Tenaris S.A. — 2019 Form 20-F
Reporting period: Fiscal year ended December 31, 2019. This is an audited annual report, not a standalone fourth-quarter report; the supplied filing text does not provide a clear Q4-only set of financial results. Financial statements are prepared under IFRS and presented in U.S. dollars.
Business context and financial performance
Tenaris manufactures steel pipes and provides related services, principally for the oil and gas industry. Its Tubes segment generated 94% of 2019 sales; oil and gas accounted for $5.76 billion of Tubes revenue. Results are sensitive to drilling activity, energy prices, customer investment and manufacturing utilization.
| Metric | 2019 | 2018 |
|---|---|---|
| Net sales | $7.294 billion | $7.659 billion |
| Gross profit / margin | $2.187 billion / 30.0% | $2.379 billion / 31.1% |
| Operating income / margin | $832 million / 11.4% | $872 million / 11.4% |
| Income from continuing operations | $731 million | $874 million |
| Income attributable to parent owners | $743 million | $876 million |
| Basic and diluted EPS | $0.63 per share | $0.74 per share |
| Operating cash flow | $1.528 billion | $611 million |
| Capital expenditures | $350 million | $349 million |
| Net cash position | $980 million | $485 million |
At year-end, cash and cash equivalents were $1.554 billion, current assets $5.671 billion, current liabilities $1.780 billion, total borrowings $822 million, total assets $14.843 billion and equity $12.186 billion. Borrowings were largely current, with $781 million due within one year. IFRS 16 adoption added $230 million of lease liabilities. The company reported a 16% free-cash-flow margin, a non-IFRS measure.
Changes versus the prior comparable period
- Sales fell 5%; Tubes sales volume declined 8% to 3.271 million tons, while average selling prices increased 4%. Welded-pipe sales volume fell 23% and seamless volume fell 3%.
- North American Tubes sales declined 5%, South America 3%, and Middle East and Africa 13%; Europe increased 2% and Asia Pacific 18%. Lower U.S. and Canadian drilling, Saudi Aramco destocking, and the absence of exceptional East Mediterranean pipeline deliveries weighed on sales.
- Operating income declined 5%. Gross margin narrowed by 1.1 percentage points, reflecting lower volumes and maintenance and start-up costs; lower amortization helped offset pressure.
- Parent-attributable income declined 15%, with weaker operating results and a $112 million reduction in earnings from non-consolidated investments, principally Ternium.
- Operating cash flow rose substantially, chiefly because working capital released $523 million in 2019, versus a $738 million use in 2018. Cash conversion therefore benefited materially from working-capital movements.
Outlook, notable events and risks
- COVID-19 and oil-market shock: The filing describes the pandemic and the 2020 oil-demand collapse as highly uncertain and says the impact could not then be reliably estimated. It reports that Q2 2020 sales could be about 35% below Q1 and EBITDA margin, excluding restructuring charges, could fall to a high single digit. These are contemporaneous expectations, not 2019 results or current guidance.
- Cost and liquidity actions: Management targeted approximately $220 million of annualized savings by year-end through workforce and fixed-cost reductions, and planned to cut 2020 capital expenditures and R&D by about $150 million versus 2019. It proposed no further dividend for fiscal 2019 beyond the approximately $153 million interim payment made in November 2019, subject to shareholder approval.
- Subsequent impairment: After year-end, Tenaris recorded approximately $622 million of impairment charges as of March 31, 2020, affecting U.S. business cash-generating units, including IPSCO. These charges are not reflected in the December 31, 2019 financial statements.
- IPSCO acquisition: Tenaris acquired IPSCO on January 2, 2020 for approximately $1.067 billion cash at closing, subject to a purchase-price true-up. The preliminary allocation included $357 million of goodwill, which management subsequently decided to impair. Several U.S. facilities were temporarily closed amid the downturn.
- Other operating exposures: Risks include volatile oil and gas investment, intense global competition and excess pipe capacity, raw-material and energy costs, foreign-exchange and political risks, trade restrictions, production interruptions, and climate-related changes in fossil-fuel demand. Argentina currency controls and economic instability, and Pemex credit exposure in Mexico, are specifically discussed.
- Contingencies: Matters include ongoing Brazilian, Italian and Swiss investigations into alleged improper payments potentially benefiting a Brazilian subsidiary; securities class actions; Brazilian tax and pricing disputes; and product-liability claims associated with IPSCO. Outcomes and potential losses are uncertain. The filing also describes Venezuelan expropriation awards; collection remains subject to enforcement and sanctions constraints.
- Operational dependencies: JFE notified Tenaris that certain Keihin complex facilities would cease operations from its fiscal year ending March 2024, potentially affecting NKKTubes’ access to steel bars and other inputs. Tenaris and JFE were discussing alternatives.
Key investor verification points
- Review the audited IFRS statements and non-IFRS measure definitions, especially free cash flow and any EBITDA comparisons.
- Assess the quality and repeatability of 2019 operating cash flow, including the $523 million working-capital release and the impact of tax and customer collections.
- Verify post-year-end developments: the $622 million impairment, IPSCO purchase-price true-up and goodwill impairment, facility closures, and 2020 liquidity and debt position.
- Track approval and payment of the proposed 2019 dividend limitation, and distinguish the $153 million interim dividend from the $484 million paid during 2019 in respect of the prior annual dividend.
- Monitor customer receivables and credit risk, particularly Pemex, and the status and financial exposure of material legal, tax and investigation matters.
- Consider that PwC issued an unqualified audit opinion and concluded internal control over financial reporting was effective as of December 31, 2019; the audit highlighted recoverability of U.S. long-lived assets as a critical audit matter.