Tenaris S.A.

Ladies and gentlemen, thank you for standing by and welcome to the Tenaris Second Quarter 2020 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, Giovanni Sardagna, Investor Relations Officer. Thank you. Please go ahead, sir.

Thank you, and welcome to Canaris 2020 Second Quarter Conference Call. Before we start, I would like to remind you that we will be discussing forward-looking information in this call, and that our actual results may vary from those expressed or implied during the call. With me on the call today are Paolo Rocca, our Chairman and CEO, Alicia Mondolo, our Chief Financial Officer, Guillermo Fogel, 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 Granotti, 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 for the second quarter were down 30% sequentially to $1.2 billion 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 increased 8% sequentially due to a particularly good mix of products sold during the quarter. Our EBDA for the quarter, which includes $54 million of severance charges, was down 79% sequentially as it was affected by the low absorption of fixed and semi-fixed costs and inefficiencies related to the steep decline in capacity utilization at our production facilities. Our EBDA margin decreased to around 5%. Excluding severance charges, our EBDA for the quarter would have been $113 million, with a margin of 9%. During the quarter, our free cash flow remained strong at $402 million with a further reduction in working capital of $436 million. Consequently, our net cash position at the end of the quarter improved to $670 million. 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. The impact of the COVID-19 pandemic and the diverse measures taken to contain it continue to be felt around the world. While we may have seen the peak impact on global economic activity and oil consumption during the second quarter, further recovery will be slow and beset with uncertainty. Many parts of the world have still to come out of lockdown, others are being hit by fresh outbreaks of infection, and there is a constant risk of further waves of infection, while we are still far from finding a definitive solution which would allow us to resume many activities that we took for granted prior to the pandemic onset. All aspects of our operation have been affected as we implemented actions to secure the safety of our employees, comply with government-mandated restrictions on activity, support the medical response efforts in our communities, accelerate digital integration and remote working protocols with our customers, adapt rapidly to an exceptionally low level of production, and implement measures to reduce cost and working capital. I would like to give a special mention and thanks to all our employees who have responded and adapted to the challenges that we are facing with exemplary resolve and solidarity in these difficult times. Our second quarter results reflect the advances we have made in our plan to reduce structural costs and working capital and prepare ourselves for the market we see ahead. As we prioritize cash flow, We are currently more than halfway through our plan to reduce our fixed cost structure by around Thank you very much. We are maintaining investment in what we consider essential element for our long-term objective, particularly in environment and in safety. In safety, we have made good results in the last quarter and we are proud of the continued improvement in our safety indicators so far this year. And now we have to maintain a COVID-19 free working environment. Our sales during the quarter were deeply affected by the rapid decline in drilling activity in the U.S. and Canada, the impact of the pandemic and collapse in drilling activity in Argentina and Colombia, as well as an ongoing slowdown in Mexico. With our rigged direct model, our OCTG sales in these countries adjust almost immediately with changes in the drilling activity. In the U.S., there are large inventories over King, in wealth drilled and awaiting completion, and in oil country tubular goods. OCTG inventories have risen to around 15 months of consumption, and this is impacting the demand level and pricing. Our sales in the Middle East and offshore are showing more resilience. This was a particularly good quarter for us in the Caspian and the North Sea. In the North Sea, we completed deliveries for the remaining wells in Kulin, began deliveries to the Glen Gorm development, and recently won an award to supply an exploration well for the Neptune Erich Field in Norway. These are all very complex developments, and our success has been built on the outstanding performance of our product and the benefit of our redirect service. We are well positioned with good visibility in Saudi Arabia, in the Emirates, in Qatar, where we expect drilling activity to continue to be resilient despite low oil and gas prices. In recent days, we have reached agreement for two-year extension on our long-term agreements with NEI, with Petrobras, and with Pioneer. We were also awarded a one-year extension on our Section 232 exclusion for the import of steel bars for our Bay City mills, while we advance with the investment we are making in our couple steel shop in Pennsylvania so that it will be able to supply bars to Bay City starting from next year. In the coming months, we will be focused on reducing costs and working capital, position the company for an extended downturn and advancing with our long-term strategy. These include digital integration of the supply chain with our customer where we have made substantial progress in the past month. Through our redirect portal, customers can directly load their order into our system and today 44% of redirect call out requests in the US are managed this way. Through our pipe tracer tool, we provide Pipe-by-pipe tracking and traceability, which allow for more efficient well planning and supply chain integration, with reduced pipe handling and fewer inspection and tallies. We are advancing the system integration with larger customers in the Permian, Colombia and Argentina. In response to the pandemic, we have begun providing well integrity services remotely to offshore platforms in the North Sea, the Gulf of Mexico and the Asia-Pacific. and have reorganized our technical training service for online delivery. As customers seek further ways to reduce costs and streamline operations, they are looking at how the digital integration can reduce costs in the supply chain. Also, drilling activity may be starting to bottom out worldwide. The oil and gas industry continues to have a large overhang of inventories and production capacity, which will take an extended period of time to bring back Thank you very much. Thank you. We can now take your question.