Spain's Acciona Shifts Operations, Plans to Focus on Renewable Energy

MARCH 9, 2009

By BERND RADOWITZ

MADRID -- Spanish conglomerate Acciona SA is shuffling operations to focus on renewable energy in a move to capitalize on eco-friendly government incentives in the U.S. and the European Union, as the recession batters its real-estate, energy and infrastructure businesses.
Acciona Energía
Acciona Tatanka wind park stretching from North Dakota to South Dakota.
The timing is precarious. While governments are offering tax credits and other incentives that should create value for shareholders, Acciona is weighed down by a still-hefty debt load. The success of its strategy depends on its ability to build additional capacity.
The company also lags behind its peers in the renewable-energy sector, especially in the U.S., where most of the new wind power is expected to be added in coming years.
Acciona has sharply boosted its renewable-energy generation capacity thanks to a recent deal to sell its 25% stake in Spanish power company Endesa SA to Italy's Enel SpA, which already owned a 67% stake in Endesa.
As part of the €11.11 billion ($13.95 billion) deal with Enel, agreed on last month, Acciona will receive 2,105 megawatts in renewable-energy generation capacity from Endesa. Of that amount, 1,248 megawatts are in wind power. The added capacity will boost Acciona's overall wind-power capacity to 5,814 megawatts, making it the world's third-largest wind-power producer after Spain's Iberdrola Renovables SA and FPL Energy, a unit of U.S.-based FPL Group Inc.
Acciona is becoming a "world leader in renewable energy at a time of strong support of different governments for renewables," said Juan Muro-Lara, the company's managing director for corporate development.
The EU aims to reach 20% of primary energy consumption from renewables by 2020. Each of the bloc's 27 member countries has different legislation on how to boost renewables output, but most apply some kind of guaranteed minimum tariff for electricity from renewable sources.

Meanwhile, President Barack Obama aims to double U.S. renewable-energy generation capacity within three years. Toward that goal, Congress in February approved a mixture of tax credits, grants, loans and loan guarantees that will benefit companies such as Acciona.
Acciona's drive to strengthen its muscle in renewables in the medium term likely will create value for shareholders, thanks to generous, long-term government aid on both sides of the Atlantic, said Bankinter analyst David García Moral. "Revenue from renewables is much more stable and less subject to economic cycles," Mr. García Moral said. "Renewable power always sells."
In tandem with the focus on renewables, Acciona has been greatly reducing the weight of its real-estate, infrastructure and transportation units, which recently have performed poorly due to the rapid deterioration in Spain's economy. The decline in these areas has punished Acciona's share price, which has plunged 50% in the past 12 months.
In 2006, energy made up 38% of Acciona's earnings before interest, taxes, depreciation and amortization, a key figure watched by analysts that cuts out the effect of expenses and gains. After the sale of the Endesa stake, Acciona estimates that energy will jump to 73% of Ebitda, almost all of that in renewable energy.
Acciona could buy more renewable assets elsewhere, beyond the ones acquired from Endesa, said General Director Juan Sáez.
The company said it plans to invest about €2.2 billion this year, mostly in renewable energy, slightly more than the €2.18 it invested last year excluding Endesa. The company could expand by buying small renewables companies or wind-power assets, Mr. Sáez said, without giving further details.
The immediate effect of the Endesa sale will be a drop in profit, as Endesa accounted for almost a third of Acciona's Ebitda last year.
On the upside, Acciona said its net debt will plunge to €5 billion, down from €17.9 billion at the end of 2008 -- or 4.4 times expected Ebitda from 6.2 times Ebitda. The reduced debt may give the company room to make acquisitions. But the company may not be able to go on a shopping spree just yet.
Even with the reduction in debt, Acciona's finances are still "rather stretched in the current market situation," said Espírito Santo analyst Fernando García. The company may even be forced to cut planned investments, or sell some noncore businesses to improve its financial situation, Mr. García said, adding that the recession could eat into the company's renewable-energy profit at the same time its real-estate and infrastructure units decline.
Write to Bernd Radowitz at bernd.radowitz@dowjones.com