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Tenaris S.A. 2020 Annual Report Summary (Form 6-K)

Business Context and Reporting Period

This filing contains Tenaris S.A.'s 2020 Annual Report, covering the fiscal year ended December 31, 2020. Tenaris is a leading global supplier of steel pipes and related services for the energy industry, primarily oil and gas. The reporting period was defined by the severe impact of the COVID-19 pandemic and a concurrent collapse in global oil prices, which led to a precipitous drop in drilling activity worldwide. The company executed a major restructuring program to reduce fixed costs and preserve liquidity.

Key Financial Metrics (2020 vs. 2019)

Note: EBITDA includes $142 million in severance charges. Excluding impairment and restructuring charges, net income would have been positive.

Material Changes vs. Prior Period

• Revenue Decline: Net sales dropped 29% due to a 27% decline in sales volumes and a 4% decrease in average selling prices. North American sales fell 36% and South American sales fell 47% due to halted drilling activity.
• Impairment Charges: The company recorded a non-cash impairment charge of $622 million, primarily affecting goodwill related to U.S. operations (OCTG USA, IPSCO, and Coiled Tubing) and fixed assets in the U.S. Rods segment.
• Cost Restructuring: Tenaris successfully reduced its fixed cost structure by approximately $230 million on an annualized basis, meeting its target to cut costs by 25%.
• Working Capital: The company generated $1.1 billion in cash through a reduction in working capital, driven largely by a $829 million decrease in inventories.
• Acquisition: Completed the acquisition of IPSCO Tubulars Inc. in January 2020 for approximately $1.0 billion, expanding U.S. seamless and welded pipe capabilities.

Guidance, Outlook, and Risks

• Outlook: Management anticipates a gradual recovery in sales throughout 2021. Drilling activity in North America and Latin America is rising, though the Eastern Hemisphere is expected to remain flat. EBITDA margins are expected to stabilize around 20% from the second quarter of 2021 as price increases offset higher raw material costs.
• Dividend Proposal: The Board proposed reinstating the annual dividend at 50% of pre-pandemic levels ($0.21 per share / $0.42 per ADS), subject to shareholder approval.
• Strategic Initiatives:
  • Consolidating Canadian operations by closing the Prudential mill and investing $72 million in the Sault Ste. Marie facility.
  • Establishing a joint venture in China with Baogang Baotou Steel for premium threading.
  • Commitment to reduce carbon emissions intensity by 30% by 2030 (vs. 2018 baseline) and an internal carbon price of $80/ton.
• Key Risks:
  • Oil & Gas Volatility: Continued dependence on oil prices and drilling activity levels.
  • Geopolitical & Regulatory: Risks in Argentina (inflation, exchange controls), Mexico (energy reform, Pemex credit exposure), and potential trade barriers/tariffs.
  • Legal Proceedings: Ongoing investigations regarding alleged improper payments in Brazil (Lava Jato) and Italy, as well as product liability claims.

Investor Verification Checklist

• Impairment Assumptions: Verify the recoverability of goodwill and long-lived assets in the U.S. segment given the volatility in oil prices and rig counts.
• Pemex Exposure: Review the aging and collectability of trade receivables from Mexico's state-owned Pemex, a significant customer with credit risks.
• Restructuring Costs: Confirm the realization of the targeted $230 million annualized fixed cost savings and the impact of severance charges on future periods.
• Legal Contingencies: Monitor the status of the Brazilian and Italian investigations and potential financial penalties or settlements.
• Raw Material Costs: Assess the ability to pass on rising steel raw material costs (e.g., hot rolled coils) to customers to maintain margins.