tgi presentation conference call 1q 2014 vf
TRANSCRIPT
May 2014
Strictly Private and Confidential
TGI 1Q 2014 results
2
Table of contents
1. TGI Overview and History
2. Key updates
3. Financial and operating highlights
4. Questions and Answers
Appendix
1. Economic, industry and regulatory environment
2. Shareholders and management team
3. EEB Overview
1. Overview and History
4
Overview
Stable and growing Colombian economy with sound investment environment
Constructive and stable regulatory framework
Largest natural gas pipeline system in Colombia
Stable and predictable cash flow generation, strongly indexed to the US Dollar
Strong and consistent financial performance
Experienced management team with solid track record in the sector
Expertise, financial strength and support of shareholders
Natural monopoly in a regulated environment
Strategically located pipeline network
Company history
TGI history Pipeline network Highlights
Owns ~61% of the national pipeline network (3,957 km) and transports 46% of the gas consumed in the country
− Serves ~70% of Colombia’s population, reaching the most populated areas (Bogota, Cali, Medellin, the coffee region and Piedemonte Llanero, among others)
− Has access to the two main production regions, La Guajira and Cusiana/Cupiagua
25% interest in Contugas (Peru)
− 30-year concession for natural gas transportation and distribution
TGI was created as a result of the privatization of Ecogás and has experienced remarkable growth since then, under
the leadership of its controlling shareholders, EEB and CVCI
Creation of Ecogas
1997
2005
Start of Ecogas Privatization Process
2006
Ecogas assets awarded to EEB
Creation of TGI
Inaugural bond issuance
Transfer of first
BOMT pipeline
(GBS)
Pipelines
exchange with
Promigas
CVCI
capitalization
Transfer of
second BOMT
pipeline
(Centragas)
Cusiana
expansion phase
I: start of
operations
Refinancing of
subordinated debt
with EEB
2008
TGI takes over the O&M of owned pipelines
Refinancing of
bonds issued in
2007
Cusiana
expansion
phase II: start of
operations
TGI takes over
the O&M of
compressor
stations
Awarded
investment
grade rating by
Moody’s and
Fitch
2010
Awarded
investment grade
rating by S&P
Headquarters
relocation from
Bucaramanga to
Bogotá
Redesign of
organizational
structure
2012
2013
2007
2009
2011
2014
EEB announces
agreement to
acquire 31.92%
stake in TGI
from TRG
(formerly CVCI)
Cartagena Refinery
Barrancabermeja Refinery Bucaramanga
Bogota
Neiva
Cali
Medellin
2.99 tcf
0.02 tcf
2.11 tcf
Eastern Producers: Ecopetrol Equion
Upper Magdalena Valley
Lower and Middle Magdalena Valley
Northern Producers: Chevron Ecopetrol 1.89 tcf
References
TGI Pipelines
Natural Gas Reserves
City
Field Refinery
Third Party Pipelines
Source: Mining and Energy Planning Unit. National Hydrocarbons Agency.
2. Key Updates
7
Dividend Distribution
Key updates
• On March 31st, TGI´s Shareholders Meeting approved its first dividend
payment since beginning operations.
• The approved dividend is equal to the 100% of 2013 net income (COP
130,067 MM - approx. USD $ 67.5 MM)
• The dividend payment dates were set at April 24 and May 26, 2014
TGI´ acquisition • On December 11th 2013, EEB’s Board of Directors authorized to exercise
its Right of First Offer (ROFO) under the Shareholder’s Agreement for the
acquisition of a 31.92% stake in TGI, after the end of the lock-up period (3
years). Offer was submitted on March 25th 2014
• The offer, for a value of USD 880 million, was accepted by The Rohatyn
Group (formerly CVCI) on April 3rd 2014.
• Closing is expected to take place within 90 days after this date.
• Rating Agencies have reviewed the transaction and affirmed TGI´s
ratings.
8
Expansion Projects
Key updates
• The Sabana Compression Station expansion project is currently under
construction and is expected to be operational in August 2014
• Ecopetrol has declined to continue pursuing the Cusiana – Apiay – San
Fernando expansion project
• TGI is considering further expansions to its domestic infrastructure
• To this effect, on March 4 2014 TGI held a meeting with its most important
customers to present the following prospective expansion projects:
Cusiana Phase III – 20 mmcfd capacity increase, estimated cost USD 33.5 MM
Ballena - Barranca Bidirectionality – 45 mmcfd capacity, estimated cost USD 7
MM
Cusiana – Apiay – 70 mmcfd capacity increase, estimated cost USD 215 MM
Mariquita – Gualanday – 12.6 mmcfd capacity increase, estimated cost USD
90MM
• After the meeting, TGI formally requested proposals from shippers
interested in signing long term contracts for the upcoming expansions
• Once proposals are received, TGI will evaluate the financial viability of the
projects and will decide which projects to pursue
9
Hedge Restructuring
Key updates
• During the first quarter of 2014, TGI executed synthetic unwinds to cap losses
related with 3 of 4 cross-currency swaps booked in 2009
• These swaps had a negative MTM of USD $ 114.3 MM as of December 2013
• TGI took advantage of the depreciation of the COP that occurred on the first 3
months of 2014
(79)
(200)
(180)
(160)
(140)
(120)
(100)
(80)
(60)
(40)
(20)
0FX RATE
3. Financial and operating highlights
11
Solid operational performance
(1)The trend line refers to the ratio: Firm contracted capacity/available capacity. The Available capacity differs from the Total Capacity as TGI requires a percentage of it for its own use. Source: Company information.
Network length
(km)
Capacity
(mmscfd)
Firm Contracted Capacity(1)
(mmscfd)
Transported Volume Gas Losses Load factor
(mmscfd) (%) (%)
3,702
3,529
3,774 3,774
3,957 3,957 3,957
2008 2009 2010 2011 2012 2013 20141Q
478 478 548
618
730 730 730
2008 2009 2010 2011 2012 2013 20141Q
427 437
485
560
604 628
645.8
90% 92% 90% 92% 85% 88% 91%
2008 2009 2010 2011 2012 2013 20141Q
371 396
422 420 422 454 469
2008 2009 2010 2011 2012 2013 20141Q
0.10%
0.20%
0.57% 0.54% 0.52%
0.41%
0.03%
2008 2009 2010 2011 2012 2013 20141Q
66% 69% 71%
58% 59% 61% 61%
2008 2009 2010 2011 2012 2013 20141Q
12
Strong contract structure and stable and predictable cash flow generation
TGI’s revenues are highly predictable, with approximately 97% coming from regulated tariffs that are reviewed at
least every 5 years, ensuring cash flow stability and attractive rates of return
Main sectors served by the Company (75(1)% of revenues) present stable consumption patterns (no seasonality)
The Company enjoys excellent contract quality
– 100% of TGI’s contracts are firm contracts with an average life of 8,01 years
– 87% of regulated revenues are fixed tariffs, not dependent on transported volume
– Approximately 79%(2) of EBITDA denominated in US Dollars
Revenues breakdown (% of revenues)
Source: Company information. (1) Includes Distributors, Ecopetrol´s refinery and Natural gas for Vehicles. (2) TGI calculations.
TGI’s revenues are highly predictable as a result of regulated tariffs and stable consumption
Source: TGI as of March 31- 2014
Ecopetrol
16%
Gas Natural
21%
Gases de
Occidente
16%
EPM 11%
Isagen 7%
Others 29%
By Sector
Natural gas transportation market share
(% of natural gas transported volume)
Source: Natural gas transportation companies’ Electronic Bulletin of Operations
TGI; 48.2%
Promigas; 37.0%
Others; 14.8%
Distributor 58%
Refinery
14%
Thermal
16%
Traders
3%
Vehicular 9%
Others 6%
By Client
13
Strong and consistent financial performance
Revenues EBITDA and EBITDA margin
Funds from operations (1)
(US$ in millions – average exchange rate for each period)
Source: Company information
Historical Capex
(US$ in millions – average exchange rate for each period)
(US$ in millions – average exchange rate for each period) (US$ in millions – average exchange rate for each period)
(1)FFO calculated as net income plus depreciation, amortization and provisions, adjusted for effect from exchange rate and hedges.
On 2012 FFO includes the LM transaction premium~ USD 69 million (one time event)
238 252
294
338
390
465 467
2008 2009 2010 2011 2012 2013 LTM2014 1Q
194 196 222
257
289
359 367
82% 78%
75% 76% 74% 77% 79%
2008 2009 2010 2011 2012 2013 LTM 2014 1Q
14
69
174
387
185
35 12
2008 2009 2010 2011 2012 2013 2014 1Q
84 96 108 117
133
266 264
2008 2009 2010 2011 2012 2013 LTM 20141Q
14
Strong and consistent financial performance
Total debt / EBITDA
Financial debt breakdown (2)
Subordination Agreement
The lender is EEB (major shareholder)
No repayment of principal allowed before payment of senior debt
Interest can only be paid if there is no default or event of default and if the payment does not trigger any such scenario
Subordinated debt acceleration is not allowed until senior debt is not repaid
Source: Company information. Total debt includes senior debt, subordinated debt and mark-to-market. Note: Ratios calculated in local currency. (1) Interest coverage ratio calculated as EBITDA / Net interest (2) Senior debt stands for the US$750 million Senior Unsecured Notes due 2022. Subordinated debt stands for intercompany loan with EEB.
Senior net debt / EBITDA Interest coverage (1)
6.53 5.57 5.35
4.87 4.17
3.54 3.41
2008 2009 2010 2011 2012 2013 20141Q
3.69 3.30 3.39
2.66 2.41
1.46 1.25
2008 2009 2010 2011 2012 2013 20141Q
2.02 2.00 2.06 2.54
4.03
5.93 6.15
2008 2009 2010 2011 2012 2013 20141Q
Senior Debt; 756;
61% Hedges M2M; 107;
9%
Sub Debt; 370; 30%
15
4. Questions and answers
16
4. Questions and answers
Conference Dial-In Numbers: Conference ID 42428398
Participant Toll-Free Dial-In Number: +1 (844) 825-0510
Participant International Dial-In Number: +1 (315) 625-6879
Participant ITFS Dial-In Numbers:
Chile: 12300206168
Colombia: 018005180165
Peru: 080052957
United Kingdom: 08000288438
17
Investor Relations
For more information about TGI contact our Investor Relations team:
http://www.tgi.com.co
http://www.grupoenergiadebogota.com.co
Santiago Pardo de la Concha
CFO
+57 (1) 3138400 - ext 2320
Fabian Sánchez Aldana
Investor Relations Advisor - GEB
+57 (1) 3268000 – ext1827
Antonio Angarita
Investor Relations Officer - GEB
+57 (1) 3268000 - ext 1546
Sergio Andrés Hernández Acosta
Finance Manager
+57 (1) 3138400 - ext 2450
18
Appendix 1 – Economic Industry and Regulatory Environment
19
Source: Banco de la República, DNP, MINHACIENDA., Bloomberg
5-year CDS Foreign currency reserves
Real GDP growth and inflation Foreign direct investment
(US$ in billions) (% growth)
(%) (US$ in billions)
Stable and growing Colombian economy with sound
investment environment Despite the recent global economic slowdown, Colombia has experienced positive economic growth and an increase in industrial activity, supported by a steady flow of investment
2 3 2 2 3
10
7
9 11
7 7
13
16 17
3
-
3.00
6.00
9.00
12.00
15.00
18.00
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20141Q
9 10 11 11 14 15 15
21 24 25
28
32
37
44 44
00%
05%
10%
15%
20%
25%
30%
35%
40%
45%
0
5
10
15
20
25
30
35
40
45
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
International reservesDebt as % of GDP
0
100
200
300
400
500
600
5% 5%
7% 7%
4%
2%
4%
7%
4% 4% 4% 5.5% 4.9%
4.5%
5.7%
7.7%
2.0%
3.2% 3.7%
2.4% 1.9%
3.3%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014(e)-
Real GDP growth
Inflation
20 Source: UPME, ANH, Concentra and 1994 & 2013 BP Statistical Review of World Energy 1 Mining and Energy Planning Unit. Reserves as 2012. 2 National Hydrocarbons Agency. Reserves as 2012.
Natural Gas is Replacing More Expensive and Less Environmentally-Friendly Fuel Sources
Growing Demand of Natural Gas Significant Availability of Natural Gas
Reserves mostly located
in the north and east
regions of the country
Key fields (Ballena,
Chuchupa, Cusiana and
Cupiagua) concentrate
virtually all of the natural
gas production
Long distances between
production and main
consumption areas
Minimal gas storage
capacity across the
country
Total
Domestic
Demand
(mmcf/d)
Expected
2013A-2018E
Growth by
Sector
1994 Total Fuel
Consumption: 26.2 mtoe
2012 Total Fuel
Consumption: 36.6 mtoe
20
Natural Gas in Colombia: Increasing Demand and Vast Reserves
Bucaramanga
Bogotá
Cali
Medellín
2.99 tcf
0.02 tcf
2.11 tcf
Eastern
Producers:
Ecopetrol
Equion
Upper Magdalena Valley
Lower and Middle
Magdalena Valley
Northern
Producers:
Chevron
Ecopetrol References
Natural Gas Reserves
Main Oil & Gas Basins
City
1.89 tcf
Llanos
Orientales
Catatumbo
Guajira
Sinu
Tumaco
Choco
Valle Superior
Del Magdalena
Cordillera
Oriental
Valle Inferior
Del
Magdalena
Valle Medio
Del
Magdalena
11.7
7.0
0.4 0.3 0.1
Reserves perUPME¹
Reserves perANH²
2012 Production 2012 Demand 2012 Exports
tcf
Prospective Non-Conventional Prospective Conventional
Probable + Possible Proved
Oil34.7%
Hydroelectric29.5%
Natural Gas
24.3%
Coal10.9%
Renewables0.5%
Oil44.2%
Hydroelectric27.7%
Natural Gas
14.3%
Coal13.6%
Renewables0.3%
(0.0)%
0.8% 1.9%
17.0%
6.3%
13.2%
Petro-chemical
Industrial Residential PowerGeneration
NGV Refinery
637 695 731 723
810 860 892 905
1049 1083
1270
2005 2006 2007 2008 2009 2010 2011 2012 2013 2016E
2018E
CAGR: 2005-2013: 6,4%
CAGR: 2013-2018: 3,9%
21
Regulatory framework established to attract private sector investment
Law 142 (1994) establishes system of open entry to the natural gas transportation sector − No term limitation for the provision
of the service − Assets used in the provision of the
service are not owned by the state but by the company providing such service
CREG required by law to seek input from market participants
CREG is an independent regulatory body that controls natural gas regulation − Sets tariffs, promotes competition
and monitors quality of service
Tariff calculation based on the principle of financial feasibility and economic efficiency
Tariffs are set in order to allow the service provider to: − Recover operational costs and
investments − Obtain a return on investment
comparable to what an efficient company would obtain in a sector of similar risk
Cost recovery, attractive regulated return on investment and protection against inflation
Transporters are given full recovery of operating and maintenance expenses − Adjusted by Colombian Price
Index (CPI) Dollar indexation of investment
remuneration tariff Different rates of return applied
when determining fixed and variable charges
Constructive and stable regulatory framework
Source: Company information.
The Colombian gas transportation regulatory framework was established to attract private sector investment and provide adequate cost recovery and regulated returns
22
CREG RESOLUTION 021 OF 2014
Establishes regulations for natural gas market.
Definition of contractual arrangements in the primary market.
Definition of marketing mechanisms.
Defines secondary market with its respective regulations.
The following reliability aspects in the Decree have not yet been defined by the Regulatory Commission:
The CREG will establish the reliability criteria which shall secure the demand coverage and must set the rules for the evaluation and remuneration of these investment projects.
CREG RESOLUTION 047 OF 2014
Recent Regulatory Decisions
CREG RESOLUTION 089 OF 2013
CREG RESOLUTION 088 OF 2013
Release of the natural gas price set in the SNT Entry Point.
Through this resolution, gas price is released for the two main gas producing fields in the country, Ballena y Cusiana – Cupiagua. DECREE 2100 OF 2011
Establishes the principles that will be considered in the next natural gas transportation tariff update process.
The resolution mentions the principles that will be kept from the actual tariff methodology.
Remuneration based on contracts. Price cap methodology.
It also mention aspects that must be evaluated.
System expansion based on government signals.
Tariff calculation based on historical demand and not projected.
Determines the opening of the selection process for the Market Operator for the natural gas market in Colombia.
The process is expected to end by December 2014 – January 2015
Appendix 2 – Shareholders and
Management team
24 Source: Company information.
Ricardo Roa
Barragán CEO
20 Mechanical Engineering degree from the Universidad Nacional and post-graduate degree in
Engineering management systems from the Pontificia Universidad Javeriana.
Over 23 years of experience in the private and public sectors, including experience as
Energy Business Manager of organizacion Ardila Lulle, CEO of Poliobras S.A. ESP,
Marketing and Trading Manager and CEO of Electrificadora de Santander S.A. ESP (ESSA),
Energy and Gas Sectorial Secretary of The National Association of Utilities (ANDESCO) and
Advisor of the Colombia’s Superintendency of Domestic Public Services (Superintendencia
de Servicios Públicos Domiciliarios).
CEO of TGI since March 2012
Santiago Pardo Vice-President of
Finance
20 Degree in Economics from Universidad de los Andes and MBA from Cornell University
Over 21 years of experience in international finance and banking, former Managing Director
(Infrastructure and Energy) of Abacus Capital, Project Finance Director of Reficar and
Director of Infrastructure and Energy Finance for Citi
Vice-President of Finance since August 2011
Officer Key highlights Years of relevant experience
Experienced management team with solid track record in the sector
TGI is led by an experienced and seasoned management team
Carlos A. Torres
Corporate Planning
and Business
Development (Senior
Manager)
20 Lawyer (Universidad de Los Andes); Business Law (Universidad de Los Andes)
Over 20 years of experience in the Oil and Gas Industry
Former General Counsel at Petrobras Colombia
David Riaño Vice-President of
Growth and
Development (in
charge)
18 Electrical Engineer (Universidad de La Salle); Masters in Industrial Engineering (Universidad
de Los Andes); Masters in Economics (Pontificia Universidad Javeriana)
Over 18 years of experience in technical and economic regulation of gas and electricity
sector (CREG, Colombian Electricity Generators Association, Superintendency of Energy
and Gas, Superintendency of Public Services)
25
25
Jorge Gonzalez
COO
20 Civil Engineer (Universidad de Los Andes); Specialization Studies in Finance (Universidad
de Los Andes)
Over 17 years of experience in the natural gas industry
Former NGV Manager at Gas Natural S.A.E.S.P.
Carlos Toledo Vice-President for
Administration and
services
7 Degree in Law from the Universidad UNICIENCIA.
Degree in Electrical Engineering and specialization in telecommunications from Universidad
Industrial de Santander Master’s degree in Applied Political Studies from FIIAPP.
Master in Social Cohesion from Universidad de Mendez Pelayo, España.
Over 7 years serving the public and private sectors, including experience as IT manager of
the Bucaramanga´s Health institute , CEO of TELNETCO, and as advisor of the Santander
Department Government .
Vice-President for Administration and Public Relations since May 2012.
Experienced management team with solid track record in the sector
Mauricio Montoya
Corporate Planning
and Business
Development (Senior
Manager)
20 Civil Engineer (Universidad de Los Andes); Masters in Science in Construction Engineering
and Project Management (University of Texas at Austin) and Specialization Studies in
Finance and International Business (Universidad de La Sabana)
Over 12 years of experience, including 9 years in the natural gas transportation sector
working for Ecogas and TGI
26
(68.1% of TGI)
Leading energy holding company with interests across the electricity and natural gas sectors in Colombia, Peru and Guatemala
Founded in 1896 and controlled by the City of Bogota (with a 76.28% ownership stake)
Participates in the electricity and natural gas sectors through controlling and non-controlling investments
− Controlling investments in electricity transmission (Energia de Bogota and Trecsa), electricity distribution (EEC), natural gas transportation (TGI) and natural gas distribution (Contugas and Calidda)
− Non-controlling investments in electricity transmission (REP Peru, CTM Peru and Isa), electricity generation (Emgesa and Isagen), electricity districution (Codensa and Electrificadora del Meta), natural gas transportation (Promigas) and natural gas distribution (gasNatural Fenosa)
US$ 957 Million EBITDA LTM (1Q 2014) and US$ 8.8 bn in assets (as of march 2014)
The Rohatyn Group (TRG) is an investment manager focused
exclusively on emerging markets, with product offerings across three
primary business lines: private investments, hedge funds and fixed
income.
• Founded in 2002
• Currently has more than $7 billion in total assets under management
• Operates through 16 offices worldwide, with over 120 employees
• Presence in New York, Singapore, Mumbai, New Delhi, Hong Kong,
London, Buenos Aires, Lima, Mexico City, Sao Paulo, Montevideo,
Kuala Lumpur, Jakarta, Bangkok, Shanghai and Madrid
• Contributes know-how and financial discipline to TGI
(31.92% of TGI)
Expertise, financial strength and support of shareholders
68.1%
25%
15.6%
Electricity
Transmission
40% 40%
1.8%
98.4%
Generation
51.5% *
2.5%
Distribution
51.5% *
16.2%
51%
82%
Distribution Transportation
Natural Gas
75%
60%
100%
*EEB is not the controlling
shareholder and is a party to
signed shareholder
agreements.
40%
25%
68.1%
TGI as part of the EEB Group:
100%
100%
27
Appendix 3 – EEB Overview
28
EEB Strategy and Overview Strategy
Transportation and distribution
of energy
Key facts
More than 100 years’ experience in the sector; founded in 1896.
Regional leader in the energy sector; major player in the entire electricity
and natural gas value chains (except E&P); operations in Colombia,
Peru, and Guatemala.
Largest stockholder is the District of Bogota - 76.2%.
Stock listed on the Colombia stock exchange; EEB adheres to global
standards of corporate governance.
The EEB Group is one of the largest issuers of equity and debt in
Colombia
USD Million 1Q 2014
Operating revenue 275.9
Operating profit 110.3
EBITDA LTM 957.1
Net Income 434.2
Consolidated - Covenants 1Q 2014
Leverage Ratio 1.39
Interest Coverage Ratio 10.96
68.1%
25%
15.6%
Electricity
Transmission
40% 40%
1.8%
98.4%
Generation
51.5% *
2.5%
Distribution
51.5% *
16.2%
51%
82%
Distribution Transportation
Natural Gas
75%
60%
100%
*EEB is not the controlling
shareholder and is a party to
signed shareholder
agreements.
40%
25%
100%
100%
Focus on
natural
monopolies
Ample access
to capital
markets
Ambitious
projects in
execution
Growth in
controlled
subsidiaries
Sound
regulatory
framework
Experienced
management
and partners
29
Disclaimer
This presentation contains statements that are forward-looking within the meaning of Section 27A of the Securities Act of 1933, as amended
(the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements are only
predictions and are not guarantees of future performance. All statements other than statements of historical fact are, or may be deemed to
be, forward-looking statements. Forward-looking statements include, among other things, statements concerning the potential exposure of
TGI, its consolidated subsidiaries and related companies to market risks and statements expressing management’ expectations, beliefs,
estimates, forecasts, projections and assumptions. These forward-looking statements are identified by their use of terms and phrases such as
“anticipate”, “believe”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “objectives”, ”outlook”, “probably”, “project”, “will”, “seek”, “target”,
“risks”, “goals”, “should” and similar terms and phrases. Forward-looking statements are statements of future expectations that are based on
management’s current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual
results, performance or events to differ materially from those expressed or implied in these statements. Although TGI believes that the
expectations and assumptions reflected in such forward-looking statements are reasonable based on information currently available to TGI’s
management, such expectations and assumptions are necessarily speculative and subject to substantial uncertainty, and as a result, TGI
cannot guarantee future results or events. TGI does not undertake any obligation to update any forward-looking statement or other
information to reflect events or circumstances occurring after the date of this presentation or to reflect the occurrence of unanticipated events.
30