Half Year 2015 Enagas SA Earnings Call

Jul 21, 2015 AM CEST

ENG.MC - Enagas SA
Half Year 2015 Enagas SA Earnings Call
Jul 21, 2015 / 07:00AM GMT

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Corporate Participants
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* Antonio Llarden
Enagas SA - Executive Chairman
* Borja Garcia-Alarcon
Enagas SA - CFO
* Marcelino Oreja
Enagas SA - CEO

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Conference Call Participants
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* Pablo Cuadrado
HSBC - Analyst
* Carolina Dores
Morgan Stanley - Analyst
* Javier Suarez
Mediobanca - Analyst
* Jose Ruiz
Macquarie - Analyst
* Jorge Alonso
Societe Generale - Analyst
* Olivier Van Doosselaere
Exane BNP Paribas - Analyst
* Unai Franco
BofA Merrill Lynch - Analyst
* Maurice Choy
RBC - Analyst

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Presentation
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Unidentified Company Representative [1]
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(Interpreted). Good morning, ladies and gentlemen. Welcome to this conference on Enagas's results for the first semester for 2015. The results were published this morning before opening the stock market, and they will be available for you to download from our website, energas.es.

Mr. Antonio Llarden, President of Enagas, will be leading the conference. We have foreseen a duration of around 20 minutes for the conference and then we will open a Q&A session. And we will obviously try to give you as much detail as we can during all of our answers.

Thank you very much for your attention and I will now give the floor to Mr. Llarden

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Antonio Llarden, Enagas SA - Executive Chairman [2]
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(Interpreted). Good morning, ladies and gentlemen, and thank you for listening. The results that we are presenting today for the six first months of 2015 allow us to confirm that we will once again be following the engagements for all of the year. And this has been achieved against the volatility of the markets and the complicated politic and social context that Europe and the world in general is suffering from.

I will start with the key figures that you can obviously look in greater detail on the presentation that has been uploaded accompanying this conference call.

So our net profit grew 1.5% compared to the previous year and it reached EUR213m. This increase is mainly due to, first of all, the greater contribution of the international assets, most notably I am referring to Transportadora de Gas del Peru, TGP, and to Compania Operadora de Gas del Amazonas, COGA, as well as a positive performance of Morelos gas pipeline in Mexico. On the other hand, profit has also been boosted thanks to the positive effect of exchange rate differences and thanks to the dollar's rise against euro.

With regard to operating expenses, in homogenous terms they are in line with the first semester of 2014. As we already explained during the presentation during the first semester this year, the increase of expenses are due to new activities of the Company that also generates greater revenues. On the other hand, during the first six months of 2015, Enagas has invested a total of EUR280.3m, which is in line, in any case, with our annual target for investment.

The most important operations during the semester were, first of all, the acquisition of a 10%, additional 10% of Bahia de Bizkaia Gas, BBG. Thanks to this transaction we have now started holding 50% of BBG's share capital. And then there was the acquisition of 30% of Saggas. After that we purchased 50% of Swedegas, the transmission to an operator of the Swedish gas transmission network, high-pressure gas; and operation that is now taking place in the European Trans Adriatic Pipeline, TAP, and south [Perugia's] pipeline, GSP.

In addition to that, outside of the first semester, last week, during this month of July, we closed the acquisition of 4.34% -- additional 4.34% of Peruvian company TGP. After this operation Enagas's total shareholding amounts to 24.34%.

All of the investments carried out so far completely satisfy the five investment criteria that were established by the company. During the first half of the year the international activities of Enagas have grown. They have become more important. And as you can see, it has allowed us to keep on growing with regards to results and dividends, as you can see.

It is interesting to say that after closing all of these operations, we consider that in 2016 -- in 2017 the contribution of all subsidiaries and acquisitions made to date to dividends will amount to EUR85m.

Enagas's robust financial position remains one of our main strengths. The Company's net financial debt as of June 30 amounted EUR3.851b. I want to say that our debt evolution shows that there is operating cash flow generated during the semester of over EUR510m. It was also important to show the positive contribution of working capital. It has generated surplus in the Spanish gas system during the six first months of the year, and also thanks to payment of certain pending recognitions.

The complementary dividend for 2014 was paid on July 2, so it did not represent a cash outflow in the first half of the year. We actually paid EUR0.78 per share. That means that there is EUR1.30 per share charged to 2014 profit. That is 2.4% more than in 2013.

As for the average cost of debt at the end of this first semester of 2015, as you can see, it was 3%. Enagas has diversified funding sources. 62% of the debt is in the capital market and 35% of it is financed with loans, long-term loans by the ICO, the financial official credit institute and by the European Investment Bank. Over 80% of debt is fixed rate.

The latest bond issues and liability management operations have allowed us to lengthen the average maturity of our debt 6.4 years and we have diminished the estimated cost for 2015 and optimized our maturity profile. We do not have any significant maturities until 2022, which shields us from potential market volatility. Our investors, when we have maintained our regular contact with them, have told us that they consider it is very positive to see that in a high-volatility moment in the market, Enagas has no maturity coming in the next six years.

Enagas's liquidity at the end of the first semester amounted to EUR2,933m. This has allowed us to maintain a high solvency level whilst continuing to roll out our investment plan.

With regards to this amount, EUR500m has been used during this month of July to pay the bonds that were expired on the 6th, and EUR186m were used to pay the complementary dividend that took place on July 2, which I already mentioned.

It is of great satisfaction to be able to close this financial chapter by referring to an excellent piece of news. Last week, Standard & Poor's, S&P, told us that they have upgraded Enagas's rating. We have gone from BBB to BBB+ with a stable outlook. According to Standard & Poor's grade, this has been possible thanks to the regulatory stability and [predictability] provided by the latest reform of the gas sector and also to the prudent international expansion strategy.

The agency also highlighted in its note that Enagas merits actually an A- rating. But since it is a regulated company, it cannot have a rating that goes over one step from the rating given to the state, to Spain's sovereign rating. Once the sovereign rating of Spain goes from BBB to BBB+, then they could upgrade Enagas's rating once again.

Standard & Poor's affirms that Enagas's international expansion, the one that is taking place, is based on prudent management and on a sound diversification policy with regards to market, project maturity and the schedule for cash in and outflows. The agency emphasizes that cash flow will be stable and predictable over the coming years and that international activities could contribute as much as 25% of the Group's net profit in 2020.

The strength of Enagas's rating is thus one of the main cornerstones of our company strategy. And maintaining it is one of the key commitments we have made to our shareholders and investors. We thus have strengthened our commitment. At the start of the year we pledged to maintain our rating. At that time we had BBB by Standard & Poor's and A- from Fitch. Now our engagement is more solid thanks to this upgrade in our rating. We are committed to maintaining that B+, BBB+ rating by Standard & Poor's and A- by Fitch.

With regards to the evolution of gas demand in Spain after the first semester, on June 30 national demand had grown by 5.3% with regards to 2014's demand. This growth is in line with our full-year estimate for the end of the year. That considered a growth of around 5%.

In the year, including July, demand for gas for electricity generation has increased by 32.7% with regard to -- compared to the same period in 2014. In July alone, until yesterday, [June] 20, this demand has grown over 94% compared to the same period last year. As a matter of fact, on July 7, demand for natural gas for electricity generation hit a two-year high, 329 gigawatts per hour. This was due to high temperatures and due to low wind registered that day. As a matter of fact, yesterday, on July 20, the total gas demand that was accumulated since January increased 6%.

So as a summary, during the first semester, total gas demand has increased. There was a 5.3% increase, and if we consider yesterday as a reference, 5.3% has become 6% increase.

With regards to the environment, where Enagas conducts its activities, the new gas sector regulatory framework, which is expected to remain stable until 2020, is helping to achieve the two objectives of the reform, eliminating the mismatches between expenses and revenue in the system. In that terms our estimate is that the gas system will be completely balanced in 2020 to the latest. And also we achieved the second objective, which is reducing the final price of energy in Spain, which will be translated into an improvement in the competitiveness of Spanish companies.

I wanted to remind you, in order to finish, of the fact that the objectives of 2015 are a dividend of EUR1.32 per share, achieve growth in net profit after taxes of at least 0.5%, and invest a total of around EUR430m. And all of that will be done maintaining our current ratings, which are BBB+ and A- by Fitch.

So the results obtained during this first six months of the year confirm the good results of Enagas, a good progress against a volatile market, and we see that we are on the right road to achieve or even surpass the goals that we set for 2015.

I thank you for your attention. And you're obviously invited to ask whatever questions you see fit to. And we will, as always, try to give you the answers in the most detailed way possible. Thank you.

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Questions and Answers
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Operator [1]
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(Interpreted). (Operator Instructions). Pablo Cuadrado, HSBC.

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Pablo Cuadrado, HSBC - Analyst [2]
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(Interpreted). Good morning, everybody. I just wanted to make two questions that are quite quick. First, with regards to the associates line in the first semester, the performance has been very good, reporting EUR4m equity per company. I wanted to just to know which are the forecasts for the second half of the year? Could you give us the figures that you expect for the P&L figures of equity contribution, because I guess that this is not still reflected in this line? It may be some events you might have been expecting from TAP or the consolidation of Swedegas or PPA. If you could just tell us what levels you expect of equity for the end of the year.

Second question will be in relation to the tariff and the cash flow of the first semester and the working capital movement. Could you give us a forecast? Assuming the demand level we have seen until now, that plus 5%, 6%, which is the surplus level that you would be expecting for the gas system for this year? Thank you very much.

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Antonio Llarden, Enagas SA - Executive Chairman [3]
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(Interpreted). Thank you, Pablo Cuadrado. I will give the floor to the CFO, Borja Garcia.

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Borja Garcia-Alarcon, Enagas SA - CFO [4]
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(Interpreted). Good morning, Pablo. In the associate level, in first semester we have had the positive impact of BBG's contribution, Morelos' contribution as a consequence of the consolidation of the margin from the first phase. And the second semester we have, as you asked me some question, we have the impact of the PPA of Swedegas and the greater contribution of GSV and TAP as the greenfields are developed and they contribute during the year construction product in a negative way to our P&L. I'd like to highlight that these three impacts are accountable, book impacts, and they have no impact in the Company's cash flow whatsoever.

With regards to the working capital, the first semester of the year we generated cash with a working capital of around EUR100m. For the whole of year, the working capital generation will be more stable, around EUR20m, EUR30m, but that related to the deficit. We do expect that, as the President was saying, the deficit will be absorbed from now until 2020. So the cash generation and these impacts will be around EUR400m from now until 2020.

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Operator [5]
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(Interpreted). Carolina Dores, Morgan Stanley.

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Carolina Dores, Morgan Stanley - Analyst [6]
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(Interpreted). Good morning. Thank you for answering my questions. I've got two about international investments. The first is which are the reasons of having higher levels for 2017 compared to the ones you had in the business plan, because that wasn't done so long ago?

And secondly, if dividends are higher, could this also be -- entail a higher dividend for Enagas shareholders since 2017? Thank you.

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Antonio Llarden, Enagas SA - Executive Chairman [7]
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(Interpreted). Thank you very much, Carolina, for your questions. First of all, yes. In our strategic presentation that we did a few months ago, we had estimated by 2017 these dividend contributions by subsidiaries will be around EUR60m net. And today we have got the satisfaction to confirm that from EUR60m we have gone to EUR85m. So we confirm this good piece of news.

Should this, by 2017, represent a dividend increase in general for the Company? Allow me to wait till 2017 to make a specific proposal. For the time being we stick to the strategic plan so we remain with our dividends policy, which is EUR1.32 per share for 2015, 5% increase on that for 2016 and another 5% increase for 2017. Well, if in the coming two years the evolution were to be positive, of course we could change that figure. But that's not -- it's not the time to talk about that now, I think.

The CFO would like to add something else.

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Borja Garcia-Alarcon, Enagas SA - CFO [8]
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(Interpreted). Carolina, I'd like to recall that we updated the strategic plan, what we had in the cash flow line dividend were the dividends that we had -- that came from the investments committed until that date, February. That's when we updated the strategic plan. Now what we have done is the new investments, the additional contribution, that 4% of TGP, the Swedegas investment and BBG and Saggas will have by 2017 an estimated contribution of [EUR60m] minus EUR85m, that difference. That's why we updated. But it comes from those four operations that we have mentioned.

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Antonio Llarden, Enagas SA - Executive Chairman [9]
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(Interpreted). Yes. In any case, and in order to close this answer, when we did the presentation of the strategic plan, as Borja just said, we did a first forecast with the data we had back then. So of course we also said back then that we expected that during 2015/2016, if there were improvements, as it's been the case, they will be reflected in the improvement of profit growth and of course, in the end, improvements of dividend. But we will have the time to match all these issues with figures.

Thank you very much. More questions, please.

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Operator [10]
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(Interpreted). Javier Suarez, Mediobanca.

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Javier Suarez, Mediobanca - Analyst [11]
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(Interpreted). Good morning, everybody, and apologies for my later not intervention. First question, first for TAP project, where you are participating. Could you give us some ideas about the amount of money that the Company has already invested in this project, the amount that it should invest during 2015 and the valuation, the risk valuation that this pipeline could have in its construction? We are all aware of the geopolitical situation of the area. And my question is which -- what do you think the risk to implement this project has, of course related to the geopolitical risk of that area?

And another question related to that is if finally the project for any reason does not complete, what's Enagas's risk as a shareholder in this project, TAP? I'd like to know what's the risk the Company's running should this project not finish. That would be the first question.

The second question, for Swedegas, when you purchased the company or the participation in the company, the stock in the company, you talked about the possibility of reducing the debt cost with possible synergies. Could you be kind enough to give us an update of the situation in that company, the potential you see to improve the books of the company, with regards to the management and the possibility of getting to synergies?

And another question on the cost structure of the Company. I'd like to ask you which are you estimates for costs, the costs the Company should undertake during 2015 as a consequence of the internationalization process for the business? You've mentioned that the cost structure of the Company remains flat in homogenous terms. But I'd like to know which is your evaluation of cost for 2015 of the effort that the Company is doing to grow in its international side. Thank you.

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Antonio Llarden, Enagas SA - Executive Chairman [12]
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(Interpreted). Thank you very much. Well, for the Trans Adriatic Pipeline, what we have invested is equity, and it's around EUR100m.

With regards to the geopolitical risk, with the last events that have taken place in Greece on Sunday, I think that this risk has disappeared, and I explain myself. With the previous government, with Syriza, it is true that the Energy Minister which was at the same time the leader of the left wing of Syriza, that had ideological stances, very strong in the confrontation, if we can call it, with the EU, that could shed some shadows over the feasibility of the project as far as it had to cross Greek territory.

But with Lafazanis exiting the government and being substituted by another minister, I think, and it's not only our criteria, but it's the criteria of the top managers of TAP and people from -- of the financial world with whom we have had contact, but from this standpoint we all think that the possible geopolitical risk that by having that discussion, Greece and the EU, these projects sponsored by the EU were to be undergoing difficulties, this has disappeared. And now that's what I honestly think.

So the risk of the project comes only as any big infrastructure project has, with more than 100 kilometers. Of course that has got construction risk, etc., etc. But we do not longer see specific risks. But on the contrary, with the new scheme by which Greece has committed to a series of reforms to improve its financial structure, as stated, it's clear that crossing -- having its territory crossed by a pan-European pipe is just an advantage and it fits perfectly to Greece. So from that stance we see no risk.

Though I must admit that until last Sunday, we could be mistaken or not have cleared the political stances of the political managers with regards to energy. But I think that has been already solved.

With regards to the Swedegas questions and the cost and efficiency structure, I will give the floor to the CFO. Borja, you can now answer.

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Borja Garcia-Alarcon, Enagas SA - CFO [13]
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(Interpreted). Good morning, Javier. For Swedegas, when we acquired it, we said that 100% was done with debt with resources to shareholders. The company, Swedegas and Fluxys-Enagas is working to renegotiate the takeout of the bridge of the debt. So in the coming dates, the only risk or Enagas's risk in that company will be limited to the equity contribution we announced.

With regards to the cost structure, in the first semester we've had a growth of staff cost of 10%. This figure includes lesser activation of costs because there's been a lesser organic investment. For the whole of the year, that's the same figure, 10%. So the -- if we extrapolate, we have to get that growth rate.

But I'd like to highlight something important here. In homogenous terms, the growth of structural costs represents 2%. That shows the effort that the Company is doing to absorb the bigger costs that we have acquired when becoming more international in our business.

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Antonio Llarden, Enagas SA - Executive Chairman [14]
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(Interpreted). More questions, please.

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Operator [15]
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(Interpreted). Jose Ruiz, Macquarie.

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Jose Ruiz, Macquarie - Analyst [16]
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(Interpreted). Good morning, everybody. Two questions, very quick ones. First, you have -- in the targets for 2015, you take out the target of the net debt EUR4.2b. Are you getting that or do you expect that figure to be lower? Or are you going to accelerate international investments in the second half of the year, because in the first half, you closed with debt which is significantly lower?

Second question on the pending legislation to be developed, the gas market launching, we're about to get general elections in Spain. It seems that the government is getting everything closed as far as pending regulation is concerned. Do you think that the government will approve this regulation before the elections? Thank you.

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Borja Garcia-Alarcon, Enagas SA - CFO [17]
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(Interpreted). Thank you very much, Jose Ruiz. First of all, yes, we do have that final objective for debt of EUR4.2b. The fact that in the first semester we've had a lower level of half of that debt was explained in my intervention because we have had two payments at the beginning of July, the dividend. And the bond that was issued a few years ago has returned. That has made for the first semester to have less debt and more in the second semester.

Next thing, on the other side, that since we did the change of paying the first dividend instead of on January to advance it and pay it in December, since a few years, we do have an imbalance between both semesters. Because in the second semester we have both dividends to be paid, whilst in the first semester we pay no dividend. Before we had a dividend in the first semester and a second complementary in the second. That makes for this debt figure to be unbalanced by the mid of the year in a positive sense. But we do keep for the end of the year this debt level of -- that we had foreseen of EUR4.2b.

With regards to the second question, I will give the floor to the CEO, to Marcelino Oreja.

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Marcelino Oreja, Enagas SA - CEO [18]
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(Interpreted). Good morning. As you all know, in relation to the gas market, the reform of hydrocarbon sets for Enagas to participate by 13% in the Medgaz company. That will take place in the coming weeks.

And this specific regulation of the gas market that will be established through a Royal Decree is under consultation by the Hydrocarbons Council. So we do think that the gas organization, the market gas organization will see the light in the coming weeks.

You know that we have always been very positive and proactive with regards to that market. We think it's good for it to exist. That will set prices and that will give us bigger gas demand. We're very -- we've always been very proactive in the creation of that market and we will still continue to be.

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Antonio Llarden, Enagas SA - Executive Chairman [19]
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(Interpreted). Thank you very much. More questions, please.

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Operator [20]
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(Interpreted). Jorge Alonso, SocGen.

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Jorge Alonso, Societe Generale - Analyst [21]
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(Interpreted). Good morning, everyone. I just have a couple of questions to ask you. Could you please break down from your CapEx, the one you have for this year, could you break it down and tell us whether there's going to be a bit more internationally or is everything that remained being used for organic growth in Spain?

And could you please remind us of the organic CapEx, the one you have for Spain, what is your agenda? What is the agenda you expect to have in the next few years and whether there are any important differences between the CapEx and the assets that are being exploited right now? Thank you.

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Antonio Llarden, Enagas SA - Executive Chairman [22]
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(Interpreted). Thank you so much, Mr. Jorge Alonso. The CapEx that we have given for Spain and international, you have to remember that it was around EUR430m per year as an average during three years. And within that, around EUR120m for international per year during three years and the rest is for Spain. So we maintain this idea.

But as we said during the first [day], what we were giving you was a figure for the three years. And although it's very difficult to give you an exact number for each year, that is our intent. So internationally our summary would be that we are engaged to having an investment of around EUR120m per year as an average for three years. That is to say [EUR360m] in total. And the rest would be for Spain, also with that reach, that scope for three years.

As for the second question, the investment in Spain for 2015 has a bit of a delay, due mainly to the delay in the beginning of the works of the regas plant in Tenerife. But according to the information we have currently, we believe that this delay will be -- we will recover from this delay at the end of this year and during 2016 and 2017.

So as a summary and in order to give you a more specific answer, we think we can maintain for 2015, 2016 and 2017 the global amount for investment in Spain as well as internationally. Although it's true that this could increase or decrease, but we think that during these three years we will be able to maintain this CapEx figure quite easily.

Any other questions, please?

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Operator [23]
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(Interpreted). If there are no further questions in Spanish. We will now go to our English questions. Thank you very much.

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Operator [24]
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Olivier Van Doosselaere, Exane.

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Olivier Van Doosselaere, Exane BNP Paribas - Analyst [25]
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Yes. Thank you very much and good morning. Thanks for taking my questions. I just have two. The first one is on the 2015 guidance, 0.5% net profit growth. I wonder to what extent you believe this actually might be cautious given that you've done more than that already in the first half, which is this half where actually the comparison base was the toughest because the first half of 2014 did not yet have the impact of the gas market reform.

And then the second question is more again on the international activity. If you could give us a bit more of a feel of where you are looking at the moment in terms of further investments that you could be making and how competitive the landscape is, for example, from infrastructure funds. If you see many transactions maybe going at too high prices to these kind of players and therefore you are willing to get away -- let go away from some of the potential assets that you could buy. Thank you.

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Antonio Llarden, Enagas SA - Executive Chairman [26]
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(Interpreted). Thank you very much, Olivier. I will answer your question. As for the first question, it's true during the first semester of the year we did have an increase of our net revenue of 1.5%, which was over what we had foreseen initially. But we've already explained that some of these impacts are -- so it's true that what we have already said has been maintained. It's also true that during the second semester we might have some other impacts that we haven't had during the first semester. But this allows us to say two things.

Firstly, obviously we maintain our estimates, our initial estimates with regards to increase our net benefit of at least 0.5%. We are sure that that will be obtained. And the 1.5% we have obtained during the first semester allows us to think that we will be able to have a better result than we first saw during the beginning of the year. But due to the volatility in the financial markets, we'd rather not touch any of our forecasts, knowing that much of what we have obtained during the first semester, even if it were not be repeated during the second semester, has already been consolidated. So we think we're going to have a good final result that will be over what we has foreseen.

So as for the international activity, we have two things to say. We maintain our three main activity axes, which are the European axe, and we've already been talking about that; then the axe in America, important growth countries with regards to gas demand; and the third axe which we are also studying is a larger one from the geographic point of view. And those are activities that could take place or operations that could take place in the whole chain of natural liquid gas. And if there are any interesting projects then we will study them, of course. But there are no modifications with regards to the areas that we explained already during our strategic plan presentation.

And as for the relationship we have with structured funding, for structured funds, we've already explained that we study those projects that we believe might provide us with a competitive advantage, such as transmission system operator. If it were simply some sort of competition or simply a financial competition, then obviously we would not be in the position or we wouldn't have a possibility of competing against those entities.

But in those projects where we are present or those projects that we are starting, they always provide us some sort of competitive advantage. And we've shown it already during all the acquisitions that we have carried out. Always us providing know-how, experience and the will to manage the assets in the companies where we invest gives us an advantage, a competitive advantage that we would not have if we were simply an investment fund, a financial investment fund.

Thank you very much. Any more questions?

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Operator [27]
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Unai Franco, Bank of America-Merrill Lynch.

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Unai Franco, BofA Merrill Lynch - Analyst [28]
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Hi. Good morning to everyone. Apologies if I missed a couple of the questions; I got cut off from the line. So here we go. First question, could you comment on the ongoing negotiations with the government in terms of a potential update for the remuneration of the TSO services provided? I was wondering if you could comment a little bit on the scope of the discussions and the timing.

Second question, you've been very clear about the investment criteria when you consider investing in international projects. And I'm not going to ask about any project that you are currently looking at. But I would like to get a bit more clarity on whether the current environment and the projects that you've already been involved so far, have those taken you to fine tune a little bit your appetite in terms of specific type of projects or specific regions? Maybe you can comment on projects that you have not -- that you have chosen not to get involved. Maybe you can give us some clarity on why that would be so we can understand a little bit your rationale.

Next question, the increase in costs due to the international expansion strategy. Are you thinking or are you undertaking any sort of cost optimization measures elsewhere in the Company in order to offset those a little bit?

And then final question, on the FX assumptions on your business plan, could you remind us what those were in terms of dollar/euro?

And then also this upgrade of the contribution from international associates from EUR60m to EUR85m, what is the ratio between dividend to earnings? Can we assume that those that you call dividends are going to be -- basically are also earnings?

And also the FX assumption underlying those forecasts, are they the same as you have in your business plan presented earlier this year? Thank you.

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Antonio Llarden, Enagas SA - Executive Chairman [29]
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(Interpreted). Thank you so much, Mr. Franco. What we still have pending with regards to regulated revenues was something very specific, which was the participation of income as a consequence of being the technical manager of the system. And this is something that you already know. You know that the Ministry already produced a draft. And that draft was sent to the competition authority. We have obviously made some amendments to the draft. And we think that in the next few weeks the Ministry will be able to issue the ministerial order, the definite -- the final document. So that would solve the situation, this pending topic.

And as for investment criteria, well you gave the answer during your question. We maintain those five criteria that we have mentioned, core business and so on. But I'm not going to repeat, not to bore you.

And as for geographic axis, I've already mentioned them. During these last four years we have studied over 200 projects. And we've only decided to work on 10 -- 14 projects that we considered were interesting. And we have done seven to eight projects out of those that we've studied. So there is no news with regards to that. We maintain our geographic axis and our strategic axis, with regards to return, with regards to core business and so on. So there is no news with that regard considering the strategic business plan.

As for costs, operating costs internationally and the last question, I will give the floor to Borja so that he may answer.

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Borja Garcia-Alarcon, Enagas SA - CFO [30]
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(Interpreted). With regards to costs, as we already said, staff costs have grown 10% during the last semester. This figure includes a lesser cost of activation due to the organic cost. We expect for that 10% to be maintained.

And I have to say that in homogenous terms, leaving aside impacts of variable costs that do not have an effect on EBITDA for the whole of the year, we expect a growth of structure costs of the Company of 2%. And that does reflect, as I said previously, the effort made by the Company so that additional costs generated by international expansion can be compensated with greater efficiency.

With regards to the next question which had to do with the dividend contribution, our dividend line, when we talk about dividends, we refer to the line that comes from [foundation] of our cash flow. So these are dividends that are cash dividends for Enagas SA. So this is not paid by the companies; but the dividends that we get, we, Enagas SA get.

This forecast with regards to budget and strategic, we've done with real costs. So we maintain the exchange rate we had last year, which was 1.34. And the contributions to go from EUR60m to EUR85m are the investment, additional investments made since the strategic plan was announced. So the contribution that TGP would have would be 4%, Swedegas's contribution and BBG and Saggas's contribution.

With regards to whether these dividends have an impact on earnings, that is a bit more complicated because we have to consider PPA impact, purchase price allocation, in our P&L. And especially for these transactions, midstream operations, most of the price that we pay during acquisitions has to be assigned to assets and then it has to go through our results account.

So on top of those EUR8m of PPA that we'll have during the first semester, this figure is going to be increased in the second semester and will reach around EUR19m. So the translation from the dividends and results P&L is not immediate. But the cash dividend, the direct contribution of our [national] subsidiaries is very clear in this cash flow line.

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Antonio Llarden, Enagas SA - Executive Chairman [31]
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(Interpreted). Thank you very much. Any further questions please?

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Operator [32]
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Maurice Choy, RBC.

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Maurice Choy, RBC - Analyst [33]
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Hi. Good morning. Just two simple questions from me.

The first one is about Spanish gas demand and second question is about TAP.

The first question, Spanish gas demand. The way I understand it is if gas demand goes up by 1% to 2%, by the time we get to 2020, the gas tariff deficit will be eliminated. Given that now it is trending at 5% to 6%, can you just discuss a little bit about where you saw the differences and whether or not you see these differences continuing to be maybe 3% to 4% moving forward? So that's the first question.

The second question is about TAP. Obviously you would have seen the news release about Statoil looking to sell out of their 20% stake yesterday. Just a quick question as to whether or not Enagas, given that they are a 16% shareholder, you actually have a first right of refusal to acquire these stakes. Thank you.

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Antonio Llarden, Enagas SA - Executive Chairman [34]
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(Interpreted). Thank you very much, Maurice. With regards to your first question, yes, we have said that up to 2020 we consider that the total gas demand would evolve with an average of 4% growth every year. Although when we did this we have to remember that we already said that this was an average demand and evolution of the average demand. And this was comparable with, during the first year, 2015, we said we might see a greater growth of around 5% to 6%, mainly due to the fact that the previous year, which was the year we compared ourselves to, 2014, was a very bad year from the point of view of temperatures. Bad I mean for gas demand obviously, from the point of view of temperatures and also from the point of view of water power.

So this has been seen. We have grown 5% to 6%. Actually 6% would be the exact figure to date. But our forecast for the end of the year is a bit more cautious. And we think that at the end of the year we would have 5% point something. And that is obviously completely comparable with an average growth until 2020 of 4% every year.

And we actually think that in 2020, we will have eliminated the tariff deficit. We are -- actually using a forecast made by the regulator that was even more conservative than the one that we have made with 4% per year. So we think that if we follow the current rhythm. And we work with an evolution of an average of 4%, we will solve this problem before 2020 or in 2020.

And as for the second question, we have 16% in the Trans Adriatic Pipeline Project. We could obviously have a right of offer so that we could increase our shares. But we are not going to do it because we think that there are other companies who have an interest in becoming shareholders and we think that's good. And also because this increase in our shares in this specific case would not give us any qualitative advantage.

We feel quite comfortable in the situation we're in. We have a very good participation in the management of the project and we don't feel the need of increasing our shares. Thank you very much.