Transportadora de Gas del Sur Q1 2024 Earnings Call Transcript

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Provided by Quartr
May 7, 2024

There are 2 speakers on the call.

Operator

Good morning, everyone. I'm Carlos Elmagro, Head of Investor Relations. I would like to welcome everyone to TCS Q1 2024 Results Video Conference. TGS issued its earnings report yesterday. We would like to inform you that this event is being recorded, and all participants will be in listen only mode during the presentation.

Operator

After the company's remarks, we will host a Q and A session. All questions will need to be submitted in writing through the Q and A chat box. Before we begin the call today, I would like to remind you that forward looking statements made during today's videoconference do not account for future economic circumstances, industry conditions and company performance and financial results. These statements are subject to a number of risks and uncertainties. All figures included herein were prepared in accordance with International Financial Reporting Standards, IFRS, and are stated in constant Argentine pesos as of March 31, 2024, unless otherwise noted.

Operator

Joining us today from TCS in Buenos Aires is Alejandro Novaso, Chief Financial Officer. And now I will turn the video conference over to Mr. Vasu. Alejandro, please begin.

Speaker 1

Thank you, Carlos. Good morning, everyone, and thank you for joining us today to discuss the 2024's Q1 earnings and highlights for TGS. To begin the call today, I would like to share with you the most recent news about the company. As per our natural gas transportation business, most of you know that we have a tariff transitory adjustment agreement with Energas, which established a 675% tariff increase effective as of April 3, 2024, together with a monthly adjustment effective starting May, which is tied to salary and inflation indexes evolution. However, the NRAS has not authorized the tariff adjustment applicable to May yet.

Speaker 1

Under this agreement, TCS committed to implement the maintenance CapEx amounting to ARS 27,700,000,000 in 2024. In addition, the integral tariff revision will also start soon and should be completed before the end of 2024. This will allow the Energas to define the new tariffs that will become effective in 2025. In terms of our missing business in Vaca Muerta, we continued working on the additional two conditioning capacity expansions, which will increase the total capacity to 28,000,000 of kiwis per day by the 2nd semester of 2024, following a CapEx deployment of $320,000,000 It is worth mentioning that these expansions imply the installation of 2 new modules, which can be converted to a stacked LPG. This is well aligned with our project, which is currently under evaluation to start providing natural gas processing services for the shale gas producers in Tertachem.

Speaker 1

Next, in terms of the natural gas pipeline expansions, which are needed to increase shale gas production in Maca Muerta and therefore support the growth of our midstream business, it is expected this year to increase the transportation capacity of the first tranche of President Ernesto Archizant Pipeline and 10,000,000 of pivots per day, almost doubling its current capacity to 21,000,000 of pivots per day through the commissioning of 2 compressor plants. Also, by the end 2024, it is expected the North pipeline reversal to be operative for the Argentine Northwest natural gas supply, considering the Bolivian natural gas supply decline. Finally, transportation capacity is also expected to increase by 5,000,000 activities per day at the new Mercedes Cardales pipeline, as a compressor plant will be commissioned in the coming months that will increase its transportation capacity to 15,000,000 of kilometers per day. This 80 kilometer long pipeline owned by Energas and operated by us connected our system with TCNs, mainly allowing for natural gas applied to power plants located in the north of Buenos Aires and south of the Santa Fe dwellings. All of these pipeline expansions are being carried out by EnerSys, which is the energy state owned company.

Speaker 1

Turning now to Slide 4. I will briefly address some of the highlights for the Q1 results of 2024. Please keep in mind that all figures presented for this quarter and comparisons made with the previous quarter are expressed in constant pesos as of March 31, 2024, following the provisions established by IFRS for financial reporting in hyperinflationary economies. As seen in the slide, we reported the net income totaling $15,900,000,000 during the Q1 of 2024 compared to a net income of $20,000,000,000 reported in the Q3 of 2023. This increase in net income is derived partially from higher EBITDA of $11,300,000,000 where our non regulated business EBITDA rose by $31,200,000,000 which was partially offset by a decline in natural gas transportation EBITDAS of BRL 19,900,000,000 However, the main driver behind the net income increases stems from the positive variations on the financial results of BRL 34,200,000,000, which was mainly generated by a much lower foreign exchange loss due to a lower depreciation of the Argentine peso.

Speaker 1

Moving on to Slide 5. EBITDA for the natural gas and production business was negative at €7,100,000,000 in the Q1 of 2024. This large EBITDA deterioration is closely related with the limited 95% tariff increase, which came into effect at the end of April 2023 and compares on February with an early inflation rate of 2.88%. As seen in the slide, the inflation loss effect on revenues amounted to 25,000,000,000 compared to $8,000,000,000 resistor given the positive effect of the 2023 tariff increase. In addition, operating expenses increased by $4,500,000,000 while PP and E maintenance also rose by 859,000,000 dollars Finally, revenues grew by 847,000,000, led by additional transportation services provided during the Q1 of 2024.

Speaker 1

On Slide 6, you can see EBITDA from the Liquids business increased to $66,300,000,000 in the Q1 of 2024 compared to $48,800,000,000 reported in the same quarter of 2023. This 36 percent EBITDA increase is mostly explained by the annual average foreign exchange rate increase of approximately 333%, which was higher than the annual inflation rate of 2.88%. Considering that the EBITDA generation is mostly dollar denominated, this effect generated a $12,700,000,000 EBITDA increase. In addition, the average cost of natural gas dropped from 3 dollars per million of Etu to $2.2 per million of Etu, which made the variable cost reduce by $10,700,000,000 These two positive effects were partially compensated by a reduction of the ethane volume sold, dropping for 102,000 tons to 71,000 tons as a result of some operating problems of our client, PV Polisul, which caused a decrease in EBITDA of $7,500,000,000 Liquids export volumes sites were 5 1,000 tons higher than in the 2023 Q1 as well as domestic LPG volume sales increased slightly by around 3,000 tons, and both contributed to an increase in EBITDA of 1,500,000,000 Liquid sales prices varied slightly without generating significant mitigations in the liquids EBITDA. Turning to Slide 7.

Speaker 1

EBITDA from midstream and other services rose 91% to €28,900,000,000 compared to €15,100,000,000 Higher revenues were explained by the incremental volume of natural gas transported and conditioned in Vaca Muerta in the amount of €11,000,000,000 transported natural gas volume rose from an average of 15,000,000 of cumulatives per day in the Q1 of 2023 to 22,000,000 of cumulatives per day in the 2024 Q1. And the natural gas condition volume also increased from an average of $9,000,000 of cubic meters per day to $16,000,000 of cubic meters per day. In addition, during the Q1 of 2024, €1,600,000,000 revenues were generated by services provided to En Arcelor related to the O and M of the Nestor Kirchner and the Mercedes Cardenas pipeline as well as the construction of the compressor plant placed in Marseille. Furthermore, the monetary effect resulted in a gain of €4,500,000,000 given the higher increase of the foreign exchange rate when compared to the annual inflation. These effects were partially compensated by a higher operating expense of $3,800,000,000 On Slide 8, as seen, the financial results persisted a positive variation of DKK34.2 billion.

Speaker 1

This variation was mainly explained by a lower foreign exchange rate loss of DKK26.9 billion due to the fact that during the Q1 of 2024, the Argentine Central Bank decided to increase the U. S. Dollar exchange rate by 2% per month, 6% in the quarter compared to an 18% in the 2023 quarter. In addition, we have a higher financial asset income totaling $15,700,000,000 mostly resulting from a higher financial investment denominated in pesos. These effects were partially offset by a higher inflation exposure loss of $3,700,000,000 and higher interest expense of $3,600,000,000 Finally, turning to the cash flow on Slide 9.

Speaker 1

Our cash position in real terms decreased in the Q1 of 2024 by €194,000,000,000 to €478,000,000,000 The main reason is reflected in financial results and other bar, which are explained by 52% quarter inflation adjustment in our initial cash position as of December 31, 2023, compared to a 6% quarter increase of the foreign exchange rate considering that most of our cash position is dollar denominated. In terms of dollar, the cash position rose from $541,000,000 to $559,000,000 EBITDA generation during the Q1 amounted to $88,000,000,000 and was totally generated by the non regulated business as the transportation business EBITDA was negative by $7,000,000,000 as seen before. The CapEx for the period amounted to €59,000,000,000 In the quarter, we paid loan interest of €1,300,000,000 and we reduced our short term loans balance by €4,900,000,000 while the working capital increased by 43,000,000,000 euros The income tax advance payments totaled €2,000,000,000 As you can see, we maintain a comfortable level of cash position, which give us enough liquidity to continue investing in our business investment plan, mostly focused on baca morta and mistering business. This concludes our presentation. I will now turn it over to Carlos, who will open the floor for questions.

Speaker 1

Thank you.

Operator

Thank you, Alejandro. The floor is now open for questions. If you have questions, please send them through our Zoom chat. We will read and answer the questions in the order in which they are received. Please make sure to state your name and company so we can introduce you to the audience.

Operator

Should any participant need assistance, send us a message in the chat box.

Speaker 1

On. And on on. For

Operator

The first question is from Florencia Macholga. Hello, Florencia, how are you? Florencia. How are you? Her first question is, can you provide details on your exposure to CAMMESA?

Speaker 1

Hi, Florencia. How are you doing? Well, we our revenues from CAMMESA are ARS 700,000,000 monthly. With the tariff increase this month, it should increase to 8x mostly, 7.75x. They are owing us right now 3 months.

Speaker 1

And well, and we have the they have not made any proposal to us. So I think that maybe when they reach an agreement with the gas producers and the gas power generators, they will start paying us.

Operator

The second question regarding the license renewal, if there is any update on this.

Speaker 1

Well, we are working with the Energas very closely. They have started working on the tariff renewal process, and I can answer it in future. The next question regarding the timing, we think that maybe in the next 2 months, we are going to have some news with the first report of Enel Gas providing their a favorable opinion on the renewal of our license.

Operator

Carlos Morales from Mondra Stanley. How are you? His question regarding is can you comment a little bit about the funding strategy of the company in the short term?

Speaker 1

Carlos, how are you doing? Regarding funding in the short term, we don't need any funds in the short term as we currently, we are in a positive cash position, and we are going to have the increase in the transportation revenues from this month. So in the short term, there's no problem for funding for us.

Operator

His second question is when do we expect to make the final investment decision about the LNG project? Regarding

Speaker 1

our LNG project, this project is currently in standby. We finalized all the studies last year. We put it in standby because there is a new approach for YPF, and so we are we put our project in standby.

Operator

Next question is from Marina Amortez from Latin Security. The recent tariff hike in close monthly adjustment starting May and the government cannot implement the May adjustment. Your question is if it was postponed or suspended.

Speaker 1

Marina, regarding the tariff adjustment, we have not had any formal communication from Dinar Gas. Regarding this, we know that they have, I think, postponed the increase. We right now, we are waiting for their proposals, how they are going to implement this monthly adjustment in the future. But we don't have any formal communication right now.

Operator

And the second question is the complement. Is the expectation regarding tariff adjustment scheduled for the rest of the year? The time being is we don't have information. In fact, we will receive what is expected is to have the monthly adjustment. Next question is from Juan Varquez from Pune, our of Pune.

Operator

His question is regarding the our potential liability management of our 2025 bond.

Speaker 1

Hi, Juan. How are you doing? Well, we are preparing ourselves to go to the market for a potential liability for a liability management. We are waiting for the right time to do it. The license renewal is an important issue for us regarding that.

Speaker 1

So we are waiting maybe in the next month, you may have some news.

Operator

Another question from Carlos Moraes from Morgan. When do we expect to make the final investment decision about the NGL pressure?

Speaker 1

Our expectation is to have this final decision maybe in 9 months, 1 year time from now.

Operator

Next question is from Miguel Fernandez from Bala. How are you, Miguel? His first question regarding the weak ethane volumes. What happened with the Dow stake? Should we expect a pickup in the second quarter?

Speaker 1

Well, as we said in the call, Dow will have some operational problems. 1 at the end of last year due to a big storm that we have in Bahia Blanca and the other one in their polyethylene production a couple of months ago. Right now, they have started to full offtake their fully offtake the ethane. So you can expect better production, better revenues from us in this regard in the next quarter. During April, they have still problems.

Speaker 1

In May, they have something at full capacity.

Operator

Next question from him is, well, we saw much better local shale liquid prices. What were the main drivers behind this? What is the government thinking about the butane pricing regulation, the plan over?

Speaker 1

Well, regarding the propane and the we have some increases in the but it's a small parity, so it's not a change in the prices, just due to the international prices. And regarding the same pricing regulations, they have increased the regulated price and had told us they are going to change the regime in the near future, but no nothing has happened as in regard up to now.

Operator

The next question from Tim is that we saw account receivable jumping significantly quarter over quarter. What were the main drivers of the increase? In fact, what the increase in the trade receivables were the liquids, mainly PVE, FOLISOR and export trading companies, clients that we export liquids, among others,

Speaker 1

and

Operator

also the receivable with CAMMESA. But there are several factors, but nothing important. It's not a problem of delay. It's just only CAMMESA will have problem of delay, okay? And the next question, apart from the expansion of the remaining capacity in the CECL that you already mentioned, Any other portion that could push CapEx higher into 2024?

Speaker 1

Hi, CPL. No. I didn't think so. Once we finish the Tata Cement capacity expansions, we don't have any project decided right now, big projects. As I said a couple of minutes ago, the decision on the NGL's project is going to be for the end of the year, so not for 2024 CapEx.

Speaker 1

Regarding the account receivables, you can also have some impact in the dollar effect and the dollar increase higher than the inflation. So if you have from the non regulated business, you have an effect there also.

Operator

Next question is from Ignacio. What can you expect in terms of EBITDA with only EBITDA guidance? But in fact, the impact on the operating income is the increase of the revenue. Just this and that's a small impact in the operating income because of the turnover tax. The last question is about future investment.

Operator

Some projects depends on the final approval of the RHEA. Will you give us, if possible, some color about the projects? But Alejandro commented all these all the projects that we have in the evaluation. But of course, the RICI will help us to make the project more attractive.

Speaker 1

On on.

Operator

Another question from Juan Vasquez regarding that we think with the last April adjustment EBITDA, the related segment will become positive going forward, of course, with this we see that with this increase, the EBITDA will turn to be positive.

Speaker 1

Yes. Obviously, the EBITDA from the transportation business is going to be positive with a 6 75% increase. We are expecting a EBITDA of more than that for around $270,000,000 $100,000,000 for this year in transportation, but it will depend on the application of the monthly adjustment policy. But the EBITDA is going to be positive policy.

Operator

Next question is from Jorge Mauro from Fundamentals. His question is regarding the update of the polyurethructuring plant at Achen And if we need to roll over the 20, 2025 bond to or the project to go ahead or can we do it with existing cash position?

Speaker 1

An update on the project, I already said it that we are going to have our we are targeting our final investment decision in the for the end of the year or the beginning of the next month. It will be better for this project to have the lower 2025 tonn notice at that moment.

Operator

Well, the next question is from Mario Mosano. This was answered. Thank you for your regards. And I'm going to see the results from BBA. Management, we don't he's talking about EBITDA for 2024.

Operator

We don't give guidance for future results. And well, there is no more questions. This concludes the question and answer section. Now we will turn to Alejandro for final remarks.

Speaker 1

Thank you for participating in TCS 1st quarter 2024 conference call. We look forward to speaking with you again when we release our Q2 2024 results. If you have any questions in the meantime, please do not hesitate to contact our Investor Relations department. Have a good day.

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Earnings Conference Call
Transportadora de Gas del Sur Q1 2024
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