Q2 2020 Tenaris SA Earnings Call
[music].
Generic second quarter 2020, earning conference call.
It's not all participant lines are no listen only mode. After the speakers presentation. There will be a question and answer session. Casco question. During the session. You want me to press Star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to have the conference over to your.
She could today, you'll want to sort of Danya Investor Relations officer. Thank you. Please go ahead Sir.
Thank you and was computer now these 2022nd quarter Conference calls.
Before we start I like reminded that you will be discussed people wouldn't be formation in school and that's all actual results may vary from there just fresh <unk> light the cool.
You may have the quote today up followed Oscar.
Let me see among the <unk> Chief Financial Officer, Jim slogan, Vice Chairman and better but think of that I suppose.
Queued up Vice chairman and member of embedded in that I suppose.
Scott I actually think about <unk> and this field operations and we have no precedent of why you asked for patients.
Before turning over the cool problem. If when you were mikes I'd like to be people myself with the results.
Assays for the second quarter wasn't down 30% sequentially 1.2 billion.
As a consequence of the rapid decline of economic activity and the collapse global log demand, although there's lots of the major seeking to contain despite of the coffee, making fun bandied around the world.
Average selling prices you have to breaking segment decreased 8% sequentially due to some people maybe mix of problem its won't be Wendy.
Oh, it would be April the core vote, which includes 54 million up seven on Chargers.
It was down 79% sequentially I just was affected by the new absorption of fixed and semi fixed cost and inefficiencies related to the steep decline in capacity utilization up that production.
Oh, it would be margin decreased to about 5%.
Excluding severance charges EBTDA for the quarter would have been under it and Turkey medium you'd imagine of 9%.
During the quarter of free cash flow to remain strong for Goodman with.
Before I didn't hear back from a working capital of 436 me.
Consequently, I've met cash position again to cool pool <unk> 617.
Now I would not bothered to say if you walk before we open the cold sets.
Yes. Thank you are Giovanni and good morning total fuel.
They booked oh, there could be the nine being up and damage and the d. the diverse measures deacon.
Do you need continues to be phased around the world, where do we may have seen the peak impact on global economic TV in order to consumption. During the second quarter further recovery, we'd be slow and be said two reasons of doing it.
Many part of the rules that have still to come out of it looks down.
Other are being hit by fresh out of rigs infection and that is a constant to the reason go for the we'd still be infection.
Why listed far from finding a dip in the defense solution, which would allow us to assume many activities that we took for granted probably for them.
All aspect of our operation has been affected the as we implemented actions to secure the safety of over it really.
Comply with government Monday to do a selection and activity.
Both of the medical response efforts in our communities.
Accelerate the digital integration and removed working protocols with Oracle to.
Adopt red did lead to an exceptionally renewal, David overproduction and implemented measures to reduce cost and working.
I would like to give a special mention and things.
Walter I would have really isn't gravitas founded and adopted the to the challenges that our were facing.
Weve exemplary sorbent solidarity in these difficult times.
Our second quarter results reflect the advances we have made in our plan to reducing structural costs and working capital and prepared I was says for the market do we see ahead.
As we purity dive cash flow will get operating result, we've reduced our labor liquidation well below that of our seed.
Reduced inventories.
And without incurring in a higher cost of operations from sub absorption of fixed cost that we do.
In the coming months say, we were continuing to generate cash flow from reduction in working cut.
We're currently more than halfway through our plan to reduce our fixed cost structure by around 220 million by the red.
And the savings are beginning to be reflected in these results were also up like suspensions and adjusting or workforce in accordance with the local realities of our operation around the world, while retaining the keep people, which we will require what the markets start to equal.
We significantly reduced out what level of capital expenditure to $46 million during the quarter.
Paramount getting investment in what we can see that essential element to what our long term objective, particularly the new vitamin any safety.
In safety.
We have made that would result in the last quarter and we are proud of the continuing improvement.
You know worried to safety investment in our safety indicators. So far this year and know what export to maintain a cobi 19 free working environment.
Now, let's say it during the quarter were deeply affected by the rapid decline in reading the tea, we didn't do as in Canada.
The impact that over the pandemic and collapse in drilling activity in Argentina, and Colombia, Israel, and it's an ongoing slow down in Mexico.
We felt where rig direct more than our full CTG is sales in these countries just almost immediately with changes in the drilling.
Right.
The U.S. said that a large inventory so would occur.
In ways that is the in awaiting completion and the Illinois currently do whatever.
Well said your inventories have reason to around 15 month of consumption.
And this is impacting the demand level and pricing.
Well sales in the middle East and offshore surely Morrissey lives. This wasn't particularly good quarter for us into Caspian and the North sea in the North Sea, we compete of deliveries for the remaining wells and Paline again deliveries to the Glenn Gerleman development and recently won an award to supply and exploration.
Well for the Neptune, Eric field, Norway.
So I don't know very complex development and now lets success has been built on the extended performance of our product and the benefits of pro or read direct service.
In the Gulf.
Well it went position with good visibility in Saudi Arabia, the Amyris and Qatar, where do we expect trading activity to continue to be resilient, despite lower oil and gas prices.
And they said they we have reach agreement for two years attention on our long term agreements with any I Wouldnt Petrobras and we buy on here. We would also awarded there what are your attention on our section 232 exclusion for the importance of steel bar, what our basic demand.
While we advanced will be the investment we're making in our core the initial in Pennsylvania, So that it will be able to supply bar.
Starting from next year.
How many months.
We would be focused on reducing costs and working capital position the company for an extended downturn and advancing with our long term strategy.
This includes digital integration of the supply chain with our customer where we have made substantial progress in department.
Through our direct let me direct portal.
Customer can directly load to their order into our system and today, 44% of rig direct cooler rollout.
A request in the U.S. or manage this way.
Well our pipe traces tool, we provide five by fast tracking addressability, which allow for more efficient when planning and supply chain integration.
We have reduced pipe handling and fewer inspection in Dallas, we are advancing the system integration, we logic customer in the Permian Cologne Binney, Argentina in response to a pandemic where began providing well integrity services remotely too short lateral in the north sea the Gulf of Mexico, There Pacific and.
Reorganize our technical training service for online than either.
As customers six.
The other ways to reduce cost and streamline operations. They are looking on how the digital integration can reduce cost in this with later.
Well, so drilling activity, maybe starting to bottom out worldwide. During got interested continued very large overhang of inventories and production capacity, which will take an extended period of time to bring back to a more stable oil.
Oil and gas company have reduced capital budget, and postponing project, which will delay the recall that in drilling.
This environment demand for our product and service will continue to be deeply affected the through the rest of.
Eventually.
The only got into will need to assume investing at a faster pace.
Sure inadequate supply of for energy the war the newly school bidding from these crisis.
Thank you we can now take.
Your question.
Thank you as a reminder, task a question you want me to press Star one on your telephone for wasn't sure. All your question press the pound King Please standby, where we can file the Q when a roster.
And our first question comes from the line of Sean Meakim from JP Morgan. Your line is now open.
Thank you good morning.
Thank you.
So I will just to start the challenges in Threeq, you and the guide on margins makes sense.
I'm a little surprised at the optimism for Fourq you that was in the press release.
How much of that would you say is driven by seasonality helping activity.
The impact of achieving more of your cost reduction plans or other factors can maybe just walk us through.
The thought process for the fourth quarter.
Okay. Thank you it showed as well.
What we're seeing in yards with is that.
We will see that the third Q is related.
The bottom.
So operation and we should that.
Todd to pickup libbey slowly, but we may anticipate some recovery in.
In areas like for instance engine Tina.
Yeah, just eat a we expect.
After a negotiation offer a new addition of the David.
Something we'll start to move remember we had 60.
The beginning the year, we went down to zero today, we're probably around 15 rigs operational.
There will be some at big cap.
India TVT.
Also for a assuring good.
The supply of gas needed before the domestic market in the next week. During 2020, what this is one area in which we expect some equality.
So we may imagine that also then gradually in there would be some.
Level of activity the United States said that maybe also coming from these said and I will now or.
In the rest of.
Our age on.
We expect that could be some.
Slide to recall that during the fourth.
Thats the reason that are supporting though a statement India.
Got it thank you for that.
And then.
So considering the decline in activity that we've seen a forward outlook for the next couple of years.
Have you given more thought internally to taking out additional costs is that on the table for 2021, just curious how you think about the.
Efficacy of the costs out program, so far and.
Potential plans or thoughts around.
Increasing or upsizing that [noise].
On a cost you could take out of the business.
Well I am.
I think that he is a.
Hi on Saturday in that.
And the evolution of Ah the economy and the demand.
When it did pandemic try these will lead to some extent to see no.
Okay. So.
It's not easy to forecast to the level of activities. We may expect a in 2021.
A our cost containment that.
It's basically focused on reduction on our fixed costs that as we anticipated these on the way.
And we plan to.
Complete this part of our reduction within the coming in the coming two quarters before the end of the year.
Then that he is also the containment of the cost of the operation of the plane today, we have a suspension agreement in place that deferring instrument in different countries Sir.
We wish we add up sorting absorbing the cost of idle crusa indie from matters.
This is a component of our cost to the depending on that our forecast test.
Maybe a may change.
There are areas of further adjustment in though from this point of view indicated that we perceive that pretty cool version, which can do you know at the very slow pace.
Understood. That's really helpful. Thank you very much.
Thank you.
Thank you. Our next question comes from a line of Frank Mcgann from Bank of America airline has now been.
Yes. Thank you very much I was just wondering I'm just following up a little bit on that last question and just thinking.
Long term.
Do you see.
Yeah. When do you think you're going to get back to kind of normal operation and I've seen that would be.
A few years out, but how do you see kind of a return to normal and in in that process do you see industry consolidation continuing as you see opportunities for yourselves, perhaps two to pick up additional assets in that timeframe.
And what I think is a.
Very speculative to to try to a two.
To understand or to predict whats happening discovery, but.
From my visibility remains the dividend.
I think that.
In some regional we may be surprised by faster equally 14 cents a case of China, China is it going very fast if you look at.
Consumption, if the economic TV production and consumption of steel that no we are.
We have been surprised a lot the fund set by how fast. This recovery is proceeding ended this is spreading to some of the Asian countries. So this will he is a factor.
That it will be important people Doesnt 51, how fast we see these will continue.
[noise], then that is Ed the European and.
You asked recall away there is some kind of pent up demand there after that and EMEA.
Indicates that a recovery.
Speed up and the demand for energy.
In China, and other Asian country May pick up.
But this is I was saying at the beginning Justice picture.
Our operation has been affected today by the reduction in the level of investment company.
At this level of investment he probably be unsustainable if the world.
Required a steady supply of oil and gas sent in its likely higher level off the bat our vision has been affected.
By add that is actually the best many on the Americas from kind of that would go away sends to Mexico and Latin America is the price of oil.
Went above 45.
Dollar per bit button in the brain to.
Ill.
We will also see some.
Hi, Europe TBD.
It doesn't it by the very difficult to date from DCP that these trends we are still in the middle of the try this.
And sometimes you need are crazy thing to see.
Reality.
We've been more.
Pessimistic view.
Something.
We change you Mike.
Yeah, Okay, [laughter] unrest and it's understandable and just real quickly do you expect to take further having started because as you continue to downside if somebody operations in the third and fourth quarter.
Yeah. So he can repeat because I didn't listen if you if we see strength. They do you expect to see could take further severance charges as you continue to to cut costs than the reduced headcount in the third and fourth quarters.
Yes.
We are I mean, our jobs and plan to start the.
We incur a in a severance in the range of 70 plus million dollar 75 million dollar we were expecting or did you pay TV and number in the range of 100 million went on and 20 million.
So the rest at around 50 million a something that we expect it to incur in <unk> in the second half of this year now and the savings coming from the said Oh era.
Start to get into our results and weighted.
We will.
Perceived these savings are even more in the coming in the coming quote.
Okay. Thank you very much.
Thank you. Our next question comes from the line of E car Levy from P.T.I. change. Your line is now open.
Good morning, guys.
I like that can get more details are and what you're seeing in pricing or so part of the U.S. is down about 25% or from a year ago I know in the last downturn pricing fell as much as a 40%.
So do you expect that are you seeing a further decline and.
Also what are you seeing internationally repricing typically lags the U.S. and it could that potentially be headwind in the second half.
Thank you May go to him well you know as you are saying pricing a the prices went down a they realize theater and continue to wind down even last month, but I think a there is not so much room for additional.
Decline because of also the trend on the cost a I'm just turning to look at the price of I don't know.
And scrap the price is picking up something is happening here I was mentioning before that China is increasing is it production and consumption of seed. These driving increased in the price if I don't know what I don't know what is close to record 911.
And so this.
Is supporting also the level of prices say now where marketer.
For the first time at the price of hot rolled coil in China are higher than the price of hot rolled coil enjoys.
The dcs or something that didn't happen faster.
Yeah.
He is an indicator.
Of ER.
They did it go over in China, but is also something that either.
Having in a an impact on prices of all of the competitor on the cost of all of the competitor. So in my view that he is not so much room, a florida, a decent amount reduction in prices do through that in the stayed the same an overhang of inventors and these there's always something that could have.
Some temporary impact, but structurally I see that.
But he is not so much room, Florida addition.
Actually pricing.
Great. Thank you and then looking at your free cash flow you've already generated 850 million not in the first half mainly from a working capital.
How much more working capital reduction do you think are you guys could realize ER.
In the second half of this year and what kind of net debt or net cash near case levels are you are targeting by the end of year.
But basically we lining of what we.
Say the in the last quarter.
When we continue to generate free cash flow in in the third and fourth Q.
We are confirmed that we expected to arrive at the end of the a week a net cash position in the range of 1 billion did you also to our business model led the business model based on the rig direct.
Uh huh.
Allow a that.
To reduce our inventory.
Total 89 with the level of activity. So we expect a from a.
Fantasy and North sea level is to be able to generate the to continue to generate free cash flow.
In the coming.
Thank you I'll turn it back.
Thank you Sir our next question comes from the line of Alan Nanthealth Pony unless you want your line is now open.
Thank you have on two questions.
So first one is more broader picture. So this is the third crisis in the last 10 years and every time, we had globally predictions on the on your advice and every time, we've seen a bounce back to to be to various degrees and I was wondering how do you capacity company for the next a 10 year.
Introduced just thing do you think he will continue to generate most of the revenues from a strategic intermediates time would you think it. This is Andrew I tend to diversify the business.
And thank you a the capital.
I think that and we're getting through with it.
Try they said.
Difficult obviously to predict a.
Meantime, Matt we are in the long term a trend of concentration <unk> and redefinition of the competitive environment in the oil industry and also on the on the always sort of his company. We are in our service company. Please.
I think that a were prepared to play the game met in the sense.
Segment that and to.
Prepare for medical as I mentioned in the opening recovery Mark These level of your amendment could not support to the demand of energy that award the inevitably we need to when it will come out from the financing so we need to be prepared to too.
Supporting a higher level of investment having said so you know.
We are diversifying within our sector because in the end that than how did he is also supplying other segment of the industry like a hydrogen or a new of all we are we have an increasing business in that sector. Because at the end also for instance, either open or a.
Two.
68 cents and that is captured in storage of steel Dweud also requiring a.
Infrastructure that is any infrastructure in which we participate the segment today is a few percentage point of our revenues, but do you think leading fast and.
You don't hear we acquired.
Very special for all the things that are quite sophisticated.
Product design for the center and we have a weapon appeared from these so we think that said we need to look at to the long term fourth an AD is having in mind that the competitive environment in the industry resort competitive environment in our sector and also the nation that are coming out to from.
<unk> different that transformation of the energy industry and they did what we are doing.
Same time, we need to.
Understand how we can.
At transforming the way we operate.
Digitalization of the supply chain is one point, but that he is also.
Digital transformation of our industrial activity and the.
You know and Iris has always been.
Uh huh.
The focus on a local presence in different market and I think that these strategies. The one that we will continue to follow to be able to serve a dangerous thing. The place we should they operated in a world that it may be a little less global and get them more globe local.
Some of that Aegion.
I think this.
Fits that we've.
Our strategy and we we pursue these.
Everywhere in the world.
Okay. There was actually thank you I've got a.
Hello.
On a on labor costs theme that we've seen that big improvements in a Q2 I was wondering how much.
Although labor costs could be.
I would use to based on the actions they use taking in the first house, how much of labor cost will be producing in the second off of the.
Well, we will continue because in the second part of the it a you will have a they the.
Let's say the savings coming from our restructuring program getting into our ER our cost structure.
And as I was saying also.
I think we can reduce said they inefficiency that is coming into our cost of sale because of the very low level of production by producing.
Stopping production on that inducing inventory.
We have a we have a very low level of absorption deep set gradually when we will align again in production. We've seen since we'll also have an impact the introduction of our coat.
Okay. Thank you bye.
Thank you Sir our next question comes on the line assignment point from Redburn. Your line is now open.
Yeah, Hi, everyone. Thanks for taking the questions I'm just a couple of really building on some of the early questions first of all on the competitive front gardens.
You're talking about like single digit EBITDA margins in Q3, albeit with some recovery in Q4, you are kind of a leading producer in the industry I must be a lot of pipeline.
Across the broader supply base I'm just interested in any.
Impressions you have.
All the comments developments in terms of.
Capacity I guess.
Extended and capacity thing for this industry is there any reason to assume it will stay out even when prices.
Cover and I guess cannibalize, it's about just the U.S. itself I mean, it's been focus with your investment in recent years, they basically it's guy.
There is considerable would be based on what the shale activity will be.
Structurally lower going forward I guess for given oil price I'm, just sort of interested in what do you agree with that and what not kind of means that the footprint the warm app in the U.S. going forward. Thanks.
It. Thank you is eminent.
Well, a you know D.A.M. clearly we didn't anticipate.
It depends on demand name, but on the all in demand a worldwide and they did.
Lapse of investment thesis, but still are in my view did in the USA, we continue having long term energy industry, but it will be stronger maturing.
And the energy.
Supply to the country in the same center.
The D.
Production of our business sense and how we are positioning visit in so I think will fit that we've spent.
The medium term vertical where did we expect but it is too that in this moment in the U.S. and you haven't Alaska docket.
Have a whereas that is being drilled a waiting for completion.
And Taco for CTG on the ground now.
Completion will pick up faster.
Drilling.
We'll take a time to equal it because at first the industry will lead to complete well then.
To start drilling and the Venturino CTG with those affected demand, but overtime. The positioning the Tonight is head into your way said.
You say strong.
We will be able to produce over the last two.
Had the most modern facility for.
By production.
Between Bay City He command.
Let's see the behavior, the structural and Oh for the network of service Center.
Is the strongest.
I do.
Although our competitor.
So I think we're well positioned for these I didn't know if on this point.
Look a the novelty.
You want to add the on how you'll see the competitive environment in a position on Tonight.
And of course, our Wifi.
Oh, yes, Pablo good morning, you want to Simon not yet I believe that I have few points twog, maybe on top of a worthwhile already said that you already touched on that.
The oil a supply on the energy supply as an issue of a national security for the states I believe that this.
Planted.
And his last day so in this perspective.
The shapes up longer term, we should probably have space.
Now he's got to be speculative to say now what spaces, we want to be but if you read any vulnerable report, it's clear that a young conventional the United States that there are lot they got their space a again.
The interesting understates, the oil and gas industry has already shown in the previous crises that they were fast to adopt and they come out.
And they come out strong now today. It is true capital availability is lower but we know because we talk about kasper mass and they are fighting I mean, they are all going.
Our to say seat and ER and wait so even this is encouraging for us and as far as Ah Ah deny specifically is concerned I believe that as Paul mentioned already.
Well that is going to lobby illegal beats, a less global alot shortening the supply chain that is gonna be key and all the investments that we have the I'm not exactly aiming at that at that.
Point.
So I believe that as a shale will have their space and we have away very one position now with all the assets that we deployed being this neil swap or savvy centera to supply the industry.
Thank you and open.
Okay, great. Thanks, very much I mean, maybe if I could just fine that so on rig direct we talk about the world, becoming less label I guess, the benefits to the customer brick rig direct or even more or sort of high to Jerry market downtime as an increased focus on cost some cash flows I wonder if you could comment on.
Sort of pace of Rollouts of break direct so what you're saying kind of an acceleration and.
The patient, which are growing that as a share of your business. During this downturn what your expectations operation.
Well you know what I'm seeing a load that he is a.
Let me let globally I think that every county has an issue with the energy security for sure in United States. This a guessing favre and you'll see the said.
For many many aspect the concerning trade and concerning old I.
I mean, the D positioning go the Countrys set.
On the global Eddie I think that Ted.
And as you continue to be a strategic component of their position of every counter they said, we feel that we need to be present at the local level in all of the region Dcs Valley Flora.
The large countries like U.S., but it's also valid for our position for instance, in China, or India Middle East, which is very important but also for countries like at the extent, Nigeria, Angola, all the company, which would perceive the activity will be there we our strategy.
To get straight to the client.
Manager the entire supply chain that.
Below the client loyalty on the quality on the service center on the integration of the supply chain and minimizing the cost.
For the entire for the industry and the total cost of the operation based on better planning and a reduction of inefficiency in the chain, we feel that the long run.
We will be successful to this tend to which we can contribute to overall reduction of the cost of the TVT worldwide could it be offshore or to be shields can be locally in the in the countries has potential for these.
I think the DC that.
Very relevant component Oh, this tragedy often at a said.
In the decry they said.
To some extent.
It is validating these disease the tool that we have today.
[noise] allow us to stay close to Atlanta to be to some extent less affected by.
By variation off.
Stock.
That could come from the intermediation.
Yes.
Okay. Thanks, very much I'll turn it on.
Big data is a in this moment that it's very high encounter like Canada, and which we had about.
Presented and or look at your can confirm it in in the let's see the data or percentage of dealing direct in a place for instance, and yes, yes portal.
Yes, sorry bundle I didn't want to interrupt you.
Yeah, no indicate exactly yeah in the state for this quarter, we reached their highest percentage analysis away that.
With the best intentions are which is north of 85%.
And just to comply into what combo Apollo was saying, let's remember that.
The first phase of the hit their development took place in exactly in a crisis.
Because I believe the dangerousness realizing that the keeping the supply ship their supply chain Schwartz is key to efficiency.
Provides for the players and for the NPS as well.
Thank you add thank you outlined our task.
Thank you as a reminder to ask a question you wanted to press star one on your telephone to withdraw your question Chris The banking. Our next question comes from the line I really didn't have any sense equator. Your line is now open.
Yes, good afternoon.
For me the first one is on the average selling price.
Right about the mix in the coming forth that stuff, that's a positive trend the man second quarter, and the where do you see average selling price being entering in 2021.
Okay.
The cost saving so how much has been achieved the he put stuff.
And now much remains for 2020.
The question on the outlook that no could you give us an indication of a volume because then that profitability expected in Q4 compared to Q3.
And then last question on the Mexico.
Could you give us more detail some of the trend that they distributed expected in the coming forth Pepsi and I imagine.
Thank you.
Yeah, Thank you and regime and on the first one.
The average price said.
We expect the then if we consider it.
Mix that product.
Makes sense of Ah counties, because this is a complex and the impact that we may have from a decline did not the reduction in the in the pipe logic and all that and also any Brett.
Hey, we may have a in the third Q it decline a reduction in our.
Right.
Andy said, let's say you can consider that they will be a reduction in the sense for the third quarter and extending into the fourth quarter.
As far as the cost saving.
I would say that are we are probably realizing a.
It's having a range of 25% when a device such but 20, 20% to 25% of our cost saving that they realize that up to now in this quarter. We will continue to have the rest.
In the coming to cool.
As far as they been <unk> EBITDA or the margin I expect that we mentioned these set in the opening the America at today, we are anticipating that we should be able or let's say the EBITDA should stay in the lower single digit.
The next quarter, which will be developed on in our view so as far as weak.
And.
Yes.
And as far as the Mic and.
So let me in term of or let's say same center.
We had a reasonable quarter into second quarter because of different product line pipe and also to Jade.
And they said, we will or will be reduced the into next quarter will be lower in the next quarter.
ER.
But as far as the perspective.
Oh for Mexico, I would ask could you shed a little too.
[music].
Yes.
Quick view of what we can even in our wheel.
What we can expect let's say from Mexico.
Hi, good problem.
Yes, Pablo. Thank you are usually where you good morning, everybody. Thank you had what.
You know what we're doing in Mexico, we did that when the pandemic here.
If you pay mix obviously.
Then mix in terms not only the price of boys, but also in terms of the demand in Mexico.
So why are they announced or a plan.
In order to Crazy, we see great Young which included several factors like a reduction in taxes that the board and each of them exclude Barry.
And they also announced a reduction the capex will play around 15% or.
So you can be.
And we saw a reduction already the second quarter burst through the first quarter.
Which are working around the yield twentys and he presented middle 10%.
And we will see seasonality expecting a further reduction the third quarter grow do another 10% reduction so and then they really there was you know.
In the fourth quarter.
Now, we expect that threat to your thoughts on now that he wants to maintain and Atlanta increased production from got the limits of around $1.2 million per day.
2 million barge they could be 24.
So where we expect next year or two to start to increase or the activity of family.
Well. It also these will be strain and nah moving forward by the coming up the different projects that were granted under the wrong. That's.
And you didn't get previous administration reach.
I Wonder if you do expect that and then moving forward.
So we see a we saw a third quarter a little below that the second quarter events I literally knowledge and then what we're seeing coming back to a stronger activity at parity between square next year.
Thank you very much.
Thank you.
Mm is Adam I think originally I think we will go over the four point the domain I know.
Yes, yes, thank you yeah.
Yes.
Maybe a way to just to clarify and when I was referring to cost I'm, referring to the structural cost with the Scott how because that the cost of sales also influenced by the swaps or from due to the lower levels of production disease that.
Topping different.
Thank you. Our next question comes on line up only Wong from Libya. Your line is now open.
Hi, Good afternoon, I just a couple of questions for me, please well first ones I like to.
Or middle East Africa sounds to turn carried by somebody else.
During the quarter.
Just some color on how long that order, but stretches out for lucky very very helpful.
And the second question relates to I think you commented a little better on on your Big direct response.
Take a very high but I'd love to just get a sense of an update on how exco is integrating within your North American operations and what the client response, so far are any.
Hi, its little bit transitioning onto the <unk>.
On the anytime around that would be.
Thank you.
Yeah.
Thank you I mean, well.
On the mail the middle East.
You're right, we had a very good quarter.
Second quarter over quarter, but I would ask a gabrielle.
To give you a an overview on the middle Eastern perspective.
Oh.
Okay.
Thank you Bono and good morning, and Amy.
Indeed, we had a addresses and ordering in the middle East This is where there.
There.
We see some strength in the order book with a good perspective for the for the next few months.
Clearly there is an area, where they're lifting costs are lower and the fees are financially strong to sustain the operation.
So we see.
Doug.
In a theory, Saudi Arabia, Kuwait, Qatar the Gotovina GDC.
However, adjusted the drilling activity in the range over 10% to 20%.
And they have made decisions to delay.
James related with high Capex can you infrastructure.
So we expect in the next to.
Quarter solid same.
Given the important long term position we hold in this country.
And the positive success rate, we had on the limited tendering that have come to market. This year.
Outside the middle East.
This isn't a bit more complex.
There is as you know a an aggressive tons of io fees to reduce capex.
So this will translate into slogan agreeing on I'm purchasing activity. These will you mentioned about Africa is one of the area that is going to be most impacted we have a very good and strong first half even with pipeline save in West Africa that piece will not repeat.
In the remainder of a year.
We also had a strong caspian facing the first semester. These we'd also slow down so the resilience outside the middle East.
He is a is much less.
In Asia Pacific and just to complete there all the regions.
Will follow a milder slowdown as our opinions sales related to gas applicator applications in China.
We'll be less affected.
And thank you a guy, but it now on the rig direct integration or thieves go at this point in time, you know any jobs, we are no longer considering its exco has a separate entity we are.
Let's say.
Im taking moving in a very integrated way and the crisis as activity action, but and Luca.
Maybe you can comment on or.
How we are managing the integration.
Which point them.
Thank you. Thank you Paolo money hearing.
Now operator shops, why he's Oh, we are fully integrated thing the plans that where we doing this.
That Atlanta being fretting facility or for example, we are investing as you said before in a in copper.
Just to give a flavor or today, we are able to flat dollar.
For a beep school or probably technology in our in our plan. So as you correctly says that.
We are fully integrated and as a consequence that we tend to see our stage to a new customer base.
Now with these guys is of course, it's very difficult.
To assess.
Well, we had a we stand that and that's because let's remember that.
There's not a though what we see very interesting is that that ER, our connection shot out, especially the that of the four or four a share applications the new ones.
I'm not being very very successful and this is wilder that I would we like Plaza moving.
For the <unk> in the in the let's say short term.
Mhm.
Thank you.
Thank you good okay, but yes, but anyway, we had some are some client that we are getting things the the.
The value of the tour case or if that Bill you joined and all that we that's from a from a scope. So we integration is I think is working at every level, but in a situation, which really the market is.
Very bare minimum of corporation.
That's very helpful color. Thank you very much.
Thank you Sir our next question comes from the line of Blake and John from Wolfe Research. Your line is now open.
Hey, Thanks for joining me on here and taking the questions I'm just one follow up on your comments about the cost absorption in cost of goods sold specifically are you do break out cost of goods sold by line item I'm. Just wondering if you can give us a and feel for.
What percentage of Casegoods hold is fixed versus variable currently.
Post some of your structural.
Changes to the cost structure, what it was like before the pandemic and where do you think.
It goes to in a more normalized environment he.
How would volume have to recover before you added back additional fixed costs. Thanks.
It's a really yes. Thank you every day could a I was mentioning the daily.
So shrunk.
Yeah.
At least yet.
If I can give a.
But all the fuel.
This is changing obviously depending quarter over quarter, but also from a which is or I mean I referenced that it would do we view this one.
Yeah Yeah.
If you see it is in in some stated a situation.
No I don't know pinpoint ally custom say look I'm, saying that rehab.
My first then Dave I see a 55 Oh.
Cost with me I cover.
But if we see our fixed cost.
This is my math, we can come to you know that.
I think we showcased cost is around 70% aspect that.
I know that disease and without taking into account a lot a saving cost plan so well.
All right not cool the country that but we are in place in bank with a lot of reconciling that.
Yeah.
They say we are acting on these.
I mean, not exactly fixed the because we have suspension plan.
Different tools to that in the different region.
Could be a utilize the.
To reduce the cost Oh.
Let's say idle LIBOR different.
But I think did is giving you a reference.
No. That's that's very helpful. Thank you and one more follow up if I could.
We talked a lot about unconventional gas in the middle East gas development broadly for domestic consumption in different parts of the world enriching on the O. CTG front, but I'm wondering if there was an infrastructure opportunity over the longer term and then if you look offshore Mediterranean looks like assets may change hands here.
The near term and potentially down the road some development plans offshore.
For gas how do you view the line pipe market today, and what do you think are going to be those opportunities for large infrastructure projects moving forward.
Well.
Maybe a I will ask I gathered to respond to the Gsix ascension for a our operation for what our market in the middle East that.
In China and needs to meet the rain and everywhere.
The.
You May view.
They will be a some delay in many of the large project I do not see many large infrastructure uploaded for that.
That will come to a final investment decision on a very soon but Gabrielle you may you may expand the on Uh huh.
Basically on the Weston.
On the economy's Vietnam.
Yes. Thank you Paolo yes, indeed, there is a promising.
Future forgot we see a gas increasing its fair share.
Sharing the in their energy Matrixx Vivien by domestic gas consumption.
Increase over the man. This is very noticeable in many of the Canada in EMEA Liza, we're talking about that many of our space are related to.
Domestic gas development, we see that in China I.
Another area of the World.
And then the export of gas the LNG is expected to continue to grow as Paul said, given the current environment, we don't expect.
Large infrastructure project over if I'd like for example, the ones that were expected to be more the mic.
Ali Baba when you need to happen in the short term, but they are a mid term brought do that at some point in time, we'd come on stream on the gas development typically require more complex connecture more complex great.
So in the in the mid term in the long term. When these gets developed this will be continue to via a positive trend within the energy metrics in next few years.
Thank you Gabrielle because it just to add the.
We have for instance, in Latin America important the broader thing infrastructure for gas and Brazil, Argentina.
Mexico also but I do not think that we would see anytime soon that final investment decision. This is a difficult moment for all of the economy stage.
Understood. Thank you for the the detail.
Thank you. Our next question comes on the line Alejandro Elsztain seamless and only security. Your line is now open.
Yeah. Good morning Polo gentlemen couple of questions. The first one E shot to follow up on on deep go situation, because I think Youre report.
It's a it's not it's got a mine are contributing to an artist. This margin. So we'll try to understand that although you're probably integrated if go but that's no taught lossmaking operation, but that's still some kind of level of positive margin. Even if it is small does the first question on.
In the second question East own Yamato distribution agreement with P.M.K.
I understand that the coffee company renegotiation or on the penalties, but could you. Please give us some indication of how you see those penalties cannot be more evolving if you don't reach the minimum level.
Thank you that can throw a him on a on the two point.
I mentioned before today would be difficult for us to isolate the contribution of Fips girl, because we are really managing at this point in time everything is a single units, especially in the trial I mean, this is exhibition in which the reduction.
In a in our seed sales being so.
So.
Southern in Seoul doors, so the but.
And that everything is manager point or in a combine away.
And then room also for the TMT import agreement for a.
Good from agreement.
He is offering it was made these studies are why it's been anyway, but maybe.
Look I could head.
Or some color on the sense that I'm, saying.
Okay. That's all.
Sounds a little no not much because I believe.
You have been a baby completes a but in general terms. So we are treating a any each customer that we inherited that we got position.
As it is it they're nice customer so in this respect that really no possible for last two to two eyes or later and in terms how far they must this additional game and of course, a democracy, what's your name and a full she's or the purchase all that show the number that given the circumstances Uh huh.
Being a as being negotiated that and they made faith or to the current market conditions.
So so who have to come from we should not expect a penalty coming from broke broke from that mockery Division agreement.
No no. We don't expect these because we just a job to the can see during the day that it actually in America disease logical from both parties. Because also this year they say are very.
Yeah, I looking very carefully and the important label the into the United States in any moment that isn't such a difficult moment for the domain to produce so these are being it I mean it.
Adjustment of or contracts to a change of circumstances.
Ladies basically it ambition.
Okay. That's fantastic. Thank you very much.
Thank you at this time I'm showing no further questions I would like to turn the call back over to Giovanni.
Hi, Mark.
Why not just too thank you for guy not senile systemic all right.
We hope to see you soon thanks.
Ladies and gentlemen, thank you congrats.
Thank you ladies and gentlemen, this concludes todays conference call. Thanks for participating.
Yes.
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