Interview with the Executive Chairman

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Antonio Llardén, Executive Chairman of Enagás.

ANTONIO LLARDÉN, EXECUTIVE CHAIRMAN OF ENAGÁS

"AOUR COMMITMENT TO INCREASE THE DIVIDEND BY 5% EACH YEAR IS BEING EXTENDED
TO 2020"
 
The Enagás chief executive explains the highlights of 2015, the first full year under the new sector regulations and marked by the company's international development and its sustainable and sustained growth.

What aspects of the results obtained by Enagás in 2015 would you highlight?
For the ninth consecutive year, we met all our commitments. Enagás reported net profit of €412.7Mn and 1.5% growth compared to 2014, which is higher than the 0.5% increase that we had forecast at the beginning of the year. This growth, while modest, is frankly meritorious, given that 2015 was the first full year under the new regulations, which has brought a significant reduction in regulated revenues. A decrease in financial expenses and increased earnings from our international business have been the main factors behind this solid performance. 

What can you tell us on the investment front?
Enagás invested a total of €530Mn in 2015, of which €324Mn were invested in international markets. One of the year's key investments was the acquisition of 50% of Swedish gas grid operator Swedegas, along with the Belgian TSO Fluxys, who acquired the other 50%. We also purchased an additional 4.34% of TGP, in Peru, meaning we now own 24.34% of the company. Furthermore, we continued investing in the development of two major greenfield projects: Trans Adriatic Pipeline (TAP), in Europe, and Gasoducto del Sur Peruano (GSP), in Peru.

In Spain, we invested €206Mn. I would give special mention to the acquisition of 30% of the SAGGAS regasification plant, in Sagunto, and an additional 10% of BBG, in Bilbao, an infrastructure in which we now hold a 50% stake.

2015 was a year of ups and downs for the stock market. How did the Enagás share price perform?
We ended the year with virtually no variance, against a backdrop of the 7% fall in the IBEX35. The first half of the year was excellent, wherein our share price reached a new all-time high of €28.25. Over the second half of the year, and especially after the summer, share prices began a downward trend as a result of problems related to the Chinese economy, oil prices, and so forth. These factors were completely beyond Enagás' control and affected the entire market. In any event, our efforts are focused on creating long-term value, so we know that we should not pay too much attention to short-term swings in the market.

In 2015, Standard&Poor’s upgraded Enagás' credit rating on two occasions, from BBB to BBB+ and from BBB+ to A-, which represented a major milestone. Fitch Ratings maintained its credit rating at A-.

Enagás' forecasts through to 2020 have just been revised. What are the key aspects of this revision?
One key aspect is the decision to extend our shareholder remuneration policy to 2020, which includes a commitment to increase the dividend by 5% each year.

Secondly, we expect 2% average growth in net profit for the 2016-2020 period. As we have explained on other occasions, lower revenues due to the new regulations in Spain will be offset by the growth in our international business.

The cash-flow that we generate over the period will allow us to pay the dividend as well as uphold the level of domestic and international investment, averaging some €400Mn per annum, thereby maintaining a solid financial structure with estimated debt in 2020 similar to the end of 2015.

As regards Enagás' international development, what type of assets and which countries is your strategy focused on?
Our international strategy is focused on three main axes: markets requiring gas infrastructure, the global LNG market, and consolidation of infrastructure in Europe. We invest in both brownfield assets and the development of greenfield assets. Our strategy always requires attractive returns, low business risks (thanks to regulation or long-term contracts), in stable countries, and with partners who make contributions and participate in decision-making. In all cases, it means investments in which Enagás can bring to bear its experience to increase the efficiency and profitability of assets, that is, acting as an industrial partner as opposed to a purely financial one.

In Europe, we are taking part in two key Supply Security projects that have been categorised by the European Commission as PCI (Project of Common Interest): TAP (Trans Adriatic Pipeline) and the third interconnection with France via Catalonia (Midcat).

Leadership in Spanish regasification plants and their direct connections to North Africa have enabled mainland Spain to become a potential reception point for gas from anywhere in the world. If interconnections with France are upgraded, we could transport that gas to the rest of Europe, thereby turning Spain into a gas hub for the entire continent.

Antonio Llardén, Executive Chairman of Enagás.

How would you sum up the first full year of the new regulatory framework, and what is the current situation of Spain's Gas System?
The overall picture is positive. System costs have been reduced and revenues have risen, thanks also to the increased demand for gas. And all without changing the tolls, that is, without affecting the cost to consumers. In 2015, Spain's Gas System figures were virtually balanced and, for the coming years, we can expect surpluses that will eliminate the small deficit accumulated up to 2014.

“Over 60% of our investments over the year were in international markets. One of the year's key investments was the acquisition of 50% of Swedish gas grid operator Swedegas”

How do you expect the demand for gas in Spain to evolve over the next few years? 
2015 saw the start of a recovery: domestic demand for natural gas rose by 4.5%, the highest rise since 2008. This was due to higher consumption by the electricity sector, greater industrial demand resulting from the economic upturn and, lastly, growth in the household-commercial segment motivated by higher penetration of gas and an improved economic backdrop. The ongoing effect of such factors leads us to expect that, for the 2016-2020 period, the demand for natural gas in Spain will rise by an average of 3.5% per year.

Enagás was included in the Global 100 index as the sixth most sustainable company in the world. How important is sustainability to Enagás?
Sustainability is one of our four strategic drivers. Enagás' Sustainable Management Plan seeks to generate positive impacts both on our own business and on the communities in which we operate. The main lines of action in the Plan included adopting the best practices in Corporate Governance, the introduction of energy efficiency measures, which allowed us to cut our Carbon Footprint by 40%, and the Strategic Resources Plan, which provided the company with the resources required for international development. All of these actions were carried out while upholding our commitment to the professional development of our employees as well as our classification as a Family-Friendly Company.

All of this effort has once again helped us become a world leader in sustainability, as well as to achieve the highest ranking ever obtained by a Spanish company in the Global 100 index. What is more, we have retained our inclusion in the Dow Jones Sustainability Index for the eighth consecutive year and renewed our commitment to the ten principles of the Global Compact.

What new developments can Enagás report in terms of corporate governance?In corporate governance, we continue to adopt and reinforce the best international practices. In this regard, we maintain ongoing, fluent dialogue with our shareholders, as well as proxy advisors and other stakeholders, in order to continue enhancing this area year upon year.

2015 also saw the approval of the company's new Code of Ethics, and we revised our Risk Control Policy.

We also laid the foundations for a Long-Term Incentives Plan, aligning the interests of both shareholders and Enagás senior management, in accordance with the recommendations of investors and proxy advisors, the CNMV (Spanish National Securities Market Commission) Good Governance Code, and best practices. This plan will be subject to approval at the 2016 General Shareholders’ Meeting.

Moreover, we on the Enagás Board continue to promote a greater presence of women, both on our board and in senior management.

Lastly, what would you highlight as a conclusion?
Without doubt, my main message is inspired by Enagás' mission: we will continue to develop and manage gas infrastructures efficiently and safely in order to create value for our stakeholders, always in a sustainable manner. 

I would like to end by stressing that this integrated Annual Report, which we have prepared for the fourth year in a row, includes the company's performance and most relevant economic, social and environmental impacts.

“We have achieved the highest ranking ever obtained by a Spanish company in the Global 100 sustainability index, published at the latest Davos World Economic Forum”

Furthermore, we are one of the few companies able to say that, throughout this long global crisis, not only have we managed to maintain our workforce, but we have actually increased it by 42%, from 944 employees at the end of 2006 to 1337 by the end of 2015. I truly appreciate the outstanding efforts made by Enagás employees. Their technical and human qualities represent the company's main asset and the foundations of our sustained future growth.

And, of course, I would like to thank all of our shareholders, on my behalf and on behalf of the Board of Directors, for your trust and support. In 2016 and beyond, we will continue working in the same direction and with the same enthusiasm.