Integrated Annual Report 2018
Español Català

Year 2018 has been marked by a number of key corporate events:

  • On 6 February 2018, Francisco Reynés Massanet was appointed as Executive Chairman of the company.
  • Repsol reached an agreement to sell its entire 20.1% stake in the capital of Naturgy to Rioja Bidco, a company controlled by funds advised by CVC and in which Corporacion Financiera Alba holds a 25.7% stake. The transaction was completed on 18 May 2018.
  • On 27 June 2018, Naturgy presented its new Strategic Plan 2018-2022 which laid the foundations of its value creation strategy, positioning the company for the energy transition.

During the year, Naturgy has made steady progress on the development of its value creation strategy founded on four key pillars:

1. Simplicity and accountability

Throughout the year, Naturgy undertook relevant changes in its corporate governance based on a leaner structure and simpler corporate regulations, leading to a more agile decision-making process. The board of directors was reduced from 17 to 12 members, with six proprietary directors (Criteria Caixa, GIP and Rioja two each), five independent directors and the Executive Chairman.

Additionally, the company changed its organisational structure with a new reporting perimeter consisting of four main business units including: Gas & Power, Infrastructure EMEA, Infrastructure LatAm South and Infrastructure LatAm North. This has allowed Naturgy to simplify its management structure and reinforce the accountability of the different businesses. As part of this process, the company reduced the number of subsidiaries and replaced most of its subsidiary Board Directors by joint administrators, while scaling down support functions at the corporate level and reallocating some of these, based on strict functional needs, into each of the business units.

Furthermore and as part of the new strategic plan, Naturgy carried out an asset valuation review, consistent with its new Strategic plan assumptions, which translated into an impairment of Euros 4,851 million, in an effort to provide a more transparent an realistic value of its asset base. Additionally, and prior to the approval of the plan, other impairments were recorded for Euros 54 million.

2. Optimization

During 2018, Naturgy achieved substantial progress in its optimization efforts.

In September 2018, Naturgy finalised the agreement to renew and extend its gas procurement contract with Sonatrach up to 2030 under improved terms. On the other hand, a favourable judgement was made in the ICSID in relation to Unión Fenosa’s arbitration process in Egypt.

Furthermore and as part of the new Strategic Plan, Naturgy launched a new efficiency plan targeting Euros 500 million savings in Opex by 2022. During 2018, Naturgy accelerated such program and incurred Euros 180 million capture costs which will result in a reduction of its ordinary Opex base going forward.
In 2018 the ordinary Opex base has been reduced by approximately Euros 200 million compared to 2017.

During 2018, the Company also made progress on its capital structure optimization. In this sense part of its excess cash was used to amortize all of its bank-funded corporate debt, including Euros 1,270 million denominated in euros, as well as Euros 390 million denominated in USD. Additionally, Naturgy completed Euros 333 million bond repurchases at the holdco level and refinanced/issued new debt in Latin America for an aggregate amount of approximately Euros 1,073 million, including new bond issuances of Euros 389 million and new banking debt/refinancing of Euros 684 million, consistent with its financing strategy of reducing debt at the corporate level and maximizing financing into the business units.

3. Capital discipline

Naturgy is fully committed to the capital discipline and Golden Rules of investment established in its Strategic Plan 2018-2022.

Consistent with Naturgy’ s targeted growth in renewables during the Strategic Plan 2018-2022, the company continued to develop the wind and solar projects awarded last year in the Spanish auctions, investing approximately Euros 382 million during the year 2018. During 2019, the Company expects to start operating over 900 MW of additional renewable capacity.

Additionally during 2018, Global Power Generation (GPG) was awarded a 180 MW wind farm project in Australia, which will entail a total investment of AU$259 million (equivalent to approximately Euros 166 million) and is expected to contribute an Ebitda of approximately Euros 22 million once fully operational. The project, which fully complies with the investment and profitability criteria established by Naturgy in its Strategic Plan 2018-2022, allows the company to reinforce its presence in stable economies, increase the predictability of its cash flows, and raise its exposure to renewable energy sources.

Moreover, the Company acquired two solar photovoltaic projects in Minas Gerais (Brazil). The development of these projects which total 83 MW of capacity, required approximately Euros 95 million investment and came into operation in December 2018.

Finally during 2018, Naturgy completed the disposal of its businesses in Italy and Colombia, as well as the 20% minority stake in Nedgia, receiving proceeds of Euros 2,600 million in aggregate. The Company continues to progress on the various disposal processes of non-core businesses, following the business positioning criteria established in its Strategic Plan 2018-2022.

4. Shareholder remuneration

The Company has started delivering on its shareholder remuneration targets.

As part of its new Strategic Plan 2018-2022, Naturgy increased its shareholder remuneration policy. Dividends increased by 30% to Euros 1.30/share in 2018, with a 5% minimum annual increase thereafter, irrespective of operating performance. Moreover, a share buy-back program of up to Euros 400 million (in the absence of inorganic opportunities meeting the Golden Rules of investment) was started.

As part of its new shareholder remuneration policy, Naturgy completed a payment of Euros 0.28/share corresponding to the 2018 first interim dividend on 31 July 2018 and a payment of Euros 0.45/share corresponding to the 2018 second interim dividend on 31 October.

In addition, since the beginning of its Strategic Plan and until the closing of 2018, Naturgy invested Euros 121 million to buy back shares part of its planned Euros 400 million buy-back per annum until the end of June 2019.

Finally and as part of the new Strategic Plan, Naturgy set up a new long term incentive plan (LTIP) to fully align shareholders’ interests, execution of the Strategic Plan and the managers’ long term variable pay. The new LTIP is exclusively linked to total shareholders return and guarantees a full alignment of shareholders´ interests with the top managers of the company.

2018 Results

  • Business performance during 2018 has been marked by the strong performance of Gas & Power, which was partly offset by non-recurrent items and the negative impact of exchange rates evolution.
  • Ebitda in 2018 reached Euros 4,019 million after nonordinary effects. Stripping these out, ordinary Ebitda rose 11.8% to Euros 4,413 million mainly supported by the improvement in the Gas & Power business unit as well as stability in the Infrastructure businesses which together more than offset the negative Euros 218 million FX impact.
  • Net income in 2018 amounted toEuros 2,822 million negative mainlyas a result of the Euros 4,905 millionasset write-down conducted in thefirst half of the year. Excluding this impact and other non-ordinary items,ordinary net income rose 57.0% to Euros 1,245 million driven by higher activity, lower depreciation, and lower financial expenses resulting from the group’s debt optimization.
  • During 2018, Naturgy has invested Euros 2,321 million, up 30.2% vs. 2017. More than 70% of Capex has been deployed in growing the company’s asset base through the development of new renewable capacity across the different geographies, the addition of two new methane tankers acquired under finance leases, and other revenuegenerating projects.
  • Free cash flow after minorities rose from Euros 746 million to Euros 3,054 million, reflecting the company’s increased focus on cash flow generation and the completion of the various disposals processes during the period.
  • As of 31 December 2018, Net Debt amounted to Euros 13,667 million, down 9.8% vs. 31 December 2017. The decline in Net Debt/LTM Ebitda to 3.4x from 3.9x in 2017 together with the improvement in Ebitda/Cost of net financial debt to 7.5x from 6.4x at the end of last year, underline the reinforcement of the company’s financial solidity in 2018.
  • All in all, these 2018 results illustrate Naturgy’s progress towards the successful implementation of its Strategic Plan 2018-2022.
Ebitda
Euros million
4,019

Free cash Flow
after minorities Euros million
3,054
Capex
Euros million
2,321

Net Debt
Euros million
13,667

Key comparability factors and non-ordinary items

Perimeter changes

The following transactions were completed in 2018:

  • The disposal of the remaining 41.9% of the gas distribution business in Colombia for Euros 334 million, equal to its carrying amount, net of the dividends received, with no impact on the consolidated income statement.
  • The disposal of the gas distribution and supply business in Italy, together with the transfer of the gas supply contract, for Euros 766 million, generating a capital gain of Euros 188 million after taxes recognised under “Income from discontinued operations" in the consolidated income statement. 
  • The sale of a 20% minority stake in the gas distribution business in Spain (Nedgia) for Euros 1,500 million, which resulted in an increase of Euros 1,016 million in the “Equity" caption in the consolidated balance sheet. 

Non-ordinary items

The non-ordinary items are summarized below:

Euros million Ebitda Net income
  2018 2017 2018 2017
         
Gas transport cost & procurement retroactivity (50) 20 (38) 15
Chile non-ordinary expenses (44) - (28) -
Restructuring costs (180) (126) (137) (99)
Asset write-down - - (3,824) -
Discontinued operations and non-controlling interests1 - - 49 494
Chile mergers tax effect - - 42 116
Others (120) 61 (131) 41
Total (394) (45) (4,067) 567

1. Including Euros 188 million post-tax capital gain from Italian disposal and impairments in Kangra, Moldova and Kenya for Euros 104 million, Euros 73 million and Euros 5 million respectively.

  • At the Ebitda level, non-ordinary impacts amount to Euros 394 million negative, the most important of which correspond to capture costs (Euros 180 million) due to the implementation of the efficiency plan.

Other non-ordinary impacts include gas supply and transportation costs (Euros 50 million), non-ordinary fire prevention costs, trial and penalties in Chile (Euros 44 million) and others provisions (Euros 120 million), primarily relating to an existing litigation in process pending resolution as well as other provisions and one-off regularizations.

  • At the net income level, non-ordinary items amount to Euros 4,067 million negative, primarily driven by the asset write-down announced during the Strategic Plan presentation.

Foreign exchange impact

Exchange rate fluctuations in the period are summarized as follows:

2018Accumulated Average% ChangeEbitdaNet income
€/USD1.184.4(34)(17)
€/MXN22.726.6(13)(3)
€/BRL4.3119.7(46)(10)
€/ARS143.11130.9(107)(67)
€/CLP757.343.4(15)(4)
Others--(3)(2)
Total--(218)(103)
1. Exchange rate as at 31 December 2018 as a consequence of considering Argentina as an hyperinflationary economy.

Hyperinflation in Argentina

Since 1 July 2018, according to the criteria established by IAS 29 "Financial Information in Hyperinflationary Economies", the Argentine economy should be considered as hyperinflationary with retroactive effects as of 1 January 2018. The financial information presented in previous years will not be re-stated.

The inflation rates used were the domestic wholesale price index (IPIM) until 31 December 2016 and the consumer price index (CPI) as of 1 January 2017.

The main impacts as of 31 December 2018 are detailed as follows:

  • An increase in shareholders’ equity as a result of applying the change of inflation to the historical cost of non-monetary assets from their acquisition or incorporation date in the consolidated balance sheet and the corresponding deferred tax liability.

The accumulated effect of theaccounting restatement thatcorrects the effects of hyperinflationcorresponding to previous yearsbefore 2018 is still shown in the translation differences at thebeginning of 2018. 

  • An adjustment to the different items of income and expenses to apply the change of inflation from the date they were incorporated into the income statement, as well as to reflect the losses derived from the net monetary position.
  • The translation into Euros of the figures thus adjusted in the consolidated financial statements applying the closing exchange rate of the Argentine peso against the euro.
Main impacts in the consolidated financial statements at 31 December 2018 (euros million )
Net sales(38)
Ebitda10
Financial result(14)
Net income(8)
Shareholder’s equity55
Capex(4)

Analysis of the consolidated results

Analysis of the consolidated results

(euros million)
2018 % s/total 2017 % s/total % 2018/2017
Gas & Power 19,560 80.4 17,692 76.2 10.6
Gas, power and services sales 13,064 53.7 12,236 52.7 6.8
International LNG 3,529 14.5 2,629 11.3 34.2
Europe power generation 2,050 8.4 1,935 8.3 5.9
International power generation 917 3.8 892 3.8 2.8
Infrastructure EMEA 2,419 9.9 2,438 10.5 (0.8)
Spain gas networks 1,254 5.2 1,261 5.4 (0.6)
Spain electricity networks 855 3.5 873 3.8 (2.1)
Maghreb infrastructure 310 1.3 304 1.3 2.0
Infrastructure LatAm South 5,080 20.9 5,695 24.5 (10.8)
Chile electricity 2,137 8.8 2,382 10.3 (10.3)
Chile g 738 3.0 1,022 4.4 (27.8)
Brazil gas 1,565 6.4 1,811 7.8 (13.6)
Argentina gas and electricity 635 2.6 479 2.1 32.6
Peru gas 5 - 1 - -
Infrastructure LatAm North 1,367 5.6 1,343 5.8 1.8
Mexico gas 596 2.4 546 2.4 9.2
Panama electricity 771 3.2 797 3.4 (3.3)
Rest 220 0.9 343 1.5 (35.9)
Consolidation adjustments (4,307) (17.7) (4,304) (18.5) 0.1
Total 24,339 100.0 23,207 100.0 4.9

Net sales totalled Euros 24,339 million in 2018, up 4.9% with respect to 2017, mainly driven by higher volumes and prices in the gas business.

Ebitda

(euros million)
2018 % s/total 2017 % s/total % 2018/2017
Gas & Power 1,360 33.8 980 25.1 38.8
Gas, power and services sales 164 4.1 49 1.3 -
International LNG 496 12.3 276 7.1 79.7
Europe power generation 411 10.2 379 9.7 8.4
International power generation 289 7.2 276 7.1 4.7
Infrastructure EMEA 1,802 44.8 1,770 45.3 1.8
Spain gas networks 884 22.0 888 22.8 (0.5)
Spain electricity networks 630 15.7 603 15.4 4.5
Maghreb infrastructure 288 7.2 279 7.1 3.2
Infrastructure LatAm South 791 19.7 859 22.0 (7.9)
Chile electricity 243 6.0 293 7.5 (17.1)
Chile gas 211 5.3 223 5.7 (5.4)
Brazil gas 223 5.5 282 7.2 (20.9)
Argentina gas and electricity 118 2.9 65 1.7 81.5
Peru gas (4) (0.1) (4) (0.1) -
Infrastructure LatAm North 232 5.8 273 7.0 (15.0)
Mexico gas 161 4.0 169 4.3 (4.7)
Panama electricity 71 1.8 104 2.7 (31.7)
Rest (166) (4.1) 21 0.5 -
Total 4,019 100.0 3,903 100.0 3.0

Consolidated Ebitda in the period amounted to Euros 4,019 million, 3.0% more than in 2017.

The negative effect of the evolution of the foreign exchange impact of Euros -218 million is matched basically with the positiveevolution in the Gas & Power business. Stripping out non-ordinary effects, ordinary Ebitda grew by 11.8%.

Net income

The depreciation, amortisation and impairment expenses at 31 December 2018 amounted Euros 6,007 million (Euros 1,621 million in the exercise 2017) because of the impairment of assets of Euros 4,333 million booked in the first half of the year.

Impairment of credit losses amounted Euros 179 million through the Euros 154 million of the previous year, an increase of 16.0%.

Ebit in 2018 amounted to Euros 2,167 million negative as a result of the previously discussed impairment booked in the first half of the year.

Financial result

(euros million)
2018 2017 Variation (%)
Net debt cost (538) (611) (11.9)
Other financial expenses/income (147) (87) 69.0
Financial result (685) (698) (1.9)

The financial result improved 1.9% driven by lower rates on new issues used to refinance maturing debt or redeem bonds, and to the cancellation of bank debt compensated by the increase in other expenses due to substitutions and inflation. The average cost of gross financial debt is 3.1% (vs. 3.4% in 2017), and 87% of the debt is at fixed rates.

Equity-accounted affiliates

Equity-accounted affiliates contributed Euros -513 million in 2018 mostly as a result of the impairment of Union Fenosa Gas (Euros -538 million) and of the holding in Ecoelectrica (Euros -34 million).

Income tax

The effective rate for 2018, without considering the effect of impairments and the positive tax rate of the mergers in Chile (Euros 43 million), is 21.5%, flat vs. 2017.

Income from discontinued operations

(euros million)
2018 2017
Colombia gas 7 430
Italy 194 37
Kenya (5) (19)
Moldova (56) 12
Kangra (150) (12)
Total (10) 448

The Italy financial results includes Euros 188 million corresponding to the capital gains resulting from the aforementioned sale of the business.

The income of Moldova includes a write-down of Euros 73 million and the Kangra another one for Euros 141 million because of the departures procedures finished or in progress.

Non-controlling interest

(euros million)
2018 2017 Variation (%)
EMPL (54) (56) (3.6)
Nedgia (57) (7) -
Other interest (55) (214) (74.3)
Other equity instruments (60) (60) -
Total (226) (337) (32.90%)

In other interest are included: International Power Generation, gas distribution companies in Chile, Brazil, Mexico and Argentina, and the electricity distribution companies in Chile and Panama.

In other equity instruments are included accrued interest on perpetual subordinated notes.

Net income

Net income in 2018 amounted to Euros 2,822 million negative. Ordinary net income grew to Euros 1,245 million in 2018 (Euros 793 million in 2017) that represents an increase of the 57.0%.

Analysis of the balance sheet

Investments

Investments (euros million)
2018 2017 %
Intangible and PPE investments 2,321 1,782 30.2
Financial investments 35 44 (20.5)
Gross Investments 2,356 1,826 29.0
Divestments and others (2,640) (229) -
Total Investments (284) 1,597 (117.8)

The investments in property, plant and equipment (PPE) and intangible assets amounted to Euros 2,321 million, with an increase of the 30.2% respect previous year, mainly for the increase in renewable in Spain and international level and the acquisition of two new methane tankers under a financial lease.

Breakdown for business activities of the plant and equipment investmentsand intangible investments
(euros million)
2018 2017
Gas & Power 1,135 394 1.9
Gas, power and services sales 61 48 27.1
International LNG 380 - -
Europe power generation 462 178 -
International power generation 232 168 38.1
Infrastructure EMEA 473 475 (0.4)
Spain gas networks 240 212 13.2
Spain electricity networks 228 252 (9.5)
Maghreb infrastructure 5 11 (50)
Infrastructure LatAm South 459 496 (7.5)
Chile electricity 207 229 (9.6)
Chile gas 131 80 63.0
Brazil gas 60 120 (50.0)
Argentina gas 41 37 10.8
Argentina electricity 7 11 (36.4)
Peru gas 13 19 (31.6)
Infrastructure LatAm North 183 225 (18.7)
Mexico gas 80 115 (30.4)
Panama electricity 103 110 (6.4)
Rest 71 192 (63.0)
Total 2,321 1,782 30.2

Maintenance Capex in 2018 amounted to Euros 683 million, compared to Euros 853 million in 2017, a 19.9% reduction driven by maintenance Capex optimization in the infrastructure businesses and rest of activities.

Growth Capex in 2018 represented over 70% of total Capex, and amounted to Euros 1,638 million, up from last year’s Euros 929 million. It mainly includes the following:

  • Euros 380 million for the acquisition under financial lease of two gas carriers.
  • A total of Euros 382 million have been invested during the period in the construction of different renewable projects in Spain (wind and solar), with 32,6 MW already put in operation in 2018 in the Canary Islands and other 929 MW expected to come into operation before 2020.
  • Euros 106 million correspond to the acquisition and development of solar projects in Brazil, with 85 MW coming into operation in 4Q18.
  • Lastly, Euros 75 million have been invested during the period in the construction of 96 MW of wind capacity in Australia, which came into operation in 4Q18.

Additionally, 180 MW of wind capacity in Australia and 324 MW of wind and solar capacity in Chile will be developed before 3Q20-1Q21 respectively.

Divestments

Divestments

Divestments include the sale of the businesses in Italy for Euros 746 million, the proceeds from the sale of a 20% non-controlling stake in Nedgia (Euros 1,500 million) and the proceeds from the sale of the remaining 41.9% stake in the gas distribution business in Colombia (Euros 334 million).

Debt and financial management

Debt and financial management
  • Naturgy is progressing on the optimization of its capital structure as outlined in its Strategic Plan 2018-2022.
  • In January 2018, the company completed a liability management exercise at the holdco with the issuance of a Euros 850 million 10-year bond with a coupon of 1.5% and Euros 916 million notes repurchase. Additionally, two bonds of Euros 1,099 million in aggregate with an average coupon of 4.59% matured in 2018.
  • During the last quarter of 2018, the company completed Euros 333 million bond repurchases at the holdco with maturities spanning from 2019 to 2021.
  • Furthermore, the company used part of its excess cash to amortize all of its bank-funded holdco debt, including Euros 1,270 million denominated in euros, as well as Euros 390 million denominated in USD.
  • The company is in the process of optimizing the financing allocated into each of the business units in order to increase accountability and funding autonomy in the same currency where cash flows are originated, and gain increased flexibility. In this respect, the Company refinanced / issued new debt in Latin America for an aggregate amount of approximately Euros 1,073 million, including new bond issuances of Euros 389 million and new banking debt/refinancing of Euros 684 million.
Net debt evolution (euros million)

Net debt evolution

Net debt maturities
(euros million)

Net debt maturities

Evolution of the principal ratios applied referent to the Net financial debt
2018 2017
Ebitda/Net financial cost veces 7.5 6.4
Net financial debt / Ebitda veces 3.4 3.9
Net financial debt / Ebitda (IFRS 16) veces 3.8 4.2
Detail of the net financial debt, the average financial cost of the gross debt and the % of fixed gross debt for countryand currency
      Group Chile Brazil Argentina Peru Mexico Panama Holding and others
    Dec’18 Dec’17 CLP USD BRL ARS USD MXN USD EUR/USD
Net financial debt Million euros 13,667 15,154 1,995 14 244 (34) 55 367 506 10,520
Average cost of gross debt % 3.1 3.4 5.9 3.8 7.9 40.9 4.6 8.6 4.1 2.3
% Fixed (Gross debt) % 87 88 72 - - 1 - 53 59 95
Naturgy's long-term and short-term credit rating
Agency Short-term Long-term
Fitch F2 BBB
Moody's P-2 Baa2
Standard & Poor's A-2 BBB
Liquidity and capital

At 31 December 2018, cash and cash equivalents together with available bankfinance totalled over Euros 6,950 million, providing the company with sufficient liquidity to cover its debt maturities for more than 24 months, with the following breakdown:: 

Liquidity source Limit Drawn-down Available
Undrawn credit facilities 5,468 (234) 5,234
Undrawn loans - - -
Cash and cash equivalents - - 1,716
Total 5.468 (234) 6,950
Breakdown of working capital at 31 December 2018 2017
Current operating assets1 5,799 5,536
Current operating liabilities2 (4,468) (4,069)
  1,331 1,467
1 Includes inventories, trade receivables and other receivables
2 Includes trade payables, other payables and other current liabilities, not including dividends payable.

Additionally, at 31 December 2018, the company had Euros 7,691 million available in the form of shelf registrations for financial instruments, including Euros 5,292 million in the Euro Medium Term Notes (EMTN) programme, Euros 1,000 million in the Euro Commercial Paper (ECP) programme, and a combined Euros 1,399 million in the stock market certificates programmes on the Mexico Stock Exchange, the commercial paper programme on the Panama Exchange, the marketable bonds programme in Argentina and the bond lines in Chile.

cash flow

Evolution of the free cash flow of the 2018

Evolution of the free cash flow of the 2018

1. Without considering Euros 380 million corresponding to two LNG vessels acquired under financial leasing
2. Net of assignments.

Analysis of contractual obligations and off-balance sheet transactions

The breakdown of contractual obligations, off-balance sheet transactions and contingent liabilities of Naturgy is set out in note35 to the Consolidated Annual Accounts.

Analysis of results by segment 

Gas & Electricity

Supply of gas, electricity and services

This business includes wholesale gas procurement and supply in the Spanish liberalised market, the supply of gas and electricity and of other products and services related to retail supply in the Spanish liberalised market, supply of gas at the last resort tariff (TUR) in Spain and supply of electricity at the small consumer voluntary price (PVPC) in Spain.

Ebitda roses as a result of higher gas margins form higher prices and the positive impact from the new gas procurement contract agreement with Sonatrach and lower Opex.

Results (euros million)

2018 2017 %
Net sales 13,064 12,236 6.8
Procurement (12,428) (11,686) 6.3
Gross margin 636 550 15.6
Other revenues 10 20 (50.0)
Net personnel expenses (134) (110) 21.8
Taxes (63) (62) 1.6
Other expenses (285) (349) (18.3)
Ebitda 164 49 -
Depreciation, amortisation and operating provisions (139) (97) 43.3
Operating income 25 (48) -
Main aggregates
2018 2017 %
Gas sales (GWh) 237,379 237,945 (0.2)
Industrial clients 160,779 155,026 3.7
Residential Spain 27,740 25,381 9.3
Electricity 17,112 20,788 (17.7)
Third parties 31,749 36,749 (13.6)
Electricity sales (GWh) 35,437 35,640 (0.6)
Liberalized market 30,384 30,587 (0.7)
PVPC 5,053 5,053 -
Residential contracts (Spain) (thousands, at 31/12) 11,470 11,719 (2.1)
Gas 4,174 4,241 (1.6)
Electricity 4,490 4,605 (2.5)
Services 2,806 2,873 (2.3)
Number contracts per client 1.52 1.52 -
Market share of gas contracts 53.3 54.4 (1.2) p.p.

Gas sales remained stable in the year 2018 driven by growth in the Spanish residential and industrial segments (up 9.3% and 3.7% respectively) which compensated for lower sales to CCGT (-17.7%) and third parties (-13.6%).

Power supply sales also remained stable vs. 2017; while margins experienced significant downward pressure during 1H18 as a result of fixed-price sales contracts set on forward prices below current pool prices, the measures taken to replace them with variable or indexed contracts allowed for margin recovery in the second half of the year..

Supply

In June 2018, Sonatrach and Naturgy strengthened their relationship by extending the contracts for the purchase of Algerian gas until the end of the next decade; their alliance ensures a stable supply of gas to Spain.

The renewal of the contracts enables Naturgy to maintain a very large volume and ensures an optimal mix of natural gas (NG) and liquefied natural gas (LNG) in its inputs.

The first shipment of LNG under the long-term contract signed with the Russian company Yamal LNG was unloaded on 21 June 2018. This is the first of a total of 37 shiploads that will reach south-western Europe each year until 2041. This contract expands Naturgy's portfolio of strategic suppliers and reinforces the diversity of supply in this region of Europe with the first long-term contract for the supply of LNG from Russia.

Market situation

Demand for gas in Spain amounted to 347,539 GWh in 2018 (349,223 GWh in 2017): 55,670 GWh for the residential market (52,082 GWh in 2017), 230,286 GWh for the industrial market and for the third-party supply (221,787 GWh in 2017) and 61,583 GWh for the electricity market (75,354 GWh in 2017).

Electricity demand in mainland Spain amounted to 248,987 GWh in 2018 (248,631 GWh in 2017) an increase of 0.1% with respect to the same period of 2017 according to Red Eléctrica de España (REE) balances.

Movements in the main gas, electricity and related market price indices are as follows (annual cumulative data):

Movements in the main gas, electricity and related market price indices
(annual cumulative data)
2018 2017 %
Brent (USD/bbl) 71 54.3 30.8
Henry Hub (USD/MMBtu) 3 3.1 (3.2)
NBP (USD/MMBtu) 8.1 5.8 39.7
TTF (€/MWh) 22 17 29.4
Arithmetic mean daily market price (€ /MWh) 58 53.6 8.2
Coal API 2 CIF (USD/t) 91.9 84.5 8.8
CO2 EUA (€/ton) 15.9 5.8 174.1

Demand for gas in Spain

Demand for gas in Spain
GWh
347,539
55,670 residential market
230,286 industrial market
61,583 electricity market

Electricity demand in mainland Spain

Electricity demand in mainland Spain
GWh
248,987
+0.1% vs. 2017

LNG International

This includes trading of liquefied natural gas in international markets and maritime transportation.

Ebitda in the LNG business amounted to Euros 496 million in 2018, a 79.7% increase year-on-year.

Gas sales
GWh
140,669
+15.2% vs. 2017
Shipping fleet capacity
m3
1,293,040
+ 37.5% vs. 2017
Results
(euros million)
2018 2017 %
Net sales 3,529 2,629 34.2
Procurement (3,003) (2,316) 29.7
Gross margin 526 313 68.1
Other revenues 2 3 (33.3)
Net personnel expenses (23) (21) 9.5
Taxes - - -
Other expenses (9) (19) (52.6)
Ebitda 496 276 79.7
Depreciation, amortisation and operating provisions (75) (51) 47.1
Operating income 421 225 87.1
Main aggregates
2018 2017 %
Gas sales (GWh) 140,669 122,087 15.2
Shipping fleet capacity (m3) 1,293,040 940,440 37.5

Europe Power Generation

Includes power generation in Spain, also conventional and renewable.

Ebitda in 2018 increases an 8.4% as compared with 2017, mainly driven by lower thermal and higher hydro generation together with greater wholesale prices. These impacts were partially offset by higher CO2 prices, which reduced thermal margins, and the suspension of capacity payments for CCGTs since the month of July 2018.

Renewable generation increased by 12.5% during the period, while hydro production saw a 3.0-fold rise, thus reducing the overall thermal production by 8.8%, most notably coal, which was directly impacted by rising costs.

Naturgy continues to increase its renewable exposure through the development of its 667 MW of wind and 250 MW of solar projects awarded in the Spanish auctions. As such, the capacity into operation at year-end 2018 has reached 1,179 MW.

Results
(euros million)
2018 2017 %
       
Net sales 2,050 1,935 5.9
Procurement (1,091) (977) 11.7
Gross margin 959 958 0.1
Other revenues 16 20 (20.0)
Net personnel expenses (140) (147) (4.8)
Taxes (247) (262) (5.7)
Other expenses (177) (190) (6.8)
Ebitda 411 379 8.4
Depreciation, amortisation and operating provisions (4,279) (442) -
Operating income (3,868) (63) -
Main aggregates. Power generation capacity
2018 2017 %
Installed capacity (MW) 12,504 12,715 (1.7)
Generation 11,325 11,569 (2.1)
   Hydroelectric 1,954 1,954 -
   Nuclear 604 604 -
   Coal 1,766 2,009 (12.1)
   CCGTs 7,001 7,001 -
Renewable and cogeneration output 1,179 1,147 2.8
   Wind 1,012 979 3.3
   Small hydroelectric 109 110 (0.5)
   Cogeneration and other 58 58 (36.8)
Main aggregates. Electric energy produced and electricity sales
2018 2017 %
Electric energy produced (GWh) 28,307 27,953 1.3
Generation 25,736 25,668 0.3
   Hydroelectric 3,359 1,126 -
   Nuclear 4,431 4,578 (3.2)
   Coal 3,694 5,953 (37.9)
   CCGTs 14,252 14,011 1.7
Renewable and cogeneration output 2,571 2,285 12.5
   Wind 1,958 1,800 8.8
   Small hydroelectric 549 407 34.9
   Cogeneration and other 64 77 (17.1)
Market share of generation 17.4 17.1 0.3 pp
Renewable generation
+12.5%

Renewable generation

250 MW

(solar projects awarded in the Spanish auctions)

667 MW

667 MW

Generation International (GPG)

This area encompasses the international generation assets and holdings in Brazil (commercial operation in September 2017), Mexico, Puerto Rico, Dominican Republic, Panama and Costa Rica and the power generation projects in Australia and Chile, as well as assets operated for third parties via group company O&M Energy.

Ebitda for 2018 amounts to Euros 289 million, with a 4.7% increase. Growth was supported by the start of the Sobral I and Sertao I solar farms in Brazil from September 2017, together with better margins of excess energy sales in Mexico, and higher wind resource. The above were partially offset by a negative evolution of exchange rates vs. previous year.

Results (euros million)
2018 2017 %
Net sales 917 892 2.8
Procurement (527) (511) 3.1
Gross margin 390 381 2.4
Other revenues 10 12 (16.7)
Net personnel expenses (39) (37) 5.4
Taxes (3) (4) (25.0)
Other expenses (69) (76) (9.2)
Ebitda 289 276 4.7
Depreciation, amortisation and operating provisions (152) (121) 25.6
Operating income 137 155 (11.6)
Ebitda by country (euros million)
2018 2017 Change (%) FX Adjusted change (%)
Mexico 243 258 (5.8) (14) (0.4)
Resto 46 18 - (3) 172.2
Total 289 276 4.7 (17) 10.9
Main aggregates. Power generation capacity
2018 2017 %
Installed capacity (MW): 3,093 2,732 13.2
Mexico (CC) 2,289 2,109 8.5
Mexico (wind) 234 234 -
Brazil (solar) 153 68 -
Costa Rica (hydroelectric) 101 101 -
Panama (hydroelectric)) 22 22 -
Dominican Republic (oil-fired) 198 198 -
Australia (wind) 96 - -
Main aggregates. Electric energy produced and average availability
2018 2017 %
Electric energy produced (GWh) 18,351 18,436 (0.5)
Mexico (CC) 15,923 16,340 (2.6)
Mexico (wind) 701 656 6.9
Brazil (solar) 155 48 -
Costa Rica (hydroelectric) 330 369 (10.6)
Panama (hydroelectric) 94 98 (3.7)
Dominican Republic (oil-fired) 1,092 925 18.1
Availability factor (%)
Mexico (CC) 92.1 96.6 (4.8)
Costa Rica (hydroelectric) 93.5 97.5 (4.0)
Panama (hydroelectric) 87.0 90.5 (3.5)
Dominican Republic (oil-fired) 90.2 92.1 (1.9)
Australia (wind) 56 - -

Naturgy, through subsidiary Global Power Generation (GPG), acquired two solar photovoltaic projects in Brazil in March 2018 with a total capacity of 83 MW, which entered commercial operation on 12 December 2018.

Also, in November 2018, the wind farm Crookwell II entered into commercial operation in Australia.

International installed capacity
MW
3,093
+13.2% vs. 2017
International electric energy produced
MW
18.351
(0.5)% vs. 2017

Infrastructure EMEA

Gas distribution Spain

This area includes remunerated gas distribution and transportation as well activities that are charged for outside the regulated distribution system (meter rental, customer connections, etc.), and the piped liquefied petroleum gas (LPG) business.

Ebitda in 2018 decreases 0.5% amounting to Euros 884 million driven by the demand growth and good operating performance, lower Opex coming from efficiency improvements which were sufficient to compensate for the impact of lower meter rental revenues (Euros -40 million) and, to a lesser extent, lower LPG margins.

Results (euros million)
2018 2017 %
Net sales 1,254 1,261 (0.6)
Procurement (75) (68) 10.3
Gross margin 1,179 1,193 (1.2)
Other revenues 40 39 2.6
Net personnel expenses (118) (94) 25.5
Taxes (28) (27) 3.7
Other expenses (189) (223) (15.2)
Ebitda 884 888 (0.5)
Depreciation, amortisation and operating provisions (320) (307) 4.2
Operating income 564 581 (2.9)
Main aggregates
2018 2017 %
Sales – TPA (GWh) 197,313 195,586 0.9
Distribution network (km) 56,124 53,369 5.2
Increase in connection points (thousands) 31 58 (46.0)
Connection points (thousands) (at 31/12) 5,403 5,371 0.6

Electricity distribution Spain

The electricity distribution business in Spain includes regulated distribution of electricity and network services for customers, basically connections and hook-ups, metering and other actions associated with third-party access to Naturgy's distribution network.

Ebitda for the year amounts to Euros 630 million. Opex savings due to the application of efficiency plans have been compensated with lower asset remuneration.

Results (euros million)
2018 2017 %
Net sales 855 873 (2.1)
Procurement - - -
Gross margin 855 873 (2.1)
Other revenues 26 26 -
Net personnel expenses (94) (130) (27.7)
Taxes (30) (29) 3.4
Other expenses (127) (137) (7.3)
Ebitda 630 603 4.5
Depreciation, amortisation and operating provisions (252) (233) 8.2
Operating income 378 370 2.2
Main aggregates
2018 2017 %
Sales – TPA (GWh) 32,698 32,039 2.1
Connection points (thousands) (at 31/12) 3,740 3,721 0.5
ICEIT (minutes) 46 47 (0.3)

Infrastructure Maghreb

This area refers to operation of the Maghreb-Europe gas pipeline.

Ebitda for 2018 increased by 3.2% due to the tariff increase and volume growth, making up for the negative impact of the US Dollar devaluation relative to the Euro (Euros -14 million).

Results (euros million)
2018 2017 %
Net sales 310 304 2.0
Procurement - - -
Gross margin 310 304 2.0
Other revenues - - -
Net personnel expenses (6) (6) -
Taxes - - -
Other expenses (16) (19) (15.8)
Ebitda 288 279 3.2
Depreciation, amortisation and operating provisions (44) (38) 15.8
Operating income 244 241 1.2
Main aggregates in international gas transportation
2018 2017 %
Gas transport-EMPL (GWh): 117,526 100,371 17.1
Portugal-Morocco 41,263 38,787 6.4
Spain (Naturgy) 76,263 61,584 23.8

Infrastructure LatAm South

This refers to the regulated gas distribution business in Argentina, Brazil, Chile and Peru and the electricity distribution in Argentina and Chile. In Chile also includes the gas supply activity and the electricity transmission activity.

Gas distribution in Argentina

Ebitda increases by 134.8% over the same period in previous year supported by the final application of the new tariff framework and demand increase, which more than offset the negative Euros 107 million FX impact.

The application of IAS29 had a positive Euros 10 million impact in Ebitda.

Since April 2018 the Argentinian economy has undergone a number of changes in macroeconomic conditions that caused a sharp alteration in parity between the Argentinian peso and the US dollar, changing the economic circumstances taken into account in the Bases and Conditions and reflected in contracts with gas producers. This increase in the exchange rate (not recognised in the current Tariff Table) meant that producers had to be paid a gas price that far exceeded the price that could be passed on via tariffs.

Finally, under Decree 1053/2018 of November 2018 the National Government assumed the payment, on an exceptional basis, of the daily differences accumulated monthly between the value of gas bought by the network natural gas distribution service provides and the value of natural gas included in the tariff tables in effect between 1 April 2018 and 31 March 2019, generated solely by fluctuations

in the exchange rate and relating to volumes of natural gas delivered during that period, thereby clearing up the doubts caused by the Government Energy Secretariat Resolution 41/2018.

Results (euros million)
2018 2017 %
Net sales 513 355 44.5
Procurement (316) (201) 57.2
Gross margin 197 154 27.9
Other revenues 31 35 (11.4)
Net personnel expenses (15) (29) (48.3)
Taxes (22) (27) (18.5)
Other expenses (83) (87) (4.6)
Ebitda 108 46 134.8
Depreciation, amortisation and operating provisions (15) (10) 50.0
Operating income 93 36 158.3
Gas sales in the period
+5.8%
across all customer segments.
Main aggregates
2018 2017 %
Gas activity sales (GWh) 76,287 72,084 5.8
   Gas sales 30,651 30,127 1.7
   TPA 45,636 41,957 8.8
Distribution network (km) 26,179 25,865 1.2
Increase in connection points (thousands) 14 19 (26.5)
Connection points (thousands) (at 31/12) 1,665 1,651 0.8

Gas distribution Brazil 

Ebitda decreased 20.9% on the back of lower demand and a negative FX effect (Euros -46 million).

The absence of negative retroactive tariff adjustments present in previous periods (Euros +15 million) and the higher sales in the automotive gas segment were offset by lower sales in the power generation and industrial segments as a result of lower thermal power plant utilization and production adjustments due to the macroeconomic situation.

Results (euros million)
2018 2017 %
Net sales 1,565 1,811 (13.6)
Procurement (1,217) (1,387) (12.3)
Gross margin 348 424 (17.9)
Other revenues 39 84 (53.6)
Net personnel expenses (31) (42) (26.2)
Taxes (4) (3) 33.3
Other expenses (129) (181) (28.7)
Ebitda 223 282 (20.9)
Depreciation, amortisation and operating provisions (75) (69) 8.7
Operating income 148 213 (30.5)
Main aggregates
2018 2017 %
Gas activity sales (GWh) 72,079 89,080 (19.1)
   Gas sales 58.,866 74,344 (20.8)
   TPA 13,213 14,736 (10.3)
Distribution network (km) 7,678 7,536 1.9
Increase in connection points (thousands) 27 53 (49.9)
Connection points (thousands) (at 31/12) 1,116 1,090 2.4

Electricity distribution and transmission Chile

2018 Ebitda reached Euros 243 million, with a 17.1% decrease mainly as a result of lower revenues from prior years’ regularizations and other demand impacts, as well as a negative Euros 10 million FX impact. 

Electricity activity sales
+2.6%
(Electricity sales plus TPA)
Connection points
+2.5%
Results (euros million)
2018 2017 %
Net sales 2,137 2,382 (10.3)
Procurement (1,592) (1,795) (11.3)
Gross margin 545 587 (7.2)
Other revenues 24 13 84.6
Net personnel expenses (128) (131) (2.3)
Taxes (7) (8) (12.5)
Other expenses (191) (168) 13.7
Ebitda 243 293 (17.1)
Depreciation, amortisation and operating provisions (166) (152) 9.2
Operating income 77 141 (45.4)
Main aggregates
2018 2017 %
Electricity activity sales (GWh) 15,082 14,573 3.5
   Electricity sales 12,220 13,182 (7.3)
   TPA 2.,862 1,391 105.8
Connection points (thousands) (at 31/12) 2,928 2,857 2.5
Electricity transmitted (GWh) 14,636 14,403 1.6
Transmission network (km, at 31/12) 3,528 3,528 -

Gas distribution and supply Chile

Ebitda decreases by 5.4% respect to previous year, with a negative Euros 8 million FX impact.

In addition, the decrease in residential and commercial demand was offset by higher sales to other segments and higher unitary margins in the residential and commercial segments.

Results (euros million)
2018 2017 %
Net sales 738 1,022 (27.8)
Procurement (441) (722) (38.9)
Gross margin 297 300 (1.0)
Other revenues 5 11 (54.5)
Net personnel expenses (29) (28) 3.6
Taxes (2) (2) -
Other expenses (60) (58) 3.4
Ebitda 211 223 (5.4)
Depreciation, amortisation and operating provisions (57) (49) 16.3
Operating income 154 174 (11.5)
Main aggregates
2018 2017 %
Gas distribution sales (GWh) 10,957 10,933 0.2
   Gas commercialization sales (GWh) 4,761 5,192 (8.3)
   TPA (GWh) 29,686 29,522 0.6
Distribution network (km) 7,557 7,211 4.8
Increase in connection points (thousands) 24 18 31.3
Connection points (thousands) (at 31/12) 626 602 3.9

Infrastructure LatAm North

This refers to the regulated gas distribution business in Mexico and the electricity distribution business in Panama.

Gas distribution Mexico

The positive evolution of the business, driven by a higher tariff indexation, together with growth in supply sales margins was not sufficient to compensate for the negative FX impact of Euros 11 million and from higher Opex as a result of a commercial repositioning.

Results (euros million)
2018 2017 %
Net sales 596 546 9.2
Procurement (352) (305) 15.4
Gross margin 244 241 1.2
Other revenues 10 12 (16.7)
Net personnel expenses (28) (26) 7.7
Taxes (1) (1) -
Other expenses (64) (57) 12.3
Ebitda 161 169 (4.7)
Depreciation, amortisation and operating provisions (79) (56) 41.1
Operating income 82 113 (27.4)
Main aggregates
2018 2017 %
Gas activity sales (GWh) 58,178 57,617 1.0
   Gas sales 21,284 21,166 0.6
   TPA 36,894 36,451 1.2
Distribution network (km) 22,461 21,940 2.4
Increase in connection points (thousands) 23 115 (80.4)
Connection points (thousands) (at 31/12) 1,796 1,773 1.3

Electricity distribution Panama

Ebitda in 2018 decreases by 31.7% affected by milder weather and a Euros 5 million negative FX impact which was partly compensated by growth in connection points.

Results (euros million)
2018 2017 %
Net sales 771 797 (3.3)
Procurement (644) (634) 1.6
Gross margin 127 163 (22.1)
Other revenues 3 2 50.0
Net personnel expenses (13) (13) -
Taxes (5) (6) (16,7)
Other expenses (41) (42) (2.4)
Ebitda 71 104 (31.7)
Depreciation, amortisation and operating provisions (39) (37) 5.4
Operating income 32 67 (52.2)
Main aggregates
2018 2017 %
Electricity sales (GWh): 5,178 5,107 1.4
   Electricity sales 4,888 4,956 (1.4)
   TPA 289 152 90.9
Connection points (thousands) (at 31/12) 669 641 4.2

Related pages

1. Strategy 2. Desempeño financiero

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