Tenaris SA (TS) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2014 Tenaris SA earnings conference call.

My name is Jackie, and I will be your coordinator for today.

(Operator Instructions).

I would now like to turn the conference over to Mr. Giovanni Sardagna, IR Director with Tenaris.

Please proceed.

Thank you, Jackie, and welcome to Tenaris' 2014 fourth quarter and annual results conference call.

Before we start, I would like to 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 during this call.

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 Chief Financial Officer; German Cura, Managing Director of our North American Operations; and Gabriel Podskubka, the Managing Director of our Eastern Hemisphere Operations.

Before passing over the call to Paolo for his opening remarks, I would like to briefly comment our results.

During the fourth quarter of 2014, sales reached almost $2.7 billion, in line with those of the corresponding quarter of the previous year but 11% -- but up 11% sequentially with our sales up in all of our regions.

Our EBITDA reached $712 million, which was 4% lower than the corresponding quarter of the previous year but 21% higher sequentially.

Our EBITDA margin at almost 27% was more than 2 percentage points higher sequentially due to an improved mix of products and a high level of operating efficiency.

Operating income was down 19% sequentially as we recorded impairment charges of $206 million on the value of our welded pipe assets in Colombia and Canada, reflecting the deteriorated demand outlook for welded pipe products of these facilities.

Our net income was down 40% sequentially as it includes an additional charge of $49 million related to our investment in Usiminas due to the deterioration of the business environment in Brazil and the decline in iron ore prices.

Average selling prices in our tubes operating segment were down 7% compared to the corresponding quarter of last year but were up 1% sequentially.

During the quarter, our sales of high-end seamless products were at 61% of our total seamless volumes.

During the fourth quarter, our net cash position decreased by $360 million to end the year at $1.3 billion, following investment of $375 million in capital expenditures and the payment of an interim dividend to shareholders of $177 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 will start by saying a few words about 2014, which has ended with a good fourth quarter and a very good final month in December, when we reached a record level of monthly shipments.

Unfortunately, it may be some time before we see an equivalent monthly or quarterly performance.

Starting with safety, also, we had a setback in the first part of the year with an increase in the number of recorded accidents.

We showed an improvement in the second part and ended the year with our lowest quarterly values for our main safety indicators.

Overall, our average injury frequency rate for the year improved slightly compared to that of 2014.

We will continue to focus on improving our safety performance, which is an essential element of our competitive differentiation in the eyes of our customers and the communities where we operate.

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

We maintain our sales and EBITDA in line with those of the previous year, a good performance considering the slowdown in sales of high-value products to the Middle East, reflecting the onset of the OCTG inventory adjustment in Saudi Arabia in the second half and the sharply lower sale in Brazil through the year.

Our operating and net income were affected by asset impairment charges and fell 13% compared to 2013.

However, our cash flow from operations was strong.

And we ended the year with a net cash position of $1.3 billion after investing $1.1 billion in capital expenditures and paying out $531 million in dividends.

Considering the change in market conditions and the high level of our capital expenditure commitments, we are proposing to maintain the final dividend at $0.30 per share, making for an increase in the total annual dividend of 5%.

Our sales in 2014 benefited from our positioning in shales and deep-water operations worldwide.

Sales of OCTG products for US onshore operations rose 24% year on year.

In Argentina, sales of OCTG rose by 13% year on year as YPF continued to increase operations in the Vaca Muerta shale.

For deep-water operation, our sales in the Gulf of Mexico rose significantly year on year.

And in sub-Saharan Africa, they rose a further 12%, consolidating the good performance of 2013.

2014 was also a good year for the progress we made in positioning our new premium products for complex deep-water and HPHT application.

Our BlueDock connector was successfully run by Petrobras in Brazil and Repsol in Trinidad.

In the Gulf of Mexico, we successfully qualified our Wedge 623 and Blue Riser connection for Shell Mars B project.

And we successfully introduced our Blue Quick Seal, Blue Max, and Blue Heavy Wall connection for deep-water and HPHT operation in the North Sea and Angola.

In the last few months, this success has been complemented by significant contract award for Tengiz Chevroil operations in Kazakhstan, for Maersk UK operations in the North Sea, and Statoil Marinerproject in the North Sea.

In 2015, we are facing a very different market environment.

Customers are reacting to the collapse in oil and LNG prices by cutting their investment budget and looking for a structural change in their cost of operations.

We estimate that overall market for OCTG could decline by around 30% compared to 2014.

I would like to clarify that this includes the impact of stock reduction.

We are preparing for what could be a prolonged downturn.

However, we are confident that the longer-term fundamentals of the oil and gas industry remain positive.

Demand for energy will continue to grow, with improvement in the global economy.

Declined rates are accelerating, impacted by the higher incidence of shale production.

And we see the long-term equilibrium in oil and gas prices at the higher level than the prices of today.

We're working actively with our customer to help them reduce costs by optimization of processes and efficient management of pipe materials inventories and optimum product selection to support their operational challenges.

We are also adjusting our operations to fit the new environment.

We are reducing our workforce worldwide while preserving our key competences and the relation with our community.

The cost of our metallic load are declining, and we are optimizing allocation among our plants to take advantage of currency movements and differential operating costs.

We're reviewing our fixed cost with a view to making our structure more efficient and taking action to reduce our investment in working capital.

In the US and Canada, despite a rapid decline in the market, we are seeing opportunities to improve the supply chain system of the industry and expand market share against imports.

Also, on fairly traded imports from Korea, continue at the very high levels in spite of the trade case ruling of August, we expect that domestic producers should have an opportunity to displace them on competitive terms.

By 2017, when our Bay City mill will enter into operations, we expect the market will have recovered.

And domestic producers should be able to effectively serve the market.

Our investment plan, including Bay City, will drive an increase in our capital expenditures in 2015.

But, we are confident that our cash flow from operation will be sufficient to cover this investment and maintain our dividend payment for the year.

We believe that we enter this downturn in a better position than our competitors based on our strong financial position, our global positioning, our extensive customer base, and the quality of our products and service and numerous source bases.

We're also confident that we will emerge from it with our competitive position strengthened and fully prepared to support our customers in this new cycle.

I will then open the floor for any question you may have.

(Operator Instructions).

Igor Levi, Morgan Stanley.

Nice quarter, guys, especially considering everything that's going on.

Thanks.

If we compare the current situation to 2008, prices are much lower, and the EBITDA margins of some of your competitors are in the single digits.

So, how much do you think prices can realistically come down before capacity starts to get shut in?

Well, Igor, thank for your question.

Well, actually, we all see a capacity reduction underway at this moment in different parts of the year, even in this price environment it is difficult to support the competitive environment for some of our competitors.

Price went down by around 5% in the last two months.

And this no doubt had an impact on the activity level.

We think that there will be price adjustments.

There will be some changes to accommodate the need of the oil industry, to recover its competitiveness in this environment.

But, I think that there is not so much room in this before we will see other [closure].

On the other side, one of the factor that is impacting prices is the flows of imports coming into the United States.

We have seen that this imports coming especially from countries like Korea that are the subject -- that has been the subject of the antidumping case against them in August, are still entering into the market at prices that, from our point of view, represent a clear dumping and unfair trading into this market.

So, this is having an impact.

It's having impact especially on the American industry, but I think would not go on forever.

This is, to some extent, something that will -- in the end, we have to be considering in the coming months and see it very clear fully how it evolve.

Great.

Thank you.

And just a quick follow up.

The inventory situation, I remember it took over a year to burn off all the inventory in 2009.

And earnings were declining for two straight years.

Is this situation any different?

How long do you think it could take to get through the inventories this time around?

Well, I think this downturn is structurally different from something that what we see in 2008, 2009.

Today, the shales, the shale world is very important in the overall market.

Shales are as a whole representing around 25% of the overall worldwide demand and mainly in the United States.

Now, one of the characteristics of the operation in the shale is ability to react very fast to the signals that comes from the price of oil or from the market.

So, what we are seeing is a very sharp drop in the level of rigs.

And at the same time, we could expect similar reaction if there is -- there are changes in the signal and in the price of oil.

Having said this, the sharp drop is leaving a lot of inventory on the ground.

Imports are coming in.

Production certainly is going down.

But, still, the level of import of stocks should be -- must be in the range of 3 million.

If you tell me, how long will it take to normalize this level of stock, I think that, probably, by the end of 2015, we may have reduced -- a reduction in the range of 1 million tons of stocks.

And the stocks will be more in line with the level of activity expected for 2016.

Great.

Thank you for that.

I'll turn it back.

Bill Sanchez, Howard Weil.

Thank you.

Paolo, I just wanted to circle back on the comments you made in the press release and again this morning in your prepared comments about the 30% decline in consumption of OCTG products.

Was that specifically an industry comment as you guys see the world right now?

Is that a Tenaris comment, or both, I guess first?

And then secondly, could you talk about if 30% is in fact a kind of a total volume decline?

How do we think about seamless declines relative to welded?

I know seamless held up better, was -- you saw less of a decline back in 2009 than you did in the welded, if you could just talk a little bit about those dynamics, please?

On the first point, concerning what we see as a reduction in amount, we are -- we gave a very broad estimate of the reduction in the market.

This was including stock reduction.

We can estimate a reduction in the consumption, actual consumption, use of pipe in the rigs worldwide in the range of 20%.

The rest is getting into the apparent demand is the reduction in the stocks.

This is our view based on the estimate that we received from our clients and our estimate on their operations.

In this broad estimates, there are very different situations, projects that are not reducing at all the level of investment, other areas in shales in the United States that are reducing at a much faster rate.

So, this is basically how we see the question.

Then the second question is on the seamless.

I think the welded is reacting faster.

There is a reduction in the apparent demand for welded products.

Probably the reduction is faster, is higher than what we see in seamless.

This is also due to the fact that some of the welded is in the United States competing in the US against imports.

So, the import level of January and February, it's so high that some of the mills that are operating in welded, I do have information about this from some of our competitors, and also we, are strongly reducing production.

So, the apparent demand for welded is probably lower because of this impact, while the seamless apparent demand is going down at a lower pace.

Okay.

So, I guess, Paolo, trying to take all that and just think about the 30% comment, does it feel like that's a good proxy for Tenaris as far as just modeling, as we think about the model right now, or do you think you can do a little bit better than what the market as a whole is going to be?

No, can you repeat in this because -- can you repeat the question?

I guess, just simply put, just the 30% decline OCTG consumption, I'm just trying to assume whether or not you think that's the right number to be thinking about for Tenaris here, just I guess simply put.

No, I understand.

Well, in Tenaris, there are other products, other areas or regions apart from OCTG.

We are giving an indication of OCTG because it's the most important driver.

But, there are other areas.

One that is very important in 2015 we clearly counteract the reduction in sales and shipments in the OCTG that is line pipe.

In Brazil and Argentina, we are actually producing and we will deliver in 2015 important projects, the Rota 3 in Petrobras and two important projects also in Argentina.

This will be something, a big recovery against last year.

Then there are also industrial projects -- industrial products in -- we see a recovery in shipments coming from Europe also going, for instance, to the automotive industry.

The economy worldwide is on a recovery trend.

And this is -- introduces some improvement in what we expect, better expectation of sales from other segment of Tenaris.

If I could ask one follow up maybe for Edgardo, could you help us think about what decremental margins may look like for the Company, either maybe sequentially 4Q to 1Q or maybe just broadly 2015 versus 2014?

Is looking at the 2008 to 2009 comparison fair in your mind as a starting point?

No, I would say that, probably, we don't have still the visibility for the whole year.

But, I would say that, for the first Q compared to the one that we just finished will be probably in the range of 23%, 24% EBITDA ratio.

Okay.

That's helpful.

Thanks.

I will turn it back.

Michael LaMotte, Guggenheim.

Thanks, good morning.

German, maybe I can start with you.

Would you mind just providing an update as to what we can expect over the next six months or so with respect to the trade case?

If memory serves me correctly, Korea has appealed the decision before WTO.

I'm wondering what impact that will have.

And then secondly, as a consequence of the fact that volumes have not slowed down, how should we think about the review, the Department of Commerce review this summer?

Well, good morning, Michael.

Let me start with the US side of it.

We have indicated before that we as industry intend to file the administrative review.

And we need to wait until July.

This is ultimately going to look at the results of the last six months.

And the Department of Commerce will take it from there.

From our perspective, in an environment where we've seen price adjustments existing, antidumping margins, as far as Korea is concerned, that range from 10% to 15% and explosive level of increased imports, we believe that the domestic industry has a solid case, and we intend to fight it as we did the original trade case.

Now, the WTO are longer processes.

In our experience, we've seen a two to three years' timeframe.

These are elements where the panel needs to be, first of all, [the old] elements are discussed.

So, long story short, Michael, I think the review position will start July.

We'll have an outcome in about 12 months from there.

And that compares to a timeframe that WTO timeframe of about two to three years.

Okay.

Thank you.

And then in terms of what we can expect as outcomes, potential outcomes from the review in July, it will either be -- the original decision in tariffs will either be upheld, no changes, or there could be an adjustments upward in those tariffs?

Is that correct?

That is correct.

If the Department of Commerce were to find in fact that the margins are higher, not only they'll be imposed as of that moment, but I think, more importantly, they will be applied retroactively.

And in the context of these increased imports, I believe the importers are taking an important element of risk.

We, again, are looking at a pricing environment, existing dumping margins that has not justified increased level of volumes that we've seen.

Thanks, German.

If I could ask a couple quickly for you, Edgardo, on the cost structure issues, there was comments about headcount reduction as well as working capital management.

I was wondering, as the oil companies are looking to address costs in a more structural manner, if there are things that Tenaris can do, not just to assist in that, but also more structurally within your own cost structure.

Well, Michael, I think, here, the -- we are approaching our clients in this moment with the attitude of looking -- trying to help them in recovering profitability in their projects.

So, this is not a question of price.

It's a question of reshaping the supply chain.

We can arrive and ship directly the pipes to the rigs, avoid a number of steps that are creating unnecessary cost in all of the line, and reduce working capital in the chain.

So, we are working four our clients in looking actively for a way of reducing the total cost of operations, what we call the total cost of operations.

We are doing this in every area, from the pipeline, the coating, the supply to the downstream industry.

And we start to be part of the solution for the oil industry and not a part of the problem.

I think we had, up to now, good reception and good success in doing this integral solution to have a more cost-effective structure to be prepared for lower price of oil.

This is our way of approaching this.

And I think this is important to reposition ourselves also for the long run.

Every crisis offer opportunity.

We see here a big opportunity to redefine the way our clients are doing things and, at the same time also, the way we are doing things.

And then naturally, we are also doing our homework.

We are reducing the level of activity in our mills, adjusting to the level of demand that we perceive.

And we can project reducing fixed costs.

And we're working very hard on our supply chain.

It is not only iron ore, energy and so items on which we are taking advantage of the -- let's say a lower price environment.

But, it's also working on our traditional suppliers to get same saving.

I think we should reestablish or at least get back to an industry able to realize projects with a lower cost structure and adapt it to an environment of lower cost of gas and oil that we can expect for a quite extended period of time.

Paolo, thank you.

If I think about the fact that perhaps the price compression on the products you're selling may not be as extreme as what we saw in 2008, 2009, I'm wondering, in your view, as you look at these structural costs and creating some more competitive advantage there, could they essentially match up?

Could you get 10% to 15% of costs out of your system on a more permanent basis you think with those processes?

I don't want to make a forecast on this.

What we have to take into consideration is, one, operating at a much lower level of operations and volume has an impact in the absorption.

Two, some of the improvements we are having in our inputs, like iron ore, scrap, will get into our account probably in the second and third quarter because of the IFRS way of accounting for it.

So, we will see this over time.

Third, it's difficult to anticipate today how the full extent of the pricing movement also for our product by June or July.

What we see is we have an horizon, but it's clear that the crisis and the downturn is very recent.

There is not a lot of visibility on the dynamics of this.

And you have seen the volatility reflected in some of the fluctuation in the market.

This is where we stand.

Edgardo gave an indication of where we could be.

But, obviously, there are still many factors that are not really very stable in a situation of downturn in which everything is moving.

That's fair.

Thank you.

Edgardo, I'm not going to let you off the hook.

Could you maybe just give some D&A and tax rate guidance for 2015 for the full year?

Sure.

You see this quarter the SG&A.

We end up with a very low percentage wise to -- compared to the sales, helped by the logistic costs and some reduction in costs.

Going into an environment lower sales in 2015, we probably try to reach a level very similar to the ones that we end up in 2014, so, roughly speaking, 19.5% overall of our sales, depending very much on the fixed component of the items I included in the SG&A.

In terms of the tax rate, taking a side effect of the impairment, our tax rate in the quarter was 28.7%.

We are probably applying for the same rate for the rest of 2015, so could be probably different quarter by quarter depending very much on the effect of the FX change -- exchange, but very much in line with 2014.

Thanks, guys.

Thank you.

Michael Shillaker, Credit Suisse.

Yes, thanks a lot, guys.

A number of my questions have been answered, but I'll ask two, if I may.

First of all, can you give us thoughts also, having given us your thoughts on volume, on mix because one would imagine that it's probably a great -- the lower-end OCTG will actually suffer more.

So, although your volume can be down considerably, you may actually get some form of underlying mix improvement within that.

And the second question, really, on the balance sheet, I think all of us would agree that there are very few companies that go through a sort of cyclical downturn like you're going through who have the luxury or well-managed company to have a balance sheet like you have.

But, this I think almost poses a quandary.

The first question on this, one would imagine you're going to throw off a reasonable amount of working capital.

So, your cash balance should actually rise during the year.

And on the second part of that, is now actually the time to be continuing to build basis so you're continuing to invest CapEx, or should you actually be pulling back from that as your cash goes up and your competitors' market caps collapse?

Shouldn't you actually be looking out there at acquiring assets?

Thank you.

Thank you, Michael.

On the first point, the -- in the question of the -- let's say, how affected will be the lower end?

How affected could be the higher end?

It's clear that lower end of the market is more affected in this downturn or at least is affecting before because, in the end, the reaction of the shales in the United States is very fast and is affecting welded in the first place and low-end products here.

Premium joints that in many cases associated to long-term project is more stable, and the projects that we are involved in are not being canceled [outright].

They go on.

So, in this sense, this component of our sales is more stable than the lower end.

Then in the long run, we will have to see how the oil industry will manage the timing of major projects everywhere in the world because this will mark the level of demand for premium products in the long run.

As far as the working capital is concerned, yes, during this year, as we state in the opening remarks, we have a very strong balance sheet here, and we will maintain it.

And our level of net cash should remain at this level, even having realized an investment plan that is even higher than 2015 -- than 2014, sorry, and having paid a dividend.

In -- on the third question on CapEx, well, remember we have -- we are halfway in our Bay City project.

And what we are deciding there is to slow down the project to be able to renegotiate some of the key contracts and so to reduce the overall cost of the investment.

But, still, this will not change structurally our strategy or the basic timing of Bay City.

As I was saying in the previous -- the opening remarks, we will get on the market by 2017 because we think that Bay City is a key component of our repositioning strategy in the United States and in all of North America, domestic production in an environment which we think we can have substantial reduction of imports in the area.

As far as the overall plan, we have a number of projects that are coming on stream in March, in April.

Mexico is an area in which we have important projects coming on stream.

And we have a basis of investment also in environment improvement everywhere in the world.

We do not stop on this.

I think that we should preserve the strategic investment in this area.

Still, we scaled down, and we canceled a number of projects that were aimed at any capacity expansion in different parts of the world.

But, with Bay City going on, our investment program in 2015 will be higher than 2014.

But, I think it makes sense for Tenaris to do it.

On the last point, no doubt, we -- Tenaris has been built in -- since -- in the last 30 years.

I personally have been through more or less seven crises, some stronger, some more deeper than the one we are facing.

And we come out from every crisis as a stronger company with a more extended global projection.

I think we should also enter into this with the same view, the same spirit, looking for opportunity and how to come out from this as a stronger company looking for the long run.

And could that coming out stronger actually involve potential acquisitions?

Are you looking around?

It's got to be a little tempting, given what you see in the world at the moment.

We are not ruling out any of this.

We are considering all of our options, looking in how the -- what we expect from the market, look at what -- how -- which opportunities could come out in this environment.

Okay.

Many thanks.

Thank you.

Amy Wong, UBS.

Good afternoon.

I have a couple of questions, please.

The first one is, in the current environment where all your customers and the industry is trying to bring down cost, I presume a lot of you and your competitors will be responding with giving back some pricing as well.

Can you comment on how -- what you're seeing right now in terms of your competitors and how they are reacting to this, please?

Well, I would ask German because the faster reaction as usual is always the United States.

So, maybe, German, you can comment on what is going on in this environment.

Thank you, Paolo.

Good morning, Amy.

Well, very rapidly, I think it's fair to recognize that, in connection with our daily customer conversations, price and price reductions and adjustments are taking place.

We've seen that already reflected somehow in pipe logix with the 5% reduction in two months after a 7.5% appreciation in about four.

But, ultimately, Amy, I think the industry recognizes the opportunity of changing the traditional approach of purely unit price discussion.

We're having a detailed conversations around the notion of total cost of ownership.

In North America, there is a clear opportunity to optimize various aspects of the supply chain, double inspections, rig preparation work, inventory obsolescence, rig returns that are coming with damages and what not.

And this is what we're working on.

And I think this is what is, in the end, moving the focus from pure unit pricing to ultimately sustained gains.

One comment, maybe, Gabriel, you can add something on how you see the global competitive environment, the reaction of clients and competitors in this environment.

Yes, thank you, Paolo.

Good afternoon, Amy.

In line with what German was saying, we're having close conversation with our customers, trying to help them be part of the solution and take out cost of their supply chain.

We're having price discussion that are typically in long-term agreement based on formulas and public indexes with some extent of reduction of cost are translated into the customer to some price values.

But, the majority of the discussion are concentrated in finding the right technologies and how to integrate the supply chain services and the way to take out cost.

And I think the examples of the recent awards of these two new contracts, long-term contracts in the North Sea, the one in Maersk in the North Sea, and the one from Statoil and Mariner in the UK, are examples in which our dopeless technology helps to reduce the cost of drilling.

And our integrated supply chain services will take out costs out of the supply chain of Statoil.

This is the first time that Statoil has taken this approach.

And these are the type of opportunities that this crisis will offer.

Yes.

Thank you -- .

-- Question here.

It relates to the Middle East and Africa region.

Your sales improved sequentially here.

And you say that it's because of more offshore deliveries.

Given this product generally has longer lead times, can you give a sense of the order book here for the offshore and how much longer we can expect this kind of momentum in the Middle East and Africa region, please?

Okay.

Yes, Amy.

On the Middle East, first, we see the drilling activity of the nationals -- of the Middle East very strong.

We see Saudi Aramco operating today at the 210 rigs.

They're maybe not reaching 230 that they were planning a few months ago.

But, we don't have any indication that they are slowing down in terms of drilling activity.

We're also seeing the operating companies of Abu Dhabi and Kuwait ramping up the rigs in line with the midterm targets of the production of oil and especially gas.

However, this region has long purchasing cycles.

And Saudi Aramco is also working on -- continue to work on destocking mode.

So, we expect that the apparent demand in shipment for the Middle East in 2015 would be lower.

But, we are working on and expected to work the next few months in a high tendering activity for this part of the world, which will result in a higher market in 2016.

Regarding the offshore in Africa, sub-Saharan Africa, this is an area where we see a reduction in drilling activity based on the CapEx reduction that the IOCs are planning for 2015 in the range of 15%.

We are seeing this translated into lower activity.

For example, some of the exploration campaigns that we saw in Angola, in the presalt Angola in 2014, will not be repeated in 2015.

But, on the other hand, we worked hard in the last few months building a unique backlog, for example, of deepwater pipelines, like Kaombo in Angola, or the coating products and services for (inaudible) Nigeria that would partially compensate for the drop that we'll see in OCTG in sub-Saharan Africa.

Thank you, Gabriel.

All right.

Thanks, Gabriel.

That's very kind of you.

Thank you.

Andrea Scauri, Mediobanca.

Yes, hi, good morning, everyone.

I have a couple of questions.

The first one is your positioning compared to your competitors.

I think that you are much more solid on the back of your strong balance sheet.

I was wondering what you think about the situation of other players, in particular in the US market, on the back of the current scenario, if you see the opportunity to gain market shares from some plant closures from closest peers that are operating in the US.

And second question, I understand that it is very early to speak about -- to talk about this.

On the profitability in absolute terms that you might expect in 2015, basically, looking at the latest downturn of the oil price in 2009, then you had an EBITDA -- sorry, in 2010 -- of almost $2 billion.

I think, now, the Company is different compared to that situation.

I was wondering what could be the level of EBITDA in 2015 if there are opportunities to see a better number compared to the figure posted in 2010.

Thank you.

Yes, well, on the first account, really, we think that Tenaris is a unique company with a competitive position that is superior to any of our competitor worldwide.

Also, and this is true from a cost structure, as I was mentioning, our ability to rely or improve in our cost of our inputs, very fast, in many different parts of the world, the cost of our operations, also -- remember in this month there has been devaluation of currencies against the dollar in different parts of the world.

Some of our facilities are very competitive in this environment.

And also, the investments realized during this cycle has really been -- had an impact on our cost structure.

And I think, in this sense, we are in a position that is unique in this environment.

When we talk about how we can leverage our financial position, our cost efficiency, our product portfolio, could we use this to recovery our market share in some of the market?

I think yes.

In the case of US, it's clearly against imports.

I think the increase in production capability, domestic production capability, and also if you say NAFTA within the North American region, could put a lot of pressure on imports, especially on imports that are fairly dumped into this space.

This is not irrelevant because this market is -- this market space is the largest in the world.

And even if we can have a moment of reduction in the market because of reduction in stock and of activity, still, it remain a key component of the worldwide market in this.

So, this is the area in which we can think -- we can really make a difference, especially against imports.

But, also, worldwide, the success we are having commercially in the complex products make me think that we can gain market share in some areas.

And those other areas or market in which we are recovering share even against low-end producers, like China, because of quality problems that are encountering -- the decline are encountering in their supply.

I remind the case in Egypt but also case in other areas.

So, in this moment, quality, efficiency, compliance, product capability makes a difference.

So, we want to get out from this crisis stronger from this account.

In terms of EBITDA, I think it's too early now to have an overall forecast of where we can be in 2015.

There is not enough visibility for us on our overall volumes and the dynamics of imports in the United States on some of the factor that could influence our performance, our financial performance worldwide.

We gave a broad indication.

We think that our cash flow will be more than enough than for covering all of our needs.

But, I wouldn't go deeper into this.

Okay.

Many thanks.

Emanuele Isella, Fidentiis.

Good morning, everyone.

Just one question.

I was wondering if you can give us an idea of the breakdown of your sales in terms of -- to understand the size of the line pipes and the size of aftersales service, just to have an idea for modeling what would be like the revenues for the next year.

Well, I don't think we can give a breakdown of our sales in this sense.

What I can tell you is that, broadly, the segments that are supporting Tenaris worldwide are OCTG, you've seen there is welded on one side, line pipe in applications that goes from the downstream to different applications in the oil and gas industry, and projects which are the line pipe, large diameter line pipe, welded usually used in onshore or offshore pipelines.

And the last one is the very complex line pipe -- well, the last one -- one more segment is the segment of very complex line pipe for deep off water, deep offshore, or complex projects of this.

And then the last segment that is quite broad are pipes for industrial use, like for airbags, other applications that are utilizing the automotive.

Now, the mix between this segment is changing.

But, clearly, energy is the driver of probably more than 85 of our sales between OCTG line pipe, projects and complex line pipe.

Thank you.

Felipe Santos, JPMorgan.

Hi, good morning.

In the beginning of the call, you mentioned about initiatives to recover or to increase the Company's market share in the US.

Could you give us some more details on that?

And also, is there any other area of interest worldwide that you consider that should be the time to get advantage of this weak market and to expand Tenaris operations?

Thank you.

Well, thank you, Felipe.

On the first question, market share in the United States, as we mentioned, we see that the changes in the structure of the industry, the search for reduced cost, for short lead time, and so offer big opportunities in substituting input the production coming from domestic producer.

But, German, maybe you can say how -- which would be our, let's say, action plan where we are putting in for the service, and so, [which is this]?

Good morning, Felipe.

Thank you, Paolo.

I think, Felipe, another way of saying it is that we believe that a NAFTA based industrial system ultimately would be able to be synchronized with a customer's drilling programs.

And by synchronizing drilling programs to production programs, we will be able -- as we have experienced in other geographies, we will be able to eliminate inefficiency elements that are today embedded in the US supply chain.

That's something which we believe unfairly traded imports can truly not compete with.

And that's ultimately what we're working.

So, while we're trying to substitute unfairly traded imports, we're also trying to innovate in the way the industry works.

Hopefully, that explains.

Yes, because I think that service is something that is very difficult to supply (inaudible).

Gabriel, there are area in your view internationally, and which are the area you consider we can get leeway against our competitor, product or -- ?

-- Yes, I think there are many areas in the international market despite the current (inaudible) of opportunity for technologies, services, relationships, and also the different (inaudible) a local service base that we have in different (inaudible) a degree of (inaudible) in the different parts of the world that offer opportunities.

So, I will not go specific.

But, I think we have going forward plenty of opportunities to increase our position.

Yes, but sure, internationally, the product differentiation is probably the most important differentiation we can use to leverage our position as a company.

While in the United States together with the product, the service, in this sense the after sale service that we can give are a important differentiator against everybody.

Like, services, yes.

Yes.

Okay.

Diego Mendez, Itau.

Yes, guys, good morning.

So, just two more specific questions, the first one on Brazil.

We have been hearing about their -- Petrobras is actually delaying a lot of projects because of all the investigations that are going on right now on the company.

So, my question is, do you believe we can see further delays in the construction of Rota 3 and then affecting your revenues here in the country?

And second on Pemex, we have seen them reducing their CapEx as well.

So, what would be the impact on your operations and if this is already included in the 30% reduction in the demand that you mentioned?

Thank you.

Yes, thank you.

Well, first of all, it's clear that the situation with Petrobras is not stabilized.

There is a new management that I imagine should redesign or reconsider the investment plan and take a number of actions.

We will see something more over time.

In the case of Rota 3, we have the order.

We are producing it.

We do not think that this will affect -- there will be any change of program or delay that could affect our commitment to this project.

This project will be produced during almost all of 2015, is assuring good load to our facility in Brazil for the large diameter.

We are shipping -- we start to ship also part of this.

So, no, we expect no changes on Rota 3.

Mexico, Guillermo, maybe you can give a comment.

Mexico is an area in which we will see some reduction in investment, no?

Yes.

Yes, Paolo.

Mexico, what we are seeing is, in this year, there has been a delay in the migration of the service contracts.

At the beginning, we were expecting that the awards will be finalized by the end of the year, the beginning of the year.

Now, what we are seeing is that none of them has advanced.

And that has caused mainly a stoppage of the operation of these service contractors.

And so, we have seen a drop in the rig count of around 10 rigs today are not operating, mainly affecting the Burgos in the north area.

And I think we're going to continue to see this delay.

There was also a reduction in the Pemex budget of around MXN120 billion that was announced.

We don't know at this point in time exactly how that's going to be allocated.

We understand it's going to be allocated much more to the refinery than to E&P, but still, (inaudible).

But, we are seeing a reduction of next year versus this year in terms of the demand.

It's not as large as the 30%.

It's being calculated within the number that we have been seeing worldwide.

This is included this reduction.

But, I think we're going to be seeing a reduction in consumption of around 15%.

The reform continues to be pushed.

The first round of the bidding has been opened, is being evaluated.

There's been some interest.

There's been -- we understand that 26 companies have requested access to the data room.

So, it's moving.

We also understand that there were some areas that have been eliminated that were considered before for this round one, which were mainly deep water and some nonconventional.

But, without that limitation, the agenda that was presented at the beginning, it continues to be implemented.

So, hopefully, we're going to start to have some good effects for 2016.

Okay.

Thank you.

Ladies and gentlemen, that concludes our question-and-answer session.

With that, I would like to hand the call back to Mr. Sardagna for closing remarks.

Thank you, Jackie.

And well, thank you, all, for participating to the call.

And see you next conference call.

Thanks.

Ladies and gentlemen, that concludes today's conference.

Thank you for your participation.

You may now disconnect, and have a great day.