Q4 2011 Enagas Earnings Conference Call

Thomson Reuters StreetEvents Event Transcript
E D I T E D   V E R S I O N

ENG.MC - Enagas SA
Q4 2011 Enagas Earnings Conference Call
Feb 07, 2012 / 09:00AM GMT 

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Corporate Participants
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   *  Antonio Llarden
      Enagas - Chairman
   *  Diego de Reina
      Enagas - CFO

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Conference Call Participants
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   *  Alberto Gandolfi
      UBS - Analyst
   *  Pablo Cuadrado
      BofA Merrill Lynch - Analyst
   *  Jose Lopez
      HSBC - Analyst
   *  Manuel Palomo
      Citigroup - Analyst
   *  Gonzalo Sanchez
      BPI - Analyst
   *  Jorge Alonso
      Societe Generale - Analyst
   *  Javier Garrido
      JPMorgan - Analyst
   *  Olivier Van Doosselaere
      Exane BNP Paribas - Analyst

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Presentation
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Unidentified Company Representative   [1]
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 (Interpreted) Good morning, ladies and gentlemen and welcome to this 2011 results presentation. Figures were released this morning before the opening bell and are available on our website at www.enagas.es. Mr. Antonio Llarden, the Chairman of Enagas will host the conference. And we expect it to last about half an hour and afterwards there will be a Q&A session, during which we will try to answer any question as fully as possible. Thank you for your attention and I will now give the floor to Mr. Llarden.

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 Antonio Llarden,  Enagas - Chairman   [2]
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 (Interpreted) Good morning, ladies and gentlemen, and thank you very much for your attention today. My speech today will have two main sections. Firstly, I will give a summary of Enagas 2011 earnings and I will comment on the most important aspects.

 I am very pleased to say that the fifth year -- for the fifth year running and despite the harsh economic environment, we have beaten all the objectives that we had set ourselves for the year.

 Then I would like to mention the economic outlook for Spain and the energy sector and within this context I will talk about Enagas objectives for 2012.

 2011 has been the fourth year of this world economic crisis, the fifth if we include 2007. At the beginning it was widely thought that the crisis would be severe, but short-lived and that the economy would rapidly get back on track. This has not been the case in Spain or in Europe where it has lengthened and deepened. And in 2011 the debt market and risk perceptions suffered heavily and ratings were downgraded across all European countries and listed companies.

 Now in Spain in 2011, macroeconomic indicators all worsened throughout the year -- unemployment, credit rating, risk premium and political uncertainty. Overall, it was a year of recession and general uncertainty and the energy sector was not immune from this.

 Given this adverse environment, we are especially proud that Enagas 2011 earnings have met and even surpassed the targets set for the year, and that the Company was also one of the best performing utilities relative to the Spanish stock market and among comparable companies in Europe.

 Key figures for 2011 are as follows. Net profit was EUR364.6m, 9.3% higher than the figure reported in 2010 and beating the target we had set at the start of the year. This growth was predicated on EBIDTA growth of 13.4%, reaching up the figure of EUR885.5m on the back of a 15.4% increase in total revenues. This increase in revenues was due to the consolidation of assets commissioned in 2010 and 2011, also acquisitions made, consolidation of the Gaviota storage facility for accounting purposes from January 2010 and to a lesser extent to the proportional consolidation of the Altamira plant in Mexico.

 Factoring in the acquisition of the Gaviota facility from January 2011, EBIDTA would have risen up to 12.1%. This significant EBIDTA increase and net profit increase is therefore explained by the non-recurring revenues accumulated in successive years. The rise in EBIDTA is also due to Enagas' commitment to efficiency and strict control of our operating cost which increased by only 2.7% in like-for-like terms.

 Lastly, another key factor driving earnings growth in 2011 was the improvement in the Company's average borrowing cost at 2.8% compared to the target of 3.3% set at the start of the year.

 In terms of investments, they stood at EUR781.4m surpassing the target of EUR650m that we had set ourselves for the year.

 The volume of assets brought into service was almost EUR780.5m, also surpassing out target of EUR650m.

 In summary, in a especially harsh environment we have reported a very positive set of earnings, thanks to three main supports and pillars.

 First of all, the ongoing development of the efficiency and cost containment plan initiated in 2008. Each year the plan has achieved better-than-expected results and it has been extended until 2014 in tandem with our strategic plan. This plan is one of the Company's permanent strategies around which part of our objectives are defined and which all Enagas personnel have to achieve. All employees have a variable remuneration component linked to meeting these objectives and it is also regulated in the collective agreement.

 Another key factor is the volume of assets brought into service with an execution schedule that saw no delays.

 And lastly, the improvement in the average borrowing cost which was lower than our specified target for the year.

 Several other key factors have also contributed to the earnings that we present today, the stability of the regulatory framework and the acquisition of assets from third parties in line with Enagas' objectives. In this respect in 2011 after the pertinent authorizations had been obtained the Company included a 100% of the Gaviota underground storage facility among its assets.

 Furthermore, as you already know, we acquired 40% of the Altamira regasification plant in Mexico.

 Lastly, we purchased 42% of Gascan, the company responsible for the construction of two regasification plants in the Canary Islands, one in Tenerife and the other one in Gran Canaria. I will talk later about the criteria followed in our acquisitions from third parties.

 In terms of the financial performance in 2011 our highlights go as follows. Net debt at December 31 was EUR3.44b. This implies a net debt/EBIDTA ratio of 3.9 times, lower than the figure of 4.1 reported in the previous year.

 The average cost of Enagas debt at the end of 2011 was 2.8%, one of the lowest among non-financial companies trading on the Spanish Stock Exchange.

 Additionally, in line with the Company's financial policy at December 31, we upheld our strategic objective of maintaining around 70% of our net debt at a fixed interest rate.

 Lastly, at the end of 2011, Enagas had liquidity of EUR2.126b sufficient to allow us to finance our entire investment program beyond 2014 on optimal terms and under excellent cost conditions.

 These data once again confirm our sound financial position. Today Enagas has a balanced financial structure. Only one-third of our debt corresponds to bank financing; another third to long-term institutional funding, mainly the European investment banks and the Spanish credit entity and the remaining third to funding obtained on the capital market.

 From a macroeconomic standpoint, 2012 does not look like being the year in which either Spain or Europe will emerge from recession. Forecasts are heralding a difficult year. In the energy sector, we hope and trust that uncertainties surrounding the structure of the energy mix and the solution to the problem of the power tariff deficit will be dispelled.

 The first statements issued and actions carried out by the new Minister of Industry, Energy and Tourism are clearly heading in this direction. Now I consider this to be extremely positive.

 Against and within the framework of our strategic plan to 2014, I would like to inform you about Enagas commitments for 2012, a year in which efficiency and cost control will remain key.

 The most important factors are to obtain an EBITDA growth of around 8%, an average cost of debt of 3.3%, even lower than the figure envisaged in the strategic plan, to maintain a net profit of around EUR365m in line with the one obtained in 2011. We have been conservative, assuming a significant increase in financial cost and our strategic plan factors in more moderate growth in 2012 than in previous years and subsequent years.

 The dividend increase of around 8%, boosting the forecast dividend for 2012 some 22% higher than the figure initially contemplated in the strategic plan; investments of about EUR550m and putting into operation assets worth EUR750m also in line with the targets contained in our plan. We would stress that these targets are extremely prudent, given the volatility of the current economic environment.

 In conclusion, given the current markets and economic conditions, the objectives that we are presenting today for 2012 evidence the good progress being made by the Company. As I have already said, this good performance has allowed us to raise the dividend paid by around 8% in line with Enagas policy of increasing shareholders' remuneration.

 Regarding regulation, we uphold our outlook for regulatory stability based on the following premises. Well, on the one hand, natural gas price is set by the international market meaning that the gas system will have no structural tariff deficit. The overall deficit is the result of variations at the end of the year vis-a-vis the demand forecast used to set tariffs. The regulatory framework is already considering mechanisms to correct this difference. Average returns in line with those obtained by comparable European companies and also the good performance of the gas system in general.

 Furthermore, we continue to work closely with the different regulatory authorities providing them with all the information they may need. On the other hand, we may remember that Enagas continues to be the technical manager of the system, contributing to the safety of the supply and the coordination between all the different stakeholders working in the Spanish gas system. I will later on talk about the additional extraordinary peak in the demand that we managed to cover and this didn't happen in all the European countries or most European companies.

 Regarding investments, I would like to give you an overview of our acquisition policy of assets from third parties. Over the past two years, vertically-integrated companies have started to sell off their non-core midstream assets in the intermediate part of the energy chain, which fit fully with Enagas core business. Additionally, over the past few years, the value of Enagas know-how in the global management of a complicated gas system and the LNG chain has become increasingly apparent.

 Enagas studies potential acquisitions of assets from third parties on the basis of four key criteria. First of all, they must be core business assets offering a return that is the same or greater than current returns. The net debt/EBITDA ratio must not exceed 4.2 or 4.3 times. And they must be a source of recurring and regular revenue flows.

 These policies strengthen our policy of gradually increasing shareholder remuneration. While over the next few years the volume of investments in a more mature Spanish gas system will be lower than the current average, all of this will be underpinned by a policy aimed at unlocking value of the Company's know-how.

 Lastly, I would like to speak briefly about how our business plan is expected to develop through 2014.

 In terms of our investments, we are working to obtain the authorizations required to carry out our projects. I would highlight that 82% of the investments planned under the 2010-2014 business plan are either operational, under construction or at an advanced stage in the planning permission process, having already obtained the related environmental impact assessment. Enagas is therefore on track to meet the target of our 2010-2014 business plan.

 Additionally, we expect to maintain our strong financial position and we have sufficient funds secured at a good cost to carry out our investment program. We prudently estimate a 4% increase in the average cost of debt in 2014.

 Our solid asset base, the result of a steady investment effort and the strict control exerted over operating and financial cost, will allow us to remunerate our shareholders in line with the provisions of our investment program and debt targets. I would therefore remind you that in 2007 Enagas increased its payout from 50% to 60%. In 2011, we increased it furthermore to 65% and in 2012 we will raise it to 70%, committing to maintaining this level until 2014.

 Before I finish, once again I would like to review demand figures for natural gas in 2011 and give you our best estimate for 2012. Total demand transmitted in 2012 (sic - see presentation) was 413,803 gigawatts per hour, a 5.2% decrease on 2010. Domestic demand totaled 372,766 gigawatts per hour, down 7% on the previous year. This was because while industrial and sector demand remained largely stable, demand from the electricity sector dropped by 19%. The remaining demand relates to gas transmitted by the Spanish gas system for consumption outside Spain, including for the first time, a significant amount from LNG tankers loaded at regasification plants.

 Our current forecast for 2012 is for a 3.8% increase in conventional demand, while demand for electricity generation should fall further or be at a slower pace by around 4%. Therefore in 2012, domestic demand is -- will grow by 1.4%, mirrored by a similar rate in total demand transmitted.

 Conclusions. The results we present today show that we have met and even increased the objective set a year ago. In an extremely difficult economic scenario in Spain, Europe and elsewhere internationally, at Enagas we are making an even greater effort. And we have succeeded in adapting to the new situation and this has allowed us to meet each and every one of our commitments.

 It is also a great satisfaction for me that Enagas has been recognized this year as a world leader in the utilities sector by the Dow Jones Sustainability Index. We have achieved this and other recognitions thanks to our corporate social responsibility policy and the successful implementation of our sustainable management model, focused on innovation and continued improvement in all spheres.

 Lastly, I would like to wrap up my speech by reminding you that during the course of this year, the Ministry of Industry is likely to draw up a new National Energy Plan for 2012-2020. Once this bill has been passed, we will update our strategic plan in order to include forecasts beyond 2015.

 I would like to thank you for your attention and I will now invite you to ask as many questions as you wish. We will try to answer them as fully as possible. Thank you very much.



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Questions and Answers
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Operator   [1]
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 (Interpreted) Good morning. The Q&A session starts now. (Operator Instructions).

 The first question by Alberto Gandolfi from UBS. Please go ahead.

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 Alberto Gandolfi,  UBS - Analyst   [2]
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 (Interpreted) Hello, good morning, everybody. My name is Alberto Gandolfi from UBS. I have three questions...The first one is can you please share with us in your consultations with the new government and the Energy Ministry and especially throughout this year do you expect changes in the regulation with the introduction of the RAB system throughout the business, just like it happened with electricity supply already or with the regasification and storage facilities?

 Second question, clearly, well, you cannot foresee the measures and they're hard to forecast, but can you envisage a special tax for energy companies, the same thing that happened in Italy for example? Or do you know already the fact that the government is not going to talk or put on the table this type of measures?

 And the third question, Mr. President, I would be interested in knowing your opinion on the possible evolution of demand in 2012 in Spain adjusted to climate issues. Of course, 2012 has been a very warm year. Now it's really cold, but structurally as the normalized year what do you think would be the evolution of gas demand through the year? Thank you.

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 Antonio Llarden,  Enagas - Chairman   [3]
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 (Interpreted) Good morning Mr. Alberto from UBS. I will now answer your questions. First, yes, correct. I personally have talked to the Minister and the Secretary General of the Minister. I've met with them several times and I must say that initially, there is no news regarding modifications to the regulatory gas framework, period. No news regarding that at all. In fact, in our first conversations, we focused rather on the gas system as a whole, the international interconnections and the demand issue. I will talk about this later since you asked.

 And also we commented on the gas deficit, structural gas deficit. And I must say already that the government has enough elements to solve this situation since this deficit, just like the electricity deficit, is not structural.

 So in conclusion, Alberto, for 2012, in general we expect regulatory stability for the gas sector. And there have been no signs of it being otherwise.

 Now regarding the special tax on our sector just like the one used on -- in Italy a Robin Hood tax last year, well, the new Ministry has given no signs of this happening at all. So I have no indications that this might happen.

 Besides, even though this is not my field of expertise, let me remind you that the Robin Hood tax in Italy, if I'm not mistaken was partially justified by the fact that the affected companies were State-owned companies, at least partially. This is not the case in Spain and particularly this is not the case of Enagas. So we have no news in this regard and we do not expect changes.

 And finally, the evolution of demand based on climate. The data I shared with you before has been calculated based on the average climate figures. So the evolution of a year that would be the average of the last ten climate years, meaning that the year would be slightly better in terms of climate than the year before, which was warmer and not as cold as these days specifically. So we've been very cautious with our forecasts and the evolution, like I said is the average of last ten years.

 The -- commercial, industrial and so forth with those forecasts would go up by 4% approx and electricity generation from gas would go down only 4%, not that 15%, 20% that we've been used to in the last few years. That's why the average growth would be at around 1.4% or 1.5%. Clearly if the year ends up being colder than expected, then the demand could go up by 1 point or 2 points. But as of today, without taking into account this specific cold weather these days, we just calculated the average of the last ten years.

 More questions?

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Operator   [4]
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 (Interpreted) Next question will be by Pablo Cuadrado from Bank of America-Merrill Lynch.

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 Pablo Cuadrado,  BofA Merrill Lynch - Analyst   [5]
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 (Interpreted) Hello, good morning everybody. I have several questions for you. First, the National Energy Plan, the President mentioned already at the end of his presentation that through this year the new plan is expected for the investment horizon to 2020. Maybe he has been able to talk to the Minister in this regard. Are there any indications from him on when is the plan going to be out? Would it be the second half of the year or sooner? Just so that we know what's your calendar roughly.

 And the second question is regarding the cost of debt, that 3.3% that is forecasted for 2012. And I would like to compare that to the 2.8% reported for this year, because apparently, it seems to be quite an increase especially since you're only going to refinance EUR500m from the bond that is due in July this year. So have you assumed that cost of debt? Are you going to refinance beyond those EUR500m? Are there any comments in this regard?

 And the third question very briefly, could you give us a breakdown of the assets that you're going to put into operation in 2012, those EUR750m mentioned.

 And the CapEx for 2012, I see on the slide that that EUR550m figure includes acquisitions. Could you give us the number for the CapEx regarding investment or acquisition? Thank you.

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 Antonio Llarden,  Enagas - Chairman   [6]
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 (Interpreted) Okay, thank you very much, Mr. Cuadrado from Merrill Lynch-Bank of America. I would like to answer your questions.

 So regarding the Energy Plan for 2012-2020, as far as I've seen, yes, we can expect the final publication for the second half of the year. I think the Ministry right now is starting to undertake the first measures, the first specific measures. And they just extended the life of the Garona Nuclear Center and they also made a very important decision regarding the nuclear waste storage. Also there is a moratorium on new facilities for renewable energy. So they are making decisions right now.

 And it seems that the National Energy Plan is going to be the cherry on top for all these measures and policies implemented through the first half of the year. So that's why I think the plan will be out by the second half of the year. Of course I do not represent the government and so they will do their forecasts whenever they deem necessary.

 Regarding the cost of debt, the CFO will take the floor shortly. But let me tell you that the net cost for 2011 was 2.8%, yes. The financial curves right now would give a 3.3% cost right now. And this year yes, we do need to renew EUR500m in bonds and there are other regular renewals for our credit policies.

 This is not conservative or speculative, neither of them. If you look at debt cures right now, this is the outright number. But of course just like we do every year, we're going to beat these costs. The CFO will take the floor shortly as I said and then I will continue with the rest of the questions. Diego.

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 Diego de Reina,  Enagas - CFO   [7]
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 (Interpreted) Thank very much, Mr. President. As my President indicated already to make this calculation we have not speculated at all. We used the forecasts based on the current interest rate and we applied that to the renewals scheduled for the current fiscal year.

 Now the final evolution we do not know. No one does. But we believe that 3.3% correctly reflects the market expectations for 2012.

 As far as financing goes, it's not EUR500m. That's the bond due at the beginning of July 2012; that's the most important part. But then there are yearly, regular maturities from [ICO] and others and there's short-term (technical difficulty) facilities.

 As you know we have de-leveraged our debt from our banks and now it's one-third/one-third/one-third. And basically we've done so based on a European commercial paper plan that we deem really successful. In any case we do need to renew these credit lines this year, which is our back up and there's other bilateral bank loans pending. And because of the uncertainty in financial markets lately it's really unforeseeable to know in what conditions it will happen.

 Depending on these conditions, this EUR500m bond renewal will have a higher number probably if it happens. But in this first quarter the negotiations are still underway and they will be determining for a result. In any case, I don't think Enagas will have any problems if the renegotiation of the EUR500m bond changes and it could fluctuate up to EUR1b, no problem.

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 Antonio Llarden,  Enagas - Chairman   [8]
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 (Interpreted) Now I will move on to the rest of the questions pending answers. Regarding the assets, the main assets that we need to put into operation in 2012 are the gas pipeline, [Llanera-Otero]; Tivissa-Paterna gas pipeline as well, the central part. We need to also de-double the Almonte-Marismas pipeline, the south part of the [Marcoes de Garras] and certain delivery points throughout the country, that are also pending, as well as the start-up of the storage plant and the first test during mid-year. These would be the main milestones.

 And now regarding the CapEx, we already have a certain track record of what we do in terms of third-party acquisition. And, as part of this EUR550m, we estimate EUR150m to be acquisitions from third-party assets. Probably the final investment number will be a prudent estimate. We have not included new works. Through the year we have not included [others]. We have been very prudent.

 I sincerely believe that by the end of the year we'll be above the investment number and, probably, we will be above the assets put-into-operation number, and also we'll be above forecasts for EBITDA and net profit.

 However, this is a very volatile number -- year, given the political situation, the structural measures that are being undertaken by the government. Because of the situation as a whole, we wanted to be very cautious in our forecast so that we are able to meet our goals. And then if we do better, all the best.

 Thank you. Any more questions?

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Operator   [9]
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 (Interpreted) The next question will be by Jose Lopez from HSBC. Go ahead please.

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 Jose Lopez,  HSBC - Analyst   [10]
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 (Interpreted) Hello, good morning. I have two questions. The first one is whether you could give us more details on the regasification plant in the Canary Islands. When are they going to be put into operations and what's the calendar and just a few details?

 And the other question is the following. When you look at the results of Enagas and Electrica, there is a huge difference between the cash flow -- the tax paid on the cash flow and the tax that you're putting in your P&L account. I guess that that depends on the tax negotiations. But do you think there could be any changes in terms of tax? Do you think you could be reduced? Do you think this could have an impact on your working capital?

 And the third question regarding accounting term, I believe 2012 is going to bring restrictions on the proportional consolidation method. What impact would this bear on the EBITDA consolidation and that 40% that you have in different -- in several companies. Are you going to make any modifications? Thank you.

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 Antonio Llarden,  Enagas - Chairman   [11]
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 (Interpreted) Mr. Lopez, thank you very much for asking your questions. I will answer you now.

 First of all, the calendar that we have for project in the Canary Islands is the following. In the Tenerife plant we have all the permits, environmental permits, ready. And I was personally talking about this with the minister. And we know that the ministry has already issued the administrative authorization license, which is the last one necessary. And now it's being dealt with at the Energy National Commission. So the project will be kicked off shortly. We calculate 14 months to the start-up of the plant. So end of 2014 beginning of 2015 that's when it will start to be operational.

 Now regarding the Canary plant, the Gran Canaria plant, as you probably know, it's still pending because the competent authorities need to decide on the final location where it will be. Now once we have that decision, we will work with the -- on the project and the environmental impact assessment and then we'll start building. So I do not dare say what's going to be the schedule yet, until the final decision is made by the government.

 However the Tenerife project has started, from a technical point of view. The partners in Gascan are on the same page. And, as I said, we're only waiting for the final authorization from the National Energy Committee for the kickoff.

 And then the CFO will add more information to what I say, but just let me tell you that as far as the asset settlement policy that we have, it's correct, it does not have a direct impact on our P&L account except for the financial costs that we pencil in. But we do not think the government is going to modify this. In any case, the CFO will complement my information. Diego, please?

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 Diego de Reina,  Enagas - CFO   [12]
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 (Interpreted) Thank you very much, Mr. President. As the President was saying, we have savings in financial costs because of the corporate tax is deferred, based on the assets affected -- life cycle of the assets affected. In absolute terms, losing this would have a clear impact on our P&L account. But so far neither us nor anyone has heard anything regarding changes in this. As you very well know, this procedure incentivates the investment and we believe this would be one of the last things the government would change. In any case, let me repeat that it does not have a huge impact on our P&L account.

 Regarding fiscal consolidation, starting January 1, 2013 the conditions for the integral consolidation will change. It does not greatly affect Enagas because it will only affect the last acquisitions. And for the Al Andalus and Extremadura part, they do have the necessary conditions to integrate them into the Company through the proportional integration method. So the impact on the EBITDA is not relevant either. That's why we chose to wait for the January 1, 2013 calendar to implement this modification.

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 Antonio Llarden,  Enagas - Chairman   [13]
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 (Interpreted) Thank you very much. Any other questions?

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Operator   [14]
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 (Interpreted) The next question will be Manuel Palomo from Citigroup. Go ahead please.

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 Manuel Palomo,  Citigroup - Analyst   [15]
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 (Interpreted) Hello, good morning. I have a couple of questions. First, the cost of debt and the second regarding the gas deficit.

 Regarding the cost of debt, if I'm not mistaken, the 2013 goal was 4%. However the Company has 71% on fixed debt. I believe there may be several refinancing schedules. My question is, as part of this 71% that you have as fixed debt, is that -- are there changes to that, or are they real fixed debt and where's the increase going to come from in the cost of debt?

 And the second question is regarding the gas deficit. As the President was saying, it's a -- it depends on the situation. It's not structural and the ministry has the mechanisms to correct them, right? My question is, what are these mechanisms, what can be expected? What measures can be expected to correct this gas deficit? If I'm not mistaken, it's EUR300m this year and -- for 2012. Can you give us more details on this? Thank you.

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 Antonio Llarden,  Enagas - Chairman   [16]
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 (Interpreted) Manuel Palomo, thank you very much for your question. Regarding the debt, then the CFO will speak. As far as debt goes, let me mention that in our strategic plan, 4% of the cost of debt was forecasted for 2013 and '14. For 2012 we had forecasted 3.3%. So for 2012 we work under this hypothesis. And for 2013 and '14 in our strategic plan and our forecast, the ones we share with you when we talk of the average and so forth, we are considering 4%. Nevertheless, Diego de Reina, the CFO will expand on this.

 Diego de Reina (Interpreted) Thank you very much Mr. President. Good morning Manuel. Correct, 71% of our debt is on a fixed rate, or protected, as we say. This is part fixed rate debt, such as the bonds, and then also coverages to IRSs that, as you know, the accounting rule penalizes on the P&L account any other speculative element. The average of these elements is at three, four years in average. Why? Well, we do not want to get very far away from the life cycle or maturity cycle of our regulatory system. Our debt has a life cycle of six years approx. And the elements, coverage elements that we are doing are at around three, four years.

 When they settle, we are renegotiating them at a very good -- in very good terms. So that's why, like we do every year, we hedge for them, based on the information we have with our -- from of our banks regarding the evolution for 2012.

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 Antonio Llarden,  Enagas - Chairman   [17]
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 (Interpreted) Thank you very much, Diego. And then the second question by Mr. Palomo regarding the gas deficit, yes, it's interesting to mention this. I believe that oftentimes in the energy sector there is a lot of noise, information noise and uncertainty; one uncertainty that there should be actually.

 In the gas system in the last seven/eight years we've seen every year a small deficit or surplus. Why? Well, due to how the administration calculates the tariff. First they divide the cost of the system through the year by the demand expected. How do they calculate costs? Well it's fairly accurate. The administration knows at the beginning of the year, to a 99.9% probability I would say, what are going to be the costs. But the demand, well, the forecast is much harder to do.

 For 2011 specifically what happened was that the demand expected by the regulatory bodies at the beginning of the year was 7% higher than what actually happened. Or, if we say it the other way around, the actual number was 7% higher than the forecast. That's why there was a deficit, an overall deficit. But we insist it's not a structural deficit.

 And now, expanding on this, in 2012, something that's also unusual happens. Three infrastructures, underground storage infrastructures, come into operation. One of them is very important from a technical point of view, investments and so forth, Castor. The other one, ours, are all in Yela. It's -- the investment is just the construction work, EUR200m plus. And the third one, the storage for natural gas in Marismas, I don't have the number, but it's also small.

 So these three storage facilities coincide in time in 2012. This is not going to happen ever again. It's not foreseen in the next seven to eight years three heavy load, infrastructure coming into operation at the same time. And one of them, from a financial point of view, does have certain impacts. So, theoretically, in 2012 this could have an impact on the costs, compared with demand, higher than expected.

 The mechanisms of the administration are in place. And it's really not my role to mention this, but it's -- the deficit or the surplus that we have every year may in some way be transferred to the tariffs of the following years proportionally. So the administration does not have to increase the tariffs one year and then decrease them the next, but just make them even over the years. In any case, it's not my role to give instructions on how this is going to be done. But rest assured the administration is very well aware of these issues and I'm sure they will have a perfectly reasonable solution for this.

 In any case the tariff costs we are talking about, were 10% of the gas turnover. That is 90% is [other]. So talking about structural deficit in the gas system would not be correct. There is no structural deficit. In fact, every year there has been a surplus or a deficit but it's solved in the following years.

 Thank you very much. Any other questions?

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Operator   [18]
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 (Interpreted) Next question will by Gonzalo Sanchez from BPI. Go ahead please.

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 Gonzalo Sanchez,  BPI - Analyst   [19]
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 (Interpreted) Good morning, everyone. I have three questions. First of all, regarding acquisitions, the potential acquisitions in coming years of core business activities, I'd like to know if there is any type of already pre-set objectives regarding these acquisitions? Have you identified any potential acquisitions? And if that is the case, where and what type of assets is the Company looking for for 2012?

 Secondly, regarding the investments of the 2014 strategic plan, these are about EUR700m of investment in 2013 and '14, based on these years' objectives. And I'd like to know what is your forecast regarding these investments? Would you have any hindrance in order to meet this EUR700m goal or is there going to be any potential deviation?

 And lastly regarding exploited or operating asset remuneration, do you think there is any type of risk of changing the benchmark for the financial remuneration as it's been done in Portugal, based on an excessive growth of sovereign debt cost which may lead to all the remunerations for -- higher remunerations, as opposed to the real cost of capital of the Company? Thank you very much.

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 Antonio Llarden,  Enagas - Chairman   [20]
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 (Interpreted) Thank you very much Mr. Gonzalo Sanchez. First of all regarding your first question, as far as we are concerned, our tradition is never to comment on these issues until the full transaction is closed and finished. But, first of all, I can tell you and assure you that this is one of our top priorities and we've been working in this respect for the last months and we will keep you posted. But you will realize that this meets the Company's track record. And also the figures are similar to those that I have mentioned, the average figures that we tend to use to do additional investments of about EUR250m, EUR300m investment in these type of assets. But we will keep you posted nonetheless.

 Regarding 2014 visibility, as you've probably seen in this presentation, regarding the figures and when it compares to the presentation of the last three months, we've reached 82% of the investment. So we only have an 18% remaining in order to commit or to meet the investments plan. And, hopefully, in 2012, '13 and '14 we will receive this remaining 18%, in additional permits, to implement the project.

 As far as we see it, we don't think we need to modify this figure. And certainly we hope to have a new energy plan in place. But, as I always mentioned, this energy plan will allow us to know what can we do from 2015 onwards. To summarize, investment plan goes in line with our track record. There are no news. The only news is that, on a quarterly basis, we are increasing this compliance percentage.

 Regarding the remuneration, we are not expecting any changes whatsoever. First of all, because, if you remember, every asset, based on the implementation data, has remuneration allocated to it. And therefore assets have the retribution according to the last year's average. Secondly, the ten-year Spanish bond is now in line with the average of the last year. On the other hand, weighted average cost of our capital is increased. And therefore we are not obtaining any special benefit of this more expensive, ten-year Spanish bond. If the change was to occur, well this will not affect previous years or the following years. But lastly this January 2012 revenue maintains the same scheme. Therefore we do not think that the Portuguese scenario will occur in Spain, because the costs are radically different.

 Thank you very much. Any additional questions? Yes.

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Operator   [21]
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 (Interpreted) Jorge Alonso will ask the following question, Jorge Alonso from Societe Generale.

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 Jorge Alonso,  Societe Generale - Analyst   [22]
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 (Interpreted) Good morning, ladies and gentlemen. I have two questions. First of all regarding the work in progress, what is the figure that you are considering, the figure that you are reporting at the end of the year? Are these assets under construction that are not being remunerated at the moment?

 And, secondly, regarding your provision, in your balance sheet I've seen that these have been significantly increased from EUR34m to EUR91m. Can you please explain the reasons behind these entries and what is going to be the evolution?

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 Antonio Llarden,  Enagas - Chairman   [23]
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 (Interpreted) Thank you very much, Mr. Jorge Alonso. First of all regarding the year-end debt, these EUR3.3b, well, approximately EUR800m or EUR900m correspond to work-in-progress debt. This is only approximate because I don't have all the calculations with me, but this is approximate. We have an industrial cycle that's even higher every year. So the end of the fiscal year does not always correspond to what we currently have on the portfolio because our average cycle, from the cost point of view, is between three to four years; we can start an engineering project then the building and then the work. So these would be less than EUR1b.

 And regarding the specific question about the balance sheet provisions, I'll give the floor to the CFO so that he can reply to this question.

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 Diego de Reina,  Enagas - CFO   [24]
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 (Interpreted) Thank you very much, President. The increase in provisions reflected on the balance sheet have to do with the natural evolution of the last incorporations. These are cost provisions included. Because of lack of information, they are cancelled at the beginning of the fiscal year and they are replaced by real cost. This is not a cost increase. Thank you very much.

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 Antonio Llarden,  Enagas - Chairman   [25]
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 (Interpreted) Thank you very much. Any additional questions.

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Operator   [26]
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 (Interpreted) Javier Garrido from JPMorgan will ask the following question.

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 Javier Garrido,  JPMorgan - Analyst   [27]
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 (Interpreted) Yes, good morning. Only two questions left. First of all regarding the Castor storage, when are you going to put in place your -- when are you going to exercise your purchase offer and what is amount behind?

 And can you [deepen] on the debt maturities for the next three years, until 2014?

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 Antonio Llarden,  Enagas - Chairman   [28]
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 (Interpreted) Thank you very much for your questions, Mr. Garrido. I'll reply to the first question and then I'll give the floor to the CFO.

 Regarding Castor storage, Enagas strategic plan has foreseen our entry as shareholder in 2013. And there is a reasonable period of time, some years, even one, one and a half year, in which the regulating authority will give the final operating permit and the regulating value. And this is precisely when we should enter, whenever the administration recognizes the existence of this asset and they allocate the corresponding value. And therefore the quantity will be set by the administration and Enagas is quite neutral in this respect. We abide by what the public administration regulates. And in the next 30 to 40 years we will abide by this, but we believe that this will take place in 2013.

 Regarding the debt maturity, I'll give the floor to the CFO. Diego, please.

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 Diego de Reina,  Enagas - CFO   [29]
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 (Interpreted) Thank you very much, dear Chairman. Good morning, Javier. Regarding the 2013 and '14 debt maturity, there are no special -- or specially concerning [net] maturities. We had a debt maturity in 2009 of EUR500m and this won't mature until 2015.

 Truth is that Enagas has a liquidity ratio that's quite high. And in this last fiscal year was above EUR2.1b. Maintaining this liquidity will be highly determined by the infrastructure plan that will be approved in the incoming year. And, perhaps, we'll modify this liquidity ratio based on the plan. Therefore, perhaps, we do not need to maintain this level, surpassing this EUR2.2b, and then we will consider what is the current refinancing volume that we need to meet in order to maintain a financially comfortable situation. Thank you very much.

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 Antonio Llarden,  Enagas - Chairman   [30]
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 (Interpreted) Any additional questions? We are going to ask --

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Operator   [31]
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 The first question comes from Olivier Van Doosselaere from Exane BNP Paribas. Please go ahead with your question.

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 Olivier Van Doosselaere,  Exane BNP Paribas - Analyst   [32]
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 Yes, thank you. Two questions on my side. First of all, could you please indicate what the return target will be for foreign LNG investments like the one that you have made in Altamira. And could you please clarify, if I understood correctly, that you expect to make, so beyond 2012, EUR250m to EUR300m investments in third-party assets, and if that is actually included in the 2010 to 2014 CapEx plan.

 And then, secondly, could you please also provide a breakdown of the 18% of CapEx that has not yet received approval in the plan today, between what is pipelines, what is regasification and what is storage. Thank you.

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 Antonio Llarden,  Enagas - Chairman   [33]
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 (Interpreted) Thank you very much, Olivier Van Doosselaere. In general terms, our third parties asset acquisition will be expect to have a double-digit return, in general terms. Specifically speaking about 2012, our investment figure will be around EUR150m. And in the last two years we had an average amount of investment that was very similar in line with this EUR150m. But, in principle, regarding these type of projects we are looking for a double-digit growth, on average; double-digit growth return.

 Regarding this remaining 18% pending from the last permit, 100% come from gas pipelines.

 Thank you very much. No, this is the very last question. Thank you very much for your contribution and should you have any additional questions, please do call Investor Relations. Thank you very much,

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Operator   [34]
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 There are no more questions. Thank you.

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Editor   [35]
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 Portions of this transcript that are noted "interpreted" statements on this transcript were interpreted on the conference call by an Interpreter present on the live call. The Interpreter was provided by the Company sponsoring this Event.






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