UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
Registration statement pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934
or
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the fiscal year ended
or
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
or
Shell company report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission file number:
(Exact name of Registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English)
(Jurisdiction of incorporation or organization)
(Address of principal )
Tel. +
Fax. + (352) 26 47 89 79
e-mail: investors@tenaris.com
(Name, Telephone, E-Mail and/or Facsimile number and Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Name of Each Exchange On Which Registered
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* Ordinary shares of Tenaris S.A. are not directly listed for trading but only in connection with the registration of American Depositary Shares which are evidenced by American Depositary Receipts.
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes
Note – checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act
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Accelerated Filer |
Non-accelerated filer |
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If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
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U.S. GAAP |
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Other |
If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow. Item 17 Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
Please send copies of notices and communications from the Securities and Exchange Commission to:
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Diego E. Parise Mitrani, Caballero & Ruiz Moreno Abogados Bouchard 680, 13th Floor (C1106ABJ) Buenos Aires, Argentina (54 11) 4590-8600 |
Patrick S. Brown, Esq. Sullivan & Cromwell LLP 1888 Century Park East Los Angeles, California 90067-1725 (310) 712-6600 |
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CERTAIN DEFINED TERMS
Unless otherwise specified or if the context so requires:
- References in this annual report to “the Company” are exclusively to Tenaris S.A., a Luxembourg société anonyme.
- References in this annual report to “Tenaris”, “we”, “us” or “our” are to Tenaris S.A. and its consolidated subsidiaries. See “II. Accounting Policies A. Basis of presentation” and “II. Accounting Policies B. Group accounting” to our audited consolidated financial statements included in this annual report.
- References in this annual report to “San Faustin” are to San Faustin S.A., a Luxembourg société anonyme and the Company’s controlling shareholder.
- “shares” refers to ordinary shares, par value $1.00, of the Company.
- “ADSs” refers to the American Depositary Shares, which are evidenced by American Depositary Receipts, and represent two shares each.
- “OCTG” refers to oil country tubular goods. See Item 4.B. “Information on the Company – Business Overview – Our Products”.
- “tons” refers to metric tons; one metric ton is equal to 1,000 kilograms, 2,204.62 pounds, or 1.102 U.S. (short) tons.
- “billion” refers to one thousand million, or 1,000,000,000.
- “U.S. dollars”, “US$”, “USD” or “$” each refers to the United States dollar.
- “EUR” refers to the Euro.
- “ARS” refers to the Argentine peso.
- “BRL” refers to the Brazilian real.
PRESENTATION OF CERTAIN FINANCIAL AND OTHER INFORMATION
Accounting Principles
We prepare our consolidated financial statements in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”), and in accordance with IFRS, as adopted by the European Union. IFRS differs in certain significant aspects from generally accepted accounting principles in the United States, commonly referred to as U.S. GAAP. Additionally, this annual report includes certain non-IFRS alternative performance measures such as EBITDA, Net cash/debt position and Free Cash Flow. See Exhibit 7.2 for more details on these alternative performance measures.
We publish consolidated financial statements presented in increments of a thousand U.S. dollars. This annual report includes our audited consolidated financial statements for the years ended December 31, 2021, 2020 and 2019.
Rounding
Certain monetary amounts, percentages and other figures included in this annual report have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.
Our Internet Website is Not Part of this Annual Report
We maintain an Internet website at www.tenaris.com. Information contained in or otherwise accessible through our Internet website is not a part of this annual report. All references in this annual report to this Internet site are inactive textual references to these URLs, or “uniform resource locators” and are for informational reference only. We assume no responsibility for the information contained on our Internet website.
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Industry Data
Unless otherwise indicated, industry data and statistics (including historical information, estimates or forecasts) in this annual report are contained in or derived from internal or industry sources believed by Tenaris to be reliable. Industry data and statistics are inherently predictive and are not necessarily reflective of actual industry conditions. Such statistics are based on market research, which itself is based on sampling and subjective judgments by both the researchers and the respondents, including judgments about what types of products and transactions should be included in the relevant market. In addition, the value of comparisons of statistics for different markets is limited by many factors, including that (i) the markets are defined differently, (ii) the underlying information was gathered by different methods and (iii) different assumptions were applied in compiling the data. Such data and statistics have not been independently verified, and the Company makes no representation as to the accuracy or completeness of such data or any assumptions relied upon therein.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This annual report and any other oral or written statements made by us to the public may contain “forward-looking statements” within the meaning of and subject to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. This annual report contains forward-looking statements, including with respect to certain of our plans and current goals and expectations relating to Tenaris’s future financial condition and performance.
Sections of this annual report that by their nature contain forward-looking statements include, but are not limited to, Item 3. “Key Information”, Item 4. “Information on the Company”, Item 5. “Operating and Financial Review and Prospects”, Item 8. “Financial Information” and Item 11. “Quantitative and Qualitative Disclosure About Market Risk”.
We use words and terms such as “aim”, “will likely result”, “will continue”, “contemplate”, “seek to”, “future”, “objective”, “goal”, “should”, “will pursue”, “anticipate”, “estimate”, “expect”, “project”, “intend”, “plan”, “believe” and words and terms of similar substance to identify forward-looking statements, but they are not the only way we identify such statements. All forward-looking statements are management’s present expectations of future events and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These factors include the risks related to our business and industry discussed under Item 3.D. “Key Information – Risk Factors”, including among them, the following:
- our ability to implement our business strategy and to adapt it adequately to the energy transition or to grow through acquisitions, joint ventures and other investments;
- our ability to price our products and services in accordance with our strategy;
- trends in the levels of investment in oil and gas exploration and drilling worldwide;
- the competitive environment in our business and our industry;
- the impact of climate change legislations, increasing regulatory requirements and extensive technology and market changes aimed at transitioning to a lower-carbon economy and reducing greenhouse gas (“GHG”) emissions;
- the physical risks resulting from climate change, including increased severity of extreme weather events and long-term shifts in weather patterns;
- our ability to absorb cost increases and to secure supplies of essential raw materials and energy;
- our ability to adjust fixed and semi-fixed costs to fluctuations in product demand;
- the impact of the COVID-19 pandemic and other crises on the world’s economy, the energy sector in general, or our business and operations;
- general macroeconomic changes as well as, political, social, public health and other conditions and developments in the countries in which we operate or distribute pipes including developments in connection with the Russia-Ukraine armed conflict; and
- changes to applicable laws and regulations, including the imposition of tariffs or quotas or other trade barriers.
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By their nature, certain disclosures relating to these and other risks are only estimates and could be materially different from what actually occurs in the future. As a result, actual future gains or losses or other occurrences or developments that may affect our financial condition and results of operations could differ materially from those that have been estimated. You should not place undue reliance on forward-looking statements, which speak only as of the date of this annual report. Except as required by law, we are not under any obligation, and expressly disclaim any obligation to, update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.
Not applicable.
Not applicable.
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A. Selected Financial Data
Not applicable.
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
You should carefully consider the risks and uncertainties described below, together with all other information contained in this annual report, before making any investment decision. Any of these risks and uncertainties could have a material adverse effect on our business, revenues, financial condition and results of operations, which could in turn affect the price of shares and ADSs.
Risks Relating to Our Business and Industry
Sales and profitability may fall as a result of downturns in the international price of oil and gas and other factors and circumstances affecting the oil and gas industry.
We are a global steel pipe manufacturer with a strong focus on manufacturing products and providing related services for the oil and gas industry. The oil and gas industry is a major consumer of steel pipe products worldwide, particularly for products manufactured under high quality standards and demanding specifications. Demand for steel pipe products from the oil and gas industry has historically been volatile and depends primarily upon the number of oil and natural gas wells being drilled, completed and reworked, and the depth and drilling conditions of these wells. The level of exploration, development and production activities of, and the corresponding capital spending by, oil and gas companies, including national oil companies, depends primarily on current and expected future prices of oil and natural gas and is sensitive to the industry’s view of future economic growth and the resulting impact on demand for oil and natural gas. Several factors, such as the supply and demand for oil and gas, the development and availability of new drilling technology, political and global economic conditions, and government regulations, affect these prices. For example, drilling technology has allowed producers in the United States and Canada to increase production from their reserves of tight oil and shale gas in response to changes in market conditions more rapidly than in the past. In addition, government initiatives to reduce GHG emissions, such as the introduction of a carbon tax or carbon-pricing systems (such as the proposed EU Carbon Border Adjustment Mechanism), the adoption of “cap-and-trade” systems - such as the EU Emissions Trading System (“ETS”) - or other measures to promote the use of renewable energy sources or, electric vehicles, could also affect oil and gas prices. When the price of oil and gas falls, oil and gas companies generally reduce spending on production and exploration activities and, accordingly, make fewer purchases of steel pipe products. Major oil-and gas-producing nations and companies have frequently collaborated to balance the supply (and thus the price) of oil in the international markets. A major vehicle for this collaboration has been the Organization of Petroleum Exporting Countries (“OPEC”) and many of our customers are state-owned companies in member countries of OPEC, which plays a significant role in trying to counter falling prices, as was the case in 2020, when the industry was hit by the effects of the COVID-19 pandemic. For more information on the impact of the COVID-19 pandemic and the oil and gas crisis and OPEC measures, see Item 5. “Operating and Financial Review and Prospects – Overview – The COVID-19 pandemic, the oil & gas industry situation and their impact on Tenaris’s operations and financial condition” and for more information on risks relating to climate change regulations, see “Risks Relating to Our Business and Industry - Climate change legislation and increasing regulatory requirements aimed at transitioning to a lower-carbon economy could reduce demand for our products and services and result in unexpected capital expenditures and costs, and negatively affect our reputation.”
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Climate change legislation and increasing regulatory requirements aimed at transitioning to a lower-carbon economy could reduce demand for our products and services and result in unexpected capital expenditures and costs, and negatively affect our reputation.
There is an increased attention on GHG emissions and climate change from different sectors of society. The Paris Agreement, adopted at the 2015 United Nations Climate Conference, sets out the global framework to limit the rising temperature of the planet and to strengthen the countries’ ability to deal with the effects of climate change. The EU ETS signaled a major EU energy policy to combat global warming based on a “cap & trade” program, and the European Green Deal, launched in 2019, focuses on adopting the required policies and measures aimed at reaching zero GHG emissions in Europe by 2050. Other countries are introducing or considering similar measures or regulations which would lower emissions. If there is no meaningful progress in lowering emissions in the years ahead, there is an increased likelihood of abrupt policy interventions as governments attempt to meet their environmental goals by adopting policy, legal, technology and market changes in the transition to a low-carbon global economy. We provide products and services to the oil and gas industry, which accounts, directly and indirectly for a significant portion of GHG emissions. Existing and future legislation and regulations related to GHG emissions (such as increased pricing of GHG emissions and enhanced emissions-reporting obligations) and climate change, as well as government initiatives to promote the use of alternative energy sources and substitute existing products and services with lower emissions options (with many jurisdictions implementing tax advantages and other subsidies to promote the development of renewable energy sources, or even requiring minimum thresholds for power generation from renewable sources), may significantly curtail demand for and production of fossil fuels, such as oil and natural gas. These initiatives, together with the growing social awareness regarding climate change and other environmental matters, have resulted in increased investor and consumer demand for renewable energy and additional compliance requirements for fossil energy projects, which are likely to become more stringent over time and to result in substantial increases in costs for the oil and natural gas industry, potentially leading to write-offs and early retirement of existing assets. Furthermore, ongoing technological developments in the renewable energy industry are making renewable energy increasingly competitive with fossil-fuels. If this trend continues, energy demand could shift increasingly towards more environmentally sustainable sources such as hydroelectrical, solar, wind and other renewable energies, which would, in turn, reduce demand for oil and natural gas, thus negatively affecting demand for our products and services and, ultimately, our future results of operations. In addition, adoption of new climate change legislation in the countries in which Tenaris operates could result in incremental operating costs (such as incremental compliance costs and increased insurance premiums) and unexpected capital expenditures and, eventually, affect our competitiveness and reduce our market share. In addition, shifts in customer preferences and failure to respond to shareholders’ demand for climate-related measures and environmental standards could harm our reputation, adversely affect the ability or willingness of our customers or suppliers to do business with us, negatively impact workforce management and planning, erode stakeholder support and restrict or reduce access to financial resources.
The physical risks resulting from climate change, including extreme weather conditions and shifts in weather patterns, have in the past and may in the future adversely affect our operations and financial results.
Our business has been, and in the future could be, affected by severe weather in areas where we operate, which could materially affect our operations and financial results. Extreme weather conditions and natural disasters such as hurricanes, flooding or coastal storm surges have in the past resulted in, and may in the future result in, the shutdown of our facilities, evacuation of our employees or activity disruptions at our client’s well-sites or in our supply chain. For example, the severe freeze in the United States and Mexico in early 2021, caused gas and power shortages in Texas, resulting in additional costs and production disruptions and losses. Additionally, chronic climate changes, such as changes in precipitation patterns and, rising of average temperatures and sea levels may result in increased operating or capital costs due to supply shortages or damage to facilities, increased insurance premiums or reduced availability of insurance, decreases in revenue derived from lower sales, lower production capacity or negative impacts on workforce and write-offs and/or early retirement of assets, all of which could adversely affect our financial condition, results of operations and cash flows. For more information on Tenaris’s climate change initiatives, please see Item 5. “Operating and Financial Review and Prospects – Overview – Climate Change”.
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The COVID-19 pandemic significantly reduced demand for our products and services, and could continue to impact our financial condition, results of operations and cash flows.
In 2020, the rapid expansion of the SARS-CoV-2 virus, the surfacing of new strains of the virus in several countries, and the containment measures adopted by governmental authorities triggered a severe fall in global economic activity and precipitated a serious crisis in the energy sector. Global oil and gas demand decreased significantly causing a collapse in prices, an acute oversupply, a rapid build-up of excess inventories, and the consequent drop of investments in drilling activity by our oil and gas customers. We took prompt action to mitigate the impact of the crisis and to adapt our operations on a country-by-country basis to comply with applicable rules and requirements. We implemented a worldwide restructuring program and cost-containment plan aimed at preserving our financial resources and overall liquidity position and maintaining the continuity of our operations; we adjusted production levels at our facilities including through the temporary closure of certain facilities or production lines and layoffs in several jurisdictions, and we reduced capital expenditures and working capital. In addition, we introduced remote work and other work arrangements and implemented special operations protocols in order to safeguard the health and safety of our employees, customers and suppliers. Although such measures proved to be successful to mitigate the impact of the crisis on us, if the virus continues to mutate and spread, or new pandemics or public health crises emerge and new preventive measures are imposed in the future, our operations could be further affected and adversely impact our results. In addition, although oil prices have exceeded pre-COVID-19 levels, demand for oil products is approaching pre-COVID-19 levels and demand for natural gas already exceeds them, there remains considerable uncertainty about the future duration and extent of the pandemic with a recent surge of new and more contagious variants of the SARS-CoV-2 virus as well as about the effectiveness of available vaccines and the success of vaccination campaigns. In this uncertain environment our results of operations and financial condition could still be severely affected. For more information on the impact of the COVID-19 pandemic and measures adopted in connection therewith, see Item 5. “Operating and Financial Review and Prospects – Overview - The COVID-19 pandemic, the oil & gas industry situation and their impact on Tenaris’s operations and financial condition”.
Competition in the global market for steel pipe products may cause us to lose market share and hurt our sales and profitability.
The global market for steel pipe products is highly competitive, with the primary competitive factors being price, quality, service and technology. In recent years, substantial investments have been made, especially in China but also in the United States and the Middle East, to increase production capacity of seamless steel pipe products, and as a result there is significant excess production capacity, particularly for “commodity” or standard product grades. Production capacity of more specialized product grades has also increased. At the same time, the high cost and long lead times required to develop the most complex projects, particularly deepwater projects, has led to a slowdown in new developments in a context of low and more volatile oil prices. Despite our efforts to develop products and services that differentiate us from our competitors, reduced demand for steel pipe products from these complex projects means that the competitive environment is expected to remain intense in the coming years and our effective competitive differentiation will be a key success factor. In addition, there is a risk of unfairly traded steel pipe imports in markets in which Tenaris produces and sells its products and, we can give no assurance with respect to the application of antidumping duties and tariffs or the effectiveness of any such measures.
Our sales may be affected as a result of antidumping and countervailing duty proceedings or by the imposition of other import restrictions or local content requirements.
Because of the global nature of our operations, we export and import products from several countries and, in many jurisdictions, we supplement domestic production with imported products. For example, we import OCTG from Argentina and Mexico to complement our significant and growing production in the United States. From time to time local producers seek the imposition of import restrictions or the initiation of antidumping or countervailing duty proceedings. For example, on October 27, 2021, the U.S. Department of Commerce (“DOC”) announced the initiation of antidumping duty investigations of OCTG from Argentina, Mexico, and Russia and countervailing duty investigations of OCTG from Russia and South Korea. The investigations were petitioned by U.S. Steel Tubular Products, Inc., a small number of other U.S. domestic welded OCTG producers, and a steelworkers’ union. On November 22, 2021, the International Trade Commission (“ITC”) made a preliminary determination of injury, allowing the investigations to proceed. These investigations are currently proceeding, with final determinations by DOC and the ITC likely to occur in the second half of 2022. Although we believe that the petition, the DOC initiation and the preliminary determination of injury are unjustified and we are vigorously challenging any claim that our imports are unfairly traded or are causing or threatening injury to the U.S. domestic OCTG industry, we cannot predict the outcome of the investigations. On June 30, 2021, Canada initiated an antidumping investigation on OCTG from Mexico; a full investigation was conducted and on January 26, 2022, the Canadian International Trade Tribunal found that Mexican imports were not injuring the Canadian OCTG industry, and terminated the inquiry without imposing any duties. Antidumping or countervailing duty proceedings or any resulting penalties or any other form of import restriction have in the past impeded, and may in the future restrict, our access to important export markets for our products, thereby adversely impacting our sales or limiting our opportunities for growth. Please refer to Item 8. A. “Consolidated Statements and Other Financial Information – Legal Proceedings”.
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In addition, several jurisdictions have begun to impose or expand local content requirements. For example, in recent years Saudi Arabia has implemented various measures aimed at increasing local content particularly from suppliers to state-owned companies such as Saudi Arabian Oil Company (“Saudi Aramco”) and we can expect that measures favoring the development of local production will increase as Saudi Arabia seeks to create employment opportunities for its citizens and diversify its economy away from its dependence on oil and gas production. Other countries, such as Brazil, Ecuador, Indonesia and Nigeria, have also put in place significant local content requirements. If countries impose or expand local content requirements or put in place regulations limiting our ability to import certain products, our competitive position could be negatively affected. Therefore, if any of these risks materialize, we may not continue to compete effectively against existing or potential producers and preserve our current shares of geographic or product markets, and increased competition may have a material impact on the pricing of our products and services, which could in turn adversely affect our revenues, profitability and financial condition.
Our sales may also be affected as a result of other international trade regulations.
The shipment of goods and services across international borders subjects us to extensive trade laws and regulations. Our import and export activities are governed by customs laws and regulations in each of the countries where we operate. Moreover, the European Union, the United States and other countries control the import and export of certain goods and services and impose related import and export recordkeeping and reporting obligations. Those governments have also imposed economic sanctions against certain countries, persons and other entities, such as sanctions that restrict or prohibit transactions involving Iran, Syria, Venezuela and Russia or their citizens or companies. For more information on the impact on our business of the recent sanctions on Russia as a result of the armed conflict in Ukraine, see “Risks Relating to Our Business and Industry - The Russia-Ukraine recent armed conflict may adversely affect our operations”. Similarly, we are subject to the U.S. anti-boycott laws. Trade laws and regulations are complex and frequently changing, and they may be enacted, amended, enforced or interpreted in a manner that could materially impact our operations. For example, in March 2018, under Section 232 of the Trade Expansion Act of 1962 (“Section 232”), the United States imposed a 25% tariff on steel articles imported from all countries, with the exemption of Canada and Mexico, as member states of the USMCA, and imports of steel tubes from Australia, Argentina, Brazil and South Korea (the latter three with specific quotas per product). The U.S. government has also granted four successive exemptions on imports from Italy, Mexico, Romania and Argentina, of steel billets to be used at our Bay City mill, for an aggregate amount of 1,550,000 tons. Exemptions are granted only for a one-year term and future requests might not be granted, thus adversely affecting our operations or revenues. On October 31, 2021, the United States and the EU reached an agreement whereby Section 232 tariffs were replaced with tariff-rate quotas for steel melted and poured in Europe starting January 1, 2022, and steel products imported from the EU for a period of two calendar years without the need to reapply, i.e., until 31 December 2023. For Tenaris in particular, this agreement meant the ability to import 299,376 tons of billets from Italy and Romania without paying the 25% tariff per year until 2023. On February 7, 2022, the United States and Japan announced the replacement of the Section 232 tariffs with tariff-rate quotas for steel melted and poured in Japan starting April 1, 2022. Failure to comply with applicable trade regulations could also result in criminal and civil penalties and sanctions.
Increases in the cost of raw materials, energy and other costs, limitations or disruptions to the supply of raw materials and energy, and price mismatches between raw materials and our products may hurt our profitability.
The manufacture of seamless steel pipe products requires substantial amounts of steelmaking raw materials and energy; welded steel pipe products, in turn, are processed from steel coils and plates. The availability and pricing of a significant portion of the raw materials and energy we require are subject to supply and demand conditions, which can be volatile, and to tariffs and other government regulations, which can affect continuity of supply and prices. In addition, disruptions, restrictions or limited availability of energy resources in markets where we have significant operations could lead to higher costs of production and eventually to production cutbacks at our facilities in such markets. For example, in early 2021 we suffered gas and power shortages in Texas caused by a severe freeze affecting the United States and Mexico, which resulted in additional costs and production losses. At any given time, we may be unable to obtain an adequate supply of critical raw materials with price and other terms acceptable to us. The availability and prices of raw materials may also be negatively affected by new laws and regulations, including import controls, sanctions and other trade restrictions, allocation by suppliers, interruptions in production, accidents or natural disasters, armed conflicts, chronic climate change, changes in exchange rates, worldwide price fluctuations, and the availability and cost of transportation. For further information related to the impact on our business of the armed conflict in Ukraine see “Risks Relating to Our Business and Industry - The Russia-Ukraine recent armed conflict may adversely affect our operations”. Raw material prices could also be affected by the introduction of carbon prices or taxes, or as a result of changes in production processes, such as an increased use of metal scrap, adopted by steelmaking companies seeking to reduce carbon emissions. In addition, we may not be able to recover, partially or fully, increased costs of raw materials and energy through increased selling prices for our products, or it may take an extended period of time to do so, and limited availability could force us to curtail production, which could adversely affect our sales and profitability.
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Our results of operations and financial conditions could be adversely affected by low levels of capacity utilization.
Like other manufacturers of steel-related products, we have fixed and semi-fixed costs (e.g., labor and other operating and maintenance costs) that cannot adjust rapidly to fluctuations in product demand for several reasons, including operational constraints and regulatory restrictions. If demand for our products falls significantly, or if we are unable to operate due to, for example, governmental measures or unavailability of workforce, these costs may adversely affect our profitability and financial condition. For example, in response to the abrupt and steep downturn of the oil and gas industry resulting from the oil crisis and the COVID-19 pandemic, we were required to implement cost-containment measures and liquidity preservation initiatives, including reduction of our operating activities in several jurisdictions, temporary closure of facilities in the United States and review of our capital expenditure plans. Temporary suspensions of operations or closure of facilities generally lead to layoffs of employees, as was our case during the oil crisis and the COVID-19 pandemic, which may in turn give rise to labor conflicts and impact operations. Cost containment measures may also affect profitability and result in charges for asset impairments. In addition, if demand continues to recover, we may not be able to retain qualified workforce or hire additional employees soon enough. Moreover, certain consequences of climate change, such as shifts in customer preferences, stigmatization of our industry or failure to respond to shareholders’ demand for climate-related measures could negatively impact workforce management and planning, adversely affecting employee attraction and retention.
Adverse economic or political conditions in the countries where we operate or sell our products and services may decrease our sales or disrupt our manufacturing operations, thereby adversely affecting our revenues, profitability and financial condition.
We have significant operations in various countries, including Argentina, Brazil, Canada, China, Colombia, Indonesia, Italy, Japan, Mexico, Nigeria, Romania, Saudi Arabia and the United States, and we sell our products and services throughout the world. Additionally, in Russia we have formed a joint venture with PAO Severstal (“Severstal”) to build a welded pipe plant, the construction of which is currently on hold and may be further affected or cancelled as a result of the recent armed conflict involving Russia and Ukraine and the designation of Severstal’s controlling shareholder as a person subject to EU and UK sanctions. Therefore, like other companies with worldwide operations, our business and operations have been, and could in the future be, affected from time to time to varying degrees by political, economic, social and public health developments and changes in laws and regulations. These developments and changes may include, among others, nationalization, expropriation or forced divestiture of assets; restrictions on production, imports and exports; antidumping or countervailing duties; travel, transportation or trade bans; interruptions in the supply of essential energy inputs; currency exchange and/or transfer restrictions, inability or increasing difficulties to repatriate income or capital or to make contract payments; inflation; devaluation; war or other armed conflicts (including the recent Russia-Ukraine armed conflict and regional conflicts in the Middle East and Africa); civil unrest and local security concerns, including high incidences of crime and violence involving drug trafficking organizations that threaten the safe operation of our facilities and operations; direct and indirect price controls; tax increases and changes (including retroactive) in the interpretation, application or enforcement of tax laws and other claims or challenges; cancellation of contract or property rights; and delays or denials of governmental approvals. Both the likelihood of such occurrences and their overall impact upon us vary greatly from country to country and are not predictable. Realization of these risks could have an adverse impact on the results of operations and financial condition of our subsidiaries located in the affected country and, depending on their materiality, on the results of operations and financial condition of Tenaris as a whole. For more information on the impact on our business of the armed conflict in Ukraine, see “Risks Relating to our Business and Industry – The Russia-Ukraine recent armed conflict may adversely affect our operations”.
More specifically, Argentina and Mexico are countries in which we have significant operations.
Our business and operations in Argentina, may be materially and adversely affected by economic, political, social, fiscal and regulatory developments, including the following:
- Macroeconomic and political conditions in Argentina may adversely affect our business and operations. Increased state intervention in the stagnant economy, along with the introduction of changes to government policies, including measures aimed at ensuring the sustainability of government debt (including debt with the International Monetary Fund and other international creditors) and reducing government spending, could have an adverse effect on our operations and financial results. Similarly, they could also negatively impact the business and operations of our customers -oil and gas companies operating in Argentina- and consequently our revenues and profitability.
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- Our business and operations in Argentina may be adversely affected by inflation or by the measures that may be adopted by the government to address inflation. In particular, increases in services and labor costs could negatively affect our results of operations. In addition, an increased level of labor demands in response to spiraling inflation could trigger higher levels of labor conflicts, and eventually result in strikes or work stoppages. Any such disruption of operations could have an adverse effect on our operations and financial results.
- Other events that may have an adverse effect on our operations and financial results include increased taxes, currency devaluation, exchange controls, restrictions on capital flows and export and import taxes or restrictions. The Argentine Central Bank, has tightened its control on transactions that would represent capital inflows or outflows, forcing Argentine companies to repatriate export proceeds and limiting their ability to transfer funds outside of Argentina. Argentine companies are required to repatriate export proceeds from sales of goods and services (including U.S. dollars obtained through advance payment and pre-financing facilities) and convert such proceeds into Argentine pesos at the official exchange rate. In turn, Argentine companies must obtain prior Central Bank authorization, which is rarely granted, to access the foreign exchange market to pay for imports of services from related parties or to make dividend or royalty payments. Access to the Argentine foreign exchange market to pay for imports of goods and services provided by third parties is subject to several restrictions, including payment terms that cannot be at sight or involve advance payments. As the context of volatility and uncertainty remains in place as of the date of this annual report, additional regulations or restrictions that could be imposed by the Argentine government could further restrict our ability to access the official foreign exchange market, and expose us to the risk of losses arising from fluctuations in the ARS/USD exchange rate, or produce disruptions to our operations due to lack of imported raw materials and other inputs, or affect our ability to finance and even carry out major investments in Argentina, or impair our ability to convert and transfer outside the country funds generated by Argentine subsidiaries to pay dividends or royalties or make other offshore payments. For additional information on current Argentine exchange controls and restrictions see Item 10.D. “Additional Information – Exchange Controls – Argentina” and note 28 “Foreign exchange control measures in Argentina” of our audited consolidated financial statements included in this annual report.
- In recent years, our operations in Argentina experienced constraints in their electricity and natural gas supply requirements on many occasions. Shortages of energy and natural gas in Argentina have led in the past (and could lead in the future) to production cutbacks negatively affecting our revenues and profitability; we could also face increased costs when using alternative sources of energy.
In Mexico, our business could be materially and adversely affected by economic, political, social, fiscal and regulatory developments, including the following:
- The Mexican government exercises significant influence over the Mexican economy and, therefore, governmental actions concerning the economy and state-owned enterprises could have a significant impact on Mexico’s private sector and on our Mexican-related operations.
- We have a growing credit exposure to Petróleos Mexicanos S.A. de C.V. (“Pemex”), a Mexican state-owned entity and our main customer in Mexico. Starting in 2019 and through 2020, we built a hefty balance of accounts receivable with Pemex; our exposure to Pemex remained high during 2021 and early 2022. Pemex, nevertheless, continues to maintain a regular payment flow and enabling alternative payment methods, including factoring structures. If we are not able to reduce our exposure to Pemex and Pemex defaults on its payments, our revenues and profitability would be adversely affected.
- Our Mexican operations could also be affected by criminal violence, primarily due to the activities of drug cartels and related organized crime that Mexico has experienced and may continue to experience. The city of Veracruz, where our facility is located, has experienced several incidents of violence. Although the Mexican government has implemented various security measures and has strengthened its military and police forces, drug-related crime continues to exist in Mexico. Our business may be materially and adversely affected by these activities, their possible escalation and the violence associated with them.
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- In March 2021, the Mexican Congress approved a significant reform to the energy market in Mexico. Among other changes, the new Energy Industry Law (“LIE”) grants priority to Mexico’s state-owned electric power generation and distribution company (“CFE”) over private generation competitors in the supply of electric power to the Mexican market and mandates a revision of power generation and transaction agreements between CFE and independent electric power suppliers. In addition, the LIE eliminates mandatory power supply auctions for energy supplies requiring the use of CFE’s distribution network, relaxes the requirements for the granting of clean energy certificates in favor of CFE, and imposes serious restrictions on the renewable energy generation system through self-supply, widely used by private companies. The new LIE was challenged in court and its application has been suspended pursuant to the multiple constitutional review actions and injunctive measures filed by affected players. In September 2021, President Andrés Manuel López Obrador submitted to the Mexican Congress a constitutional reform proposal of the electricity sector, which seeks to reverse the legal framework derived from the 2013 constitutional energy reform that opened the sector to private investment. The congressional debate on the reform started in January 2022 and two-thirds of the votes are required for approval. It is not certain that the constitutional reform and related amendments to the energy market regulation will be approved. Approval of proposed changes could negatively affect the operations of Techgen S.A. de C.V. (“Techgen”), the power plant in which Tenaris holds a 22% equity interest and which supplies electricity for most of our Mexican operations. At this stage, we cannot fully assess the effects of the energy market reform on our operations and the Mexican economy in general and, consequently, on the results of operations and financial conditions of our businesses in Mexico.
- In past years, our operations in Mexico experienced several days of union-led stoppages due to an internal dispute within the local union. In 2020 and 2021 our Mexican operations did not experience any disruptions due to these stoppages, but we cannot assure that such events will not cause further disruptions in the near future.
The Russia-Ukraine recent armed conflict may adversely affect our operations.
On February 24, 2022, Russia launched a military attack on Ukraine. In response, the United States, the European Union and the United Kingdom, among other countries, have imposed a wave of sanctions against certain Russian institutions, companies and citizens. The Russian Government has retaliated by banning airlines from its airspace and has ordered economic counter measures, including restrictions on residents transferring foreign currency abroad. Russia is a major supplier of oil and gas in Europe and worldwide, and Russia and Ukraine are both major global suppliers of internationally traded steelmaking raw materials and semi-finished steel products. As a result of the armed conflict and related sanctions, energy and commodity prices have spiked upwards and foreign trade transactions involving Russian and Ukrainian counterparties have been severely affected. Although it is hard to predict how energy and commodity prices will behave as the conflict unfolds, higher prices and possible shortages of energy and raw materials used in our steelmaking operations (including natural gas and electric energy, particularly in Europe, steel scrap, pig iron, DRI, hot briquetted iron (“HBI”), ferroalloys, steel bars, coils and plates) would result in higher production costs and potential plant stoppages, affecting our profitability and results of operations. As a result of the economic sanctions imposed on Russia, we or our contractors (including shipping companies) may not be able to continue purchasing products from, or making payments to, Ukrainian or Russian suppliers or counterparties; and we may not be able to promptly procure such raw materials from other suppliers, or we may be required to purchase raw materials at increased prices.
In addition, we have suspended any sales to Russian customers or purchases from Russian suppliers that would breach applicable sanctions, and we are exploring alternatives with respect to potential relocation or closure of our representative office in Moscow. Furthermore, we are currently assessing the amount to be written off from our investment in the joint venture in Russia, which as of December 31, 2021 amounted to $16.8 million. For more information on Tenaris’s operations involving Russia, see Item 8.B “Significant Changes – The Russia-Ukraine armed conflict and its impact on Tenaris’s operations and financial condition”.
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If we do not successfully implement our business strategy, our ability to grow, our competitive position and our sales and profitability may suffer.
We plan to continue implementing our business strategy of consolidating our position as a leading global supplier of integrated product and service solutions to the energy and other industries and adapting to the energy transition through reducing the carbon emissions in our operations and developing and supplying products and services for low-carbon energy applications, as well as continuing to pursue strategic investment opportunities. Any of the components of our overall business strategy could cost more than anticipated (including as a result of increasing regulatory requirements aimed at transitioning to a lower-carbon economy), may not be successfully implemented or could be delayed or abandoned. For example, we may fail to create sufficient differentiation in our Rig Direct® services to compensate the added costs of providing such services, or fail to find suitable investment opportunities, including acquisition targets that enable us to continue to grow and maintain or improve our competitive position.
Even if we successfully implement our business strategy, it may not yield the expected results, or decisions by our joint venture partners may frustrate our initiatives. For example, in 2020, JFE Holdings Inc. (“JFE”), our partner in NKKTubes K.K. (“NKKTubes”), informed Tenaris of its decision to cease the operations of certain facilities located at the Keihin complex in 2024 and in November 2021 the parties reached a preliminary agreement to amicably terminate their joint venture and liquidate NKKTubes by the end of June 2022; upon closure of the NKKTubes facility. Tenaris and JFE are committed to ensuring a continued supply of tubular material, including 13 Chrome alloy products to international customers after NKKTubes’ closure, and Tenaris is advancing with the investments required to produce such materials in the rest of its industrial system. For further information on the termination of the NKKTubes joint venture, please refer to note 35 “Preliminary agreement to terminate NKKTubes joint venture” of our audited consolidated financial statements included in this annual report.
Changes in applicable tax regulations and resolutions of tax disputes could negatively affect our financial results.
We are subject to tax laws in numerous foreign jurisdictions where we operate. The integrated nature of our worldwide operations can produce conflicting claims from revenue authorities in different countries as to the profits to be taxed in the individual countries, including disputes relating to transfer pricing. Most of the jurisdictions in which we operate have double tax treaties with foreign jurisdictions, which provide a framework for mitigating the impact of double taxation on our results. However, mechanisms developed to resolve such conflicting claims are largely untried and can be expected to be very lengthy.
In recent years, tax authorities around the world have increased their scrutiny of company tax filings and have become more rigid in exercising any discretion they may have. As part of this, in 2015, the Organization for Economic Co-operation and Development (“OECD”) proposed a number of tax law changes under its Base Erosion and Profit Shifting (“BEPS”) Action Plans to address issues of transparency, coherence and substance. Most of the countries in which we operate have already implemented those changes within their own domestic tax legislations.
In 2019, the OECD launched a new initiative on behalf of the G20 to minimize profit shifting by working towards a global tax framework that ensures that corporate income taxes are paid where consumption takes place and also introduces a global standard on minimum taxation combined with new tax dispute resolution processes. This project achieved OECD political consensus in October 2021, and the detailed principles are still under discussion. The OECD expects that the implementation of these new principles will begin globally in 2023.
At the EU level, the European Commission adopted in 2016 its Anti-Tax Avoidance Directive (“ATAD”), later updated, modified and expanded by ATAD 2, which seeks to prevent tax avoidance by companies and to ensure that companies pay appropriate taxes in the markets where profits are effectively made and business is effectively performed. In addition, the European Commission drafted a directive aiming to avoid the use of shell entities (ATAD 3), which, if approved and adopted by all EU members, would become effective as from 2024. Also, the European Commission drafted another directive to impose a global minimum taxation for multinational companies in the Union, following OECD’s initiative. Changes to tax laws and regulations in the countries where we operate require us to continually assess our organizational structure and could lead to increased risk of international tax disputes.
Our interpretation and application of the tax laws could differ from that of the relevant governmental taxing authority, which could result in the payment of additional taxes, penalties or interest, negatively affecting our profitability and financial condition. Significant uncertainties remain in relation to the potential adoption of the new regulations that might result from evolving initiatives like those launched by the OECD and the EU in relation to international taxation that could impact negatively our financial condition, results of operations and cash flows.
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Future acquisitions, strategic partnerships and capital investments may not perform in accordance with expectations or may disrupt our operations and hurt our profits.
One element of our business strategy is to identify and pursue growth-enhancing strategic opportunities. As part of that strategy, we regularly make significant capital investments and acquire interests in, or businesses of, various companies. Consistent with our growth strategy, we intend to continue considering strategic acquisitions, investments and partnerships from time to time to expand our operations and establish a local presence in our markets. We must necessarily base any assessment of potential acquisitions, joint ventures and capital investments on assumptions with respect to timing, profitability, market and customer behavior and other matters that may subsequently prove to be incorrect. For example, we negotiated the terms for our $1.0 billion acquisition of IPSCO Tubulars Inc. (“IPSCO”) in early 2019 based on assumptions made at that time, but due to the length of the antitrust review process, we were able to complete the acquisition only in 2020 under materially worse market circumstances. For more information on IPSCO’s acquisition see note 33 “Business combinations – Acquisition of IPSCO Tubulars, Inc.” and for information on impairment charges on our U.S. operations in 2020 see note 5 “Impairment charge” both to our audited consolidated financial statements included in this annual report. Furthermore, in 2020, JFE, our partner in NKKTubes, informed Tenaris of its decision to cease the operations of certain facilities located at the Keihin complex in 2024 and in November 2021 the parties reached a preliminary agreement to amicably terminate their joint venture and cease NKKTubes’ operations in June 2022. Management determined that the parties’ decision to terminate the NKKTubes joint venture constituted an impairment indicator and accordingly conducted an impairment test, recognizing a charge of approximately $57 million, impacting NKKTubes’ property, plant and equipment and intangible assets. For more information, refer to note 5 “Impairment charge” and note 35 “Preliminary agreement to terminate NKKTubes joint venture, both to our audited consolidated financial statements included in this annual report. Our past or future acquisitions, significant investments and alliances may not perform in accordance with our expectations and could adversely affect our operations and profitability. In addition, new demands on our existing organization and personnel resulting from the integration of new acquisitions could disrupt our operations and adversely affect our operations and profitability. Moreover, as part of future acquisitions, we may acquire assets that are unrelated to our business, and we may not be able to integrate these assets or sell them under favorable terms and conditions.
Disruptions to our manufacturing processes could adversely affect our operations, customer service levels and financial results.
Our steel pipe manufacturing processes depend on the operation of critical steelmaking equipment, such as electric arc furnaces (“EAF”), continuous casters, rolling mills, heat treatment and various operations that support them, such as our power generation facilities. Despite the investments we make to maintain critical production equipment, such equipment may incur downtime as a result of unanticipated failures or other events, such as fires, explosions, floods, earthquakes, accidents and severe weather conditions.
Similarly, natural disasters or severe weather conditions, including those related to climate change could significantly damage our production facilities and general infrastructure or affect the normal course of business. For example, our Mexican production facility located in Veracruz is located in a region prone to earthquakes, and our Bay City facility in Texas, United States is located in an area prone to strong winds and hurricanes, and occasional floods. More generally, changing weather patterns and climatic conditions in recent years have added to the unpredictability and frequency of natural disasters. For more information on the risks associated with climate-change, see “Risks Relating to Our Business and Industry – The physical risks resulting from climate change, including extreme weather conditions and shifts in weather patterns, have in the past and may in the future adversely affect our operations and financial results”.
Our operations may also be adversely affected as a result of work stoppages or other labor conflicts. In past years, our operations in Mexico experienced several days of union-led stoppages due to an internal dispute within the local union. Although in 2020 and 2021 our Mexican operations did not experience any disruptions due to these stoppages, we cannot assure that such events will not cause further disruptions in the near future. In addition, in some of the countries in which we have significant production facilities (e.g., Argentina and Brazil), significant inflationary pressures and higher tax burdens could increase labor demands and could eventually generate higher levels of labor conflicts, which could also trigger operational disruptions.
In addition, in response to the COVID-19 outbreak, several countries, including countries where Tenaris has operations (such as Argentina, China, Colombia, Italy, Mexico, Saudi Arabia and the United States) took mitigation and containment measures, including bans on business activities and closure of industrial facilities and, accordingly, some of our facilities or production lines were closed or shutdown during 2020. Although some facilities that were temporarily shut down in 2020 were reopened during 2021, if new preventive measures are imposed in the future, we could be required to re-introduce temporary closure measures, which could affect our operations and adversely impact our results. For more information on the status of our operations see Item 5. “Operating and Financial Review and Prospects – Overview – The COVID-19 pandemic, the oil & gas industry situation and their impact on Tenaris’s operations and financial condition.”
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Some of the previously described emergency situations could result in damage to property, delays in production or shipments and, in extreme cases, death or injury to persons. Any of the foregoing could create liability for Tenaris. To the extent that lost production or delays in shipments cannot be compensated for by unaffected facilities, such events could have an adverse effect on our profitability and financial condition. Additionally, we do not carry business interruption insurance, and the insurance we maintain for property damage and general liability may not be adequate or available to protect us under such events, its coverage may be limited, or the amount of our insurance may be less than the related loss. For more information on our insurance coverage see Item 4.B. “Information on the Company – B. Business overview – Insurance”.
We may be required to record a significant charge to earnings if we must reassess our goodwill or other assets as a result of changes in assumptions underlying the carrying value of certain assets, particularly as a consequence of deteriorating market conditions.
Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Intangible assets with indefinite useful life, including goodwill, are subject to at least an annual impairment test. In 2020, we recognized goodwill for approximately $357 million in connection with our acquisition of IPSCO in January 2020. As a result of the severe deterioration of business conditions and in light of the presence of impairment indicators for our U.S. operations, we subsequently recorded impairment charges as of March 31, 2020, for an aggregate amount of approximately $622 million. Please refer to note 5 “Impairment charge” to our audited consolidated financial statements included in this annual report. As of December 31, 2021, goodwill amounted to $1,085 million corresponding mainly ($920 million) to the acquisition of Hydril Company (“Hydril”) in 2007.
In light of the armed conflict involving Russia and Ukraine and the designation of Severstal’s controlling shareholder as person subject to EU and UK sanctions, we are currently assessing the amount to be written off from our investment in the joint venture in Russia, which as of December 31, 2021 amounted to $16.8 million. For more information on Tenaris’s operations involving Russia, see Item 8.B “Significant Changes – The Russia-Ukraine armed conflict and its impact on Tenaris’s operations and financial condition”.
Our results of operations and financial condition could be adversely affected by movements in exchange rates.
As a global company we manufacture and sell products throughout the world and a portion of our business is carried out in currencies other than the U.S. dollar, which is the Company’s functional and presentation currency. As a result, we are exposed to foreign exchange rate risk. Changes in currency values and foreign exchange regulations could adversely affect our financial condition and results of operations. For information on our foreign exchange rate risk, please see Item 11. “Quantitative and Qualitative Disclosure About Market Risk – Foreign Exchange Rate Risk”.
If we do not comply with laws and regulations designed to combat corruption in countries in which we sell our products, we could become subject to governmental investigations, fines, penalties or other sanctions and to private lawsuits and our sales and profitability could suffer.
We operate globally and conduct business in certain countries known to experience high levels of corruption. Although we are committed to conducting business in a legal and ethical manner in compliance with local and international statutory requirements and standards applicable to our business, there is a risk that our employees, representatives, affiliates, or other persons may take actions that violate applicable laws and regulations that generally prohibit the making of improper payments, including to foreign government officials, for the purpose of obtaining or keeping business, including laws relating to the 1997 OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions such as the U.S. Foreign Corrupt Practices Act (“FCPA”). Investigations by government authorities may occupy considerable management time and attention and result in significant expenditures, fines, penalties or other sanctions, as well as private lawsuits. For information on matters related to an ongoing investigation and related discussions with regulators in connection with certain allegedly improper payments in Brazil, please refer to Item 8. A. “Consolidated Statements and Other Financial Information – Legal Proceedings”.
The cost of complying with environmental regulations and potential environmental and product liabilities may increase our operating costs and negatively impact our business, financial condition, results of operations and prospects.
We are subject to a wide range of local, state, provincial and national laws, local and international regulations, permit requirements and decrees relating to the protection of human health and the environment, including laws and regulations relating to hazardous materials and radioactive materials and environmental protection governing air emissions, water discharges and waste management. Laws and regulations protecting the environment have become increasingly complex and more stringent and expensive to implement in recent years. Additionally, international environmental requirements vary. While standards in the European Union, Canada, and Japan are generally comparable to (or more stringent than) U.S. standards, other nations, particularly developing nations, including China, have substantially fewer or less rigorous requirements that may give competitors in such nations a competitive advantage. It is possible that any international agreement to regulate emissions may provide exemptions and lesser standards for developing nations. In such case, we may be at a competitive disadvantage relative to competitors having more or all of their production in such developing nations.
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Environmental laws and regulations may, in some cases, impose strict liability rendering a person liable for damages to natural resources or threats to public health and safety without regard to negligence or fault. Some environmental laws provide for joint and several strict liability for remediation of spills and releases of hazardous substances. These laws and regulations may expose us to liability for the conduct of or conditions caused by others or for acts that were in compliance with all applicable laws at the time they were performed.
Compliance with applicable requirements and the adoption of new requirements could have a material adverse effect on our consolidated financial condition, results of operations or cash flows. The costs and ultimate impact of complying with environmental laws and regulations are not always clearly known or determinable since regulations under some of these laws have not yet been promulgated or are undergoing revision. The expenditures necessary to remain in compliance with these laws and regulations, including site or other remediation costs, or costs incurred as a result of potential violations of environmental laws could have a material adverse effect on our financial condition and profitability. While we incur and will continue to incur expenditures to comply with applicable laws and regulations, there always remains a risk that environmental incidents or accidents may occur that may negatively affect our reputation or our operations.
Our oil and gas casing, tubing and line pipe products are sold primarily for use in oil and gas drilling, gathering, transportation, processing and power generation facilities, which are subject to inherent risks, including well failures, line pipe leaks, blowouts, bursts and fires, that could result in death, personal injury, property damage, environmental pollution or loss of production. Any of these hazards and risks can result in environmental liabilities, personal injury claims and property damage from the release of hydrocarbons.
Defects in specialty tubing products could result in death, personal injury, property damage, environmental pollution, damage to equipment and facilities or loss of production.
We normally warrant the oilfield products and specialty tubing products we sell or distribute in accordance with customer specifications, but as we pursue our business strategy of providing customers with additional services, such as Rig Direct®, we may be required to warrant that the goods we sell and services we provide are fit for their intended purpose. Actual or claimed defects in our products may give rise to claims against us for losses suffered by our customers and expose us to claims for damages. The insurance we maintain will not be available in cases of gross negligence or willful misconduct, in other cases may not be adequate or available to protect us in the event of a claim, its coverage may be limited, canceled or otherwise terminated, or the amount of our insurance may be less than the related impact on enterprise value after a loss. Similarly, our sales of tubes and components for the automotive industry subject us to potential product liability risks that could extend to being held liable for the costs of the recall of automobiles sold by car manufacturers and their distributors.
Limitations on our ability to protect our intellectual property rights, including our trade secrets, could cause a loss in revenue and any competitive advantage we hold.
Some of our products or services, and the processes we use to produce or provide them, have been granted patent protection, have patent applications pending, or are trade secrets. Our business may be adversely affected if our patents are unenforceable, the claims allowed under our patents are not sufficient to protect our technology, our patent applications are denied or our trade secrets are not adequately protected. Our competitors may be able to independently develop technology that is similar to ours without infringing on our patents or gaining access to our trade secrets, which could adversely affect our financial condition, results of operations and cash flows.
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Cyberattacks could have a material adverse impact on our business and results of operation.
We rely heavily on information systems to conduct our operations and digital technologies have an increasingly significant role across our business. Although we devote significant resources to protect our systems and data and we continually monitor external developments and available information on threats and security incidents, we have experienced and will continue to experience varying degrees of cyber incidents in the normal conduct of our business, which may occasionally include sophisticated cybersecurity threats such as unauthorized access to data and systems, loss or destruction of data, computer viruses or other malicious code, phishing, spoofing and/or cyberattacks. These threats often arise from numerous sources, not all of which are within our control, such as fraud or malice from third parties, including fraud involving business email compromises, failures of computer servers or other accidental technological failures, electrical or telecommunication outages or other damage to our property or assets. Cyberattack attempts, such as ransomware, phishing, spoofing and whaling, continued to increase throughout 2021 in the context of the COVID-19 pandemic, primarily due to a significant expansion of remote work practices among our employees, customers and suppliers and the increasing digitalization of work. For example, in 2021, we suffered ten cybersecurity attacks mainly consisting of spoofing attempts; none of these attacks led to known breaches of our business-critical IT systems and, as such, did not result in any material business impact. In response to the increase in the number and sophistication of ransomware attacks, U.S. and EU regulatory agencies have implemented regulations to prevent victims from making ransomware payments and to deter third parties from facilitating or processing such payments to cyberactors. In this context, we enhanced cybersecurity controls and we implemented comprehensive processes and procedures to monitor, detect and respond to hacking, malware infection, cybersecurity compromise and other risks. In addition, we have launched awareness and ethical phishing campaigns aimed at protecting us against cyberthreats and we are implementing tailored training cybersecurity programs addressed to our executives and employees.
Given the rapidly evolving nature of cyberthreats, there can be no assurance that the systems we have designed to prevent or limit the effects of cyber incidents or attacks will be adequate, and such incidents or attacks could have a material adverse impact on our systems. While we attempt to mitigate these risks, we remain vulnerable to additional known or unknown threats, including theft, misplacement or loss of data, programming errors, employee errors and/or dishonest behavior that could potentially lead to the compromising of sensitive information, improper use of our systems or networks, as well as unauthorized access, use, disclosure, modification or destruction of such information, systems and/or networks. If our systems for protecting against cybersecurity risks are circumvented or breached, this could also result in disruptions to our business operations (including but not limited to, defective products, production downtimes or loss of productivity), access to our financial reporting systems, the loss of access to critical data or systems, misuse or corruption of critical data and proprietary information (including our intellectual property and customer data), as well as damage to our reputation with our customers and the market, failure to meet customer requirements, customer dissatisfaction and/or regulatory fines and penalties (including for inadequate protection of persona data and/or failure to notify the competent authorities for such breach), damages and harm to the environment and people, or other financial costs and losses. In addition, given that cybersecurity threats continue to evolve, we will be required to devote additional resources in the future to enhance our protective measures or to investigate and/or remediate any cybersecurity vulnerabilities. Additionally, although we have considered contract insurance coverage options for cyber risk, we do not currently maintain cybersecurity insurance, and the insurance we carry for property damage and general liability may not be adequate or available to protect us from damages derived from cyberthreats or coverage may be limited. Moreover, any investigation of a cyberattack would take time before completion, during which we would not necessarily know the extent of the actual or potential harm or how best to remediate it, and certain errors or actions could be repeated or compounded before duly discovered and remediated (all or any of which could further increase the costs and consequences arising out of such cyberattack).
Risks Relating to the Structure of the Company
The Company’s dividend payments depend on the results of operations and financial condition of its subsidiaries and could be restricted by legal, contractual or other limitations or tax changes.
The Company is a holding company and conducts all its operations through subsidiaries. Dividends or other intercompany transfers of funds from those subsidiaries are the Company’s primary source of funds to pay its expenses, debt service and dividends and to repurchase shares or ADSs. In addition, the Company’s dividend distributions (which are currently imputed to a special tax reserve and are therefore not subject to Luxembourg withholding tax) may be subject to Luxembourg withholding tax if current Luxembourg tax law were to change.
The ability of the Company’s subsidiaries to pay dividends and make other payments to us will depend on their results of operations and financial condition and could be restricted by applicable corporate and other laws and regulations, including those imposing foreign exchange controls or restrictions on the repatriation of capital or the making of dividend payments, and agreements and commitments of such subsidiaries. If earnings and cash flows of the Company’s operating subsidiaries are substantially reduced, including as a result of deteriorating market conditions, the Company may not be in a position to meet its operational needs or to pay dividends. For information concerning potential restrictions on our ability to collect dividends from certain subsidiaries, see “Risks Relating to Our Business and Industry – Adverse economic or political conditions in the countries where we operate or sell our products and services may decrease our sales or disrupt our manufacturing operations, thereby adversely affecting our revenues, profitability and financial condition” and Item 8.A. “Financial Information – Consolidated Statements and Other Financial Information – Dividend Policy”.
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The Company’s ability to pay dividends to shareholders is subject to legal and other requirements and restrictions in effect at the holding company level. For example, the Company may only pay dividends out of net profits, retained earnings and distributable reserves and premiums, each as defined and calculated in accordance with Luxembourg law and regulations.
The Company’s controlling shareholder may be able to take actions that do not reflect the will or best interests of other shareholders.
As of the date of this annual report, San Faustin beneficially owned 60.45% of our outstanding voting shares. Rocca & Partners Stichting Administratiekantoor Aandelen San Faustin (“RP STAK”), holds voting rights in San Faustin sufficient to control San Faustin. As a result, RP STAK is indirectly able to elect a substantial majority of the members of the Company’s board of directors and has the power to determine the outcome of most actions requiring shareholder approval, including, subject to the requirements of Luxembourg law, the payment of dividends. The decisions of the controlling shareholder may not reflect the will or best interest of other shareholders. In addition, the Company’s articles of association permit the Company’s board of directors to waive, limit or suppress preemptive rights in certain cases. Accordingly, the Company’s controlling shareholder may cause its board of directors to approve in certain cases an issuance of shares for consideration without preemptive rights, thereby diluting the minority interest in the Company. See “Risks Relating to shares and ADSs – Holders of shares and ADSs in the United States may not be able to exercise preemptive rights in certain cases”.
Risks Relating to shares and ADSs
Holders of shares or ADSs may not have access to as much information about the Company as they would in the case of a U.S. domestic issuer.
There may be less publicly available information about the Company than is regularly published by or about U.S. domestic issuers. Also, corporate and securities regulations governing Luxembourg companies may not be as extensive as those in effect in other jurisdictions and U.S. securities regulations applicable to foreign private issuers, such as the Company, differ in certain respects from those applicable to U.S. domestic issuers. Furthermore, IFRS, the accounting standards in accordance with which the Company prepares its consolidated financial statements, differ in certain material aspects from U.S. GAAP. For a summary of the significant ways in which the Company’s corporate governance practices differ from the corporate governance standards required for domestic companies by the New York Stock Exchange ("NYSE"), see Item 16.G “Corporate Governance”.
Holders of ADSs may not be able to exercise, or may encounter difficulties in the exercise of, certain rights afforded to shareholders.
Certain shareholders’ rights under Luxembourg law, including the rights to participate and vote at general meetings of shareholders, to include items on the agenda for the general meetings of shareholders, to receive dividends and distributions, to bring actions, to examine our books and records and to exercise appraisal rights may not be available to holders of ADSs, or may be subject to restrictions and special procedures for their exercise, as holders of ADSs only have those rights that are expressly granted to them in the deposit agreement. Deutsche Bank Trust Company Americas, as depositary under the ADS deposit agreement, or the Depositary, through its custodian agent, is the registered shareholder of the deposited shares underlying the ADSs, and therefore only the Depositary can exercise the shareholders’ rights in connection with the deposited shares. For example, if the Company make a distribution in the form of securities, the Depositary is allowed, at its discretion, to sell the right to acquire those securities on your behalf and to instead distribute the net proceeds to you. Also, under certain circumstances, such as the Company's failure to provide the Depositary with voting materials on a timely basis, you may not be able to vote at general meetings of shareholders by giving instructions to the Depositary. If the Depositary does not receive voting instructions from the holder of ADSs by the prescribed deadline, or the instructions are not in proper form, then the Depositary shall deem such holder of ADSs to have instructed the Depositary to vote the underlying shares represented by ADSs in favor of any proposals or recommendations of the Company (including any recommendation by the Company to vote such underlying shares on any given issue in accordance with the majority shareholder vote on that issue), for which purposes the Depositary shall issue a proxy to a person appointed by the Company to vote such underlying shares represented by ADSs in favor of any proposals or recommendations of the Company. Under the ADS deposit agreement, no instruction shall be deemed given and no proxy shall be given with respect to any matter as to which the Company informs the Depositary that (i) it does not wish such proxy given, (ii) it has knowledge that substantial opposition exists with respect to the action to be taken at the meeting, or (iii) the matter materially and adversely affects the rights of the holders of ADSs.
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Holders of shares and ADSs in the United States may not be able to exercise preemptive rights in certain cases.
Pursuant to Luxembourg corporate law, existing shareholders of the Company are generally entitled to preferential subscription rights (preemptive rights) in the event of capital increases and issues of shares against cash contributions. Under the Company’s articles of association, the board of directors has been authorized to waive, limit or suppress such preemptive subscription rights. Notwithstanding the waiver of any preemptive subscription rights, any issuance of shares for cash within the limits of the authorized share capital shall be subject to the preemptive subscription rights of existing shareholders, except (i) any issuance of shares (including without limitation, the direct issuance of shares or upon the exercise of options, rights convertible into shares, or similar instruments convertible or exchangeable into shares) against a contribution other than in cash; and (ii) any issuance of shares (including by way of free shares or at discount), up to an amount of 1.5% of the issued share capital of the Company, to directors, officers, agents, employees of the Company, its direct or indirect subsidiaries or its affiliates (or, collectively, the beneficiaries), including without limitation, the direct issuance of shares or upon the exercise of options, rights convertible into shares or similar instruments convertible or exchangeable into shares, issued for the purpose of compensation or incentive of the beneficiaries or in relation thereto (which the board of directors shall be authorized to issue upon such terms and conditions as it deems fit). For further details, see Item 10. “Additional Information - B. Memorandum and Articles of Association”.
Holders of ADSs in the United States may, in any event, not be able to exercise any preemptive rights, if granted, for shares underlying their ADSs unless additional shares and ADSs are registered under the U.S. Securities Act of 1933, as amended, (“Securities Act”), with respect to those rights, or an exemption from the registration requirements of the Securities Act is available. The Company intends to evaluate, at the time of any rights offering, the costs and potential liabilities associated with the exercise by holders of shares and ADSs of the preemptive rights for shares, and any other factors it considers appropriate at the time, and then to make a decision as to whether to register additional shares. The Company may decide not to register any additional shares, requiring a sale by the Depositary of the holders’ rights and a distribution of the proceeds thereof. Should the Depositary not be permitted or otherwise be unable to sell preemptive rights, the rights may be allowed to lapse with no consideration to be received by the holders of the ADSs.
It may be difficult to obtain or enforce judgments against the Company outside Luxembourg.
The Company is a société anonyme organized under the laws of the Grand Duchy Luxembourg, and most of its assets are located in other jurisdictions. Furthermore, most of the Company’s directors and officers reside in other jurisdictions. As a result, investors may not be able to effect service of process upon the Company or its our directors or officers. Investors may also not be able to enforce against the Company or its directors or officers in the investors’ domestic courts, judgments predicated upon the civil liability provisions of the domestic laws of the investors’ home countries. Likewise, it may be difficult for investors not domiciled in Luxembourg to bring an original action in a Luxembourg court predicated upon the civil liability provisions of other securities laws, including U.S. federal securities laws, against the Company, its directors or its officers. There is also uncertainty with regard to the enforceability of original actions of civil liabilities predicated upon the civil liability provisions of securities laws, including U.S. federal securities laws, outside the jurisdiction where such judgments have been rendered; and enforceability will be subject to compliance with procedural requirements under applicable local law, including the condition that the judgment does not violate the public policy of the applicable jurisdiction.
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Overview
We are the leading manufacturer of pipes and related services for the world's energy industry and certain other industrial applications. Our manufacturing system integrates steelmaking, pipe rolling and forming, heat treatment, threading and finishing across 16 countries. We also have a research and development (“R&D”) network focused on enhancing our product portfolio and improving our production processes. Our team, based in more than 30 countries worldwide, is united by a passion for excellence in everything we do.
In addition, we supply pipes and tubular components for non-energy applications and are focused on developing and supplying products and services for low-carbon energy applications such as geothermal wells, waste-to-energy (bio-energy) power plants, hydrogen storage and refueling stations, and carbon capture and sequestration. Through our integrated, worldwide network of seamless and welded manufacturing facilities, service centers and R&D centers, and a team of around 23,000 employees worldwide, we work with customers to meet their needs, upholding the highest standards of safety, quality, performance and reliability.
Our mission is to deliver value to our customers through product and process innovation, manufacturing excellence, supply chain integration, technical assistance and customer service, aiming to reduce risk and costs, increase flexibility and improve time-to-market. Wherever we operate, we are committed to safety and minimizing our environmental footprint, providing opportunities for our people, and contributing to the sustainable development of our communities.
A. History and Development of the Company
The Company
The Company is a société anonyme organized under the laws of the Grand Duchy of Luxembourg. It was established on December 17, 2001. The Company’s registered office is located at 26 Boulevard Royal, 4th Floor, L-2449, Luxembourg. Its agent for U.S. federal securities law purposes is Tenaris Global Services (U.S.A.) Corporation (“TEUS”), located at 2200 West Loop South, Suite 800, Houston, TX 77027.
Tenaris
Tenaris began with the formation of Siderca S.A.I.C. (“Siderca”), the sole Argentine producer of seamless steel pipe products, by San Faustin’s predecessor in Argentina in 1948. We acquired Siat S.A., an Argentine welded steel pipe manufacturer, in 1986. We grew organically in Argentina and then, in the early 1990s, began to evolve beyond this initial base into a global business through a series of strategic investments. As of the date of this annual report, our investments include controlling interests in several manufacturing companies:
- Tubos de Acero de México S.A. (“Tamsa”), the sole Mexican producer of seamless steel pipe products;
- Dalmine S.p.A. (“Dalmine”), a leading Italian producer of seamless steel pipe products;
- Confab Industrial S.A. (“Confab”), the leading Brazilian producer of welded steel pipe products;
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- NKKTubes, a leading Japanese producer of seamless steel pipe products;
- Algoma Tubes Inc. (“AlgomaTubes”), the sole Canadian producer of seamless steel pipe products;
- S.C. Silcotub S.A. (“Silcotub”), a leading Romanian producer of seamless steel pipe products;
- Maverick Tube Corporation (“Maverick”), a U.S. producer of welded steel pipe products;
- Tenaris TuboCaribe Ltda. (“TuboCaribe”), a welded pipe mill producing OCTG products including finishing of welded and seamless pipes, line pipe products, and couplings in Colombia;
- Hydril, a North American manufacturer of premium connection products for oil and gas drilling production;
- PT Seamless Pipe Indonesia Jaya (“SPIJ”), an Indonesian OCTG processing business with heat treatment and premium connection threading facilities;
- Tenaris Qingdao Steel Pipes Ltd. (“Tenaris Qingdao”), a Chinese producer of premium joints and couplings;
- Pipe Coaters Nigeria Ltd. (“Pipe Coaters”) the leading company in the Nigerian coating industry;
- Tenaris Bay City Inc. (“Tenaris Bay City”), a state-of-the-art seamless pipe mill in Bay City, Texas;
- Saudi Steel Pipe Company (“SSPC”), a Saudi producer of welded steel pipe products;
- IPSCO, a North American manufacturer of seamless and welded steel pipes;
- Tenaris Baogang Bautou Steel Pipes, Ltd. (“TBSP”), a Chinese company that owns a premium connection threading facility in Baotou, China, in which we have a 60% interest and Inner Mongolia Baotou Steel Union Co., Ltd. (“Baotou Steel”) has the remaining 40%, and
- sucker rod businesses, in various countries.
We also own strategic interests in:
- Ternium S.A. (“Ternium”), one of the leading flat steel producers of the Americas with operating facilities in Mexico, Brazil, Argentina, Colombia, the southern United States and Central America;
- Usinas Siderúrgicas de Minas Gerais S.A. (“Usiminas”), a Brazilian producer of high quality flat steel products used in the energy, automotive and other industries; and
- Techgen, an electric power plant in Mexico.
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In 2019, we entered into a joint venture with Severstal to build and operate a welded pipe mill to manufacture OCTG products in Surgut, Western Siberia. Our share in the joint venture is 49%. In 2020, the parties placed the construction on-hold due to market conditions and the pandemic. The initiative may be further affected or cancelled as a result of the recent armed conflict involving Russia and Ukraine and the designation of Severstal’s controlling shareholder as a person subject to EU and UK sanctions. As of December 31, 2021, our investment in the joint venture amounted to $16.8 million. We are currently assessing the amount to be written off from this investment. For more information see Item 3.D. “Key Information - Risk Factors - Risks Relating to Our Business and Industry - The Russia-Ukraine recent armed conflict may adversely affect our operations”; and item 8.B “Significant Changes – The Russia-Ukraine armed conflict and its impact on Tenaris’s operations and financial condition”.
Tenaris’s welded Canadian facility, Prudential Steel Ltd. (“Prudential”), located in Calgary, Alberta, was closed down in 2020, and the pipe manufacturing operations of seamless, welded and premium products in Canada is being consolidated at our AlgomaTubes facility located in Sault Ste. Marie, Ontario with an additional investment of $72 million. This repositioning of the industrial activities, which is estimated to be completed by June of 2022, is expected to strengthen the competitiveness and increase the domestic production capabilities for the Canadian market.
Tenaris’s seamless pipe manufacturing facility in Japan, located in the Keihin steel complex owned by JFE, is operated by NKKTubes, a company owned 51% by Tenaris and 49% by JFE. Following JFE’s decision to permanently cease some of its operations in the Kehin complex, where NKKTubes is located, Tenaris and JFE engaged in discussions and ultimately determined that the project was no longer economically sustainable. Accordingly, the parties agreed to terminate amicably their joint venture and liquidate NKKTubes.
In addition, we have established a global network of pipe finishing, distribution and service facilities with a direct presence in most major oil and gas markets and a global network of R&D centers.
For information on Tenaris’s principal capital expenditures and divestitures, see Item 4.B. “Information on the Company – Business Overview – Capital Expenditure Program”.
B. Business Overview
Our business strategy is to consolidate our position as a leading global supplier of integrated product and service solutions to the energy and other industries and to adapt to the energy transition through reducing the carbon emissions in our operations and on developing and supplying products and services for low-carbon energy applications by:
- pursuing strategic investment opportunities in order to further strengthen our presence in local and global markets;
- expanding our comprehensive range of products and developing new products designed to meet the needs of customers operating in challenging environments, including low carbon energy applications, such as hydrogen and carbon capture and storage;
- enhancing our offering of technical, digital and supply chain integration services designed to enable customers to optimize well planning and integrity, simplify operations and reduce overall operating costs; and
- securing an adequate supply of production inputs and reducing the manufacturing costs and carbon intensity of our core products.
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Pursuing strategic investment opportunities and alliances
We have a solid record of growth through strategic investments and acquisitions. We pursue selective strategic investments and acquisitions as a means to expand our operations and presence in select markets, enhance our global competitive position and capitalize on potential operational synergies. For example:
- In January 2019, we acquired a 47.79% interest in SSPC, a welded steel pipes producer located in Saudi Arabia.
- In February 2019, we entered into a joint venture with Severstal to build and operate a welded pipe plant in West Siberia, Russian Federation. As indicated above, the initiative was put on hold and may be further affected or cancelled as a result of the recent armed conflict involving Russia and Ukraine and the designation of Severstal’s controlling shareholder as a person subject to EU and UK sanctions. As of December 31, 2021, our investment in the joint venture amounted to $16.8 million. We are currently assessing the amount to be written off from this investment.
- In January 2020, we acquired IPSCO, a North American manufacturer of seamless and welded steel pipes, from PAO TMK (“TMK”), with facilities located mainly in the midwestern and northeastern regions of the United States, and a steel shop in Koppel, Pennsylvania. For more information on IPSCO’ acquisition see note 33 “Business combinations – Acquisition of IPSCO Tubulars, Inc.” to our audited consolidated financial statements included in this annual report.
- In December 2020 we entered into a joint venture with Baotou Steel to build a premium connection threading facility to finish steel pipes produced by our joint venture partner in Baotou, China, for sale to the domestic market. The plant, started operations in the first quarter of 2022.
- In February 2022, we announced an investment plan to build a wind farm in Argentina at a cost of approximately $190 million which would reduce Tenaris’s CO2 emissions in that country by around 150,000 tons per year, and supply close to 50% of the energy requirements at the integrated seamless pipe mill in Campana, Argentina. This investment is expected to be completed during 2023.
Our track record on the acquisition of companies is described above (see “History and Development of the Company – Tenaris”).
Expanding our range of products
We have developed an extensive range of high-value products suitable for most of our customers’ operations using our network of specialized R&D facilities and by investing in our manufacturing facilities. As our customers expand their operations, we seek to supply high-value products that reduce costs and enable them to operate safely in challenging environments, including those for low-carbon applications associated with the energy transition.
Enhancing our offering of technical, digital and supply chain integration services - Rig Direct® - and extending their global deployment
We continue to enhance our offering of Rig Direct® services and extend their deployment worldwide. For many years, we have provided these services, managing customer inventories and directly supplying pipes to their rigs on a just-in-time basis, complemented by technical advice and assistance on the selection of materials and their use in the field, in markets like Mexico and Argentina. In response to changes in market conditions and the increased focus of customers on reducing costs and improving the efficiency of their operations, the extent and deployment of our Rig Direct® services has been extended throughout North America and in other markets around the world (e.g., North Sea, Romania, Indonesia and, most recently, the United Arab Emirates) and now include digital and more extensive supply chain integration services. Through the provision of Rig Direct® services, we seek to integrate our operations with those of our customers using digital technologies to shorten the supply chain and simplify operational and administrative processes, as well as technical services for well planning and well integrity, to reduce costs, improve safety and minimize environmental impact. They are also intended to differentiate us from our competitors and further strengthen our relationships with customers worldwide through long-term agreements.
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Securing inputs for our manufacturing operations
We seek to secure our existing sources of raw material and energy inputs, and to gain access to new sources of low-cost inputs which can help us maintain or reduce the cost of manufacturing our core products and reduce the carbon emissions intensity of our operations over the long term. We aim to achieve a vertically integrated value chain for our production. To this end, we purchase most of our supplies through Exiros, a specialized procurement company the ownership of which we share with Ternium. Exiros offers us integral procurement solutions, supplier sourcing activities; category organized purchasing; suppliers’ performance administration; and inventory management. In addition, through IPSCO’s acquisition, we have secured a steel shop in Koppel, Pennsylvania, which is our first steel shop in the United States and provides vertical integration through domestic production of a significant part of our steel bar needs in the United States.
Energy transition opportunities
As suppliers of tubular products and services to the energy industry, the energy transition currently underway provides an important opportunity to develop new products and services for potentially fast-growing segments like hydrogen transportation and storage, carbon capture and sequestration (“CCS”) and geothermal installations. We have developed a range of technologies that are particularly suited for use in hydrogen storage and transportation, where we are seeing fast growth in demand for large, high-pressure vessels used in the build out of hydrogen refueling stations for heavy-duty vehicles and buses in Europe and California. We are also seeing increasing interest from customers for developing CCS projects.
Our Competitive Strengths
We believe our main competitive strengths include:
- our global production, commercial and distribution capabilities, offering a full product range with flexible supply options backed up by local service capabilities in important oil and gas producing and industrial regions around the world;
- our ability to develop, design and manufacture technologically advanced products;
- our solid and diversified customer base and historic relationships with major international oil and gas companies around the world, and our strong and stable market shares in most of the countries in which we have manufacturing operations;
- our proximity to our customers;
- our human resources around the world with their diverse knowledge and skills;
- our low-cost operations, primarily at state-of-the-art, strategically located production facilities with favorable access to raw materials, energy and labor, and more than 60 years of operating experience; and
- our strong financial condition.
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Business Segments
Tenaris has one major business segment, “Tubes”, which is also the reportable operating segment.
The Tubes segment includes the production and sale of both seamless and welded steel tubular products and related services mainly for the energy industry, particularly casing and tubing used in oil and gas drilling operations, and line pipe used in the transportation and processing of oil and gas, but also other industrial applications. Our production processes include the production of steel and its transformation into tubular products. Business activities included in this segment are mainly dependent on the oil and gas industry worldwide, as this industry is a major consumer of steel pipe products. Demand for steel pipe products from the energy industry has historically been volatile and depends primarily upon the number of oil and natural gas wells being drilled, completed and reworked, and the depth and drilling conditions of such wells. Major oil and gas companies are beginning to adapt their strategies and increase their investments in renewable energies to address the energy transition while maintaining their capability to meet market demand for oil and gas, and reducing the emissions from their operations. As the energy transition advances, demand for our products and services from low-carbon energy applications, such as geothermal, hydrogen and carbon capture and storage, is expected to increase while demand for oil and gas applications may decrease.
Sales are generally made to end users, with exports being done through a centrally managed global distribution network and domestic sales made through local subsidiaries.
The “Others” segment includes all other business activities and operating segments that are not required to be separately reported, including the production and sale of sucker rods, utility conduits for buildings, coiled tubing used in oil and gas extraction activities, oil and gas services including fracking and coiled tubing services in Argentina, industrial equipment of various specifications and for diverse applications, heat exchangers, and the sale of energy and raw materials that exceed internal requirements.
For more information on our business segments, see “II C. Accounting Policies – Segment information” to our audited consolidated financial statements included in this annual report.
Our Products
Our principal finished products are seamless and welded steel casing and tubing, line pipe and various other mechanical and structural steel pipes for different uses. Casing and tubing are also known as oil country tubular goods (“OCTG”). We manufacture our steel pipe products in a wide range of specifications, which vary in diameter, length, thickness, finishing, steel grades, coating, threading and coupling. For more complex applications, including high pressure and high temperature applications, seamless steel pipes are usually specified and, for some standard applications, welded steel pipes can also be used. In addition to oil and gas applications, many of our products can also be used in low-carbon energy applications, such as geothermal, hydrogen and carbon capture and storage.
Casing. Steel casing is used to sustain the walls of oil and gas wells during and after drilling.
Tubing. Steel tubing is used to conduct crude oil and natural gas to the surface after drilling has been completed.
Line pipe. Steel line pipe is used to transport crude oil and natural gas from wells to refineries, storage tanks and loading and distribution centers.
Mechanical and structural pipes. Mechanical and structural pipes are used by general industry for various applications, including the transportation of other forms of gas and liquids under high pressure.
Cold-drawn pipe. The cold-drawing process permits the production of pipes with the diameter and wall thickness required for use in boilers, superheaters, condensers, heat exchangers, automobile production and several other industrial applications.
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Premium joints and couplings. Premium joints and couplings are specially designed connections used to join lengths of steel casing and tubing for use in high temperature or high pressure environments. A significant portion of our steel casing and tubing products are supplied with premium joints and couplings. We own an extensive range of premium connections, and following the integration of the premium connections business of Hydril, we have marketed our premium connection products under the “TenarisHydril” brand name. In addition, we hold licensing rights to manufacture and sell the “Atlas Bradford” range of premium connections outside the United States and, since our acquisition of IPSCO in January 2020, we own the “Ultra” and “TORQ” ranges of premium connections.
Coiled tubing. Coiled tubing is used for oil and gas drilling and well workovers and for subsea pipelines.
Other products. We also manufacture sucker rods used in oil extraction activities, utility conduit pipes used in buildings and construction and industrial equipment of various specifications and diverse applications, including liquid and gas storage equipment. In addition, we produce shell and tube heat exchangers for various applications, and we sell energy and raw materials that exceed our internal requirements.
Production Process and Facilities
We operate relatively low-cost production facilities, which we believe is the result of:
- state-of-the-art, strategically located plants;
- favorable access to high quality raw materials, energy and labor at competitive costs;
- operating history of more than 60 years, which translates into solid industrial know-how;
- constant benchmarking and best-practices sharing among the different facilities;
- increasing specialization of each of our facilities in specific product ranges; and
- extensive use of digital technologies in our production processes.
Our seamless pipes production facilities are located in North and South America, Europe and Asia and our welded pipes production facilities are located in North and South America and in Saudi Arabia. We also produce steel bars in the United States, Mexico, Argentina, Italy and Romania using the scrap-based electric arc furnace process that results in relatively low carbon emissions compared to primary steelmaking processes. In addition, we have tubular accessories facilities, such as sucker rods, in Argentina, Brazil, Mexico, Romania, and the United States. We produce couplings in Argentina, China, Colombia, Indonesia, Mexico and Romania, and pipe fittings in Mexico. In addition to our pipe threading and finishing facilities at our integrated pipe production facilities, we have pipe threading facilities for steel pipes manufactured in accordance with the specifications of the American Petroleum Institute (“API”), and premium joints in the Canada, China, Ecuador, Indonesia, Kazakhstan, Nigeria, Saudi Arabia, the United Kingdom and the United States, and we are currently building a new premium OCTG threading facility in Abu Dhabi, U.A.E.
The following table shows our aggregate installed production capacity of seamless and welded steel pipes and steel bars at the dates indicated as well as the aggregate actual production volumes for the periods indicated.
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In 2021, our production capacity for welded pipes decreased as a result of the dismantling of our Canadian facility and one of our U.S. facilities. Part of the equipment dismantled at our Calgary facility in Alberta is being modernized and relocated along with new equipment to our Sault Ste. Marie facility in Ontario, as part of an investment in a repositioning plan for our industrial activities, which is estimated to be completed in June 2022.
In 2020, our production capacity for steel bars, seamless and welded pipes increased mainly as a result of IPSCO’s acquisition.
In 2019, our production capacity for welded tubes increased due to the acquisition of a controlling interest in SSPC.
|
|
At or for the year ended December 31, |
||||
|
|
2021 |
2020 |
2019 |
||
|
Thousands of tons |
|
|
|
||
|
Steel Bars |
|
|
|||
|
Effective Capacity (annual) (1) |
4,485 |
4,485 |
3,985 |
||
|
Actual Production |
3,141 |
1,749 |
2,835 |
||
|
Tubes – Seamless |
|
|
|
||
|
Effective Capacity (annual) (1) |
4,680 |
4,680 |
4,300 |
||
|
Actual Production |
2,736 |
1,914 |
2,629 |
||
|
Tubes – Welded |
|
|
|
||
|
Effective Capacity (annual) (1) |
3,155 |
3,780 |
2,980 |
||
|
Actual Production |
237 |
268 |
671 |
||
___________________________________________________________________________
(1) Effective annual production capacity is calculated based on standard productivity of production lines, theoretical product mix allocations, the maximum number of possible working shifts and a continued flow of supplies to the production process.
Production Facilities – Tubes
North America
In North America, we have a fully integrated seamless pipe manufacturing facility, a threading plant and a pipe fittings facility in Mexico; one steel shop, two seamless pipe rolling mills, four welded pipe manufacturing facilities and five threading plants in the United States; and a seamless pipe rolling mill and a threading plant in Canada. We closed our welded pipe manufacturing facility in Canada during 2020, and we are working on the integration of the seamless and welded pipe production in our remaining pipe producing plant.
Mexico
In Mexico, our fully integrated seamless pipe manufacturing facility is located near the major exploration and drilling operations of Pemex, about 13 kilometers from the port of Veracruz on the Gulf of Mexico. Situated on an area of 650 hectares, the plant includes two state-of-the-art seamless pipe mills and has an installed annual production capacity of approximately 1,230,000 tons of seamless steel pipes (with an outside diameter range of 2 to 20 inches) and 1,200,000 tons of steel bars. The plant is served by two highways and a railroad and is close to the port of Veracruz, which reduces transportation costs and facilitates product shipments to export markets.
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The Veracruz facility comprises:
- a steel shop, including an electric arc furnace, refining equipment, vacuum degassing, five-strand continuous caster and a cooling bed;
- a multi-stand pipe mill, including a rotary furnace, direct piercing equipment, mandrel mill with retained mandrel, sizing mill and a cooling bed;
- a premium quality finishing (“PQF”), technology mill (2 3⁄8 to 7 inches), including a rotary furnace, direct piercing equipment, mandrel mill with retained mandrel, sizing mill and a cooling bed;
- a pilger pipe mill, including a rotary furnace, direct piercing equipment, a reheating furnace, sizing mill and a cooling bed;
- six finishing lines, including heat treatment lines, upsetting machines and threading and inspection equipment;
- a cold-drawing mill; and
- an automotive components production center.
The major operational units at the Veracruz facility and the corresponding effective annual production capacity (in thousands of tons per year, except for the auto components facility, which is in millions of parts) as of December 31, 2021, are as follows:
|
|
Effective Annual Production Capacity |
|
|
(thousands of tons) (1) |
|
Steel Shop |
1,200 |
|
Pipe Production |
|
|
Multi-Stand Pipe Mill |
700 |
|
PQF Mill |
450 |
|
Pilger Mill |
80 |
|
Cold-Drawing Mill |
35 |
|
Auto Components Facility |
30 |
_______________________________________________________
(1) Effective annual production capacity is calculated based on standard productivity of production lines, theoretical product mix allocations, the maximum number of possible working shifts and a continued flow of supplies to the production process.
In Veracruz, located near our fully integrated seamless pipe manufacturing facility, we have a threading plant, which produces premium connections and accessories.
In addition to the Veracruz facilities, we operate a manufacturing facility near Monterrey in the state of Nuevo León, Mexico, for the production of weldable pipe fittings. This facility has an annual production capacity of approximately 15,000 tons.
United States
In the United States we have the following production facilities:
Koppel, Pennsylvania: Acquired in 2020, Tenaris’s first steel shop in the United States, is located on an area of 89 hectares with an annual production capacity of approximately 430,000 tons. Following a $15 million investment which expanded the plant’s size range capabilities, it is now capable of producing bars in a wider range of sizes and securing a reliable source of billets to supply both our Bay City and Ambridge rolling mills. With the completion of this investment, the facility provides vertical integration through domestic production of a significant part of Tenaris’s steel bar needs in the United States. The facility also includes a heat treatment line.
Bay City, Texas: Our 1.2 million square feet greenfield seamless mill was inaugurated in December 2017, and is located on an area of 552 hectares. The facility is the result of an investment of $1.8 billion and includes a state-of-the-art rolling mill with a capacity of approximately 600,000 tons per year (with an outside diameter range of 4 ½ to 9 5/8 inches), as well as finishing and heat treatment lines and a logistics center.
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The Bay City facility comprises:
• a retained mandrel mill PQF;
• a fully automated intermediate warehouse;
• a heat treatment line; and
• a finishing line.
Ambridge, Pennsylvania: a seamless rolling mill located on an area of 19 hectares, with a capacity of approximately 380,000 tons per year (with an outside diameter range of 2 3⁄8 through 5 1⁄2 inches).
Hickman, Arkansas: This facility, which is our main U.S. welded production facility and covers an area of 78 hectares, processes steel coils to produce electric resistance welded (“ERW”), OCTG and line pipe with an outside diameter range from 2 3⁄8 to 16 inches and has an annual production capacity of approximately 900,000 tons. It includes:
- a plant comprising two mills producing 2 3⁄8 through 5 1⁄2 inches API products with two finishing lines and two heat treatment lines;
- a plant comprising two mills producing 4 1⁄2 through 16 inches API products with two finishing lines; and
- a coating facility coating sizes up to 16 inches.
Additionally, we have several facilities processing steel coils to produce ERW OCTG in various states, with a combined capacity of approximately 825,000 tons with an outside diameter range of 2 3⁄8 to 16 inches.
These facilities are complemented by various threading facilities in different states, which are mainly dedicated to the finishing of tubes with premium connections.
In response to the fast recovery of activity in the U.S. oil and gas industry, during 2021 we reopened most of the facilities that were idled during 2020’s crisis, bringing back into operations our facilities in Koppel, Ambridge, Conroe, Baytown and hiring more than 1,000 employees. We expect the hiring process to continue during 2022.
Canada
In Canada, we have a seamless steel pipe manufacturing facility located in Sault Ste. Marie, near the mouth of Lake Superior in the province of Ontario. The facility includes a retained mandrel mill, a stretch reducing mill and heat treatment and finishing facilities producing seamless pipe products with an outside diameter range of 3 1/2 to 9 7⁄8 inches. The effective annual production capacity of the facility is approximately 300,000 tons. We mainly use steel bars produced by our integrated facilities in Romania, Italy, Mexico and Argentina.
We also owned a welded steel pipe manufacturing facility located in Calgary, Alberta, which processed steel coils into ERW OCTG and line pipe. The facility included a slitter, three welding lines and four threading lines. This facility stopped production at the end of July 2020 and a decision was made to close the facility in November 2020. Some of its equipment is being modernized and relocated along with new equipment to our Sault Ste. Marie facility in Ontario, as part of an investment in a repositioning plan for our industrial activities, which is estimated to be completed by June 2022, and is expected to strengthen the competitiveness and increase the domestic production capabilities of the Canadian market.
In addition, we have a threading facility in Nisku, Alberta, near the center of Western Canadian drilling area. The facility has ten computer numerical control (“CNC”) lathes dedicated to premium connections and accessories, including related repairs.
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South America
In South America, we have a fully integrated seamless pipe facility in Argentina. In addition, we have welded pipe manufacturing facilities in Argentina, Brazil and Colombia.
Argentina
Our principal manufacturing facility in South America is a fully integrated plant on the banks of the Paraná river near the city of Campana, approximately 80 kilometers north from the city of Buenos Aires, Argentina. Situated on over 300 hectares, the plant includes a state-of-the-art seamless pipe facility and has an effective annual production capacity of approximately 900,000 tons of seamless steel pipe (with an outside diameter range of 1 1⁄4 to 10 3⁄4 inches) and 1,300,000 tons of steel bars.
The Campana facility comprises:
- a direct reduced iron (“DRI”) production plant;
- a steel shop with two production lines, each including an electric arc furnace, refining equipment, four-strand continuous caster and a cooling bed;
- two continuous mandrel mills, each including a rotary furnace, direct piercing equipment and a cooling bed and, one of them, also including a stretch reducing mill;
- seven finishing lines, including heat treatment lines, upsetting machines, threading and inspection equipment and make-up facilities;
- a cold-drawing mill; and
- a port on the Paraná river for the supply of raw materials and the shipment of finished products.
Our local electric energy requirements are satisfied through purchases in the local market and by a 35 megawatts thermo-electric power generating plant located within the Campana facility.
The major operational units at the Campana facility and corresponding effective annual production capacity (in thousands of tons per year) as of December 31, 2021, are as follows:
|
|
Effective Annual Production Capacity |
|
|
(thousands of tons) (1) |
|
DRI |
960 |
|
Steel Shop |
|
|
Continuous Casting I |
530 |
|
Continuous Casting II |
770 |
|
Pipe Production |
|
|
Mandrel Mill I |
330 |
|
Mandrel Mill II |
570 |
|
Cold-Drawing Mill |
20 |
_______________________________________________________
(1) Effective annual production capacity is calculated based on standard productivity of production lines, theoretical product mix allocations, the maximum number of possible working shifts and a continued flow of supplies to the production process.
In addition to our main integrated seamless pipe facility, we also have two welded pipe manufacturing facilities in Argentina. One is located at Valentín Alsina, south of the city of Buenos Aires. This facility includes ERW and submerged arc welding (“SAW”), rolling mills with one spiral line. The facility was originally opened in 1948 and processes steel coils and plates to produce welded steel pipes with an outside diameter range of 4 1⁄2 to 80 inches, which are used for the conveying of fluids at low, medium and high pressure and for mechanical and structural purposes. The facility has an annual production capacity of approximately 350,000 tons. The other welded facility, located at Villa Constitución in the province of Santa Fe, has an annual production capacity of approximately 80,000 tons of welded pipes with an outside diameter range of 1 to 8 inches.
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Activity level in our plants increased gradually throughout the year 2021, accompanying demand recovery in both local and global markets.
In March 2021, Tenaris acquired fracking equipment from U.S.-based oil services company Baker Hughes in Argentina, allowing it to step up its services portfolio in the Vaca Muerta shale deposit on an expected rise in activity. Through this deal, Tenaris acquired a pressure pumping fleet, a coiled tubing unit and related equipment.
In February 2022, Tenaris approved an investment plan to build a wind farm in Argentina at a cost of $190 million which would reduce our CO2 emissions in that country by around 150,000 tons per year and supply close to 50% of the electric energy requirements at our Siderca integrated seamless pipe mill. This investment is expected to be completed during 2023.
Brazil
In Brazil, we have the Confab welded pipe manufacturing facility, located at Pindamonhangaba, 160 kilometers northeast from the city of São Paulo. This facility includes an ERW rolling mill and a SAW longitudinal rolling mill. The facility, which was originally opened in 1974, processes steel coils and plates to produce welded steel pipes with an outside diameter range from 5 1⁄2 to 48 inches for various applications, including OCTG and line pipe for oil, petrochemical and gas applications. The facility also supplies anticorrosion pipe coating made of extruded polyethylene or polypropylene, external and internal fusion bonded epoxy, thermal insulation, concrete weight coating and paint for internal pipe coating. The facility has an annual production capacity of approximately 500,000 tons.
Colombia and Ecuador
In Colombia, we have TuboCaribe, a pipe manufacturing facility in Cartagena, on an area of 60 hectares, including a state-of-the-art finishing plant for seamless pipes. The total estimated annual finishing capacity is approximately 250,000 tons, with an estimated annual ERW production capacity of approximately 140,000 tons. This facility produces OCTG and line pipe products with an outside diameter range of 2 3⁄8 to 9 5⁄8 inches, and includes three ERW mills, one heat treatment line, one slotting line and three threading lines, including premium connections capacity. Inspection lines and materials testing laboratories complete the production facility. A 2 to 42 inches diameter multilayer coating facility complements our line pipe production facilities.
In addition, we have a coupling shop with fifty-six lathes, ten cutting machines, and two phosphatizing lines. Inspection and finishing lines complete this facility. The shop has an estimated annual production capacity of 2.3 million pieces, including API and premium threads.
In Ecuador, we have a threading and finishing facility with an annual capacity of 35,000 tons, and a service center which is designed to support our RigDirect® strategy, both situated in Machachi.
Europe
In Europe, we have several seamless pipe manufacturing facilities in Italy and one in Romania, and a premium connection threading facility in the United Kingdom.
In 2019, we entered into a joint venture with Severstal to build and operate a welded pipe mill to manufacture OCTG products in Surgut, Western Siberia. Our share in the joint venture is 49%. In 2020, the parties placed the construction on-hold due to market conditions and the pandemic. The initiative may be further affected or cancelled as a result of the recent armed conflict involving Russia and Ukraine and the designation of Severstal’s controlling shareholder as a person subject to EU and UK sanctions. As of December 31, 2021, our investment in the joint venture amounted to $16.8 million. We are currently assessing the amount to be written off from this investment. For more information see Item 3.D. “Key Information – Risk Factors – Risks Relating to Our Business and Industry – The Russia-Ukraine recent armed conflict may adversely affect our operations”; and item 8.B. “Significant Changes – The Russia-Ukraine armed conflict and its impact on Tenaris’s operations and financial condition”.
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Italy
Our principal manufacturing facility in Europe is an integrated plant located in the town of Dalmine, in the industrial area of Bergamo, about 40 kilometers from Milan in northern Italy. Situated on an area of 150 hectares, the plant includes a state-of-the-art seamless pipe mill and has an annual production capacity of approximately 650,000 tons of seamless steel pipes and 935,000 tons of steel bars.
The Dalmine facility comprises:
- a steel shop, including an electric arc furnace, two ladle furnaces, two vacuum degassing and two continuous casters with their own cooling beds;
- a retained mandrel mill with two in-line-high-productivity finishing lines including one heat treatment;
- a rotary expander with a finishing line including a heat treatment; and
- two premium connection threading lines.
The major operational units at the Dalmine facility and corresponding effective annual production capacity (in thousands of tons per year) as of December 31, 2021, are as follows:
|
|
Effective Annual Production Capacity |
|
|
(thousands of tons) (1) |
|
Steel Shop |
935 |
|
Pipe Production |
|
|
Retained Mandrel Mill Medium Diameter (plus Rotary Expander for Large Diameter) |
650 |
______________________________________________________________
| (1) | Effective annual production capacity is calculated based on standard productivity of production lines, theoretical product mix allocations, the maximum number of possible working shifts and a continued flow of supplies to the production process. |
The Dalmine facility manufactures seamless steel pipes with an outside diameter range of 146 to 711 mm (5.70 to 28.00 inches), mainly from carbon, low alloy and high alloy steels for diverse applications. The Dalmine facility also manufactures steel bars for processing at our facilities in Italy and elsewhere.
Our production facilities located in Italy have a collective annual production capacity of approximately 800,000 tons of seamless steel pipes. In addition to the main facility mentioned above, they include:
- the Costa Volpino facility, which covers an area of approximately 31 hectares and comprises a cold-drawing mill and an auto components facility producing cold-drawn carbon, low alloy and high alloy steel pipes with an outside diameter range of 12 to 380 mm (0.47 to 15 inches), mainly for automotive, mechanical and machinery companies in Europe. The Costa Volpino facility has an annual production capacity of approximately 55,000 tons; and
- the Arcore facility, which covers an area of approximately 26 hectares and comprises a Diescher mill with associated finishing lines. Production is concentrated in heavy-wall mechanical pipes with an outside diameter range of 48 to 219 mm (1.89 to 8.62 inches). The Arcore facility has an annual production capacity of approximately 150,000 tons.
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In addition to these facilities, we operate a manufacturing facility at Sabbio, which manufactures gas cylinders with an annual production capacity of approximately 14,000 tons or 270,000 pieces, and a large vessels plant inside the Dalmine facility, with a production capacity of around 2,500 finished pieces per year.
In order to reduce the cost of electrical energy at our operations in Dalmine, we constructed a gas-fired, combined heat and power station with a capacity of 120 megawatts in Dalmine. Our operations in Dalmine consume a share of the power generated at the power station, which has sufficient capacity to meet almost the whole electric power requirements of these operations. The additional energy needed to cover consumption peaks and the excess energy produced are purchased and sold to the market while heat is sold for district heating.
Romania
We have a seamless steel pipe manufacturing facility in northwest Romania, located in the city of Zalau, 530 kilometers from Bucharest. The facility includes a hot rolling mill and has an annual production capacity of approximately 250,000 tons of hot rolled pipes and 210,000 tons of finished products, of which 30,000 tons are cold drawn. The plant produces carbon and alloy steel tubes with an outside diameter range of 21.3 to 159 mm (0.839 to 6.26 inches) for hot rolled tubes and 8 to 120 mm (0.315 to 4.724 inches) for cold drawn tubes. We also have a steelmaking facility in southern Romania, located in the city of Calarasi, with an annual steelmaking capacity of 620,000 tons, supplying steel bars for European operations as well as to other rolling mills in our industrial system. The industrial center in Romania comprises:
- a steel shop including an electric arc furnace, a ladle furnace and a continuous caster;
- a floating mandrel mill;
- four finishing lines, including heat treatment lines, upsetting machine, line pipe, threading, make-up and inspection equipment facilities;
- a coupling shop;
- an accessories line;
- a cold-drawing plant with finishing area; and
- automotive and hydraulic cylinders components’ production machinery.
United Kingdom
In Aberdeen, we have a premium connection threading, manufacturing and repair facility, which works as a hub to service our customers working in the North Sea region. The facility has an annual production capacity of approximately 20,000 pieces, with a production range of 2 3/8 to 20 inches.
Middle East and Africa
We have a controlling participation in SSPC, a welded steel pipe producer, which operates five production lines and produces welded pipes for the local oil & gas industry (OCTG and line pipe) and for the industrial and construction sectors. Annual capacity is 360,000 tons covering a diameter range from ½ to 20 inches. We also have a threading facility for the production of premium joints and accessories in Saudi Arabia, with an annual production capacity of 120,000 tons. SSPC holds a 35% interest in Global Pipe Company (“GPC”), a joint venture company, established in 2010 and located in Jubail, Saudi Arabia, which manufactures LSAW pipes.
Additionally, we have a premium threading facility in Kazakhstan. The state-of-the-art facility has the capacity to produce 45,000 tons of OCTG annually for threading seamless pipes and gas-tight premium connections to serve the local market.
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In Nigeria, we have a facility dedicated to the production of premium joints and couplings located in Onne. This plant comprises a threading facility for both API and premium connections with an annual production capacity of approximately 40,000 tons, inspection facilities and a stockyard. In addition, we own a 40% participation in Pipe Coaters, a leading company in the Nigerian pipe coating industry, located in Onne, which supplies a wide variety of products and services for the oil and gas industry, such as internal, anticorrosion, concrete and thermal insulation coatings for onshore and offshore (including deepwater) applications.
Asia Pacific
Our seamless pipe manufacturing facility in Asia, operated by NKKTubes, is located in Kawasaki, Japan, in the Keihin steel complex owned by JFE. The facility includes a floating mandrel mill, a plug mill and heat treatment and upsetting and threading facilities producing seamless steel pipe products with an outside diameter range of 1 to 17 inches. The NKKTubes facility produces a wide range of carbon, alloy and stainless steel pipes for the local market and high value-added products for export markets. The effective annual production capacity of the facility is approximately 260,000 tons. Steel bars and other essential inputs and services are supplied under a long-term agreement by JFE, which retains a 49% interest in NKKTubes through its subsidiary JFE Steel Corporation. On March 27, 2020, JFE informed Tenaris of its decision to permanently cease as from JFE’s fiscal year ending March 2024 the operations of its steel manufacturing facilities located at the Keihin complex. In light of that development, Tenaris and JFE engaged in discussions and ultimately determined that the project was no longer economically sustainable. Accordingly, on November 2, 2021, Tenaris and JFE agreed to terminate amicably their joint venture and liquidate NKKTubes. The preliminary agreement provides for the closure of NKKTubes’ manufacturing operations by the end of June 2022, the termination of all agreements that allowed the operation of the joint venture, and the allocation between the parties of the related dissolution and liquidation costs. Tenaris and JFE continue discussing other aspects of the dissolution of the joint venture, with a view towards reaching a definitive agreement prior to June 2022. Tenaris and JFE are committed to ensure a continued supply of tubular material, including 13 Chrome alloy products to international customers after NKKTubes’ closure, and Tenaris is advancing with the investments required to produce such materials in the rest of its industrial system.
We own a facility for the production of premium joints and couplings in Qingdao, on the east coast of China. The facility has an annual production capacity of approximately 40,000 tons of premium joints. Additionally, we have a facility that produces components for the local automotive industry. In December 2020 we entered into an agreement with Baotou Steel to build a steel pipe premium connection threading plant to produce OCTG products in Baotou, China. Under the agreement, Tenaris holds 60% of shares in the new joint-venture company, while Baotou Steel owns the remaining 40%. The plant, started operations in the first quarter of 2022.
In addition, in Indonesia, we hold 89.17% of SPIJ, an Indonesian OCTG processing business with heat treatment, premium connection threading facilities, coupling shop and a quality-testing laboratory, including an ultrasonic testing machine, which has an annual processing capacity of approximately 120,000 tons. We also have a premium joints accessories threading facility in the state of Batam, which we integrated into our operations following the acquisition of Hydril.
Production Facilities – Others
We have facilities for the manufacturing of sucker rods in Villa Mercedes (San Luis, Argentina), Moreira Cesar (São Paulo, Brazil), Veracruz (Mexico), Campina (Romania) and Conroe (Texas, United States). Our total annual manufacturing capacity of sucker rods is approximately 3.3 million units.
In Moreira Cesar (São Paulo, Brazil), we also have facilities for the manufacturing of industrial equipment. In many cases, we also provide the assembly service of this equipment at the client’s site. On March 21, 2022, the Company announced its decision to reorganize the activities at its Confab Equipamentos industrial facility. For more information see Item 8.B “Significant Changes - Discontinuity of industrial equipment manufacturing in Brazil”.
In Italy, we have the Piombino facility, which covers an area of approximately 67 hectares and comprises a hot dip galvanizing line and associated finishing facilities. Production is focused on finishing of small diameter seamless pipes for plumbing applications in the domestic market, such as residential water, gas transport and firefighting. The Piombino facility has an annual production capacity of approximately 100,000 tons.
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In addition, we have specialized facilities in the Houston area producing coiled tubing and umbilical tubing:
- A coiled tubing facility of approximately 150,000 square feet of manufacturing space on 4 hectares. The plant consists of two mills and coating operations capable of producing coiled tubing products in various grades, sizes and wall thicknesses. A new continuous heat treatment line has been recently installed.
- An umbilical tubing facility of approximately 85,000 square feet of manufacturing space on 6 hectares. The facility is capable of producing stainless or carbon steel tubing in various grades, sizes and wall thickness.
Sales and Marketing
Net Sales
Our total net sales amounted to $6,521 million in 2021, compared to $5,147 million in 2020 and $7,294 million in 2019. For further information on our net sales see Item 5.A. “Operating and Financial Review and Prospects – Results of Operations”.
The following table shows our net sales by business segment for the periods indicated therein:
|
Millions of U.S. dollars |
For the year ended December 31, |
|||||
|
|
2021 |
2020 |
2019 |
|||
|
|
|
|
|
|
|
|
|
Tubes |
5,994 |
92% |
4,844 |
94% |
6,870 |
94% |
|
Others |
528 |
8% |
303 |
6% |
424 |
6% |
|
Total |
6,521 |
100% |
5,147 |
100% |
7,294 |
100% |
Tubes
The following table indicates, for our Tubes business segment, net sales by geographic region:
|
|
For the year ended December 31, |
|||||
|
Millions of U.S. dollars |
2021 |
2020 |
2019 |
|||
|
Tubes |
|
|
|
|
|
|
|
- North America |
3,240 |
54% |
2,108 |
44% |
3,307 |
48% |
|
- South America |
1,051 |
18% |
660 |
14% |
1,240 |
18% |
|
- Europe |
622 |
10% |
566 |
12% |
641 |
9% |
|
- Middle East & Africa |
832 |
14% |
1,194 |
25% |
1,337 |
19% |
|
- Asia Pacific |
249 |
4% |
315 |
7% |
345 |
5% |
|
Total Tubes |
5,994 |
100% |
4,844 |
100% |
6,870 |
100% |
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North America
Sales to customers in North America accounted for 54% of our sales of tubular products and services in 2021, compared to 44% in 2020 and 48% in 2019.
We have significant sales and production facilities in each of the United States, Canada and Mexico, where we provide customers with an integrated product and service offering based on local production capabilities supported by our global industrial system. In the past few years, we have extended our integrated product and service model, which we call Rig Direct®, throughout North America, and we operate a seamless pipe mill at Bay City, Texas, which is strategically located to serve the Eagle Ford and Permian regions. On January 2, 2020, we completed the acquisition of IPSCO, which has further strengthened our local production capabilities and capacity to provide Rig Direct® services in the United States. Under Rig Direct®, we manage the whole supply chain from the mill to the rig for customers under long-term agreements, integrating mill production with customer drilling programs, reducing overall inventory levels and simplifying operational processes. We first introduced the Rig Direct® model to Pemex in Mexico in 1994, and since then we have supplied them with pipes on a just-in-time basis. Today, we supply a large majority of our U.S. and Canadian customers for OCTG products with Rig Direct® services.
Sales to our oil and gas customers in the United States and Canada are highly sensitive to oil prices and regional natural gas prices. Over the past decade, the drilling of productive shale gas and tight oil reserves, made possible by new drilling technology, has transformed drilling activity and oil and gas production in the United States and Canada. Following 25 years of declining production, U.S. crude oil production began to increase in 2009 and rose significantly, from 5.6 million b/d in 2011 to 12.3 million b/d in 2019. Due to the COVID-19 pandemic and collapse in oil prices, production in 2020 and 2021 fell back to 11.3 million b/d on average but ended 2021 at 11.7 million b/d. Production of natural gas liquids (“NGLs”) also increased significantly in the past decade in North America. This rapid increase in production, however, contributed to an excess of supply in the global oil market in 2014 and a consequent fall in the price of oil. Further rapid increases in production in 2018 and 2019 led to OPEC member country producers and other producers agreeing to cut production to balance the market and support oil prices. In 2020, however, the impact of the COVID-19 pandemic led to a sudden and substantial reduction in global oil demand in the first half of 2020 and a collapse in oil prices. Global oil demand and prices have now effectively recovered, along with economic activity, as COVID-19 vaccination programs have been rolled out, and OPEC and other producer countries, including Russia, implemented production cuts to lower supply below demand and reduce inventory levels. At the same time, U.S. shale producers have been restraining increases in investments in response to the post COVID-19 recovery of oil prices as in response to financial market pressures to increase returns to shareholders and limit investments in production growth.
Similarly, natural gas production has risen rapidly over the past decade and the United States became a net exporter of natural gas for the first time in 2017 and has now become a significant exporter of liquefied natural gas (“LNG”) to global markets. In Canada, there has been a similar shift towards drilling of shale gas and tight oil reserves.
The drop in oil prices in the second half of 2014 led to a large reduction in drilling activity throughout North America until the second half of 2016 when activity began to recover in the United States and Canada as a result of lower production costs including drilling efficiencies and more stable oil prices. In 2017 and 2018, drilling activity recovered but declined throughout 2019, before collapsing along with oil prices with the onset of the COVID-19 pandemic in the first half of 2020. Activity, as measured by drilling rigs, has recovered through 2021 but remains below its level at the end of 2019.
The level of drilling activity in North America, and consequently demand for our products and services, can also be expected to be affected by actions taken by the governments of the region to accelerate the energy transition currently underway.
Demand for, and our sales of, OCTG products in the United States and Canada fell sharply in 2015 and 2016, to less than a quarter of the level reached in 2014, affected by high inventory levels as well as the collapse of drilling activity. In 2017 and 2018, demand and sales recovered strongly as drilling activity increased and inventory levels returned to more normal levels. In 2019, demand and sales declined, as U.S. rigs decreased by approximately 25% in the year. During 2020, the U.S. rig count collapsed to a record low in the second quarter but began to recover in the fourth quarter, a recovery which has continued throughout 2021 and into 2022 without yet returning to the level of 2019.
During 2018, the U.S. government introduced Section 232 tariffs and quotas on the imports of steel products, including steel pipes, with the objective of strengthening domestic production capacity utilization and investment. The proportion of the OCTG market supplied by imports initially declined from around 60% prior to the imposition of tariffs and quotas to around 40% at the end of 2018 but has since fluctuated in a range of 40-55%.
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On October 27, 2021, the DOC announced the initiation of antidumping duty investigations of OCTG from Argentina, Mexico, and Russia and countervailing duty investigations of OCTG from Russia and South Korea. The investigations were petitioned by U.S. Steel Tubular Products, Inc., a small number of other U.S. domestic welded OCTG producers, and a steelworkers’ union. On November 22, 2021, the ITC made a preliminary determination of injury, allowing the investigations to proceed. The investigations are currently proceeding, with final determinations by the DOC and the ITC likely to occur in the second half of 2022. If anti-dumping duties on imports from Argentina and Mexico were to be imposed and a final determination of injury issued, this could affect our sales in the country.
On June 30, 2021, Canada initiated an antidumping investigation on OCTG from Mexico. A full investigation was conducted and on January 26, 2022, the Canadian International Trade Tribunal found that Mexican imports were not injuring the Canadian OCTG industry, and terminated the inquiry without imposing any duties.
Our sales in the United States are also affected by the level of investment of oil and gas companies in exploration and production in offshore projects. The blow-out at the Macondo well in the Gulf of Mexico and the subsequent spillage of substantial quantities of oil resulted in a moratorium that halted drilling activity. The drilling moratorium was lifted in October 2010, when new regulations affecting offshore exploration and development activities were announced. Since then, drilling activity recovered but, in addition to oil price movements, could be affected by actions taken by the government to restrict drilling activity on Federal lands, which include the Gulf of Mexico.
Oil and gas drilling in Canada is subject to strong seasonality, with the peak drilling season in Western Canada being during the winter months when the ground is frozen. During the spring, as the ice melts, drilling activity is severely restricted by the difficulty of moving equipment in muddy terrain.
In Mexico, we have enjoyed a long and mutually beneficial relationship with Pemex, the Mexican state-owned oil company, and one of the world’s largest crude oil and condensates producers. In 1994, we began supplying Pemex with Rig Direct® services. In early 2018, we renewed our just in time agreement with Pemex for an additional five-year period.
At the end of 2013, Mexico reformed its constitution to allow increased private and foreign investment in the energy industry. Pursuant to these reforms, foreign and private investors are allowed to participate in profit and production sharing contracts and licenses and Pemex has been transformed into a state-owned production company, but ceased having a monopoly on production. In addition, a new regulatory framework was developed and contracts with foreign and private investors were awarded. More recently, the government has taken steps to strengthen the role and primacy of Pemex in oil and gas production in the country as well as that of the state-owned CFE in the provision of electric energy and has submitted to the Mexican Congress a constitutional reform proposal of the electricity sector, which seeks to reverse the legal framework derived from the 2013 constitutional energy reform that opened the sector to private investment. For more information on the proposed reform to the energy market in Mexico, see Item 3.D. “Key Information – Risk Factors – Risks Relating to Our Business and Industry – Adverse economic or political conditions in the countries where we operate or sell our products and services may decrease our sales or disrupt our manufacturing operations, thereby adversely affecting our revenues, profitability and financial condition.”
Following the 2014 decline in oil prices, drilling activity in Mexico and demand for our OCTG products plummeted as the financial condition of Pemex has deteriorated and the impact of investments from the energy reform process in Mexico had yet to take effect. Over the past three years, however, drilling activity at Pemex recovered as the Mexican government adopted measures to reverse production decline.
South America
Sales to customers in South America accounted for 18% of our sales of tubular products and services in 2021, compared to 14% in 2020 and 18% in 2019.
Our largest market in South America is Argentina. We also have significant sales in Brazil and Colombia. We have manufacturing subsidiaries in each of these countries.
Our sales in South America are sensitive to the international price of oil and its impact on the drilling activity of participants in the oil and gas sectors, as well as to general economic conditions in these countries. In addition, sales in Argentina, as well as export sales from our manufacturing facilities in Argentina, are affected by governmental actions and policies, such as the taxation of oil and gas exports, measures affecting gas prices in the domestic market and other matters affecting the investment climate. Sales in Brazil are also affected by governmental actions and policies and their consequences, such as measures relating to the taxation and ownership of oil and gas production activities and the operations of Petróleo Brasileiro S.A. (“Petrobras”).
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A principal component of our marketing strategy in South American markets is the establishment of long-term supply agreements and Rig Direct® services with national and international oil and gas companies operating in those markets.
In Argentina, we have a significant share of the market for OCTG products. We have longstanding business relationships with YPF S.A. (“YPF”), the Argentine state-controlled company, and with other operators in the oil and gas sector. We strengthened our relationship with YPF in 2013 through a long-term business alliance. An extension of the agreement was recently negotiated, and the contract will be renewed for an additional five-year term, under which we will keep providing Rig Direct® services with the objective of reducing YPF’s operational costs as it aims to increase production through investments in Argentina’s shale oil and gas reserves. Drilling activity fell significantly during 2019 after the electoral process in Argentina. In 2020, our sales were affected by ongoing uncertainties regarding the energy policies that would be adopted by the incoming government as well as the onset of the COVID-19 pandemic which led to the suspension of all drilling activity during a couple of months in the year. Activity began to resume towards the end of the year and recovered during 2021. The principal restraint on further increases in activity, particularly in the Vaca Muerta shale play, is the lack of pipeline capacity for exporting oil and for transporting gas to the main consumption centers in Buenos Aires. Plans to implement a new gas pipeline and two oil export pipelines are in place and expected to be advanced during 2022.
In Brazil, we have a longstanding business relationship with Petrobras. We supply Petrobras with casing (including premium connections) and line pipe products, most of which are produced in our Brazilian welded pipe facility, for both offshore and onshore applications. More recently, we have been increasing the sale of imported seamless products to Petrobras for offshore use, including the supply of seamless casing with premium connections, accessories and Rig Direct® services for use in the pre-salt area. With the development of Brazil’s deepwater pre-salt complex, our mix of products sold in Brazil has evolved from one including mainly line pipe for onshore pipeline projects to one which includes large diameter conductor and surface casing and line pipe for use in deepwater applications. In 2020, the onset of the COVID-19 pandemic and collapse in oil prices have postponed mainly onshore drilling with some postponements also in offshore. Nevertheless, consumption of OCTG products in Brazil stabilized over the past five years, after falling in the period 2014-2016 as Petrobras had reduced its investments in response to budgetary constraints, concentrating on developing its most productive reserves in the pre-salt fields and halting other investments. Demand for line pipe for pipeline projects has declined to very low levels with only one major project implemented in the past seven years. In response to market-opening measures and the attractiveness of the deepwater reserves, major oil companies have increased their investments in Brazil in the past years, while Petrobras is planning to focus investments in world class assets in deepwater, which could lead to increased activity in future years.
In Colombia, we have established a leading position in the market for OCTG products since 2006, following our acquisition of TuboCaribe, a welded pipe manufacturing facility located in Cartagena. Although the market grew rapidly when oil prices were high as the country encouraged investment in its hydrocarbon industry and opened its national oil company to private investment, drilling activity in Colombia was deeply affected by the 2014 collapse in oil prices and fell to a very low level in 2016. However, activity subsequently recovered in response to higher oil prices, but was again deeply affected with the onset of the COVID-19 pandemic and collapse in oil prices. With the recovery of oil prices, drilling activity also recovered in 2021. Our principal customer in Colombia is Ecopetrol S.A., which we supply with Rig Direct® services and with whom we renewed a long-term agreement in the beginning of 2018. We have recently strengthened our industrial position in Colombia through investing in the installation of modern heat treatment, pipe threading and processing facilities which enables us to serve this market with more local industrial content and our customers with more efficient Rig Direct® services.
In Guyana, we have been providing casing for the development wells in the new Lisa deepwater offshore play since 2018 and, at the end of 2021, we were awarded a 10-year enabling contract to supply large and medium diameter casing for this development with Rig Direct®-alike services.
We also have sales in Ecuador, supplying Petroamazonas Ecuador S.A. (“Petroamazonas”), recently merged with EP PetroEcuador (“PetroEcuador”) the national oil company, as well as private operators. To increase local content, we have established a local OCTG threading facility in Machachi.
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We were present in the Venezuelan OCTG market for many years and we maintained business relationships with Petróleos de Venezuela S.A. (“PDVSA”) and the joint venture operators in the oil and gas sector until the implementation of the OFAC sanctions. Additionally, we maintained business relationships with Chevron in Venezuela until April 22, 2020, when their general License 8E of the sanctions expired. Our sales in Venezuela declined to low levels in 2020, with no sales in 2021. We do not foresee any recovery at this time.
Europe
Sales to customers in Europe accounted for 10% of our sales of tubular products and services in 2021, compared to 12% in 2020 and 9% in 2019.
Our single largest country market in Europe is Italy. The market for steel pipes in Italy (as in much of the European Union) is affected by general industrial production trends, especially in the mechanical and automotive industry, and by investment in power generation, petrochemical and oil refining facilities. Sales to the mechanical and automotive industries and for HPI and power generation projects in Italy and the rest of Europe in 2019 and 2020 were affected by lower prices reflecting increased competitive pressures, but volumes were relatively stable. In 2021, sales volumes increased and prices rose to compensate higher costs.
In Europe we also have significant sales to the oil and gas sector, particularly in the North Sea. Demand from this market is affected by oil and gas prices in the international markets and their consequent impact on oil and gas drilling activities in the North Sea and other areas, like Romania. In addition, U.S. and European sanctions are affecting demand for our products in Russia.
Europe is also a region which we expect will be at the forefront of developments in low-carbon energy, including hydrogen storage and transportation, carbon capture and sequestration and waste-to-energy power generation. We are participating in these market segments where we expect to see growth in sales in the coming years.
Middle East and Africa
Sales to customers in the Middle East and Africa accounted for 14% of our sales of tubular products and services in 2021, compared to 25% in 2020 and 19% in 2019.
Our sales in the region remain sensitive to international prices of oil and gas and their impact on drilling activities as well as to the production policies pursued by OPEC, and, more recently, OPEC+ countries, many of whose members are located in this region. In the past few years, oil and gas producing countries in the Middle East, led by Saudi Arabia, have increased investments to develop gas reserves to fuel regional gas-based industrial development, which have positively affected their consumption of premium OCTG products. Saudi Arabia, in particular, has shown strong growth in sour and high pressure gas field drilling activity. They have also maintained and, in some cases, increased investments to offset decline and add oil production capacity. Additionally, in the eastern Mediterranean, vast reserves of natural gas have been discovered, some of which have been targeted for fast track development.
In Africa, international oil companies increased investments in exploration and production in offshore projects in 2012 and 2013 but began to postpone or reduce their investment commitments in 2014 due to the high cost of offshore project developments and a lower success rate in exploration activity. Since 2015, following the oil price collapse, exploration activity has been cut back and major project commitments have been postponed. The effect on demand was compounded by the high inventory levels held in the region.
In the Caspian region, major oil companies operating in Kazakhstan and Azerbaijan increased their investments and drilling activity following the recovery of oil prices in 2017 and we opened a premium threading facility in Kazakhstan in 2019. More recently, however, our sales have been affected by the impact of the COVID-19 virus on the operations of our customers and the impact on drilling activity of adherence to the production cuts agreed by the OPEC+ countries in response to collapse of oil demand due to the pandemic.
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In the past few years, uprisings affected drilling activity in countries such as Syria, Libya and Yemen and, in the case of Libya, the oil and gas industry was effectively shut down in 2011. In addition, in recent years, U.S. and E.U. sanctions have affected production and exports in Iran.
Our sales in the Middle East and Africa could be adversely affected by political and other events in the region, such as armed conflicts, terrorist attacks and social unrest, which could materially impact the operations of companies active in the region’s oil and gas industry. Our sales in the region can also be affected by the levels of inventories held by the principal national oil companies in the region and their effect on purchasing requirements.
In 2018, we had a peak of sales in the Middle East and Africa region, boosted by sales of line pipe for offshore gas projects in the Eastern Mediterranean. In 2019 and 2020, sales in the Middle East rose while sales in Africa (including the East Mediterranean) were affected by the slowdown in drilling activity and investments in deepwater projects. Sales in the region declined in 2021 as a result of various factors, including the slowdown in investments in drilling activity pursuant to the pandemic and reduction in oil demand and prices and ongoing inventory reductions at some of the region’s largest consumers like Saudi Arabia and the United Arab Emirates. In 2022, we expect a recovery of sales in the region from the second quarter.
In January 2019, we completed the acquisition of 47.79% of SSPC, a listed welded steel pipe producer in Saudi Arabia. SSPC produces OCTG, line pipe and commercial pipe products mainly for the local market. It is qualified to supply Saudi Aramco for certain products. Through this investment, Tenaris has increased its local industrial presence in an important oil and gas market where policies are being implemented to diversify the economy and increase local manufacturing. Saudi Arabia continues to reinforce measures in favor of local content particularly for suppliers to state-owned companies like Saudi Aramco. In August 2019 we were awarded a long-term agreement with Rig Direct® conditions, valued at $1.9 billion, to supply approximately half of the OCTG requirements of Abu Dhabi National Oil Company’s (“ADNOC”) in Abu Dhabi over the next five to seven years. In order to serve this market, we have expanded our local service base and are constructing a new premium OCTG threading facility. We have also won significant contracts to supply Qatargas Liquefied Gas Company Limited (“QatarGas”) and Kuwait Oil Company (“KOC”) over the coming years.
Asia Pacific
Sales to customers in the Asia Pacific accounted for 4% of our sales of tubular products and services in 2021, compared to 7% in 2020 and 5% in 2019.
We have a significant presence in the region with local production facilities in Indonesia, China and Japan and, in recent years, we established a service center in Australia. In November, 2021, together with our joint venture partner, JFE, we announced that we would close our NKKTubes seamless pipe facility in Japan at the end of June 2022. This followed a previous announcement by JFE that it had decided to close its steelmaking operations at Keihin, which supplies steel bars to NKKTubes.
Sales to Indonesia and other markets in South East Asia and Oceania are mainly affected by the level of oil and gas drilling activity, particularly offshore drilling activity. The recent collapses in the price of oil have deeply affected drilling activity and our sales throughout the region, where drilling is mainly onshore. In 2016, we won a significant long-term agreement to provide pipes with Rig Direct® services in Thailand which briefly made Thailand our largest market in the region, until this long-term agreement was concluded in 2020, anticipating changes in the ownership of oil and gas development concessions.
Our sales in China are concentrated on premium OCTG products used in oil and gas drilling activities. Over the past years, China has significantly reduced its imports of OCTG products as local producers compete ferociously in an oversupplied market. We continue, however, to seek new markets in niche applications and in 2016 we opened a components facility for processing pipes for use in airbags for automobiles, which we recently expanded. In 2020, we established a joint venture with Baotou Steel, a major domestic supplier of seamless pipes to the onshore oil and gas fields, for the construction of a premium threading facility located within our partner’s steelmaking facilities in Inner Mongolia. The new facility, which will finish pipes produced mainly by our joint venture partner, began production during the first quarter of 2022. Our participation in the joint venture is 60%.
In Japan, our subsidiary, NKKTubes, competes against other domestic producers. The market for steel pipe products in Japan is mostly industrial and depends on general factors affecting domestic investment, including production activity. With the closure of NKKTubes in June 2022, we will largely cease to serve this market.
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Others
Our other products and services include sucker rods used in oil extraction activities, sales of pipe for construction activities from our Italian Piombino mill and our recently sold U.S. Geneva mill, coiled tubes used in oil and gas extraction activities, oil and gas services, including fracking and coiled tubing services in Argentina, industrial equipment of various specifications and for diverse applications, and sales of raw materials and energy that exceed our internal requirements. Net sales of other products and services amounted to 8% of total net sales in 2021, compared to 6% in 2020 and 2019. During 2021, we sold our Geneva mill in the United States and a small Saudi equipment manufacturing and erection business we acquired during our SSPC acquisition.
Competition
The global market for steel pipe products is highly competitive. Seamless steel pipe products, which are used extensively in the energy industry particularly for offshore, high pressure, high stress, corrosive and other complex applications, are produced in specialized mills using round steel billets and specially produced ingots. Welded steel pipe products are produced in mills which process steel coils and plates into steel pipes. Steel companies that manufacture steel coils and other steel products but do not operate specialized seamless steel mills are generally not competitors in the market for seamless steel pipe products, although they often produce welded steel pipes or sell steel coils and plates used to produce welded steel pipes.
The production of steel pipe products following the stringent requirements of major oil and gas companies operating in offshore and other complex operations requires the development of specific skills and significant investments in manufacturing facilities. By contrast, steel pipe products for standard applications can be produced in most seamless pipe mills worldwide and sometimes compete with welded pipe products for such applications including OCTG applications. Welded pipe, however, is not generally considered a satisfactory substitute for seamless steel pipe in high-pressure or high-stress applications.
Over the past decade, substantial investments have been made, especially in China but also in other regions around the world, to increase production capacity of seamless steel pipe products. Production capacity for more specialized product grades has also increased. With the downturn between 2014 and 2016 in the price of oil and demand for tubes for oil and gas drilling, the overcapacity in steel pipe and seamless steel pipe production worldwide became acute, extending beyond commodity grades. This situation has been accentuated by the more recent COVID-19 induced collapse in demand and the prospect of an accelerated energy transition. The competitive environment is, as a result, intense, and we expect that this can only continue without substantial capacity reductions. Effective competitive differentiation and industry consolidation will be key factors for Tenaris.
Our principal competitors in steel pipe markets worldwide are described below.
- Vallourec S.A. (“Vallourec”), a French company, has mills in Brazil, China, Germany and the United States. Vallourec has a strong presence in the European market for seamless pipes for industrial use and a significant market share in the international market with customers primarily in Europe, the United States, Brazil, China, the Middle East and Africa. Vallourec is an important competitor in the international OCTG market, particularly for high-value premium joint products, where it operates a technology partnership for VAM® premium connections with Nippon Steel Corporation (“NSC”). Prior to the collapse in oil prices in 2014 to 2016, Vallourec increased its production capacity by building mills in Brazil (jointly with NSC) and Youngstown, Ohio, acquiring three tubular businesses in the United States and Saudi Arabia, and concluding an agreement with a Chinese seamless steel producer, Tianda Oil Pipe Company (“Tianda”) to distribute products from Tianda in markets outside China. In early 2016, in response to accumulating losses, Vallourec announced a $1 billion capital increase, more than half of which was provided by a French government fund and NSC, who each agreed to increase their equity participation to 15%. At the same time, an industrial restructuring program was announced under which Vallourec reduced capacity in Europe, closing its rolling mills in France, combined its operations in Brazil with that of the new mill held with NSC, acquired a majority position in Tianda and bought out the remaining minority interest, and strengthened its cooperation with NSC for the development and testing of premium connection products and technology. Despite this restructuring program, Vallourec’s losses continued and its equity position turned negative. In June 2021, Vallourec completed a further financial restructuring, in which its former shareholders, including NSC and Bpifrance (“BPI”), a French state-owned investment company, were severely diluted and its creditors, including private equity investors, assumed effective control. Under this restructuring, NSC exited its investment in the Brazilian mill and had its position in Vallourec diluted to around 3%. Subsequently, NSC also sold its equity interests in Vallourec’s US operations. In November 2021, Vallourec announced that it intended to sell or close its German operations during 2022 and announced an investment of EUR100 million in its Brazilian mills to enable the transfer of its specialized products for oil and gas customers from Germany to Brazil.
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- Japanese players NSC and, to a lesser extent, JFE together enjoy a significant share of the international market, having established strong positions in markets in the Far East and the Middle East. They are internationally recognized for their supply of high-alloy grade pipe products. In recent years, NSC increased its capacity to serve international markets through the construction with Vallourec of a new seamless pipe mill in Brazil, and further strengthened its ties with Vallourec through participating in Vallourec’s 2016 capital increase and combining their respective Brazilian operations. As part of the latest financial restructuring of Vallourec, NSC relinquished its participation in the Brazilian operation and ceded its reference shareholder position in Vallourec.
- In recent years, TMK, a Russian company, led the consolidation of the Russian steel pipe industry, invested to modernize and expand its production capacity in Russia and expanded internationally through acquisitions into Eastern Europe and the United States. TMK also expanded in the Middle East through the acquisition of a controlling interest in Gulf International Pipe Industry LLC (“Gulf International Pipe”), a welded pipe producer in Oman. More recently, however, TMK adopted a strategy of monetizing its international assets by reducing its participation in Gulf International Pipe and selling IPSCO to Tenaris, as well as strengthening its position in its domestic market by acquiring Chelpipe, the second Russian producer of seamless pipes in 2021.
- Over the past two decades, Chinese producers increased production capacity substantially and strongly increased their exports of steel pipe products around the world. Due to unfair trading practices, many countries, including the United States, the European Union, Canada, Mexico and Colombia, have imposed anti-dumping restrictions on Chinese imports to those regions. In 2009, the largest Chinese producer of seamless steel pipes, Tianjin Pipe (Group) Corporation Limited (“TPCO”), announced a plan to build a new seamless pipe facility in the United States in Corpus Christi, Texas; heat treatment and pipe finishing facilities have been constructed but steelmaking and hot rolling facilities have not been completed. As part of a financial restructuring, a 51% shareholding in TPCO was sold to Shanghai Electric Group and has now been sold on to Citic Group Corporation Ltd. (“Citic”), a state-owned conglomerate. Although producers from China compete primarily in the “commodity” sector of the market, several of these producers, including Baosteel Group (“Baosteel”) and TPCO, have developed and are selling more sophisticated products, particularly in the domestic market.
- The tubes and pipes business in the United States and Canada has experienced significant consolidation over the years, while new players have also emerged. Following the acquisitions of Maverick and Hydril by Tenaris and the earlier acquisition of North Star Steel by Vallourec, U.S. Steel Corporation acquired Lone Star Steel Technologies. In 2008, Evraz Group S.A. (“Evraz”) and TMK, two Russian companies, acquired IPSCO’s Tubular division, with Evraz retaining IPSCO’s operations in Canada and TMK acquiring IPSCO’s operations in the United States. Subsequently, Tenaris constructed a greenfield seamless pipe mill at Bay City, Texas and acquired IPSCO from TMK in January 2020, becoming the leading seamless pipe producer in the United States, while U.S. Steel integrated its seamless pipe business by building an EAF steel shop in Fairfield, Alabama, which started up in late 2020. At the same time, many new players have built, or announced plans to build, pipe mills in the United States. These include, in addition to TPCO, Boomerang LLC, a company formed by a former Maverick executive that opened a welded pipe mill in Liberty, Texas, in 2010; Benteler International A.G. (“Benteler”), a European seamless pipe producer that built a new seamless pipe mill in Louisiana, which opened in September 2015; and a plethora of welded pipe mills established by subsidiaries of foreign pipe producers, such as SeAH Steel (“SeAH”), of Korea and JSW Group (“JSW”), of India. North American pipe producers are largely focused on supplying the U.S. and Canadian markets, where they have their production facilities. In Canada, Tenaris recently closed its Prudential welded pipe mill in Calgary and announced an investment plan to concentrate production of seamless and welded pipes at its seamless pipe mill in Sault Ste. Marie, Ontario.
- Korean welded pipe producers, who have a limited domestic market, have expanded capacity in recent years and targeted the U.S. market for standard applications. They have gained a significant market position, despite the application of anti-dumping duties for unfair trading practices and being subject to Section 232 quotas. One of them, SeAH, has acquired and built local welded pipe production facilities in the United States.
- Tubos Reunidos S.A. (“Tubos Reunidos”) of Spain, Benteler International A.G. of Germany and Voest Alpine A.G. (“Voest Alpine”) of Austria each have a significant presence in the European market for seamless steel pipes for industrial applications, Voest Alpine also has a relevant presence in the U.S. and international OCTG markets, and in 2016, Tubos Reunidos opened an OCTG threading facility targeting international markets. In 2006, ArcelorMittal S.A. (“ArcelorMittal”) created a tubes division through several acquisitions and has mills in North America, Eastern Europe, Venezuela, Algeria and South Africa and has built a seamless pipe mill in Saudi Arabia.
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- In the Middle East, particularly in Saudi Arabia, which has implemented policies to encourage local production for its oil and gas industry, several pipe mills were established, including a seamless pipe mill built by Jubail Energy Services Company (“JESCO”), a company established with majority participation from a state-backed industrial development company, and a seamless pipe mill originally built by a joint venture of ArcelorMittal and local shareholders (“AMTJ”). These local players have been strengthening their capabilities and are taking an increasing share of the pipes supplied to Saudi Aramco as well as exporting to other countries in the Middle East and the rest of the world. In January 2019, Tenaris acquired a controlling 47.79% participation in SSPC, a local welded pipe producer. In early 2021, JESCO and AMTJ, who were both operating with losses, agreed to merge their operations at the behest of the Saudi Public Investment Fund.
Producers of steel pipe products can maintain strong competitive positions in markets where they have their pipe manufacturing facilities due to logistical and other advantages that permit them to offer value-added services and maintain strong relationships with domestic customers, particularly in the oil and gas sectors. Our subsidiaries have established strong ties with major consumers of steel pipe products in their home markets, reinforced by Rig Direct® services, as discussed above.
Capital Expenditure Program
During 2021, our capital expenditures, including investments at our plants and information systems (“IT”), amounted to $240 million, compared to $193 million in 2020 and $350 million in 2019. Of all capital expenditures made during 2021, $214 million were invested in tangible assets, compared to $168 million in 2020 and $314 million in 2019.
In 2021, we focused on consolidating our production capabilities in North America, enhancing production efficiency to achieve full capacity in all our industrial plants, increasing energy efficiency and increasing product differentiation.
The major highlights of our capital spending program during 2021 included:
| • | efficiency improvements and industrial integrations in our plants in North America consolidating Tenaris’s position in this area, including the industrial transformation of AlgomaTubes in Canada (new ERW forming and premium threading lines) and the continuous casting revamping at the steel shop at our Koppel facility in the United States; |
| • | the construction of new plants and yards to consolidate our presence in local markets, including a new premium threading plant in China, as part of a joint venture with Baotou Steel, and a new service center in Abu Dhabi; |
| • | following the differentiation strategy, new product lines for our Dopeless® 3.0 products, the increase of coating and finishing capacity on special steels pipes and on cold drawn process at our Zalau facility in Romania and at our Tamsa facility in Mexico; |
| • | the revamping and upgrade of our existing lines to improve the standards of industrial efficiency and safety, including the range extension in our Dalmine facility in Italy and our HSE continuous improvement program (including the ongoing overhead cranes replacement); |
| • | energy efficiency and CO2 reduction projects to achieve the target of reducing carbon emissions intensity, and |
| • | offices redesign project aligning our workspace to the new way of working. |
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In addition to capital expenditures at our plants, we have invested in digital information systems. During 2021 our focus was on deepening the digital transformation strategy for Tenaris in the industrial, commercial and supply chain areas, including internal process improvement; supporting the increasing demand and the expansion in some regions as the United States and Canada, while helping the organization adapt to the new way of working. Our industrial system is being transformed by an integrated scheduling system project and strengthened by the cybersecurity and infrastructure program, which are being expanded to different regions. We have also continued working on digital integration with our customers and vendors to strengthen our relationships and improve efficiency. Furthermore, we continued with the integration of the former IPSCO operations with our systems.
Investments in information systems and other intangible assets totaled $26 million in 2021, compared to $26 million in 2020 and $36 million in 2019.
Capital expenditures in 2022 are expected to increase significantly in respect to 2021, including new investments and the completion of certain main projects which have already started. The investments program includes:
| • | several energy saving projects and the construction of a wind farm in Argentina, in which the company expects to invest approximately $130 million in 2022 with 24 turbines (with a capacity of 4.2 megawatts each) and 130 meters high metallic towers to produce 509 gigawatt hours of energy per year. The project, with a start-up targeted for August 2023, has an expected useful life of 20 years and involves an expected investment of $190 million; |
| • | the consolidation of the U.S. industrial system, including the start-up of several IPSCO facilities acquired in 2020 and the ramp up of the already existing facilities; |
| • | the completion of the industrial integration in AlgomaTubes in Canada; |
| • | the increase of capacity in special steel pipes in the Steel Shop in Dalmine in Italy and the necessary upgrades on finishing areas across the Tenaris industrial system; |
| • | the construction of new threading facilities, including a swaging line and offices in Baotou in China and Abu Dhabi; and |
| • | the offices redesign project aligning our workspace to the new way of working (having completed the first two pilots). |
Raw Materials and Energy
The majority of our seamless steel pipe products are manufactured in integrated steelmaking operations using the electric arc furnace route, with the principal raw materials being steel scrap, DRI, HBI, pig iron and ferroalloys. In Argentina we produce our own DRI from iron ore using natural gas as a reductant. Our integrated steelmaking operations consume significant quantities of electric energy, purchased from the local market, and in part produced by our thermo-electric power generating plant. Our welded steel pipe products are processed from purchased steel coils and plates.
Although the weight of the different steelmaking raw materials and steel vary with the proportion of welded pipes in the total production mix and among the different production facilities in our industrial system, depending on the specifications of the final products and other factors, on average, in 2021, steel scrap, pig iron, HBI and DRI represented approximately 28% of our steel pipe products’ costs, while steel in the form of billets or coils represented approximately 12%, with direct energy accounting for approximately 4%.
The above raw material inputs are subject to price volatility caused by supply, political and economic situations, financial variables and other unpredictable factors. For further information on price volatility, see Item 3.D. “Key Information – Risk Factors – Risks Relating to Our Business and Industry – Increases in the cost of raw materials, energy and other costs, limitations or disruptions to the supply of raw materials and energy, and price mismatches between raw materials and our products may hurt our profitability”. The costs of steelmaking raw materials and of steel coils and plates, increased on average in 2021 compared to 2020 and continued with high levels of volatility increasing during the first months of 2022 and are currently also being affected by the Russian-Ukraine armed conflict and the sanctions being imposed on Russian individuals, companies and institutions. For more information see “Item 3.D. “Key Information – Risk Factors – Risks Relating to Our Business and Industry – The Russia-Ukraine recent armed conflict may adversely affect our operations”.
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Steel scrap, pig iron and HBI
Steel scrap, pig iron and HBI for our steelmaking operations are sourced from local, regional and international sources. In Argentina we produce our own DRI and source ferrous scrap domestically through a wholly owned scrap collecting and processing subsidiary. In Italy we purchase pig iron and ferrous scrap from local and regional markets. In Mexico we import our pig iron and HBI requirements and purchase scrap from domestic and international markets. In Romania we source ferrous scrap mainly from the domestic market and we import pig iron. In the United States, we source scrap from the local market to supply our Koppel steelmaking facility.
International prices for steel scrap, pig iron and HBI can vary substantially in accordance with supply and demand conditions in the international steel industry. Overall costs for these materials remained at high levels during 2021, driven by high steel prices and strong demand. As a reference, prices for Scrap Shredded U.S. East Coast, published by CRU, averaged $260 per ton in 2020 and $441 per ton in 2021 – an annual increase of almost 70%.
Iron ore
We consume iron ore in the form of pellets for the production of DRI in Argentina. Siderca’s annual consumption of iron ore during 2021 was approximately 756 thousand tons, supplied mainly from Brazil by Vale International S.A. (“Vale”).
Iron ore prices at the beginning of 2021 were relatively stable around $170 per ton. Supported by an increase in global steel production on the back of recovering demand, prices reached $215 per ton at mid-year. However, due to a sharp contraction in China's steel production during the second half of the year, prices fell to around $95 per ton. Since December, production levels have recovered, increasing demand and prices of iron ore to current levels of around $130 per ton.
The DRI pellet market in 2021 saw a recovery in demand as world steel production outside China increased, particularly in Europe, where the main consumers of this material are based. Pellet premiums averaged $73 per ton in 2021, 103% above 2020 levels. While pellet demand is likely to recover, production capacity growth seems to fall short, therefore prices are expected to increase in 2022.
Round steel bars
We mainly satisfy our steel bars and ingots requirements with materials produced in our steelmaking facilities in Argentina, Italy, Mexico, Romania and the United States. We complement this internal supply with purchases of steel bars and ingots from third parties as required, and particularly for use in our seamless steel pipe facilities in Canada, the United States and Japan and to supplement production from our steel shop in Mexico.
In Canada, we mainly source our steel bars requirements from our integrated facilities in Argentina, Italy, Mexico and Romania.
In Mexico, we source steel bars from Ternium’s Mexican facilities under a one year agreement ending in March 2022, granting us the right to purchase approximately 180,000 tons of steel bars. Currently, the Company is assessing alternatives for sourcing these materials, including a renegotiation of the contract with Ternium.
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In the United States, with the acquisition of IPSCO in 2020, we own our first steel shop facility in Koppel, Pennsylvania. After certain investments completed in 2021, this facility provides steel bars to our Bay City and Ambridge mills. We also use steel bars produced in our integrated facilities in Romania, Italy and Mexico. These imports have been granted an exclusion from Section 232 tariffs. Additionally, we have a contract in place with Nucor Steel to purchase a portion of the steel bar requirements in our Bay City mill.
In Japan, we have a contract with JFE, our partner in NKKTubes for the supply of these materials. Our operations in Japan are substantially dependent on these contracts. In March 2020, JFE, informed Tenaris of its decision to permanently cease the operations of certain which provided these materials to NKKTubes in 2024. In November 2021, Tenaris and JFE agreed to terminate amicably their joint venture and liquidate NKKTubes. The preliminary agreement provides for the closure of NKKTubes’ manufacturing operations by the end of June 2022. Tenaris and JFE are committed to ensure a continued supply of tubular material, including 13 Chrome alloy products to international customers after NKKTubes’ closure, and Tenaris is advancing with the investments required to produce such materials in the rest of its industrial system. For further information on the termination of the NKKTubes joint venture, please refer to note 35 “Preliminary agreement to terminate NKKTubes joint venture” of our audited consolidated financial statements included in this annual report.
Steel coils and plates
For the production of welded steel pipe products, we purchase steel coils and steel plates principally from domestic producers for processing into welded steel pipes. We have welded pipe operations in Argentina, Brazil, Canada, Colombia, Saudi Arabia and the United States.
Steel coil market prices reached all-time highs in 2021. As a reference, prices for hot rolled coils, HRC Midwest USA Mill, published by CRU, averaged $1,734 per metric ton in 2021 and $632 per metric ton in 2020.
For our welded pipe operations in the United States, a significant part of our requirements for steel coils are supplied by Nucor Steel which is our principal supplier in the United States. Nucor Steel has a steel coil manufacturing facility in Hickman, Arkansas, near to our principal welded pipe facility in the United States. To secure a supply of steel coils for our U.S. facilities, during 2021 we renewed a long-term purchase agreement with Nucor Steel which is due to expire at the end of 2022. Currently, we are assessing alternatives for sourcing these materials, including an agreement with Ternium.
In Canada, we had long-term agreements with our main steel suppliers for our welded pipe operations with prices referenced to market levels in U.S. dollars (i.e., CRU HRC index), which terminated at the end of 2020 after we shut down our Prudential mill. Among such suppliers were ArcelorMittal Dofasco, which has steel coil manufacturing facilities in Hamilton, Ontario, and Algoma Steel, which has steel coil manufacturing facilities in Sault Ste. Marie, Ontario. We maintain contact with these suppliers, planning for when we resume welded pipe operations after integrating welded pipe manufacturing equipment in our mill in Sault Ste. Marie in June 2022.
We also purchase steel coils and plates for our welded pipe operations in South America (Colombia, Brazil and Argentina) principally from Usiminas, Gerdau S.A. and ArcelorMittal Tubarão in Brazil, from Ternium Argentina S.A. (“Ternium Argentina”), a subsidiary of Ternium in Argentina, and from Ternium’s facilities in Mexico. In addition, in Brazil we also source plates and coils from international suppliers when not produced domestically. In Saudi Arabia, we mainly purchase steel coils and plates from the local market.
Energy
We consume substantial quantities of electric energy at our electric steel shops in Argentina, Italy, Mexico, Romania and the United States.
In Argentina, our local electric energy requirements are satisfied through purchases in the local market and by a 35-megawatt thermo-electric power generating plant located within the Campana facility. In Dalmine, Italy, we have a 120-megawatt power generation facility which is designed to have sufficient capacity to meet most of the electric power requirements of the operations. The additional energy needed to cover the peaks of consumption and the excess energy produced are purchased and sold to the market while heat is sold for district heating. In Mexico, our electric power requirements are mainly satisfied by Techgen, a natural gas-fired combined cycle electric power plant in the Pesquería area of the State of Nuevo León, while a small portion of our energy requirements are furnished by the Mexican government-owned CFE. In September 2021, Mexican President submitted to Congress a constitutional reform proposal of the electricity sector, which seeks to reverse the legal framework derived from the 2013 constitutional energy reform that opened the sector to private investment, for more information see Item 3.D. “Key Information – Risk Factors – Risks Relating to Our Business and Industry – Adverse economic or political conditions in the countries where we operate or sell our products and services may decrease our sales or disrupt our manufacturing operations, thereby adversely affecting our revenues, profitability and financial condition”. In Romania and the United States, we source electric energy from the local market.
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We consume substantial volumes of natural gas in Argentina, for the generation of DRI in addition to the requirements for producing seamless pipes. Tecpetrol, a San Faustin subsidiary, is our main natural gas supplier in Argentina under market conditions and according to local regulations.
We have transportation capacity agreements with Transportadora de Gas del Norte S.A. (“TGN”), a company in which San Faustin holds a significant but non-controlling interest, corresponding to capacity of 1,000,000 cubic meters per day until April 2027. In order to meet our transportation requirements for natural gas above volumes contracted with TGN, we also have agreements with Naturgy S.A. (“Naturgy”), for a maximum transportation capacity corresponding to approximately 970,000 cubic meters per day. For the final transportation phase, we also have a supply contract with Naturgy. Both contracts with Naturgy are in place until April 2022 and are expected to be renewed.
In addition to the amount of gas consumed at our Italian plants, we also require a substantial volume of natural gas to feed our power generation facility in Italy. Our natural gas requirements for the power generation facility are currently supplied by Edison Energia S.p.A while the natural gas consumed at our Italian plants is supplied by Eni S.p.A.
Our costs for electric energy and natural gas vary from country to country. In the last few years prior to late 2021, energy costs have remained generally flat due to the increasing availability of natural gas from shale plays and additional renewable energy generation at more competitive prices. In a context of uncertainty regarding future energy prices, the Argentine government launched in December 2020 a new gas plan to increase natural gas supply following a drop from the maximum levels reached in 2019. Because winter demand for natural gas continues to outpace supply, Argentina is required to import natural gas from Bolivia, Chile and LNG from the international market at high prices, in addition to using liquid fuel to generate electricity. With an international context of higher gas prices and reduced availability, gas shortages could occur in the incoming winter in Argentina affecting our operations. In late 2021 energy and gas prices increased and remain very high particularly in Europe. Although prices in Europe did come down in January 2022 from their previous peak as winter temperatures were relatively mild, worldwide prices remain volatile and have already suffered further increases due to the recent Russia-Ukraine armed conflict. See Item 3.D. “Key Information – Risk Factors – Risks Relating to Our Business and Industry – Increases in the cost of raw materials, energy and other costs, limitations or disruptions to the supply of raw materials and energy; and price mismatches between raw materials and our products may hurt our profitability”, Item 3.D. “Key Information – Risk Factors – Risks Relating to Our Business and Industry – Adverse economic or political conditions in the countries where we operate or sell our products and services may decrease our sales or disrupt our manufacturing operations, thereby adversely affecting our revenues, profitability and financial condition”, and for more information on the impact on our business of the armed conflict in Ukraine, see “Item 3.D. “Key Information – Risk Factors – Risks Relating to Our Business – The Russia-Ukraine recent armed conflict may adversely affect our operations”.
The Company’s board of directors has approved an investment plan to build a wind farm in Argentina at a cost of $190 million which would reduce our CO2 emissions in that country by around 150,000 tons per year and supply close to 50% of the electric energy requirements at our Siderca integrated seamless pipe mill.
Ferroalloys
For each of our steel shops we coordinate our purchases of ferroalloys worldwide. The international costs of ferroalloys can vary substantially within a short period.
Prices for the main ferroalloys consumed by Tenaris increased significantly during 2021, reaching its highest levels since 2008. The world’s economic recovery, driven by governments’ stimulus packages, resulted in stronger steel demand and, consequently, higher ferroalloy demand. Supply, on the other hand, struggled to recover as quickly due to lockdowns, logistics limitations and quarantine measures.
Product Quality Standards
Our steel products (tubular products, accessories and sucker rods) are manufactured in accordance with the applicable specifications of the American Petroleum Institute (“API”), the American Society for Testing and Materials (“ASTM”), the International Standardization Organization (“ISO”), the Japan Industrial Standards (“JIS”), and European Standards (“EN”), among other standards. The products must also satisfy our proprietary standards as well as our customers’ requirements. We maintain an extensive quality assurance and control program to ensure that our products and services continue to satisfy proprietary industry standards and are competitive from a quality standpoint in comparison with those offered by our competitors.
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We currently maintain, for all our manufacturing facilities and services centers, a Quality Management System Certified to ISO 9001 by Lloyd’s Register Quality Assurance (except for the former IPSCO facilities in the United States, that are in the process of changing the certification company to LRQA) and API product licenses granted by API, which are requirements for selling to the major oil and gas companies, which have rigorous quality standards. In addition, the majority of our testing laboratories are certified to ISO 17025. Our Quality Management System (“QMS”), based on the ISO 9001 and API Q1 specifications, assures that products and services comply with customer requirements from the acquisition of raw materials to the delivery of the final product and services. The QMS is designed to ensure the reliability and improvement of the product and the manufacturing operations processes as well as the associated services. Additionally, we have certified the QMS to API Q2 at some locations, a certification specifically developed for companies which offer services in the oil and gas industry.
All of our mills involved in the manufacturing of material for the automotive market are certified according to the standard IATF 16949 by Lloyd’s Register Quality Assurance.
Research and Development
R&D, of new products and processes to meet the increasingly stringent requirements of our customers is an important aspect of our business.
R&D activities are carried out primarily at our global R&D network with its main office in Amsterdam, the Netherlands and specialized research and testing facilities located in Campana, Argentina, in Veracruz, Mexico, and Dalmine, Italy. Additionally, we have a Technology Center in Houston, Texas, where we develop our TenarisHydril Wedge technology. We strive to engage some of the world’s leading industrial research institutions to solve the problems posed by the complexities of oil and gas projects with innovative applications. In addition, our global technical sales team is made up of experienced engineers who work with our customers to identify solutions for each particular oil and gas drilling environment.
Product R&D currently being undertaken is focused on the growingly challenging energy markets, which are lately characterized by increasingly efficient oil and gas activities together with growing energy transition related initiatives. Product R&D includes:
- proprietary premium joint products (OCTG) including Dopeless® technology;
- proprietary steels for various applications (oil and gas drilling and transportation, hydrogen transportation and storage, carbon dioxide transportation and injection, automotive, etc.);
- heavy-wall deepwater line pipe, risers and welding technology;
- tubes and components for the automotive industry and other mechanical applications;
- large vessels for hydrogen storage and refueling stations;
- tubes for boilers;
- welded pipes for oil and gas and other applications;
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- sucker rods;
- coiled tubing;
- coatings; and
- new low-carbon products and services for potentially fast-growing segments like hydrogen transportation and storage, carbon capture, use and storage (“CCUS”) and geothermal energy.
In addition to R&D aimed at new or improved products, we continuously study opportunities to optimize our manufacturing processes. Recent projects in this area include hardware, algorithms and numerical modeling applied to rolling, heat treatment, non-destructive testing and finishing processes and the development of different process controls, with the goal of improving product quality and productivity at our facilities.
We seek to protect our innovation, through patents, trade secrets, trademarks and other intellectual property tools that allow us to differentiate ourselves from our competitors.
We spent $45.3 million in R&D in 2021, compared to $41.8 million in 2020 and $61.1 million in 2019.
Capitalized costs were not material for the years 2021, 2020 and 2019.
Environmental, Social and Governance (“ESG”) Regulation
We are subject to a wide range of local, provincial and national laws, regulations, permit requirements and decrees relating to environmental, social and governance matters, including laws and regulations relating to climate-change mitigation, use of resources, hazardous materials and radioactive materials, and air emissions, water discharges and waste management; legislation on human rights and modern slavery; human capital, including equal opportunity, gender and disabilities equality, working conditions, work-life balance, and labor market access; and applicable rules on internal control and risk management, anti-corruption, business partner relationship management and other governance issues. For more information on the Company’s governance practices and applicable regulation, see Item 6. “Directors, Senior Management and Employees”; Item 10.B “Additional Information – Memorandum and Articles of Association”; and Item 16.G “Corporate Governance”.
ESG regulation has been evolving over the past years and is expected to continue to evolve in the future, particularly with respect to environmental matters. Laws and regulations protecting the environment have become increasingly complex and more stringent and expensive to implement in recent years. Environmental requirements vary from one jurisdiction to another adding complexity to the operations of global companies, such as Tenaris.
The Paris Agreement, adopted at the 2015 United Nations Climate Conference, sets out the global framework to limit the rising temperature of the planet and to strengthen the countries’ ability to deal with the effects of climate change. In order to achieve climate neutrality by the year 2050, the European Commission has laid out several action plans, such as the EU climate adaptation strategy, sustainable finance policies and the raw materials alliance. In addition, the EU Non-Financial Reporting Directive provides the legal framework for annual disclosure of non-financial information and, more recently, the EU Taxonomy Regulation establishes a classification system for environmentally sustainable economic activities, laying out definitions to businesses, stakeholders and policymakers on which economic undertakings can be considered environmentally sustainable and requiring companies to disclose, in the annual reports, how environmentally sustainable their economic activities are.
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Similarly, in response to an increasing investor focus and reliance on climate and ESG-related disclosure and investment, the U.S. Securities and Exchange Commission (“SEC”) announced in March 2021 the creation of a Climate and ESG Task Force to identify ESG-related misconduct and potential violations. In addition, the SEC included, as one of its 2021 examination priorities, a greater focus on climate and ESG-related risks. In March 2022, the SEC proposed rule changes that would require registrants to include certain climate-related disclosures in their periodic reports, including information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition, and certain climate-related financial statement metrics in a note to their audited financial statements.
For more information on the impact of climate change legislations, increasing regulatory requirements and extensive technology and market changes, see Item 3.D. “Key Information – Risk Factors - Risks Relating to Our Business and Industry – Climate change legislation and increasing regulatory requirements aimed at transitioning to a lower-carbon economy could reduce demand for our products and services and result in unexpected capital expenditures and costs, and negatively affect our reputation.” For more information on the steps taken by Tenaris to address climate change challenges, see Item 5. “Operating and Financial Review and Prospects – Overview – Climate Change”.
The ultimate impact of complying with ESG regulations, in particular with applicable environmental regulation, is not always clearly known or determinable because certain laws and regulations have been evolving in the past years or are under constant review by competent authorities. The expenditures required to comply with these laws and regulations, including site or other remediation costs, or costs incurred from potential environmental liabilities, could have a material adverse effect on our financial condition and profitability. While we incur, and will continue to incur, in expenditures to comply with applicable laws and regulations, there always remains a risk that environmental incidents or accidents may occur that may negatively affect our reputation or our operations. For more information on risks related to compliance with environmental regulation and product liability, see Item 3.D. “Key Information – Risk Factors - Risks Relating to Our Business and Industry – The cost of complying with environmental regulations and potential environmental and product liabilities may increase our operating costs and negatively impact our business, financial condition, results of operations and prospects.”
Compliance with applicable ESG regulation is of utmost importance to the Company and a significant factor in our industry and business. We have not been subject to any significant penalty for any material violation of applicable ESG regulations, including for any material violation of environmental laws and regulations in 2021, and we are not aware of any current material legal or administrative proceedings pending against us with respect to ESG matters, which could have an adverse material impact on our financial condition or results of operations.
Insurance
We carry property damage, general liability and certain other insurance coverage in line with industry practice. However, we do not carry business interruption insurance. Our current general liability coverage includes third party, employers, sudden and accidental seepage and pollution and product liability, up to a limit of $300 million. Our current property insurance has indemnification caps up to $250 million for direct damage, depending on the different plants; and a deductible of $100 million.
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Disclosure Pursuant to Section 13(r) of the Exchange Act
Tenaris
The Iran Threat Reduction and Syria Human Rights Act of 2012, created a new subsection (r) in Section 13 of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), which requires a reporting issuer to provide disclosure if the issuer or any of its affiliates knowingly engaged in certain enumerated activities relating to Iran, including activities involving the Government of Iran. The Company is providing the following disclosure pursuant to Section 13(r) of the Exchange Act.
In July 2015, the Islamic Republic of Iran entered into the Joint Comprehensive Plan of Action (“JCPOA”) with China, France, Germany, Russia, the United Kingdom and the United States, which resulted in the partial lifting in January 2016 of certain sanctions and restrictions against Iran, including most U.S. secondary sanctions against such country. On May 8, 2018, the United States announced that it would cease participation in the JCPOA and would begin re-imposing nuclear-related sanctions against Iran after a wind-down period. Following the U.S. withdrawal from the JCPOA, the European Union updated Council Regulation (EC) No. 2271/96 of 22 November 1996 (the “EU Blocking Statute”), to expand its scope to cover the re-imposed U.S. nuclear-related sanctions. The EU Blocking Statute aims to counteract the effects of the U.S. secondary sanctions.
As previously reported, Tenaris ceased all deliveries of products and services to Iran by the end of October 2018, that is, during the wind-down period and before the full reinstatement of U.S. secondary sanctions on November 5, 2018. Tenaris has not, directly or indirectly, delivered any goods or services to Iran or Iranian companies during 2021 and does not intend to explore any commercial opportunities in Iran, nor does it intend to participate in tender offers by, or issue offers to provide products or services to, Iranian companies or their subsidiaries.
As of December 31, 2021, the Company’s subsidiary, TGS, maintains an open balance for an advance made by Toos Payvand Co. for approximately EUR0.04 million (approximately $0.04 million) for goods that remained undelivered following the reinstatement of U.S. secondary sanctions.
All revenue and profit derived from Tenaris’s sales to Iran was recorded in the fiscal year in which such sales were performed and, therefore, no revenue and profit has been reported in connection with commercial activities related to Iran for the year ended December 31, 2021.
The Company has procedures in place designed to ensure that its activities comply with all applicable U.S. and other international export control and economic sanctions laws and regulations.
Tenaris’s Affiliates
Pursuant to Section 13(r) of the Exchange Act, the Company is also required to disclose whether any of its affiliates have engaged in certain Iran-related activities and transactions. No affiliate of the Company reported any Iran related activity for the year ended December 31, 2021.
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C. Organizational Structure and Subsidiaries
We conduct all our operations through subsidiaries. The following table shows the principal subsidiaries of the Company and its direct and indirect ownership in each subsidiary as of December 31, 2021, 2020 and 2019.
|
Company |
Country of Incorporation |
Main activity |
Percentage of ownership at December 31, (*) |
||
|
2021 |
2020 |
2019 |
|||
|
ALGOMA TUBES INC. |
Canada |
Manufacturing of seamless steel pipes |
100% |
100% |
100% |
|
CONFAB INDUSTRIAL S.A. and subsidiaries |
Brazil |
Manufacturing of welded steel pipes and capital goods |
100% |
100% |
100% |
|
DALMINE S.p.A. |
Italy |
Manufacturing of seamless steel pipes |
100% |
100% |
100% |
|
HYDRIL COMPANY and subsidiaries (except detailed) (a) |
USA |
Manufacture and marketing of premium connections |
100% |
100% |
100% |
|
IPSCO TUBULARS INC. and subsidiaries |
USA |
Manufacturing of welded and seamless steel pipes |
100% |
100% |
NA |
|
MAVERICK TUBE CORPORATION and subsidiaries |
USA |
Manufacturing of welded steel pipes |
100% |
100% |
100% |
|
NKKTUBES (b) |
Japan |
Manufacturing of seamless steel pipes |
51% |
51% |
51% |
|
P.T. SEAMLESS PIPE INDONESIA JAYA |
Indonesia |
Manufacturing of seamless steel products |
89% |
89% |
89% |
|
S.C. SILCOTUB S.A. |
Romania |
Manufacturing of seamless steel pipes |
100% |
100% |
100% |
|
SAUDI STEEL PIPE CO. |
Saudi Arabia |
Manufacturing of welded steel pipes |
48% |
48% |
48% |
|
SIAT SOCIEDAD ANONIMA |
Argentina |
Manufacturing of welded and seamless steel pipes |
100% |
100% |
100% |
|
SIDERCA SOCIEDAD ANONIMA INDUSTRIAL Y COMERCIAL and subsidiaries |
Argentina |
Manufacturing of seamless steel pipes |
100% |
100% |
100% |
|
TALTA - TRADING E MARKETING SOCIEDADE UNIPESSOAL LDA. |
Portugal |
Holding Company |
100% |
100% |
100% |
|
TENARIS BAY CITY, INC. |
USA |
Manufacturing of seamless steel pipes |
100% |
100% |
100% |
|
TENARIS CONNECTIONS BV |
Netherlands |
Development, management and licensing of intellectual property |
100% |
100% |
100% |
|
TENARIS FINANCIAL SERVICES S.A. |
Uruguay |
Financial company |
100% |
100% |
100% |
|
TENARIS GLOBAL SERVICES (CANADA) INC. |
Canada |
Marketing of steel products |
100% |
100% |
100% |
|
TENARIS GLOBAL SERVICES (U.S.A.) CORPORATION |
USA |
Marketing of steel products |
100% |
100% |
100% |
|
TENARIS GLOBAL SERVICES (UK) LTD |
United Kingdom |
Holding company and marketing of steel products |
100% |
100% |
100% |
|
TENARIS GLOBAL SERVICES S.A. and subsidiaries (except detailed) (c) |
Uruguay |
Holding company and marketing of steel products |
100% |
100% |
100% |
|
TENARIS INVESTMENTS (NL) B.V. and subsidiaries |
Netherlands |
Holding company |
100% |
100% |
100% |
|
TENARIS INVESTMENTS S.àr.l. |
Luxembourg |
Holding company |
100% |
100% |
100% |
|
TENARIS TUBOCARIBE LTDA. |
Colombia |
Manufacturing of welded and seamless steel pipes |
100% |
100% |
100% |
|
TUBOS DE ACERO DE MEXICO, S.A. |
Mexico |
Manufacturing of seamless steel pipes |
100% |
100% |
100% |
| (*) | All percentages rounded. |
| (a) | Tenaris Investments S.àr.l. holds 100% of Hydril's subsidiaries shares except for Technical Drilling & Production Services Nigeria. Ltd where it held 80% for 2019. |
| (b) | Tenaris and JFE agreed to terminate NKKTubes's manufacturing operations by the end of June 2022. |
| (c) | Tenaris holds 98.4% of Tenaris Supply Chain S.A. and 40% of Tubular Technical Services Ltd. and Pipe Coaters Nigeria Ltd., 49% of Amaja Tubular Services Limited, 49% of Tubular Services Angola Lda and 60% of Tenaris Baogang Baotou Steel Pipes Ltd. |
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Other Investments
Ternium
We have a significant investment in Ternium, a Luxembourg company controlled by San Faustin, whose securities are listed on the NYSE. As of December 31, 2021, the Company held 11.46% of Ternium’s share capital (including treasury shares).
The Company is a party to a shareholders’ agreement with Techint Holdings S.àr.l. (“Techint Holdings”), a wholly owned subsidiary of San Faustin and Ternium’s main shareholder, dated January 9, 2006, pursuant to which Techint Holdings is required to take actions within its power to cause one of the members of Ternium’s board of directors to be nominated by the Company and any directors nominated by the Company to be removed only pursuant to previous written instructions from the Company. The Company and Techint Holdings also agreed to cause any vacancies on Ternium’s board of directors to be filled with new directors nominated by either the Company or Techint Holdings, as applicable. The shareholders’ agreement will remain in effect so long as each of the parties holds at least 5% of the shares of Ternium or until it is terminated by either the Company or Techint Holdings pursuant to its terms. Carlos Condorelli was nominated by the Company as a director of Ternium pursuant to this shareholders’ agreement.
Ternium constitutes a “significant subsidiary” of Tenaris under the definitions of terms used in Rule 1-02(w) of Regulation S-X.
Usiminas
At December 31, 2021, Tenaris held, through its Brazilian subsidiary Confab, 36.5 million ordinary shares and 1.3 million preferred shares of Usiminas, representing 5.19% of its shares with voting rights and 3.07% of its total share capital.
Confab’s acquisition of the Usiminas shares was part of a larger transaction performed on January 16, 2012, pursuant to which Tenaris’s affiliate Ternium (through certain of its subsidiaries) and Confab acquired a large block of Usiminas ordinary shares and joined Usiminas’ existing control group. Subsequently, in 2016, Ternium and Confab subscribed to additional ordinary shares and to preferred shares.
At December 31, 2021, the Usiminas control group held, in the aggregate, 483.6 million ordinary shares bound to the Usiminas shareholders’ agreement, representing approximately 68.6% of Usiminas’ voting capital. The Usiminas control group, which is bound by a long-term shareholders’ agreement that governs the rights and obligations of Usiminas’ control group members, is currently composed of three sub-groups: the T/T Group, comprising Confab and certain Ternium entities; the NSC Group, comprising NSC, Metal One Corporation and Mitsubishi Corporation; and Usiminas’ pension fund Previdência Usiminas. The T/T Group holds approximately 47.1% of the total shares held by the control group (39.5% corresponding to the Ternium entities and the other 7.6% corresponding to Confab); the NSC Group holds approximately 45.9% of the total shares held by the control group; and Previdência Usiminas holds the remaining 7%.
The corporate governance rules reflected in the Usiminas shareholders’ agreement include, among others, an alternation mechanism for the nomination of each of the chief executive officer (“CEO”) and the chairperson of the board of directors of Usiminas, as well as a mechanism for the nomination of other members of Usiminas’ executive board. The Usiminas shareholders’ agreement also provides for an exit mechanism consisting of a buy-and-sell procedure, exercisable at any time after November 16, 2022, and applicable with respect to shares held by NSC and the T/T Group, which would allow either Ternium or NSC to purchase all or a majority of the Usiminas’ shares held by the other shareholder.
Confab and the Ternium entities party to the Usiminas shareholders’ agreement have a separate shareholders agreement governing their respective rights and obligations as members of the T/T Group. Such separate agreement includes, among others, provisions granting Confab certain rights relating to the T/T Group’s nomination of Usiminas’ officers and directors under the Usiminas shareholders’ agreement. Those circumstances evidence that Tenaris has significant influence over Usiminas, and consequently, Tenaris accounts for its investment in Usiminas under the equity method (as defined by IAS 28).
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Techgen
Techgen is a Mexican joint venture company owned 48% by Ternium, 30% by Tecpetrol and 22% by Tenaris. Techgen operates a natural gas-fired combined cycle electric power plant in the Pesquería area of the State of Nuevo León, Mexico. Tenaris, Ternium and Tecpetrol are parties to a shareholders’ agreement relating to the governance of Techgen.
In September 2021, the Mexican president submitted to the Mexican Congress a constitutional reform proposal of the electricity sector, which seeks to reverse the legal framework derived from the 2013 constitutional energy reform that opened the sector to private investment. For more information on the risks associated with the energy reform in Mexico, see Item 3.D. “Key Information – Risk Factors – Risks Relating to Our Business and Industry – Adverse economic or political conditions in the countries where we operate or sell our products and services may decrease our sales or disrupt our manufacturing operations, thereby adversely affecting our revenues, profitability and financial condition”.
GPC
GPC is a joint venture company, established in 2010 and located in Jubail, Saudi Arabia, which manufactures LSAW pipes. Tenaris, through its subsidiary SSPC, currently owns 35% of the share capital of GPC. Through the shareholders agreement, SSPC is entitled to choose one of the five members of the board of directors of GPC. In addition, SSPC has appointed GPC’s general manager and has the ability to block any shareholder resolution.
TenarisSeverstal
In 2019, Tenaris entered into an agreement with Severstal to build a welded pipe plant to produce OCTG products in the Surgut area, West Siberia, Russian Federation. Tenaris holds a 49% interest in the company, while Severstal owns the remaining 51%. The plant, which is estimated to require a total investment of $280 million is planned to have an annual production capacity of 300,000 tons.
During 2019, we invested $19.6 million in the project. In 2020, the parties completed all the engineering to get the construction permit but on-site activities were delayed due to the COVID-19 pandemic. Therefore, no additional contributions were made during 2020 and 2021.
The initiative may be further affected or cancelled as a result of the recent armed conflict involving Russia and Ukraine and the designation of Severstal’s controlling shareholder as a person subject to EU and UK sanctions. As of December 31, 2021, our investment in the joint venture amounted to $16.8 million. We are currently assessing the amount to be written off from this investment. For more information see Item 3.D. “Key Information – Risk Factors – Risks Relating to Our Business and Industry – The Russia-Ukraine recent armed conflict may adversely affect our operations”; and item 8.B. “Significant Changes – The Russia-Ukraine armed conflict and its impact on Tenaris’s operations and financial condition”.
TBSP
In 2020, Tenaris entered into a joint venture with Baotou Steel to build a premium connection threading facility to finish steel pipes produced by our joint venture partner in Baotou, China, for sale to the domestic market. Under the agreement, Tenaris holds 60% of shares in TBSP, while Baotou Steel owns the remaining 40%.
The plant, which is estimated to require a total investment of $32.6 million, is planned to have a total annual production capacity of 70,000 tons. An initial investment of $29.8 million will enable the facility to produce 45,000 tons annually. The facility started operations in the first quarter of 2022. As of December 31, 2021, Tenaris contributed approximately $17.9 million in the project.
D. Property, Plants and Equipment
For a description of our property, plants and equipment, please see B. “– Business Overview – Production Process and Facilities” and “– Business Overview – Capital Expenditure Program”.
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Item 4A. Unresolved Staff Comments
None.
Item 5. Operating and Financial Review and Prospects
The following discussion and analysis of our financial condition and results of operations are based on, and should be read in conjunction with, our audited consolidated financial statements and the related notes included elsewhere in this annual report. This discussion and analysis presents our financial condition and results of operations on a consolidated basis. We prepare our consolidated financial statements in conformity with IFRS. IFRS differ in certain significant respects from U.S. GAAP.
Certain information contained in this discussion and analysis and presented elsewhere in this annual report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. See “Cautionary Statement Concerning Forward-Looking Statements”. In evaluating this discussion and analysis, you should specifically consider the various risk factors identified in Item 3.D. “Key Information – Risk Factors”, other risk factors identified elsewhere in this annual report and other factors that could cause results to differ materially from those expressed in such forward-looking statements.
Overview
We are a leading global manufacturer and supplier of steel pipe products and related services for the energy industry and other industries.
We are a leading global manufacturer and supplier of steel pipe products and related services for the world’s energy industry as well as for other industrial applications. Our customers include many of the world’s leading oil and gas companies, engineering companies engaged in constructing oil and gas gathering and processing and power facilities, and industrial companies operating in a range of industries. We operate an integrated worldwide network of steel pipe manufacturing, research, finishing and service facilities with industrial operations in the Americas, Europe, Asia and Africa and a direct presence in most major oil and gas markets.
Our main source of revenue is the sale of products and services to the oil and gas industry, and the level of such sales is sensitive to international oil and gas prices and their impact on drilling activities.
Demand for our products and services from the global oil and gas industry, particularly for tubular products and services used in drilling operations, represents a substantial majority of our total Tubes sales. Our sales, therefore, depend on the condition of the oil and gas industry and our customers’ willingness to invest capital in oil and gas exploration and development as well as in associated downstream processing activities. The level of these expenditures is sensitive to oil and gas prices as well as the oil and gas industry’s view of such prices in the future. Crude oil prices were around $80 per barrel in the third quarter of 2018, but subsequently fell 40% in the fourth quarter of 2018 before recovering in 2019. Prices fell again to historically low levels in the wake of the COVID-19 pandemic and the accompanying collapse in global oil consumption, but have since recovered to exceed pre-pandemic levels. North American natural gas prices (Henry Hub) fell below $2 per million BTU in 2019. In 2021, as demand for LNG exports from the USA increased following the pandemic and a cold Northern hemisphere winter, prices rose to $6 per million BTU and are currently above $4 per million BTU.
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In both 2020 and 2021, worldwide drilling activity, as represented in the number of active drilling rigs published by Baker Hughes, reflecting the collapse in oil consumption and prices in the wake of the COVID-19 pandemic and the subsequent recovery from the fourth quarter of 2020, was around 38% lower as an annual average compared to the level of 2019, but, in January 2022, it was approximately 22% higher than the average of 2021. The recovery in drilling activity following its pandemic-induced collapse has been led by the United States and Canada, where the declines were steepest, whereas the international rig count fell more slowly and began to increase later.
Prior to the 2014 downturn in oil prices, a growing proportion of exploration and production spending by oil and gas companies had been directed at offshore, deep drilling and non-conventional drilling operations in which high-value tubular products, including special steel grades and premium connections, are usually specified. The success, however, of shale drilling operators, with their inherently short investment cycles, in adapting to lower oil and gas costs and increasing production, and the increasing share of oil produced in shale plays as a proportion of global supply, has led to a slowdown in new developments of complex offshore projects with long investment lead times in a context of low and more volatile oil prices, consequently affecting the level of product differentiation. Nevertheless, cost-competitive offshore developments, like those in Brazil and Guyana, continue to be sanctioned and developed.
Our business is highly competitive.
The global market for steel pipes is highly competitive, with the primary competitive factors being price, quality, service and technology. We sell our products in a large number of countries worldwide and compete primarily against European and Japanese producers in most markets outside North America. In the United States and Canada, we compete against a wide range of local and foreign producers. Over the past decade, substantial investments have been made, especially in China but also in other regions around the world, to increase production capacity of seamless steel pipe products. Production capacity for more specialized product grades has also increased. With the downturn between 2014 and 2016 in the price of oil and demand for tubes for oil and gas drilling, the overcapacity in steel pipe and seamless steel pipe production worldwide became acute, extending beyond commodity grades. This situation has been accentuated by the more recent COVID-19 induced collapse in demand and the prospect of an accelerated energy transition. The competitive environment is, as a result, intense, and we expect that this can only continue without substantial capacity reductions. Effective competitive differentiation will be a key factor for Tenaris.
In addition, there is an increased risk of unfairly traded steel pipe imports in markets in which we produce and sell our products. In September 2014, the United States imposed anti-dumping duties on OCTG imports from various countries, including South Korea. Despite the duties imposed, imports from South Korea continued at a very high level. As a result, U.S. domestic producers have requested successive reviews of South Korea’s exports, which are ongoing. At the same time South Korean producers have appealed the duties imposed. Similarly, in Canada, the Canada Border Services Agency introduced anti-dumping duties on OCTG imports from South Korea and other countries in April 2015.
During 2018, in addition to anti-dumping duties, the U.S. government introduced tariffs and quotas pursuant Section 232 on the imports of steel products, including steel pipes, with the objective of strengthening domestic production capacity utilization and investment. Quotas were imposed on the imports of steel products from South Korea, Brazil and Argentina, while 25% tariffs were imposed on imports from most other countries, except Australia. The proportion of the OCTG market supplied by imports has declined from around 60% prior to the imposition of tariffs and quotas to around 40% at the end of 2020. This included, as a direct result of the fixed quota imposed on the imports of steel pipes from South Korea, that South Korean imports halved in 2019 compared to prior levels, but they have continued through 2020, despite the collapse in demand.
We are also exposed to the risk that our competitors may seek to initiate anti-dumping cases against our exports. In 2021, anti-dumping cases were initiated against our exports from Mexico in Canada and against our exports from Mexico and Argentina in the United States. In Canada, a final determination of no injury was issued in January 2022 in respect of our imports from Mexico. In the United States, a preliminary determination of injury has occurred against our imports from Mexico and Argentina but a final determination is not expected before the second half of 2022.
| 55 |
Our production costs are sensitive to prices of steelmaking raw materials and other steel products.
We purchase substantial quantities of steelmaking raw materials, including ferrous steel scrap, DRI, pig iron, iron ore and ferroalloys, for use in the production of our seamless pipe products. In addition, we purchase substantial quantities of steel coils and plates for use in the production of our welded pipe products. Our production costs, therefore, are sensitive to prices of steelmaking raw materials and certain steel products, which reflect supply and demand factors in the global steel industry and in the countries where we have our manufacturing facilities.
The costs of steelmaking raw materials and of steel coils and plates increased during 2021, reaching all-time highs. As a reference, prices for hot rolled coils, HRC Midwest USA Mill, published by CRU, averaged $1,734 per metric ton in 2021 and $632 per metric ton in 2020.
The COVID-19 pandemic, the oil & gas industry situation and their impact on Tenaris’s operations and financial condition
The rapid expansion of the COVID-19 pandemic around the world and the containment measures adopted by governmental authorities triggered a severe fall in global economic activity and precipitated a serious crisis in the energy sector. Global oil and gas demand decreased significantly in the first half of 2020 causing a collapse in prices, an acute oversupply, a rapid build-up of excess inventories, and the consequent drop of investments in drilling activity by Tenaris’s oil and gas customers. The Company took prompt action to mitigate the impact of the crisis and to adapt Tenaris’s operations on a country-by-country basis to comply with applicable rules and requirements and contain the effects of the global crisis. In response to the COVID-19 outbreak, several countries, including countries where Tenaris has operations (such as Argentina, China, Colombia, Italy, Mexico, Saudi Arabia and the United States) took mitigation and containment measures, including bans on business activities and closure of industrial facilities. Tenaris implemented a worldwide restructuring program and cost-containment plan aimed at preserving the financial resources and overall liquidity position and maintaining the continuity of its operations; and adjusted production levels at its facilities including through the temporary closure of certain facilities or production lines and layoffs in several jurisdictions, and reduced capital expenditures and working capital. In addition, Tenaris introduced remote work and other flexible work arrangements and implemented special operations protocols to safeguard the health, safety and wellbeing of Tenaris’s employees, customers and suppliers. Although such measures have so far proved to be successful to mitigate the impact of the crisis on Tenaris, if the virus continues to mutate and spread or new pandemics or public health crises emerge, and new preventive measures are imposed in the future, Tenaris’s operations could be further affected and its results adversely impacted. In addition, although oil prices have exceeded pre-COVID-19 level, demand for oil products is approaching pre-COVID-19 level and demand for natural gas already exceeds them, there remains considerable uncertainty about the future duration and extent of the pandemic with a recent surge of new and more contagious variants of the SARS-CoV-2 virus as well as about the effectiveness of available vaccines and the success of vaccination campaigns. In this uncertain environment our results of operations and financial condition could still be severely affected. Oil and natural gas prices also exceed pre-COVID-19 levels, while oil and gas drilling activity is steadily increasing in North America and the rest of the world and OCTG inventories are at relatively low levels in North America and are at more normal levels in the rest of the world. Tenaris’s North American industrial facilities continue ramping up to meet higher demand and some facilities -temporarily shut down during 2020- were reopened during 2021. In this context, even with raw material, energy and logistic cost increases, Tenaris’s margins show a significant recovery compared to 2020.
With the purpose of assessing Tenaris’s exposure to the effects of the COVID-19 pandemic and its impact on its business, financial position and performance, management has conducted impairment tests, and is closely monitoring the recoverability of long-lived assets and deferred taxes, financial risk management, in particular credit and liquidity risks and the adequacy of its provisions for contingent liabilities.
Tenaris also renegotiated existing contractual obligations with its counterparties to adapt the commitments to the decrease in activity. As a result, Tenaris is adequately complying with all main outstanding contractual commitments and guarantees. In addition, Tenaris has not received any material government grants or public support measures for the years 2021 and 2020, and has not received, nor provided, material arrangements on the form of supply chain financing.
As of the date of this annual report, Tenaris’s capital and financial resources, and overall liquidity position, have not been affected by the pandemic. Tenaris has in place non-committed credit facilities and management believes it has adequate access to credit markets. In addition, Tenaris has a net cash position of approximately $7001 million as of the end of December 2021 and a manageable debt amortization schedule.
Considering Tenaris’s financial position and the funds provided by operating activities, management believes that Tenaris has sufficient resources to satisfy its current working capital needs, service its debt and address short-term changes in business conditions.
Management does not expect to disclose or incur in any material COVID-19-related contingency, and it considers its allowance for doubtful accounts sufficient to cover risks that could arise from credits with customers in accordance with IFRS 9.
1 Net cash / debt is calculated in the following manner:
Net cash= Cash and cash equivalents + Other investments (Current and Non-Current) + / - Derivatives hedging borrowings and investments– Borrowings (Current and Non-Current).
| 56 |
Summary of results
In 2021, our results recovered strongly from the worst effects of the pandemic bolstered by the recovery in oil and gas drilling activity in the Americas and the structural measures we took to improve our profitability over the longer term. Our sales rose 27% year on year, while our EBITDA2 more than doubled with the margin surpassing its pre-pandemic level. At the net income level, our results benefited from an extraordinary contribution from our equity participations in Ternium and Usiminas, reflecting record prices in the flat steel sector, which contrasts with that of 2020, which was impacted by $622 million impairment charges on the carrying value of goodwill and other assets in the United States.
Operating cash flow for the year amounted to $119 million in 2021, compared to $1,520 million in 2020 due to a working capital build of $1.0 billion driven by the ramp up of activity. Although in absolute amounts the build up in working capital in 2021 was similar to the corresponding reduction in 2020, it is lower in terms of days of sales and includes higher raw material and energy costs embedded in inventories. After capital expenditures of $240 million and dividend payments of $319 million during the year, our net cash position declined to $7001 million at the end of the year.
Climate change
To address climate change, Tenaris is taking steps to decarbonize its operations and is developing products and services for use in low-carbon energy applications.
In February 2021, we set a medium-term target to reduce the carbon emissions intensity rate of our operations by 30% by the year 2030, compared to a 2018 baseline, considering Scopes 1 and 2 emissions plus Scope 3 emissions related to raw materials, including steel purchased from third parties.
We aim to achieve this target by using a higher proportion of recycled steel scrap in the metallic mix and by making investments to increase energy efficiency and the use of renewable energy in our energy requirements.
This medium-term target forms part of a broader objective of decarbonizing our operations and reaching carbon neutrality. The timing will depend on the development of emerging technologies and market and regulatory conditions, including carbon pricing and customer support. To achieve this longer-term objective, we will actively pursue the development of technologies involving the use of hydrogen and carbon capture with partners, such as the initiatives we have announced using hydrogen in our Dalmine steel shop in Italy, and carbon capture and use at our Dalmine power plant.
All our steel is produced in electric arc furnaces where recycled steel scrap is used as the primary source of metallic feedstock. We supplement the use of steel scrap with metallics such as pig iron, direct reduced iron and ferroalloys to meet quality, productivity and material specification requirements.
Additionally, we produce our own direct reduced iron for our steel mill in Argentina using natural gas, where the availability of steel scrap is limited.
Steel production in electric arc furnaces using a high proportion of scrap in the metallic charge usually has substantially lower carbon emissions than steel produced using iron ore and metallurgical coal as the primary feedstock.
Over the past year, we have made good progress towards our mid-term objective. By focusing on energy efficiency and reducing the proportion of pig iron used in our electric furnaces, the average carbon emissions intensity of our tubular operations has declined to 1.2 tons of CO2 per ton of steel processed, which compares with the 1.4 tons of CO2 per ton of steel processed in 2018 and 1.3 tons of CO2 per ton of steel processed in 2020. These figures employ worldsteel methodology using local emission factors for purchased electricity.
Most of the reduction in emissions intensity we have achieved to-date has been in Scope 3 emissions by increasing the amount of scrap used and energy efficiency.
Currently, we are focusing on reducing the intensity of our Scope 2 emissions by increasing the use of renewable energy at a number of our facilities around the world.
| 1 | Net cash / debt is calculated in the following manner: |
| Net cash= Cash and cash equivalents + Other investments (Current and Non-Current) + / - Derivatives hedging borrowings and investments– Borrowings (Current and Non-Current). | |
|
2 |
EBITDA is a non-IFRS alternative performance measure—please see Exhibit 7.2 for more information on this measure. |
| 57 |
In this respect, our Board of Directors recently approved an investment project to build a wind farm in Argentina at a cost of $190 million. The project would reduce our CO2 emissions in this country by some 150,000 tons per year, and supply close to 50% of the electricity requirements at our Siderca integrated seamless pipe mill.
The wind farm, which is expected to be completed during 2023, will be located in an area with a highly favorable capacity utilization factor of 58%. This should lead to a reasonable return on the investment even when considering current Argentine wholesale energy market prices.
To accelerate the fulfilment of our targets, we have implemented an internal carbon price at a minimum of $80/ton for evaluating investments, and more generally in our operations.
The development and implementation of our climate change strategy is reviewed by our Board of Directors on a quarterly basis. The Board has nominated our Vice-Chairman, Germán Curá, to take particular responsibility for this and to keep it informed of the progress made.
We are also strengthening our disclosure of climate change-related information. In 2021, we joined the Carbon Disclosure Project (“CDP”), where we received a B rating regarding our management of climate change in 2020.
As we pursue our long-term strategy of achieving carbon neutrality in our operations, we are exploring a range of possibilities with different partners from around the world. We know that there is no single solution, as certain alternatives are better suited to specific sites or regions depending on local infrastructure, resources, technologies and conditions.
We do so with the vision that, as a leader in our industry, we must be competitive in offering our customers low-carbon products and that we have a responsibility to contribute to the development of the technologies that will make this happen.
We also assess the future market outlook for our products with reference to the different scenarios for oil and gas demand published by our customers, international agencies such as the International Energy Agency (“IEA”) and expert energy market consultancies such as Rystad. We refer particularly to scenarios which are consistent with the goals of the Paris Agreement, and those focused on the pace of adoption of new technologies.
These assessments are used as fundamental input for evaluating our business strategy and how to address the risks and opportunities arising from climate change.
As suppliers of tubular products and services to the energy industry, the energy transition provides an important opportunity to develop new products and services for potentially fast-growing segments like hydrogen transportation and storage, CCS and geothermal installations.
| 58 |
We are increasing our investments in R&D and our organizational focus in these areas, which are expected to contribute a significant revenue stream to the company going forward.
We have developed a range of materials technologies that are particularly suited for use in hydrogen storage and transportation, where we are seeing fast growth in demand for large, high-pressure vessels used in the build-out of hydrogen refueling stations for heavy-duty vehicles and buses in Europe and California.
Outlook
The global economy has rebounded strongly this year and, with it demand for energy including oil and gas. Oil and gas production increases have not kept pace with increases in consumption resulting in lower inventory levels and higher prices. Prices for oil exceed pre-pandemic levels and prices for LNG reached unprecedented levels during the fourth quarter of 2021.
Although investments in oil and gas drilling are expected to increase during 2022, from their low levels over the past two years, the level of spending is unlikely to return to pre-pandemic levels, as the oil and gas majors and publicly-listed U.S. shale producers prioritize capital discipline and returns to shareholders, while OPEC+ countries continue to manage production level increases.
Drilling activity is increasing around the world. Over the past year, the increase has been led by the United States and Canada where it will continue at a lower pace. Latin America is leading the recovery in offshore drilling activity, with rises in Brazil, Mexico and Guyana, while onshore drilling activity should step up in the Vaca Muerta shale in Argentina if country investment conditions allow. In the Eastern Hemisphere, the more recent recovery in drilling activity should extend further through the year, led by the Middle East.
In the first half of 2022, we anticipate further increases in sales on higher prices in North America and shipments to an offshore pipeline in Europe. In the second quarter, we should see a significant recovery of sales in the Middle East and Africa. Despite higher energy costs in Europe, our EBITDA3 margin should also continue to increase in the first half.
The global economic conditions may change as a result of the Russia-Ukraine armed conflict and the related wave of sanctions being imposed on Russian individuals, companies and institutions. It is hard to predict how energy and commodity prices will behave and the impact on the prices and availability of energy and steelmaking raw materials. Accordingly, the outlook for global economic activity in general, and the outlook for our industry and operations, in particular, may significantly change, even in the short term, as the armed conflict unfolds. For more information on the potential risks in connection with the Russia-Ukraine conflict, see Item 3.D. “Key Information – Risk Factors – Risks Relating to Our Business and Industry – The Russia-Ukraine recent armed conflict may adversely affect our operations”; and for more information on Tenaris’s operations involving Russia, see item 8.B. “Significant Changes – The Russia-Ukraine armed conflict and its impact on Tenaris’s operations and financial condition”.
Functional and presentation currency
The functional and presentation currency of the Company is the U.S. dollar. The U.S. dollar is the currency that best reflects the economic substance of the underlying events and circumstances relevant to Tenaris’s global operations.
Except for the Brazilian and Italian subsidiaries whose functional currencies are their local currencies, Tenaris determined that the functional currency of its other subsidiaries is the U.S. dollar, based on the following principal considerations:
- sales are mainly negotiated, denominated and settled in U.S. dollars. If priced in a currency other than the U.S. dollar, the sales price may consider exposure to fluctuation in the exchange rate versus the U.S. dollar;
- prices of their critical raw materials and inputs are priced and settled in U.S. dollars;
- transaction and operational environment and the cash flow of these operations have the U.S. dollars as reference currency;
- significant level of integration of local operations within Tenaris’s international global distribution network;
- net financial assets and liabilities are mainly received and maintained in U.S. dollars; and
- the exchange rate of certain legal currencies has long been affected by recurring and severe economic crises.
Results of operations for subsidiaries whose functional currencies are not the U.S. dollar are translated into U.S. dollars at the average exchange rates for each quarter of the year. Financial statement positions are translated at the year-end exchange rates. Translation differences are recognized in a separate component of equity as currency translation adjustments. In the case of a sale or other disposal of any of such subsidiaries, any accumulated translation difference would be recognized in the Consolidated Income Statement as a gain or loss from the sale.
3 EBITDA is a non-IFRS alternative performance measure—please see Exhibit 7.2 for more information on this measure.
| 59 |
A. Operating results
The following discussion and analysis of our financial condition and results of operations are based on our audited consolidated financial statements included elsewhere in this annual report. Accordingly, this discussion and analysis present our financial condition and results of operations on a consolidated basis. See “Presentation of Certain Financial and Other Information - Accounting Principles” and “II. Accounting Policies A. Basis of presentation” and “B. Group accounting” to our audited consolidated financial statements included in this annual report. The following discussion should be read in conjunction with our audited consolidated financial statements and the related notes included in this annual report.
|
Thousands of U.S. dollars (except number of shares and per share amounts) |
For the year ended December 31, |
||
|
2021 |
2020 |
2019 |
|
|
|
|
|
|
|
Selected consolidated income statement data |
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
|
|
Net sales |
6,521,207 |
5,146,734 |
7,294,055 |
|
Cost of sales |
(4,611,602) |
(4,087,317) |
(5,107,495) |
|
Gross profit |
1,909,605 |
1,059,417 |
2,186,560 |
|
Selling, general and administrative expenses |
(1,206,569) |
(1,119,227) |
(1,365,974) |
|
Impairment charge (1) |
(57,075) |
(622,402) |
- |
|
Other operating income (expenses), net |
61,548 |
19,141 |
11,805 |
|
Operating income (loss) |
707,509 |
(663,071) |
832,391 |
|
Finance income |
38,048 |
18,387 |
47,997 |
|
Finance cost |
(23,677) |
(27,014) |
(43,381) |
|
Other financial results |
8,295 |
(56,368) |
14,667 |
|
Income (loss) before equity in earnings of non-consolidated companies and income tax |
730,175 |
(728,066) |
851,674 |
|
Equity in earnings of non-consolidated companies |
512,591 |
108,799 |
82,036 |
|
Income (loss) before income tax |
1,242,766 |
(619,267) |
933,710 |
|
Income tax |
(189,448) |
(23,150) |
(202,452) |
|
Income (loss) for the year for continuing operations |
1,053,318 |
(642,417) |
731,258 |
|
|
|
|
|
|
Income (loss) attributable to (2): |
|
|
|
|
Owners of the parent |
1,100,191 |
(634,418) |
742,686 |
|
Non-controlling interests |
(46,873) |
(7,999) |
(11,428) |
|
Income (loss) for the year (2) |
1,053,318 |
(642,417) |
731,258 |
|
|
|
|
|
|
Depreciation and amortization |
(594,721) |
(678,806) |
(539,521) |
|
Weighted average number of shares outstanding |
1,180,536,830 |
1,180,536,830 |
1,180,536,830 |
|
Basic and diluted earnings (losses) per share |
0.93 |
(0.54) |
0.63 |
|
Dividends per share (3) |
0.27 |
0.07 |
0.41 |
| (1) |
Impairment charge in 2021 represents a charge of $57 million to the carrying value of fixed assets of the CGU NKK, and in 2020 represents a charge of $622 million to the carrying value of goodwill of the CGUs OCTG USA, IPSCO and Coiled Tubing in the amounts of $225 million, $357 million and $4 million respectively, and the carrying value of fixed assets of the CGU Rods USA in the amount of $36 million. |
| (2) | IAS 1 (revised), requires that income for the year as shown on the income statement does not exclude non-controlling interests. Earnings per share, however, continue to be calculated on the basis of income attributable solely to the owners of the parent. |
| (3) | Dividends per share correspond to the dividends paid in respect of the year. |
| 60 |
|
Thousands of U.S. dollars (except number of shares) |
At December 31, |
||
|
2021 |
2020 |
2019 |
|
|
Selected consolidated financial position data |
|
|
|
|
|
|
|
|
|
Current assets |
4,981,173 |
4,287,672 |
5,670,607 |
|
Property, plant and equipment, net |
5,824,801 |
6,193,181 |
6,090,017 |
|
Other non-current assets |
3,643,457 |
3,235,336 |
3,082,367 |
|
Total assets |
14,449,431 |
13,716,189 |
14,842,991 |
|
|
|
|
|
|
Current liabilities |
1,559,645 |
1,166,475 |
1,780,457 |
|
Non-current borrowings |
111,432 |
315,739 |
40,880 |
|
Deferred tax liabilities |
274,721 |
254,801 |
336,982 |
|
Other non-current liabilities |
397,931 |
532,701 |
498,300 |
|
Total liabilities |
2,343,729 |
2,269,716 |
2,656,619 |
|
|
|
|
|
|
Capital and reserves attributable to the owners of the parent |
11,960,578 |
11,262,888 |
11,988,958 |
|
Non-controlling interests |
145,124 |
183,585 |
197,414 |
|
Total equity |
12,105,702 |
11,446,473 |
12,186,372 |
|
|
|
|
|
|
Total liabilities and equity |
14,449,431 |
13,716,189 |
14,842,991 |
|
|
|
|
|
|
Share capital |
1,180,537 |
1,180,537 |
1,180,537 |
|
Number of shares outstanding |
1,180,536,830 |
1,180,536,830 |
1,180,536,830 |
| 61 |
The following table sets forth our operating and other costs and expenses as a percentage of net sales for the periods indicated.
|
Percentage of net sales |
For the year ended December 31, |
||
|
|
2021 |
2020 |
2019 |
|
Continuing operations |
|
|
|
|
Net sales |
100.0 |
100.0 |
100.0 |
|
Cost of sales |
(70.7) |
(79.4) |
(70.0) |
|
Gross profit |
29.3 |
20.6 |
30.0 |
|
Selling, general and administrative expenses |
(18.5) |
(21.7) |
(18.7) |
|
Impairment charge |
(0.9) |
(12.1) |
- |
|
Other operating income (expenses), net |
0.9 |
0.4 |
0.2 |
|
Operating income (loss) |
10.8 |
(12.9) |
11.4 |
|
Finance income |
0.6 |
0.4 |
0.7 |
|
Finance cost |
(0.4) |
(0.5) |
(0.6) |
|
Other financial results |
0.1 |
(1.1) |
0.2 |
|
Income (loss) before equity in earnings of non-consolidated companies and income tax |
11.2 |
(14.1) |
11.7 |
|
Equity in earnings of non-consolidated companies |
7.9 |
2.1 |
1.1 |
|
Income (loss) before income tax |
19.1 |
(12.0) |
12.8 |
|
Income tax |
(2.9) |
(0.4) |
(2.8) |
|
Income (loss) for the year for continuing operations |
16.2 |
(12.5) |
10.0 |
|
|
|
|
|
|
Income (loss) attributable to: |
|
|
|
|
Owners of the parent |
16.9 |
(12.3) |
10.2 |
|
Non-controlling interests |
(0.7) |
(0.2) |
(0.2) |
Fiscal Year Ended December 31, 2021, Compared to Fiscal Year Ended December 31, 2020
The following table shows our net sales by business segment for the periods indicated below:
|
Millions of U.S. dollars |
For the year ended December 31, |
Increase / (Decrease) |
|||
|
|
2021 |
2020 |
|||
|
Tubes |
5,994 |
92% |
4,844 |
94% |
24% |
|
Others |
528 |
8% |
303 |
6% |
74% |
|
Total |
6,521 |
100% |
5,147 |
100% |
27% |
Tubes
The following table indicates, for our Tubes business segment, sales volumes of seamless and welded pipes for the periods indicated below:
|
Thousands of tons |
For the year ended December 31, |
Increase / (Decrease) |
|
|
|
2021 |
2020 |
|
|
Seamless |
2,514 |
1,918 |
31% |
|
Welded |
289 |
480 |
(40%) |
|
Total |
2,803 |
2,398 |
17% |
The following table indicates, for our Tubes business segment, net sales by geographic region, operating income and operating income as a percentage of net sales for the periods indicated below:
|
Millions of U.S. dollars |
For the year ended December 31, |
Increase / (Decrease) |
|
|
|
2021 |
2020 |
|
|
Net sales |
|
|
|
|
- North America |
3,240 |
2,108 |
54% |
|
- South America |
1,051 |
660 |
59% |
|
- Europe |
622 |
566 |
10% |
|
- Middle East & Africa |
832 |
1,194 |
(30%) |
|
- Asia Pacific |
249 |
315 |
(21%) |
|
Total net sales |
5,994 |
4,844 |
24% |
|
Operating income (loss) |
613 |
(616) |
200% |
|
Operating income (loss) (% of sales) |
10.2% |
(12.7%) |
|
| 62 |
Net sales of tubular products and services increased 24% to $5,994 million in 2021, compared to $4,844 million in 2020, reflecting a 17% increase in volumes and a 6% increase in average selling prices. In North America sales increased 54% as there was a recovery in volumes and prices throughout the region, led by the U.S. onshore market. In South America sales increased 59% driven by a recovery in sales in Argentina and the Andean region partially offset by lower sales of connectors in Brazil. In Europe sales increased 10% thanks to a strong growth in sales to the mechanical and automotive sectors partially compensated by lower sales of OCTG products throughout the region. In the Middle East & Africa sales declined 30% as sales in U.A.E. remained stable during the year while sales of OCTG and offshore line pipe declined in the rest of the region. In Asia Pacific sales declined 21% due to lower sales of OCTG throughout the region.
Operating results from tubular products and services, amounted to a gain of $613 million in 2021, compared to a loss of $616 million in 2020. Tubes operating income in 2021 is net of a $57 million impairment charge on NKKTubes fixed assets and severance charges of $27 million, while in 2020 the operating loss includes an impairment charge of $582 million, accelerated depreciations and amortizations of $56 million and severance charges of $139 million. The improvement in operating results was driven by the recovery in sales (volumes and prices), while an increase in raw material and energy costs was partially offset by an improvement in industrial performance due to the increased levels of activity and utilization of production capacity.
Others
The following table indicates, for our Others business segment, net sales, operating income and operating income as a percentage of net sales for the periods indicated below:
|
Millions of U.S. dollars |
For the year ended December 31, |
Increase / (Decrease) |
|
|
|
2021 |
2020 |
|
|
Net sales |
528 |
303 |
74% |
|
Operating income (loss) |
95 |
(47) |
300% |
|
Operating income (loss) (% of sales) |
17.9% |
(15.6%) |
|
Net sales of other products and services increased 74% from $303 million in 2020 to $528 million in 2021, mainly due to higher sales of energy and excess raw materials and sucker rods, as well as our new oilfield services business in Argentina which offers hydraulic fracturing and coiled tubing services.
Operating results from other products and services, amounted to a gain of $95 million in 2021, compared to a loss of $47 million in 2020. In 2020, Others operating income included an impairment charge of $40 million. The increase in profitability is mainly due to the sucker rods business, our new oil services business and the sale of excess raw materials and energy.
Selling, general and administrative expenses, or SG&A, amounted to $1,207 million (18.5% of net sales), compared to $1,119 million (21.7%) in 2020. During 2021 SG&A includes $16 million of leaving indemnities, while in 2020 leaving indemnities were $61 million. The 2021 increase in SG&A is mainly due to higher selling expenses, following the increase in sales.
Impairment charge. In December, 2021, as a result of the expected termination of our NKKTubes joint venture, we recorded a $57 million impairment on its fixed assets. In 2020 we recorded an impairment charge of $622 million on the carrying value of goodwill and other assets in the United States.
Other operating results amounted to a gain of $62 million in 2021, compared to a gain of $19 million in 2020. The gain in 2021 is mainly due to a $36 million recognition of fiscal credits in Brazil and the profit from the sale of assets.
Financial results amounted to a gain of $23 million in 2021, compared to a loss of $65 million in 2020. The variation is mainly explained by a $23 million improvement in net interest income, mainly due to interests from fiscal credits in Brazil received in the second quarter, and a $64 million improvement in net foreign exchange results, mainly related to the depreciation of the Euro, the Brazilian real and the Mexican peso in 2020. These results are to a large extent offset by changes to our currency translation reserve.
| 63 |
Equity in earnings of non-consolidated companies generated a gain of $513 million in 2021, compared to $109 million in 2020. These results were mainly derived from our equity investment in Ternium and Usiminas, and reflect the good dynamics at the flat steel sector derived from record high steel prices.
Income tax charge amounted to $189 million in 2021, compared to $23 million in 2020, reflecting better results in several subsidiaries following the increase in activity in 2021.
Net income amounted to $1,053 million in 2021, compared with a net loss of $642 million in 2020. The change in results reflects the recovery in sales (volumes and prices) following the improvement in the operating environment, while an increase in raw material and energy costs was partially offset by an improvement in industrial performance due to the increased levels of activity and utilization of production capacity. Additionally, our results in 2021 were boosted by an extraordinary contribution from our equity participations, mainly Ternium, reflecting the good dynamics in the flat steel sector derived from record high steel prices, while 2020 was impacted by a $622 million impairment on the carrying value of goodwill and other assets in the United States.
Fiscal Year Ended December 31, 2020, Compared to Fiscal Year Ended December 31, 2019
The following table shows our net sales by business segment for the periods indicated below:
|
Millions of U.S. dollars |
For the year ended December 31, |
Increase / (Decrease) |
|||
|
|
2020 |
2019 |
|||
|
Tubes |
4,844 |
94% |
6,870 |
94% |
(29%) |
|
Others |
303 |
6% |
424 |
6% |
(29%) |
|
Total |
5,147 |
100% |
7,294 |
100% |
(29%) |
Tubes
The following table indicates, for our Tubes business segment, sales volumes of seamless and welded pipes for the periods indicated below:
|
Thousands of tons |
For the year ended December 31, |
Increase / (Decrease) |
|
|
|
2020 |
2019 |
|
|
Seamless |
1,918 |
2,600 |
(26%) |
|
Welded |
480 |
671 |
(28%) |
|
Total |
2,398 |
3,271 |
(27%) |
The following table indicates, for our Tubes business segment, net sales by geographic region, operating income and operating income as a percentage of net sales for the periods indicated below
|
Millions of U.S. dollars |
For the year ended December 31, |
Increase / (Decrease) |
|
|
|
2020 |
2019 |
|
|
Net sales |
|
|
|
|
- North America |
2,108 |
3,307 |
(36%) |
|
- South America |
660 |
1,240 |
(47%) |
|
- Europe |
566 |
641 |
(12%) |
|
- Middle East & Africa |
1,194 |
1,337 |
(11%) |
|
- Asia Pacific |
315 |
345 |
(9%) |
|
Total net sales |
4,844 |
6,870 |
(29%) |
|
Operating (loss) income |
(616) |
755 |
(182%) |
|
Operating (loss) income (% of sales) |
(12.7%) |
11.0% |
|
Net sales of tubular products and services decreased 29% to $4,844 million in 2020, compared to $6,870 million in 2019, reflecting a 27% decline in volumes and a 4% decrease in average selling prices. In North America, we had lower volumes and prices across the region where activity was severely affected by the downturn in oil prices and the pandemic. In South America we also had lower volumes and prices across the region where activity was severely affected by the downturn in oil prices and the pandemic, except in Brazil where offshore drilling activity continued. In Europe, while sales of OCTG in the North Sea and line pipe for downstream processing remained stable, sales of mechanical and other products declined. In the Middle East & Africa, while sales in Saudi Arabia declined, they were compensated by higher OCTG sales in the rest of the Middle East. Line pipe for deepwater product in West Africa and downstream projects through the region declined. In Asia Pacific, our sales declined mainly driven by lower sales in Thailand.
| 64 |
Operating results from tubular products and services amounted to a loss of $616 million in 2020, compared to a gain of $755 million in 2019. In addition to the decline in sales following the drop in drilling activity, our results were negatively impacted by lower absorption of fixed costs and the inefficiencies related to the low level of capacity utilization since March 2020. Additionally, Tubes operating income was affected by $139 million of severance charges, by an impairment charge of $582 million, reflecting the difficult business conditions generated by COVID-19 pandemic, with the collapse in oil demand and prices and the impact on drilling activity and on the demand for steel pipe products and by $138 million higher depreciation and amortization charge mainly related to the incorporation of the IPSCO facilities and the accelerated depreciation of the Prudential facility after the decision to close it and consolidate our Canadian pipe manufacturing operations at our facility in Sault Ste. Marie, Ontario.
Others
The following table indicates, for our Others business segment, net sales, operating income and operating income as a percentage of net sales for the periods indicated below:
|
Millions of U.S. dollars |
For the year ended December 31, |
Increase / (Decrease) |
|
|
|
2020 |
2019 |
|
|
Net sales |
303 |
424 |
(29%) |
|
Operating (loss) income |
(47) |
77 |
(161%) |
|
Operating (loss) income (% of sales) |
(15.6%) |
18.2% |
|
Net sales of other products and services declined 29% from $424 million in 2019 to $303 million in 2020, mainly due to lower sales of energy related products, i.e., sucker rods and coiled tubing.
Operating results from other products and services amounted to a loss of $47 million in 2020, compared to a gain of $77 million in 2019. Others segment in 2020 includes impairment charges for $40 million, as well as charges for leaving indemnities amounting to $4 million. Additionally, results in 2020 were negatively impacted by lower absorption of fixed costs and the inefficiencies related to the low level of capacity utilization since March 2020.
Selling, general and administrative expenses or SG&A, amounted to $1,119 million (21.7% of net sales), compared to $1,366 million (18.7%) in 2019. SG&A during 2020 included $61 million of leaving indemnities. The $247 million reduction in SG&A was mainly due to lower freights and other selling expenses ($131 million) and fixed and other costs ($167 million), net of higher depreciation and amortization ($51 million) related mainly to the incorporation of IPSCO.
Financial results amounted to a loss of $65 million in 2020, compared to a gain of $19 million in 2019. The loss in 2020 corresponds to a net finance cost of $9 million, reflecting a lower net cash position4 and lower yields on the position and $55 million a foreign exchange loss net of derivative results, mainly due to a 9% EUR appreciation on EUR denominated intercompany liabilities at subsidiaries whose functional currency is the U.S. dollar and a 29% Brazilian Real depreciation on USD denominated intercompany liabilities at subsidiaries in Brazil whose functional currency is the Brazilian Real, both results are to a large extent offset by changes to our currency translation reserve.
Equity in earnings of non-consolidated companies generated a gain of $109 million in 2020, compared to $82 million in 2019. These results were mainly derived from our equity investment in Ternium, Techgen and Usiminas.
Income tax charge amounted to $23 million in 2020, compared to $202 million in 2019. The lower charge in 2020 is explained by deferred tax gains arising from losses since the COVID-19 outbreak around March 2020.
Net results for continuing operations amounted to a loss of $642 million in 2020, compared to a gain of $731 million in 2019. The lower results reflect a worse operating environment, include impairment and severance charges, worse financial results, partially compensated by a higher contribution from our non-consolidated investments, mainly Ternium and lower taxes.
B. Liquidity and Capital Resources
The following table provides certain information related to our cash generation and changes in our cash and cash equivalents position for each of the last three years:
|
|
| 4 | Net cash position is a non-IFRS alternative performance measure—please see Exhibit 7.2 for more information on this measure. |
| 65 |
|
Millions of U.S. dollars |
For the year ended December 31, |
||
|
|
2021 |
2020 |
2019 |
|
|
|
|
|
|
Net cash provided by operating activities |
119 |
1,520 |
1,528 |
|
Net cash provided by (used in) investing activities |
268 |
(2,092) |
(40) |
|
Net cash used in financing activities |
(648) |
(375) |
(354) |
|
(Decrease) increase in cash and cash equivalents |
(261) |
(947) |
1,134 |
|
|
|
|
|
|
Cash and cash equivalents at the beginning of year (excluding overdrafts) |
585 |
1,554 |
427 |
|
Effect of exchange rate changes |
(6) |
(22) |
(6) |
|
(Decrease) increase in cash and cash equivalents |
(261) |
(947) |
1,134 |
|
Cash and cash equivalents at the end of year |
318 |
585 |
1,554 |
|
Cash and cash equivalents at the end of year (excluding overdrafts) |
318 |
585 |
1,554 |
|
Bank overdrafts |
0 |
0 |
0 |
|
Other current investments |
398 |
872 |
210 |
|
Non-current investments |
313 |
239 |
18 |
|
Derivatives hedging borrowings and investments |
2 |
8 |
19 |
|
Current borrowings |
(220) |
(303) |
(781) |
|
Non-current borrowings |
(111) |
(316) |
(41) |
|
Net cash at the end of the year |
700 |
1,085 |
980 |
Our financing strategy aims to maintain adequate financial resources and access to additional liquidity. During 2021 cash flow provided by operating activities amounted to $119 million (including an increase in working capital of $1,046 million), our capital expenditures amounted to $240 million, and we paid dividends amounting to $319 million. At the end of the year, we had a net cash position5 of $700 million, compared to $1,085 million at the beginning of the year.
We believe that funds from operations, the availability of liquid financial assets and our access to external borrowing through the financial markets will be sufficient to satisfy our working capital needs, to finance our planned capital spending program and to service our debt in the future twelve months and to address short-term changes in business conditions. For more information see Item 5. “Operating and Financial Review and Prospects – Overview – The COVID-19 pandemic, the oil & gas industry situation and their impact on Tenaris’s operations and financial condition.”
We have a conservative approach to the management of our liquidity, which consists of (i) cash and cash equivalents (cash in banks, liquidity funds and investments with a maturity of less than three months at the date of purchase), and (ii) other investments (fixed income securities, time deposits, and fund investments).
At December 31, 2021, liquid financial assets as a whole (comprising cash and cash equivalents and other investments) were 7% of total assets compared to 12% at the end of 2020.
We hold investments primarily in liquidity funds and variable or fixed-rate securities from investment grade issuers. We hold our cash and cash equivalents primarily in U.S. dollars and in major financial centers. As of December 31, 2021, and December 31, 2020, U.S. dollar denominated liquid assets represented 87% and 95% respectively of total liquid financial assets.
Fiscal Year Ended December 31, 2021, Compared to Fiscal Year Ended December 31, 2020
Operating activities
Net cash provided by operations during 2021 was $119 million, compared to $1,520 million during 2020. This decrease was mainly attributable to a $1,046 million increase in working capital in 2021, while in 2020 the decrease in working capital amounted to $1,059 million, offset by an impairment charge of $622 million in 2020. The annual variation in working capital was mainly attributed to an increase of $1,060 million in inventories related to the recovery in activity, compared to a decrease of $829 million in 2020. For more information on cash flow disclosures and changes to working capital, see note 29 “Cash flow disclosures” to our audited consolidated financial statements included in this annual report.
Investing activities
Net cash provided by investing activities was $268 million in 2021, compared to a net cash used in investing activities of $2,092 million in 2020. We decreased our financial investments by $390 million in 2021 compared to an increase of $887 million in 2020. Additionally, during 2020 we spent $1,025 million in acquisition of subsidiaries.
| 5 | Net cash position is a non-IFRS alternative performance measure—please see Exhibit 7.2 for more information on this measure. |
| 66 |
Financing activities
Net cash used in financing activities, including dividends paid, proceeds and repayments of borrowings and acquisitions of non-controlling interests, was $648 million in 2021, compared to $375 million in 2020.
During 2021 and 2020 we had net repayments of borrowings of $277 million and $239 million respectively.
Dividends paid during 2021 amounted to $319 million and during 2020 amounted to $83 million.
Our total liabilities to total assets ratio was 0.16:1 as of December 31, 2021 and 0.17:1 as of December 31, 2020.
Fiscal Year Ended December 31, 2020, Compared to Fiscal Year Ended December 31, 2019
Operating activities
Net cash provided by operations during 2020 was $1,520 million, compared to $1,528 million during 2019. This decrease was mainly attributable to a $1,059 million decrease in working capital in 2020, while in 2019 the decrease in working capital amounted to $523 million, offset by an impairment charge of $622 million in 2020. The annual variation in working capital was mainly attributed to a decrease of $829 million in inventories, compared to a decrease of $311 million in 2019. For more information on cash flow disclosures and changes to working capital, see note 29 “Cash flow disclosures” to our audited consolidated financial statements included in this annual report.
Investing activities
Net cash used in investing activities was $2,092 million in 2020, compared to a net cash used in investing activities of $40 million in 2019. We increased our financial investments by $887 million in 2020 compared to a reduction of $390 million in 2019. Additionally, during 2020 we spent $1,025 million in acquisition of subsidiaries.
Financing activities
Net cash used in financing activities, including dividends paid, proceeds and repayments of borrowings and acquisitions of non-controlling interests, was $375 million in 2020, compared to $354 million in 2019.
During 2020 we had net repayments from borrowings of $239 million, while in 2019 we had net proceeds from borrowings of $174 million.
Dividends paid during 2020 amounted to $83 million and during 2019 amounted to $484 million.
Our total liabilities to total assets ratio was 0.17:1 as of December 31, 2020 and 0.18:1 as of December 31, 2019.
Principal Sources of Funding
During 2021, we funded our operations with operating cash flows, bank financing and available liquid financial assets. Short-term bank borrowings were used as needed throughout the year.
Financial liabilities
During 2021 borrowings decreased by $288 million to $331 million at December 31, 2021, from $619 million at December 31, 2020.
Borrowings consist mainly of bank loans. As of December 31, 2021, U.S. dollar-denominated borrowings plus borrowings denominated in other currencies swapped to the U.S. dollar represented 78% of total borrowings.
For further information about our financial debt, please see note 20 “Borrowings” to our audited consolidated financial statements included in this annual report.
The following table shows the composition of our financial debt at December 31, 2021, 2020 and 2019:
|
Millions of U.S. dollars |
2021 |
2020 |
2019 |
|
|
|
|
|
|
Bank borrowings |
331 |
619 |
822 |
|
Bank overdrafts |
0 |
0 |
0 |
|
Total borrowings |
331 |
619 |
822 |
| 67 |
Our weighted average interest rates before tax (considering hedge accounting), amounted to 2.09% at December 31, 2021 and to 2.51% at December 31, 2020.
The maturity of our financial debt is as follows:
|
Millions of U.S. dollars |
|
|
|
|
|
|
|
|
At December 31, 2021 |
1 year or less |
1 - 2 years |
2 - 3 years |
3 - 4 years |
4 - 5 years |
Over 5 years |
Total |
|
|
|
|
|
|
|
|
|
|
Borrowings |
220 |
107 |
4 |
- |
- |
- |
331 |
|
Interest to be accrued (*) |
2 |
1 |
0 |
- |
- |
- |
3 |
|
Total |
222 |
108 |
4 |
- |
- |
- |
334 |
| (*) | Includes the effect of hedge accounting. |
Our current borrowings to total borrowings ratio amounted to 0.66:1 as of December 31, 2021 and to 0.49:1 as December 31, 2020. Our liquid financial assets exceeded our total borrowings, we had a net cash position6 (cash and cash equivalents, other current and non-current investments, derivatives hedging borrowings and investments, less total borrowings) of $700 million at December 31, 2021, compared to $1,085 million at December 31, 2020.
As of December 31, 2021, lease liabilities amounted to approximately $117.3 million. The amount of remaining payments with maturity less than 1 year, between 2 and 5 years and more than 5 years is approximately 29.5%, 33.6% and 36.9% of the total remaining payments, respectively.
For information on our derivative financial instruments, please see Item 11. “Quantitative and Qualitative Disclosure about Market Risk – Accounting for Derivative Financial Instruments and Hedging Activities” and note 25 “Derivative financial instruments” to our audited consolidated financial statements included in this annual report.
For information regarding the extent to which borrowings are at fixed rates, please see Item 11. “Quantitative and Qualitative Disclosure About Market Risk”.
Significant Borrowings
Our most significant borrowings as of December 31, 2021 were as follows:
|
Millions of U.S. dollars |
Borrower |
Type |
Final maturity |
Original & Outstanding |
|
Disbursement date |
||||
|
2020 |
Tamsa |
Bilateral |
2023 |
20 |
|
2020 |
Tamsa |
Bilateral |
2023 |
80 |
|
2020-2021 |
SSPC |
Multiple Banks |
2022 - 2024 |
61 |
As of December 31, 2021, Tenaris was in compliance with all of its covenants under its significant borrowings, including financial covenants on leverage ratio.
C. Research and Development, Patents and Licenses, Etc.
See Item 4.B. “Information on the Company – Business Overview – Research and Development”.
D. Trend Information
Principal Factors Affecting Oil and Gas Prices and Demand for Steel Pipes from the Global Oil and Gas Industry
Sales to the oil and gas industry worldwide represent a high percentage of our total sales, and demand for steel pipes from the global oil and gas industry is a significant factor affecting the general level of volumes and prices for our products. Downward pressures on oil and gas prices usually result in lower oil and gas drilling activity and investment throughout the oil and gas industry with consequently lower demand for our steel pipe products and, in some circumstances, upward pressures can result in higher demand from our oil and gas customers.
| 6 | Net cash position is a non-IFRS alternative performance measure—please see Exhibit 7.2 for more information on this measure. |
| 68 |
Whereas oil prices are similar in most parts of the world because oil is a fully tradable commodity, gas prices are influenced by regional factors. In North America, where gas production is extensively developed and there is an extensive regional pipeline system, these factors include available gas storage capacity and seasonal weather patterns, particularly winter temperatures in the United States. LNG prices were traditionally established in relation to international oil prices, particularly in the largest LNG markets in Asia. However, as the market for LNG becomes more global and the United States becomes a relevant source of LNG, LNG prices are now being set increasingly in relation to gas prices prevailing at regional gas hubs.
International oil prices depend on diverse factors. On the supply side, major oil-and-gas-producing nations and companies have frequently collaborated to balance the supply (and thus the price) of oil in the international markets. A major vehicle for this collaboration has been OPEC, and more recently what has become known as OPEC+, which includes OPEC members, plus Russia and certain other countries. Many of our customers are state-owned companies in member countries of OPEC and OPEC+. Another factor that has affected the international price level of oil is the political and socioeconomic conditions of oil-producing countries, such as Libya, Nigeria and Venezuela and the persistence of geo-political and armed conflicts, such as the recent Ukraine-Russia armed conflict, and conflicts affecting the Middle East region, which is home to a substantial proportion of the world’s known oil reserves. See “Item 3.D. “Key Information – Risk Factors – Risks Relating to Our Business and Industry – The Russia-Ukraine recent armed conflict may adversely affect our operations”.
On the demand side, economic conditions and the level of oil inventories have traditionally played a role in oil prices and will continue to do so. Increasingly, however, the rate of substitution of oil and gas by alternative, cleaner fuel sources such as renewables, as well as policies adopted by governments and financing entities worldwide to accelerate the energy transition and by oil and gas companies to adapt their strategies to the energy transition, will also play a significant role in oil prices.
Another factor affecting oil and gas prices has been the ability of producers in the United States and Canada to rapidly increase production from their reserves of tight oil and shale gas in response to changes in market conditions. Production from U.S. tight oil reserves has grown in recent years to represent over 10% of global liquids production, and production from shale gas plays has converted the United States into a net exporter of natural gas and a significant player in the LNG market.
Following three years of relatively stable oil prices of around $100 per barrel, prices started to decline in the middle of 2014 as the rate of U.S. production increase began to exceed the increase in global demand and OPEC confirmed at its November 2014 meeting that it would not cut production to balance demand. As a consequence, prices reached levels below $30 per barrel in January 2016. Prices then recovered to around $80 per barrel during 2018 once OPEC and other producers agreed to cut production levels to accelerate the market rebalancing process. By this time, OPEC and other producers had lifted their production cuts and U.S. oil production was increasing at a rate greater than the increase in global demand. Oil prices declined 40% in the fourth quarter of 2018 before partially recovering in 2019. In 2020, the COVID-19 pandemic caused a sudden and precipitous drop in global oil demand and oil prices collapsed even entering negative territory at one point. Since then, prices have recovered above their pre-pandemic level with the recovery in demand and actions by OPEC member countries and other producers (principally Russia) to cut and then gradually increase production levels. In addition, energy and commodity prices have spiked upwards as result of the armed conflict involving Russia and Ukraine. Although it is hard to predict how energy and commodity prices will behave as the conflict unfolds, higher prices are likely. For more information on the impact of the recent armed conflict in Ukraine, see “Item 3.D. "Key Information – Risk Factors – Risks Relating to Our Business and Industry – The Russia-Ukraine recent armed conflict may adversely affect our operations”.
The 2014 collapse in oil prices, led oil and gas operators to substantially reduce their exploration and production investments. This, in turn, resulted in a severe contraction in demand and pressure on pricing for steel pipes used in oil and gas drilling and associated operations. During 2017, however, oil and gas operators in North America, who were very successful in reducing production costs and increasing drilling efficiencies in their shale plays, increased investments in response to more favorable market conditions, and U.S. operators continued to do so in 2018. However, from 2019, operators have reduced investment in the shales as they reacted to financial market pressures in order to achieve positive cash flow returns. With the collapse of oil prices in March 2020 and continuing pressure from financial markets to generate positive free cash flows7, oil and gas operators around the world made further substantial reductions in their exploration and production investments, to a level around 40% of the average of the 2012-14 period. Although investments have been increasing again, global spending on exploration and production remains well below pre-pandemic levels.
Since the development of the prolific Marcellus shale gas play, North American gas prices have remained at low levels compared to previous decades and relative to other major gas-consuming regions and global LNG prices. For several years, production increases, primarily from productive shale gas deposits, have exceeded regional demand increases, reducing the need for imports, to the extent that, in 2017, the United States became a net exporter of natural gas. Low prices have encouraged investment in gas consuming industrial facilities and LNG export facilities as well as switching from coal to gas for electric power production, particularly with the adoption of new regulations which could force the retirement of older coal-based generating units. With continuing investments in LNG export facilities, the United States has become a major global LNG exporter, and, over the past year, has brought more new LNG capacity to the international market than any other producer.
| 7 |
Free cash flow is a non-IFRS alternative performance measure—please see Exhibit 7.2 for more information on this measure. |
| 69 |
LNG prices mainly reflect supply and demand conditions in Asia, the major LNG-consuming region, although demand has been increasing in regions like Europe, which imports LNG to supplement its traditional pipeline imports from Russia and other neighboring gas-producing regions, and South America, which imports LNG in its winter season and to supplement hydroelectric energy when rainfall is low. Prices show seasonal fluctuations, increasing in the North Asian winter period and declining in the summer months in accordance with demand patterns. As new capacity, particularly from Australia and the United States, entered the market, prices declined in 2019. With the pandemic, prices reached record lows below $3 per million BTU. In 2021, however, spot LNG prices reached record highs far exceeding the oil price equivalent for its calorific value, as the combination of cold Asian and European winters, restrained supply to Europe from Russia, South American drought conditions and supply outages led to a spike in spot prices which exceeded $35 per million BTU at the end of 2021, which dissipated in January 2022, but has since been affected by Russia-Ukraine armed conflict. US natural gas prices also increased during 2021 but only as high as $6 per million BTU although, at $4 per million BTU, they remain above their pre-pandemic levels.
Drilling activity in the United States and Canada, following several years of high activity, fell sharply through 2015 and the first half of 2016 before beginning a recovery which ended at the end of 2018. Drilling activity declined throughout 2019 in response to a fall in oil prices at the end of 2018 and financial market pressures to produce positive cash flow returns. This decline turned into a collapse with the onset of the COVID-19 pandemic in 2020. Since then, there has been a steady recovery through 2021 but activity remains below the pre-pandemic level. Despite lower prices, production levels today are higher than before the 2014 collapse in oil prices but rig counts are much lower, reflecting the strong productivity gains made by the U.S. oil and gas drilling industry. In the rest of the world, drilling activity began to decline in the second half of 2014, continued to decline during 2015, 2016 and 2017 before a gradual recovery in the second half of 2018 and 2019. During 2021, drilling activity in Latin America recovered and a more gradual recovery in the rest of the world began.
Prior to the 2014 downturn in oil prices, a growing proportion of exploration and production spending by oil and gas companies had been directed at offshore, deep drilling and non-conventional drilling operations in which high-value tubular products, including special steel grades and premium connections, are usually specified. The success, however, of shale drilling operators, with their inherently short investment cycles, in adapting to lower oil and gas costs and increasing production, led to a slowdown in new developments of complex offshore projects with long investment lead times in a context of low and more volatile oil prices, consequently affecting the level of product differentiation. Nevertheless, cost-competitive offshore developments, like those in Brazil and Guyana, continue to be sanctioned and developed.
In addition, the increasing cost competitiveness and use of alternative renewable sources of energy will limit growth in demand for oil and gas and put downward pressure on oil and gas prices in the longer term. This trend will accelerate if carbon taxes or carbon pricing instruments resulting in high prices for carbon emissions, or other regulations aimed at reducing the use of fossil fuels, are implemented around the world. In response to the European Green Deal and the more recent UN Climate Change Conference (“COP26”) held in Glasgow in 2021, there has been a substantial increase in the number of commitments to reduce carbon emissions from governments and public companies, including those operating in the oil and gas industry, and increased calls on governments and financial entities to introduce regulations and policies to accelerate the energy transition away from fossil fuels to cleaner sources of energy. Major oil and gas companies have been adapting their strategies to address the energy transition and some are even setting out commitments to significantly reduce production as early as 2030. For more information on climate change regulations, see Item 3.D. “Key Information – Risk Factors – Risks Relating to Our Business and Industry - Climate change legislation and increasing regulatory requirements aimed at transitioning to a lower-carbon economy could reduce demand for our products and services and result in unexpected capital expenditures and costs, and negatively affect our reputation.”
On the other hand, we expect that the energy transition will create new markets for the use of our products and services including in the transportation and storage of hydrogen and for carbon capture and sequestration systems. We constantly monitor the evolution of the strategies of our main customers and their scenarios for future energy demand, considering the global objectives for addressing climate change through the reduction of carbon emissions and national objectives to achieve carbon-neutrality. We also assess the market outlook for our products with reference to the different scenarios for oil and gas demand published by our customers, international agencies such as the IEA and expert energy market consultancies such as Rystad Energy, with particular reference to scenarios that are consistent with the goals of the Paris Agreement and those focused on technological change and the rate of adoption of new technologies. These assessments are used as fundamental input for evaluating our business strategy and how to address the risks and opportunities arising from climate change.
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The tables below show the annual average number of active oil and gas drilling rigs, or rig count, in the United States, Canada, International (worldwide other than the United States and Canada and excluding Iran, Sudan, onshore China, Russia and Syria) and Worldwide, as published by Baker Hughes, for the years indicated and the percentage increase or decrease over the previous year. Baker Hughes, a leading oil service company, has published its rig counts on a monthly basis since 1975 as a general indicator of activity in the oil and gas sector.
Rig count
|
|
2021 |
2020 |
2019 |
|
International (*) |
755 |
825 |
1,098 |
|
Canada |
132 |
89 |
134 |
|
United States |
478 |
433 |
943 |
|
Worldwide |
1,365 |
1,347 |
2,175 |
| (*) | International rig count excludes Iran, Sudan, onshore China, Russia and Syria (discontinued in February 2013). |
Percentage increase (decrease) over the previous year
|
|
2021 |
2020 |
|
International (*) |
(9%) |
(25%) |
|
Canada |
48% |
(33%) |
|
United States |
10% |
(54%) |
|
Worldwide |
1% |
(38%) |
| (*) | International rig count excludes Iran, Sudan, onshore China, Russia and Syria (discontinued in February 2013). |
E. Critical Accounting Estimates
This discussion and analysis of our financial condition and results of operations are based on our audited consolidated financial statements, which have been prepared in accordance with IFRS. IFRS differs in certain significant aspects from U.S. GAAP.
The preparation of our audited consolidated financial statements and related disclosures in conformity with IFRS requires us to make estimates and assumptions that might affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses. Management evaluates its accounting estimates and assumptions, including those related to impairment of goodwill and long-lived assets; income taxes; obsolescence of inventory; contingencies; allowance for trade receivables; defined benefit obligations; business combinations; useful lives of property, plant and equipment and other long-lived assets; fair value estimation of certain financial instruments and property title ownership restriction, and revises them when appropriate. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Although management believes that these estimates and assumptions are reasonable, they are based upon information available at the time they are made. Actual results may differ significantly from these estimates under different assumptions or conditions. For more information see “II. Accounting Policies” to our consolidated financial statements included in this annual report.
Item 6. Directors, Senior Management and Employees
A. Directors and Senior Management
Board of Directors
Management of the Company is vested in a board of directors with the broadest power to act on behalf of the Company and accomplish or authorize all acts and transactions of management and disposal that are within its corporate purpose and not specifically reserved in the articles of association or by applicable law to the general shareholders’ meeting. The Company’s articles of association provide for a board of directors consisting of a minimum of three and a maximum of fifteen directors; however, for as long as the Company’s shares are listed on at least one regulated market, the minimum number of directors must be five. The Company’s current board of directors is composed of eleven directors.
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The board of directors is required to meet as often as required by the interests of the Company and at least four times per year. Board of directors’ meetings can be validly held by means of teleconference call, video conference or any other means genuinely allowing for the participation, interaction and intercommunication of the attending directors. Written decisions, signed by all the directors, are proper and valid as though they had been taken at a meeting of the board of directors duly convened and held. In 2021, the Company’s board of directors met ten times and adopted one unanimous written resolution. A majority of the members of the board of directors in office present or represented at the board of directors’ meeting constitutes a quorum, and resolutions may be adopted by the vote of a majority of the directors present or represented. In case of a tie, the chairman is entitled to cast the deciding vote.
Directors are elected at the annual ordinary general shareholders’ meeting to serve one-year renewable terms, as determined by the general shareholders’ meeting. The general shareholders’ meeting also determines the number of directors that will constitute the board and their compensation. The general shareholders’ meeting may dismiss all or any one member of the board of directors at any time, with or without cause, by resolution passed by a simple majority vote, irrespective of the number of shares represented at the meeting.
The Company’s articles of association provide that the board of directors of the Company may within the limits of applicable law, (a) delegate to one or more persons, whether or not members of the board of directors, the powers necessary to carry out its decisions and to provide day-to-day management (except for approval of material transactions with related parties, which may not be delegated and shall be approved by the board of directors prior opinion of the audit committee), (b) confer to one or more persons, whether or not members of the board of directors the powers deemed to be appropriate for the general technical, administrative and commercial management of the Company, (c) constitute an audit committee formed by directors, determining its function and authority, and (d) constitute any other committee, whose members may or may not be members of the board of directors and determine their functions and authority. On May 3, 2021, the board of directors appointed the Company’s chief executive officer as administrateur délégué and delegated to him the power to manage the Company’s affairs within the ordinary course of business, to the full extent permitted by Luxembourg law, to direct and supervise the business activities of the Company’s subsidiaries and to represent the Company in relation to such matters.
On May 3, 2021, the Company’s annual general shareholders’ meeting re-appointed Mr. Simon Ayat, Mr. Roberto Bonatti, Mr. Carlos Condorelli, Mr. Germán Curá, Mr. Roberto Monti, Mr. Gianfelice Mario Rocca, Mr. Paolo Rocca, Mr. Jaime José Serra Puche, Mr. Yves Speeckaert, Ms. Mónica Tiuba and Mr. Guillermo Vogel, as members of its board of directors, each board member to serve until the next annual shareholders’ meeting that will be convened to decide on the Company’s 2021 annual accounts. The board of directors subsequently reappointed Paolo Rocca as chairman and chief executive officer and Guillermo Vogel and Germán Curá as vice-chairmen of the Company.
The following table sets forth the name of the Company’s current directors, their respective positions on the board, their principal occupation, their years of service as board members and their age.
|
Name |
Position |
Principal Occupation |
Years as Board Member |
Age at |
|
|
|
|
|
|
|
Mr. Simon Ayat |
Director |
Director of Tenaris |
2 |
67 |
|
Mr. Roberto Bonatti (1) |
Director |
Director of San Faustin |
19 |
72 |
|
Mr. Carlos Condorelli |
Director |
Director of Tenaris and Ternium |
15 |
70 |
|
Mr. Germán Curá |
Director |
Director and Vice Chairman of the Board of Tenaris |
4 |
59 |
|
Mr. Roberto Monti |
Director |
Director of YPF S.A. |
17 |
82 |
|
Mr. Gianfelice Mario Rocca (1) |
Director |
Chairman of the board of directors of San Faustin |
19 |
73 |
|
Mr. Paolo Rocca (1) |
Director |
Chairman and Chief Executive Officer of Tenaris |
20 |
69 |
|
Mr. Jaime José Serra Puche |
Director |
Chairman of S.A.I. Derecho & Economía |
19 |
70 |
|
Mr. Yves Speeckaert |
Director |
Director of Tenaris |
5 |
61 |
|
Ms. Mónica Tiuba |
Director |
Director of Tenaris and Chairperson of Tenaris Audit Committee |
4 |
43 |
|
Mr. Guillermo Vogel |
Director |
Director and Vice Chairman of the Board of Tenaris |
19 |
71 |
| (1) |
Paolo Rocca and Gianfelice Mario Rocca are brothers, and Roberto Bonatti is Paolo and Gianfelice Mario Rocca’s first cousin. |
Simon Ayat. Mr. Ayat is a member of the Company’s board of directors. He served as Schlumberger’s executive vice president and chief financial officer from 2007 until early 2020 and as senior strategic advisor to the chief executive officer of Schlumberger’s until January 2022. Mr. Ayat has held several financial and operational positions in Schlumberger, where he commenced his career in 1982. He was based in Paris, Houston and Dallas, as well as in the Middle East and Far East regions, serving as group treasurer, controller, geomarket manager for Indonesia and drilling regional vice president for Asia Pacific. Mr. Ayat is also a member of the board of directors of Liberty Oilfield Services, a leading provider of hydraulic fracturing and wireline services to E&P companies in North America, and Eurasia Drilling Company, the largest provider of drilling services in Russia. He is a French and Lebanese citizen.
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Roberto Bonatti. Mr. Bonatti is a member of the Company’s board of directors. He is a grandson of Agostino Rocca, founder of the Techint Group, a group of companies controlled by San Faustin. Throughout his career in the Techint Group he has been involved specifically in the engineering and construction and corporate sectors. He was first employed by the Techint Group in 1976, as deputy resident engineer in Venezuela. In 1984, he became a director of San Faustin, and from 2001 until 2020 he has served as its president. He is also a member of the board of directors of Ternium. Mr. Bonatti is an Italian citizen.
Carlos Condorelli. Mr. Condorelli is a member of the Company’s board of directors. He served as the Company’s chief financial officer from October 2002 until September 2007. He is also a board member of Ternium. He has held several positions within Tenaris, including also the chief financial officer position in some of the principal Tenaris Group companies and member of the Company’s audit committee between November 1, 2017 and May 2, 2018. He also served as president of the board of directors of Empresa Distribuidora La Plata S.A. (“Edelap”), an Argentine utilities company. Mr. Condorelli is an Argentine citizen.
Germán Curá. Mr. Curá is a member of the Company’s board of directors and also holds the position of Vice Chairman of the Board. He served as president of our operations in North America until May 2, 2018, a position held since 2006. He was first employed by Siderca in 1988. Previously, he served as Siderca’s exports director, Tamsa’s exports director and commercial director, sales and marketing manager of our Middle East subsidiary, president of Algoma Tubes, president and chief executive officer of Maverick Tubulars and president and chief executive officer of Hydril, director of our Oilfield Services global business unit and Tenaris commercial director. He was also a member of the board of directors of API and currently serves as a member of the board of directors of the American Iron and Steel Institute (“AISI”) and of Freyr S.A. He is a marine engineer from the Instituto Tecnológico de Buenos Aires and an MBA graduated from the Massachusetts Institute of Technology. Mr. Curá is an U.S. citizen.
Roberto Monti. Mr. Monti is a member of the Company’s board of directors and of its audit committee. He is a member of the board of directors of YPF S.A. He has served as vice president of exploration and production of Repsol YPF and as chairman and chief executive officer of YPF. He was also the president of Dowell, a subsidiary of Schlumberger and the president of Schlumberger wire & testing division for East Hemisphere Latin America. Mr. Monti is an Argentine citizen.
Gianfelice Mario Rocca. Mr. Rocca is a member of the Company’s board of directors. He is a grandson of Agostino Rocca. He is chairman of the board of directors of San Faustin, member of the board of directors of Ternium, president of the Humanitas Group and president of the board of directors of Tenova S.p.A. Moreover, in Italy, he is member of the board of Bocconi University and of the advisory board of Politecnico di Milano. At international level, he is member of the Harvard Business School Advisory Board and member of the European Round Table of Industrialists (“ERT”). Mr. Rocca is an Italian citizen.
Paolo Rocca. Mr. Rocca is the chairman of the Company’s board of directors and our chief executive officer. He is a grandson of Agostino Rocca. He is also the chairman of the board of directors of Ternium and a director and president of San Faustin. He is a member of the executive committee of the World Steel Association. Mr. Rocca is an Italian citizen.
Jaime José Serra Puche. Mr. Serra Puche is a member of the Company’s board of directors and of its audit committee. He is the chairman of SAI Derecho & Economia, a Mexican consulting firm, and a member of the board of directors of the Mexico Fund, Grupo Vitro, and chairman of the board of BBVA Bancomer. Mr. Serra Puche served as Mexico’s Undersecretary of Revenue, Secretary of Trade and Industry, and Secretary of Finance. He led the negotiation and implementation of NAFTA. Mr. Serra Puche is a Mexican citizen.
Yves Speeckaert. Mr. Speeckaert is a member of the Company’s board of directors. He served as director of KPMG Consulting in London, United Kingdom and Sao Paulo, Brazil, where he led various high-profile engagements in the telecom, energy and agri-business industries. He was also director of structured finance of Banca Intesa-Sanpaolo (London). Since 2010 he is a Luxembourg-based independent director of regulated investment funds (mostly private equity, RE, and UCITS funds, as well as impact funds) and he is a member of the board of directors of several industrial holdings. He is also active in carbon offsetting and climate change mitigation strategies with funds, governments and corporations particularly as related to corporate environmental and social responsibility (“ESR”). He is a member of the Luxembourg Institute of Administrators (“ILA”). He holds an MBA from the University of California at Berkeley and a B.A. in Philosophy from the University of Louvain and is a contributing and active member of the Alumni association of UC Berkeley. Mr. Speeckaert is a Belgian citizen.
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Mónica Tiuba. Ms. Tiuba is a member of Tenaris’s board of directors and chairperson of the audit committee. She is a Brazilian qualified lawyer and accountant with 20 years of professional experience in Brazil and Luxembourg. She started her career at Barbosa, Mussnich & Aragão law firm in Rio de Janeiro, Brazil, where she practiced corporate law, M&A and tax litigation. She worked in EY and PwC, in the Brazil and Luxembourg offices, advising multinational clients, private equity houses and family offices. She gained banking experience working as international senior wealth planner at Banque Edmond de Rothschild, in Luxembourg. She currently serves as member of the board of directors of Investing for Development SICAV, a Luxembourg social impact fund and of its Forest and Climate Change Fund and she is also a member of Freyr Battery’s board of directors and chairperson of the audit and risk committee. She holds a Master of Laws in International and Comparative Law at the Vrije Universiteit Brussel, a specialization in EU tax law from Leiden University and a Master of Laws in international taxation from Vienna University of Economics. Ms. Tiuba is a Brazilian and Luxembourgish citizen.
Guillermo Vogel. Mr. Vogel is a member of the Company’s board of directors and also holds the position of vice chairman of the board. He is the chairman of G Collado SAB de C.V. and Exportaciones IM Promoción S.A. de C.V., and served during three different periods as president of Cámara Nacional de la Industria del Hierro y el Acero (“CANACERO”), the Steel Chamber in Mexico, where he is currently a member of the Executive Commission. He also served as vice chairman of the board of the American Iron and Steel Institute (“AISI”). Mr. Vogel is also a member of the board of directors of each of Techint, S.A. de C.V., Alfa S.A.B. de C.V., Banco Santander (Mexico) S.A., the Universidad Panamericana – IPADE, Corporación Mexicana de Inversiones de Capital S.A., Innovare R&D S.A. de C.V and Club de Industriales, A.C. In addition, he is a member of The Trilateral Commission and member of the International Board of The Manhattan School of Music and chairman of the US-Mexico CEO Dialogue. Mr. Vogel is a Mexican citizen.
Board members Ayat, Monti, Serra Puche, Speeckaert and Tiuba qualify as independent directors under the Exchange Act Rule 10A-3(b)(1) and the Company’s articles of association.
Directors’ Liability
Each director must act in the interest of the Company, and in accordance with applicable laws, regulations, and the Company’s articles of association. Directors are also bound by a general duty of care owed to the Company.
Under the Luxembourg law of August 10, 1915, on commercial companies, as amended (the “Luxembourg Company Law”), directors may be liable to the Company in accordance with general law for the execution of their mandate and for any misconduct in the management of the Company’s affairs. Directors are jointly and severally liable towards either the Company or any third parties from damages resulting from the violation of the Luxembourg Company Law or the Company’s articles of association. Directors shall be discharged from such liability in the case of a violation to which they were not a party provided no misconduct is attributable to them and such violation has been reported to the first general meeting of shareholders after they have acquired knowledge thereof.
Causes of action against directors for damages may be initiated by the Company upon a resolution of the general shareholders’ meeting passed by a simple majority vote, irrespective of the number of shares represented at the meeting. Causes of action against directors who misappropriate corporate assets or commit a breach of trust may be brought by any shareholder for personal losses different from those of the Company.
An action may also be brought against the directors on behalf of the Company by shareholders who, at the general meeting which decided to discharge such directors or members, owned voting securities representing at least ten percent of the votes attaching to all such securities.
It is customary in Luxembourg that the shareholders expressly discharge the members of the board of directors from any liability arising out of or in connection with the exercise of their mandate when approving the annual accounts of the Company at the annual general shareholders meeting. However, any such discharge will not release the directors from liability for any damage caused by unrevealed acts of mismanagement or unrevealed breaches of the Luxembourg Company Law or the Company’s articles of association, nor will it release directors from liability for any personal loss of the shareholders independent and separate from losses suffered by the Company due to a breach either revealed or unrevealed of the Luxembourg Company Law or the Company’s articles of association.
Under Luxembourg law, unless the decision of the board of directors relates to ordinary business entered into under normal conditions, any director having a direct or indirect financial interest conflicting with that of the Company in a transaction which has to be considered by the board of directors, must advise the board thereof and cause a record of her/his statement to be included in the minutes of the meeting and may not take part in the deliberations. At the next following general meeting, before any other resolution is put to vote, a special report must be made on any transactions in which any of the directors may have had an interest conflicting with that of the Company.
Auditors
The Company’s articles of association require the appointment of an independent audit firm in accordance with applicable law. The primary responsibility of the auditor is to audit the Company’s annual accounts and consolidated financial statements and to submit a report on the accounts to shareholders at the annual shareholders’ meeting. In accordance with applicable law, auditors are chosen from among the members of the Luxembourg Institute of Independent Auditors (Institut des réviseurs d’entreprises).
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Auditors are appointed by the general shareholders’ meeting upon recommendation from the Company’s audit committee through a resolution passed by a simple majority vote, irrespective of the number of shares represented at the meeting, to serve one-year renewable terms. Auditors may be dismissed for reasonable cause by the general shareholders’ meeting at any time. Luxembourg law does not allow directors to serve concurrently as external auditors. As part of their duties, auditors report directly to the audit committee.
Pursuant to its charter, the Company’s audit committee is responsible for, among other things, the oversight of the independence and performance of the Company’s external auditors. The audit committee is also responsible to consider and make recommendations to the board of directors, to be put to shareholders for approval at the annual general meeting of shareholders, regarding the appointment, re-appointment or removal of the Company’s external auditors. In addition, the audit committee is responsible to review the appropriateness and provision of permitted non-audit fees and to review and approve any fees (whether for audit, audit-related and non-audit services) payable to the Company’s external auditors. On a yearly basis, in the performance of its functions, the audit committee considers the appointment of the Company’s external auditors and reviews, together with management and the external auditor, the audit plan, audit related services and other non-audit services. The audit committee requests the board of directors to submit the audit committee’s recommendation for the appointment of the Company’s external auditor for each fiscal year and the payment of applicable fees, for final approval by the general shareholders’ meeting. The general shareholders’ meeting regularly approves audit fees and authorizes the audit committee to approve any increase or reallocation of such audit fees as may be necessary, appropriate or desirable under the circumstances. No services outside the scope of the audit committee’s approval can be undertaken by the external auditor.
The shareholders’ meeting held on May 3, 2021, re-appointed PwC Luxembourg as the Company’s independent approved statutory auditor for the fiscal year ended December 31, 2021. At the next annual general shareholders’ meeting scheduled to be held on May 3, 2022, it will be proposed that PwC Luxembourg be re-appointed as the Company’s independent approved statutory auditors for the fiscal year ending December 31, 2022.
Senior Management
Our current senior management as of the date of this annual report consists of:
|
Name |
Position |
Age at |
|
|
|
|
|
Mr. Paolo Rocca |
Chairman and Chief Executive Officer |
69 |
|
Ms. Alicia Móndolo |
Chief Financial Officer |
63 |
|
Mr. Antonio Caprera |
Chief Industrial Officer |
61 |
|
Mr. Gabriel Casanova |
Chief Supply Chain Officer |
63 |
|
Mr. Alejandro Lammertyn |
Chief Digital and Information Officer |
56 |
|
Ms. Paola Mazzoleni (1) |
Chief Human Resources Officer |
45 |
|
Mr. Marcelo Ramos |
Chief Technology Officer |
58 |
|
Mr. Vicente Manjarrez |
President, Andean |
43 |
|
Mr. Luca Zanotti |
President, United States |
54 |
|
Mr. Sergio de la Maza |
President, Mexico |
65 |
|
Mr. Ricardo Prosperi |
President, Canada |
59 |
|
Mr. Renato Catallini |
President, Brazil |
55 |
|
Mr. Javier Martínez Alvarez |
President, Southern Cone |
55 |
|
Mr. Gabriel Podskubka |
President, Eastern Hemisphere |
48 |
|
Mr. Michele Della Briotta |
President, Europe |
49 |
| (1) | As of January 1, 2022, Paola Mazzoleni was replaced by Luis Scartascini as Chief Human Resources Officer |
Paolo Rocca. Mr. Rocca is the Chairman of the Company’s board of directors and our chief executive officer. He is a grandson of Agostino Rocca. He is also the chairman of the board of directors of Ternium and a director and President of San Faustin. He is a member of the executive committee of the World Steel Association. Mr. Rocca is an Italian citizen.
Alicia Móndolo. Ms. Móndolo currently serves as our Chief Financial Officer, a position she assumed in August 2019. Ms. Móndolo joined the Techint Group in 1984 and has more than 35 years of experience in accounting and reporting, audit and finance. From 2010 to 2016, she served as Chief Audit Executive of Tenaris. Previously and from 2016 to 2019, she served as financial officer in several companies in the Techint Group. Ms. Móndolo is an Argentine and Italian citizen.
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Antonio Caprera. Mr. Caprera currently serves as our Chief Industrial Officer, a position he assumed in April 2017. He joined the company in 1990. From 2000 to 2006 he served as quality director at Dalmine in Italy, where he later assumed responsibilities as production director until 2012. From that year and until 2015 he served as production director at Siderca in Argentina, after which he assumed responsibilities as global industrial coordinator based in Mexico until March 2017. Mr. Caprera is an Italian citizen.
Gabriel Casanova. Mr. Casanova currently serves as our Chief Supply Chain Officer, with responsibility for the execution of all contractual deliveries to customers. After graduating as a marine and mechanical engineer, he joined Siderca’s export department in 1987. In 1995 he became Siderca’s Chief Representative in China and from 1997 to 2009 he held several positions in the commercial area in Dalmine. In 2009 he became the head of our supply chain network and in October 2012 he assumed his current position. Mr. Casanova is an Argentine citizen.
Alejandro Lammertyn. Mr. Lammertyn currently serves as our Chief Digital and Information Officer, a position he assumed in 2020. Mr. Lammertyn began his career with Tenaris in 1990. Previously, he served as assistant to the chief executive officer for marketing, organization and mill allocation, supply chain director, commercial director, Eastern Hemisphere area manager and strategic planning director. Mr. Lammertyn is an Argentine citizen.
Marcelo Ramos. Mr. Ramos currently serves as our Chief Technology Officer, with responsibility over technology and quality. Previously he served as corporate quality director and managing director of NKKTubes. He joined the Techint Group in 1987 and has held various positions within Tenaris. He assumed his current position in April 2010, when the quality and technology departments were combined. Mr. Ramos is an Argentine citizen.
Vicente Manjarrez. Mr. Manjarrez is currently president of our operations in the Andean Region, Central America and the Caribbean, based in Colombia. He began his career at our Tamsa mill in Veracruz, Mexico in 2003 as part of the maintenance team and eventually adopted a leading role in the expansion of the plant in 2009 as manager of the new rolling mill. In 2015 he moved to Romania to lead the technical sales team before returning to Colombia to take on the role of senior commercial director in 2017. Mr. Manjarrez is a Mexican citizen.
Luca Zanotti. Mr. Zanotti currently serves as president of our operations in the United States. In 2002, he joined Exiros, the procurement company for the Techint Group, as planning and administration director. He was later promoted to raw materials director and in July 2007 became managing director of Exiros, a position he held until 2010. He served as regional manager Europe, and managing director of Dalmine from 2011 to 2015, when he assumed his current position. Before joining the Techint Group, he was a senior manager at A.T. Kearney in Milan, where he worked from 1998 to 2002, and prior to that he held various business development positions in the Far East for Lovato Electric. Mr. Zanotti is an Italian citizen.
Sergio de la Maza. Mr. de la Maza currently serves as our president, Mexico and also serves as managing director and executive vice-president of Tamsa. He first joined Tamsa in 1980. From 1983 to 1988, Mr. de la Maza worked in several positions in Tamsa. He then became manager of Tamsa’s new pipe factory and later served as manufacturing manager and quality director of Tamsa. Subsequently, he was named manufacturing director of Siderca. He assumed his current position in 2003. Mr. de la Maza is a Mexican citizen.
Ricardo Prosperi. Mr. Prosperi currently serves as president of our operations in Canada. He joined the Techint Group in 1985, working in the Siderar planning department. From 1985 to 1998, Mr. Prosperi held several positions in Siderar before becoming the exports general manager of Sidor. He later went on to be the commercial director in Siderar. After a period as president of Ternium Sidor in Venezuela and then International Area Manager for Ternium, he joined Tenaris in 2010, where he has served as president of our operations in the Andean Region, Central America and the Caribbean, based in Colombia. Mr. Prosperi is an Argentine citizen.
Renato Catallini. Mr. Catallini currently serves as president of our operations in Brazil, a position that he assumed in October 2012, after having served as our supply chain director since August 2007. He joined Tenaris in 2001 in the supply management area, as a general manager of Exiros Argentina. In July 2002, he was appointed operations director and subsequently, in January 2005, became managing director of Exiros. Before joining Tenaris, he worked for ten years in the energy sector, working for TGN, Nova Gas International, TransCanada Pipelines and TotalFinaElf, among others. Mr. Catallini is an Argentine and Italian citizen.
Javier Martínez Álvarez. Mr. Martínez Álvarez currently serves as president of our operations in the Southern Cone, a position he assumed in June 2010, having previously served as our Andean area manager. He began his career in the Techint Group in 1990, holding several positions including planning manager of Siderar and commercial director of Ternium-Sidor. In 2006, he joined Tenaris as our Venezuela area manager. Mr. Martínez Alvarez is an Argentine citizen.
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Gabriel Podskubka. Mr. Podskubka currently serves as president of our operations in the Eastern Hemisphere, based in Dubai. He assumed his current position in April 2013 after serving as the head of our operations in Eastern Europe for four years. After graduating as an industrial engineer Mr. Podskubka joined the Techint Group in 1995 in the marketing department of Siderca. He held various positions in the marketing, commercial, and industrial areas until he was appointed as oil & gas sales director in the United States in 2006. Mr. Podskubka is an Argentine citizen.
Michele Della Briotta. Mr. Della Briotta currently serves as president of our operations in Europe, a position he assumed in July 2016. He first joined Tenaris in 1997 and has worked in areas such as industrial planning, operations, supply chain and commercial in Italy, Mexico, Argentina and the United States. Most recently he served as Tenaris’s area manager for Romania. Mr. Della Briotta is an Italian citizen.
Luis Scartascini. Mr. Scartascini currently serves as our Chief Human Resources Officer, a position he assumed on January 1, 2022. After receiving a degree in industrial engineering, he started his career in Siderca in 1997 and then moved to Houston in 2003 to be part of the company’s commercial office in the United States. In 2005 he moved back to Argentina to serve as the director of the Global Trainee program before heading to Dubai in 2010 to lead the Middle Eastern Business Unit and later support the acquisition of Saudi Steel Pipes. He returned to the United States in 2018 as commercial vice president and played a leading role in the commercial integration of IPSCO. Mr. Scartascini is an Argentine and Italian citizen.
B. Compensation
The compensation payable to the members of the Company’s board of directors for the performance of their services to the Company is determined at the annual ordinary general shareholders’ meeting. The general meeting of shareholders held on May 3, 2021, approved the compensation paid to directors for the performance of their duties during the fiscal year 2021 and resolved that (i) each director receive a fixed compensation for an amount of $115,000; (ii) each director who is also a member of the Company’s audit committee receives an additional fee of $55,000; and (iii) the chairperson of the Company’s audit committee receives an additional fee of $10,000. No variable compensation has been paid or shall be payable to directors for services rendered during the year 2021 and no long-term incentive or pension plan is available to directors.
The compensation paid to the Company’s managing director or chief executive officer is determined by the board of directors. The cash compensation paid or payable to the chief executive officer for the performance of his duties during the year 2021 amounts to $8.5 million, of which $3 million corresponds to fixed compensation and $5.5 million corresponds to variable compensation. No long-term incentive or pension plan is awarded to the chief executive officer.
The aggregate cash compensation paid to all directors and senior managers of the Company for the year 2021 amounted to $37.7 million. This amount includes cash benefits paid to certain senior managers in connection with pre-existing retirement plans. In addition, directors and senior managers received for the year 2021, 382 thousand units for a total amount of $3.9 million in connection with the employee retention and long-term incentive program described in note II.P.3 “Accounting Policies - Employee benefits - Other long term benefits” to our audited consolidated financial statements included in this annual report.
The Luxembourg Law of August 1, 2019 (amending the Luxembourg Law of May 24, 2011) (the “Shareholders’ Rights Law”) on the exercise of certain rights of shareholders in general meetings of listed companies, which transposes EU Directive 2017/828 of the European Parliament and of the Council of May 17, 2017 (amending Directive 2007/36/EC) regarding the encouragement of long-term shareholder engagement in listed companies within the Member States of the European Union, requires EU listed companies to adopt a Compensation Policy setting forth the principles and guidelines for purposes of determining the compensation payable to the members of the Company’s board of directors and the managing director or chief executive officer and annual Compensation Reports describing the annual compensation paid to directors and the chief executive officer for the performance of their duties.
The Company’s board of directors approved, at its meeting held on April 29, 2020, the Compensation Policy of the Company, which was submitted to an advisory non-binding vote at the shareholders meeting held on June 2, 2020, and approved by majority vote. The Compensation Policy is available on the Company’s website and will be submitted to the non-binding vote of the shareholders every four years, to the extent required by Luxembourg law, or in the event of a material amendment thereto.
In addition, on March 30, 2022, the Company’s board of directors approved the 2021 Compensation Report, which is available on the Company’s website and will be submitted to the non-binding vote of the shareholders at the next general meeting of shareholders scheduled to be held on May 3, 2022.
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C. Board Practices
See A. “– Directors and Senior Management – Board of Directors”.
Audit Committee
Pursuant to the Company’s articles of association, as supplemented by the audit committee’s charter, for as long as the Company’s shares are listed on at least one regulated market, the Company must have an audit committee composed of at least three members, the majority of whom must qualify as independent directors, provided, however, that the composition and membership of the audit committee shall satisfy such requirements as are applicable to, and mandatory for, audit committees of issuers such as the Company under any law, rule or regulation applicable to the Company (including, without limitation, the applicable laws, rules and regulations of such regulated market or markets).
Under the Company’s articles of association, an independent director is a director who:
- is not and has not been employed by us or our subsidiaries in an executive capacity for the preceding five years;
- is not a person that controls us, directly or indirectly, and is not a member of the board of directors of a company controlling us, directly or indirectly;
- does not have (and is not affiliated with a company or a firm that has) a significant business relationship with us, our subsidiaries or our controlling shareholder;
- is not and has not been affiliated with or employed by a present or former auditor of us, our subsidiaries or our controlling shareholder for the preceding five years; and
- is not a spouse, parent, sibling or relative up to the third degree of any of the above persons.
The audit committee of the Company’s board of directors currently consists of three members: Mr. Roberto Monti, Mr. Jaime José Serra Puche and Ms. Mónica Tiuba, who were appointed to the audit committee by the Company’s board of directors on May 3, 2021. As of the date of this annual report, all members of the audit committee qualify as independent directors both for purposes of the Exchange Act Rule 10A-3(b)(1), and under the Company’s articles of association. The board of directors of the Company has determined that Ms. Tiuba qualifies as “audit committee financial expert” under applicable SEC rules and has competence in accounting or auditing matters, as required by applicable Luxembourg law. In addition, the membership of the audit committee as a whole has sufficient relevant knowledge of the business and financial experience to properly discharge its functions.
The audit committee operates under a charter amended and restated by the board of directors on October 8, 2021. The audit committee assists the board of directors in its oversight responsibilities relating to (i) the integrity of the Company’s financial statements; (ii) the effectiveness of the Company’s systems of internal control, risk management and internal audit over financial reporting; and (iii) the independence and performance of the Company’s external auditors. The audit committee also performs other duties entrusted to it by the Company’s board of directors or required to be performed by it under applicable laws and regulations.
In addition, the audit committee is required to review and, where applicable, approve material transactions between the Company or its subsidiaries and related parties, as provided in the Company’s articles of association, or as may be required by any law, rule or regulation applicable to the Company, in order to determine whether their terms are consistent with the interests of the Company and all its shareholders and are consistent with market conditions or are otherwise fair to the Company and its subsidiaries. The Company has adopted a Related Party Transactions Policy and Procedure setting forth the revised, updated and consolidated guidelines and processes through which the Company identifies, approves and manages related party transactions, seeking to assure transparency and substantial and procedural fairness of such transactions, as well as compliance with the provisions in the Company’s articles of association and the audit committee charter relating to transactions with related parties, Luxembourg rules relating to the approval and disclosure of material related party transactions, and Section 314.00 of the NYSE Listed Company Manual.
Under the Company’s articles of association, as supplemented by the Related Party Transactions Policy and Procedure, a “related party” is any of the following persons: (i) any affiliate of the Company; (ii) any entity in which a controlling person owns a substantial interest or over which a controlling person can exercise significant influence; (iii) any unconsolidated entity in which the Company has significant influence; (iv) any entity or individual having significant influence over the Company, or a close family member of any such individual; (v) any individual or entity that is the beneficial owner of five percent (5%) or more of the shares of the Company, including through the ownership of any securities representing shares of the Company; (vi) any director or executive officer of any of the controlling persons, the Company or any of the subsidiaries, or a close family member of any such director or executive officer; (vii) any entity in which a substantial interest in the voting power is owned, directly or indirectly, by any person described in (iv), (v) or (vi) above or over which such a person is able to exercise significant influence; or (viii) any entity that has a member of key management in common with the Company or any of its subsidiaries (provided that key management personnel includes persons having authority and responsibility for planning, directing and controlling the activities of an entity, including directors and executive officers and close family members of any such individuals).
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With respect to the materiality threshold for review and approval of related party transactions, the Company’s articles of association, as supplemented by the audit committee’s charter and the Related Party Transactions Policy and Procedure, provide that the following related party transactions, which are qualified as Level 1 related party transactions, are subject to review by the audit committee, which shall make a recommendation to the board of directors as to either reject or approve the proposed related party transaction:
- any transaction between the Company or its subsidiaries with related parties (i) with an individual value equal to or greater than $10 million, or its equivalent in other currencies, or (ii) with an individual value lower than $10 million, or its equivalent in other currencies, when the aggregate sum reflected in the financial statements of the four fiscal quarters preceding the date of determination- of any series of transactions for such lower value that can be deemed to be parts of a unique or single transaction (but excluding any transactions that were reviewed and approved by Company’s audit committee or board of directors, as applicable, or the independent members of the board of directors of any of its subsidiaries) exceeds 1.5% of the Company’s consolidated net sales made in the fiscal year preceding the year on which the determination is made; and
- any corporate reorganization transaction (including a merger, spin-off or bulk transfer of a business) affecting the Company or any of its subsidiaries for the benefit of, or involving, a related party.
In addition, any related party transaction that does not qualify as a “Level 1” related party transaction, but which has an individual value equal to or higher than such value threshold as management may from time to time determine as material to the Company for disclosure purposes under Item 7.B of this annual report, qualifies as a “Level 2” related party transaction and must be reviewed by the audit committee for purposes of making a determination as to whether any conflicts of interest exist and whether the proposed related party transaction is consistent with the interests of the Company and all shareholders, in order to either reject or approve the proposed transaction. Any related party transaction that is less than such value qualifies as a “Level 3” related party transaction and is reviewed by the Company’s related-party transaction unit, the area within the Company responsible for centralizing and compiling the information relating to all related party transactions and performing the review, assessment and other procedures contemplated in the Related Party Transactions Policy and Procedure.
The audit committee has the power (to the maximum extent permitted by applicable laws) to request that the Company or relevant subsidiary promptly provide all information necessary for the audit committee to assess the material transactions with related parties that it is required to review. In no event may any proposed related party transaction be entered into or otherwise be given effect unless it has been reviewed and approved in accordance with the Related Party Policy and Procedure. Any executed transaction that has not been duly reviewed and approved must be promptly submitted for review in accordance with applicable procedures and, if determined appropriate, must be ratified; if the transaction is not ratified, it must be modified to make it acceptable for ratification or it must otherwise be immediately discontinued or rescinded.
The audit committee has the authority to conduct any investigation appropriate to the fulfillment of its responsibilities and has direct access to the Company’s external auditors as well as anyone in the Company and, subject to applicable laws and regulations, its subsidiaries. In addition, the audit committee may engage, at the Company’s expense, independent counsel and other internal or external advisors to review, investigate or otherwise advise on, any matter as the committee may determine to be necessary to carry out its purposes and responsibilities.
In addition, the Company has established at management-level a critical risk committee (“CRC”) that assists the Company’s board of directors, the audit committee and the chief executive officer in connection with the monitoring, assessment and review of risks to which Tenaris is exposed and in the oversight of the risk management framework and processes, with a focus on critical risks (including cybersecurity, environmental, health and safety, product liability, intellectual property, financial reporting and regulatory risks), the development of mitigating actions, and the monitoring of action plans. The critical risk committee periodically reports to the board of directors, the audit committee and the chief executive officer on its activities.
More recently, the CRC has focused its attention on preventive measures and mitigating actions in response to the COVID-19 outbreak and the global economic crisis and potential cyberattacks. In addition, the CRC has also worked on climate change related risks. For more information on climate change, its impact on the Company and the Company’s response, see Item 3.D. “Key Information – Risk Factors – Risks Relating to Our Business and Industry – Climate change legislation and increasing regulatory requirements aimed at transitioning to a lower-carbon economy could reduce demand for our products and services and result in unexpected capital expenditures and costs, and negatively affect our reputation” and “ Item 3.D. “Key Information – Risk Factors – Risks Relating to Our Business and Industry – The physical risks resulting from climate change, including extreme weather conditions and shifts in weather patterns, have in the past and may in the future adversely affect our operations and financial results;” and Item 5. “Operating and Financial Review and Prospects – Overview – Climate Change”.
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D. Employees
The following table shows the number of persons employed by Tenaris as of December 31:
|
|
2021 |
2020 |
2019 |
|
|
|
|
|
|
Mexico |
5,474 |
4,501 |
5,370 |
|
Argentina |
5,169 |
4,376 |
5,405 |
|
USA |
2,684 |
1,596 |
2,255 |
|
Italy |
2,011 |
2,039 |
2,144 |
|
Brazil |
1,817 |
1,360 |
1,360 |
|
Romania |
1,725 |
1,552 |
1,815 |
|
Colombia |
1,009 |
746 |
1,040 |
|
Canada |
758 |
561 |
772 |
|
Indonesia |
506 |
521 |
616 |
|
Japan |
379 |
399 |
400 |
|
Other countries |
1,244 |
1,377 |
2,023 |
|
|
22,776 |
19,028 |
23,200 |
Approximately two-thirds of our employees are unionized. In all the countries we have presence, we operate in full respect of the institutional rules and local regulations. We forge our relations with the unions based on the premise of an open dialogue and a rich interchange of proposals.
Tenaris is committed to leading with care, providing a flexible and agile working environment that encourages health, safety and wellbeing; accountability, inclusion and trust, allowing employees to develop their skills and careers while contributing to our goals.
In terms of human resources our goals are:
| • | to foster trust and empower employees to manage and promote change and innovation, providing them with the training and technological resources to succeed; |
| • |
to embed sustainability values through transparent and effective processes, helping employees shape their professional careers; |
| • |
to encourage continuous learning and feedback through concrete tools; and |
| • |
to respect and promote diversity and inclusion in all its forms, focused on gender, age, culture and background. |
The disruption and uncertainty brought by the COVID pandemic, which continues to affect countries around the world as new variants of the virus emerge, has reset work trends. As we begin to move out of pandemic mode to a more flexible set-up, we are focusing on restructuring relationships with the workplace and with each other as part of our “New Way of Working”, incorporating plans to make our offices new and attractive places to interact and feel part of the organization, reshaping our own talent management, engagement and planning strategies. Our “New Way of Working” strategy recognizes the need for a new work-life paradigm in the context of the many possibilities offered by hybrid work and learning, with increasing demand for new critical competencies. Flexibility at all levels benefits the quality of people’s lives and work when focus is placed on achieving objectives and productivity rather than hours spent in the workplace. It brings a greater sense of accountability, as we trust people’s professional responsibility and commitment.
The ramp-up in activity, particularly at our U.S. operations, in response to the recovery in demand, has led to a substantial increase in employees during the year, with shop-floor employees increasing by 4,000 from October 2020 until the end of 2021. We reinforced health, safety and environment training to ensure all employees received training to minimize incidents and accidents while keeping quality and productivity levels high on the production lines. Annual training hours for shop-floor employees with less than one year of seniority came to an average of 56 per person, three times higher than for those with over one year of seniority.
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The Company’s Code of Conduct prohibits unlawful discrimination in employment relationships, granting all people the right to apply for a position in Tenaris, or to be considered for a new position based on merit, without arbitrary discrimination. The Company’s Human Resources Policy champions equal opportunities by ensuring that hiring, promotion, transfer, notice periods, dialogue, rights and protection, as well as other employment decisions are taken without regard for race, color, religious belief, gender, age, disability, national origin or sexual orientation. Compensation and remuneration are based on each person’s duties, personal performance, competence and behavior. Tenaris pursues a policy of inclusive corporate culture and leadership, recognizing the range of benefits brought by embracing diversity in all its aspects, from gender to nationality and age. Specifically, we are making headway in our drive to improve the gender balance, in the knowledge that tackling the male-dominated traditions prevalent in the steel industry will contribute positively to our performance culture.
E. Share Ownership
To our knowledge, the total number of shares (in the form of ordinary shares or ADSs) beneficially owned by our directors and senior management as of the date of this annual report was 921,603, which represents 0.08% of our outstanding shares.
The following table provides information regarding share ownership by our directors and senior management:
|
Director or Officer |
Number of Shares Held |
|
|
|
|
Guillermo Vogel |
850,446 |
|
Carlos Condorelli |
67,211 |
|
Gabriel Podskubka |
3,946 |
|
Total |
921,603 |
Item 7. Major Shareholders and Related Party Transactions
A. Major Shareholders
The following table shows the beneficial ownership of our securities (in the form of shares or ADSs) by (1) the Company’s major shareholders (persons or entities that have notified the Company of holdings in excess of 5% of the Company’s share capital), non-affiliated public shareholders, and (2) the Company’s directors and senior management as a group. The information below is based on the most recent information provided to the Company.
|
Identity of Person or Group |
Number |
Percent |
|
|
|
|
|
San Faustin (1) |
713,605,187 |
60.45% |
|
Directors and senior management as a group |
921,603 |
0.08% |
|
Public |
466,010,040 |
39.47% |
|
Total |
1,180,536,830 |
100.00% |
| (1) | San Faustin owns all of its shares in the Company through its wholly-owned subsidiary Techint Holdings S.à r.l. The private foundation located in the Netherlands RP STAK holds voting rights in San Faustin sufficient in number to control San Faustin. No person or group of persons controls RP STAK. |
The voting rights of the Company’s major shareholders do not differ from the voting rights of other shareholders. None of its outstanding shares have any special control rights. There are no restrictions on voting rights, nor are there, to the Company’s knowledge, any agreements among shareholders of the Company that might result in restrictions on the transfer of securities or the exercise of voting rights.
The Company does not know of any significant agreements or other arrangements to which the Company is a party and which take effect, alter or terminate in the event of a change of control of the Company. The Company does not know of any arrangements, the operation of which may at a later date result in a change of control of the Company.
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Tenaris is a party to several related party transactions as described in note 30 “Related party transactions” to our Consolidated Financial Statements included in this annual report. Material related party transactions are subject to the review of the audit committee of the Company’s board of directors and the requirements of Luxembourg law. For further details on the approval process for related party transactions, see Item 6.C. “Directors, Senior Management and Employees – Board Practices – Audit Committee”.
Purchases of Steel Products and Raw Materials
In the ordinary course of business, we purchase round steel bars, flat steel products and other raw materials from Ternium or its subsidiaries. These purchases are made on similar terms and conditions as sales made by Ternium to unrelated third parties. These transactions include:
- Purchases of round steel bars made under a long-term agreement, for use in our seamless steel pipe operations in Mexico, which amounted to $157 million in 2021 and $51 million in 2019.
- Purchases of flat steel products for use in the production of welded pipes and accessories, which amounted to $32 million in 2021, $13 million in 2020 and $20 million in 2019.
- Purchases of scrap and other raw materials for use in the production of seamless pipes, which amounted to $9 million in 2021, $2 million in 2020 and $4 million in 2019.
In the ordinary course of business, we purchase flat steel products from Usiminas for use in our welded steel pipe operations. These purchases, which are made on similar terms and conditions as sales made by Usiminas to unrelated third parties, amounted to $27 million in 2021, $20 million in 2020 and $59 million in 2019.
Sales of Raw Materials
In the ordinary course of business, we sell raw materials and other production inputs to Ternium or its subsidiaries. These sales are made on similar terms and conditions as sales to other unrelated third parties. These transactions include:
- Sales of ferrous scrap, and other raw materials, which amounted to $36 million in 2021, $15 million in 2020 and $17 million in 2019.
- Sales of steam and operational services from our Argentine electric power generating facility in San Nicolás. These sales amounted to $1 million in 2019. On January 29, 2019, the electric power generation facility was shut down.
Purchase Agency Services and Sales of Materials
Exiros B.V. (“Exiros”), in which we have 50% share ownership and Ternium owns the remaining 50%, provides purchase agency services and raw materials and other products to various companies controlled by or under the significant influence of San Faustin. Pursuant to the Exiros shareholders’ agreement, Tenaris recognizes Exiros’ assets, liabilities, revenue and expenses in relation to its interest in the joint operation. Exiros’ total sales to companies controlled by San Faustin or under the significant influence of totaled $76 million in 2021, $9 million in 2020 and $16 million in 2019.
Supply of Electric Energy
Techgen, which is currently owned 48% by Ternium, 30% by Tecpetrol and 22% by Tenaris, operates an electric power plant in Pesquería, Mexico. Ternium and Tenaris currently contract 78% and 22%, respectively, of Techgen’s power capacity. Techgen sells to third parties on behalf of Tenaris the unused electricity that Tenaris purchased from Techgen.
Techgen net sales of electricity to Tenaris amounted to $70 million in 2021, $48 million in 2020 and $40 million in 2019.
We are party to contracts with Tecpetrol, TGN and Litoral Gas relating to the supply of natural gas to our operations in Argentina. Tecpetrol is a company controlled by San Faustin, engaged in oil and gas exploration and production and has rights to various oil and gas fields in Argentina and elsewhere in Latin America. TGN, a company in which San Faustin has joint control since October 2019, operates two major pipelines in Argentina connecting the major gas basins of Neuquén and Noroeste-Bolivia to the major consumption centers in Argentina, Litoral Gas is a company that holds the regional license for gas and distribution in the Province of Santa Fe and in the northeastern section of the Province of Buenos Aires. San Faustin holds significant but non-controlling interests in Litoral Gas and also held significant but non-controlling interests in TGN until October 2019.
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Tecpetrol supplies Siderca with natural gas requirements under market conditions and according to local regulations. Tecpetrol’s sales to Tenaris amounted to $32 million in 2021, $12 million in 2020 and $49 million in 2019.
TGN charges Siderca a price to transport its natural gas supplies that is equivalent on a comparable basis to prices paid by other industrial users. The Argentine government regulates the general framework under which TGN operates and prices its services. TGN’s sales to Tenaris amounted to $2 million in 2021, $3 million in 2020 and $4 million in 2019.
Litoral Gas’s sales to Tenaris totaled $1 million in 2019.
Provision of Engineering and Labor Services
Tenaris contracts with certain companies controlled by San Faustin specialized in supplying engineering services and non-specialist manual labor services, such as industrial cleaning, general maintenance, handling of by-products and construction services. Fees accrued for these services in the aggregate amounted to $7 million in 2021, $13 million in 2020 and $47 million in 2019.
Sales of Steel Pipes and Sucker Rods
In the ordinary course of business, we sell steel pipes, sucker rods and related services to other companies controlled or under the significant influence of San Faustin. These sales, which are made principally to companies involved in the construction of gas pipelines and to Tecpetrol and joint ventures in which Tecpetrol participates, for its oil and gas drilling operations, are made on similar terms and conditions as sales to unrelated third parties. Our sales of steel pipes and sucker rods as well as logistical and certain other services to other companies controlled or under the significant influence of San Faustin amounted to $77 million in 2021, $22 million in 2020 and $66 million in 2019.
Sales of Fracking and Coiled Tubing Services
In 2021, we started to provide fracking and coiled tubing services to Tecpetrol and joint ventures in which Tecpetrol participates, for its oil and gas drilling operations. Our sales of these services to other companies controlled or under the significant influence of San Faustin amounted to $45 million in 2021.
Rental services to Tecpetrol related to the supply of coiled tubing services amounted to $3 million in 2021.
Sales of Other Products and Services
We provide information technology services to companies controlled by San Faustin. Sales of these services amounted to $2 million per year in 2021, 2020 and 2019.
Administrative Services, Legal and Other Support Services
Finma S.A. (“Finma”), a company controlled by San Faustin in which Tenaris has a 33% interest and other affiliates of San Faustin own the remaining shares, provides administrative and legal support services to San Faustin’s affiliates in Argentina, including Tenaris. During 2021 Techinst S.A., a company controlled by San Faustin, merged with Finma, with Finma continuing to render the services previously provided by Techinst S.A. Fees accrued for these services amounted to $10 million in 2021, $7 million in 2020 and $9 million in 2019.
Loans to Related Parties
Tenaris financed the construction and operation of Techgen’s Pesquería project primarily in the form of subordinated loans to Techgen. Outstanding principal amount of loans to Techgen as of December 31, 2021, 2020 and 2019 amounted to $58 million. These loans generated interest gains in favor of Tenaris in an amount of $3 million in 2021 and 2020 and $4 million in 2019.
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Other Transactions
We entered into various contracts with Tenova (and subsidiaries), a company controlled by San Faustin, for the provision of furnaces, spare parts, accessories and related services for our facilities. Supplies received amounted to $1 million in 2021 and $2 million in 2019.
In addition, in the ordinary course of business, from time to time, we carry out other transactions and enter into other arrangements with other related parties, none of which are considered to be material.
C. Interest of Experts and Counsel
Not applicable.
Item 8. Financial Information
A. Consolidated Statements and Other Financial Information
See Item 18 and pages F-1 through F-80 for our audited consolidated financial statements.
Legal Proceedings
Tenaris is from time to time subject to various claims, lawsuits and other legal proceedings, including customer, employee, tax and environmental-related claims, in which third parties are seeking payment for alleged damages, reimbursement for losses, or indemnity. Management with the assistance of legal counsel periodically reviews the status of each significant matter and assesses potential financial exposure.
Some of these claims, lawsuits and other legal proceedings involve highly complex issues, and often these issues are subject to substantial uncertainties and, therefore, the probability of loss and an estimation of damages are difficult to ascertain. Accordingly, with respect to a large portion of such claims, lawsuits and other legal proceedings, the Company is unable to make a reliable estimate of the expected financial effect that will result from ultimate resolution of the proceeding. In those cases, the Company has not accrued a provision for the potential outcome of these cases.
If a potential loss from a claim, lawsuit or other proceeding is considered probable and the amount can be reasonably estimated, a provision is recorded. Accruals for loss contingencies reflect a reasonable estimate of the losses to be incurred based on information available to management as of the date of preparation of the financial statements and take into consideration litigation and settlement strategies. In a limited number of ongoing cases, the Company was able to make a reliable estimate of the expected loss or range of probable loss and, depending on the likelihood of occurrence, in some of such cases has accrued a provision for such loss but believes that publication of this information on a case-by-case basis would seriously prejudice the Company’s position in the ongoing legal proceedings or in any related settlement discussions. Accordingly, in these cases, the Company has disclosed information with respect to the nature of the contingency but has not disclosed its estimate of the range of potential loss.
The Company believes that the aggregate provisions recorded for potential losses in its consolidated financial statements (see notes 23 “Non-current allowances and provisions” and 24 “Current allowances and provisions” to our audited consolidated financial statements included in this annual report) are adequate based upon currently available information. However, if management’s estimates prove incorrect, current reserves could be inadequate and the Company could incur a charge to earnings which could have a material adverse effect on its results of operations, financial condition, net worth and cash flows.
Material Legal Proceedings
Below is a summary description of Tenaris’s material legal proceedings for the year ended December 31, 2021. In addition, Tenaris is subject to other legal proceedings, none of which is believed to be material.
CSN claims relating to the January 2012 acquisition of Usiminas shares
Confab, a Brazilian subsidiary of the Company, is one of the defendants in a lawsuit filed in Brazil by Companhia Siderúrgica Nacional (“CSN”) and various entities affiliated with CSN against Confab and several Ternium subsidiaries that acquired a participation in Usiminas’ control group in January 2012.
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The CSN lawsuit alleges that, under applicable Brazilian laws and rules, the acquirers were required to launch a tag-along tender offer to all non-controlling holders of Usiminas’ ordinary shares for a price per share equal to 80% of the price per share paid in such acquisition, or BRL28.8, and seeks an order to compel the acquirers to launch an offer at that price plus interest. If so ordered, the offer would need to be made to 182,609,851 ordinary shares of Usiminas not belonging to Usiminas’ control group, and Confab would have a 17.9% share in that offer.
On September 23, 2013, the first instance court dismissed the CSN lawsuit, and on February 8, 2017, the court of appeals maintained the understanding of the first instance court. On March 6, 2017, CSN filed a motion for clarification against the decision of the Court of Appeals of São Paulo, which was rejected on July 19, 2017. On August 18, 2017, CSN filed an appeal to the Superior Court of Justice seeking the review and reversal of the decision issued by the Court of Appeals. On March 5, 2018, the court of appeals ruled that CSN’s appeal did not meet the requirements for submission to the Superior Court of Justice and rejected the appeal. On May 8, 2018, CSN appealed against such ruling and on January 22, 2019, the court of appeals rejected it and ordered that the case be submitted to the Superior Court of Justice. On September 10, 2019, the Superior Court of Justice declared CSN’s appeal admissible. The Superior Court of Justice will review the case and then render a decision on the merits. The Superior Court of Justice is restricted to the analysis of alleged violations to federal laws and cannot assess matters of fact.
The Company continues to believe that all of CSN’s claims and allegations are groundless and without merit, as confirmed by several opinions of Brazilian legal counsel, two decisions issued by the Brazilian securities regulator (“CVM”) in February 2012 and December 2016, and the first and second instance court decisions referred to above.
Veracel celulose accident litigation
On September 21, 2007, an accident occurred in the premises of Veracel Celulose S.A. (“Veracel”) in connection with a rupture in one of the tanks used in an evaporation system manufactured by Confab. The Veracel accident allegedly resulted in material damages to Veracel. Itaú Seguros S.A. (“Itaú”), Veracel’s insurer at the time of the Veracel accident and then replaced by Chubb Seguros Brasil S/A (“Chubb”), initiated a lawsuit against Confab seeking reimbursement of damages paid to Veracel in connection with the Veracel accident. Veracel initiated a second lawsuit against Confab seeking reimbursement of the amount paid as insurance deductible with respect to the Veracel accident and other amounts not covered by insurance. Itaú and Veracel claimed that the Veracel accident was caused by failures and defects attributable to the evaporation system manufactured by Confab. Confab believes that the Veracel accident was caused by the improper handling by Veracel’s personnel of the equipment supplied by Confab in violation of Confab’s instructions. The two lawsuits were consolidated and are considered by the 6th Civil Court of São Caetano do Sul. However, each lawsuit will be adjudicated separately.
On September 28, 2018, Confab and Chubb entered into a settlement agreement pursuant to which on October 9, 2018, Confab paid an amount of approximately $3.5 million to Chubb, without assuming any liability for the accident or the claim.
On October 10, 2018, Confab was notified that the court had issued rulings for both lawsuits. Both decisions were unfavorable to Confab:
- With respect to Chubb’s claim, the court subsequently homologated the above-mentioned settlement and, accordingly, the claim was finalized.
- With respect to Veracel’s claim, Confab was ordered to pay the insurance deductible and other concepts not covered by insurance, currently estimated to amount to BRL82 million (approximately $14.7 million) including interest, fees and expenses. Both parties filed motions for clarification against the court’s decision, which were partially granted. Although the contract between Confab and Veracel expressly provided that Confab would not be liable for damages arising from lost profits, the court award would appear to include BRL70.3 million (approximately $12.6 million) of damages arising therefrom. Confab has additional defense arguments in respect of a claim for lost profits. On December 18, 2018, Confab filed an appeal against the first instance court decision, and on April 30, 2019, Veracel filed its response to the appeal. At this stage the Company cannot predict the outcome of the claim or the amount or range of loss in case of an unfavorable outcome.
Ongoing investigation
The Company is aware that Brazilian, Italian and Swiss authorities have been investigating whether certain payments were made prior to 2014 from accounts of entities presumably associated with affiliates of the Company to accounts allegedly linked to individuals related to “Petrobras” and whether any such payments were intended to benefit the Company’s Brazilian subsidiary Confab. Any such payments could violate certain applicable laws, including the U.S. FCPA.
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The Company had previously reviewed certain of these matters in connection with an investigation by the Brazilian authorities related to “Operation Lava Jato,” and did not uncover any information that corroborated allegations of involvement in these alleged payments by the Company or its subsidiaries. Furthermore, the Company became aware that a Petrobras internal investigation commission reviewed certain contracts with Confab and concluded that they had not found evidence that Petrobras had benefitted Confab or had misused applicable local content rules.
The Audit Committee of the Company's board of directors engaged external counsel in connection with the Company’s review of these matters. In addition, the Company voluntarily notified the SEC and the U.S. Department of Justice (“DOJ”) in October 2016.
In July 2019, the public prosecutors’ office of Milan, Italy, completed a preliminary investigation into the alleged payments and included the Company’s Chairman and Chief Executive Officer, two other board members, Gianfelice Rocca and Roberto Bonatti, and the Company’s controlling shareholder, San Faustin, in the investigation. The Company is not a party to the proceedings. On March 22, 2022, upon completion of the evidentiary phase of the trial, the acting prosecutor requested the first-instance court in Milan in charge of the case to impose sanctions on our Chairman and Chief Executive Officer, on the other two board members, and on San Faustin. The Company’s outside counsel in Italy has advised the Company that neither the case file nor the prosecutor’s request contain or identify any evidence of involvement in, or knowledge of, the alleged wrongdoing by any of the three directors. The Company has also been advised that the defendants are scheduled to present their arguments before the court on April 19, 2022, that the court may issue its decision on April 26, 2022, and that the grounds for any such decision may not be immediately available. Any decision by the first-instance court may be appealed by either party before a higher court.
In June 2020, the Company learned that the Brazilian public prosecutors’ office requested the indictment of several individuals, including three executives or former executives of Confab and a former agent of Confab, charging them with the alleged crimes of corruption in relation to contracts executed between 2007 and 2010, and money laundering in relation to payments between 2009 and 2013. The proceedings are underway. Neither the Company nor Confab is a party to the proceedings.
The Company continues to respond to requests from and otherwise cooperate with the appropriate authorities. The Company has engaged in discussions with the SEC and the DOJ towards a potential resolution of the investigation. There are no assurances that the discussions with the SEC or the DOJ will result in a final resolution of the investigation or, if a resolution is achieved, the timing, scope and terms of any such resolution. At this time, the Company cannot predict the outcome of these matters or estimate the range of potential loss or extent of risk, if any, to the Company's business that may result from the resolution of these matters.
Putative class actions
Following the Company’s November 27, 2018, announcement that its Chairman and CEO Paolo Rocca had been included in an Argentine court investigation known as the Notebooks Case (a decision subsequently reversed by a higher court), two putative class action complaints were filed in the U.S. District Court for the Eastern District of New York. On April 29, 2019, the court consolidated the complaints into a single case, captioned “In re Tenaris S.A. Securities Litigation”, and appointed lead plaintiffs and lead counsel. On July 19, 2019, the lead plaintiffs filed an amended complaint purportedly on behalf of purchasers of Tenaris securities during the putative class period of May 1, 2014, through December 5, 2018. The individual defendants named in the complaint are Tenaris’s Chairman and CEO and Tenaris’s former CFO. The complaint alleges that during the class period, the Company and the individual defendants inflated the Tenaris share price by failing to disclose that the nationalization proceeds received by Ternium (in which the Company held an 11.46% stake) when Sidor was expropriated by Venezuela were received or expedited as a result of allegedly improper payments made to Argentine officials. The complaint does not specify the damages that plaintiff is seeking. On October 9, 2020, the court granted in part and denied in part the defendants’ motions to dismiss. The court partially granted and partially denied the motion to dismiss the claims against the Company and its Chairman and CEO. In addition, the court granted the motions to dismiss as to all claims against San Faustin, Techint, and Tenaris’s former CFO. The case is now proceeding based on the claims that survived the motion to dismiss. Management believes the Company has meritorious defenses to these claims; however, at this stage Tenaris cannot predict the outcome of the claim or the amount or range of loss in case of an unfavorable outcome.
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Administrative proceeding concerning Brazilian tax credits
Confab is a party to an administrative proceeding concerning the recognition and transfer of tax credits for an amount allegedly exceeding the amount that Confab would have been entitled to recognize and / or transfer. The proceeding resulted in the imposition of a fine against Confab representing approximately 75% of the allegedly undue credits, which was appealed by Confab. On January 21, 2019, Confab was notified of an administrative decision denying Confab’s appeal, thereby upholding the tax determination and the fine against Confab. On January 28, 2019, Confab challenged such administrative decision and is currently awaiting a resolution. In case of an unfavorable resolution, Confab may appeal before the courts. The estimated amount of this claim is BRL57.5 million (approximately $10.3 million). At this stage, the Company cannot predict the outcome of this claim.
U.S. patent infringement litigation
Tenaris Coiled Tubes, LLC (“TCT”), a U.S. subsidiary of the Company, was sued in 2017 by its competitor Global Tubing, alleging defamatory conduct by TCT and seeking a declaration that certain Global Tubing products do not infringe patents held by TCT. TCT subsequently counterclaimed that certain Global Tubing products infringe patents held by TCT, Global Tubing has since sought to invalidate such patents. On December 13, 2019, Global Tubing filed an amended complaint (including the Company as defendant), alleging that TCT and the Company misled the patent office in order to monopolize the coiled tubing market for quench and tempered products. On March 26, 2021, a magistrate to the principal judge in the case found that Global Tubing had established a prima facie case that TCT had misled the patent office by failing to disclose a previous attempt to quench and temper coiled tubing. On April 9, 2021, TCT filed its objections to the magistrate’s ruling with the principal judge in the case. On August 25, 2021, the principal judge in the case affirmed the magistrate’s order and found possible evidence of intent to commit fraud on the patent office. Such determination is not final. TCT is considering several avenues to challenge this decision. TCT believes that it has meritorious defenses to this claim. Trial was expected to take place in May 2022 but is likely to be postponed. At this time, it is not possible to predict the outcome of this matter or estimate the range of potential losses that may result from the resolution of this claim.
Tax assessment from Italian tax authorities
The Company’s Italian subsidiary, Dalmine, received on December 27, 2019, a tax assessment from the Italian tax authorities related to fiscal year 2014 mainly referred to the compensation for certain intercompany transactions involving Dalmine in connection with sales of products and R&D activities. As of December 31, 2021, the claim amounted to approximately EUR26.5 million (approximately $30 million), comprising EUR20.7 million (approximately $23.5 million) in principal and EUR5.8 million (approximately $6.5 million) in interest and penalties.
On June 14, 2021, Dalmine received the tax assessment related to fiscal year 2015 with respect to the same matters. The tax assessment confirms the preliminary determination included in the tax report issued by the tax authority in 2019. As of December 31, 2021, these additional claims amount to approximately EUR10.3 million (approximately $11.7 million), comprising EUR8 million (approximately $9 million) in principal and EUR2.3 million (approximately $2.7 million) in interest and penalties.
The aggregate amount claimed for fiscal years 2014 and 2015 is approximately EUR36.8 million (approximately $41.7 million) comprising EUR28.7 million (approximately $32.5 million) in principal and EUR8.1 million (approximately $9.2 million) in interest and penalties.
On July 27, 2020, Dalmine filed a first-instance appeal before the Milan tax court against the 2014 tax assessment. The hearing on this appeal, originally scheduled on June 21, 2021, has been postponed to May 9, 2022. Based on the advice of counsel, the Company believes that it is unlikely that the ultimate resolution of these matters will result in a material obligation.
Product liability litigation
The Company’s U.S. subsidiary, IPSCO, or its subsidiaries, are parties to product liability claims, which may result in damages for an aggregate amount estimated at approximately $15.5 million, mainly related to a lawsuit alleging product liability and negligent misrepresentation in which the plaintiff alleges that defects in certain casing provided by IPSCO resulted in three well failures causing damages for an amount of approximately $15 million. Although at this time the Company cannot predict the outcome of any of these matters, the Company believes that provisions have been recorded in an amount sufficient to cover potential exposure under these claims.
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U.S. Antidumping Duty and Countervailing Duty Investigations
On October 27, 2021, the DOC announced the initiation of antidumping duty investigations of OCTG from Argentina, Mexico, and Russia and countervailing duty investigations of OCTG from Russia and South Korea. The investigations were initiated on the basis of a petition by U.S. Steel Tubular Products, Inc., a small number of other U.S. domestic welded OCTG producers, and a steelworkers’ union. On November 22, 2021, the ITC made a preliminary determination of injury, allowing the investigations to proceed. The investigations are currently proceeding, with final determinations by DOC and the ITC likely to occur in the second half of 2022.
Tenaris, which imports OCTG from Argentina and Mexico to complement its significant and continuously growing production in the United States, believes that the petition, the DOC initiation and the preliminary determination of injury are unjustified and is vigorously challenging any claim that its imports are unfairly traded or are causing or threatening injury to the U.S. domestic OCTG industry.
At this time, the Company cannot predict the outcome of this matter or estimate the potential impact, if any, that the resolution of this matter may have on the Company’s business.
Dividend Policy
The Company does not have, and has no current plans to establish, a formal dividend policy governing the amount and payment of dividends or other distributions. For a description of the shareholders’ and holders of ADS’ rights to receive dividends and the conditions to declare and pay dividends, please refer to Item 10. B. “Additional Information – Memorandum and Articles of Association – Dividends”.
The following table shows the dividends approved by the Company’s shareholders in the last five years:
|
|
Approved dividend |
Dividend payment date |
|||||
|
Shareholders’ meeting date |
Amount (USD million) |
Per share (USD) |
Per ADS (USD) |
Interim Dividend |
Dividend Balance |
||
|
May 3, 2017 |
484 |
0.41 |
0.82 |
November 2016 |
May 2017 |
||
|
May 2, 2018 |
484 |
0.41 |
0.82 |
November 2017 |
May 2018 |
||
|
May 6, 2019 |
484 |
0.41 |
0.82 |
November 2018 |
May 2019 |
||
|
June 2, 2020 |
153 |
0.13 |
0.26 |
November 2019 |
N/A |
||
|
May 3, 2021 |
248 |
0.21 |
0.42 |
November 2020 |
May 2021 |
||
On February 16, 2022, the Company’s board of directors proposed, for the approval of the annual general shareholders’ meeting scheduled to be held on May 3, 2022, the payment of an annual dividend of $0.41 per share ($0.82 per ADS), or approximately $484 million, which includes the interim dividend of $0.13 per share ($0.26 per ADS) or approximately $153 million, paid on November 24, 2021. If the annual dividend is approved by the shareholders, a dividend of $0.28 per share ($0.56 per ADS), or approximately $331 million will be paid on May 25, 2022, with an ex-dividend date of May 23, 2022.
B. Significant Changes
The Russia-Ukraine armed conflict and its impact on Tenaris’s operations and financial condition
On February 24, 2022, Russia launched a military attack on Ukraine. In response, the United States, the European Union and the United Kingdom have imposed a wave of sanctions against certain Russian institutions, companies and citizens. The Russian Government has retaliated by banning airlines from its airspace and has ordered economic counter measures, including restrictions on residents transferring foreign currency abroad.
Russia is a major supplier of oil and gas in Europe and worldwide, and Russia and Ukraine are both major global suppliers of internationally traded steelmaking raw materials and semi-finished steel products. For example, prior to the conflict, Russia was producing between 10-12% of the world’s oil, supplying as much as 40% of the EU’s natural gas, while Russia and Ukraine combined were accounting for around 50% of internationally traded pig iron, around 30% of internationally traded semi-finished steel products, and a large proportion of internationally traded ferroalloys used in steelmaking.
As a result of the armed conflict and related sanctions, oil and gas prices have spiked upwards and foreign trade transactions involving Russian and Ukrainian counterparties have been severely affected. For example, oil prices rose to approximately $130 per barrel and European gas prices rose above $60 per million BTU in the immediate aftermath of the invasion, but have since fallen back to around $120/bbl and $30 per million BTU. Although it is hard to predict how energy and commodity prices will behave as the conflict unfolds, higher prices and even shortages of energy and raw materials used in our steelmaking operations (including natural gas and electric energy, particularly in Europe, steel scrap, pig iron, DRI, HBI, ferroalloys, steel bars, coils and plates) are likely if there is a severe disruption in energy supplies to Europe or in foreign trade transactions in steel making raw materials involving Russian and Ukrainian counterparties.
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Our purchases of raw materials from Russia and Ukraine, used in our production process, mainly ferroalloys for our global operations and pig iron for our European operations, amounted to approximately $34 million in 2021. We are seeking supplies from alternative sources in response to the interruption in supplies from Ukraine and the impact of sanctions on supplies from Russia and may be forced to pay higher prices to secure the raw materials we require for our steelmaking operations.
Our sales to Russian customers represented approximately 0.2% of our global sales in 2021. We have suspended sales to our Russian customers and purchases from Russian suppliers that would breach applicable sanctions. In addition, we have a representative office in Moscow, which currently employs 10 people. Tenaris is exploring alternatives with respect to potential relocation or closure of such office.
In light of the armed conflict involving Russia and Ukraine and the designation of Severstal’s controlling shareholder as person subject to EU and UK sanctions, we are currently assessing the amount to be written off from our investment in the joint venture in Russia, which as of December 31, 2021 amounted to $16.8 million.
Discontinuity of industrial equipment manufacturing in Brazil
On March 21, 2022, the Company announced its decision to reorganize the activities at its Confab Equipamentos industrial facility in Moreira César, Pindamonhangaba, São Paulo, Brazil. The Company’s Brazilian subsidiaries will discontinue the manufacturing of industrial equipment and will focus their activities entirely on the production of welded products, sucker rods, coatings and accessories. The Company estimates that this decision will not have a material effect on its financial condition and results of operations.
Item 9. The Offer and ListingA. Offer and Listing Details
The shares are listed on the Mexican Stock Exchange and its ADSs are listed on the NYSE under the symbol “TS”. The shares are also listed on the Italian Stock Exchange under the symbol “TEN” Trading on the NYSE and the Mexican Stock Exchange began on December 16, 2002, and trading on the Italian Stock Exchange began on December 17, 2002.
As of February 28, 2022, a total of 1,180,536,830 shares were registered in the Company’s shareholder register. As of February 28, 2022, a total of 130,656,936 shares were registered in the name of the Depositary for the Company’s ADS program.
B. Plan of Distribution
Not applicable.
C. Markets
See A. “– The Offer and Listing – Offer and Listing Details”.
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
Item 10. Additional Information
A. Share Capital
Not applicable.
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B. Memorandum and Articles of Association
General
The following is a summary of certain rights of holders of the Company’s shares. These rights are set out in the Company’s articles of association or are provided by applicable Luxembourg law, and may differ from those typically provided to shareholders of U.S. companies under the corporation laws of some states of the United States. This summary is not exhaustive and does not contain all information that may be important to you. For more complete information, you should read the Company’s articles of association, which are attached as an exhibit to this annual report.
The Company is a public limited liability company (société anonyme) organized under the laws of Luxembourg. Its object and purpose, as set forth in Article 2 of its articles of association, is the taking of interests, in any form, in corporations or other business entities, and the administration, management, control and development thereof. The Company is registered under the number B85 203 in the Luxembourg Registre de Commerce et des Sociétés.
The Company’s authorized share capital is fixed by the Company’s articles of association as amended from time to time with the approval of shareholders at an extraordinary general shareholders’ meeting. The Company has an authorized share capital of a single class of 2,500,000,000 shares having a nominal value of USD1.00 per share. There were 1,180,536,830 shares issued as of the date of this annual report. All issued shares are fully paid.
The Company’s articles of association authorize the board of directors, or any delegate(s) duly appointed by the board of directors, to issue shares within the limits of the authorized share capital against contributions in cash, contributions in kind or by way of available reserves, at such time and on such terms and conditions, including the issue price, as the board of directors, or its delegate(s), may in its or their discretion resolve.
The Company’s extraordinary shareholders’ meeting held on June 2, 2020 approved the renewal for an additional five-year period of the authorization granted to the board of directors to waive, suppress or limit any preemptive subscription rights of shareholders provided for by law to the extent it deems such waiver, suppression or limitation advisable for any issue or issues of shares within the authorized share capital; and have waived any preemptive subscription rights provided for by law and related procedures. The validity period of such authorization will expire on June 12, 2025. However, under the Company’s articles of association, the Company’s existing shareholders shall have a preferential right to subscribe for any new shares issued pursuant to the authorization granted to its board of directors, except in the following cases (in which cases no preemptive subscription rights shall apply):
- any issuance of shares (including, without limitation, the direct issuance of shares or upon the exercise of options, rights convertible into shares, or similar instruments convertible or exchangeable into shares) against a contribution other than in cash; and
- any issuance of shares (including by way of free shares or at discount), up to an amount equal to 1.5% of the issued share capital of the Company, to directors, officers, agents or employees of the Company, its direct or indirect subsidiaries, or its affiliates, including, without limitation, the direct issuance of shares or upon the exercise of options, rights convertible into shares, or similar instruments convertible or exchangeable into shares, issued for the purpose of compensation or incentive for any such persons or in relation thereto (which the board of directors shall be authorized to issue upon such terms and conditions as it deems fit).
Amendment of the Company’s articles of association requires the approval of shareholders at an extraordinary shareholders’ meeting with a two-thirds majority vote of the shares represented at the meeting.
Dividends
Subject to applicable law, all shares (including shares underlying ADSs) are entitled to participate equally in dividends when, as and if declared by the shareholders at the annual general shareholders’ meeting, out of funds legally available for such purposes.
Dividends may be lawfully declared and paid if the Company’s net profits and distributable reserves are sufficient under Luxembourg law. The amount and payment of dividends must be approved by a majority vote at a general shareholders’ meeting, generally, but not necessarily, based on the recommendation of the Company’s board of directors. Under Article 21 of the Company’s articles of association, the board of directors has the power to distribute interim dividends out of profits, share premium or any other available reserves, in accordance with applicable law, in particular in accordance with the conditions set forth in Article 461-3 of the Luxembourg Company Law. Such dividend payments must be finally approved by the general shareholders’ meeting. On February 16, 2022 the board of directors announced the proposals to be submitted to the consideration of the Annual General Shareholders’ meeting, including its proposal on dividends.
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As provided by Article 21 of the Company’s articles of association, dividends or other distributions declared by the general meeting as well as interim dividends or other distributions declared by the board of directors will be distributed at the times and places determined by the board of directors. The Company will make any and all dividend payments and any other distributions in respect of shares registered in the name of any securities settlement system or operator of such a system or in the name of any financial institution or other professional depositary of securities or any other depositary, whether in cash, shares or other assets, only to such registered holder, or otherwise in accordance with such registered holder’s instructions, and, as provided by Article 21 of the Company’s articles of association, that payment shall release the Company from any and all obligations for such payment.
The Company conducts and will continue to conduct its operations through subsidiaries and, accordingly, its main source of cash to pay dividends, among other possible sources, will be the dividends received from its subsidiaries. For further information see Item 3.D. “Key Information – Risk Factors – Risks Relating to the Structure of the Company – The Company’s dividend payments depend on the results of operations and financial condition of its subsidiaries and could be restricted by legal, contractual or other limitations or tax changes”.
Under Luxembourg law, claims for dividends will lapse in favor of the Company five years after the date such dividends are declared. However, the Company may elect to pay a declared dividend after such period. Declared and unpaid dividends held by the Company for the account of its shareholders do not bear interest.
Pursuant to Luxembourg law, at least 5% of our net profits per year must be allocated to the creation of a legal reserve until such reserve has reached an amount equal to 10% of our issued share capital. If the legal reserve later falls below the 10% threshold, at least 5% (or such lower amount required to reach the 10% threshold) of net profits again must be allocated toward the reserve. As of December 31, 2021, the Company’s legal reserve represented 10% of its share capital. The legal reserve is not available for distribution.
Voting Rights; Shareholders’ Meetings; Election of Directors
Each share entitles the holder thereof to one vote at the Company’s general shareholders’ meetings. Shareholder action by written consent is not permitted, but proxy voting is permitted. Notices of general shareholders’ meetings are governed by the provisions of Luxembourg law and the Company’s articles of association. Pursuant to applicable Luxembourg law, the Company must give notice of the calling of any general shareholders’ meeting at least 30 days prior to the date for which the meeting is being called, by publishing the relevant convening notice in the Recueil Electronique des Sociétés et Associations (Luxembourg’s electronic official gazette) and in a leading newspaper having general circulation in Luxembourg and by issuing a press release informing of the calling of such meeting. In case the Company’s shares are listed on a foreign regulated market, notices of general shareholders’ meetings shall also comply with the requirements (including as to content and publicity) and follow the customary practices of such regulated market.
Pursuant to the Company’s articles of association, for as long as the shares or other securities of the Company are listed on a regulated market within the European Union (as they currently are), and unless otherwise provided by applicable law, only shareholders holding shares as of midnight, central European time, on the day that is fourteen days prior to the day of any given general shareholders’ meeting can attend and vote at such meeting. The board of directors may determine other conditions that must be satisfied by shareholders in order to participate in a general shareholders’ meeting in person or by proxy, including with respect to deadlines for submitting supporting documentation to or for the Company.
No attendance quorum is required at ordinary general shareholders’ meetings, and resolutions may be adopted by a simple majority of the votes validly cast, irrespective of the number of shares present or represented. Unless otherwise provided by applicable law, an extraordinary general shareholders’ meeting may not validly deliberate on proposed amendments to the Company’s articles of association unless a quorum of at least half of the share capital is represented at the meeting. If a quorum is not reached at the first extraordinary shareholders’ meeting, a second extraordinary shareholders’ meeting may be convened in accordance with the Company’s articles of association and applicable law and such second extraordinary general shareholders’ meeting shall validly deliberate regardless of the number of shares represented. In both cases, the Luxembourg Company Law and the Company’s articles of association require that any resolution of an extraordinary general shareholders’ meeting as to amendments to the Company’s articles of association be adopted by a two-thirds majority of the votes validly cast at the meeting. If a proposed resolution consists of changing the Company’s nationality or of increasing the shareholders’ commitments, the unanimous consent of all shareholders is required.
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Cumulative voting is not permitted. The Company’s articles of association do not provide for staggered terms and directors are elected for a maximum of one year but may be reappointed or removed at any time, with or without cause, by the general shareholders’ meeting, by resolution passed by a simple majority vote of the shares validly cast at the meeting. In the case of a vacancy occurring in the board of directors, the remaining directors shall have the right to temporarily fill such vacancy with a temporary director appointed by resolution adopted with the affirmative vote of a majority of the remaining directors; provided that the next general shareholder’s meeting shall be called upon to ratify such appointment. The term of any such temporary director elected to fill a vacancy shall expire at the end of the term of office of the replaced director.
The next Company’s annual general shareholders’ meeting, that will consider, among other matters our Consolidated Financial Statements and Annual Accounts included in this annual report, will take place in the Company’s registered office in Luxembourg, on Tuesday, May 3, 2022, at 3:30 p.m. Central European Time.
The articles of association provide that annual general shareholders’ meetings shall meet in Luxembourg within six months from the end of the previous financial year at the date, place and hour indicated in the convening notice. The rights of the shareholders attending the meetings are governed by Shareholders’ Rights Law.
Holders of shares deposited in fungible securities accounts have the same rights and obligations as holders of shares recorded in the Company’s share register. However, in order to be able to participate in and vote at shareholders’ meetings of the Company, the former must submit, prior to the relevant meeting, reasonably satisfactory evidence to the Company as to the number of shares held on the applicable record date for such meeting. For as long as the shares or the other securities of the Company are listed on a regulated market within the European Union, participation in a shareholders’ general meeting shall inter alia be subject to the relevant shareholder holding shares of the Company on the fourteenth day midnight Central European Time prior to the meeting (unless otherwise provided for by applicable law).
Holders of ADSs only have those rights that are expressly granted to them in the deposit agreement. See Item 3.D. “Key Information – Risk Factors – Risks Relating to shares and ADSs – Holders of ADSs may not be able to exercise, or may encounter difficulties in the exercise of, certain rights afforded to shareholders”. ADS holders may not attend or directly exercise voting rights in shareholder’ meetings, but holders of record of our ADSs as of the relevant ADS holders’ record date set for any given general shareholders’ meeting are entitled to instruct the Depositary as to the exercise of the voting rights in respect of the shares underlying such holder’s ADSs at such meeting. Holders of ADSs maintaining non-certificated positions must follow voting instructions given by their broker or custodian bank.
The notice to the annual general shareholders meeting to be held on May 3, 2022, and the Shareholder Meeting Brochure and Proxy Statement for the meeting, describing the procedures for voting at the meeting applicable to holders of ADSs will be made available on the Company’s website at https://ir.tenaris.com/investor-relations in accordance with applicable rules and regulations, and will be timely filed by the Company in a report of foreign issuer on Form 6-K.
Access to Corporate Records
Luxembourg law and the Company’s articles of association do not generally provide for shareholder access to corporate records. Shareholders may inspect the annual accounts and auditors’ reports at our registered office during the fifteen-day period prior to a general shareholders’ meeting.
Appraisal Rights
In the event the Company’s shareholders approve:
- the delisting of the shares from all stock exchanges where the shares are listed at that time,
- a merger in which the Company is not the surviving entity (unless the shares or other equity securities of such entity are listed on the New York or London stock exchanges),
- a sale, lease, exchange or other disposition of all or substantially all of the Company’s assets,
- an amendment of our articles of association that has the effect of materially changing the Company’s corporate purpose,
- the relocation of the Company’s domicile outside of the Grand Duchy of Luxembourg, or
- amendments to the Company’s articles of association that restrict the rights of the Company’s shareholders.
Dissenting or absent shareholders have the right to have their shares repurchased by the Company at (i) the average market value of the shares over the 90 calendar days preceding the applicable shareholders’ meeting or (ii) in the event that the shares are not traded on a regulated market, the amount that results from applying the proportion of the Company’s equity that the shares being sold represent over the Company’s net worth as of the date of the applicable shareholders’ meeting.
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Dissenting or absent shareholders must present their claim within one month following the date of the shareholders’ meeting and supply the Company with evidence of their shareholding at the time of such meeting. The Company must (to the extent permitted by applicable laws and regulations and in compliance therewith) repurchase its shares within six months following the date of the shareholders’ meeting.
If delisting from one or more, but not all, of the stock exchanges where the shares are listed is approved in the shareholders’ meeting, only dissenting or absent shareholders with shares held through participants in the local clearing system for that market or markets can exercise this appraisal right if:
- they held the shares as of the date of the announcement by the Company of its intention to delist or as of the date of publication of the first convening notice for the general shareholders’ meeting that approved the delisting; and
- they present their claim within one month following the date of the general shareholders’ meeting and supply evidence of their shareholding as of the date of the Company’s announcement or the publication of the first convening notice to the meeting.
In the event a shareholder exercises its appraisal rights, applicable Luxembourg law provisions shall apply.
Holders of ADSs may not be able to exercise, or may encounter difficulties in the exercise of, certain rights afforded to shareholders, including appraisal rights. See Item 3.D. “Key Information – Risk Factors – Risks Relating to shares and ADSs – Holders of ADSs may not be able to exercise, or may encounter difficulties in the exercise of, certain rights afforded to shareholders”.
Distribution of Assets on Winding-Up
In the event of the Company’s liquidation, dissolution or winding-up, the net assets remaining after allowing for the payment of all debts, charges and expenses will be paid out to the holders of the shares in proportion to their respective holdings.
Transferability and Form
The Company’s articles of association do not contain any redemption or sinking fund provisions, nor do they impose any restrictions on the transfer of shares. The shares are issuable in registered form only.
The ownership of registered shares is evidenced by the inscription of the name of the shareholder, the number of shares held by such shareholders and the amount paid on each share in the Company’s share register. In addition, the Company’s shares may be held through fungible securities accounts with financial institutions or other professional depositaries.
Shares held through fungible securities accounts may be transferred in accordance with customary procedures for the transfer of securities in book-entry form. Shares that are not held through fungible securities accounts may be transferred by a written statement of transfer signed by both the transferor and the transferee or their respective duly appointed attorney-in-fact and recorded in the Company’s share register. The transfer of shares may also be made in accordance with the provisions of Article 1690 of the Luxembourg Civil Code. As evidence of the transfer of registered shares, the Company may also accept any correspondence or other documents evidencing the agreement between transferor and transferee as to the transfer of registered shares.
Repurchase of Company shares
The Company may repurchase its own shares in the cases and subject to the conditions set by the Luxembourg Company Law and, in the case of acquisitions of shares or ADSs made through a stock exchange in which shares or ADSs are traded, with any applicable laws and regulations of such market. Please see Item 16.E. “Purchase of Equity Securities by the Issuer and Affiliated Purchasers” for further information on the authorization granted on June 2, 2020, by the annual general meeting of shareholders to the Company or its subsidiaries to repurchase shares of the Company, including shares represented by ADSs.
Limitation on Securities Ownership
There are no limitations currently imposed by Luxembourg law or the articles of association on the rights of the Company’s non-resident or foreign shareholders to hold or vote the Company’s shares.
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Change in Control
None of our outstanding securities has any special control rights. The Company’s articles of association do not contain any provision that would have the effect of delaying, deferring or preventing a change in control of the Company and that would operate only with respect to a merger, acquisition or corporate restructuring involving the Company or any of its subsidiaries. In addition, the Company does not know of any significant agreements or other arrangements to which the Company is a party and which take effect, alter or terminate in the event of a change of control of the Company. There are no agreements between the Company and members of its board of directors or employees providing for compensation if they resign or are made redundant without reason, or if their employment ceases following a change in control of the Company.
There are no rights associated with the Company’s shares other than those described above.
Ownership Disclosure
The Company’s articles of association do not contain any provision requiring disclosure of share ownership. However, under the Luxembourg Transparency Law investors in the Company’s securities should notify the Company and the Luxembourg securities commission on an ongoing basis whenever the proportion of voting rights held or controlled by any such investor reaches, exceeds or falls below any of the following thresholds: 5%, 10%, 15%, 20%, 25%, 33.33%, 50% and 66.66%. Failure to notify the Company and the Luxembourg securities commission of the reaching or crossing of any such thresholds may result in the suspension of the voting rights attaching to the shares exceeding the threshold which would have had to be notified.
C. Material Contracts
For a summary of any material contract entered into by us outside the ordinary course of business during the last two years, see Item 4.B. “Information on the Company – Business Overview”.
D. Exchange Controls
Many of the countries that are important markets for us or in which we have substantial assets have histories of substantial government intervention in currency markets, volatile exchange rates and government-imposed currency controls. These include mainly Argentina, Brazil, Indonesia, Mexico, Nigeria and Romania.
The Argentine peso was subject to a devaluation of approximately 22% against the U.S. dollar during 2021. The Argentine authorities have implemented several measures to reduce volatility in the exchange rate between the ARS and the USD and have implemented formal and informal restrictions on capital inflows into Argentina and capital outflows from Argentina. Certain foreign exchange restrictions are currently in place. As a result, Tenaris’s Argentine subsidiaries are currently required to repatriate to Argentina all proceeds for exports of goods (including U.S. dollars received through advance payments and pre-financing facilities) and services and convert such proceeds into Argentine pesos at the applicable exchange rate as of the repatriation date. Access to the Argentine foreign exchange market, either to purchase foreign currency or to transfer foreign currency abroad (including to make import payments, to repay foreign financial indebtedness, to pay services or dividends abroad, and for foreign currency-savings by individuals and/or any other purchase or transfer of foreign exchange) is subject to certain conditions, including extended payment terms from foreign suppliers. With limited exceptions, prior approval from the Argentine central bank, which is rarely granted, is required to purchase foreign currency to pay dividends to foreign shareholders and to make other payments to affiliates or third parties abroad. Throughout 2021, the Argentine central bank has continued to impose foreign exchange restrictions aimed at limiting the purchase of foreign currency and the Argentine Securities Commission imposed further restrictions to the sale of bonds by Argentine companies against foreign currency.
As of December 31, 2021, the total net equity of Argentine subsidiaries represented approximately 9% of Tenaris’s total equity.
For additional information regarding factors affecting the Argentine economy, see Item 3.D. “Key Information – Risk Factors – Risks Relating to our Business and Industry – Adverse economic or political conditions in the countries where we operate or sell our products and services may decrease our sales or disrupt our manufacturing operations, thereby adversely affecting our revenues, profitability and financial condition”. For additional information on current foreign exchange restrictions in Argentina, see note 28 “Foreign exchange control measures in Argentina” of our audited consolidated financial statements included in this annual report.
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E. Taxation
The following discussion of the material Luxembourg and U.S. federal income tax consequences of an investment in our shares and ADSs is based upon laws and relevant interpretations thereof in effect as of the date of this annual report, all of which are subject to change. This discussion does not address all possible tax consequences relating to an investment in our shares or ADSs, including the tax consequences under U.S. state and local tax laws.
Grand Duchy of Luxembourg
This section describes the material Luxembourg tax consequences of owning or disposing of shares or ADSs.
As used herein, a “Luxembourg individual” means an individual resident in Luxembourg who is subject to personal income tax (impôt sur le revenu) on his or her worldwide income from Luxembourg or foreign sources, and a “Luxembourg corporate holder” means a company (that is, a fully taxable collectivité within the meaning of Article 159 of the Luxembourg Income Tax Law) resident in Luxembourg subject to Luxembourg corporate income tax (impôt sur le revenu des collectivités) and Luxembourg municipal business tax (impôt commercial communal) on its worldwide income from Luxembourg or foreign sources. For the purposes of this summary, Luxembourg individuals and Luxembourg corporate holders are collectively referred to as “Luxembourg Holders”. A “non-Luxembourg Holder” means any investor in shares or ADSs of the Company other than a Luxembourg Holder.
Corporate Reorganization
The Company was established as a Luxembourg société anonyme holding under Luxembourg’s 1929 holding company regime. Until termination of such regime on December 31, 2010, holding companies incorporated under the 1929 regime (including the Company) were exempt from Luxembourg corporate income tax, Luxembourg municipal business tax, Luxembourg net wealth tax and Luxembourg withholding tax over dividends distributed to shareholders.
On January 1, 2011, the Company became an ordinary public limited liability company (société anonyme) and, effective as from that date, the Company is subject to all applicable Luxembourg taxes, (including, among others, Luxembourg corporate income tax on its worldwide income).
In light of the impending termination of Luxembourg’s 1929 holding company regime, in the fourth quarter of 2010, the Company carried out a multi-step corporate reorganization, which included, among other transactions, the contribution of most of the Company’s assets and liabilities to a wholly-owned, newly-incorporated Luxembourg subsidiary and the restructuring of indirect holdings in certain subsidiaries. The first phase of the corporate reorganization was completed in December 2010 and resulted in a non-taxable revaluation of the accounting value (under Luxembourg GAAP) of the Company’s assets. The second phase of the reorganization was completed in 2011.
Following the completion of the first phase of the corporate reorganization, and upon its conversion into an ordinary Luxembourg holding company, the Company recorded a special reserve in its tax balance sheet. Dividend distributions for the foreseeable future will be charged to the special reserve and therefore should not be subject to Luxembourg withholding tax.
Tax regime applicable to realized capital gains
Luxembourg Holders
Luxembourg resident individual holders
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Capital gains realized by Luxembourg resident individuals who do not hold their shares or ADSs as part of a trade or business (i.e. capital gains on private assets) and who hold (together, directly or indirectly, with his or her spouse or civil partner and underage children) no more than 10% of the share capital of the Company, at any time during the five-year period preceding the disposition will only be taxable (at a progressive rate) if they are realized on a sale of shares or ADSs that takes place before their acquisition or within the first six months following their acquisition (i.e. speculative gain). After the six-months period, capital gains are not taxed unless the resident individual holds (together, directly or indirectly, with his or her spouse or civil partner and underage children) more than 10% of the share capital of the Company at any time during the five-year period preceding the disposition.
If such shares or ADSs are held as part of a commercial or industrial business, capital gains would be taxable in the same manner as income from such business.
Capital gains realized by Luxembourg resident individuals holding (alone or together with the resident’s spouse or civil partner and underage children) directly or indirectly more than 10% of the capital of the Company at any time during the five years prior to the sale, (or if the Luxembourg resident individuals have received the shares for no consideration within the last five years and the former holder held at least 10% in the capital of the company at any moment during said five years) will be taxable at half of the individual’s applicable global tax rate (as determined progressively), if a holding period of six months following their acquisition elapsed (21% for 2021). Within the six-month period, progressive income tax rates apply (ranging from 0 to 42%8 in 2021).
Luxembourg resident corporate holders
Capital gains, including currency exchange gains, realized upon the disposal of shares or ADSs by a fully taxable resident corporate holder will in principle be subject to Luxembourg corporate income tax and Luxembourg municipal business tax. The combined applicable rate (including an unemployment fund contribution) for a corporate holder established in Luxembourg-City is 24.94% for the fiscal year ending 2021. An exemption from such taxes may be available to the Luxembourg resident corporate holder pursuant to Article 1 of the Grand Ducal Decree dated December 21, 2001 as amended, in combination with article 166 of the Luxembourg Income Tax Law subject to the fulfillment of the conditions set forth therein.
Non-Luxembourg Holders
Non-Luxembourg individual holders
An individual who is a non-Luxembourg Holder of shares or ADSs (and who does not have a permanent establishment, a permanent representative or a fixed place of business in Luxembourg) will only be subject to Luxembourg taxation on capital gains arising upon disposal of such shares or ADSs if such holder has (alone or together with his or her spouse, civil partner and underage children) directly or indirectly held more than 10% of the capital of the Company at any time during the past five years preceding the disposal, and either (i) such non-Luxembourg Holder has been a resident of Luxembourg for tax purposes for at least 15 years and has become a non-resident within the last five years preceding the realization of the gain, subject to any applicable tax treaty, or (ii) the disposal of shares or ADSs occurs within six months from their acquisition (or prior to their actual acquisition), subject, however, to any applicable tax treaty.
Non-Luxembourg corporate holders
A corporate non-Luxembourg Holder (that is, a collectivité within the meaning of Article 159 of the Luxembourg Income Tax Law), which has a permanent establishment, a permanent representative or a fixed place of business in Luxembourg to which shares or ADSs are attributable, will bear Luxembourg corporate income tax and Luxembourg municipal business tax on a gain realized on a disposal of such shares or ADSs as set forth above for a Luxembourg corporate holder. However, capital gains, including currency exchange gains, realized on the sale of the shares or ADSs may benefit from the full exemption provided for by Article 1 of the Grand Ducal Decree dated December 21, 2001 as amended, in combination with Article 166 of the Luxembourg Income Tax Law subject in each case to fulfillment of the conditions set out therein.
A corporate non-Luxembourg Holder, which has no permanent establishment, permanent representative or fixed place of business in Luxembourg to which the shares or ADSs are attributable, will bear non-resident capital gains tax on a gain realized on a disposal of such shares or ADSs under the same conditions applicable to an individual non-Luxembourg Holder, as set out above.
Tax regime applicable to distributions
Withholding tax
Distributions to holders are in principle subject to a 15% Luxembourg withholding tax computed on the gross amount distributed. The rate of the withholding tax may be reduced pursuant to double tax treaty existing between Luxembourg and the country of residence of the relevant holder, subject to the fulfillment of the conditions set forth therein. However, distributions imputed for tax purposes to the special reserve (please see above paragraph “corporate reorganization”) should be exempt from Luxembourg withholding tax under the current tax law.
| 8 A 7% surcharge for the Employment Fund applies on the income tax due. The surcharge for the Employment Fund amounts to 9% for taxpayer in tax class 1 or 1a with taxable income exceeding EUR 150,000 (EUR 300,000 for taxpayer in tax class 2). | |
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Nevertheless, a withholding tax exemption may apply if the distribution is made to (as far as relevant in the case at hand):
- a Luxembourg resident corporate holder (that is, a fully taxable collectivité within the meaning of article 159 of the Luxembourg Income Tax Law),
- an undertaking of collective character which is resident of a Member State of the European Union and is referred to by article 2 of the EU Council Directive of November 30, 2011 concerning the common fiscal regime applicable to parent and subsidiary companies of different member states (2011/96/UE) as amended, (subject to the general anti-abuse rule provided for by Council Directive 2015/121/EU as implemented into Luxembourg law),
- a capital company or a cooperative company resident in Norway, Iceland or Liechtenstein and subject to a tax comparable to corporate income tax as provided by the Luxembourg Income Tax Law,
- a capital company resident in Switzerland which is subject to corporate income tax in Switzerland without benefiting from an exemption,
- an undertaking with a collective character subject to a tax comparable to corporate income tax as provided by the Luxembourg Income Tax Law which is resident in a country that has concluded a double tax treaty with Luxembourg, and
- a Luxembourg permanent establishment of one of the above-mentioned categories, provided each time that at the date of payment, the holder holds or commits to hold directly (or through a company regarded as tax transparent from a Luxembourg tax perspective), during an uninterrupted period of at least twelve months, shares or ADSs representing at least 10% of the share capital of the Company or acquired for an acquisition price of at least EUR 1,200,000.
Luxembourg Holders
With the exception of Luxembourg corporate holders benefiting from the exemption referred to above, Luxembourg individual holders, and Luxembourg corporate holders fully subject to Luxembourg corporate tax, must include the distributions paid on the shares or ADSs in their taxable income, 50% of the amount of such dividends being exempt from tax. The applicable withholding tax can, under certain conditions, entitle the relevant Luxembourg Holder to a tax credit.
Non-Luxembourg Holders
Non-Luxembourg Holders of shares or ADSs and who do not have a permanent establishment, a permanent representative or a fixed place of business in Luxembourg to which the shares or ADSs would be attributable are not liable for any Luxembourg tax on dividends paid on the shares or ADSs, other than a potential withholding tax as described above.
Net wealth tax
Luxembourg Holders
Luxembourg net wealth tax will not be levied on a Luxembourg Holder with respect to the shares or ADSs held unless (i) the Luxembourg Holder is a legal entity subject to net wealth tax in Luxembourg; or (ii) the shares or ADSs are attributable to an enterprise or part thereof which is carried on through a permanent establishment, a fixed place of business or a permanent representative in Luxembourg.
Net wealth tax is levied annually at the rate of 0.5% for taxable net wealth not exceeding EUR 500,000,000 and at a rate of 0.05% for the net wealth exceeding EUR 500,000,000, of enterprises resident in Luxembourg, as determined for net wealth tax purposes. The shares or ADSs may be exempt from net wealth tax subject to the conditions set forth by Paragraph 60 of the Luxembourg Law of October 16, 1934 on the valuation of assets (Bewertungsgesetz), as amended.
A minimum net wealth tax charge applies as of January 1, 2016 for all corporate entities having their statutory seat or central administration in Luxembourg. Subject to certain conditions, the amount of minimum net wealth tax may vary.
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Non-Luxembourg Holders
Luxembourg net wealth tax will not be levied on a non-Luxembourg Holder with respect to the shares or ADSs held unless the shares or ADSs are attributable to an enterprise or part thereof which is carried on through a permanent establishment or a permanent representative in Luxembourg. The shares or ADSs may be exempt from net wealth tax subject to the conditions set forth by Paragraph 60 of the Luxembourg Law of October 16, 1934 on the valuation of assets (Bewertungsgesetz), as amended.
Stamp and registration taxes
No registration tax or stamp duty will be payable by a holder of shares or ADSs in Luxembourg solely upon the disposal of shares or ADSs by sale or exchange.
Estate and gift taxes
No estate or inheritance tax is levied on the transfer of shares or ADSs upon the death of a holder of shares or ADSs in cases where the deceased was not a resident of Luxembourg for inheritance tax purposes and no gift tax is levied upon a gift of shares or ADSs if the gift is not passed before a Luxembourg notary or recorded in a deed registered in Luxembourg.
Where a holder of shares or ADSs is a resident of Luxembourg for tax purposes at the time of the holder’s death, the shares or ADSs are included in its taxable estate for inheritance tax or estate tax purposes.
U.S. federal income taxation
This section describes the material U.S. federal income tax consequences to a U.S. holder (as defined below) of owning shares or ADSs. It applies to you only if you hold your shares or ADSs as capital assets for U.S. federal income tax purposes. This discussion addresses only U.S. federal income taxation and does not discuss all of the tax consequences that may be relevant to you in light of your individual circumstances, including foreign, state or local tax consequences, estate and gift tax consequences, and tax consequences arising under the Medicare contribution tax on net investment income or the alternative minimum tax. This section does not apply to you if you are a member of a special class of holders subject to special rules, including:
- a dealer in securities;
- a bank;
- a trader in securities that elects to use a mark-to-market method of accounting for securities holdings;
- a tax-exempt organization;
- a person who invests through a pass-through entity, including a partnership;
- a life insurance company;
- a former citizen or long-term resident of the United States;
- a person that actually or constructively owns 10% or more of the combined voting power of our voting stock or of the total value of our stock (including ADSs);
- a person that holds shares or ADSs as part of a straddle or a hedging or conversion transaction for U.S. federal income tax purposes;
- a person that purchases or sells shares or ADSs as part of a wash sale for U.S. federal income tax purposes; or
- a person whose functional currency is not the U.S. dollar.
This section is based on the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations, published rulings and court decisions, all as currently in effect, as well as on the Convention between the Government of the Grand Duchy of Luxembourg and the Government of the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital (the “Treaty”). These laws are subject to change, possibly on a retroactive basis. In addition, this section is based in part upon the assumption that each obligation in the ADS deposit agreement and any related agreement will be performed in accordance with its terms.
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If an entity or arrangement that is treated as a partnership for U.S. federal income tax purposes holds the shares or ADSs, the U.S. federal income tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. Each such partner holding the shares or ADSs is urged to consult his, her or its own tax advisor.
You are a U.S. holder if you are a beneficial owner of shares or ADSs and you are, for U.S. federal income tax purposes:
- an individual citizen or resident of the United States;
- a domestic corporation (or an entity treated as a domestic corporation);
- an estate whose income is subject to U.S. federal income tax regardless of its source; or
- a trust if (i) a U.S. court can exercise primary supervision over the trust’s administration and one or more U.S. persons are authorized to control all substantial decisions of the trust or (ii) the trust has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.
In general, and taking into account the earlier assumptions, for U.S. federal income tax purposes, if you hold ADRs evidencing ADSs, you will be treated as the owner of the shares represented by those ADSs. Exchanges of shares for ADRs, and ADRs for shares, generally will not be subject to U.S. federal income tax.
The tax treatment of your shares or ADSs will depend in part on whether or not we are classified as a passive foreign investment company (“PFIC”), for United States federal income tax purposes. Except as discussed below under “PFIC Rules”, this discussion assumes that we are not classified as a PFIC for United States federal income tax purposes.
You should consult your own tax advisor regarding the U.S. federal, state and local and other tax consequences of owning and disposing of shares or ADSs in your particular circumstances.
Taxation of distributions
Under the U.S. federal income tax laws, if you are a U.S. holder, the gross amount of any distribution we pay out of our current or accumulated earnings and profits (as determined for U.S. federal income tax purposes), other than certain pro-rata distributions of our shares, including the amount of any Luxembourg tax withheld, will be treated as a dividend that is subject to U.S. federal income taxation. If you are a non-corporate U.S. holder, dividends paid to you that constitute qualified dividend income will be taxable to you at the preferential rates applicable to long-term capital gains provided that you hold shares or ADSs for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date and meet other holding period requirements. Dividends we pay with respect to the shares or ADSs generally will be qualified dividend income, provided that, in the year that you receive the dividend, we are eligible for the benefits of the Treaty. We believe that we are currently eligible for the benefits of the Treaty and therefore expect that dividends on the shares or ADSs will be qualified dividend income, but there can be no assurance that we will continue to be eligible for the benefits of the Treaty.
You must generally include any Luxembourg tax withheld from the dividend payment in this gross amount even though you do not in fact receive it. The dividend is taxable to you when you receive it, or, in the case of ADSs, when the depositary receives the dividend, actually or constructively. The dividend will not be eligible for the dividends-received deduction generally allowed to U.S. corporations in respect of dividends received from other U.S. corporations. Distributions in excess of current and accumulated earnings and profits, as determined for U.S. federal income tax purposes, will be treated as a non-taxable return of capital to the extent of your basis in the shares or ADSs and thereafter as capital gain. However, we do not expect to calculate earnings and profits in accordance with U.S. federal income tax principles. Therefore, you should expect that a distribution will generally be treated as a dividend (as discussed above).
Dividends will generally be income from sources outside the United States and, generally, will be “passive” income for purposes of computing the foreign tax credit allowable to you.
Subject to certain limitations, the Luxembourg tax withheld in accordance with the Treaty and paid over to Luxembourg will be creditable or deductible against your U.S. federal income tax liability. Special rules apply in determining the foreign tax credit limitation with respect to dividends that are subject to the preferential tax rates. To the extent a refund of the tax withheld is available to you under Luxembourg law or under the Treaty, the amount of tax withheld that is refundable will not be eligible for credit against your U.S. federal income tax liability.
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In certain circumstances, if you have held ADSs for less than a specified minimum period during which you are not protected from risk of loss, or are obligated to make payments related to the dividends, you will not be allowed a foreign tax credit for foreign taxes imposed on dividends that we pay.
The rules governing the foreign tax credit are complex. You are urged to consult your tax advisors regarding the availability of the foreign tax credit under your particular circumstances.
Taxation of capital gains
If you are a U.S. holder and you sell or otherwise dispose of your shares or ADSs, you will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference between the U.S. dollar value of the amount that you realize and your tax basis, determined in U.S. dollars, in your shares or ADSs. Capital gain of a non-corporate U.S. holder is generally taxed at preferential rates where the property is held for more than one year. The gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes. The deductibility of capital losses is subject to limitations.
Additional U.S. Federal Income Tax Considerations
PFIC rules. Based on the Company’s current and expected income and assets, we believe that the shares or ADSs should not currently be treated as stock of a PFIC for U.S. federal income tax purposes, and we do not expect to become a PFIC in the foreseeable future. However, this conclusion is a factual determination that is made annually and thus may be subject to change. It is therefore possible that we could become a PFIC in a future taxable year. If we were to be treated as a PFIC, gain realized on the sale or other disposition of your shares or ADSs would in general not be treated as capital gain. Furthermore, if you are a U.S. holder, unless you are permitted to elect and you do elect to be taxed annually on a mark-to-market basis with respect to the shares or ADSs, upon sale or disposition of your shares or ADSs, you would generally be treated as if you had realized such gain and certain “excess distributions” ratably over your holding period for the shares or ADSs and would be taxed at the highest tax rate in effect for each such year to which the gain was allocated, together with an interest charge in respect of the tax attributable to each such year. With certain exceptions, your shares or ADSs will be treated as stock in a PFIC if we were a PFIC at any time during your holding period in your shares or ADSs. Dividends that you receive from us will not be eligible for the special tax rates applicable to qualified dividend income if we are a PFIC (or are treated as a PFIC with respect to you) either in the taxable year of the distribution or the preceding taxable year, but instead will be taxable at rates applicable to ordinary income and subject to the excess distribution regime described above.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
The Company is subject to the reporting requirements of the Exchange Act, as applied to foreign private issuers. Accordingly, the Company is required to file annual and special reports and other information with the SEC; however, foreign private issuers are not required to deliver proxy statements or to file quarterly reports. We prepare quarterly and annual consolidated financial statements in accordance with IFRS. The Company’s annual consolidated financial statements are audited by an independent accounting firm. The Company submits quarterly financial information with the SEC on Form 6-K simultaneously with or promptly following the publication of such information in Luxembourg and any other jurisdiction in which the Company’s securities are listed. In addition, the Company files annual reports on Form 20-F within the time period required by the SEC, which is currently four months from the close of the Company’s fiscal year on December 31. Reports and other information filed electronically with the SEC are available at the SEC’s Internet website at http://www.sec.gov. In addition, such reports and other communications are made available to all shareholders and holders of ADSs on the Company’s website at: https://ir.tenaris.com/investor-relations.
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- its annual reports, and
- copies of all notices of shareholders’ meetings and other reports and communications that are made generally available to the Company’s shareholders.
The Depositary will, as provided in the deposit agreement and if requested in writing by the Company, arrange for the mailing of such reports, notices and communications to all record holders of ADSs, on a basis similar to that for holders of shares, or on such other basis as the Company may advise the Depositary may be required by any applicable law or regulation or any requirement of any stock exchange to which the Company may be subject. Any reports and communications, including any proxy solicitation material, shall be furnished in English to the extent such materials are required to be translated into English pursuant to any regulations of the SEC.
Any record holder of ADSs may read the reports, notices, and other communications including any proxy solicitation material at the Depositary’s office located at One Columbus Circle, New York, New York 10019.
In addition, such reports, notices and other communications are made available to all shareholders and holders of ADSs on the Company’s website at: https://ir.tenaris.com/investor-relations
Whenever a reference is made in this annual report to a contract or other document, please be aware that such reference is not necessarily complete and that you should refer to the exhibits that are a part of this annual report for a copy of the contract or other document.
I. Subsidiary Information
Not applicable.
Item 11. Quantitative and Qualitative Disclosure about Market Risk
The multinational nature of our operations and customer base expose us to a variety of risks, including the effects of changes in foreign currency exchange rates, interest rates and commodity prices. In order to reduce the impact related to these exposures, management evaluates exposures on a consolidated basis to take advantage of natural exposure netting. For the residual exposures, we may enter into various derivative transactions in order to reduce potential adverse effects on our financial performance. Such derivative transactions are executed in accordance with internal policies and hedging practices. We do not enter into derivative financial instruments for trading or other speculative purposes, other than non-material investments in structured products.
The following information should be read together with section III, “Financial risk management” to our audited consolidated financial statements included elsewhere in this annual report.
Debt Structure
The following tables provide a breakdown of our debt instruments at December 31, 2021 and 2020 which included fixed and variable interest rate obligations, detailed by maturity date:
|
At December 31, 2021 |
Expected maturity date |
|
||||||
|
|
2022 |
2023 |
2024 |
2025 |
2026 |
Thereafter |
Total (1) |
|
|
|
(in millions of U.S. dollars) |
|||||||
|
Non-current Debt |
|
|
|
|
|
|
|
|
|
Fixed rate |
- |
8 |
4 |
- |
- |
- |
12 |
|
|
Variable rate |
- |
100 |
- |
- |
- |
- |
100 |
|
|
|
|
|
|
|
|
|
|
|
|
Current Debt |
|
|
|
|
|
|
|
|
|
Fixed rate |
175 |
- |
- |
- |
- |
- |
175 |
|
|
Variable rate |
44 |
- |
- |
- |
- |
- |
44 |
|
|
|
219 |
107 |
4 |
- |
- |
- |
331 |
|
| 101 |
|
At December 31, 2020 |
Expected maturity date |
|
|||||
|
|
2021 |
2022 |
2023 |
2024 |
2025 |
Thereafter |
Total (1) |
|
|
(in millions of U.S. dollars) |
||||||
|
Non-current Debt |
|
|
|
|
|
|
|
|
Fixed rate |
- |
29 |
8 |
4 |
- |
- |
41 |
|
Variable rate |
- |
75 |
200 |
- |
- |
- |
275 |
|
|
|
|
|
|
|
|
|
|
Current Debt |
|
|
|
|
|
|
|
|
Fixed rate |
197 |
- |
- |
- |
- |
- |
197 |
|
Variable rate |
107 |
- |
- |
- |
- |
- |
107 |
|
|
303 |
104 |
208 |
4 |
- |
- |
619 |
| (1) | As most borrowings are based on short-term fixed rates, or variable rates that approximate market rates, with interest rate resetting every 3 to 6 months, the fair value of the borrowings approximates its carrying amount and is not disclosed separately. |
Our weighted average interest rates before tax (considering hedge accounting), amounted to 2.09% at December 31, 2021 and to 2.51% at December 31, 2020.
Our financial liabilities (other than trade payables and derivative financial instruments) consist mainly of bank loans. As of December 31, 2021, U.S. dollar denominated financial debt plus debt denominated in other currencies swapped to the U.S. dollar represented 78% of total financial debt.
For further information about our financial debt, please see note 20 “Borrowings” to our audited consolidated financial statements included in this annual report.
Interest Rate Risk
Fluctuations in market interest rates create a degree of risk by affecting the amount of our interest payments. At December 31, 2021, we had variable interest rate debt of $144 million and fixed rate debt of $187 million ($175 million of the fixed rate debt is short-term).
Foreign Exchange Rate Risk
We manufacture and sell our products in a number of countries throughout the world and consequently we are exposed to foreign exchange rate risk. Since the Company’s functional currency is the U.S. dollar, the purpose of our foreign currency hedging program is mainly to reduce the risk caused by changes in the exchange rates of other currencies against the U.S. dollar.
Most of our revenues are determined or influenced by the U.S. dollar. In addition, a relevant part of our costs corresponds to steelmaking raw materials and steel coils and plates, also determined or influenced by the U.S. dollar. However, outside the United States, a portion of our expenses is incurred in foreign currencies (e.g. labor costs). Therefore, when the U.S. dollar weakens in relation to the foreign currencies of the countries where we manufacture our products, the U.S. dollar-reported expenses increase. Had the U.S. dollar average exchange rate been weaker by 5% against the currencies of the countries where we have labor costs, operating income would have decreased approximately by $46 million in 2021, compared to $44 million in 2020.
Our consolidated exposure to currency fluctuations is reviewed on a periodic basis. A number of hedging transactions are performed in order to achieve an efficient coverage in the absence of operative or natural hedges. Almost all of these transactions are forward exchange rate contracts.
Because certain subsidiaries have functional currencies other than the U.S. dollar, the results of hedging activities as reported in the income statement under IFRS may not reflect entirely management’s assessment of its foreign exchange risk hedging needs. Also, intercompany balances between our subsidiaries may generate exchange rate results to the extent that their functional currencies differ.
The value of our financial assets and liabilities is subject to changes arising out of the variation of foreign currency exchange rates. The following table provides a breakdown of our main financial assets and liabilities (including foreign exchange derivative contracts) that impact our profit and loss as of December 31, 2021.
|
All amounts in millions of U.S. dollars |
|
|
|
Currency Exposure |
Functional currency |
Long / (Short) Position |
|
|
|
|
|
Argentine Peso |
U.S. dollar |
(95) |
|
Euro |
U.S. dollar |
12 |
|
Saudi Arabian Riyal |
U.S. dollar |
(78) |
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Foreign Currency Derivative Contracts
The net fair value of our foreign currency derivative contracts amounted to a liability of $13 thousand at December 31, 2021 and an asset of $8.2 million at December 31, 2020. For further detail on our foreign currency derivative contracts, please see note 25 “Derivative financial instruments – Foreign exchange derivative contracts and hedge accounting” to our audited consolidated financial statements included in this annual report.
Accounting for Derivative Financial Instruments and Hedging Activities
Derivative financial instruments are classified as financial assets (or liabilities) at fair value through profit or loss. Their fair value is calculated using standard pricing techniques and, as a general rule, we recognize the full amount related to the change in its fair value under financial results in the current period.
We designate for hedge accounting certain derivatives and non-derivative financial liabilities to hedge risks associated with recognized assets, liabilities or highly probable forecast transactions. These instruments are classified as cash flow hedges. The effective portion of the fair value of such derivatives is accumulated in a reserve account in equity. Amounts accumulated in equity are then recognized in the income statement in the same period when the offsetting losses and gains on the hedged item are recorded. The gain or loss relating to the ineffective portion is recognized immediately in the income statement. The fair value of our derivative financial instruments (assets or liabilities) continues to be reflected on the consolidated statement of financial position.
At December 31, 2021, the effective portion of designated cash flow hedges, included in other reserves in shareholders’ equity amounted to a credit of $1.3 million.
Concentration of credit risk
There is no significant concentration of credit from customers. No single customer comprised more than 10% of our net sales in 2021 and in 2020.
Our credit policies related to sales of products and services are designed to identify customers with acceptable credit history, and to allow us to use credit insurance, letters of credit and other instruments designed to minimize credit risk whenever deemed necessary. We maintain allowances for potential credit losses.
Commodity Price Sensitivity
We use commodities and raw materials that are subject to price volatility caused by supply conditions, political and economic variables and other unpredictable factors. As a consequence, we are exposed to risk resulting from fluctuations in the prices of these commodities and raw materials. Although we fix the prices of such raw materials and commodities for short-term periods, typically not in excess of one year, in general we do not hedge this risk.
Item 12. Description of Securities Other Than Equity Securities
A. Debt securities
Not applicable.
Not applicable.
C. Other securities
Not applicable.
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D. American Depositary Shares
According to the Company's deposit agreement, holders of ADSs may have to pay to the Depositary, either directly or indirectly, fees or charges up to the amounts set forth below:
- A fee of $5.00 (or less) per 100 ADSs (or portion of 100 ADSs) for: issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property; and cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates.
- A fee of $0.02 (or less) per ADSs for any cash distribution to ADS registered holders, excluding cash dividend.
- Any charges for taxes and other governmental charges that the Depositary or the custodian may be required to pay on any ADS or share underlying an ADS (e.g., share transfer taxes, stamp duty or withholding taxes); and any charges incurred by the Depositary or its agents for servicing the depositary securities.
- Registration or transfer fees for transfer and registration of shares on our share register to or from the name of the Depositary or its agent when you deposit or withdraw shares.
- Expenses of the Depositary for cable, telex and facsimile transmissions (when expressly provided in the deposit agreement) and conversion of foreign currency.
- A fee equivalent to the fee that would be payable if securities distributed to ADS holders had been shares and the shares had been deposited for issuance of ADSs for distribution of securities distributed to holders of deposited securities which are distributed by the Depositary to ADS registered holders.
- As necessary, charges for any costs incurred by the Depositary or its agents for servicing the deposited securities.
The Depositary collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The Depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The Depositary may collect its annual fee for depositary services by deduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The Depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.
Under the deposit agreement with the Depositary, the Depositary is not liable to holders of ADSs, except that the Depositary agrees to perform its obligations specifically set forth therein without gross negligence and willful misconduct.
Fees Payable by the Depositary to the Company
Under its agreement with the Depositary, the Company is entitled to receive certain fees from the Depositary, based on the Depositary’s revenues resulting from issuance and cancellation fees charged to ADR holders, net of custody and safe keeping costs. In addition, the Depositary has waived the cost of providing administrative and reporting services, and access charges in connection with the Company’s ADR Program.
Fees paid in 2021
In 2021, the Company received from the Depositary fees for an amount of $1,110,548, corresponding to the period March 1, 2020 through February 28, 2021.
Fees payable during 2022
During 2022, the Company expects to collect fees from the Depositary for an amount of $1,162,434, corresponding to the period March 1, 2021 through March 12, 2022.
Item 13. Defaults, Dividend Arrearages and Delinquencies
None.
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None.
Item 15. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2021.
Based on that evaluation, our chief executive officer and chief financial officer have concluded that, as of December 31, 2021, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and to ensure that such information is accumulated and communicated to management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. Our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures are effective at a reasonable assurance level.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control over financial reporting was designed by management to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of its financial statements for external purposes in accordance with IFRS.
In addition, under the Company’s articles of association, as supplemented by the audit committee’s charter, the audit committee assists the board of directors in fulfilling its oversight responsibilities relating to the effectiveness of the Company’s systems of internal control, risk management and internal audit over financial reporting. In particular, the audit committee is required to review the scope and results of the activities of the Company’s external auditors and the internal audit function relating to the Company’s internal control over financial reporting, and obtain reports on significant findings and recommendations; and is also required to assess, at least annually at the time the annual accounts are approved, the effectiveness of the Company’s systems of internal control and risk management over financial reporting.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements or omissions. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
On a yearly basis, management conducts its assessment of the effectiveness of Tenaris’s internal control over financial reporting based on the framework in Internal Control- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
On February 15, 2022, management reported to the audit committee that it had conducted its assessment of the effectiveness of the Company’s internal controls over financial reporting for the year ended December 31, 2021, and that, based on management’s evaluation and considering the inherent limitations to the effectiveness of any internal control system, it concluded that the Company’s internal controls over financial reporting were effective as of December 31, 2021.
The effectiveness of Tenaris’s internal control over financial reporting as of December 31, 2021 has been audited by PwC Luxembourg, as stated in their report included herein. See “Attestation Report of Registered Public Accounting Firm”.
Attestation Report of Registered Public Accounting Firm
See page F-1 of the audited consolidated financial statements included in this report.
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Change in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a -15(f) and 15d -15(f) under the Exchange Act) during the year ended December 31, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 16A. Audit Committee Financial Expert
The Company’s board of directors has determined that Ms. Mónica Tiuba, the audit committee’s chairperson, meets the attributes defined in Item 16A of Form 20-F for an “audit committee financial expert” and has competence in accounting or auditing matters, as required by applicable Luxembourg law. In addition, the audit committee, as a whole, has sufficient relevant knowledge of the business and financial experience to properly discharge its functions. The audit committee has the authority to engage, at the Company’s expense, independent counsel and other internal or external advisors to review, investigate or otherwise advise on, any matter, as the audit committee may determine to be necessary to carry out its purposes and responsibilities.
Item 16B. Code of Ethics
The Company has adopted a general code of conduct incorporating guidelines and standards of integrity and transparency applicable to all directors, officers and employees. As far as the nature of each relation permits, all principles detailed in the code of conduct also apply to relations with our contractors, subcontractors, suppliers and associated persons. In addition, the Company has adopted a code of ethics for senior financial officers, which is intended to supplement the Company’s code of conduct, and applies specifically to the principal executive officer, the principal financial officer, the principal accounting officer or controller, as well as persons performing similar functions.
Our code of conduct and our code of ethics for senior financial officers are posted on our website at:
https://www.tenaris.com/en/sustainability/governance-and-ethics/
Item 16C. Principal Accountant Fees and Services
Fees paid to the Company’s Principal Accountant
In 2021 and 2020, PwC Luxembourg served as the principal external auditor for the Company. Fees accrued to PwC Luxembourg and other PwC member firms for the years ended December 31, 2021 and December 31, 2020 are detailed below.
|
|
For the year ended December 31, |
|
|
Thousands of U.S. dollars |
2021 |
2020 |
|
|
|
|
|
Audit Fees |
3,804 |
3,781 |
|
Audit-Related Fees |
220 |
134 |
|
Tax Fees |
- |
102 |
|
All Other Fees |
5 |
- |
|
Total |
4,029 |
4,017 |
Audit Fees
Audit fees are paid for professional services rendered by the external auditors for the audit of the consolidated financial statements and internal control over financial reporting of the Company, the statutory financial statements of the Company and its subsidiaries, and any other audit services required in connection with the Company’s filings with the SEC or other regulatory filings.
Audit-Related Fees
Audit-related fees are typically referred to services that are reasonably related to the performance of the audit or review of the consolidated financial statements of the Company, or the statutory financial statements of the Company and its subsidiaries and are not reported under the audit fee item above. This item includes fees for attestation services on financial information of the Company and its subsidiaries included in annual reports filed with the applicable regulators.
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Tax Fees
Fees paid for tax compliance and tax advice professional services.
All Other Fees
Fees paid for the support in the development of training courses to Tenaris employees.
Audit Committee’s Pre-approval Policies and Procedures
The Company’s audit committee is responsible for, among other things, the oversight of the Company’s external auditors. The audit committee has adopted in its charter a policy of pre-approval of audit and permissible non-audit services provided by its external auditors.
Under the policy, the audit committee makes its recommendations to the shareholders’ meeting concerning the continuing appointment or termination of the Company’s external auditors. On a yearly basis, the audit committee reviews together with management and the external auditor, the audit plan, audit related services and other non-audit services and approves, ad-referendum of the general shareholders’ meeting, the related fees. Any changes to the approved fees must be reviewed and approved by the audit committee. The general shareholders’ meeting normally approves such audit fees and authorizes the audit committee to approve any increase or reallocation of such audit fees as may be necessary, appropriate or desirable under the circumstances. No services outside the scope of the audit committee’s approval can be undertaken by the external auditor.
During 2021 and 2020, the audit committee did not approve any fees pursuant to the de minimis exception to the pre-approval requirement provided by paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
Item 16D. Exemptions from the Listing Standards for Audit Committees
Not applicable.
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
In 2021, there were no purchases of any class of registered equity securities of the Company by the Company or, to our knowledge, by any “affiliated purchaser” (as such term is defined in Rule 10b-18(a)(3) under the Exchange Act).
On June 2, 2020, at the Company’s general meeting of shareholders, the Company’s shareholders authorized the Company and the Company’s subsidiaries to acquire, from time to time, shares, including shares represented by ADSs, on the following terms and conditions:
- Purchases, acquisitions or receipts of securities may be made in one or more transactions as the board of directors of the Company or the board of directors or other governing bodies of the relevant entity, as applicable, considers advisable.
- The maximum number of Securities acquired pursuant to this authorization may not exceed 10% of the Company’s issued and outstanding shares or, in the case of acquisitions made through a stock exchange in which the Securities are traded, such lower amount as may not be exceeded pursuant to any applicable laws or regulations of such market. The number of Securities acquired as a block may amount to the maximum permitted amount of purchases.
- The purchase price per share to be paid in cash may not exceed 125% (excluding transaction costs and expenses), nor may it be lower than 75% (excluding transaction costs and expenses), in each case of the average of the closing prices of the Company’s Securities in the stock exchange through which the Company’s Securities are acquired, during the five trading days in which transactions in the Securities were recorded in such stock exchange preceding (but excluding) the day on which the Company’s Securities are acquired. For over-the-counter or off-market transactions, the purchase price per ADS to be paid in cash may not exceed 125% (excluding transaction costs and expenses), nor may it be lower than 75% (excluding transaction costs and expenses), in each case of the average of the closing prices of the ADSs in the NYSE during the five trading days in which transactions in ADSs were recorded in the NYSE preceding (but excluding) the day on which the ADSs are acquired; and, in the case of acquisition of Securities, other than in the form of ADSs, such maximum and minimum per security purchase prices shall be equal to the prices that would have applied in case of an ADS purchase pursuant to the formula above divided by the number of underlying shares represented by an ADS at the time of the relevant purchase. Compliance with maximum and minimum purchase price requirements in any and all acquisitions made pursuant to this authorization (including, without limitation, acquisitions carried out through the use of derivative financial instruments or option strategies) shall be determined on and as of the date on which the relevant transaction is entered into, irrespective of the date on which the transaction is to be settled.
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- The above maximum and minimum purchase prices shall, in the event of a change in the par value of the Securities, a capital increase by means of a capitalization of reserves, a distribution of Securities under compensation or similar programs, a stock split or reverse stock split, a distribution of reserves or any other assets, the redemption of capital, or any other transaction impacting on the Company’s equity, be adapted automatically, so that the impact of any such transaction on the value of the Securities shall be reflected.
- The acquisitions of Securities may not have the effect of reducing the Company’s net assets below the sum of the Company’s share capital plus its undistributable reserves.
- Only fully paid-up Securities may be acquired pursuant to this authorization.
- The acquisitions of Securities may be carried out for any purpose, as may be permitted under applicable laws and regulations, including without limitation to reduce the share capital of the Company, to offer such shares to third parties in the context of corporate mergers or acquisitions of other entities or participating interests therein, for distribution to the Company’s or the Company’s subsidiaries’ directors, officers or employees or to meet obligations arising from convertible debt instruments.
- The acquisitions of Securities may be carried out by any and all means, as may be permitted under applicable laws and regulations, including through any stock exchange in which the Company’s Securities are traded, through public offers to all shareholders of the Company to buy Securities, through the use of derivative financial instruments or option strategies, or in over-the-counter or off-market transactions or in any other manner.
- The acquisitions of Securities may be carried out at any time, during the duration of the authorization, including during a tender offer period, as may be permitted under applicable laws and regulations.
- The authorization granted to acquire securities shall be valid for such maximum period as may be provided for under applicable Luxembourg law as in effect from time to time (such maximum period being, as of to date, 5 years).
- The acquisitions of securities shall be made at such times and on such other terms and conditions as may be determined by the board of directors of the Company or the board of directors or other governing bodies of the relevant subsidiary, provided that, any such purchase shall comply with Article 430-15 et. seq. of the Luxembourg Company Law (or any successor law) and, in the case of acquisitions of securities made through a stock exchange in which the Company’s securities are traded, with any applicable laws and regulations of such market.
In the future, we may, on the terms and subject to the conditions above referred, initiate a share capital repurchase or similar program or engage in other transactions pursuant to which we would repurchase, directly or indirectly, the Company’s Securities. In addition, we or our subsidiaries may enter into transactions involving sales or purchases of derivatives or other instruments, either settled in cash or through physical delivery of securities, with returns linked to the Company’s Securities. The timing and amount of repurchase transactions under any such program, or sales or purchases of derivatives or other instruments, would depend on market conditions as well as other corporate and regulatory considerations.
Item 16F. Change in Registrant’s Certifying Accountant
Not applicable
Item 16G. Corporate Governance
The Company’s corporate governance practices are governed by Luxembourg Law (including, among others, the Luxembourg Company Law, the Luxembourg Law of January 11, 2008 on transparency requirements for issuers, as amended (which transposes EU Directive 2004/109 of the European Parliament and of the Council of December 15, 2004), the Shareholders’ Rights Law and the Audit Reform Law) and by the Company’s articles of association. As a Luxembourg company listed on the NYSE, the Bolsa Mexicana de Valores, S.A. de C.V. (the Mexican Stock Exchange), and the Borsa Italiana S.p.A. (the Italian Stock Exchange), the Company is required to comply with some, but not all, of the corporate governance standards of these exchanges. The Company, however, believes that its corporate governance practices meet, in all material respects, the corporate governance standards that are generally required for controlled companies by all of the exchanges on which the Company’s securities trade.
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The following is a summary of the significant ways that the Company’s corporate governance practices differ from the corporate governance standards required for foreign controlled companies by the NYSE. The Company’s corporate governance practices may differ in non-material ways from certain other standards required by the NYSE that are not detailed here.
Non-management directors’ meetings
Under NYSE standards, non-management directors must meet at regularly scheduled executive sessions without management present and, if such group includes directors who are not independent, a meeting should be scheduled once per year including only independent directors. Neither Luxembourg law nor the Company’s articles of association require the holding of such meetings and the Company does not have a set policy for these meetings. For additional information on board meetings, see Item 6.A. “Directors, Senior Management and Employees – Directors and Senior Management – Board of Directors”.
In addition, NYSE-listed companies are required to provide a method for interested parties to communicate directly with non-management directors as a group. While the Company does not have such a method, it has set up a compliance line for investors and other interested parties to communicate their concerns directly to the members of our audit committee, all of whom are non-management, independent directors.
Audit committee composition
Under NYSE standards, listed U.S. companies are required to have an audit committee composed of independent directors that satisfy the requirements of Rule 10A-3 promulgated under the Exchange Act. Pursuant to the Company’s articles of association, as supplemented by the audit committee’s charter, for as long as the Company's shares are listed on at least one regulated market, the Company must have an audit committee composed of at least three members, the majority of whom must qualify as independent directors (as defined in the Company’s articles of association), provided, however, that the composition and membership of the audit committee shall satisfy such requirements as are applicable to, and mandatory for, audit committees of issuers such as the Company under any law, rule or regulation applicable to the Company (including, without limitation, the applicable laws, rules and regulations of such regulated market or markets). The Company’s audit committee, which currently consists of three members, complies with such requirements. In accordance with NYSE standards, the Company has an audit committee entirely composed of independent directors for purposes of the Exchange Act Rule 10A-3(b)(1). For more information on the Company’s audit committee see Item 6.C. “Directors, Senior Management and Employees– Board Practices – Audit Committee”.
Under NYSE standards, all audit committee members of listed U.S. companies are required to be financially literate or must acquire such financial knowledge within a reasonable period and at least one of its members shall have experience in accounting or financial administration. In addition, if a member of the audit committee is simultaneously a member of the audit committee of more than three public companies, and the listed company does not limit the number of audit committees on which its members may serve, then in each case the board must determine whether the simultaneous service would prevent such member from effectively serving on the listed company’s audit committee and shall publicly disclose its decision. Luxembourg law provisions on audit committee membership require only that at least one member of the audit committee have competence in accounting or auditing matters. The board of directors of the Company has determined that Ms. Tiuba, the committee’s chairperson, qualifies as “audit committee financial expert” under applicable SEC rules and has competence in accounting or auditing matters, as required by applicable Luxembourg law. In addition, the membership of the audit committee as a whole has sufficient relevant knowledge of the business and financial experience to properly discharge its functions. The audit committee has the authority, from time to time and as it deems necessary, to engage persons that meet all of the attributes of a financial expert as consultants. See Item 16.A. “Audit Committee Financial Expert”.
Standards for evaluating director independence
Under NYSE standards, the board is required, on a case-by-case basis, to express an opinion with regard to the independence or lack of independence of each individual director. Neither Luxembourg law nor the Company’s articles of association requires that the board of directors express such an opinion. In addition, the definition of “independent” under the NYSE rules differs in some non-material respects from the definition contained in the Company’s articles of association. For more information on the Company’s independent directors and the definition of “independent” under the Company’s articles of association see Item 6.A. “Directors, Senior Management and Employees – Directors and Senior Management – Board of Directors” and Item 6.C. “Directors, Senior Management and Employees – Board Practices – Audit Committee”.
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Audit committee responsibilities
Pursuant to the Company’s articles of association, the audit committee shall assist the board of directors in fulfilling its oversight responsibilities relating to the integrity of its consolidated financial statements, the effectiveness of its systems of internal control, risk management and internal audit over financial reporting and the independence and performance of the external auditors. The audit committee is required to review and, where applicable, approve material transactions between the Company or its subsidiaries and related parties and also perform the other duties entrusted to it by the board. The NYSE requires certain matters to be set forth in the audit committee charter of U.S. listed companies.
The Company’s audit committee charter provides for many of the responsibilities that are expected from such bodies under the NYSE standard and in accordance with applicable Luxembourg law, including the Audit Reform Law; however, due to the Company’s equity structure and holding company nature, the charter does not contain all such responsibilities, including provisions related to procedures for the receipt and treatment of complaints (although the Company has established such procedures), funding for payment of administrative expenses and compensation to advisors (although the audit committee has the authority to engage outside advisors), setting hiring policies for employees or former employees of external auditors, and an annual performance evaluation of the audit committee. For more information on the Company’s audit committee see Item 6.C. “Directors, Senior Management and Employees – Board Practices – Audit Committee”.
Standards for approval of related-party transactions
The Company is subject to Luxembourg laws governing approval and disclosure of material related party transactions, including the Shareholders’ Rights Law; and the Company’s articles of association and the Audit Committee charter require the Audit Committee to review material transactions with related parties to determine whether their terms are consistent with the interests of the Company and its shareholders and with market conditions. In addition, recently amended NYSE standard on related-party transactions requires all NYSE-listed companies’ audit committees (or another independent body of the board of directors) to conduct a reasonable prior review and oversight of all related party transactions for potential conflicts of interest and to prohibit such a transaction if it determines it to be inconsistent with the interests of the company and its shareholders. The rule defines the term “related party transaction” by reference to the disclosure requirements for annual reports under the Exchange Act. The materiality threshold applicable to foreign private issuers differs to the one applicable to U.S companies. For further details on the approval process for related party transactions, see Item 6.C. “Directors, Senior Management and Employees – Board Practices – Audit Committee”.
Shareholder voting on equity compensation plans
Under NYSE standards, shareholders must be given the opportunity to vote on equity-compensation plans and material revisions thereto, except for employment inducement awards, certain grants, plans and amendments in the context of mergers and acquisitions, and certain specific types of plans. The Company does not currently offer equity-based compensation to its directors, senior management or employees, and therefore does not have a policy on this matter. For more information on directors’ compensation see Item 6.B. “Directors, Senior Management and Employees – Compensation”.
The Shareholders’ Rights Law requires the Company to adopt a Compensation Policy setting forth the principles and guidelines for purposes of determining the compensation payable to the members of the Company’s board of directors and the managing director or chief executive officer. Such Compensation Policy must be submitted to the non-binding vote of the shareholders. In addition, the Shareholders’ Rights Law provides that the Company must prepare an annual report describing the compensation paid to directors and the chief executive officer for the performance of their duties and submit such report to the shareholders for approval. The Compensation Policy and Compensation Report must be available on the Company’s website. For more information on the Compensation Policy and the 2021 Compensation Report see Item 6.B. “Directors, Senior Management and Employees – Compensation”.
Disclosure of corporate governance guidelines
NYSE-listed companies must adopt and disclose corporate governance guidelines. Neither Luxembourg law nor the Company’s articles of association require the adoption or disclosure of corporate governance guidelines. The Company’s board of directors follows corporate governance guidelines consistent with its equity structure and holding company nature, but the Company has not codified them and therefore does not disclose them on its website.
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Code of business conduct and ethics
Under NYSE standards, listed companies must adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers. Neither Luxembourg law nor the Company’s articles of association require the adoption or disclosure of such a code of conduct. The Company, however, has adopted a code of conduct that applies to all directors, officers and employees that is posted on its website and which complies with the NYSE’s requirements, except that it does not require the disclosure of waivers of the code for directors and officers. In addition, it has adopted a supplementary code of ethics for senior financial officers, which is also posted on our website. See Item 16.B. “Code of Ethics”.
Chief Executive Officer certification
A chief executive officer of a U.S. company listed on the NYSE must annually certify that he or she is not aware of any violation by the company of NYSE corporate governance standards. In accordance with NYSE rules applicable to foreign private issuers, the Company’s chief executive officer is not required to provide the NYSE with this annual compliance certification. However, in accordance with NYSE rules applicable to all listed companies, the Company’s chief executive officer must promptly notify the NYSE in writing after any of our executive officers becomes aware of any noncompliance with any applicable provision of the NYSE’s corporate governance standards. In addition, the Company must submit an executed written affirmation annually and an interim written affirmation upon the occurrence of any of the events listed in the foreign private issuer interim written affirmation form by the NYSE.
Item 16H. Mine Safety Disclosure
Not applicable.
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Item 17. Financial Statements
We have responded to Item 18 in lieu of responding to this Item.
Item 18. Financial Statements
For the Report of Independent Registered Public Accounting Firm (PCAOB ID
For the Financial Statements see pages F-5 through F-80 of this annual report.
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Item 19. Exhibits
| * |
The Amended and Restated Deposit Agreement is incorporated by reference to the Registration Statement on Form F-6 filed by Tenaris S.A. on February 25, 2013 (File No. 333-186825). |
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Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
TENARIS S.A.
CONSOLIDATED
FINANCIAL STATEMENTS
For the years ended December 31, 2021, 2020 and 2019
26, Boulevard Royal – 4th Floor.
L – 2449 Luxembourg
R.C.S. Luxembourg: B 85 203
| 114 |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and shareholders of
Tenaris S.A.
Opinions on the Consolidated Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated statements of financial position of Tenaris S.A. and its subsidiaries (the “Company”) as of 31 December 2021 and 2020, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended 31 December 2021, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of 31 December 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of 31 December 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended 31 December 2021 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board and International Financial Reporting Standards as adopted by the European Union. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of 31 December 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 15. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
T : +352 494848 1, F : +352 494848 2900, www.pwc.lu
Cabinet de révision agréé. Expert-comptable (autorisation gouvernementale n°10028256)
R.C.S. Luxembourg B 65 477 - TVA LU25482518
| F-1 |
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
| F-2 |
Impairment assessment of long-lived assets - Siderca S.A.I.C. and Tubos de Acero de México S.A. businesses
As described in Notes II.H, 5, 10 and 11 to the consolidated financial statements, at 31 December 2021, the Company’s property, plant and equipment balance was 5,825 million USD, the goodwill balance was 1,085 million USD and the information system projects balance was 51 million USD, out of which a significant portion relates to the Siderca S.A.I.C. and Tubos de Acero de México S.A. businesses (respectively “Siderca” and “Tamsa”). Assets that are subject to amortisation or depreciation are reviewed for impairment by management whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Intangible assets with indefinite useful lives, including goodwill, are subject to at least an annual impairment test, or are tested more frequently if events or circumstances indicate that the carrying amount value may be impaired. The recoverable value of these assets was based on value-in-use. Value-in-use is calculated by discounting the estimated cash flows over a five-year period based on forecasts approved by management. For the subsequent years beyond the five-year period, a terminal value is calculated based on perpetuity considering a nominal growth rate of 2% taking into account among others, mainly the historical inflation rate. Management judgment is required to estimate discounted future cash flows. The main key assumptions used by management in estimating the value in use of the Siderca and Tamsa businesses are discount rate, growth rate, oil and gas prices, average number of active oil and gas drilling rigs (rig count) and raw material costs.
The principal considerations for our determination that performing procedures relating to the impairment assessment of long-lived assets of the Siderca and Tamsa businesses is a critical audit matter are (i) the significant judgment by management when developing the recoverable amount estimate; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to discount rate, growth rate, oil and gas prices, average number of active oil and gas drilling rigs and raw material costs; and (iii) the audit effort involved the use of professionals with specialised skill and knowledge.
| F-3 |
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the recoverability of long-lived assets, including controls over management’s analysis of impairment indicators and controls over the review of assumptions used and discounted cash flow calculations. These procedures also included, among others, (i) testing management’s process for determining the value in use estimate; (ii) evaluating the appropriateness of the discounted cash flow model; (iii) testing the completeness and accuracy of the underlying data used in the model; and (iv) evaluating the reasonableness of the significant assumptions used by management related to discount rate, growth rate, oil and gas prices, average number of active oil and gas drilling rigs and raw materials costs. Evaluating management’s assumptions related to oil and gas prices, average number of active oil and gas drilling rigs and raw material costs involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the businesses; (ii) the consistency with external market and industry data and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialised skill and knowledge were used to assist in the evaluation of the Company’s discounted cash flow model and the discount rate assumption.
|
PricewaterhouseCoopers, Société coopérative |
Luxembourg, 31 March 2022 |
| Represented by |
/s/ Gilles Vanderweyen
Gilles Vanderweyen
We have served as the Company’s auditor since 2011.
| F-4 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
CONSOLIDATED INCOME STATEMENT
|
(all amounts in thousands of US dollars, unless otherwise stated) |
|
Year ended December 31, |
||||||
|
|
Notes |
2021 |
2020 |
2019 |
||||
|
Continuing operations |
|
|
|
|
||||
|
Net sales |
1 |
|
|
|
||||
|
Cost of sales |
2 |
( |
) |
( |
) |
( |
) | |
|
Gross profit |
|
|
|
|
||||
|
Selling, general and administrative expenses |
3 |
( |
) |
( |
) |
( |
) | |
|
Impairment charge |
5 |
( |
) |
( |
) |
|
||
|
Other operating income |
6 |
|
|
|
||||
|
Other operating expenses |
6 |
( |
) |
( |
) |
( |
) | |
|
Operating income (loss) |
|
|
( |
) |
|
|||
|
Finance income |
7 |
|
|
|
||||
|
Finance cost |
7 |
( |
) |
( |
) |
( |
) | |
|
Other financial results |
7 |
|
( |
) |
|
|||
|
Income (loss) before equity in earnings of non-consolidated companies and income tax |
|
|
( |
) |
|
|||
|
Equity in earnings of non-consolidated companies |
13 |
|
|
|
||||
|
Income (loss) before income tax |
|
|
( |
) |
|
|||
|
Income tax |
8 |
( |
) |
( |
) |
( |
) | |
|
Income (loss) for the year |
|
|
( |
) |
|
|||
|
|
|
|
|
|
||||
|
Attributable to: |
|
|
|
|
||||
|
Owners of the parent |
|
|
( |
) |
|
|||
|
Non-controlling interests |
|
( |
) |
( |
) |
( |
) | |
|
|
|
|
( |
) |
|
|||
|
Earnings per share attributable to the owners of the parent during the year: |
|
|
|
|
||||
|
Weighted average number of ordinary shares (thousands) |
|
|
|
|
||||
|
Continuing operations |
|
|
|
|
||||
|
Basic and diluted earnings (losses) per share (U.S. dollars per share) |
|
|
( |
) |
|
|||
|
Basic and diluted earnings (losses) per ADS (U.S. dollars per ADS) (*) |
|
|
( |
) |
|
|||
(*)
The accompanying notes are an integral part of these Consolidated Financial Statements.
| F-5 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
|
(all amounts in thousands of U.S. dollars) |
Year ended December 31, |
|||||
|
|
2021 |
2020 |
2019 |
|||
|
Income (loss) for the year |
|
( |
) |
|
||
|
Items that may be subsequently reclassified to profit or loss: |
|
|
|
|||
|
Currency translation adjustment |
( |
) |
|
( |
) | |
|
Change in value of cash flow hedges and instruments at fair value |
( |
) |
( |
) |
|
|
|
Income tax relating to components of other comprehensive income |
( |
) |
|
( |
) | |
|
From participation in non consolidated companies: |
|
|
|
|||
|
- Currency translation adjustment (*) |
( |
) |
( |
) |
( |
) |
|
- Changes in the fair value of derivatives held as cash flow hedges and others |
|
|
|
|||
|
|
( |
) |
( |
) |
( |
) |
|
Items that will not be reclassified to profit or loss: |
|
|
|
|||
|
Remeasurements of post employment benefit obligations |
|
( |
) |
( |
) | |
|
Income tax on items that will not be reclassified |
( |
) |
|
|
||
|
Remeasurements of post employment benefit obligations of non-consolidated companies |
|
|
( |
) | ||
|
|
|
( |
) |
( |
) | |
|
Other comprehensive (loss) for the year, net of tax |
( |
) |
( |
) |
( |
) |
|
Total comprehensive income (loss) for the year |
|
( |
) |
|
||
|
Attributable to: |
|
|
|
|||
|
Owners of the parent |
|
( |
) |
|
||
|
Non-controlling interests |
( |
) |
( |
) |
( |
) |
|
|
|
( |
) |
|
||
(*)
The accompanying notes are an integral part of these Consolidated Financial Statements.
| F-6 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
Consolidated STATEMENT OF FINANCIAL POSITION
|
(all amounts in thousands of U.S. dollars) |
|
At December 31, 2021 |
|
At December 31, 2020 |
|||||||
|
|
Notes |
|
|
|
|
|
|||||
|
ASSETS |
|
|
|
|
|
|
|||||
|
Non-current assets |
|
|
|
|
|
|
|||||
|
Property, plant and equipment, net |
10 |
|
|
|
|
|
|||||
|
Intangible assets, net |
11 |
|
|
|
|
|
|||||
|
Right-of-use assets, net |
12 |
|
|
|
|
|
|||||
|
Investments in non-consolidated companies |
13 |
|
|
|
|
|
|||||
|
Other investments |
19 |
|
|
|
|
|
|||||
|
Derivative financial instruments |
25 |
|
|
|
|
|
|||||
|
Deferred tax assets |
21 |
|
|
|
|
|
|||||
|
Receivables, net |
14 |
|
|
|
|
|
|||||
|
Current assets |
|
|
|
|
|
|
|||||
|
Inventories, net |
15 |
|
|
|
|
|
|||||
|
Receivables and prepayments, net |
16 |
|
|
|
|
|
|||||
|
Current tax assets |
17 |
|
|
|
|
|
|||||
|
Trade receivables, net |
18 |
|
|
|
|
|
|||||
|
Derivative financial instruments |
25 |
|
|
|
|
|
|||||
|
Other investments |
19 |
|
|
|
|
|
|||||
|
Cash and cash equivalents |
19 |
|
|
|
|
|
|||||
|
Total assets |
|
|
|
|
|
|
|||||
|
EQUITY |
|
|
|
|
|
|
|||||
|
Capital and reserves attributable to owners of the parent |
|
|
|
|
|
|
|||||
|
Non-controlling interests |
|
|
|
|
|
|
|||||
|
Total equity |
|
|
|
|
|
|
|||||
|
LIABILITIES |
|
|
|
|
|
|
|||||
|
Non-current liabilities |
|
|
|
|
|
|
|||||
|
Borrowings |
20 |
|
|
|
|
|
|||||
|
Lease liabilities |
12 |
|
|
|
|
|
|||||
|
Deferred tax liabilities |
21 |
|
|
|
|
|
|||||
|
Other liabilities |
22 (i) |
|
|
|
|
|
|||||
|
Provisions |
23 |
|
|
|
|
|
|||||
|
Current liabilities |
|
|
|
|
|
|
|||||
|
Borrowings |
20 |
|
|
|
|
|
|||||
|
Lease liabilities |
12 |
|
|
|
|
|
|||||
|
Derivative financial instruments |
25 |
|
|
|
|
|
|||||
|
Current tax liabilities |
17 |
|
|
|
|
|
|||||
|
Other liabilities |
22 (ii) |
|
|
|
|
|
|||||
|
Provisions |
24 (ii) |
|
|
|
|
|
|||||
|
Customer advances |
|
|
|
|
|
|
|||||
|
Trade payables |
|
|
|
|
|
|
|||||
|
Total liabilities |
|
|
|
|
|
|
|||||
|
Total equity and liabilities |
|
|
|
|
|
|
|||||
Contingencies, commitments and restrictions on the distribution of profits are disclosed in note 26 to these Consolidated Financial Statements.
The accompanying notes are an integral part of these Consolidated Financial Statements.
| F-7 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
Consolidated statement of changes in equity
|
(all amounts in thousands of U.S. dollars) |
Attributable to owners of the parent |
|
|
|||||||||||||||
|
|
Share Capital (1) |
Legal Reserves |
Share Premium |
Currency Translation Adjustment |
Other Reserves (2) |
Retained Earnings (3) |
Total |
Non-controlling interests |
Total |
|||||||||
|
Balance at December 31, 2020 |
|
|
|
( |
) |
( |
) |
|
|
|
|
|||||||
|
Income (loss) for the year |
- |
- |
- |
- |
- |
|
|
( |
) |
|
||||||||
|
Currency translation adjustment |
- |
- |
- |
( |
) |
- |
- |
( |
) |
( |
) |
( |
) | |||||
|
Remeasurements of post employment benefit obligations, net of taxes |
- |
- |
- |
- |
|
( |
) |
|
( |
) |
|
|||||||
|
Change in value of instruments at fair value through other comprehensive income and cash flow hedges, net of taxes |
- |
- |
- |
- |
( |
) |
- |
( |
) |
|
( |
) | ||||||
|
From other comprehensive income of non-consolidated companies |
- |
- |
- |
( |
) |
|
- |
( |
) |
- |
( |
) | ||||||
|
Other comprehensive (loss) income for the year |
- |
- |
- |
( |
) |
|
( |
) |
( |
) |
|
( |
) | |||||
|
Total comprehensive income (loss) for the year |
- |
- |
- |
( |
) |
|
|
|
( |
) |
|
|||||||
|
Acquisition and other changes in non-controlling interests (4) |
- |
- |
- |
- |
- |
- |
- |
|
|
|||||||||
|
Dividends paid in cash |
- |
- |
- |
- |
- |
( |
) |
( |
) |
( |
) |
( |
) | |||||
|
Balance at December 31, 2021 |
|
|
|
( |
) |
( |
) |
|
|
|
|
|||||||
| (1) | |
| (2) | Other reserves include mainly the result of transactions with non-controlling interests that do not result in a loss of control, the remeasurement of post-employment benefit obligations, the changes in value of cash flow hedges and the changes in financial instruments measured at fair value through other comprehensive income. |
| (3) | |
| (4) | Mainly related to the agreement for the construction of Tenaris Baogang Baotou Steel Pipes Ltd. See note 35 to these Consolidated Financial Statements. |
The accompanying notes are an integral part of these Consolidated Financial Statements.
| F-8 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Cont.)
|
(all amounts in thousands of U.S. dollars) |
Attributable to owners of the parent |
|
|
|||||||||||||||
|
|
Share Capital (1) |
Legal Reserves |
Share Premium |
Currency Translation Adjustment |
Other Reserves (2) |
Retained Earnings |
Total |
Non-controlling interests |
Total |
|||||||||
|
Balance at December 31, 2019 |
|
|
|
( |
) |
( |
) |
|
|
|
|
|||||||
|
(Loss) for the year |
- |
- |
- |
- |
- |
( |
) |
( |
) |
( |
) |
( |
) | |||||
|
Currency translation adjustment |
- |
- |
- |
|
- |
- |
|
|
|
|||||||||
|
Remeasurements of post employment benefit obligations, net of taxes |
- |
- |
- |
- |
( |
) |
|
( |
) |
|
( |
) | ||||||
|
Change in value of instruments at fair value through other comprehensive income and cash flow hedges, net of taxes |
- |
- |
- |
- |
( |
) |
- |
( |
) |
( |
) |
( |
) | |||||
|
From other comprehensive income of non-consolidated companies |
- |
- |
- |
( |
) |
|
- |
( |
) |
- |
( |
) | ||||||
|
Other comprehensive (loss) income for the year |
- |
- |
- |
( |
) |
( |
) |
|
( |
) |
( |
) |
( |
) | ||||
|
Total comprehensive (loss) for the year |
- |
- |
- |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | |||
|
Acquisition and other changes in non-controlling interests (3) |
- |
- |
- |
- |
|
- |
|
|
|
|||||||||
|
Dividends paid in cash |
- |
- |
- |
- |
- |
( |
) |
( |
) |
( |
) |
( |
) | |||||
|
Balance at December 31, 2020 |
|
|
|
( |
) |
( |
) |
|
|
|
|
|||||||
| 1) | |
| 2) | |
| 3) | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
| F-9 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Cont.)
|
(all amounts in thousands of U.S. dollars) |
Attributable to owners of the parent |
|
|
|||||||||||||||
|
|
Share Capital (1) |
Legal Reserves |
Share Premium |
Currency Translation Adjustment |
Other Reserves (2) |
Retained Earnings |
Total |
Non-controlling interests |
Total |
|||||||||
|
Balance at December 31, 2018 |
|
|
|
( |
) |
( |
) |
|
|
|
|
|||||||
|
Income (loss) for the year |
- |
- |
- |
- |
- |
|
|
( |
) |
|
||||||||
|
Currency translation adjustment |
- |
- |
- |
( |
) |
- |
- |
( |
) |
( |
) |
( |
) | |||||
|
Remeasurements of post employment benefit obligations, net of taxes |
- |
- |
- |
- |
( |
) |
- |
( |
) |
( |
) |
( |
) | |||||
|
Change in value of instruments at fair value through other comprehensive income and cash flow hedges, net of taxes |
- |
- |
- |
- |
|
- |
|
|
|
|||||||||
|
From other comprehensive income of non-consolidated companies |
- |
- |
- |
( |
) |
( |
) |
- |
( |
) |
- |
( |
) | |||||
|
Other comprehensive (loss) income for the year |
- |
- |
- |
( |
) |
( |
) |
- |
( |
) |
|
( |
) | |||||
|
Total comprehensive income (loss) for the year |
- |
- |
- |
( |
) |
( |
) |
|
|
( |
) |
|
||||||
|
Acquisition and other changes in non-controlling interests (3) |
- |
- |
- |
- |
|
- |
|
|
|
|||||||||
|
Dividends paid in cash |
- |
- |
- |
- |
- |
( |
) |
( |
) |
( |
) |
( |
) | |||||
|
Balance at December 31, 2019 |
|
|
|
( |
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( |
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| (1) | |
| (2) | |
| (3) |
The accompanying notes are an integral part of these Consolidated Financial Statements.
| F-10 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
CONSOLIDATED STATEMENT OF CASH FLOWS
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(all amounts in thousands of U.S. dollars) |
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Year ended December 31, |
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Notes |
2021 |
2020 |
2019 |
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Cash flows from operating activities |
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Income (loss) for the year |
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Adjustments for: |
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Depreciation and amortization |
10, 11 & 12 |
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Impairment charge |
5 |
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Income tax accruals less payments |
29(ii) |
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( |
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( |
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Equity in earnings of non-consolidated companies |
13 |
( |
) |
( |
) |
( |
) | |
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Interest accruals less payments, net |
29(iii) |
( |
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( |
) |
( |
) | |
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Changes in provisions |
23 & 24(ii) |
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( |
) |
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Result of sale of subsidiaries |
6 |
( |
) |
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Changes in working capital |
29(i) |
( |
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Currency translation adjustment and others |
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( |
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Net cash provided by operating activities |
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Cash flows from investing activities |
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Capital expenditures |
10 & 11 |
( |
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( |
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( |
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Changes in advance to suppliers of property, plant and equipment |
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( |
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( |
) |
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Proceeds from sale of subsidiaries, net of cash |
6 |
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Acquisition of subsidiaries, net of cash acquired |
33 |
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( |
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( |
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Investment in companies under cost method |
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( |
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( |
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Additions to associated companies |
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( |
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Repayment of loan by non-consolidated companies |
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Proceeds from disposal of property, plant and equipment and intangible assets |
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Dividends received from non-consolidated companies |
13 |
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Changes in investments in securities |
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( |
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Net cash provided by (used in) investing activities |
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( |
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( |
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Cash flows from financing activities |
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Dividends paid |
9 |
( |
) |
( |
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( |
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Dividends paid to non-controlling interest in subsidiaries |
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( |
) |
( |
) |
( |
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Changes in non-controlling interests |
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Payments of lease liabilities |
12 |
( |
) |
( |
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( |
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Proceeds from borrowings |
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Repayments of borrowings |
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( |
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( |
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( |
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Net cash used in financing activities |
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( |
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( |
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( |
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(Decrease) increase in cash and cash equivalents |
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( |
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( |
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Movement in cash and cash equivalents |
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At the beginning of the year |
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Effect of exchange rate changes |
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( |
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( |
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( |
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(Decrease) increase in cash and cash equivalents |
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( |
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( |
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At December 31, |
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At December 31, |
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Cash and cash equivalents |
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2021 |
2020 |
2019 |
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Cash and bank deposits |
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Bank overdrafts |
20 |
( |
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( |
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( |
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The accompanying notes are an integral part of these Consolidated Financial Statements.
| F-11 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
Index TO the notes to the consolidated financial statements
|
I |
GENERAL INFORMATION |
IV |
OTHER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
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1 |
Segment information |
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II |
ACCOUNTING POLICIES |
2 |
Cost of sales |
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A |
Basis of presentation |
3 |
Selling, general and administrative expenses |
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B |
Group accounting |
4 |
Labor costs (included in Cost of sales and in Selling, general and administrative expenses) |
|
C |
Segment information |
5 |
Impairment charge |
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D |
Foreign currency translation |
6 |
Other operating income and expenses |
|
E |
Property, plant and equipment |
7 |
Financial results |
|
F |
Intangible assets |
8 |
Income tax |
|
G |
Right-of-use assets and lease liabilities |
9 |
Dividends distribution |
|
H |
Impairment of non-financial assets |
10 |
Property, plant and equipment, net |
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I |
Other investments |
11 |
Intangible assets, net |
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J |
Inventories |
12 |
Right-of-use assets, net and lease liabilities |
|
K |
Trade and other receivables |
13 |
Investments in non-consolidated companies |
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L |
Cash and cash equivalents |
14 |
Receivables - non current |
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M |
Equity |
15 |
Inventories, net |
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N |
Borrowings |
16 |
Receivables and prepayments, net |
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O |
Current and deferred income tax |
17 |
Current tax assets and liabilities |
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P |
Employee benefits |
18 |
Trade receivables, net |
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Q |
Provisions |
19 |
Cash and cash equivalents and other investments |
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R |
Trade and other payables |
20 |
Borrowings |
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S |
Revenue recognition |
21 |
Deferred income tax |
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T |
Cost of sales and other selling expenses |
22 |
Other liabilities |
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U |
Earnings per share |
23 |
Non-current allowances and provisions |
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V |
Financial instruments |
24 |
Current allowances and provisions |
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25 |
Derivative financial instruments |
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III |
FINANCIAL RISK MANAGEMENT |
26 |
Contingencies, commitments and restrictions on the distribution of profits |
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27 |
Cancellation of title deed in Saudi Steel Pipe Company |
|
A |
Financial risk factors |
28 |
Foreign exchange control measures in Argentina |
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B |
Category of financial instruments and classification within the fair value hierarchy |
29 |
Cash flow disclosures |
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C |
Fair value estimation |
30 |
Related party transactions |
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D |
Accounting for derivative financial instruments and hedging activities |
31 |
Fees paid to the Company's principal accountant |
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32 |
Principal subsidiaries |
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33 |
Business combinations |
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34 |
Nationalization of Venezuelan subsidiaries |
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35 |
Other relevant information |
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36 |
The COVID-19 pandemic, the oil & gas industry situation and their impact on Tenaris’s operations and financial condition |
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37 |
Subsequent events |
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|
38 |
Update as of March 30, 2022 |
| F-12 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
I. GENERAL INFORMATION
Tenaris S.A. (the “Company”) was established as a public limited liability company (société anonyme) under the laws of the Grand-Duchy of Luxembourg on December 17, 2001. The Company holds, either directly or indirectly, controlling interests in various subsidiaries in the steel pipe manufacturing and distribution businesses. References in these Consolidated Financial Statements to “Tenaris” refer to the Company and its consolidated subsidiaries. A list of the principal Company’s subsidiaries is included in note 32 to these Consolidated Financial Statements.
The Company’s shares trade on the Italian Stock Exchange and the Mexican Stock Exchange; the Company’s American Depositary Securities (“ADS”) trade on the New York Stock Exchange.
These Consolidated Financial Statements were approved for issuance by the Company’s Board of Directors on February 16, 2022.
II. Accounting policies
The principal accounting policies applied in the preparation of these Consolidated Financial Statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
A Basis of presentation
The Consolidated Financial Statements of Tenaris have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”) and in accordance with IFRS as adopted by the European Union, under the historical cost convention, as modified by the revaluation of certain financial assets and liabilities (including derivative instruments) and plan assets at fair value. The Consolidated Financial Statements are, unless otherwise noted, presented in thousands of U.S. dollars (“$”).
Whenever necessary, certain comparative amounts have been reclassified to conform to changes in presentation in the current year.
The preparation of Consolidated Financial Statements in conformity with IFRS requires management to make certain accounting estimates and assumptions that might affect among others, the reported amounts of assets, liabilities, contingent assets and liabilities, revenues and expenses. Actual results may differ from these estimates. The main areas involving significant estimates or judgements are: impairment of goodwill and long-lived assets (note II.H); income taxes (note II.O); obsolescence of inventory (note II.J); contingencies (note II.Q); allowance for trade receivables (note II.K); defined benefit obligations (note II.P); business combinations (notes II.B, IV.33); useful lives of property, plant and equipment and other long-lived assets (notes II.E, II.F, II.H); fair value estimation of certain financial instruments (notes III.B, IV.34) and property title ownership restriction (note IV.27). During the period there were no material changes in the significant accounting estimates.
The Company is carefully assessing the potential impact of climate change and the energy transition on its business in terms of the risks to its markets and its physical assets and is adapting its business strategy accordingly. These events did not impact materially management judgements and estimates used in the preparation of these Consolidated Financial Statements.
Management has reviewed the Company’s exposure to the effects of the COVID-19 pandemic and its impact over its business, financial position and performance, conducting impairment tests and monitoring the recoverability of long lived assets and deferred taxes, financial risk management, in particular credit and liquidity risks and the adequacy of its provisions for contingent liabilities. For more information see note 36 to these Consolidated Financial Statements.
(1) Accounting pronouncements applicable as from January 1, 2021 and relevant for Tenaris
Interest Rate Benchmark Reform – Phase 2 Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Leases
On August 27, 2020, the IASB published Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) of the Interest Rate Benchmark Reform. The amendments complement those issued in 2019 and focus on the effects on financial statements when a company replaces the old interest rate benchmark with an alternative benchmark rate as a result of the reform.
| F-13 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
A Basis of presentation (Cont.)
(1) Accounting pronouncements applicable as from January 1, 2021 and relevant for Tenaris (Cont.)
Interest Rate Benchmark Reform – Phase 2 Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Leases (Cont.)
The amendments are effective for annual periods beginning on or after January 1, 2021, and are to be applied retrospectively, with early adoption permitted. The adoption of these amendments did not have a material impact on the Company’s Consolidated Financial Statements.
Other accounting pronouncements that became effective during 2021 have no material effect on the Company’s financial condition or results of operations.
Certain newly published accounting standards, amendments to accounting standards and interpretations are not mandatory for December 31, 2021 reporting periods and have not been early adopted by the Company. These standards, amendments or interpretations are not expected to have a material impact in the current or future reporting periods and on foreseeable future transactions.
B Group accounting
(1) Subsidiaries and transactions with non-controlling interests
Subsidiaries are all entities over which Tenaris has control. Tenaris controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is exercised by the Company and are no longer consolidated from the date control ceases.
The acquisition method of accounting is used to account for the acquisition of subsidiaries by Tenaris. The cost of an acquisition is measured as the fair value of the assets transferred, equity instruments issued and liabilities incurred or assumed at the date of exchange. Acquisition-related costs are expensed as incurred. Identifiable assets acquired, liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. Any non-controlling interest in the acquiree is measured either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets. The excess of the aggregate of the consideration transferred and the amount of any non-controlling interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the Consolidated Income Statement.
Contingent consideration is classified either as equity or as a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognized in profit or loss.
If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date. Any gains or losses arising from such remeasurement are recognized in profit or loss.
Transactions with non-controlling interests that do not result in a loss of control are accounted as transactions with equity owners of the Company. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.
When the Company ceases to have control or significant influence, any retained interest in the entity is remeasured to its fair value, with the change in carrying amount recognized in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognized in other comprehensive income in respect of that entity are accounted for as if the group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognized in other comprehensive income are reclassified to profit or loss.
Material intercompany transactions, balances and unrealized gains (losses) on transactions between Tenaris subsidiaries have been eliminated in consolidation. However, since the functional currency of some subsidiaries is its respective local currency, some financial gains (losses) arising from intercompany transactions are generated. These are included in the Consolidated Income Statement under Other financial results.
| F-14 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
B Group accounting (Cont.)
(2) Non-consolidated companies
Non-consolidated companies are all entities in which Tenaris has significant influence but not control, generally accompanying a shareholding of between
Under the equity method of accounting, the investments are initially recognized at cost and adjusted thereafter to recognize Tenaris’s share of the post-acquisition profits or losses of the investee in profit or loss, and Tenaris’s share of movements in other comprehensive income of the investee in other comprehensive income. Dividends received or receivable from associates and joint ventures are recognized as a reduction in the carrying amount of the investment.
If material, unrealized results on transactions between Tenaris and its non-consolidated companies are eliminated to the extent of Tenaris’s interest in the non-consolidated companies. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment indicator of the asset transferred. Financial statements of non-consolidated companies are adjusted where necessary to ensure consistency with IFRS.
The Company’s pro-rata share of earnings in non-consolidated companies is recorded in the Consolidated Income Statement under Equity in earnings of non-consolidated companies. The Company’s pro-rata share of changes in other comprehensive income is recognized in the Consolidated Statement of Comprehensive Income.
a) Ternium
At December 31, 2021, Tenaris held
- Both the Company and Ternium are under the indirect common control of San Faustin S.A. (“San Faustin”);
- Four out of eight members of Ternium’s Board of Directors (including Ternium’s Chairman) are also members of the Company’s Board of Directors;
- Under the shareholders’ agreement by and between the Company and Techint Holdings S.àr.l, a wholly owned subsidiary of San Faustin and Ternium’s main shareholder, dated January 9, 2006, Techint Holdings S.àr.l, is required to take actions within its power to cause (a) one of the members of Ternium’s Board of Directors to be nominated by the Company and (b) any director nominated by the Company to be only removed from Ternium’s Board of Directors pursuant to previous written instructions of the Company.
b) Usiminas
At December 31, 2021, Tenaris held, through its Brazilian subsidiary Confab Industrial S.A. (“Confab”),
Confab’s acquisition of the Usiminas shares was part of a larger transaction performed on January 16, 2012, pursuant to which Tenaris’s affiliate Ternium (through certain of its subsidiaries) and Confab acquired a large block of Usiminas ordinary shares and joined Usiminas’ existing control group. Subsequently, in 2016, Ternium and Confab subscribed to additional ordinary shares and to preferred shares.
At December 31, 2021, the Usiminas control group held, in the aggregate,
| F-15 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
B Group accounting (Cont.)
(2) Non-consolidated companies (Cont.)
b) Usiminas (Cont.)
The corporate governance rules reflected in the Usiminas shareholders agreement include, among others, an alternation mechanism for the nomination of each of the Chief Executive Officer (“CEO”) and the Chairman of the Board of Directors of Usiminas, as well as a mechanism for the nomination of other members of Usiminas’ executive board. The Usiminas shareholders agreement also provides for an exit mechanism consisting of a buy-and-sell procedure (exercisable at any time after November 16, 2022 and applicable with respect to shares held by NSC and the T/T Group), which would allow either Ternium or NSC to purchase all or a majority of the Usiminas shares held by the other shareholder.
Confab and the Ternium entities party to the Usiminas shareholders agreement have a separate shareholders agreement governing their respective rights and obligations as members of the T/T Group. Such separate agreement includes, among others, provisions granting Confab certain rights relating to the T/T Group’s nomination of Usiminas’ officers and directors under the Usiminas shareholders agreement. Those circumstances evidence that Tenaris has significant influence over Usiminas, and consequently, Tenaris accounts for its investment in Usiminas under the equity method (as defined by IAS 28).
c) Techgen
Techgen S.A. de C.V. (“Techgen”), which operates an electric power plant in Mexico, is a joint venture company owned
d) Global Pipe Company
Global Pipe Company (“GPC”) is a Saudi-German joint venture, established in 2010 and located in Jubail, Saudi Arabia, which manufactures LSAW pipes. Tenaris, through its subsidiary SSPC, currently owns
Tenaris carries its investments in non-consolidated companies under the equity method, with
C Segment information
The Company is organized in
The Tubes segment includes the production and sale of both seamless and welded steel tubular products and related services mainly for the oil and gas industry, particularly oil country tubular goods (“OCTG”) used in drilling operations, and for other industrial applications with production processes that consist in the transformation of steel into tubular products. Business activities included in this segment are mainly dependent on the oil and gas industry worldwide, as this industry is a major consumer of steel pipe products, particularly OCTG used in drilling activities. Demand for steel pipe products from the oil and gas industry has historically been volatile and depends primarily upon the number of oil and natural gas wells being drilled, completed and reworked, and the depth and drilling conditions of these wells. Sales are generally made to end users, with exports being done through a centrally managed global distribution network and domestic sales are made through local subsidiaries.
Others includes all other business activities and operating segments that are not required to be separately reported, including the production and selling of sucker rods, industrial equipment, coiled tubing, utility conduits for buildings, heat exchangers, oilfield services, energy and raw materials that exceed internal requirements.
| F-16 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
C Segment information (Cont.)
Tenaris’s Chief Operating Decision Maker (“CODM”) holds monthly meetings with senior management, in which operating and financial performance information is reviewed, including financial information that differs from IFRS principally as follows:
- The use of direct cost methodology to calculate the inventories, while under IFRS it is at full cost, including absorption of production overheads and depreciations;
- The use of costs based on previously internally defined cost estimates, while, under IFRS, costs are calculated at historical cost, mainly on a FIFO basis;
- Other timing differences, if any.
Tenaris presents its geographical information in five areas: North America, South America, Europe, Middle East and Africa and Asia Pacific. For purposes of reporting geographical information, net sales are allocated to geographical areas based on the customer’s location; allocation of assets, capital expenditures and associated depreciations and amortizations are based on the geographical location of the assets.
D Foreign currency translation
(1) Functional and presentation currency
IAS 21 (revised), “The effects of changes in foreign exchange rates” defines the functional currency as the currency of the primary economic environment in which an entity operates.
The functional and presentation currency of the Company is the U.S. dollar. The U.S. dollar is the currency that best reflects the economic substance of the underlying events and circumstances relevant to Tenaris’s global operations.
Except for the Brazilian and Italian subsidiaries whose functional currencies are their local currencies, Tenaris determined that the functional currency of its other subsidiaries is the U.S. dollar, based on the following principal considerations:
- Sales are mainly negotiated, denominated and settled in U.S. dollars. If priced in a currency other than the U.S. dollar, the sales price may consider exposure to fluctuation in the exchange rate versus the U.S. dollar;
- Prices of their critical raw materials and inputs are priced and / or settled in U.S. dollars;
- Transaction and operational environment and the cash flow of these operations have the U.S. dollar as reference currency;
- Significant level of integration of the local operations within Tenaris’s international global distribution network;
- Net financial assets and liabilities are mainly received and maintained in U.S. dollars;
- The exchange rate of certain legal currencies has long-been affected by recurring and severe economic crises.
(2) Transactions in currencies other than the functional currency
Transactions in currencies other than the functional currency are translated into the functional currency using the exchange rates prevailing at the date of the transactions or valuation where items are re-measured.
At the end of each reporting period: (i) monetary items denominated in currencies other than the functional currency are translated using the closing rates; (ii) non-monetary items that are measured in terms of historical cost in a currency other than the functional currency are translated using the exchange rates prevailing at the date of the transactions; and (iii) non-monetary items that are measured at fair value in a currency other than the functional currency are translated using the exchange rates prevailing at the date when the fair value was determined.
Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in currencies other than the functional currency are recorded as gains and losses from foreign exchange and included in Other financial results in the Consolidated Income Statement, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges.
| F-17 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
D Foreign currency translation (Cont.)
(3) Translation of financial information in currencies other than the functional currency
Results of operations for subsidiaries whose functional currencies are not the U.S. dollar are translated into U.S. dollars at the average exchange rates for each quarter of the year. Financial statement positions are translated at the year-end exchange rates. Translation differences are recognized in a separate component of equity as currency translation adjustments. In the case of a sale or other disposal of any of such subsidiaries, any accumulated translation difference would be recognized in the Consolidated Income Statement as a gain or loss from the sale following IAS 21.
Goodwill and fair value adjustments arising from the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate.
E Property, plant and equipment
Property, plant and equipment are recognized at historical acquisition or construction cost less accumulated depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Property, plant and equipment acquired through acquisitions accounted for as business combinations have been valued initially at the fair market value of the assets acquired.
Major overhaul and rebuilding expenditures are capitalized as property, plant and equipment only when it is probable that future economic benefits associated with the item will flow to the Company and the investment enhances the condition of assets beyond its original condition. The carrying amount of the replaced part is derecognized. Maintenance expenses on manufacturing properties are recorded as cost of products sold in the year in which they are incurred.
Cost may also include transfers from equity of any gains or losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment.
Borrowing costs that are attributable to the acquisition or construction of certain capital assets are capitalized as part of the cost of the asset, in accordance with IAS 23 (revised), “Borrowing Costs”. Assets for which borrowing costs are capitalized are those that require a substantial period of time to prepare for their intended use.
The depreciation method is reviewed at each year end. Depreciation is calculated using the straight-line method to depreciate the cost of each asset to its residual value over its estimated useful life, as follows:
|
|
Land |
No Depreciation |
|
|
Buildings and improvements |
|
|
|
Plant and production equipment |
|
|
|
Vehicles, furniture and fixtures, and other equipment |
|
The assets’ residual values and useful lives of significant plant and production equipment are reviewed and adjusted, if appropriate, at each year-end date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.
Management’s re-estimation of assets useful lives, performed in accordance with IAS 16, “Property, Plant and Equipment”, resulted in additional depreciation expenses for 2020 of $
Tenaris depreciates each significant part of an item of property, plant and equipment for its different production facilities that (i) can be properly identified as an independent component with a cost that is significant in relation to the total cost of the item, and (ii) has a useful operating life that is different from another significant part of that same item of property, plant and equipment.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount of assets and are recognized under Other operating income or Other operating expenses in the Consolidated Income Statement.
| F-18 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
F Intangible assets
(1) Goodwill
Goodwill represents the excess of the acquisition cost over the fair value of Tenaris’s share of net identifiable assets acquired as part of business combinations determined mainly by independent valuations. Goodwill is tested at least annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Goodwill is included in the Consolidated Statement of Financial Position under Intangible assets, net.
For the purpose of impairment testing, goodwill is allocated to a cash generating unit (“CGU”) or group of CGUs that
are expected to benefit from the business combination which generated the goodwill being tested.
(2) Information systems projects
Costs associated with maintaining computer software programs are generally recognized as an expense as incurred. However, costs directly related to the development, acquisition and implementation of information systems are recognized as intangible assets if it is probable that they have economic benefits exceeding one year and comply with the recognition criteria of IAS 38, “Intangible Assets”.
Information systems projects recognized as assets are amortized using the straight-line method over their useful lives, generally not exceeding a period of
Management’s re-estimation of assets useful lives, performed in accordance with IAS 38, resulted in additional amortization expenses for 2020 for $
(3) Licenses, patents, trademarks and proprietary technology
Licenses, patents, trademarks, and proprietary technology acquired in a business combination are initially recognized at fair value at the acquisition date. Licenses, patents, proprietary technology and those trademarks that have a finite useful life are carried at cost less accumulated amortization. Amortization is calculated using the straight-line method to allocate the cost over their estimated useful lives, and does not exceed a period of
The balance of acquired trademarks that have indefinite useful lives according to external appraisal amounts to $
Management’s re-estimation of assets useful lives, performed in accordance with IAS 38, did not materially affect amortization expenses for 2021, 2020 and 2019.
(4) Research and development
Research expenditures as well as development costs that do not fulfill the criteria for capitalization are recorded as Cost of sales in the Consolidated Income Statement as incurred. Research and development expenditures included in Cost of sales for the years 2021, 2020 and 2019 totaled $
Capitalized costs were not material for the years 2021, 2020 and 2019.
(5) Customer relationships
In accordance with IFRS 3, "Business Combinations" and IAS 38, Tenaris has recognized the value of customer relationships separately from goodwill attributable to the acquisition of Maverick Tube Corporation (“Maverick”) and Hydril Company (“Hydril”) groups, as well as the more recent acquisitions of Saudi Steel Pipes (“SSPC”) and Ipsco Tubulars Inc. (“IPSCO”).
| F-19 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
F Intangible assets (Cont.)
(5) Customer relationships (Cont.)
Customer relationships acquired in a business combination are recognized at fair value at the acquisition date, have a finite useful life and are carried at cost less accumulated amortization. Amortization is calculated using the straight line method over the initial expected useful life of approximately
As of December 31, 2021 the net book value of IPSCO’s customer relationship amounts to $
Management’s re-estimation of assets useful lives, performed in accordance with IAS 38, did not affect amortization expenses for 2021, 2020 and 2019.
G Right-of-use assets and lease liabilities
Leases are recognized as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the group. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the lease term on a straight-line basis.
Lease liabilities include the net present value of i) fixed payments, less any lease incentives receivable, ii) variable lease payments that are based on an index or a rate, iii) amounts expected to be payable by the lessee under residual value guarantees, iv) the exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and v) payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the lessee’s incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions.
Right-of-use assets are measured at cost comprising the amount of the initial measurement of lease liability, any lease payments made at or before the commencement date less any lease incentives received and any initial direct costs incurred by the lessee.
In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option or early termination, or not to exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated).
Payments associated with short-term leases and leases of low value assets are recognized on a straight-line basis as expenses in profit or loss. Short-term leases are leases with a lease term of
H Impairment of non-financial assets
Long-lived assets including identifiable intangible assets are reviewed for impairment at the lowest level for which there are separately identifiable cash flows (CGU). Most of the Company’s principal subsidiaries that constitute a CGU have a single main production facility and, accordingly, each of such subsidiaries represents the lowest level of asset aggregation that generates largely independent cash inflows.
Assets that are subject to amortization or depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Intangible assets with indefinite useful lives, including goodwill, are subject to at least an annual impairment test, or are tested more frequently if events or circumstances indicate that the carrying amount value may be impaired. In some circumstances where there have not been significant changes to CGU assets and liabilities as well as external and internal events which could materially alter the recoverable amount of the CGU, the impairment test is not repeated annually.
| F-20 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
H Impairment of non-financial assets (Cont.)
In assessing whether there is any indication that a CGU may be impaired, external and internal sources of information are analyzed. Material facts and circumstances specifically considered in the analysis usually include the discount rate used in Tenaris’s cash flow projections and the business condition in terms of competitive, economic and regulatory factors, such as the cost of raw materials, oil and gas prices, and the evolution of the rig count.
An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher between the asset’s value in use and fair value less costs of disposal. Any impairment loss is allocated to reduce the carrying amount of the assets of the CGU in the following order:
(a) first, to reduce the carrying amount of any goodwill allocated to the CGU; and
(b) then, to the other assets of the unit (group of units) pro-rata on the basis of the carrying amount of each asset in the unit (group of units), considering not to reduce the carrying amount of the asset below the highest of its fair value less cost of disposal, its value in use or zero.
Value in use is calculated by discounting the estimated cash flows over a five year period (or higher if the period can be justified) based on forecasts approved by management. For the subsequent years beyond the period, a terminal value is calculated based on perpetuity considering a nominal growth rate of
For purposes of calculating the fair value less costs of disposal, Tenaris uses the estimated value of future cash flows that a market participant could generate from the corresponding CGU.
Management judgment is required to estimate discounted future cash flows. Actual cash flows and values could vary significantly from the forecasted future cash flows and related values derived using discounting techniques.
Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal at each reporting date. For more information on impairment charges see note 5 to these Consolidated Financial Statements.
I Other investments
Other investments consist primarily of investments in financial instruments and time deposits with a maturity of more than three months at the date of purchase.
Certain non-derivative financial assets that the Company held not for trading have been categorized as financial assets at fair value through other comprehensive income (“FVOCI”). They are carried at fair value and interest income from these financial assets is included in finance income using the effective interest rate method. Unrealized gains or losses are recorded as a fair value adjustment in the Consolidated Statement of Comprehensive Income and transferred to the Consolidated Income Statement when the financial asset is sold. Exchange gains and losses and impairments related to the financial assets are immediately recognized in the Consolidated Income Statement. FVOCI instruments with maturities greater than
Other investments in financial instruments and time deposits are categorized as financial assets at fair value through profit or loss (“FVPL”) because such investments are held for trading and their performance is evaluated on a fair value basis. The results of these investments are recognized in Financial Results in the Consolidated Income Statement.
Purchases and sales of financial investments are recognized as of their settlement date.
The fair values of quoted investments are generally based on current bid prices. If the market for a financial investment is not active or the securities are not listed, Tenaris estimates the fair value by using standard valuation techniques. See Section III Financial Risk Management.
| F-21 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
J Inventories
Inventories are stated at the lower between cost and net realizable value. The cost of finished goods and goods in process is comprised of raw materials, direct labor, utilities, freights and other direct costs and related production overhead costs, and it excludes borrowing costs. The allocation of fixed production costs, including depreciation and amortization charges, is based on the normal level of production capacity. Inventories cost is mainly based on the FIFO method. Tenaris estimates net realizable value of inventories by grouping, where applicable, similar or related items. Net realizable value is the estimated selling price in the ordinary course of business, less any estimated costs of completion and selling expenses. Goods in transit as of year-end are valued based on the supplier’s invoice cost.
Tenaris establishes an allowance for obsolete or slow-moving inventories related to finished goods, goods in process, supplies and spare parts. For slow moving or obsolete finished products, an allowance is established based on management’s analysis of product aging. An allowance for obsolete and slow-moving inventory of supplies and spare parts is established based on management's analysis of such items to be used as intended and the consideration of potential obsolescence due to technological changes, aging and consumption patterns.
K Trade and other receivables
Trade and other receivables are recognized initially at fair value that corresponds to the amount of consideration that is unconditional unless they contain significant financing components. The Company holds trade receivables with the objective to collect the contractual cash flows and therefore measures them subsequently at amortized cost using the effective interest method. Due to the short-term nature, their carrying amount is considered to be the same as their fair value.
Tenaris applies the IFRS 9 “Financial Instruments” simplified approach to measure expected credit losses, which uses a lifetime expected loss allowance for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due. The expected loss rates are based on the payment profiles of sales over a period of three years and the corresponding historical credit losses experienced within this period. The expected loss allowance also reflects current and forward-looking information on macroeconomic factors affecting the ability of each customer to settle the receivables.
L Cash and cash equivalents
Cash and cash equivalents are comprised of cash at banks, liquidity funds and short-term investments with a maturity of less than three months at the date of purchase which are readily convertible to known amounts of cash. Assets recorded in cash and cash equivalents are carried at fair market value or at historical cost which approximates fair market value.
In the Consolidated Statement of Financial Position, bank overdrafts are included in Borrowings in current liabilities.
For the purposes of the Consolidated Statement of Cash Flows, Cash and cash equivalents includes overdrafts.
M Equity
(1) Equity components
The Consolidated Statement of Changes in Equity includes:
- The value of share capital, legal reserve, share premium and other distributable reserves calculated in accordance with Luxembourg law;
- The currency translation adjustment, other reserves, retained earnings and non-controlling interest calculated in accordance with IFRS.
(2) Share capital
The Company has an authorized share capital of a single class of
| F-22 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
M Equity (Cont.)
(3) Dividends distribution by the Company to shareholders
Dividends distributions are recorded in the Company’s financial statements when Company’s shareholders have the right to receive the payment, or when interim dividends are approved by the Board of Directors in accordance with the by-laws of the Company.
Dividends may be paid by the Company to the extent that it has distributable retained earnings, calculated in accordance with Luxembourg law. See note 26 (iii) to these Consolidated Financial Statements.
N Borrowings
Borrowings are recognized initially at fair value net of transaction costs incurred and subsequently measured at amortized cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognized in profit or loss over the period of the borrowings using the effective interest method.
O Current and deferred income tax
The income tax expense or credit for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. Tax is recognized in the Consolidated Income Statement, except for tax items recognized in other comprehensive income or directly in equity.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the reporting date in the countries where the Company’s subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions when appropriate.
Deferred income tax is recognized applying the liability method on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. The temporary differences arise mainly from the effect of currency translation on depreciable fixed assets and inventories, depreciation on property, plant and equipment, valuation of inventories, provisions for pension plans and fair value adjustments of assets acquired in business combinations. Deferred tax assets are also recognized for net operating loss carry-forwards. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the time period when the asset is realized or the liability is settled, based on tax laws that have been enacted or substantively enacted at the reporting date.
Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and considers whether it is probable that a taxation authority will accept an uncertain tax treatment. The Company measures its tax balances either based on the most likely amount or the expected value, depending on which method provides a better prediction of the resolution of the uncertainty.
Deferred tax assets are recognized to the extent that it is probable that future taxable income will be available against which the temporary differences can be utilized. At the end of each reporting period, Tenaris reassesses unrecognized deferred tax assets. Tenaris recognizes a previously unrecognized deferred tax asset to the extent that it has become probable that future taxable income will allow the deferred tax asset to be recovered.
Deferred tax liabilities and assets are not recognized for temporary differences between the carrying amount and tax basis of investments in foreign operations where the company is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.
Deferred tax assets and liabilities are re-measured if tax rates change. These amounts are charged or credited to the Consolidated Income Statement or to the item Other comprehensive income in the Consolidated Statement of Comprehensive Income, depending on the account to which the original amount was charged or credited.
| F-23 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
P Employee benefits
(1) Short-term obligations
Liabilities for wages and salaries are recognized in respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liabilities are presented as current employee benefit obligations in the balance sheet.
(2) Post employment benefits
The Company has defined benefit and defined contribution plans. A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation.
The liability recognized in the statement of financial position in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets, if any. The defined benefit obligation is calculated annually (at year end) by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension obligation.
Remeasurement gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in Other comprehensive income in the period in which they arise. Past-service costs are recognized immediately in the Income Statement.
For defined benefit plans, net interest income / expense is calculated based on the surplus or deficit derived by the difference between the defined benefit obligations less fair value of plan assets. For defined contribution plans, the Company pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Company has no further payment obligations once the contributions have been paid. The contributions are recognized as employee benefit expenses when they are due. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in the future payments is available.
Tenaris sponsors funded and unfunded defined benefit pension plans in certain subsidiaries. The most significant are:
- An unfunded defined benefit employee retirement plan for certain senior officers. The plan is designed to provide certain benefits to those officers (additional to those contemplated under applicable labor laws) in case of termination of the employment relationship due to certain specified events, including retirement. This unfunded plan provides defined benefits based on years of service and final average salary. As of December 31, 2021 the outstanding liability for this plan amounts to $
- Employees’ service rescission indemnity: the cost of this obligation is charged to the Consolidated Income Statement over the expected service lives of employees. This provision is primarily related to the liability accrued for employees at Tenaris’s Italian subsidiary. As from January 1, 2007 as a consequence of a change in an Italian law, employees were entitled to make contributions to external funds, thus, Tenaris’s Italian subsidiary pays every year the required contribution to the funds with no further obligation. As a result, the plan changed from a defined benefit plan to a defined contribution plan effective from that date, but only limited to the contributions of 2007 onwards. As of December 31, 2021 the outstanding liability for this plan amounts to $
- Funded retirement benefit plan held in the U.S. for the benefit of some employees hired prior a certain date, frozen for the purposes of credited service as well as determination of final average pay for the retirement benefit calculation. Plan assets consist primarily of investments in equities and money market funds. Additionally, an unfunded postretirement health and life plan is present that offers limited medical and life insurance benefits to the retirees, frozen to new participants. As of December 31, 2021 the outstanding liability for these plans amounts to $
- Funded retirement benefit plans held in Canada for salary and hourly employees hired prior to a certain date based on years of service and, in the case of salaried employees, final average salary. Plan assets consist primarily of investments in equities and money market funds. Both plans were replaced for defined contribution plans. Effective June 2016 the salary plan was frozen for the purposes of credited service as well as determination of final average pay. As of December 31, 2021 the plan was overfunded and the net assets related to this plan amounted to $
| F-24 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
P Employee benefits (Cont.)
(3) Other long term benefits
During 2007, Tenaris launched an employee retention and long-term incentive program (the “Program”) applicable to certain senior officers and employees of the Company, who will be granted a number of units throughout the duration of the Program. The value of each of these units is based on Tenaris’s shareholders’ equity (excluding non-controlling interest). Also, the beneficiaries of the Program are entitled to receive cash amounts based on: (i) the amount of dividend payments made by Tenaris to its shareholders and (ii) the number of units held by each beneficiary to the Program. Until 2017 units were vested ratably over a period of years and were mandatorily redeemed by the Company years after grant date, with the option of an early redemption at years after the grant date. Since 2018 units are vested ratably over the same period and are mandatorily redeemed by the Company years after grant date. The payment of the benefit is tied to the book value of the shares, and not to their market value. Tenaris valued this long-term incentive program as a long term benefit plan as classified in IAS 19, “Employee Benefits”.
As of December 31, 2021 and 2020, the outstanding liability corresponding to the Program amounts to $
(4) Termination benefits
Termination benefits are payable when employment is terminated by Tenaris before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits. Tenaris recognizes termination benefits at the earlier of the following dates: (a) when it can no longer withdraw the offer of those benefits; and (b) when the costs for a restructuring that is within the scope of IAS 37 and involves the payment of terminations benefits. In the case of an offer made to encourage voluntary redundancy, the termination benefits are measured based on the number of employees expected to accept the offer.
(5) Other compensation obligations
Employee entitlements to annual leave, long-service leave, sick leave and other bonuses and compensations obligations are accrued as earned.
Compensation to employees in the event of dismissal is charged to income in the year in which it becomes payable.
Q Provisions
Tenaris is subject to various claims, lawsuits and other legal proceedings, including customer claims, in which a third party is seeking payment for alleged damages, reimbursement for losses or indemnity. Tenaris’s potential liability with respect to such claims, lawsuits and other legal proceedings cannot be estimated with certainty. Management periodically reviews the status of each significant matter and assesses potential financial exposure. If, as a result of past events, a potential loss from a claim or proceeding is considered probable and the amount can be reliably estimated, a provision is recorded. Accruals for loss contingencies reflect a reasonable estimate of the losses to be incurred based on information available to management as of the date of preparation of the financial statements, and take into consideration Tenaris’s litigation and settlement strategies. These estimates are primarily constructed with the assistance of legal counsel. As the scope of liabilities become better defined, there may be changes in the estimates of future costs which could have a material adverse effect on its results of operations, financial condition and cash flows.
If Tenaris expects to be reimbursed for an accrued expense, as would be the case for an expense or loss covered under an insurance contract, and reimbursement is considered virtually certain, the expected reimbursement is recognized as a receivable.
This note should be read in conjunction with note 26 to these Consolidated Financial Statements.
R Trade and other payables
Trade and other payables are recognized initially at fair value, generally the nominal invoice amount and subsequently measured at amortized cost. They are presented as current liabilities unless payment is not due within twelve months after the reporting period. Due to the short-term nature their carrying amounts are considered to be the same as their fair value.
| F-25 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
S Revenue recognition
Revenue comprises the fair value of the consideration received or receivable for the sale of goods and rendering of services in the ordinary course of Tenaris’s activities. The revenue recognized by the Company is measured at the transaction price of the consideration received or receivable to which the Company is entitled to, reduced by estimated returns and other customer credits, such as discounts and volume rebates, based on the expected value to be realized and after eliminating sales within the group.
Revenue is recognized at a point in time or over time from sales when control has been transferred and there is no unfulfilled performance obligation that could affect the acceptance of the product by the customer. The control is transferred upon delivery. Delivery occurs when the products have been shipped to the specific location, the risks of obsolescence and loss have been transferred and either the customer has accepted the product in accordance with the sales contract, the acceptance provisions have lapsed or the Company has objective evidence that all criteria for acceptance have been satisfied, including all performance obligations. These conditions are determined and analyzed on a contract by contract basis to ensure that all performance obligations are fulfilled. In particular, Tenaris verifies customer acceptance of the goods, the satisfaction of delivery terms and any other applicable condition.
For bill and hold transactions revenue is recognized only to the extent that (a) the reason for the bill and hold arrangement must be substantive (for example, the customer has requested the arrangement); (b) the products have been specifically identified and are ready for delivery; (c) the Company does not have the ability to use the product or to direct it to another customer; (d) the usual payment terms apply.
The Company’s contracts with customers do not provide any material variable consideration, other than discounts, rebates and right of return. Discounts and rebates are recognized based on the most likely value and rights of return are based on expected value considering past experience and contract conditions.
Where the contracts include multiple performance obligations, the transaction price is allocated to each performance obligation based on the stand-alone selling prices. Where these are not directly observable, they are estimated based on the expected cost plus margin.
There are no judgements applied by management that significantly affect the determination of timing of satisfaction of performance obligations, nor the transaction price and amounts allocated to different performance obligations.
Tenaris provides services related to goods sold, which represent a non-material portion of sales revenue and mainly include:
Pipe Management Services: This comprises mainly preparation of the pipes ready to be run, delivery to the customer, storage services and rig return.
Field Services: Comprises field technical support and running assistance.
These services are rendered in connection to the sales of goods and are attached to contracts with customers for the sale of goods. A significant portion of service revenue is recognized in the same period as the goods sold. There are no distinct uncertainties in the revenues and cash flows of the goods sold and services rendered as they are included in the same contract, have the same counterparty and are subject to the same conditions.
Revenue from providing services is recognized over time in the accounting period in which the services are rendered. The following inputs and outputs methods are applied to recognize revenue considering the nature of service:
Storage services: the Company provides storage services in owned or third-party warehouses, subject to a variable fee to be invoiced. This fee is determined based on the time that the customer maintains the material in the warehouse and the amount of the material stored. In the majority of cases, to quantify the amount to be invoiced in any given month, the monthly average fee of storage per ton is multiplied by the monthly average stock stored (in tons).
Freights: the Company recognized the revenue on a pro rata basis considering the units delivered and time elapsed.
Field services: the revenue is recognized considering output methods, in particular surveys of service completion provided by the customer.
| F-26 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
S Revenue recognition (Cont.)
The Company does not expect to have any contracts where the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year. As a consequence, considering that the contracts do not include any significant financing component, the Company does not adjust any of the transaction prices for the time value of money. For this reason, the Company is also applying the practical expedient not to disclose details on transaction prices allocated to the remaining performance obligations as of the end of the reporting period.
Tenaris only provides standard quality warranties assuring that the goods sold will function as expected or are fit for their intended purpose, with no incremental service to the customer. Accordingly, warranties do not constitute a separate performance obligation.
Other revenues earned by Tenaris are recognized on the following basis:
- Interest income: on the effective yield basis.
- Dividend income from investments in other companies: when Tenaris’s right to receive payment is established.
- Construction contracts revenues is recognized in accordance with the stage of the project completion.
T Cost of sales and other selling expenses
Cost of sales and other selling expenses are recognized in the Consolidated Income Statement on the accrual basis of accounting.
Commissions, freights and other selling expenses, including shipping and handling costs, are recorded in Selling, general and administrative expenses in the Consolidated Income Statement.
U Earnings per share
Earnings per share are calculated by dividing the income attributable to owners of the parent by the daily weighted average number of common shares outstanding during the year.
There are
V Financial instruments
Non derivative financial instruments comprise investments in financial debt instruments and equity, time deposits, trade and other receivables, cash and cash equivalents, borrowings and trade and other payables.
The Company classifies its financial instruments according to the following measurement categories:
- those to be measured subsequently at fair value (either through OCI or through profit or loss), and
- those to be measured at amortised cost.
The classification depends on the Company’s business model for managing the financial assets and contractual terms of the cash flows.
Financial assets are recognized on their settlement date. Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or have been transferred and the Company has transferred substantially all the risks and rewards of ownership.
At initial recognition, the Company measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value through profit or loss are expenses in profit or loss.
| F-27 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
V Financial instruments (Cont.)
Subsequent measurement of debt instruments depends on the Company’s business model for managing the asset and the cash flow characteristics of the asset. There are three measurement categories into which the Company classifies its debt instruments:
Amortized Cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest. Interest income from these financial assets is included in finance income using the effective interest rate method.
Exchange gains and losses and impairments related to the financial assets are immediately recognized in the Consolidated Income Statement.
Fair value through other comprehensive income: Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets’ cash flows represent solely payments of principal and interest. Interest income from these financial assets is included in finance income using the effective interest rate method. Unrealized gains or losses are recorded as a fair value adjustment in the Consolidated Statement of Comprehensive Income and transferred to the Consolidated Income Statement when the financial asset is sold.
Fair value through profit and loss: Assets that do not meet the criteria for amortized cost or FVOCI. Changes in fair value of financial instruments at FVPL are immediately recognized in the Consolidated Income Statement.
Equity instruments are subsequently measured at fair value.
Accounting for derivative financial instruments and hedging activities is included within the Section III, Financial Risk Management.
| F-28 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
iii. Financial risk management
The multinational nature of Tenaris’s operations and customer base exposes the Company to a variety of risks, mainly related to market risks (including the effects of changes in foreign currency exchange rates and interest rates), credit risk and capital market risk. In order to manage the volatility related to these exposures, management evaluates exposures on a consolidated basis, taking advantage of exposure netting. The Company or its subsidiaries may then enter into various derivative transactions in order to prevent potential adverse impacts on Tenaris’s financial performance. Such derivative transactions are executed in accordance with internal policies and hedging practices.
A. Financial Risk Factors
(i) Capital Risk Management
Tenaris seeks to maintain a low debt to total equity ratio considering the industry and the markets where it operates. The year-end ratio of debt to total equity (where “debt” comprises financial borrowings and “total equity” is the sum of financial borrowings and equity) is
(ii) Foreign exchange risk
Tenaris manufactures and sells its products in a number of countries throughout the world and consequently is exposed to foreign exchange rate risk. Since the Company’s functional currency is the U.S. dollar the purpose of Tenaris’s foreign currency hedging program is mainly to reduce the risk caused by changes in the exchange rates of other currencies against the U.S. dollar.
Tenaris’s exposure to currency fluctuations is reviewed on a periodic and consolidated basis. A number of derivative transactions are performed in order to achieve an efficient coverage in the absence of operative or natural hedges. Almost all of these transactions are forward exchange rates contracts. See note 25 to these Consolidated Financial Statements.
Tenaris does not enter into derivative financial instruments for trading or other speculative purposes, other than non-material investments in structured products.
In the case of subsidiaries with functional currencies other than the U.S. dollar, the results of hedging activities, reported in accordance with IFRS, may not reflect entirely the management’s assessment of its foreign exchange risk hedging program. Intercompany balances between Tenaris’s subsidiaries may generate financial gains (losses) to the extent that functional currencies differ.
The value of Tenaris’s financial assets and liabilities is subject to changes arising from the variation of foreign currency exchange rates. The following table provides a breakdown of Tenaris’s main financial assets and liabilities (including foreign exchange derivative contracts) which impact the Company’s profit and loss as of December 31, 2021 and 2020.
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All amounts Long / (Short) in thousands of U.S. dollars |
As of December 31, |
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Currency Exposure / Functional currency |
2021 |
2020 |
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Argentine Peso / U.S. dollar |
( |
) |
( |
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Euro / U.S. dollar |
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( |
) | |
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Saudi Arabian Riyal / U.S. dollar |
( |
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( |
) |
The main relevant exposures correspond to:
- Argentine Peso / U.S. dollar
As of December 31, 2021 and 2020 consisting primarily of Argentine Peso-denominated financial, trade, social and fiscal payables at certain Argentine subsidiaries whose functional currency is the U.S. dollar. A change of 1% in the ARS/USD exchange rate would have generated a pre-tax gain / loss of $
| F-29 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
A. Financial Risk Factors (Cont.)
(ii) Foreign exchange risk (Cont.)
- Euro / U.S. dollar
As of December 31, 2021, consisting primarily of U.S. dollar-denominated intercompany liabilities at certain subsidiaries whose functional currency is the Euro, and 2020, consisting primarily of Euro-denominated intercompany liabilities at certain subsidiaries whose functional currency is the U.S. dollar. A change of 1% in the EUR/USD exchange rate would have generated a pre-tax gain / loss of $
- Saudi Arabian Riyal / U. S. dollar
As of December 31, 2021 and 2020 consisting primarily of Saudi Arabian Riyal-denominated financial and trade payables. The Saudi Arabian Riyal is tied to the dollar.
Considering the balances held as of December 31, 2021 on financial assets and liabilities exposed to foreign exchange rate fluctuations, Tenaris estimates that the impact of a simultaneous 1% appreciation / depreciation movement in the levels of foreign currencies exchange rates relative to the U.S. dollar, would be a pre-tax gain / loss of $
(iii) Interest rate risk
Tenaris is subject to interest rate risk on its investment portfolio and its debt. The Company uses a mix of variable and fixed rate debt in combination with its investment portfolio strategy. The Company may choose to enter into foreign exchange derivative contracts and / or interest rate swaps to mitigate the exposure to changes in the interest rates.
The following table summarizes the proportions of variable-rate and fixed-rate debt as of each year end.
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As of December 31, |
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2021 |
2020 |
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|
Amount in thousands of U.S. dollars |
% |
Amount in thousands of U.S. dollars |
% |
||||
|
Fixed rate (*) |
|
|
|
|
||||
|
Variable rate |
|
|
|
|
||||
|
Total |
|
|
|
|
||||
| (*) |
The Company estimates that, if market interest rates applicable to Tenaris’s borrowings had been 100 basis points higher, then the additional pre-tax loss would have been $
(iv) Credit risk
Credit risk arises from cash and cash equivalents, deposits with banks and financial institutions, as well as credit exposures to customers, including outstanding receivables and committed transactions. The Company also actively monitors the creditworthiness of its treasury, derivative and insurance counterparties in order to minimize its credit risk.
There is no significant concentration of credit risk from customers. No single customer comprised more than 10% of Tenaris’s net sales in 2021, 2020 and 2019.
| F-30 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
A. Financial Risk Factors (Cont.)
(iv) Credit risk (Cont.)
Tenaris’s credit policies related to sales of products and services are designed to identify customers with acceptable credit history and to allow Tenaris to require the use of credit insurance, letters of credit and other instruments designed to minimize credit risks whenever deemed necessary. Tenaris maintains allowances for impairment for potential credit losses. See Section II.K.
As of December 31, 2021 and 2020 trade receivables amounted to $
As of December 31, 2021 and 2020, overdue trade receivables amounted to $
(v) Counterparty risk
Tenaris has investment guidelines with specific parameters to limit issuer risk on marketable securities. Counterparties for derivatives and cash transactions are limited to high credit quality financial institutions, normally investment grade.
Approximately
(vi) Liquidity risk
Tenaris financing strategy aims to maintain adequate financial resources and access to additional liquidity. During 2021, Tenaris has counted on cash flows from operations as well as additional bank financing to fund its transactions.
Management maintains sufficient cash and marketable securities to finance normal operations and believes that Tenaris also has appropriate access to market for short-term working capital needs.
Liquid financial assets as a whole (comprising cash and cash equivalents and other investments) were
Tenaris has a conservative approach to the management of its liquidity, which consists of i) cash and cash equivalents (cash in banks, liquidity funds and investments with a maturity of less than
Tenaris holds primarily investments in money market funds and variable or fixed-rate securities from investment grade issuers. As of December 31, 2021 Tenaris holds $
Tenaris holds its investments primarily in U.S. dollars. As of December 31, 2021 and 2020, U.S. dollar denominated liquid assets plus investments denominated in other currencies hedged to the U.S. dollar represented approximately
(vii) Commodity price risk
In the ordinary course of its operations, Tenaris purchases commodities and raw materials that are subject to price volatility caused by supply conditions, political and economic variables and other factors. As a consequence, Tenaris is exposed to risk resulting from fluctuations in the prices of these commodities and raw materials. Tenaris fixes the prices of such raw materials and commodities for short-term periods, typically not in excess of
| F-31 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
B. Category of financial instruments and classification within the fair value hierarchy
As mentioned in note II.A, the Company classifies its financial instruments in the following measurement categories: amortized cost, fair value through other comprehensive income and fair value through profit and loss. For financial instruments that are measured in the statement of financial position at fair value, IFRS 13, “Fair value measurement” requires a disclosure of fair value measurements by level according to the following fair value measurement hierarchy:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).
Level 3 - Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).
The following tables present the financial instruments by category and levels as of December 31, 2021 and 2020.
(all amounts in thousands of U.S. dollars)
|
|
Carrying amount |
Measurement Categories |
At Fair Value |
|||||||||||
|
December 31, 2021 |
Amortized Cost |
FVOCI |
FVPL |
Level 1 |
Level 2 |
Level 3 |
||||||||
|
Assets |
|
|
|
|
|
|
|
|||||||
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|||||||
|
Other investments |
|
|
|
|
|
|
|
|||||||
|
Fixed income (time-deposit, zero coupon bonds, commercial papers) |
|
|
|
|
|
|
|
|||||||
|
Certificates of deposits |
|
|
|
|
|
|
|
|||||||
|
Commercial papers |
|
|
|
|
|
|
|
|||||||
|
Other notes |
|
|
|
|
|
|
|
|||||||
|
Bonds and other fixed income |
|
|
|
|
|
|
|
|||||||
|
Non - U.S. government securities |
|
|
|
|
|
|
|
|||||||
|
Corporates securities |
|
|
|
|
|
|
|
|||||||
|
Derivative financial instruments |
|
|
|
|
|
|
|
|||||||
|
Other Investments Non-current |
|
|
|
|
|
|
|
|||||||
|
Bonds and other fixed income |
|
|
|
|
|
|
|
|||||||
|
Other investments |
|
|
|
|
|
|
|
|||||||
|
Trade receivables |
|
|
|
|
|
|
|
|||||||
|
Receivables C and NC (*) |
|
|
|
|
|
|
|
|||||||
|
Other receivables |
|
|
|
|
|
|
|
|||||||
|
Other receivables (non-financial) |
|
|
|
|
|
|
|
|||||||
|
Total |
|
|
|
|
|
|
|
|||||||
|
Liabilities |
|
|
|
|
|
|
|
|||||||
|
Borrowings C and NC |
|
|
|
|
|
|
|
|||||||
|
Trade payables |
|
|
|
|
|
|
|
|||||||
|
Finance Lease Liabilities C and NC |
|
|
|
|
|
|
|
|||||||
|
Derivative financial instruments |
|
|
|
|
|
|
|
|||||||
|
Total |
|
|
|
|
|
|
|
|||||||
| (*) |
|
| F-32 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
B. Category of financial instruments and classification within the fair value hierarchy (Cont.)
(all amounts in thousands of U.S. dollars)
|
|
Carrying amount |
Measurement Categories |
At Fair Value |
|||||||||||
|
December 31, 2020 |
Amortized Cost |
FVOCI |
FVPL |
Level 1 |
Level 2 |
Level 3 |
||||||||
|
Assets |
|
|
|
|
|
|
|
|||||||
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|||||||
|
Other investments |
|
|
|
|
|
|
|
|||||||
|
Fixed income (time-deposit, zero coupon bonds, commercial papers) |
|
|
|
|
|
|
|
|||||||
|
U.S. Sovereign Bills |
|
|
|
|
|
|
|
|||||||
|
Non - U.S. Sovereign Bills |
|
|
|
|
|
|
|
|||||||
|
Certificates of deposits |
|
|
|
|
|
|
|
|||||||
|
Commercial papers |
|
|
|
|
|
|
|
|||||||
|
Other notes |
|
|
|
|
|
|
|
|||||||
|
Bonds and other fixed income |
|
|
|
|
|
|
|
|||||||
|
Non - U.S. government securities |
|
|
|
|
|
|
|
|||||||
|
Corporates securities |
|
|
|
|
|
|
|
|||||||
|
Derivative financial instruments |
|
|
|
|
|
|
|
|||||||
|
Other Investments Non-current |
|
|
|
|
|
|
|
|||||||
|
Bonds and other fixed income |
|
|
|
|
|
|
|
|||||||
|
Other investments |
|
|
|
|
|
|
|
|||||||
|
Trade receivables |
|
|
|
|
|
|
|
|||||||
|
Receivables C and NC (*) |
|
|
|
|
|
|
|
|||||||
|
Other receivables |
|
|
|
|
|
|
|
|||||||
|
Other receivables (non-financial) |
|
|
|
|
|
|
|
|||||||
|
Total |
|
|
|
|
|
|
|
|||||||
|
Liabilities |
|
|
|
|
|
|
|
|||||||
|
Borrowings C and NC |
|
|
|
|
|
|
|
|||||||
|
Trade payables |
|
|
|
|
|
|
|
|||||||
|
Finance Lease Liabilities C and NC |
|
|
|
|
|
|
|
|||||||
|
Derivative financial instruments |
|
|
|
|
|
|
|
|||||||
|
Total |
|
|
|
|
|
|
|
|||||||
| (*) | Includes balances related to interest in Venezuelan companies. See note 34 to these Consolidated Financial Statements. |
| F-33 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
B. Category of financial instruments and classification within the fair value hierarchy (Cont.)
There were no transfers between levels during the year.
The fair value of financial instruments traded in active markets is based on quoted market prices at the reporting date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The quoted market price used for financial assets held by Tenaris is the current bid price. These instruments are included in Level 1 and comprise primarily corporate and sovereign debt securities.
The fair value of financial instruments that are not traded in an active market (such as certain debt securities, certificates of deposits with original maturity of more than
If one or more of the significant inputs are not based on observable market data, the instruments are included in Level 3. Tenaris values its assets and liabilities in this level using observable market inputs and management assumptions which reflect the Company’s best estimate on how market participants would price the asset or liability at measurement date. Main balances included in this level correspond to the Company interest in Venezuelan companies. See note 34 to these Consolidated Financial Statements.
The following table presents the changes in Level 3 assets:
|
|
Year ended December 31, |
|||
|
(all amounts in thousands of U.S. dollars) |
2021 |
2020 |
||
|
|
|
|||
|
At the beginning of the year |
|
|
||
|
Addition / (decrease) |
|
( |
) | |
|
Increase due to business combinations |
|
|
||
|
Currency translation adjustment and others |
( |
) |
|
|
|
At the end of the year |
|
|
||
C. Fair value estimation
Financial assets or liabilities classified at fair value through profit or loss are measured under the framework established by the IASB accounting guidance for fair value measurements and disclosures.
The fair values of quoted investments are generally based on current bid prices. If the market for a financial asset is not active or no market is available, fair values are established using standard valuation techniques.
The fair value of all outstanding derivatives is determined using specific pricing models that include inputs that are observable in the market or can be derived from or corroborated by observable data. The fair value of forward foreign exchange contracts is calculated as the net present value of the estimated future cash flows in each currency, based on observable yield curves, converted into U.S. dollars at the spot rate of the valuation date.
Borrowings are classified under other financial liabilities and measured at their amortized cost. Tenaris estimates that the fair value of its main financial liabilities is approximately
The carrying amount of investments valuated at amortized cost approximates its fair value.
| F-34 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
D. Accounting for derivative financial instruments and hedging activities
Derivative financial instruments are initially recognized in the statement of financial position at fair value through profit and loss on each date a derivative contract is entered into and are subsequently remeasured at fair value. Specific tools are used for calculation of each instrument’s fair value and these tools are tested for consistency on a monthly basis. Market rates are used for all pricing operations. These include exchange rates, deposit rates and other discount rates matching the nature of each underlying risk.
As a general rule, Tenaris recognizes the full amount related to the change in fair value of derivative financial instruments in Financial Results in the Consolidated Income Statement.
Tenaris designates certain derivatives and non-derivative financial liabilities as hedges of particular risks associated with recognized assets or liabilities or highly probable forecast transactions. These transactions are classified as cash flow hedges. The effective portion of the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in equity. Similarly the effective portion of the foreign exchange result on the designated leasing liability is recognized in equity. Amounts accumulated in equity are then recognized in the income statement in the same period as the offsetting losses and gains on the hedged item. The gain or loss relating to the ineffective portion is recognized immediately in the income statement. The fair value of Tenaris’s derivative financial instruments (assets or liabilities) continues to be reflected in the statement of financial position. The lease liability will be recognized on the balance sheet at each period end at the exchange rate as of the end of each month. The full fair value of a hedging derivative and the leasing liability is classified as a current or non-current asset or liability according to its expiry date.
For transactions designated and qualifying for hedge accounting, Tenaris documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedge transactions. Tenaris also documents its assessment on an ongoing basis, of whether the hedging instrument are highly effective in offsetting changes in the fair value or cash flow of hedged items. At December 31, 2021 and 2020, the effective portion of designated cash flow hedges which is included in Other Reserves in equity amounted to $
The fair values of various derivative instruments used for hedging purposes and the movements of the hedging reserve included within Other Reserves in equity are disclosed in note 25 to these Consolidated Financial Statements.
| F-35 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
IV. OTHER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In the notes all amounts are shown in thousands of U.S. dollars, unless otherwise stated)
1 Segment information
As mentioned in section II.C, the Segment Information is disclosed as follows:
Reportable operating segments
(All amounts in millions of U.S. dollars)
|
Year ended December 31, 2021 |
Tubes |
Other |
Total |
|||||
|
IFRS - Net Sales |
|
|
|
|||||
|
Management view - operating income |
|
|
|
|||||
|
Difference in cost of sales |
|
|
|
|||||
|
Differences in depreciation and amortization |
|
( |
) |
( |
) | |||
|
Differences in other operating income (expenses), net |
( |
) |
|
( |
) | |||
|
IFRS - operating income |
|
|
|
|||||
|
Financial income (expense), net |
|
|
|
|||||
|
Income before equity in earnings of non-consolidated companies and income tax |
|
|
|
|||||
|
Equity in earnings of non-consolidated companies |
|
|
|
|||||
|
Income before income tax |
|
|
|
|||||
|
Capital expenditures |
|
|
|
|||||
|
Depreciation and amortization |
|
|
|
|
Year ended December 31, 2020 |
Tubes |
Other |
Total |
|||||
|
IFRS - Net Sales |
|
|
|
|||||
|
Management view - operating (loss) |
( |
) |
( |
) |
( |
) | ||
|
Difference in cost of sales |
( |
) |
|
( |
) | |||
|
Differences in depreciation and amortization |
|
( |
) |
|
||||
|
Differences in selling, general and administrative expenses |
( |
) |
|
( |
) | |||
|
Differences in other operating income (expenses), net |
( |
) |
|
( |
) | |||
|
IFRS - operating (loss) |
( |
) |
( |
) |
( |
) | ||
|
Financial income (expense), net |
|
|
( |
) | ||||
|
(Loss) before equity in earnings of non-consolidated companies and income tax |
|
|
( |
) | ||||
|
Equity in earnings of non-consolidated companies |
|
|
|
|||||
|
(Loss) before income tax |
|
|
( |
) | ||||
|
Capital expenditures |
|
|
|
|||||
|
Depreciation and amortization |
|
|
|
|
Year ended December 31, 2019 |
Tubes |
Other |
Total |
|||||
|
IFRS - Net Sales |
|
|
|
|||||
|
Management view - operating income |
|
|
|
|||||
|
Difference in cost of sales |
( |
) |
|
( |
) | |||
|
Differences in depreciation and amortization |
( |
) |
|
( |
) | |||
|
Differences in selling, general and administrative expenses |
( |
) |
|
|
||||
|
Differences in other operating income (expenses), net |
|
|
|
|||||
|
IFRS - operating income |
|
|
|
|||||
|
Financial income (expense), net |
|
|
|
|||||
|
Income before equity in earnings of non-consolidated companies and income tax |
|
|
|
|||||
|
Equity in earnings of non-consolidated companies |
|
|
|
|||||
|
Income before income tax |
|
|
|
|||||
|
Capital expenditures |
|
|
|
|||||
|
Depreciation and amortization |
|
|
|
| F-36 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
1 Segment information (Cont.)
Transactions between segments, which were eliminated in consolidation, are mainly related to sales of scrap, energy, surplus raw materials and others from the Other segment to the Tubes segment for $
There are no material differences between IFRS and management view in total revenues and by reportable segments.
The differences between operating income under IFRS view and the management view are mainly related to the cost of goods sold, reflecting the effect of raw materials prices increases on the valuation of the replacement cost considered for management view compared to IFRS cost calculated at historical cost on a FIFO basis, and other timing differences.
The main difference in Other operating income (expenses), net for the twelve-month period ended in December 31, 2020, is attributable to the impairment of the goodwill, which residual value in the management view differed from IFRS.
In addition to the amounts reconciled above, the main differences in net income arise from the impact of functional currencies on financial result, deferred income taxes as well as the result of investment in non-consolidated companies.
Geographical information
|
(all amounts in thousands of U.S. dollars) |
North America |
South America |
Europe |
Middle East & Africa |
Asia Pacific |
Unallocated (*) |
Total |
||||||
|
Year ended December 31, 2021 |
|
|
|
|
|
|
|
||||||
|
Net sales |
|
|
|
|
|
|
|
||||||
|
Total assets |
|
|
|
|
|
|
|
||||||
|
Trade receivables |
|
|
|
|
|
|
|
||||||
|
Property, plant and equipment, net |
|
|
|
|
|
|
|
||||||
|
Capital expenditures |
|
|
|
|
|
|
|
||||||
|
Depreciation and amortization |
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
||||||
|
Year ended December 31, 2020 |
|
|
|
|
|
|
|
||||||
|
Net sales |
|
|
|
|
|
|
|
||||||
|
Total assets |
|
|
|
|
|
|
|
||||||
|
Trade receivables |
|
|
|
|
|
|
|
||||||
|
Property, plant and equipment, net |
|
|
|
|
|
|
|
||||||
|
Capital expenditures |
|
|
|
|
|
|
|
||||||
|
Depreciation and amortization |
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
||||||
|
Year ended December 31, 2019 |
|
|
|
|
|
|
|
||||||
|
Net sales |
|
|
|
|
|
|
|
||||||
|
Total assets |
|
|
|
|
|
|
|
||||||
|
Trade receivables |
|
|
|
|
|
|
|
||||||
|
Property, plant and equipment, net |
|
|
|
|
|
|
|
||||||
|
Capital expenditures |
|
|
|
|
|
|
|
||||||
|
Depreciation and amortization |
|
|
|
|
|
|
|
| (*) |
|
There are
| F-37 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
1 Segment information (Cont.)
Geographical information (Cont.)
The principal countries from which the Company derives its revenues are USA (
Revenue is mainly recognized at a point in time to direct customers, when control has been transferred and there is no unfulfilled performance obligation that could affect the acceptance of the product by the customer. Revenues related to governmental institutions represents approximately
Tubes segment revenues by market:
|
Revenues Tubes (in millions of U.S. dollars) |
2021 |
2020 |
2019 |
|||
|
Oil and Gas |
|
|
|
|||
|
Hydrocarbon Processing and Power Generation |
|
|
|
|||
|
Industrial and Other |
|
|
|
|||
|
Total |
|
|
|
At December 31, 2021, 2020 and 2019, the Company recognized contract liabilities related to customer advances in the amount of $
2 Cost of sales
|
|
Year ended December 31, |
||||||||
|
(all amounts in thousands of U.S. dollars) |
2021 |
2020 |
2019 |
||||||
|
Inventories at the beginning of the year |
|
|
|
||||||
|
Increase in inventory due to business combinations |
|
|
|
||||||
|
Decrease in inventory due to sale of subsidiaries |
( |
) |
|
|
|||||
|
Plus: Charges of the year |
|
|
|
||||||
|
Raw materials, energy, consumables and other |
|
|
|
||||||
|
Services and fees |
|
|
|
||||||
|
Labor cost (*) |
|
|
|
||||||
|
Depreciation of property, plant and equipment |
|
|
|
||||||
|
Amortization of intangible assets |
|
|
|
||||||
|
Depreciation of right-of-use assets |
|
|
|
||||||
|
Maintenance expenses |
|
|
|
||||||
|
Allowance for obsolescence |
|
|
|
||||||
|
Taxes |
|
|
|
||||||
|
Other |
|
|
|
||||||
|
|
|
|
|
||||||
|
Less: Inventories at the end of the year |
( |
) |
( |
) |
( |
) | |||
|
|
|
|
|
||||||
| (*) | |
| F-38 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
3 Selling, general and administrative expenses
|
|
Year ended December 31, |
|||||||
|
(all amounts in thousands of U.S. dollars) |
2021 |
2020 |
2019 |
|||||
|
|
|
|
|
|||||
|
Services and fees |
|
|
|
|||||
|
Labor cost (*) |
|
|
|
|||||
|
Depreciation of property, plant and equipment |
|
|
|
|||||
|
Amortization of intangible assets |
|
|
|
|||||
|
Depreciation of right-of-use assets |
|
|
|
|||||
|
Commissions, freight and other selling expenses |
|
|
|
|||||
|
Provisions for contingencies |
|
|
|
|||||
|
Allowances for doubtful accounts |
( |
) |
|
( |
) | |||
|
Taxes |
|
|
|
|||||
|
Other |
|
|
|
|||||
|
|
|
|
|
|||||
| (*) |
4 Labor costs (included in Cost of sales and in Selling, general and administrative expenses)
|
|
Year ended December 31, |
||||||
|
(all amounts in thousands of U.S. dollars) |
2021 |
2020 |
2019 |
||||
|
|
|
|
|||||
|
Wages, salaries and social security costs |
|
|
|
||||
|
Severance indemnities |
|
|
|
||||
|
Defined contribution plans |
|
|
|
||||
|
Pension benefits - defined benefit plans |
|
|
|
||||
|
Employee retention and long-term incentive program |
|
( |
) |
|
|||
|
|
|
|
|
||||
The following table shows the geographical distribution of the employees:
|
Country |
2021 |
2020 |
2019 |
|||
|
Mexico |
|
|
|
|||
|
Argentina |
|
|
|
|||
|
USA |
|
|
|
|||
|
Italy |
|
|
|
|||
|
Brazil |
|
|
|
|||
|
Romania |
|
|
|
|||
|
Colombia |
|
|
|
|||
|
Canada |
|
|
|
|||
|
Indonesia |
|
|
|
|||
|
Japan |
|
|
|
|||
|
Other |
|
|
|
|||
|
|
|
|
|
| F-39 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
5 Impairment charge
Tenaris’s main source of revenue is the sale of products and services to the oil and gas industry, and the level of such sales is sensitive to international oil and gas prices and their impact on drilling activities.
The Company conducts regular assessments of the carrying values of its assets. The recoverable value was based on the value in use. The main key assumptions used in estimating the value in use are discount rate, growth rate and competitive, economic and regulatory factors applied to determine cash flow projections, such as oil and gas prices, average number of active oil and gas drilling rigs (rig count) and raw material costs.
For purposes of assessing key assumptions, to estimate discounted future cash flows, the Company uses external sources of information and management judgment based on past experience and expectations. Management has determined the value of each of the key assumptions as follows:
- Discount rate: based on the applicable weighted average cost of capital (“WACC”), which is considered to be a good indicator of capital cost, taking into account the industry, country and size of the business. For each CGU where assets are allocated, a specific WACC was determined. In 2021, the main discount rates used were in a range between
- Growth rate: considers mainly the inflation impact on prices and costs, the long-term evolution of the oil and gas industry, the higher demand to offset depletion of existing fields and the Company’s expected market penetration. In 2021, a nominal growth rate of
- Oil and gas prices: based on industry analysts’ reports and management’s expectations of market development.
- Rig count: based on information published by Baker Hughes and management’s expectations.
- Raw material costs: based on industry analysts’ reports and management’s expectations.
In December, 2021, as a result of the expected termination of our NKKTubes joint venture, which represented an impairment indicator for its assets, an impairment test was conducted, resulting in a charge of $
For the year 2020 a charge of approximately $
| F-40 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
6 Other operating income and expenses
|
|
Year ended December 31, |
||||||||
|
(all amounts in thousands of U.S. dollars) |
2021 |
2020 |
2019 |
||||||
|
|
|
|
|||||||
|
Other operating income |
|
|
|
||||||
|
Net income from other sales |
|
|
|
||||||
|
Net rents |
|
|
|
||||||
|
Tax recovery in Brazilian subsidiaries (*) |
|
|
|
||||||
|
Other (**) |
|
|
|
||||||
|
Recovery on allowance for doubtful receivables |
|
|
|
||||||
|
|
|
|
|
||||||
|
|
|
|
|
||||||
|
Other operating expenses |
|
|
|
||||||
|
Contributions to welfare projects and non-profit organizations |
|
|
|
||||||
|
Allowance for doubtful receivables |
|
|
|
||||||
|
|
|
|
|
||||||
| (*) | |
| (**) |
| F-41 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
7 Financial results
|
(all amounts in thousands of U.S. dollars) |
Year ended December 31, |
|||||||
|
|
2021 |
2020 |
2019 |
|||||
|
|
|
|
|
|||||
|
Interest Income |
|
|
|
|||||
|
Net result on changes in FV of financial assets at FVPL |
|
|
( |
) | ||||
|
Impairment result on financial assets at FVTOCI |
|
( |
) |
|
||||
|
Finance income (*) |
|
|
|
|||||
|
Finance cost |
( |
) |
( |
) |
( |
) | ||
|
Net foreign exchange transactions results (**) |
|
( |
) |
|
||||
|
Foreign exchange derivatives contracts results (***) |
( |
) |
|
( |
) | |||
|
Other |
( |
) |
( |
) |
( |
) | ||
|
Other financial results |
|
( |
) |
|
||||
|
Net financial results |
|
( |
) |
|
||||
| (*) | Finance Income: |
|
|
|
| (**) | Net foreign exchange transactions results: |
|
|
|
| (***) | Foreign exchange derivatives contracts results: |
|
|
|
| F-42 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
8 Income tax
|
|
Year ended December 31, |
|||||||
|
(all amounts in thousands of U.S. dollars) |
2021 |
2020 |
2019 |
|||||
|
|
|
|
|
|||||
|
Current tax |
( |
) |
( |
) |
( |
) | ||
|
Deferred tax |
|
|
|
|||||
|
Tax charge |
( |
) |
( |
) |
( |
) | ||
The tax on Tenaris’s income before tax differs from the theoretical amount that would arise using the tax rate in each country as follows:
|
|
Year ended December 31, |
|||||||
|
(all amounts in thousands of U.S. dollars) |
2021 |
2020 |
2019 |
|||||
|
Income (loss) before income tax |
|
( |
) |
|
||||
|
Less impairment charges (non-deductible) |
|
|
|
|||||
|
Income before income tax without impairment charges |
|
|
|
|||||
|
|
|
|
|
|||||
|
Tax calculated at the tax rate in each country |
( |
) |
|
( |
) | |||
|
Effect of currency translation on tax base |
( |
) |
( |
) |
( |
) | ||
|
Changes in the tax rates |
( |
) |
( |
) |
|
|||
|
Utilization of previously unrecognized tax losses |
|
|
|
|||||
|
Tax revaluation, withholding tax and others |
|
|
|
|||||
|
Tax charges |
( |
) |
( |
) |
( |
) | ||
Effect of currency translation on tax base, Tenaris applies the liability method to recognize deferred income tax on temporary differences between the tax bases of assets / liabilities and their carrying amounts in the financial statements. By application of this method, Tenaris recognizes gains and losses on deferred income tax due to the effect of the change in the value on the tax bases in subsidiaries (mainly Argentina and Mexico), which have a functional currency different than their local currency. These gains and losses are required by IFRS even though the revalued / devalued tax bases of the relevant assets will not result in any deduction / obligation for tax purposes in future periods.
Changes in the tax rates includes mainly the effect of the increase in the corporate income tax rate in Argentina from
Tax revaluation, withholding tax and others, includes a net tax income of $
9 Dividends distribution
On November 3, 2021, the Company’s Board of Directors approved the payment of an interim dividend of $
On May 3, 2021, the Company’s Shareholders approved an annual dividend in the amount of $
For the year 2019, the Company paid dividends for an aggregate amount of approximately $
On May 6, 2019, the Company’s Shareholders approved an annual dividend in the amount of $
| F-43 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
10 Property, plant and equipment, net
(all amounts in thousands of U.S. dollars)
|
Year ended December 31, 2021 |
Land and civil buildings |
Industrial buildings, plant and production equipment |
Vehicles, furniture and fixtures |
Work in progress |
Spare parts and equipment |
Total |
|||||||||||
|
|
|
|
|
|
|
|
|||||||||||
|
Cost |
|
|
|
|
|
|
|||||||||||
|
Values at the beginning of the year |
|
|
|
|
|
|
|||||||||||
|
Currency translation adjustment |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | |||||
|
Additions |
|
|
|
|
|
|
|||||||||||
|
Transfers / Reclassifications |
|
|
|
( |
) |
|
|
||||||||||
|
Decrease due to sale of subsidiaries (*) |
( |
( |
) |
( |
) |
|
|
( |
) | ||||||||
|
Disposals / Consumptions |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | |||||
|
Values at the end of the year |
|
|
|
|
|
|
|||||||||||
|
|
|
|
|
|
|
|
|||||||||||
|
Depreciation and impairment |
|
|
|
|
|
|
|||||||||||
|
Accumulated at the beginning of the year |
|
|
|
|
|
|
|||||||||||
|
Currency translation adjustment |
( |
) |
( |
) |
( |
) |
|
|
( |
) | |||||||
|
Depreciation charge |
|
|
|
|
|
|
|||||||||||
|
Impairment charge (See note 5) |
|
|
|
|
|
|
|||||||||||
|
Decrease due to sale of subsidiaries (*) |
|
( |
) |
( |
) |
|
|
( |
) | ||||||||
|
Disposals / Consumptions |
( |
) |
( |
) |
( |
) |
|
|
( |
) | |||||||
|
Accumulated at the end of the year |
|
|
|
|
|
|
|||||||||||
|
At December 31, 2021 |
|
|
|
|
|
|
| (*) |
| F-44 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
10 Property, plant and equipment, net (Cont.)
(all amounts in thousands of U.S. dollars)
|
Year ended December 31, 2020 |
Land and civil buildings |
Industrial buildings, plant and production equipment |
Vehicles, furniture and fixtures |
Work in progress |
Spare parts and equipment |
Total |
|||||||||||
|
|
|
|
|
|
|
|
|||||||||||
|
Cost |
|
|
|
|
|
|
|||||||||||
|
Values at the beginning of the year |
|
|
|
|
|
|
|||||||||||
|
Currency translation adjustment |
( |
) |
|
|
( |
) |
( |
) |
|
||||||||
|
Increase due to business combinations (*) |
|
|
|
|
|
|
|||||||||||
|
Additions |
|
|
|
|
|
|
|||||||||||
|
Transfers / Reclassifications |
|
|
|
( |
) |
|
|
||||||||||
|
Disposals / Consumptions |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | |||||
|
Values at the end of the year |
|
|
|
|
|
|
|||||||||||
|
|
|
|
|
|
|
|
|||||||||||
|
Depreciation and impairment |
|
|
|
|
|
|
|||||||||||
|
Accumulated at the beginning of the year |
|
|
|
|
|
|
|||||||||||
|
Currency translation adjustment |
( |
) |
|
|
|
|
|
||||||||||
|
Depreciation charge |
|
|
|
|
|
|
|||||||||||
|
Transfers / Reclassifications |
( |
) |
|
( |
) |
|
|
( |
) | ||||||||
|
Impairment charge (See note 5) |
|
|
|
|
|
|
|||||||||||
|
Disposals / Consumptions |
( |
) |
( |
) |
( |
) |
|
|
( |
) | |||||||
|
Accumulated at the end of the year |
|
|
|
|
|
|
|||||||||||
|
At December 31, 2020 |
|
|
|
|
|
|
| (*) |
Property, plant and equipment include capitalized interests for net amounts at December 31, 2021 and 2020 of $
Government grants recognized as a reduction of property, plant and equipment were immaterial for the years 2021 and 2020.
The carrying amounts of assets pledged as security for current and non-current borrowings were immaterial for the years 2021 and 2020.
| F-45 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
11 Intangible assets, net
(all amounts in thousands of U.S. dollars)
|
Year ended December 31, 2021 |
Information system projects |
Licenses, patents and trademarks (*) |
Goodwill |
Customer relationships |
Total |
|||||||||
|
|
|
|
|
|
|
|||||||||
|
Cost |
|
|
|
|
|
|||||||||
|
Values at the beginning of the year |
|
|
|
|
|
|||||||||
|
Currency translation adjustment |
( |
) |
( |
) |
( |
) |
|
( |
) | |||||
|
Additions |
|
|
|
|
|
|||||||||
|
Transfers / Reclassifications |
( |
) |
( |
) |
|
|
( |
) | ||||||
|
Disposals |
( |
) |
( |
) |
|
|
( |
) | ||||||
|
Values at the end of the year |
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|
|||||||||
|
Amortization and impairment |
|
|
|
|
|
|||||||||
|
Accumulated at the beginning of the year |
|
|
|
|
|
|||||||||
|
Currency translation adjustment |
( |
) |
|
|
|
( |
) | |||||||
|
Amortization charge |
|
|
|
|
|
|||||||||
|
Impairment charge (See note 5) |
|
|
|
|
|
|||||||||
|
Disposals |
( |
) |
( |
) |
|
|
( |
) | ||||||
|
Accumulated at the end of the year |
|
|
|
|
|
|||||||||
|
At December 31, 2021 |
|
|
|
|
|
(all amounts in thousands of U.S. dollars)
|
Year ended December 31, 2020 |
Information system projects |
Licenses, patents and trademarks (*) |
Goodwill |
Customer relationships |
Total |
|||||||||
|
Cost |
|
|
|
|
|
|||||||||
|
Values at the beginning of the year |
|
|
|
|
|
|||||||||
|
Currency translation adjustment |
|
|
( |
) |
|
( |
) | |||||||
|
Increase due to business combinations (**) |
|
|
|
|
|
|||||||||
|
Additions |
|
|
|
|
|
|||||||||
|
Transfers / Reclassifications |
( |
) |
|
|
|
( |
) | |||||||
|
Disposals |
( |
) |
( |
) |
|
|
( |
) | ||||||
|
Values at the end of the year |
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|
|||||||||
|
Amortization and impairment |
|
|
|
|
|
|||||||||
|
Accumulated at the beginning of the year |
|
|
|
|
|
|||||||||
|
Currency translation adjustment |
|
( |
) |
|
|
|
||||||||
|
Amortization charge |
|
|
|
|
|
|||||||||
|
Impairment charge (See note 5) |
|
|
|
|
|
|||||||||
|
Transfers / Reclassifications |
|
|
|
|
|
|||||||||
|
Disposals |
( |
) |
|
|
|
( |
) | |||||||
|
Accumulated at the end of the year |
|
|
|
|
|
|||||||||
|
At December 31, 2020 |
|
|
|
|
|
| (*) | |
| (**) |
The geographical allocation of goodwill for the year ended December 31, 2021 was $
| F-46 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
11 Intangible assets, net (Cont.)
The carrying amount of goodwill allocated by CGU, as of December 31, 2021, was as follows:
|
(all amounts in millions of U.S. dollars) |
|
|
|
|||
|
|
Tubes Segment |
|
||||
|
CGU |
Hydril Acquisition |
Other |
Total |
|||
|
Tamsa (Hydril and other) |
|
|
|
|||
|
Siderca (Hydril and other) |
|
|
|
|||
|
Hydril |
|
|
|
|||
|
Other |
|
|
|
|||
|
Total |
|
|
|
|||
12 Right-of-use assets, net and lease liabilities
Right of use assets evolution
(all amounts in thousands of U.S. dollars)
|
Year ended December 31, 2021 |
Land and Civil Buildings |
Industrial Buildings, Plant and Production Equipment |
Vehicles, furniture and fixtures |
Total |
|||||||
|
Cost |
|
|
|
|
|||||||
|
Opening net book amount |
|
|
|
|
|||||||
|
Currency translation adjustment |
( |
) |
( |
) |
( |
) |
( |
) | |||
|
Additions |
|
|
|
|
|||||||
|
Transfers / Reclassifications |
|
( |
) |
|
|
||||||
|
Disposals (*) |
( |
) |
( |
) |
( |
) |
( |
) | |||
|
At December 31, 2021 |
|
|
|
|
|||||||
|
|
|
|
|
|
|||||||
|
Depreciation |
|
|
|
|
|||||||
|
Accumulated at the beginning of the year |
|
|
|
|
|||||||
|
Currency translation adjustment |
( |
) |
( |
) |
( |
) |
( |
) | |||
|
Depreciation charge |
|
|
|
|
|||||||
|
Transfers / Reclassifications |
|
|
( |
) |
|
||||||
|
Disposals (*) |
( |
) |
( |
) |
( |
) |
( |
) | |||
|
Accumulated at the end of the year |
|
|
|
|
|||||||
|
At December 31, 2021 |
|
|
|
|
| (*) | |
| F-47 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
12 Right-of-use assets, net and lease liabilities (Cont.)
(all amounts in thousands of U.S. dollars)
|
Year ended December 31, 2020 |
Land and Civil Buildings |
Industrial Buildings, Plant and Production Equipment |
Vehicles, furniture and fixtures |
Total |
|||||||
|
Cost |
|
|
|
|
|||||||
|
Opening net book amount |
|
|
|
|
|||||||
|
Currency translation adjustment |
( |
) |
|
|
|
||||||
|
Increase due to business combinations (*) |
|
|
|
|
|||||||
|
Additions |
|
|
|
|
|||||||
|
Transfers / Reclassifications |
|
( |
) |
|
|
||||||
|
Disposals |
( |
) |
( |
) |
( |
) |
( |
) | |||
|
At December 31, 2020 |
|
|
|
|
|||||||
|
|
|
|
|
|
|||||||
|
Depreciation |
|
|
|
|
|||||||
|
Accumulated at the beginning of the year |
|
|
|
|
|||||||
|
Currency translation adjustment |
( |
) |
|
|
|
||||||
|
Depreciation charge |
|
|
|
|
|||||||
|
Transfers / Reclassifications |
( |
) |
|
|
|
||||||
|
Disposals |
( |
) |
( |
) |
( |
) |
( |
) | |||
|
Accumulated at the end of the year |
|
|
|
|
|||||||
|
At December 31, 2020 |
|
|
|
|
| (*) |
Depreciation of right-of-use assets is mainly included in Tubes segment.
Lease liability evolution
|
|
Year ended December 31, |
||||
|
(all amounts in thousands of U.S. dollars) |
2021 |
2020 |
|||
|
|
|
|
|||
|
Opening net book amount |
|
|
|||
|
Increase due to business combinations |
|
|
|||
|
Translation differences |
( |
) |
|
||
|
Additions |
|
|
|||
|
Cancellations (*) |
( |
) |
( |
) | |
|
Repayments (**) |
( |
) |
( |
) | |
|
Interest accrued |
|
|
|||
|
At December 31, |
|
|
|||
| (*) |
|
| (**) |
The amount of remaining payments with maturity less than 1 year, between 2 and 5 years and more than 5 years is approximately
Expenses related to short-term leases, leases of low value assets and variable leases (included in cost of sales and selling, general and administrative expenses) were not material for the years 2021 and 2020.
| F-48 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
13 Investments in non-consolidated companies
|
|
Year ended December 31, |
||||
|
(all amounts in thousands of U.S. dollars) |
2021 |
2020 |
|||
|
At the beginning of the year |
|
|
|||
|
Translation differences |
( |
) |
( |
) | |
|
Equity in earnings of non-consolidated companies |
|
|
|||
|
Dividends and distributions declared (*) |
( |
) |
( |
) | |
|
Increase in equity reserves and others |
|
|
|||
|
At the end of the year |
|
|
|||
| (*) |
The principal non-consolidated companies are:
|
|
|
% ownership at December 31, |
Book value at December 31, |
|||||
|
Company |
Country of incorporation |
2021 |
2020 |
2021 |
2020 |
|||
|
a) Ternium (*) |
Luxembourg |
|
|
|
|
|||
|
b) Usiminas (**) |
Brazil |
|
|
|
|
|||
|
c) Techgen |
Mexico |
|
|
|
|
|||
|
d) Global Pipe Company |
Saudi Arabia |
|
|
|
|
|||
|
Others |
- |
|
|
|
|
|||
|
|
|
|
|
|
|
|||
| (*) |
|
| (**) |
a) Ternium
Ternium is a steel producer with production facilities in Mexico, Argentina, Brazil, Colombia, United States and Guatemala and is one of Tenaris’s main suppliers of round steel bars and flat steel products for its pipes business.
At December 31, 2021, the closing price of Ternium’s ADSs as quoted on the New York Stock Exchange was $
| F-49 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
13 Investments in non-consolidated companies (Cont.)
a) Ternium (Cont.)
Summarized selected financial information of Ternium, including the aggregated amounts of assets, liabilities, revenues and profit or loss is as follows:
|
(all amounts in thousands of U.S. dollars) |
Ternium |
||||
|
|
2021 |
2020 |
|||
|
Non-current assets |
|
|
|||
|
Current assets |
|
|
|||
|
Total assets |
|
|
|||
|
Non-current liabilities |
|
|
|||
|
Current liabilities |
|
|
|||
|
Total liabilities |
|
|
|||
|
Total equity |
|
|
|||
|
Non-controlling interests |
|
|
|||
|
|
|
|
|||
|
Revenues |
|
|
|||
|
Gross profit |
|
|
|||
|
Net income for the year attributable to owners of the parent |
|
|
|||
|
Total comprehensive income for the year, net of tax, attributable to owners of the parent |
|
|
|||
b) Usiminas
Usiminas is a Brazilian producer of high quality flat steel products used in the energy, automotive and other industries.
As of December 31, 2021, the closing price of the Usiminas’ ordinary and preferred shares, as quoted on the B3 - Brasil Bolsa Balcão S.A, was BRL
Summarized selected financial information of Usiminas, including the aggregated amounts of assets, liabilities, revenues and profit or loss is as follows:
|
(all amounts in thousands of U.S. dollars) |
Usiminas |
||||
|
|
2021 |
2020 |
|||
|
Non-current assets |
|
|
|||
|
Current assets |
|
|
|||
|
Total assets |
|
|
|||
|
Non-current liabilities |
|
|
|||
|
Current liabilities |
|
|
|||
|
Total liabilities |
|
|
|||
|
Total equity |
|
|
|||
|
Non-controlling interests |
|
|
|||
|
|
|
|
|||
|
Revenues |
|
|
|||
|
Gross profit |
|
|
|||
|
Net income for the year attributable to owners of the parent |
|
|
|||
| F-50 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
13 Investments in non-consolidated companies (Cont.)
c) Techgen
Techgen is a Mexican company that operates a natural gas-fired combined cycle electric power plant in the Pesquería area of the State of Nuevo León, Mexico, and started producing energy on December 1, 2016, with a power capacity of 900 megawatts. As of December 31, 2021, Tenaris held
Techgen entered into certain transportation capacity agreements, equipment and other services related to the equipment, and an agreement for the purchase of clean energy certificates. As of December 31, 2021, Tenaris’s exposure under these agreements amounted to $
Techgen’s sponsors granted certain subordinated loans to Techgen. As of December 31, 2021, the aggregate outstanding principal amount under these subordinated loans was $
On February 13, 2019, Techgen entered into a $
The existing syndicated loan agreement is “non-recourse” on the sponsors. Techgen’s obligations thereunder are guaranteed by a Mexican security trust (covering shares, assets, accounts and contract rights), account pledges and certain direct agreements –customary for these type of transactions–. The commercial terms and conditions governing the purchase by the Company’s Mexican subsidiary, Tamsa, of
Under the loan agreement, Techgen is committed to maintain a debt service reserve account covering debt service becoming due during two consecutive quarters; such account is funded by stand-by letters of credit issued for the account of Techgen’s sponsors in proportion to their respective participations in Techgen. Accordingly, the Company applied for stand-by letters of credit covering
d) GPC
GPC is a Saudi-German joint venture, established in 2010 and located in Jubail, Saudi Arabia, which manufactures LSAW pipes. Tenaris, through its subsidiary SSPC, currently owns
SSPC and the other three owners of GPC have issued corporate guarantees to secure repayment of loan agreements entered into by GPC, with the Saudi Investment Development Fund, the Saudi British Bank, the National Commercial Bank and Banque Saudi Fransi to finance GPC’s capital expenditures and working capital. As of December 31, 2021, SSPC’s exposure under the guarantees amounted to $
| F-51 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
14 Receivables – non current
|
|
Year ended December 31, |
|||
|
(all amounts in thousands of U.S. dollars) |
2021 |
2020 |
||
|
Employee advances and loans |
|
|
||
|
Tax credits (*) |
|
|
||
|
Receivables from related parties |
|
|
||
|
Legal deposits |
|
|
||
|
Advances to suppliers and other advances |
|
|
||
|
Receivable Venezuelan subsidiaries |
|
|
||
|
Others |
|
|
||
|
|
|
|
||
| (*) |
15 Inventories, net
|
|
Year ended December 31, |
|||
|
(all amounts in thousands of U.S. dollars) |
2021 |
2020 |
||
|
Finished goods |
|
|
||
|
Goods in process |
|
|
||
|
Raw materials |
|
|
||
|
Supplies |
|
|
||
|
Goods in transit |
|
|
||
|
|
|
|
||
|
Allowance for obsolescence, see note 24 (i) |
( |
) |
( |
) |
|
|
|
|
||
16 Receivables and prepayments, net
|
|
Year ended December 31, |
|||
|
(all amounts in thousands of U.S. dollars) |
2021 |
2020 |
||
|
Prepaid expenses and other receivables |
|
|
||
|
Government entities |
|
|
||
|
Employee advances and loans |
|
|
||
|
Advances to suppliers and other advances |
|
|
||
|
Government tax refunds on exports |
|
|
||
|
Receivables from related parties |
|
|
||
|
Others |
|
|
||
|
|
|
|
||
|
Allowance for other doubtful accounts, see note 24 (i) |
( |
) |
( |
) |
|
|
|
|
||
| F-52 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
17 Current tax assets and liabilities
(all amounts in thousands of U.S. dollars)
|
|
Year ended December 31, |
|||
|
Current tax assets |
2021 |
2020 |
||
|
Income tax assets |
|
|
||
|
V.A.T. credits |
|
|
||
|
Other prepaid taxes |
|
|
||
|
|
|
|
||
|
|
Year ended December 31, |
|||
|
Current tax liabilities |
2021 |
2020 |
||
|
Income tax liabilities |
|
|
||
|
V.A.T. liabilities |
|
|
||
|
Other taxes |
|
|
||
|
|
|
|
||
18 Trade receivables, net
|
|
Year ended December 31, |
|||
|
(all amounts in thousands of U.S. dollars) |
2021 |
2020 |
||
|
Current accounts |
|
|
||
|
Receivables from related parties |
|
|
||
|
|
|
|
||
|
Allowance for doubtful accounts, see note 24 (i) |
( |
) |
( |
) |
|
|
|
|
||
The following table sets forth details of the aging of trade receivables:
|
(all amounts in thousands of U.S. dollars) |
Trade Receivables |
Not Due |
Past due |
|||||
|
|
1 - 180 days |
> 180 days |
||||||
|
At December 31, 2021 |
|
|
|
|
||||
|
Guaranteed |
|
|
|
|
||||
|
Not guaranteed |
|
|
|
|
||||
|
Guaranteed and not guaranteed |
|
|
|
|
||||
|
Expected loss rate |
|
|
|
|
||||
|
Allowances for doubtful accounts |
( |
) |
( |
) |
( |
) |
( |
) |
|
Nominative allowances for doubtful accounts |
( |
) |
|
( |
) |
( |
) | |
|
Net Value |
|
|
|
|
||||
|
(all amounts in thousands of U.S. dollars) |
Trade Receivables |
Not Due |
Past due |
|||||
|
|
1 - 180 days |
> 180 days |
||||||
|
At December 31, 2020 |
|
|
|
|
||||
|
Guaranteed |
|
|
|
|
||||
|
Not guaranteed |
|
|
|
|
||||
|
Guaranteed and not guaranteed |
|
|
|
|
||||
|
Expected loss rate |
|
|
|
|
||||
|
Allowances for doubtful accounts |
( |
) |
( |
) |
( |
) |
( |
) |
|
Nominative allowances for doubtful accounts |
( |
) |
( |
) |
( |
) |
( |
) |
|
Net Value |
|
|
|
|
||||
Trade receivables are mainly denominated in U.S. dollars.
| F-53 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
19 Cash and cash equivalents and other investments
|
|
Year ended December 31, |
|||
|
(all amounts in thousands of U.S. dollars) |
2021 |
2020 |
||
|
Cash and cash equivalents |
|
|
||
|
Cash at banks |
|
|
||
|
Liquidity funds |
|
|
||
|
Short – term investments |
|
|
||
|
|
|
|
||
|
Other investments - current |
|
|
||
|
Fixed income (time-deposit, zero coupon bonds, commercial papers) |
|
|
||
|
Bonds and other fixed income |
|
|
||
|
|
|
|
||
|
Other investments - non-current |
|
|
||
|
Bonds and other fixed income |
|
|
||
|
Others |
|
|
||
|
|
|
|
||
20 Borrowings
|
|
Year ended December 31, |
|||
|
(all amounts in thousands of U.S. dollars) |
2021 |
2020 |
||
|
Non-current |
|
|
||
|
Bank borrowings |
|
|
||
|
Costs of issue of debt |
( |
) |
( |
) |
|
|
|
|
||
|
Current |
|
|
||
|
Bank borrowings |
|
|
||
|
Bank overdrafts |
|
|
||
|
Costs of issue of debt |
( |
) |
|
|
|
|
|
|
||
|
Total Borrowings |
|
|
||
| F-54 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
20 Borrowings (Cont.)
The maturity of borrowings is as follows:
(all amounts in thousands of U.S. dollars)
|
|
1 year or less |
1 - 2 years |
2 – 3 years |
3 - 4 years |
4 - 5 years |
Over 5 years |
Total |
|||||||
|
At December 31, 2021 |
|
|
|
|
|
|
|
|||||||
|
Borrowings |
|
|
|
|
|
|
|
|||||||
|
Total borrowings |
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|||||||
|
Interest to be accrued (*) |
|
|
|
|
|
|
|
|||||||
|
Total |
|
|
|
|
|
|
|
|
|
1 year or less |
1 - 2 years |
2 – 3 years |
3 - 4 years |
4 - 5 years |
Over 5 years |
Total |
|||||||
|
At December 31, 2020 |
|
|
|
|
|
|
|
|||||||
|
Borrowings |
|
|
|
|
|
|
|
|||||||
|
Total borrowings |
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|||||||
|
Interest to be accrued (*) |
|
|
|
|
|
|
|
|||||||
|
Total |
|
|
|
|
|
|
|
| (*) |
Significant borrowings include:
In millions of U.S. dollars
|
Disbursement date |
Borrower |
Type |
Final maturity |
Original & Outstanding |
|
2020 |
Tamsa |
Bilateral |
2023 |
|
|
2020 |
Tamsa |
Bilateral |
2023 |
|
|
2020-2021 |
SSPC |
Multiple Banks |
2022 - 2024 |
|
As of December 31, 2021, Tenaris was in compliance with all of its covenants.
The weighted average interest rates before tax shown below were calculated using the rates set for each instrument in its corresponding currency as of December 31, 2021 and 2020, considering hedge accounting where applicable.
|
|
2021 |
2020 |
|
Total borrowings |
|
|
| F-55 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
20 Borrowings (Cont.)
Breakdown of long-term borrowings by currency and rate is as follows:
Non-current borrowings
|
(all amounts in thousands of U.S. dollars) |
|
Year ended December 31, |
|||
|
Currency |
Interest rates |
2021 |
2020 |
||
|
USD |
Variable |
|
|
||
|
USD |
Fixed |
|
|
||
|
SAR |
Fixed |
|
|
||
|
EUR |
Fixed |
|
|
||
|
EUR |
Variable |
|
|
||
|
Total non-current borrowings |
|
|
|
||
Breakdown of short-term borrowings by currency and rate is as follows:
Current borrowings
|
(all amounts in thousands of U.S. dollars) |
|
Year ended December 31, |
|||
|
Currency |
Interest rates |
2021 |
2020 |
||
|
USD |
Variable |
|
|
||
|
USD |
Fixed |
|
|
||
|
EUR |
Variable |
|
|
||
|
EUR |
Fixed |
|
|
||
|
MXN |
Fixed |
|
|
||
|
ARS |
Fixed |
|
|
||
|
SAR |
Variable |
|
|
||
|
SAR |
Fixed |
|
|
||
|
Total current borrowings |
|
|
|
||
Borrowings evolution
|
|
Year ended December 31, 2021 |
|||
|
(all amounts in thousands of U.S. dollars) |
Non current |
Current |
||
|
At the beginning of the year |
|
|
||
|
Translation differences |
( |
) |
( |
) |
|
Proceeds and repayments, net |
( |
) |
( |
) |
|
Interests accrued less payments |
|
( |
) | |
|
Reclassifications |
( |
) |
|
|
|
Overdrafts variation |
|
( |
) | |
|
At the end of the year |
|
|
||
| F-56 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
21 Deferred income tax
Deferred income taxes are calculated in full on temporary differences under the liability method using the tax rate of each country.
The evolution of deferred tax assets and liabilities during the year is as follows:
Deferred tax liabilities
|
(all amounts in thousands of U.S. dollars) |
Fixed assets |
Inventories |
Intangible assets and other |
Total |
||||
|
At the beginning of the year |
|
|
|
|
||||
|
Translation differences |
( |
) |
|
( |
) |
( |
) | |
|
Decrease due to sale of subsidiaries (*) |
( |
) |
|
|
( |
) | ||
|
Charged to other comprehensive income |
|
|
|
|
||||
|
Income statement charge / (credit) |
( |
) |
|
( |
) |
( |
) | |
|
At December 31, 2021 |
|
|
|
|
|
(all amounts in thousands of U.S. dollars) |
Fixed assets |
Inventories |
Intangible assets and other |
Total |
||||
|
At the beginning of the year |
|
|
|
|
||||
|
Translation differences |
|
|
|
|
||||
|
Increase due to business combinations (**) |
|
|
|
|
||||
|
Charged to other comprehensive income |
|
|
( |
) |
( |
) | ||
|
Income statement (credit) |
( |
) |
( |
) |
( |
) |
( |
) |
|
At December 31, 2020 |
|
|
|
|
Deferred tax assets
|
(all amounts in thousands of U.S. dollars) |
Provisions and allowances |
Inventories |
Tax losses |
Other |
Total |
|||||
|
At the beginning of the year |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
|
Translation differences |
|
|
|
|
|
|||||
|
Decrease due to sale of subsidiaries (*) |
|
|
|
|
|
|||||
|
Charged to other comprehensive income |
|
|
|
|
|
|||||
|
Income statement charge / (credit) |
( |
) |
|
( |
) |
|
|
|||
|
At December 31, 2021 |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
|
(all amounts in thousands of U.S. dollars) |
Provisions and allowances |
Inventories |
Tax losses |
Other |
Total |
|||||
|
At the beginning of the year |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
|
Translation differences |
|
|
|
|
|
|||||
|
Increase due to business combinations (**) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
|
Charged to other comprehensive income |
|
|
|
( |
) |
( |
) | |||
|
Income statement charge / (credit) |
|
|
( |
) |
|
( |
) | |||
|
At December 31, 2020 |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
| (*) | |
| (**) |
| F-57 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
21 Deferred income tax (Cont.)
Deferred tax assets related to taxable losses of Tenaris subsidiaries are recognized to the extent it is considered probable that future taxable profits will be available, against which such losses can be utilized in the foreseeable future. This amount includes $
Approximately 100% of the recognized tax losses have an expiration date in more than 5 years or do not expire.
As of December 31, 2021, the net unrecognized deferred tax assets amounted to $
The estimated analysis of recovery of deferred tax assets and settlement of deferred tax liabilities is as follows:
|
(all amounts in thousands of U.S. dollars) |
Year ended December 31, |
|||
|
|
2021 |
2020 |
||
|
Deferred tax assets to be recovered after 12 months |
( |
) |
( |
) |
|
Deferred tax liabilities to be settled after 12 months |
|
|
||
Deferred income tax assets and liabilities are offset when (1) there is a legally enforceable right to set-off current tax assets against current tax liabilities and (2) when the deferred income taxes relate to the same fiscal authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. The following amounts, determined after appropriate set-off, are shown in the Consolidated Statement of Financial Position:
|
(all amounts in thousands of U.S. dollars) |
Year ended December 31, |
|||
|
|
2021 |
2020 |
||
|
Deferred tax assets |
( |
) |
( |
) |
|
Deferred tax liabilities |
|
|
||
|
|
|
|
||
The movement in the net deferred income tax liability account is as follows:
|
(all amounts in thousands of U.S. dollars) |
Year ended December 31, |
|||
|
|
2021 |
2020 |
||
|
At the beginning of the year |
|
|
||
|
Translation differences |
( |
) |
|
|
|
Increase due to business combinations |
|
|
||
|
Decrease due to sale of subsidiaries |
( |
) |
|
|
|
Charged to other comprehensive income |
|
( |
) | |
|
Income statement (credit) |
( |
) |
( |
) |
|
At the end of the year |
|
|
||
| F-58 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
22 Other liabilities
(i) Other liabilities – Non current
|
|
Year ended December 31, |
|||
|
(all amounts in thousands of U.S. dollars) |
2021 |
2020 |
||
|
Post-employment benefits |
|
|
||
|
Other-long term benefits |
|
|
||
|
Miscellaneous |
|
|
||
|
|
|
|
||
Post-employment benefits
|
|
Year ended December 31, |
|||
|
(all amounts in thousands of U.S. dollars) |
2021 |
2020 |
||
|
Unfunded |
|
|
||
|
Funded |
|
|
||
|
|
|
|
||
- Unfunded
|
|
Year ended December 31, |
|||
|
(all amounts in thousands of U.S. dollars) |
2021 |
2020 |
||
|
Values at the beginning of the year |
|
|
||
|
Current service cost |
|
|
||
|
Interest cost |
|
|
||
|
Curtailments and settlements |
( |
) |
( |
) |
|
Remeasurements (*) |
|
( |
) | |
|
Translation differences |
( |
) |
( |
) |
|
Increase due to business combinations (**) |
|
|
||
|
Benefits paid from the plan |
( |
) |
( |
) |
|
Reclassified to current liabilities |
( |
) |
|
|
|
Other |
( |
) |
|
|
|
At the end of the year |
|
|
||
| (*) | |
| (**) |
| F-59 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
22 Other liabilities (Cont.)
(i) Other liabilities – Non current (Cont.)
Post-employment benefits (Cont.)
Unfunded (Cont.)
The actuarial assumptions for the most relevant plans were as follows:
|
|
Year ended December 31, |
|
|
|
2021 |
2020 |
|
Discount rate |
|
|
|
Rate of compensation increase |
|
|
As of December 31, 2021, an increase / (decrease) of
- Funded
The amounts recognized in the statement of financial position for the current annual period and the previous annual period are as follows:
|
|
Year ended December 31, |
|||
|
(all amounts in thousands of U.S. dollars) |
2021 |
2020 |
||
|
Present value of funded obligations |
|
|
||
|
Fair value of plan assets |
( |
) |
( |
) |
|
Liability (*) |
( |
) |
|
|
| (*) |
The movement in the present value of funded obligations is as follows:
|
|
Year ended December 31, |
|||
|
(all amounts in thousands of U.S. dollars) |
2021 |
2020 |
||
|
At the beginning of the year |
|
|
||
|
Translation differences |
|
|
||
|
Current service cost |
|
|
||
|
Interest cost |
|
|
||
|
Remeasurements (*) |
( |
) |
|
|
|
Benefits paid |
( |
) |
( |
) |
|
Other |
|
( |
) | |
|
At the end of the year |
|
|
||
| (*) |
| F-60 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
22 Other liabilities (Cont.)
(i) Other liabilities – Non current (Cont.)
Post-employment benefits (Cont.)
- Funded (Cont.)
The movement in the fair value of plan assets is as follows:
|
|
Year ended December 31, |
|||
|
(all amounts in thousands of U.S. dollars) |
2021 |
2020 |
||
|
At the beginning of the year |
( |
) |
( |
) |
|
Translation differences |
( |
) |
( |
) |
|
Return on plan assets |
( |
) |
( |
) |
|
Remeasurements |
( |
) |
( |
) |
|
Contributions paid to the plan |
( |
) |
( |
) |
|
Benefits paid from the plan |
|
|
||
|
Other |
|
|
||
|
At the end of the year |
( |
) |
( |
) |
The major categories of plan assets as a percentage of total plan assets are as follows:
|
|
Year ended December 31, |
|
|
|
2021 |
2020 |
|
Equity instruments |
|
|
|
Debt instruments |
|
|
|
Others |
|
|
The actuarial assumptions for the most relevant plans were as follows:
|
|
Year ended December 31, |
|
|
|
2021 |
2020 |
|
Discount rate |
|
|
|
Rate of compensation increase |
|
|
The expected return on plan assets is determined by considering the expected returns available on the assets underlying the current investment policy. Expected return on plan assets is determined based on long-term, prospective rates of return as of the end of the reporting period.
As of December 31, 2021, an increase / (decrease) of
The employer expected contributions for the year 2022 amount to approximately $
The methods and types of assumptions used in preparing the sensitivity analyses did not change compared to the previous period.
| F-61 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
22 Other liabilities (Cont.)
(ii) Other liabilities – current
|
|
Year ended December 31, |
|||
|
(all amounts in thousands of U.S. dollars) |
2021 |
2020 |
||
|
Payroll and social security payable |
|
|
||
|
Miscellaneous |
|
|
||
|
|
|
|
||
23 Non-current allowances and provisions
Liabilities
|
|
Year ended December 31, |
|||
|
|
2021 |
2020 |
||
|
(all amounts in thousands of U.S. dollars) |
|
|
||
|
Values at the beginning of the year |
|
|
||
|
Translation differences |
( |
) |
( |
) |
|
Increase due to business combinations (*) |
|
|
||
|
Additional provisions |
|
|
||
|
Reclassifications |
|
|
||
|
Used |
( |
) |
( |
) |
|
Values at the end of the year |
|
|
||
| (*) |
24 Current allowances and provisions
(i) Deducted from assets
|
Year ended December 31, 2021 |
Allowance for doubtful accounts - Trade receivables |
Allowance for other doubtful accounts - Other receivables |
Allowance for inventory obsolescence |
|||
|
(all amounts in thousands of U.S. dollars) |
|
|
|
|||
|
Values at the beginning of the year |
( |
) |
( |
) |
( |
) |
|
Translation differences |
|
|
|
|||
|
Decrease due to sale of subsidiaries (*) |
|
|
|
|||
|
(Additional) / reversals allowances |
|
|
( |
) | ||
|
Used |
|
|
|
|||
|
At December 31, 2021 |
( |
) |
( |
) |
( |
) |
|
Year ended December 31, 2020 |
Allowance for doubtful accounts - Trade receivables |
Allowance for other doubtful accounts - Other receivables |
Allowance for inventory obsolescence |
|||
|
(all amounts in thousands of U.S. dollars) |
|
|
|
|||
|
Values at the beginning of the year |
( |
) |
( |
) |
( |
) |
|
Translation differences |
( |
) |
|
|
||
|
Increase due to business combinations (**) |
( |
) |
|
( |
) | |
|
(Additional) allowances |
( |
) |
( |
) |
( |
) |
|
Used |
|
|
|
|||
|
At December 31, 2020 |
( |
) |
( |
) |
( |
) |
| (*) | |
| (**) |
| F-62 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
24 Current allowances and provisions (Cont.)
(ii) Liabilities
|
Year ended December 31, 2021 |
Sales risks |
Other claims and contingencies (*) |
Total |
|||
|
(all amounts in thousands of U.S. dollars) |
|
|
|
|||
|
Values at the beginning of the year |
|
|
|
|||
|
Translation differences |
( |
( |
) |
( |
) | |
|
Additional provisions |
|
|
|
|||
|
Reclassifications |
|
( |
) |
( |
) | |
|
Used |
( |
) |
( |
) |
( |
|
|
At December 31, 2021 |
|
|
|
|
Year ended December 31, 2020 |
Sales risks |
Other claims and contingencies (*) |
Total |
|||
|
(all amounts in thousands of U.S. dollars) |
|
|
|
|||
|
Values at the beginning of the year |
|
|
|
|||
|
Translation differences |
( |
) |
( |
) |
( |
) |
|
Increase due to business combinations (**) |
|
|
|
|||
|
Additional provisions |
|
|
|
|||
|
Reclassifications |
|
( |
) |
( |
) | |
|
Used |
( |
) |
( |
) |
( |
) |
|
At December 31, 2020 |
|
|
|
| (*) | |
| (**) |
25 Derivative financial instruments
Net fair values of derivative financial instruments
The net fair values of derivative financial instruments, in accordance with IFRS 13, are:
|
(all amounts in thousands of U.S. dollars) |
Year ended December 31, |
|||
|
|
2021 |
2020 |
||
|
Derivatives hedging borrowings and investments |
|
|
||
|
Other Derivatives |
|
|
||
|
Contracts with positive fair values |
|
|
||
|
|
|
|
||
|
Derivatives hedging borrowings and investments |
( |
) |
( |
) |
|
Other Derivatives |
( |
) |
( |
) |
|
Contracts with negative fair values |
( |
) |
( |
) |
|
Total |
( |
) |
|
|
| F-63 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
25 Derivative financial instruments (Cont.)
Foreign exchange derivative contracts and hedge accounting
Tenaris applies hedge accounting to certain cash flow hedges of highly probable forecast transactions. The net fair values of exchange rate derivatives and those derivatives that were designated for hedge accounting as of December 31, 2021 and 2020 were as follows:
|
(all amounts in thousands of U.S. dollars) |
|
|
Fair Value |
Hedge Accounting Reserve |
||||||
|
Purchase currency |
Sell currency |
Term |
2021 |
2020 |
2021 |
2020 |
||||
|
MXN |
USD |
2022 |
|
|
( |
) |
|
|||
|
USD |
MXN |
2022 |
( |
) |
( |
) |
|
|
||
|
EUR |
USD |
2022 |
( |
) |
|
( |
) |
|
||
|
USD |
EUR |
2023 |
|
( |
) |
|
|
|||
|
JPY |
USD |
2022 |
( |
) |
|
|
( |
) | ||
|
USD |
BRL |
2022 |
( |
) |
|
|
|
|||
|
USD |
KWD |
2021 |
|
( |
) |
|
( |
|||
|
USD |
CAD |
2022 |
( |
) |
|
|
|
|||
|
USD |
GBP |
2022 |
( |
) |
( |
) |
|
|
||
|
USD |
CNY |
2022 |
( |
) |
( |
) |
|
|
||
|
BRL |
USD |
2022 |
( |
) |
|
|
|
|||
|
Others |
|
2022 |
( |
) |
|
( |
) |
|
||
|
Total |
|
|
( |
) |
|
|
( |
) | ||
Following is a summary of the hedge reserve evolution:
(all amounts in thousands of U.S. dollars)
|
|
Equity Reserve Dec-19 |
Movements 2020 |
Equity Reserve Dec-20 |
Movements 2021 |
Equity Reserve Dec-21 |
|||||
|
Foreign Exchange |
|
( |
) |
( |
) |
|
|
|||
|
Total Cash flow Hedge |
|
( |
) |
( |
) |
|
|
Tenaris estimates that the cash flow hedge reserve corresponding to derivatives instruments at December 31, 2021 will be recycled to the Consolidated Income Statement during 2022 and 2023. For information on hedge accounting reserve, see Section III.D to these Consolidated Financial Statements.
| F-64 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
26 Contingencies, commitments and restrictions on the distribution of profits
(i) Contingencies
Tenaris is from time to time subject to various claims, lawsuits and other legal proceedings, including customer, employee, tax and environmental-related claims, in which third parties are seeking payment for alleged damages, reimbursement for losses, or indemnity. Management with the assistance of legal counsel periodically reviews the status of each significant matter and assesses potential financial exposure.
Some of these claims, lawsuits and other legal proceedings involve highly complex issues, and often these issues are subject to substantial uncertainties and, therefore, the probability of loss and an estimation of damages are difficult to ascertain. Accordingly, with respect to a large portion of such claims, lawsuits and other legal proceedings, the Company is unable to make a reliable estimate of the expected financial effect that will result from ultimate resolution of the proceeding. In those cases, the Company has not accrued a provision for the potential outcome of these cases.
If a potential loss from a claim, lawsuit or other proceeding is considered probable and the amount can be reasonably estimated, a provision is recorded. Accruals for loss contingencies reflect a reasonable estimate of the losses to be incurred based on information available to management as of the date of preparation of the financial statements and take into consideration litigation and settlement strategies. In a limited number of ongoing cases, the Company was able to make a reliable estimate of the expected loss or range of probable loss and, depending on the likelihood of occurrence, in some of such cases has accrued a provision for such loss but believes that publication of this information on a case-by-case basis would seriously prejudice the Tenaris’s position in the ongoing legal proceedings or in any related settlement discussions. Accordingly, in these cases, the Company has disclosed information with respect to the nature of the contingency but has not disclosed its estimate of the range of potential loss.
The Company believes that the aggregate provisions recorded for potential losses in these Consolidated Financial Statements are adequate based upon currently available information. However, if management’s estimates prove incorrect, current reserves could be inadequate and the Company could incur a charge to earnings which could have a material adverse effect on its results of operations, financial condition, net worth and cash flows.
Below is a summary description of Tenaris’s material legal proceedings which are outstanding as of the date of these Consolidated Financial Statements. In addition, the Company is subject to other legal proceedings, none of which is believed to be material.
| F-65 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
26 Contingencies, commitments and restrictions on the distribution of profits (Cont.)
(i) Contingencies (Cont.)
- CSN claims relating to the January 2012 acquisition of Usiminas shares
Confab, a Brazilian subsidiary of the Company, is one of the defendants in a lawsuit filed in Brazil by Companhia Siderúrgica Nacional (“CSN”) and various entities affiliated with CSN against Confab and several Ternium subsidiaries that acquired a participation in Usiminas’ control group in January 2012.
The CSN lawsuit alleges that, under applicable Brazilian laws and rules, the acquirers were required to launch a tag-along tender offer to all non-controlling holders of Usiminas’ ordinary shares for a price per share equal to
On September 23, 2013, the first instance court dismissed the CSN lawsuit, and on February 8, 2017, the court of appeals maintained the understanding of the first instance court. On March 6, 2017, CSN filed a motion for clarification against the decision of the Court of Appeals of São Paulo, which was rejected on July 19, 2017. On August 18, 2017, CSN filed an appeal to the Superior Court of Justice seeking the review and reversal of the decision issued by the Court of Appeals. On March 5, 2018, the court of appeals ruled that CSN’s appeal did not meet the requirements for submission to the Superior Court of Justice and rejected the appeal. On May 8, 2018, CSN appealed against such ruling and on January 22, 2019, the court of appeals rejected it and ordered that the case be submitted to the Superior Court of Justice. On September 10, 2019, the Superior Court of Justice declared CSN’s appeal admissible. The Superior Court of Justice will review the case and then render a decision on the merits. The Superior Court of Justice is restricted to the analysis of alleged violations to federal laws and cannot assess matters of fact.
The Company continues to believe that all of CSN’s claims and allegations are groundless and without merit, as confirmed by several opinions of Brazilian legal counsel, two decisions issued by the Brazilian securities regulator (“CVM”) in February 2012 and December 2016, and the first and second instance court decisions referred to above.
- Veracel celulose accident litigation
On September 21, 2007, an accident occurred in the premises of Veracel Celulose S.A. (“Veracel”) in connection with a rupture in one of the tanks used in an evaporation system manufactured by Confab. The Veracel accident allegedly resulted in material damages to Veracel. Itaú Seguros S.A. (“Itaú”), Veracel’s insurer at the time of the Veracel accident and then replaced by Chubb Seguros Brasil S/A (“Chubb”), initiated a lawsuit against Confab seeking reimbursement of damages paid to Veracel in connection with the Veracel accident. Veracel initiated a second lawsuit against Confab seeking reimbursement of the amount paid as insurance deductible with respect to the Veracel accident and other amounts not covered by insurance. Itaú and Veracel claimed that the Veracel accident was caused by failures and defects attributable to the evaporation system manufactured by Confab. Confab believes that the Veracel accident was caused by the improper handling by Veracel’s personnel of the equipment supplied by Confab in violation of Confab’s instructions. The two lawsuits were consolidated and are considered by the 6th Civil Court of São Caetano do Sul. However, each lawsuit will be adjudicated separately.
On September 28, 2018, Confab and Chubb entered into a settlement agreement pursuant to which on October 9, 2018, Confab paid an amount of approximately $
On October 10, 2018, Confab was notified that the court had issued rulings for both lawsuits. Both decisions were unfavorable to Confab:
| F-66 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
26 Contingencies, commitments and restrictions on the distribution of profits (Cont.)
(i) Contingencies (Cont.)
- Veracel celulose accident litigation (Cont.)
- With respect to Chubb’s claim, the court subsequently homologated the above-mentioned settlement and, accordingly, the claim was finalized.
- With respect to Veracel’s claim, Confab was ordered to pay the insurance deductible and other concepts not covered by insurance, currently estimated to amount to BRL
- Ongoing investigation
The Company is aware that Brazilian, Italian and Swiss authorities have been investigating whether certain payments were made prior to 2014 from accounts of entities presumably associated with affiliates of the Company to accounts allegedly linked to individuals related to Petróleo Brasileiro S.A. (“Petrobras”) and whether any such payments were intended to benefit the Company’s Brazilian subsidiary Confab. Any such payments could violate certain applicable laws, including the U.S. Foreign Corrupt Practices Act.
The Company had previously reviewed certain of these matters in connection with an investigation by the Brazilian authorities related to “Operation Lava Jato,” and did not uncover any information that corroborated allegations of involvement in these alleged payments by the Company or its subsidiaries. Furthermore, the Company became aware that a Petrobras internal investigation commission reviewed certain contracts with Confab and concluded that they had not found evidence that Petrobras had benefitted Confab or had misused applicable local content rules.
The Audit Committee of the Company's Board of Directors engaged external counsel in connection with the Company’s review of these matters. In addition, the Company voluntarily notified the U.S. Securities and Exchange Commission (“SEC”) and the U.S. Department of Justice (“DOJ”) in October 2016.
In July 2019, the public prosecutors’ office of Milan, Italy, completed a preliminary investigation into the alleged payments and included the Company’s Chairman and Chief Executive Officer, two other board members, Gianfelice Rocca and Roberto Bonatti, and the Company’s controlling shareholder, San Faustin, in the investigation. The Company is not a party to the proceedings. On March 22, 2022, upon completion of the evidentiary phase of the trial, the acting prosecutor requested the first-instance court in Milan in charge of the case to impose sanctions on our Chairman and Chief Executive Officer, on the other two board members, and on San Faustin. The Company’s outside counsel in Italy has advised the Company that neither the case file nor the prosecutor’s request contain or identify any evidence of involvement in, or knowledge of, the alleged wrongdoing by any of the three directors. The Company has also been advised that the defendants are scheduled to present their arguments before the court on April 19, 2022, that the court may issue its decision on April 26, 2022, and that the grounds for any such decision may not be immediately available. Any decision by the first-instance court may be appealed by either party before a higher court.
In June 2020, the Company learned that the Brazilian public prosecutors’ office requested the indictment of several individuals, including three executives or former executives of Confab and a former agent of Confab, charging them with the alleged crimes of corruption in relation to contracts executed between 2007 and 2010, and money laundering in relation to payments between 2009 and 2013. The proceedings are underway. Neither the Company nor Confab is a party to the proceedings.
The Company continues to respond to requests from and otherwise cooperate with the appropriate authorities. The Company has engaged in discussions with the SEC and the DOJ towards a potential resolution of the investigation. There are no assurances that the discussions with the SEC or the DOJ will result in a final resolution of the investigation or, if a resolution is achieved, the timing, scope and terms of any such resolution. At this time, the Company cannot predict the outcome of these matters or estimate the range of potential loss or extent of risk, if any, to the Company's business that may result from the resolution of these matters.
| F-67 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
26 Contingencies, commitments and restrictions on the distribution of profits (Cont.)
(i) Contingencies (Cont.)
- Putative class actions
Following the Company’s November 27, 2018, announcement that its Chairman and CEO Paolo Rocca had been included in an Argentine court investigation known as the Notebooks Case (a decision subsequently reversed by a higher court), two putative class action complaints were filed in the U.S. District Court for the Eastern District of New York. On April 29, 2019, the court consolidated the complaints into a single case, captioned “In re Tenaris S.A. Securities Litigation”, and appointed lead plaintiffs and lead counsel. On July 19, 2019, the lead plaintiffs filed an amended complaint purportedly on behalf of purchasers of Tenaris securities during the putative class period of May 1, 2014, through December 5, 2018. The individual defendants named in the complaint are Tenaris’s Chairman and CEO and Tenaris’s former CFO. The complaint alleges that during the class period, the Company and the individual defendants inflated the Tenaris share price by failing to disclose that the nationalization proceeds received by Ternium (in which the Company held an 11.46% stake) when Sidor was expropriated by Venezuela were received or expedited as a result of allegedly improper payments made to Argentine officials. The complaint does not specify the damages that plaintiff is seeking. On October 9, 2020, the court granted in part and denied in part the defendants’ motions to dismiss. The court partially granted and partially denied the motion to dismiss the claims against the Company and its Chairman and CEO. In addition, the court granted the motions to dismiss as to all claims against San Faustin, Techint, and Tenaris’s former CFO. The case is now proceeding based on the claims that survived the motion to dismiss. Management believes the Company has meritorious defenses to these claims; however, at this stage Tenaris cannot predict the outcome of the claim or the amount or range of loss in case of an unfavorable outcome.
- Administrative tax proceeding concerning Brazilian tax credits
Confab is a party to an administrative proceeding concerning the recognition and transfer of tax credits for an amount allegedly exceeding the amount that Confab would have been entitled to recognize and / or transfer. The proceeding resulted in the imposition of a fine against Confab representing approximately
- U.S. patent infringement litigation
Tenaris Coiled Tubes, LLC (“TCT”), a U.S. subsidiary of the Company, was sued in 2017 by its competitor Global Tubing, alleging defamatory conduct by TCT and seeking a declaration that certain Global Tubing products do not infringe patents held by TCT. TCT subsequently counterclaimed that certain Global Tubing products infringe patents held by TCT, Global Tubing has since sought to invalidate such patents. On December 13, 2019, Global Tubing filed an amended complaint (including the Company as defendant), alleging that TCT and the Company misled the patent office in order to monopolize the coiled tubing market for quench and tempered products. On March 26, 2021, a magistrate to the principal judge in the case found that Global Tubing had established a prima facie case that TCT had misled the patent office by failing to disclose a previous attempt to quench and temper coiled tubing. On April 9, 2021, TCT filed its objections to the magistrate’s ruling with the principal judge in the case. On August 25, 2021, the principal judge in the case affirmed the magistrate’s order and found possible evidence of intent to commit fraud on the patent office. Such determination is not final. TCT is considering several avenues to challenge this decision. TCT believes that it has meritorious defenses to this claim. Trial was expected to take place in May 2022 but is likely to be postponed. At this time, it is not possible to predict the outcome of this matter or estimate the range of potential losses that may result from the resolution of this claim.
| F-68 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
26 Contingencies, commitments and restrictions on the distribution of profits (Cont.)
(i) Contingencies (Cont.)
- Tax assessment from Italian tax authorities
The Company’s Italian subsidiary, Dalmine, received on December 27, 2019, a tax assessment from the Italian tax authorities related to fiscal year 2014 mainly referred to the compensation for certain intercompany transactions involving Dalmine in connection with sales of products and R&D activities. As of December 31, 2021, the claim amounted to approximately EUR
On June 14, 2021, Dalmine received the tax assessment related to fiscal year 2015 with respect to the same matters. The tax assessment confirms the preliminary determination included in the tax report issued by the tax authority in 2019. As of December 31, 2021, these additional claims amount to approximately EUR
The aggregate amount claimed for fiscal years 2014 and 2015 is approximately EUR
On July 27, 2020, Dalmine filed a first-instance appeal before the Milan tax court against the 2014 tax assessment. The hearing on this appeal, originally scheduled on June 21, 2021, has been postponed to May 9, 2022. Based on the advice of counsel, the Company believes that it is unlikely that the ultimate resolution of these matters will result in a material obligation.
- Product liability litigation
The Company’s U.S. subsidiary, IPSCO, or its subsidiaries, are parties to product liability claims, which may result in damages for an aggregate amount estimated at approximately $
- U.S. Antidumping Duty and Countervailing Duty Investigations
On October 27, 2021, the U.S. Department of Commerce (“DOC”) announced the initiation of antidumping duty investigations of oil country tubular goods (“OCTG”) from Argentina, Mexico, and Russia and countervailing duty investigations of OCTG from Russia and South Korea. The investigations were initiated on the basis of a petition by U.S. Steel Tubular Products, Inc., a small number of other U.S. domestic welded OCTG producers, and a steelworkers’ union. On November 22, 2021, the International Trade Commission (“ITC”) made a preliminary determination of injury, allowing the investigations to proceed. The investigations are currently proceeding, with final determinations by DOC and the ITC likely to occur in the second half of 2022.
Tenaris, which imports OCTG from Argentina and Mexico to complement its significant and continuously growing production in the United States, believes that the petition, the DOC initiation and the preliminary determination of injury are unjustified and is vigorously challenging any claim that its imports are unfairly traded or are causing or threatening injury to the U.S. domestic OCTG industry.
At this time, the Company cannot predict the outcome of this matter or estimate the potential impact, if any, that the resolution of this matter may have on the Company’s business.
(ii) Commitments and guarantees
Set forth is a description of the Tenaris’s main outstanding commitments:
- Several of the Company’s subsidiaries entered into a contract with Praxair S.A. for the service of oxygen and nitrogen supply. As of December 31, 2021, the aggregate commitment to take or pay the committed volumes for an original
| F-69 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
26 Contingencies, commitments and restrictions on the distribution of profits (Cont.)
(ii) Commitments and guarantees (Cont.)
- A subsidiary of the Company entered into a
- A U.S. subsidiary of the Company is a party to a contract with Nucor Steel Memphis Inc. under which it is committed to purchase on a monthly basis a specified minimum volume of steel bars, at prices subject to quarterly adjustments. The contract became effective upon delivery of the first purchase order, which occurred in April 2021, and will remain in force for a
- In connection with the closing of the acquisition of IPSCO, a U.S. subsidiary of the Company entered into a
- A subsidiary of the Company entered into a -year contract, renewable for additional year, with Ternium México S.A. de C.V., under which it is committed to purchase on a monthly basis a specified minimum volumes of steel bars. The contract became effective in March 2021. As of December 31, 2021, the aggregate commitment totaled approximately $
- A subsidiary of the Company entered into a contract with the supplier Voestalpine Grobblech GmbH to which it committed to purchase carbon steel for a total amount of approximately $
In addition, Tenaris (i) applied for stand-by letters of credit as well as corporate guarantees covering certain obligations of Techgen as described in note 13 (c) to these Consolidated Financial Statements, (ii) issued corporate guarantees securing certain obligations of GPC, as described in note 13 (d) to these Consolidated Financial Statements; and (iii) issued performance guarantees mainly related to long term commercial contracts with several customers and parent companies for approximately $
| F-70 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
26 Contingencies, commitments and restrictions on the distribution of profits (Cont.)
(iii) Restrictions on the distribution of profits and payment of dividends
In accordance with Luxembourg Law, the Company is required to transfer a minimum of 5% of its net profit for each financial year to a legal reserve until such reserve equals 10% of the issued share capital.
As of December 31, 2021, this reserve is fully allocated and additional allocations to the reserve are not required under Luxembourg law. Dividends may not be paid out of the legal reserve.
The Company may pay dividends to the extent, among other conditions, that it has distributable retained earnings calculated in accordance with Luxembourg law and regulations.
27 Cancellation of title deed in Saudi Steel Pipe Company
In early 2021, the Company has learned through the Saudi Ministry of Justice’s online portal that the electronic title deeds to certain land plots of its Saudi Arabian subsidiary SSPC had become inactive due to cancellation by court order.
The affected land plots, with a total surface of
As of the date hereof, neither the cancellation nor the court order have been notified to SSPC or otherwise been made public by the authorities, and the legal basis for the court order is unknown. On May 4, 2021, SSPC filed a petition with an ad-hoc newly-created special committee at the Saudi Ministry of Justice, seeking to have its title deeds reinstated. At this time, it is not possible to predict the outcome of this matter.
28 Foreign exchange control measures in Argentina
Beginning in September 2019, the Argentine government has imposed and continues to impose significant restrictions on foreign exchange transactions. Restrictions have tightened over time. The main currently applicable measures are described below:
- Foreign currency proceeds derived from exports of goods must be sold into the Argentine foreign exchange market and converted into Argentine pesos within 60 days (if made to related parties) or 180 days (if made to unrelated parties) from shipment date, or, if collected earlier, within five days of collection.
- Foreign currency proceeds from exports of services must be sold into the Argentine foreign exchange market and converted into Argentine pesos within five business days of collection.
- Access to the Argentine foreign exchange market to pay for imports of services rendered by related parties (including royalties) is generally subject to Argentine Central Bank approval.
- Access to the Argentine foreign exchange market to pay for imports of goods and services provided by third parties is subject to several restrictions, including payment terms that cannot be at sight or involve advance payments. In particular, the importer may not have more than $100,000 deposited in any foreign account, and will have to certify that it has not accessed the market to sell bonds for foreign currency and has not transferred bonds abroad or made cross-border securities swaps for a period of 90 days prior to the required payment of imports, that it will not do so for a period of 90 days after the Argentine Central Bank provides the foreign currency, and that it will not circumvent such restrictions through transfers of funds to any shareholders holding more than a 25% voting interest in the importer or to other entities having common directors with the importer or its more-than-25% shareholders.
- Access to the Argentine foreign exchange market to pay debt service (principal and interest) for financial debts with related parties requires prior Argentine Central Bank approval, unless such debts are obtained and sold into the Argentine foreign exchange market and converted into Argentine pesos after October 2, 2020 and carry an average life of no less than 2 years.
- Debts with foreign creditors larger than $2 million maturing on or before December 31, 2021 need to be refinanced in at least 60% of outstanding principal and for a minimum period of 2 years.
| F-71 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
28 Foreign exchange control measures in Argentina (Cont.)
- Access to the Argentine foreign exchange market to make dividend payments generally requires prior Argentine Central Bank approval.
- Further restrictions have been imposed by the Argentine Securities Commission in June 2021 and in October 2021, consisting of weekly limitations on the amount of bonds that Argentine companies could sell against foreign currency.
When required, Argentine Central Bank approvals are rarely, if ever, granted.
Tenaris’s Argentine subsidiaries continue to have access to the official foreign currency market for all imports of goods and for acquisition of services from unrelated parties. Therefore, assets and liabilities denominated in foreign currency as of December 31, 2021, have been valued at the prevailing official exchange rates.
Tenaris’s financial position in Argentine peso as of December 31, 2021, amounted to a net short exposure of approximately $
Management continues to monitor closely the evolution of the main variables affecting its business, identifying the potential impact thereof on its financial and economic situation and determining the appropriate course of action in each case. The Company’s Consolidated Financial Statements should be read taking into account these circumstances.
As the context of volatility and uncertainty remains in place as of the issue date of these Consolidated Financial Statements, additional regulations that could be imposed by the Argentine government could further restrict our Argentine subsidiaries’ ability to access the official foreign exchange market.
29 Cash flow disclosures
(all amounts in thousands of U.S. dollars)
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Year ended December 31, |
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(i) |
Changes in working capital |
2021 |
2020 |
2019 |
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Inventories |
( |
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Receivables and prepayments and current tax assets |
( |
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( |
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Trade receivables |
( |
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Other liabilities |
( |
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( |
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( |
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Customer advances |
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( |
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Trade payables |
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( |
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( |
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( |
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(ii) |
Income tax accruals less payments |
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Tax accrued |
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Taxes paid |
( |
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( |
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( |
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( |
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( |
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(iii) |
Interest accruals less payments, net |
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Interest accrued |
( |
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( |
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Interest received |
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Interest paid |
( |
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( |
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( |
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( |
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( |
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( |
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| F-72 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
30 Related party transactions
As of December 31, 2021:
- San Faustin owned
- San Faustin owned all of its shares in the Company through its wholly-owned subsidiary Techint Holdings S.àr.l., a Luxembourg société à responsabilité limitée (“Techint”), who is the holder of record of the above-mentioned Tenaris shares.
- Rocca & Partners Stichting Administratiekantoor Aandelen San Faustin, a private foundation located in the Netherlands (Stichting) (“RP STAK”) held voting shares in San Faustin sufficient in number to control San Faustin.
- No person or group of persons controls RP STAK.
Based on the information most recently available to the Company, Tenaris’s directors and senior management as a group owned
Transactions and balances disclosed as with “non-consolidated parties” are those with companies over which Tenaris exerts significant influence or joint control in accordance with IFRS, but does not have control. All other transactions and balances with related parties which are not non-consolidated parties and which are not consolidated are disclosed as “Other”. The following transactions were carried out with related parties:
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(all amounts in thousands of U.S. dollars) |
Year ended December 31, |
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2021 |
2020 |
2019 |
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(i) |
Transactions |
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(a) Sales of goods and services |
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Sales of goods to non-consolidated parties |
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Sales of goods to other related parties |
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Sales of services to non-consolidated parties |
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Sales of services to other related parties |
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(b) Purchases of goods and services |
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Purchases of goods to non-consolidated parties |
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Purchases of goods to other related parties |
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Purchases of services to non-consolidated parties |
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Purchases of services to other related parties |
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| F-73 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
30 Related party transactions (Cont.)
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(all amounts in thousands of U.S. dollars) |
At December 31, |
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2021 |
2020 |
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(ii) |
Period-end balances |
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(a) Arising from sales / purchases of goods / services |
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Receivables from non-consolidated parties |
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Receivables from other related parties |
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Payables to non-consolidated parties |
( |
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( |
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Payables to other related parties |
( |
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( |
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(b) Financial debt |
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Finance lease liabilities from non-consolidated parties |
( |
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( |
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Finance lease liabilities from other related parties |
( |
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( |
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( |
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( |
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In addition to the tables above, the Company issued various guarantees in favor of Techgen and GPC; for further details, please see note 13 (c and d) and note 26 (ii) to these Consolidated Financial Statements. No other material guarantees were issued in favor of other related parties.
Directors and senior management compensation
During the years ended December 31, 2021, 2020 and 2019, the cash compensation of Directors and Senior managers amounted to $
31 Fees paid to the Company's principal accountant
Total fees accrued for professional services rendered by PwC Network firms to Tenaris S.A. and its subsidiaries are detailed as follows:
|
(all amounts in thousands of U.S. dollars) |
Year ended December 31, |
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2021 |
2020 |
2019 |
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Audit fees |
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Audit-related fees |
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Tax fees |
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All other fees |
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Total |
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| F-77 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
32 Principal subsidiaries
The following is a list of Tenaris’s principal subsidiaries and its direct and indirect percentage of ownership of each controlled company at December 31, 2021.
|
Company |
Country of Incorporation |
Main activity |
Percentage of ownership at December 31, (*) |
||
|
2021 |
2020 |
2019 |
|||
|
ALGOMA TUBES INC. |
Canada |
Manufacturing of seamless steel pipes |
|
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CONFAB INDUSTRIAL S.A. and subsidiaries |
Brazil |
Manufacturing of welded steel pipes and capital goods |
|
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DALMINE S.p.A. |
Italy |
Manufacturing of seamless steel pipes |
|
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|
|
HYDRIL COMPANY and subsidiaries (except detailed) (a) |
USA |
Manufacture and marketing of premium connections |
|
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IPSCO TUBULARS INC. and subsidiaries |
USA |
Manufacturing of welded and seamless steel pipes |
|
|
NA |
|
MAVERICK TUBE CORPORATION and subsidiaries |
USA |
Manufacturing of welded steel pipes |
|
|
|
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NKKTUBES (b) |
Japan |
Manufacturing of seamless steel pipes |
|
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|
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P.T. SEAMLESS PIPE INDONESIA JAYA |
Indonesia |
Manufacturing of seamless steel products |
|
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S.C. SILCOTUB S.A. |
Romania |
Manufacturing of seamless steel pipes |
|
|
|
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SAUDI STEEL PIPE CO. |
Saudi Arabia |
Manufacturing of welded steel pipes |
|
|
|
|
SIAT SOCIEDAD ANONIMA |
Argentina |
Manufacturing of welded and seamless steel pipes |
|
|
|
|
SIDERCA SOCIEDAD ANONIMA INDUSTRIAL Y COMERCIAL and subsidiaries |
Argentina |
Manufacturing of seamless steel pipes |
|
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TALTA - TRADING E MARKETING SOCIEDADE UNIPESSOAL LDA. |
Portugal |
Holding Company |
|
|
|
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TENARIS BAY CITY, INC. |
USA |
Manufacturing of seamless steel pipes |
|
|
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TENARIS CONNECTIONS BV |
Netherlands |
Development, management and licensing of intellectual property |
|
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|
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TENARIS FINANCIAL SERVICES S.A. |
Uruguay |
Financial company |
|
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|
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TENARIS GLOBAL SERVICES (CANADA) INC. |
Canada |
Marketing of steel products |
|
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|
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TENARIS GLOBAL SERVICES (U.S.A.) CORPORATION |
USA |
Marketing of steel products |
|
|
|
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TENARIS GLOBAL SERVICES (UK) LTD |
United Kingdom |
Holding company and marketing of steel products |
|
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TENARIS GLOBAL SERVICES S.A. and subsidiaries (except detailed) (c) |
Uruguay |
Holding company and marketing of steel products |
|
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|
TENARIS INVESTMENTS (NL) B.V. and subsidiaries |
Netherlands |
Holding company |
|
|
|
|
TENARIS INVESTMENTS S.àr.l. |
Luxembourg |
Holding company |
|
|
|
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TENARIS TUBOCARIBE LTDA. |
Colombia |
Manufacturing of welded and seamless steel pipes |
|
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TUBOS DE ACERO DE MEXICO, S.A. |
Mexico |
Manufacturing of seamless steel pipes |
|
|
|
| (*) |
| (a) | |
| (b) | |
| (c) |
| F-75 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
33 Business combinations
Acquisition of IPSCO Tubulars, Inc.
On January 2, 2020, Tenaris acquired
The Company has begun consolidating IPSCO’s balances and results of operations as from January 2, 2020.
The allocation of the fair values determined for the assets and liabilities arising from the acquisition is as follows:
|
Fair value of acquired assets and liabilities: |
$ million |
|
|
Property, Plant and Equipment |
|
|
|
Intangible assets |
|
|
|
Working capital |
|
|
|
Cash and Cash Equivalents |
|
|
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Borrowings |
( |
) |
|
Provisions |
( |
) |
|
Other assets and liabilities, net |
( |
) |
|
Net assets acquired |
|
As a result of the acquisition, Tenaris recognized a goodwill for approximately $
34 Nationalization of Venezuelan subsidiaries
In May 2009, within the framework of Decree Law 6058, Venezuela’s President announced the nationalization of, among other companies, the Company's majority-owned subsidiaries TAVSA - Tubos de Acero de Venezuela S.A. (“Tavsa”) and, Matesi Materiales Siderúrgicos S.A (“Matesi”), and Complejo Siderúrgico de Guayana, C.A (“Comsigua”), in which the Company has a non-controlling interest (collectively, the “Venezuelan Companies”). Tenaris and its wholly-owned subsidiary, Talta - Trading e Marketing Sociedad Unipessoal Lda (“Talta”), initiated arbitration proceedings against Venezuela before the ICSID in Washington D.C. in connection with these nationalizations and obtained favorable awards, which are final and not subject to further appeals.
Matesi
On January 29, 2016, the tribunal released its award on the arbitration proceeding concerning the nationalization of Matesi. The award upheld Tenaris’s and Talta’s claim that Venezuela had expropriated their investments in Matesi in violation of Venezuelan law as well as the bilateral investment treaties entered into by Venezuela with the Belgium-Luxembourg Economic Union and Portugal. The award granted compensation in the amount of $
On June 8, 2018, Tenaris and Talta filed an action in federal court in the District of Columbia to recognize and enforce the award in the United States. On July 17, 2020, the Court entered judgment recognizing the Matesi award. The judgment orders Venezuela to pay to Tenaris and Talta an amount of $
| F-76 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
34 Nationalization of Venezuelan subsidiaries (Cont.)
Tavsa and Comsigua
On December 12, 2016, the tribunal issued its award upholding Tenaris’s and Talta’s claim that Venezuela had expropriated their investments in Tavsa and Comsigua in violation of the bilateral investment treaties entered into by Venezuela with the Belgium-Luxembourg Economic Union and Portugal. The award granted compensation in the amount of $
On June 8, 2018, Tenaris and Talta filed an action in federal court in the District of Columbia to recognize and enforce the award in the United States. On August 24, 2021, the court entered judgment in favor of Tenaris and Talta and against Venezuela in the amount of $
As of December 31, 2021, Tenaris or its subsidiaries have net receivables related to its interest in the Venezuelan Companies for a total amount of approximately $
35 Other relevant information
Agreement to build a welded pipe plant in West Siberia
In 2019, Tenaris entered into an agreement with PAO Severstal to build and operate a welded pipe plant with an annual production capacity of
In 2020, PAO Severstal and Tenaris placed the construction on-hold due to the market conditions and the pandemic.
In December 2021, the parties decided to keep the initiative on-hold and to continue assessing the situation in the relevant markets and the cost dynamics in order to determine the agreement’s next steps.
Agreement to build a steel pipe premium connection threading plant in Baotou
In 2020, Tenaris entered into a joint venture with Inner Mongolia Baotou Steel Union Co. Ltd. (“Baotou Steel”), to build a premium connection threading facility to finish steel pipes produced by our joint venture partner in Baotou, China, for sale to the domestic market. Under the agreement, Tenaris holds
The plant, which is estimated to require a total investment of $
| F-77 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
35 Other relevant information (Cont.)
Preliminary agreement to terminate NKKTubes joint venture
Tenaris’s seamless pipe manufacturing facility in Japan, located in the Keihin steel complex owned by JFE Holdings Inc. (“JFE”), is operated by NKKTubes, a company owned
On March 27, 2020, JFE informed Tenaris of its decision to permanently cease as from JFE’s fiscal year ending March 2024 the operations of its steel manufacturing facilities located at the Keihin complex. In light of that development, Tenaris and JFE engaged in discussions and ultimately determined that the project was no longer economically sustainable. Accordingly, on November 2, 2021, Tenaris and JFE agreed to terminate amicably their joint venture and liquidate NKKTubes. The preliminary agreement provides for the closure of NKKTubes’ manufacturing operations by the end of June 2022, the termination of all agreements that allowed the operation of the joint venture, and the allocation between the parties of the related dissolution and liquidation costs. Tenaris and JFE continue discussing other aspects of the dissolution of the joint venture, with a view towards reaching a definitive agreement prior to June 2022. Tenaris and JFE are also committed to ensure a continued supply of tubular material, including 13 Chrome alloy products to international customers after NKKTubes’ closure.
Management determined that the parties’ decision to terminate the NKKTubes joint venture constituted an impairment indicator and accordingly conducted an impairment test, recognizing a charge of approximately $
36 The COVID-19 pandemic, the oil & gas industry situation and their impact on Tenaris’s operations and financial condition
The rapid expansion of the COVID-19 pandemic around the world and the containment measures adopted by governmental authorities triggered a severe fall in global economic activity and precipitated a serious crisis in the energy sector. Global oil and gas demand decreased significantly in the first half of 2020 causing a collapse in prices, an acute oversupply, a rapid build-up of excess inventories, and the consequent drop of investments in drilling activity by Tenaris’s oil and gas customers. The Company took prompt action to mitigate the impact of the crisis and to adapt Tenaris’s operations on a country-by-country basis to comply with applicable rules and requirements and contain the effects of the global crisis. In response to the COVID-19 outbreak, several countries, including countries where Tenaris has operations (such as Argentina, China, Colombia, Italy, Mexico, Saudi Arabia and the United States) took mitigation and containment measures, including bans on business activities and closure of industrial facilities. The Company implemented a worldwide restructuring program and cost-containment plan aimed at preserving the financial resources and overall liquidity position and maintaining the continuity of its operations; adjusted production levels at its facilities including through the temporary closure of certain facilities or production lines and layoffs in several jurisdictions, and reduced capital expenditures and working capital. In addition, the Company introduced remote work and other flexible work arrangements and implemented special operations protocols in order to safeguard the health, safety and wellbeing of Tenaris’s employees, customers and suppliers. Although such measures have so far proved to be successful to mitigate the impact of the crisis on Tenaris, if new and more contagious variants of the virus prove to be resistant to available vaccines and new preventive measures are imposed in the future, Tenaris’s operations could be further affected and its results adversely impacted. Despite economic volatility as a result of the continuing presence and repercussions of COVID-19, as well as the uncertainty about the future duration and extent of the pandemic, market demand for oil is approaching pre-pandemic levels and that for natural gas already exceeds them. Oil and natural gas prices also exceed pre-COVID-19 levels, while oil and gas drilling activity is steadily increasing in North America and the rest of the world and OCTG inventories are at relatively low levels in North America and are at more normal levels in the rest of the world. Tenaris’s North American industrial facilities continue ramping up to meet higher demand and some facilities -temporary shut down during 2020- were reopened during 2021. In this context, even with raw material, energy and logistic cost increases, Tenaris’s margins show a significant recovery compared to 2020.
| F-78 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
36 The COVID-19 pandemic, the oil & gas industry situation and their impact on Tenaris’s operations and financial condition (Cont.)
With the purpose of assessing the Company’s exposure to the effects of the COVID-19 pandemic and its impact over its business, financial position and performance, the management has conducted impairment tests, and is closely monitoring the recoverability of long lived assets and deferred taxes, financial risk management, in particular credit and liquidity risks and the adequacy of its provisions for contingent liabilities.
The Company also renegotiated existing contractual obligations with its counterparties to adapt the commitments to the decrease in activity. As a result, Tenaris is adequately complying with all main outstanding contractual commitments and guarantees. In addition, Tenaris has not received any material government grants or public support measures for the years 2021 and 2020, and has not received, nor provided, material arrangements on the form of supply chain financing.
As of the date of these Consolidated Financial Statements, Tenaris’s capital and financial resources, and overall liquidity position, have not been affected by this scenario. Tenaris has in place non-committed credit facilities and management believes it has adequate access to credit markets. In addition, Tenaris has a net cash position of approximately $
Considering Tenaris’s financial position and the funds provided by operating activities, management believes that the Company has sufficient resources to satisfy its current working capital needs, service its debt and address short-term changes in business conditions.
Management does not expect to disclose or incur in any material COVID-19-related contingency, and it considers its allowance for doubtful accounts sufficient to cover risks that could arise from credits with customers in accordance with IFRS 9.
37 Subsequent events
Investment to build a wind farm in Argentina
On February 16, 2022, the Board of Directors has approved an investment plan to build a wind farm in Argentina at a cost of approximately $
Annual Dividend Proposal
Upon approval of the Company´s annual accounts in March 2022, the Board of Directors intends to propose, for the approval of the Annual General Shareholders' meeting to be held on May 3, 2022, the payment of an annual dividend of $
38 Update as of March 30, 20222
The Russia-Ukraine armed conflict and its impact on Tenaris’s operations and financial condition
On February 24, 2022, Russia launched a military attack on Ukraine. In response, the United States, the European Union and the United Kingdom have imposed a wave of sanctions against certain Russian institutions, companies and citizens. The Russian Government has retaliated by banning airlines from its airspace and has ordered economic counter measures, including restrictions on residents transferring foreign currency abroad.
| 1 Net cash / debt is calculated in the following manner: |
|
| Net cash= Cash and cash equivalents + Other investments (Current and Non-Current) + / - Derivatives hedging borrowings and investments– Borrowings (Current and Non-Current). | |
| 2 This note was added subsequently to the approval of these Consolidated Financial Statements by the Company’s Board of Directors on February 16, 2022. | |
| F-79 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2021, 2020 and 2019
38 Update as of March 30, 2022 (Cont.)
The Russia-Ukraine armed conflict and its impact on Tenaris’s operations and financial condition (Cont.)
Russia is a major supplier of oil and gas in Europe and worldwide, and Russia and Ukraine are both major global suppliers of internationally traded steelmaking raw materials and semi-finished steel products. For example, prior to the conflict, Russia was producing between
As a result of the armed conflict and related sanctions, oil and gas prices have spiked upwards and foreign trade transactions involving Russian and Ukrainian counterparties have been severely affected. For example, oil prices rose around $
Our purchases of raw materials from Russia and Ukraine, used in our production process, mainly ferroalloys for our global operations and pig iron for our European operations, amounted to approximately $
Our sales to Russian customers represented approximately
In light of the armed conflict involving Russia and Ukraine and the designation of Severstal’s controlling shareholder as person subject to EU and UK sanctions, we are currently assessing the amount to be written off from our investment in the joint venture in Russia, which as of December 31, 2021 amounted to $
Discontinuity of industrial equipment manufacturing in Brazil
On March 21, 2022, the Company announced its decision to reorganize the activities at its Confab Equipamentos industrial facility in Moreira César, Pindamonhangaba, São Paulo, Brazil. The Company’s Brazilian subsidiaries will discontinue the manufacturing of industrial equipment and will focus their activities entirely on the production of welded products, sucker rods, coatings and accessories. The Company estimates that this decision will not have a material effect on its financial condition and results of operations.
| /s/ Alicia Móndolo | |
| Alicia Móndolo | |
| Chief Financial Officer |
| F-80 |
EXHIBIT INDEX
| * | The Amended and Restated Deposit Agreement is incorporated by reference to the Registration Statement on Form F-6 filed by Tenaris S.A. on February 25, 2013 (File No. 333-186825). |
SIGNATURES
The registrant hereby certifies that it meets all the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
|
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|
|
March 31, 2022 |
|
TENARIS S.A. |
|
|
|
|
|
|
|
|
|
By |
/s/ Alicia Móndolo
|
|
Name: |
Alicia Móndolo |
||
|
|
|
Title: |
Chief Financial Officer |