Naturgy sets its priorities for 2020 and strengthens its liquidity to 9.60 billion

 
  • The company is ramping up its actions against COVID-19 to support customers and suppliers. Naturgy has several active initiatives that provide financial and social coverage to over 10 million homes and professionals.
  • The company has been proactive in defining a plan for its employees to return to their activity and is addressing a gradual return of the workforce, in accordance with the guidelines from health authorities while also considering the health and safety of its workers.
  • During the period, investments exceeded €200 million, primarily in renewable energy projects. The company confirms that it will continue with its investment plans for renewables and maintenance of networks scheduled for the year, despite the restrictions of the crisis.
  • The ordinary EBITDA was €1.10 billion in the first three months of the year, 5.6% lower than the previous year as a result of the market conditions and the negative evolution of exchange rates in Latin America.
  • The company has established liquidity as one of its priorities. Today, the available liquidity is about €9.60 billion, compared to the €8.00 billion at 31 December 2019.
  • In the energy sector, Naturgy has also indicated that its priority for 2020 is to use the ordinary and extraordinary review mechanisms established in the gas procurement contracts to adapt them to the market conditions.
  • The company has called a General Shareholders’ Meeting for 26 May in Madrid, where remote attendance has been recommended, and in which the new directors will be ratified, therefore making progress in its commitment to parity.

Naturgy has faced a start to 2020 marked by the interruption of COVID-19, the governmental measures adopted worldwide to prevent it spreading, a very volatile macroeconomic scenario and an adverse energy scenario, primarily affected by the decreasing prices of raw materials. The company anticipated the gravity of the situation by urgently calling its crisis committee a few days before the state of alarm was decreed and adopting measures to protect its employees and support customers, shareholders and suppliers.
 
The group started to lead social initiatives not only for its stakeholders but also for society in general, in order to mitigate the impact of the pandemic on family economies and also contribute to managing this health crisis.
 
The chairman of Naturgy, Francisco Reynés, stressed “the importance of the private sector in contributing to reducing the effects of the health crisis on the Spanish production system and supporting families. Naturgy provides economic and social measures that enable all affected groups to resume along the growth path as soon as possible. We believe that the value of companies goes far beyond financial metrics to include all aspects related to contributions to society, which are especially noticeable during times of crisis,” he said.
 
Priority lines of management for 2020
 
The company reiterates that, due to the significant uncertainty surrounding COVID-19, it is neither possible nor prudent to provide guidance for the year, although it does proceed with lines of management for 2020 focused on maintaining high liquidity, a comfortable balance sheet and flexibility, as well as using the ordinary and extraordinary review mechanisms established in the gas procurement contracts to adapt them to the market conditions.
 
Similarly, Naturgy will press on with its transformation initiatives to improve efficiency and flexibility, as well as allocation of resources in light of the new scenario. It will also continue analysing growth and asset turnover opportunities that contribute to improving the companies risk profile and creating value.
 
Leading initiatives against COVID-19
 
The company has responded swiftly, decisively and resourcefully with different measures to provide the necessary resources for working remotely, as well as all the personal protection equipment for employees who have to continue leaving their homes to tend to emergencies or attend critical centres. About 75% of the workforce have been working remotely since the start of the crisis.
 
The company has increased the amount of resources allocated to its critical facilities from which the energy supply is guaranteed, while also ensuring all the health and safety requirements are met for its employees.
 
Naturgy has also implemented several measures to support its customers, families, suppliers and society in general, measures which provide financial and social cover to a group of over 10 million people in Spain.
 
The company was one of the first to support the short-term liquidity need of its domestic, SME and self-employed customers through the option to defer payment of bills from the second quarter of the year and finance them in 12 months. This initiative is aimed at over 4 million homes in Spain. Payments to SME and self-employed suppliers were also accelerated to support the economic stability of these groups. In addition, the group provides medical assistance via video call to over 7 million customers, so that citizens can have medical consultations without having to leave home.
 
The group has also led extensive social work during this crisis with free gas and power supply to medical residences and hotels, most notably the free gas supply to field hospitals installed at IFEMA, in Madrid and at the Fira, in Barcelona.
 
The company provides free gas and power repairs for health workers (doctors, nurses, guards, etc.),  as well as for members of the security forces, armed forces and fire fighters, with almost 1.3 million people benefiting from this measure. During the state of alarm, the company has not cut the gas or power supply to its customers and, through its employees, has donated €1.1 million to the Spanish Red Cross to buy medical equipment.

Proactivity in the plan to end lockdown
 
Naturgy has been proactive in designing and activating a plan to end lockdown and return to activity after the COVID-19 crisis. It's implementation will always prioritise the health and safety of the employees while also following the guidelines from health authorities.
 
In this respect, the company has planned to test its employees in order to base the return to normality on all the health and safety guarantees.
 
In accordance with the prior health questionnaires and future analysis that will be carried out, the company will divide the workforce into groups for a secure and gradual return to their positions, while always prioritising remote working for the positions that allow for this and applying the prevention protocols established for guaranteeing a safe return from the first moment. This plan has already been communicated to the workforce, so that they are aware of this and also the phases for the following months.
 
“One of our priorities is to look after our employees. We want to recognise their effort to adapt to this situation and the commitment of every single one of them at this time,” said Francisco Reynés.
 
First quarter results
 
The impact of COVID-19 on the first quarter results was limited as the economic consequences began to gradually weigh on the company’s performance only from March. Since then, the pandemic has had a notable effect on gas and electricity demand in Spain and Latin America, as well as on a challenging situation in the international LNG market and on the depreciation of currencies in key Latin American countries. The results of the first quarter were also affected by the new regulatory framework and lower remuneration in the electricity distribution business in Spain, in addition to other factors.
 
Even so, the ordinary EBITDA was €1.10 billion in the first three months of the year, 5.6% less, and the ordinary net profit was €305 million, 19.1% less, in both cases without counting the restructuring costs (€158 million).
 
Investments in the quarter amounted to €201 million, affected by a slight increase of investment in gas networks and deceleration in other projects. 55% of the total (€111 million) was allocated to growth investments, including renewable projects in Spain, Australia and Chile. The company expects to make additional investments of over €350 million in Spain and internationally during the rest of the year.
 
Solid financial structure
 
Naturgy has substantial capital flexibility, together with a solid balance sheet, ample liquidity and the necessary resources to adapt its business to a crisis as significant as the one caused by COVID-19.
 
The company has recently strengthened its liquidity by successfully closing a five-year bond issue worth €1 billion at a fixed rate with an annual coupon of 1.25% and continues to have a comfortable diversification of financing sources.
 
The company has an available liquidity of almost €9.60 billion, without counting the operational cash flow generated continuously by the business.
 
At 31 March 2020, the net debt amounted to €15.01 billion, €258 million less than at 2019 year-end, following the €755 million assigned to the dividend payment and purchase of own assets. As a result, the net debt/EBITDA was 3.4x compared to 3.3x at 2019 year-end. The average cost of the gross financial debt in the first quarter was 3.0% compared to 3.2% in the same quarter of the previous year.
 
Naturgy maintains a comfortable debt maturity and balance sheet profile, as well as capex and opex flexibility to be able to move around the current economic scenario.
 
Milestones of the period
 
During the first quarter, the company continued analysing and carrying out asset rotation opportunities that may create value for the shareholders. In this respect, it is worth noting the complete closure of the sale of generation assets in Kenya, as well as the entry of BlackRock’s Global Energy and Power Infrastructure Fund (GEPIF) in the Medgaz gas pipeline by purchasing a 50% share in the special purpose vehicle (SPV) which was created by agreeing to acquire Mubadala’s share in this infrastructure, and at the same price. Naturgy will not provide cash to the overall transaction, preserving its liquidity.
 
Also in the first quarter of the year, the CNMC finally approved the regulatory framework for gas distribution in Spain for the period 2021-2026, substantially reducing the negative impact on the system compared to its initial proposal and in a continuation of the existing activity-based remuneration framework. During the process, Naturgy firmly supported an objective methodology and a stable framework which provides visibility and incentives for investments in order to protect the interests of all its stakeholders and a balanced energy transition.
 
At the end of February, Naturgy announced an agreement with ENI and the country of Egypt to amicably resolve the disputes affecting Unión Fenosa Gas (UFG), which is jointly owned (50%/50%) by Naturgy and ENI. The agreement was subject to compliance with certain preceding conditions, which were ultimately not met, meaning the agreement did not take effect. The termination of this agreement will not have an impact on the company’s shareholder remuneration policy, nor on the company's liquidity position.
 
In terms of the environment, the Group continues to perform well with greenhouse gas (GHG) emissions. The increase in hydropower and renewable generation, among other factors, has led to a GHG emissions decrease of 12%.
 
General Shareholders' Meeting
 
The first quarter also saw Naturgy continue to make progress regarding ESG by appointing Lucy Chadwick and Isabel Estapé as the new proprietary directors for GIP and Criteria, respectively, in the middle of March. With this, Naturgy proceeds with its commitment to achieving parity in the Board of Directors by appointing two new directors to its highest management body. In particular, Estapé and Chadwick will be members of the Audit and Control Committee, and will increase the proportion of women on the Board of Directors, where Helena Herrero is already an independent director. The representation of women in the Group continues to rise, reaching 32% at the end of the quarter.
 
In order to protect its shareholders, employees and all the staff involved in holding the meeting, which will be held in Madrid on 26 May, and given the current state of alarm declared by Royal Decree 463/2020, the board of directors agreed to advise against attending the Shareholders’ Meeting in person, instead advising its shareholders to delegate their vote with instructions or vote remotely and follow the meeting via video call through www.naturgy.com. It also agreed to simplify the mechanisms for remote voting or delegation, cancel the welcome coffee for shareholders and the gift presentation, and also make it possible to attend the shareholders’ meeting online, enabling the shareholders who want to attend and participate to do so in real time through a remote connection.


 
Key Figures
 
 Reported  Ordinary 
(€ millions)   1Q20  1Q19Variation 1Q20 1Q19Variation
EBITDA    944  1,119-15.6%1,1021,167-  5.6%
Net profit    199    341-41.6%   305  377-19.1%
Capex    201    301-33.2%---
Net debt15,01015,268  -1.7%---
Cash flow after minority payments    809    983-17.7%-- -

Contribution to EBITDA per activity
ReportedOrdinary
 
(€ millions)1Q201Q19Variation1Q201Q19Variation
Gas & Electricity307401-23.4%355409-13.2%
EMEA infrastructure390446-12.6%461475  -2.9%
LatAm South infrastructure174193  -9.8%179194  -7.7%
LatAm North infrastructure111101   9.9%112101  10.9%
Rest-38-22  72.7% -5-12 -58.3%
TOTAL9441,119-15.6%1,1021,167   -5.6%


Scope and topic:
Corporate, Financial


Madrid, 29 April 2020

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