TGSU2.BATGSU2.BABUE
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Carlos Almagro: Good morning, everyone. I'm Carlos Almagro, Head of Investor Relations. I would like to welcome everyone to TGS' Fourth Quarter 2025 Earnings Video Conference. TGS issued its earnings release last Friday. If you didn't receive a copy of the release, please contact us at investor.tgs.com.ar. Before we begin the call, I would like to inform you that this event is being recorded. [Operator Instructions] I would also like to remind you that forward-looking statements made during today's video conference do not account for future economic circumstances, industry conditions, or company performance and final results. These statements are subject to a number of risks and uncertainties. All figures included herein were prepared in accordance with International Accounting Reporting Standards, IFRS and are stated in constant Argentine pesos as of December 31, 2025, unless otherwise noted. Joining us today from TGS in Buenos Aires is Alejandro Basso, Chief Financial Officer. I will now turn the video conference over to Mr. Basso. Alejandro, please begin.
Alejandro Basso: Thank you, Carlos. Good morning, everyone, and thank you for joining us today to discuss TGS' 2025 fourth quarter earnings and highlights. To begin today's call, I'd like to share some of the most recent corporate developments. Back in November, we successfully issued a new ARS 500 million bond with a 10-year tenure at an 8% yield. Demand was very strong, and the transaction was oversubscribed with the total order book reaching $1.3 billion. Proceeds from this issuance are being used to fund approximately $780 million of capital expenditures related to the expansion of the Perito Moreno pipeline which would add 14 million cubic per day of transportation capacity as well as the final tranches expansion of our regulated pipeline, adding 12 million cubic per day. In addition, we also executed bank loan agreements totaling $67 million to finance imports related to this project. Finally, turning to the commercial side. On February 9, we launched the open seasons during which incremental capacity can be contracted on a firm basis. On March 16, we will receive the bids for the capacity, which will be repaid. Bids for the remaining capacity will be received once ENARSA completes the reallocation of the existing 21 million cubic per day, which are currently assigned to CAMMESA. Moving to Slide 4, I will briefly highlight the key financial results for the fourth quarter of 2025. Please keep in mind that all figures presented for this quarter and comparisons made with the previous quarters are expressed in constant Argentine pesos as of December 31, 2025, following the provisions established by the IFRS for financial reporting in hyperinflationary economies. As seen in the slide, we reported a total net income of ARS 124 billion during the fourth quarter of 2025 compared to ARS 170.5 billion reported in the same quarter of '24. Overall, earnings were lower mainly due to a few factors. First, we had the reversal of the property, plan and equipment impairment provision amounting to ARS 52.1 billion, which was recorded in the fourth quarter of '24. In addition, our financial results were impacted by a negative variation of ARS 17.9 billion and the liquids EBITDA declined by ARS 18.1 billion. That said, these effects were partially offset by the solid performance of our midstream business which delivered higher EBITDA totaling ARS 16.2 billion during the period and a slight increase of natural gas transportation EBITDA by ARS 2.7 billion. Moving on to Slide 5. EBITDA for Natural Gas Transportation business in the fourth quarter of '25 totaled ARS 109.8 billion, which is slightly higher than the almost ARS 107.1 billion recorded in the fourth quarter of '24. It is worth noting that even when we recorded an increase in revenue with tariff adjustment of ARS 31.9 billion, the adjustments were not enough to offset the inflation loss effect of ARS 40.9 billion. However, the higher transportation services, mainly interrupted transportation of ARS 9.6 billion and lower operating expenses of ARS 540 million contributed to generate a slight increase of the EBITDA. On Slide 6, you can see how EBITDA for the Liquids segment decreased to ARS 83.9 billion during the fourth quarter of 2025 compared to ARS 102 billion reported in the same quarter of '24. The decrease in EBITDA was mainly attributed to lower export prices, which fell between 17% and 33% and reduced EBITDA in ARS 31.1 billion. In addition, higher operating costs and insurance reimbursable expenses incurred following the climate event occurred in March '25 reduced EBITDA by ARS 12.8 billion and ARS 4.9 billion, respectively. These negative effects on EBITDA were partially offset by a few positive factors. First, we recorded a positive monetary effect of ARS 13.7 billion as the exchange rate increased above the inflation rate, 43.5% versus 31.5%. Second, butane prices in the domestic market improved following the deregulation under the Programa Hogar starting January '25. This allowed us to sell at export parity prices, generating an additional ARS 9.9 billion in revenues. And finally, higher sales volumes also contributed with a 4.4% increase year-over-year from 338,000 metric tons in the fourth quarter of '24 to 353,000 metric tons in the same year period of '25, resulting in a ARS 7 billion of incremental EBITDA. It is worth noting that the average natural gas price, which is the main variable cost for the Liquids business segment remained stable at $1.6 per million BTU year-over-year. Turning to Slide 7. EBITDA from midstream and other services rose by 36% to ARS 60.7 billion compared to ARS 44.5 billion in the fourth quarter of '24. This increase was mainly driven by higher sales derived from the incremental billed volume of natural gas transported and conditioned in Vaca Muerta totaling almost ARS 20.3 billion. Transported natural gas billed volume rose from an average of 28 million cubic per day in the fourth quarter of '24 to 33 million cubic per day during this quarter. The natural gas conditioning volume also increased from an average of 19 million to 27 million cubic per day. In addition, the monetary effect increased EBITDA by ARS 5 billion. These effects were partially offset by a ARS 8.1 billion in higher operating expenses. As seen on Slide 8, we recorded a negative variation in the financial results amounting to ARS 17.9 billion. This was mainly due to a ARS 12.3 billion higher interest cost, mostly explained by a higher indebtedness, which increased principally by the issuance of the $500 million bond in last November. In addition, we had an ARS 8.1 billion decrease in income from financial assets, given the lower yields achieved in the domestic financial investment and inflation exposure loss increased by ARS 2.1 billion. These negative effects were partially offset by the price import tax charge of ARS 5.9 billion recorded in the fourth quarter of '24. Following the elimination of this tax at the end of '24, no charge was incurred in the fourth quarter of '25. In the last quarter of '24, the tax applied rate was 7.5% for the imports of food and 25% for the imports of services. Finally, turning to the cash flow in Slide 9 -- on Slide 9. Our cash position in real terms increased by ARS 864 billion during the fourth quarter of '25 to ARS 1,808 billion, equivalent to approximately $1.25 billion at the official exchange rate. This steep increase in our cash position stems from the $500 million bond issued in last November. EBITDA generation in the fourth quarter reached nearly ARS 259 billion, which with 57% generated by the nonregulated business even after considering the full normalization of the Natural Gas Transportation segment. This performance highlights the increased relevance of nonregulated activities within the company's overall results. CapEx reached almost ARS 96 billion for the period and working capital rose by ARS 76 billion. We also paid ARS 5.7 billion in interest and ARS 61.6 billion in income taxes while obtaining ARS 150.3 billion in short-term loans. Lastly, real returns from financial investments declined by ARS 11.8 billion, mainly due to the exchange rate rising less than inflation during the fourth quarter. This concludes our presentation. I will now turn it over to Carlos who will open the floor for questions. Thank you.
Carlos Almagro: [Operator Instructions] Well, the question is from Daniel Guardiola from BTG Pactual. He's asking about to give him or give them, the audience a more color about the NGL projects. If there is something that is delaying in order to reach the FID.
Alejandro Basso: Daniel, how are you doing? Well, the project is moving on. We right now are negotiating with gas producers, the terms of the project, and we are expecting to have the FID before June, maybe in May. So we are very confident with the project moving ahead.
Carlos Almagro: Second question for him is, we are facing competition from YPF to extend in shale capabilities.
Alejandro Basso: Well, competition is always a risk. But nevertheless, we are working with YPF, another gas producers right now. So we -- as I said, we are expecting to move forward in the near future.
Carlos Almagro: Well, another question, someone who doesn't introduce himself is, regarding how is evolving the tariff in the transportation business?
Alejandro Basso: Well, tariff adjustment are moving smoothly. We have obtained all the tariff adjustment that we are due to which is the inflation calculation. The monthly inflation based on the wholesale price index and the CPI half-on-half. So everything is going okay. You may see some differences in the dollar revenues or dollar EBITDA from this business because the tariffs are adjusting with inflation. So when the depreciation of the peso is higher than inflation, we may have lower revenues in dollars and the other way around.
Carlos Almagro: We have a question from George Gasztowtt from Latin Securities. The question is regarding the Surrey insurance divestment, if we expect to have it this quarter, or when we expect to have the -- when we will collect this investment?
Alejandro Basso: George, in fact, we have already collected advance payments amounting to almost to $10 million. We are expecting right now a final audit from the liquidator of the insurance this month. Well, after that, I don't know exactly the timing, but we are expecting maybe by June or July. Nevertheless, I think that the magnitude of the recovery could be higher than the expenses that we have, expenses and CapEx that we had because we had some other items in the calculation.
Carlos Almagro: A question from Mat as Cattaruzzi from Adcap. First question regarding the initial project that Alejandro answered. And his second question is regarding the recent weakness in international NGL prices. How do we see the outlook for liquid pricing into 2026? Does the current geopolitical shock positive affect this segment?
Alejandro Basso: Okay. Well, it's true that international NGL prices are weak last month. Nevertheless, we are having a very good margin altogether in this business. So we -- our outlook for liquids prices right now is quite similar to the previous year. So we are not expecting any significant change. Nevertheless, well, current geopolitical conflicts that we are seeing in these days may affect positively this segment. Especially in the natural gasoline price, which is the more related to the Brent prices. The propane and butane maybe it's different. It depends on offer and supply and demand.
Carlos Almagro: Other question from Daniel Guardiola regarding the -- about the potential dividend payment in 2026.
Alejandro Basso: Well, it is my opinion, I am not seeing any potential dividend payments as we are moving forward with the project. Okay? With NGL's project. Obviously, it depends on our shareholders' decision.
Carlos Almagro: Then we have a question from Agustin Pacheco from Banco Mariva. The first question, what is planned strong increase in cash? It was explained by Alejandro that it was regarding the bond that we issued in November that added cash for $500 million. This is the main reason. And his second question, what percentage of total CapEx was allocated to the expansion project? I think that he is talking about the GPM, the transportation expansion.
Alejandro Basso: Well, total CapEx for that project is around $780 million. So the bulk of that amount is going to be invested this year, '26. The project has already started last November, and we should put in service, the 3 new compressor stations by May '27.
Carlos Almagro: Now a question from Daniel Guardiola. I think that you answered that the current area adjustment fully preserve the real return. Are we then seeing a relatively lag eroding EBITDA in real terms. It's no. We have a question from Andres Cirnigliaro from Balanz. The first question is we are planning to participate in the dedicated pipeline for the Southern Energy LNG project?
Alejandro Basso: No, no, we aren't.
Carlos Almagro: His second question is how much incremental gas production do you estimate is necessary to supply our NGL project?
Alejandro Basso: Not much. We already calculated the production of LNG based on current natural gas supplied plus the additional supply that is going to be injected in the GPM once our expansion is in place. We are very confident on gas supply for this project. We may face higher supply than expected.
Carlos Almagro: We have another question from Daniel Guardiola about what is the situation of the progress in the construction of the Perito Moreno expansion, and what is the expected CapEx to be deployed in 2026 and 2027?
Alejandro Basso: Okay. The progress is very, very okay as expected. And well, the CapEx deployment, I think it's around $100 million in '25, with the main advances to suppliers, then around more than $500 million this year, and the remainder in '27.
Carlos Almagro: Mattia Castagnino is concerned about the -- yes, it was answered. And his second question is regarding the FID of NGL project was answered. Luisa Belem, her question is regarding CapEx outlook for 2026. It was answered.
Alejandro Basso: Yes. Well, I told about more than $500 million in the expansion and another $100 million in our maintenance CapEx, so more than $600 million over this year.
Carlos Almagro: What about the working capital and tax payment?
Alejandro Basso: Yes, tax payment -- on the cash flow, we -- were a very high figure given that we don't have any advances the previous year. Moving forward, tax payments should be something lower than we see this year. Not in the quarter, the quarter, I think that -- well, also in the quarter high advances than we are expecting for the second half of '26. And working lines, I don't know. Working capital...
Carlos Almagro: His last question, if I need pipeline, but we don't have any pipeline, just only the expansion of the Perito Moreno and Penal tranches. So there is no pipeline project right now. We have a question from Andres Cardona. How much we estimate the CapEx related with the NGL project.
Alejandro Basso: Well, we -- currently, we have a more accurate estimation of this -- of the project, given that we have already run most of the bids for the construction and also for the equipment. So we're estimating this around $2.9 billion approximately.
Carlos Almagro: We have some questions from Juan Ignacio Lopez were answered. Thank you, Juan. Another question from Armando Moretti. Well, question regarding dividend that was answered. We have some questions that were answered from Guido Vissacero from Allaria. Very answered. A question from Ignacio Irarr zaval regarding the Perito Moreno expansion. When are the biddings for the capacity happening?
Alejandro Basso: Well, as I said in the call, we are expecting bidding for the repaid capacity or prepaid capacity, which 40% of total capacity for next 16th, March 16. And once the Security of Energy and ENARGAS decided the reallocation of the capacity of Gasoducto Perito Moreno, after that, we are going to run the open season for the remainder capacity, 60% of capacity. I think that it may occur before May, as a final due date for that.
Carlos Almagro: The second question is...
Alejandro Basso: And the second question is around the mix of the takers...
Carlos Almagro: What the mix of taker, we are expecting and what regions?
Alejandro Basso: For the expansion to Perito Moreno. Yes, mainly in power plants and industries, okay? As the government is reallocation the capacity to the 21 million cubic meters per day capacity of the GPM mainly to distribution companies, we are not expecting significant distribution companies bid for the capacity that we are currently in the open season. On the regions, well, a very significant part of the capacity could go to the TCS zone via the Mercedes-Cardales pipeline that was already built because the replacement of the liquids imports for the power plants may occur there mainly, and some part of the capacity, obviously going to be to the GBA area also.
Carlos Almagro: We have a question from Santiago Herrera from Allaria. How much of the investment in the initial projects will be financed by project finance?
Alejandro Basso: Well, maybe it's early to say, but right now, we are working with a group of banks, so maybe around $1 billion, something like that. This project is going to be divided in 2 SPVs, 1/3 in TGS Tratayen processing plant. There, we are expecting to finance that project with some bonds in the TCS balance sheet or in the new SPV balance sheet, also have some finance -- import finance from banks or the advances for imported equipment. And then as I said, 1 billion project finance in the second SPV, which is the SPV that is going to have the polyduct, the fractioning and the storage and dispatching facilities.
Carlos Almagro: Another question from Jorgasto. He want to have some color on the decline from revenue as percentage of transportation contract this quarter. It was because the interruptible services revenue increased. This was not because the firm revenue is declining. So this is the reason. Well, we don't have more questions. Well, this concludes the question-and-answer section. Now we will turn to Alejandro for the final remarks.
Alejandro Basso: Well, thank you all for participating in TGS's fourth quarter 2025 conference call. We look forward to speaking with you again when we release our 2026 first quarter results. If you have any questions in the meantime, please do not hesitate to contact our Investor Relations department. Have a good day.