
ybersecurity risks with an impact on operations
centres of the facilities.
Outlook 2016-2020
• Increase in competition for the entry of new capacity, mainly via auction.
• Investments of €M 7,700, mainly to increase installed capacity in the United States, the United Kingdom, and
Brazil.
• Start-up of 3,450 MW, of which 2,440 MW are already under construction.
• Start-up of two offshore wind farms: Wikinger (350 MW) and East Anglia I (714 MW).
•C
ontinuing operational improvement, with cost savings, optimisation of useful life of the assets, and
improvement in the capacity curve.
Investment plan of €M 7,700 over the period,
of which €M 7,000 are for growth
5%
2%
International Spain
2016-2020 cash flow generation to finance
investments (€ millions)
7,800
7,700
100
Operating Cash Flow
Net Investment
Free Cash Flow
36%
United States
57%
United Kingdom
/ Integrated Report 2016
55 Iberdrola’s Primary Businesses
Key figures of the Renewables business
Spain United Kingdom
Item
United States
Mexico
Brazil
Rest of World
Total
Unit
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
Gross margin €M
728
751
368
572
736
822
51
57
42
36
108
123
2,033
2,361
Ebitda
€M
421
473
265
438
495
499
38
43
33
27
74
92
1,326
1,572
Installed
capacity
MW
5,865
5,861
1,612
1,615
5,534
5,534
231
367
187
187
621
621 14,051 14,186
Output
GWh 12,685 11,463
3,083
3,694 14,462 13,868
671
738
344
441
1,247
1,371 32,492 31,576
Load
factor
%
Investments
€M
24.7
22.3
23.4
26.2
31.0
28.8
33.2
31.5
37.2
39.1
22.9
25.2
27.2
25.7
–13.4
9.9
475.2
488.8
236.5
69.6
62.7
124.7
20.8
38.4
–23.4
3.4
758.2
734.8
Quarterly Results Report
Notes:
– The figures for the United Kingdom include those of the offshore division.
– The investment figures for Spain and Rest of World in 2014 are negative due to writeoffs and reclassifications of past investments.
The business will focus on the safety of operations and on sustainable
growth, based on onshore and offshore wind investments in the countries most
important to the group. Efficiency is a key factor for business sustainability
in the medium and long terms. Iberdrola will take technological advances
into account and will act on the supply chain to allow for improvement in the
coming years.
Load factor
Maximising the load factor of facilities,
while minimising down time through
operating and maintenance measures,
as well as other external factors.
Operation and
maintenance costs
Continuous improvement in efficiency
through global standardisation and
systematisation processes.
Project portfolio
Development of the portfolio of onshore
wind projects in the United Kingdom,
the United States, Mexico, and Brazil,
and the East Anglia 3 (United Kingdom)
and St Brieuc (France) offshore wind
projects.
Integrated Report 2016 /
Iberdrola’s Primary Businesses 56
3.5 Supply Costs, the Main
Factor in the Political and
Social Agenda
The cost of electricity supply is taking on a greater role in the political
and social agenda. The principal challenge is to reconcile safe and
environmentally-friendly supply with the use of renewable energy at prices that
are competitive and can be afforded by society as a whole.
In the European Union
In Spain
•A
n analysis of electricity prices in recent years
reveals that taxes and components associated with
energy and environmental policies have grown
the most, reaching half of the bill in countries like
Spain, due to the significant renewables effort
made by the electric sector. A competitive electricity
supply necessarily entails the elimination of cost
components outside of the service itself in the
electricity bill, and paying for these costs through
general taxes or taxes on all polluting energies.
•R
ates paid by electricity consumers include costs
deriving from the pursuit of strategic energy goals:
environmental (aid for renewable energy and
the costs of reducing CO2 emissions), industrial
(interruptibility of large consumers and aid for cogeneration), social (subsidies for electricity in nonmainland territories), economic (recovery of tariff
deficits from previous years), and public finance.
• T he strategy of the Energy Union that commenced
in 2015 responds to the need to comply with the
2030 environmental agenda (according to the
European Council in October 2014: 40% reduction
in greenhouse gas emissions, 27% increase in
renewables, and 27% improvement in energy
efficiency), monitoring the safety of supply as well
as the competitiveness of the European industry and
the need for prices that are accessible for European
citizens.
/ Integrated Report 2016
• L ess than half the costs of electricity supply are
directly related to providing the service; the rest are
subsidies and taxes. With some supply costs below
the European average, the end prices of electrical
energy for Spanish consumers are higher than the
Community average.
57 Iberdrola’s Primary Businesses
In the United Kingdom
In Mexico
• P ublic debate on energy prices has focused on
the investigation launched by the Competition and
Markets Authority (CMA).
•E
nergy reforms were launched in 2014, with one of
the key goals being to reduce system costs in order
to lower electricity prices for end users. The reform
is ongoing at the corresponding regulatory bodies:
the implementing act is already approved and
the various market instruments are being put into
operation.
• T he increase in costs unrelated to energy, such as
those associated with networks and government
support systems, have restricted an expansion of the
reductions in energy prices.
• T he fall in commodities prices during 2015 has
allowed for a reduction of the CFE’s tariff.
In the United States
• T ariff revisions currently under discussion or
preparation reflect pressure by regulators to
limit returns on capital, while at the same time
maintaining the investments required to improve the
network infrastructure.
• T he closure of coal plants and the new regulation
developed by the Environmental Protection Agency
(EPA) may increase pressure on gas and electricity
prices, although shale gas production may limit this
impact.
•R
estrictions on transporting natural gas by pipeline
in the Northeast could lead to volatility in electricity
market prices during periods of extreme weather.
• T he development of smart grids, the rapid
replenishment of supplies in the face of extreme
weather conditions, new EPA regulations, and
the integration of new energy sources into the
system require major investments, which sometimes
conflicts with the desire to limit compensation to the
companies.
In Brazil
• T o cover the high costs from the long period of
drought, “tariff realism” has been applied by which
extraordinary tariff revisions and a readjustment
of the “tariff flags” has rebalanced the economic/
financial equilibrium of the distributors.
•2
015 was marked by negotiations of hydrological
risk, which culminated with the approval of law
13,203/2015. This allows hydroelectric generators
to voluntarily assign hydrological risk in exchange
for a premium, obtaining funds from a power
production cost overrun offset mechanism, called
“tariff flags”.
Iberdrola will support frameworks
that expand market deregulation
and transparency and that provide
incentives for required investments
and efficient operations, through tariff
structures that give efficient signals to
consumers and do not penalise them
with costs unrelated to the supply of
electricity.
Integrated Report 2016 /
Our Assets 58
West of Duddon Sands
offshore wind turbines
/ United Kingdom
/ Integrated Report 2016
59 Our Assets
4.
Our
Assets
Iberdrola’s assets are the basis for the creation of value by
the Company, which carries out its activities through the sound
management thereof.
In this report, Iberdrola’s assets are identified in accordance with the
IIRC classification system:
• Financial Capital
• Manufactured Capital
• Intellectual Capital
• Human Capital
• Natural Capital
• Social and Relationship Capital
Integrated Report 2016 /
Our Assets 60
4.1 Financial Capital
Balanced
growth
Management Approach
Results 2105
Outlook
The Company has an investment
policy consistent with its strategic
vision and financial policy. The
main goals are:
• Total investment of €M 3,223, with almost
91% channelled into regulated businesses.
• Strict investment criteria based on
earnings security, project profitability, and
strategic fit.
• Ensure a return on capital
through projects and
investments preferably
in regulated businesses,
renewable assets, or long-term
contracts.
• Increase geographic
diversification, further
balancing the contribution of
the countries in which it does
business.
• The United Kingdom was the country
absorbing the highest volume of
• Selection of businesses and countries with
investments, with 46% of the total, followed predictable and stable regulation.
by Spain with 20%, the United States with • Net investment of more than €M 24,000
16%, and Mexico with 15% of the amount
over the 2016-2020 period, of which
invested.
88% will be dedicated to regulated
businesses, renewables, or long-term
contracts.
• The United Kingdom will continue to
be the area with the highest volume
of investments, with 39% of the total,
followed by the United States with 34%,
Spain with 16%, and Latin America
with 11%.
• Tailor investment levels to the
actual needs of each market.
Solid
financial
structure
• Iberdrola considers financial
strength to be one of the
strategic cornerstones that
allows it to successfully face
potential turbulence in the
markets and to be in a position
to exploit growth opportunities
in the countries in which it does
business.
• Gross margin of €M 12,843, growing by
5.4%.
• The financial policy seeks
stabilisation and subsequent
improvement in solvency
ratios, balancing an increase
in debt with the generation of
additional cash flow from new
investments.
• Pro forma net debt is practically the same,
as the generation of cash flow offsets
the impact of the appreciation in foreign
currency. The merger of UIL adds €M
2,406, putting the year-end figure at €M
28,067.
• The debt structure is in line
with the profile of the business,
which is mostly regulated, and
the composition thereof reflects
the results obtained in the
relevant currencies.
• Net profit of €M 2,422, a 4.1% increase
over the prior year. Recurring net profit
was €M 2,261 (+7.0%), as a result
of the favourable performance of the
businesses.
• Cash flow of €M 5,907 (+8.2%).
• Liquidity of more than €M 8,000, which
covers more than 36 months of financing
needs.
• Average annual Ebitda and net profit
growth of approximately 6% during the
2016-2020 period.
• Average annual net investments of
approximately €M 4,800, compared to
average annual cash flow generation
(FFO) of €M 6,900.
• As a result of the investment process,
increase in net debt to approximately €M
31,000 between 2018 and 2019, and
subsequent decrease to €M 30,000 by
2020.
• Progressive improvement of the net debt/
Ebitda and operating cash flow/net debt
financial ratios.
• Optimisation of the liquidity position to
cover financing needs for 24 months.
Operational
efficiency
• The current macroeconomic and
regulatory environment requires
an additional effort to keep
operating costs under control.
• Net operating expense increases 5.4%
due to the effect of the appreciation of
the pound and the dollar. Excluding this
impact, it would have decreased by 1.6%.
• Progressive absorption of the increase in
expenses, which will grow less than gross
margin during the 2016-2020 period,
maintaining an industry-leading position
of leadership in cost efficiency.
Sustainable
results and
dividends
• Iberdrola offers its shareholders
an industrial enterprise for the
long-term creation of value. The
confidence of its shareholders
enables Iberdrola to secure the
resources needed to move its
enterprise forward.
• Shareholder remuneration of 0.28
euro per share, equal to a dividend yield
of 4.21%
• Increase of dividend to 0.28 euro per
share, with a charge to 2015 profits.
• Flexible dividend offering tax benefits.
• Maintenance of the flexible dividend
programme.
• Target of maintaining the number of
shares at 6,240 million, neutralising
the capital increases associated with
implementation of the flexible dividend
programme.
• Potential growth in shareholder
remuneration, in line with the increase
in results, based on a payout ratio of
between 65% and 75%.
/ Integrated Report 2016
61 Our Assets
Create value for the shareholder with sustainable growth
Net Debt (€M)
Ebitda by business 2015
Cash
payment to
shareholders
28,067
150
541
Net
debt
436
–716
758
UIL debt
6%
Regulated
Wholesale
Generation
27,917
25,661
25,183
dec-2014
Renewables
1,865
25,619
Deficit
25%
Liberalised Wholesale
and Retail
21%
Funds from
operations
Tc
Impact
dec-2015
(excluding
UIL)
UIL
Impact
48%
Networks
dec-2015
Pro forma Net Debt is practically the same, as the generation
of cash flow offsets the impact of the appreciation in foreign
currency. The merger of UIL adds €M 2,406 (value at 31
December 2015), putting the year-end figure at €M 28,067.
Debt structure by currency in 2015
Maturity of financial debt* (€M)
16.0
1%
Reais and others
14.7
14.0
12.0
49%
30%
Euro
Dollar
10.0
8.0
6.0
4.0
2.7
2.0
2.2
3.2
3.3
3.1
2018
2019
2020
20%
Pound
0
2016
2017
2021+
Includes €M 1.5 in notes. Includes €M 1,865 of UIL debt
(value at 31 December 2015).
Debt structured by origin of cash flow earned in each
currency. Includes derivatives to hedge net investment.
Comfortable maturity profile.
Investment by geographic area 2015
15%
Mexico
3%
Brazil
Gross margin by business 2015
2%
Other Businesses and Corporation
20%
Spain
18%
Renewables
37%
Liberalised
16%
United
States
46%
United Kingdom
Diversification of investments, with a heavy concentration
outside of the euro zone.
43%
Networks
Integrated Report 2016 /
Our Assets 62
4.2 Manufactured Capital
Electric power
generation
assets
Size
Principal Activities 2015
Outlook
• Iberdrola’s generation assets
comprise nearly 300 wind
farms, almost 90 hydroelectric
power plants (in addition to the
mini-hydro plants), 34 thermal
power stations using various
technologies, 5 of which are
nuclear, and other facilities
built and operated according to
the best available practices.
• ISO 9000 certification has been
attained for the operation of wind
farms in Spain and the United
Kingdom.
• Almost 1,400 MW of onshore wind (450 MW
United Kingdom, 746 MW United States, and
174 MW Brazil) and 1,060 MW offshore wind
(350 MW Wikinger and 714 MW East Anglia I)
under construction.
• In Mexico, construction will continue on
1,450 MW in combined cycle and 160 MW in
cogeneration.
• In Portugual, there is continued construction of
the Tamega hydro complex, with 1,160 MW.
• In Brazil, work continues on the construction
of the Baixo Iguazu (350 MW total) and Belo
Monte (11,233 MW total) hydroelectric plants,
through Neoenergia.
Power
transmission
and distribution
assets
• Iberdrola’s electricity
transmission and distribution
networks comprise over
30,000 km of transmission
lines, over 1 million km of
distribution lines, roughly
4,000 substations and over
1.4 million transformers, built
and operated to supply a highquality, reliable service.
• The Maine Power Reliability Project
in Maine has been completed. This
began in 2010 and entailed an
investment of more than $M 1,400.
• The DPCR5 regulatory period has
ended in the United Kingdom. During
its 5-year term (2010-2015), it has
made a fundamental leap forward in
renewal of the distribution networks
in Scotland and Wales.
• Significant proposed transmission projects in
the State of Maine to allow for the construction
of two wind farms that will help to meet the
demands for renewable generation in New
England by 2020.
• Investments in the United Kingdom transmission
network, to improve the reliability and quality
of supply. Especially noteworthy is a subsea
cable linking the networks of Scotland and
England (Western Link).
• Development of the P2020 strategic project in
Spain, aimed at achieving increased efficiency,
operational safety, and quality of supply.
Other Assets
• Iberdrola manages more
than 680,000 m2 of offices
throughout the world, with
a total of 769 properties,
of which 358 are located
in Spain, 44 in the United
Kingdom, 117 in the United
States, 231 in Brazil, and 19
in the rest of the world. These
properties are designed, built,
and operated in accordance
with sustainability and
efficiency standards.
/ Integrated Report 2016
• All of the real property in Spain is
covered by a certified environmental
management system in accordance
with the ISO 14001 standard, with
the scope being expanded this year
to the offices in Portugal (Porto and
Lisbon) and to the United Kingdom
(Ochil House).
• The headquarters in Madrid and
Bilbao also have a certified energy
management system in accordance
with the international ISO 50001
standard.
• Expansion of the scope of the energy
management system at the main properties in
Spain, in order to understand energy use and
consumption. This information is obtained by
implementing control systems and defining
base lines.
• 2016 is expected to see the completion
of phase I of the San Augustín Campus
construction project and the new ScottishPower
headquarters in Glasgow; both projects under
a LEED certification for sustainable building.
63 Our Assets
Offer a secure supply of energy that is competitive in price and quality
Average availability factor of Iberdrola’s generation facilities (%)
86
81
Conventional thermal
75
91
92
Combined cycles
93
91
96
Cogeneration
91
89
93
Nuclear
Ibedrola’s
average:
87.11%
89
87
85
Hydroelectric
85
97
94
Mini-hydro
95
97
Wind
97
97
0
50
2013
2014
100
2015
Quality of electricity supply
Property, plant, and equipment (€M)
56,602
Average power
outage duration
2014
2015
50,983
46,857
Spain
TIEPI (m)
55.7
61.9
United Kingdom
CML (m)
44.0
34.8
United States
CAIDI (h)
1.89
1.89
Brazil
DEC (h)
19.93
18.81
2014
2015
47.837
Power outage
frequency
Spain
NIEPI (number)
1.07
1.20
United Kingdom
CI (ratio)
48.0
40.1
United States
SAIFI (index)
1.23
1.21
Brazil
FEC (frequency)
7.62
7.22
4,347
4,124
5,187
2013
2014
2015
In progress
Operating
TIEPI: Installed Capacity Equivalent Interrupt Time.
CML: Customer Minutes Lost Per Connected Customer.
CAIDI: Customer Average Interruption Duration Index.
DEC: Equivalent Duration of Interruption by Consumer Unit.
NIEPI: Installed Capacity Equivalent Interrupt Number.
CI: Customer Interruptions Per 100 Connected Customers.
SAIFI: System Average Interruptions Frequency Index.
FEC: Equivalent Frequency of Interruption by Consumer Unit.
Integrated Report 2016 /
Our Assets 64
4.3 Intellectual Capital
Promotion
of R&D
Management
Approach
Principal
Activities 2015
Outlook
• Innovation is Iberdrola’s primary
tool for ensuring the Company’s
sustainability, efficiency, and
competitiveness. R&D efforts are
aimed at optimising operational
conditions, improve security, and
reduce environmental impact.
• Significant increase in R&D investment: €M
200 in 2015, a 18% increase over 2014.
• Development of the R&D Plan
2015-2017.
• More than 200 R&D projects, with
initiatives relating to smart grids, clean
generation, offshore wind power, and new
business technologies and models.
• Strengthening of an open and
decentralised international
management model that
prioritises collaboration with
technology providers and
the promotion of employee
innovation.
Innovation Report
Efficiency and
new products
and services
• Continuous optimisation of our
operations, management of the
lifecycle of facilities and equipment,
reduction in operating and
maintenance costs, and decreasing
environmental impact.
• Development of new and competitive
products and services that adapt to
an increasingly global market, the
main goal of which are to meet the
needs of customers.
Disruptive
technology
and business
models
Through Iberdrola Ventures-Perseo, the
Company’s corporate venture capital
programme, investments are made
in disruptive technologies and new
businesses to ensure the sustainability
of the energy model. Lines of activity:
• Customer-Focused Solutions: energy
efficiency, demand management,
green mobility, etc.
• Distributed Energy Resources:
innovative generation and storage
solutions.
• Renewable Energy: technologies
related to renewable generation
(solar, wind, offshore).
• New technologies applied to the
operation and maintenance of energy
infrastructures: robots, sensors,
software, etc.
/ Integrated Report 2016
• Iberdrola has been given the National
Innovation and Design Award 2015 in the
category of “Internationalisation”.
• New category of products that allow
customers to choose the plan that best suits
their lifestyle, without needing to change
their consumption habits.
• New products and services in the areas
of energy efficiency, electric vehicles,
smart grids, and distributed generation.
This includes Smart Solar Iberdrola,
through which customers can generate
and consume their own electrical power,
optimising consumption and improving the
energy efficiency of their facility.
• Continue to promote R&D projects.
• Positioning as innovation leaders
on prestigious external indices
and ratings.
• Foster the creation of new
business opportunities for
Iberdrola.
With an investment of more than €M 50 since
2008. The main activities in 2015 included:
• Ensure Iberdrola’s access to the
energy technologies of the future.
• Investment alongside CDTI in the Basque
company Atten2, a spin-off of IK4TEKNIKER with headquarters at the
Guipúzcoa Technology Park in Eibar. The
company is specialised in the design,
manufacture, and sale of sensors to
monitor fluid flows, primarily lubricating
oil, in industrial applications. Its first
products, OilHealth and OilWear, are
sensors used for monitoring oil in wind
turbines.
• Foster entrepreneurship and the
development of an innovative
entrepreneurial fabric within
the energy sector: investment in
initiatives with a high social and
job creation component.
• In the social investment sphere, investment
in SunFunder, which has built a funding
platform to allow financial investors and
companies to participate in a diversified
portfolio of off-grid solar projects in
emerging market countries in Africa, Latin
America, and Asia. To date, SunFinder
has financed more than 5 million dollars
in projects, to the benefit of more than
360,000 users.
• Establish alliances with key
technology providers for Iberdrola
(Open Innovation Ventures).
• Through the Innvierte programme
alongside CDTI, use public and
private venture capital to develop
and strengthen innovative
technological startups with high
growth potential in Spain.
65 Our Assets
Highlight the value of the Company’s intangible assets
Main R&D research projects
Renewable
energy
•V
arious projects to improve the efficiency of assets and models for the design of wind farms. Diagnosis
Matrix Project to diagnose anomalies and prevent failures of wind turbines.
•C
ontinuation of OWA activities in the United Kingdom to reduce costs and the implementation risk of
offshore wind technology. Floating Lidar project, to replace fixed meteorological towers with floating
stations using an alternative measuring system known as “Lidar”.
• Integration of renewable energies. SmartWind project, which implements models and simulations for
the use of wind farm-related storage to provide standby services.
Smart
Grids
•C
ompletion of the Price project, the goal of which was to meet the needs identified for the development
of a smart grid within an efficient, safe, and sustainable framework.
•U
pGrid project for the integration of active demand and low-voltage distributed generation.
• T he Arc, Flexnet, and Visor projects are being carried in the United Kingdom to strengthen smart grids.
Clean
generation
• T he CO2Formare project to capture CO2 emitted by generation plants and use it to replace sodium
hypochlorite to resolve the problem of “macrofouling” in a sustainable manner while reducing the
environmental impact on both atmospheric emissions and that aquatic environment.
•S
ignificant progress was made on the Filtraciones Project, with the development of a new methodology
for efficiently inspecting water channels.
Investments in R&D (€M)
+174%
200
170
159
145
130
136
91
73
2008
2009
2010
2011
2012
2013
2014
2015
Integrated Report 2016 /
Our Assets 66
4.4 Human Capital
Global human
resources
management
Management
Approach
Principal
Activities 2015
Outlook
• Achieve the goals of competitiveness
and business efficiency in a climate of
social peace, fostering stable, highquality employment.
• Implementation of the project for global
consolidation of the Human Resources
Model (OneHR project) at Elektro.
• Strengthen the commitment to social
responsibility, fostering ethical and
responsible behaviour.
• Management of an appropriate
labour relations framework that can
be adapted to suit business and social
requirements.
• Consolidate the Human Resources
function at AVANGRID, extending and
unifying best practices.
• Attainment and/or maintenance
of the OHSAS 18001 certification,
and approval of a system of global
prevention standards in accordance
with the group’s policy. Assessment
of level of conformance to global
standards.
• Continue with assessment of level of
conformance to global standards and
the implementation of improvement
groups to promote safe behaviour.
• Monitoring of proactive and reactive
indicators among the group’s
companies for the global scorecard.
• Analysis of incident rate and
establishment of goals for a global
model for the management of
occupational health and safety at
subcontractors.
• Harmonise human resources processes
and make inroads with implementing
the Iberdrola culture in all countries,
respecting specific local conditions.
Goal of
“accident
reduction”
• Prioritise the safety of individuals
at the group’s facilities and within
its sphere of influence, fostering a
progressive reduction in incident rates
and improving health and safety
conditions.
• Replicate throughout the group the
best practices identified in the area
of occupational health and safety,
fostering a culture of excellence in
management and coordinating global
preventive activities.
Talent
management
• Drive staff qualifications, preparing
employees to work in a multicultural
environment and making continual
efforts to improve their employability.
• Develop alternatives to compensate
for factors stemming from the ageing
of the workforce.
• Define a framework to develop a
global quality management system.
• Continue harmonisation and
monitoring of goals.
• Continue developing certifications of
the group in accordance with OHSAS
18001.
• Identification and application of best
safety practices/Exchange of lessons
learned/Creation of groups to promote
safe behaviour.
• Global campaigns to raise awareness
on certain types of common accidents.
• Promotion of job and international
mobility within multicultural teams.
• Strengthen the talent and leadership
development management model at
the international level.
• Review of the programmes and
initiatives at the Management School,
launch of the mobile version of
e-leaders.
• Expansion of the professional training
and development model to other
countries (Mexico and Brazil).
• Unification of the process for
identifying the group with potential for
management development.
• Define the global SSL strategy for the
coming years.
• International certification of training
quality.
• Define and implement the Global
Development Roadmap for the
Iberdrola group.
• Global executive talent management.
• Campaign to encourage Gender
Equality in hiring processes.
Diversity, equal
opportunity,
and
reconciliation
• Guarantee a social model committed
to professional excellence and the
quality of life of our employees.
• Development of labour relations
based on equal opportunity, nondiscrimination, and respect for
diversity.
• Create a high-quality working
environment by committing to
reconciliation.
• In the countries in which the Company
operates, foster a position of
leadership in these areas similar to
that enjoyed in Spain.
/ Integrated Report 2016
• International cultural exchange
programmes.
• Corporate Volunteerism focused
on the integration of vulnerable
groups, including: “International
Volunteering Day”, the “Sao Paulo 2.0”
international volunteering programme,
the “Luces y Acción” (“Lights, Action”)
programme, and the “IBERDROLA
con los refugiados” (“IBERDROLA for
refugees”) project.
• Joining in the “Engineering Foundation
Programme” in the United Kingdom
and renewal of “Troops to Energy” in
the United States and “Energy for the
future” in Brazil.
• Increase in team pride, workforce
satisfaction, job commitment, and
productivity.
• Foster improvements in the quality of
people’s lives through social-welfare
activities in all of the countries in
which the Iberdrola group has a
presence, creating a global volunteer
community.
• Promote the internationalisation of
social programmes and strengthen
ties among the employees of the
group at the global level.
67 Our Assets
Ensure the availability of a committed, qualified workforce in a safe and
stable environment
Growth and geographic diversification of the workforce
2006: 16,155 employees.
2015: 30,938 employees
22%
1%
Latam
7%
Affiliates
Other
15%
Latam
34%
Spain
78%
Spain
22%
United
States
21%
United Kingdom
Key Figures
/ page 10
Commitment to people
Social recognition
• Iberdrola Sao Paulo Volunteerism 2.0-2015
• “My guest” cultural exchange programme 2015.
• Iberdrola: top preferred company to work for in
Spain in the energy sector and 7th place generally
among companies in Spain.
First MBA Iberdrola graduates 2015-2016
in “Global Energy Industry”
• Elektro: again chosen as best company to work for
in Brazil.
Incident rate (2012-2015): gradual reduction
1.20
1.00
0.29
0.32
0.80
0.92
0.26
0.21
0.72
0.65
0.77
0.60
0.40
0.20
0.00
2012
Subcontracted
2013
2014
2015
Company personnel
37.5% in subcontracted personnel and 36.4% in Company personnel.
Integrated Report 2016 /
Our Assets 68
4.5 Natural Capital
Environmental
management and
biodiversity
Management
Approach
Principal
Activities 2015
Outlook
• Actively promote environmental
contemplating the life cycle
and biodiversity due to the
repercussions thereof on the
availability of natural resources
and its ties to social development.
• New environmental projects from the
product life cycle perspective.
• Broader implementation of the ISO
14001 standard.
• Development of the Iberdrola group’s
Environmental Footprint.
• Verification by AENOR of the
organisation’s Environmental
Footprint.
• Inform and raise awareness, both
internally and externally, of the
compatibility of the Company’s
activities with the protection,
conservation, and sustainable use
of the natural environment.
• The Comprehensive Environmental
Management System has been
expanded in Portugal.
• ISO 14001 certification of the
Integrated Management System in the
United Kingdom.
• Development and certification of
Environmental Product Declaration
(EPD) for the kWh produced by the
Degollada and los Lirios wind farms.
• Participation in the Biodiversity Pact
(Pacto por la Biodiversidad) working
group.
• Development of EDP for an offshore
wind farm.
• Certification of a Sustainable
Shareholders’ Meeting.
• Restoration, recovery, improvement,
and maintenance of surroundings and
habitats.
• Identification and classification of
the biodiversity in the vicinity of
Iberdrola’s facilities and dissemination
of the knowledge acquired.
• Assessment of ecosystemic services
generated by infrastructure.
Prevention
of pollution
• Prevent pollution and the emission
of greenhouse gases through
practices that reduce or eliminate
the production of pollutants at
source.
• Reduce emissions per GWh
produced via the installation
of desulphurisation units, the
introduction of improvements
to the combustion process, and
the decommisisoning of less
environmentally efficient units.
• 25% reduction in intensity of CO2
emissions per kWh produced since
2007.
• Achieve a 50% reduction in emissions
intensity by the year 2030 in
comparison to 2007.
• Thermal emission factor has decreased
from 476 gr/thermal kWh generated
in 2014 to 461 gr/kWh generated in
2015.
• Carbon neutral by 2050.
• Increase in emission-free installed
capacity to 63%.
• Registration of verified carbon footprint
by the Spanish Ministry of Agriculture,
Food, and Environment.
• Develop innovation projects geared
towards reducing pollution.
• Actively participate in achieving
the Sustainable Development Goals
approved in September 2015 (goals
6, 7, and 13).
• New commitment to reduce emissions
and actively participate in the Paris
Climate Change Conference.
• Preparation of new sustainable mobility
plan.
Operating
excellence
and energy
efficiency
• The performance of activities that
foster environmental conservation
will enable Iberdrola to improve
its competitiveness, with greater
efficiency in the production and
use of energy.
• Activities aimed at continual
improvement to increase energy
efficiency and promote the use of
environmentally friendly resources.
• Development and promotion of
ecodesign initiatives.
• Reuse of waste from thermal coal
plants.
• Make progress in the optimisation
of waste management: circular
economy.
• Life-cycle and green purchasing
analysis.
• Efficient management of scarce
resources such as water is a
priority for the Company.
Waste
management
• Non-hazardous waste is managed
via environmental management
systems, which set targets for
waste reduction and the use of
recycled material.
• The production and disposal of
hazardous waste is carried out
in accordance with the strict laws
applicable in each country.
/ Integrated Report 2016
• Carry out waste minimisation plans,
recycling plans, and awareness
campaigns aimed at employees.
• Draw up economic/financial analyses
of the best waste management
strategies.
69 Our Assets
The environmental dimension is a key factor in the concept of sustainability
CO2 emissions at companies in the sector
Production of Iberdrola plants using local
energy sources in the countries in which
it operates
(Carbon factor in kg of CO2/MWh)
DEI
1,110
RWE Group
Iberdrola average
88%
Spain*
87%
740
Drax
Scottish & Southern
72%
United Kingdom
583
84%
United States
470
100%
Mexico
CEZ
446
78%
Brazil
Vattenfall
0%
420
EDP Group
413
E.ON Group
A2A
Enel Group
Intensity of emissions at the thermal plants
of the group (CO2/MWh )
409
600
476
461
2013
2014
2015
400
360
Engie
483
500
363
EnBW
100%
410
395
Gas Natural Fenosa
50%
* Nuclear fuel acquired from the Spanish company Enusa is considered a
local source.
300
356
200
Dong
272
Iberdrola
Volume of recovered, reused,
or recycled waste (t)
178
PVO
350,000
141
311,836
300,000
EDF Group
250,000
83
200,000
Verbrund
52
150,000
Fortum
153,487
143,376
139,020
128,281
100,000
39
50,000
Statkraft
3
250
0
2012
500
2013
750
1.000
2014
European carbon factor 2014: 313 kg CO2 /MWh
0
8,608
2011
Hazardous
11,583
2012
7,768
2013
14,433
2014
Non-hazardous
K
ey Figures / page 10
Source: “Facteur carbone européen Comparaison des émissions de CO2
des principaux électriciens européens” PwC France. Nov 2015
Integrated Report 2016 /
7,512
2015
Our Assets 70
4.6 Social and Relationship
Capital
Stakeholder relations
Iberdrola wants to strengthen trust and the connection to institutions and companies in its environment, maintaining
responsible relations with groups that affect or are affected by the activities carried out by the Company
(Stakeholders).
Management Approach
Principal Activities 2015 and Outlook
Iberdrola’s strategic approach sets great store by its relations
with Stakeholders, giving importance to the dual facets of
this relationship:
• In terms of social responsibility, meeting their expectations
and needs.
• In terms of reputation, managing Stakeholders’ perception
of the Company.
• Updating the channels of communication with
Stakeholders to identify the most important issues and
provide a well balanced, reasonable response thereto.
•M
onitoring of the AA1000 Assurance Standard, in
accordance with the principles of inclusiveness, materiality,
and responsiveness established in such standard, both
in the businesses as well as in the corporate areas of the
group. The AA1000 standard will continue to be advanced
and applied throughout the Company in the coming years.
• The Board of Directors approved a Stakeholder Relations
Policy, which has undergone an exhaustive review
by a working group in which external experts have
participated.
A materiality analysis allows for
prioritisation of the issues most important
to the Company’s Stakeholders.
Materiality
Materiality analysis
A study of materiality allows for prioritisation of the issues most important to the Iberdrola’s Stakeholders. The chart below
summarises the main issues.
In the Sustainability Report 2015 Iberdrola explains the management approaches taken by the Company in regard to these
significant issues and any results achieved during the financial year.
2015 Iberdrola Group Materiality Analysis
Material matters
4
12
4.
5.
6.
7.
1
7
5
6
2
3
11
Priority for Stakeholders
10
1. Business innovation and opportunities
2. Economic performance and fiscal transparency
3. Customer satisfaction
9
8
Development of renewable energy
Electricity generation
Climate change strategy
Electricity and gas supply
8. Human rights
9. Attraction and retention of talent
10. Socioeconomic impact on the local community
11. Health and safety of employees and contractors
12. Access to energy for vulnerable customers
Other identified matters
Anti-corrupción
Unfair competition and monopolistic practices
Public policy
Supply chain management
Priority for Strategy
Economic dimension
Environmental dimension
Social dimension
/ Integrated Report 2016
Environmental performance: operating efficiency
Environmental impact management
Biodiversity impact management
Water use management
Labour practices
Development of human capital
Social-welfare actions
Physical security of facilities (community)
71 Our Assets
Community support and electricity access programmes
Primary programmes
Iberdrola group foundations
Activities 2015
Activities 2015
•C
ontribution of €M 38 to the community, measured
according to the London Benchmarking Group (LBG)
international standard, in the countries in which Iberdrola
operates.
• Iberdrola has implemented a new foundation structure
that entails having a foundation in the countries in which
it does business. Each foundation is linked to Iberdrola’s
country subholding company in Spain, the United
Kingdom, the United States, Mexico, and Brazil.
• International corporate volunteering programme, offering
more than 8,000 volunteering opportunities to employees
in Spain, the United Kingdom, the United States, Mexico,
and Brazil.
•E
ntrepreneurial support: over €M 36 of procurement
from companies in operation for less than 5 years, and
€M 70 in venture capital for new initiatives with high
technological value.
• P rogrammes and pricing to aid vulnerable groups in
Spain, the United Kingdom, the United States, and Brazil.
•R
ural electrification programmes in Brazil, to which over
€M 8 has been allocated on a consolidated basis.
• P rogrammes implemented by the foundations created by
Iberdrola in the principal countries in which it operates.
•D
evelopment of the Programa Electricidad para todos
(Electricity for All Programme).
Electricity for All
• T he Sustainable Development Goals (SDGs) 2015-2030,
approved at the UN Sustainable Development Summit
in New York (September 2015), entail the recognition of
energy as an engine of sustainable growth.
• T he Electricity for All Programme is Iberdrola’s response to
this demand to extend universal access to modern forms
of energy, with environmentally sustainable, financially
affordable, and socially inclusive models. This initiative is
focused on sustainable electrification activities in emerging
and developing countries.
• Iberdrola has set itself the goal of reaching 4 million
beneficiaries of this programme by 2020. At year-end
2015, the programme already exceeded 1.4 million users.
•A
s regards the activities themselves, it has adapted and
promoted the four areas of the Master Plan:
– Training and research
– Art and culture
– Sustainability and biodiversity
– Cooperation and community service (solidarity)
• In the training area, Iberdrola’s Scholarships and Research
Assistance Programme gave a total of 115 scholarships
for students in the five aforementioned countries in 2015.
• In the area of art and culture, projects in Spain included
the illumination of special buildings and museums,
including the Lighting the Prado project and the Atlantic
Romanesque restoration project.
• In the area of sustainability and biodiversity, there have
been multiple collaboration projects with educational and
environmental centres in these five countries.
• T he area of cooperation and community service
(solidarity) includes the Iberdrola España Social Assistance
programme, which supports more than 30 social-welfare
projects annually.
Programme results 2015
Contribution by region (%)
26%
Mexico and Brazil
35%
Spain
5%
United States
Economic value distributed (€M)
Item
2014
2015
Procurement from suppliers
4,599
5,093
Payments to providers of capital
2,753
1,646
Payments to government administrations
2,445
2,746
Employee remuneration
2,086
2,187
Sustainability Report
• It has also created a Foundations Committee, an internal
body that must ensure the proper coordination of all of the
foundation-related activities of the Iberdrola group.
34%
United Kingdom
Contribution by programme (%)
11%
4%
Energy
sustainability
Other
26%
Socioeconomic
development
19%
Cooperation
and community
service
14%
Education
and training
26%
Art and culture
Integrated Report 2016 /
Our Assets 72
Soundness and strength of the brand
Corporate reputation
•M
anagement of the brand in such a way that it transmits
the principles set out in the Mission, Vision, and Values of
the Iberdrola group and reflects the Company’s strategy of
commitment to the environment.
• Iberdrola’s Reputational Management Model progressed
in the improvement of tools to understand the opinion of
Stakeholders during 2015.
•C
onsolidation of an international brand, strengthening
communication and alignment under a single brand
positioning strategy in the countries in which the Company
operates.
Brand value* (€M)
1,036
996
794
872
+120%
670
470
484
2003
2005
2007
2009
2011
2013
2015
* Source: Ranking of Best Spanish Brands by Interbrand.
Evolution of the digital ecosystem
• Offer of useful and dynamic information, with messages
adapted to each stakeholder.
• Facilitate direct interaction with our stakeholders,
overcoming barriers and making use of existing synergies.
Iberdrola on social media and the Internet
Twitter
Linkedin
Slideshare Google+
Youtube
Pinterest
Flickr
Unience
Facebook
Instagram
Web
Blog
/ Integrated Report 2016
• To strengthen this understanding, an analysis and
intelligence department has been established to properly
respond to the specific needs of the Stakeholders.
• In 2015, the drive to evaluate the group’s reputation
allowed for an evaluation of the Company’s reputation
within 12 groups or subgroups, using the international
Reptrak standard.
1. Society
2. Shareholder
3. Employees
4. Employees’ family environment
5. Former employees
6. Competitors
7. Environment
8. Customers
9. Loyal customers
10. Potential customers
11. Former customers
12. Non-customers
• This evaluation has contributed to the Company’s
materiality analysis and to understanding the level of
alignment between Iberdrola’s actions and the perceptions
of its Stakeholders.
• It has also contributed to the implementation and
improvement of the recommendations of the Reputation
Plan 2015-2017 during this financial year.
• The improvement in coordination with the departments
responsible for Stakeholder relations has allowed for
progress in managing reputation risk, in the application of
the Company’s Reputational Risk Framework Policy, and in
the international standardisation of the types of activities
with reputational impact.
• Advances in the progressive integration of online and
offline listening tools favour the detection of reputational
opportunities to differentiate Iberdrola from the rest of the
industry, as well as to better understand the reputational
and media context.
• Based on the Stakeholder Relations Policy, a department
was created in 2015 to further the development of this
policy and thus to assist in improving reputation.
73 Our Assets
Prado Museum Restoration Workshop / Spain
© 2015 National Heritage
Integrated Report 2016 /
A Framework of Trust 74
Iberdrola tower, Bilbao
/ Spain
/ Integrated Report 2016
75 A Framework of Trust
5.
A
Framework
of Trust
Integrated Report 2016 /
A Framework of Trust 76
5.1 Corporate Governance
Model
Foundations of Iberdrola’s corporate governance model
A. Corporate Governance System
Iberdrola is a multinational leader in the energy industry
that seeks to create value in a sustainable manner for
society, citizens, customers, and shareholders; which
innovates and uses environmentally-friendly energy
sources and considers its employees to be a strategic
asset; committed to social return through all its business
activities, generating employment and wealth in its
environment, all within a strategy of social responsibility
and compliance with tax regulations.
Iberdrola has adopted a Corporate Governance System
made up of the Mission, Vision, and Values of the
Iberdrola group, By-Laws, Corporate Policies, Internal
Corporate Governance Rules, and other internal codes
and procedures, all available at www.iberdrola.com.
The content thereof is inspired by and based on a
commitment to best corporate governance practices,
business ethics, and social responsibility in all of its areas
of activity.
Position
Director
Status
Date of last
appointment
Ending
Date
Chairman & CEO
Mr José Ignacio Sánchez Galán
(Salamanca, Spain, 1950)
Executive
27-03-2015
27-03-2019
Director
Mr Xabier de Irala Estévez
(New York, United States, 1946)
Proprietary
22-06-2012
22-06-2016
Director
Mr Íñigo Víctor de Oriol Ibarra
(Madrid, Spain, 1962)
Other external
22-06-2012
22-06-2016
Director
Ms Inés Macho Stadler
(Bilbao, Spain, 1959)
Independent
22-06-2012
22-06-2016
Director
Mr Braulio Medel Cámara
(Marchena, Seville, Spain, 1947)
Independent
22-06-2012
22-06-2016
Director
Ms Samantha Barber
(Dunfermline, Fife, Scotland, United Kingdom, 1969)
Independent
22-06-2012
22-06-2016
Director
Ms María Helena Antolín Raybaud
(Toulon, France, 1966)
Independent
27-03-2015
27-03-2019
Director
Mr Santiago Martínez Lage
(Betanzos, A Coruña, Spain, 1946)
Independent
27-03-2015
27-03-2019
Director
Mr José Luis San Pedro Guerenabarrena
(Bilbao, Spain, 1946)
Other external
27-03-2015
27-03-2019
Director
Mr Ángel Jesús Acebes Paniagua
(Ávila, Spain, 1958)
Independent
27-03-2015
27-03-2019
Director
Ms Georgina Kessel Martínez
(Mexico City, Mexico, 1950)
Independent
28-03-2014
28-03-2018
Director
Ms Denise Mary Holt
(Vienna, Austria, 1949)
Independent
27-03-2015
27-03-2019
Director
Mr José W. Fernández
(Cienfuegos, Cuba, 1955)
Independent
27-03-2015
27-03-2019
Director
Mr Manuel Moreu Munaiz
(Pontevedra, Spain, 1953)
Other external
27-03-2015
27-03-2019
/ Integrated Report 2016
77 A Framework of Trust
B. Governance model
Appropriate differentiation between the duties of
strategy and supervision and those of guidance and
management:
• T he Board of Directors of Iberdrola, made up of
a large majority of independent directors, focuses
its activity on the determination, supervision, and
monitoring of the strategies and general guidelines
that must be followed by the group.
• T he chairman of the Board of Directors & chief
executive officer and the rest of the management
team are responsible for the organisation and
strategic coordination of the group, through the
dissemination, implementation, and monitoring of
the overall strategy and basic guidelines.
• In all of the countries in which the group operates,
organisation and strategic coordination is
implemented through country subholding companies,
which group together equity stakes in the energy head
of business companies carrying out their activities in
the respective country and centralise the provision of
services common to such companies. In addition, the
group has a country subholding company that groups
together the non-energy businesses.
Country subholding companies have boards of
directors, including independent directors and their
own Audit and Compliance Committees, Internal
Audit divisions or units, or Compliance divisions.
• T he head of business companies are in charge
of the day-to-day administration and effective
management of each business. They also have
boards of directors, which include independent
directors and specific management teams.
This structure, which operates together with the
group’s Business Model, allows for an overall
integration of the businesses (Networks, Wholesale
and Retail, and Renewables) and focuses on
maximising the operational efficiency thereof
through the implementation of best market practices.
Corporate and governance structure of Iberdrola, S.A
Board of Directors
Consultative Committees
Chairman & CEO
+
Management Team
Audit and Risk Supervision Committee
Executive Committee
Appointments Committee
Remuneration Committee
Corporate Social Responsibility Committee
Country Subholding Companies
Board
Board
Board of Directors
Board
Board
of Directors of
of Directors of
of Iberdrola
of Directors of
of Directors of
Avangrid (*)
Iberdrola México
ScottishPower
Iberdrola Brasil
Iberdrola España
Iberdrola
Participaciones
Head of Business Companies
Boards of Directors of each of the head of business companies
(*) Company listed on the New York Stock Exchange.
Integrated Report 2016 /
A Framework of Trust 78
C. Equity structure
Iberdrola has more than 600,000 shareholders
throughout the world, and none of them alone has the
power of control.
62.9%
Foreign
investors
Domestic institutional
investors
Domestic individual
investors
13.7%
23.4%
Iberdrola’s response to the
corporate governance challenge
A. Continuous Improvement of its corporate
governance rules and practices
On corporate governance matters, the Company
looks to the Good Governance Code of Listed
Companies published by the CNMV and generally
accepted recommendations in the international
markets.
69% of the non-executive directors
are independent.
Executive directors’ variable remuneration tied
to objectives.
Foreign institutional shareholders
account for 62.9% of the capital.
Remuneration
policy
Provision for revising deferred variable
remuneration.
External corporate governance awards
/ page 39
With Shareholder Week, which
culminates with the holding of the
General Shareholders’ Meeting,
Iberdrola brings the company closer
to and promotes interaction with
its shareholders to give form to its
corporate governance and social
responsibility strategy, sharing
events and initiatives regarding
social-welfare, cultural,
technological innovation, and
digital transformation actions.
Transparency.
69% of non-executive directors are
independent, all having less than 12 years in
office.
System of checks and balances, including
a lead independent director (consejera
coordinadora).
Operation
of the Board
All consultative committees have 100% or a
majority of independent directors.
Gender diversity: 5 women on the Board.
All consultative committees are chaired by
women.
Cultural diversity: directors from 7 countries
of origin.
Rationale for proposed appointments.
External evaluation of governance bodies.
Specific Corporate Social Responsibility
Committee.
Social
responsibility
and corporate
reputation
Social Responsibility Policies.
Company social action strategy through
foundations related to the Iberdrola group in
Spain, United Kingdom, Brazil, United States,
and Mexico.
Ethics and Social Responsibility
/ page 84
/ Integrated Report 2016
79 A Framework of Trust
B. Commitment to shareholders and investors
• T he strength of the group’s industrial and financial
model will allow us to continue on a path of
increased profits and shareholder remuneration
thanks to balanced growth focused on the regulated
networks businesses, renewables, and long-term
contracted assets.
•E
ngagement: shareholders are the key players
within the Corporate Governance System, which
includes good governance practices beyond those
required by applicable law. The Shareholder
Engagement Policy is implemented through
various channels of participation intended to
build a continuous dialogue beyond the General
Shareholders’ Meeting.
•B
oost shareholders’ participation at the General
Shareholders’ Meeting through the payment of
an attendance bonus. Since its implementation in
2007, the quorum in attendance at the General
Shareholders’ Meeting has exceeded 75%, and has
exceeded 78% during the last two years.
The quorum in attendance at the
2015 General Shareholders’
Meeting was 78.65%.
Office
of the
Shareholder
Shareholder
Week
Corporate
Governance
Roadshows
On-Line
Shareholders
(OLS)
Shareholders
Club
C. Alignment between corporate governance
and strategy
•D
irector remuneration aligned with strategic
objectives. The remuneration model for directors is
based on three primary components:
Remuneration model for the Board
Type of
remuneration
External
(non-executive)
directors
Fixed
According to their
On market terms.
duties.
Short-term
variable
Not applicable
Tied to annual targets.
Long-term
variable
Not applicable
Tied to multi-annual targets and
paid in shares (3-year accrual
period and payment deferred
over 3 years following accrual).
Executive directors
There were only 1.15% votes against the Annual
Director Remuneration Report 2014.
Parameters to which the annual variable remuneration
of executive directors is tied in 2016
Financial
Results.
Shareholder return.
Industrial
Quality and service level.
Labour climate.
Social
responsibility
Growth in emission-free installed capacity.
Presence on international indices.
Level of consensus received for the proposals
of the Board at the General Shareholders’
Meeting.
Annual Director Remuneration Report 2015
Engagement
Investor
Relations
APP
Investor
Relations
Office
Integrated Report 2016 /
A Framework of Trust 80
5.2 Three Lines of Defence
Three lines of defence model
The Internal Control System of Iberdrola and the companies of its group is configured by reference to international
best practices. It is based on a guarantee combined around three lines of defence, providing a comprehensive
view of how the different parts of the organisation interact in an effective and coordinated manner, increasing the
efficiency of the processes for management and internal control of the entity’s significant risks.
Governance Bodies
Management Team
1st line of defence
2nd line of defence
3rd line of defence
Operational Management
Assurance Functions
Internal Audit
External
Assurance
(External
Auditors,
Regulators,
etc)
Based on the document “Guidance on the 8th EU Company Law Directive, article 41” ECIIA/FERMA, September 2010.
Operational Management
Assurance functions
As the first line of defence, the management team
and the professionals of Iberdrola and its group are
the direct managers of the risks of the entity. Thus,
the Management of the Company is responsible
for maintaining effective control and implementing
procedures to control risks on a continuous basis.
As the second line of defence, certain functions
provide the foundation for the entity’s internal control
system, proposing guidelines to the Board and
monitoring how the first line of defence implements
them.
Risks facing Iberdrola’s primary businesses
/ pages 46, 50, 54
Internal Control Objectives (COSO. May 2013)
•O
perations objectives- Pertain to the effectiveness and efficiency
of the entity’s operations, including operational and financial
performance goals, and safeguarding assets against loss.
•R
eporting objectives- Pertain to internal and external financial
and non-financial reporting and may encompass reliability,
timeliness, transparency, or other terms as set forth by regulators,
recognised standard setters, or the entity’s policies.
•C
ompliance objectives- Pertain to adherence to laws and
regulations to which the entity is subject.
/ Integrated Report 2016
The primary assurance functions within Iberdrola,
within their respective areas of responsibility, are:
(i) the group’s Risk Division, within the framework of
its functions within the Comprehensive Risk Control
and Management System; (ii) the Compliance Unit,
which is responsible for the Compliance System; and
(iii) the Internal Control Division, which is part of the
Administration and Control Division, within its duties
relating to the internal control and risk management
systems in relation to the preparation of financial
information (ICFRS).
Comprehensive Risk Control and Management System
/ page 82
Compliance Unit
/ page 84
81 A Framework of Trust
Iberdrola adopts the three lines of defence model to ensure effective and
integrated management of its Internal Control System.
Internal Audit
The Internal Audit function, as the third line of
defence, oversees the internal control and risk
management systems, auditing how the first and
second lines carry out their respective duties of
management and control.
To ensure its independence, the director of the Internal
Audit Area reports hierarchically to the chairman of
the Board of Directors and functionally to the Audit
and Risk Supervision Committee. The Internal Audit
divisions of the various country subholding companies
have this same positioning, and are coordinated
under the framework of the Basic Internal Audit
Regulations of the Company and its group.
The 2015 annual activities plans of the Internal
Audit Area Division of the Company and of the
Internal Audit divisions of the group responded to
the requirements established by the Audit and Risk
Supervision Committee of the Company and the
respective Audit and Compliance Committees of the
country subholding companies in their respective
regulations, and included work for the Senior
Management and the rest of the organisation,
including:
•A
nnual audits of compliance with the Code of Ethics
at Iberdrola and at each of the country subholding
companies.
•A
udits of the process for determining and
monitoring the limits and indicators of the Risk
Policies of the businesses of the group.
•H
alf-yearly reviews of the operation of the most
critical controls of the Internal Control Over
Financial Reporting (ICFR) System, as well as
reviews of the various cycles of preparation of the
financial information of Iberdrola and the various
companies of the group, within the framework of
the general goal of reviewing the entire ICFR over a
period of 3 years.
Basic Internal Audit Regulations
•A
pproved by the Board of Directors of the Company upon a
proposal of its Audit and Risk Supervision Committee (updated
on 15-Dec-2015).
•D
efines the nature, as an independent internal unit, and
establishes the regulation, competencies, powers, and duties of
Internal Audit, among other things.
•E
stablishes the framework of relations with: i) the Board of
Directors, its chairman, and the Audit and Risk Supervision
Committee; ii) the Internal Audit divisions of the other companies
of the group; and iii) the rest of the organisation.
•D
isseminates the knowledge of the Internal Audit function among
the professionals of the group.
•S
erves as a reference for the management model and the quality
system of the Internal Audit Area of the Company and the
Internal Audit divisions of the other companies of the group.
External assurance
The auditors, regulatory bodies, and other entities
external to the organisation play a significant role in
the general structure of governance, internal control,
and risks of Iberdrola, especially in the regulated
businesses. The regulators establish requirements
with the intention to strengthen the controls of an
organisation and perform a function of independent
and separate monitoring. On the other hand, the
auditors provide assurance regarding the true and
fair view of the entity’s financial information.
Regulatory Environment
/ page 42
Audit Report on the Consolidated Financial Statements
Continuing with the commitment made in 2005,
Internal Audit continues to submit to an exhaustive
review every five years by the Global Institute of
Internal Auditors of compliance with professional
internal audit rules (called a Quality Assurance
Review). In 2015 the certification of Iberdrola and
of ScottishPower was renewed and the scope of
the certification was expanded to include Iberdrola
España and AVANGRID.
Integrated Report 2016 /
A Framework of Trust 82
5.3 Risks
Main risks facing the Iberdrola group
The Iberdrola group is exposed to various risks
inherent in the different countries, industries, and
markets in which it operates and in the activities it
carries out, which may prevent it from achieving
its objectives and from successfully implementing
its strategies. The following significant risks can be
pointed out:
A detailed description of the risks that materialised
in 2015 can be found in section “E.5” of the Annual
Corporate Governance Report 2015, available at
www.iberdrola.com.
•R
egulatory uncertainty in the countries in which it
operates.
Iberdrola’s Board of Directors and senior
management is strongly committed to and engaged in
the management of the group’s risks:
•V
olatility in the prices of electricity and fuel,
including the potential effects of the collapse in oil
prices.
• Volatility in exchange rates and interest rates.
• Changes in the production of and demand for
electricity and gas due to the effect of climatological
variables (temperature, hydraulic activity, wind
activity), and growth in internal consumption over the
long term.
•O
perational risks due to downtime of facilities
and significant incidents affecting the grids,
including those arising from improper access
to information or to the information technology
and communications systems of the group
(cyberattacks).
Commitment of the Board of Directors and of
senior management
•A
cceptable levels of risk tolerance are reviewed and
approved ex ante on an annual basis through risk
policies and limits the qualitative and quantitative
risk appetite at the group level and at each of the
main businesses.
• T here is then a periodic monitoring ex post of
significant risks and threats and of compliance with
the approved risk policies and limits.
Consolidated Annual Financial Statements
Duties of the Risk Division
ERM Approach – Integrated Vision
Ensure that the group’s significant risks are adequately identified, measured, managed, and controlled and that they are periodically reported.
Basic instruments:
• Risk policies and limits.
• Reports on key risks.
Centralised Approach – Active Management
Credit risk
• Approval of counterparties and limits and/or establishment of admission criteria in order to minimise credit losses within the group.
Market risk
• Approval of detailed limits in order to delimit the effects of volatility in the markets in which the group operates.
Operational risk management through insurance and participation on the group’s information technology governance and cybersecurity
committees.
/ Integrated Report 2016
83 A Framework of Trust
The essential elements of proper risk management are
foresight, independence, and commitment to the business objectives.
Comprehensive Risk Control and Management System
At the operational level, the commitment of the Board of Directors is implemented by means of a Comprehensive
Risk Control and Management System, supported by a Risk Committee and an independent specialised risk
organisation deployed within the main businesses of the group.
Risks facing Iberdrola’s primary businesses
/ pages 46, 50, 54
Audit and Risk Supervision Committee
Board of Directors
Risk Policies
Operating
Committee
of the group
Corporate
governance,
market, credit, business,
regulatory and political,
operational, technological
and cybersecurity,
environmental,
social, legal, and
reputational
risks
Audit and Compliance
Committees and Boards
of the subsidiaries
Risk
Committee
Corporate
Risk
Division
Risk Divisions
of the
Business Units
Integrated Report 2016 /
A Framework of Trust 84
5.4 Ethics and Social
Responsibility
Compliance Unit
Powers of the Compliance Unit
Iberdrola has a Compliance Unit, which is a
collective, internal, and permanent body linked to
the Corporate Social Responsibility Committee of the
Board of Directors.
The Compliance Unit has powers related to the Code
of Ethics, the Crime Prevention and Anti-Fraud Policy,
the Internal Regulations for Conduct in the Securities
Markets, legal provisions regarding the separation of
activities, and all other powers that may be entrusted
thereto by the Corporate Social Responsibility
Committee or the Board of Directors of the Company
or that are established in Iberdrola’s Corporate
Governance System.
Within each country subholding and/or head
of business company, there are also compliance
divisions linked to the Audit and Compliance
Committees or the Board of Directors of each
company. Their duties including promoting a culture
of ethical behaviour and zero tolerance for the
commission of unlawful acts or fraud.
Iberdrola’s Compliance System is made up of
the substantive rules, formal procedures, and
major activities within the group to encourage the
organisation to act in accordance with applicable
ethical principles and legal provisions, through a
set of procedures and actions designed to prevent,
detect, and react to irregular actions, fraud, or actions
contrary to the Iberdrola group’s Code of Ethics or
applicable laws and regulations.
Main activities in the area of ethics and
compliance
Various programmes and control frameworks for
different regulatory environments are implemented
at the group within the framework of the Compliance
System.
These include crime prevention programmes,
which are implemented taking into consideration
the duties imposed by the Spanish Criminal Code,
without prejudice to the legal provisions applicable
in any other jurisdiction in which the Company
does business, as well as the programme for
compliance with the Code of Ethics, which includes
specific training and communication plans for all
professionals of the group, among other things.
Iberdrola also has a Compliance Unit Office (the
“Office”), managed by the director of the Compliance
Unit and made up of members representing various
regulatory areas and assurance functions of the
group. The Office is configured as a consultative and
support committee relating to the various activities
of the group within the framework of developing an
effective Compliance System.
/ Integrated Report 2016
The Iberdrola group’s ethics and compliance
system
•P
eriodic
evaluation of
risks.
•D
evelopment
of policies,
procedures, and
protocols.
• T raining,
dissemination,
and
communication
measures.
React
Detect
Prevent
•P
eriodic reports.
Grievance
systems and
channels.
• Investigation of
grievances.
• Identification
and evaluation
of compliance
controls.
•D
isciplinary
rules.
•C
orrective
measures.
Commitment of the
Governance Bodies
Integrated within
the organisation
Traceable and
Documented System
Auditable and under
continuous Improvement
Compliance leader verification
In 2015, NYSE Governance Services, together with
the Ethisphere Institute, performed an independent
evaluation of the Compliance System, after which
Iberdrola received “Compliance leader verification”
certification.
This acknowledgement is given to those companies
with the best compliance programmes in their
industry, and which have decided to proactively invest
resources to promote a culture of compliance.
85 A Framework of Trust
Iberdrola considers its corporate values to include ethical principles, good
corporate governance and transparency, and social commitment.
Organisation of social responsibility
within the Iberdrola group
The group has an organisational structure designed
to promote and manage responsible actions with its
Stakeholders.
Iberdrola
Corporate
Divisions
Foundations
Iberdrola
Iberdrola
España
Avangrid
(USA)
Total score: 87 points.
Only European electric company
to have been included in all
16 editions of the index.
Only Spanish electric company
among the world’s 100 most
sustainable companies.
Businesses
of the group:
• Networks
• Wholesale
and Retail
• Renewables
• Other
businesses
Networks
of relationships within
the Brand, CSR, and
Reputation
Division to manage
CSR within the
Iberdrola group
ScottishPower
External awards
Iberdrola
Mexico
Iberdrola
Brasil
The Corporate Social Responsibility and Reputation
Committee and the Corporate Social Responsibility
and Reputation Committees of the country subholding
companies coordinate the balanced development
social responsibility within the Iberdrola group. The
Corporate Social Responsibility Committee of the
Board of Directors performs the duties of supervision
within its purview.
Corporate social responsibility plans
of the group
2015 saw the approval of the Corporate Social
Responsibility Plan 2015-2017 for the Iberdrola
group, covering five areas of activity (dialogue with
local communities, measurement tools, etc.), with a
focus based on the various Stakeholders.
This Plan is made up of various programmes, projects,
and monitoring indicators, both cross-sectional for all
involved organisations of Iberdrola as well as specific
for each business or corporate area of the Company.
Five consecutive years on the index.
First utility with nuclear assets
selected for the index.
Climate Disclosure Leadership Index
(CDLI). Rating: 100 points.
Climate Performance
Leadership Index A.
Iberdrola a sponsor.
Iberdrola selected.
Iberdrola selected.
Sustainability Yearbook 2015:
“Silver Class” in the electricity
sector.
Most sustainable Spanish utility and
fourth most sustainable utility in the
world.
Leader among Spanish utilities:
electricity, gas, and water.
Leading company on the Ibex 35 in
Transparency ranking 2014.
Monitoring of the Plan is analysed on a half-yearly
basis by the Corporate Social Responsibility and
Reputation Committee and by the Corporate Social
Responsibility Committee of the Board of Directors.
Integrated Report 2016 /
About this Report 86
Commercial office customer
/ Spain
/ Integrated Report 2016
87 About this Report
6.
About
this
Report
This report, which Iberdrola directs to both its shareholders and
investors and all of its Stakeholders, has been prepared under
the emerging “integrated report” concept, and constitutes one
more example of the group’s desire to be innovative in the area
of transparency.
Integrated Report 2016 /
About this Report 88
6.1 About this Report
Integrated report
Information boundaries
Material aspects identified
• T his report has been prepared
in accordance with the reporting
framework published by the
International Integrated Reporting
Council (IIRC) and in accordance
with the recommendations
thereof, taking into consideration
the individual and consolidated
financial statements of the Company
formulated by the Board of Directors,
audited and pending approval by
the shareholders at the General
Shareholders’ Meeting of Iberdrola.
• A multi-disciplinary team made up
of corporate businesses and areas
of the group was created in order
to provide a complete view of the
Company, its business model, the
challenges and risks it faces, and
its social, environmental, financial,
and governance performance.
The participating organisations
guarantee the completeness of the
information included.
• T he information submitted covers
Iberdrola and its subsidiaries
and affiliates. The information
boundaries are defined in the
group’s consolidated annual financial
statements and Sustainability Report.
• The group’s performance over the
last years is connected to external
corporate transactions and internal
management decisions, which the
reader should take into account
in order to properly interpret this
report. These transactions and
activities are described in the group’s
public information, the following
being particularly noteworthy:
– The acquisition and merger of
companies in Brazil (2011) and the
nationalisation in Bolivia (2011).
– The focus on a group management
model based on global businesses
as from 1 January 2011.
– The application of IFRS 11 to
the 2013 to 2015 figures, which
mainly affects Brazil.
– The merger of Iberdrola USA
and UIL Holdings in the United
States (December 2015), with the
new company taking the name
AVANGRID.
• Iberdrola has channels of
communication and dialogue with
its Stakeholders, developed in
accordance with the principles of
the AA1000 Assurance Standard,
as described in detail in the
Sustainability Report.
• T he Corporate Social Responsibility
Committee of the Board of Directors
has reported favourably on this
report and has submitted it to the
Board of Directors for the approval
thereof.
This report has also been reviewed
by the Company’s Operating
Committee.
Iberdrola’s Board of Directors, after
analysing this report and considering
these assessments, approved the
Integrated Report February 2016 at
its meeting of 23 February 2016.
• In addition, it performs materiality
analyses that help identify matters
of significance to the Company’s
Stakeholders, bringing to light
particularly sensitive financial,
environmental, or social issues
related to the business in the various
communities and geographic areas
in which the group operates.
• The contents of this report have been
selected by taking into account the
existing channels for dialogue as well
as the materiality analyses and the
framework defined by the IIRC for
this kind of information.
Social and Relationship Capital
/ page 70
This report has been
prepared in accordance
with the reporting
framework published
by the International
Integrated Reporting
Council (IIRC).
Internal and external verification
• This report has been subject to a process of internal verification, by means of a limited review performed by the Management
of the Internal Audit Division of Iberdrola.
• Although it has not been subject to a process of independent external verification, a significant portion of the information
contained herein relating to financial year 2015 and to previous years comes from annual financial reports and sustainability
reports, all of which have been the subject of an external audit or verification for which the respective certificates are available.
The remaining information comes mainly from other reports or public presentations made by the Company.
/ Integrated Report 2016
89 About this Report
Legal disclaimer with respect to forward-looking statements, errors, and omissions
• This document contains forward-looking information and statements about Iberdrola. Such statements include projections and
estimates and their underlying assumptions, statements regarding plans, objectives, and expectations with respect to future
transactions, investments, synergies, products, and services, and statements regarding future performance. Forward-looking
statements are not historical facts and are generally identified by the words “expects”, “anticipates”, “believes”, “intends”,
“estimates”, and similar expressions.
• In this regard, although Iberdrola believes that the expectations reflected in such statements are reasonable, investors
and holders of Iberdrola shares are cautioned that forward-looking information and statements are subject to risks and
uncertainties, many of which are difficult to predict and generally beyond the control of Iberdrola, which risks 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 identified in the documents sent by Iberdrola. to the
National Securities Market Commission (Comisión Nacional del Mercado de Valores) and which are accessible to the public.
• Forward-looking statements are not guarantees of future performance and have not been reviewed by the auditors of
Iberdrola. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date
they were made. All forward-looking statements reflected in this report are subject to the warnings provided and are based on
information available as of the date of approval hereof. Except as required by applicable law, Iberdrola does not undertake
any obligation to publicly update its forward-looking statements or to revise any forward-looking information, even if new
data are published or new events occur.
Integrated Report 2016 /
Integrated Report, February 2016
Publisher: IBERDROLA, SA.
Spain
© 2016 Iberdrola, S.A. All rights reserved.