Transportadora de Gas del Sur ("TGS" or "the Company") is the leader in Argentina in the transportation of natural gas, transporting approximately 59% of the gas consumed in the country, through more than 5,700 miles of gas pipelines, with a firm-contracted capacity of 2.9 Bcf/d. It is one of the main natural gas processors. In addition, TGS’ infrastructure investments in Vaca Muerta basin will allow the Company to grow significantly in the provision of services to natural gas producers, positioning TGS as one of the main Midstreamers in Vaca Muerta.
TGS shares are traded on NYSE (New York Stock Exchange) and BYMA (Bolsas y Mercados Argentinos S.A.).
The controlling company of TGS is Compañía de Inversiones de Energía S.A. ("CIESA"), which owns 51% of the total share capital. CIESA’s shareholders are: (i) Pampa Energía S.A. with 50%, (ii) Grupo Investor Petroquímica S.L. (member of the GIP group, led by the Sielecki family), WST S.A. (member of the Werthein Group) and PCT L.L.C. with the remaining 50%.
For further information, see our website www.tgs.com.ar
Stock Information
BYMA Symbol: TGSU2
NYSE Symbol: TGS (1 ADS = 5 ordinary shares)
Shareholding structure as of March 31, 2020
TGS holds 794,495,283 issued shares and 765,719,743 outstanding shares.
Buenos Aires, Argentina, May 8, 2020
During the three-month period ended March 31, 2020 (1Q2020), total income amounted to Ps. 3,401 million, or Ps. 4.39 per share (Ps. 21.94 per ADS), compared to Ps. 3,546 million, or Ps. 4.50 per share (Ps. 22.48 per ADS) for the same period in 2019 (1Q2019).
Operating profit amounted to Ps. 5,061 million in 1Q2020, Ps. 728 million lower than in 1Q2019. This variation was mainly due to:
Lower revenues of Ps. 1,554 million, mainly related to lower revenues at the Natural Gas Liquids ("Liquids") Production and Commercialization and the Natural Gas Transportation business segments amounting to Ps. 1,324 million and Ps. 516 million, respectively.
Operating costs and Administrative and selling expenses decreased by Ps. 955 million, compared to 1Q2019.
Depreciation increased by Ps. 235 million.
Financial results showed a positive variation of Ps. 596 million.
(1)The financial information presented in this press release is based on consolidated financial statements presented in constant Argentine pesos as of March 31, 2020 (Ps.) which is based on the application of the International Financial Reporting Standards (IFRS).
Transportadora de Gas del Sur S.A. 2
3672 Don Bosco St. (1206), Autonomous City of Buenos Aires, Argentina.
http://www.tgs.com.ar
Quarterly Highlights during 1Q2020
During 1Q2020, we continued incurring in capital expenditures of Ps. 2,742 million that allow us to continue operating our natural gas pipeline system and to finalize investments in the Vaca Muerta area.
Within the framework of the share buyback program approved during 1Q2020, we bought Ps. 1,373 million of our own shares (3,777,757 ADRs equivalent to 18,888,785 shares).
On March 25, 2020, the production of natural gas liquids at the Cerri Complex reached a new daily production record of 4,217 short tons.
As a consequence of the extraordinary situation in which we are running our business, that is impacted by the COVID-19 pandemic, we have made necessary adjustments to guarantee the continuity of our operations. For further information, see "COVID-19 and the measures adopted" below.
COVID-19 and the measures adopted
The COVID-19 outbreak caused a global collapse in the demand for products and services as well as volatility in the oil market, and generated a climate of unprecedented uncertainty that triggered a collapse of commodity prices and asset markets.
As of the issuance date of this press release, our financial situation and operational results have been mainly affected by greater delays in the collection of receivables from our main natural gas transportation clients and the decrease in our Liquids revenues due to the abrupt decline in international reference prices starting March 2020. Our natural gas transportation activity is considered an essential public service, and thus, is being provided as in normal circumstances.
It is estimated that global economy and Argentina will face a severe recession scenario, affecting our operations and financial results. As a result, and in order to mitigate this impact and guarantee the continuity of our operations and health of our employees:
•We have adopted all the measures dictated by the government to guarantee the health of our employees and the communities where we carry out our activities.
•We have reduced capital expenditures and operating and administration expenses, without affecting the security tasks that allow us to operate the natural gas pipeline system in accordance with current regulations.
•We have implemented all those public health measures enforced by authorities to make the operation in the Cerri Complex viable.
•We have suspended the execution of those works that do not affect the integrity of the natural gas pipeline system.
•We have implemented a daily cash flow evolution control to make decisions depending on how it evolves.
Considering our current financial position and the measures taken, we believe that we will have sufficient liquidity to meet our current working capital needs and pay our short-term financial debt without tapping any external sources to finance it.
Despite the aforementioned measures taken by us, the scale and duration of these developments remain uncertain but could impact our operation results, cash flow and financial condition, which will depend on the severity of the health emergency and the success of governmental measures taken and those that may be taken in the future.
Transportadora de Gas del Sur S.A. 3
3672 Don Bosco St. (1206), Autonomous City of Buenos Aires, Argentina.
https://www.tgs.com.ar
Analysis of the results
1Q2020 vs. 1Q2019
TGS posted total revenues of Ps. 12,121 million in 1Q2020, a Ps. 1,554 million decrease compared to Ps. 13,675 million recorded in 1Q2019.
Revenues from the Natural Gas Transportation segment are mainly derived from firm contracts, under which pipeline capacity is reserved and paid, regardless of actual usage by the shipper. The Natural Gas Transportation business segment represented approximately 44% and 43% of TGS’ total revenues during 1Q2020 and 1Q2019, respectively.
Revenues from the Natural Gas Transportation segment in 1Q2020 decreased by Ps. 516 million, compared to 1Q2019. This negative variation was mainly due to the negative effect of the inflation restatement following the provisions of IAS 29 - “Financial Information in Hyperinflationary Economies” (“IAS 29”) totaling 1,958 million which was not offset by the nominal tariff increase of 26% granted by Resolution No. 192/2019 from April 1, 2019 (under the Integral Tariff Renegotiation process) amounting to Ps. 969 million, and the higher volumes transported under the interruptible and exchange and displacement contracts for Ps. 449 million.
Liquids Production and Commercialization revenues accounted for approximately 48% and 53% of the total revenues in 1Q2020 and 1Q2019, respectively. During 1Q2020, production reached 330,067 short tons, which was 24,998 short tons higher than the production of 1Q2019.
Liquids revenues decreased by Ps. 1,324 million, to Ps. 5,857 million in 1Q2020. This variation was mainly due to: (i) the impact of the restatement according to IAS 29 of Ps. 2,358 million, (ii) the nominal variation in international reference prices that led to a decrease in revenues of Ps. 1,150 million, and (iii) the decrease in the volumes of ethane sold by Ps. 457 million. These effects were partially offset by the increase in the nominal variation of the exchange rate on revenues denominated in US dollars that amounted to Ps. 2,403 million.
Total volumes dispatched decreased by 6%, or 19,354 short tons in 1Q2020, compared to 1Q2019, which were mainly related to lower exported short tons of propane and butane. This effect was partially offset by the higher volumes of butane sold in the local market and natural gasoline exported.
The breakdown of volumes dispatched by market and product and revenues by market is included below:
Transportadora de Gas del Sur S.A. 4
3672 Don Bosco St. (1206), Autonomous City of Buenos Aires, Argentina.
https://www.tgs.com.ar
Other Services business segment includes midstream and telecommunication activities. As a percentage of the Company’s total revenues, this segment accounted for approximately 8% and 4% of the revenues in 1Q2020 and 1Q2019, respectively.
Other Services revenues increased by Ps. 286 million in 1Q2020 compared to 1Q2019. This increase was mainly due to higher services of natural gas transportation and conditioning rendered in Vaca Muerta totaling Ps. 261 million and the nominal effect of the exchange rate on revenues denominated in US dollars of Ps. 233 million. These effects were partially offset by the restatement following IAS 29 of Ps. 189 million.
Operating costs and administrative and selling expenses, excluding depreciation, decreased by approximately Ps. 954 million in the 1Q2020 compared to 1Q2019. This variation is mainly explained by: (i) the decrease in natural gas costs of Ps. 1,061 million, given by the restatement effect following the provisions of IAS 29 and lower volumes processed (these effects were partially offset by an increase in the price of the natural gas purchased as RTP measured in Argentine pesos, while the price in US dollars decreased), and (ii) the lower tax fees and contributions amounting to Ps. 148 million. These effects were partially offset by the increase in doubtful accounts for Ps. 156 million and repair and maintenance costs of fixed assets for Ps. 98 million.
Financial results are presented in gross terms considering the effects of change in the currency purchasing power ("Gain on monetary position") in a single separate line. In 1Q2020, financial results recorded a positive variation of Ps. 596 million compared to 1Q2019. This variation was mainly due to: (i) the impact of the monetary position of Ps. 753 million as a result of the increase in the net monetary liability position, (ii) the gain obtained by the derivative financial instruments of Ps. 605 million and (iii) the results for the acquisition of our debt notes of Ps. 315 million. These effects were partially offset by: (i) higher net foreign exchange loss by Ps. 430 million, (ii) lower capitalization of financial costs of Ps. 342 million and (iii) lower interest income generated by assets of Ps. 337 million, due mainly to the decrease of Argentine peso investment yields.
Transportadora de Gas del Sur S.A. 5
3672 Don Bosco St. (1206), Autonomous City of Buenos Aires, Argentina.
https://www.tgs.com.ar
Financial Position Analysis
Net Debt
As of March 31, 2020, our net debt amounted to Ps. 23,958 million compared to Ps. 24,443 million as of December 31, 2019. Our total net financial debt is totally denominated in US dollars for both periods (which is shown in pesos in the table below).
.
The table included below shows a reconciliation of our net debt:
Liquidity and capital resources
The net variation in cash and cash equivalents for 1Q2020, and 1Q2019 was as follows:
Below is a reconciliation of the free cash flows for the 1Q2020 and 1Q2019:
Transportadora de Gas del Sur S.A. 6
3672 Don Bosco St. (1206), Autonomous City of Buenos Aires, Argentina.
https://www.tgs.com.ar
1Q2020 vs. 1Q2019
During 1Q2020, net decrease in cash and cash equivalents and free cash flow amounted to Ps. 6,358 million and Ps. 2,454 million, respectively.
During 1Q2020, cash flow generated by the operating activities amounted to Ps. 5,196 million, Ps. 191 million above 1Q2019. This was mainly due to lower income tax payments and the revenues received by derivative financial instruments contracted in order to cover the decline in the prices of Liquids sold.
Cash flow provided by investing activities amounted to Ps. 8,325 million in 1Q2020, Ps. 3,445 million higher than 1Q2019 mainly because of the payment for the acquisition of financial assets not considered cash equivalents. This effect was partially offset by lower payments in capital expenditures investment after concluded the works construction related to the development of the midstream business at Vaca Muerta.
Finally, cash flow used for financing activities amounted to Ps. 3,229 million. The increase compared to 1Q2019 was mainly due to the cash flows used for the acquisition of treasury shares at Ps. 1,373 million. Additionally, during 1Q2020 we cancelled financial debts and acquired our debt notes amounting to Ps. 1,856 million.
First Quarter 2020 earnings conference call
TGS invites you to participate in the conference call to discuss this 1Q2020 announcement on Monday May 11, 2020 at 10:00 a.m. Eastern Time / 11:00 a.m. Buenos Aires time. To listen to the call from USA dial: +1-877-407-9210, and for international calls dial: +1-201-689-8049. To view the webcast, go to www.tgs.com.ar.
This press release includes forward-looking statements within the meaning of Section 27 A of the Securities Act of 1933, as amended. Forward-looking statements are based on management’s current views and assumptions and involve known and unknown risks. Although the Company has made reasonable efforts to ensure that the information and assumptions on which these statements and projections are based are current, reasonable and complete, a variety of factors could cause actual results to differ materially from the projections, anticipated results or other expectations contained in this release. Neither the Company nor its management can guarantee that anticipated future results will be achieved. Investors should refer to the Company’s filings with the U.S. Securities and Exchange Commission for a description of important factors that may affect actual results.
Transportadora de Gas del Sur S.A. 7
3672 Don Bosco St. (1206), Autonomous City of Buenos Aires, Argentina.
https://www.tgs.com.ar
Transportadora de Gas del Sur S.A. 8
3672 Don Bosco St. (1206), Autonomous City of Buenos Aires, Argentina.
https://www.tgs.com.ar
Transportadora de Gas del Sur S.A. 9
3672 Don Bosco St. (1206), Autonomous City of Buenos Aires, Argentina.
https://www.tgs.com.ar
Transportadora de Gas del Sur S.A. 10
3672 Don Bosco St. (1206), Autonomous City of Buenos Aires, Argentina.
https://www.tgs.com.ar
Transportadora de Gas del Sur S.A. 11
3672 Don Bosco St. (1206), Autonomous City of Buenos Aires, Argentina.
https://www.tgs.com.ar
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Transportadora de Gas del Sur S.A.
|
By:
|
/s/Alejandro M. Basso
|
|
Name:
|
Alejandro M. Basso
|
|
Title:
|
Vice President of Administration, Finance and Services
|
|
By:
|
/s/Hernán Diego Flores Gómez
|
|
Name:
|
Hernán Diego Flores Gómez
|
|
Title:
|
Legal Affairs Vice president
|
Date: May 8, 2020