Naturgy makes progress in the fulfilment of its Strategic Plan and increases its ordinary EBITDA by 12% to 4.41 billion euros

Naturgy successfully closed the 2018 financial year, which was marked by the arrival of a new chairman and CEO, the incorporation of new shareholders, the renewal of the Board of Directors and a new organisational structure aimed at simpler, more transparent management and greater business autonomy. A year in which the energy multinational has presented to the market a 2022 roadmap for its transformation and has launched an action plan to achieve the objectives set through four pillars for creating value.

Thanks to this new strategy, the company has already begun to materialise value in its income statement just six months after presenting its 2018-2022 Strategic Plan to the market, recording ordinary EBITDA of 4.41 billion euros, up 12% on the previous year; and ordinary net profit of 1.25 billion euros, 57% higher than in 2017.

The company’s chairman and and CEO, Francisco Reynés, highlighted that, “We have established the bases to deal with the transformation of the group, reposition the business for the energy transition and achieve the objectives set in the new roadmap. The 2018 results show a positive performance of the various business units, but it will be during the next few years when we will see a more substantial improvement in results as we move forward with the execution of the plan”.

He also wished to highlight “the important simplification work that has been carried out and the determination to create value for shareholders”. In addition, he pointed out that, “the agreement with Sonatrach and the new investments in renewable energies in Brazil and Australia are clear examples of the positive advances at international level”.

Simplicity and Accountability

During the second half of the year, the company embarked on its strategic transformation presented to the market last June. On the one hand, Naturgy carried out significant changes in the management of the company with the simplification of the organisation and the reduction of the size of the Board of Directors. Also, the company announced at the presentation of the Strategic Plan the revision of the book value of its assets which resulted in a write-down of 4.85 billion euros.

Optimisation and efficiency.

Of note during the year was the renewal of the gas supply contracts with Sonatrach in Algeria up to 2030 and the favourable ICSID award, with its approval in the United Kingdom, in proceedings initiated by Unión Fenosa Gas (UFG) against Egypt, pending a comprehensive agreement being reached to restore the value of the investment in the country, aside from the aforementioned arbitration proceedings.

Also in the period, the company accelerated the efficiency plan, the goal of which is to reduce costs by 500 million euros a year by 2022. 2018 closed with recurring annual efficiencies of 110 million euros, which incurred capture costs of 180 million euros. In the last six months, Naturgy made progress in optimising its share capital structure through local currency issues in Mexico, Brazil and Chile with the repayment of approximately 1.7 billion euros of bank debt at corporate level.

At financial year-end, Naturgy’s financial debt amounted to 13.67 billion euros, 10% less than at the close of 2017. Free cash flow, for its part, stood at 3.06 billion euros, compared with 746 million euros in the previous period. In addition, Naturgy has provided the flexibility required by the business divisions for their autonomous financing.

Capital discipline

The company generated 5.5 billion euros of cash during the year through the positive evolution of the business and the divestments of non-strategic assets, which have been mainly used to produce growth in strategic assets, reducing debt and remunerating shareholders.

Specifically, 2.32 billion euros were invested, 30% more than in 2017. Investments in organic growth projects accounted for more than 70% of the total, standing at 1.64 billion euros (+76%).

Growth in strategic assets over the course of the year included most notably the award of a new wind farm in Australia, with an associated investment of 166 million euros, and the entry into operation of two photovoltaic projects in Brazil, involving an investment of 95 million euros.

The company plans to invest 663 million euros in new renewable capacity in 2019.

Shareholder Remuneration

Another key factor in complying with the Strategic Plan is the commitment to shareholder remuneration. The company increased the dividend by 30% in 2018, to €1.30/share, and from now until 2022 it will be increased by a minimum of 5% per year.

As it has already disclosed to the market, the company has also launched a plan to buy back its own shares in the event of the absence of inorganic investment opportunities that would help create value for shareholders. Thus, from the presentation of the Strategic Plan until the end of January of this past year, Naturgy repurchased shares for an amount of 145 million euros.

Thanks to the payment of the dividend and the share repurchase programme, Naturgy’s shareholders were paid a total of 1.5 billion euros, 50% more than in 2017.

Furthermore, the company implemented a long-term incentive plan for managers, whereby their long-term remuneration is linked exclusively to the total shareholder remuneration until 2022, that is through share appreciation and payment of the dividend. This programme will be settled in shares in 2023, provided that the minimum profitability threshold, consistent with its Golden Rules, is met. Through this measure, Naturgy has directly aligned the management team with the interests of its shareholders.

Results per business

In the results presented to the market today, Naturgy shows significant growth in all its business units, with ordinary EBITDA reaching 4.41 billion euros (+12%) and ordinary net profit of 1.25 billion euros (+57%).

As of 31 December 2018, the company had recorded a consolidated accounting loss of 2.82 billion euros, as a result of the adjustment to the book value of assets, mainly conventional power generation in Spain, amounting to 4.85 billion euros, which was executed in the first half of 2018.

Exchange rate trends between January and December had a negative impact of 218 million euros on EBITDA and affected all the currencies in which the company operates, mainly the Argentine peso, the Brazilian real and the US dollar.

By business unit, Gas&Power, which is growing in terms of all its activities, recorded an ordinary EBITDA of 1.45 billion euros (up 52.1% with respect to 2017), mainly due to the international LNG business and the marketing of gas.

The business of Infraestructuras EMEA increased its EBITDA by 2.2% to 1.85 billion euros, thanks to the good performance of the gas and electricity networks and of Europe Maghreb Pipeline Limited (EMPL).

The results of the Latin America South Infrastructures business (mainly Chile, Argentina and Brazil) was affected by the poor exchange rate performance, which impacted the EBITDA of this business division in the amount of 171 million euros, falling to 846 million euros in ordinary terms (down 3.5% on 2017).

In the case of Latin America North Infrastructures (Mexico and Panama), the impact of currencies was 16 million euros in terms of EBITDA, which reached 275 million euros in ordinary terms (down 3.2% with respect to the previous year).