Good morning, everyone. This is Ebert Arvat speaking from the Capital Markets team at Naturgy. We hope you're well and thank you for joining our results call for the first half of the year. You should all have received our results presentation or else you will find it available on our website. Next to me is our Head of Financial Markets, Steven Fernandez our Head of Financial Planning and Control, John Ganuta and the Secretary of the Board, Manuel Garcia Covaleda.
Mindful of the results season and how busy is everyone, we are going to briefly go over the presentation and open it up to live Q and A. Also, as a reminder, we would like you to note that the company will be presenting the strategic plan twenty twenty one-twenty twenty five today at noon, and we hope you can join us there too. So thank you very much. And with that, I'm handing it over to Steven to start with the presentation.
Thank you, Abel, and good morning, everyone. As Abel mentioned, mindful of your time and the fact that we've already published the results this morning available both in the website and in the CNMV. Going go very briefly over a couple of key highlights and then leave plenty of room for any questions you may have. Bearing in mind that today, we're not gonna be answering, at least in this call, any questions related to the strategic plan. As Evel mentioned, those will be addressed afternoon.
So basically, let's begin up with a little bit of the scenario, which you see on your Slide four. What we're seeing here is demand is showing some signs of recovery in the regions where we operate, and this is particularly interesting taking into account the COVID-nineteen outbreak began to materially affect operations in March. As you can see, electricity and gas in Spain compare an average 510% above, respectively, the same period of of last year, while in in LatAm, in the regions where we operate, we have experienced increases that range from two to 266%, with some exceptions that we will see later on, okay? If we think about energy markets, and that would be on Page five, what you will see is that we'll see we've seen since the beginning of the year a gradual improvement in economic sentiment that is driven an increase in commodity prices. And in particular, it's worth highlighting the evolution of the Brent seeing up 63% on average versus 2020.
But we also see similar trends with strong increases in gases like Henry and MVP. Wholesale electricity prices in Spain, as you all know, have also risen significantly on the back of higher commodity prices, of course, and CO2 emission rights. If we think about FX,
what
we see is lately, stabilizing. But since the beginning of the year, the overall impact on our accounts is negative. And we have seen in the results that, that has shed around EUR 64,000,000 from EBITDA and around EUR 22,000,000 on consolidated net income. And this is mostly as a result of significant devaluations in Brazil and Argentina, which you can see in the slide, have decreased by 1731%, respectively. It's also worth highlighting that the swings in exchange rates that we have seen so far have not yet been recognized for the most part on existing tariffs where applicable.
If we move over to the consolidated results, you can see that EBITDA for the H one reached almost €2,000,000,000. That's up 3% versus the previous year on an ordinary basis. And, again, this is driven by demand and the improving energy scenario. However, it compares negatively against h one nineteen on a reported, figure because of COVID. If we think about it in terms of ordinary net income, we've reached, €557,000,000, for h one.
That's up 17% versus 02/2020. But, again, if we compare it against pre COVID, still twenty percent below, so there's still room for a recovery at those levels. If we think about it in terms of EBITDA, non ordinary impacts amounted to approximately EUR $280,000,000, and this is mostly as a result of the restructuring costs that the company incurred during the second quarter of the year as part of the employee voluntary departure plan, completed, by the company in Spain and something that you are most likely, familiar with. It's worth highlighting that this plan has had its highest adherence in Spanish networks and in the supply businesses. And, obviously, moving forward, this allows us to streamline the company's personal cost in ordinary OpEx base.
On a reported basis, net income reached almost €500,000,000 or €484,000,000 And obviously, the restructuring costs incurred in quarter were partly compensated by the completion of the UFG agreement, which had a positive non ordinary impact of EUR 100,000,000 in earnings. Cash flow from operations remained strong at almost EUR 1,300,000,000.0, while net debt amounted to around EUR 13,600,000,000.0, in line with the previous quarter. And obviously, it's worth highlighting that this amount does not yet reflect the pretax proceeds or the proceeds from CG Chile. As you may remember, we signed this and we closed this transaction in on Monday. And the cash proceeds for the company after taxes are around €2,400,000,000.
Well, moving on to page nine, I'm gonna spend I'm
not gonna spend a lot of
time there. You can see simply an explanation of the performance across the different businesses and obviously the impact from the from FX that is clearly highlighted. And likewise, in case of of net income on Page 10, up 17%. But again, take that with a grain of caution. Favorable basis of comparison means that this number is up quite significantly.
We should be comparing this against pre COVID figures. Finally, in terms of cash flow, as I mentioned before, stable cash stable net debt position with a slight decrease in the average cost of debt. The idea here, again, is that this figure should be revised downwards once you take into account the EUR 2,400,000,000.0 of cash proceeds from Chile. And with that, I'll hand over to Simon with a quick overview of the different businesses.
Okay. Thank you, Stephen, and good afternoon, everyone. So moving on to Page 13. Network Spain ordinary EBITDA has reached €828,000,000 That's an 8% increase vis a vis last year. The most important thing is gas distribution in Spain.
We've seen both an increase in the sales and also due to the fact that in 02/2021, we no longer have the lock down restrictions that we had on the first semester in 2020. We've also resumed our activities, for example, periodic inspection. In electricity distribution, the growth in results has been mainly driven by investments and efficiencies that have offset the financial remuneration adjustment that was included as a part of Perrigo by the period twenty twenty-twenty twenty five. All in all, the Networks Spain has benefited from the recovery of energy demand and operational improvements. Moving to Page 14.
In Networks LATAM, ordinary EBITDA amounted to EUR $395,000,000 in the period, 10% lower than previous year. Mainly, the main effect has been the FX, which has not been compensated by the tariff indexations, and a bit on that later. Regarding gas demand, as Steven has said, more or less in most of the countries, overall, gas demand has increased. Although the growth is mainly driven by low margin segments, while the evolution in high margin segments, residential and commercial, have a more mixed picture depending on the country. In power distribution, lower demand has been due to confinement measures in the first months of the year and also much softer temperatures than 2020.
Some of the expected tariff updates that we should have had this year have been delayed mainly due to the fact that we have also seen delays on the tariff on the new tariff trading process. This has happened, for example, in Brazil, where we are right now tending to for the new tariff. And for example, I mean, January, in Brazil, we should have seen a tariff increase due to the indexation of 24%. And basically, what we've seen for this part of the year is only 10%. The same applies to Mexico, where we are expecting we are waiting for the new regulatory tariff.
And until that happens, also the inflation indexation that we should have had at the beginning of the year has been delayed. Moving to Page 15, Energy Management. Ordinal EBITDA has increased by 9%. Basically, in markets, what we see is an increase due to the improvement in the cash procurement negotiations that we had last year and also a better cash scenario. LNG, we are seeing an increase in results basically due to the closed positions that were closed during last year when the market environment was much worse than the closed positions that we had last year that had been closed in prior years.
In the pipeline E and P L, what we're seeing is the step down on capacity, which I would like to remind that, that concession expires at the October 2021. Thermal generation in Spain has benefited mainly due to the higher pool prices from CCGTs and higher sales. And thermal generation, basically, the negative effect is mostly FX impact. So in summary, contract negotiations and improving the scenario led to higher margins versus a very challenging 2020. Moving to Page 16, Renewables.
In Spain, what we see is that despite of the higher production that we had in 2020, that was offset by the lower price of the internal sales contract with the supply business that we had vis a vis 2020. In Australia, the new capacity has been offset mainly due to the mark to market of the existing contractual differences that we have. And in LatAm, the positive contribution due to a new capacity coming the operation in online. I think it's important to emphasize here that during this quarter, Global Power Generation signed another power purchase agreement with Telstra in Australia to build a 58 megawatt wind farm, which will commence construction on the 2021 and is expected to be fully operational in the 2023. Natuzzi continues to consolidate its position in Australia as a leading wind farm developer.
In summary, slightly weaker results mainly affected by internal sales contracts with Supply Businesses. And lastly, moving to Supply Business on Page 17. Ordinary EBITDA amounted to €214,000,000 24.1% higher than the first half in twenty twenty, primarily driven by the improvement in gas supply supported by the recovery of cash prices and sales, which were partially offset by ongoing margin pressure in power supply, notably due to lower sales in retail and smallmedium enterprise segments. Natuzzi continues to make substantial progress on its new marketing strategy, having signed a number of relevant PPAs during the quarter as well as reached new third party agreements in renewable energy supply with relevant partners with large distribution capabilities, including financial institutions as well as the Spanish postal service company, among others. I will now turn it over to Stephen to summarize before going on to the Q and A.
Well, thank you very much, John. So basically, what you've seen in today's results is the scenario is improving compared to last year, and the operating performance also improved and continues to improve as COVID-nineteen effects continue to subside. This has obviously been noticeable in all our businesses, although LATAM continues to be affected by the ongoing FX depreciation pending some of the tariff updates. Notwithstanding the above and taking into account all the FX, we believe that the current trading scenario are supportive of a 2021 ordinary EBITDA of somewhere between €3,900,000,000 to €4,000,000,000 And with that, we'll open up the line for questions. Again, we have John and myself.
We have the secretary of the board as well in case there's any questions relating to to the outstanding tender offer. And we'll open the floor to you guys.
Of course, if you would like to ask a question, please press star followed by 1 on your telephone keypad. And if you're joining us online, please click the request to speak flag icon. If you choose to withdraw your question, please press star followed by two. And when preparing to ask your question, please ensure your phone is unmuted locally. Our first question comes from Harry Wyburd of Bank of America.
Harry, your line is now open.
Hi. Good morning, everyone. I'll just give
it
to, I guess, a bit of lot more specific questions later on today. So first one is on the restructuring costs. Obviously, much higher in the second quarter, and I just wanted to understand to what extent was that actually planned or expected? Was there something opportunistic about that? And maybe where are we now in terms of the total restructuring costs compared to what you've been?
I know the old business plan is is sort of now out of date, but would I be fair to kind of assume that the restructuring costs you've incurred over the the last few years are now a lot higher cumulatively than you were initially planning? And and then the second one is on on finance costs. You mentioned on the on the net debt, obviously, we're gonna get a big reduction. I I think we're also gonna get deconsolidation of of along the Chilean debt. I guess perhaps it's even more relevant given what finance costs are doing in in LatAm at the moment.
Could you just give us some kind of guide to what the impact on your finance costs will be from the deconsolidation of the debt and the lower net debt on the Chile disposal? Thank you.
Hi, Harry. So I'll start with the with the last question. What you need to bear in mind is the the debt from the Chile transaction has already been deconsolidated. So reclassified, reclassified. So the current cost of debt of 2.4% is a good proxy to think about moving forward.
Okay?
Yes. Going to the first point, the the special and costs, I think that there are several points that we have to bear to bear in mind. First of all, that as, Steven has said, this has been voluntary, and it has been negotiated with the unions. The agreement was reached on the May 8, and that's why we didn't start earlier. All the capture costs that we had on the first quarter were much lower than the ones that we've seen in the second quarter.
That's the first thing that I would like to stress. Secondly, I would like to point out that the capture costs that we've seen in the June do not reflect the full cost that we will see by the end of the year. And this has to do due to the fact that in order to account or recognize the capture costs, it takes several steps and some of them in taking of the this plan began on the May 8. We are talking that something around 800 employees are leaving the company. To process all that and to account that, we have only accounted a part of the problem.
And I think that the end figure that we will see by the end of the year will be slightly over €400,000,000 and not the €300,000,000 that we're seeing in June. And yes, I think that as you said, we compare it with the initial restructuring cost that we pointed out in July 2019. It's true that as we've been analyzing in more depth the potential that there was for restructuring and changing the processes, that has also changed the initial outlook that we had regarding of how big the transformation could be. So I think that basically what we've done is we've brought forward some of the changes that we thought that they were going to be be done after 2022. We've been able to move them forward and accelerating the transformation as far as efficiency is concerned.
And in this sense, I would like to point out that already by the closing of 2020, we had exceeded the efficiency targets that we had set ourselves for 2022. So this capture cost that we're seeing in 2021 are on top of already seeing more efficiencies than in 2021. So I think it would not be really fair just to compare the capture cost of 2018, but we should also see the efficiencies that we're capturing associated to those ones.
Okay. Got it. Thank you.
Our next question comes from Lillian Stark of Morgan Stanley. Lillian, your line is now open.
Hi, thank you very much and good I just had a couple of questions. The first one is around the dividend. It seems like for the first time you paid a flat dividend compared to last year, dollars $0.07 1. And I was just wondering, given the guidance is calling for a higher full year dividend, should we report into this? Or is rather that we should expect a higher proportion of the dividend to be paid later in the year or announced later in the year?
And then the second question I have is around the tariff adjustment in Latin America. Given the pace at which this has been progressing, are you still expecting the adjustment to take place this year or rather we're looking at that adjustment to be pushed into 2022? Thank you.
So hi, Lillian. Steven here. On on on the dividends, I'm I'm not sure I followed. I mean, as you know, we've been paying three dividends per per year. The 30¢ that we announced today is in line with what we we paid last year at this time.
And and you cannot extrapolate anything from this dividend payments for for the full year amount. So we'll we'll we'll discuss, among other things, dividend policy later on today at twelve. But, again, you cannot extrapolate that that 30 based on based on based on anything really.
Hailey, moving to your second question, tariff adjustments. I think it's not easy right now to have a a view on how that's when that's going to happen. If we look at Brazil, regulatory tariffs should have started in 2018. So actually, it's 2021, and we are still talking about the 2018, 2022 tariffs. And as you know, the regulator there has already published a draft, and we are contesting that that draft.
So I don't think I don't know exactly how long that's going to to drag. And in Mexico, we are also with a delay, although it's not that big compared with the one that we're seeing in in Brazil. But I think that right now in Mexico, the in the energy sector, the president has another other priorities, and I don't know whether that's going to bring back on the on the level of urgency and the level of effort that they they are going to put there in order to speed up the process. So I I don't know. I think it's right now, it would be we we don't have enough information in order to have a clear view when that's going to be sent.
Okay. Okay. Perfect. Thank you very much.
Our next question comes from Jorge Guimaraes from JB Capital. Jorge, your line is now open.
Good morning, everyone. I have two questions, if I may. The first, is it possible to elaborate on your hedging strategy for LNG for 2022? I mean, are you also hedging the cargoes like you did this year? And if so, at what type of at what range
This would be the first one. The second one, is it possible to provide a split of a bit in supply between gas and electricity? And the third one is just a clarification. Use the cash in of of Chile. It's the Chile electricity sale.
It's €2,400,000,000 after tax. Is this is this value I maybe is this value in line with the initial estimate? I believe it was slightly above. But can you please clarify that? Thank you very much.
So, Jose, I will try to answer the first question. I didn't really quite catch the second one regarding the split, but I can already advise you that if it's not an information that we already supplied, we are not going to supply. But moving to the first question, the hedging strategy, we we we do have in the information that we provide in in the Excel that is available in the worksheet. What's the hedging strategy that we have in the LNG business, regarding the the sales. And I would like to point out, although we do it every now and then, that that's the level of disclosure that I think that we are the only company, the only it's every company that that that would be that level of disclosure.
We we do not give a a disclosure about what's the trading strategy that or the hedging strategy that we have regarding the cargoes. I know that that right now is quite a whole issue taking into account the the current prices and the current the gas prices and also the current time charter prices. I would like to say only that we do have a substantial old fleet or fleet that has has been leased on a on a long term basis. Those two that that fleet is is sized for certain level of operations, and sometimes we do have to to to make some export export rentals of fleet. But, no, we are we we we don't disclose any information regarding the hedging strategy that we make in the in the in in the fleet.
On the on the Chile disposal, yes, the amount is in line with
what we announced. You may remember back when we announced the transaction, we did a a presentation on it, and we mentioned that there were pretax cash proceeds of 2,600,000,000.0. The 2,400,000,000.0 is after taxes, So it's a 100% in line with with what we announced.
Next question, please.
Our next question comes from Javier Suarez of Mediobanca. Javier, your line is now open.
Hi. Good morning, and thank you for the for the presentation. Three three questions. Maybe two are follow ups. The first one is on the international LNG business.
In slide number eighteen fifteen, you are mentioning that the price recovery is not translated yet into margin due to a significant weight of contracted sales. Can you give us some guidance or light on when do you expect that higher price environment translated into higher margins for MAPILI? A kind of indication on when you are expecting that happening during the next few quarters or so would be very helpful. Then the second question is on if you can give help us to understand the dynamics of the energy supply business in Spain during the second quarter. I think that sunlight on that will be very helpful as well.
And the third one is on the restructuring cost that has been very sizable during the second second quarter. If you can give us a guidance on what that number of €300,000,000 during the first half could be by the year end? Many thanks.
I mean, I think that's so far, I guess, I will try to answer the first and the third question. I think that the second question was a bit too open. So if you if you maybe afterwards, you would like to somehow close it a bit more, I I think that it would be easier for me in order to answer. There are some certain costs, mainly, they are focused in in the in the business that we have in Spain. So I I would say that it's it's all across the board.
So in some businesses, it's a bit more than others, but I would say that all all of the businesses that we have in Spain because it's a it's a company wide program that has been negotiated with the with the unions, and therefore, the level of the quantity of people that have joined that program is all across the board, the businesses that we have in in in Spain. So I think that that's and the figures are more like the ones that I've said. We we know already the figure that will be published, the one that is January 1, that is €300,000,000 And I would say that end of the year, that figure is going to be a bit over €400,000,000 not on top of the 300,000,000 I mean, so it would be additional something like 100 plus. So you have to to make that clear. I wouldn't I wouldn't like no one to think that we're going to make €700,000,000 in capital cost.
The first one, the the international recovery of LNG, I think that we've been clear about in these past two years that the LNG strategy that we have, it was tried to reuse as much as possible the volatility and to keep a greater certainty possible, and that meant closing the positions that we had as much as we could. So and what we're seeing right now is basically the the result of that is that right now, what we had in the 2021 were positions that were closed during mainly during 2020 and the 2019 when the scenario was a bit more depressed than the positions that we had in the 2022 2020. When are we going to see an improvement? Well, I think that in the second quarter, we'll already be seeing certain improvement in the results compared with the first quarter. So I would say that LNG second quarter is going to be better than the first quarter.
And moving forward, well, I think it still remains to be seen, and we will have to see that it's also two things are going to be in play. On the one part is the part of the volumes that we have already closed and that we disclosed in the Exxon that is available for everyone and how the open position is closed now and the next few few years. So and I think that regarding that, we have nothing further to add. The second question, I don't know if you want to be a bit more specific about what you meant about the energy supply business dynamics in Spain. Maybe I will be pleased to answer you.
Yeah. I I was referring the I I wanted to have your view on the evolution of the energy supply business in Spain. And what do you see in terms of margin evolution on both electric supply and gas supply?
Well, I think that on the the gas margins, I think that we should be at at least in the 2021, we shouldn't be see substantial changes from what we've seen in the in the in the first in the first half, basically, the second quarter. And regarding electricity margins, I think that we have to bear in mind two different things. On the one thing is is what we've seen in the news. I mean, that's something that this was really worries that all the politicians that is the pool prices that that we see. And on the other hand is the what we see in the accounts, the different energy companies in Spain that is more related to the contracts, fixed price, electricity contracts that we've been signing for the past twelve months and that do not fully reflect that increase in the pool prices.
So I think it's going to be a mixture of of those things. So suppliers that have a more low position in the supply business, the margins are going to to suffer at least in the in in the supply business. The ones that are more hedged, I think that they will see a more or less stable evolution. And the ones who are long in generation, they will continue to see in generation, I mean, of income marginal generation. I think that those are the ones who will see an improvement.
So so I don't think that, that's something that we've seen already with the results presentation of other companies and also with ours that it's not just a matter of looking at the full price. It's also bearing in mind the position that you have and the fact that an important part of the end, but at least besides sales that are made on the regularized segment are done on the twelve month forward basis. And that's important in order to to see and to look how the margins are have behaved this past past semester and how they're going to behave in the next semester.
Interesting. Many thanks.
Our next question comes from Jose Ruiz of Barclays. Jose, your line is now open.
Yes, good morning, everyone. I just have two questions. The first one is if you can remind us what is the exact date by which the government has to approve the IFM approval or not the IFM bid? I understand it's the August. The second question is regarding EMPL.
So basically, you're saying that the concession expires in October this year. So what can you describe us what happens on the following quarter, let's say, the fourth quarter? Does the EBITDA go to zero? We will see a negative EBITDA kind of get a feeling how the end of the concession is going to be accounted? Thank you.
Hello. Regarding the first one, IFM has not informed about the date when they filed the the request for the authorization. As of all, we have done for our authorizations. So we are not quite sure from when we will have to start counting the six months period provided for in the law. On top of that, it's possible for the administration to request additional data.
In such a case, it's possible that the six month period be extended for for the delay in providing such information. So there there is no visibility on that. We assume that it should have been sometime in the February. So if there has not been any additional request, it should end by the August, but we do not have more visibility than that.
So I think regarding E and P out, right now, on the table, there is a breadth of the scenarios because negotiations are in place that all these scenarios move between two extremes. The first that would be the most positive stream is that some level of agreement is reached and therefore some gas keeps on flowing, we would see some level of results not coming from E and P and And the the level of EBITDA that we would see from E and P would depend on the agreement that is reached. And on the other side of the spectrum, it would be that absolutely no agreement is reached. And therefore, EBITDA goes to zero, and we have to close the society the operations that we have there. And it all depends on the on the agreement that is reached.
We currently have no further questions, so I'll hand back over to the management team for closing.
Thank you, Charlie, and thanks, everyone,
for joining our
Sabreco presentation. We look forward to see you at twelve where we will be presenting our strategic plan twenty one-twenty five and where we can discuss strategic matters at length. So thanks, everyone,
and hope
to speak to you in a while. Thank you very
much.