Naturgy Energy Group S A

Good morning, everyone. This is Abel Herbat speaking from the Capital Markets Team at Naturgy. Thank you for joining our call for the full year 2023 results. Next to me sits our Executive Chairman, Mr. Francisco Reynes, the General Counsel to the Board, Manuel Arcea-Cobaleda, Head of Financial Markets, Mr. Steven Fernandez, and the Head of Control. Please meet us . We're going to run over the presentation first. And at the end, we will be addressing questions from analysts and investors. Note, please, that at this time, questions shall be submitted through the webcast platform in written form, please. Before we dive into the presentation, just a big note on the minor changes we have introduced in the composition of operating segments, namely, The integration of the former international energy markets and pipelines segments in a new segment named energy management, as you will see in the presentation. Also, the speed of renewables in Spain and USA into two different segments, as well as the speed of the gas and electricity segments in Argentina. And finally, the introduction of a holding unit for each networks and markets, reflecting general expenses allocated to each of the groups. So, with that covered, I'm handing it over to Steven to start off on the presentation.

So, thank you. Thank you, Abel, and good morning, everyone. I'm going to take you directly to slide number four. where you'll find a summary of the main areas that we'll be covering in the coming pages, basically laid out in three key scenarios. So, first, what's happened from a global perspective, that is what we call the scenario. Second, the key highlights for year 2023. Finally, some of the elements that we'd like to also point regarding the solid results that we've published for this year. In terms of scenario, I think it's fair to say that gas and power prices remain highly correlated, as we have seen during the course of the year 2023. It's also true that we have come off year 2022 with significant high prices, and there's been a gradual decline of those prices towards historical average levels as the market begins to rebalance post-2022. We've also seen, from a scenario point of view, ongoing regulatory developments that our chairman will explain further on in the presentation, which have affected the company's performance. In terms of the year itself, 2023, I think it's worthwhile highlighting the fact that the company has stepped up energy transition investments. If you look at it relative to year 2022, we see an increase of more than 50%, 53% to be precise, to a level close to 3 billion euros. In this sense, it's also worthwhile highlighting the progress on renewal development. We've increased our install capacity in renewables by one gigawatt relative to 2022, and now stand at 6.5 gigawatts, and this is going to be a key area of further focus for the company moving forward. We're also focusing a lot on renewable gases, and in this sense, we are actually leading the way in Spain. When you look at the number of projects that the company has at different stages of development, they amount to roughly 70, combining biomethane and hydrogen. So we are beginning to look at renewable gases as a key area for development also for the company moving forward. Year 2023 also marks a time where we have increased regulatory visibility in LATAM, and that is welcome news, and we believe it's going to continue in that trend again moving forward. Finally, the company has continued to provide security of supply at competitive prices, with more than 250 terawatts of gas and around 20 terawatts hours of electricity globally. As a result of the above, 2023 has been a good year for our company. We've exceeded guidance, reaching an EBITDA of almost 5.5 billion euros and a net profit of almost 2 billion euros at 1986. On top of this, the company has generated very strong cash flow, and that has allowed us to reinforce our balance sheet with net debt to EBITDA at a level of around 2.2 times, which is a very low level compared to historical figures. combination of the above allows us to or has allowed the board of directors to propose an overall dividend for the year of 1.4 euros per share and this is in line with the commitment to the market and finally i think 2023 is also a year where we have done good solid in terms of esg metrics so if i take you really quickly uh to slide um six We can see that gas and power prices have remained highly correlated during the year, as I mentioned previously. And we can also see here that the decline of gas prices in Europe are then leading towards historical levels. And that's on the left side of the page. This has translated into a similar decline in wholesale electricity prices, which you can see on the right side of the page. It's worthwhile noting that Spain electricity prices have been amongst the most competitive in Europe over the last 18 months. And it's something that you can see highlighted on the right side chart on slide six. If we move on to the next one, regarding energy market prices in 2023 compared to 2022, we can actually observe similar price declines of more than 50% compared to 2022. across key gas references in Europe, for example, the TTF, but also in Asia with JKM and the U.S. with the Henry Hub. Spanish fuel prices for its part experienced a close to 50% decline compared to 2022, obviously following the evolution of gas prices in Europe and in Spain. Brent and CO2 prices experienced less relevant changes compared to last year. Recent weeks, we've witnessed a substantial decline in the CO2 prices following the continued decrease of gas prices well into the ongoing year 2024. Finally, I think it's worthwhile also highlighting that 2023 has shown lower volatility versus the previous year, although it's still above historical levels. So if we move on to slide eight, we analyzed the key regulatory developments for year 2023. At a European level, I mean, the 5455 package aimed at increasing renewal, penetration, energy efficiency, and decarbonization is worth highlighting, together with all the other measures, including the tax and aggregate turnover by liberalized activities in Spain, et cetera, et cetera. I'm not going to go over all the elements. You guys are familiar with them. But, of course, I think it's worthwhile highlighting there has been quite a few of them during the year 2023, and, of course, all of which have had different impacts on the company. And with that, now hand over to our Executive Chairman to go over the key highlights for year 2023.

Thank you, Stephen. Thank you, everyone, to join us today, and good morning. I would like to start with page 10, talking about the key highlights of 2023. And in particular, I would like to highlight two ideas behind that slide. Number one is our real commitment in investing and a serious setup in energy transition investment, almost $3 billion invested, which means more than 50% over last year. And second, our enthusiastic mode in having on renewable gases as one of the opportunities to speed up transition, energy transition, and at the same time to put on value our existing distribution assets. I think that it's important also to highlight the increase of regulatory visibility in Latin America, in the different countries where we operate our networks. And clearly, although it's not in any figure, but it's behind our activity, our commitment to maintain security of supply at a competitive price level. If we move to slide number 11, Two important things to say is that the most important focus on these investments set up has been on renewables and energy transition around networks. And in this sense, I think that there's no doubt behind that figures that the commitment that we established some years ago when we established our plan 21-25 that we wanted to move ahead in the energy transition commitment is just a fact by watching what the 23 figures have been looking at. On page 12, you must see two important things. One is the increase on our capacity in renewables in Spain, which almost 600 megawatts of power in operations. Second, over 100 megawatts of capacity in wind generation in Australia, together with first time of investments in battery storage. And finally, in the U.S., our first solar plant in Texas, where we operate one of the largest plants in solar generation, which are including over 300 megawatts of capacity in operation by the end of the year. In the next coming years, we expect to accelerate this growth with significant capacity coming into operation, but we will see later in the following pages. We move on, on page 13. And before talking about Naturgy, I would like to highlight a little what is on the right side of the picture, talking about the potential of this business across Spain. If we compare to what it has been stated already in the PENIEG, PENIEG is the plant fixed by the government for the next years until 2030, with a target of 20 terawatts of energy coming from biomethane in Spain. We have seen together with Serigas that the potentiality of this business, it may be around 160 terabytes hour of energy, which demonstrates that it may substitute up to 40% of the existing needs of natural gases already consumed by Spain. Just a quick look on the map on the right side, you may see that comparing to the important amount of installations across Europe, the Iberian Peninsula is really lacking of this type of investments, and this is the opportunity we are seeing. If we go to the specifics of Naturgy, two things to highlight. At the moment, Naturgi is involved in more than 60 biomethane projects under different stages of development. And for the hydrogen, Naturgi is progressing over 10 projects under different stages. In particular, two of them are the largest projects in Spain where Naturgi participates. One is in La Robla, and the other one is in Meidama. Both are under very advanced stage of construction. And at the same time, well known by us because they were two locations where naturally had in the past two coal generation plants. In terms of infrastructures, I think that it's important also to highlight that the networks are ready for this upgrade. considering that they are capable for distributing biomethane without modifications. Spanish networks in particular around gas are considering super modern because they are made of polyethylene and It is a technology that not only allows to operate at hundred percent of biomethane but also up to 20 to 30 percent of hydrogen blending with natural gases As a summary in all This is an opportunity which must be properly supported, and I think that Naturgy may continue being a key contributor in the future for this energy transition phase. If we move to slide 14, I think that it's also important for you to know that we have been making progress in all the different geographies where we operate in Latin America around gas or electricity networks. For example, in Panama, We have approved the fourth tariff review, and we have updated tariffs, and it gives visibility for the next coming years. In Mexico, we have got approval for the fifth tariff review, and also we have increased visibility for the coming years. In Chile, we are now focused on a long-term regulation, and some of the concerns around the short-term actions have been disappeared. In Brazil, we have moved positively towards a solution for the pending years on regulation, but at the same time, we have started the negotiation for extending the concession. And in Argentina, we have applied inflation adjustment on prices and also starting the discussion for a potential extension on the length of the concession. In summary, I think that we can say that the visibility in Latin America during this year has increased compared to one year ago. On page 15, we have tried to summarize about what is our focus in addressing what we have called it already the energy trilemma. The energy trilemma consists a balanced combination in providing security of supply, maintaining competitive prices, and moving ahead in making the company more sustainable. In terms of security of supply, our gas turbine installations are continuing playing a very essential role to warranty continuity of supply in defense of higher renewable penetration. And it brings along higher production volatility and intermittency, which is compensated by the stability and availability of our gas turbine installations. In this context, these gas turbine installations may provide two important things. Number one, flexibility in the base load capacity when is needed. and second a stability of the system to face higher renewable penetration in order to talk about competitive prices i think that it's important to highlight that since the beginning of the energy of the energy crisis in 2022 natuji has been able to adjust prices for over 2 million customers 70 percent of them in the area of liberalized business, which has been created a more important link between our clients and the company and reducing the churn ratio. And in terms of sustainability, to highlight again or remember again that our projects and our investment is clearly attached to a firm commitment on energy transition. If we move to next section, consolidated results of the year, important highlights on page 17, growth of EBITDA by 11%. In this sense, we have made it what was the consensus that was a graded by our guidance in November and before it has also been upgraded by July. Second, increase of our net income results up to 20%. Third, more investment. And fourth, maintaining the level of debt in the balance sheet which demonstrates the strengths and the stability of this figure. We move to page 18, and you can see where the EBITDA and investment is coming from and going to. In terms of EBITDA, stable in terms of business units. uh more focus in in gas than electricity when we speak about where a bit that comes from but at the other way around uh and and consistent with with this commitment on the energy transition mostly uh focus on electricity investment mostly focus on electricity and also in Spain where we need to change our energy mix. In page 19, you can see a quite reasonable combination and a stability around how much cash flow is generated and where this cash flow is dedicated. mainly to invest, and in similar terms, pay to our shareholders its dividends and pay to society and contribute to the society with taxes. The level of debt across the years is showing a clear trend to be more stable and prudent, and that has been the reason why Both agency, rating agencies, Standard & Poor's and Fitch, have confirmed during the year a level of triple B stable. The liquidity of the company at the end of the year, it is above $9 billion, which gives enough comfort to afford any opportunity that may occur out of the normal course of business. In terms of remuneration and as committed, we are going to propose to the AGM a dividend of 40 cents per share that together with the two dividends paid already in half and half euro in August and November will end up with a figure of 1.4 euros a share. We have made also progress on ESG matters. And if I go to page number 21, I want just to highlight that most of the targets that had been set up for the year 25 has already been achieved in the year 23, or at least are in a very good trend that may confirm that our targets for 25 are clearly achievable. in environment in social and in governance affairs if i go in detail to page number 22 in terms of environment i want to highlight two important metrics one is the reduction of co2 emissions compared to last year and second the advance in renewable installed capacity the reduction is 8.5% down, and the renewable installed capacity has increased almost to 20%. If I move to page number 23, and in terms of social contribution, we feel completely commitment in this sense to the society where we operate. More than 23 billion euros of economical value has been generated for our stakeholders in different terms. Women in management positions is clearly moving up in all the different levels of the management organization. And our foundation continues to support vulnerable customers as it was in the past with a higher intensity. In page number 24, you can also see that governance matters for the company as well. We have increased the importance of ESG metrics in the management remuneration package from 10 to 20% of the total variable package of remuneration for the year is linked to ESG metrics. And we have increased audits in our supply chain with a trend to move up to 90% that is our target by 2025. But in terms of reporting, we are increasing the reporting in the year 23, and taxonomy is fully achieved in this sense. That's the reason why the recognition of our ESG metrics and indexes is continuing being quite relevant and forms part of the metrics that we are following. I think that it's important at this present moment to finish the session on the scoring what has been the delivery of our commitments in 2023 if we look at back to 2021. We have exceeded the guidance in terms of EBITDA and the debt, delivering our commitments in dividends and also in investments. I think that it's important to highlight that EBITDA guidance was exceeded even after reviewing it upwards twice during the year. And note that the former guidance for 23 EBITDA stood at 5 billion. I think that now is time to dip on what has been included as a level of sources and uses of these three years. If we look at this picture, we may see that we have been quite stable in dedicating the cash flow generated to the three different usage issues I have said before, investment, dividend, and taxes and levies, but also reducing the level of net debt that we started the year 2021. It's time now to move in detail in every result by business unit. I will give the floor now to who is going to go business by business in making the detail on what happened during the year 23.

Thanks, and good morning, everyone. Starting with gas networks on page 27, gas networks reached in 2023 a total EBITDA of 1.8 billion euro, contributing approximately to one-third of the group's EBITDA in 2023. In Spain, gas networks experienced lower regulated remuneration due to 2020 tariff review and lower demand, mainly in the residential and commercial segments, which was partially upset by lower gas losses. In Mexico, higher reserve capacity for distribution by third parties, lower energy losses, and positive FX impact was partially offset by lower supply margins. In Brazil, tariff updates were partially offset by lower demand, particularly in power generation due to abundant hydro resource in the period. In Argentina, tariff updates and higher sales in the generation and third-party segments were not enough to compensate for marked FX depreciation. Finally, in Chile gas, the positive comparison versus full year 22 is due to the TGM provision registered in last year. Gas distribution benefited from higher tariff, while gas supply experienced a margin compression due to a scenario. In summary, growth was driven by tariff updates in LATAM, while demand experienced declines in Spain, Brazil, and Chile. Continuing with electricity networks on page 28, electricity networks showed a slight decrease in EBITDA, reaching 851 million Euro in the year, which accounts approximately a 15% of the consolidated EBITDA in 2023. In Spain, EBITDA decreased as a result of lower remuneration versus 2022, which registered the collection of accrued and pending remuneration from the period 2017-2019. Nevertheless, the company recorded record investments in electricity distribution in 2023. Panama benefited both from higher demand due to higher temperatures and the approval of the fourth tariff review with updated tariffs from July 23 and visibility up to 2026. Last tariff updates in Argentina were not sufficient to compensate for APEX inflation and Mark FX depreciation during the year. In summary, record investments in Spain electricity networks and approved regulatory review in Panama. Starting with the liberalized business on PEX 29, energy management activities contributed to 1.1 billion euros to EBITDA over 20% of the group's EBITDA in full year 23. The increase in 2023 EBITDA is mainly due to the financial hedging ineffectiveness accounted for in 2022, with most of such derivative contracts expiring in 2023. Indeed, the activity experienced lower sales and gas prices, which were compensated by determination in 2022 of sales and hedging contracts with negative margins both in Europe and Iberia. Gas procurement commitments decreased around 50 terabytes per annum from 2023 onwards as the contract with Nigeria and part of Trinidad and Tobago ended in 2023. All in all, the period experienced lower sales and margins as the market rebalanced and prices stabilized closest to historical average levels. Continuing with thermal generation on page 30, EBITDA reached €670 million in 2023, which represents over 12% of the group's EBITDA. The reduction in EBITDA in Spain is explained mainly by the lower production due to higher renewable resources, which was partially offset by higher CCGT unitary margins. LATAM thermal generation, for its part, was supported by higher production and margins in Dominican Republic, as well as higher margins in the surplus market in Mexico, partially offset by lower availability in PPAs and negative effects. Thermal generation remains essential to guarantee security of support. Now let's turn to renewable generation on page 31. Renewable activities contributed close to 10% of the group's EBITDA in 2023, reaching €539 million. Spain benefited from higher hydro production as well as commissioning of new capacity, 152 megawatts, and the ASR wind integration, 422 megawatts. In USA, the 7V solar ranch plant began its trial operation with three megawatts installed capacity. This is the largest solar plant Natruji has ever built. In addition, the construction of Grimes' 269 megawatt solar plant in Texas is underway with expected code in 2025. Finally, GPG renewables experienced high production in Mexico and the recovery of the commercial operation in Chile, which was offset by lower hydro production in Panama and Costa Rica. Australia installed capacity increased by 119 megawatts, while La Jolla concession in Costa Rica ended with 50 megawatts. All in all, growing installed capacity and production translating into higher EBITDA. Finally, let's turn to the supply activity on page 32. Supply activities contributed close to 13% of the group's EBITDA in 2023, reaching 704 million euros. Power supply experienced higher margins versus 2022, supported by growing fixed price contracts, as well as lower costs compared to last year, which was negatively impacted by the cost of energy of sales not covered via on-infra-marginal drainage. Gas supply showed healthy margins, although lower than in 2022, reflecting the shift of some customers from delivery allies to the regulated areas in the residential segment. So this is it for the review of the various activities in the year. I'm back to the chairman for conclusion.

Thank you. Thank you, Rita. And we go to page 35. As a summary and trying to be a little bit different than what is written, I think that the key message is number one is the scenario is rebalanced after 2022 shock. The cash flow generation is strong in this sense and provides a strong balance sheet that will help to accelerate any transition through investments. The company, as always tries, is committing and delivering its commitments and results. And Our company will continue to maintain a good balance between sustainability, security of supply, and affordable energy and competitive prices as a sense of our mission. If we look at 2024, the priorities in page number 36, number one around networks is removing regulatory concerns through a proactive regulatory management in both Spain and Latin America. In terms of gas networks, increasing the commitment of this preparation for the new area with renewable gases and growing volumes will require acceleration of connection points in order to help this blending. In terms of markets, point number one is working proactively the manage of pipeline contracts to reflect new market conditions, and in particular with Argelia. In terms of generation, thermal generation, recognition of the capacity payments for our gas turbine cycles in Spain as part of the stability of the system. In terms of renewable generation, maintaining our execution plan of organic growth through investments. In renewable gases, continue the growth and implementing and moving ahead on the 70 projects already undergoing. And in terms of supply, continue balance the integrated position we have between generation and commercialization or supply. All in, we continue to commit the company to a dividend policy, which is subject to maintaining the rating, a floor of 1.4 euros a share for the year 24. an important budget of investment that will repeat more or less the level of 23, which is around $3 billion, and preserving the triple B rating, which demonstrates the prudency of the company vis-à-vis its balance sheet. Many thanks to everyone that has been listening, and I give the floor to Abel who will manage now the time for your questions.

Thank you. Thank you, Paco. So, we received lots of questions. We're going to try to group them in different areas. So, let's start with the questions. around the group, its strategy, guidance, and so on. So, many of you have asked around the status of Project Gemini and whether we could provide an update and whether we see it still as a valid option.

Well, I think that is very clear. Although the reasons behind, the strategic reasons behind Gemini's continuum being valid, which it's demonstrated in the fact that, including our report, you are seeing a different phase between what we call it markets and we call it networks, the conditions of the company today and mainly the conditions of the environment around the company are suggesting that we should postpone the implementation for a better time.

Thank you, Papo. The next question is around guidance. In light of the evolving energy scenario that we are witnessing in the last few months, Lots of analysts and investors are, you know, querying and asking around whether we could provide some guidance for 2024 and 2025, or at least our views on it.

All right. Thank you, Abel. This is Steven. Regarding guidance for 2024, I think the question frames the answer, really. We still see quite a bit of volatility in this scenario. What we can tell you is that the company is actively working towards managing that volatility to reduce impacts. And we've done quite a bit of work on that, but still have not finished. So we expect to be in a position to provide the markets with guidance, just like we did last year at around the H1 results. That's when we think all the pending strategies that we are implementing right now will have been fully executed. There's a full commitment for the company once we have that visibility to make sure we provide it to the market.

Thank you, Stephen. There are also a few questions with regards to M&A. You know, given that this year some of our investment has been in M&A with the acquisition of ASRWin, And given our reinforced balance sheet position and strong liquidity, there are a few questions on whether or not the company could explore or, you know, be interested in pursuing additional M&A in 2024 and onwards.

So, I think on the M&A issue, like pretty much everything this company does, there is an overriding theme, which is financial discipline. So, you know, we're constantly looking at opportunities. As you can imagine, we're a company that has the ability to grow, and we get approached with a lot of ideas. It's part of our job to analyze those ideas. But landing investments is going to be a function of the strategic fit within the company and, of course, of the returns that those investments can generate. So, our objective for 2024, as we look into the year ahead, we don't contemplate M&A as of today. But, you know, if the right opportunity comes along, it would be foolish for the company not to take it.

Thank you, Stephen. Another question around the reestablishment of the National Energy Commission. And whether or not, or, you know, what sort of implications do we think that this may have for NATO?

I'm not going to discover to you what has already been said by the government at the time that it has been decided to establish the existence of the Comisión Nacional de la Energía, the CNE. The main reason was about the amount of work and time that was needed by the CNMC just for energy, considering the time that energy is forming today part of the day-to-day work. Therefore, having... having an organism which is fully dedicated to energy is not bad for the industry at all, considering that there are many, many different opportunities and threats to come. And hopefully, it may be good for all the industry to have a fully dedicated organism . Excellent.

Thanks a lot. So now a question on dividends. Would the company be continuing to pay the 1.4 euros per share provided that the rating isn't changed even if the payouts were to be, you know, increased temporarily?

So the dividend commitment as it stands right now is 1.4 euros per share. You're absolutely right to point out that this is subject to a BBB rating. So this is fundamental for people to understand. Right now, we need to continue speaking to rating agencies, but based on the thresholds that were set, we're in a comfortable position. Whether or not, if you think about it from a rating point of view, rating agencies are not going to look at the company from a spot basis, so they're not going to just be looking at one year. They're going to be taking a little bit of a longer-term view. uh and there are scenarios where potentially the payout could be above that 85 percent that we mentioned previously um i think what would be interesting for for us and for the rating agencies to make sure that there is sustainability to that dividend in other words you know even if it's speaking uh in one year and it goes back to the next year as long as the average is within reasonable levels then yes uh the idea would be to continue paying 140. We constantly review the dividend, or in other words, we constantly review the company's ability to pay the dividend. What we can say, again, to emphasize this point is today it's a comfortable dividend level, but we'll have to see how the company continues evolving and whether or not we need to adjust it potentially upwards, keep it where it is. But I think 140 is the number of people who have in mind right now.

Thank you, Stephen. Just a small follow-up on the rating matter. You know, there are a few questions on, you know, what are the leverage requirements, you know, the company needs to keep a triple B rating or what kind of metrics we look at in that regard.

There are a number of metrics, but if we want to simplify the world, and again, looking exclusively at metrics, I think it misses part of the equation because the rating agencies are going to be looking at it from a quantitative and a qualitative point of view. So from a quantitative point of view, I think a good reference for the market would be an FFO to net debt of around 18%. We are above that level right now, but that's the level that we're shooting for on a sustainable basis. And obviously, subject to discussions with rating agencies, because their thresholds could change over time, depending on how the company's profile, business risk profile evolves as well. But right now, I think, again, from a quantitative point of view, 18% of performance, that is a good process.

Great. So, continuing with the questions around... the balance sheet and cash flow in particular. Some of the analysts recognize that the working capital movements have turned positive during the year. So, they ask if we could, you know, clarify its evolution or what are the main drivers behind the positive working capital move.

All right. So, basically, I think there's, again, to simplify the world, three main drivers for the improvement. First and foremost, obviously, it's the lower sales or lower revenues, if you may. So, that has the opposing effect of what we saw when revenues were increasing, for example, in year 2022. There's also some other smaller elements, for example, the recovery of some of the pending regulatory assets that we had in Spain, for example, and Panama. There is also lower credit losses or lower bad debts as well. So I think those elements explain the significant improvement in working capital. Rita, do you want to add something?

Yes. We have to take into consideration that energy scenario in the last months of the year decreased significantly. So this has a very high impact on working capital.

Perfect. Another question around the balance sheet, and it is around our intention with regard to the 500 million corporate high rate outstanding that is maturing in the first half of 2024.

So, I mean, we've just issued a notice with the stock exchange, and I think it should come as no surprise when we called one of the first hybrids that we had out of three in the hybrid program and we lost the equity credit for the program itself, that we now look at hybrids from the company perspective as paramount or equivalent to senior bonds. So the intentions for those hybrids would be very clear if you looked at what happened with the first one.

Great. So now let's move on to the various questions around businesses. And starting with networks, maybe a high-level question on, you know, what's our expectation, our views around the future regulatory reviews or concerns around the Spanish electricity networks and also the Spanish gas networks?

Well, I think that number one, as you know, I mean, the first regulation which is coming, it's the electricity regulation in a year's time and gas distribution in two years from now. If we separate both in electricity, we have three important issues to address, and one is related to the – of the different level of prices per equipment, which have not been updated since 2013. The second part is about the level Recognize profitability, which should be updated considering other comparables in the rest of Europe and considering the new level of interest rates. And three is the investment cap. As you know, today the cap on investment is subject to 0.13% of GDP. The need of the network today is very relevant considering the new incorporation of generation distributed across all the Spanish geography, and it requires a much higher level of investment. Hopefully, all these three topics will be addressed in the new regulation scheme We will need to start discussing with the authorities in the short term. On gas, it's a different matter. We hopefully expect that the potential ambition on renewable gases is considered within the activity that the gas distribution will require in the future. We have demonstrated with figures that there is a potentiality of blending biomethane with natural gases in a very high level of share. And therefore, in order to provide as a biomethane one of the new directions of energy transition, they will require additional investment in speed meters and regulation of regulatory connections that will require more visibility on this matter. In general, we are quite positive in both regulations because there are reasons behind the two of them to say, number one, that they both go in the direction to increase visibility on the energy transition, and two, that regulation may provide longer view for more utilization and decarbonization.

Great. Thank you, Paco. There are also a few questions around LATAM networks and, you know, what do we think are the main drivers of performance? moving into 2024 and 2025 for the LATAM networks in particular?

Well, as Paco mentioned before, we have more visibility in Chile, Mexico, and Panama with the new targets published. So, our challenge is to commit the business plans And in Brazil, we have some uncertainty, some regulatory uncertainty that we are going to manage with the renewal of the concession that ends in 2027, which I think is one of the biggest challenges. And finally, in Argentina, we see the opportunity for update for inflation for the tariffs, but we're still cautious about it, and we'll see what happens during the year.

Okay. Thank you, Rita. So, let's move on now to questions around the liberalized businesses, and let's start with questions around our wholesale gas and energy activities, okay? You know, a few clarifications on the underlying result for LNG. You know, if we can comment on this financial hedging in effectiveness. And also, you know, what, how do we see our volumes going forward for LNG, as well as what is our expectations in terms of prices and margins?

and going forward okay so as we mentioned before a natural results in 2022 it has increased due to the reappraisal of the financial hitting in effectiveness accounted for in in 2022 with most of these derivative contracts expiring in 2023 which is a one-off impact that that we see As we discussed earlier in the presentation, during 2023 and onwards, the market gradually rebalanced and gas prices moved closer to historical levels. And also, we, our gas procurement commitments decrease in 50 terabytes per annum from 2023 onwards, as the contracts of Nigeria and part of Senegal and Tobago ended in 2023. But as always, Naturgy managed its portfolio and sales with a view to continuously adapt and manage its risk exposure.

Great. I think just to compliment, I think that it's worth, you know, highlighting that, you know, our gas procurement commitments have decreased in around the circa 50 terawatt hour per annum as the contract with Nigeria and part of Trinidad and Tobago ended in September 2023. And so, that is going to be a case going forward. Now, moving to thermal generation, there are some questions around the state of discussions and our expectations in terms of the capacity payments and, you know, what do you think, what is our view on the capacity payments being reinstated and our expected timing, and when we can comment on that.

Yeah. We believe CCGTs continue to demonstrate its essential role to guarantee continuity of supply in face of higher renewal penetration, which brings along higher production volatility and intermittency. We therefore believe that the case-turning state capacity payments, it's evident, and we expect more visibility during 2024. And natural DCCTG's fleet benefit from three core strengths. The first one is the strategic location. The second one, flexibility to provide baseload capacity at real time when needed. And the third one is efficiency to provide at the most competitive and affordable cost.

Thank you, Rita. Thank you for that. Now, moving on to renewables, Spain, there are some questions around, you know, what do we really feel our exposure to the poor prices and its potential impact?

Okay. As we mentioned before, the natural year renewables from marginal generation to naturally supply business at a fixed price. We run an integrated power generation and supply model, and this helps to reduce exposure to the evolution of the food prices, at least in the short term.

Thank you, Rita. There is a specific question that I can handle myself, which is around the expected renewal capacity additions in 2024 and 2025. So, for 2024, we are expecting above 550 megawatts to come into operation in Spain. And in the case of Australia, for 2024, we are expecting around or above 650 additional megawatts of operation coming online. As for 2025, as the chairman mentioned earlier, Our expectation is for additional operating capacity of 2.3 gigawatts during 2025, of which 1 gigawatt would be expected in Spain, around 400 megawatts in the USA, and around 800 megawatts in Australia, okay? Now, there is a question that I think that has been already tackled by our chairman in terms of, you know, renewable gases and what are our ambitions there, whether or not we can provide any sort of ambition in terms of long-term capex. You know, what are the missing elements for this opportunity to accelerate and so on?

Well, I may continue to comment that the reality is that on these 70 projects, 60%, I would tell you it's more short-medium term because they refer to biomethane. In this sense, there are very many projects across the geography which are under different stages of development. The good thing is that our gas network is fully ready to support the introduction of this gas through its network without any additional need of investment. And second, that our gas turbines are ready to run with this gas as well. Then our main focus is today to speed up the process in this development that, of course, As any new plant, it's subject to permitting processes, but the plan is on track and the resources are there. And this is one of the focus of growth, organic growth of the company.

If I may just add, I think when we think about renewable gases, we should think about it from two angles. The first one is the business itself and whether or not the numbers are there. And obviously, depending on the location and depending on the size, the returns can be quite attractive. And in fact, what we're seeing in Spain is naturally is leading the effort, but we see quite a bit of interest there. And I think the chairman mentioned it in his presentation. There's a very interesting slide where you see the amount of biomethane plants in Europe, and then you compare it against Spain and see that there's quite a bit of upside here in Spain, and we want to leave that upside. So the returns are actually attractive for the sector as a standalone business. But I think the second angle that you need to look at this from is not just the business on a standalone basis, but also the positive impact on our gas distribution. on Nethia themselves, right? And this is something that is quite interesting because if you think about it, it's not just Nethia which is going to benefit from naturally developing our own biomethane business, but also Nethia which is also going to benefit from other companies developing their own biomethane business as well. And so we think biomethane is going to be playing a key role as a bridge towards a hydrogen economy further out in the future. we can benefit from both those angles, investing our capital in the production of biomethane, but also making sure that our assets in gas distribution become assets of the future as opposed to commonly perceived misperception, I would say, of those assets being stranded.

Thank you. Thank you, Stephen. um so now moving on to um supply and and we are almost finishing the set of questions there are a few questions around our our view and the expected evolution of the supply margins uh what our exposure to poor prices is and what do we think the speed of repricing in our supply portfolio may be um

Okay, so in 2023, it has been a strong year compared to last year, supported by higher fixed price contracts as well as lower costs compared to 2022, which was mainly affected by the cost of energy sales not covered via our own inframarginal generation. Moving into 2024, we have resolved a very high percentage of our portfolio already, particularly in the industrial segment, which provides us with a certain degree of visibility on margins. Our commercial strategy remains the same and consists of selling fixed price contracts to customers, benefiting from the natural effects of an integrated model.

Okay. Thank you so much, Rita. That was very helpful. So I think that that wraps it up. I'm sure that there are a few quantitative elements that we didn't comment on, but the capital markets team will be We'll make sure that we follow up on those with you guys individually. So other than that, thank you very much for joining our full year 2023 results presentation, and we'll be in touch. Thank you very much, everyone.

Thank you. Goodbye. Thank you. Thank you.