Tenaris SA (TS) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2013 Tenaris SA earnings conference call.

My name is Jenayda and I will be your operator for today.

(Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to Mr. Giovanni Sardagna, Investor Relations Director.

Please proceed.

Thank you, Jenayda, and welcome to Tenaris' 2013 fourth-quarter and annual results conference call.

Before we start, I would like to remind you 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 and other documents filed with the SEC.

With me on the call today are Paolo Rocca, our Chairman and CEO; Guillermo Vogel, Vice President of Finance and member of our Board of Directors; Edgardo Carlos, our CFO; German Cura, Managing Director of our North American Operations; and Gabriel Podskubka, our Eastern Hemisphere Managing Director.

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 2013, sales reached almost $2.7 billion, down 3% versus the corresponding quarter of the previous year, but up 11% sequentially.

Mainly thanks to an exceptional level of sales in the Middle East and for Sub-Saharan African deepwater projects.

Our EBITDA reached $745 million, which was 2% higher than the corresponding quarter of 2012 and 20% higher sequentially.

Our EBITDA margin at almost 28% was 2 percentage points higher sequentially due to a rich mix of high-end value premium products and efficiency improvements.

Average selling prices in our tubes operating segment were up 3% compared to the corresponding quarter of last year and 2% sequentially.

During the quarter our sales of high-end seamless products were at 62% of our total seamless volume.

During the fourth quarter, our net cash position increased by $125 million to end the year at over $900 million.

Following investment of $184 million in capital expenditure and the payment of an interim dividend to shareholders of $153 million.

Now I will ask Paolo to say a few words before opening the call to questions.

Thank you, Giovanni, and good morning to all of you.

I consider that Tenaris had a good year in 2013, achieving important progress in many areas.

I will start with safety.

Our Safe Hour program continues to deliver improvement in our indicators.

Over the past three years the rate of accidents resulting in injuries has declined over 40% and we still consider that we have a wide room for improvements.

Safety is an essential element of our competitive differentiation in the eyes of our customers, of our workers, and the communities in which we operate.

Let me now turn to our financial results for the year.

We maintained our EBITDA and our industry-leading margin in line with those of the previous year, despite a slowdown in the North American market and declining prices for our less differentiated products.

This performance was driven by a transformation in our product mix towards the high-value premium OCTG products, our positioning in the Eastern Hemisphere, and the performance of our industrial system.

Earnings per share declined 9%, affected by higher tax charges relating to our operations in Argentina and Mexico.

During the year we generated $2.4 billion of operating cash flow, resulting in a net cash position at the end of the year above $900 million.

We are proposing to maintain for this year the annual dividends at last year's level.

Sales of our premium connection products continue to rise strongly, 17% year on year by volume, and our Dopeless technology continues to penetrate new markets and grew 24%, again year on year.

We strengthened our premium connection portfolio with the introduction of new products for the most complex deepwater and high-pressure, high temperature applications.

This month, our new BlueDock connector for conductor and surface casing was successfully run by Petrobras in an offshore well with excellent results.

Our operations in the Eastern Hemisphere had a record year.

In the Middle East, gas drilling activity has increased strongly, led by our Saudi Arabia.

We are accompanying Aramco in their drive to increase gas production with high performance sour service and high collapse products and we are now investing in a new heat treatment facility and expanding our local premium threading operation to meet high levels of demand.

Elsewhere in the Middle East we increased sales in the United Arab Emirates and in Kuwait.

In Sub-Saharan Africa, our sales rose 70% year on year, driven by deepwater projects.

In Angola, Ghana, Nigeria, and Congo, in Mozambique and Tanzania, we are supplying complex operations supporting our clients with product portfolio, local manufacturing, and services.

In North America, however, our sales were affected by the slowdown in drilling activity and an adverse competitive environment in the less demanding segments.

Our focus is on the segments in which we can achieve differentiation on products and services: Gulf of Mexico, the main shale plays, the thermal projects in Canada, and as a whole in Mexico.

This week the US Department of Commerce imposed preliminary anti-dumping duties on OCTG imports from various countries, but not Korea.

However, the Department of Commerce has stated that, in its final determination, it will consider additional elements that, in our view, strongly support the case against Korean imports.

We are confident that this will be taken into account in the final determination.

We made good progress in the construction of our new rolling mill in Bay City, advancing with earthworks, equipment design, and engineering and resource planning.

For 2014 market conditions are stable with high levels of demand in the Middle East and Africa and the gradual improvement expected in North America led by higher activity in the Gulf of Mexico.

However, the preliminary US anti-dumping ruling and the project delays in Brazil will hold back our growth for this year.

Further ahead, we expect that the fundamentals that support our growth strategy have not changed and, therefore, we are maintaining our investment plan focused on differentiation on products, services, and industrial excellence.

We can now proceed and receive your questions.

(Operator Instructions) Ole Slorer, Morgan Stanley.

Thank you very much.

I wonder whether you could share with us your thoughts about the outcome of the trade case in the US and what the next steps would be, if any.

Thank you, Ole.

I think basically, I said this in my opening remarks, the preliminary determination the Department of Commerce made clear that they didn't take into full consideration some relevant aspect and some data -- that they will take it definitely into consideration in preparing the final determination.

I'm talking about Korea, the decision, the preliminary in Korea, which is a very important aspect of this determination.

We are confident that this will be taken into consideration in the final statement.

Now, anyway this -- the way the preliminary determination has been determined will have an impact on the market.

And this is something that I stress in my point because in the first semester of this year we can anticipate some continuing import from the sources, from Korea, and that possibly some stock build up into the market of products, let's say, less differentiated product.

This is something we can expect.

On the other side, there will be some restriction on imports from the other sources for which has been established and determined some relevant duty, anti-dumping duty.

This, to some extent, will impact the first semester, but the stock build up will have some impact also in the second part of the year in any case.

But I stress again, reading carefully through the Department of Commerce determination, we feel that the final determination will definitely consider issues that we are -- we consider very important for the final judgment.

Okay.

So just to understand, it's more to come and you don't think that this is settled yet and is still -- it sounds like you're still hopeful of getting the resolution that you would like.

Yes, I think we are very confident.

Because the element that the DOC is stating very clearly that they are not considering are very relevant.

I don't know, German, if you want to add something on this, on the specific of this.

Thank you, Paolo.

Good morning, Ole.

Very specific and very brief, Ole, the Department of Commerce it is our understanding works with statutory due dates and they ultimately had to come out with a preliminary determination.

But it is clear from the briefing that they believe that they have not used the complete data in terms of sales and costs for the Korean exporting companies.

And they also made an emphasis on the fact that they're going to be looking at those specifics going forward before the final determination [issues].

There are a lot of cases in the past in which the difference has been this -- the impact of this full consideration and verification of data has led to final determination that has been substantially higher than the preliminary.

Obviously we would have preferred that in the preliminary some of the data would be considered but the time constraint acted for the DOC.

This is the situation, no, German?

This is so.

And also I think an important element of color is that the preliminary determination is fundamentally based on information provided by the respondents.

And this now opens up the need for verification, as we just explained.

Okay, that's clear.

I'm not too familiar with this kind of a process, so it sounded to me almost, I suppose, a final decision and I was a little surprised.

So that explains that they had a deadline, they had to come up with something.

They hadn't time to consider everything, okay.

If we move on to -- if you can give us, just very quickly, the two most interesting markets in the world right now may be Argentina and Mexico and you're right in the middle of both of them.

So with the settlement between the Argentinean government and Repsol just around the corner potentially and coming now into the thick of a Mexican energy reform on the other side, could you share your thoughts on how you see these markets develop with new entrants, new oil company entrants potentially entering both of these two markets and the timing of that?

Yes.

Well, I will a little bit comment on Argentina, then I will ask Guillermo to give us a view on Mexico after the energy reform.

As far as Argentina is concerned, I think that the agreement with Repsol will be very important to unlock some decisions of investment in the energy sector.

So I hope that this is, as you say, around the corner and we will quickly turn this corner, because it is an important decision by the government.

Now when we look at the development, it's clear that Vaca Muerta is an essential very important play.

Potential is there is I think everybody in the Company that are start to give a dimension of this all agree that the first appraisals are confirming the importance of the play.

I would expect that during this year, however, company will define the best technology, for instance, YPF, Chevron.

By May -- April, May, or June will analyze the results of around 150 wells that have been drilled in the play and that take decision definition concerning the best technology and the strategy for development of something that is relatively not very well known and presents technical difficulties.

Now after this, I would say that there were designs on the development plan and it will be very important that the position of the government after the Repsol settlement would address some of the key issue in the energy sector -- prices and so -- in a way that gives credibility and predictability to the main variable for this.

It's clear that Argentina need the development of Vaca Muerta.

Vaca Muerta is part of the solution for the country, also for the macroeconomic.

It could contribute substantially to the macroeconomics improvement in the country, so there are strong reasons to proceed in this development.

We hope that the policy decision will create the condition on the surface for developing the full potential.

I would say that during this year we will have a slow increase in the number of wells, but if conditions are given in 2015 the volume of activities should step up much strongly than during 2014.

This is my expectation.

Now in the long run, today in the United States you are drilling around 14,000 wells per year in the shale.

Argentina, it's not unthinkable that in four or five years we will reach 800 or 1,000 wells per year in the same play provided that the condition on the surface will be predictable.

Guillermo, maybe you can comment on Mexico.

Sure.

Thank you, Paolo.

Good morning, Ole.

Good morning, everybody.

Maybe to give you a little bit of a reference of the times that we are seeing in the energy reform in Mexico, I can walk you very fast through the main milestone dates from a legal process that have to take place before biddings are assigned.

As you know, the energy -- the constitution was changed by the end of last year and after that the secondary laws have to be drafted by Congress.

The date that we expect that to happen is before the end of the session of this year, which is by the end of April.

So we should have a knowledge of the other specific loss that are going to be applied to the new processes and to the new private investments by the end of April.

At the same time, at the time the Constitution was -- the changes in the constitutions were approved, they granted 90 days to Pemex in order for Pemex to select those areas that they want to maintain for their own production and for their own investment.

So this will take the process of Pemex -- and Pemex has to do a proposal to the Energy Secretary by the end of March.

Then the Energy Secretary has 180 days in order to define -- to approve what Pemex has proposed or to define any modifications.

At that time, there is going to be known exactly what is going to be selected for Pemex and what is going to be selected for outside investment.

After that, the Energy Secretary is going to design the bidding structures per se and is going to select the structure of the bidding areas.

And so that will probably take us to the end of 2014 and at that time the bidding process actually may start.

What we are seeing is very little activity in 2014 or no activity in terms of the new -- let's say, new law and we start -- we are probably going to start to see some effects starting in 2015 where what we call the CRH, the Comision Reguladora de Hidrocarburos, is going to be the one managing the bidding process.

In the meantime, it is very probably and what we are hearing is that Pemex is going to be allowed also do alliances with foreign investors.

So I think the first thing we are going to start to see is some investment by Pemex in some foreign investors while the bidding process is going in turn.

So actually what we are seeing today is a 2014 very similar to last year in terms of number of rigs operating, maybe a small decrease.

In some areas they are going to be affected by -- for example, Chicontepec.

We have seen that Chicontepec is totally stopped right now.

We see the South decreasing a little bit compensated by an increase in what we call the zona marina.

So what we are seeing is 2014 very similar to last year in terms of volume, maybe a small decrease, but with a richer product mix because of the areas where they are drilling.

And probably we're going to start to see some effects of the energy reform by the end of last year and then gradually increasing.

We are seeing a lot of interest in Mexico by foreign investors and we are seeing of very strong definition internally that this new energy reform has to be successful in time.

That's interesting, Guillermo.

So the 180 days take you to the end of the third quarter, but in the meanwhile you said it could be foreign investors funding Pemex projects?

No, no, no, but -- yes, but not at that time.

I think because all this process -- Pemex today -- the problem that Pemex has today is that they don't know what they are going to be drilling and what they are not going to be drilling.

And so for them it's very difficult to take investment decisions.

Right now what they are doing is an effort to maintain production where it is.

I think that I start to see the process that you mentioned by early 2016 -- 2015, and then the rest of the process taking up stronger in 2016.

Okay, guys.

I have another 20 questions but I think I will hand it back to you there, so thank you very much.

Jim Crandell, Cowen.

Good morning.

You made a comment in your press release that you expected sales in the Middle East and Africa to be unchanged, which surprises me a bit given the strength in activity in Saudi, Kuwait, Oman, Abu Dhabi and in West Africa Angola.

Could you elaborate a bit on that?

Yes, Jim, we see -- we will see some reduction, from our point of view, in Saudi compensated by very strong action in Africa.

But I will ask to Gabriel Podskubka to comment on this.

Thank you, Paolo.

Jim, good morning on to everyone.

Indeed, we expect revenues in the Eastern Hemisphere in 2014 to be at similar record levels as in 2013.

We believe that Sub-Saharan Africa will experience another year of important growth, driven by exploration activity in the pre-salt Angola, East Africa, and other frontiers.

And also development programs that have been launched in Angola, Ghana, Congo, and even Nigeria.

This already is where we are supplying not only the casing and material with the premium connections but also high spec pipelines with associated coatings as well.

This is supported by a local manufacturing and service set up in an area that is highly sensitive on local content.

Regarding Middle East, will be another strong year for Middle East.

However, in Saudi rigs are being deployed, activity is being increased, but we expect that Aramco will reduce the procurement year over year, factoring and balancing their inventories with some production in revenues especially during the second half of 2014.

Tendering is expected to be strong in the rest of the Middle East, Kuwait, and UAE but this will take some time to factor in our revenues towards the end of the year or even 2015.

So you don't really see a decline in activity coming out of Saudi, it's just the timing of their tendering process which may cause Saudi to be down in 2014?

Exactly, this is exactly what we've seen.

Okay, good.

One more question, back to the previous questions about the decision announced earlier this week.

As I understand it, some of the pipe that's exported into the US by these nine countries is seamless pipe and they did put additional duties with some of these countries that export seamless pipe into the US.

Should this aspect of the ruling have any positive effect on Tenaris?

German, maybe you can look into it and answer.

Sure.

Good morning, Jim.

I think in very practical terms what is going to happen is as of, say, this week, immediately after the preliminary determination, the exporting countries that are subject to preliminary duties will need to leave a bond while clearing customs.

And those bonds, ultimately, would be adjusted with whatever final determination is taken July 7.

This will clearly reduce imports into the states by the company that has received antidumping duties, but we have to understand how the other that do not have restraint, like Korea, will react to this.

So there will be, I think, some limited impact because also I think there has been an inventory build up in demand in the last few months.

And some of this will go on also in the first quarter probably, the first or second quarter of this year.

So we will not see, I think, positive effect until we got to the final determination in our operation in the next two quarters.

Okay, and just one final quick question.

Could you comment on the project delays that are taking place in Brazil?

And based on your intelligence about what's going on down there, what you are expecting out of Brazil over the balance of 2014?

You know I think very well this is not being an easy time for Petrobras.

Petrobras has different constraints, financial constraints, some redefinition of project and so this has led to a postponement of project and concentration on the activity.

They increased in field, they increased workover; they delay postponing some projects.

For us, this has led to a substantial reduction in our sales of lines, pipelines to some extent also of OCTG.

Now the activities going on, however, they will recover level of activity in the future.

For example, in these days we are negotiating -- we were the best bid for the offshore part of the Rota 3 pipeline, connecting the offshore piece with the coast.

We are negotiating a project, a big project in the range of 130,000 tons, and what we expect is that after negotiation we will not be able really to start seeing invoicing on this until maybe part of the last quarter or for sure in 2015.

This is the kind of effect that we are perceiving.

Also, this is an election year.

There is the workup.

Priority are also given to different projects, so I don't think we will see recovery in the activity of Petrobras during 2014, but it would be very reasonable to plan for a recovery in 2015 and 2016.

Okay, that's very helpful.

Thank you, gentlemen.

Bill Sanchez, Howard Weil.

Thank you.

I just wanted to come back and talk a little bit about I guess the forward guidance and further kind of reconcile that versus 4Q results.

Paolo, I know you talked about the first semester and maybe some of the challenges there with regard to DOC ruling, but for a similar outlook here, 2014 versus 2013, I think most of, say, earnings probably fairly flat then is what you guys are seeing.

It sounds like top line maybe the expectation is also flat year over year.

But I look at the margin performance at the EBITDA line in 4Q and then I kind of look at first semester here and still think about a high seamless content, the efficiency improvements that you spoke about earlier.

I guess I would have expected maybe EBITDA margin to be a little bit stickier here, at least through the first half of the year.

And then thinking about the DOC ruling that really you probably wouldn't have started to see any real benefits to that on your income statement, let's say, until the second half of the year, even if Korea had been included.

So has there really been a change in terms of how you think about North America in the first half of the year or the US specifically around this DOC ruling?

Is that having a more dilutive impact to margins or is there something different that's taking place and the market is just continuing to be weaker, even though I think people are more optimistic about spending now than they were 90 days ago in the US?

As you were saying, first of all, in this quarter we had very good margins.

If you look at the margins in tubes, we are reaching a very high-level margin.

This is -- we are reaching, I think, something in the range of 29%.

This is -- comes from some very good efficiency in the plants.

You will see this in the cost of sales, but we are gradually catching the benefit of being able of producing from the new plant in Mexico and optimizing our production line, but also efficiencies we are getting in each and any one of the plants.

Our costs are contained, also the devaluation of the currency, Mexico.

In the future, the impact of devaluation in Argentina, to some extent, is containing our costs.

So the cost effect is relevant.

You also can see the cost of iron ore, coal, or hot rolled coils.

In some -- to some extent we expect this to support our margin.

On the other side, this quarter has been a quarter in which our mix has been skewed towards high-end products.

I think we reached here a very high level in the level of 62 of high end of our mix.

We are concentrating in premium and sophisticated products.

This is driving a slightly higher EBITDA margin, even if the overall level of revenue is not increasing so much, because in the end the low end of product probably at the lower level that we could have expected.

Now this is how the Company goes and we expect next year to be substantially stable on this.

Because we have to consider the impact, the preliminary determination will create some overstock in welded pipe in the US.

So this will affect not only the first six months, but will have some impact also on today, but on the entire year.

This is what we are factoring.

We do not consider that our growth is -- has changed or has stalled, but we considered immediate postponement of this because of the situation created in the United States by flows of imports.

If you consider growth import from Korea in the first two months, we are talking about 200,000 tons of pipes that enter into US in the month of January.

So these are the factors that are making us be more cautious on next year in terms of revenues.

In terms of margin, I think that the impact -- the cost, the share of differentiated products, and so will allow us to maintain the margin substantially at the level I said.

Okay.

I guess if I could ask one more, your tax rate was exceptionally high in 4Q.

Could you give us just an outlook on what an effective tax rate for modeling purposes be good for 2014?

Yes, this I will ask Edgardo to give a comment on this.

Sure, thank you very much for the question and good morning to you.

The whole year we have been suffering a significant pressure on new taxes in -- basically, in Argentina and Mexico.

But this particular quarter has been affected by the effect of the devaluation in Argentina and Mexico that reduce our value on the fixed assets and, therefore, affected our deferred tax.

Coming into 2014, we are maintaining our guidance of the 28% to 29% on tax rate.

And in the first quarter of 2014, we are expecting to maintain, more or less, the same level of the tax rate that we have in the fourth quarter because of the devaluation in Argentina.

Okay.

Thank you for that.

I will turn it back.

Michael LaMotte, Guggenheim.

Thanks.

Good morning, gentlemen.

If I could follow up on the question of capacity, Paolo, I am curious as to where you are with respect to premium capacity utilization and the initiatives that you have to improve efficiency to perhaps increase the ability to deliver more volume on the premium side.

Well, we are -- as we stated in the preliminary remarks, clearly this year, 2013, we had a very important increase in premium, a very important increase in dopeless.

Dopeless is basically growing faster and is important for us.

It's becoming a standard product for many offshore operations, so part of our investment is going in this direction.

Now we will increase, expand also our sales in next year.

The new facility in Romania that was started in September is entering -- is taking full capability and so we are adding to our capacity and this is allowing us to serve all the markets in which we are.

Probably the devolution of the Mexican operation will be important also to determine finally which will be the level of our premium sales in 2014.

But, let's say, we can count on capacity that will gradually increase because of the investment done and the recovery in efficiency we are doing.

Still, I would say that this will not be such a substantial increase that we can expect in 2014 for the time being.

There is here something that I want to mention.

The expenditure in CapEx for exploration and production will grow this year, but will grow at lower level than in 2013 or 2012.

And the CapEx expenditure by the major oil companies, in our view, will probably be a little more effective in the national oil companies.

So there will be some change of mix in client and we have to see how in the long run this will result in the demand for premium.

We have limited visibility to talk about the second semester of 2014.

Okay.

Is, perhaps, one way to think about it, if I look at the fourth-quarter rate in deliverability and tonnage, 2014 could be kind of mid-single-digits delivery above the fourth-quarter level on the premium side?

Is that reasonable?

This all-in-all should be reasonable, but I would caution on the visibility that we have for the second semester.

Now because this is -- we have to check some of the exploration program of major oil companies and some regional oil in which we are very important participation.

And also to understand well what Saudi Aramco will do in the second semester and how -- they will need to probably do some destocking.

We would like to see exactly the size of this in the second semester 2014.

But basically we expect an increase and the range could be the one you mentioned or in that range.

Okay.

Thank you, Paolo.

I'm curious; steel costs went up in the second half of 2013 and have been falling the last couple of months.

Are we going to see the cost of steel flow through the P&L this year on an average or normalized basis, or is there going to be some pinch on the margin in the first half of this year and then relief in the second half as that volatility flows through?

In my view there will be some moderate increase now getting into our cost, according to some cost increases have been in the hot rolled coils back in September/October.

And then I would expect some decrease later in the year.

But, we should consider that hot rolled coils is not really the main component of our cost.

Our other costs related to domestic costs in Argentina and Mexico are acting in the other way.

Okay, very good.

Also, German, if I could just follow up just on the Korea comment.

It sounds like we could perhaps interpret the preliminary ruling as inconclusive, perhaps, on Korea as opposed to an acquittal.

Is that how you would characterize it perhaps?

I think I would characterize it as perhaps incomplete.

A substantial component of the data has not been made available at this point and these will happen I believe, based upon what the DOC has indicated, in the coming months.

Okay, very good.

Thank you.

Andrea Scauri, Mediobanca.

Good afternoon, everyone.

I have a couple of questions.

The first one is on the Pipe Logix.

Could you elaborate on devolution that you expect on prices in both of the two cases?

If a final ruling against Korea is confirmed, as it is today, or if there is a change in this ruling against the Korean exporters, where do you see prices going in second half of 2014 and 2015?

Second question is, in the case of the ruling is favorable in your view, do you expect any incremental EBITDA versus the guidance that you have provided, or it is too late to affect 2014 numbers?

Third question, if I may, on CapEx.

Could you tell us what is the level of CapEx that you are expecting in the next couple of years?

Thank you.

Thank you, Andrea.

One brief comment on the Pipe Logix.

You are right; the Pipe Logix has declined over 2013.

It was full affecting our operations.

We are offsetting this with more differentiated mix, but still has been an important factor now in containing or limiting our margin.

Now in 2013 it will be there.

The decrease has been around 14% from one year (inaudible).

The Pipe Logix is important also because it is a component of some of the formula with major oil companies, together with other issues so it has relevance.

Frankly, I do not expect so much impact on this, depending from the solution of the case at least in 2014, because the industry has the capacity installed to make up for a reduction in imports.

And especially to do it considering that the existing stock will give time to the industry to pick up and increase capacity utilization.

Now, when you're talking -- when you talk about 2015, I really think that the dynamics of demand and supply should drive the margin of the industry in the US to slightly higher margin.

If you look at this, this is what increasing drilling for gas, increasing the activity over medium term I think should gradually get back to a level of price that is higher compared to what we have today.

But, anyway, this is for the, let's say, medium term.

When we talk about the EBITDA, the margin, I think that considering the stock build up that we had until now and that we can expect until July, this will not change basically the forecast that we say.

We say in 2014 we will have a margin, more or less, in line with 2013.

This is as much -- with the visibility that we have or some of the major issues, now this could not be changed for Tenaris by the determination that is occurring in July.

It's too late for this year.

As far as the CapEx is concerned, we are substantially increasing the level of CapEx.

We were this year investing around --

Roughly $1.2 billion.

In 2014 we planned to invest around $1.2 billion, because we are start to spend in the building of the new plant in Bay City.

We are completing the heat treatment and the new plant in Colombia.

And we have also investment in high value-added line in Saudi Arabia and in part of our facility.

This year the CapEx has been --

Almost $800 million.

$800 million.

It will go up to $1.2 billion.

And probably in 2015 we will go up again to $1.2 billion.

This will be a level that could be maintained for 2015.

Okay.

Very last question, are there any acquisition targets that you can -- that you see on the market at the moment in the high end or the current situation, if you as you are without implementing any acquisitions?

As usual, we are always considering opportunities and alternatives that may intense strategic position.

Why?

We have the very strong financial position, but nothing --.

Okay, thank you.

Fernando Valle, Citi.

Thanks for the call.

Two questions from me.

The first is we have seen gas prices in the US rise significantly during 2014 and then we are also seeing storages to be very low, probably one of the tightest gas markets in the past few years.

When you say you are seeing stable demand in margins in the US for this year, are you considering that there won't be any movement towards dry gas, dry gas plays?

Have you seen any of your clients already moving towards dry gas drilling?

Can you just give us a little color on how that's working for you guys?

The second question is you generated a lot of free cash flow in 2013, and even though CapEx is increasing in 2014, you still have a very strong balance sheet.

Just wanted to understand; are you guys looking for opportunities to reinvest that capital?

I know you've mentioned in the past complementary services.

Could you just give us a little bit of color on timing and also what kind of services you are looking at?

Thanks.

Thank you, Fernando.

I will ask German to give a view on perspective for drilling for gas in North America.

Thank you, Paolo.

Good morning, Fernando.

I think I will split the answer with a short-term view and a mid-term view, Fernando.

Frankly, view we have is that the gas price we see today is perhaps associated to one of the worst winters that we have and we continue to have.

But it is the view of users, customers that when and if this is over, it is more than likely that you will probably go back to the levels that we've seen during the past so many months.

More like 4.5, 4 and 4.5 band in the last few weeks.

However, the midterm view is where we are of the idea that domestic increased demand, more power generation fueled by a natural gas re-industrialization process continues to go on.

Ultimately, some LNG impact or exports in the end would also play a factor.

In the end, we believe that this forward oil or gas is not sustainable over time.

It will recover at one point and this would directly be associated with a need of increased drilling.

You said it; we have seen higher consumption and a drastic reduction on the inventories when you compare it to our positions of last year and even the average of the last five.

This leads us to believe that mid-term-wise the existing level is not really sustainable and it has to increase.

Thank you, German.

As far as the opportunities could come to -- for Tenaris in the area of service and the other aspect of our business, as I said before, we are continually looking to opportunity and how we can strengthen our position region by region, product by product considering, let's say, the positioning we have in the different areas.

There is nothing concrete that we would like to comment now.

Thanks, guys.

Stephen Gengaro, Sterne Agee.

Thank you.

Good morning, gentlemen.

Two questions, if you don't mind.

The first -- and we're getting back to this a little bit.

But in the press release when you talk about 2014 being kind of in line with 2013, can you give a little more detail?

Are you talking about revenue, EBITDA, or earnings, or all of the above?

And how does that play into volumes as well?

Well, we are considering all of them.

Staying to the situation in -- as far as we can see now and the visibility we have now, we can expect different aspects of our business to influence as a whole 2014.

But if we want to summarize this, I think it's a fair statement that we expect a year more or less in line with 2014 in terms of revenue, EBITDA.

We will be there with EBITDA ratio.

Now this is exposed to variation that could come from second semester, no doubt, and this is also taking into consideration what will happen with the trade case in the United States.

I think this is a fair way of giving, let's say, a view for the future.

Then we will adjust it in the next quarter while we get some more input from the different regions on the evolution of the situation.

Okay, thank you.

Then, second, and I understand you don't like to provide any specific color on margins by product line, but when we look at the numbers in 2012 to 2013, and even if you talked about it on a year-over-year basis, are the margin fluctuations being driven by price, mix, or just kind of manufacturing efficiency?

I'm trying to get a better sense for how to think about the critical drivers of your margins.

And I think looking back to last year, performance may give me some light on that if you could elaborate a bit.

Well, we are operating in many different countries and regions of the world in projects that have different characteristics and that are also changing over time.

Our margin in the end is the result of a mix of that, considering sales in different regions, in different projects, and different products.

And some of the products has very big difference in price and margin among themselves, among them.

So in the end, the combination of the complexity and the value added in the mix, the competitive environment in some of the regions for low end or for high end is a very important driver for our margin.

And also, on the cost side, Tenaris is basically based on 45 facilities all around the world.

The condition of cost is permanently changed, so you have devaluation in Argentina is changing our position and the margin coming from them, the situation of the currency in Mexico also, in Italy or Europe.

I mean, there are factors that are specific for the plans related to the inputs that we use for our production and they are all affecting this.

So it is a complex equation where over time I think you can try to catch a line and we try to transmit which are the factors that are influencing this.

For sure, the complexity of the mix is a very important component, because in the end we have in a differentiated product the competitive situation is different if we compare it with some of the low-end markets like the one we face in the welded pipe area in the United States that is what we can consider a low end from our country.

Thank you.

Just as a quick follow-up to that, one of the things that has surprised me a little bit is that the mix seems to have gotten better based on the premium, the commodity data that you give.

But the margins haven't necessarily gone up as much as I would have thought in that scenario.

That's what I was trying to get to, if there is any -- if you have any comments on that.

Well, remember in 2013 we had to make up for a big decrease in the Pipe Logix.

Now Pipe Logix went down by 14%, so we were going against the wind in this.

Some of them change in the mix and our penetration in projects, important projects is compensating for an overall price decrease in the United States that to some extent reverberated also, reverberated and reflected outside.

This I think is the main comment.

Now what I would like to remember is that still this 29% EBITDA ratio in the tubes segment, or even the 28% in the overall company, is one of probably the leading margin, one of the leading margins in our industry.

So we are running high speed in this and I think that this has to be taken into consideration.

Great.

Now that's very helpful, thank you.

Geoffroy Stern, Kepler.

Actually I have two questions.

The first one is a global one.

Just coming back on the premium demands on a global basis, what are your expectations for this year and next?

Because if I remember correctly, not that long ago you were expecting premium demand to increase by, let's say, anything between 8% to 10% per year.

Do you think this is achievable this year?

That's my first question and the second question is just to come back quickly on Brazil.

Back in November you already indicated that you were not expecting any pickup in the line pipe business before September 2014.

Now you seem to suggest that nothing will happen before early 2015.

To what extent is this also valued in your view for the OCTG business?

Because mostly were from, let's say, US well services companies have indicated that so far Petrobras is very much focused on well completion and that the drilling activity in the first half is going to be very limited.

But to what extent we could see, let's say, a recovery, a pickup in OCTG activity in Brazil before your recovery in line pipe business?

Thanks.

Thank you, Geoffroy.

On the first one, for the long run we continue to think that the premium market will grow, as I was saying, between 8% -- around 8%, more than the market for a less demanding product.

You see this in the nature of the drilling, exploration, and development of the industry.

The oil industry is looking for opportunities more and more in deep offshore, in offshore, in complex products and premium is driven by this.

And it is driven also by complex applications in shales.

So we are convinced that this is the way the market develops and will do this in the medium term.

Now as far as 2014, as I mentioned before, the fact that the majors, and especially some majors, is scaling down the CapEx expenditures for 2014, may lead now to some reduction in premium demand in (technical difficulty).

One example is Brazil.

Brazil is basically premium user.

Petrobras is premium user for the pre-salt development.

If Brazil concentrates on well completion, this will subtract to the overall (technical difficulty) of global premium worldwide.

But all the elements that justify our view of premium are there.

I would say even more so.

All the indications we have from our dialogue with the major oil companies -- and we are confirmed this -- this year our promotional Dopeless encountered very favorable ground in some project in Gulf of Mexico like shale stone, (inaudible), driving drop projects in which you see that this is not only premium, but that it is premium of a new generation that is required.

UK is an example.

We had the discussion with Conoco, (inaudible) and Chevron.

We see that not only there is this increase here, but there's also demand for a very sophisticated new generation of premium that fit for the condition of the offshore, deep offshore, complex high pressure, high temperature.

When you go to Brazil, I will repeat what I said before, I see that Brazil is reconsidering its investment in Petrobras because of the difficulties from a cash flow perspective of Petrobras.

Also, some technical decisions and some decisions that needs to be taken, and I think is under revision, in allocation of CapEx.

There are questions regarding upstream and there are questions regarding the refining and downstream; we, frankly, think that 2014 there will be not so much action there.

And action will depend also from the nature -- from the new government, because in the end a change of government is expected in Brazil this year, or at least confirmation of the existing government.

But the new government will have to consider the macroeconomic constraints, the situation that is affecting not only Brazil but also other emerging markets, and take decisions on many different issues.

One of this is the investment strategy of Petrobras.

I don't think this decision will be taken -- implemented during 2014.

We expect gradually during 2015 we will see how Brazil is taking strategic decisions of the development of the huge resources that they have in offshore.

All right, thank you.

This concludes the Q&A portion for today.

I would now like to turn the call back over to Mr. Giovanni Sardagna for any closing remarks.

Thank you and thanks to you all for participating in the call.

I'm sure I will see most of you in the coming months.

Thanks.

Ladies and gentlemen, that concludes today's conference.

Thank you for your participation.

You may now disconnect.

Have a great day.