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Galp Energia

Quarterly Report • Sep 12, 2017

1908_iss_2017-09-12_aec1c2bd-1c39-4638-b176-569c449066d3.pdf

Quarterly Report

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Galp Gás Natural Distribuição, S.A.

Management Report and Accounts First Half 2017

Head Office: Rua Tomás da Fonseca – Torre C – 1600-209 Lisboa Share Capital: 89,529,141.00 EUR MCRC/NIPC: 509148247

1. EXECUTIVE SUMMARY
3
2. KEY INDICATORS4
3. ECONOMIC AND FINANCIAL REVIEW5
4. RELEVANT EVENTS OCCURRED AFTER THE CLOSING OF THE ACCOUNTS8
ANNEX
10
I -
GOVERNING BODIES10
II -
NOTICE AND STATEMENT11
III -
CONSOLIDATED FINANCIAL STATEMENTS
15

1. Executive Summary

Main Highlights during the first half of 2017

Consolidated EBITDA of Galp Gás Natural Distribuição, S.A. ("GGND") was €51.5 million, down by €14.4 million which corresponds to a 22% decrease year-on-year ("YoY") mainly due to the lower remuneration rate ("RoR") established by the Portuguese regulator ERSE.

Net Income reached €9.7 million, a decrease of 31% or €4.4 million YoY which followed the decrease in allowed revenues from the revision of the RoR despite of the €9.5 m interest costs reduction during the period mainly due to the debt restructuring by means of bond issuance in the 3Q16.

Financial position of GGND in the first half of 2017 is in line with the ending balance of 31 December 2016.

The Cash Flow from Operating Activities was €37.0 million, 35% decrease YoY, which was negatively impacted by RoR reduction.

Regulatory Framework

The natural gas distribution business is supported by the application of regulated tariffs defined by ERSE, based on allowed revenues, which are calculated based on the recovery of the capital, recovery of allowed operating costs, and adjustments mainly related to the tariff deviation.

The recovery of the capital is calculated by multiplying the regulated asset base by the RoR published by the ERSE, plus the recovery of depreciation of the assets.

The tariff deviation is defined as the difference between the estimated allowed revenues for year n-2 and the actual allowed revenues in that same period.

The RoR is calculated every Gas Year according to the average yield of 10-year treasury bonds issued by the Portuguese State.

The RoR established by the ERSE for the Gas Year 2016-2017 was 6.20% in the Natural Gas Distribution business, compared to 7.94% in the previous Gas Year. For the Gas Year 2017-2018, the RoR was set at 6.65%

Risk Management

As a holding company of the regulated group companies which operate in the natural gas distribution sector, the existence of a robust internal regulatory system and the disciplined approach to the risks are important aspects of GGND. GGND's operations are of a long term nature, which implies that many of the risks to which it is exposed are permanent. However, the internal framework assures that the activities are conducted in accordance with strategic objectives, and the risks are properly managed in a way that created long-term value for the shareholders.

The major risks of GGND identified are i) Regulatory and Compliance Risks, ii) Information System Risks, iii) Project Implementation Risks, iv) Financial Risks.

GGND's main risks are managed, monitored and communicated according to the general guidelines accepted by GGND and its group of companies.

2. Key Indicators

Operational Indicators FIRST HALF
UNIT 2016 2017 Variation % Var.
Connection Points # 1,026,416 1,039,304 12,888 1.26%
Gas Volume Distributed kcm 8,310,781 8,341,663 30,882 0.4%
Total Network Extension km 11,752 11,911 160 1.4%
20bar network km 648 648 0 0.0%
4bar network km 11,103 11,263 160 1.4%
CAPEX € K 8,421 11,277 2,856 33.9%
Financial Indicators FIRST HALF
(thousand euros) 2016 2017 Variation % Var.
Income from Sales and Services Rendered 108,683 94,821 (13,862) (13%)
EBITDA1 65,894 51,490 (14,404) (22%)
EBIT 45,224 30,560 (14,664) (32%)
Financial Results (14,066) (4,550) 9,516 68%
Net Income 14,152 9,724 (4,428) (31%)
Cash Flow from Operating Activities 57,064 36,955 (20,109) (35%)
Cash Flow from Investing Activities (10,943) (3,967) 6,976 64%
Financial Debt 2 638,253 630,743 (7,510) (1%)
Net Fixed Assets 3 1,113,987 1,104,259 (9,728) (1%)

1 Operating Result excluding Amortisation, depreciation and impairment loss on fixed assets

2 Bank loans (non-current) + Bonds + Shareholder loan + Bank loan and overdrafts

3Tangible Assets + Intangible Assets

3. Economic and Financial Review

3.1 ANALYSIS OF RESULTS

Income Statement FIRST HALF
(thousand euros) 2016 2017 Variation
Income from Sales and Services Rendered 108,683 94,821 (13,862)
Cost of Sales (2,281) (1,457) 824
Net Operating Cost (40,508) (41,874) (1,366)
External Supplies and Services (36,740) (35,748) 992
Employee Costs (9,183) (10,811) (1,628)
Other Operating Income / (Cost) 4,870 4,742 (128)
Provision and Impairment Loss on Receivables 545 (57) (602)
EBITDA 65,894 51,490 (14,404)
Amortisation, Depreciation and Impairment Loss (20,670) (20,930) (260)
EBIT 45,224 30,560 (14,664)
Financial Results (14,066) (4,550) 9,516
Profit before Tax 31,158 26,010 (5,148)
Taxes (7,668) (6,728) 940
Energy Sector Extraordinary Contribution (9,338) (9,558) (220)
Consolidated Net Income 14,152 9,724 (4,428)

INCOME FROM SALES AND SERVICES RENDERED

Income from Sales and Services rendered reached €94.8 million in first half of 2017, showing 13% decrease or €13.9 million YoY. This variation was due to the decrease in allowed revenues, essentially because of the lower RoR published by ERSE.

NET OPERATING COSTS

Net Operating Costs was €41.9 million, corresponding to a 3% increase. This result was primarily due to the increased employee costs.

EBITDA

GGND recorded EBITDA of €51.5 million which is 22% lower YoY, mainly due to the decrease of RoR and increase in the Net Operating Costs.

AMORTISATION AND DEPRECIATION

Amortisation and Depreciation reached €20.9 million which is in line with the first half of 2016.

FINANCIAL RESULTS

The Financial Results was -€4.6 million which shows an improvement of €9.5 million. The reduction of the financing costs is achieved by the bond issuance as a result of the lower interest margin.

NET INCOME

Net Income of the period was €9.7 million which is 31% lower YoY mainly due to the decrease of RoR which was partially offset by the reduction of the financing costs.

3.2 REVIEW OF THE FINANCIAL SITUATION

Financial Position
(thousand euros) 31 December,
2016		 30 June,
2017		 Variation
Fixed Assets 1,113,987 1,104,259 (9,728)
Investments in Associates and Jointly Controlled Entities 15,059 11,141 (3,918)
Goodwill and Other Investments 2,278 2,278 0
Other Receivables and Deferred Tax Asset 48,912 40,796 (8,116)
Non-current Assets 1,180,236 1,158,474 (21,762)
Inventories, Trade and Other Receivables 88,047 88,405 358
Cash and Cash Equivalents 43,064 10,114 (32,950)
Total Assets 1,311,347 1,256,993 (54,354)
Equity 265,143 212,724 (52,419)
Long Term Debt 624,952 619,415 (5,537)
Other Non-Current Liabilities 325,078 331,852 6,774
Deferred Tax Liability 9,410 7,422 (1,988)
Non-Current Liabilities 959,440 958,689 (751)
Bank Loans and Overdrafts 13,301 11,328 (1,973)
Trade, Other and Current Income Tax Payables 73,463 74,252 789
Current Liabilities 86,764 85,580 (1,184)
Total Liabilities and Equity 1,311,347 1,256,993 (54,354)
Net Debt 1 595,189 620,629 25,440
Capital Employed2 860,332 833,353 (26,979)

1 Bank Loans (Non-Current) + Bonds + Shareholder Loan + Bank loan and Overdrafts - Cash and Cash Equivalents

2 Equity + Net Debt

In the first half of 2017, Non-Current Assets decreased by €21.8 million due to depreciation of the Fixed Assets. Also, upon the redemption of the shareholder loan by and dividend received from Tagusgás – Empresa de Gás do Vale do Tejo, S.A., the Other Receivables decreased by €5.4 million and Investments in associates and jointly controlled entities decreased by €3.7million respectively.

The decrease of the Total Assets is due to the lower balance of Cash and Cash Equivalents after GGND made dividend payment of €57.8 million in May 2017.

Total Equity of GGND decreased to € 212.7 million mainly due to the dividend distribution and lower net income during the period. The Non-Current and Current Liability were maintained at the same level of 31 December 2016.

Financial Ratios FIRST HALF
2017
Net Debt 1
/ EBITDA		 6.1x
Debt Service Coverage Ratio 3.6x
1 Net
Debt is calculated according t		 o the Euro Medium Term Note Programme (EMTN) which includes the aggregate

amount of all obligations in respect of indebtedness

In 19 September 2016, GGND has issued notes amounting €600 million under the Euro Medium Term Note Programme ("Bond"). Under the programme, a set of Financial Ratios were defined. As of 30 June 2017, the financial ratios are in compliance.

3.3 REVIEW OF THE CASH FLOW STATEMENT

Cash Flow Statement FIRST HALF
(thousand euros) 2016 2017 Variation
Cash and Cash Equivalents at the Beginning of the Period 26,176 43,030 16,854
Received from Customers 193,831 147,967 (45,864)
Paid to Suppliers (50,357) (51,768) (1,411)
Staff Related Costs (6,112) (6,231) (119)
Other Operating Payments and Receipt (42,568) (37,756) 4,812
Income Tax (37,730) (15,257) 22,473
Cash Flow from Operating Activities 57,064 36,955 (20,109)
Cash Flow from Capital Expenditure (11,096) (13,250) (2,154)
Dividends from Associated Companies, Financial Investments 153 9,283 9,130
Net New Loans (28,049) (7,654) 20,395
Net Financial Expenses (426) (519) (93)
Dividends Paid (9,580) (57,765) (48,185)
Cash and Equivalents at the End of the Period 34,242 10,080 (24,162)

During the first half of 2017, Cash Flow from Operating Activities decreased by €20.1 million YoY mainly impacted by the decrease of RoR. After the payment of dividends of €57.8 million, the Cash and equivalents at the end of the period stands at €10.1 million.

4. Relevant Events Occurred after the Closing of the Accounts

No materially relevant events occurred after the closing of the financial period which should be mentioned.

Lisbon, 04 September 2017

The Board of Directors

Pedro Carmona de Oliveira Ricardo Chairman

_______________________________________________________

Maria Leonor Galo Pedrosa dos Santos Machado de Baptista Branco Deputy Chairman

_______________________________________________________

Gabriel Nuno Charrua de Sousa Member

_______________________________________________________

Naohiro Hayakawa Member

_______________________________________________________

José Manuel Rodrigues Vieira Member

_______________________________________________________

Ana Isabel Simões Dias dos Santos Severino Member

_______________________________________________________

Maria Marta Geraldes Member

_______________________________________________________

Yoichi Noborisaka Member

_______________________________________________________

Annex

I - Governing Bodies

Composition of the governing bodies of GGND as of 30 June 2016 is as follows:

Board of Directors José Manuel Rodrigues Vieira
(COO)
Chairman: Supervisory Board
Pedro Carmona de Oliveira Ricardo Chairman:
Vice-Chairman Daniel Bessa Fernandes Coelho
Maria Leonor Galo Pedrosa dos Santos Machado
de Baptista Branco		 Members:
Pedro Antunes de Almeida
Members: Armindo José Faustino dos Santos Marcelino
Gabriel Nuno Charrua de Sousa Suplente:
Naohiro Hayakawa Amável Alberto Freixo Calhau
José Manuel Rodrigues Vieira Statutory Auditors
Ana Isabel Simões Dias dos Santos Severino Standing:
Maria Marta de Figueiredo Geraldes Bastos
Yoichi Noborisaka PricewaterhouseCoopers
&
Associados
–
Sociedade de Revisores Oficiais de Contas, Lda.,
inscrita na OROC com o nº 183 e inscrita na CMVM
Executive Committee com o nº 20161485, representada pelo Dr.
António Joaquim Brochado Correia, ROC n.º 1076,
Chairman: ou pela Dra. Ana Maria Ávila de Oliveira Lopes
Bertão, ROC n.º 902.
Gabriel Nuno Charrua de Sousa (CEO) Alternate:
Members: Dr. José Manuel Henriques Bernardo, ROC nº 903.
Naohiro Hayakawa (CFO)
General Shareholders Meeting Board Company Secretary
Chairman: Standing:
Rui de Oliveira Neves Rita Picão Fernandes
Secretary: Alternate:
Maria Helena Goldschmidt Inês Figueira

II - Notice and Statement

1. Shareholders with qualifying holdings on 30 June 2017

Shareholders Nr. of Shares Nominal Value %
Galp Gás & Power, SGPS, S.A. 69,385,084 1.00 EUR 77.50%
MEET Europe Natural Gas, Lda. 20,144,057 1.00 EUR 22.50%
Total 89,529,141 1.00 EUR 100.00%

2. Share ownership on 30 June 2016 by current members of the Board of Directors and the supervisory bodies

As of 30 June 2017, none of the members of the administration and supervisory board held shares or bonds issued by GGND.

3. Main Transactions between related parties during the first half of 2017

Article no. 246, paragraph 3 c) of the CVM.

During the first half of 2017 there were no relevant transactions between GGND related parties that had a significant effect on its financial situation or respective performance, nor that had an impact on the information included in the annual report concerning the financial year 2016, which were susceptible to have a significant effect on its financial position or on its respective performance over the first six months of the financial year 2017.

4. Statement of compliance of information presented

Statement of compliance of the Board of Directors

According to article 246, paragraph 1. c) of the CVM, the Board of Directors of GGND declares that:

To the best of their knowledge, (i) the information presented in the financial statements concerning the first half of the financial year 2017 was produced in conformity with the applicable accounting requirements and gives a true and fair view of GGND's assets and liabilities, financial position and results as well as the companies included in the consolidation as a whole, and (ii) the report and accounts for the first half of 2017 faithfully describes the main developments that occurred during the period and the impact on the income statements, as well as a description of the principal risks and uncertainties for the next six months.

Lisbon, 04 September 2017

The Board of Directors Chairman:

Pedro Carmona de Oliveira Ricardo

Vice-Chairman:

Maria Leonor Galo Pedrosa dos Santos Machado de Baptista Branco

_______________________________________________________

_______________________________________________________

_______________________________________________________

_______________________________________________________

Members:

Gabriel Nuno Charrua de Sousa

Naohiro Hayakawa

José Manuel Rodrigues Vieira

Ana Isabel Simões Dias dos Santos Severino

_______________________________________________________

_______________________________________________________

_______________________________________________________

_______________________________________________________

Maria Marta Geraldes

Yoichi Noborisaka

Statement of compliance of the Supervisory Board

_______________________________________________________

_______________________________________________________

_______________________________________________________

_______________________________________________________

According to article 246, paragraph 1. c) of the CVM, each of the members of the Supervisory Board of GGND mentioned below declares that, to the best of their knowledge, the information presented in the financial statements concerning the first half of the financial year 2017 was produced in conformity with the applicable accounting requirements and gives a true and fair view of GGND's assets and liabilities, financial position and results as well as the companies included in the consolidation as a whole, and the report and accounts for the first half of 2017 faithfully describes the main developments that occurred during the period and the impact on the income statements, as well as a description of the principal risks and uncertainties for the next six months.

Lisbon, 07 September 2017

The Supervisory Board

Chairman:

Daniel Bessa Fernandes Coelho

Members:

Pedro Antunes de Almeida

Armindo José Faustino dos Santos Marcelino

Alternate:

Amável Alberto Freixo Calhau

III - CONSOLIDATED FINANCIAL STATEMENTS

GALP GÁS NATURAL DISTRIBUIÇÃO, S.A. AND SUBSIDIARIES

Financial Statements and Notes to the Consolidated Financial Statements as of 30 June 2017

CONSOLIDATED STATEMENT OF FINANCIAL POSITION 3
CONSOLIDATED INCOME STATEMENT 4
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 5
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 6
CONSOLIDATED STATEMENT OF CASH FLOW 7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 30 JUNE 2017 8
1.INTRODUCTION 8
2.SIGNIFICANT ACCOUNTING POLICIES 9
2.1.
Changes in accounting policies 10
3.CONSOLIDATED COMPANIES 11
3.1.
Consolidation perimeter 11
4.FINANCIAL INVESTMENTS 12
4.1.
Investments in associates 12
4.2.
Financial assets held for sale 12
4.3.
Results from financial investments 13
4.4.
Dividends from financial investments 13
5.OPERATING INCOME 14
6.OPERATING COSTS 15
7.SEGMENT REPORTING 16
8.FINANCIAL INCOME AND COSTS 18
9.INCOME TAX 18
10.EARNINGS PER SHARE 20
11.GOODWILL 21
12.TANGIBLE AND INTANGIBLE ASSETS 21
12.1.
Changes in tangible assets: 21
12.2.
Changes in intangible assets: 22
12.3.
Main events occurring during the period ended 30 June 2017: 23
12.4.
Amortisation, depreciation and impairment of the period 23
13.GOVERNMENT GRANTS 23
14.OTHER RECEIVABLES 24
15.TRADE RECEIVABLES 25
16.INVENTORIES 26
17.OTHER FINANCIAL INVESTMENTS 27
18.CASH AND CASH EQUIVALENTS 27
19.SHARE CAPITAL 28
20.RESERVES 28
21.NON-CONTROLLING INTERESTS 30
22.LOANS 31
23.POST-EMPLOYMENT AND OTHER EMPLOYEE BENEFITS 33
24.OTHER PAYABLES 34
25.PROVISIONS 35
26.TRADE PAYABLES 36
27.OTHER FINANCIAL INSTRUMENTS – FINANCIAL DERIVATIVES 36
28.RELATED PARTIES 36
29.REMUNERATION OF THE BOARD 37
30.DIVIDENDS 37
31.OIL AND GAS RESERVES 38
32.FINANCIAL RISK MANAGEMENT 38
33.CONTINGENT ASSETS AND LIABILITIES 38
34.FINANCIAL ASSETS AND LIABILITIES AT BOOK VALUE AND FAIR VALUE 38
35.INFORMATION ON ENVIRONMENTAL MATTERS 38
36.SUBSEQUENT EVENTS 38
37.APPROVAL OF THE FINANCIAL STATEMENTS 38

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Galp Gás Natural Distribuição, S.A. and subsidiaries

Consolidated statement of financial position as of 30 June 2017 and 31 December 2016

(A mo unts stated in tho usand Euro s - €K)

ASSETS Notes June 2017 December
2016
Non-current assets:
Tangible assets 12 534 543
Goodwill 11 2.275 2.275
Intangible assets 12 1.103.725 1.113.444
Investments in associates and joint ventures 4 11.141 15.059
Financial assets held for sale 4 3 3
Other receivables 14 22.682 31.754
Deferred tax assets 9 18.114 17.158
Total non-current assets: 1.158.474 1.180.236
Current assets:
Inventories 16 1.346 1.207
Trade receivables 15 12.391 10.094
Other receivables 14 74.668 76.746
Cash and cash equivalents 18 10.114 43.064
Total current assets: 98.519 131.111
Total assets: 1.256.993 1.311.347
EQUITY AND LIABILITIES Notes June 2017 December
2016
Equity:
Share capital 19 89.529 89.529
Reserves 20 6.278 3.166
Retained earnings 88.355 127.757
Consolidated net results for the period 10 9.385 25.044
Total equity attributable to shareholders: 193.547 245.496
Non-controlling interests 21 19.177 19.647
Total equity: 212.724 265.143
Liabilities:
Non-current liabilities:
Bank loans 22 23.793 29.462
Shareholder loans 22 595.622 595.490
Other payables 24 231.641 232.870
Post-employment and other employee benefits liabilities 23 58.476 60.122
Deferred tax liabilities 9 7.422 9.410
Provisions 25 41.735 32.086
Total non-current liabilities:
Current liabilities:		 958.689 959.440
Bank loans and overdrafts 22 11.328 13.301
Trade payables 26 14.116 14.196
Other payables 24 50.363 44.107
Current payable income tax 9 9.773 15.160
Total current liabilities: 85.580 86.764
Total liabilities: 1.044.269 1.046.204
Total equity and liabilities: 1.256.993 1.311.347

The accompanying notes form an integral part of the consolidated statement of financial position as of 30 June 2017.

CONSOLIDATED INCOME STATEMENT

(A mo unts stated in tho usand Euro s - €K) Galp Gás Natural Distribuição, S.A. and subsidiaries Consolidated income statement for the six month period ended 30 June 2017 and 2016

Notes June 2017 June 2016
Operating income:
Sales 5 2.302 4.257
Services rendered 5 92.519 104.426
Other operating income 5 16.397 13.640
Total operating income: 111.218 122.323
Operating costs:
Cost of sales 6 1.457 2.281
External supplies and services 6 35.748 36.740
Employee costs 6 10.811 9.183
Amortisation, depreciation and impairment loss on fixed assets 6 20.930 20.670
Provisions and impairment losses on receivables 6 57 (545)
Other operating costs 6 11.655 8.770
Total operating costs: 80.658 77.099
Operating result: 30.560 45.224
Financial income 8 91 243
Financial costs 8 (4.858) (14.953)
Results from financial investments and impairment losses on goodwill 4 and 11 217 644
Result before taxes: 26.010 31.158
Income tax 9 (6.728) (7.668)
Energy sector extraordinary contribution 9 (9.558) (9.338)
Consolidated net result for the period 9.724 14.152
Result attributable to:
Non-controlling interests 21 339 1.002
Galp Gás Natural Distribuição, S.A. shareholders 10 9.385 13.150
Consolidated net result for the period 9.724 14.152
Earnings per share (in Euros) 10 0,10 0,15

The accompanying notes form an integral part of the consolidated income statement for the six month period ended 30 June 2017.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Galp Gás Natural Distribuição, S.A. and subsidiaries

Consolidated Statement of Comprehensive Income for the six month period ended 30 June 2017 and 30 June 2016 and for the year ended 31 December 2016

(Amounts stated in thousand Euros - €K)

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The accompanying notes form an integral part of the consolidated statement of comprehensive Income for the six month period ended 30 June 2017.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Galp Gás Natural Distribuição, S.A. and subsidiaries

Consolidated Statement of changes in equity for the six month period ended 30 June 2017 and 30 June 2016 and for the year ended 31 December 2016

(Amounts stated in thousand Euros - €K)

Ch
in t
he
iod
No
ang
es
per		 tes Sh
are
Ca
ita
l
p		 al
Leg
Re
ser
ve
s
(N
20
)
ote		 her
Ot
res
erv
es
(N
20
)
ote		 dg
ing
He
res
erv
es
(N
20
)
ote		 Re
tai
ned
rni
ea
ngs
-
ial
Ga
ins
act
uar
and
lo
sse
s -
n f
sio
und
pen
(N
23
)
ote		 Re
tai
ned
rni
ea
ngs		 lida
Co
te
nso
d n
et
inc
e f
om
or
the
rio
d
pe		 Su
b-T
l
ota		 No
n
llin
tro
con
g
int
sts
ere
(N
ote
21
)		 Tot
al
Ba
lan
of
1 J
y 2
01
6
ce
as
an
uar		 89
,52
9		 2,9
86		 (79
)		 (23
7)		 (16
,19
8)		 13
1,6
87		 29
,62
0		 23
7,3
08		 19
,24
5		 25
6,5
53
Con
soli
dat
ed
inc
e fo
r th
erio
d
net
om
e p		 10 - - - - - - 13,
150		 13,
150		 1,0
02		 14,
152
Oth
d lo
d in
ains
nise
Eq
uity
er g
an
sse
s re
cog		 - - - 31 (3,
)
956		 - - (3,
)
925		 - (3,
)
925
hen
e fo
r th
d
Com
sive
inc
erio
pre
om
e p		 - - - 31 (3,
956
)		 - 13,
150		 9,2
25		 1,0
02		 10,
227
iden
ds
dist
ribu
ted
/ I
div
iden
ds
Div
nte
rim		 - - - - - (8,
)
970		 - -
(8,
)
970		 (1,
)
068		 (10
8)
,03
Inc
of
by
riat
ion
of
fit
rea
se
res
erv
es
app
rop
pro
lan
of
Ba
30
Ju
20
16
ce
as
ne		 -
89
,52
9		 448
3,4
34		 -
(79
)		 -
(20
6)		 -
(20
4)
,15		 29,
620
15
2,3
37		 (29
,62
0)
13
,15
0		 448
23
8,0
11		 -
19
,17
9		 448
25
7,1
90
lan
of
1 J
y 2
01
6
Ba
ce
as
an
uar		 89
,52
9		 2,9
86		 (79
)		 (23
7)		 (16
,19
8)		 13
1,6
87		 29
,62
0		 23
7,3
08		 19
,24
5		 25
6,5
53
Con
soli
dat
ed
inc
e fo
r th
erio
d
net
om
e p		 10 - - - - - - 25,
044		 25,
044		 08
1,5		 26,
552
Oth
ains
d lo
nise
d in
Eq
uity
er g
an
sse
s re
cog		 - - - 43 (8,
382
)		 - - (8,
339
)		 (26
)		 (8,
365
)
e fo
Com
hen
sive
inc
r th
erio
d
pre
om
e p		 - - - 43 (8,
382
)		 - 25,
044		 16,
705
-		 1,4
82		 18,
187
Div
iden
ds
dist
ribu
ted
/ I
rim
div
iden
ds
nte		 - - - - - (8,
522
)		 - (8,
522
)		 (1,
068
)		 (9,
590
)
har
al o
f su
bsid
Inc
in s
apit
iarie
rea
se
e c
s		 - - 5 - - - - 5 (12
)		 (7
)
Ba
lan
of
31
De
ber
20
16
ce
as
cem		 89
,52
9		 3,4
34		 (74
)		 (19
4)		 (24
,58
0)		 15
2,3
37		 25
,04
4		 24
5,4
96		 19
,64
7		 26
5,1
43
lan
of
y 2
01
Ba
1 J
7
ce
as
an
uar		 89
,52
9		 3,4
34		 (74
)		 (19
4)		 (24
,58
0)		 2,3
37
15		 25
,04
4		 24
96
5,4		 19
,64
7		 26
43
5,1
Con
soli
dat
ed
e fo
r th
d
net
inc
erio
om
e p		 10 - - - - - - 9,3
85		 9,3
85		 339 9,7
24
Oth
d lo
d in
ains
nise
Eq
uity
er g
an
sse
s re
cog		 - - - (14
9)		 771 - - 622 - 622
Com
hen
e fo
r th
d
sive
inc
erio
pre
om
e p		 - - - (14
9)		 771 - 9,3
85		 10,
007		 339 10,
346
Div
iden
ds
dist
ribu
ted
/ I
rim
div
iden
ds
nte
of
by
of
fit
Inc
riat
ion
rea
se
res
erv
es
app
rop
pro		 30 -
-		 -
3,2
61		 -
-		 -
-		 -
-		 (61
,95
6)
21,
783		 -
(25
4)
,04		 (61
,95
6)
-		 (80
9)
-		 (62
,76
5)
-
Ba
lan
of
30
Ju
20
17
ce
as
ne		 89
,52
9		 6,6
95		 (74
)		 (34
3)		 (23
,80
9)		 11
2,1
64		 9,3
85		 19
3,5
47		 19
,17
7		 21
2,7
24

The accompanying notes form an integral part of the consolidated statement of changes in equity for the six month period ended 30 June 2017.

CONSOLIDATED STATEMENT OF CASH FLOW

Galp Gás Natural Distribuição, S.A. and subsidiaries

Consolidated Statement of Cash Flow for the six month period ended 30 June 2017, 30 June 2016 and for the year ended 31 December 2016

(Amounts stated in thousand Euros - €K)

Notes June 2017 June 2016 December 2016
Operating activities:
Cash received from customers 147.967 193.831 319.942
Cash (payments) to suppliers (51.768) (50.357) (103.758) a)
Payments relating to employees (5.083) (4.968) (8.306) a)
(Payments) relating to Tax on oil products ("ISP") (210) (250) (377)
(Payments)/receipts of income taxes (15.257) (37.730) (42.486)
Contributions to the pension fund (126) (54) (310)
Payments to early retirements and pre-retirements (994) (1.048) (2.199)
Payments of insurance expenses with retirements (28) (42) (933)
Other receipts/(payments) relating to the operational activity (37.546) (42.318) (82.294) a)
Cash flows from operating activities (1) 36.955 57.064 79.279
Investing activities:
Receipts from:
Investment grants - - (18)
Interests and similar income 58 8 16
Dividends 4 3.850 - -
Loans obtained 5.375 145 145
9.283 153 143
Payments relating:
Financial investments - - (31)
Tangible assets (176) - (239)
Intangible assets (13.074) (11.096) (21.837)
(13.250) (11.096) (22.107)
Cash flows from investing activities (2) (3.967) (10.943) (21.964)
Financing activities:
Loans obtained - - 600.000
- - 600.000
Payments relating:
Loans obtained (7.654) (28.049) (603.433)
Interests from loans obtained (25) (45) (22.094)
Interests and similar expenses (494) (381) (5.354)
Dividends distributed / Interim dividends 30 (57.765) (9.580) (9.580)
(65.938) (38.055) (640.461)
Cash flows from financing activities (3) (65.938) (38.055) (40.461)
Net change in cash and cash equivalents (4) = (1) + (2) + (3) (32.950) 8.066 16.854
Cash and cash equivalents at the beginning of the period 43.030 26.176 26.176
Cash and cash equivalents at the end of the period 18 10.080 34.242 43.030

(a) Amounts restated in accordance with the accounting policies referred in Note 2.1.

The accompanying notes form an integral part of the consolidated statement of cash flow for the six month period ended 30 June 2017.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 30 JUNE 2017

1. INTRODUCTION

a) Parent Company:

Galp Gás Natural Distribuição, S.A. (hereinafter referred to as GGND or Company) has its Head Office in Rua Tomás da Fonseca in Lisbon, Portugal and its corporate business is the exercise of activities in the energy sector, in particular in the distribution of natural gas, including the service delivery of support to corporate business, in the areas of management, administration and logistics, purchase and supply and information systems.

The Company shareholder structure as of 30 June 2017 is stated in Note 19.

b) The Group:

As of 30 June 2017 the GGND Group ("Group") consists of Galp Gás Natural Distribuição and its subsidiaries which integrates in the natural gas distribution area.

The natural gas business segment encompasses the natural gas distribution, exercised under public interest regime, and natural gas commercialisation as last resort, according to the applicable regulation.

In October 2016, Galp Gás & Power S.G.P.S., S.A. sold 22.5% of Group Galp Gás Natural Distribuição, S.A. to the entity Meet Europe Natural Gas, Ltd.. Such sale resulted from the agreement signed at 28 July 2016 between Galp Energia S.G.P.S., S.A., through its subsidiary Galp Gás & Power, S.A., and Marubeni Corporation and Toho Gas Co., Ltd.. The remaining 77.5% of the share capital of GGND is still held by Galp through its subsidiary Galp Gás & Power, S.A..

Resulting from the agreement, Group GGND is now jointly controlled by Galp Gás & Power, S.G.P.S., S.A. and Meet Europe Natural Gas, Ltd..

2. SIGNIFICANT ACCOUNTING POLICIES

GGND consolidated financial statements were prepared on a going concern basis, at historical cost, except for derivatives financial instruments which are booked at fair value, on the accounting records of the companies included in the consolidation maintained in accordance with International Financial Reporting Standards as adopted by the European Union, effective for the economic year beginning in 1 January 2017. These standards include International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board ("IASB") and International Accounting Standards ("IAS") issued by the International Accounting Standards Committee ("IASC") and respective interpretations – SIC and IFRIC, issued by the Standing Interpretation Committee ("SIC") and International Financial Reporting Interpretation Committee ("IFRIC"). These standards and interpretations are hereinafter referred to as "IFRS".

The Board of Directors considers that these consolidated financial statements and the accompanying notes provide a fair presentation of the consolidated interim financial information prepared in accordance with "IAS 34 – Interim Financial Reporting". In preparing the consolidated financial statements estimates were used that affect the reported amounts of assets and liabilities, as well as the amounts of income and costs of the reporting period. The estimates and assumptions used by the Board of Directors were based on the best information available of the events and transactions in process, at the time of approval of the consolidated financial statements.

As of 30 June 2017 were disclosed only material changes required by IFRS 7 – Financial Instruments: Disclosures. For all other disclosures under this standard refer to the Company's consolidated financial statements as of 31 December 2016.

For a detailed description of the accounting policies adopted by Galp Gás Natural Distribuição refer to the consolidated financial statements of the Company as of 31 December 2016.

2.1. Changes in accounting policies

In the period ended 30 June 2017, the Group reclassified payments related to personnel which were registered under payments to suppliers and other (payments)/receipts related to operational activities.

The financial statements were restated as of 31 December 2016, being the impacts in the financial statement of cash flow described in the table below:

(€ k)
Captions Notes December 2016 reclassifications December 2016
Operating activities:
Cash received from customers 319.942 - 319.942
Cash (payments) to suppliers (104.691) 933 (103.758)
Payments relating to employees (12.165) 3.859 (8.306)
(Payments) relating to Tax on oil products ("ISP") (377) - (377)
(Payments)/receipts of income taxes (42.486) - (42.486)
Contributions to the pension fund (310) - (310)
Payments to early retirements and pre-retirements (2.199) - (2.199)
Payments of insurance expenses with retirements (933) - (933)
Other receipts/(payments) relating to the operational activity (77.502) (4.792) (82.294)
Cash flows from operating activities (1) 79.279 - 79.279
Investing activities:
Receipts from:
Investment grants (18) - (18)
Interests and similar income 16 - 16
Dividends 4 - - -
Loans obtained 145 - 145
143 - 143
Payments relating:
Financial investments (31) - (31)
Tangible assets (239) - (239)
Intangible assets (21.837) - (21.837)
(22.107) - (22.107)
Cash flows from investing activities (2) (21.964) - (21.964)
Financing activities:
Receipts from:
Loans obtained 600.000 - 600.000
600.000 - 600.000
Payments relating:
Loans obtained (603.433) - (603.433)
Interests from loans obtained (22.094) - (22.094)
Interests and similar expenses (5.354) - (5.354)
Dividends distributed / Interim dividends 30 (9.580) - (9.580)
(640.461) - (640.461)
Cash flows from financing activities (3) (40.461) - (40.461)
Net change in cash and cash equivalents (4) = (1) + (2) + (3) 16.854 - 16.854
Cash and cash equivalents at the beginning of the period 26.176 - 26.176
Cash and cash equivalents at the end of the period 18 43.030 - 43.030

For a detailed description of the accounting policies adopted by Galp Gás Natural Distribuição refer to the consolidated financial statements of the Company as of 31 December 2016.

3. CONSOLIDATED COMPANIES

3.1. Consolidation perimeter

The companies included in the consolidation, their head offices, percentage of interest held and their main activities are as follows:

Companies Head Office Percentage of Main activity
City Country interest held
2017		 2016
Group Companies
Holding
Galp Gás Natural Distribuição, S.A. Lisboa Portugal - - Pursue of activities in the energy sector, particularly of natural gas
distribution including service rendering to support corporate management,
administration and logistics, purchases and supply and IT.
Subsidiaries:
Beiragás - Companhia de Gás das Beiras, S.A. Viseu Portugal 59.59% 59.59% Natural gas distribution in medium and low pressure, exercised in the public
interest under the rules applicable in the geographical area of the concession,
covering in particular the construction and operation of infrastructure to
integrate the National Network for Natural Gas Distribution, the promotion of
construction, facilities conversion or adequacy for natural gas use, but also
other activities related to the main subject.
Dianagás - Sociedade Distribuidora de Gás
Natural de Évora, S.A.		 Lisboa Portugal 100.00% 100.00% Natural gas distribution, exercised in the public interest regime, under the
rules applicable in the geographical area of the exploration license of
autonomous local distribution networks and their supply and equipments for
other compatible infrastructures, as well as the pursue of directly and
indirectly related activities.
Duriensegás - Sociedade Distribuidora de
Gás Natural do Douro, S.A.		 Vila Real Portugal 100.00% 100.00% Natural gas distribution, exercised in the public interest regime, under the
rules applicable in the geographical area of the exploration license of
autonomous local distribution networks and their supply and equipments for
other compatible infrastructures, as well as the pursue of directly and
indirectly related activities.
Lisboagás GDL - Sociedade Distribuidora de
Gás Natural de Lisboa, S.A.		 Lisboa Portugal 100.00% 100.00% Natural gas distribution in medium and low pressure, exercised in the public
interest under the rules applicable in the geographical area of the concession,
covering in particular the construction and operation of infrastructure to
integrate the National Network for Natural Gas Distribution, the promotion of
construction, facilities conversion or adequacy for natural gas use, but also
other activities related to the main subject, including exploitation of spare
capacity of telecommunications network installed.
Lusitaniagás - Companhia de Gás do Centro, S.A. Aveiro Portugal 96.84% 96.84% Natural gas distribution in medium and low pressure, exercised in the public
interest under the rules applicable in the geographical area of the concession,
covering in particular the construction and operation of infrastructure to
integrate the National Network for Natural Gas Distribution, the promotion of
construction, facilities conversion or adequacy for natural gas use, but also
other activities related to the main subject, including exploitation of spare
capacity of telecommunications network installed.
Medigás - Sociedade Distribuidora de Gás
Natural do Algarve, S.A.		 Lisboa Portugal 100.00% 100.00% Natural gas distribution, exercised in the public interest regime, under the
rules applicable in the geographical area of the exploration license of
autonomous local distribution networks and their supply and equipments for
other compatible infrastructures, as well as the pursue of directly and
indirectly related activities.
Paxgás - Sociedade Distribuidora de Gás
Natural de Beja, S.A.		 Lisboa Portugal 100.00% 100.00% Natural gas distribution, exercised in the public interest regime, under the
rules applicable in the geographical area of the exploration license of
autonomous local distribution networks and their supply and equipments for
other compatible infrastructures, as well as the pursue of directly and
indirectly related activities.
Setgás - Sociedade de Produção e
Distribuição de Gás, S.A.		 Setúbal Portugal 99.93% 99,93% Natural gas distribution in medium and low pressure, exercised in the public
interest under the rules applicable in the geographical area of the concession,
covering in particular the construction and operation of infrastructure to
integrate the National Network for Natural Gas Distribution, the promotion of
construction, facilities conversion or adequacy for natural gas use, but also
other activities related to the main subject, including exploitation of spare
capacity of telecommunications network installed.

The place of activity (e.g. country) of subsidiaries with non-controlling interests is the same as shown in the table above.

4. FINANCIAL INVESTMENTS

4.1. Investments in associates

Investments in associates, their head offices and the percentage or interest held as of 30 June 2017 and 31 December 2016 are as follows:

(€ k)
Company Head Office Percentage of
interest held		 Book Value Main activity
City
Country		 2017 2016 2017 2016
Tagusgás - Empresa de Gás do Vale do
Tejo, S.A.		 a) Santarém Portugal 41.33% 41.33% 11,141 15,059 Natural gas production and distribution and other pipelined fuelled gases.
Value of financial investments in associates 11,141 15,059

Changes in "Financial investments in associates" for the period ended 30 June 2017 by equity equivalence method was as follows:

(€ k)
Financial investments Initial
balance		 Gains / Losses
(Note 4.3)		 Adjustments to
hedging reserves		 Actuarial gains
and losses		 Dividends
(Note 4.4)		 Final
Balance
Tagusgás - Empresa de Gás do Vale do Tejo, S.A. 15,059 217 (149) (136) (3,850) 11,141

4.2. Financial assets held for sale

The financial investments in associated companies, presented in the consolidated statement of financial position as "Financial assets held for sale", the head offices and the percentage or interest held as of 30 June 2017 and 31 December 2016 are as follows:

(€ k)
Company Percentage of
Head Office
interest held		 Book Value
City Country 2017 2016 2017 2016
AGENEAL Agência Municipal Energia de Almada Almada Portugal 0.04% 0.04% 3 3
3 3

The financial assets held for sale were reflected for accounting purposes at the acquisition cost as described in Note 2.2 paragraph b) (see consolidated financial statements as of 31 December 2016). The net book value of these investments amounts to €3 k as of 30 June 2017.

4.3. Results from financial investments

The caption "Results from financial investments" presented in the consolidated income statement for the period ended 30 June 2017 and 2016 are comprised as follows:

(€ k)
June 2017 June 2016
Effect of applying the equity method:
Associated companies (Note 4.1)		 217 644
217 644

4.4. Dividends from financial investments

The caption "Investments in associates" (Note 4.1) includes the amount of €3,850 k related to dividends corresponding to amounts approved in the General meetings of the respective companies. The amount was entirely received as of 30 June 2017.

5. OPERATING INCOME

The Group's operating income for the periods ended 30 June 2017 and 2016 is as follows:
(€ k)
Captions 2017 2016
Sales:
Goods 2,302 4,257
2,302 4,257
Services Rendered 92,519 104,426
92,519 104,426
Other operating income:
Supplementary income 587 579
Revenues arising from the construction of assets under IFRIC12 11,262 8,504
Investment government grants (Note 13) 4,402 4,424
Others 146 133
16,397 13,640
111,218 122,323

Regarding the construction contracts under IFRIC12, the construction of the concession assets is subcontracted to specialised entities which assume their own construction activity risk. Income and expenses associated with the construction of these assets are of equal amounts and are immaterial when compared to total revenues and operating costs and can be detailed as follows:

(€ k)
Captions 2017 2016
Costs arising from the Construction of Assets under IFRIC12
Revenues arising from the Construction of Assets under IFRIC12		 (11,262)
11,262		 (8,504)
8,504
Margin - -

6. OPERATING COSTS

The results for the periods ended 30 June 2017 and 2016 were affected by the following items of operating costs:

(€ k)
CAPTIONS 2017 2016
Cost of Sales:
Raw and subsidiary materials - 31
Goods 1,443 2,250
Impairment in inventories (Note 16) 14 -
1,457 2,281
External supplies and services:
Subcontracts - Third party access to network 20,630 22,803
Rental costs 626 682
Maintenance and repairs 1,021 971
Insurance 600 625
IT services 3,637 3,268
Electricity, water, vapour and communications
Readings, billing and collection		 262
630		 264
691
Technical Assistance Maintenance and inspection 1,430 1,450
Other specialised services 5,865 5,265
Other external supplies and services 708 554
Other costs 339 167
35,748 36,740
Personnel costs:
Statutory board salaries (Note 29) 227 (37)
Employee salaries 8,666 7,612
Social charges 1,918 1,753
Retirement benefits - pensions and insurance (Note 23) 1,629 1,416
Other insurance 647 637
Other costs (2,276) (2,198)
10,811 9,183
Amortisation, depreciation and impairment on fixed assets
Amortisation and impairment of tangible assets (Note 12) 9 9
Amortisation and impairment of concession agreements (Note 12) 20,921
20,930		 20,661
20,670
Provision and impairment losses on receivables
Provisions and reversals (Note 25)		 91 (611)
Impairment losses on trade receivables (Note 15) (34) 66
57 (545)
Other operating costs
Other taxes 32 115
Costs arising from the construction of Assets under IFRIC12 11,262 8,504
Losses on fixed assets 98 7
Donations 135 -
Other operating costs 128
11,655		 144
8,770
Total of operating costs 80,658 77,099

The caption "Subcontracts – network use" refers to charges for the use of:

  • i) Transportation network use (URT);
  • ii) Global system use (UGS).

7. SEGMENT REPORTING

Business segments

As of 30 June 2017 the GGND Group is constituted by Galp Gás Natural Distribuição and its subsidiaries that develop activities of natural gas distribution and commercialisation.

The Natural Gas business segment reaches Natural Gas Distribution and Last Resort Commercialisation.

In "Others", the Group considered the holding Galp Gás Natural Distribuição, S.A..

The financial statements of the previously identified segments as of 30 June 2017 and 2016 is presented as follows:

Natural Gas Others Eliminations Consolidated
2017 2016 2017 2016 2017 2016 2017 2016
Income
Sales and Services Rendered
Inter-segmental		 94.681
-		 108.543
-		 5.734
5.594		 4.122
3.982		 (5.594)
(5.594)		 (3.982)
(3.982)		 94.821
-		 108.683
-
External 94.681 108.543 140 140 - - 94.821 108.683
Cost of Sales
Cost of goods sold and materials consumed
Variation in Production		 -
(1.457)
-		 -
(2.281)
-		 -
-
-		 -
-
-		 -
-
-		 -
-
-		 (1.457)
(1.457)
-		 (2.281)
(2.281)
-
EBITDA (1) 49.298 63.868 2.249 1.481 - - 51.547 65.349
Non payable expenses
Amortisation, depreciation and impairments
Depreciation and Amortisation
Impairments		 (20.930)
(20.930)
-		 (20.670)
-
-		 -
-		 -
-		 - -
-		 (20.930)
(20.930)
-		 (20.670)
-
-
Provisions (net) (57) 545 - - - - (57) 545
Provisions (91) (90) - - - (91) (90)
Impairments (43) (66) - - - (43) (66)
Provisions - Reversals
Impairments - Reversals		 77 -
701		 -
-		 -
-		 -
-		 77 -
701
EBIT IAS/IFRS 28.311 43.743 2.249 1.481 - - 30.560 45.224
Results from financial investments 217 12.992 - (12.348) - - 217 644
Other financial results (13.318) (14.255) 8.551 (455) - - (4.767) (14.710)
Interest expense (4.211) (14.681) (4.125) (14.538) - - (8.336) (29.219)
Interest income 47 243 13.122 14.094 - - 13.169 14.337
O. Financial charges (9.154) 183 (446) (11) - (9.600) 171
Income tax (4.417) (7.617) (2.311) (51) - - (6.728) (7.668)
Energy sector extraordinary contribution (9.558) (9.338) - - - - (9.558) (9.338)
Non-controlling interests (339) (1.002) - - - - (339) (1.002)
Consolidated net result for the period 896 24.523 8.489 (11.373) - - 9.385 13.150
As of 30 June 2017 and 30 June 2016
OTHER INFORMATIONS
Segment Assets (2)
Financial investments (3)
Other Assets		 13.419
1.246.072		 3
1.265.232		 -
554.115		 17.334
592.404		 -
(556.613)		 -
(563.626)		 13.419
1.243.574		 17.337
1.294.010
Total Consolidated Assets 1.259.490 1.265.235 554.115 609.738 (556.613) (563.626) 1.256.993 1.311.347
Total Consolidated Liabilities 981.424 994.649 619.457 615.181 (556.613) (563.626) 1.044.269 1.046.204
Investment in Tangible and Intangible Assets 11.262 8.504 11.262 8.504

(1) EBITDA = Segment Results/EBIT + Amortisations+Provisions

(2) Net Amount (3) at the Equity Method

Sales and Services Rendered Between Segments

(€ k)
Segments Natural Gas Others TOTAL
Natural Gas - 10,912 10,912
Others 290 - 290
290 10,912 11,202

The core of between segments services rendered are:

i) Others: back-office and management services

The reconciliation between Segment Reporting and Income Statement for the periods ended 30 June 2017 and 2016 is as follows:

(€ K)
Captions of Segment Reporting Caption of Income Statment
2017 2016 2017 2016
Income
Sales and Services Rendered 94.821 108.683 Sales
Services Rendered		 2.302
92.519		 4.257
104.426
Cost of Sales (1.457) (2.281) Cost of Sales (1.457) (2.281)
Other operating income 16.397 13.640
External services and supplies (35.748) (36.740)
Personnel costs (10.811) (9.183)
Other operational costs (11.655) (8.770)
EBITDA IAS/IFRS (1) 51.547 65.349 Operational result before amortisations and provisions 51.547 65.349
Non-disbursable Costs
Amortisations and Adjustments (20.930) (20.670) Amortisations, depreciations and impairment losses on fixed assets (20.930) (20.670)
Provisions (net) (57) 545 Provisions and impairment losses on receivables (57) 545
EBIT IAS/IFRS 30.560 45.224 Other operational costs 30.560 45.224
Financial Investments Results 217 644 Results of financial investments and goodwill impairment losses 217 644
Other Financial Results (4.767) (14.710)
Financial income 91 243
Financial costs (4.858) (14.953)
Income Tax (6.728) (7.668) Income tax (6.728) (7.668)
Energy Sector Extraordinary Contribution (9.558) (9.338) Energy Sector Extraordinary Contribution (9.558) (9.338)
Minoraty Interests (339) (1.002) Non-controlling interests (339) (1.002)
Net Result 9.385 13.150 Net Result 9.385 13.150

8. FINANCIAL INCOME AND COSTS

Financial income and financial costs for the periods ended 30 June 2017 and 2016 are as follows:

(€ k)
Captions 2017 2016
Financial income:
Interest of bank deposits 44 61
Interest and other income with related companies 47 182
91 243
Financial costs:
Interest of loans, bank overdrafts and others (4,151) (77)
Interest with related companies - (14,539)
Charges related to loans (576) (272)
Other financial costs (131) (65)
(4,858) (14,953)
(4,767) (14,710)

9. INCOME TAX

The Group companies headquartered in Portugal in which the Group has an interest equal or greater than 75%, if such participation ensures more than 50% of voting rights, are taxed in accordance with the special regime for the taxation of groups of companies, with taxable income being determined in Galp Energia, S.G.P.S., S.A.. The average tax rate applicable to companies with head offices in Portugal was 25%.

However, estimated income tax of the Company and its subsidiaries is accounted based on their tax results. In the period ended 30 June 2017, €9,773 k was recorded in the caption "Income tax".

(€ k)
Captions 2017 2016
Galp Energia, SGPS, S.A. (Note 28) (9,467) (15,397)
State and other public entities (306) 237
(9,773) (15,160)

Income tax and Energy sector extraordinary contribution for the periods ended 30 June 2017 and 2016 are as follows:

(€ k)
Captions June 2017 June 2016
Current income tax 9,973 16,250
(Excess)/Insufficiency of income tax for the preceding years (91) (722)
Deferred tax (3,154) (7,860)
Income tax 6,728 7,668
Energy sector extraordinary contribution 9,558 9,338
16,286 17,006

Deferred taxes

The tax rates used by GGND Group take into account the risk of substantively enacted tax rates do not become effective, which essentially depends on the reliability associated with the legal certainty of the legislative production.

As for the rate changes observed in Portugal, the Company considered by as substantively enacted at 30 June 2017 and 31 December 2016. The average tax rate applicable to companies with head offices in Portugal was 25%.

As of 30 June 2017 and 31 December 2016, the balance of deferred tax assets and liabilities is as follows:

(€ k)
Deferred Tax June 2017 - Assets
Captions Initial
balance		 Effect in
results		 Effect in
equity		 Other
adjustments		 Final
balance
Adjustment to tangible and intangible assets 7 - - - 7
Retirement benefits and other benefits 12,620 (70) (208) (2) 12,340
Regulated revenue 2,015 1,328 - - 3,343
Non-deductible provisions 1,779 (92) - - 1,687
Others 737 - - - 737
17,158 1,166 (208) (2) 18,114
(€ k)
Deferred tax June 2017 - Liabilities
Captions Initial
balance		 Effect in results Final balance
Adjustment to tangible and intangible assets – Fair Value
Regulated revenue		 (3,434)
(4,822)		 55
1,895		 (3,379)
(2,927)
(€ k)
Deferred tax December 2016 - Assets
Captions Initial
balance		 Effect in
results		 Effect in
equity		 Final
balance
Adjustment to tangible and intangible assets 7 - - 7
Retirement benefits and other benefits 11.285 (1.069) 2.404 12.620
Regulated revenue 2.176 (161) - 2.015
Non-deductible provisions 1.121 658 - 1.779
Others 864 (127) - 737
15.453 (699) 2.404 17.158
Deferred tax December 2016 - Liabilities (€ k)
Captions Initial balance Effect in
results		 Final balance
Adjustment to tangible and intangible assets (4) 4 -
Adjustment to tangible and intangible assets – Fair Value (3.544) 110 (3.434)
Regulated revenue (11.031) 6.209 (4.822)
Accounting revaluations (1.209) 55 (1.154)
(15.788) 6.378 (9.410)

The changes in deferred taxes reflected in Equity correspond to actuarial gains and losses.

10. EARNINGS PER SHARE

Earnings per share for the periods ended 30 June 2017 and 2016 are as follows:

(€ k)
June 2017 June 2016
Results
Net result for purposes of calculating earnings per share (consolidated net result for the period) 9,385 13,150
Number of shares
Weighted average number of shares for purposes of calculation earnings per share (Note 19)		 89,529,141 89,529,141
Basic and diluted earnings per share (value in Euros): 0.10 0.15

As there are no situations that give rise to dilution, the diluted earnings per share are equal to basic earnings per share.

11. GOODWILL

The difference between the amounts paid to acquire an equity share in Group companies and the fair value of the acquired companies' equity as of 30 June 2017 and 31 December 2016 was as follows:

(€ k)
Proportion of equity own at
acquisition date		 Goodwill
Subsidiaries Acquisition
year		 Acquisition
cost		 % Amount December
2016		 June 2017
Duriensegás - Soc. Distrib. de Gás Natural do Douro, S.A. 2006 3,094 25.00% 1,454 1,640 1,640
Lusitaniagás - Companhia de Gás do Centro, S.A. 2002/3 e
2007/8/9		 1,440 1.543% 856 584 584
Beiragás - Companhia de Gás das Beiras, S.A. 2003/6 e
2007		 152 0.94% 107 51 51
2,275 2,275

Goodwill corresponds to values that were accounted for in the financial statements of the holding Galp Gás & Power, S.G.P.S., S.A., concerning differences in acquisition of subsidiaries in years preceding the date of the share increase of Galp Gás Natural Distribuição, S.A..

12. TANGIBLE AND INTANGIBLE ASSETS

Tangible and intangible assets are recorded in accordance with the accounting policy defined in Note 2.3 and 2.4. (see consolidated financial statements as of 31 December 2016). The depreciation / amortisation rates that are being applied are disclosed in the same notes.

12.1. Changes in tangible assets:

Movements in tangible assets as of 30 June 2017 and 31 December 2016:

(€ k)
June 2017 December 2016
Tangible assets: Land and natural
resources		 Land and natural
resources
Acquisition cost:
Balance as of 01 January 938 938
938 938
Accumulated depreciations:
Balance as of 01 January (395) (376)
Depreciations for the period (9) (19)
(404) (395)
Net Amount: 534 543

12.2.Changes in intangible assets:

Movements in intangible assets as of 30 June 2017 and 31 December 2016:

( €
k)
ngib
le a
Inta
ts
sse		 Serv
ice Con
ion
cess
Arra
ts
nge
men
- La
nd		 Serv
ice
Con
ion
cess
Arra
ts -
nge
men
Build
ings		 Serv
ice
Con
ion
cess
Arra
ts -
nge
men
Bas
ic Eq
uipm
ent		 Serv
ice
Con
ion
cess
Arra
ts -
nge
men
Tra
rt
nspo
Equ
ipme
nt		 Serv
ice
Con
ion
cess
Arra
ts -
nge
men
Too
ls		 Serv
ice
Con
ion
cess
Arra
ts -
nge
men
Adm
inist
rativ
e
Equ
ipme
nt		 Serv
ice
Con
ion
cess
Arra
ts -
nge
men
Retu
rnab
le
aine
cont
rs		 Serv
ice
Con
ion
cess
Arra
ts -
nge
men
Oth
er
ipme
nt
equ		 Serv
ice
Con
ion
cess
Arra
ts -
nge
men
R&D
exp
ense
s		 Serv
ice
Con
ion
cess
Arra
ts -
nge
men
Indu
stria
l
erty
prop		 Serv
ice C
ssio
once
n
Arra
ts -
nge
men
Rec
ersio
n of
onv
tion
to
cons
ump
ral g
natu
as		 Serv
ice
Con
ion
cess
Arra
ts -
nge
men
Inta
ngib
le
ts in
asse
prog
ress		 Inta
ngib
le
ts in
asse
prog
ress		 Tot
al in
tang
ible
ts
asse
201
7
Acq
uisi
tion
t:
cos
Bal
1 J
e at
anc
anu
ary
Add
ition
s
e-of
fs/D
sals
Writ
ispo
Tra
nsfe
rs		 12.1
70
-
-
-		 8.85
2
-
-
9		 1.15
4.43
3
-
(579
)
7.55
4		 160
-
-
-		 3.78
9
-
(13)
67		 7.30
3
-
(42)
15		 4
-
-
-		 5.95
0
-
-
-		 3.71
2
-
-
-		 829
-
-
-		 572
.842
-
(30)
2.10
9		 1.21
1
11.2
62
-
(9.7
54)		 261
39
-
-		 1.77
1.51
6
11.3
01
(664
)
Gro
isit
ion
t at
30
Jun
ss a
cqu
cos
e		 12.1
70		 8.86
1		 1.16
1.40
8		 160 3.84
3		 7.27
6		 4 5.95
0		 3.71
2		 829 574
.921		 2.71
9		 300 -
1.78
2.15
3
late
d am
orti
ions
and
imp
airm
los
Acc
sat
ent
umu
ses
Bal
e at
1 J
anc
anu
ary
Amo
rtisa
tion
for t
he p
eriod
e-of
fs/D
sals
Writ
ispo
late
d ba
lanc
Acc
e at
30
Jun
e
umu		 :
(3.5
01)
(133
)
-
(3.6
34)		 (5.4
18)
(166
)
-
(5.5
84)		 (426
.422
)
(13.
460
)
488
(439
)
.394		 (151
)
-
-
(151
)		 (3.6
64)
(33)
13
(3.6
84)		 (7.0
10)
(64)
42
(7.0
32)		 (4)
-
-
(4)		 (5.7
96)
(35)
-
(5.8
31)		 (2.7
98)
(32)
-
(2.8
30)		 (461
)
(81)
-
(542
)		 (202
.847
)
(6.9
17)
22
(209
)
.742		 -
-
-
-		 -
-
-
-		 (658
.072
)
(20.
921
)
565
(678
.428
)
Net
t:
am
oun
f 30
Jun
as o
e		 8.53
6		 3.27
7		 722
.014		 9 159 244 - 119 882 287 365
.179		 2.71
9		 300 1.10
3.72
5
( €
k)
ngib
le a
Inta
ts
sse		 ice Con
Serv
ion
cess
Arra
ts
nge
men
- La
nd		 Serv
ice
Con
ion
cess
Arra
ts -
nge
men
Build
ings		 Serv
ice
Con
ion
cess
Arra
ts -
nge
men
Bas
ic Eq
uipm
ent		 Serv
ice
Con
ion
cess
Arra
ts -
nge
men
Tra
rt
nspo
Equ
ipme
nt		 Serv
ice
Con
ion
cess
Arra
ts -
nge
men
Too
ls		 Serv
ice
Con
ion
cess
Arra
ts -
nge
men
Adm
inist
rativ
e
Equ
ipme
nt		 Serv
ice
Con
ion
cess
Arra
ts -
nge
men
rnab
le
Retu
cont
aine
rs		 Serv
ice
Con
ion
cess
Arra
ts -
nge
men
Oth
er
ipme
nt
equ		 Serv
ice
Con
ion
cess
Arra
ts -
nge
men
R&D
exp
ense
s		 Serv
ice
Con
ion
cess
Arra
ts -
nge
men
Indu
stria
l
erty
prop		 Serv
ice C
ssio
once
n
Arra
ts -
nge
men
n of
Rec
ersio
onv
tion
to
cons
ump
natu
ral g
as		 Serv
ice
Con
ion
cess
Arra
ts -
nge
men
ngib
le
Inta
ts in
asse
prog
ress		 ngib
le
Inta
ts in
asse
prog
ress		 al in
ible
Tot
tang
ts
asse
201
6
Acq
uisi
tion
t:
cos
Bal
e at
1 J
anc
anu
ary
Add
ition
s
Writ
e-of
fs/D
ispo
sals		 11.7
91
355
-		 9.06
4
-
(231
)		 1.13
7.93
7
-
(2.1
97)		 152
-
-		 4.43
9
-
(8)		 7.29
4
-
(20)		 4
-
-		 5.95
0
-
-		 3.71
2
-
-		 702
-
-		 567
.774
-
-		 1.70
1
22.8
36
-		 -
261
-		 1.75
0.52
0
23.4
52
(2.4
56)
nsfe
Tra
rs
Gro
isit
ion
t at
31
De
ber
ss a
cqu
cos
cem		 24
12.1
70		 19
8.85
2		 18.6
93
1.15
4.43
3		 8
160		 (642
)
3.78
9		 29
7.30
3		 -
4		 -
5.95
0		 -
3.71
2		 127
829		 5.06
8
572
.842		 (23.
326
)
1.21
1		 -
261		 -
1.77
1.51
6
Acc
late
d am
orti
sat
ions
and
imp
airm
ent
los
umu
ses
Bal
1 J
e at
anc
anu
ary
Amo
rtisa
tion
for t
he p
eriod
e-of
fs/D
Writ
ispo
sals
nfer
Tra
s		 :
(3.2
43)
(258
)
-
-		 (5.2
34)
(332
)
148
-		 (400
.524
)
(26.
679
)
1.47
9
(698
)		 (150
)
(1)
-
-		 (4.3
16)
(54)
8
698		 (6.8
88)
(141
)
19
-		 (4)
-
-
-		 (5.6
87)
(109
)
-
-		 (2.7
33)
(65)
-
-		 (319
)
(142
)
-
-		 (189
.183
)
(13.
664
)
-
-		 -
-
-
-
-		 -
-
-
-
-		 (618
.281
)
(41.
445
)
1.65
4
-
Acc
late
d ba
lanc
e at
31
De
ber
umu
cem		 (3.5
01)		 (5.4
18)		 (426
.422
)		 (151
)		 (3.6
64)		 (7.0
10)		 (4) (5.7
96)		 (2.7
98)		 (461
)		 (202
.847
)		 (658
.072
)
Net
t:
am
oun
f 30
Jun
as o
e		 8.66
9		 3.43
4		 728
.011		 9 125 293 - 154 914 368 369
.995		 1.21
1		 261 1.11
3.44
4

Galp Gás Natural Distribuição, S.A. | Head Office: Rua Tomás da Fonseca Torre C, 1600-209 Lisboa Share Capital: 89,529,141 Euro | Registered in Conservatória do Registo Comercial de Lisboa | NIPC 509 148 247 22 | 39

12.3. Main events occurring during the period ended 30 June 2017:

Changes in the caption "Tangible and intangible assets" amounting € 11,301 k are mainly related to rights on regulated assets subject to natural gas distribution concession, namely to the natural gas infrastructures construction (networks, branches and other infrastructures) covered by IFRIC 12 (Note 5 and 6).

During the period ended 30 June 2017, intangible assets amounting to a net € 99 k were disposed.

12.4. Amortisation, depreciation and impairment of the period

Amortisation and depreciation for the periods ended 30 June 2017 and 2016 are as follows:

(€ k)
June 2017 June 2016 December 2016
Tangible Intangible Total Tangible Intangible Total Tangible Intangible Total
Depreciation of the year 9 - 9 9 - 9 19 - 19
Amortisation of the year – concession agreements - 20,921 20,921 - 20,661 20,661 - 41,445 41,445
Amortisations, depreciations and impairments (Note 6) 9 20,921 20,930 9 20,661 20,670 19 41,445 41,464

13. GOVERNMENT GRANTS

As of 30 June 2017 and 31 December 2016 the amounts to be recognised as government grants in future years arise to €232,479 k and €236,247 k, respectively (Note 24).

During the periods ended 30 June 2017 and 30 June 2016, grants amounting €4,402 k and €4,424 k, respectively (Note 5) were recognised in the consolidated income statement according to the assets useful life.

14. OTHER RECEIVABLES

The non-current and current caption "Other receivables" as of 30 June 2017 and 31 December 2016 is detailed as follows:

(€ k)
June 2017 December 2016
Caption Current Non-current Current Non-current
State and Other Public Entities:
Social Security 130 - 130 -
Subsoil occupation levies 24,318 18,848 26,954 18,848
Other receivables - associates, joint ventures and other related parties 158 - 1,600 -
Personnel 134 - 78 -
Paid guarantees 17 - 19 -
Advanced payments to suppliers 10 - 13 -
Other receivables 1,744 - 1,715 -
26,511 18,848 30,509 24,223
Accrued income:
Sales and services rendered not yet invoiced – natural gas 23,319 - 24,754 -
Adjustment to tariff deviation - "pass through" - ERSE regulation 9,679 - 4,737 -
Adjustment to tariff deviation - regulated revenue - ERSE regulation 7,633 3,829 11,880 7,528
Tariff adjustment - ERSE regulation 5,028 - 3,601 -
Other accrued income 884 - 458 -
46,543 3,829 45,430 7,528
Deferred charges:
Prepaid insurance 512 - 59 -
Interest and other financial costs 45 - 55 -
Prepaid rentals 7 - 7 -
Other deferred costs 1,053 5 689 3
1,617 5 810 3
74,671 22,682 76,749 31,754
Impairment of other receivables (3) - (3) -
74,668 22,682 76,746 31,754

"Impairment of other receivables" amounting € 3k noted no changes during the periods ended 30 June 2017 and 31 December 2016.

The caption "Subsoil occupation levies" amounting to €43,166 k refers to levies on subsoil occupation already paid to local municipalities. According to the natural gas supply concession agreement between the Portuguese Government and the Group companies, and in accordance with the Resolution of the Council of Ministers No. 98/2008, dated 8 April, companies have the right to pass on the full amount of subsoil levies paid to the local authorities for the area under concession to marketing entities or to end customers.

The amount of €158 k recorded in the current and non-current caption "Other receivables – associates, joint ventures, affiliates and related entities" refers to receivable amounts from unconsolidated companies (Note 28).

The caption "Accrued income – sales and services rendered not yet invoiced", amounting to €23,319 k, is mainly related with the billing of natural gas consumption and electricity in June 2017, to be invoiced in the following months.

15. TRADE RECEIVABLES

The caption "Trade receivables" as of 30 June 2017 and 31 December 2016 includes the following detail:

( € k )
June 2017 December 2016
Captions Current Current
Trade receivables - current accounts 12,360 10,057
Trade receivables - doubtful accounts 547 587
12,907 10,644
Impairment on trade receivables (516) (550)
12,391 10,094

The movements in the caption "Impairment of trade receivables" for the period ended 30 June 2017 and year ended 31 December 2016 were as follows:

( € K )
Impairment on trade
receivables		 Initial
Balance		 Increases Decreases Utilisation Final
Balance
2017 550 43 (77) - 516
2016 1,059 169 (5) (673) 550

The increase and decrease in the caption "Impairment of trade receivables" amounting to € (34) k net was recorded in the caption "Provision and impairment losses on receivables" (Note 6).

16. INVENTORIES

Inventories as of 30 June 2017 and 31 December 2016 are detailed as follows:

(€ k)
CAPTIONS June 2017 December 2016
Raw, subsidiary and consumption materials:
Other raw and various materials 1,435 1,269
1,435 1,269
Impairment to raw, subsidiary and consumable materials (169) (155)
1,266 1,114
~+
Goods		 80 93
80 93
1,346 1,207

As of 30 June 2017, the caption "Other raw and various materials" amounting € 1.435 k, mainly relates to materials to be applied on the construction and maintenance of Groups' infrastructures and counter meters.

The movement in "Inventories impairment" for the period ended 30 June 2017 and year ended 31 December 2016 are as follows:

(€ K )
Captions Initial balance Utilisations Final balance
2017
Impairment to raw, subsidiary and consumable materials 155 14 169
155 14 169
2016
Impairment to raw, subsidiary and consumable materials 155 - 155
155 - 155

The increase of €14 k was recorded against the caption "Cost of sales" (Note 6).

17. OTHER FINANCIAL INVESTMENTS

Not applicable.

18. CASH AND CASH EQUIVALENTS

For the periods ended 30 June 2017, 31 December 2016 and 30 June 2016 the caption "Cash and cash equivalents" is detailed as follows:

(€ k)
Captions June 2017 December 2016 June 2016
Cash 60 34 37
Cash deposits 7,354 39,530 29,271
Other treasury applications 2,700 3,500 5,013
Cash and cash equivalents in the consolidated statement of financial position 10,114 43,064 34,321
Bank overdrafts (Note 22) (34) (34) (79)
Cash and cash equivalents in the consolidated statement of cash flow 10,080 43,030 34,242

The caption "Other treasury applications" includes applications of treasury surplus, with maturities up to three months, in respect to the following Group companies:

(€ k)
Companies June 2017 December 2016
Beiragás - Companhia de Gás das Beiras, S.A. 2,700 3,500
2,700 3,500

The funds that the Group has classified as "Cash and Cash equivalents" have no restrictions or relevant legal conditions in order to be used or distributed as dividends to their shareholders.

19. SHARE CAPITAL

Capital Structure

As of 30 June 2017 share capital amounting € 89,529,141.00 compounded by 89,529,141 shares with nominal value amounting one euro each, entirely subscripted and realised by the following shareholders:

2017:

No. of Shares Participation (%) Imputable
participation (%)
Galp Gas & Power,SGPS, SA 69,385,084 77.50% 77.50%
Meet Europe Natural Gas, Lda 20,144,057 22.50% 22.50%
Total 89,529,141 100.00% 100.00%

2016:

No. of Shares Participation (%) Imputable
participation (%)
Galp Gas & Power,SGPS, SA 69,385,084 77.50% 77.50%
Meet Europe Natural Gas, Lda 20,144,057 22.50% 22.50%
Total 89,529,141 100.00% 100.00%

20. RESERVES

As of 30 June 2017 and 31 December 2016 "Translation reserves" and "Other reserves" are detailed as follows:

(€ k)
Captions June 2017 December 2016
Reserves
Legal Reserves 6,695 3,434
6,695 3,434
Hedging reserves:
Reserves - financial derivatives (457) (259)
Reserves - Deferred tax on financial derivatives 114 65
(343) (194)
Other reserves:
Reserves - Increase of 10.7532% in 2012 and 0.3438% in 2013 in the participation in the share
capital of the subsidiary Lusitaniagás - Companhia de Gas do Centro, S.A.		 413 413
Reserves - Increase of 33.05427% in 2015 in the participation in the share capital of the
subsidiary Setgás - Sociedade de Produção e Distribuição de Gás, S.A.		 (492) (492)
Reserves - Increase of 0.08842% in 2016 in the participation in the share capital of the subsidiary
Beiragás - Companhia de Gás das Beiras S.A.		 5 5
(74) (74)
6,278 3,166

Legal reserves:

According to the company's statute and the Commercial Companies Code, the company has to transfer to the caption "Legal Reserves", included in other reserves, in share capital, a minimum of 5% of the net profit for each year up to a limit of 20% of the share capital. Legal reserves can't be distributed to shareholders, whichever, under certain circumstances, it may be used to increase share capital or absorb losses after all other reserves are exhausted. In 2017 the caption "Legal Reserves" fluctuated positively amounting €3.261 k.

Hedging reserves:

In the period ended 30 June 2017, the negative amount of € 457 k is related to the fair value of financial derivatives - cash flow hedges related to associated companies and € 114 k related to its fiscal effect.

Other reserves:

In the period ended 30 June 2017, the caption "Other reserves" noted no significate changes. For additional information refer to the consolidated financial statements as of 31 December 2016 and respective notes to the consolidated financial statements.

21.NON-CONTROLLING INTERESTS

As of 30 June 2017, the caption "Non-controlling interests" included in equity refers to the following subsidiaries:

20
17
:		 (
€ k
)
%
of
non

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20
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ás
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.A.
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808
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157		 40.
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ás
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iag
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de
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974		 - 17 1,
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ás
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19
,64
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9)
80		 33
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7

(a)In the period ended 30 June 2017, dividends amounting €809 k were payed, attributed to Non-controlling interests (Note 30).

22. LOANS

Detail of loans

Loans obtained as of 30 June 2017 and 31 December 2016 were as follows:

(€ k)
June 2017 December 2016
Current Non-current Current Non-current
Bank loans:
Loans 11,294 23,861 13,267 29,542
Bank overdrafts (Note 18) 34 - 34 -
11,328 23,861 13,301 29,542
Origination Fees - (68) - (80)
11,328 23,793 13,301 29,462
Bonds and Notes:
Notes - 600,000 - -
- 600,000 - 600,000
Origination Fees - (4,378) - (4,510)
- 595,622 - 595,490
11,328 619,415 13,301 624,952

Current and non-current loans, excluding origination fees, bank overdrafts and discounted notes, have the following reimbursement plan as of 30 June 2017:

(€ k)
Loans
Maturity Total Current Non-current
2017 5,613 5,613 -
2018 11,361 5,681 5,681
2019 10,491 - 10,491
2020 7,689 - 7,689
2023 600,000 - 600,000
635,155 11,294 623,861

As of 30 June 2017 and 31 December 2016, loans obtained are expressed in the following currencies:

(€ k)
Currency June 2017
Total initial
Due amount
amount		 December 2016
Total initial
Due amount
amount
Euros EUR 736,928 635,155 759,374 642,809
635,155 642,809

Description of main loans

Bank loans – European Investment Bank

The Group has a financing contract with the European Investment Bank amounting to €24,217 k, and split into €8,456 k short-term and €15,761 k medium and long-term. These instruments bear interest at a variable rate pointed by EIB, assured by a banking institution.

Bank loans - Others

Additionally, the Group has recorded in loans an amount of €10,938 k, obtained by the company Beiragás – Companhia de Gás das Beiras, S.A., which split into €2,838 k shot-term and €9,553 k medium and long-term.

Notes Issuance – Galp Gás Natural Distribuição, S.A.

At August 25th 2016, Galp Gás Natural Distribuição, S.A. established an EMTN Programme ("EUR 1,000,000,000 Euro Medium Term Note Programme").

Under the EMTN Programme, at September 19th 2016, Galp Gás Natural Distribuição, S.A., issued notes amounting €600,000 k, which overdue at September 19th 2023, with coupons of 1.375%, admitted to negotiation on the regulated market of London Stock Exchange.

JP Morgan, BofA Merrill Lynch and Banco Santander Totta acted as Joint-Bookrunners in this transaction.

Revolving Credit Facility

As of 30 June 2017, the Group has contracted a Revolving Credit Facility, with the commitment of full reimbursement of €50,000 k and maturity higher than 4 years. Such amount was fully available as of 30 June 2017.

23. POST-EMPLOYMENT AND OTHER EMPLOYEE BENEFITS

As of 30 June 2016 and 31 December 2016, the net assets of GGND Pension Fund, valued at fair value, were as follows according to the reports submitted by the respective fund management companies:

(€ k)
June 2017 December 2016
Bonds 15,726 15,252
Shares 6,508 7,036
Real Estate 322 316
Liquidity 696 733
Total 23,252 23,337

During the period ended 30 June 2017, no endowment to the Fund were made.

As of 30 June 2017 and 31 December 2016 the Group had the following amounts related to liabilities for retirement benefits and other benefits:

(€ k)
June 2017 December 2016
Captions Liability Equity Liability Equity
Post-employment benefits:
Relating to the Pension Fund (2,769) 6,381 (2,826) 6,665
Retired Employees (2,361) 1,837 (2,536) 1,837
Pre-retirement (5,870) 1,114 (6,506) 1,114
Early retirement (20,657) 7,122 (20,861) 7,122
Other benefits:
Healthcare (25,466) 13,083 (26,161) 13,914
Life insurance (416) 15 (413) 16
Defined contribution plan minimum benefit (937) (107) (819) (110)
(58,476) 29,445 (60,122) 30,558

For additional information refer to the consolidated financial statements as of 31 December 2016 and respective notes to the consolidated financial statements.

24. OTHER PAYABLES

As of 30 June 2017 and 31 December 2016 the non-current and current captions "Other payables" were as follows:

June 2017 December 2016
Captions Current Non-current Current Non-current
State and other public entities:
Value Added Tax payables 4,678 - 4,593 -
Social Security contributions 772 - 474 -
Personnel and Corporate Income Tax Withheld 643 - 357 -
"ISP" - Tax on oil products 48 - 63 -
Other taxes 2 - 2 -
Payable dividends 5,000 - - -
Tangible and intangible assets suppliers 3,626 - 5,247 -
Guarantee deposits and guarantees received 430 - 240 -
Trade receivables credit balances 186 - 9 -
Personnel 157 - 71 -
Other payables - Other shareholders 116 - 116 -
Advances on sales 4 - 4 -
Other creditors 468 - 500 -
16,130 - 11,676 -
Accrued costs:
Accrued interest 6,468 - 2,317 -
Adjustment to tariff deviation - regulated revenue - "ERSE" regulation (Note 14) 5,885 7,718 3,331 4,976
External supplies and services 3,793 - 4,064 -
Adjustment to tariff deviation - other activities - "ERSE" regulation 3,787 - 5,093 -
Holiday , holiday subsidy and corresponding contributions 1,902 - 2,486 -
Accrued insurance premiums 1,039 - 859 -
Productivity bonuses 974 - 2,351 -
Accrued personnel costs – other 250 - 125 -
Financial costs 16 - - -
Other accrued costs 598 - 2,278 -
24,712 7,718 22,904 4,976
Deferred income:
Investment government grants (Note 13) 8,942 223,537 8,942 227,305
Fibre optics 404 386 402 589
Others 175 - 183 -
9,521 223,923 9,527 227,894
50,363 231,641 44,107 232,870

Government investment grants are recognised as income over the useful life of the assets. The amount to be recognised in future period's amounts to €232,479 k (Note 13).

Income from the contract of assignment of rights to use telecommunication infrastructures is deferred in the caption "Deferred income – Fiber optics" and is recognised as income during the period of the contract. As of 30 June 2017 the balance of deferred income to be recognised in future periods amounts to €790k.

25. PROVISIONS

The changes in provisions in the period ended 30 June 2017 and year ended 31 December 2016 were as follows:

( € k )
Ending
balance
Captions Initial
balance		 Increases Decreases
2017
Lawsuits 430 - - 430
Energy sector extraordinary contribution 29,408 9,558 - 38,966
Other risks and charges 2,248 91 - 2,339
32,086 9,649 - 41,735
2016
Lawsuits 1,155 51 (776) 430
Energy sector extraordinary contribution 19,350 10,058 - 29,408
Other risks and charges 2,067 181 - 2,248
22,572 10,290 (776) 32,086

The increases in provisions, net of decreases, in the period ended 30 June 2017 were as follows:

( € k )
Energy sector extraordinary contribution ("CESE I") 9,558
Provisions (Note 6) 91
9,649

Lawsuits

The provision for ongoing lawsuits amounts € 430 k and includes mainly ongoing lawsuits.

Energy sector extraordinary contribution

  • €38.966 k relating to the provision to cover the Energy sector extraordinary contribution "CESE I".

For the year ended 31 December 2014, the Group was subject to a special tax (Energy Sector Extraordinary Contribution "CESE I"), pursuant to Article 228 of Law 83C/2013 of 31 December, which states that the energy companies that detain net assets in certain activities as of 1 January 2014 are subject to a tax calculated on the amount of net assets at that date.

As it intends to challenge the Law, the GGND Group decided to record the total value of the liability amounting to €38,966 k under "Provisions" caption. The total value of the liability at 31 December 2016 amounted to €29,408 k. In the period ended 30 June 2017, in order to cover the full responsibility, the provision was reinforced by €9,558 k, and recognised in the income statement under the caption "Energy sector extraordinary contribution".

Other risks and charges

  • €2,339 k to cover charges received for the year 2012 made by the Lisbon Port Administration, for the use of the Cabo Ruivo land occupation as claimed by the Company. The increase of provisions by € 91 k concerns charges received during 2017.

26. TRADE PAYABLES

As of 30 June 2017 and 31 December 2016 the amounts recorded in the caption "Trade payables" were as follows:

( € k )
Captions June 2017 December 2016
Trade payables - current accounts 9,844 9,816
Trade payables - pending invoices 4,272 4,380
14,116 14,196

The balance of the caption "Trade payables – pending invoices" mainly corresponds to the purchase of natural gas at those dates.

27. OTHER FINANCIAL INSTRUMENTS – FINANCIAL DERIVATIVES

Not applicable.

28. RELATED PARTIES

During the period ended 30 June 2017, no significant changes were noted in Related Parties, when compared with the consolidated financial statements for the year ended 31 December 2016. For additional information refer to the consolidated financial statements as of 31 December 2016 and respective notes to the consolidated financial statements.

29. REMUNERATION OF THE BOARD

The remuneration of the board members of Galp Gás Natural Distribuição, S.A. for the periods ended 30 June 2017 and 2016 is detailed as follows:

June 2017 ( € k )
June 2016
Salary Allowances for
rent, travel
expenses and
others		 Other charges
and
adjustments		 Total Salary Bonuses Total
Executive management 145 4 39 188 - (45) (45)
Non-executive management 18 - - 18 - - -
General Assembly 21 - - 21 8 - 8
184 4 39 227 8 (45) (37)

Of the amounts of €21 k and €8 k, recorded in the periods ended 30 June 2017 and 2016 respectively, refers to presence tickets of the General Assembly.

In accordance with the current policy, remuneration of the GGND Corporate Board members includes all the remuneration due for the positions occupied in Group companies and all accrued amounts related to the current period.

In accordance with IAS 24, key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any directors (whether executive or non-executive) of the entity. According to Galp Energia interpretation of this standard only the members of the Board of Directors meet these characteristics.

30. DIVIDENDS

In accordance with the deliberation of the General Meeting of Shareholders held on 26 May 2017, dividends amounting to € 61,956 k relating to the distribution of net result for the year 2016 were attributed to the shareholders of Galp Gás Natural Distribuição, S.A. and €56.956 k liquidated during the period ended 30 June 2017.

In the period ended 30 June 2017 dividends amounting to € 809 k were attributed to minority shareholders, by subsidiaries of the Galp Gás Natural Distribuição, S.A. Group (Note 21. a)).

As a consequence of the previously mentioned, during the period ended 30 June 2017, the Group paid dividends amounting €57,765 k.

31. OIL AND GAS RESERVES

Not applicable.

32. FINANCIAL RISK MANAGEMENT

During the period ended 30 June 2017, no significant changes were noted in Financial Risk Management, when compared with the consolidated financial statements for the year ended 31 December 2016. For additional information refer to the consolidated financial statements as of 31 December 2016 and respective notes to the consolidated financial statements.

33. CONTINGENT ASSETS AND LIABILITIES

During the period ended 30 June 2017, no significant changes were noted in Contingent Assets and Liabilities, when compared with the consolidated financial statements for the year ended 31 December 2016. For additional information refer to the consolidated financial statements as of 31 December 2016 and respective notes to the consolidated financial statements.

34. FINANCIAL ASSETS AND LIABILITIES AT BOOK VALUE AND FAIR VALUE

The financial assets and liabilities are recognised at book value and do not present significant differences when compared with its fair value.

Financial assets held for sale (comprising unlisted equity instruments), are recognised at acquisition cost.

For additional information refer to the notes to the consolidated financial statements as of 31 December 2016.

35. INFORMATION ON ENVIRONMENTAL MATTERS

Not applicable.

36. SUBSEQUENT EVENTS

There are no subsequent events for disclosure purposes.

37. APPROVAL OF THE FINANCIAL STATEMENTS

The consolidated financial statements were approved by the Board of Directors on 4 September 2017.

THE BOARD OF DIRECTORS:

Chairman:

Pedro Carmona de Oliveira Ricardo

Vice-Chairman:

Maria Leonor Galo Pedrosa dos Santos Machado de Baptista Branco

Members:

Gabriel Nuno Charrua de Sousa

Naohiro Hayakawa

José Manuel Rodrigues Vieira

Ana Isabel Simões Dias dos Santos Severino

Maria Marta de Figueiredo Geraldes Bastos

Yoichi Noborisaka

THE ACCOUNTANT:

Carlos Alberto Nunes Barata

Review Report on the Consolidated Financial Statements

(Free translation from the original in Portuguese)

Introduction

We have reviewed the accompanying consolidated financial statements of Galp Gás Natural Distribuição, S.A. (the Company), which comprise the consolidated statement of financial position as at June 30, 2017 (which shows total assets of Euro 1,256,993 thousand and total shareholder's equity of Euro 212,724 thousand including a net profit attributable to the shareholders of 9,385 thousand), the consolidated statements of income by nature, comprehensive income, changes in equity and cash flows for the half year then ended, and the accompanying explanatory notes to these consolidated financial statements, which include a summary of the significant accounting policies.

Management's responsibility

It is the responsibility of the Management to prepare consolidated financial statements which present, true and fairly, the consolidated financial position, the consolidated financial performance and cash flows of the Entity, in accordance with International Accounting Standard 34 – Interim Financial Reporting as adopted by the European Union, as well as to create and maintain appropriate systems of internal control to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express a conclusion on the accompanying consolidated financial statements. We conducted our review in accordance with international standards on review of financial statements and other technical and ethical standards and recommendations issued by the Institute of Statutory Auditors. Those standards require that we conduct the review in order to conclude whether anything has come to our attention that causes us to believe that the consolidated financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34 – Interim Financial Reporting as adopted by the European Union.

A review of financial statements is a limited assurance engagement. The procedures performed mainly consist of making inquiries and applying analytical procedures, and evaluating the evidence obtained.

The procedures performed in a review are substantially less than those performed in an audit conducted in accordance with International Standards on Auditing (ISA). Accordingly, we do not express an opinion on these consolidated financial statements.

PricewaterhouseCoopers & Associados - Sociedade de Revisores Oficiais de Contas, Lda. Sede: Palácio Sottomayor, Rua Sousa Martins, 1 - 3º, 1069-316 Lisboa, Portugal Tel +351 213 599 000, Fax +351 213 599 999, www.pwc.pt Matriculada na CRC sob o NUPC 506 628 752, Capital Social Euros 314.000 Inscrita na lista das Sociedades de Revisores Oficiais de Contas sob o nº 183 e na CMVM sob o nº 20161485

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the accompanying consolidated financial statements do not present, true and fairly, in all material respects, the consolidated financial position of Galp Gás Natural Distribuição, S.A. as at June 30, 2017, and its consolidated financial performance and cash flows for the half year then ended in accordance with International Accounting Standard 34 – Interim Financial Reporting as adopted by the European Union.

September 5, 2017

PricewaterhouseCoopers & Associados - Sociedade de Revisores Oficiais de Contas, Lda. Inscrita na Comissão de Valores Mobiliários sob o nº 20161485 represented by:

António Joaquim Brochado Correia, R.O.C.

(This is a translation, not to be signed)

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