UPDATE 2-Renewables save Spanish energy profits, for now

Wed Jul 25, 2012 9:01am EDT

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(Adds Iberdrola chairman, minister, analyst quotes)

* Iberdrola H1 core profit 4.1 bln eur, top end of f/casts

* Acciona H1 core profit 677 mln eur vs 668 mln in poll

* Renewable energy offsets weak traditional business

* Taxes in pending energy reform could hurt profits (Adds details)

By Tracy Rucinski

MADRID, July 25 (Reuters) - Spanish energy firms Iberdrola and Acciona relied on renewable energy businesses for first-half profits in a recessionary home market -- a sector threatened by looming taxes in a major energy overhaul.

Spain is expected to introduce new taxes on electricity generation and renewable energy to reform a dysfunctional sector that has led to an over 24 billion euro tariff deficit after years of power being sold to consumers below utilities' costs.

But as Madrid struggles with a deepening sovereign debt crisis, the reform has been delayed as government officials debate whether tax proceeds should be used to cut the public deficit or the energy shortfall.

"The reform is almost done but naturally, it's extremely complex and involves tax issues so we have to sign it off with the Treasury Ministry," Industry Minister Jose Manuel Soria said on a radio interview on Wednesday. "It will come soon."

Meanwhile, Iberdrola and its energy peers have warned that the government reforms could wipe out their profits.

On Wednesday, Iberdrola's executive chairman said the group would present a new strategic plan once it has the details of the reform, while pleading that Prime Minister Mariano Rajoy pass measures that are "fair" for both companies and consumers.

Spain has already raised electricity prices twice this year.

"I trust he will do everything necessary to end this curse of a deficit, and as he himself has said, create a financially and environmentally sustainable model for the sector," Ignacio Galan said on a conference call.

By 1115 GMT, shares in Iberdrola rose 2.3 percent to 2.7 euros and Acciona gained 2.3 percent to 31.16 euros, tracking Spain's blue chip index and both recovering from heavy declines on Tuesday amid energy reform uncertainty.

RENEWABLES RELIEF?

"Both Iberdrola and Acciona increased renewables production and prices were good in the first half, but their business is hanging on the energy reform," Alvaro Navarro, energy analyst at Intermoney

Both companies expanded into renewables, and outside Spain, in recent years to compensate for weakness in their traditional businesses. That bet paid off in the first half, with underlying profits at the top end of analysts' forecasts.

Iberdrola posted a 2 percent rise in first-half core profit thanks to diversification away from its energy business in Spain into new markets like Brazil, the United States and Britain.

Its underlying earnings before interest, taxes, depreciation and amortisation (EBITDA) reached 4.1 billion euros ($5 billion), at the top end of forecasts in a Reuters poll of analysts and driven by a 12.2 percent rise in its renewables business.

Acciona's EBITDA rose 7.2 percent to 677 million euros, as its renewable energy division offset declines in construction and real estate, which continue to suffer from a prolonged property bust after a decade-long boom ended four years ago.

Underlying profit from energy rose 17.2 percent at Acciona, while the infrastructure business fell 22 percent and real estate nearly halved, underscoring the depth of the sector's crisis.

"We think this is a strong set of results, despite of course the difficult environment we're in," Acciona Chairman Jose Manuel Entrecanales said on a conference call.

Both companies said they remain focused on reducing debt and shoring up their balance sheets, preparing themselves for any worsening of Spain's financial crisis.

Iberdrola's net debt reached 29.3 billion euros at June 30, excluding the 2.7 billion pending repayment from the tariff deficit, while Acciona's debt totalled 7.5 billion euros.

Iberdrola's Galan said the company would cut investments and sell assets, while ruling out a rights issue. He also said the company would support floating its Neoenergia unit in Brazil if the company's other partners were in agreement.

In neighbouring Portugal, renewable energy peer EDP Renewables posted a forecast-beating 12 percent rise in its first-half net profit on Wednesday, also thanks to rising power generation and a higher average price of its energy.

($1 = 0.8275 euros) (Additional reporting by Clare Kane and Jesus Aguado; Editing by Julien Toyer, Mark Potter and Stephen Nisbet)

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