Naturgy presented its Strategic Plan for the period 2018-2022 to the market today in London, in which the group presents a solid position in the new environment of the global energy transition. In this way, the company is firmly convinced that gas and renewable energies will play a very important role in the energy transition, which will allow it to enhance its leadership in the gas business, along with its strong commitment to growth in renewable energies. In addition, the company’s infrastructure assets will also play a key role in the coming years, supporting greater electrification as well as greater gas penetration in the countries where it operates.
President Francisco Reynés wanted to stress to investors “the importance of all the axes of change that will contribute to transforming the company in the coming years, making it an international player focused on creating value. This plan that we present to you today aims to invest in and nurture Naturgy, but always with strict discipline, gaining size only if we create value for shareholders and meet the parameters of profitability, quality of service and safety that we have set ourselves. Our goal is value for all our stakeholders, not size.
To an audience of over 200 international investors, Naturgy’s senior management presented the break-down of the company’s main objectives for 2022: an EBITDA of € 5,000 million, a net profit of € 1,800 million and an average annual free cash flow of € 1,800 million. They all agreed that the plan is “realistic, ambitious and that everyone is committed to achieving the main objective, which is to take advantage of the company’s current position to maximise opportunities for industrial growth and provide high visibility to shareholder remuneration, with a growing and sustainable policy”.
“We want shareholders to see a team committed to creating value for the company through their own objectives,” they said during the market launch.
Investments and business profile
Naturgy plans to invest € 8.4 billion over the next five years, of which € 5.3 billion will be devoted to growth, with special emphasis on the Gas&Power business (36%), as well as Latin America Infrastructure (27%), among other regions.
The president told investors that the organisation will apply “strict financial discipline to maximise value creation and profitable growth in the markets where it is present”.
In the coming years, the energy company will seek to position itself in countries that promote legal certainty, as well as its own economic development in stable macroeconomic environments, which will guarantee constant growth that contributes to generating value and profitability of businesses and the company. The company expects the Spanish market to account for up to 40% of the company’s business in 2022, compared to other international markets.
Naturgy will also work to balance the weight of its businesses in its activity mix and will put more ambition into increasing the contribution of regulated activities and a more electric profile. In the future, the company expects at least 70% of its business to be linked to regulated infrastructure activities and half to the electricity business. The weight of service activity is also expected to increase to approximately 10%, reinforcing its commitment to the customer.
Financial objectives and efficiency plan
The energy company has set the goal of reaching an EBITDA of € 5,000 million and a net profit of € 1,800 million by 2022.
The company is simplifying its corporate governance to streamline decision making and redesigning its organizational structure, giving greater autonomy and responsibility to each of its businesses.
The strategic financial lines will focus on reducing the Opex, optimizing the Capex as well as a strict investment discipline, promoting organic development. “We have not ruled out,” said the president, “that possibilities that may arise from inorganic growth will be studied, provided they meet the minimum investment criteria, although their financial impacts are not part of the plan.
As part of the 2018-2022 Strategic Plan, the company will continue to optimise its business with new efficiency measures that will reduce its annual operating expenses by € 500 million by 2022. These efficiencies will focus on the analysis of the company’s non-core activities, as it has been done in recent months, as well as on assigning operational functions in each of the corresponding business units and on the improvement of those that will continue to be conducted in the company, all of which will be supported by the digitalisation processes already in progress.
The company’s forecast is to reduce the company’s Capex by an annual average of € 200 million compared to the 2015-2017 period, although organic growth investments have increased in importance compared to previous years. Thus, 63% of investments will be allocated to growth in the 2018-2022 period. “We are ready to transform the company by focusing all our efforts on creating value for our businesses, our shareholders and our customers,” said Francisco Reynés.
In addition, Naturgy will optimize the capital structure by setting an optimal level of debt in its business units and reducing the corporation’s debt. In this way, and in an environment of a foreseeable rise in interest rates, the energy company expects to keep the cost of debt in line with current levels (3.5%) while net debt would remain stable at around € 16,400 million.
Finally, Naturgy explained to the market today that, in line with the new macroeconomic environment, the outlook for the main indicators of the energy sector and the assumptions set out in the plan approved yesterday by the Board of Directors, has revised the value of its assets, which translates into an adjustment of € 4,900 million before tax, to be applied in the first half of 2018.
This reorganisation, which is mostly concentrated in conventional electricity generation assets in Spain, does not affect shareholder remuneration and will have a positive effect on the group’s results from 2019 onwards.
Attractive and stable remuneration
As Francisco Reynés explained to investors, the company will increase the dividend against 2018 results by 30% to € 1.30 per share.
According to the 2018-2022 Strategic Plan, Naturgy has promised its shareholders that it will increase the dividend in cash by at least 5% per annum until the end of the period and to make three payments per dividend. Thus, the dividend will be paid: i) at the end of the first half (20% of the total amount of the dividend), ii) at the end of the third quarter (35%) and iii) after the General Shareholders’ Meeting (45% remaining).
To reinforce the new shareholder remuneration policy, and if the inorganic investments that meet the minimum investment criteria established do not appear, the company could allocate a maximum of € 2,000 million in the period to a share buyback.
“We are convinced that this is a very attractive and competitive proposal for shareholder remuneration and is an unequivocal sign of our growing commitment to shareholders”, said Francisco Reynés.
Management commitment
The company has been working for several months on simplifying its corporate structure, as well as its governing bodies and organisation. At the beginning of June, Naturgy defined a new organisational structure to strengthen and simplify the business and corporate areas. The new company management gives the business units full responsibility in their field of action, while adapting the organization to the company’s needs.
The new Strategic Plan 2018-2022 includes the commitment of the management and administration team to it. Thus, the remuneration of these teams will from now on be linked to compliance with the strategic lines and the evolution of the share price, thus aligning the interests of the management team with those of the shareholders to achieve the plan.