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: Three months ended March 31, 2018
Business Overview: TGS is Argentina's leading natural gas transporter with a firm contracted capacity of approximately 2.8 Bcf/d and a major processor of natural gas liquids. The company operates under regulation by ENARGAS.
Key Financial Metrics
| Metric | Q1 2018 (Ps. Million) | Q1 2017 (Ps. Million) | Change |
|---|---|---|---|
| Net Revenues | 4,947.3 | 2,555.2 | +2,392.1 |
| Operating Profit | 2,598.6 | 1,067.3 | +1,531.3 |
| Net Comprehensive Income | 1,734.9 | 664.8 | +1,070.1 |
| Earnings Per Share (Local) | Ps. 2.184 | Ps. 0.837 | N/A |
| Net Cash Flow from Operations | 1,008.6 | N/A | N/A |
| Net Change in Cash & Equivalents | 1,071.1 | N/A | N/A |
Note: All figures are in millions of Argentine Pesos (Ps.).
Material Changes vs. Prior Period
- Revenue Growth: Net revenues increased by 93.6% (Ps. 2,392.1 million) driven by the Natural Gas Transportation segment (+Ps. 1,452.3 million) and Liquids Production (+Ps. 831.4 million). Transportation revenue growth was due to full application of tariff increases from Resolutions 120/2017 and 4362/2017.
- Liquids Segment: Revenue increased by Ps. 2,485.7 million (Note: Text states Liquids revenue grew by Ps. 831.4 million in the summary but Ps. 2,485.7 million in the detailed breakdown; the detailed breakdown attributes this to exchange rate variations and price increases). Volumes dispatched increased 3.4%.
- Cost Increases: Operating costs rose by Ps. 620.4 million (44.0%) and administrative expenses by Ps. 165.5 million. Key cost drivers included higher natural gas prices for thermal plant replacement (Ps. 314.5 million) and higher labor costs.
- Financial Results: A negative variation of Ps. 140.9 million occurred due to foreign exchange losses (Ps. 231.0 million) from peso depreciation against the USD, offset partially by higher interest income.
Guidance, Outlook, and Material Events
- Tariff Renegotiation: On March 27, 2018, the Argentine Government issued Decree No. 250/2018, ratifying the 2017 Integral Renegotiation Agreement. This concludes the tariff review process and grants TGS the final tariff increase stipulated in Resolution No. 310/2018.
- Legal Contingency: As part of the agreement, TGS and its shareholders must withdraw all claims against the Government (including the ICSID Claim) by June 26, 2018.
- Investment Plan: The company will execute a "Five-Year Plan" (April 2017–March 2022) for infrastructure works valued at approximately Ps. 6,787 million (December 2016 values).
- Debt Financing: On May 2, 2018, TGS successfully placed US$ 500 million in Class 2 Notes (6.75% fixed rate, maturing May 2025). Proceeds will be used to pre-cancel US$ 207 million in 2020 notes and finance a US$ 250 million midstream project in Vaca Muerta.
Investor Verification Checklist
- Verify the final impact of Resolution No. 310/2018 on future tariff collections and cash flows.
- Confirm the timeline and legal status of the withdrawal of the ICSID Claim and other government claims by the June 26, 2018 deadline.
- Monitor the execution of the Five-Year Plan and the utilization of the US$ 500 million bond proceeds for the Vaca Muerta project.
- Assess the ongoing impact of Argentine peso volatility on financial results, given the significant foreign exchange losses reported in Q1 2018.
- Review the reconciliation of Liquids revenue figures between the summary (Ps. 831.4 million increase) and the detailed segment analysis (Ps. 2,485.7 million increase).