Gas Natural Fenosa : posts net profit of 1.360 billion euros and EBITDA of 3.915 billion euros in 2017

• The power company met the goals of its 2017 strategy and earned 1.360 billion euros in profits, 1% more than the previous year.

• Gas distribution continued to grow, and more specifically in Latin America, where it grew by more than 14.7%, thanks especially to Brazil, Chile, and Mexico.

• Gas supply points in Latin America reached over 5 million, and gas sales reached 264,428 GWh, a 9.3% rise from 2016, especially in Brazil and Mexico, where the network increased by 888 kilometres.

• The international generation business continues to be robust, with EBITDA growing 15.5% over the year, thanks mainly to Mexico.

• GAS NATURAL FENOSA was awarded 917 MW in renewable energy auctions in Spain, and obtained licences to distribute gas in new areas of Mexico and Chile.

• GAS NATURAL FENOSA made divestments over the year with a total sale price of 2.741 billion euros and capital gains over 540 million euros, realised from December 2017 to the 1st quarter of 2018.

• The average cost of debt fell to 3.53%, and bonds were issued over the year worth 3.1 billion euros.

• The period was notable for the non-recurring capture costs of the 2018-2020 efficiency plan, expected for 2018 but brought forward to 2017, worth a total of €M110. The efficiency plan forecasts an accumulated cost reduction of 275 million in 2018-2020.

• The Board of Directors will propose a distribution of €1.001 billion in dividends at the General Meeting, drawn from the 2017 profits. The complementary dividend of €0.67/share will be paid in cash in June which, with the interim dividend paid last September, will bring the payout to 73.6%.

• Taking into account the dividends distributed in 2017 and the increase in share price in that period, shareholder profitability was 13.1% last year.

• The company expects to present its new Strategic Plan, looking forward to 2020, which will set out the lines of work to be consolidated as one of the main actors in the international sector.

GAS NATURAL FENOSA reached a net profit of 1.36 billion euros in 2017, 1% more than in 2016, meeting the company goal in the Strategic Plan.

EBITDA reached 3.915 billion euros, down 16.1% from 2016, due to interruptions in the gas distribution and marketing businesses in Italy, gas distribution in Colombia, electricity distribution in Moldova, and power generation in Kenya.

The power company has also launched a new efficiency plan for the 2018-2020 period, which led to non-recurring capture costs of 110 million euros in 2017. Without this effect or the impact of Electricaribe, EBITDA would be down by 8.8%. This reduction is mostly accounted for by the electricity business in Spain, the progress of which has been affected by weather conditions resulting in a decline in hydropower generation by GAS NATURAL FENOSA of 71.4%.

GAS NATURAL FENOSA's results show the diversification and strength of the business model. The gas distribution business made up 41.2% of EBITDA; electricity distribution, 26.4%; gas activity, 19.6%; and electricity generation and marketing, 14.8%.

EBITDA on international activity represented 48.5% of the total. The remaining 51.5% corresponded to activities in Spain.

Strategic review of businesses in 2017

• Over 2017, the company carried out a strategic review of its business portfolio involving divestments with a total sale price of 2.741 billion euros and capital gains over 540 million euros, realised from December 2017 to the first quarter of 2018.

On 1 February this year, the company finalised the sale of its gas distribution business in Italy. After the Italian competition authorities issued their approval, Gas Natural Fenosa completed the sale of its Italian gas distribution companies to 2i Rete Gas. The sale of the gas marketing company in Italy is expected to be completed during the first quarter of 2018.

Also, in November, the company finalised a binding agreement with Brookfield Infrastructure on the sale of its 59.1% participation in Gas Natural SA ESP, a Colombian gas distribution and retail supply company, for 468 million euros. In December the first phase of the transaction was completed, with the sale of 17.2% for 134 million euros.

Meanwhile, in August GAS NATURAL FENOSA signed an agreement to sell a minority participation of 20% in the company holding natural gas distribution assets in Spain (now Nedgia) to a consortium of long-term investors in infrastructure formed by Allianz Capital Partners (ACP) and Canada Pension Plan Investment Board (CPPIB). With this alliance the company continues its long-term strategy in the gas distribution business to increase the penetration of gas in Spain.

The company is constantly working to review and optimise its business portfolio, and its non-strategic activities and territories. Based on this strategic review of its international positioning, the company has decided to undertake competitive sales processes for its electricity distribution business in Moldova and its power generation business in Kenya.

Total net investments of 1.597 billion

• GAS NATURAL FENOSA's investments reached 1.782 billion euros in 2017.

Material and intangible investments reached 1.782 billion euros in 2017, down by 29.2%, mainly due to chartering two new LNG carrier ships in 2016, and the acquisition of new LPG supply points.

The main focus for investment by the group in 2017 was on the electricity distribution business, accounting for 33.8% of total consolidated material and intangible investments. Electricity distribution in Latin America represented 19.7% of the consolidated total. Gas distribution represented 32.8% of the total, less than in 2016, due mainly to Spain's 2016 investment in acquiring new LPG supply points.

Investment in the electricity business represented 19.4% of the consolidated total, and in the case of Spain was up by 69.5% thanks to investment in new wind power projects in the Canary Islands. In international electricity, investment increased by 100%, mainly due to photovoltaic projects in Brazil and wind power projects in Australia.

By geographical area, foreign investments represented 54% of the total while in Spain they fell to 46%.

Continued streamlining of financial debt

• The cost of debt fell in one year from 4.3% to 3.5%, a significant fall of 80 basis points.

At 31 December, net interest-bearing debt reached 15.154 billion euros with the indebtedness ratio at 45.3%, compared to 44.8% in 2016, and net debt/EBITDA at 3.9. This last ratio would be at 3.2 if considering flows from the sales of the Italian and Colombian businesses, and the sale of 20% of the Spanish gas distribution business.

In 2017 the company made its first entrance in the 'green bonds' market with an issue of 800 million euros maturing in May 2025. The operation was established with a 0.875% annual coupon payment and a new bond issue price of 99.77% of par value. The issue, launched as part of the Euro Medium Term Notes (EMTN) programme, was oversubscribed by almost 2 times and received orders from around 130 institutional investors in 19 countries.

Also in January 2018, Gas Natural Fenosa issued 850 million euros in simple bonds and closed a bond buyback offer with a demand of 915.5 million euros, maturing from 2019 to 2023. Both operations can continue to increase average lifetime and lower future financial cost.

89.4% of the net financial debt matures in or after 2020 and the average debt lifetime is 5.8 years.

At 31 December, GAS NATURAL FENOSA's availability of liquidity was 10.550 billion euros, giving a maturities coverage in excess of 24 months.

Higher trading price and shareholder remuneration

• The company remains committed to attractive remuneration for its shareholders, with a minimum dividend of 1 euro per share.

• Throughout the year, the company increased its share price by 7.5%, slightly above the Ibex35, with a total shareholder payout of 13.1%, considering a dividend yield of 5.6% in financial year 2017.

The proposed distribution of earnings from the 2017 financial year that the Board of Directors will submit to the Ordinary General Shareholders' Meeting for approval involves allocating 1.001 billion euros to dividends, the same amount as last year. This involves paying a total dividend of 1 euro per share, which represents a payout of 73.6%.

Last 27 September, the interim dividend of the 2017 financial year was paid in full and in cash, which corresponded to 0.330 euros per share. The complementary dividend of €0.67/share will be paid in cash in June.

Gas distribution in Spain

• The Spanish distribution network now surpasses 53,000 km.

EBITDA for gas distribution activity in Spain reached 906 million euros, 1.9% more than the previous financial year. This increase is basically associated with piped liquefied petroleum gas activity after the purchase of supply points in the last quarter of 2016.

Regulated gas sales in Spain rose by 5.9% compared to 2016, to 195,586 GWh. Residential demand was 1.8% higher than the previous year. Growth in demand was mainly in the industrial market with an increase of 3.8% (up +3,488 GWh) in the sector under 60 bars and an increase of 13.3% (up +6,710 GWh) in demand from transport and industry over 60 bars.

The distribution network increased by 1,413 kilometres in 2017, to 53,369 kilometres.

Gas distribution in Latin America grows 14.7%

• Brazil contributed 40% of total EBITDA, with 283 million euros.
• Important new distribution licences were obtained in Mexico and Chile.

The EBITDA from gas distribution in Latin America stood at 708 million euros, an increase of 14.7%, and 15.4% if not considering currency exchange performance. Per country, notable contributions came from Brazil at 283 million euros, 40% of the consolidated total; Chile, with 206 million euros, 29.1% of the total; while Mexico and Argentina contributed 175 and 48 million euros to EBITDA, respectively. Argentina's contribution to EBITDA increased significantly from the 2016 figure, after part of the new tariff scheme came into force.

In 2017 the company obtained new licences to distribute gas in Mexico, in the Valle de México, Sinaloa, and Sureste areas, with a planned investment of 247 million euros until 2021.

In Chile, GAS NATURAL FENOSA obtainednew gas distribution concessions in the towns of Antofagasta, Curicó, Osorno, Puerto Montt, Valdivia, and Puerto Varas, with planned investments of 52 million in 2017-2019.

Last November, commercial operations began in Peru, with 4,216 domestic and industrial customers at year end.

Sales from the gas business in Latin America amounted to 264,428 GWh, up 9.3% from 2016, especially due to increased sales in Brazil and Mexico. The gas distribution network in Latin America grew by 1,685 kilometres in the last 12 months to a total of 62,812 kilometres at 31 December. Expansion of the network in Mexico made a considerable contribution to this figure, with an increase of 888 kilometres.

At year end the company had 5,120,000 supply points in Latin America, with year-on-year growth of 209,000 supply points.

Electricity distribution in Spain

• 96% of the meters installed are now smart.

EBITDA from the electricity distribution business in Spain was 598 million euros in 2017, a slight decrease of 0.8% from last year.

At 31 December, supplied power amounted to 32,039 GWh, at a similar level to the previous year, due to the warm temperatures. Domestic demand was 249,498 GWh by December 2017, an increase of 1.1% according to the balance posted by Red Eléctrica de España (REE).

2017 saw growth in supply points with an annual net increase of 18,602 points. At 31 December, 96% of the meters installed were already smart and 94% of billing was done remotely.

Downtime equivalent to installed capacity (TIEPI) was 47 minutes, above the average for 2016, due to wildfires in Galicia in October and storms in December.

Electricity distribution in Latin America

• EBITDA of 434 million euros.

The EBITDA from electricity distribution activity in Latin America amounted to 434 million euros at the close of 2017, down 37%. Without considering the contribution of Colombia to 2016 earnings, EBITDA on 2017 business would be in line with the previous year, with a slight decrease of 0.5%.

The EBITDA for Chile and Argentina (CGE) amounted to 328 million euros and showed an increase of 7 million euros when disregarding the exchange rate effect. Distribution business in Panama amounted to 106 million euros.

Sales from electricity distribution activity in Latin America decreased by 35.5% to 21,631 GWh, essentially due to the derecognition of Electricaribe.

Without this effect, distribution sales would have increased by 1.8%.

Overall, supply points at the end of the year totalled 3,726,000.

Gas: Infrastructure

The EBITDA from infrastructure activity, which includes operation of the Maghreb-Europe Gas Pipeline and the exploration, production, storage and regasification of gas, was 296 million euros in 2017.

At the end of the financial year, the gas transport business operated in Morocco through the companies EMPL and Metragaz represented a volume of 100,371 GWh, a decrease of 10.2% compared to the previous year. This figure includes 61,584 GWh transported for GAS NATURAL FENOSA by Sagane and 38,787 GWh for Portugal and Morocco.

Gas: Marketing

EBITDA on wholesaleand retail gas marketing was 470 million euros.

From January to December, wholesale supply by GAS NATURAL FENOSA amounted to 334,650 GWh, an increase of 12.1%, mainly due to the contribution from international operations (up +25.5%), which amounted to 183,978 GWh, driven by international LNG sales. Marketing to end customers in the Spanish gas market reached 150,672 GW (-0.8%).

In natural gas marketing in Europe, the group maintains a consolidated position in France, Belgium, Luxembourg, Ireland, Portugal, the Netherlands and Germany. In 2017, it posted sales in France amounting to 37.6 TWh to customers in various sectors, ranging from industrial companies to local authorities and the public sector. Sales in Belgium, Luxembourg, the Netherlands, and Germany amounted to 17.2 TWh. The company also operates in the Irish wholesale market, where it sold a volume of 1.6 TWh at year end.

In the Portuguese market, GAS NATURAL FENOSA remains the second-largest operator in the country, and the largest foreign operator, with a market share of 12% and a cumulative sales volume of 5.5 TWh at year end. Retail market sales amounted to 25,381 GWh, with 11.7 million active gas, electricity and maintenance service contracts at 31 December. GAS NATURAL FENOSA's combined supply of electricity and gas already reaches more than 1.5 million households in Spain.

Gas Natural Fenosa has various innovation projects, and in 2017 the company developed the first LNG transfer system of its kind in the world, called DirectLink. It consists of a floating infrastructure, the only one in the world to have a connection system compatible with any type of tanker ship.

Electricity in Spain

• EBITDA fell due to a decrease of over 70% in hydropower production.
• Investments of €865M are planned in Spanish renewable energy in 2018-2020.

EBITDA from electricity business in Spain (generation, wholesale and retail sales and PVPC supplies) stood at 302 million euros (down 57.8%). The EBITDA trend was especially affected by weather conditions, with the company's hydropower generation down by 71.4%, as hydrological conditions went from a very wet 2016 to a very dry 2017.

Compared with the figures for the last quarter of 2016, electricity demand in Spain rose by 2.5% to 63,400 GWh, a return to the upward trend of recent quarters after the pause of the last quarter. In 2017 as a whole, demand was up 1.1% from 2016.

GAS NATURAL FENOSA accounts for a 17.1% power generation market share, similar to that posted at the same date in 2016.

Per technology, conventional hydropower generation stood at 1,126 GWh (down 71.4%); nuclear generation at 4,578 GWh (up 2.6%); combined cycle generation at 14,011 GWh (up 17.1%); and coal-powered thermal generation at 5,953 (up 4.7%).

Electricity sales in 2017 stood at 35,151 GWh, including supply in the deregulated and last resort market (PVPC - voluntary price for the small end-consumer), an increase of 0.8% in the fourth quarter and a cumulative fall of 3.4% at year end.

Gas Natural Fenosa Renovables closed the year with a consolidated total installed capacity of 1,147 MW (979 MW from wind power, 110 MW from mini-hydroelectric generation, and 58 MW from cogeneration and photovoltaic plants).

In June, GAS NATURAL FENOSA was awarded 250 MW of photovoltaic energy in the renewable energy auction promoted by the Government of Spain. This joins the 667 MW awarded at the auction in May and together they represent a significant increase in the company's renewable power in Spain.

This award of a total 917 MW power in Spain's renewables auctions will entail a maximum planned investment of 865 million euros, and operations will begin in 2018-2019.

International Electricity

• Total installed capacity is 2,732 MW.
• New farms in Brazil with 68 MW.

EBITDA from International Electricity stood at 276 million euros at 31 December, an increase of 15.5% on the previous year, mainly due to a greater contribution from EBITDA in Mexico.

In Mexico, EBITDA rose by 19.4% due to a better contribution margin, thanks to an increased surplus margin, improved availability and performance, and favourable performance by the benchmark indices in contracts, despite production problems at Bii Hioxo caused by the Oaxaca earthquake of September 2017.

The electricity generated in all assets increased by 3.2% in the period to 18,436 GWh.

At the end of the financial year, GAS NATURAL FENOSA had an international installed capacity of 2,732 MW. In September 2017, the first photovoltaic generation project by GAS NATURAL FENOSA in Brazil entered commercial operation: its solar farms Sobral I and Sertao I in northern Brazil, with an installed power capacity of 68 MW.

Madrid, 07 February 2018.

Consolidated balance account

(€ millions)	2017	2016
Net sales	23,306	21,908
Procurements	-16,679	-14,611
Gross margin	6,627	7,297
Other operating revenue	303	332
Staff costs	-1,031	-974
Taxes	-451	-465
Other operating expenses	-1,533	-1,526
EBITDA	3,915	4,664
Other revenue	-	122
Depreciation & Amortisation, and impairment losses	-1,648	-1,707
Allocation to provisions	-155	-315
OPERATING INCOME	2,112	2,764
Financial results	-699	-815
Income from disposal of financial instruments	-	-
Income from institutions via shareholding	14	-98
EARNINGS BEFORE TAX	1,427	1,851
Corporate income tax	-190	-333
Income from interrupted operations	460	193
Non-controlling interests	-337	-364
PROFIT ATRIBUTABLE TO EQUITY HOLDERS OF THE PARENT	1,360	1,347

Consolidated balance sheet

(€ millions)	31/12/2017	31/12/2016
Non-current assets	36,239	38,901
Intangible assets	9,921	10,920
Fixed assets	22,654	23,627
Investments via shareholdings	1,500	1,575
Non-current financial assets	1,315	1,907
Deferred tax assets	849	872
Current assets	11,083	8,213
Non-current assets held for sale	1,682	-
Stock	720	758
Trade and other receivables	4,994	4,999
Other current financial assets	462	389
Cash and equivalent liquidity	3,225	2,067
TOTAL ASSETS	47,322	47,114

(€ millions)	31/12/2017	31/12/2016
Equity	18,305	19,005
Equity attributed to the parent company	14,734	15,225
Non-controlling interests	3,571	3,780
Non-current liabilities	21,409	20,933
Deferred income	842	842
Non-current provisions	1,129	1,248
Non-current financial liabilities	15,916	15,003
Deferred tax liabilities	2,312	2,509
Other non-current liabilities	1,210	1,331
Current liabilities	7,608	7,176
Liabilities linked to non-current assets held for sale	621	-
Current provisions	183	158
Current financial liabilities	2,543	2,599
Trade and other payables	3,920	4,072
Other current liabilities	341	347
TOTAL LIABILITIES AND EQUITY	47,322	47,114

Main aggregates

Distribution business

2017	2016	%
Gas distribution (GWh)	460,014	426,510	7.9
Spain	195,586	184,619	5.9
Third-party access to the network*	195,586	184,619	5.9
Latin America	264,428	241,891	9.3
Gas sales	141,762	131,361	7.9
TPA	122,666	110,530	11.0
Electricity distribution (GWh)	53,670	65,586	-18.2
Spain	32,039	32,025	0.0
TPA	32,039	32,025	0.0
Latin America*	21,631	33,561	-35.5
Electricity sales	19,755	31,441	-37.2
TPA	1,876	2,120	-11.5
Electricity transmission (GWh)	14,403	14,484	-0.6
Latin America	14,403	14,484	-0.6
Gas distribution supply points, in thousands (on 31/12):	10,491	10,224	2.6
Spain	5,371	5,313	1.1
Latin America	5,120	4,911	4.3
Electricity distribution supply points, in thousands (on 31/12):	7,447	7,324	1.7
Spain	3,721	3,702	0.5
Latin America	3,726	3,622	2.9
EFOF in Spain (minutes)**	47	43	9.3

* 2016 includes the contribution of Electricaribe to the consolidated amounts.

** Interruption Time Equivalent to Installed Capacity.

Gas Business

2017	2016	%
Wholesale supply (GWh)	334,650	298,404	12.1
Spain	150,672	151,863	-0.8
Rest of Europe	61,891	67,283	-8.0
LNG International	122,087	79,258	54.0
Retail supply (GWh)	25,381	27,053	-6.2
Gas transport - EMPL (GWh)*	100,371	111,720	-10.2

* Maghreb-Europe Gas Pipeline

Electricity Business

2017	2016	%
Electricity generated (GWh)	46,389	46,361	0.1
Spain	27,953	28,504	-1.9
Power Generation	25,668	26,046	-1.5
Hydroelectric	1,126	3,933	-71.4
Nuclear	4,578	4,463	2.6
Coal	5,953	5,687	4.7
Combined cycles	14,011	11,963	17.1
Renewable and cogeneration	2,285	2,485	-7.0
International	18,436	17,857	3.2
Mexico (CC)	16,340	15,648	4.4
Mexico (wind power)	656	793	-17.3
Brazil (solar)	48	-	-
Costa Rica (hydraulic)	369	398	-7.3
Panama (hydraulic)	98	98	-
Dominican Republic (fuel)	925	920	0.5
Installed capacity (MW)	15,448	15,306	0.9
Spain	12,716	12,716	-
Power Generation	11,569	11,569	-
Hydroelectric	1,954	1,954	-
Nuclear	604	604	-
Coal	2,010	2,010	-
Combined Cycles	7,001	7,001	-
Renewable and cogeneration	1,147	1,145	-
International	2,732	2,590	5.5
Mexico (CC)	2,109	2,035	3.6
Mexico (wind power)	234	234	-
Brazil (solar)	68	-	-
Costa Rica (hydraulic)	101	101	-
Panama (hydraulic)	22	22	-
Dominican Republic (fuel)	198	198	-