Naturgy concludes the first year of its Strategic Plan 2018-2022 fulfilling its commitments

Naturgy has completed the first year of operation since the company launched its new 2018-22 Strategic Plan which laid the foundations for the company’s long-term value creation strategy. The first six months of 2019 have been marked by the progress in the investment in renewables and power grids, the good evolution of the international business, the implementation of its efficiency plan, the corporate and management reorganization, and the sale of non-strategic assets.

Francisco Reynés, Chairman and CEO of Naturgy, stressed that “during these first twelve months of the Strategic Plan we have been able to take the right steps to respond, in an agile and decisive way, to the uncertainties and changes that are taking place economically, politically and in our sector. The world is changing, and our business is doing it at an even faster pace, so the transformation we are carrying out in Naturgy is mandatory and reinforces our global competitiveness.”

Reynés also said that “for this first part of the year I want to highlight the effort we have made to simplify our geographical presence and optimize our management model. We have designed a new commercial policy that has allowed us to improve our margins and reduce our risk. All this together with the efficiency plan and the simplification of all our processes.”

Ordinary EBITDA reached € 2,277 million, an 8% increase, excluding, among other factors, the capture costs of 110 million euros associated with the implementation of the efficiency plan incurred during the first semester. After these non-ordinary effects, EBITDA reached € 2,150 million. On the other hand, the ordinary net profit increased by 30%, to € 692 million, mainly derived from an improvement in activity and lower amortizations.

Investments during the first six months of the year amounted to € 700 million, which have been mainly allocated to renewable projects, always complying the company´s golden rules. Since the beginning of the Strategic Plan 18-22, Naturgy has invested € 2 billion, 70% in renewables and power grids, in line with its ambition for greater electrification.

As of June 30, 2019, net debt reached € 14.8 billion, 3% less than December 31, 2018, thanks to a strong focus on cash flow generation.

CNMC proposal for consultation

On July 5th, the National Commission of Markets and Competition (CNMC) published the first drafts of the regulatory memos for consultation that will establish the remuneration methodology of the regulated activity of electricity and gas distribution from 2020 and 2021 respectively.

The CNMC has opened an allegation process which ends, in principle, on August 9th. Through this process, which is being worked on as a priority, Naturgy seeks to protect the interests of all stakeholders in Nedgia, which has among its reference shareholders two pension funds, one German and one Canadian (Allianz Capital Partners and Canada Pension Plan Investment Board).

Naturgy will try to ensure that the new remuneration framework continues to recognize a reasonable and predictable remuneration in the long term, both for investments already executed as well as for future ones.

Progress on Strategic Plan 2018-2022

During the first half of the year, Naturgy has continued to make steady progress on the development of its value creation strategy, based on 4 key pillars:

• Simplicity and Accountability:

The company has continued to hone its business positioning as envisioned in its Strategic Plan, exiting from non-core businesses and geographies. A few examples of this include the agreement to dispose 100% of its activity in Moldova or the agreement to dispose in South Africa.

In addition, Naturgy has signed an agreement to sell electricity transmission assets in Chile, while it has also entered into an asset swap in Argentina, improving its competitive position in the region where it operates

However, Naturgy continues to demonstrate its ability to simplify its business positioning and geographical footprint of the Group, with a view to allocate its capital and resources to those businesses which maximize long term value creation for its stakeholders.

• Optimization

The efficiencies achieved since the launch of the Strategic Plan are noticeable across the businesses and will remain a key driver of performance going forward. In this respect, the company has incurred capture costs of € 110 million during the first half of 2019, accounting for the bulk of non-ordinary effects in the period. Naturgy has accelerated on the delivery of its efficiency plan and expects to deliver at least € 150 million in efficiencies by year end, exceeding its initial commitment of € 100 million for 2019. The company reiterates its total commitment of € 500 million efficiencies by 2022.

• Capital Discipline

Naturgy’s solid results and increased focus on cash flow generation have allowed it to reduce its net debt levels in the period, despite the cash outflows related to shareholder remuneration and the investments in the development of its renewable projects and networks businesses. During the last twelve months the company has allocated 70% of its total capex to renewables and electricity networks. Naturgy continues to develop its awarded renewable projects while building an additional pipeline whose development will ultimately be subject to the company’s Golden Rules of investment.

• Shareholder remuneration

The group, which has more than 70,000 small shareholders, in addition to the participants in the company´s capital, has approved a dividend of € 0.294 per share, to be paid on July 31st, corresponding to the 1st interim dividend of 2019, out of the total 1.37 €/share dividend committed against 2019 results, which represents a 5% increase vs. 2018.

Furthermore, the company has completed the first €400m tranche of its share buyback program. The Board of Directors has approved the cancelation of the shares acquired under this program, expected to take place during the month of August and authorized the launch of the new € 400 million tranche until the end of June 2020, in the absence of any inorganic opportunities which meet the company’s profitability criteria.

Results by business unit

By business units, Gas & Power registered an ordinary EBITDA of € 695 million, thanks to a strong performance of the gas, power and services sales, as well as the international power generation. On the contrary, international LNG and Europe power generation were negatively affected by lower sales and margins during the period.

The EMEA Infrastructure business increased its regular EBITDA to € 970 million, as a result of a good performance across all businesses and efficiencies..

Infrastructure South LatAm (Chile, Argentina and Brazil, mainly) grew significantly, with an ordinary EBITDA of € 449 million, driven by the efficiencies achieved and the tariff updates, and despite the negative FX evolution (-46 million).

In the case of Infrastructure North LatAm (Mexico and Panama), the ordinary EBITDA was € 190 million on the back of positive regulatory impacts, higher demand, and efficiency improvements.

Note:
1. Including €380m related to two LNG tankers in tome-charter regime incorporated durign 1H18 (non-cash investments).
2. As of 31/12/2018. IFRS16 adjusted.

Contribution to EBITDA by activities