The Chief Executive Officer of Red Eléctrica, Juan Lasala, becomes the chief executive director of the Company, as confirmed by the Chairman José Folgado in a briefing prior to the General Shareholders' Meeting to be held tomorrow in Madrid. This will conclude the process of the separation of executive functions, corresponding to the CEO, and of the control and supervision, corresponding to the Chairman; a process that was initiated in the extraordinary General Shareholders' Meeting held on 17 July 2015.
This fact, together with the closure of the regulatory reform, the approval of the Electricity Transmission Grid Planning 2015-2020 and the advances made in non-regulated businesses, have been highlighted by the Chairman as the milestones of 2015 that allow Red Eléctrica in 2016 to reaffirm the objectives of its Strategic Plan. Specifically, he referred to the commitment that the earnings per share yield an average growth of between 5 and 6% per year.
In 2015, the Company reported an after tax profit of €606 million an increase of 8.3%, in like-for-like terms. Last year, Red Eléctrica invested €410.7 million in the transmission grid, which represented the bringing into service of 414 km of circuit of new lines and 136 new substation bays, increasing transformer capacity by 605 MVA with a grid availability rate of 98%.
The Board of Directors will propose the reappointment of José Folgado as external director to the General Shareholders’ Meeting, whereby, upon the conclusion of the Meeting, he will perform the role of non-executive Chairman of the Board and of Red Eléctrica. Also to be proposed at the Meeting are the reappointment of Fernando Fernández as external nominee director and Carmen Gómez de Barreda as independent lead director, as well as the ratification of José Ángel Partearroyo as external nominee director and the appointment of Agustín Conde as external independent director. Among other items on the agenda, also to be submitted for approval is an annual dividend of 3.21 euros per share, which represents an increase of 7% over the previous year.
Also subject to approval of the Meeting is the splitting of the number of shares in the Company by reducing the nominal value of two euros to fifty cents per share, a ratio of four new shares for each existing share, without a variation in the share capital, delegating to the Board of Directors the execution of the agreement.
José Folgado has presented the results of the Company in 2015 as well as the investment plan for the coming years, in addition he analysed the fulfilment of the 2014-2019 Strategic Plan, and explained the progress made by Red Eléctrica in corporate social responsibility and good governance.
Solid financial results in 2015
In 2015, Red Eléctrica achieved solid results and a significant strengthening of its core capital ratios. Regarding net profit for the fiscal year, Mr. Folgado indicated that this amounted to €606 million, a figure 15.6% lower than in 2014, while it is 8.3% higher if we strip out the positive impact of non-recurring items included in 2014 for the collection of €52.3 million in compensation for TDE and the impact of €106.1 million as a result of the implementation of the fiscal reform.
Net revenue in 2015 reached €1,939 million, exceeding the figure recorded the previous year by 5% as a result of the increase in transmission revenues in Spain for facilities commissioned in 2014 and revenues associated with the provision of telecommunications services, amounting to €83.5 million.
Gross operating result (EBITDA) amounted to €1,458 million, an increase of 5.3% over the previous year, due largely to the telecommunications activity that contributes more than 50% of said growth. The evolution of EBITDA was marked by the progression of procurement costs and other operating expenses, which registered an increase of 5.9% in 2015, due to the incorporation of the costs of the new telecommunications business. If the costs associated with this business were stripped out, the increase would be only 1%, which reflects the efficiencies achieved by the Company in this period.
In 2015, the Company invested €448 million, of which 411 million were earmarked for the development of the national transmission grid and 12 million for energy storage in the Canary Islands. This figure does not include the payment of 218 million dollars for the acquisition of 50% of Transmisora Eléctrica del Norte (TEN), which materialised last January after the approval of the European Commission.
From the point of view of the evolution of the Balance Sheet, the Chairman stressed that the balance of net financial debt as at 31 December 2015 stood at €4,906 million, a figure 9.3% lower than the previous year. The average cost of debt has been reduced to 3.2% from 3.49% the previous year, with an average debt maturity of 5.9 years.
Mr. Folgado stated that all the investments that Red Eléctrica has to carry out in the coming years can be clearly outlined and that these can be grouped into three blocks: investments set out in the 2015-2020 Planning and its annexes; investments arising from compliance with the EU energy policy in terms of the three new interconnections in addition to those already existing with France and the rest of Europe, and the investment volume of Red Eléctrica linked to the new energy model for the Canary Islands.
The total value of investments foreseen in the Planning for the period 2015-2020 amounts to €4,554 million. Noteworthy in this plan are the following: the strengthening of international interconnections and those between islands in the Balearic Islands and the Canary Islands; the development and strengthening of the grid to guarantee the security of supply; the development of the grid to reduce the costs associated with technical constraints, and the implementation of local support mechanisms from the transmission grid to the distribution network. The planning includes the construction of 2,975 kilometres for the transmission grid on the Spanish Peninsula and 959 kilometres in the island systems, as well as 662 new substation bays on the Spanish Peninsula and 489 new substation bays in the island systems.
Regarding international interconnections, the Chairman recalled the impetus these received in February 2015 with the publication by the European Commission of the EU’s 'Third Energy Package', as well as through the "Madrid Declaration" of March 2015, agreed at the summit between the governments of Spain, France and Portugal, the European Commission and the European Investment Bank. This summit agreed to undertake three new projects that will help raise the level of electricity interconnection between France and Spain to 8,000 MW; said projects were subsequently declared as Projects of Common Interest.
Moreover, Mr. Folgado indicated that the unique characteristics of the Canary Islands’ electricity system, consisting of several isolated subsystems, an insufficiently meshed grid, a high dependence on contaminating fossil fuels and limitations on security of supply, demand a specific and urgent commitment to achieve a new, more economically efficient and environmentally sustainable energy model. In this regard, he stated that the involvement and support of the different government administrations has been significant. This model is reflected in the planning with a total investment of €991 million until 2020, a figure to which the appropriate investments in hydroelectric pumped-storage facilities will need to be added.
Implementation of the Strategic Plan in 2015
The Strategic Plan 2014-2019 is based on continuing to develop the role of Red Eléctrica as TSO in Spain, reinforcing the criteria of efficiency to adapt the Company to a new and more demanding regulatory and remuneration framework and giving greater scope to the expansion of the business base as a complementary growth channel.
In the field of TSO development, noteworthy is the coming into full operation of the interconnection with France through the Eastern Pyrenees and the completion of the first submarine cable of the Majorca-Ibiza interconnection in order to strengthen electricity integration on the Balearic Islands and ensure the reliability of supply.
The Chairman stressed that there have been important steps towards expanding the business base. Red Eléctrica has created ‘Infraestructuras de Telecomunicaciones, S.A.U.’ (Reintel) and is carrying out an efficient integration of fibre optic networks.
The process of the transfer of the Chira-Soria project has been completed. Thus, the Company has founded ‘Red Electrica Infrastructure en Canarias, S.A.U.’ (Reincan), which will manage the construction of facilities for energy storage in the Canary Islands.
Red Eléctrica Internacional has consolidated its position in southern Peru after winning the concession contract for two new lines. It has also become involved in electricity transmission in Chile through the acquisition of 50% of the share capital of Transmisora Eléctrica del Norte (TEN).
Regarding the improvement of efficiency levels, the fulfilment of Red Eléctrica’s commitment is reflected in the evolution of the EBITDA margin, which increased from 74% in 2013 to 75.2% in 2015.
Mr. Folgado highlighted the undertaking of 76 technologically innovative projects aimed at increasing system efficiency and the integration of renewables as a reflection the momentum of the Company’s innovation strategy in 2015.
Moreover, he noted that the Company’s organisational renewal process carried out as a result of the separation of the Chairman and CEO roles has allowed the generational change in the management team of the Company to be addressed. During said process, 80% of the positions were covered through internal promotion, which demonstrates a clear commitment to the talent of the people of the Company. In addition, the healthy workplace model has been implemented setting out the principles and guidelines for the promotion of health, safety and the well-being of people.
Regarding the fulfilment of the strategy focused on excellence and corporate responsibility, the Chairman focused on the Company’s incorporation into the Dow Jones Sustainability World and Europe Indexes; the renewal of the Seal of Excellence EFQM 500+ (receiving a score of over 700 points); the renewal of other sustainability indexes; the approval of the Climate Change Action Plan 2015-2020, and the implementation of the Sustainable Mobility Plan.
Corporate social responsibility and good governance
Mr. Folgado also spoke about the progress made by the Company in the adoption of best practices in the fields of corporate governance and talent management, equality and well-being of people. Thus, he highlighted that in terms of gender diversity on the Board of Directors, Red Eléctrica has consolidated an excellent position among those companies listed on the IBEX 35.
As it has been doing for years now, the Board of Directors will voluntarily submit their annual remuneration to the General Shareholders’ Meeting for approval. It will also submit for approval the proposed resolutions regarding the modification of the remuneration policy of Board members in order to fully adapt it to the new governance structure of the Company following the completion of the separation of positions process and to the Annual Report on Directors’ Remuneration.
Moreover, the variable compensation, short and long-term, of the CEO and the management team is linked, among others, to the fulfilment of objectives set out in the Multi-Year Corporate Social Responsibility Plan. In addition, for years now, the Board of Directors submits itself to an annual self-assessment process, seeking advice from independent external professionals, and the main conclusions of said process are published in the Annual Corporate Governance Report. In 2015, Red Eléctrica fulfilled almost all the recommendations of Spain’s Good Governance Code of Listed Companies.
Another fundamental aspect in the field of corporate responsibility is the backing for talent and the commitment to gender equality and equal opportunities. Mr. Folgado highlighted the increase in the number of women on the workforce and in management positions, as well as the establishment of a Women’s Leadership Observatory that aims to propose actions to increase the presence of women in management positions. An important point in this regard is that women covered 31% of internal promotions to management positions in 2015.
Also, the healthy workplace model implemented represents a strategic commitment to the management, promotion and monitoring of the health and well-being of the people that make up the company. During 2015, several initiatives were carried out in this field related to the promotion of health, the work-life balance and the prevention of work-related risks. These commitments undertaken by the Company contribute to improving the involvement of workers in the business project, as reflected in the climate survey, with a satisfaction level of employees of 9.4 out of 10.
The Company structures its commitments in the field of corporate responsibility through multi-year plans and annual programmes, both approved by the Appointments and Remuneration Committee of the Board, whose fulfilment is linked, since 2015, to management goals and the long-term objectives of the Company’s management team. Many of the commitments made by Red Eléctrica in these programmes contribute to the achievement of the 17 Sustainable Development Goals approved in September 2015 within the framework of the 2030 Agenda of the United Nations.
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