Thank you and good morning. Before we begin this morning's conference call, I would like to take a moment to remind our listeners that today's conference call includes forward looking statements that involve estimates, judgments and uncertainties that may cause actual results to differ materially from those projected.

The complete text of Shawcor statement on forward-looking information is included in Section 4 of the fourth quarter 2019 earnings press release that is available on SEDAR and on the Company’s website at shawcor.com. I will now turn it over to Shawcor’s CEO, Steve Orr.

Good morning and thank you for joining us on this morning's conference call. As we start the call, I'd like to highlight extreme challenge triangulating the industry and the company with the backdrop of ever changing macroeconomics and factors that influence the rest of the company.

Our approach is to be conservative and anticipate the possible impacts to the company and its performance. Yesterday evening, we released our Q4 and full year 2019 results with new segment reporting.

This new segment reporting, without question, provide enhanced granularity into the company's performance, but it will also challenge the historical and in many ways outdate the set of assumptions about the company's portfolio, markets and competitors and comparators that results in the company's valuations. Additionally, the change in segment reporting will bring enhanced clarity to the reasoning why the company has moved with great urgency to diversify beyond pipe coating.

And furthermore, the future potential that pipe coating brings. Now turning to Q4, 2019.

Adjusted EBITDA was $30 million, a decrease of 30% over the third quarter of 2019 and an increase of 22% over the same quarter one year ago. Revenue for the quarter was $334 million, a 15% decrease over the previous quarter and a 6% less than Q4, 2018.

The current quarter's revenue was negatively impacted by the annual seasonal slowdown, low demand for products and services related to North America drilling and completions and a revenue push related to a service quality event, partially offset by the addition of ZCL acquisition. Although, Q4 revenue was lower than expected as the North American E&P operators pull back in spending was even greater than we had anticipated and we certainly did not forecast the service quality event, EBITDA was delivered as expected for the quarter.

Without the direct service quality cost of $7 million provision taken to recoat pipe and the indirect cost, a $10 million plus revenue push out to the quarter, the results would have been much better than we expected. Looking at the segments for the quarter.

The pipeline and price service segments saw the completion of coating work for the Barzan project in EMAR. The absence of demand for girth weld inspection in December in both gathering lines and large diameter and the impact of pipe coating of the service quality event.

The Composite Systems segments had a very good quarter for tank deliveries but did not fully offset the reduction in demand for pipes in the U.S. land market.

Automotive and industrial segment was as expected, with a typical year end slowdown. Looking forward to Q1 and the full year, we are forecasting that there will be a return in demand for products and services in North America in both the upstream and midstream, was shrinking through the first quarter, with January being very slow.

We expect demand for our composite tank products in retail fuel market will remain strong, with the historical profile sales, where Q1 is the lowest point of the year. Demand drivers for products and services within automotive industrial segments should remain solid for the full year.

Although, we're expecting there will be some volatility due to the coronavirus in Q1, but at this time, and I emphasize, at this time we do not expect it to impact the full year results. Pipe coating in offshore and international markets, where we are now forecasting there will be a step change in activity, based on projects that are already booked and are expected to be booked.

Q1 will be slow with a progressive build for each quarter, through the year with Q3 and Q4, where we will expect to see the visible step changing performance. I'll speak in much more detail in a moment.

But in summary, based on very conservative view, we expect that Q1 could be significantly lower than we had just delivered in Q4, 2019. However, on the assumption, we'll see continued strengthening in North American upstream and midstream to near 2019 levels, our oil and gas non-related businesses will perform at levels similar to 2019 and pipe coating projects that we have secured or have high certainty of securing and executing in 2020 are not halted or suspended, the company will deliver results in 2020 that are an improvement over 2019.

Additionally, we lined our sights on projects, many bids outstanding and the success we are having with securing work with EPCs pending FID. The step up that we are forecasting for the second half of 2020, we expect, will continue in 2021.

I will now ask Gaston Tano, our CFO, to provide some details on the fourth quarter financial results.

Thanks, Steve. As Steve mentioned earlier, the fourth quarter results were in line with our expectations despite some challenges in certain areas.

Before I start , I'd like to remind all listeners that we have revised our segment reporting, we now have three segments, Pipeline and Pipe Services, Composite Systems, and the renamed Automotive and Industrial formerly Petrochemical and Industrial. Starting off with the revenue.

Consolidated revenue in the fourth quarter was $334 million, 6% lower than the fourth quarter of 2018. The Pipeline and Pipe Services segment revenues decreased by 14% compared to the prior year, primarily due to lower demand for pipe coating and girth welding inspection services in North America as a direct result of the capital discipline focus of the E&P operators and delays in land transmission line projects partially offset by higher pipe coating project activity in the EMAR region.

The current quarter was also negatively impacted by delay of revenue related to the quality issue experienced in the quarter. The Composite Systems segment revenues increased by 10% compared to the fourth quarter of 2018, primarily due to the ZCL acquisition, which was completed in the second quarter of 2019.

This was partially offset by lower demand for composite pipe products related to the capital discipline focus of the E&P operators and a continued market softness in Western Canada. In the Automotive and Industrial segment revenues were higher by 1% primarily due to higher demand for our wire and cable products in North America, partially offset by lower revenues for our automotive heat shrink products.

On an annual basis, consolidated revenue for 2019 was $1.49 billion, an increase of 6% over 2018. The Pipeline and Pipe Services segment revenues increased slightly over the prior year, primarily due to improved pipe coating in the EMAR region partially offset by lower revenues in Asia-Pacific region.

The Composite Systems segment revenues increased by 20% compared to the prior year, reflecting the benefit from the ZCL acquisition in the current year, partially offset by lower demand for composite pipe and tubular management services related to the capital discipline focus of the E&P operators and the continued market softness in Western Canada. The Automotive and Industrial segment revenues increased by 4% compared to the prior year, primarily due to higher demand for wire and cable products North America partially offset by tight decrease in revenues for automotive heat shrink products Consolidated results for the fourth quarter in the year were negative impacts -- negatively impacted by non-recurring items outside the company's normal course of business.

The current quarter includes a $104 million impairment charge on intangible assets and goodwill for our Shawcor Inspection Services business and assets at two pipe coating facilities, also a loss of $1 million relates to the hyperinflationary accounting for Argentina. This was partially offset by a $5 million gain on investment in associates and a $1 million gain on sales land in the quarter.

The annual results reflect the negative impact of $104 million impairment charge, the ZCL acquisition, and related items of $17 million, a loss of $5 million relates to the hyperinflationary accounting for Argentina partially offset by gains of $39 million on the sale of land in Western Canada and a $5 million gain on an investment in associates. On an adjusted basis, consolidated adjusted operating income margin for the fourth quarter was 1% compared to 2% for the prior year fourth quarter.

The current year’s adjusted operating margins reflect positive adjusted margins for the Composite and Automotive segments both at 14.1%. These positive margins were offset by a negative adjusted operating margin of 13% in the Pipeline and Pipe services segment, which reflects the negative impact of a $7 million cost for the quality issue in the quarter, lower demand for girth weld inspection services and under utilization of our pipe coating facilities in the EMAR and Asia-Pacific regions.

On an annual basis, consolidated adjusted operating margin was 3%, with Composite Systems and Automotive and Industrial segments having positive adjusted margins of 14.3% and 15.7% respectively, partially offset by the Pipeline and Pipe segments being negative 5.2 due to the reasons mentioned earlier for the quarter. Adjusted EBITDA for the quarter was $30 million, 22% higher than $24 million reported in the fourth quarter of 2018.

This increase is primarily due to the addition of the ZCL acquisition and lower adjusted SG&A expenses, partially due to lower incentive compensation expense offset by $7 million in warranty costs and lower foreign exchange gains in the current quarter. Adjusted EBITDA for the current year was $136 million, slightly higher than the prior year.

This increase is primarily due to higher revenues discussed earlier, which includes the acquired ZCL business, the positive impact from the adoption of the IFRS 16 in the current year and lower SG&A expenses also reflecting lower incentive compensation expense offset by higher warranty costs and lower foreign exchange gain. Let's now discuss cash flows for the quarter.

Cash provided from operating activities for the fourth quarter of 2019 was $49 million, slightly lower compared to the $51 million in the fourth quarter of 2018. This decrease reflects lower net income and higher changes in non-cash items in the current quarter.

The change in non-cash working capital in the fourth quarter was a net cash inflow of $33 million, compared with an inflow of $27 million to prior year period. The $33 million cash inflow from working capital in the current quarter is primarily due to a lower accounts receivable and contract assets partially offset by lower accounts payable.

On an annual basis, cash provided from operating activities in 2019 was $54 million compared to $31 million in 2018. This increase reflects lower investment in working capital partially offset by lower adjusted net earnings.

Cash used in investing activities in the fourth quarter was $7 million, reflecting $10 million of purchases of property and plant equipment, partially offset by $3 million of proceeds generated from the sale of land during the quarter. On an annual basis, cash used in investing activities in 2019 was $252 million, reflecting $291 million related to ZCL acquisition and $45 million of capital expenditures, partially offset by $79 million of proceeds from sale of land and investment in associates.

During the fourth quarter, cash used in finance activities with $26 million, reflecting a debt repayment of $10 million made in the quarter, the payment of lease obligation in our regular quarterly dividends. On an annual basis, cash provided in finance activities was $82 million, reflecting a net increase of debt of $148 million related to ZCL acquisition, partially offset by $42 million of dividends paid and $25 million of lease payments.

Net cash flow for the fourth quarter 2019 was a positive $16 million compared to a positive $27 million in the fourth quarter of 2018. 2019 annual cash flow was negative $119 million, primarily related to ZCL acquisition compared to negative $72 million for 2018.

In terms of the balance sheet, the company's cash and short-term investments increased to $98 million compared to $82 million at the end of the third quarter. Non-cash working capital at the end of the fourth quarter was $204 million, down from $249 million at the end of the third quarter, primarily related to a typical seasonal inflow from working capital in the business.

Property, plant, and equipment and goodwill and intangible assets are down compared to the third quarter of 2019, primarily due to impairment charges booked in the current quarter. With respected debt, the company is in full compliance with debt covenants and has long-term debt of $438 million and $37 million of standard letters of credit as of December 31st, 2019.

As announced in our press release, subsequent to year end, the company negotiate an amendment on its credibility with its syndicate of lenders. This amendment amends the maximum net debt leverage covenant in 2020 to 4.24 times from March 31st and June 30th, and to four times for September 30th.

The net debt leverage covenant returns to 3.5 times for December 31st. The company obtains amendment to address the potential risk that it might experience volatility in its short-term results due to the dynamic nature of a demand in North America land market, the potential delay of pipe coating projects, and the general overall global uncertainty at this time.

The company believes this level of relief provided in the amendment is conservative and will not be fully utilized. This debt amendment will allow the company to focus its resources in 2020 on delivering on its long-term growth strategy.

I'll now turn it back to Steve for some additional commentary on the company's performance and outlook.

Thank you, Gaston. I'll first start with providing some additional color on Q4.

We had expected and in the Q3 conference call communicated that the impact of North America E&P operators' capital discipline would result in a reduction in spending in the fourth quarter. This reduction was forecasted to impact the demand for our products and services that are tied to drilling completions in both our Pipeline and Pipe Services, and Composite Systems segments.

In the first two months of the fourth quarter, we experienced a slowdown that was in line with what was planned. However, in December, many field operators were fully operations -- field operations were fully halted, our crew utilization fell below breakeven, and product installation stalled, resulting in North American negative impact on Q4 being greater than we expected.

Turning the pressure on the fourth quarter operational results with the service quality event that occurred at one of our sites in our Pipeline and Pipe Services segments. The event was limited to one site, a specific product and application, and one customer.

Shawcor’s decision rework the product was driven primarily to ensure that the long-term credibility of our commitment to stand behind our products and services remained intact. In other words, a key customer is not satisfied with what we had delivered and we had to ensure our reputation for technology and execution continues to command a premium in the future.

The impact in the quarter was seen directly in the $7 million provision we had taken and indirectly on revenue and other book work at the facility was also pushed out of the corner. It is estimated that revenue impact was in excess of $10 million and that it will take several quarters to reschedule the push to work.

The root cause of incident has been addressed. The facility is back to production and the customer is now satisfied with what is being delivered and has awarded us work since.

Within the Composite Systems segments, tank sales from retail fuel remains strong and actual results were better than expected due to favorable weather that increased the number of installs in the quarter. Other partners for the tank business were the roof -- record full year for sales and margins in water and wastewater and we completed the last actions that will result in us achieving $8 million of annualized cost synergies as of the 12-month anniversary of the ZCL acquisition.

Automotive and Industrial results were as expected in the quarter. There was usual end of the year slowdown in demand for heat and cold shrink products that was partially offset by the solid demand of specialty wire and cable solutions.

Although at quarter end, the backlog remained relatively flat at $513 million compared to $509 million recorded at end the of Q3, I'm very happy with the success we are having in winning work to maintain this level. Additionally, with over $1 billion of outstanding bids of which $240 million is awarded conditional FID, it was a good quarter for project position to ensure Shawcor is the pipe quarter of choice.

Of note, the recent press release on Payara and Sangomar are examples of projects secured pending FID and the Baltic Pipe press release is one who follows the normal award process. In Q1, we are forecasting a slow return in North America, AP spending.

We also expect project restarts in North American Midstream after the seasonal break and several regulatory suspensions will push into late February or early March. Project startup in our Channelview Texas, Kabil, Indonesia and Orkanger, Norway facilities are wrapping up but our end of the quarter loaded, and we will be taking costs to prepare our Scotland and Brazil plans for booked order production that we're starting in Q2.

In our normal seasonal cycle, Q1 is the lowest for composite tank sales due to low installs because weather constraints. And the automotive industrial segments should see an improvement in Q1 or Q4.

However, there maybe some impacted in Q1 from the coronavirus. But we've been actively managing it and although there is uncertainty at this time, we're not forecasting a negative impact on the full year.

The net result of a very conservative view that has a slow return of activity in North America, late in the quarter pipe coating project starts in cost and seasonally low quarter demand is that Q1 2020 could be significantly lower than we had just delivered in Q4 2019. For the full year 2020, we are expecting volatility quarter-to-quarter in North American upstream and midstream and customer spending on par with 2019.

Q1 will be the lowest point for pipe coating activity with strong build in the second half the year due to planned execution of projects that are already booked. The non-oil and gas businesses in our cockpit systems and automotive industrial segments will follow their usual annual profile and are expected to remain solid at similar levels to 2019.

Overall, we are forecasting we will have earnings improvements over 2019 and that the improvement will be very visible as we exit the second quarter. As our international and offshore type pipe coating business starts to execute.

Since 2014, we've been building a portfolio that is diversified both in offering and market that leverage is the core strengths of the company that can deliver both sustainability and torque benefits of large capital projects. I believe with our new segment reporting, it will make clear while diversification strategy was pursued and the potential that is available in the very near term.

Our automotive and industrial and composite system segments are performing well as a result of the choices we've made to add capacity, 25% increase in capacity over the last three years for automotive industrial segment and new offerings tanks in the case of Composite Systems Segment during a very rough long duration downturn for oil and gas CapEx dependent pipelines and fight services segments, Supported by the demand for Global LNG as the transition energy source the reduction in offshore development costs. Sub-sea tree orders and projects that Shawcor has booked or his prediction to win there is confident that the pipeline and pipe service statement is on the verge of returning to contributing meaningful for Shawcor.

We expect an inflection point that is quarters not years away and then the benefit will extend beyond 2020. The success of the company will be turned by our near-term success in managing three elements.

The first is the dynamic management of our face book in term businesses. The second is securing executing pipe coating projects.

And the third is reduction of our net leverage. Before I open up for questions, I'd like to highlight several points.

The energy sector continues to be challenged to predict future uncertainties and trends. Geopolitics and variables on both the supply and demand side of the equations.

This is a backdrop, investors should consider owning Shawcor for the following reasons. Shawcor a diversified portfolio is underpinned by supportive long term fundamentals that is positioned to deliver sustainable returns throughout the cycle.

Shawcor legacy core business of pipe coating is poised to strengthen with multiple projects tend to be executed and secure in the upcoming quarters. And there is a growing list of future project.

Management is executing on clear priorities and they are focused on delivering shareholder value in the long term. I’ll now turn the call over to the operator to open it up for any questions you may have for Gaston and I.

Question-and-Answer Sessio

Hey, good morning, all. Thanks for taking my question.

Steve, when you say that Q1 results could be significantly lower than Q4, can you help us understand the magnitude by maybe diving into some of the variables that might contribute to this performance? And I guess, I'm wondering specifically, will U.S.

land be any different Q1 versus Q4? What will be the Q1 impact of the channel the facility and how much do you expect to incur an additional costs to prepare for contracted work?

Okay. So I think it's a very fair question, but I'd like to highlight your management commentary on Q1 is with the understanding of all and I want to make sure, I phrase it correctly, all the headwinds and uncertainty that as we go into Q.

The comment of significance is based on the factory in U.S. land that we may not see an improvement from Q4.

So we now have one month and it is has not recovered to the first two months run rate in North American upstream that we saw in the fourth quarter. So that's my first comment.

We have and we monitor incoming tickets, because it really is a book in turn type business for girth weld inspection gathering lines and pipe sales. So, assume you know if it's flat and shows no improvement, so, it becomes a two month quarter then you can expect similar performance to Q4, so no uplift.

The other comment I would make a non oil and gas and you can look at the historical performance at ZCL, Q1 will be low for ZCL. It is the profile of the business.

So if you compare Q4 to Q1 you will see an absence of contribution or a much lower contribution of ZCL into Q1. The comments then on price coding the facility and you've identified it as channel view, there will be some impact, we took the cost to strip and recoat.

But of course, we had to push work out of the schedule. So there's going to be work that we would have assumed we would have done in Q1 that is still going to be pushed into further quarters in the year, so there'll be some pressure from the service quality and then on the top line to continue into Q1.

The other comments that I'll make, and we really don't know is the automotive industrial segment is a very solid segment for us. We should see an improvement from Q4 to Q1 and I use the word ‘should’ however, and you’re probably familiar, our Chinese facilities and our automotive customers supply chain is ingrained and touches many points that are being impacted by current pullback, extended shutdowns in automotive.

And so the messaging on the significant pullback is Canada arm's length of the projects for pipe coding. And that's the one thing I think we're most comfortable with because we have the work that we have secured and we're forecasting will be the step up in work that is already secured.

So that one is probably the most confidence that we have, the next confidence that we would have of course is you know, we know ZCL will be low and then the rest relies on really what is the uptick that will happen in North America reference to Q4 and what will happen on the automotive as it – as we see things play out over the remainder of the quarter for demand of automotive products and our facility that's in China. So I hope that puts it in proportion.

Look at Q4, I think you can pull out ZCL, I think that's fair, you can expect if things don't improve from the Q4 run rate in North America upstream, it could be a pretty rough quarter for us.

Okay. And then I just wanted to clarify on your 2020 comment, in order for 2020 to be higher than 2019.

Do you need to see activity levels flat to 2019? And I guess, I'm wondering, because based on, you know, capital budget announced in the U.S.

so far, U.S. land upstream spending was broadly be expected to be lower?

In my prepared comments, and I'll address it by segments. So what do we need to have an improvement over 2020, the first thing that we need to do is we need to ensure that the revenue that we generate in North America – North American upstream is equal to what we did 2019.

That doesn't necessarily mean that we need the same level of activity, because we have more products that are now going into the market. And I think the critical one I would identify is the success that we're having in pushing our 5 inch and larger diameters pull able into the marketplace.

So it was commercialized at the end of last year. And we are expecting and we have line of sight of an increased demand in international for that will help our composite type business.

So we don't need the same level of spending, but we need to be able to access the extra hedges to a decline in spending, right. So I think that my comment there.

We need the same that I mentioned before automotive and industrial business, we need on par of 2019. So the biggest impact on your and your performance is really the execution of work that's already secured.

And I think you only have to go back to the press releases that we've made throughout 2019 and recently in 2020, and look at the timeline of when they're going to be executed They all start and you'll see them in the project plants that I mentioned, which is the plants that are in Kabil, Indonesia is going to see a substantial and we mentioned that in the press release. Norway is going to pick up.

We're going to see channel view once we can clear up the service quality issue starts to generate bottom line performance. And in the later part of the year, you're going to see Norway and one that is probably the biggest one is now Leith, which was a site we targeted to consider it as a footprint, how do it address the mark has been awarded the Baltic pipe.

So all this has been secured in the second half. So you will see an uplift and that's probably the most confidence we have.

Okay. And you had mentioned on the last call, that you wouldn't look to a substantial reduction in headcount in Q4 for the growth wealth business, kind of given an expectation that activity would rebound in Q1, and I guess, has a continued weakness in U.S.

activity changed your view at all. Are you still committed to running?

If you allow me to correct, no, we said it the other way. We, actually, reduce facilities in the fourth quarter and reduce headcount in girth weld inspection.

So, we have moved out of three different geographies in girth weld inspection in the fourth quarter.

Okay. That’s helpful.

Yeah, so I just want to be clear, we've actually done that. So the revenue on girth weld is the profitability as a percentage for girth weld inspection for gathering line to this color type work.

We've pulled out of several bases, almost service basis from adjacent location. So we're down for the one quarter.

Okay. And obviously, I assume you think that that's a good fixed cost structure going forward.

The biggest headcount in that business is the variable headcount, which are the technicians that run the truck. The technicians' compensations are tied directly to activity, so it's kind of self-run contemplating.

Okay. That's all for me.

I'll turn it over.

Hey. Good morning, guys.

Good morning.

Just a question to clarify on the backlog. So conditional awards at the end of Q4 2019, were $240 million, which was flat to Q3.

Is that because of the one of the 10 on the larger project was backfilled or is it considered to be a part of the conditional awards?

I’ll like to Q3 remain in this $240 million, so.

Okay.

And so we’ve another large project by the way. But the $240 million had just off the top of my head, probably four projects that moved into backlog and that were backfilled by other projects.

So we did have a movement of projects from this 240 bit number that moved into backlog that was replaced by other ones.

Okay.

That was over the quarter.

Okay. And then, I guess on a similar note, just trying to understand the timing for Baltic pipe and then Sanganer were those reflected in that 500 in the backlog number in the conditional award or should we be thinking about those over and above the release number?

So the Sanganer is in 240 at the end of the quarter.

Okay.

We had pipe delivery confirmation for Baltic pipe, so some of Baltic pipe is in the backlog and some of the Blatic pipe is beyond the 12 months.

Okay. Got it.

And then just thinking about the Channelview facility, I think you said $10 million is that how we should be thinking about what's getting pushed into Q1 or is the some of that going to carry over into Q2.

It will take the whole -- some of the work is already pushed into Q3, Q4.

Okay.

So, it won’t be 16 that the back of workflow all come in Q2.

Okay. And then if we -- just on the margin side, if we add back that $7 million rework charge, it implies adjusted EBIT of $36 million with like with an 11% EBIT margin.

Is that kind of the profile of backlog we should be thinking about in the first half of 2020?

There should be some improvement to that, as we know we get further utilization or coding facilities in the pipe coding side as we execute the secure work that we have and the work that we expect to secure. So there is improvement.

That's what we've talked about in our earlier remarks that we do expect an improvement of results in 2020 over 2019.

Okay. That's it for me.

I'll turn it back. Thanks.

Good morning.

Good morning.

Good morning, Elias.

I want to hit on some sort of general overall items. Given the current share price, have you considered and the board an issue or bid or is that something that's this may be off the table for a while given the amendments to the credit facility?

Yeah. I think we should temper the priorities.

So I think the near term priorities to manage the dynamics. And certainly as we have line of sight of the debt leverage coming down, share buyback programs certainly is more and more attractive as the share price goes down.

But as we mentioned, there's kind of three priorities. And the third one is we really have to debt get the confidence in the balance sheet back that I would say is lacking.

And then, as we generate more cash and we expect to generate the cash from pipe coating in the second half. And then I think the board and management is aligned that there is opportunity to use excess cash, including returning to shareholders in the form of a share buyback.

But we have to get there, right. We have to get this second half running.

And we really need to see what's going to happen in the underpinning markets. And I think at this time with the uncertainty from many different headwinds that I never thought I would see in my career in oil and gas, we need to see these headwinds to find out what really is going to happen.

The concern now is on -- and I realize you're probably reading as much as I am on the long-term impact on demand and does this switch the whole supply chain. So I think the uncertainty right now is high-end and the focus needs to be securing the balance sheet.

Got it. Yeah.

I appreciate that color. And it's not surprising, but I did want to sort of ask it.

Are there any asset sales that you might have that, that you're working on? No specifics, but I kind of think there must be a few things that are possible?

The board and management spending considerable amount of time evaluating the value of assets that sits in the portfolio and the long-term strategy of the company. So it's important that I don't do granularity on particular businesses, but certainly that is a topical focus right now.

Okay. And that you know that high level color is appreciated.

Finally, focusing upon Sangomar, given that the work is supposed to start in 2021 that is not in backlog and we can start to see that come in over the next few quarters, correct?

Yeah, correct. So, we actually will generate a little bit of revenue in the tail-end of 2020.

And the way we generate revenue pipe coating is a small percentage of the overall revenue that will generate will coat from loading in the pipe. The line share is done by joining the pipe that you coat and as accepted and then there's a small percentage as you load it out.

Included in the load in will be some cash that we receive, revenue received to run trials to tighten our facility. We're going to see some of that in Q4, and so then as production starts in Q1.

So as we release the end of Q1 results, you'll start seeing Sangomar in the backlog is how it will work. And then as we do Q2 you'll start to see now two quarters of the total production come in.

So you're right. So it's not captured in today's backlog.

But you'll start seeing coming in next quarter.

Okay, great. Maybe one last question.

And I don't want to beat this to death, but I just want to understand that. You had rework in Q4 that pushed revenue out it.

And you know, when you said it's pushing revenue out from Q1 into Q2, but you presumably had revenue in Q4 that would have been pushed into Q1 unless you were planning to do some retooling. Is that correct?

In other words, when you're doing the rework, everything slides back, but there seems to be a bit a gap, is that because some retooling of a facility?

No. So the quality event is in pipe coating one of the biggest barriers to entry pipe coating is to apply this technology and in this particular case, and I think everybody is assuming channel source installation with anti-corrosion combined.

So one of the issues is when you run a production volume through the facility and it's discovered a pawn or on the customer site, you now need to retrench all that pipe back into your facility and the capacity of the facility then goes into lockdown and all efforts go into removing the coating that you already applied on the pipe. So, in Q4, what we would have done is we would have stop all revenue generating work, and would have put the money into stripping the pipe.

And so that's what indeed happened. And then as we got to the end of Q4, then you start reapplying the coating on the pipe.

The challenge that you have is that your schedule is backed up, so now you need to reschedule. So the revenue in Q4 that is now being pushed.

There's two components, one is from the facility itself, which will be rescheduled throughout the year. So you slide in this rework.

A big chunk of it happened in Q4 and Q1, but there's more rework and what I mean rework is more coating to be applied on pipe at later sections. So you need to push all these other projects to make so, because you had work booked for Q1 already, so there won't be enough of it from the work because we need to put it in some place else.

The second revenue that’s missed right away, is we provide services in the school yard of applying coating on the field joint as it goes on to the vessel. Well, if the pipes not available, then they don't school the pipe, we don't generate the revenue and that revenue also is pushed until we finish that in later quarters.

So it's not as easy in terms you already had work. So we can't put more work into the facility because it was booked out.

So now you need to slot it into another facility, which means you need to move the pipe or you wait for later in the year to slide it. So it’s a business for infinite number of capacity that we can do -- so there's no room to push it into Q1.

Okay, I understand that. Thank you very much for that clarification.

And I'll turn the call back.

Thank you very much. Most of my questions were touched on, maybe just a little bit of additional detail.

Just following on the quality issues in Q1, I mean, there's a $7 million so impact to cost as the papers stripped. It sounds like the rework and the recoating is ongoing today, are you expecting any cost impact in the first quarter as well on top of the revenue push?

The only negative input will be -- is the lower utilization in the facility as we're recording the work. We've taken certainly the lion's share of the cost upfront to strip and requite the pipe, but there is a cost inefficiency as the plant is working on non-revenue producing project, right.

So there will be some inefficiencies We've taken the majority of the cost, it's now just because you have no capacity, you can't push any more through that quarter through that facility, right.

So the out of pocket costs to recoat the pipe, we're taking in the fourth quarter?

Absolutely, yes.

Okay, got it. And, I mean, I imagine that the majority of the work going through channel view has to do with Liza II.

Correct me, if ’I’m wrong, but does that have -- would that have any impact to the timing of the entire air project?

So I can give you the project work, or projects, it's a product issue. And it was one customer that has been awarded this work, so you can assume into EPC.

It was not Liza, okay?

It was not.

There’s nothing to do with Liza project, which was coated by the way not just in channel view, but also their cruse. So the least issue there would have been -- it could have been successively higher, because it would have been two facilities we would had to troubleshoot and get through the cause from.

So it wasn't, unless I mentioned in the last -- probably the last three quarterly calls, Camerons was a very busy facility, both because of work that we plugged in at the Liza project, but lot of the smaller tie-ins in the Gulf of Mexico are all being done in channel here.

Okay. I was hoping maybe you could give a little bit more clarity on your commentary around coronavirus.

Sounds like you're expecting some near-term impacts, but that should be mitigated through the rest of the year and largely that has to do with the automotive sector? What would be the 2020 impact, if that had any continuation into oil and gas sector?

Great question. So maybe I'll -- can I break here and responded into near – well, I’ll say immediate short- term, medium-term and long-term.

Sure.

So the short-term impact, what we're seeing right now is there will be volatility, in our automotive industrial segment primarily to do with longer, so they've extended. And we're back to work today, at a lower production volume, the Lunar New Year in China.

They extended it, so the facility worth less, in China. The -- that impact is extended beyond our facility, because our customers did the same thing.

So the whole backup of supply chain is compressed in the first quarter. So you're going to see a, short-term volatility.

Our thinking is right now or what we're seeing is that. Okay, this is a slog and it's going to pick up.

And unless, there's a fundamental change in demand for automotive and stalling of electrical -- electrification of cars, this is going to work there. So, I think that one is probably not the biggest impact to the company.

If I then go to the medium-term, and if this supply disruption happens essentially in -- in China, then we may see an impact on, the link to the supply chain into oil and gas and in some of our businesses, and certainly in our composite business. So we have a large, several supplier base in China for our core components, of glass and resin.

A lot of this is sourced multiple locations in China. But this could be an issue on the supply chain.

I would further extent in the medium-term. If the shock of uncertainty in demand continues to drive the price of oil at a level where we are today at sustainable, you're going to see a pullback in U.S.

land. And so that's what we're singling that could happen.

You may not see the U.S. land market come back.

In the long-term, and I think, this is yet to be seen. If the long-term readjustment in the supply chain and overall GDP pulls back, and there's no other efforts to address the supply and demand going down and supply is not addressed.

You may see a substantial pullback in capital spending, even to the point that it impacts the offshore projects that we are expecting to contribute substantially, into 2021 and 2022. So that's kind of the short-term, medium and long-term for the company, as it pertains to okay, how long does this go?

And does it actually readjust the supply chain and GDP from China?

Okay. Then just as two quick follow-ups on that for the near-term guidance that you gave there.

What can the revenue impact is from Chinese outages in the first quarter, in your view on revenue side?

I can't say, yes, right. I think we were just starting, as I -- as I mentioned the automotive and an announcement of automotive and certainly, now's its time to South Korea.

If the automotive was to go to a screaming halt, the business of DSG-Canusa, which is the heat shrink and coal shrink that is in our automotive and industrial segment, we could see a substantial pullback. We haven't seen it.

But I guess in theory, it could be bad is what it was in 2008, right.

Right, okay. And then…

I know it. And that's why I use this term all the time, at this time.

Because we're not we're not considering, how bad it could get for automotive.

Okay. And then last one on coronavirus.

Are there any international pipe coating facilities that are in affected regions? Or scheduled to start up that are in affected regions or near affected regions?

That could delay?

No. Of course, we have facilities in, Italy.

But the large projects that we are counting on are quite not going to be done. But there is,…

Okay.

… of course, the virus is in Italy. And it's not far.

The reason why our facility is there, but it's not. There's no impact from it, because we don't have a lot of work to go through it in the second half of the year.

Okay. And then, just last question, is there an update around your expectations for the timing of Shawcor.

I can only -- so several I think it's highly, highly unlikely that Shawcor will not go. If anyone's been calling Shawcor, Shawcor lands gas, into Pluto.

Pluto agreement has been signed because Pluto is owned by a different group of operators and they've given the license now to Shawcor's and they need the gas. So the second comment on Omega’s reserves even at the current gas price has increased substantially for Shawcor.

And Woodside continues to be very, very confident that they will FID the project. I've heard different -- both from our employees that are on the ground from the customer press release’s that is 2020 FID announcement.

I wouldn't be surprised that it's a June timeframe. But I also wouldn't be surprised if we get a green light or the services that are involved in the project get a green light to go ahead and start in events of the FID as early as March or April.

But I think former FID will probably be made here. But I wouldn't be surprised that the EPC the pipe mills, those that are competing for the coding work will get a green light earlier.

Okay, do you think that that's potential still in the first quarter? Or do you think that's more likely in the second third quarter?

Shawcor will be resolved in the year? I think in terms of the FID and we should count under by mid year, I think.

Yeah, I think there's a possibility that no later than the third quarter you'll see it -- the pipe quarter with it will be in their backlog. I think that's a fair way to look at.

Great. I really, really appreciate the color.

I'll turn it back.

Thank you.

Thank you. Good morning, everyone.

I just wanted to start by clarifying what I've heard on the outlook, just to make sure I've got it correct. So your forecast for 2020 improving over 2019 is based on one improved pipe coding contribution from projects you've already won and expect to begin work on starting in Q2, Q3 timeframe?

Number two, market share gains in competence like the five days schools and so forth and strong demand from fuel tanks offsetting expected or potential expected weakness in actual U.S. completion activity?

And number three is stable work in the automotive and industrial segment, is that -- if I got that, right?

Yes. No further comment.

Yes.

Okay, thank you. And so just under that scenario, what would be your outlook for free cash flow for 2020?

It will be stronger then what we did in 2018, of course, part of it is being driven by advanced payments that we will get on pipe coding projects. But work will be executed.

So free cash flow wise, I think it's more important to look at operating margins that we expect to be higher as pipe coding contributes, and that will in turn lead into free cash flow in a second half of 2020 in lead into 2021.

Okay, thanks. And just not to belabor it, but is there a magnitude on the on the pipe toting operating margin that you would target given what you know, you expect to happen?

It's still -- you know there's lots of things that depend on it. Keep that for me, it's very difficult for me to give you that right now.

And it's not something that we feel comfortable sharing at this point in time. There's lots of volatility here that we need to manage, but it is going to be positive contributor versus negative rise that we had in 2019.

Okay. Thanks.

That's helpful. And just on the automotive and industrial segment, the last few questions, maybe just to play off of that is just, what do you kind of see as the breakdown of revenue between automotive things that may be more affected by this potential long term negative scenario of coronavirus versus the industrial which may not be as exposed?

First of all, I'll point into the name change. So, the company has moved historically.

Petrochemical was a good way to capture this segment because, it participated a lot in the -- a lot around Western Canada on the heavy oil extraction and processing our value add components. The segment is now called automotive and industrial.

And it's Canusa -- DSG-Canusa business, heat shrinkable and culture is heavily weighted to automotive. And so ShawFlex and the cable business I think will be quite positive this year because of, not only does it participate in the high run cable business.

It is nicely positioned for the rebuild in nuclear which are nuclear work which is right in its niche of high specialized cable. So, I think a good way to look at the business is just having a look at 2008 of petrochemical industrial and see the magnitude of what a global slowdown can do to a GDP focused business, right.

But back to your question, a large percentage of automotive Industrial is based on direct applying, wire harnessing and wire components and protection of wire component into automotive, high percentage.

Greater than 50%.

Okay. Perfect.

Well, that's very helpful. That's it for me.

So, thanks very much for your time.

All right. I want to -- before I pass it over to Paul to close the call.

I just want to put some additional color on comments that we made both in the prepared remarks during the questions. So first the all, the times of uncertainty, both because of macro economics industry and I think sentiment overall for publicly traded company is a challenge to give you a correct outlook.

Management's approach has been quite conservative in our messaging. And I think that links into our approach that we've done with the debt amendments, I would, suggest people consider that in what we've done.

The 2020 outlook, we do expect that the strategy of the different cycles within oil and gas will protect the company and in many ways from others because pipe coding is scheduled through to improve in the second half of the year. And that, generally the conversion of gas as, the tire command in LNG, lower costs and offshore will continue beyond 2020.

With that, turn it over to Paul to closeout.

Okay. Thanks, Steve.

I'd like to thank everyone for their participation and interest today, and we look forward to talking to you again next quarter.