Tenaris SA (TS) 2007 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter Tenaris Conference Call.

My name is Cynthia, and I will be your operator for today's call.

And at this time, all participants are on our listen-only mode.

We will conduct the question and answer session towards the end of the conference.

(OPERATOR INSTRUCTIONS).

I would now like to turn the call over to your host, Mr.

Nigel Worsnop.

Please proceed.

Thank you, Cynthia, and welcome to Tenaris' 2007 fourth quarter and annual results conference call.

Before starting I would remind you, as usual, that we will be discussing forward-looking information in the call, and that our actual results may vary from those expressed or implied herein.

Factors that could affect those results include those mentioned in the Company's 20-F Registration Statement and other documents filed with the SEC.

We are here today in Dalmine, Italy and maybe you can hear some bells chiming in the background.

With us on the call today are Ricardo Soler, our CFO, German Cura, the Managing Director of our North American operations, Alejandro Lammertyn, our Commercial Director and we also have Guillermo Vogel, member of our Board and Vice President of Finance.

I would like to start by mentioning that Paolo Rocca, our Chairman and CEO, will host our Annual Investor Day in New York on March 13.

And we look forward to seeing many of you there.

Our results for the fourth quarter show a recovery in EBITDA and operating income from the third quarter.

EBITDA was up 11% and operating income up 13% sequentially, but remains below the strong operating results of the fourth quarter of 2006, when we benefited from strong demand for our high-end product, particularly in Saudi Arabia, where Aramco was building inventory in advance of a substantial increase in drilling activity.

EBITDA of $891m and operating income of $757m exclude the results of the Hydril pressure control business, which was classified as a discontinued operation following our agreement with GE.

However, they do include $16m of other operating income arising from the sale of surplus office facilities in Sao Paulo which we acquired with Confab in 1998.

Our net income of $597m (sic - see Press Release) for the quarter includes $12m from the Hydril pressure control business, $18m from the sale of our remaining 25% participation in Dalmine Energie and benefited from a reduced tax charge.

We ended the year 2007 with net sales, excluding Hydril Pressure Control, of $10b and an EBITDA margin of 34%, 37% in our Tube segment.

We continue to have higher margins than any of our competitors, which is an indication of our ability to differentiate our products and service offer around the world and the competitiveness of our global industrial structure.

Global apparent demand for OCTG in 2007 was affected by inventory adjustments in certain markets.

This followed a year of strong growth, when global apparent demand exceeded global operative consumption, with a consequent build-up of inventories.

Inventory adjustments in 2007 affected demand in the U.S.A., where stocks declined and ended the year at 4.4 months of consumption, and also in Saudi Arabia.

We believe that apparent demand for OCTG in 2008 will rise in line with operative consumption.

But inventory adjustments in some markets could lead to variations in demand from quarter to quarter.

Our sales of high-end Seamless products increased 8% year on year by volume, led by higher sales of specialized deep water riser and flow line products, rising from 40% of our Seamless volumes in 2006 to 45% in 2007.

However, the market for premium OCTG was affected by the movement of offshore rigs from the Gulf of Mexico, particularly in the second half, which resulted in a decline in the offshore active rig count, as well as delays in projects, such as Kashagan.

We are pleased to see that this important project is now moving forward again, and we expect the market for premium OCTG to recover in 2008.

Metallic costs, such as scrap and pig iron, have increased strongly at the beginning of this year after rising about 20% during the course of 2007.

Steel costs for our Welded pipe products are also increasing.

We expect prices to rise in 2008 as demand growth resumes and raw material cost increase impacts all the industry.

Raw material cost increases will particularly affect low-margin producers.

The pipe logix index of U.S pipe prices registered a first increase in January, following 16 consecutive monthly declines.

And so far this year, U.S.

OCTG prices are up 2.5% and line pipe prices by 7%.

We expect to see further increases in the coming months.

We expect a better year in 2008 with higher sales resulting in higher operating and net income, on the back of higher demand for our products and services from the oil and gas industry.

We expect a strong performance in the first half of the year, particularly in the second quarter.

And the second half, though less certain given the current global economic environment, should compare favorably to the second half of 2007.

As we look beyond 2008, we expect demand for our specialized products and services to continue growing, and are confident that the differentiated product and service offering that marks out Tenaris from its competitors will be increasing the value by our customers.

In the U.S.

we continue to make progress in building customer alliances, offering a complete range of products which is unmatched by our competitors.

Our integrated TenarisHydril range of premium connections offers a comprehensive range of solutions for any drilling environment, anywhere.

There is increased demand for our deep water riser and flow line products.

We continue to expand our alliance with major process plant contractors based on our Project Management Services.

And in the industrial sector we continue to focus on specialized sector niches, such as hollers for gas cylinders and hydraulic cylinders, which require specialized products and services.

I would like to end up by going through some important advances we have made in the past few months.

Our strength in deep water line pipe projects was recognized by Petrobras for its Chinook/Cascade project in the Gulf of Mexico.

We were selected to supply 19,000 tons of deep water flow lines and export lines, with insulation and anti-corrosive coatings.

This 2,690 meter deep water project will have the first floating production storage at FPSO that produces both oil and gas in the U.S.

We continue to make progress in the Russian high-end market.

In addition to agreements we have with Gazprom and Lukoil, we were selected by Rosneft to supply specially modified cold-resistant steel and TenarisHydril blue premium connections for the Vankor project in Siberia.

We renewed and extended our worldwide alliance with Conoco-Phillips for a further three years.

And in the Power Generation sector we are closing an alliance with Alstom, under which we will supply pipes for their heat recovery steam generation projects worldwide.

In China, we are now operating our new premium threading and finishing facilities at full capacity in order to supply our Chinese customers.

And we have decided to go ahead with the construction of a similar facility in Saudi Arabia to serve our Middle East customers.

And we expect that the new facility will begin production next year.

Well, thank you, and now I would like to open the call up for questions.

(OPERATOR INSTRUCTIONS).

Your first question comes from the line of Ole Slorer of Morgan Stanley.

Please proceed.

Thank you very much, and good to see that you guys are back on the growth path again.

Thank you.

If you look into 2008, you are predicting higher sales of premium tubes.

Still you've had a bit of a disappointing performance of the second half of 2007 with the booking of seamless now down 5% year over year, and 8% from the first half.

When you look into 2008, how much of your confidence comes from projects that stalled in the second half of last year, such as Kashagan, that you mentioned, a good example?

And how much is due to new growth from new projects?

Yes, this is Alejandro Lammertyn.

How are you doing?

Very well, thank you.

Basically, we are seeing 2008 and, as Nigel was saying, the first half of 2008 very, very strong in the projects that we were following, like Kashagan, that is starting at full speed shipment in the semester, and also the deep gas projects of Saudi Ramco and KOC.

We are foreseeing new projects coming like shore projects in UAE, but not for deliveries in the closed [unaudible].

Okay, so could you talk a little bit about the tendering and the bidding evaluation activity that you are undergoing now?

I'm talking premium projects, but if you're talking sour gas, sour oil, or deep water compared to what they had been, let's say, a year ago.

Well, we are seeing high demand, and we are seeing basically in 2008 the conclusion of the process that started in 2007.

So, in part, it's the growth that we are seeing and in the market that we expected that was coming and part it's how the shipments are being placed.

We are seeing activity high and expected, and we are happy to see coming back Kashagan to the till.

I was trying just to get a feel for the pre-backlog.

If you're talking about outstanding tenders, what would be the volume of bids for premium products that you are bidding on now, compared to what it would have been a year ago?

On premium, we are seeing a sustained growth.

We are seeing -- by 2008 we are estimating a 12% growth.

So we are confident that we will be able to get the growth rates on the activities -- real activities and tenderings that we have as a backlog today as orders of offers coming, and we expect new ones to come in during the semester.

There was some caution noted in your press release about the outlook for second half 2008.

I was a little confused by that, given the tremendous strength that you now have in North America gas prices, and how everything in North America, gas-related oil services and EMPs, going up sharply.

And it seems to be a huge increase in confidence in the U.S., yet you're talking about uncertainty until the second half of 2008.

Can you elaborate a little bit what exactly you mean by this?

Well, Ole, this is German Cura speaking.

I think, as far as the U.S.

is concerned, we see a '08 where the level of activity will remain probably at the levels we've seen during '07.

It might grow a little bit, but overall we predict that it's going to be a stable and sustained level of activity in the U.S.

From our perspective, I think an important driver is the notion of concluding that the de-stocking program has come to an end.

I believe the industry today looking at 4 or 4.4 months of inventory is back, re-establishing the stocks positions and so on.

Now with respect to the overall view of the second semester, we at this point are a little -- are watching very careful what -- following very careful how the potential financial overall market financial situation may or may not affect the existing bad debts for the year.

We feel pretty confident about the first part, given that projects, contracts, orders are already in place.

And we are a bit cautious as to how the overall financial situation may or may not affect the overall industry development towards the end of the year.

Is that a comment on the U.S.

and the gas market in the U.S., or is it a comment on the international, or what exactly -- is it a generic disclaimer or what is it?

No, I think it's a generic approach to how we see the second part of the year.

As far as the U.S.

is concerned, I think that we are going to see sustained level of activity through the year, in particular driven by the stock repositioning drive that we are starting to see now.

What has caused activity to be materially better or weaker for the second half in the U.S.

than what you are seeing at the moment or what you are projecting, given the tremendous strength that we now have in gas prices?

Well, I think it will be conditional to what the gas price in the end does.

Again, we've seen a strong de-coupling of prices when comparing gas to oil.

We still see rig count at healthy levels in the U.S.

We've seen both operators and also, by and large, distributors re-composing inventories.

But I think it is also fair to say that a good portion of the U.S.

activity is, by and large, developed by small independent companies that may, depending on the gas price and depending on the financial situation overall, financial liquidity position after all, may or may not have the ability to pursue the initial plans.

Okay, well, thank you very much.

Your next question comes from the line of Michael LaMotte from JP Morgan.

Please proceed.

Thanks, good morning.

Good morning.

I'd like to address the cost side, if I can, a little bit.

In '08, obviously, raw material costs are on the rise again.

I was wondering what guidance you might be able to give for '08, and your thoughts on costs.

Okay, this is Ricardo Soler, hello.

As you know, the steel industry is facing now the increase, basically, now in iron ore.

The major contracts have been signed with increases about 55% to 70%.

We have a long-term contract and we have to redefine our new price during this month, and will take effect at the beginning of April.

We expect that our increase in price will be average of the industry.

Basically, this is the fact that we are facing.

We, as a steel producer, as other producer, are facing increases in iron ore and also in coal, that is not our case, and other metallic products.

I would just like to complement that by saying that we buy around 1.5m tons of iron ore and, to make metallic, we use electric arc furnaces where we're producing our seamless pipes.

We are buying -- we need to buy around 3.5m tons of metallic, of which 1.5 -- of which about 1m tons is made through the iron ore route, buying this 1.5m tons of iron ore.

The major components of our metallic costs, therefore, are scrap and pig iron, and I think it's very easy to follow where scrap and pig iron prices are going.

They've risen around 20% since the beginning of the year and they are likely to be affected by increases in the iron ore costs as well.

That's very helpful color, thank you.

If I could follow up, the last time the industry felt this kind of pressure was in early 2004, and the OCTG manufacturers were able to jump out ahead of the inflationary effects with pretty rapid and frequent price increases on end products.

Inventories were leaner and margins were actually able to expand quite nicely in this kind of environment.

Are we potentially setting up for the same type of situation again this year?

And, as a follow up, what kind of lead/lag time do you have in terms of being able to push price increases through and when we could see those in the P&L?

Mike, this is German Cura, let me take the North America version and then, probably Alejandro, will follow and compliment with international view.

As you kind of indicated, we have announced price increases in the U.S.

for all of the product lines, OCTG lines, like seamless and welded, pretty much in anticipation of these cost increase spin that we're seeing that we're now confronting.

I think it would be fair to say that this price announcement have been absorbed, or are in the process of being absorbed in the spot market, which accounts for a good component of what we do in the U.S.

and Canada, as well as some of the indexes are somehow contained on the price adjusted mechanisms that we have on the established alliances.

So, in other words, I think that we will be able to pass over in the market, or to the market, a good component of the cost increase that we see.

Timeline -- with respect to timeline, well, as I said before, the spot has been absorbing these pretty much as we speak.

The alliances that we have in place contain renegotiation clauses, price renegotiation clauses that are executed every month, every quarter depending upon the alliance.

I think we will see the full effect probably during the second quarter.

Well, in the case of international, we are seeing a similar situation.

Part of our sales is related to alliances that have similar indexes, as German was mentioning, and part is in the spot.

But as you mentioned, as happened in 2004, 2005, once they reach a common understanding of global increasing costs, it's easier to pass these to the customers.

So we feel that we will be able to pass the increasing costs.

That's great, thank you.

Just two more quick ones for me.

One, obviously, projects was a nice positive surprise in the second half of '07, as you indicated, looking good in the first half of '08 as well.

I'm curious as we head into the winter season in Argentina, and with the shortages we're reading about in natural gas, whether there is risk of interruption to production and what that might mean for the project volumes, actually, in the first half of '08.

Okay, this is Ricardo Soler.

Related to Argentina, basically, we must say that last year, in relation to energy, we had a very tight situation, but we could handle that situation.

We understand that we are going to face difficulties also during this year, but our expectation is that we can manage.

You know that we have a -- we could work a little bit with the stocks, with our own contracts for transportation, we have our own power facilities, that could help in order to pass, I would say, the situation.

Okay, very good.

Thank you so much.

I'll turn it over now.

Your next question comes from the line of Cindy Du with Jefferies & Company.

Please proceed.

Good morning.

I wanted to circle back on the margins and some of the costs for '08.

It seems, from the comments just before, that there will be a possible margin compression in '08, given to the fact that you're hoping that prices will largely offset the dramatic costs and dramatic increase in costs.

So is -- should we factor in margin erosion in '08, or will there be mix?

This is Guillermo Vogel.

As was mentioned before, I think we have some factors going in our favor.

One is that we see more favorable volume for next year and we are seeing a more favorable product mix.

And we see also that the magnitudes of the increases in the cost are a good point to be discussed and to push for higher prices.

So the combination of those three factors, I think they are going to allow us to maintain our margins for next year -- for this year, I'm sorry.

Now, having said that, I would like to point out that the dynamics of the volume we see -- we are able to maintain margins on the seamless and on the welded.

However, if we see, for example, a recovery of the U.S.

market with more volumes on the welded side than we expect, that might affect the overall margin of the Company.

So we have to take that into consideration.

So, in conclusion, we can see that in each one of our main segments, which is welded and seamless, we don't see a margin erosion there.

We might see a margin change in the overall margin of the Company, depending on the dynamics of both markets.

Okay.

That's helpful.

And then, can you tell us how many customer alliances have [system] force now in the U.S., since the announcements of a couple -- Apache and Chevron a couple of quarters ago?

Yes, Cindy, this is German again.

Obviously, for competitive reasons I'm not going to be able to expand into many details, but I am pleased to announce that above the already announced alliances, Conoco-Phillips, Apache, Dominion and Anadarko, during this last quarter we conclude a new one with Novo.

This is for our entire range of products, seamless, welded, and with premium connections which would even cover the needs for the Gulf of Mexico.

So we continue the development of the alliances that I mentioned in the U.S.

and these are the number of contracts that we have established so far.

Okay.

Thank you.

(OPERATOR INSTRUCTIONS).

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

Please proceed.

Yes, hello, everybody.

I have two questions.

The first one is related to which is the scenario you see in terms of competitive landscape for lower-quality pipes compared to 2007?

And if you are also seeing, well, increases in capacity in that area, on top of what it has been known in 2007?

And second question is related to Canada.

What is your outlook there in terms of timing of a potential recovery as we get into next year winter season for the Northern Hemisphere?

Yes, hello, Ricardo.

In terms of -- this is Alejandro speaking.

Hello, how are you?

In terms of -- fine.

In terms of low-end competition, as we have said, has been aggressive and growing the last year in the low end of the market.

We don't see this going -- increasing further.

And, as mentioned by Nigel in his opening remarks, we see that the cost increase impact will be higher in the Chinese producers than in ourselves.

So, in summary, we see lower aggressiveness based on the impact they will have in costs.

Still, there will be a clear factor in the low-end competition.

Now, with respect to the second part of the question, the Canada outlook, I think it would be fair to say that the whole industry is looking at Canada in a way far from what we would have liked Canada to be, in terms of activity.

In our particular case, I think this activity situation is probably exacerbated as a result of us being forced to compete against dump and subsidized Chinese imports.

And that has somehow created an additional problem that, from our perspective, translated into production adjustments and people laid off.

Now, going forward though, I think we remain optimistic about Canada because the fundamentals are still there.

When we look at the way the gas production has been affected this year, when we look at this last February, we saw about 20% reduction in the amount of Canadian gas coming into The States.

I think it's an underlying situation that can not be sustainable in the future.

So it's hard to predict when the tide is going to change.

I think this next year, or this year, '08, we're not going to see a major change.

But, again, as I said before, we don't believe that this situation could be at this level for a long period of time.

Okay, perfect.

And if I may ask one additional question, what is your outlook regarding the demand prospects in Saudi Arabia going forward?

Demand in Saudi Arabia, clearly -- this is Alejandro again.

Demand in Saudi Arabia has been growing.

They have doubled the rig count as they planned to do from '04 onwards.

As we always said, there has been anticipated procurement from Saudi Aramco in the last few years that affected the real purchase during '07 and will stabilize by the end of '08.

We feel that by '09 they will buy what -- in relation to their needs.

But they are combining their normal requirements with special operations, like the deep gas that we are supplying now during this semester.

Okay.

Thank you very much.

Thank you.

Your next question comes from the line of Stephane Soussan from Exane.

Please proceed.

Good afternoon.

One question on the costs you consume for your welded activity and project activity.

What do you pay?

Are you paying on annual contracts on those costs?

Well, this is German speaking.

No, no we don't.

As you may recall, we established pretty much at the same time we closed the Maverick and Saxon a long-term agreement, a long-term supply agreement with Nucor, which supplies today a substantial part of the steel requirement that we have in the States.

Now, typically, these agreements involve quarterly negotiations and, naturally, during the quarterly negotiations we review both specific volumes and price.

And on your Project activity in South America, do you pay the market price and also on the quarterly basis for the costs?

Specifically for Projects, it's based on a project-based consideration.

Yes.

We are -- we have the commitment of the producers when we are submitting a bid.

This is our way of doing business.

And just to understand well, in the U.S.

for your Welded tube activity, you expect demand to be flat year over year but, at the same time, you expect your volumes to recover and to be up in '08?

No, I think the -- what we are expecting is the level of activity to remain stable, maybe partially growing and, consequently, the operational or operating consumptions staying at more or less the same levels.

Now, as far as operating or as far as apparent demand is concerned, we anticipate that during '08 that will be higher than '07 as a result of, one, the de-stocking program coming to an end and, two, pretty much everybody rebuilding their inventories from this 4.4 months position we left or we finished December with.

Okay.

And one last question on your Project division.

Did you win the Argentina/Bolivia pipeline and can you confirm it's around $740m and maybe how much tonnage it implies?

Well, it hasn't been awarded yet.

We are waiting for the results.

Obviously, it's a big project and we have good expectations of a favorable result in the coming days.

But on your guidance, should we understand that you will maintain the sales level in the Project division, or there is potential for further increase?

Well, we have a good order book at the moment with projects in Brazil and also Colombia.

This would be an additional to that.

Okay, thank you.

Your next question comes from the line of Maria Tinedo from Newgate Capital.

Please proceed.

Hello, I have three quick questions, if I may.

The first one is on the product mix.

You mentioned you're at 45% of your volumes on the premium side, but this could either increase or stay, depending on demand on the low side -- low-end side as well.

What's your view on the margin side and I was wondering what is the margin differential between the Welded side and OCTG at the moment?

I understand your comment about the overall margins probably not increasing because of higher volume on the low side, but I was wondering how they compare at the moment, and if you could give us some color on that?

Yes, thanks, Maria, this is Alejandro.

Related to the product mix and the increase in the high-end products, we confirm that we maintain the growing path and we expect by the end of the year to be close to 50% of high-end products compared to the 45 we are today.

So that alone should improve your -- help your margins improve, overall?

The point, Maria, is that for competitive reasons it is very difficult for us to comment over the core margins on high end and low end.

But I think the message is we're, in fact, in the guided path of reaching above 50% of our seamless component at high-end products.

That's great.

The other two questions, on the currency side, you seem to have an advantage relative to your main competitors on the premium side by producing in -- from out of Mexico and the U.S., and the weakness of the dollar relative to the euro, at least.

I was wondering how much of your cost is euro-denominated.

How much is out of Italy, basically, if you can give us some idea?

Well, we are -- to give an idea we can look at our capacity in terms of steel making.

We have four main steel shops, of which one is in Italy, producing around 900,000 tons of Steel out of a total of 3.5m -- or 3m tons of Steel.

So, not all of it is euro-denominated because your cost in -- from iron ore and scrap etc.

is more back to the dollar, even out of Italy.

So is it a fair assumption to say that it's something like 15%, 20%?

Well, first of all, the plant in Italy is much more focused on certain types of products, more related to the European markets, including -- and also certain specialized line pipe products.

And so the comparison is not directly but, obviously, Italy is an important component of our overall costs.

We have a rough balance between the sales and our costs -- sales in Europe and the costs that we have in Europe.

But your product to Europe is sold in U.S.

dollars, is that right?

No, no, it's sold in Euros and we have a natural hedge.

Okay, excellent.

The last question is -- you just mentioned at the beginning some of your alliances on the Power Generation side.

If I look at the margins that Sumitomo has in their area, and even Vallourec, they seem to be very high.

I'm not sure whether I'm comparing the right products.

This is very -- I guess this it boiler tubes, but I don't know how premium they are.

I was wondering if you could give us some coloring.

I've never heard you talk about Power Generation and, perhaps my mistake, but I wanted to get more color about it.

And Sumitomo and Vallourec seem to be more positive about power generation than the oil side, on the pricing power side.

Yes, this is Alejandro.

On power generation, clearly, as you mentioned, Vallourec and Sumitomo take the lead and they are very much in the high and oil side, and that's where you find major difference.

We are present, we are growing and we expect to see these type of margins in the future.

Last quick question on the electricity side.

With the gas prices where they are that, obviously, doesn't bode well for your electricity costs.

What are your expectations and how -- this is in Mexico as well as the U.S.

and Argentina.

How much inflation do you expect on the electricity side?

This is Ricardo Soler.

From the electricity side, we foresee some small increases, not big increases in generally speaking.

Okay.

Thank you very much.

Your next question comes from the line of Tereza Mello, from Citi.

Please proceed.

Hello, good morning.

Just two quick questions; most of my questions have been answered.

Can you elaborate a little bit on your tax rate this quarter?

And also this change in taxes that you mentioned in Canada, Italy and Colombia, how it should impact your tax rate going forward?

And the second is on Confab, your recent -- Confab recently announced their share buyback program.

Is this a first indication that Tenaris has any intentions of closing the capital of Confab, or no?

Thank you.

Okay, this is Ricardo Soler.

In relation to the income tax rate, this is important to remark that -- in Italy we have a reduction of tax rate of about 6 percentile points, from 37 to 31.

Also, in Canada, for the year 2008 we are going to have some decrease of about 6 percentile points and, in Colombia, also 1 percentile point for 2008.

For the year 2008 and the future, if we don't have any change, we expect that we can say close to 1.5 percentile points of tax rate in Tenaris.

Great.

And what about Confab?

In relation to that, this is a capital gain.

In relation to the Confab announcement, this is also what the press release said.

It's also the idea that with the cash and liquidity that the Company has to re-invest partially, if the market conditions are appropriate in the Company.

Sorry, but it's -- we shouldn't interpret it as an intention of Tenaris closing capital of Confab in the future?

No, no, not necessary.

Okay.

Thank you very much.

Your next question is follow-up question from Ole Slorer from Morgan Stanley.

Please proceed.

Thanks a lot.

I wonder -- you're going to hate this question, but I wonder whether you could elaborate a little bit more on your capacity, particularly in seamless?

Nigel, I heard you mention, maybe it was a slip of the tongue, 3.5m tons.

Is that your capacity now?

No, no, that's the amount of steel we need to make 3m tons of pipe, say.

Okay, so we have a capacity of seamless of 3.4m tons in the system.

Okay, 3.4.

And how -- I mean, you've been investing quite heavily over the years in your organic growth potential, de-bottlenecking etc.

Could you talk a little bit to what you're able to grow this at over the next, say, two years?

Well, I think, Ole, that as we have anticipated on prior calls we over the last two years invested substantially in our plants, aiming at increasing key treatment capacity, trading capacity to pretty much be able to respond to the aggregated high-end industry needs.

As we have indicated today, we have, over the last couple of years gone from a mix of about 40% of high-end products into a projected about 50% by the end of '08.

And, again, I would like to probably highlight the notion that high end for Tenaris is not heat treated pipe, but a lot more complex product applications than that.

In the context of your overall growth, what should we expect there?

I'm asking because we're hearing from some of your competitors that they have maxed out on capacity for the next couple of years.

So do you think that you will be able to be act as a big supplier in the high end, or do you think that projects will have to be delayed because of a lack of tubes that are for sour gas, for heavy oil or deep water projects?

This is Alejandro speaking.

We feel confident that we will be able to cover the needs of the coming years of high-end material.

We have invested heavily on the heat treatment side and on the premium side to cover that.

We -- if needed, we can extend the investments in heat treatment, but it will be more of a shift of mix to high end rather than to increase rolling capacity for the time being.

Okay.

German, might as well follow up on your capacity in the U.S.

Can you just quickly remind us what you've done to the Maverick facilities since you took them over, and where you now stand in terms of having these up to standard?

Do you feel happy about them and what you see that your capacity utilization is in the U.S.

right now?

Well, Ole, for obvious, again, competitive reasons I will not be able to detail the specifics, but let me say that immediately after the closure of the deal we announced a $70m investment plan for the old welded mills that aim at increasing capacity that translated in a new tubing line, finishing line, and de-bottleneck a good number of pieces within the production process, i.e., finishing lines, hydraulic testing lines, inspections lines, with the intent of, again, improving productivity, improving utilization of the lines and quality.

During the process we also completed an expansion program of our coil tubing facility, bringing something close to 30% of aggregated production capacity which we completed and is already up and running.

And in terms of the efficiency drive, when do you expect this to be completed?

Well, naturally, building a brand new line is a process that, as we have discussed, will take maybe 18 months or so.

So, in other words, we will see some of these investment plans operationally in the probably next 12 months or so.

Okay.

Thank you very much.

Your next question comes from the line of Dino Catena from Euromobiliare.

Please proceed.

Hello, gentlemen.

Just a couple of questions.

First of all, when you talk about stable margins, do you mean the ones you achieved in the full year '07, or more the one you had in the second part of the year?

And my second question is do you mind to elaborate a little bit more about the Middle East market conditions, both in terms of pricing and volume?

Thank you.

This is Ricardo.

In relation to the first question, we are talking about margins in dollars per ton, this is, one, something that I wanted to clarify.

And we are going to maintain the levels that we have in the last part of the year.

Okay.

Related to -- this is Alejandro.

Related to the Middle East, as we said, the demand in the Middle East is steady.

We see also they are moving more and more to high-end products on the main customers, such as Aramco and KOC, and these will come with higher prices related to the high-end products.

So we are feeling very confident on how the Middle East is moving.

Thank you.

You have a follow-up question from the line of Stephane Soussan from Exane.

Please proceed.

Yes, to come back on Canada, do you -- are you already able to increase prices significantly after the anti-dumping duties on Chinese imports?

This is German speaking.

I'd just like to confirm that over the last couple of weeks we, as an industry, have been notified by the CBSA, the Canadian Border Services Agency, that they have formally determined anti-dumping duties of an average of about 60% and countervailing duties of an average of about 19% to the various Chinese importers.

Now, naturally, we are now in the process of waiting the injury analysis that is conducted by the CITT, the Canadian International Trade Tribunal, and that's expected by the March 10.

And this is where the situation lies at this point in time.

And just to confirm what you just said previously, in fact, you're already said that in terms of margin you are talking about EBITDA per ton?

And the right level to look at, the base level, is what happened in H2, '07?

No.

I think that the actual EBITDA margin depends very much on the actual mix of products that we are selling in any particular quarter.

And, in particular, it will depend on the mix between the welded pipes and the seamless pipes, so it may vary between quarters.

But I would say that it should remain -- at least in dollars per ton on an equivalent product basis, the margin should remain stable.

Okay.

And just one last question.

When you say that your tax rate will decrease by 1.5 percentage points, it's compared to the 30% achieved in '07?

I would say that, as a basis -- as a standard basis, we are going to reduce 1.5 percent, not necessarily related to the performance of the last year.

It should be around 30% to 32%.

Okay.

Thank you.

There are no more questions in queue.

I will go ahead and pass the call back over to Nigel Worsnop for his closing remarks.

Please proceed.

Okay.

Thank you, everyone, and we very much look forward to seeing as many of you who can come on our Investor Day of March 13 in New York.

And thank you very much.

Thank you for your participation in today's conference.

This concludes your presentation and you may now disconnect.

Good day.