Transportadora de Gas del Sur Q2 2024 Earnings Call Transcript

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Provided by Quartr
August 6, 2024

There are 2 speakers on the call.

Operator

Good morning, everyone. I'm Carlos Almagro, Head of Investor Relations. I would like to welcome everyone to TCS Second Quarter 2024 Results Video Conference. This year's issued its earnings release 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

Following the company's remarks, we will pause a Q and A session, where 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 June 30, 2024, unless otherwise noted. Joining us today from TCS in Buenos Aires is Alejandro Basso, Chief Financial Officer.

Operator

I will now turn the conference over to Mr. Basso. Alejandro, please begin.

Speaker 1

Thank you, Carlos. Good morning, everyone. Thank you for joining us today to discuss TCS' 2024 Second Quarter Earnings and highlights for TCS. To begin the call today, I will start by sharing some of the most recent news at all.com. In July, we successfully completed the issuance of a new 7 year bond for $490,000,000 at an annual cost of 8.75 percent and a coupon of 8.5%.

Speaker 1

The only purpose of the issuance was to refinance the outstanding €295,000,000 to €470,000,000 bond, which was totally canceled. Regarding our natural gas transportation business, on August 1, Energas issued Resolution No. 4.91, through which the transportation tariffs increased by 4%, effective from this month. In June, we announced a $700,000,000 natural gas transportation expansion proposal, which was submitted to the Argentine Ministry of Economy as a private initiative with the aim to be operational by the winter of 2026. The goal is to make 14,000,000 kilometers per day of natural gas available in the Littoral Hub to substitute LNG and diesel imports with natural gas from bottom line and to ensure energy supply reliability in addition to boosting exportable surpluses to the region.

Speaker 1

The plan includes action works in 2 systems with different regulatory frameworks. On one hand, we proposed a $500,000,000 project in the Tata sensalyclosed section of the NetLogictional Pipeline under the hydrocarbons law. The project is under the private initiative regime, which requires a bidding process in order to receive offers from interested parties. Additionally, this project will be complemented by a $200,000,000 expansion in the regulated TCS system, which TCS will finance and execute under the terms of its license. This expansion project proposal, together with the transportation capacity expansions to be commissioned this year by Enarson in its Nestor Quijana and Mercedes, Cadales pipelines, both of which are operated by us, and the North Pipeline Reversal will permit us to go on growing in our midstream business to our existing and operating facilities.

Speaker 1

And the 2 new models, which will increase our conditioning capacity from the 14,800,000 of committees per day to 28,000,000 of committees per day after their commissionings before year end. Regarding the process of extension of our license, which expires in 20.97, In June, Energas issued a federal technical and legal internal report, which is key to the license extension approval. Nenet's steps are, 1st, a public hearing, then the approval by the Energas controller and lastly, the executive power decree, which will effectively grant us the extension for 20 year months following the recent enactment of the basis law in spining in 2,047. Turning now to Slide 4. I will briefly address some key highlights for the Q2 of 2024.

Speaker 1

Please keep in mind that all figures presented for this quarter in comparison made with the previous quarters are expressed in constant pesos as of June 30, 2024, following the provision established by the IFRS for financial reporting in hyperinflationary accordance. As seen in the slide, we reported a net income totaling €85,700,000,000 during the Q2 of 2024 compared to a net income of €45,000,000,000 reported in the same quarter of 'twenty 3. This increase in net income was mostly explained by higher natural gas transportation EBITDA amounting to $65,600,000,000 which was partially offset by the income tax. Moving on to Slide 5. EBITDA for natural gas transportation business increased sharply from $19,000,000 to $84,600,000 in the Q2 of 2024.

Speaker 1

EBITDA for this regulated business segment increased by €94,300,000,000 as a result of the transitional 675 percent tariff increase. Enel Gas granted the transitional tariff increase to bring tariffs closer to the level established under the 2017 internal tariff provision. As you know, starting October 2019, the inflation adjustments were suspended, and only 2 unknown pieces were granted, 1 in 2022 and another in 2023, which were much lower than the accumulated inflation in the period. This positive effect was partially offset by the negative monetary effect of $32,400,000,000 In addition, the 95% tariff increase granted in May of 2023 and lower PP and E maintenance expenses contributed to increased EBITDA by $2,300,000,000 and €1,400,000,000 respectively. On Slide 6, you can see EBITDA from the Liquids business decreased to €37,700,000,000 during the Q2 of 2024 compared to $40,200,000,000 reported in the Q2 of 2023.

Speaker 1

This slight EBITDA decrease of 6% is mostly explained by lower ethane revenues. Average ethane price went down, generating a lower EBITDA of $9,200,000,000 given the natural gas price reduction and lower sales volume of 18,000 tons made the EBITDA decline by 5,200,000,000 In addition, lower volume of propane by 14,000 tons decreased EBITDA by 3.9 billion. These lower liquid sales were partially offset by the lower average cost of natural gas, which declined from an average of $3.9 per million of Etu to $2.9 allowing for a reduction in variable costs of $13,600,000,000 Turning to Slide 7. EBITDA from midstream and other services rose 27 percent to $29,700,000,000 compared to $23,300,000,000 Higher revenues were explained by the incremental volume from natural gas exported and condition in Vaca Muerta in the amount of $6,700,000,000 Transporting natural gas volume rose from an average of 21,000,000 of cubic feet per day in the Q2 of 2023 to 25,000,000 of cubic feet per day in 2024's Q2. The natural gas commission volume also increased from an average of 13,000,000 to 16,000,000 of cubic feet per day.

Speaker 1

In addition, during the Q2 of 2024, dollars 1,200,000,000 revenues were generated by the service provided to Enersa related to the operational maintenance of the Enercare and Eberses Kalalef pipelines as well as for the construction of the compressor plant placed in Mercedes. These positive effects were partially offset by a monetary loss of 1,500,000,000 euros On Slide 8, as seen on the slide, the financial results registered a negative variation of €7,900,000,000 This variation, mainly explained by a lower financial asset income totaling EUR 25,300,000,000 mostly resulting from the lower yield of the financial investment denominated in pesos. In addition, we had a high inflation exposure loss of $14,300,000,000 These effects were partially offset by a lower foreign exchange rate loss of $35,500,000,000 due to the fact that during the Q2 of $24,000,000 the Argentine Central Bank continued with its 2% credit impact policy or 6% in the quarter compared to 23% in 2023's same quarter. Finally, turning to the cash flow on Slide 9. Our cash position in real terms increased slightly during the Q2 of 2024 by $4,000,000,000 to $572,000,000,000 which is roughly equivalent to $629,000,000 at the official exchange rate.

Speaker 1

EBITDA generation in the 2nd quarter amounted to €152,000,000,000 of which 56% was generated by the transportation business, and the additional forty 4% came from the non regulated businesses. CapEx for the period amounted to €50,800,000,000 Working capital increased by €24,400,000,000 mainly due to the 6 75 percent tariff increase. We canceled loans amounting to $14,000,000,000 and paid interest of $17,000,000,000 Income tax payments were reduced. Finally, the financial income had a $41,000,000,000 negative impact, resulting from the 18% quarter inflation adjustment in our initial cash position as of March 31, 2024, compared to a 6% quarter increase of the foreign exchange rate, considering that most of our cash position is dollar below median. This concludes our presentation.

Speaker 1

I will now turn it over to Carlos. We will open the floor for questions. Thank you.

Operator

Thank you. 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 they are received.

Operator

And Well, the first question is from Carlos Morales from Morgan Stanley. Hi Carlos, how are you? His first question regarding the natural gas monthly tariff adjustment, what would we think about in the coming month of this year?

Speaker 1

Carlos, how are you doing? Regarding the monthly adjustment, we are we cannot assure any further developments on this side. The good news is that we have received this 4% increase for August. And then obviously, we can expect additional adjustment, but we cannot give any assurance about that.

Operator

His second question is regarding the liquid volumes. If in the Q3, the volume will be higher than the same quarter of 2023 or will decrease as we saw in this last quarter?

Speaker 1

Okay. We are currently running a major maintenance this month. So our expectations could be lower than the it will depends on the winter on temperature also, the weather. But I would say that the volumes can go down in some slight weather, I would say.

Operator

Now next question is from Marina Martin from Latin Security. He wants to know about an update on the status of the comprehensive tariff review if we expect that it will be implemented in 2025.

Speaker 1

Okay. Hi, Juanita. How are you doing? Well, regarding the tariff review, the tariff review, the Ergas has already started the process. We have had several meetings with them.

Speaker 1

Their expectation is to put in place a public hearing by the beginning of January and have the new tariff implemented by the Q1. They say February, maybe March 2025.

Operator

Next question is regarding the projects to span the transportation capacity. When in case it is approved, when will we begin the deploying CapEx, when the CapEx will start?

Speaker 1

We propose the government to run the to approve the public initiative of October or something like that and run a bid process before the end of the year. So in that case, the CapEx deployment should start at the Q1 of 'twenty five, but it will depend on the Secretary of Energy process, okay?

Operator

Another question from Carlos Moraes. Regarding the expansion project, would be the remuneration scheme? Would it be under the regulatory framework? We target the nonmeting Argentine pesos?

Speaker 1

As we said in the call, the part that is going to be under the hydrocarbon law, it should be in dollars under this regulatory framework, the hydrocarbon law. And the $200,000,000 of proposed investment in our transportation assisting facilities, it's an expansion in our transportation facilities, should be in the tariff in pesos, okay?

Operator

Now a question from Edricio Santi. Edricio, regarding the public hearing on the resolution of the concession extension and if it will be in 10 or 20 years?

Speaker 1

Eliceo, no, it's just for 20 years right now because we have the new buses law implemented. So the only chance is for 20 years. No more, no less. The other question was about what we expect the public hearing and resolution of the concession extension. Well, that's a political decision that has to be carried out in the year, I guess.

Speaker 1

A good opportunity to run the public hearing would be, at the same time, the 5 year tariff review. But we cannot give any assurance regarding that.

Operator

Now the question is from Adrian Fuller from Faximax. Hello, how are you? His question is regarding the transportation expansion. It will be run under the RICI. And when some insight on the phasing on the CapEx, but the CapEx will explain will be about $700,000,000 But regarding the Riheet, we know that in the case of the first in the expansion of the Nestor Tindler pipeline will be under the Riheet scheme, Okay.

Operator

Well, a question from Francisco Bertin. Hi, for you. Regarding the transportation segment, where it was explained that the big increase was because a 675 tariff increase that was affected from April 3rd. The next question is from Florencia Majorga. Hi, Florencia.

Operator

If we have received any answer from the government in the EUR 700,000,000 total project.

Speaker 1

Florencia, how are you doing? Well, regarding this project, we have had several meetings with some of the government authorities, and we are discussing with them how we can go ahead with the project. It's going to be their decision one way or another. They have the decision to go ahead with, well, an expansion of the Nestor Kishore pipeline, but what we cannot we cannot right now how it's going to be. Is it our proposal or other?

Operator

Next question from Francis Covertin. His concerns about the how the transportation tariff will evolve in the future. And I think that it was explained that during 2024, we've had this transitional tariff increase that started with the 675 tariff tariff increase. And now in August 4, tariff increased 4%, We will see in the next month. And in the future, in 2025, what is expected is the debt of tariff revision.

Operator

We expect that we are working right now in this process. Next question is from Juan Ignacio Lopez. He's from Fuente. He questions regarding the expansion plans that we have representing and if the location of the LNG plant for the YPF and Petrona project modifies our medium term outlook for the downstream segment.

Speaker 1

Well, I think that it's a very, very good project for Argentina. For TCS, it's also it's a good project where we can benefit from this project with additional gas to be condition processed in Vaca Muerta and also to provide them with some additional services, to provide the PFS and PTRANAS with additional services if the opportunity comes.

Operator

Next question is from Fernando Borrego. The question is regarding if the government will provide funds for the $500,000,000 Networking pipeline expansion Or will it be fully funded by private? No, it's

Speaker 1

a private initiative scheme, what we propose. So the funds should be provided by the company or the consortium that is going to be awarded in the dividend process. Next question is from Claudio.

Operator

Next question is from Claudio Morhardt. Hello, Claudio Horio from Copernico. The question is regarding about the our high level of cash. We don't have any big debt maturity in the following years. So if we have any destiny of this cash in the next years.

Speaker 1

Claudio, you may know that we have NCL's process to go ahead with we are analyzing right now the engineering and estimated cost to be able to come with an FID next year for NGLs process. So the use of the overall cash and the existing cash and generation, the net shares could be applied in that process, okay, plus the EUR 700,000,000 project that we already announced.

Operator

Next question is from Santiago Hovde. Santiago, how are you? This question is about the percentage currently represent the service of the operating and maintaining of the network in the pipeline within the midstream business. Santiago, in fact, represents less than 2% because the revenue is just only the fee that we collect from operating and maintaining the service. We don't collect the tariff.

Operator

The tariff is collected by NARSA. We don't have any more questions. This concludes the question and answer section. Now we will turn to Alejandro for final remarks.

Speaker 1

Well, thank you for participating in TCS 7 quarter 2024 conference call. We look forward to speaking with you again, and we will release our 2020 4th Q3 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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Key Takeaways

  • Completed a 7-year bond issuance of $490 million at an 8.75% yield to fully refinance the outstanding €295 million–€470 million bond.
  • Q2 net income doubled to ARS 85.7 billion (constant pesos) from ARS 45.0 billion a year ago, driven by a sharp rise in natural gas transportation EBITDA.
  • Natural gas transportation EBITDA surged to ARS 84.6 billion, boosted by a 675% transitional tariff increase and an additional 4% tariff hike effective August 1.
  • Proposed a ARS 700 million ($700 million) expansion to add 14 million m³/day capacity by winter 2026, combining a $500 million hydrocarbon-law project and a $200 million regulated system upgrade.
  • Liquids segment EBITDA declined 6% to ARS 37.7 billion due to lower ethane and propane prices and volumes, partially offset by reduced natural gas feedstock costs.
A.I. generated. May contain errors.
Earnings Conference Call
Transportadora de Gas del Sur Q2 2024
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