Integrated Annual Report 2018
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The new Strategic Plan 2018-2022, unveiled in London on 28 June 2018, establishes the group's business model, which is focused on value creation.

Naturgy is focused on responding to its own industrial model, based on:

Treating the energy transition as an opportunity

Naturgy believes that natural gas and renewable energies will play a very important role in the transition to energies that produce lower CO2emissions, as needed to meetthe targets set in the 2015 Paris Agreement on climate change.

As a result, the following lines of action have been established:

  • Triple renewable installed capacity by 2022.
  • Leverage Naturgy's lead in combined cycle plants and in the global LNG market.
  • Develop the use of natural gas in transportation.
  • Develop renewable gas.

Moreover, Naturgy's infrastructure assets will play a vital role over the next few years in the process of electrification and improvement of energy efficiency, supporting greater electrification and greater penetration by gas in countries where the company already operates.

Being a flexible, competitive company

Solid, tangible levers have been defined for achieving the efficiency goals set out in the Strategic Plan 2018-2022 :
  • Organisation:the businesses will be autonomous units with full responsibility for their results, while seeking to optimise company personnel. To this end, a number of changes have been implemented at the organisational level in both corporate governance and the organisational structure in order to facilitate decision-making and the business units' autonomy and responsibility, while always guaranteeing control by the parent company.
  • Process re-engineering:reviewing service contracts with suppliers, establishing new cooperation relations with suppliers where necessary to achieve automation or outsource non-core tasks.
  • Asset management: search for best practices to optimise asset maintenance based on predictive models and centres of excellence.

Naturgy presented an efficiency plan and undertook to cut annual operating expenses by Euros 500 million by 2022.

Transforming via digitalisation

The following key levers for digitalisation have been defined for 2022:
  • Customer relations: 75% of services to be provided via digital channels and 20% penetration via Internet of Things (IoT).
  • Processes and operations: Over 80% automation of internal processes and operations.
  • Remote control of assets: Achieve 80% coverage of assets with sensors and remote control by 2022, from 56% in 2017.
  • Advanced analysis techniques: Data-driven management to be implemented in over 90% of processes Group-wide. The main projects to be undertaken in this connection will be in the following areas: develop predictive models for asset maintenance; use models to pursue customer segmentation, predict churn and apply advanced pricing approaches.

These projects will drive the Group's transformation via digitalisation.

Placing the customer at the centre of the model

Enhance our commitment to the customer by placing them at the centre of Naturgy's strategy based on:

  • A single customer experience model.
  • Defining services and solutions that provide added value to the customer.
  • Improve customer segmentation.
  • Innovation and digitalisation.

Key factors in this connection are technological innovation such as smart apps, smart meters, remote control, autoproduction of electricity, energy storage, etc.

Strategic Plan 2018-2022

The main objective of the new Strategic Plan 2018-2022 is to guide the company towards value creation and lay the foundations for the Group's new industrial model. Naturgy's commitment to value creation is underpinned by four basic pillars: simplicity and accountability, optimisation, discipline in investment, and shareholder remuneration.

Simplicity and accountability

Corporate governance and organisation structure

In terms of corporate governance, a major change was the reduction in the number of members in the Board of Directors from 17 to 12 (the executive chairman, six proprietary directors and five independents). Internal governance rules will also be simplified to achieve a more efficient structure and to make decision-making more agile.

The organisation structure has been simplified into four business units (Gas & Power, Infrastructure EMEA, Infrastructure LatAm South and Infrastructure LatAm North), with leaner corporate functions in order to ensure that the businesses operate autonomously and with full responsibility for their results, enabling the parent company to focus on valueadded processes and on ensuring centralised oversight.

A new Opex & Capex Committee was created with the task of ensuring the execution of the company's efficiency plan and for fulfilling the discipline in capital expenditure envisaged in the Strategic Plan.

With these changes, Naturgy has simplified its corporate governance to streamline decision-making and redesigned its organisational structure to attribute greater autonomy and responsibility to the individual businesses.

Strategic positioning

Naturgy defines its strategic positioning on the basis of the following criteria:

Where to invest Where to divest


  • Big markets with strong growth potential.
  • Markets that are small and/or offer little growth potential.
  • Where Naturgy has a significant market share or critical mass.
  • High regulatory risk.
  • That offer legal certainty.
  • Highly concentrated.
  • Stable macroeconomic environments (e.g. the EU, North America, OECD).
  • Volatile macroeconomic environments.


  • Electricity or gas grids.
  • Low level of integration or synergy with the rest of the Group.
  • Sale of electricity under contract.
  • Unhedged volatility.
  • Customer services.
  • Non-controlling stakes.
  • Controlling stakes.


  • Above hurdle rate.
  • Low hurdle rate.

A total of Euros 5.3 billion of expenditure in growth Capex have been identified, and Euros 300 million are expected to be realised through divestments in addition to those already performed.

Naturgy will also work to balance the weight of its businesses in its mix of activities and will be more ambitious to increase the contribution by regulated activities and by electricity. In the future, the company expects that at least 70% of its business will be linked to regulated activities (currently 52%), with half related to electricity (currently 40%). It also expects to increase exposure to services to about 10%, reinforcing its commitment to the customer.

Additionally, on the basis of developments in the markets where it operates and in linewith the assumptions and foundations of the new Strategic Plan 2018-2022, Naturgy reviewed the value of its assets, which resulted in a one-time impairment in the amount of Euros 4,851 million before taxes, booked in 2018. This impairment had no impact on shareholder remuneration and it will be accretive from 2019 because of the lower depreciation charge.

Simplicity and accountability


Geographical areas

Geographical areas

Spain 57%
Global trading 8%
Top 5 countries 34%
Others 1%
Balance of risks

Balance of risks

Regulated 52%
Merchant or FS risk 48%
Majority of gas

Majority of gas

Gas 57%
Electricity 40%
Services 3%


Geographical areas

Geographical areas

Spain Max. 40%
Global trading 10%
Others (max. 9) Min. 50%
Mostly regulated

Mostly regulated

Regulated Min 70%
Merchant or FS risk 30%
Higher electricity weight

Higher electricity weight

Gas Max- 40%
Electricity Min. 50%
Services 10%
Rebalancing of portfolio: more cash flow visibility and lower volatility


Financial strategy will focus on reducing Opex, optimising Capex and applying strict discipline in investments, pursuing organic development. Any optimisation will be submitted for the supervision of the new Opex and Capex committee.

Under the Strategic Plan 2018-2022 , the company will continue to optimise the businesses with additional efficiency measures, with the commitment to cut annual operating expenses by Euros 500 million in 2022. These efficiencies will be focused on an analysis of the company's non-core activities and on the assignment of the operational functions within each of the business units, all supported by the ongoing digitalisation processes.

Naturgy plans to cut group-level Capex by Euros 200 million per year with respect to the average in 2015-2017, while increasing the percentage of investment allocated to organic growth in comparison with previous years. In average terms, the goal is for 63% of capital expenditure to be allocated to growth in 2018-2022 vs. an average of 54% in 2015-2017.

Disciplined investment

Four golden rules were defined to ensure value creation and profitable growth in both organic and inorganic investments:

  • Establishment of a hurdle rate of return, setting minimum profitability targets for businesses, activities and countries so as to ensure value creation.
  • A clear positioning focused on target markets and businesses.
  • Industrial leadership via controlled subsidiaries.
  • Risk management, minimising the volatility of commodity prices and exchange rates.

Applying these rules, Naturgy plans to invest Euros 8.4 billion over the next five years, of which Euros 5.3 billion will be allocated to growth, increasing the proportion of growth Capex to 63% of the total in the period:

Financial discipline will enhance free cash flow so as to sustain attractive shareholder remuneration.

Growth Capex by business for 2022


euros million

Growth Capex by business for 2022 - Gas & Power

Gas & Power

Growth Capex by business for 2022 - Infrastructure EMEA

Infrastructure EMEA

Growth Capex by business for 2022  - Infrastructure LatAm South

Infrastructure LatAm South

Growth Capex by business for 2022 - Infrastructure
LatAm North

Infrastructure LatAm North

Fully identified growth Capex

Shareholder remuneration

The company will increase the dividend charged to 2018 earnings by 30% to Euros 1.30 per share.

Under the Strategic Plan 2018-2022, Naturgy made a commitment to its shareholders to increase the cash dividend by at least 5% per year until the end of the period and to pay dividends in three instalments:

  • At the end of the first half of the year (20% of the total dividend).
  • At the end of the third quarter (35%).
  • After the Shareholders' Meeting (the remaining 45%).

To reinforce the new shareholder remuneration policy, in the event that the company cannot find inorganic investments that meet the hurdle rate, it can allocate a maximum of Euros 2 billion to buying back own shares, capped at Euros 400 million per year.



Share buy-back
(euros million , up €2,000 M)

Recompra de acciones

Individual business prospects

The growth prospects for the individual businesses, as defined in the Strategic Plan 2018-2022 , are as follows:

Gas & Power

The Strategic Plan 2018-2022 targets Ebitda of Euros 1.7 billion per year, with Capex amounting to Euros 2.7 billion in the period 2018-2022. This will be driven by organic growth and higher efficiency in exploiting assets. The goals and opportunities defined for each of the units in this business are as follows:

Ebitda targets for 2022
Euros million
Capex 2018-2022
Euros million
Opportunities Goals (Euros million)
  • Gas, power and services sales
  • Define a new integrated commercial model.
  • Ebitda 2022 = 549
  • Maximise value by focusing on customers.
  • Capex 18-22 = 452
  • Exploit the strong growth potential of the services and solutions business.
  • 74% growth Capex
  • International LNG
  • Diversified, flexible portfolio of procurement contracts.
  • Ebitda 2022 = 422
  • Sales secured under contract with end customers.
  • Capex 18-22 = 392
  • Entry into attractive new markets, such as the Floating StorageRegasification Unit (FSRU), small-scale solutions and bunkering.).
  • 100% growth Capex
  • European Power Generation
  • Double the volume of renewable energy while cutting total costs.
  • Ebitda 2022 = 507
  • Increase CCGT load factor.
  • Capex 18-22 = 1,296
  • Adjust cost of conventional generating fleet.
  • 64% growth Capex
  • International generation
  • Expand in renewables.
  • Ebitda 2022 = 270
  • Generate recurring cash flow.
  • Capex 18-22 = 568
  • 68% growth Capex

Infrastructure EMEA

The Ebitda target for this business is around Euros 1.645 billion, with Capex in the period 2018-2022 totalling about Euros 2.310 billion. The goals and opportunities defined for each of the units in this business are as follows:

Ebitda targets for 2022
Euros million
Capex 2018-2022
Euros million
  • Spain gas networks
  • Pursue organic growth by exploiting the scope for expanding gas penetration.
  • Limit the business’s regulatory risk.
  • Increase efficiency via digital transformation.
  • Spain electricity networks
  • Work towards a more flexible, digitalised distribution system.
  • Future Capex to offset regulatory risks.
  • Pursue efficiency via digitalisation.
  • EMPL
  • Revenues guaranteed until the concession expires (2021).
  • Negotiations advancing to renew Maghreb-Europe gas pipeline concession.

Infrastructure LatAm South

The Ebitda target for this business is around Euros 1.2 billion, with total Capex of about Euros 2.3 billion in the period 2018-2022. The goals and opportunities defined for each of the units in this business are as follows:

Ebitda targets for 2022
Euros million
Capex 2018-2022
Euros million
Opportunities Goals (Euros million)
  • Chile Electricity
  • Distribution: the regulatory model is expected to improve in 2020 to capture updates in technology and service quality.
  • Ebitda 2022 = 436
  • Transmission: improvements expected due to grid upgrades and new regulations to address the bottleneck produced by the growth of renewable energy.
  • Capex 18-22 = 1,105
  • 60% growth Capex
  • Chile Gas
  • Organic growth via greater penetration and higher demand for heating.
  • Ebitda 2022 = 245
  • Drive gas exchanges between Argentina and Chile via existing pipelines.
  • Capex 18-22 = 497
  • 85% growth Capex
  • Brazil Gas
  • Organic growth through increasing penetration in the gas market as well as seeking new concessions.
  • Ebitda 2022 = 322
  • Leverage the huge growth potential of the services business.
  • Capex 18-22 = 399
  • 57% growth Capex
  • Argentina Gas
  • Organic growth underpinned by grid upgrades and implementation of new networks, expanding the grid in the territory.
  • Ebitda 2022 = 159
  • Leverage the huge growth potential of the services business.
  • Capex 18-22 = 323
  • 41% growth Capex

Infrastructure LatAm North

The Ebitda target for this business is around Euros 400 million, with Capex totalling about Euros 1 billion in the period 2018-2022. The goals and opportunities defined for each of the units in this business are as follows:

Ebitda targets for 2022
Euros million
Capex 2018-2022
Euros million
Opportunities Goals (Euros million)
  • Mexico Gas
  • Organic growth through greater penetration in the gas market and new concessions.
  • Ebitda 2022 = 247
  • Strong growth potential in services via new customers and the existing customer base.
  • Capex 18-22 = 616
  • 22% growth Capex
  • Panama Electricity
  • Strong growth is projected against a backdrop of moderate risk to the country’s economy, with remuneration stable in USD.
  • Ebitda 2022 = 146
  • The tariff review for 2019-2022 is expected to be positive.
  • Capex 18-22 = 341
  • Significant improvement in operational efficiency and lower power losses.
  • 30% growth Capex
  • Capture competitive advantages in services and solutions.
Naturgy's key financial targets for 2022 (euros million)


Net income

Annual avg. FCF

Net debt

Business goals set in the Strategic Plan(euros million)

Business goals set in the Strategic Plan

Financial strategy

To support the business strategy, the finance strategy targets net debt at end-2022 at the same level as end-2017 (Euros 16.4 billion, per IFRS 16) as strong cash flow will make it possible to distribute dividends (Euros 6.9 billion) and allocate Euros 2 billion to share buybacks or inorganic growth opportunities.

Finance policy will focus on maintaining the rating and leverage while managing the debt structure to make it more effective. The debt structure will be diversified, prioritising access to capital markets and institutional funds, with at least 70% of debt at fixed cost while seeking "natural" hedges by ensuring that subsidiaries are funded in the currency in which they generate cash flows.

Each business unit will be provided with the necessary liquidity and the necessary level of indebtedness to operate autonomously.

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