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Tenaris S.A. 2008 Fourth Quarter and Annual Results Summary

Business Context and Reporting Period

This Form 6-K filing, dated February 27, 2009, reports the audited consolidated financial results for Tenaris S.A. for the fourth quarter and full year ended December 31, 2008. Tenaris is a global manufacturer of tubular products and services for the oil and gas industry. The results are presented in U.S. dollars in accordance with International Financial Reporting Standards (IFRS).

Key Financial Metrics

Note: Net Financial Debt is defined as total financial debt less cash and other current investments. Free Cash Flow is net cash provided by operations less capital expenditures.

Material Changes vs. Prior Period

• Q4 2008 Performance: Net sales increased 23% year-over-year, driven by higher average selling prices. However, Net Income plummeted 81% to $114.5 million, and Shareholders' Net Income dropped 83% to $93.7 million.
• Impairment Charges: The primary driver of the earnings decline was a non-cash impairment charge of $502.9 million ($0.43 per share). This charge relates to intangible assets from the Maverick acquisition due to a deteriorating outlook for natural gas drilling in North America.
• EBITDA Resilience: Excluding impairment charges, EBITDA reached a record level, rising 34% year-over-year to $1.19 billion, reflecting strong sales growth and margin recovery.
• Annual 2008 Performance: For the full year, Net Sales grew 21% and Net Income grew 10% to $2.28 billion. Operating income rose 2% despite the impairment charges.
• Debt Reduction: Net financial debt decreased significantly by $1.58 billion during 2008, ending the year at $1.39 billion.

Guidance, Outlook, and Risks

• Market Outlook: Management expects a strong adjustment in apparent demand for OCTG (Oil Country Tubular Goods) in 2009 due to declining oil and gas drilling activity and inventory reductions. Global oil prices fell from a peak of over $140/barrel to around $40/barrel, and North American gas prices dropped from over $12/MMBTU to near $4/MMBTU.
• Financial Guidance: Tenaris expects lower levels of sales and EBITDA in the coming quarters due to decreased demand and declining prices.
• Capital Expenditures: The company is reducing capital expenditure plans to align with changed market expectations, though it remains committed to technology, safety, and expansion in the Mexican market.
• Dividends: The Board proposes an annual dividend of $0.43 per share ($0.86 per ADS), a 13% increase over 2007. A payment of $0.30 per share is scheduled for June 25, 2009, pending shareholder approval.
• Acquisition: Tenaris signed an agreement to acquire a 77.45% stake in Seamless Pipe Indonesia Jaya (SPIJ) for $73.5 million to strengthen its presence in Indonesia.
• Risks: Key risks include uncertainties regarding future oil and gas prices, the impact of the global financial crisis on the real economy, and the decline in drilling rig counts (US rig count fell to 1,300 as of February 20, 2009).

Investor Verification Checklist

• Impairment Validity: Verify the assumptions used for the $502.9 million impairment charge regarding the North American natural gas drilling outlook.
• Inventory Levels: Review the $248.6 million increase in working capital, specifically the rise in trade receivables and the reduction in customer advances, to assess potential future write-downs or collection risks.
• Debt Structure: Confirm the maturity profile of the remaining $2.98 billion in total financial debt and the company's ability to service it given the projected decline in EBITDA.
• Dividend Sustainability: Assess whether the proposed 13% dividend increase is sustainable given the expectation of lower sales and EBITDA in 2009.
• Acquisition Integration: Monitor the regulatory approval and integration progress of the SPIJ acquisition in Indonesia.