Q2 2023 Tenaris SA Earnings Call
Okay.
Good day, and thank you for standing by and welcome to Q2 2023 to <unk> S. A earnings conference call.
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Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today Giovanni started Danya. Please go ahead.
Thank you Gigi.
Welcome to <unk> 2023 second quarter conference call.
Before we start I would like to remind you that we will be discussing forward looking information in the call and that our actual results may vary from those expressed or implied during this call.
With me on the call today are Paolo Rocca, our chairman and CEO , Alicia Mondello, our Chief Financial Officer Gabriel protocols.
Chief operating officer, and Luca Zanotti President of our U S operations.
Before passing over the call to Paolo for his opening remarks, I would like to briefly comment our quarterly results.
Our second quarter sales reached $4 1 billion up 46% year on year, but down 2% sequentially, mainly due to lower of CPG sales in Colombia, and Canada and lower pipeline safety in Argentina.
Partially offset by higher offshore sales and I have faith in the middle East.
Average selling prices and have tubes operating segment increased 21% compared to the corresponding quarter of last year.
And 1% sequentially.
Our EBITDA for the quarter was down 5% sequentially to $1 4 billion due to lower sales and higher SG&A expenses.
Our EBITDA margin for the quarter was 34, 6%.
On the other than our net income for the quarter increased 1% sequentially to $1 1 billion as it benefited from an improvement in final results and higher income from non consolidated companies.
With operating cash flow of over $1 3 billion and capital expenditure.
65 million, our free cash flow for the quarter reached a record level of $1 2 billion.
After a dividend payment of 401 million. He may net cash position increased to $2 3 billion at the end of the quarter.
Now I will ask Paolo to say a few words before we open the call to questions.
Thank you Giovanni and good morning to our fuel.
In our second quarter, we almost matching the record results for all of our first quarter.
Combined results of the first half of <unk>.
They exceed our previous record of first semester.
This performance was driven by a high level of sales in both the U S onshore market and in offshore markets.
Well as a solid contribution from our fees in the other region.
It was also a quarter when our net income and free cash flow each exceeded $1 billion.
Our industrial supply chain system are operating at record levels in many planned.
And production line as well as in logistic movements in.
In the U S. We sold a record level of wedge 400 series connections.
Which have been specifically designed for drilling operation and feeling better.
Large operators, particularly appreciated the value we can bring to their operation with our rig direct service, which now include the delivery of pipes in run rate condition.
These servicing all taken care of the supply of pipes from their production and they are running the well using our pipe tracer system.
Provided technical specification for each by supply.
The running Dover applied in the factory.
Voiding the need for rig side pre check in processes, and making digital tallies with all the data needed for installation.
Service reduces cost and enhances safety and environmental performance and Derek.
What I've shown operations, we again saw the record levels of Blue the connector and <unk> connections.
We have developed a rate zone customer value proposition focused on reducing manual operation.
The rig floor and thus.
Enhancing safety.
We were also awarded the supply of 95000 tons.
For an offshore pipeline and seamless risers for the BMC 33, deepwater development in Brazil campus amazing as well as a contract for the supply of $46.
In terms.
A seamless pipe.
Sure pipeline for the second year debate I maintain the Brexit.
In Saudi Arabia, we began consolidating the operation of global type company.
From May 17, after increasing our indirect shareholding in the company from 35% to 57%.
This company produces larger diameter pipes for gas pipeline infrastructure structures and conductor casing applications.
Seal of GPC contributed $20 million to these growth.
We've increased in <unk> gas during the operation both in conventional and unconventional operation and its master gas development plan the demand for CTG in line pipe is Saudi Arabia is expected to increase strongly over the coming years.
Well so did your stocks are at relatively low levels and are actually seeking to replenish them rapidly.
Daenerys with a wide range of product manufacturer in kingdom.
Where do we employ over 800 person.
And extensive global capabilities.
Worldwide as.
<unk> is well positioned to supply at amcor requirement.
In July the Argentine government inaugurated the first stage of that net location type land there.
It was built with our pipes in record time pipeline.
Pipeline open the road to develop the prolific vaca <unk> shale resources.
As for the country's energy balance.
There are further projects for pipeline and infrastructure development aiming to expand evacuation capacity of oil and gas for them back on line, which.
Which will attract additional investment into it.
But this will depend on political development following the election in the coming back.
We are well positioned to serve these expansion with our integrated range.
Of local production and service capabilities.
Throw more or CTG.
Pipelines and sucker, rod to fracking and coiled tubing services.
We are nearing the completion of some investments that will contribute to our target of reducing the carbon emission intensity of our operation by 30% by 2030 compared to 2018.
These months in Italy, we are completing the installation of a heat treatment furnace, which is designed to work with hydrogen and natural gas and will improve the energy efficiency of our Italian operation.
In Argentina, we have installed 23 out of the 24 wind turbines for the wind fab, which will supply close to 50% of our electric power requirement for our operation in the account.
Back to start operating the windfarm in October .
Now it really is it we mentioned that our sales and margin in the second half would be significantly lower than our record results in the first half.
Our EBITDA will be lower than $1 billion in the third quarter due to market pricing condition.
Specific activity declines in onshore activities in the Americas.
On the other Ken our operation operating cash flow will again exceed $1 billion.
As we continue to reduce working capital.
Looking ahead, we expect that the specific factors.
That are affecting drilling activity in the second half of the Sierra will fade away.
The structure of differentiation that dynamics is established we view it as a unique global reach.
Competitive in that system and position it with leading oil and gas producers around the world will support our financial performance over time.
We went in there.
We are ready now for any question you may have.
Thank you.
As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again please.
Please stand by while we compile the Q&A roster.
Our first question comes from the line of Irone Jerome from J P. Morgan Securities LLC.
Yeah.
Yes, good morning.
Hello, I wanted to get your thoughts.
On how call it.
The pullback.
Market fundamentals.
For OCD Chi.
Impacts you know.
The company's thoughts on establishing.
Our return of capital framework beyond the.
Base dividend.
Yeah.
And then if you do move in that direction, where the board's thoughts are on buybacks versus variable dividend just given the.
The presence of a controlling shareholder at the company.
Well thank you.
Arun.
I think.
The board will.
No.
We will evaluate.
The medium term perspective, as you say of the size of our market and of our positioning.
In this market.
We will also evaluate.
The capital investment that it may be required for a different kind of operation.
Keeping this in mind, we will then look at the situation.
The reduction you know already know, where you know where it would be die in the second half of the year.
Cause of the decline in pricing a note of America type logic.
Wind down now in July by around 27% from the peak.
Of the late last year. So this way is something that we were expecting but on top of these so we had to consider there are some additional consideration one.
We have been able toward the veins.
Shipment and production because the performance over the mail has been.
As being very good day, they ended up quarter were being able to advance.
Some of the material and you're getting into shape.
Material that is contributing to the extraordinary variables. There four months I would say all for the second bullet, but is that to some extent that reducing volume in the next.
The other factor.
Is.
<unk>, Tina and not the easy to predict.
Ooh.
There are projects that we completed like pipeline in a location that other approach.
That are pending it but.
But there is nutrition of answer attorney due to the.
Anomic instability over the counter at the high inflation and the restriction to empower.
This is impacting TVT to some extent.
And I think that it would not be.
Really addressed and <unk> the.
Four Q.
This year.
These to some extent as low down the level of consumption and some of the broader.
Other factor.
And Ah some reduction in expectation.
In Columbia, and <unk> compared to what we were going to see that in maybe three months ago.
On this is specifics, let me ask <unk> to add some color on it because.
Things are moving in these counties yeah. Thank you <unk> good morning, everyone.
Certainly Colombia has been.
Gone through that have been affected by uncertainty on what do you think of that.
Changes.
Also we have some idea of who the candidates social unrest.
These have diminished our outlook for the region of listening to it.
Walter.
To give you an idea.
Columbia were serving 50 operating bricks.
Between the two two.
Today, the level of <unk> around 28 weeks.
You're welcome.
We are.
Forecasting this level to continue for the next two for this I believe there are some early signs for regarding to 22 and before buddies of his early pulled out. So this has been one of the market.
Have been self started on.
40 G merely anticipated.
That can help.
He's had a day, let's say some other factor that.
Guiding our our our forecast in the search you and in the second half of it.
But the medium term perspective.
We've seen the then changed substantially on the.
We think that the oil sector is pretty firm the level of investment of the oil company.
My way solid that the price of oil.
In the eighties.
Is.
<unk> that.
Cool video for TVT, even the United States.
Later on during the fourth quarter of 2001.
93 or in 2024.
In the rest of the world for enemies at least in this hemisphere.
The level of activity is a gradually increasing so in this sense I think that the environment for oil and gas is solid.
But from the exceptional results of the first semester.
Let's say we will.
They do so would it be died that's the reason why we call. This a significant reduction but still will be a very solid results.
And you will <unk> will be higher than 1 billion in the country.
Great. Thanks, a lot.
Thank you one moment for next question.
Our next question comes from the line of Mark B Yankee from T D Cowan.
Alright. Thank you so I wanted to ask a little bit more on the progression in the back half here if third quarter EBITDA is below a billion dollars as I think you said I'm curious what margin that would would mean and then as we go to fourth quarter I know, there's probably some.
Less visibility, but just there's there's probably some seasonal factors at play if you could give us any kind of a steer on how fourthquarter looks versus third that would be helpful as well.
<unk>.
Thank you.
<unk> well for the third quarter, we expect imagine close to Santa.
Maybe slightly below 30%, but in that range.
And then I think that for looking.
To the fourth quarter.
We had.
<unk> to take so.
No I haven't.
More clear view on the dynamic of factor, especially in the United States.
On the set and I would ask Luke because the United States You know North America is important about the United States at the core of our north and ready to go to bed Asia.
So I will ask <unk> to.
Gave us.
Some element.
Which will evaluate the perspective and the medium term yeah sure mm.
<unk>.
No I I believe that a little bit too.
This guy, but it'll be the <unk> on the U S. We should look at the at two aspects.
The the amount on the one side and the supply on on on the other side of when we look at a demand that.
What we see and this is very much in line with what of the big.
<unk> established in previous earnings caller that we're gonna see some <unk> I'm in golf, maybe doing that the third quarter of 2023.
This is mainly due to gossip may be some Gaza exile, we'd come outta and mainly due to the fact that they're they're <unk> going on and usually when they come by and Andy visa their account of the combined entity is lower than they are two separate at the.
Companies, but over all we see that <unk> to the <unk> and then we see these <unk> moving into Q4 and maybe we can have some surprises you on the upside given the fact that that then you all pricing the <unk> S change a little bit.
<unk> for the <unk>.
When we look at that Amanda sorry, when we look at the supply well then we go back to the the imports that what was asked me for and what we see on the impulses that that impulse F come down as we were expecting if you look at the Q1 compared to Q too impulsive come Diana volleyball out one I dunno, if we could.
Thousand thoughts.
More specifically when you look at the first months of the <unk>, which is usually where the quota as as in the impulse, sorry debate that higher and if you'll see for example July which obviously osceola I'm not posted by the licensees are incompatible April why do you see that that the plan that he's even more.
<unk>, we saw these coming golf by while I'm on the phone. So so we expect we slam delays are obviously link that would lead times of the <unk>.
In both that we'll we'll we'll come Diana have come down and we continue to come down to add a year also the domestic will adjust we've seen some already stating that they are going to adjust production dowana.
So they'll have it all a reduced offer especially on the side of.
The <unk> the.
The the imports and inactivity that that is theater slowing down, but that's way lower pay so we've alpha somewhat consumer the overhang of inventory that we feel over on on the ground.
If this is.
Oh, I think it's getting better but it is let's say he said the factor that will basically drive.
Medium term dynamics of the market that is very important to us and we will also influence the price.
Over time.
Do you think the stable.
Stabilization and all the factors that Luke mentioned.
Is that enough to result in a EBITA that's from the U S. That's flat in the fourth quarter versus the third quarter or is it still likely lower it's just a matter that it's it's more stabilizing and maybe it starts to increase as we get into 24.
Where are the you know the the the the the decline in the in the paper logic to some extent is affecting our contract with some delay I expect.
We will still have some.
Price reduction, maybe not the pipe logically that actually but some price reduction in our contract in the fourth quarter.
But at the time that will be also.
Some.
What was it the the factors driving from the rest of the world.
But these added the factor that are affecting let's say.
<unk>.
Okay. That's helpful. The other question I had.
It was just Denise uncertainties in Colombia, Ecuador, and Argentina that you mentioned is there any way to help us understand the magnitude of that may be collectively on an <unk> basis is that you know 50 million.
EBITDA hit in the back half or just any way to help us understand how significant that is and if it if it goes away.
How much we could be adding back to the the level of profit.
What.
Four should Argentina is.
The most important to the.
The scent.
Because in the end the in Argentina, we at having any voice and that is in the range of 2 billion.
Period, I mean, if we could see that it.
Pipeline.
Okay.
Diana.
Sales of C T G.
<unk> type it but also the service you know in Argentina, we are performing call tubes service <unk>.
<unk> service units were bragging that are working for the evening client. So the extent of what a president in Argentina ESV substantial if there is some difficulties of the operator.
In a mandating.
The performance of drilling because of lack of key importance to the material Laura David <unk> and.
Managing the operation.
In a volatile macroeconomic anxiety <unk>.
This has any impact now and I think that's any of that perspective of Argentina with time lengths. These election cycle is completed it.
<unk>.
Pretty impressive now because it.
Needs to be <unk>.
That is it I would say <unk>.
Overall consensus on the need an offer strengthening infrastructure to build the evacuation Shannon info back on my editor for gas for oil that our products from different companies.
That will enhance the set.
And allow the account and the counter to start exporting.
Exporting oil and integrating gas.
We had this surrounding counter Theresa and this was also derive additional trailing an additional protection.
All of these.
Is it.
You May view.
Very positive for a company like then added that is a very.
Large prices in Argentina, the perspective is good but the the election era.
Creating.
<unk> <unk>.
When we look at the <unk>.
Canada.
[noise] and the size, it's a kind of operation and could only an operation.
These are not sorry, 11th <unk>.
Maybe.
Got it and I mean it.
This could also be.
You can give you an idea of the size.
Of our operation there and the impact of dissent.
Have a perspective of it yeah, considering also the changing.
<unk> that would even implemented before.
Can I haven't had a very strong first half of the year, but we see some of our customers.
Adjusting the level of investment.
And focusing a policy of preservation of gosh, we believe that these will be <unk>.
Expectation for the second half of the year for.
<unk>.
Went to the onshore a decrease in the second half, which was the first half decent to Argentina, Colombia, unequal huh, but I would say that within.
In this.
Markets.
The drop.
<unk> voice is <unk>.
Second half.
Versus the first half Easter in the range of 200 to.
$250 million a broken.
And that's that's revenue 200 to 250, Yeah, correct Yep, yeah, great. Okay.
Okay. Thank you very much.
Thank you one moment for next question.
Our next question comes from the line <unk>.
Okay.
Hi, there. Thank you for taking the the question Sir have this.
A couple of them on South America.
Nation of course, the the weakness in Columbia.
I have been team as well, but at the same time I believe Mexico, He's having a really strong here and I was wondering whether this trying to Mexico or we see daily count going back to I think the highest level of seems 2014 is not affecting you get some of the the witness you say you see and <unk> <unk> as well.
Eddie a second question is I know how much it will cost I believe is they're coming down in your <unk> and I was wondering but there's a reflection of crop coming down or or what are the main component.
Component of that reduction and finally back at two urgent Tina Uhm excellent I believe that it's been a little more potentially to exit the the country and I was wondering but how you see that if if it's nice confirm and but that could create additional uncertainty there.
That's all for me thank you.
Thank you and your hands.
On the first line thrown in Mexico.
Basically I would say is gradually increasing level of operation.
The.
Also some of the private operator in Mexico advancing in that project.
So there is a gradual Ah Ah.
Let's say increasing the activity, but this is not let's say sudden and relevant increase what we expect is it very good Oswald.
Creed constrained to some extent by some financial.
Situation is financial situations Pemex sent.
And also you know Mexico's facing next year election.
Precedents so also <unk>.
<unk> <unk>.
<unk>, they probably they're completely out of moving on.
Maybe.
This is a trend that may.
Could be stronger in the second part of next year <unk>.
This piece has been cleared and the new government, we take care.
In the second point.
Well on the other side, let Amanda.
That in Mexico in the nature of our contract is that the tide their relation with the paper the O J K, a stronger and so any change in favorite object is reflected in our pricing the long term contract.
<unk> has it these component in these companies also.
[noise] applied to other confident account so you will see volume incurring anything but sage.
Basically I think that's it.
<unk> basically starting from the first quarter of 2024 is going down but will be reflected the only <unk>.
<unk> and on the other side there is no major change I mean, the movement things crap in a hospital coils in energy in February .
<unk> Ltd.
Do not see southern change would either one we saw.
In in gas.
Last year I dunno as a consequence.
Of the invasion <unk> D.
<unk>, what we see.
Affirmative action in Costa.
But as I say will turn out you know what a cost of goods sold.
Later on in the first quarter.
Of 2004, maybe.
And the last point is about the Exxon.
Excellent now inside the the.
<unk>, mainly I think that he's gonna that Exxon is.
It is an extraordinary to anything well Yana is concentrating.
Investment in the very big <unk>.
<unk> opportunity and by the way, we are supporting X something while you're on that for all deals CTG.
Lonestar contract that.
A so they are concentrating on that.
Say the opportunity mmm they they have.
I don't see the D C Z.
<unk> seeing activity and I, just you know because in this area that has been very limited <unk>.
Till now.
We will see.
What will happen later, maybe but like a month is very.
Thank you very much.
Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again.
Our next question comes from the line of Stephen King Garo from Stifel.
Thank you and good morning, everybody.
The.
I guess two questions for me, what what did you start with us when we think about consumption of pipe per.
<unk> work and I'm thinking about this kind of from a U S Y a perspective.
Are you seeing any change has it stabilized as far as kind of consumption per rig.
The type of.
Capable CTG in the well I mean are there any trends underlying consumption that are positive or how do they sort of stabilized that at current levels.
Oh well.
You know.
And in a very different and buy it on that and also.
The consortium for the yoga is very different depending firmly believe but the most.
Sure. So we'll ask.
To Luka.
To give you some view productivity increases very match over at a time, but.
To give you an idea of.
We'll continue going going up.
But even the one that that that <unk>. They are not seeing that the number of <unk>.
So our customary even in some cases, there it usually they'll beat activity and <unk>. They are still breathing the same number of wealth and these means that their specific consumption Donna.
As they move on let's say out of the sweet spot. So that the number of wealth that they're gonna have to grind to maintain production or to increase both actually I was gonna increase all of it all under.
These aspect there we see a nice future ahead of us and the second time that we see establishing and then when we go ahead and use that and more and more and it's a large use all of us seemed lesser Sami premium <unk> and the production <unk>, which obviously is 45.
<unk> 48.
Yeah, No I think.
Oh in in just a den of data no we were assuming 2019 at some.
Less than five minutes.
Thompson 5000, <unk> in a very good and today, we are in the range of 6.3.
6003, so the increase from five to 600 is part of the water and <unk> and <unk>.
Is coming from different reason, but also I.
E as in creating and we see today.
More words in the 3.5 kilometre of 3500 meters.
<unk> said, even maura yeah, yeah, good for us because he's at that age.
Quieting.
More complex <unk>.
Seamless.
And to stand there the demand of the longer <unk>. So in the sense that this is a trend that is making the market they'll be the most elected.
Thank thank you and then the other question and this is <unk>.
Maybe a little a little.
I'm trying to do my work, but detailed but when we think about your <unk> your rig direct model, obviously done a phenomenal job over the last 567 years. Several long you've had replace I forget so when we think about like looking at U S inventories and looking at you know kind of months of supply on the ground.
I think that's calibrated based on the market.
Kind of a <unk> a month's supply basis, so I'm trying to sort of triangulate those two were months of supply looks pretty healthy.
And I'm wondering if that's partially because your rig direct model doesn't show up in those numbers.
Well, if you'll see the numbers at that at 40 that to the into the.
Let's say main three publication, Sir we added a boarding our inventory on on on the ground.
Obviously, I mean, our management, though the inventory is stealer.
He is my opinion more efficient than the average of the of the industry. You saw these either one kind of conjecture.
Before we Ain't those usually he interviewed.
The data so it is a kind of.
It makes us off of what what what what are you, saying <unk>.
And.
Now what calculation on when we look for the the inventory estimation on easing the angel of 859.
Nine months.
<unk>, which is a number which is not as high as we saw 12 13 14 back into pasta <unk>.
I can offer to the theremin asama, even thought over anger, which obviously.
Actually into into the into the policies.
No. That's that's good detail. Thank you.
Thank you.
Thank you one moment for next question.
Our next question comes from the line of Mark Bianca from T D Cowan.
Alright. Thank you I had a couple of follow ups. The first one was on if we look out a few years here I.
All that capacity you might not be able to serve the whole world right. So you might need some capacity in certain parts that are growing can you talk about that and how that might relate to your decisions around capital return here later in this year.
We still has.
Available capacity of seamless rolling.
<unk>.
If we have bottleneck in our production system. This is maura.
In specific.
In some cases, we need to enhance our courting ability.
To strengthen the ability to produce capturing so premium that because we have.
I want both of them got more.
Because bureau, the rolling mail and on one side.
So I remember we haven't.
And to some extent there are products that we may bring to the market with all.
<unk> sophistication that could compete.
Application that can that to.
To some extent.
Substitute some of the seamless in different parts of the car. So by a combination of investment in value added to his treatment premium door place or quilting or it is an invasion we may have a.
Demand that exceeded our capacity and using our.
Capacity of World.
And they say they're also increasing.
Panting hit Regent capability, I think we are able to let's say to cover the need the <unk>.
Our client.
And to support very relevant market share worldwide and a substantial market share an area like the automatic.
We invested in a new mail in Canada for the weather.
<unk>.
Investment like GPC in Saudi.
To some extent.
Covering the market.
We met theater produced locally.
This is welded but still has any impacting our ability to satisfy demand.
We also have to take your mind.
We expect some demand of complex, but all of those for the energy transition.
We're looking ahead, then we plan.
Function of these.
Okay. Thank you follow the other question I had was probably for Luka I think in the past few quarters, we've kind of talked about maybe pipe logics.
Stabilizing at around $2500, a tonne is that still how you see it and what sort of timeline do you think it would take to get there I made the comments earlier about some of the supply demand dynamics in the market seems like maybe that that could be happening fairly soon.
Yeah, Mark this very solve all you want two.
Oh, no right what I'm, saying is is that as Dr. <unk> that that has changed.
The surprising <unk> comparing to the story.
And.
We have to take it easy mind, but anyway it okay.
Technology was.
Oregon.
I was going along the lines of you until you wish you Mark I believe that the demos supply balance which.