Naturgy Energy S A : is making progress in achieving its targets for the end of the financial year 2020

Naturgy is making progress in achieving its targets for the end of the financial year 2020

• The company reaffirms its commitments for this financial year, marked by the health and economic crisis and a complicated international energy situation.
• Although there was a slight recovery in the demand of energy across all the geographies, COVID-19 has continued having an impact on the results in the third quarter that were affected by the new regulatory framework and the lower remuneration for electricity distribution in Spain.
• The company's ordinary EBITDA at the end of the third quarter was €3,002 million, a drop of 12%, being affected by market conditions and the negative development in exchange rates of Latin America currencies (-151 million). The ordinary net income in the period was €696 million.
• Naturgy progressed in its gas procurement contract renegotiations with its gas suppliers in order to reduce its risk profile and increase its flexibility. Until today, contracts accounting for over 50% of committed volumes have already been reviewed. The company continues negotiations with the rest of its suppliers and expects new agreements before year end.
• The company is also making solid progress in its renewable energy development plans and recently reached two agreements in Australia that increase its installed capacity in the country by more than 50%, becoming one of the main renewable energy operators.
• Investments amounted to €827 million in the period, mainly in renewable energy projects. The company confirms it will continue with its plans for investment in renewable energies and maintenance of the grids planned for the year in spite of the restrictions caused by the crisis.
• Available liquidity reached €10,150 million at the end of the period and the net debt was reduced to €14,727 million, confirming the company's aim of achieving balanced management of its financial resources.
• Naturgy is currently working on defining the company's key energy projects with which it intends to contribute to playing a leading role in economic recovery.
• Naturgy also took decisive steps to further its ESG commitments. Its CO2 emissions were reduced by 3.4% in the period and there were 2.4% more women holding executive and management positions.
• Due to its commitment to the shareholders, Naturgy completed the cash payment of its first interim dividend for 2020 amounting to €0.31/share and announced the payment of its second interim dividend for 2020 of €0.50/share on 11 November 2020.

Naturgy has made significant progress in complying with its financial and operational commitments as well as regarding ESG matters. In the first nine months of the year the company has faced with the impact of the COVID-19 outbreak, the resulting health and economic crisis and an adverse energy situation with a sharp drop in the price of raw materials. Right from the start of the crisis, the company has played a leading role by adopting measures to support and protect the interests of all its stakeholders in order to reduce the impact of the pandemic on domestic economies and to contribute to the management of this health crisis.

The company's chairman, Francisco Reynés, pointed out the need 'for the private sector and, in particular, the energy sector, to undertake a commitment to contribute to recovery towards growth and to create a new post-COVID situation that will enable us to adapt to our customers' needs and ensure progress is made in an energy transition that is fair and balanced for everyone'.

In this respect, Naturgy is completing the list of the company's key strategic projects with which it intends to contribute to playing a leading role in economic recovery. All of them will be focussed, among others, on renewable energies, new uses of energy and digitalisation and innovation with the goal of speeding up the energy transition.

Firm progress made in the commitments

The company is making progress in fulfilling its commitments and, since the launch of its Strategic Plan in 2018, it has become a simpler and more efficient company as far as its organisation is concerned, with a reinforced approach and greater capital discipline. Naturgy is now focussing on a new more in-depth transformation stage, which will be explained by means of an update of its road map on a future Capital Markets Day.

As the company has already announced, its management lines are aimed at, among others, maintaining the reduction of its risk profile by means of asset rotation, in accordance with the energy transition targets, creating win-win relationships with the regulators and renegotiating gas supply agreements. Other targets set by Naturgy are to optimise and automate core processes as well as to strengthen the company's position. 'All this will be achieved without overlooking our fundamental targets: the priority of remunerating shareholders, an industrial strategy of creating value and growth for each of the businesses and our commitments to ESG matters', Mr. Reynés specified.

Over the first nine months of the year, Naturgy paid in-depth attention to the management of its business portfolio and promoted changes in the organisation to continue with the company's transformation. The economic crisis has had an impact on the energy sector due to a lower demand for gas and electricity in Spain and Latin America, a more challenging situation in the international LNG market and the prices of raw materials and depreciation in Latin American currencies.

Naturgy is continuing to apply measures to reduce its risk profile and is renegotiating its supply agreements based on the ordinary and extraordinary review mechanisms included in such agreements. Until today, contracts accounting for over 50% of committed volumes have already been reviewed. The company continues negotiations with the rest of its suppliers and expects new agreements before year end.

Naturgy has also focussed on strengthening its liquidity and on financial discipline. At the end of the third quarter, the group's total liquidity amounted to more than €10,150 million. This healthy solvency, along with the cash-flow obtained from its business activity, means it will be able to easily fulfil its financial obligations over the next few years. The company's net debt in the period was reduced by €541 million to €14,727 million.

The company is also making fast progress in its renewable energy development plans at a national and international level. Naturgy has recently reached two agreements in Australia, which will enable it to increase its installed capacity in that country by more than 50%. The first one is for a 218 MW wind farm located in the State of Victoria, which will start operations in the second half of 2022, consisting of a 15-year PPA with the retailer Snow Hydro. The second one is for an award of a 107 MW wind farm and a 20 MWh battery energy storage system at a regulated tariff, which is expected to be start operations in the second half of 2022.

The company is also finalising permits for several renewable energy projects in Australia, which could lead to additional capacity of more than 400 MW being developed, increasing its current installed capacity in the country by more than 150% and becoming one of the two most important independent wind energy producers in Australia. The company has a project portfolio of more than 600 MW in the country and aims to become one of the main renewable energy operators in Australia in the next three years, achieving a total capacity of more than 1.3 GW.

During the period, Naturgy completed the acquisition of Medgaz after Global Energy & Power Infrastructure Fund (GEPIF) of BlackRock joined a special purpose vehicle (SPV) created for such reason. As a result, Naturgy and BlackRock now control a holding of 50% each in the SPV which, in turn, holds 49% of Medgaz' shares with joint control rights with Sonatrach. As a whole, this transaction represents a milestone for the company on many fronts, including a relationship being established with an internationally prestigious and well-known partner such as BlackRock and the conversion of a previous financial holding of 14.9% into a strategic one of 24.5%, with controlling rights and without Naturgy being required to provide any cash-flow.

Results

The ordinary EBITDA in the period stood at to €3,002 million, down 12.1% vs. the same period in the previous year. The ordinary net income reached to €696 million. The global investments in the period were €827 million, mainly in developing renewable energy projects in Spain and at an international level.

The slowdown in economic activity has had a significant impact on the evolution of gas and electricity demand globally. In particular, during the period the demand for electricity and gas in Spain decreased on average by 6.6% and 8%, respectively, compared with the previous year. Similarly, electricity and gas demand across the Latin American regions where the Group operates also experienced a decrease.

Certain Latin American currencies have also significantly depreciated against Euro and its evolution from there remains uncertain. This had a negative effect of €151 million and €38 million on the consolidated Group ordinary EBITDA and the Net Income, respectively, during the period and compared to the previous year.

Lower energy consumption caused by the uncertainty around the Brent production cuts of major producers globally has translated into significant volatility and an unprecedented decline of commodity prices across key references including a decrease on gas prices on major hubs (HH and NBP have decreased on average by 30% and 46%, respectively, during 9M20 vs. 9M19, as well as a decrease in wholesale electricity prices(Spanish pool has decreased by 36% on average during 9M20 vs. the average of 9M19).

Commitment to the shareholders

Naturgy continues fulfilling its commitment in the shareholder remuneration policy. During the period, the company completed the cash payment of its first interim dividend for 2020 amounting to €0.31 per share and has established the payment of its second interim dividend (€0.50 per share) on 11 November 2020. Due to the current economic and social situation, this dividend policy benefits more than 100,000 minority shareholders who have placed their trust in the company as an investment creating value and liquidity.

ESG compliance

Beyond the efforts undertaken to support and protect our customers, employees and shareholders during COVID-19, the company also took decisive steps to further its ESG (Environmental, Social and Governance) commitments. The recent shutdown of coal power plants in Spain that was implemented on 30 June and the plans to achieve growth in renewable energies will contribute towards the above goals. By making progress in its commitments, the company reduced its CO2 emissions by 3.4% in the first nine months of the year.

Naturgy has also continued to progress on governance matters, and particularly on gender parity nominating Lucy Chadwick and Isabel Estapé as new Board members, representing GIP and Criteria respectively in the first part of the year and by increasing the number of women holding executive and management positions by 2.4% up to 30 September.

Main figures

	Reported			Ordinary
(€ millones)	9M20	9M19	Change	9M20	9M19	Change
EBITDA	2,774	3,325	-16.6%	3,002	3,416	-12.1%
Net income	490	901	-45.6%	696	1,007	-30.9%
Capex	827	1,120	-26.2%	-	-	-
Net debt	14,727	15,268	-3.5%	-	-	-
Free cash flow after minoritaries	1,327	1,553	-14.6%	-	-	-

Note:
1. Restated.
2. As of 31/12/2019.

EBITDA contribution per activity

	Reported			Ordinary
€ millones)	9M20	9M19	Change	9M20	9M19	Change
Gas & Power	696	974	-28.6%	796	982	-19.0%
Infraestructure EMEA	1,316	1,423	-7.5%	1,393	1,480	-5.9%
Infraestructure LatAm South	579	722	-19.8%	590	717	-17.7%
Infraestructure LatAm North	260	280	-7.1%	262	281	-6.8%
Rest	-77	-74	4.1%	-39	-44	-11.4%
TOTAL	2,774	3,325	-16.6%	3,002	3,416	-12.1%

Scope and topic:Corporate, Financial

Madrid, 28th October 2020