Tenaris S.A. (NYSE:TS)
Analyst Day Conference Call
October 18, 2012 9:00 am ET
Giovanni Sardagna – Director-Investor Relations
Paolo Rocca – Chairman and Chief Executive Officer
Germán Curá – North American Area Manager
Good morning, everybody, and welcome to Tenaris Investor Presentation. Thank you very much for being here with us today. For those of you who have never met me before, I’m Giovanni Sardagna, Investor Relation Director of Tenaris and I will be your reference contact for any further information you might need in the future on the company.
First of all, I notice on safety, we would like to remind you that there are four emergency exits in the theatre, so please take a look to the nearest emergency exit. We have two exits on the back of the theatre, and two emergency exits behind stage.
Before we start, I would like to remind you that during this event we will be discussing forward-looking information and that our actual results may vary from those expressed or implied during the presentation.
Today, we will have – first of all we will start with the short video on our Dopeless connection, and after the show video we will have a presentation by our Chairman and CEO, Paolo Rocca. After Paolo’s presentation, we will have a question-and-answer session during which Paola together with the management will be answering to your questions. After the question-and-answer we will return to the lobby of the hotel – of the museum. And we will offer you brunch, and after that for those of you who wish to stay there is also a guided tour of the exhibition here at the Guggenheim, Picasso Black and White.
Then finally, before we start I would like to introduce the management team that is going to take part in the question-and-answer, we have Guillermo Vogel, Vice President of Finance and Member of Our Board Of Directors; Ricardo Soler, our Chief Financial Officer; Germán Curá, Head of our North American Operation; Alejandro Lammertyn, Head of our Eastern Hemisphere Operation; and Gabriel Podskubka is our Eastern European Area Manager. So I think, I said all I have to say. So I will have to start with the video. Thanks.
Well, good morning, everybody. First of all thank you for coming. Usually it’s a pleasure to have you here this morning to have the chance at least once a year to present the medium, long term strategy of our company. As we usually do, we did it last year in Tamsa was also a pleasure. I hope in the future to have the chance to hold these Investor Day in close to some of our facilities maybe even showing to you the lines and the industries and the supporting products like Dopeless that are so important for our differentiation.
Today, the idea is to present to you some of the let’s say the key area in which the key point of the strategy of the Tenaris on the medium term starting from the last slide we can say that our main strategic goals are first repositioning and strengthening our position in North America we launch an important investment in North America. And they are very confident of the development in the medium and long-run of the energy sector in North America.
A second aspect of our strategy is strengthening our position in Latin America. Latin America from Mexico to Argentina, Brazil and Colombia is presenting increasing opportunities for the development of the oil and gas industry and we have strong base there. And we think that the consolidation and expansion of our position there is a strong component of our strategy.
The third one is leveraging our position internationally on complex product. We go after complex product worldwide and we have been successful in our line of business to catch some and to establish Tenaris and TenarisHydril the premium line, the steel product and our service and component and technical sale in a company, the oil company, in the more demanding product worldwide.
This is clearly a key for the high value added product, is key for supporting the margin of the company.
The fourth point is overall differentiation, the efforts we are doing in R&D, in industrial excellence, in safety in all of the component that differentiate ourselves compared to our competitor. But let’s start first with a quick view of the outlook, how we perceive, let’s say the evolution of our sector.
On first slide, price of oil and gas. Well what’s happened in the last three four years, basically the additional demand coming from emerging market has been supporting price of oil in these ranges, as you see the brands in the range of 100, 110. We think that this should be the level, let’s say that we can considerably prevailing even in the near future.
In the last two, three years there has been an increasing differentiation of prices between region, the real difference between WTI and brand problem in the infrastructure concerning movement of oil are creating these difference, and in the case of gas shale, and the supply of gas in North America is also creating a big difference in price between the price in North America, and price of LNG in the Eastern Asia or in let’s say remote location, where LNG is the marginal price for gas. Europe is standing in the middle in let’s say supply from us and other sources. Now, this difference is creating value that our value locked into these. I think that in my view in the medium run, investment infrastructure will unlock some of the value in this area and gradually there will be a new convergence of price within WT brand and between the gas price worldwide.
To some extent, if we look five years from now, we expect that there should be some more convergence here. But if you look at the level of price, we can expect, from our point of view there should be balance between supply and demand around these prices in the case of oil; and in the case of gas in North America, there will be a recover in convergence of price towards the price of – level of Europe or LNG.
Now, this view is consistent with a solid growth of our sector. We expect that in this environment overall demand of OCTG product will grow in the range of 5%, 6% per year in the less sophisticated product and in the range of 10% in the more demanding product. So, this scenario would be a scenario into which we can see increasing demand over time.
Now, it is something we can count on, well from my point of view, there are downside risk on this that are quite relevant. The economic, the growth and the level of expansion of the world economy, in this moment it is subject to some caveat. The most important probably is the situation of Europe, I don't think situation of Europe is stable, even if there could be a way of solving the financial constraint in the short run, still is difficult to keep together and recover competitiveness and growth in last part of Europe.
The second concern is China, China is importing around 500 million barrel a day of oil, this was growing much faster in the past is now stabilizing. This month, we have even seen some slight decrease. So, even if the economy is landing on 7% increase, in the basic demand of energy, demand of electricity and so we perceived there is some slowdown.
Now, this is a concern, because in the end the further slowdown of economy in China will have additional impact of raw material, raw material driving the economy of the emerging market and off late in America. So, in the end is a second major concern.
Then there is some uncertainty on the strength of the recovery in the United States at fiscal cliff is a concern, but frankly from my point of view, we are more confident on the recovery in the U.S. economy and more a concern about Europe and China. Now in a scenario, in which there are disruptions in the recovery of – in the, let’s say way back from the recession in Europe or additional slowdown in China. We may see some weakness on price of oil, so we have to consider in our planning also this as a scenario that could occur.
When we look at gas, I’m much more, let’s say confident in the recovery of price over time. This table is showing the oil production in the United States and the gas production in United States is clear that United States has energy dependence in site and this is a stronger and attractive target for every administration.
I think that today U.S. with the shale opportunity, Gulf of Mexico also getting back to a level of operation that are comparable or even higher than pre-Macondo. I think the U.S. are having insight the energy independence coming from these two sources. And this month for the first time, the contribution of gas in production of power has overcome the contribution of coal. You see gas peaking up very strongly.
The demand for gas in the U.S. year-on-year is increasing in the range of 12%. Production is increasing in the range of [4%, 5%]. This is driving prices up. I don’t see any reason why this should stop; on the contrary I see that more power could be produced through gas. Industrial activity are coming back to the States; plans like the decision we are taking on investing in industrial activity and this is also taken by other player. So, you see, let’s say there will be additional demand from industrial, power generation, petrochemical to some extent, and even on price that could be gradually an increasing export of gas coming from the regasification, the liquefaction plants that could go in stream in the coming years.
So on gas, I think prices should go up. Now, energy independence is an important target, I'm saying for every administration, we can imagine that within 2020, the U.S. could reduce import of oil to the range of 2 million barrel a day. This would be a substantial change in the equilibrium and in the flows of oil would rise, and also will have some geopolitical impact in the relation with Middle-East, but for us this is one of the key assumption that is guiding our strategy in the long run.
Today 50% of the revenue scenarios are coming from U.S., we see that if you have pursued energy and dependence, this will drive additional investment in all of the segment, first of all in shales then also in a shore, and in other exploration and it's also driving Canada activity. Canada, if you look at three, four, five years – in the future, I'm convinced will increase the level of integration with U.S.
So this trend, energy independent is really driving our decision for investing in production capability in the United States. Also what is driving our decision is the characteristic of this increase. Shales require a changing business model for the oil industry in the States and could change it also elsewhere. It’s a different way of exploiting.
For the oil industry, the big issue of the access to reserve that was driving even our discussion five years ago, the question of international company, national oil company, difficulties to access the resources. Today we’re really losing weight in the decision of the major oil company. And yet how shales are exploited in more similar to an industrial process than to a traditional exploration and production business model.
Even if we look at the nature of the wells, shales well, reduced flow, the beginning – fast declining, very fast declining in the first year, totally different from what we have when we consider development for instance in floor, in which we have very high flow per well, low declination, and in the end, a very different way of looking at how to plan and to program this product in the (inaudible). In the case of shales, in the need of increased efficiency of the rigs, and to work on industrial base moving huge volume of materials, and huge services involved in fracking, involves fracking and in all the accessory of the (inaudible) requires a very strong logistics support.
We think that the strategy of Tenaris in the North America should be based on product development, but should also have a very strong service component. We should be able to assure there is more working, and on the – say in a cost reduction environment from the point of view of the oil company, this would require local production. It will be difficult for us to support this model from outside. But at the same time will give us an advantage against import. Remember, today shales are driving almost 50% of U.S. demand for all kind of deepwater growth, 45% and will be higher in the future.
Imports are covering 50% of the need of the system. Now this will change four or five years from now, and we see opportunity for us, but opportunity that would require higher industrial commitment in seamless, in welded, in premium to be positioned for capturing this change.
This is the dynamics that you know very well. Of the rig, and you see here how the reduction in the price of gas in the last two years had driven a reduction in the rigs in gas, especially the dry gas rigs. This is very well-known, and this has also resulted in a reduction in the overall number of rigs operating.
Now, if we look at this from our point of view we should also consider the efficiency of the rig. The same number of rigs producing slightly higher number of wells, and so the consumption of OCTG is not reflecting exactly this level of construction of the number of rigs, but still in the U.S. we do not see the increase in efficiency as a substantial change.
In the case of Canada, we see increase in efficiency is something that is giving us a 10% additional demand even at the same level of rigs. In the case of U.S., we do not seem the same – let's say relation and efficiency improvement in this. Now where this is heading, in our view, the price of gas is recovering, we can expect in 2013 as we're mentioning before, a higher price of gas.
The infrastructural constraints that are depressing the price of WT and liquids in the next one, two, three years will be sold and this will contribute to a raising of the price of liquids and WT. So, in this environment we expect rigs to pick up slowly, but we expect that in four years, we can count on the range of 20% additional rigs compared to the level that we have today. So, this is the scenario that is supporting our investment in [Hoke]. As you know, we call it so is our code name was the code name of the product. In fact this large mill with the capacity of 600,000 tons of pipes will be – we are just signing now the final location. We have alternatives, but in the end, we are very close to find a decision. It will start operating in 2016.
We probably will have the final estimate of the timing of the project once we get into the discussion with the API and we have all let’s say the timeline of this. This will position Tenaris an absolutely leader I think in the U.S. with production of welded, seamless and premium that will be matched by no other company in North America. I think the portfolio product, industrial production capability will put us in a position of supporting the entire need of the company operating in all of the range of shales that you have in the United States.
A comment on the global OCTG demand, as I was saying, you can expect the less demand in product, the API product to expand the rate to support 4.6 rate of increase per year. This is what we see in the future, but an important point we see is the rate of growth in the more complex product 10% in premium, the oil industry is looking for a new frontier, shales are requiring especially for gas a high component of premium product. And this is driving a higher rate of grow per year of the more premium product. This is where Tenaris strategy is focused and all our R&D, I’m proud of the environment activity is focused on understanding where this will happen and prepare the company for capturing this component of the market.
Here you have an idea of where we think the premium demand is coming today, and is an exhibition of where we also think that we will come in the future. Shale in oil and gas in U.S. is representing today something we say 23% of the overall demand of premium. This component is likely to grow and also consider that U.S. is the large part of this.
Now, shale are not only U.S. in the future. We have larger resources in different part of the world. Argentina is an example, Mexico is clearly an example, you have all the field on the other side of the border. And in the moment in reach price of gas start picking up; also Mexico will see the return of the project in developing gas in the northern part of the country. As competitive we have the development of the offshore resources. Mexico is for sure an area in which we can have strong perspective for growth. Argentina also, the resource in Vaca Muerta and I think you know very well are substantial. We are talking about an area that is 30,000 square kilometer of shales, oil and gas with a thickness of the play that is in range of 250 meters is huge.
There are huge reserves in Argentina. There is also a large need for the country to develop this. Argentina is today freely importing gas and is also almost the net importer for the whole hydrocarbon sector. So there is a clear need for Argentina to do it.
There are there, the resources, the point is if in the end we will have the policy that will allow this to happen and the [trucks] capital in the development. But when this happens, this will have a size and a scale that is comparable to the major play in the United States is something very relevant.
Now there are shales also in other part of the world, but I think that the most likely to expand in the next four, five year are close to our operation, Mexico and Argentina for sure. The company is developing a product portfolio from welded; improve API connection, premium connection that fit with this exploitation.
I think, as a company we have probably the largest periods in supplying shale development from the States, but we are in a position to expand this and project this into other areas.
Second area that is very important that will be growing in dynamics is deepwater. Deepwater you will see the number of rigs is expanding and is demanding very sophisticated product in a new competitive environment, well very few players are able to propose a portfolio there that comply with the environmental, safety, security and integrity of casing demand. Something that we regarded an advantage for Tenaris, in the America the share of premium which is the red part of this, is relatively high compared for instance to China, Russia in which Tenaris found difficult to access the market and to have a share here.
I don’t know if when shales start in China how strong we could be there. Today we are serving international client like Shell that are operating in this environment with specialty products, but it is a niche for us. I don't know how strong we could be in this environment when the shale development expands. For sure we could be effective in the deepwater and offshore component in which in Russia, and in China our products are, let's say covering niche, but especially with Dopeless and with Wedge technology, but we will see how strong we could be here.
In international operation, premium represent almost 50% of the overall demand, so this is the area in which the leverage, leveraging our technical development in our portfolio is supporting our position even in area in Southeast Asia, in which our competitor Sumitomo so are very close. Still the fact that premium is the name of the game in that area is supporting a long-term position of Tenaris.
In deepwater, this is the line of the rig count. We are thinking, and we are seeing today level of rigs operating in this environment in the range of 160. Here there are country like Brazil, in which we have a strong position, and in which we could support this expansion, there are the area like the Gulf of Mexico, West Africa in which also East Africa in the future we expect in the future Mozambique, and this development also to come on stream in 2014, 2015; this will be the moment in which the different Anadarko (inaudible) will develop systematically, exactly what we think that this is also a promising area.
All of these projects are complex. Now one point relating to the China and the ability of China to represent a real threat in this environment. If you look at this semi-sub platform that are operating and drilling in this environment, you almost see no Chinese operator here, probably only one of this semi-sub is operated by China, and is operating in China.
So the ability of the Chinese oil company to manage large projects, large complex projects even in environment like Nigeria, Angola, environment in which China has a very strong political presence, and their presence in different aspects of structural development of the country. Still Chinese Company find difficult to manage this, probably this level of complexity. This is important from our point of view. The same is happening for the production of pipes. The Chinese mill user have large oil capacity, but is in over capacity in a range of product that do not match with the need of this and they found very substantial obstacle in getting into this market and changing the competitive environment. I am indeed very confident on the quarter and the differentiation which has been established on a technical and [product plant] this year.
Here and you have it in your paper is an example of application in which work over, like in this case, this is deepwater well in the Gulf of Mexico is a 2000 meter, 6000 feet water depth. Environment is a complex project. The value will be 4,300 meter around 12,000 feet depth.
When you talk about this, the Company looking at 1; the integrity of the casing to avoid any reason to compression to internal pressure that allow, and to traction because these are very heavy well with very heavy column, they are looking for product that are – let’s say complex, tested, proven and this is an environment in which we really have very limited competition. Vallourec has in many case is our competitor, but we think that the portfolio product based on Wedge is really up to the demand of this.
Our research program today is focusing on consolidating some of the product for instance in the 14 inches in this intermediate casing there is an item of large demand, the need for double seal in the industry is leading to the development of specific product for this need. These are the things that our research centre that are looking, working on and are looking at competition to see the weak point and the area that in which the industry needs stronger product and needs more performance.
This is a case, deepwater well requirements there could be also, this is Gulf of Mexico but could be translated also into in other region that has similar design. In this case is, we can say a [slim] design. We may have different design in different parts of the world, but we started this and we develop let's say package of product that fit with the increasing demand of the oil company.
This is another example, high-pressure, high torque. These two applications are capturing an important share of the premium demand in the world, so that is the reason why we are let's say for choosing on these. High-pressure, high temperature, we are talking here about pressure of above 10,000 psi, temperature above 300 Fahrenheit situation in which while in the first casing, integrity of the casing is the main issue. In this case, resistance of the column to the level of pressure and overtime the damage done by temperature in the integrity of the column are the name of the game here. Here we enter with high collapse products that are very sophisticated. A company prepared to pay for this; these are the area in which we have higher margin also.
In this case is well in the Southeast Asia, but again could be applied to the same package of product to other column in other part of the world. The value proposition that we have for this in the case of deepwater is base. First on Dopeless, Dopeless is the person from Newfield was saying will be the name of the game for deepwater, and will be the name of the game for offshore. It is today North Sea is turning to a name of the game and it is showing the Arctic area in which deepwater in which Dopeless is particularly effective.
And in [the case] of deepwater is really a game changer, and I think Tenaris on the forefront in development of all application for Dopeless and more important we have the industrial structure and we are continually investing in that support, the need of the client and the ramp up of the demand for this.
Qualification on testing, the steel grades are very important at the level in technical sales, here there is lot of service in the development of this. That is very important in making the difference. Local content in all of the area, the country in which these wells are realized is also important.
Then we go to shales, shales is the other important application, you can imagine that if you look at the whole premium of the whole shale are representing a very high share of this. I mean the shale development is driving an increasing share of premium demand.
So, it is an important focus for us. This is an example taken from an Eagle Ford production well. Again we have products that are API, more simple products and then you go in specific better than API or premium product to support our strategy here.
For the project in the United States and the design of our new facility in the U.S., we take into consideration all of the requirements that we anticipate in the coming year for the development of shale. There is a lot of technical development to be made on shale. The technology will evolve a lot, but in our view it will evolve in the direction of more sophisticated product to appoint for some of the development, at least in some, in many of the field for gas.
So it’s something that will come when the price of gas will get higher in the range of $5, $6 that today will be a sure return in the vast majority of shale, including dry gas in our view. The value proposition on shale, as our say in the beginning is not only product, but its technical support and logistic support. It is an industrial operation which should operate sequentially like in industrial process. They need to have the material to reduce inventory cost to have a resource from the working capital and from the efficiency operation that allow the fact production and in fact drilling in this environment. So the logistic component is very important. You have to get all the material to filled, you need to operate on a different ground, the problem is not to work and drill, the problem is how to do it fast and efficiency is the difference. And we have to adopt to this business more.
One comment about China because I receive in the conference call, this is something that is coming out very logical because the overcapacity that is being build in China is substantial. We are talking about a level of utilization of capacity that is in the range of 60%. It means that China has large overcapacity in the major six player, but also in the end which are the characteristic of China.
State-owned or let’s say, controlled by the cities, the province or the government in the major region of China, heavy poor economic results, heavy losses. You see there, the profit on the major Chinese seamless are negative in the last three year and consistently so. They are financed, their investments and their losses by banks, capital transfer. This is – in this moment also reducing their ability to act, their ability to develop new products, to develop services, business and presence. These are company that in many cases are struggling to get out from very low margin area in which there is excess competition, especially in China, and to improve the results. But their ability to do so is limited. There will be restrictions here, in some moment yes, where they are, probably I don’t see this any time soon.
Now their share of export in (inaudible) outside China is today in the range of 15% of the world market. To give you an idea, the share of Tenaris would be much higher than this or would be higher than this. So one company, Tenaris worldwide is able to get a better position in all of the Chinese system, in outside let’s say China. Within China the share is higher, and our share is only a niche in some of the niche product.
Will the Chinese be able to cross the barrier of product and change the competitive environment? I think this will be very difficult. Today China, France environment for instance in which they are exporting like Iran, this moment China is shipping 300,000 tons; important considering the volume we’re talking about to Iran, are the major supporter of the oil and gas system of Iran in an environment in which we are absolutely prevented to be, is also let’s say a position that is deriving from a political relation into not only based on let’s say, the demand of pure of product or largely say on the business. Like this, they have other area in which they capture low-end positioning, very often supported by political relation. I think will be very difficult to upgrade and to change these, and I do not see today any player including TPCO, which is probably the largest player.
Getting out from this environment even TPCO is shipping to Iran maybe 100,000 tons, very important for their export. The export of the blue one part reached a very high level in 2008 in which export were higher than the domestic shipment. But then antidumping, competition on product; change of the range of product demanded by the oil company are containing this position to where they are today.
I think this is our concern in some of the low end market sometimes in which we may find difficult or we may feel the pressure on prices, but is not concerned today in the premium and high segment of this.
Final slide which the point that I mentioned, there are representing our strategic position as a company. Expansion in North America, we expect this to change to give a substantial boost, substantial opportunity for growth for operation in North America. It will take time, but will arrive in a moment in which also U.S. will have energy independence as a target, strategic and geopolitical, operational in full deployment. We expect to arrive the right moment.
Today with the acquisition realized in 2006, 2007 we position ourself in the U.S. and this is very important component of Tenaris strategic positioning. Tomorrow we will enhance our position worldwide based on our additional capability in the U.S.
Consolidation in Latin America, Brazil, Colombia, Mexico, Argentina, there are huge opportunity here. Only Argentina only, Argentina on its own which represent huge opportunity. This is also the logic of the investment in U.S. is also to preserve capacity in the future in all of Latin America for covering additional demand from this region. It will not be immediate, it will take time, policy would need to be redesigned in a way that could attract resources. Resources are huge that are required by this. But it will come, it will come and I’m sure we will see and we have to be prepared for this.
In the case of Brazil is under way, we load with delays, with difficulties, but is underway and there’s a huge opportunity for growth. In the case of Colombia, it is also underway, Mexico and Argentina I mentioned it.
Leverage, the technical leveraging complex product, we talk about this, R&D center from Argentina to Mexico to Italy to Japan, U.S., Houston and Brazil. The new research center in Brazil will start next year in (inaudible) and we have the people now working in the different environment, there will be the new center established or all focused on the environment of this portfolio. Differentiation through product development, industrial excellence, and customization. Here there is something that is essentially the ability to execute. This moment is one of my most important challenge to have the company that is spread, is high end and is focused, but is supported by an industrial structure that is able to respond to the need of reducing lead time, assuring absolute quality, safety, compliance to a network or product worldwide. To play on this sense, we need to focus on execution on human resources playing for the future. I mean this is not standing that we play and we discuss in two years, we need to create the human resource basis for the next five, 10 years.
So my message, this is more to when we talk to our people is always think of 10-year from now, which will be the human resources, the information technology system, the way we will manage the company 10 years from now and start putting the basis for this for the long run. In mind, we have industrial excellence. In the end, there in the phase of all the major oil company, all our client, you make the real difference, any difference that turns into margins or turns into results over time.
I will stop here and open the floor for any question you may have. I think we should turn the light. Thank you very much.
Good morning. You’ve often spoken about logistics and that’s always been a very important part of your business and I think your success internationally. I notice the difference I guess in emphasis in this presentation particularly North America, but I’m wondering, what – how are you approaching logistics, how that – your thoughts about how you deliver product and how you support your clients since you’re changing what this can mean in terms of the investments in the U.S. or potential acquisitions and also thinking out of the next five or 10 years with these other markets that are continuing to develop very aggressively. We do expect to see changes in logistics and your participation in different parts of the chain going forward.
Very briefly, shale is changing not only in the U.S. and North America and other country landscape, it’s changing the business model of the oil company. They have to think different. Access to resources and the longer focus on everyone, organization of a project in West Africa is very different from organization of project in Eagle Ford, different people, different way of looking into it. We should focus on this, learn, follow, anticipate and be able to support them in the transformation. But I will ask Germán that has a more complex logistics because remember U.S. is a market of 6 million tons of products in an overall market of 60, is large and shale is part of it. So we see today in U.S. the real program and we can challenge it and we can anticipate the future.
Thank you, Paolo.
The way we are looking at it is given the existing infrastructure and given what lead to from our perspective industry has done, the challenge is whether we’re going to be able to synchronize, we typically talked about it, synchronize drilling programs to production programs and this is why U.S. manufacturing or the U.S. manufacturing base is essential.
Ultimately, we usually talked about the level of inventories on conference calls, I will not and more often they normally say five months worth of inventory aligned to industry practices, people refer to it as a healthy level. We truly believe that, yes, the industry could do a lot better than that. There is no reason for us to sustain a chain with five months worth of working capital in the ground to ultimately support the drilling activity in the shales and other areas in the country. And we are working on that aspect of we call the U.S. plum project.
Thanks. Good morning. You talk about OCTG consumption in the slides and sort of your expectations going forward. How do you guys think about the supply side of that equation both from your perspective and the industry? And I guess it’s maybe a little bit easier on the premium side given the dynamics there, but how do you think about that and can you help us sort of measure despite demand dynamics on the premium side going forward?
I think on the premium side, first of all, you need to have the product developed and accepted by the oil company in this kind of product. So this is the first step. Then, you should design (inaudible) any competitor I'm saying like we did in the past; they would have to follow this.
To present investor strategy that is able to comply with all the requirements of for that position if something goes wrong, shorten lead time if needed, excess capacity in different part of the world, network of local support, and finishing repair shop and so complementation with accessories, full range. So if we look at all the challenges that are coming from these you'll see the difficulties for new comers to establish a position there. Because of these companies do not want to have most of them to buy one type from one, one type from the other.
They tend to look at the integrity of casing associated with integrity of supply, and this is also an additional obstacle for this. Now, when you go to the – in this environment before going out the major player are investing, major player upgrading the facility are adding capacity. I think we are the most dynamic company in this ability to execute is essential. It’s very difficult to execute investment plan worldwide that creates capacity on time, cost effectiveness. So execution is the key.
And every time we have a flow in execution we pay it. For instance in this recent summer, we had an event in upgrading of our plant all around the world. I mean we had upgrading in Mexico, U.S., Canada, and Romania in some part also in Argentina complex problem. And we had some issue for instance, difficulties of in terms that we immediately feel it something that is in terms in Mexico, we perceive it. Our competitor also facing the same challenge, and additionally they lack the depth of development that Tenaris have. In the low end product, the question of imbalance is where it is more clear, so you see the pipe logic for instance is reflecting three (inaudible) low end Korean importer. Korea is establishing a strong position in the States, we think they are doing this and we would like to see on not fair trade practices, but you see there in the pipe logic pressure on prices, the pressure on this segment. And this is not only in U.S., but in different part of the world.
Still for instance, when we proposed better than API or shale, we immediately encountered willingness by the oil company to pay more, but to have better product, so we’re fighting that. Even if there is overcapacity, we still have product development and service and logistic component that could make a difference, and we use all the tool. In some case, antidumping, because Columbia we’ve been successful in getting an antidumping against China and recover the large part of the market, we are now investing to $100 million in Columbia to consolidate the position point that I made it to assure that we are able to supply everything.
So we use different tools in different environment for containing this supply demand. In U.S., our mill should face an increase of demand and a reduction of input. I do not think that energy independence is also ability to supply the material required independently, would be a limited avail to be independent, but depends heavily from supply from outside. So that is in for substitution component and expansion of the market. There will be excess capacity in premium, I do not think so. According to our view and the role of gas in North America, I think that we are moving on the right time, let’s say, but we will see. Please.
Yeah. Can you talk a little bit about Argentina, the governmental policies, you mentioned Vaca Muerta that’s a huge project, but it's a huge risk that anybody will look to actually make any investment there? And can you also talk a little bit about the exposure Tenaris has and if any to potential trouble with the Argentine government to know it was nationalization etcetera?
I think, on the first question, you have resources that are number three in the world after U.S., China there is Argentina. And probably in Argentina these resources are in a place in which you may have water, you have no large population on it, it is not Poland, we do not see development in Poland at any pace, at reasonable pace. Now in Argentina it is different, in Argentina you have this 30,000 square kilometer in the desert, with the river and so many, so you have (inaudible). The company is importing gas at $19, $18, $17 per drilling material and these could be produce for less.
That is oil even if you look at these on the point of view of the oil company. I thinking some moment there would be a rational approach. Rational approach means that everybody will have on the table the need and there will be a stronger search for a wind of opportunity. At the end they will need to import equipment, and the industry will need to export dividend, I mean there will be basic things on the table, but I think these and it will take time, but these industry is looking, I think medium term. And we are absolutely looking middle term.
Now we have in Argentina, in Argentina we’re exporting 70% of our capacity, so we have strong base for supplying everything, and we have all the logistic in place to assure that anybody that wants to take the risk may forget about the risk of logistic and technical we would take care of it, and are able to manage it.
But I think there would be some moment opportunity, I cannot say when. As far as the risks are concerned, I think it is important we will represent more or less you can say some 25% of our production system now, because we have a very sophisticated mill in all of the range steel shop full integrated receive iron ore from Brazil or other – mainly Brazil, we are very efficient. We are suffering cost inflation, because the cost of human power is increasing, still this is probably one of the most efficient plant in the world, high value added, both iron ore export product at $2,500 per ton; creating value for the currency, a lot of currency comes from our operation.
I think, you see it again the reason, a clear interest on part of the government, from part of us to support our operation, the oil in (inaudible). Risk, well there are physical pressure in Argentina, and for instance we are registered in our balance sheet, but the Argentina, and we have some overdue in some component of our credit towards the Argentinean Government, and we also have high tax pressure.
But I don’t think these are issues that could change our long-term commitment, and I think also the long-term commitment of the government and promote industrial activity that’s bringing to account the same value added now. Yeah.
Just as a follow-up, a couple of weeks ago, YPF came around with a plan, and it was pretty aggressive expansion plan, which would evidently affect you. How realistic do you think it is, and are you counting on any of this in your projections?
We know that this will come, we are not let’s say designing our capacity improvement, focus on this, but we keep this in mind. When we invest in the U.S., there could be substitutionals of our import to U.S. This will free capacity for attending Latin American expansion, yes.
Now we are planning on this as key, we think this will come over time. Remember even in Venezuela, still the oil industry is operating in an environment that is not the more simple in the world, and those companies are quite able. They are, I mean they are cracking quite tough nuts when there is something interesting inside. And, so I think as they are working in an environment in Venezuela they could find a window of opportunity in which the interest of everybody could (Inaudible) and there is reasonable stability. In today’s environment, I think there is lot of renegotiation going on everywhere. The oil industry are used to renegotiation of royalties, service contract. This is not stable is negotiated and I think in Argentina in one moment, I mean over time it will also be the case. Other questions? Yes.
Hi, can you talk a little bit about your collaboration with Wyman-Gordon and the super premium pipe and whether that’s ramping up as planed and how big an opportunity that might be for you?
Yes, I will ask Alejandro Lammertyn, we're working very well with Wyman-Gordon. As you know now, we do not – we concentrate in our – where we have competitive advantage and [within the lines] when we see, let’s say, niche on which we should able to offer to our client the full range, I don’t know, which we do not want to commit capital, and we do not want to be those in [know-how] business.
Yes, hello, yes with Wyman-Gordon, I think the process is being very successful, Wyman-Gordon came, took over an area where we were not having the product. We have an alliance with Sandvik that goes to 7 inches on the Sanicro, up to Sanicro 28, came Wyman-Gordon covering what is higher [all these] than 7 inches, and it’s an area that is getting more and more demand in the market going for more software environment. This has been a start in the Middle East where we have two important projects, one in Arabia with Saudi Aramco, and the other one in Abu Dhabi. We are executing these projects and we have very good prospects for the future in this specific niche for us.
In the U.S. if you could talk about your long-term demand obviously makes sense for supporting your new facility, but if you could talk about what price of gas, you’d expect to see activity levels picking up in some of the major gas basins, Marcellus to Haynesville et cetera and also talk about what price you think activity is economic in some of the major oil basins as well in the U.S.? Thanks.
I think Germán has a more close view of these things. From my point of view, I’m very bullish on gas. I think that the gas availability in North America may even change not only power production, but also industrial activity, industrial investment in some area. Like ourself, we are building a new steel plant, you will see new Nucor is building a new direct reduction plant in Louisiana that will be demanding gas. These are just example. It’s a major plant. It’s the largest plant built ever for DRI will use gas.
Now, there are pipelines going to Mexico, several pipelines. Mexico is expanding very strongly in this moment. We are expanding our production in Mexico. We need gas, but as we need gas, many other needs. There are a number of pipelines from – that will bring gas from the U.S. into Mexico and break the bottleneck. (Inaudible) system are really very large program underway. They are in the end in the tender process for many of these and some is underway. So there will be increased demand for export to Mexico, there will be increased demand for the industrial activity.
And today U.S. has a different landscape for industrial. I mean when you talk about energy independence, you start considering incrementally for the tank from a different angle. And these are – could even get to transportation, would be very larger. Today you do not have very large group but in some moment transportation gas based may even change the scenario. So if you talk to me leaving with the experience of Latin America, experience of Italy, experience of every area which the gas is used, I’m very bullish on the demand side and I’m very confident of the supply side. So I would say a price in the range of six, seven in the long run will plainly satisfy the need of the consumer, and we’ll plainly satisfy, the need to return, let’s say to give the return to development that could be very massive in U.S., Germán not very well is so bullish.
Germán is more crucial.
A little bit more bullish, but two points, well maybe three. One, we’re convinced that gas is the core of the reindustrialization process of the U.S. It is truly in our mind no doubt about it, also transportation but everything that we hear about the economy, jobs and we’re not – at the end it’s connected to our ability to reindustrialize the country and gas is what's going to fuel it.
Now, short-term where we have about 400 rigs we bought it to gas today would expect in it to continue the decline between now and the end of the year in much lower pace. We’ve lost about a 120 rigs overall, majority of which have been gas. We see that trend probably continue in the coming months at a lower, much lower pace. Ultimately it is likely that would end up at above this lesser, 150 rigs overall that we talked about in the last so many months now.
For 2013, they say a lot of people talking about probably a gas price at five, particularly at five at the end of the year. We think this is possible, we’ve seen the rebound in the last so many weeks now. The summer help, there is no doubt about that also. Consumption is outpacing the supply. It’s not unlikely that we see [five] at the end of 2013, and then the associative rebound on rig count. Please?
I have a question in terms of intensity of OCTG. So if the rig count goes up 2% to 3% a year for the next four or five years, I don’t know what the percentage is, but just say it does. what do you think to be honest, as growth will be in that case, in terms of volumes?
Well, we are expecting that the market will go up in the range of, let me imagine 5% for the year, and now this as a figure we have in mind. Now the premium component will go up faster, because of the shale gas. In this moment, you can say it’s quite, there’s a slowdown that Chairman has mentioned in, by the way is one of the – I mean is one of the fact that is very lower, so our results in the short run is the more bearish perspective in this quarter than next quarter. I mean, but these are from my point of view short-term perspective.
In the long-run, the payment component should grow more than 5%. and if you look at the size of this market, this rate of growth combined and with a different business model and the need to – the news working capital had a little different logistic, and more local production in [prosecution] is the one that is supporting our medium term view for the system. I think these are the keys. Please.
Could you talk about your capital spending plans and R&D spending plans and distinguishing between how much you would judge to be a maintenance level to just hold your profitability constant and how much of the level of capital spending, R&D is to drive growth and profitability?
We probably will not get into the detail let’s say of dividing the (Inaudible). We wouldn’t let’s say separate maintenance, I mean some improvement of the facility in which we are expanding capability let’s say on the Brown project of this. But Ricardo, if you should consider from a financial point of view how we are doing in this quarter in term of expected level of CapEx?
Regarding CapEx, we during the year, we expect a level of capital expenditure including some maintenance, important maintenance and new facilities close to $900 million a year, for the year. Next year, according to the development of the project in the later stage, we will have some figure that could be in someway similar to this year. But it depends a lot on the reason for next big project.
And I will say regarding the concurrency strict maintenance or the volatility may represent of these 900 around 40%.
40%. Now, investment in R&D is continuously growing according to the, let's say the opportunity for the development that we see. If you look at the pure, let’s say limited investment in R&D, I think so without quality product development only fewer and these will be in the range of 18 million. And will increase with the new facility in Brazil next year, but still will not be let’s say, significant from a financial point of view. It will be very significant from the profit and portfolio point of view more than from an R&D point of view of that. Please.
Hi, Paolo. You shared with us that you expect in the next four years, you expect 20% of additional rigs from today and it fully underpins your decision to invest in expanding your capacity in the U.S. Could you share with us some of your scenario analysis in terms of where this 20%, is it a base case, ball case, bare case and your things would deteriorate from here, how this would impact the returns on this investments or perhaps the ball case how that would affect your decision?
I think this is a scenario in which we are planning for Brent in the range between around 100, within say 90 to 110 moving in this range and gas is in the range of $5 in 2014.
So from my point of view, I remember I’m bullish on gas. This is still a crucial scenario on the point of view of gas prices. Remember gas is driving premium in shales very much so. I mean the level of premium used in oil shale is much lower than the level of premium, the quantity of premium used in gas shales. So a recovery will entice increase demand for premium and changing the mix for this. This is the base scenario.
Now macroeconomic situation is complex. There is serious destruction in Europe in the next two years. I think slowdown in China you will see differently. China, I'm not so bullish, because I’ve seen this steel demand, steel demand was coming at 20% for long period of time then it goes 23% in 2009 and it starts slowing down and this year is forecasted to be 2%.
Energy power consumption is rolling a similar plan, so the economy is reducing the level of investment, it reducing the level of import is trying to stress consumption, but it’s not clear if this in the end considering the demography so will happen. So the question of price of commodity is so important for our work. Something that I think we would see in the next six months, one year is not something that, this is the daily scenario. Europe or China good effect and daily scenario, and more optimal scenario will I mean if you have, let’s say a Chinese new leadership taking a strong stance, able to stimulate the economy and get back to the rate of growth in the range of 8 or plus. Price of commodity will be high, the level of growth in the world will be higher, this could happen in 2014 or 2015, this will be, let’s say the more aggressive scenario for Vallourec side.
A follow-up on China, if you imagine a deeper slow down of GDP in China would you expect more aggressive attitudes of Chinese producer on damping measures on those market where there are no anti-damp measures, I’d refer particular on Middle East for example, you expect a contraction of prices in those areas?
No, I think China is, today, you see the results. There is no – I don’t think there is room for additional pressure on prices, and there is not so much room on additional pressure on volume. They are doing what they can. So, even a slowdown in China will not change the attitude of the Chinese. What will happen? They will have that less resources, and the government will think twice before wasting money on new capacity or wasting money on supporting without forcing a consolidation.
This is happening today in the steel industry, outside pipes and you see this in the – why the steel demand is going down to 2%. Because China is slowing down some of the major infrastructure project, I mean capacity addition product that have led to excess capacity in some sector, and have no return. So you had apartment not used, plants that are working 60% of the capability run railways that has no use and so on and so forth. So I don’t think we can – what, yes, we may have in the crisis that in. We will have a more aggressive stance on part of the U.S., Europe in defending their own interest, and acting against unfair trade practices. This will also happen in Latin America, it’s happened today in Brazil. When Brazil’s slowdown, it is low, is taking action to protect key aspect of their data system. So in this sense, I think that even various scenario, there will be less demand worldwide, but I don’t think will change the competitive. Please.
If your growth expectations are confirmed and that is we’ll have a growing free cash flow in the following years, could you please comment about the uses of that free cash flow acquisitions, dividend payments?
I think we will be always looking for investment or acquisition that could strengthen our differentiation. Our logic is to have a profitable company, and this company has been profitable in the past and is consistently profitable today more than most of our competitors. This is very important is our target, so is not, let’s say unreasonable expansion, but yes, is differentiation. So if we perceive that we can create competitive advantage in different market, we will pursue these projects. Now I feel there will be full of opportunity in the world in the coming year in different environment for building additional increased differentiation. The project in U.S. is one decision that we have taken, because we have this, let’s say, we analyze it and we sold this opportunity. but there will be other in different parts of the world or in different area of the state. Yes.
You provided a breakdown in the presentation for API versus premium on the market in total. Do you mind providing that same breakdown for Tenaris? and then just a second question on, input costs obviously for your business have been coming down over the course of the last three to six months, and just the impact that has if any on the Macondo business and the lead or lag of those margins?
Well, on the first point, we do not provide specifically for how this is evolving, but we are saying that our market shares worldwide vary between 30%, 32% in worldwide market for premium. So you can figure out according to your model more or less where we stand today on premium. In the second point if you understand (inaudible) how this lag in result is impacting on our results, am I understanding right? The second part?
Yeah. Well, we are clearly proceeding a reduction in cost of hot rolled coils [iron ore] and this is having a positive impact, but I would say that in this moment there is also pressure on the low-end market you see this reflected in the Pipe-Logix. So, in the end, we are probably reducing some of our cost from our input, but we also have pressure on some of the price in the low end material.
On top of this we have an inflation in the country which we operate as far as cost of labor is concerned, Brazil, Argentina to much lesser extent Mexico, much later stand, but Columbia. We had pressure there, I mean and this is coming from the macro economic environment in which, I’d say, in this country the export of raw material also tend to over value the exchange rate. This is reflecting in our cost. So it’s true that we are paying less for the [iron ore] that’s also proved that for instance in Argentina we are paying more for manpower in term of dollar per hour, and the same is true in Brazil.
Mexico I would say not being the large exporter of raw material is a different macro economic environment. Japan is always high cost environment, and let’s say in this we consider European operation, maybe are suffering a little for the slow down in [that] activity, but from a cost point of view, it is not the worst – I mean the place in which we have a higher cost inflation.
As a sort of a follow-up to that and then another question, when you look at the deepwater markets obviously there is growth there and obviously I believe and correct me if I’m wrong, but it's a very higher margin product line for you. At what point do you think we see over the next couple of years the activity in deepwater growth really showing up on your margins? Is there a point where you think you’ll see a margin inflection point from just better mix coming from the deepwater? Is that not a big enough piece to make that big of a difference?
And then I guess is a follow-up to Pete’s question is there, are you basically saying that the price versus cost is such that you don't think you see any margin expansion near-term from the raw material deflation?
I would say the deepwater is very important, but the size of the market is relatively limited. I mean when you look at the overall size of the market even it’s growing faster and we still expect to see a 50% more, demand was less last year in this segment and the segment is relatively small, so is playing positively. Our high-end component is also supported by this and by shales, but I wouldn't say that is having such a large impact on our margin, gradually is raising this.
What today is affecting our margin basically I have to think the low volume driven by U.S. adjustment. I mean, the U.S. are clearly giving out lower demand in this quarter compared to what we expected and this is one thing. And secondly something that depends on us, I mean in this vast intervention in maintenance, Brownfield project and so, we perform relatively well but we have in terms, we were changing the inter-furnace this has been a slightly an operation in open-heart, operation is very difficult, we had some lets say complex (inaudible).
This is to some extent affecting our cost because we have to re-distribute production and so, now this effect should be going on. If we believe declining looking at next year so, if you look at the impact of cost, I would say that the impact of cost will be partially observed by some increase in the prices of the low end. That steel is a component of our sale.
Thank you. Yeah.
Just in-terms of capital allocation over the past year, we’ve seen significant steps towards Brazil with (inaudible) and Usiminas and the R&D that have been established. Can you talk about maybe put on your five year, ten year with had like you alluded to earlier talk about were you see yourself in Brazil in 10 years given that oil production could double. You have premium connections on the welded side, could you gain market share on the seamless side of connections with the U.S. plan could you export seamless to Brazil or in a long-term set up seamless in Brazil.
Now, we do not have plan for this, we had plan in expanding our range of products in Brazil, because the development offshore sort of Brazil are requiring a large range of product from conductor to casing to pipeline to line pipe to coating with different complex coating insulation. I mean Brazil has one of the largest operation for offshore in the world. So there is a complex of activity, some of this is very rare opportunities. We will invest in the niche in which we feel we have competitive advantage. This is what we have been.
And we also positioned Tenaris with much stronger relation with Usiminas for integrating our welded pipe with the supplier of raw material. This allow us to be credible when we face the client and we tell them we are able to do this in time with the product, with quality control and so on and so that allow us to have premium joints on welded pipe. As you know we have a long term agreement with Petrobras and we are also supplying other private company, international company that are operating in Brazil with premium product.
Now to do this, you need to control or at least be integrated in a way that assure the quality, compliance, and control on your product. And in this sense, I think it’s been important to position Tenaris on this. We do not expect to invest the Seamless we expect to invest in the niche that I mentioned. That are very relevant for Petrobras and we think there is a lot of demand in the foreseeable, I mean the coming years.
If I’m right, in your initial planning in Veracruz, Mexico, you did intend to invest in steel capacities, which was postponed, so now you’re expanding tubes capacities in the U.S. that mean you should be short on steel in the coming years that it mean, is it a real willingness to be short on steel or will you invest in two years from now in steel facility.
No, no, we plan to invest in steel, in production of steel to be let’s say to be able to fulfill all the demand that we have. We did the first step that I would mention before in which was the changing of the electric arc furnace in TAMSA, which has been designed to allow us to fulfill the demand that we expect in the near-future, with the first step of increase, and there will be a second step of increase in the T-Shop of TAMSA, we will add a second electric arc furnace is a second continuous gas step, this is the lightly decision that we have to take within two years, it’s a decision to establish to having additional steel capacity be coming on stream by 2016.
So in this intervention, we were preparing the ground for the future. That’s the reason why I mentioned was a very relevant complex intervention, because we were intervening on functioning plant is like changing the engine of a plane in flight. The plane is still flying, but…
The cost will be, let’s say will not be significant in the – for a company for Tenaris I mean, it will be cost, but we are talking about an investment that could be one hundred and something million dollars, this is where I think we should be able to compact. We still have to carefully look at all the alternative at this time. Thanks.
Yes, just a follow-up on the cost issue and margin issue, looking over the next couple of quarters, it looks as if perhaps these cost increases could create some pressure, but looking into 2013, what is your view on the overall market and how do you see prices and demand as well as costs some behaving next year. And then just a follow-up on the other question, in terms of dividends, any thoughts on with the cash flow you have on and what you might do with dividends longer-term?
On the first question, I think in the scenario, in the base scenario, even in the base scenario, I think there will be downside pressure on iron ore, if China remain 2%, China today is forecasting 3% growth of steel industry next year. I frankly think that this is a base scenario, but this could be some downside scenario, in that case iron ore will still be around present price, which is as you see (L-Dex) is in the range of 105, 110, the fact that it will go below this figure in – I mean, I do not expect pressure on cost on us coming from iron ore. I expect that this will be a reasonable scenario. And depending on China, China is really the key factor for determining and the factor is, I mean closure of domestic production, will they continue to produce and the loss will be supported by the regional government, will they stop some of the mining operation and import or not, this decision are influencing the level of price. We are considering that we would stay where we are. On the second, we will follow the dividend policy that we had in the past, have no reason to think that the Board will change, will introduce changes to what we have done as a policy.
With regard to the balance sheet relative to your EBITDA and cash flows, your debt seems low, your cash seems high. What’s the strategy behind maintaining such low debt and high cash?
Well first we are happy because this moment in the world, is always better to be conservatively looking at our cash and at our debt. This is positioning us much better than most of our competitor, you have seen and you know the balance sheet of our competitor from China to Russia to everywhere. We are very, let’s say confident and this position is a good thing. I think we are, I mean we are keeping our position and considering the option, but having in mind what I say before, we think that this is a high profitable company, should remain a profitable company. we have no reason to, let’s say do misuse, we will be conscious in using our capital either for internal investment or for any acquisition. And with this in mind, we go on looking at what’s coming out from the situation. Please, one person there. I think Giovanni you have.
With the new factories, can you talk about what your return requirements are for those and also you’ve mentioned some differentiators from Vallourec but maybe if you could just take off the more important ones again? Thanks.
Well, I wouldn’t say that we have a fixed rate of return for the new investment. We calculate the cost of capital in different situation. We keep this as a reference, but then let’s say we see the potential for differentiation and the risk involved any (inaudible). So we combine the risk perception, the potential for differentiation and the return in the base cases of the risk. I wouldn’t say that we have a fixed rule or that the board has established a fixed rule for or threshold for evaluating return on our investment really.
Well, the differentiator, I think in the presentation we have presented some of this. I think if you look at the industrial system, the Tenaris industrial system for its global positioning for the geographical distribution of asset is a very strong differentiator. From the point of view of a regional presence our network of operation technical sales and commercial structure worldwide is also stronger and then reflected basically in the market share that you see. On the industrial area, we are focusing on segments that are maintaining reasonable return. So we are under the – if you look at our position in this segment still I think we have been able to develop niche in which we are able to maintain reasonable margin and this is very important, also outside the oil and gas (inaudible).
I also think that in term of portfolio product, the premium joint spec, the steel base is from my point of view stronger in many aspects. I’m not saying everywhere, I think there are areas in which we respect very much our developed excellent product and breakthrough, but I think that our portfolio, if you look at it as a whole is stronger in addressing the development that you have seen and we mentioned on the quarter high pressure high temperature shales.
I think our position in shale is very strong. On the point-of-view of service, I think that in the U.S. the position of Tenaris is very strong. Also you know the capital structure now of (inaudible) some case could be a bonus, but in some other case could, let’s say slow down action or may not be so effective in occupy or covering or satisfying the client need, think about the U.S. as an example, but also Brazil is a complex situation of the plant that is satisfying Sumitomo and Vallourec. This is for instance something that we wouldn’t be let’s say a solution of our choice.
We really are focused on full control of the entire process, industrial for the development service and when we have alliance, we have alliance for nation which is very clear and there are no conflict of interest. We try to separate the water the best we can.
I think there are no other questions. Giovanni, we have coffee break. I will thank you very, very much, all of you for coming. Thank you for your attention and for your question, and I hope to see you next time, hopefully maybe in one of our facility. Thank you very much.
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