Business Context and Reporting Period
Company: Transportadora de Gas del Sur S.A. (TGS)
Filing Type: Form 6-K (Report of Foreign Issuer)
Reporting Period: Third Quarter and Nine-Month Period ended September 30, 2012
Business Overview: Argentina's leading natural gas transporter with approximately 2.9 Bcf/d firm contracted capacity. The company also operates as a leading natural gas processor and marketer of Natural Gas Liquids (Liquids). The company is listed on the NYSE (TGS) and MERVAL (TGSU2).
Key Financial Metrics
Third Quarter 2012 (vs. Q3 2011)
- Net Revenues: Ps. 517.8 million (Q3 2011: Ps. 349.2 million).
- Net Income: Ps. 35.1 million (Ps. 0.044 per share) vs. Ps. 17.6 million (Ps. 0.022 per share) in Q3 2011.
- Operating Income: Increased by Ps. 37.4 million, driven by the Liquids segment.
- Net Financial Expense: Ps. 77.5 million (Q3 2011: Ps. 64.0 million), primarily due to foreign exchange losses.
- Income Tax Expense: Ps. 19.3 million (Q3 2011: Ps. 9.7 million).
Nine-Month Period Ended September 30, 2012 (vs. YTD 2011)
- Net Revenues: Ps. 1,699.3 million (YTD 2011: Ps. 1,245.8 million).
- Net Income: Ps. 135.7 million (Ps. 0.171 per share) vs. Ps. 151.6 million (Ps. 0.191 per share) in YTD 2011.
- Operating Income: Ps. 416.9 million (YTD 2011: Ps. 374.8 million).
- Net Financial Expense: Ps. 195.6 million (YTD 2011: Ps. 136.7 million), driven by Ps. 68.7 million in higher foreign exchange losses.
- Cash Flow from Operating Activities: Ps. 398.3 million.
Segment Performance (Nine-Month 2012)
| Segment | Net Revenues (Ps. M) | Operating Income (Ps. M) |
|---|---|---|
| Gas Transportation | 446.4 | 100.5 |
| Liquids Production & Commercialization | 1,144.0 | 367.0 |
| Other Services | 108.9 | 30.5 |
| Corporate | - | (81.1) |
| Total | 1,699.3 | 416.9 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 36.5% in Q3 and 36.4% in the nine-month period, primarily driven by the Liquids segment (up 96% in Q3 and 53.5% YTD) due to higher export volumes and ethane prices.
- Profitability Divergence: While Q3 net income doubled, YTD net income decreased by 10.5%. The YTD decline was caused by significant foreign exchange losses (Ps. 68.7 million increase) due to Argentine peso devaluation, which offset higher operating income.
- Cost Increases: Costs of sales rose 47% YTD, largely due to a government tariff charge increase for natural gas imports (from Ps. 0.049 to Ps. 0.405 per cubic meter) and higher natural gas processing costs.
- Financial Expenses: Net financial expenses increased significantly in both periods due to the devaluation of the local currency impacting the company's dollar-denominated net liability position.
Outlook, Risks, and Contingencies
- Legal Contingency: TGS obtained a preliminary injunction on July 10, 2012, from the Court of Appeals in Buenos Aires ordering the Executive Branch and ENARGAS not to collect the increased tariff charge (Resolution No. 1,982/11) pending the outcome of legal action. The company continues to bill based on pre-resolution amounts.
- Currency Risk: The company faces significant exposure to Argentine peso devaluation, which negatively impacts its dollar-denominated net liability position and increases financial expenses.
- Forward-Looking Statements: Management notes that actual results may differ materially from projections due to known and unknown risks, including regulatory changes and market conditions.
- Liquidity: Operating cash flow of Ps. 398.3 million for the nine-month period was primarily used to increase the company's cash position. The filing does not provide specific details on debt levels or liquidity ratios beyond cash flow.
Key Facts for Investor Verification
- Verify the status of the legal injunction regarding the natural gas import tariff charge and its potential impact on future costs.
- Monitor the volatility of the Argentine peso and its effect on the company's dollar-denominated liabilities and financial expenses.
- Assess the sustainability of the Liquids segment revenue growth, which is dependent on export volumes and ethane pricing.
- Review the company's capital expenditure plans, as additions to PP&E increased to Ps. 126.8 million for the nine-month period.
- Confirm the specific breakdown of the company's debt structure and interest coverage ratios, as the filing highlights high financial expenses but does not detail total debt obligations.