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Tenaris S.A. Form 6-K Summary: Six Months Ended June 30, 2021

Business Context and Reporting Period

This Form 6-K reports the Consolidated Condensed Interim Financial Statements for Tenaris S.A., a global manufacturer of steel pipes and related products, for the six-month period ended June 30, 2021. The filing was submitted on August 4, 2021. The company operates primarily in the oil and gas, hydrocarbon processing, and industrial sectors.

Key Financial Metrics

Note: Net cash position of ~$854 million is calculated by management as Cash + Other Investments +/- Derivatives - Borrowings.

Material Changes vs. Prior Period

• Profitability Turnaround: The company reported a net income of $400.3 million in 2021, a significant improvement from a net loss of $708.0 million in the same period in 2020. This reversal was driven by a $622.4 million impairment charge recorded in 2020 (related to goodwill and fixed assets) which did not recur in 2021.
• Revenue Decline: Net sales decreased by approximately 9.8% year-over-year, dropping from $3.0 billion to $2.7 billion. The Tubes segment saw a decline in Oil and Gas revenues from $2.46 billion to $2.01 billion.
• Operating Cash Flow: Net cash provided by operating activities decreased significantly to $20.1 million from $963.7 million in 2020. This was primarily due to a $397.1 million increase in working capital requirements (inventory build-up) compared to a release of working capital in the prior year.
• Equity in Earnings: Equity in earnings of non-consolidated companies surged to $225.0 million in 2021 from $6.3 million in 2020, contributing substantially to the bottom line.

Guidance, Outlook, Risks, and Unusual Items

• Unusual Items: A one-time tax credit of $34.1 million was recognized in other operating income in 2021 following a favorable Brazilian Supreme Court ruling regarding PIS and COFINS tax calculations.
• Legal Contingencies:
  • Venezuela: The company holds final arbitration awards against Venezuela totaling over $256 million regarding nationalized subsidiaries. Enforcement is currently restricted by U.S. sanctions.
  • Saudi Arabia: Title deeds for land plots with a carrying value of $56.2 million were cancelled by court order; the company is seeking reinstatement.
  • Investigations: Ongoing investigations by Italian, Brazilian, and U.S. authorities regarding alleged payments prior to 2014. The company is cooperating and believes it has meritorious defenses.
• Operational Risks:
  • Argentina: Significant foreign exchange controls restrict access to the official market for debt service and dividends. The company has a net short exposure of $82.8 million in Argentine pesos.
  • Japan: JFE Holdings plans to close facilities in the Keihin complex by 2024, potentially impacting Tenaris's seamless pipe manufacturing inputs.
• Outlook: Management states that capital and financial resources have not been materially affected by the pandemic or oil crisis. The company maintains a net cash position and believes it has sufficient resources to service debt and meet working capital needs.

Key Facts for Investor Verification

• Working Capital Dynamics: Verify the sustainability of the $397 million increase in working capital (primarily inventory) and its impact on future cash flows.
• Non-Consolidated Earnings: Assess the quality and sustainability of the $225 million equity earnings from non-consolidated companies (e.g., Ternium, Usiminas), which drove a large portion of net income.
• Legal Exposure: Monitor the status of the Venezuelan arbitration enforcement and the Saudi land title dispute, as these involve significant asset values ($256M+ and $56M respectively).
• Argentina FX Risk: Evaluate the impact of ongoing Argentine foreign exchange restrictions on the repatriation of earnings and debt servicing for the 8.7% of equity held in Argentine subsidiaries.
• Dividend Policy: Note the payment of $248 million in dividends for the 2020 fiscal year, signaling a return to shareholder distributions after a pause in 2020.