Quarterly results published by Naturgy and REE (Red Electrica España) showed sharp drops during 1Q 2020. While both companies recognized the impact of the health crisis, they highlight it is still soon to determine the effects of the pandemic.
For Naturgy, the most significant aspect during this period was 40% drop in revenue, while REE saw a 10% decline compared with the same period of 2019.
€199 million for Naturgy
Naturgy reported a net income of €199 million during the first quarter of the year, down by 41.6% from 2019. The decline was mainly attributed to lower income in the electricity industry; due to restructuring costs and the health crisis, which impact, it said, was mainly limited to March.
In a statement to the Spanish Securities & Exchange Commission, the company assured the pandemic had a “significant impact on gas and power demand in Spain and Latin America”. However, it made no forecasts for the year, as it considered it neither “possible nor wise.”
Company CEO Francisco Reynés said that “COVID-19 has caused the planet to enter an induced coma” and the question remains when and how we will get out.
The first quarterly results were also affected by the new regulatory framework, among other factors.
Decrease of the EBITDA
During the first months of 2020, Naturgy’s EBITDA stood at €944 million, down by 15.6%; also, in this period the company invested €201 million, down by 33.2%, due to the growth of the gas network and deceleration of other projects.
Most of these investments, a total of 111 million, corresponding to renewable projects in Spain, Australia, and Chile.
However, Naturgy confirms it will move forward with plans for renewable investments and grid maintenance for this year, in spite of the limitations caused by the health crisis.
The company expects to invest around $350 million more in renewable development, in Spain and abroad, for the remainder of the year.
By businesses, gas and power contributed €307 million to the EBITDA in this first quarter, down by 23.4%; infrastructures in Europe generated €390 million, -12.6%; and infrastructures in Latin America South contributed €174 million, -9.8%. Meanwhile, in Latin America North it generated €111 million, up by 9.9%.
REE profits stand at €172.6 million
For its part, Red Electrica España made $172.6 million during the first quarter; down by 9.7% from the earnings recorded in the first quarter of 2019. The drop, among other reasons, stems from the amortization costs associated with the integration of the Hipasat satellite group, which for the first time is part of the company’s balance after its acquisition last year. The company is also suffering from the effects of the new regulations in Spain.
Turnover totaled €500.5 between January and March, a slight variation from last year in the same period. Hipasat’s integration has partly compensated for the drop in other regulated income. The satellite operator contributed additional income of more than €40 million for the group.
These are the first results where REE that reflect the new regulatory parameters for activities developed by the company. In this sense, the financial remuneration of the electricity transmission activity dropped from 6.5% to 6% in 2020. The installation type and unit values for operation and maintenance.
Slight downturn of the EBITDA
EBITDA was €402.0 million, 1.0% lower than in the first three months of 2019. The increase in depreciation and amortization, “due to the incorporation of new businesses”, and higher financial expenses, as a result of the higher debt volume, meant that the first-quarter results were lower than last year.
The financial result totaled €-42.8 million, compared to €-35.1 million in the first quarter of 2019. The larger financial debt, with an average value of €6,817 million for the quarter, compared with €5.787 billion the previous year; was the main cause. It also reflects the negative impact of exchange rate differences.
— Red Eléctrica (@RedElectricaREE) April 29, 2020
Caution in Naturgy and REE
The company led by Francisco Reynés assured that the effect of the health crisis on the results had been limited so far. Meanwhile, Beatriz Corredor stated REE made “a first estimation of the quantitative impact that this situation resulting from the COVID-19 pandemic could have on its results.”
The executives explained that the economic consequences started to gradually hit only since March.
“Given the sectors where we operate and despite the uncertainties still present nowadays, the effect on the foreseen results for 2020 is not expected to be very significant,” they concluded.
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