Good morning, everyone. This is Abel Arbat speaking from the Capital Markets team at Naturgy. We hope you are 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 Fernández, our Head of Financial Planning and Control, Jon Ganuza, and the Secretary of the Board, Manuel García Cobaleda. 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&A. As a reminder, we would like you to know that the company will be presenting the Strategic Plan 2021-2025 today at noon, and we hope you can join us there too. Thank you very much.
With that, I'm handing it over to Steven, to start with the presentation.
Thank you, Abel. Good morning, everyone. As Abel mentioned, mindful of your time and the fact that we've already published the results this morning, available both on the website and in the CNMV. We're going to go very briefly over a couple of key highlights, then leave plenty of room for any questions you may have. Bearing in mind that today we're not going to be answering, at least in this call, any questions related to the strategic plan. As Abel mentioned, those will be addressed afternoon. Basically, let's begin 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. This is particularly interesting taking into account the COVID-19 outbreak began to materially affect operations in March of last year.
As you can see, electricity and gas in Spain compare on average 5% and 10% above, respectively, the same period of last year, while in Latam, in the regions where we operate, we have experienced increases that range from 2% to 26%, 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've seen since the beginning of the year, a gradual improvement in economic sentiment, that has driven an increase in commodity prices. In particular, it's worth highlighting the evolution of the Brent up 63% on average versus H1 of 2020. We also see similar trends with strong increases in gases like Henry and NBP.
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 FX is stabilizing, but since the beginning of the year, the overall impact on our accounts is negative. You have seen in the results that has shed around EUR 64 million from EBITDA and around EUR 22 million on consolidated net income. This is mostly as a result of significant evaluations in Brazil and Argentina, which you can see in the slide, have decreased by 17% and 31%, 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 PPAs where applicable.
If we move over to the consolidated results, you can see that EBITDA for the H1 reached almost EUR 2 billion. That's up 3% versus the previous year on an ordinary basis. Again, this is driven by demand and the improving energy scenario. However, it compares negatively against H1 2019 on a reported figure because of COVID-19. If we think about it in terms of ordinary net income, we've reached EUR 557 million for H1. That's up 17% versus 2020. Again, if we compare it against pre-COVID-19, still 20% below. There is still room for recovery at those levels.
If we think about it in terms of EBITDA, non-ordinary impacts amounted to approximately EUR 280 million. 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 the supply businesses. Obviously, moving forward, this allows us to streamline the company's personal costs on ordinary objects base. On a reported basis, net income reached almost EUR 500 million, so EUR 484 million. Obviously, the restructuring costs incurred in the quarter were partly compensated by the completion of the UFG agreement, which had a positive non-ordinary impact of EUR 100 million in earnings.
Cash flow from operations remains strong at almost EUR 1.3 billion, while net debt amounted to around EUR 13.6 billion, in line with the previous quarter, and obviously, it's worth highlighting that this amount does not yet reflect the pre-tax proceeds, or the proceeds from CGE Chile. As you may remember, we signed this and we closed this transaction on Monday, and the cash proceeds for the company after taxes are around EUR 2.4 billion. Well, moving on to page nine. I'm not going to spend a lot of time there. You can see simply an explanation of the performance across the different businesses and obviously the impact from FX, and it's clearly highlighted. Likewise, in case of net income on page 10, up 17%. Again, take that with a grain of caution. Very well basis of comparison means that this number is up quite significantly.
We should be comparing this against pre-COVID figures. In terms of cash flow, as I mentioned before, 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 2.4 billion of cash proceeds from Orpea. With that, I'll hand over to Jon with a quick overview of the different businesses.
Okay. Thank you, Steven, and good afternoon, everyone. Moving on to page 13, Networks Spain, ordinary EBITDA has reached EUR 828 million. That's an 8% increase vis-a-vis last year. The most important things is gas solution in Spain. We've seen both an increase in the sales and also due to the fact that in 2021, we no longer have the lockdown restrictions that we had on the first semester on 2020. We've also resumed our activities, like 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 the regulatory period 2020-2025. Ordinary Networks Spain have benefited from the recovery of energy demand and operational improvements.
Moving to page 14, in Networks Latam, ordinary EBITDA amounted to EUR 395 million, 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 new tariff setting process. This has happened, for example, in Brazil, where we are right now pending for the new tariff. For example, in January in Brazil, we should have seen a tariff increase due to the indexation of 34%, basically what we've seen for this part of the year is only 10%. The same applies to Mexico, where we are waiting for the new regulatory tariff. 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. Ordinary EBITDA has increased by 9%.
Basically, in markets, what we see is an increase, due to the improvement in the gas procurement negotiations that we had last year, and also a better gas 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, and the closed positions that we had last year that had been closed in prior years. In the pipeline, EMPL, what we're seeing is the step down on capacity, which I would like to remind that that concession expires at the end of October 2021. CC, thermal generation in Spain has benefited mainly due to the higher pool prices from CCGTs on higher sales. Thermal generation, basically, the negative effect is mostly FX impact. In summary, contract renegotiations and improvement in 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 contract differences that we have. In Latam, the positive contribution due to a new capacity coming into 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 last quarter of 2021 and is expected to be fully operational in the first half of 2023. Naturgy continues to consolidate its position in Australia as a leading wind farm developer.
In summary, a slightly weak result mainly affected by the internal sales contract with supply businesses. Lastly, moving to supply business on page 17. Ordinary EBITDA amounted to EUR 214 million, 24.1% higher than the first half in 2020. Primarily driven by the improvement in gas supply, supported by the recovery of gas prices and sales, which were partially offset by ongoing margin pressure in power supply, notably due to lower sales in retail and small, medium and supply segments. Naturgy 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 Steven to summarize before going on to the Q&A.
Well, thank you. Thank you very much, Jon. Basically what you're seeing 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-19 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 effects, we believe that the current trading and scenario are supported of a 2021 ordinary EBITDA of somewhere between EUR 3.9 billion-4 billion. With that, we'll open up the line for questions. Again, we have Jon, myself, we have the Secretary of the Board as well, in case there's any questions relating to the upstream tender offer. We'll open the floor to you then.
Of course, if you would like to ask a question, please press star followed by one on your telephone keypad. 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. When preparing to ask your question, please ensure your phone is unmuted locally. As a reminder, it's star followed by one on your telephone keypad to submit a question. Our first question comes from Harry Wyburd of Bank of America. Harry, your line is now open.
Hi. Morning, everyone. I'll just give it to I guess there'll be a lot more questions later on today. First one's 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? Maybe where are we now in terms of the total restructuring costs compared to what you'd been, and I know the old business plan 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 last few years are now a lot higher cumulatively than you were initially planning? The second one's on finance costs. You mentioned on the net debt, obviously we're going to get a big reduction.
I think we're also going to get deconsolidation of a lot of the Chilean debt. I guess perhaps that's even more relevant given what finance costs are doing 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 net debt on the Chile disposal? Thank you.
Hi, Harry. I'll start with the last question. What you need to bear in mind that the debt from the Chile transaction has already been deconsolidated, so reclassified. 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 restructuring costs, I think that there are several points that we have 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 eighth of May, and that's why we didn't start earlier, or 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're seeing in the closing of June do not reflect the full cost that we will see by the end of the year.
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 a look at this plan, it began on the eighth of May. 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 EUR 400 million and not the EUR 300 million that we're seeing in June.
Yeah, I think that as you said, if 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. 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 done after 2022. We've been able to move them forward and accelerating the transformation as far as efficiencies is concerned. 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.
These capture costs that we're seeing in 2021 are on top of already seeing more efficiencies than in 2021. I think it would not be really fair, yes, to compare the capture cost of 2018, and we should also see the efficiencies that we're capturing associated to those ones.
Okay. Got it. Thank you.
Ladies and gentlemen, as a reminder, it's star followed by one on your telephone keypad to submit a question. Our next question comes from Lillian Starke of Morgan Stanley. Lillian, your line is now open.
Hi. Thank you very much, and good morning. 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, EUR 0.31. I was just wondering, given the guidance is calling for a higher full year dividend, should we read 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? The second question I have is around the tariff adjustments 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.
Hi, Lillian. Steven here. On the dividends, I'm not sure I followed. As you know, we've been paying three dividends per year. The EUR 0.30 that we announced today is in line with what we paid last year at this time. You cannot extrapolate anything from this dividend payments for the full year amount. We'll discuss, among other things, dividend policy later on today at 12:00. Again, you cannot extrapolate that EUR 0.30 based on anything, really.
Hi, Lillian. Moving to your second question, tariff adjustments. I think it's not easy right now to have a view on when that's going to happen. If we look at Brazil, regulatory tariffs should have started in 2018. Actually, it's 2021, and we are still talking about the 2018, 2022 tariffs. As you know, the regulator there has already published a draft, and we are contesting that draft. I don't know exactly how long that's going to drag. In Mexico, we are also with a delay, although it's not that big compared with the one that we're seeing in Brazil.
I think that right now in Mexico, in the energy sector, the president has other priorities, and I don't know whether that's going to impact on the level of urgency and the level of effort that they're going to put there in order to speed up the process. I don't know. Honestly, I think right now we don't have enough information in order to have a clear view when that's going to be signed.
Okay. Perfect. Thank you very much.
Our next question comes from Jorge Guimarães, from JB Capital. Jorge, your line is now open.
Hi. 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? Are you also hedging the cargos like you did this year? If so, at what range of spreads? This would be the first one. The second one, is it possible to provide a split of EBITDA supply between gas and electricity? The third one is just a clarification. Use the cash-in of Chile. The Chile electricity sale is EUR 2.4 billion after tax. 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.
Jorge, I will try to answer the first question. I didn't really quite catch the second one, about 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 it. Moving to the first question, the hedging strategy. We do have the information that we provide in the Excel, that is available in the worksheet, what's the hedging strategy that we have in the LNG business regarding the sales. 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 European company, that would give that level of disclosure. We do not give a disclosure about what's the trading strategy or the hedging strategy that we have regarding the cargos.
I know that right now is quite a hot issue, taking into account the current high pool prices and the current gas prices, also the current time charter prices. I would like to say only that we do have a substantial whole fleet, or fleet that has been leased on a long-term basis. It's true that that fleet is sized for a certain level of operations, sometimes we do have to make some spot rentals of fleet. No, we don't disclose any information regarding the hedging strategies that we make in the fleet.
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 presentation on it, and we mentioned that there were pre-tax cash proceeds of EUR 2.6 billion. The EUR 2.4 billion is after taxes, so it's 100% in line with what we announced.
Next question, please.
Ladies and gentlemen as a reminder, please press star followed by one on your telephone keypad to submit your question. Our next question comes from Javier Suárez of Mediobanca. Javier, your line is now open.
Hi, and good morning, and thank you for the presentation. Three questions, maybe two are follow-ups. The 1st one is on the international LNG business. In slide number 15, you are mentioning that the price recovery is not translated yet into margin due to a significant weight of contracted sale. Can you give us some guidance or light on when do you expect that higher price environment translated into higher margins for Naturgy? A kind of indication on when you are expecting that to happen during the next few quarters or so would be very helpful. The 2nd question is on, you can help us to understand the dynamics of the Energy Management business in Spain during the second quarter. I think that some light on that would be very helpful as well.
The third one is on the restructuring costs that have been very sizable during the second quarter. You can give us a guidance on what that number of EUR 300 million during the first half would be by the year-end. Many thanks.
Hi, Javier. I will try to answer the first and the third question. I think that the second question was a bit too open. If maybe afterwards you would like to somehow close it a bit more, I think that it would be easier for me in order to answer. The restructuring costs, mainly, they are focused in the business that we have in Spain. I would say that it's all across the board. In some businesses, it's a bit more than others, but I would say that all of the businesses that we have in Spain, because it's a company-wide program that has been negotiated with the unions, and therefore, the quantity of people that have joined that program is all across the board, the businesses that we have in Spain.
The figures are more or less the ones that I've said. We know already the figure that we published, the one that is as of June, that is EUR 300 million. I would say that end of the year, that figure is going to be a bit over EUR 400 million. Not on top of the EUR 300, I mean, it would be additional something like EUR 100 plus. Just to make that clear, I wouldn't like anyone to think that we're going to make EUR 700 million in capital costs. The first one, the international recovery of LNG. I think that we've been clear about, in these past two years, that the LNG strategy that we had, it was try to reduce as much as possible the volatility and to keep the greatest certainty possible, and that meant closing the positions that we had as much as we could.
What we're seeing right now is basically the result of that, is that right now, what we had in the first quarter of 2021, were positions that were closed mainly during 2020 and the end of 2019, when the scenario was a bit more depressed than the positions that we had in the first semester of 2020. When are we going to see an improvement? Well, I think that in the second quarter, we will already be seeing certain improvement in the results compared with the first quarter. I would say that LNG second quarter is going to be better than the first quarter. Moving forward, well, I think it still remains to be seen. 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 disclose in the Excel that is available for everyone, and how the open position is closed now and the next few years. 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 wanted to have your view on the evolution of the energy supply business in Spain. What do you see in terms of margin evolution on both electricity supply and gas supply?
I think that on the gas margins, I think that we should be, at least in the second quarter of 2021, we shouldn't be seeing substantial changes from what we've seen in the first half, basically the second quarter. Regarding electricity margins, I think that we have to bear in mind two different things. On the one thing is what we've seen in the news, and that's something that really worries the politicians, that is the pool prices that we see. On the other hand is 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 12 months, and that do not fully reflect that increase in the pool prices. I think it's going to be a mixture of those things.
Suppliers that have a more long position in the supply business, well, the margins are going to suffer, at least in the supply business. The ones that are more hedged, I think that they will see a more or less stable evolution. The ones who are long in generation, they will continue to see in generation, I mean, incremental generation. I think that those are the ones who would see an improvement. 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 pool price. It's also bearing in mind the position that you have and the fact that an important part of the end electricity sale that are made on the liberalized segment are done on the 12-month forward basis.
That's important in order to see and to look how the margins have behaved this past semester and how they're going to behave in the next semester.
Interesting. Many thanks.
As another reminder, please press star followed by one if you choose to submit a question. Our next question comes from José Ruiz of Barclays. José, your line is now open.
Yeah. 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 or not the IFM bid. I understand it's the second week of August. The second question is regarding EMPL. Basically, you're saying that the concession expires in October this year. Can you describe us what happens on the following quarter, let's say the fourth quarter? Does the EBITDA go to zero? Will we 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 request for the authorization. In a report, they have come for our authorization. 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 it is possible for the administration to request additional data. In such a case, it is possible that the six-month period be extended for the delay in providing such information. There is no visibility on that. We assume that it should have been sometime in the middle of February. If there had not been any additional request, it should end by the middle of August, but we do not have more visibility than that.
I think regarding EMPL, right now on the table, there is a breadth of scenarios because negotiations are in place that all the scenarios move between two extremes. On the first, that would be the most positive extreme, is that some level of agreement is reached, and therefore, some gas keeps on flowing, and we would see some level of results still coming from EMPL. The level of EBITDA that we would see from EMPL would depend on the agreement that is reached. 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 operations that we have there. It all depends on the agreement that is reached.
Ladies and gentlemen, as a final reminder, please press star followed by one on your telephone keypad to submit a question.
We currently have no further questions, so I'll hand back over to the management team for closing.
Thank you, Charlie. Thanks everyone for joining us for this presentation. We look forward to seeing you at 12:00, where we will be presenting our strategic plan 2021-2025, and where we can discuss strategic matters at length. Thanks, everyone, and hope to speak to you in a while. Thank you very much.