Recently renamed Naturgy, Gas Natural has presented its Strategic Plan 2018-2022 to analysts in London. In this new stage, the company will carry out radical changes in its share holding and leadership , therefore the main pillars of this plan are the following:
1) Simplification of its structure and management bodies. The board will be reduced from 17 to 12 members. The executive committee of the board will be eliminated. The organization will also be simplified. Four divisions will be created: Gas and Electricity, European Infrastructure, North Latin American Infrastructure and South Latin America Infrastructure.
2) Generation of 5.9 billion euros operational cash flow after capex. Organic capex will be 8.4 billion euros in this period.
3) Generate returns of 3 billion euros in the period through disinvestment. This means contemplating 3 billion euros of additional disinvestment apart from the 2.7 billion euros which will enter into the 2018 accounts of the group. It will reduce its presence in low growth business or in countries without stable regulatory frameworks or with macro volatility.
4) Greater dividends for shareholders. The management team expects to direct a total of 6.9 billion euros to shareholders in dividends in 2018-22. The dividend for 2018 will be established at 1.30€/share and thereafter will grow at a minimum of 5% per year until reaching 1.59€/share in 2022.
5) Possible buy back of shares. Naturgy has announced that it could dedicate up to a total of 2 billion euros to buying back its shares, if no interesting opportunities for growth through acquisitions present themselves. The maximum buy back per year would be 400 million euros. The potential acquisitions focus on electricity and gas networks, and the generation of electricity under contract. The net debt of the group will be maintained stable at 16.4 billion euros in this period.
6) Provisions in conventional generation. Adjustment of 4.9 billion euros (half of the value in pounds sterling) in the business of conventional generation in Spain (nuclear, coal and gas centres). Implications of this adjustment: positive effect on the group’s cash flow (because of fiscal benefit, neutral for the dividends and negative for 2018 results.
In the opinion of the analysts at Bankinter, the management team has designed a plan which includes a “very generous benefit for shareholders” given the commitment to a dividends payout of 65% with a minimum of 1€ to 1.3€/shares in 2018, rising a minimum of 5% thereafter.
”This means that the total of dividends in this period grows from 5 billion euros to 6.9 billion euros (+38%). Moreover, if we incorporate the potential share buy back, the total benefits for shareholders could reach 8.9 billion euros in the period. The cash flow of the group, and the funds generated by disinvestment, will be dedicated fundamentally to payouts to shareholders in the period.”
The fund CVC and C.F Alba (March family group) acquired last February the package of shares in Gas Natural held by Repsol for 19.0€/share. These new shareholders have insisted that the management team pay more generous benefits (increase pay out and buy back shares).
On the other hand, the provision realized aims to adjust the book value of its conventional generation assets to a more reasonable value. The conventional generation assets only contribute 7% of the EBITDA of the group. The rest is formed by the networks of gas and electricity, commercialization, renewables and international generation.
