Tenaris SA (TS) 2005 Q2 法說會逐字稿

On the behalf of Tenaris, we would like to welcome you to the Company's second quarter earnings results. Representing Tenaris will be Carlos Condorelli, Chief Financial Officer, Germán Curá, Commercial Director, and Nigel Worsnop, Investor Relations Director.

I would now like to turn this call over to your host, Mr. Nigel Worsnop.

Okay. Thank you everyone and welcome to our second quarter 2005 conference call. We would like to remind you that the conference call contains forward-looking information and that actual results may vary from those expressed or implied. Factors that could affect these results include those mentioned in the Company's 20F registration statement and other documents, which are filed with the U.S. Securities and Exchange Commission.

As usual, there are few issues that I would like to comment on before we move to the questions about the results we published last Thursday.

Firstly, demand for our seamless pipes continues to grow, with demand growth for OCTG being particularly strong. We have seen substantial increases in sales of OCTG so far this year, and the growth in these sales has been significantly greater than the 11% volume growth we registered for our total seamless pipes in the first half.

Demand for our OCTG products is being driven by higher drilling activity in areas where we have a strong local presence, and in the more demanding environments where our product technology and pipe management services are particularly appreciated. We have been adjusting production programs at our plants to meet this higher demand for OCTG products, with corresponding declines in the industrial and process and power plant segments.

Our global manufacturing system, as well as our local presence in key markets, is one of our key strengths and gives us the flexibility to pursue the most attractive opportunities available in the market.

As noted, overall market conditions for our seamless pipe products remain favorable. This is reflected in continuing high oil and gas prices, increasing rig counts and higher estimates of exploration and production expenditure by oil and gas companies, as well as continuing concerns about the limited availability of spare production capacity.

These conditions look set to continue for an extended period and we are increasing our capital expenditure budget for the coming years in order to increase the capacity of our industrial system to deliver the high end pipes that are required in demanding operating environments, as well as to improve efficiencies and reduce costs in our operations.

CapEx, excluding acquisitions, this year is likely to be closer to $350m than the $250m we indicated earlier this year, and in 2006 we are planning to increase this amount still further. We are also increasing investment in R&D on product development.

Third quarter production and sales of seamless pipes will be affected by normal seasonal factors, including the summer shutdown of our Italian mill during August and summer slowdown in business activity in several of our markets. Accordingly, we expect third quarter seamless volumes to be nearer to the level of the third quarter of last year than that of the last three quarters.

There was a significant increase in our average cost of goods sold for seamless pipes during the quarter. The increase in costs reflects number of factors including higher ferro alloys, iron ore, energy and labor costs. Costs at our Argentine seamless pipe mill in particular have increased, as raw materials, labor and energy costs have increased, reflecting higher iron ore costs, local inflation in labor and scrap costs, and higher energy costs.

Our Venezuelan HBI plant is working well, and so far this year has produced 500,000 tons. It is important to note that some of the benefits from this acquisition are seen in the “Others” segment and not directly in a reduction of seamless cost of goods sold, because sales are being made to third parties.

We reported a significant foreign exchange related loss during the quarter, largely due to the appreciation of the U.S. dollar against the euro and the yen, and the appreciation of the Mexican and Brazilian currencies against the U.S. dollar.

These income statement losses arise due to the fact that the functional currencies of many of our important subsidiaries are in currencies other than the U.S. dollar, and are largely compensated by changes in net worth. With our hedging policy, we aim not to have significant exposure to currencies other than the U.S. dollar, except that we do not hedge short positions in traditionally weak currencies like the Mexican and Argentine peso.

For example, we purchase forwards to cover euro debt obligations. With the appreciation of the euro during the period, we recorded losses on the fair value of these derivatives, but these losses were largely offset by a corresponding reduction in our net debt position.

Our results so far this year, with net sales up 72%, operating income up 224% and earnings per share up 228% over the first half of last year and a first half EBITDA of $1b, shows how we have managed to capitalize on current conditions in the energy and oil services market by taking advantage of the strong positioning we have built up over a number of years. As many in the industry have already remarked, similarly favorable conditions have not been seen since the 1970s.

With that, I would like to hand back open and give the opportunity for questions.

[OPERATOR INSTRUCTIONS]. Your first question comes from the line of Daniel Altman from Bear Stearns.

Hi, congratulations on a great quarter. Two questions, one is on the CapEx comment that you just made. I'm wondering if that includes the energy project: the electricity plant in Italy, or is that just for your core business, your pipe business?

Then wondering, within that, if you can explain in a little bit more detail where that cash is going to, what kind of capacity benefits you expect to have?

My second question is on prices in the seamless business, if you expect to see still some further sequential increases in the third quarter. Thanks.

Okay, thanks Daniel. Well, first to confirm that the CapEx numbers include the energy plant in Italy. Then I think we can pass you to… --

Okay. That also includes a -- we are increasing this related guidance, everybody this is Carlos Condorelli. We are increasing our CapEx program, not only considering the energy power production mill in Italy, but also we are increasing our capacity of finishing lines and including -- so we are looking at an important increase in our CapEx. We should be looking, quarter of about $100m per quarter in capital expenditure.

Regarding what we are going to do with the cash, we are going to try to use the cash for keep growing, and we are reducing the debt, as you saw in this quarter. And especially in this quarter had a special cash outflow coming from payment of taxes in May, which is seasonal in our operations, mainly in the important countries, and also the payment of dividends.

So, in the future we'll keep reducing debt. We already increased our capital expenditure program, and we keep looking at opportunities and trying to invest our money in our business.

Good morning, everybody, this is Germán Curá speaking. I'd like to comment on the prices question. I think we should probably divide both the industrial and automotive sector from the energy sector. We believe that Europe, which is a traditional industrial and automotive trade market, is as we all know, under some restrictions, some constraints. We don't see the level of growth that we were expecting and, as such, we believe that this is potentially a market that may be affected.

Energy, as opposed to what I just said and in line with what Nigel anticipated, presents a very stable outlook going forward.

Okay. And just one follow up, again back on the CapEx. Are you able to quantify on a -- maybe on a tonnage basis -- what the incremental increase would be after you've completed your work on the finishing lines, etc?

I would say that it's more a question of value added more than tonnage, of output in tonnage. Different products, Daniel, different mix of products.

Okay, thanks a lot.

Your next question comes from the line of Craig Shaw from [HLM Net].

Good morning. A question for you on the mix. Over quite some time now you've done a very good job of improving your mix. And, as Nigel noted, you're investing more money in increasing your ability to improve your mix. The question here is how much more can you do, say, in the short term, between now and the end of the year, in terms of improving that mix? I know you have some new products as well, but have you reached your capacity on value added, until these new investments come on line?

Well, I would probably divide the question into number one, is as we have indicated on prior rounds, Tenaris has invested a substantial part of CapEx aiming at, of course, improving our ability to supply the market with high-end products. And by that, and in line with the recent announcement, we're not only talking about premium connections, but deep water pipeline applications, risers applications, so on and so forth.

Now, as we have said, this is a trend that we are going to continue and we are pursuing and has become a major, I would say, business driver, which we have announced priorly. And it's strictly in line with how the industry is evolving. As we have indicated, it's a clear industry trend towards a much more complicated environment. As I said, this is not happening overnight; it's going to be an aggregated demand of high-end products, which is, of course, following the industry trend that I just mentioned.

Right. And you've done a great job in the past of explaining all of that. My question was, are we seeing any sort of capacity constraint on that or, given your response to my question, it sounds like there isn't - is that correct?

Well, I would say that it's a moving, if you will, target. You are, at the mill able to increase your high-end production volumes in a way, timing wise, a lot faster than what a typical mill structural process takes. So, we are increasing our ability to produce, we are increasing the volumes, as you have noticed, and we are going to continue the trend.

Great. Thank you very much.

Your next question comes from the line of Alberto Brioschi from UBM.

Good morning to everybody. My first question is regarding seamless division average selling prices. They are increasing also as a consequence of a better sales mix. In 2004, for instance, you sold 450,000 tons of premium connections, corresponding to approximately 17% of seamless tube deliveries. Which are your targets for 2005 and onward, and could you disclose an average selling price for those premium connections?

Well, I'll start backwards. Unfortunately, I'm not going to be able to go public on disclosing the price of premium connections segment, which as we all know, constitutes a substantial part of the business. Now, with respect to the volumes, they have increased substantially. I would say that today we're well above this 400-plus mark that you mentioned.

But you also need to contemplate that the market, as such, is growing considerably. Let me share with you just a couple of numbers. The market for premium connections has grown in the range of about 15 to 20% - this is 2004, 2005. We believe that, given everything that we have said, we'll be able to match or even improve this market rate.

Okay. The U.S. player Hydril has an operating margin of around 33% in the premium connections segment. Can I assume this level as a good proxy of your profitability in this segment line?

Well, let me answer this way. Unlike Hydril, which is only a premium threader and, of course, accounts for that only activity, we tend to view business in a much broader space. And I think the numbers, the margins that you've seen, are a good representation of what we say. That is, we're not looking at margins at still top level or rolling level or threading level, but at integrated product level. I don't know, Carlos, if you would like to add on?

No, it's okay. So, it's difficult to compare. We are an industry, we are producing in different countries, so the currencies make a difference. So it's difficult to compare with. For sure, we are very happy with the margin we get from selling premium and high-end products, but we do not account for specific [indiscernible] products, or at least we do not provide publicly the information because, of course, we do have -- we follow up which kind of margin we are getting. But then, when we are getting to -- we look at seamless as a business unit, we're not looking at seamless high end, seamless low end, etc.

Because we see a more general trend in the industry towards premium OCTG and you can give us an incidence of those kinds of pipes over your sales, and some expectation for the future? Because other competitors are investing in order to increase their capacity in this segment, do you see any risk?

No, we don't. And, I guess, going back to your reference for the competitors, one needs to see the natural market areas for some of these competitors that you are referring to. I don't want to go into the specifics of what our competitors are saying or not, but I guess it will be fair to emphasize that some of the Hydril information that you have shared with us is aiming at, for the most part, a U.S. market, which in itself is a very important premium market.

But when we go back to the prior rounds, I guess I'd just like to bring back the notion that Tenaris is an international player and, due to the existing restrictions that we have in the States, we don't play in the States in a big way.

Okay. And one more question regarding the Tenaris Confab backlog. Could you convert this BRL673m in terms of tons and give an indication on the part that is expected to be delivered by the end of 2005?

Well, let me answer this way. While we look at Confab, and I know that they have had a specific discussion on this, we have said that today Confab runs at about a utilization capacity of 80 - 85%, probably a lot closer to 85% today. Which has reduced the number of projects we have said, and we'd like to take the opportunity to again highlight this, that some of the projects, that have been in the Brazilian board for quite some time, have materialized.

As you know, Gasene, which we are -- I anticipated actually, I think, on a prior round -- has now translated into something close to 72,000, 73,000 tons of orders. This is probably only a portion of the entire project, which as you know, is presently being reviewed as a result of the Bolivian situation and the inability of Bolivia to supply the required gas. So, Petrobras has decided to move with the phase 1, which will be the connection that would allow us to absorb the incremental gas production that they have in offshore Brazil.

Some other projects have already been either under production or supply. All this would be, of course, '05 supply. So, as I said, this Gasene at 72,000 tons, about 40,000 to 45,000 tons of another gas line which we anticipate at the Catu-Carmopolis-Pilar, and then there's another Manaus/Petrobras project for about 30,000 tons, which is expected to be delivered within the '05. Those are the three main relevant orders. All in all, you're looking at something close to 150,000 metric tons.

I'd just like to add that we mentioned in the press release that we're expecting volumes quite similar in the second half as to the first half.

Okay, thanks a lot. Bye.

Your next question comes from the line of Enrico Bartoli from Intermonte.

Hi, good morning gentlemen. Congratulations for the results. I have three questions, if I may. The first one is related to the cost increase that was shown in the results. If you can elaborate more about that and if you expect that these increases will stabilize in the second half?

The second question is related to the tax rate. If I'm correct, the tax rate was around 32%, excluding the contribution in associated companies. Can we expect that number to be kept for the second half?

And the third question is related to dividends. You increased your CapEx plan for this year. Can we expect an increase in dividends in 2005, and if it's, according to you, correct to assume a dividend payout similar to that on 2004's results? Thank you.

Okay. Let's start with the cost increase in the second quarter compared to the first one. As we have anticipated, especially in our Argentine operation, we are looking a cost increase in raw materials coming from the iron ore supply. We have anticipated that the prices were adjusted to the market commencing April this year. And secondly, the inflation in Argentina, as well as the scarcity of gas and electricity, have increased the cost of our operation in Siderca in Argentina.

Even though the costs of raw materials have decreased, following the trend in the steel industry, and we can look at this especially in the operations like Tamsa in Mexico or even in Dalmine, following the weaker euro. But still we have other issues which have offset these reductions in costs, like the cost of the ferro alloys as well as some increase in the labor in our operations in Europe, following the well-being of our operation there. So this is more or less that follows, but mainly our operation in Argentine led the cost increase in the second quarter.

Regarding the trend, I would say that maybe we can keep this level of cost and maybe a little bit lower following, always considering that the prices of the steel inputs are going to be in the same trend. But, as you know, the price of the scrap and other raw materials have started increasing again.

Okay. Going to the tax rate, yes, we can assume that we can keep this 32%, around 32%. But you have to take into account that we started making money in other countries like Canada, Japan, these kind of countries, where we didn't have in the past. These are countries where the tax rates are higher. But, bottom line, we can consider we will be able to keep more or less this level of tax rate.

Concerning the dividends, as you know and most of you know, we do not have an specific dividend policy, at least we do not disclose it. But in the past we have been adjusting, in a way, our dividends to the results of our Company.

Okay, thank you.

Your next question comes from the line of Ricardo Cavanagh from Raymond James Argentina.

Yes. Hi, good morning, I have two questions. The first one is on the high value-added products. I would like to have your view on whether is demand evolving, making a secular shift towards these high value-added products, and why?

And secondly, well, you were asked about prices and costs, but I would like to have, in essence, your view on your EBITDA margins over the next few quarters, whether you expect them to stay and change or to rise or to decrease?

Ricardo, could you please repeat the first part of your question, it just couldn't be heard properly?

Yes. Basically, you are making a big focus on the high value-added products. Well, what I'm interested to know is if you think that the global demand for your products is definitely evolving onto demanding products with higher value added, or is this a particular situation due on the higher prices? Basically, I would like to know about the demand on these higher value-added products.

Well, let me take that and then I'll pass onto Carlos. We have said the demand for high-end products, Ricardo, is without a doubt increasing. It's just the clear-cut result of, for the most part, major oil companies seriously moving into much more complicated working environments. I could probably bring some specifics.

We have a Canadian oil sands development that is gaining momentum. We, of course, are confronting the Caspian development in a highly sour corrosive environment. We are very soon going to see, I would say, a very important level of activity offshore Australia, with the development of Gorgon; this is gas offshore. Again, Sakhalin is being developed.

And, in short, when you look at the big majors reporting production rates, declining production rates, one is simply led to conclude that a discussion of what will we do to cope with the declining of existing fields translates into the clear-cut decision of moving into - without a doubt - complicated environments, which are always associated to high-end products.

Okay. Regarding the EBITDA margin, we can assume that -- as you know, we are looking at these levels of margin, as you can imagine, seamless EBITDA margins are higher than the average you are looking at, and welded are lower, it's important just to understand the dynamics that could arise from how the market evolves.

But, bottom line, we can keep it because, on one hand, we are going to have a big increase in our product mix, at least to keep the good product mix we have. But, on the other hand, the costs of the raw materials for the steel industry really started growing again and, as you know, inflation in Argentina is coming. So we are paying, even though it's still very low compared to our competitors, the other operations we have in different countries, but growing. So we can assume that the EBITDA margin could be kept at the level we are looking today, at least in the next two quarters.

Okay, thank you very much.

Your next question comes from the line of Juan Migeira from Highbridge.

Hi, good afternoon. Hello?

Yes. I would like to make a couple of questions on your results, if I may, the first one related to your CapEx program. Do you intend to increase your participation in your joint ventures, like in Japan for example?

And the second one is again related to the cash flow. Traditionally, in the 90s, Siderca used to have a net cash position. Do you think that the Company could eventually come to the same situation?

Okay. Going to the -- if we look for acquire more of the participation, we have at least -- or just to go to the exit point, Japan and Brazil with Confab, we have no plans to announce that we are thinking of acquiring those participations for different reasons. But, as we said before, we keep working and trying to keep growing in our business, following our strategy.

Going to the cash flow position, we expect not to have the same situation that Siderca had in the past but if this happens, it's okay. So, I suppose it could happen in some timeframe, that we get a net cash position, possibly, Juan. But, in the meantime, we are increasing our capacity, we are entering in new ventures and, for sure, we are working hard in trying to keep going.

Okay. So basically, we shouldn't expect share buybacks or something like that?

No, even though Mr. Rocca said that in Houston. But no, we have no plans at this moment to buy back shares.

Okay, thank you very much.

Your next question comes from the line of Stewart Glickman from Standard & Poors Equity.

Good morning gentlemen. I have a couple of questions on seamless pipe. Your volume of seamless pipe increased about 9% in the second quarter, your net sales in this segment increased 64%. So if you look at the non-volume-related increase in sales, I'm wondering how much of that is due to higher average selling price and how much of it is due to improved product mix?

Well, obviously it's a mixture of the two things but clearly the strongest influence has been the increase in prices.

Okay. And if you have -- I think you mentioned that you initiated a -- did you indicate that you initiated a price increase in April?

No, no, no. I referred to the iron ore contract. It was an increase in the price of iron ore because the contract we had with CVRD ended at March 31, so commencing April the price is higher.

Okay, okay. And the second question, in your release you mentioned that there's been a bit of a decline in Europe and I'm wondering if you could elaborate a little bit more on what you're seeing there?

Yes. We meant with that, we felt that it was important to - in this high, if you will, market moment that we live in - highlight the fact that Europe, which is traditionally the big industrial home for a good portion of our industrial and automotive production, which as I have shared with everybody in a prior call to them represents something in the range of 20 to 25% of Tenaris's volume, are aiming to a market which is just not evolving the way we thought. And I think this is publicly known.

Europe is not responding, the industrial base in Europe is just not responding. And as such, then, we see some, if you will, restrictions in the European market.

Okay, thank you very much.

Your next question comes from the line of Jonathan Goldberg from Highline Capital Management.

Hi, good morning. I just have two quick questions. First, could you talk about where you see your SG&A going forward? Is the second quarter level a good run rate to think about, or is it something less than that or more than that?

And then the second question is just your outlook on welded prices going forward. Can that remain flat, even though at least for now the steel input costs have declined?

Regarding the SG&A, I'd like just to point out that this is made up of essentially two components. One is related to the selling, with the increases in volumes. Obviously, the SG&A has increased, I mean the selling expenses have increased. There is some breakdown in this, in terms of our financial statements which were posted on the web last Friday.

The other component of SG&A which has been increasing are the labor costs. This is -- there has been some increase in activity on our part, in terms of increased -- we have just purchased a steel shop in Romania. But there is also increase in the labor costs there. So, depending on volume fluctuations, you can state that this is a good indication of what to expect going forward.

To answer your second part question, I would probably say that we view prices for the welded part primarily stable. I must admit that adjustments on the steel prices may potentially introduce a change. But overall, you need to consider that this is a project business for the most part, not so much a welded OCTG that's consumable business. So, having said all this, yes, we are seriously looking at the potential impact of the adjustment on the flat steel products into welded and into our welded side of the business. So far we haven't seen much, but it's a segment where we are cautiously looking.

Okay. And if I could just ask one third question, what do you think is a reasonable debt-to-capital ratio for this business, on a medium to long-term basis?

I would say that it depends on the opportunities we have, and then if we want to keep growing and it's difficult to say, because supposing we had a debt ratio and set -- we don't have set which is the ratio we want to beat in any case. But we do have a strategy and we want to keep growing. But, in general terms, it has been in the past and it's going to be in the future, we are going to have low levels of debt for sure, given the nature of our Company, our operation.

Thank you.

Your next question comes from the line of William [Tadecht] from Kepler Equities.

Yes, good morning sir. I've got three questions. I am relative novel to the success story of Tenaris, so I would first start off with a general question. I've been reading recently the book by Matthew Simmons: Twilight in the Desert, highlighting that within the next ten years the oil production in Saudi Arabia will peak. I was just wondering currently how sizeable is Saudi Aramco as a client for Tenaris. And if they will expand their CapEx in a huge way going forward, what do you expect that to be longer term? That's one question.

Secondly, did you mention during the conference call earlier that in seamless the utilization rates were currently 80 to 85%, or am I wrong on that?

And then lastly, because you've got such new premium products, for instance, the Dopeless, etc., could you tell me -- going forward, we are going to work in more corrosive, harsh environments, could you tell me what exactly is the lifetime of those products - is that 20 years, is that 50 years? Thanks.

Alright. Well, I'll take, I think, the three questions. I will start with the Aramco one, and we have indicated this. We view that if anybody in this industry is going to be able to turn around a [inaudible] higher demand of oil, which we now [indiscernible] and the result of the levels, pricing levels that we've seen. That one in the first row is, without a doubt, going to be Saudi Arabia. OPEC, of course, is doing the most they can. Saudi, I think ahead of the pack, is moving very aggressively into expanding their production base. This is happening not only today, but I think today, with [indiscernible], it will be probably be the future trend going forward.

Now as far as Tenaris is concerned, yes, Saudi Arabia has been a very, very important Tenaris’s market over the last, I would say, more than 15 years now. We are present over there. We are supplying our products, our services, not only OCTG, also line pipe and also some piping applications that typically are associated to downstream development. And you see that there is not only increased, as we call it, upstream, this is drilling activity that's being done, but also a considerable amount of downstream projects that are being developed as we speak.

Regarding the utilization, no, the 85% was Confab, not seamless, not even our welded utilization, not even our welded division utilization rate. Only Confab in Brazil, which, as you know, is our largest welded manufacturing unit.

The third question was new products and lifespan. Here I would say that Tenaris has done actually two things. One, working on specific products which we didn't have, given that we see going forward, based on everything that I just said, an incremental demand. If you will, our recent announcement of Near Flush is, I would say, a dramatic improvement of a solution that resolves an existing problem. So it's not a completely new product, it's an improved product vis-a-vis what some of our competition is today in a position to supply.

Dopeless solutions or even Risers solutions, both in terms of pipes and connections, yes, are absolutely new, to the extent that Dopeless you don't see actually developed examples. There's a lot of saying, there's very little usage, other than the one we've done. Now, we see going forward that these are going to be long-term products, just associated to the fact that environmental restrictions are tighter, that safety requirements are also higher and that the logistics complications associated to complicated operating environments call for, for instance, the usage of Dopeless in a wider form.

Risers applications are associated to the deepwater subsea completions, which as you know, is a growing area of business and quite spread all over the Gulf of Mexico, and only at a beginning stage in West Africa. So we, going forward, are going to see a lot of deepwater completion activity in that part of the world as well.

Thanks, that's been very helpful. And then, maybe a last question, maybe I'm misinformed. If you've got those giant super wells nowadays maturing, etc., and then you are arriving at secondary or even tertiary developments with water injection or carbon dioxide, is it then true that you need just in general a lot of pipes extra? So apart from the oil that also can inject water and later on [indiscernible] state carbon, that you just need a lot more pipes? I was just wondering.

Well, I think a little bit of a complex reply, just to be too generic. I'm tempted to say yes. But in true fairness, you could say there is clear aggregated activity in complicated areas. Yes, this requires more pipes, and this requires more pipes which are high-end type of pipes. Yes, there are secondary recovery increased activities, because yes, all companies are pursuing, as much as they can, to prevent the declining rights which we've seen by implementing secondary recovery.

Well, this means more pipes, sure, not all high-end type of applications. In general terms, you could say that the industry, given the various dynamics that we mentioned, yes, is confronting a firm demand. And I'd say, going forward, an increasing demand.

Okay, great. Thanks very much.

Your next question comes from the line of Daniel Altman from Bear Stearns.

Hi. Just a follow up on your comment about third quarter volumes for the seamless business. I just wanted to make sure. You mentioned that there's seasonality which, of course, we know about, but I'm wondering if it -- we should still expect to see the growth rate versus the third quarter that we've seen in the last three quarters, versus the year ago comparisons, i.e. somewhere around 10% volume growth plus versus the third quarter of 2004?

Daniel, I'd just like to point out that we've now completed four quarters with Silcotub from Romania, which accounts for some of the difference in the volume growth. So, obviously, any volume growth there may be over the third quarter of last year would be correspondingly reduced because Silcotub was already included in that quarter.

Okay. Then in terms of the absolute number of shipments from last year in the third quarter it was considerably lower than what we've in the last three quarters, is there one particular area where we would expect to see limited growth on a year-over-year basis, because obviously that would imply a big sequential drop versus previous quarters?

No, no, I wouldn't say that. If you will, the only aspect which you need to probably contemplate is that on top of the seasonality effects which we have discussed, and by now we all know of, the entire industry faced a very peculiar July in Canada. As you know, the flooding situation has delayed operations in a big way. Overall, I see, as indicated in the opening rounds, more or less aligned quarters.

Okay, thanks.

You have a follow-up question from the line of Alberto Brioschi from UBM.

I have two more questions. One is, do you project any positive or negative impact on industrial margins, due to the first in/first out accounting methodology for inventories? And which are your expectations for working capital in the next quarters?

And the second question, the final question, regarding more general industry trends. Do you think that the bottlenecks in the whole value chain of the oil and gas industry might create any risks for Tenaris, such as strong delays in projects in which you are involved?

I'll take the first two, Germán, and you take the third one. Okay? Regarding the first in/first out method, no, I wouldn't say that we can foresee anything special in the sense that the impact of the standard operation, the normal operation, should offset any particular trend that can be seen in using the first in/first out.

Today, what we are looking at is the cost, comparing end of third quarter against the end of the second quarter, have been more or less reflected in our financial statements this quarter. I mean the increasing costs in Siderca are more or less reflected, as well as the impact of our operation in Italy and Tamsa. For sure, it's just an impact but, given the trend of the raw materials and the volume of operations, shouldn't be something significant.

Regarding you mentioned our use of funds for CapEx, even though we grew in our investment in working capital, so in terms of days, how many days we have inventories as well as how many days we have in accounts receivables, have been a little bit reduced. We are working on that and so it's nothing to be worried about, the level of working capital we have today. But for the reason mentioned before, seasonality, there should be a reduction in our working capital in the third quarter.

Now, with respect to potential impacts on Tenaris, given the projects we're involved, I would just like to say that our view is that these projects are going to be pushed forward; the world is demanding this. The majors are committed to do it. The funding is available and I think today, like probably some years ago, there are every necessary element in place for the industry to pursue the project developments that we know.

Now, on top I'd like to add a generic, still important, comment about how resilient the industry has been. While we recognize that the industry operates in places, volatile places - Nigeria, just to mention an example -, at the end we have seen that not Tenaris, but the industry in general, has been able to push forward and ultimately then deliver.

Okay, thanks a lot.

Ladies and gentlemen, this ends our Q&A session. I'd like to turn the call back to management for their closing remarks.

Okay. Well thank you very much, everyone. We don't have anything particular to add to what's already been discussed. Everything's going pretty well for Tenaris at the moment and this is going to be a good year. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This concludes our presentation. You may now disconnect. Have a good day.