Promigas S.A. E.S.P. (PROMIGAS) Earnings Call Transcript & Summary

[Interpreted] Good morning, and welcome to our conference call for Promigas first quarter corporate results as of March 31, 2020. My name is Silvia and I'll be the operator for this conference call. [Operator Instructions] Please note that this conference call is currently being recorded. Joining us for today's presentation will be Dr. Eric Flesch, President of the Promigas Corporation; and Aquiles Mercado Gonzáles, Financial and Administrative President of Promigas. I shall now turn today's program over to Dr. Eric Flesch, who will officially start today's meeting.

[Interpreted] Good morning, everybody. Thank you for your attendance. It is my pleasure and my team at Promigas to present to you our corporate results as of March 31, 2020. We all have the presentation at hand, so we shall now get started. We will start by telling you what the context for this health emergency, COVID-19, background has it been like. And we are going to tell you some of the relevant facts or relevant aspects that have impacted our operations for the first quarter of this year. Afterwards, we will move on to the corporate figures, and then we will continue with SBU Transportation, which is one of our business units and then we'll move to the distribution. And finally, we will conclude with the financial statements. Regarding the emergency context that has to do with COVID-19, we can tell you that we activated the continuity plan -- the Business Continuity Plan in order to face the public health crisis. We activated a Crisis Committee conformed or comprised by the President, Vice President of the company and also an interdisciplinary group of the senior management officers. Prior to the declaration of the State of Emergency, some specific actions would take in place in order to ensure the health and safety of our more than 3,000 employees. We also did it in order to guarantee the supply of natural gas as an essential service for our clients, power generators, industries and households in order to contribute to Colombia's energy security. Regarding the health aspect, which is very important to us, our main objective was to prevent the spread of the virus within the community of Promigas employees, their families, of course, and also our contractors. We also make sure to work together with the different industries that depend on us. And also, we guarantee our economical resources are necessary economical resources in order to comply with our obligations and to ensure the financial viability to ensure a stable operation. Some of the measures that we put in place in order to mitigate the effect of the health crisis that we're facing nowadays has to do with the human resources in the first place. So some of our facilitators that are equivalent to 74% of our employees are working from home. 690 facilitators, which is equivalent to 26%, are working in some alternate workplace and they have a flexible schedule. This was decided in order to maintain social distancing. We also have some IT support for more than our 2,000 employees in order to provide them with laptops, modems or VPN. We can also say that our operation has recently continued to work, and we have continued to cover all of our critical operations by having implemented in the main headquarters and the control centers and control rooms. And we have guaranteed the operation through the Promigas back office and Enlace. Also, our customers receive as much support as we could provide them with, and this has to do with the transportation and some financing plans in order to relieve our final users. We can also say that we have a proactive interaction with our customers and the different regulatory agencies, investors, banks and finance community as well as credit rating agencies. And finally, our community. It is important to say that our community is very important for us. And through the Board of Directors, we came up with a proposal in order to help them out and to collect COP 22,000 million in order to assist the public health emergency. Now moving on to the relevant aspects of the first quarter of the current year. We have 6 relevant aspects for the first quarter of 2020 that we are going to share with you. The first one has to do with the completion of 100,000 million cubic feet project that has to do with the guarantee of the energy security of the country. This project cover more than 200 kilometers of pipeline, including the 2.4 kilometers of Canal del Dique horizontal crossing, which is the longest in Latin America and the 8th longest in the world. The total investment for this project was about USD 200 million. The second relevant aspect has to do with the efficiency on the resource allocation. Our investment plan optimization, deferring investments that do not affect security or reliability of our operations. We had a CapEx of USD 69 million, which is about COP 246 billion. It is a very ambitious project that has to be -- that is equivalent to more than USD 11 million. The third relevant aspect has to do with the corporate and strategic planning. As of 2020, after 4 months, we decided to start a review of our corporate plan through the project that we call the Corporate Strategic Plan, where we are checking all of our affiliate processes for the last years. To do so, we are working together with the company, Bain & Co. We are currently evaluating also the impact of the COVID-19 crisis impact scenarios. Our fourth relevant aspect has to do with our net profit for the first quarter that it amounts to COP 266 billion. That is related to the changes in the infrastructure that we have done and the high demand -- the high natural gas demand that have been backed by the thermoelectric infrastructure that we have. The fifth aspect has to do with the risk rating. We maintain our credit risk rating, and we continue to have the AAA grading and the BBB international location; and at Moody's, we have the Baa3 rating, which is approved for quality and our high credit quality. And number six and last has to do with share price that closes at COP 7,000 in March 2020. That represents a 30% YTD increase. And Promigas, we can say, has achieved a stock exchange capitalization of COP 7.9 billion. Now moving on to the corporate figures of the corporate assets. There are some relevant data by business unit. In our business unit that has to do with transportation, with the gas pipeline networks, we have 3,204 kilometers, a transportation capacity of 1,000 -- of 1,219,000 cubic feet and we have a volume transported of 511 million cubic feet per day, which is equivalent to 51% of coverage for our country. Now regarding the regasification capacity, we have 400 million of cubic feet per day, and we have regasified volume of 5,874 liter cubic per feet -- liter cubic feet. Now the generation capacity has delivered 46.85 and the natural gas treatment capacity goes up to 35 million of cubic feet. Now we have new users. Now regarding the distribution, we have new users, which is equivalent to 4.53 million (sic) [ 4.83 million ] of users, which is equivalent to 9%. In -- let's say, in Colombia, we have more than 38% coverage for the whole country; and in Peru, 94%. We have -- we cover more than -- 860 municipalities. That is equivalent to 60.2 -- 62.54 kilometers, which is equivalent or which is distributed both in Colombia and Peru. Now in gas sales, we had more than 1,990,000 users, which means that we have a broad portfolio, as you can see in the figures. Regarding the electric power, we have more than 7 million users, which is equivalent to 4%. We have some sales that is equivalent an increase of 3%. The network that have been laid is equivalent to more than 2%. In the bottom of the presentation, in the bottom of this guide, you can see some information about the 3 consolidated revenues or the 3 consolidated aspects regarding the transportation and as well as the electric power that we have provided with to our users. You can see both the revenue, the net profit and EBITDA that are illustrated in this graphic. And this is showing a difference, as you can see, the consolidated net profit for the first quarter was more than COP 264 million. Infrastructure guarantees the country's energy security. We are convinced that we will play a key role in the recovery of a post-COVID-19 economy through our natural gas and electric energy transportation capabilities. Regasification and distribution services and our nonbank financing program, all aimed at improving the quality of Colombians' life. Now moving on to the environment, social aspect and governance. We are very pleased to share with you our gratitude towards the community that we have been working with, both in Colombia and Peru. In such a way that as Promigas, as you know, it's a group of companies that we have worked with COP 22 billion for the most vulnerable populations in this country in order to attend and to help or support the different health issues that we are facing as of nowadays. In Peru, we have attended more than 500 communities, which is about 500,000 people that we have reached, and they have been benefited. And we have -- which we have delivered about 122,000 humanitarian aid packages. And we have also strengthened the health care capabilities through respirators and some other health aid in order to help those populations that are in our influence areas. So in that way, we had a strong presence in order to face this crisis that we're facing nowadays in such way that our aim at our corporate image has been strengthened. Regarding the sustainability of our company, we can say that we were part of the Global Impact Report and we had a 97% overall score, which is equivalent to our high performance, and this demonstrates our leadership in corporate sustainability and high standards in human rights, labor, environment and anti-corruption efforts. Likewise, we are committed with the environment and we were selected, 2 of our projects were selected as the best projects regarding the commitment to biodiversity that are among best projects classified or selected in Latin America. Those 2 projects that were selected had to do with the fauna species conservation in dry tropical forest and also the methodology for the handling and conservation of epiphytes. Likewise, regarding the social management, we can share with you 3 of our biggest achievements. The first one that has to do with the investment -- investor relationship recognition that we have been awarded with for 3 years (sic) [ 7 years ] now. And it is very important for us because it is a recognition to our transparent operation. We have also been awarded by the Augmented Reality Project. This project was nominated for the BVC and it is very innovative in Colombia. This means that all of our facilitators in Colombia in our operation have a specific tool that is quite innovative, where they can have all the information they require at hand because it's going to be online, and they can increase the reliability of the information they have at hand. And finally, let me tell you that we are participating in an open innovation tournament. And -- which is currently being held at the Atlantic region of our country, and Barranquilla is the main location for this project. And the Promigas is participating. And while we want to review to find new ecological way in order to promote health, secure the health condition for our employees. The transportation or SBU Transportation results for the first quarter is amount to a very high number, that we can see how the increase has been and how it is comparative to the previous year in 23%. Regarding the natural gas transportation, we can see in our -- in the left part of the slide, in the bottom part of the slide, we can see some figures, and we can see that there was an increase for the last quarter -- for the first quarter in 2020 in comparison to the first quarter in 2019. In the thermoelectric sector, we can see that there is -- was an increase 41%, and this has to do with the management or with the reduction of the demand and the different prices of the stock market, and also the demand in the fields of Sucre and Córdoba that are telling us that has to do with the transportation. We have also seen a reduction of 10% that has to do with the different situations that happened in January. Now regarding the domestic distribution, we have seen some changes in the schemes -- in the transportation schemes, so that's why we have a reduction in the consumption. By the end of the first quarter, we had 3,000 -- more than 3,000 kilometer gas pipeline network and a transportation capacity of more than 1,000 cubic meters feet, which represents 51%, and with the volume, the total volume that represents some move coverage to 51% of the country. Moving on with this business unit. Here, we can see some relevant information regarding the first quarter of 2020. You can see what the transported volume was in comparison to the transported volume for Transmetano. And here, we can see some variations given the -- or mainly due to the consumption because of the COVID-19 or the changes in consumption. Promigas increased in 50%, the transportation capacity in the pipeline section that serves Barranquilla, thus completing the 100 million cubic feet expansion project, including the crossing of El Dique Canal. So the total CapEx was about USD 200 million. Now regarding the credit risk rating, with Fitch Ratings, we have been for the -- for more than 18 years, we have been rated again in a AAA category. And then for -- and then in the international level, we have received the BBB category for 10 years now. Now with the Moody's credit rating, we received the international Baa3 rating, which is basically showing our high consistency on our credit quality in terms of low liquidity. In February, we transported at 10% more than it was initially expected, representing a historic stake of 579 cubic feet -- million cubic feet due to an increased consumption in thermoelectric power plant caused by a low hydrology conditions in our country. Now regarding Promisol, we initiated the construction in the Riohacha gas pipeline, which is equivalent to 8 kilometers in total length and 1.5 kilometers in total intervention in urban areas, ensuring greater safety in our operations in this area. Now regarding our regasification service, it was rendered on 69 days in order to deliver more than 5,000 million cubic feet of natural gas to the National Transportation System. And here, it was key for the provision of electric power to the country, reaching some specific stake that went up to 214 million cubic feet. And we were able to guarantee stable and reliable supply to thermoelectric power plants. Now regarding some relevant regulatory aspects for the first quarter of the year. In December 2019, Tipiel, an expert company appointed by CREG, carried out an appraisal of assets belonging to Promigas, Promioriente, Transmetano and Transoccidente that had reached the end of the regulatory useful life, with good results for all companies. According to the regulatory agency, the transportation rating methodology resolution will be issued in the second quarter of 2020. However, in March -- on March 24, given by the regulation of CREG, there was a suspension in the procedural terms by virtue of the Decree 417, which declared the state of emergency in the country. This suspension could delay the defining of the definition of useful life processes and the issuing of the transportation rating methodology. The distribution results for the first quarter. In this distribution business unit, we can tell you that in 2020, there was an increase of 14% by moving from COP 665 million (sic) [ COP 675 million ] to COP 773 million. This was both for Colombia and Peru, you can see on the map that are on the left part of our slide presentation where we are operating at the moment. The accumulated users grew by 4%, the period connections, the towns served grew by 5%, the networks laid grew by 3% and gas sold grew -- in this aspect, there was a reduction of 3%. The gas distribution companies in Colombia make up 72% of total SBU distribution users and 28% of these equivalent are users in Peru. At the end of the first quarter, Promigas served around 38% of users in the country. So far, 40 new municipalities have been connected in the last 12 months, ratifying our commitment to small markets with a high level of unsatisfied basic needs. The reduction in connections compared to the same period in 2019 is due to the high effective coverage achieved by our affiliates. In such way, 90% by GdO, 90% (sic) [ 97% ] by Surtigas and 90% by Gases del Caribe. The fall or the drop that we have in the gas sales is due to the lower volumes being sold by Surtigas and Gases del Caribe. So in March, in the last fortnight of March, we have a specific change in the industry due to the closure of some businesses because of COVID-19. Therefore, the consumption was lower and here, we can see that impact in our numbers. In Peru, we have Cálidda and Quavii as our affiliates, and we can see that our accumulated users grew 30%. Our towns we served grew 19%. The networks laid grew in 24%, so we can see there's a change from 11,209 to 13,855. On the gas sold, also suffered a diminishment of 12%. We can see that we have a coverage of 89% all throughout the country, and we can see these results throughout the different numbers in the first quarter. With Quavii, we have more than 96,000 users and we have now more than 13 million cubic meters natural gas being distributed. And we are working with fishing companies that have to do the work plans of this concession. Now regarding some relevant regulatory aspects of the first quarter for 2020. In Colombia, there has been some progress in the charging rate process. The asset verification stage was completed by CREG, Surtigas and Gases de Occidente. And it was -- and we went through this audit, which was completely successful. And now we're currently waiting for the commission to establish dates for depositing -- for submitting our corresponding rating files. In Peru, we have the approval for Cálidda of the maximum price for installing the internal connection service, which will be met by FISE, which will be a relevant stimulus for the mass introduction of natural gas in the country. Now regarding electricity, the electricity distribution or the electric distribution, electricity distribution. Regarding the regulatory aspects, we will continue to work with the unsatisfied -- the basic unsatistified needs index. And this will allow us to work with users in special areas for electricity services in order to continue to have access to FOES, the social energy fund, to receive electricity in better conditions. Some operational highlights or remarks to be mentioned here have to do with what happened in March 2020. Our CEO had connected more than 5,000 new users, for an accumulated total of 401,197. Our electricity sales for the company totaled 156 gigawatts. And in an effort to reduce the energy losses, the company reported a commercial losses indicator of 16.47%, which is below the contractual requirement. Now moving on to the nonbank financing. We are working with Brilla. This program has received recognition by the World Bank, the G20, Financial Times, IFC, and this is just an example of a successful, inclusive and sustainable business that we have, enhancing the base of the pyramid in Colombia. More than 120,000 users were delivered between January and March, and we completed 3.5 million since the program started, distributed, as you can see in the script. So you can see the different social levels, which is the first, second and third social level is equivalent to more than 94%. Right now, our portfolio by March 31, 2020, amounts to COP 1.06 billion. Now we will move on to the financial statements. So I shall now turn over the presentation to Mr. Mercado, who will explain that in detail what the financial statements are about. So Aquiles, the floor is yours.

[Interpreted] Thank you very much. Good morning to you all. Thank you for your attendance to this corporate results. So by the first quarter of 2020, you can see the difference on how it was established with the same period last year. So you can see how we have growth in the first quarter in comparison to the last one. This income or this revenue had an increase of 33%, and they are due to the new transport infrastructure and also the increase in the thermal plants' consumption. And therefore, we can see some decrease in the -- we can see some increase depending on the specific thermal plants that are being started and the cost of expenses as well as the regulatory agencies' role in this process. Right now, we're working with a specific program that is called the responsible austerity. Having in mind -- and we need to have in mind also the program that we've had at the beginning of the year that increased 16% or 17%. The participation method, which basically tells us about the results of our activities, says that there is an increase of 42% due to the Gases del Caribe operation, where there was a higher gross profit on distribution and financing business and higher participation method, and also with Cálidda and SPEC. Cálidda in Peru increased due to a higher exchange rate despite the drop in the net profit caused by mainly the 12% increase in depreciation and amortization expenses because of higher CapEx. SPEC, which is our portfolio application in [indiscernible] has higher income due to the regasification revenue and recuperation in the boil-off gas and CxP provision due to the replacement made in February 2020 at a lower LNG cost versus facing the provision cost. And regarding Promioriente, Transmetano and Surtigas, we had an increase due to the updating of financial assets, given the concession contract that we have with them and regarding also their performance. EBITDA reached or amounted to more than COP 291 million, which was due to the higher revenues and lower cost and expenses execution and given the very strict regulation that we have implemented. Our net profit amounted more than COP 266,000 million, which represents an increase in 40 -- 54%, which is -- which has a real variable and lower expenses regarding the reference cost and the amortization due to the partial 100 million of cubic feet capitalization and higher income tax because of the tax withholding on dividends in dollars decreed by Cálidda. The general financial statement of Promigas showed us that we have growth in 5%, reached COP 7.5 billion, mainly because of the assets that have been incorporated and the liabilities to the long term that represent an increase as of March 2020, 19% of increase and 81% of long-term liabilities. Our assets increased 5% as we have already said because of the cash and investments, which were lower in January 2020 and other current assets that were decreased by the company and associated companies at meetings held in March 2020. And we are going to be amortized as long as they are going to be delivered. The assets under concession, they're growing 3%. That has to do with the progress on executing projects such as Jobo-Paiva, Paiva-Mamonal and Jobo-Majaguas gas pipelines, which has served the Atlantic coast. Our liabilities increased 15%, our current liabilities increased 81%, mainly due to the ordinary and extraordinary dividends decreed in March 2020. And they are going to be amortized as they are going to be allocated depending on the budget we have. And finally, our equity also increased 5% due to the dividend decreed in March as well. Now regarding the consolidated debt. As of March 2020, we can see an increase of 20% against the same period last year, and the average cost by contract and the diminishment in the rate that we manage, we can see that there was a decrease from 6.5% to 5.4% -- 5.94%, so we can see that 65% of this corresponds to a previous payment and then we can see the other figures. By March 2020, we can see that 24% of -- has moved to 35%, and we can see what the change is regarding the currency in this contract. Now by company, we can see that it is all concentrated in 1 company. And then we can see how the operation changes from the different affiliates that we have, like Gases de Occidente and some others. It's important to mention to the operation at Quavii and how it has changed in comparison to last year and regarding the specific concessionary contracts that we have in this country. Now regarding the risk rating and the compliance of our obligations with banks and the market share, you can see that we have a AAA rating at the national level and we have AAA at the international -- BBB, I'm sorry, in the international level. Our attributes at Gases de Occidente, they have also AAA by 8th year now; and Surtigas, they are also rated as AAA; and Promioriente has been rated as AAA. So all of these companies, all of our affiliates, and you can see they had a very good rate for the risk management agencies -- by the risk management agencies. Thank you very much.

[Interpreted] Thank you, Aquiles. Thank you for your presentation. And now I would like to share with you this quote: "The regulated nature of our businesses and the contract with our clients, adjusted to their specific needs, allows us to maintain good performance, even in difficult times for the economy or the energy sector. We are already preparing to face the important challenges presented by the COVID-19 crisis in the short and medium term in Colombia and Peru. Promigas is a resilient organization." With this, I would like to conclude our report for the first quarter of 2020. And this is so far what we have done regarding the financial aspects and some of the efforts we have done in our company. So right now, we would like to open the floor for the Q&A session in case you may have any questions. Again, thank you very much for attending this meeting.

[Interpreted] [Operator Instructions] So we have a question for Rodrigo Sanchez.

[Interpreted] I have some questions. The first one is about Brilla. I would like to know what your strategy is like with them and what you're going to do with the portfolio you have with them and how it is going to affect the delay -- all the delays that you may have with this portfolio and how you're going to handle this. It would be very interesting to have this information to get to know how you're going to work with this portfolio that you have with them regarding the crisis that we're facing nowadays and to see what percentage would be there to work with them. And also, I would like to add and to say that we consider the first quarter was a very good quarter for you. And we would see that there was some specific fixed debt, but I would like to know what is your prospect for the next quarter in your different SBUs?

[Interpreted] Thank you, Rodrigo. I would like to take the opportunity that we have our Vice President in this conference call in order to answer these questions that you have given us. So the first question about the strategy that we have with Brilla. Before COVID -- or facing this COVID-19 crisis, I would like to tell you that our Distribution Vice President can help us out to answer this question. So please, the floor is yours.

[Interpreted] Thank you, Eric. Good morning to you all. In fact, our portfolio in Brilla by March 2020 is by 3.6%, which is an index, a very good index or indicator, if we compare it with the portfolio that we have in Colombia, which should move around 5%. And again, we are moving in 3.6%, so we are in good ground. And now by March, we can help all of our users with their income, given the COVID-19 crisis. So there was a financing program with them -- for them in order to pay their invoices in March and we defer these installments -- this in 36 installments. Additionally, we have implemented a more strict scoring in order to allocate the specific risk that needs to be allocated. So that's what I have to say.

[Interpreted] So now I will move to Aquiles so he can help us out with 2 topics: CapEx in 2020, how we're doing; and also, what has been the adjustments that we have made, having in mind this COVID-19 scenario and how this affected our first quarter and how there has been -- how there have been positive results and how it is going to affect the second and third quarter. So Aquiles, please go ahead.

[Interpreted] Thank you, Eric. Now regarding Carlos' question, we had a CapEx problem for all year long, in which we were going to implement more than COP 800 million. And now the portion that we have deferred, that we have been paying with the investments that we are doing, are equivalent to 31% of the program -- of the initial program. And what we have thought was basically, we corroborated, we double checked, how we could operate with these numbers in such a way that our operation wouldn't be affected especially for our operations years, for this 31% that I'm talking to you about, which is about COP 131 million -- because more than COP 131 million, they have to do with the portfolio for these small businesses. And we have some consulting topic here that we need to have in mind. And we actually have already planned some of these -- as part of our risk management plan, we had already forecasted some of the things that we are doing now. So somehow, it is helping us out to have a better management of these questions that we're facing nowadays. Now regarding the machinery, we also have some change and we are starting to do some changes in the long term. We haven't done any of that during the quarantine period. We -- and none of these operations are going to affect the operations that we have been having, especially for the infrastructure that we have deployed. And now where are we going to go in the next quarters? We think that there are many scenarios that we need to have in mind. But so far, we think that we are well prepared to move into the next period, especially to provide with the provisions in our portfolio, we will have to do with the probability of losses and the profits that we may have. So we need to have in mind the GDI that is going to affect our provision in our portfolio. But so far, we continue to see the results of our first quarter, and we are not expecting big changes for the second quarter at least because it is in line what we have already planned and forecasted at the beginning of the year.

[Interpreted][Operator Instructions] So far, there are no more questions. So that's why we'll turn over to Dr. Eric to move on.

[Interpreted] Okay. Well, thank you for your attendance. Thank you for your participation in today's corporate results for the first quarter of 2020. We, as the administration and part of the Board of Directors, we feel very pleased because of these results of the first quarter. And we hope to have a good closing of the year, even though COVID has happened and all of the measures that -- and all of the changes that this has implied or that this has caused in our operations, both in Colombia and Peru. We are very optimistic that this situation that we have managed the business situation quite well, and we hope to comply with all of our objectives and all of our goals that we have for this year. As our CFO would say, we do have some challenges with our portfolio in such way that we cannot guarantee that there might be some changes in the budget numbers, but we will do our best to be as close as possible to those numbers, to those projected numbers. Please be sure that all of our facilitators and all of our employees are well and sound, safe and sound. They're working from home on our operations, have continued to be to operate in an excellent way. We haven't suffered any significant changes in our operations. And we hope to have a more normal life coming back to what it used to be and recovery of the situation that we are unfortunately facing nowadays. So hopefully, we can -- we will be able to overcome these challenges that we are being given as of today. Again, thank you very much.

[Interpreted] With this, we can conclude today's conference call. If you want to listen to this conference call again, please contact the company. Thank you for your participation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]