Tenaris S.A. (TS) Q4 2014 Earnings Report, Transcript and Summary

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. At this time, all participants are in a listen-only mode and we will be facilitating a question-and-answer session towards the end of today’s presentation. [Operator Instructions] I will 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 Operation; and Gabriel Podskubka, the Managing Director of our Eastern Hemisphere Operation. Before passing over the call 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, inline with those of the corresponding quarter of the previous year, 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 the 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 product of this facility. 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 reach a record level of monthly shipment, unfortunately it may be some time before we see an equivalent monthly or quarterly performance. Starting with safety, also we – so we had said back in the first part of the year, we’ve been increasing the number of recorded accidents. We show an improvement in the second part and end of the year we have our lowest quarterly values for our main safety indicator. Overall, our average injury frequency rate for the year improved lightly 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 customer and the communities where we operate. Let me now turn to our operating and financial results for the year. We maintained 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 sales in Brazil through the year. Our operating and net income was affected by asset impairment charges and fell 13% compared to 2013. However, our cash flow from operation was strong and we ended the year with a net cash position of $1.3 billion, after investing $1.1 billion US in capital expenditures and paying out $531 million in dividend. Considering the change in market conditions and the high level of our capital expenditure commitment, 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 shale and deepwater operations worldwide. Sales of OCTG products for US on-shore operation 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 deepwater operations, our sales in the Gulf of Mexico rose significantly year-on-year and in sub-Saharan Africa the rose is 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 deepwater and HBST application. Our Blue Dock 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 shale Mars B product. And we successfully introduced our Blue Quick Seal, Blue Max and Blue Heavy World connection for deepwater and HBST operation in the North Sea in Angola. In the last few months, this success is being complemented by significant contract award for Tengizchevroil operation in Kazakhstan for Maersk UK operation in the North Sea and Statoil Mariner project in the North Sea. In 2015, we are facing a very different market environment. Customers are reacting to the collapse in oil, LNG prices by cutting their investment budgets 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 the improvement in the global economy. Declined rate are accelerating impacted by the higher incidents 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 are working actively for our customer to help them reduce cost 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 with the new environment. We are reducing our workforce worldwide while preserving our key competences and the relation with our communities. The cost of our metallic load are declining and we are optimizing allocation among our plant to take advantage of currency movements and differential operating costs. We are reviewing our fixed cost with a view to making our structure more efficient and are taking action to reduce our investment to 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 unfairly traded imports from Korea continue at the very high level in spite of the trade case ruling, 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 operation, we expect the market would 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 operations will be sufficient to cover these investments and maintain our dividend payment for the year. We believe that we enter this downturn in a better position than our competitor, based on our strong financial position, our global positioning, our extensive customer base and the quality of our product and service and numerous bases. We are also confident that we will emerge from it and we have a competitive position strengthened and fully prepare to support our customers in this new cycle. I will then open the floor for any questions you may have.

[Operator Instructions] And your first question comes from the line of Igor Levi with Morgan Stanley. Please proceed. Q – Igor Levi : Nice quarter guys, especially considering everything that’s going on.

Thanks. Q – Igor Levi : If we compare the current situation to 2008, prices are much lower and EBITDA margins of some of your competitors are in the single-digits. So, how much do you think prices can realistically come down before capacities starts to get shut in?

Well, Igor, thank you for your question. Well, actually, we all see capacity reduction underway at this moment in different part of the year, even in this price environment, it is difficult to support the competitive environment for some of our competitor price went down by around 5% in the last two months. And it’s no do doubt had an impact on the activity level. We think that there will be price adjustment, 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. On the other side, one of the factors that is impacting price is, is the flows of import coming into the United States. I mean, we have seen that this import coming especially from country like Korea that are the subject, it is the been the subject of the anti-dumping case against them in – still entering into the markets, prices, that from our point of view represent a clear dumping and unfair trading into this market. So this is having an impact, having an impact especially on the American industry, but I think it would not go on forever. This is – to some extent, something that will in the end, we have to be considering the coming months and see exists, very carefully how it will evolve. Q – Igor Levi : Great. Thank you and just then 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 you could take to get through the inventories at this time around?

Well, I think this, downturn is structurally different from something that what we see in 2008, 2009. Today, the shale work 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 the ability to react very fast to the signal that came from the price of oil is on the market. So what we are seeing is a very sharp drop in the level of rates. And at the same time we could expect similar reaction if there are changes in the signal and in the price of oil. Having said this, the sharp drop is leaving lot of inventory on the ground. Imports are coming in, production is going down, but still the level of importing of stocks 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. Q – Igor Levi : Great. Thank you for that. And I will turn it back.

And your next question comes from the line of Bill Sanchez with Howard Well. Please proceed.

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, or is that a Tenaris comment or both? I guess, first and then secondly, could you just talk about if 30% is in fact the kind of a total volume decline? How do we think about seamless declines relative to welded? I know seamless held up better, 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. We are – we gave a very broad estimate of the reduction in the market. This was including stock reductions. 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 upper end demand is the reduction in the stocks. This is our view. Based on the estimate that we receive from our client and our estimate on their operation. In this broad estimate, there are very different situations; projects that are not reducing at all the level of investment other areas in shales in the United States, there 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 upper-end 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 import. So the import level of January and February is so high that some of the mills that are operating the welded deal in this information about this and some of our competitors and also we are strongly reducing production. So the upper-end demand for welded is probably lower because of this impact while the seamless upper-end demand is going down at the lower pace.

Okay, so, I guess, Paolo, trying to take all that and just think about the 30% comment, this – if you like, that’s a good proxy for Tenaris as far as 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 a 30%, the 30% decline in OCTG consumption, I just try to assume whether or not do you think that’s the right number to be thinking about for Tenaris here, just I guess, it’s simply put?

No, no, no, well, in Tenaris, there are other products, other areas, other 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’ve clearly counteract the reduction in sales and shale in OCTG that is line pipe in Brazil and Argentina, we are actually producing and we will deliver in 2015, important project, the Rota 3 in Petrobras and two important projects also in Argentina. This will be sensing big recovery against last year. Then there are also industrial products - industrial products. We see a recovery in shipments coming from Europe, so going for instance to the automotive industry. The economy worldwide is on a recovery trend and this is producing some improvement in what we expect a better expectation of sales from other segments of Tenaris.

If I could ask one follow-up maybe for Edgardo, could you help us think about what detrimental 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 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% maybe the ratio.

Okay. That’s helpful. Thanks. I will turn it back.

And your next question comes from the line of Michael Lamotte with Guggenheim. Please proceed.

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, 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 on there. From our perspective in an environment where we’ve seen price adjustment existing and on the margins as price is concerned that range from 10% to 15% and explosive level of increasing imports. We believe that the domestic industry has a solid case and we intend to fight it was we did the regional trade case. Now, the WTO are longer processes. In our experience we’ve seen two to three years timeframe. These are elements where the panel needs to be first of all deal with elements I discussed. So, long story short, Michael, I think, a review petition will start July will have an outcome in about 12 months from there. And that compares to a timeframe 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 terrace will either be upheld no changes, or there could be an adjustments upward in those terrace, is that correct?

That is correct. If the Department of Commerce were to file in fact that the margins are higher not only they will be in the process at that moment, but I think more importantly there will be applied attractively. And in the context of this increased imports, I believe the importers are taking an important element of this, we again are looking at a pricing environment existing dumping margins that has not justified increased level of volumes that we see.

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 is the oil companies are looking to address costs in a more structural manner if they are seeing that Tenaris can do – not just to assisting 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 and 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 pipe to the rigs. Avoid a number of steps that are creating unnecessary costs in all of the lines and reduce working capital in the chain. So, we are working for our clients and looking actually for ways 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 try 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 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 mill. Adjusting to the level of demand that we perceive and we can project reducing fixed costs and we are 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 lower price environment, but it’s also working on our traditional supplier to get same savings. I think we should establish or at least get back to an industry able to realize projects with a lower cost structure and adopted to an environment of lower cost of gas and oil that we can expect for quite extended period of time.

Well, thank you. If I think about the fact that perhaps the price compression on the products you are selling may not be as extreme as what we saw in 2008, 2009, I am wondering in your view as you look at these structural costs, and creating some more competitive advantage there, could they essentially match up? I mean, could you get 10% or 15% of cost out of your system on a more permanent basis. Do you think what those process is?

I don’t want to make a forecast on this. What we have to take into consideration is, one, operating it at much lower level of operation and volume has an impact in the absorption and our cost of funds. Two, some of the improvements we are having in our import like iron ore, or 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 price movement also for our products by June or July, I mean, what we see is, we have an horizon but it’s clear that the crisis and the downturn is very recent. There is not lot of visibility on the dynamics of this and we are seeing the volatility reflected in some of the situation 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 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 SG&A, I mean, we ended up with very low percentage-wise compared to the sales, helped by the logistics cost and some reduction in costs. Going into an environment lower sales in 2015, we’ll probably try to reach a level very similar to the ones that we ended up in 2014. So, roughly speaking, a 19%, 19.5% overall our sales depending very much of the fixed component of the items that are included in SG&A. In terms of the tax rate, taking aside the fact of the improvement, our tax rate in the quarter was 28.7%. We are probably flying for the same rate for the rest of 2015. So it could be probably different quarter-by-quarter depending very much of the effect of the FX exchange. But very much in line with 2014.

Okay, thanks guys.

Thank you.

And your next question comes from the line of Michael Shillaker with Credit Suisse. Please proceed.

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 you’ve having given your thoughts on volumes on mix, because one would imagine that it’s probably a great – the lower end OCTG will actually suffer more, so your volume can be – sort of, 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 this would accreted there are very few companies that goes through a sort of cyclical downturn like you are going through to have the luxury or well managed company to have a balance sheet like you have, but if I think, almost poses a contrary, first question on this, one would imagine you are going to throw off a reasonable amount of working capital, so y our cash balance should actually rise during the year. On the second part of that, is now actually the time to be continuing to build base as we continue 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 at acquiring assets? Thank you.

Thank you, Michael. On the first point, the and the question of, let’s say, how effective will be the lower-end, how effective could be the higher end, it’s clear that the lower-end of the market is more effective in this downturn or at least it’s affecting before, because in the end, the reaction of the shales in the United States is very fast and it’s affecting welded in the first place and low-end products here. Premium, that in many cases it’s associated to long-term projects is more stable and the project that we are involving are not been canceled or paralyzed. 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 stated 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, in 2014, sorry, and having paid dividend. In - on the third question on CapEx, well, remember we have – we are half way in our Bay City project and also 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 investment, but still this will not change structurally our strategy or the basic timing of Bay City. As I was saying in the previous – in the opening remarks, we will get into 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 import in the area. As far as the overall plan, we have a number of project that are coming on stream in March, in April, Mexico, an area in which we have important projects coming on stream and we have a basis of investment also in environments, improvements 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 this part 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, Tenaris has been built in – since in the last 30 years. I personally have been through more or less seven crisis, some stronger, some more deeper than the one we are facing and we come out from every crisis as a stronger company. We have more extended global projections. I think we should also enter into this with the same view, the same spirit. And 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 – 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 – what we expected on the market and look at what – how which opportunities could come out in this environment?

Okay, all right. Many thanks.

Thank you.

And your next question comes from the line of Amy Wong with UBS. Please proceed.

Good afternoon. I have a couple of questions please. The first one is, in the current environment where all your customers - the industry is trying to bring down costs, 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 are seeing right now in terms of your competitors and how they are reacting to this please?

Well, now that German, because the faster reaction is always in 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, you said you recognized 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 logics with a 5% reduction two months after a 7.5% appreciation. But ultimately, Amy, I think, industry recognizes the opportunity of changing the traditional approach of purely unit price discussion. We have in detailed conversations around in ocean of total cost of ownership. In North America, there is 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 are working on. And I think this is what is in the end moving the focus from pure unit prices to the 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 are having close conversations with our customers trying to help them be part of the solution and take out the cost of their supply chain. We are have a price discussion that are typically long-term agreement based on formula some public indexes, but to some extent, a reduction in costs are translated into the customer through some price value. But the majority of the discussions are concentrated in finding the right technologies and how to integrate the supply chain services in a way to take out cost and I think the examples of the recent award 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 environment in the UK are examples in which our dopeless technology had to reduce the cost of drilling and our integrated supply chain services will take out cost out of the supply chain of Statoil. This is the first time that Statoil is taking this approach and these are the types of opportunities that this crisis will offer.

Yes, thank you.

It relates to the Middle East and Africa region, you 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 national of the Middle East very strong; we see they are operating today at 210 rigs, there maybe not reaching 230 that they were planning a few months ago. But we don’t have any indications there a slowdown in terms of drilling activity. We are also seeing the operating companies of Abu Dhabi and Kuwait ramping up the rigs inline with the mid-term targets of our production of oil and especially gas. However this region has a long purchasing cycle and Saudi Arabia is also working on – continues to work on destocking. More so we expect that the paramount achievements for the Middle East in 2015 will be lower. But we are working on and expected toward the next few months in a high tendering activity for this part of the world which will result in higher market in 2016. Regarding the offshore in Africa in Saharan Africa, this is an area where we see a reduction in drilling activity based on the CapEx reduction 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 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 the order pipelines like in Angola or coating personnel services in Nigeria that will partially compensate for the drop that we will see in OCTG in Saharan Africa.

Yes, thank you, Gabriel.

All right, thanks, Gabriel. That’s very kind of you, thank you.

And your next question comes from the line of Andrea Scauri with Mediobanca. Please proceed.

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 do you think about the situation of other players, in particularly in the US market at the back of the current scenario, if you see the opportunity to gain market shares from some of the plant closures from closest peers that are operating in the US? And second question, I understand that it’s very early to speak about – 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 as 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 company with a competitive position that is superior to any of our competitors 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 input very fast in many different parts of the world, the cost of our operation 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 investment realized during this cycle has really 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 recover our market share in some other market, I think, yes. In the case of US it’s clearly against the import, I think the increase in production capability, domestic production capability and also we would say, naphtha within the North American region could put a lot of pressure on import especially on import that are unfairly dumped into this space. This is not development, 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 remains 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 the import. But also worldwide, the success we are having commercially in the complex products, makes me think that we can gain market share in some area and there are areas or markets in which we are recovering share even against lower end producer like China because of quality problems that encountering that the clients 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 these accounts. In terms of EBITDA, I think it’s too early now to have an overall forecast where we can be in 2015. There is not enough visibility for us on our overall volume and the dynamics of the imports in the United States on some of the factors 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.

And your next question comes from the line of Emanuele Isella with Fidentiis. Please proceed.

Hi, good morning everyone. Just one question. I was wondering can you give us an idea of the breakdown of your sales in terms of – to understand the size of the line of pipes and the size of after sales service, just to have an idea for that – what would be like the revenues for the next year?

Well, I don’t think we can the breakdown of our sales in the sense, what I can tell you is that broadly, the segments that are supporting Tenaris worldwide are OCTG is seeing that’s one side, line pipe in application 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 on-shore or off-shore pipeline. The last one is, the very complex line pipeline or the last one, one more segment is the segment of very complex line pipe for deeper water – deep offshore or complex projects of this. And then, the last segment that is quite broad are pipe for industrial use like for airbag, other applications that are utilized in the automotives. Now, the mix between these segments is changing, but clearly, the energy is the driver of probably more than 85 of our sales between OCTG, line pipe, project and complex line pipe.

Thank you.

And your next question comes from the line of Felipe Santos with JP Morgan. Please proceed.

Hi, good morning. In the beginning of the call, you mentioned about initiatives to recover or to increase the company’s market share in US, could you give us some more details on that? And also, is there any other area of interest in worldwide that you consider that should be the time to get advantage of this market and to expand the 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 structured industry, the search for reduced cost for short lead time and so offer big opportunities in substituting import, the production coming from domestic producers. But, German, maybe you can see how which will be our action plan where we putting after this service and so to achieve this.

Good morning, Felipe. Thank you, Paolo. I think, Felipe, another way of saying it is we believe that the naphtha based industrial system ultimately will be able to be synchronize with a customer’s drilling programs. And by synchronizing drilling programs to production programs we will be able as we have experience 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 knock on and that’s ultimately what we are working. So while we are trying to substitute unfairly traded imports, we are also trying to innovate in a way the industry works. Hopefully that explain it.

Yes, because I think that service is something that – is very equal to supply from this. Gabriel, there are areas in your view internationally in which other areas you are going to see that we can get a leeway against our competitor, product or?

Yes, I think there are many areas in there in international market, despite the quarter – opportunities for our technologies, services, grow our relationships, and also the different person will have a local service base as we have in here, a degree of capillarity in the different parts of the world that offer opportunities. So we 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. But in the United States, together with the product and service in this sense of the after sales service that we can give are important differentiator against everywhere.

Okay.

And the next question comes from the line of Diego Mendez with Itau. Please proceed.

Yes guys. Good morning. So just, two more specific questions. The first one on Brazil. We have been hearing that there Petrobras is actually drilling 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 – 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 in that situation Petrobras is not stabilized. There is a new management. The management should re-design or reconsider the investment plan and take a number of actions. We will see something more over time. In the case of – we have the order, we are under producing it. We do not think that this will affect, there could 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 would 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 changing on. Mexico, German, maybe you can give a comment. Mexico is an area in which we will see some reduction in investment, no?

Yes, thanks, 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 the orders 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 around 10 rigs today are not operated mainly affecting the builders in the north area. And I think we are continue to see this delay. There was also a reduction in the Pemex budget of around 120 pesos that was announced. We don’t know at this point in time exactly if – how that’s going to be allocated. We understand it’s going to be allocated much more to the refineries and then to E&P, but, still that has been in there. But we are seeing a reduction of next year versus this year in terms of demand, it’s not as large as 30%. It’s being calculated within the number that we have been seeing worldwide. This is included in this reduction. But I think we are 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. It’s been evaluated, there has been some interest. There has 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 we consider before for this round one which were mainly deepwater and some non-conventional. But within that limitation, the agenda that was presented at the beginning it continues to be implemented. So hopefully we are 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, and thank you all for participating to the call and see you in 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.