Tenaris's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Tenaris S.A.(TS)

Q2 2012 Earnings Call

August 2, 2012 10:00 am ET

Executives

Giovanni Sardagna – Director of Investor Relations

Paolo Rocca – Chairman of the Board, Chief Executive Officer

Analysts

William Sanchez – Howard Weil

Ole Henry Slorer – Morgan Stanley & Co. Llc

Michael Kirk Lamotte – Guggenheim Securities, Llc

Stephen Gengaro – Sterne Agee

Frank McGann – Bank of America Merrill Lynch

Geoffrey Stern – Cheuvreux

Paula Kovarsky – Itaú BBA

Amy Wong – UBS

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Q2 2012 Tenaris SA Earnings Conference Call. My name is [Clar] and I’ll be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of the conference call. (Operator Instructions) As a reminder this conference is being recorded for replay purposes.

I would now like to turn the call over to Giovanni Sardagna, Investor Relations Director. Please proceed.

Giovanni Sardagna

Thank you [Clar] and welcome to Tenaris 2012 second quarter results conference call. Before we start, I would like to remind you as usual that we will be discussing forward-looking information in the call and that our actual results may vary from those expressed or implied here-in. Factors that could affect those results include those mentioned in the company’s 20-F and other documents filed with the SEC.

With me on the call today are Paolo Rocca, our Chairman and CEO; Guillermo Vogel, Vice President of Finance and Member of our Board of Director. Ricardo Soler, our Chief Financial Officer; Alejandro Lammertyn, the Managing Director of our Eastern Hemisphere Operation; and joining us from Huston, Germán Curá, the Managing Director of our North American Operation.

I’d like to start by mentioning that we will host an Investor Presentation in New York on August 18, and we look forward to see many of you there. Before passing over the call to Paolo for his opening remarks, I would like to briefly comment our results. During the quarter, sales increased significantly in each of our operating segment but sales grow in Tubes segment was held back by seasonal lower sales in Canada.

During the second quarter of 2012, sales increased 17% to $2.8 billion compared to $2.4 billion recording in the second quarter of last year and 7% sequential. Our EBITDA reached 760 million, which was 39% higher than the corresponding quarter of 2011 and 8% higher sequentially.

Our EBITDA margin of 27% was 4 percentage point higher than the corresponding quarter of last year and in line with the first quarter. Average selling prices were up 7% compared to the corresponding quarter of last year and 3% sequentially supported by good seamless welded product mix.

During the quarter, cash flow from operation remain strong at $450 million and we ended the quarter with the net debt position of $540 million after the position of comp of non-controlling interest for close to $760 million and a pigment of $295 million in dividend and capital expenditure of $205 million.

Now I will ask Paolo to say a few words before opening the call to questions.

Paolo Rocca

Thank you, Giovanni, and good morning to all of you, this quarter our results reflect a trend that we have anticipated of increasing demand for premium OCTG product. Today 60% of our seamless OCTG shipments of premium product, which compares with 45% two years ago. We are confident of maintaining this level in the future, demand and consumption of premium products is growing, reflecting rated drilling complexity lead by growth in deepwater wells, horizontal drilling in unconventional application and sour and high pressure gas wells. The investment we have made in the past few years are already paying their way.

The introduction of new products such as the TXP and the Wedge 625, the increasing penetration of our principal premium technologies particularly the Wedge series, Blue series and Dopeless and at the global deployment of technical support for our product. And all contributing to strengthen our position in the premium sector, this quarter we benefited from higher sale to oil and gas customer in Iraq and Eastern Hemisphere as a whole. For the future activity we’ll continue to increase in these region. Our North American operation continue to perform well, sales for deepwater application in the Gulf of Mexico were particularly strong during the quarter.

As our Wedge series 500 is well established in the market. [Six steams] of our new wedge 625 connection were successfully run in the Eagle Ford. In the coming quarter we expect the recount in U.S. to decline, but we’re confident on the long-term perspective of this market. In June, we announced our strategic decision to invest in a new seamless production and logistic center in the United States.

We are currently penalizing the selection of the site and expect to start up the new mill at the beginning of 2016, this decision as I say reflects our confidence in the long-term growth prospect for the North American market, and the impact of changes in drilling technology, on product requirement and supply chain efficiency resulting from the development of the shale reserves. Since the acquisition of Maverick and Hydril five years ago, we have grown and consolidated a strong competitive position in North America, which we plan to complement with these new investments. Brazil in addition to our series of conductor and surface casing, we’re concluding a five year agreement under which we will supply Blue Connection for casing stings, which will be used offshore.

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