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Tenaris S.A. (NYSE:TS) Q4 2023 Earnings Call Transcript

Tenaris S.A. (NYSE:TS) Q4 2023 Earnings Call Transcript February 22, 2024

Tenaris S.A. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day and thank you for standing by. Welcome to Fourth Quarter and Full Year 2023 Tenaris S.A. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Giovanni Sardagna. Please go ahead.

Giovanni Sardagna: Thank you, Gigi, and welcome to Tenaris 2023 fourth quarter and annual results conference call. Before we start, I would like to remind you that we will be discussing forward-looking information in this 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 Mondolo, our Chief Financial Officer; Gabriel Podskubka, our Chief Operating Officer; and Luca Zanotti President of our US Operations. Before passing over the call to Paolo for his opening remarks, I would like to briefly comment our quarterly results. During the fourth quarter of 2023, sales reached $3.4 billion, down 6% compared with those of the corresponding quarter of the previous year but up 5% sequentially, mainly driven by high level of shipment to the Middle East and to offshore pipeline projects, combined with the inclusion of our newly acquired Shawcor pipe coating business, which offset the ongoing price declines in the Americas.

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Our EBITDA for the quarter was down 3% sequentially to $975 million and the EBITDA margin declined to 29%, mainly reflecting lower pricing in the Americas. Our net income for the quarter at $1.1 billion was positively affected by a good result from non-consolidated companies, positive financial results and an important net deferred tax gain. Average selling prices in our Tubes operating segment decreased by 11% compared to the corresponding quarter of 2022 and 6% sequentially. During the quarter, cash flow from operation was $836 million. Our net cash position at the end of the quarter, increased to $3.4 billion, following the payment of an interim dividend of $235 million in November last year, $214 million spent on share buybacks and capital expenditures of $167 million during the quarter.

The Board of Directors have decided to propose for the approval of the Annual General Shareholders' Meeting to be held at the beginning of May, the payment of an annual dividend of $0.60 per share or $1.20 per ADR, which includes the interim dividend of $0.20 per share or $0.40 per ADR that we paid at the end of November last year. If approved, a dividend of $0.40 per share or $0.80 per ADR will be paid on May 22. The dividend proposed annual dividend for this year is 18% higher compared to the annual dividend paid last year. Now, I will ask Paolo to say a few words before we open the call to questions.

Paolo Rocca: Thank you, Giovanni, and good morning to all of you. We ended the year with a strong fourth quarter supported by a high level of shipment to the Middle East and for offshore projects. Thanks to the good performance of our industrial and supply chain system, we were able to anticipate some premium Sower [ph] shipment to Aramco under our recent tender award. We were also able to include the first contribution from our newly acquired Shawcor pipe coating business after expediting all the necessary antitrust approvals. 2023 has been an outstanding year for Tenaris with record financial results under most metrics. Net sales of $14.9 billion, EBITDA of $4.9 billion, net income of $4 billion, operating cash flow of $4.4 billion.

As a global supplier of pipes to the energy industry, we have developed a unique position present in the most challenging development in the oil and gas industry serving its most important players. With these results, a net cash of $3.4 billion in our balance sheet, we are increasing returns to shareholders. We are proposing to increase our annual dividend to 60% per share. Together with the share buyback program we initiated in November this would imply a 10% yield to shareholders for the year at current prices. We have extended the perimeter of our operation through a series of acquisitions. In Saudi Arabia, we increased our stake in GPC to gain a controlling position in this large diameter weather pipe mill, producing conductor casing and large diameter line pipe.

A close-up of an oil rig showing the precision engineering required to extract oil and gas.
A close-up of an oil rig showing the precision engineering required to extract oil and gas.

With the acquisition of the Shawcor pipe coating business, we are strengthening our line pipe business, especially for offshore line pipe where Shawcor has a leading position in anticorrosion and insulation coatings. In the United States, we increased the flexibility and overall capacity of our US in data system by acquiring additional key treatment and trading facilities. Each of this integration to our global industrial system, enhance our capacity to serve our wide customer base with a growing range of products and services. Our global integrated industrial and supply chain system produced and shipped over four million tons of pipes to customers around the world. Many of these pipes are delivered directly to our customer operation in the field.

Under our Rig Direct service program, which now serves over 500 rigs worldwide. Under this program, which requires investment in working capital, service infrastructure, logistics and digital systems, we enhance customer intimacy and differentiation, adding services to simplify customer operation and reduce on-site manpower requirement. With our Rig Direct program, which now incorporates our RunReady service, we are reducing inventories in North America and transforming the supply chain. We are advancing with our Rig Direct service in other regions around the world. In North America, we have strengthened our positioning among large operators. We were recently awarded a long-term agreement by ExxonMobil to serve their unconventional operations in the United States, which confirms the preference the large operators are giving to our industrial footprint specialized product and supply services.

We are now serving each of the 10 largest operator in the country who are maintaining a stable level of operation even as the overall US rig count has declined. We are also strengthening our position among major operator in Canada. Our sales for offshore operations projects grew more than 50% during the year. In Guyana, where the development of prolific deepwater reserves is transforming the country, we are serving ExxonMobil operation under a long-term contract. While in Brazil, we are supplying Petrobras with a wide range of products for the Buzios development. We are supplying a number of offshore gas pipeline development around the world. Our sales are growing in the Middle East where we have increased our local content and presence. In Saudi Arabia, Aramco, while postponing some of its offshore oil expansion is expanding its gas drilling activity including the development of the Jafurah in unconventional reserves.

We are supplying premium seamless OCTG, following a tender awarded to replenish depleted stocks and are ramping up deliveries of conductor and surface casing from our local welded pipe subsidiaries. The expansion of gas drilling activity will also provide valuable opportunities for sales of line pipe as Aramco proceed with its master gas pipeline program. Last week, we now rated a new industrial complex in Abu Dhabi along with officials from ADNOC and the Ministry of Industry and Advanced Technology. This includes a new premium trading facility, training facility and an expanded service yard, which will support the Rig Direct service we are providing to ADNOC under our long-term agreement, as well as contributing to the industrial development of the Emirates.

Our industrial system operating at a high level throughout the year has performed well in supporting our position in worldwide. In safety, however, we had three fatalities in our operation after four years without any. We are deeply sorry for the loss of life and we are reinforcing all our preventive action with a particular focus on the activities of contractors working in our system. We made a significant advance in our decarbonization program. When after a $200 million investment, we successfully put into operation our first wind farm in Argentina and we are now moving forward with a similar investment to build a second well. The Buena Ventura wind farm is now supplying 100-megawatt of power through the interconnected grid to our industrial facility in Campana meeting close to 50% of its total electric power requirement and contributing to a lower cost of energy.

As we look forward to 2024, Tenaris with its extended the global reach enhance competitive differentiation and exceptional financial position is well-placed to strengthen its positioning around the world. The current favorable market condition in the Middle East and offshore are expected to continue through the year. While in the Americas, we are consolidating a solid position ready to take advantage of any further opportunities that may arise. I would like to give a special thanks to our employees without whose continuous effort and commitment our many achievements during 2023 will not be possible. I will leave now the floor open for any questions you may have. Thank you.

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To continue reading the Q&A session, please click here.