Tenaris S.A. Q1 2021 Financial Summary
Business Context and Reporting Period
This Form 6-K filing presents the Consolidated Condensed Interim Financial Statements for Tenaris S.A. for the three-month period ended March 31, 2021. Tenaris is a global manufacturer of steel pipes and related products, primarily serving the oil and gas industry. The financial statements are prepared in accordance with IFRS and were approved by the Board of Directors on April 28, 2021.
Key Financial Metrics
| Metric | Q1 2021 (USD) | Q1 2020 (USD) |
|---|---|---|
| Net Sales | $1,181.8 million | $1,762.3 million |
| Gross Profit | $298.8 million | $468.6 million |
| Gross Margin | 25.3% | 26.6% |
| Operating Income | $51.6 million | ($509.5 million) loss |
| Net Income (Attributable to Owners) | $106.3 million | ($660.1 million) loss |
| Diluted EPS (USD) | $0.09 | ($0.56) |
| Operating Cash Flow | $70.5 million | $516.1 million |
| Cash and Cash Equivalents | $695.2 million | $841.7 million |
| Total Borrowings | $541.1 million | $619.0 million |
| Net Cash Position | ~$1,084 million | N/A |
Note: Net cash position is calculated as Cash + Other Investments +/- Derivatives - Borrowings, as disclosed in Note 21.
Material Changes vs. Prior Period
- Revenue Decline: Net sales decreased 33% year-over-year to $1.18 billion, driven by lower volumes in the Oil and Gas segment (down to $874 million from $1.43 billion) due to the ongoing oil and gas crisis and reduced drilling activity.
- Profitability Turnaround: The company reported a net income of $106.3 million, a significant improvement from the $660.1 million net loss in Q1 2020. This reversal is primarily due to the absence of a $622.4 million impairment charge recorded in Q1 2020 related to goodwill and fixed assets.
- Cost Reduction: Cost of sales decreased to $883.0 million from $1.29 billion, reflecting lower production volumes and cost-containment measures. Selling, general, and administrative expenses also declined to $255.0 million from $357.0 million.
- Equity Earnings: Equity in earnings of non-consolidated companies surged to $79.1 million from $1.9 million, contributing significantly to the bottom line.
- Debt Reduction: Total borrowings decreased by approximately $78 million to $541.1 million, aided by net repayments of $73.7 million during the quarter.
Outlook, Risks, and Contingencies
Management Commentary and 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 of approximately $1.08 billion and believes it has sufficient resources to service debt and meet working capital needs. Production levels have been adjusted, and capital expenditures were reduced to $45.3 million.
Dividends: The Board proposed an annual dividend of $0.21 per share ($0.42 per ADS), totaling approximately $248 million. This includes an interim dividend of $0.07 per share already paid in November 2020. The remaining $0.14 per share is proposed for payment in May 2021 pending shareholder approval.
Key Risks and Contingencies:
- Legal Proceedings: The company is involved in various litigation matters, including a U.S. patent infringement case with Global Tubing, product liability claims against IPSCO, and ongoing investigations regarding alleged payments related to Petrobras (Lava Jato) and the "Notebooks Case" in Argentina. Management believes provisions are adequate but outcomes remain uncertain.
- Asset Title Dispute: Tenaris recently learned that title deeds for land plots in Saudi Arabia (carrying value $56.2 million) held by subsidiary SSPC were cancelled by court order. The company intends to petition for reinstatement.
- Argentina FX Controls: Significant foreign exchange restrictions in Argentina continue to impact operations. Argentine subsidiaries represent 15% of total sales and 8.6% of total equity. The company maintains a net short exposure of $34.6 million in Argentine pesos.
- Venezuela Nationalization: Tenaris holds favorable arbitration awards against Venezuela totaling $256.4 million (Matesi) and additional amounts for Tavsa. Enforcement is subject to U.S. sanctions regulations.
- Joint Venture Delays: Construction of a welded pipe plant in West Siberia is on hold pending market assessment. A threading plant in Baotou, China, is expected to start operations at the end of 2021.
Investor Verification Checklist
- Verify the sustainability of the $79.1 million equity earnings from non-consolidated companies (primarily Ternium) as a driver of net income.
- Monitor the resolution of the Saudi Arabia land title dispute regarding the $56.2 million asset.
- Track the status of the proposed $248 million annual dividend and shareholder approval.
- Assess the impact of ongoing foreign exchange restrictions in Argentina on the repatriation of earnings.
- Review the progress of the West Siberia joint venture project, which is currently on hold.
- Confirm the outcome of the U.S. patent infringement litigation with Global Tubing, with trial expected before year-end.