Transportadora de Gas del Sur SA TGS

Good morning and welcome to TGS Q2 2024 results presentation. My name is Bart Stamberg, Vice President of Investor Relations in TGS. Today's presentation will be given by CEO Kristian Johansen and CFO Svendberg Larsen. Before we start, I would like to draw your attention to the forward looking statements showing on the screen and available in today's presentation and earnings release. You can also start typing in questions during the presentation, and I will address those questions to management after their concluding remarks. So with that, I give the word to you, Christian. Thank you.

So I hit the highlights right away. So TGS had POC revenues and this is standalone TGS. POC revenues of 215 million in Q2. That compares to 241 million in Q2 of 2023. Our late sales were $66 million. That's up from 63 in the same quarter of last year. And then we had early sales of $49 million, which compares to $66 million of last year. But the early sales rate is up from 77% last year to 94% in Q2 of this year, signaling that we had a combination of strong pre-funding of new projects and also healthy sales opportunities. of existing projects that are still in the acquisition or processing phase. We had proprietary revenues of 100 million compared to 113 in the same quarter of last year, and we had an EBIT of 28 million in Q2. That compares to 39 million in the same quarter of last year. One number that particularly stands out in Q2 this year is the strong contract inflow, where we had $368 million signed of new contracts during Q2, and that takes our total backlog up to more than $600 million, so $611 million after Q2, and this does not include PGS. And talking about PGS, the PGS transaction were completed on July 1st, 2024. So after about nine months of careful planning, we're now in the execution phase of that. We have selected managers now at the L1 and L2 level. And we're continuing now down the ranks, realizing substantial synergies from this transaction. And that's partly going to be driven by moving into the same offices by October 1st this fall. So if we move to the recent highlights, again, the quarter has been really good in terms of signing new contracts. I'm going to go through some of these contracts right now. First slide here is showing the data acquisition activity that we had in Q2 of 2024. And we've added the PGS vessel operations to this picture. And you see that it's an extremely busy slide with about 22 different operations in Q2 of 2024. What the picture also shows you is the phenomenal breadth of our business, where we have substantial business activities in all the major basins of the world. You see the mix of PGS and TGS, where PGS is particularly strong in the northern side of the Atlantic margin, where TGS stands out particularly in the US Gulf of Mexico and the southern hemisphere, of the Atlantic margin. So a lot of activity in the Atlantic margin. You see all the dots on the picture there. Also quite substantial activity in Asia Pacific and this would be particularly countries such as Indonesia and Malaysia for Q2 of 2024. So some of the projects that we have signed up recently in the multi-client business, we have an onshore 3D seismic survey in the eastern US. This survey covers about 200 square kilometers on the western flank of the Appalachian Basin. It's actually utilizing about 75,000 of our existing wells and 145,000 well logs from our existing library. So again, it shows you a lot of the synergies that we have internally by having all these data all over the world. And in this particular case, we're talking about the Wellog data library where we have more than 10 million wells digitized and collected all over the world, but obviously being very strong in North America. This survey includes seismic subsurface imaging, so we're doing imaging on this, well-performance data, formation tops, and also basin temperature modeling. It targets multiple exploration zones, and the acquisition begins in Q4 of this year, where we will have preliminary data available by Q1 of next year, and final data sometime by Q3 of 2025. Again, the project is supported by strong industry funding. I'm particularly pleased to announce a new award in imaging. This is a four-year software licensing agreement for our Imaging Anywhere imaging software. So it's a multi-year software contract with Shell to enhance the data processing and analytics. And Shell's plan is to migrate from in-house software to our imaging anywhere. And it really underscores the software sophistication, performance and analytics. This is a software that we inherited from the acquisition of ION and then we've We've spent both time and capital resources to develop it further. And again, very pleased to see our first major contract in terms of licensing this software. So kind of a new business area for TGS, but we have an existing software that is very efficient and working out very well for us. And now clients see the benefits of that and start to show interest in licensing this software. So this is more than a software sale and licensing agreement. It's a long-term collaboration, and we're aiming to improve imaging quality, reducing turnaround time and lower cost, and we're working very closely with our clients to improve in those areas. Next one is on the contract side. So we have two new OBN contracts announced recently. One is in North America. This is a six-month or slightly more than six-month contract. Contract is with Major. It's a returning client. It's a company who's been working with us in North America before. So it's particularly promising, of course, to see clients come back to TGS. This survey is expected to deliver high-quality seismic data to drive decision-making for that client, and it really reinforces our strong position in North America. We also had an OBN contract in West Africa announced this morning. We're extending our deepwater OBN campaign well into Q4 of 2024, so we fill most of that white space that we had for that particular crew. And again, same thing, this delivers industry-leading seismic data for more and better decision-making capabilities for that particular client. Moving on to new energy solutions, and this is obviously where we see part of the benefits with merging with PGS. So we see a lot of synergies between the two different businesses. The first contract is Ultra High Resolution 3D in Europe. It's a 45-day contract. It's awarded in Q3 to support offshore wind and data characterization. We're going to use the Ramform Vanguard and the survey is going to begin in Q3 this year. We will manage the data imaging in-house and again this technology of ultra high resolution 3D will enhance the detailed subsurface data for shallow targets and offer superior efficiency and shorter lead times for the client. Project really underscores a growing offshore wind site characterization market. So we've been following PGS for quite some time and seen some of those or noticed some of those contracts that PGS have signed over the past 12 to 18 months and obviously looking forward to be part of that. And this is a rapidly growing market where both PGS but also TGS through the acquisition of MagSize have very strong market positions and in a market that will continue to grow for the next decades. On top of that, we announced a wind and meta ocean campaign offshore California. This is a new measurement campaign off the central coast of California, and you see the map in the lower left-hand corner. It's a three-year initiative to support floating wind farm development. And this is one of these projects where we use these LiDAR buoys to provide crucial data on wind speed, wave heights, ocean currents and different types of data relevant for wind developers. The data will be accessible through our Wind Axiom platform. It's a digital platform that clients can access directly and it supports, of course, investments and planning decisions for future offshore wind projects. It marks our ninth LiDAR deployment in two years and really highlighting our commitment to offshore wind energy advancement. And we already start to see the synergies between the two. So if you look at all these LiDAR deployments that we've done and also the asset-based high-resolution 3Ds that we're doing with either MagSize or PGS, there's a lot of synergies between the two. And we're starting to build a quite substantial data library also for offshore wind, which is great to see, and it really, really tells the story of TGS being able to adapt to the changes in the market and take advantage of growth in areas outside the traditional oil and gas. So let's hand it over to the financials, and Sven Börre is going to go through that, and then I will be back for the outlook section. Thank you very much.

Thank you for that, Christian. Good morning, everyone. As Kristin already said, the PGS transaction closed on 1st of July. It means that for financial purposes, we did not include PGS in our Q2 P&L and it's not included in the 30th of June balance sheet. So the only traces you will find of PJs in these numbers are some one of transactions costs that have been charged, $6.2 million in this quarter. So I'll start by going through the revenue numbers. So you can see early sales on the top left hand chart. We had $49 million in the quarter. It is a bit down compared to what we saw last year and also what we in Q3 last year and also to what we saw in Q1. And that has to do with A lower investment level, we still have a very high early sales rate of 94%. So our customers still show a lot of interest in the new service that we are acquiring. And we expect, of course, early sales to increase in the second half of the year in line with increased multi-client investments. So for late sales on the top right-hand chart, we recognize $66 million of multi-client late sales. In the quarter, it's a bit up compared to Q2 of last year and slightly down compared to Q1. You should note that there were no special triggering events in the quarter, so no significant licensing rounds driving sales and no transfer fees. So it's a pretty clean number in that respect. On proprietary sales revenue, on the bottom left-hand chart, you can see that we recognize $100 million in this quarter. It's significantly up compared to Q1. And also looking ahead to Q3, we continue to expect strong sequential increases. And then this resulted in total revenues of $215 million, a little bit down from the $227 that we had in Q1 and also down from the $241 that we showed in the same quarter of last year. If you look at POC revenues by business unit, we see multi-client and imaging combined had $107 million in the quarter, a bit down compared to the same quarter of last year due to lower early sales. mostly digital energy solutions continue to show very strong underlying growth, although it is a bit lumpy from quarter to quarter. So this quarter we had $16 million of revenues in the digital energy solutions business unit, which represents 62% growth compared to the same quarter of last year. Then for the acquisition business unit, which includes our OBN activities, we had 92 million dollars of revenues this quarter. A little bit down compared to the 107 that we had in the same quarter of last year, but significantly up compared to the Q1 level. And as you can see, we had very limited internal activity. These are projects where we use our own OBN activities or our own OBN capacity for multi-client projects. So only one million dollars worth of that kind of activity in this quarter. Then I'm moving on to the cost side of the business. Cost of sales, $42 million. Here you should note that it should be seen in context with the IFRS 16 depreciation related to vessels that we use in these operations that we have leased on contracts that last more than 12 months. I'll come back to that later. But you can see this number increased a little bit sequentially in the quarter to 42 million from 35 million in Q1. And that, of course, has to do with a higher activity level. On personnel cost, we stay steady at 32 million, which is the same level as you've seen in the past few quarters. Other operating expenses were $20 million in the quarter. But here you should note that it includes a little bit more than $6 million in non-recurring costs related to the PGS transaction. Going forward, this number, the non-recurring transactions related costs should be much lower. So we don't expect to charge more than a few millions in the next couple of quarters. And this gave an EBITDA of $121 million in the quarter compared to $132 million in the same quarter of last year. And if you adjust for the non-recurring transaction costs, we had approximately $128 or $127 million of EBITDA in the quarter. Looking at the amortization, it's pretty normal given the level of early sales that we had in the quarter. So the straight line amortization remains steady at around 40, 39 million dollars in this quarter. And the POC accelerated amortization, which is mostly related to early sales, came in at 22 million dollars in the quarter and no impairments were charged in this quarter. On the depreciation side, we had $33 million recognized in this quarter. You can see a step up in depreciation from between Q3 and Q4 of last year, and that is related to these IFRS 16 leases that we entered into at that point in time. So of the $33 million, it's approximately $20 million of IFRS 16 leases included in that number. But again, I'm coming back to more details on that on a later page. This gave us an operating result of $28 million in the quarter, which is $34 million if you adjust for the non-recurring transaction costs that were charged in the quarter. Looking at the multi-client investments, they were $52 million in the quarter. And the early sales rate was 94%, as I alluded to earlier as well, compared to 77% early sales rate and $86 million of multi-client investments in the same quarter of last year. So we haven't updated the multi-client investment guidance for this year following the closing of the PGS transaction. We intend to do that on the capital markets day on the 29th of August. But for Q3, you should expect multi-client investments to come up to around $120 million. But we will return with more details on that in the capital markets day. And then if we look at the cost of sales and the IFRS 16 adjustment, you see that we had, as we also discussed earlier, $40 million of cost of sales in this quarter. But in order to analyze the underlying profitability of our proprietary revenues, you also need to include the IFRS 16 depreciation. related to vessels that we have on lease for more than 12 months. So if you include that, or that accounted for 20 million dollars in addition, and including that we had a gross margin of 34% on our proprietary activities. So a strong development in the gross margin which is testament to the strong operational performance in the OBM business. And then although PGS has not been included in our Q2 numbers, we are showing here a quick summary of PGS's financials for Q2 on a standalone basis. You will find more details about this in the appendix. So this slide just shows a quick summary of that. of the highlights. You can see on the top left hand chart a summary of the POC revenues or produced revenues as PJS used to call it. Contract revenues constituted 74 million dollars in the quarter. Pre-funding revenue were $59 million, late sales $41 million, and imaging and other types of revenues accounted for $5 million, $179 million in total. This is to be compared with $186 million in the same quarter of last year. EBITDA in PGS was $71 million in the quarter, but you should note that this included one-off transaction costs related to the merger of approximately $13 million, so $84 million in EBITDA if you adjust for the one-off transaction costs. And same on the operating result, also include the same non-recurring costs, of course. Minus $17 million in POC operating result in the quarter, but minus four adjusting for the non-recurring items. The multi-client investments in PJS amounted to $46 million, and the early sales rate was as high as 130%. This slide here shows the bridge between our POC revenues and the IFRS revenues. So the IFRS revenues were a little bit higher than the POC revenues in this quarter. But as you know, the IFRS revenues jump up and down quite a bit between the quarters and even more so than the POC revenues do. And this takes us to the IFRS profit and loss, 224 of revenues, EBITDA of 131, operating result of 55, result before taxes of $49 million, and after subtracting tax cost of 13.5, that gave us a net result of 35.2 or higher. corresponding to an EPS of 27 cents in the quarter compared to 18 cents in the same quarter of last year. Then to the IFRS balance sheet, not too much to note here. Other than observing that we continue to have a very strong balance sheet, you should note that the other non-current asset line contains the loan that we extended to PGS in April. in Q1 of this year and we drew down on our RCF to fund that so there is also 60 million dollars of interest-bearing debt included in the other non-current liabilities line. But this will become an inter-company loan obviously from now and onwards. Looking at cash flow, you should note that this is the IFRS cash flow and a POC cash flow would look somewhat different line by line. So you see that we had $89 million of net cash flow from operating activities in this quarter. As we talked about earlier, we had 121 million dollars of POC EBITDA in the quarter. So as you can read from that, we had quite a bit of working capital build and build of other preliminary balance sheet items in this quarter. And this, of course, had a negative impact on cash flow relative to what you otherwise we'd seen. But this levels out over time and we expect cash flow to be significantly stronger in the second half of the year than it was in the first half of the year. We had net cash flow to use in investing activities of $80 million in the quarter and we had net cash flow to financing activities of minus $41 million in the quarter, which meant that we had a net cash flow negative of $31 million in the quarter, which resulted in a cash balance of $125 million for TGS standalone towards the end of the quarter. But as I said, we expect to see significant improvement in cash flow in the second half of the year. And the board has resolved to continue to pay a dividend of 14 US cents per share, corresponding to 1.51 Norwegian krones per share this quarter. The X date is set to 25th of July, and the payment date will be on the 8th of August. And including... This dividend, TGS, has now returned more than $1.5 billion to our shareholders through dividends and buybacks since we started to pay a dividend in 2010. By that, I leave the word back to Christian, who will take you through the outlook section.