Tenaris Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 22, 2024

There are 13 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to 4th Quarter and Full Year 2023 Denati's 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 session. 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 2023 4th quarter and annual results conference call. Before we start, I would like to remind you that we will be discussing forward 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 Roca, our Chairman and CEO Alicia Mondolo, our Chief Financial Officer Gabriel Podcuka, our Chief Operating Officer and Luca Zanotti, President of our U. S. Operations.

Speaker 1

Before passing over the call to Paolo for his opening remarks, I would like to briefly comment our quarterly results. During the Q4 of 2023, sales reached EUR 3,400,000,000 down 6% compared with those 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 Shokor pipe coating business, which offset the ongoing price declines in the Americas. Our EBITDA for the quarter was down 3% sequentially to $975,000,000 and that EBITDA margin declined to 29%, mainly reflecting lower pricing in the Americas. Our net income for the quarter at $1,100,000,000 was positively affected by good results from non consolidated companies, positive financial results and an important net deferred tax gain.

Speaker 1

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 836,000,000 dollars Our net cash position at the end of the quarter increased to $3,400,000,000 following the payment of an interim dividend of 2 $35,000,000 in November last year, dollars 214,000,000 spent on share buybacks and capital expenditures of 100 and $67,000,000 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 the proposed annual dividend for this year is 18% higher compared to the annual dividend paid last year.

Speaker 1

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. We ended the year with a strong Q4, 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 sour shipment to Aramco under our recent tender award. We were also able to include the first contribution from our newly acquired Shawcorpipecoating business after expediting all the necessary antitrust approvals. 2023 has been an outstanding year for Tenaris, with record financial results under most metrics.

Speaker 2

Net sales of 14,900,000,000 dollars EBITDA of $4,900,000,000 net income of $4,000,000,000 operating cash flow of 4,400,000,000 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 and net cash of EUR 3,400,000,000 dollars 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 price. We have extended the perimeter of our operation through a series of acquisition.

Speaker 2

In Saudi Arabia, we increased our stake in GVC to gain a controlling position in this large diameter weathered pipe mill, producing conductor casing and large diameter line pipe. With the acquisition of the short core pipe coating business, we are strengthening our line pipe business, especially for offshore line pipe, where Shokor has a leading position in anti corrosive and insulation coatings. In the United States, we increased the flexibility and overall capacity of our U. S. Industrial system by acquiring additional key treatment and threading facilities.

Speaker 2

Each of these 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 4,000,000 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 serve over 500 rig worldwide. Under this program, which requires investment in working capital, service yard infrastructure, logistic and digital systems, we enhanced 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 Run Ready service, we are reducing inventories in North America and transforming the supply chain.

Speaker 2

We are advancing with our rig direct service in other regions around the world. In North America, we have strengthened our positioning among large operator. We were recently awarded a long term agreement by ExxonMobil to serve their unconventional operation 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 U. S.

Speaker 2

Rig count has declined. We are also strengthening our position among major operator in Canada. Our sales for offshore operations project 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.

Speaker 2

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 Hajrafura 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.

Speaker 2

Last week, we inaugurated 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 high level throughout the year has performed well in supporting our positioning worldwide. In Safety, however, we had 3 fatalities in our operation after 4 years without any. We are deeply sorry for the loss of life, and we are enforcing all our preventive action with a particular focus on the activities contractor working in our system.

Speaker 2

We made significant events in our decarbonization program. When after a $200,000,000 investment, we successfully put into operation our first wind farm in Argentina. And we are now moving forward with a similar investment to be in the 2nd well. The Buena Ventura wind farm is now supplying 100 megawatts 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 global reach, enhanced competitive differentiation an exceptional financial position, is well placed to strengthen its positioning around the world.

Speaker 2

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 Wu's continuous efforts and commitment, our many achievements during 2023 would not have been possible. I will leave now the floor open for any question you may have. Thank you.

Operator

Thank you. Our first question comes from the line of Arun Jarm from JPMorgan Securities LLC.

Speaker 3

Yes, good morning. Paolo, the net cash balance now has grown from $921,000,000 to over $3,400,000,000 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 and 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 cash there is net cash on the balance sheet?

Speaker 2

Thank you, Roma. And you're right that the company is arriving at the end of 2023 with a very strong cash. Well, as we did in the past, we will consider all the option. On one side, we need to continue on some organic investment to complete and advance in our decarbonization program. We should also focus on area of digitalization and automation that will enhance our competitors.

Speaker 2

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 has been Shokor and also the investment we did in Italy and in the States in coating or in increasing capacity in area in which we really need to be ready to react to the need of our client because Rig Direct is demanding on our inductor and supply chain structure. We are also prepared to analyze opportunities in different region that may arise and then can complete our deployment worldwide.

Speaker 2

But we know that if 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.

Speaker 3

Great. And my follow-up, Paolo, you mentioned that Tenaris expects sales in the first half of twenty twenty four to be very similar to the second half of twenty twenty three. 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 twenty twenty four on an EBITDA basis?

Speaker 2

Well, as you say, we expect the invoicing in the first half of twenty twenty four to be in line with the invoicing in the second half of 2023. But this you should consider on one side some of the advancement that we have done in the contract in Saudi. On the other side also, the inclusion of Shokor and particularly of part of a very large project in Mexico, in Altamira, there was, let's say, implies an extraordinary invoicing level for Shopcor. 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 logic, 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%.

Speaker 3

Great. That's helpful. Thanks a lot.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Alessandro Pozzi from Mediobanca.

Speaker 4

Hi there. Thank you for taking my questions. And the first one is on your results of Q4. And I think one of the key factors behind the numbers being above consensus was potentially shipments advanced shipments to Saudi Arabia. I was wondering, as we go into 2024, 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?

Speaker 4

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 a 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.

Speaker 2

Thank you, Alessandro. Well, on the first line, 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 perspective.

Speaker 5

Paolo. Good morning, Alessandro. Indeed, we were with Paolo last week 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 12,000,000 barrels. We see that drilling activity continue at high levels at this level of 300 plus rigs as the kingdom is increasing its focus on drilling for gas.

Speaker 5

There is an increase of demand of gas in Saudi, driven by the economic expansion and also the aim of the king by gas in their power generation metrics. So we see drilling on gas, it has been going on and we continue to go on in the years to come. As a matter of fact, today, to give you as a reference, the gas driven OCTG demand is about 2 third of the OCDG 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 every string of every type of well, conventional and conventional, oil and gas, onshore and offshore.

Speaker 5

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 trend lines that are being developed in Saudi like for the Jafura 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 or very limited impact on the announcement. This is in terms of Saudi.

Speaker 5

So we expect the level of shipments that we have in Saudi in the Q4 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 with the drilling we're drilling plants. Today, we are serving on adjusting time basis about 70 rigs every month with our service center and Rig Direct model.

Speaker 5

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 twenty twenty three versus first half of twenty twenty three, and we expect this to continue into 2020.

Speaker 2

Thank you, Gabriel. On the second question, which is basically about the margin in 2024, I think we have visibility for the 1st part of the year. It is we have not so much visibility on the entire year. The factor that are affecting margins, one side is the evolution of prices in North America reflecting the pipe logic. We have seen the pipe logic coming down in the recent months.

Speaker 2

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 U. S, where our client base is solid, even in an environment in which the rig count remain substantially stable. And we will compensate to some extent by the increased sales in the Eastern Hemisphere and in the offshore.

Speaker 2

On the other side, consolidation of Shokor 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 6 months.

Speaker 4

Okay. And just a follow-up on Choco. What will be the contribution from the new business in 2024 in terms of revenue?

Speaker 2

Well, we are expecting an invoicing above $300,000,000 $300,000,000 to $350,000,000 depending on the contract that we may capture for the 2nd part of the year. And this will contribute with margin that 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 mill, 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.

Speaker 4

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.

Speaker 6

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 be can't have precision on, but just so we can understand it?

Speaker 2

As I was saying, there is we don't have so much visibility. But as you are saying, we have the business in the offshore and Middle East that is clearly strengthening. Then we have some uncertainty in area like Argentina and Mexico to some extent. In Argentina, because it is not clear if the new government will be able to advance in key reforms that may promote increasing or new investment in the oil and gas business. Oil and gas business is clearly one of the drivers for the economy in Argentina and will be one of the important piece of any government program for the future.

Speaker 2

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 larger resources that Mexico obviously has. Then there is probably the most important piece that made the term in the medium term in 2024. There is a devolution of the U. S.

Speaker 2

Market, U. S. And Canada, but especially the U. S, 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 look to give some color on how we see the U.

Speaker 2

S. Market for us in the coming quarters.

Speaker 7

Yes. Thank you, Paolo, and good morning, Marc. Look, specifically to the U. S. And on the pipe logics, the way we see it now is that it should be bottoming out.

Speaker 7

Obviously, there are uncertainties, but there are some key factors that is worth taking into consideration. Number 1 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 6.20, 6.30 rigs in the United States. Obviously, another things that needs to be considered when you look at the pipe logics and our prices is how is the exposure of the pipe logics depending on the mix.

Speaker 7

And if you saw, Mark, not all the items behaved in the same way. Production casing was much more resilient than tubing, for example. And you know that our exposure is very large on the production case. Now when we go to the activity, again, we think that the activity is going to be stable in the United States and 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.

Speaker 7

If you look at Permian, activity has been much more resilient than the average of the market and is not even among different operators. Paolo was mentioning our very large exposure to the 10 largest operators in United States. 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.

Speaker 2

Yes. Thank you, Luca. Pipe Logic Index is important for us. It is guiding not only U. S.

Speaker 2

But also other part of our contract in the region. It's 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 to 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.

Speaker 2

And this is a very important factor for understanding our level of margin in the future.

Speaker 6

Is the implication if Pipelogix stabilizes here and say February, March, we get to a bottom, that the second half margin would be better than 25%?

Speaker 2

Well, considering the delay that we have between the price or the level of PipeLogic and the leg for affecting the contract, I mean, there will be not so relevant. But still, there are many moving pieces here, and also 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, I 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.

Speaker 6

Yes, 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.

Speaker 8

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 Biologics Index. Because basically, the trend on the Biologics 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.

Speaker 8

So a dynamic that was much less negative than it used to be. So why would you say that the impact from the marginality will be stronger in, let's say, Q1 'twenty four compared to Q4 '23. Well, compared to what we have seen sequentially, Q4 versus Q3, because you maintain a margin that is probably better than you anticipated when you when we discussed in the Q3 earnings. So just trying to understand why for more limited decline in the pipe projects in-depth, we should see a stronger impact on the marginality.

Speaker 2

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 3rd Q. So to some extent, we see the 3rd and the 4th. So to some extent, this led will lead to a decline in prices in our sales in the U. S, not anywhere.

Speaker 2

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 it is affecting our profitability and our margin slightly. Well, there is not a big change, but we anticipated in the 4th quarter a slight reduction on the margin, and we expect this trend to extend to the Q1 of the next year.

Speaker 8

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 project that we are talking about?

Speaker 2

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 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 Q4. I think we can support maintain the strategy and avoid being affected by other shift event, possible shift in the ForEx. So we can, on this sense, from a financial point of view, manage the environment, the situation in Argentina.

Speaker 2

The potential of Argentina in 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 the major pipeline, the electrification pipeline in Argentina with our pipes and the associated activity in drilling 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 will be investment in the area. We will see investment in pipelines.

Speaker 2

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 be will give a strong incentive for motivating investment in the energy sector. This is could be an upside. Argentina has been very important for Tenaris in 2023 invoicing exceeded EUR 2,000,000,000 during the year. If the let's say, there are positive sign on the stability of the country and the position of the government, I think we could see 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.

Speaker 5

Okay. Thanks.

Operator

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

Speaker 9

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.

Speaker 9

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 have the conductor pipe and I think you also have a welding 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?

Speaker 2

Thank you. I will ask Gabriel to give some color on this.

Speaker 5

Yes. Thank you, David. Yes, I mean, the reason this 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 increased also the capacity of premium threading for Tenaris. So it's a facility that we intend to qualify with the major NOCs of the region, so it 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.

Speaker 5

I think as Paolo mentioned, we're always looking for opportunities. Middle East is an area that has been and it's increasing its importance in Tenaris. There is a whole trend. I think we have discussed this in the past of industrializing 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 accompanying.

Speaker 5

This is a process and an expertise that we have developed in other geographies around the world and we're keeping progressing this strategy in the Americas. Our business is growing and I think we have the capabilities, the willingness to continue enhancing our footprint in the region. This has been very distinctive. Historically, we have differentiated in the Middle East with products. We have brought into services like the rig directing in ADNOC, but local content and industrialization is also part of our strategy, has proven to be successful so far.

Speaker 9

Thank you, Gabriel. And just as a follow-up to that, I think you in the remarks earlier, you had said that you're providing the pipe on Jophora 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?

Speaker 5

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 and 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 direct potential. Today, the interaction, the demand planning and the procurement cycle of Aramco today is different than what it was 2, 3 years ago where they were buying 1, 2 years in advance.

Speaker 5

Today, the synchronization between the manufacturing facilities in Saudi and the rigs in Saudi is much more in tune. So I think we are heading into a further integration down the line.

Speaker 9

Okay. Potentially heading in that direction. Okay. Thank you, Gabriel. Appreciate

Speaker 5

it. You're welcome, David.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Jamie Franklin from Jefferies.

Speaker 10

Hi there. Thank you for taking my questions. Just three quick ones for me. So firstly, I just wanted to clarify on U. S.

Speaker 10

Volumes. If you can give us any color on the direction of change of the volumes and to what extent they moved in the Q1? And then the second point, which has been answered to some extent, was 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 Q1.

Speaker 10

And then final question, just on expectations for working capital through 2024. Thanks.

Speaker 2

Yes. Thank you, Jamie. The last question is on CapEx for the entire year, it's correct Or working capital?

Speaker 10

Working capital, yes, through 2024.

Speaker 2

Yes. On the first one, the used volume, Luca, maybe you can expand on where we see that we can increase our volume there.

Speaker 4

Sure.

Speaker 7

If we consider the 3 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 Q1. Standard line pipe, 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 will be high single digit.

Speaker 2

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 the major player is very strong. And this player, I think, will be more resilient in 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 location that are coming from a different location.

Speaker 2

But I think we will see this

Speaker 7

during the Yes, a little bit later on more into the back end of the 2024.

Speaker 2

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 Q1. Here, Alicia, you may give a view of this.

Speaker 11

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.

Speaker 11

That devaluation impact positive in our financial results since we were short to the exposure to Argentina peso And it was a negative impact in our deferred tax asset tax sorry, because it's produced an erosion of the fiscal value of the fixed assets. So in the crown impact, we continue in order of 2% every month. We are not seeing other another negative impact in our tax position. But if a new devaluation occurs, we can expect some kind of effect in the deferred tax as same as the past. Not so big, but we will see that.

Speaker 11

But at the moment, we are not seeing that.

Speaker 2

Thank you, Alicia, for the evaluation. And the third point is on working capital. We do not expect a major change in working capital. Tenaris is requires important working capital to operate is Rig Direct run ready 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.

Speaker 2

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 the part of receivable, if we are able to maintain the level of invoicing, this will not change too much.

Speaker 10

Okay, very clear. Thank you very much.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Joseph Schari from Bank of America Securities.

Speaker 12

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 this situation is likely to persist for at least the next quarter?

Speaker 12

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 forwards? And then lastly, maybe I'll ask about the CapEx expectations for the full year 2024? Thank you.

Speaker 2

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 rock coils on the market on variable volume. We have welded, representing between 15% 20% of our sales.

Speaker 2

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 roll 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 region mostly affecting the Eastern Hemisphere region.

Speaker 5

Yes, Paolo. Just to comment on the Red Sea, this is something that we have been monitoring very closely since the tax just started in November with practically no effect in December. But we are having a limited impact in this Q1 of 2024, Around 50,000 tons of the 1,000,000 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.

Speaker 5

So none of our customers are suffering any impact in their operations. And this diversion of 15, 20 days also affects some extra logistic costs in terms of fuel timing and limited insurance as well in the range, I would say, of $3,000,000 in the quarter. So I would say is 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.

Speaker 2

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, not the 10% that I was mentioning in my remarks. On the 3rd point, which is the CapEx, we expect CapEx to be in the range of EUR 700,000,000 for 2024, Considering the second well, part of the second wind farm in Argentina that should be executed during 2024.

Speaker 2

We are in this range and this is what we see now.

Speaker 12

Cool. Thank you very much. Maybe just following up on that EUR 3,000,000 number. Is that the number that you incurred in the 4th quarter or the number that you expect to incur in the 1st quarter from those logistical impact?

Speaker 5

In the Q1, and this is something that if a conflict maintain and persist probably to project down the line, we will see, but it's in the Q1.

Speaker 12

Thank you very much.

Operator

Thank you. At this time, I would now like to turn the conference back over to Giovanni Sardagna for closing remarks.

Speaker 1

Thank you, Gigi, and thank you all for joining us at our conference call. See you soon.

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Earnings Conference Call
Tenaris Q4 2023
00:00 / 00:00