Tenaris SA (TS) 2004 Q4 法說會逐字稿

Good day ladies and gentlemen. On behalf of Tenaris we would like to welcome you to the Company's Fourth Quarter 2004 Results. Representing Tenaris will be Carlos Condorelli, Chief Financial Officer. Germán Curá, Commercial Director and Nigel Worsnop, Investor Relations Director.

At this time all lines are in a listen-only mode. We will be facilitating a question and answer session towards the end of the conference. If at anytime during the call you require assistance, please press star followed by zero and a coordinator will be happy to assist you. As a reminder this call is being recorded for replay purposes. I would now like to turn the call over to your host for today's call Mr. Nigel Worsnop. Please proceed sir.

Thank you and welcome everybody. We would like to remind you that this conference call contains forward-looking information and that actual results may vary from those expressed or implied. Factors that could affect these results include those mentioned in the company's 20-F registration statement and other documents which are filed with the U.S. Securities and Exchange Commission.

Before starting I'd like to offer a brief apology for the lateness of the hour at which we released our results last night. We aimed to release as soon as possible after the close of market for last night we were a little delayed which we hoped did not cause any undue inconvenience.

I would like to start by taking a quick look at what happened to our results in 2004. Stripping out the exceptionals, that's the Fintecna arbitration award, the 2003 losses from the BHP lawsuit and a non-recurring gain from our investment in Sidor, net sales rose 30% to 4.1 billion from 3.2 billion. EBITDA rose 50% from 600 million to 900 million with the margin increasing to 22% from 19% and net income rose 85% to 525 million from 285 million.

The annual results reflected a trend that saw a significant quarter-on-quarter growth certainly in the fourth quarter net sales had risen to almost 1.3 billion, EBITDA reached 290 million with a margin of 23% and net income again excluding exceptionals rose to 225 million or 185 million excluding the financial income gain. From this it should be clear that if the trend were to continue or if we do no better than we did in this fourth quarter, our 2005 results should show a further significant improvement.

In our last year's conference calls, we have talked about how we believed we are well positioned to take advantage of the excellent market environment for seamless OCTG. Highlighting our global reach, our strength in the high end products that are required for the demanding environments like deep water, high pressure wells, arctic drilling et cetera. Our focus on integrating the tubular supply chain and our local manufacturing presence in key growth markets by Mexico, Canada, Argentina and Venezuela.

We have been investing and will continue to invest to increase our strength in high-end products and this should help us to achieve growth in our seamless sales and consolidate our competitive positioning. Our resection development rose to 26 million in 2004 and our new TenarisBlue Dopeless connection is having substantial success in area where operational and environmental performance are critical.

And we have concentrated much of our CapEx in the last two or three years on expanding our capacity to supply high end products including premium connections and special product rates. We expect oil and gas exploration production spending to continue to grow and concur with the view that we are at a multi-year cycle which global trading activity will be higher for example in the period form 1999 to 2003.

We also expect to balance our high end products to continue growing as much as the new investments is direct fields on environmental conditions are demanding. This year we're expected to see good growth in Saudi Arabia, Canada. These port operations in West Africa, Venezuela the Caspian region and in gas production from Middle East and other oil R&D projects.

We're expecting our average selling price to increase further from the level shown in the fourth quarter with improvements in the product mix and other factors and that the revenues from our seamless business will continue to grow in 2005.

Our costs will also continue to rise as the cost of iron ore and some ferro-alloys are sharing substantial increases. We expect a stronger performance from our welded pipe business in 2005. We have orders for several pipeline projects in Brazil and its highly likely the dilutes expand the gas pipeline capacity in Argentina we'll go ahead this year.Thus we expect our revenues and operating results record a second consecutive year of strong growth.

Below the operating line we also showed good results in 2004. Equity income from our investments in Sidor has increased. Excluding non-recurring items this amounted to some 70 million during the year. With demand and prices for steel, Sidor's steel products continue to look good as we start 2005 we can expect a further good return on equity income results in 2005.

Our effective tax rate in 2004 declined from 40 to 36%. We expect it to decline further in 2005. The results could be affected by currency movements and other controllable factors. Before finishing, I want to say that Tenaris will be holding an Investor Day on the morning of 3rd May in Houston to which you are all cordially invited. We'll be sending out save the day notices shortly. The event will coincide with the Offshore Technology Conference with the key event in the (inaudible) Canada. We have traditionally hosted a cocktail party at which our chairman and CEO Mr. Rocca will address guests during the event as well as having a booth with some of our products on display in the exhibition. We hope that some of you may be able to visit us then.

And now I'd like to open up for questions.

Thank you. Ladies and gentlemen if you'd like to ask a question please press star followed by one on your touchtone telephone. If you'd like to withdraw your question then please press star two. Again please press star one to begin. And our first question comes from the line of Daniel Altman from Bear Stearns. Please proceed sir.

Hi congratulations on the great results. Regarding price increases in the seamless business I think I understood from your press release that you're expecting higher prices in 2005. I just wanted to make sure that that was compared to the fourth quarter and to if maybe you have a number in mind or a guidance in mind in terms of the actual price increase or the average price that you're seeing. Also regarding the tax rate. It's a little difficult to figure out from the fourth quarter given the exceptionals, but can you say what the tax rate without the exceptionals would have been in the fourth quarter and what your guidance is for 2005? Thanks.

Good morning. I'll take on the prior question but we have indicated the guidance of somebody working on fundamentally the operations within the high end product market segment. We have talked about it during the course of a prior conference calls and we are starting to see the results of that. As we had indicated in our press release we see going forwarded during the conference process the prices would continue to appreciate. Now I guess you would also appreciate the notion that the price contained important link element with you know high end information products and little more low end line by type of product. Some (inaudible) that and if I were to provide a indication as to what we expect I think we could safely say that we are looking after have an appreciation of price around 10% within the first semester of '05.

And that's 10% from the level in the - the average level in the fourth quarter?

Yes.

Okay great.

Hello this is Carlos Condorelli is wondering about the tax rate. If we deduct on the charges we have this quarter - the last quarter, the normal (inaudible) the reduction in the tax rate of Mexico of 1% drives reduction in the before tax which amount to around $25 million and then including those we end up with tax rate of around 32% and we are intending to keep this tax rate between 30-34-35% subject to margin structure according to the currency.

Okay great. Thanks a lot.

And our next question comes from the line of Serge Escudé from UBM. Please proceed sir.

Serge Escudé: Hello everybody. I have a question on the growth you are expecting in South America for the welded products and my second question would be on the outlook you can give on the cash generation for next year and what kind of prices also you expecting in the welded system?

Well I think on the welded scenario and good morning Serge, how are you?

Serge Escudé: Ye,s fine.

I think we have the view the overall world picture during the course of prior bounds where we have indicated that worldwide regional business was to some extent linked to the infrastructure development of permanent (inaudible). We shall also express that during the course of the year that a number of interests, particularly financing this big projects were being delayed.

Now, going into 2005 we are seeing that some of the see projects are materializing (inaudible ) just to provide some complete indication as to where the projects are and more or less provide us when they will fully component of them. We have, for instance, the Cantupila (ph) project which contains about 83,000 metric tons, the (inaudible) project again it's a project is about 50,000 tons to grow into about 100 and that depends on actually the development of a new leg. The Paradomina (ph), is one that I mentioned in a prior call for something close to about 30-40,000 metric tons, Manatee (ph) another project of about 20,000 metric tons and we also in that, that these (inaudible) are going to be placed and now we must produce and deliver what I mentioned before during the course of '05.

There is also a relatively new development, new project called Gas Seni (ph), this is a project will ultimately link with the - the gas line will ultimately link Cavima Cantu (ph). I guess it's been very well publicized. It's fundamentally financed by the ExIm Bank of China, the IPC contractor is Senor Peck (ph). This overall contains something close to 200,000 metric tons so it's an important element, which are initial indications that the Chinese are only intending to bring about 15-20% of the overall quantity and we are, of course, negotiating these as we speak and we hoping to conclude these during the very late part of the first quarter - first part of the second quarter of '05.

Serge Escudé: Your best estimate for close in the world - roughly what you would to get into this project? What would be for next year - for this year, sorry?

There's a very close link to what the steel supply price is and it's very well known by the industry, very volatile part of the industry. All we could probably say that is that historically there's been something about -- well I said, let me just verify a few details here -- something close to 35% on top of what the steel supply is.

Serge Escudé: Can you repeat?

This is Nigel Worsnop and I was just trying to help out a little bit there. It's not so important the actual set price - the price of the welded pipe is very much in relation to the product mix whether they're coated or uncoated and we price our products generally off the steel price and when we obtain the contract we negotiate at the same time the steel price so we can lock in a margin on the project.

So a lot depends on what happening with the steel prices of our suppliers which in Brazil is mainly Usimimas (ph), in Argentina is mainly Fidera (ph) and the type of product.

Serge Escudé: Okay.

Can I add something else. You have to take into account mainly in our welded business, we are (inaudible) players and I must say more importantly that in looking at the price itself , we have to look at two things. The margins of the type of product we are providing and also the logistic cost which is a case of where the pipes is important. So having projects in Brazil and Argentina are good news to us, is different from exporting even though we export when the mix of our markets are connected to Brazil and Argentina, we are in good shape

About the cash flow.

For 2005, we expect, setting aside the increase in prices which is an important issue when we talk about the working capital, but we are expecting not to have further increase in our working capital just the contrary we are expecting some deduction in the working capital. But on the other hand, we are expecting, we are speeding up some capital expenditures and as you know we starting the construction in 2005 of our power generation plant here at Italy. Then we have to consider we are expecting to collect the BHP award announced which amounts to something around $126 million and we are expecting to keep the cash flow coming from Sidor and bottom line the net debt should be lower at the end of the year subject to new policies, acquisitions, setting aside these kinds of effects

Serge Escudé: Thank you very much.

And our next question comes from the line of Ricardo Cavanagh from Raymond James Argentina. Please proceed sir.

Yes good morning. Well I have two questions. The first one is related to the costs and what you are expecting in terms of EBITDA margins in the coming quarter and how much are we seeing what already of (inaudible) spend in this quarter in terms of contributions to the reduction of operating costs? And the second question is related to your capacity. I would like to know if you could tell us - at which capacity, the utilization rate your different plants are working out and how are our perceiving your capacity that will be sufficient to meet the demand that you perceive to be so strong for the coming year at least?

Okay Ricardo. Going to the costs of the (inaudible) we are expecting some increase in our cost even if in fact is that the most important line is the I&R (ph) on the market is very clear. But on the other hand, we are expecting to offset by the increase in prices. So as we said in our press release we are expecting some further improvement in our margins or at least to keep the same margins we recorded last quarter.

Regarding capacity, I think we have indicated on prior calls that the reality is today pretty much functioning in a (inaudible) capacity we have of course need to consider the notion that we have incorporated Sidor (ph) Tube back in July last year when we still need to extract the full potential of Sidor Tube. Now regarding projected volumes I would probably say that going forward we would see volumes pretty much in the area where we have seen due in this last quarter of '04 and a specific emphasis, as we have indicated in our press release, is to particularly work on improving the mix aspects above all. Okay.

Ricardo, sorry at least to this point you have also (inaudible) The contribution of (inaudible) this quarter was around 10 million U.S. dollar but it was - we had started operating at the beginning of the quarter.

Okay thank you very much.

And our next question comes from the line of Lucrecia Tam from Deutsche Bank. Please proceed.

Hi good morning. Part of my questions have been answered but it goes back to the capacity and from what you're saying your operating it full and expect to improve on the next aspect so does that imply that there is no consideration at this point of expanding capacity and if there is where would that be?

Lucrecia good morning. As we have indicated analysis, (inaudible) we have all of (inaudible) running at I think at levels which we haven't seen - I guess I''d like to again emphasize the physical component which is that is a plant we have taken over pretty recently and we're convinced that we still need to extract it's full potential. Volume-wise, expanding capacity, you know that putting up a volume (inaudible) is something that typically you don't do overnight. What we're doing is of course working at every other segment of our existing (inaudible) to extract the last if you will deposits, together with something which is perhaps very, very important and we have emphasized this over and over again that it (inaudible0 improve or increase capacity our ability to supply premium connections to the market. I(inaudible)

Thank you.

And as a reminder ladies and gentlemen if you'd like to ask a question please press star one. And another question comes from the line of Wilfredo Ortiz from JP Morgan. Please proceed sir.

Good morning. Could you give me a better sense in terms of what the CapEx should be for this year and next year? I know you've mentioned that other fields of starting investments in the energy [inaudible - highly accented] so more or less what should be the overall amount we should be seeing this year and then going forward what should be the maintenance CapEx that we expect down the line and secondly are you expecting to implement a more formal divided policy going forward or is it going to be something ad hoc depending on you know what the company's generating?

Okay Wilfredo. First of all in the 2004 our CapEx ended up at $183 million including the investments in systems and intangibles so it was 150 in property, plant and equipment and other 20 in intangibles. Looking forward we can see that we accelerating our investment in the finishing lines, the premium connections et cetera that we've been laying a lot of emphasis on because of the markets demand in these segments is very good for us and so we can expect to also including the new power plant that we are building in Italy which will be built over two years with maybe some 50-60 percent of the costs this year. We can expect that the CapEx will rise from last year's level to something around 260 million.

And then there should be something coming around 2006?

I would say that its going to be for a supporting role we are finishing our projection plan and we continue investing or increasing as we said increasing our capacity finishing our lines[somewhere else different from our mills and these kinds of issues.

And again ladies and gentlemen if you'd like to ask a question please press star one. And we have no more questions at this time. I will turn it back to the speakers for closing remarks.

Well thank you very much everyone for listening to our conference call and I hope that we will see you at our Investor Day.

Thank you for participating in this conference. This concludes the presentation. You may now disconnect. Have a good day.

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