Comgás resumes solid sales growth

Transcription

1 Price 1H10 Earnings Release Comgás resumes solid sales growth Sales volume reached 2,317.4 million m³, 18.5% over 1H09 São Paulo, July 27, 2010, Companhia de Gás de São Paulo - Comgás (Bovespa: CGAS3 and CGAS5, Reuters: CGAS3.SA and CGAS5.SA, and Bloomberg: CGAS3: BZ and CGAS5: BZ), the largest distributor of piped natural gas in Brazil, announces its results for the first half of The following financial and operating information is presented in accordance with the International Financing Reporting Standards (IFRS) and all comparisons refer to the first half of 2009 (1H09), the second quarter of 2009 (2Q09), or the first quarter of 2010 (1Q10), as indicated. 1H10 Highlights Contacts: Investor Relations Roberto Lage Chief Financial and Investor Relations Officer Paulo Polezi Superintendent of Treasury and Investor Relations Renata Oliva Investor Relations Coordinator Telephone: investidores@comgas.com.br Portuguese Conference Call Data: 07/28/2010 at 2:00 p.m. (US EST) Phone: Code: Comgás Continuous growth in the residential segment: 66,832 new residential connections in the past twelve months; The number of meters grew by 10.2% between 1H09 and 1H10 to reach 729,536 in June 2010; Sales volume reached 2,317.4 million m³, an 18.5% increase year-on-year; Till June 31, a total of R$ million had been declared as dividends and interest on equity, which will be paid during 2010; Capex in 1H10 totaled R$ 169 million; Starting from 2Q10, Comgás adopted the International Financial Reporting Standards (IFRS). The accompanying presentation is available for download at: Page 1 of 25

2 Message from Management The first half of 2010 was a period of economic recovery, yet with numerous uncertainties about the global economy. Though the sub-prime crisis was overcome, a new crisis broke out, this time related to the sovereign debt solvency of certain countries, especially those in Europe. In Brazil, the domestic market continued to grow. GDP in 1Q10 grew by 9% over 1Q09 and by 2.7% over 4Q09, according to the Brazilian Institute of Geography and Statistics (IBGE). These are historical figures and suggest high economic growth in 2010: 7.2% according to the Focus report published by the Central Bank of Brazil and 7.1% according to the World Economic Outlook published by the IMF. In this scenario, Comgás turned in an excellent performance, mainly in the residential segment - the Company s strategic focus. About 100,000 new residential clients were provided connections in the past twelve months, a 12.3% growth. Gas sales volume started growing once again to reach 2,317.4 million m³, in 1H10, 18.5% up year-onyear. Noteworthy, however, is that the financial results were impacted by the tariff reductions pursuant to ARSESP Resolutions 63 of May 29, 2009 and 113 of December 9, 2009, which resulted in reduced margins and lower sales revenue, which were mitigated by the increase in the volume of gas distributed in the period. In February 2010, the risk rating agency Moody's assigned Comgás the Baa3 local currency issuer rating on the global scale and Aa1.br issuer rating on the national scale, with a stable outlook. According to Moody s, the rating reflects the Company's strong credit metrics for the rating category, the relatively predictable and stable nature of its cash flows on account of the long-term concession agreement, the successful track record of recovering costs, experienced management and the solid standing of the controlling group. In March, the Company signed the first agreement amounting to 100 million, of a long-term loan of 200 million, granted by the European Investment Bank (EIB), approved by the institution, of which an amount equivalent to R$ 155 million was disbursed in June. The loan amount is destined to the expansion, modernization and reinforcement of the piped gas distribution network, in addition to working capital requirements. On February 23, Comgás declared dividends of R$ 28.1 million, held in profit reserves on December 31, 2009 for payment of dividends in 2010, which were paid in a single installment on May 31. On April 26, pursuant to the Board of Directors resolution, the Company declared dividends totaling R$ million, relating to the previous years, which will be paid in three installments during the year: (i) R$ 76.9 million on June 30; (ii) R$ 110 million on August 31; and (iii) R$ 100 million on November 30. In addition, on June 29, the Board approved the payment of interest on equity related to fiscal year 2010, in the amount of R$ 34.4 million, to be paid on July Page 2 of 25

3 As of June 30, 2010, there were changes in the accounting practices adopted in the preparation of the financial statements in comparison to the previous periods. The main changes resulting from the adoption of the international accounting standards (IFRS) are mentioned in the notes to the quarterly financial statements. Summary Operational Indicators 1H10 1H09 Chg. 1H10/1H09 Financial Indicators (R$ '000) 1H10 1H09 Chg. 1H10/1H09 Number of Meters 729, , % Gross Revenue 2,455,970 2,593, % Gas Sale (Volume - '000 m³) 2,317,448 1,956, % Net Revenue 1,961,049 2,063, % Ratios 1H10 1H09 1H10/1H09 Gross Profit 704, , % EBITDA per share % Gross Margin 35.9% 40.6% -4.7 p.p. Indebtedness 2Q10 1Q10 2Q10/1Q10 EBITDA 561, , % Net Debt (R$ '000) 1,351,633 1,418, % EBITDA Margin 28.6% 33.8% -5.2 p.p. Net Debt / EBITDA % Net Income 264, , % Net Debt / Shareholders' Equity % Net Margin 13.5% 16.7% -3.2 p.p. Figures based on accounting practices prior to the adoption of international accounting practices (CPC s) Chg. Financial Indicators Chg. Ratios 1H10 1H09 1H10 1H09 1H10/1H09 (R$ '000) 1H10/1H09 EBITDA per share % EBITDA 475, , % Indebtedness 2Q10 1Q10 2Q10/1Q10 EBITDA Margin 25.7% 21.1% 4.6 p.p. Net Debt (R$ '000) 1,351,633 1,418, % Net Income 210, , % Net Debt / EBITDA % Net Margin 11.4% 8.9% 2.5 p.p. Page 3 of 25

4 Tariffs and Adjustments As a provider of public services, Comgás' activities are regulated by ARSESP, the São Paulo State Sanitation and Energy Regulatory Agency. The distribution of piped natural gas explored by the Company is regulated by a concession agreement, which envisages five-year tariff cycles as well as the conditions for the calculation and application of the tariffs during these cycles. The idea is to ensure a fair margin for both concessionaires and users and, especially, pass on the concessionaires period efficiency gains to customers. The funds to cover the Company's operating costs, investments and shareholder remuneration come from the margin. The second tariff revision on May 31, 2009 fixed the Maximum Initial Margin (P0) (1) at R$ /m³ and an efficiency factor (X Factor) (2) of 0.82%. The next tariff revision will be in The tariff paid by the consumer is composed of the gas cost and the transportation cost of the product plus the Company s margin and taxes. In addition to a review every five years, Comgás tariffs are adjusted once a year on the anniversary date of this agreement (May 31 st ) or whenever the regulatory body deems it necessary to do so. The adjustment is determined by ARSESP through a procedure in which distribution margins are updated by the IGPM (General Market Price Index) and the cost and transportation of domestic and Bolivian gas, considering the real accrued variations in the price of the natural gas acquired by Comgás. Despite the constant increase in the price of Bolivian gas (which accounts for 65% of the Company s supply) in the first half of the year, Comgás managed to significantly reduce the pass-through to consumers by participating in natural gas auctions conducted by Petrobras, where it could buy a part of its requirements at a reduced price, thereby avoiding tariff increases in the majority of cases. The new tariffs were published by the Federal Gazette on May 29, as per ARSESP Resolution 142 of May 28, Following is a summary of the average impact of the tariffs set by ARSESP in May this year: Industrial: 500,000 m³ gas/month consumption -0.08% Industrial: 1 million m³ gas/month consumption -0.17% NGV -0.53% Commercial 0.60% Residential: consumption between 14 m³ and 20 m³ -0.50% gas/month Page 4 of 25

5 Natural Gas Supply Contracts The first half of 2010 was characterized by the continuance of the sales agreements with Petrobras and BG for the supply of million m³ of natural gas per day via firm and firm flexible contracts, a figure that could reach million m³/day, if recourse is made to interruptible contracts. The Company has natural gas supply contracts under the following conditions: Firm agreement with Petrobras in effect from January 2008 to December 2012 for the supply of 3.5 million m³ of natural gas per day, replacing the national gas supply agreement with Petrobras, which expired in December 2007; Firm agreement with Petrobras in effect until June 2019 for the supply of 8.75 million m 3 of Bolivian gas per day, falling to 8.10 million m³ in June 2011; Firm flexible agreement with Petrobras, through which the latter will supply 1.0 million m³/day of natural gas or indemnify clients for the additional costs incurred due to the consumption of an alternative fuel. This agreement entered into effect in January 2008 and will expire in December 2012; Interruptible agreement with Petrobras for the supply of 1.5 million m³/day. This agreement entered into effect in January 2008 and will expire in December 2010; Two back-to-back agreements under the PPT (thermal power priority program) for the supply of 3.06 million m³/day; Short-term agreement with Petrobras through an auction in which Comgás contracted 2.5 million m³/day of natural gas until September 2010; Firm agreement with BG Comércio e Importação Ltda. for the supply of 0.65 million m 3 of Bolivian gas per day until May 2011; Firm agreement with Gás Brasiliano for the supply of up to 12.0 million m 3 of gas per year, in effect from April 2008 to November 2012, for the supply to a specific client. Agreement prices comprise two portions: one indexed to an international fuel oil basket and adjusted every quarter and the other adjusted annually in line with local and/or U.S. inflation. The cost of gas is denominated in R$/m³ and Bolivian gas in US$/MMBTU, with monthly correction for foreign exchange variation. Page 5 of 25

6 The table below contains a summary of the natural gas supply contracts: Contracts TCQ BG Firm Contract Firm of Energy Interruptible Contract Auction Contract Models Firm Firm Firm Firm of Energy Interruptible Firm of Short Term Gas Source Bolivian Bolivian Not determinated Not determinated Not determinated Exceeding contracts of PB with others distributor / thermal power plants DCQ 8.75 MMm³/day until May/ MMm³/day until Jun/ MMm³/day 3.5 MMm³/day 1.0 MMm³/day 0 to 1.5 MMm³/day 2.5 MMm³/day End of Contract Jun/19 May/11 Dec/12 Dec/12 Dec/10 Sep/10 Price Commodity + Transportation Transport: annual adjustment according to USA Inflation (CPI) Fixed Charge + Variable Charge Fixed Charge: annual adjustment according to USA Inflation (PPI) Fixed Charge + Variable Charge Fixed Charge: annual adjusted by IGP-M Fixed Charge + Variable Charge Fixed Charge: annual adjusted by IGP-M Fixed Charge + Variable Charge Fixed Charge: annual adjusted by IGP-M According to the Auction Winner Commodity: quarterly adjusted based on Oil Basket (Brent) + Exchange Rate Variable Charge: monthly adjusted based on oil basket (including diesel) + Exchange Rate Variable Charge: quarterly adjusted based on Oil Basket Variable Charge: quarterly adjusted based on Oil Basket Variable Charge: quarterly adjusted based on Oil Basket NOTE: In the case of the BG contract price, partially indexed to diesel. Page 6 of 25

7 Operating Performance Company Overview and Analysis of Results Comgás holds the concession for piped gas distribution in the eastern region of the state of São Paulo, covering 177 municipalities. The concession was granted via a privatization auction held on May 31, 1999 and runs for 30 years, extendable only once for a further 20 years. Comgás distributes piped natural gas to the residential, commercial, industrial, vehicular, co-generation, and thermal power generation markets in its concession area, which includes the metropolitan areas of São Paulo and Campinas and their surroundings, in addition to the Vale do Paraíba and Baixada Santista regions. These regions account for approximately 27% of Brazil s GDP. In June 2010, Comgás provided services to 68 municipalities, representing an increase of 51 municipalities since the beginning of the concession in The Company ended June 2010 with 729,536 meters, 10.2%, or 67,225 meters, more than at the close of June Number of Meters 06/30/2010 Total % 06/30/2009 Total % Chg. % (1H10/1H09) 03/31/2010 Total % Chg. % (1H10/1Q10) Residential 718, % 651, % 10.3% 701, % 2.5% Number of UDA s* 910, , % 885, % Commercial 9, % 9, % 4.7% 9, % 1.7% Industrial % % -2.0% % 0.1% Co-generation % % -9.1% % 5.3% Thermal Power 2 0.0% 2 0.0% 0.0% 2 0.0% 0.0% Vehicular % % -2.1% % -0.5% Total 729, % 662, % 10.2% 711, % 2.5% UDAs (autonomous residential units) Page 7 of 25

8 Seasonality is an important factor in understanding the performance of the Company and that of the industry as a whole. The chart below shows the sector s main consumption periods: High seasonality: period of higher consumption due to the winter season and the acceleration of industrial production. Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Low sazonality. Low sazonality. 7.5% Sales volume Gas Sale per Segment in % 2.2% Gas Sale per Gas Segment Sale per - 1H10 Segment in % 8.7% 3.1% 2.1% 2.2% 7.1% 3.4% 0.5% 8.7% 2.2% 6.4% 7.5% Residential Residential Commercial Commercial Industrial Industrial Co-generation Co-generation Thermal Power Thermal Power Vehicular Vehicular 79.1% 77.8% Contribution Margin - 1H % 0.3% 4.3% 2.3% 18.6% 7.0% Residential Commercial Industrial Co-generation Thermal Power Vehicular 77.8% First-half sales volume totaled 2,317.4 million m³, 18.5% higher than in the same period in the previous year. In 2Q10, sales volume came to 1,198.5 million m³, 16.1% up year-on-year. Similarly, volume grew by 7.1% between the first and the second quarters of Page 8 of 25

9 Gas Sale per Segment Segment 2Q10 1Q10 2Q09 2Q10 / 1Q10 2Q10 / 2Q09 Volume ('000 m³) 1H10 1H09 Chg. % Residential 42,090 30,845 36, % 16.4% 72,935 65, % Commercial 25,240 22,854 23, % 7.8% 48,094 45, % Industrial 937, , , % 17.4% 1,833,412 1,500, % Co-generation 76,686 70,808 78, % -2.8% 147, , % Thermal Power 35,088 16,397 2, % % 51,485 20, % Vehicular 82,279 81,750 93, % -11.7% 164, , % Total 1,198,508 1,118,941 1,032, % 16.1% 2,317,448 1,956, % Residential The residential segment is still the Company s main strategic focus. Pursuant to its concession agreement, Comgás has the monopoly on natural gas sales and distribution in this segment until In 1H10, this accounted for 3.1% of the Company s total sales volume, with a contribution margin (3) of 18.6%. As of June 2010, first-half residential sales volume increased by 11.6% year-on-year, from 65.4 million m³ in 1H09 to 72.9 million m³ in 1H10. In 2Q10, the Company sold 42.1 million m³ of gas, 16.4% up on the 36.1 million m³ sold in the same period last year. The segment closed 1H10 with 718,743 meters, 10.3% more than in the same period in 2009 and 2.5% up on the previous quarter. However, this figure includes condominiums with collective meters that serve several clients. Therefore, if we consider the number of autonomous residential units (UDAs), which measure only one residence, growth was 12.3%, from 810,389 in 1H09 to 910,379 in 1H10. Commercial Comgás also has exclusivity in the distribution and sale of natural gas to commercial consumers until The commercial segment closed the first half of 2010 with sales of 48.1 million m³, 6.3% higher than in 1H09. In quarterly terms, there was a 7.8% increase between 2Q09 (23.4 million m³) and 2Q10 (25.2 million m³). A total of 423 new commercial connections were made in the past twelve months. As a result, the segment accounted for 2.1% of total sales volume and 7.0% of the total margin. Industrial and Cogeneration In the industrial segment, which accounts for the largest share of sales, Comgás retains a monopoly on gas sales until 2011 and on distribution until The Company closed 1H10 with 971 industrial clients, who accounted for 79.1% of the total consumption in the period, with a contribution margin of 67.5%. Page 9 of 25

10 Industrial sales volume totaled 1,833.4 million m³ in the period, 22.2% up on the 1,500.5 million m³ recorded in 1H09. The industrial segment consumed million m³ in 2Q10, as against million m 3 in 2Q09, a 17.4% increase. These increases indicate a rebound in industrial demand, reflecting the growth of the economy. The cogeneration segment, which simultaneously generates thermal and electric energy from a single fuel (natural gas), has been growing not only due to the economies it brings customers, but also because of its environmental benefits compared to other energy sources. The cogeneration segment closed 1H10 with sales volume of million m³, 7.1% up on the million m 3 in 1H09. In 2Q10, sales volume totaled 76.7 million m 3, 2.8% down from the 78.9 million m 3 in 2Q09. In 1H10, the contribution margin came to 2.3%. Joint sales volume in the industrial and cogeneration segment jumped by 20.9%, from 1,638.2 million m 3 in 1H09 to 1,980.9 million m 3 in 1H10. Between 2Q09 and 2Q10, the sales volume of the two segments combined grew by 15.6%. The economic recovery, driven by the strengthening of the domestic market through federal government policies that included tax and interest rate reductions, contributed to the sector s speedy recovery from the financial crisis, increasing production and energy consumption for the manufacture of products. Thermal power generation Thermal power generation is a process for producing electricity by burning natural gas. First-half sales to the segment came to 51.5 million m³, a 151.4% increase over the 20.5 million m³ sold in the same period in Reflecting the increase in demand, the thermal power generation segment accounted for 2.2% of total sales volume, with a contribution margin of 0.3%. It is important to note that Comgás natural gas supply contracts in this segment are back-to-back agreements, so supplies to thermal power plants are the responsibility of Petrobras. These supply agreements are part of the PPT (thermal power priority program), launched by the federal government in 2000 and are exclusively for those thermal power generation and cogeneration plants that complied with the requirements in the regulations of the Ministry of Mines and Energy Program instituted by Decree 3,371 of February 24, Auto segment (NGV) Comgás has been selling NGV (vehicular natural gas) in the metropolitan region of São Paulo since The auto segment currently accounts for 7.1% of Comgás total sales volume, with a contribution margin of 4.3%. At the close of 1H10, Comgás was Page 10 of 25

11 supplying 375 gas stations, versus 383 at the end of June This segment is highly sensitive to price variations and competition from other fuels, especially anhydrous ethanol. Sales volume fell by 12.3%, from million m 3 in 1H09 to million m 3 in 1H10, pulled down by the reduction in average consumption per vehicle in the first half. Second-quarter sales volume totaled 82.3 million m³, 11.7% down from the 93.2 million m 3 in 2Q09. Page 11 of 25

12 Financial Performance Gross Revenue Gross revenue came to R$ 2,455.9 million in 1H10, 5.3% down from the R$ 2,593.2 million recorded in 1H09, and to R$ 1,277.7 million in 2Q10, 2.0% down from the R$ 1,304.4 million in 2Q09. The revenue increases were mainly due to the reductions in sales tariffs, pursuant to ARSESP Resolutions 63 of May 29, 2009 and 113 of December 9, 2009, which reduced the tariffs by approximately 18% and 5%, respectively. These effects were mitigated by the increase in the volume of gas distributed in the period. Gross Revenue (R$ '000) 2,593, % 2,455, % 1,304,361 1,277,668 2Q09 2Q10 1H09 1H10 Gross Revenue R$ '000 1H10 Total % 1H09 Total % Chg. % Residential 214, % 217, % -1.3% Commercial 93, % 100, % -7.5% Industrial 1,780, % 1,835, % -3.0% Co-generation 93, % 120, % -22.9% Thermal Power 15, % 7, % 103.3% Vehicular 143, % 206, % -30.3% Total Gas Sales 2,341, % 2,489, % -5.9% Construction Revenues 104,718-95, % Other Revenues 10,113-8, % Gross Revenue 2,455,970-2,593, % Page 12 of 25

13 Net Revenue Net revenue totaled R$ 1,961.0 million in 1H10, 5.0% down from the R$ 2,063.9 million in 1H09, and totaled R$ 1,020.9 million in 2Q10, 1.6% less than the R$ 1,037.8 million reported in 2Q09. Net Revenue (R$ '000) 2,063, % 1,961, % 1,037,765 1,020,993 2Q09 2Q10 1H09 1H10 Net Revenue R$ '000 1H10 1H09 Chg. % 2Q10 2Q09 Chg. % Gross Revenue 2,455,970 2,593, % 1,277,668 1,304, % Gas Sales 2,341,139 2,489, % 1,216,694 1,250, % Construction Revenue 104,718 95, % 55,657 49, % Other Revenues 10,113 8, % 5,317 4, % Deductions (494,921) (529,162) -6.5% (256,675) (266,596) -3.7% Net Revenue 1,961,049 2,063, % 1,020,993 1,037, % Cost of Goods and Services Sold The total cost of goods and services sold, comprising gas (commodity), transport and construction costs (IFRIC 12), came to R$ 1,256.3 million in 1H10 and R$ million in 2Q10, 2.4% up year-on-year. Meanwhile, total cost of goods and services sold in the second quarter came to R$ thousand, an 11.4% increase year-onyear. However, the cost of goods and services, excluding construction costs, amounting to R$ million as a result of the adoption of ICPC 1 - Concession Agreements (4) (included in this group only for disclosure purposes), totaled R$ 1,151.6 million in 1H10, 1.8% more than in the same period the previous year. In 2Q10, however, the Cost of Goods and Services, excluding the effect of ICPC 1, came to R$ thousand, 11.6% more than in 2Q09, mainly due to the increase in the sales volume, which was partially offset by a reduction in the average unit cost on account of the inclusion of more competitive prices from the gas auctions held by Petrobras. Page 13 of 25

14 In accordance with the methodology described in each agreement, as previously mentioned, the cost of gas is adjusted on annual basis for inflation and on a quarterly basis by a basket of fuel oils which vary in line with international oil prices. The differences between the actual cost incurred and the cost of gas included in the tariff and billed to clients (as per the tariff structure (5) determined by the government) are accumulated in the Regulatory Current Account (6) and passed through/billed as determined by the regulatory authority during the periodical price adjustments or tariff revisions. However, due to the adoption of the CPCs (convergence with IFRS), the Company reversed the effects of the regulatory current account from the Cost of Goods and Services account group. Gross Income Gross income fell by 15.9%, from R$ million in 1H09 to R$ million in 1H10. In 2Q10, gross income stood at R$ million, 17.7% down from the R$ million recorded in 2Q09. Gross Income (R$ '000) 837, % 704, , % 387,201 2Q09 2Q10 1H09 1H10 Selling, General and Administrative (SG&A) Expenses SG&A expenses totaled R$ million in 1H10, 3.1% up on the R$ million in 1H09, and totaled R$ 74.9 million in 2Q10, 15.8% up year-on-year. Depreciation and Amortization In line with Comgás growing investments, depreciation and amortization came to R$ million till June 2010, 25.9% higher than the 2009 figure of R$ 82.1 million. This line rose by 24.9%, from R$ 41.9 million in 2Q09 to R$ 52.4 million in 2Q10. Page 14 of 25

15 Net Financial Result The net financial result closed the first half of 2010 at a negative R$ 63.7 million, 30.8% lower than in the first half of 2009.The 2Q10 net financial result was a negative R$ 30.5 million, 25.3% lower than the negative R$ 40.9 million reported in 2Q09. These reductions are due to lower expenses related to interest rates on loans/financings and debentures, mainly on account of the reduction in the short-term loan balance. EBITDA EBITDA totaled R$ million in 1H10, 19.6% down year-on-year, and totaled R$ million in 2Q10, 23.0% down from the R$ million in 2Q09. EBITDA margin in 1H10 stood at 28.6%, 5.2 percentage points down from 1H09, while 2Q10 margin came to 30.6%, 8.5 p.p. down year-on-year, chiefly due to the oscillations in the Revenues and Costs lines, as explained earlier. EBITDA R$ '000 1H10 1H09 Chg. % 2Q10 2Q09 Chg. % Net Revenue from Sales/Services 1,961,049 2,063, % 1,020,993 1,037, % Cost of Goods and/or Services Sold (1,256,270) (1,226,436) 2.4% (633,792) (567,291) 11.7% Gross Income 704, , % 387, , % Selling General and Administrative Expenses (143,235) (138,958) 3.1% (74,993) (64,780) 15.8% Depreciation and Amortization (103,334) (82,079) 25.9% (52,383) (41,927) 24.9% Net Financial Expenses (63,658) (92,005) -30.8% (30,526) (40,873) -25.3% Other Operating Expenses (Revenues) 6 (26,456) - 6 (10,337) - Operating Income 394, , % 229, , % Provision for Income Tax and Social Contribution (130,235) (153,209) -15.0% (77,315) (100,124) -22.8% Net Income/Loss for the Period 264, , % 151, , % EBITDA 561, , % 312, , % EBITDA Margin 28.6% 33.8% -5.2 p.p. 30.6% 39.1% -8.5 p.p. When calculating EBITDA, we ignored other operating revenue and expenses, given that these represented the residual value of fixed asset write-offs and expenses from the amortization of goodwill from the incorporation, which were now booked under the operating result, pursuant to Law Net Income Comgás posted net income of R$ million in 1H10, 23.4% down from the R$ million in 1H09, and R$ million in 2Q10, 28.5% down from the R$ million recorded in 2Q09. Page 15 of 25

16 Net Income (R$ '000) 344, % 264, , % 151,990 2Q09 2Q10 1H09 1H10 Page 16 of 25

17 Indebtedness Comgás continues its strategy of financing its long-term Capex mainly through loans from BNDES (Brazilian Development Bank) and, recently from the EIB (European Investment Bank). These loans will be used in the expansion, modernization and reinforcement of the piped gas distribution network, in addition to other working capital requirements. On March 26, 2010, a 100 million long-term loan was taken from the EIB, out of a total approved credit line of 200 million, of which the equivalent of R$ 155 million was disbursed in June to meet the Company s working capital requirements. By June 2010, the Company s net debt was down by 4.7% from 1Q10, with long-term debt increasing by 10.9% (mainly due to the long-term loans from BNDES and EIB) while short-term debt fell by 22.1% between the quarters. The decline in short-term debt is due to two main factors: reduction in the Regulatory Current Account and the 76.9% increase in cash equivalents over the previous period. Companhia de Gás de São Paulo - Comgás 2Q10 1Q10 Chg. % Indebtedness (R$ '000) Short Term Debt (including Debentures) 366, , % Long Term Debt (including Debentures) 1,163,382 1,048, % Gross Debt 1,529,922 1,519, % Cash and Cash Equivalents 178, , % Net Debt 1,351,633 1,418, % Shareholders' Equity 1,256,832 1,391, % EBITDA 312, , % Net Debt / EBITDA % Net Debt / Shareholders' Equity % Page 17 of 25

18 The Company s debt maturity schedule is shown below: 301 Long Term Debt Amortization Schedule (R$ MM) Jun/11 to Jun/12 Jun/12 to Jun/13 Jun/13 to Jun/14 Jun/14 to Jun/15 Jun/15 to Jun/16 Local Currency Foreign Currency Long-term debt denominated in local currency, consisting entirely of BNDES loans, is amortized in monthly installments, except for those loans whose grace periods are still ongoing. Debt denominated in foreign currency has the following amortization schedule of the principal amount: I) BNDES loan (currency baskets) principal with monthly amortization after the grace period; and II) Other loans (IFC Pass-through from Itaú BBA and EIB) principal with semiannual amortization after the grace period. Gross Debt Distribution Local Currency: 06/30/ /31/2010 Index Short Term Long Term Total Short Term Long Term Total Chg. % BNDES (Project II) TJLP % per year 22,943 7,607 30,550 22,975 13,312 36, % BNDES (Project III) TJLP % per year 38,975 66, ,687 39,043 76, , % BNDES (Project IV) - Direct TJLP + 3.2% per year 38, , ,683 38, , , % BNDES (Project IV) - Direct with guarantee TJLP + 2.8% per year 87, , ,742 88, , , % BNDES (Project III) - Banco Votorantim TJLP % per year 15,962 27,302 43,264 15,992 31,218 47, % BNDES (Project III)- Banco Bradesco TJLP + 4.7% per year 15,961 27,302 43,263 15,991 31,218 47, % BNDES (Project V) TJLP + 2.8% per year 1, , , , , % BNDES (PEC) TJLP + 5.5% per year 20,381 33,332 53,713 12,714 39,583 52, % Working Capital % of CDI 71,247-71, , , % 312, ,724 1,229, , ,325 1,363, % Foreign Currency: BNDES (on the basket of currencies) 113.0% of CDI 14,179 4,275 18,454 14,361 7,440 21, % Banco Itaú/BBA - (IFC) 110.0% of CDI 13,975 6,416 20,391 14,505 12,898 27, % EIB II - swaps miscellaneous 96.69% of CDI 16, , , , , ,981 28,866 20,338 49, % Gross Debt 357,267 1,063,382 1,420, , ,663 1,412, % Page 18 of 25

19 Debentures The 2008 issue will have a grace period until 2012, when payments will commence. There will be no renegotiation of terms or rates. Debenture 06/30/2010 Emission Series Quantity Current Long Term Remuneration 2 nd Simple 1 9, ,000 CDI + 1.5% per year CAPEX Comgás invested R$ million in the first half of 2010, approximately 70% of which were allocated to expanding the distribution network, demonstrating the strategy of expanding to regions not served by Comgás and expanding the network and growing through integrated projects. The Company s strategy is to finance its CAPEX with long-term debt, thereby optimizing the Company s capital structure. CAGR = 16.9% H09 1H10 Note: CAPEX data is presented according to IFRS starting from Page 19 of 25

20 Share Performance The first half of 2010 was characterized by many uncertainties in the financial markets, from the overcoming of the sub-prime crisis in the U.S. till the onset of the credit crisis in Europe and concerns about the slowdown in China s growth. These concerns reflected in the Ibovespa index, which dropped 13.0% since the beginning of the year to close June at 60,935 points. Characterized by their low volatility and excellent dividends paid to shareholders, Comgás preferred shares (CGAS5) appreciated 2.5% in 1H10, from R$ in the first trading session of the year to R$ on June 30, 2010, with a daily average financial volume of R$ 1.4 million. Meanwhile, the Company s common shares (CGAS3) closed 1H10 at R$ 30.22, a slight 0.3% increase, with a daily average financial volume of R$ million CGAS5 01/04 = R$ /30 = R$ Chg (%) = 2.5% Vol (R$ '000) IBOV 01/04 = 70,045 06/30 = 60,935 Chg (%) = -13% Vol CGAS5 IBOVESPA With the inclusion of other companies shares in the Ibovespa portfolio at the beginning of 2010, Comgás preferred shares exited the theoretical portfolio backing the index. Page 20 of 25

21 Notes (1) Maximum Initial Margin (P0): the average unit margin approved by the regulatory body that will enable Comgás to obtain sufficient revenue to cover operating costs, investments, maintenance costs, depreciation charges from the provision of services and the authorized return on assets. (2) X Factor: a reducing factor applied to the annual adjustment of the margins by the IGPM inflation index whose purpose is to share productivity improvements with customers during the regulatory cycle ( ). (3) Contribution Margin: the gross sales in each segment. The contribution margin is calculated by subtracting the gas costs from net revenue. (4) ICPC 1 Concession Agreements (related to the international accounting rules IFRIC 12): according to ICPC 1, the concessionaire has the right to operate the public service infrastructure (possession) without obtaining control or ownership of it because, as envisaged in the concession agreement, the assets will be reverted to the licensing authority at the end of the concession period. With the adoption of CPCs (convergence with IFRS), the Company transferred the balance of fixed assets to the Intangible Assets line and recognized in the Income Statement, only for disclosure purposes, the same amount of Construction Costs and Revenue from Construction IFRIC 12 as there is no contribution margin defined by the government for the construction of the infrastructure and considering that the Management does not understand that this activity is a source of revenue and, hence, of income. (5) Tariff Structure: the tariff ceiling table associated with the maximum margin authorized by the regulatory body, which defines tariff levels and charges for the different market segments and user categories. (6) Regulatory Current Account: the difference between the cost of gas paid to suppliers (which varies on a monthly or quarterly basis, depending on the origin) and the cost of gas included in the tariffs of Comgás are accumulated in this account and any increase or decrease will be passed through to clients. For this, an amount is calculated in Reais per m3 and passed on to the annual tariff adjustments, as determined by ARSESP (São Paulo State Sanitation and Energy Regulatory Agency), the regulatory authority. Page 21 of 25

22 Income Statement Companhia de Gás de São Paulo - Comgás R$ '000 Income Statement 1H10 1H09 Chg. % Gross Revenue from Sales/Services 2,455,970 2,593, % Gross revenue deductions (494,921) (529,162) -6.5% Net Revenue 1,961,049 2,063, % Cost of goods and/or services sold (1,256,270) (1,226,436) 2.4% Natural gas (968,674) (945,139) 2.5% Transportation (182,878) (185,522) -1.4% Construction - IFRIC 12 (104,718) (95,775) 9.3% Gross Profit 704, , % Operating Revenues/Expenses (143,235) (138,958) 3.1% Selling Expenses General and Administrative (143,235) (138,958) 3.1% Depreciation and Amortization (103,334) (82,079) 25.9% Income Before Financial Revenues (Expenses) 458, , % Net Financial Expenses (63,658) (92,005) -30.8% Financial Income 15,816 14, % Financial Expenses (79,474) (106,941) -25.7% Other operating expenses (revenues) 6 (26,456) % Operating Income 394, , % Earnings Before Income Tax and Social Contribution 394, , % Provision for Income Tax and Social Contribution (130,235) (153,209) -15.0% Net income for the period 264, , % Net earnings per share (R$) % Page 22 of 25

23 Cash Flow Statement Companhia de Gás de São Paulo - Comgás (R$ '000) Cash Flow Statement 1H10 1H09 Chg. % Net cash from operational activities 447, , % Cash generated in operations 575, , % Depreciation and amortization 103, , % Permanent assets write-off, net 831 1, % Interest rates, monetary variation over loans and debentures 66,036 88, % Provision for contingencies 593 1, % Provision for post-employment benefits - CVM no ,035 3, % Allowance for doubtful accounts 4,350 9, % Profit before income tax and social contribution 394, , % Assets and liabilities variations (27,404) (235,005) -88.3% Accounts receivable (30,049) (5,238) 473.7% Cost of gas recoverable/(to be transferred) Tax receivable and ICMS recoverable (1,020) 25, % Inventories (45,550) (16,676) 173.1% Suppliers 50,033 (264,843) % Taxes and contributions 4,948 32, % Payroll provisions (5,766) (6,530) -11.7% Other (99,657) (164,431) -39.4% Other receivables (3,502) 1, % Other liabilities (13,518) 9, % Income tax and social Contribution Paid (82,637) (175,221) -52.8% Net cash from investment activities (169,328) (191,477) -11.6% Additions to permanent assets (169,328) (191,477) -11.6% Net cash from financing activities (294,611) (153,439) 92.0% Funding 297, , % Amortization of principal, loans and financing (418,640) (425,839) -1.7% Interest paid - loans and financing (65,325) (63,710) 2.5% Interest on equity (3,607) - - Payment of dividends (104,782) (99,032) 5.8% Exchange variation over cash and cash equivalents Increase(decrease) of cash and cash equivalents (15,984) (35,352) -54.8% Opening balance of cash and cash equivalents 194,273 39, % Closing balance of cash and cash equivalents 178,289 4, % Page 23 of 25

24 Balance Sheet Companhia de Gás de São Paulo - Comgás Balance Sheet (R$ '000) 2Q10 2Q09 Chg. % TOTAL ASSETS 3,857,520 3,568, % Current Assets 888, , % Cash and cash equivalents 178,289 4, % Accounts receivable 510, , % Cost of gas recoverable/(to be transferred) Available-for-sale assets 17,385 16, % Other accounts receivable 25,843 25, % Allowance for doubtful accounts (55,037) (44,779) 22.9% Inventories 156,756 99, % Prepaid expenses 1, % Taxes recoverable 37,507 37, % Other 16,373 12, % Non Current Assets 2,969,284 2,880, % Deferred income tax and social contribution 26, , % ICMS recoverable - fixed assets 9,424 9, % Accounts receivable 5,013 4, % Court deposits 13,319 12, % Other 1,162 1, % Fixed assets Intangible assets 2,913,586 2,728, % TOTAL LIABILITIES 3,857,520 3,568, % Current Liabilities 1,237,671 1,279, % Loans and financing 357, , % Debentures 9,273 12, % Suppliers 458, , % Parent company 3,185 11, % Payroll liabilities % Advance from clients 1,221 11, % Remittance abroad to shareholders 24,255 58, % Taxes, fees and conttributions 147, , % Dividends payable 210, , % Provisions 25,758 25, % Other accounts payable 632 3, % Non Current Liabilities 1,363,017 1,234, % Loans and financing 1,063, , % Debentures 100, , % Advance from clients and other 29,122 30, % Post-employments benefits CVM no , , % Provision for contingencies 41,348 40, % Shareholders' Equity 1,256,832 1,054, % Paid-in Capital 636, , % Capital reserves 1,293 25, % Revaluation reserves 13,666 14, % Profit reserve 339,886 31, % Retained earnings/accumulated losses 265, , % Page 24 of 25

25 Upcoming Events 1H10 Results Conference Call Comgás will hold its 1H10 Results Conference Call on July 28, 2010, at 2:00 p.m. (US EST), as follows: Conference Call July 28, 2010, at 2:00 p.m. (US EST) Phone: +55 (11) Code: Comgás Replay (available until August 3, 2010): +55 (11) Code: Comgás Webcast: To download the presentation, please go to The forward-looking statements in this report related to the outlook for the business, estimated financial and operating results and growth prospects of COMGÁS are merely projections and, as such, are based exclusively on management expectations regarding future performance. These expectations depend substantially on market conditions and the performance of the Brazilian economy, the business sector and the international markets, and are therefore subject to change without prior notice. Page 25 of 25