Spain-based Naturgy Energy Group's 2018 results were slightly below our expectations due to higher-than-expected restructuring costs. We are affirming our 'BBB/A-2' rating on Naturgy. The affirmation reflects our expectation that credit metrics will remain stable over 2019-2020. However, the company's aggressive dividend policy, coupled with reduced capital expenditures, could compromise longer-term cash flow generation. The stable outlook reflects our expectation that Naturgy will maintain good operating performance, with funds from operations to debt above 18% over 2019-2020, despite higher shareholder remuneration than peers' over 2018-2022. We believe Naturgy will maintain enough financial headroom in our updated base case following the publication of its 2018 results, with S&P Global Ratings-adjusted funds from operations (FFO) to debt sustainably above 18%. We will
