Tubacex, S.A. (TUB) Earnings Call Transcript & Summary

[Interpreted] Good morning, everyone, and welcome to the Tubacex results released for the first half of 2026. My name is Raquel Ruiz, and I'm responsible for Investor Relations. I have Josu Murguiondo, CEO; and Guillermo Perez, CFO. We'll start with a brief presentation on the main figures and events during the period, and then we'll move on to the Q&A. [Operator Instructions] I'll now hand over the floor to Josu Imaz.

[Interpreted] We start with a review of the main messages for this first half of 2026 regarding figures. We closed the half year with sales of EUR 323 million and EBITDA of EUR 37.9 million with a margin of 11.7% in a very complex global environment as is obvious and well known. We continue to live in a scenario with new tariffs and regulatory policies and with the slowdown in projects and investment decisions. Therefore, there is a lower order entry in this first half of the year. Profitability was pressured by lower activity volumes and also by higher logistic costs, obviously. -- connected to the conflict in the Middle East, but the premium mix of projects and products allows us to continue to support double-digit margins in this first half. As I said since March, the half year has been affected by disruptions linked to the conflict in the Middle East that have affected planning, scheduling, production, logistics and billing across the group's entire value chain. In spite of this, less value-added products, we've had more exposure to the competitive tension and pressure on the market. We continue to trust in the strength that our industrial and geographic diversification gives us which helps us to reinforce the resilience of the model. And we have moved forward in the consolidation of that position in key markets and products for the energy sector, which expects to recover activity and results as geopolitical risks and uncertainty stabilize. The short term will obviously continue to be affected by seasonality and by a still demand in commercial and geopolitical environment. And as the geopolitical context normalizes and uncertainty disappears and logistic flows stabilize we have full trust in a gradual improvement in activity and results. And Guillermo, I'll hand over to you, so that you can give us some more details on the figures.

[Interpreted] Thank you very much, Jose, and thanks for everyone for joining us today. As Josh said, we're going to try to give a little bit of color to the financial magnitude of the company. We're going to give a presentation of the P&L and talk about the main influencing factors, also an overview of the balance sheet and the situation of the company regarding equity and debt -- and in line with the messages from us at the beginning, we're going to try to give a number of ideas on the here and now, the immediate future and the long term for the company. And also in line with what he said, we clearly have to say that we continue to be in a very deep uncertainty. On the right of the slide, -- you can see current factors such as the disruption in the supply chain at our Abu Dhabi plant. But I wouldn't like to focus only on that. This is an accumulative factor added to other factors, such as the tariff policies in the U.S. in the middle of '25. Today, we are have a new generic tariffs from the American administration and in general, the geopolitical environment with very large uncertainties, delays in very significant the main figures in the P&L. You can see regarding the comparison with the first half of 2025 a reduction in sales of 10.5% mainly due to the volumes in the market resulting from the conditions I just mentioned a reduction in operating profit EBITDA of almost 38% from 16.9% to 11.7%. And of course, the economy of scale and the operating leverage levels of the company have a major influence -- but the margin for products taken 1 by 1 and the positioning of the key sectors, such as umbilical, nuclear or OCTG remain intact. So this is a clear message that the company is currently suffering because of the volumes and the distribution markets in Europe, distribution in the United States general uncertainty, but not with regard to its position in the strategic niches for future development or said in other words, we're not seeing in those niches and erosion in the margin or prices. What we are seeing is the effect on the general business volumes because of the factors I mentioned. Obviously, a drop in operating profit has a repercussion on EBIT and profit before tax and net profit, which is practically at a breakeven point at the bottom line. in the 26 years at the company, I've seen all kinds of operating results are very good, very poor, media and what we have in our hands today, which obviously looks much worse in general than 2025. But on the other hand, this response to a very major effort done by everyone in the group to sustain a great deal of activity in very complex uncertainty environment. And above all, we haven't taken a single step back with regard to the strategic position of the company and the operating discipline in cost control. On the debt side, the effect is more direct in the global the effects that come from many places in many markets. In the case of debt, the logistic disruption in Abu Dhabi has a direct impact, why because as you are perfectly aware, the fact that the material can be delivered from Spain by boat to the Emirate has been very difficult. We've never stopped doing it. We've even taken on significant additional costs, a significant additional inventory and all kinds of logistic problems. I remember when we gave the results release for the first quarter, we had done as to whether the plant will shut down or not. The fact is that it hasn't, and we've had to suffer interruptions in production during the first days of the wall in March and permanent logistic shifts in cost and volume during the entire period from March until the present time with ups and downs in the general traffic situation in the Gulf. This effect, remember, is conditioned by a long-term project. It's a take-or-pay project. It's a project guaranteed by 1 of the agencies with the best rating in the world, Sandok. And this always corresponds to the working capital, which is a working capital that always presents a timing between the -- from the point of view of today's snapshot, but also anticipating what it might be tomorrow. The sales factors have been mentioned, they are associated to market volumes. The Abu Dhabi disruptions we've mentioned, but we continue to clearly maintain a differential position and let's say, with a presence that is ever greater with the main operating customers in the strategic sectors at the company. The EBITDA or operating results is affected by that operating leverage aspect that I mentioned, the disruption in Abu Dhabi, obviously, with higher logistic costs and production inefficiencies, our production model is an integrated model where any part of it is affected. It has a repercussion on our steel plant, on our hot and coal production facilities. And in the final products, in the Emirati both in cold rolling and threading or pipe connections. And what happens in this case. At the end, all areas are affected, and a number of decisions have to be made. In other words, often, the things that we've done have meant added cost, but always with a goal in mind, that is not to fail the supplier to the end customer. There are times where you have to decide whether you go for more working capital, higher operating costs. We've had a freight cost that were 5x higher than a normal freight, but our obsession and the long-term relationship is for the material to be delivered on time to the ADNOC wells both in the offshore and onshore infrastructure. This obviously has had a cost and a repercussion on the first half. But there are times when accepting a cost or an added cost means being a much better position with that customer in the future. And this is clearly translated in the debt or in the working capital when there's a disruption or a total inefficiency in shipping to the Emirate what decisions should be made. At the beginning of March, there were ships that had to unload in the Emirates, and they were sent to Srilanka or India. We've had to supply through Sole, Arabia, 2,000 kilometers by truck or Aman bifida or Cofact, we've looked for any possible route to be able to deliver the material. And often the material delivery to the plant isn't what was immediately needed for production. This meant and added inventory. And what we wanted to produce for a certain well arrived later but the effort always goes along the same lines to reach the customer and the priority is the long-term relationship. I'm giving a real example from March to today with do ADNOC -- but if we talk about other customers such as EDF or Westinghouse or Petrobras Arctic Solutions, our solution will always be the same. The customer will be ahead of the figures. And in our group, we'll do everything we can for the material to be delivered on time and to meet our commitments, even if at the expense of high levels of working capital and net financial debt. and also our CapEx around EUR 26 million. And I'd just like to say that we are currently investing internally only in 2 lines, obviously, the maintenance of all our production structure, on the 1 hand, but also added value elements in our steel production, in our umbilical finishing lines and everything that means to a better service or a better lead time for the end customer. I think that in the end, this kind of approach in the long-term is what actually gives a company value. Regarding the financial strength more than EUR 200 million, the equity solvency of 33% and our net -- our structural net financial date, excluding working capital, is very low. And I'd also like to take the opportunity to thank the financial organizations that are supporting this effort on a European level. The main institutions on the pawn Karin Spain, BBVA, Santander, Kaisa, Cuca Bank these are institutions that are absolutely relevant at this time for the present and the future of the company. And I would like to especially mention HSBC for their flexibility and support in the working capital management and financial debt linked to the Emirate project with interaction between the European Union and the Emirates, which has been top class. The financial investment in the end is not the same, the long-term view and the relationship with customers, suppliers and banks. And now after commenting on the results and the balance sheet. I'll hand over to Raquel, who is going to give us a view of where the group is positioned and what its main activity sectors are.

[Interpreted] Thank you, Guillermo. If we zoom in on the sales breakdown, we can see that by sectors, the strategic sectors maintain a more relevant weight in our sales structure Here, we have gas extraction and production as the main contributor by markets linked to gas production in the sector in the Middle East. We have the main market of the company followed very closely by Europe and America. And this idea is important for totex because it means that the positioning in premium products the geographic diversification and the proximity to the company allows us to maintain our company profile and reduce cyclicity. In the order book, we closed at EUR 1,148 million, still at very relevant levels. And the important thing is a makeup. We have a high percentage of very high added value products in the portfolio, especially aimed at gas extraction. And we continue to see a very solid pipeline in the future, especially in strategic segments, such as subsea, nuclear, aerospace, et cetera. And what we also see is uncertainty in that conversion schedule for the projects and the execution and translation into orders. In the commercial area, as mentioned, the first half was marked by a very complex environment and with still limited visibility in some markets. We see better performance in premium businesses and on execution projects. And we have, for example, the products linked to OCTG, nuclear generation or aerospace while there are other markets that are more subject to the cycle pressure and the geopolitical environment. That's why we are cautious in the short-term, but we still see a potential for improvement in activity as the geopolitical context normalizes -- and here, I'm going to only focus on a couple of messages I would like to highlight. And on the 1 hand, the contribution of the E&P business. And here, the solid activity of OCTG, both in as a customer. And in aerospace and defense, another market that has evolved very well in the second quarter, and especially the nuclear business, where we see it's the market with a structural capacity for growth that is greater than any others. During the half year, we've continued to deliver relevant products to EDF -- and we've had a landmark. The first order for a part. -- from a component for a small modular reactor in Canada. Regarding system -- all the indicators show a consistent improvement that enabled us to move forward towards our 2030 goal. And here, there's another new landmark in the half year and we have obtained the highest qualification A, recognizing our climate governance, our decarbonization strategy and the execution of that strategy -- regarding stock market performance. The share price has been resistant during this first half year, half year, as I said, characterized by the limited visibility and by a complex environment, we've closed June at EUR 3.35 per share, which means a slight revaluation compared to the closing for the year after having reached a minimum for the year of EUR 2.77 in March. In the midterm, we're optimistic, and we believe that there continues to be a potential for revaluation based on the quality of our portfolio, our structural strengths and the necessary normalization of the environment. And in fact, the market consensus shows to EUR 4.3, which means a potential revaluation of close to 30%.