Tenaris S.A.

Ladies and gentlemen, thank you for standing by and welcome to the Q1 2020 Tenaris S.A. Earnings Conference Call. At this time, all participant lines are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Mr. Giovanni Sardagna, Investor Relations Officer. Thank you. Please go ahead, sir.

Giovanni Sardagna Thank you, Gigi, and welcome to Tenerife's 2020 First Quarter Conference Call. Before we start, I would like to remind you that we will be discussing forward-looking information in the call and that our actual results may vary from those expressed or implied during this call. Joining me on the call today are Paolo Rocca, our chairman and CEO, Alicia Mondolo, our chief financial officer, Guillermo Vogel, vice chairman and member of our board of directors, Germán Curá, 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. Our sales in the first quarter of 2020 reached $1.8 billion and remain in line with those of the previous quarter, even after the integration of Ipsco. As a result of low sales backlog at the completion of the acquisition and lower sales in all our main markets as a consequence of the rapid decline of economic activity, and the collapse in global oil demand as a result of the measures taken to contain the spread of the COVID-19 pandemic around the world. Average selling prices in our tube operating segment declined 7% compared to the corresponding quarter of 2019 and 2% sequentially. Our EBDA for the quarter was down 4% sequentially to $280 million. and was affected by losses at Ipsco and severance charges amounting to 23 million. Our IBDA margin decreased to around 16%. Excluding severance charges, our IBDA would have been 303 million and a margin of 17%. Our operating income for the quarter was negative for 510 million but includes impairment charges for $622 million on the current value of Goodwill and other assets in the U.S. These impairment charges reflect the severe change in business condition we are experiencing with the collapse in oil demand and prices and their impact on drilling activity and OCPG demand. During the quarter, cash flow from operation was $516 million as we reduced our working capital by $317 million. Even after the acquisition of Ipsco for 1.1 billion at the beginning of the year, we have been able to close the quarter with a net cash position of 271 million. Given the uncertainty around the effects of the recession originated by COVID-19 on our industry, the Board of Directors has proposed to limit the dividend in respect of the 2019 fiscal year to The 153 million payment already made as an interim dividend in November of last year. 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. Since we published our 2019 annual results in February, the world has changed completely. The rapid spread of the COVID-19 virus and the measures adopted to contain it have precipitated a global crisis that is unprecedented in the speed and severity with which it has affected the economy and our everyday lives. The recovery from this crisis will take time and will hasten changes in many fields. The impact on the energy sector is particularly severe, and there will be a lasting impact on trade, travel and the way we interact with each other. Never before we have seen demand for energy collapse so much and so fast, driving prices in the U.S. down to levels unseen in the past. Oil and gas companies are focused on maintaining financial sustainability through this unforeseen chain of events and investment in exploration and production will be reduced to a level comparable only to that of the 1999 crisis. With the shales, this downturn is happening faster, and it is the shales that will be most affected, while lower costs offshore and conventional drilling may be less so. It is difficult to foresee the timing of the recovery in the oil demand and the extent of the structural change that the sector will go through. Before turning to the measures we are taking in response to this crisis, I would first like to thank our employees and the medical staff in the communities where we work for the tremendous response that they are making in these extraordinary circumstances. I will give you two examples. At the height of the emergency in the Bergamo region in Italy, our employees in Dalmina continue to produce gas cylinders. which were needed to respond to the medical emergency in the region. While in Campana, in Argentina, our employees decided to design, retool equipment and fabricate face masks in our facilities to contribute to the safety of hospital staff and first responders in the region. A quick word on the first quarter. As we mentioned in our last call, we have moved rapidly to integrate Ipsco business and us into Tenerife. The sales backlog we inherited was small, while the level of inventory was high, due to the action taken by the distributor to shift purchases from Ipsco to other suppliers during the prolonged antitrust investigation. Given the collapse in market condition, it will take time to recover the former market position, and we have had to close down, for the time being, most of the assets that we acquired. Our results were solid, and I'm pleased to say that in March we had our best ever monthly safety performance. This is very important for our people, for our company. I would also like to highlight the free cash flow we generated. This amounted to $448 million, or 25% of revenues, as we maintained operating margins and reduced working capital. These performance will help us in the coming months as our operation adjusts to a much lower level of sales and we implement our structuring programs. First and foremost, however, we are taking comprehensive measures to protect the health and safety of our employees and ensure a safe working environment that will allow a gradual return to production when conditions permit in the countries where we operate. We are checking the temperature of all the persons who enter the facilities, providing appropriate protective gears, fully disinfecting our facilities, ensuring that social distancing rules are respected, and using home working where possible. We are also taking special care to protect the most vulnerable. In China, our facilities are now fully back in operation while in Italy and Argentina, where production has been stopped for a while, We are gradually starting up production again. We are supporting our communities where the everyday lives of families and neighbors have been deeply affected. We are using our global capabilities, including our regional office in China, to strengthen local health provider with the supply of medical equipment, protective gear, and infrastructure, as well as providing support for affected persons. A $6 million fund has been established for this purpose. Doing all we can with the resilience and ingenuity of our people to fulfill our commitment and strengthen our relationship with customers and suppliers. They will be essential for our future and they should feel that we are accompanying them during this period. Looking forward, we expect a substantial reduction in our sales and operations for an extended period of time and we need to adjust the company to this new reality. To ensure financial stability and maintain the continuity of our operation, we are rapidly reducing production levels and implementing a plan to downsize our fixed cost structure and contain costs around the world. In the United States, we had to close many of our facilities and reduce our work. In other countries, we are using suspension and government programs In consultation with labor unions while respecting government recommendations, particularly in relation to the population deemed as most at risk. We plan to reduce our fixed cost structure cost by 25% or around 220 million annualized by the end of the year. We will preserve our capacity to react to the eventual market recovery and our unique global and local deployment capabilities In a world where local content and service is only going to become more relevant. This plan involves salary adjustment at all levels, including reduction of 20% for top management. Yesterday, a member of our board also volunteered to reduce their emoluments. We will prioritize cash flow. focusing on reducing our working capital through the crisis and reducing our investment to a minimum without compromising our long-term transformational programs. We plan to reduce our capex and R&D investment this year by 150 million or over 35% while maintaining our long-term investment plan focused on the environment and safety as well as digital integration initiatives. and those of our customers. Digital integration has become a key feature of our unique rig direct value proposition as the opportunities for simplifying operation becomes even clearer. The oil and gas industry is being deeply affected by this crisis and the competitive environment in which we operate will be transformed in a way that today is difficult to anticipate. As we concentrate on securing our financial stability in a highly uncertain environment, we are proposing to limit our 2019 fiscal year dividend to the amount already paid in November. Eventually, the world will resume a growth path, and the need for a reliable supply of energy will be essential for recovery. While we need to be prepared for the future, we also need to act swiftly and resolutely in facing the challenges of today. Thank you. We will then receive your questions.