Tenaris S.A. 2021 Annual Report Summary (Form 6-K)
Business Context and Reporting Period
Company: Tenaris S.A.
Reporting Period: Year ended December 31, 2021
Filing Date: March 30, 2022
Business Overview: Tenaris is a leading global supplier of steel pipes (seamless and welded) and related services for the energy industry, specifically oil country tubular goods (OCTG), as well as for other industrial applications. The company operates an integrated network of manufacturing facilities across 16 countries.
Key Financial Metrics (2021)
| Metric | 2021 (USD Millions) | 2020 (USD Millions) |
|---|---|---|
| Net Sales | 6,521 | 5,147 |
| Operating Income | 708 | (663) |
| EBITDA | 1,359 | 638 |
| Net Income | 1,053 | (642) |
| Cash Flow from Operations | 119 | 1,520 |
| Capital Expenditures | 240 | 193 |
| Total Borrowings | 331 | 619 |
| Net Cash Position | 700 | 1,085 |
| Dividends per Share | $0.27 | $0.07 |
Note: EBITDA is a non-IFRS measure defined as operating income plus depreciation, amortization, and impairment charges.
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 27% year-over-year, driven by a 17% increase in sales volumes and a 6% increase in average selling prices. The recovery was led by North America (up 54%) and South America (up 59%).
- Profitability Recovery: The company returned to profitability with an operating income of $708 million, compared to a loss of $663 million in 2020. This turnaround was significantly aided by the absence of the $622 million goodwill impairment charge recorded in 2020.
- Equity Earnings: Net income benefited from an extraordinary contribution of $513 million from equity participations in Ternium and Usiminas, reflecting record prices in the flat steel sector.
- Cash Flow Dynamics: Operating cash flow decreased to $119 million from $1.52 billion in 2020. This decline was primarily due to a $1.0 billion increase in working capital (inventory build-up) to support the ramp-up in activity, contrasting with a working capital reduction in 2020.
- Debt Reduction: Total borrowings decreased by $288 million to $331 million, resulting in a net cash position of $700 million.
Guidance, Outlook, and Risks
Outlook and Management Commentary: Management anticipates further sales increases in the first half of 2022, driven by higher prices in North America and offshore pipeline shipments in Europe. A significant recovery in sales is expected in the Middle East and Africa in the second quarter. EBITDA margins are projected to continue increasing in the first half despite higher energy costs in Europe.
Key Risks and Contingencies:
- Russia-Ukraine Conflict: The armed conflict has caused spikes in energy and commodity prices and disrupted trade. Tenaris is assessing a potential write-off of its $16.8 million investment in a joint venture with Severstal in Russia. Sales to Russia represented only 0.2% of global sales in 2021.
- Trade Investigations: The U.S. Department of Commerce initiated antidumping duty investigations on OCTG from Argentina and Mexico. Tenaris is challenging these claims, but final determinations are expected in the second half of 2022.
- Legal Proceedings: Ongoing investigations in Brazil, Italy, and Switzerland regarding alleged improper payments prior to 2014. Additionally, there are product liability claims and tax assessments in Italy and Brazil.
- Climate Change: Regulatory requirements for lower-carbon economies could increase costs and reduce demand for fossil fuel-related products, though Tenaris is investing in low-carbon technologies (hydrogen, CCS).
Unusual Items: In 2021, the company recorded a $57 million impairment charge related to the termination of the NKKTubes joint venture in Japan. This is significantly lower than the $622 million impairment charge in 2020.
Investor Verification Checklist
- Working Capital Build: Verify the sustainability of the $1.0 billion inventory increase and its impact on future cash flows.
- Equity Earnings Volatility: Assess the reliance on earnings from Ternium and Usiminas ($513 million), which are subject to flat steel market cycles.
- Russia Exposure: Monitor the final determination of the write-off amount for the Severstal joint venture investment.
- Trade Tariffs: Track the outcome of U.S. antidumping investigations regarding OCTG imports from Argentina and Mexico.
- Dividend Restoration: Confirm the approval of the proposed dividend of $0.41 per share at the upcoming shareholder meeting.