Naturgy has made headway on fulfilling its 2018-2022 Strategic Plan, with which it laid the foundations of its long-term value creation strategy. Proof of the company’s smooth progress can be found in its recorded results, which exceeded the market consensus up until September 30, with an ordinary EBITDA reaching 3.397 billion euros, 5% more than the previous year, and an ordinary net profit of 991 million euros. These results were achieved despite a lack of growth for regulated businesses and the slowing of liberalized businesses in a more adverse energy scenario than the previous financial year.
The company was thus able to surpass the projections of the consensus of the 15 analyst firms that participated in the preparation of the forecast and estimated an average reported EBITDA of 3.267 billion euros and net profit of 893 million euros.
The first nine months of 2019 were marked by a decided commitment to renewable energy, with an investment close to 400 million euros, the largest in the company’s history, demonstrating the group’s solid industrial plan and helping make the group one of the top investors in clean technology in the last financial year, showing its strong commitment to the energy transition. In this way, in the first quarter of 2019, Naturgy became the first company to connect the network to all the power awarded in the last photovoltaic auction in Spain (250 MW).
As a whole, the company invested more than 1.1 billion euros in the period. This sum was mainly allocated to the development of renewable projects, where the 290 MW in solar and wind projects made operational in Spain during the period are particularly of note. The installed capacity in the country rose to close to 1.5 GW, a 25% increase.
The company has also invested in the development of 180 MW of wind power in Australia and 324 MW of wind and solar power in Chile, which will become operational in the third quarter of 2020 and the first quarter of 2021, respectively.
Naturgy’s results from the third quarter of 2019 demonstrate the group’s solid industrial plan both at the national and international levels. In the first nine months of the year, the energy company reduced its net debt by 176 million euros, despite significant investments made and its commitment to paying out dividends to shareholders.
Thanks to its efforts with regard to sustainability as well as environmental, social, and corporate governance (ESG) best practices, Naturgy was able to become a global leader of the gas utilities sector on the Dow Jones Sustainability World Index (DJSI World), the global benchmark for best corporate ESG practices, for the third consecutive year.
Optimization
Moreover, Naturgy has made progress in optimizing its business portfolio. The company reinvested the resources generated by selling assets in Chile so as to gain joint control of Medgaz at appealing multiples, confirming its capital discipline and long-term industrial project.
The chairman of Naturgy, Francisco Reynés, pointed to “Naturgy’s ability to optimize the allocation of group capital and resources into areas that maximize value creation for stakeholders in the long term.”
On October 1, 2019, the group completed the sale of Transemel, an electricity transmission subsidiary in Chile for a price (100%) of 155 million euros and an enterprise value of 182 million euros, equivalent to approximately 23.5 x EV/EBITDA 2018.
On October 15, 2019, Naturgy also reached an agreement to acquire a 34.05% stake in Medgaz for 445 million euros. The transaction will transform its financial interest of 14.95% in Medgaz into a strategic interest that will allow it to jointly control Medgaz with Sonatrach. The acquisition was agreed at a multiple equivalent to 6.9 x the EBITDA expected in 2021, which includes the approved 2 bcm gas pipeline expansion program.
“On the whole, this is a transaction that is very favorable for Naturgy, both because it is a strategic infrastructure asset, where we will notably increase our control position, as well as because of the financial terms reached in the agreement, which entail an appealing price for stable dividends that are predictable in the long term and fulfill our shareholder value creation criteria,” said Francisco Reynés, Naturgy Chairman.
In the chairman’s words, the transaction “proves that the company is not only focused on improving and investing in existing businesses to create value, but also in turning over assets and optimizing the allocation of capital, as shown by, for example, the sale of our subsidiary Transemel in Chile at an appealing multiple that generated resources at a scale similar to that invested in the Medgaz transaction, at a lower multiple.”
Naturgy is also making headway on the implementation of its efficiency and optimization plan for its business portfolio.
On the one hand, the group accelerated its efficiency plan and expects to reach at least 150 million euros by the end of 2019, compared to the initial projection of 100 million.
Stable commitment to shareholders
Naturgy remains fully committed to compensating shareholders. The Board of Directors approved the second interim dividend for this year set at 0.473 euros per share, which will be distributed on November 12. This dividend has been added to the share repurchase program, in line with the commitment acquired in the 2018-2022 Strategic Plan.
In the third quarter, the company also bought back 16,567,195 treasury shares equivalent to 1.7% of the capital, with the corresponding increase in earnings per share.
Business results
By business unit, Gas&Power had an ordinary EBITDA of 964 million, 3.9% less, despite the solid performance of gas, power, and service sales, as well as international power generation sales, while the international LNG business was affected by lower volumes and margins during the period, although the exceptional market conditions of 2018 are not comparable to this year.
The Infraestructuras EMEA business reached an ordinary EBITDA of 1.48 billion euros.
The results for Southern Latin American Infrastructure (mainly Chile, Argentina, and Brazil) grew to an EBITDA of 716 million euros, while in the case of Northern Latin American Infrastructure (Mexico and Panama) the result was 281 million euros.
