GAS NATURAL FENOSA will invest up to 14 billion euros over the next five years (of which more than 80% will correspond to regulated or contracted assets), placing a special focus on expanding distribution networks and on power generation with renewable energy, in line with the new strategic vision for 2016-2020 presented by its Chairman, Salvador Gabarró, and CEO, Rafael Villaseca.

The new strategic plan is intended to protect the present successful business model, which has shown itself able to capture growth over recent years, and to set the stage for continued growth thanks to the planned investments.

Investment efforts

According to the new strategic vision, during the 2016-2018 period, GAS NATURAL FENOSA will invest 8.1 billion euros. Most of this, 4.8 billion euros, will be allocated for investments in distribution networks. Around 1.8 billion euros will be used to build new power generation capacity (almost all renewable) and another 1.5 billion will go to the other business lines (mainly LNG).

In 2019 and 2020, the company is also set to invest 6 billion euros, of which 5.2 billion will be spent on power generation (2.7 billion) and networks (2.5 billion).

Investments from 2016 to 2020 will enable the company to increase its electricity and gas supply points by 3.6 million and increase the generation capacity by 3.5 GW (of which 2.5 GW will be in renewable energy and 1 GW in international combined cycle projects).

The goal of the distribution network investment plan is to continue capturing the great potential in the gas and electricity markets in Spain and Latin America, especially with regards the projects involving gas supply in Mexico, Colombia and Chile.

In terms of gas business, investments will be used to increase capacity, flexibility and competitiveness, and the group is set to invest in floating LNG regasification plants.

Financial goals

GAS NATURAL FENOSA predicts a challenging scenario during 2016 and 2017, due to the current volatility of commodities and exchange rates. The management initiatives put in place and the new investments will begin to mitigate the impact of this scenario in the second half of 2017. The target EBITDA for 2018 is 5.4 billion euros, while net profit will grow to 1.6 billion.

With the basis for growth established in the first three years of the Plan, the company expects to see a solid increase in EBITDA and net profit in 2019-2020. Specifically, at the end of this period, Ebitda should rise to 6 billion euros (13% more than 2015) and net profit should reach 1.8 billion (20% more than 2015).

The plan also includes a new efficiency plan which will bring savings of 220 million a year by 2018, and the study of other plans for the 2019-2020 period, which could be brought forward.

The Group expects to maintain its strict financial policy despite the difficult climate of the next few years, thanks to the strong capacity of GAS NATURAL FENOSA to generate cash flow, which will enable it to reduce its leverage ratios while increasing dividends and investments. The multinational predicts ending the 2016-2020 period with a net debt of 15.6 billion, reducing the net debt/EBITDA ratio from 1:3, as it is now, to 1:2.9 in 2018 and 1:2.5 at the end of 2020.

Its commitment to shareholders is reflected in the recent approval by the Annual General Meeting of the new dividend policy for the 2016-2018 period, which predicts a 70% payout, with a minimum dividend of one euro/share and the possibility of a scrip dividend. It will also oversee the allocation of 7 billion euros to dividends over a five year period.

Business outlook 2016-2020

Networks

GAS NATURAL FENOSA’s goal in terms of gas distribution business is to create an additional 1.4 million supply points by 2018 and another 1.2 million by 2020. At the close of 2015, the company had 12.6 million gas supply points in Europe and Latin America.

The strategy in Europe (Spain and Italy) from 2016 to 2020 will be centred around continuing to supply gas to the new municipalities offering the best regulatory incentives; acquiring clients in Spain within LPG networks with a high potential market; and developing new concessions.

In Latin America, where GAS NATURAL FENOSA is the leading company in Brazil, Colombia, Mexico and Chile, the lines of work will focus on capturing the continent’s potential organic growth; capturing opportunities to consolidate new concessions; growing in Puerto Rico and Peru, and developing new concessions in Mexico and Chile.

In the European electricity networks (Spain and Moldova), the main element for electricity distribution business transformation will be the deployment of smart grids. GAS NATURAL FENOSA, which closed 2015 with around 2 million smart meters installed and integrated in the system, has set the goal of closing 2018 with 3.6 million smart meters installed.

In Latin America, the multinational will develop electricity infrastructures that can absorb the expected upswing in demand in Panama, Chile and Colombia. It will also intensify the operational improvement of the Colombian company Electricaribe, focusing on regulatory management in operational efficiency.

For 2020, the goal is to grow, mainly in the countries with the highest expected growth in demand for electricity: Chile, Colombia and Panama. Growth in Spain is expected to be marginal.

GAS NATURAL FENOSA expects to invest around 7.2 billion euros in natural gas and electricity networks until 2020. 71% of this figure will correspond to natural gas and 29% to electricity. By geographical area, Latin America will receive 57%, with 43% going to Europe. In total, a million more electricity supply points are expected to be added.

For the target EBITDA of the network business, the company expects to reach 3.3 billion euros in 2018, and aspires to exceed 3.4 billion by 2020.

International power generation

GAS NATURAL FENOSA, through its investee Global Power Generation (GPG), has an installed capacity outside Spain of 2,700 MW. The company currently holds a portfolio of 4,000 MW in active projects and has identified development opportunities in different technologies: combined cycle with natural gas, hydro, wind and solar.

GPG expects to add 100 MW to its installed capacity by 2018 and hopes to incorporate up to 2,700 MW more in 2020, mainly from renewable energy. To do this, it will invest 300 million euros a year from 2016 to 2018 and 1 billion a year for the following two years.

If its expectations are met, this activity’s EBITDA for 2018 will be similar to that from 2015, but it will double to reach 600 million euros in 2020.

Power generation and marketing in Spain

GAS NATURAL FENOSA has an installed power generation capacity in Spain of 12,800 MW, 91% of which corresponds to conventional technologies and the other 9% to renewables. The company will endeavour between 2016-2020 to balance its production mix with the addition of new renewable power generation.

It currently has a portfolio of projects corresponding to nearly 850 MW (mainly wind power), of which it hopes to put 200 MW into operation by 2018 and another 550 MW by 2020. GAS NATURAL FENOSA will invest 800 million in 2016-2018 and 700 million in 2019-2020 to reach this goal.

The company will also invest in adapting the Meirama coal-fired plant to comply with the new Industrial Emissions Directive.

The EBITDA of this activity will be 500 million euros in 2018, rising to 700 million in 2020, according to the predictions.

Gas

GAS NATURAL FENOSA is the leading supplier of natural gas in Spain and an important operator in LNG in the Atlantic and Mediterranean basins, with a sales volume close to 27 bcm.

Worldwide demand for LNG will grow significantly over the next few years, thanks to the energy needs of emerging markets, the increase in unconventional resources, and the fact that it is the fossil fuel with the lowest environmental impact.

To meet growing global demand, the company has signed procurement contracts for a total volume of 11 bcm, which will begin supplying from 2017 to 2021, and will improve the competitiveness and flexibility of the portfolio. Alongside this increase in contracts, GAS NATURAL FENOSA will almost double the size of its fleet of LNG carriers with regular charters and the incorporation of floating regasification units.

The multinational will work on various key lines to reach its goals; which are to increase gas sales to 32 bcm and reach an EBITDA of 900 million euros by 2018. Investments from 2016 to 2018 will total 1.2 billion euros and include the incorporation of four LNG carriers and one floating regasification unit. Investments will increase by another 400 million in 2020. In the same year, the EBITDA can be expected to reach 1 billion.

Services, retail and innovation

In the retail market in Spain and Italy, GAS NATURAL FENOSA has 12.2 million active contracts in gas, electricity, maintenance services and energy solutions. In the next few years, the company plans to replicate its business model in the other countries where it operates, particularly in Latin America, and to make unregulated products and services available to its clients around the world.

Meanwhile, in Europe, the commercial offer will be developed to respond to changes in the market and new technologies, which will permit the introduction of demand response equipment, smart homes, distributed power generation, energy efficiency, and other new solutions.

In short, the marketing, services and innovation business will be an important lever for growth in 2016-2020 for GAS NATURAL FENOSA, with an increase of 1.3 million contracts by the end of 2018 and another 1.1 billion by the end of 2020. The company expects the EBITDA for these activities to rise by 50% by the end of 2018 (to 300 million euros) and for it to double by 2020.

Sector environment and trends

To define its new strategic plan, the company took into account three main trends in the energy sector which they believe will define its future: growth driven by emerging markets, the changing mix of power generation towards renewables and natural gas, and the appearance of new business models in the energy sector.

Renewable energy and natural gas will be the key vectors for covering increased demand, which will be especially accentuated in emerging markets, as even in the worst-case scenarios of sector analysts, both these energies are the only ones that will increase their weight in the energy market in the next few years.

The evolution of the energy mix due to initiatives to reduce climate change and the technological development of renewable energy, with a substantial cost reduction, will enable natural gas and renewable energy to become the most attractive energies in 2016-2020, given their resilience and continued international growth. This change in the mix will offer numerous opportunities for growth and is one of the cornerstones of the Group’s short- and medium-term strategy.

In the world of gas, the big winner will be liquefied natural gas (LNG), thanks to its greater contribution to energy security and shorter turnaround time on projects.

Innovation in the energy market will be another of the vectors redefining the sector on a global level, given that new business models such as distributed power generation and smart grids are already opportunities for growth, both in mature markets and in emerging markets in the medium term.

About Gas Natural Fenosa

Gas Natural Fenosa is currently present in more than 30 countries, where it serves more than 23 million customers, with 15,4 GW installed power and a diversified electricity generation mix.
The company’s core business lies in the regulated and liberated gas and electricity markets, with a growing contribution from its overseas activity.
The company is quoted on the four Spanish stock exchanges through continuous trading and is part of the Ibex35 index.