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Tenaris S.A. Q1 2020 Financial Summary

Business Context and Reporting Period

This Form 6-K filing, dated April 29, 2020, reports Tenaris S.A.'s unaudited consolidated results for the quarter ended March 31, 2020. The period marks the first full quarter of consolidation for IPSCO, acquired on January 2, 2020. Results are significantly impacted by the global collapse in oil demand and prices due to the COVID-19 pandemic, leading to severe curtailment of exploration and production investments.

Key Financial Metrics

Capital Expenditures: $68 million for Q1 2020.

Working Capital: Reduced by $317 million during the quarter.

Material Changes vs. Prior Periods

• Profitability Collapse: Operating income swung from a $152 million profit in Q4 2019 to a $510 million loss in Q1 2020. Net income turned to a $666 million loss compared to a $148 million profit in the prior quarter.
• Impairment Charges: The company recorded $622 million in impairment charges on goodwill and other assets, primarily related to U.S. welded pipe operations and the newly acquired IPSCO business, reflecting the collapse in oil prices and drilling activity.
• Revenue Stability: Net sales remained relatively flat sequentially (+1%) despite the IPSCO integration, driven by low sales backlog and destocking actions by major customers like Aramco. Year-over-year sales declined 6%.
• Segment Performance: The Tubes segment recorded an operating loss of $478 million (vs. $138 million profit in Q4 2019) due to a $582 million impairment. The "Others" segment recorded a $32 million loss (vs. $14 million profit) due to a $40 million impairment.
• Currency Impact: Financial results included an $18 million FX loss due to the 29% devaluation of the Brazilian Real. Income tax charges increased to $136 million, driven by a $111 million deferred tax charge from the 25% devaluation of the Mexican Peso.

Guidance, Outlook, and Management Commentary

Outlook for Q2 2020: Management expects a substantial reduction in sales and margins, particularly in the Americas. Sales could be approximately 35% lower than Q1 2020. EBITDA margins (excluding restructuring charges) are projected to fall to a high single digit.

Cost Containment and Rightsizing: To preserve liquidity, Tenaris is implementing a worldwide rightsizing program with the following actions:

• Adjusting operations and workforce, including temporary closures of facilities in the USA.
• Downsizing fixed costs, including pay reductions for the board and senior management, targeting $220 million in annualized savings by year-end.
• Reducing capital expenditures and R&D by approximately $150 million compared to 2019 levels.
• Limiting the 2019 fiscal year dividend to the $153 million interim payment already made in November 2019.

Liquidity: Despite the $1.1 billion cash outflow for the IPSCO acquisition in January, the company maintained a positive net cash position of $271 million at March 31, 2020, supported by strong free cash flow generation ($448 million) and working capital reductions.

Investor Verification Checklist

• Impairment Validity: Verify the assumptions used for the $622 million impairment charge regarding U.S. welded pipe assets and IPSCO goodwill in the context of current oil prices.
• Q2 Sales Decline: Monitor the realization of the projected 35% sales drop in Q2 2020 and its impact on cash flow.
• Dividend Policy: Confirm the final approval of the reduced dividend proposal at the June 2, 2020, annual general shareholders' meeting.
• Cost Savings Execution: Track the progress of the $220 million fixed cost reduction plan and facility closures.
• Currency Exposure: Assess ongoing exposure to devaluation risks in the Brazilian Real and Mexican Peso and their impact on future tax provisions and FX results.