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Tenaris S.A. Q1 2016 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, 2016. The company, incorporated in Luxembourg, operates globally in the steel pipe manufacturing and distribution business. The financial statements are prepared in accordance with IFRS and are unaudited.

Key Financial Metrics

Note: Borrowings calculated as sum of Current Borrowings ($965,973) and Non-current Borrowings ($33,649) for Q1 2016.

Material Changes vs. Prior Period

• Revenue Decline: Net sales decreased by approximately 44% year-over-year, dropping from $2.25 billion to $1.26 billion. This decline was driven by lower volumes and prices across all geographical segments, particularly in North America and South America.
• Profitability Compression: Operating income fell sharply from $379.4 million to $42.2 million. Gross margin contracted significantly due to lower sales volumes and higher relative fixed costs.
• Financial Results: Net financial results were negative $14.6 million in Q1 2016 compared to negative $1.4 million in Q1 2015. This was primarily due to foreign exchange losses on derivatives and intercompany transactions.
• Balance Sheet: Total assets remained relatively stable at approximately $14.88 billion. However, cash and cash equivalents increased significantly to $531.8 million, up from $286.5 million at the end of 2015, despite capital expenditures of $230.2 million.

Outlook, Risks, and Contingencies

• Dividend Proposal: The Board proposed an annual dividend of $0.45 per share ($0.90 per ADS), totaling approximately $531.2 million. This includes an interim dividend paid in November 2015. The remaining balance is subject to shareholder approval at the May 4, 2016 meeting.
• Legal Contingencies:
  • Italy Tax Assessment: A first-instance court ruled against Tenaris regarding a 2008 withholding tax assessment of approximately $250 million. Tenaris plans to appeal, citing favorable rulings on a similar 2007 assessment. No provision has been recorded as the company believes the outcome is not probable to be material.
  • Venezuela Arbitration: On January 29, 2016, an ICSID tribunal awarded Tenaris $172.8 million (including interest) for the expropriation of its subsidiary Matesi. Venezuela has requested a rectification of the award, and the final decision on this request is pending.
  • CSN Claims: Ongoing litigation in Brazil regarding the 2012 acquisition of Usiminas shares. Tenaris believes these claims are groundless and has not recorded a provision.
• Capital Expenditures: Significant investment continues in the greenfield seamless facility in Bay City, Texas. As of March 31, 2016, approximately $978.8 million had been invested, with remaining commitments of approximately $366.2 million.

Investor Verification Checklist

• Revenue Drivers: Verify the specific impact of commodity prices and drilling activity on the 44% revenue decline.
• Dividend Approval: Confirm the outcome of the Annual General Shareholders' meeting on May 4, 2016, regarding the proposed $531.2 million dividend.
• Legal Exposure: Monitor the status of the Italian tax appeal and the Venezuela arbitration rectification process for potential cash flow impacts.
• Capital Allocation: Track progress and cost overruns on the Bay City, Texas seamless pipe mill project.
• Currency Impact: Assess the sensitivity of future earnings to fluctuations in the Euro, Brazilian Real, and other local currencies given the significant foreign exchange losses reported in Q1 2016.