Tenaris S.A.

Good day and thank you for standing by. Welcome to the second quarter Tenaris 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 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, press and Star11 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, Investor Relations Officer. Please go ahead.

Thank you, Carmen, and welcome to Tenaris' 2026 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 Gabriel Podskubka, our chief executive officer, Carlos Gomez Alzaga, our chief financial officer, and Guillermo Moreno, president of our U.S. operations. Before passing over the call to Gabriel for his opening remarks, I would like to briefly comment our quarterly results. Our second quarter sales reached $3 billion, down 4% year-on-year and sequentially, mainly reflecting the postponement of shipment to customers in the Middle East due to the effective closure of the Strait of Hormuz for most of the quarter. Average selling prices in our tube operating segment were basically flat compared to the corresponding quarter of last year and sequentially. Our quarterly EBITDA decreased 12% sequentially to $649 million, while our net income decreased 13% to $492 million, mainly due to lower absorption of fixed costs in addition to higher raw material and logistic costs. With operating cash flow of $518 million and capital expenditure of $121 million, our free cash flow for the quarter was $396 million. Following a dividend payment of $606 million in the quarter, our net cash position at the end of the quarter decreased to $3.6 billion. The Board of Directors approved the payment of an interim dividend of $0.59 per share, or $1.18 per ADR, approximately $600 million, that will be paid the 25th of November. Now, I will ask Gabriel to say a few words before we open the call to questions.

Thank you, Giovanni, and I would like to extend a warm welcome to all of you participating in our call today. Our second quarter results clearly reflect the impact of the Middle East conflict and disruption in the trade war moves, as well as the consequent impact of logistics and energy cost increases. Even so, they also demonstrate the resilience of our performance based on the strength of our global positioning and the efficiency of our industrial operations. In the Middle East, shipments to Iraq, Kuwait, and Qatar have been postponed as our customers were forced to reduce their operations, and ships are unable to enter the Gulf. This situation will continue until the Hormuz Strait reopens. In Saudi Arabia and the Emirates, however, we were able to continue supply of OCTG to Aramco and Adnok, who have maintained their drilling operations fairly intact. In other regions of the world, customers are advancing investments to meet the need for energy security and diversification of supply. Drilling activity in unconventional place is increasing in the United States, in Canada, and also in Argentina. In the United States, we are adding worksheets at our industrial facilities. Our Bay City mill is producing at record levels and we continue to invest to improve the production capabilities of our Coppel steel shop and our Ambridge seamless pipe mill. We are also extensively deploying a new high torque wedge connection, which we developed for longer laterals. In Canada, we have launched a major $230 million investment program to increase the effective production capacity of our mill in Sault Ste. Marie. These investments will strengthen our domestic supply capabilities for our Canadian customers. In Argentina, nine high-spec rigs have been added in Vaca Muerta since the beginning of the year, bringing the total to 42 in operation today. In addition, YPF, together with ENI and XRG, are advancing investment plans for the $30 billion Argentina LNG project for which an FID is expected at the end of this year. We commented last time on the favorable outlook for long cycle deepwater projects. With technology advances and short-term development schedules, these projects have become more cost competitive and are well suited to support security and diversification of supply. Several FIDs were taken over the last three months. An example is the Kronos project sanctioned by ENI and Total Energies which will take deepwater gas from Cyprus to an LNG facility in Egypt. Tenaris has been supporting ENI in the definition and supply of the pipeline requirements and also on the OCDG needed for the four wells of the project. We inaugurated our new service center in Suriname, together with Total Energies and government officials. From this base, we managed the OCDG supply chain for the Grand Morgue project. We also began deliveries of limepipe and coating for the Zacaria project in the Black Sea. Our backlog of offshore projects has increased, and we expect this to be reflected in our sales from the fourth quarter and into 2027. This year, our raw material costs have increased and are impacting our charts progressively. We are also increasing prices, and in the fourth quarter, we should see this positive effect in our sales and margins. As we all adapt to a world of increased volatility and supply chain disruption, Tenaris is uniquely positioned to meet the diverse needs of its customers around the world with its global reach, differentiated service and technology, and investments to strengthen its industrial system. With this, we open the floor for questions.

Thank you, ladies and gentlemen.

At this time, we'll open the floor for your questions. And as a reminder, star 1-1 to get in the queue and wait for your name to be announced. To remove yourself, press star 1-1 again. Our first question is from Arun Yayaram with JP Morgan Securities. Please proceed. Yeah, good morning, Gabrielle and team.

I was wondering, Gabrielle, if you could... Review the board's decision and move on the dividend. Looks like you're effectively doubling the dividend rate and perhaps shifting a little bit away from the previous cash return strategy that included a mix of buybacks and still a strong dividend previously. But I wondered if you could maybe talk a little bit about that of that Thank you, Arun.

Good morning. And thank you for your question on this point. As you mentioned, the board has decided to increase the interim dividend to $600 million, doubling, as you mentioned, given the strong balance sheet and sustained cash generation of the company. As you mentioned, the board has favored distribution through dividends Thank you very much. Growth Opportunities. Regarding sustainability and future, I would say at this time that this will be decided by the board and subject to the approval of a shareholder annual meeting. But that said, and based on past practice and our track record and our strong balance sheet, this could be a continuation in the amount of the dividend and the proposal for payment in May as well.

Great, thank you for that color. And my follow-up, and we do appreciate just the uncertainty and the disruption caused by the Middle East conflict on your business there. Gabriel, could you maybe give us a little bit more detail on what your assumptions assume for the second half of 26 in terms of that disruption? And perhaps maybe if we separate that impact. Talk a little bit about how the underlying business is doing, because it sounds like you are expecting a nice improvement or reflection as we think about the fourth quarter in terms of your base business, again, excluding some of the noise associated with the Strait of Hormuz.

Sure, Aaron. I think it's an important point on the assumption of the straight or moose reopening or not. This is an important premise, and we have changed the premise that we had last quarter in which we believed, or at least the base case scenario for our guideline was given with a short resolution of a moose opening. Today, and given the uncertainty that we suffered the last few months, We are changing, not the outlook, but we're changing the premise on which we give our guideline for the second semester of the year. And what we are considering that the opening of the Strait of Hormuz in the short term will be an upside to our scenario. Okay, last quarter we mentioned that we have about a business of $100 million of material that is going to the upper part of the Gulf, the one that is compromised. Thank you very much. 70 to 90 days to ship this material from our mills and invoice it in the upper part of the Gulf. This is an upside that we will have when and if this happens and this will be a recurrent upside in our forecast. As for now, we have taken this out of our base case scenario. Having said that, if we talk about the outlook, The guidance that we have given is that in the second half of 2026, we expect revenues and EBITDA in line with the first half, with clearly a third quarter that is more affected and more in line with the second quarter. And as you are anticipating, an uptick and an interesting jump in the fourth quarter that it will reflect all the other things that are happening in the world because the higher price of oil that is driven by the hormones disruption is creating the conditions in the U.S., in Canada, in Argentina and also the strength of the offshore market to start showing and this has taken some time for these rigs to be added and for our mills to be ramped up and we will see an important jump of volume and to some extent some pricing as well in the fourth quarter of the year. This in a nutshell gives a description of the outlook with an important clarification on the premise on the upper part of Hormuz because as you know, UAE and Saudi, the lower part of Hormuz, despite the difficulties, they have been able to continue the drilling activity and we have been able to continue shipping with additional logistics and effort, but this part have been less affected, I would say. Hopefully this clarifies your point, Arun. Yes.

Thank you, sir.

Thank you. Our next question comes from Mark Bianchi with TD Cowan. Please proceed.

Hey, thank you. I'd like to follow up on that progression into the fourth quarter here. And maybe, Gabriel, you could help us maybe translate this backlog opportunity of 100 million plus that's being compromised. On a quarterly basis, if we were to sort of remove the effect of the straight being impassable, I think if I work the math out, your fourth quarter EBITDA should be looking like your first quarter EBITDA in that $730 million range. If none of this stuff with the Strait were happening and you had a normal level of activity in the northern part of the Gulf, what would that look like?

I think you're having a very fair assumption on what the fourth quarter from what we're seeing and with all the The uncertainty that we are managing, but without this northern part of the Gulf, our projection for the fourth quarter will be pretty much in line with the first quarter that you're indicating. And if this conflict of our moves will assure navigability in the short term, during the next few weeks, we will be able to ship and invoice this additional $130 million within the fourth quarter. It's an upside. It's still a possible upside. And this will clearly increase. And you would assume that the margin on the material that we are selling in Iraq, in Kuwait, and in Qatar is premium material, special grade. So it has a good average margin. compared to the rest of the portfolio of Tenari. So there will be a nice upside addition that will happen in the fourth quarter or thereafter. We would need 90 days for this to materialize.

Yeah. Okay. That's very helpful. And then just following back up on the capital return, you've made the comment about a similar level of capital return to the prior periods with this new program. And just to clarify on that, so Typically, what Tenaris has done is pay an interim dividend that's about one-third of the total dividend, and then in May, we get a dividend that's the remaining two-thirds. I mean, I know it's ultimately a Board decision, but is that sort of the message that you're looking to deliver here?

Yes, Mark. This is exactly... It's not my decision. It's a Board decision, but based on past practice, this one-third, two-thirds has been... Thank you very much. I'll turn it back.

Thank you. Mark.

Thank you. Our next question comes from Sebastian Erskine with Rothschild and company Redburn. Please proceed.

Yes. Good morning. Good afternoon. Thanks for taking my questions. Just to focus in on North America and two parts to this. So North American sales sort of flat quarter on quarter. You'd called out sort of U.S. OCDG strength offsetting Canada and Mexico. And how much of that flat outcome reflects the fact that U.S. pricing is still lagging the pipe projects increases that we've seen? And maybe if you could give some color specifically on how you see that evolving in the second half of the year for North America in terms of price and volume. And then just a sort of bigger picture question on U.S. pricing. I mean, obviously, you know, we started to see the cycle turn. You know, you're offsetting the step up in hot raw coil prices. But at what level do you see imported OCTT coming back as a competitive threat again, even net of the Section 232? So how much headroom basically is there before you begin to approach some level of parity with imports would be helpful to get your thoughts on that. Thank you.

Thank you, Sebastian. I think on both questions related to U.S. activity and pricing, I will ask Guillermo to add more color, and maybe I will come back to the rest of North America and Canada and Mexico that complements our reporting group. But, Guillermo, on... Well, thank you, Gabriel, and with more on Sebastian.

Well, in the case of the U.S., let me first start with how we are seeing the market. So far, since the beginning of the conflict in Iran, we have seen activity increase by almost 10%, so an addition of around 50 rigs. And our view is that from now to the rest of the year, another 10 or 15 rigs will be added on top of those. Our expectation is that our shipments to the market will grow in line with the growth of activity as we capture additional sales because of a higher activity of our customers. Regarding prices, well, you know that normally our prices go in line with, very much in line with the increase of pipe logistics with a one-quarter delay, as we have explained in many conference calls. Since the beginning of the conflict, At the beginning of the year, the seamless biology has increased around 9%. And in our view, an additional 5% is expected, at least 5%, till the end of the year. And our prices will be reflected, these increases, accordingly to the one-quarter delay that I mentioned before.

OK. Regarding Canada-Mexico, we see, to complete the North America view, Mexico we see it stable with a gradual increase in activity. Pemex has been clearly supported and funded by the higher prices of hydrocarbons in the recent months and the backing of the government, so we see that are stable and progressing. And we see a lot of efforts of the government in Mexico creating incentives and conditions for private companies in different schemes to support with oil and gas activity in Mexico. So that is something that in volume will gradually progress. And there is also the pricing effect in Mexico that is somehow linked with international indicators of pricing that are also moving north. Regarding Canada, after a very strong season in the first quarter, it's natural in the second quarter of the year to have a seasonality decrease in volume and activity, but this is an area that is also where we have a good promising perspective of increase of drilling activity, both in oil and gas. That's why we have made the decision on the increase of capacity. So this is an area where we have a unique setup, and we believe that gradually We will grow our position and revenue in Canada as well. So overall, I think all the three main components of North America are going to start contributing in a positive direction in the quarters to come.

Super, that's helpful. And just very quickly, just to follow up on that point, just in terms of the import level, that's fallen quite aggressively this year. But I'm just trying to work out how much room is there in this pricing cycle, above which then you bring imports to become more competitive again, even net of the Section 232. I wonder if you maybe just give some thoughts on that parity level with the imports.

Yeah.

Yeah, I mean, 2026, as you said, imports have been contained and we expect to see similar levels in the coming quarter. The main reason of this containment, as you said, are the Section 232 tariff, but also the trade cases filed against unfairly traded imports. So, assuming that we have... Thank you very much. I'll turn it back. Thanks very much for the call. Thank you. Our next question comes from Isako Bambriela with Mediobanca. Please proceed.

Hi, good morning everybody. I hope you can hear me well. A bulk of questions have already been answered, so I'll make just a couple. First, on profitability, is it still correct to assume that the second quarter should represent the weakest quarter of 2026 for you in terms of EBDA margin with sequential improvement throughout the second half?

Good morning, Isako. I believe the second quarter and the third quarter will be similar in revenues and pretty much in line on EBITDA margin. So I would say that second and third are looking very similar pretty much in line, and we will see the uptick starting in the fourth quarter and going forward. So second and third I would categorize them as very similar. as the lower volume and the logistic extra cost and the same components that we explained that reaction in the second quarter are still present in the third quarter.

Okay, so just to follow up on that, as impacts from lower absorption of fixed cost and higher logistic and transportation for, say, For our third quarter previews, we can take into account the same indication given over together with the second quarter.

Okay, thanks. Yeah, correct. While when you go to the fourth quarter, we're seeing a volume that is going to be north of one million tons. So in that moment, I think the volume and will start supporting and helping the absorption of fixed costs in the EBITDA margin that you're looking at. Brilliant. Thanks.

Thank you. And ladies and gentlemen, as a reminder, if you do have a question, press star 1-1 to get in the queue.

Again, that is star 11 if you do have a question.

One moment, please. We have a question from Jamie Franklin with Jefferies. Please proceed.

Hi there, thanks for taking my questions. Just a couple of quick ones. Just on the fracking operations, obviously the operating margin, and your other line came down a little bit in 2Q. Of course, it's small numbers relative to the overall group, but just wondering what a normalised level of margin looks like for this business going forward. and also if you can give us an update on the third set of equipment that's expected to be added by year end. And then secondly, just on the 3Q impact, could you just dive a bit deeper into the seasonality and product mix effects that you mentioned, please?

Sure, Jamie. On the first question, second quarter and third quarter, we will have some Thank you very much. Thank you very much. a business that is with an EBITDA ratio contributing and accretive to the average of Tenaris. On your second point regarding the mix, third quarter we have seasonality in Europe. Typically the third quarter we have our shutdown of our operations in Europe and also many of our customers reduce the level of activity of purchasing. So there is a slight reduction on seamless volumes. in the third quarter. And related to the additional mix point is that we are starting the shipment of the large Zacaria pipeline. It's a welded S.A.W. pipeline from Brazil into Turkey. They started this quarter and will continue for three or four quarters. And this has an average price and margin that is below the average of Tenerife, so it's a very interesting project, but from that point of view, Thank you. And again, ladies and gentlemen, if you do have a question, simply press star 1 1 to get in the queue.

That is Star 11 if you have a question.

As I see no further questions in the queue, I will turn the call back to Giovanna Sardana for final comments.

Well, thank you, Carmen, and thank you all for joining us. And we talk soon. Thank you. Thank you.

And this will conclude our conference. Thank you for participating, and you may now disconnect.