Naturgy Energy Group S A

Good morning, everyone. This is Abel Herbat speaking from the Capital Markets Team at Naturgy. Thank you for joining our call for the full year 2023 results. Next to me sits our Executive Chairman, Mr. Francisco Reynes, the General Counsel to the Board, Manuel Arcea-Cobaleda, Head of Financial Markets, Mr. Steven Fernandez, and the Head of Control. Please meet us . We're going to run over the presentation first. And at the end, we will be addressing questions from analysts and investors. Note, please, that at this time, questions shall be submitted through the webcast platform in written form, please. Before we dive into the presentation, just a big note on the minor changes we have introduced in the composition of operating segments, namely, The integration of the former international energy markets and pipelines segments in a new segment named energy management, as you will see in the presentation. Also, the speed of renewables in Spain and USA into two different segments, as well as the speed of the gas and electricity segments in Argentina. And finally, the introduction of a holding unit for each networks and markets, reflecting general expenses allocated to each of the groups. So, with that covered, I'm handing it over to Steven to start off on the presentation.

So, thank you. Thank you, Abel, and good morning, everyone. I'm going to take you directly to slide number four. where you'll find a summary of the main areas that we'll be covering in the coming pages, basically laid out in three key scenarios. So, first, what's happened from a global perspective, that is what we call the scenario. Second, the key highlights for year 2023. Finally, some of the elements that we'd like to also point regarding the solid results that we've published for this year. In terms of scenario, I think it's fair to say that gas and power prices remain highly correlated, as we have seen during the course of the year 2023. It's also true that we have come off year 2022 with significant high prices, and there's been a gradual decline of those prices towards historical average levels as the market begins to rebalance post-2022. We've also seen, from a scenario point of view, ongoing regulatory developments that our chairman will explain further on in the presentation, which have affected the company's performance. In terms of the year itself, 2023, I think it's worthwhile highlighting the fact that the company has stepped up energy transition investments. If you look at it relative to year 2022, we see an increase of more than 50%, 53% to be precise, to a level close to 3 billion euros. In this sense, it's also worthwhile highlighting the progress on renewal development. We've increased our install capacity in renewables by one gigawatt relative to 2022, and now stand at 6.5 gigawatts, and this is going to be a key area of further focus for the company moving forward. We're also focusing a lot on renewable gases, and in this sense, we are actually leading the way in Spain. When you look at the number of projects that the company has at different stages of development, they amount to roughly 70, combining biomethane and hydrogen. So we are beginning to look at renewable gases as a key area for development also for the company moving forward. Year 2023 also marks a time where we have increased regulatory visibility in LATAM, and that is welcome news, and we believe it's going to continue in that trend again moving forward. Finally, the company has continued to provide security of supply at competitive prices, with more than 250 terawatts of gas and around 20 terawatts hours of electricity globally. As a result of the above, 2023 has been a good year for our company. We've exceeded guidance, reaching an EBITDA of almost 5.5 billion euros and a net profit of almost 2 billion euros at 1986. On top of this, the company has generated very strong cash flow, and that has allowed us to reinforce our balance sheet with net debt to EBITDA at a level of around 2.2 times, which is a very low level compared to historical figures. combination of the above allows us to or has allowed the board of directors to propose an overall dividend for the year of 1.4 euros per share and this is in line with the commitment to the market and finally i think 2023 is also a year where we have done good solid in terms of esg metrics so if i take you really quickly uh to slide um six We can see that gas and power prices have remained highly correlated during the year, as I mentioned previously. And we can also see here that the decline of gas prices in Europe are then leading towards historical levels. And that's on the left side of the page. This has translated into a similar decline in wholesale electricity prices, which you can see on the right side of the page. It's worthwhile noting that Spain electricity prices have been amongst the most competitive in Europe over the last 18 months. And it's something that you can see highlighted on the right side chart on slide six. If we move on to the next one, regarding energy market prices in 2023 compared to 2022, we can actually observe similar price declines of more than 50% compared to 2022. across key gas references in Europe, for example, the TTF, but also in Asia with JKM and the U.S. with the Henry Hub. Spanish fuel prices for its part experienced a close to 50% decline compared to 2022, obviously following the evolution of gas prices in Europe and in Spain. Brent and CO2 prices experienced less relevant changes compared to last year. Recent weeks, we've witnessed a substantial decline in the CO2 prices following the continued decrease of gas prices well into the ongoing year 2024. Finally, I think it's worthwhile also highlighting that 2023 has shown lower volatility versus the previous year, although it's still above historical levels. So if we move on to slide eight, we analyzed the key regulatory developments for year 2023. At a European level, I mean, the 5455 package aimed at increasing renewal, penetration, energy efficiency, and decarbonization is worth highlighting, together with all the other measures, including the tax and aggregate turnover by liberalized activities in Spain, et cetera, et cetera. I'm not going to go over all the elements. You guys are familiar with them. But, of course, I think it's worthwhile highlighting there has been quite a few of them during the year 2023, and, of course, all of which have had different impacts on the company. And with that, now hand over to our Executive Chairman to go over the key highlights for year 2023.

Thank you, Stephen. Thank you, everyone, to join us today, and good morning. I would like to start with page 10, talking about the key highlights of 2023. And in particular, I would like to highlight two ideas behind that slide. Number one is our real commitment in investing and a serious setup in energy transition investment, almost $3 billion invested, which means more than 50% over last year. And second, our enthusiastic mode in having on renewable gases as one of the opportunities to speed up transition, energy transition, and at the same time to put on value our existing distribution assets. I think that it's important also to highlight the increase of regulatory visibility in Latin America, in the different countries where we operate our networks. And clearly, although it's not in any figure, but it's behind our activity, our commitment to maintain security of supply at a competitive price level. If we move to slide number 11, Two important things to say is that the most important focus on these investments set up has been on renewables and energy transition around networks. And in this sense, I think that there's no doubt behind that figures that the commitment that we established some years ago when we established our plan 21-25 that we wanted to move ahead in the energy transition commitment is just a fact by watching what the 23 figures have been looking at. On page 12, you must see two important things. One is the increase on our capacity in renewables in Spain, which almost 600 megawatts of power in operations. Second, over 100 megawatts of capacity in wind generation in Australia, together with first time of investments in battery storage. And finally, in the U.S., our first solar plant in Texas, where we operate one of the largest plants in solar generation, which are including over 300 megawatts of capacity in operation by the end of the year. In the next coming years, we expect to accelerate this growth with significant capacity coming into operation, but we will see later in the following pages. We move on, on page 13. And before talking about Naturgy, I would like to highlight a little what is on the right side of the picture, talking about the potential of this business across Spain. If we compare to what it has been stated already in the PENIEG, PENIEG is the plant fixed by the government for the next years until 2030, with a target of 20 terawatts of energy coming from biomethane in Spain. We have seen together with Serigas that the potentiality of this business, it may be around 160 terabytes hour of energy, which demonstrates that it may substitute up to 40% of the existing needs of natural gases already consumed by Spain. Just a quick look on the map on the right side, you may see that comparing to the important amount of installations across Europe, the Iberian Peninsula is really lacking of this type of investments, and this is the opportunity we are seeing. If we go to the specifics of Naturgy, two things to highlight. At the moment, Naturgi is involved in more than 60 biomethane projects under different stages of development. And for the hydrogen, Naturgi is progressing over 10 projects under different stages. In particular, two of them are the largest projects in Spain where Naturgi participates. One is in La Robla, and the other one is in Meidama. Both are under very advanced stage of construction. And at the same time, well known by us because they were two locations where naturally had in the past two coal generation plants. In terms of infrastructures, I think that it's important also to highlight that the networks are ready for this upgrade. considering that they are capable for distributing biomethane without modifications. Spanish networks in particular around gas are considering super modern because they are made of polyethylene and It is a technology that not only allows to operate at hundred percent of biomethane but also up to 20 to 30 percent of hydrogen blending with natural gases As a summary in all This is an opportunity which must be properly supported, and I think that Naturgy may continue being a key contributor in the future for this energy transition phase. If we move to slide 14, I think that it's also important for you to know that we have been making progress in all the different geographies where we operate in Latin America around gas or electricity networks. For example, in Panama, We have approved the fourth tariff review, and we have updated tariffs, and it gives visibility for the next coming years. In Mexico, we have got approval for the fifth tariff review, and also we have increased visibility for the coming years. In Chile, we are now focused on a long-term regulation, and some of the concerns around the short-term actions have been disappeared. In Brazil, we have moved positively towards a solution for the pending years on regulation, but at the same time, we have started the negotiation for extending the concession. And in Argentina, we have applied inflation adjustment on prices and also starting the discussion for a potential extension on the length of the concession. In summary, I think that we can say that the visibility in Latin America during this year has increased compared to one year ago. On page 15, we have tried to summarize about what is our focus in addressing what we have called it already the energy trilemma. The energy trilemma consists a balanced combination in providing security of supply, maintaining competitive prices, and moving ahead in making the company more sustainable. In terms of security of supply, our gas turbine installations are continuing playing a very essential role to warranty continuity of supply in defense of higher renewable penetration. And it brings along higher production volatility and intermittency, which is compensated by the stability and availability of our gas turbine installations. In this context, these gas turbine installations may provide two important things. Number one, flexibility in the base load capacity when is needed. and second a stability of the system to face higher renewable penetration in order to talk about competitive prices i think that it's important to highlight that since the beginning of the energy of the energy crisis in 2022 natuji has been able to adjust prices for over 2 million customers 70 percent of them in the area of liberalized business, which has been created a more important link between our clients and the company and reducing the churn ratio. And in terms of sustainability, to highlight again or remember again that our projects and our investment is clearly attached to a firm commitment on energy transition. If we move to next section, consolidated results of the year, important highlights on page 17, growth of EBITDA by 11%. In this sense, we have made it what was the consensus that was a graded by our guidance in November and before it has also been upgraded by July. Second, increase of our net income results up to 20%. Third, more investment. And fourth, maintaining the level of debt in the balance sheet which demonstrates the strengths and the stability of this figure. We move to page 18, and you can see where the EBITDA and investment is coming from and going to. In terms of EBITDA, stable in terms of business units. uh more focus in in gas than electricity when we speak about where a bit that comes from but at the other way around uh and and consistent with with this commitment on the energy transition mostly uh focus on electricity investment mostly focus on electricity and also in Spain where we need to change our energy mix. In page 19, you can see a quite reasonable combination and a stability around how much cash flow is generated and where this cash flow is dedicated. mainly to invest, and in similar terms, pay to our shareholders its dividends and pay to society and contribute to the society with taxes. The level of debt across the years is showing a clear trend to be more stable and prudent, and that has been the reason why Both agency, rating agencies, Standard & Poor's and Fitch, have confirmed during the year a level of triple B stable. The liquidity of the company at the end of the year, it is above $9 billion, which gives enough comfort to afford any opportunity that may occur out of the normal course of business. In terms of remuneration and as committed, we are going to propose to the AGM a dividend of 40 cents per share that together with the two dividends paid already in half and half euro in August and November will end up with a figure of 1.4 euros a share. We have made also progress on ESG matters. And if I go to page number 21, I want just to highlight that most of the targets that had been set up for the year 25 has already been achieved in the year 23, or at least are in a very good trend that may confirm that our targets for 25 are clearly achievable. in environment in social and in governance affairs if i go in detail to page number 22 in terms of environment i want to highlight two important metrics one is the reduction of co2 emissions compared to last year and second the advance in renewable installed capacity the reduction is 8.5% down, and the renewable installed capacity has increased almost to 20%. If I move to page number 23, and in terms of social contribution, we feel completely commitment in this sense to the society where we operate. More than 23 billion euros of economical value has been generated for our stakeholders in different terms. Women in management positions is clearly moving up in all the different levels of the management organization. And our foundation continues to support vulnerable customers as it was in the past with a higher intensity. In page number 24, you can also see that governance matters for the company as well. We have increased the importance of ESG metrics in the management remuneration package from 10 to 20% of the total variable package of remuneration for the year is linked to ESG metrics. And we have increased audits in our supply chain with a trend to move up to 90% that is our target by 2025. But in terms of reporting, we are increasing the reporting in the year 23, and taxonomy is fully achieved in this sense. That's the reason why the recognition of our ESG metrics and indexes is continuing being quite relevant and forms part of the metrics that we are following. I think that it's important at this present moment to finish the session on the scoring what has been the delivery of our commitments in 2023 if we look at back to 2021. We have exceeded the guidance in terms of EBITDA and the debt, delivering our commitments in dividends and also in investments. I think that it's important to highlight that EBITDA guidance was exceeded even after reviewing it upwards twice during the year. And note that the former guidance for 23 EBITDA stood at 5 billion. I think that now is time to dip on what has been included as a level of sources and uses of these three years. If we look at this picture, we may see that we have been quite stable in dedicating the cash flow generated to the three different usage issues I have said before, investment, dividend, and taxes and levies, but also reducing the level of net debt that we started the year 2021. It's time now to move in detail in every result by business unit. I will give the floor now to who is going to go business by business in making the detail on what happened during the year 23.