Tenaris S.A.

Good day and thank you for standing by. Welcome to the third quarter 2023 Tenaris SA 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. To ask a question during that session, you will need to press star 1-1 on your telephone. You will hear a message advising your hand is raised. To withdraw the question, press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to turn the call over to the Head of Investor Relations, Mr. Giovanni Sardagna.

Thank you, Carmen, and welcome to Tenaris' 2023 Third 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 Mondolo, our chief financial officer, Gabriele Podkuska, our 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 sales in the third quarter of 2023 reached $3.2 billion, up 9% compared to those of the corresponding quarter of last year, but down 21% sequentially, mainly due to lower volumes and prices throughout the Americas, lower quarterly shipments to offshore projects, and lower pipeline shipments in Argentina. Average selling prices in our tubes operating segment increased 2% compared to the corresponding quarter of last year, but declined 5% sequentially. As anticipated, our EBITDA, excluding a one-off gain of $32 million, fell just short of $1 billion, with the margin at 31%. The sequential EBITDA decline was mainly driven by the ongoing price declines in the Americas. Our net income for the quarter at $547 million was affected by non-cash charges of $144 million related to the re-measurement and recycling of CTA to the income statement of our direct and indirect investment in UCMinas. Cash generated by operating activities during the quarter was $1.3 billion, while our free cash flow for the quarter was $1.1 billion, with a further reduction in working capital of $415 million. Our net cash position at the end of the quarter rose to $3.3 billion. Our Board of Directors approved the payment of an interim dividend of $0.20 per share or $0.40 per ADR to be paid on November 22. The interim dividend is up 18% compared to the interim dividend we paid last year. In addition to the dividend, the Board of Directors also approved a share buyback of 1.2 billion to be executed within the next 12 months. Now, I will ask Paolo to say a few words before we open the call to questions.

Thank you very much, Giovanni, and good morning to all of you. As anticipated, our third quarter results were affected by, among other factors, lower onshore drilling activity, and an ongoing adjustment in market price level in the Americas and the lower level of shipment in certain regions following a strong second quarter. On the other hand, we had another extraordinary quarter for cash flow with the generation of 1.1 billion of free cash flow, making the 3.1 billion in the year to date. With this cash flow adding to our already strong financial position, yesterday we announced the launch of our first share buyback program together with an 18% increase in our interim dividend. The share buyback program, which is for an amount of up to 1.2 billion, is to be carried out over the next 12 months. We consider that buying back our own shares would constitute a better use of our excess cash than our current liquidity investment. During the quarter, we invested $90 million on the acquisition of additional heat treatment and trading facilities in Houston, which will help us to bottleneck our U.S. industrial system. We also acquired a small pipe coating facility located close to our dominant plant in Italy for $10 million, and announced the acquisition of the larger Showcore global pipe coating business. This remains subject to the abstention of regulatory approvals and is expected to be concluded by the end of the year. The expansion of our pipe coating operation at the global level will help us to serve customer with an integrated offer for complex and offshore line pipe projects. In North America, we expect a recovery in drilling activity as we look toward 2024. In the United States, the relatively low level of drill and uncompleted wells and the DAC and the crude oil inventories, favorable oil price and rising natural gas prices should support an increase in investment as oil and gas companies reset their budgets for the next year. With OCTG inventory declining from excess level, the declining prices for several product items is starting to slow down. the pipe logic index can be subdivided into different products item groups whose performance is not uniform. For example, item groups such as surface casing and tubing, which are most exposed to low quality imports, have fallen further than higher quality product item groups, such as production casing, which are largely produced by domestic producers. We expect that if inventory continue to come down, market pricing should start to stabilize by the end of the year. At the same time, we are increasing the level of differentiation through our rig direct service. By the end of 2023, around 85 of our OCTG sales in the US will be supplied under our rig direct service model. And 75% of those sales will be done with our new run ready service included. This compare with 65% and 30% respectively at the end of last year. In Canada, we also expect during the activity to pick up as we head into the peak winter drilling season. We are repositioning ourselves following the revision of normal values on Chinese OCTG import made by the Canadian government earlier this year. and an expected increase in activity in the mountaining shale. In the Middle East, the Saudi market is growing particularly strong as Aramco is rapidly increasing gas drilling activity, both conventional and unconventional. An investing pipeline construction under is Master Gas 3+. We recently won a tender with a value of $600 million to supply seamless casing and tubing with short delivery times For this increased activity, ESAMQ has reduced stock levels during the pandemic. Our recently consolidated GPC subsidiary, which invoiced $52 million during the quarter, is positioning itself to supply the large diameter conductor casing used in most wells in Saudi Arabia. Our new premium trading facility in the Emirates, in the United Arab Emirates, will begin operation this month. This will be the first industrial facility of its kind in the Emirates and has been built along with a special Tenaris University training facility to increase the local content provision under our multi-year rig direct agreement with ADNOC. Offshore drilling and pipeline construction activity is in an expansionary cycle. We have been quick to capture the first wave of this cycle and our sale to offshore projects will be 50% higher in 2023 than they were last year. Our position in Guiana and Brazil has been central to this achievement, and in October, at the OTC event in Rio, Petrobras awarded us a 2022 Bait Supplier Recognition in the category of Goods for Drilling and Completing Well. Our research and development area and technical teams continue to develop material and product solutions tested for the specific conditions involved in more complex low-carbon energy applications, such as CCS, carbon capture and storage injection wells, and hydrogen storage wells. In October, we were awarded a contract to supply high-chrome alloy tubing for carbon injection wells for the EU-founded PORTOS project in Rotterdam. The materials were selected to withstand the high corrosion risk and expected cryogenic thermal shocks. In Argentina, our first 100 megawatt wind farm has entered full operation and is delivering power through the interconnected grid to our operation in Campana. We have secured the opportunity for a second 90 megawatt wind farm, and we will go ahead with $214 million investment to be completed within 24 months. Both wind farms will provide cost-competitive electric power with capacity factor of 55% and above with no subsidy. With the investment in the wind farms and our ongoing investment in energy efficiency, we expect to meet almost 100% of our energy requirement in Argentina through renewable energy. Digitalization is central to our strategy. One investment that is currently coming on stream is a $20 million digital global programming and scheduling system that will help us to improve production lead times cost and compliance. With favorable market conditions ahead, we are strengthening our competitiveness and focusing on service and margin differentiation. We are now ready for any questions you may have.