Naturgy closed the first quarter of 2021 having made significant progress in its commitments to long-term value creation for all its stakeholders and risk profile reduction. The company continued to actively manage all its businesses during the period, finalised an agreement to settle disputes amicably in Egypt and took decisive steps towards concluding the sale of its electricity distribution business in Chile, scheduled for the second quarter of this year. Naturgy also maintained its drive to improve its position in the international renewable energy market; January saw it conclude its operations to enter the US market by purchasing a portfolio of projects in the initial development phase.
Franciso Reyes, chairman of Naturgy, underscored “the company’s ability to achieve results and create value on a daily basis despite the macroenvironment. Our activity establishes us as an active agent in the energy transition that aims to contribute to economic recovery, in line with our commitment to society. Naturgy is deeply involved in a profound transformation, one that is needed in the current environment and that forces us to pre-empt the challenges faced by the sector.”
The company is making steady progress in meeting its ESG (Environmental, Social and Good Governance) commitments. During the first quarter it recorded a decrease in greenhouse gas emissions, which fell by almost 23% as a result of greater renewable energy production and reduced thermal production during the period.
The company also increased its net emissions-free production by 21% and its emissions-free installed capacity by more than 14%, partly due to new renewable capacity entering operation in Chile and the effects of closing carbon power plants during the comparative period.
Dynamic management in the first quarter
A dynamic approach to management was key during the first quarter, as evidenced by the company’s entry into new markets with strong currencies via clean technology, its successful bidding at the most recent renewable energy auction in Spain, and the progress made in various operations.
In March, Naturgy, ENI and the Arab Republic of Egypt finalised the agreement reached on 1 December 2020 to amicably resolve litigation related to Unión Fenosa Gas (UFG). The agreement valued all of UFG at $1.5 billion , of which $1.2 billion correspond to its Egyptian assets (including pending legal procedures) and the remaining $300 million to assets outside of Egypt.
Naturgy has already received part of the cash payments, which will total approximately $600 million, and most of the assets outside of Egypt, excluding UFG’s commercial activities in Spain. As part of the agreement, Naturgy terminated its gas procurement contract expiring in 2029, while maintaining the contract it has with Oman that expires in 2025. It is a significant step towards reducing the company’s exposure to gas purchase price risk and resolved a complex situation that had dragged on since 2012.
The closure of this transition marks Naturgy’s exit from Egypt and ends its joint business with ENI, demonstrating its ability to simplify and reduce the risk of its commercial position to maximise long-term value creation.
Naturgy also made progress towards finalising the sales agreement of its 96.04% share in Chilean electricity network subsidiary CGE to the Asian group State Grid Development Limited for €2.570 billion. On 31 March 2021, the National Economic Prosecutor’s Office (FNE) in Chile unconditionally approved the merger. Naturgy expects to complete the transaction in the second quarter of 2021.
The company continued to position itself in the international market with investments that add medium and long-term value to its stakeholders. As part of this strategy, it purchased a portfolio of 8 GW (solar energy) and around 5 GW (storage) projects in the United States.
Naturgy plans to have 1.6 GW of operational capacity by 2025, while keeping open the possibility of developing its remaining projects to reach 8 GW of photovoltaic energy by 2030. This transaction is Naturgy’s first investment into the US renewable energy market and demonstrates its commitment to growth in renewable energy, focusing on stable geographies and projects at an early stage of development.
In Spain, Naturgy was the winning bidder of 235 MW (38 MW of wind power and 197 MW of photovoltaic energy) at the most recent auction in Spain. The award at this auction completes Naturgy’s commercial strategy, which primarily aims to agree long-term renewable energy purchase agreements (PPAs) with industrial customers. Naturgy also won a bid for 45 MW of solar capacity in the Canary Islands, which will allow the group can double its current installed capacity in the islands.
In terms of recovery plans driven by the European Union and Government of Spain, the company has submitted around one hundred seed projects in response to the EU’s call for expressionsof interest. These energy transition projects identify investment opportunities valued at nearly €14 billion.
During the first quarter, IFM launched a partial takeover bid for 22.6% of Naturgy’s share capital at a share price of €23 that was subsequently adjusted for dividends to €22.37. This bid remains open and subject to governmental approval.
Results
Despite an improving economic outlook and the gradual recovery of raw material prices, Covid-19 has continued to have a negative impact on operations in the form of macroeconomic uncertainty and the significant depreciation of Latin American currencies. In response, Naturgy is launching transformation initiatives that will help it recover its competitiveness despite these energy-related and macroeconomic challenges. These initiatives are being developed in a context where it is now possible to glimpse signs of improvement.
Ordinary EBITDA stood at €1.029 billion in the first quarter of 2021, a 2% decrease on the previous year, despite the fact that the Covid-19 outbreak began at the end of February 2020 and therefore had a limited impact during the first quarter of 2020. Ordinary net income reached €323 million in the first quarter, a 3.5% increase. Reported net income reached €383 million and this result was principally achieved by finalising the UFG agreement, which had an extraordinary positive impact of €65 million in earnings.
The company’s reported EBITDA (€982 million) and reported net income (€383 million) were above the consensus forecasts, which predicted a reported EBITDA of €943 million and a reported net income of €300 million.
Total investment during the first quarter rose to €196 million, a 2.5% decrease due to greater maintenance optimisation and the impact of currency fluctuations.
At 31 March 2021, net debt rose to €13.597 billion, in line with net debt at the close of 2020. This level of debt does not yet reflect the expected pre-tax proceeds of €2,570 billion from the sale of CGE
Evolution of raw materials
The start of 2021 has been marked by signs of improved economic forecasts, mainly due to the launch of various Covid-19 vaccination campaigns across the world which are making uneven progress.
These signs of improvement go hand in hand with increased inflation predictions and a gradual recovery of global raw material prices. Brent prices have increased by an average of 21% compared to the same period last year, while gas prices have also improved at the main hubs (HH and NBP rose by 29% and 84% respectively during the first quarter of 2021 compared to 2020). Wholesale electricity prices also rose and the Spanish pool increased by 30% compared to the first quarter of 2020.
Key figures
Contribution to EBITDA per activity
