Transportadora de Gas del Sur SA (TGS) 2024 Q3 法說會逐字稿

Good morning, everyone. I'm Gaston Di Luise, Head of Corporate Information. I would like to welcome everyone to TGS Third quarter 2024 results video conference. TGS issued its earnings release yesterday. (Event Instructions)

Before we begin the call today, I would like to remind you that forward-looking statements made during today's video conference do not account for future economic circus circumstances, industry conditions, and company performance and financial results. These statements are subject to a number of risks and uncertainties. All figures included hearing were prepared in accordance with International Accounting Financial Reporting Standards IFRS and are stated in constant action and [pesos] as of September 30, 2024, unless otherwise noted.

[Sunny nice] today from TGS in [Buenos Aires] is Alejandro Basso, Chief Financial Officer. I will now turn the video conference over to Mr. Basso. Alejandro, please begin.

Thank you, Gatson. Good morning, everyone and thank you for joining us today to discuss TGS's 2024 third quarter earnings and highlights. To begin the call today, I will start by sharing some of the most recent news about the company. In terms of the expansion of our conditioning plan [intratta]. The first module was commissioned in October, and the second module is expected to be commissioned in December.

Together they will increase the conditioning capacity of the plant to $28 million of cubits per day through the execution of a total cap of $350 million. This incremental capacity will permit to transport to our galling pipeline and put into a specification, additional shake gas volume needed to replace the continuous declination of conventional natural gas production LNG and the [soy] import imports and fulfill the demand from the northwest of Argentina.

Following the recent commissioning of the new compressor plant and the end of the (technical difficulty) which is a state-owned company. Regarding our natural gas transportation business after tariff increases of 675% in April, 400% in in August, and 1% in September, in our gas increased transportation tariffs by 2.7% in October and 3.5% in November. Lastly, we are in the process of the 20-year license extension which expires in 2027.

The gas after issuing a federal technical and legal internal report in last June, called for a non-binding public hearing which was held on October 21st. As of today, we are waiting for an gas controller approval on the following issuance of an executive power decree. Turning now to slide 4, I will briefly address some key highlights for the third quarter of 2024. Please keep in mind that all figures presented for this quarter and comparisons made with previous quarters are expressed in constant pesos as of September 30, 2024 following the provisions established by the EFRS for financial reporting in hyperinflationary economies.

As seen in the slide, we reported a net income totaling $52 billion during the third quarter of 2024 compared to a net income of $15 billion reported in the same quarter of 2023. This increase in net income was mostly explained by higher natural gas transportation EBITDA amounting to $63 billion which was partially offset by a $14 billion lower EBITDA in liquids and higher negative financial results by $11.5 billion.

Moving on to slide 5, EBITDA for natural gas transportation business increased sharply.

Increasing from $22 billion to $86 billion in the third quarter of 2024. EBITDA for this big GAAP for this great business segment rose by $63 billion and was mainly result of the transitional 675% tariff increase that became effective in the beginning of April of 2024 and has contributed to achieving a $101 billion higher revenue. As I mentioned in the last earnings call, [NRAS] granted this transitional tariff increase to bring the tariffs closer to the level that was established under the 2017 internal tariff revision.

As since October 2019, all inflation adjustments were suspended. Only two annual increases were granted after one in '22 and another in' 23, both of which were much lower than the accumulated inflation in the period. In addition, this year we received two small tariff increases during the third quarter of '24, the first one of 4% was implemented at the beginning of August while the second one of 1% became effective at the beginning of September.

These tariff increases generated higher revenues by $3.5 billion. These positive effects were partially offset by the negative monetary effect amounting to $33 billion. Also, in the period we recorded higher PP&E maintenance and operating expenses and higher turnover tax, which contributed to reduce EBITDA by $6.8 billion and $2.9 billion respectively. The higher turnover task is explained by the incremental revenues mentioned before.

On slides 6, you can see that the bid from the liquids business decreased to $14 billion during the third quarter of 2024 compared to $28 billion reported in the same quarter of '23. Most of the EBITDA that decrease is explained by lower ethane revenues average ethane price dropped, generating a lower bid of $14 billion as a result of lower natural gas prices. And in addition, 46,000 tons lower sales volumes explained the EBITDA the decline of $9 billion.

One of the causes that contributed to the lower sales volumes of [ethane] was the three-week program planned shut down for maintenance works, which also affected natural gasoline exports decreasing by 8,000 metric tons while LPG sales declined by 7,000 metric tons. It impacting negatively on EBITDA in $2.9 billion and $2.7 billion respectively. In addition, this year's monetary effects in the quarter was negative by $5 billion compared to the same quarter of 2023, considering that inflation was higher than the increase of the foreign exchange rate and that most of these business segment revenues are linked to the US dollar.

Lower liquid sales were partially upset by the lower average cost of natural gas, which declined from an average of $4.4, per million of ETU to $3.1 per million of ETU allowing for a reduction of invariable cost of $17 billion. Turning to slide 7. EBITDA from the midstream and other services rose 6% to $35.4 billion compared to $33.4 billion. Higher EBITDA was mostly explained by higher sales derived from the incremental volume of natural gas transported and conditioned in [Vaca Muerta] in the amount of $6.4 billion.

Transported natural gas volumes rose from an average of $23 million cubits per day in the third quarter of 23 to $29 million to $29 million of [cus] per day in 24's third quarter. The natural gas condition in volume also increased from an average of $15 million kilometers per day to $16 million kilometers per day. It is worth noting that during the third quarter of 24, operating expenses decreased by $3.7 billion. In the third quarter of 23, we recorded a one-time operating expense associated with the [Nestk] pipeline commissioning. These positive effects were partially offset by a monetary loss of $9.3 billion.

On slide 8, as seen on this on this slide, the financial results register a negative variation of $11.5 billion, this variation was mainly explained by a lower financial asset incomes totaling $90.5 billion and was mostly associated with a lower yield related to the financial investment denominated in pesos. During the third quarter of 24, the dollar-linked financial investments yielded well below the same quarter of last year, when the expectations of a peso devaluation were much higher.

This effect was partially upset by a lower foreign exchange rate loss of $77.5 billion due to the fact that during the third quarter of 24, the Argentine central bank continued with its 12% monthly rolling peg policy or 6 6% in the quarter compared to the 36% in '23's same quarter. In addition, we had a lower inflation exposure loss of $3.9 billion. Finally, turning to the cash flow on slide 9, our cash position in real terms increased slightly during the third quarter of '24 by $36 billion to $677 billion which is roughly the equivalent to $700 million at the official exchange rate.

EBITDA generation during the third quarter amounted to $135 billion of which 64% was generated by transportation business and the additional 36% came from the non-regulated businesses. Capex for the period amounted to $54 billion. Working capital decreased by $8 billion. Debt increased in the quarter by $13 billion, and we paid interests of $7.5 billion. Income tax payments were very low. Finally, the financial income had a $59 billion negative impact resulting from the 12% quarter inflation adjustment in our initial cash position as of June 30th, 2024, which compares to a lower yield in our dollar and dollar denominated financial investments that represented 85% of our financial investments.

This concludes our presentation. I will now turn it over to Gaston, who will open the floor for questions. Thank you.

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

Okay, we have the first questions from Carlos Morales from Morgan Stanley. Hi, Carlos, nice to meet you. Carlos is asking us, regarding our leakage volumes, taking into account the post-maintenance plans if we expect the 4Q volumes to be in line with the last year or with the 3Q of this year. And the second question from Carlos is if we could give some color about the review process of the network of transportation business.

Okay. How are you, Carlos? Well, regarding the first question about the volumes, we expect for the fourth quarter, they should be more in line with the previous year, fourth quarter as this last quarter, the third quarter was winter time. We have, the winter impact of lower volumes of natural gas plus the major maintenance in the plant.

Nevertheless, we can have some lower ethane volumes due to some problems that that had, this month in their plant due to, [Napago] shut down and in in the light in electricity shut down. Okay. Then regarding the tariff review process, well, the process is in place right now, we may have some delays, you know that the for the transportation for transmission, for electricity transmission, the government has delayed the public hearing has suspended the public hearing.

So we may have some delay. We are expecting that to have our new tariffs in place for the end of the first quarter, but it may have some delay. Nevertheless, our current level of tariffs are quite okay in way in my, in our opinion, okay? And we are receiving adjustment in the last four months, November, -- it was September, October and November. Pretty in line with inflation, so

Okay. Hi, Maths. The next question is from Mathias [Cataus]. Nice to meet you. And Mathias is asking us regarding any updates of the [Nekian] expansion and NCL project and if you could give him any more details or timeline re regulatory timeline of these projects.

Okay, how are you Matias? Thank you for joining us today. Well, regarding the [Nestor Kitchener] expansion, we are, waiting for the, for the bid our expectation is that the bid could be in the, in the maybe next two weeks. And regarding the NCL project, we are, working with the feed of the process with the studying the engineering and the cost of the project, and we are expecting to finalize that process, for the next March, okay, regarding regulatory milestones.

I would say that the main regulatory aspect for us in these two projects is the real benefits. So we are, working with the redocumentation for the, -- pension right now and we are expecting to file it. I mean, I don't know, maybe in one month or something like that.

The next que the next question is from Marina Martens from Latin Securities. Hi, Marina. She's asking us about the expected timeline for the license extension approval. Also, she's asking us about the [InterA] review and the binding process for the TGS expansion that we have already answered.

Hi, Marina, how are you doing? Regarding the license extension, well, as we have, the public hearing was, held couple of weeks ago. And we are expecting for the Ear gas approval or issuance of the of the extension and after that the secret power has a 120 days timeline but it could be accelerated. So maybe next year, we are going to have a news, good news about the extension.

Okay, next question is from [Digolia Mendez] from PPI. Nice to meet you, Digolia. He's asking us the lower volume sales of production and commercialization liquid segment. And he's asking if this is regarding the overall demand or if this, -- of this is in line with the business plan that we foster or do you, -- do we see any secondary consequences.

Hello Digolia. Well, as I said before, the main reason for the lower volumes was the major maintenance and some, and the, this, Dow impact on the volumes that they can, take nevertheless. That we have a, the deliver pay agreement with Dow so we may have received some compensation for the lower volumes that they took in the last days, no problem with the man at all. In addition to the do problem, operating problem, okay.

Okay, next question is from Ignacio Enikovski from Inveril in Bolsa. Hi Enikovski. He has two question, the first one is regarding the, if we foresee any successful license extension up to 2047 and if this extension require any payment.

As I said in the last question, we are expecting for the favorable extension to 2047 in the in the coming year, okay. And regarding any payments, no, the extensions has not, any payments, it's just, and, it's that's the way it's stipulated in the license and in the law, natural gas law. And it depends on your and the capacity of the of the licensee company to perform its obligations under the license which we did.

Okay. The second question from Ignacio is regarding the natural gas transportation revenues as they have reached the 49% of the total. Do we see any figure continuing to rise or is this level, where if that is maintained in line with inflation, it will stabilize?

Okay, regarding the quarter revenues, I say that they should be stabilized at that level, depending obviously on inflation or, the evaluation, obviously. And, if you consider these figures in dollars, and, when you see the whole year, you, we will going to have a favorable impact on next year due to the full year effect of the 675% increase that we have in at the beginning of last April.

Okay, we have a question from Florencia Mashorga. Hi Florencia. And her questions are regarding the inter tariff review process and the expansion process of mis missing that has already answered. Okay, next question is from Francisco Cascaron from the EFS results from production and liquids have been decreasing for quite some time now. What are your best, what are our perspectives for 2025 on this segment?

Hi, Francisco. How are you doing? Regarding the volumes that we are expecting for next year in the liquids business, are in a range from 1 million tons to 1.1 million tons, metric tons, okay.

Okay, now we have some questions from Guido Vioero, regarding transaction expansion and the investment reinvestments that we have already answered. And next question, [Ari Alejandro] is from Florencia [Machorda]. [Maorga] who is asking us if we will be compensated for the chemical issues.

Florencia, as I said, we have a take or pay agreement with [Doo]. So after compensating some, days for maintenance, we have the right to collect, take the take or pay compensation. Which is priced at the margin that we obtained that business, for this product, okay, for in that contract. Regarding if it's, normalized, the question is yes, the last, week I would say the volume has been normalized.

Okay, next question from [Fernando Porreon], and he's asking us about the updates of the new project pipeline and NCL plan and that [Alejandro]. Has already answered. We have a question from Guido Visocero. We expect any dividend in 2025, although, and what in what we expect to use our cash in new CapEx investments.

Hi, we are not, -- we don't have any policy. It's going to be a decision of our shareholders, but as you said, we have, as we are talking about, we have a very important carpets project, so, we should be compensate, evaluated or balanced and, considering this CapEx that we have in our plans, okay.

We have a question from [Fernando Boreon], and he's asking us about the financing alternatives that are we exploring funding the potential new capital projects and if we are considering [anysuance] of new international bond.

Well, we are exploring all the financial, alternatives, the opening of our existing bond could be one of them, also bank loans and. Agency export agency loans and everything. In the [Rhi] we may have to finance the imports that we are going to need in these projects. So we are working right now for the imports of the compressor, the truing compressors that we turbo compressors that we need for the network is are pipeline expansion right now.

Okay. This concludes the question-and-answer section. Now we turn to Alejandro for final demands.

Okay, thank you Aton. Thank you for participating in this year's third quarter 24 conference call. We look forward to speaking with you again when we release our '24 fourth quarter results. If you have any questions in the meantime, please do not hesitate to contact our investor relations department. Have a good day.