Transportadora de Gas del Sur Q1 2025 Earnings Call Transcript

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Provided by Quartr
May 9, 2025

There are 4 speakers on the call.

Operator

Good morning, everyone. I'm Carlos Almagro, Head of Investor Relations. I would like to welcome everyone to TGS First Quarter twenty twenty five Earnings Video Conference. TGS issued its earnings release yesterday. If you didn't receive a copy of this release, please contact us at nbersodia.

Operator

Tsia dot com. A r. Before we begin the call, I would like to inform you that this event is being recorded and all participants are in listen only mode. Following 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.

Operator

I would also like to remind you that forward looking statements made during today's video conference do not account for future economic circumstances, industry conditions, our 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 the International Accounting Reporting Standards, IFRS, and a stake in Constant Argentinian pesos as of 03/31/2025, unless otherwise noted. Joining us today from this year's in Buenos Aires, Alejandro Vazo, Chief Financial Officer. I will now I will now turn the conference over to Mr.

Operator

Vaso. Alejandro, please begin.

Speaker 1

Thank you, Carlos. To begin the call today, we would start the call by sharing some of the most

Speaker 2

recent news about the.

Speaker 1

In terms of

Speaker 2

potential business. And as we disclosed this week, the NRGAS finalized the five year tariff revision and granted us a weighted average tariff increase of 3.67%, which will be reflected in 31 monthly adjustments. Regarding the inflation tariff adjustment scheme, given that the license rules state to be every six months, Energas submitted to the Secretary of Energy to change the terms to a monthly inflation tariff adjustment. In addition, NRGAS considers that wholesale price and consumer price indices should be used for inflation tariff adjustments. Talking about the severe storm that flooded the sorry complex last March 7, the flood caused a reduction in the natural gas transportation capacity and the liquids production to halt.

Speaker 2

We can probably say that after great work done by TGS employees and our suppliers, the natural gas transportation services was gradually restored by the March without any relevant impact on revenues. And by April, the processing plant operations were partially resumed at the low production level, which has subsequently been increased. Meanwhile, we have been implementing the recovery tasks of damaged equipment aiming to have the processing plant back to normal probably this month. Finally, the annual shareholders meeting held on April, a week ago, approved a capital reduction through the cancellation of $41,000,007,734,225 ordinary shares representing a 5.25% of the capital stock. Said shares were repurchased by the company in the market during 2019 and 2020.

Speaker 2

Turning now to Slide four, I will briefly address some of the key highlights from the first quarter of twenty twenty five. Please keep in mind that all figures presented for this quarter comparisons made with the previous quarters are expressed in the constant Argentine pesos as of 03/31/2025 following the provisions established by IFRS for financial reporting in the hyperinflationary economics. As seen in the slide, we reported a total net income of 107,300,000,000.0 during the first quarter of twenty twenty five compared to 87,200,000,000.0 reported in the same quarter of twenty four. This positive variation was mostly driven by the natural gas transportation EBITDA increase of 116,000,000,000 and was partially offset by liquids EBITDA decline of 52,000,000,000 and the 70,700,000,000.0 negative variation of the financial results. During the quarter of twenty five, we registered the properly plant and equipment impairment amounting to 10,900,000,000.0 related to the damage caused by the flood at the Solvay Complex.

Speaker 2

Moving on to slide five. EBITDA for the natural gas transportation business in the first quarter of twenty five totaled 104,800,000,000.0, which compares to a negative EBITDA of 11,000,000,000 recorded in the first quarter of twenty four. The median variation of 116,000,000,000 in the regulated business segment was mainly explained by the 675 transitional tariff increase that became effective at the April '24 and has contributed to recording a 116,000,000,000 higher revenue. In addition, transportation tariffs were adjusted on a monthly basis from August 24 to March 25. The smaller monthly adjustment contributed with additional revenues totaling 26,000,000.

Speaker 2

These positive effects were partially offset by the negative monetary effect on revenues amounting to 8,600,000,000.0. In addition, and other transportation services revenues decreased by 12,000,000,000, and we recorded a higher 4,700,000,000.0 turnover tax, mainly due to the incremental revenues mentioned before. On slide six, you can see that the EBITDA for the liquids business decreased 50% to 20 to 51,400,000,000.0 during the first quarter of twenty five compared to 103,400,000,000.0 reported in the same quarter of twenty four. Most of the EBITDA decrease was explained by lower liquids call lower liquids volume sales, which declined by 80,000 metric tons dropping from 290,000 metric tons sold in the first quarter of twenty four to 210,000 metric tons in the twenty five first quarter. This seven 27% decrease was mainly related to the flood occurred in March 7, which completed holding operations of the processing plant for the rest of the quarter.

Speaker 2

This effect was reflected in a lower EBITDA of 35,300,000,000.0. In addition, the monetary effects contributed to reduce EBITDA in 8,000,000,000 while the variable costs increased by 6,800,000,000.0 and lower sales price prices resulted in a revenue decline of 4,500,000,000.0. Turning to slide seven, EBITDA from midstream and other services decreased to 36,000,000,000 compared to 45,000,000,000. This decrease was mostly attributed to a 17,000,000,000 negative monetary effect as inflation was much higher than the foreign exchange rate increase. This effect was partially offset by higher sales derived from the incremental build volume of natural gas transported and condition in Vaca Muerta in the amount of 9,800,000,000.0.

Speaker 2

Transported natural gas field volume rose from an average of 22,000,000 per day in the first quarter of twenty four to 28,000,000 of per day in the twenty five first quarter. The natural gas conditioning volume also increased from an average of 16,000,000 per day to 21,000,000 per day. As seen on slide eight, recording the negative variation in the financial results amounting to 17,700,000,000.0. This negative variation was mostly explained by a lower financial asset income totaling 20,000,000,000, which was mainly associated to the lower yields of the financial investment denominated in pesos. Both interest rates interest rates and increase of the foreign exchange rate were much lower during the first quarter of twenty five than in the same quarter of twenty four.

Speaker 2

In addition, we recorded the high inflation exposure loss of 6,700,000,000.0. These negative effects were partially offset by a lower foreign exchange rate loss amounting to 5,400,000,000.0 in the first quarter of twenty five, given the reduction of the mostly chronic chronic impact from 2% to 1% beginning last February. Finally, turning to the cash flow on slide nine. Our cash cash position in real terms increased 10% or 91,000,000 during the first quarter of twenty five to 956,000,000, which is roughly the equivalent to $882,000,000 at the official exchange rates. EBITDA generation during the first quarter amounted to 192,000,000, of which 555% was generated by the transportation business, and then and the additional 45 came from the nonregulated businesses.

Speaker 2

CapEx for the period amounting to 55,000,000,000. Working capital increased by 24,000,000,000. We paid interest amounting to 23,000,000,000, and we canceled that by 654,000,000. No income stat no income tax payment was made in the first quarter of twenty five. This concludes our presentation.

Speaker 2

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

Operator

Thank you. The floor is now open for questions. If you have questions, please send them through our Zoom chat. We will read and answer the question 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, please send us a message message in the chat box. Please hold while we poll for questions. Thank you. Well, first question comes from Julian Casas from Latin Securities. Hi, Julian, how are you?

Operator

When do you expect the government to launch the dividend process for expansion of the Perito Moreno pipeline? Given these delays, when should we it to be operate operational?

Speaker 2

Hi, Well, we we are waiting for the the launching of the bidding process. We hopefully, we can find some news next week on the on the the next two weeks. And to be operational, well, it should be eighteen months after the bid of the after the the award of the bid. So, hopefully, in '27, we are going to have some new volumes available. Thanks to this expansion.

Operator

Second question, given our strong cash position, if we are considering paying dividends this year or we will allocate cash mainly to the project and mandatory investment plan in the transportation segment?

Speaker 2

Well, we cannot give any advance on that. It's going to be our shareholders' decision. So I cannot anticipate anything about this.

Operator

A new question from from thank you. Hi, Matthias. The his question regarding the the CPM, if we expect some partial commissioning by winter two twenty twenty six.

Speaker 3

Alright. I already answered that question to with. We are not expecting very it's going to be very to cut some partial information in, like, 2026.

Operator

His second question is regarding the the flooding at the complex. How is the recovery approaching? I think that he explained through the presentation. If we expect any material operational or financial impact to continue into the second quarter of twenty five twenty five.

Speaker 3

Well, we we used as we said in the next call, we started partial operations.

Speaker 2

And by mid April, we have been been increasing the the the output of the plant. And and today and two days two days before today, we are at full operational production. Nevertheless, we can expect to have some problems in the the plan because it's not unstable. The the reliability of the plan we are working on. So we we are going to have an impact in the the.

Speaker 2

Very important in April and visual impact. Hopefully, a small one, it will be made.

Operator

Hi, Daniel Guardiola from BTC. One of his question is regarding that considering the new tariff framework online for the next five years, what is the expected annual EBITDA and free cash flow generation in this business segment?

Speaker 3

Hi, Manir. Well, EBITDA

Speaker 2

established by Iran gas around $300,000,000 or more than that. It will depend on inflation and all the variation of all this.

Operator

Question is regarding what is needed for the company to stop applying the hyper hyperinflation assessment to your financial statement.

Speaker 3

Well, we need three years with inflation lower than 100%. We are not so close to that maybe in the next ten, three years. Something like that. Maybe four year accounting that since then.

Operator

Another question from Daniel. What is the outlook for 2025 in terms of volume sold of the liquids business if this risk cover with insurance?

Speaker 3

Well, we are going to cover the impact

Speaker 2

the immediate impact of two months,

Speaker 3

okay, from March up to March the May with some something

Speaker 2

lower than these two month in the liquids volumes. About insurance, we are covered. We have a deductible of two months. So the this the first two months of without operations, we are going to suffer from that in our financials. And regarding expenses, the is just $1,000,000.

Speaker 2

So all of the expenses over this $1,000,000 should be.

Operator

Last question from Daniel is we we are considering to enter into the LNG infrastructure business either via new export pipelines or via LNG facilities.

Speaker 2

Well, we we are working with the LNG projects, providing some services to the to the partners there. And we may consider a training in the in the new export pipelines, not in the LNG facilities, but in the pipelines. But that's not not we don't have any decision on that right now.

Operator

Hi, Andres. Yes. From balance, he he make the same question regarding the the CPM project. It was answered. Andre Cardona from Citi.

Operator

Hi, Andres. Yes. Well, the question is regarding with the LNG project, regarding the the liquid expansion project or the project, how it's evolving, and what we expect to reach the FID.

Speaker 1

Hi. Hi. And then

Speaker 2

what regarding the NGO's project, we dysfunction and you said, we are working with the gas producers to to and with with our with off takers to to cover agreements with them to ahead with the with the closure. Right? So we have to reach agreements with them before reaching the FID. I cannot need a exact timing, but we are working hard.

Operator

A question from Agustin Acevedo from BBVA Asset Management regarding the the liquids event. What is the situation after the flooding for those clients that are located in Bahia Blanca? And if we may this generate further impact?

Speaker 3

Well, the the our clients in in Atlanta mainly down. They have some impact. In fact,

Speaker 2

they cannot take only in

Speaker 3

the last days. But right now, they are they are they are taking only only.

Speaker 2

About further impacts, well, I cannot give any assurance because we can put all the plan in in process right now in operations, but, well, we are the the the the we are working on that right now. So we we may have some small impacts in the next month and two months.

Operator

Another question from Argentina, which is the tariff increase granted for May if this 3.67 divided by 31 month. And the latter will be adjusted by 50 EPI and 50% by AIPC or consumer pay index for each of the preceding months.

Speaker 2

Regarding the Chinese increase, it it was calculated 3.67% as it did was if it were effective in in in May. As it was calculated in thirty one months, we are going to have more than this three sixty seven percent because of the financial effect. Okay? Obviously, it's not going to be a lot more. Because 3.77 very low.

Speaker 2

Regarding the adjustment, the monthly adjustment, well, as as we said, we are expecting the decision of the of the synergy of energy and the the. Power, the inner gas proposes fifty fifty increase, mostly increase. So we are waiting for it. Maybe next. Hopefully, June would be effective.

Speaker 2

And it's not going to be retracted because the the tariff were increasing May. So we we have this adjustment in June is okay. It's going to be calculated with the with the inflation of the previous well, no. Two months. Months.

Speaker 2

So in June, we are going to have inflation of April. We should have the inflation.

Operator

Hi, Valentino. Caramuti from criteria. Are we planning on raising more debt through bonds in the short term?

Speaker 2

Hi, Valentino. Well, it will depend on the projects, the the the GP GPM and the NGLS projects. Right?

Operator

Hello, Guido from Alaria. Guido Vissasero. Do we expect to continue this firm capacity in transportation semi increased to 89.4 remain for the future? If this if this level will remain in the future.

Speaker 2

Well, no. No. No.

Speaker 1

Not the other

Speaker 2

related to the spinal trenches, which is part of the expansion of the GBM from to that would need capacity increase two years two years time. Hello?

Operator

Yeah. TGS was granted a five year tariff review, but not sure if the concession was already extended. Is extension a key factor that delayed dividend distribution for twenty twenty twenty five, '20 '20 '6? Okay. No, no, it's another question.

Speaker 3

Okay. No. We are waiting right now for the the final decision of the of the license. And but I would say that it has nothing to do with the decision.

Speaker 2

In the extension of process is okay. Taking the power needs the opinion legal opinion of their lawyers and the audit only also, but it's they are working that with the process.

Operator

Another question from Diego is regarding the CapEx plan for 2025 and 2026.

Speaker 3

Well, our maintenance CapEx projected for this

Speaker 2

year is around $90,000,000, more than $60.67, it's from the regulated business. And then you have to add to that the the the projects. It will depends on on the projects. Okay? Yeah.

Speaker 2

GPN project and NGS project. In that case, CapEx plan could be increased.

Operator

Another question from. What was the main driver of the increase in firm contracted capacity?

Speaker 2

Yeah. It is related to the the the new GPN pipeline. As we provide services in the final tranches, we we we have increased our capacity for the the expansion that was built by by, but we have this additional capacity for the of these new facilities in the tranche from to.

Operator

One one in Nacional Lopez from point a may may question that we we have seen, we have asked we have answered. Hi, Matheus from Citibank. His question is that this incremental for contracted capacity offer upside to the full year EBITDA expectation for transportation.

Speaker 3

The incremental capacity I already talked about is is is

Speaker 2

a is a small route. So it's it's very, very it's actually a very long material effect a bit.

Speaker 3

Charlie.

Operator

Well, if there is no more questions, this concludes the question and answer section. Now we'll turn to Alejandro for final remarks.

Speaker 2

Thank Thank you all for participating in this year's first quarter twenty twenty five conference call. We look forward to speaking with you again when we release our Penger G5 second quarter 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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Transportadora de Gas del Sur Q1 2025
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