6.1 Creating shareholder value

Madrileña Red de Gas is working to ensure the economic profitability of our business and the correct financial performance, creating value for shareholders through responsible management that favours their investment commitment to the Company.

Faced with the current business risks described in Chapter 5, the company responds with ever more efficient processes and a committed and restless workforce, looking for innovative ideas. This resulted in only a slight decline in results, due to the decrease in revenues caused by the reduction in consumption caused by the increase in temperatures, the high price of gas and the penetration of new energy technologies.

Financial strength is an essential pillar of our strategy. The company has strong solvency and liquidity levels consistent with its investment grade rating, and the financial structure is efficient and long-term. In 2023, the gross debt amounted to 226.8 million euros maturing in 2027. The company also has a contingent credit line, amounting to 75 million euros, renewed until February 2027, aligned with the company’s real needs for the coming years. Flexibility in the dividend policy is another key feature that gives the company a better financial position.

The group’s debt is issued by MRG Finance, B.V. on the Luxembourg regulated market under an EMTN programme. This debt is rated investment grade (BBB-) by Standard and Poor´s and BBB (low) by the rating agency DBRS.

Looking at our figures for economic value generated and distributed, in 2023 we generated 45,075 (€ thousands) of distributed economic value, which is 56% lower than in 2022. The most significant figures underlying this decrease are the clear reduction in payments to capital suppliers together with the decrease in corporate income tax payments.

Focusing on the economic value retained, a decrease of 56% compared to 2022 is also evident, mainly due to the significant reduction in financial income, which in 2022 was clearly above the usual trend.

For tax purposes, since 1 July 2015 the Company has been taxed under the consolidated tax regime as a subsidiary of Tax Group No. 474/15, the parent company of which is Elisandra Spain IV, S.L.

In addition to Elisandra Spain IV, S.L., as parent company, Elisandra Spain V, S.L.U., Aliara Energía, S.L.U., Aliara GLP, S.L.U. and Madrileña Red de Gas S.L.U. constitute the Consolidated Tax Group No. 474/15.

6.2 Expansion of our distribution network

Main trends

In 2023, Madrileña Red de Gas has remained faithful to the company’s values, making a strong commitment to business expansion, both from the point of view of investment in infrastructure with the construction of new networks, as well as in the acquisition of new supply points. We have also implemented numerous initiatives and projects that have led, as we have said, to excellent growth results.

Despite being a complicated period due to changes in consumption habits associated with the energy transition and high gas prices, we have maintained a positive balance in 2023 in the company’s net points growth.

This year we continued on the right track in terms of the number of new natural gas installations, both as a direct result of the commercial actions of the Expansion Department (11,091 new installations) and those brought into service as a result of the project to transform propane installations (5177), giving a total of 16,268 new installations.

The emergence of new technologies and the requirements imposed for energy efficiency in new buildings marks the general evolution of the market.

We are currently the growth leaders in Spain. In 2023, the CNMC (Comisión Nacional de Mercados y la Competencia) published the final results of the “Quarterly Reports on the natural gas market in Spain” for 2022. Madrileña Red de Gas has consolidated its position as the natural gas distribution company with the highest annual net growth.

This means a gradual decrease in new building registrations, while for the rest of the typologies the figures remain largely unchanged, largely due to the high volume of potential supply points we have, both for new installations and for replacement, and especially due to the significant commercial efforts we have made.

We are currently the growth leaders in Spain. In 2023, the CNMC (Comisión Nacional de Mercados y la Competencia) published the final results of the “Quarterly Reports on the natural gas market in Spain” for 2022. Madrileña Red de Gas has consolidated its position as the natural gas distribution company with the highest annual net growth.

According to the quarterly reports published by the CNMC corresponding to 2023, MRG has become the gas distributor with the most active supply points in the Community of Madrid (904,606).

We continue to extend the natural gas network to new municipalities while addressing our commitment to reducing LPG installations and networks by transformation. Looking at the comparative of the last three years, our growth trend in natural gas distribution is evident.

In 2023, investments totalled 13.3 million euros, slightly less than the 17.6 million euros in 2022. The company maintains the level of investment in its own networks and other projects. We have invested a total of 9.5 million euros, of which 6.5 million euros has been allocated to expansion of the natural gas distribution network as described in Chapter 9: Social Impact

Our commercial actions

General savings campaigns for installation in dwellings

In 2023, we began the year with the launch of new commercial campaigns to promote marketing with a specific focus on each market niche, aimed at driving new channels and the saturation of existing channels with an impact on each home with a specific offer of interest.

In this regard, we can highlight the following campaigns:

• For decentralisations with contributions of up to €800/supply point
• Multi-family installations with contributions of up to €550/supply point
• Single-family installations with contributions of up to €650/supply point
• We are committed to photovoltaic/aerothermal + natural gas hybridisation with contributions of up to €450.

Launch of new digital campaign on social networks

In 2023, we ran campaigns through the major networks Facebook and Instagram, targeting 37 municipalities in order to capture supply points in the horizontal saturation market.

Telemarketing Campaigns

During the first half of the year, we extended telemarketing campaigns to mobilise all potential supply points in the vertical saturation (VS) and horizontal saturation (HS) markets.

Media publication

During 2023, we undertook different dissemination actions through the media, highlighting:

• Advertorial in the magazine of the municipalities of the north of Madrid “AQUÍ EN LA SIERRA”.
• Report on green H2 in the sector magazine AGREMIA, together with advertising about MRG.

Advertising Dossiers

This year we have prepared advertising dossiers in order to reach niche markets that are difficult to access, such as LPG tanks owned by homeowners’ associations or boiler rooms with old and obsolete systems where the best energy solution is to individualise the system.

With the same intention, we have designed specific brochures for large consumer markets, aimed at business activity, with sales arguments to help our commercial channel.

MRG’s new referral programme

During 2023 we have driven the new MRG referral programme, which went live at the end of June. The aim of this programme is to reward customers who successfully refer one of their contacts by giving them and their friend a gift.

By developing it internally in our company and not depending on a third party, the advantages it offers are endless as it is a customised process specifically developed for MRG, and fully integrated in which no data is shared with third parties: it is self-manageable, easy to configure and fully automated (Member Gets Member).

Associate stores network and other commercial actions

• We have expanded our network of associate stores with 12 new stores
• We have modernised our energy benchmarking tool

Actions in the New Build market

Although the trend in new buildings had already begun to change in 2022, during 2023 the consolidation of other solutions for the energy needs of buildings, such as aerothermal energy and geothermal energy, has become evident.

This year has confirmed how the predisposition towards renewable systems, especially aerothermal systems, has changed as well as the trend towards centralisation of boilers.

The Expansion Department has continued to work actively with housing developers, holding meetings with each of them to make them see that using a natural gas system is currently the gateway to Biogas or H2 in the future, and above all, promoting hybridisation between aerothermal energy and natural gas, focusing on important aspects such as improved energy efficiency, rating maintenance, lower life-cycle costs, reliability and improved service guarantee. In addition, we have launched a specific campaign in new construction with financial contributions to help developers.

Finally, we would like to highlight how, during the year, we have managed 17 third-party networks for future urban developments where, through the signing of a collaboration agreement with the land developers, we will build future networks prepared for renewable gases, thereby also providing access to future H2 networks. In total, we have installed 14.4 km of distribution networks to supply more than 3000 dwellings in the future.

Large Consumer Market Actions

Although we detail the significant actions in 2023 in this market in the chapter on Social Impact, we would like to point out in this section how we have managed to achieve the objectives we had set ourselves, achieving 397 new supplies, with an associated consumption of 180 GWH.

We are living in a risky situation due to regulatory changes and the confusion generated around them, in particular the new Energy Efficiency Directive 2023/1791, with erroneous interpretations that wrongly point to the banning of boilers that contemplate the direct use of gas from 1 January 2026. However, the good work of our commercial network, which has been able to clarify all doubts, and the energy efficiency of natural gas have allowed us to continue to gain the trust of our customers and to continue to grow.

LPG Market 2023

In the last financial year, the final phase of the project to transform more than 15,000 supply points was completed as planned for the years 2022 and 2023. This project facilitates access to cleaner, more continuous and reliable energy.

During 2023, more than 3,500 supply points have been converted to natural gas in the municipalities of Cubas de la Sagra, Griñón, Las Rozas de Madrid, Leganés, Moraleja de Enmedio, Móstoles, San Agustín de Guadalix, Sevilla la Nueva, Villanueva de la Cañada and Villanueva del Pardillo, leaving six of them free from propane gas (LPG).

In 2023 we have earmarked more than 3 million euros to carry out the work of reusing and expanding networks, adapting and modifying facilities, converting equipment and decommissioning storage facilities.

In addition to this work, progress has continued to be made in the digitisation and automation of the processes of generating orders to be executed in the field and in resolving complaints, with a response time of less than 48 hours.

By 2024, we plan to convert more than 3000 homes to natural gas, which would complete the transformation of the municipalities of Leganés and Griñón and all the facilities where we currently have the feasibility of connecting to the Natural Gas network, as well as acting in the municipalities of Soto del Real, Miraflores de la Sierra and Los Molinos.

Commissioning marked by efficiency

In 2023 we have continued to focus on improving the processes linked to commissioning, implementing beneficial improvements for all participants: consumers, installation companies and Madrileña Red de Gas. Significant improvements have included:

• Given that, in many requests for termination of suppliers, the lack of accessibility to homes in time has an impact on the volume of new registrations, this year we have emphasised this management, speeding up the sending of disconnection teams in areas without access. This has allowed us to speed up and increase the volume of registrations, achieving a recovery rate of 14.43% of customers in this situation.
• During the same visit, we often correct small defects in old installations that would otherwise have obliged the customer to make an unexpected financial outlay, and we have assumed this cost. This action clearly helps us to increase user satisfaction, but also allows us as a distributor to reduce the cost of intervention by reducing the number of visits required for commissioning.
• We continue to improve documentation management through the Virtual Office and by facilitating access to our installers.
  • Linking the dossiers created on the web to our systems in real time has allowed us to have full control of the information provided to the customer, reducing human errors regarding the availability of the CUPS provided to zero, as well as speeding up the inclusion of new points to such requests.
  • Having a good base set-up for the management of gas outages of common installations in cases where the installation needs to be extended has also allowed the process to be broadened to include cases where the installation needs to be modified. In this way, the company continues to focus on grouping together any procedures that installation companies have to carry out with Madrileña Red de Gas in a single space, thus reducing the times of these procedures and giving more visibility to the exact status of the process requested.
  • We have also noticed that, in recent years, changes in regulations, municipal by-laws and the cost per square metre of land have led to an increase in the change of use of areas planned for commercial premises to dwellings. Such areas did not have a gas supply and now require one. This has led to an increase in document management in this regard, as the regulations are not the same for one use or the other, a fact that must be considered for correct commissioning of the installations. Implementing the provision of this document via the web has allowed for greater traceability of these cases, communication between the parties involved in the process, as well as the unification of the documentation associated with the supply point.
  • We continue to invest in digitalisation, with ongoing projects such as free access for installers to our potential supply points and distribution network, or inclusion of the document management of Large Consumer registrations in the Virtual Office.

   

  Our efforts to promote the distribution of renewable gases

  Although we detailed the efforts we are making as a company to face the risks and opportunities offered by the necessary energy transition, in our case linked to the distribution capacity of renewable gases (H2 and biogas), in chapter five, we felt it was important to emphasise this further in this chapter on Sustainable Business.

  The future extension of the network and our ability to maintain a share of active supply points is linked to the development of our investment and technical capabilities in this line of innovation and development.