Tenaris S.A.

Ladies and gentlemen, thank you for standing by and welcome to the Tenatis S.A. fourth quarter and full year 2020 results 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 one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Giovanni Sardagna. Thank you. Please go ahead, sir.

Giovanni Sardagna Thank you, Gigi, and welcome to Canaris 2020 Fourth Quarter and Annual Results 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. 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 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 fourth quarter of 2020, sales reached $1.1 billion, down 35% compared with those of the corresponding quarter of the previous year, but up 12% sequentially, driven by a gradual recovery in drilling activity in the Americas and a good mix of products sold in the Middle East. Our quarterly EBITDA at $192 million, which included several charges of $37 million and one-off gains of $70 million rose 79% sequentially, reflecting a better industrial performance and the operating leverage of higher volumes on a lower fixed cost base after the restructuring measures implemented during the year. Our quarterly EBITDA margin recovered to 17%. Average selling prices in our tube operating segment declined 2% compared to the corresponding quarter of 2019, but were up 2% sequentially. During the quarter, cash flow from operation was $139 million. Our net cash position remained stable at $1.1 billion, following the payment of a mid-term dividend of $83 million in November last year and capital expenditures of $38 million. The Board of Directors has decided to propose, for the approval of the Annual General Cherubos Meeting to be held at the beginning of May, the payment of an annual dividend of 21 cents per share or 42 cents per ADR, which includes the interim dividend of 7 cents per share or 13 cents per ADR that we paid at the end of November of last year. A dividend of 14 cents per share, or 28 cents per EDR, will be paid on May 26. 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. 2020 was a particular year which has left an invaluable mark on the world. The pandemic is reshaping societal expectations and changing established paradigms. But it is still too early to understand the full extent of the transformation that it will bring. The energy transition is also accelerating. We, as a company, wish to maintain flexibility in the short run as we redefine our strategy in action to meet the new realities. At Tenaris, we opened the year by concluding the acquisition of Hipsco and with the expectation that U.S. drilling activity would soon start to recover after an year-long decline. Instead, shortly after, everything changed as the pandemic spread rapidly around the world. From one day to the next, demand for our products and services began to shrink and our way of working changed. Global oil demand collapsed and oil prices refitted, even becoming narratives at one point. In the U.S., drilling activity plunged precipitously and we had to close most of our newly acquired facilities. The challenge involved every aspect of our business and affected all of our employees. We had to adopt new safety protocols to assure the safety of all the persons entering our plants and offices to help production while minimizing labor costs and efficiencies as demand plummeted. to provide support for the medical system in many of our communities, to find new ways of meeting customer commitments, to change the way we work and communicate, all while implementing an intense restructuring program to ensure financial stability and long-term sustainability for our culture. We responded rapidly and have been disciplined in implementing our objectives. I would like to give a special thanks to all our employees for the way they adapted to the circumstances and their contribution to our efforts. Since the start of the pandemic, we have had a total of 2,250 persons affected by the virus among employees and contractors and an infection rate of a little over 10%. Currently, we have less than 100 adapted cases and we still have 550 people in the at-risk category, who are prevented from coming to work. At the same time, we maintain the improvements we made over the past year in our state indicators. Our contributions to reinforcing the medical infrastructure and equipment in our communities have been very well received, leveraging our global procurement structure. We deliver ventilators, intensive care units, equipment units, and Personal Protection Association founded four new field hospitals in our diverse communities. Our employees were quick to show solidarity and initiative. At the onset of the pandemic in Bergamo, which was then the epicenter of the contagion in Europe, they worked tirelessly to produce oxygen cylinders for the local hospitals. While in Campana, in Argentina, they designed and produced More than 80,000 face shields for medical staff and first responders in the local community using one of our finishing lines. In addition to maintaining service quality in a rapidly changing environment, we reinforce our redirect customer program by integrating digital initiatives aimed at simplifying operational and administrative processes and making them more reliable. In the U.S., for example, Two-thirds of call-outs made to our REGDIRECT customers are now made through our REGDIRECT portals, and customers are starting to use our price tracer system to perform digital salaries. We will continue to deepen the Digital Integration Initiative to reinforce service differentiations and customer loyalty. To secure the financial stability of the company, we implemented a detailed plan to reduce our fixed cost structure by $230 million, or 25%, by the end of 2020, and to generate cash through reducing inventories, managing receivables closely, and reducing investment. We have met or exceeded our target, generating $1.3 billion in free cash flow for over the year, which includes a $1.1 billion reduction in working capital. Excluding impairment and restructuring charges remain positive. In the fourth quarter, we ended the year with a higher EBITDA margin than we had at the end of 2019, despite a 35% drop in revenue per year. With these results, a strong balance sheet and a brighter outlook ahead, we are proposing to reinstate the annual dividend at 50% of the level it was prior to the pandemic. As drilling activity in North America picks up, we are strengthening our position in the U.S. and Canadian markets, building on our redirect service proposition, consolidating our offer of Tenaris hybrid wedge connection products, and taking advantage of the market opportunities offered by consolidation in the shale sector and the competitive environment. We are preparing to operate Bay City at full capacity and to start up the cocktail steel and Ambridge Seamless Pipe Mill together with their associated finishing facilities later this year as the market continues to improve. Meanwhile, we are proceeding with our investment to integrate seamless, premium and welded pipe production at our mill in Sulston Murray in Canada after closing the Prudential Mill in Calgary. In offshore markets, we have strengthened our position through the introduction of Blue Dog Connector in the Gulf of Mexico, and Guajana. While in Brazil, we are also successfully introducing our seamless riser products to replace flexible riser solutions. In Argentina, the implementation of a new plant gas is helping to reactivate activity in the Vaca Moerta shale plate. In the Middle East, we are supplying a casing for the expansion of the North Field in Qatar, which will provide the gas for the recently and the recently sanctioned Qatar LNG extension. This product will include our Dopless technology, which is now firmly established in this market. Also, demand in the Middle East during 2021 will be affected by ongoing stocking in key markets. We continue to consolidate our position in the United Arab Emirates with investment in a premium trading facility, which will begin operation in 2022. Looking ahead, our raw material costs will be higher. But also pipe prices are moving up as shown in the pipe logic index, which has risen 23% since the recent bottom in August. Power increased operating leverage. This will contribute to further margin improvement during the year. Carbonization has become a major issue for all over the world, and in particular for our industry. Yesterday, our Board of Directors approved a medium-term target to reduce the carbon emission intensity of our operation by 30% from a 2018 baseline and the introduction of an internal carbon price of $80 per ton to accelerate the investment necessary to achieve this target and our long-term objective of eventually reaching carbon neutrality. We will give additional transparency and evaluation to this program, which will follow on a quarterly basis in our board when we join the CARBONS Closed Report. This will become an even more important part of our agenda in the coming years. We can now receive all the questions you may have.

As a reminder, to ask a question, you will need to press star 1 on your telephone to withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from the line of Igor Levy from BTIG. Your line is now open.