Q3 2021 Tenaris SA Earnings Call
[music].
Today's conference is scheduled to begin shortly.
We continue to standby. Thank you for your patience today's conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
[music].
Good day, and thank you for standing by and welcome to the Q3 2021 scenario SA earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker today Giovanni said Tanya. Please go ahead.
Okay.
Thank you Gigi and welcome to <unk> 2021 third quarter 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's the last call results may vary from those as well.
Or implied during this call.
With me on the coastal Dania, Paolo Rocca, Chairman and CEO, Alicia Mondello, Chief Financial Officer, Jeremy <unk>, Vice Chairman and member of our board of director and Michael.
Vice Chairman and member of our board of directors at the airport.
This event of our eastern Hemisphere operations, and Luca Zanotti President of our U S operations.
Before passing over the call to Paolo for his opening remarks, I would like to briefly comment.
Our results.
Our third quarter sales at 1.8 billion were up 73% compared to the corresponding quarter of last year and 15% sequentially.
Mainly due to higher sales in the Americas, which more than offset lower safety in the middle East due to continued destocking and lower sales in Europe are affected by seasonal factors.
Our EBITDA for the quarter was up 26% sequentially to 379 million, reflecting higher volumes better pricing and a good industrial performance.
Our EBITDA margin rose about 20% following an increase in average selling prices while the increase in cost of space was contained but improve NASA for four months and absorption of fixed cost.
Average selling prices and not to book very few segment increased 10% compared to the corresponding quarter of last year.
And 6% sequentially.
During the quarter cash provided by operating activities was 3 million.
Capital expenditure of 74 million, our free cash flow was slightly negative.
Working capital increased by $276 million during the quarter driven by the continuing ramp up of operation in the United States and by higher activity levels.
Our net cash position at the end of the quarter declined to 830 million compared to 54 million in the previous quarter.
The board of directors approved the payment of an interim dividend of 13 cents per share or 26 cents per ADR to be paid on November 24.
Now I will ask Paolo to say a few words before we open the call to questions.
Thank you Giovanni.
Morning to all of you.
Over the past months, we are seeing the effects of tighter energy market as global demand rebound last year pandemic induced is rolled out.
Prices have risen above pre pandemic levels as inventory has fallen below normal levels and the OPEC plus countries soon.
Particularly on the U S changeover either maintain their supply.
Natural gas prices and especially the LNG traded in the spot market.
To limit the available supply response, which are leaving Europe, we've partially on the field the storage capacity.
Hey, Doug this is.
It is happening everywhere in the sector.
Enhanced scrutiny as world leader Amazing Glasgow to consider how to enforce an extra related for you and just energy transition.
Why is the goal is clear.
The pace the erection of driver remained answer period ended.
Many moving pieces.
Yeah.
This volatility in the energy sector, coupled with supply chain disruption and the lingering effects of the pandemic.
Driving risk and opportunity for <unk>.
On the one hand, we have rising raw material energy and logistics cost.
Im interruptions in production of the fashion customer drilling programs.
On the other hand, if demand is increasing with more activity to support oil and gas supply.
In this environment our results continue to show a good recovery.
Quarter increase as you can see political very margin.
Our EBITDA margin has now surpassed the 20% level, thanks to increased volume rising prices and cost containment.
Going forward, we expect these train two continues.
I want to seriously in North America in the third quarter increased by a further 28% sequentially.
Is that a 155%.
We expect to file the strong sequential increase next quarter.
As we meet the rising customer demand and pass on a market price increases.
As we have mentioned in our previous calls.
We have been ramping up our production in the United States and deploying our rates.
Service to meet the rising demand.
And the need of our customer.
Boston, we reopened our Enbridge seamless pipe proceeded in Pennsylvania in your October when we reopen our heat treatment and trading facility in Baytown, Texas.
Okay.
Gotcha.
And you see the main let's say a continuum.
We are cutting out that this ramp up in a challenging labor market in which we are already incorporated we have already got.
New employees has seen some two over last year and expect these total reach on 1600 by June.
2000, and that's it.
U S steel and several other of welded pipe competitor.
Had brought forward weather condition, often antidumping investigation into dealer CTG imports from Mexico, Argentina and Russia.
Concentrating duty mitigation against Russia and Korea.
The U S Department of Commerce has accepted the position.
Litigations, while the U S International Trade Commission should make it eliminated determination and enduring on November 19.
We believe the addition, I have no merit and we will be going to the challenge of any claim that our input is being done.
Causing or correct, I mean listening to local and.
And Judy sorry to local producers over the past 15 years.
It is a substantial investment.
More than any company.
In any other company and acquisition.
Patrick expansion to build up a competitive for CPG production system in Indiana.
While we cannot predict the impact of this investigation.
We believe we are well placed to continue serving our customer with Teva the eventual outcome might be.
This morning, we announced to our employees in Japan.
Exactly.
We and our partner <unk> have decided to bring to a close our successful association.
Duke Center.
And shut down it seamless pipe mean by June 2022.
Mr Colo GFE previous announcements.
Made in June 2020 that it would be closing it against the law, where our plant is located and we supply.
Being an essential service to me.
Over the course of the last 20 years and ticket tubes has made substantial contributor contribution to generic.
<unk>.
It is closure as we can.
Yeah.
Following the close that we would produce a high chromalloy withdrawal and cause it to supply the customer around the world not only in that facility.
Yes.
We support <unk> and deceleration with the same example, its beginnings of cooperation that is always kind of today's joint venture.
Our employees in Japan.
No.
Great Fortitude as we made the announcement this morning, and we will support them in the coming months.
October.
We are renewed.
It caused us five years, our longstanding alliance attended for the severity of CRA or stainless steel guidance here with complement same Vic my theory of technology with our expertise in premium connection in duplex technology to include the these high specialty buys in our offices.
As a growing segment.
Got that.
We were awarded a large pipeline contract.
Value of 330 million.
You are still a lot of Florida welded and seamless pipe to be used for the supply of gas to the LNG producing costs.
Deliveries are scheduled to start in the second half.
Okay.
These complement our existing concepts for the supplier for CPG.
Two our substantial order backlog.
Middle East and the impact of which will be 17, our result from the second quarter of 2020.
Xena.
And we have agreed that we fly P F.
And our long term agreement.
And go our rig direct service for a positive pricing behavior from April 22.
We continue to advance our plan for reducing the carbon intensity of our operation.
We're completing an investment to extend the size range of our medium diameter Rolling meeting too.
To include sites up to 18 inches, which will provide substantial energy and carbon emission on savings will be larger diameter.
We are also actively looking at opportunities to invest.
In or acquire renewable energy for many of our sites around the world.
Argentina, Romania, and the U S. At the same time, we're expanding our pace of hydrogen storage vessel for using refueling station in California, and Nevada water constructed by ear product.
The supplier for line pipe for the hydrogen developments in Saudi Arabia.
In a challenging a fast changing environment and obviously delivering on its commitment to improving its financial results and remain well positioned to support customer around the world.
And we can now take.
Any questions.
As a reminder to ask a question you will need to press star one on your telephone.
John Your question press the pound key please standby, while we compile the Q&A roster.
Our first question comes from the line of Ian Macpherson from Piper Sandler Your line is now open.
Hello. Thank you Paolo I think that we discussed last quarter that you could expect double digit revenue growth sequentially for Q3 and for Q4 <unk>.
You blew through that in Q3 at 15% does that did you pull forward some revenue.
Forward or do you still expect to achieve double digit revenue growth in the fourth quarter.
Thank you yes.
Yeah.
I think we should be.
Again, having an increase you know array of annoying, the rage and that Asia that mid teens.
Market.
Drawing deeper.
Especially in North America. So we are seeing because we handle that.
And I think that this trend that.
And may expand or.
In the coming quarter.
Okay. So with that look similar to the third quarter, where you've got maybe.
Six or 7% ASP increase and then the rest of it would be volumes, so kind of a fairly even mix of volume and price increases.
And.
Basically these will be there.
They might be.
Yes.
It's a whole different about the Ed you have seen that increase in the pipe logic.
The Atlanta being very relevant and gradually these will also support as you were saying that the increase in revenue in the fourth quarter and in the first quarter of next year.
Okay.
That's helpful. Thank you and then I was just going to ask also on.
The wind down at <unk> can you.
Talk about the materiality of the Japanese joint venture.
Relative to maybe 2021 results and how we should think about that deconsolidation.
After the middle of next year.
Well the joint venture has made the relevant contribution.
Periods of time with establishing in totality.
And.
Okay.
In that moment.
Health at Asbury match to complement our product range and to have access to the Japanese market.
Then.
In the most recent yet the overall volume production all weighs down the match.
The overall level of production line that age of 50000 pounds beneath it.
As of yet.
The contribution was relatively limited it would be safe.
When <unk> decided in 2020 to close the site and leasehold.
He is located it and spend it.
Not immediately but in 2023 the supply of.
Yeah.
Building for the facility we were facing.
<unk>, we were forced inevitability seizure.
Ah.
I wouldn't say that the impact will be material for our balance sheet. Because also we have a provision that.
Large product offer.
The cost could be related to beach, Florida.
The challenge will be and we have big payers would need to re position the production, especially for.
Hi, Hello, My theory on that in the rest of the season.
Got it thank you Paolo.
Thank you Arne.
Okay.
Thank you. Our next question comes from the line of Connor <unk> from Morgan Stanley. Your line is now open.
Yes. Thank you very much I was wondering I'm not sure how much you can really say at this point.
Commentary around the potential trade case, obviously, you've highlighted you feel it's got merit are there any data points, you could sort of came to or.
Just sort of industry data that would suggest or support.
Your position there.
Sorry again.
The last part of your question concerning the trains which were supplying to them.
Yes, basically are there are there any sort of data points, you could point to within your own operations or within the market that that would sort of support your view.
The claims don't have merit basically just wondering if you could expand on.
How you're supporting your position.
Oh, yes. Thank you.
Well basically.
In the last 15 years, we invested in the United States.
Very substantial amounts of money the acquisition and inorganic growth we installed platform of acquisition.
The brand new state of the <unk> mill.
Texas, So if an investment.
Over $1 billion eight.
Intervening.
Spanning production capability of the facility of the former Maverick and hydrate and scope Alicia so.
Our production capability.
And as an anchor state is very substantive southern everywhere complementing our production locally.
<unk> product.
That also in some cases.
Solving shortages or are supplying segment of the market leads that he is no longer production locally local production of domestic production or not and asthma sufficient domestic.
Now.
This is Ed.
Thanks.
This case.
The enduring we didnt, creating jewelry to them are domestic.
Okay.
Yeah.
On the contract.
It needs to get a pilot.
Okay.
We do see that basically.
What we think.
And that what we win.
The argument that we presented in defending our case with the Doj on one side and with the ITC also for the agent.
Hey, everybody.
At the same time.
Yeah.
Yeah.
It too.
These needed by a growing market visit by growing it.
Manned by demand.
Increased local production as I mentioned in my opening at Atlantica, We are now since October last year.
Operating and we would be incorporating more than 1600 people.
Port expansion.
All production.
Uh huh.
Facilities.
This is a decision taken independent sitting from anything elevated trade case that will be strengthen.
To give delay our client.
Okay.
The security of supply on our side in order to construct.
Yeah.
The facility that we have now operate 18 day.
They're operating basically eight facility in the United States Bay City Chic amendments.
Kathy.
Baytown call Steve shopping cart.
And.
Probably also the blight.
Julien facility so.
This is Ed.
Very.
Yeah.
Strong.
<unk>.
The strongest.
She's done a seamless and whether the Peck state.
This expansion, we see machine base.
<unk> no ground and we will defend it vigorously.
Also in thermal prices you have seen that the biologic increased 98% in the last one year or so.
Indeed condition with Brian diesel.
100%.
Difficult to support.
In Germany also as you know.
The company is taking this moment, scoring.
The results so we will defend our.
North side, you'll see a damping of major leaguers.
Thank you that's very much I appreciate the color there.
So sticking with the with the U S market.
One of the questions. We get a lot is what it would take either on HRC price coming down or welded price coming up to incentivize mills to reactivate there.
Just at a high level framework thinking.
Thinking about your welded capacity, what would you need to see in the market to really justify reactivating any of that capacity.
What you have seen that the prices when the.
Kind of App.
Strongly in this.
Wayne.
<unk>.
The opening of brand for welded pipe and no doubt we will we are planning for <unk>.
The hot rolled coil.
Okay.
Touching appliance and very strong.
India drove M&A, we can imagine if you look at the few tool.
The price of hot rolled coil.
It may go down overtime during 2022% extent.
But the increasing prices.
Well CTG.
He might you will drive that.
Talks about safety still increasing demand.
If we assume.
Considering that our rig count will continue to increase in the coming quarters, we expect that the rig count.
Or other items that we expected that head count in our plateau confirming diesel to <unk>.
And in the range of 100 is an egg from now.
To.
To pick on the second semester of 2022, so inhibiting any good easy market.
For CTG.
Yes.
Yeah.
Price of hot rolled coil.
According to a future gradually get down.
We see that it would be when the pipe coming to the market.
The demand is.
It will be the supply would be tight and.
My view price will continue.
A positive track.
Alright, Thank you very much I'll turn it back.
Yes.
Thank you. Our next question comes from the line of Igor Levi from <unk>. Your line is now open.
Good morning.
So this is the first time in a long time that I remember, where you press release highlighted our offshore improvement in multiple regions and.
If I remember correctly strong offshore business.
This was a key factor.
To push EBITDA margins above 25%.
In the prior.
Higher cycle.
And we've not seen that since 2014, so how much offshore recovery are you guys expecting in.
2022, and if you had to guess how soon can see margin surpassed 25%.
Well.
We're hitting that.
We see the offshore staff political.
All right.
We will see the beginning in this recovery probably more in the starting in the first quarter of next year it will be a niche a rebound.
Got it.
Then the process will continue.
We expect that.
Some of the large project.
We can match to final investment decision that went into that.
22 in effect go.
<unk> also our position on our face a lot of them and that during the second part of the Roundup ready two and 23 eight will take time, we see more interest today.
Offshore is moving in.
Particularly in Latin America.
No.
Okay.
Mexico in that.
Brazil right now.
Yeah.
In D. C. This out of the area that are let's say starting to show signs of recovery.
I imagine that by the 23 or so.
Other region that we're joining that there would be new sizable project.
And we see it.
Africa.
Two final investment decision into execution so slow.
So.
He is recovering.
Great.
Thank you and.
As a follow up to two Congress question on the trade case could could you talk about how much of the U S. Sales are currently produced in the U S and assuming your U S. Mills began operating at full capacity how much of the U S demand your U S demand.
That you sell can you produce locally and are there certain grades of pipe that you just simply cannot produce short half two important thank.
Thank you.
Hello, equal or maybe the line, but knows that his films.
This is down I don't know, maybe Luke I'll kind of man.
And that sort of this question.
We are all together.
Well. Thank you you are wildly this is kelman speaking good morning.
While we.
We covered the lines from one side is let me just say that number one.
Planning calls for us to be absolutely able to supply the existing and growing clients.
As we have announced.
In the last so many weeks we have a current client in place in the U S. That's contemplated the already high enough.
1000 people.
You have about the same number going forward for us to introduce our domestic capability.
Typically you guys do not disclose the origins et cetera.
Need to look at the <unk> SaaS at global industrial system.
Which naturally has built very.
Important.
Domestic.
Production capability.
As we have announced.
Through investments north of $10 billion.
And that's also complemented with production coming from from the rest of the global industrial system and we intent.
We intend to pursue.
<unk>.
In that way hopefully that addresses.
<unk>.
Okay.
Great. Thank you and I'll turn it back.
Thank you. Our next question comes from the line of Alex at all posting from Mediobanca. Your line is now open.
Hi, there. Thank you for taking my questions.
You mentioned that in Q4, you could see a growth of.
In the mid teens range.
And I was wondering probably at this stage you have more visibility on.
The growth in Q1, as well and I was wondering whether that rate of growth can be maybe.
In Q1.
And then maybe as a follow on.
I believe you mentioned that from Q2 of next year you could see.
Positive impact from higher sales in the middle East and West.
I was wondering if you can give us perhaps a bit more color on that recovery that you're assuming at least as well as from next year.
Yes.
<unk>.
Yes, yes, yes, yes.
Sure sure good morning.
While we wait for Paolo I will tackle the second question regarding <unk>.
Middle East, where we see drilling activity continued to be subdued and we are seeing so far their minds recovery the rig count in the Middle East has only increased 5% from the beginning of this year and we're still.
About 35% below pre pandemic levels, but we see this changing we see rates being contracting and.
We expect drilling activity to accelerate.
Towards the end of this year into 2022 in line with our Opex plan to ramp up and deliver higher production levels.
The other important aspect that has been.
<unk> our revenues in.
In the in the Middle East has been the big change in the supply model in the U S.
We are transitioning into rig direct.
There has been some destocking going on and also there has been a gap between the old and new contract.
Wait. So this is also affecting apart and demand for the last few quarters over the next two quarters as well.
In this context.
We expect our sales in the middle East to remain broadly flat compare for the next two quarters compared to their recent.
The recent gross orders might have commented also in the last call, we expect a relevant jump.
Starting second quarter of 'twenty, two and onwards.
A large backlog of contracts.
For the region kicks in.
To give you some color in Saudi Arabia, we have been awarded.
For the Jeff for unconventional development, and we see Saudi Aramco reactivating, some large offshore expansion projects.
In Kuwait, we have already received the first call off they gave us some certainty on the deliveries over the second quarter of next year related to gather more data award that we commented a few quarters ago.
Also the activity in the UAE has been promising rig direct shipments to add mark.
Scheduled to ramp up to the whole of 2022.
We're also seeing some interesting exploration across.
Hey, Jamie rates not only in Abu Dhabi, but also I don't know if I can.
Hi, I'm on chart shop, very complex was requiring a rich mix.
And last but not least Paulo mentioned that in his opening remarks about Qatar.
With our recent large awards in the pipeline in Qatar complemented by our.
Backlog, although CPG contracts.
We remain.
Market will also remains strong for us going into the future. So I believe that starting in the second quarter 2020 do for me that is we're going to be seeing a relevant jump.
And a new baseline from there going forward.
When do you expect thank you.
When do we expect to equity when he called me to pre Covid levels in the Middle East is this something for 2022.
The following year.
Yes in 2022 that jump really shouldn't be getting us back in line with that.
Revenue line over 'twenty 'twenty, even hopefully 2019.
Those levels.
Okay. Thank you.
So going back to the first question about what type of potential.
I don't have any growth in Q1 should we expect a double digit revenue growth.
Beginning of 2022.
However are you Brian I think you hear me now.
We continue to go low.
Okay.
Is that the same comment as I mentioned before.
This means that also in the first quarter of 2022, we would have.
Top line growth in the range of the mid teens.
Okay.
Thank you for the clarification.
Bank.
Yeah.
Thank you. Our next question comes from the line of Frank Mcgann from Bank of America. Your line is now open.
Okay. Thank you very much.
Just two questions if I might one just in terms of what you're seeing you mentioned in your press releases you've mentioned in the past that private.
Producers were the key drivers of a lot of the growth I'm wondering how how thats, how youre seeing that moving forward is that beginning to change youre seeing more of the public companies starting to.
At least marginally open up their spending a bit.
And then in terms of the.
Cost pressures that Youre seeing.
Prices, obviously have been moving up so fast that it seems to have had.
Way more than offset that and that's led to the very strong volume improvements but.
Is are you seeing something different in cost that two or three quarters down the road start to be a concern.
Thank you track well on the first point I would ask Luca Zanotti to Truecar.
To comment on that how are you.
Is a different approach from private company and public company.
The investment.
These times.
Yes, Thank you Paolo good morning, Frank.
Everybody.
Okay.
I mean look the forecast.
Our customers are putting forward are still based on commodity prices that they are not fully affecting the more constructive environment that we are seeing that and this and this and this moment. So these may change going going forward.
As a defense today, we see that.
The price ASP.
Still playing.
The lion's share and these are these capacity increases.
But again, if you read through the large independents.
Public large independents that youll see that.
Suggesting that something may change going forward depending.
On the environment and as I said before that the environment seems more constructive.
And then then in the past.
And then there is also another factor that needs to be taken into consideration that there is M&A.
M&A going on and this also may change.
A little bit.
The outlook.
Going forward.
I hope that these apps.
Thank you, okay as far as the cost.
The concern it's clear to you that we are living through a period of extreme volatility and defend that.
<unk>.
The major movement.
In the cost of metallic and the cost of energy.
What is happening today in Europe.
Yeah.
For instance, in the case for metallic I don't know how to tap a very faster then the decision out of China to reduce steel production full certainty such such a big good.
Size of reduction.
Use.
So if I don't know a substantially now call is getting Apple pay is that correct.
Rising because of the.
The constrain in the bottleneck in the energy sector.
Correct.
Increase then that was coming down in the recent the recent time. So there has been some decoupling between that.
But we're going together before.
So it's not easy to forecast, but for the time being.
The cost.
The proof of Costa.
Theory on the energy.
<unk> is getting into well.
I'll, let inventory and by the fourth quarter I think.
Full effect would be.
Two our cost of sales as you were saying offset by.
The decrease in production in the bad debt absolutely.
If I look at that.
Thank you.
Some of the variable rate became more normal and.
We expect that for instance.
Energy costs.
Cost.
We go down then it may be.
The spring European screening after that.
So.
Even cost.
No.
So breaking thermal reactor and we'd probably have some containment.
The six through disruption.
Steve.
Sure.
In our accounting these would be.
I think fully reflected by the fourth and first quarter it off.
Right.
Okay. Thank you very much.
Okay.
Thank you. Our next question comes from the line of Stephen <unk> from Stifel. Your line is now open.
Thanks, Good afternoon, good morning, gentlemen.
You've answered a lot I was just curious as it pertains to the trade case.
When you think about your domestic or U S based production versus Prada.
Products, which come in from other markets and I know you don't want to disclose the specifics of the volumes, but when you think about the potential price benefit I know in prior cases over years, there tends to be a price uplift in the U S market. If these cases go through it.
What what would be the net impact on your profitability.
Way to think about sort of the interplay between the benefit you get from U S production.
And the offset from from <unk>.
Tariffs coming into the country.
Right.
You are right.
As in the past.
It could be impact on pricing, but as you know the prices coming up in the U S. In the last 13 months months after months of enterprise, we are coming out.
And the strong because last time towards 12% indeed like logic. So that is a trend of increasing price now.
Over this time.
Yeah.
Any constraint on the supply side.
On reduction of import.
Especially in niche product may cause it spikes in these event or something because it could happen, but you.
You May view.
The.
Supply is really tied to and it may impact us inventories at the beginning of this year as it was in the high level of inventory than where to some extent is slowing down the increase in the price because of the inventory went into the.
To put it into the demand and consumption now of inventory went down for four months four five months.
So the level of accessory is no matter what role considering the expected level of consumption. So deep.
This is also something that is it.
Positive impact on price.
Even independents coming from the trade case.
We would see.
Pressure on prices.
And then.
Maybe a decade, they justify some additional spikes in some segments.
Yes.
Samsung.
Okay. Thank you that's good color.
Thank you. Our next question comes from the line of the rationale from Coker Palmer. Your line is now open.
Hey, guys. Good morning, and thank you for taking my question.
Just a clarification question I think you guys guided to mid teens revenue growth for Q, but did you also see mid teens revenue growth again for Q.
Two.
Yes, that's correct.
And that is despite middle east being flat what drives that is it more north America or what drives that.
Wait.
North America for sure a factor, but also I mean.
In Latin America.
There isn't anything you're going to you're going up and the types of oil.
A T S.
Compared to the situation, we had it out there and the price of gas in the U S.
$5 and LNG are all supportive of salmon.
Higher levels of activity.
So this is driving.
Canada.
Factor and what I mentioned driving including price. So there's volume there is trial.
Combination of volume and price demand.
Yeah.
Driving this increase in the top line okay.
Okay. That's helpful. So maybe if I think about your guidance for.
You get that gets you to roughly 425 minute EBITDA.
I assume the flattish margins, even despite you're talking about pricing, we can get to like 475 million EBITDA four one Q <unk>.
Annualize that that's gets you to close to 2 billion of revenues to build enough EBITDA for 2022.
Street is at one 4 billion I'm, just trying to like not trying to pin you down for a number but is there a reason why we should think that EBITDA declines from Q1, but despite higher margin supplemental is coming in or am I missing something.
Yes.
No as you say the supply increase.
In the evening.
For the <unk> that we have.
EBITDA ratio, we remain that.
More or less in the present level at least for the coming quarter and maybe if.
The market maintain it.
Let's say drive and there are no unexpected movement of costs.
We could also add Tom if you can get in the first quarter of next year.
Got it and if I can.
Maybe one last question.
This is like a common question that we get on the working capital. So if you look at your inventory levels of call. It 2.5 billion. This was like if I have to go back to let's say 2018 2019 at <unk> 13, 2014 than net revenues were much higher.
Then we had $2 5 billion of inventory.
As we think about revenues improving in 2020 two how should we think about working capital.
At least in the first half of <unk>.
Well in working capital as I mentioned in the last conference.
We are increasing still increasing our working capital and reduce ingredient prices.
Was mentioning it needs it.
Reflected in the pipe logic, a little show them that we were to have a higher.
Receivable in.
Also in the fourth quarter. So there will be some increase in our working capital in the fourth quarter because of increasing price is important the increasing cost or so so.
To some extent.
We will.
Have some increase in working capital in the fourth quarter.
To support the increased volume of enterprises now.
Today, we are working at a very high level operating data and our level of service to the client.
Implies an important.
The working capital anyway, and then when the volume goes up also our rules and I'm wondering if that's in the system.
At a more demanding attending for working capital because we are activating relative that imply falling since movement of material from one protein to the heat to meet them.
The decline in deepening legacies, so when we grow the level of working capital.
We'd be increasing for the receiver for the prices and to some extent also for the data and the level of.
The inventory that we haven't changed.
A.
I was saying in the last quarter and we are confident that we will stabilize in the fourth quarter.
In the first quarter of 2022.
Okay. That's very helpful and thank you for taking my questions.
Thank you. Our next question comes from the line of Luigi Devin needs from <unk>. Your line is now open.
Yes, without feeling like they can make that density question for me. The first one is on the free cash flow generation.
Elaborate on the Capex for next year.
The second question on the <unk>.
Can you quantify your backlog in the middle East and how this compares to the previous quarter.
And then last question a clarification on the outlook.
Can you quantify how much of the mid teens quarter on quarter to face growth in Q1, 'twenty two would be driven by sizes and how much from volume.
Can you elaborate on why.
ADP will remain flat in percentage quarter on quarter. Despite the strong increase in byproduct. Thank you.
If I understand well the first question about the Capex.
We would expect.
And overall capex.
In the range of.
260 million and the next thing in 2022.
So I think middle East.
Maybe evidence of that.
You could add.
Some.
Comment on these questions.
Yeah. Thank you Paolo good morning Richie.
In terms of backlog in the middle East I prefer not to give a specific figure although it's logical to assume that with a big award over 300 million of motor platform Cathodic, certainly Butler for the region.
He has increased but these are some fixed contracts <unk> contracts.
Our fixed quantities or related to drilling activity over many years. So I think it was more relevant the guidance that we gave before of.
Broadly flat revenues for the next two quarters on a step jump starting.
The second quarter of 'twenty two.
Yep. Thank.
Thank you Gavin and the last question and the increase that we expect for the first quarter of 2000.
I would say that.
So we basically balanced between price and volume.
Driving the day, what we expect of any crazy name.
Revenues.
Okay.
Just a follow up and why with.
That's a six 7% of price increase.
Stability in <unk>.
We remain substantially flattish.
In the high <unk>.
And of course the.
Driven by higher volume.
Thanks.
Yeah.
You are saying why we are.
But you know I mentioned that.
Gradually that costing crazy getting into our cluster of saying, let's say so that he is it rational of course.
Some of these cost pressures like the energy impact in Europe.
Went up to a previous cabinets.
These will enter into oil and they do a lot of our cost of sales.
And then the absorption at these level of Canadian volume will not be enough to compensate entirely for the increasing the expected increase is that.
One that we see today in our call.
That said in Hawaii.
We basically expect.
Margin to be.
Slightly probably slightly higher but not very far from what it rapidly.
Thank you Paul.
Okay.
Thank you at this time I am showing no further questions I would like to turn the call back over to Giovanni <unk> for closing remarks.
Well, thank you Gigi and thank you all for joining us in our.
Third quarter conference call.
We see you soon thanks.
This concludes today's conference.
This concludes today's conference call. Thank you for participating you may now here at Abaxis.
[music].
[music].
[music].
[music].