Half Year 2017 Enagas SA Earnings Call
Jul 18, 2017 AM CEST
ENG.MC - Enagas SA
Half Year 2017 Enagas SA Earnings Call
Jul 18, 2017 / 07:00AM GMT
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Corporate Participants
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* Antonio Llarden Carratalá
Enagás, S.A. - Executive Chairman
* Francisco Borja García-Alarcón Altamirano
Enagás, S.A. - CFO and General Manager of Finance
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Conference Call Participants
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* Fernando Lafuente Seseña
Alantra Equities Sociedad de Valores, S.A., Research Division - Research Analyst
* Harry Peter Wyburd
BofA Merrill Lynch, Research Division - VP and Junior Analyst
* Javier Fernandez Garrido
JP Morgan Chase & Co, Research Division - Head of Utilities and Senior Analyst
* Javier Suarez Hernandez
Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst
* José Javier Ruiz Fernandez
Macquarie Research - Analyst
* Olivier Pascal Michel Van Doosselaere
Exane BNP Paribas, Research Division - Analyst of Utilities
* Pablo Cuadrado
HSBC, Research Division - Analyst
* Rui Dias
UBS Investment Bank, Research Division - Associate Director and Equity Research Analyst
* Virginia Sanz de Madrid Grosse
Deutsche Bank AG, Research Division - Head of the European Utilities and Head of Spanish Equity Research
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Presentation
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Unidentified Company Representative, [1]
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Good morning, ladies and gentlemen. Very welcome to the earnings presentation of Enagás for the first half of 2017. Figures were released this morning before the opening bell and, as usual, are available on our website at www.enegas.es. Mr. Antonio Llarden, Chairman of Enagás, will host the presentation.
We expect the call to last around 20 minutes. And afterwards, we will open a Q&A session, during which we will try to answer any question as fully as possible.
So thank you for your attention. I shall now give the floor to the President, Mr. Llarden.
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Antonio Llarden Carratalá, Enagás, S.A. - Executive Chairman [2]
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Good morning, ladies and gentlemen, and thank you very much for your attention. The results for the first half of 2017 that we are going to present today are fully, as you see, in line with the goals and the budget for the period, and the company is on track to meet our goals for these years. These good results are presented in a time when interest rates are being tightened, and it seems that utilities seem to be less depreciated after the discourse of Mario Draghi by the end of June.
These are market trends. This already happened at the end of last year, at the beginning of November, after Trump's victory in the United States. But afterwards, the utility sector recovered. So I, therefore, think that our prospectives are good and that after a while, markets will once again focus on the basics of companies in our industry as it already happened in March.
Enagás has a major strength in this context, which is its financial strength. We have reduced our leverage, and we hold 80% of our debt at a fixed rate, which is not subject to the risk of rising interest rates. As you know, our investees develop our core business activities, which are similar to the ones at Enagás, and their contribution to the company's net profit is increasingly more relevant.
For this reason, and in order to always reflect the group's result in the most accurate way, from this semester onwards, contributions to the equity accrual basis of our investees will be recorded inside the group's operating profit. This measure is in accordance to the applicable accounting regulation that has been approved by the auditor, and that will not affect the company's net profit, neither the balance sheet nor the cash flow of the company.
In order to give you a more homogenous comparison with the results of the first semester 2016 or the full year 2016, you will see that we have included in all the financial statements that you're going to see today a pro forma information, including the figures that have been reclassified with the new reporting criteria.
I shall also recall that in the first quarter of this year, we consolidated our participation at GNL Quintero with 60.4% ownership. Following the sale of 15% to the Canadian investor, Borealis, in April, we have now consolidated with 45%. This shareholding is consolidating using the global integration method.
So let me now tell you about the most relevant figures from this first half, which you can see with more detail in the presentation.
First of all, the after-tax profit amounted to EUR 269.1 million, which is 25.6% greater than the one achieved in the first half of last year. This increase, of course, includes the accounting effect coming from the global consolidation of GNL Quintero. In standalone terms, that is to say with GNL Quintero consolidating by the equity method, the gross -- or after-tax profit was 1.6%, which was one -- the one forecasted for the first half of the year, which was included in our budget.
These results have been possible thanks to 3 key factors: first, the control of both operating and financial expenses; secondly, the positive performance of our investees, of course, which already, at the end of this first half, represented 15.6% of the standalone after-tax profit; and lastly, it is due to the global integration of GNL Quintero, which represents 12% of the EBITDA.
The positive performance of our affiliates is also reflected in the company's cash flow. In the first semester, we have received dividends from our investees for the value of EUR 86.3 million. This figure represents 70% of our annual growth, which you shall recall was set at EUR 120 million. Of course, as you know, the weight in the collection of dividends from affiliates is greater in the first half of the year than in the second half of the year.
With regards to funds from consolidated operations, it is up to EUR 481.2 million, which is 16.1% greater than the same period from 2016. This is a significant increase, which has allowed us to reach a leverage ratio, funds from operation versus net debt, of 17.2%, which exceeds our annual goal, which was 15%.
Finally, with regards to operating cash flow, it has increased by 55.7%, and this is mainly due to the significant improvement of the working capital to the higher billing -- mainly higher billing in the derived gas industry and, in turn, derived from the strong growth of the demand in the period we're looking at. Therefore, in some way or another, we can see that we have increased quite a lot our cash -- or operating cash flow and that our working capital has also improved. So these are major aspects that explain the results that we are presenting for this first half of the year 2017.
With regards to the investment, we've invested a total of EUR 202 million, mainly at the Trans Adriatic Pipeline gas duct, which represents almost EUR 85 million, EUR 84.8 million. And something that you already know, this is a cash output for the payment of the GSP guarantees amounting EUR 213 million. So technically, these were effected in January. They were already included in the debt figure of the year-end 2016.
On the other side, meanwhile, we must take into account that in April, we sold a stake of 15% of GNL Quintero amounting EUR 140.6 million. As we committed and as we are promising, in each quarterly results presentation, we inform about the status of the situation of the Sur Peruano pipeline project, GSP. Following the notification of the termination of the GSP concession in January this year, at the end of January, the Peruvian state has declared its wish to rebid within the deadline stated by the concession contract and, therefore, the government is taking the necessary steps to do so.
In addition, with regards to the information we gave you in the conference call in the first quarter, the supervisory body for investment in energy and mining, the so-called Osinergmin, has already appointed the administrator who, on behalf of the Peruvian state, will administer and supervise the assets of the concession until they are transferred to the future awarding bidder. This is a formal step which is very important, which was described already in the concession, and they are just -- they have just taken it.
Meanwhile, some other important piece of information is that the Proinversión body is already in the process of selecting an expert to calculate the net book value of the assets of the concession. Here, therefore, at Enagás, we're still precisely monitoring and detailing the evolution of this process with our external financial and legal advisers.
In this sense, I personally have had a meeting with the President of the Republic, a meeting with the Prime Minister and the most directly involved ministers in this process and, therefore, we're right on track, closely following all the steps that the government is taking in Peru to fulfill the concession agreement that we were referring to. So we will continue informing regularly in our quarterly presentations on how this plan is evolving.
In terms of Enagás' financial situation, [maintained] with the last 6 months, as you can see, is that the standalone net debt is, as of 30th June, amounted to EUR 4.482 billion. This means that we have reduced our debt by around EUR 6 million compared to the reported at the end of 2016. If we include the net debt of GNL Quintero, the total stands at EUR 5.177 billion. The strong deleveraging is the result of the significant cash generation during the period I was referring to before, and it is especially significant during the second quarter.
Our standalone net financial cost is of 2.3%, which is in line with our expectation and on the track to meet the average net cost forecast for the close of 2017. If we activated the effect of a global consolidation of GNL Quintero, the debt of Quintero, this net average financial cost is of 2.8%.
Standalone leverage ratio, meaning funds from operations divided by net debt, is of 17.2%, and the net debt/EBITDA is 4.5x. Our -- we have more than 80% of our debt at fixed rates, and we do not have significant maturities until 2022. So because of markets, and as I said before, are again sensitive to the increase of interest rates, and regardless of this fund driver that is going in this direction, we believe that for Enagás -- or at Enagás, we are really protected against this future situation of the market.
And in terms of rating, the annual revisions done by Standard & Poor's and Fitch, it was confirmed our rating of A-.
The demand for natural gas in Spain grew by 6.5% this half compared to the same period in 2016, and the data are very positive for all consumer segments.
Conventional demand, including domestic, commercial and industrial, grew by 4.3% compared to the first half of 2016. And the industrial demand has increased and is at 8.1%. This is a reflection of the good performance of the Spanish economy, to which the current political stability of the country contributes at this moment, especially where the environment in Europe and in other countries is more unstable.
On the other hand, demand forecast for the electric products industry grew by 19.8%, almost 20%, influenced by things that are far from our reach, meaning increased hydraulic generation and decreased wind power generation that in the first -- registered in the first 6 months of 2016.
Let me give you data that were provided us with yesterday. If you accumulated in the year, yesterday, this 6.5% of increase will be 7.2%, meaning that in July, the same trend will be maintained and it is even reinforced. And the [model] total for the last 12 months will be reaching 4%. Therefore, our growth track is very good, which makes us to have a forecast of total increase of 3%, which is prudent as a forecast, but it's improved the forecast that we did at the beginning of the year that was 2%. In the April conference call, we were talking about 2.5%, and we will have total demand growth of 3%. And as you can see at the moment, growth is beyond 7%.
And to conclude with this topic, let me remind you that 2017 will be the third consecutive year, after the economic crisis started,, that the total national demand in Spain has grown significantly. This sustained growth in demand in all sectors, and this is especially interesting for us, is a sign of the good health of the sector, leading to a higher turnover of the system and this is the total guarantee that the Spanish gas system is perfectly sustainable.
The system has already been in equilibrium since 2016. The current regulatory framework has managed to contain the generation of new mismatches between income and expenditure compared to the end of 2000 and the early -- of the second -- of the 2010, so regular income is already higher than regular expenses. The historic accumulated deficit and the law that approved regulatory form in 2014 must be recovered in 15 years, from 2016 on. And the calculation is done less regular -- current surplus to this end, if we devoted to return debt at interest, this elimination will be not done in 15 years, but we will return the debt at the end of 2024.
So this is an important piece of information because the system is being consolidation. The gas system is being consolidating, a system which is stable, which has a surplus from last year on. And we can cancel accumulated debt in half the time we have foreseen. This is what the regulatory reform aims for, and we need to say that the reform is going okay.
Lastly, let me remind you what are the main goals that we set for 2017. First of all, to pay a dividend of EUR 1.46 per share. We've maintained this. Secondly, we achieve growth in standalone after-tax profit of 5%, and we believe that we are on track with that to carry out the pledged investment of around EUR 650 million. We confirm here that we will do that, and we will not go beyond this figure to achieve a dividend volume for our affiliates of around EUR 120 million.
As you can see, we are going in that direction to maintain the standalone funds from operation over net debt ratio of more than 15%. And lastly, reach standalone average financial cost of around 2.4%. We are at 2.3% now, so we believe we are in line to that -- to meet this objective goal.
And lastly, and this is an issue we are giving increasingly importance each conference call, is that Enagás maintains its leadership in sustainable. And to do so, we continue to work on a daily basis and to integrate this strategy in our business operations. This commitment has made it possible to renew our presence since some of the main international indexes in this matter in the first 6 months of 2017, as you can see on the presentation. And I'm not going to the details of that. We don't go before deadline.
One of the actions we carried out is the publication of corporate guidelines on diversity and equality of opportunities. In this respect, it was very satisfying to us to be acknowledged by Equileap as one of the 200 leading companies in the world in gender equality.
And very briefly, conclusions. First of all, the results from the first half that we have presented are absolutely in line with the goals set for 2017.
As I said before, the cash flow generation during this period had enabled us to lower standalone debt by around EUR 6 million, which is in line with the company -- EUR 600 million, excuse me, in line with the company's strategy to progressively reduce leverage. Our financial position is very solid. 80% of our debt is fixed rate, and we don't have significant maturities until 2022.
Demand for gas natural is up by 6.5% first half of 2017, and this is fostered by the growth of domestic demand and the industrial demand, which is in line with the positive performance of the economy and the industry in Spain and the gas demand from the electricity industry, because this has been increased mainly due to weather, but also because of the good performance of industrial companies that consume gas in Spain have cogeneration, which makes a double effect of gas consumption increase.
Thank you for your attention. I have now some -- give you the floor to ask any questions. We will be more than happy to answer to any questions you may have.
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Questions and Answers
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Operator [1]
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(Operator Instructions) First question comes by Javier Suarez, Mediobanca.
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Javier Suarez Hernandez, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst [2]
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My name is Javier Suarez from Mediobanca. I have 3 questions. First, it is very interesting to hear what you said on the systems capacity to return the free tariff fully. I think you said 2024. Could you tell us what are the calculations you've done to reach that conclusion? I'd like to know what are -- which are the assumptions that you have used to have to reach these reference years? The second question is for the TAP project, T-A-P. Could you give us an update on the situation for this project? And what are the difficulties that you're finding? And the third question is for GSP. In one of the advice, you have an update on the situation. But could you clarify if Enagás sees that the conditions are set to participate in the rebidding of this concession?
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Antonio Llarden Carratalá, Enagás, S.A. - Executive Chairman [3]
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Thank you, Mr. Javier Suarez. With regards to the gas system, the estimates are the following. Since last year, the revenues and expenses system is already positive. Let me tell you that in this conference call, we cannot enter into detail of all the figures for every year. I suggest everyone who is interested on having greater detail to talk to the Investor Relations department because they will provide you this report with greater detail. But macro level, revenues, costs, positive. The whole of the debt, excluding Castor, because Castor has got a different regime for expenses, they are going at 30 years securitization, so -- but the rest of the debt are around EUR 1 billion is foreseeing to be dealt with the regulation of 2014 to be paid with interest during 15 years. So we will be [finished] by 2031. So with the figures we've got for -- with 2016 and '17 that are the projections we're doing, we see that if we apply, since now onward, all these surplus to repay this debt, we shall eliminate it by 2024. I have to say that this is in line with the forecasts that the regulator did that we all very well know. When they did set up the new regulation, they took a period of 15 years to be (foreign language), thinking that the gas demand could be lower as an average. We are seeing, as we had foreseen, that gas demand is being higher one than the one forecasted, and that's what allows us to think that very properly, by 2024, this be fully paid. We have created a stress scenario with harsher conditions; instead of 2024, it was 2027. But in any case, the system is in balance. It's already positive. And we can repay this EUR 1 billion, which is the tariff debt -- this is the so-called tariff deficit, not in 15 years, but already in half of the period of time. This is important in our belief because from now on -- sometimes, there are comments that are being issued saying that, well, maybe by 2018, we should have a review of the regulation because in the regulation set in 2014 it was explicitly said, by the mid of that regulation, by the mid of the term, they would review the evolution of the balance of the system. And if it were not to be positive, they could take measures. But in any case, all of the information tells us that the system evolution is being very positive. Let me add that there's another condition to estimate. This is always to assume that there are no tolls increased because if tolls were to be increased, well, this would be much more quicker. So the balance equilibrium, I'm telling you, is just by thinking that there are no tolls increased and therefore the system is fully in balance. As for TAP, the update we can tell you right now is that the works are in line with what's expected. The problems we had from Italy, the land in Italy, we would have to transfer some olive groves, 400 olive trees or something like that. These works have been done, these transfers, or the replanting these olive trees. So it seems that we should have -- the partners shouldn't have more problems. So the surveys for financing are being done. The studies are being done and under construction. The project is fully flowing. I recently had a meeting, in fact, with the commissioner of energy of the EU, and the EU sees with great interest this project due to the geopolitical context that you're aware of. And it is advising the EU to have alternatives or complements. Rather than alternatives to have complements of energy supply safety so that we don't only depend from the main gas supply to Europe. As for GSP, right now, talking about participating or not, that's not the core of the question. Basically for one reason, first of all, because our objective in the market at Enagás is to recover the capital we invested, and that's what we have devoted and have been devoting and will devote all our efforts. But also because not until the rebidding is done by the Peruvian Government with the rule, the final rules and the final tech specs, we won't know if we are going to participate or not in that consortium. So this is something that when time needed, we will decide. But today, it's not at the axis of our approach. It's not so interesting to us, and it's not interesting for the works of the Peruvian administration. And I think I've replied to your three questions. Thank you, Mr. Suarez.
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Operator [4]
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Next question comes from Pablo Cuadrado from HSBC.
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Pablo Cuadrado, HSBC, Research Division - Analyst [5]
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I have a couple of questions. First question, about the working capital, as you mentioned in the capital, [EUR 235 million] for the first half. I would like to ask you if this is a recurring factor or if working capital will be reversed in the coming semesters? And I would like you to elaborate on the level of debt net you expect for the end of the year. And the second question is a question for Borja. The accountability changes, could you please elaborate on the depreciation level by the end of the year concerning international assets? And the last question is related to the international expansion. We've known that the privatization of some of the companies will have restarted with the purchasing of 66% of the company. And I would like you to elaborate and if you see that the conditions and the regulatory conditions are set for us to participate in this privatization.
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Antonio Llarden Carratalá, Enagás, S.A. - Executive Chairman [6]
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Sir, I'll give the floor to the Chief Financial Officer, Mr. Alarcón, for the 2 first questions, and then I'll answer the third question. Thank you.
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Francisco Borja García-Alarcón Altamirano, Enagás, S.A. - CFO and General Manager of Finance [7]
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Sir, the company's working capital is stationary. We have more seasonal and seasonality. And I remember last year, the last liquidation for the first semester and the payout for June was done in July, so that working capital is seasonal. For the other part is EUR 25 million. Second question, debt by the end of the year will be EUR 4.8 billion. And according to -- we will have $350 million for amortization. In terms of Greece, it is true that this is something that has been discussed for 2 or 3 years. This is an obligatory privatization process that the European Union asked to the Greek government to solve all the problems of Greek debt, et cetera. This is something, and as partners of the TAP that goes through Greece, and we are partners on this TAP, we will be following this closely, but we cannot show any interest. Now we will be partners of TAP, and we will follow the evolution of -- the sale of a package of the Greek partner. Thank you very much.
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Operator [8]
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Next question will be done by Javier Garrido from JPMorgan.
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Javier Fernandez Garrido, JP Morgan Chase & Co, Research Division - Head of Utilities and Senior Analyst [9]
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The first question is referred to the reduction of Standard & Poor's outlook. Do you have any comment on that impact that this may have on the -- your possible future investment? Is this regarding -- will be effective [restandardization] of international strategy you had? What do you think about this reduction from Standard & Poor's? The second question is in line with the comment the President did on the absence of bidding tariff and the comment on the possibility of having or not having changes in between because of -- do you get the feeling at Enagás that the system is balanced and, therefore, we won't see any midterm adjustments in OpEx terms? And can you give us updates on CapEx and OpEx? What does the company consider that is going to be offsetting that possible readjustment of the standards?
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Antonio Llarden Carratalá, Enagás, S.A. - Executive Chairman [10]
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Thank you very much, Javier. Well, with regards to Standard & Poor's, we're very satisfied that Fitch first and Standard & Poor's afterwards, each one, with their own measuring systems, have restressed the rating of A-, which, as you are aware of, is a very good rating and probably higher than other European similar companies. The reason Standard & Poor's gives is that they are fully shared with us, we announced by the year-end last year that we had accelerated the investment process for that 4-year period, an acceleration due to the, of course, circumstances. There were a series of investments that we were thinking about doing, just opened the window to invest before it, well, we had foreseen. It was very difficult to foresee when -- the month and the day, of course. So we said that we were not going to increase our investment plan foreseen, and that's what we're maintaining in 2017. And therefore, we fully understand that what the rating agency is telling us is that you're in the right track. But with new investment plan that you said if you did more than what you said you were going to do, well, then we could modify our opinion on your rating. But of course, in principle, we're going to continue with what we had set. On the other side, it is also true that the rating we have is a very good rating. And of course, some other analysts have told us, well, you could be at a lower rating, it wouldn't be anything. I mean, it wouldn't be any matter. But if you allow me, if we've got more food in the fridge as we're poor, the better to spend our summer. But I mean, jokes apart, we don't want to make any major modification. We're just consolidating our investments, as we explained at the year-end last year and in the results presentation. So Fitch and Standard & Poor's coincide in this analysis. With regards to the tariff deficit, let me give you some light on something. Sometimes, information that appearing with statistics, there are misunderstandings, which is -- a misunderstanding which is the following. When the regulatory reform was done in 2014, it was estimated by -- the regulator estimated the tariff deficit with great detail. This tariff deficit are already carried out investments, but for many reasons, were not included in the gas system. But these were not new investments that were going to be done in the future. So it was a perfectly known deficit already. When the new regulation was decided, they also decided for these deficits' part that was already existing but that was not acknowledged by the system, it would be gradually included during 2015, '16 and '17. This is what sometimes some observers may read differently that they think that they're still generating deficit above what was foreseen, no. The deficit that has appeared this year was fully included and was, in fact, this EUR 1.1 billion. So what I said this morning is that if we forget about the deficit and we only take the net revenue and the net expenditure of the system with normal terms since 2015, we see that there is surplus and that this surplus is going to grow in the coming years. And if we apply this surplus, as it's being done, to pay interest and to a gradual amortization of the debt, this debt, which was foreseen in average to be paid out in 15 years, so 2031, the year 2031 starting with 2016, with our estimates, we see that we can perfectly eliminate it by 2024. Well, we will see if the regulator decides differently. But in principle, the system eliminates naturally the debt that deficit in half of the time. This is what allows us to be optimistic. You're asking me, well, even in spite of everything, can the regulator? Well, I mean, the fate of regulators and what regulators thinks, nobody knows. So the only thing we can do is just give facts. And the fact is that this system, it is in balance, that the system is generating a surplus and that this surplus applied to what the law stated, that is eliminating the tariff deficit, that can be done in half of the time and with another condition we must not forget. Since 2014, we are not increasing toll tariffs in Spain. So in practical terms is that if [these average] tolls, with the inflation we have had, tolls have reduced. So these are environmental conditions that are very good for the regulator not to be in the need of taking extraordinary measures. Of course, once having said that, the regulator can, when he determines, to carry out a survey -- well, before the regulation terminates, to carry out a final survey on how the system is, its shape, and take the guidelines for the new regulatory term at 2020, 2025, and then we will see what happens. But I shall repeat the facts we can put on the table, which is our transparency task, is that the system is in balance, for sure, as the regulator foresaw because when the regulator did the estimations in 2014, in fact, they took 3, let's say, tracks for growth or development, a very positive one, a normal one and a stressed one. And the 3 tracks provided for the system to be in equilibrium minimum by 2031. What we're seeing now is that the system with accumulated debt is already in balance right now. And with accumulated debt, it will be eliminated in half of the time foreseen. And I think I answered the 3 questions.
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Operator [11]
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Following question comes from Mr. Lafuente from N+1 Equities.
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Fernando Lafuente Seseña, Alantra Equities Sociedad de Valores, S.A., Research Division - Research Analyst [12]
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I have 2 very quick questions. First, concerning the credit rating, I agree with you. If there was a reduction, this would not be relevant for the company. But is there any technicality or any condition, any clause in the credit line that will make us to increase guarantees if the reduction would be produced at any moment? And if we were to maintain A-, what are the measures to be taken to maintain it? Selling assets? If this is the case, what is the most relevant thing for you to do?
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Antonio Llarden Carratalá, Enagás, S.A. - Executive Chairman [13]
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Thank you, Fernando. Not at all, we have no credit clause that is linked to having more guarantees with a hypothetical reduction of guarantees, so you have to be calm. And to answer to the second question, we maintain our rating very well, so we don't think we need to take any extraordinary measure or any kind of measure because we don't have to. But concerning the first question, which is extremely important, we have no credit linked to having to put more -- include more guarantees or cost calculation if the rating would have been -- would be reduced from A- to more. Thank you very much.
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Operator [14]
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Second question, José Ruiz, you have the floor.
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José Javier Ruiz Fernandez, Macquarie Research - Analyst [15]
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I have 2 questions. First question is to go back to the tariff deficit hypothesis calculation. Could you please share with us the exact datum the forecast until 2024? And the second question is, I would like to know, with this new forecast of equilibrium in the system, can we consider the opening -- reopening of Musel?
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Antonio Llarden Carratalá, Enagás, S.A. - Executive Chairman [16]
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Well, first of all, this demand average forecast cumulated during the period would be until 2022 up to 3.2%. That is the forecast we have. This is the forecast we debated with the regulator back then. They took more stressed scenario to be cautious. This is what's explaining 2031. But our forecast, 2015, '16, '17 have been met strictly, though we have exceeded them. So in this sense, we're quite at ease. With regards to the effect on the system equilibrium, we haven't included any revenue coming from Musel. This does not mean that it won't happen, but it is quite a conservative scheme and, therefore, we are not including Musel in possible revenues from the system.
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Operator [17]
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Next question from Virginia Sanz de Madrid from Deutsche Bank.
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Virginia Sanz de Madrid Grosse, Deutsche Bank AG, Research Division - Head of the European Utilities and Head of Spanish Equity Research [18]
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I have 3 questions, actually. First question, concerning the net gain growth of nearly 5%. For the first half, we have 1.6% increase. So I would like to understand what is going to speed up growth of benefit if it is only related to what happened to -- during the last quarter? Or you really expect for operational improvements or financial improvement? The second question is related to GSP and the process you have been explaining, where we are at now. I would like to know what is the possibility to recover the money that we invested and guarantees for 2018? And the last question is a more political question, I would say. After the arrival of Macron and the minister for energy in France said that they are going to close up 17 -- or 7 nuclear power plants in 2017, do you think this is going to affect the connections between France and Spain and this will, therefore, affect our own products?
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Antonio Llarden Carratalá, Enagás, S.A. - Executive Chairman [19]
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Concerning the first question, I'm going to give the floor to the Financial Director. Borja, you have the floor.
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Francisco Borja García-Alarcón Altamirano, Enagás, S.A. - CFO and General Manager of Finance [20]
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Thank you, Mr. Chairman. The result of the benefit after tax for the first half was EUR 117 million. The performance of the second half will be more or less the same, so the figure will be EUR 437 million. The difference between the first half and the second half is still, for the first half, we had some pending recognition, EUR 13 million. And the second -- for the second semester, we will have, in the equivalent -- putting into equivalent, we will have more things for the second. So the 2 halves are very similar, and we have reached a stand-alone increase that we've foreseen. Concerning Standard & Poor's and the results we presented and that were presented with the auditor for GSP, we haven't seen any change, so we don't see any difficulties in recovering because all the conditions are being met, the conditions that were established by the concession. We include in the account, and you already know, and this is after the indications given by the regulator and the auditor, a provision in the event of delay in recovering the money. But we haven't seen anything that make us change the opinion. Concerning the third question, an interconnection, I agree with you. The statements made by President Macron and the Minister of Ecology and Transportation and Energy, who mentioned that they will close until 17 nuclear power plants in a specific deadline, even this [deadline] was not established, obviously, the energy grid in Spain will evolve similar to the energy mix that exists in other European countries and surrounding Germany -- France, I'm sorry, Germany, Italy and Spain. So gas consumption until 2020, 2030 will be increased. If we add to that the domestic production within the European Union will be rapidly decreasing, interconnections in general, this topic is on the table for discussion. I have had a meeting with the energy commissioner, and we have been discussing about this. This is not a secret. This has been discussed by the European Commission for a long time. And let me tell you that there was a meeting between our President, Mr. Rajoy, with the President of the French Republic, Mr. Macron. And they discussed, among others, the Pyrenees interconnection. And both presidents were discussing this, and President Rajoy put this on the table for discussion, and President Macron was really interested in this connection. So in 2017 and in the mid-2018, we have seen breakthroughs in this regard. And let me reiterate that the European Commission is extremely interested. Commissioner Arias Cañete and the President of the Commission, Mr. Juncker, are really interested in global interconnection, electricity and gas too, because they consider this to be a security of supply topic, which is key to the European economy to carry out the energy transition plan, in which Spain and the other European members are involved with, in order to provide with safe gas at a good cost. And as you know, this is related to interconnection. So Virginia, specifically, we believe that the result of the election in France, and very importantly, will help this process.
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Operator [21]
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The next question will be done by Rui Dias from UBS.
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Rui Dias, UBS Investment Bank, Research Division - Associate Director and Equity Research Analyst [22]
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Two questions. One, how are the talks with the regulator going to sell the tariff deficit? We are talking about EUR 300 million of debt reduction, net reduction. What are the plans? And in terms of review -- regulatory review, have you already started to talk to the regulator to have an idea of the potential changes? Or is there any document that will be polished -- published by the regulator in the coming 2 months?
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Antonio Llarden Carratalá, Enagás, S.A. - Executive Chairman [23]
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Mr. Rui Dias, thank you very much. First of all, on the securitization or the selling of rights of the deficit, this is something that the gas sector since some time has been talking with the regulator, talked it over to the minister about 15 days ago. And what I can tell you that in principle, due to what we talked about, the ministry sees the interest of -- during this process of securitization. And we think -- I think that during 2017, we might have it. The thing is that it's feasible. But as you know, it is a process that has got the state guarantee, so it requires some prerequisites, administrative and legal -- administratively and legally that cannot be solved with just a simple ministerial order. But the feeling that I and the whole of the sector has is that, yes, during 2017, we see no obstacle of political legal nature to carry out the securitization process once, of course, well defined the evolution of the system. Let me put it in other words. If the system had not evolved positively, it will be very possible for the regulator to say they will wait. We're not going to [desecuritize] because I have to see this deficit as going to be finishing. As long as the system is clearly sustainable, and that's the feeling I got when I talked to the minister, so this process of securitization will continue in due form and terms as the administration may deem suitable, but most optimistic in that regard. As far as the regulatory review, there's no document that we are aware of. And I'm convinced that there is no document that has started -- starting, et cetera, et cetera. I think I recall, I talk by heart, but in the text of the law in 2014, it was said that 2 years before the termination of the regulation, they would start by the regulation -- regulator's study that would be sent to the affected parties so that they could create a report. Technically speaking, this should be done since January 1, 2018. So as far as I'm concerned, there's no, that I know, there's no document. But maybe in 2018, we might have a first draft or a white book that will be the basis for us to issue opinions, consumers, operators to provide opinions. And so by 2019, we would define the new regulation entering into force January 1, 2020. That would be the path or the road map that was foreseen in the regulation in 2014. And as far as I'm concerned and as far as I know, that's what the regulator is going to be following.
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Operator [24]
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Thank you very much. We have no more questions in Spanish. And now we will answer the questions in...
(technical difficulty)
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Operator [25]
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Ladies and gentlemen, the first question in English comes from Harry Wyburd from Merrill Lynch.
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Harry Peter Wyburd, BofA Merrill Lynch, Research Division - VP and Junior Analyst [26]
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Most of my questions have already been answered, so only one from me, please. Could you update us on the current growth profile in LNG Quintero? I know that there was originally a plan to build a third tank. So could you update us on the progress there? And if you think it's now unlikely that you're going to get a third tank, how well capitalized is that business? And could you extract some cash from that business if you're no longer going to build a third tank?
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Antonio Llarden Carratalá, Enagás, S.A. - Executive Chairman [27]
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Thank you, Harry, for your question. The Chief Financial Officer will answer to your question because he has all the data.
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Francisco Borja García-Alarcón Altamirano, Enagás, S.A. - CFO and General Manager of Finance [28]
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Thank you very much. The situation on Quintero concerning the third tank is we're still analyzing this as an opportunity. The company, as you know, has $280 million for the expansion or for operations in the region, so the expectations of growth of the company when we bought the company and now have not changed, so we have the same expectations.
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Operator [29]
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The next question comes from Olivier Van Doosselaere from Exane.
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Olivier Pascal Michel Van Doosselaere, Exane BNP Paribas, Research Division - Analyst of Utilities [30]
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I really only have one left, actually. It's on your domestic CapEx plan. I just wonder if you could give us an insight on how you think you are evolving in terms of the timing of the construction of a new regasification plant in Canary state. That's it.
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Antonio Llarden Carratalá, Enagás, S.A. - Executive Chairman [31]
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Thank you, Olivier. Right now with regards to the new regas plant in the Canary Islands, more specifically in Tenerife, we have all the documents necessary ready, and we're just waiting for the ministerial order of the Energy Ministry to be issued, the administrative authorization, which is a final document referring to all the permits we already have, our environmental permits, et cetera. So that, regulatory speaking, sets the starting of the works to be able to start accruing, and that's what we're just waiting for. And due to the dates we're at, we expect for the -- by September, October, we will have that ministerial authorization and, therefore, we will be starting the works. Part of those works are ready, the studies, et cetera, and analysis are done. But we're still pending, if you will allow me, the nihil obstat, which is in Latin, which is the authorization to execute works on the grounds, and that is acknowledged as a regulatory cost for the future.
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Operator [32]
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Thank you very much. There are no further questions in today's conference call.
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Antonio Llarden Carratalá, Enagás, S.A. - Executive Chairman [33]
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Thank you very much. If there's no other questions, we can conclude the conference call. Thank you very much, everybody.
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