Naturgy (ticker: NTGY) has reported robust financial results for the Full Year 2023, with significant growth in EBITDA and net income, along with a strong emphasis on sustainability and energy transition investments.
During the earnings call, the company detailed its restructuring of operating segments, increased investments in renewable energies, and stable financial metrics. Naturgy's commitment to the energy trilemma—security of supply, competitive pricing, and sustainable practices—was also a focal point of the discussion, as was the company's approach to regulatory management and future growth strategies.
Key Takeaways
- Naturgy restructured its operating segments, creating a new Energy Management segment and splitting Renewables Spain and USA into separate segments.
- The company increased its energy transition investments by over 50%, with a focus on renewable development and renewable gases.
- Naturgy's financials exceeded guidance, with an EBITDA of nearly €5.5 billion and a net profit of €1,986 million.
- The company proposed a dividend of €1.4 per share and emphasized its commitment to maintaining a BBB credit rating.
- Naturgy plans to continue investing around €3 billion and is open to potential M&A opportunities, with guidance expected around H1 results.
Company Outlook
- Naturgy expects to maintain a dividend policy of €1.4 per share for 2024.
- Investments are projected to remain around €3 billion, focusing on organic growth and potential mergers and acquisitions.
- The company aims to preserve its BBB rating and provide guidance for 2024 in the first half of the year.
Bearish Highlights
- Gas supply margins were lower in 2023 compared to 2022 due to a shift of customers to regulated tariffs.
- Hydro production in Panama and Costa Rica was lower, impacting GPG renewables' performance.
Bullish Highlights
- Naturgy's renewable generation saw an increase of one gigawatt in installed capacity.
- The company's supply activities contributed €704 million to the group's EBITDA, with power supply experiencing higher margins.
- Australia's installed capacity increased by 190 megawatts, and the company has high visibility on margins for 2024 due to a high percentage of its portfolio already being resold.
Misses
- There were no specific financial misses reported during the earnings call.
Q&A Highlights
- Naturgy discussed regulatory reviews for Spanish electricity and gas networks, expressing the need for updates on unitary prices and investment caps.
- The company is optimistic about the capacity payments for thermal generation being reinstated in 2024.
- Naturgy's commercial strategy for supply margins will continue focusing on fixed price contracts and an integrated model.
In conclusion, Naturgy's earnings call for the Full Year 2023 reflected a company in a strong financial position with a clear focus on growth in renewables and a commitment to sustainability. The company's restructuring of operating segments and strategic investments in energy transition demonstrate its adaptation to the evolving energy market.
Naturgy's emphasis on maintaining a stable financial profile while pursuing organic growth and potential M&A opportunities indicates a forward-looking approach as it navigates the challenges and opportunities of the future energy landscape.
Full transcript - Naturgy Energy Group SA (GAS) Q4 2023:
Abel Arbat: Good morning, everyone. This is Abel Arbat speaking from the Capital Markets team at Naturgy. Thank you for joining our call for the Full Year 2023 Results. Next to me is sitting our Executive Chairman, Mr. Francisco Reynes; the General Counsel to the Board, Manuel Garcia Cobaleda; Head of Financial Markets, Mr. Steven Fernandez; and the Head of Control, Ms. Rita Ruiz de Alda. 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 quick note on the minor changes we have introduced in the composition of operating segments, namely, the integration of the former International LNG Markets & Procurement and Pipelines segments in a new segment named Energy Management as you will see in the presentation. Also the split of Renewables Spain and USA into two different segments as well as the split 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.
Steven Fernandez: Thank you, Abel and good morning, everyone. I'm going to take you directly slide number 4, 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 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 rebound 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. In this sense it's also worthwhile highlighting the progress on renewal development. We've increased our installed capacity in renewables by one gigawatt relative to 2022. I 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 renewal 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 renewal gases as a key area for development also for the company moving forward. Year 2023 also marks the time where we have increased regulatory visibility in LatAm and that is welcome news. And we believe it's going to continue on 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 the company. We've exceeded guidance reaching an EBITDA of almost €5.5 billion and a net profit of almost €2 billion at €1,986 million. 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. The 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 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. And if I take you really quickly to Slide 6, 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 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 6. 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 TTF but also in Asia, with JKM and the US with the Henry Hub. Spanish fuel prices for its parts experienced at 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 still above historical levels. So if we move on to Slide 8, we analyze the key regulatory developments, for year 2023. At a European level, I mean the Fit for 55 package aimed at increasing renewal penetration, energy efficiency and decarbonization is worth highlighting together with all the other measures including the tax on 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 I hand over to our Executive Chairman, who will go over the key highlights for year 2023.
Francisco Reynes: Thank you, Steven. 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 step -- serious step-up 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 is 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 setup 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 2021, 2025 that we wanted to move ahead in the energy transition commitment is just a fact by watching what the 2023 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 with 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 US, our first solar plant in Texas where we operate one of the largest plants in solar generation, which are including 300 -- 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 that 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 PNIEC. PNIEC is the plant fixed by the government for the next years until 2030, with a target of 20 terawatts hour of energy coming from biomethane in Spain. We have seen together with Caritas [ph] that the potentiality of this business it may be around 160 terawatts 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 off this time -- this type of investment and this is the opportunity we are seeing. If we go to the specifics of Naturgy, two things to highlight. At the moment Naturgy is involved in more than 60 biomethane projects under different stages of development. And for the hydrogen, Naturgy is progressing over 10 projects under different stages, in particular two of them, the largest projects in Spain where Naturgy participates; one is in La Robla and the other one is in Meirama. Both are under a very advanced stage of construction. And at the same time, well known by us, because there were two locations where Naturgy 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 100% of biomethane but also up to 20% to 30% 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 the 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 the sense 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 very lowest capacity one 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 of the energy crisis in 2022, Naturgy has been able to adjust prices for over two million customers, 70% 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 bided what was the consensus that was upgraded 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 strength 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 too. In terms of EBITDA, stable in terms of business units more focus in gas than electricity when we speak about where EBITDA comes from. But the other way around, and consistent with this commitment on the energy transition mostly, focused on electricity investment -- mostly focused 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 stability around where cash -- 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 has confirmed during the year a level of BBB 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, dividend of €0.40 per share that together with the two dividends paid already in halve and halve euro in August and November will end up with a figure of €1.4 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 have been set-up for the year 2025 has already been achieved in the year 2023 or at least are in a very good trend that may confirm that our targets for 2025 are clearly achievable in environment, in social and in governance efforts. If I go in detail to page number 22. In terms of the 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 million 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 2023 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 informs part of the metrics that we are following. I think that it's important at this present moment to finish the session underscoring 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 net 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 2023 EBITDA stood at €5 billion. I think that now it's 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 Rita Ruiz de Alda, who is going to go business by business in making the detail on what happened during the year 2023. Rita?
Rita Ruiz de Alda: Thanks, and good morning everyone. Starting with gas networks on Page 27, gas networks reached in 2023 a total EBITDA of €1.8 billion, contributing approximately to one-third of the Group's EBITDA in 2023. In Spain, gas networks experienced lower regulated remuneration, due to 2020 tariff review and lower demand mainly in the residential and commercial segments which was partially offset by lower gas losses. In Mexico, higher reserved capacity for distribution by third-parties, lower energy losses and positive FX impact was partially offset by lower supply margins. In Brazil, tariff updates were partially offset by lower demand, particularly in power generation due to abundant hydro resource in the period. In Argentina, tariff updates and higher sales in the generation and third-party segments were not enough to compensate for marked FX depreciation. Finally in Chile Gas, the positive comparison versus full year 2022 is due to the TTM provision registered in last year. Gas distribution benefited from higher tariff while gas supply experienced a margin compression due to the scenario. In summary, growth was driven by tariff updates in LatAm, while demand experienced declines in Spain, Brazil and Chile. Continuing with electricity networks on Page 28, electricity networks showed a slight decrease in EBITDA reaching €851 million in the year, which accounts approximately a 15% of the consolidated EBITDA in 2023. In Spain, EBITDA decreased as a result of lower remuneration versus 2022. We registered the collection of accrued and pending remuneration from the period 2017-2019. Nevertheless, the company recorded record investments in electricity distribution in 2023. Panama benefited both from higher demand due to higher temperatures and the approval of the fourth tariff review with updated tariffs from July 2023 and visibility up to 2026. Last, tariff updates in Argentina were not sufficient to compensate for OpEx inflation and market FX depreciation during the year. In summary, record investments in Spain electricity networks and approved regulatory review in Panama. Starting with the liberalized business on Page 29, energy management activities contributed to €1.1 million to EBITDA over 20% of the Group's EBITDA in full year 2023. The increase in 2023 EBITDA is mainly due to the financial hedging ineffectiveness, accounted for in 2022 with most of such derivative contracts expiring in 2023. Indeed the activity experienced lower sales and gas prices, which were compensated by the termination in 2022 of sales and hedging contracts with negative margins both in Europe and Iberia. Gas procurement commitments decreased around 50 terawatts per annum from 2023 onwards, as a contract with Nigeria and part of Trinidad and Tobago ended in 2023. All in all, the period experienced lower sales and margins, as the market rebalance and prices stabilize closer to historical average levels. Continuing with thermal generation on Page 30, EBITDA reached €670 million in 2023, which represents over 12% of the Group's EBITDA. The reduction in EBITDA in Spain is explained mainly by the lower production, due to higher renewable results which was partially offset by higher CCGT unitary margins. LatAm thermal generation for its part was supported by higher production and margins in Dominican Republic as well as higher margins in the surplus market in Mexico partially offset by lower availability in PPAs and negative FX. Thermal generation remains essential to guarantee security of supply. Now let's turn to renewable generation on page 31. Renewable activities contributed close to 10% of the group's EBITDA in 2023, reaching €529 million. Spain benefited from higher hydro production, as well as commissioning of new capacity, 152 megawatts and the ASR wind integration, 422 megawatts. In USA, the 7V Solar Ranch plant began its trial operation with three megawatts installed capacity. This is the largest solar plant Naturgy has ever built. In addition, the construction of Grimes 269 megawatts solar plant in Texas is underway with expected COD in 2025. Finally, GPG renewables experienced higher production in Mexico and the recovery of the commercial operation in Chile, which was offset by lower hydro production in Panama and Costa Rica. Australia installed capacity increased by 190 megawatts, while La Joya concession in Costa Rica ended with 50 megawatts. All-in-all, grow installed capacity and production translating into higher EBITDA. Finally, let's turn to the supply activity on page 32. Supply activities contributed close to 13% of the group's EBITDA in 2023 reaching €704 million. Power supply experienced higher margins versus 2022 supported by growing fixed price contracts, as well as lower cost compared to last year, which was negatively impacted by the cost of energy of sales not covered via own inframarginal generation. Gas supply showed healthy margins, although lower than in 2022 reflecting the shift of some customers from the liberalized to the regulated tariffs in the residential segment. So this is it for the review of various activities in the year. And back to the Chairman for concluding remarks.
Francisco Reynes: Thank you, Rita. And we go to page 35. As a summary and trying to be a little bit different than what is written, I think that the key message is number one is the scenario is rebalanced after 2022 shock. The cash flow generation is strong in this sense and provides a strong balance sheet that will help to accelerate energy transition through investments. The company strives, always strives is committed and delivering its commitments and results. And the company will continue, maintain a good balance between sustainability, security of supply and affordable energy on competitive prices as a sense of our mission. If we look at 2024, the priorities in page number 36, number one around networks is removing regulatory concerns through a proactive regulatory management in both Spain and Latin America. In terms of gas networks increasing the commitment of this preparation for the new area with renewable gases and growing volumes will require acceleration of connection points in order to help this blending. In terms of markets, point number one is working proactively the manage of pipeline contracts to reflect new market conditions and in particular with Algeria. In terms of generation, thermal generation, recognition of the capacity payments for our gas turbine cycles in Spain as part of the stability of the system. In terms of renewable generation, maintaining our execution plan of organic growth through investments. In renewable gases continue the growth and implementing and moving ahead on the 70 projects already undergoing. And in terms of supply, continue to balance the integrated position we have between generation and commercialization or supply. All in, we continue to commit the company to a dividend policy which is subject to maintaining the rating a floor of €1.4 per share for the year 2024, an important budget of investment that will repeat more or less the level of 2023 which is around €3 billion and preserving the BBB rating, which demonstrates the prudency of the company vis-a-vis its balance sheet. Many, thanks to everyone that has been listened. And I give the floor to Abel, who will manage now the time for your questions.
A - Abel Arbat: Thank you. Thank you, Francisco. So, we received a lot of questions. We're going to try to group them in different areas. So, let's start with the questions around the Group, its strategy, guidance and so on. So many of you have asked around the status of Project Gemini and whether we could provide an update and whether we see it still as a valid option.
Francisco Reynes: Well I think that it's very clear. Although, the reasons behind -- strategic reasons behind Gemini's continuum being valid, which is demonstrated in the fact that included in our report, you are seeing a different phase between what we call it markets and we call it networks. The conditions of the company today and mainly the conditions of the environment around the company are suggesting that we should postpone the implementation for a better time.
Abel Arbat: Thank you, Francisco. The next question is around guidance. In light of the evolving energy scenario that we are witnessing in the last few months, lots of analysts and investors are asking around whether we could provide some guidance for 2024 and 2025 or at least, our views on it.
Steven Fernandez: All right. Thank you, Abel. This is Steven. Regarding guidance for 2024, I think the question frames the answer really. We still see quite a bit of volatility in this scenario. What we can tell you is, that the company is actively working towards managing that volatility to reduce impacts. And we've done quite a bit of work on that, but still have not finished. So, we expect to be in a position to provide the market, with guidance just like we did last year, at around the H1 results. That's when we think all the pending strategies that we are implementing right now, will have been fully executed. There's a full commitment for the company once we have that visibility to make sure we provide it to the market.
Abel Arbat: Thank you, Steven. There are also a few questions, with regards to M&A. Given that this year some of our investments has been in M&A with the acquisition of ASR Wind, and given our reinforced balance sheet position and strong liquidity, there are a few questions on whether or not the company could explore or be interested in pursuing additional M&A in 2024 and onwards.
Steven Fernandez: All right. So I think on the M&A issue, like pretty much everything this company does, there is an over-riding theme, which is financial discipline. So, we're constantly looking at opportunities. As you can imagine, we're a company that has the ability to grow and we get approached with a lot of ideas. It's part of our job to analyze those ideas. But lending investment is going to be a function of the strategic fit within the company, and of course of the returns that those investments can generate. So, our objective for 2024, as we look into the year ahead, we don't contemplate M&A as of today. But the right opportunity comes along, it would be foolish for the company not to take it.
Abel Arbat: Thank you, Steven. So, another question around the re-establishment of the National Energy Commission and whether or not -- or what sort of implications do we think that this may have for Naturgy.
Francisco Reynes: I'm not going to discover to you what it has already been said by the government at the time that it has been decided to re-establish the existence of the Comision Nacional de Energia, the C&E. The main reason was about the amount of work and time that was needed by the CNMC just for energy, considering the time that energy is forming today part of the day-to-day work. Therefore, having an organization which is fully dedicated to energy is not bad for the industry at all, considering that there are many, many different opportunities and threats to come. And hopefully, it may be good for the industry to have a fully dedicated organization where to talk to.
Abel Arbat: Excellent. Thanks. So now a question on dividends. Would the company be continuing to pay the €1.4 per share, provided that the rating isn't changed even if the payout were to really increase temporarily?
Steven Fernandez: So the dividend commitment as it stands right now is €1.4 per share. You're absolutely right to point out that this is subject to a BBB rating. So this is fundamental for people to understand. Right now, we need to continue speaking to rating agencies. But based on the thresholds that were set, we're in a comfortable position. Whether or not -- if you think about it from a rating point of view, if rating agencies are not going to look at the company from a spot basis, so they're not going to just be looking at one year, they're going to be taking a little bit of a longer term view. And there are scenarios where potentially the payout could be above that 85% that we mentioned previously. I think what would be interesting for us and for the rating agencies to make sure that there is sustainability to that dividend. In other words, even if we're speaking in one year and it goes back the next year, as long as the average is within reasonable levels, then yes, the idea would be to continue paying €1.40. We constantly review the dividend or in other words, we constantly review the company's ability to pay the dividend. What we can say, again, to emphasize this point is, today it's a comfortable dividend level, but we'll have to see how the company continues evolving and whether or not we need to adjust it potentially upwards, keep to where it is. But I think €1.40 is the number of people we have in mind right now.
Abel Arbat: Thank you, Steven. Just a small follow-up on the year, rating matter, there are quite a few questions on what are the leverage requirements the company needs to keep a BBB rating or what kind of key metrics we look at in that regard?
Steven Fernandez: So there are a number of metrics. But if we want to simplify the world, and again, looking at exclusively at metrics, I think it misses part of the equation. I guess, the rating agencies are going to be looking at it from a quantitative and a qualitative point of view. So from a quantitative point of view, I think a good reference for the market will be an FFO to net debt of around 18%. We are above that level right now, but that's the level that we're shooting for on a sustainable basis. And obviously, subject to discussions with rating agencies because their thresholds could change over time depending on how the company's profile, business risk profile evolves as well. But right now, I think again from a quantitative point of view, 18% of our net debt is a good process.
Abel Arbat: Great. So continuing with questions around the balance sheet and cash flow in particular. Some of the analysts recognized that the working capital movements have turned positive during the year. So they ask if we could clarify its evolution or what are the main drivers behind the positive working capital movements.
Steven Fernandez: All right. So basically I think there's – again, to simplify the world, three main drivers for the improvement. First and foremost, obviously is the, lower sales or lower revenues if you may. So that has the opposing effect of what we saw when revenues were increasing for example year 2022. There's also some other smaller elements, for example the recovery of some of the pending regulatory assets that we had in Spain for example and Panama. There is also lower credit, losses or lower bad debt as well. So I think those elements explain the significant improvement in working capital. I don't know Rita if you want to add something?
Rita Ruiz de Alda: Yes. We have to take into consideration that energy scenario in the last months of the year, decreased significantly. So this has an impact -- high impact on working capital.
Abel Arbat: Perfect. Another question around the balance sheet and it is around our intention with regard to the €500 million corporate high rate outstanding that is maturing in the first half of 2024.
Steven Fernandez: So I mean we've just issued a notice with the Stock Exchange. And I think it should come as no surprise, when we called, one of the first hybrid that we had out of three in the hybrid program and we lost the equity credit for the program itself. But we now look at hybrids from the company perspective as paramount for equivalent to senior bonds. And so the intentions for those hybrids would be very clear, if you looked at what happened with the first one.
Abel Arbat: Great. So now let's move on to the various questions around businesses. And starting with networks, maybe a high-level question on what's our expectation, our views around the future regulatory reviews or concerns around Spanish electricity networks and also Spanish gas networks.
Francisco Reynes: Well, I think that number one, as you know, I mean, the first regulation which is coming, it's the electricity regulation in a year's time and gas distribution in two years from now. If we separate both, in electricity we have three important issues to address and one is related to the unitary prices of the different level of prices per equipment, which have not been updated since 2013. The second part is about the level of recognized profitability which should be updated considering other comparables in the rest of Europe and considering the new level of interest rates. And three is the investment cap. As you know today, the cap on investment is subject to 0.13% of GDP. The need of the network today is very relevant considering the new incorporation of generation distributed across all the Spanish geography. And it requires a much higher level of investment. Hopefully, all these three topics will be addressed in the new regulation scheme that we will need to start discussing with the authorities in the short-term. On gas, it's a different matter. We hopefully expect that the potential ambition on renewable gases is considered within the activity that the gas distribution will require in the future. We have demonstrated with figures, that there is a potentiality of blending biomethane with natural gases in a very high-level of share. And therefore, in order to provide as a biomethane, one of the new direction of energy transition that will require additional investment in speed meters and regulation of regulatory connections, that will require more visibility on this matter. In general, we are quite positive in both regulations because there are reasons behind the two of them to say number 1 that they both go in the direction to increased visibility on the energy transition; and two that regulation may provide longer view for more utilization and decarbonization.
Abel Arbat: Great. Thank you, Paco. There are also a few questions around LatAm networks. And what do we think are the main drivers of performance moving into 2024 and 2025 for the LatAm networks in particular.
Rita Ruiz de Alda: Well as Paco mentioned before we'll have more visibility in Chile, Mexico and Panama with the new targets published. So our talent is to commit the business plans. And in Brazil we have some uncertainty some regulatory uncertainty that we are going to manage with the renewal of the concession that ends in 2027 which I think is one of the biggest challenge. And finally in Argentina we see the opportunity or update for inflation for the tariffs but we are still cautious about it and we'll see what happens in the year.
Abel Arbat: Okay. Thank you, Rita. So let's move on now to questions around the liberalized businesses and let's start with questions around our wholesale gas and LNG activities. Okay? A few clarifications on the underlying result for LNG if we can comment on this financial hedging ineffectiveness. And also what -- how do we see our volumes going forward for LNG as well as what is our expectations in terms of prices and margins going forward.
Rita Ruiz de Alda: Okay. So as we mentioned before a natural year results in 2022 has increased due to the re-appraisal of the financial hedging ineffectiveness accounted for in 2022 with most of these derivative contracts expiring in 2023 which is a one-off impact that we see this year. As we discussed earlier in the presentation during 2023 and onwards the market gradually rebalanced and gas prices moved closer to historical levels. And also we -- our gas procurement commitments decreasing 50 terawatts per annum from 2023 onwards as the contracts of Nigeria and part of Trinidad and Tobago ended in 2023. But as always naturally managed payment portfolio and sales with a view to continuously adapt and manage its risk exposure.
Abel Arbat: Great. I think just to complement I think that it's worth highlighting that our gas procurement commitments have decreased in around circa 60 terawatt hour per annum as a contract with Nigeria and part of Trinidad and Tobago ended in September 2023. And so that is going to be the case going forward. Now moving to thermal generation there are some questions around the state of discussions and our expectations in terms of the capacity payments. And what do you think -- what is our view on the capacity payments being reinstated and our expected timing and when we can comment on that.
Rita Ruiz de Alda: Yes. We believe CCGTs continue to demonstrate its essential role to guarantee continuity of supply in face of higher renewal penetration, which brings along higher production volatility and intermittency. We, therefore, believe that the case to reinstate capacity payments, it's evident and we expect more visibility during 2024. And Naturgy CCTGs fleet benefit from three core strengths. The first one is a strategic location; the second one, flexibility to provide baseload capacity at real time when needed; and the third one is efficiency to provide at the most competitive and affordable cost.
Abel Arbat: Thank you, Rita. Now moving on to renewables in Spain. There are some questions around what do we believe it is our exposure to the pool prices and its potential impact.
Rita Ruiz de Alda: Okay. As we mentioned before, Naturgy renewables sells its own inframarginal generation to Naturgy-supplied business at a fixed price. We run an integrated power generation and supply model. And this helps to reduce exposure to the evolution of the pool prices at least in the short-term.
Abel Arbat: Thank you, Rita. There is a specific question that I can handle myself, which is around the expected renewable capacity additions in 2024 and 2025. So, for 2024, we are expecting above 550 megawatts to come into operation in Spain. And in the case of Australia, for 2024, we are expecting around or above 650 additional megawatts of operation coming online. As for 2025, as the Chairman mentioned earlier, our expectation is for additional operating capacity of 2.3 gigawatts during 2025, of which 1-gigawatt would be expected in Spain around 400 megawatts in the USA, and around 800 megawatts in Australia. Correct? Now, there is a question that I think that has been already tackled by our Chairman in terms of renewable gases and what are our ambitions there. Whether or not we can provide any sort of ambition in terms of long-term CapEx? What are the missing elements for this opportunity to accelerate and so on?
Francisco Reynes: Well, I may continue to comment that the reality is that on this 70 projects 60%, I would tell you, it's more short medium-term, because they refer to biomethane. In this sense, the very -- many projects across the geography which are under different stages of development, the good thing is that our gas network is fully ready to support the introduction of this gas through its network without any additional need of investment. And second that our gas turbines are ready to run with this gas as well. And our main focus is today to speed up the process in this development that, of course, as any new plant it's subject to permitting processes but the plan is on track and the resources are there and this is one of the focus of growth -- organic growth of the company.
Steven Fernandez: If I may just add, I think, when we think about renewable gases, we should think about it from two angles. The first one is the business itself and whether or not the numbers are there and obviously depending on the location and depending on the size the returns can be quite attractive. And in fact what we're seeing in Spain is Naturgy is leading the effort, but we see quite a bit of interest. And I think the Chairman mentioned it in his presentation, there's a very interesting slide where you see the amount of biomethane plants in Europe. And then, you compare it against Spain, you will see that, there's quite a bit of upside here in Spain. And we want to lead that upside. So the returns are actually attractive for this sector, as a standalone business. But I think the second angle that you need to look at this from is not just the business on a standalone basis, but also, the positive impact on our gas distribution like on Nedgia, themselves right? And this is something that is quite interesting, because if you think about it it's not just Nedgia which is going to benefit from Naturgy developing our own biomethane business, but also Nedgia which is also going to benefit from other companies developing their own biomethane business as well. And so we think biomethane is going to be playing a key role, as a bridge towards a hydrogen economy further out in the future. We can benefit from both those angles; investing our capital in the production of biomethane, but also making sure that our assets in gas distribution become assets of the feature as opposed to commonly perceived misperception I would say, of those assets being stranded.
Abel Arbat: Thank you. Thank you, Steven. So now moving on to supply and we are almost finishing the set of questions. There are a few questions around our view on the expected evolution of the supply margins. What are exposures to pool prices is. And what do we think the speed of repricing in our supply portfolio may be?
Rita Ruiz de Alda: Okay. So in 2023, it has been a strong year compared to last year, supported by higher fixed price contracts as well as lower costs compared to 2022 which was mainly affected by the cost of energy sales not covered via own inframarginal generation. Moving into 2024, we have resold a very high percentage of our portfolio already, particularly in the industrial segment which provides us with a certain degree of visibility on margins. Our commercial strategy remains the same and consists of selling fixed price contracts to customers, benefiting from the natural hedge of an integrated model.
Abel Arbat: Okay. Thank you so much, Rita. That was very helpful. So I think that wrap it up. I'm sure that there are a few quantitative elements that we didn't comment on, but the Capital Markets team will make sure that we follow-up on those with you guys individually. So other than that, thank you very much for joining our full year 2023 results presentation. And we'll be in touch. Thank you very much everyone.
Francisco Reynes: Thank you everyone.
Steven Fernandez: Thanks. Good bye.
Manuel García Cobaleda: Thank you.
Rita Ruiz de Alda: Thank you.
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