GAS NATURAL. Third quarter results 2005

Transcription

1 Third quarter results 2005

2 NET PROFIT ROSE 17.1% TO MILLION 1.- HIGHLIGHTS Net profit totalled million, a 17.1% increase on the previous year. Consolidated EBITDA continued its steady rise, increasing by 18.3% in the third quarter due basically to GAS NATURAL's electricity business, and it totalled million in 9M05 (+12.9%). EBITDA in the gas distribution business in Spain ( million) increased by 7.6% on 9M04 and represented 52.0% of total Group EBITDA. Earnings in gas distribution in Latin America continued to grow rapidly; EBITDA increased by 35.6% to million. GAS NATURAL had 10.0 million gas distribution connections in Spain, Italy and Latin America at 30 September 2005, representing a year-on-year increase of 603,000 (6.4%). Electric power sales totalled 6,712 GWh, 61.3% more than in the first nine months of GAS NATURAL has a 4.1% share of the market in electricity from non-renewable sources. EBITDA in the electricity business in Spain (generation and supply) reached 76.8 million, double the figure reported in 9M04. GAS NATURAL synchronised the three 400 MW units of the Cartagena power plant with the national grid. Investment in tangible fixed assets totalled million in the first nine months of 2005, a 23.4% increase year-on-year, due to investment in power generation in Spain. In July, GAS NATURAL commenced supplying gas in France and obtained its first customers in that country. In September, GAS NATURAL made a takeover bid for 100% of Endesa. The Industry Ministry issued Order ITC 3321/2005, amending the formula for calculating the cost of raw material envisaged for 2005 so as to recognise the additional cost incurred in supplying gas to the regulated market. 2

3 TENDER OFFER FOR ENDESA On 5 September, the Board of Directors of Gas Natural SDG unanimously resolved to make a tender offer for 100% of Endesa. Payment would be 65.5% in stock and 34.5% in cash. Endesa shareholders who accept the offer will receive 7.34 in cash plus newly-issued shares of Gas Natural SDG per share of Endesa. Additionally, GAS NATURAL and Iberdrola signed an agreement, conditional upon the success of the takeover, under which certain assets of the company resulting from the acquisition of Endesa by GAS NATURAL would be sold to Iberdrola. The transaction would take place on an arm's-length basis at prices to be determined by a number of prestigious investment banks. The tender offer is conditional upon Gas Natural SDG attaining 75% of Endesa's capital and upon the amendment of a number of its Articles of Association (articles 32, 37, 38 and 42). The resulting company will be the world's third-largest investor-owned utility in terms of customer numbers and the largest gas and electricity company in Spain and Latin America, with 16 million customers in Europe and over 30 million worldwide. As the operation is designed, the resulting group will have a sound financial structure, which will guarantee its investments in regulated businesses and value-added deregulated businesses, and also enable it to fulfil its commitment to provide growing shareholder remuneration. The operation will create value for the shareholders of the resulting company, considering its competitive position and the business logic of the transaction. The operation is expected to provide significant synergy in the area of cost savings, conservatively estimated at 350 million per year from 2008 onward. 3

4 2.- MAIN AGGREGATES Main financial aggregates (unaudited) 3Q05 3Q04 % ( Mn) 9M05 9M04 % 1, , Net sales 5, , EBITDA 1, Operating income Net profit Average number of shares (million) EBITDA per share ( ) Net profit per share ( ) Tangible investments Net financial debt (at 30/09) 3, , Ratios 9M05 9M04 ROACE 12.8% 13.2% ROE 14.9% 13.5% Leverage 37.8% 35.5% EBITDA/Net financial result Net debt/ebitda P/E EV/EBITDA Share performance and balance sheet at 30 September. 4

5 2.3.- Main physical aggregates 3Q05 3Q04 % 9M05 9M04 % 95,487 87, Gas distribution (GWh): 309, , ,478 47, Spain: 186, , ,801 8, Tariff gas sales 36,834 37, ,677 39, TPA 149, , ,816 39, Latin America: 121, , ,348 25, Tariff gas sales 74,218 69, ,468 14, TPA 47,754 44, Italy: 1, Tariff gas sales 1, TPA ,460 65,458 - Gas supply (GWh): 223, , ,533 54, Spain 193, , ,927 10, International 29,638 30, ,270 29, Gas transportation - EMPL (GWh) 105,816 82, ,086 3, Distribution network (km): 98,723 93, Spain 39,146 36, , Latin America 55,868 53, , Italy 3,709 3, Increase in distribution connections, ( 000) Spain Latin America Italy Distribution connections, ( 000) (at 30/09): ,998 9, Spain 5,033 4, Latin America 4,690 4, Italy Contracts per customer in Spain (at 30/09) ,067 1, Electricity generated (GWh): 7,851 5, ,655 1, Spain 6,712 4, Latin America 1,139 1, Installed capacity (MW): 2,173 1, Spain 1, Latin America Employees (at 30/09) 6,788 6,

6 3.- ANALYSIS OF CONSOLIDATED RESULTS Changes in group size The main changes in consolidated group size in 2005 with respect to 2004 are as follows: The acquisition, in August 2004, of Smedigas (Italy), which has been fully consolidated since 1 August The acquisition, in September 2004, of Nettis (Italy), which has been fully consolidated since 14 September The acquisition of additional stakes in CEG and CEG Rio (Brazil), which have been fully consolidated since 1 July 2004 (proportionately consolidated prior to that date). The acquisition of holdings in a number of wind farm companies: SINIA XXI (consolidated since 1 November 2004) and DERSA (consolidated since 1 April 2005). Deconsolidation of Naturcorp Multiservicios (formerly Sociedad de Gas de Euskadi) effective February International Financial Reporting Standards (IFRS) The accompanying financial information was prepared in accordance with International Financial Reporting Standards (IFRS). Insofar as certain standards or interpretations are in draft form or pending final approval by the European Commission, the financial information presented may need to be modified when the first full-year consolidated financial statements are prepared under IFRS, i.e. as of 31 December On 20 April 2005, the CNMV was formally notified of the main effects of adopting IFRS; the impact is very limited and confined to a few areas. In a departure from the content of that presentation, the 1H05 results included an additional adjustment amounting to million for the assignment of consolidation goodwill to other intangible assets. The information for the first nine months of 2004 has been corrected for the purposes of comparison with the information prepared under IFRS. The impact on the main line-items in 9M04 is as follows: (unaudited) ( Mn) 9M04 IFRS 9M04 Spanish GAAP Operating income 652,3 665,0 EBITDA 1 992,6 1,004,2 Net income 451,7 451,4 Shareholders equity 2 4,798,9 4,866,3 Net financial debt 3 2,638,1 2,585,5 1 Operating income + Depreciation & amortisation + Operating provisions. 2 Capital + Reserves + Minority interest. 3 Financial debt - Cash & cash equivalents. 6

7 3.3.- Analysis of results Net sales Net sales totalled 5,782.5 million between January and September 2005, a 30.4% increase on the same period of 2004, due basically to increased business activity by GAS NATURAL, particularly gas supply (growth in volume sales and high natural gas prices) for power generation in Spain and expansion of the business in Latin America EBITDA and Operating income EBITDA in 9M05 totalled 1,120.8 million, a 12.9% increase on 9M04. Contribution to EBITDA by business 11% 7% 4% 3% 2% 1% 100% Gas distribution overall (Spain, Latin America and Italy) accounts for 73.3% of GAS NATURAL's EBITDA. Gas distribution in Spain is the main source of EBITDA (52.0%). 52% 20% EBITDA in 9M05 was also increased by growth in the electricity business in Spain. Upstream and Midstream activities together accounted for 11.2% of the total. This figure increased significantly due to the expansion of the Maghreb-Europe gas pipeline's capacity. Dist. Spain Dist. LatAm Up+ Midstream Elec. Spain Elec. P.Rico Wholesale & Retail Dist. Italy Rest Total A 17.0% increase in depreciation and amortisation charges due to capital expenditure, to the assignment of certain consolidation goodwill to amortisable assets, and to the consolidation of companies acquired in 2H04, coupled with a similar amount of working capital provisions, led to a 10.7% increase in operating income to million Financial results The breakdown of financial results is as follows: (unaudited) 3Q05 3Q04 ( Mn) 9M05 9M Cost of net financial debt Exchange differences in Argentina Rest of exchange differences (net) Capitalized interest Other financial (expenses)/revenues Net financial result

8 The net financial result in the period amounted to million, compared with million in 9M04, due to the increase in net financial debt mainly as a result of the acquisitions made in 2H04 (additional stakes in CEG and CEG Rio, Smedigas, Nettis and wind companies) and April 2005 (DERSA), as well as the consolidation of their debt. The "Exchange differences in Argentina" caption reflects exchange differences booked at Gas Natural BAN on its dollar-denominated debt. This effect was positive because of favourable performance by the Argentinean peso (2.89 pesos to the dollar, compared with 2.96 at 2004 year-end), but the amount was not significant. Net financial debt ( Mn) 2,655.0 Leverage 35.7% ,245.1 Leverage 37.8% Dicember-04 Net debt Currency Consolidation Valuation September-05 effect effect Hedging instruments The figure shows GAS NATURAL's consolidated net debt and leverage between 31 December 2004 and 30 September At the latter date, debt amounted to 3,245.1 million, i.e. a leverage ratio of 37.8%, compared with 35.7% at 2004 year-end. The figure displays the various factors affecting the variation in GAS NATURAL's net debt, which led to an increase of million in the first nine months of 2005, of which million took place in the third quarter. The impact of exchange rate fluctuations on debt in currencies other than the euro led to a million increase in net debt in the period. The main new feature is that, as a result of applying IFRS, the valuation of all of GAS NATURAL's hedges led to a reduction of 35.4 million in net debt with respect to 31 December The breakdown of the net financial debt by currency at 30 September 2005, in absolute and relative terms, is as follows: (unaudited) ( Mn) 30/09/05 % EUR 1, USD MXN BRL COP USD Argentina Other currencies Total net financial debt 3, Net dollar-denominated financial debt (excluding Argentina) relates mainly to EMPL, the company which manages the Maghreb-Europe gas pipeline, and to EcoEléctrica, whose accounts are in dollars. The "Other currencies" item includes net debt in Argentinean pesos and Moroccan dirhams. 8

9 GAS NATURAL'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 On 6 September, as a result of the tender offer for Endesa, the agencies put the ratings under review 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), wind power companies, and Enagás (equityaccounted). Stakes in associated companies yielded 33.0 million in the first nine months of 2005 ( 48.3 million in the same period of 2004). This change is due mainly to the reduction of the stake in Enagás and to the deconsolidation of Naturcorp Multiservicios since February Enagás contributed 30.0 million to the equity-accounted affiliates line-item in 9M Capital gain on disposal of non-current assets Disposals of non-current assets in 9M05 provided a net gain of million, compared with 61.5 million in 9M04. This result is due basically to the disposal in 2005 of 10.6% of Enagás. The company sold 5.1% of Enagás in the same period of GAS NATURAL is obliged to reduce its stake in Enagás to 5% by 31 December At 30 September 2005, it owned 15.5% of Enagás Corporate income tax The corporate income tax expense totalled million, i.e. an effective tax rate of 27.8%, compared with 25.9% in 9M04. The difference with respect to the general tax rate was due to tax credits, equity-accounted affiliates, tax loss carryforwards, and different tax systems applying to companies operating outside Spain Minority interest The main items in this account are the outside shareholders of EMPL (owned 72.6% by GAS NATURAL), the subgroup of subsidiaries in Colombia (owned 59.1%), Gas Natural BAN (owned 50.4%), Gas Natural Mexico (owned 86.8%), Brazilian companies CEG (owned 54.2%) and CEG Rio (owned 59.6%), as well as gas distribution companies in Spain. In July, 12.4% of CEG Rio was sold to Petrobras, which reduced GAS NATURAL's stake from 72.0% to 59.6%; this holding is still fully consolidated and the sale resulted in an increase in the minority interests item. 9

10 Income attributed to minority interests in 2005 amounted to 52.4 million, a 17.6 million increase due mainly to a higher contribution from EMPL and the Latin American subsidiaries, particularly as a result of the inclusion of minority interests in Brazil from 1 July Investments Investments totalled 1,089.8 million, slightly lower than the figure in 9M04, because a 23.4% increase in capital on tangible fixed assets was offset by a reduction in financial investments (acquisition of holdings in companies). The sizeable volume of financial investments in 2004 included the acquisitions in Italy and the increase in the Group's interests in Brazil, whereas acquisitions this year have been confined basically to DERSA. The breakdown of investments by type is as follows: (unaudited) ( Mn) 9M05 9M04 % Capital expenditure Investments in intangible assets Financial investments Total investments 1, , Capital expenditure totalled million, a 23.4% increase, basically because of ongoing development of GAS NATURAL's programme to generate power using combined cycle plants in Spain. The breakdown of capital expenditure by line of business is as follows: (unaudited) ( Mn) 9M05 9M04 % Gas distribution: Spain Latin America Italy Electricity: Spain Puerto Rico Gas: Up + Midstream Wholesale & Retail Rest Total capital expenditure

11 46% Capital expenditure by activity 6% 1% 1% 0% 2% 15% 29% 100% In 9M05, 45.5% of investment in tangible fixed assets related to the electricity business in Spain, specifically to complete the construction of the Arrúbal combined cycle units (800 MW), to develop the three combined cycle units at Cartagena (1,200 MW), and to commence construction of another two units at Plana del Vent (800 MW). Elec. Spain Dist. Spain Dist. LatAm Dist. Italy Wholesale & Retail Up+ Midstream Elec. P.Rico Rest Total Investment in gas distribution in Spain, which accounted for another 28.9% of the total, was allocated to acquiring new customers by extending the distribution grid by over 2,500 km in the last twelve months (6.9% growth). Capital expenditure in gas distribution in Latin America amounted to million, a 45.6% increase. The reduction in Mexico (basically because of devaluation of the peso against the euro and the slowdown in grid construction in Mexico City) was offset by investments in Brazil, which is now the main destination of our investments in the region because of the change in consolidated group structure; Brazil accounted for 69.1% of investment in the area. Net intangible and tangible fixed assets increased by 1,106.2 million in the first nine months of 2005, to 8,580.6 million at 30 September The breakdown of this figure by line of business is as follows: (unaudited) ( Mn) 30/09/05 % Gas distribution: 5, Spain 3, Latin America 1, Italy Electricity: 2, Spain 1, Puerto Rico Gas: Up + Midstream Wholesale & Retail Rest Total net tangible and intangible assets 8, Overall intangible and tangible fixed assets included construction in progress worth million, of which million relates to the electricity business and million to Latin America. 11

12 Mexico 30% Tangible and intangible assets in Latin America Argentina 10% Gas distribution accounts for 63.3% of GAS NATURAL's assets. The figure shows the breakdown by country of gas distribution assets in Latin America. Brazil 50% Colombia 10% Goodwill International Financial Reporting Standards (IFRS) do not allow goodwill to be amortised. Nevertheless, goodwill must be reviewed to detect any impairment. In accordance with available estimates, the projected attributable revenues assure the recovery of GAS NATURAL's net assets and goodwill. Goodwill in consolidation on the balance sheet as of 30 September 2005 amounted to million and is detailed below by country: (unaudited) ( Mn) 30/09/05 Puerto Rico Italy Spain Mexico 35.8 Brazil 22.0 Total The increase in goodwill in Spain in 2005 is due to the acquisition of DERSA Shareholders equity The Shareholders' Meeting on 20 April 2005 voted to increase the dividend by 18.3% and pay 0.71 per share out of 2004 income; 0.27 per share had already been paid on 11 January 2005 and the remaining 0.44 per share were paid on 1 July This figure represents a payout of 50.2% of reported 2004 profit. At 30 September 2005, shareholders' equity totalled 5,344.0 million, having increased by 11.4% in the previous twelve months. Of that total, 5,069.9 million is attributable to GAS NATURAL, an 11.3% increase. 12

13 4.- ANALYSIS OF RESULTS BY ACTIVITY The criteria used to assign amounts to the activities are as follows: The margin on intercompany transactions is allocated on the basis of the market which is the final destination of the sale. All revenues and expenses relating directly and exclusively to a specific business activity are allocated directly to it. Corporate expenses and revenues are assigned on the basis of their use by the individual business lines Distribution in Spain This area includes the gas distribution activity which receives regulated remuneration, regulated rate supply, and secondary transportation, as well as the distribution activities that are charged for outside the regulated remuneration (meter rentals, customer connections, etc.), in Spain Results (unaudited) 3Q05 3Q04 % ( Mn) 9M05 9M04 % Net sales 1, , Purchases Personnel costs. net Other expenses/income EBITDA Charge for depreciation and amortisation Variation in operating provisions Operating income Net sales in gas distribution business in Spain totalled 1,425.5 million, 7.1% more than in 9M04. EBITDA amounted to million, up 7.6% on the figure reported in 9M04, in line with the increase in regulated remuneration in The reduction in personnel expenses was due to the fact that capitalised in-house work on fixed assets was higher in 9M05 than in 9M04, and this figure is stated net in the consolidated income statement under IFRS. The 4.8% increase in depreciation and amortisation charges meant that operating income increased by 8.9%. 13

14 Main aggregates The main aggregates in gas distribution in Spain were as follows: 3Q05 3Q04 % 9M05 9M04 % 53,478 47, Gas activity sales (GWh): 186, , ,801 8, Tariff gas sales 36,834 37, ,677 39, TPA 149, , Distribution network (km) 39,146 36, Change in distribution connections ( 000) Distribution connections (000) (at 30/09) 5,033 4, Regulated gas sales in Spain, which encompass regulated-rate gas distribution and supply as well as third-party access (TPA), amounted to 186,046 GWh, a 13.8% increase on 9M04. Gas sales to the residential market decreased by 18.2% due to the steady migration to the liberalised segment of the market (to GAS NATURAL's supply companies and to rivals) following total liberalisation of the market on 1 January 2003; the liberalised market now represents 84% of the total, up from 80% one year ago. Nevertheless, the sale of gas for industrial uses rose 0.2% and sales for power generation increased very significantly with respect to 9M04 as low precipitation in 9M05 increased the demand for conventional gas-fired power generation; as a result, total regulated-rate gas sales were in line with 9M04. Third-party access (TPA) services increased by 18.6% to 149,212 GWh, of which 68,347 GWh related to services to third parties and the remaining 80,865 GWh to GAS NATURAL itself, as the main operator in the liberalised gas market. The distribution network was extended by over 2,500 km in the last twelve months, to 39,146 km at 30 September 2005, a year-on-year increase of 6.9%. GAS NATURAL's number of individual distribution connections continued to grow rapidly, having increased by 319,000 year-on-year. At 30 September 2005, there were a total of 5,033,000 gas distribution connections in Spain, a 6.8% increase in the last twelve months. 14

15 4.2.- Distribution in Latin America This division involves gas distribution in Argentina, Brazil, Colombia and Mexico Results (unaudited) 3Q05 3Q04 % ( Mn) 9M05 9M04 % Net sales 1, Purchases Personnel costs. net Other expenses/income EBITDA Charge for depreciation and amortisation Variation in operating provisions Operating income Net sales in gas distribution in Latin America totalled 1,005.4 million, a 38.8% increase. EBITDA amounted to million, a 35.6% increase. Operating profit increased by 36.5% year-on-year due to slower growth in depreciation and amortisation charges. A comparison with 9M04 results should consider the following: The change in consolidation scope in Brazil increased the contribution to EBITDA by 25.8 million with respect to 9M04. The impact of translating the financial statements of the Latin American companies to euro increased EBITDA by approximately 9.9 million with respect to 9M04. Excluding those factors, EBITDA increased by 13.6% in Latin America as a result of the growing contribution from the gas distribution business in Mexico, Colombia and Brazil. Additionally, the tariff reviews in Colombia and Mexico during 2H04 are having a positive effect on those countries' contribution to results in EBITDA in Latin America, by country Mexico 24% Argentina 11% Brazil 37% The figure shows EBITDA in Latin America, by country. As a result of stagnation in Argentina and the increase in the stakes in the GAS NATURAL companies in Brazil, the individual countries' contribution to total Latin American EBITDA has changed. Brazil now contributes the largest proportion of EBITDA (36.8%), followed by Colombia (28.4%). Colombia 28% 15

16 Net financial debt in America amounted to 1,178.6 million at 30 September 2005, including dollardenominated loans in Argentina amounting to $84.0 million Main aggregates The main physical aggregates in gas distribution in Latin America are as follows: 3Q05 3Q04 % 9M05 9M04 % 41,816 39, Gas activity sales (GWh): 121, , ,348 25, Tariff gas sales 74,218 69, ,468 14, TPA 47,754 44, , Distribution network (km) 55,868 53, Change in distribution connections ( 000) Distribution connections (000) (at 30/09) 4,690 4, Sales in the gas activity in Latin America, which include both gas sales and TPA (third-party access) services, totalled 121,972 GWh, a 6.5% increase year-on-year. Argentina, Brazil and Colombia experienced close to 15% growth in gas sales in 3Q05, leading to a 6.5% increase in 9M05. The automotion gas market continues to gain ground, having expanded by 16.8% on average. TPA (third-party access) sales increased by 6.6%, mainly due to higher sales to other distribution companies and large accounts, in the case of Argentina. The distribution network was extended by 2,195 km in the last twelve months, to 55,868 km at 30 September 2005, a year-on-year increase of 4.1%, affected by a slow-down in new grid construction in Mexico as efforts were directed at saturating the existing grid with distribution connections. There were a total of 4,690,000 gas distribution connections at 30 September GAS NATURAL continues to expand the number of distribution connections at a rapid pace, having added 255,000 in the last twelve months, in line with its strategic objective of adding more than 1.6 million connections in Latin America between 2004 and The main physical aggregates by country in the first nine months of 2005 are as follows: Argentina Brazil Colombia Mexico Total Gas activity sales (GWh) 52,098 30,981 8,184 30, ,972 Change vs. 9M04 (%) Distribution network (km at 30/09) 21,161 4,723 15,176 14,808 55,868 Change vs. 30/09/04 (km) ,195 Distribution connections ('000 at 30/09) 1, ,580 1,103 4,690 Change vs. 30/09/04 ('000)

17 Highlights: The commercial recovery in Argentina is being consolidated, as evidenced by further growth in the number of distribution connections in the period and a strong (+24.4%) rebound in residential gas usage in the quarter. The 10.1% decline in gas sales registered in 1H05 was attenuated to just 0.3% YTD by the end of September. Large accounts continue to migrate to TPA, which expanded by 22.0% due to the process of unbundling (but this did not affect the figures of the distribution business overall). Gas sales in Brazil increased by 12.9%, with rapid growth in all markets and a particularly strong reactivation of the power generation market in the State of Rio de Janeiro, where there are six power plants, and a surge in sales for automotion. Marketing actions are being stepped up, and GAS NATURAL achieved the largest single increase in the number of distribution connections since it commenced operations in Brazil. Double-digit growth in Colombia is being driven by the reactivation of the country s economy. The number of distribution connections rose 7.6% even though average penetration is already over 85% in GAS NATURAL's distribution territories. Sales in Mexico recovered slightly in 3Q05 but were still down 1.4% YTD due to lower TPA services to combined cycle plants and to a decline in residential sales as a result of an increase in end prices of gas, due to high demand elasticity to rising prices and competition from substitute fuels. A subsidy for the cost of gas and distribution to residential customers with average monthly unit gas usage under 60 m 3 in the last twelve months came into effect in July, retroactive from 15 April The subsidy, which is paid by the federal government, will run until 30 September 2006 (18 months) and will cut customers' total gas bill by up to 28%. On 16 July 2004, GAS NATURAL acquired Enron's stakes in CEG and CEG Rio, thus increasing its stake in those companies to 54.2% and 72.0%, respectively. Accordingly, these companies have been fully consolidated since 1 July 2004 (they were proportionately consolidated in 1H04). This acquisition assures Gas Natural s long-term dominance of an area with high growth prospects. Early in July 2005, Petrobras exercised a call option on 12.4% of CEG Rio Distribution in Italy This area refers to gas distribution in Italy Results (unaudited) 3Q05 3Q04 % ( Mn) 9M05 9M04 % Net sales Purchases Personnel costs, net Other expenses/income EBITDA Charge for depreciation and amortisation Variation in operating provisions Operating income

18 Gas distribution in Italy contributed 18.5 million in EBITDA, 1.7% of the consolidated total, evidencing that GAS NATURAL's operations in that country are gaining in strength. Quarterly figures were affected by expansion into the regions of Reggio Calabria and Catania (which led to greater investment and higher depreciation and amortisation charges) and by higher operating expenses Main aggregates 3Q05 3Q04 % 9M05 9M04 % Gas activity sales (GWh): 1, Tariff gas sales 1, TPA , Distribution network (km) 3,709 3, Distribution connections (000) (at 30/09) Gas distribution in Italy totalled 1,927 GWh, a considerable increase on 9M04 due to strengthening of operations in Italy following the acquisition of Smedigas and Nettis in the second half of Electricity in Spain This area includes power generation in Spain (combined cycle plants, wind farms and cogeneration), trading via electricity purchases in the wholesale market, and the supply of electricity in the liberalised market in Spain Results (unaudited) 3Q05 3Q04 % ( Mn) 9M05 9M04 % Net sales Purchases Personnel costs. net Other expenses/income EBITDA Charge for depreciation and amortisation Variation in operating provisions Operating income Net electricity sales totalled million. In September, upon completion of the administrative proceedings, the first unit (400 MW) of the 1,200 MW Cartagena power plant was synchronised with the grid and started commissioning tests. The other two units were synchronised in October. The power generation business continues to be favoured by high pool prices, which remained high in 3Q05, averaging over 54/MWh in the first nine months of GAS NATURAL now manages 15 power plants under the special regime (renewables) in the wholesale market. 18

19 The business of electricity supply in the liberalised market continued to be penalised by high prices in the third quarter (the highest so far this year) since it had to compete with the regulated tariff (which is considerably lower). The combination of these factors led to 76.8 million in EBITDA in 9M05, double the figure reported in 9M Main aggregates The key figures of GAS NATURAL's electricity activities in Spain are as follows: 3Q05 3Q04 % 9M05 9M04 % Installed capacity (MW): 1, CCGT 1, Wind Cogeneration ,655 1, Electricity generated (GWh): 6,712 4, ,469 1, CCGT 6,279 4, Wind Cogeneration Contracted electricity (GWh/year) 3,944 4, ,590 1, Electricity sales (GWh): 4,799 3, Residential 1, , Industrial 3,417 2, A total of 6,712 GWh were generated and sold to the wholesale market in 9M05, i.e. 61.3% more than in 9M04. The combined cycle plants generated 6,279 GWh. This output, measured at plant busbars, represents 119% of the electricity supplied to customers by GAS NATURAL. GAS NATURAL had a 4.1% share of the non-renewable ("ordinary regime") power generation market in 9M05. The plants attained over 1,615 equivalent hours of operation at full load in the third quarter of 2005, representing a load factor of over 73%. Retail electricity sales increased by 55.1% on 9M04. The largest increase in electricity sales was to the residential market, where customer numbers stand at over 475,000. GAS NATURAL had a share of approximately 7.4% of the liberalised market in electricity in 9M05. GAS NATURAL now has 1,600 MW of operational combined cycle power generation capacity, 1,200 MW synchronised with the grid and undergoing commissioning (Cartagena), 800 MW under construction (Plana del Vent), and 1,200 MW at an advanced stage of permit obtainment (including the Malaga and Barcelona projects), all in line with the objective of having 4,800 MW of CCGT capacity by Through DERSA, GAS NATURAL is currently building 5 wind farms that total 112 MW in installed capacity (68 MW attributable) in Navarra, Castilla & León, Rioja and Castilla-La Mancha, in addition to the 610 MW (279 MW attributable) already operational. Additionally, another 21 MW (10.5 MW attributable) are at the final permit phase in Navarra and construction will commence as soon as the necessary licences are obtained. All the wind farms managed by GAS NATURAL are bid into the pool. 19

20 The move into wind power complements GAS NATURAL's decision in 1999 to commence power generation by developing combined cycle plants. GAS NATURAL's strategy is to have a balanced, competitive, environmentally-friendly generation mix in line with the objectives of the Kyoto Protocol, and to consolidate its position as one of the leading electricity companies in Spain. On 21 January 2005, the Spanish Cabinet approved the final individual allocation of greenhouse gas emission rights for ; GAS NATURAL was allocated Mt of CO 2. The International Accounting Standards Board (IASB) has commenced a review of the method of accounting for emission rights; accordingly, several approaches are available at present. Since the CO2 produced by GAS NATURAL's combined cycle plants matches the amount of allocated permits, it is advisable to account for the emission rights received free of charge on the asset side of the balance sheet and to account for the emissions debt on the liability side, to be offset against emission rights received, both at zero value, thus having no impact on earnings Electricity in Puerto Rico GAS NATURAL has been operating in Puerto Rico since October 2003, when it acquired 47.5% of EcoEléctrica and the exclusive right to import gas to the island, plus an operation, maintenance and fuel management contract Results (unaudited) 3Q05 3Q04 % ( Mn) 9M05 9M04 % Net sales Purchases Personnel costs. net Other expenses/income EBITDA Charge for depreciation and amortisation Variation in operating provisions Operating income GAS NATURAL's activities in Puerto Rico provided US$56.2 million in EBITDA, 11.1% more than in the same period of Main aggregates EcoEléctrica has a regasification plant (capacity: 115,000 m 3 ) and a CCGT (540 MW). The CCGT, the first investor-owned gas-fired power plant in Puerto Rico, is located in Peñuelas, to the south of the island, and produces 15%-17% of the island's total electricity needs. EcoEléctrica generated 2,278 GWh (1,139 GWh attributable to GAS NATURAL), with a load factor of over 68%, i.e. considerably better than the 66% registered in 9M04. The moving average availability in the third quarter was above the figure guaranteed in the long-term power purchase agreement (PPA). 20

21 4.6.- Gas Upstream + Midstream This area includes the development of integrated LNG projects, maritime transportation, and the operation of the Maghreb-Europe gas pipeline Results (unaudited) 3T05 3T04 % ( Mn) 9M05 9M04 % Net sales Purchases Personnel costs, net Other expenses/income EBITDA Charge for depreciation and amortisation Variation in operating provisions Operating income Net sales in the Upstream+Midstream business totalled million, a 16.7% increase. EBITDA amounted to million in the first nine months of 2005, 5.3% more than in the same period of 2004 despite the fact that lower utilisation of the gas tanker ships this year (76% vs. 91% in 9M04) partly offset the higher contribution from the Maghreb-Europe gas pipeline, which carried a larger volume of gas following its recent capacity increase (but which was also impacted by an adverse euro/dollar exchange rate). Additionally, commencement of development of the integrated LNG projects led to start-up expenses that were not capitalised Main aggregates The main aggregates in international gas transportation are as follows: 3Q05 3Q04 % 9M05 9M04 % 34,270 29, Gas transportation-empl (GWh): 105,816 82, ,521 6, Portugal 23,087 21, ,749 22, GAS NATURAL 82,729 61, The gas transportation activity conducted in Morocco through companies EMPL and Metragaz represented a total volume of 105,816 GWh in 9M05, a 27.8% increase as a result of the expansion of capacity. Of that figure, 82,729 GWh were transported for GAS NATURAL through Sagane and 23,087 GWh for Portuguese company Transgas. 21

22 In April, GAS NATURAL and Repsol YPF reached an agreement to step up cooperation in the area of exploration, production, liquefaction, transportation, trading and wholesale marketing of liquefied natural gas (LNG). In the area of exploration, production and liquefaction (Upstream), the agreement envisages joint ventures to develop new projects, in which Repsol YPF will be the operator and own 60% of the assets, and GAS NATURAL will have a 40% stake. In transportation, trading and wholesale supply (Midstream), the agreement envisages the creation of a joint venture for LNG transportation and wholesale supply, owned 50% each, whose chairman will be appointed alternately by the two partners and whose CEO will be appointed by GAS NATURAL. In particular, the companies are jointly developing the Gassi Chergui exploration project in Algeria and the integrated liquefied natural gas (LNG) exploration, production and supply Project in the Gassi Touil area of Algeria, which includes construction of a natural gas liquefaction plant in Arzwe with a capacity of 5.2 bcm/year, and the possibility of adding a second train in the future. GAS NATURAL has filed an application with the Italian Administration (Ministero delle Attività Produttive) for permission to develop two regasification plants in Italy, one in Trieste (northern Italy) and one in Taranto (southern Italy). The two projects are similar, consisting of two tanks with a capacity of 150,000 m 3 and a regasification capacity of 8 bcm per year each Wholesale & Retail This area includes wholesale and retail gas supply in Spain and other countries, and the supply of other related products and services in Spain. The supply of gas to other distributors corresponds to supplies to Enagás for the regulated gas distribution market Results (unaudited) 3Q05 3Q04 % ( Mn) 9M05 9M04 % 1, Net sales 3, , , Purchases -3, , Personnel costs. net Other expenses/income EBITDA Charge for depreciation and amortisation Variation in operating provisions Operating income Net sales in the gas supply business totalled 3,717.5 million, a 32.9% increase on 9M04. 22

23 EBITDA in the first nine months of 2005 amounted to 38.1 million, compared with 65.8 million in the same period of 2004, showing a notable recovery in the second and third quarters (+24.5% in the latter). This performance is due to a significant increase (over 20%) in gas demand in Spain due to the particularly cold winter, which made it necessary to buy additional gas on the spot market in a context of high international gas prices. On 27 October 2005, the Industry Ministry issued Order ITC 3321/2005, amending the formula for calculating the cost of raw material envisaged for The order acknowledged the additional gas cost arising on supplies to the regulated market as a result of the following factors: Demand in 2005 is above the projection made in 2004 for calculating the gas costs of supplies to the regulated market. The difference, for the amount of gas above projections, between the actual cost of gas on the international markets and the regulatory raw material cost. The additional cost is estimated at 83.0 million, and this figure will be corrected subsequently using the final sales and acquisition cost figures for Main aggregates The main aggregates in the wholesale and retail supply activity are as follows: 3Q05 3Q04 % 9M05 9M04 % 65,460 65,458 - Gas supply (GWh): 223, , ,533 54, Spain: 193, , ,671 10, Regulated market 44,288 43, ,862 44, Liberalized market: 149, , ,834 31, GAS NATURAL 115, , ,028 12, Supply to third parties 33,893 32, ,927 10, International: 29,638 30, ,998 8, USA 21,201 25, ,929 1, Supply Europe 8,437 5, Multiutility contracts (at 30/09) 2,180,551 1,624, Contracts per customer (at 30/09) A total of 223,557 GWh of natural gas was supplied wholesale, i.e. 7.4% more than in 2004; 193,919 GWh were sold in the Spanish market (+9.4%) and the other 29,638 GWh were sold in other countries (-3.6%). Wholesale gas supplies for the regulated market are sold to Enagás which, in addition to inventory management, supplies the gas to distribution companies, both those in the GAS NATURAL and third parties; the total amount increased by 0.8% to 44,288 GWh despite greater market opening, basically because certain power plants and industrial customers abandoned the liberalised market and took shelter in the regulated market. 23

24 Sales to the liberalised market amounted to 149,631 GWh, a 12.2% increase on 9M04. Of those sales, 115,738 GWh were to end customers of GAS NATURAL, mainly in the industrial market (66%), as well as to CCGTs (26%) and households (8%). In 9M05, GAS NATURAL sold 33,893 GWh of gas for supply to the liberalised market by other supply companies (a 2.9% increase), basically under medium- and long-term contracts. Despite a sharp increase in gas supply in Europe, international wholesale gas supplies fell 3.6% due to the absence of spot transactions in 2005 as the Spanish market's demand in the winter prevented gas being allocated to other countries. In GAS NATURAL's multiutility area, close to 110,000 gas maintenance contracts were added in 9M05, making a total of over 1,265,000 contracts in force at 30 September GAS NATURAL continues to develop products and services based on off-line and on-line marketing channels. At 30 September 2005, GAS NATURAL had 114 franchise centres, one company-owned centre and 760 associated centres a powerful sales network that is unmatched in Spain. At 30 September 2005, GAS NATURAL had over 2,180,000 product and service contracts other than for gas sales, which include financial services and the sale of electricity; this represents a 34.3% increase on 30 September 2004; consequently, there were 1.46 contracts per customer in Spain, in line with the company s strategic objective of 2 contracts per customer by Because of marketing efforts, the number of homes with gas heating increased by 20,500, and 39,600 appliances were sold, including over 11,800 air conditioning installations. 24

25 Significant events and other disclosures Summarized below are the significant events and other disclosures to the CNMV from 1 January 2005 to this date: Salvador Gabarró, Chairman of Gas Natural SDG, will propose the appointment of Rafael Villaseca as CEO at the next Board of Directors meeting (disclosed 13 January 2005). At the proposal of Repsol YPF, the Board of Directors of GAS NATURAL appoints Rafael Villaseca as CEO. At the same meeting, the Board approved the appointment of Guzmán Solana and Nemesio Fernández-Cuesta as proprietary directors nominated by Repsol YPF in place of Ramón Blanco and Miguel Ángel Remón, respectively, and the appointment of Carlos Kinder as proprietary director in place of Fernando Ramírez, at the proposal of "la Caixa", and of Miquel Valls as independent director, based on a joint proposal by "la Caixa" and Repsol YPF. After the appointment of the new directors, the composition of the Board of Directors committees was changed (disclosed 28 January 2005). Notice of the proposed dividend out of 2004 earnings that the Board of Directors is to propose to the Ordinary Shareholders' Meeting, implying a total of 0.71 per share, 18% more than in 2004 (disclosed 1 March 2005). GAS NATURAL commences electricity supply in the Canary Islands (disclosed 10 March 2005). Remittal of the 2004 Annual Corporate Governance Report (disclosed 4 April 2005). Notice of Ordinary Shareholders' Meeting to be held on 20 April 2005, with the documentation placed at the shareholders' disposal (disclosed 4 April 2005). Remittal of the presentation to be made at the press conference before the Ordinary Shareholders' Meeting (disclosed 20 April 2005). Remittal of the presentation on the impact of adaptation to International Financial Reporting Standards (IFRS) (disclosed 20 April 2005). GAS NATURAL acquires Desarrollo de Energías Renovables (DERSA), which has a strong presence in the Spanish wind energy market and a considerable portfolio of wind farms under development (disclosed 20 April 2005). Announcement that all the items on the Agenda of the Ordinary Shareholders' Meeting dated 20 April 2005 were passed, including most notably the amendment to the Shareholders' Meeting Regulation and Bylaws to reduce to 100 the minimum number of shares required to attend the Shareholders' Meeting, and the implementation of distance voting and proxy-granting. The Meeting also approved the appointment of Fernando Ramírez as proprietary director nominated by Repsol YPF in place of Gregorio Villalabeitia, and the appointment of Jaime Vega de Seoane as independent director, based on a joint proposal by Repsol YPF and "la Caixa" (disclosed 20 April 2005). Notification of the change in the Audit and Control Committee whereby Fernando Ramírez took the place of Gregorio Villalabeitia (disclosed 27 April 2005). GAS NATURAL and Repsol YPF sign an agreement for the liquefied natural gas business (disclosed 29 April 2005). GAS NATURAL announces a change in its organisation structure to adapt to the strategic growth challenges. The new Group structure is based on four divisions: Gas Supply, Gas Management, Wholesale Demand and Retail Demand, apart from grouped corporate functions (disclosed 24 May 2005). 25

26 Significant events and other disclosures GAS NATURAL arranges a loan from Instituto de Crédito Oficial for 1,000 million Mexican pesos ( 75 million) to finance the investment plan in Mexico in the coming years (disclosed 7 June 2005). Remittal of the press advertisement announcing the payment of the supplementary dividend (disclosed 28 June 2005). The Board of Directors of GAS NATURAL approves the appointment of José Arcas Romeu as independent director (disclosed 30 June 2005). GAS NATURAL to invest 42.0 million in building a 50 MW wind farm in Guadalajara, Spain (disclosed 26 July 2005). GAS NATURAL and Repsol YPF constitute a joint venture for the liquefied natural gas business (disclosed 2 August 2005). GAS NATURAL launches a tender offer for 100% of Endesa (disclosed 5 September 2005). GAS NATURAL issues a press release about the tender offer for 100% of Endesa (disclosed 5 September 2005). GAS NATURAL agrees to sell assets to Iberdrola after the acquisition of Endesa (disclosed 5 September 2005). GAS NATURAL files a presentation on the tender offer for 100% of Endesa (disclosed 6 September 2005). GAS NATURAL files the presentation given at the press conference to discuss the tender offer (disclosed 6 September 2005). GAS NATURAL notifies the Competition Watchdog of the concentration operation resulting from the acquisition of Endesa shares (disclosed 12 September 2005). GAS NATURAL files a presentation on the agreement with Iberdrola (disclosed 16 September 2005). GAS NATURAL asks that the markets be allowed to decide freely and transparently on the tender offer for Endesa (disclosed 19 September 2005). GAS NATURAL comments on the European Union Court decision on the concentration transaction in the Portuguese market, which sets a favourable precedent for the integration of Endesa and GAS NATURAL (disclosed 21 September 2005). GAS NATURAL identifies over 25 Spanish and foreign institutions interested in financing the tender offer (disclosed 26 September 2005). GAS NATURAL files with the National Energy Commission (CNE) the documentation it requested in order to analyse the tender offer for Endesa, in line with its function no. 14 (disclosed 28 September 2005). The Board of Directors of GAS NATURAL approves plans to spin off its gas distribution and secondary transportation businesses en bloc into its subsidiaries Gas Natural Distribución SDG and Gas Natural Transporte SDG, respectively (disclosed 30 September 2005). 26