35
1 Comgás Presentation APIMEC | December 15, 2011 São Paulo - SP
1
Comgás Presentation
APIMEC | December 15, 2011
São Paulo - SP
Histórico Agenda
2
1. Company Overview
2. Operational & Financial Highlights
3. Strategic Planning
4. Migration to “Novo Mercado”
3
1.Company Overview
Histórico A Successful Equity Story
4
The English company “San Paulo Gas Company” was authorized to explore the concession of public lighting services in São Paulo
1872 1
The Canadian company “Light” acquires the company
1912 2
The administration of the company was transferred to the city of São Paulo and the company was named as “Comgás”
1968 4
1996: Comgás became a publicly-listed company
1997: Comgás’ shares started to be traded on the Bovespa stock exchange
1996/1997 6
Largest Brazilian gas distributor, responsible for more than 30% of natural gas’ sales in the country
2010 8
The company was nationalized and was named as “Companhia Paulistana de Serviços de Gás (Comgás)”
1959 3
The control was transferred to the state-owned company “Companhia Energética de São Paulo (CESP)”
1984 5
Privatization: Comgás was acquired by the consortium formed by British Gas and Shell
Beginning of a 30-year concession (renewable for additional 20 years)
1999 7
# 1,000,000 residential customers
2011 9
Área de concessão Comgás at a Glance
5
What is Comgás
R$ 341mm
1999
1.3 bi m3
R$ 50mm
2,500km
17
314,034
R$ 4,095mm
2010
4.9 bi m3
R$ 405mm
6,900km
68
767,214
Net Revenue
Volume
Capex
Network
# Municipalities
# Meters
25%
CAGR (1999-2010)
13%
21%
10%
13%
8%
Growth Since Privatization
More than 1 million residential customers
Concession area comprising 177 cities (São Paulo,
Campinas, baixada Santista e Vale do Paraíba) – 27% of
Brazil’s GDP(1)
30-year concession renewable for additional 20 years
Largest distributor of piped natural gas in Brazil
Notes: (1) Approximate and potential values.
Área de concessão Comgás at a Glance (Cont’d)
6
Key Figures (3Q11)
7,692 km Network R$ 4,085mm Net Revenue
Operational Financial (LTM)(1)
819,907 units Meters R$ 875mm EBITDA
1,063,364 units UDAs (1) R$ 328mm Net Income
4.9 bi/m3 Volume (LTM) (1) R$ 501mm Capex
Notes: (1) LTM (Last Twelve Months) until September 30, 2011. (2) UDAs (autonomous residential units).
A Comgás é uma Companhia Regulada ... Comgás Highlights
7
Premium asset located in a strategic concession
area
Substantial growth in the residential segment
Diversified client base
Impressive track record: significant growth with profitability and sound
capital structure
Solid regulatory framework and transparent concession
scheme
Favorable prospects for natural gas in
Brazil
Área de concessão Strategic Concession Area
8
Premium Asset Located in a Strategic Concession Area
Gas Brasiliano
Gás Natural SPS
COMGÁS
Supply and Demand Location
Santos Basin
Concession Area
Comgás’ Concession Area
Highlights
Intersection of pipelines (GASBOL, GASAN, GASPAL)
Short distance to the natural gas supply (Santos Basin)
High population density
100% of gas demand contracted
Customers (3Q11)
Residential: 1.1 mm UDAs (1)
Commercial: 10.2 thousand
Industrial: 1.0 thousand
Thermal Gen.: 2 plants
Cogeneration: 23 meters
NGV: 360 gas stations
Concession Area (2)
27% Brazil’s GDP
Population: 29.6 mm
Households: 8.2 mm
Vehicles: 10.0 mm
Notes: (1) UDAs (autonomous residential units). (2) Approximate and potential values.
State of São Paulo
Drilled well
Campos Basin
Pre-salt reserves
Production field
Exploration block
Espírito Santo Basin
Existing Network Transmission pipeline Network in Expansion Main Highways Network Under Study
LULA
Comgás: uma combinação de competências e princípios Comgás: a Regulated Company
9
ARSESP: The sewage and power regulatory agency of the State of São Paulo
3rd cycle tariff review (2009-2014): regulatory WACC of 9.55%
5-year margin review with annual inflation readjustments (IGP-M), X Factor (efficiency) and K Factor (volume mix deviations)
All operating expenses compose the regulatory asset base
Gas and transportation costs: pass-through
Difference captured in the current account, periodically adjusted by Selic
Overview Concession of Public Services
Small Volumes
(Residential and Commercial Consumers)
Exclusivity in commercialization and distribution throughout the whole concession period
Large Volumes (Other
Consumers)
Distribution: exclusivity throughout the whole concession period (98.1% of margin)
Commercialization: possibility of new agents competing 12 years after the signing of the concession contract (1)
Notes: (1) Starting in 2011, clients with a gas consumption over 300,000 m3 per month can be considered free consumers. Therefore, they can use any other commercialization agent.
Solid Regulatory Framework and Transparent Concession Scheme
Comgás: uma combinação de competências e princípios Sponsorship From Top Sector Players
SHELL BRAZIL HOLDING BV
6.34%
INTEGRAL
INVESTMENTS BV 71.91%
SHELL GAS BV
16.49%
BG SÃO PAULO INVESTMENTS BV
83.51%
OTHER SHAREHOLDERS
21.75%
10
The Comgás’ controlling shareholder is Integral Investments, which has as main shareholders the BG Group and Shell with a stake of 83.5% and 16.5%, respectively.
Current Shareholders’ Structure of Comgás
Presence in Brazil since 1994
Operates in more than 20 countries in the energy market (Exploration and Production, Liquefied Natural Gas, Transmission and Distribution, Power Generation)
Presence in Brazil since 1913
Main activities: distribution of oil products, operations in the gas and power sectors, exploration and offshore production
60.00
70.00
80.00
90.00
100.00
110.00
120.00
130.00
140.00
Dec-10 Feb-11 Mar-11 May-11 Jul-11 Aug-11 Oct-11 Dec-11
-
5.0
10.0
15.0
20.0
25.0
30.0
35.0
A Comgás é uma Companhia Regulada …
Market Performance and Corporate Governance
11
LTM Comgás Share Price Performance Corporate Governance
( Index = 100 as of December 13, 2010)
29,0% 30,7% (16,8%) LTM Performance
Class of Shares Allows the existence of common shares (voting rights) and preferred shares (non-voting rights)
Board of Directors
9 members (minimum requirement is 3 members)
2 independent board seats (currently only 1 seat occupied)
Tag Along 80% only for ON shares
Sarbanes Oxley (1)
Comgás already has comparable standard of SOX procedures in place
Note: (1) Standard not required by BM&FBovespa corporate governance segments or the Brazilian Corporate Law. (2) Includes the volume related to ON shares and PN shares. Source: BM&FBovespa and Factset as of December 13, 2011.
Base 100 Volume
(R$mm) BMF&Bovespa Level Traditional (“Lei das S.A.”)
Volume CGAS(2) CGAS ON CGAS PN IBOV
12
2.Operational & Financial Highlights
Área de concessão Historical Volume
13
Volume (MM/m3) Industrial Segment: Volume Breakdown by Sector (9M11)
2.7%
4.0%
4.4%
6.6%
7.1%
8.0%
10.7%
16.2%
17.1%
23.1%
Others
Textile, Laundy
& Dry Cleaning
Steel
Automotive
Food & Beverage
Mining and non-
ferrous
Crystal Glasses &
Glassware
Pulp & Paper
Ceramics
Chemical /
Petrochemical
1,676
2,243
2,952
3,418
3,812
4,342
4,761
5,069
5,253
4,261
4,910
3,623 3,652
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 9M10 9M11
Industrial Cogeneration NGV Resid. & Commer. Thermal Gen.
8,885 9,265
9,760 9,568 10,206
6.7% 4.3% 5.3%
2008 2009 2010 3Q10 3Q11
620,191 692,448
756,080 735,967 808,314 765,103
869,138 977,750 945,327
1,063,364
12.5% 12.5% 13.6%
2008 2009 2010 3Q10 3Q11
Evolution of Meters
14
Residential Segment (Meters and UDA’s) (1)
Notes: (1) UDAs (autonomous residential units).
Growth rate UDA’s (%) Meters UDA’s(1)
Commercial Segment
Meters Growth rate (%)
Área de concessão Financials Summary
15
Net Revenues (R$ mm)
EBITDA (R$ mm) Net Income (R$ mm)
Gross Profit (R$ mm)
3,989 4,116 4,095
3,045 3,035
2008 2009 2010 9M10 9M11
871 961
1,267 1,147
1.366
1,672 1,520
1,108 1,147
2008 2009 2010 9M10 9M11
1,035838
934727
600
835
1,363 1,188
913
2008 2009 2010 9M10 9M11
Previous Accounting Method (normalized for current account) IFRS
514
368 413333
201
690580
453
352
2008 2009 2010 9M10 9M11
Área de concessão Investments
16
Capex (R$ mm) Network Extension (in ‘000 km)
365
269
405406403397
426
100
229
200
230
276
474
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 9M10 9M11
7.7
6.9
6.2
5.7
5.14.9
2.62.9
3.33.6
3.9
4.5
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 3Q11
35.5%
Área de concessão Historical High Payout Ratio
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Dividend Payout (R$ mm)
Notes: (1) Announced Dividends and Juros Sobre Capital Próprio; non-audited numbers. (2) Dividends calculated based on previous accounting method until 2009 and considering announced dividends.
Dividend(2) Payout Ratio (%)
450427
268275
334
11 1627 25
303330
95%
17% 15%
26%
10%
77% 75%
53%
73% 74%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011(1)
Área de concessão Debt Overview
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Overview
Debt Breakdown: Short / Long-Term Debt Debt Composition by Lender (R$ mm)
Debt Schedule (R$ mm)
Local Currency Foreign Currency
EIB
28%
BNDES
57%
Others
15%
LT Debt
78%
ST Debt
22%
Jun/11 Sep/11
LT Debt
80%
ST Debt
20%
Notes: (1) European Investment Bank.
(1)
358
246 221187
74 77
187
29
66
393
20
5
1 ano 2 anos 3 anos 4 anos 5 anos + 6 anos
378
251
408
216
140
470 Debt denominated
in foreign currency
is fully hedged
3Q11 Debt Overview (R$ mm)
Short Term Debt 378
Long Term Debt 1,486
Total Debt 1,864
(-) Cash & Marketable Securities 172
(=) Net Debt 1,692
Net Debt / EBITDA LTM 1.9x
Net Debt / Book Value of Equity 1.4x
3. Strategic Planning
Growth Avenues
Integrated growth strategy
– Capture of all business opportunities within a region (industrial, NGV, residential and commercial)
Expansion projects in regional fronts
– Optimize the use of resources leading to scale and efficiency gains
Competitive edge of natural gas if compared to other energy sources
Possible increase in natural gas competitiveness
– Possible change in supply/demand natural gas balance, following recent upstream discoveries in the pre-salt
Integrated, regional
expansion within the concession
area
More than R$ 2,0 billion(1) in Capex programme between 2009 and 2014
Expansion activities driven by low volume / high margin residential and commercial latent potential but anchored by remaining industrial loads opportunities
All regulatory targets are being achieved and committed plan will be fully delivered
Capex Plan for the next years
1
2
(1) Real Terms 2009, as per Regulatory Business Plan (2009-14 cycle) 20
Santos’ Basin Pré-Sal
Current Expansion
Comgás’ Concession Area
Geographic Expansion Indicated in the Business Plan
Expansion activities simultaneously progressing in the cities of the concession area
Targets for 2009-2014 period:
5.000km of network to be established
282km of network renewal
500k+ clients to be connected
15 working fronts simultaneously
1.000 direct employees and more than 4.000 indirect working on the expansion
Aims for excellence in operational safety and integrity of the distribution network
Extensive field analysis and selection of the best opportunities considering
Distance from existing network
Demographic density
Economic profile and propensity for consumption
Perspective of future development
Potential for integration of various market segments
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Industrial Segment
Comgás is present in all the relevant industries in the concession area
A diversified customer base, more than 1,000 corporate clients
A multi-use product: from heat and low-pressure steam production to more complex processes
Advantages compared to other fuels:
No storage requirements
Environmental issues
Guarantee of supply
Low operational cost
Growth Strategy:
Maintain a strong consumer base with future growth in line with growth in GDP / industrial production
Approach small and medium enterprises (SMEs) to anchor expansion projects
Bring new industrial corporate clients into the concession area
Description
22 (1) Data as of August, 2011
Residential Segment
Key growth strategy for Comgás:
Geographic expansion, capturing the existing
potential and connecting around 100.000
clients per year
Increase average unit consumption by
optimizing and expanding customer base
High potential market, with com growth driven by:
New real estate developments
Gas conversions in built residencies
Large customer base with more than 1 million residential clients
Alternative for LPG and electricity
Description Concession Area Potential(1,2)
(1) Potential to be update as per IBGE Census 2010 (2) Concession area potential doesn’t consider organic growth (3) Considered in the plan to achieve 100.000 clients per year
Apartment
Houses
59%13%
8%
20%
2%
13%
7%
78%already connected to NG
customers to be captured
not connected customers
unachievable market
(MM of households)
6.2
1.5
23
+ 45,000 new buildings (launch) to be captured(3)
Natural gas vehicular (NGV) may be used as fuel for both individual and mass transportation
Stands out for savings and environmental benefits
Today more cost competitive than gasoline and ethanol
Strong economic benefit for heavy users
Comgás is currently working with government in the implementation of public policies that should favor the sector
Fiscal incentives (IPVA reduction)
Public transportation policy
Growth Strategy
Project currently under way: use of NGV in bus fleet and other heavy users (trucks)
Description Benchmarking Analysis: October, 2011
Natural Gas Vehicle (NGV) Segment
Prices (R$)
Cost per Km (R$)
Payback (months) (1)
Note: (1) Assumptions: i) Consumption: NGV 12km/l, Alcohol 7km/l, Gasoline 10 km/l ii) Cost of gas equipment: R$ 5,200 iii) Traveled km per month: 5,000 24
6.206.64
vs Gasoline vs Ethanol
1.32 1.872.78
NGV Ethanol Gasoline
0.110.27 0.28
NGV Ethanol Gasoline
Other Markets
More than 10,200 clients
Focus in medium to large establishments
Growth platform integrated with expansion of residential segment
High development potential of new applications:
Market in early stage of development with high consumption potential
Dedicated structure to develop non conventional applications development : acclimatization, commercial cogeneration and generation at peak hours
Commercial Thermal Generation and Cogeneration
Thermal Generation:
Demand depends on the level of thermal dispatch
Back to back gas contracts
Cogeneration :
Industry strategic decision aiming efficiency and energy security in the medium and long term
Sustainable growth is dependent on firm supply of gas and visibility of prices vis-a-vis electricity
Market with a high development potential
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4. Migration to “Novo Mercado”
Tag along for ONs 80% 80% 100% 100%
Tag along for PNs 100% n.a.1
Minimum free float of 25% P P P
Minimum of 20% of independent members on the Board P P
Financials in IFRS P P P P
Disclosure of transactions involving controlling shareholders or
management (quarterly financial information) P P P P
Special vote for preffered shareholders P n.a.1
Annual Calendar of Corporate Events P P P
Maximum of 2 years mandate for Board Members, allowing re-
election P P P
Arbitrage Board P P
Summary of Corporate Governance Levels on Bovespa
(1) Not applicable (“n.a.”) due to the absence of preferred shares in “Novo Mercado” listing segment Source: “Novo Mercado”, “Nível 1” and “Nível 2” listing regulation by BM&FBovespa and Brazilian Corporate Law
Nova Lei das SAs
Status Quo
Of all companies listed in differentiated governance levels, 125 are at the “Novo Mercado”, 19 at“Nível 2” and 38 at “Nível 1”
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(1) Due to the liquidity increase and the presence at the “Novo Mercado” listing segment of BM&FBovespa, other utility companies (listed at NM) have
in average 10 research analysts currently covering its shares . Comgás currently is covered by 4 active research analysts
Shares listed at the highest governance level of BM&FBovespa – acknowledge by investors as today’s market standards, same rights and transparency for all shareholders (only voting shares)
Better exposure to the banks' research analysts , and consequently increase in exposure to the general finance community(1) – possibility to access a more vast universe of investors, increasing the company’s
capability of accessing the Capital Markets
Potential for value uplift through a re-rating, as happened in past migrations to “Novo Mercado”
Increase in the share liquidity (one type of share), concentrating the liquidity of the current two types of shares into one type of share
New governance standards: i) guarantee of 20% of independent board members , ii) 100% tag along to all shareholders, iii) complete information of all corporate events to shareholders
Benefits of a Potential Migration to “Novo Mercado”
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2011 TIM 0.84 P2
2011 Ultrapar 1.00
2010 Anhanguera 1.00
2010 ALL 1.00
2010 Mahle 1.00 P
2009 Paranapanema 1.00 P2
2008 lochpe-Maxion 0.83 P
2008 Estacio 1.00
2008 Equatorial 1.00
2007 Hering 1.00 P
2007 Romi 0.90 P
2007 Magnesita 0.83 P
2006 BR Foods 1.00 P
2006 Embraer 1.00
Average 0.96
Median 1.00
Year Company
Conversion Ratio:
ON shares per 1 PN
share
Aditional
Dividends of
10%1
Source: Factset/Economatica for stock prices. Bloomberg Data for Company Actions (CACS tool). CVM Website for GM events. Notes: (1) Companies which the bylaws granted an additional 10% dividend to the PN shareholders when compared to ON shareholders, same case as Comgás (2) TIM and Paranapanema bylaws granted an additional 6% dividend to its PN shareholders when compared to ON shareholders (3) WEG and Portobello are not being considered in the analysis due to some specificities for each regarding the period screening and recent events at the moment of the migration (WEG migration was followed by an acquisition announcement which polluted the analysis; for Portobello, the migration was not followed by a liquidity event to increase liquidity - still around 10% of free-float) (4) “Fato Relevante”(Material Fact) as of December 2, 2011
Previous Migrations to “Novo Mercado”
“Studies conducted by the Company’s principal
shareholders and Management show that a
conversion at a ratio of one ordinary share to
each preferred share of the Company is in the
best interest of the Company and its shareholders.”4
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Área de concessão Disclaimer
30
The forward-looking statements in this report related to the outlook for the business, estimated financial and operating
results and growth prospects of COMGÁS are merely projections and, as such, are based exclusively on management expectations
regarding future performance. These expectations depend substantially on market conditions and the performance of the
Brazilian economy, the business sector and the international markets, and are therefore subject to change without prior
notice.
COMPANHIA DE GÁS DE SÃO PAULO - COMGÁS
32
Appendix
The tariff structure is composed by 3 components:
Gas cost (pass through)
Transport cost (pass through)
Average maximum margin (“P0”) defined by the regulator during the tariff revision
Regulated Tariff
Comgás: uma combinação de competências e princípios Comgás: a Regulated Company (Cont’d)
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Main Aspects of the Concession Contract
Annual readjustment of distribution margin by the inflation rate (IGP-M), excluding the “X Factor” and the “K Factor”
Annual adjustment of the tariff according to the gas and transportation costs accounted yearly on May 31st (or eventually before, subject to the regulator)
The review considers:
WACC over the regulatory asset base and investments
Operational expenses
Depreciation
Sales volume
Occurs every 5 years
Maximum Margin Review
“X Factor”: efficiency factor determined by the regulator considered in the annual adjustment of the “P0”
The “X Factor” determined in the 3rd tariff cycle is 0.82% p.a.
“K Factor”: adjustment factor that compensates deviations in the effective maximum margin in relation to the authorized maximum margin
= +
“X Factor” and “K Factor” Annual Tariff Readjustments
Comgás: uma combinação de competências e princípios Natural Gas Supply: Contracts
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Contracts
Contracts TCQ Firm Contract Firm of Energy Auction Weekly Sale
Contract Models Firm Firm Firm of Energy Firm of Short Term Short Term
Gas Source Bolivian Not Determined Not Determined
Exceeding contracts of PB with others
distributor/thermal power plants
Exceeding contracts of PB with others
distributor/thermal power plants
Daily Contract Quantity 8.75mm m3/day until oct/11 8.10mm m3/day until jun/19
4.3mm m3/day 1.0mm m3/day 3.2mm m3/day According to the bids
End of Contract Jun/19 Dec/13 Dec/12 Mar/12 Mar/12
Price
Commodity + Transportation Fixed Charge +
Variable Charge Fixed Charge +
Variable Charge
According to the auction According to the offered bid and the acceptance
from Petrobras
Commodity: quarterly adjusted based on Oil Basket (Brent) + Exchange Rate
Transport: annual adjustment according to USA inflation rate (CPI)
Fixed Charge: annual adjustment by IGP-M inflation rate
Variable Charge: quarterly adjustment based on Oil Basket
Fixed Charge: annual adjustment by IGP-M inflation rate
Variable Charge: quarterly adjustment based on Oil Basket
TCQ Contract: Current contracted daily volume of Bolivian gas is 8.75mm m3/day, which will be periodically reduced until it reaches the volume of 8.10mm m3/day in August 2012
Firm Contract: Contracted daily volume of 4.27mm m3/day, which will be periodically increased until it reaches the volume of 5.22mm m3/day in August 2012
Firm of Energy Contract: Petrobras supplies natural gas or indemnifies clients of the additional costs incurred due to the consumption of an alternative fuel. Gas supply may be interrupted at the discretion of Petrobras, but with no risk of supply cuts for Comgás consumers. Petrobras will also bear the cost of the financial impacts incurred by Comgás and its clients in question
Área de concessão Current Account
35
Regulatory Current Account (R$ mm)
Current Account
(5)
1229
153
264
469
528
(55)
(157)
(230)(198)
(128)
4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11
REGULATORY CURRENT ACCOUNT
Compensation mechanism used to reimburse the company or the state in case the real cost of gas differs from the cost used for tariffs
Monthly calculated by the regulator. However only adjusted once a year (May)
Difference between the cost of gas used for tariffs and the real cost of gas incurred
The balance is debited / credited in a regulatory account
The effect of the regulatory current account is considered only for tax purposes, it is excluded from financial accounting (IFRS)
Main implications: volatility in the company’s results
