• The power company increased its net profit by 7.4% in the first quarter of the year to 320 million euros, and increased its EBITDA by 2.7% compared to the same period of the previous year. These results were mainly due to good performance by its gas commercialisation business and increased efficiency, although they were adversely affected by a negative impact of 43 million caused by exchange rate trends.
  • The company’s EBITDA and net profit rose by approximately 8% and 33%, respectively and in recurrent terms, owing to organic business growth and ongoing debt cost optimisation and reduction.
  • Increased focus was placed on generating cash flow by improving recurrent earnings and selective disinvestments, achieving greater efficiency and streamlining investment. Excluding one-off growth projects, the company invested approximately 300 million euros during the quarter – a decrease of 10%.
  • An agreement was signed to purchase two solar photovoltaic power projects in Brazil, with an estimated investment of 95 million euros.
  • At 31 March, the leverage ratio stood at 40%, almost five points lower than in the same period of the previous year. The average cost of debt continued to fall to 3%, from 3.4% at the 2017 year-end, which has led to a net saving of 17 million euros when compared with the first quarter of the previous year.
  • Between January and March, the sale of gas distribution and commercialisation companies in Italy resulted in funds of 736 million euros while the sale of a 20% stake in Nedgia resulted in funds of 1.5 billion euros.
  • The company maintained its efforts on a new Strategic Plan, which will define the transformation and lines of action for the company in the future with a clear focus on creating value.

GAS NATURAL FENOSA posted a net profit of 320 million euros, up 7.4% on the same period of the previous year. It also posted an EBITDA of 1.05 billion euros between January and March, representing an increase of 2.7% on the first quarter of 2017.

This EBITDA increase is mainly due to positive performance by its gas commercialisation business and greater efficiency. Currency depreciation against the Euro had a negative impact of 43 million euros vis-à-vis the same period of the previous year. When discounting this effect, the EBITDA increase stands at 7%.

The contribution by gas and electricity distribution to EBITDA stood at 57%, while the contribution by generation and commercialisation stood at 43%. The EBITDA from business in Spain by the company rose by 6.5% and accounted for 55.7% of the total. The remaining 44.3% corresponded to international business.

The capital gains generated in the quarter from the sale of non-strategic businesses (168 million euros) have been entirely allocated to provisions for potential impairment of assets stemming from the possible discontinuation of various businesses as part of the process to streamline the portfolio.

The EBITDA in recurrent terms rose by 7.8% due to improvements in the gas business and efficiency, although this was partially offset by a negative impact from currency transfers in international business. In turn, the profit (PAT) also rose by 32.8% in recurrent terms owing to organic business growth and ongoing debt cost optimisation and reduction efforts.

Strategic boost to business during the quarter

Through its international power generation subsidiary Global Power Generation, GAS NATURAL FENOSA reached an agreement in March 2018 for the acquisition of two solar power projects in Brazil. The development of these two projects located in the State of Minas Gerais represents an investment of approximately 95 million and a capacity of 83 MW. They are expected to enter operation at the end of this year.

In February, following approval from the competent authorities, GAS NATURAL FENOSA completed the sale of the gas distribution and commercialisation companies in Italy for 736 million euros, generating capital gains of 168 million after tax. Transfer of the gas supply contract for 30 million euros was completed on 18 April 2018.

Also this quarter, the sale was completed of a minority 20% stake in the company Holding de Negocios de Gas, S.A. (Nedgia), which owns the gas network assets in Spain, to a consortium of long-term infrastructure investors formed by Allianz Capital Partners and Canada Pension Plan Investment Board for 1.5 billion, generating an increase in reserves for the company of approximately 1 billion euros.

GAS NATURAL FENOSA is constantly working to review and streamline its portfolio of businesses, as well as its non-strategic businesses and regions. Based on this strategic review of its international positioning, the company is undertaking competitive sales processes for its electricity distribution business in Moldova and its power generation business in Kenya. The process to sell off gas assets in Colombia that began in 2017 is also ongoing.

Streamlining investments and generating cash flow

GAS NATURAL FENOSA increased its focus on generating cash flow by improving recurrent earnings and selective disinvestments, achieving greater efficiency and streamlining investment. Excluding one-off projects, the company invested approximately 300 million euros during the quarter, down 10% on the same period of the previous year.

The commercialisation of gas accounts for 35.8% of the consolidated total investments, thanks to the incorporation of a LNG tanker. In turn, gas distribution accounts for 22.1% of the total (up 10.3%). In terms of Latin America, gas distribution rose by 30.8% to account for 15.9% of the total due to growing investment in Chile.

In turn, the electricity business accounted for 19.3% of the total. In terms of the electricity business in Spain, investment rose by 91.3% due to the new wind projects in the Canary Islands.

By geographical area, foreign investments represented 63% of the total and 37% in Spain when not considering the addition of the new LNG tanker.

Continued streamlining of financial debt

  • GAS NATURAL FENOSA reduced its net financial results by 17 million euros.

At the end of the first quarter, the net financial debt of the company stood at 13.03 billion and the leverage ratio stood at 39.5%, compared with 44.4% in the same period of the previous year. The net debt/EBITDA ratio stood at 3.3.

The cost of this net financial debt in the first quarter of 2018 amounted to 138 million euros, which is lower than the same period in the previous year due to a rate reduction in new issues when refinancing mature debt or applied to the repurchase of bonds, as well as to the repayment of bank loans.

Hence, the average cost of the gross financial debt fell from 3.4% at the 2017 year-end to 3% in the first quarter of 2018, with 84% of the debt at fixed rate.

In terms of debt maturity, 92.6% of the net financial debt matures in or after 2020 and the average debt lifetime is 6.4 years.

In January 2018, the company issued ten-year bonds worth 850 million with a coupon of 1.5%. These funds will be allocated to a bond repurchase offer worth 916 million for debentures maturing between 2019 and 2023.

Furthermore, Gas Natural México issued 152 million euros in three- and seven-year bonds in March with variable coupons of TIIE (equivalent to the EURIBOR in Mexico) plus 0.4% for the three-year bonds and 8.89% for the seven-year coupons.

Also during the first quarter of the year, loans worth 464 million dollars and 500 million euros were repaid.

At 31 March, GAS NATURAL FENOSA’s availability of liquidity was 10.94 billion euros, giving a maturities coverage in excess of 24 months.

Gas Distribution

  • The gas distribution EBITDA including Spain and Latin America stood at 333 million euros.
  • Regulated gas sales in Spain rose by 3.7%, with a new network development of 734 kilometres.
  • Sales from gas activity in Latin America amounted to 56,628 GWh.

The EBITDA from gas distribution activity in Spain stood at 214 million euros, down 4.9%. This decrease was mainly due to lower revenue from meter rental owing to the application of a rental price reduction as from January 2018 (Order ETU/1283/2017) and reduced LPG business.

Regulated gas sales rose by 3.7%, to 58,753 GWh. This growth was significantly greater than the figure posted in the same period of the previous year –up 14% and 2,707 GWh more– thanks to favourable weather in March, the coldest in the last 15 years.

The gas distribution network grew by 734 kilometres in the last 12 months to a total of 56,562 kilometres.

The EBITDA from gas distribution in Latin America stood at 119 million euros, an increase of 3.1% on the previous period, mainly due to the gas tariff review in Argentina.

At the financial year-end the company had 5,162,000 supply points in Latin America, with a year-on-year growth of 206,000 supply points.

Electricity distribution

  • The recurring EBITDA from electricity distribution stood at 268 million euros

The recurring EBITDA from the electricity distribution business in Spain stood at 160 million euros in the first quarter, up 1.9% compared to the same period of the previous year; mainly due to the implementation of efficiency measures in the business conducted during 2017.

The recurring EBITDA from electricity distribution business in Latin America amounted to 108 million euros at the close of the first quarter –down 6.5%–, particularly affected by exchange rate trends.

Sales from electricity distribution business in Latin America rose by 1.1% to 5,745 GWh, with a considerable contribution from Chile of sales amounting to 3,950 GWh.

Overall, the number of supply points at the end of the quarter totalled 3,755,000.

Gas: Commercialisation and infrastructures

  • The EBITDA from gas business amounted to 332 million euros.

The EBITDA from wholesale and retail gas commercialisation business amounted to 259 million eurosup 60% compared to the January-March 2017 period–, mainly due to the increase in international LNG sales volumes within a context of higher gas prices due to the winter.

In the first quarter, wholesale commercialisation by GAS NATURAL FENOSA amounted to 99,979 GWh –an increase of 17%–, mainly due to the contribution from international business (up 17%), which amounted to 61,943 GWh. Commercialisation to end customers in the Spanish gas market amounted to 38,036 GWh (down 5.9%).

As regards the commercialisation of natural gas in Europe, the group maintains a consolidated position in France, Belgium, Ireland, Luxembourg, Portugal, the Netherlands and Germany. In the period, it posted sales in France amounting to 13.6 TWh. In turn, sales in Belgium, Luxembourg, the Netherlands and Germany amounted to 5.2 TWh. The company also operates in the Irish wholesale market, where it sold a volume of 0.5 TWh at 31 March.

In the Portuguese market, GAS NATURAL FENOSA remains the second-largest operator in the country with a market share of 15% and a cumulative sales volume of 1.6 TWh at the close of the quarter.

Retail market sales amounted to 13,523 GWh, with 11.7 million active gas, electricity and maintenance service contracts at 31 March. GAS NATURAL FENOSA’s combined supply of electricity and gas already reaches more than 1.5 million households in Spain.

In the first quarter, GAS NATURAL FENOSA and Balearia signed the first permanent LNG bunkering contract for ship propulsion in Spain, which represents exclusive supply for a decade at those ports where Balearia operates.

The EBITDA from infrastructure activity, which includes operation of the Maghreb-Europe Gas Pipeline and the exploration, production, storage and regasification of gas, stood at 73 million euros in the January-March period. Without the exchange rate effect, the EBITDA would have increased by 3.7% on the previous year.

Electricity Spain: generation, commercialisation and supply.

The EBITDA from electricity business in Spain (generation, wholesale and retail commercialisation and PVPC supplies) stood at 124 million euros (down 1.6%).

Electricity demand in Spain in the first quarter of 2018 stood at 66,020 GWh – 2.9% higher than in the same quarter in 2017 and continuing the upward trend seen in recent quarters.

GAS NATURAL FENOSA accounted for a 17.4% conventional generation market share in the first quarter, 0.3 points higher than at the same time in 2017.

Mainland electricity production by GAS NATURAL FENOSA stood at 7,197 GWh in the first quarter (down 1.1%). Of this figure, 6,327 GWh correspond to conventional generation – down 3.3% on the figure posted in the same period of the previous year.

By technology, conventional hydropower generation stood at 1,277 GWh –compared with 465 GWh in the same period of the previous year–; nuclear generation at 1,231 GWh (up 0.5%); combined cycle generation at 3,015 GWh –down 5.3%–; and coal-powered thermal generation at 804 GWh –down 51.8%.

Electricity sales to 31 March reached 9,552 GWh, including commercialisation in the deregulated and last resort markets (voluntary price for the small consumer) – an increase of 5.9%.

Gas Natural Fenosa Renovables closed the year with a consolidated total installed capacity of 1,147 MW (979 MW from wind power, 110 MW from mini-hydroelectric generation, and 58 MW from cogeneration and photovoltaic plants).

The company is currently concluding work on the construction of 8 of the 13 wind farms that Gas Natural Fenosa Renovables registered within the maximum quota of 450 MW opened by the Ministry of Industry, Energy and Tourism for the Canary Islands. Furthermore, GAS NATURAL FENOSA continues its efforts to obtain the necessary permits for the wind projects (667 MW) and solar photovoltaic projects (250 MW) from the two auctions carried out. Of these, construction has already begun on the Merengue Wind Farm. With an installed power of 40 MW, this will be the first wind farm in Extremadura.

International Electricity

  • GPG will invest 95 million in two photovoltaic power plants in Brazil.

The EBITDA from Electricidad Internacional stood at 69 million euros at 31 March –an increase of 3% compared to the same period of the previous year–, mainly due to a greater contribution to the EBITDA from the O&M Energy business in Costa Rica and Brazil despite the negative exchange rate trends.

In Mexico, the EBITDA stood at 59 million (down 6.3%) due to the exchange rate effect. When discounting this effect, the EBITDA would have risen by 6.3% due to a better margin from contribution stemming from an increased surplus margin, increased availability and performance, and favourable performance by the benchmark indices in contracts.

The electricity generated by all assets increased by 12.2% in the quarter to 4,734 GWh.

At the end of the financial year, GAS NATURAL FENOSA had an international installed capacity of 2,812 MW. In March, through its international power generation subsidiary Global Power Generation, the company reached an agreement for the acquisition of two solar photovoltaic power projects in Brazil. The development of these two projects located in the State of Minas Gerais represents an investment of approximately 95 million and a capacity of 83 MW. They are expected to enter operation at the end of this year.

 

Madrid, 26 April 2018.

 

 

Consolidated balance account

(€ millions) 1Q18 1Q17
Net sales 6,406 6,089
Procurements -4,700 -4,419
Gross margin 1,706 1,670
Other operating revenue 55 62
Personnel expenses -246 -241
Taxes -127 -121
Other operating expenses -335 -345
EBITDA 1,053 1,025
Depreciation, amortisation and impairment losses -596 -410
Allocation to provisions -29 -28
OPERATING INCOME 428 587
Financial results -160 -177
Income from institutions via shareholding 15 -
RESULT BEFORE TAX 283 410
Corporate income tax -97 -90
Income from interrupted operations 188 46
Non-controlling interests -54 -68
INCOME ATTRIBUTABLE TO THE GROUP 320 298

 

Main operational aggregates

Distribution business

1Q18 1Q17 %
Gas distribution (GWh) 115,381 112,220 5.6
Spain 58,753 56,658 3.7
TPA* 58,753 56,658 3.7
Latin America 56,628 55,562 1.9
Gas sales 27,680 28,573 -3.1
TPA 28,948 26,989 7.3
Electricity distribution (GWh) 13,937 13,875 0.4
Spain 8,192 8,195 -
TPA 8,192 8,195 -
Latin America 5,745 5,680 1.1
Electricity sales 5,007 5,302 -5.6
TPA 738 378 95.2
Electricity transmission (GWh) 3,891 3,875 0.4
Latin America 3,891 3,875 0.4
Gas distribution supply points, in thousands (on 31/03): 10,544 10,274 2.6
Spain 5,382 5,318 1.2
Latin America 5,162 4,956 4.2
Electricity distribution supply points, in thousands (on 31/03): 7,481 7,357 1.7
Spain 3,726 3,707 0.5
Latin America 3,755 3,650 2.9
TIEPI (Interruption time equivalent to installed capacity in Spain) (minutes)** 15 57 -73.7

* Third-Party Access to the network (distributed power). TPA services included in secondary transport.

** Interruption Time Equivalent to Installed Capacity.

Gas Business

1Q18 1Q17 %
Wholesale supply (GWh) 99,979 85,428 17.0
Spain 38,036 40,436 -5.9
Rest of Europe 20,970 17,155 22.2
LNG International 40,973 27,837 47.2
Retail supply (GWh) 13,523 12,489 8.3
Gas transportation – EMPL (GWh)* 36,081 28,713 25.7

* Maghreb-Europe Gas Pipeline

Electricity Business

1Q18 1Q17 %
Electricity generated (GWh) 11,931 11,498 3.8
Spain 7,197 7,275 -1.1
Power Generation 6,327 6,544 -3.3
Hydraulic 1,277 465 -
Nuclear 1,231 1,225 0.5
Coal 804 1,669 -51.8
Combined cycles (CC) 3,015 3,185 -5.3
Renewable and cogeneration 870 731 19.0
Global Power Generation 4,734 4,223 12.1
Mexico (CC) 4,179 3,691 13.2
Mexico (wind power) 238 223 6.7
Brazil (solar) 30 - -
Costa Rica (hydraulic) 57 79 -27.8
Panama (hydraulic) 19 18 5.6
Dominican Republic (fuel) 211 212 -0.5
Power generation capacity (MW) 15,528 15,306 1.5
Spain 12,716 12,716 -
Power Generation 11,569 11,569 -
Hydraulic 1,954 1,954 -
Nuclear 604 604 -
Coal 2,010 2,010 -
Combined Cycles (CC) 7,001 7,001 -
Renewable and cogeneration 1,147 1,147 -
Global Power Generation 2,812 2,590 8.6
Mexico (CC) 2,189 2,035 7.6
Mexico (wind power) 234 234 -
Brazil (solar) 68 - -
Costa Rica (hydraulic) 101 101 -
Panama (hydraulic) 22 22 -
Dominican Republic (fuel) 198 198 -

Images

Francisco Reynés, Chairman and Chief Executive Officer of GAS NATURAL FENOSA