Gas Natural Adr (

GASNY.PK

)

Q4 2011 Earnings Call

February 21, 2012 4:00 am ET

Executives

Rafael Villaseca Marco – Chief Executive Officer

Carlos J. Álvarez Fernández

–

Chief Financial Officer

Antonio Basolas Tena– Director of Strategy & Development

Analysts

Pablo Cuadrado – Bank of America Merrill Lynch

Jorge Alonso – Societe Generale

Manuel Palomo – Citigroup

Alejandro Vigil – Cygnus Asset Management

Javier Suarez – Nomura

Virginia Sanz De Madrid – Deutsche Bank

Anna Maria Scaglia – Morgan Stanley

Presentation

Operator

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Good morning. Welcome to the presentation of results of Gas Natural Fenosa for the Fourth Quarter of 2011 by Mr. Rafael Villaseca our CEO, accompanied by the CFO, Mr. Carlos Álvarez, and the person responsible for Development, Mr. Antonio Basolas.

After the presentation, we will have questions and answers, we will begin with the people in the room, and then we will continue with the people they have followed the presentation on the Internet or by telephone. I am going to pass the floor to our, CEO, Mr. Rafael Villaseca.

Rafael Villaseca

Marco

We need the sound please. Thank you, we’d lost the sound. I will repeat. Good morning and we will begin with the first highlights. Then I'll talk about stronger capital structure that we have, then I'll speak about Spanish electricity regulation. Then I will talk about the consolidated results for the last year.

And then I will analyze the different operations. And then there will be conclusions and questions and answers. Without any further ado, let’s go to the more relevant issues. We have generated a net income of which has reflected a growth of 10.3% up to €1.3 billion.

In spite the fact that in 2011, we’ve had less surplus value than the previous year. Secondly, the EBITDA has reached the figure of €4.64 billion that is a growth of 3.8% as compared to the previous year, in spite of these investments. Thirdly, investments have decreased by 8.9% we'll analyze this in detail, and have gone down to €1.4 billion, within the lines of our strategic plan. And finally, on the 31

st

of December of last year, that figure was 9.5% less than the previous year that is €17.3 billion.

So we are continuing with the reduction of debt that we had become committed to. Our good results of the company who is profits aftertax have grown by more than 10% is due to three reasons activity in South America, which will go into later good progress of the natural gas market in the world. And the application in 2011 of the synergies resulting from the integration between Gas Natural and Fenosa, we will talk about the three topics in detail.

Also we have to talk about the shareholder remuneration policy and underline two relevant issues questions. The first is an excellent stock market behavior in 2011, in spite of the volatility and difficulties of the market in our sector and in our company, whereas the utility, European utilities have come down on the stock market by 23%, Gas Natural Fenosa last year, grew by 15% more than 15% in fact, we’ve grown almost 40 points as compared to average European utilities. Secondly, in terms of the shareholder remuneration and in accordance with our strategic plan, we will apply pay out of 61.8% which will be approved by the shareholders, and that will give a profitability of 6.2% per dividend.

So the dividend will all told, go

up to

€221 million, which is an increase of 10.7% in line with the increased profits. This dividend will be paid out as partly being paid out last January and will be complemented with a dividend in the form of shares, if a scrip dividend if it’s approved by the General Shareholders Meeting.

We would now like to look at the main factors that affect the soundness of our financial structure, and first of all I have to talk about our debt. As we have said, now for sometimes since we launched the plan, the reduction of debt and the strengthening of our financial structure. Financial discipline was a basic, and we announced about objective has continue to be so in 2011. So our debt has dropped by €1.8 billion and it reached a figure of €17.3 billion, thanks to what.

Well basically, to our ability to reduce to generate positive structural cash flow of company as a cash flow resources, which are positive. Secondly, as a result of the sale of

assets

less than other years and we’ve continued to sell our assets that have given a significant figures to reduce the debt, and also because of the securitization and the collection of some amounts related to the electric tariff deficit and also thanks to the scrip dividend that was subscribed by a very practically all our shareholders, and finally also because of the increase of capital subscribed by Sonatrach.

So, this has strongly, this has strength significantly strengthened our balance, so the ratio of debt-to-EBITDA is 3.7 times and if the tariff that disappeared we’ve still got about €1 billion it would be €3.5 billion. All that within our strategic plan and continues to be one of our main priorities and policies in terms of the operation of the company.

We also have to add the proactive asset management we've developed. There’s been a decrease in investments, we’ll see why, basically for two reasons, the end of the combined cycle plant

program in Spain and Mexico. And the obligation of synergies CapEx synergies have been very significant, They've been

applied to

chapters of annual return investment and they remain hundreds of millions in savings every year, but we are still investing in our regulated businesses, which especially in South America leading to high rates of growth within the policy of investing by maximizing our return and shortening the maturing periods. Also we must remember that this investment plan we had was for a €3 billion, and we’ve disinvested in this period since 2011 €5 billion €2 billion more than we than those €3 billion that we have said.

We’ve lost EBITDA obviously, as regard those assets, but we have complied with our growth objectives. So I think that the portfolio management has been adequate and has been in line with what we had agreed until the markets. And in terms of securitization of tariff deficit, we’ll talk about this more in detail. We have to say that, the end of 2011 last year therefore throughout the last year Gas Natural Fenosa had collected €1.17 million, as a result of securitization through five bond emissions in several private placements by FADE.

At the end of the year, we have to securitized, we still have to securitized €1.23 million, which included what we have been generated throughout 2011. So far this year the company has collected €259 million, so we can say that at this time the amount that is pending to collect in terms of tariff deficit is about €1 billion.

If we go back to strengthening the significant strengthening of our own resources of our equity this has been strengthen by the increase of 10.3% in our profit after taxes. And we should also remind you that this scrip dividend also strengthen this. As we said before, it was 96% of our shareholders, who went positively to collect this in the form of shares that meant about €400 million to which we have to add the over €500 million from the increase of capital of Sonatrach as a result of this strategic arrangement that we subscribed by that company that provisions is our suppliers from Algeria.

That obviously leads to an increased equity in a positive impact of about €1 billion. That the great success last year in terms of the scrip dividend policy has encouraged us the Board to propose to the GSM. Once again that this second part optionally it can’t be also collected in shares.

We have to point out that we have debt structure that makes us feel comfortable and the way of looking this is looking at three figures. The first 70% of our debt is fixed debt, by the way very competitive. Secondly 84% of our debt is in euros. And thirdly, our debt is depends more or more on the capital markets unless on bank financing so 53% of our debt is directly financed through the capital market. This lack of bank intermediaries gives us a very advantages situation and avoids the tension in our traditional banking markets.

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