Today, Naturgy released its financial results for the first six months of 2023 to the market, along with the strategic review for the 2025 horizon recently approved by its Board of Directors. These developments come after the company exceeded all objectives outlined in its 2018-2022 Strategic Plan.
The first half of the year was characterised by a decline in energy prices amid persistent volatility and regulatory uncertainty. In this context, the company increased its investments to progress in its industrial plan and played a crucial role in ensuring energy supply security in Spain. This involved supplying gas to businesses and ensuring the continuity of supply in the Spanish power sector, where combined cycle power plants played a fundamental role.
As of 30 June 2023, the company reported an EBITDA of 2.849 billion euros (+39%) and a net profit of 1.045 billion euros. Investments during the period amounted to 839 million euros (+16%), while debt on 30 June stood at 10.752 billion euros (-11% compared to the end of 2022). These increases were underpinned by the excellent performance of international liberalised activities, particularly in energy management, and by the encouraging financial results, showcasing the company’s successful deleveraging efforts during the period.
The Group’s regulated businesses made up 43% of the total EBITDA, amounting to 1.261 billion euros. Grid activity in Spain was primarily impacted by reduced remuneration and demand, particularly in the gas sector, due to milder weather conditions and lower industrial demand. Grid activity in Latin America experienced positive effects from tariff updates and other factors. Meanwhile, liberalised businesses contributed 57% of the Group’s EBITDA, amounting to 1.677 billion euros, driven predominantly by international energy management activities.
“These results continue the positive trajectory we presented to the market for 2022 and exceed our goals for operational efficiency, cash generation, investment execution, and debt reduction,” explained Francisco Reynés, Chairman & CEO of Naturgy. “Furthermore, they showcase the robustness of our industrial plan, which is driving our energy mix transformation through strategic investments while solidifying our position as a key player in ensuring energy supply security in Spain,” he added.
Strategic review for 2025
In early July, the Board of Directors, comprising representatives from all the company’s key shareholders, expressed their unwavering commitment to an industrial project that has proven its strength by enhancing its commitments, even amid challenging and volatile conditions in the energy markets where the company operates.
The 2018-2022 Plan results exceeded expectations by a considerable margin. As of the close of 2022, the company delivered improved operational outcomes, reporting an EBITDA of 5 billion euros (compared to the initial forecast of 4.6 billion euros in July 2018). Moreover, the company reduced its net debt to 12.1 billion euros (vs. the committed target of 15.1 billion euros), and increased its investments to 8.1 billion euros (vs. the initial projection of 7.3 billion euros).
Following the successful execution of the 2018-2022 Plan, the Board of Directors reviewed the expectations for the coming years and set its targets for 2025, when the company envisions exceeding 5 billion euros in EBITDA and attaining a net profit of 1.8 billion euros. Investments for the 2021-2025 five-year period will amount to 13.2 billion euros, marking an increase of over 5 billion euros in capex compared to the previous strategic period.
Between 2023 and 2025, 61% of the total planned investments will be directed towards renewable energy development, while 28% will be allocated to the grids business. Additionally, the company aims to reduce its net debt to 16 billion euros by the end of 2025, marking a decrease of 1 billion euros from the previous forecast.
“Our enhanced provisions through 2025 are a result of a strategy aligned with the energy transition, with a key emphasis on organic growth. Coupled with astute asset rotation management, this approach will continue to drive our transformation,” explained Reynés. He further emphasized, “Our strategic vision remains firmly focused on progressing towards decarbonisation, making disciplined financial investments, and upholding our unwavering commitment to our customers, shareholders, employees, and society.”
In addition, the Board of Directors set a minimum for the annual dividend at €1.40/share for the years 2023-2025, contingent upon maintaining a BBB credit rating with S&P. This new minimum aligns with the average payout of 85% committed to in July 2021. Considering current share prices, this translates to a yield exceeding 5% and serves as compensation to the company’s numerous shareholders for the increased costs resulting from interest rates and inflation.
The initial interim dividend based on the 2023 results has been confirmed at €0.50/share and is scheduled for payout to the shareholders on 7 August.
Results for the first half of 2023
The liberalised businesses contributed 57% of the Group’s EBITDA, amounting to 1.677 billion euros, primarily driven by international energy management activities.
Amid an environment still marked by uncertainty in energy costs, Naturgy remained committed to offering its customers stable and competitive prices for both gas and electricity, providing them with valuable support.
During the first half of the year, gas prices declined, and volatility persisted as a result of reduced demand and mild temperatures in Europe, leading to elevated storage levels. Furthermore, there was moderate gas demand in Asia. This situation benefited the global energy management business and thermal generation in Spain.
The EBITDA of the company’s regulated businesses increased by 5.3%, amounting to 1.261 billion euros in the first half of 2023 (43% of the Group’s total EBITDA), fuelled primarily by a 33% increase in Latin America.
The regulated businesses in Spain generated 732 million euros, affected by lower residential demand due to climatic factors and decreased industrial demand, resulting from the significant price volatility experienced in the past twelve months.
Elsewhere, renewable generation recorded an EBITDA of 235 million euros, a 34% increase compared to the same period in the previous year. This growth can be primarily attributed to the expansion of installed capacity and a rise in production in Spain, particularly in conventional hydropower (surpassing the first half of 2022 by more than double).
Focus on renewable investments
As of 30 June, the Group’s investments amounted to 839 million euros, marking a 16% increase. Around 65% were directed towards renewable energy growth and grid development, spanning both Spain and Latin America.
At present, Naturgy boasts an operational renewable capacity of nearly 5.7 GW, with a global increase of almost 400 MW in the past six months (250 MW in Spain).
In Spain, the company has some thirty wind farms and photovoltaic plants under construction, which will contribute almost 1 GW of installed capacity to the group’s portfolio by the end of 2024. Furthermore, it is pursuing various projects related to biogas and hydrogen development.
Furthermore, during the first half of 2023, Naturgy entered into an agreement with the infrastructure fund Ardian to acquire 100% of ASR Wind, which owns a total of 422 MW across 12 operational wind farms in Spain. This transaction received unconditional approval from the Spanish National Commission for Markets and Competition, the CNMC, on 19 July.
Naturgy has also initiated the process of developing eight battery storage projects, primarily hybridised with the company’s photovoltaic plants in Spain. These facilities, with a power of 145 MW and a storage capacity of 290 MWh, will help strengthen the supply quality of the Spanish electricity system, promoting the integration of renewable energy into the network.
In Australia, in the first six months of the year, Naturgy launched its third wind farm, Berrybank 2, boosting its total installed capacity in the country to 386 MW. Looking ahead, the company plans to reach an operational renewable capacity of approximately 1 GW by 2024. This will be achieved through the grid connection of new projects in Victoria (218 MW), the Hawkesdale wind farm (97 MW), the Crookwell 3 wind farm in New South Wales (58 MW), and the Cunderdin hybrid project (128 MW solar and 55 MW/220 MWh storage) in Western Australia.
The company is currently advancing with the construction of its first 300 MW solar plant in the United States, with plans for it to commence operations in 2024.
Strong commitment to biomethane as a solution to the energy trilemma
The company’s investments in renewable generation underscore its strategic commitment to finding a balanced solution to the energy trilemma: contributing to economic decarbonisation, ensuring energy security, and providing affordable energy prices for all consumers.
In the face of this triple challenge, Naturgy’s objective is to play a pivotal role in the development of renewable gases. This involves both the production and distribution of biomethane in Spain in the short term and the development of hydrogen as an energy vector, which will have a significant impact on the medium-term energy mix.
The company has positioned itself as one of the leading promoters of renewable gas in Spain, boasting over 60 projects at various stages of development. It currently operates two biomethane production plants, one at the Bens WWTP, in A Coruña, and the other in Cerdanyola del Vallès, Barcelona. The latter was the first in Spain to inject renewable gas from landfills into the grid. Naturgy has plans for a third plant in Vila-Sana, Lleida, due to come online this year, and it has already initiated the approval process for two additional plants in Torrefarrera, Lleida, and Utiel, Valencia.
The company is in a favourable position to seize the opportunities presented by renewable gases and drive forward decarbonisation efforts. It is willing to make substantial investments and allocate resources to this business, given the considerable potential Spain holds for its development, with 160 TWh/year, equivalent to 40% of the country’s gas demand.
The recent draft of the Spanish National Integrated Energy and Climate Plan (PNIEC) has doubled the renewable gas production target to 20 TWh/year by 2030, highlighting its crucial role in the energy transition. Biomethane, as a mature and affordable technology, also contributes to the circular economy through waste optimisation, job creation and the development of rural areas.
Financial discipline and debt reduction
During the first six months of 2023, Naturgy maintained a focus on financial prudence and capital discipline, in response to the persistent market volatility and regulatory uncertainty.
Consequently, the company managed to reduce its debt level by 11%, from 12.07 billion euros at the end of 2022 to 10.752 billion euros as of 30 June of this year. The net debt/EBITDA ratio also improved from 2.4x at the end of December 2022 to 1.9x at the close of the first half of 2023, and the company maintains liquidity above 10 billion euros.
Naturgy’s credit outlook was upgraded by S&P from negative to stable, and the company’s credit rating was reaffirmed as BBB.
Global context: energy demand and prices
During the first half of 2023, energy demand in the countries where the Group operates continued to decline. In Spain, both electricity and gas demand experienced an average reduction of 6.9% and 12.5%, respectively, compared to the same period the previous year. These declines were attributed to macroeconomic uncertainty and unusually mild temperatures during the winter season.
In Chile and Brazil, gas demand also decreased by 1.5% and 34%, respectively. However, in the rest of the Latin American countries where the Group operates, there was some growth in gas and electricity demand: 1.9% in gas in Mexico; 9.6% in gas and 3.9% in electricity in Argentina; and 5.9% in electricity in Panama.
In the first half of 2023, financial Group performance was slightly affected by the evolution of Latin American currencies, resulting in a negative impact of 4 million euros on EBITDA and 5 million euros on net profit, as compared to the same period in 2022.
After the unprecedented rise in gas and electricity prices in 2022, energy prices saw a reduction during the first half of 2023. However, volatility and high sensitivity to geopolitical issues and the risk of potential supply disruptions persisted.
The European gas prices were mainly influenced by lower demand and mild temperatures, resulting in increased storage levels, as well as moderate gas demand from Asia. In this scenario, average Brent prices were 25.8% lower than in the first half of 2022, while gas prices at the main hubs experienced substantial downward corrections, with reductions of over 40% in the TTF and almost 40% in the JKM.
Meanwhile, electricity prices in the wholesale market experienced an average reduction of over 50% during the six-month, compared to the same period of the previous year.
Progress in ESG commitments
In line with its commitment to energy transition and decarbonisation, Naturgy continued to expand its emission-free installed capacity, reaching 5.7 GW, and it aims to add another 3 GW within the next 18 months.
Regarding diversity, the Group is making strides in achieving gender parity and representation of women, while also maintaining a firm commitment to the professional development of its employees. It actively promotes workforce rejuvenation and provides the necessary resources for career advancement. Naturgy is committed to managing and transforming the company’s talent and moving towards a balanced workforce in terms of gender and age, in both managerial and technical positions.
As part of this commitment, the company launched the Flex&Lead programme, aimed at outsourcing young talent with diverse profiles, to recruit 300 young people by 2025. To date, 200 people have already been incorporated, of which 77% are women with an average age of 25