Q1 2025 Tenaris SA Earnings Call
Good day and thank you for standing by welcome to the generics first quarter 2025 earnings 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'll need to press star one to one on your telephone.
We'll then hear an automated message advising your hand is raised.
To withdraw your question. Please press star one again.
Be advised that today's conference is being recorded.
Giovanni: I would now like to turn the conference over to Giovanni <unk> Investor Relations Officer. Please go ahead.
Speaker Change: Thank you Liz and welcome to <unk> 2012.
Giovanni: Five first quarter conference call before.
Giovanni: 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 during this call.
Speaker Change: With me on the call today are Paolo Rocca, our chairman and CEO, Alicia Mondello, our Chief Financial Officer Scott.
Speaker Change: Scott, our Chief operating officer, and because you have memorial newly appointed President of our U S operations.
Speaker Change: Before passing over the call to Paolo for his opening remarks, I would like to briefly comment our quarterly results.
Speaker Change: Our fourth quarter sales reached $2 9 billion down 15% year on year, but up 3% sequentially due to higher seasonal volumes in Canada and onshore sales in the U S. While.
Speaker Change: Our average selling price declined due to market and product mix effects with lower sales of a city she premium presence in Mexico, Turkey, and Saudi Arabia.
Speaker Change: In addition to lower sales of seamless line pipe for offshore projects.
Speaker Change: Average selling prices in our tubes operating segment decreased 11% compared to the corresponding quarter of 2024 and 5% sequentially.
Speaker Change: On a comparable basis, our EBITDA rose, 6% and net income remaining language. There is also the previous quarter.
Speaker Change: Our EBITDA margin increased slightly to 24% due to our good operating performance and better absorption of fixed and semi fixed cost thanks to higher volumes.
Speaker Change: With operating cash flow of 821 million in capital expenditure of 174 million, our free cash flow for the quarter was 647 million.
Speaker Change: Following share buybacks of 137 million during the quarter at net cash position increased to 4 billion.
Speaker Change: Up from $3 6 billion at the end of last year.
Now I will ask Paolo to say, if you walk before we open the call to questions.
Paolo: Thank you Giovanni and good morning to all of you I will start a mentoring, meaning a change in our management team and because you have already you know who is with US on the call today is taking the position of president of our U S. Operation you Fatima has more than 35 years of experience.
Paolo: He has led our U S commercial operation.
Paolo: Over the last five and a half years prior of where she was president of our Canadian operation.
Paolo: We wish him all the best in his new position.
Paolo: We began 2000 and.
Paolo: 25 with a good performance in the first quarter.
Paolo: Only did we deliver quarter on quarter increase in sales and EBITDA on a comparable basis, but our free cash flow.
Paolo: It was two $647 million as we achieve a significant reduction.
Paolo: In Canada, we have been consolidating our rig direct strategy with long term agreements, which have given us more stability and visibility in our operation.
Paolo: This winter season, we shipped a record quarterly volume or CTG.
Paolo: In the U S. We had increased deliveries continue to extend the range of services.
Paolo: Our rig direct program.
Paolo: These results reflect the value perceived by our customer and working closely with Pfizer under long term agreements.
Paolo: Seek further operational efficiencies. They include most of the largest trade operator with a longer backlog of tier one acreage at the most resilient operation.
Paolo: In Argentina, we began a private deliveries for the new backend loaded a sewer pipeline, which will add the 550000 barrel a day of additional export capacity.
Paolo: And he is expected to come into operation next year.
Paolo: As local operator increased their investment in this highly productive shale play.
Paolo: We're expanding our new fracking and coiled tubing services.
Paolo: Service unit with an investment in a third set of equipment, which should come into operation next year.
Paolo: Our project backlog for offshore project, a solid <unk>.
Paolo: We expect to have further opportunities. So we have a new wave of RFID.
Paolo: We expect to be sanctioned in 2026.
Paolo: This backlog is.
Paolo: Made up of highly differentiated all CTG line pipe connector and coating products.
Our recent success in qualifying products for high pressure 20, K deepwater project in the U S with shell and BP.
Paolo: And the value we bring through the integration of Shawcor coating technology gave us an edge in tackling future challenges.
Paolo: In the coming months, we will supply line pipe for the dongle and Bonga North offshore project in West Africa.
Paolo: In Australia, we received a multiyear award from Chevron to supply the backfield, whilst for Gorgon and Wheatstone project in Australia.
Paolo: In the Middle East, we made a record quarterly level of shipment to happen, Okay and that our long term service agreement.
Paolo: They started a new shale drilling operation.
Paolo: We also commenced a pipe.
Paolo: <unk> shipments for a major gas processing facility energy.
Paolo: The major cities in the region have long term planning size of cycles.
Paolo: And we expected that their operation, we remain relatively resilient through the year.
Paolo: The last conference call, we mentioned that we were heading for uncharted territories there.
Paolo: Subsequent chain of announcement on tariff and counter study for <unk>.
Paolo: Despite this uncertainty on the global situation macroeconomic and geopolitical situations.
Paolo: This is for the expectation for a lower level of economic activity and lower demand for oil price of oil has been additionally affected by the production increases announced by the OPEC plus.
Paolo: If the price of oil remained near or below $60 per barrel.
Paolo: We will inevitably be a slowdown in North America shale drilling.
While our long cycle sanction process, Florida will likely continue and new project sanctioning.
Paolo: And may be subject to delays as we face these less favorable macroeconomic and oil price environment. We are preparing for lower levels of activity ahead. We.
Paolo: We do so credit position, where we expect to demonstrate the resilience and the solidity of our customer portfolio our.
Paolo: Our flexible industrial and supply chain system, and our solid balance sheet.
Paolo: The longer term the outlook for our industry remains secure in a world where demand for reliable sources of affordable energy will continue to grow.
Paolo: I will stop here and.
Paolo: Open the floor for any questions you may have.
Paolo: As a reminder, if you'd like to ask a question at this time. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Paolo: Yeah.
Paolo: Our first question comes from Alessandro Pozzi with Mediobanca.
Alessandro Pozzi: Hi, Thank you for taking my questions.
Alessandro Pozzi: I think during your opening remarks, you mentioned a potential slowdown in activity in.
Alessandro Pozzi: In the U S. I was wondering oh.
Alessandro Pozzi: Are you already seeing companies pulling back on Capex and I was sort of a let's say level of rig count do you expect now by <unk> death.
Alessandro Pozzi: And you also mentioned that potentially delay what could be maybe a slower.
Alessandro Pozzi: Second.
Alessandro Pozzi: Maybe we need to take some money.
Alessandro Pozzi: Our cost saving initiatives and was wondering if you can maybe give us more color around that thank you.
Alessandro Pozzi: Thank you.
Alessandro Pozzi: Sandra.
Alessandro Pozzi: Effectively as you mentioned.
Alessandro Pozzi: I think that.
Alessandro Pozzi: The changes that are occurring at the geopolitical and macroeconomic level in the USA.
Alessandro Pozzi: Expectation of a lower level of economic activity and also the price of oil in the demand and the price of oil.
Alessandro Pozzi: Reflecting this expectation.
Alessandro Pozzi: And.
Announcement.
Alessandro Pozzi: Either by the OPEC plus.
Alessandro Pozzi: Increasing production the combined effect.
Alessandro Pozzi: As you can see the reduction in the price of oil.
Alessandro Pozzi: If the situation stabilize.
Alessandro Pozzi: Present level and this is something that may or may not happen because everything has been moving very fast in.
In the last couple of months.
Alessandro Pozzi: The action Counteraction and so on tariff.
Alessandro Pozzi: Different.
Alessandro Pozzi: Yes.
Alessandro Pozzi: Have moved.
Alessandro Pozzi: Many valuable.
Alessandro Pozzi: If this situation will stabilize in the price of oil remain in this range.
Alessandro Pozzi: The oil company will have to.
Alessandro Pozzi: Adequate at the level of Capex.
Alessandro Pozzi: The reduced level of cash flow, so we expect that.
Alessandro Pozzi: I believe there will be a reduction in <unk>.
Alessandro Pozzi: It also operation they count, especially.
Alessandro Pozzi: In the area and in the project.
Alessandro Pozzi: Like in the United States.
Alessandro Pozzi: That could be discontinued.
Alessandro Pozzi: Postpone.
Alessandro Pozzi: With less.
Alessandro Pozzi: Effort and change.
Alessandro Pozzi: How deep this could be well as we mentioned in our outlook, we do not expect these.
Alessandro Pozzi: <unk> to impact the second quarter of 2025, we have a pretty solid backlog, we do not expect.
Alessandro Pozzi: It's a major change and we continue to maintain.
Alessandro Pozzi: Estimate.
Alessandro Pozzi: Results.
Alessandro Pozzi: In line or slightly better than what we had in the first quarter by the way we look at the second half.
Alessandro Pozzi: That is.
Alessandro Pozzi: On Saturday we.
Alessandro Pozzi: You may estimate.
Alessandro Pozzi: <unk> in the label.
Alessandro Pozzi: Yeah.
Alessandro Pozzi: The USA.
Alessandro Pozzi: Yeah.
Alessandro Pozzi: But we are confident that the.
Alessandro Pozzi: Project worldwide.
Alessandro Pozzi: Okay.
Alessandro Pozzi: Actually the offshore but also some of the program.
Alessandro Pozzi: The evening of nature or the company will continue independently from the change in the price.
Alessandro Pozzi: Temporary short term price of oil these projects have an ISO now 10 15 year.
Alessandro Pozzi: And I don't really undertaken by comparable.
Alessandro Pozzi: Strong.
Alessandro Pozzi: Our balance sheet and strong financial capability.
Alessandro Pozzi: So there.
Alessandro Pozzi: There is an effect of reduction in activity, we expect a decent in the world of shares.
Alessandro Pozzi: To a larger extent.
Alessandro Pozzi: In the U S and.
Alessandro Pozzi: And especially in the USA in the oil production.
Alessandro Pozzi: No.
Alessandro Pozzi: The gas is supported by the LNG demand, we do not expect such a reduction in gas price of gas also.
Alessandro Pozzi: It has different dynamics.
Alessandro Pozzi: Canada, considering that the drilling activity.
Alessandro Pozzi: There is driven by gas is has the largest share is stronger.
Alessandro Pozzi: More than a 40% 45% of the activity is really driven by gas.
Alessandro Pozzi: There could be a reduction, but mostly driven by oil in the second half or so.
Alessandro Pozzi: The rest of the world.
Alessandro Pozzi: We will see this.
Alessandro Pozzi: Level of price doubled.
Alessandro Pozzi: <unk> lies in the expectation of the economy.
Alessandro Pozzi: And the level of auto get worst.
Alessandro Pozzi: There could be postponement of long term project.
Alessandro Pozzi: There may be launched in 2026, but this is too early to say so.
Alessandro Pozzi: This is a really highly degree of as alternatives. If we look at the second half.
Alessandro Pozzi: And into 2036.
Alessandro Pozzi: And if.
Alessandro Pozzi: If we look beyond the Q1 Q2 and is there any visibility at the moment for Q3 do you think.
Alessandro Pozzi: Initially the lower oil prices could impact Q3 or is it too early or you have that.
Alessandro Pozzi: On how to sacred shape up.
Alessandro Pozzi: As I said before is the price of oil remain at the present level.
Alessandro Pozzi: Round of below $60.
Alessandro Pozzi: Gradually.
Alessandro Pozzi: Got it.
Alessandro Pozzi: Okay.
Alessandro Pozzi: The capex of the <unk>.
Alessandro Pozzi: Company may be reduced and.
Alessandro Pozzi: We will see the first effects.
Alessandro Pozzi: In Q3.
Alessandro Pozzi: But as I say.
Alessandro Pozzi: Steve.
Alessandro Pozzi: Okay.
Alessandro Pozzi: We have high and Saturday on the evolution of demand.
Alessandro Pozzi: Everything.
Alessandro Pozzi: But if they always say that we will start to see it actually in activity in my view.
Alessandro Pozzi: In the third Q of 2035.
Speaker Change: Okay. Thank you very much.
Alessandro Pozzi: Yeah.
Alessandro Pozzi: Our next question comes from Arun <unk> with Jpmorgan.
Speaker Change: Yes, good morning, Paolo I was wondering if you could maybe give us your updated views.
Alessandro Pozzi: How.
Alessandro Pozzi: The implementation of U S tariffs on steel.
Alessandro Pozzi: Is impacting.
Alessandro Pozzi: Will impact your operating results, obviously, we've seen some improvement in price in terms of the pipe logics.
Alessandro Pozzi: Indices and maybe you could also highlight if you've seen any changes.
Alessandro Pozzi: Imports to the U S. Just as the section 232.
Alessandro Pozzi: Orders have been removed as part as part of the implementation of U S tariffs.
Alessandro Pozzi: Thank you.
Alessandro Pozzi: Adam.
Alessandro Pozzi: Well its tariff.
Alessandro Pozzi: As you know.
Alessandro Pozzi: The 232 appliance to steel is today affecting.
Alessandro Pozzi: In part out of operation for our import of steel and some input of pipe into the U S. Even if we.
Alessandro Pozzi: Producer.
Alessandro Pozzi: Almost all of our pipes in the USA, but we still are importing some of the steel bars that goes to our plant and basically it's an average.
Alessandro Pozzi: We estimate that the impact of these in the range of $70 million per quarter of additional tariffs.
Speaker Change: On one side on the other side as you mentioned there the pipe logic is.
Alessandro Pozzi: Moving up and.
Speaker Change: We consider that.
Speaker Change: All in all.
Speaker Change: The price increase.
Speaker Change: You will see reflect the gradually in our contract.
Speaker Change: In the USA will offset this increase.
Speaker Change: This increase in tariff.
Speaker Change: Okay.
Speaker Change: I think this is a.
Speaker Change: Basically the tray.
And what we can expect that I would like to have.
Jeremy: Jeremy that is leading to the Asa.
Speaker Change: Okay.
Speaker Change: To add some comment before going.
Speaker Change: A little more deep into the east.
Speaker Change: One brief mention on now and in part that you are.
Speaker Change: Asking for in the first quarter in part.
Speaker Change: Rina.
Speaker Change: Yes.
Higher level of.
Speaker Change: In product compared to the previous quarter. Some of this has been in anticipation of the comments referred by an import they decided to.
Speaker Change: Yeah.
Speaker Change: Raised the level of impact at this point.
Speaker Change: This happened not only in our sector.
Speaker Change: Also another area ourselves.
Speaker Change: Economy that has been an increase in the stocking and the stocks.
Speaker Change: The economy in the expectation.
Speaker Change: <unk>.
Speaker Change: But we will see depending.
Speaker Change: Depending on the negotiation underway also how these we've level coming forward, but I would ask you to give your animal.
Speaker Change: How about you kind of comment.
Speaker Change: On.
Speaker Change: The evaluation and the reaction of the client.
Speaker Change: To this environment.
Speaker Change: Yes, Thank you Paolo and good morning, everyone.
Speaker Change: You said.
Speaker Change: In the first quarter, we see we saw an increase of imports after four quarters of <unk>.
Speaker Change: That's one of the inputs and the Destocking of the market, we were expecting a rebound and what this become effective in the first quarter.
Speaker Change: For the second quarter, we still expect similar level of a little bit longer and I think that the second half.
Speaker Change: It will depend a lot on what's happening with activity.
Speaker Change: However, we expect that the administration.
Speaker Change: We'll.
Speaker Change: Focus on the purpose of the 232, where the objective is to.
Speaker Change: Increase.
Speaker Change: Utilization of the domestic industry.
Speaker Change: With regards to what you said about activity, we have a good visibility with our clients.
Speaker Change: Because of our rig direct most of them have not.
Speaker Change: So far announced any.
Speaker Change: Drops of rigs however, they are in the build cycle and a license, but we would expect that.
Speaker Change: Got it would be some adjustment starting in the first half sorry in the second half of the year.
Speaker Change: Thank you.
Speaker Change: Great.
Speaker Change: Great and Paul just a clarification, you mentioned $70 million of potential tariff costs.
Speaker Change: Impacts for a quarter, but that would be reflected in your flat EBITDA margin guide already.
Speaker Change: Not affecting your margins per se.
Speaker Change: First of all the 70, maybe in any other quarter that I mentioned on our way to come in gradually during the coming three quarters. So these will be okay and then.
Speaker Change: This is basically will be able will also be.
Speaker Change: Reflected in the accounting due to the Ifr Esa gradually so.
Speaker Change: For different reasons. This is the estimate.
Speaker Change: Running cost that we would have that.
Speaker Change: Arrive there are gradually because theres.
Speaker Change: Now about our entering into our cost of sales gradually and also because it will depend on our ability to expand production in corporate as much as we can reduce imports of steel over time. So is there a broader estimate.
Speaker Change: May materialize in the fourth quarter.
Speaker Change: As an impact in our costs provided that we add.
Speaker Change: Let's say.
Speaker Change: We are not able to.
Speaker Change: Strengthen local production or negotiate.
Speaker Change: Because we don't know where that negotiation, we have Mexico and northern Europe.
Speaker Change: Thanks.
Speaker Change: If there are changes in lease negotiation these made tons out into a reduction potential reduction of the 25% of the total it'll support these specific.
Speaker Change: Sami said that we are bringing to a state.
Speaker Change: Great and then my second question is Paolo Giovanni mentioned, how the net cash.
Speaker Change: Our balance that the company has reached 4 billion. So I wanted to get your thoughts on reinvestment opportunities.
Speaker Change: I believe that <unk>.
Speaker Change: Exhausted your share back buyback authorization and thoughts on potentially.
Speaker Change: At the next.
Speaker Change: Annual meeting in May for the company to re up the buyback authorization.
Speaker Change: Yes, as you say.
Speaker Change: We completed the <unk>.
Speaker Change: Under the authorization that the board of directors had it in the assembly.
Speaker Change: One other point or the J&J is exactly to that.
Speaker Change: New the authorization for buyback.
Speaker Change: 10% of the outstanding shares.
Speaker Change: And then.
Speaker Change: The.
Speaker Change: The new board of director will consider.
Speaker Change: What to do and if to proceed.
Speaker Change: Program that has been.
Speaker Change: Carried on since last year.
Speaker Change: Understood. Thank you very much.
Our next question comes from David Anderson with Barclays.
David Anderson: Thank you and good morning.
David Anderson: Paulo, I certainly recognize all the uncertainty in the second half of the year, but if oil prices just stay where they are and if tariffs don't change from here I'm just curious how youre seeing volumes in the second half progressing here I certainly recognize the U S is more sensitive to commodity prices, but your rig direct model encompass.
David Anderson: As most of the larger operators, who are probably not going to change the programs too much and then thinking about the rest of the world in that mix.
David Anderson: I wouldn't think.
David Anderson: Volume should fall too much in the second half, but could you, perhaps potentially just give us a range of kind of outcomes that you think could happen.
David Anderson: I think it's too early to give a prediction.
David Anderson: Sure.
The decision of the icon payer, but you are right.
David Anderson: In the consideration that our portfolio of clients.
David Anderson: Mainly consisting of.
David Anderson: The major oil company a company that has a larger asset.
David Anderson: Shale.
David Anderson: There are developing data set on the basis of long term program.
David Anderson: Taking the decision with medium and looked at him our eyes on.
David Anderson: Subject to let's say short term.
David Anderson: Import given by the level of cash flow. So they can plan so our portfolio.
David Anderson: Yes.
David Anderson: We have our own stock.
David Anderson: And how is that.
David Anderson: This is I think so.
David Anderson: We expect that we.
David Anderson: Teva.
David Anderson: The decision that they may take or whatever the trend in the market.
David Anderson: Our portfolio client will should be more resilient.
David Anderson: To the rest of the math.
David Anderson: This is.
David Anderson: Also.
David Anderson: The other factor that we need to consider there are component of the supply metrics in the states like import.
David Anderson: There may be subject to a renewal of quarter or others.
David Anderson: Changes in the negotiation with the different counties.
David Anderson: Shipping that are tied to the United States is through that with the new <unk>.
David Anderson: <unk>.
David Anderson: They have no quarter, but they pay that 25%.
David Anderson: But.
David Anderson: I think that amortization, where we keep a close look at the volume coming from these current reset and will consider these in the negotiations. So this is a factor the other component of the matrix supply is also the welded pipe for all local producer.
David Anderson: In this moment the price of hot rolled coil.
David Anderson: Is.
David Anderson: Greed very fast since the introduction of <unk>.
David Anderson: And the pipe logic is increasing but not at the same pace. So there are other component of the supply chain that maybe.
David Anderson: Squeezed in this environment.
David Anderson: And reduce debt.
David Anderson: The pressure of supply and any vitamin of slightly reduce or strongly reducing.
David Anderson: We do not know.
David Anderson: Okay.
David Anderson: I appreciate the color. Thank you.
Speaker Change: And separate question you had mentioned offshore a few times in your remarks I was just wondering within your mix of volumes should.
Speaker Change: Should we expect that offshore component to start growing later this year into 2026.
Speaker Change: Number of offshore developments, starting next year talk about kind of longer program. So it shouldnt be affected I wouldn't think offshore should be impacted here, but I was just wondering if you start to see those volumes coming through your numbers. Later this year into 2026, and just kind of what youre hearing from your customers in terms of that potential offshore activity in 2006.
Speaker Change: Yep.
David Anderson: Thank you David.
Speaker Change: Before passing to grab it.
Speaker Change: Then the question for a review of the offshore landscape.
Speaker Change: I think I'll tell you that the overall invoicing.
Speaker Change: I think from.
Speaker Change: The sale.
Speaker Change: Sale of canal.
Speaker Change: CTG line pipe coating is very rarely are very relevant for <unk>. So it's a very important component of our overall positioning Gambia and Kenya.
David Anderson: Sure. Thank you Paolo good morning, David neither offshore market.
David Anderson: As part of our thing is very important for them and I would say with a high degree of resiliency in an environment of a high uncertainty.
David Anderson: That is absolutely there in this space.
We mentioned in some of your opening remarks. For example, we have been selected to be the supplier of choice for one of the.
David Anderson: Most recently <unk>.
David Anderson: In deepwater.
Would you say shell Bonga project in Nigeria here, we're going to.
David Anderson: Deliver.
David Anderson: Supply of <unk>.
David Anderson: C <unk> and risers, we will also deliver.
David Anderson: Insulation coating services that we will produce in our coating facility in port hardwood in Nigeria, and we're also going to be the leading supplier of all CTG for the 25 was that.
David Anderson: Our required for this development, which is one of the main examples of the contracts with the backlog that we have for offshore which is quite high. He has been an area of strength for that is in 2024 and will be in 2025.
David Anderson: And even with some of these <unk> into 2026, we don't expect the short term volatility in oil price.
David Anderson: Mrs to affect the development of the projects that are already sanctioned.
David Anderson: These projects have been.
David Anderson: Samsung within Ohio Horizon over a long long span a decade or more.
David Anderson: And also it is important to mention that many of these deepwater breakeven had been very competitive in the range of 30 or even.
David Anderson: Lower than that so we expect offshore to be very resilient.
David Anderson: <unk> for the Arris into the rest of 2025 and even into 2026.
Gary: Thank you Gary.
David Anderson: Thank you I appreciate it.
Gary: Okay.
Speaker Change: Our next question comes from Sebastian Erskine with Redburn Atlantic.
Sebastian Erskine: Yes, hi, good morning, Thanks for taking my questions. The first one I just had a question on the on the cost structure I noticed in the first quarter kind of on a large 9% sequential step down in unit labor costs.
Sebastian Erskine: The lesser extent raw materials is there anything specific you could flag.
Sebastian Erskine: Kind of what we can expect in terms of a quarterly cadence going forward to the end of the year.
Sebastian Erskine: Yeah.
Speaker Change: Thank you Sebastien.
Sebastian Erskine: I think that the.
Sebastian Erskine: Yes.
Sebastian Erskine: We have seen a pretty stable evolution of key component is largely.
Sebastian Erskine: The down downward trend for iron ore.
Sebastian Erskine: That's correct.
Sebastian Erskine: Uh huh.
Sebastian Erskine: Lightly following the increasing the health of our coil.
Sebastian Erskine: In the USA, but basically in any environment in which economic.
Sebastian Erskine: Growth.
Sebastian Erskine: The dynamic of the economy.
Sebastian Erskine: Turning.
Sebastian Erskine: More sour we do not see that we should have a cost.
Sebastian Erskine: The impact on the contrary.
Sebastian Erskine: There is an economy has slowed down some of the world we should see some.
Sebastian Erskine: Some reduction from where we are today.
Sebastian Erskine: In our basically our basic input and then.
Sebastian Erskine: You were mentioning the layer and so labor as you know we are in the process of.
Sebastian Erskine: Our structuring of Santos, our operation to increase productivity and to continuously proceeding.
Sebastian Erskine: In achieving savings.
Sebastian Erskine: Increasing productivity in our operation this may have any impact to gradually on our the overall labor cost.
Sebastian Erskine: In our opinion.
Speaker Change: I appreciate it I appreciate the color that thank you and then just a second one on Mexico I mean, the situation sort of appears to have further deteriorated with Pemex.
Speaker Change: Supply that I mean could you give us an update on sort of where you see some movement to the upside in that geography, and given some of the commentary of your peers being quite sanguine negative.
Speaker Change: Well.
Speaker Change: To point on one side.
Speaker Change: We have been able to reduce our exposure to.
Speaker Change: Pemex to operation that allow us.
Speaker Change: To substantially reduce our exposure and new to CDC in the increase.
Speaker Change: In there is actually an hour.
Speaker Change: And now what our working capital and the cash flow.
Speaker Change: On the other side when we.
Speaker Change: We look at the operation or Pemex.
Speaker Change: I maintain the position that I.
Speaker Change: I told.
Speaker Change: Told you.
Speaker Change: In the last quarter I mean, the situational famous has been continuously deteriorating today that are arriving at the level of rigs operation that is extremely low I think we are in the range of 16 rigs.
Speaker Change: And the level of production in the range of 1 million 600 about let us go into the $1 million.
Speaker Change: Or even lower because it has been for few quarter reduction in every month of production. It may slide to be ready for a while but is there so.
Speaker Change: The duration is clearly very difficult, but it might be Louise.
Speaker Change: And sustainable the government.
Speaker Change: Come out and presented a plan.
Speaker Change: For a refinance it to some extent.
Speaker Change: That mix and designing.
Speaker Change: Designing and then energy plan that would bring back resources to Pemex and plan for it.
Speaker Change: Getting back to drilling into development resources, but.
Speaker Change: This is supposed to happen, but we do not know when this plan will materialize for the time being we have we have listened to the precedent.
Speaker Change: Mexico and.
Speaker Change: Expanding the lines of these plants.
Speaker Change: But we do not see the action in Pemex to implement this yet.
Speaker Change: But I am confident that Mexico could not leave pandemics and the situation that it is now and there will be some moment in the coming quarter.
Speaker Change: Action following the planning.
Speaker Change: That is being presented.
Speaker Change: Yeah.
Speaker Change: Thank you very much I'll hand that back now thank you.
Speaker Change: Yes.
Stephen: Our next question comes from Stephen <unk> with Stifel.
Speaker Change: Okay.
Speaker Change: Thank you good afternoon, and good morning, everybody.
Speaker Change: Oh excuse me.
Speaker Change: Sure.
Speaker Change: So I had a question about the raw material costs in the U S market versus the pricing and I'm, just sort of thinking back.
Speaker Change: Prior periods, where.
Speaker Change: When the market was strong enough.
Speaker Change: Raw material costs were higher.
Speaker Change: I think generally.
Speaker Change: More than offset the increase.
Speaker Change: And.
Speaker Change: And today, it's a little bit different with the with the potential for lower activity.
Speaker Change: Do you think those two items balanced themselves out in the second half of the year like do you think you can you can you can manage to hold margin or do you think the <unk>.
Speaker Change: Input costs in the case of potentially lower demand will will be a headwind on margins in the second half of the year.
Speaker Change: Yeah.
Steven: Thank you Steven frankly, I do not think of that.
Speaker Change: Our main concern in this moment.
Speaker Change: Should come from raw material.
Speaker Change: The all in.
Speaker Change: The victory.
Speaker Change: The change of the retaliation.
Yeah.
Speaker Change: The uncertainty on the receipt broker tariff.
Speaker Change: Creating some gap between the price situation within the United States and the pricing in the international market. This is very true for the hot rolled coils to some extent also for the.
Speaker Change: <unk>.
Speaker Change: This crap.
Speaker Change: Some raw material.
Speaker Change: But in this moment I would say our concern is more the overall level of economic activity and the risk of a recession and.
Speaker Change: The downward trend in the overall level of.
Speaker Change: Activity. This is it more of a concern.
Speaker Change: So.
Speaker Change: We have five these sharp operating role in the world Some operating in the state one in the states. The other in other regions in Latin America.
Speaker Change: In Europe.
Speaker Change: And.
Speaker Change: I think we can manage.
Speaker Change: That change in the value in these gaps from the prices internally in the states or outside in the rest of the world.
Speaker Change: Also.
Speaker Change: <unk> is a highly differentiated product.
Speaker Change: A.
Speaker Change: Raw material to have an impact on our overall cost.
Speaker Change: He is not the same impact that you may have seen.
Speaker Change: Companies that are focused on lower value added product like longer or flat product.
Speaker Change: Some extent so.
Speaker Change: It is important but in this moment I don't think this is our major.
Speaker Change: Sure.
Speaker Change: Yeah.
Speaker Change: Great.
Speaker Change: Thank you.
Speaker Change: The other question I wanted to ask about.
Speaker Change: Given the rig direct model. That's in place can you just give us a sense for if we do see.
Speaker Change: A reversal and price at all as a result of lower activity.
Speaker Change: What's sort of a timing on when we would see that start to get start to show up in the numbers would it be third quarter would it be later.
Speaker Change: Just based on sort of the rig direct model and sort of the.
Speaker Change: The relationships you have with your key customers.
Speaker Change: Well this is a.
Speaker Change: Question on that is not easy to project in the second half it also because of.
Speaker Change: The change in thought as downside to any quarter, what will be U S administration due to limit importing to the states. This is a very important factor to determine the dynamic up to now.
Speaker Change: We are seeing the pipe logic growing.
Speaker Change: Slowly, but moving on even.
Speaker Change: This this mindset.
Speaker Change: Maybe.
You can add.
Speaker Change: Yes.
Speaker Change: Some color on the factors that may influence that.
Speaker Change: Pricing in the medium term.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Since the beginning of the year.
Speaker Change: The prices in the market have increased.
Speaker Change: Like 10%.
Speaker Change: As you know we have discussed in previous calls.
Speaker Change: Because of the deployment of our.
Speaker Change: Long term agreements we have some in Asia.
Speaker Change: So we don't expect any in case there is a reduction in the prices, we don't expect any impact in the third quarter and eventually.
Speaker Change: It could start to affect going through our P&L in the fourth however, I think it's too early to say.
Speaker Change: I think we said before still.
Speaker Change: We have not cut it for many of our clients as a reduction in debt activities, though we are expecting them to come out, but I'll leave with that.
Speaker Change: Some maybe it may I think that in one months, we'll have a better visibility.
Speaker Change: The other decisions about the second half.
But I don't see any impact on the commentary I mean due to the nurture our formula.
Speaker Change: In third quarter. It will go up because so but so far we have seen that increase.
Speaker Change: Thank you. Thank you.
Speaker Change: Our next question comes from Derek <unk> with Piper Sandler.
Speaker Change: Hey, good morning, just to kind of wrap up all the conversations around tariffs and the impact on pricing and obviously, we have an activity outlook has deteriorated over the last three months I remember last quarter, you discussed, reaching a 25% margin target in the back half of the year. Obviously, we now have this potential activity or all of the U S.
Speaker Change: But considering the pricing increases considering the tariffs are going to keep an eye on section 232 quarters do you still think 25% EBITDA margin is still a good target for the second half of the year.
Speaker Change: Well I think Manny thing happened.
Speaker Change: Wayne.
Speaker Change: That explanation in today.
Speaker Change: Changes in advanced substantial today, we're looking at the price of oil in the range of below $60.
Speaker Change: No doubt, we will have an impact.
Speaker Change: On us.
Speaker Change: Still considering all the factors that we mentioned stability of our portfolio.
Speaker Change: The differentiation in the gateway in the market that could be most affected.
Speaker Change: They slowed down.
Speaker Change: I think we should be able to maintain our.
Speaker Change: Over time, I would imagine between the 2020 five but.
Speaker Change: Okay.
Speaker Change: We will be difficult today.
Speaker Change: Stay at the 25.
Speaker Change: Our percent margin rate.
Speaker Change: With this environment in the second half of this year, but we will still stay let's say.
Speaker Change: Within the land and the.
Speaker Change: This range.
Speaker Change: Looking at the environment as it is today.
Speaker Change: Okay I appreciate the color of the comments there and then just maybe if we can expand so the North America revenue was up 10% quarter over quarter I know that includes Mexico. Obviously, it's your region has clearly deteriorated so surprised to see the strength. There you talked about Canada seasonal recovery, but you also mentioned the increase there.
Speaker Change: Through U S rig direct is just wanted to get your take maybe if we can expand on that have you seen maybe a frontloading of budgets as your largest E&P operators look to.
Speaker Change: Two.
Speaker Change: To order steel or CTG ahead of the tariff impact potentially potentially other impacts that could be coming throughout the year. Just maybe some thoughts on why you had such a strong quarter for North America, driven by the U S side, just considering actually it was such a drag.
Speaker Change: No no.
Speaker Change: Our business model, we sell.
Speaker Change: Direct we invoice directly when they use the type of the rig and today more than 95% of our client that operating debt on this asset.
Speaker Change: This way so.
Speaker Change: In the end we are copying.
Speaker Change: Very precisely the exact level of operation there is no room for anticipating.
Speaker Change: Stocks in most of our assays that are maybe line pipe, but also in this I don't think.
Speaker Change: The company had the space for.
Speaker Change: Thats a anticipating.
Speaker Change: Anticipating all of it. So we are just following copying the curve or the TVT.
Speaker Change: Our current has been resilient I mean, the level of their operation after consolidation by the different company has.
Speaker Change: Some extent there'll be solid now in Canada, we had a record season for us.
Speaker Change: It's been a record quarter in the record season also for Canada in Canada. The level of drilling has been the high our rig direct.
Speaker Change: In Canada is expanding so also in Canada, and we are coping with.
Speaker Change: Level of operation, we do not see any anticipation of sales now.
Speaker Change: Okay.
Speaker Change: On these ground, we are making our forecast for the second Q and is it a positive forecast because we have a portfolio. We have these stability we can predict.
Speaker Change: We think pretty well the combination of volume and price in that region.
Speaker Change: When we look.
Speaker Change: In the second half of the year this.
Speaker Change: This is much more difficult because the company will recalculate.
Speaker Change: But I believe during the coming three four months.
Speaker Change: And then maybe reorganize.
Speaker Change: Some of the development.
Speaker Change: And we will see this happening but.
Speaker Change: Probably during.
Speaker Change: The quarter to the second quarter were at the end of the second quarter, we will understand about the perspective for the cyclical. We will also better understand your administration will limit import to some extent.
Speaker Change: And if.
Speaker Change: The expectation of the economy and the oil will continue to be as they added today, which is a.
Speaker Change: Let's say.
Speaker Change: Pessimistic.
Speaker Change: Okay.
Speaker Change: Point of view for the future.
Speaker Change: Great. Thanks for all the comments I will turn it back.
Speaker Change: Our next question comes from Jamie Franklin with Jefferies.
Speaker Change: Yes.
Jamie Franklin: Hi, there. Thank you for taking my questions. Just a couple of clarifications. So I wanted to come back on costs. Firstly last year at <unk> results, you gave that target for $200 million cost savings to be realized 125 could you. Please quantify approximately how much of that has already been recognized as of <unk> <unk>.
Speaker Change: Five results.
Speaker Change: Regarding the decline in sales in South America in the quarter.
Speaker Change: This release mentions lower prices in Argentina could you. Please just elaborate on that on any further color you could give us on possible timing of orders in Argentina. Later this year. Please thank you.
Speaker Change: Thank you.
Jamie Franklin: Jamie on the first point.
Jamie Franklin: I think we have been able to capture more than half.
Jamie Franklin: Of the 200 million saving that we planned in the middle of last year.
Jamie Franklin: This is coming from different sources.
Speaker Change: Do you think there is a fee.
Jamie Franklin: <unk>.
Jamie Franklin: In our plant.
Jamie Franklin: Some reorganization of our supply chain.
Jamie Franklin: Also reduce the cost of inputs and we are proceeding and we expect that.
Jamie Franklin: This will contribute to India and it will contribute to our margin because these savings are getting into our <unk>.
Jamie Franklin: <unk>.
Jamie Franklin: Cost of sales overtime not immediately because this is the logic of it.
Jamie Franklin: The.
Jamie Franklin: So we will proceed in the sense that.
Jamie Franklin: And we think we get the expected reduction.
Jamie Franklin: The second at the end of the second.
Speaker Change: Talking about Argentina.
Jamie Franklin: The overall level of.
Speaker Change: The price set.
Speaker Change: What is going down is the mix because we are combining.
Speaker Change: Line pipe project.
Speaker Change: CTG in the line for a project that we have lower.
Speaker Change: The level of price for these these are welded product like that.
Speaker Change: Neil.
Speaker Change: They most line pipe project vessel.
Speaker Change: In the case of the CTG.
Speaker Change: We are reflecting it.
Speaker Change: But before more or less in the majority of our contract.
Speaker Change: Considering the pipe logic is a key factor one of the factor that out.
Speaker Change: Other.
Speaker Change: In some of the contract, but mainly these will be pipe logic and so for instance.
Speaker Change: We may see increase.
Speaker Change: Of.
Speaker Change: Some percentage volumes entities.
Speaker Change: There had been a change of mix in Argentina, because the.
Speaker Change: In the Bakken well out of the space has been increasing at a today in that Angel above 43, 44, I think now.
Speaker Change: They were.
Speaker Change: The range of 31.
Speaker Change: One and a half ago two years ago. So the increase is there.
Speaker Change: If I calculate it.
Speaker Change: But in the southern part of the country.
Speaker Change: Right.
Speaker Change: And then the other company has been sort of selling assets.
Speaker Change: Less productive asset to focus on.
Speaker Change: And this has reduced the number of rigs operating in the south So when you look at the overall number.
Speaker Change: You'll see them.
Speaker Change: Pleased that it appears to be more limited and probably also during the rest of 2025, we will see.
Speaker Change: The slight.
Speaker Change: The slight increase in the in the in the level of rigs.
Speaker Change: But in term of price.
Speaker Change: I think overall, we will follow the pipe logic and you would see these.
Speaker Change: Apart from the mix between welded and seamless.
Speaker Change: That's great. Thank you.
Speaker Change: Okay.
Speaker Change: Our next question comes from Daniel Thompson with BNP Paribas.
Daniel Thompson: Hi, Good afternoon. Thanks for taking my question just a follow up on the shareholder returns come in and thinking around the balance sheet. Obviously the share price has taken a significant step down on the lower oil price environment has already given you a positive longer term outlook.
Daniel Thompson: Buybacks could represent one of the most attractive uses of cash here. So I just wondered.
Daniel Thompson: How the lower share price factors into your thinking on repurchases and the pace of this pit.
Daniel Thompson: Purchases that you've demonstrated under the existing program.
Daniel Thompson: Relative to maybe wanting to maintain a more defensive cash.
Daniel Thompson: Cash balance into the potentially weak.
Daniel Thompson: Period, and second one is a bit more straightforward just on the mechanics of any reauthorization.
Daniel Thompson: What is the timeline.
Daniel Thompson: Between.
Daniel Thompson: Any reauthorization being issued in May and actually beginning with the implementation.
Daniel Thompson: Of the buyback.
Daniel Thompson: Any subsequent approvals required after that may meeting or not thank you.
Daniel Thompson: Thank you.
Daniel Thompson: As I was saying before.
Speaker Change: The extension of the authorization of buyback easing the agenda of the General Assembly. We are expected to be approved then we'll be up to the new board of director to consider.
Speaker Change: The different in fact of the situation perspective for eventual acquisition possible use of cash.
Speaker Change: The site, which course of action to take we will bring all of these evidence too.
Speaker Change: To the board.
Speaker Change: And after the <unk> salmon in the assumption of the New authority and the board the board will consider these.
Speaker Change: C, which is the best use of the cash that we have in the company.
Alright, thank you.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: That concludes today's question and answer session I would like to turn the call back to Giovanni <unk> for closing remarks.
Elyse: Thank you Elyse.
Elyse: Well, we would like to thank you all for joining us today in our conference call. Thanks.
Elyse: This concludes today's conference call.
Elyse: Thank you for participating you may now disconnect.
Elyse: Okay.