Nine Months 2015 Gas Natural SDG SA Earnings Call

Nov 04, 2015 AM CET
GAS.MC - Gas Natural SDG SA
Nine Months 2015 Gas Natural SDG SA Earnings Call
Nov 04, 2015 / 09:00AM GMT 

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Corporate Participants
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   *  Rafael Villaseca
      Gas Natural SDG SA

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Conference Call Participants
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   *  Gonzalo Sanchez
      BPI - Analyst
   *  Pablo Cuadrado
      HSBC - Analyst
   *  Fernando Garcia
      MainFirst - Analyst
   *  Alejandro Vigil
      Vigil Asset Management - Analyst
   *  Sonia Ruiz De Garibay
      BEKA Finance - Analyst

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Presentation
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Unidentified Company Representative   [1]
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 We're going to start with the first nine months this year presentation, which will be done by Mr. Rafael Villaseca, the CEO, together with the CFO, Mr. Carlos Alvarez and the Director for Strategy and Development, Mr. Antonio Basolas.

 In addition to the presentation of results, we're going to review the whole business and the presentation will be longer than usual. After the presentation we'll have a break for about five minutes and then we'll have a Q&A session.

 As we said when we convened this meeting, after the presentation it won't be possible to ask questions on the phone. We will start with the room, people in the room, and then with people that are following us on the Internet. And those of you who want to ask questions over the Internet, we ask you to please do so during the presentation. Once the Q&A session starts, we won't accept any more questions on the Internet.

 And without further ado, I'll pass the floor to Mr. Rafael Villaseca, the CEO of the Company.

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 Rafael Villaseca,  Gas Natural SDG SA   [2]
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 Good morning to everyone. Thank you very much for being here at this presentation of results of the nine -- first nine months of the year. This is the program that I want to present today.

 We're going to start with the key messages. Then we'll do the -- we'll look at the main financial aspects. Then we'll analyze the risks and opportunities in the Company. Then we'll continue with the targets for this year and then we will have a business update, business lines of the Company. And then, after the break, five-minute break, we'll have a Q&A session.

 The detailed financial information which we're used to is also in the attachment to the documentation you've been given.

 Let's go to the key messages. We have four. The first one is that these results are good despite the challenging commodity scenario. And regulated activities, which are the basis of our results and our EBITDA, have had a sound performance, strong performance, sound performance, and supported by the regulated activity in Spain and South America. In South America there's been a growth -- general growth in all our operations in spite of the currency devaluations in the last few months. And finally, we would like to confirm that the strategic plan targets that come to an end this year are going to be complied with.

 So we start with the key financial indicators. First of all, we have to say that we've had a net income of EUR1.094b. That's 3.8% adjusted if, to the profits of the previous year, we take away the derivatives from the de-investment in telecommunications. So we've had -- without that and without counting this year, the profit of that -- profits of the disinvestment in Begasa, so our results have grown after taxes by 3.8%.

 The EBITDA is almost 11% for the holding, for the Group, based on the acquisition of the CGE Chilean group.

 Our investments have grown by 14.4% as regards last year, basically as a result of the investments in networks and distribution in Spain and outside of Spain. We have to underline the soundness, financial soundness, in spite the fact -- well, we spent a lot of money on CGE. We continued to deleverage and our debt is less by more than 5% than the debt last year.

 We have to underline relevant facts these last few months. First of all, there's been a renewal once again of the 1 bcm gas supply contract with GAIL in India for the year 2016. We are continuing to have strong activity in that market, which is potentially very interesting.

 Secondly, there's a new gas supply contract of 1 bcm to EGAS in Egypt for one year. So that opens up a new geography for our markets and our activities.

 And thirdly, we've booked 250,000 supply points of LPG in Spain from Repsol. The key of this operation, as you know, is the new Spanish regulation approved a year ago, which emphasizes, especially for five-year periods, helps distribution in new -- or tries to promote distribution in new towns. And that is highly attractive for our gas business in Spain.

 We have to say also that the Company is at the top of the sustainability indexes that several institutions publish. We're very satisfied with that. And we'll continue to invest every effort in sustainability in our Company and to -- and for that to be described and reported in these public reports.

 We also have to say that very recently the European Investment Bank approved a EUR900m long-term loan to invest in our gas distribution networks in Spain, and say that we bought 8.33% of our subsidiary participada, Metrogas in Chile. We've gone from 51.8% to 60.2% in terms of the percentage of the capital of that Chilean gas company.

 If we look at the breakdown of EBITDA by business lines, we see that it's gone up by almost 11%. And the main reason as regards -- as compared to last year is the increase in the growth in distribution networks. That's the key. We've grown by EUR507m. And a good percentage of that has to do with the networks we've acquired through the CGE Chilean -- CGE company. But if we leave aside the Chilean networks, the EBITDA resulting from network activity has grown by 2.3%. So what Chile has done has added -- they've added to the growth of EBITDA in the networks.

 The electric businesses have contributed by EUR30m more to the growth of the EBITDA. And gas provisioning, EUR86m less, basically as a result of the commodity prices that we'll look at in a minute in detail. And there's been a negative growth of EUR59m basically due to the disinvestment in telecommunications, which we sold, the telecommunications business we sold last year.

 Now if we look from another point of view by main effect, we look and we see that in order to arrive at that growth of almost 11%, the increase of the consolidation perimeter has meant EUR432m more. That's the purchase of CGE and taking away the telecommunications business. The effects of translation or transfer of foreign currency and the consolidation of the balance gives us an improvement of EUR37m. So the effects of devaluations have had a positive effect as compared to last year.

 And then the regulatory measures have led to EUR56m less. We're talking about the new regulation of gas in Spain, which entered into force on July 1 and has affected us negatively by EUR56m. It won't affect the second half because it entered into force last year.

 The wealth tax in Colombia, which affects -- is a three-year period. It's a single payment. It's a one-shot EUR12m. And then the activity, a drop in our activity of EUR9m. So this is a different way of looking at the EBITDA in these nine months.

 If we do something similar as regards the net income, we start from last year, EUR1.239b. Take away what has to do with the capital gains because of the disinvestment in telecommunications, and the starting point is EUR1.049b. If we add the EUR25m that last year were provisioned as regards the new generator at Nueva Generadora del Sur, the CEPSA plant, we had EUR25m. If we improve our net income, the consolidation perimeter involves EUR30m. That's the net resulting from the investment in CGE discounting the financial effects and also the disinvestment in telecommunication. So it's obvious that has had an influence on the business in spite the financial operation and the disinvestment. And then EUR10m less in activity.

 So that leads to a final amount of EUR1.089b. That is an increase of 3.8% adjusted.

 Now in terms of cash flow, we have to point out once again a very relevant situation. The cash flow's very good permanently, thanks to our business's diversified position and growth we're having. So after paying out the dividend and disinvesting and what have you, we've got net debt of a little [less] than EUR16b with a discount over the closing figure for last year of more than 5%. So we're in line with what we had set in the -- established in the strategic plan.

 And if we talk about investments, we have to point out that in these months, 77% of investments, total were EUR1.116b, have been in networks, distribution networks. And in the last three years we've invested EUR6.8b. That's an average -- annual average of EUR1.3b, mainly in networks. And we've also disinvested in some areas to diversify the portfolio. The telecommunications and Begasa disinvestments are the most important.

 In October, after all the regulatory issues were sorted out, KIA took 25% of the capital of GPG, Global Power Generation, with a capital of $550m -- injected a capital of $550m.

 Good. We continue to be committed to financial discipline. Leverage is 3 times the net debt over EBITDA. And the FFO over net debt is 22.4%. We've got diversified debt structure which costs 4.5% on average. That's the cost of debt. And we've taken on the debt of CGE, which is in local currency so at higher rates.

 We've got strong liquidity. Here you've got the details. More than EUR7.1b of committed credit lines, with enough liquidity available to cover needs for over 24 months. And then we've got the EUR900m loan that we got from the European Investment Bank. So our position in capital markets is excellent. And we've also had successful issuances of bonds and hybrids two months.

 All this ratifies and confirms the discipline -- our financial discipline in our Company, our financial discipline and growth of the business. If you look at the evolution in the last few years, from the purchase of Union Fenosa, we achieved EUR26b debt we arrived at. Today we have EUR16b debt. We've not only growth with the purchase, but also the purchase of CGE. And in spite of this growth policy, CGE accounts for EUR4.6b all told without resorting to extraordinary operations, sale of assets and things like that. Well, we did sell the telecommunications business, but that was a one-off thing.

 We've achieved the financial objectives that we had and we've kept up our growth and a strong financial structure.

 If we look at risk and opportunities, I'd like to talk about five things. The impact of the devaluation of foreign currencies, the price of commodities, the gas procurement contracts, the problems that we're having in Egypt and the acquisition of the Chilean CGE company, which we bought almost a year ago.

 We'll start with currency. Currencies, devaluation, there could be two things said here. We have devaluations that have been the result of imbalances between assets and liabilities in P&L accounts of companies and balances of companies when you buy and sell in different currencies. The assets and liabilities are not in line. This has never had a strong impact on our Company. It's not something that is relevant to us. That is because systematically we have always naturally hedged everything, giving priority to financing in local currency and hedging with ad-hoc derivatives whatever circumstances might have arisen.

 So this risk, which is limited to what happens in companies that operate outside of Spain in local currency, is not relevant to us and it has not been until this date.

 A different thing is the effect of the translation or transfer -- the exchange rate when we consolidated our balance. That is different and has had a negative impact in the past. You'll remember the previous year. But this year it's positive. It's not negative; it's positive.

 So this effect of exchange into euros always -- is always mitigated by three factors that we have to bear in mind. The first one is the huge diversity of countries and currencies. The second one is that these movements and rates don't have a direct impact on the cash flow of activities. And the third is that many regulatory frameworks contemplate adjustments in the tariff as a result of the operations, which are in turn associated with devaluation. So we've got a good natural hedging coverage, which has led to a situation where we haven't had to hedge that exchange rate risk. We have other procedures.

 And if you look at what we've done and what's happened this year, we see that during -- for two quarters we've had the situation of devaluations and their impact on the balance has been positive. And in fact in the third quarter it's been negative. But all told, the positive -- it's positive by EUR37m, taking into consideration the whole year.

 On the right you see, broken down by currencies, you see the real from Brazil and the peso from Colombia. They're negative and the dollar's positive. Historically, and it's been the case in recent times, the devaluation of one of the local currencies in Latin America has always been accompanied by a reinforcement or strengthening of the dollar. That hasn't happened in the third quarter and has led, in the third quarter, to a cost of EUR19m, EUR19m negative.

 We'll see what happens in the fourth quarter. The normal thing -- it would be normal for the situation to balance out and mitigate the -- for it to work itself out. We'll see what happens. But it's under control. It's under control. We don't think that this will entail big problems, but we're going to be on top of this and make sure that we monitor the dollar over the next few months even more than local Latin American currencies.

 If we talk about risk and opportunities in the commodity prices, we've got to point out something that you already know, and that is that the drop in Brent, the price of Brent, which is really the index that our operation is linked to, has been 44%. 36% for Henry Hub. And the rest with a national balance point. As regards the first -- the previous year, our operations with Brent, most of our sales contracts, purchase contracts are also linked to Brent. So there's a very significant natural mitigation of these drops as a result of our everyday activity.

 We also have to say that another factor is the negative correlation between the dollar/euro exchange rate and the price of oil. This has been a very great strongly mitigating factor, although until to date this year there's been less fluctuation but it has meant an appreciation of the dollar against the euro of 19%.

 And we've got several mechanisms that we've applied consistently to produce -- to protect our margin. In addition to what I've mentioned is the great diversification of sources and the operational flexibility, not only in terms of purchase but also sale. So by means of our operations flexibility, based on our logistics, our fleet and what have you, we are able to go to the markets that allow us to hedge these risks in a more natural way. But I insist, we've never -- we've always matched our sales. And the dollar usually balances out most of the problem.

 Now, if we carry on with this, we see that in the first half of the year the prices of energy benefited from the US dollar appreciation and that this mitigated the euro impact of energy price adjustments. In the second half of the year this appreciation of the dollar won't have such an effect. It hasn't had in the third quarter such an effect. And in the third quarter we've had a change in the mix with an increase of sale of gas in the electric generation market, which traditionally has lower margins.

 So due to all this, the EBITDA, the unit of EBITDA per megawatt hour has dropped by 15%, very much influenced by the third-quarter performance, and we'll refer to that later. So it's 15%, this business in unit EBITDA, there's been a drop of 15%. This means 15% of our total EBITDA. So remember, 15% of our EBITDA is what we're talking about and 15% is the drop in unit margin but not of the EBITDA as a whole because the volumes have gone up.

 Allow me to tell you that for next year we expect a limited additional margin contraction due to the fact that, on the one hand, 90% of the medium-term supply contracts are committed and, on the other hand, our flexibility will allow us to continue to optimize markets and indexes. And in that way, and together with the fact that there's going to be an increased volume, we expect that this will have a very limited effect on our P&L account for 2016.

 Now if we carry on with the contract -- gas contracts, here you have a description of the most important contracts and the perspectives for expiry, the expiry dates. Normally it's 25-year contracts. 56% are through gas pipelines, mainly Algeria, also Norway. And 64% natural liquid gas -- liquid natural gas, LNG, which has about 60% flexibility in terms of its destination. And this opens up huge business opportunities.

 And the indexes are also diversified. In many, Brent is present. And then there are other indexes that are used. This flexibility in terms of source, destination, formulas, has allowed us growth above the market and freedom to address and enter new markets, we've spoken about the Egyptian market, and increase a lot the range of customers that we can reach.

 And this table gives you details of the origins, the amounts and the date of expiry. And to continue, we have to say that all those contracts are -- have an ordinary review. Every three/four years they're reviewed. It's very normal for the Company to have renegotiation of contracts every year based on the ordinary renewal criteria.

 At this time we've closed these supplies with T&T, Algeria and Norway. We've got the Qatar contract pending and those that come through Union Fenosa Gas.

 We have to underline that when the markets are bullish, there's an increase obviously. And the sales contracts are indexed, and when they drop it's exactly the other way round. So the natural mitigation is applied to the price reviews. They're dropping at this time for obvious reason because markets are bearish so the contracts are -- the prices are -- in the contracts are dropping too.

 Now in -- before we go to the summary, next year we've got new procurement contracts. And it's worthwhile making a few comments about this. The two Cheniere contracts, USA, the I and II, almost less than 7 bcms. The Yamal in Russia, 3.2. And the Shah Deniz in Azerbaijan 1 ACQ. This is part of our future portfolio.

 And we've got to point out that there are periods of time associated with this. You see them here. The first one that will start operating normally is in 2017, the first Cheniere contract. But 2016 we expect early quantities. We don't know how much yet but they will be probably modest. These amounts are not restricted in terms of destination. They're free destination. And it's very important to point out that of these bcms, 4.8 bcm will enter the market in -- by 2017. 3 bcm are covered by contracts that are Henry Hub indexed. So this is the situation for 2017, of 4.8 bcm, 3 -- we've sold 3 bcm Henry Hub indexed, 3 ACQs.

 So for next year there will be an amount which will mean greater volumes and an increased margin. The new volumes of next year will be limited because we just talk about early quantities from the first Cheniere contract will allow us a positive evolution of the EBITDA.

 Now more details about these contracts. We have to say this is based on information that was published. We know in the US that by -- we're talking about a 2020 horizon, we have contracts for 40 bcm. We know about contracts for 40 bcm. These figures will come through if all projects move forward as foreseen. The first will and then we'll see what happens with the rest. 40 known bcms that should -- I insist, should be on the market by 2020.

 Now we know the prices margins. 5 bcms of those 40 bcms are slightly cheaper than ours. 26 bcm are more expensive and the rest are ours. So in these new volumes on the horizon, clearly we are in a very good competitive situation to place ourselves on the market. And I insist, the first 4.8 bcm, 3 bcm are covered through our Brent-linked sales.

 Now all this comes together within the trend that we expect for natural LNG. We'll talk about more this when we present the strategic plan. But the -- in accordance with the most reliable projections for demand that experts are talking about, there's no doubt, and I would be so bold to say that I'm sure that the future of LNG is going to be clearly positive over the next few years. And we expect a growth of 8% until 2020 and 3% up to 2030.

 This has to do mainly with certain adjustment -- slight adjustment in the Japanese market. And we expect increases in emerging countries in Asia, and even in European countries due to the decline of natural -- the reserves in Europe and greater demand for electricity resulting from the environmental policies that will affect coal, maybe nuclear power plants and the need for back-up of renewable energies. In the Middle East we expect a very clear increase as a result of a greater demand, industrial among other things. And in Asian countries, petrol-derived -- oil-derived products are going to be replaced with gas. And it's also known that over the next few years there's going to be 11 countries more that are going to be on the list of LNG importers in the world. And they have logistic capacity, and we have the capacity to serve all these new customers.

 So let's talk about Egypt. As you know, we have a relevant program there since 2012 with the Damietta plant, which is owned by Union Fenosa Gas, which in turn we own 50% with ENI. Stopped supplying the 5 bcm per year they had committed. Then we provisioned a sizeable amount, exceeding EUR550m to solve the problem.

 We're now working along three lines. First of all, we have a Letter of Intent signed with a company. They have a project in Israel. The company is led by Mobil, a US company, to supply from 4.4 to 6 bcms for a period of 15 years to our plant in Damietta. This project would be based on an offshore platform and an underwater gas pipe.

 We are also negotiating with the Egyptian government to try and find a friendly solution to this problem. Of course, we have resorted to the courts to defend our interests. However, both parties would like to find a friendly solution to the problem.

 And thirdly, and this is very important, as you all know, recent and very important discoveries in the eastern part of the Mediterranean are quite relevant. The most recent one, the Zohr project, has proven reserves that may exceed 80 Tcfs. So it's clear that in the area where the Damietta plant is, the potential of gas to be treated in the plant is huge, very high, which increases the plant's value.

 I should mention that this plant is amongst the most efficient plants in the world. Its costs, both OpEx and CapEx, are extremely efficient. And for considering the whole selling and investing dynamics that will be developed in the area, Israel and other countries will be involved. The potential is huge. This is not going to happen overnight, but eventually they will increase the value of our investments there.

 And let's talk about CGE. We're very happy with our investment there. We're convinced that this is going to be a wonderful opportunity in the short and medium term. Now it accounts for 12% of our EBITDA and 4% of our net profit. So we are now trying to integrate this with Gas Natural Fenosa. I'm referring to the implementation of the synergies that can be implemented when the business is more integrated. And this is actually a reality and we're very happy with the results.

 And then we're trying to integrate the CGE Group, which is to be divided into different groups, which were somewhat dysfunctional. Everything is going very smoothly and we're very happy.

 Regarding results, the CGE Group's EBITDA has been flat during the first nine months of the year because last year they had an unusual increase in their income due to a historical adjustment with a gas supplier. However, if we look at the EBITDA in proportion to our share, it's grown by more than [7.6%] in Chilean peso and more than 8% in euros.

 However, net profit has increased by 38%. Net income and exchange rate risks are hedged because around 40% of the investment has an exchange insurance, which is now in force. We are convinced that potentialities that we identified in the past will become a reality, as I am showing you now -- I'll be showing you now and later.

 Chile presents important opportunities in gas and power. We expect a growth in the number of customers of 2% to 3% per year, both in gas and power. Due to the fact that there are growth opportunities in Chile for the development of transmission and distribution infrastructures, the opportunities in the country are high and they will be even higher in the future. And I'm referring to distribution and generation here.

 One of the government's objectives is to ward off two important problems. They want to have more reliability in their energy mix and they want to fight against serious problems. They have pollution caused by the huge amounts of biomass that are being burned. GNL or rather LNG needs to be empowered, taking advantage of its capabilities. And then we'll be looking at cost control to keep the business profitable.

 I would like to move to the next chapter in my presentation, 2015 targets. I'd like to start by referring to the efficiency plan, where we mentioned savings amounting to EUR300m, which would increase the EBITDA in yearly and cumulative terms. So as of today, we are in a position to say that we will meet this goal of EUR300m in savings to be reflected on the EBITDA by reducing services and discretionary costs, by streamlining commercial and operational costs and by optimizing costs in corporate areas.

 And we've done all this by making headway in the three most important lines we mentioned in the past. First of all, networks. We've increased them by 3.7m more supply points. And there's a potential to have 1m more. So we've met our goals. As we told you before, we will be meeting our main goals for 2015.

 But at the same time we've set the foundations for huge growth in all businesses, through our entry into Peru, new concessions in Mexico, the acquisition of CGE and acquisitions in Spain of Gas Directo, Repsol's supply points and other operations, such as the gasification of Menorca.

 In the power generation business we have 520 megawatts more in installed capacity. We obviously own Torito and the acquisition of Gecalsa in renewables. And then KIA's entry into the corporation's capital.

 And in gas supply, in this business we have 100 bcms more into our portfolio and we've doubled the capacity of our tanker fleet, not only to transport these new resources but also to further optimize our sales portfolio and therefore our margins.

 So all in all, we are in a position to say that we will be meeting our basic objectives, that is to say EBITDA exceeding EUR5b, net income around EUR1.5b, net debt/EBITDA ratio around 3 and a payout of 62% to be paid in cash.

 The Board of Directors of the Company recently approved the payment of an interim dividend against 2015 results, EUR0.4072 to be paid on January 8, 2016. This is a 2.72% increase versus the previous year.

 So to conclude my presentation, I would like to update our business lines, starting with the networks. The network business is providing the Company with EUR2.407m in EBITDA. And this is a 27% growth as compared to the previous year. So we distribute through our networks more than 0.5m gigawatts per hour in gas and power. This is the most important business of the Company. It's a regulated business, of course.

 And now looking at the most relevant parameters of each of the businesses in this area, I'll start with gas distribution in Spain, which, as you know, is linked to a parametric formula which, on turn, is linked to growth measured in new connections and volumes. High remuneration for those who meet those conditions and volumes during the first five years, so profitability is not only based on investments but also on operational and growth efficiencies.

 Regulation was amended last year. The cost to the Company was of around EUR207m per year, as you all know. And this should allow us to continue to grow. Gas in Spain has a low market share, 27%, and therefore the potential for growth is very high.

 So far this year, without taking into account new connections or supply points we've acquired from Repsol, we've grown by 110,000 new supply points or connections. Growth in sales is not directly related to the GDP, but rather to temperatures. So the regulation and the environment will make it possible to -- for this activity to grow in the future.

 Regarding electricity distribution networks in Spain, as you all know, remuneration is capped at 6.5% of net assets at tier 2. A new model on unitary values for investments is pending regulatory approval. Annual investments are also limited, usually to 13% of the GDP.

 Some good news after some adjustments were implemented in this market is the fact that the entire deficit is now under control. And the government estimates EUR500m surplus for 2015. Once the regulation is stable, our investments have accounted -- have been 22% higher than in the previous year. And remuneration in this case is linked to investment. And this of course will be reflected on our results.

 In Chile, the distribution -- the gas distribution network is an important asset and the regulation is very clear. Tariffs are freely set. It is an unregulated business. However, there's return cap of 11% that cannot be exceeded for a number of years. Now it's 11% in real terms after taxes. Although the government is contemplating a change here, we don't believe important changes will be implemented.

 There are some businesses outside this 11% cap. For instance, all of those sales outside of the concession area, MetroGAS, the Group's company in charge of the sales, is taking advantage of this. No significant changes are expected. And then the government is now drafting a new legislation for gas, which we believe will make it possible for the government to meet one of its most important objectives, to gasify the country because they need to introduce this fuel in the primary mix and also they need to do something to eliminate pollution caused by biomass.

 Penetration is very low, 12% in the whole of the country, a very low percentage indeed. And there's a long way to go there, not only in organic growth but also in added value services. So far we've grown by 4.4%. And out of those businesses which are not subject to controls, the increase in sales outside of the concession area has amounted to 34%.

 Looking at electricity distribution and transmission networks in Chile, we also have four-year regulatory periods there. Profitability is actually regulated at 10% in real terms before taxes, pass-through of energy cost in distribution. And tariffs are in line with local and US inflation rates. Regulatory revisions are carried out every four years. Next year it'll be regulated.

 The key is to control this and to increase the operational efficiency of the business, which we'll be able to do thanks to our experience, especially in Spain. For the next few years, for these reasons we expect a growth in demand from 3% to 5% based on the needs to improve the networks in Chile and the need to grow in renewable energy and also clear transmission infrastructure growth requirements.

 In Colombia, the regulatory periods are of five years. We now have some caps in profitability, 16.6% -- 16.06% real before taxes. This probably will go down to 13.51% in real terms before taxes. In spite of the fact that this is a mature residential market, population growth due to immigration flows means that we see a very relevant growth in new connection points. Sales have grown by 8% so far this year. We still believe that Colombia is going to continue to grow in the future.

 Regarding electricity distribution networks, our Caribbean business is subject to regulation. The regulatory period there is five years. And there's a regulated return of 13.9% in real terms before taxes. We have to fight fraud and NPLs because this is an area which is especially vulnerable, where considerable migratory flows are being seen. However, growth in industrial activity and power consumption has been very healthy in recent years. And we believe it will continue to do so.

 The Colombian government is very much aware of the social problem they have there regarding fraud and NPLs due to poverty. In the new budgetary law, the government stipulates that subsidies will be granted to end consumers who cannot pay their power bills because the price of electricity is growing considerably. And we have to take into account El Nino. The levers are going to be very clear, efficiencies and cost-cutting strategies.

 In Brazil, the gas distribution business is regulated. The period is five years. Remuneration of CapEx is 9.6% in real terms after taxes. The cost is a pass-through and the regulation was reviewed in Sao Paolo this year and in Rio it will be reviewed by 2018. Penetration is low. Market share is very low. So we have a high growth potential in new municipalities, especially in the area of non-regulated activities. The nine first months of the year have seen an increase in connection points of 11%, basically due to new residential areas.

 In Mexico, gas distribution is also a regulated business, with a five-year regulatory period. And we have a regulated return of 14.68% (sic - see slide 47 "14.86%") before taxes. The gas cost is a pass-through and tariffs are yearly adjusted to local and US inflation.

 The most recent revisions have already taken place in the areas where we have businesses, and we don't expect important changes in the future. The potential for growth is very high, especially based on our growth in Mexico DF, where, as you know, growth rates are close to 30% per year in cumulative terms.

 The increase in penetration and accelerated growth in the residential sector, the development of non-regulated activities plus the new concessions we've been granted, Sonora and Sinaloa, with a potential market of 1m customers, make us very optimistic regarding growth in this market. And so far this year we've seen a 33% increase in residential commercial customers.

 So all in all, businesses -- network businesses, as you see here, have generated EUR2.407b regulated. And you see here a list of the most important factors impacting on the business. We have an intrinsic growth which is quite relevant, 7.9%. So this is a healthy platform for growth.

 So let's look at the power generation now. This business so far this year has an EBITDA of EUR700m-some, with a growth of 4%. We have a generation capacity close to 9,000 megas and which will be increased by 221 additional megawatts due to the incorporation of Begasa which we acquired. They operate 10 windfarms and a photovoltaic plant.

 In Spain you know the situation of the sector. The installed capacity amounts to 12,000 megawatts and we produced 23,000. Therefore we have a 12% of market share in capacity and 19% in production, which is highly focused on combined cycle technologies, which is the prevailing technology for the Company, which means that we are in a unique position. We are convinced that natural gas will continue to play an important role in power generation, especially due to demand peaks and back-up energy for renewables, and also, and I'm referring now to all markets, the replacement of more polluting technologies with newer technologies, and also the replacement of local power plants in other countries outside of Spain.

 We operate through Global Power Generation that has 2,702 megawatts in PPAs, long-term production contracts. The Company provides O&M services to their own plants and third-party plants, where they have expertise in all relevant technologies, hydro, coal, CCGT and wind energy.

 This is an important platform for growth, both greenfield and brownfield. In recent years growth in the wind -- growth has been focused on Bii Hioxo, 234 megawatts, and Torito, 50 megawatts. We've mentioned the incorporation of KIA as a 25% shareholder.

 The potential for growth is very relevant. It is estimated that in the next few years new capacity that you can see here broken down into different geographical areas will amount to 1,300 gigawatts of new installed capacity. If we take out -- if we look at those located in specific geographical areas or technologies that Global Power is interested in, the conclusion is that Global Power could be as high as 720 gigawatts in selected geographies.

 New capacity. Global Power has a specific portfolio of 9 gigawatts in the geographies that we see on the right-hand side. The world is demanding a sizeable increase in generation capacity. And those technologies I've mentioned, of course, will have to play their role there.

 So to summarize, in this business of EUR172m, the activity is more practically stabilized.

 Gas supply businesses. We've mentioned this business before. I'll give you more details. The EBITDA has amounted to EUR818m (sic - see slide 56 "EUR811m"), 9% less than in the previous year. This 9% drop reflects a problem linked to commodity prices. You know what the business model is. It's a flexible integrated business model which is a key factor to understand its resilience and its profitability. We are fully integrated. I'll be referring now to each of these stages. But this model is not a new model actually. It dates -- it existed before many of the things I've mentioned in this presentation, but it's been a key element for our growth and success.

 So starting with procurement and infrastructure, the two key pillars are supply or procurement contracts and the fact that we have our own fleet, which mitigate the commodities risk, as we mentioned before, diversification of indexes, the possibility of mitigating risk, especially index linked to the Brent, the possibility to match sale indexes to acquiring or purchased indexes, and also flexibility, which is tremendously valuable, which makes it possible for the Company to access end customers very quickly and therefore to optimize prices and margins.

 Our fleet today transports more than 2m cubic meters. Now we have four new boats which will be operational to optimize our operations and to increase our flexibility.

 Regarding end customers, it is important to understand this graph because, at the end of the day, we have four main markets that we use to optimize the gas business, starting with the retail business, Spain and the rest of Europe. So far this year it's accounted for 9.5% of total sales. These contracts are indexed to the Henry Hub, to the [National Balance Point], and to the result of gas auctions, and heavily influenced by the Brent index. They are usually one-year contracts.

 Accompanied by the sales of service and energy solutions, i.e. liberalized businesses where we are leaders in Spain, the second segment is the industrial segment, both in Spain and in the rest of Europe. It is the most important one. 47% of our sales correspond to this segment. Most contracts are three-year contracts. The price formula mainly indexed to Brent and oil derivatives, as well as to US dollar exchange rates.

 So we have a natural hedging for commodities risks because these are important contracts. CCGT accounts for 7% of our total sales. In this case we're talking about long-term and very long-term contracts. And the type of contract is adapted to the peculiarities of each cycle and each market. Sales to third parties, with price formulas indexed to oil prices, oil derivatives and other indexes, usually the major indexes, such as GAIL or oil/gas indexes.

 And industrial companies, such as in (inaudible) in Chile, sales are done in dollars. But they're very sensitive to energy markets. And contracts are usually for higher volumes and the average length is three to five years' period for these contracts. So those are the three areas of gas where we do business.

 Now what's the evolution been of these contracts? How have they evolved? Well here you have it. It's good to have a look back rapidly to see what we've done. In 2009 we launched a strategy which we are mentioning here. We fully -- we increased our sales based on logistics and marketing. And that's been -- we pushed ourselves and our sales internationally until 2014 have grown by 13%. They've grown an enormous amount. And also the EBITDA has grown by 11%, and this is before the Fukushima effect. The Fukushima effect, less now, helped to accelerate the process. But we commenced this process of internationalization before that, with very obvious consequences. Seen it in the results, in the EBITDA, and we continue to see it.

 On the right, we've got to say that between 2008 and 2014 we changed the portfolio of customers that we sell to. We don't sell to the US, which is now an exporter, or will be. But we've entered into other markets, like -- we've had -- we have a greater presence in Europe, industrial and residential customers in Europe and other new countries of Middle East and Southeast Asia. So we've increased our volume and we've diversified our activities all over the globe.

 Notably, so if we compare 2011 with 2014, we see we've increased our sales and changed the mix, and we're midstream, that's true, 60/40. But sales have increased by 14.4% in this period. If we analyze by segments we see that combined cycle plant sales have gone down continuously and there's been a high increase in industrial sales and a more contained sale in the global LNG market.

 Residential sector has decreased. But that is attributable basically to the higher temperatures of 2014. We don't think that's significant.

 The change in mix has caused the situation, and you see on the right at the bottom, the unit EBITDA per megawatt hour -- marketed megawatt hour has gone up by 78% between 2011 and 2014 and has reached 2.88 (sic - see slide 61 "2.83") megawatt -- per megawatt hour.

 This is not by chance; this is the result over 2014 and 2015 you see the following. The volume of gas that we've sold has gone up by 4.5%. But the EBITDA, the EBITDA, the global EBITDA of the business has gone down by 2.3 -- 12.5%. And the unit EBITDA has gone down by 14.7%. So we have to underline that the unit EBITDA has dropped by 14.7% but the global has gone down by 12.5% as a result of the increase in the volumes that we've marketed. And that will be the same next year. And there's also been a change in the mix in the sense that, in the last few quarters, we've had more combined cycle plant sales which have a lower margin than other segments.

 Now if we look at the year, the phenomenon has been more acute in the third quarter than the first two quarters, but we don't expect more changes for the remainder of the year. For 2015 we expect results that are similar in such a way that we can say that EBITDA for this business will be at about EUR800m at the end of this year.

 Now if we continue with this, if we look at the next graph, we see that of the following business lines, and we're talking about the vision for -- the perspectives for 2016, we expect that next year there is an increased -- increase in sales of about 7%. We expect that increase will be about 7%, basically as a result of the early quantities that will come from the US. Total volume of 335 teras. We believe that the current mix will be more or less the same. And we would like to say that it's very high.

 The volume we've got committed through these contracts is very high for next year. So the situation will be stable. We've also got to point out that the new volumes we've spoken of will contribute to increasing the margin and therefore we expect what I said before. The margins won't really be much affected next year and that will be mitigated by the increase in volumes of the amounts we've put on the market as a result of the purchases in the US.

 To finish this review, you see globally the sector, this subsector of our activities. This is at EUR811m it accounts for in these first few months. But this is 20% of the global EBITDA. But the supply business, which usually is of greater interest, is 15%. Infrastructures is a different thing, associated with pipelines, gas pipelines, Maghreb-to-Europe gas pipeline. We're talking about business that accounts for 15% of our EBITDA. And this year it has decreased -- the EBITDA per activity has decreased by 12.5%. So it's the 15% and there's been a drop of 12.5% by activity.

 There's a clear international characteristic to this, 62%. And it's very sound because in spite of the fact that we're -- the commodity price scenario's going to be negative and in recent months the exchange rate between the dollar and the euro has played against us, the business has kept up at levels that are very acceptable and we hope and expect that at some stage they'll start going -- they'll start becoming negative. That's the summary of the gas -- natural gas business.

 And I would conclude by saying that our business model is well balanced. This allows us to be satisfied because we continue to comply with the plan we presented to you the year we presented the strategic plan. We are convinced that we're going to comply with it. Our EBITDA is growing. The net income in adjusted terms is growing too. And the [1,500] that we were talking about by the end of the year we're going to comply with, we think.

 The business model has been strengthened by continuous optimization of asset portfolios. We've got proven resilience of gas supply business model. And we think things are going to get better and we are complying with our commitment to give a good dividend. And we're on track to achieving the targets.

 Thank you very much.

==============================
Questions and Answers
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Unidentified Company Representative   [1]
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 Well, as we said, we'll have a break of five minutes and then we will have the Q&A session about 11:10, 11:15.

 We're going to start the Q&A session, as we said. We're going to start with the questions in the room. I please ask you, if you want to ask a question, please identify yourselves. Tell us your name and the company that you come from, please. Are there any questions in the room?

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 Gonzalo Sanchez,  BPI - Analyst   [2]
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 Hello. Good morning. My name is Gonzalo Sanchez. I had two questions, one about the supply business. I wanted to clarify something. Your guidance is unit -- stable unit margin for 2016 if I'm not mistaken. And could you confirm that? And also the question is your vision after 2017 about margins. What do you expect based on the contracts that you've signed or you've got committed -- you're committed to?

 The second question is about Global Power Generation. You've spoken about 9 gigawatts -- pipeline gigawatts. I would like to know how much of that will materialize within two or three years. Thank you.

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 Rafael Villaseca,  Gas Natural SDG SA   [3]
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 Well, both questions, I think we'll be able to answer better with the strategic plan, which I can tell you we're going to present in the first quarter of next year, because they go beyond what we're talking about here. For next year, as I said in this presentation, we expect a limited additional contraction or compression of margins. And that will be mitigated by the increase in sales. Naturally there are things that we don't know about. But it doesn't seem reasonable for the Brent to continue to drop. We'll see how it goes, but that's our forecast. Beyond that, we don't know. But we'd be talking about scenarios that we'd deal with and we think will be positive.

 In terms of Global Power Generation, these are mid- to long-term projects. There's greenfield and there's brownfield. There might be some projects that are more immediate. I can't give you specific details, but it will depend on the maturity level of the product. Some are more mature than others, the projects, sorry.

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 Pablo Cuadrado,  HSBC - Analyst   [4]
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 Hello. Good morning. My name is Pablo Cuadrado from HSBC. Two questions. I'd like to ask you about the evolution of cash flow and the debt reduction in the Q3, which has been very important and significant bearing in mind that you paid out dividend. I'd like to know whether there's been anything strange or peculiar that justifies that reduction in the debt.

 And the second thing is after the decision of changing the metrics, the standards, the S&P metric change, the changes to the system, will this have an impact?

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 Rafael Villaseca,  Gas Natural SDG SA   [5]
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 Well, there's nothing extraordinary about this as regards the first question. KIA came in in October, so that improves. And also the investment of Gecalsa, which is not included. So they're the two extraordinary events. There's nothing else. It's really the previous operations have led up to that drop in debt. In October there will be the Gecalsa purchase will have an impact and the disinvestment -- partial disinvestment in GPG, which has also materialized in October.

 As regards the second question, I would say that, well, first, the Standard & Poor's, we're not affected by what they've said. Our rating is not affected. So the decision of S&P does not really alter our ratings, what they've said. They're going to change their metrics, but that doesn't affect us and it doesn't affect our dynamic -- our average day-to-day activity based on our internal regulations. And we're always based -- we're always basing it on the EBITDA.

 To generate hybrids or not will depend on the opportunities we have in the financial markets. We always look at possibilities. When there's a true, real opportunity of optimizing our debt, well we do it. And we go to the capital market through -- by means of hybrids or other mechanisms or instruments depending on what the situation is at each given time. We're not going to make decisions too early on. Depending -- it will all depend on our needs and what we've got.

 And beyond that, I can also tell you that what we're looking at internally with our lawyers, etc., legal department is how to get over that new consideration of S&P, Standard and Poor's which we think is really academic, has to do with English law. I think we can overcome that and find a solution. We are working with our solicitors. We are not the only ones affected by this, lawyers, legal department are all working on this working on this. Thank you.

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 Fernando Garcia,  MainFirst - Analyst   [6]
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 Good morning. I'm Fernando Garcia from MainFirst. I'd like to know about the gas supply business guidance and compare it to the previous one which envisaged a drop in the EBITDA of one digit. Just a one-digit drop in the EBITDA does that bear up to what you said? And you spoke about volumes to make up for the drop in margins. Now does this stand up to what you said regarding the second half of the year?

 And the second question there was -- finally, the gas law has been approved on Saturday, the new gas law. I would like your opinion about it. And what effects do you think it will have this Royal Decree on your margins in the medium and long-term?

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 Rafael Villaseca,  Gas Natural SDG SA   [7]
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 As regards the first question we've already said that we expected an EBITDA of EUR800m for this year. We've already told you that. And, yes, we expected a high figure. It's 12, -- EUR800m by the end of next year. And for next year we've already told you too, we've told you how we believe the margins and services are going to behave and perform. I think you can conclude on the basis of that.

 As regards the gas hub we'll have to wait for the detailed standards to be published, it will take time. We think that the gas hub is a good idea because it will appreciate, give value to many activities that are not so good on the market right now.

 But it's a secondary market so the impact will be moderate because it's not a market where gas suppliers are going to serve really much gas. Suppliers, especially in the Spanish market today Algerian gas and Nordic gas don't sell gas on primary market there's no such thing, there is practically no, nothing. We are -- it's the operators who go to the markets to adjust our activities in the medium -- in the short and medium term.

 Will this change in the long term? I don't know it's not foreseeable. But if it happens we'll adjust. It's no problem for us. So this is the structural limitation that we have. And secondly, we don't see this as something negative because we think it's good for things to work out and be -- and adjust and balance out and have clear rules and regulations.

 Well, as regards the guidance for 2015 we spoke about EUR800m, last year it was about EUR900m. We are talking about a drop of about 11%, 12% during 2015.

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Unidentified Company Representative   [8]
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 Good, another question in the room.

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 Alejandro Vigil,  Vigil Asset Management - Analyst   [9]
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 Hello. Good morning. Alejandro Vigil from Vigil Asset Management. I've got three questions. The first one is could you tell us, could you guide us for 2016 as a whole. The business is going to go positive/negative, possibility of growth in profits, etc. What can you tell us about 2016?

 Second question is whether you can tell us, give us some details about the Repsol operation. You bought the supply points. Profitability, it looked as if it was going to be good, you've probably had synergies, you can probably give us more details about that.

 And the third question is on the remuneration policy. You're generating a lot of cash this quarter, the dividend has only grown by 3%. So are you thinking about changing your policy in terms of paying out dividends? Thank you.

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Unidentified Company Representative   [10]
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 Well, I'll start with the last one, remuneration policy will be included in the strategic plan if there is any change. It's going to be reconsidered obviously within the strategic plan its one of the important topics that we are going to consider. We'll see what we propose at the end and what our board approves. There's no news as regards that.

 As regards to the supply points, it's true that we paid for them, but there are two advantages for the company in this. One of them is that we save marketing costs in terms of making the network grow. Secondly is that we make use of the network of the grid. So it's not an opportunity cost or a lost cost, no we avoid trading -- marketing costs and it's not low that cost.

 And secondly we can make use of the network. So on the basis of that and complete profitability we made the decision to buy these supply points. It's not the first time. It's the first time that the volume has been higher, but historically this we've done on the basis of market profitability.

 As regards 2016 I think we've given you enough ideas about what the situation will be. We cannot really give you more details. You'll see more when we present the strategic plan. But I think in the last part of my presentation we've given ideas on how we believe our mainline businesses are going to evolve. In the most important business, which are networks, what's going to happen, generation the same and the same in supply.

 So I think that we've given you quite a good perspective. There's no doubt that our business would depend on the scenarios of course. But of course it's very difficult to imagine a worse scenario than the one we already have. But anyway we'll talk about this more when we talk about the strategic plan.

 Anymore questions in the room? Yes.

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 Sonia Ruiz De Garibay,  BEKA Finance - Analyst   [11]
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 Hello. Sonia Ruiz De Garibay. Two questions, the CapEx could we have guidance for the year in the future strategic plan excluding the opportunities that GPG produces. Do you think you'll reach a recurrent CapEx of EUR2b especially bearing in mind that gas distribution in Spain is going to require a lot of CapEx?

 And then the cost of the debt by the end of the year what's it going to be 4.5% is it going to get better or what?

 And then finally, the equivalent -- the equity what's going to happen with the equity by the end of the year, because the enforcement of the agreements or contracts for the Egyptian operation I think is going to take some time so what's going to happen about this?

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Unidentified Company Representative   [12]
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 What was the second question, the cost of the debt? Well, as regards CapEx on the investment slide page 14 we've given you an estimate for the full year on the left. And it's on the right you see investments in the first nine months, but on the left where it says 2015 that's the estimate for the whole year. So that includes those two aspects that I was saying are not there by September, the Gecalsa investment and the GPG disinvestment. But that will give you an idea of the net investments for 2015. That's the best estimate we have for this year.

 For the future years I would say that we are going to see what the strategic plan says, but I think that the figure will be especially in networks, we are implementing an electric distribution 22% gas is going to contribute to those investments. So the figure might be higher than the figure for 2015.

 As regards the cost of debt I was saying that for this year we are going to try to be at 4.5%, we are at 4.5%. You've got to remember that we've incorporated not just the debt for the purchase but the debt that Chile has which is about three times the EBITDA. The rest of Spanish America is not so much in debt, but Chile is three times EBITDA. So the weight of the debt in Chile makes things more costly. But we've controlled it as well as we could.

 And the policy -- we've changed part of the debt there, you know that there is -- the debt there is paid for in different ways but that generates a lot of volatility. The UF debt was about 85% when we started, when we bought the Chile operation and its now at 55%, 56%. We are going to continue as you know, it's not easy to do everything in one go, we are going to continue and that's going to be the most important thing that will contribute I hope and expect to some reduction. But I don't expect big surprises in the cost of the debt for next year. We might win a little bit as a result of the restructuring of the debt in Chile and some of it in Spain.

 And finally, what was the other thing, the equity? Well, Union Fenosa Gas is there and others, I would say that as regards the quarter, it's (inaudible) you've got to look at the whole period. I can't tell you specifically but it's true that in addition to the Union Fenosa Gas results we've got to remember that we have the amortization or the payback of the price allocation associated with when we did the purchase. So we'd be saving the purchase price amortization that partly becomes negative. As long as there's no change I wouldn't expect that to go to positive.

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Unidentified Company Representative   [13]
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 Good. Anymore questions in the room? We've finished with the questions in the room, so we are going to go to the questions that have been made through the -- on the internet. We start with Javier Suarez from Mediobanca. The first question which has been answered already has to do with the purchase of the Repsol operation, the point of supply. The second question has also been answered, which is about provisioning for EBITDA for the wholesale gas in the third quarter.

 The third question is as follows, does Gas Natural want to continue to increase its share in Metrogas? What's the position of the regulator in Chile on Metrogas?

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Unidentified Company Representative   [14]
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 Regarding your first question we'll be looking at existing opportunities. So far we are happy with our 60% with which we have majority and also majority on the board which was a relevant issue, because in the past it used to be 50/50 based on an agreement now we have a majority with 60%. However, in the future some opportunities may come up, but the situation we find reasonable.

 Regarding the accounting method it's been appealed by the company. We don't really know what's going to be the time where we will have a final decision. According to IFRS the criteria we've been applying historically is the right criteria according to the International Financial accounting rules. We don't understand how the Chilean authorities are using this criteria against the international rules but we will wait and see. We have no news about this.

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Unidentified Company Representative   [15]
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 Javier Suarez has a question regarding -- in the press we've read about the possibility of a merger with Repsol. What would be Gas Natural's position regarding the benefits of this merger?

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Unidentified Company Representative   [16]
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 We haven't contemplated this possibility at all, we don't really know about the source of this rumor which is not actually true. We have not contemplated this possibility at all.

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Unidentified Company Representative   [17]
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 Then another question from Javier Suarez. Could you tell us what part of the debt in Latin America is in local currency and what percentage is in foreign currencies? Could you give us this information broken down into different countries? Is there a possibility of mismatch?

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Unidentified Company Representative   [18]
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 All Latin American debt is in local currency, in the currency where the cash flows are generated in that country. So in Brazil the debt is in Brazilian reals and in Colombia in Colombian pesos as we said before.

 However in some of our transactions or operations in Latin America they are not denominated in local currency but in dollar, in US dollars such as businesses of GPG in Mexico in combined cycles; that's a dollarized business which is not denominated in Mexican pesos but in US dollars, because the business itself is denominated in dollars so the cash flows are accounted in dollars and the debt likewise. In other countries we use the local currency. So nothing is in foreign currencies everything is in the local currency of the country where cash flows are generated.

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Unidentified Company Representative   [19]
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 Okay, then another analyst asking questions, Fernando Lafuente. He has six questions, two of which have been answered. Our intentions regarding the issuance of hybrid instruments after Standard & Poor's note. And then Sonia's question regarding the equity method.

 And then the four remaining questions from Fernando Lafuente are as follows. I'm going to read them all. Could you give us a breakdown of the corporate tax in Colombia? How -- what is the amount in 2015? According to table on page 23, excluding Union Fenosa Gas we have a provisioning portfolio of 21 bcms and then sales for 30 bcms. So the difference is gas spot or not. Am I correct in believing this?

 Third question the liberalized gas businesses could you give us indication of margins per the different regions, in the different regions and the evolution of those margins based on price variations on fluctuations?

 And the last question, liberalized gas that's the business, wholesale gas sales.

 And the last question from Fernando is with interim dividend. With interim dividend you have proposed the income would be EUR1.5b. How much capital gains are included here, how many? I mean what are the capital gains you're estimating?

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Unidentified Company Representative   [20]
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 EUR11m would be the tax, most of it attributable to the power generation business because the business in Colombia has a lot to do with the volume of assets and the assets are much more important in that business. And 90%-something of that tax would be attributable to the power distribution business in Colombia and then around EUR1m in gas distribution.

 Second question if we subtracted the volumes of Union Fenosa Gas. This wouldn't be correct, because the volumes we've indicated are the volumes we as Gas Natural are the contracts we have subscribed as Gas Natural supplied by Gas Fenosa so those volumes are part of our portfolio that's why we have listed them in the list of contracts that we have. So those amounts shouldn't be subtracted because they are part of our contracts.

 Of course, if you do that calculation you might identify some difference that have to do with the supplies to European markets especially. And sometimes we look at local markets for our supplies to cater for our residential and commercial sales in European markets.

 The third question well in this case we've been quite open regarding contracts and sales. And you are asking about margins per region. We've described the different business segments very clearly. Although we haven't provided you with a breakdown per region but it makes much more sense to look at the different businesses.

 And we have our main business is the industrial business which accounts for close to 50% of this area. And we develop this business both in Spain and in Europe. So margins are higher in Spain than in Europe we can say that very clearly. And in the residential area margins are higher in Italy than in Spain in the residential area.

 However, in the combined cycle business it's based on long-term contracts with a take or pay, this is where we find the lowest margins. In 2015 this had an impact. Sales increased in that segment although the margins were lower there, so the unit EBITDA in the third quarter is slightly lower than the one we had in the first semester of the year. So at the year-close we expect that the levels will be very similar to the ones we have seen so far this year.

 And regarding the dividend payout, interim dividend is based on the results we've had in this case in the quarter. We've ratified EUR1.5b. Capital gains will come from Begasa you have the detailed figures there. In principal we are not planning on selling anything before the end of the year because the divestment in GPG didn't generate any capital gains, it's a movement in our accounts but no capital gains have been contemplated for the remainder of the year.

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Unidentified Company Representative   [21]
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 Then we have questions from Cosma Panzacchi from Bernstein. He has six questions, two of which have been already answered. One had to do with our gas hub and the other with EBITDA in Chile why it was flat. And he also asked about the regulation.

 So the four remaining questions are as follows. Regarding the global power generation and its future and considering the limited amount of GPG and the high level of ambitions in terms of growth what will be the competitive advantage of this company vis-a-vis Energy International or a company such as NG Energies or Iberdrola since these companies are trying to get a foothold in the same geographies.

 The second question deals with the long-term vision regarding the G&M world market, a market where price signals are turning weaker and weaker, liquidity increases and demand growth remains weak. Do you still see your rationale of, strategic rationale for a restructuring of the supply market amongst companies selling gas? If this were the case will you playing an active role in this process?

 The third question has to do with gas supply in Egypt. Could you give us updated figures about -- could you give us an update regarding the contract you have with Egypt, especially, particularly the arbitration process and how does it correlate with our new supply contract?

 And the last question is what do you expect from the new regulation of the power generation business in Chile?

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Unidentified Company Representative   [22]
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 Okay then, starting with the first question, yes of course global power generation will have to compete against those companies. But the market is very, very large so we are convinced that there is plenty of space there to be competitive.

 Global power generation has plenty of instruments available to compete advantageously. First of all we have a presence in most of the countries where we'll be competing against these companies where we want to develop power generation activities. We've been successful in competing against most of the companies you've mentioned in your question.

 In Mexico it would be a question of extending the model in the four technologies, especially in two of them coal, wind power, water or hydro and combined cycles. In hydraulic and combined cycles we've proven that we are able to compete successfully in Latin America countries based on the expertise we have in Spain, especially in CCGT.

 So we are at an optimal position as operators, investors and as gas procurers as one of the key elements to turn these plants around, to make them profitable. This is not even an assumption it's a reality, a reality that we would like to extend to other markets where the possibilities are many.

 And regarding our long-term vision or view as I mentioned in my presentation in one of the pages that I showed you I said, page 27 actually, 27 yes where you find an estimation of growth of liquefied natural gas around the world. I did say and I'll repeat it with pleasure that there is unanimity regarding the future of liquefied natural gas.

 It is more difficult however to quote some figures. A very well-known company in this sector indicates an 8% cumulative growth up until 2020 then it will go down to 3% until 2030, sizeable growth rates based on new liquefaction plants that will be commissioned and new countries that are demanding more specifically 11 countries, demanding liquefied natural gas.

 So we are convinced that in those areas mentioned on page 27 this will be actually a reality due to the decline of native reserves in Europe, higher demand for power generation brought about the need to replace more polluting fuels and by the need to have some backup for renewables. In other countries there is a higher need for power generation such as in the Middle East and Latin America. So all in all, we see a clear indication that long-term -- the long-term outlook for liquefied natural gas is very positive.

 Restructuring, corporate restructuring, if we talk about sales or marketing the situation changes from country to country. I'm referring now to Europe, we are talking about natural gas. The situation we have plenty of small companies selling gas and five large companies competing in international markets in the short term. If this was your question. I'm not expecting huge corporate moves amongst the major companies in the world. We could see a concentration amongst medium-sized and small-sized sellers, many of whom have just emerged to take advantage of one-off opportunities and they may as well disappear once these opportunities vanish.

 In Egypt the sale of gas are not actually -- the sales of gas are not affected by the issues we are having at the Damietta plant. As you all know Egypt has doubly defaulted. They have violated their financial commitments and also their commitments regarding the supply of gas. In both cases we have several avenues we are pursuing including arbitration. And the courts and next year we will have some information about the development of these actions. But we still hope to reach a satisfactory agreement with the Egyptian authorities.

 Chile, the regulation there, they will be reviewed next year. This will be an ordinary revision of the regulation. The Chilean regulator is starting to request the corresponding information and documents. We don't expect any kind of special situation there. We are clear leaders -- I mean in Chile there are several operators in electricity distribution, we are just one company amongst four or five, we are not leaders as we are in gas supply. But we expect growth and more investment in Chile. So no new developments, the process is going as expected and in principal we are not expecting any special developments.

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Unidentified Company Representative   [23]
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 So we have some questions now from Unai Franco from Bank of America Merrill Lynch. He's asked 12 questions, most of which have been already answered or mentioned by the CEO during his presentation.

 I'm going to summarize because many of his questions have been already answered. Most of them have to do with the evolution of liquefied natural gas sales, investment growth expectations for 2016 and EBITDA evolution in the sales of wholesale gas for the fourth quarter and for 2016 what are your intentions regarding the instruments of hybrid instruments after Standard & Poor's note?

 So the questions that haven't been answered yet are as follows. Regarding Chenier Gas what's the percentage of sales that are committed in the contract and their destination Latin America versus Europe? More specifically 3 bcms, you've said that 3 bcms out of 4.8 from Cheniere are already sold. Were you referring to 2016 or also to 2017?

 There is another question regarding the wholesale business in the gas sector. The tender for the Escobar terminal in Argentina what will be the dates and the volumes? Will it be indexed to Henry Hub or not?

 Another question it has really been answered, it has to do with the gas regulation in Chile. Another question, could you give us some indication about when you are going to publish your new business plan? A nd how many years will it cover?

 And another question regarding the financial restructuring plan, could you confirm the net debt over EBITDA ratio goals from 2.5 to 3 times, would you be willing to exceed 3 times and in what situation?

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Unidentified Company Representative   [24]
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 Chenier, 4.8 bcms for 2017, in 2016 we'll have lower quantities we don't know exactly how much but a much lower quantity that's clear much, much lower. So when we talk about the 3 bcms I'm referring to 2017. In 2016 we won't have anything close to 3 bcms.

 Secondly, the way we operate is based actually on the acquisition portfolio and the sales portfolio. So we have already sold 13 bcms linked to Henry Hub for 2016. I mean the risk is matched. And we have plenty of time to match the rest before 2017. But in 2016 we are talking about much lower amounts. And in principal we considered them covered regarding a hypothetical Henry Hub risk.

 Regarding the Escobar plant we don't really know when the tender is going to be published by the Argentinean regulator, because we -- I am sure that the new government means that some delays -- we will see some delays. But by 2016 we will see a resumption of the supply of liquefied natural gas in the country which is essential for the nation. No, I don't believe there'll be lots of changes for obvious reasons, but that's all we know.

 And regarding our strategic plan it will be presented within the first quarter next year. And in principal it will cover all the way until 2018, although we'll have an outlook all the way to 2020. But our commitments we'll try to make it more specific for 2018.

 As to the financial structure we will think about all of these issues, but in principal a multiple of 3 times over EBITDA is the right one for our business. In principal we feel comfortable with that multiple.

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Unidentified Company Representative   [25]
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 Martin Young from the Royal Bank of Canada has a number of questions. The first question has already been answered regarding future margins in 2017 and 2018 for wholesale of gas. And then in slide 16 the red line of EBITDA does it indicate the sale of gas without taking into account the contribution by service contracts?

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Unidentified Company Representative   [26]
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 No, it covers -- are you referring to retail businesses? It includes everything in retail including the contracts which are an inherent part of the business.

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Unidentified Company Representative   [27]
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 [Michael Sorten] from Banco Santander has two questions, they have been answered, the average life of supply and procurement contracts and hybrids. Alberto Gandolfi has two questions, they have already been answered. They have to do with the hedging for the exchange rate and the gas hub in Spain.

 And then the next one is Javier Garrido from JPMorgan. One of his questions has been answered, it has to do with the EBITDA and the sales of gas and there are other questions. How is it possible that you haven't seen a positive effect of the currency in gas sales where most sales outside of Europe are made in dollars?

 Second, what percentage of your portfolio of gas contracts covers all the way to 2017? And considering the increase in volumes due to the Cheniere contract what do you expect will be the growth in the sales in gas by 2017?

 Second question you've talked about the different business lines but you have not described long-term objectives. Will you have a recent update of the objectives of the company or not? Will you have this update in the short-term? And there is another question we have already answered regarding the regulation in Chile.

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Unidentified Company Representative   [28]
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 I will try to answer these questions. The first one, yes, it's true we sell and buy in dollars so there was a kind of natural matching there. So there is no positive or negative effect there it's a kind of natural hedging or matching.

 And regarding the second question Chenier 2017 volumes are 24.8 bcms to be supplied. And looking at the development of the project the evolution of the project the project is going very well that will be the amount we'll have in the market. And we have 3 bcms in our portfolio already sold linked to the Henry Hub index.

 We are about to conclude or finalize our strategic plan. We'll be presenting our strategic plan with the details that you're used, with the level of detail you're used to.

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Unidentified Company Representative   [29]
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 The second question comes from [Credit Suisse] from [Audrey Moulder]. In slide number 29 you showed us the expectations for growth in liquefied natural gas, the growth outlook. Could you tell us something about the risks that are the most important ones in this scenario, for growth, growth scenario?

 Could you tell us something about the global growth or increase you expect in the supply of LNG? This growth and demand you're expecting will it lead to higher prices or perhaps a growth in supply will mean that the LNG market is over-provisioned which would lead to a drop in prices and margins.

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Unidentified Company Representative   [30]
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 I think it's page 27 not 21 this is the forecast for the demand. We are working on the strategic plan, and I would like now to get ahead of things. We are looking at the increased offer that we foresee for this period to try and see what the evolution is. I'll answer and tell you what we think about this, but I can't -- I must mention that we mustn't forget that we haven't got equity gas positions. So we want to match both positions and avoid the risks of imbalances that might arise.

 Having said that, we still have to see what will happen, because LNG production will have to do with new plants that start up and there are doubts as to whether these projects will lead to an increased capacity for making liquid gas. What will the growth in demand depend on? Well, the list of macro-factors is very relevant. But we tend to believe that the provisions -- that the forecasts on page 27 with all the question marks that you like are reasonable.

 So the world, many, many countries there are very, very great needs for gas. So combined cycle plants are going to increase in the countries where they don't need more capacity. Renewables are going to increase significantly. And coal is going to drop and probably nuclear power that will have to be replaced with basic, or base energy and the alternative hydraulic will not be used in most OECD countries, so it will be gas. So the base, the foundations for the estimates for liquid LNG we think are sound. And there's consensus among the experts.

 As regards the offer or supply side, the supply side will have to follow up the projects but we'll see what happens with the production plants. We think that the balances will work out -- will be balanced out because if not the gas will not reach the markets.

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Unidentified Company Representative   [31]
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 The next question is from [CF Partners]. And it's as follows. The LNG cost for the US is [$6.3m] per btu. If we add transport costs we are talking about $7.5 per btu depending on the destination. The prices of gas for Europe and Asia are at around $7 per btu. Does this mean that there's going to be a margin zero? Is the margin going to be zero for the gas in the US?

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Unidentified Company Representative   [32]
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 No, of course not. The -- this is the picture now, right now and this is the picture including the European spot markets. But for most contracts this is not the real the actual situation. Most of the contracts in the world I must insist are not developed do not take place in spot markets, they take place in medium-term and long-term markets.

 So those contracts both sellers and buyers are interested in indexing them to prevent risks. This is a great opportunity to be Brent-indexed and not linked and not Henry Hub linked. Years ago it was the opposite situation. So both big suppliers and big customers, large and medium-sized customers have medium-term contracts that are indexed to several indexes so they mitigate the risk of imbalances. That's what we've done right from the start, and that's the reason why we've got a 4.8 bcm, 2017 3 bcm.

 Margin zero is not going to be margin zero at all. As we said in the presentation, the margins will be positive for the amounts that we sell in the US. These positive margins, of course, will be lower than those that we estimated three years ago, but they will be positive.

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Unidentified Company Representative   [33]
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 The next question is from Fidelity, it's been answered it's about the evolution of margins of gas commercialization. Jose Ruiz from Macquarie asks the following question about CGE. What cost reduction are you achieving in the first nine months after integrating CGE? How much have you reduced the costs?

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Unidentified Company Representative   [34]
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 This is a relevant point, they are going to be significant and we'll give more details when we present the strategic plan. We are working on it. I can tell you that successfully we are reducing costs successfully for 2015. Obviously all plans, start-up of all plans involves costs, but they are not going to be significant for 2015. We'll see in the strategic plan it's not significant.

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Unidentified Company Representative   [35]
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 Good. Carolina Dores from Morgan Stanley has two questions, already replied to as regards the evolution of margins for gas trading and hybrids. And one question in 2013 we -- the expectations for 2017 were set were published. Our expectations in terms of EBITDA and income. How realistic were these expectations in the current scenario?

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Unidentified Company Representative   [36]
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 We'll answer when we present the strategic plan, but I don't think that anybody would be surprised if I say that things have changed slightly since 2013. Things are very different both in foreign currency, currencies, commodities, the changes are so great that we've got to review the 2017 scenario in depth.

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Unidentified Company Representative   [37]
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 [Joy Vanagy] from Barclays has two questions that have been answered about hybrids and evolution of leverage. And finally the last analyst is [James Power] from BNP Paribas, two questions that have been answered on hybrids of Standard & Poor's, Repsol. And the last question is whether we can confirm whether the increase, capital increase by $550m in GPG would take place in the third quarter, took place in the third quarter or will take place in the fourth quarter.

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Unidentified Company Representative   [38]
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 Well, it will take place in the -- it has taken place in this fourth quarter.

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Unidentified Company Representative   [39]
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 Good, well, that -- those are all the questions there are no more. So we finish the Q&A session and I'll pass the floor to our CEO, Mr. Rafael Villaseca.

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 Rafael Villaseca,  Gas Natural SDG SA   [40]
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 Well, that's all. Thank you very much. Hope to see you at the next meeting. Thank you very much.




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