Transportadora de Gas del Sur SA (TGS) 2025 Q3 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' third-quarter 2025 earnings video conference. TGS issued its earnings release yesterday. If you did not receive a copy of the release, please contact us at inversores@tgs.com.ar.

Before we begin the call, I would like to inform you that this event is being recorded. (Operator Instructions) 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 or 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 Accounting Reporting Standards], IFRS, and are stated in constant Argentine pesos as of September 30, 2025, unless otherwise noted.

Joining us 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, Carlos. Good morning, everyone, and thank you for joining us today to discuss TGS' 2025 third-quarter earnings and highlights. To begin the call today, I will start by sharing some of the most recent news about the company. As you remember, back in June '24, a private initiative was submitted to the government to expand the transportation capacity of the Perito Moreno pipeline by 14 million of cubic meters per day. As a result, ENARSA launched a tender offer in May. By the closing of the tender on July 28, only TGS had presented a bid.

The project was finally awarded to TGS on October 17. The expected CapEx amount is $560 million, and it involves the construction of three compressor plants as well as the expansion of the Tratayén Compressor Plant, totaling an additional 90,000 horsepower. By April 2027, we must commission the incremental capacity while operating and maintaining the Perito Moreno pipeline for a 15-year period.

We are also entitled to commercialize the incremental capacity and collect a dollar-denominated unregulated tariff during the period, after which the facilities will be reverted to ENARSA. Last week, we filed this project with the RIGI authorities in order to obtain the approval soon and get the tax benefits this regime provides.

In addition to that project, TGS will invest another $220 million to expand the capacity by 12 million of cubic meters per day for its regulated pipelines between Salliqueló and Great Buenos Aires by adding 20 kilometers of pipeline and increasing compression capacity by 15,000 horsepower in one of the compressor plants.

Moving to slide 4. I will briefly highlight the key financial results for the third quarter of '25. Please keep in mind that all figures presented for this quarter and comparisons made with the previous quarters are expressed in constant Argentine pesos as of September 30, '25, following the provisions established by the IFRS for financial reporting in hyperinflationary economies.

As seen in the slide, we reported a total net income of ARS112 billion during the third quarter of '25 compared to ARS68.8 billion reported in the same quarter of '24. These higher earnings were mostly explained by the better performance of the Liquids business, which contributed with a higher EBITDA of ARS37 billion and the continuous EBITDA growth in the Midstream business segment, which rose by ARS14.5 billion. In the quarter, we also recorded lower negative financial results amounting to [ARS31 billion], which boosted our third-quarter earnings, but were partially offset by the natural gas transportation EBITDA decline of ARS10.5 billion.

Moving on to slide 5. EBITDA for Natural Gas Transportation business in the third quarter of '25 totaled ARS102.4 billion, which is slightly below the almost ARS113 billion recorded in the third quarter of '24. The ARS10.5 billion EBITDA reduction in the Regulated business segment was mainly due to that the tariff adjustment from August '24 to August '25, which resulted in a ARS29.2 billion revenues, nominal increase were insufficient to offset the inflation adjustment effect of ARS42.2 billion. In addition, operating expenses rose by ARS2.4 billion, while revenues also increased by ARS4 billion, mainly due to incremental interruptible transportation services provided during the third quarter of '25.

On slide 6, you can see how EBITDA for the Liquids segment tripled amounting to ARS55.2 billion during the third quarter of '25 compared to ARS18.2 billion reported in the same quarter of '24. Most of the EBITDA increase was explained by the higher volume exported of 61,000 metric tonnes, rising for 43,000 to 104,000 metric tonnes, which contributed to a higher EBITDA by ARS18 billion.

In addition, higher ethane volumes of 38,000 metric tonnes were sold, rising from 53,000 to 91,000 metric tonnes and adding ARS11.7 billion to the third-quarter EBITDA of '25. This higher volume is mainly related to a higher production, which increased from 173,000 tonnes to 315,000 metric tonnes as a result of the higher richness of the natural gas process in this quarter and the three-week program plant shutdown for maintenance works implemented during the third quarter of '24.

In addition, EBITDA increased by ARS13.2 billion due to higher butane prices in the domestic market following the deregulation of the butane price under the Program Hogar starting January '25, which allow us to sell at export parity price. To a lesser extent, operating expenses decreased by ARS5.4 billion and monetary effects were positive by ARS1.1 billion.

The positive effects on EBITDA were partially offset by ARS8.9 billion extraordinary expenses incurred as a result of the March 7 flood, which we expect to recover from the insurance company in the coming months. Additionally, natural gas price increased from $3.1 to $3.4 per million BTU, which impacted negatively the EBITDA in ARS4.3 billion.

Turning to slide 7. EBITDA from Midstream and other Services rose to ARS61.2 billion compared to ARS46.7 billion in the third quarter of '24. This increase was mainly driven by higher sales derived from the incremental billed volume of natural gas transported and conditioned in Vaca Muerta, totaling almost ARS21 billion.

Transported natural gas billed volume rose from an average of 29 million cubic meters per day in the third quarter of '24 to 32 million cubic meters per day during this quarter. The natural gas conditioning volume also increased from an average of 16 million cubic meters per day to 29 million cubic meters per day. In addition, the monetary effect increased EBITDA by ARS3.2 billion. These effects were partially offset by ARS10.4 billion in higher operating expenses.

As seen on slide 8, we recorded a positive variation in the financial results amounting ARS31.1 billion. This was mainly due to a ARS43.4 billion increase in income from financial assets given the much higher yields achieved in the domestic financial investments. Additionally, inflation exposure loss decreased by ARS10.7 billion. These positive effects were partially offset by a higher foreign exchange loss amounting to ARS21.8 billion during the third quarter of '25, following the Central Bank's decision to make the US dollar exchange rate float starting early April and the consequent depreciation of 15% compared to the 16% rate in the same quarter of '24 under the previous regime of 2% monthly crawling peg.

Finally, turning to the cash flow on slide 9. Our cash position in real terms increased by 22% or ARS160 billion during the third quarter of '25 to ARS875 billion, equivalent to approximately $638 million at the official exchange rate. EBITDA generation during the third quarter amounted to almost ARS219 billion, of which 47% was generated by the regulated transportation business and 53% by the nonregulated businesses.

CapEx for the period amounting to ARS87 billion. Working capital decreased by ARS36.4 billion, and we paid interest amounting to ARS29 billion and income tax payment totaled ARS61 billion. In addition, we obtained short-term loans by ARS28.6 billion. We finally recorded higher yields from our financial investment by ARS53 billion in real terms, resulted mainly due to the higher increase of the foreign exchange rate over inflation of this quarter.

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

(Operator Instructions) The first question is from Santiago from Allaria. The question is regarding the CapEx to be made in the expansion of the transportation system and the Perito Moreno and our final tranches. How is the breakdown of the deployment of the new $780 million? So this is the first question.

Well, regarding the deployment of the $780 million from the expansion project, for this year, we have some advances to suppliers amounting -- and some part of the works amounting up to $150 million. Then for the following year '26, we are expecting to spend $450 million and the remaining $27 million in the first five months of '27.

The financing of the project, we already have almost [70 million] bank loans to fund the imports, which is a regulatory requirement under [RBG]. And we are currently considering other source of financing for the remainder.

Second question is regarding the insurance claim status for the Complejo Cerri event. If you can share what is the total expected recovery amount from the insurance and the timeline for collecting the payment?

Regarding the recovery amount, we are estimating this amount could be more than $50 million. And the expectation for the collection maybe $10 million this year and the remainder in the following year, I don't know, maybe in the second quarter.

We have a question from Matías Cattaruzzi from Adcap regarding the strong recovery of the Liquids in this quarter. If we can comment on whether the current levels of production and margins are sustainable into fourth quarter of this year? And how do we see prices in 2026?

Okay. Well, regarding the level of production at [Cerri] this year, it's, well, an extraordinary level, which was driven by the very -- the richness of the gas stream coming from Vaca Muerta. You know that nonconventional gas is replacing the conventional and also the increase in oil production with associated rich gas, the level of the richness of the gas is higher. And I could say that this level of richness could be substantial for the next years, okay?

Regarding the fourth quarter in special, well, it's a different time of the year. So the gas production is lower in the fourth quarter as compared with the third quarter. So the richness could be there, but the gas production should be lower. In spite of that fact, the gas stream coming in our plant is higher than the total capacity of the plant. So it's going to be a -- arbitration between these two variables.

Regarding prices for '26, well, current level of international prices are lower than we used to have a couple of months ago. So maybe liquids prices could be lower than the average of this year, but you can know it's very hard to anticipate that.

Next question is from [Risa Belen]. Well, this is her first question is regarding what you just explained regarding the Liquid business in the future. And her second question is if we expect an acceleration in cash CapEx deployment until year-end.

Regarding our CapEx, our cash CapEx is going to be higher than previous levels as we have already started out with the private initiative project, okay, in the Perito Moreno expansion. As I previously mentioned, we are expecting to spend $150 million this year, mostly in the last quarter.

Next question is from [Daniel Guardiola] regarding the Perito Moreno pipeline that we provide all the explanation that we can share. His second question if we are interested in participating in the project to build a brand new gas pipeline to [work to other south to] provide gas to LNG facilities that SESA, Southern Energy, is planning to end by 2027 and 2028.

Well, regarding the new gas pipeline, currently, we are evaluating our participation in this project. I cannot anticipate any news on that by now.

Next question is from George Gasztowtt from Latin Securities. He was expecting to pay significant cash income taxes against -- again next quarter?

Hi, George, well, regarding income tax payments, the payments could be quite similar in the fourth quarter as compared with the third one, okay? The bulk of the income tax payment was paid in May this year. And then you have advances that are quite similar from June to April next year or March next year. So as compared fourth quarter with third quarter, the payments should be in pesos, quite similar.

Next question from Daniel Guardiola. When do we expect to reach FID for the Tratayén facility?

Well, we are working very, very hard on the project. The FID could be in the first quarter of next year, hopefully.

Next question from Andres Cirnigliaro from Balanz. Well, his question was answered because it was regarding initial project that was answered. Next question from Agustin Pacheco -- hi, Agustin -- from Banco Mariva. Well, his question regarding the initial project was answered and both questions are regarding the initial project, so it was answered.

[Another question from Mathias Sinamenye] from Citi. Well, his question regarding the engine project, it was explained, it was answered. Perhaps an initial question from him is joining with partners or perhaps how many companies engaged with both of this -- from the balance sheet perspective of the participation on the in the project and joining with partners or perhaps tapping equity markets?

Well, we are working on that. The idea is to have partners especially in the part of the liquids project that comprise of the transportation and fractioning and dispatching facilities. Our idea is to go with partners in that part of the project, and we are working on that. Up in equity markets, I think that's not -- we are not analyzing that at this moment.

Next question from Ezequiel Harari from Adcap regarding the financing of the CPM project that Alejandro explained. Another one, Matías Cattaruzzi from Adcap asking the same question regarding the financing of the Perito Moreno pipeline project, it was explained. Another question from Matthias if we see further mystery in segment synergy by 2027 with the increased [on port] capacity of the CPM?

Well, the answer is, yes with additional volumes transported in the new, in the expansion of the CPM, our extreme business is going to benefit from that with higher volume also, okay, to the limit of the capacity of our pipeline, of our gas-treatment facilities, okay? In the pipeline, we have plenty of space -- [in the gathering] pipeline.

Then we have a question from [Facum Pastor]. He's asking about the tariff adjustment to accumulate in the first nine months of 2025 the accumulation is 14.8% up to the adjustments we received in the beginning of September, [note] that impacted on the nine-month period.

Another question from Guido from Allaria regarding the Perito Moreno initiative [opiva] project and we provided all the information that we can share. Thank you, Guido. You have another question from [Valentino Carramonte from Preteria.] It's the same question regarding the financing of the Perito Moreno that we explained. Another question from Guido from Allaria. For the time being, we have no other question.

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

Well, thank you all for participating in this year's third-quarter '25 conference call. We look forward to speaking with you again when we release our '25 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.