Gas Natural Group. Second quarter 2004 results

Transcription

1 Second quarter 2004 results

2 NET PROFIT TOTALED 327 MILLION IN THE FIRST HALF OF 2004, A 7% INCREASE 1.- HIGHLIGHTS The Gas Natural Group's net profit amounted to million in the first half of 2004, a 7% increase, and EBITDA reached million, a gain of 11%. Cash flow amounted to million in the period, i.e. 30% higher than in 1H03. Gas supply sales to end customers in Spain (both regulated and deregulated) increased by 15% to 98,137 GWh, while the total gas market expanded by 16%; the Group's market share is now 63%. Electricity generated by the Group's combined cycle plants in Spain (800 MW) totaled 2,641 GWh, an 87% increase. EBITDA in the electricity business totaled 24.3 million, up 8%, and represented 4% of total Group EBITDA. The Americas continued to contribute strongly, boosting gas sales by 13% and gas transportation (TPA) by 11%. Despite adverse exchange rate performance against the euro, EBITDA increased by 83% on 1H03. Gas sales in Italy totaled 3,708 GWh, contributing 15.9 million to Group EBITDA. The Gas Natural Group had almost 9.1 million gas distribution customers at 30 June 2004 (4.6 million in Spain, 4.4 million in Latin America and 0.1 million in Italy), having increased customer numbers by 700,000 (8%) year-on-year. Capital expenditure totaled million, 83% more than in 1H03, due to sizeable investments in power generation and to the acquisition of Brancato (Italy). Investment in tangible fixed assets amounted to million, compared with million in 1H03. The Gas Natural Group acquired Enron's stakes in Companhia Distribuidora de Gás do Rio de Janeiro CEG, S.A. and CEG Rio, S.A. on 16 July 2004, thus increasing its stake to 54% and 72%, respectively. This acquisition underpins Gas Natural s long term control over its Brazilian subsidiaries and its high growth prospects in this region. Gas Natural Group applies for permits to build two regasification plants in Italy. 2

3 2.- MAIN AGGREGATES Main financial aggregates (unaudited) 2Q04 2Q03 % ( Mn) 1H04 1H03 % 1, , Net sales 2, , EBITDA EBIT Net profit Cash flow Average number of shares (million) EBITDA per share ( ) Net profit per share ( ) Cash flow per share ( ) Tangible investments Net financial debt (at 30/06) 1, , Ratios 1H04 1H03 ROACE % 13.0% ROE 13.6% 13.6% Leverage 26.4% 22.6% EBITDA/Net financial result x 18.8x Net debt/ebitda 1.3X 1.1x P/E EV/EBITDA Stock market and balance sheet figures at 30 June. 1 Not counting construction in progress. 2 Financial result without considering exchange gains/losses on the dollar-denominated debt in Argentina. 3

4 2.3.- Main physical aggregates 2Q04 2Q03 % 1H04 1H03 % 88,440 82, Gas sales (GWh): 192, , ,988 53, Spain: 126, , ,502 11, Regulated gas sales 29,061 35, ,430 26, Liberalized gas sales 69,076 50, ,056 14, Wholesale sales 28,659 28, ,452 29, International: 65,215 56, ,148 21, America 44,557 39, , Italy 3,708 1,064-6,845 7, Wholesale sales 16,950 15, ,373 37, Gas transportation/tpa (GWh): 79,981 74, ,659 16, Spain 35,012 32, ,088 6, Portugal 14,301 13, Italy ,611 14, America 30,633 27, ,757 1, Gas distribution network (km): 90,238 82, Spain 35,938 32, America 52,553 49, Italy 1, Change in gas customers ( 000): Spain America Italy Gas customers ( 000) (at 30/06): 9,096 8, Spain 4,638 4, America 4,363 4, Italy Contracts per customer in Spain (at 30/06) 1,3 1, , Electricity generated (GWh): 4,044 1,411-1, Spain 2,641 1, America 1, Employees (at 30/06) 6,499 6, The 1H04 figure includes the customers obtained in the Brancato acquisition. 4

5 3.- ANALYSIS OF CONSOLIDATED RESULTS Changes in group size The main changes in group size with respect to 30 June 2003 arose from the acquisition of a 50% stake in Ecoeléctrica (Puerto Rico) in late October 2003 (proportionally consolidated since 1 November 2003), the acquisition of Brancato (Italy) in January 2004 (fully consolidated since 1 January 2004), the accounting of the stake in Gas Natural de Álava by the equity method, and the fact that Naturcorp Multiservicios (formerly Sociedad de Gas de Euskadi) is no longer carried by the equity method Analysis of results The Gas Natural Group obtained million in EBITDA in the first half of 2004, i.e. an 11% increase on the same period of Investments by the Group increased the period depreciation and amortization charge; as a result, operating profit rose by just 10%. Differing exchange rate performance in Argentina between periods, and extraordinary gains on the sale of 4.2% of Enagás, led to million in consolidated net profit, 7% higher than in 1H03. In the second quarter of 2004, the activities into which the consolidated results are broken down were reclassified to provide a better reflection of the Group's strategic priorities and geographical exposure: The supply business encompasses gas activities in Spain, both the supply of gas to the liberalized market and wholesale gas supplies. The electricity business covers electricity generation as well as electricity supply to the liberalized market. The transportation and international gas wholesale business includes wholesale gas sales outside Spain, gas shipping by tanker and the operation of the Maghreb-Europe gas pipeline EBITDA and EBIT EBITDA reached million in the first half of 2004, 11% more than in 1H03, due basically to the following factors: - Gas distribution in Spain benefited from the increase in the regulated remuneration. - Activities in America are steadily increasing their contribution due to organic growth in the region. - The acquisitions in Puerto Rico and Italy were consolidated. Nevertheless, even without these acquisitions, EBITDA would have increased by 4.5%. 5

6 54% Contribution to EBITDA by business 2% 100% 2% 4% 2% 17% 19% This offset the lower contribution by gas supply and international transportation and wholesale sales (the latter being affected by the strength of the euro against the dollar and the non-recurrence this year of gas sales to the US). Period depreciation and amortization and working capital provisions increased by 11%, with the result that EBIT amounted to million, a 10% increase. Distribution Americas International Electricity Supply Italy Rest transportation and wholesale Total Financial results The breakdown of the financial results is as follows: (unaudited) 2Q04 2Q03 ( Mn) 1H04 1H Cost of net financial debt Exchange differences in Argentina Rest of exchange differences (net) Capitalized interest Other financial (expenses)/revenues Net financial result The net financial expense was 62.7 million in 1H04, compared with a net financial revenue of 6.5 million in 1H03, due mainly to differing exchange rate performance of the Argentinean peso and to the fact that the interest on the financial lease of two LNG tankers are booked under "Other financial (expenses)/revenues". The "Exchange differences in Argentina" caption reflects exchange differences booked at Gas Natural BAN on the latter's dollar-denominated debt. This effect was negative in 1H04 because of adverse performance by the Argentinean peso (2.94 pesos to the dollar, compared with 2.91 at 2003 yearend). Net debt amounted to 1,678.2 million at 30 June 2004, having falling million in the second quarter, leaving gearing at 26% (29% at 2003 year-end). 6

7 The breakdown of net financial debt by currency at 30 June 2004, in absolute and relative terms, is as follows: (unaudited) ( Mn) 30/06/04 % USD EUR MXN USD Argentina BRL COP Other currencies Total net financial debt 1, Net dollar-denominated financial debt (excluding Argentina) relates mainly to EMPL, the company which manages the Maghreb-Europe pipeline, and to Ecoeléctrica, whose accounts are in dollars. The "Other currencies" item includes cash and cash equivalents in Argentinean pesos and Moroccan dirhams. Gas Natural SDG's current credit rating is as follows: Agency Long term Short term Outlook Moody s A2 P-1 Stable Standard & Poor s A+ A-1 Stable Fitch A+ F1 Stable Equity income The main items in this account relate to results from minority stakes in gas distribution companies in Spain (Gas Aragón and Gas Natural de Álava) and the results of Enagás (equity-accounted), in which Gas Natural SDG had a 34.4% stake at 30 June During the period, the stake in Gas de Euskadi ceased to be carried by the equity method as it was merged into Naturcorp Multiservicios, as a result of which Gas Natural owns less than 20% of the former and does not have a seat on its Board of Directors. The result from minority stakes amounted to 30.5 million in 1H04, compared with 34.4 million in 1H03. This change is mainly due to not having included the results from Naturcorp Multiservicios in 1H04. Enagás contributed 29.1 million to the equity-accounted affiliates line-item in 1H Goodwill in consolidation Amortization of goodwill in consolidation amounted to 7.0 million in the first half of 2004, comprising amortization of goodwill generated in the acquisitions of holdings in Mexico, Brazil, Puerto Rico, Italy and gas distribution companies in Spain. 7

8 The unamortized goodwill in consolidation, totaling million at 30 June 2004, is detailed below: (unaudited) ( Mn) 30/06/04 Mexico subgroup 30.8 Brazil subgroup 28.2 Puerto Rico subgroup Italy subgroup 44.2 Distribution companies in Spain 11.2 Total Extraordinary results Net extraordinary income amounted to 50.1 million in the first half of 2004, compared with 12.4 million in the first half of The increase is due basically to the disposal of 4.2% of Enagás during the first half Minority interest expense The main items in this account are the outside shareholders in EMPL (owned 73% by the Gas Natural Group), the subgroup of subsidiaries in Colombia (owned 59%), Gas Natural BAN (owned 50%) and Gas Natural Mexico (owned 87%), as well as gas distribution companies in Spain. Minority interest expense amounted to 20.7 million in the first half of 2004, a decrease of 10.7 million, basically due to a lower contribution from subsidiaries in Argentina in comparison with 1H Corporate income tax The corporate income tax expense totaled million, i.e. an effective tax rate of 24%. The difference with respect to the general tax rate was due mainly to tax credits, to equity-accounted affiliates, to the use of tax credits, and to different tax systems applying to companies operating outside Spain Cash flow and investments Cash flow amounted to million, 30% more than in 1H03 (far outstripping growth in net profit). This difference in performance is due basically to the release of a lower amount of provisions and the fact that exchange gains of prior years did not recur. With investments totaling million, the degree of self-financing was 97%. 8

9 The breakdown of investments by type is as follows: (unaudited) ( Mn) 1H04 1H03 % Capital expenditure Intangible investments Financial investments Rest Total investments The large increase in the "Financial investments" line-item is due basically to the acquisition of Brancato (Italy) and minority holdings in gas distribution companies in Spain. Capital expenditure in the half totaled million, a 45% increase basically because of ongoing development of the Group's plans to generate power using combined cycle plants. The breakdown of capital expenditure by line of business is as follows: (unaudited) ( Mn) 1H04 1H03 % Distribution Supply Electricity International gas transportation and wholesale Americas Europe (Italy) Rest Total capital expenditure % 41% Capital expenditure by activity 12% 2% 1% 1% 1% 100% In the first half of 2004, capital expenditure in the electricity business accounted for 42% of the total: specifically, the ongoing construction of the Arrúbal (800 MW) and Cartagena (1,200 MW) CCGTs. Investment in gas distribution in Spain, which accounted for 41% of the total, was allocated to acquiring new customers: the distribution grid has been extended by over 3,100 km in the last twelve months (close to 10% growth). Electricity Distribution Americas Italy International transportation and wholesale Supply Rest Total There were also sizable investments in gas pipelines and antennas to extend the distribution grid to certain towns. 9

10 In the gas transportation area, work continued on expanding the capacity of the Maghreb-Europe pipeline from 92,500 GWh/year at present to 136,000 GWh/year, and it is scheduled for completion in October A total of $47.7 million have been invested in this project, $5.0 million this year. Capital expenditure in America amounted to 43.7 million, a 28% decline due to a reduction in Mexico and Brazil (basically because of devaluation against the euro and the slow-down in grid construction in Mexico City). Nevertheless, Mexico is still the main target of investment in the region, accounting for 46% of the total. Net tangible fixed assets and intangible assets increased by million in the first half of 2004 to 6,668.9 million at 30 June 2004, broken down as follows: (unaudited) ( Mn) 30/06/04 % Distribution 3, Supply Electricity International transportation and wholesale Americas 1, Europe (Italy) Rest Total net tangible and intangible assets 6, Mexico 36% Tangible and intangible assets in America Puerto Rico Argentina 20% 13% Brazil 18% Colombia 13% That amount includes construction in progress amounting to million, of which million relate to electricity, 39.2 million to transportation and international wholesale, 22.3 million to America, and the remainder to distribution and supply in Spain. The gas distribution activity accounts for 48% of the Group's tangible fixed and intangible assets, and electricity represents 14% of the total. Tangible and intangible assets in America represent 19% of the Group total Shareholders equity The Shareholders' Meeting on 14 April 2004 voted to increase the dividend by 50% and pay 0.60 per share out of 2003 profit; per share had already been paid on 12 January 2004 and the remaining per share was paid on 1 July This figure represents a payout of 47% of profit reported in At 30 June 2004, shareholders' equity totaled 4,468.9 million, having increased by 7% in the last twelve months. 10

11 4.- ANALYSIS OF RESULTS BY ACTIVITY The criteria used to assign amounts to the activities are as follows: The margin on intra-group transactions is assigned on the basis of the final destination of the sale, in terms of market. All revenues and expenses directly and exclusively relating to business activities are allocated directly to them. Corporate expenses and revenues are assigned on the basis of their use by the individual business lines Distribution This area includes the remunerated activities of gas distribution, regulated rate supply and secondary transportation, and the distribution activities in Spain that are charged for outside the regulated remuneration (meter rentals, customer connections, etc.) Results (unaudited) 2Q04 2Q03 % ( Mn) 1H04 1H03 % Net sales , EBITDA EBIT Net sales in gas distribution amounted to million, i.e. less than in 1H03 due mainly to the steady migration of customers to the liberalized market. In the first half of 2004, EBITDA totaled million, up 6% on the figure reported in 1H03 because of higher remuneration this year for regulated gas activities. 11

12 Main aggregates The main aggregates in gas distribution in Spain were as follows: 2Q04 2Q03 % 1H04 1H03 % 27,161 28, Gas activity sales(gwh): 64,073 67, ,502 11, Gas sales: 29,061 35, ,721 6, Residential 4 20,080 20, ,579 4, Industrial 6,600 12, ,202 1, Electricity companies 2,381 2, ,659 16, Gas transportation/tpa 35,012 32, Distribution network (km) 35,938 32, Change in gas customers ( 000) Gas customers ( 000) (at 30/06) 4,638 4, Regulated gas activity sales in Spain, which encompass regulated-rate gas sales and third-party access (TPA), amounted to 64,073 GWh, i.e. down 6%. Sales to the residential market decreased by 4% due to the migration of customers to the liberalized segment following total liberalization of the market on 1 January Gas sales to the industrial market decreased by 45% due to the migration by industrial customers to the liberalized segment (both the Group s supply company and competitors). TPA services increased by 6%. Gas sales for electricity generation increased by 16% as precipitation in the first half of 2004 was lower than in 1H03. The distribution network was extended by over 3,100 km in the last twelve months, to 35,938 km at 30 June 2004, an increase of over 9% year-on-year. Customer numbers continued to grow rapidly, having increased by 318,000 in the last twelve months; 156,000 of them were added in the first half of 2004, which is 7% greater than the increase in 1H03. These figures are in line with the Group s strategic objective of increasing the customer base by over 325,000 in At 30 June 2004, the Group had 4,638,000 gas distribution customers in Spain Supply This area includes gas supply in the liberalized market, wholesale sales and the supply of other related products and services in Spain. Wholesales sales include sales to Enagás for the regulated gas distribution market. 4 Customers at pressures under 4 bar; therefore, this includes commercial and small industrial customers. 12

13 Results (unaudited) 2Q04 2Q03 % ( Mn) 1H04 1H03 % Net sales 1, , EBITDA EBIT Net sales in the supply activity amounted to 1,633.9 billion, similar to the figure reported in 1H03. Gas supply EBITDA in Spain declined by 55% with respect to 1H03 due to narrower unit margins in gas, which were mainly the result of liberalization of this market and the pricing policies applied by the Group and its competitors Main aggregates The main aggregates in the supply activity in Spain are as follows: 2Q04 2Q03 % 1H04 1H03 % 46,486 41, Gas sales (GWh): 97,735 79, ,430 26, Supply 69,076 50, ,056 14, Wholesale gas sales 28,659 28, ,870 11, Suppliers outside the Group 20,194 19, ,186 3, Distributors outside the Group 8,465 9, Multiutility contracts (at 30/06) 1,524, , Contracts per customer (at 30/06) The Group's gas sales to the liberalized market in Spain in 1H04 totaled 97,735 GWh, a 24% increase over 1H03. Of these sales, 13,119 GWh were for electricity generation in combined cycle plants, and 40% of that amount was for the Group's own CCGT plants. Gas wholesales to non-group suppliers in 1H03 included 13,159 GWh corresponding to the auction of 25% of the capacity of the Maghreb pipeline that ended on 31 December In 1H04 the Gas Natural Group has significantly increased wholesales to 20,194 GWh with mid- and long-term supply contracts for the Spanish market. The gas sales include sales to over 633,000 residential customers who have exercised retail choice. Gas Natural Servicios added nearly 127,000 maintenance contracts in 1H04, and it had over 1,067,000 contracts in force at 30 June Gas Natural Servicios continued to develop products and services based on off-line and on-line marketing channels. At 30 June 2004, Gas Natural Servicios had 113 franchise centers, one company-owned center and 740 associated centers a powerful sales network that is unmatched in Spain. 13

14 At 30 June 2004, the Group had over 1,524,000 product and service contracts other than for gas sales, including financial services, i.e. 55% more than at 30 June 2003; consequently, there were 1.3 contracts per customer in Spain, in line with the company s strategic objective of 2 contracts per customer by Marketing activity enabled the Group to increase the number of homes with gas heating by 16,600 and sell 26,700 appliances, including over 8,000 air conditioning installations Electricity This area includes power generation using combined cycle plants, trading via electricity purchases from the wholesale market, cogeneration and the supply of electricity in the liberalized market in Spain Results (unaudited) 2Q04 2Q03 % ( Mn) 1H04 1H03 % Net sales EBITDA EBIT Net sales in the electricity activity amounted to million due to the higher sales made to end customers. Despite low pool prices in the second quarter of 2004, EBITDA in the period amounted to 24.3 million (up 7%) and EBIT to 16.6 million (up 12%) as the Group's generation and supply activities provide a natural hedge for each other Main aggregates The main aggregates of the Group's electricity activities in Spain are as follows: 2Q04 2Q03 % 1H04 1H03 % 1, Electricity sales (GWh) 1,902 1, Contracted power (GWh/year) 4,354 3, Electricity sales included sales to close to 94,000 residential electricity customers in the liberalized market. A total of 234,000 electricity contracts had been signed by 30 June 2004 with residential eligible customers. Electricity sales in the liberalized market increased by 42% to 1,902 GWh. Gas Natural Group currently has a share of over 5% of the liberalized market. 14

15 The Group generated and sold 2,641 GWh to the wholesale market in the first half of 2004, almost 87% more than in 1H03. This output, measured at plant busbars, represents 128% of the electricity sold by the Group's supply company. In terms of equivalent hours of operation at full load, the plants attained 82% availability in the first half of Market prices in the second quarter of 2004 fell by over 12% with respect to the same period of 2003, averaging 25.41/MWh. As a result, the average price in 1H04 was 26.1/MWh, 2% less than in 1H03 ( 26.5/MWh). Construction of the new combined cycle plant at Arrúbal (La Rioja), which will have two 400 MW units, is on schedule and commissioning trials are about to begin. Trials are expected to be completed and the plant is scheduled to enter commercial operation in the fourth quarter of Construction also continued on the Cartagena 1,200 MW combined cycle plant. The project will require an estimated total investment of 600 million and it is scheduled to become commercially operational in the first quarter of The Cartagena plant will be one of the largest combined cycle installations in Spain and will produce the equivalent of 4% of current demand in the Spanish mainland. Accordingly, the Group has 800 MW of combined cycle power production capacity in operation, 2,000 MW under construction and 800 MW at an advanced state of permit obtainment. The Group is also studying several combined cycle projects (at sites in Catalonia and Andalusia) which have reserved capacity for access to natural gas transportation, all in line with the objective of having 4,800 MW of CCGT capacity by International gas transportation and wholesale sales This area includes wholesale gas sales outside Spain, maritime transportation, and the operation of the Maghreb-Europe gas pipeline Results (unaudited) 2Q04 2Q03 % ( Mn) 1H04 1H03 % Net sales EBITDA EBIT Net sales in international gas transportation and wholesale sales totaled million, 9% less than in 1H03. EBITDA amounted to million and EBIT to 90.7 million, both lower than in 1H03 due to the following factors: - The translation of EMPL's figures into euros upon consolidation; despite a 6% increase in gas transported and in EBITDA in dollars, the amount in euros decreased by 6.7 million. - Certain high-margin spot gas sales were made in 1H03 which did not recur in

16 Main aggregates The main aggregates in international gas transportation and wholesale sales are as follows: 2Q04 2Q03 % GWh 1H04 1H03 % 6,845 7, Wholesale gas sales 16,950 15, ,088 6, Gas transportation (Portugal) 14,301 13, The wholesale gas sales are basically made in the American market under medium-term contracts. The activity conducted in Morocco, through companies EMPL and Metragaz, represented a total volume of 53,778 GWh in the first half of 2004, a 6% increase. Of that figure, 39,477 GWh were transported for Sagane and 14,301 GWh for Transgaz. In 2002, work commenced to expand the Maghreb-Europe gas pipeline s capacity, from the current 92,500 GWh to 136,000 GWh; work is planned to be completed by October The project to expand the capacity of the Moroccan section of the Maghreb-Europe gas pipeline will consist of installing a new turbocompressor unit at the compressor plant on the Morocco-Algeria border and two turbocompressor units at the Tangier (Morocco) plant, and adapting the current compressors in both plants to the new conditions. The Group also signed a long-term contract to increase the gas supply from Algeria through the Maghreb-Europe gas pipeline from 2005 onwards Americas This division involves gas distribution in Argentina, Brazil, Colombia and Mexico, and the activities of Ecoeléctrica in Puerto Rico Results (unaudited) 2Q04 2Q03 % ( Mn) 1H04 1H03 % Net sales EBITDA EBIT Net sales in America totaled million, a 31% increase. EBITDA amounted to million, 83% more than in 1H03. EBIT doubled to 85.2 million due to lower depreciation and amortization and lower working capital provisions than in

17 EBITDA in the Americas, by country Puerto Rico 23% Mexico 26% Argentina 14% Brazil 15% Colombia 22% Adjusting for the change in consolidated group size between periods (acquisition in Puerto Rico in October 2003), which boosted 2004 EBITDA by 29.1 million, EBITDA growth would have been 40%. These results were impacted by the devaluation of American currencies on translation into euros during consolidation; the currencies most affected were the Mexican peso (whose average exchange rate fell 17% year-on-year) and the Argentinean peso (down 9%). The impact on EBITDA was approximately 5.7 million overall for the American currencies combined. Net financial debt in America amounted to million at 30 June 2004, of which million related to Ecoeléctrica and million to Argentina (including $170.0 million in dollar-denominated loans with maturities until 2009). The latter shows a decrease of $30.8 million over the last twelve months Main aggregates The main physical aggregates in gas distribution in America are as follows: 2Q04 2Q03 % 1H04 1H03 % 38,759 35, Gas activity sales (GWh): 75,190 66, ,148 21, Gas sales: 44,557 39, ,101 8, Residential 15,023 13, ,090 8, Industrial 17,786 16, ,288 1, Electricity companies 4,673 3, ,669 3, Automotion 7,075 6, ,611 14, Gas transportation/tpa 30,633 27, Distribution network (km) 52,553 49, Change in gas customers ( 000) Gas customers ( 000) (at 30/06) 4,363 4, Sales in the gas activity in America, which include both gas sales and TPA (third-party access) services, totaled 75,190 GWh, a 12% increase year-on-year. Sales to households increased by a notable 11% and sales to industry by 10%, and the automotion gas market is firmly established in all the countries in the region, having registered an average 17% growth with respect to the first half of The increase in sales of gas for power generation was due basically to the supply of gas to a new combined cycle plant in the State of Rio de Janeiro in January 2004 under take or pay conditions. 17

18 The distribution network was extended by over 3,100 km in the last twelve months, to 52,553 km at 30 June 2004, a year-on-year increase of over 6%. There were a total of 4,363,000 gas distribution customers at 30 June The Group continues to expand customer numbers rapidly, having added 287,000 in the last twelve months, in line with its strategic objective of adding more than 1.6 million customers in America between 2004 and The main physical aggregates by country in the first half of 2004 are as follows: Argentina Brazil Colombia Mexico Total Gas activity sales (GWh) 31,986 17,616 4,603 20,985 75,190 Change vs. 1H03 (%) Distribution network (km) 20,725 3,843 14,193 13,792 52,553 Change vs. 30/06/03 (km) ,351 3,138 Gas customers ('000 at 30/06) 1, ,439 1,017 4,363 Change vs. 30/06/03 ('000) Highlights: - Argentina is recovering, as evidenced by double-digit growth in the gas business despite procurement problems in the second quarter which curtailed the supply of gas. Gas sales for automobiles surged 15% due to natural gas's competitiveness vs. other fuels. - Gas sales in Brazil increased by 20%, with double-digit growth in all markets and particularly strong reactivation of the power generation market. - In Colombia, customer numbers are growing rapidly both in Bogotá and in the Cundinamarca-Boyacá plateau, favored by a building boom and economic reactivation, even though penetration in the distribution zones averages 85%. Also, Colombia recently approved a new regulatory framework for the next five years, providing average tariff increases of close to 40% for the Group's distribution companies. - Mexico experienced 9% growth which was negatively impacted by a circumstantial slowdown in customer growth during the first months of the year. Our operations in Mexico DF are already normalised so it is expected that the previously achieved growth patterns may be recovered in the coming quarters. Ecoeléctrica generated 1,403 GWh, the total being negatively affected by a scheduled overhaul of one of its turbines early in Plans for the Group s activity in Puerto Rico are progressing and the investment plan for the island will be implemented in the coming months. On 16 July, upon fulfillment of the conditions precedent, the Group acquired Enron's stakes in Companhia Distribuidora de Gás do Rio de Janeiro CEG, S.A. and CEG Rio, S.A., thus increasing its stake in those companies to 54% and 72%, respectively. Accordingly, these companies will be fully consolidated from 3Q04 onwards (they are now proportionally consolidated). This acquisition underpins Gas Natural s control over the long term in a business with high growth prospects. 18

19 4.6.- Europe This area refers to gas supply and distribution in Italy Results On 13 January 2004, the Gas Natural Group acquired Brancato, Sicily's leading private-sector gas company, marking the Group's first venture into the gas distribution market in Italy, where it is already involved in gas supply through Gas Natural Vendita. Brancato has been fully consolidated since 1 January Operations in Italy contributed 15.9 million to Group EBITDA, 2% of the total, including non-recurring high-margin transactions performed by the gas supply company in 1Q Main aggregates Gas sales in Italy, both supply and distribution, totaled 3,708 GWh, and a total of 35 GWh were transported (TPA). The Brancato acquisition added 91,000 customers to the Gas Natural Group, and activities to expand the gas business in the region added 4,000 customers in 1H04. The Group's gas distribution network in Italy totaled 1,747 km at 30 June Gas Natural Group, through its subsidiary Gas Natural Internacional, has submitted before the Italian authorities an application for the construction and development of two regasification plants in Italy. The projects presented by Gas Natural Group would be located in Trieste and Taranto, in the north and south of the country, respectively. Both projects are similar and would consist of two 150,000 m 3 tanks, with an annual regasification capacity of 8 bcm. The investment involved for the construction of each of the plants plus the associated gas pipelines associated is above 600 million. The aim is, should the necessary permits be obtained, for the plants to be operational in The projects would be developed together with local shareholders. 5.- ADAPTATION OF FINANCIAL STATEMENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS The Gas Natural Group has set up a working group for the adaptation to international financial reporting standards. The group's main goals are: to identify the changes with respect to Spanish accounting standards, and to determine and quantify the adjustments to be made in drafting the transitional balance sheet at 1 January 2004 and the quarterly financial statements of 2004 for the purposes of comparison, up until full implementation of international financial reporting standards from 1 January 2005 onwards. In particular, no adjustments were identified in 1H04 that might have a material impact on after-tax earnings in the period (the overall impact is less than 0.5% of earnings after tax). 19

20 Significant events and other disclosures Summarized below are the significant events and other disclosures to the CNMV from 1 January 2004 to this date: Acquisition of Brancato, the largest private-sector gas operator in the Italian island of Sicily (disclosed 13 January 2004). Announcement that the Brancato acquisition cost approximately 100 million (disclosed 14 January 2004). Signature of a preliminary agreement with Qatargas to purchase 2 bcm of natural gas per year over the next 20 years, and extension of another two pre-existing contracts (disclosed 15 January 2004). Signature of a preliminary agreement with the Greek government to buy 35% of DEPA, the Greek state-owned gas company (disclosed 25 February 2004). Notice of the proposed dividend out of 2003 earnings that the Board of Directors is to propose to the Ordinary Shareholders' Meeting, implying a total of 0.60 per share, 50% more than in 2003 (disclosed 1 March 2004). Notice of Ordinary Shareholders' Meeting to be held on 14 April 2004, with the documentation placed at the shareholders' disposal (disclosed 25 March 2004). Remittal of Annual Corporate Governance Report for 2003 (disclosed 30 March 2004). Remittal of the presentation to be made at the press conference before the Ordinary Shareholders' Meeting (disclosed 14 April 2004). Announcement that all the items on the Agenda of the Ordinary Shareholders' Meeting dated 14 April 2004 were passed (disclosed 14 April 2004). Remittal of the presentation to financial analysts to be given at the Madrid and Barcelona stock exchanges (disclosed 15 April 2004). Notice of the appointments to the Strategy, Investment and Competition Commission and of the changes in the Appointments and Remuneration Commission (disclosed 4 May 2004). Denial that the Group is considering an M&A transaction with Endesa (disclosed 28 May 2004). Remittal of the full Internal Code of Conduct with an amended item 7 (treasury stock) (disclosed 24 June 2004). Remittal of the press advertisement announcing the payment of the supplementary dividend (disclosed 28 June 2004). Signature of a contract with Qatargas to buy 2 bcm of natural gas per year for the next 20 years, and the extension of two other contracts originally signed in January 2004 (disclosed 1 July 2004). Notice of the date of the Board of Directors meeting which approved the Internal Code of Conduct (disclosed 8 July 2004). Completion of the acquisition of stakes in Companhia Distribuidora de Gás do Rio de Janeiro CEG, S.A. and CEG Rio, S.A. for approximately 129 million (disclosed 16 July 2004). Submission of the request for the permits to build and develop two regasification plants in Italy (disclosed 26 July 2004). 20

21 Main transactions with related parties In compliance with article 37 of Law 44/2002 on Measures to Reform the Financial System and as part of the Gas Natural Group's commitment to transparency, below are described the contractual and financial relations in the first half of 2004 between the Gas Natural Group and related individuals and legal entities. Related parties are defined as: Significant shareholders of GAS NATURAL SDG, i.e. those owning 5% or more. Shareholders who, though not significant, have exercised the power to appoint a member of the Board of Directors of GAS NATURAL SDG. Any other person meeting the conditions or requirements established by law or regulation in order to be deemed to be a related party. Based on the foregoing definition, the Gas Natural Group's related parties are Caixa d Estalvis i Pensions de Barcelona ( la Caixa ), Repsol YPF, Holding de Infraestructuras y Servicios Urbanos (HISUSA) and Caixa de Catalunya. Transactions with the la Caixa Group Participation in syndicated loans for 93.2 million and $58.7 million, maturing between 2004 and 2009, accruing 3.0 million in interest. The Gas Natural Group has 200 million in unused credit facilities. At 30 June, guarantees provided amounted to million out of a limit of million. At 30 June 2004, there were exchange rate hedges for future payments in foreign currencies for an amount of million. Cash at bank and cash equivalents amounted to million at the end of June. Interest accrued under this heading in the first half of 2004 amounted to 0.4 million. Interest on guarantees and sureties provided by the "La Caixa" Group companies totaled 1.9 million; charges for services provided by the Gas Natural Group totaled 3.0 million. Invercaixa Valores is the dealer of the EMTN (Euro Medium Term Note) and ECP (Euro Commercial Paper) programs. 21

22 Main transactions with related parties Transactions with the Repsol YPF Group Purchases of natural gas, liquefied natural gas, materials and sundry services amounted to million. Agreement with Repsol YPF for the supply of 2.1 bcm of natural gas per year until Agreement to supply LNG to Puerto Rico in connection with the tolling agreement held by the Gas Natural Group. Repsol YPF has an option to exercise the pre-emptive right to supply natural gas in Brazil, with an attached commitment to pay $30.0 million. Sales of natural gas, liquefied gas, electricity and sundry services amounting to million. Transactions with Caixa de Catalunya Participation in syndicated loans for an amount of 0.6 million. There are unused credit facilities amounting to 30.0 million. There was a total of 2.2 million in accounts and deposits at this bank at 30 June Caixa de Catalunya has provided guarantees for 1.3 million under a maximum limit of 30.0 million. Commission and interest accrued in 2004 amounting to 0.1 million. Transactions with Holding de Infraestructuras y Servicios Urbanos (HISUSA) This company had no transactions with Gas Natural Group companies. 22

23 Annexes GAS NATURAL GROUP: CONSOLIDATED PROFIT & LOSS ACCOUNT GAS NATURAL GROUP: ANALYSIS OF RESULTS BY ACTIVITY GAS NATURAL GROUP: CONSOLIDATED BALANCE SHEET GAS NATURAL GROUP: CONSOLIDATED STATEMENT OF SOURCES AND APPLICATIONS OF FUNDS GAS NATURAL SDG: BALANCE SHEET GAS NATURAL SDG: PROFIT & LOSS ACCOUNT 23

24 Consolidated profit & loss account (unaudited figures) ( Mn) 1H04 1H03 Net sales 2, ,806.2 Other revenues Total production value 2, ,836.5 Net cost of sales -1, ,894.6 External and operating costs Adjusted value added Personnel costs EBITDA Depreciation and amortization of fixed assets Change in operating provisions EBIT Financial results Equity income Amortization of goodwill in consolidation Ordinary profit Gain/loss on fixed assets Other extraordinary ítems Consolidated pre-tax profit Corporate income tax Minority interest Net profit atributable to the parent company

25 Analysis of results by activity EBITDA (unaudited figures) ( Mn) 1Q04 2Q04 3Q04 4Q Distribution Supply Electricity International transportation and wholesale Americas Europe (Italy) Rest Total Group (unaudited figures) ( Mn) 1Q03 2Q03 3Q03 4Q Distribution Supply Electricity International transportation and wholesale Americas Europe (Italy) Rest Total Group ,

26 Analysis of results by activity EBIT (unaudited figures) ( Mn) 1Q04 2Q04 3Q04 4Q Distribution Supply Electricity International transportation and wholesale Americas Europe (Italy) Rest Total Group (unaudited figures) ( Mn) 1Q03 2Q03 3Q03 4Q Distribution Supply Electricity International transportation and wholesale Americas Europe (Italy) Rest Total Group

27 Analysis of results by activity Material investments (unaudited figures) ( Mn) 1Q04 2Q04 3Q04 4Q Distribution Supply Electricity International transportation and wholesale Americas Europe (Italy) Rest Total Group (unaudited figures) ( Mn) 1Q03 2Q03 3Q03 4Q Distribution Supply Electricity International transportation and wholesale Americas Europe (Italy) Rest Total Group

28 Analysis of results by activity Main aggregates in Americas (GWh) 1Q04 2Q04 3Q04 4Q Argentina- Gas activity sales: 14,849 17,137 31,986 Gas sales: 4,922 8,824 13,746 Residential 1,933 5,552 7,485 Industrial 1,320 1,444 2,764 Automotion 1,669 1,828 3,497 Gas transportation/tpa 9,927 8,313 18,240 Brazil- Gas sales: 8,643 8,973 17,616 Residential Industrial 4,263 4,535 8,798 Electricity companies 2,385 2,288 4,673 Automotion 1,579 1,670 3,249 Colombia- Gas sales: 2,262 2,341 4,603 Residential 1,222 1,288 2,510 Industrial ,814 Automotion Mexico- Gas activity sales: 10,677 10,308 20,985 Gas sales (GWh): 4,582 4,010 8,592 Residential 2,351 1,781 4,132 Industrial 2,204 2,206 4,410 Automotion Gas transportation/tpa 6,095 6,298 12,393 1Q03 2Q03 3Q03 4Q Argentina- Gas activity sales: 12,330 16,569 19,021 15,625 63,545 Gas sales: 4,553 8,011 10,354 5,976 28,894 Residential 1,849 4,805 6,773 2,600 16,027 Industrial 1,278 1,585 1,797 1,637 6,297 Automotion 1,426 1,621 1,784 1,739 6,570 Gas transportation/tpa 7,777 8,558 8,667 9,649 34,651 Brazil- Gas sales: 7,373 7,327 7,313 7,661 29,674 Residential ,762 Industrial 3,755 3,771 3,964 4,178 15,668 Electricity companies 1,917 1,702 1,354 1,422 6,395 Automotion 1,344 1,402 1,498 1,605 5,849 Colombia- Gas sales: 1,930 2,062 2,180 2,189 8,361 Residential 1,104 1,171 1,175 1,220 4,670 Industrial ,246 Automotion Mexico- Gas activity sales: 9,599 9,629 9,882 10,244 39,354 Gas sales: 4,298 3,781 4,041 4,091 16,211 Residential 2,169 1,655 1,821 1,827 7,472 Industrial 2,105 2,099 2,193 2,241 8,638 Automotion Gas transportation/tpa 5,301 5,848 5,841 6,153 23,143 28

29 Consolidated balance sheet (unaudited figures) ( Mn) 30/06/04 30/06/03 Fixed assets- 7, ,144.9 Star-up costs Intangible fixed assets 1, Tangible fixed assets 5, ,633.6 Investments Goodwill on consolidation Deferred expenses Current assets- 2, ,579.3 Inventories Debtors 1, ,268.2 Short-term investments Cash and banks Prepaid expenses Total assets 10, ,809.3 (unaudited figures) ( Mn) 30/06/04 30/06/03 Shareholders equity- 4, ,185.6 Share capital Parent company reserves 3, ,992.0 Reserves of consolidated company 1, Foreign currency translation adjustments Profit attributed to the parent company Interim dividend - - Minority interest Deferred revenues Provisions for liabilities and expenses Long-term liabilities- 2, ,908.0 Debentures and other marketable securities Bank debt 1, ,250.7 Other long-term liabilities Short-term liabilities- 2, ,955.5 Debentures and other marketable securities Bank debt Trade creditors 1, Other short-term creditors Accrued expenses Total liabilities 10, ,

30 Consolidated statement of sources and application (unaudited figures) ( Mn) 1H04 1H03 Funds from operations Profit alter tax Adjustments to profit Cash flow Change in working capital Funds used for investments Tangible fixed assets Intangible fixed assets Investments Other investments Divestments Transfers to/from short-term Funds used for financing Capital increases Dividend paid Deferred revenues received Financing received/repaid Change in financial working capital Other

31 Gas Natural SDG Balance sheet (unaudited figures) ( Mn) 30/06/04 30/06/03 Fixed assets- 5, ,593.8 Star-up costs Intangible fixed assets Tangible fixed assets 2, ,592.2 Investments 2, ,997.9 Deferred expenses Current assets- 1, ,686.0 Inventories Debtors Short-term investments Cash and banks Prepaid expenses Total assets 6, ,283.1 (unaudited figures) ( Mn) 30/06/04 30/06/03 Shareholders equity- 3, ,732.3 Share capital Reserves 3, ,992.0 Profit in the year Interim dividend - Deferred revenues Provisions for liabilities and expenses Long-term liabilities ,136.6 Bank debt Other creditors Short-term liabilities- 1, Bank debt Trade creditors Other short-term creditors Accrued expenses Total liabilities 6, ,

32 Gas Natural SDG Profit and loss account (unaudited figures) ( Mn) 1H04 1H03 Net sales 1, ,072.3 Other revenues Total production value 1, ,131.2 Net cost of sales External and operating costs Adjusted value added Personnel costs EBITDA Depreciation and amortization of fixed assets Change in operating provisions EBIT Equity income Financial results Ordinary profit Gain/loss son fixed assets Other extraordinary ítems Pre-tax profit Corporate income tax Net profit

33 Investor Relations Av. Portal de l'àngel, Barcelona SPAIN Telephone Fax Internet: 33