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

[indiscernible] Some examples of successful business for the population situation authority that are and [traditionally] excluded from this developing benefit. Commercial results. Welcome to everybody. We want to present the results of December 2022. I am [indiscernible] I am management [indiscernible] through this platform. We have provided you with the bottom of questions, so you can send the questions. And your answer will be answered at the end of the presentation. [Indiscernible] we are recording this session. Juan Manuel Rojas is with you here. He is the President and CEO of Promigas.

I would like to start by the results. I will present in about the last year in 2022, we connected 467,572 new users to the service of natural gas and electricity. It's not a small number. That 477,525 new users represent around [1 million 300] people have access to the service of gas or electricity. With that number, we arrived to a number to more than 1 million people that we provide services to every day as our footprint for demographic and social footprint. And for those 470,000 people, 453,000 people were natural gas in Colombia and Peru and around 14,200 were electrical [energy]. One of the things to highlight has to be that 128,000 users in Colombia belong -- living conditions that is 1, 2 and 3. That means that we're taking care of the most vulnerable and more poorest people in Colombia. Around 260,000 in Peru, we make the living condition to a Colombian standard. They also belong to status #1 [indiscernible]. In the population [indiscernible] we are talking about more than [indiscernible] populations in Colombia and [indiscernible]. Why is this important and why I have to highlight it? Natural gas once again shows that it is a tool to help people get out of poverty of energy [indiscernible] -- poverty. Colombia is a very good example of [indiscernible] especially because of the [indiscernible] of gas, and Promigas and its joint companies are critical key players on this every user that we connect and stops using wood fire. That means that we are allowing to have [indiscernible] from 5% of the use of his minimum wage income instead of [wasting it on] wood. And when they use propane gas tanks, we are saving them 2.5% of minimum wage income. So the environment subject matters. It has a very good positive impact. Those of using a wood fire to cook that we estimate that is going to be 145,000 new connections. That means that 900 people are improving their health significantly especially when we talk about respiratory disease and improving the [indiscernible]. Another advantage that is important to highlight is that the connection that we have with vehicles. They diminished in between 30% to 50%, the gases they release into the environment, when we just [indiscernible] diesel and gasoline for natural gas in the car. Every car that we change into natural gas, every tractor running [indiscernible] and the amount of gas release in [indiscernible] is reducing to 90%. So environmental footprint is very important because it's positive. I would like to start our presentation with this element when we're talking about connections and how [477,000] people who are connected into the natural network -- natural gas network have a very good impact on the reduction of poverty in Colombia. The second element that I would like to [indiscernible] from the social footprint is one of the services that we provide, that we think that is not only a significant social footprint, but it's also -- it's a financial system that is profitable. So Brilla is a nonbanking financing service. Last year, Promigas was able to produce [indiscernible] to COP 3 trillion. That means around 75% goes to the living status 1, 2 and 3 in Colombia, according to Columbia standards. So that only means that we are contributing socially to diminish the energetic poverty in Colombia, connecting people to natural gas, but we're also providing them nonbanking financial support for those people who doesn't have an access -- easy access to the financial system for a [indiscernible] with a system that is going to help them grow and develop their house -- their homes. Those financial services of those numbers that [indiscernible] COP 1 trillion. That was true more than 452,000 credits in last year from the last semester of 2022. In the social investment area not only we connect users, we only provide them with a financial service. Socially, we are also having an impact, a very positive one with the communities. For example, last year through Promigas and the companies that are joined with it. We put more than COP 36,000 million for high impact activities and investments for social development around -- between 2021 and 2022. The beneficiary are 183,000 people in the -- 184,000 people in the communities from some of the [indiscernible] of the period and 9,600 people were beneficiaries of high impact that through the financial of the foundation to create youth employment, sustainable works, farming activities. Let's go with the core businesses of Promigas. And let's see how we did in the last semester of 2022. As you know, in the transport, we -- today, not only Promigas, we also have [indiscernible] from oriented and [indiscernible] from [Promisol] a company or petroleum companies and construction, we have Promisol and Promisol [indiscernible]. And we have the only factory of reclassification of Columbia. So the results of this aspect of transport are very positive, especially in infrastructure. We closed the year with 3,289,000 kilometers of [indiscernible]. And through these we moved more than 46% of the total gas transported in Colombia, is a 2% higher volume than 2021. And another thing that I would like to have like to highlight of the high pressure in one side, we were able to make them work 100% to their capacity. That's something we feel very proud. And we closed last year with very successfully and no accidents happening, especially the one in [indiscernible] From those [indiscernible], so we were also able to provide services that checked all our [indiscernible] and noted that all of it was in perfect conditions, and we keep up high standards for quality for our piping. And we also were able to provide 99% of our capacity of transport to the transporting companies. So if we go to -- in the long term, 2022, we enter a stability of natural gas in the -- we have an increment of the -- especially because of petrochemical consumption and the nonregulated demand of gas. Since the reactivation of the economical situation for the region, the thermoelectrical activities, thanks to the hydrological benefits added to the reinforcement income with the interior of the country. We presented a reduction of the patch to thermoelectrical facilities from a 32% versus the last year. So nevertheless, Promigas, it's closed in the years with 2,753 kilometers of gas pipeline and 952 meters -- square cubic meters every day. I would like to [indiscernible] the high volumes that we dominated from Promioriente and [indiscernible] Promioriente. In the case of Promioriente, we incremented the volumes of movement in a 40% rate. In Transmetano, a 6% increase in and Transoccidente, 11% increase. Let's see our presentation for the gasification. So last year, we imported shipments of [indiscernible] even though last year was very hydrological support, the electrical system demanded from us. In several situations, we have to [chip] in our ships. So far, we have brought 36 ships since we started the operation of the gasification plan years ago. And we confirm once again that [indiscernible] has become the one who provides confidence for the electrical system in Colombia, a very important strategical asset. Now let's talk about the distribution of the natural gas and electrical energy. You know that we have participation in [indiscernible], we participate in managing [indiscernible] north of Peru, Pacific and Peru Promigas Peru, and the company in the Department of [indiscernible]. So we see performance in 2022 of these companies, we achieved 6. 3 million users. That's what I'm saying that we were talking in 21 million, 22 million people along the year, 6 million people, of 5.9 million of them are natural gas users, 70% of Colombian and 30% are Peruvian and around 400,000 people for electrical power. Nowadays, we have 38% of the Colombian market and 94% of the Peruvian market. Some other things that I would like to highlight from the achievements of last year on the distribution. Firstly, we had an electrical power increment of users. We had a new addition of 467,000 people added to our last -- we also started the activity of Pura. We boosted the advanced measurement. We would like to mention that we are instituting the traditional meters to intelligent leaders that are capable to [indiscernible]. We install more than 58,000 measurement meters facilitating the payments from those meters, so they could be able to actually control how much they are spending. We also had a 3% of higher consumer in natural gas sales. We sold 12,308 cubic meters, 3% higher than 2021. Another thing that we were able to, I would like to highlight has to do with the advancements that we had last year about industrial security and processes. And I would like to mention that in 2021, we started the [indiscernible] of security in the corporate structure with ally DuPont services from [indiscernible]. And through them, we were able to create reevaluation of the maturity of security -- industrial security and processes. We are ranked in a very favorable position, but we have to keep pushing forward in certain projects to be able to actually have a status of interdependent, in 2028. In our joint companies are independent, and the idea is to promote them and move them into a rank of interdependent. So they actually are very mature in industrial process and management. We also have been rewarded in Colombia as one of the most in between a contest of 130 companies to be one of the most continuous improvement companies with security. We were addressed as one of the best companies promoting security and management, and that has allowed us to reduce the indications of [LTs] and IFRs that you see in 2018. We went from levels of 38% to 1.6%. That provides us with the good numbers showing that we were being able to be more safe [indiscernible]. So our businesses of low emissions and innovation. In December 2020, we finished with business of 47,000 megawatts, 42 of them are right now working and 7% are therefore any total capacity. We have 42,000 megawatts that are going to right now provide energy and providing service [indiscernible]. In the solar energy production, we arrived 33 megawatts, 19 of them are operational and 14 are still being built, and that's the closure of the year. And [indiscernible] power generation, we installed 15.3 megawatts ratio [indiscernible] and we have a compromise to provide our business -- our users, to be able to transit some energies to a neutral carbon. Loyalty, we signed an agreement with our members of the industry, to promote the transition into cargo transportation, that is NGV. Most of the cargo vehicles in Colombia are older than 17 years old. That creates more than -- many -- they consume the same energy as many houses. We had the promote of 361 units of NGV trends moving. Right now in the [financial] fund, we have 856. It's a low number. We expect to change it. And we are compromised to work on promoting those numbers [indiscernible]. I would like to start some minutes in the advancement and innovation that we have in the innovation with Promigas and the companies that are joined with ours. Last year, we invested around COP 100,000 million in investigations. That's something we're very proud especially because we are commitment to be key players on the ethical transition. Those investments right now are being profitable. We have incomes around COP 435 billion that come from the innovation area. Savings from COP 60 million. 183 Workers are there -- are full-time workers with our companies, and they are attached exclusively to the innovation and research areas. Thanks to those investments, we were able to open on March, the hydrogen -- hydrogen pilot being pioneers in Latin America. Using this kind of technology in the natural test, we are the ones creating the first blending in between those transports and distribution method. That product was awarded as the best project of green hydrogen in Latin America by specialized strategies. Once again, something we're very proud about. We announced last year that we're going to create an alliance to promote the electrical movement in hydrogen. It's something that we're working. Soon enough we are going to be hearing about this, hopefully, before the end of this year. We also signed renewable gas with universities of [indiscernible], with university of North, [indiscernible] with University in Barranquilla we signed this treatment to do renewal gas investigation. That's something we are pushing forward. And we were the first American Latin company to actually post any results as part of the initiative, again, something we're very proud of because we are sharing information and knowledge and learning with one of the most important knowledge producing centers of the planet. So something -- the other things I would like to highlight [indiscernible] -- something that we are distinguished for. Our achievements in the month of December, we created a compromise from Promigas to decarbonization, a compromise, a commitment that differentiates us from our energy companies because the commitment that we accepted is that by 2028, we're going to reduce gas emissions into environment to be able in 2040 to reduce emissions of the carbon dioxide to the environment. By 2028, we have been able to reduce 40% or 47% in 2040, carbon neutral. We have a carbon footprint that adds 4 million CO2 of tons. We also presented some important advancements in all the matters of preserving biodiversity especially in the change of use of this soil and the management of land of 54 hectares of the total of 1,054 hectares that we are going to -- that we have, and we expect to have by 2029, 1,814 hectares for preservation. This is all I had. CEO, he's going to talk about the fourth semester of 2022 financial results.

Welcome, everybody, who is here with us. As Juan Manuel said, is beginning the information, the results of the year are important, are successful in the individual level. We have income that grew 3%, COP 1.1 billion, that's more than we expected from the COP 1.4 trillion income was -- Our CapEx investment program -- that's retaliation because of the but we are able to invest COP 260,000 million structure of Promigas, reconsolidated. We also had some income that were above the 8% that we were expecting, COP 6 trillion. 8% again above the plan, COP 2.3 trillion. We executed 94% of all the investment that we CapEx. The reconsiliation level, we had COP 780 million at 84%. The reason that we were not able to go 100%. It was because of the changes of the tax reform that were there. The impact of the developed tax was able to be to [indiscernible] and the consolidated, we were using international units that are [complete]. So it is affected by the new tax. That is not a renovation of savings. Something that affected our income positively was the savings, the credit. You should have been resolution of the regulatory process. Some of them were going down and some of were going up, but in general terms, they were positive financial stats. On seeing what is happening in the market, we are expecting -- we saw in November of the [indiscernible] we're able to produce COP 2 trillion in corporative level to have a reservation and be able to provide the [indiscernible] the CapEx unit on the year 2020 and we are on schedule according to our budget. We have some big efforts to make these resources available. So we reduced the negative impact to the company. We also -- we received a ratification of local and international business [indiscernible]. We still are [indiscernible] we also were always trying to increase income on profits. We also want to be management focus on improving profitability and growth, maintaining the solid finance and liquidity and achieve an efficiency in legal and regulatory visibility in order to have an attractive for our investors. We renew our the investment highlights. I'm paying attention to this [indiscernible]. Moving beyond where our losses and profits in the fourth semester of 2022 versus fourth semester of 2021, we have an increase on our profit. EBITDA was reduced 28%. We are going to explain why and the net profit was diminished 37%. What happened with the revenue? The operational revenue reduced 3%. The exchange rate affect us because the report has to be produced into Colombia and Colombian pesos and because of the variables of the purchasing power and the economic situation of recalculation has been balanced by higher income that we saw produced in Peru because in [indiscernible] we're still wearing the economical sanitary [indiscernible], because in that country was some restrictions. The EBITDA was able to arrive right to 28% because of the low increases, but especially in Peru, we have a very special activity of construction. And in the last times, we had done important investments. Therefore, the margin of the mid-teens 15 [indiscernible]. We had the lower [indiscernible]. The new businesses that we're analyzing and we are still thinking about in line with our strategical plan are going to try to balance even more our profit. With all the net revenues, these producers given a chart of the -- we have a higher debt, but we're also trying to provide our obligations and the strategy of [indiscernible]. We also hired some credits to cover the end date that might affect us in 2023 and 2024 because we want to keep our liquidity assets. Income were 16% income, EBITDA was above 14% and the gross net profit was a low 3%. So till the month of August, and from then on, the new[indiscernible] of gas because of the participation of the -- we received COP 90 million billion around, and there was replaced by a new contract with more flexible conditions and we can provide looseness and better -- more flexible fees to our users. EBITDA, 108% of the budget. It's because of the higher income level because of participation affected partially by the higher cost and expenses because of the facility that we received, but we try to put in line to achieve our the normalization of that were stopped during COVID. The net profit and the income was affected because we were expecting 5% more than we wanted, because of the more -- higher debt that we have and the higher [indiscernible] we have. The bonuses in Colombia mainly at the end of 2022, we have that we presented in the [financiation] area. So in the [indiscernible] we have a normal activity. So the passive ones grow 28%, but mainly because the transition between the current and the new credit we wanted, that we asked fo,r, that we didn't need it, but we just wanted to be -- we make sure that we were going to -- so we wanted to have some money that was necessary for all the CapEx activities and all of the matters that our company needs to provide for our workers and activities.

Now we're to start questions and answers. So the first questions come from [indiscernible] from MetLife. I would like to know the impact of the EBITDA of the regulatory change in Colombia. Therefore, to anticipate if there is going to be any other more changes.

Thank you [indiscernible] for your question. As you know, last year, we had regulatory changes into [indiscernible] to do with the new charges in transport with the Resolution 75 of 2021, and the publishing is from September 2022 of the first application of fees of the firm and the impact of this measurement of the first measurement is a reduction of 3% of the income on the cargo transport because of the viable of the useful life of the vehicles and we expect that the second application that is to be accepted by the regulation of the transportation in Colombia. We're hoping to have an improvement on the and the positions for the transport, and we expect higher profit. The second important change that we had last year, the regulatory parts. Is the fee of distribution. The new positions for distribution as companies for [indiscernible]. From October, we have applications of the new charges of gas and transport. That's around a higher income of COP 25 billion, and by February 2023, we need -- we have new transport in [indiscernible] and that means that we are going to receive more than COP 2 billion, COP 700 billion this year. That's what we have from [indiscernible] and around 48,000 total additional million dollars. Hopefully, that resolves your question.

The second question is also from [indiscernible] from MetLife, around come out of your EBITDA comes from Peru and Colombia. And what risks do you identify from Peru?

Thank you, [indiscernible]. So more or less of our EBITDA from Colombia, 20% comes from Peru. We are looking into the political aspects of Peru, more than 1.5 years, when we saw that there were going to be from diluted elections. We started to do very specific important evolution of the political risks. We believe that though what happened in December with the [indiscernible] Castillo and the process that came after Castillo. The weather right now,the political weather right now is more stable. The current territorial situation and the is very [indiscernible]. We're also keeping track an eye on it. We're also seeing that it can be a higher risk in the lack of promotion of laws that are important through the Senate of the ruling. So there is a law that is still repressed, that is trying to implement the level be, and that's where we have high expectations because we think that, that expectation of that [day] is going to push to the business because right now, it's very profitable in Peru, but it's going to be even better through that law, that would help the gas. Natural gas would arrive even cheaper to the north of Peru. So right now, the level law -- the level law is still very slow on government and Senate. So we are winning things like that. But right now, we're tracking it. We're tracking it. The situation of Peru, we're feeling relaxed because we see that the business is moving forward positively, especially seeing the number of connection that we had last year and because of the closure of the last year and how we were able to finish our gas pipeline construction earlier than we expected last year when we started these projects in [indiscernible].

Next question is from [indiscernible]. I have -- it's not very clear to me the dividend area for this year, did you define anything?

Thank you,[indiscernible]. So when we talk about dividends, we still have to think about how to pay dividends to our stockholders in the [general meeting] of investors. What we achieved was to keep the decision of the value of the stocks and adjust the payment date, especially because the macroeconomic situation because the financial market right now is low and slow. And having this into account, we recommend to keep 2022 cost of the stock and Aquiles is going to tell you how much was it, and move this to the fourth semester where we expect better market in the condition -- this is what we see through the politics and now Aquiles' going to tell you in detail how it's going to be this fee applied.

So according to what was mentioned in the recent meeting from the results of 2022, the dividends were like this. One ordinary dividend, COP 172 per staff, of 104 is going to be September '23. COP 61 is going to be paid on the 21st September 2023 and extraordinary of -- 172 extraordinary stock value for September 2022. So the addition of all these payments for response to the same dividend payments that we have in .

How many contracts are going to expire in 2022 for Promigas?

Thank you, [indiscernible]. In 2023, transport contracts of Promigas with a capacity of 41 million cubic meters, and that means 6% of the total capacity contracted. 3 of these contracts are going to be renewed, and one of those is right now is in negotiation.

Ricardo, independent analyst. I would like to know what strategies are you being implemented for the increment of the stock prices that is very [indiscernible] right now.

Ricardo, thank you for the question. So what happened in the capital stock system of Colombia, it's not the [fundamental] of the companies. It's not related to the company. It is more about it is what happens with the capital markets and what has been happening since last year. It was a significant downfall in the market prices. If you see us from the Promigas, we had a spectacular year. We had an excellent year in the matters of results. In that sense, it's between our -- on our [indiscernible] to diversify in income spending, not only depending on Colombia, but also promote our businesses outside Colombia. Our directive system, we've been in advance it very well in an important way and the strategics of financial -- of finance. We've been in proactively. We also are able to close 2022 with all the CapEx of [indiscernible] with a very favorable conditions. I don't know, Aquiles, if you want to mention something extra.

Manuel, maybe. Considering the behavior of the market of the [Promigas] have been going up even 16% higher than a lot of the investors move into this market. And that creates a movement of investors that it has nothing to do with us, right? But it's also -- it's more about the behavior of the stock market and how the people are going to be moving and taking and putting their money. So it depends on the [indiscernible] of the market.

Next question is [indiscernible]. Are we thinking about rebuying stock as another stock emissions, to create a better value on the stock.

No. Right now, we're not thinking about it.

[indiscernible] again. What do you expect for the next years incremental, please.

Thank you. So we are a company right now that we have a high standard of regulatory standards. So what manuel mentioned on the regulatory system, we expect to sustain our level of rentability regulated with some margins in regulation with the plans of investment based on the provision of our administration and operational and promotional activities and trying to work with the low of the market. So right now, we are going to be starting a WACC revaluation. But that we have to wait for the regulator to see how it is going to work. Right now we're achieving a stability because though we keep prices of 2022 in transport and gas, that might mean that we are going to be able to have good stable situation for 80% of our investments.

Ricardo, again. What kind of situation might create the new rulings of the government [indiscernible].

So politics are going through different fronts. We're very proactive [indiscernible] energy transition for the hydrogen, and we are working actively with the government groups to be able to have [indiscernible] the execution of the transition, but also influence positively the regulation. So those projects are going to be actually materialized. So we're expecting a lot from there. So talking about the reforms on the Senate right now -- on the congress right now, we're keeping an eye on that. That what might be the reforms in our operations, but of the changes on our operations. And the Congress government has to give us their input on how that's going to be actually the lowest impact on how to produce employment, but we're talking about the working reform and about the [indiscernible] law. We are also taking an eye on it and see. Right now, that's the only thing that we could say right now. On the other hand, we are also very worried about the regulation of energy gas. So through the energy groups, we're trying to keep our activities and participation. It's very important to us to keep moving forward in some initiatives that are compressed right now, and we need the to people moving forward. So right now, the state council did something very important that was creating a very good division on what was responsibility of the legal system, the executive system and the judicial system. So right now, we're expecting a political policy that is going to actually, is well defined.

It's 10. So we're going to do 5 minutes of questions because we started later than that. Anything that's left out from the office of VR, we're going to write you your question directly. [indiscernible] from stock market. Could you share with us for the year or the EBITDA profit of 2023.

Thank you for the question. [indiscernible] into account that this the budget officially approved by the [indiscernible] counsel and the principal and a commitment. We mentioned it [indiscernible] expectation. It's our document is what we expect to run with during the 2022. We expect the incomes and the development income. We COP 1.8 trillion and EBITDA of COP 1.3 trillion and a net income of COP 1 trillion. In a consolidated level, we are expecting -- we want to arrive to COP 6.5 trillion and EBITDA at 3.2. And according to [indiscernible] a EBITDA of our CapEx -- consolidated CapEx, we expect COP 870 billion of profits. That is going to affect our -- some of our new investments and diversification and how we are going to pay.

From the same guy, open season is going to be discarded?

Compensation, Rodrigo is suspended. Not discarded. We haven't canceled it out. Because from Promigas, we see that the country needs of this asset. So we're just valuating the information from the production source. But right now the process is suspended, not discarded.

[indiscernible] question from [indiscernible]. What's the increase of the financial debt in the [consolidated] is that CapEx important to financial?

Thank you, Carlos. As we said, the CapEx right now is normative and regulatory. The increase is because of the strategy that we start the last semester of 2022, and we started in some reimbursement into Peru of COP 2 trillion to have sufficient resources if market still continue to be very volatile, so we can handle situations in any case happen. For 2023, same as CapEx, the market keeps on going back into normality. This debt has no penalties if we pay it in advance, so we just give back the money back, and it's not going to affect our indicators. Because right now, if the indicator is going to be the net profit, this investment, this higher debt is invested, our best options the market reducing the negative impact that might have plus on their fees and the collection of the expense fee.

We have a question around [indiscernible] from MetLife. What is the necessity of the EBITDA of the devaluation of the cash?

Yes, we're going to send you that data through our office.

Well, right now, we have no more space for questions. Everything that is it's going to be answered directly to you.

Okay. Thank you very much to everyone. Thank you very much for your question, for being in the result call. And we hope to come back on the next semester. We'll see very positive messages and very good news as we did before. Thank you very much.

Yes, Thank you to all.