Tenaris Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
April 27, 2023

There are 12 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the Q1 2023 Dynades S. A. Earnings Conference Call. At this time, all participants are in a listen only mode.

Operator

After the speakers' presentation, there will be a question and answer 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.

Speaker 1

Thank you, Gigi, and welcome to Tenaris Before we start, I would like to remind you that we will be discussing forward looking information during this call With me on the call today are Paolo Roca, our Chairman and CEO Alicia Mondolo, our Chief Financial Officer Gabriel Podzkuzka in his new position as 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 4th quarter sales reached $4,100,000,000 up 75% year on year and 14% sequentially, Mainly driven by higher sales of OCTG and line pipe for offshore projects around the world in addition to a peak of shipments to a large pipeline project in Argentina.

Speaker 1

Average selling prices in our tube operating segment increased 32% compared to the corresponding quarter of 2022, but declined 1.5% sequentially. Our EBITDA for the quarter was up 16% sequentially, Close to $1,500,000,000 Our EBITDA margin reached $35,700,000 as lower cost of raw materials and energy costs Combined with a better absorption of fixed cost on higher volumes, more than offset small decline in selling prices. With operating cash flow of $921,000,000 and capital expenditure of $117,000,000 our free cash flow for the quarter was $804,000,000 At the end of the quarter, our net cash position increased to $1,700,000,000 up from $921,000,000 at the end of 2022. Now I will ask Paolo to say a few words before we open the call to questions.

Speaker 2

Thank you, Giovanni, and good morning to all of you. In this Q1, Tenaris achieved many records. Net sales, EBITDA and net income all exceeded the previous record results of the Q4 last year. Our industrial and supply chain system combined to deliver the highest level of shipment since 2008 with a more differentiated production mix. Production records were exceeded in many of our plants, including at the Bay City.

Speaker 2

Our Rig Direct service performed at record levels. In March, we served 540 rigs And executed over 1200 field services activities at customer rig around the world. Our newly introduced Run Ready service, which deliver pipes to a rig ready to be run, is quickly gaining traction And now cover 45% of our U. S. Rig direct shipment.

Speaker 2

Our sale of Wed Series 400 connections Design for shale application and our sale of Doppler's connection and BlueDock and EasyDock connectors for offshore application Also reached record level. During the year, we expect our sales of this specialized product as well as our Wed Series 600 And new blue connections to exceed the previous annual records. In April, Tenaris completed the delivery of 170 6,000 tonnes for the first phase of the Nestor Kirchner gas pipeline, thereby fulfilling its commitment To do so before the coming Argentine winter season. This task was only achieved thanks to the record production levels At our Valentina Sinalwelder plant in Argentina, complemented by additional production from our Brazilian plant And the dedicated coordination between various companies within the Techint Group. This project Represented a logistical challenge involving the dispatch of more than 600 kilometers of pipes.

Speaker 2

Now our Brazilian mill is focused on producing and delivering pipes for the Qatar Gas North Field Expansion project before the end of the year. While North America was the main driver for our sales growth in 2022, This year sales for offshore project into the Middle East will rise strongly. In the Q1, sales to offshore projects around the world Rose 40% quarter on quarter and will increase further in the 2nd quarter to represent Close to 20% of our sales of tubes. In the Middle East, investment in oil and gas development Has been increasing while LOSSIGI stocks, particularly in Saudi Arabia, are low. Our sales in the region are increasing And further tenders are expected.

Speaker 2

The United States' OCD consumption has leveled off, But imports by distributors have surged to reach record levels in the Q1 of 2023, Following the run up in prices of last year, OCG inventories on the ground have increased rapidly And now exceed customer levels, putting pressure on prices, particularly in non heat treated items. In Canada, meanwhile, a parallel surge in Chinese import in the second half of twenty twenty two and early 2023 Has resulted in excess inventories on the ground. The Canadian authorities revised normal value levels for Chinese OCTG imports in March with potential retroactive effect. North American market conditions should stabilize Later this year, as our CTG inventories return to normal levels. Also our shipment will remain at good levels throughout the year, exceeding 2022 volumes.

Speaker 2

The pricing environment in the Americas will affect our overall level of sales and margin in the coming quarters. In the Q1, our cash flow from operation reached a good level as we stabilize inventory levels And should increase further and strengthen our already solid balance sheet. In the meantime, We proceed with our investment program to modernize our industrial system and reduce the bottlenecks that limit our production capabilities In high range and specialty products, we will increase the capacity of our Italian steel shop to produce special high alloy steels. And in Argentina, we are replacing a steel furnace with technology that will reduce carbon emission and improve operational efficiency and capacity. In the United States, we will modernize our steel shop to reduce its environmental impact on the surrounding communities.

Speaker 2

We will also install a heat treatment furnace in Italy with lower carbon emission that will expand our capacity for serving Offshore Pipelines. Other investments include our new premium trading line in the Emirates, Expanding capacity in our trading line for the use of our duplex technology in offshore application and our wind farm in Argentina in October. We will also complete the rollout of our new integrated production system across our main production centers, allowing us to optimize mill production schedules and reduce our lead times. In April, Gabriel Poskowska was appointed as our Chief Operating Officer. He will be responsible for coordinating The company's sales and marketing, supply chain and production operation as well as its Product and Service Development.

Speaker 2

Gabriel had an extensive experience In every area of Tenaris, he is very well prepared for handling the very complex agenda on Tenaris on the time that are coming and he will be up to undoubtedly up to this task. So I will now leave the floor open for any question you may have.

Operator

Our first question comes from the line of Alessandro Pozzi from Mediobanca.

Speaker 3

Hi, good afternoon. I have a couple of questions. The first one is on the outlook for the rest of the year. You mentioned a gradual decline in sales and EBITDA margins, of course, from record levels. But I was wondering Can you give us a bit more color of where you see potentially sales going and margins in Q2, which I think probably you should have Sufficient visibility and maybe attempt a maybe forecast for the end of the year Where we could see basically sales coming down to which level?

Speaker 3

And also remaining on the guidance, You mentioned an increase in cash flow gradually throughout the year. I was wondering, you still have Fairly high working capital in absolute terms. Shall we see some of the reversal in working capital throughout the year? And what sort of a free cash flow we could see because the free cash flow maybe towards the EUR 3,000,000,000 rather than the EUR 2,000,000,000 for 2020. That's all for me.

Speaker 3

Thank you.

Speaker 2

Thank you, Alessandro for your question. Well, on the first one, as you were guiding, as we mentioned, The prices, as you can see in the trend, in the downward trend The Pipe Logic is, to some extent, affecting from now on also our overall pricing. The United States, this is basically driven by The incoming flows of imports and leveling The level of rigs and the operation, but in other parts of the world, Middle East and in the offshore, We see price still getting up and there is pricing power for Specialty products in that area. In this environment, combining all, we see some reduction in the overall price. Having said this, we expect our margin in the second quarter to remain or being slightly lower That our margin in the Q1, then Some the trend beyond the Q2 will be influenced by many factories.

Speaker 2

Today, there is some Turn it in the market, and we will see how the different factor Price for oil operation and the financial tension in the United States may influence what is coming. But that's the reason why we guide for a gradual decline In our results, now when are you In terms

Speaker 3

of in Q2, should we expect a single digit Decline as well?

Speaker 2

We're expecting sales single digit decline, but As I was saying, we expect to slightly lower or similar level of margin

Speaker 4

As far

Speaker 2

as the cash flow is concerned, when our sales are leveling up, Our need of working capital is also contained. So finally, we're like begin to reduce Our inventory to contain our receivable, so we expect slightly higher cash flow In the next quarter and sustain cash flow also in the rest of the year. Your point on the free cash flow, Also, free cash flow will be very strong. Our investment will increase from around $380,000,000 in 2022 to something in the range of 650 $1,000,000 in 2023. So this will not really change So much will affect our free cash flow and our free cash flow will be solid in our view in all of 20

Speaker 3

Okay. So basically, it's a step up from Q1, so probably higher than The €800,000,000 that you delivered in Q1 over the next few quarters, so potentially above €3,000,000,000 for the full year.

Speaker 2

What I'm saying is that will be higher in the Q1, then we will see the effect on working capital.

Speaker 3

Okay, understood. Thank you very much.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Marc Bianchi from Cowen.

Speaker 5

Hi, thank you. I understand there are several factors affecting second half as you mentioned, Paolo, but If you were to just flow through current pricing, what we're seeing in the spot market and What your current metallic and other costs are because there's some lag. So I guess the question is, when all of that flows through, Does that imply further downside to margins or I don't know, are international pricing and other things enough to offset that?

Speaker 2

Thank you, Mark. When we look at our cost, It's true that we had some spike in hot rolled coils in Very recently, but then the prices of iron ore of Ferroale and so Going down, this will not get into our profit and loss in the coming quarter. Maybe by

Speaker 6

the Q4,

Speaker 2

we may start to see something of this. It will depend also From how this the level of volume will move on. But as I say, guiding in the second half, We have to take into consideration many factors: level of activity, Pressure of import in the United States, some of the cost that could have an impact in relatively short term. But as a whole, I think that our margin will get normalized in the level Around 30% that we were mentioning in the past.

Speaker 5

Okay. That's very helpful. Thank you. On the U. S.

Speaker 5

Activity or North America activity, 1 of the large drilling contractors provided an outlook for the June quarter where their rig count could fall by Something like 19 to 24 rigs, which is a surprisingly large drop relative to what everybody else is saying. You guys have Some pretty good visibility with Rig Direct. I'm curious if you could put that in rig count terms, what you see and what your customers are saying?

Speaker 2

Yes. Thank you, Mark. Well, as you say on one side, we see the number of rigs internationally and Globally to go up, but in the United States, we have seen some reduction. I will ask Luca To give a view of the level of activity that we may expect from our client in the States.

Speaker 6

Yes. Thank you, Paolo. Hi, Mark. Look, yes, we have seen these Statements. Now there are others that are forecasting much lower.

Speaker 6

But I believe that In the end, Yara, it's very much depends on the combination of your customer portfolio. Now if you see what has happened so far And according to Enverus, you've seen that the rig activity went down mainly on the small private that lost almost one So depending on where your exposure is, you may have different effects on your sales. When it gets to Tenaris, as you know, we are a large exposure to big operators that didn't show this

Speaker 2

dramatic drop. On the contrary,

Speaker 6

actually, they've been I think the drop on the contrary actually they've been adding rigs through Q1. And so we expect this to be not the same as other operators in our space that may have exposure To a different customer portfolio. So I go back to what Paolo was saying, we see a level offer, But we don't see at this stage a dramatic decrease in activity as far as our portfolio is concerned. Obviously, there are uncertainty going through the Q2, and so we're going to revise this if anything.

Speaker 2

Yes. I think it's important to understand to follow the dynamic of price foil. As we were saying in the last quarter, we still expect that the different factor affecting the market of supply and demand in oil They should act to maintain the level of price in the range between $70 $80 And in that condition, our client Should maintain a relatively solid level of operation.

Speaker 5

Great. Thank you very much.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Stephen Gengaro from Stifel.

Speaker 4

Thanks. Good morning. Good afternoon, everybody. I guess two things for me. If we can just start with the balance sheet, the cash, the expected free cash flow, You're obviously in a very good spot from that perspective.

Speaker 4

Have you how do you think about giving more cash Back to shareholders given the balance sheet and the free cash flow expectations. It seems like you could be more aggressively returning capital. I'm just thinking about how you

Speaker 2

Thank you, Stephen. Well, yesterday we presented Our results, our cash flow to the Board, the Board and the Assembly will decide about Dividend use of cash. They were happy with the results. They will take this into consideration. But I think that Then they will decide during the coming quarter considering the different

Speaker 4

Is there any Framework or way we should be thinking about how much net cash or cash you need on the balance sheet Just from an operating perspective?

Speaker 2

Well, We are considering Tenaris the leading player In the world in this business and always has to consider the option of positioning in different scenario, How to get to expand this value chain? These are points that are always considered. At the same time, we have a track record of dividend that is also kept In good consideration by the Board in taking decision on this. What we can see is that working capital It should stabilize at this point, and we do not expect a source of cash by the working capital. On the contrary, to some extent, We should be able to get cash flow from inventory receivable In the coming quarters.

Speaker 4

Thank you. And I have another question on the margin front And maybe thinking about it, the last couple of quarters you've had extremely high EBITDA margins And we can go back in history and it's hard to find times that you were at these levels, if ever. But when we think about Your business and sort of what you guys have done structurally to improve the efficiency of operations, your global footprint, the Bay City facility, etcetera. Where would a margin I'm trying to sort of think about maybe you could help us understand How much of the margin uplift and sustainability of margin is related to simply input costs versus selling prices Versus all the internal improvements Tenaris has made, is there a way to think about sort of like we were talking about falling from 20% EBITDA margins The mid-30s, how much of that is simply price versus input? How much of that is how well Pineris has done improving efficiency of operations?

Speaker 2

Thank you, Stephen. Well, I would say that the over the years, the Expansion in results in Tanari in absolute term and in term of margin is Mainly due to the organic growth, the investment in our facility, the progression in Establishing our business in the United States, the Tenaris of today is very different from Tenaris of 10 years ago. The participation in the U. S. In North American market in general is above 50% of our revenues in this.

Speaker 2

So the company has changed. And also the level of service To our clients Rig Direct, Ran Reddy, there are component of the value And are contributing to the margin of the company has also increased very much, not only in the States, but also in Latin America and Middle East and in other areas. This has contributed to, In my view, a sustainable increase in our level of margin In the different situation for the market that we faced. That's the reason why we can today guide the medium term margin in the range of the 30% Because of the work done in our value chain, in our The reorganization and improvement in our operation and expansion and expansion Of our market and our service proposal. I think this is there.

Speaker 2

It's something that is being achieved. In this moment in particular, the inflow of imports in the United States is having an impact on the shorter price, You see this in the PipeLogic. And to some extent, this is reverberating in our level of sales, Not only to the States, but I don't think that this is really sustainable over the medium or long term.

Speaker 4

Great. Thank you for the detail. That's very helpful.

Operator

Thank Our next question comes from the line of Kevin Rodger from Kepler Cheuvreux.

Speaker 7

Yes. Can you hear me?

Speaker 8

Yes. Very good.

Speaker 7

Yes, perfect. Hi, thanks for all the time. Sorry for that, but it will be 2 kinds of follow-up. You just clarified that you expect the EBITDA margin to stabilize around 30%. Another way to look at it, would it be fair assume therefore that your EBITDA run rate would be at least around $1,000,000,000 on a quarterly basis.

Speaker 7

That would be the first question. And the second question, Paolo, I really understand that any decision around the dividends would be decided at the board But if I can be curious and ask what would be your personal view on that side? What would be your Position at the Board, what will you propose in terms of mindset, returning extra cash with special dividend or whatever? Just to maybe get a bit of sense on your Personal view rather than the Board, if I may be curious, please.

Speaker 2

Well, thank you very much, Kevin. On the first point, we are in the range that you are saying basically. This is what we can see Now, I mean, obviously, these are issues that could be influenced by A factor like a recession in the States or so, these are always things that move and could be affected by this. On the question of dividend, I have no personal opinion. I just presented to the Board Alternative and option, and they decide.

Speaker 2

So I cannot help you on this.

Speaker 7

Okay, fair enough. Thanks for that. Thanks.

Operator

Thank you. One moment for our next question. Our next question comes from the line of David Anderson from Barclays.

Speaker 4

Hi, good morning, Paolo. I want to ask you some questions about The longer cycle markets that impact your business over the next few years. Maybe talk about offshore markets a little bit. We're seeing a wave of rig contracts signed over the last 12 months, subsea orders are piling up, FTI just had some nice numbers this morning. And now here our service companies are talking about the opportunity as well.

Speaker 4

Can you just talk about how you see the offshore impacting your volumes and kind of when that should start hitting? Is that a second half of 23 event for you, is that more of a 24 event? And do any markets in particular stand out for Canaris offshore wise?

Speaker 2

Well, thank you, David. I think this is a long term But I will ask to Gabriel to give a view of This is a long term trend and where we can see action in this.

Speaker 8

Thank you, Paolo. Good morning, David. Indeed, the offshore drilling continues to increase steadily. The global offshore rig count already reached the pre pandemic levels And everything indicates that this will continue to grow. FID projections, CapEx projections, the discussions that we have with our Various customers indicate that it's going to be a multiyear growth cycle.

Speaker 8

We are quite confident about that. And Well, we perceive this is also happening in many basins at the same time. Tenaris, as you know, is an undisputed leader in this segment With a differentiated product and service portfolio, so we are very well positioned to take advantage of this trend. I would mention, for example, that we are ramping up Shipments in Latin America, long term agreements that we have with in Brazil and Guyana, These are 2 key deepwater basins that will experience growth over the next few years, where we supply differentiated technologies

Speaker 9

Such as

Speaker 8

the BlueDog connectors and casing with a doppless technology. This is one area That will continue to grow into 2023 and beyond. Another hotspot has been the offshore seamless pipelines. We see a lot of activity In building infrastructure to support this increased drilling, in the last few months, we have booked several deepwater pipelines in North Sea, Susagaren Africa, Black Sea. So we see this area also as a bright spot into the future.

Speaker 8

So overall, we believe that volumes Are going to increase. This is already happening in quarter 1, and this will continue to happen in the rest of the year. But we believe that this is going to be A multiyear cycle and also this some of in this segment, we have some long term contracts that have formulas That will escalate pricing over time. And there are also new projects, new spot contracts coming on, which probably will be delivered in 2024. Certainly, new contracts are being booked at higher prices.

Speaker 8

So we need to think of the offshore impacting positively gradually in 2023 2024 In volume and in pricing.

Speaker 4

Gabriel, that's as I was going to follow-up with. I mean, I know the pipelines are a little bit of a different story, but generally speaking, Your OCTG offshore should be margins that are accretive to that normalized 30% margin number, is that does

Speaker 8

it have

Speaker 4

fair statements to say in general? Okay.

Speaker 8

Yes, correct. And the same would apply with the Siemens software pipeline. On the welded pipeline, for example, the one that we mentioned in Qatar and some in other legacy contracts, average pricing and margin are lower than average. We're talking about the new cycle of deepwater offshore seamless pipelines, margins there are also quite differentiated.

Speaker 4

Even there, while that's surprising, because you usually think the pipelines are the lower margin business. Gabriel, while I have you here, maybe we can talk a little bit about the Middle East as well. So I'm just kind of curious kind of repricing opportunity you're seeing over there. I heard one of your competitors recently raised pricing rather significantly on a recent contract. Should we expect Tenerus to likewise be kind of start to recapture in pricing here as contracts are renewed?

Speaker 4

Do you see are there contract renewable opportunities coming up in the Middle East?

Speaker 8

There are, David, indeed. The environment there in the Middle East is also very, very Investments are being deployed in line with the capacity expansions announced by the NOC. By the announcement of OPEC plus on reducing production, we don't see anything impacted negatively. Activity on the ground is increasing. The NOCs are moving on increasing the level of purchasing in colos.

Speaker 8

Saudi Arabia, UAE, Qatar, Also in Iraq, we are seeing a higher demand for our products. So there as well, where we have long term agreements, we have 4 percent renegotiation And new contracts, new orders are coming at a distinctive different pricing. So we see that over time To be impacting positively into 2023 and we already have good visibility in the Middle East into 2024. This is another multiyear

Speaker 4

Sounds like some very good positive consistent trends. Good to hear. Thank you very much. Appreciate

Speaker 2

Thank you, David. This is really the new contract coming at prices that are different From the old one. But some of the old contracts, like a big line pipe contract for Qatar, We'll continue to stay in our number until the end of the year with very low margin. It's one big contract Because some of this is long term. Okay.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Daniel Thompson from BNP Paribas Exane.

Speaker 9

Hi, good morning. Just two questions on pricing, please. Apologies if I missed Earlier, but I was wondering what level of PipeLogic's pricing in the U. S. Underpins The 30% normalized margin assumption you gave out earlier, is it all the way back to longer term Average prices that we've seen over the last decade or is the level of pricing closer to where we are today?

Speaker 9

And then my second question is on international pricing. Given we don't always have the same level of visibility across The different regions, can you just provide some color on where we sit today in terms of normalized pricing levels Across the key regions like the Middle East, Latin America and China. Thank you.

Speaker 10

Yes.

Speaker 2

Thank you, Danny. On pricing, because you mentioned the PipeLogic, I think I will ask Luca to comment on the pricing dynamic.

Speaker 6

Yes, Paolo. Good morning, Daniel. Look, I believe that it is important that we speak a little bit what we'll see in Pipe Logics Between different categories. And this is a trend that is already happening. So we have the seamless on the one side.

Speaker 6

And if you look what happened So far from the peak, seamless is down 14%, while when you look at the VAW, it's down 20%. So it is very difficult Talk about Pipe Logics as a whole because we're going to see this gap amplifying. And in relative terms, this is going to be an advantage Our operations that are heavily relying on Seamless. On establishing what will be the plateau, it is very difficult to see This is related to the influx or the surge that Paolo was mentioning before, and we need to see how this evolves. Obviously, as already said, we don't see this as a sustainable trend going forward.

Speaker 6

And we're going to see later on how this will evolve. But here it's very important that you pick The difference between the different categories and even within seamless, there are some product range and some technology That are faring better than the rest.

Speaker 2

Yes. Then as far as the international Gabriel?

Speaker 8

Yes. Daniel, regarding prices in international market, we see a strong momentum Following the increase in demand in the Middle East and offshore that was mentioned before, the market is already tight and we are in the early part Of this cycle, we believe that the market will become tighter. This is particularly noticeable for high end products, Special grades, premium connections, complex pipelines where we are particularly strong and focused. So in this environment, customers are prioritizing security supply rather than price. So we expect that there's going to be Pricing tailwind supporting our business in the international market driven by Middle East and offshore.

Speaker 8

With some legacy And timing from contract negotiation or contract booking into our books because as you know in this part of the world there is a typical legacy of 6 to 9 months or even more these days to see that into our shipments and invoicing.

Speaker 2

Thank you, Gabriel.

Speaker 9

That's clear. Thank you.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Luigi Develis from Equita SIM.

Speaker 10

Yes. Good afternoon. Just two questions for me. The first one is on the Argentina, you flagged the further pipeline projects will be subject to higher uncertainty. Can you elaborate more on the outlook for the Meaning part of 2023 and going forward for Argentina.

Speaker 10

The second question on the U. S. Market. So you mentioned a pressure of Of course, in U. S.

Speaker 10

Due to the higher prices of last year, but how do you expect the evolution of imports in the coming months? When do you This pressure reasonably too easy to reduce. Thank you.

Speaker 2

Yes. Thank you, Luigi. Well, now we are completing the delivery of pipe of the first stage of a very long pipeline, It is absolutely true that Argentina has plans and the need Also continue to invest in the infrastructure of transporting oil and gas. This is very important for Argentina. In any scenario, Argentina We'll need to expand its export capability for oil And to reduce import during winter season of LNG.

Speaker 2

So the need is there. Still, if I should say, the macroeconomic situation of Argentina It's very difficult to play. There are different exchange rates. It's not easy to Import, the needed imports for realizing this expansion today, Argentina is heading in some moment in the coming for a devaluation and for a change for a new election before the end of the year. So I think there will be delays in launching Some of the projects that are, let's say, needed and designed Have in mind oil and gas.

Speaker 2

Still, We are actively working on this, on the possibility of financing and the government is doing the same. And if there is room For improving the macroeconomic condition, some of these projects may go on and maybe Something may happen before in our sales before the end of the year, but this is very uncertain in this moment. 2nd point is on the Import in the United States and what we may see for the future. Luca, Yes, Paolo. Your vision on this.

Speaker 6

Yes, hi, Luigi. Yes, I mean, let's start looking at what happened so far. So far, we have a glut of imports that In our understanding and also according to the publications available Our linked to purchases that has been done many months ago and due to the long lead time are all getting together in the Q1. Now it has to be highlighted that, however, this Surge of imports is more related to the low end side of the product lineup, As I was referring before. So here there is a time delay that is taken care And as we progress into the year, this component should be down as the purchase order by the end process are going to align to the Consumption in the United States.

Speaker 6

And the second element, which is very important for me to consider is also That's the current condition in terms of cost of capital are much worse than the one that were At present, when some purchasing decisions were made in the past. So the two things together Should indicate that we should see the imports to normalize as we move through 2023.

Speaker 2

Yes. Thank you, Luca. So you can see that, I mean, the price pressure in the United States It's to some extent offset that an opposite price pressure in the international market, but it's true that U. S. Today is very important What are overall sales?

Speaker 2

And that's the reason why we are mentioning gradual decline Due to this pressure on price, particularly.

Speaker 10

Thank you very much.

Operator

Thank you. One moment for our next question. Our next question comes from the line of James Winchester from Bank of America. Brilliant.

Speaker 9

Thank you. Afternoon, Hopefully, two quick ones for me and sorry if I missed them earlier. Firstly, I wanted to check, does your free cash flow guidance For the Q2 imply a working capital inflow, and just any color of that kind of heading into year end? And then secondly, do you think the or is the Board considering a special dividend at all, just given the amount of cash you're going to be generating? Thank you.

Speaker 2

Well, on the first one, yes, there is some contribution to our free cash flow By the reduction in the working capital. The second question is what I say before. It would be up to the Board to consider The different option and to propose to the assembly the dividend distribution.

Speaker 9

Okay, brilliant. Thank you.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Arun Jayaramma from JPMorgan.

Speaker 11

Good morning. I wanted to get some thoughts on your expectations for volumes this year. Last In 2022, you guys shipped 3,500,000 tons of volumes. In 1Q, you did 1.1 1,000,000, so you're on a trajectory to do more than 4,000,000 tons this year. Is that still a good run rate?

Speaker 11

And then I just wanted to ask a question as we think about 2024, how much of your 2023 volumes would you call Discrete in nature related to some of the large pipeline projects that may not repeat as we think about 2024.

Speaker 2

Thank you, James. As I was saying, first of all, you are right. Our volume overall in 2023 will be higher than the volume in The previous year, the is Arum, sorry, I took The wrong name. Thank you, Arun. Yes, yes.

Speaker 2

Yes, yes, sorry. So the volume will be Hi, in 2023. Now in 2024, I think that The pipeline in Argentina, the one that could be delayed during this year Will arrive and will need to be built. And this is a program that any government Should undertake because it has a very high return for the country, and we are well positioned for this because the combination Of our Brazilian and Argentinian operation together with our sister company Ternium is a very strong position in reacting fast and having Short term delivery for this. So I think that in 2024, we should have pipelines

Speaker 7

Sales

Speaker 2

of important size for Argentina and maybe also For Brazil in 1 year from now. So it's true that in the coming quarter, we finish the delivery of the Enercare and probably we have less for sure less Pipeline delivery, but in 2024, this will pick up again.

Speaker 11

Understood. Understood. And is there any Way to think about volumes in 'twenty four, I don't know if your visibility, I mean, we've been thinking that it's probably down a little bit year over year, but still probably in the upper, Call it 3, close to 4,000,000 tonnes next year?

Speaker 2

No. In 2024, very difficult to have But I mean, it will depend on the evolution of the sector. Tenaris will be extremely well positioned For capturing demand in the case that investment by the oil company and national international And independents will go on. We will depend on the industry.

Speaker 11

Okay. And my final question, Paolo, is how does Changes in the PipeLogic Index indices in the U. S, how does that impact Your international pricing power, is it does it influence in any shape or form? Are any of your international contracts Linked to Pipe Logix in the U. S?

Speaker 11

I wonder if you could elaborate a little bit on that.

Speaker 7

Yes. Well,

Speaker 2

We have a long term, short term agreement with different client, but 5 largest to some extent entering some of the formal, but I will ask Gabriel to give an overview Of the relation between the 2 worlds, the world of pipe logic import production in the U. S. And the world of international business. Sure.

Speaker 8

Thank you, Paolo. Arun, to think about that, I would say to simplify because here there are many moving targets and contracts on the geographies. But I would say that in the Middle East And in the offshore markets, I would say the impact of PipeLogic is nil or close to 0. Then when you have some markets in the region, Mexico, Canada and Argentina as well, there is a trend of some correlation between the evolution of their biologics And prices in those markets, not in a direct way in all of them because there are formulas and different other factors, but the Pipe Logics On certain markets of America has an impact as well, while on the other side of Atlantic on this hemisphere, I would say not at all.

Speaker 10

Yes, many thanks.

Speaker 2

Thank you.

Operator

Thank you. One moment for our next question. Our next

Speaker 2

Hi, good afternoon. I have a question on M and A. Do you have any Any negotiation

Speaker 10

at the moment because I heard some rumors about possible interest on Asset of Vallourec in Brazil, can you confirm or not? Thanks.

Speaker 2

No, we never make comment on anything. And in this case, we have no comment at all. Okay. Thanks.

Operator

Thank you. At this time, I'm showing no further I would now like to turn the conference back over to Giovanni Sardagna for closing remarks.

Speaker 1

Well, thank you, Gigi, and thank you all for joining us In our conference call. Thanks.

Speaker 2

Thank you, everybody.

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Earnings Conference Call
Tenaris Q1 2023
00:00 / 00:00