Tenaris S.A.

Good day, and thank you for standing by. Welcome to the Q2 2021 Sinatis S.A. Earnings Conference Call. At this time, all participants 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. Please go ahead.

Thank you, Gigi, and welcome to Tenaris 2021 Second 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. With 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 second quarter of 2021 reached $1.5 billion, up 23% compared to those of the previous year, and 29% sequentially, mainly driven by recovering sales in North and South America, but with sales increasing in all our reporting regions. Average selling prices in our tubes operating segment declined 6% compared to the corresponding quarter of 2020, but increased 6% sequentially as higher prices are compensating higher raw material costs. Our EBDA for the quarter, which included an extraordinary gain of 33 million from the recognition of fiscal credits in Brazil, was up 54% sequentially to 301 million, reflecting higher volumes and our good industrial performance. Our EBDA margin was up around 20%. Our quarterly net income of 294 million benefited again from a strong contribution from our investment in Ternium and Usumina. During the quarter, working capital increased by 314 million, mainly due to higher inventories, which reflect the increased levels of activity. Cash used in operating activities during the quarter was 50 million, with capital expenditure of 51 million. Our free cash flow for the quarter was negative $402 million. After a dividend payment of $165 million in May, our net cash position declined to $854 million at the end of the quarter. Now, I will ask Paolo to say a few words before we open the call to questions.

Thank you, Giovanni, and good morning to all of you. As we ramp up our activities to meet higher demand, Tenalys is acting on all fronts. We are hiring and training new employees as we increase production throughout our global industrial system. Our team is managing disruption from the ongoing effect of the pandemic and confronting rapid increases in raw material and logistic costs. Once again, Our team is demonstrating the resilience and capacity to respond to changing conditions that is a hallmark of our company. In this dynamic environment, our second quarter results show the progress we are making in North America and the rest of the world. For the second consecutive quarter, our sales in North America increased by more than 30%. As we extended our rigged direct sales model and fully recovered the market position in the U.S., that was affected during the lengthy Ipsco takeover process. We are moving quickly to bring production at Bay City to full capacity, to step up production of billets at Coppel for our U.S. and Canadian seamless pipe mills, and to bring online our Enbridge mill and the Baytown finishing facility in Houston. Since October of last year, we have taken on 700 new employees in the United States, and plan to hire a further 450 by the end of the year. Digital integration is a key feature of our RIG Direct service, both in the United States and around the world. We now have 50 customers using our RIG Direct portal around the world who account for 50% of all items ordered under our RIG Direct program. Within this program, we also offer full pipe traceability through our pipe tracer applications. In South America, sales are also recovering. In Brazil, Petrobras awarded us the contract to supply sour service and high alloy seamless casing for the Libra pre-salt field. Petrobras will use our seamless product, including our dopless and pipe tracer technology, in the Brazilian deep offshore, an important step in our positioning in this market. The Libra Discovery, now renamed Mero, is one of the world's largest and most important deep-water fields. The reservoir in the Santos Basin is located 4,000 meters below the seabed, at a total depth of 5,900 meters. It has estimated total recoverable reserves of 3.3 billion barrels and a development plan In Argentina, we began offering pressure pumping and coil tubing services in Vaca Muerta as a complement to our full rig direct service in the country, with a backlog worth $70 million over the next 12 months. Worldwide, we expect to invoice around $400 million in service and accessories over the same period. With these services, we have the opportunity to reinforce the relationship that we have with customers and extend our knowledge of operating conditions. In Europe, in-data production has been recovering following the pandemic. New sales opportunities in hydrogen storage, carbon capture, carbon capture and storage infrastructure and inspection of electrical grids are appearing in connection with the energy transition. In the data sector, I would like to highlight our global automotive business, where we expect to invoice around 200 million this year, with over 50% coming from tubes and components for airbags, a segment in which we have a 40% global market share. To meet demand growth in this sophisticated segment, we are expanding our component facility in China, This quarter, our sales growth amounted to 29%, and we expect that our sales will continue to grow in the coming quarters. As we move into 2022, we should also see a stronger contribution from the Eastern Hemisphere, with the large backlog of order we have in the Middle East that we discussed in our previous call, and the reactivation of activity in some offshore projects in Africa and the North Sea, where we are well positioned. The substantial increase in raw material costs that we have seen since the beginning of the year are just starting to appear in our cost of sales, and it will not be until the fourth quarter that they are more fully reflected. Prices are also increasing with some lag, particularly in North America, as drilling activity recovers and tubular inventories held by distributors declined. Against this background, we are confirming our guidance for a 20% EBITDA margin level during this third quarter. As the world prepares for the COP26 climate summit in Glasgow, with the expectation that current decarbonization targets will be reinforced with more specific action in support of those targets, stand ready to contribute with the investment in decarbonization that we have committed to carry out over the coming years. More customers are asking us about our carbon emissions and how we plan to reduce them and we see this as an opportunity to reinforce our competitive differentiation. I will leave the floor open now for any questions you may have.