Q2 2021 Tenaris SA Earnings Call

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Okay.

[music].

Good day, and thank you for standing by and welcome to the Q2.2021, Senates SA earnings conference call on.

At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.

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I would now like the hand, the conference over to your speaker today Giovanni sort of Danya. Please go ahead.

Yeah.

Thank you Gigi and welcome to the anatomy.

Thank you 1 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 actual results may vary from those expressed or implied during the school.

With me on the call today are Paolo Rocca, our chairman and CEO, Alicia Mondello Chief.

Chief Financial Officer is that muscle of golf, Vice Chairman and member of our part of that ex <unk>.

For the Vice Chairman and member of our board of Directors Gabrielle for the cool stuff President of our eastern Hemisphere operations.

And Luca Zanotti President of our U S operation.

Before passing over the call to Paolo for his opening remarks, I would like to briefly comment of course of yourself.

Our sales in the second quarter of 2021 reached 1.5 billion up 23% compared to those of the previous year and 29% sequentially, mainly driven by a recovery pace of North and South America, but we see increasing in all our reporting region.

Average selling prices in our tubes operating segment declined 6% compared for the corresponding quarter of 2020, but the increased 6% sequentially on the IR.

Price, there's a safety from a theory that coast.

Our EBITDA for the quarter, which included an extraordinary gain of $53 million from Derek when you shown of fiscal credits in Brazil was up 54% sequentially to 3 and the other than 1 million, reflecting the area of volumes and that of a good the industrial performance.

Our EBITDA margin was up around 20%.

Quarterly net income of $194 million benefit of the gain from a strong contribution from our investments.

You mean.

During the quarter working capital increased by 3 and then the FERC. The median mainly due to our inventories which reflects the increased level of lucky.

Cash used in operating activities during the quarter was $50 million with capital expenditure of 51 million of free cash flow for the quarter was negative for $2 million.

After the dividend payment of 165 million in May the net cash position declined to 854 million on at the end of the quarter.

Now I will ask Paolo to say a few words before we start we opened the call question.

Thank you Giovanni and good morning for all of you.

As we ramp up for.

Our activities to meet the higher demand Tonight is the ease exiting on all fronts.

We are hiring and training new employees as we increase production took out a lot of global in the industrial system.

The team is managing disruption from the ongoing effect of the pandemic.

In confronting the rapid increase in raw material and logistic costs.

Once again, our team is demonstrating the resilience and capacity to respond to changing conditions that.

That is a hallmark of our company.

In this dynamic environment out of second quarter results for the progress we are making in North America and the rest of the world for the.

The second consecutive quarter, our sales from North America increased by more than 30% as we extended.

However, the big data sales model and fully recovered the market position in the U S debt.

The effective during the lengthy heap school the cooler process.

We're moving quickly to bring production at the base at the to full capacity.

The patent protection on the copper pillar for our U S and Canadian seamless pipe mills until beginning of the online our enbridge meal and the baytown, finishing facilities the newest.

Since October of last year, we have taken on 700 of new employees in the United States and plan to hire if other for either of the 50 by the end of the year.

The digital integration is a key feature of a lot of big data service.

Both in the United States in the out of the World.

We now have 50 customer using our league data exported around the world.

The account for 50% of all items ordered.

Our rig direct program.

Within the program will offer full pipe traceability to our pipe 3 set of applications.

In South America.

<unk> also the covey.

The petrol bus awarded us the contract.

Of the supply sour service and higher alloy seamless casing for the Libra pre salt field.

But as we use our seamless product, including our adult Bliss and pipe trace of technology in the Brazilian depot for sure.

An important step in our positioning in this market.

The EBITDA of this quality and now renamed the metal is 1 of the worlds largest and most important the deepwater fields.

He said water in the sense of spacing is located the 4000 meters below of the seabed <unk>.

Total debt of 5009% of the meters.

It had the estimated total recoverable reserves of $3.3 billion barrels and the deploy the development plan aims for the production rate of 720000 by the debate.

In Argentina.

Began offering pressure pumping and coil tubing services in vaca more of that as a complement to our full rig direct service in the county.

Our backlog growth.

Worth 70 million over the next 12 months worldwide, we expect to invoice around the 400 million in service and accessories over the same period.

The services, we have the opportunity to reinforce the relationship that we have with customers and extend our knowledge of operating conditions.

In Europe industrial production has been recovering following the pandemic new sales opportunities in hydrogen storage.

Carnival and capture.

Cabo capture the and storage infrastructure and the inspection of electrical grids.

Bidding.

In connection on the energy transition.

That kind of sector.

I'd like to highlight our of global automotive business, what do we expect to invoice around 200 million on DCF.

With over 50% coming from tubes and components for airbags segment in which we have of 40% global market share.

The demand growth in the soy is to get to the segment were expanding our component of us day to day in China.

This quarter, our sales growth amounted to 29% and we expected that our sales will continue to grow in the coming quarters.

Moving to 2022.

We should also see stronger contribution from the eastern Hemisphere.

The large backlog of order we have in the middle East that we discussed in our previous calls and the reactivation of activity.

Some of short project.

Ticker and the North Sea, where we are well positioned.

The increase in raw material costs that we have seen since of the beginning of the year.

Just starting to appear on our cost of sales.

And it will not be on the fourth quarter that day.

There are more fully reflected.

Prices are also increasing with some lag, particularly in North America.

Drilling activity recovers and tubular inventory held by the distributors decline.

Against the background, we're confirming our guidance for the 20% the EBITDA margin level during this third quarter.

As the world prepare for the Cop 26 climate summit in Glasgow.

The <unk> the current the carbonization targets that would be the import with more specific action in support of the doors dockets the analysis.

Stand ready to contribute we of the investment indicative organization that we have committed to carry out of over the coming years.

More customers are asking us about our carbon emission and how we plan to reduce them and we see these.

As an opportunity to reinforce our competitive differentiation.

I will leave the floor open now for any question you may have.

As a reminder to ask the question you will need to press star 1 on your telephone.

Draw your question press the pound key.

Please standby, while we compile the Q&A roster.

Our first question comes from the line of Ian Macpherson from Piper Sandler Your line is now open.

Thank you for for taking my question I guess I wanted to Paolo too.

The follow up on your comment regarding the material cost inflation that will be more fully reflected by the fourth quarter as opposed to the third quarter does that does that present any risk that the 20% EBITDA margin will just be sort of a 1 quarter event or.

On the other hand, the throughput and price increases that you have coming through gives you confidence that youre going to hit 20% margins and stay there with the platform to improve next year.

Well thank you.

<unk>.

We are estimating the.

<unk>.

An increase in.

Our.

Top line.

And the.

And in the range of.

Let's say the double digit low double digits for the next quarter.

We are estimating of the the EBITDA margin in the range of 20% of considering the.

How the the increase in the cost of.

Of input raw material is getting into a lot of Intel into our cost of sales now.

It could be.

Some.

Some of these may come from in the.

Disruption.

The logistical or in some of his specific.

Issue.

Also be the day to Pan EMEA, but in general I.

I think that.

We should be able to.

To achieve this.

This level of managing considering the price increase.

That we know.

Embedded in the contract for this third quarter and of basically the level of cost that we have in our in our event.

Okay.

Great. Thanks, and then I was going to ask also just looking at looking ahead to 2022, when the eastern Hemisphere is going to materialize in the in a bigger way.

And it has so far this year.

Generally speaking historically for the various debt has a higher margin hemisphere for you is it not so that would be of tailwind for margins.

Yes. Thank you for your question.

Yeah.

Youre right.

For 2022.

We will increase.

Our shipments for the middle East and the infected the.

The mix of our product is pretty poor in the second half of 2021, we would improve.

In the going on during 2022.

Maybe Gabriel you can.

Gave more color on the the timing of the the contract in the backlog that we have any of the region.

Sure. Thank you Paolo good morning, the yen and I. Thank you for your for your question, Yes, Indeed the.

We see drilling activity in the middle East the started to pick up in the recent months.

Something that the positive trend that we expect to continue on the Opex enters in the in the face of production increases.

The recovery has been gradual but the signs are very clear on and consistently positive.

Seeing the rigs being added large projects of activating for it.

Example of my John as we move to larger project in Saudi Arabia.

And we expect the new tenders in Saudi as well coming to market for the.

The mine in 2022.

In the other 3 core markets of the of the <unk>.

UAE, Kuwait and Qatar.

As you know the large OLED tenders have been already played we are well position, thereby our backlog of multiyear contracts.

We'll start impacting in 2000 during the due likely in the second quarter of 'twenty 'twenty 2 would be the the first strong sign of this will depend on the drilling plans. So.

Management on also kind of played until all of it all.

We expect the shipments in the in the Middle East to remain broadly flat in the second half of 'twenty, 1 compared to the first half of 'twenty 2.

<unk>.

In 2020, do we should see a recovery path.

The main thing Brasilia of double digit growth in the first half.

Versus the school in half.

Given the the.

The contract that we have in those contracts, where we have formulas.

The season, we have for them and is reflecting both the cost on market indicators the risk.

Typically in this region of lag.

So it will take some time, but also theres going to be some.

The pricing adjustment of the cost situation.

These are immediate as contracts of the year.

For 2022 progresses.

The.

The most helpful. Thank you both very much.

Thank you.

Yeah.

Thank you. Our next question comes from the line of equal or Levi from <unk>. Your line is now.

Good morning, guys.

Could you provide some more color on your.

Energy transition initiatives and carbon storage on hydrogen and the project recently awarded been coming along and.

Are there any new projects you guys are bidding on that are on the horizon.

Thank you.

We are following a number of.

The project debt.

The.

You know our exposure to the.

Energy transition relief that the business is increasing is mainly focus on projects for carbon capture and the use in storage.

The northern light.

Total debt, we will see we will be shifting these during the.

2022 day.

This kind of product that we are monitoring of what's happening.

In different region, but.

Let's say many of these are still debt.

In the stage of design and engineering.

The other day area related to the energy transition and the interest in <unk> is.

Cylinder for.

Hydrogen.

We are working and we have a we're increasing our shipment of cylinder for the storage for service station that is supplying the.

Broadridge the today I would say of steel pilot project, we do not see yet massive but all of it.

Do you see it yet.

These project as stimulus of the 1 that we are also as a company have.

Now let of mean that I mean that we will develop for this so I will say the stage of these both of these tier.

For the pilots.

We are also.

Looking in.

For the action that should be taken to transform.

The infrastructure from gas to.

To include the component of hydrogen.

The debt it may require.

Tubular product or a substitution of pipeline there so but even there I would say that this is still the.

In the very.

Very beginning let's say.

Of.

The ZIP losses, we are also exposed the 2 geothermal.

If any of the small niche I mean these are not <unk>.

Volume that we move on if we change the.

The overall exposure of these just turn them on.

The ccas.

The larger vessel for for either of China.

Okay.

This.

<unk>, which we out of anything in the Russell for something in the biomass and which we have.

Let's say, but these.

The patient.

But I would say debt.

It still is more part of our business will be increasing we need to be participating.

In the pilot so the have the chance.

To be part of it.

The.

All of the project when the day allowance is.

In the case of northern died.

Great.

And.

20% margins, just the quarter away what would it take to get back above 25% level.

On a decade ago with an offshore rig recovery of the required or it could increase the onshore demand and stronger pricing get us there.

Yeah.

I think of that.

After the day that the let's say the.

The pandemic and the impact on the the it investment.

The market is recovering strongly and the.

Some changes happening in the market. The today I will say is much more.

Based on regional situation the regional industry in some region we perceive.

The the.

The increasing demand.

The is giving us some more pricing power and this is visible and is important to increase our EBITDA margin.

Some of the region the.

Yeah.

The.

Supply demand balance that is still the pretty pretty tight.

The traditional pricing is deepening so.

The the restriction to trade.

The day.

The strategy of the oil companies in the different entry job.

The redefinition of the supply chain out of Korea.

Waiting of regional.

The some kind of region of fragmentation in the scent.

And we see that we have the equivalent and pricing power in some region in which the.

The demand is increasing pretty fast.

During 2022.

I think the day, we will see.

These trend to proceed when that depended EMEA.

Well.

Fade out compared to where we are today in many regions of the world not only.

In Europe, all the way set today.

It depends EMEA is affecting the economy.

In the emerging market and this is a factor. So if you ask me when.

The strength.

I'll tell you if the deal will happen in some momentum during 2000 in the second half of 2022.

Before it will depend also from factor like the the.

The.

The stabilization of the economy and the measure of the motors for the economy that it may be taken in particular in the United States.

Great. Thank you for the color I'll turn it back.

Thank you. Our next question comes from the line of Mark.

Bianchi from Cowen Your line is now from.

Thank you.

I first wanted to ask about the third quarter just to clarify.

In second quarter, we saw the fiscal credits from Brazil helped.

Help the margin I'm, just curious if theres anything.

That might be like that helping your third quarter margin.

Thank you.

I would ask Alicia.

The comment on.

Uh huh.

Possible extraordinary factor.

Third quarter.

Thank you Paolo good morning, Mark.

I'd tell you we are not expecting another extending of the impact industrial clients as well.

But as Doug and Maryann growth.

Something was well.

The size on the Brazilian Justice nowhere announced the expected anymore right.

Great. Thank you for that.

In the prepared remarks, you mentioned pressure pumping and coiled tubing services in Argentina.

I'm curious what the aspiration is.

For for adding these types of services.

Maybe as a percentage of your business over time, and how do you think about that.

From a margin perspective versus the rest of the business.

Well we.

We're moving in the service as a complement to our rig direct we perceive that the clients, especially in the local market in which we have built a strong the trough the relation with our clients.

We are very open of very willing to have our support in the service.

Indirectly related to the total.

With us.

So indicator of Argentina, we decided to move in we see this as a profitable business the <unk>.

The year invoicing would be in the range of $70 million that we plan.

To expand the service only in the in the market in which we have at the very strong route and in which we can complement a full package of supply from pipes to tubing casing.

And the services that are related to the column and 2 the completion of the way the client trusting that our ability to execute and we are doing.

A pretty good job, but we decided to step in and of the situation. We see these as profit, though we will not the moving in the marketing of the HR that he is very high competition and the <unk>.

Each of these services at a much more call me all of the commodity, but they're not of the NII and Wechat. This is.

It could be really complementing the.

What we are.

What we are doing in service.

To the client the theories of why in the prepared remarks I also mention that in the call our invoicing of pure service with no tubes us out of.

On the.

The figure in the range of $400 million is a pretty relevant for our top line.

Wonderful thank you very much.

Thank you. Our next question comes from the line of blood.

Thank you from Bank of America. Your line is now open.

Thank you and good morning, Thanks for taking my question I'll start with the 2 so what are the key contributors to revenue growth in the second half of the year is it volume is it right is the mix is it the everything and what are the key region.

And then the other 1 on the margin progression through the second half of the year, you, obviously gave us the dampening.

And you highlighted that there will be cost inflation in the fourth quarter, I'm wondering where the top line growth.

On the pricing in the fourth quarter will be sufficient to offset the.

On Q4.

The other parts of implant.

Yes.

Thank you Vlad.

For the question.

As I mentioned before.

<unk>.

Sales and top line.

The increase in the range of a.

Low double digit in the next quarter and to grow again in more or less in the same on the same region in the fourth quarter. So volume for for will Act.

Price with <unk>.

Also have of relevant because in the end of.

The price it is.

As you can see in the biologic getting into our long term contracting on our rig day to act.

Good evening.

Okay.

We are in the sands coming.

With the leg because of Indiana, and we are not setting in the spot market with the most selling in the.

Agreement so the price set.

Entering into our into our top line.

For leg, but these would be effective mix it.

In the third and fourth quarter will act against because India and.

Growth will be very concentrated in.

North America, and so we will.

We would have of make said that he is comparatively the more poor compared to the mix.

Comes from the.

The International project.

And especially kind of the complex, but all of it in the offshore.

Debt in my view will be.

Coming on stream of later on the already told him on the building.

2022.

So the cost increase will also.

The lift.

The contained by the of source from.

The increase in the volume is gaming.

Improvement in the absorption.

And the.

Stepping up activity in the U S. But we are putting into operation of meals that there has been.

Idle for more than 2 years, so in some case.

We have additional cost we are hiding the more than 1000 people, we need to train them and this is having in the we are doing today.

Some meets the like cockpit is ramping up.

Some other like Enbridge will ramp up.

But the people.

We are training of the people. So we have some cost.

Now that we think will gradually be absorbed the.

By the when the mill will be fully operational on us. So all of this component of that.

Consider other.

Giving us these refinance it on which we are guiding and as I was saying before.

Yes.

That is our risk weighted.

The pandemic for ease of risk because of India, and we had of trying to do what we can have on.

Our people vaccinated, but there are countries in which we have no access the vaccine and the move of the vaccination is moving slowly and in which all of these industrial operation of IRA.

At the <unk> risk of disruption and also in.

Now the reason that I mentioned on is always the logistic.

Of course, increasing the TVT worldwide.

Is putting a strain that on logistic on water on logistics.

On rail.

On of many of the issue of releases related to container. The study showed that could also to some extent affect us hopefully not so much as other industry.

Mike.

The automotive or.

Other that he may emerge.

So do you see of the factor that out of it.

Having an impact on.

Our our margin.

I hope that these will answer for your question.

Yes, absolutely.

I think the following very comprehensive radically can they.

A follow up question on the U S marketplace.

On how much the way out of couple of ways you have E mail.

Neil do you think have at this moment.

Is there a line of sight on.

Yeah.

<unk> been fully utilized.

I'm on getting bad debt and then what needs to happen to you what did your prices to incentivize welded mill.

Because all of the kind of what.

Don't have that made them all.

Well.

I'll ask here.

Look at the answer we are putting into operation and the plant that average that we have capacity that is coming in the end.

We have potential but Luca maybe you can give an answer on the 2 question 1 on the capacity.

And the other 1 of our.

When the welded will enter into the field.

Yes. Thank you Paolo good morning, good morning. Thanks.

Thanks for the question now in terms of capacity.

We are adding capacity.

When you look at the the activity ramp up that we see through the end of the.

When you look at the daily consumption of the consumption is growing.

When you look at the inventory inventory that'd be the other 5 months.

I got that the cost of steel at that on a on the second question.

You'll see that that capacity is coming Deanna <unk>, our competitors are ramping up on the practical the I described before well make of the market in my opinion on that.

Significantly tied the going into the fourth quarter.

The 22 now.

As to your second question on that which is what will take that.

To get the <unk> domestic Becker, if you look at the HFC for IC and <unk>.

Consider the this is more or less.

Uh huh.

On the 11th.

Yes, Bob you are buying GAAP, you will need to see a jump.

Significant jump in the price of fiber.

Before the second I can get back so and these will provide additional strength.

2 the price.

Now how much of this can be difficult to estimate, but the way that is north of that between the biologics and the and the <unk>.

That would be price. So you will need to assume a significant step up to see this.

This component of the local.

The actions will come back significantly.

And this is basically the Lucerne it back.

Thank you. Thank you very much of that's very helpful.

Thank you. Our next question comes from the line of Conor Lin of.

From Morgan Stanley. Your line is now open.

Yes. Thanks.

I just wanted to stay on on U S capacity.

Just wondering if you could if you could clarify for us how we should think about your effective capacity trending as you're ramping towards full capacity at some places reopening in other places basically how much sales.

Sales capacity of your sales volume do you think we should account for over the next few quarters.

At what pace.

Thank you Eric on.

I think look kind of maybe you can.

And the sum of some comment on this.

But keep.

Keep in mind that the kinetics for.

For the United States.

Is it pretty.

Yeah.

The complex and extend the system, we have arrived there from the C.

T from Ambridge for seamless.

We have of finishing facility in Macau.

The town.

She come on kick him on his capacity also for the world that we are arriving there from Canada.

The kind of in this momentum is ramping up also.

Canada has capacity outside of the the season in Canada. So.

There are quarters in which we have also additional capacity from there and.

The Mexico and the rest of the system could support for specific product for them. So so in the end of.

The.

Our production comes from.

Different sources.

And we have space for of responding to an increase of demand in the back.

I don't know Luca if you wanted to.

Some of it.

Colorado more specific if the program for capacity comes from the difficulty to hiring people.

Or do you think that.

The investment plan and the.

For the way with those of us.

The factor for expanding capacity can you comment on this.

Yes, Paul Thank you.

Good morning Cornell.

I believe that's where I think you made it pretty well are the key.

Complexity and sophistication of all of our supply system to the.

For the U S.

Hi, guys.

The capacity in the U S East is concerned.

We have with the plan day, we have in place for that capacity to follow the.

Grow the we see for our cash flow Mercer.

And we know the Israeli whether it goes with our I'll leave the red.

The programs that we know what the what would be a PBT is going to be in the medium on the show up in the medium.

In the medium for them now that may be constrained for that.

And you correctly said these we don't know what what's going on be it the effect of that of the pandemic on all of this volume.

How much of this.

This has gone out on May.

The effect of operations, but this is not the nice problem of disease or the economy.

And the economy of all dilemma and so like the it's very difficult for me today to give you an exact the.

Estimation of what this impact will be but in general of the answer we are the capacity to fall on the exhaust our cash flow Mr. <unk>.

They are communicating Gaza.

On a weekly forecast the meeting.

Okay, Okay I understand.

Yes, I take the point on the on the global system.

On the north.

Erika system, but certainly I can infer from the fact that youre opening additional capacity that you're either seeing incremental demand from.

Other regions that those non U S mills serve or incremental U S demand I guess could you just update on a more global sense.

Are you are you seeing the need to add shifts or.

Reopen or accelerate capacity elsewhere outside of the U S as well.

We incorporated the in the last months around 4000 people in our system.

Apart from the.

Including.

What we mentioned for the U S. So we are responding on the global level to the increasing demand.

Yes.

To prepare the system for supporting the increase that I mentioned in the top line for the next 2 quarters.

Can tell you is that the increase.

In the sales in North America.

Net.

Running at the pace of higher.

The the overwriting could ease the dimension for dynamics.

The mitigates the most of the dynamic.

The market in this moment.

Alright, Thank you very much.

Thank you. Our next question comes from the line of Alan Spence from Jefferies. Your line is now open.

Thanks. Good afternoon, most of my questions have been taken slightly from the 1 remaining and the surround.

The effective tax rate in the P&L the very low.

Second quarter I was just wondering if you could talk about what drove this and how you see that progressing.

From the rate perspective in the coming quarters.

Thank you.

And then I will ask Alicia.

To give the view of.

The the.

<unk>.

Let's say the evolution that we may expect in our tax line.

Okay. Thank you.

Yeah. Thank you Paolo Hello items.

<unk>.

We are.

For the rest of the year on.

I think that's right.

From 20% to 22%.

In this quarter, you'll see.

And it's more of that if it's the right.

Right because we have.

Many of effects coming from inflation adjustment in the countries, where did this hello like Mexico on Argentina.

In Argentina in this quarter, the Congress approved an increase of the tax rate from 30% to 75%.

That is kind of being upset because of the is that for both net inflation adjustment.

Got it.

Then this effect for the rest of the year because we are.

Pork has been that the inflation adjustment with the higher than the evaluation of it.

So this is the reason because from that aspect in this kind of expected effective tax rate for the rest of the year I don't know as of this.

I'm sorry your question.

Sure.

Yes, thank you very much.

Thank you Anna.

Yeah.

Thank you. Our next question comes from the line of the loss.

Now from Coker <unk> Palmer your line is now open.

Hey, guys. Thank you for taking my questions.

Maybe if I can start that we already have 1 add knock on Kiyoshi orders and I think you mentioned, some Saudi Arabia of contracts.

How should we think about the magnitude of the revenue step up from 'twenty, 1 to 'twenty 2 from those projects. My thinking is it that could be maybe around 400 million revenue step up but.

On what Im trying to see if there are any offset from any projects rolling off.

Thank you.

The question of theories of the contract.

The between the change of between 'twenty, 1 and 'twenty 2 in Saudi Arabia.

Got it and then maybe you can pick up of this question.

Yes, Paolo Thank you for.

The question yes.

The increase would be gradual during the year 'twenty to 'twenty 2 as we said volumes in second quarter of 22.

And then also the adjustment in prices of according to the Formula we see new sets of growing trend.

No given the specific.

Figures on the increase we said that is on the high double digits.

So it will be moving.

But the wood.

Keep it there and I will not disclose any more information also there are specific the easiest about stock management drilling programs.

That will.

Fine tune the pace of growth, but it would be important compared to 2021.

Okay.

And maybe switching to near term so.

You talked about low the low double digit revenues in the <unk>, 20% EBITDA margins in <unk>, and maybe similar but revenue growth in for Q I.

Yes.

Oh from investors' point of view it would.

They would be what would be helpful. Is if you can talk about can we maintain this 20% EBITDA margins in for Q and probably in 2021, just given the concerns that on inflation, but maybe offset by cost absorption better mix. It would be helpful. Just to think about debt externally how would the EBITDA margin.

Inappropriate from beyond <unk>.

Thank you very much I think it is growing.

In line with the.

<unk>.

On the previous transfer on the on.

On a managing.

Here.

That is the volume effect, increasing volume has.

The positive impact on cost.

The that contribute to offset that.

The cost inflation that we're seeing in our cost of sales that is the price effect of price increases of price the pipe logic.

Is it a good reference, especially for non for North America.

He is getting it into our top line and this is contributing.

Contributing to this.

The margin of 20% that we estimate at the end as I say before the mix of <unk>.

Product for all of the NIH is playing on the other way because in the end there will be.

Water, we for a relatively low level of <unk>.

Premium product as of <unk>.

Share of our global.

The seats.

But when you consider the set day.

From factor.

Guiding.

Supporting.

Our estimate of.

The margin for the third and the fourth quarter.

Okay.

That's all for me. Thank you for taking my questions.

Thank you. Our next question comes from the line of Steven Zingaro from Stifel. Your line is now open.

Thanks, and good morning, good afternoon gentlemen.

So just a quick 1 for me the.

When we think about what some of the larger service companies have said about international growth sort of eastern hemisphere growth.

They're talking about double digit plus growth in 2022.

And the curious in an environment like that and maybe the similar question for kind of.

Double digit growth rate of the U S market. How do you think of you guys perform on a relative basis from the topline perspective.

What.

<unk>.

I don't have here at the close of comparison of what I see is that usually.

We are moving in parallel 2 on the top line net with all of the other service company, we follow the <unk>.

Usually if you look.

Over the time and Youll see that we have been able to follow or to talk.

The the evolution of sales on top of line of a major service company now in these cases concerning.

The the eastern Hemisphere, and the perspective for 'twenty, 2 and the project for the offshore that is supporting the.

Statement in the evaluation of the estimation of the other service.

Got you kind of add something.

Comment on the Asa.

The Eva.

To understand if this.

The rate of increase.

In the overall the business.

At the end.

9 were walking through debt.

Sure of Boto.

In fact, we see the offshore.

In addition to the Middle East also on a recovery of bus.

Within the thinking of here, we are seeing a positive dynamics.

Gross areas the Nrc's emotion.

All of the Norway on the UK our octave.

During this quarter that we capture of new NDA with the bought energy in Norway.

The supply the therefore, the needs of all CDG very rich mix.

Also of services.

And as you manage on the also the the North sea like the rest of Europe would be of leaving area for the energy transition.

David OCC of studies are underway. So we are seeing positive dynamics there we.

We see also some projects proceeding in the offshore meet the Iranian we've adjusted the relevant contract with Melita Eni.

The offshore Libya covering I also did you need for the third day with.

The start impacting also in 2022 and beyond.

Finally also some Saharan Africa is offering some initial positive signs.

The 2 very tough years.

We highlight also Angola.

The promising spot recovery of indications of on.

The increase.

The in activity underway.

And this would support gradually increase of our OLED on line pipe for.

Growth in this part of the work on.

Finally, southeast Asia is also.

Showing some reactivation of projects.

Delighted Indonesia, Australia on before New Guinea of positive contributors in the offshore in 2022.

This is regarding eastern hemisphere, but the.

Probably it's important to consider in the specific deepwater space of that activity is strong in the Americas today.

50% of.

For the global the leadership semi subset of operating if you can see the Brazil Gulf of Mexico, both sites.

Of the border on <unk>.

Well so.

Again, we believe that there is a path of recovery in the offshore and this will be of positive contributor in 2022 and onwards supporting the double digit.

Trajectory that we talked about on in line with the service companies.

Yeah.

Thank you.

I think as adjusted let me add 1 thing there is differential between our sales in the oil service company in this moment the level of price of the hot rolled coil.

Is putting a drag on our welded pipe competitor for line pipe and for CTG. This is the.

The.

Is it positive effect for us in the North America for CTG, but also has the positive effect on our space for the line because in many cases, we can.

Let's say the capture of seamless project debt.

Otherwise it would be captured by the welded pipe in.

In the different in deepening of the region. This is something of differential in the in the end of the high price of vertical of turquoise.

It's positive for us.

Not only because of we also have a good results from our.

But dissipation and tell him.

So just as a follow up to that is interesting.

Historically.

HRC was rising and activity was fairly strong.

I believe and I have to go back and look the exact numbers, but clearly it seemed like you you generated pretty strong margin expansion off of that and the ability to recover plus and boost margins.

Is that of potential.

Strong headwind or if the shoes were strong tailwind to margins next year on 20% of the bogie kind of be on the low side.

Whether you're in journal of Youre right the <unk>.

Crazy on price of hot rolled coil.

It's beneficial for us.

But you have to keep in mind that in the case of hot rolled coils for the market decline of much less do any of the pandemic and reacted much faster than the market for the oil and gas services. So we are the F&B.

And then the slowdown in the end in the investment by the oil industry.

Because of the mobility.

The reduction in demand.

The kit on as much more than the.

The flat product of that.

So we're starting from and from a different.

11, much lower in terms of overall market worldwide.

Youre right, the high price and hot or cold in general of positive for us.

Great. Thank you for the color.

Thank you. Our next question comes from the line of Luigi de Bellis from equity.

Your line is now open.

Yes, good afternoon to everybody 3 questions. The first 1 is on the pricing what do you expect from the pipe logic index in the coming months, you will see that in the supply demand balance and inventories level do you expect the positive trend.

When they come in the months the site.

1 question on is on the cash flow.

Kind of step for working capital sort of becoming a 2 for steps.

And the last question on the Latam region can you elaborate a little more on the trend expected in Argentina, Mexico, and Brazil on the cash.

More of the sand with kind of feedback have you received the from the program of the nation of other companies entering the 2022 for these 3 kind of peace.

Yes.

Thank you Luigi.

On the first point on pricing and on the.

Okay.

The pipe logic.

The perspective.

Yeah.

We have seen the type of project rising fast very fast in everything that is related to where the product most of the eni.

On pipe.

And I would ask Luca on how we see.

These moving in the coming months.

Yes, Paolo good morning Luigi.

I believe that on.

And your question was on Afirma, Yes, we see the trend growth.

On the head there.

And then maybe improving given the number of reason on that side.

To explain that already before sort of activity increasing.

Consumption of specific consumption of introducing inventory being.

Being dowana relative.

<unk> as of yet.

Revenue so.

For.

Sure sure of assay kits.

We will see pipe logics between Teresa.

And continue to increase through the end of the year.

Given the Asian debt I just mentioned.

Yeah.

Thank you Luca on the second question of the cash flow.

Well.

In this quarter in the second quarter.

Our cash flow increased more than we expected the beginning of it but this is also part of the decision.

Seeing some increase in the <unk>.

And the and the raw material.

Took some decision to income.

The increased talk for SAP for instance, at the kind of of the case of I don't know for Argentina.

We decided to bring in.

A little more considering that huh.

The price evolution was going up so we.

The increase in.

The level of inventory and also the.

The price.

Cost of these went up.

Pretty fast and debt is part of the reason why though we're working capital has been higher in the second group. We expect these to continue to some extent in the industry in the third Q we will.

At this time, we will continue to.

The increase the working capital because the market is growing because of the prices of going in because of the cost of our inputs and also growth. So we will have some increase in the working capital in.

The third Q4s.

Then I think that everything will stabilize and the.

The shouldn't be.

<unk> will increase.

For Q.

The third question on that but I would be of a very brief.

Frankly, we do not see any substantial change in the trend Argentina is developing gas need to develop gas the price of LNG is very high.

The government is supporting the development of Vaca more of it too.

The supply of the county with the.

The gas and this is supporting the.

The reasonable level of trading activity.

We even have some record of the fracking.

And that mindset compared with the past.

The activity will continue.

And also there may be some more activity for developing oil for export, but it will trend for the evolution of all of the Brian the price.

In Mexico.

And also I have pemex.

In the <unk>.

The private companies.

On the company's proceeding with the project, but the without.

Big increase or the.

Or a decrease of.

The level of activity in the coming quarter of I mean, it looks on me.

And I don't think the stabilized debt.

The.

And we cannot we shouldn't expect big changes any of these the case of Brazil as I mentioned in the opening of the Mark.

But it really is moving on on some very interesting deepwater projects in which we are present with our weather than seamless.

The sophisticated line of product.

Still we do not see lot of Egypt pipeline set in the past.

But.

The level of activity.

Is the sustained without even scared.

The abrupt change in the level of demand.

From predictor of us on.

From the joint venture.

Sure.

Accurate.

Yeah.

Thank you thank you Bob.

Thank you. Our next question comes from the line of Marc Bianchi from Cowen. Your line is now open.

Hi, Thank you I wanted to follow up on.

The dividend.

If I take the outlook for third quarter here and multiply it by for you are kind of back to where you were in 2019 in terms of EBITDA generation and you had no problem.

Saying that prior dividend I'm just curious if the outlook is any different now if you want to hold on to more cash for whatever reason are or how you're thinking about the potential to restore the dividends for the prior level.

Weighted.

The world of today.

It's very volatile there are many risk around from different region. This is will be left to the board decision.

In November.

We're going to see that over all of the situation and the way they will take a decision on that.

On dividend for tenacity.

The deed in the past.

Okay. Thank you.

Thank you at this time I'm showing no further questions I would like to turn the call back over to Giovanni the Danya.

For closing remarks.

Thank you Gigi and thank you all for joining us in our conference call and see you. Soon. Thank you. Thank you very much for everybody. Thank you.

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

[music].

[music].

[music].

[music].

Good day, and thank you for standing by and welcome to the Q2.2021, Senates SA earnings conference call on.

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 the question. During the session you will need to press star 1 on your telephone please.

Please be advised the today's conference is being recorded.

If you require any further assistance please press star zero.

I would now like the on the conference over to your Speaker today Giovanni set of Danya. Please go ahead.

Yeah.

Thank you Gigi welcome from fanatics.

Thank you won the 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 Thats. The actual results may vary from those expressed or implied during the school.

With me on the call today are Paolo Rocca, our chairman and CEO Alicia Chief.

Chief Financial Officer.

Of course, Vice Chairman and member of our board of directors.

Non quota Vice chairman and member of our board of Directors Gabriel for cool stuff precedent of our eastern Hemisphere operations and Luca Zanotti President of our U S operations.

Before passing over the call to Paolo for his opening remarks, I would like to briefly comment on our quarterly results.

Our sales in the second quarter of 2021 reached 1.5 billion up 23% compared to those of the previous year and 29% sequentially, mainly driven by recovering sales in north and South America, but we'd say increasing in all of our reporting regions.

Average selling prices.

The tubes operating segment declined 6% compared for the corresponding quarter of 2020, but the increased 6% sequentially of the IR.

Price is out of scope and safety Io raw material cost.

Our EBITDA for the quarter, which included an extraordinary gain of 33 million from the recognition of fiscal credits in Brazil was up 54% sequentially to the end other than 1 million, reflecting the higher volumes and other good industrial performance.

Our EBITDA margin was up around 20% of.

Quarterly net income of $194 million benefit of the gain from a strong contribution from our investment in <unk>.

<unk> net.

During the quarter working capital increased by 314 million, mainly due to all of your inventories, which reflects the increased levels of cash.

Cash used in operating activities during the quarter was $50 million with capital expenditure of 51 million on free cash flow for the quarter was negative for <unk> 2 million.

After a dividend payment of $165 million in May our net cash position declined to $854 million at the end of the quarter.

Now I will ask Paolo to say a few more before we start we open the call for question.

Thank you Giovanni and good morning to all of you.

As we ramp up for.

Our activities to meet the higher demand Tonight as he's exiting on all fronts.

We are hiring and training new employees as we increase production throughout our global in the industrial system.

Our team is managing disruption from the ongoing effect of the pandemic.

The confronting the rapid increases in raw material and logistic costs.

Once again, our team is demonstrating the resilience and capacity to respond to changing conditions that.

That is a hallmark of our company.

And did the dynamic environment out of second quarter results for the progress we are making in North America and the rest of the world for the second consecutive quarter, our sales in North America increased by more than 30% as we extended.

Our rig direct sales model and fully recover the market position in the U S debt was affected during the length of <unk> score takeover process.

We're moving quickly to bring production at the base at the full capacity.

The patent protection of builders of copper pillar for our U S and Canadian seamless pipe mill in.

And to bring the online our enbridge meal and the Baytown, finishing facility in Houston.

Since October of last year, we have taken on 700 of new employees in the United States and plan to hire a further 450 by the end of day.

Digital integration is a key feature of our rig direct service both in the United States in the around the world.

Now have 3 of the customer using our rig direct portal AD on the world for.

Count for 50% of all items ordered.

And of our rig direct program.

Within this program will offer full pipe traceability to our pipe 3 sort of application.

South America sales total also recovery in Brazil, Petrobras awarded Us the contract.

The supply sour service and higher alloy seamless casing for the Libra pre salt field.

Progress will use our seamless product, including our adult Bliss and pipe trace of technology in the Brazilian deep offshore.

An important step in our positioning in this market.

The EBITDA of this quality and now renamed of Metro is 1 of the worlds largest and most important the deepwater fields. There is water in the sense of spacing is located the 4000 meters below the seabed.

Total debt of 5900 meters.

It had the estimated total recoverable reserves of $3.3 billion barrels and the deploying the development plan aims for the production rate of 720000, but at the day.

In Argentina.

We began offering pressure pumping and coil tubing services embark on more of that as a complement to our full rig direct service in the country. We.

With the backlog.

Worth $70 million over the next 12 month worldwide, we expect to invoice around $400 million in service and accessories over the same period.

The services, we have the opportunity to reinforce the relationship that we have with customers and extend our knowledge of operating condition.

New sales opportunities in hydrogen storage.

Carbon capture cash.

I will capture and storage infrastructure and the inspection of electrical grids are appearing.

In connection on in the energy transition and the Doctor sector.

I would like to a highlight of our global automotive business, where we expect on voice around $200 million this year with over 50% coming from tubes and components for airbags segment in which we have of 40% global market share.

To meet the demand growth in this always the kitted segment were expanding our component facility in China.

This quarter, our sales growth amounted to 29% and we expected that our sales will continue to grow in the coming quarters.

As we move into 2022.

We should also see a stronger contribution from the eastern hemisphere.

For the large backlog of order we have in the middle East that we discussed on our previous call and the reactivation of activity.

Some of short product.

Africa.

On the North Sea, where we are well positioned.

The retention increase in raw material costs that we have seen since of the beginning of the year.

I'm just starting to appear on our cost of sales.

And it will not be until the fourth quarter debt.

There are more fully reflected.

Prices are also increasing with some lag, particularly in North America is.

Drilling activity recovers and tubular inventories on hand by distributors decline.

Against the background, we are confirming our guidance for the 20% the EBITDA margin level during this third quarter.

As the world prepare for the Cop 26 climate summit in Glasgow with the expectation that the current the carbonization targets will be reinforced with more specific action in support of those targets.

The recent stand ready to contribute with the investment indicative organization that we have committed to carry out of over the coming years.

More customers are asking us about our carbon emission and how we plan to reduce them and we see these.

There's an opportunity to reinforce our competitive differentiation.

I will leave the floor open now for any question you may have.

As a reminder, task of question you will need to press star 1 on your telephone to withdraw your question press the pound King please.

Please standby, while we compile the Q&A roster.

Our first question comes from the line of Ian Macpherson from Piper Sandler Your line is now open.

Thank you for for taking my question I guess I wanted to Paolo too.

To follow up on your comment regarding the material cost inflation that will be more fully reflected by the fourth quarter as opposed to the third quarter does that does that present any risk that the 20% EBITDA margin will just be sort of a 1 quarter event or.

On the other hand, the throughput and price increases that you have coming through gives you confidence that youre going to hit 20% margins and stay there with the platform to improve next year.

Yeah.

Well thank you.

Ken.

We are estimating the.

An increase in <unk>.

Our.

Top line.

The end.

<unk> in the range of.

Let's say the double digit low double digits for the next quarter.

We are.

Waiting of the the EBITDA margin in the range of 20% considering the.

How the the increase in the cost of input and raw material is getting into a lot of entering into our cost of sales now.

There could be a risk on it.

Some of these may come from in the.

The disruption.

And the logistic or in some specific.

Issue.

It could also be the day to anemia, but in general I think debt.

And we should be able to.

To achieve this day.

This level of margin considering the price increase.

That we know.

Bad debt in the contract for this third quarter and basically the <unk>.

Level of cost that we have in our in our event.

Okay. That's great. Thanks, and then I was going to ask also just looking at looking ahead to 2022, when the eastern hemisphere is going to materialize in the bigger way.

Then it has so far this year.

Generally speaking historically for the various debt has a higher margin.

Misfire for you is it not so that would be of tailwind for margins.

Yes. Thank you for your question.

Youre right the.

In 2022.

We will increase our.

Of our shipment of the middle East and the infected the day the mix of our product is pretty poor in the second half of dozen of 'twenty 1 will improve.

In the going on during 2022, but.

Maybe Gabriel you can.

Gave more color on the the timing of the the contract in the backlog that we have a new region.

Yes.

Sure. Thank you Paolo good morning.

And I. Thank you for your for your question, Yes, Indeed, we see drilling activity in the middle East.

Started to pick up in the recent months.

Something that the positive trend that we expect to continue on the.

And theres in the in the face of production increases.

The recovery has been gradual but the signs are very clear on and consistently positive.

We are seeing the rigs being added large projects of activating for exam.

Simple Mcdonald's will move to larger project in Saudi Arabia.

And we expect the new tenders in Saudi as well coming to market.

For the mine in 2022.

On the other 3 core markets of the of the region UAE, Kuwait and Qatar.

The large OLED vendors have been already played.

We are well position, thereby our backlog of multiyear contracts. These will start impacting in 2000 during the due likely in the second quarter of 2022 would be the the first strong sign of this it will depend on the drilling plans.

Management and also of course of blades and so overall.

We expect the shipments in the in the Middle East to remain broadly flat in the second half of 'twenty, 1 compared to the first half of 'twenty 2.

<unk>.

2020, do we should see a recovery path.

Estimating brasilia of double digit growth in the first half.

Version of this quarter in half.

Given the the contract that we have in those contracts, where we have formulas.

For the NOC, we have for them is reflecting both cost on market indicators. There is typically in this region of lag.

So it will take some time, but also theres going to be some.

The pricing adjustment of the cost situation.

These are the immediate as contracts on the year.

For 2022 progresses.

The.

Most helpful. Thank you both very much.

Thank you.

Yeah.

Thank you. Our next question comes from the line of equal of Levy from <unk>. Your line is now.

Good morning, guys.

Could you provide some more color on your.

Energy transition initiatives and carbon storage on hydrogen and the project recently awarded been coming along and.

Are there any new projects you guys are bidding on that are on.

On the horizon.

Thank you.

We are following a number of.

The project debt.

You know our exposure to the.

Energy transition relief that the business is increasing is mainly focus on projects for carbon capture and the use in storage.

Like the northern light.

Total debt, we will see we will be shifting these during the.

2022 day.

This kind of product we are monitoring what's happening.

In different region, but let's say many of these are still.

In the stage of design and engineering.

The other day area related to the energy transition and the interest in Rds is acting is.

Cylinder for.

Hydrogen.

We're working in we have a we're increasing our shipment of cylinder for the storage for service station that is supplying the broader at the today I would say of steel pilot project, we do not see yet a massive project.

D C area these flow.

Similar to the 1 that we are also as a company have.

Now let of meal.

I mean that we will develop for this so I will say that the stage of these both of these tier.

The pilot.

We are also on.

Looking in.

For the action that should be taken to transform.

Infrastructure from gas to.

The include a component of hydrogen.

The debt it may require.

Tubular product or a substitution of pipeline now so but even there I would say that this is still the.

In the very.

At the very beginning let's say.

Of.

The ZIP losses, we are also explore the 2 geothermal.

But in the small niche I mean these are not <unk>.

Volume that we move of we change let's.

Let's say the overall exposure of these just turn them on.

Ccas.

The large vessel for for either of Joanna.

These are the areas in which we are out of operating in the Russell for something in the biomass.

On which we have.

Let's say, but at the.

The patient.

But I would say debt.

Still has more for part of our business will be increasing we need to be participating.

In this pilot the so the have the chance to be part of.

The.

The project.

The allowance.

In the case of northern light.

Great.

And.

20% margins, just the quarter away what would it take to get back above 25% level.

On a decade ago with an offshore rig recovery be required the or it could increase the onshore demand and stronger pricing get us there.

Well I think that.

After the day, the let's say the.

The pandemic and the impact on the the it investment.

The market is recovering strongly and the.

Yeah.

Some changes happening in the market today.

Sales much more.

Based on regional situation.

On an industry in some region.

We perceive.

The.

The increase in demand.

It's giving us some more pricing power and this is visible and is important to increase our EBITDA margin.

Some of the region the.

The.

The.

Supply demand balance.

Still the pretty pretty tight.

The additional pricing of deepening so.

The D.

Restriction to trade.

The.

The strategy of the oil companies in the different entry job.

The redefinition of the supply chain out of creating regional.

The some kind of region of fragmentation in the scent.

And we see that we are recovering pricing power in some region in which.

The demand is increasing pretty fast.

During 2022.

I think the do we will see.

These trend to proceed when that depend EMEA well.

Fade out compared to where we are today in many regions of the world not only.

In Europe or the way set.

The net.

The pandemic is affecting the economies in the emerging market and this is a factor. So if you ask me when the.

On the ceramic Nicola I cannot tell you if the deal will happen in some momentum during 2000 in the second half of 2022 or before it will depend also from factor like the the.

The stabilization of the economy and the manager of the motors for the economy that may be taken in particular in the United States.

Great. Thank you for the color I'll turn it back.

Thank you. Our next question comes from the line of Mark <unk>.

On <unk> from Cowen Your line is now open.

Thank you.

I first wanted to ask about the third quarter just to clarify.

In second quarter, we saw the fiscal credits from Brazil.

Help the margin I'm, just curious if theres anything.

That might be like that helping your third quarter margin.

Yes. Thank you.

I ask it.

Is here to give us the comment on.

The.

Possible extraordinary factor.

May affect the third quarter.

Thank you Paolo when Lonnie Mark and I'd tell you we are not expecting another extending of the impact in the third quarter. It was the very preliminary on growth.

Sure.

Something was well.

The size and the Brazil.

Kathy on malware analysis expected anymore right.

Great. Thank you for that.

In the prepared remarks, you mentioned pressure pumping and coiled tubing services in Argentina.

I'm curious what the aspiration is.

For for adding these types of services.

Maybe as a percentage of your business over time, and how do you think about that.

From a margin perspective versus the rest of the business.

Well, we we're moving in the service as a complement to our rig direct we perceive that the clients, especially in the local market in which we have built a strong track the relation with our clients.

I'm very open of very willing to have our support in the service there are indirectly related to the 2 terawatt hours.

So indicative of Argentina, we decided to move in we see this as a profitable business the <unk>.

First the year invoicing will be in the range of $70 million that we plan.

To expand the service only in the <unk> in the market in which we have a very strong route and in which we can complement a full package of supply from pipes to tubing casing.

The and the services that are related to the column and to compete.

Completion of the well try and get a trusting of our ability to execute and we are doing.

A pretty good job, but we decided to step in and the situation, we see decent profit level we.

It will not the moving in the marketing of the HR that he is very high competition and the <unk>.

The service is out of much more community of commodity, but there are the NII and wechat. This is could be really complementing the.

What we are what.

What we are doing in service.

To the client the theories of why in the prepared remarks I also mention that in the call our invoicing of pure service with no tubes.

The.

The figure in the range of 400 million is the.

Retail revenue for our top line.

Hmm.

Wonderful thank you very much.

Thank you. Our next question comes from the line of blood.

Thank you.

From Bank of America. Your line is now open.

Thank you and good morning, Thanks for taking my question I'll start with the 2 so what are the key contributors.

And your growth in the second half of the year is it volume is it right is the mix is it the everything and what are the key region driving.

And then the other 1 on the margin progression through the second half of the year. You. Obviously gave on it after the quarter and you highlighted that there will be cost inflation in the fourth quarter, I'm wondering where the top line growth and the price.

Breaking in the fourth quarter will be sufficient to offset the.

On corn price in Q4.

On the parts of inflamed.

Yes.

Thank you for <unk>.

Yes, John.

As I mentioned before we expect our sales and top line.

The increase in the range of.

Low double digits in the next quarter and to grow again in more or less in the same on the same region in the fourth quarter. So volume for for will Act.

Price will also have an idea of honestly because in the end of <unk>.

The price as you can see in the biologic getting into our long term contracts in our rig day rate.

Our agreement.

The.

We are in the sensor coming.

With the leg because of Indiana, we have an offsetting in the spot market with the more selling in the.

Agreement so the price set.

Entering into our into our top line.

We for leg, but this would be a factor mix it.

In the third and fourth quarter will act against because India and.

Growth will be very concentrated in.

North America, and so we will.

We would have of make said that he is comparatively the more poor compared to the mix.

That comes from the.

The International project.

And essentially kind of the complex broader in the offshore.

Debt in my view will be.

Coming on stream of later on the already told him the Duane.

2022.

So the cost increase will also.

B.

The contained by the of source because in the end of.

The increase in the volume is gaming.

Improvement in the absorption.

And the U.

We are stepping up activity in the U S. But we are putting into operation of meals that has been.

Either for more than 2 years, so in some cases that we.

We have additional cost we are hiring of more than 1000 people, we need to train them and this is having and the what we're doing today.

Some are meeting the like cockpit is ramping after some other like Enbridge will ramp up.

But the people.

We are training of the people for we have some cost now that we think will gradually be absorbed the.

And by the when the mill will be fully operational on it. So all of this component of that.

Consider.

Given all of these refinances on which we are guiding.

And as I was saying before.

The.

He is our risk weighted.

The pandemic for ease of risk because of India, and we are trying to do what we can take care of our people vaccinated, but there are countries in which we have no access to the vaccine and the move of the vaccination is moving slowly and in which all of these industrial operation of IRA.

At the <unk> risk of disruption and also.

Now the reason that I mentioned is always the logistic.

Of course, increasing the TVT worldwide.

Is putting a strain on our logistic on water on logistics.

On rail.

On of many of the issue of releases related to container. The study showed that could also to some extent the effect has hopefully not so much as of.

Other industry.

<unk>.

The automotive or.

Other that he may emerge.

So the DNA of the factor that out of it.

Having an impact on.

Our our monitoring.

I hope that these will answer to your question.

Yes.

I'll, let very comprehensive anybody can really.

And they are a full of question on the U S marketplace.

Uh huh.

How much of a company.

Neil do you think have at this moment.

Is there a line of sight on you.

Yes.

<unk> been fully utilized.

On getting back on.

And then what you do cap on tool you have what did your price to Incent, you why well get the meal.

Because all of the kind of what I have them.

Many of them all.

Yeah.

Well I I will ask shira to Luke to answer that we are putting into operation of plant. The like average that we have capacity that is coming in the end.

We of potential but Luca maybe you can give an answer on the 2 question 1 on the capacity.

And the other 1 of the.

When the welded will enter into the field.

Yes. Thank you Paolo good morning, good morning, glad Brian. Thanks for the question now in terms of capacity.

We are adding capacity.

But when you look at the of.

The ramp up that we see through the end of the year.

When you look at the daily consumption of the consumption is growing.

When you look at the inventory inventory of all below the 5 months.

I got that the cost of steel at that on the on the second question on you'll see that.

Capacity is coming gain on our competitors not ramping up on the fact of the I just kind of before.

Because of the market in my opinion on that.

Significantly tied the go.

Through the fourth quarter in 2.

2022.

Now as to your second question, which is what would take.

To get the <unk> domestic Becker.

If you look at the age of.

See for Ics and you can see that the this is more or less.

Uh huh.

On the 11th.

Yes, Bob you are buying GAAP, you will need to see John brought a significant jump in the price of fiber before.

Before the second can't get back so and these will provide additional strength.

2 the price.

Now how much of these can be.

To estimate, but the way that is north of that between the biologics and the and the <unk>.

The price we saw you will need to assume a significant step up to see this.

This component of the local.

The actions will come back significantly.

And this is basically the whole turn it back.

Thank you. Thank you very much very helpful on theory.

Thank you. Our next question comes from the line of Connor Lynagh.

From Morgan Stanley. Your line is now open.

Yeah. Thanks.

I just wanted to stay on on U S capacity.

Just wondering if you could if you could clarify for us how we should think about your effective capacity trending as you're ramping towards full capacity at some places reopening in other places basically how much sales.

Sales capacity of your sales volume do you think we should account for over the next few quarters.

At what pace.

Thank you Eric on.

I think look kind of you can.

And the some some comment on this.

But keep.

Keep in mind that the kinetics for.

For the United States.

Is it pretty.

Yeah.

Complex and extend the system, we have arrived there from the city from Ambridge for seamless.

We have of finishing facility in Macau.

Town Hickman kick him on his capacity also for the world that we are arriving there from Canada.

The Canada in this moment is ramping up also.

Canada has capacity outside of the the season in Canada. So.

There are quarters in which we have also additional capacity from there and the <unk>.

Mexico and the rest of the system could support for specific product the nacelle. So in the end of.

Our production comes from.

Different sources.

And we have space for of responding to an increase of demand in the market.

I don't know Luca if you wanted to or we have some colorado more specific if the program for capacity comes from the difficulty to hiring people.

Or you're seeing that.

The investment plan underway, where you'll see.

The fact of Florida, expanding capacity can you comment on this.

Yes, Paolo thank you.

Good morning Cornell.

I believe that's where I think you maybe for the way a lot of the complexity.

The cash flow.

Our supply.

<unk> to the.

<unk> for the U S.

What is the cause.

Specifically in the U S East is concerned.

We have a with the plan that we have in place for that capacity to follow the.

Grow the we see for our customers of that and we know the Israeli whether it goes with our I'll leave the red.

The programs that we know what the what the activity is going to be in the medium on the shortly on the medium.

In the medium term now that may be constrained for that.

And you correctly said these we don't know what was going to be the effect of that.

Of the pandemic on all of this volume.

How much of this has gone out on Mei.

The effect of operations, but this is not the nice ballroom disease of the economy.

And the economy of global Emma and so like the is very difficult for me today to give you an exact the.

Estimation of what this impact will be but in general of drugs that we are the capacity to fall on the exhaust our cash flow Mercer and they are communicating Gaza.

Weekly forecast the meeting.

Okay, Okay I understand.

Yes.

Take the point on the on the global system.

Yeah.

North American system, but certainly I can infer from the fact that youre opening additional capacity that you're either seeing incremental demand from other regions that those non U S mills serve or incremental U S demand I guess could you just update on a more global sense.

Are you are you seeing the need to add shifts or.

Reopened or accelerate capacity elsewhere outside of the U S as well.

Well, we incorporated the in the last months around 4000 people in our system.

Apart from the.

The <unk>, including.

What we manage on for the U S. So we're responding on the global level to the increasing demand.

Yes.

To prepare the system for supporting the increased debt.

I mentioned in.

On the top line for the next 2 quarter.

Can't tell you is that the increase.

In the sales in North America.

Yeah.

Running at the pace of high.

The the overriding could ease of that I mentioned for dynamics.

No the mitigating the most of the dynamic.

The market in this moment.

Alright, Thank you very much.

Thank you. Our next question comes from the line of Alan Spence from Jefferies. Your line is now open.

Thanks. Good afternoon, most of my questions have been taken from the 1 remaining and it's the.

Around the <unk>.

The effective tax rate in the peer to peer on was very low.

The quarter I was just wondering if you could talk about what drove this and how you see that progressing.

From a rate perspective in the coming quarters.

Thank you.

And then I will ask Alicia.

To give us the view of the.

The.

Let's say the ever.

From that we May expect in our tax line.

Okay. Thank you.

Yeah. Thank you Paolo Hello items.

Yes.

We are expecting for the rest of the year on net.

I think that's right.

From 20% to 22%.

In this quarter, you'll see.

It's more of that.

The rate because we have.

Many of the next coming from inflation adjustment in the countries will add to the silo like.

Mexico on Argentina.

In Argentina in this quarter.

Gross approve an increase of the tax rate for on 30% to 35%, but is has been offset the cost of the effect for the inflation adjustment.

Let us see that effect in this effect for the rest of the yet because we are.

The forecast in the inflation adjustment with the higher than the evaluation of it.

So this is the reason because of that effect in this kind of affecting if at the.

That's right for the rest of the.

Yeah.

Now as for this.

Sorry the question.

Yes, thank you very much.

Thank you Anna.

Thank you. Our next question comes from the line of Dan.

Now from Coker <unk> Palmer your line is now open.

Hey, guys. Thank you for taking my questions.

Maybe if I can start with do we already have 1 at <unk> and I think you mentioned, some Saudi Arabia of contracts.

How should we think about the magnitude of the revenue step up from 21 to 'twenty 2 from those projects. My thinking is it that could be maybe for around 400 million revenue step up but.

On what I'm trying to see if there are any offsets from any projects rolling off.

Thank you.

The question here is of the contract.

The between the change of between 'twenty, 1 and 'twenty 2 in Saudi Arabia.

Got it and then maybe you can pick up of Dis question.

Yes Paolo.

For the question yes.

The increase will be gradually during the year 2020, due as we said volumes in second quarter of 22.

And then also adjustment in prices of according to the Formula We see this as a growing trend we are not giving specific.

The figures on the increase we said that is on the high double digits.

So it will be a win win.

But the well.

We keep it there and I will not disclose any more information also there are specific the easiest of about stock management drilling programs.

That will.

Fine tune the pace of growth, but it would be important compared to 2021.

Got it okay.

And maybe switching to near term. So you guys talked about low the low double digit revenues in the <unk>, 20% EBITDA margins in <unk> and maybe similar revenue growth in for Q I guess.

Oh from investors' point of view it would.

They would be what would be helpful. Is if you can talk about can we maintain this 20% EBITDA margins in for Q and probably in 2021, just given the consensus on inflation, but maybe offset by cost absorption better mix. It would be helpful. Just to think about debt externally how the EBITDA margin.

On the progress from beyond <unk>.

Thank you very much I think this is going.

In line with the the.

On the previous transfer on the on.

On managing the.

Here.

That is the volume effect of increasing volume has.

The positive impact on cost.

The that contribute to offset the.

The cost inflation that we're seeing in our cost of sales.

That is the price effect of price increase the price.

Logic is.

The reference, especially for North for North America.

Is it getting it into our top line and this is a contributor.

Contributing to this.

The margin of 20% debt, we estimate at the end as I say before the mix of <unk>.

For all of the analysis.

It's playing out on the other way because and then there will be.

Water, we for a relatively low level of <unk>.

Premium product as the share of our global.

The sales.

But when you consider the sur de.

From factor.

Guiding.

Supporting.

Our estimate of the <unk>.

Margin for the third and the fourth quarter.

Okay.

That's all for me. Thank you for taking my questions.

Thank you all of our next question comes from the line of Steven Zingaro from Stifel. Your line is now open.

Thanks, and good morning, good afternoon gentlemen.

So just a quick 1 for me the.

When we think about what some of the larger service companies have said about international growth sort of eastern hemisphere growth.

They are talking about double digit plus growth in 2022.

And I'm curious in an environment like that and maybe the similar question for kind of.

Double digit growth rate of the U S market. How do you think you guys perform on a relative basis from the topline perspective.

What.

<unk>.

I don't have here at the close comparison of what I see the unusually.

We are moving in parallel 2 on the top line net with all of the oil service company, we follow the set.

Usually if you look.

Over the time and you'll see that we have been able to follow on top.

The the evolution of sales on top of line of a major service company now in these cases concerning.

The the eastern Hemisphere, and the perspective for the 22 and the project for the offshore that he is supporting the.

Statement in the evaluation of the the estimation of the oil service.

Got you kind of add something.

Some comment on the Asa.

The Eva.

To understand if this.

The rate of increase.

In the overall business.

Is it the.

9 were walking through debt.

Sure of Boto.

In fact, we see the offshore.

In addition to the Middle East also on a recovery of above.

Within the for Hemophilia, a we are seeing a positive dynamics.

Gross areas, then youll see the emotion.

All of the Norway and UK are active in.

During this quarter that we capture of new NDA with a lot of energy in Norway.

On to supply the needs of all CTG very rich mix.

Also of services.

And as you manage on the also the the North sea like the rest of Europe would be of leaving area for the energy density on where.

David on Ccs studies are underway. So we are seeing positive dynamics there we.

We see also some projects proceeding in the offshore of the Iranian we've adjusted the relevant contract with Melita Eni.

The offshore Libya covering I also did you need for the third day with.

At the start impacting also in 2022 and beyond.

Finally also some stock on Africa is offerings from initial positive signs.

The 2 very tough years.

I would highlight also Angola.

The promising spot recovery of indications of on.

The increase.

Here in activity underway and the.

This would support gradually increase of our OLED on line pipe for oil.

In this part of the World.

And finally southeast Asia is also.

Showing some reactivation of projects I would highlight Indonesia.

Australia on before New Guinea of positive contributors in the offshore in 2022.

Regarding the eastern hemisphere, but the.

Probably it's important to consider in the specific deepwater space or the activity is strong in the Americas today, 50% of.

Of the global Drillships on semi subset of operating you can see the Brazil type of <unk>.

Mexico of both sides.

Of the border on <unk>.

Well so.

Again, we believe that there is a path of recovery in the offshore and this will be of positive contributor in 2022 on onwards supporting the double digit.

Trajectory that we talked about on in line with the service companies.

Yeah.

Thank you.

I think the adjusted let me add 1 thing there is differential between our sales in the oil service company in this moment the the level of price of the hot rolled coil.

Is putting a drag on our welded pipe competitor for line pipe and for CTG. This is the.

The.

As the positive effect for us in the North America for CTG, but also has a positive effect on our space for the line because in many cases, we can.

Let's say the capture of the seamless project debt.

Otherwise could be captured by of welded pipe in.

In different the indefinite that age on these or something of differential in the in the end of the high price of vertical turquoise.

Is positive for us.

Not only because of we also have a good result from our.

Participation of internally.

So just as a follow up to that is interesting historically.

HRC was rising.

Activity was fairly strong.

I believe and I have to go back and look the exact numbers, but clearly it seemed like you generated pretty strong margin expansion off of that and the ability to recover plus.

Boost margins is is that of potential.

Strong headwind or if the shoes with strong tailwind to margins next year on 20% of the bogie kind of be on the low side.

In general of Youre right the.

The increase the price of hot rolled coil is beneficial for us.

But you have to keep in mind that debt in the case of hot rolled coils of the market decline of much less do you ended up on the EMEA and reacted much faster than the market for the oil and gas services. So we are.

The pandemic other than the slowdown in the end in the investment by the oil industry.

Because of mobility and the reduction in demand.

The kit on as much more than the flat product on.

So we are starting from the from a different.

11, much lower in terms of overall market worldwide.

Youre right the high price and hot for a call or in general positive for us.

Great. Thank you for the color.

Thank you. Our next question comes from the line of Luigi de Bellis from equity that.

Your line is now open.

Yes, good afternoon to everybody on the 3.

The question the proof of <unk>.

1 is on the pricing.

Do you expect from the pipe logic index in the coming months, considering the supply demand balance and inventories level do you expect the positive trend to continue in the coming months the.

Second question is on the cash flow what time do you expect for working capital for the coming the 2 for Steph.

And the last question on the Latam region can you elaborate a little more on the trend expected in Argentina, Mexico and Brazil on.

The coming growth defend what kind of feedback have you received the from the program.

The other companies entering the 2022 for the industry. Thank.

Thank you.

Thank you.

On the first point on pricing.

The let's say.

The pie for logic.

Perspective.

We have seen the type of project rising fast very fast in everything that is related to where the product was at the year in line pipe.

And I would ask Luca on how we see.

The these moving in the coming months.

Yes, Paolo good morning Rajeev.

I believe that the.

Answer to your question is on Afirma, yes.

We see the trend.

Going ahead the.

And anything that may be improving.

On the number of reasons that the.

I tried to explain that already before sort of activity increasing.

Consumption of specific consumption, increasing inventory being.

Being down on that.

The <unk>.

Cookies of.

Yes volume.

No.

Sure sure of I'll say, yes.

We will see pipe logics to increase.

And continue to increase.

For the end of the year.

Given the reason of that I just mentioned.

Yeah.

Thank you Luca on the second question of the cash flow.

In this quarter in the second quarter.

Our cash flow increased more than we expected the beginning of it but this is also part of a decision.

Are you seeing some increase in the England.

In the in the raw material.

We took some decisions to.

Chris talked for some of them for instance, at the kind of the case of I don't know for Argentina.

We decided to bring in.

A little more considering the.

The debt price evolution was going up so we and the.

The increase the level of inventory and also.

The price.

The cost of these went up.

Pretty fast and debt as part of the reason why we're working capital has been higher in the second group.

We expect these to continue to some extent.

On the industry in the third Q, we will.

At this time, we will continue to.

The increase the working capital because the market is growing because of the prices of going in because of the cost of on.

Your input and also growth. So we will have some increase in the working capital in the.

The third Q4s.

And then I think that everything will stabilize and the shouldn't be.

Additional increases.

In the fourth Q.

The third question.

I would be very very brief for.

Frankly, we do not see any substantial change in the trend in Argentina is developing gas need to develop gas the price of LNG is very high. So the government is supporting the development of Vaca <unk> to supply the country with <unk>.

The gas and this is the supporting.

The reasonable level of trading activity.

We even have some record the fracking.

And that mindset compared with the past.

The activity will continue on a at a debt level and also there may be some more activity for the rest of an oil for export, but we'll plan for the evolution of all of the Brian the price in.

In Mexico.

And also I have pemex.

The ability the.

The private companies international companies proceeding with the project, but without the.

The increase or the.

Or a decrease of the.

The level of activity in the coming quarter I mean.

It looks on me.

And I don't think the stabilized debt.

The.

And we cannot we shouldn't expect big changes in fees in the case for Brazil as I mentioned on the opening of the Mark.

It really is moving on on some very interesting deepwater projects in which we are present with our weather than seamless and sophisticated line of product.

Still we do not see large of pipeline in the pasta.

Got it.

The level of activity that is the sustained without even scared.

Abrupt change in the level of demand.

From current diverse from the joint venture.

I think for sure.

Secretary.

Okay.

Thank you thank you Paolo.

Thank you. Our next question comes from the line of Marc Bianchi from Cowen. Your line is now open.

Hi, Thank you I wanted to follow up on.

The dividend.

If I take the outlook for third quarter here and multiply it by for you are kind of back to where you were in 2019 in terms of EBITDA generation and you had no problem paying.

Paying that prior dividend I'm just curious if the outlook is any different now if you want to hold onto more cash for whatever reason or for how youre thinking about the potential to restore the dividend to the prior level.

When.

Other than the the order today.

Very volatile there are many risk around from different region. This is will be left to the board's decision in November.

On November.

They were going to see that over all of the situation and the way they will take a decision on that on.

On the dividend for tenacity.

The day in the past.

Okay. Thank you.

Thank you at this time I'm showing no further questions I would like to turn the call back over to Giovanni the Danya for closing remarks.

Thank you Gigi and thank you all for joining us in our conference call and see you. Soon. Thank you. Thank you very much for everybody. Thank you.

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