Gas Transporter Of The South Inc Q4 FY2025 Earnings Call

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. 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.

Thank you, Carlos. Good morning, everyone, and thank you for joining us today to discuss TGS' fourth quarter earnings and highlights for 2025. To start, I'd like to share some recent corporate developments. In November, we successfully issued a new bond for ARS 500 million with a 10-year tenure at an 8% yield. Demand was strong, and the transaction was oversubscribed, with total orders reaching $1.3 billion. The proceeds from this issuance will fund approximately $780 million in capital expenditures related to expanding the Perito Moreno pipeline, which will add 14 million cubic feet per day of transportation capacity, as well as the final tranches for our regulated pipeline, contributing an additional 12 million cubic feet per day. Additionally, we executed bank loan agreements totaling $67 million to finance imports related to this project. On the commercial side, on February 9, we launched open seasons during which incremental capacity can be contracted on a firm basis. We will receive bids for the capacity on March 16, and bids for the remaining capacity will be received after ENARSA completes the reallocation of the existing 21 million cubic feet per day currently assigned to CAMMESA. Regarding our fourth quarter financial results for 2025, please note that all figures presented and comparisons made with previous quarters are in constant Argentine pesos as of December 31, 2025, as required by the IFRS for financial reporting in hyperinflationary economies. We reported a total net income of ARS 124 billion in the fourth quarter of 2025, compared to ARS 170.5 billion in the same quarter of 2024. Overall, earnings were lower due to several factors. First, there was a reversal of the property, plant, and equipment impairment provision of ARS 52.1 billion recorded in the fourth quarter of 2024. Additionally, our financial results were affected by a negative variation of ARS 17.9 billion, and the liquids EBITDA decreased by ARS 18.1 billion. However, these negative impacts were partially offset by the solid performance of our midstream business, which delivered an EBITDA of ARS 16.2 billion during the period, along with a slight increase in natural gas transportation EBITDA by ARS 2.7 billion. EBITDA for the Natural Gas Transportation business in the fourth quarter of 2025 was ARS 109.8 billion, slightly higher than the ARS 107.1 billion recorded in the fourth quarter of 2024. Despite this increase in revenue with a tariff adjustment of ARS 31.9 billion, it was not enough to offset the inflation loss effect of ARS 40.9 billion. However, the higher transportation services, mainly interrupted transportation revenues of ARS 9.6 billion, and lower operating expenses of ARS 540 million contributed to a slight increase in EBITDA. For the Liquids segment, EBITDA decreased to ARS 83.9 billion in the fourth quarter of 2025, down from ARS 102 billion in the same quarter of 2024. The decline was primarily due to lower export prices, which fell between 17% and 33%, reducing EBITDA by ARS 31.1 billion. Additionally, higher operating costs and insurance reimbursable expenses incurred following the climate event in March 2025 reduced EBITDA by ARS 12.8 billion and ARS 4.9 billion, respectively. These negative effects were partially offset by some positives, including a monetary effect of ARS 13.7 billion due to the exchange rate increasing more than the inflation rate, and improved butane prices in the domestic market, which generated an additional ARS 9.9 billion in revenues. Higher sales volumes also contributed a 4.4% year-over-year increase, from 338,000 metric tons in the fourth quarter of 2024 to 353,000 metric tons in the same period of 2025, resulting in ARS 7 billion of incremental EBITDA. 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. 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 2024. This increase was driven primarily by higher sales derived from the incremental billed volume of natural gas transported and conditioned in Vaca Muerta, which totaled nearly ARS 20.3 billion. The average billed volume for transported natural gas rose from 28 million cubic feet per day in the fourth quarter of 2024 to 33 million cubic feet per day this quarter, while natural gas conditioning volume increased from 19 million to 27 million cubic feet per day. Furthermore, a monetary effect increased EBITDA by ARS 5 billion, although these effects were partially offset by ARS 8.1 billion in higher operating expenses. We recorded a negative variation in financial results of ARS 17.9 billion, mainly due to ARS 12.3 billion in higher interest costs, largely resulting from an increase in indebtedness following the issuance of the $500 million bond in November. There was also an ARS 8.1 billion decrease in income from financial assets due to lower yields from domestic financial investments, along with an inflation exposure loss that increased by ARS 2.1 billion. These negative impacts were somewhat mitigated by the elimination of a price import tax charge of ARS 5.9 billion that was incurred in the fourth quarter of 2024, as no such charge was incurred in the fourth quarter of 2025. Regarding our cash flow, our real cash position increased by ARS 864 billion during the fourth quarter of 2025, reaching ARS 1,808 billion, approximately $1.25 billion at the official exchange rate. This substantial increase stems from the $500 million bond issued in November. EBITDA generation in the fourth quarter was nearly ARS 259 billion, with 57% generated by the nonregulated business even after considering the full normalization of the Natural Gas Transportation segment, highlighting the growing significance of nonregulated activities within our overall results. CapEx totaled almost ARS 96 billion for the period, and working capital increased 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 fell 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 for questions. Thank you.

Well, the question is from Daniel Guardiola from BTG Pactual. He's asking for more details about the NGL projects and whether there are any delays in reaching the FID.

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.

Second question for him is, we are facing competition from YPF to extend in shale capabilities.

Competition is always a risk. However, we are currently working with YPF and other gas producers. As I mentioned, we expect to make progress in the near future.

Well, another question, someone who doesn't introduce himself is, regarding how is evolving the tariff in the transportation business?

Well, tariff adjustments are moving smoothly. We have obtained all the tariff adjustments 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.

We have a question from George Gasztowtt from Latin Securities regarding the Surrey insurance divestment. He asked if we expect to have it this quarter or when we anticipate collecting on this investment.

George, in fact, we have already collected advance payments amounting to almost $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.

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?

Okay. It's true that international NGL prices were weak last month. However, we are seeing a very good margin overall in this business. Our outlook for liquid prices is quite similar to last year, so we do not expect any significant changes. That said, the ongoing geopolitical conflicts may have a positive impact on this segment, especially regarding natural gasoline prices, which are more closely tied to Brent prices. The situation for propane and butane may vary, as it depends on supply and demand dynamics.

Other question from Daniel Guardiola regarding the potential dividend payment in 2026.

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.

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. 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.

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?

No, no, we aren't.

His second question is how much incremental gas production do you estimate is necessary to supply our NGL project?

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.

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?

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.

Mattia Castagnino expressed his concern, which was addressed. His second question regarding the FID of the NGL project was also answered. Luisa Belem asked about the CapEx outlook for 2026, and that question was answered too.

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.

What about the working capital and tax payment?

Yes, the tax payment related to cash flow was quite high this year since we did not have any advances the previous year. Going forward, tax payments should be lower than what we are seeing this year. In the current quarter, we expect higher advances than anticipated for the second half of 2026. As for working lines, I am uncertain about the working capital.

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.

Currently, we have a more accurate estimation 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.

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?

Well, as I said in the call, we are expecting bidding for the repaid capacity or prepaid capacity, which is 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.

The second question is...

And the second question is around the mix of the takers...

What the mix of taker, we are expecting and what regions?

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.

We have a question from Santiago Herrera from Allaria. How much of the investment in the initial projects will be financed by project finance?

It's perhaps a bit early to provide specifics, but we are currently collaborating with a group of banks for approximately $1 billion for this initiative. The project will be split into two special purpose vehicles, with about one-third allocated to the TGS Tratayen processing plant. We anticipate funding this phase with bonds from either the TCS balance sheet or the new SPV’s balance sheet, as well as obtaining import finance from banks or advances for imported equipment. Additionally, the second SPV will also involve around $1 billion in project finance and will focus on the polyduct, fractioning, and storage and dispatching facilities.

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.

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.