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Tenaris S.A. Q2 2010 Financial Summary

Business Context and Reporting Period

This Form 6-K filing reports the unaudited consolidated results for Tenaris S.A. for the quarter and six-month period ended June 30, 2010. Tenaris is a global manufacturer of tubular products and services for the oil and gas industry. The results reflect a recovery in drilling activity, particularly in the United States and Canada, alongside a strategic corporate reorganization to address changes in Luxembourg tax law.

Key Financial Metrics

Note: Net Cash Position is defined as total financial debt less cash and other current investments. Total Financial Debt for Q2 2010 is derived from the balance sheet (Current Borrowings 751.2 + Non-current Borrowings 461.5).

Material Changes vs. Prior Period

• Sequential Recovery: Q2 2010 results showed significant improvement over Q1 2010, with Net Sales up 21% and Net Income up 33% sequentially, driven by higher OCTG shipments to the Middle East and South America and increased drilling activity in the U.S.
• Year-over-Year Decline: Compared to Q2 2009, Net Sales decreased 5% and Net Income decreased 12%. This was primarily due to a 26% reduction in average selling prices for tubular products, which offset an 11% increase in sales volumes for the first half of the year.
• Segment Performance:
  • Tubes: Sales volumes increased 39% in Q2 2010 vs Q2 2009, but revenue remained flat due to lower prices. Operating income declined 8% year-over-year.
  • Projects: Net sales plummeted 63% in Q2 2010 due to reduced pipeline project shipments in Brazil and Argentina.
  • Others: Net sales increased 35% and operating income surged 384%, driven by improved results in electric conduits operations.
• Working Capital: Cash flow from operations was constrained by a US$187.7 million increase in working capital investment (inventories and receivables) to support higher activity levels.

Guidance, Outlook, and Risks

• Outlook: Management expects the global recovery in drilling activity to continue in the second half of 2010, albeit at a lower pace. Revenues are expected to increase driven by higher sales in North America and a recovery in the Projects segment in Q4. Operating margins are expected to remain stable as price increases offset higher raw material and labor costs.
• Corporate Reorganization: The Company is restructuring to comply with the termination of Luxembourg's 1929 holding company tax regime effective December 31, 2010. The plan involves contributing assets to a subsidiary and converting to an ordinary public limited liability company. Management expects the overall tax burden will not increase.
• Risks: Key risks include uncertainties in future oil and gas prices, which impact customer investment programs, and foreign exchange fluctuations affecting financial results.

Investor Verification Checklist

• Verify the sustainability of the sequential revenue growth in Q2 2010 against the year-over-year decline in average selling prices.
• Confirm the impact of the corporate reorganization on future dividend withholding taxes and the creation of the special tax reserve.
• Monitor the recovery of the "Projects" segment, which saw a 63% sales drop in Q2, and its expected contribution in Q4.
• Assess the trend in working capital requirements, which consumed significant cash flow in Q2 despite positive operating income.
• Review the exposure to foreign exchange rates, which contributed to a US$7.4 million loss in other financial results for the quarter.