Tenaris S.A. (TS) Q1 2019 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Q1 2019 Tenaris S.A. Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today’s conference, Giovanni Sardagna, Investor Relations Officer. You may begin.

Thank you, and welcome to Tenaris 2019 First Quarter Conference Call. Before we start, I would like to remind you that during this conference call, we will be discussing forward-looking information, and that our actual results may vary from those expressed or implied during this call. With me on the call today are Paolo Rocca, our Chairman and CEO; Edgardo Carlos, our Chief Financial Officer; Guillermo Vogel, Vice Chairman and member of our Board of Directors; German Cura, Vice Chairman and member of our Board of Directors; Gabriel Podskubka, President 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 quarterly results. During the first quarter of 2019, sales were $1.9 billion, in line with the corresponding quarter of last year and down 11% sequentially mainly reflecting no deliveries of offshore line pipe for East Mediterranean gas projects and the slowdown in the U.S. and Canadian markets. Our quarterly operating income at $259 million, which benefited from a $50 million recovery of tariffs paid on the imports of steel bar into the U.S., was 22% higher year-on-year on a similar level of sales. Other selling prices in our tubes operating segments were up 13% compared to the corresponding quarter of last year and up 2% compared to the previous quarter due to a more favorable product mix. During the quarter, our working capital declined by almost $200 million, mostly reflecting a reduction in receivables and inventories. Our free cash flow amounted to $462 million and our net cash position increased by $281 million to $766 million at the end of the quarter. Now I will ask Paolo to say a few words before we open the call to questions.

Thank you, Giovanni, and good morning to all of you. In this first quarter of 2019, we improved our cash flow performance, reducing our working capital and generating a free cash flow of $462 million, equal to 25% of our sale. With this said, we increased our net cash position to $766 million at the end of the quarter, even after paying for the controlling shareholding Saudi Steel Pipe. For several months now, we have been focusing on this aspect of our operation, and we are pleased to see the results coming through. Financial strength is an important differentiator for Tenaris in today’s volatile world and one which enable us to take advantage of the new opportunities that are opening up in our center. As we mentioned in our last call, we are entering a new phase of expansion in key markets for the oil and gas industry following several years of organic growth which culminated in the construction setup of our Bay City seamless pipe mill in Texas. Now in Saudi Arabia, we are working hard to integrate and upgrade, get better performance of the welded pipe facilities we acquired worldwide in January, and we opened up new market in the region. In the U.S., we recently announced the conclusion of an agreement to acquire IPSCO Tubulars, subject to the corresponding regulatory approvals. This investment would add to the USD 8 billion we have invested in the country over the past 15 years, supporting the growth and efficiency of the U.S. energy industry and building a solid U.S. manufacturing footprint. The acquisition and subsequent integration of IPSCO will complete our geographical deployment in the United States and expand our product range produced domestically as well as our product portfolio. With the couple that’s in shop, we will enhance our vertical integration in the country, while that it is a strong product and geographical complementarity between our Bay City seamless mill and IPSCO’s Ambridge small-range seamless mill in Pennsylvania. And IPSCO’s extensive welded pipe heat treatment and finishing facility throughout the country will complement our industrial facilities in the South, allowing us to reduce time-to-market and improve service to our customers. We value the team at IPSCO, and think that they will be an important addition to our U.S. human resources. So with the integration of the companies, we will be able to generate ample industrial and logistic synergies and have an even stronger platform to promote efficiencies and improve service to customer throughout the country. This year, even in the first half there is a slowdown in the offshore – onshore North American market, in the rest of the world and in offshore market, we are seeing steady growth in the activity. We are winning important awards for deepwater projects in Guyana, China, in one of the first deepwater project, the Lingshui project by CNOOC. And on the both side of the Gulf of Mexico, American and Mexican side, we have awards for exploration and development campaigns for several major oil companies. Tenaris in 2019 will be committed on all fronts in supporting our customer with full digitalization of the supply chain, in strengthening our industrial system with advanced automation tools to improve safety, quality and productivity and in executing our growth initiatives. In closing, I would also like to mention that we were recognized by the worldsteel as a Steel Sustainability Champion for the second consecutive year. This is an important recognition of the contribution made by our people in this very relevant area for our long-term strategy. Thank you, and I will take any question that you may have.

[Operator Instructions] And our first question is from Igor Levi from BTIG. Your line is now open.

Could you talk a bit about your relationship with Oxy And Anadarko, especially in relation to Rig Direct? And how the deal could affect your competitive position?

Thank you, Igor. I think we have a long-term, very good relation with both companies. But I would ask Luca to add specific comment that could be related to our Rig Direct division development in this.

Thank you, Paolo. Good morning, Igor. Anadarko and Oxy are both big customers we have multiple relationship with, not only in the U.S. but also outside internationally. And not only on OCTG but also in other product line. And we are working with both of them to implement our strategy. So frankly, it’s new to this acquisition, provided that this went through because as we all know, it’s still under, let’s say, negotiation.

And then just to follow up. You mentioned some activity reductions in the U.S. in Rig Direct customers. Could you remind us how much of the U.S. market are in Rig Direct? And does that differ by basin? And is there an opportunity to improve your Rig Direct exposure in the Marcellus with the addition of IPSCO’s seamless mill?

Well, what I’ve mentioned in my remarks is the activity in general is subdued in this first semester on 2019. We see this in the level of rig count, but I was not referring to our Rig Direct. Our Rig Direct continue to expand. We are above the 60% that we mentioned in the last conference call, and we will continue to advance in the introduction of this way of serving the client in an integrated way. And we really think that this is very relevant for increasing the efficiency and the ability of the company to pursue their target of improved efficiency and cost reduction in their operation. Now as far as the second point that you mentioned, we expect from the IPSCO acquisition strong to complete our geographical deployment. And we consider that this will enable us to expand the range of products that we are supplying today in our Rig Direct in some region but also to add and serve and offer alternative in different region. Over time, also on the note, we need to understand fully the position of the client, their willingness to enter in this level of service and their logistic constraint. But I think that geographical integration is one of the main issue that we will pursue with this integration – with this acquisition with IPSCO.

Great, thank you I’ll turn it back.

Our next question is from Ian MacPherson from Simmons.

Alright, thank you. I wanted to ask about the international outlook. It looks – it sounds from your guidance that the second quarter will roughly resemble the first quarter, excluding the one-time tariff benefit. But I wonder if you look beyond the clouds in North America, if you have any visibility for improving sequential business momentum internationally in the second half compared to the first half, or if you expect more of a flat trajectory to the year at this point?

Thank you, Ian. What we see there, clearly, we will not repeat the extraordinary sales set to the line pipe business in the Mediterranean of last year. And also, we will have to face a reduction in Canada. That is the one that you see in the rig count in Canada in this month. Now we will compensate it, to some extent, for recent – with the addition of sales from our acquisition in Saudi, with additional gradual expansion of activity in Mexico. And there will be also some this what we call the state of recovery that is under way in different geography of the Eastern Hemisphere. I will ask Gabriel to give an indication what we will expect on this.

Yes. Thank you, Paolo. Good morning, Ian. In fact, as we are seeing a gradual recovery in drilling activity in international markets, in the Middle East, Saudi, UAE, Kuwait, they’re pursuing aggressive gas targets fund. They are seeking self-sufficiency, order placement and even exports. We also see Qatar ramping up for drilling in the – trying to take advantage of their North Field and expand their LNG position. We see India moving also into offshore developments. Noticeable also, the activity and the efforts of the Chinese NOCs boosting gas production in the country. So overall, there is an improvement in drilling activity. They’re all seasonal and dynamic area where we’re seeing some comeback for exploration and some large projects coming on stream, like for example, Equinora Mariner. So overall, the environment is slowly getting better. And with our technologies and our local position as service capabilities, we are well positioned to take advantage of this positive trend. As you were saying, probably the second quarter will be in line with the first one, but we will start to see some of the impact of this recovery with increased shipments during the second half of the year, especially in the OCTG front, including also the addition of SSP into the portfolio.

Yes. In general, we mentioned in our outlook, we expect the second quarter to be more or less in line with the first quarter. Now we do not have full visibility on the second part of the year. And I personally think that the price of oil stays in the range in which it is today. It’s not clear to me why some of the large, independent and the major in the U.S. shouldn’t come back to some additional investment in the second part of the year. But this is not something that we have clear indication or visibility today. We will see, I think, over time. Some of the decision to retrench has been taken following the reduction of the price of oil at the end of last year. But today, it looks to me that the situation, to some extent, has changed. And maybe in the second half of 2019, this may influence investment decision of the oil company also in the United States apart from a steady, gradual recovery that we may see in international and in Mexico as I mentioned initially.

That’s very helpful thank you everyone. For a follow-up question, I wanted to ask about IPSCO. I assume that you’re still tracking a close to the transaction in the second half. I don’t know if you could be any more specific on that yet at this point. Maybe not. But also, one of the things that strikes me about the deal, like Tenaris, they run at a very high utilization on the seamless capacity, but their margins are quite a bit weaker than yours are. And I think we’ve been making our own guesses as to what the synergies could look like and how much margin accretion you could achieve on their business. And I wanted to see if you could speak to those synergy opportunities yet at this stage. Thank you.

Thank you, Ian. As you say, we are actively working for the closing of this deal. We expect this to come in the coming months. We are very confident that this will get through. As far as the synergies are concerned, there are, as I mentioned in the beginning, synergy that comes from the geographical integration. There are synergies that comes from the complementation of the portfolio of product. The IPSCO Tubulars has developed products that are – that fit with the need of some of the client, that we think the complementation with our portfolio is also important. And we think that there are synergies in the industrial segment. This comes from knowledge sharing. Tenaris is a large company, very experienced in this. We think there is synergies coming from this. If I should say which could be the relevance of this for 2000 – over time because this is not something we can get immediately, but over time, in 2020 and looking forward, we may expect above the 100 basis points on our margins that should come from the synergies that we think we can achieve, and then we will see when we will have a very clear understanding of what we can do in terms of logistics. And so if this is – let’s say, could be enhanced over time.

Great. Thank you, Paolo.

Thank you. Our next question is from David Anderson from Barclays. Your line is now open.

Just a real brief follow-up on the IPSCO deal. Are there any concerns at all in the trust side? Do you think you’re going to have to make any divestitures? Or do you feel pretty confident this can go through?

No, we are very confident that the deal will go through. The U.S. market is an open market, and this seem to represent more than 60% of the market. We expect the deal to get through, as I mentioned before. We don’t know exactly the timing for this, but as I was saying, this should happen in the coming months.

Say, different subject altogether. Gabriel, you were talking a little bit about the international markets. I wonder if you can just focus just a bit more on just the offshore side. So important part of your business, this – over the last couple of weeks, we’ve been hearing about order books increasing offshore, rigs going back to work, new FIDs potentially being announced. OCTG is also long lead time item. So I’m curious if you’re starting to get those inquiries from your customers on some of the – excluding the line pipe but just the more normal OCTG business. Are you certain to get those increased? Would you start to expect to see orders in the back part of the year? Can you give us just a flavor as to what you’re seeing on that from the offshore customers, please?

Yes, David. Yes, in fact the offshore is starting to move. We gave a guidance, more or less on the plus 10% in terms of drilling activity. And we are starting to perceive in the tendering books and the FIDs, this increase every month. As I commented before, part of this will be seen in the second half of this year and also into 2020. These projects are – typically, they take time to be conceived. And the lead times, this is not a market that moves as fast as the U.S. So this is starting to see a gradual recovery. And indeed, in some of the high-end products like high chromium steel grades, we are starting to see some tightness in the market, so lead times and pricing in those – some of those niches associated with offshore are starting to be tighter than what they were a few months ago.

Is it fair to say that’s a 2020 event in terms of seeing that improvement in that market?

Yes, mainly 2020, with some early signs towards the end of 2019.

Yes. I mean we’ve got some relevant order, for instance, in India that will occur in 2019. And also, in some other geography, I think some of this could appear in, the activity in the Gulf of Mexico. I would ask Luca because he’s near in which we are being successful and in which also the level of activity in our view will occur.

Yes. Thank you. Now yes, In the Gulf of Mexico, we see – as we all see and all are seeing before, an uptick in activity. Of course, this is talking about 2020. But we also are being successful in gaining long-term contracts with major operators on both sides. So the U.S. and the Mexican Gulf. And this is basically is being based on our technology but also the Rig Direct played a key component in Aza, winning this business. So bottom line, we are expecting 2020 to start showing improvement – significant improvement in the Gulf of Mexico.

Yes. And on the Mexican side of the Gulf of Mexico, as I mentioned, a number of tender has occurred. We’ve been very successful in many of them. We are expecting Mexico, the activity really will be moved on – will occur mainly in 2020 and – let’s say in the last quarter of 2019 and in 2020. In Brazil, we also expect activity to pick up during the second part of 2019, where we’ll see some activity from our point of view and in 2020. So in the different scenario, we see activity. Now in West Africa, I think tube steel, there is not so much moving on apart from some indication of Tyvek in Angola, but we see that this may happen maybe in 2020, not in 2019, and in some case even, 2021 later on.

A separate subject, and maybe I’m also point – looking at you, Gabriel, as well on the Middle East. Activity is picking up across much of the region. A lot of it is very gas-related. I was wondering if you could talk about how that market is developing for you. If it’s gas, I’m expecting it’s going to be premium pipe as well. That should mean very high demand. Of course, you have now have your Saudi JV as well. And so I’m just wondering if you could go into a little bit more details on the potential restrictions in financing? And what you think the outlook would be over the next six to 12 and 18 months?

Yes. David, indeed, the gas activities is very keen in the Middle East. Saudi is trying to – as I was saying, to even export gas. They have ambitions now, over the next five years, to become an exporter of gas. Self-sufficiency in UAE, self-sufficiency in Kuwait. All these gas is associated with either deep wells or corrosive gas, so it requires special steel grades, it requires premium connections. So it’s comparable to the rich premium of the offshore. So for us, they are very important differentiated segments. We believe SSP will play a role because SSP is covering the larger hold today of these wells – of the completion of these wells. And this pertains both to gas and oil. So today, Aramco is using the products that we manufacture at SSP, both in oil and gas. So we opportunities for this to expand in Saudi and in the region because of course, there is a logistical lead time advantage over the GCC manufacturing in Dammam, in Saudi. So we’ll see about the timing about your 12 months. Hopefully, we have always aggressive targets to expand the capability of our plant. We will see if that capability will take a bit longer than 12 months. But certainly, as you know and we have discussed, the plant is working at above 50% of its capacity, so one of our main opportunities would be to expand it in Saudi and in the region. So we’ll see how that will play.

Our next question is from Frank McGann from Bank of America. Your line is now open.

Just if I could follow up a little bit on your comments in the release on Mexico overall. You sounded a bit more cautious than you had in the prior couple of quarters. So I was just wondering if you could go into a little bit more details on the potential restrictions in financing? And what you think the outlook would be over the next six to 12 and 24 months?

I’m very positive on Mexico. And what we have seen from the international oil comp and in the private company has been positive. Drive for advancing the project. It’s also true that Pemex is in a tight financial situation. So they need to be – the government needs to act on this. Guillermo, maybe you can add some color on this? On also on the – and on the financial situation that we can expect?

Sure. Good morning, frank. Yes, the government has a very, very strong political commitment to strengthening Pemex. And they have the vision to take – to stop the decline in oil production this year in 2019 and then to take it to a level of 2.4 million, 2.5 per day by 2024. And I think that they’re going to take the steps necessary to achieve that. And we are seeing already, within today, that they are increasing the number of rigs that are active in Mexico by Pemex. This – we expect a nice increase in the rigs next quarter – or this quarter versus last quarter. They have also assigned already five integral services contracts for the management of 20 fields, which – and they are expecting the orders and they are expecting the commitments or the fields that were assigned during the reform. So that is already happening, and we are seeing increased activity. And from what we talked with Pemex, this is going to continue to steadily, steadily increase. And the goal in this right now, looking at different alternatives to strengthen the financial position of Pemex. They are seeing different actions that were taken, but they have already approved the increase in their CapEx budget for E&P and they have already also assigned an additional $5 billion for this year in terms of different actions that they took. And I think that we’re going to see more action moving forward. So I’m – in terms of the activity, we feel comfortable that we’re going to see a steady increase.

Our next question is from Stephen Gengaro from Stifel. Your line is now open.

So two things, if you don’t mind starting with. Can you just give us an update on just what you’re seeing on the North American price side?

Yes. Stephen, on this, I will ask Luca to give you a view of how we perceive the price are moving in North American market.

Yes. I mean in this quarter, Q1, 2019, our prices has been in line with the previous one. Going forward in the second quarter, we see, of course, price is slightly going down. But Stephen, when we talk about prices, not only related to the Pipe Logix and the cost of raw material because the situation is such that, that we are providing a number of different services. So I believe that we’re going to be able to maintain, of course, looking at what Pipe Logix is doing, a decent price, especially on the Rig Direct portion of our customers.

Yes also.

Now we look – then we lack visibility on what’s going to happen in the second half because as you said, activity will pick up. This will, again, change the turnaround, the closing…

So the situation in Gulf of Mexico maybe is different in this sense. In Gulf of Mexico, our differentiation is stronger in the offshore, and so the different dynamics is this constrained material.

This – yes, of course. If we anticipate the uptick in Gulf of Mexico in the last quarter of 2019, they will certainly help the pricing of the entire U.S.

Great. And then as I think about margin progression, and you touched on some of the improvements you’re seeing internationally, I would guess that, that would help the mix as you get into the back half of 2019 and 2020, right? More deepwater and more international, which tends to be higher margin. Is that accurate?

Well it’s a segment that is more differentiated, it’s a segment in which we start to see some tightness in some product. It’s a segment situation no doubt has for us better profitability. So over time, to the extent to which the product goes on, we will see an improvement in our margin driven by the mix. The mix of our sales will change, and this will be reflected over time in our account.

Our next question is from Michael Rae from Redburn. Your line is now open.

Just firstly on working capital, nice to see cash inflow in the quarter. Is there some effect of completion of Zohr there? And should we expect an outflow for the rest of the year? That would be great – some guidance there. And then second, just on the Saudi mill, the SSP assets. Can you just give a bit more color on the measures you’re actually implementing there to integrate the assets into your network? I think the synergy potential at IPSCO is very interesting, but I’m also wondering what your targets are for SSP’s margins.

Thank you, Michael. I will ask Edgardo to get deeper into the working capital management here.

Sure. Thank you for the quarter. Yes. In this quarter, we haven’t yet complete all the process of collection offshore, which going to be probably down this quarter. So – but still, you see in two consecutive quarters, we have been reducing our inventories as a whole, and the DSO also has been improved. So overall, as you’ll remember last call, I was anticipating a reduction of 10-day of working capital as of June. In fact, we already achieved by this quarter, so we are expecting now to fly at more or less at the 150 days of working capital in general. So at the end of the day, I don’t see significant increases or reduction in working capital moving forward.

We have also to take into consideration that after three years,we have major stoppages of the plant in Mexico, in the steel shop. We completed the stoppages in rolling mill 01, the small diameter, and we are preparing the stoppage of the multi-annual maintenance of rolling mill 02, a large diameter and the steel shop. To prepare for this, we need to build some working capital, some stock to keep lines operating when the rolling mill are out for maintenance. So by the end of June, this is also reflected in what Edgardo was saying. I would say that we should be able then to continue in our process of working capital reduction in the subsequent quarter.

We will continue to improve, especially on the DSO.

Yes.

Yes. Regarding your second question on SSP, let me comment that we started our integration plan at full speed. I was in Saudi several times during the last quarter and I perceived from our new colleagues a great degree of enthusiasm of being part of Tenaris and a global leader, so I think the spirit is very positive there. Also by the different stakeholders in the – of Saudi Aramco and on the relevant stakeholders are welcoming Tenaris to this new footprint in the kingdom. Our team is performing really, really well. I’m impressed by the improvements that we have done so far. This is a transformation that will take time. We have delivered, over the first three months, 12,000 hours of training. We focused on safety. And we’re already achieving some interesting operational improvement. For example, we have broke already some historical records of threading and coating in just three months. So I think there’s a lot of potential and room for improvement. This is a transformation and very exciting new project. It will take months and even years, but I think it’s going to be a great addition to our hub in the Middle East.

Our next question is from Marc Bianchi from Cowen. Your line is now open.

I wanted to ask a little bit more specifically on second quarter and then talk a little bit more about the back half of the year. If I take the commentary from the press release literally, the revenue in the first quarter will be flat in the second. And then if I use 2018 EBITDA margins, that kind of implies about $375 million of EBITDA in the second quarter. Is that the right way to interpret the commentary?

Well, this is what – I can’t tell you. We have visibility in the second Q., and this is more or less in line with what you’re saying. The second part of the entire 2019 is something that we – as I mentioned at the beginning, we see some disconnect between trust fall level of investment and so. So we have no clear visibility of the level of investment of the company in the North America starting from August or September after the summer. On this, we do not express a clear point of view because we think there is not so much visibility. We know other segments, like the one that we mentioned, that Gabriel mentioned: in offshore, in international, in Mexico, that are moving and could be predictable – possibly predictable, but we are reserving our view for the second part of the year, and we will see.

Certainly. Okay, thank you for that. And in terms of the IPSCO comment earlier on 100 basis points of uplift in margin, was that regarding IPSCO’s margins right now? I think they’re about 12% in 2018. Or were you speaking to once the business is included with Tenaris, you – Tenaris, overall, could see 100 basis points improvement?

(40:03):

Okay. I just had one more quick question, sorry. in terms of the cash generation, so you guys made the comments about working capital here for the balance of the year. But if I kind of look at where you were in the first quarter, excluding the working capital benefit, just started to think about a run rate, you’re kind of generating – on a run rate to generate over $1 billion of free cash flow in 2019. Do you think that’s a reasonable target?

Well, Edgardo, under this consideration, you can comment on this.

Yes. We feel pretty confident overall that this is a reachable number. We’re going to be in the range of 12% to 14% free cash flow margin for the whole year.

Remember, we are always looking at the business as our business. Previous to the merger with IPSCO that, obviously, will have an impact in changing some of these drivers, no? Let me ask something, Paolo. Basically, with these projections that we will have, we are expecting probably to end up the year – I mean, we should pay basically the acquisition of IPSCO with our cash in hand, we will end up with a net debt position probably at the end of the year.

Okay, thank you very much.

Thank you. Our next question is from Alessandro Pozzi from Mediobanca. Your line is now open.

Thank you for taking my questions. The first one is on Bay City. I was wondering, I think the guidance was reaching 450 tonnes by the end of 2019. I was wondering if you can give us an update on that? And also if we are past the breakeven point for the plant and whether they basically are going to help all the earning products in margin in the second half of 2019?

Thank you, Alessandro. I think we are right on track, we’re doing well and every month’s performance is improving. But Luca?

Yes, Paolo?

Feedback?

Feedback from the plant is that we are ramping up according to the plans to get to the numbers that you, Alessandro, mentioned in your questions. So as far as we are concerned, Bay City is smoothly, blending in our manufacturing footprint in the United States.

(43:03):

There are aspect that needs to be improved there, but again, as I said before, we are on the path of getting to the numbers that you said.

Yes. Thank you, Luca.

And second question on Argentina, if it’s possible. I think you mentioned again that you will see more developments towards the oil part of the shale. Can you give us a sense of what growth you expect maybe in 2019 or even in 2020 as more projects going to development phase? Thank you.

Thank you. Well in Argentina, there is a trend that are a way of moving investment from the development of gas is also into oil. This is understandable. To some extent, the gas is a longer-term bet that requires investment in infrastructure, not only in the development of the resources. Oil is something that could be developed faster and with lower rigs per section in this moment. Now in this moment in Argentina, the election are coming due in October, it’s an electoral year. This year is having an influence on how the investment decision of the company. The company are kind of analyzing projects, considering what they can do, but we do not see it in this – for the coming quarter, very aggressive investment program in the second or third quarter. There will be some kind of standstill with some shift from gas into oil, preparing for what could be done in the long run. In the long run, there is no doubt all the company are convinced of the potential of the resources on Vaca Muerta. The issue is not the geology, the issue is not the resource. But the company will follow the electoral process, understand the policy of the new government and on this way, this – they will define their investment program for 2020 and beyond.

Thank you.

Thank you. Our next question is from Rob Pulleyn from Morgan Stanley. Your line is now open.

(46:18):

As I mentioned during the call, we’re making forward-looking statements for the second Q. We do not have full visibility for the second half, and we are reserving our view on the second half for the time being. I mean I have some issue that we would like to understand better what is going on, especially North America – in onshore North America. That is a critical area for us. In terms of the 232, that is quite a relevant issue for us. And not only for us but for the steel industry in Mexico and the States. I would like to have German comment on this because we are very close to – following this very closely together, if you can share or not?

Thank you, Paolo, and good morning, Rob. Very briefly, we know that there is intense negotiations between the two countries. We’re expecting, in fact, the conversations to be resumed as early as next week. We know that the different proposals on both sides and ultimately, we’re expecting a balance at one point to be found around pre-established quotas, which ultimately, would allow a free or no tariff trade between the two countries. Now this is taking time for obvious reasons, but we understand that this – with the new administration in Mexico and at the same time, given the trade agenda for U.S., the determination to ultimately find a solution, a formula which may reestablish ultimately some rational level of trade with no tariff impact.

Thank you, gentlemen.

Thank you. Our next question is from Vlad Sergievskii from Bank of America. Your line is now open.

Thank you. Just two quick clarifications, if I may. Just one on the offshore, if I may follow up. Can you share with us whether you are tendering any large sizable line pipe projects offshore which could boost volumes next year or the year after? Or whether you are seeing some of these projects from the horizon? And then secondly, can you give us roughly the number of import duties you were paying in relation to importing OCTG into U.S. per quarter these days? Thanks very much.

(50:10): On the second question, on the third Q, which is the lever. Well, I think have German has given an answer concerning the 232. Today, we are coming into U.S. in our side and paying tariff from some of our exports from Mexico. But if there is an agreement of the 232 and the Mexico and the U.S. arrive to an agreement on substituting on tariff with quotas, this could be a relevant change also from our side, no? We expect no other major change in the 232 concerning all of the other countries. But remember, there is a decision due in May for the antidumping against Korea. This is also an important decision because Korea, today, in the preliminary considerations, some company had 45% duty, some had 20%. The final decision will be taken. This is not a tariff that could have an impact.

That’s great, thanks very much. And can I quickly clarify whether you will view – or could give us an idea of what the financial impact of the removal of Mexico tariff could be? What would it mean to your EBITDA or earnings?

Well, we cannot comment on this before knowing which would be the end of the negotiation because in the end, we are considering this change. But in this moment, there is not even an agreement of substitution of tariff with quota. mexico would like to have a no-quota environment. Maybe, Guillermo, you can comment – give some light on this. But frankly, we have no clear view, and we cannot give a clear calculation on understanding what would be the impact.

Just complementing what German said. Actually, the negotiation were kind of frozen with the change in the coming on stream of the new government. And so there have been no advance. Mexico was having acquisition of no tariffs at all, while the United States had a position of having quotas instead of tariffs. But the good news is that, as German said, negotiation have reinitiated. We know that there’s going to be – today, there are actually – the Mexico represent seating with Mr. Lighthizer and next week. So we expect to have news in terms of the development and how the negotiation comes and what the actual basis of the negotiations are going to be. I think that the Mexican government has a very clear picture in terms of what the structure should be. The United States has a well position in terms of what they think the outcome has to come. So I would expect to have a solution in the short term.

That’s great, thank you very much.

Thank you. Our next question is from Alan Spence from Jefferies. Your line is now open.

Thanks for taking my questions. I was hoping to get an update on the JV with Severstal. If you could give us some color around where you are in terms of all the necessary approvals, a reminder of the construction time line? And if you can share any of the metrics such as the IRR or potential payback of projects, please?

On this, Gabriel, you may state on the advance of the project and the expected timeline. We will not comment too much on what we – could be the return in this point in time, but it’s up to you.

Yes, yes. Thank you, Paolo. In fact, we are progressing well with our partner, Severstal. We have incorporated the JV. We have concluded the – much of the documentation of how we are going to operate in the governance of the JV. We are working together with the basic engineering and preparing for the tender process about the construction of the facility. This will be done during the next couple of years, and we are targeting mid-2020, 2021 for the commissioning and the ramp-up. So, so far so good, and we are getting a good reception in general from the different customers in Russia to this new JV.

Yes. So no obstacles on the road up to now. And we proceed, and we will see.

Okay, thank you very much.

Thank you. At this time, I am showing no further questions. I would like to turn the call back over to Giovanni Sardagna for closing remarks.

Okay. Thank you. Thank you all for joining us in our quarterly call and I’ll see you soon. Thanks.

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program. You may now disconnect.