Q1 2005 Gas Natural SDG S.A. Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Hello ladies and gentlemen, and welcome to the Gas Natural conference call. The call will be introduced by Mr. Luis Calvo, the Head of Investor Relations at Gas Natural. Mr. Calvo, please go ahead.

LUIS CALVO, HEAD OF IR, GAS NATURAL SDG S.A.: Ladies and gentlemen, good morning and welcome to Gas Natural's conference call on the results for the first quarter 2005.

The conference call will be hosted by our Chief Executive Officer, Mr. Rafael Villaseca. Also present in the room are Mr. Antonio Gonzalez, the Assistant Director of the Chief Executive Officer. Mr. Carlos Alvarez, Chief Financial Officer, and Mr. Jose Maria Egea, Corporate Manager for Planning.

As usual, after you hear the presentation, we will have a question and answer session. Now, I would like to hand you over to Mr. Villaseca.

RAFAEL VILLASECA, CEO, GAS NATURAL SDG S.A.: Good morning ladies and gentlemen and welcome to Gas Natural's presentation of the results for the first quarter of the year.

Our presentation will begin with our view of the main highlights for the quarter and the most significant recent events. After that, we will look at the consolidated results and the Group's operation and strategic developments and achievements. Following that, and after my concluding remarks, we will proceed, as usual, to the question and answer session.

The results for the first quarter this year show a net income that grew 10% year on year to a total of E238m and an EBITDA that grew 7% to E393m.

EBITDA in the Spanish regulated gas distribution grew 7%, in line with the increasing remuneration.

In the Americas, the growth rate was a high 36%, due not only to the full consolidation of our Brazilian affiliates, but also to a higher activity in the market, which was also coupled with better regulatory frameworks.

The new investments made in Italy all through last year were behind an EBITDA growth of 29% to E14m. Gas sales in the quarter were 5,700 GWh, more than two and a half times the figure of last year.

EBITDA for electricity in Spain, despite high fuel cost scenario, grew 30% year on year to E22m.

Finally, the supply through EMPL or the new In Salah gas contract helped international gas supply and transport EBITDA to grow 7%, to E59m.

The Group's domestic market growth is evidenced by gas sales to end customers rising 13% in a market that grew 21%, largely driven by the 76% higher consumption by CCGTs.

This last quarter has shown strong imbalances between Spanish and international gas prices, which obviously had an impact on Gas Natural's overall margins. Still, in the recent activities, average EBITDA growth has reached double digits.

Our total customers grew 8% over last year to 9.7m worldwide.

Our Spanish electricity assets generated 38% more electricity, reaching 1,800 GWh, capturing a share of 3.2% of the ordinary regime generation market.

And finally, our investments in the quarter were E258m, mainly as a result of the investment, the construction of our new CCGT in Cartagena.

As for the most significant recent events for the Group, in April, Gas Natural acquired the Spanish wind power operator DERSA, becoming one of the Spanish leading players in the [indiscernible].

Also in April, our shareholders' general meeting resolved to pay a dividend against last year's results of E0.71 per share. This represents an 18% increase on the previous year, and a payout of 50%.

On the same day, Gas Natural released an advance of the effects of the International Financial Reporting Standards on our accounts, which showed a very low impact.

Finally, and at the end of April, we signed with Repsol an agreement for our joint involvement in future LNG activities, both in up and midstream.

Looking at our consolidated results, total net sales grew 27% from the higher gas demand in a very cold winter and [indiscernible], and very well of rising price. These higher gas prices was the main reason behind the lower overall EBITDA growth, which for this quarter was 7%.

Operating income grew 6% after higher depreciation charges. Net income was E238m, an increase of 10% over last year.

Total investments have been 28% lower than last year's figures for the first quarter, but we have improved the position of [Brangato] as financial investments. Still, capital expenditures were 16% higher, mainly as a result of the investment in the construction of our new facility in Cartagena.

The Group's net debt at the end of the quarter was E2.6b, resulting in a leverage ratio of 34% against 36% at the end of the last year.

Now, our Chief Financial Officer, Mr. Carlos Alvarez, will carry out a summary of our financial performance in the quarter.

CARLOS ALVAREZ, CFO, GAS NATURAL SDG S.A.: Thank you Rafael. Below the operating income line, we would highlight higher financial expenses, resulting from higher debt levels. As you know, over the last 12 months, Gas Natural directed traditional debt to finance its investments. Apart from that, the debt of the acquired companies was again consolidated.

Lower equity income and higher financial expenses were offset by the capital gains made after the sale of part of our stake in Enagas. As of March 31, our holding in Enagas was 20.7%.

Finally, in the first quarter, we got an effective tax rate of 26% against 23% the previous year.

Still, if we compare our EBITDA with the previous quarter, in which condition, within a period of consolidation and brand price environments were more in line with current ones, we have experienced a growth of 15%, mainly driven by the electricity business and our core business of gas distribution in Spain.

Our EBITDA shows a well-balanced profile, with 61% generated in Spain and 39% abroad, which with the exception of Italy, was mainly in dollar and dollar-linked activities.

Overall, our EBITDA has experienced a growth in all activities except in gas supply, as a result of the effect on our margins of imbalance between international and Spanish gas prices.

Investments in the quarter were E256m, of which 53% were in power generation in Spain. In distribution, the lower investments made will not damage our targets for both customers or networks. [A service in new housing] is expected to show a higher rate than initially contemplated.

Most of our investments, 90% this quarter, continued to be made in the euro area.

As for the Americas, most of our investments have gone to fuel the high growth in the Brazilian market.

Our leverage is now higher after resorting to debt to finance our recent investments, and also as a result of consolidating the debt from [the depreciations]. In any case, our net debt of E2.6b gives us a still low leverage of just 34%.

Our EBITDA cover of interest expense continues to be strong, with a very healthy 8 times.

Of the E600m plus deal signed last year, E300m have been drawn. The remaining E300m that are still undrawn, together with E3.3m available lines of credit and capital market facilities, provide us with a caution that can be used in the financing of our investments, such as the recent acquisition of DERSA. …