Gas Natural, Adr. (

GASNY.PK

)

Q2 2011 Earnings Call

July 27, 2011 08:00 am ET

Executives

Rafael Villaseca - CEO

Carlos Alvarez - CFO

Antoni Basolas - Director for Strategy and Development

Analysts

Raimundo Fernandez-Cuesta - Nomura

Manuel Palomo - Citigroup

Alberto Gandolfi - UBS

Bruno Silva - BPI

Pablo Cuadrado - Merrill Lynch

Javier Garrido - JP Morgan

Javier Suarez - UniCredit

Antonio Lopez - HSBC

Jorge Alonso - Societe Generale

Presentation

Unidentified Company Speaker

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Good morning and welcome to the presentation of results of Gas Natural Fenosa for the first six months of 2011. The presentation will be given by our CEO, Mr. Rafael Villaseca, who is with the CFO, Mr. Carlos Alvarez; and Director for Strategy and Development, Mr. Antoni Basolas. After that we will have a question and answer beginning with the people in the room and then those that have followed this on the telephone or the internet and that will be done by filling in the question form, the form for questions on the internet page. I will pass the floor to Mr. Villaseca.

Rafael Villaseca

I wanted to thank you for being here and these are the main points that I am going to present main issues, summary of main results and events, analysis of operations and then we will look at the different business lines, and conclusions before we have the questions. So, we are going to start with the main issues in the year. You see this here, the recurring net income of the company without taking into consideration the extraordinary results as a result of extraordinary gains last year and this year is €605 million, which is an increase of 11% over previous year. If we bear in mind the income is a result of added assets, the net income is €822 million. The consolidated EBITDA is €2.3 billion which is a growth of 0.4%. Our investment of €118 million, a decrease of 12% over the previous year and the debt is below €17 billion that is 14% than the first half of the previous.

If we look at the main issues, first of all, I would like to tell you that the litigation process with Sonatrach has finally come to an end, and then we will talk about the disinvestment program, asset disposal plan, our capital structure has got stronger, how our businesses have developed, and then I want to tell you about the consolidation of our presence in renewables.

So, if we start with the litigation process with Sonatrach, the problems we had with Sonatrach, I want to tell you that officially we have made a statement and I think we made it clear to the markets I hope about the happy end of this conflict. We have reached agreements of the prices of 2007, 2008 and 2009 and this will be the new prices as from January 1, 2010. The amounts that have to be paid that were in litigation, as you know, this began in 2005 and the figure is $1897 million. That covers deliveries between January 1, 2007 and May 31, 2011. So we are talking about four and a half years of adjustment of prices. What we had then was provisional, and we had been making provisions for the amounts that we thought would be deliverable at the end of the conflict. As a result of all this there are a few things. All other claims have been waived as a result of the proceedings the court in Switzerland and also the action in Paris. All this business has finally finished. It will have no further impact on our P&L account. some amounts will go to some customers depending on the contracts that we have with them and then the provisions covered all that we needed to pay and that won't have any more impact on our P&L account. But there is another part that I would like to underline and it is that this agreement allows us to open up a new stage of relations with Sonatrach. This has been a long conflict that has gone on for a long time but finally we have reached an understanding that we think will be solid and long lasting. One of the results of the decision has been approved by both board, both of Sonatrach and Gas Natural Fenosa that Sonatrach would take their shares 3.95% of the company. And then we are going to sign a series of agreements to study projects of collaboration in other areas of energy exploitation, and we are analyzing those projects and we hope that these conversations lead to agreements, specific agreements.

So, this is not only the end of past controversy, not only do we set the playing field again for the current situational gas supply, but it also will lay the foundations for good relations and projects in the future.

Regard to something else, I have to underline the advance of our disinvestment plan our asset disposal plan. We had a commitment which we have compiled with perfectly well, in dates and quality and conditions. We have collected €5.5 billion and since the last presentations we have collected €450 million from disinvestment in 300,000 points of connection of supply in Madrid. So, everything that we had foreseen has gone ahead, and it's all come to a conclusion very satisfactorily.

Also it's important to point out that, we have signed the agreements for sale of assets that will mean an another €350 million. We are waiting for some final authorizations and these have to do with this gas supply contracts in Madrid, associated with the points of supply that we have sold and also the sale of the combined cycle plant at Arrúbal. So, this will produce about €350 million. As the fuel authorizations spending which will be approved imminently and that would be the end of our policy and the end of the operation that began with the purchase of Union Fenosa and then the commitments that we had agreed at the CNMV.

We have always wanted to have a strong capital structure and our idea was to reduce our debt at this much as possible after the Fenosa operation, and I think we have complied with that very well. Our net debt is going down by €2.5 billion. €2.5 billion less than we had at the beginning of the previous year, and its now €16,900 million, so less than €17 billion and that is due to three things which are clearly explainable: this sale of assets that I have just mentioned, the collection and securitization of our deficit, and the generation of cash flow which is sound and stable. Due to all this, the net debt over EBITDA was 3.8 times ratio which follows along the lines that we had included in this strategic plan. So, we are complaining with one of our main objectives. Part of this policy of strengthening and reduction of debt had to do with the securitization of the tariff deficit.

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