Q3 2013 Gas Natural SDG SA Earnings Conference Call

GAS.MC - Gas Natural SDG SA
Q3 2013 Gas Natural SDG SA Earnings Conference Call
Nov 05, 2013 / 08:30AM GMT 

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Corporate Participants
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   *  Rafael Villaseca
      Gas Natural SDG SA - CEO
   *  Antonio Basolas
      Gas Natural SDG SA - MD Strategy and Development
   *  Carlos Alvarez
      Gas Natural SDG SA - CFO

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Conference Call Participants
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   *  Javier Garrido
      JPMorgan - Analyst
   *  Pablo Cuadrado
      BofA Merrill Lynch - Analyst
   *  Virginia Sanz
      Deutsche Bank - Analyst
   *  Carolina Dores
      Morgan Stanley - Analyst
   *  Javier Ruiz
      Macquarie - Analyst
   *  Sonia Ruiz
      Bankia Bolsa - Analyst
   *  Javier Suarez
      Mediobanca - Analyst
   *  Jorge Alonso
      Societe Generale - Analyst
   *  Alberto Gandolfi
      UBS - Analyst

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Presentation
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Unidentified Company Representative   [1]
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 Good morning, everyone. Before we begin I wanted to point out that our Company has a reference point in terms of health and safety and that's part of our social and corporate responsibility program and we've got a health and safety five principle program which you see on the screen. Nothing's more important than health and safety. All accidents can be avoided. Safety is the responsibility of the management; it's also an individual responsibility and all work must be planned and carried out with safety in mind.

 So within this program and plan, one of the first things that we decided to implement is to begin by giving instructions in terms of what to do in the case of an emergency. Thank you very much.

 After the health and safety instructions we're going to start the presentation of the results of the Company to September 2013 and the strategic update and the presentation is going to be given by Mr. Rafael Villaseca, our CEO, and the CFO, Mr. Carlos Alvarez and the General Director for Strategy and Development, Mr. Antonio Basolas.

 We're going to start -- after the presentation we'll have a Q&A session beginning in the room and then we'll continue with those who followed us on the phone or via webcast. I'd like to say that we must finish at 12 o'clock today because of our schedule. I'll pass the floor to Mr. Villaseca.

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 Rafael Villaseca,  Gas Natural SDG SA - CEO   [2]
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 Good morning, everyone. Thank you for coming to our presentation of results and our presentation of our strategic plan. I'm going to begin by presenting our results and then I'm going to give you the updated strategic plan and then I'll take your questions.

 If we look at the most important data of the Company, by September we can see the stability of our results which indicate how strong our business model is. Our net income has grown by 0.4%; it's EUR1.1b as a result of the good progress of our international businesses. EBITDA has gone up to EUR3.86b. All of that in spite of the impact of disinvestments and the regulation -- new regulations that have been introduced by the Spanish government. Thirdly, investments have grown by 10.5% up to EUR908m, mainly as a result of investments in Latin America. And finally the debt is still going down. It's gone down by more than 5% and is now or by December 31 last year was at EUR15.1b. Had we taken away the deficit that we haven't securitized yet, it would be EUR14.8b and we've securitized EUR290m out of that amount after the closure and after these data.

 As regards the most important issues, if we begin with the gas markets. We've got to indicate that we've signed with the Shah Deniz consortium for supply -- Shah Deniz project, a 25-year 1bcm p.a. gas procurement contract. And the consortium is going to make its final decision at the end of the year and this will be gas that will be distributed in Italy so it will cover the Italian market and maybe the Central European markets.

 We've also continued with the expansion internationally and we've incorporated Korea, a final market in Korea. We've signed a two-year gas supply contract with Kogas. But we must also say that, as we said, we have signed with Repsol two contracts for medium and long-term gas sales, 2bcm p.a. between 2015 and 2018 and 1bcm over 20 years from 2017. And we've signed with the Yamal Russian project business for a new LNG procurement contract for 3.2bcm.

 Now as regards the most relevant data for Latin America, we've renewed the concession for electricity distribution in Panama for the next 15 years so that consolidates our presence over there. And we've been awarded the concession to distribute gas in Arequipa region in Southern Peru. Arequipa is the second-largest city in Peru. And we are developing generation projects, wind generation projects in Hioxo in Mexico and the Torito hydro plant in Costa Rica for 50 megawatts. The first one, 234 megawatts, we hope to have going by the first half of next year and the second one by the first half of 2015.

 As regards the highlights, financial highlights, we have to point out that we've continued with the business management. We issued in October a medium -- a 7.5 year bond of EUR500m with a 3.5% coupon. That increases the weight of capital markets in our financing; it lengthens the debt of our -- the life of our debt, improves our payment dates and improves liquidity. At the end of October the Company refinanced a five-year operation with a loan, revolving credit facility of EUR1.5b and EUR750m loan.

 FADE has -- the tariff deficit securitization is back on track with the new FADE issuances for about EUR2b in September and EUR2.1b in October of which our Company has collected EUR275m and EUR290m respectively for both securitization programs. We have to underline the regulatory issues that have affected us. You know on July 12 the Royal Decree Law 9/2013 was approved with a series of measures that affect the financial stability of the electric industry, regulated mainly, which has caused a situation where in the third quarter of this year our results have been affected by EUR50m.

 Our estimate as regards this measure which was about EUR90m is of course preliminary because we don't know yet details, clarifications, specific details about a series of things that have not yet been decided by the government. So we're waiting for those legal measures to be finally introduced but we think this is more or less what we can expect.

 As regards our international operations, I've got to point out that there's been a good performance in this area and this is key for our results. Our international activities have already led to 44% or account for 44% of the Company's EBITDA. That's EUR1.7b. Out of that, 57% is activities in Spanish America, 34% gas activities in external markets and regulated activities of distribution in Europe account for 6% and then there's another 3% that goes to other activities that we're doing.

 So it's once again important to point out the important -- significant diversification of our EBITDA and the growth that we see in the next slide of our international operations whose EBITDA has grown above 5%. And that makes up for the bad situation of the business in Spain, especially generation but also distribution -- transmission.

 Now, as regards Spanish America, it's very strong. Our operations are very strong. You can see that the growth as regards the previous year has been 4% although in local currency it would have been 11%. Variations, volatility in exchange rates have led to this lower level of growth but it's not significant.

 The sale to our wholesale markets, international wholesale gas markets, has grown and the EBITDA there has gone up by 6.5%. So there's been a good behavior of all our international operations.

 We must also point out that in our generation of EBITDA, those EUR3.86b, gas has grown significantly and has reached EUR2.2b, that is 58% go to gas; electricity generated EUR1.54b, that's 40%; 2% was the remaining amount and that has to do with activities all over the world both for gas and electricity. Our gas businesses have grown more than anything else, as you can see on the right of the graph, where you see that they've grown by 4.4% while our electric businesses have gone down by 5.5% due mainly to the bad progress that the electric sector has made in Spain and the regulatory measures that have been approved by the government. Gas -- the growing weight of gas has allowed us to make up, especially internationally, for these bad results in Spain.

 It also must be pointed out how big -- we must also point out how big our organic growth potential is. We believe that these must be the foundations for our immediate development. The distribution or connection point market in Europe has grown by 1.2% in spite of the crisis in Spain and has reached 5.6m connection points in September. In Spanish America the growth is much higher. Gas distribution has grown just under 4% in connection points and 15% in sales. So that's more than 6.2m supply points and 173,000 gigawatt hours in sales in the region.

 In terms of electricity distribution in Spanish America, Panama and Colombia show clear signs of growth with an increase of 6% and we sell more than 12,000 gigawatt hours in the same period in that area.

 Now if we look at the consolidated income statement, you can see that the margin and the EBITDA of the Company have grown by 3.4% and 1% respectively. The taxes have gone up from EUR216m to EUR408m due to the measures introduced and approved by the government at the end of last year. Amortization has gone up by 17% as a result of our deterioration in the Damietta plant which we told you about in the past presentation. And that leads us to profit of EUR2.2b. That's 2.6% less than last year but we must remember that the statements have been put in order in accordance with the law of 2012. That gave us EUR109m fiscal loan which has allowed us to reduce our effective and positive rate from [24%, 25%] to 22%. So after taxes and other expenses the net profit of our Company is EUR1.1b which represents an increase of 0.4%. So that's registered in our results.

 If we look at the EBITDA breakdown, distribution in Europe is stable at 2.7% for the case of gas. This includes our growth in Spain and Italy and we've got to underline the fact that in both places and in Spain the connection points continue to grow in spite of the crisis, especially in the real estate market. But there's a decrease of 2% in the electric distribution sector in spite of our huge effort and due to the regulations introduced by the government.

 The EBITDA for the electric business has gone down by 10% and that's as a result of the general situation of the market and the regulation measures. So the EBITDA in generation and marketing or trading in electricity has dropped by 11% and is just under EUR500m. And the special regime due to regulations too has dropped by 4.5%.

 As regards the gas activity, Union Fenosa Gas or rather including UF Gas, has been an increase of 3% in the EBITDA but UF Gas for known reasons has dropped by 58%. Our gas infrastructure business has gone up all over the world and our wholesale activities in the world with a growth of 24% in wholesale operations. So that underlines how sound our business is in the world.

 The EBITDA for Spanish America has grown by 12%, 11% in local currency and it's based on all businesses. Electric distribution however has dropped by 9% because of the deconsolidation of Nicaragua, rates of exchange and updating rates in Colombia. So the joint EBITDA has gone up by 1% as regards the same period for the previous year.

 Now, as regards our consolidated investments, they have increased by 11% basically as a result of all the investments in generation, distribution of gas and electricity in Latin America and we continue to adjust our investments in Spain which we've spoken to you about at other presentations. 55% of the investment still takes place in Spain, 45% international, but international investments have grown by 38% which gives you a clear idea of how we're moving forward and what our growth will be in the immediate future.

 Now as regards our profile -- debt maturity profile, here you have it. Our net debt is EUR15.2b and we've continued with our efforts to refinance, expand and increase our period of payback. We collected EUR275m from FADE at the end of September and we got the bonus of EUR500m from the club deal refinancing operation which was EUR2.5b. That was in October. So if we take -- if we look at all that, as from 2017 our needs are covered for five years up to 2015 inclusive.

 So all this, our debt structure we think is very well balanced and the profile is really very well balanced. Almost 80% of our debt is a fixed rate of interest debt and very competitive. 86% is in euros and 65% is on the capital markets. So that continues with our process of diversifying our debt.

 We should also remember that at the end of the considered period our liquidity reached EUR11.11b. That's enough to cover 24 months. This liquidity can be broken down into EUR4.4b in cash and EUR7b in loans which includes EUR225m that were not considered under the recent loan we got from the European Investment Bank. The Company also has an additional EUR3b in capital markets and then we've got the FADE issuance of EUR290m in October. So we are still very proactive in this area and we've got high levels of liquidity.

 As regards securitization of tariff deficit, we collected EUR115m (sic - see slide 18 "815m") in the period as a result of FADE securitization of debt including EUR1.65b (sic - see slide 18 "EUR1.065b] that we got at the end of September and EUR87m that were collected as of September 30. But we've got EUR621m more in deficit and that's new deficit, because of what built up last year and the new deficit this year. So as of September 30 the pending amount we had was EUR784m. So if we bear in mind that in October we securitized a lot of that the pending amount which were owed still is EUR494m.

 And all this has allowed us to have a very sound capital and financial structure, as you can see in the ratios. The FFO to net debt ratio was 24% before the deficit -- tariff deficit and 25% after the tariff deficit. And the net debt to EBITDA ratio is 3 times more if we look at pre-tariff and post-tariff deficits. So we've got a diversified debt maturity profile; we've got 79% fixed interest rate and we've had a competitive cost -- our debt has a competitive cost of 4.2%.

 As from now we'll have to bear in mind the impact of the new rules and regulations -- accounting rules -- that will be applied as from January 1 2014. Joint ventures will be accounted for using the equity method. And that will affect the accounting of our operations of Union Fenosa Gas, Ecoelectrica and Nueva Generadora del Sur. So if we apply that to the debt we'd be talking about EUR406m. EBITDA would go down by EUR175m, investments by EUR27m and of course net income would not be affected.

 Conclusions. Well, as regards our results we can continue to say that we have a sound and reliable performance supported by international growth despite regulatory changes and contingencies and the volatility of markets. The EBITDA and net income are growing in spite of the regulatory changes in Spain. We're making up for it through efficiency in international business. EBITDA has grown by 1% and net income by 0.4%. We continue to deleverage and lengthen the average life of our debt and we are consolidating our presence in the international gas wholesale business with new gas sources and end markets.

 That's the end of our presentation of results. Now and with the help of my colleagues we're going to explain the updating -- the strategic update for 2013-2015 and the vision for 2017.

 We're going to start the presentation of our strategic plan in these sections, market environment, Spanish regulatory update, our strategic priorities, our financial priorities and how we're -- what we're going to base our growth on as from 2015. Our aspirations will more or less give you an overview and then at the end of that we'll give you our conclusions then we'll go to the Q&A session.

 Now as regards the situation of the market, we must say that there are four aspects. We believe that there's going to be an improvement in the macroeconomic situation in Spain. We continue to have growth prospects in Spanish America. There's an attractive evolution of the global gas market and finally we need to invest significantly in electric power generation in emerging markets.

 As regards macroeconomic data for Spain, you know them well enough, but we believe that there are signs of improvement and we hope it's going to get better. GDP will possibly go into the black and the deficit -- public deficit will go down and the demand for electricity I think will hit its -- will bottom out and will then gradually grow as from next year.

 As regards Spanish American countries, we believe that things are going to continue to go well with stable continued growth in general terms of 4% a year and we also hope to have a greater stability this year as regards the exchange rates between the different currencies.

 The growth of electricity and gas demand in these Spanish American markets will continue and is going to give us significant opportunities for growth and this will be both in the gas market and the electricity market, one of the bases of our short and medium-term strategy. The global market for gas will grow over the next few years with a clear potential for growth in Asian markets and Spanish American and Middle East markets will continue to grow at 3%. More mature markets we think are going to have more moderate growth rates but positive in any account -- at any rate.

 This issue -- this question of the growth of gas markets is another of the pillars of our strategy. We hope to have a very attractive situation in LNG in the next few years which we think will grow into 2017 at about 4% a year. And then there'll be high demand for Asia; the growth there will be about 5%. Spanish America and Mexico, Chile, Brazil and Argentina will continue to be of importance and high demand in LNG.

 With regard to international prices, we're observing that there's a decoupling between the international prices with regard to the American market and that of Europe and Japan or the Asian market rather. We believe that there could be certain convergence between the European and Asian markets on the midterm but there's still differences with regard to the North American market. Obviously this will offer business opportunities for our Company in the LNG market.

 With regard to the emerging markets, it's worthwhile highlighting that these countries will need investment in generation due to the development of the countries and therefore they will have higher electricity demand. We see that important demand for more output in Asia, the Middle East and Latin America in figures that are around 2.5% and 5% yearly for the next few years. This new capacity will be defined more in Asia, Latin America and the Middle East and we see this is very clear for at least the year 2025.

 With regard to the regulatory situation, well you are well aware that the government measures that were put into effect in July 2013. The government has considered some measures against the tariff deficit and we hope that this will have a success that it should have. The amount that the government considered in the different measures that were published when they approved the RDL 9/2013 is around EUR4,500m apart from the other measures that have been envisaged the previous year.

 So the different players in the market means that this is going to affect the general budget. So 50% of the extrapeninsular cost should be absorbed by the budget and also the electricity tariff had an increase in August and there was a reduction in the payment for interruptibility of the service and reduction of the self-consumption incentives.

 But without a doubt the electricity companies, both renewable electricities and the non-renewable ones, are the people who have been affected in the most detrimental manner by these government measures because they have new payment measures for renewables and the cogenerations and also for the management of the capacity and the social bonus which will be financed now by the electricity companies.

 So this leads us to this summary of the measures that were adopted in years 2012 and 2013. The total is EUR10.7b per year of which EUR2,400m have been those that have been due to the subsidies reduction. I think you're well aware of the fact that this year in 2013 possibly the amount of subsidies in the electricity sector will reach EUR11b or EUR12b in subsidies. EUR2,400m will be reduced by the item related to renewables and the total amount will be about EUR9,500m and they will be reduced by a considerable amount down to this EUR2,400m. EUR900m, as already been said, will be paid by the budget; EUR3.1b are new taxes, EUR2.05b are the increase of the prices and EUR2.2b will be paid by the traditional companies with a strong impact on the distribution business, EUR1.2b, and also the combined cycles will suffer EUR430m impact.

 So what is our opinion on all this or how will this have an effect? What's important to highlight, the positive aspects, because it is trying to solve an endemic and continued problem within the Spanish economy which is the tariff deficit, by establishing as from January 1, 2014 automatic adjustment mechanisms which we really hope will now be able to strike this balance. We will not be able to introduce new costs without having the income and we think this will then mean that there shouldn't be more or further deviation and if they are they will be financed by all the companies that get regulated income, not like the situation at present. And finally, all this there will be certain schemes for the regulatory income and it seems there'll be reasonable return for this and there will be a regulatory framework to be able to manage this self-consumption.

 With regard to negative aspects, we would like to highlight the fact that they are now going to make -- well, now the electrical companies will have to support the problem created by political decisions. So all these subsidies that have been decisions from all different governments and that is one cause of all the problems that we're having to face today and so there are several companies that will have to pay for all these amounts. So when we're talking about the regulated business what this means is that now there will not be more progress in the balancing of the sector. But now we're talking about the capacity balance, it means when there is a need of a payment for the different capacities from the combined cycle this means that there is a need for the back-up services for these units to ensure the sustainability of the system.

 Electricity companies will now have to fund this social bonus. There's a High Court judgment on this because it said it wasn't their responsibility. So now it does seem that certain items that are pending in these reforms will be looked at in the next few months.

 So what is the impact for our Company to implement these regulatory measures for the year 2014? Well, this means that there will be a reduction of EUR600m in our results as a result of these three royal decrees which cover the majority of these measures that have been implemented by the government.

 It's important to talk about the gas and electricity tariff deficit. Here you can see here the blue is the electricity tariff deficit and the [blue] is [gas] and you can see how important this is and there's a big difference between both of these different fields. In the gas sector it's just a temporary situation and it really cannot be compared to the figures that we can see here for the accumulative figures for the electricity tariff deficit. So it's easy to solve the gas problems and we think comfortable measures will be implied.

 What is important to highlight is that there are important structural differences that are important with the electricity and the gas distribution. Well, what is important, I would like to -- that the electricity distribution is one that is a universal service and it has to give service to all the connection points wherever they are but the gas is completely different. In the gas distribution it's different; it competes with other fuels, which means that there are important gasification projects available in Spain which will allow us to grow. And it's significant to see this when compared to electricity markets.

 Secondly, the distribution or the gas distribution activity has to take on certain risks that the electricity sector doesn't have and this is paid in a negative manner based on the historical data depending on the variation of the demand. And according to this variation of the consumption of the demand to the connection points that are installed and uninstalled as well as the consumption. So there is obviously a risk in the market because you have to take into account the current situation, the reduction of the consumption and the reduction of the connection points because there's a lack of growth and also because a lot of connection points have now been closed which means this will affect the remuneration. So there will be a special mechanism which will adjust the market.

 And finally what is important to highlight, the gas distribution enables a reduction in the tariff deficit for gas i.e. the more connection points that are working, just the fact there are connections, it automatically reduces the tariff deficit by about EUR90 per connection point i.e. the customers who connect into the gas they contribute income to the tariff deficit so there is no doubt whatsoever that the growth of the industry, not just the ones that we've already got installed but the new connection points which I'll explain a little bit later on. This helps to reduce the tariff deficit but this circumstance isn't applicable to the electricity sector.

 And finally to talk about these things, it's worthwhile highlighting the evolution of the different costs for the gas market. There are two major blocks for the cost. One is due to the basic infrastructure i.e. regasification and the underground storage and transport and also the distribution. Last year, in the year 2012, the basic infrastructure cost EUR1.475m (sic - see slide 19 "1.457m") and the distribution added EUR1,579m which is about half and half. But this year know the distribution for the reasons that I've already mentioned is going to reduce or we estimate there's going to be a reduction in EUR1.475m whereas the basic infrastructure will be EUR1.758.

 But what is important, and if you look at the figures for the years up to the year 2013 estimated, the costs in infrastructure, so therefore everything except distribution, have gone up 148% and the distribution costs have only gone up 16%. This is important to compare this because the basic infrastructure really covered the entire demand and that went down 13% so therefore over this period of time the basic infrastructure went up 148% and the demand went down 13%.

 However, as you know, the distribution only is part of the traditional market but it's not -- doesn't cover the combined cycle market. So during this period the distribution increased its cost in 16% and the demand went up by 9%. But this is all in nominal terms obviously.

 And we could analyze this in this next graph here to explain the situation. In the period 2002 to 2012 the nominal growth of the cost for the distribution per connection point went up 3%. However, in the deflation in constant terms it went down 21% so therefore, it's very clear here the efficiency when we're controlling the costs which have been done in the gas distribution market and at the same time the relative weight that it has in relation to the investment problems and also the fact that the demand in gas distribution has grown even in the midst of a crisis, as we can see here.

 Well, leaving that issue and now going to the next one, talking about our strategic priority. What I would like to say is that in our 2013-2015 strategic plan which is a plan that we would like to commit ourselves to together with all you. And we think there are three major strategic priorities. First one, to execute the efficiency plan and also to manage each line of business according to the market conditions and also to manage our business portfolio based on our strategic strategy. So we would like to look at these three points.

 So the first one is the efficiency plan. Well, years ago we had started to introduce these efficiency plans starting with the merger with Union Fenosa and we have now launched a plan to get EUR300m in efficiency over the next few years, EUR300m which have been specified in 300 different initiatives which have been grouped into 90 different projects and they affect operations and maintenance, the trading and the structure -- the corporate structure. For this year 2013 of these EUR300m we expect to have achieved EUR100m. Without a doubt this plan is one of the major pillars for our strategic results between 2013 and 2015.

 As I have said, of the EUR300m 35% will be related to operating and maintenance cost. The 30% will come from the commercialization cost and 35% will be from the corporate costs due to certain key initiatives and policies that we are now going to look at.

 So now let's look at the strategic priorities and I'd now like to give the floor to my colleague Antonio Basolas who will now explain this.

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 Antonio Basolas,  Gas Natural SDG SA - MD Strategy and Development   [3]
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 Thank you very much, Rafael. When we're talking about the strategic priorities we would like to start by explaining a little bit about each one of the major lines of business and how we expect them to grow with EBITDA through the year 2015 and what investment policies we are going to follow.

 With regard to the gas distribution in Europe, we are going to continue seeing that there is a growth possibility, organic growth potential in the Spanish market. We will then develop this a little bit further and then we're going to continue to manage the regulatory aspects as well as we can. With regards to the electricity distribution, we can see there's going to be stagnation due to the adjustment and we think that there will be a reduction in the investments taking into account that the current remuneration system for new investments does not incentivize any investment in the next -- over the next few years in the Spanish market.

 As far as the generation and commercialization, we think there's going to be an important reduction in the results due to the regulatory adjustment that has already been mentioned by our CEO and also we're going to adapt all our investment policies, the operation and maintenance cost, to this new scenario and this new electricity environment.

 When we're talking about gas which is a liberalized international market we are now seeing that there are growth potential opportunities based on our LNG platform as well as new energy services that we're going to be launching and increasing or launching to the market. Also the retail market we believe we are going to continue to envisage a growth from our dual fuel customers, also from the energy services customers and also products that are related to energy efficiency and added value which will allow us to continue to develop and grow in this retail activity over the next few years.

 And finally, Latin America. We have good potential there which we've seen as far as the macroeconomical growth potential for energy and gas demand. We continue to believe that there are great opportunities there to continue to offer gas to the area and improve our distribution for electricity as well as how we operate our power plants and also the new ones that we're going to commission soon within this strategic plan. As I say we really believe there is potential for growth there.

 If we now concentrate initially on the gas distribution in Spain, as I've already said, we believe that Spain still is a market that is not yet mature with regard to gasification with 27% of homes or areas are gasified. And this is compared to other countries around us like Germany which has 48% of gasification or Italy which has 66% or even the UK which is 85%. So for this very reason we believe that there are still opportunities to ensure that this grows over the next few years and we're going to go from 7.4m connection points that there were in the 2012 to 9m connection points in the year 2020.

 This means there will be a growth of around 2% between 140,000 and 200,000 new connection points per year and this means that taking into account that Gas Natural Fenosa has between 65% or 70% of this market share that will be the growth quota that we would need to get over the next few years. We believe here that the competivity of gas facing other fuels is very competitive. So we should continue to exploit this and to replace the gas oil boilers for these gas boilers. And so this will continue to support the gasification for new areas especially.

 In the Italian market you can see the concentration process for Ambiti and today you can see it's more the 6,500 concessions. We want to reduce this to a 177, what they call Ambiti. The EBITDA of operations is around EUR80m per year with 450,000 connection points and where apart from the distribution of the gas business we're including all the gas retail commercialization in Italy, which is a business that has been growing exponentially over recent years. And at the moment it has very good profit margins.

 We are in the southern area and there we will participate in the consolidation process for Ambiti. But as far as commercialization is concerned we are present in what is the [American] market which is in the southern area and also in the northern area.

 In as far as financial objectives for this business our targets, you can see that we envisage a growth in EBITDA which will go from EUR983m for the year 2012 to reach around EUR1.1b for [2005] with investments that grow slightly [in order] to be able to implement this gasification program. But the net growth after all the people that turn off their connection points of 100,000 connection points additional per year and the investments will be about EUR350m on average per year.

 Now if we talk about the electricity distribution, as you know, our market share in this business is 13%. In the Spanish market this business has got an EBITDA just above EUR600m and this has suffered a decrease, an important decrease of around 20% with regard to a previous year. But it is continuing to have cash flows that are stable and they give us visibility to the results for Gas Natural Fenosa.

 However if we look at the next slide here, we can see that there has been a change, future regulation change which is important. We're talking about capital cost for the remuneration for this regulated activity. You've seen that we have gone from a concept of remuneration through this Special Royal Decree of 9/2013 for the investment which has gone from 6.5%. We don't think this is logical, this is the -- what we want to do is adapt all our investment policy to take into account the return on this new situation and so if it actually ends up as planned we'll anyway take it into account.

 Gas Natural Fenosa is one of the most efficient operators in Spain with regard to the operation and maintenance costs for the distribution business, for electricity here in Spain. And as you know on average, I'm talking about the regulatory systems, we are one of the most efficient operators which means that we can have extra profitability if we compare our Company with our competitors. And we are going to continue to implement an efficiency plan which is going to be an important one in this segment of the business and to adapt ourselves to these new circumstances and to try and to offset the regulatory impact for these new measures that were introduced in the year 2013.

 If we look at our business in Moldova you can see we have been growing there in EBITDA terms in the stable way over the last few years. We've gone from EUR20m in the year 2011 to EUR35m of EBITDA in the year 2012. And we have had an important reduction of losses. We've gone from 14% of losses down to 12% and this is very important. And also the electricity demand from Moldova has grown and the business is still generating a stable cash flow and a predictable cash flow.

 Well, to summarize in economic terms, what we are seeing is -- what we envisage between 2012 to 2015 is a stable EBITDA, around EUR650m where we will have to highlight the part related to cost reduction. To be able to absorb the impact of the new regulations, what we are going to do is carry out an investment policy that is much more demanding and reducing the annual range of [EUR219m] per year which we've been doing previously to [EUR160m] with a predictable cash flow.

 But we do have to adapt our investment policy and our cost policies to these new regulatory circumstances and market circumstances. We also envisage that the electricity demand between 2013 to 2015 will not grow up in an important manner. And therefore it will not be necessary to carry out important investments.

 On the mid-term obviously everything related to smart metering and smart energy will give us important opportunities to invest. But on the short term we believe that we will be slowing down these investments taking into account the current market conditions.

 Now if we talk about electricity generation on the left-hand column you can see the breakdown of electricity output of the Spanish electricity system where renewables now have an important weight of almost 40% within the output mix. And on the right-hand side you will be able to see as far as the output is concerned what is the generation mix for Gas Natural Fenosa.

 We don't -- renewables are not an important part of our portfolio. But you can see our origins which are based on gas you can see there. In that particular part of the mix we have got over 50% in the combined cycle. That is very important. So on the one hand we can get all the back-up for the Spanish electricity system, the grid which is based on renewable energy and therefore energies that come and go, they're intermittent and they need back-up systems.

 And then on the other hand also, you can see the positioning of Gas Natural Fenosa with provisions for gas on the one hand that I would say is very competitive. Even in a difficult market, electricity market environment it's a flexible gas. It doesn't all -- not all our competitors have which means we will be able to be in the market at the right times which could be or you can see now in this graph where in generation capacity or the net installed capacity you can see here that in the Spanish system, 28% of what is produced is done with combined cycles. Sorry, Gas Natural Fenosa has 28% of the installed capacity in Spain from these combined cycles. But when we look at our market share with regard to the installed capacity we're talking about 55%.

 What does this mean? Well, it means that, first of all, that our combined cycles are almost working twice as much as the average competitor in Spain. And as I've already said because we have a flexible gas and a competitive gas this means that we can also act at the best times of the markets on those markets which are more profitable for our Company, in comparison to our competitors which means that we can get better spreads or margins than our competitors.

 However, what has happened? Well, obviously this Royal Decree 9/2013 which obviously has had a series of regulatory measures that have had an important impact on the Spanish electricity market and especially as well on Gas Natural Fenosa where there has been a change in the way that we are remunerated according to this special regime which disappears as such and the energy that carry that investment, they are going to obviously have some sort of [cap] on 7.5 on their profitability. So they will have to compete in the electricity pool market.

 And with regard to the ordinary regime there's also been modifications which are also important where there has been a reduction in the annual payment for capacity although the period during which you can collect these payments for the capacity has been increased. But there has been mechanisms that have been envisaged for sort of certain power. So therefore at the moment certain things are still being developed so we don't actually know exactly what's going to happen with the technical restrictions market.

 So anyway to say that now we carried out the first evaluation of all these impacts and that is part of our strategic plan. But also we have to indicate that still there are certain measures that are being developed and they are not 100% confirmed yet. So we hope that they will be a little bit more favorable to Gas Natural Fenosa taking into account the importance that our installed capacity has in the Spanish electricity system.

 Well, finally with regard to the wholesale business which also includes the commercialization and activity is a hedging of our generation position. Our traditional model is to have two types of hedging.

 In the electricity business on the one hand we have gas contracts which are competitive and in some cases which are indexed to the pool price. And on the other hand we have our business for the commercialization and supply which is also a hedge for our electricity generation price.

 Here what we're trying to do is to work in the most profitable [segments] to improve all our customer services and to look for ad hoc solutions to satisfy the customers' needs. And to do this in a more efficient manner and giving the right management for the [industry] to our industrial customers or to SMEs that request service from us.

 So taking into account this environment what are the economic consequences that we're seeing? Well, we think there's going to be an important reduction in EBITDA and the results for the generation and the commercialization for electricity. So we've gone from an EBITDA in the year 2012 of EUR920m down to around about EUR630m for the year 2015.

 Well, all this apart from implementing an important efficiency plan within the operation and maintenance costs on the one hand for our power plants as well as our efficiency plan related to the commercial cycle for our operations.

 So we are going to have an important impact on the reduction of the investments taking into account this new environment and there's no need for higher production in the electricity. So we've got average investments of EUR180m which we have in the year 2012 too, an average amount of around EUR125m. And this is all based on the fact of the regulatory impact of this law that I've already mentioned.

 If we go to the gas business, our business model is based on being, on integrating the whole value chain of gas from long-term contracts to final users. And we want to diversify the different suppliers, of the different sources that we have from different producing countries and different suppliers. And having a mix between LNG and through pipeline gas through the Maghreb, north of Africa pipeline and also time charters, methane ships that allow us to transport the gas all over the world, looking for the best business opportunities that we can

 And not just have a wholesale business but also a retail business and our platform with our combined cycle plants also allows us to optimize things daily, weekly or monthly based on the situation of the markets we're in.

 Within the strategic plan we also see an increased volume of pipeline gas because of the ramp-up we've got in our Medgaz contract and then optimization of methane tankers. There will be a new ship of 170,000 cubic meters which will go into operation in 2014 and that will allow us to optimize transport costs. Our business model is based on having about 60% of gas through LNG and 40% through pipeline gas.

 Our internationalization process as you can see devotes or includes -- our percentage of international has gone up from 21% to 42% in 2012. So we've had to adapt and adjust to the crisis in Spain, also the crisis of the sector in Spain, the gas that came for the Spanish market through the combined cycle plants. And strengthen and further develop our international operations given the reduction in demand for gas on the Spanish market.

 The gas situation internationally has become more and more flexible. And within that process we see that that gas with no fixed destination has increased and has given rise to new opportunity, but more competition. We are present with different supply points in the world.

 And there are three elements in the type of contracts that we have. We've got flexible gas, diversified and competitive gas. Those three elements continue to be a constant feature of our portfolio and allow us to develop our trading activities. That makes us one of the main operators in the Atlantic Basin. But we're also selling, beginning to sell in Asia with contracts in India, a recent contract we've signed in Korea. And we've also supplied gas to Japan and we are taking up positions in the Pacific Basin.

 We've got 11m customers the world over. We supply gas to more than 10 countries and we're going to reinforce and strengthen our position with the Cheniere contract. In 2016, the contract will be fully operational. By 2017 that will allow us to reinforce our business model in the gas sector, gas industry.

 Now what about the financial results of the business? Well, we see, we foresee growth 2013 to 2015 which will grow significantly. This doesn't include the Cheniere contract. So we'll grow -- the growth of investment which we see in the broken line is the impact of a time charter that will go into operation in 2014. It's already been built and that will allow us to optimize our fleet of tankers and also make it flexible with the Cheniere contract.

 And then the growth of additional investments is because we're going to further develop energy services with interesting levels of profitability and margin in the gas business especially on the Spanish market. We'll continue to develop in Asia and Latin America to maintain these levels of growth.

 If we look at the retail business, we've got an advantage over our competitors in the Spanish market. We've got 4.2m consumers of natural gas. Since electricity is a universal service they can also consume electricity. The gas customers can also become electric customers. So we can very simply reach 4.2m customers for gas and electricity, dual fuel customers. And this is a situation that our competitors don't enjoy because they've got many fewer gas customers.

 Why do we want to develop a dual fuel strategy? Because the cost of capturing new customers and serving new customers is much lower. And secondly, because the rates of loss are much lighter than when you sell only one product. So it's a very important element and factor in terms of competition.

 The second thing that we have as regards the retail market for potential growth is what has to do with energy services. If you talk about energy services Gas Natural Fenosa has a share of 10% of the Spanish market. This market has grown by 16% in the last few years. But in GDP terms, it continues to be -- our penetration and share in Spain is still very low as compared to France, Italy, Portugal.

 So we believe that it's a high potential market and we foresee investments, not tremendous investments but greater than what we've -- but we're going to continue investing and our flexible competitive gas can help within this process of energy services.

 So finally, what do we want to do? Well, we want to -- this is a growth segment. Obviously margins are not huge but they are significant and growing. With this multi-product and dual fuel strategy, with the ability to develop electronic channels, to reduce -- capture costs of gaining customers and serving customers, adding value, giving further or more -- a wider range of energy services, we want to go from 2.2m contracts to more than 2.7m service contracts for 2015.

 And then we believe that we're going to have an opportunity to export this model that we're developing on the Spanish market and export it mainly to other geographical areas. And we're going to begin operations in Spanish America.

 Now if you allow me, I'm going to tell you about Spanish America. What about our business? Well, I would say that today this is a platform where we have really reproduced the Spanish situation. We've got a diversified business in terms of the different activities that we do. Gas distribution accounts for 50% of the EBITDA from this business. 20% is electric and 30% is electric distribution.

 We've got three main countries. Colombia, 85% of our operations with electric and gas distribution; Brazil, 25% through our gas distribution operations in Rio and Sao Paolo; Mexico 20% distribution of gas and combined cycle plants. And the rest of the countries there account for 18% to 20%. So, the big three in Spanish America are Colombia, Brazil and Mexico.

 Now in gas distribution, I would say that we have the best possible franchise you could have in Spanish America. We are present in six of the biggest cities in South America. We distribute gas in Buenos Aires, Bogota, Mexico City, Rio, Sao Paolo.

 And in addition to that in our concession areas we have a potential for growth up to 10m additional customers mainly in Mexico City. The big greenfield we have there probably in the whole of South America, the biggest area for growth. And given the higher, the increasing competition of gas, natural gas prices in Mexico because they're associated with the North American market, that will accelerate our growth. And I think also the energy reform in Mexico is going to make it even better for us.

 And Brazil continues to be well, a very -- a country with a low level of gasification with tremendous opportunities. And the government and the states of brazil are going to continue to promote the process of gasification of the country. In regulatory terms in the areas we are present in, in South America we believe that we have -- first of all, we don't have a commodity risk because that is carried by our final customers.

 We don't have transport risks either because we're given -- because that is under control. And also inflation is under control because the regulation allows you to up your tariffs if inflation increases too much. So what's been seen in the last 10 years is that the regulation framework in South America is professional or concessional rather. And there is stability. There are no surprises. People are very professional.

 And where are we going to or what do we think the next reform will be? Well, in Mexico City there's going to be a reform in 2015. Bogota, gas distribution -- in gas distribution in 2014. In Brazil the Rio reform, new regulations are being completed. And then in the rest of the country it will be 2015. For electricity, there are full year revisions and reviews, one in Panama 2014 in Colombia. But with no significant impact on our activity.

 Now what are our priorities and objectives for management within this environment in Spanish America? Well, we're going to continue to gasify. We're going to -- and we're going to continue to gasify and we'll continue to operate with liquid gases. And the growth of the middle classes in South America is also aiding our growth. And we're the leading company in gas distribution.

 And we've also entered a new market in Peru. We distribute gas in the south. The second largest city in Peru, Arequipa and around Arequipa we have a very significant area of consumers.

 In terms of electric demand there's going to be a significant growth over the next two years which will allow us on the one hand to continue to grow -- to make our electric distribution business grow. And we're going to focus on the reduction of electricity losses, energy losses in order to improve our results over the next few years in Colombia with Electro Caribe.

 If we look at generation as has been said before we continue to operate our combined cycle plants in Mexico and our combined cycle regasification plant in Puerto Rico and the rest of the Dominican and Panama assets. And the aim is to start up Torito which is a mini hydraulic plant we have in Costa Rico by middle -- mid 2015. And initiate our operations, start up our project, wind Bii Hioxo project in Mexico, about 234 megawatts by the middle of 2014.

 Now our business model here continues to be to develop an international business that's based on RPPs, PPAs with contracted energy, no merchant risk. Our overhead is covered. And given the needs that the region is going to have in the next, in the near future we're developing different greenfield projects and will increase our portfolio in the future.

 At the same time as regards the retail we want to export our business model that we have in Spain, so this energy services, energy efficiency services to different South American countries. In some of them we've detected big business opportunities. And with our know-how in Spain we think that we can get in on that and develop a good platform in South America.

 In economic and financial terms, what we see is that there's going to be a growth of the EBITDA of EUR1.2b to EUR1.4b by 2015. We've got to bear in mind that in 2015 that includes the impact of the devaluation processes that have taken place since May to date in South America, mainly Brazil and Colombia. That impact has been covered here.

 We've done our calculations in devaluated currency. And the CapEx increases not only because of the five-year gasification projects that we're negotiating, but also as a result of electric generation where we are finishing and completing our plants in Torito and Bii Hioxo and they require that investment.

 So the total capacity -- power will go from 2,500 to 2750 megawatts within the plan. And we foresee an increase of more than 1m customers in terms of connection points for electricity and gas in South America to around 10m, almost 10m, 7m gas and 3m electric distribution customers.

 Now to conclude, what's the third priority that we have in our strategic plan? Well, to manage our businesses on the basis of how things fit in strategically.

 In contrast with other Spanish utilities and European utility companies, Gas Natural Fenosa has done -- made a big effort in disinvestment. We've disinvested more than EUR5b in the last five years since we purchased Union Fenosa. As the CEO and the CFO will say, as I said and the CFO will say later, our leverage situation is very reasonable. We're in a very comfortable situation and we don't need any kind of further disinvestment for financial reasons.

 Having said that, we have to say like all companies do, we will continuously reassess our business portfolio to see where we can cut down our costs. But there is no aim. We're not aiming at further disinvestment because of financial reasons within the strategic plan.

 And now I pass the floor to the CFO, Mr. Carlos Alvarez who will tell us what he has to say.

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 Carlos Alvarez,  Gas Natural SDG SA - CFO   [4]
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 Thank you, Tony. Good morning to everyone. Throughout this presentation we're going to look at the most relevant aspects of this update of the strategic plan from a financial point of view. I think we can say that Gas Natural Fenosa has a policy, a financial policy that allows and will continue to allow growth and paying dividend, which will allow us to pay dividend out to our shareholders. And we're going to continue to pay our shareholders. And it will be -- we're going to continue to be very strict in financial terms over the next few years within the framework of this strategic plan that we are actually presenting here.

 Now we're also going to look at, the CEO has mentioned this, the new accounting standard that applies to joint ventures which will start 2014. We'll not really have true real effects in terms of the P&L account. It's not going to really have any significant effects on that.

 First, and Tony has said this too, I think we can say that Gas Natural Fenosa has got ahead of the market, has got ahead of its competitors. And we have implemented our leveraging strategy three years before or three years ahead of other operators.

 Now all our aims in our strategic -- previous strategic plan 2010 to 2012 have been achieved satisfactorily. And specifically we've been able to reduce our debt by more than EUR10b -- EUR10b, which is a fair amount between 2009 and 2012. That means you'll remember in July 2008 when we launched the integration operation, integration of Gas Natural -- the merger between Gas Natural and Union Fenosa, at that time I remember there was an aim, that aim of EUR16b by the end of 2012. Well, that aim was complied with so.

 And it's important also to point out if we look at the last year 2012, the debt reduction in that year has been EUR1.3b. That practically doesn't include extraordinary amounts. So it's been a deleveraging process that took place last year as a result of the cash flow generation and also the securitization of the tariff deficit, which has allowed us to reduce the debt significantly, together with the reduction in the debt, net debt/EBITDA ratio which at the end of the year, last year was 0.3 times. And if we exclude the tariff deficit it would be 2.9 times.

 The aim for the next few years is by 2015 to have a ratio of net debt/EBITDA of about 3 times. If we bear in mind that -- the figures, the estimates we estimate that the ratio will be 2.5. We believe that this makes things flexible for additional growth through new investments and that we can develop new investments as result of the flexibility that will result from not being at that level of 3 times.

 If we look at the debt structure, we've got a comfortable debt maturity protocol as you can see on the left. And we've got an efficient net debt structure that allows us to face the next few years three years and this year with -- quite comfortably.

 Our reduction in the debt in the last few years has increased the liquidity of the Company to finance development and growth in the future. Expiry of debt, as from this year to 2017, represents about 50% of the gross debt and 60% of the net debt. Our financial needs are covered up until 2015. And our needs now are -- we want to cover our needs for the year 2016 and beyond.

 Our debt also is efficient in its structure you can see in the middle part of this slide with a well-balanced financial risk profile. You can see here first 83% of the debt is fixed-rate debt and at very competitive levels. In that respect our Company has made use of the opportunities that the financial markets have given us to refinance the debt of acquiring Union Fenosa both in terms of quantity and the average cost. And 86% of our debt is also in euros.

 And thirdly, the balance of our finance -- sources of financing where more than 65% of our debt is in capital markets. So the weight of capital markets is now superior or higher than that of the bank debt.

 Now at the end of September as the CEO has said we had a liquidity of more than EUR11b of which EUR4b were in cash and EUR7b were in the form of loans, loans that wasn't being made use of yet -- at that time. All that is part of our proactive policy of having high levels of liquidity and that's what we're going to continue to do over the next few years.

 Gas Natural Fenosa has all its financial needs covered for the 2013--2015 period. We could even say that we wouldn't have to do anything. We don't even have to resort to loans. But even beyond that if we look at our cash situation after investments, dividend payouts, securitization of the tariff deficit that's going to happen, we can say that all our needs would be, also be covered up to 2017. So liquidity needs of the Company give us a comfortable situation within the plan and beyond the plan.

 Gas Natural Fenosa will have cash flow and leverage ratios that are even sounder after 2015 as you can see on the slide here. We will reduce the net debt to EBITDA ratio by 2.5 times and will increase the ratio of generated funds and operations net debt to about 28%.

 And together with our strong capital structure and our good financing conditions, we've got an average price of about 4.2% at this time. And we don't think that that's going to increase. We can say that financially, GNF is really in a very, very good position to face the next few years.

 Now here we can see the future -- our future strategy and our current situation and how strong we are. We would like to -- I would like to remind you of our immediate past, to show you that GNF is a company which even in difficult situations has been able to manage its financial situation.

 We did a refinancing of EUR19b for Union Fenosa to be acquired right in the middle of the Lehman crisis. We've had continued capital market access and in different places of the world with a competitive cost and with long tenors throughout this financial crisis that has affected the euro zone. Especially we've completed successful deleveraging and lengthening of average life of debt process within a short timeframe. And we have increased our life -- average life of debt, our average life of our debt which is about five years right now.

 And we've also enjoyed strong and continued support from banks, both in Spain and internationally, irrespective of the sovereign crisis and the rating agencies. So we have shown to be resilient and have a very sound and solid business model in GNF in recent years and we hope to continue to prove this.

 In the next few -- in recent years if we look at investments in terms of percentage of EBITDA, there's been a decrease. We were 53% at when we were in 2007. That now has gone to 26% at the end of 2012. We expect through the plan that we're presenting here today that the ratio goes up to 34% in that 2013--2015 period, as a result of the increase of investments which in this period 2013--2015 will arrive at about EUR1.7b approximately.

 This investment was because we had a deleveraging program which was also associated with rationalization of investments. As Tony said before this has come to an end and now the deleveraging program through disinvestments, etc. has finished. So we have a greater guarantee for growth.

 And that's why we believe that GNF has a margin to increase its investments up to 50%. And there is compatible with maintaining the net debt to EBITDA ratio at 3 times. Now of course we will absorb whatever expansion opportunities we think are appropriate.

 As regards the dividend, GNF has shown in recent years that it is committed to shareholders and paying out the dividend. And in recent years the payout ratio has been at 62%. We hope and expect to continue with this policy in the next few years and we think that it's completely compatible with the growth of -- our aims that we have and deleveraging through cash flow that we already explained. And we can also say that the payout of dividend in the next few years 2013--2015 at least will always be in cash.

 This strategic plan continues to look at deleveraging as an objective but only through the generation of cash flow in the Company. We expect to go from a debt of about EUR16b at the end of 2012 to a debt of about EUR13b to EUR15b in 2015. From the ratio point of view we'll go from 3 times to 2.5 times in 2015. So generation of cash flow in the Company will allow us to pay a sound and good dividend and increase our investments, but also have a margin to reduce the debt further.

 Finally, as I just said at the beginning of this part, to finalize the financial part, I would like to explain the impact on GNF of the new accounting rules related to the consolidation method for joint ventures according to the IFRS number 11.

 Previously and through the presentation we've seen that in certain slides, it said that a part of the objective as established for 2015 and then sometimes there was other graphs on the right-hand side which said those according to the IFRS 11. So what I want to do is a pro forma. We're doing it for this year so it's already [said] for the third quarter. What we're introducing now are the pro forma figures for the end of 2012. As you can see here on the screen, for EBITDA you can see the accounting impacts will have a less EBITDA of EUR378m. As far as the net debt it will be lower by EUR501m. And as we said as far as the net result, there is no important impact.

 This -- but the business that are affected by this change in the consolidation method (technical difficulty) whether it's going to be a participation or the other method used, Union Fenosa Gas, for the combined cycle in Puerto Rico through Ecoelectrica and the combined cycle plants in Nueva Generadora del Sur in Spain.

 But before we conclude we've got a last point which would be our bases for growth beyond 2015. What are our ambitions and our forecasts for this period? Well, these can be clarified into three policies. We're going -- we're hoping to -- and we have three expectations which you see.

 One, we believe that there's going to be a full recovery as from 2015 of the European economy and especially the Spanish economy. We also believe and we hope there's going to be a series of growth vectors for the future which we'll now very quickly analyze and also the projects that are currently under development and that their implementation will gain results as from the year 2015.

 So now let's have a look into these three points. Firstly, in line with the forecast that we are accessing at the moment and to a greater or lesser extent we can see that for Spain the ability -- growth in GDP. And this will be a recovery from the situation. So it means that after 2015 we will be on a growth, consolidated growth of GDP in Spain.

 With regard to the drivers, there's three here that have been highlighted and I would like to mention very quickly. First of all, the midstream gas business which is one of the bases for the growth in our Company at present and it will be in the future. This will be one of the major issues.

 Secondly, the international generation. As it has already been explained, there is a strong world growth in both Asia and Latin America for the generation capacity for electricity. And so this will have to be one of the major growth vectors for growth.

 Also the international gas distribution, not just in Latin America which is also envisaged, but the possibility after 2015 there could be other areas in the world. I'm sure there will be other areas where there will be a strong growth for the gas distribution.

 All these will mean that we'll have access to more bigger portfolio projects and we will have higher investment capacity then. And it means we have the ability to better make the most of these possible business opportunities.

 Now we are going to analyze these one by one. Yes, in as far as midstream gas and taking into account that we are one of the major operators for LNG in the world. We really believe there is going to be an opportunity there and we have a competitive advantage in this area. And we can say that in as far as Asia which represents 20% of the LNG demand on a world level to a greater or lesser extent I think this percentage will remain as such. And there's going to be growth around 5% per year in the cumulative figures from 2015 to the year 2017.

 Here we are envisaging a reduction of imports of LNG in Japan. This has been taken into account. And also we are observing that there is growth, important growth in absolute terms and in relative terms for the needs for China, India and South East Asia. And that's already been mentioned in some of these markets we have already started to supply for two or three years now with some of the operators. And we hope that we can continue to further this business model in the future taking into account the expectations that have been generated.

 In as far as international generation is concerned, once again all the information that we have received on a public level from the international energy agencies indicate that there'll be important requirements and needs beyond 1.3 gigawatts on a world level. But in Europe there is not going to be much growth.

 Here you can see Asia represents 70% of the increase in the new need for installed capacity for the next 20 years worldwide and also as far as the thermal generation for the different types. Here we have know-how and expertise in the generation, well, with combined cycle, coal, hydraulic, mini hydraulic and with wind energy. So we'd like to make the most of these technologies that we control in markets where they need our generation, electricity generation requirements. Latin America is going to be something we're going to focus on because we're well positioned there.

 Likewise if we look at the international gas distribution here there is going to be a growth of over 450 bcm per year from 2010 to 2030 with regard to the conventional traditional demand which is not included in this demand that will be required by electricity generation. Normally here 60% of this new demand for the gasification on an industrial and residential level will be concentrated in the Asian countries but also Latin America will also continue to be a growth vector that will be important for this growth.

 What is our business model? Well, our business model is to be able to develop new projects taking into account of course, one, that we are a very important operator for LNG in the world. We have got flexibility and contracts that will allow us to use this LNG to enter into specific markets where they may have specific needs at a certain moment of time.

 Also we want to be operators of assets. We are not traders. We don't want to be in the spot market. No, we want to be integrated in all, in the entire chain of gas and electricity. This is a business model that has been proven to work for us and it's more sustainable on the mid and long term.

 Here we've got to -- we've got experience of (inaudible). One is in electricity generation which could be combined cycle plants, but also there could be other technologies which would be complementary to that in specific countries, whether it be renewable energies or non-renewable energies.

 But on the other hand we are also one of the most efficient operators in gas distribution and maybe we are the most efficient operator when we are dealing with emerging or growing markets and to help to gasify certain countries. We really believe that this is an asset to be able to continue to be integrated in the entire gas value chain and also in downstream business in certain countries.

 So basically what we want to do is to make the most of these synergies because of the integration of these businesses in the new geographical areas where we are now going to try and be present in the future. This will be the growth drivers.

 And now we're going to talk about the projects that currently under development and as from the year 2015 we will be able to develop and these are going to be contributing to our results.

 As we've already said we've got the Cheniere contract with 4.5 bcms. This is a 20-year contract with a potential extension for a further 12 years. This is a very competitive contract which is indexed in price through Henry Hub. This we expect a contribution from the year 2016 and also full, almost full functioning in the year 2017.

 During this period of time where we will get four new tankers to be able to cover the shipping or the transport because this is a gas that is FOB condition, so therefore the fleet we provide. But we've got full freedom for sending this gas through the Atlantic Basin or the (inaudible) depending on the market conditions at the time and the marketing plan that we are developing currently.

 In addition, over the last few months we have signed two further contracts. One through the pipeline that comes from Azerbaijan to supply the Italian market which is the contract with Shah Deniz II. This is a 25-year contract which comes into effect in 2019.

 And also as we've already announced or we announced last week, we've also signed a 3.2 bcm yearly amount which comes into effect around the year 2019 with Yamal to acquire gas from Yamal and the destination basically for Europe. But it has certain flexibility within the contract. We should be able to send this back to other destinations. This also contributes to this strategy to develop the mid-streaming business in new markets.

 If we now concentrate on generation which has already been mentioned, we have the Bii Hioxo contract which will be commissioned in the second part of the year 2014. This is a 3,200 hour, i.e. 50% of the average hours that the wind system in Spain is being used. And we have contracts mainly for the long term with different industrial companies which are optimization of contracts on the short term.

 And we have this Torito project which will come into effect in the second half of 2015. So it will really have a full effect on our accounts for 2016. This is a PPA with ICE which is the Costa Rica Electricity Institute and is a project that is around 6,000 hours of functioning for this hydraulic plant which is a very interesting plant.

 So this is a strategy to enter into new countries with the activities that we are great experts and we now have to do well. And also we have recently won a tender for natural gas distribution in the southern part of Peru in the Arequipa area. And we've already said that this is -- this has got four major cities with a population of 1.4m inhabitants. It also has an industrial area there and through what we call the virtual transport where we will be loading tankers from the liquefaction plant in Peru to transport this to the southern part of Peru and then we'll inject this gas into distribution network of the area where we have a concession.

 Well, taking all this into account what's the economics behind this that we're envisaging? Well, basically just with the organic growth that we have today, taking into account the projects that have already been identified and mentioned this morning, within the year 2015 we're envisaging that we will have an EBITDA of EUR5b, which is very similar, EUR5,700m, which is similar to what we have at the moment. But for the year 2017 we are envisaging to be able to get around EUR6b in EBITDA, which will -- between 2015 and 2017 will be an annual growth of 7%.

 But, as we've already said, between 2015/2017, we are envisaging between 2013/2015 we have all the about -- well, we will have certain investments per year. In the year 2017, in five years, we're talking about [EUR9.3m], which is approximately in the last two years, 2016, 2017, the investment per year would go from about [EUR2m], taking into account that during the same period we're going to be investing, well, this includes as an investment, even though it's just an increase of our debt, we will be contracting for. As we said, we're going to have these tank charters which will represent $800m. And they are included here, as you can see.

 So therefore we believe there is an acceleration of our growth as from the year 2015, as indicated by the CEO. On the one hand because the business in Spain will be improving, taking into account we will have a macroeconomic recovery. Our business, our gas business will be improving, especially due to the Cheniere coming into operation and also our international business will improve, taking into account we will have at that point a full year of the functioning as from the year 2016, both at the Torito plant and the Bii Hioxi plant and also the Latin American growth will continue to be important after the year 2015.

 Well, having said that, the Company, taking track of these circumstances, is continuing to reduce its debt. And these are the organic investments we have envisaged. In addition, we will have funds available of EUR7b for future projects should they -- so the ratio, the net debt and EBIT should be 3 times. But these EUR7b have not been included in any of our financial or economic analyses that we are presenting here at the moment.

 Well, just to conclude, firstly we will have to remind you but we've said this several times, that our strategic plan, and it's a custom, the ones we have offered in the past were fulfilled on (inaudible) as you can see in this chart here that you can talk about EBITDA and the ratio of the net debt/EBITDA, which was at the end of our last strategic plan which finalized in 2012.

 So these are the financial targets that we are proposing now, which are prior to the new IFRS, which has already been explained to you this morning. We have the real fixed figures for 2015 and in the year 2015 and the aspiration for 2017. And for each one of the different items you can see the EBITDA, net income, the payout of the dividends, the CapEx which we are going to develop in this period that's been announced here from 2010, 2012 and 2013/2015. The net debt and also what the percentage of the net debt to EBITDA, which will be reduced, as you can see here, from 3.1% to -- well, from 3.3 to 3.1. And we can see where would apply should the need come with excess capacity of our debt, getting a multiple of 3, which we have had.

 So to summarize for the year 2015, we're considering EBITDA of above EUR4.2b (sic - see slide 81 "EUR5.2b") and a profit of EUR1.5b So therefore our net debt of EUR13b.

 So this will change the profile of our Company in the following manner. Gas will have more specific weight than it has at present. It will be going -- well, it will be achieving 26% in our business in 2015, with an objective of reaching 28% for the year 2017. Last year represented 24%. So therefore progressively the gas business will have gained more importance.

 Also the regulated businesses will continue in their importance and EBITDA generated outside, they will continue to grow until it reaches about 45%.

 With regard where are we going to assign our resources, well to summarize, the total investment will grow by EUR1.7b a year in the period 2013/2015 and to EUR1.8b in the period between 2013/2015. And I would like to repeat of -- with the net debt/EBITDA levels already said. Our strategy will be concentrated on gas and distribution gas. In the Latin American market we expect to carry out more large investments in gas than we have been doing until now because we're seeing a lot of opportunities on the horizon. And the resources assigned to them will reduce, taking into account the importance of our international markets.

 And to conclude, I think that I can confirm, yet again, that our business model is very resilient. Our expectations for the year 2013 are very clear and precise. We will try and reduce or mitigate the regulatory impact that we have been subject to here in Spain through our efficiency measures and plans and also through a better positioning in the world gas markets and the Latin American gas markets. And also we will continue with a financial discipline and also the shareholder remuneration, as we've already mentioned today.

 Well, that is everything. So we're available now if you have any questions. Thank you very much.



==============================
Questions and Answers
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Unidentified Company Representative   [1]
------------------------------
 Well, okay. Now let's give the floor to the Q&A session. As we had already said at the beginning of this event, we have to finish at 12 noon at the latest. As normal, first of all we will start our Q&A session with the people who are here, present in the room. And then after that we will continue with the telephone Q&A. And if time, we will then get the questions through our webpage.

 So now we're going to start with questions from the people here in the room. So when people ask a question, please could you say your name and the institution you represent? So shall we start over here?

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Unidentified Audience Member   [2]
------------------------------
 Good morning. [Manuel from]. Well, as I'm sure there's going to be lots of questions, I'm going to be very quick. I'm just going to ask three. The first question is are you including some sort of buffer in the figures related to the possible regulatory changes related to gas distribution here in Spain and the retail market here in Spain? So do you have a buffer here? And if you do, how much is it?

 Also the other day, in the presentation of your partner from Union Fenosa Gas, you mentioned that now you could -- there could be a few members of the Board or may be leaving the Company at the end of this year. So if possible, could you say that -- talk about that?

 And finally, throughout the presentation you have said on several occasions that you're very comfortable with the ratio of 3 times the net debt/EBITDA and then you talked about 2.5 times. So -- and then you talked about the possibility of carrying out greater investments. But if you find these possibility investments or if you don't find them, will you be increasing the dividend if you don't actually find these investments?

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Unidentified Company Representative   [3]
------------------------------
 Well, to answer this, with regards our buffer, no, there's no buffers here. We, for the reasons that we've already explained relating to the gas distribution, we really truly believe that we don't need to adjust the distribution because the growth for the distribution and to mitigate the problem related to this very small deficit and therefore take into account the scope of the problem is very limited and take into account that the gas distribution is an element that can be solved, we really don't think that we needed to add some possible adjustment, then obviously the wholesale market we believe even more is a liberalized market.

 So therefore should there be any adjustments in the Spanish market it would be necessary for market reasons because if you reduce the volume or not reduce the volume in the conventional gas market in Spain in the middle of the crisis, it means we believe there is a reasonable growth that could be envisaged in the near future.

 With regard to the prices, the Spanish market is in line with the world market. So therefore we've explained our expectation for prices. So I really think that should the situation arise, but we're not envisaging them in the Spanish market, we think there would be possibility to diversify and to mitigate that problem in other markets and in other circumstances.

 So with regard to Union Fenosa Gas, well yes, in effect we want to say that we have the same opinion as was mentioned, as [I've] been told. We believe that we're on the way to achieve some sort of a solution to the Egypt problem. And we really think that this will be achieved. And regardless, we truly believe that we have -- well we have knowledge that the fact that the plant will soon get back to -- well, start operating soon.

 And the further comment that you said, what's going to happen after 2015 for people who are going to be leaving the country, so as from 2015 we can see what the situation is, depending on different factors which are very complicated today to take into account. As our specific objective is for 2015, what we want to explain is that for the next period that a lot of possibilities will come up to be able to analyze these possibilities or businesses.

 Javier?

------------------------------
 Javier Garrido,  JPMorgan - Analyst   [4]
------------------------------
 Good morning. Javier Garrido, JPMorgan. Well, I'm just going to be very quick about my question. The first one is related to the efficiency plan. You talk about EUR300m. Could you give us a few more details? Firstly, what your operational expenses are and then what the CapEx of this amount? And also I understand this is an objective, this EUR300m to reduce the expenses. How would this increase take into account the increase of the inflation activities, so therefore it's not a net figure?

 The second question would be in relation to the dividend. It's basically on the same lines as Manuel's one. I would like to know if you can clarify what your dividend policy will be. Is it going to be a stable payout of 62%?

 And secondly, as Manuel has already said, when you're talking about a net debt/EBITDA ratio of 3 times, if you can [main] it, but I think in some of your figures you said it'd be 2.5 and up until 2015. So what would you -- what would mean that you would increase your dividend policies?

 And the next one is related to CapEx for the methane tankers. You talk about EUR800m about the four methane tankers you will be having as from 2015. And we're talking about EUR1b CapEx for these methane tankers. And I understand that's included as part of the CapEx but it's not included at the net debt because they will be financed through operational leases.

 And the fourth question is also related to the business for liquid natural gas. If you could give us a little bit more detail with regard to the development you've said for this business for the 2017 when the Cheniere plant is working. What are your expectations? Are that the growth that you expect for that part of the business is just from the extra contribution from Cheniere or if you're expecting the current business to also increase their contribution there, i.e. within the mix of 2017 we should expect that the current business will be stable and Cheniere will be giving this leap forward, or would there be another change in the business as of this moment?

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Unidentified Company Representative   [5]
------------------------------
 Well, I'm going to answer some of them. With regard to the last one, it's Cheniere, as we said, in regard to business and the improvement in the market position which we had explained. We hope the market has been stable in gas consumption Spain, we're talking about traditional gas line, will have a moderate growth. And therefore the electricity market will still have some moderate growth, which is part of our plan. But basically it comes from the Cheniere plant and also the project that we've already explained related to Latin America, etc.

 With regard to the dividend policy, our commitment is a payout of 62%, which is what we have explained, taking into account the results, as explained. This is what we expect and this is what we want to fulfill. The multiple of 3 will really be in 2015. We will look at the debt reduction. And we're now at the end of 2013 and we think it will take place in its time. So I think then is when we would take it into account. Before then it would be too premature.

 But I would like to say again, we haven't made any decisions with regard to what policy we'll be following. So at the moment we're not considering -- well, we're saying we're going to reduce our -- we're going to deleverage or reduce our debt. But there's time between now and then to decide exactly what we're going to do.

 I don't know, Carlos, do you want to talk about the efficiency of these methane tankers?

------------------------------
 Carlos Alvarez,  Gas Natural SDG SA - CFO   [6]
------------------------------
 Well, I think you said they're chartered when they've got a leasing policy and so they're not part of our net financing and so the ratios for the -- well, then in time we will put the corresponding adjustments. But also we put the investment in little dotted lines because, when we talk about the CapEx obviously, well, this is what you've mentioned.

 Talking about the efficiency, if I remember the question correctly, yes, everything is operating expenditure. The calculation is on the basis of 2012, on the real cost for 2012, we would have a saving of EUR300m.

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Unidentified Audience Member   [7]
------------------------------
 (Inaudible - microphone inaccessible).

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Unidentified Company Representative   [8]
------------------------------
 Yes, we're reducing based on the 2012 figures.

 Now the next question, please? Pablo, I think you've got a question for us.

------------------------------
 Pablo Cuadrado,  BofA Merrill Lynch - Analyst   [9]
------------------------------
 Good morning. I am Pablo Cuadrado from Bank of America-Merrill Lynch. Very -- three very quick questions. The first one, could you give us your suppositions for the plan looking at the cost of the debt and the tax rates, and especially the provisions that you have introduced? In the plan I think there was an increase over the last few years, taken into account I think maybe we'll be around or above EUR200m. And to know how you -- what you think how this is going to be done.

 The second very quick question is what you're presenting today and looking to your leveraging levels. You said you'd got this -- well, you've got between 2.5 and 3. What are you expecting from the rating agency? That they're going to improve, you're going to stay where you are? Well, what do you think? What are your perspectives for the rating agencies?

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Unidentified Company Representative   [10]
------------------------------
 Well, the debt cost, I've already said. We're currently at 4.2% I think in this period. We're going to be between 4.2%, 4.4%, I think that's where -- is what it's going to cost depending on the future refinancing projects, as I've already mentioned. But I think we'll probably be closer to 4.2% rather than 4.5%. As I say, I think we're going to be closer to 4.2% than 4.5%.

 And the effective tax rate will go back to a normal situation, closer, I think, probably 25%. I think we're talking about 2014 it will be about 25%. And as from then, we are high positive it's going to go up to 26%.

 As regard to the provisions, I think was the third question, we are contemplating a slight reduction -- well, a very slight, so it's really not going to be that important.

 Well, the efficiency probably doesn't affect our EBITDA. It's a recovery of the connection, especially in Latin America. And that's the reduction that we have, about EUR10m, EUR15m.

 And finally, when you talked about the last question, which is related to rating, you -- the rating at the moment has a [top], which is due to the sovereign debt. So it's very difficult to predict what's going to happen in the future because then the question will be how is the sovereign debt going to develop. So if we look at the metrics we have at the moment, I think clearly today's metrics, in my opinion, are that there's going to be -- the future would be better than the situation today. But through this plan, obviously the situation is going to improve, so [therefore] independent to the sovereign debt, obviously the measures we're doing is to improve our rating because I think that will be the situation.

 And recently there have been -- we've received good news from one of the rating agencies, which we think that they will -- positive signs of the economy mean that the negative ratings will now become positive, which means that things will get back to normal. And obviously the rating agency are now going to go -- carry out ratings for the corporates.

 Next question.

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 Virginia Sanz,  Deutsche Bank - Analyst   [11]
------------------------------
 My name is Virginia Sanz from Deutsche Bank. I've got several questions. First of all, as regards the liberalized gas business growth comes through volume, I know, but I would like to know what are your ideas for the margin. Do you think that you'll be able to preserve that margin or will they drop?

 And then as regards the South American business regulated gas market, I know there are quite a few reforms. Do you think that the EBITDA growth will be lower as a result of that?

 And then as regards the ForEx, you've -- I'd like to know whether the foreign currencies are going to remain stable or will they -- are they going to lose value?

 You talked about CapEx flexibility. I'd like to know whether you've got any specific project that you might be looking at between now and 2015. Are there possibilities to announce anything?

 And then finally, you've still got -- 50% of CapEx is still devoted to Spain. How much is that -- of that is devoted to maintenance?

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Unidentified Company Representative   [12]
------------------------------
 Good. Just about the flexibility of the CapEx projects, no, we're not considering any projects. All the strategic plan has to do with -- is all in a -- we haven't got anything to add.

 As regards the currency question, we've used the forwards that we had in September and we continue to foresee a devaluation of the figures we presented, the real in Brazil and the peso in Colombia. And also the figures that we produce for 2017 are also -- there will be devaluations in those currencies.

 As regards return, the regulation reforms will probably introduce some kind of reduction in the tariff in Colombia and Brazil, but also -- they've also been included within the plan. But you must remember that the South American tariffs aren't -- maximum tariffs and then sometimes because of competitiveness issues, there are maximum tariffs that we have to apply discounts. So it doesn't necessarily mean that that will lead to a reduction in returns because it could be that we have a maximum tariff today which is high. We have to apply a competitiveness discount. The maximum tariff comes down and the -- while we apply the maximum tariff and is similar to what we applied already.

 Having said that, we have to say in Colombia and Brazil there will be a slight drop in return but we don't think it'll be significant in all the other countries, what happens.

 As regards margins, I would say that 2013/2015, the margins are practically going to be stable. There might be some impact on the Spanish market. But the international margins are stable.

 As regards what we've seen with projections 2015/2017, there's a narrowing between prices in Asia and Europe. They're coming together, so foreseeably they'll be coming together a little bit off the international margins or come closer. But the Cheniere project will give us the growth that will make up for the drop and will give us a significant additional growth.

 CapEx in Spain is basically distribution gas. It's an expansion gas to get new supplies. Maintenance is about 10%, 15%. And in the rest of Spain, CapEx, which is generation and distribution of electricity, it's all maintenance and electricity and distribution more or less the same. So most of it is within those figures.

 Good, next question?

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 Carolina Dores,  Morgan Stanley - Analyst   [13]
------------------------------
 Hello. Good morning. My name is Carolina Dores from Morgan Stanley. I've got three questions. First of all, what's the estimate for electricity prices in Spain for 2017 and beyond?

 Second, investments of EUR9b to 2017, do they contribute to EBITDA in 2017? And if not, what EBITDA considers all investments?

 And the third question, gas supplies that will be introduced in 2019/2020. Are they going to increase the portfolio of gas or are they replacing any contract?

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Unidentified Company Representative   [14]
------------------------------
 For the final question, yes, the portfolio of contracts is going to increase. We don't expect it to be reduced 2019. There's still quite a lot -- a way to go, but that's what we expect on those.

 Second question, no, there is no generation of EBITDA up to 2017.

 And as regards the first question, yes, basically there's about -- out of those EUR9b there will be some investments in distribution, etc., the last quarter that will roll into the next one but I would think that basically EBITDA is included because the big projects that we've spoken about, the only investment I would say that is not included is the Torito project, yes.

 Good. Any more questions?

 The electric forecast for 2017, we see prices of about EUR60 per megawatt hour. And that results from what will happen with the coal plants, combined cycle plants and the potential reduction or one of the power of the system -- part of the power of the system. But that's not a commitment because there are still -- there's still uncertainty as to the -- how the electric market will behave in 2017.

 Next question in the room?

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 Javier Ruiz,  Macquarie - Analyst   [15]
------------------------------
 Javier Ruiz. I've just got one question. If I understand you correctly, you're making a proposal to the government in terms of the gas deficit. You're going to convert more and reduce the gas deficit, if I'm not mistaken. And the cost for you, you'd be investing more than EUR1.1 -- about EUR1,100 per connection point. That would be the cost. It's a bit high. Or am I wrong?

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Unidentified Company Representative   [16]
------------------------------
 No, that figure that you've quoted, I don't know about that, but we're not proposing anything. We are already doing this. This Company always invests when it's profitable to do so. And gas distribution is profitable and we're investing. We're getting about 100,000 connection points every year -- connection points on the network because there are also some people that discontinue the service, but that means that it's profitable to invest, if not we wouldn't do it. We're not forced to do it.

 And profitability is the -- what we -- determines our decisions. But if this continues, it would be good for the system. So since it's good for the system it seems absurd to punish it when the problem is minimal. And this leads us to think that gas distribution should not suffer in the next adjustments of the regulations.

 Any more questions from the room?

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 Sonia Ruiz,  Bankia Bolsa - Analyst   [17]
------------------------------
 Yes. Sonia Ruiz from Bankia. I've got four questions. First, I want to look at the CapEx 2013 to 2015, EUR5.2b. Nine months we were into EUR1b by now. What could the figure be by the end of the year, because if it's EUR1.4b 2014/2015, it's quite -- would be quite a big amount in CapEx.

 And then as regards potential increased share in Medgaz, is that still interest -- of interest after the small increase a few months ago?

 And then you've spoken about the -- and the hedging as regards the currency exchange rates. And you've invested in local currency. The weight of Brazil is growing. I don't think the (technical difficulty) in Brazil, Colombia, Panama, will there be -- are you going to hedge in real?

 And then Union Fenosa Gas, if the activity's not -- does not start up again between now and the end of the year, would it be similar to what was done in the second quarter?

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Unidentified Company Representative   [18]
------------------------------
 Well, as regards Medgaz, we're satisfied with our present share. We don't know whether there'll be new adjustment figures. There's three of us now, shareholders. For us it's not so important participation in the transport -- transmission business is not so important as the supply business. But we don't expect any significant changes in that area.

 As regards investments, 2013 to 2015, it's clear that we're not going to reach EUR1.7b on average this year, so the following years will be above the average to make up for it. So they'll be nearer to EUR1.8b, which is the figure. And you must remember that that EUR1.8b includes 2014, the entry into -- the start-up of the new ship that we're going to put into operation and the international projects, so -- and the acceleration of our investments in South America. I think that will make the situation slightly different as regards the next couple of years.

 Brazil, we always say that we always finance our operations in local currency or in the currency operations take place in each country. So when we're talking about dollars, the operation is in dollars. And if we have an operation in Brazil which is going to be done in real, well, we do it in real.

 But then you use different instruments depending on the market. We do it in the most competitive way that we can, depending on the money and the access we need to money. For our investments we've had access to capital markets in some South American countries, like Mexico, Panama, Colombia, even Argentina. And we haven't done it in Brazil, but that doesn't mean to say that we don't do it. I think at the end of the day it's a question of analyzing when the right -- when the time is right and using whatever instrument is adequate.

 As regards Union Fenosa Gas, we don't think that it's necessary -- will be necessary to do any deterioration test. We adjusted things at the end of last quarter. And the project is based on the situation of the project. We think that that has been sorted out. The situation might even improve, if anything, by the end of the year.

 Are there any more questions in the room? No? So we'll go to questions on the telephone. Go ahead, when you're ready, please.

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Operator   [19]
------------------------------
 Javier Suarez, Mediobanca.

------------------------------
 Javier Suarez,  Mediobanca - Analyst   [20]
------------------------------
 Yes. Hello. Good morning to you all. I had three questions, the first one about the regulatory change process in Spain, have you quantified -- I think you said EUR180m the impact for 2014. I wanted to ask about the timing of these new regulations. How would this EUR180m be broken down into distribution, renewables? And what about the impact of renewables? Is that included?

 The second question, and I would like to insist, the tariff deficit in the gas sector, I would like to know what negotiations, what the status is, whether the regulatory changes in gas sector will be made this year or are we talking about next year? The impact it might have on the tariff deficit of the gas system and what your proposal is to solve that tariff deficit. It's much smaller than in the electric sector but it does exist.

 And the final point has to do with volumes of gas. It's been a question before that I asked about the additional volumes. I think that this Company historically has tried -- there were 28 bcm of gas. Now we've got four more coming from the US, one more from Serbia and Russia. I'd like to know whether this Company, at the end of its business plan, the aim is to increase the gas volumes significantly and arrive at about 35 bcm and whether there'd be any technical restriction to achieve that volume. Thank you.

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Unidentified Company Representative   [21]
------------------------------
 So as regards the final question, we said that the gas profile will increase in terms of EBITDA and even between -- up to 2017. It's clear that based on the market situation we are convinced that our gas share is going to increase and -- because there are greater volumes. But we don't know whether -- what the exact amount will be. 35 bcms, more or less. That's a different thing. But it is true that through the projects that we've explained, we hope to, by 2017, increase the weight of the business, gas business because of international reasons.

 As regards the gas tariff deficit, we don't know when the ministry is going to address this problem. I believe, from what I've heard, that it will be next year. And it doesn't seem to be -- I don't think it will be a very difficult problem to solve. There are different ways of doing it. Sometimes even the passage of time will do away with the deficit, which is now at EUR300m. It's not very much at all.

 I don't think there will be significant measures that affect the distribution sector because it's the sector that has grown less in terms of cost to the system and the sector that needs to grow most in terms of new customers to increase on its -- the growth of gasification. So the ministry hasn't really told us when it's going to do this. But from what I hear and what we've even seen in the media, we would be talking about 2014.

 As regards the other question, we've ratified what we said at the presentation on Brazil for the second quarter. We spoke about an impact on -- we did the calculations for 2013 and 2014. We ratify that estimate to about EUR180m and the breakdown that we did in the last quarter was that about half of that would be the effect of generation of electricity as a result of capacity payments and the rest was electric distribution because the special regime, although it is included, we haven't really got such a market share. So that impact is not significant. So we ratify the amount to EUR180m, half of it for capacity payments, more or less.

 Good. Next question, please.

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Operator   [22]
------------------------------
 Jorge Alonso, Societe Generale.

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 Jorge Alonso,  Societe Generale - Analyst   [23]
------------------------------
 Hello. Good morning. I would like -- I really haven't got many questions left, but could you give us your opinion on the regulatory reform in Brazil, Colombia, Mexico in gas distribution? What impact do you think it will have?

 And the next question, in your calculations for 2015 EBITDA, could you tell us whether you're considering the current situation of Egypt recovery or will it continue to be in the same situation by 2015? Thank you.

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Unidentified Company Representative   [24]
------------------------------
 Well, in the regulation reforms in Mexico, especially in Mexico City for 2015, we don't foresee big changes or an impact on the financial results in terms of -- if we look at Brazil, we foresee a drop in tariffs but also a rebalancing of the tariff. So that, at the end of the day, will produce -- will reduce our profit but not so much the face value decrease in the tariffs. In Colombia we've got an estimate of a potential reduction of tariffs, which we are applying currently. But all that is included in the aims that we've given our objectives for 2015.

 As regards Egypt, no, we don't think that the situation will become totally normal in 2015. We think the plant's going to start up again and the gas will start flowing. But this is not going to really become normal by 2015.

 Good. Next question on the telephone.

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Operator   [25]
------------------------------
 Alberto Gandolfi, UBS.

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 Alberto Gandolfi,  UBS - Analyst   [26]
------------------------------
 Hello. Good morning. I just want to ask a few questions. First, could you tell us what your calculations are for gas prices in South America, because on transparency 10 it says that Japan and Asia, you're talking about [$10.13] dollars at the end of plan. But what about South America? Their levels are quite similar to Asia today.

 And then you've read -- we've read and heard different comments saying that maybe the Spanish government will -- might introduce a liberalized gas market in Spain in the spot and forward market. Have you heard about this? Do you think this is possible? What do you think about this?

 Thirdly, I'd like to go back to the issue of gas distribution. You're talking about the logic of tariff deficit as if that were the only motive behind the breakdown process. But I think you've got return of 15% versus electricity, which is about 6.5% now. How can you be so sure that there's no review in gas distribution?

 Also in the dividend policy, the dividend, is it right that you're not -- that's all going to be in cash?

 And then finally, EUR7b, does that include any possibility of additional investment? What would be the maximum level of purchasing are you -- that you would be prepared to contemplate?

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Unidentified Company Representative   [27]
------------------------------
 Well no, we haven't got any idea of where we would invest those EUR7b. I can't really tell you. The spot market, yes, several analyses and assessments have looked at the convenience of creating a spot market. We think it is good to fix prices for modes of purchasing and selling that are applied on the Spanish market.

 It's difficult to think of a primary market because prices are established for or buy for suppliers in long-term markets that are usually associated with the price of Brent. So in terms of primary market, it's difficult for anything sound to be set up. But the spot market for temporary transient adjustments or operations between operators would make some sense. So anything that is establishing or that has to do with determining prices on the gas market, we should pursue with interest.

 As regards the first question, it's true that we can see a drop up to 2015 in the prices in the Far East. These are projections that we've included in our figures. And the South American market, obviously imports of LNG have -- as an alternative market, the Far East markets have priced this and the South American markets are very much influenced by the Far East prices. And that's what we've considered in our estimates and calculations and the numbers and figures that we've presented 2015 and 2017.

 As regards gas distribution, we've only spoken about the tariff deficit problem. We've not just spoken about that; we've also said that today a gas consumer in Spain pays a tariff that is 25% below in real terms, in actual terms in 2002. So what the regulator should do in addition to prevent tariff deficits is for tariffs to go down, and they have in gas distribution. So any reassessment would have to bear in mind that effect and that impact in order to see whether the system is really working or not.

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Unidentified Company Representative   [28]
------------------------------
 Just a couple of questions from the Internet. The first one from Stefano Bezzato, and he talks about the Union Fenosa results of the last quarter, that they seem to have deteriorated compared to the second quarter. And there has -- there've been other -- so he asks are there any other reasons due to the worse results, apart from the Egyptian issue?

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Unidentified Company Representative   [29]
------------------------------
 Well obviously, it's the seasonality of the sales and less sales in the markets where we've had less sales from the combined cycle power plants. But normally the third quarter is lower and that has been seen in previous years. What we expect, if we cross our fingers, we hope that the Egyptian problem will get solved so this will improve our results for the fourth quarter this year.

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Unidentified Company Representative   [30]
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 Okay. Thank you. [Miguel Marina] from -- the strategy manager said that there will not be a sale of assets due to financial reasons. So the income from the sales of assets, will that not be held to use to pay out to the shareholders?

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Unidentified Company Representative   [31]
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 No. We haven't taken any of that. There may be some divestments but we haven't actually considered them. But in our current plan we haven't contemplated any for the divestment or anything else. We're just saying we don't think we should divest and obviously any movement of portfolio will be due to that, whether it's strategically important at that time but not for any other reason.

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Unidentified Company Representative   [32]
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 The next question comes from Andrew Moulder from CreditSights. The question is you have mentioned this expansion in Asia beyond the year 2015. Have you got any partnership agreements? And if you have, could you let us know about this? Or have you got any potential partner in Asia?

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Unidentified Company Representative   [33]
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 We have got important trade relationship with a lot of countries with a track record, and we're now consolidating these relationships with Korea, but we're not signifying at the moment any alliance to develop any partnership for any project that could be considered in the future. We're open to this but at the moment we do not have any partnership envisaged in the future.

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Unidentified Company Representative   [34]
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 The next question is have you envisaged going to the hybrid markets in the near future?

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Unidentified Company Representative   [35]
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 Well, we haven't done it to now and it hasn't been contemplated for the future.

 Well, that was all the questions so I would like to put an end to this Q&A session. So I'd like to give the floor to the CEO.

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 Rafael Villaseca,  Gas Natural SDG SA - CEO   [36]
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 Well, nothing else. Thank you all very much for your interest and for your patience. We are convinced that we have presented a realistic plan and now we've got to work to ensure that it all comes off. Thank you very much.

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Editor   [37]
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 Statements in English on this transcript were spoken by an interpreter present on the live call.  The interpreter was provided by the Company sponsoring this Event.




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