Tenaris S.A.

Good day and thank you for standing by. Welcome to the Q3 2021 Denatis 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.

Giovanni Sardagna Thank you, Gigi, and welcome to Tenaris 2021 Third Quarter 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 the actual results may vary from those expected 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 Donotti, President of our U.S. Operations. Before passing on the call to Paolo for his opening remarks, I would like to briefly comment on quarterly results. Our top quarter sales at $1.8 billion were up 73% compared to the corresponding quarter of last year and 15% sequentially, mainly due to higher sales in the Americas, which more than upset lower sales in the Middle East due to continued stocking and lower sales in Europe affected by seasonal factors. Our EBDA for the quarter was up 26% sequentially, to 379 million, reflecting higher volumes, better pricing, and a good industrial performance. Our everyday margin rose above 20% following an increase in average selling prices, while the increase in cost of sales was contained by improved industrial performance and higher absorption of fixed costs. Average selling prices in our tube operating segment increased 10% compared to the corresponding quarter of last year, and 6% sequential. During the quarter, cash provided by operating activity was $53 million and with capital expenditure of $44 million, R3 cash flow was slightly negative. Working capital increased by $276 million during the quarter, driven by the continuing ramp-up of operation in the United States and by higher activity levels. Our net cash position at the end of the quarter declined to $830 million compared to $854 million in the previous quarter. The Board of Directors approved the payment of an interim dividend of $0.13 per share or $0.26 per ADR to be paid on November 24th. Now, I will ask Paolo to say a few words before we open the call to questions. Thank you.

Thank you, Giovanni. Good morning to all of you. Over the past month, we are seeing the effect of tighter energy markets as global demand rebound after last year's pandemic-induced slowdown. Oil prices have risen above pre-pandemic levels, as inventories have fallen below normal levels, and the OPEC-plus countries and publicly owned U.S. shale operators maintain their supply discipline. Natural gas prices, and especially the LNG traded in spot market, are reacting to limit in the available supply response, which are leaving Europe with partially unfilled storage capacity ahead of the winter season. This is happening when the sector is under enhanced scrutiny, as world leaders meet in Glasgow, to consider how to reinforce and accelerate a fair and just energy transition. While the goal is clear, the pace and the direction of travel remain uncertain and there are many moving pieces around. This volatility in the energy sector, coupled with supply chain disruption and the lingering effect of the pandemic, are driving risk and opportunity for Teneris. On the one hand, we have rising raw material, energy and logistics costs, and some interruptions in production dispatch and customer drilling programs. On the other hand, demand is increasing with more activity to support oil and gas supply. In this environment, our results continue to show a good recovery, with quoted increases in sales and a recovery margin. Our EBITDA margin has now surpassed the 20% level, thanks to increased volume, rising prices and cost containment. Going forward, we expect this trend to continue. Our sales in North America in the third quarter increased by a further 28% sequentially and are up 155% year-on-year. We expect a further strong sequential increase next quarter as we meet rising customer demand and pass on market price increases. As we have mentioned in our previous calls, We have been ramping up our production in the United States and deploying our rate-directed service to meet the rising demand and the need of our customers. In August, we reopened our Embry seamless pipe facility in Pennsylvania. In October, we reopened our heat treatment and treading facilities in Baytown, Texas. The production of our Bay City mills continues to increase. We are cutting out this ramp up in a challenging labor market in which we have already incorporated 1,000 new employees since October last year and expect this total to reach 1,600 by June 2022. US Steel and several other welded pipe competitors have brought forward a petition to open anti-dumping investigation into DOCTG imports from Mexico, Argentina, and Russia and countervailing duty investigation against Russia and Korea. The U.S. Department of Commerce has accepted the petition to open the investigations while the U.S. International Trade Commission should make a preliminary determination on injury on November 19th. We believe the petition has no merits. and we will vigorously challenge any claim that our import has been dumped or causing or threatening industry to local producers. Over the past 15 years, Tenaris has realized a substantial investment more than any other company in acquisition and capacity expansion to build up a competitive OCTG production system in the United States. While we cannot predict the impact of this investigation, we believe we are well-placed to continue serving our customers whatever the eventual outcome might be. This morning, we announced to our employees in Japan that, regrettably, we and our partner, GFE, have decided to bring to a close our successful association in anchor-capped tubes and shut down its seamless pipe mill by June 2022. This follows GFE's previous announcement, made in June 2020, that it would be closing its cane steel work, where our plant is located and which supplies steel and essential services to the mill. Over the course of the last 20 years, NKK Tubes has made substantial contributions to Tenaris and indeed to GFE, but its closure has become unavoidable. Following the closure of the mill, we will produce the high-chrome alloy product that NKTU supplies to customers around the world in our industrial facility. GFE will support us in this transition with the same exemplary spirit of cooperation that has always characterized our venture. Our employees in Japan show Great Fortitude, as we made the announcement this morning, and we will support them in the coming months. In October, we renewed for a further five years our long-standing alliance with Sandvik for the supply of CRA, or stainless steel pipes. Here, we complement Sandvik material technology with our expertise in premium connection and dopless technology to include these high-specialty pipes This is a growing segment of the market. Qatar, we were awarded a large pipeline contract with a value of $330 million for welded and seamless pipe to be used for the supply of gas to the LNG producing complex. Deliveries are scheduled to start in the second half of 2020. This complements our existing contract for the supply of OCTG in the region. It adds to our substantial order backlog for the Middle East, the impact of which we will start to see in our results from the second quarter of 2022. In Argentina, we have agreed with YPF to extend our long-term agreement, strengthening our rig direct service for a further five-year period from April 2022. We continue to advance our plan for reducing the carbon intensity of our operation. We are completing an investment to extend the size range of our medium diameter rolling milling dam to include pipes up to 18 inches, which will provide substantial energy and carbon emission savings for these larger diameter products. We are also actively looking at opportunities to invest in or acquire renewable energy for many of our sites around the world, including Italy, Argentina, Romania, and the U.S. At the same time, we are expanding our sales of hydrogen storage vessels for use in refueling stations in Europe and California, and we are awarded a contract by Air Products for the supply of a limepipe for hydrogen development in Saudi Arabia. In a challenging and fast-changing environment, Tanaris is delivering on its commitment, improving its financial results, and remains well-positioned to support its customers around the world. Thank you, and we can now take any questions you may have.