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Apimec comgás – meeting 2011

Comgás is a natural gas distribution company operating in São Paulo, Brazil. It has experienced significant growth since privatization in 1999. Comgás' strategic plan focuses on expanding its gas distribution network through new infrastructure projects within its concession area to capture additional residential, commercial, and industrial customers. The plan involves connecting over 500,000 new clients and building 5,000 km of new pipelines by 2014. Capturing growth in the residential segment is a key priority. Comgás also aims to diversify its industrial customer base and bring new corporate clients into its service area.

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1 Comgás Presentation APIMEC | December 15, 2011 São Paulo - SP
HistóricoAgenda 2 1. Company Overview 2. Operational & Financial Highlights 3. Strategic Planning 4. Migration to “Novo Mercado”
3 1.Company Overview
HistóricoA Successful Equity Story 4  The English company “San Paulo Gas Company” was authorized to explore the concession of public lighting services in São Paulo 18721  The Canadian company “Light” acquires the company 19122  The administration of the company was transferred to the city of São Paulo and the company was named as “Comgás” 19684  1996: Comgás became a publicly-listed company  1997: Comgás’ shares started to be traded on the Bovespa stock exchange 1996/19976  Largest Brazilian gas distributor, responsible for more than 30% of natural gas’ sales in the country 20108  The company was nationalized and was named as “Companhia Paulistana de Serviços de Gás (Comgás)” 19593  The control was transferred to the state-owned company “Companhia Energética de São Paulo (CESP)” 19845  Privatization: Comgás was acquired by the consortium formed by British Gas and Shell  Beginning of a 30-year concession (renewable for additional 20 years) 19997  # 1,000,000 residential customers 20119
Área de concessãoComgás at a Glance 5 What is Comgás R$ 341mm 1999 1.3 bi m3 R$ 50mm 2,500km 17 314,034 R$ 4,095mm 2010 4.9 bi m3 R$ 405mm 6,900km 68 767,214 Net Revenue Volume Capex Network # Municipalities # Meters 25% CAGR (1999-2010) 13% 21% 10% 13% 8% Growth Since Privatization More than 1 million residential customers Concession area comprising 177 cities (São Paulo, Campinas, baixada Santista e Vale do Paraíba) – 27% of Brazil’s GDP(1) 30-year concession renewable for additional 20 years Largest distributor of piped natural gas in Brazil Notes: (1) Approximate and potential values.
Área de concessãoComgás at a Glance (Cont’d) 6 Key Figures (3Q11) 7,692 kmNetwork R$ 4,085mmNet Revenue Operational Financial (LTM)(1) 819,907 unitsMeters R$ 875mmEBITDA 1,063,364 unitsUDAs (1) R$ 328mmNet Income 4.9 bi/m3Volume (LTM) (1) R$ 501mmCapex Notes: (1) LTM (Last Twelve Months) until September 30, 2011. (2) UDAs (autonomous residential units).
A Comgás é uma Companhia Regulada ...Comgás Highlights 7 Premium asset located in a strategic concession area Substantial growth in the residential segment Diversified client base Impressive track record: significant growth with profitability and sound capital structure Solid regulatory framework and transparent concession scheme Favorable prospects for natural gas in Brazil
Área de concessãoStrategic Concession Area 8 Premium Asset Located in a Strategic Concession Area Gas Brasiliano Gás Natural SPS COMGÁS Supply and Demand Location Santos Basin Concession Area Comgás’ Concession Area Highlights Intersection of pipelines (GASBOL, GASAN, GASPAL) Short distance to the natural gas supply (Santos Basin) High population density 100% of gas demand contracted Customers (3Q11) Residential: 1.1 mm UDAs (1) Commercial: 10.2 thousand Industrial: 1.0 thousand Thermal Gen.: 2 plants Cogeneration: 23 meters NGV: 360 gas stations Concession Area (2) 27% Brazil’s GDP Population: 29.6 mm Households: 8.2 mm Vehicles: 10.0 mm Notes: (1) UDAs (autonomous residential units). (2) Approximate and potential values. State of São Paulo Drilled well Campos Basin Pre-salt reserves Production field Exploration block Espírito Santo Basin Existing NetworkTransmission pipeline Network in Expansion Main Highways Network Under Study LULA
Comgás: uma combinação de competências e princípiosComgás: a Regulated Company 9 ARSESP: The sewage and power regulatory agency of the State of São Paulo 3rd cycle tariff review (2009-2014): regulatory WACC of 9.55% 5-year margin review with annual inflation readjustments (IGP-M), X Factor (efficiency) and K Factor (volume mix deviations) All operating expenses compose the regulatory asset base Gas and transportation costs: pass-through Difference captured in the current account, periodically adjusted by Selic Overview Concession of Public Services Small Volumes (Residential and Commercial Consumers) Exclusivity in commercialization and distribution throughout the whole concession period Large Volumes (Other Consumers) Distribution: exclusivity throughout the whole concession period (98.1% of margin) Commercialization: possibility of new agents competing 12 years after the signing of the concession contract (1) Notes: (1) Starting in 2011, clients with a gas consumption over 300,000 m3 per month can be considered free consumers. Therefore, they can use any other commercialization agent. Solid Regulatory Framework and Transparent Concession Scheme
Comgás: uma combinação de competências e princípiosSponsorship From Top Sector Players SHELL BRAZIL HOLDING BV 6.34% INTEGRAL INVESTMENTS BV 71.91% SHELL GAS BV 16.49% BG SÃO PAULO INVESTMENTS BV 83.51% OTHER SHAREHOLDERS 21.75% 10 The Comgás’ controlling shareholder is Integral Investments, which has as main shareholders the BG Group and Shell with a stake of 83.5% and 16.5%, respectively. Current Shareholders’ Structure of Comgás Presence in Brazil since 1994 Operates in more than 20 countries in the energy market (Exploration and Production, Liquefied Natural Gas, Transmission and Distribution, Power Generation) Presence in Brazil since 1913 Main activities: distribution of oil products, operations in the gas and power sectors, exploration and offshore production
60.00 70.00 80.00 90.00 100.00 110.00 120.00 130.00 140.00 Dec-10 Feb-11 Mar-11 May-11 Jul-11 Aug-11 Oct-11 Dec-11 - 5.0 10.0 15.0 20.0 25.0 30.0 35.0 A Comgás é uma Companhia Regulada …Market Performance and Corporate Governance 11 LTM Comgás Share Price Performance Corporate Governance ( Index = 100 as of December 13, 2010) 29,0%30,7% (16,8%)LTM Performance Class of Shares Allows the existence of common shares (voting rights) and preferred shares (non- voting rights) Board of Directors 9 members (minimum requirement is 3 members) 2 independent board seats (currently only 1 seat occupied) Tag Along 80% only for ON shares Sarbanes Oxley (1) Comgás already has comparable standard of SOX procedures in place Note: (1) Standard not required by BM&FBovespa corporate governance segments or the Brazilian Corporate Law. (2) Includes the volume related to ON shares and PN shares. Source: BM&FBovespa and Factset as of December 13, 2011. Base 100 Volume (R$mm) BMF&Bovespa Level Traditional (“Lei das S.A.”) Volume CGAS(2) CGAS ON CGAS PN IBOV
12 2.Operational & Financial Highlights
Área de concessãoHistorical Volume 13 Volume (MM/m3) Industrial Segment: Volume Breakdown by Sector (9M11) 2.7% 4.0% 4.4% 6.6% 7.1% 8.0% 10.7% 16.2% 17.1% 23.1% Others Textile, Laundy & Dry Cleaning Steel Automotive Food & Beverage Mining and non- ferrous Crystal Glasses & Glassware Pulp & Paper Ceramics Chemical / Petrochemical 1,676 2,243 2,952 3,418 3,812 4,342 4,761 5,069 5,253 4,261 4,910 3,623 3,652 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 9M10 9M11 Industrial Cogeneration NGV Resid. & Commer. Thermal Gen.
8,885 9,265 9,760 9,568 10,206 6.7%4.3% 5.3% 2008 2009 2010 3Q10 3Q11 620,191 692,448 756,080 735,967 808,314765,103 869,138 977,750 945,327 1,063,364 12.5%12.5%13.6% 2008 2009 2010 3Q10 3Q11 Evolution of Meters 14 Residential Segment (Meters and UDA’s) (1) Notes: (1) UDAs (autonomous residential units). Growth rate UDA’s (%)Meters UDA’s(1) Commercial Segment Meters Growth rate (%)
Área de concessãoFinancials Summary 15 Net Revenues (R$ mm) EBITDA (R$ mm) Net Income (R$ mm) Gross Profit (R$ mm) 3,989 4,116 4,095 3,045 3,035 2008 2009 2010 9M10 9M11 871961 1,267 1,147 1.366 1,672 1,520 1,108 1,147 2008 2009 2010 9M10 9M11 1,035 838 934 727 600 835 1,363 1,188 913 2008 2009 2010 9M10 9M11 Previous Accounting Method (normalized for current account)IFRS 514 368 413 333 201 690 580 453 352 2008 2009 2010 9M10 9M11
Área de concessãoInvestments 16 Capex (R$ mm) Network Extension (in ‘000 km) 365 269 405406403397 426 100 229 200 230 276 474 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 9M10 9M11 7.7 6.9 6.2 5.7 5.1 4.9 2.6 2.9 3.3 3.6 3.9 4.5 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 3Q11 35.5%
Área de concessãoHistorical High Payout Ratio 17 Dividend Payout (R$ mm) Notes: (1) Announced Dividends and Juros Sobre Capital Próprio; non-audited numbers. (2) Dividends calculated based on previous accounting method until 2009 and considering announced dividends. Dividend(2) Payout Ratio (%) 450427 268 275 334 11 16 27 25 303 330 95% 17% 15% 26% 10% 77% 75% 53% 73% 74% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 (1)
Área de concessãoDebt Overview 18 Overview Debt Breakdown: Short / Long-Term Debt Debt Composition by Lender (R$ mm) Debt Schedule (R$ mm) Local CurrencyForeign Currency EIB 28% BNDES 57% Others 15% LT Debt 78% ST Debt 22% Jun/11 Sep/11 LT Debt 80% ST Debt 20% Notes: (1) European Investment Bank. (1) 358 246 221 187 74 77 187 29 66 393 20 5 1 ano 2 anos 3 anos 4 anos 5 anos + 6 anos 378 251 408 216 140 470Debt denominated in foreign currency is fully hedged 3Q11 Debt Overview (R$ mm) Short Term Debt 378 Long Term Debt 1,486 Total Debt 1,864 (-) Cash & Marketable Securities 172 (=) Net Debt 1,692 Net Debt / EBITDA LTM 1.9x Net Debt / Book Value of Equity 1.4x
3. Strategic Planning
Growth Avenues Integrated growth strategy – Capture of all business opportunities within a region (industrial, NGV, residential and commercial) Expansion projects in regional fronts – Optimize the use of resources leading to scale and efficiency gains Competitive edge of natural gas if compared to other energy sources Possible increase in natural gas competitiveness – Possible change in supply/demand natural gas balance, following recent upstream discoveries in the pre-salt Integrated, regional expansion within the concession area More than R$ 2,0 billion(1) in Capex programme between 2009 and 2014 Expansion activities driven by low volume / high margin residential and commercial latent potential but anchored by remaining industrial loads opportunities All regulatory targets are being achieved and committed plan will be fully delivered Capex Plan for the next years 1 2 (1) Real Terms 2009, as per Regulatory Business Plan (2009-14 cycle) 20
Santos’ Basin Pré-Sal Current Expansion Comgás’ Concession Area Geographic Expansion Indicated in the Business Plan Expansion activities simultaneously progressing in the cities of the concession area Targets for 2009-2014 period: 5.000km of network to be established 282km of network renewal 500k+ clients to be connected 15 working fronts simultaneously 1.000 direct employees and more than 4.000 indirect working on the expansion Aims for excellence in operational safety and integrity of the distribution network Extensive field analysis and selection of the best opportunities considering Distance from existing network Demographic density Economic profile and propensity for consumption Perspective of future development Potential for integration of various market segments 21
Industrial Segment Comgás is present in all the relevant industries in the concession area A diversified customer base, more than 1,000 corporate clients A multi-use product: from heat and low-pressure steam production to more complex processes Advantages compared to other fuels: No storage requirements Environmental issues Guarantee of supply Low operational cost Growth Strategy: Maintain a strong consumer base with future growth in line with growth in GDP / industrial production Approach small and medium enterprises (SMEs) to anchor expansion projects Bring new industrial corporate clients into the concession area Description 22 (1) Data as of August, 2011
Residential Segment Key growth strategy for Comgás: Geographic expansion, capturing the existing potential and connecting around 100.000 clients per year Increase average unit consumption by optimizing and expanding customer base High potential market, with com growth driven by: New real estate developments Gas conversions in built residencies Large customer base with more than 1 million residential clients Alternative for LPG and electricity Description Concession Area Potential(1,2) (1) Potential to be update as per IBGE Census 2010 (2) Concession area potential doesn’t consider organic growth (3) Considered in the plan to achieve 100.000 clients per year Apartment Houses 59% 13% 8% 20% 2% 13% 7% 78%already connected to NG customers to be captured not connected customers unachievable market (MM of households) 6.2 1.5 23 + 45,000 new buildings (launch) to be captured(3)
Natural gas vehicular (NGV) may be used as fuel for both individual and mass transportation Stands out for savings and environmental benefits Today more cost competitive than gasoline and ethanol Strong economic benefit for heavy users Comgás is currently working with government in the implementation of public policies that should favor the sector Fiscal incentives (IPVA reduction) Public transportation policy Growth Strategy Project currently under way: use of NGV in bus fleet and other heavy users (trucks) Description Benchmarking Analysis: October, 2011 Natural Gas Vehicle (NGV) Segment Prices (R$) Cost per Km (R$) Payback (months)(1) Note: (1) Assumptions: i) Consumption: NGV 12km/l, Alcohol 7km/l, Gasoline 10 km/l ii) Cost of gas equipment: R$ 5,200 iii) Traveled km per month: 5,00024 6.20 6.64 vsGasoline vsEthanol 1.32 1.87 2.78 NGV Ethanol Gasoline 0.11 0.27 0.28 NGV Ethanol Gasoline
Other Markets More than 10,200 clients Focus in medium to large establishments Growth platform integrated with expansion of residential segment High development potential of new applications: Market in early stage of development with high consumption potential Dedicated structure to develop non conventional applications development : acclimatization, commercial cogeneration and generation at peak hours Commercial Thermal Generation and Cogeneration Thermal Generation: Demand depends on the level of thermal dispatch Back to back gas contracts Cogeneration : Industry strategic decision aiming efficiency and energy security in the medium and long term Sustainable growth is dependent on firm supply of gas and visibility of prices vis-a-vis electricity Market with a high development potential 25
4. Migration to “Novo Mercado”
Tag along for ONs 80% 80% 100% 100% Tag along for PNs 100% n.a.1 Minimum free float of 25% P P P Minimum of 20% of independent members on the Board P P Financials in IFRS P P P P Disclosure of transactions involving controlling shareholders or management (quarterly financial information) P P P P Special vote for preffered shareholders P n.a. 1 Annual Calendar of Corporate Events P P P Maximum of 2 years mandate for Board Members, allowing re- election P P P Arbitrage Board P P Summary of Corporate Governance Levels on Bovespa (1) Not applicable (“n.a.”) due to the absence of preferred shares in “Novo Mercado” listing segment Source: “Novo Mercado”, “Nível 1” and “Nível 2” listing regulation by BM&FBovespa and Brazilian Corporate Law Nova Lei das SAs Status Quo Of all companies listed in differentiated governance levels, 125 are at the “Novo Mercado”, 19 at“Nível 2” and 38 at “Nível 1” 27
(1) Due to the liquidity increase and the presence at the “Novo Mercado” listing segment of BM&FBovespa, other utility companies (listed at NM) have in average 10 research analysts currently covering its shares . Comgás currently is covered by 4 active research analysts Shares listed at the highest governance level of BM&FBovespa – acknowledge by investors as today’s market standards, same rights and transparency for all shareholders (only voting shares) Better exposure to the banks' research analysts , and consequently increase in exposure to the general finance community(1) – possibility to access a more vast universe of investors, increasing the company’s capability of accessing the Capital Markets Potential for value uplift through a re-rating, as happened in past migrations to “Novo Mercado” Increase in the share liquidity (one type of share), concentrating the liquidity of the current two types of shares into one type of share New governance standards: i) guarantee of 20% of independent board members , ii) 100% tag along to all shareholders, iii) complete information of all corporate events to shareholders Benefits of a Potential Migration to “Novo Mercado” 28
2011 TIM 0.84 P2 2011 Ultrapar 1.00 2010 Anhanguera 1.00 2010 ALL 1.00 2010 Mahle 1.00 P 2009 Paranapanema 1.00 P2 2008 lochpe-Maxion 0.83 P 2008 Estacio 1.00 2008 Equatorial 1.00 2007 Hering 1.00 P 2007 Romi 0.90 P 2007 Magnesita 0.83 P 2006 BR Foods 1.00 P 2006 Embraer 1.00 Average 0.96 Median 1.00 Year Company Conversion Ratio: ON shares per 1 PN share Aditional Dividends of 10%1 Source: Factset/Economatica for stock prices. Bloomberg Data for Company Actions (CACS tool). CVM Website for GM events. Notes: (1) Companies which the bylaws granted an additional 10% dividend to the PN shareholders when compared to ON shareholders, same case as Comgás (2) TIM and Paranapanema bylaws granted an additional 6% dividend to its PN shareholders when compared to ON shareholders (3) WEG and Portobello are not being considered in the analysis due to some specificities for each regarding the period screening and recent events at the moment of the migration (WEG migration was followed by an acquisition announcement which polluted the analysis; for Portobello, the migration was not followed by a liquidity event to increase liquidity - still around 10% of free-float) (4) “Fato Relevante”(Material Fact) as of December 2, 2011 Previous Migrations to “Novo Mercado” “Studies conducted by the Company’s principal shareholders and Management show that a conversion at a ratio of one ordinary share to each preferred share of the Company is in the best interest of the Company and its shareholders.”4 29
Área de concessãoDisclaimer 30 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.
COMPANHIA DE GÁS DE SÃO PAULO - COMGÁS
32 Appendix
The tariff structure is composed by 3 components: Gas cost (pass through) Transport cost (pass through) Average maximum margin (“P0”) defined by the regulator during the tariff revision Regulated Tariff Comgás: uma combinação de competências e princípiosComgás: a Regulated Company (Cont’d) 33 Main Aspects of the Concession Contract Annual readjustment of distribution margin by the inflation rate (IGP-M), excluding the “X Factor” and the “K Factor” Annual adjustment of the tariff according to the gas and transportation costs accounted yearly on May 31st (or eventually before, subject to the regulator) The review considers: WACC over the regulatory asset base and investments Operational expenses Depreciation Sales volume Occurs every 5 years Maximum Margin Review “X Factor”: efficiency factor determined by the regulator considered in the annual adjustment of the “P0” The “X Factor” determined in the 3rd tariff cycle is 0.82% p.a. “K Factor”: adjustment factor that compensates deviations in the effective maximum margin in relation to the authorized maximum margin = + “X Factor” and “K Factor”Annual Tariff Readjustments
Comgás: uma combinação de competências e princípiosNatural Gas Supply: Contracts 34 Contracts Contracts TCQ Firm Contract Firm of Energy Auction Weekly Sale Contract Models Firm Firm Firm of Energy Firm of Short Term Short Term Gas Source Bolivian Not Determined Not Determined Exceeding contracts of PB with others distributor/thermal power plants Exceeding contracts of PB with others distributor/thermal power plants Daily Contract Quantity 8.75mm m3/day until oct/11 8.10mm m3/day until jun/19 4.3mm m3/day 1.0mm m3/day 3.2mm m3/day According to the bids End of Contract Jun/19 Dec/13 Dec/12 Mar/12 Mar/12 Price Commodity + Transportation Fixed Charge + Variable Charge Fixed Charge + Variable Charge According to the auction According to the offered bid and the acceptance from Petrobras Commodity: quarterly adjusted based on Oil Basket (Brent) + Exchange Rate Transport: annual adjustment according to USA inflation rate (CPI) Fixed Charge: annual adjustment by IGP-M inflation rate Variable Charge: quarterly adjustment based on Oil Basket Fixed Charge: annual adjustment by IGP-M inflation rate Variable Charge: quarterly adjustment based on Oil Basket TCQ Contract: Current contracted daily volume of Bolivian gas is 8.75mm m3/day, which will be periodically reduced until it reaches the volume of 8.10mm m3/day in August 2012 Firm Contract: Contracted daily volume of 4.27mm m3/day, which will be periodically increased until it reaches the volume of 5.22mm m3/day in August 2012 Firm of Energy Contract: Petrobras supplies natural gas or indemnifies clients of the additional costs incurred due to the consumption of an alternative 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 its clients in question
Área de concessãoCurrent Account 35 Regulatory Current Account (R$ mm) Current Account (5) 1229 153 264 469 528 (55) (157) (230) (198) (128) 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 REGULATORY CURRENT ACCOUNT Compensation mechanism used to reimburse the company or the state in case the real cost of gas differs from the cost used for tariffs Monthly calculated by the regulator. However only adjusted once a year (May) Difference between the cost of gas used for tariffs and the real cost of gas incurred The balance is debited / credited in a regulatory account The effect of the regulatory current account is considered only for tax purposes, it is excluded from financial accounting (IFRS) Main implications: volatility in the company’s results

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Apimec comgás – meeting 2011

  • 1.
    1 Comgás Presentation APIMEC |December 15, 2011 São Paulo - SP
  • 2.
    HistóricoAgenda 2 1. Company Overview 2.Operational & Financial Highlights 3. Strategic Planning 4. Migration to “Novo Mercado”
  • 3.
  • 4.
    HistóricoA Successful EquityStory 4  The English company “San Paulo Gas Company” was authorized to explore the concession of public lighting services in São Paulo 18721  The Canadian company “Light” acquires the company 19122  The administration of the company was transferred to the city of São Paulo and the company was named as “Comgás” 19684  1996: Comgás became a publicly-listed company  1997: Comgás’ shares started to be traded on the Bovespa stock exchange 1996/19976  Largest Brazilian gas distributor, responsible for more than 30% of natural gas’ sales in the country 20108  The company was nationalized and was named as “Companhia Paulistana de Serviços de Gás (Comgás)” 19593  The control was transferred to the state-owned company “Companhia Energética de São Paulo (CESP)” 19845  Privatization: Comgás was acquired by the consortium formed by British Gas and Shell  Beginning of a 30-year concession (renewable for additional 20 years) 19997  # 1,000,000 residential customers 20119
  • 5.
    Área de concessãoComgásat a Glance 5 What is Comgás R$ 341mm 1999 1.3 bi m3 R$ 50mm 2,500km 17 314,034 R$ 4,095mm 2010 4.9 bi m3 R$ 405mm 6,900km 68 767,214 Net Revenue Volume Capex Network # Municipalities # Meters 25% CAGR (1999-2010) 13% 21% 10% 13% 8% Growth Since Privatization More than 1 million residential customers Concession area comprising 177 cities (São Paulo, Campinas, baixada Santista e Vale do Paraíba) – 27% of Brazil’s GDP(1) 30-year concession renewable for additional 20 years Largest distributor of piped natural gas in Brazil Notes: (1) Approximate and potential values.
  • 6.
    Área de concessãoComgásat a Glance (Cont’d) 6 Key Figures (3Q11) 7,692 kmNetwork R$ 4,085mmNet Revenue Operational Financial (LTM)(1) 819,907 unitsMeters R$ 875mmEBITDA 1,063,364 unitsUDAs (1) R$ 328mmNet Income 4.9 bi/m3Volume (LTM) (1) R$ 501mmCapex Notes: (1) LTM (Last Twelve Months) until September 30, 2011. (2) UDAs (autonomous residential units).
  • 7.
    A Comgás éuma Companhia Regulada ...Comgás Highlights 7 Premium asset located in a strategic concession area Substantial growth in the residential segment Diversified client base Impressive track record: significant growth with profitability and sound capital structure Solid regulatory framework and transparent concession scheme Favorable prospects for natural gas in Brazil
  • 8.
    Área de concessãoStrategicConcession Area 8 Premium Asset Located in a Strategic Concession Area Gas Brasiliano Gás Natural SPS COMGÁS Supply and Demand Location Santos Basin Concession Area Comgás’ Concession Area Highlights Intersection of pipelines (GASBOL, GASAN, GASPAL) Short distance to the natural gas supply (Santos Basin) High population density 100% of gas demand contracted Customers (3Q11) Residential: 1.1 mm UDAs (1) Commercial: 10.2 thousand Industrial: 1.0 thousand Thermal Gen.: 2 plants Cogeneration: 23 meters NGV: 360 gas stations Concession Area (2) 27% Brazil’s GDP Population: 29.6 mm Households: 8.2 mm Vehicles: 10.0 mm Notes: (1) UDAs (autonomous residential units). (2) Approximate and potential values. State of São Paulo Drilled well Campos Basin Pre-salt reserves Production field Exploration block Espírito Santo Basin Existing NetworkTransmission pipeline Network in Expansion Main Highways Network Under Study LULA
  • 9.
    Comgás: uma combinaçãode competências e princípiosComgás: a Regulated Company 9 ARSESP: The sewage and power regulatory agency of the State of São Paulo 3rd cycle tariff review (2009-2014): regulatory WACC of 9.55% 5-year margin review with annual inflation readjustments (IGP-M), X Factor (efficiency) and K Factor (volume mix deviations) All operating expenses compose the regulatory asset base Gas and transportation costs: pass-through Difference captured in the current account, periodically adjusted by Selic Overview Concession of Public Services Small Volumes (Residential and Commercial Consumers) Exclusivity in commercialization and distribution throughout the whole concession period Large Volumes (Other Consumers) Distribution: exclusivity throughout the whole concession period (98.1% of margin) Commercialization: possibility of new agents competing 12 years after the signing of the concession contract (1) Notes: (1) Starting in 2011, clients with a gas consumption over 300,000 m3 per month can be considered free consumers. Therefore, they can use any other commercialization agent. Solid Regulatory Framework and Transparent Concession Scheme
  • 10.
    Comgás: uma combinaçãode competências e princípiosSponsorship From Top Sector Players SHELL BRAZIL HOLDING BV 6.34% INTEGRAL INVESTMENTS BV 71.91% SHELL GAS BV 16.49% BG SÃO PAULO INVESTMENTS BV 83.51% OTHER SHAREHOLDERS 21.75% 10 The Comgás’ controlling shareholder is Integral Investments, which has as main shareholders the BG Group and Shell with a stake of 83.5% and 16.5%, respectively. Current Shareholders’ Structure of Comgás Presence in Brazil since 1994 Operates in more than 20 countries in the energy market (Exploration and Production, Liquefied Natural Gas, Transmission and Distribution, Power Generation) Presence in Brazil since 1913 Main activities: distribution of oil products, operations in the gas and power sectors, exploration and offshore production
  • 11.
    60.00 70.00 80.00 90.00 100.00 110.00 120.00 130.00 140.00 Dec-10 Feb-11 Mar-11May-11 Jul-11 Aug-11 Oct-11 Dec-11 - 5.0 10.0 15.0 20.0 25.0 30.0 35.0 A Comgás é uma Companhia Regulada …Market Performance and Corporate Governance 11 LTM Comgás Share Price Performance Corporate Governance ( Index = 100 as of December 13, 2010) 29,0%30,7% (16,8%)LTM Performance Class of Shares Allows the existence of common shares (voting rights) and preferred shares (non- voting rights) Board of Directors 9 members (minimum requirement is 3 members) 2 independent board seats (currently only 1 seat occupied) Tag Along 80% only for ON shares Sarbanes Oxley (1) Comgás already has comparable standard of SOX procedures in place Note: (1) Standard not required by BM&FBovespa corporate governance segments or the Brazilian Corporate Law. (2) Includes the volume related to ON shares and PN shares. Source: BM&FBovespa and Factset as of December 13, 2011. Base 100 Volume (R$mm) BMF&Bovespa Level Traditional (“Lei das S.A.”) Volume CGAS(2) CGAS ON CGAS PN IBOV
  • 12.
  • 13.
    Área de concessãoHistoricalVolume 13 Volume (MM/m3) Industrial Segment: Volume Breakdown by Sector (9M11) 2.7% 4.0% 4.4% 6.6% 7.1% 8.0% 10.7% 16.2% 17.1% 23.1% Others Textile, Laundy & Dry Cleaning Steel Automotive Food & Beverage Mining and non- ferrous Crystal Glasses & Glassware Pulp & Paper Ceramics Chemical / Petrochemical 1,676 2,243 2,952 3,418 3,812 4,342 4,761 5,069 5,253 4,261 4,910 3,623 3,652 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 9M10 9M11 Industrial Cogeneration NGV Resid. & Commer. Thermal Gen.
  • 14.
    8,885 9,265 9,760 9,568 10,206 6.7%4.3% 5.3% 20082009 2010 3Q10 3Q11 620,191 692,448 756,080 735,967 808,314765,103 869,138 977,750 945,327 1,063,364 12.5%12.5%13.6% 2008 2009 2010 3Q10 3Q11 Evolution of Meters 14 Residential Segment (Meters and UDA’s) (1) Notes: (1) UDAs (autonomous residential units). Growth rate UDA’s (%)Meters UDA’s(1) Commercial Segment Meters Growth rate (%)
  • 15.
    Área de concessãoFinancialsSummary 15 Net Revenues (R$ mm) EBITDA (R$ mm) Net Income (R$ mm) Gross Profit (R$ mm) 3,989 4,116 4,095 3,045 3,035 2008 2009 2010 9M10 9M11 871961 1,267 1,147 1.366 1,672 1,520 1,108 1,147 2008 2009 2010 9M10 9M11 1,035 838 934 727 600 835 1,363 1,188 913 2008 2009 2010 9M10 9M11 Previous Accounting Method (normalized for current account)IFRS 514 368 413 333 201 690 580 453 352 2008 2009 2010 9M10 9M11
  • 16.
    Área de concessãoInvestments 16 Capex(R$ mm) Network Extension (in ‘000 km) 365 269 405406403397 426 100 229 200 230 276 474 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 9M10 9M11 7.7 6.9 6.2 5.7 5.1 4.9 2.6 2.9 3.3 3.6 3.9 4.5 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 3Q11 35.5%
  • 17.
    Área de concessãoHistoricalHigh Payout Ratio 17 Dividend Payout (R$ mm) Notes: (1) Announced Dividends and Juros Sobre Capital Próprio; non-audited numbers. (2) Dividends calculated based on previous accounting method until 2009 and considering announced dividends. Dividend(2) Payout Ratio (%) 450427 268 275 334 11 16 27 25 303 330 95% 17% 15% 26% 10% 77% 75% 53% 73% 74% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 (1)
  • 18.
    Área de concessãoDebtOverview 18 Overview Debt Breakdown: Short / Long-Term Debt Debt Composition by Lender (R$ mm) Debt Schedule (R$ mm) Local CurrencyForeign Currency EIB 28% BNDES 57% Others 15% LT Debt 78% ST Debt 22% Jun/11 Sep/11 LT Debt 80% ST Debt 20% Notes: (1) European Investment Bank. (1) 358 246 221 187 74 77 187 29 66 393 20 5 1 ano 2 anos 3 anos 4 anos 5 anos + 6 anos 378 251 408 216 140 470Debt denominated in foreign currency is fully hedged 3Q11 Debt Overview (R$ mm) Short Term Debt 378 Long Term Debt 1,486 Total Debt 1,864 (-) Cash & Marketable Securities 172 (=) Net Debt 1,692 Net Debt / EBITDA LTM 1.9x Net Debt / Book Value of Equity 1.4x
  • 19.
  • 20.
    Growth Avenues Integrated growthstrategy – Capture of all business opportunities within a region (industrial, NGV, residential and commercial) Expansion projects in regional fronts – Optimize the use of resources leading to scale and efficiency gains Competitive edge of natural gas if compared to other energy sources Possible increase in natural gas competitiveness – Possible change in supply/demand natural gas balance, following recent upstream discoveries in the pre-salt Integrated, regional expansion within the concession area More than R$ 2,0 billion(1) in Capex programme between 2009 and 2014 Expansion activities driven by low volume / high margin residential and commercial latent potential but anchored by remaining industrial loads opportunities All regulatory targets are being achieved and committed plan will be fully delivered Capex Plan for the next years 1 2 (1) Real Terms 2009, as per Regulatory Business Plan (2009-14 cycle) 20
  • 21.
    Santos’ Basin Pré-Sal Current Expansion Comgás’ ConcessionArea Geographic Expansion Indicated in the Business Plan Expansion activities simultaneously progressing in the cities of the concession area Targets for 2009-2014 period: 5.000km of network to be established 282km of network renewal 500k+ clients to be connected 15 working fronts simultaneously 1.000 direct employees and more than 4.000 indirect working on the expansion Aims for excellence in operational safety and integrity of the distribution network Extensive field analysis and selection of the best opportunities considering Distance from existing network Demographic density Economic profile and propensity for consumption Perspective of future development Potential for integration of various market segments 21
  • 22.
    Industrial Segment Comgás ispresent in all the relevant industries in the concession area A diversified customer base, more than 1,000 corporate clients A multi-use product: from heat and low-pressure steam production to more complex processes Advantages compared to other fuels: No storage requirements Environmental issues Guarantee of supply Low operational cost Growth Strategy: Maintain a strong consumer base with future growth in line with growth in GDP / industrial production Approach small and medium enterprises (SMEs) to anchor expansion projects Bring new industrial corporate clients into the concession area Description 22 (1) Data as of August, 2011
  • 23.
    Residential Segment Key growthstrategy for Comgás: Geographic expansion, capturing the existing potential and connecting around 100.000 clients per year Increase average unit consumption by optimizing and expanding customer base High potential market, with com growth driven by: New real estate developments Gas conversions in built residencies Large customer base with more than 1 million residential clients Alternative for LPG and electricity Description Concession Area Potential(1,2) (1) Potential to be update as per IBGE Census 2010 (2) Concession area potential doesn’t consider organic growth (3) Considered in the plan to achieve 100.000 clients per year Apartment Houses 59% 13% 8% 20% 2% 13% 7% 78%already connected to NG customers to be captured not connected customers unachievable market (MM of households) 6.2 1.5 23 + 45,000 new buildings (launch) to be captured(3)
  • 24.
    Natural gas vehicular(NGV) may be used as fuel for both individual and mass transportation Stands out for savings and environmental benefits Today more cost competitive than gasoline and ethanol Strong economic benefit for heavy users Comgás is currently working with government in the implementation of public policies that should favor the sector Fiscal incentives (IPVA reduction) Public transportation policy Growth Strategy Project currently under way: use of NGV in bus fleet and other heavy users (trucks) Description Benchmarking Analysis: October, 2011 Natural Gas Vehicle (NGV) Segment Prices (R$) Cost per Km (R$) Payback (months)(1) Note: (1) Assumptions: i) Consumption: NGV 12km/l, Alcohol 7km/l, Gasoline 10 km/l ii) Cost of gas equipment: R$ 5,200 iii) Traveled km per month: 5,00024 6.20 6.64 vsGasoline vsEthanol 1.32 1.87 2.78 NGV Ethanol Gasoline 0.11 0.27 0.28 NGV Ethanol Gasoline
  • 25.
    Other Markets More than10,200 clients Focus in medium to large establishments Growth platform integrated with expansion of residential segment High development potential of new applications: Market in early stage of development with high consumption potential Dedicated structure to develop non conventional applications development : acclimatization, commercial cogeneration and generation at peak hours Commercial Thermal Generation and Cogeneration Thermal Generation: Demand depends on the level of thermal dispatch Back to back gas contracts Cogeneration : Industry strategic decision aiming efficiency and energy security in the medium and long term Sustainable growth is dependent on firm supply of gas and visibility of prices vis-a-vis electricity Market with a high development potential 25
  • 26.
    4. Migration to“Novo Mercado”
  • 27.
    Tag along forONs 80% 80% 100% 100% Tag along for PNs 100% n.a.1 Minimum free float of 25% P P P Minimum of 20% of independent members on the Board P P Financials in IFRS P P P P Disclosure of transactions involving controlling shareholders or management (quarterly financial information) P P P P Special vote for preffered shareholders P n.a. 1 Annual Calendar of Corporate Events P P P Maximum of 2 years mandate for Board Members, allowing re- election P P P Arbitrage Board P P Summary of Corporate Governance Levels on Bovespa (1) Not applicable (“n.a.”) due to the absence of preferred shares in “Novo Mercado” listing segment Source: “Novo Mercado”, “Nível 1” and “Nível 2” listing regulation by BM&FBovespa and Brazilian Corporate Law Nova Lei das SAs Status Quo Of all companies listed in differentiated governance levels, 125 are at the “Novo Mercado”, 19 at“Nível 2” and 38 at “Nível 1” 27
  • 28.
    (1) Due tothe liquidity increase and the presence at the “Novo Mercado” listing segment of BM&FBovespa, other utility companies (listed at NM) have in average 10 research analysts currently covering its shares . Comgás currently is covered by 4 active research analysts Shares listed at the highest governance level of BM&FBovespa – acknowledge by investors as today’s market standards, same rights and transparency for all shareholders (only voting shares) Better exposure to the banks' research analysts , and consequently increase in exposure to the general finance community(1) – possibility to access a more vast universe of investors, increasing the company’s capability of accessing the Capital Markets Potential for value uplift through a re-rating, as happened in past migrations to “Novo Mercado” Increase in the share liquidity (one type of share), concentrating the liquidity of the current two types of shares into one type of share New governance standards: i) guarantee of 20% of independent board members , ii) 100% tag along to all shareholders, iii) complete information of all corporate events to shareholders Benefits of a Potential Migration to “Novo Mercado” 28
  • 29.
    2011 TIM 0.84P2 2011 Ultrapar 1.00 2010 Anhanguera 1.00 2010 ALL 1.00 2010 Mahle 1.00 P 2009 Paranapanema 1.00 P2 2008 lochpe-Maxion 0.83 P 2008 Estacio 1.00 2008 Equatorial 1.00 2007 Hering 1.00 P 2007 Romi 0.90 P 2007 Magnesita 0.83 P 2006 BR Foods 1.00 P 2006 Embraer 1.00 Average 0.96 Median 1.00 Year Company Conversion Ratio: ON shares per 1 PN share Aditional Dividends of 10%1 Source: Factset/Economatica for stock prices. Bloomberg Data for Company Actions (CACS tool). CVM Website for GM events. Notes: (1) Companies which the bylaws granted an additional 10% dividend to the PN shareholders when compared to ON shareholders, same case as Comgás (2) TIM and Paranapanema bylaws granted an additional 6% dividend to its PN shareholders when compared to ON shareholders (3) WEG and Portobello are not being considered in the analysis due to some specificities for each regarding the period screening and recent events at the moment of the migration (WEG migration was followed by an acquisition announcement which polluted the analysis; for Portobello, the migration was not followed by a liquidity event to increase liquidity - still around 10% of free-float) (4) “Fato Relevante”(Material Fact) as of December 2, 2011 Previous Migrations to “Novo Mercado” “Studies conducted by the Company’s principal shareholders and Management show that a conversion at a ratio of one ordinary share to each preferred share of the Company is in the best interest of the Company and its shareholders.”4 29
  • 30.
    Área de concessãoDisclaimer 30 Theforward-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.
  • 31.
    COMPANHIA DE GÁSDE SÃO PAULO - COMGÁS
  • 32.
  • 33.
    The tariff structureis composed by 3 components: Gas cost (pass through) Transport cost (pass through) Average maximum margin (“P0”) defined by the regulator during the tariff revision Regulated Tariff Comgás: uma combinação de competências e princípiosComgás: a Regulated Company (Cont’d) 33 Main Aspects of the Concession Contract Annual readjustment of distribution margin by the inflation rate (IGP-M), excluding the “X Factor” and the “K Factor” Annual adjustment of the tariff according to the gas and transportation costs accounted yearly on May 31st (or eventually before, subject to the regulator) The review considers: WACC over the regulatory asset base and investments Operational expenses Depreciation Sales volume Occurs every 5 years Maximum Margin Review “X Factor”: efficiency factor determined by the regulator considered in the annual adjustment of the “P0” The “X Factor” determined in the 3rd tariff cycle is 0.82% p.a. “K Factor”: adjustment factor that compensates deviations in the effective maximum margin in relation to the authorized maximum margin = + “X Factor” and “K Factor”Annual Tariff Readjustments
  • 34.
    Comgás: uma combinaçãode competências e princípiosNatural Gas Supply: Contracts 34 Contracts Contracts TCQ Firm Contract Firm of Energy Auction Weekly Sale Contract Models Firm Firm Firm of Energy Firm of Short Term Short Term Gas Source Bolivian Not Determined Not Determined Exceeding contracts of PB with others distributor/thermal power plants Exceeding contracts of PB with others distributor/thermal power plants Daily Contract Quantity 8.75mm m3/day until oct/11 8.10mm m3/day until jun/19 4.3mm m3/day 1.0mm m3/day 3.2mm m3/day According to the bids End of Contract Jun/19 Dec/13 Dec/12 Mar/12 Mar/12 Price Commodity + Transportation Fixed Charge + Variable Charge Fixed Charge + Variable Charge According to the auction According to the offered bid and the acceptance from Petrobras Commodity: quarterly adjusted based on Oil Basket (Brent) + Exchange Rate Transport: annual adjustment according to USA inflation rate (CPI) Fixed Charge: annual adjustment by IGP-M inflation rate Variable Charge: quarterly adjustment based on Oil Basket Fixed Charge: annual adjustment by IGP-M inflation rate Variable Charge: quarterly adjustment based on Oil Basket TCQ Contract: Current contracted daily volume of Bolivian gas is 8.75mm m3/day, which will be periodically reduced until it reaches the volume of 8.10mm m3/day in August 2012 Firm Contract: Contracted daily volume of 4.27mm m3/day, which will be periodically increased until it reaches the volume of 5.22mm m3/day in August 2012 Firm of Energy Contract: Petrobras supplies natural gas or indemnifies clients of the additional costs incurred due to the consumption of an alternative 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 its clients in question
  • 35.
    Área de concessãoCurrentAccount 35 Regulatory Current Account (R$ mm) Current Account (5) 1229 153 264 469 528 (55) (157) (230) (198) (128) 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 REGULATORY CURRENT ACCOUNT Compensation mechanism used to reimburse the company or the state in case the real cost of gas differs from the cost used for tariffs Monthly calculated by the regulator. However only adjusted once a year (May) Difference between the cost of gas used for tariffs and the real cost of gas incurred The balance is debited / credited in a regulatory account The effect of the regulatory current account is considered only for tax purposes, it is excluded from financial accounting (IFRS) Main implications: volatility in the company’s results