Comgás gas sales revenue moves up 24.2% and EBITDA totals R$ 1,035.0 million in 2008

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1 Comgás gas sales revenue moves up 24.2% and EBITDA totals R$ 1,035.0 million in 2008 Annual Net Income increases by 16% to R$ million in 2008 São Paulo, March 18, 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 full year of Except where otherwise stated, the following financial and operating information is presented in accordance with Brazilian Corporate Law and all comparisons are with the full year of 2007, or the fourth quarter of 2007 (4Q07), when indicated Highlights Contacts: Investor Relations Roberto Lage CFO and IRO Renata Oliva Investor Relations Telephone: Portuguese Conference Call Date: March 19, 2009 at 2:00 pm (US ET) Phone: Code: Comgás The accompanying presentation is available for download at: Sales volume totaled 5,253.0 million m³ at the close of 2008, 3.6% more than in The number of meters increased 10.2% between 2007 and 2008, reaching 630,503. Gross Revenue from Sales and Services stood at R$ 5,019.3 million, 23.7% up on the year before. Net Revenue from Sales and Services came to R$ 3,989.1 million, 24.2% more than in EBITDA grew 11.9% to a record R$ 1,035.0 million in Net Income stood at R$ million, 16.0% higher than in Annual capex totaled R$ 403 million. Page 1 of 19

2 Message from Management The final quarter of 2008 was strongly marked by the decline in industrial production, triggered by the international financial crisis and the consequent 8.2% year-on-year reduction in the Company s total sales volume. On the other hand, 2008 was an excellent year in terms of operating and financial performance in which the Company distributed 5.2 billion m³, 3.6% more than in Other highlights included the connection of 81,400 new residential consumers to the distribution network and the fact that industrial clients exceeded the 1,000 mark at year-end. In addition to the impact of the crisis, oil prices were exceptionally volatile at the end of the year and gas prices moved up substantially due to the devaluation of the Real against the dollar. In order to partially recoup its financial equilibrium, Comgás had no option but to appeal to the regulatory authority, which authorized an exceptional tariff increase for all segments except the residential one. The Company s current strategic focus of expanding its residential network resulted in an upturn of almost 13% in the volume of gas distributed to homes. It is worth noting that this segment has enormous growth potential, given that Comgás supplies only 11% of total residential clients in its concession area. The Company has also been increasing its efforts to ensure continued growth in the high-volume segments (industrial, co-generation and VNG). All in all, Comgás invested R$ 403 million in 2008, most of which in expanding its distribution network. The Company will maintain its efforts and its commitment, always putting safety first, in order to defend the interests of its clients, shareholders and employees. Page 2 of 19

3 Tariffs and Adjustments Comgás adjusts its tariffs annually on May 31, the anniversary of the signing of the concession agreement. This normal adjustment is determined by ARSESP, the São Paulo State Sanitation and Energy Regulatory Agency, through a procedure in which distribution margins and the cost and transportation of domestic and Bolivian gas are updated. In May 2008, distribution margins were increased by 8.83%, in line with the 9.28% upturn in the IGPM inflationary index less the so-called X factor, which measures productivity. The pass through of gas costs this year was strongly impacted by the substantial upturn in the per-barrel oil price, which is the basis for gas supply contract prices. Comgás tariff adjustment is not the same for each client, since this tariff is composed of different ratios between the margin and the gas cost. Tariffs vary according to the volume of gas consumed and the market segment. The average adjustment per segment is shown below: Residential consumption of 16 m³/month: 17.8% Residential consumption of 40 m³/month: 16.9% Industrial consumption of 10,000 m³/month: 22.7% Industrial consumption of 100,000 m³/month: 28.9% Industrial consumption of 500,000 m³/month: 33.2% VNG (Vehicular Natural Gas): 40.8% In 2008, due to the increase in gas costs as of May, an exceptional tariff increase was authorized on December 20, aiming to ensure the concessionaire s financial equilibrium. Tariffs in the residential segment, which accounts for more than 98% of the Company s total clients, were not affected. The average adjustment per segment from this unscheduled increase is shown below: Industrial consumption of 10,000 m³/month: 10.25% Industrial consumption of 100,000 m³/ month: 14.67% Industrial consumption of 500,000 m³/ month: 17.56% VNG: 22.17% Page 3 of 19

4 Natural Gas Supply Contracts The agreements with Petrobras and BG for the supply of 13.9 million m³ of natural gas per day via firm and firm flexible contracts remained in effect throughout This figure could rise to 15.4 million m³/day if recourse were made to the interruptible contract: There follows a brief explanation of each type of agreement: (i) Firm Agreement for the Purchase and Sale of Natural Gas under this type of agreement, supply cannot be interrupted. Comgás has three such contracts, two with Petrobras and one with BG; (ii) Firm Flexible Agreement for the Purchase and Sale of Natural Gas: under this type of agreement, Petrobras supplies natural gas or indemnifies clients for the additional costs incurred due to the consumption of an alternative fuel. Given this distinction, the number of clients involved is restricted and their chief characteristic is their fuel flexibility (bi-fuel). Gas supply may be interrupted at the discretion of Petrobras, but with no risk of supply cuts for Comgás consumers. Petrobras will also bear the cost of the financial impacts incurred by Comgás and the clients in question; (iii) Interruptible Agreement for the Purchase and Sale of Natural Gas: under this type of agreement, Comgás may request a given volume of gas and Petrobras may or may not comply with this request. Once the request has been complied with, however, supply may only be interrupted in order to meet demand for the dispatch of thermal power. (iv) General Provisions Contract: establishes the operational and legal rules to be applied to any and all agreements entered into between Comgás and Petrobras. Contract DCQ End of Contract Price Firm Contract Firm Flexible Contract Interruptible Contract TCQ CONTRACT Bolivian Natural Gas BG CONTRACT Bolivian Natural Gas* 3.5 MMm 3 /day 1.0 MMm 3 /day 0 to 1.5 MMm 3 /day 8.75 MMm³/day 0.65 MMm³/day Dec/12 Dec/12 Dec/10 Jun/19 May/11 70% Oils Basket (Brent) + exchange rate variation Commodity: Oils Basket (Brent) + exchange rate variation 30% IGP-M inflation index Transport: U.S. Inflation (CPI) * NOTE: In the case of the BG contract price, partially indexed to diesel. Page 4 of 19

5 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, in addition to the Vale do Paraíba and Baixada Santista regions. These regions represent approximately 25% of Brazil s GDP. In December 2008, Comgás provided services to 67 municipalities, 294.1% more than the 17 municipalities covered when the concession was granted. The Company had 630,503 meters in 2008, 10.2%, or 58,374, more than in Number of Meters 2008 Total % 2007 Total % Chg. % Residential 620, % 562, % 10.3% Commercial 8, % 8, % 3.8% Industrial 1, % % 1.5% Thermal Power 2 0.0% 2 0.0% 0.0% Co-generation % % 25.0% Vehicular % % 4.4% Total 630, % 572, % 10.2% Seasonality is an important factor in understanding the performance of the Company and the sector as a whole. The chart below shows the sector s main consumption periods: Page 5 of 19

6 Lowest consumption period due to holidays and low industrial production. Period of highest consumption due to winter and peak of industrial output (endof year demand). Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Upturn in consumption end of summer and return of industrial activity. Slide in consumption due to onset of industrial and domestic vacations. Sales volume Sales volume in 2008 totaled 5,253.0 million m³, 3.6% higher than in the previous year. In the 4Q08, sales volume came to 1,212.8 million m³, 8.2% down on the 4Q07. Gas Sale per Segment Volume (000 m 3) Segment 4Q08 3Q08 4Q07 4Q08/ 3Q08 4Q08/ 4Q Chg. % Residential 35,999 38,334 31, % 13.4% 135, , % Commercial 25,429 26,087 25, % -0.2% 99,633 98, % Industrial 882,194 1,003, , % -8.2% 3,855,030 3,960, % Thermal Power 71,459 55,439 76, % -7.1% 333,301 81,937 N.A. Co-generation 73,408 75,028 75, % -3.2% 304, , % Vehicular 124, , , % -17.3% 524, , % Total 1,212,846 1,325,246 1,321, % -8.2% 5,253,036 5,069, % Residential Comgás has a monopoly on natural gas sales and distribution in the Residential Segment until In 2008 this segment accounted for 2.6% of the Company s total sales volume, with a contribution margin of 19.9%. Annual sales volume increased by 12.6%, from million m³, in 2007, to R$ million m³. Fourth-quarter sales volume came to 36.0 million m³, 13.4% up on the 31.8 million m³ recorded in the 4Q07. The segment closed the year with 620,191 meters, 10.3% more than in However, this figure includes condominiums with collective meters that serve several clients. If we consider the number of autonomous residential units (UDAs), which measure only one residence, growth came to 11.9%, from 683,692 in 2007 to 765,103 in Page 6 of 19

7 Industrial and Co-generation In the case of the Industrial Segment, which accounts for by far the greater part of sales volume, Comgás retains a monopoly on gas sales until 2011 and on distribution until The Company closed the year with 1,004 industrial clients, who jointly accounted for 73.4% of total annual consumption. Annual sales volume totaled 3,855.0 million m³, 2.7% down on the 3,960.1 million m³ recorded in Sales volume in the final quarter stood at million m³, 8.2% down year-on-year. These reductions were mainly due to the slowdown in industrial production triggered by the global financial crisis. The Co-generation Segment, which simultaneously generates thermal and electric energy from a single fuel (natural gas), has been expanding not only due to the savings it generates, but also because of its environmental benefits when compared to other alternative energy sources. Annual sales volume increased by 34.8% over 2007 to million m³. Despite the connection of new clients and the migration of one major industrial client to the cogeneration segment, the market slowdown, as in the industrial segment, led to a year-onyear reduction in the fourth-quarter sales volume, which fell by 3.2% over the 4Q07 to 73.4 million m³. Joint annual sales volume in the industrial and co-generation segments remained virtually flat, dipping by 0.6% from 4,186.0 million m³, in 2007, to 4,159.4 million m³ in In the quarterly comparison, both segments recorded a 7.9% reduction. As mentioned previously, the fourth-quarter downturn in the industrial and co-generation segments was due to the production slide triggered by the financial crisis. Thermal power generation Thermal power generation is a process for producing electricity by burning natural gas. In 2008, this segment absorbed million m³, or 6.3% of total sales volume. It is important to note that Comgás natural gas supply contracts in this segment are backto-back agreements, so supplies to thermal power plants are the responsibility of Petrobras. Auto segment (VNG) Comgás has been offering VNG (vehicular natural gas) in the metropolitan region of São Paulo since At the end of 2008, it was supplying 401 gas stations, versus 384 in the end of Although the Company expanded its gas station network in 2008, the reduction in average consumption per vehicle pulled sales volume down by 9.9% from million m³, in 2007, to million m³. Page 7 of 19

8 Fourth-quarter sales volume stood at million m³, 17.3% less than the million m³ sold in the 4Q07. Commercial Comgás has a monopoly on the distribution and sale of natural gas to commercial consumers until The Commercial segment closed the year with sales of 99.6 million m³, 1.0% higher than in 2007, and fourth-quarter sales dipped by only 0.2% year-on-year. A total of 322 new commercial connections were made in 2008 and the segment accounted for 1.9% of total sales volume and for 7.1% of the total margin. Page 8 of 19

9 Financial Performance Gross Revenue Gross revenue came to R$ 5,019.3 million in 2008, 23.7% up on the R$ 4,056.1 million recorded in In the final quarter, gross revenue increased 27.8% year-on-year, from R$ 1,044.3 million in the 4Q07 to R$ 1,334.7 million. Gross Revenue (R$ MM) 23.7% R$ 5,019 R$ 4,056 R$ 1, % R$ 1,335 4Q07 4Q Gross Revenue R$ ' Total % 2007 Total % Chg. % Residential 444, % 358, % 24.0% Commercial 190, % 164, % 16.3% Industrial 3,637, % 2,978, % 22.1% Thermal Power 104, % 24, % 329.0% Co-generation 197, % 122, % 61.0% Vehicular 425, % 377, % 12.8% Other Revenues 19, % 30, % -35.4% Total 5,019, % 4,056, % 23.7% The 3.6% increase in annual sales volume and the gas sales tariff adjustment on May 31, pursuant to ARSESP Order no. 19, were chiefly responsible for the upturn. Page 9 of 19

10 Net Revenue Net revenue totaled R$ 3,989.1 million in 2008, 24.2% more than in 2007, and R$ 1,054.8 million in the 4Q08, 26.1% up on the 4Q07 figure of R$ million. Net Revenue R$ ' Chg. % 4Q08 4Q07 Chg. % Gross Revenue 5,019,267 4,056, % 1,334,672 1,044, % Gas Sales 4,999,759 4,025, % 1,329,972 1,037, % Other Revenues 19,508 30, % 4,700 7, % Deductions (1,030,193) (844,210) 22.0% (279,871) (207,950) 34.6% Net Revenue 3,989,074 3,211, % 1,054, , % Net Revenue (R$ MM) 24.2% R$ 3,989 R$ 3,212 R$ % R$ 1,055 4Q07 4Q Cost of Goods and Services Sold The Total Cost of Goods and Services Sold, mainly comprising gas (commodity) and transport costs, came to R$ million in the 4Q08, 41.5% up year-on-year, and R$ 2.6 billion in 2008, 31.3% higher than in The cost of gas is adjusted annually for inflation and quarterly by a basket of fuel oils, which varies in line with international crude oil prices. Gross Income Annual Gross Income climbed 12.6%, from R$ 1,214 million in 2007 to R$ 1,366 million. In the 4Q08, gross income stood at R$ million, a modest 1.5% up on the R$ million recorded in The upturn was mainly due to higher sales volume and the substantial increase in the number of clients, especially in the residential segment. Page 10 of 19

11 Gross Income (R$ MM) R$ 1, % R$ 1,366 R$ % R$ 322 4Q07 4Q EBITDA EBITDA totaled R$ 1,035.0 million in 2008, 11.9% higher than the previous year. In the quarterly comparison, this figure fell by 3.7%, from R$ million in 4Q07 to R$ million in 4Q08. The annual EBITDA margin stood at 25.9%, 9.9% down on EBITDA R$ ' Chg. % 4Q08 4Q07 Chg. % Gross Revenue from Sales/Services 3,989,074 3,211, % 1,054, , % Cost of Goods and Services Sold (2,622,738) (1,998,081) 31.3% (728,483) (514,817) 41.5% Gross Income 1,366,336 1,213, % 326, , % Selling General and Administrative Expenses (466,291) (397,639) 17.3% (135,915) (117,348) 15.8% Depreciation and Amortization (134,946) (109,125) 23.7% (35,400) (30,223) 17.1% Financial Result (122,159) (134,120) -8.9% (34,874) (38,502) -9.4% Operating Income 777, , % 155, , % Non-Operating Income (61,285) (59,419) 3.1% (14,902) (18,241) -18.3% Net Income 514, , % 102, , % EBITDA 1,034, , % 225, , % EBTIDA (R$ MM) R$ % R$ 1,035 R$ % R$ 226 4Q07 4Q Page 11 of 19

12 Selling, General and Administrative (SG&A) Expenses SG&A Expenses totaled R$ million in 2008, 17.3% higher than in 2007, and R$ million in the 4Q08, 15.8% up year-on-year. In line with the Company s investment growth, annual depreciation and amortization totaled R$ million, 23.7% more than the R$ million recorded in In the fourth quarter, depreciation and amortization increased by 17.1% over the 4Q07. Net Financial Result The Net Financial Result closed the year at a negative R$ million, an 8.9% yearon-year improvement, mainly thanks to the reduction in financial expenses, in turn chiefly due to the elimination of the CPMF financial transaction tax at the beginning of the year, although this was partially offset by the higher IOF financial operations tax rate. The 4Q08 net financial result was a negative R$ 34.9 million, 9.4% lower than the negative R$ 38.5 million reported in the 4Q07. Net Income Comgás posted Net Income of R$ million in 2008, 16.0% up on the R$ million reported last year, and R$ million in the fourth quarter, a 2.3% improvement over the R$ recorded in the 4Q07. Net Income R$ (MM) R$ % R$ 514 R$ % R$ 100 4Q07 4Q Page 12 of 19

13 Indebtedness In 2008, Gross Debt increased by 23.0% over the year before. Long-term debt fell by 13.1%, while short-term debt climbed by 256.0%. The latter growth was primarily due to two factors: the increase in the current account and the transfer from the long to the short term of the EIB transaction, which matures in June As for long-term debt, Comgás disbursed R$ 127 million in relation to the Project IV loan from the BNDES. Companhia de Gás de São Paulo - Comgás Chg. % Indebtedness (R$ '000) Short Term Debt 574, , % Long Term Debt 904,132 1,040, % Gross Debt 1,478,200 1,202, % Cash and Cash Equivalents 39,726 34, % Net Debt 1,438,474 1,167, % Shareholders' Equity 1,137,081 1,076, % EBITDA 1,034, , % Capex 403, , % Net Debt / EBITDA % Net Debt / CAPEX % Net Debt / Shareholders' Equity % The Company s debt maturity schedule is shown below: Long Term Debt Amortization Schedule R$ (MM) Jan/10 to Dec/10 Jan/11 to Dec/11 Jan/12 to Dec/12 Jan/13 to Dec/13 Jan/14 on Local Currency Foreign Currency Long-term debt denominated in local currency is amortized in monthly installments, except for those loans whose grace periods are still ongoing. Debt denominated in foreign currency is amortized as follows: Page 13 of 19

14 I) BNDES financing monthly amortization after the grace period, and II) Other loans semi-annual amortization. Debenture On August 5, 2008, the Company concluded the issue of a R$100,000 simple, indivisible, non-convertible debenture issue. Amortization of the principal will take place in August 2012, August 2013, and August 2014, with respective payments of 33.33%, 33.33% and 33.34%. Interest will be paid annually with no alteration in the rate. Debenture 12/31/2008 Emission Series Quantity Current Long Term Remuneration 2 nd simple 1 6, ,000 CDI + 1.5% per year Short Term 2008 Long Term Short Term 2007 Long Term Total Chg. % Gross Debt Distribution Index Total Local Currency Banco do Brasil - BNDES TJLP % per year ,424 23,596 27,020 - BNDES (Project II) TJLP % per year 23,069 41,786 64,855 23,064 64,423 87, % BNDES (Project III) TJLP % per year 39, , ,181 39, , , % BNDES (Project IV) - Direct TJLP + 3.2% per year 38, , ,359 29, , , % BNDES (Project IV) - Direct with guarantee TJLP + 2.8% per year 21, , ,768 1, , , % BNDES (Project III)- BancoVotorantim TJLP % per year 16,061 50,739 66,800 16,047 66,225 82, % BNDES (Project III)- Banco Bradesco TJLP + 4.7% per year 16,061 50,739 66,800 16,046 66,225 82, % Banco Bradesco - debenture CDI + 1.5% per year 6, , , Working Capital 125.9% of CDI 252, , , ,170 1,369, , ,580 1,028, % Foreign Currency BNDES (on the basket of currencies) 113.0% of CDI 15,643 23,428 39,071 14,269 34,189 48, % Banco do Brasil (DMLP) 8.0% per year ,402 3,739 - Banco Europeu de Investimentos 94.7% of CDI 76,793-76,793 4,069 68,983 73, % Banco Itaú/BBA-(IFC) 110.0% of CDI 14,615 24,533 39,148 14,501 33,818 48, % Working Capital with Swap 132.5% of CDI 59,850-59, ,901 47, ,862 33, , , % Gross Debt 580,138 1,004,131 1,584, ,233 1,040,972 1,202, % Page 14 of 19

15 CAPEX Comgás invested R$ 403 million in 2008, 58% of which to expanding the distribution network, especially in the residential segment. Capex R$ (MM) CAGR = 19.1% Since its privatization, Comgás has invested more than R$ 2.7 billion, representing a compound annual growth rate (CAGR) of 19.1%. Page 15 of 19

16 Share Performance Although Comgás preferred shares (CGAS5) performed well in the first half of 2008, in the second half they suffered from the effects of the international financial crisis and closed the year 15.8% down at R$ 33.07/share, with average daily traded volume of R$ 4.3 million. Nevertheless, they still outperformed the Ibovespa index, which fell by 41.2% to 37,550 points, by 25.4 p.p Vol Vol(Thousand) CGAS5 IBOVESPA 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 changes in market conditions and in the performance of the Brazilian economy, the sector and the international markets, and are therefore subject to change without prior notice. Page 16 of 19

17 Income Statement Companhia de Gás de São Paulo - Comgás R$ '000 Income Statement Chg. % Gross Revenue from Sales/Services 5,019,267 4,056, % Gas Sales 4,999,759 4,025, % Other Revenues 19,508 30, % Deductions (1,030,193) (844, 210) 22.0% Net Revenue 3,989,074 3,211, % Gas Cost (2,622,738) (1,998,081) 31.3% Gas Cost (2,192,775) (1,520,751) 44.2% Transport and Other (429,963) (477, 330) -9.9% Gross Income 1,366,336 1,213, % Selling General and Administrative Expenses (466,291) (397, 639) 17.3% Selling Expenses (85,451) (73,056) 17.0% General and Administrative (245,894) (215, 458) 14.1% Depreciation and Amortization (134,946) (109, 125) 23.7% Income Before Financial Revenues (Expenses) 900, , % Net Financial Result (117,834) (131, 120) -10.1% Financial Revenue 39,313 23, % Financial Expenses (157,147) (154, 388) 1.8% Monetary Variation, Net (4,325) (3,000) 44.2% Operating Income 777, , % Non-Operating Income (61,285) (59, 419) 3.1% Income Before Tax and Social Contribution 716, , % Social Contribution (202,556) (179, 662) 12.7% Net Income 514, , % Net Income per Share (R$) % Page 17 of 19

18 Balance Sheet Companhia de Gás de São Paulo - Comgás Balance Sheet (R$ '000) Chg. % TOTAL ASSETS 4,012,519 3,136, % Current Assets 1,302, , % Cash and cash equivalents 39,726 34, % Gas receivables 502, , % Gas cost receivable 528,289 (55,948) % Other receivable 68,402 39, % Bad debit expense (31,806) (28,234) 12.7% Inventories 34,986 48, % Tax receivable 144, , % Other 14,874 15, % Prepaid expenses % Long Term Assets 92, , % Receivables 4,325 15, % Deferred Income Tax 66,629 59, % Tax receivable 9,859 15, % Other 12,111 11, % Property, Plant and Equipm ent 2,617,349 2,420, % Investments Fixed assets 2,322,809 2,160, % Deferred assets - 259,664 - Intangible 294, TOTAL LIABILITIES 4,012,519 3,136, % Current Liabilities 1,679, , % Short term debt 574, , % Debentures 6, Suppliers 645, , % Subsidiaries 10,594 16, % Payroll payable 37,646 27, % Tax payable 50,604 63, % Dividends payable 129,107 13, % Provision for income tax and social contribution 213, , % Other accounts payable 12,611 5, % Long Term Liabilities 1,195,933 1,206, % Long term debt 904,132 1,040, % Suppliers 100, Clients and other payable 29,968 18, % Payroll benefit 117, , % Provision for contingencies 37,307 28, % Deferred income tax and social contribution 6,897 7, % Shareholders' Equity 1,137,081 1,076, % Paid-in Capital 326, , % Capital reserve 84, , % Revaluation Reserve 18,751 20, % Profit reserve 707, , % Page 18 of 19

19 Upcoming Events 2008 Results Conference Call (in Portuguese) March 19, 2009 at 3:00 pm (Brazil) 2:00 pm (US ET) Phone 55 (11) Access Code: Comgás Webcast: To download the presentation, please go to Page 19 of 19