Dear shareholders,


I would like to begin this letter by acknowledging the effort made by our thousands of collaborators around the world as the Covid-19 global pandemic has been unfolding. Their total and proven commitment to the company during these difficult times deserves special recognition. I would also like, on behalf of the Board of Directors and on my own behalf, to express my deepest condolences and full solidarity with those families who have experienced first-hand the impact of the virus on their loved ones.

Naturgy had anticipated the seriousness of the situation by urgently activating its crisis committee days before the state of alarm was decreed in Spain, and was able to take special measures to protect its employees in every country in which it operates and to support its customers and suppliers

One of the first decisions was that of providing employees with the necessary resources to enable them to work from home. This measure could be applied by 75% of employees, contributing to their protection and that of their families. At the same time, personal protective equipment was provided to employees who had to continue to travel to work in order to attend to customer emergencies or to the critical locations where the security of the energy we supply is guaranteed. I would particularly acknowledge the 1,100 employees in Spain and a similar number in the other countries where Naturgy has operations who have ensured the smooth running of our operations during this special period.

Naturgy has taken a proactive approach by designing and implementing a plan for de-escalation and return to activity after the easing of the Covid-19 lockdown measures that prioritised the safety and well-being of our employees and their families. The company has tested its employees in order to coordinate their return to normality and to guarantee their health and safety, and this measure has been extended to all their direct family members. Moreover, in compliance with the recommendations of the Spanish health authorities, workplaces have been adapted and hygiene measures at all of them have been stepped up to provide the greatest assurance.

One of the effects that this global pandemic has brought with it is the realisation that the value of companies goes beyond their strictly financial metrics. The focus today is not only a company’s economic dimension, but also its social dimension, the commitment a company acquires to the society in which it operates and where it can be of influence by improving the quality of life and welfare of all its citizens.

In order to stay true to this vision, the group has launched various initiatives with the aim of mitigating the impact of the pandemic on household economies, contribute to the management of the health crisis and help return to economic growth. Potential beneficiaries in Spain form a group of more than 10 million people comprising customers, families, suppliers and society in general.

Moreover, the company has also identified and implemented measures in all Latin American countries where it has operations. These measures were taken in line with the evolution of the pandemic in that region, some of which are common to all countries, such as the suspension of service cuts or the postponement or renegotiation of bill payments, and others differentiated according to the reality of each area.

In this regard, I would like to highlight the fact that the company is a pioneer in providing support for the short-term liquidity needs of customers – domestic, SMEs and the self-employed – through the possibility of postponing payment of bills for the second quarter of the year and offering the possibility of repayment over twelve months. This support is available to more than 4 million households in Spain. Likewise, Naturgy also accelerated payments to its SME and self-employed suppliers to support the economic stability of these groups. In other countries such as Argentina, Chile and Mexico, among others, measures have also been implemented to facilitate the liquidity of these companies. In addition, the group provided its more than 7 million customers with the possibility of making video consultations for health-related matters without leaving their homes in order to ease the burden on health centres during the most critical moments.

Naturgy has also taken the lead in performing an important social function during this crisis with the supply of free electricity and gas to hotels and residential facilities that have been converted into makeshift hospitals, more particularly the field hospitals set up in the IFEMA exhibition centre in Madrid, and in the Fira exhibition centre in Barcelona.

The company also offered a free electricity and gas repair service for one year for health workers, such as doctors, nurses, hospitals porters, as well as for members of the different law enforcement services, the armed forces and firefighters, allowing close to 1.3 million people to benefit from this measure. During the duration of the state of alarm in Spain, the company has not cut off the supply of gas or electricity to its customers and has donated 1.1 million euros to the Red Cross for the purchase of medical equipment. This campaign was replicated in the other countries where the company operates, with the proceeds donated to local branches of the Red Cross or directly to health institutions.

If we look beyond the company, the scenario we face has no precedent. The international expansion of the Covid-19 has led to a complex situation with consequences that are very difficult to predict and with indications of an international economic decline to levels similar to those of the Second World War, according to organisations such as the IMF. The pandemic has limited productive activity in many sectors, affected market dynamics and consumers, and has influenced the price of raw materials, with a particularly intense impact on oil and gas prices.

The difficulty faced in dealing with the coronavirus has forced governments and supranational entities to take the extraordinary measures that are necessary in order to counteract the spread of the Covid-19 pandemic, and these have had a great impact on local economies and immediate repercussions on such a globalised system as ours.

There is no doubt that this will mark a turning point for the global economy and world trade; for the strategies of goods production, many of which until now have been based on relocation; for international relations; for the mobility of people and goods; and for the ways in which companies carry out their activity. It is very possible that the changes we have experienced in recent weeks will lead to far-reaching modifications that will eventually become structural, supported by technology and, in particular, by the great advance made in telecommunications.


Major milestones in 2019

Despite the seriousness and scope of all the above, it is our obligation to report to you on the first full year after the implementation of our Strategic Plan 18–22. Again, I would like to highlight the commitment, dedication and professionalism of all Naturgy employees, who have allowed the company to meet important targets despite the demanding challenges of the environment, both in terms of macroeconomics and energy, and to deal with regulatory upheaval. If I may say so, we as shareholders have good reason to be proud of the performance of each and every one of them.

In 2019, we invested close to Euros 1.7 billion mainly in growth projects, raising our investment in renewable energies to record levels in the company’s history, in the ongoing modernisation of our electricity and gas distribution networks, and in achieving joint control of the Medgaz direct gas pipeline connection to Algeria, which is strategic infrastructure for Naturgy and for Spain.

At the start of the year, we were the first Spanish energy company to formally request the closure of all our coal-fired power stations, enabling us to continue moving towards a more sustainable energy mix. The minimal use given to them during the year, among other factors, contributed to a 16% reduction in our CO2 emissions in 2019 compared to the previous year, one of the biggest reductions in the sector.

By year-end, our teams had managed to generate cumulative cost savings of more than Euros 380 million since the commencement of the Strategic Plan in June of 2018 and to substantially improve the company’s competitiveness by making it a recurring item from now on. New initiatives have also been identified that will enable us to meet the target set for annual savings of Euros 500 million as early as 2020. Because of our increased efficiency, we are becoming more competitive every day.

Naturgy today has a better risk profile as a result of the measures adopted to reduce volatility in those businesses whose nature depends on external variables beyond our control. In the case of the LNG sector, our efforts throughout 2019 have led to the situation where 90% of our 2020 sales are already under contract, thereby increasing the visibility of cash-flows.

The Global Health and Safety Policy was approved in 2019 by the Board of Directors to ensure compliance with the commitments made in the Naturgy Corporate Responsibility Policy. We are pleased to report that there were no fatal accidents among the company’s employees in the course of the year and that, additionally, the lost-time injury severity rate was reduced by more than 12%. However, we must call to mind the death of two employees of a collaborating company, which strengthens our resolve to continue focusing on reducing accident rates in our collaborating companies.

Progress continued to be made in 2019 on the implementation of policies that promote work-life balance, joint-responsibility of our collaborators, and encouraging diversity. In this regard, more than 1,300 employees took advantage of some of these measures during the year. Moreover, we succeeded in raising the proportion of women employed in our corporate divisions to 55%.


The 2019 energy scenario

All of the achievements we made during the year took place in a gradually deteriorating energy scenario that worsened in the second half of the year, as shown by the evolution of a number of key indicators, such as gas prices and the electricity pool price.

Where gas is concerned, the benchmarks of the last three years have fallen very significantly: NBP dropped by 36% in Europe; HH fell by 34% in the US; and JKM was reduced by 23% in Asia. This fall in prices has resulted in a decoupling of the correlation that has historically existed between the price of gas and the price of petroleum.

The natural gas-to-petroleum price ratio in Asia dropped from 13.8% in 2018 to 9.3% in 2019, while the fall recorded in Europe for the same period was from 11.4% to 7%. This impact of these falls have been substantially mitigated thanks to the change in strategy that was initiated in 2018 to reduce business volatility, particularly in the LNG business, which enabled us to have approximately 90% of the year’s volumes covered in the first quarter of 2019.

One of the consequences of the fall in gas prices was the 17% drop in the electricity pool price in Spain compared to 2018, mainly owing to a significant increase in the production by combined-cycle gas turbine (CCGT) plants by approximately 94%, which affected pool prices as a result of oversupply.

In view of the events of recent months, Naturgy continues to monitor the evolution of Covid19 and its impact on the international and national macroeconomic and energy outlook in order to adapt our activities and decisions to the medium and long-term situations that may arise as a result of the pandemic. We are and will always be prepared to make the necessary decisions at any time and under any circumstances.


2019 results

With regard to the group’s consolidated economic figures, which you will find in much greater detail in the following pages, I would like to highlight the most relevant results achieved in 2019 compared to those of 2018:

  • Total revenue exceeded Euros 23 billion (-5.3%).

  • Ordinary operating profit was Euros 4.668 billion (+6%).

  • Ordinary net profit reached Euros 1.432 billion (+15%).

  • Cash-flow generation stood at Euros 5.6 billion.

  • Total net debt remained constant at Euros 15.3 billion. As a result, the rating agency Standard & Poor’s kept the group’s risk rating at a stable BBB, despite the unfavourable situation in the sector and economic uncertainty.

  • We paid Euros 921 million in direct taxes, and Euros 2.034 billion in indirect taxes, mainly VAT.

Moving on to analyse the individual results of each of the different business areas, I would like to highlight the following:

In the Gas & Power division, the good performance in the gas, electricity and services commercialisation business, as well as the international generation business, was balanced out by weakness in the LNG and conventional generation businesses in Spain, both affected by a decline in sales, prices and margins. Despite the difficult environment that was accentuated in the last part of the year, this division contributed Euros 1.42 billion to consolidated Ebitda, 2% less than last year. It also maintained its commitment to investing in projects for future growth, mainly renewable energies, with a total allocation of Euros 558 million.

The electricity and gas distribution business in EMEA showed a stable evolution in all the group’s activities, which contributed to total revenue with an Ebitda of Euros 1.981 billion, 7% higher than the previous year. The company continues to support energy transition through investments in regulated businesses, particularly in electricity grids, to which it allocated approximately Euros 221 million during the year.

With regard to the distribution business in Latin America, the South American division (Chile, Brazil, Argentina and Peru) achieved a significant improvement in its 2019 results and a contribution to ordinary Ebitda of Euros 946 million, a 12% increase. This was despite a negative evolution of exchange rates, which was particularly notable in the case of Argentina, and the deterioration in the political situation in Chile during the last part of the year. In the case of the North American division (Mexico and Panama), the good operating performance of its businesses, as well as increase in demand, contributed with a consolidated Ebitda of Euros 377 million, 37% higher than the previous year, also supported by positive evolution in the exchange rate.

Both corporate units and business divisions made progress in their policies for technological improvement and updating, using the Lean Project as a basis for comprehensive transformation and bringing about the simplification of the Group’s processes in this way.


Naturgy in the securities market in 2019

Unfortunately, the company’s good operating results were not reflected in the behaviour of its share price in the course of 2019. Despite offering a total return to shareholders of over 6%(1), the share price was affected by various external factors, among which we would highlight:

  • The proposal by the National Securities Market Commission (CNMC) for regulatory remuneration in the gas distribution activity in Spain, which lead to unjustified cuts in our revenues in the medium-term. In this sense, regulatory management worked intensely during 2019 to set out the regulatory framework that will come into force in 2021. The regulatory framework, which was finally approved in the first quarter of 2020, substantially reduces the negative impact on the system compared to the initial proposal and is based on a continuation of the existing activity-based remuneration framework. In the process, Naturgy has strongly supported an objective methodology and a stable framework that provides visibility and incentives for investments in order to protect the interests of all stakeholders and a balanced energy transition. The company will adopt growth plans to ensure that the new investments it makes are reasonably remunerated and achieve a minimum acceptable return in the long term.

  • Political instability in Latin America, particularly in Chile and Argentina, which resulted in proposals for compensation adjustments and in a declining exchange rate, and which caused concern in the financial markets because of our presence in the region.

  • An energy scenario in continuous downturn, which intensified its fall as of the third quarter of the year, causing a decoupling between international gas prices with respect to its previous benchmark, petroleum, and with an effect on commodity prices. In addition, significant falls in gas prices also had a negative impact on thermal power generation results, particularly on margins of CCGTs.

In this regard, I would like to share with all of you the fact that the management of Naturgy is not conditioned by the short-term behaviour of the share price. We firmly believe that in the long-term the price of our shares will reflect the progress of the company, and we firmly and eagerly take on the responsibility of anticipating future challenges, factors that we are certain will be reflected in our valuation.


(1) Total shareholder return calculated on the basis of share performance over the year, adjusting the price to take into account the dividends distributed.


The immediate future and the need for transformation

We have started a new year, 2020, with significant agitation and headwinds. This year is not going to be easy, given the environment of growing trade tensions, lower private demand, downturn in world commodity prices – particularly energy prices – and high uncertainty and volatility. As a result, the OECD forecasts growth in the world economy at the lowest levels since the Great Recession, with continuous revisions of its forecasts, all of which have led to the identification of increasingly less positive prospects, also influenced by the impact of recent events in the field of health.

This uncertain and increasingly volatile and ethereal environment requires companies to engage in an exercise of reflection, to seek new ways of adapting to new conditions, and to implement plans that will make projects more sustainable and longer-lasting. The Covid-19 pandemic is driving us with even greater determination to improve our efficiency and to adapt to the new circumstances. The company is determined to work and adapt to the new global macroeconomic reality that all sectors are facing.

Naturgy must therefore also adopt such an attitude and embrace a new, more profound stage of transformation that will enable the company to continue consolidating structural reforms already implemented while addressing the challenges of the immediate future. Consequently, in 2020 we are going to enter a new stage in which we have set the following goals:

  • To be more ambitious in our quest for excellence and improvement of our competitiveness, optimising the processes that allow us to enhance our efficiencies. During 2020 we will reach a level of improvement in Opex that will allow us to meet our targets two years ahead of schedule, and therefore we are taking on the responsibility for setting more ambitious targets to be met by 2022. For this purpose we are identifying new areas of improvement that will allow us to cope with adverse scenarios.

  • To consolidate our leading role in the energy transition process, moving ahead with the decarbonisation of the group, increasing the weight of the electricity business and with a particular focus on sources of renewable energy generation. We will do so with financial discipline, by pursuing improvements in the predictability of cash-flows and increasing our potential for future growth. And by giving innovation the role it deserves.

  • To speed up, as much as possible, the rotation of our business portfolio, which will allow us to reduce our company’s risk profile and volatility, which should also allow value realisation. These actions should also contribute to further progress in the simplification of the Group and accelerate our commitments to decarbonisation in line with our Environmental Plan, which has been acknowledged by a large number of international indices.

  • To intensify regulatory management proactively in order to ensure that we will be able to invest and operate under stable regulatory frameworks with long-term visibility. We will work to have regulatory schemes that encourage investments and guarantee reasonable returns to support the energy transition.

  • To adapt our organisation to the challenges we identify, in order to be able to meet them with the greatest guarantee of success. And to do so, we will combine the significant talent that the company already enjoys with strengthened external talent, to make Naturgy a leader in employee quality and commitment.


Our commitments to shareholders and stakeholders

The management of Naturgy is focused on creating value for shareholders and aligning the interests of all our stakeholders. In this regard, we will work to renew the enthusiasm of all our collaborators and customers and to strengthen their identification with this project.

Likewise, we will continue to reinforce our commitment to health and safety, through the implementation of our Corporate Responsibility Policy, and above all, to strive to consolidate a working environment that looks after the health and well-being of our employees and one that is accident-free.

We will also continue to make progress in our Vulnerability Plan, thanks to the social action taken by our Foundation, with initiatives such as the energy-efficient retrofit of the homes of vulnerable families and our Energy School, which provided training for close to 20,000 people last year.

As far as the company’s corporate governance is concerned, we will make steady progress in complying with CNMV recommendations. We will be pioneering in the implementation of a number of these, but we will also explain with total transparency, if necessary, the reasons why it is not possible to comply fully with others. In particular, we will strengthen the Board of Directors’ commitment to Sustainability and progress towards gender parity on the Board. We are aware of the importance of parity targets and the need to face meet challenges firmly and realistically after 175 years of history. Which is why the company’s highest governing body will be setting the example.

And we will maintain our commitment to shareholder remuneration, in line with the Strategic Plan.

I began this letter by listing some of the reasons why we as shareholders have reason to be proud of the company’s performance in 2019, a year that became difficult. We are now well into the new year, that of 2020, which is more challenging and with greater uncertainties in view of the unprecedented downturn in the world economy due to the Covid-19 health crisis. We have an obligation to move forward in a context of falling global GDP in the light of information from national and international economic bodies. But Naturgy has the capacity and a team of professionals who are ready to face the situation with maximum assurances for our shareholders.

We are committed to the responsibility of accelerating our transformation, and of carrying it out in any way that is required of us, with the firm aim of turning the challenges and the uncertainties of the environment into opportunities, and of doing so with the highest expectations and with renewed energy. I am convinced that by working hard, and with the necessary determination to face the changes, we will again have reason to be proud of our achievements. And I am also convinced that the commitment of all our employees will help us to achieve our goals.

Thank you very much for your attention and for placing your trust in all of us.

Francisco Reynés
Executive Chairman
Madrid, May 2020


Net turnover


-5.4% VS. 2018

Gross ordinary
operating profit


+5.8% VS. 2018

Ordinary net


+15.0% VS. 2018

Free Cash Flow
after minorities


-35.9% VS. 2018_____________

Capex __________________________


-27.4% VS. 2018 _____________

Capex remunerated


70% in renewables and electricity grids

Net financial debt
at 31/12


-0,3% VS. 2018 Proforma NIIF16



51.2% VS. 2018

Net financial
debt/Ebitda .


3.8x in 2018

Share prices at 31/12
____________________ ________


€22.26 in 2018

Ordinary earnings
per share _____________


1,25€ in 2018

Dividend distributed
per share____________


1,30€ in 2018

by geography (%)_____________

Ordinary Ebitda
by business (%)______

by business (%)_____________


Annual Report 2019

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Main milestones and key figures