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Tenaris S.A. 2020 Fourth Quarter and Annual Results Summary

Business Context and Reporting Period

Tenaris S.A., a global manufacturer of tubular products for the oil and gas industry, reported its audited consolidated financial results for the fourth quarter and full year ended December 31, 2020. The filing, submitted on February 24, 2021, reflects the severe impact of the COVID-19 pandemic on global oil demand and drilling activity, particularly in the Americas, alongside a sequential recovery in the fourth quarter.

Key Financial Metrics

Balance Sheet Highlights: Total debt stood at approximately $619 million ($303 million current + $316 million non-current) at year-end. Liquid assets totaled $1.7 billion, resulting in a net cash position of $1.1 billion.

Material Changes vs. Prior Period

• Revenue Decline: Full-year sales dropped 29% year-over-year due to a collapse in drilling activity and oil prices. However, 4Q 2020 sales rose 12% sequentially as activity recovered in the Americas and Middle East.
• Profitability Volatility: The company swung from a full-year net loss of $642 million in 2020 to a net income of $110 million in 4Q 2020. The annual loss was driven by a $622 million impairment charge on goodwill and assets in the U.S. (related to the former IPSCO business) and $142 million in restructuring charges.
• Cost Reduction: Management successfully reduced the fixed cost structure by $230 million annualized by year-end, aiding the sequential improvement in operating leverage.
• Cash Flow Resilience: Despite the operating loss, full-year Free Cash Flow increased to $1.3 billion (26% of revenue) compared to $1.2 billion in 2019, driven by a $1.1 billion reduction in working capital and lower capital expenditures ($193 million vs. $350 million in 2019).

Guidance, Outlook, and Risks

• Market Outlook: Management anticipates a gradual sales recovery throughout 2021. Drilling activity is rising in the US, Canada, and Latin America, while the Eastern Hemisphere is expected to remain flat.
• Q1 2021 Impact: EBITDA in the first quarter is expected to be similar to 4Q 2020 but will be negatively impacted by approximately $20 million due to production losses and costs associated with the Texas gas and power shortages.
• Margin Guidance: From the second quarter onward, EBITDA is expected to increase with margins stabilizing around 20% as price increases offset higher raw material costs.
• Dividend Proposal: The Board intends to propose an aggregate dividend of approximately $248 million for 2020, including an interim dividend of $83 million already paid. The final dividend would be $0.14 per share ($0.28 per ADS), payable in May 2021.
• Climate Strategy: The company set a target to reduce carbon emissions intensity by 30% by 2030 (vs. 2018 levels) and will implement an internal carbon price of at least $80/ton for investment evaluation.
• Risks: Key risks include uncertainty in future oil and gas prices, the pace of global economic recovery, and the impact of new COVID-19 variants on drilling activity.

Investor Verification Checklist

• Impairment Charges: Verify the $622 million impairment charge details regarding the former IPSCO business and U.S. welded pipe operations to assess asset valuation risks.
• Restructuring Costs: Confirm the $142 million in severance charges included in 2020 EBITDA and the sustainability of the $230 million fixed cost reduction.
• Working Capital Reversal: Monitor the $38 million increase in working capital in 4Q 2020, which reversed the significant reductions seen earlier in the year, as activity recovers.
• Equity Investments: Review the $81 million gain in 4Q 2020 from non-consolidated companies (primarily Ternium) to understand the reliance on external equity earnings for net income.
• Dividend Approval: Confirm shareholder approval of the proposed $248 million total dividend at the May 3, 2021 annual general meeting.