Integrated Annual Report 2018
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Letter from the Chairman


Dear shareholders,

It is my pleasure to present the Naturgy Director’s Report for 2018, a year marked by important key corporate events,which have allowed the company to initiate its transformation in preparation for the energy transition. This will enable thecompany to face the future with greater stability and to meet the targets set out in the 2018–22 Strategic Plan.

A series of events occurred throughout 2018 which I have taken the opportunity to enumerate. Following on from thechange in chairmanship in February, a set of changes were made to the company’s shareholding structure in May, with theexit of a historic shareholder, Repsol. Their stake was acquired by a new shareholder, Rioja BidCo, jointly owned by CVCand Corporación Financiera Alba. This brought about the first changes to the Board of Directors.

In June, with broad support from the General Shareholders’ Meeting, the first decisions were taken in the field of corporategovernance, in order to expedite the decision-making process, simplify the organisational structure and adapt the profilesof board members to the new reality of the company.

In this respect, the reduction in number of board members was approved, with the incorporation of new directors withbroad industrial and international experience, and enhancing the role of independent directors, who were given anincreased weighting within the Board of Directors. Moreover, a new organisational structure was implemented in orderto ensure simpler and more transparent management, with greater autonomy of the business areas, while constantlysubject to the oversight of the corporation.

Also, in June, after the launch of the new brand, we presented the new 2018–22 Strategic Plan to the market.This strategic plan, whose essential focus is to achieve the satisfaction of our customers and create value for ourshareholders, is based on the consolidation of the group’s organic growth. Likewise, management efforts areconcentrated on four basic pillars: i) fostering simplicity and accountability in management; ii) optimising businessoperations; iii) guaranteeing discipline in investment; and iv) optimising sustainable shareholder remuneration.

After only six months of working with this new roadmap, our businesses have shown a positive evolution, but it will only bein the coming years, as we execute the Strategic Plan, that we will see an improvement in results.

Ordinary operating Ebitda for 2018 grew by 12% to Euros 4,4 billion, and the company achieved an ordinary net profit ofEuros 1,2 billion, a 57% increase on that of 2017.

All our businesses improved their ordinary operating results in 2018, despite unfavourable evolution in exchange rates,particularly in Latin America. In addition, investment of Euros 2,3 billion was made in 2018, 30% more than the previousyear, of which 70% was earmarked for growth projects.

For the purpose of greater transparency and coherence with the hypotheses considered when defining our targets for2022, an asset valuation review was carried out, mainly affecting conventional power generation in Spain. This review ledto a write-down in value of Euros 4,9 billion. In consequence, the company recorded consolidated losses in net results tothe value of Euros 2,8 billion. Although this does not affect the policy of dividend distribution, it is evidence of the team’scommitment not only to results, but also to transparency.

Cash flow in 2018 rose to Euros 5,5 billion, which were equitably destined to i) growth in strategic assets, among whichrenewable energies are highlighted; ii) reduction of financial debt; and iii) shareholder remuneration.

In this respect, I would like to confirm the commitment included in the Strategic Plan to increased and sustainableremuneration for shareholders. In 2018, this commitment translated into a 30% increase in the dividend over that of2017, reaching Euros 1.30/share, a figure that will be proposed at the General Meeting of 5 March for approval. As a resultof the dividend payout and the share buyback programme – in the absence of inorganic investment opportunities that meet the criteria for fi nancial discipline in investment – Naturgy shareholders may be up for a total of Euros 1,5billion in remuneration to be charged against the results of 2018, 50% higher than the previous year.

These results would not have been possible without the good work and highest levels of commitment by themanagement team, for whom the company has implemented a long-term incentive plan linked to total shareholderreturn until 2022. Once again, the alignment of the interests of the company’s shareholders and management will be aguarantee for the creation of value pursued by the current Strategic Plan.

The responsible management of our business has allowed us to retain our position of leadership on the diff erentsustainability indices. For the second consecutive year, Naturgy is the global leader in the Gas Utilities sector of theDJSI index, and global leader in the Multi-utilities sector of FTSE4Good index. We are the only Spanish energy companyon the CDP A List for our action against climate change, and CDP has acknowledged us as world leader for the eighthconsecutive year. According to MSCI, Naturgy has achieved the highest scores for mitigation of climate change andincorporation of sustainability; it is listed among the 120 most sustainable companies in the world on the Euronext Vigeoindex; and it features among the Top 5 companies in transparency and sustainability according to Sustainalytics.

In the fi eld of social responsibility, the company confi rmed its commitment in every country where it carries out itsactivities, particularly to the most vulnerable groups. In addition to improving the management of these customers, theNaturgy Foundation has given a major boost to initiatives such as the Energy School and the energy volunteer programmefor employees, within the framework of the company’s Vulnerability Plan. The foundation has also launched two newinitiatives: an Energy Rehabilitation Solidarity Fund, in order to improve the energy effi ciency of the homes of vulnerablefamilies, and the Job Circle project, to train long-term unemployed people in energy rehabilitation.

Through this report, I invite you to become familiar with the details of the activities and results of this company – yourcompany – which marked its 175th anniversary in 2018 fully immersed in a cultural transformation, all of which will allowus to continue to look aft er the interests of all its customers and shareholders.

Many thanks.

Francisco Reynés Massanet
Chairman & CEO

Related pages

1. Main milestones in 2018 2. Corporate Governance 3. Our commitments 4. Desempeño financiero

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