Good day, and thank you for standing by. Welcome to Quarter Two 2024 Tenaris S.A. Earnings Conference Call. At this time all participants are in a listen only mode. 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 the Tenaris 2024 second-quarter conference call. Before we start, I would like to remind you that we will be discussing forward-looking information during 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 Móndolo, our Chief Financial Officer, Gabriel Podskubka, our Chief Operating Officer, and Luca Zanotti, President of our US Operations. I would like to start by mentioning that we will host an investor presentation in London on September 24. We hope to see many of you there. Before passing over the call to Paolo for his opening remarks, I would like to briefly comment on our quarterly results. Our second quarter sales reached $3.3 billion, down 18% year-on-year and 3% sequentially, mainly due to slightly lower volumes and average selling prices during the quarter. Average selling prices in our tubes operating segment decreased 17% compared to the corresponding quarter of last year and 1% sequentially as lower prices have been greatly offset by a favorable sales mix. Our EBITDA for the quarter was down 34% sequentially to $650 million, due to lower selling prices and an extraordinary provision recorded for an ongoing litigation related to the acquisition of a participation in Usiminas in 2012. Our EBITDA margin for the quarter was close to 20%. Without this historical provision, our EBITDA would have been $821 million and our EBITDA margin would have been 25%. With operating cash flow of $935 million and capital expenditure of $161 million, our free cash flow for the quarter was $774 million. After a dividend payment of $459 million in May and share buybacks of $492 million, our net cash position amounted to $3.8 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. During the first two quarters, our sales have remained remarkably resilient, considering the market environment in which drilling activity is reduced and OCTG prices have been falling in the United States. This reflected the differential market positioning we have built up in North America, with our Rig Direct service model, as well as in offshore projects around the world. The particularly high level of shipments we have been making in the Middle East and the contributions from our newly acquired TenarisShawcor coating business. I would also like to highlight our strong free cash flow of $774 million during the second quarter, when we were able to achieve a $285 million reduction in working capital. Thus we were able to maintain our excellent net cash position of $3.8 billion while we distributed $950 million to our shareholders. Industry spending on offshore projects, particularly in complex deepwater operations, has increased since 2023 and is set to increase further in the year ahead. For these projects that we are a preferred supplier for the majors, with a fully integrated offer of pipes and services. This includes large-diameter conductors and surface casings with connectors. Intermediate and production casings, tubing and accessories, stainless high chrome alloy steels, Dopeless connection tested for use in the extreme applications required by Gulf of Mexico development. We are also supplying the 3D mapping services for high collapse applications, as well as offshore line pipe, delivered with a full range of Tenaris Shawcor coatings and advanced project management services. This quarter we renewed our long-term contract for Shell operations in the Gulf of Mexico and have been selected by ExxonMobil for their upcoming operation in Angola. We were also awarded the supply of casing and offshore line pipe and coatings by Woodside for the Trion project in May. In the second half, we will begin deliveries of coated line pipe for the Equinor Orion project in Brazil, and we have an extensive backlog of orders for offshore projects going into 2025. Today, however, as we look towards the second half, we see that our sales will be lower than the sales in the first semester, affected mainly by three factors. In the United States, a record level of oil and gas production is being sustained even if drilling activity has decreased, resulting in reduced overall demand for pipes. At the same time, OCTG imports, particularly from Asian countries, remain high, accounting for 40% of demand, which compares with 20% for other product orders in the USA. This level of imports is affecting pipe prices and is causing damage to domestic interests. In the Middle East, activity and consumption from the region remain at a good level, but in the main countries we see a destocking trend beyond our generic expectations. This combined with the completion of deliveries for the NFE offshore pipeline in Qatar will affect our sales in the region in the second half. The change in government in Mexico and the uncertainties surrounding the policy for the energy sector are limiting drilling investment in the country. In Argentina, the necessary stabilization of the macroeconomic environment is delaying investment in drilling and the development of infrastructure in Vaca Muerta. This factor will affect our sales and results in the second half. When we expect that our sales volume will be 10% to 15% below those of the first half, and there will be further adjustments to our prices in the Americas reflecting market conditions. This quarter, as anticipated, we are carrying out important investments and maintenance stoppages in many areas of our industrial system aimed at recovering full operational capacity, improving efficiency, and reducing our carbon footprint. This investment includes a major overhaul of our medium diameter rolling mill in Mexico, the installation of a new electric arc furnace in our Argentina steel shop, the revamping of our copper steel shop in the United States to increase capacity, and reduce environmental impact, and the finishing line of our Italian mill. We are also starting the construction of our second wind farm in Argentina, which will have a capacity for 92 megawatts and will allow us to supply 100% of Argentina's demand from renewable sources. The level of demand is requiring an adjustment in our industrial operations, concentration of production in the more efficient facilities, and the reduction of logistic and operational costs. Looking further ahead, we expect that all the regions in which we have a strong competitive position will drive an increase in our activity over time. Our global reach, competitive product and service differentiation, and unique portfolio of long-term agreements with established customers position us favorably for serving the growing demand for energy across the world. I will leave now to any questions you may have. Thank you.

Thank you. Our first question comes from the line of Marc Bianchi from TD Cowen.

Hi thank you. And I was hoping you could talk a little bit more about the progression of margin in the back half here. So now we've got volume, I heard you down 10% to 15% in the back half with some weaker pricing. Maybe you could talk about the margin progression. But perhaps, first, before you say that or along with that, talk to us about your expectation for the progression of pipe logics from here, just so we can understand the context.

Thank you, Marc. As I mentioned in my remarks in the last conference, we are expecting the pipe logic to destabilize somewhat. But the level of imports is being relatively high compared to what was our expectation, and so the pipe logic has registered a minus 3% that appears here today on comparable data. We expect that this will continue to perhaps remain stabilized, but probably after one more month, in which there could be some further reduction. We think it should stabilize, and we also think that the imports should recede. As I mentioned in the opening remarks, it's an important variable. Maybe Luca, you may add, what is your perception of pricing in the US market. That is important also for other regions for us, because it's part of the formula that we have in some countries, especially in the Americas.

Thank you, Marc. I'll refer back to what we discussed in the last earnings call. The issue is that the OCTG industry anticipated an increase in activity at the start of 2024, leading distributors to place impulse orders during the first and second quarters of this year. However, this anticipated demand did not materialize, leaving these imports in inventory. Currently, imports are expected to decline, and we have already seen a slight decrease in the second quarter. We believe this trend will continue, aided by successful trade enforcement actions we've implemented. Additionally, the impact of Section 232 and falling prices will contribute to this decline. We also foresee a reduction in domestic supply. As Paolo mentioned, market advancements may take longer than we initially thought, but we remain optimistic about future developments.

Thank you, Luca. The second question was about the margin. We guided in the last conference call for our margin to be between 20%-25%. We ended up with this quarter close to the high part of this range. I think that in the second semester, we should be around the lower end of this range.

Okay. Thank you, Paolo. And may I just confirm? When you said that second half down 10% to 15%, was that a comment about volume or a comment about revenue?

No, it is a comment about volume. Today, we see volume decreasing for the reasons mentioned in the prepared remarks. This is due to the factors we have outlined. To recap briefly: there is uncertainty in Mexico and Argentina, as we await the decision on energy policy in Mexico and how Argentina might finance development, which we believe is inevitable. We are convinced there is significant potential for expansion and demand in Argentina for line pipe and OCTG. However, the macroeconomic environment is delaying the reliable financing of this project. While we are optimistic about development in areas where we are strong, we do need to reduce expectations because there will likely be less activity in the coming months or during the second half of the year.

Makes sense. And thank you very much. I'll turn it back.

Thank you. One moment for our next question. Our next question comes from the line of Alessandro Pozzi from Mediobanca.

Hi, and good afternoon. Thank you for taking my questions. The first one is on the US market. You mentioned you have a good level of production, and yet drilling activity remains quite muted. As a number of operators focus more on efficiencies and productivity. I was wondering, are we in a paradigm change where we are going to see even lower, let's say drilling operations and for fewer rigs basically, we could see even higher production? And is that a concern for you for OCTG demand going forward in the US? And one thing in the US, there has been a change as you mentioned in the pipe logics. Is the new basket more reflective of your mix? And I was wondering if you can give us maybe your thoughts on that, how the basket has changed and whether it can capture basically your average selling price? That's the first question. The second question is that on the working capital side, on the share buyback, and the share buyback is going to terminate quite soon over the next few days. Within weeks certainly, are we going to have a new share buyback, a new announcement with the November results? There is still some room in the share buyback as the mandate is about 10% of the shares outstanding and potentially there could be another maybe $700 million to go before the next AGM or before the next AGM? Thank you.

Thank you, Alessandro. On the first question regarding demand in the US, frankly, I don't think there is a structural reason that discourages investment. As we mentioned in the last conference call, the role that interest rates have is clear. A reduction in the interest rate would support the financing of projects by the smaller companies and vehicles. It could help, but the price of oil in the range of $75 to $80 is a good environment for investing in shale development. However, consolidation has led to some stops and reflections by some of the operators. The time we have now—the six months ahead of the elections in the United States and the interest rates still remain relatively high compared to what we could expect in the long term. A consolidation is underway, maintaining a level of drilling activity at this point even though the efficiency and productivity of the wells are gradually improving. The production is at a very high level. However, I think that the overall scenario is positive and there should be a recovery in the line and also an associated level of demand and rig count over time. The program here, as Luca was mentioning, is more on the side of the imports. The imports account for 40% of the market, which is very high. The issue is here how to contain the pressure on imports and the domestic input. Now, regarding the second point, the PipeLogix, as I mentioned, we expect to continue this stabilization of PipeLogix after the impact of this 3% over the next few months. The mix has changed. Luca, can you provide a comment on the change in the basket?

Yes, one point before we move into the basket specifics. I believe that this change in the PipeLogix ratings is directionally correct. However, I believe that the change in basket may have introduced some perturbations in the reading. So we need to see going forward. But to answer specifically to your question, yes, the change in basket is more reflective of one, the product range that is being sold in the United States in general and specifically was there. We are selling particularly one of the major changes that the PipeLogix has displayed now is between the semi-premium space where we differentiate between buttress compatible connections and high torque connections like our wedge 400 series 441, 461, which, as you know, have always been our best sellers. So, the answer is yes.

I was asking because I mean if we look at the old one, it’s down 3% and the new one is a completely different picture up month-to-month. So, I'm not sure I mean that it's going down or based on what you see based on your basket?

Sorry, can you repeat it because I'm not sure I fully understood the question, Alessandro.

Yes, because there is a big difference between the two indices. The old one is pointing to a meaningful decline of 3%. However, the new one is, I think, is more stable month-to-month. So which one is the new one you’re saying is more reflective of your business, and therefore prices are starting to go up a little bit?

Yes. In the end what they did was remove some items and replace them with others. The items that we took out were coming in at an absolute lower price than the new items. So overall, you see this increase in...

Responding to your question, I think that the new basket is probably more in line with our mix for sure. So we should be able probably to have a lower reduction in our basket in our sales compared to let's say the original basket that is going down 3%. We should be able to realize a lower reduction there. If this is a correlation to what is happening in the market, by the way, it comes out yesterday, I think we need to compare. Remember in some formula we are not using the index as a whole but we are using a specific part of the basket adjusting to the needs of the client. So there are different formulas internationally or locally. The impact is different in clients because the clients are selecting indicators that best reflect their demand. On the share buyback, we are still completing the last tranche of the program we launched last year. We will continue to complete this program. Then I think it's up to the Board in November to decide what to do and how to take into consideration the environment and the situation for how to proceed or not.

Very clear. Thank you very much.

Thank you. One moment for our next question. Our next question comes from the line of Arun Jayaram from JPMorgan Securities LLC.

Yes, good morning. Paolo, I was wondering if you could elaborate on some of the destocking trends that you mentioned in the Middle East? And then as you think about reducing your prior expectations for second half volumes do you see this more as just lower demand? Or do you expect some of this volume perhaps in Argentina and Mexico to shift into 2025?

Thank you, Arun. On the second point, as I told you before, I am very confident that Argentina has relevant plans for development that come out from different operators. There will be activity in infrastructure and drilling. You have seen it with our announcement of decisions taken in the new LNG plant. It will take time to formalize financing and get all the clearance for the project, but this will go on over time. Also, the export of oil will continue. I am very positive on the medium term, but with a new government in charge, we see amounts of challenges to control from the standpoint of inflation and fiscal equilibrium. Argentina will recover credibility and access to market but it will take a little more time. We were probably over optimistic in thinking that this could be done in a shorter time frame. However, even with that, in the case of Mexico, a changing government implies changes also in the energy area. The appointments in the key energy companies, Pemex and CFE, have not been done yet. It is difficult to understand the policy of the new government and the outlook moving forward. Pemex needs assistance from the government in refinancing some of its debt, but it is clear that Mexico needs energy. Over the last month, we had shortages of electrical power and disruptions, indicating a need for investments. I am also positive, but I anticipate the new government will take some time to implement policy actions, which we expected to see materialize in the second half but may take longer. We expect the postponement of some demand. Regarding the Middle East, I would ask Gabriel to provide an overview of how we see the situation and the demand in these six months.

Good morning, Arun. Regarding the Middle East, as Paolo mentioned in his opening remarks, the drilling activity remains strong with NOC operating at high levels. For example, Saudi Aramco is still operating at 300 rigs, increasing non-conventional activity but reducing offshore oil activity while maintaining this level. UAE is also operating at healthy levels with about 120 rigs. I would say that we see stability in the consumption of OCTG in the region among the main operators. At the same time, we see some of these NOCs in the region rebalancing their inventories and entering into a destocking mode next semester. So this is something that is important to mention and it will affect our shipments in the second half of the year. In addition, we have the competition and delivery of the NFE pipeline in Qatar, with some other large projects in the region still undefined that we will see emerge in 2025. Overall, we expect some reduction but still at a high level of shipments in the second half of the region compared to the record shipments we had in the first half.

Great. Just my follow-up is on the buyback. Paolo, the company at the end of the quarter had $3.8 billion of net cash. I assume you don't want to in turn to narrow down into a bank, but just some thoughts on capital allocation—what you think is the most prudent use of excess cash on the balance sheet?

Well, regarding this, last year we opened the door for a share buyback and that goes hand-in-hand with our dividend policy. At the same time, we are looking for potential opportunities to invest capital that have high returns within our business. If we don't identify opportunities within our sector that have potential impact, it will be up to the shareholder and the Board to decide what to do. In the meantime, we manage our cash prudently. We are not functioning as a bank and we best protect our liquidity while trying to generate returns that you can see in our financial statements.

Great. Thanks a lot.

Thank you. Our next question comes from the line of Christopher Kuplent from Bank of America.

Yeah, thank you very much. A lot of my questions have been answered, but maybe I can try again and ask you what you're hoping to present that will be new in September without, obviously, expecting you to tell us the details and the content. But I'm intrigued by the timing. You expect to be through maintenance by then? Do you expect that we will have a better outlook on pricing progression in the US by then? Or do you expect to have more visibility on exactly what you've just highlighted—opportunities for M&A or not, i.e., in other words, the capacity to deploy your balance sheet for future buybacks, etc. And if I can sneak in one more on the litigation provision that you've taken, what kind of timelines are you attaching to that if we're looking for resolution anytime soon? Thank you.

Thank you, Christopher. Well, I think it has been some time since the last time we did an Investor Day. The company has changed in its perimeter. Our new regions and new business, and the profile of the company has changed, along with the competitive environment. I think it would be useful to meet with our investors and present where we are and where we see the key markets where we have a very relevant presence. Also, our industrial profile is changing. We are implementing new technological changes that we are confident will increase efficiency and productivity and reposition our industrial structure from the standpoint of decarbonization and the environment. It will be important after several years without this opportunity to have an overview of where we stand concerning capital allocation and the path the Company could follow in the future. Regarding the second point about the litigation we have in Brazil, and for which we are registering a provision. Let me tell you that we are required to make a provision as a result of an adverse decision by the Superior Court of Justice in Brazil related to a case against CSN for the acquisition of Genus twelve years ago. I believe that such a decision is contrary to the applicable substantive and procedural law. We cannot comment extensively on this matter. This is not something that we land in very quickly. We expect there will be additional layers in this litigation, and we will vigorously pursue this. We plan to defend our position. Remember, this is a position that has been conferred over a long time, with initial decisions made by the Minister of veto authority and also by multiple levels of decisions by the courts. We will file all motions and appeals available to us. This will take time before everything is resolved and will also include the determination of any payout amount needed.

Great. Appreciate that. Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Luigi De Bellis from Equita Oscient.

Hi. Good morning. Just three questions from me. The first one is on the cost. You mentioned that you are acting to reduce costs. Can you elaborate on the size of the cost reduction expected? And when do you expect the run-off impact of these actions? The second question is on working capital. There was an excellent reduction in the second quarter. How do you expect this to evolve during the second half of the year? And the last question on the outlook. Can you elaborate on the exit speed in Q4 in terms of sales and profitability? Do you expect a better quarter entering 2025, if you have visibility on this considering the course of the end of destocking in the Middle East and your visibility on US direct clients? Thank you.

Thank you, Luigi. On the first point, as we mentioned in our press release and in our opening remarks, we see lower volume in the second semester. We took advantage of the situation to perform extraordinary maintenance and investment, using this time to address some of the extraordinary maintenance work we had because we were working at almost full capacity for a long time. During this year, we will expand the level of automation to innovate processes and technology in some of the core areas of our business. We have been successful over the past years in developing the full potential of our stronger facilities. Facilities like Bay City are today operating at record levels. Thus, we have efficient core facilities operating even above the intended levels. We need to restructure and reorganize the operations at some facilities, particularly in the United States but also elsewhere. This will allow us to reduce our overall costs. We have a plan of action for this with expected savings of $200 million per year that could materialize between now and June 2025. This broad figure could be affected by broader issues like devaluation or major changes in exchange rate appreciation that impact labor costs worldwide. Some of these are controllable factors. This adjustment plan is justified by the slowdown in sales anticipated for the second semester. Nonetheless, it will not affect our capability to enter 2025 and respond to the opportunity I mentioned earlier. On working capital, working capital has positively contributed to our cash flow in the second quarter. Our strong position will continue to support cash flow in the upcoming quarters, as we are working to reduce inventory and have good progress in collections. We expect this trend to continue, though not at the same levels as in the second quarter. As for what we see and the visibility we have in 2024, we currently do not have a complete picture. In different regions, as I mentioned, I am positive about Latin America. Regarding the US market, while the elections are significant, Luca, can you add any insights regarding visibility?

Morning, Luigi. Obviously, elections and their results will be factors, along with the cost of capital. There are several variables beyond our control, and depending on how these variables play out, we might see differing scenarios regarding activity levels. I also want to emphasize that there are two significant consolidations pending, not yet cleared by antitrust: Diamondback with Endeavour and ConocoPhillips with Marathon. Should these transactions reach completion, as expected, this would be a notable upside for our sales, as both Diamondback and Conoco are key customers within our portfolio.

Regarding the Middle East and the broader market dynamics, Gabriel can share some insights into our outlook in the international markets.

Thank you, Paolo. In terms of international markets, including the Middle East and offshore, the fundamentals point to a positive outlook. The NOCs in the region continue to invest, with several infrastructure projects ongoing and in the pipeline. We expect a sustained multiyear cycle of high CapEx in the offshore segment. That said, we have limited visibility into 2025, but we already have contracts that extend into that year. However, this doesn't encompass all segments and countries, so our outlook in the mid-term is generally positive.

Thank you.

At this time, I'm showing no further questions. I would like to turn the conference back over to Giovanni Sardagna for closing remarks.

Thank you, Gigi, and thank you all for joining us. We hope to see you in London at the end of next month.

This concludes today's conference call. Thank you for participating. You may now disconnect.