Transportadora de Gas del Sur SA TGS

Hello, and welcome to the TGS 2020 Q2 earnings release. Throughout the call, all participants will be in the listen-only mode, and afterwards, there will be a question-answer session. Just to remind you, this conference call is being recorded. Today, I'm pleased to present Christian Johansen. Please go ahead with your meeting.

Thank you, operator. Good morning, good afternoon, and good evening, depending on where in the world you're listening in from. My name is Christian Johansen. I'm the CEO of TGS. And with me today, I have our CFO, Frederick Amundsen. So like most employees in the US and especially in Texas, I'm still working remotely. But I'm pleased to follow the development in Europe where I understand Frederick has been back in the office for about a month now. So let's hope we can get past this COVID-19 thing pretty soon. As usual, we reported our preliminary revenues for the quarter on the sixth business day after quarter close. The numbers are therefore well known for you. This morning, we reported our full financials for Q2, so I hope you've had a chance to review the numbers and that you watched our pre-recorded presentation. We're also happy to take your questions at the end of the call if you have any. Q2 2020 was impacted by the COVID-19 crisis and the sharp drop in old price starting in late Q1. Protecting the health and safety of our employees at the same time as ensuring minimal disruption to the business has taken top priority for management. And in that regard, I'm extremely pleased with how the organization has performed during this challenging time. We launched an aggressive cost-cutting program in April consisting of layoffs of about 30% of the workforce, closure of a few international offices, bonus cuts, and even a 10% to 20% cut in fixed salaries for executives. So we charged about $18 million of cost this quarter related to severance, office accruals, and other restructuring charges. Further, we saw extraordinary high amortization to ensure a data library consisting of only the best projects with a reasonable book value in line with these unprecedented market conditions. With announced measures to protect cash flow, the company is uniquely positioned to take advantage of the difficult market conditions to form the basis for further long-term value creation and continued industry-leading returns. So we have segment revenues of $96 million in Q2, So while this is down 55% year on year, mainly to the COVID and old price collapse that I had discussed, most analysts and investors were actually quite positively surprised by our relatively strong late sales. So while this number was pretty much in line with our own expectations, it's always good to get a confirmation of the quality of our data library. So even a few clients that told us that all discretionary spending was cut to zero, they had to bite the bullet and buy data at the end of the quarter, which is always good. You'll also notice that our operational cash flow was quite strong at almost $100 million. This is due to high collections. In fact, our cash collections improved by 38% from last year, which confirms the quality of our customer base, mainly consisting of companies with high credit quality. So we've had some questions about that in this down cycle. How do you How do you look at credit risk, and do you fear big losses on receivables? And I think in that regard, Q2 was a very good confirmation that most of the clients at TGS are usually big supermajors, national oil companies, or independents who still have strong balance sheets. Going back to our balance sheet, it remained strong, cash holding of about $200 million at the end of the quarter, and this allows the company to pay a dividend of... US dollar 0.125 per share in Q3, despite the challenging market conditions. And that's something we are obviously, it is very important for us and we are proud of it. The TGS has a history of maneuvering difficult times in such a manner that we come out in a stronger position at the end. And this is our goal in the current situation as well. By the measures we've already implemented, we're ensuring that the balance sheets remain robust, which will allow us to withstand a prolonged period with lower revenues. as well as taking advantage of interesting opportunities that tend to appear in periods such as this. We've seen that so many times before. We remain convinced that the long-term outlook for oil and gas is strong. Demand figures are expected to be back to pre-COVID numbers already during spring of 2021, and production has been lower in more than a decade. The population continues to grow, and the desire to move from lower to middle class has never been stronger. we all know how that impacts energy intensity and demand. An asset-like company with a track record of delivering through the cycles and sometimes even strengthening the position during down cycles will always be a good value proposition. So these were the key points I wanted to cover initially. Thank you for your attention so far. We will now open up for questions. Back to the operator, please.

Thank you. If you do wish to ask a question, please press 01 on your telephone keypad. If you wish to withdraw your question, you may do so by pressing 02 to cancel. There will just be a brief pause while any questions are being registered. Our first question comes from the line of Amy Wong from UBS. Please go ahead.