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Tenaris S.A. Q1 2010 Financial Summary

Business Context and Reporting Period

This Form 6-K filing, dated May 6, 2010, reports the unaudited consolidated results for Tenaris S.A. for the quarter ended March 31, 2010. Tenaris is a global manufacturer of tubular products and services for the oil and gas industry. The results are presented in U.S. dollars in accordance with International Financial Reporting Standards (IFRS).

Key Financial Metrics

*Net cash position calculated as total financial debt less cash and other current investments. Q1 2009 figure derived from Q1 2010 position minus the reported increase of $271.6 million.

Material Changes vs. Prior Period

• Revenue Decline: Net sales dropped 33% year-over-year, driven by a 12% reduction in sales volumes and a 23% decrease in average selling prices.
• Segment Performance:
  • Tubes: Sales fell 33% to $1,410.4 million. Operating income declined 56% to $279.1 million due to lower prices and volumes, though operating efficiencies helped offset some cost pressures.
  • Projects: Sales plummeted 58% to $93.2 million, the lowest level in three years, due to reduced shipments for pipeline projects in Brazil and Argentina. Operating income fell 83% to $8.5 million.
  • Others: Sales increased 11% to $135.1 million, with operating income turning profitable ($21.7 million) from a loss of $4.7 million in Q1 2009.
• Cost Structure: Cost of sales as a percentage of sales increased to 60% (from 56% in Q1 2009) due to rising raw material costs, particularly iron ore. SG&A expenses rose to 21.2% of sales from 15.9% due to fixed costs on lower revenue.
• Financial Items: Net interest expense decreased to $12.9 million from $34.6 million. Other financial results swung from a $36.4 million loss to a $7.7 million gain, largely due to foreign exchange and derivative valuations. Equity in earnings of associated companies (primarily Ternium) improved from an $8.6 million loss to a $23.5 million gain.
• Tax Rate: The effective tax rate increased to 35% from 33%, attributed to higher tax rates in Mexican operations.

Guidance, Outlook, and Risks

• Market Outlook: Management expects sales in the Tubes segment to increase in coming quarters, particularly in North America and the Middle East/Africa, supported by rising drilling rig counts. The Projects segment is expected to remain weak for the next two quarters before recovering in Q4 2010.
• Cost Pressures: Raw material costs (iron ore) have risen significantly. While pipe prices are increasing, they have not yet matched the rate of raw material inflation. Management expects to maintain operating margins throughout the year.
• Capital Expenditures: Capex increased to $158.0 million in Q1 2010 and is expected to rise further due to the new rolling mill in Mexico and other industrial investments.
• Risks: Key risks include volatility in oil and gas prices, fluctuations in raw material costs (iron ore), and the impact of exchange rate variations on financial results.

Investor Verification Checklist

• Verify the sustainability of operating margins given the divergence between rising raw material costs and slower pipe price increases.
• Monitor the recovery timeline for the Projects segment, specifically shipment levels in Brazil and Argentina.
• Assess the impact of the new iron ore spot pricing mechanism on future cost volatility.
• Review the progress and capital requirements of the new rolling mill in Mexico.
• Confirm the trajectory of the effective tax rate, particularly regarding Mexican operations.