Naturgy Energy Group SA (GASNF) CEO Francisco Reynés Massanet on Q1 2020 Results - Earnings Call Transcript

Naturgy Energy Group SA (OTCPK:GASNF) Q1 2020 Earnings Conference Call April 29, 2020 6:00 AM ET

Company Participants

Abel Arbat - Head, IR

Francisco Reynés Massanet - CEO & Chairman

Steven Fernández - Director, Capital Markets

Jon Ganuza - Director, Controlling

Carlos Álvarez - CFO

Conference Call Participants

Alberto Gandolfi - Goldman Sachs Group

Javier Suarez - Mediobanca

Fernando Garcia - RBC Capital Markets

Harry Wyburd - Bank of America Merrill Lynch

Jorge Guimarães - JB Capital Markets

Manuel Palomo - Exane BNP Paribas

Abel Arbat

Good morning, everyone. This is Abel Arbat speaking from the Capital Markets team at Naturgy. First of all, we hope you and your families are well and safe. And we thank you for joining our first quarter results presentation.

Given the unique circumstances caused by the COVID-19 and its wide implications, today, our Chairman will be accompanying us throughout the quarterly results and will be sharing his perspective on how we, as a company and individuals, are viewing and responding to the ongoing developments.

Together with our Chairman, the results itself will be then presented by our Capital Markets Director, Steven Fernández; our Controlling Director, Jon Ganuza; and our CFO, Carlos Álvarez. Finally, we will be heading to conclusions and live Q&A. Now with further ado, I will hand it over to our Chairman, who will be covering the first section of the presentation, not necessarily going through every specific page.

So with that said, please, Chairman, you can go ahead.

Francisco Reynés Massanet

Thank you very much, Abel, and good morning to everyone. First of all, I would really like to stress all my condolences and share my sympathy, and Naturgy's sympathy, with those of you that may have suffered in your families, relatives or friends, any of this big disaster that the world is today facing in front, with hundreds of thousands of people affected by the virus and thousands of people that have died in the last weeks. I think that we are suffering, and we may probably suffer the most important sanitary crisis in our life, which is affecting the world and is, or should, going to change it for a long run. We are really sorry for those of you that they may have suffered it closely.

The COVID crisis is, from my point of view, much more than an economic crisis, and my opinion is that it may last longer. But I'm fully convinced that after this crisis, the world and mainly ourselves, we will be better people. We are, day-by-day, receiving and seeing important shows of solidarity, high levels of strong commitments and really, really important levels of need of support. This is confirming to me that people comes first, and it should be a lesson for the long run. This is why I just wanted to take my first minute of this results presentation, and I'm fully aware that we are -- I'm talking to financial guys. But the first thing I'm doing is talking to people, and no one could today, talk about anything, before starting talking to people. And I want to thank first 2 kinds of people. Those medical staffs, policemen, firemen, all people, which is in the front line, fighting seriously against this crisis. And second, to all Naturgy's employees for their commitment. We have serving our customers as usual. The company has been running in remote at highest safety standards and we haven't stopped, we haven't stopped for a single segment.

We were forced to adapt to a new world, to a new situation. And we have done it, I think, thanks to the commitment of the thousands of employees that has been making that much easier than we may have expected before, if someone who would have tell us what was going to happen.

I'm not going to go through the slides. You know me already, and you know that I'm not reading all the slides, I prefer to go straight to Q&A. But I think that results of the quarter needs some explanation. And Jon Ganuza will do it in much more detail and much better than I can. But I want just to remind some of the important messages that we have in front of us.

Point number one, remember that Naturgy set up a plant in 2008 for 5 years. We presented in London, June 27. It is not even 2 years ago. And we have been working hard in these quarters until now. And we have, from my point of view, good achievements in most, in most, and of course not all, the different topics that we set up our priorities. Of course, we didn't expected the troubles that we have found now. But it's clear that what is happening today is finding us much better prepared than we were 2 years ago.

The depth, the duration and the consequences of this crisis are still uncertain. But what we have done and what we are doing is taking temporary measures and waiting for much more structurals, until we may have visibility or stronger visibility as any structural changes requires. But our flexibility, which forms part of our core values, if it's needed to change and move out of the route of our plans, we'll do it. But for the time being, we haven't seen it needed yet.

Of course, before any new changes may happen, we will come back to you, and we will explain that to you. But again, we are not seeing, for the time being any structural need to change our main targets. As always, I want to remind you that transparency and flexibility form part of our core values and we'll continue forming that in the long run.

The first quarter results are not good, but are not bad. Of course, they are impacted by 3 major issues, which are clearly nonmanageable but, of course, affecting our P&L. Commodity prices that have been affecting clearly, the world of energy, and our business is exposed to that. FX, because of the portfolio of the company, and demand in a part of the quarter before -- because of the COVID impact.

On visibility for 2020, and I'm trying to advance any question that you may raise. I think that no one may tell you that there are no cloud in sky for this time being. In fact, there are more than before. This is, again, the reason why we haven't committed to any clear guidance for 2020, and we cannot do it again now.

But we have a road map. Our roadmap has not changed. Our project was for 5 years. And this is one of the reasons why we are saying in the presentation that for the time being, we are not at all seeing any need of change in our dividend policy. Keep in mind that retail investors for over 100,000 and institutional investors as well, have been also considering our dividend policy, one of the attractivity of our companies.

We are responding to this crisis with agility, and we want to set up clear priorities. And I would like to be clear with you on which are the top priorities that we have set up for the next coming months. At the same time that, of course, we are monitoring the situation to understand when and how can we see a much more clarity for the future and being able to understand the changes that may be required.

Our priority number one is our employees. We want them to return safe. And we want to prefer safe environment. We are working on that. We are working on all our plants that would make safe return for our employees. And please consider that 25% of them had been -- continue working as usual and 75% were working from home.

Number two is taper of our liquidity and strengthen the balance sheet. These are moments where cash is king. And as you have seen in the presentation, we have taken seriously into consideration, the strength of our liquidity as part of the great achievements of the last months.

Number three, is that we need to adapt our gas procurement contracts to the new reality. Of course, our preference, and that's what we are working, is quick one-to-one negotiations. But if it's not possible, we will not hesitate to take the route of arbitrations. In any case, the world has changed so much that we cannot look at on a different space when we take the reality of where the commodity prices are and our contracts remain.

Number four is to reinforce the relationship with our regulators. Today, is it closer than ever? And I think I'm going to take advantage of this in order to prepare a better future. And the number five is the future. We don't need -- we cannot -- sorry, we cannot stop looking at the future. Our company is 175 years old-company, and our aim is to at least, being able to maintain them for like 175 years more. And it's forced us to stay clearly in a direction that a future exists. And the future exists as long as the company remains, and one of the important targets is maintaining a level of investment.

We're always in projects that are meeting the golden rules and focus mainly in renewables and networks. In this regard, I can tell you that we have revisited our minimum rules for investment, and we have adapted the volume growth on the new economical circumstances. It is going to be tough, investing something in some countries. It is going to be better to invest in another countries. And of course, this is what is going to drive our investment policy in the coming short period.

On portfolio rotation. We haven't given up to our commitments. The speed, it may be different than it was because of the circumstances, but the target is clear. We want to reduce volatility and increase visibility. And that's why portfolio rotation form part of our strategy, and continues being one of the guidelines for the future.

And finally, and most important, what this crisis has brought is a demonstration that the need of transformation exists everywhere and existed in Naturgy, existed in 2018 and it exists more in 2020. What we need to do now is we need to intensify this transformation.

I am fully convinced that all of us will emerge with renewed energy. And I'm fully convinced that we have here for lasting. Thank you very much, and I will hand it over back to Steven.

Steven Fernández

All right. Thank you very much. Hello, everyone, again. I, myself, want to also share in our condolences and best wishes for all of you hearing us today and your families. Very quickly, so we have more time for Q&A, I want to take you straight to Slide 17 of the presentation. The key highlights of the first quarter results. Some of the points have been already mentioned by our Chairman, but it's worthwhile perhaps making a point on them as well.

Q1 results were impacted, as you have seen by lower gas and power demand in Spain and LatAm; a more challenging scenario in international LNG, which has become even worse as a result of COVID-19; and relevant FX depreciation in LatAm, which obviously, have been more pronounced in the later part of the quarter, again, because of the COVID-19 crisis.

On top of that, those results have also been impacted by the new regulatory framework in electricity networks, which you guys are familiar with, as well as by the expected volume capacity step down in EMPL, which I remind you, became effective in February of 2020, and which you are all familiar with as well since the company has already transparently communicated on this.

All in all, ordinary EBITDA stood at around €1.1 billion in the quarter, that's down 5.6% versus the previous year, while the ordinary net income reached around €300 million, down 19%, again versus the same period last year. Both of these elements exclude the gross €158 million of restructuring costs incurred during the period as part of our ongoing efficiency plan. And as a reminder, you have details of these, by the way, in the results publication that we issued this morning as well as the accompanying Excel file.

As Paco mentioned as well, we have increased our liquidity by approximately €2 billion since the beginning of the year, bringing us to a total liquidity of around €9.6 billion as of today, which is quite interesting and quite comfortable, which combined also with a strong balance sheet, puts us in a good spot. Our CFO and our finance team are working hard to see if this number can even be increased moving forward.

Beyond the liquidity, of course, we continue to invest but the company hasn't stopped, and we've invested around €200 million in the quarter. It's worth highlighting that around a little more than half of that has been dedicated to grow the company, including renewals, where we expect to invest almost €400 million for the year. Obviously, lack of visibility on the gas distribution regulation during the quarter. As you know, this was approved only at the end of the quarter, together with the COVID-19 lockdown, help explain part of the difference versus the first quarter of 2019.

At the end of the quarter, as well, net debt amounted to around €15 billion, and that includes already the €755 million used for shareholder remuneration during the quarter. So as you can see, net debt to the last 12 months EBITDA is around 3.4x. So all in all, perhaps we should highlight the fact that the COVID-19 crisis has had a limited impact on the first quarter results because we've only seen it since the month of March, second half. And we expect this to be something more clear in the second quarter of the year.

If I move over to the EBITDA evolution on Page 18. I'm not going to be discovering anything else that I haven't mentioned before. Obviously, some of the effects that I just discussed can be seen here graphically. For example, the impact of commodity prices on the gas and power business, with a decline of around €54 million at the EBITDA line. The impacts I've mentioned previously in the mean time, EMEA, namely EMPL and the regulation. We also see the quite big impact of FX, €32 million in LatAm South. And the €158 million of costs that we mentioned before as part of our efficiency program that Jon will discuss later on.

If I move over to the net income. Again, we continue seeing the same sort of trend, activity or operations impacted by the previously mentioned effects, have a negative impact of around €76 million. We do have a better financial result, and you've seen the company actively go to the market, issued bonds, refinance, et cetera. So kudos for our finance team, they've been working hard on this. Unfortunately, the improved financial result does not fully offset the decline in operations. And that ends up feeding through to an ordinary net income that goes down by around 19% to €305 million.

So finally, if we move over to the cash flow. We've been focusing on cash outlays. And especially now, as the Chairman mentioned, cash is king. So we do pay a lot of attention to cash flow on an ordinary basis, on a normal basis, even more so now. So we are focusing on OpEx and CapEx, and trying to adapt investments to the current environment and lower demand.

We are also working, as I mentioned previously, on lowering the cost of debt. And we've been making quite some efforts on the management of the working capital. So end result is our net debt of around €15 billion, it goes down slightly relative to 2019. We'll continue as the year moves forward, focusing on cash management efforts.

And with that, I hand over to Jon for specific details on the businesses.

Jon Ganuza

Thanks, Steven, and good afternoon, everyone. I would like to start talking about the commodity prices. This past few months, we have seen an increase in volatility and dropping its prices, with full price, gas spot price and especially, oil price. Since 75% of our gas procurement contracts are indexed to oil or oil products, it is fair question to ask how is the current crisis scenario affecting the competitiveness of our gas procurement. In order to answer this question, there are 4 things that have to be taken into consideration. First, how oil is factored into our cash prices. Second, how is it compared to gas spot price? Third, how insulated are our end markets from spot prices? And lastly, how fast can we adapt our gas procurement contracts?

Starting with the first factor. It's important to remember that most of our gas procurement contracts are not priced to the spot price of the oil product. Most of our gas procurement contracts are priced according to the average price of the past 6 months. This average smooth sales volatility, bringing benefit against spikes in prices, but in this case, decreases the short-term benefit from a drop in prices.

I will provide an example to illustrate. If we look at the best estimate of the Brent average price is for 2020 that we could have had last week, using the real price for past months and the forwards for the rest, the estimated price would have been around $38 per barrel. If we do the same exercise, taking only the Brent price. For the Brent price, the average of the past 6 months, the value we get is $47 per barrel. That means that the cash procurement with 6 months average is almost 25% more expensive than the one that you may see on your screen.

Moving on to competitiveness. Spot cash prices against Brent are at historical lows. NBP against Brent for 2020 is at 7.6%, if calculated on a spot basis. But if we take the 6-month average factor for Brent, it goes down to 6.1%. To put it into context, historical values have been 10% higher. Therefore, we currently have a mismatch within gas spot prices and our gas procurement. It is true that we have closed contracts with our end clients between Spain or in LNG. This is a hedge against commodity scenarios, as we have said several times in the past, but it is also not less true that in contract renewals for customer acquisition, gas spot prices are playing an increasing role for large customers, and therefore, deteriorating our competitiveness.

The fourth and most important factor is that most of our oil-related procurement contracts have price review mechanisms that allow us to make them competitive. But almost all of them work on a backward-looking basis. That is, looking at what has happened instead of anticipating what might happen. That lag can have a temporary effect on the competitiveness, especially in energy scenarios at the current one.

Therefore, we are currently making use of the ordinary and extraordinary price review clauses included in most of our [indiscernible] gas procurement contracts, in order to make them competitive as soon as possible. But this is a process that does not happen overnight. This case is a negotiated outcome, but it could eventually evolve into an arbitration process. While these negotiations take place, we might see a deterioration in gas results. The results do not take into account the end result or even the estimated one of the negotiations or the arbitration, and therefore, underestimate the true results once cash procurement prices have been adjustment, adjustment that I must stress happens ex cost. This, in part, helped explains what we have seen in the first quarter in gas power and services. Gas margins and sales have been negatively impacted by the competitiveness of our gas procurement, although it has been offset by the better performance in our electricity sales.

In the case of international LNG, the loss of competitiveness in our open position has been compounded and this open position was front-loaded compared with last year. This was a consequence of some advanced negotiations with a gas supplier that have been suspended in the late -- last minute.

Another consequence of that sale negotiation is that we have to revisit the figure we provided last quarter regarding closed volumes for 2020. At that -- the presentation, we gave 90% as we were factoring in the advanced negotiations. The best estimation we currently have is 84% for 2020. This revised figure does not include any negotiation and is referred only to the volumes as defined currently in our contracts.

With regards to Europe power generation. Higher renewable capacity coming into operation and improved hydro production compared to last year has been offset by higher taxes and lower CCGTs production. And profitability in the context of lower oil pool prices, excess gas and increased competition.

Finally, international power generation has remained in line with last year, driven by higher margins in Mexico PPAs due to the [indiscernible] availability and higher prices in the auction, offset by lower sales and margins in merchant production.

Turning to infrastructure EMEA on Page 23. Ordinary results have been in line with previous years, as efficiencies have been offset by the impact of the new regulation in Spanish electricity networks as well as expected volume capacity set down in the EMPL, effective since February 2020.

As for Spanish gas networks, efficiencies have also been partially offset by demand contraction, affected by climate conditions and the lower activity due to the introduction of the state of alert, mainly impacting the industrial segment. All in all, stable ordinary results supported by efficiencies despite the negative impact of regulation and the step down in the EMPL.

Moving on to Infrastructure South LatAm on Page 24. Ordinary results are marginally weaker compared to previous years, mostly as a result of FX repatriation across regions and Chile electricity, which has been affected by the effect of tariff setting in the transmission business, higher losses compared to last year and the disposal of Transemel, the transmission business disposal completed in 2019.

In Brazil gas, tariff indexation and lower losses have been offset by FX. Whereas in Argentina, the last tariff update for 2019 was offset by lower demand and FX. All in all, performance was negatively impacted by FX in this quarter, together with weaker results in Chile electricity.

Finally, turning on to Infrastructure North LatAm on Page 25. Ordinary results in the quarter remained solid, supported by higher supply and distribution margins in Mexico and the tariff update during the quarter.

Panama turned slightly weaker on the back of lower margins. All in all, we have experienced a limited impact of the COVID-19 during the first quarter, other than FX and the initial effects of lower demand, which should have a greater impact during second quarter of the year.

I will now turn it over to our Chairman for conclusions.

Francisco Reynés Massanet

Thank you very much, Jon, and thank you for the attendees that has been staying at least for 0.5 hours hearing us.

On the summary of our results, I think that I have been already clear. I mean, commodity prices, lower energy demand, FX have been driven out results not in the right direction we would like. In parallel, we have reinforced our liquidity and we have already installed the new regulation on electricity distribution that is in place since January 2020. The reality is that COVID has been already impacted our results but just for a short period of time, since the activity has been suffering from COVID, in part of the quarter.

As we said in the last slide, we are actively addressing the developing scenario with a lot of uncertainties, with a bit of very clear management focus. Because we know that COVID is going to last, we don't know how much, we don't know how long, but we know that it's going to last. But we also know that if we move, our obligation is to mitigate its effects. As I said, it's important to support our stakeholder base. We continue maximizing our liquidity. And what is even more important, there is no reason today to question our dividend policy in DPS, as we have stated since we established our 2018-'22 strategic plan.

Finally, the most important thing. These changes are forced in us to intensify our transformation, and that's what we are doing, that's what we will do. And as soon as we will have any important ideas to share with you, we will probably let you know, because our commitment on transparency will continue sharing our commitments as our values have been defined in our company.

I think that it's time now to go for Q&A, and I will hand it over to Steven or Abel, that they will drive the part of the session on these remarks.

Abel Arbat

Thank you, Paco. I think we can proceed with the first question. So please, operator, feel free to pass on the first question.

Question-and-Answer Session

Operator

[Operator Instructions]. The first question today comes from Alberto Gandolfi of Goldman Sachs.

Alberto Gandolfi

And I also extend my best wishes to you and families, and thanks for your kind words and for taking the time to go through the presentation. So I have 3 questions with some subparts.

So the first one is on consensus. I mean, for 2020, EBITDA, net income consensus seems to be down about €100 million versus last year. You already lost €60 million to €70 million in Q1 and -- versus last year. And you're talking about a more noticeable impact of COVID in Q2, as you've been explaining very clearly. So considering how the H1 is shaping up to be, could we see also, let's say, probably about €100 million below or perhaps more in Q2 versus last year or anything we're not considering? And therefore, should we start thinking in these terms, in terms of how the year is shaping?

The second question is on cash distribution. I think you've been very clear stating it's too premature to take a permanent decision on dividends, and in an absolutely fair position. But can I ask you how are you thinking in terms of scenario analysis here? What would trigger a decision on the dividend? Should it be a payout consistently above 100%? A longer duration of the crisis? Or should it be that you do asset rotation and instead of buying back stock, you just -- you improve your liquidity, and therefore, you readjust the dividend?

So can I ask you how you're thinking, really in terms of the logic behind the statement? And as an ancillary point, you didn't mention the buyback. You said you've done €300 million out of €400 million. Should we assume that as long as the crisis is here, the buyback will be more indefinitely suspended?

And the last question, can you maybe talk about for Q2 or expectations for the year, if you think at any point in time, the LNG business could become loss-making and if you could see a spike in working capital in terms of receiving the bills.

Francisco Reynés Massanet

Thank you. You start, Steven?

Steven Fernández

Right. I'll start with two questions, if I may. So first and foremost, thank you for your questions. I'll start with the share buyback. What we've mentioned in the presentation is that we are temporarily halting the share buyback. This is a decision that we think is prudent, in light of the lack of visibility that we have. And we've mentioned that there is a lack of visibility in the German speech and the results presentation, et cetera, I think we can all agree. And all it takes, as an example, is to go to your Bloomberg terminal and take a look at the consensus for Spain's GDP, as an example.

And you see the massive dispersion, there is there. So no one really has a clear view, less of all us. So we don't have that visibility. And we think it's prudent to temporarily halt the share buyback until that visibility improves. Having said that, just for your information, we are stopping it, having executed already €300 million of the second tranche, okay?

Regarding the consensus. That's a -- it's a nice try as Jon Ganuza would say, nice try. We're not giving consensus because, again, we're not going to comment on the consensus estimates. We're not going to comment in a way that gives you an indirect guidance. We have no visibility right now. It's very limited. It was limited when we first published the full year numbers. It's even more limited right now, unfortunately, because of the COVID-19 environment. So we're not in a position to comment on your estimates.

I'm sure you guys are very diligent, all of you guys, and you do your work and your estimates that are published by Bloomberg and by other means, are the product of very in-depth analysis. And we're not here to comment on that analysis. At least, not yet. When and if the visibility improves, by the way, in line with what the Chairman said during his first comments, we do pride ourselves in transparency. So when our visibility improves, you can rest assured that we will give you some indications of how we think the year will pan out. Okay?

Francisco Reynés Massanet

Thank you, Steven. You give the toughest part of the question. We are in dividends. But anyhow, I think that is easy to be answered. Remember that when we set up our dividend policy for the year -- for the years 2018 to 2022, we were clearing 3 things. Number one is that it was not based on any payout ratio. It was based on EPS. Number two, in what our strategic plan didn't consider any asset rotation at all. It formed a part of our optionality, but it was not an obligation. And number three, our remuneration policy was based of the fact that if the company generates cash, and the company does not have alternatives to invest the cash better than our golden rules, we will give the money back to our shareholders.

This is exactly what -- how the dividend policy and the share buyback has been established. As Steven has said, we think that the flexibility that the share buyback give us, it's enough today. And with the visibility that we have, with no reason at all to put on risk the dividend, because this forms part of this vision that if there is money to be paid and there are no projects to be made, the best we can do is give the money back to our shareholders, and that's why we have not put on risk, the dividends, for the time being at all.

Jon Ganuza

Well, and going to your last question, Alberto, the one about LNG and working capital. LNG would be in a sense, giving like us guidance of one of the parties instead of giving hope. But I can say that in multiple scenarios that we're currently looking at because, as you can guess, with all of the uncertainty, we cannot be looking at only one thing, we are looking at several scenarios. And actually, those scenarios are being updated almost on a weekly-by-weekly basis. I can say that right now, we are not envisaging the LNG in a loss-making business in 2020.

Regarding the working capital. Right now, there are 2 things that actually are going to increase the working capital that we have. On the one hand, there are the initiatives that Naturgy has undertaken in order to ease how our customers are going through the COVID crisis, and that's going to have a certain impact on the working capital. But also, there are the measures that are being undertaken by the regulators and the politicians in all of the countries in which we are currently present, be it Spain or be it LatAm. That they are also trying to going to have an impact on the working capital, because some of them, they imply that we are going to have to finance some of the customers, for example, in the case of Chile, or that we are not allowed to disconnect clients, and therefore, that leads to a deterioration in the payment profiles of our customers. How did this working capital is going to be? It's too early to know because no one knows the depth and the duration of that crisis. And therefore, how strong these measures are going to be enforced. And as the President has said before, we are also trying to work actively in order to improve other levers of our working capital, in order to try to offset this impact as much as possible.

Operator

So the next question comes from Javier Suarez of Mediobanca.

Javier Suarez

I'm glad to hear that you are all well. Three questions on my side as well. The first one is, again, coming back to your target for 2022. We understand that the company has low visibility on 2020. But probably, the numbers for the year 2022 looks demanding at this stage. Would you agree with that, the €5 billion of EBITDA for 2022 and then €1.8 billion for 2022. Could you define those targets as demanded?

And then on those number, on the strategical presentation that you hosted in June 2018, there were several indication on the dividend that you have been commenting on and also, CapEx and disposal. So if the situation continues to be a difficult one and the company continues to face that macro headwind, where the management intends to adjust that business plan? Is that [indiscernible] on reducing CapEx? Is that increasing the disposal plan? Or does that attach also the dividend strategy or the dividend policy of the company as well? That is the first question.

The second question is on your procurement, debt renegotiation cash procurement contracts that you have been announcing. If you can give us some more details on the timing and therefore, the effect that this -- the time that is needed to have that positive effects from the renegotiations to your P&L? Any indication on the timing could be very helpful.

And the third question is on the recent announcement by the company of the cancellation of the fair lease agreement with the government of Egypt. If you can elaborate on that on the reason behind the position of the company. And where do we have news on that front, together with Electricaribe as well, if possible.

Jon Ganuza

I will start with the procurement because it's the easier one and then the tougher ones, I leave them to the rest. It's hard to have an idea of the timing because we are trying to negotiate. But as I said before, and also the President, if the negotiations are not fruitful, we can always move into an arbitration process. And therefore, that will take longer. Both negotiation, arbitration, timing depends on the kind of contracts that we have and the law under which is. We expect that this is no more than an expectation that we should be seeing some first results, summer or after summer. But I think that it's not so important, the timing. The important thing is to get the test still possible.

Carlos Álvarez

So Javier, I'll go for the 2022 target, dividend, CapEx, disposals and everything. I think you pretty much -- I mean, you should consider coming to work with us because you pretty much answered the question yourselves. So let's try to recap it. Look, visibility, you rightly mentioned it's very clouded right now. And that includes not only the outcome of the COVID crisis in year 2020, but that also includes, by the way, the recovery, the pace of recovery from this crisis. Is it going to be a V shape? Is it going to be an L shape? The reality, the fact is that we just don't know, okay.

So what we can tell you is, and I think the Chairman addressed this also at the beginning with his statement, we have a road map established from '18 to 2022. And we are working very hard on achieving that road map. And in some ways, as you know, we are ahead of the road map. In some other ways, there's still work to be done. But there's also something very important, which is, look, we're not going to be taking structural measures right now in the face of a temporary crisis.

The moment that we start seeing that the effects from COVID-19 stopping temporary and become structural, then at that stage, we may or not, we may or not, have to make decisions regarding the strategic plans in 2022. But only at that time. So speculating about this at this stage when, again, no one really knows how long this is going to last, what the depth of this crisis is going to be, what the outcome is going to look like. I think it's a little bit too early.

There is one thing we can tell you nonetheless. Out of all the things that we included in the strategic plan, the CapEx that you mentioned, the disposals, which, by the way, have been achieved, et cetera, there is one thing that, for us, perhaps will break last in those elements that we'll be willing to change, and that will be the dividend.

Now there are cushions embedded in the strategic plan. For example, the share buyback that we're temporarily halting, that would allow us to continue providing that visibility that we pride ourselves with in terms of the dividend. So for the time being, again, the time is not bright. If we end up reaching the conclusion that the changes are structural, indeed are not temporary, then -- and that we need to change some aspects of our strategic plan, of course, rest assured that at that stage, we will come back to the market and communicate it, okay? And perhaps, Paco, on Egypt, if you want.

Francisco Reynés Massanet

However you want. I think that as soon as -- it's important to remember on Egypt, two things. Number one is that we agreed with our 2 partners, Eni and EGAS, a settlement on Egypt after we won an arbitration vis-à-vis the state of Egypt for a fixed amount of money. And our principle was that if an agreement can be reached within reasonable terms to fix it and close it, it's fine. What happened is that because of the COVID, one of the long stop date, the #1, was impossible to be achieved. And the contract was possible for everyone to say that if any day, it cannot be achieved, the contract will be needed to be renegotiated or to go back to square 0, which means that we have no contract. That we are open, open to reach a new agreement.

But in the meantime, the agreement that was signed, because of the timing and the COVID in different matters, for example, the Damietta plant was going to restart very soon. But for the restarting, they needed the contractors of Nova [indiscernible], the Italy to go to Damietta, and fix all the different technical steps. That's impossible because of the situation of the COVID and the impossibility to fly over.

The reality is that the agreement disappeared. Then we are now in a situation that we continue having our rights on the arbitration that has already been fixed, but we are flexible and open, if there are new conditions to make a new agreement. And of course, we are free or not to sign it, depending on the conditions that they may offer. On Colombia, there is no progress for the time being. And as I reiterated in the last presentation -- results presentation on February, we don't expect anything from Colombia until the end of the year.

Operator

Of course, the next question comes from Fernando Garcia from RBC.

Fernando Garcia

The first one is what is your strategy in gas in terms of volumes related to the flexibility of your take-or-pay contracts or your contract with Cheniere. So if you can comment about that, taking into account this hard drop in cash demand that you are experiencing in all global markets. The second question is if you can explain the positive €300 million were positive working capital that you have in Q1?

And the final one is, I was a little bit confused regarding your EBITDA explanation in Argentina, taking into account the comment that you were making on [indiscernible] inflection. So I wanted to know what will be the EBITDA of Argentina taking into account a mark-to-market of ForEx?

Francisco Reynés Massanet

Okay. I will begin with the first question. Regarding Cheniere, Cheniere is one of those contracts that is not oil-indexed. It's indexed to Henry Hub. And it does not have either price review clauses nor it has take-or-pay. So there is no contractual weight that we have in order to apply any of those options there. The only thing that we can do is we can forfeit a cargo and then we have to pay the tolling associated with that cargo, but we don't take the ship. That's the only option that we have regarding the Cheniere volumes.

Moving on to the working capital increase that we have in 2020. I would say that they are mainly 4 factors that do impact in the improvement in the working capital. The first one is that invoicing has reduced and therefore, the receivables that we have are less than the ones that we had in 2019. Also, the cash outlays that we've had in the period are less, and therefore, the payables have decreased. There has been also a substantial decrease on the stocks, both in gas in Spain, and we are also burning the cold stocks that we have. And last, it's a technical issue regarding the liquidations that we have in gas distribution [indiscernible]. Those are the 4 factors that are the main drivers regarding the working capital improvement in 2020.

The result in Argentina. What I wanted to say and maybe I was not -- I don't plain myself with that, is that we have -- there was an improvement in the tariff in April 2019. There should have been an indexation in October. That did not happen. And therefore, since we haven't had any indexations in the ones since the ones that we had in April 2019, the FX deterioration that has happened in between, that has to split [indiscernible]. Also, in the meantime, we've been consolidating the results of Castor. But all those, both effects, have been eroded away by the FX deterioration in Argentina. I don't know if this was helpful or not.

So Abel, if I may, I want to pass it to the operator because it's like a remake of Matrix, one of those movies.

Operator

The next question comes from Harry Wyburd of Bank of America.

Harry Wyburd

I hope you can hear me okay. So 3 questions for me. So first one -- I'm sorry, again, it's on the gas contracts, but I want to understand -- understood this oil linkage correctly, because listening to what you say, you're currently undergoing a kind of pincer movement because you've got the 6-month average, which is high, and that's your buy price. And then you're selling at spot, which is low.

But surely, that's a very temporary impact, right? Because if you look at the long-term forwards for 2023, the oil and gas spread actually seems to have gotten your favor. So is this more like a one-off impact? Could you get a big hit in the second half of this year, but then next year, you'll be perhaps in a position where your oiling contracts are very, very cheap, because they're now reflecting a new lower oil price?

And perhaps if gas stays the same or even recovers, you can book a much higher margin. So basically, bottom line is, is this really a one-off effect rather than a structural one on the oil link contract?

Second question, just moving across to the regulated business in Spain. Can you just give us a view on what volume linkage you have in regulated gas distribution in Spain by the parametric formula .Is that something we should be worried about? And can you quantify what potential revenue impact could be from lower volumes this year?

And then, final one is on cost savings. Obviously, one of the interesting things from full year results was that you mentioned potentially very high capture cost, I think it's €300 million this year, which on surface, is a big increase in the cost-saving program. But obviously, the social considerations right now perhaps make it a bit more difficult to reduce your workforce. So the question is, is the crisis going to perhaps delay your ability to make cost savings and reduce your workforce?

Francisco Reynés Massanet

Okay. So starting with the first question, the one -- the cash contract with oil linkage. One thing that I want to stress is that it affects our open position or the renewals that we have in certain contracts. Where we have a close position, so the clients to which we sold 6 months ago or clients that we sold 9 months ago or 3 months ago, it does not affect there, because those clients so -- are going to be -- are not going to be.

So I think that, first of all, the impact, it's limited to those parts. Then as you said, it's true that part of the impact that it will have, once we have an agreement or once we have an arbitration settlement, is going to be a one-off, but it might also be structural in pricing, it can be both things. So the one-off would be to make up the fact that for a certain period of time, that, that procurement contract was out of the money. But it might also include a repricing of that contract, in order to settle it on a market basis.

I think that we have a prior example that already happened a few years ago with Algerian contract. In that case, it was us who had to pay a one-off to the Algerians, that it was €1.5 billion. I don't want to, in any case, infer that, that's the level of one-off that we're talking about. I just want to say that it is a historical precedent, and in that case, we were the ones who have to pay. So in this case, the situation is the other way around. So we should expect a certain level of settlement that should benefit us. But settlement, a one-off and part, by repricing of the contracts.

Moving on to the second one, the regulated volumes. I would say that we have 2 different situations in the case of Spain. On the one hand, we have the electricity networks. Electricity networks, the retribution that they get is independent of the demand. So therefore, in those ones, we should not see any impact on an EBIT -- on our results. So it's true that it can increase the level of tariff deficit that there is in the system.

And in the case of gas distribution networks. It is, as you just mentioned, due to the fact that we have the parametric, we are subject to a demand reduction. But I mean, I think it's too early in order to know how big that demand reduction is going to be. In the residential customers, these residential customers, we don't see that, and that's an important part of our margin. We don't see that there's going to be a substantial reduction because actually, the clients, they are staying home. And if there is a reduction, that reduction should be due more to a climate than to the COVID. And it's in the commercial and in the international sector, it depends on how it's going to evolve.

Moving to the third question. As we said in the last quarter's presentation, in the target -- in the 2020. We are going to reach a commitment -- efficiency commitment that we have for 2022, we're going to reach it 2 years in advance. It's true, as you said, that now things might be a bit complicated, but actually, in all of the projections that we're currently doing, in all of them, the level of OpEx that we have is below the level of OpEx that we had on the budget.

So actually, in all of our projections, we don't see any reasons to change the commitment that we did in the last result presentation. Actually, OpEx is going to be lower. And as the President has said before, we are actively managing all of our cash outlays with OpEx, with CapEx, with working capital. And we are making efforts in order not only to achieve what we had forward in the budget, but actually having more stringent targets than the one that we had at the beginning of the year.

Operator

The next question comes from Jorge Guimarães of JB Capital Markets.

Jorge Guimarães

Actually, most of them have already been answered. So I just have two. Firstly, one clarification on the buyback. The portion that is now being suspended is the one that runs from June '19 to June '20? This is just a clarification. And the second one, there were some news in Spanish press, which seem to point out that you could be running for a renegotiation of the NPLs concessions, together or not with the partner. If you could elaborate a bit on this.

Steven Fernández

Right. Thank you. On the buyback, we are holding the buyback until we have more visibility. Period. So there is no distinction between tranche 2, tranche 3. When and if we have more visibility, then we make a decision how we proceed with the buyback. But for the time being, we're temporarily holding it. Again, we think this is the prudent thing to do in light of the current environment and the lack of visibility.

Francisco Reynés Massanet

Regarding EMPL. I mean, we stick with the guidance that we gave when we presented the strategic presentation. And therefore, we don't see any reason to give any update regarding to that. And I would say that what has been published in the press, there are many things that are published in the press, but yes, I mean, I understand that journalists must publish something every day. And it's a pressure that they have on their side.

Operator

Of course. So the last question comes from Manuel Palomo of Exane BNP.

Manuel Palomo

I am glad to see that you're all well. Most of my questions have been already answered. So I was -- it's the 2 -- question number one is on the working capital improvement of €616 million. I understand that there's plenty of managerial actions that is taken in order to make this achievement. I wonder whether restructuring is one of them. And if so, if you could give us some figures regarding it.

And the second one is a bit more specific. I mean given you mentioned at the beginning of the presentation that you expect this crisis to last for longer, but also that you expect the company for last another at least 117 years. My question is why you approached, at least for now, to prioritize shareholder remuneration plus 5% versus CapEx, minus 30%.

Abel Arbat

Sorry, Manuel, but we don't understand absolutely anything that you're saying.

Francisco Reynés Massanet

Okay. We hear you kind of, Manuel, if you don't mind. I think the first question was around what I think [indiscernible] as you're out of the matrix.

Manuel Palomo

Can you hear me now?

Francisco Reynés Massanet

Yes, that's much better.

Manuel Palomo

Okay. Sorry, my headphones, I guess that they were lower, running out of battery. So I repeat. First question was on working capital and on the €616 million improvement. You've mentioned that you've taken many managerial actions, and I wonder whether the reverse structuring was something or has something to do with it? And if so, if you could give us a bit of light on what is the amount?

And then the second one, I mean, at the beginning of the presentation, the Chairman mentioned that you expect the crisis to last for longer, but also that the company will last for at least another 175 years. So my question is why your approach, at least for now is to prioritize the shareholder remuneration, which is up 5% versus the CapEx, which is 33% down year-on-year. And because I guess, the CapEx would arguably make the future of the company more sustainable. I mean, is this current situation just something temporarily, despite you expect the crisis to last for longer?

Francisco Reynés Massanet

Okay. Referring the first question on the working capital, I refer to the answer that Jon has been -- has done to another question. My only remark on that, that the factoring mechanism, only to refer that the figures that we have factored at the end of this first quarter is less -- more or less, less than the figure that we have at the end for December. That means that factoring is not an element that has an improvement in this quarter referred or the last year. The figure is around less of €100 million less compared with the [indiscernible] year.

Jon Ganuza

Going back to CapEx. I think that, Manuel, you should, if you look at the total figures, but it's good to have a breakdown. So for example, if you look at networks in Spain, we are -- we have invested in this first quarter, the same as last year. In LatAm South, we have also invested the same as we did last year. And if we move on to LatAm North, we've invested more than we did last year. So looking at the networks business, we have invested the same or even more as last year.

The reduction is mainly due to the factor that last year, we were in the peak of building the renewables in Spain, and that's why we see a slight decrease in the CapEx investment in the first quarter. Because the first quarter was only partially affected by the COVID and, therefore, there was no measure taken, undertaking only half of the management to reduce the CapEx vis-à-vis last year. And that wasn't related to the fact that we have less renewables that are being built this year compared to last year.

Steven Fernández

So Manuel, this is Steven. If I may just also around -- I'll introduce something a little bit more conceptual. Perhaps we haven't been communicating adequately our strategy when it comes to growth. I think there is this prevailing idea that we don't want to grow the company, and it's absolutely false. And we'd like to take this opportunity to make sure that people understand. We want to invest. We would like to invest.

In a blue sky scenario, we're going to be investing everything we can. And a good example of that is the share buyback policy where we said we have €2 billion that we would like to invest. And in the absence of investments, we're going to be dedicating to buying back the shares. But one thing is investing for the sake of gaining size and another thing is investing for value. And this is a company that has been very clear from Day 1. We privilege value over size, not size over value. So if what you look for is a company that invests regardless of the returns, regardless of the risk profile of the investments, et cetera, then this is not the company. And we understand that some people may not like that, that's fair enough.

But we have to be clear. We invest for value over size, not for size over value. Investing in size over value is the easiest thing that you can do, and it's just like -- and by the way, it goes back to the core of the long-term shareholder -- long-term management remuneration, everything points to that direction. It's very easy to grow our company. It's very easy as well to destroy value doing it. It's a lot more difficult to grow our company and create value. So we have to be very selective, and that's what we're doing right now.

Abel Arbat

Okay. So that was the last question. Thank you, Manuel. And with that, we've concluded our first quarter results presentation. We thank you all for joining, and we hope that you continue to be safe and well. And we look forward to continuing our discussions and maintaining the dialogue with you via the capital markets team and the conference calls that we valuably maintain. So thank you very much, and be well. Bye-bye.

Steven Fernández

All right. Thank you.

Francisco Reynés Massanet

Bye.

Jon Ganuza

Thank you. Bye.