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Iberdrola sees capital gains, investments stave off worst COVID-19 effects

Iberdrola SA expects to rake in higher profits this year as capital gains from a major divestment and accelerated investments in renewable energy stave off the worst impacts of the coronavirus pandemic on the Spanish utility.

Executives said April 29 that while lower demand and power prices already weighed on its first-quarter results, net profits should still increase by a high single-digit rate for the full year, thanks in part to a €485 million capital gain from the sale of its 8.07% stake in wind turbine supplier Siemens Gamesa Renewable Energy SA that will act as a "cushion" against higher bad debts in its supply business.

"We face the coming months from a robust position," Chairman and CEO Ignacio Galán said on a conference call. "Our integrated business model significantly protects us."

Iberdrola got a glimpse of the effects of the pandemic at the end of the first quarter, with shutdowns in place across its major markets in Europe, the U.S. and Brazil. In Spain, where a lockdown only went into effect in late March, mainland demand for electricity fell by 3.2% year over year and wholesale market prices were down by 37%, reducing EBITDA and profits in Iberdrola's Spanish division by 3% and 7%, respectively.

READ MORE: Sign up for our weekly coronavirus newsletter here, and read our latest coverage on the crisis here.

But while the company is exposed to lower demand and prices in its generation and supply business, Galán said any negative effects of the crisis will be compensated by secure revenues from regulated networks and an investment boost in wind and solar power.

Network distribution revenues in the U.S. and elsewhere will be lower this year but can be recouped with at most a year's delay, he said. In addition, Britain's energy regulator has put temporary measures in place to waive penalties for delayed projects, while distribution companies in Brazil now have access to preferential loans to provide them with enough liquidity to maintain investments.

Overall spending during the first three months of the year was already up 24% from 2019, and Iberdrola confirmed plans to spend €10 billion during 2020, with most of the money going to renewables and electricity infrastructure.

Officials from the EU and national governments in Europe have emphasized that economic recovery plans put in place to counter the pandemic will emphasize green growth, which Galán said only reinforces the case to step up spending on renewables, even if supply chains are under temporary pressure. Some utilities expect to push back some capital projects as they wait for parts and workers are unable to access construction sites.

During the first three months of the year, Iberdrola installed over 1,200 MW in new capacity and Galán said the company signed more than €3.8 billion in purchase contracts with its suppliers in the period, ensuring it can press ahead with its development plans.

"We have managed to continue construction activity, despite some small interruptions. As a result, despite the current environment, we have increased investment," he said.

Fundraising over the past two months, including €1.8 billion in green bonds issued through Iberdrola and its U.S. subsidiary Avangrid Inc., also means the group now has enough headroom to cover its financial needs for 30 months under a normal scenario.

While other utilities have scaled back or cut shareholder payouts to preserve cash amid the crisis, Iberdrola said it will pay out a gross dividend of 40 euro cents per share as planned, reaching its dividend floor targeted for 2022 three years ahead of schedule.