Transportadora de Gas del Sur SA (TGS) 2022 Q2 法說會逐字稿

Good morning, everyone. I'm Carlos Almagro, Head of Investor Relations. I would like to welcome everyone to TGS Second Quarter 2020 results with the conference. TGS issued its earnings report yesterday. We would like to inform you that this is being recorded (Operator Instructions)

Before we begin the call today, I would like to remind you that forward-looking statements made during today's conference 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, 2022, unless otherwise noted.

Joining us today from TGS in Buenos Aires is Alejandro Mario Basso, Chief Financial Officer. And now I will turn the videoconference over to Mr. Basso. Alejandro, please begin.

Thank you, Carlos. Good morning, everyone, and thank you for joining us today to discuss the 2022 second quarter earnings and highlights for Transportadora de Gas del Sur.

To begin the call today, I would like to share with you some news that has taken place since our last quarterly earnings call in May, that is relevant to our operations. Talking about the construction of the new Néstor Kirchner pipeline with an expected initial transportation capacity of 11 million cubic meters per day and after executing the agreement with the pipe supplier, the Argentine government through ENARSA called a bid in July for the civil works to construct the Néstor Kirchner pipeline, a loop to our pipeline in province of Buenos Aires, the pipeline station from Mercedes to Cardales and the compressor plant at the beginning of this latter pipeline. All of these work have been awarded and are expected to begin construction in September. .

It is worth highlighting that the construction of Néstor Kirchner pipeline and the other pipeline expansions are necessary for us to continue growing our business in Vaca Muerta through the transportation and conditioning of the nonconventional natural gas production as well as new associated business like liquid production in Tratayén and natural gas liquefaction in (inaudible).

Moving on to talk about the expansion CapEx at our conditioning plant in Tratayé, we are working to increase its capacity from the current 8 million of cubic meters per day to 15 million of cubic meters per day by the end of 2022, then to 21 million of cubic meters per day in 2023 and to 28 million of cubic meters per day in 2024. We will be investing around $ 250 million in these expansions. In addition, we are evaluating making additional investments in this plant to start constructing LPG in 2024.

As a result, this year continues to consolidate its midstream business in Vaca Muerta by providing efficient solutions to natural gas producers as the company invests in large infrastructure projects.

Turning now to Slide 4, I will briefly address some of the highlights of our 2022 second quarter results. Please keep in mind that all figures presented in this quarter are comparisons made with the previous quarters are expressed in constant pesos as of June 30, 2022, following the provisions established by IFRS for financial reporting in hyperinflationary economies.

Seen on the slide, we reported a net income of ARS 5.3 billion during the second quarter of 2022 compared to ARS 5.6 billion reported during the same quarter of 2021. The net income reduction is mostly explained by the liquids EBITDA, which declined ARS 1.2 billion, while natural gas transportation EBITDA decreased ARS 260 million. and a negative variation of financial results by ARS 1.6 billion. The ARS 714 million increase in other service EBITDA and a lower income tax of ARS 2.2 billion, almost offset the aforementioned negative variations.

Moving on to Slide 5. EBITDA for Natural Gas Transportation business decreased by ARS 260 million and was mostly affected by then on inflation rate of 64%, which negatively impacted by ARS 3 billion. This effect was partially offset by a 60% tariff increase, which became effective in last March, increasing our revenues by ARS 2.8 billion.

On Slide 6, you can see that EBITDA from the liquids business decreased in the second quarter of 2022, declining from ARS 7.2 billion to ARS 6 billion. The main negative variation was associated with higher average natural gas prices resulted from the Gas Plant 4. The average price increase from [$2.9 million to $4.2] (inaudible) , thus increase in natural gas costs by ARS 3.3 billion. In addition, we had a ARS 2.3 billion negative variation related to the monetary effects as inflation sourced by 64% compared to a 26% increase of the exchange rate.

An additional factor affecting the liquids EBITDA was the drop in export volumes as LPG exports fell from 41,000 tonnes to 3,000 tonnes, lowering revenues by ARS 2.3 billion. This was partially offset by higher exports of natural gasoline, which increased revenues by ARS 537 million. These negative effects were partially offset by high international prices, which benefited from sales in the domestic market and natural gasoline exports that in total increased revenues by ARS 2.9 billion.

In addition, revenues generated by the ethane sales increased ARS 565 million, where higher price was partially offset by lower volume. Furthermore, cost decreased by ARS 1.8 billion during the second quarter of 2022 as natural gas purchases were lower in terms of volume.

Turning to Slide 5. EBITDA from other services increased 42% to ARS 2.4 billion from ARS 1.7 billion. Higher revenues generated by more services rendered at Vaca Muerta amounted to ARS 1.2 billion and other services totaled ARS 198 million, which were partially offset by ARS 687 million monetary effect loss as the annual inflation rate was above the annual foreign exchange rate increase.

On Slide 8, we can see that financial results recorded a negative variation of ARS 1.6 billion. This variation was mainly explained by a lower inflation exposure again -- exposure gain of ARS 2.4 billion and a ARS 1.9 billion higher foreign exchange rate loss, which was attributable to a higher Argentine peso depreciation. These negative effects were partially offset by higher financial asset income of ARS 2.1 billion due mainly to higher financial investment denominated in pesos.

Finally, turning to cash flow on Slide 9. Our cash position in real terms decreased by ARS 11 billion in the second quarter of 2022 declining from ARS 64 billion to ARS 53 billion, which is equivalent to approximately $424 million. EBITDA generation in the second quarter amounted to ARS 12.7 billion out of which 67% was generated by the nonregulated business. CapEx amounted to ARS 3.2 billion, and our working capital increased by approximately ARS 4.3 billion. We paid interest for ARS 2 billion and paid income tax for around ARS 10.8 billion.

As you can see, we keep a robust liquidity, which gives us financial caution to finance our future expansion CapEx.

This concludes our presentation, and I will now turn it over to Carlos, who will open the floor for questions.

The floor is now open for questions. (Operator Instructions).

Thank you, Christian Pera from Balanz for your questions. He makes 3 -- 4 questions. One is regarding the liquid business. His question is we expect to increase our liquids export to recover in the third and fourth quarter.

Okay. Christian, regarding the exports in the second quarter, you know that as winter was approaching and there were some doubts about the provision of the supply of natural gas, we decided to increase our stocks to the maximum level. So that was the reason for the export of this quarter to go down. Nevertheless, we are expecting some exports in the third quarter in spite of the fact that this winter quarter. But as gas supplies was normalized, we think that we are exporting, in fact, in July and August, some tons. And obviously, for the fourth quarter, we expect our level of stores to go to normal levels.

The second question is regarded if we can give him some color on the internal or revision of the stage of this process.

Okay, Christian. Yes, we have already started some talks with ENARGAS to have some tariff relief at the end of this year or at the beginning of the next one. Nevertheless, I can give no assurance that that's going to happen, considering the high inflation that we have down here in Argentina, it should happen. And the ENARGAS is worried about that. So they're working on some tariff relief.

And the third question is regarding our participation in the bid launched by the government for the Néstor Kirchner pipeline construction in which where we participate in this bid.

Okay. We just participated in the Néstor bid for the, what is called (inaudible) or Line 5, which was the Mercedes plant construction. And we were not allowed to further participate in the economic decision because of the fact that we -- as we know, we are not constructors, we have not the presence, the initial background the required economic background as contractors to be awarded a bit. It was not a time of price. In fact, our offer was not open.

His next question is regarding the construction of the extension of the Vaca Muerta Northern pipeline that we announced last quarter in Vaca Muerta, we still expect that it will cost about $50 million or there was a change in that figure. When we expect that this expansion pipeline will be operative?

Okay. Regarding the extension of the Vaca Muerta Northern pipeline, we are close to start receiving the pipe supply. So construction should start in the next month, I would say.

Regarding the costs of the CapEx, the $50 million CapEx that we had, but yet, it's hard to say in Argentina. If inflation keeps going over the dollar -- the peso devaluation, the cost can be higher than ARS 50 million. But we cannot speculate about that.

Next question is from Bruno Montanari from Morgan Stanley. Question is regarding the income tax payment is about ARS 11 billion. Is this related with 2021 fiscal year? Or it should include advanced tax payment?

Bruno, well, both -- you know that in May, we paid for the for the -- it's definitely payment from the 2021 income tax provision. And then in June, we had an advance of 25% based on the '21 figures for the 2022 fiscal year.

Alejandro commented about the integrated revision before. We are waiting for other questions. We will wait 1 minute if there is... (Operator Instructions).

And Rodrigo Nistor from AR Partners. He is asking about the inflation higher rate. The expectation is that it will exceed the 90%. If we expect that we will have a tariff adjustment this year on 2023?

Rodrigo, Well, I am with you that inflation will likely see 90%, and we are requiring ENARGAS to adjust our tariff considering this new level of inflation, this higher level of inflation. I can -- as I said, I cannot give any assurance about the final number, but we are requesting that inflation adjustment should be something leveled with inflation.

And regarding the change in the cabinet, we cannot -- it's just a regulation. It's good for us that (inaudible) is going to be in the (inaudible) energy because he knows us. And so it could -- it's a good thing for us. We don't know what the final outcome of the tariff negotiation could be.

Another question from Christian. It's a specific question with the revision is about the performance of the University of Buenos Aires in this process.

Okay. The university has already audited our fixed asset rate base figures and they should calculate a new index for inflation adjustment of these assets, but they have not finished this -- finalized this last part of their work. Regarding the audit, everything was okay.

We will wait if there is another question. (Operator Instructions). We have a question from Diego Portela. His question is regarding our license expires in 2027 and the contract that we signed with (inaudible) we announced yesterday that will expire in 2033 regarding services to be rendered in Vaca Muerta with an investment of $138 million, as we announced yesterday. The question is we are making an assumption on extension or if the license was extended okay?

Well, as you say, our transportation license expires in 2027. We expect that we will be granted the 10-year extension as we have a very good record for gas. So this extension should not be denied unreasonably. When the license finalized expires, we should be turning back to the Argentine government. The assets, the essential assets which don't include the Vaca Muerta in our midstream assets. So that is the reason that we are signing contracts for a longer extension than the license. Regarding the essential assets, we should be receiving payment if the license is finalized, a payment for the nonamortized fixed assets, okay PP&E.

Another question is from Matt (inaudible). He wants to have some color about cash taxes going forward for the next quarters.

As I previously said, Matt, in May and June, we paid this significant amounts of the final payment for the 2022 and the first advance for 25%, 25% advanced. Now the net payments from July to March are 8.3% of the 2021 income tax provision. So you could see a reduction in that.

Okay. Okay. Another question is regarding for the capital outflow increased in the second quarter.

Okay. But the increase is based on the higher income tax and the higher income that we have in '21 as compared with 2020. So you are seeing an increase in payments, tax payments this year as compared with the previous year.

And apart from that payment in advance to the suppliers?

And regarding the working capital, yes, we have advance payment to suppliers start.

We don't have any more question. We will wait for 1 more minute.

Well, having no more questions, we conclude the question-and-answer section. Now I will turn to Alejandro for final remarks.

Thank you for participating in this year's second quarter 2020 conference call. We look forward to speaking with you again when we release our third quarter 2022 results. If you have any questions in the meantime, please do not hesitate to contact our Investor Relations department. And have a good day.