Naturgy has closed FY20 in a stronger position to take on the energy transition and having made significant progress towards its financial, operational, and ESG (Environmental, Social and Governance) commitments. All of the above has been achieved in a financial year marked by the economic and social impacts of the pandemic and an adverse energy scenario, with a generalised drop in energy demand.
The company’s executive chairman, Francisco Reynés, highlighted “the ability to adapt that Naturgy has demonstrated in this difficult context and how the company has stood out from the rest of its competitors in the energy scenario on an international level, thanks to its growth in clean technologies and commitment to new businesses such as renewable gas, promoting digitalisation and innovation in all areas of the group.”
Dynamic management has been key over the course of this year to optimise the asset portfolio and advance with asset rotation. As a result, the company has strengthened its financial position, in addition to its solvency and liquidity. Together with the performance of the business, this made it possible to soften the effect of the adverse context and the volatility of international energy markets.
Additionally, Naturgy has demonstrated the key role it plays in energy transition. Proof of this is its role in the presentation of calls of interest to identify projects to drive the economic recovery, in the framework of EU funding for the energy transition. The company has identified investment opportunities for the coming years to the tune of 13 billion euros, related to a variety of projects in Spain linked to the Next Generation EU funds
Achieving objectives
The company has made progress towards fulfilling its commitments and is focused on a new transformation stage. This was once again demonstrated following the recent acquisition of renewables projects in the United States, with the purchase of Hamel Renewables and its project portfolio consisting of 8 GW of solar energy and 5 GW of storage.
The positive result in the auction held in Spain is also of note. The company was allocated a total of 235 MW (38 MW wind power and 197 MW solar power) distributed between wind and solar power technology, highlighting the value of the collection of renewable projects the company has been working on in recent years, which has allowed it to configure a truly competitive and optimised portfolio. The allocation in this auction is in line with the company’s growth objectives and joins the more than 300 MW that the company approved at the end of last year, which currently are at the beginning of the construction phase.
Over 2020, Naturgy made significant progress in Australia, which has become a key region for the company thanks to the recent agreements reached that will increase its renewable capacity in this country above 700 MW. Specifically, the group has the wind farms ‘Ryan Corner’ and ‘Berrybank’ in Australia, giving a total of 328 MW, as well as the ‘Crookwell 2’ (96 MW) wind power project, which is currently operational. In addition, the authorisation of several renewables projects in Australia could lead to the development of a further 400 MW of capacity, making it one of the most important independent wind energy producers in the country.
The company made solid progress in renewables in Chile, where it has a wind and solar capacity of over 300 MW. In Brazil, the company has 80 MW of photovoltaic power in operation and installed the first photovoltaic plants outside of Spain. These are the Sobral (30 MW) and Sertao (30 MW) projects in Piauí, and Guimarania I and II (80 MW) in Minas Gerais.
Total investments amounted to 1,279 million euros in 2020, 60% of which were allocated to growth.
In addition to growth and value creation, the group’s priority management lines were mainly linked to maintaining the reduction of its risk profile by rotating assets. Of note is the divestment of the 96.04% equity shareholding in the Chilean company CGE for an EV of more than 4,300 million (EV), thereby confirming the company’s ability to generate value for its shareholders. The transaction is subject to regulatory approvals and competition clearance and is expected to be completed in the first half of 2021.
The agreement reached with ENI and the Egyptian Government regarding the Damietta liquefaction plant, owned by the joint venture Unión Fenosa Gas (UFG) is also of note. The parties continue working to complete the transaction during the first part of 2021, once customary conditions precedents are met. This agreement will solve a complex situation which had lingered since 2012, consuming significant amount of the company’s resources.
All of this without abandoning fundamental objectives, such as an industrial strategy of value creation and growth in all of the businesses, as well as ESG objectives. In this last aspect, greenhouse gas emissions (-7%) continued to drop in 2020 and the gender equality of the workforce continued to increase, because of the company’s commitment to diversity and gender equality policies.
In 2020, the company’s net debt amounted to 13,612 million, a reduction of almost 11%, not yet reflecting the pre-tax proceeds of 2,570 million expected on completion of the disposal of CGE Chile. In 2020, the average cost of gross financial debt improved to 2.5% compared to 3.2% in 2019. At year-end, the group’s total liquidity stood at 9,475 million.
Results
After deconsolidating the EBITDA of CGE, the ordinary EBITDA for the period stood at 3,714 million, a 14.6% decrease compared to the previous year. At constant perimeter, the ordinary EBITDA would have reached 3,964 million euros, hence meeting the ordinary EBITDA guidance of 4 billion euros provided for 2020 despite the challenging scenario. Net ordinary income reached 872 million.
In an effort to provide a more transparent and realistic value of our asset base that is better adjusted to the current energy scenario, in the fourth quarter of the year the company carried out an asset valuation review. This translated into an impact of 1,363 million euros, mainly affecting conventional generation in Spain (1,145 million euros) and gas activities in Argentina (198 million euros).
COVID-19 impacted operating activity in 2020, mainly due to lower energy demand worldwide. Consequently, electricity and gas demand in Spain dropped by 5.5% and 6.2%, respectively, in 2020 compared to 2019. Similarly, electricity and gas demand across the Latin American regions where Naturgy operates experienced an average decrease of 2.8% and 8.3% respectively.
Gas and electricity consumption in Spain decreased by an average of 6.6% and 8%, respectively, over the past year. Similarly, energy demand also decreased across the Latin American regions where the company operates.
Furthermore, and since the appearance of the pandemic, Latin American currencies have significantly depreciated against the euro and their evolution remains uncertain. This had a negative effect of 175 million euros on the consolidated ordinary EBITDA and 53 million euros on consolidated net income.
Lower energy consumption and production cuts worldwide translated into significant volatility and an unprecedented drop in commodity prices across key references, including a decrease of gas prices in major gas hubs (HH -22% and NBP -29%) as well as a decrease in wholesale electricity prices (Spanish pool has decreased by 29% on average during 2020).
The results have been restated in accordance with the new organisational structure: Energy Management and Networks; Renewables, New Businesses and Innovation; and Supply. The results have also been restated to reflect the sale of our equity shareholding in CGE, which has been classified for comparability purposes as held for sale in the consolidated accounts for both 2019 and 2020.
Commitment to shareholders
At the Shareholders’ General Meeting, Naturgy’s board of directors will propose the payment of a final dividend for 2020 of €0.63/share, to be settled during the first quarter of this year. Consequently, and if approved by shareholders, this payment will join the 1st and 2nd interim dividends for 2020 of €0.31/share and €0.50/share, respectively, taking the total dividend to €1.44/share.
Moreover, and further to its commitment with shareholders, Naturgy completed the cancellation of 14,508,345 shares, with a face value of €1 each As of today, the company’s share capital stands at 969,613,801 shares with a face value of 1 euro each.
Main figures
| Reported | Ordinary | |||||
|---|---|---|---|---|---|---|
| (€ millones) | 2020 | 2019 | Change | 2020 | 2019 | Change |
| EBITDA | 3.449 | 4.252 | -18,9% | 3.714 | 4.348 | -14,6% |
| Net income | -347 | 1.401 | – | 872 | 1.378 | -36,7% |
| Capex | 1.279 | 1.685 | -24,1% | – | – | – |
| Net debt | 13.612 | 15.268 | -10,8% | – | – | – |
| Free cash flow after minoritaries | 1.626 | 1.958 | -17,0% | – | – | – |
Note:
1. Restated.
EBITDA contribution per activity
| Reported | Ordinary | |||||
|---|---|---|---|---|---|---|
| (€ millones) | 2020 | 2019 | Change | 2020 | 2019 | Change |
| Energy management and networks | 2.859 | 3.619 | -21,0% | 3.046 | 3.670 | -17,0% |
| Renewables and new businesses | 352 | 332 | 6,0% | 362 | 337 | 7,4% |
| Supply | 326 | 411 | -20,7% | 359 | 392 | -8,4% |
| Rest | -88 | -110 | -20,0% | -53 | -51 | 3,9% |
| TOTAL | 3.449 | 4.252 | -18,9% | 3.714 | 4.348 | -14,6% |