Edited Transcript of PMG.CN earnings conference call or presentation 27-Aug-20 2:00pm GMT – Yahoo Finance

Q2 2020 Promigas SA ESP Earnings Call

Aug 31, 2020 (Thomson StreetEvents) — Edited Transcript of Promigas SA ESP earnings conference call or presentation Thursday, August 27, 2020 at 2:00:00pm GMT

TEXT version of Transcript


Corporate Participants


* Aquiles Ignacio Mercado Gonzáles

Promigas S.A. E.S.P. – VP of Financial & Administration

* Eric Flesch

Promigas S.A. E.S.P. – President


Conference Call Participants


* Rodrigo Sanchez

Corredores Davivienda S.A., Research Division – Senior Equity Research Analyst

* Steffania Mosquera

CrediCorp Capital, Research Division – Senior Analyst of Transport, Telecom, Media and Technology and Information Technology




Eric Flesch, Promigas S.A. E.S.P. – President [1]


(technical difficulty)

[Interpreted] on the transportation, and we will also share some information regarding the performance of our operation, and we will also share the financial results — or our financial statements.

Reporting the main facts for the second quarter of 2020, we would like to share as follows: The first one has to do with our SPEC system. In the first semester of 2020, our SPEC contributed so that gas-powered thermal generation would meet up to 22% of domestic energy demand by delivering over 10,000 cubic meters of natural gas. It played a key role in ensuring that thermal generation would successfully face an extraordinary situation as the one that we are facing today. We managed to have reservoir levels to 32%, which is the lowest in the last 20 years.

In Peru, we have grown our operations in a very important way, and we have also managed to have Gascop, which is a pioneer company in the commercialization of natural gas for the industrial and vehicular market in Northern Peru, complementing our distribution operations in the north of this country. We have also consolidated our operation as leaders in the mass use of natural gas in Peru. The investment executed was about $23 million.

We also record in the period results — we can tell you that, for this second quarter, our EBITDA or the Promigas EBITDA were about COP 209 million, which represents a net profit of about COP 157,178 million, which is equivalent to an execution of 74%. This represents a diminishment on the 11% and 31%, respectively, regarding the second quarter of 2019. And these results are mainly due to the impact of the state of emergency due to COVID-19.

Despite this weak performance in the first 2 months of the quarter, in June, we saw or we witnessed a significant improvement. We managed to have an accumulated net profit for the second quarter that represented 96% before the budget that we have established for 2020, and it also represents an increase in our profits for — regarding 2019 — or as compared to 2019.

In fourth place, we have finalized our Board of Directors’ approval of our Corporate Strategic Plan, PEC. At the beginning of this year, we started to work on the strategic plan. And we came with some ideas to the Board of Directors, and we leveraged on the sustainable work that we have in Colombia and Peru and the explorations that we have on our units. In order to do so, we were supported by the firm, Bain & Co.

In fifth place, regarding our ratings and merits, we were have — or we were — we had the support of our affiliates’ performance. Fitch Ratings confirmed the AAA positioning and F1 for Colombia ratings with stable perspective for Surtigas in June. Likewise, Gases de Occidente won Andesco sustainability awards in the energy efficiency and social environment categories.

Last but not least, we managed to have a good efficiency in the allocation of resources. Our estimated savings and expenses under the responsible austerity program has been consolidated, which basically means that we managed to save and to be very cautious with our expenses, and we always had in mind the security of our business and in order to secure different operations that we have. So we established a specific plan in order to move forward with it.

We also had some deferral of CapEx until 2021 without any affectation on the operational reliability or safety. And finally, we had a total loan of COP 1,300 million taken out in order to guarantee funds for the operation and CapEx during the year. We didn’t know how drastic the emergency will be both in Colombia and Peru, and that’s why we had to use our cash flow and decided to go with a loan with very good rates. And as of now, we haven’t had the need to use it, but we still have those resources at hand.

We still continue to have an updated response to — before the COVID-19 crisis, so we have — our human resources have been working from home. About 73% of our employees are working in a home office modality, and they have been provided with the necessary equipment in order to work from home effectively. And 27% of our employees are working both from the field in the work or office. As of now, we have identified 61 cases of COVID-19 infections. And we have 24 active cases out of — and 37 cases have recovered. None of our employees are hospitalized.

We have a specific prevention and management strategy, which has to have effective communication that we have with all of our collaborators. And we have always procured to have — we have always taking care of our spaces — of our workspaces. We have also the modality of home office, and we have a monitoring testing plan, return-to-work protocol and safe facilities. That’s where the 4 different [wins] with our collaborators for the implementation of the contract for the rest of the year. We saw some variation in the management of those contracts, and we have also supported different social levels in order for them to keep on working.

As of June 2020, Promigas and its company have more than 3,125 kilometers (sic) [3,225 kilometers]. We have grown throughout the country. We have transportation capacity of 1,102 meters throughout the country, and we have volume transported that goes beyond 470 million meters cubic. And our generation capacity — our regasification capacity, as you can see in the screen and goes beyond 400 million cubic meters and the volume gasified goes beyond 10,000.

Regarding the distribution [in Colombia], we have new users, getting to more than 3.76 million meters, which is equivalent to 38% coverage of the country. And we have over — more than 49,000 kilometers, and we have sold 1,642 (sic) [1,682 million cubic meters] in Colombia. In Peru, we have 37% of the population has been — 37 different towns are being served as of now. And we have a very well — a very solid network in this country as well.

In total, we have very important figures. For the funding, we have 3.5 million users, which is very important. We have a portfolio that goes beyond COP 990,000 million, which has to do with specific placements of those been beyond COP 208 million. In the — we have for the electricity — regarding the electricity, we have more accumulated users that goes beyond 402 million users and the losses are equivalent to 15%.

The financial results [by SBU] are as you can see on the screen. We have some specific consolidated results that go beyond COP 959 million. We have a consolidated EBITDA that goes beyond COP 322 million and a consolidated net profit that goes beyond COP 157,240 million. The accumulated consolidated revenue goes beyond COP 2,046,969 billion. And we have a consolidated EBITDA of COP 735,403 billion. And finally, we have a consolidated net profit that goes beyond COP 421 billion. So as you can see, we are now, I think, the implementation of 96% as of — as compared to the previous year, it goes beyond 2%. This is due because — this is due to the closure of the Colombian and Peruvian economies given the profits and the EBITDA that we have in these countries.

I would like to share a quotation that I created and drafted myself, that affected our results for this [measure]. In the quarter the under review, we offered contractual flexibility to our transportation and distribution clients, which affected our financial results for the quarter, which also include the $22 billion in donations we provided to the community for medical equipment and humanitarian aid. Even taken impact into account, the fulfillment of our EBITDA and net income targets as of June 2020 reaches 101% and 96%, respectively. This means that we have been — supported different hospital and different medical work teams in order to provide them with better equipment with the 2 phases situation provided with some — and we provided with some equipment where needed in these territories. That’s why I said that, even in this situation, we managed to reach 101% and 96%, respectively, for our EBITDA and net income targets.

So we continue and now moving on to the environment, social aspects and governance. We have worked on this aspect, and we have remediated the different situations that we have faced through different programs, working in association or in partnership with different institutions [in our economy] in such way that we can work with our communities in order that we can provide this food security for these territories in such way that they continue to grow in these places and we can remediate their forestation issues.

We had the best practices in ODS 15 and also in the social investment index, we were included in the top 10 companies with the best index. We have also contributed some specific organizations with computers or with some specific input for these families, but these families have been given the gas provision service. And we have invested more than COP 1,400 million.

Let’s talk about the sustainable management that we have reached. We have implemented a hybrid pipe drying system that have accompanied by the performance prediction models. And we also implemented our hybrid pipeline in order to have a better performance, in order to shorten the commissioning times and to reduce as well the carbon footprint from these operations, which is quite innovative for these areas and this service premium for Promigas. And our innovation center is working currently on this regard.

Moving to the second aspect of this slide, we can tell you that we also deliver some computers to the community of; El Crucero in coordination with the Promigas district in Sincelejo. And finally, we were invited to organizations with technological challenges that were sponsored by Gobernación del Atlántico or the mayorship of Atlántico and CienTech.

And I would like to move on now to SBU transportation results for second quarter. Our transportation results have to do with present kind of (inaudible) transaction SPEC that is a part of our diversificator company, Promisol, that in our construction company and for the special regulation services.

In this Colombian map on the left side of this slide, you can see our presence throughout the country and you can see what the operation of each one of these companies is, and you can see what our incomes have been in 2020. You can see that our incomes in — from January to June had an increase of 20 — by 4% as compared to the previous year. We had — during this quarter, we have a decrease, we had dropped by 11%. And reasons are pretty obvious to explain why this decrease for this period. But as we know, it has to do with this health crisis that we are going through, although we should say that it wasn’t as drastic as we thought it could be. Therefore, what we have to do now is to recover from this crisis.

Regarding natural gas transportation. In this chart that you can see at the bottom of the slide, you can see the consumption by sector. You can see how it has increased, and we have 359 daily production. And for the quarter, we had a very good results. And even though we have — although we’re under lockdown, we have an increase of 1% in comparison to what we were producing before.

So let’s check the different sectors that we provide services with. So let’s start with the thermoelectric sector. We have thermal plants from the Coast that have supported energy and demand in view of the low reservoir levels and hydrological shortfalls in the first semester. The SPEC regasification terminal has met the thermal plant requirements.

In the industrial sector, we have a 10% decrease. And we have also provided some specific value specifically for the thermal sector. We have reinforce the onshore fields in Sucre and Córdoba as you can see in the screen. And this — all of these results have been impacted by these this crisis of COVID-19.

How it — moving on to the industrial sector. We have seen some affection on the industrial gas, especially the vehicle gas, but by the — by this moment, we have a length of the gas pipelines of more than 2,000 kilometers and our transportation capacity that goes beyond 900 cubic million.

Now regarding the gas transportation, we can see lower volumes compared to the previous year due to a decrease in consumption, mainly in the regulated and industry segments served through the distributor, Vanti, and a decrease in consumption at Barrancabermeja refinery due to the COVID-19 emergency. Also reports drop for this quarter. It is also due to COVID-19 because our costs — we don’t have as much consumption as we usually have. In May, you can see some recovery in [Promigas], especially in the regulated market and the latter given the recovery of some — or reopening of some operations in the region.

Some we can — some important remarks for this quarter, we can mention that the operation in Barrancabermeja and in Barranquilla (technical difficulty)

Now regarding the gas natural transportation, some relevant aspects were the increase. Can you hear me?


Unidentified Company Representative, [2]


[Interpreted] Yes, we can hear you now, Eric.


Eric Flesch, Promigas S.A. E.S.P. – President [3]


[Interpreted] I’m sorry, my call just went through. As I was saying, there was an increase in transportation capacity to Barranquilla that was about 90 kilometers from Paiva to Caracolí gas pipeline, and we received some specific credit risk ratings. We have an diminishment from August 26 and that was — that happened yesterday. We have been there for 28 years, receiving the AAA rating. And we have been — we have also received for 9 consecutive years the BBB category, internationally speaking. And as of September 4, we will receive the Moody’s review where we have an international rating of Baa3. These results reflect the consistency of our credit rating, which is important to guaranteeing funds in times of illiquidity and adverse market situations. As of now, we have ensured access to the necessary funds for 2020 operations and CapEx via lines of credit totaling COP 1,300 million.

As of the natural gas transportation, some of the relevant facts have to do with Promigas and how despite the COVID-19 emergency situation, the volumes transported during the second quarter exceeded the volume transported during the same period in 2019 by 1%, which represented — which was very important at the national level regarding the local transportation of this operation, which is quite exciting for us in order to see how we can ensure the energetic safety. Right now, we have passed this test.

As of Promisol, after the construction work was suspended due to COVID-19, there were some specific works that have to be suspended as the one at Mamonal-Paiva. We successfully reactivated this work on May 6, and it was completed in June 2020. And the Riohacha deviation project was resumed by May and is expected to be completed by October.

Now talking about the liquefied natural gas infrastructure, it is going to help the national market. These operations are quite important. I think June, July — January to June of 2020, they were worth 12, and this natural gas was received in cubic million meters, where we got 123% more and we have 632% more. And regarding the regasification, we have 37% more.

For the second quarter, we have also very good numbers, where we have more consumption and the delivered gas went up to 184, which has to do with the energy regeneration at the national level. This is extremely important for the regasification operations that we have. And obviously, our plan for this future are quite promising with these figures.

This is very important for us in order to access international markets, which are reflected in our price that are in the stock market compared — that are going to allow us to enter this market, even though the El Niño phenomenon in 2015, which is going to be represented in savings in electricity generation of about USD 1,000 million.

With the 050, some relevant regulatory matters in the period. By means of the Administrative Resolution 050 by CREG suspendered procedural terms and administrative actions because of the state of emergency. These actions restarted in April 27, by virtue of an administrative resolution. The administrative actions relating to Promigas, Promioriente, Transmetano and Transoccidente that came to the end of their useful life between 2016 and 2019 therefore will continue.

Due to COVID-19 emergency, the CREG Resolution established the option of transitory measures being adopted by mutual agreement in order to modify prices and quantities in supply and transportation contracts. Promigas and its transportation companies conducted negotiations aimed at making contractual conditions flexible, with a view to protecting the financial efficiency of both remitters and companies and hence, guaranteeing service continuity.

In April, by virtue of the CREG Resolution 060, the payment of April and May transportation bills by marketers serving residential users with income brackets or special levels 1, 2 and 3 was also deferred. Resolution 160 extended the period to which this applies until June.

And finally, according to the CREG regulatory agenda, the transportation rating methodology resolution would be issued for consultation purposes in the second quarter of 2020, and it is now expected to be issued in the third quarter of this year. We are now expecting for new — for any updates on this implementation, on this agenda.

Now moving on to the SBU distribution results for the second quarter. We have a growth of 5%. In June, we have revenue of more than COP 1,460 billion, and we also have the income dropped by COP 691 billion. That is equivalent to minus 4%, and this has to do — this was a pretty easy, let’s say, in comparison to what it could have been. So it is quite rewarding for us to see this figure.

As we can see, we include — there are 28 final users — accumulated users, and we have 43% of period connections, 43%. The towns are being served at the moment are 826, which is equivalent to 3% — or a variation of 3%. And we have network laid of 49,264. And finally, the gas that we have sold by million meter — or billion cubic meter is equivalent to 1,682, which represents variation of minus 9%.

And so actions for the second quarter has affected the distribution on the west of the country. We have worked with new different communities or new different territories in the country. And we have 42% of gas that is sold corresponds to the distribution business and 58% to commercialization. This demand behavior was affected by the COVID-19 emergency. The drop in sales was due to less commercialization and the falling commercial, industrials and NGV volumes. The residential sector volume maintained its upward trend in the second quarter of the year.

We can say that we have growth in Peru. We have growth in the accumulated users as we have now accumulated users of 200 — 21%. We have period connections of minus 61%. The towns that are being served at the moment represents 16%. And the network that we have laid is equivalent to 16%. And obviously, we can see a specific drop in the gas that is being sold by 10%. But as we have clearly said, it is due to the crisis that we are facing. So we can see that we have improved more than 3,559 cubic meter millions that is being billed down to the second quarter in comparison to the second quarter of 2019.

And with Quavii, we ended at this first semester of 2020 with 97,618 users, and we have higher volume — sorry, a higher volumes sold mainly due to the fishing industry, as fishing season takes place in May and June. So we can see that as the result of the [fishing], we can see a lot of fishing industry in this region. We can say that this is a very promising territory for our operation in the future.

Now moving on to some relevant regulatory matters in the period. In Colombia, given the COVID-19 health emergency, natural gas distribution companies offered users relief programs. Discounts were granted in payments that were made on time and users with payment difficulties were given the option to defer their payments. Some distribution companies also expanded the relief programs to all users, including Brilla.

In Peru, the Cálidda 2020 investment plan was approved, and this was modified due to the national emergency and the compulsory social lockdown because of COVID-19. Coming back to Colombia, there was a circular that gives — schedules to present the distribution rating files during August.

Now regarding the distribution, the electricity distribution, we have some regulatory aspects, where we had an extension in our deadline in order to pay the transitory rules related to the payment of electricity bills, including bills for April, May and June. There were also some measures that were established in order to ensure that the monthly subsistence consumption tariff for users in the special — in the first and second levels remained stable during the health emergency.

There were some notable operational facts. As of June, the CEO connected more users for an accumulated total of more than 402 (sic) [402,980] users. The company electricity demand in the second quarter totaled 241 gigawatts for the end of semester of [458] (sic) [485] gigawatts. We — in its efforts to reduce energy losses, the company reported commercial losses indicator of 15.14%.

Now I would like to hand over, and I would like to give the floor to our CFO, who would present our business model, and he would present, as he would say, how this interesting business line has operated and how it is sustainable in order to improve the life quality of our users in order to achieve progress.

And given the different — given different measures that we take, some of our business have been reopened. And as of June, thanks to some campaigns, we were able to open some specific areas and open some business lines or to continue with our operation in the business lines that we have usually had in this short term.

We had more than 137,000 users benefited between January and June for an accumulated total of 3.5 million since the program began as follows. You can speak to the numbers on the screen. You can see the different social levels and how they can be affected or benefited, I should say, for this program, before the institutional — their financial institutions are (inaudible).

We have work on this social management prices. As of June, our portfolio was about COP 994 million, which is a very low number, as it is actually lower than the national average for consumer loans.

So as of now, we have overview how the different [topics] regarding transportation, distribution and the regasification operations as well as the electricity operation and the financing part of it has worked so far. So I will now give to Mr. Mercado for the financial statements for the second quarter of this year.


Aquiles Ignacio Mercado Gonzáles, Promigas S.A. E.S.P. – VP of Financial & Administration [4]


[Interpreted] Thank you very much. Good morning. Regarding the Promigas financial statement, we are going to start by presenting what has been the performance of our operations regarding the analysis that we have done regarding the results — accumulated results as of this quarter.

In this slide, we can see — let’s move on, please. You can see the accumulated profit and loss that represents — as of April, you can see a comparison between 2019 and 2020. You can see what the difference is. So in this period, we were moving from some specific differences here. Our EBITDA, we can see the 12% move from 6 months from a specific number last year to — can you please go back one slide? We’re talking about the second quarter results. So all attendees can follow this presentation. Can you please go back one slide?

The net profit represented a 31% increase in regards to the previous year. Last year, we had an increase of this quarter. We have net income that was lower regarding the results. As Dr. Flesch has said in his presentation, given the impacts of these operations that we had for this quarter, the operations that we have represented an impressive 37%. If it is true that the increases that are income increase, especially because of the volumes that have been transported, especially on the costs that are associated to a low hydro generation in this region, and they have been historically low, it is the lowest that we have ever seen in the last years. And as he also said, this played a very important role in order to attend the demand of these territories throughout the country and in order to render the electricity services. And there was also an increase in the exchange rate given the transportation contract — transportation of natural gas contracts. And we had everything to guarantee the compliance in this process. But as of today, the average for this income, it is about 32%. And whenever we compare to the exchange rate with the official exchange rate, we can see some changes there.

Regarding the collaborative participation, we can see that in Cálidda, there was a participation method that decreased by 34%. There was a positive distribution business margin due to lower volumes sold and fewer installations. And all of this was due to the emergency — to the state of emergency of COVID-19 into the second quarter of 2020. And this has to do with the lockdown that different territories had to go — that all territories had to go through. So we had some other — we also had some [expectation] from the business lines given the same emergency.

And in the north of Peru, we had the same as in Cálidda, we have lower connections. And since 2019, we changed the linear method and it generated, let’s say, very minimum impact. We had some changes in our portfolio. Let’s remember here we had some expected loss, and it reflects, basically, what we have today for the statistic model that we have.

We have more financial expenses regarding — in order to guarantee the resources, to guarantee the operations throughout the year. In Transmetano, Promioriente, GDO and Surtigas, the revenue was down due to the impact of COVID-19, and we reported the adjustment in the deferred tax provision for financial assets because of the change in the methodology calculating this, this same aspect in April 2019. This reflected an 84% of our budget regarding our EBITDA, which were presented at the management due mainly to lower participation method income. The net profit, which was executed at 74% was equivalent to COP 157 billion due to — which went down due to higher income tax because of the lower tax benefit, 40% legal stability agreement, compared to COVID-19. This didn’t affect the liability — or the reliability standards that we have on the income tax that we report. And this benefited our operation. So we will be able to have access to those benefits later on.

In 2019, we have a recovery of Canacol, with Gecelca, and as of 2020, we have administered as well. We also had a specific amortization given the gas pipeline and the different compressor operations that we have in Maicao. As I mentioned, risks were managed in order to attend or to face the emergency situation with COVID-19.

Regarding the accumulated in 2020 versus the accumulated of 2019, we can see that there has been a major push to accumulate and to have — and to face the negative impact of COVID-19 during the first quarter in 2020, as we will see in the next slide, where we are going to expect detailed analysis as in each of this. Within the income, we see an increase in 30%. You can see that it is reflected in 2020, and we can see that can get to more than COP 500 billion.

And regarding the explanation of what this assets and liabilities, 8-K has been affected, and it is quite positive for the year and it is due to — regarding income, we managed to have COP 675 million in order to control with almost 52% of our asset, which represented the technical aspects that we had at the coast and everything that we have mentioned so far, which generates the delivery of our affiliate and also our regasification, the only regasification plant that we have in the country. That has a very good operation, and that allowed us to provide all of this — to cover all of these sectors with the natural gas demand. Even though the situation that could have a damage to all of this provision. And we have all of the investments that are not being covered regarding the expenses and costs, the participation method represented at the management of 21%. And again, our — with operation improvement, we were able to go to the streets and work in order to work and with the amortization that we had and the different work that we have with our portfolio in order to face the emerging industry.

In Promisol, our office that is working with the gas pipeline construction, there was a delay in construction due to the effect of COVID-19. Transmetano, also that represented — that is working in (inaudible) also represented the management due to the change in methodology for calculating the deferred tax on the financial assets in 2019 and higher expenditure because of COVID-19 donations. With guests yesterday, we presented a lower gross margin on right of way business and bigger provision for and increase in other expenses due to the COVID-19 donation, and given the humanitarian aide that we provided for medical kits or medical field work.

All of the above were offset by SPEC, which [increased] principally because of our USD 5.5 tax deferral that was recorded in February 2019 that had to do with the former methodology for calculating fiscal liabilities, which was modified for the regasification and destocking in May 2019. This was due to the terminal being unavailable in 2019 when scheduled maintenance was being carried out on the FSRU. And there was a lower proportion of this participation. So this is what we have called the (inaudible) program, which has been quite effective in order to maintain this margin. So we have now implemented 96% of our budget, which has been slightly due because of the different changes that have happened due to the COVID-19 crisis and given the arrivals that we have before us and given capitalization of pipeline of Caracoli — Paiva-Caracoli gas pipeline and the compression stations and the higher income cash. Even though we have had this behavior for 2020, we have seen that, as of June 2020, and the different — despite a weak performance in the second quarter, as of June 2020, the budget compliance of accumulated EBITDA and net profit was 101% and 96%, respectively.

Now we will talk about the results that have to do with our balance sheet — I’m sorry, I’m having some sort of delay with the transition slides. Sorry about this, with our balance sheet. We reached a COP 7.8 billion assets, which represented an increase of 9% as of June 2020. Our liabilities increased in COP 4.2 billion, especially because of the loan that [was obtained] on March, April and June, as this was a measure that we undertake in order to face and to have some cash flow availability for the different loans or the different aide to support our employees with, and so we can continue with our operations.

Our assets, as we can see on screen, they are reflected with the asset and liabilities, and most of these are to be undertaken in the long term. And they are focused on the current liabilities, and we can be as is as it does not generate any impact on short-term operations. Now regarding the assets, we can see that there are some loans that we got between March and April to deal with the COVID-19 emergencies, and there were some other assets that had dividends decreed by affiliated companies at meetings in March 2020. All of these assets under concession, which are equivalent to 3%, they reflect the progress that have been made on executing such projects as the Jobo-Paiva and Paiva-Mamonal and Jobo-Majaguas gas pipeline.

Now the financial assets, which increased by 5% updated was due to the macroeconomic variables for calculating financial assets, consisting of recognizing receivable accounts from the Colombian state related to the purchase option on assets under concessions held by the state.

Our liabilities, as we have seen, increased by 17% and current liabilities increased by 105%, which was due to an extraordinary dividends decreed in March 2020. And on the other hand, the long-term liabilities increased by 5% that were loans obtained in April to deal with the COVID-19 emergency, besides the increase in the recommended market exchange rate, which affected bonds in USD.

Regarding now the consolidated debt at Promigas. As you can see on this slide, you can see that as of now, the debt is represented and mainly by June by 60% of bond and 40% [by bank]. Now for the second quarter, you can see that it’s equivalent to [COP 1.3 billion] in the banking sector, both internationally or nationally speaking.

As for the second quarter 2019, it was 21% in comparison to 47% — I’m sorry, 41% versus 47%. So we can see how it is mainly focused on these specific areas, and you can see how it is divided in COP and USD as well as in PEN, especially regarding the importance of the exchange rate of the company. It is important to have in mind that the profitability that we have undertaken so far is COP 1.3 billion that are going to be executed throughout the year. And we have a cash profitability of 4.52%, which an average cost of 5.77%. As you can see, it is compared to what we had last year, where we had an average debt, and we can see, therefore, that there is added risk both in the national and international operations.

You could see that here, we have an increase of more than 50%. And how as right now, we are implying, with a lot of the organizations, that have been set on a lot of different contracts that we have. But we know that even though we have an increase in our debt, we continue to have a AAA rating, and it has been — we have had this national rating for 18 consecutive years. And internationally speaking, we have a BBB rating by Fitch, and this allowed us to have a specific participation in the international market. As we can see, we also have Baa3 international rating by Moody’s. And we see how these different ratings have been granted to our different field affiliates for gas and from Gases de Occidente, Surtigas and Promioriente. Thanks to the deferred pipelines that which we partnered with through in the country, so for the second year, specifically with Promioriente, we have received the AAA rate. It is also important to mention that all of these results that our company has had and has consolidated so far follow a specific a specific behavior that position us in a specific, let’s say, favorable position as [reinvented] operations, and we decided to bring some specific abstracts on some reports that have been granted regarding how COVID has affected different social aspects. And we can compare all of these key factors with the previous year. We can see that regarding the public utilities, we have been impacted a favorable — in favorable terms in comparison to the previous year, and somehow, it has allowed us to have a [full-term] recovery.

Regarding the exposition of some other sectors to COVID-19, we can see the gas natural sector has a low exposure as there is a lower demand risk partially associated with the lockdown and economic deadline. And this happens especially in order to favor the situation that we go throughout on all of the generators, with the pressure exerted on regulated predictable cash flow generation due to working capital needs versus portfolios. And also, the issuers have adequate capital structure and room for leverage due to expected debt increases. This is the case of Promigas, and they actually have this room, they actually have this opportunity for leverage. There have also been some investment deferral programs and reduced costs that are improving liquidity for our operations. On the other hand, we can see that the companies that have been least affected by COVID were those that were at very, let’s say, comfortable position.

Given the specific scenarios regarding how to manage prices, and now we are anticipating for future crises.

Just to conclude, I would like to say something that our president, our CEO said in one of our meetings. It goes as follows. Our robust gas transportation and gas and electricity distribution infrastructure, plus our regasification capabilities, will be of service to the country to support the reconstruction of the post-COVID economy.


Eric Flesch, Promigas S.A. E.S.P. – President [5]


Aquiles, Thank you very much for your presentation. And yes, I would like to go back to this quote that Aquiles was introducing. So all of our transportation operations will be of service to the country to support the reconstruction of the post-COVID economy. In the second semester, we will strive to control variables that have been identified as critical because of the impact they had in the second quarter of 2020. Using dynamic planning and simulation models in a continuous feedback exercise due to volatility, our efforts will concentrate on mitigating its impact and obtaining the best results for our shareholders and interest group.

Resilience and planning are our best tools for facing challenges. Thank you very much for attending this presentation. This is, in general terms, our presentation. So if you have any questions, please raise your questions so we can answer them.

Again, thank you very much.


Questions and Answers


Operator [1]


[Interpreted] (Operator Instructions) We have Rodrigo Sanchez with a question.


Rodrigo Sanchez, Corredores Davivienda S.A., Research Division – Senior Equity Research Analyst [2]


[Interpreted] Can you please give us some details on what kind of projects are you planning to invest on? And can you also tell us what are some of the operations that you have (inaudible), and understanding, of course, the current moment that we are going through? I would like to know what are your expectations, having in mind the different conversations that you have had with the regulator entities. So can you tell us what are your expectations for the operation in the future?


Eric Flesch, Promigas S.A. E.S.P. – President [3]


[Interpreted] I would ask for some support by our CFO to answer your questions. But to get started with the CapEx that we have in Colombia, we have some specific investment that we have in Colombia that was above $200 million. And that was specifically in Cartagena and Barranquilla. And that was work that was managed to be completed.

Apart from that, in Colombia, we don’t have anything else that is different to what we have in (inaudible) that is the pipeline in (inaudible) And in order to provide service, and we are trying to relocate, and we are going to conclude it by itself with the other CapEx or CapEx that have to do with maintenance of the operations that we have, let’s say, nothing special that we — that is worth mentioning as of now.

In Peru, last year, we were allocated by the government a concession agreement, and we are now working on the construction of a pipeline that is about 280 kilometers. And this investment — this CapEx investment will be worth $200 million. And this has already been worked, and this is our main investment at the moment, and we must finish this by the second quarter in 2021.

Peru is a very important country for us as this can help us in — because as a comparison to Colombia, we know that the gas market in Colombia, for instance, is connected to the gas system and the others — and the other territories that are not connected is because they are very remote territories, and it is quite difficult to get to them yet. But in Peru, this connection coverage is by 12%. So we have a lot of opportunity to grow in Peru, especially in the commerce and industry. And also in Peru, we have some operations with Promigas and in Lima, this is specifically happening in Callao and we have also some operations in Gases del Pacifico and some others, and we operated Northern Pacific, and also another company, which is the commercializers, the credit for this industry. In Peru, we have about 1,050 million users. Within this concession, we will have about — more than 1,000 connections. That’s about 75,000 users. And we will have 120,000 connections. So this is the immediate or the short-term perspective, but we may have some changes in the future, but I think it is going to be a very important country where we will have important changes to implement.

Regarding the implementation, it has been delayed, but I can tell you that there are some specific — there’s a specific methodology that we should start working on. We have discussed this, but it raised some concerns as the government, thankfully, listened to us. And now there’s a commission of experts in order to apply this methodology to be implemented in this country. And we are expecting to have a specific discussion with this part of, let’s say, from the government. So we, at least, we are pleased there are questions and there are concerns to listening to.

And now regarding — yes, I think that there will be a specific methodology that will [be placed] to work for us given the conscious condition that are different from the ones that we have like, let’s say, 10, 20 years back. But I think it’s important to have comparable levels with more countries in terms of gas a provision from countries that are from the same region. For example, let’s say, Peru, Argentina, Chile that are about 12% in SAR. So I think that we will be about 10% and close to 12%, so we will have a better service provision for the final users in this region. And this is obviously going to benefit the results of our company.

And what I’m trying to say is that we check or we review this every 5 years. And we have some specific review every 5 years. But within that, for what’s coming, it’s going to be quite fair and very well prepared, and all of the experts of this commission will have a lot of elements to properly assess and give us a proper feedback on the Promigas operation at this country. And we think that this is going to benefit a different stages.


Operator [4]


Next question comes from Steffania Mosquera from CrediCorp Capital.


Steffania Mosquera, CrediCorp Capital, Research Division – Senior Analyst of Transport, Telecom, Media and Technology and Information Technology [5]


To go back to the previous question regarding the operation in Peru, I’d like to better understand what are the incomes coming from Peru and what participation we have.

And the second question has been with the leverage. We said that, for this quarter, this leverage was — we saw that your leverage is at 4.6%. And regarding the EBITDA. And please forgive me if I make any mistake, but I would like to know what is your expected leverage for the future? Would you please provide us with a guideline of growth for the rest of the year?


Eric Flesch, Promigas S.A. E.S.P. – President [6]


Yes. Thanks for your question. I’d like to pass this question over to Aquiles. And before doing so, I’d like to say that the income in Peru are still low because, as I was saying, the impact of COVID-19 in the gas sector is — has only been — is only at 10%, 12%. But in order to give you specific figures, Aquiles has your strategic information, and he will provide you with more specific data on these results.


Aquiles Ignacio Mercado Gonzáles, Promigas S.A. E.S.P. – VP of Financial & Administration [7]


Thank you. Regarding your first question regarding — so regarding the leverage question, we expect to close our budget by 4.36% as of now, with estimated at the moment, we have a specific growth of 86% or 85% that we are currently assessing, and we are (inaudible), and we hope to have growth by 4.45%. So we have to be very careful with the treatment that we give this specific aspect, given the concession contracts or concession agreements that are the responsible and the accountability that we have on this project. We have had some variations, but our cash flows remain to be the same. So we expected to have it 4x of what (inaudible) by the end of the year.

Now regarding EBITDA, with the moderated growth that we have, we hope to have a gross margin by the end of 2020.


Operator [8]


[Interpreted] We don’t have any questions in Spanish. Now we’re going to open the floor in English that are going to be received in our chat window.

My question has to do with the instrument, the Patrimonio instrument with charges to the results, which are receivable accounts or operational accounts. Why are they considered to be illiquid or nonliquid investments in the short term?


Eric Flesch, Promigas S.A. E.S.P. – President [9]


[Interpreted] I’ll pass this question over to our CFO, Aquiles. And thank you, for your question.


Aquiles Ignacio Mercado Gonzáles, Promigas S.A. E.S.P. – VP of Financial & Administration [10]


[Interpreted] Thank you for your question. These expenses that are for Patrimonio with the expenses to the results or charges to the result, as with our cash flows that we have at the moment that are focused on the temporary operations that we have now. We have COP 1.3 million as to be implemented in this quarter, and we have to ensure the operation — the continuing of operations, especially in Peru.

So just to be — to have that liquidity in our cash flow. So this move is reflecting that this starts to change. And we start to assess portfolio every month. And this is reflected in this account, and either they are positive or negative.

As you saw in the presentation, as of June 30, we had some profitability of 4.34% on our debt, and our consolidated debt was 42%. So we have to have in mind this, which is about 18 basis point, and it will have an impact on the EBITDA margin because remember that it is payable. And regarding the recent net debt and the spending on the indicator of index or debit — I’m sorry, the debt that we have.


Operator [11]


[Interpreted] And we have another question coming from Gabriela (inaudible) from Cambridge Investment.

Her question goes like this. In terms of net debt, EBITDA for the international bonds, how do you expect to conclude this year?


Eric Flesch, Promigas S.A. E.S.P. – President [12]


Thank you, Gabriela. I know she is working closely with Promigas, and we’re happy to work with you. As we have said, as of now, we have a specific budget goal by 3.36% where our consolidated EBITDA will reach international levels. And we’re, as of now, in 4.46% with a moderate expectation. If we expect to perform a bit more regarding our planning and regarding our participation, we hope that a bit below this 4.46% by reaching the specific goal that we had for the end of this year and with respect to structured activities that we had, especially in the north of Peru, with the new (inaudible) concession that we — where we’ll continue to grow by 50% or 60% by the rest of the year.


Operator [13]


[Interpreted] (Operator Instructions) We have received another question from [Michael Pallet] with (inaudible)

Is Promigas interested in Buenaventura — in the Buenaventura project LNG, for LNG distribution that you have?

I’m sorry, I am going to read English.

(foreign language)


Eric Flesch, Promigas S.A. E.S.P. – President [14]


[Interpreted] Thank you, Michael.

(foreign language)


Operator [15]


[Interpreted] Now we have our final question in Spanish.

I’m sorry. This person has removed from the queue of questions. And now I’m going to give the floor to Mr. Flesch to close this session of today’s conference call.


Eric Flesch, Promigas S.A. E.S.P. – President [16]


[Interpreted] Well, I would like to thank all of our participants that were in this presentation today. My message for this second quarter is an optimistic message. I think we are still facing this COVID-19 pandemic. There are still many risks at hand and many challenges before us, but we now know better how to handle this entire situation. The countries, in general terms, are coming back to normality, and they are getting out of their lockdown. And this means that there is going to be some reactivation in our economies, but we believe that the results from the second quarter as quite optimistic or allows us to have a quite optimistic look into the future as we believe that we have a solid infrastructure, gas natural infrastructure throughout the contracts where we have some operations, and we are highly qualified to continue with our excellent operations.

So we feel quite pleased with the results that we have presented. And again, thank you very much for your time and for your interest on our — in our operations. I wish you have a good day and good rest of the week.


Operator [17]


[Interpreted] Thank you very much. With this, we conclude today’s presentation. If you want to listen to today’s conference call, once again, please contact the company. Thanks for your participation. Now you may hang up.

[Portions of this transcript that are marked Interpreted were spoken by an interpreter present on the live call.]

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