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spk18: Good day, and thank you for standing by. Welcome to fourth quarter and full year 2023 Tenatis Essay Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. 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.
spk04: 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 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, Gabriele Podkucka, our 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. 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 shock or 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 that 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 good results 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 has 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 $0.120 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 EDR will be paid on May 22. The 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.
spk09: Thank you, Giovanni, and good morning to all of you. We ended the year with a stronger 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 supply chain system, we were able to anticipate some premium sourdough shipment to Aramco under our recent tender award. We were also able to include the first contribution from our newly acquired shock core 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 and 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 shock core pipe coating business, we are strengthening our line pipe business, especially for offshore line pipe, where shock core has a leading position in anti-corrosive and insulation coatings. In the United States, we increase the flexibility and overall capacity of our U.S. industrial system by acquiring additional key treatment and trading facilities. Each of these integrations to our global industrial system enhance our capacity to serve our wide customer base with a growing range of products and services. Our globally integrated industrial and supply chain system produces and ships over 4 million tons of pipes to customers around the world. Many of these pipes are delivered directly to our customer operations 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 yard infrastructure, logistic and digital systems, we enhance customer intimacy and differentiation, adding services to simplify customer operations and reduce on-site manpower requirements. With our redirect program, which now incorporates our run-ready 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 to serve their unconventional operation in the United States, which confirms the preference that large operators are giving to our industrial footwear, specialized products and supply services. We are now serving each of the 10 largest operators 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 operators in Canada. Our sales for offshore operations and projects grew more than 50% during the year. In Guyana, where the development of prolific deep water reserves is transforming the country, we are serving ExxonMobil operations under a long-term contract, while in Brazil we are supplying Petrobras with a wide range of products for the Búzios development. We are supplying a number of offshore gas pipeline developments 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 Al Jafura 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 casings from our local welded pipe subsidiaries. The expansion of gas drilling activity will also provide valuable opportunities for sales of lime pipe as Aramco proceed with its master gas pipeline program. 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 a high level throughout the year, has performed well in supporting our positioning worldwide. In safety, however, we had three fatalities in our operations. 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 one. 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. The current favorable market conditions 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 would not have been possible. I will leave now the floor open for any questions you may have. Thank you.
spk18: Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Arun Jaram from JPMorgan Securities, LLC.
spk17: Yeah, 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 Shawcore, 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.
spk09: Thank you, Rome. 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 an advance in our decarbonization program. We should also focus on areas of digitalization and automation that will enhance our competitiveness. 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 Chocor 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 industrial and supply chain structure. We are also prepared to analyze opportunities in different regions that may arise and then can complete our deployment worldwide. But we know that if we don't identify a clear strategy that is allowing us to grow and to enhance our profitability, As we did last year, we can propose to return the 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 options open in this phase.
spk17: Great. And my follow-up, Paolo, you mentioned that Tenaris expects sales in the first half of 24 to be very similar to the second half of 2023. It appears that maybe the Shawcore 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?
spk09: 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 Shokor and particularly of part of a very large project in Mexico, in Altamira, that was, let's say, implies an extraordinary invoicing level for Schoko. When we look at the EBITDA, you know, 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%.
spk17: Great. That's helpful. Thanks a lot.
spk18: Thank you. One moment for our next question. Our next question comes from the line of Alessandro Pozzi from Mediobanca.
spk15: 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 behind the numbers being above consensus was potentially advance 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, 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.
spk09: Thank you, Alessandro. Well, on the first line, we think that in 2024 our sales in the Middle East will increase substantially, but I will ask Gabriel to give an overview because We are present in different countries with different perspectives. It's interesting to see how we can grow there.
spk07: Thank you, Paolo. Good morning, Alessandro. Indeed, we were with Paolo last week in Saudi Arabia, visiting our operations. And the sense that we have is that 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 continue at high levels, at this level of 300 plus rigs, as the kingdom is increasing its focus on drilling for gas. There is an increase of demand of gas in Saudi driven by the economic expansion and also the aim of the kingdom by gas in their power generation matrix. 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 OCDG demand is about two-thirds 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 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 Sulu pipelines, which are offshore oil pipelines on projects that are going ahead, are not impacted by the recent announcement. And we see opportunities in gas, trunk lines, that are being developed in Saudi, like for Jafura phase two, or even the Master Gas phase three. 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. 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 with the drilling plans. Today we are serving on adjusting time basis about 70 rigs every month with our service center and rig direct model. So we are creating a 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 23 versus first half of 23. And we expect this to continue into 20.
spk09: 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. We have not so much visibility in the entire year. The factors that are affecting margins, one side is the evolution of prices in North America, reflecting pipe logic. We have seen the pipe logic 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 U.S., where our client base is solid, even in an environment in which the recount remains substantially stable. And we will compensate to some extent by the increased sales in the eastern hemisphere and the offshore. On the other side, consolidation of shock core and the increase of business of welded pipes also in the Middle East, not only the Middle East, tends to lower slightly our margin. That is why I'm saying we should be around 25% as a reference, at least for the coming six months.
spk15: Okay. Just a follow-up on Shoko. What would be the contribution from the new business in 2024 in terms of revenue?
spk09: Well, we are expecting an invoicing above $300 million, $300 million to $350 million in depending on the contract that we may capture for the second 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... of the synergy between our business and the business of Schoko. The offer of combining Tenaris Lime Pipe from different mills, 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 client, and we will see the extent of these synergies that, in our view, should exceed the contribution of the single business in our business.
spk16: Okay, that's very clear. Thank you very much.
spk18: Thank you. One moment for our next question. Our next question comes from the line of Mark Bianchi from TD Cowan.
spk20: 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 Shawcore 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?
spk09: You know, as I was saying, 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 areas 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 pieces 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 has. Then there is probably the most important piece that may determine the medium term in 24 that 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 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 U.S. market for us in the coming quarters.
spk02: Yes, thank you, Paolo, and good morning, Mark. Look, specifically to the U.S. and on the pipe logics, the way we see now is that it should be bottoming out. Obviously there are uncertainties, but there are some key factors that is 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, another thing 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. 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 casing. Now, when we go to the activity, again, we think that the activity is gonna 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. 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.
spk09: Yeah. Thank you, Luca. You know, Pipelogic Index is important for us. It is guiding not only U.S., but also other parts of our contract in the region. 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 saying this should stabilize because we see also that the imports 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.
spk20: 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%?
spk09: Well, you know, considering the delay that we have between the price or the level of 5L and the leg, for affecting the contract, I mean, it would be 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, 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.
spk21: Yep. Makes sense. Thank you very much.
spk18: Thank you. One moment for our next question. Our next question comes from the line of Kevin Roger from Kepler Chauvreau.
spk24: 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 ByteLogix index, because basically the trend on the ByteLogix index has 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 a dynamic 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, Q1-24 compared to Q4-23 compared to what we have seen sequentially, Q4 versus Q3, because you maintain a margin that is probably better than you anticipated when we discussed in the Q3 earnings So just trying to understand why for a more limited decline in the PI projects in debt, we should see a stronger impact on the marginality.
spk09: Well, you know, 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 queue. So, to some extent, we see the third and the fourth. So, to some extent, this lead will lead to a decline in prices in our sales in the U.S., not anywhere. This declining sale in price in the first queue 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. 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.
spk24: Okay, I understood. And maybe the follow-up, if I may please redirect it to Arantina. 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 account 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?
spk09: In Argentina, no, you are referring to Argentina. In Argentina, I think we did a very good job in defending the financial position of the company in the face of crisis. 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 avoid being affected by other shifts, possible shifts in the Forex. So we can, on this sense, from a financial point of view, manage the environment and the situation in Argentina. the potential of argentina in energy 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 nestor cushion pipeline in argentina with our pipes and the associated activity in drilling for gas that was on. If the new government succeeds in getting a 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, 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 could be an upside. Argentina is very important for Tenaris in 2023 invoicing exceeded 2 billion during the year. If, let's say, there are positive signs on the 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 endeavors that could be advanced during this period. Okay, thanks.
spk18: Thank you. One moment for our next question. Our next question comes from the line of David Anderson from Barclays.
spk01: 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, 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 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 thank you I will I will ask Gabriel to to give some color on this no yeah
spk07: Yeah, thank you, David. Yeah, 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 it's 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, this 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 portals 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 been accompanying. This is a process and an expertise that we have developed in other geographies around the world. And we are keeping progressing this strategy. 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 directing in ADNOC, but local content and industrialization is also part of our strategy. It has proven to be successful so far.
spk01: Thank you, Gabriel. Just as a follow-up to that, I think in the remarks earlier, you had said that you're providing the pipe on Gefora, on the unconventional project there. I'm just curious, is RigDirect a potential with Aramco or does Aramco procure their products differently where that model may not make sense with that particular NOC?
spk07: Yes, today RigDirect 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 producers 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. 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.
spk01: Potentially heading in that direction. Okay. Thank you, Gabriel. Appreciate it. You're welcome.
spk18: Thank you. One moment for our next question. Our next question comes in the line of Jamie Franklin from Jefferies.
spk13: Oh, hi there. Thank you 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, 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 deferred tax liability so we 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 yep thank you Jamie the last question is on capex for the entire year it's correct or working capital Working capital, yes, through 2020.
spk09: On the first one, use volume, Luca, you can expand on where we see that we can increase our volume. Sure.
spk02: If we consider the three main, let's say, segments, which are the Gulf of Mexico, the onshore, and the limepipe, I will see that we see on the Gulf of Mexico a kind of stable volume heading into first quarter. 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 would be a high single digit.
spk09: Yeah. 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 consolidation.
spk02: But I think we will see this a little bit later on, more into the back end of the 2024. Yeah.
spk09: 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.
spk22: Okay, thank you, Pablo. Hello, Jaime. The official exchange rate in Argentina was increased by almost 120% in the middle of December. After that, the government set the crawling peg at the range of 2% by month since that devaluation. Does the valuation 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, sorry, because it produced an erosion of the fiscal value of the fixed asset. If the crowd impact will continue in order of 2% every month, we are not seeing 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. But at the moment, we are not seeing that.
spk09: Thank you, Alicia, for the evaluation. And the third point is on working capital. We do not expect a major change in working capital because Tenarys requires important working capital to operate its rig-direct and run-ready mode, way of operation. In this environment with 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 the part of receivable, if we are able to maintain the level of invoicing, this will not change too much.
spk13: Okay, very clear. Thank you very much.
spk18: Thank you. One moment for our next question. Our next question comes from the line of Joseph Shari from Bank of America Securities.
spk14: 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. My second question is with regards to the dividend. Obviously, your 60 cents 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 24. Thank you. Thank you.
spk09: 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 parts of our cost system are moving in the opposite direction. Something that will be Always relevant will be the evolution of the hot-roll coils because our system today is acquiring plates or hot-roll coils on the market in fair volume. We have welded representing between 15% and 20% of our sales. in general apart from the hot roll coils that could have a movement less predictable we see some declining 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, Gabriele, you can tell us because the region and these are regions mostly affecting the eastern hemisphere region.
spk07: Yeah, Paolo. Just to comment on the Red Sea, this is something that we have been monitoring very closely since the attacks that started in November with practically no effect in December. But we are having a limited impact in this first quarter of 2024. Around the 50,000 tons of the 1 million tons plus that we manage every quarter are going through areas that are affected by the conflict in the Red Sea. The 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. 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 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.
spk09: Thank you, Gabriele. 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 we 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 remark. 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.
spk14: Cool. 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 expect to incur in the first quarter from those logistical impacts?
spk07: In the first quarter, and this is something that if a conflict maintain and persist probably to project down the line.
spk06: We will see. But it's in the first quarter. Thank you very much.
spk18: Thank you. At this time, I would now like to turn the conference back over to Giovanni Sardagna for closing remarks.
spk04: Thank you, Gigi, and thank you all for joining us at our conference call. See you soon.
spk18: this concludes today's conference call thank you for participating you may now disconnect you Thank you. Thank you. Good day, and thank you for standing by. Welcome to fourth quarter and full year 2023 Tenatis Essay Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. 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.
spk04: 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 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, Gabriele Podkuc, our 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. 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 shock or 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 that 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 good results 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 has 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 $0.120 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 EDR will be paid on May 22. The 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.
spk09: Thank you, Giovanni, and good morning to all of you. We ended the year with a stronger 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 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 shock core 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 and 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 shock core pipe coating business, we are strengthening our line pipe business, especially for offshore line pipe, where shock core has a leading position in anti-corrosive and insulation coatings. In the United States, we increase the flexibility and overall capacity of our U.S. industrial system by acquiring additional key treatment and trading facilities. Each of these integrations to our global industrial system enhance our capacity to serve our wide customer base with a growing range of products and services. Our globally integrated industrial and supply chain system produces and ships over 4 million tons of pipes to customers around the world. Many of these pipes are delivered directly to our customer operations 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 yard infrastructure, logistic and digital systems, we enhance customer intimacy and differentiation, adding services to simplify customer operations and reduce on-site manpower requirements. With our redirect program, which now incorporates our run-ready 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 to serve their unconventional operations in the United States, which confirms the preference that large operators are giving to our industrial footwear, specialized products and supply services. We are now serving each of the 10 largest operators 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 operators in Canada. Our sales for offshore operations and projects grew more than 50% during the year. In Guyana, where the development of prolific deep water reserves is transforming the country, we are serving ExxonMobil operations under a long-term contract, while in Brazil we are supplying Petrobras with a wide range of products for the Búzios development. We are supplying a number of offshore gas pipeline developments 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 Al Jafura 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 casings from our local welded pipe subsidiaries. The expansion of gas drilling activity will also provide valuable opportunities for sales of lime pipe as Aramco proceed with its master gas pipeline program. 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 a high level throughout the year, has performed well in supporting our positioning worldwide. In safety, however, we had three fatalities in our operations. 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 one. 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. The current favorable market conditions 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 effort and commitment, our many achievements during 2023 would not have been possible. I will leave now the floor open for any questions you may have. Thank you.
spk18: Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Arun Jaram from JPMorgan Securities, LLC.
spk17: Yeah, 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 Shawcore, 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.
spk09: Thank you, Rome. 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 an advance in our decarbonization program. We should also focus on areas of digitalization and automation that will enhance our competitiveness. 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 Chocor 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 industrial and supply chain structure. We are also prepared to analyze opportunities in different regions that may arise and then can complete our deployment worldwide. But we know that if we don't identify a clear strategy that is allowing us to grow and to enhance our profitability, As we did last year, we can propose to return the 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 options open in this phase.
spk17: Right. And my follow up Apollo, you mentioned that Tanaris expects sales in the first half of 24 to be very similar to the second half of 2023. It appears that maybe the shock core 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?
spk09: 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 Shokor and particularly of part of a very large project in Mexico, in Altamira, that was, let's say, implies an extraordinary invoicing level for Schoko. 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%. Great. That's helpful. Thanks a lot.
spk18: Thank you. One moment for our next question. Our next question comes from the line of Alessandro Pozzi from Mediobanca.
spk15: 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 behind the numbers being above consensus was potentially advance 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, 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.
spk09: Thank you, Alessandro. Well, on the first line, we think that in 2024 our sales in the Middle East will increase substantially, but I will ask Gabriel to give an overview because We are present in different countries with different perspectives. It's interesting to see how we can grow there.
spk07: Thank you, Paolo. Good morning, Alessandro. Indeed, we were with Paolo last week in Saudi Arabia, visiting our operations. And the sense that we have is that 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 green activity continue at high levels, at this level of 300 plus rigs, as the kingdom is increasing its focus on drilling for gas. There is an increase of demand of gas in Saudi driven by the economic expansion and also the aim of the kingdom by gas in their power generation matrix. 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 OCDG demand is about two-thirds 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 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 Sulu pipelines, which are offshore oil pipelines on projects that are going ahead, are not impacted by the recent announcement. And we see opportunities in gas, trunk lines, that are being developed in Saudi, like for Jafura phase two, or even the Master Gas phase three. 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. 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, Pablo commented on the opening remarks on the inauguration of Abu Dhabi. We were there as well. ADNOC is going ahead with the drilling plans. Today we are serving on adjusting time basis about 70 rigs every month with our service center and rig direct model. So we are creating a 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 23 versus first half of 23. And we expect this to continue into 20.
spk09: 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. We have not so much visibility in the entire year. The factors that are affecting margins, one side is the evolution of prices in North America, reflecting pipe logic. We have seen the pipe logic 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 U.S., where our client base is solid, even in an environment in which the recount remains substantially stable. And we will compensate to some extent by the increased sales in the eastern hemisphere and the offshore. On the other side, consolidation of shock core and the increase of business of welded pipes also in the Middle East, not only the Middle East, tends to lower slightly our margin. That is why I'm saying we should be around... 25% as a reference, at least for the coming six months.
spk15: Okay. Just a follow-up on Shoko. What would be the contribution from the new business in 2024 in terms of revenue?
spk09: Well, we are expecting an invoicing above $300 million, $300 million to $350 million in depending on the contract that we may capture for the second 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... of the synergy between our business and the business of Schoko. The offer of combining Tenaris Lime Pipe from different mills, 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 client, and we will see the extent of these synergies that, in our view, should exceed the contribution of the single business in our business.
spk16: Okay, that's very clear. Thank you very much.
spk18: Thank you. One moment for our next question. Our next question comes from the line of Mark Bianchi from TD Cowan.
spk20: 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 Shawcore 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?
spk09: You know, as I was saying, 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 areas 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 pieces 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 has. Then there is probably the most important piece that may determine the medium term in 24 that 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 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 U.S. market for us in the coming quarters.
spk02: Yes, thank you, Paolo, and good morning, Mark. Look, specifically to the U.S. and on the pipe logics, the way we see now is that it should be bottoming out. Obviously there are uncertainties, but there are some key factors that is 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, another thing 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. 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, 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.
spk09: Yeah. Thank you, Luca. You know, Pipelogic Index is important for us. It is guiding not only U.S., but also other parts of our contract in the region. 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 saying this should stabilize because we see also that the imports 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.
spk20: 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%?
spk09: Well, you know, considering the delay that we have between the price or the level of pipe logic and the lag, for affecting the contract, I mean, it would be 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, 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.
spk21: Yep. Makes sense. Thank you very much.
spk18: Thank you. One moment for our next question. Our next question comes from the line of Kevin Roger from Kepler Chauvreau.
spk24: 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 ByteLogix index, because basically the trend on the ByteLogix index has 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 a dynamic 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, Q1-24 compared to Q4-23 compared to what we have seen sequentially, Q4 versus Q3, because you maintain a margin that is probably better than you anticipated when we discussed in the Q3 earnings So just trying to understand why for a more limited decline in the PI projects in debt, we should see a stronger impact on the marginality.
spk09: Well, you know, 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 queue. So, to some extent, we see the third and the fourth. So, to some extent, this lead will lead to a decline in prices in our sales in the U.S., not anywhere. This declining sale in price in the first queue 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. 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.
spk24: Okay, I understood. And maybe the follow-up, if I may please redirect it to Arantina. 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 account 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?
spk09: In Argentina, no, you are referring to Argentina. In Argentina, I think we did a very good job in defending the financial position of the company in face of crisis. sudden devaluation in the range of 120 percent 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 avoid being affected by other shifts, possible shifts in the Forex. So we can, on this sense, from a financial point of view, manage the environment and the situation in Argentina. the potential of argentina in energy 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 nestor cushion pipeline in argentina with our pipes and the associated activity in drilling for gas that was on. If the new government succeeds in getting a 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. 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 could be an upside. Argentina is very important for Tenaris in 2023 invoicing exceeded 2 billion during the year. If, let's say, there are positive signs on the 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 endeavors that could be advanced during this period. Okay, thanks.
spk18: Thank you. One moment for our next question. Our next question comes from the line of David Anderson from Barclays.
spk01: 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, 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 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 thank you I will I will ask Gabriel to to give some color on this no yeah
spk07: Yeah, thank you, David. Yeah, 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 it's 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, this 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 portals 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 been accompanying. This is a process and an expertise that we have developed in other geographies around the world. And we are keeping progressing this strategy. 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 directing in ADNOC, but local content and industrialization is also part of our strategy. It has proven to be successful so far.
spk01: Thank you, Gabriel. Just as a follow-up to that, I think in the remarks earlier, you had said that you're providing the pipe on Gefora, on the unconventional project there. I'm just curious, is RigDirect a potential with Aramco or does Aramco procure their products differently where that model may not make sense with that particular NOC?
spk07: Yes, today RigDirect 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 producers 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. Today, the synchronization between the manufacturing facilities in Saudi and the rigs in Saudi is much more in view. So I think we are heading into a further integration down the line.
spk01: Potentially heading in that direction. Okay. Thank you, Gabriel. Appreciate it. You're welcome.
spk18: Thank you. One moment for our next question. Our next question comes in the line of Jamie Franklin from Jefferies.
spk13: Oh, hi there. Thank you 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, 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 deferred tax liability so we 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 yep thank you Jamie the last question is on capex for the entire year it's correct or working capital
spk09: working capital yes through 2020 yeah on the first one use volume Luca you can expand on where we see that we can increase yeah our volume there sure if we consider the three main let's say segment which are the Gulf of Mexico the onshore and this and the and the line Piper
spk02: I will see that we see on the Gulf of Mexico a kind of stable volume heading into first quarter. 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 would be high single digit.
spk11: Yeah.
spk09: 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 consolidation.
spk02: But I think we will see this a little bit later on, more into the back end of the 2024. Yeah.
spk09: 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.
spk22: Okay, thank you, Pablo. Hello, Jaime. The official exchange rate in Argentina was increased by almost 120% in the middle of December. After that, the government set the crawling peg at the range of 2% by month since that devaluation. Does the valuation 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, sorry, because it produced an erosion of the fiscal value of the fixed asset. If the crowd impact will continue in order of 2% every month, we are not seeing 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. But at the moment, we are not seeing that.
spk09: Thank you, Alicia, for the evaluation. And the third point is on working capital. We do not expect a major change in working capital because Tenarys requires important working capital to operate its rig direct and 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. 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.
spk13: Okay, very clear. Thank you very much.
spk18: Thank you. One moment for our next question. Our next question comes from the line of Joseph Shari from Bank of America Securities.
spk14: 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. My second question is with regards to the dividend. Obviously, your 60 cents 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 24. Thank you. Thank you.
spk09: 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 parts of our cost system are moving in the opposite direction. Something that will be Always relevant will be the evolution of the hot-roll coils because our system today is acquiring plates or hot-roll coils on the market in fair volume. We have welded representing between 15% and 20% of our sales. in general apart from the hot roll coils that could have a movement less predictable we see some declining 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, Gabriele, you can tell us because the region and these are regions mostly affecting the eastern hemisphere region.
spk07: Yeah, Paolo. Just to comment on the Red Sea, this is something that we have been monitoring very closely since the attacks that started in November with practically no effect in December. But we are having a limited impact in this first quarter of 2024. Around the 50,000 tons of the 1 million tons plus that we manage every quarter are going through areas that are affected by the conflict in the Red Sea. The 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. 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 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.
spk09: Thank you, Gabriele. 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 we 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 remark. 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.
spk14: Cool. 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 expect to incur in the first quarter from those logistical impacts?
spk07: In the first quarter, and this is something that if a conflict maintain and persist probably
spk06: to project down the line. We will see. But it's in the first quarter. Thank you very much.
spk18: Thank you. At this time, I would now like to turn the conference back over to Giovanni Sardagna for closing remarks.
spk04: Thank you, Gigi, and thank you all for joining us at our conference call. See you soon.
spk18: this concludes today's conference call thank you for participating you may now disconnect
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