Q1 2016 Enagas SA Earnings Call
Apr 19, 2016 AM CEST
ENG.MC - Enagas SA
Q1 2016 Enagas SA Earnings Call
Apr 19, 2016 / 07:00AM GMT
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Corporate Participants
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* Antonio Velazquez-Gaztelu
Enagas SA - IR Director
* 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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* Fernando Lafuente
N+1 Equities - Analyst
* Javier Suarez
Mediobanca - Analyst
* Jose Ruiz
Macquarie - Analyst
* Rui Dias
UBS - Analyst
* Virginia Sanz de Madrid
Deutsche Bank - Analyst
* Olivier Van Doosselaere
Exane BNP Paribas - Analyst
* Harry Wyburd
Merrill Lynch - Analyst
* Maurice Choy
Royal Bank of Canada - Analyst
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Presentation
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Antonio Velazquez-Gaztelu, Enagas SA - IR Director [1]
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(Interpreted). Good morning, ladies and gentlemen. You're very welcome to the results presentation of Enagas corresponding to Q1 2016.
The results have been published this morning before the opening of the stock exchange and are ready and available at our website, Enagas.es. Mr. Antonio Llarden, President of Enagas, will lead the presentation.
We have foreseen a duration of 20 minutes for the conference and then we will open the Q&A session, in which we will try to answer with the greatest amount of detail possible.
Thank you for your attendance, and I shall now give the floor to the President, Antonio Llarden.
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Antonio Llarden, Enagas SA - Executive Chairman [2]
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(Interpreted). Good morning, ladies and gentlemen. Thank you very much for your attention.
The results we present today correspond to the three first months of 2016. They're fully in line with the foreseen objectives for the quarter and in the correct track to meet the objectives set for the whole fiscal year. As you know and as you remember, we presented the results of 2015 two months ago and the outlook 2016/2020, and we started a roadshow that we're continuing with meetings with our main analysts and investors in Spain and also abroad.
These results have been very well welcomed by the market, and since the day of the presentation the share price of Enagas has increased by more than 9%. Also, on March 18 we held our General Meeting, with a very broad approval of all the agenda by all our shareholders.
I shall now summarize the most important figures that you can see in the presentation that accompanies this guideline. Our operating cash flow, that is our funds from operations, plus the increase in our working capital has increased by 49.2% compared with the same period of 2015.
I start my presentation with this figure, which reflects the strength of our cash flow, something which is in our meeting -- in our periodical meetings with our investors and analysts, it's something that is interesting for them and they do analyze it more thoroughly.
The net profit amounted, as you have seen, to EUR101.2m, 0.5% increase compared to the previous year. This increase was made possibly mainly thanks to two factors. First, due to a larger contribution of our affiliates, especially the brownfields acquired during 2015; and secondly, also due to the positive impact of the change in the corporate tax. Further on, in the questions, we will answer any doubts you may have on corporate tax.
The increase of operating expenses is the forecasted one for the first quarter in our annual budget, as a result of both an increased international activity and also to a change in scheduling of other operating expenses compared with the first quarter of 2015. Here, if you want, afterwards, in the Q&A session, we will be able to provide with more detail.
And a clear example is that the expenses of the first quarter are accumulating all payments of some real estate taxes, so you cannot extrapolate this for the other quarters. I'm talking about EUR8m to EUR10m on these real estate taxes. Afterwards, in the questions, we will clarify all these matters.
In the first three months of the year, Enagas has invested a total of EUR71.9m, of which 16% relates to investment in Spain and 84% to ongoing international projects.
In addition, and although this is not included in the figures I have just reviewed, on March 31, Enagas signed an agreement to increase its stake in TGP, which is the Transportadora de Gas del Peru, from 24.34% to 25.98%. This agreement would entail the acquisition of 1.64% of TGP from the Peruvian company Grana y Montero for a total consideration of $31.9m. This operation, if the other shareholders do not exercise their preemptive subscription rights, will take place and consolidate and be consolidated by the equity method from the date the purchase gets formalized, around the second quarter of this year.
Our solid financial position, as you very well know, is one of our main strengths. The main data with regard to this are -- I'm really sorry, but I have allergies and it's hard for me to keep the pace. So our financial indebtment net that would be, as of March 31, EUR4,146m, and that would be at a fixed rate and it is under what we had previously, regardless of the fact that we have done some investments.
An average cost of debt of 2.3%, which is in line with our expectations and which is on track to meet with the average net cost forecasted for yearend 2016.
We have a leverage ratio, that is funds from operations divided by net debt, of 16.7%, which is quite higher than the one necessary to maintain what we consider our standalone credit rating, the current one. This is also something that I will say is a very positive data for us.
So, as a summary, we still have a very low borrowing cost, we have sufficient liquidity that will enable us to move forward and achieve our strategic objectives, and we have no significant debt maturity until 2022. Having said this, in any case, in any event, we are always watching out for windows of opportunity in the market, so that we may improve our financial results going forward whenever it may be possible.
As per usual, I'm going to tell you about the gas demand during the first quarter. It is a bit complicated to draw conclusions. We have to really study the situation in depth, but I will start with some positive information.
Industrial demand, which as you know is quite an important part of the total demand but it does not represent all of the demand, is the one that best reflects the evolution of Spanish economy. Well, this demand, the comparison between the first quarter of this year and the first quarter of 2015 has grown 1.8%.
This is information that I want to highlight, because in our meetings with investors and analysts, they constantly ask us how we see the evolution of the Spanish economy and the situation that we currently (inaudible), since we are still thinking of maybe a new electoral process. I cannot talk about the economy in general, but what is true is that according to our data, the one that is most linked to the evolution of all of the economy is the evolution of industrial demand and energy consumption through the system.
So this one has grown when compared to last year. There has been a 1.8% growth. And considering the efficiency factor that this has with regards to GDP, I would say that it corresponds to the GDP, that it has evolved more or less between 2.5% and 3%. Obviously, our past results will not justify future returns, but it is an objective data.
Now, with regard to overall national demand, it has been influenced by two main factors that are not necessarily recurring factors that have made it go down. On the one hand, we have had unusually high temperatures, and then the -- then Easter has been at the end of March. So from the point of view of the labor calendar, it does make a difference in comparison since there has been a lower demand for gas, for electricity generation, caused by lower electricity demand and also by a higher hydraulic output.
And if we adjust the abovementioned effects, I mean temperature and labor seasonality, national gas demand in the first quarter has decreased by 1.4% when compared to last year. But if you want, during the Q&A session I can obviously go in depth and tell you more about the demand and our forecasts for the whole year.
Before I conclude, I would like to remind you, as I usually do, the objectives that we have set for 2016. An increase in net profit after taxes of 0.5%. We are completely in line with what was expected. Dividends from our affiliates of about EUR65m. As you can see, it is above what had been forecasted last year for this exercise. A total investment of EUR465m, and what's important is a dividend of EUR1.39 per share, which would be 5% higher than what we had last year.
And all of this with a net cost of debt which would be at around 2.7%, although it's obvious that all through the year we will take all the measures that we think can somehow help for us to improve that objective at the end of the year. And as I said previously, the results that have been achieved this first quarter do confirm that we are reaching the objectives that we have set for the year and we are following the right path.
International activity is increasing as well, and it's the one that allows us to grow with regard to results as well as dividends, and not forgetting, obviously, about the fact that the strong regulated income current that we have from our important assets in Spain are still our main pillar from the cash flow and volume point of view. That also is still there. We do not forget about this. Obviously, we know that this is the strong pillar that is sustaining this strong current of income from Spain, but we have a growth as well coming from our international activities.
We also still have a very strong financial position, with well diversified range of funding sources, and we are committed to maintaining what we call current standalone credit ratings. So in this context and considering the volatility of world markets, not having any major debt maturities allows us to feel very comfortable.
So I thank you for your attention and you are now most welcome, if you wish to ask questions, then we will try to answer them as best as we can. So thank you very much.
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Questions and Answers
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Operator [1]
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(Interpreted). (Operator Instructions). Fernando Lafuente, N+1 Equities.
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Fernando Lafuente, N+1 Equities - Analyst [2]
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(Interpreted). Hello. Good morning. Thank you for this Q&A session. I've got three of them. First, on OpEx, seeing in Q1 the President has said clearly that there's some non-recurrent elements that are -- I'd like to know what's the evolution you expect for the OpEx for the full year.
The second question is on financial cost. You talk in the presentation about certain non-recurrent costs or extraordinary costs additional to the debt cost, and I'd like to know something more about them.
And the third question is on the GSP project. Could you give us an update on the construction works, how they're going, and the structural financing, when you think you may be able to close it? Thank you.
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Antonio Llarden, Enagas SA - Executive Chairman [3]
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(Interpreted). So we will now answer the three questions of Mr. Lafuente. Thank you very much. The two first questions will be answered by the CFO, Borja Garcia-Alarcon. He can provide you with more detail and then I will answer to the third question.
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Borja Garcia-Alarcon, Enagas SA - CFO [4]
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(Interpreted). Good morning, Fernando. As the President has said, the way to project and obtain the total expenses of the year, starting from EUR92m that we had in Q1, is by normalizing the three following quarters, and that normalization has to be done at the level of external services. And the real estate tax is accrued in the first quarter. This is EUR7m, what is in the books in Q1. And we also have other expenses which are periodical expenses. And with that, we will get to the end of the year of total expenses of around EUR335m.
On financial costs, non-debt costs or costs not associated to debt that are related to exchange rates, for example, that exchange rate difference in Q1 has been EUR2.5m. In order to build the final picture of the financial costs of the Company, the net cost is around EUR2.5m, EUR2.6m. This figure -- this increase from EUR2.3m to EUR2.5m or EUR2.6m is due to the refinancing of a credit line of $250m. And that credit line will go to a long term and we're going to increase it EUR100m more to attend the dollar funding need. This will be done in the month of May. So that will be the impact that will make this figure to pass from EUR2.3m to EUR2.5m or EUR2.6m in financial costs.
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Antonio Llarden, Enagas SA - Executive Chairman [5]
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(Interpreted). Okay. And thirdly, you were asking about the GSP situation. I will answer to that. I think that the project is advancing quite well, very well. On the one side, the development of the works, we have done more than 35% of the works, understanding that some basic aspects of infrastructure work, such as of a linear kind, are almost finished, everything that is engineering, layout, accumulation of all the material. And another part of the linear development is already working. So from that stance, we are satisfied.
I would even say that we have advanced reasonably well on the official calendar. That allows us to be at ease, because we know that in this kind of work there's always some inevitable delays. So we're better than the cruise speed.
A second major point is the refunding process, after a series of negotiations with banks. From the stance of the banks and the Peruvian government, this is nothing new. You will be aware of it. They have reached the conclusion that for reasons alien to this project, they have demanded Odebrecht, our partner, that in the coming three months they must leave the shareholders -- their stake there, that as a shareholder, the third premium shareholder, we've got a right to give an opinion.
We have coincided that the current situation of this excellent company in their origin, their country, has a series of problems. So for the sake of this consortium, we have decided together to let them go. And Odebrecht has already started all the necessary conducts so that they can leave these and sell the shares. So that allows us to see in a very optimistic way the financing period that was related to these matters.
On the other side, the Peruvian government demanded, and we agreed, that for reasons of image and good management, they wanted for the visible head of the consortium, in order to contact authorities and everybody else, that it should be someone from Enagas. And right now, our General Manager in Peru is precisely this spokesperson of this consortium and he is the -- the Financial Director of the consortium is also the Financial Director of our headquarters there, so we've got excellent contacts with the Peruvian government.
And the works, as such, are slightly ahead of schedule. So we are quite at ease. We've got peace of mind here.
And in order to give you more details of policy, if you want, of policies, we followed very closely the electoral campaign and have to say that the two candidates that finally will go to the second round with their system, with their electoral system, there are two candidates that in general terms, on economic policies and more specifically on the importance of the gas [adapt] for the industrialization and improvement of the level of life in the center and south of Peru, they're fully in line and agree with these projects. So we're very satisfied with this situation.
More questions, please.
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Operator [6]
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(Interpreted). Javier Suarez, Mediobanca.
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Javier Suarez, Mediobanca - Analyst [7]
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(Interpreted). Good morning. I have also three questions, the first one on the evolution of the gas demand in Spain. In the last strategical update, February 16, you were mentioning a growth of gas demand of 4% for 2016 and then an average of 3.5% till 2020. Could you give us an upgrade of why -- or why the demand has been lower during the first quarter? And could this endanger your provisions for the short term or midterm? That's the first question.
Second question, I'd like to have an update on the TAP project, the situation where you are in general terms, an update on how you see the evolution of the project.
And the third question is on the contribution of the (inaudible) companies. The dividend of the subsidiaries, the target for 2016 has not changed. Are you modifying the guidance of contribution in terms of profit in the P&L for these subsidiaries with regard to what you said on February 16? Thank you very much.
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Antonio Llarden, Enagas SA - Executive Chairman [8]
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(Interpreted). Mr. Javier Suarez, thank you very much for your question. Well, first on the evolution of the demand, I will try and go into the Q1 figures without getting too boring. As you very well know, the national -- the global demand in Spain is the accumulation of three or four factors of the market which are different. The most important one is the industrial consumption, representing between 65% and 70% of the demand. Well, in this first quarter, as I said, this has increased by 1.8%.
The second major aspect is the domestic commercial consumption, which represents 10% to 15%, and this is the one that is fully influenced by temperatures. Well, in this first quarter, the average temperature we've had has been above, 1 degree above than last year. That's a lot, an average of 1 degree more. When we talk about climate change, we talk about it will have 1 degree or 1.5 degrees in I don't know how many years' time. To be more precise, we have to go back in time five years to find such a mild or warm winter.
If we do extrapolate this temperature to the full year, we would have between 1 and 1.5 degrees, on average, above the historical average of the last 10 years. So the temperature of Q1 has been very, very unusual. I wouldn't dare to say that this won't happen again, because of course climate change, you know that is making patterns of change of behavior. But it's true that if we go back into our statistics, these data are fully out of line.
Bearing in mind all of this, we've already said that Easter took place in March, last year in April. So we've got that correction that has been done. And I have done a small exercise. I don't know how worthwhile it is, but I've tried to see for the rest of the year, how would each one of these factors work, assuming that our winter, the next winter, October, November this year, will be an average winter.
That would -- if we add and subtract all the figures, and I won't explain all these additions and subtractions we've done, but the conclusion is that in the worst-case scenario, if we start with this Q1, which is something that I cannot change, we would have a global increase of demand due to all the factors of 1%. And in the best-case scenario, it would be an increase of 3%, 3.5%. So that means that the industrial market would consume at the same pace as they are now, and we would be changing temperatures to average, more normal temperatures.
So my forecast, which is personal, I did this yesterday afternoon at my office, I was just breaking down and analyzing all the data, we will be talking about 1% and 2%, 3% of growth in the demand in the total of the year, of course starting with this negative growth we've had globally in Q1 2016.
We still think that with the gas structure we have in Spain, where gas -- where electricity demand is less important than it was four to five years ago, and the one that is most important is the industrial demand. And considering that commercial demand, if we were to get average temperatures that are reasonably similar than the ones that we had in the last 10 years, where there are always ups and downs such as the domestic commercial demand with the growth -- the economic growth, we see that there is a growth in clients as well. We could maintain for 2020, that's our forecast, a growth of 3%, 4%, more or less. Let's say 3.5%, with no problem whatsoever. So that would be the summary.
I have all the figures here in terawatts per hour and so on, but I think that as a summary, this can give us a general vision. That's with regards to the evolution of demand.
And as for the situation of the Trans Adriatic Pipeline, I will now give the floor to our CEO, Marcelino Oreja.
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Marcelino Oreja, Enagas SA - CEO [9]
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(Interpreted). Good morning. TAP is advancing as it should. The contract was awarded on March 31. May 17 will be the act of setting the first stone and the decisional act in Thessaloniki at the north of the country, and from then onwards the construction work will start, which should follow the reasonable times.
With regards to permits, all the problems have been solved or almost in Greece. And as for -- I think that the project is now much more solid, since we have an Italian partner who will be working in everything that has to do with putting the gas duct in Italy underground. I think the CEO has very well explained this, because recently, a week and a half ago, there was a meeting in Brussels where we confirmed the interest of the European Commission for the two main pipelines or corridors that have been traced: the southeast, which is the Trans Adriatic Pipeline, and the western corridor, which is the one that has made (inaudible) our connections with France.
So in that sense, I can already inform you of two things, one that is already known, one with regards to the corridor. And the meeting in Brussels with the Commissioner on Energy and Climate Change was in order to formalize TGIF and Enagas in the subsidies -- European subsidies being granted for all the technical studies to be finished. The most important value is not really the economic value, which is always something that we thank for, but it's especially the commitment that the EU is showing in this specific case with the western corridor.
And on the other hand, I can also announce, I think I said that during the last results, that we have already finished the compression station in Irun, which means that the second pillar of our connection with France, which is the Basque connection, is already working right now. It is working with a greater pressure.
And the Commissioner on Energy has announced that most probably during the month of July there will be a ceremony in France, as well as in Spain. I'm not going to say inauguration, but simply a way to show that there is a third pillar in this connection that could increase its pressure. It will go from 0.1bcm per year, which is nothing, to 2 to 2.5bcm per year, which gives us a higher quality.
And this commitment shown by the EU with these interconnection projects where Enagas is present, we are present in both corridors, and it also makes us feel happy and comfortable with our strategy.
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Antonio Llarden, Enagas SA - Executive Chairman [10]
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(Interpreted). And I think that lastly you wanted us to clarify with regard to subsidiaries, dividends and then the contribution by (inaudible). So I will give Borja the floor, our CFO, so that he may clarify the situation.
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Borja Garcia-Alarcon, Enagas SA - CFO [11]
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(Interpreted). Thank you, Mr. President. Javier, the main contribution in the equivalent for the first quarter has to do with the contribution of Saggas with the gas, 10% -- the additional 10% of BBG and 4.34% for TGP. So all of these four acquisitions explain or show EUR9m, additional million euros, when compared to the first quarter last year. The contribution of Swedegas is concentrated mainly in the first quarter, according to the regulatory model we follow.
So in order to extrapolate the first quarter, we have to take into account that 70% of the revenue generated, [that's 3,000] in the first quarter, and the general photo for the year has the same forecast we had at the beginning. It is a -- we put in equivalencies which is around EUR40m.
And with regard to dividends for 2016, we expect to be able to have EUR65m in cash flow, which is more similar to the contribution we had last year with our brownfield. We always explain that the best way to forecast the dividend for the next year is to see what was the contribution of our benefits after tax of our brownfield investment. And in order to calculate the whole line of equivalence, we have to take into account the purchase price allocation and the profits after tax of the Company itself.
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Antonio Llarden, Enagas SA - Executive Chairman [12]
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(Interpreted). Yes. And to complement what has been very well explained right now, I wanted to remind you as well of what was said during the results communication and the information we have shared with you regarding our meetings with investors. Our forecast for 2016/2020, our outlook for 2016/2020 with regard to investment, we have always maintained, we have always included in our accounts the cost of these investments, but in general we haven't included the complementary or new dividends.
So everything that we are going to do in the future is some sort of greenfield that would obviously provide us with dividends, but beyond 2020. This was already said during the results presentation in the last quarter. Some analysts told us that it was a very conservative approach and we admitted that was the case, but we would rather have this approach.
What this mainly means, that after the explanation that our CFO has given us, if at some point this year or next year we have a brownfield investment, that investment obviously will immediately provide us with dividends and with contributions, but an equivalence that was not foreseen in our results. I'm just saying this to simply repeat that this is the criteria we will follow. Thank you very much. I don't know if there are any further questions.
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Operator [13]
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(Interpreted). Jose Ruiz, Macquarie.
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Jose Ruiz, Macquarie - Analyst [14]
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(Interpreted). Yes. Good morning. I only have one question. I wanted you to clarify your estimates, those 1% growth estimates you had, growth of the demand for this year. Could you tell us what is your estimate of the growth of demand for the electrical sector for the whole year? And I'm asking you because usually the first quarter is a good indicator of what will be the behavior all through the year, and since there has been a drop it's difficult to find a match between 1% and 2%. Thank you very much.
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Antonio Llarden, Enagas SA - Executive Chairman [15]
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(Interpreted). Let's see, Jose. 1% is the worst-case scenario in my figures, and that's considering that this year, in total, in 2016, we had a decrease in gas for electrical generation when comparing to last year. So that is a harsh forecast that would allow me to set myself in this 1%, which I think is a scenario that is really the minimum.
And with regard to electricity, you have to understand that gas consumption for electricity generation is subject to so many factors that are not under our control that it's so -- that it's very difficult to foresee that. For instance, we have -- hydraulic results have been better this year than last year, so I can't give you any guidance with regard to what will be the level of hydraulic power this year. And even if we knew how much water is going to fall, how much rainfall there will be, we don't know what will be the use that electrical operators will make of it. So this cannot really be studied beforehand.
And with regard to electrical demand, with regard to generation, there is the impact of renewable energies, the impact of coal prices. So I have decided to have a negative vision and opposite to what happened in 2015. And this minimum figure of 1%, I consider that it would go down, the demand would go down 5 or 6 terawatts. And if I'm wrong, the results will be better, so 1% was the worst-case scenario.
As I was saying, it is a scenario where we are practically stable with regard to commercial development comparing to last year, due to this first quarter that was so warm and due to a decrease in electricity demand. If these two factors were not to happen, then we could very easily have a growth of demand that would be close to 3%. So 1% was really our negative view of the situation, considering all the broken down information that we have.
I couldn't possibly tell you whether hydraulicity is going to improve or not, so I have decided to put myself in my worst-case scenario. That is how I get 1%. If it is better and if the temperature's behavior during the cold season of 2016 is just normal, then we could go up 1 or 1.5 points, basis points, maintaining a growth of industrial consumption that could be around 2.5%, 3%, and that would lead us to be closer to 3% than to 1%.
So, nevertheless, during the next results readings, which will be mid-July, we will have a better figure. But obviously I know this is not very rational but it's statistical. You know that Enagas usually is quite accurate with our forecasts. So we would be moving around 1% and 3%, which is not necessarily an official forecast. It's just my forecast. But I think that we could just study it once again during the next results reading or communication.
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Operator [16]
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(Interpreted). Rui Dias, UBS.
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Rui Dias, UBS - Analyst [17]
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(Interpreted). Good morning. My question is just one question with regard to Medgas. Could you tell us how you see the evolution of this market? What are the difficulties you are seeing, if any, and what was the impact of this market in gas prices and what is the evolution you foresee for the midterm? Thank you.
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Antonio Llarden, Enagas SA - Executive Chairman [18]
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(Interpreted). Well, yes, our CEO, Marcelino Oreja, is going to answer to your question, because he has followed closely the evolution of this new market.
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Marcelino Oreja, Enagas SA - CEO [19]
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(Interpreted). Well, yes, Medgas has started working a few months ago, so we can't really know what its impact in the market will be. It is generating a certain volume, growth in prices. Not much gas is being marketed in this platform. And we understand that new agents will enter this market with new products and these prices will obviously be reduced, the gas price in Spain will be reduced.
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Operator [20]
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(Interpreted). Virginia, Deutsche Bank.
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Virginia Sanz de Madrid, Deutsche Bank - Analyst [21]
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(Interpreted). Good morning. I've got two questions that are very specific. One, on the amortization of the PPA and the grid interpolation, I would like to know the annual figure. Is it more or less between EUR20m and EUR22m? And if that figure is a recurrent figure for 2020, for the estimates.
And then I would like to know what do you expect to amortize this year, 2016, because I see that it has decreased once again, amortization?
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Antonio Llarden, Enagas SA - Executive Chairman [22]
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(Interpreted). Yes. The amortization for the whole of the year is EUR2.80m, EUR2.80m, and for the amortization of PPA, the figure I've got is EUR21m. So this is not recurrent till 2020, because it is conditioned and affected by greenfields. As GSP becomes a brownfield, the contribution of PPA will reduce substantially because it will only be affected by TAP. Thank you, Virginia.
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Operator [23]
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(Interpreted). There are no more questions in Spanish. We will now switch into English. Thank you. Olivier Van Doosselaere, Exane.
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Olivier Van Doosselaere, Exane BNP Paribas - Analyst [24]
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Yes. Thank you very much. Good morning and thank you for taking my questions. Just a few. Firstly, on the operating expenses, I apologize, I didn't hear if the total expectation for 2016 was EUR325m of OpEx or EUR335m, so if you could please clarify that one again and maybe also say to what extent that could affect your expectation on the EBITDA. I think you mentioned on the full-year 2015 results that for 2016 you expected an EBITDA around EUR890m. I wonder if that is still the case.
And then going forward, yes, we are seeing more activity on the international side, but then less activity I guess in Spain. So I wonder if you could give us a bit of a feel on how you expect your operating costs to evolve, given a mixture of those two effects in the years ahead.
And then, another point on the international investments, I wonder how you see the pipeline in terms of potential new projects or M&A. Do you see a lot of activity? Is there a lot on the table there, or are you seeing a relatively quiet period right now? Thank you.
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Antonio Llarden, Enagas SA - Executive Chairman [25]
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(Interpreted). Thank you very much, Olivier, for your questions. We will try and to -- the CFO to answer the first questions.
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Borja Garcia-Alarcon, Enagas SA - CFO [26]
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(Interpreted). As I was saying before, Q1 total costs of EUR92m, out of them non-recurrent EUR10m, so the figure expected for the whole year is EUR335m.
Regarding EBITDA, we've got an EBITDA between EUR880m and EUR895m, depending on the pending recognitions that we might get from the system.
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Antonio Llarden, Enagas SA - Executive Chairman [27]
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(Interpreted). As for the pipeline of new projects, we are still studying in principle every interesting project that in the midstream area takes place or happens in any part of the world. In Europe, we've got a couple of projects in the pipeline in the sense of new projects that are starting to be studied.
And because of confidentiality matters, when we sign MOUs, well, we cannot speak about them, but I can tell you that we've got projects that may evolve in Europe and also elsewhere, according to the operational theaters that we have set of interesting countries. Well, there are possibilities of new projects, of course.
Maybe here the most important factor, which is difficult to quantify right now, is the fact that we are convinced that the major vertically integrated companies have [shown] nuances of sales of assets, that for any reason they prefer to sell those assets to get cash. And the midstream assets, we are following them and we are even anticipating in some cases where these cases will take place. So we're doing a very strict and thorough follow-up.
Once having said that, after the fact that we want to acquire or not these kinds of assets, well, that will depend, as I said in my presentation in February and I've stressed also in the one-on-ones with the investor relations, well, that will depend on the conditions of risk, benefit and that are the correct ones for the Company. We are not going to change or alter our, let's say, chart of rigorous criteria for investing.
It is true, though, that we are convinced, and it is also taking place, that we see once again a certain movement of asset sales, brownfields in these cases, in other cases greenfields, new projects. And we do study all of them, all of these possibilities, and depending on each case, we might announce a new acquisition or not, of course, if we consider that the price and risk conditions are not adequate for the Company.
But more specifically and summarizing my reply, we've got a pipeline of projects that are still under study. Some of them are rather about to bloom in 2017, in order to specify more the operation. And for brownfields, these might take place 2016. Thank you very much.
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Operator [28]
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Harry Wyburd, Merrill Lynch.
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Harry Wyburd, Merrill Lynch - Analyst [29]
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Morning, everybody. A couple of questions from me. So firstly, on your debt costs, you mentioned earlier that you were vigilant for opportunities to further reduce debt costs. I wondered if you could give us an idea of what opportunities you might have, whether they are buybacks or bond maturities, and also what you think the impact will be of the ECB's corporate bond buying program on your long-run cost of debt.
Secondly, just a quick question on your working capital. You had a reasonably good improvement in working capital in the quarter. I wondered if you could let us know the key moving parts behind that. Thank you.
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Antonio Llarden, Enagas SA - Executive Chairman [30]
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(Interpreted). Thank you very much, Harry. We will have the CFO replying to your questions.
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Borja Garcia-Alarcon, Enagas SA - CFO [31]
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(Interpreted). On the question on the debt, as I said, the objective of the Company is to have an average life of seven years that takes us -- that with the dollar financing needs that we have, the average cost -- the net debt costs would be around 2.5%, 2.6%.
You were asking how this will affect the differentiation cost of the Company from the ECB -- EBC (sic), sorry. If you see the evolution of the secondary of our bonds, especially the one that matures in [2025], the yield has been affected. And as the European Central Bank has been announcing these new policies, the yield has contracted. And I think that all the information the market has today, it reflects the financing costs of the Company with the secondary of our bonds.
For liability management, the most reasonable I think is 2017. It's quite close. And we also have the concern of the breakeven, which is what's the premium to pay so the financial year is reasonable. And we are still analyzing this, and that may be the only option available. Thank you very much.
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Operator [32]
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Maurice Choy, Royal Bank of Canada.
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Antonio Llarden, Enagas SA - Executive Chairman [33]
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(Interpreted). (Multiple speakers) one other question that Harry asked about, and the CFO is going to answer to that question.
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Borja Garcia-Alarcon, Enagas SA - CFO [34]
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(Interpreted). The main driver of the Company's working capital is deficit. Since we have understood that for 2020, 2021 the deficit of the gas system will be completely absorbed, the Company will start generating -- from 2015 till 2020, we will have a cash flow generation of around EUR400m.
And in particular in 2016 we are going to have and expect, because Enagas is contributing with 40% of the deficit that is generated this year, which are EUR506m, as a consequence of generating -- of understanding that there was a debt generated by [Gas de Yela] and part of the revenue of Yela will come to Enagas. The difference between one and the other explains that the cash flows needs -- explains the cash flow needs of the Company. So until -- from here till 2020, 2021, we will have positive results with more or less EUR300m, EUR350m.
And as a complement of this explanation, I want to say that when the regulator change took place for the gas sector at around 2014, all of these figures, including foreseen costs, had already been foreseen. So we already knew that for 2015, 2016 we would have a system and series of assets which had already been built that would have their own costs. And on the other hand, this was balanced with the income of the system and the evolution of the demand, which is now working and completely in line with the forecasts, the assumptions of the regulator a year and a half ago.
So we still maintain, and I actually recently said during a meeting with the Secretary of State of Energy, because we had a talk about different things, and I told him once again that the figures that were crunched in 2014 in order to sustain the whole new regulation seem to be quite accurate and how they fulfill correctly in the period that was calculated, which was 2015 till 2020. So we are in line with what has been said.
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Operator [35]
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Maurice Choy, Royal Bank of Canada.
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Maurice Choy, Royal Bank of Canada - Analyst [36]
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Thank you very much and good morning to everyone at the Company. Two questions from me. The first question is more of a look back into the outlook for 2016 to 2020. I recall that you have dedicated [EUR250m] for international activity. Of that, EUR60m was committed and the remainder was uncommitted. Can I just get a little bit of update on that split? How do you tend to see that? Has that not changed, or based on what you've seen do you see a tendency for that to move either direction?
And the second question is more about strategy. Obviously, right now you've listed LatAm as being where you've seen most of your growth. You spend a lot of time there. And my question is more about how much time have you spent looking eastward, rather than west of Spain? Thank you.
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Antonio Llarden, Enagas SA - Executive Chairman [37]
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(Interpreted). Thank you so much, Maurice. I'm going to do a summary of what our investment philosophy is. First of all, we have a 2016/2020 outlook where we talk in general about an average investment of EUR400m per year. In the specific case of 2016, our year, it's a bit easier to be more specific. We talked about EUR465m as a general criteria. We said that it can be 50% in Spain and 20% -- 50% outside, and the part that's outside of it are committed expenses and the rest is still free, so it could be new investments.
Having said that, factors could alter in a positive sense, obviously upwards or downwards, the situation. In the case of Spain, everything has to do with environmental permits and so on, and as a matter of fact, we've already seen that works can or investments can be delayed. For instance, this year we had foreseen to initiate the works in Tenerife as planned, and we are still waiting now in the month of April for the last part of the environmental impact declaration.
So, in order to be honest with you, since our government is still not an official one, we can't really give you a date. But in a normal situation, we should be able to get the document in a one- to two-month period. So this is almost finished, but I can't be as precise as I would like because the government is still not the official one. There might be a delay with regards to investments in Spain. We will see that. It's not a figure -- it's not a very important figure anyway.
So this does not -- this means that we would have around -- a bit more cash flow to do investments in foreign countries, and it depends on whether it is green or brownfield. But that is difficult to anticipate, since we study also some projects that have an immediate impact in our results or maybe in the long term.
In the case of our strategy, we maintain the idea that one of the axes is to study everything that has to do with regasification plants all over the world. There are a couple of projects on the table right now in different parts of the world, and obviously we are following closely all the studies. And as a matter of fact, in one of the projects we are (inaudible), we have already been pre-accepted or pre-qualified in a group of partners. We still have one and a half years to study this project, so that we may give a final answer saying whether we consider it viable or not.
So this is a (inaudible) example, really, something we initiated last year, but it's going to be begin this year, quite intensely, and we'll have our final results, positive or negative, at the beginning of next year. So that's an example. We are still looking into projects such as this one.
And as for regasification and what we call the liquid natural gas stream, obviously the situation of over offer that we have right now and low prices that we have right now have made for those projects that were very developed to slow down. Instead of having three, four or five projects, we right now are studying only two projects, which are quite good projects, quite feasible projects, but if they were to see the light, they wouldn't see it until at least next year.
So we are still, in that sense, following our traditional philosophy of not doing things. We are thinking them through and leaving aside those that we consider too risky, or those projects that simply do not interest us. And those that do interest us will be the ones we will study in depth. We will dedicate time to them.
So in order to summarize, I can say that the average time that it takes us from the detection or birth of a project, so when a project is born, to the moment when we say that the project is interesting or not can take around two years' time. So projects that could get the green light this year, because we acquire them this year or a similar situation, will be projects that we started studying in 2014. And those that we are studying as of today will provide us with a result as of around 2017, 2018.
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Operator [38]
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There are no further questions in the conference call. Thank you.
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Antonio Llarden, Enagas SA - Executive Chairman [39]
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(Interpreted). Thank you very much, everyone. And we are open, obviously, to getting your questions from the department of relationship with investors. Antonio Velazquez and his team will be obviously available to answer your questions in detail. Thank you very much and see you during the next conference call.
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Editor [40]
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Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.
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