In the fourth quarter of 2023, Tenaris S.A. (NYSE: TS) reported a mixed financial performance with sales of $3.4 billion, marking a 6% decline year-over-year (YoY) but showing a 5% increase sequentially. Earnings before interest, taxes, depreciation, and amortization (EBITDA) stood at $975 million, resulting in a 29% margin, while net income reached $1.1 billion. The company generated a robust cash flow from operations amounting to $836 million and maintained a strong net cash position of $3.4 billion. Tenaris also announced an 18% increase in its proposed annual dividend to $0.60 per share. The company's strategic moves included expanding operations through acquisitions such as Shawcor, and a strong focus on the Middle East and offshore projects. Tenaris expects sales in the Middle East to rise in 2024 and projects margins to be around 25% in the first half of the year.
Key Takeaways
- Q4 sales at $3.4 billion, down 6% YoY but up 5% from the previous quarter.
- EBITDA reached $975 million with a 29% margin; net income was $1.1 billion.
- Cash flow from operations was strong at $836 million; net cash position also at $3.4 billion.
- Proposed annual dividend increased by 18% to $0.60 per share.
- Company expanded through acquisitions and strengthened its presence in the Middle East and offshore projects.
- Sales in the Middle East expected to increase in 2024; margins projected around 25% for H1 2024.
Company Outlook
- Invoicing in H1 2024 expected to align with H2 2023.
- Margins anticipated to be around 25% in early 2024.
- Shawcor's acquisition expected to contribute $300-350 million to revenue.
- Limited visibility for H2 2024, with uncertainties in certain markets.
- CapEx for 2024 projected to be around $700 million, including investment in a second wind farm in Argentina.
Bearish Highlights
- Sales declined by 6% YoY.
- Uncertainties in Argentina, Mexico, and the US market could impact future performance.
- Red Sea conflict expected to cause a $3 million impact in Q1 logistics costs.
Bullish Highlights
- Sequential sales growth of 5%.
- Net cash position remained strong at $3.4 billion.
- Dividend per share increased significantly.
- Positive outlook for sales growth in the Middle East.
- Stabilizing prices in the US market could improve margins.
Misses
- EBITDA and net income margins expected to decrease to around 25% in H1 2024.
- Sales have decreased compared to the previous year.
Q&A Highlights
- The company is closely monitoring the impact of the Red Sea conflict on logistics, with the situation expected to continue into the next quarter.
- Dividend policy is subject to shareholder approval in future meetings.
- CapEx expectations for 2024 are focused on efficiency with no significant changes planned, aside from the investment in a second wind farm.
- Tenaris has a contract with Exxon to increase OCTG volume, expected to influence operations positively by late 2024.
- The devaluation in Argentina has had mixed effects on financial results.
In conclusion, Tenaris S.A. is navigating a complex market environment with strategic acquisitions and a focus on key growth regions like the Middle East. Despite some headwinds, the company remains confident in its ability to maintain a strong financial position and deliver value to shareholders.
InvestingPro Insights
Tenaris S.A.'s financial resilience is further illuminated by key metrics from InvestingPro. The company's adjusted market capitalization stands at a robust $20.29 billion, a testament to its substantial market presence. The P/E ratio, a measure of a company's current share price relative to its per-share earnings, is notably low at 5.72, and even more attractive when adjusted for the last twelve months as of Q4 2023, at 5.18. This indicates that the company's shares may be undervalued relative to earnings, suggesting a potential opportunity for investors.
InvestingPro Tips reveal that Tenaris's PEG ratio, which assesses the stock's value while taking earnings growth into account, is remarkably low at 0.08 for the last twelve months as of Q4 2023. This could imply that the stock is undervalued based on its growth potential. Furthermore, the company's revenue growth of 26.41% for the same period reflects a strong year-over-year expansion, highlighting its ability to increase sales effectively.
For those looking to delve deeper into Tenaris's financials and future prospects, InvestingPro offers additional tips. Currently, InvestingPro lists several more tips that could provide investors with a more comprehensive understanding of the company's position and potential. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, which includes these insightful tips to guide your investment decisions.
Full transcript - Tenaris Sa ADR (TS) Q4 2023:
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. 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 (TADAWUL:2222) 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. 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 (NYSE:XOM) 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.
Operator: Thank you. [Operator Instructions] Our first question comes from the line of Arun Jayaram from JPMorgan Securities LLC.
Arun Jayaram: Yes. Good morning. Paolo the net cash balance now has grown from $921 million to over $3.4 billion as of year end. And I was wondering if you could highlight some of your longer-term thoughts on deploying some of this excess cash on the balance sheet in terms of inorganic M&A opportunities like you did with Shawcor or perhaps what the next phase of cash return to shareholders could look like just given just how much net cash there is on the balance sheet?
Paolo Rocca: Thank you, Arun. And you're right the company is arriving at the end of 2023 with very strong cash. Well as we did in the past we will consider all the options. On one side we need to continue on some organic investment to complete in advance in our decarbonization program. We should also focus on area of digitalization and automation that will enhance our competitor. This is important for us. So we will have organic growth more than anything else in improving our competitiveness and advancing in decarbonization. On the other side, we see opportunities for growing along our value chain. An example is being Shawcor and also the investment we did in Italy and in the States in coating or in increasing capacity an area in which we really need to be ready to react to the need of our clients because Rig Direct is demanding on our industrial and supply chain structure. We are also prepared to analyze opportunities in different regions that may arise and then we can complete our deployment. But we know that we don't identify a clear strategy that is growing allow us to grow and to enhance our profitability. As we did last year we have -- we can propose to return to shareholder either as in the buyback or in dividend according to the results of the business. We are contemplating all of the options and we are keeping our option open in this field.
Arun Jayaram: Great. And my follow-up Paolo you mentioned that Tenaris expects sales in the first half of 2024 to be very similar to the second half of 2023. It appears that maybe the Shawcor pipe coating business was maybe one of the drivers of that as well. Can you help us think about how margins could look like in the first half of 2024 on an EBITDA basis?
Paolo Rocca: Well, as you say we expect the invoicing in the first half of 2024 to be in line with the invoicing in the second half of 2023. But this you should consider on one side some of the advancements that we have done in the contract in Saudi and the other side also the inclusion of Shawcor and particularly of part of a very large project in Mexico in Altamira there was let's say implies an extraordinary invoicing level for Shawcor. When we look at the EBITDA, we have to take into consideration the reduction in prices that is taking place in the United States following the Pipe Logix. Our sense is that this should stabilize, but will have an influence in our margins, but still we think that we should be able to maintain a margin in the first half in around 25%.
Arun Jayaram: Great. That’s helpful. Thanks a lot.
Operator: Thank you. Our next question comes from the line of Alessandro Pozzi from Mediobanca (OTC:MDIBY).
Alessandro Pozzi: Hi there. Thank you for taking my questions. The first one is on your results of Q4. And I think one of the key factors will be behind the numbers being above consensus was potentially advanced shipments to Saudi Arabia. I was wondering as we go into 2024, how are we -- how we should think about the level of sales overall from the Middle East and in particular, from Saudi Arabia, Emirates, and Qatar as well? And also as we look at Q1, you mentioned that sales are going to be flat for the first half, but I was wondering is Q1 going to be tougher for sales and margins and then we're going to see a recovery from Q2 or the recovery is more for margins back-end loaded in 2024? Thank you.
Paolo Rocca: Thank you, Alessandro. Well, on the first one we think that in 2024, our sales in Middle East will increase substantially. But I will ask Gabriel to give an overview because we are present in different countries with different perspectives and interesting to see how we can grow there.
Gabriel Podskubka: Thank you, Paolo. Good morning Alessandro. Indeed we're with Paolo last weekend in Saudi Arabia visiting our operations. And the sense that we have is the activity in Saudi will remain very strong despite this announcement of a change in the target of sustained capacity remaining in the 12 million barrels we see that drilling activity continued at high levels at this level of 300-plus rigs. The Kingdom is the increasing its focus on drilling for gas with an increase of demand of gas in Saudi, driven by the economic expansion and also the aim of [indiscernible] in their power generation metric. So, we see drilling on gas has been going on and will continue to go on in the years to come. As a matter of fact today to give us a reference the gas-driven OCTG demand is about two-thirds of the OCTG demand in Saudi, okay? So this we expect to continue and this is positive for our presence in the Kingdom. With the addition of GPC, I think we have a unique setting in the Kingdom being able to supply to Aramco, everything of every type of well conventional/unconventional oil and gas onshore and offshore. So I think we are very well positioned to capture this level of increased activity. We are also exposed to the pipeline business, which is also growing in Saudi. Currently, we are producing Marjan and Zuluf pipelines, which are offshore oil pipelines and projects that are going ahead are not impacted by the recent announcement. And we see opportunities in gas trend lines that are being developed in Saudi like for Jafurah Phase 2 or even the Master Gas Phase 3. So we are very confident on our backlog and capabilities in Saudi, which will have virtually no impact already limited impact on the announcement. This is in terms of Saudi. So we expect the level of shipments that we have in Saudi in the fourth quarter to continue at very high levels throughout 2024. On top of that Paolo commented on the opening remarks on the inauguration of Abu Dhabi, we were there as well. ADNOC is going ahead for drilling plants. Today, we are serving on a just-in-time basis about 70 rigs every month with our service center and Rig Direct model. So we are creating value and enhancing loyalty with ADNOC as well. So there are also important plans of expansion in Qatar, Egypt, Iraq. So we believe that Middle East in general we have been already increasing second half of 2023 versus first half of 2023 and we expect this to continue into 2024.
Paolo Rocca: Thank you, Gabriel. On the second question which is basically about the margin in 2024, I think we have visibility for the first part of the year. It is -- we have not so much visibility on the entire year. The factors that are affecting margins on one side is the evolution of prices in North America reflecting Pipe Logix. We have seen the Pipe Logix coming down in the recent months. In our view, it should stabilize in the coming months. And this will be let's say something that will be important to affect our results. We will compensate with increasing volume with the US where our client base is solid, even in an environment in which the rig count remains substantially stable. And we will compensate to some extent by increased sales in the Eastern hemisphere and in the offshore. On the other side, consolidation of Shawcor and the increase of business of welded pipes also in the Middle East, not only the Middle East tends to enter to lower slightly our margin. That's the reason why I'm saying we should be around 25% as a reference at least for the coming six months.
Alessandro Pozzi: And just a follow-up on Shawcor. What would be the contribution from the new business in 2024 in terms of revenue?
Paolo Rocca: Well, we are expecting an invoicing above $300 million with $300 million to $350 million, depending on the contract that we may capture for the second part of the year. And this will contribute with margin there are below let's say the 25% because the business is a different business, a different service. But I wouldn't underestimate the relevance of the synergy between our business and the business of Shawcor. The offer of combining Tenaris line pipe from different mail welded and seamless with state-of-the-art well-recognized coating, especially for complex applications like insulation in our view is important. Now we have to work on it to materialize, to expand our offer, to add service to our clients and we will see the extent of these synergies that in our view should exceed the contribution of the single business in our business.
Alessandro Pozzi: Okay. That's very clear. Thank you very much.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Marc Bianchi from TD Cowen.
Marc Bianchi: Hi. Thank you. I know it's hard to have visibility into the back half of the year, but I'm curious, you probably have some large projects internationally that are ramping up that should be contributors to your revenue and your margin. It sounds like there's some invoicing with Shawcor that maybe is going to be benefiting first half that goes away in the second half. Could you maybe just talk us through the moving pieces going from first half to second half, recognizing these are all variables that we can't have precision on, but just so we can understand it?
Paolo Rocca: As I was saying, there is -- we don't have so much visibility. But as you were saying, we have the business in the offshore and Middle East that is clearly strengthening. Then we have some uncertainty in an area like Argentina and Mexico to some extent. In Argentina, because not clear if the new government will be able to advance in key reforms that may promote increasing when or new investment in the oil and gas business. Oil and gas business is clearly one of the driver for the economy in Argentina and will be one of the important piece of any government program for the future. But how fast this will happen is not clear to us today. In the case of Mexico, the point is election year, new administration, the financial position of Pemex has been weak in the last year and may limit their ability to develop the large resources that Mexico obviously have. Then there is probably the most important piece, that may determine in the medium term in 2024. There is the evolution of the US market, US and Canada, but especially the US, in which the dynamic of price and the evolution of volume and rigs and also the -- what will happen with gas considering the recent decision by the administration is kind of a question mark. I would ask here to Luca to give some color on how we see the US market for us in the coming quarters.
Luca Zanotti: Yes. Thank you, Paolo, and good morning, Marc. Look, specifically to the US and on the Pipe Logix, the way we see it now is that it should be bottoming out. Obviously, there are uncertainties, but there are some key factors that it's worth taking into consideration. Number one is the level of imports that went down, it is down at one of the lowest figures in the recent history. And the fact that for quite some time, the rig activity is stabilizing around 620, 630 rigs in the United States. Obviously, and other things that needs to be considered when you look at the Pipe Logix and our prices is how is the exposure of the Pipe Logix depending on the mix. And if you saw Marc, not all the items behaved in the same way, production casing was much more resilient than tubing, for example. And our exposure is very large on the production casing. Now when we go to the activity, again, we think that the activity is going to be stable in the United States. Maybe we have some downside risk on gas depending in the short term, how the price will react. But again, the activity is not equal throughout the regions. If you look at Permian, activity has been much more resilient than the average of the market and it's not even among different operators. Paolo was mentioning, our very large exposure to the 10 largest operators in the United States. And when you look at this activity – sorry, when you look at the activity of these customers, you see that actually they grew in the recent past. So I believe that to summarize, we see stabilizing prices, stable market and a very good exposure to the most resilient part of the regions and customers.
Paolo Rocca: Yes. Thank you, Luca. Pipe Logix index is important for us. It is guiding not only US, but also other parts of our contract in the region, is influencing more than half of our contract around the world, to some extent are influenced by the evolution. And this is a variable that is not easy to predict for the long run. We are seeing this should stabilize, because we see also that the import in the United States, are at probably the lowest level in the recent quarters. So, the decline in the import, should in some moment lead to a stabilization of this indicator. And this is a very important factor for understanding, our level of margin in the future.
Marc Bianchi: Is the implication, if Pipe Logix stabilizes here, in say, February March we get to a bottom that the second half margin would be better than 25%?
Paolo Rocca: Well, considering the delay that we have between the price or the level of Pipe Logix, and the lag for affecting the contract. I mean, we are not so relevant. But still there are many moving pieces here. So I come back to my first statement, visibility on the second half is not something that we have today. We can see in the first half and the number are the ones that, we are telling you, we think we are pretty confident on this. In the second half, we have to see at least what is happening in the coming quarter before having some clearer picture.
Marc Bianchi: Makes sense. Thank you very much.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Kevin Roger from Kepler Cheuvreux.
Q – Kevin Roger: Yes, good afternoon. Thanks for taking the time. I just wanted to follow up on your comments Paolo regarding the margin development and the impact of the Pipe Logix index, because basically the trend on the Pipe Logix Index have been very let's say, bad in Q2 and Q3. But when you look at the movement that we have seen in Q4, we were facing a kind of 1% or 2% month-on-month decline. So in a way that was much less negative than it used to be. So why would you say that the impact on the marginality will be stronger in let's say, Q1 2024 compared to Q4 2023 while compared to what we have seen sequentially Q4 versus Q3, because you maintain a margin that is probably better than you anticipated when you discussed in the Q3 earnings? So just trying to understand, why for a more limited decline in the Pipe Logix index, we should see a stronger impact on the marginality?
Paolo Rocca: Well, there is a lag between the indicator and the contract. As you can imagine, we are now seeing in the next quarter, we will see reflected the weakness of the indicator in the third Q. So to some extent, we see -- the third and the fourth. So to some extent, this led, will lead to a decline in prices in our sales in the U.S. not anywhere. This decline in sale in price in the first Q will be compensated to some extent by increasing volume in the United States. But this is maintaining the top line, but is affecting our profitability and our margin slightly. Well there is not a big change, but we anticipated in the fourth quarter, a slight reduction on the margin, and we expect this trend to extend to the first quarter of the next year.
Kevin Roger: Okay understood. And maybe the follow-up if I may please will be related to Arun. You just mentioned that subject. Can you give us some color to try to understand what could be the effect of the ForEx on your accounts for the coming quarters? And what would be the potential plus if the government decides to move on the energy projects that we are talking about?
Paolo Rocca: In Argentina, no, you're referring to Argentina. In Argentina, I think, we did a very good job in defending the financial position of the company in face of a sudden devaluation in the range of 120%. And this is, let's say, comes from a strategy of defending and stabilizing our position as much as we can trying to reduce the risk on foreign exchange and sudden change like the one that we had in the fourth quarter. I think we can support maintain this strategy, and it won't be affected by other shift event, possible shift in the ForEx. So we can in this sense from a financial point of view, manage the environment and the situation in Argentina. The potential of Argentinian energy, and the potential the opportunity for us is huge. We have very large market share in supplying the energy business in Argentina. Like in 2023, we were able to pursue a major pipeline, the execution pipeline in Argentina with our pipes and the associated activity in drilling and for gas that was on. If the new government succeed in getting reform of the hydrocarbon sector through in the coming months, we expect that there would be investment in the area. We will see investment in pipelines. We will see a rebound of activity in oil and gas in drilling for resources. Just the signal that the government is successful in getting through its program of reform will give a strong incentive for motivating investment in the energy sector. This is -- could be an upside. Argentina is very, very important for Tenaris in 2023 invoicing exceeded $2 billion during the year. If the let's say, there are a positive sign on stability of the country and the position of the government, I think, we could see a positive trend of investment that may reflect in the second part or even in the first part of 2025, I mean, within the time of the different endeavor that could be advanced during this period.
Kevin Roger: Okay. Thanks.
Operator: Thank you. One moment for our next question. Our next question comes from the line of David Anderson from Barclays.
David Anderson: Hi. Good morning. A question on your Middle East business. So revenue in MENA has doubled over the past year. Clearly the Middle East business itself has inflected. You talked about opening a new facility, a new threading facility and training facility in Abu Dhabi. I'm curious, is that facility going to serve the entire Middle East? Or is that just for Abu Dhabi? And then kind of a broader question your footprint in the Middle East you've talked about a number of I think you had the conductor pipe and I think you also have a welded facility in Saudi, are you looking to expand your footprint in the Middle East? Do you have what you want? Is this an area where you're considering investing more to build out that footprint?
Paolo Rocca: Thank you. I will ask Gabriel to give some color on this.
Gabriel Podskubka: Yes. Thank you, David. Middle East indeed is an area where we have expanded our footprint in the last years. SSP, GPC and the facility in Abu Dhabi that you mentioned that we inaugurated last week, which is primarily intended to serve ADNOC in Abu Dhabi, but is a facility that certainly increase also the capacity of premium trading for Tenaris. So it's a facility that we intend to qualify with the major NOCs of the region so could potentially serve other customers in the region. And then going back to the point that you asked about it is the final setup that we have in Middle East. I think as Paolo mentioned, we're always looking for opportunities. Middle East is an area that has been and it's increasing its potency in Tenaris. There is a whole trend I think we have discussed this in the past, industrialized in the different countries and converting this richness in oil and gas into industrialization and diversification of the industry. This is a process that we have being a companion. It is a process and expertise that we have developed in other geographies around the world and we're keeping progressing this strategy in -- our business is growing. And I think we have the capabilities, the willingness to continue enhancing our footprint. This has been very distinctive. Historically, we have differentiated in the Middle East with products we have brought into services like the Rig Direct in ADNOC, but local content and industrialization is also part of our strategy has proven to be successful so far.
David Anderson: Thank you, Gabriel. Just as a follow-up to that, I think you -- in the remarks earlier you had said that you're providing the pipe on Jafurah on the unconventional project there. I'm just curious, is Rig Direct a potential with Aramco? Or does Aramco procure their products differently where that model may not make sense with that particular NOC?
Gabriel Podskubka: Yes. Today, Rig Direct is not there, but the potential is there. Aramco has already changed their supply chains from foreign producers to the local network an ecosystem of producer on the different product lines. So the supply chain that we have today in the Kingdom is getting us closer to think of a Rig Direct potential. Today, the interaction, the demand planning and the procurement cycle of Aramco today is different than what it was two, three years ago where they were buying one, two years in advance to date, the synchronization between the manufacturing facilities in Saudi. And the rigs in Saudi is much more in due. So I think we are heading into a further integration down the line.
David Anderson: Okay. Thank you, Gabriel. Appreciate it.
Gabriel Podskubka: You are welcome, David.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Jamie Franklin from Jefferies.
Jamie Franklin: Hi there. Thanks for taking my questions. Just three quick ones from me. So firstly, I just wanted to clarify on US volumes. If you can give us any color on the direction of change of the volumes and to what extent they moved in the first quarter? And then the second point which has been answered to some extent is just on the devaluation of the peso. So obviously, there's several moving parts there in terms of the positive FX impact, but also a deferred tax liability. So I just wanted to understand, whether there are going to be any further impacts in the first quarter? And then final question just on expectations for working capital through 2024. Thanks.
Paolo Rocca: Thank you, Jamie. The last question is on CapEx for the entire year that's correct? Or working capital?
Jamie Franklin: Working capital yes, through 2024.
Paolo Rocca: Yes. On the first one US volume, Luca maybe you can expand on where we see that we can increase our volume level.
Luca Zanotti: Sure. If we consider the three main let's say, segment, which are the Gulf of Mexico, the onshore and the line pipe, I will see that we see on the Gulf of Mexico kind of stable volume heading into first quarter. Standard line pipe and line pipe in general it's more or less equal. But I mean getting back to the point that we were making before on our large exposure to the largest operator and the most active regions. We see a significant increase in the OCTG volume. If I had to give a number it would be high single-digits.
Paolo Rocca: Yes. Because also I mean the contract that we are signing including the Exxon contract will drive some increase in volume for OCTG and really the position of Tenaris at the moment with a major player is very strong. And this player I think will be more resilient keeping their level of operation. Now one question that we will see and is important to analyze is also the effect of consolidation in this environment. This will lead to a change of the approach, the structure of the column longer lateral or some modification in the way the company will address the access to locations that are coming from a different consolidation. But I think we will see this...
Luca Zanotti: A little bit later on more into the back end of 2024.
Paolo Rocca: Yes. But in our view this could be a favorable effect for a company like Tenaris that has solid ties with this major operator. The second point is on devaluation and the possible impact in first quarter. Here Alicia you may give a view of this.
Alicia Mondolo: Okay, Thank you, Paolo. Hello, Jamie. The official exchange rate in Argentina was increased by almost 120% in the middle of December. After that the government set the growth impact at the range of 2% by month since that devaluation. The devaluation impact positive in our financial results since we were short to the exposure to Argentina peso and was a negative impact in our deferred tax asset because it produced an erosion of the fiscal value of the fixed assets. So if the growth impact will continue in order of 2% every month, we are not seeing another negative impact in our tax position. But if the new devaluation appears, we can expect some kind of effect in the deferred tax asset management. Not so we but we will see that. But at the moment we are not seeing that.
Paolo Rocca: Thank you, Alicia for devaluation. And the third point is on working capital. We do not expect a major change in working capital because Tenaris’s requires important working capital to operate its Rig Direct and RunReady mode way of operation. In this environment we have a substantial stability of volume not big changes in it. We will be able to maintain the working capital, releasing possibly some of it during 2024 because of a more efficient operation. We are continually striving to reduce the lead time in our plant and the lead time in our supply chain. And this progress will reflect in some release of working capital from inventories. On a part of receivable, if we are able to maintain the level of invoicing this will not change too much.
Jamie Franklin: Okay. Very clear. Thank you very much.
Operator: Thank you. One moment for next question. Our next question comes from the line of Joseph Charuy from Bank of America Securities.
Joseph Charuy: Good afternoon, gentlemen. Congrats on a strong set of results. I have two questions. Maybe we can talk about the moving parts on the cost side of the EBITDA equation. Do you have any further comments on potential impact of the Red Sea on logistics given that the situation is likely to persist for at least the next quarter? My second question is with regards to the dividend, obviously your $0.60 per share represents a nearly 20% uplift year-on-year. Is this a growth rate that you see being sustained moving forward? And then lastly maybe I'll ask about the CapEx expectations for the full year 2024. Thank you.
Paolo Rocca: Thank you. Well, on the cost side, we don't see major changes, because we will have some improvement in our cost following the devaluation in Argentina. But on the other side, other part of our cost system are moving in the opposite direction. Something that will be always relevant will be the evolution of the Hot Rolled Coils, because our system today is acquiring plates or Hot Rolled Coils on the market in fair volume. We have welded representing between 15% and 20% of our sales. In general apart from the Hot Rolled Coils, that could have a movement less predictable. We see some decline in price in raw material. The increase in Hot Rolled Coils may compensate this. So we do not expect major impact on our EBITDA today from movement in the cost. When we talk about the Red Sea here Gabriel you can tell us, because the region and these are regions,…
Gabriel Podskubka: Yeah.
Paolo Rocca: …mostly affecting the Eastern Hemisphere region.
Gabriel Podskubka: Yeah, Paolo. Just to comment on the Red Sea, it's something that we have been monitoring very closely since the attacks started in November with practically no effect in December, but we are having a limited impact in this first quarter of 2024 around 50,000 tons of the one million tons plus that we manage every quarter are going through areas that are affected by the conflict in the Red Sea. Majority of these vessels have been diverted through South Africa with delays of about 15 to 20 days of longer delivery time. We are monitoring and in constant communication with our customers. So none of our customers are suffering any impact in their operations and this diversion of 15 to 20 days also affect some extra logistic costs in terms of fuel timing and limited insurance as well in the range I would say of $3 million in the quarter. So I would say it's quite limited. And since we also have in our industrial system multi-sourcing alternatives and we have experience with many logistic providers. I think we are able to manage this crisis with a relatively limited impact.
Paolo Rocca: Thank you, Gabriel. On the second question, well the dividend policy will be defined by the shareholder in the future. We don't say much on the future dividend policy. What you can say is that this 20% increase together with the buyback is a significant return to shareholder money the 10% that I was mentioning, in my remarks. On the third point which is the CapEx we expect CapEx to be in the range of $700 million for 2024, considering the second -- well, part of the second wind farm in Argentina that should be executed during 2024. We are in this range and this is what we see now.
Joseph Charuy: Thank you very much. Maybe just following up on that $3 million number is that the number that you incurred in the fourth quarter or the number that you expects to incur in the first quarter from the Red Sea logistical impact?
Gabriel Podskubka: In the first quarter and this is something that is a conflict maintain and persists probably to projects down the line, we will see. But it's in the first quarter.
Joseph Charuy: Thank you very much.
Gabriel Podskubka: You bet.
Operator: Thank you. At this time I would now like to turn the conference back over to Giovanni Sardagna, for closing remarks.
Giovanni Sardagna: Thank you, Gigi and thank you all for joining us, at our conference call. See you soon.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.