Tenaris S.A.

Good day and thank you for standing by. Welcome to Q2 2023 Tenatis SA 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 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. 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 2023 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, Gabriele Podkuska, our chief operating officer, 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 second quarter sales reached $4.1 billion, up 46% year-on-year, but down 2% sequentially, mainly due to lower OCTG sales in Colombia and Canada and lower pipeline sales in Argentina, partially offset by higher offshore sales and higher sales in the Middle East. Average selling prices in our tubes operating segment increased 21% compared to the corresponding quarter of last year, and 1% sequentially. Our EBITDA for the quarter was down 5% sequentially to $1.4 billion due to lower sales and higher SG&A expenses. Our EBITDA margin for the quarter was 34.6%. On the other hand, our net income for the quarter increased 1% sequentially to $1.1 billion as it benefited from an improvement in final results and higher income from non-consolidated companies. With operating cash flow of over $1.3 billion and capital expenditure of $165 million, our free cash flow for the quarter reached a record level of $1.2 billion. After a dividend payment of $401 million in May, our net cash position increased to $2.3 billion 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. In our second quarter, we almost matched the record results for our first quarter, and the combined results of the first half amply exceed our previous record for the semester. This performance was driven by a high level of sales in both the U.S. onshore market and in offshore markets. as well as a solid contribution from our sales in the other region. It was also quarter when our net income and free cash flow each exceeded a billion dollars. Our industrial supply chain system are operating at record levels in many plant and production line, as well as in logistic movements. In the US, we sold a record level of wedge 400 series connections, which have been specifically designed for drilling operation in shale environment. Large operators, in particular, appreciated the value we can bring to their operation with our rig direct service, which now include the delivery of pipes in run-ready condition. This service involved taking care of the supply of pipes from their production until they are run in the well using our pipe tracer system that provided technical specification for each pipe supplied and the running dope applied in the factory. By avoiding the need for rigged site pre-checking processes and making digital tallies with all the data needed for installation, the service reduces cost and enhances safety and environmental performance at the rig. For offshore operations, we again sold the record levels of blue dock connector and dopless connections. In Brazil, we have developed a red zone customer value proposition focused on reducing manual operation on the rig floor and thus enhancing safety. We were also awarded the supply of 95,000 tons for an offshore pipeline and seamless risers for the BMC33 deep water development in Brazil campus basing, as well as a contract for the supply of 46,000 tons of seamless pipe for an offshore pipeline for the Zacaria development in the Black Sea. In Saudi Arabia, we began consolidating the operation of Global Pipe Company from May 17, after increasing our indirect shareholding in the company from 35 This company produces larger diameter pipes for gas pipeline infrastructure, structures, and conductor casing application. The sale of GPC contributed $20 million to this quota. We've increased in Aramco's gas drainage operation, both in conventional and unconventional operation, and its master gas development plan. The demand for OCTG and Lime Pipe in Saudi Arabia is expected to increase strongly over the coming years. OCTG stocks are at a relatively low level, and Aramco is seeking to replenish them rapidly. Tenaris, with a wide range of products, manufactured in Kingdom, where we employ over 800 persons, and extensive global capabilities worldwide, is well positioned to supply Aramco requirements. In July, the Argentine government inaugurated the first stage of the next location pipeline that was built with our pipes in record time. The pipeline opened the road to develop the prolific Vaca Muerta shale resources to transform the country's energy balance. There are further projects for pipeline infrastructure development aiming to expand evacuation capacity of oil and gas from Vaca Muerta. which will attract additional investment in drilling. But this will depend on political development following the election in the coming months. We are well positioned to serve this expansion with our integrated range of local production and service capabilities, from OCTG, pipelines, and sucker rod to fracking and coil tubing services. We are nearing the completion of some investments that will contribute to our target of reducing the carbon emission intensity of our operation by 30% by 2030, compared to 2018. This month in Italy, we are completing the installation of a heat treatment furnace, which is designed to work with hydrogen and natural gas, and will improve the energy efficiency of our Italian operation. In Argentina, we have installed 23 out of the 24 wind turbines for the wind farm, which will supply close to 50% of our electric power requirement for our operation in the country. We expect to start operating the wind farm in October. In our release, we mentioned that our sales and margin in the second half would be significantly lower than our record results in the first half. Our EBITDA will be lower than $1 billion in the third quarter due to market pricing condition and specific activity declines in onshore activities in the Americas. On the other hand, our operating cash flow will again exceed $1 billion as we continue to reduce working capital. Looking ahead, we expect that the specific factors that are affecting drilling activity in the second half of this year will fade away. The structural differentiation that Tenaris has established, with its unique global reach, competitive in data system, and positioning with leading oil and gas producers around the world, will support our financial performance over time. We are ready now for any questions you may have.