Organización Terpel cliente: Servicio: Traducción Duración:

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1 Cliente: Organización Terpel Servicio: Traducción Duración: 51 minutos N. Páginas 11 Descripción material enviado por el Audio en formato MP3 cliente: Calidad material: Buena Nombre archivo final: Trd_Audio_ _Resultados_2do_Trimestre_2017_Terpel Operator: Good afternoon, my name is Hilda and I will be the conference operator today. I would like to welcome you to the conference to present Organización Terpel s second quarter results. For your information, all the lines will be silenced until the end of the presentation. At the end of the presentation, there will be a space for questions and answers. Instructions will be given in due course. Let us remind all attendees that this is a call for investors and analysts only, so if you are a member of the media please contact Terpel directly and do not take part of this call. Thank you very much. We would like to invite participants to view the presentation at Investor Relations section. If you cannot see the presentation, please contact the company after the conference ( ) or guillermo.achury@terpel.com and the presentation will be sent to you. From this moment on, Mrs. Sylvia Escobar, Organización Terpel s President, and Mr. Oscar Bravo, Vice President of Finance, will be in charge of the conference. I give you the floor. Sylvia Escobar: Well, welcome everyone. I can see that today there are more people than we normally have on the line and I am very glad. People from abroad and outside of Bogota, so welcome everyone. As our coordinator said, together with Oscar Bravo, our Vice President of Finance, we will explain the firm s accumulated data and performance in this second quarter of the year. Some of our highlights and a short summary to start with. From the beginning I can tell you that Organización Terpel had very good results in the first half of the year. Our net profit grew 19.8% in this period. Later we will see the causes that led to this good result and this net income growth.

2 As a second outstanding fact, it is important to mention that the wholesale margin increased in comparison to that of the previous year, based on the government resolution establishing that the wholesale margin should increase along with inflation. This is something that helped us given the accumulated inflation, so we had a greater wholesale margin, which in a certain way helps us to compensate the wholesale margin decrease experienced at the beginning of the year, as a result of the tax reform and the structural change in terms of how we register the VATs of the products we bought. The third aspect is that the company continues to grow in all countries, especially in Colombia and Panama. Later we will see specifically how we are growing and in which items this semester. Finally, on the stock market, Terpel's stock appreciated by 6.2% at the end of this period with a price of COP 12,000 as of June, which means a market capitalization of COP 2.2 billion. Now, we will start with our usual format. Item number 1 refers to our coverage at the regional level. As you can see, our presence in the different sectors and countries has not changed. We continue to be a very relevant player in all the markets where we are present, particularly Colombia and Panama, which are also the countries that currently contribute the most to our Ebitda, the ones that contribute the most to our market share and the evolution of our competitive strategy. Compared to the same period last year, the most important variations in terms of our network presence and market share, there are 34 new service stations in Colombia in our network, 14 of which are our own. We have 12 convenience stores. Out of these, 10 have the 50-square meter format, which is usually in cities, and we have 37 convenience stores across the country. This is very important for us, because with 37 stores, we can say that there is a network effect. People in different cities already identify the "altoque" brand and that has made store results improve, because people already know the brand. In terms of market share, it has decreased from 41 to 38% when combining service stations and industry, which translates into gasoline and diesel. Later, when we talk about Colombia, we will explain this, but right now I can tell you that this drop in participation is due to gasoline instead of industry, given the increase of smuggling in the country in this first semester. Also, there is good news about the NGV (natural gas for vehicles) market. For some time now, we have been saying that our NGV participation has been falling. However, this year we have accomplished our goal of not being below 46% and we have in fact moved from 43% from last year to 46%, which is what we were having historically. Also, in the aviation market, we have a decline in participation from 83% to 69%. Our aviation management area is going over an inventory issue, because figures show that this has to do with sales of Ecopetrol to new wholesalers but not necessarily from wholesalers to final customers. Our sales to airports have not fallen, so we believe that it is only an inventory effect and that we continue to maintain the same participation in terms of final customers4.

3 Finally, our regional summary continues with Panama. In Panama, we have eight new service stations and three convenience stores, for a total of 17 of these. The second aspect is our consolidated results at the regional level. The first thing we see is sales volume. Sales are 0.45% lower than last year. By country, this fall is mainly caused by Colombia and Panama again, which clearly set the pattern for Organización Terpel. The other countries increased their volume sales. Remember that Colombia and Panama account for 79% and 10% of volume and 82% and 10% of Ebitda, respectively. This quarter there was a decrease of 5.4 million gallons in Colombia and 6.5 million gallons in Panama. We will explain these variations later, but as I said, basically in Colombia they are related to smuggling and in Panama they have to do with generation and the metro construction. Moreover, volume in other countries, as we saw, grew 9.5% mainly due to higher average sales volume per station, which is what we call throughput per service station. Normally this is the most important indicator in terms of business sustainability, because when we don t open new stations what keeps our growth and our market participation is selling on average more in the same facility. In the consolidated Ebitda, which is on the table below, there is a 0.65% decrease corresponding to COP 2,000 million less, out of which COP 3,000 are generated in Colombia and around COP 1 billion in Panama. Ebitda of the other countries shows a 6.6% or growth, excluding the 6.6 revaluation effect of the peso-dollar exchange rate that we see for example in the case of Panama. We will now talk about Colombia in detail. I will not tell you much about the photos on the page since you already know them. But if you pay some attention, the bottom right picture shows one of our pumping stations exclusively for motorcycles. They are generating a 10% growth in the service stations where they are located and we believe without a doubt that this innovation will generate some very relevant revenues in the future. Let s move on to our results in Colombia. As we saw there s a 1% decrease, which is reflected in 10 million gallons less. As I said, liquid stations volume, represents 67.5% of the total. Despite having new stations, it decreased by 1.6 mainly due to a smaller volume in the border area. I had already mentioned that the Venezuelan issue is increasingly difficult. The border is not in Cucuta anymore, since many gaps have been opened along that border. Police controls are not working at all, because given the Venezuelan social problems some people from that country are crossing the border. They carry some gasoline with them, they sell it in Colombia and with the resources that they obtain in Colombian pesos they make their purchases in the border area. On the other hand, given the tax reform, which introduced the carbon tax, gasoline prices in Colombia increased. Therefore, contraband is larger. Given the fact that Terpel is the sales leader across the border, it is the most affected supplier in the market with this increase.

4 On the other hand, NGV volume, which corresponds to 5% of the total, decreased by 6.14%. A decrease is never positive, but it was lower than that of the market given competitiveness in the last six months in all the Colombian regions. Notwithstanding this NGV volume fall in both Terpel and the market, we can say that the conditions are better given that the recent gasoline prices increases this semester have contributed to bridging the gap between NGV and gasoline and that differential has grown again. We believe that the coming months are going to have better results in the natural gas for vehicles business. I want to emphasize that contraband is the cause of our biggest loss of volume in gasoline. On the other hand we have industry, which is 8.3% of the total. In this segment there is a -5.4% volume variation, mainly due to the specific sales to generators last year. As you may remember, by this month last year the country experienced El Niño phenomenon and all its related problems, which made the largest energy generators buy diesel from wholesalers. We sold a high volume, 7.1 million gallons, to the Termocandelaria generator and that is why when comparing these two years we see that fall. On the other hand, a mining client called Prodeco is now serviced by Ecopetrol. In this case, it does not have to do with a regulation issue. We did all the paperwork required to compete with Ecopetrol and we even considered importing some fuel, but Ecopetrol gave them better prices and therefore we lost that mining client. To summarize, the loss of this mining customer plus the volume that we have not sold this year in regards to power generation made our industry volume fall by 5%. Concerning aviation, which represents 18% of our total volume, there is a 3.2% growth. People in Colombia are traveling more often and there is greater flight frequency. Terpel s network is chosen by airlines over all competitors given its qualities. Therefore, Terpel is the undisputed leader of this market. However, the company has also been affected somewhat by the tax reform and its new carbon tax, which I mentioned before when talking about the border. Regarding gross profit, the 2.7% growth corresponds to COP 13,000 million. It has to do with the wholesale margin increase that I mentioned before, which is clearly reflected on this number. This figure changes each June according to inflation. In June 2017 the regulated margin went up from COP 357 per gallon to COP 375 per gallon. This obviously means better revenues for us, but on the other hand the NGV margin affects us, as it has diminished despite our efforts to strengthen competitiveness and regain our 46% participation announced a while ago. As for inventory variation, during this period a COP 1.5 billion profit was generated. This clearly compensates the loss of COP 400 million experienced in the previous period. On the next page you can see our operational results in Colombia. Our Ebitda has decreased by 1%. It incorporates, in addition to the gross profit mentioned above, a 6.8% operating expenses increase. It is caused by the growth of our service stations and convenience stores

5 network, besides higher than anticipated inflation. We expect inflation to subside and to reach 4% by the end of the year, taking into consideration last year s 9% inflation. Finally, there is a decrease in financial expenses, due specifically to a lower consumer price index in the last twelve months given the quarterly settlement of coupons of corporate bonds issued by Terpel in 2013 and We also have to mention the benefits of a lower equity tax in It corresponds to COP 3 billion versus COP 7 billion last year. Let us continue with some information about Panama. As you can see on page nine, our infrastructure there is almost the same we have in Colombia, with some modifications related to the Panamanian culture. However, we are offering the same value offer that has generated good results in Colombia. Just as in Colombia, liquid service stations in Panama are our most important business both in terms of volume and profit. At the end of the quarter, the volume growth of liquid stations was 6.12% because of the new service stations. We have eight new service stations over the last twelve months. Also, it is caused by improved average sales volumes. We call this the throughput and it has increased by 1%. There was some impact on volume per station given the metro construction, which has prevented a greater growth. We have been a little below the anticipated volume because many of the stations along the metro construction have reduced their volume substantially. Such construction work has taken more time than expected, but apart from this issue, service stations continue to grow and improve their throughputs. As for the industry business, we have talked a lot about the influence of power generators on our business results in Panama. Our total business decreased in volume by 32% due precisely to the cyclical nature of sales to electricity generators. At the moment, we are selling 10 million gallons less than last year. The total volume in Panama, for example, without considering these generation sales, would have grown by 4.2%, and when including them, we can see a 5.1% decrease. It is difficult to predict the weather and because of that we see these differences in Panama in the industry sector. Regarding gross profit, we can see some efficiency in our fuel negotiations with the supplier and this has helped us, but on the other hand, some price variations have generated inventory losses of COP 3,100 million in the year. This number is lower than the COP 3,800 of last year, but it also has a negative effect on the results of our subsidiary. As for the operating results in Panama, there was an Ebitda decrease of 2.3% that represents COP 1 billion less, but if we isolate the effect of the exchange rate revaluation, that decrease becomes a 4.5% growth. It means that there is a variation of the Market Representative Rate with an important effect when we analyze the results in pesos. Without this offset effect, the Ebitda growth in dollars was 16.6% higher than that of volume.

6 Finally, if we look at net income, the financial cost increased by 1 billion, due to the rise of debt in this country by USD 68 million in June 2016 to 74 million as of June This financial expense is the result of our investments in the stations network expansion I already mentioned. After considering each country, we will look at the consolidated balance sheet and the breakdown of assets and liabilities. The company maintains its equity position with COP 1.6 billion, assets representing COP 4.1 and liabilities COP 2.5 billion. Let us then see the consolidated financial debt, which includes all countries. It ended the period at COP 1.6 billion, which means COP million more than the same quarter last year. That is COP million in Colombia and USD 17 million in Panama. There is an effect of COP million given the devaluation of the Colombian peso against the dollar in the closing exchange rate specifically in countries other than Colombia, where indebtedness is denominated in foreign currency. The company s debt, as you can see in the graphs, is mainly in Colombia with a debt level of COP 1.3 billion. Debt composition by rates, on the other hand, is diversified. 56% is tied to CPI, to inflation, and 27% is fixed rate. The debt profile, which is based on this debt, leads to healthy indicators, around 2.5 times Ebitda and an Ebitda to interest coverage of around 5.8 times. Concerning debt payment profile this quarter, maturities are mainly long term and relate to payments of the principal of the bonds issued in 2013 and 2015 up to 2031, as you can see in the profile. On the other hand, the last item of the report is the consolidated capex, which continues to be distributed in the same way that we have been reporting over the years, increasingly in liquids and less in gas in the supply plants and in service stations. It s an important capex for our network of convenience stores. The last thing I want to mention is that these capex investments in these segments are taking place especially in Colombia and Panama, although we have also started to make some investments in stores in Peru. However, Colombia and Panama, which receive most of this capex, are the countries with the largest contribution in terms of consolidated Ebitda. Our total capex is COP 123,287 million at the end of this period. That was it concerning our financial information. I would like to open the session to questions or comments. Operator: Thank you. At this moment, we will start the question and answer session. If you have a question, please press * and then 1 on your phone. If you are using a speaker phone, you will have to lift the handset before pressing the keys. Again, if you have any questions, press * and then 1 on your phone. We have a question from María Antonia Garza, from Bancolombia. Come in please.

7 María Antonia Garza: Yes, good afternoon. Thank you very much for the presentation. My question is related to the news we heard recently regarding the sale of the subsidiary in Mexico. I would like to know how that process is going and how you plan to use those resources, because the results in Mexico seem to be very good. What explains this sale? How do you plan to allocate these resources? Thank you very much. Sylvia Escobar: Thank you María Antonia for your question. We were expecting that question. The situation in Mexico is simply a possible sale. We are evaluating some offers that have been made. While the results in Mexico are very good, as you say, we must remember that this is a very small investment in comparison to what Terpel normally does. The future of that business would involve very large investments. We would like that business to be as large and as significant in the fuel market as it is in Colombia or Panama or as it may be in the future in Peru or Ecuador, but it is, as I was saying, just a possibility. Oscar can explain a bit more. If that transaction actually took place, the resources that would come from it would very surely would be used for investments in the rest of the countries. Oscar Bravo: Well, I think Sylvia has said it all. It is a subsidiary in a country whose market is extremely large. As a result of the energy reform, where a significant gap was opened in the liquid fuels market, we analyzed the opportunities to invest there and to be relevant in terms of market share and value offer. We are talking about a very large amount of money to invest. Now, because of our Exxon Mobil purchase intention, we clearly do not have the capability for undertaking both projects and we have decided that our focus is mainly Colombia, Panama and Peru. It is a strategic decision that implies leaving a market where we are not really relevant and we will focus on other countries, as Sylvia said. Maria Antonia Garza: Alright. Thank you very much. Operator: Again, if there is any question, press * and then 1 on your phone. The next question comes from Sebastian Ramirez, de Toesca. Sebastian Ramirez: Good afternoon. Thank you very much for the thorough presentation. I would like you to talk a bit more about the service stations. First, as you explained, the border effect was significant during the quarter, something that we had already seen during the first quarter. What do you expect in case a solution to the problem in Venezuela is found? My impression is that even with a change of government and the political situation there, the relative price of fuels will remain as abnormal as we have observed so far, so rather than a decrease in the future, I think it will happen in the medium to long term. If so, what is your volume exposure in the border region? Have you quantified the effect this could have? Sylvia Escobar: Hello, Sebastian. Thank you. The truth is that we have experienced that problem on the border for over 55 years. Some years we have excellent results that offset the bad results from other years. Some other years our results are very bad. Usually our presence

8 on the border has allowed us to be there at the times when opportunities have arisen and that is important. Unlike what you say, I believe that this Venezuelan issue is unbearable. For many years, we have said the same, but I do believe that at the moment it just cannot go on. The new government should recover the resources that are getting lost by giving away that gasoline, because that is what they are doing. A gasoline increase in Venezuela can help that country. Also, it must be said that at this moment there is lack of control from border controls both in Venezuela and Colombia, given all the social problems going on. How much is the market in Venezuela? We have never been able to measure that very well, but I would say it is between 10 and 15 million gallons, an amount that goes up and down when the border is closed or opened. I would expect this business to improve when there is a better government in Venezuela, once they establish that they cannot give away their resources like that, because that country is going to need a lot of resources to be rebuilt. I must also say that I do not expect our sales there to achieve the levels we have in Colombia or the levels of a product that reflects the international cost of oil, at least the gap a bit that such country has with Colombia should be closed. As I said, Terpel as a company has experienced this phenomenon since its beginnings. We have ups and downs and unfortunately the situation right now is extremely difficult. Sebastián Ramírez: You were talking about your throughputs in Panama and I am trying to understand the difference between the throughputs of own and affiliate stations in Colombia. Also, if part of the inflation seen last year was reflected to a greater extent in the regulated margin. Has this also affected costs? Administrative expenses are growing at a fast pace. Can you please refer to the combination of volume (stable or falling) with the throughput, or volume decreasing with expenses rising? What should we expect for the second half of the year in terms of gross margin in Colombia? Sylvia Escobar: Okay. Oscar Bravo: Sebastian, this is Oscar Bravo. When talking about throughputs it is very important to differentiate between own and affiliate stations. We make a big effort to measure, as they do in retail, same bases, which means being able to measure what is happening, as they say in retail, in same-store sales, being able to measure stations with enough maturity. What's going on here? When you look at Colombia's throughput of our own stations, which is roughly 10% of the network, we are talking about a throughput that is almost 2.5 times that of the affiliate network, which is 90%. When you look at that throughput from the point of view of growth or behavior and looks like one same basis, I mean, the same stations, not including new ones, we are talking about a throughput that is growing today, as of June, by 2%. I mean own stations.

9 What's going on? Sylvia mentioned it. When you look at the consolidated throughput, the throughput of affiliates dropped significantly. It is actually falling by 6%, derived from that relevant presence that we have in border areas and it s also product of almost 20 million gallons involved in smuggling. In terms of expenses, there are several important aspects. From the point of view of variable expenses, they are related to openings of service stations and stores, which have been increasing as the network expand, as Sylvia mentioned. Store openings require easily two years to get a breakeven, so each store opening creates increasing expenses that are not necessarily material, given the size of the network of stores, but still they add up. In addition, some of our expenses are indexed to inflation, which was around 5.7 last year, then we have some maintenance expenses or leases and personnel expenses, which still have to be covered regardless of the volumes we reach. Volume has decreased in the station business, given the volume of the affiliate stations network derived from the situation of Venezuela. What do we expect? We expect, in terms of expenses, to continue working on the same line as several years ago, looking for efficiencies. If we analyze what has happened in terms of volume and then gross profit, the latter has somehow performed better than the former given a number of logistical efficiencies and others that improve that margin gross per gallon. That's where we're making a very big effort, because there are significant logistics costs and I would say that is a continuous area of focus of our operations area. That's our focus today because that is what we control, because unfortunately the volume in Venezuela is an exogenous variable that we have no control over. Sylvia Escobar: There is another issue related to throughputs this year and although it is not much involved with participation, it does affect throughputs. The economy was very affected in the first months of the year. I think you've read in all economic reports on Colombia that most companies have had not very good results and the first sector where that is reflected is on the fuel sector. People demand less fuel if their machines move less and then transportation moves less. Although third parties throughput is going down, it is important that it continues growing. Sebastián Ramírez: Very clear. My last question has to do with the deal connection. Can you tell us about its progress? That would be very useful. Sylvia Escobar: Well, the truth is that point depends entirely on the Superintendency of Industry and Commerce. As you know, they take some time to study and analyze the transaction. We obviously hope things go well, but until they do not pronounce themselves, we cannot tell you anything new. I hope that everything goes well. I do not know if Oscar would like to add something, but in principle we have no problem. We have provided along with Exxon Mobil the information they have required and we see no problem so far. Oscar Bravo: Just to complement your answer, the deadlines of the Superintendency are about to be met, so we should be hearing from them within a few days to a week. Their decision has short appeal terms, so to speak, for competitors who were part of the

10 process. They will be given another month to review and then the Superintendency will reach a final conclusion. I would say in October, which was the original time since the beginning, because we can see a potential approval, types of conditions, etc. Sebastián Ramírez: Great, very clear, thank you very much. Oscar Bravo: My pleasure. Sylvia Escobar: Thank you. Operator: We do not have any other questions. I give the floor to Mrs. Escobar for final comments. Sylvia Escobar: Well, I think that with Sebastian and María Antonia s questions we covered pretty much everything. Thank you very much for attending this conference. I hope to see you for the third quarter of this year and I hope that the results are as good as those we reported today. Thank you everyone. Operator: Thank you, ladies and gentlemen. We appreciate your presence and attention. Any additional requirements can be sent via to guillermo.achury@terpel.com. This concludes today s conference. Thank you. You can disconnect.