Transportadora de Gas del Sur SA Q3 FY2020 earnings call

Management Statement and Operational Highlights

• Corporate Events: Since last earnings call, COVID-19 protocols in place, shareholder meeting on August 21 with new board appointments, Argentine Government's gas plan to increase production with higher prices for industrial/gas users, and a new share buyback program approved for ARS3 billion.
• Third Quarter Results: Net income was ARS381 million in Q3 2020 vs ARS58 million in Q2 2019. EBITDA in liquids business up ARS2.3 billion, transportation EBITDA down ARS1.4 million, financial result up ARS353 million. Cash flow increased by ARS2.4 billion, EBITDA ARS6.9 billion, CapEx ARS1.4 billion, working capital use ARS655 million.

Segment Performance

• Transportation: EBITDA decreased by ARS1.4 million. This was due to a ARS2 million revenue loss from annual inflation of almost 37% not compensated by tariff adjustment, but lower PP&E maintenance expenses of ARS546 million partially offset. More than 80% of revenues come from long-term capacity contracts with an average life of ~10 years.
• Liquids: EBITDA increased by around ARS2.3 billion. Higher sales volumes (e.g., orbit increased to 66,000 tons from 36,000 tons year-over-year) and lower natural gas prices (ARS1 billion) contributed, but were offset by higher natural gas volume purchased (ARS1.2 billion increase in variable cost) and lower export price of propane (ARS417 million revenue reduction).
• Other Service: EBITDA increased from ARS410 million to ARS734 million. Higher midstream services revenues in Vaca Muerta (ARS200 million) and lower operating costs (ARS223 million) contributed, but reduced construction services revenues by ARS65 million.

Guidance

• Expect to continue generating positive operating cash flow despite lack of tariff adjustment. Maturities in the following four years put the company in a solid financial position.

Risks

• Lack of tariff adjustment leading to revenue decline due to inflation.
• Impact of foreign exchange rate changes on financial results.
• Potential negative effects of lower natural gas production on the liquids business.

Q: Related to the implementation of [indiscernible] and local gas prices, asking if planned auction will increase prices in unrelated segments.

A: Think it will impact industrial gas prices, especially in winter, and natural gas prices for the company with hedging in contracts.

Q: Related to liquids business, specifically butane Garrafa price increase in October.

A: Increase of 10%, current price around ARS11,000 per ton.

Q: Question on tonnage and business needs for 2021, tariff adjustments.

A: Just started tariff conversations, broad assumptions on tariff evolution related to inflation. Liquids business expects higher prices next year despite some natural gas price increases.

Q: Question on other financial assets mentioned.

A: Loss from purchase and sale of certain bonds, not cash flows but accrual at official exchange rate.

Q: Follow-up on impact of [indiscernible] implementation on business.

A: Natural gas price increase will impact, but contracts have provisions to compensate, and Vaca Muerta has new opportunities.

Q: Question on cash flow from investment activities.

A: Lower CapEx this year due to finalized Vaca Muerta projects, and investment in certain bonds during the period.