Good morning, and welcome to Naturgy's Nine Months 2026 Results Presentation. Presenting today are our Executive Chairman, Francisco Reynés, the General Counsel to the Board, Manuel García Cobaleda, the Global Head of Financial Markets and Corporate Development, Steven Fernández, and the Global Head of Control and Energy Planning, Rita Ruiz de Alda. We will go over the presentation first, and then open the floor to questions. You will be able to ask questions live through the conference call dial-in numbers, so please make sure you have registered for the conference call. You can also submit them in writing through the webcast platform if you prefer. In any case, at the end of the presentation, the operator will remind you of the mechanics for the live Q&A section. With that, I hand it over to the chairman.
Good morning, everyone. Thank you for joining Naturgy's conference of today. Before the team starts, I would like to take a moment to acknowledge yesterday's terrible accident in Toledo. Many lives were lost, many people were injured, and countless families woke up this morning to unimaginable grief. On behalf of all of us, I want to extend our deepest condolences to the victims and to their loved ones, and our gratitude to the emergency teams who worked through all night. This tragedy also brings back the memory of the accidents in Adamuz and Gelida in January this year, and of everyone we lost then. Our thoughts remain with those families as well. Thank you for listening to me, and I give the floor to Steven Fernández, who will start with section one of the presentation.
Thank you, Francisco. Good morning, everyone. Before we begin, we would like to focus on the three sections that we are going to be discussing today. First, our nine months 2026 group performance. Second, a review of the performance across our businesses. Thirdly, our outlook, where we are upgrading our 2026 guidance for the second time this year and setting out how visibility into 2027 has improved. Our overall message is quite clear: higher guidance, greater 2027 visibility, and growth optionality. Let me take you really quickly to slide four of the presentation. Nine months into the year, we have delivered strong results in what is undoubtedly a volatile environment. Those results are what allow us to raise our 2026 guidance again. EBITDA reached EUR 4.3 billion, up 4% year-on-year, and net income rose by 5% to almost EUR 1.8 billion.
Cash generation in the period was robust, despite a gas price-driven increase in working capital and the one-off Sonatrach payment. You have details on that in the report that we released this morning. Net debt stood at around EUR 12 billion, EUR 12.3 billion to be precise, which is flat versus the year-end 2025. The fact is that our balance sheet remains solid, and it provides both flexibility and growth optionality. The second 2026 interim dividend of EUR 0.60 per share will be paid on the 5th of November. As you can see, there is a consistent delivery of our commitments. If we turn over to page five, energy prices rose further in the third quarter on renewed Middle East tensions and supply risks. On average, for the period, Brent was around 33% above the first nine months of 2025.
TTF was 11% higher and the JKM around 18% higher, while the Henry Hub was around 6% lower. Iberian pool prices averaged around 17% above last year, thus reversing the declines of the first half. CO2 was up around 9%. Overall, these are conditions in which our integrated model, disciplined risk management, and balance sheet strength give us a solid competitive position. In terms of EBITDA, as I mentioned before, we have experienced EBITDA growth of 4%, mainly driven by networks and thermal generation. It is worth highlighting on the distribution networks, the increase of EUR 267 million were the main growth driver, including EUR 126 million of retroactive adjustments in Spanish electricity networks, which we flagged in the H1. Thermal generation added EUR 78 million on strong demand for ancillary services, and renewable generation contributed an increase of EUR 14 million.
Energy management, on the other hand, was EUR 42 million lower, as higher margins were offset by the Oman contract expiry. Finally, supply was also EUR 147 million lower, including EUR 100 million of gas-regulated tariff provisions, that is the TUR. The TUR tariff adjustment is now subject to ordinary court proceedings. Importantly, the main one-offs broadly offset each other, so basically the underlying trend is equally solid.
If we move over to cash flow and net debt, funds from operations rose 8% to EUR 3.6 billion. Working capital absorbed almost EUR 1 billion, reflecting higher gas prices and the one-off Sonatrach payment, leaving cash flow from operations at around EUR 2.5 billion. Free cash flow after minorities reached north of EUR 1 billion, broadly covering the EUR 1.1 billion of dividends paid in the period. As a result of the above, net debt remained broadly stable at around EUR 12.3 billion. Our financial structure remains a key strength of the company. 60% of our debt is at fixed rates, and that is limiting the impact of higher interest rates. The average cost of debt is around 4% and has remained fairly stable despite the rising rates, and the S&P FFO definition to net debt improved to 29%, where net debt to EBITDA is around 2.2x .
Liquidity continues to be strong at over EUR 10 billion. In summary, these results highlight a solid balance sheet that provides the company with flexibility and growth optionality moving forward. Now let us move over to the different businesses, and I will hand over the line to Rita, who will go in detail with us.
Thanks, Steven, and good morning, everyone. Starting with Gas Networks on page nine. Gas Networks reported a total EBITDA of EUR 1,412 million in September 2026, representing 5% increase when compared to 2025 levels, with investment of EUR 269 million. In Spain, Gas Networks experienced lower remuneration under the current regulatory period and lower demand when compared to 2025. Looking ahead, the new regulatory framework for the 2027/2032 period was finally approved by the Council of State, and tariffs are already in place. This proposal maintains the parametric formula, providing continuity with the current model and providing regulatory stability with a downside protection against demand variations. The new remuneration model reinforces the strategic role of gas in the energy transition, while for the first time supporting decarbonization of gas consumption through biomethane incentives, as well as digitalization of network operations.
If we move to LatAm, we had growth across the different geographies. Mexico contributed EUR 41 million with positive results supported by tariff updates, currency appreciation, and higher investment in grid reinforcement and new interconnections. In Brazil, positive evolution supported by higher demand from power generation due to lower hydro, lower losses, and the appreciation of the currency. In Argentina, new regulatory framework and tariff update that compensate currency depreciation and cost inflation. Chile added EUR 32 million, benefiting from tariff review, with full net asset value recognition and performance positively affected by improved energy scenario. In summary, the new regulatory frameworks and tariff updates approved in most of our geographies, Spain, Chile, Mexico, and Argentina, provide a solid basis for the upcoming years. Moving to Electricity Networks, EBITDA reached EUR 953 million, up 26% versus 2025, with investment up to EUR 382 million.
If we look to the different geographies, in Spain, increased results are supported by higher regulated asset base and higher remuneration rates following the implementation of the new remuneration framework. This result also shows an important gain related to the recognition of operation and maintenance remuneration corresponding to prior years, with an impact of EUR 126 million. In July, a royal decree was approved, allowing investment to exceed the current regulatory cap, providing greater scope for EBITDA expansion over the coming years. In Panama, new tariff framework was approved in September and higher demand for high temperatures that compensated for U.S. dollar depreciation. The group has a strong commitment to the quality upgrade investment plan that is already reflected in improved operational quality and reliability metrics. Finally, in Argentina, results driven by a new tariff review, with positive tariff updates partially compensated by FX and cost inflation.
In May, another important key milestone was achieved with the 10-year renewal of the electricity concession in San Juan, Argentina. All in all, solid underlying growth with new regulatory frameworks in Spain, Panama, and Argentina. Now turning to Energy Management on page 11, EBITDA reached EUR 676 million, which shows stability in results when compared to 2025, mainly due to higher margins from hedged volumes and energy scenario that compensate for lower volumes when compared to 2025. The conflict in the Middle East contributed to higher energy prices and increased market volatility during the last months, and we foresee that geopolitical uncertainty will remain a key market driver in the next months. In this context, the group was able to capture opportunities from ongoing volatility, leveraging on contract flexibilities and optionality. The European Union confirmed the ban on long-term Russian LNG imports from 2027, which affects our Yamal contract.
Overall, largely the risk position delivers a solid performance against a strong 2025. Continuing with thermal generation, EBITDA reached EUR 601 million in 2026, 15% higher when compared to 2025 EBITDA, mainly due to higher activity in Spain. In Spain, results improved EUR 77 million, supported by stronger demand for ancillary services and grid constraints. As we have mentioned many times, CCGTs have proven to be a backup technology, supporting increasing renewable penetration in the Spanish system. Naturgy's fleet reliability, flexibility, and efficiency remain key, and give us a competitive advantage in the ancillary services market. In LatAm, strong operating performance to compensate an incident that we had in a combined cycle power plant in Mexico and U.S. depreciation. Negotiations to renew PPAs covering our combined cycle fleet in Mexico are still ongoing.
We expect these agreements to be renewed in early 2027 on terms broadly consistent with the current PPAs, providing greater revenue visibility and stability going forward. In summary, CCGTs remain key to Spain security of supply. Now let's turn to renewable generation on page 13. Renewable generation delivered an EBITDA of EUR 466 million during the period, up 3% when compared to 2025 levels, supported by 473 MW of additional installed capacity and EUR 371 million of investment. In Spain, results were affected by lower renewable generation due to lower hydro recorded. We continue to grow selectively, focusing on repowering and battery hybrids with a natural hedge for our supply business. In the U.S., results are higher when compared to 2025, as new capacity entered into operation with 125 MW commissioned in August 2026. In LatAm, activity was positively impacted by improved output and margins in Mexico and FX appreciation.
In Australia, increased output for the commissioning of new capacity, but negative evolution of the mark-to-market valuation of existing PPAs under accounting criteria. Overall, selective growth continues with 473 MW added in 2026, and a further 500 MW expected to become operational by the end of the year. Finally, let's turn to supply on page 14. EBITDA was EUR 353 million versus EUR 500 million last year, with an investment of EUR 116 million. In electricity, higher ancillary services costs weighed our margins, and the impact was contained by our balance and vertical integrated position. In gas, regulated margins turned further negative due to the cap on tariff increases that was recently approved, leading to provisions of EUR 100 million for expected losses in the following months. Regulated tariffs are now being challenged through ordinary court proceedings.
On the other hand, the group is also working now on the renewal of the industrial portfolio in 2027, prioritizing margin preservation over market share in a competitive environment. Overall results were impacted by regulated tariff provisions and higher ancillary services costs. Now I will hand it over to Steven to take you through the outlook. Thanks.
Thanks, Rita. Really quickly, we turn over to page 16. We're not going to tell you anything that you guys haven't seen. The reality is that forward curves point to elevated prices into the winter across gas, power, and oil. Obviously, we feel that this reinforces the value of our integrated model and the flexibility of our portfolio, including our LNG fleet and contractual flexibility. At this point, I think it's worthwhile remembering that basically a large part of all our LNG exposure is currently hedged, as you will see, at reasonable margins. The expectation for the rest of the year, together with the performance that the group has had so far, lead us to revise our guidance upwards for 2026. EBITDA is now expected to be above EUR 5.6 billion.
I think it's worthwhile highlighting that we started the year with the expectation of EBITDA landing at around EUR 5.3 billion. Clearly, I think this is an exercise of transparency, but also a reflection of the group's ability to continue delivering value to its shareholders. Net income is now expected around EUR 2.2 billion, again, compared to EUR 1.9 billion in February, EUR 2.1 billion revised in July, so a good trend in that sense. The final element that we are adjusting is the net debt. So February net debt, EUR 13.5 billion expected. Right now, we should be closing below EUR 13 billion. That's, again, a function of our ability to continue generating cash.
We also confirm the 2026 dividend of EUR 1.8 per share, with the second interim dividend of EUR 0.60 payable on the 5th of November, as we mentioned. That implies a yield of around 6% at current prices. With that, I'd like to conclude, handing the line over to our chairman for final remarks.
Thank you. Thank you, Steven. I wanted to make some remarks on thinking on the company going forward. The first thing is that I want to remember everyone that the targets that we set in February 2025 for the years to come, 2025, 2026, and 2027 were for us a floor that were made under a hypothesis of constant perimeter, and of course, no inorganic effects were included.
For me, it's important to remark that this is a comparable scenario of assets, and the floor that we set up at that time continues being the floor we see today. Having said that, since then, February 2025, we have gained visibility on several assumptions that were made back then. The first one is regulatory framework for distribution networks in Spain. Since both gas and electricity have been approved, we need to recognize that on the gas side, some incentives to renewable gases injection has been included, and the rollout of smart meters as well. That represents an upside compared to the assumptions that were made at that time.
If we go to electricity networks, we need to remember, everyone, that the improvement of the cap on remunerated investment has been already approved, and they were also not being considered in our previous assumptions. If we go now to generation on gas turbine cycles in Spain that have been underpinning security of electricity supply during this period of time. Now we see that they are running more hours than we have anticipated, and we are not seeing any relevant changes in 2027. If you remember, the way of operating these combined cycles have changed since the blackout in April 2025, and we are not seeing any reason to change this trend in the coming year. On the LNG side, we can tell you that today 100% of the LNG volumes are hedged, fully hedged, and at margins which are above those margins that we're assuming the plan.
Also on the renewable generation fleet, we are expecting to capture higher margins than we forecasted in 2025. As a whole, I want to also make you aware that we commit to update our expectations for 2027 throughout the year, as we have done this year, 2026. Steven has just explained us that a couple of times in July and now in October, we are updating what we see, how the year may end. I know, and we have also received some questions about that topic. I know that most of you wanted to know what are we going to do with our strategic plan after 2027. I want to confirm that the company will start the elaboration of a new strategic plan with an origin of 2030. Of course, it will be duly shared with you at proper time through the year.
As you are seeing, we are in the moment with a lot of changes in the scenarios that forces us to be prudent and to share with you at the proper time. As a conclusion, I would like to highlight three important messages of the year 2026. Point number one, we continue, as we stated in 2018, eight years ago, we continue delivering our commitments. I think that it may be a very weak sentence for us because we have been doing in the last eight years, but for us, commitments and delivery is a very important part of our strategy. Second, we have gained visibility for the year 2026, and as I have mentioned before, for the year 2027. The more visibility we may gain through the year, the quicker that we will share it with you.
Finally, as I remark and Steven made it before, we are gaining more and more optionalities. Our balance sheet is clearly a very important asset today, but again, we need to reinforce our idea of value over size. We will be continuing this discipline. We will be focused in options that may grow our accretive value, and we will also take into consideration that this is a utility, and a utility makes value through a combination of dividends and growth. I think that now is the time for you and your questions. I give the floor to Abel, who is going to run the second part of the presentation and conduct all the questions you may have. Thank you.
Thank you, Mr. Chairman. We now invite everyone to make any questions live if you wish, or otherwise to submit them through the webcast. I hand it over to the operator to start passing through the first questions, please.
Ladies and gentlemen, we will now begin the Q&A session. If you would like to ask a question, please press star five on your telephone keypad. If you change your mind, please press star five again. Please ensure that your devices are muted locally before proceeding with your question. The first question comes from Javier Garrido, JP Morgan. Your line is open.
Good morning. Thank you for taking my questions. The first one would be on your M&A opportunities. I know you are still reviewing the optionality of your balance sheet, but I guess that after several months of looking at the market, you may have come to some conclusions, at least broadly, on what you may want to add ideally to your portfolio and what you definitely do not want to add to your portfolio. If you could share with us what progress have you made in your thinking about the direction of your M&A strategy, that would be very helpful. The second question is on Yamal. If you could give us some flavor about what could be the potential for any incremental contribution coming from Yamal volumes in 2027.
I know that you still have a lot of uncertainties there, but if you could give us some range of options for that contract. The final question would be on the capacity auctions in Spain. If you could update us on when you think the auctions could be happening and when you think the first economic results of those auctions could be accruing to your P&L. Thank you.
Hi, Javier. This is Steven. On the first question on M&A, you are absolutely right. We have been very actively analyzing opportunities over the last few months. I think the first conclusion that we can reach is that growth for the sake of growth is very easy. Growth that generates value is more demanding. That is the second area that we are focusing on. We have had a lot of opportunities to grow our asset base, but they were opportunities that simply did not meet our stringent criteria or financial discipline, and we are focusing on those that we believe that they do. Over the last few months, we have analyzed a number of opportunities to assess the actionability of those. In some instances, we have reached the conclusion that some of the opportunities that were interesting were simply not actionable, so we have moved on to others.
Right now, I think we have a very attractive shortlist of opportunities that we are looking at. Some of them are at a higher level of advancement than the others. We remain optimistic in our ability to deploy part of our balance sheet. Obviously, it takes two to tango, so it is not just our willingness to buy, but the seller's willingness to sell and being able to intersect at the right price. But we are optimistic, and we believe that over the next few months, probably as early as Q1 2027, we will be in a position to start delivering some results here.
On Yamal, I want to be very clear. Yamal is a clear upside. In the floor that I mentioned before, we can say clearly that there is no margins coming out from Yamal at all. Therefore, it is a clear upside of the year 2027. I want just to remember that Yamal has moved since first time was banned by the European Union, in particular, because security of supply, which is something that nobody talks about, is as important as the other two parts of the trilemma. It is clearly very difficult to remove such a big volume as Yamal, and it is not only our volume, but the rest of the volumes that are contracted by other European players without any potential impact.
Naturgy, of course, will never make something illegal, but considering what happened during the last months and foreseeing what may happen in the market, I can tell you that we see opportunities for those volumes.
Regarding capacity payments, as you are aware, the regulation that allowed for those capacity payments to be initiated was already approved a couple of months ago. But there still needs to be detailed the conditions under which the public auction scheme will be initiated. It still can be set up to start on January 2027, but the window is closing. What we see in these auctions is something that has become explicit in the last 18 months, which is a huge correlation between photovoltaic penetration and need for support of the combined cycles. This will make those auctions, when they are finally called, will require a higher level of CCGTs. So we are confident that the scheme, once it is approved, will allow our combined cycles to continue providing the same level of security of supply that we are providing right now.
Really, we think that it will be good news to have those capacity payments, but the economics of those capacity payments, we do not see that will differ very much than what we are seeing right now without them.
Thank you, Manuel. Next question, please, operator.
The next question comes from Alberto Gandolfi, from Goldman Sachs. Now your line is open.
Thank you so much for taking my questions. The first one is, I think that it is very clear from what you said that versus your 2025 CMD, you have a number of upside factors, excluding Yamal, regulation and gas distribution, CapEx and power grids, flex gen, LNG, pricing and renewables. I am just quoting what you said earlier. I guess the question is: Why didn't you decide to also narrow down or improve the outlook for 2027 today? Is it just simply that your process is that you are going to give 2027 guidance next year, the full year results, or is there any uncertainty, so you are not changing the very comfortable with above EUR 1.9 billion that you gave us last time? I was just trying to understand, because it seems to me that a lot of what you talked about is structural.
Regulation, flex gen, pricing, or at least cyclical for a number of years. The second question is to go again back on M&A, and apologies, but can I ask you have analyzed quite a lot of deals, and as Steven said, it takes two to tango, so it depends on the willingness of the seller to sell. Can I ask you if you are prioritizing a larger transaction over small or medium ones. Or if you're looking at small or medium ones, can you tell us which type of asset. In July, you very clearly talked about vertically integrated businesses more clearly. Is that still the case. If the other counterparty were not to tango, what would be your, let's say, plan B. Are we talking about gas networks. Are we talking about renewable platforms.
I don't know if you can narrow it down a little bit more like that. The last question, where does LATAM fit into this picture or emerging markets in general, let's say. Would you still be willing to use some of that as currency if you find the right assets to acquire in developed markets. Thank you so much.
All right, so thank you, Alberto. On the first one, why not upgrade or increase or change the guidance for 2027 right now. I'm afraid it's kind of a boring answer, really. We are smack right in the middle of the budgeting process right now for 2027, so we'd rather have that finished before we hit the market. I think it also makes sense to wait until the beginning of the year to see whether or not the performance is aligned with what we're expecting. As we typically do, I think we would be in a position to start giving you guys more visibility into 2027, when we publish the full year 2026 results sometime in February. Having said that, I would emphasize once again, as the Chairman explicitly mentioned, we see the 2027 numbers that you have from the 2025 to 2027 strategic plan as a floor.
We've clearly identified upsides, and we'll leave you guys to calculate and decide to estimate where those upsides lie and how much they can be quantified. But rest assured that once we're done with the budgeting and once we have some visibility into the coming months in 2027, that we'll come back to the market for sure. On M&A, are we prioritizing larger or small to or smaller or to medium transactions. We are prioritizing opportunities that create value for the company. We are prioritizing opportunities that are digestible for the company. We are looking to deploy our balance sheet. At this stage, we're not considering opportunities that will require us to look at alternative means of financing those acquisitions.
But the reality be said, if the right opportunity of an adequate size came along and it was a once in a lifetime opportunity, then we would definitely consider other alternatives. But we're not there. That's not what's on the table right now. In terms of the criteria, it hasn't really changed, right? We say that we have a clear bias towards electricity versus gas. It's important to highlight that that doesn't mean that we don't like gas. It doesn't mean that we will not be looking at gas opportunities. If the right opportunity comes along at the right price and it creates value for our shareholders, we'll definitely look at that, right?
But I think overall, in the net sum of, if you think about the potential firepower that we have, which we've quantified in the past of up to EUR 12 billion, when all is said and done, I would say that the resulting group would be more electric than it is today. But it doesn't mean it's going to have to be necessarily 100% electric, right? The markets and geographic focus or areas that we're looking at, basically they are Europe, Western Europe specifically. And we're looking at North America, and we define that as Mexico, the U.S., and Canada. Those are the areas that we're focusing our attention to.
And as to the question of whether or not we're thinking of some of the assets that we have right now as currency for acquisitions, the answer is no. We are in an investment mode. We're not in a disposal mode. What we want to do is make the company more valuable. It's make the company less risky. It's make the company more attractive for investors and for employees and for all the stakeholders. We'll see in the future whether or not we need to reconsider what happens to the rest of our portfolio. But certainly that's not part of the process right now. It's not something that we're thinking of as we approach the investment cycle that we see coming ahead.
Thank you, Steven. Next question, please.
The next question comes from Arthur Sitbon from Morgan Stanley. Your line is open.
Hello. Thank you for taking my questions. The first one is on the gas supply business. There is this headwind from the TUR in Spain, and you are mentioning a provision that was booked. My understanding is that this is a provision also for future losses, so we should not expect any more negative impact from the TUR in Q4 and next year, but I wanted to check that with you. That is the first question. The second one is on the retroactive remuneration effect in Spanish electricity networks. I think you are mentioning EUR 126 million positive. I assume that is positive year-on-year, because I think there was already a positive last year. So to check that first, and I think it is higher than was initially expected. Should we expect more of that in Q4? Again, should we expect some of it in 2027, 2028?
That is the second question. The last one is more on the timing of your new strategic plan. Would you consider presenting a new strategic plan before meaningful M&A announcements? M&A would have to come first, and then the strategic plan would be based on your new perimeter. Thank you very much.
Okay. Regarding regulated gas tariffs, we have been challenging the current framework in court for some time as these regulated tariffs do not recognize current market cost of gas. Additionally, this situation has further worsened by the temporary cap on tariffs that was approved some weeks ago by the government. As you mentioned, this has brought us to provision this EUR 100 million impact. As you mentioned, this has to be reversed in the next months, and we don't expect further provisions, but we will have to update this provision with market conditions. It will also depend on the evolution of the TTF or the energy price.
No, sorry. You wanted to finish. Sorry. On the strategic plan and whether or not we are waiting for external reasons to update it. Clearly, during the year 2027, we are obliged, committed, because of our commitment with visibility, to give you visibility about the next three years. That's the reason why we said that the horizon 2030 is, for us, a target in the elaboration of a new strategic plan. Of course, if something happens unusually, and one potential example may be a change of perimeter, it will force us to update our targets, including 2027, they may arise at the beginning.
We are working on a strategic plan 2028, 2030, but it may be triggered by another perimeter change that may happen. Or running usually, going forward, we need to have some targets for 2028, 2030 that today are not in the knowledge of the market, and of course, we will provide that.
Yeah. Finally, regarding the retroactive impact in electricity distribution in Spain. It's true that last year we had a small impact regarding this remuneration and maintenance retribution. EUR 126 million is the variation when compared to 2025. The total impact is EUR 150 million. We could expect these remuneration adjustments are, to some extent, a normal issue in this business because there is a time lag in the definitive remuneration recognition, so sometimes it brings adjustments, so we could have some other additional impact in the future.
Thank you, Rita. Next question, please.
The next question comes from Pedro Alves, from CaixaBank. Your line is open.
Hi. Good morning. Thank you for taking my question. Focusing more now on the organic opportunities to deploy firepower. You mentioned that the investment cap in Spanish electricity networks leaves this incremental investment opportunity until 2030 compared to your previous plan. Can you perhaps quantify your additional CapEx opportunity here under the new investment cap? The second is on Puerto Rico. Is there any update on the CCGT tender? I think it is absent from today's presentation. Last question, please, on Brazil concessions, if you can update us on Rio de Janeiro, the concession retender process, and the key economic conditions required for you to retain the assets. Thank you.
Regarding the approved increase in the sector investment cap, more or less, the sector increased investment capacity with these changes has improved in EUR 10 billion and EUR 1.3 billion. It is the amount that corresponds to our distributor company. The investment cap lift is a long-standing request from the industry in order to face growing challenges, such as connecting new renewables or attending the ongoing electrification of the economy. This regulatory framework opens for relevant growth back in our electricity distribution activity within a stable regulatory framework. We think it is a very positive measure.
On Puerto Rico, the process is ongoing. We expect to have news shortly, hopefully before year-end. Obviously, subject to what those news may be, we will communicate on the market. I would like to send a very optimistic message here. We think there is a real high chance that we will be in a position to secure that tender. On Brazil, the new governor is taking office in January. Concession expires in July. The key question here is: Is there enough time from now until July to launch a retender process? Most likely, the answer will be no. That means, as is stipulated in the contract, that we will continue operating the concession until the retender. Again, I want to emphasize, this is normal course of business. It is contemplated in the concession. We continue to work, by the way, with the authorities.
We have expressed our views on our thoughts on the retender. We will look at it, obviously, from a privileged position of having operated the assets for a long time, but also with the responsibility of making sure that if we do participate, that it makes sense for the company. If it does not, then we will not be there. Obviously, it is then a question of the payment that will be due to the concession shareholders. Hopefully, over the next few months, especially as the new governor comes into office, we will start having a little bit more visibility. Again, as the chairman has committed, we will continue to update the markets on it.
Thank you. Next question, please.
The next question comes from Javier Suárez Hernández from Mediobanca. Your line is opened.
Hi. Good morning. Two remaining questions. The first one is on the data center development in Europe, the implication that this may have for the business model of Naturgy, how Naturgy wants to develop or contribute to the development of new data centers in Europe, and your latest view on the latest draft royal decree that the current Spanish administration may intend to approve before the general election. The second point is also related to your statement that your interest is more on finding opportunities on the electricity sector. I think that at the previous conference call, you mentioned that renewable brownfield opportunities should concentrate the market on where you have a vertically integrated position. If that continues to be the case, and if you can elaborate on the opportunity that you see amongst distressed solar photovoltaic asset, wind generation asset, and your interest in new battery system. Thank you.
All right. On data centers, I think we've explained in the past the model that Naturgy pursues is a model of power land and then PPAs. That's the extent of it. Specifically, if you think about that, then it's limited to those markets where we have the ability to provide that power land. So in the case of Spain, we have been working very closely with developers who would be in a position to secure hyperscalers. Then the new draft royal decree was presented. What we can say is that, obviously, we monitor this very closely, including the changes apparently submitted to the State Council or the Council of State. We don't think the changes today will be conducive to an environment that fully exploits Spain's full potential as a data center hub in Europe.
We hope this is something that is reversed because, in our opinion, this is an opportunity, a historic opportunity for the country. We have cheap electricity, we have land, we have all the ingredients to become a hub. Having said that, there's absolutely no contribution. That's zero contribution from data centers in our forecasts for 2027, and we'll see what ends up happening as we move towards that 2030 vision. Regarding renewables, we did mention in the past that, you're right, Javier, to mention and remember that we said if we're going to be looking at renewable assets, then it has to make sense for us. They have to be brownfield, so we're not looking for assets to be developed, and we are looking to locations or geographies where we do or can exploit our integrated model. That hasn't changed at all. It's exactly the same.
As far as distressed PV opportunities, we're waiting for the famous distressed PV opportunities. We haven't really seen them, actually. We've seen opportunities, but they certainly don't seem distressed. So, we're ready to move. One of the things that we can say from the corporate development side is that we have a significant agility. We have the balance sheet, we have the teams, and we're ready to move. We constantly monitor the market for opportunities. But I hate to say it, we're not yet at levels where PV, particularly in Spain, would make sense for us financially, even including batteries. So there needs to be some adjustments in terms of price expectations for us to move in that direction.
Thank you, Steven. Next question, please.
Ladies and gentlemen, as a reminder, if you'd like to ask a question, please press star five on your telephone keypad. The next question comes from Jorge Alonso from Bernstein. Your line is open.
Hi. Good morning, and thank you for the presentation. Just a couple of questions on my side. Regarding as well on the deployment of the balance sheet headroom, would you consider maybe the possibility of buying back some of the minority stakes in your businesses, just in order to enhance the EPS growth, and if not, why not? A second one would be if you can provide some color about where do you expect to deploy the new renewable capacity. It makes sense probably to boost Spain in order to hedge against your supply margin. But it seems that Australia offered opportunities, U.S. offered opportunities.
Just to understand if you are going to accelerate in those geographies. The last one, if you can give us just at least some kind of sense about the flexibility of your portfolio in LNG in order to take advantage of the gas prices for 2027, 2028. Thank you very much.
Thanks again for the questions. On the first one, would we be open to buying back minorities? I think it is the same answer as if you ask us whether or not we are looking to deploy our balance sheet, right? At the right price, we are going to look at anything. I think it makes sense. One advantage of minorities is the fact that we already operate the assets, so we can price risk better than buying something else. At the same time, we have to put on the balance, what does that add to the group, right? Beyond EPS accretion, potentially, is there any other benefit from it? Are we going to be able to better deploy our industrial know-how? Is governance going to improve with the remaining shareholders if there are some? There is a number of considerations that we put on the balance.
There is no straight answer, yes or no. Again, it is going to depend on an analysis that incorporates some of these elements that I have just mentioned before. In terms of the development of renewables, I think goes back to the previous question, right? We feel very comfortable growing our portfolio in places where we can extract value from our integrated model. If you think about it makes a lot of sense. We have an integrated model in Spain. Would it make sense to continue growing renewables in Spain? The answer is yes, at the right returns. We have an integrated model in Mexico. Would it make sense in growing in renewables in Mexico? Again, yes, at the right price. As far as the U.S., we just basically sold our pipeline of projects in the U.S., and we do not have an integrated position right now.
I think it is highly unlikely that you will see the company go into development of renewables on a merchant basis in the U.S. In Australia also, we just do not have, right now, an integrated model. We are building on the back of PPAs. Australia is a particular market as well, which is suffering from curtailment. It is suffering from constraints in terms of transmission. So it is a market that we monitor, but I do not think it ranks high in our list of geographies for priorities for investments.
Regarding gas margins, we are fully hedged for 2027, and we also have a price agreement with Sonatrach for next year. In this sense, this provides us visibility on 2027 margins. As you mentioned, now the focus has shifted to capturing upsides from ongoing market volatility. In this sense, we are now anticipating attractive margin opportunities for 2028 and even for 2029, driven by increased market volatility, and also because there are some doubt on gas reserves after this winter.
Thank you, Rita. Next question, operator, please. Okay, it seems that-
There are no more questions in the conference session. Let's move on the written questions. I will now hand back the session to the Naturgy team, please.
Thank you. Okay, a few of the written questions have already been answered, but the ones outstanding. Can we comment on the moving parts sustaining the new guidance, in terms of EBITDA and earnings call for 2026?
Thank you. First, we have consolidated already a better result in September from what we were expecting. We see also improved margins in gas and electricity in the next months because of increased energy scenario, and improved visibility on CCGT revenues, which have been even higher than last year. Also, extraordinary revenues from outstanding remuneration from previous years in electricity distribution in Spain. Even in a context where we had to provision regulated tariffs impact, we feel comfortable with an increase in our guidance expectation.
Thank you, Rita. There are a couple of questions on working capital, which has been substantial year to date. What are the main drivers moving this, and what is the expectation for the last quarter of the year in terms of working capital movements?
The evolution of working capital is mainly driven by three factors. The first one is obviously because of the increase in energy prices, that obviously increases our working capital needs. Second, we have also, in September, higher inventory levels ahead of the winter season, that is also in a context of high prices. So this also implies increases in working capital needs. And third, as Steven has explained before, finally, the settlement of the agreement with Sonatrach regarding prices from the period 2025, 2027. That was still pending, and that was finally closed this summer. It has also affected working capital needs. The evolution of the working capital needs by the end of the year will also depend on the evolution of energy prices, but also as we have a lot of seasonality in demand, we expect high needs of working capital also in December.
Thank you, Rita. There is an additional question on energy management, and the analyst acknowledges that Q3 has been perhaps weaker than expected in terms of energy management. So if we could comment on the key drivers or reasons driving this Q3 in particular.
Well, when we compare Q3 with 2025, we have to take into consideration that we have lower volumes than last year because of contract termination, and also it depends on the hedging strategy that we took some time ago.
Thank you, Rita. There is also one question on thermal generation. I think that Manuel already commented on this, but I think it is worth reviewing. The question is, what is your expectation regarding the evolution of ancillary services in coming years and how do you see this evolving going forward?
We have been studying the last months due to the not well named operational is that there is a huge correlation between mainly photovoltaic penetration, also other renewables, mainly photovoltaic, and the need to provide ancillary services. Some years ago, those ancillary services were provided by combined cycles automatically by participating in the daily pool market. Once there was this high photovoltaic penetration with zero prices or near zero prices, then combined cycles could not continue providing services during the solar hours. They need to provide the services through ancillary services. There is huge correlation. Since we have seen that photovoltaic are continuing to be installed and coming into operations, those ancillary services will continue increasing. Also, the new investments that Red Eléctrica has been authorized to do in condenser, reactive power and so on, this will not come into line for the next two, three years.
There is a huge opportunity for combined cycles to continue providing those services, whether under the current economic scheme of ancillary services or under the new power capacity payments scheme that the government will start, whether in January 2027 or if not in January 2028.
Thank you very much, Manuel. Last question of today's call is around our business in supply. The analyst acknowledges the increase of ancillary costs in tariffs and asks us whether we are seeing any repricing already, or what sort of repricing dynamics do we expect in our supply.
Yes, in electricity, competition remains intense. As you mentioned, we are taking repricing actions to offset higher ancillary services costs and also to reflect new market condition.
Okay. Thank you very much, Rita. This concludes our nine-month 2026 results presentation. Thank you, everyone, for joining, and the capital markets team remains available for any further questions you may have. Thank you, everyone. Have a good day.