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Tenaris S.A. Q1 2019 Financial Summary

Business Context and Reporting Period

This Form 6-K filing presents the Consolidated Condensed Interim Financial Statements for Tenaris S.A. for the three-month period ended March 31, 2019. The company, a global leader in steel pipe manufacturing and distribution, operates primarily through its "Tubes" segment. The financial statements are prepared in accordance with IFRS and reflect the adoption of IFRS 16 (Leases) effective January 1, 2019.

Key Financial Metrics

Note: Gross margin improved to approximately 32.1% in Q1 2019 compared to 30.0% in Q1 2018.

Material Changes vs. Prior Period

• Revenue Stability: Net sales remained relatively flat, increasing slightly by 0.3% year-over-year.
• Profitability Expansion: Operating income increased by 22.1% ($46.8 million), driven by a reduction in cost of sales and improved gross margins.
• Financial Results: Net financial results swung from a loss of $7.9 million in Q1 2018 to a gain of $24.4 million in Q1 2019. This was primarily due to a positive foreign exchange result of $26.0 million (vs. a loss of $11.3 million prior year), largely attributed to the depreciation of the Argentine peso against the U.S. dollar.
• Cash Flow Improvement: Operating cash flow turned strongly positive at $547.6 million, compared to a negative $29.6 million in the prior year, driven by a $199.5 million improvement in working capital changes.
• Balance Sheet: Total assets increased to $14.9 billion, with a significant rise in cash balances and the recognition of right-of-use assets ($233.9 million) and lease liabilities ($229.7 million) due to the adoption of IFRS 16.

Guidance, Outlook, and Material Events

Acquisitions and Investments:

• Saudi Steel Pipe Company (SSP): On January 21, 2019, Tenaris acquired a 47.79% stake in SSP for approximately $141 million. The acquired business contributed $43.7 million in revenue for the period.
• IPSCO Tubulars: On March 22, 2019, Tenaris signed a definitive agreement to acquire 100% of IPSCO Tubulars Inc. from PAO TMK for $1.209 billion (cash-free, debt-free basis), subject to regulatory approval.
• West Siberia Plant: Entered into an agreement with PAO Severstal to build a welded pipe plant in Russia, with Tenaris holding a 49% interest.

Dividends: The Board proposed an annual dividend of $0.41 per share ($0.82 per ADS), totaling approximately $484 million. A balance of $0.28 per share is expected to be paid on May 22, 2019.

Risks and Contingencies:

• Legal Proceedings: Significant ongoing matters include a lawsuit by CSN regarding the 2012 Usiminas acquisition (currently before the Superior Court of Justice in Brazil), litigation regarding the Veracel Celulose accident (settlement reached with insurer, but court ruling on Veracel claim remains under appeal), and a contractor claim in the U.S. totaling $45 million.
• Investigations: The company is cooperating with Italian, Swiss, and U.S. authorities regarding alleged payments related to Petrobras (Operation Lava Jato) and has voluntarily notified the SEC and DOJ. Additionally, putative class actions were filed in the U.S. regarding the "Notebooks Case" involving the company's Chairman and CEO.
• Tax Matters: Administrative decisions in Mexico regarding tax deductions for scrap purchases resulted in potential obligations of approximately $273 million combined for two subsidiaries, though one case was recently reversed in the company's favor.

Investor Verification Checklist

• Verify the regulatory approval status and closing timeline for the $1.2 billion IPSCO Tubulars acquisition.
• Monitor the outcome of the Veracel Celulose litigation appeal and the CSN lawsuit regarding Usiminas.
• Assess the impact of the Argentine peso depreciation on future financial results and the sustainability of the Q1 2019 foreign exchange gains.
• Review the progress of the U.S. class action lawsuits and the ongoing investigations by international authorities.
• Confirm the integration progress and financial contribution of the newly acquired Saudi Steel Pipe Company (SSP).