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: Second Quarter and Six Months ended June 30, 2012
Business Overview: TGS is Argentina's leading natural gas transporter with approximately 2.9 Bcf/d of firm contracted capacity. It is also a leading processor of natural gas and a major marketer of natural gas liquids (ethane, propane, butane, and natural gasoline). The company operates under the regulation of ENARGAS.
Key Financial Metrics
Quarter Ended June 30, 2012 (vs. Q2 2011)
- Net Income: Ps. 21.2 million (Ps. 0.027 per share), down from Ps. 45.1 million in Q2 2011.
- Total Net Revenues: Ps. 536.5 million, up from Ps. 365.1 million in Q2 2011.
- Costs of Sales & Expenses: Ps. 433.6 million, up from Ps. 277.5 million in Q2 2011.
- Net Financial Expense: Ps. 68.7 million, up from Ps. 28.8 million in Q2 2011.
- Income Tax Expense: Ps. 11.5 million, down from Ps. 26.3 million in Q2 2011.
Six Months Ended June 30, 2012 (vs. H1 2011)
- Net Income: Ps. 100.6 million (Ps. 0.127 per share), down from Ps. 134.0 million in H1 2011.
- Total Net Revenues: Ps. 1,181.5 million, up from Ps. 896.6 million in H1 2011.
- Costs of Sales & Expenses: Ps. 903.0 million, up from Ps. 622.8 million in H1 2011.
- Net Financial Expense: Ps. 118.1 million, up from Ps. 72.7 million in H1 2011.
- Operating Cash Flow: Ps. 307.1 million for the six-month period.
Segment Performance (Six Months Ended June 30, 2012)
| Segment | Net Revenues (Ps. Million) | Operating Income (Ps. Million) |
|---|---|---|
| Gas Transportation | 292.0 | 65.3 |
| Liquids Production & Commercialization | 801.3 | 234.2 |
| Other Services | 88.2 | 31.4 |
| Corporate | - | (52.4) |
| Total | 1,181.5 | 278.5 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased significantly (46.4% for Q2, 31.8% for H1) driven primarily by the Liquids segment, which grew 81.7% in Q2 and 40.5% in H1. This was due to higher volumes sold by TGS on its own account and a >30% rise in ethane prices.
- Profit Decline: Despite revenue growth, net income decreased (53% in Q2, 25% in H1). The primary driver was higher foreign exchange losses (Ps. 37.7 million in Q2; Ps. 46.3 million in H1) resulting from the devaluation of the Argentine peso against the dollar, impacting TGS's dollar-denominated net liability position.
- Cost Increases: Costs of sales rose sharply due to a government tariff charge increase (from Ps. 0.049 to Ps. 0.405 per cubic meter effective Dec 1, 2011) to finance natural gas imports, higher labor costs, and increased export taxes.
- One-Time Items: Q2 2011 included Ps. 16.0 million in revenue from the early cancellation of a contract, which was not present in 2012, negatively impacting the year-over-year comparison.
Outlook, Risks, and Management Commentary
- Foreign Exchange Risk: Management highlights that the devaluation of the local currency is a significant risk factor, directly increasing financial expenses and reducing net income.
- Regulatory Environment: The company is subject to ENARGAS regulation. The government-imposed tariff charge for financing gas imports remains a major cost driver.
- Forward-Looking Statements: The filing includes standard disclaimers that actual results may differ materially from projections due to known and unknown risks.
- Liquidity: Operating cash flow of Ps. 307.1 million for the first half 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 figures.
Key Facts for Investor Verification
- Currency Impact: Verify the extent of TGS's dollar-denominated liabilities and the sensitivity of net income to further Argentine peso devaluation.
- Tariff Sustainability: Confirm the stability of the government tariff charge (Ps. 0.405/cubic meter) and its pass-through mechanisms to customers.
- Liquids Pricing: Assess the sustainability of the >30% ethane price increase and the volume trends of gas processing by clients versus TGS's own account.
- Debt Structure: While financial expenses are detailed, specific debt maturities and interest rates are not explicitly listed in this summary; review the full 20-F for detailed debt schedules.
- Regulatory Changes: Monitor ENARGAS for potential changes in gas transportation tariffs or import financing mechanisms.