Tenaris SA Annual Report 2018

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FY2018 Annual Report · Tenaris SA

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Annual Report
2018

Certain defined terms

INDUSTRY DATA

Unless otherwise specified or if the context so requires:

Unless otherwise indicated, industry data and statistics (including historical

information, estimates or forecasts) in this annual report are contained in or

•

References in this annual report to “the Company” are exclusively to

derived from internal or industry sources believed by Tenaris to be reliable.

Tenaris S.A., a Luxembourg société anonyme.

Industry data and statistics are inherently predictive and are not necessarily

•

References in this annual report to “Tenaris”, “we”, “us” or “our” are

reflective of actual industry conditions. Such statistics are based on market

to Tenaris S.A. and its consolidated subsidiaries. See “II. Accounting

research, which itself is based on sampling and subjective judgments by

Policies A. Basis of presentation” and “II. Accounting Policies B. Group

both the researchers and the respondents, including judgments about

accounting” to our audited consolidated financial statements included

what types of products and transactions should be included in the relevant

in this annual report.

market. In addition, the value of comparisons of statistics for different

•

References in this annual report to “San Faustin”are to San Faustin S.A., a

markets is limited by many factors, including that (i) the markets are

•

Luxembourg société anonyme and the Company’s controlling shareholder.

defined differently, (ii) the underlying information was gathered by different

“shares” refers to ordinary shares, par value $1.00, of the Company.

methods and (iii) different assumptions were applied in compiling the data.

“ADSs” refers to the American Depositary Shares, which are evidenced

Such data and statistics have not been independently verified, and the

by American Depositary Receipts, and represent two shares each.

Company makes no representation as to the accuracy or completeness of

•

“OCTG” refers to oil country tubular goods. See “Information on

such data or any assumptions relied upon therein.

Tenaris – Business Overview – Our Products”.

•

“tons” refers to metric tons; one metric ton is equal to 1,000

Cautionary statement concerning forward-looking statements

•

kilograms, 2,204.62 pounds, or 1.102 U.S. (short) tons.

“billion” refers to one thousand million, or 1,000,000,000.

This annual report and any other oral or written statements made by

“U.S. dollars”, “US$”, “USD” or “$” each refers to the United States dollar.

us to the public may contain “forward-looking statements” under

“EUR” refers to the Euro.

“SAR” refers to the Saudi Arabian riyal.

“BRL” refers to the Brazilian real.

“MXN” refers to the Mexican peso.

“ARS” refers to the Argentine peso.

applicable securities laws. Forward-looking statements are based on

management’s current views and assumptions and are provided to allow

potential investors the opportunity to understand management’s beliefs

and opinions in respect of the future so that they may use such beliefs

and opinions as one factor in evaluating an investment. Forward-looking

statements involve known and unknown risks that could cause actual

results, performance or events to differ materially from those expressed

Presentation of certain financial and other information

or implied by those statements.

ACCOUNTING PRINCIPLES

We use words and terms such as “aim”, “will likely result”, “will

We prepare our consolidated financial statements in accordance with

continue”, “contemplate”, “seek to”, “future”, “objective”, “goal”,

International Financial Reporting Standards (“IFRS”), as issued by the

“should”, “will pursue”, “anticipate”, “estimate”, “expect”, “project”,

International Accounting Standards Board (“IASB”), and in accordance

“intend”, “plan”, “believe” and words and terms of similar substance

with IFRS, as adopted by the European Union. Additionally, this annual

to identify forward-looking statements, but they are not the only way we

report includes non-IFRS alternative performance measures such as

identify such statements. This annual report contains forward-looking

EBITDA, Net cash/debt position and Free Cash Flow. See Exhibit 1 for

statements, including with respect to certain of our plans and current

more details on these alternative performance measures.

goals and expectations relating to Tenaris’s future financial condition and

Following the sale in January 2017 of our steel electric conduit business

performance. Sections of this annual report that by their nature contain

in North America, known as Republic Conduit, the results of Republic

forward-looking statements include, but are not limited to, “Business

Conduit are presented as discontinued operations in accordance

Overview”, “Principal Risks and Uncertainties”, and “Operating and

with IFRS 5, “Non-current Assets Held for Sale and Discontinued

Financial Review and Prospects”. In addition to the risks related to our

Operations”. Consequently, all amounts related to discontinued

business discussed under “Principal Risks and Uncertainties”, other factors

operations within each line item of the consolidated income statement

could cause actual results to differ materially from those described in the

are reclassified into discontinued operations. The consolidated statement

forward-looking statements. These factors include, but are not limited to:

of cash flows includes the cash flows for continuing and discontinued

operations; cash flows and earnings per share from discontinued

•

our ability to implement our business strategy or to grow through

operations are disclosed separately in note 27 “Discontinued

acquisitions, joint ventures and other investments;

Operations” to our audited consolidated financial statements included in

this annual report, as well as additional information detailing net assets

•

the competitive environment in our business and our industry;

our ability to price our products and services in accordance with our

of disposal group classified as held for sale and discontinued operations.

strategy;

We publish consolidated financial statements presented in increments

•

our ability to absorb cost increases and to secure supplies of essential

of a thousand U.S. dollars. This annual report includes our audited

raw materials and energy;

consolidated financial statements for the years ended December 31,

•

our ability to adjust fixed and semi-fixed costs to fluctuations in

2018, 2017 and 2016.

product demand;

•

trends in the levels of investment in oil and gas exploration and drilling

ROUNDING

worldwide;

Certain monetary amounts, percentages and other figures included

•

general macroeconomic and political conditions in the countries in

in this annual report have been subject to rounding adjustments.

Accordingly, figures shown as totals in certain tables may not be the

which we operate or distribute pipes; and
changes to applicable law and regulations, including the imposition of

•

arithmetic aggregation of the figures that precede them, and figures

tariffs or quotas or other trade barriers.

expressed as percentages in the text may not total 100% or, as

applicable, when aggregated may not be the arithmetic aggregation of

By their nature, certain disclosures relating to these and other risks

the percentages that precede them.

are only estimates and could be materially different from what actually

occurs in the future. As a result, actual future gains or losses that may

OUR INTERNET WEBSITE IS NOT PART OF THIS ANNUAL REPORT

affect our financial condition and results of operations could differ

We maintain an Internet website at www.tenaris.com. Information

materially from those that have been estimated. You should not place

contained in or otherwise accessible through our Internet website

undue reliance on the forward-looking statements, which speak only

is not part of this annual report. All references in this annual report

as of the date of this annual report. Except as required by law, we

to this Internet site are inactive textual references to these URLs, or

are not under any obligation, and expressly disclaim any obligation to

“uniform resource locators” and are for informational reference only.

update or alter any forward-looking statements, whether as a result of

We assume no responsibility for the information contained on our

changes of circumstances or management’s estimates or opinions, new

Internet website.

information, future events or otherwise.

Index

05.

Leading indicators

06.

Letter from the Chairman

08.

Company profile

09.

Consolidated Management Report

09.

Information on Tenaris

24.

26.

38.

61.

69.

74.

76.

99.

102.

104.

105.

Tenaris in numbers

Principal Risks and Uncertainties

Operating and Financial Review and Prospects

Quantitative and Qualitative Disclosure

about Market Risk

Outstanding Legal Proceedings

Recent Developments

Corporate Governance Statement

Related Party Transactions

Dividends

Employees

Diversity

Non-financial Information

107.

Management certification

109.

Financial information

109.

219.

Consolidated Financial Statements

Annual Accounts (Luxembourg GAAP)

235.

Exhibit I – Alternative performance measures

237.

Investor information

Annual Report4.

TenarisLeading indicators

TUBES SALES VOLUMES (thousands of tons)

Seamless

Welded

Total

TUBES PRODUCTION VOLUMES (thousands of tons)

Seamless

Welded

Total

FINANCIAL INDICATORS (millions of $)

Net sales

Operating income (loss)

EBITDA (1)

Net income

Cash flow from operations

Capital expenditures

BALANCE SHEET (millions of $)

Total assets

Total borrowings

Net cash position (2)

Total liabilities

Shareholders’ equity including non-controlling interests

PER SHARE / ADS DATA ($ per share / per ADS) (3)

Number of shares outstanding (4) (thousands of shares)

Earnings per share

Earnings per ADS

Dividends per share (5)

Dividends per ADS (5)

ADS Stock price at year-end

Number of employees (4)

2018

2017

2016

2,694

877

3,571

2,798

799

3,597

7,659

872

1,536

874

611

349

2,157

461

2,618

2,347

544

2,890

5,289

335

943

536

(22)

558

1,635

355

1,990

1,735

305

2,040

4,294

(59)

598

864

787

14,251

14,398

14,003

539

485

2,376

11,875

966

647

2,817

11,581

840

1,406

2,590

11,413

1,180,537

0.74

1.48

0.41

0.82

0.46

0.92

0.41

0.82

0.05

0.09

0.41

0.82

21.32

31.86

35.71

23,472

21,605

19,399

1. Defined as operating income plus depreciation, amortization and impairment charges/(reversals).

3. Each ADS represents two shares.

See Exhibit I.
EBITDA includes severance charges of $74 million in 2016. If these charges were not included,
EBITDA would have been $672 million in 2016.

4. As of December 31.

5. Proposed or paid in respect of the year.

2. Defined as Cash and cash equivalents + Other investments (Current and Non-Current) +/- Derivatives

hedging borrowings and investments–Borrowings (Current and Non-Current). See Exhibit I.

Annual Report

Letter from the Chairman

Dear Shareholders,

2018 has been a year when Tenaris has demonstrated with its results the strength of its global and
competitive positioning. In a market, where the increase in global oil and gas rig count has been a
relatively modest 9%, largely concentrated in the U.S. shales, Tenaris has increased sales by 45% over the
year. All our regions, as well as our non-tubular businesses, have contributed to this achievement. Our
margins have also increased with our EBITDA margin consolidating around 20%, and our net income
margin rising to 11% of sales.

Our financial position is solid with a net cash position at year end of $485 million and our Board of
Directors is proposing to maintain our annual dividend payment at the same level as last year.

This performance compares favorably against any of our competitors and, in the past years, we have
established a clear leadership in our sector, reflecting the efforts we have made over many years: in
industrial excellence, product development, in our Rig Direct® service and in our global reach and
financial strength.

Central to our performance this year has been the extraordinary achievement of completing the delivery
of pipes with highly complex specifications for three offshore gas pipelines in the Eastern Mediterranean,
which will change the balance of gas supply and demand in the region.

During the year, around 60% of our OCTG sales by volume was supplied under Rig Direct® conditions.
We have fully consolidated the service in the U.S. and Canadian markets and are working to increase
differentiation through improving service quality and extending integration with customer operations.
Elsewhere, we have successfully introduced the service in Indonesia, United Arab Emirates, Guyana and
Brazil. No other company in our sector is capable of deploying on a global scale such a strategy of deep
integration with customers, with its benefits for reducing costs and simplifying operations.

We also positioned ourselves favorably for major gas development projects around the world. In
Argentina, Tenaris supported the rapid development of gas production in the Vaca Muerta shale, while we
also won awards for the supply to major gas developments in Australia, Qatar, Indonesia, Mozambique
and, most recently, India.

In a year when Section 232 tariffs and quotas were introduced in the United States, we expanded our
production in all of our plants in the country. In particular, we have been focusing on the ramp up of our new
greenfield mill at Bay City and, in 2019, we will continue working to bring the mill to its full potential.

During the years, we have been researching the application of digital, automation and machine learning
technologies in our industrial processes and we incorporated many of these new developments into our
Bay City mill. Now, we are beginning to introduce these new technologies and transform the rest of our
industrial system. This work will be strengthened in the years ahead.

Sustainability principles are deeply embedded in our values and management processes, as we position
Tenaris to grow and prosper over the long-term. First and foremost is an absolute commitment to the

Tenaris7.

safety of our employees, contractors and users of our products and services. While we are encouraged
to be making progress on improving our safety indicators, we realize that further cultural change is
still needed to achieve our safety objectives. We have decided to change the role of shift leaders in our
industrial system to give them more responsibility to lead the change.

The ramp up in production at our modern Bay City mill is having an impact on our environment
indicators, which are showing a gradual improvement. At the same time, we are investing in our older
facilities to improve air quality and material recycling performance indicators. Over 10% of our capital
expenditure budget during 2018 was dedicated to projects whose primary aim is to improve our safety and
environmental performance.

We continue to work on transforming our human relations processes to strengthen the role and
opportunity for employees to control their own development and career choices and encourage flexible
working programs. We are pleased to note that, in our internal surveys, employee engagement has been
improving. We are now extending the use of these surveys to our factory-floor employees, which is
providing us additional insight into opportunities for improving working conditions.

The cornerstone of our programs to strengthen the communities where we operate is our investment in
technical education and providing opportunities for promising young students from all backgrounds. As
our Roberto Rocca Technical School in Campana completed its fifth anniversary, PISA and College Board
tests show that its pupils are performing appreciably better in mathematics and language than their peers
within Argentina and the OECD average.

Over the past decade, we have focused our expansion strategy on organic growth with the construction
of new rolling mills at Tamsa and Bay City and the expansion of heat treatment, threading and service
facilities around the world. Now, with the acquisition of a welded pipe mill in Saudi Arabia, the launch of
the Tenaris Severstal joint venture project in Russia and our prospective acquisition of IPSCO Tubulars in
the U.S., we are starting a new phase of industrial expansion in key markets for the oil and gas industry.

We have completed an important year of expansion in sales and results but if I should look ahead let me
stress that we are faced with high levels of uncertainty in the political and economic environment of many
of the countries where we operate. I feel, however, that Tenaris, with its global positioning, its diverse and
highly motivated team of professionals and its financial flexibility remains better placed than any of its
competitors to take advantage of new opportunities and respond to the different scenarios that could unfold.

I would like to thank our employees for their efforts and achievements over the past year. I would also like to
thank our customers, suppliers and shareholders for their continuing support and confidence in our company.

April 1, 2019

/s/ Paolo Rocca

Paolo Rocca

Annual ReportCompany profile

s
i
r
a
n
e
T

Tenaris is a leading supplier of tubes and related services for the world’s energy industry and certain other
industrial applications. Our mission is to deliver value to our customers through product development,
manufacturing excellence and supply chain management. We seek to minimize risk for our customers and
help them reduce costs, increase flexibility and improve time-to-market. Our employees around the world
are committed to continuous improvement by sharing knowledge across a single global organization.

Hammerfest

Tananger

Stavanger

Aberdeen

Esbjerg

Copenhagen

Moscow

Amsterdam
Luxembourg
Essen
Lugano

Dalmine

Silcotub

Bienfait

AlgomaTubes

St. John’s

Paris

Grande Prairie

Nisku

Calgary

Edmonton

Red Deer

Prudential

Denver

Bakersfield

Hickman

Oklahoma City

Conroe

Midland

Houston

Bay City

Monterrey

Poza Rica

Guadalajara

Reynosa
Tamsa

Freeport

Mexico City

Villahermosa

Toronto

Pittsburgh

West Virginia

Westwego

Ciudad del Carmen

Dos Bocas

Comalcalco

Maracaibo

TuboCaribe
Barrancabermeja
Bogotá

Caracas

Barcelona
Villavicencio

Quito

Machachi

Shushufindi

Lima

Sta. Cruz de la Sierra

Algiers

Lagos

Onne

Accra

Takoradi

Natal

Luanda

Confab

Rio das Ostras

Rio de Janeiro

Mendoza

Santiago

Siderca

Villa Mercedes

Montevideo

Siat

Senillosa

Neuquén

Comodoro Rivadavia

Río Gallegos

Punta Arenas

Aksai

Campina
Ploiesti

Bucharest

Aktau

Baku

Alexandria
Cairo

Erbil

Basra

Dammam

Saudi Steel Pipe

Bahrain

Dubai

Abu Dhabi

Beijing

Yulin

Qingdao

Seoul

NKKTubes

Bangkok

Songkhla

Ho Chi Minh

Singapore

Batam

SPIJ

Jakarta

Sorong

Darwin

Dampier

Perth

Manufacturing Centers

Service Centers

R&D Centers

Commercial/Administrative Offices

t
r
o
p
e
R

a
u
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n
A

Information
on Tenaris

The Company
Our holding company’s legal and commercial
name is Tenaris S.A. The Company was established
as a société anonyme organized under the laws of
the Grand Duchy of Luxembourg on December 17,
2001. The Company’s registered office is located
at 29 Avenue de la Porte-Neuve, 3rd Floor, L-2227,
Luxembourg, telephone (352) 2647-8978.

The Company holds, either directly or indirectly,
controlling interests in various subsidiaries in the
steel pipe manufacturing and distribution businesses
and other related businesses. For information on
the Company’s subsidiaries, see note 29 “Principal
subsidiaries” to our audited consolidated financial
statements included in this annual report.

Our shares are traded on the Buenos Aires
Stock Exchange, the Italian Stock Exchange and
the Mexican Stock Exchange; the Company’s
American Depositary Shares (“ADS”) trade on the
New York Stock Exchange (“NYSE”).

Overview
We are a leading global manufacturer and supplier
of steel pipe products and related services for the
world’s energy industry and for other industrial
applications. Our customers include most of the
world’s leading oil and gas companies as well as
engineering companies engaged in constructing oil
and gas gathering, transportation, processing and
power generation facilities. Our principal products
include casing, tubing, line pipe, and mechanical
and structural pipes.

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 mission is to deliver value to our customers
through product development, manufacturing
excellence, and supply chain management. We seek
to minimize risk for our customers and help them
reduce costs, increase flexibility and improve time-
to-market. Our employees around the world are
committed to continuous improvement by sharing
knowledge across a single global organization.

History and Development of 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 or strategic
interests in:

•

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;
NKKTubes K.K. (“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;

10.

•

•
•

Maverick Tube Corporation (“Maverick”), a U.S.
producer of welded steel pipe products;
Prudential Steel Ltd. (“Prudential”), a welded pipe
mill producing OCTG, and line pipe products in
Canada;
Tenaris Tubocaribe Ltda. (“Tubocaribe”), a welded
mill producing OCTG products including finishing
of welded and seamless pipes, line pipe products
and a couplings facility in Colombia;
Hydril Company (“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;
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;
Techgen S.A. de C.V. (“Techgen”), an electric
power plant in Mexico;
sucker rod businesses, in various countries; and
Tenaris Bay City Inc. (“Tenaris Bay City”), a
state-of-the-art seamless pipe mill in Bay City, Texas.

•

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 research and
development centers.

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 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;
enhancing our Rig Direct® offer of technical and pipe
management services designed to enable customers to
optimize their selection and use of our products and
reduce their overall operating costs; and
securing an adequate supply of production inputs
and reducing the manufacturing costs of our core
products.

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.
Our track record on companies’ acquisitions is
described above (see “History and Development of
Tenaris”). In addition:

On January 21, 2019 we acquired 47.79% of the
shares of Saudi Steel Pipe Company (“SSP”), a
welded steel pipes producer located in the Eastern
Province of the Kingdom of Saudi Arabia that has
a manufacturing capacity of 360,000 tons per year.
The investment amounted to $141 million. Through
this acquisition, we have significantly expanded our
industrial presence in the Kingdom of Saudi Arabia

Tenaris11.

•

and the range of products we supply to the Saudi
Arabian Oil Company (“Saudi Aramco”).
On February 5, 2019 we entered into an agreement
with Public Joint Stock Company “Severstal”
(“PAO Severstal”) to build during the coming
two years, a welded pipe plant to produce OCTG
products in the Surgut area, West Siberia, Russian
Federation. The estimated annual production
capacity of the plant will be 300,000 tons, with
an estimated cost of approximately $240 million,
in which we will hold a 49% interest. Through
this agreement, togheter with PAO Severstal
we aim to serve the growing market for welded
OCTG pipe products in Russia and neighboring
countries, combining our know-how in OCTG
pipe manufacturing and sales with PAO Severstal’s
expertise in producing high quality steel products.
On March 22, 2019, we entered into a definitive
agreement to acquire 100% of the shares of
IPSCO Tubulars, Inc. (“IPSCO”), a wholly-owned
subsidiary of PAO TMK (“TMK”) and a U.S.
producer of seamless and welded OCTG and line
pipe products, for $1,209 million.The transaction
is subject to regulatory approvals, including
approval by the U.S. antitrust authorities, and
other customary conditions. IPSCO has an annual
production capacity of 450,000 metric tons of
steel bars, 400,000 metric tons of seamless pipes
and 1,000,000 metric tons of welded pipes, and
production facilities spread throughout the country.

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
research and testing 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
for complex offshore and unconventional operations.

Enhancing our offer of technical and pipe
management services - Rig Direct® - and

extending their global deployment
We continue to enhance our offer of technical and
pipe management services, Rig Direct® services, and
extend their deployment worldwide. For many years,
we have provided these services, providing technical
advice and assistance on the selection of materials
and their use in the field, managing customer
inventories and directly supplying pipes to their
rigs on a just-in-time basis 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 deployment of our Rig Direct®
services was extended throughout North America
and in other markets around the world (e.g. North
Sea, Romania and Thailand). Through the provision
of Rig Direct® services, we seek to enable our
customers, to optimize their operations, reduce costs
and to concentrate on their core businesses, providing
an integrated product and service value proposition,
increasing supply chain efficiency. They are also
intended to differentiate us from our competitors
and further strengthen our relationships with our
customers worldwide through long-term agreements.

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 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
whose ownership we share with Ternium. Exiros
offers us integral procurement solutions, supplier
sourcing activities; category organized purchasing;
suppliers’ performance administration; and inventory
management. Moreover, in February 2014, we entered

Annual Report12.

into an agreement with our affiliates Ternium and
Tecpetrol International S.A. (“Tecpetrol”) (a wholly-
owned subsidiary of San Faustin, the controlling
shareholder of both Tenaris and Ternium) to build
a natural gas-fired combined cycle electric power
plant in Mexico for the supply of Tenaris’s and
Ternium’s respective Mexican industrial facilities.
For more information on the power plant, see
note 11 c) “Investments in non-consolidated
companies – Techgen S.A. de C.V.” to our audited
consolidated financial statements included in
this annual report. For more information on the
Company’s commitments under the power plant,
see Quantitative and Qualitative Disclosure about
Market Risk - Off-Balance Sheet Arrangements”.

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.

•

•
•

•

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 oil and
gas industry, particularly 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 made through local subsidiaries.
Corporate general and administrative expenses
have been allocated to the Tubes segment.

The “Others” segment include 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, 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.

Tenaris13.

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.

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.

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.

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 and industrial equipment of
various specifications and diverse applications,
including liquid and gas storage equipment. In
addition, 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:

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.

•
•

•

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;

Annual Report14.

•

increasing specialization of each of our facilities in
specific product ranges; and
extensive use of information technology 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 from
January 2019 in Saudi Arabia. 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
also have pipe threading facilities for steel pipes

Thousands of tons

manufactured in accordance with the specifications
of the American Petroleum Institute (“API”), and
premium joints in the United States, Canada,
China, Denmark, Ecuador, Kazakhstan, Indonesia,
Nigeria, the United Kingdom and Saudi Arabia.

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. The figures for effective annual
capacity are based on our estimates of effective
annual production capacity under present conditions.

Capacity of seamless tubes in 2018 increased
in respect to 2017 due to the completion of Tenaris
Bay City, our state-of-the-art pipe mill in Bay
City, Texas.

AT OR FOR THE YEAR ENDED DECEMBER 31

2018

2017

2016

STEEL BARS

Effective Capacity (annual) (1)

Actual Production

TUBES – SEAMLESS

Effective Capacity (annual) (1)

Actual Production

TUBES – WELDED

Effective Capacity (annual) (1)

Actual Production

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.

3,935

3,167

3,835

2,793

3,835

2,010

4,300

2,798

3,680

2,347

2,620

799

2,620

544

3,680

1,735

2,620

305

Tenaris

15.

Competition
The global market for steel pipe products is highly
competitive. Seamless steel pipe products, which
are used extensively in the oil and gas industry
particularly for offshore, high pressure, high stress
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 has become acute,

and now extends beyond commodity grades. The
competitive environment has, as a result, become
more intense, and we expect that this will continue
for some time. Effective competitive differentiation
will be a key factor 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 & Sumitomo
Metal Corporation (“NSSMC”). Prior to the
collapse in oil prices in 2014 to 2016, Vallourec
increased its production capacity by building a
new mill in Brazil jointly with NSSMC, which
is aimed primarily at export markets and was
commissioned in 2011, and a second seamless pipe
rolling mill at its existing facility in Youngstown,
Ohio, which began commercial production at the
end of 2012. In addition to the construction of
the new Youngstown mill, Vallourec reinforced
its positioning in the United States through the
acquisition of three tubular businesses from Grant
Prideco Inc.: Atlas Bradford® Premium Threading
& Services, TCA® and Tube-Alloy. Vallourec
also strengthened its position in the Middle East
through the acquisition of heat treatment and
threading facilities in Saudi Arabia in 2011 and, in
2010, it concluded an agreement with a Chinese
seamless steel producer, Tianda Oil Pipe Company
(“Tianda”), under which it began to distribute

Annual Report16.

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 NSSMC, 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 NSSMC, acquired
a majority position in Tianda and bought out the
remaining minority interest, and strengthened its
cooperation with NSSMC for the development
and testing of premium connection products and
technology. Despite this restructuring program,
Vallourec’s losses have continued through 2018.
Japanese players NSSMC and JFE Holdings Inc.
(“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, NSSMC has increased its capacity to serve
international markets through the construction
with Vallourec of a new seamless pipe mill in
Brazil, and has further strengthened its ties with
Vallourec through participating in Vallourec’s
capital increase and combining their respective
Brazilian operations.
In recent years, PAO TMK (“TMK”), a Russian
company, has led 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 where it acquired a
significant position in the U.S. market through its
acquisition of IPSCO Tubulars Inc.’s (“IPSCO”)

•

tubular operations comprising both seamless
and welded pipe mills and the Ultra family of
connections. In 2012, TMK opened a research
and development center in Houston and has
been expanding its capacity to produce premium
connection products. 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,
TMK adopted a strategy of monetizing its
international assets by reducing its participation in
Gulf International Pipe and agreeing to sell its U.S.
IPSCO Tubulars subsidiary to Tenaris.
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. The largest
Chinese producer of seamless steel pipes, Tianjin
Pipe (Group) Corporation Limited (“TPCO”),
announced a plan in 2009 to build a new seamless
pipe facility in the United States; heat treatment
and pipe finishing facilities have been constructed
and steelmaking and hot rolling facilities are
currently under construction in Corpus Christi,
Texas. Although producers from China compete
primarily in the “commodity” sector of the
market, some of these producers, including TPCO,
have been upgrading their facilities and processes
with the intention of entering into the market for
more specialized products.
The tubes and pipes business in the United States
and Canada experienced a significant consolidation
process several years ago. Following the acquisitions

•

Tenaris17.

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 which has both seamless
and welded mills in the United States and Canada.
Evraz retained IPSCO’s operations in Canada while
TMK acquired IPSCO’s operations in the United
States, as mentioned above. More recently, however,
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 OCT Pipe, LLC, a company
building a seamless pipe mill with heat treatment
and OCTG threading facilities in Norfolk,
Nebraska. North American pipe producers are
largely focused on supplying the U.S. and Canadian
markets, where they have their production facilities.
In March 2019, TMK announced that it had
agreed to sell its U.S. IPSCO subsidiary to Tenaris,
a transaction which remains subject to anti-trust
clearance from the U.S. authorities and other
customary closing conditions.
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 relevant market
position, despite the application of anti-dumping
duties for unfair trading practices.
Tubos Reunidos S.A. (“Tubos Reunidos”) of
Spain, Benteler International A.G. of Germany
and Voest Alpine A.G. of Austria each have a

•

significant presence in the European market for
seamless steel pipes for industrial applications,
while the latter 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.
In the Middle East, particularly in Saudi Arabia,
which has implemented policies to encourage local
production for its oil and gas industry, a number
of pipe mills have been 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 the seamless
pipe mill built by ArcelorMittal. 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 SSP, a local
welded pipe producer.

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.

Annual Report18.

Capital Expenditure Program
During 2018, our capital expenditures, including
investments at our plants and investments in
information systems, amounted to $349 million,
compared to $558 million in 2017 and $787 million in
2016. Of these capital expenditures, investment at our
plants amounted to $318 million in 2018, compared
to $525 million in 2017 and $757 million in 2016.

cybersecurity for the protection of our information
technology and our industrial systems. These
investments are intended to promote the further
integration of our operating facilities and enhance
our ability to provide value-added services to
customers worldwide. Investments in information
systems totaled $32 million in 2018, compared to
$28 million in 2017 and $29 million in 2016.

In 2018, we have fully consolidated the Rig
Direct® service in the United States and Canadian
markets and are working to increase differentiation
through improving service quality and extending
integration with customer operations. In
addition, we focused on enhancing automation
at our industrial process, product differentiation
and competitiveness, increasing local finishing
capabilities, as well as enhancing safety and
minimizing environmental impact of our plants.

The major highlights of our capital spending
program during 2018 included: investments in
automation at our industrial system worldwide,
increase in the capacity of automotive components,
investments at the steel shop and laboratory in
Mexico, completion of the expansion of heat
treatment capacity at our mill in Italy, completion
of construction and start-up investments at Bay
City, USA, and installation of a new waste water
treatment plant in our mill in Campana, Argentina.

Capital expenditures in 2019 are expected to
remain in line with the level of 2018, including
the completion of some of the projects started in
2018 and maintenance interventions mainly at our
facilities in Argentina, Mexico and Romania.

Research and Development
Research and development, or 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 main office at Amsterdam
in the Netherlands and specialized research and
testing facilities located at Campana in Argentina,
at Veracruz in Mexico, at Dalmine in Italy, and at
the product testing facilities of NKKTubes in Japan.
Additionally we have a Wedge Technology Center in
Houston, Texas, USA. 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 are
focused on the increasingly challenging energy
markets and include:

In addition to capital expenditures at our plants,
we have invested in information systems for the
integration of our production, commercial and
managerial activities, together with investments in

•

proprietary premium joint products including
Dopeless® technology;
heavy-wall deepwater line pipe, risers and welding
technology;
proprietary steels;

Tenaris19.

•

•
•
•
•
•

tubes and components for the car industry and
mechanical applications;
tubes for boilers;
welded pipes for oil and gas and other applications;
sucker rods;
coiled tubing; and
coatings.

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 modeling of rolling and
finishing process 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 the
use of patents, trade secrets, trademarks and
other intellectual property tools that allow us to
differentiate ourselves from our competitors.

We spent $63 million in R&D in 2018, compared
to $64 million in 2017 and $69 million in 2016.

Environmental Regulation
We are subject to a wide range of local, provincial
and national laws, 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. International environmental requirements
vary from one jurisdiction to another.

The ultimate impact of complying with existing
laws and regulations is not always clearly known
or determinable since regulations under some of
these laws are not yet effective 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 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.

Compliance with applicable environmental laws
and regulations is a significant factor in our
business. We have not been subject to any material
penalty for any material environmental violation
in the last five years, and we are not aware of
any current material legal or administrative
proceedings pending against us with respect
to environmental 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. 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.

Annual Report20.

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,
2018, 2017 and 2016.

Company

Country of
Incorporation

Main activity

Percentage of ownership
at December 31 (*)

Algoma Tubes Inc.

Confab Industrial S.A. and subsidiaries

Canada

Brazil

Manufacturing of seamless steel pipes

Manufacturing of welded steel pipes

Kazakhstan Pipe Threaders Limited Liability Partnership

Kazakhstan

Threading of premium products

Hydril Company and subsidiaries (except detailed) (a)

USA

Manufacture and marketing of

and capital goods

Dalmine S.p.A.

Maverick Tube Corporation and subsidiaries

S.C. Silcotub S.A.

NKKTubes

Siat Sociedad Anónima

Prudential Steel Ltd.

Siderca Siderca Sociedad Anónima Industrial

y Comercial and subsidiaries

Italy

USA

Romania

Japan

Argentina

Canada

Argentina

premium connections

Manufacturing of seamless steel pipes

Manufacturing of welded steel pipes

Manufacturing of seamless steel pipes

Manufacturing of welded and seamless

steel pipes

Manufacturing of welded steel pipes

Manufacturing of seamless steel pipes

2018

2017

2016

100%

51%

100%

51%

100%

51%

100%

P.T. Seamless Pipe Indonesia Jaya

Indonesia

Manufacturing of seamless steel products

89%

77%

(*) All percentages rounded.

(a) Tenaris Investments S.a.r.l. holds 100% of Hydril's subsidiaries shares except for Technical

Drilling & Production Services Nigeria. Ltd where it holds 80%.

Tenaris

Company

Country of
Incorporation

Main activity

Percentage of ownership
at December 31 (*)

21.

Tubos de Acero de Mexico S.A.

Tenaris Global Services (U.S.A.) Corporation

Tenaris Bay City, Inc.

Mexico

USA

Manufacturing of seamless steel pipes

Marketing of steel products

Manufacturing of seamless steel pipes

Tenaris Global Services (UK) Ltd

United Kingdom

Holding company and marketing of

Tenaris Investments Switzerland AG and subsidiaries

Switzerland

Holding company

steel products

Tenaris Financial Services S.A.

Tenaris Global Services (Canada) Inc.

Tenaris Investments S.àr.l.

Tenaris Connections BV

Uruguay

Canada

Financial company

Marketing of steel products

Luxembourg

Holding company

Netherlands

Development, management and

licensing of intellectual property

2018

2017

2016

100%

Tenaris Global Services S.A. and subsidiaries

Uruguay

Holding company and marketing of

100%

(except detailed) (b)

steel products

Talta - Trading e Marketing Sociedade Unipessoal Lda.

Portugal

Holding Company

100%

(*) All percentages rounded.

(b) Tenaris holds 97,5% of Tenaris Supply Chain S.A, 60% of Gepnaris S.A. and 40% of Tubular
Technical Services and Pipe Coaters, and 49% of Amaja Tubular Services Limited and Tubular
Services Angola Ltd.

Annual Report

22.

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, 2018, 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.à.r.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 only to be removed
pursuant to previous written instructions by 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.

Usiminas
On January 16, 2012, Confab, acquired 5.0%
of the shares with voting rights and 2.5% of the
total share capital in Usiminas, a leading Brazilian
producer of high quality flat steel products used
in the energy, automotive and other industries.
The acquisition was part of a larger transaction
pursuant to which Confab and Ternium’s
subsidiaries Ternium Investments S.à.r.l., Ternium
Argentina and Prosid Investments S.A. (jointly,
the “Ternium Entities”) formed the so-called
T/T Group and joined Usiminas’ existing control
group through the acquisition of ordinary shares
representing 27.7% of Usiminas’ total voting
capital and 13.8% of Usiminas’ total share
capital. In addition, the T/T Group entered into a
shareholders’ agreement with the NSSMC Group
(formed by NSSMC, Mitsubishi Corporation
do Brasil S.A. and Metal One Corporation) and
Previdência Usiminas, an Usiminas employee fund,
governing the parties’ rights within the Usiminas
control group.

Following the subscription in 2016 of 1.3 million
Usiminas preferred shares and 11.5 million Usiminas
ordinary shares by Confab, as of December 31,
2018, Confab owned 36.5 million ordinary shares
and 1.3 million preferred shares of Usiminas,
representing 5.2% of Usiminas’ total voting capital
and 3.1% of Usiminas’ total share capital.

Tenaris23.

In 2014, a conflict arose within the T/T Group
and NSSMC with respect to the governance of
Usiminas, including with respect to the rules
applicable to the appointment of senior managers,
the application of the shareholders’ agreement in
matters involving fiduciary duties, and generally
with respect to Usiminas’ business strategy.

On February 8, 2018, the dispute with NSSMC
was resolved, and on April 10, 2018, the T/T
Group entities (including Confab), the NSSMC
Group entities and Previdência Usiminas entered
into a new shareholders’ agreement for Usiminas,
amending and restating the previously existing
shareholders’ agreement (“the New SHA”).
Usiminas’ control group now holds, in the
aggregate, 483.6 million ordinary shares bound
to the New SHA, representing approximately
68.6% of Usiminas’ voting capital, with the T/T
Group holding 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 NSSMC
Group holding approximately 45.9% of the total
shares held by the control group; and Previdência
Usiminas holding the remaining 7% of the total
shares held by the control group.

The New SHA reflects the agreed-upon corporate
governance rules for Usiminas, including,
among others, an alternation mechanism for the
nomination of each of the chief executive officer

and the chairman of the board of directors, as
well as a mechanism for the nomination of other
members of Usiminas’ executive board. The
New SHA also incorporates an exit mechanism
consisting of a buy-and-sell procedure, exercisable
at any time during the term of the New SHA after
the fourth-and-a-half-year anniversary from the
coming election of Usiminas’ executive board in
May 2018. Such exit mechanism shall apply with
respect to shares held by the NSSMC Group and
the T/T Group, and would allow either Ternium
(on behalf of the T/T Group) or NSSMC to
purchase all or a majority of the Usiminas shares
held by the other shareholder group.

In connection with the execution of the New SHA,
the Ternium Entities and Confab amended and
restated their separate shareholders’ agreement
governing their respective rights and obligations as
members of the T/T Group to include provisions
relating to the exit mechanism and generally to
conform such separate shareholders’ agreement to
the other provisions of the New SHA.

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 shareholder’s
agreement relating to the governance of Techgen.

Annual ReportNET SALES

EARNINGS PER SHARE

NET SALES BY

BUSINESS SEGMENT

NET SALES BY

GEOGRAPHIC AREA

N
O
I
L
L
I
M

D
S
U

12000

10000

10141

8000

6903

7659

D
S
U

1.4

1.2

1.0

0.8

0.98

6000

Tenaris in numbers

4000

5289

4294

0.6

0.2

0.4

0.46

2000

-0.2

-0.07

0.05

0.74

2014 2015 2016 2017

2018

2014 2015 2016 2017

2018

Trend information

Leading indicators

TUBES
94%

OTHER
6%

EUROPE
10%

PERSONNEL EMPLOYED

PER COUNTRY

ROMANIA

COLOMBIA

JAPAN

OTHER

COUNTRIES

MIDDLE EAST
& AFRICA
20%

ASIA

PACIFIC

INDONESIA

CANADA

SOUTH
AMERICA
19%

NORTH

AMERICA

47%

ITALY

BRAZIL

MEXICO

24%

UNITED

STATES

10%

ARGENTINA

24%

LOST TIME ACCIDENTS INDEX
EARNINGS PER SHARE
EARNINGS PER SHARE
PERSONNEL EMPLOYED
PERSONNEL EMPLOYED
NET SALES BY
GEOGRAPHIC AREA
PER COUNTRY
PER COUNTRY

RETURN ON EQUITY
NET SALES BY
NET SALES BY
PERSONNEL EMPLOYED
BUSINESS SEGMENT
BUSINESS SEGMENT
PER COUNTRY

EBITDA MARGIN

NET SALES BY

GEOGRAPHIC AREA

PERSONNEL EMPLOYED

PER COUNTRY

NET SALES

EARNINGS PER SHARE

24.

RIG COUNT INTERNATIONAL
EARNINGS PER SHARE

NET SALES BY
NET SALES BY
BUSINESS SEGMENT
BUSINESS SEGMENT
MISC
GAS

OIL

D
S
U

12000

1.4

10000

1.2
10141

1.2

1.0

0.98

0.8

0.6

0.8
6903
0.6

0.4

4294

0.2

7659

0.74

5289

0.46

0.05

-0.2

-0.2
2014 2015 2016 2017

-0.07

2018
2014 2015 2016 2017

2014 2015 2016 2017
2018

2018

S
G
R

1400
D
S
U
1200
1.4

1000
1.2

1.0
800
0.8
600
0.6

400
0.4

0.2
200
0
0
-0.2

TUBES
94%

248

1050

0.98

229

894

203

187

196

699

711

0.74
769

0.46

0.05

-0.07
2015

2014
2017
2014 2015 2016 2017

2016

2018
2018

OTHER
6%

TUBES
OTHER
94%
6%

OIL

RIG COUNT USA AND CANADA
NET SALES
NET SALES
NET SALES BY
NET SALES BY
NET SALES BY
BUSINESS SEGMENT
GEOGRAPHIC AREA
GEOGRAPHIC AREA
GAS
EUROPE
10%
N
O
I
L
L
I
M

EUROPE
10%
N
O
I
L
L
I
M

MIDDLE EAST
MIDDLE EAST
OTHER
& AFRICA
& AFRICA
6%
20%
20%

D
S
U

S
G
R

2500

12000

3.5

2.5

1.5

2000

1500

1000

500

10000
494

10000

10141

8000
1745

8000

6000

4000

2000

6000
334
4000
835
2000

6903

7659

5289

5289
261
4294
960

4294
269

813

166
471

NORTH
NORTH
SOUTH
SOUTH
0
0
AMERICA
AMERICA
AMERICA
AMERICA
2016
2015
2017 2018
2014
2014 2015 2016 2017
2018
2014 2015 2016 2017
2018
47%
47%
19%
19%

EUROPE
N
S
10%
R
S
O
U
T
I
N
L
O
L
E
H
I
M
D
N
C
R
A
C
E
M
A
P

COLOMBIA
COLOMBIA
ROMANIA
ROMANIA
MIDDLE EAST
5%
5%
8%
8%
& AFRICA
INDONESIA
INDONESIA
20%
2%
2%
D
S
CANADA
CANADA
U
5%
5%
1.4
1.4

JAPAN
ROMANIA
JAPAN
8%
2%
2%
OTHER
OTHER
COUNTRIES
COUNTRIES
ASIA
5%
5%
PACIFIC
4%

TUBES
94%
INDONESIA
2%
%
CANADA
5%
25

D
S
U

ASIA
PACIFIC
4%

COLOMBIA
TUBES
5%
94%

1.2

1.0
2.7
0.8

1.0
0.98
2.8
0.8

0.6

0.4

0.98

2.3

2.4

0.74

1.8
0.46

0.46

0.2
0.2
UNITED
UNITED
0
0
STATES
STATES
10%
10%

0.5
NORTH
SOUTH
0
-0.07
-0.07
-0.2
BRAZIL
BRAZIL
ITALY
MEXICO
MEXICO
AMERICA
AMERICA
2018
2014 2015 2016 2017
2014 2015 2016 2017
2014 2015 2016 2017
2018
6%
6%
9%
24%
24%
47%
19%

-0.2
ITALY
9%

0.05

ARGENTINA
ARGENTINA
24%
24%

2018

UNITED
STATES
10%
-5
ITALY
9%

MEXICO
2014 2015 2016 2017
24%

BRAZIL
6%

Source: Baker Hughes

RIG COUNT INTERNATIONAL

RIG COUNT USA AND CANADA

LOST TIME ACCIDENTS INDEX

RIG COUNT INTERNATIONAL
RIG COUNT INTERNATIONAL
LOST TIME ACCIDENTS INDEX
RETURN ON EQUITY
RETURN ON EQUITY

RETURN ON EQUITY

RIG COUNT USA AND CANADA
EBITDA MARGIN

EBITDA MARGIN

LOST TIME ACCIDENTS INDEX

OIL

GAS

MISC

OIL

OIL
GAS

GAS

MISC
GAS

OIL

GAS

OIL

GAS

MISC

OIL

GAS

1400

S
G
R

1200

248
2500

2500
44

229
2000

494

1050
2000

494
53

894
1745
1500

1500

203
1745

699

187

196

711

769

1000

334

500

835

835
166
471

269

813
166
471

261
269
960
813

261

960

N
O
I
L
L
I
M
R
E
P

S
R
U
O
H
N
A
M

S
T
N
E
D
C
C
A

N
O
I
L
L
I
M
R
E
P

S
R
U
O
H
N
A
M

S
T
N
E
D
C
C
A

S
G
R

2500

2000

1500

1000

500

3.5
494
3

2.5
1745

1.5

3.5

3
2.7

2.5

2
334
1.5

835
1

0.5

2.8

2.3

269

813

2.8
2.7

166
471

2.4
2.3

2.4

1.8

261

960

2014

2015

2016

2017

2018

2014

2015
2014

2016
2015
2014

2017
2016
2015

2018
2017 2018
2016

2017 2018

0
2014

0
2014 2015 2016 2017
2014 2015 2016 2017
2018
2017 2018
2015
2016

2018

N
O
I
L
L
I
M
R
E
P

S
R
U
O
H
N
A
M

S
T
N
E
D
C
C
A

3.5

2.5

1.5

0.5

248
44

229
1050

894

2.3

229
53

203
894

2.4
699

S
G
R

1400
%

1200
25

1400
38
%
248
1200
25

1000
20

1000
1050
20

800
2.7
15

800
2.8
15

600
10

400
5

200
0

32
41
187
196

187

711
769

769

41
53

196
203

711
699

1.8

0
-5

0
-5
2016
2017
2014
2014 2015 2016 2017
2018

2017
2014
2018
2015
2018
2014 2015 2016 2017

2015
2016
2014 2015 2016 2017

2018
2018

S
G
R

-5

2500
30

2000
25

494

2000
25

494

20
1500

20
1745
1500

1745

15
1000

10
500
5

334

835

835
166
471

269

813
166
471

261
269
960
813

261

960

0
2017 2018
2014
2015
2016
2017 2018
2014
2015
2016
2014 2015 2016 2017
2018
2014 2015 2016 2017 2018
2014 2015 2016 2017 2018

N
O
I
L
L
I
M
R
E
P

S
R
U
O
H
N
A
M

S
T
N
E
D
C
C
A

N
O
I
L
L
I
M
R
E
P

S
R
U
O
H
N
A
M

S
T
N
E
D
C
C
A

3.5

2.5

3
2.7

2.5

1.5

0.5

2.8
2.7

2.8

2.3

2.4

2.3

2.4

1.8

0
2014 2015 2016 2017
2014 2015 2016 2017 2018

2014 2015 2016 2017

Source: Baker Hughes

JAPAN

OTHER

EUROPE

10%

OTHER

COUNTRIES

MIDDLE EAST

& AFRICA

20%

ASIA

PACIFIC

INDONESIA

CANADA

ROMANIA

COLOMBIA

JAPAN

OTHER

COUNTRIES

ARGENTINA

24%

2018

SOUTH

AMERICA

19%

2014 2015 2016 2017 2018

NORTH

AMERICA

47%

UNITED

STATES

10%

ARGENTINA

24%

ITALY

BRAZIL

MEXICO

24%

RETURN ON EQUITY

EBITDA MARGIN

2018

2014 2015 2016 2017

2018

2014 2015 2016 2017 2018

-5

NET SALES

10000

10141

12000

8000

6000

4000

2000

6903

7659

8000

5289

4294

6000

4000

2000

2014 2015 2016 2017

2018

RIG COUNT INTERNATIONAL

1400

1200

248

1000

1050

229

1050

229

800

894

203

894

600

400

200

Source: Baker Hughes

196

203

187

196

187

1000

699

711

699

711

769

800

600

400

200

Tenaris

NET SALES

EARNINGS PER SHARE

NET SALES

NET SALES BY
NET SALES BY
EARNINGS PER SHARE
BUSINESS SEGMENT
BUSINESS SEGMENT

NET SALES BY
NET SALES BY
NET SALES BY
GEOGRAPHIC AREA
GEOGRAPHIC AREA
BUSINESS SEGMENT

TUBES
94%

OTHER
6%

EUROPE
10%

EUROPE
TUBES
10%
94%

MIDDLE EAST
MIDDLE EAST
& AFRICA
& AFRICA
20%
20%

OTHER
6%
ASIA
ASIA
PACIFIC
PACIFIC
4%
4%

ROMANIA
8%

PERSONNEL EMPLOYED
PERSONNEL EMPLOYED
NET SALES BY
PER COUNTRY
PER COUNTRY
GEOGRAPHIC AREA
ROMANIA
COLOMBIA
COLOMBIA
5%
5%
8%
EUROPE
INDONESIA
INDONESIA
10%
2%
2%
CANADA
CANADA
5%
5%

MIDDLE EAST
& AFRICA
20%

JAPAN
JAPAN
2%
2%
OTHER
OTHER
COUNTRIES
COUNTRIES
ASIA
5%
5%
PACIFIC
4%

25.
PERSONNEL EMPLOYED
PER COUNTRY

ROMANIA
8%

COLOMBIA
5%

INDONESIA
2%
CANADA
5%

JAPAN
2%
OTHER
COUNTRIES
5%

UNITED
STATES
10%

ARGENTINA
24%

ITALY
9%

BRAZIL
6%

MEXICO
24%

SOUTH
SOUTH
AMERICA
AMERICA
19%
19%

NORTH
NORTH
AMERICA
AMERICA
47%
47%

UNITED
STATES
10%

UNITED
STATES
10%
SOUTH
ITALY
AMERICA
9%
19%

ITALY
9%

ARGENTINA
24%

BRAZIL
6%

MEXICO
24%

NORTH
AMERICA
47%

NET SALES

EARNINGS PER SHARE

RIG COUNT INTERNATIONAL

NET SALES BY

RIG COUNT USA AND CANADA

RIG COUNT USA AND CANADA
RIG COUNT INTERNATIONAL

NET SALES BY

LOST TIME ACCIDENTS INDEX
RIG COUNT USA AND CANADA

LOST TIME ACCIDENTS INDEX
PERSONNEL EMPLOYED
PER COUNTRY

RETURN ON EQUITY

RETURN ON EQUITY
LOST TIME ACCIDENTS INDEX

EBITDA MARGIN

EBITDA MARGIN
RETURN ON EQUITY

EBITDA MARGIN

2018
2018

2014 2015 2016 2017

2018
2014 2015 2016 2017
2014 2015 2016 2017

6903

0.74

7659
0.74

0.46

0.46
5289

4294

0.05

-0.07

0.98

D
S
U

1.4

1.2

1.0

0.8

0.6

0.4

0.2

0.74

0.46

0.05

-0.2

-0.07

2014 2015 2016 2017

2018

10000

10141

6903

7659

5289

4294

0.98

1.4

1.2

1.0

0.8

0.6

0.4

0.2

0.05

-0.2

-0.07

0.74

0.46

BUSINESS SEGMENT

OIL

GAS

MISC

GEOGRAPHIC AREA

OIL

GAS

TUBES

94%

1400

1200

248

OTHER

248

229

699

269

813

334

835

166

471

166

471

10000

10141

10000

1.0

0.98

1.0

10141

0.98

12000

8000

6000

4000

2000

6903

7659

5289

4294

2014 2015 2016 2017

2018

1.4

12000

1.2

0.8

8000

0.8

0.6

6000

0.4

4000

0.2

2000

-0.2

EUROPE

10%

1400

2500

1200

600

1000

500

400

500

200

SOUTH

AMERICA

19%

-5

800

600

400

200

3.5

2.5

1.5

0.5

12000

8000

6000

4000

2000

1400

1200

1000

800

600

400

200

Source: Baker Hughes

RIG COUNT INTERNATIONAL

RIG COUNT USA AND CANADA

LOST TIME ACCIDENTS INDEX

RETURN ON EQUITY

EBITDA MARGIN

OIL

GAS

MISC

OIL

GAS

248

229

1050

894

203

187

196

699

711

769

2000

494

1500

1745

2500

1000

500

334

835

261

960

269

813

166

471

2.7

2.8

2.3

2.4

1.8

2014

2015

2016

2017

2018

2014

2015

2016

2017 2018

2014 2015 2016 2017

2018

2014 2015 2016 2017

2018

2014 2015 2016 2017 2018

Source: Baker Hughes

2014 2015 2016 2017

2018

2014 2015 2016 2017

2018

2014

2015

2016

2017

2018

2014

2015

2014

2015

2016

2015

NORTH
AMERICA
2017 2018
2017 2018
47%
2018
2017

2016

1000

1050

229

894

203

894

196

203

187

196

187

699

711

699

711

769

2000

1000

494

1050

1500

800

1500

1745

894

203

196

711

494
2.8
2.7

1745

2000
3
2.7

2.5
1500
2

2.8

2.3

2.4

2.3

2.4

1.8

COLOMBIA
5%

GAS

JAPAN
2%
OTHER
COUNTRIES
5%

MISC

MIDDLE EAST
& AFRICA

20%

ASIA
PACIFIC
4%

ROMANIA
8%
N
N
S
S
R
R
S
O
O
INDONESIA
U
U
T
I
I
N
L
L
O
O
L
L
2%
E
H
H
I
I
M
M
D
N
N
C
R
R
A
A
CANADA
C
S
E
E
M
M
G
A
P
P
5%
R
4

1.5
1000
1
1
UNITED
500
0.5
0.5
STATES
10%
0
ITALY
9%

0
MEXICO
2014 2015 2016 2017
24%
2016

BRAZIL
2014 2015 2016 2017
6%
2014

334

835

166
471

960
ARGENTINA
24%

187

769
261

960

3.5

2.5

2018
2017 2018

4
2500
3.5

S
T
N
E
D
C
C
A

1.8
261

2015

2018

1.5

269

960

261

269

813

OIL

N
O
I
L
L
I
M
%
R
E
P

S
R
U
O
H
N
A
M

S
T
N
E
D
C
C
A

25
4

20
3.5

-5

3
15
2.5
10
2

5
1.5

2.7

2.8

2.3

2.4

1.8

1
0
0.5
-5
0
2014 2015 2016 2017

2014 2015 2016 2017
2014 2015 2016 2017

2018

2018
2018

%
%

30
25

25
20

20
15

15
10

10
5

5
0

0
-5
2014 2015 2016 2017 2018

2014 2015 2016 2017 2018
2014 2015 2016 2017
2018

2014 2015 2016 2017 2018

Annual Report

26.

Principal risks
and uncertainties

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 Industry
Sales and profitability may fall as a result of
downturns in the international price of oil
and gas and other circumstances affecting the oil
and gas industry.
We are a global steel pipe manufacturer with a
strong focus on manufacturing products and 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, and political and global economic
conditions, affect these 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”). Many
of our customers are state-owned companies in
member countries of OPEC. A more recent 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. Other circumstances – such as
geopolitical events and hostilities in the Middle East
and elsewhere – may also affect drilling activity and,
as a result, cause steel pipe consumption to decline,
and thus have a material impact on our revenues,
profitability and financial condition. Several
factors, such as the supply and demand for oil and
gas, and political and global economic conditions,
affect, and may continue to affect, these prices;
accordingly, oil and gas companies may cut their
investment plans and consequently, demand for our
products could decline.

Climate change legislation or regulations could
curtail demand for fossil fuels and therefore
demand for our products and services could
be reduced.
There is an increased attention on greenhouse
gas emissions and climate change from different
sectors of society. Existing or future legislation and
regulations related to greenhouse gas emissions and
climate change, as well as government initiatives to
promote the use of alternative energy sources (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

Tenaris27.

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. Furthermore, ongoing
technological developments in the renewable energy
industry are making renewable energy increasingly
competitive against fossil-fuels. If this trend
continues, energy demand could shift increasingly
towards “cleaner” 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.

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 effective
competitive differentiation will be a key success
factor for Tenaris. In addition, there is a risk of
unfairly traded steel pipe imports in markets in
which Tenaris produces and sells its products and,
despite the application of antidumping duties and
tariffs, we can give no assurance with respect to
the effectiveness of these actions. Therefore, 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.

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 but not only in China, to
increase production capacity of seamless steel
pipe products. New production capacity continues
to be installed and there is significant excess
production capacity, particularly for “commodity”
or standard product grades. Capacity for the
production 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 and
oil sands projects, has led to a slowdown in the
sanctioning of new developments in a context of
low and more volatile oil prices. Despite our efforts

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 Mexico, the

Annual Report28.

decrease in the national production of natural
gas and constraints in natural gas transportation
capacity have led to increased imports of natural
gas which have resulted in increased natural gas
transportation costs and, thus, higher steel pipe
production costs. See “Risks Relating to Our
Business – 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”. 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, allocation
by suppliers, interruptions in production, accidents
or natural disasters, changes in exchange rates,
worldwide price fluctuations, and the availability
and cost of transportation.

We may not be able to recover, partially or fully,
increased costs of raw materials and energy
through increased selling prices on 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.

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. If demand for our products falls
significantly, these costs may adversely affect our
profitability and financial condition. In response
to a downturn of the oil and gas industry, we may
be required to implement temporary suspensions
of our operations. Temporary suspensions of
operations generally lead to layoffs of employees
which may in turn give rise to labor conflicts
and impact operations. Moreover, temporary
suspensions may also affect profitability and result
in charges for asset impairments.

Risks Relating to Our Business
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, Colombia,
Indonesia, Italy, Japan, Mexico, Nigeria, Romania,
Saudi Arabia and the United States, and we sell
our products and services throughout the world.
Additionally, we recently announced plans to form
a joint venture with PAO Severstal, or Severstal,
to build a welded pipe plant in Russia. 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 and social
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; interruptions

Tenaris29.

in the supply of essential energy inputs; exchange
and/or transfer restrictions, inability or increasing
difficulties to repatriate income or capital or to
make contract payments; inflation; devaluation;
war or other international conflicts; 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 in the
interpretation, application or enforcement of tax
laws and other retroactive tax claims or challenges;
cancellation of contract 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.

For example, our business and operations in
Argentina may be materially and adversely affected
by economic, political, social, fiscal and regulatory
developments. Argentina is subject to high inflation
rates and our business and operations in Argentina
may be adversely affected by increases in services
and labor costs inflation or by the measures that
may be adopted by the government to address
inflation. In addition, an increased level of labor
demands prompted by a growing inflation rate
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 developments that may have an adverse effect
on our operations and financial results include

increased taxes, exchange controls, restrictions
on capital flows, and export and import taxes
or restrictions. In addition, 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 lead 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. 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. In addition, changes to the United
States-Mexico-Canada Agreement, commonly
referred to as USMCA, which has been signed but is
pending to be ratified by each country’s legislature,
could adversely affect the investment climate and
economic activity in Mexico, Canada and/or in the
United States and impact our results of operations
and net results. Similarly, our Mexican operations
could 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

Annual Report30.

in Mexico. Our business may be materially and
adversely affected by these activities, their possible
escalation and the violence associated with them.

In the Middle East and Africa, our business 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.

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 developing integrated product and
service solutions designed to differentiate our
offering from those of our competitors and meet
the needs of our customers for lower operational
costs and reliable performance even in the most
demanding environments, as well as continuing
to pursue strategic investment opportunities.
Any of the components of our overall business
strategy could cost more than anticipated, 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
improve our competitive position. Even if we
successfully implement our business strategy, it
may not yield the expected results.

We could be subject to regulatory risks associated
with our international operations.
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 involving sales
to Iran and Venezuela, that restrict or prohibit
transactions involving such countries, persons
and entities. Similarly, we are subject to the U.S.
anti-boycott laws. These 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, on March 8, 2018, under
Section 232 of the Trade Expansion Act of 1962,
the U.S. imposed a 25% tariff on steel articles
imported from all countries. However, imports of
steel tubes from Australia, Argentina, Brazil and
South Korea were exempted from the 25% tariff;
the latter three with specific quotas per product.
During March 2019, the U.S. government granted
the exemption for imports of specific types of cast
steel billets requested from Romania, Mexico, and
Italy, for an aggregate amount of 410,000 tons that
are used in our Bay City mill, to be consumed until
March 2020.

TenarisFinally, failure to comply with applicable legal and
regulatory obligations could also result in criminal
and civil penalties and sanctions.

the markets where profits are effectively made and
business is effectively performed.

31.

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. However, 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. The majority of the jurisdictions in
which we operate have double tax treaties with other
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, the
Organization for Economic Co-operation and
Development (OECD) has 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.
At the EU level, the European Commission has
adopted its Anti Tax Avoidance Directive, which
seeks to prevent tax avoidance by companies and
to ensure that companies pay appropriate taxes in

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
interpretations 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.

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. For example, on January 21, 2019 we
completed the acquisition of 47.79% of the shares
of SSP, a welded steel pipes producer listed on the
Saudi Stock Exchange, for a total purchase price
of approximately $141 million. Additionally, on
February 5, 2019 we entered into an agreement
with PAO Severstal to build during the coming
two years, a welded pipe plant to produce OCTG
products in the Surgut area, West Siberia, Russian
Federation, with an estimated cost of $240
million, in which Tenaris will hold a 49% interest.
Furthermore, on March 22, 2019, we entered

Annual Report32.

into a definitive agreement to acquire100% of
the shares of IPSCO, a wholly owned subsidiary
of TMK and a U.S. producer of seamless and
welded OCTG and line pipe products, for $1,209
million. The transaction is subject to regulatory
approvals, including approval by the U.S. antitrust
authorities, and other customary conditions. We
will continue to consider strategic acquisitions,
investments and partnerships from time to time.
We must necessarily base any assessment of
potential acquisitions, joint ventures and capital
investments on assumptions with respect to
operations, profitability and other matters that
may subsequently prove to be incorrect. 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, 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,
accidents and severe weather conditions.

Similarly, natural disasters or severe weather
conditions 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 or close to regions 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.

Our operations may also be adversely affected as a
result of stoppages or other labor conflicts. In 2017
and 2018, our operations in Mexico experienced a
few days of union-led stoppages due to an internal
dispute within the local union; such internal
dispute is ongoing and we cannot assure it will not
cause further disruptions in Mexico. In addition, in
some of the countries in which we have significant
production facilities (e.g., Argentina and Brazil),
significant fluctuations in exchange rates, together
with inflationary pressures, affect our costs,
increase labor demands and could eventually
generate higher levels of labor conflicts.

Some of the previously described events could result
in death or injury to persons. They could also result
in damage to property, delays in production and
liability for Tenaris. To the extent that lost production
as a result of such events cannot be compensated
for by unaffected facilities, such events could have
an adverse effect on our profitability and financial
condition. Additionally, 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 “Information
on Tenaris – B. Business overview – Insurance”.

TenarisWe 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.
At December 31, 2018 we had $1,288 million in
goodwill corresponding mainly to the acquisition
of Hydril in 2007 ($920 million) and Maverick in
2006 ($229 million). If our management was to
determine in the future that the goodwill or other
assets were impaired, particularly as a consequence
of deteriorating market conditions, we would be
required to recognize a non-cash charge to reduce
the value of these assets, which would adversely
affect our results of operations.

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 in a number of countries 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 “Quantitative and Qualitative Disclosure
About Market Risk – Foreign Exchange Rate Risk”.

33.

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 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 more information, including with respect to
matters related to corruption investigations in
Brazil and Argentina, please refer to “Outstanding
Legal Proceedings”.

Annual Report34.

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, provincial
and national laws, 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 U.S. standards, other
nations, particularly developing nations, including
China, have substantially lesser 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.

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

Tenaris35.

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 develop technology independently 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.

Cyberattacks could have a material adverse impact
on our business and results of operation.
We rely heavily on information systems to conduct
our business. Although we devote significant
resources to protect our systems and data, 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 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, failures of
computer servers or other accidental technological
failures, electrical or telecommunication outages
or other damage to our property or assets. Given
the rapidly evolving nature of cyber threats, there
can be no assurance that the systems we have
designed to prevent or limit the effects of cyber
incidents or attacks will be sufficient to prevent
or detect such incidents or attacks, or to avoid a
material adverse impact on our systems when such
incidents or attacks do occur. 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
or production downtimes), access to our financial
reporting systems, the loss of access to critical

Annual Report36.

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
other financial costs and losses. In addition, given
that cybersecurity threats continue to evolve, we
may be required to devote additional resources in
the future to enhance our protective measures or
to investigate and/or remediate any cybersecurity
vulnerabilities. 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). Tenaris does not maintain
any specific insurance coverage to protect against
cybersecurity risks.

Risks Relating to the Structure of the Company
As a holding company, the Company’s ability
to pay cash dividends depends on the results
of operations and financial condition of its
subsidiaries and could be restricted by legal,
contractual or other limitations.
The Company conducts 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.

The ability of the Company’s subsidiaries to pay
dividends and make other payments to us will depend
on the 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, the Company may not be in a position to
meet its operational needs or to pay dividends. For
information concerning limitations on payments
of dividends, see “Risks Relating to Our Business
– 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 addition, 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 shares. Rocca
& Partners Stichting Administratiekantoor

Tenaris37.

Aandelen San Faustin (“RP STAK”), controls a
significant portion of the voting power of 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 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.

Risks Relating to shares and ADSs
It may be difficult to enforce judgments against us
outside Luxembourg.
The Company is a société anonyme organized
under the laws of Luxembourg, and most of

its assets are located in other jurisdictions.
Furthermore, most of the Company’s directors
and officers named in this annual report reside in
different jurisdictions. As a result, investors may
not be able to effect service of process upon us
or our directors or officers. Investors may also
not be able to enforce against us or our 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
and 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.

Annual Report38.

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, as
issued by the IASB and in accordance with IFRS
as adopted by the European Union.

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 “Principal Risks and Uncertainties”,
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 most of the
world’s leading oil and gas companies as well as
engineering companies engaged in constructing oil
and gas gathering and processing and power facilities.
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 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 fell from
over $100 per barrel in June 2014 to less than $30
per barrel in February 2016, before recovering to
around $80 per barrel in the third quarter of 2018,
but subsequently fell 40% in the fourth quarter
before partially recovering in the beginning of
2019. North American natural gas prices (Henry
Hub), which were around $4 per million BTU in

Tenaris39.

2014, also briefly fell below $2 per million BTU at
the beginning of 2016, before recovering to average
levels of $3 per million BTU during 2017 and 2018.

In 2018, worldwide drilling activity, as represented in
the number of active drilling rigs published by Baker
Hughes, a GE company, increased 9% compared
to the level of 2017, with the increase concentrated
in the U.S. shale plays, and a gradual increase in
international rigs starting in the second half of 2018.
In the United States the rig count in 2018 increased
by 18%, with an average of 1,032 active rigs.
Drilling activity in the United States rose steadily
through the year but has subsequently declined
slightly in the beginning of 2019. In Canada, the rig
count in 2018 declined by 7% compared with 2017,
with the decline concentrated in the final quarter,
while in the rest of the world, it rose 4%.

Prior to the most recent 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, 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.

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 has become acute,
and now extends beyond commodity grades. The
competitive environment has, as a result, become
more intense, and we expect that this will continue
for some time. 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

Annual Report40.

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. administration introduced tariffs and
quotas under Section 232 of the Trade Expansion
Act of 1962 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. As a result of the fixed quota
imposed on the imports of steel pipes from South
Korea, their imports halved during 2018 compared
to 2017.

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,
direct reduced iron (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 2018. As a
reference, prices for hot rolled coils, HRC Midwest
USA Mill, published by CRU, averaged $915 per
ton in 2018 compared to $680 per ton in 2017.
The prices for 2018 showed downward trend in the
last 5 months of the year reaching $835 per ton in
December 2018.

Summary of results
In 2018, our financial results recovered strongly at all
levels. Our sales rose 45% year on year, increasing in
all regions and also in our non-Tubes profit centers.
Highlights of the year include the consolidation
of our positioning and Rig Direct® service in the
U.S. and Canada, the fast track delivery of the
pipes for three East Mediterranean offshore gas
pipelines, and our successful positioning for major
gas developments in Argentina, Qatar, Indonesia,
Mozambique and Australia. EBITDA rose 63% year
on year to $1.5 billion, with margins recovering to the
level of 20%. Shareholders net income rose strongly
to $876 million, benefitting from substantially higher
operating income, and an excellent contribution
from our investment in Ternium.

Despite a buildup in working capital to support
our growth in sales, we were able to generate
free cash flow of $261 million. After payment of
dividends, our net cash position declined during
the year to $485 million at December 31, 2018,
compared to $647 million at December 31, 2017.

Outlook
Drilling activity in the U.S. shales continued to
grow in 2018, following the previous year’s strong

Tenarisrecovery, while drilling activity in Canada was
affected at the end of the year by the drop in
regional oil prices. For 2019, following the recent
reset of oil prices, drilling activity in the USA
is expected to be stable while, in Canada, it is
expected to be lower than last year.

In Latin America, a recovery in drilling activity in
Mexico is expected as the new government makes
more funds available for Petróleos Mexicanos S.A.
de C.V. (“Pemex”) and private operators begin
implementing their energy reform commitments. In
the rest of the regions drilling activity is expected
to be relatively stable, with shale drilling activity in
Argentina likely to switch from gas to oil.

In the Eastern Hemisphere, drilling activity is
expected to continue a gradual recovery with a
focus on gas developments.

After our strong performance in 2018, we expect to
consolidate our sales and margins through 2019, in
line with those of the second half of 2018. We should
benefit from growing sales of premium connection
products for offshore projects around the world, and
the inclusion of consolidated revenues from our new
operation in Saudi Arabia, but we will not repeat the
exceptional level of offshore line pipe shipments to
the Eastern Mediterranean and will have lower sales
in Canada. With a stable level of sales, and limited
capital investment requirements, we should be able to
reduce working capital and generate a stronger free
cash flow during the year.

currency that best reflects the economic substance
of the underlying events and circumstances
relevant to Tenaris’s global operations.

41.

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.

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.

Functional and presentation currency
The functional and presentation currency of the
Company is the U.S. dollar. The U.S. dollar is the

The preparation of our audited consolidated
financial statements and related disclosures in
conformity with IFRS requires us to make estimates

Annual Report42.

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 long-lived
tangible and intangible assets; assets useful lives;
deferred income tax; obsolescence of inventory;
doubtful accounts and loss contingencies, 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.

Our most critical accounting estimates are those
that are most important to the portrayal of our
financial condition and results of operations, and
which require us to make our most difficult and
subjective judgments, often as a result of the need
to make estimates of matters that are inherently
uncertain. Our most critical accounting estimates
and judgments are the following:

Accounting for business combinations
To account for our business combinations we use
the acquisition method, which requires the acquired
assets and assumed liabilities to be recorded at their
respective fair value as of the acquisition date. The
determination of fair values of assets acquired,
liabilities and contingent liabilities assumed and
determination of useful lives, requires us to make
estimates and use valuation techniques, including
the use of independent valuators, when market

value is not readily available. 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 income statement.

Impairment and recoverability of goodwill and
other assets
Long-lived assets including identifiable intangible
assets are reviewed for impairment at the lowest
level for which there are separately identifiable
cash flows (cash generating units, or “CGU”).
Most of Tenaris’s principal subsidiaries that
constitute a CGU have a single main production
facility and, accordingly, each of such subsidiary
represents the lowest level of asset aggregation that
generates largely independent cash inflows.

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 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 and economic factors, such as
the cost of raw materials, oil and gas prices, capital
expenditure programs for Tenaris’s customers and
the evolution of the rig count.

An impairment loss is recognized for the amount
by which the asset’s carrying amount exceeds its

Tenarisrecoverable 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.

The value in use of each CGU is determined on
the basis of the present value of net future cash
flows which would be generated by such CGU.
Tenaris uses cash flow projections for a five-year
period with a terminal value calculated based on
perpetuity and appropriate discount rates.

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.

non-financial assets” to our audited consolidated
financial statements included in this annual report.

43.

Reassessment of Property, Plant and Equipment
Assets Useful Lives
Property, plant and equipment are stated at directly
attributable historical acquisition or construction
cost less accumulated depreciation and impairment
losses, if any. Property, plant and equipment
acquired through acquisitions accounted for as
business combinations are valued initially at fair
market value of the assets acquired. Depreciation
of the cost of the asset (apart from land, which
is not depreciated) to its residual value over its
estimated useful life, is done using the straight
line method. The depreciation method is reviewed
at each year end. Estimating useful lives for
depreciation is particularly difficult as the service
lives of assets are also impacted by maintenance
and changes in technology, and our ability to adapt
technological innovation to the existing asset
base. In accordance with IAS 16, “Property, Plant
and Equipment”, the depreciation method, the
residual value and the useful life of an asset must
be reviewed at least at each financial year-end,
and, if expectations differ from previous estimates,
the change must be treated as a change in an
accounting estimate. Management’s re-estimation
of asset useful lives performed in accordance
with IAS 16 did not materially affect depreciation
expense for 2018. However, if management’s
estimates prove incorrect, the carrying value of
plant and equipment and its useful lives may be
required to be reduced from amounts currently
recorded. Any such reductions may materially
affect asset values and results of operations.

No impairment charge was recorded in 2018, 2017,
or 2016. For more information on Impairment
and recoverability of goodwill and other assets,
see “II. Accounting Policies G. Impairment of

Reassessment of Useful Lives of Customer
Relationships
In accordance with IFRS 3, “Business Combinations”
and IAS 38, “Intangible Assets”, Tenaris has

Annual Report44.

recognized the value of customer relationships
separately from goodwill attributable to the
acquisition of Maverick and Hydril groups.

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 14 years for Maverick and 10 years
for Hydril.

Maverick’s Tubes business has experienced a
significant change in its customers portfolio. While
initially Maverick was selling OCTG products
mostly to distributors, today it is selling mostly
through Rig Direct® to end users. By the end
of 2018, Maverick supplied the majority of its
customers of OCTG products with Rig Direct®
services. Additionally, line pipe products while still
being sold largely to distributors due to the different
nature of this market, are now focused on large
pipeline projects through a completely different set
of distributors. Based on these circumstances, the
Company has reviewed the useful life of Maverick’s
Tubes customer relationships and decided to
reduce the remaining useful life from two years to
zero, consequently a higher amortization charge
of approximately $109 million was recorded in
the consolidated income statement under selling,
general and administrative expenses for the year
ended December 31, 2018.

As of December 31, 2018 the residual value of
Maverick’s coiled tubing customer relationships
amounts to $19.9 million and the residual useful
life is 2 years, while Hydril’s customer relationships
is fully amortized.

Allowance for Obsolescence of Supplies and Spare
Parts and Slow-Moving Inventory
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 is based on the normal level of
production capacity. Supplies and raw material cost
is mainly based on the FIFO method while goods in
progress and finished goods cost are mainly based
on specific historical production costs for each
production order. 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.

Allowances for Doubtful Accounts
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

Tenarisof collecting 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 historical loss rates are adjusted to
reflect current and forward-looking information on
macroeconomic factors affecting the ability of the
customers to settle the receivables.

on tax laws that have been enacted or substantively
enacted at the reporting date.

45.

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 income tax
Deferred income tax is recognized applying the
liability method on temporary differences arising
between the tax basis of assets and liabilities and
their carrying amounts in the financial statements.
The principal temporary differences arise from fair
value adjustments of assets acquired in business
combinations, the effect of currency translation
on depreciable fixed assets and inventories,
depreciation on property, plant and equipment,
valuation of inventories and provisions for pension
plans. 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

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 for the year
in the Consolidated Statement of Comprehensive
Income, depending on the account to which the
original amount was charged or credited.

Annual Report46.

Contingencies
We are 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. Our potential liability with respect to
such claims, lawsuits and other legal proceedings
cannot be estimated with certainty.

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 Tenaris is unable to make a
reliable estimate of the expected financial effect
that will result from ultimate resolution of the
proceeding. In those cases, Tenaris 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, Tenaris was able to make a reliable
estimate of the expected loss or range of probable
loss and has accrued a provision for such loss,
but believes that publication of this information
on a case-by-case basis would seriously prejudice
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.

These estimates are primarily constructed with
the assistance of legal counsel, and management
believes that the aggregate provisions recorded
for potential losses in the consolidated financial
statements are adequate based upon currently
available information. However, if management’s
estimates prove incorrect, current reserves could
be inadequate and we could incur a charge to
earnings which could have a material adverse
effect on our results of operations, financial
condition, net worth and cash flows. As the scope
of liabilities becomes better defined, there may
be changes in the estimates of future costs which
could have a material adverse effect on our results
of operations, financial condition, net worth and
cash flows.

Tenaris47.

Internal control over financial reporting
Management is responsible for establishing and
maintaining adequate internal control over financial
reporting. 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 19, 2019, management reported to
the audit committee of the Company’s board of
directors that management had conducted its
assessment of the effectiveness of the Company’s
internal controls over financial reporting for the
year ended December 31, 2018, and that, based
on management’s evaluation and considering the
inherent limitations to the effectiveness of any
internal control system, management had concluded
that the Company’s internal controls over financial
reporting were effective as of December 31, 2018.

Annual Report48.

Results of Operations

Thousands of U.S. dollars (except number of shares and per share amounts)

FOR THE YEAR ENDED DECEMBER 31

2018

2017

2016

Selected consolidated income statement data

CONTINUING OPERATIONS

Net sales

Cost of sales

Gross profit

Selling, general and administrative expenses

Other operating income (expenses), net

Operating income (loss)

Finance income

Finance cost

Other financial results

7,658,588

5,288,504

4,293,592

(5,279,300)

(3,685,057)

(3,165,684)

2,379,288

1,603,447

1,127,908

(1,509,976)

(1,270,016)

(1,196,929)

2,501

1,157

9,964

871,813

334,588

(59,057)

39,856

(36,942)

34,386

47,605

(27,072)

(43,550)

66,204

(22,329)

(21,921)

Income (loss) before equity in earnings of non-consolidated companies

909,113

311,571

(37,103)

and income tax

Equity in earnings of non-consolidated companies

Income before income tax

Income tax

Income for the year for continuing operations

DISCONTINUED OPERATIONS

Result for discontinued operations

Income for the year (1)

INCOME (LOSS) ATTRIBUTABLE TO (1)

Owners of the parent

Non-controlling interests

Income for the year (2)

Depreciation and amortization for continuing operations

Weighted average number of shares outstanding

Basic and diluted earnings per share for continuing operations

Basic and diluted earnings per share

Dividends per share (2)

(1) 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.

(2) Dividends per share correspond to the dividends proposed or paid in respect of the year.

193,994

116,140

1,103,107

427,711

(229,207)

17,136

873,900

444,847

71,533

34,430

(17,102)

17,328

–

91,542

873,900

536,389

41,411

58,739

876,063

544,737

(2,163)

(8,348)

55,298

3,441

873,900

536,389

58,739

(664,357)

(608,640)

(657,109)

1,180,536,830

0.74

0.41

0.38

0.46

0.41

0.01

0.05

0.41

Tenaris

Thousands of U.S. dollars (except number of shares)

AT DECEMBER 31

Selected consolidated financial position data

Current assets

Property, plant and equipment, net

Other non-current assets

Assets of disposal group classified as held for sale

Total assets

Current liabilities

Non-current borrowings

Deferred tax liabilities

Other non-current liabilities

Liabilities of disposal group classified as held for sale

Total liabilities

49.

2018

2017

2016

5,464,192

5,381,154

4,817,154

6,063,908

6,229,143

6,001,939

2,723,199

2,787,921

3,032,765

–

151,417

14,251,299

14,398,218

14,003,275

1,718,363

2,070,899

1,713,036

29,187

379,039

249,218

–

34,645

457,970

253,734

–

31,542

550,657

276,874

18,094

2,375,807

2,817,248

2,590,203

Capital and reserves attributable to the owners of the parent

11,782,882

11,482,185

11,287,417

Non-controlling interests

Total equity

92,610

98,785

125,655

11,875,492

11,580,970

11,413,072

Total liabilities and equity

14,251,299

14,398,218

14,003,275

Share capital

Number of shares outstanding

1,180,537

1,180,536,830

Annual Report

50.

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

CONTINUING OPERATIONS

Net sales

Cost of sales

Gross profit

Selling, general and administrative expenses

Other operating income (expenses), net

Operating income (loss)

Finance income

Finance cost

Other financial results

Income (loss) before equity in earnings of non-consolidated companies

and income tax

Equity in earnings of non-consolidated companies

Income before income tax

Income tax

Income for the year for continuing operations

DISCONTINUED OPERATIONS

Result for discontinued operations

Income for the year

INCOME (LOSS) ATTRIBUTABLE TO

Owners of the parent

Non-controlling interests

2018

2017

2016

100.0

(68.9)

31.1

(19.7)

0.0

11.4

0.5

(0.5)

0.4

11.9

2.5

14.4

(3.0)

11.4

–

11.4

(0.0)

100.0

(69.7)

30.3

(24.0)

0.0

6.3

0.9

(0.5)

(0.8)

5.9

2.2

8.1

0.3

8.4

1.7

10.1

10.3

(0.2)

100.0

(73.7)

26.3

(27.9)

0.2

(1.4)

1.5

(0.5)

(0.9)

1.7

0.8

(0.4)

0.4

1.0

1.4

1.3

0.1

Tenaris

Fiscal year ended December 31, 2018,
Compared to Fiscal Year Ended December 31, 2017

The following table shows our net sales by business
segment for the periods indicated below:

51.

Millions of U.S. dollars

FOR THE YEAR ENDED DECEMBER 31

Tubes

Others

Total

2018

94%

100%

4,966

323

5,289

2017

94%

100%

Increase /
(Decrease)

46%

32%

45%

7,233

426

7,659

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

Seamless

Welded

Total

2018

2017

Increase /
(Decrease)

2,694

877

3,571

2,157

461

2,618

25%

90%

36%

Annual Report
52.

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

NET SALES

North America

South America

Europe

Middle East & Africa

Asia Pacific

Total net sales

Operating income

Operating income (% of sales)

2018

2017

Increase /
(Decrease)

3,488

1,284

628

1,541

292

7,233

777

10.7%

2,362

982

497

921

204

4,966

292

5.9%

48%

31%

26%

67%

43%

46%

166%

Tenaris53.

Net sales of tubular products and services increased
46% to $7,233 million in 2018, compared to $4,966
million in 2017, reflecting a 36% increase in volumes
and a 7% increase in average selling prices. Sales
increased mainly due to a strong increase in demand
in the United States and Canada and higher sales of
line pipe for complex projects, including shipments
for the second Zohr offshore welded pipeline in
Egypt. In North America sales increased mainly due
to higher demand of OCTG and line pipe and the
consolidation of our market position throughout
the region. In South America, sales increased mainly
due to higher demand of OCTG and line pipe in
Argentina, associated with increased investments in
Vaca Muerta shale and higher demand for OCTG
in the Andean region, including sales to the Liza
development in Guyana, partially offset by lower
sales of OCTG in Brazil, reflecting transition to new
contracts with Petróleo Brasileiro S.A. (“Petrobras”).
In Europe, sales increased reflecting higher demand
for industrial products and for OCTG products
in the North Sea and continental Europe. In the

Middle East and Africa sales increased significantly,
thanks to an exceptional level of sales for offshore
line pipe for East Mediterranean gas development
projects and higher sales of OCTG in the Middle
East and Caspian areas. In Asia Pacific sales
increased following a recovery in Indonesia and
China from very low levels in 2017.

Operating income from tubular products and
services, amounted to $777 million in 2018,
compared to $292 million in 2017. Operating
income during 2018 was negatively affected by a
higher customer relationships amortization charge
of $109 million, after the full amortization of
the residual value of Maverick’s Tubes segment
customer relationships. Excluding this one off effect
operating income would amount to $886 million,
12% of sales. The significant improvement in
Tubes operating income reflects a better operating
environment, where a 46% increase in sales
improved the utilization of production capacity
and therefore the absorption of fixed costs.

Annual Report54.

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

Net sales

Operating income

Operating income (% of sales)

2018

2017

426

22.2%

323

13.2%

Increase /
(Decrease)

32%

122%

Net sales of other products and services increased
32% to $426 million in 2018, compared to $323
million in 2017, mainly due to higher sales of
energy related products e.g., sucker rods and
coiled tubing.

Operating income from other products and
services, increased from $43 million in 2017 to
$95 million in 2018, while all the profit centers
improved their results, the main contributors were
the energy related businesses, mainly sucker rods
and coiled tubing.

Selling, general and administrative expenses or
SG&A, increased by $240 million (19%) in 2018
from $1,270 million in 2017 to $1,510 million in 2018.
SG&A during 2018 includes a higher amortization
charge of $109 million, after the full amortization
of the residual value of Maverick’s Tubes segment
customer relationships. Excluding this one off effect,
SG&A amounted to $1,401 million (18% of sales),
compared to $1,270 million (24%) in 2017. The
decline of SG&A as a percentage of net sales reflects
the containment of fixed and semi-fixed expenses in
a higher volumes environment.

Financial results amounted to a gain of $37 million
in 2018, compared to a loss of $23 million in 2017.
The 2018 gain corresponds mainly to an FX gain
of $29 million; $24 million related to the Argentine
peso devaluation on Peso denominated financial,
trade, social and fiscal payables at Argentine
subsidiaries which functional currency is the U.S.
dollar, $17 million related to the Euro depreciation
on Euro denominated intercompany liabilities
(offset in the currency translation reserve in equity),
partially offset by a loss of $8 million due to the
devaluation of the Canadian dollar. Additionally,
we gained $7 million on derivatives, mainly
covering net receivables in Canadian dollar and $3
million net interest on our net cash position.

Equity in earnings of non-consolidated companies
generated a gain of $194 million in 2018, compared
to $116 million in 2017. These results were mainly
derived from our equity investment in Ternium
(NYSE:TX).

Income tax charge amounted to $229 million in
2018 (25% over income before tax), compared
to a gain of $17 million in 2017. In 2017 we

Tenaris55.

recorded a gain of $63 million due to the reduction
in income tax rates in Argentina, the United
States and Colombia over deferred tax liabilities.
Additionally, during 2017 we recorded an income
tax charge of $29 million corresponding to a
settlement agreement between Dalmine, our
Italian subsidiary, and the Italian tax authorities
in connection with all withholding tax claims
on 2007 and 2008 dividend payments. Under
such settlement agreement, Dalmine paid to the
Italian tax administration an aggregate amount
of EUR42.9 million (approximately $51 million),
net of EUR3.2 million (approximately $4 million)
corresponding to the amount previously paid
during the litigation proceeding.

Net income for continuing operations amounted
to $874 million in 2018, compared with $536
million in 2017. The improvement in results
reflects a better operating environment, where a
45% increase in sales improved the utilization of
production capacity and therefore the absorption
of fixed costs, better financial results and better
results from our investment in Ternium.

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:

Millions of U.S. dollars

FOR THE YEAR ENDED DECEMBER 31

Net cash provided by (used in) operating activities

Net cash provided by (used in) investing activities

Net cash used in financing activities

Increase (decrease) in cash and cash equivalents

Cash and cash equivalents at the beginning of year (excluding overdrafts)

Effect of exchange rate changes

Increase (decrease) in cash and cash equivalents

Cash and cash equivalents at the end of year (excluding overdrafts)

Bank overdrafts

Other current investments

Non-current investments

Derivatives hedging borrowings and investments

Current and non current borrowings

Net cash at the end of the year

2018

2017

2016

611

399

(900)

109

330

(13)

109

427

488

114

(6)

(539)

485

(22)

349

(401)

(74)

399

(74)

330

1,192

123

(33)

(966)

647

864

(98)

(653)

113

286

(0)

113

399

1,633

248

(35)

(840)

1,406

Annual Report

56.

Our financing strategy aims to maintain adequate
financial resources and access to additional
liquidity. During 2018 cash flow provided by
operating activities amounted to $611 million
(including an increase in working capital of $738
million), our capital expenditures amounted to
$349 million and we paid dividends amounting to
$484 million. At the end of the year we had a net
cash position of $485 million, compared to $647
million at the beginning of the year (including the
$328 million we collected from the sale of Republic
Conduit during 2017).

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, 2018, liquid financial assets as
a whole (comprising cash and cash equivalents
and other investments) were 7% of total assets
compared to 11% at the end of 2017.

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, to service our debt in the
foreseeable future and to address short-term
changes in business conditions.

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, 2018,
U.S. dollar denominated liquid assets represented
95% of total liquid financial assets compared to
93% at the end of 2017.

TenarisFiscal year ended December 31, 2018,
compared to fiscal year ended December 31, 2017

Operating activities
Net cash provided by operations during 2018 was
$611 million, compared to $22 million of net cash
used in operations during 2017. This increase was
mainly attributable to an increase in results and a
smaller increase in working capital. In 2018 and
2017 the increase in working capital amounted to
$738 million and $853 million respectively. The
main yearly variation was related to an increase
of $518 million in trade receivables, compared
with an increase of $259 million in 2017, while
trade payables decreased $57 million in 2018 and
increased $194 million in 2017. Additionally,
during 2018 inventories increased $176 million
which compares with an increase in inventory
of $804 million in 2017. For more information
on cash flow disclosures and changes to working
capital, see note 26 “Cash flow disclosures” to our
audited consolidated financial statements included
in this annual report.

Investing activities
Net cash provided by investing activities was $399
million in 2018, compared to $349 million in 2017
(including the $328 million we collected from the
sale of Republic Conduit). Capital expenditures
decreased to $349 million from $558 million in 2017
declining following the start up of our greenfield
seamless facility in Bay City, Texas at the end of 2017.
Additionally, we reduced our financial investments by
$717 million in 2018 compared to a reduction of $565
million in 2017.

interests, was $900 million in 2018, compared to
$401 million in 2017.

57.

During 2018 we had net repayments from
borrowings of $413 million, while in 2017 we had
net proceeds of borrowings of $107 million.

Dividends paid during 2018 and 2017 amounted
to $484 million in each year.

Our total liabilities to total assets ratio was
0.17:1 as of December 31, 2018 and 0.20:1 as of
December 31, 2017.

Principal Sources of Funding
During 2018, we funded our operations with
operating cash flows, bank financing, proceeds
from sales of assets and available liquid financial
assets. Short-term bank borrowings were used as
needed throughout the year.

Financial liabilities
During 2018, borrowings decreased by
$427 million, to $539 million at December 31,
2018, from $966 million at December 31, 2017.

Borrowings consist mainly of bank loans. As
of December 31, 2018, U.S. dollar-denominated
borrowings plus borrowings denominated in other
currencies swapped to the U.S. dollar represented
97% of total borrowings.

Financing activities
Net cash used in financing activities, including
dividends paid, proceeds and repayments of
borrowings and acquisitions of non-controlling

For further information about our financial debt,
please see note 18 “Borrowings” to our audited
consolidated financial statements included in this
annual report.

Annual Report58.

The following table shows the composition of our
financial debt at December 31, 2018, 2017 and 2016:

Millions of U.S. dollars

Bank borrowings

Bank overdrafts

Finance lease liabilities

Total borrowings

Our weighted average interest rates before tax
(considering hedge accounting), amounted to
3.98% at December 31, 2018 and to 3.73% at
December 31, 2017.

2018

2017

2016

537

539

966

839

840

TenarisThe maturity of our financial debt is as follows:

59.

Millions of U.S. dollars

AT DECEMBER 31, 2018

Borrowings

Interests to be accrued

Total

1 year
or less

1-2
years

2-3
years

510

518

3-4
years

4-5
years

Over
5 years

–

Total

539

550

Our current borrowings to total borrowings ratio
amounted to 0.95:1 as of December 31, 2018,
compared with 0.96:1 as of December 31, 2017.
Our liquid financial assets exceeded our total
borrowings, we had a net cash position (cash and
cash equivalents, other current and non-current
investments, derivatives hedging borrowings and
investments, less total borrowings) of $485 million
at December 31, 2018, compared to $647 million at
December 31, 2017.

For information on our derivative financial
instruments, please see “Quantitative and
Qualitative Disclosure about Market Risk –
Accounting for Derivative Financial Instruments
and Hedging Activities” and note 23 “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 “Quantitative
and Qualitative Disclosure About Market Risk”.

Annual Report

60.

Significant borrowings
Our most significant borrowings as of December 31,
2018 were as follows:

Millions of U.S. dollars

Disbursement date

Borrower

Type

2018

Tamsa

Siderca

TuboCaribe

Bank loans

Bank loan

As of December 31, 2018, Tenaris was in compliance
with all of its covenants under its significant
borrowings, including financial covenants on
leverage ratio.

Original
& Outstanding

Final Maturity

347

2019

May 2019

Tenaris

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

In millions of U.S. dollars

EXPECTED MATURITY DATE

trading or other speculative purposes, other than
non-material investments in structured products.

61.

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, 2018 and 2017
which included fixed and variable interest rate
obligations, detailed by maturity date:

AT DECEMBER 31, 2018

2019

2020

2021

2022

2023

Thereafter

Total (1)

NON-CURRENT DEBT

Fixed rate

Floating rate

CURRENT DEBT

Fixed rate

Floating rate

–

493

510

–

493

539

AT DECEMBER 31, 2017

2018

2019

2020

2021

2022

Thereafter

Total (1)

EXPECTED MATURITY DATE

NON-CURRENT DEBT

Fixed rate

Floating rate

CURRENT DEBT

Fixed rate

Floating rate

–

913

931

–

913

966

(1) As most borrowings are based on short-term fixed rates, or floating 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.

Annual Report
62.

Our weighted average interest rates before tax
(considering hedge accounting), amounted to
3.98% at December 31, 2018 and to 3.73% at
December 31, 2017.

Our financial liabilities (other than trade payables
and derivative financial instruments) consist
mainly of bank loans. As of December 31, 2018,
U.S. dollar denominated financial debt plus debt
denominated in other currencies swapped to the
U.S. dollar represented 97% of total financial debt.

For further information about our financial debt,
please see note 18 “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, 2018, we had
variable interest rate debt of $19 million and fixed
rate debt of $520 million ($493 million of the fixed
rate debt are short-term).

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 correspond 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 $50 million in 2018, compared
with $51 million in 2017.

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.

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

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

Tenarisrisk 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, 2018.

All amounts in millions of U.S. dollars

CURRENCY EXPOSURE / FUNCTIONAL CURRENCY

Long / (Short) Position

Argentine Peso / U.S. dollar

Euro / U.S. dollar

(187)

(175)

The main relevant exposures as of December 31,
2018 were to Argentine peso-denominated financial,
trade, social and fiscal payables at our Argentine
subsidiaries, for which the functional currency is the
U.S. dollar, and Euro-denominated intercompany
liabilities at certain subsidiaries for which functional
currency is the U.S. dollar.

Foreign Currency Derivative Contracts
The net fair value of our foreign currency
derivative contracts amounted to a liability of
$3 million at December 31, 2018 and $32 million
at December 31, 2017. For further detail on our

foreign currency derivative contracts, please
see note 23 “Derivative financial instruments –
Foreign exchange derivative contracts and hedge
accounting” to our audited consolidated financial
statements included in this annual report.

63.

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 that 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.

Annual Report64.

At December 31, 2018, the effective portion of
designated cash flow hedges, included in other
reserves in shareholders’ equity amounted to a
debit of $0.9 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 2018.

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.

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.

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. Liquefied
natural gas (“LNG”), prices have traditionally been
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 USA becomes a relevant source of
LNG, LNG prices are now being set increasingly in
relation to prices prevailing at regional gas hubs.

Tenaris65.

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. Many of our
customers are state-owned companies in member
countries of 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
affecting the Middle East region, which is home to
a substantial proportion of the world’s known oil
reserves. On the demand side, economic conditions
and the level of oil inventories in the leading
industrial nations of the world, and more recently
China, which constitute the largest oil consuming
nations, also play a significant role in oil prices.

A more recent 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 around 10% of global
liquids production, and production from shale
gas plays is converting 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. Prices reached levels below $30
per barrel in January 2016. They 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 the first two months of 2019.

The 2014 collapse in oil prices led oil and gas
operators to substantially reduce their exploration
and production investments to a level which is
currently around 60% of the average of the
2012-14 period and 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
have been very successful in reducing production
costs in their shale plays, increased investments in
response to more favorable market conditions,
and U.S. operators continued to do so in 2018.

Annual Report66.

Since the development of the prolific Marcellus
shale gas play, North American gas prices have
remained at low levels compared to previous
decades. For the past three years, prices have
fluctuated in the range of $2.00-3.50 per million
BTU, significantly below prices in many other
major gas-consuming regions. For several years,
production increases, primarily from productive
shale gas deposits, have exceeded demand
increases, reducing the need for imports, to the
extent that, in 2017, the U.S. 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 U.S. has
become a major global LNG exporter.

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 strong recovery which eased during the
second half of 2017. Rig counts plunged to less than
a quarter of their former level as operators cut back
on investments for two consecutive years as their

cash flows declined with low oil and gas prices. At
the same time, they reduced drilling costs through
increased efficiencies, concentrating drilling on the
most productive plays, and negotiated lower supply
and service costs. Despite lower prices, production
levels are now higher than before the collapse in oil
prices but rig counts are at 60% of the levels they
reached in 2014, 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 and has continued
to decline during 2015, 2016 and 2017 before
beginning a gradual recovery in the second half of
2018. Although drilling activity in the Middle East
has been relatively stable, drilling in Latin America
and offshore drilling has declined significantly.

Tenarisnew 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.

In addition, the increasing cost competitiveness
and use of alternative renewable sources of energy
could limit growth in demand for oil and gas and
put downward pressure on oil and gas prices in the
longer term. This trend could accelerate if carbon
taxes or carbon pricing instruments resulting in
high prices for carbon emissions are implemented
around the world.

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 (“BHGE”), a General
Electric company, for the years indicated and the
percentage increase or decrease over the previous
year. BHGE, 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.

67.

RIG COUNT

International (*)

Canada

United States

Worldwide

2018

2017

2016

2015

2014

988

191

1,032

2,211

948

207

875

955

128

510

1,167

193

977

2,029

1,593

2,337

1,337

380

1,862

3,578

(*) International rig count excludes Iran, Sudan, onshore China, Russia and Syria (discontinued in February 2013).

PERCENTAGE INCREASE (DECREASE) OVER THE PREVIOUS YEAR

2018

2017

2016

2015

International (*)

Canada

United States

Worldwide

(4%)

18%

(1%)

62%

72%

27%

(18%)

(34%)

(48%)

(32%)

(13%)

(49%)

(48%)

(35%)

(*) International rig count excludes Iran, Sudan, onshore China, Russia and Syria (discontinued in February 2013).

Annual Report68.

Off-Balance Sheet Arrangements
As of December 31, 2018, the Company reported
the following financial commitments, consisting of
guarantees in connection to its participation in the
non-consolidated company Techgen:

•

Tenaris issued a corporate guarantee covering
22% of the obligations of Techgen under a
syndicated loan agreement between Techgen and
several banks, which was used in the construction
of the facility. The main covenants under the
corporate guarantee are Tenaris’s commitment to
maintain its participation in Techgen or the right
to purchase at least 22% of Techgen’s firm energy,
and compliance with a maximum permitted
leverage ratio. As of December 31, 2018, the
amount outstanding under the loan agreement
was $600 million and, as a result, the amount
guaranteed by Tenaris was approximately
$132 million. For a description of the refinancing
of the syndicated loan agreement, the release of
Tenaris’s corporate guarantee and the stand-by

letters of credit supporting certain covenants
under the new facility, see “Recent Developments –
Techgen refinancing” below.

Tenaris issued a corporate guarantee covering
22% of the outstanding value of natural gas
transportation capacity agreements entered into
by Techgen with Kinder Morgan Gas Natural de
Mexico S. de R.L. de C.V., and Kinder Morgan
Texas Pipeline LLC for a natural gas purchasing
capacity of 150,000 million BTU per day starting
on August 1, 2016 and ending on July 31, 2036.
As of December 31, 2018, our exposure under the
guarantee in connection with these agreements
amounted to $55.1 million.

In addition, we have various off-balance
sheet commitments, as described in note 24
“Contingencies, commitments and restrictions on
the distribution of profits – (ii) Commitments and
other purchase orders” to our audited consolidated
financial statements included in this annual report.

Tenaris69.

Outstanding
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.

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, Tenaris was able to make a reliable
estimate of the expected loss of range of probable
loss and has accrued a provision for such loss but
believes that publication of this information on
a case-by-case basis would seriously prejudice

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 its
consolidated financial statements (see notes 21
“Non-current allowances and provisions” and 22
“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 Tenaris could incur a charge
to earnings which could have a material adverse
effect on Tenaris’s 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, 2018. 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 subsdiaries that acquired
a participation in Usiminas’ control group in
January 2012.

Annual Report70.

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. The Superior Court of Justice
will review admissibility of CSN’s appeal, and, if
declares it admissible, will 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.

Tenaris 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.

Tenaris71.

•

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, Confab was ordered
to pay an amount of approximately BRL89.8 million
(approximately $23.2 million, including interest,
fees and expenses). On October 15, 2018, Confab
filed a request for homologation of the settlement
agreement mentioned above, as such settlement
agreement remains valid and binding between
the parties. On November 8, 2018, the settlement
agreement was homologated by the court.

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 BRL58.8 million
(approximately $ 15.2 million, including direct
damages, lost profits, 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 an amount currently estimated in BRL50.5
million (approximately $13 million) for 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. 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 has learned that Italian and
Swiss authorities are investigating whether
certain payments were made from accounts of
entities presumably associated with affiliates
of the Company to accounts controlled by an
individual allegedly related with officers of
Petróleo Brasileiro S.A. and whether any such
payments were intended to benefit 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 the audit committee
of the Company’s board of directors has engaged
external counsel in connection with a review
of the alleged payments and related matters. In
addition, the Company has voluntarily notified
the U.S. Securities and Exchange Commission and
the U.S. Department of Justice. The Company
continues to review these matters and to respond
to requests from and otherwise cooperate with the
appropriate authorities. 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 resolution of these matters.

Annual Report72.

Petroamazonas Penalties
On January 22, 2016, Petroamazonas (“PAM”),
an Ecuadorian state-owned oil company, imposed
penalties to the Company’s Uruguayan subsidiary,
TGS, for its alleged failure to comply with
delivery terms under a pipe supply agreement. The
penalties amount to approximately $22.5 million
plus interest thereon which as of the date hereof
amount to approximately $2.4 million. On June
27, 2018, TGS initiated arbitration proceedings
against PAM before the Quito Chamber of
Commerce Arbitration Center, seeking the
annulment of the penalties. In September 2018,
PAM filed its response to the arbitration claim.
The claim is currently in evidentiary stage before
the arbitration panel. Tenaris believes, based on
the advice of counsel, that PAM had no legal
basis to impose the penalties and that TGS has
meritorious defenses against PAM. However, the
Company cannot predict the outcome of a claim
against a state-owned company.

Contractor’s claim for additional costs
Tenaris Bay City, a U.S. subsidiary of the Company,
received claims from a contractor for alleged
additional costs in the construction of a project
located in the Bay City area for an amount initially
stated to be in excess of $90 million; however,
subsequently the contractor amended the amount
of the claim to $45 million plus attorneys’ fees and

arbitration costs. On June 30, 2017, the contractor
filed a demand for arbitration of these claims.
An arbitral panel was selected and a scheduling
order issued. The parties have already submitted
statements of claim and responses to the other
party’s claim. The final trial hearings on this
matter have begun in February 2019 and an award
is expected to be issued by June 2019. 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.

Tax assessment in Mexico regarding tax

deductions on purchases of scrap
In 2017, Tamsa and Servicios Generales Tenaris
Tamsa S.A (“Segeta”), two Mexican subsidiaries of
the Company, were informed that the Mexican tax
authorities had determined that the tax deductions
associated with certain purchases of scrap made by
the companies during 2013 failed to comply with
applicable requirements and, accordingly, should
be rejected. Tamsa and Segeta filed their respective
responses and complaints against the determination
and provided additional information evidencing
compliance with applicable requirements for the
challenged tax deductions. On August 30, 2018
and January 24, 2019, administrative decisions
were issued in the proceedings against Segeta and
Tamsa, respectively, determining a tax obligation in
the amount of MXN1,540 million (approximately

Tenaris73.

$78 million) for Segeta and MXN3,749 million
(approximately $190 million) for Tamsa. On October
15, 2018 and March 8, 2019, Segeta and Tamsa
filed revocation requests (recursos de revocación
exclusivos) against the August 2018 decision as to
Segeta and the January 2019 decision as to Tamsa.
On March 27, 2019, Segeta was notified that the
Mexican tax authorities had reversed and left
without effects their former tax determination.
Tenaris believes, based on the advice of counsel and
on the recent favorable resolution regarding Segeta,
that it is unlikely that the ultimate resolution of either
tax assessment will result in a material obligation.

inflated the Tenaris share price by failing to
disclose that sale proceeds received by Ternium (in
which Tenaris held an 11.46% stake) when Sidor
was expropriated by Venezuela were received or
expedited as a result of alleged improper payments
made to Argentine officials. The complaint does
not specify the damages that plaintiff is seeking.
Management believes the Company has meritorious
defenses to these claims, however, 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.

Investigation concerning alleged price

overcharges in Brazil
In 2018, two Brazilian subsidiaries of the Company
were notified of formal charges arising from a
review by the Tribunal de Contas da Uniao (TCU)
for alleged price overcharges on goods supplied
to Petrobras under a supply contract. Both
companies have already filed their defenses. The
estimated amount of this claim is BRL27 million
(approximately $7 million). Tenaris believes, based
on the advice of counsel and external consultants,
that the prices charged under the Petrobras contract
do not result in overprices and that it is unlikely
that the ultimate resolution of this matter will
result in a material obligation.

Annual ReportRecent
developments

74.

Acquisition of Saudi Steel Pipe Company

a) Acquisition
On January 21, 2019, Tenaris acquired 47.79% of
the shares of SSP, a welded steel pipes producer
listed on the Saudi Stock Exchange, for a total
amount of SAR529.8 million (approximately $141
million). The amount was paid with Tenaris cash
in hand. SSP’s facilities are located in the Eastern
Province of the Kingdom of Saudi Arabia and have
a manufacturing capacity of 360,000 tons per year.
SSP started its operations in 1980 and serves energy
industrial and commercial segments, is qualified to
supply products to major national oil companies
in the region. Upon closing of the acquisition, four
Tenaris’s nominees were appointed as new members
of the SSP’s board of directors and a senior
executive with Tenaris was appointed as managing
director and Chief Executive Officer of SSP.

The Company has begun consolidating
SSP’s balances and results of operations since
January 21, 2019.

b) Fair value of net assets acquired
The application of the purchase method requires
certain estimates and assumptions especially
concerning the determination of the fair values
of the acquired intangible assets and property,
plant and equipment as well as the liabilities
assumed at the date of the acquisition. The fair
values determined at the acquisition date are
based mainly on discounted cash flows and other
valuation techniques.

The preliminary 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:

SAR million

USD million

Property, Plant and Equipment

Intangible assets

Investment in associated

Working capital

Cash and Cash Equivalents

Other Receivables

Borrowings

Employees end of service benefits

Net assets acquired

675

278

168

(304)

(59)

878

180

(81)

(16)

234

Tenaris
75.

Tenaris acquired 47.79% of the total assets and
liabilities shown above, approximately $112
million of net assets.

The preliminary purchase price allocation
disclosed above is currently under analysis with
the assistance of a third party expert. Following
IFRS 3, the Company will continue reviewing the
allocation and make any necessary adjustments
(mainly over Property, Plant and Equipment,
Intangible Assets and Provisions) during the twelve
months following the acquisition date.

Agreement to build welded pipe plant in West

Siberia
On February 5, 2019 Tenaris entered into an
agreement with PAO Severstal to build a welded
pipe plant to produce OCTG products in the
Surgut area, West Siberia, Russian Federation.
Tenaris will hold a 49% interest in the company,
while PAO Severstal will own the remaining 51%.
The commencement of the project is subject
to regulatory approvals and other customary
conditions. The plant, which is estimated to
require an investment of $240 million and a two-
year construction period, is planned to have an
annual production capacity of 300,000 tons.

Techgen refinancing
On February 13, 2019, Techgen entered into a
$640 million loan agreement with several banks to
refinance its obligations under the 2014 syndicated
loan. Techgen’s obligations under the new facility,
which is “non-recourse” on the sponsors, will be
guaranteed by a Mexican security trust covering

Techgen’ shares, assets and accounts as well as
Techgen’s affiliates rights under certain contracts. In
addition, Techgen’s collection and payment accounts
not subject to the trust have been pledged in favor
of the lenders under the new loan agreement, and
certain direct agreements –customary for these type
of transactions– have been entered into with third
parties and affiliates, including in connection with
the agreements for the sale of energy produced by
the project and the agreements for the provision of
gas and long-term maintenance services to Techgen.
The commercial terms and conditions governing the
purchase, by the Company’s Mexican subsidiary
Tamsa, of 22% of the energy generated by the
project remain unchanged.

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 and its Swiss subsidiary Tenaris
Investments Switzerland AG applied for stand-
by letters of credit covering 22% of the debt
service coverage ratio, which as of the date hereof
amounts to $9.8 million.

The proceeds of the new loan, drawn on February
26, 2019, have been used to repay all loans
outstanding under the 2014 syndicated facility.
Following repayment of such loans, Tenaris’s
corporate guarantee thereunder has been
automatically released.

Annual Report

76.

Annual Dividend Proposal
On February 20, 2019 the Company’s board of
directors proposed, for the approval of the Annual
General Shareholders' meeting to be held on May
6, 2019, 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
21, 2018. 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 22, 2019, with an ex-dividend
date of May 20, 2019. The consolidated financial
statements included in this annual report do not
reflect this dividend payable.

Tenaris to Acquire IPSCO Tubulars from TMK
On March 22, 2019, we entered into a definitive
agreement to acquire from TMK, a Russian
company and manufacturer of steel pipes, 100%
of the shares of its wholly owned U.S. subsidiary
IPSCO, for $1,209 million. The transaction is
subject to regulatory approvals, including approval
by the U.S. antitrust authorities, and other
customary conditions. IPSCO is a U.S. domestic
producer of seamless and welded OCTG and line
pipe products, with an annual production capacity
of 450,000 metric tons of steel bars, 400,000 metric
tons of seamless pipes and 1,000,000 metric tons
of welded pipes, and production facilities spread
throughout the country.

Corporate
Governance
Statement

The Company’s corporate governance practices
are governed by Luxembourg Law, which
includes, among others, the Luxembourg Law
of August 10, 1915 on commercial companies,
or “Luxembourg Company Law”, the law of
January 11, 2008, implementing the European
Union’s transparency directive and the law of May
24, 2011, implementing the European Union’s
directive on the exercise of certain shareholders’
rights in general meetings of listed companies and
the Luxembourg law of July 23, 2016, concerning
the audit profession (the “Audit Reform Law”)
and the Company’s articles of association. As a
Luxembourg company listed on the New York
Stock Exchange (the NYSE), the Bolsa Mexicana
de Valores, S.A. de C.V. (the Mexican Stock
Exchange), the Bolsa de Comercio de Buenos Aires
(the Buenos Aires Stock Exchange) and 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
the Company’s 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.

For a summary of the significant ways in which the
Company’s corporate governance practices differ
from the corporate governance standards required
for controlled companies by the exchanges on
which the Company’s shares are traded, please visit
our website at: www.tenaris.com/investors/

Tenaris77.

The Company has adopted a code of conduct
incorporating guidelines and standards of integrity
and transparency applicable to all of our directors,
officers and employees. As far as the nature of each
relation permits, principles detailed in the code of
conduct also apply to relations with our contractors,
subcontractors, suppliers and associated persons.
In addition, we have adopted a supplementary
code of ethics, which applies specifically to our
principal executive officer, principal financial officer,
principal accounting officer or controller, or persons
performing similar functions and is intended to
supplement the Company’s code of conduct. The
text of our code of conduct and code of ethics is
posted on our Internet website at: www.tenaris.com/
en/aboutus/codeofconduct.aspx

Shareholders’ Meetings; Voting Rights;

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. 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
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 vote of the
shares validly cast at the meeting. 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 shares is represented at the
meeting. If a quorum is not reached at the first

Annual Report78.

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. Directors are elected at
ordinary general shareholders’ meetings.

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 may 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 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 things
our Consolidated Financial Statements and Annual
Accounts included in this report, will take place in
the Company’s registered office in Luxembourg, on
Monday May 6, 2019, at 9:30 A.M., Luxembourg
time. The current articles of association provide
that the annual ordinary general shareholder’s
meetings must take place in Luxembourg within
six months from the end of the previous financial
year at the date, place and hour indicated in the
convenience notice. The rights of the shareholders
attending the meetings are governed by the
Luxembourg law of 24 May 2011 on the exercise of
certain rights of shareholders in general meetings
of listed companies.

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.

The notice to the annual general shareholders
meeting to be held on May, 2019, and the
Shareholder Meeting Brochure and Proxy
Statement for the meeting, describing the
procedures for attending and voting at the meeting
applicable to shareholders is available at the
Company’s website at www.tenaris.com/investors,
and will be timely filed by the Company with the
applicable authorities.

TenarisAccess 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.

79.

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.

Annual Report80.

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 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 him 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 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.

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 their shares.

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

Tenaris81.

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.

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. 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 the 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.

•

Under the Company’s articles of association the
board of directors is authorized until 2020 to
increase the issued share capital in whole or in
part from time to time, through issues of shares
within the limits of the authorized share capital
against compensation in cash, compensation

in kind at a price or if shares are issued by way
of incorporation of reserves, at an amount,
which shall not be less than the par value and
may include such issue premium as the board
of directors shall decide. Under the Company’s
articles of association, however, 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
preferential 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;

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 (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).

Annual Report82.

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 Director

Age at
December 31, 2018

Mr. Roberto Bonatti (1)

Mr. Carlos Condorelli

Mr. Germán Curá

Mr. Roberto Monti

Mr. Gianfelice Mario Rocca (1)

Mr. Paolo Rocca (1)

Mr. Jaime Serra Puche

Mr. Yves Speeckaert

Ms. Mónica Tiuba

Mr. Amadeo Vázquez y Vázquez

Mr. Guillermo Vogel

Director

President of San Faustin

Director of Tenaris and Ternium

Director and Vice Chairman of the Board of Tenaris

Member of the board of directors of YPF S.A.

Chairman of the board of directors of San Faustin

Chairman and Chief Executive Officer of Tenaris

Chairman of SAI Consultores

Director of Tenaris

Director and Vice Chairman of the Board of Tenaris

(1) Paolo Rocca and Gianfelice Rocca are brothers, and Roberto Bonatti is Paolo and Gianfelice Rocca’s first cousin.

Tenaris

83.

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 Deep Ocean
AS. 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 (“YPF). 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, of the advisory
board of Politecnico di Milano.
At international level, he is member
of the Harvard Business School
Advisory Board. Mr. Rocca is an
Italian citizen.

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 since 2001 he has served as its
president. In addition, Mr. Bonatti
currently serves as president of
Techint Financial Corporation N.V.
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.

Annual Report84.

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, a director
and vice president of San Faustin,
and a director of Techint Financial
Corporation. He is a member of the
executive committee of the World
Steel Association. Mr. Rocca is an
Italian citizen.

Jaime 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 Consultores,
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.
Mr. Speeckaert is a Belgian citizen.

Mónica Tiuba
Ms. Tiuba is a member of the
Company’s board of directors
and of its audit committee. She is
a Brazilian qualified lawyer and
accountant with over 17 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 holds 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 citizen.

Tenaris85.

Amadeo Vázquez y Vázquez
Mr. Vázquez y Vázquez is a member of the
Company’s board of directors and the chairman of
its audit committee. He is an independent alternate
director of Gas Natural BAN, S.A, of Grupo Gas
Natural Fenosa. He is a member of the advisory
board of the Fundación de Investigaciones
Económicas Latinoamericanas and member of
the Asociación Empresaria Argentina. He is a
business consultant and previously served as
Chief Executive Officer of Banco Río de la Plata
S.A. until August 1997, independent director and
chairman of the audit committee of BBVA Banco
Francés S.A. until 2003, and Chairman of the
board of directors of Telecom Argentina S.A. until
April 2007. Mr. Vázquez y Vázquez is a Spanish
and Argentine 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
Grupo Collado and Exportaciones IM Promoción,
and served as president of Canacero until April
16, 2018. Mr. Vogel is also a member of the board
of directors of each of Techint, S.A. de C.V.,
Corporación Alfa, Banco Santander (México) S.A,
the Universidad Panamericana – IPADE, Rassini,
Corporación Mexicana de Inversiones de Capital,
Innovare, Grupo Assa and the American Iron and
Steel Institute. In addition, he is a member of
The Trilateral Commission and member of the
International Board of The Manhattan School of
Music. Mr. Vogel is a Mexican citizen.

Board members Monti, Serra Puche, Speeckaert,
Tiuba, Vázquez y Vázquez qualify as independent
directors for purposes of the U.S. Securities Exchange
Act Rule 10A-3(b)(1), and board members Messrs.
Monti, Serra Puche, Speeckaert and Vázquez y
Vázquez also qualify as independent directors under
the Company’s articles of association.

Director 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 Company Law, a director
may be liable to the Company for any damage
caused by management errors, such as wrongful
acts committed during the execution of his or her
mandate, and to the Company, its shareholders
and third parties in the event that the Company, its
shareholders or third parties suffer a loss due to an
infringement of either the Luxembourg Company
Law on commercial companies 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 his statement to be included in
the minutes of the meeting, and may not take part
in these 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.

Annual Report86.

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.

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 under the Company’s
articles of association.

An action may also be brought against the
directors on behalf of the Company by
shareholders who, at the general meeting which
decided upon discharge of such directors or
members, owned securities with the right to vote
at such meeting representing at least ten per cent
of the votes attaching to all 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 the directors from liability for any
personal loss of the shareholders independent and
separate from the losses suffered by the Company
due to a breach either revealed and unrevealed
of either the Luxembourg Company Law or the
Company’s articles of association.

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 four members: Roberto
Monti, Jaime Serra Puche, Mónica Tiuba and
Amadeo Vázquez y Vázquez, who were appointed
to the audit committee on May 2, 2018. All of

Tenaris87.

them qualify as independent directors for purposes
of the U.S. Securities Exchange Act Rule 10A-3(b)
(1), and Messrs. Monti, Serra Puche and Vázquez
y Vázquez also qualify as independent directors
under the Company’s articles of association. The
board of directors of the Company has determined
that Ms. Tiuba is competent in accounting or
auditing matters. 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.

entered into by the Company or its subsidiaries
with “related parties”, as such term is defined in
the Company’s articles of association, in order
to determine whether their terms are consistent
with market conditions or are otherwise fair to the
Company and/or its subsidiaries. In the case of
material transactions entered into by the Company’s
subsidiaries with related parties, the Company’s
audit committee will review those transactions
entered into by those subsidiaries whose boards of
directors do not have independent members.

The audit committee operates under a charter
which has been amended and restated by the board
of directors on October 31, 2018, to implement
adequate procedures to discharge the audit
committee’s duties and responsibilities under
applicable law, including the Audit Reform Law. 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 by
the Company’s articles of association to review
“material transactions”, as such term is defined
under the Company’s articles of association, to be

Under the Company’s articles of association, as
supplemented by the audit committee’s charter, a
material transaction is:

•

any transaction between the Company or its
subsidiaries with related parties (i) with an individual
value equal to or greater than $10 million, or (ii)
with an individual value lower than $10 million,
when the aggregate sum – as reflected in the financial
statements of the four fiscal quarters of the Company
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;
any corporate reorganization transaction (including
a merger, spin-off or bulk transfer of a business)

Annual Report88.

•

affecting the Company for the benefit of, or involving,
a related party; and
any corporate reorganization transaction (including
a merger, spin-off or bulk transfer of a business) not
reviewed and approved by the independent members
of the board of directors of any of the Company’s
direct or indirect subsidiaries, affecting any of the
Company’s direct or indirect subsidiaries for the
benefit of, or involving, a related party.

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.

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. A material related party transaction
shall not be entered into without prior review by
the Company’s audit committee and subsequent
approval by the board of directors unless (i) the
circumstances underlying the proposed transaction
justify that it be entered into before the time it
can actually be reviewed by the Company’s audit
committee or approved by the board of directors
and (ii) the related party agrees to unwind the
transaction if the Company’s board of directors
does not approve it.

The audit committee has the authority to conduct
any investigation appropriate to the fulfillment

In addition, the Company has established at
management-level a critical risk committee that
assists the Company’s board of directors, the
audit committee and the Chief Executive Officer
with the oversight of risks to which Tenaris is
exposed and in the monitoring and review of
the risk management framework and processes,
with a focus on those risks deemed to be critical.
In the performance of its functions, the critical
risk committee facilitates the identification
and assessment of 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.

TenarisSenior management
Our current senior management as of the date
of this annual report consists of:

Name

Position

Age at
December 31, 2018

89.

Mr. Paolo Rocca

Mr. Edgardo Carlos

Mr. Antonio Caprera

Chairman and Chief Executive Officer

Chief Financial Officer

Chief Industrial Officer

Mr. Gabriel Casanova

Chief Supply Chain Officer

Mr. Alejandro Lammertyn

Chief Digital and Planning Officer

Ms. Paola Mazzoleni

Mr. Marcelo Ramos

Chief Human Resources Officer

Chief Technology Officer

Mr. Guillermo Gabriel Moreno (1)

President, Canada

Mr. Luca Zanotti (1)

President, United States

Mr. Sergio de la Maza (1)

Mr. Ricardo Prosperi (1)

Mr. Renato Catallini

President, Mexico

President, Andean

President, Brazil

Mr. Javier Martínez Álvarez

President, Southern Cone

Mr. Gabriel Podskubka

President, Eastern Hemisphere

Mr. Michele Della Briotta

President, Europe

(1) Effective as of May 2, 2018, Germán Curá ceased to act as president of our North American

operations and was appointed as member of the board of directors. His position was dissolved
and Luca Zanotti continued to act as the president of our U.S. operations and Guillermo Gabriel
Moreno continued to act as the president of our Canadian operations. Effective October 1,
2018, the position President, Central America, under Sergio de la Maza was dissolved, replaced
by President, Mexico, under Sergio de la Maza, and President, Andean, under Ricardo Prosperi.

Annual Report

90.

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, a director
and vice president of San Faustin,
and a director of Techint Financial
Corporation. He is a member of the
Executive Committee of the World
Steel Association. Mr. Rocca is an
Italian citizen.

Edgardo Carlos
Mr. Carlos currently serves as our
Chief Financial Officer, a position
he has held since 2013. He joined
the Techint Group in 1987 in the
accounting department of Siderar.
After serving as financial manager
for Sidor, in Venezuela, in 2001
he joined Tenaris as our financial
director. In 2005 he was appointed
administration and financial manager
for North America and in 2007 he
became administration and financial
director for Central America. In 2009
he was appointed economic and
financial planning director, until he
assumed his current position.
Mr. Carlos is an Argentine citizen.

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 Planning
Officer. He has served as our
Chief Planning and Commercial
Coordination Officer since 2013 and
assumed additional responsibility for
digital strategy and implementation
in January 2019. 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 and Eastern
Hemisphere area manager. Mr.
Lammertyn is an Argentine citizen.

Paola Mazzoleni
Ms. Mazzoleni currently serves as
our Chief Human Resources Officer,
a position she assumed on January
1, 2016. After receiving a degree in
Philosophy, she started her career
in Dalmine in 2001 in the human
resources department, working in
recruitment and selection. She next
coordinated the company’s Global
Trainee Program and then served
as the regional head in Italy of
Tenaris University. Ms. Mazzoleni
was appointed as human resources
director in Romania in 2008, in Italy
in 2012 and in the United States
in 2014. Ms. Mazzoleni is an
Italian citizen.

TenarisMarcelo 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.

Guillermo Gabriel Moreno
Mr. Moreno currently serves as
our president of our operations
in Canada. He first joined Siderca
in 1987 and gained progressive
responsibilities in finance and
marketing positions until 1993. From
1993 to 1996, he became responsible
for sales in Latin America. In 1996
he became Tamsa’s exports sales
director. In 1999 he became the
director of the Pipeline Services
business unit and eventually took
over the position of director of
Oilfield Services business unit in
2004. He served as planning director
from 2010 to 2012, when he assumed
his current position. Mr. Moreno is
an Argentine citizen.

91.

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 the
Andean Region, Central America
and the Caribbean, based in
Colombia. He joined the Techint
Group in 1985, working in the
Siderar planning department. From
1985 to 1998, Mr. Prosperi worked
in 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,
assuming his current position.
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 Internacional, TransCanada
Pipelines and TotalFinaElf, among
others. Mr. Catallini is an Argentine
and Italian citizen.

Annual Report92.

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.

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.

Tenaris93.

Directors’ and senior management compensation
The compensation of the members of the
Company’s board of directors is determined at the
annual ordinary general shareholders’ meeting.
Each member of the board of directors received
as compensation for their services for the year
2018 a fee of $115,000. The chairman of the audit
committee received as additional compensation
a fee of $65,000, while the other members of
the audit committee received an additional fee
of $55,000. Under the Company’s articles of
association, the members of the audit committee
are not eligible to participate in any incentive
compensation plan for employees of the Company
or any of its subsidiaries.

During the years ended December 31, 2018, 2017
and 2016, the cash compensation of directors
and senior managers amounted to $33.7 million,
$45.8 million and $38.6 million, respectively. These
amounts include cash benefits paid to certain
senior managers in connection with pre-existing
retirement plans. In addition, directors and senior
managers received 558, 484 and 500 thousand units
for a total amount of $5.6 million, $4.7 million
and $4.8 million, respectively, in connection with
the Employee retention and long-term incentive
program described in note O (3) “Employee
benefits - Other long term benefits” to our audited
consolidated financial statements included in this
annual report.

There are no service contracts between any
director and Tenaris that provide for material
benefits upon termination of employment.

Auditors
The Company’s articles of association require the
appointment of an external 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).

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 by the general shareholders’ meeting
at any time, with or without cause. Luxembourg
law does not allow directors to serve concurrently
as external auditors. As part of their duties, the
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

Annual Report94.

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 eventually requests the board of diretors
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 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.

Our independent approved statutory auditor for
the fiscal year ended December 31, 2018, appointed
by the shareholders’ meeting held on May 2, 2018,
was PwC Luxembourg, in connection with the
Company’s annual accounts and our consolidated
financial statements. At the next annual general
shareholders’ meeting, 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, 2019, to be

engaged until the next annual general meeting of
shareholders that will be convened to decide on the
Company’s 2019 annual accounts.

Fees Paid to the Company’s External Auditor
In 2018 and 2017, PwC served as the principal
external auditor for the Company. Fees for the
years ended December 31, 2018 and 2017 are
detailed below.

Thousands of U.S. dollars

FOR THE YEAR ENDED DECEMBER 31

2018

2017

Audit Fees

Audit-Related Fees

Tax Fees

All Other Fees

Total

3,841

3,995

–

3,891

4,136

Audit Fees
Audit fees were paid for professional services
rendered by the 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
for the U.S. Securities and Exchange Commission or
other regulatory filings.

Audit-Related Fees
Audit-related fees are typically services that are
reasonably related to the performance of the audit
or review of the consolidated financial statements

Tenaris95.

of the Company and 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 their annual reports
that are filed with their respective regulators.

Tax Fees
Fees paid for tax compliance professional services.

All Other Fees
Fees paid for the support in the development of
training courses.

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. 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. The audit committee delegates
to its Chairman the authority to consider and
approve, on behalf of the audit committee,
additional non-audit services that were not
recognized at the time of engagement, which must
be reported to the other members of the audit
committee at its next meeting. No services outside
the scope of the audit committee’s approval can be
undertaken by the external auditor.

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 933,817,
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

Guillermo Vogel

Carlos Condorelli

Guillermo G. Moreno

Edgardo Carlos

Gabriel Podskubka

Total

Number of
Shares Held

850,446

67,211

8,214

4,000

3,946

933,817

Annual Report
96.

Major shareholders
The following table shows the beneficial ownership
of the shares 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)

Directors and senior

management as a group

Public

Total

713,605,187

60.45%

933,817

465,997,826

0.08%

39.47%

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 Dutch private foundation RP STAK holds voting rights in San Faustin
sufficient to control San Faustin. No person or group of persons controls RP STAK.

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 subsequent date result in a change of control
of the Company.

Information required under the Luxembourg Law

on takeovers of May 19, 2006
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 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’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
shareholder’s meeting. The Company has an
authorized share capital of a single class of
2,500,000,000 shares with a par value of $1.00 per
share. There were 1,180,536,830 shares issued as of
December 31, 2018. All issued shares are fully paid.

Tenaris

97.

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 incorporation of 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 in their discretion resolve.
The validity period of such authorization will
expire (unless renewed) on June 5, 2020.

•

The Company’s shareholders have authorized the
board of directors to waive, suppress or limit any
pre-emptive subscription rights of the 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 pre-emptive subscription
rights provided for by law and related procedures.
The validity period of such authorization will expire
(unless renewed) on June 5, 2020. 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 preferential
subscription rights shall apply):

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 of 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).

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 the Company’s shares.

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.

•

any issuance of shares (including, without limitation,
the direct issuance of shares or upon the exercise

The Company is controlled by San Faustin, which
owns 60.45% of the Company’s outstanding
shares, through its wholly owned subsidiary Techint

Annual Report98.

Holdings S.à r.l. The Dutch private foundation
(Stichting) RP STAK holds voting rights in San
Faustin sufficient to control San Faustin. No person
or group of persons controls RP STAK.

Our directors and senior management as a group
own 0.08% of the Company’s outstanding shares,
while the remaining 39.47% are publicly traded.
The Company’s shares trade on the Italian Stock
Exchange, the Buenos Aires Stock Exchange and
the Mexican Stock Exchange; in addition, the
Company’s ADSs trade on the New York Stock
Exchange. See “Corporate Governance – Major
Shareholders”.

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
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.

None of the Company’s 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

Management is vested in a board of directors.
Directors are elected at the annual ordinary
shareholders’ meeting to serve one-year renewable
terms. See “Corporate Governance – Board
of Directors”.

TenarisRelated party
transactions

Tenaris is a party to several related party
transactions as described below. 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 “Corporate
Governance – 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 these companies 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
$102 million in 2018, $120 million in 2017 and
$9 million in 2016.
Purchases of flat steel products for use in the
production of welded pipes and accessories, which
amounted to $38 million in 2018, $43 million in
2017 and $18 million in 2016.
Purchases of scrap and other raw materials for
use in the production of seamless pipes, which
amounted to $2 million in 2018.

In the ordinary course of business, we purchase
flat steel products for use in our welded steel pipe
operations, from Usiminas. These purchases,
which are made on similar terms and conditions
as sales made by this company to unrelated third
parties, amounted to $68 million in 2018, $43
million in 2017 and $34 million in 2016.

or its subsidiaries. These sales are made on similar
terms and conditions as purchases made by these
companies from unrelated third parties. These
transactions include:

99.

•

Sales of ferrous scrap, and other raw materials,
which amounted to $11 million in 2018, $26
million in 2017 and $14 million in 2016.
Sales of steam and operational services from our
Argentine electric power generating facility in
San Nicolás. These sales amounted to $13 million
in 2018, $11 million in 2017 and $12 million in
2016. On January 29th 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 has the remaining 50%
share ownership, provides to Tecpetrol and other
companies controlled by San Faustin with purchase
agency services and sales of raw materials and
other products. Under the Exiros shareholder
arrangements, Tenaris recognizes Exiros’ assets,
liabilities, revenue and expenses in relation to its
interest in the joint operation. Exiros’ sales to
companies controlled by San Faustin totaled
$16 million in 2018.

Supply of Electric Energy
Techgen is an electric power plant in Mexico,
which is currently owned 48% by Ternium, 30%
by Tecpetrol and 22% by Tenaris. Techgen became
fully operational on December 1, 2016. Ternium
and Tenaris currently contract 78% and 22%,
respectively, of Techgen’s power capacity. Sales to
Tenaris amounted to $36 million in 2018, $29 million
in 2017 and $4 million in 2016.

Sales of Raw Materials
In the ordinary course of business, we sell raw
materials and other production inputs to Ternium

Supply of Natural Gas
We are party to contracts with Tecpetrol,
Transportadora de Gas Norte S.A. (“TGN”),

Annual Report100.

Litoral Gas and Energy Consulting Services
relating to the supply of natural gas to our
operations in Argentina. Tecpetrol, a company
controlled by San Faustin, is engaged in oil and
gas exploration and production and has rights
to various oil and gas fields in Argentina and
elsewhere in America. TGN operates two major
pipelines in Argentina connecting the major gas
basins of Neuquén and Noroeste-Bolivia to the
major consumption centers in Argentina, while
Litoral Gas distributes gas in the Province of Santa
Fe and in the northeastern section of the Province
of Buenos Aires. Energy Consulting Services is
a company engaged in energy and management
consulting, representing one of the major natural
gas traders in Argentina. San Faustin holds
significant but non-controlling interests in TGN,
Litoral Gas and Energy Consulting Services.

Tecpetrol supplies Siderca with natural gas
requirements under market conditions and
according to local regulations. Tecpetrol’s sales to
Tenaris amounted to $95 million in 2018 and $7
million in 2017.

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 $8 million in 2018, $3 million in 2017
and $2 million in 2016.

Litoral Gas’s sales to Tenaris totaled $3 million in
2018, $5 million in 2017 and $3 million in 2016.

Energy Consulting Services’s sales to Tenaris
totaled $2 million in 2018, $7 million in 2017 and
$5 million in 2016.

Provision of Engineering and Labor Services
We contract with certain companies controlled
by San Faustin engineering 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 $33 million in 2018,
$40 million in 2017 and $45 million in 2016.

TenarisSales 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 significant influence
of San Faustin amounted to $129 million in 2018,
$95 million in 2017 and $34 million in 2016.

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 in 2018, $2 million
in 2017 and $2 million in 2016.

including Tenaris. Fees accrued for these services
amounted to $10 million in 2018, $12 million in
2017 and $11 million in 2016.

101.

Loans to Related Parties
We financed Techgen’s Pesquería project primarily
in the form of subordinated loans to Techgen.
Outstanding loans to Techgen as of December 31,
2018, amounted to $99 million, as of December 31,
2017 to $93 million, and as of December 31, 2016 to
$86 million. These loans generated interest gains in
favor of Tenaris in an amount of $5 million in 2018,
$4 million in 2017 and $2 million in 2016.

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 $9 million in 2018,
$3 million in 2017 and $11 million in 2016.

Administrative, Legal and Other Support Services
Finma S.A., Arhsa S.A (merged with Finma on
January 1, 2018) and Techinst S.A. a group of
companies controlled by San Faustin in which we
have a 33% share ownership and other affiliates
of San Faustin have the remaining share ownership,
provide administrative, legal and other support
services to San Faustin’s affiliates in Argentina,

We purchased industrial cleaning equipment from
companies controlled by San Faustin for an amount
of $3 million in 2016.

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 believed to be material.

Annual ReportDividends

102.

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.

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 does not have, and has no current
plans to establish, a formal dividend policy
governing the amount and payment of dividends
or other distributions. Dividends may be lawfully
declared and paid if the Company’s profits
and distributable reserves are sufficient under
Luxembourg law. The amount and payment of
dividends must be determined 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, but payment of such dividends
must be finally approved by the Company’s general
shareholders’ meeting.

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,

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. See
“Principal Risks and Uncertainties – Risks Relating
to the Structure of the Company – As a holding
company, the Company’s ability to pay cash
dividends depends on the results of operations and
financial condition of its subsidiaries and could be
restricted by legal, contractual or other limitations”.

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 the
Company’s 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 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, 2018, the Company’s legal reserve
represented 10% of its share capital. The legal
reserve is not available for distribution.

TenarisThe following table shows the dividends approved
by the Company’s shareholders in the last five years:

103.

Approved dividend

Dividend payment date

Amount (USD million)

Per share (USD)

Per ADS (USD)

Interim Dividend

Dividend Balance

May 7, 2014

May 6, 2015

May 4, 2016

May 3, 2017

May 2, 2018

508

531

484

0.43

0.45

0.41

0.86

0.90

0.82

November 2013

November 2014

November 2015

November 2016

November 2017

May 2014

May 2015

May 2016

May 2017

May 2018

On February 20, 2019 the Company’s board of
directors proposed, for the approval of the annual
general shareholders’ meeting to be held on May 6,
2019, 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 21, 2018. 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 22,
2019, with an ex-dividend date of May 20, 2019.

Annual ReportEmployees

104.

The following table shows the number of persons
employed by Tenaris as of December 31:

AT DECEMBER 31

2018

2017

2016

Mexico

Argentina

USA

Italy

Romania

Brazil

Colombia

Canada

Indonesia

Japan

Other Countries

Employees in discontinued operations

Total employees in continuing operations

5,728

5,139

4,968

5,569

2,410

2,173

1,877

1,374

1,106

1,034

554

399

1,248

23,472

–

5,221

1,953

2,088

1,870

1,382

1,003

919

506

410

1,114

21,605

–

4,755

1,636

1,979

1,631

1,166

750

473

509

458

1,074

19,399

(323)

23,472

21,605

19,076

The number of our employees increased 9% during
2018 as we continued to adjust our operations to
face the increase in drilling activity and demand
of pipes. Our labor costs worldwide related to
continuing operations also increased 9%.

The acquisition of SSP in January 2019 resulted in the
incorporation of approximately 850 new employees.

Approximately 63% of our employees are
unionized. In all the countries we have presence,

we operate in the fully respect of the institutional
rules and local norms, generating recognized
agreements among all the parties involved.
Nevertheless, as forging the relationship with the
unions imply negotiations, the complexity of the
conversations is high. Concerning the punctual
situation in Mexico that developed during 2017
and that goes beyond our company, the leader was
confirmed in the position and although the Union
is facing internal differences, our activities in the
plant remain normal.

TenarisDiversity

Non-financial
Information

105.

Tenaris is committed to building a culture of
transparency and integrity, based on ethical behavior
and compliance with the law. We believe this is
essential for the sustainability of our activities.

As of 2016 we formalized an integrated risk-based
methodology to better identify, evaluate and prioritize
the sustainability challenges that can impact our
ability to achieve our goals and our relationship with
our stakeholders.

The non-financial information required by
article 1730-1 of the Luxembourg Company Law
and articles 68 and 68bis of the Luxembourg
law of December 19, 2002 on the commercial
and companies register and on the accounting
records and annual accounts and undertakings, as
amended, has been published under the name of
“Sustainability Report” as of the date of this annual
report and is available on www.tenaris.com (http://
ir.tenaris.com/reports.cfm).

Tenaris embraces diversity in all its forms, on the
understanding that diverse points of view and
perspectives contribute to the rational solution
of problems and the effective accomplishment of
goals. Diversity based on ethnicity, gender, creed,
race and nationality is part of Tenaris’s DNA and
constitutes an important differentiation aspect of
our uniqueness as a global enterprise. Tenaris, as a
global organization that draws its workforce from
diverse cultures and backgrounds, values cultural
and geographic adaptability among its employees.

The Company’s Code of Conduct prohibits
unlawful discrimination in employment
relationship and grants all persons the right to
apply for a position in Tenaris or to be considered
for a new position in accordance with opening
requirements and merit criteria, without any
arbitrary discrimination. All employees, at every
level, must cooperate to maintain a respectful
environment should there be personal differences.

Similarly, the Company’s Human Resources Policy
promotes equal opportunity and provides that
hiring, promotion, transfer and other employment
decisions will be adopted without regard to race,
color, religion, gender, age, disability, national
origin or sexual orientation. Compensation in
Tenaris is strictly based on each employee’s duties
and personal performance, competencies and
behavior. In addition, Tenaris conducts periodic
employees’ opinion surveys to have updated
information on how our employees perceive the
equal opportunities culture and management’s
commitment with diversity and respect for the
value of human, cultural and lifestyle differences.
Finally, Tenaris has organized local diversity
committees in all regions working on specific
regional objectives on diversity.

Annual Report106.

TenarisManagement
certification

We confirm, to the best of our knowledge, that:

107.

the consolidated financial statements prepared in conformity with International
Financial Reporting Standards (“IFRS”), as issued by the International Accounting
Standards Board and in accordance with IFRS as adopted by the European Union,
included in this annual report, give a true and fair view of the assets, liabilities,
financial position and profit or loss of Tenaris S.A. and its consolidated subsidiaries,
taken as a whole;

the annual accounts prepared in accordance with Luxembourg legal and regulatory
requirements, included in this annual report, give a true and fair view of the assets,
liabilities, financial position and profit or loss of Tenaris S.A.; and

the consolidated management report on the consolidated financial statements included
in this annual report, which has been combined with the management report on the
annual accounts included in this annual report, gives a fair review of the development
and performance of the business and the position of Tenaris S.A., or Tenaris S.A. and
its consolidated subsidiaries, taken as a whole, as applicable, together with a description
of the principal risks and uncertainties they face.

/s/ Paolo Rocca

Chief Executive Officer
Paolo Rocca

April 1, 2019

/s/ Edgardo Carlos

Chief Financial Officer
Edgardo Carlos

April 1, 2019

Annual Report108.

TenarisTenaris S.A.
Consolidated
Financial Statements

For the years ended December 31, 2018, 2017 and 2016

109.

Annual Report110.

Tenaris111.

Annual Report112.

Tenaris113.

Annual Report114.

Tenaris115.

Annual Report116.

Tenaris117.

Consolidated Income Statement

All amounts in thousands of U.S. dollars, unless otherwise stated

YEAR ENDED DECEMBER 31

Notes

2018

2017

2016

CONTINUING OPERATIONS

Net sales

Cost of sales

Gross profit

Selling, general and administrative expenses

Other operating income

Other operating expenses

Operating income (loss)

Finance income

Finance cost

Other financial results

Income (loss) before equity in earnings of non-consolidated companies

and income tax

Equity in earnings of non-consolidated companies

Income before income tax

Income tax

Income for continuing operations

DISCONTINUED OPERATIONS

Result for discontinued operations

Income for the year

ATTRIBUTABLE TO

Owners of the parent

Non-controlling interests

7,658,588

5,288,504

4,293,592

(5,279,300)

(3,685,057)

(3,165,684)

2,379,288

1,603,447

1,127,908

(1,509,976)

(1,270,016)

(1,196,929)

15,059

(12,558)

871,813

39,856

(36,942)

34,386

909,113

10,516

(9,359)

334,588

47,605

(27,072)

(43,550)

21,127

(11,163)

(59,057)

66,204

(22,329)

(21,921)

311,571

(37,103)

193,994

1,103,107

(229,207)

873,900

116,140

427,711

17,136

444,847

–

873,900

91,542

536,389

876,063

(2,163)

873,900

544,737

(8,348)

536,389

71,533

34,430

(17,102)

17,328

41,411

58,739

55,298

3,441

58,739

EARNINGS PER SHARE ATTRIBUTABLE TO THE OWNERS

OF THE PARENT DURING THE YEAR

Weighted average number of ordinary shares (thousands)

1,180,537

CONTINUING OPERATIONS

Basic and diluted earnings per share (U.S. dollars per share)

Basic and diluted earnings per ADS (U.S. dollars per ADS) (*)

CONTINUING AND DISCONTINUED OPERATIONS

Basic and diluted earnings per share (U.S. dollars per share)

Basic and diluted earnings per ADS (U.S. dollars per ADS) (*)

(*) Each ADS equals two shares.

The accompanying notes are an integral part of these Consolidated Financial Statements.

0.74

1.48

0.74

1.48

0.38

0.77

0.46

0.92

0.01

0.02

0.05

0.09

Annual Report

Consolidated Statement of Comprehensive Income

All amounts in thousands of U.S. dollars

YEAR ENDED DECEMBER 31

2018

2017

2016

Income for the year

873,900

536,389

58,739

ITEMS THAT MAY BE SUBSEQUENTLY RECLASSIFIED TO PROFIT OR LOSS

Currency translation adjustment

118.

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) income for the year, net of tax

Total comprehensive income for the year

ATTRIBUTABLE TO

Owners of the parent

Non-controlling interests

Total comprehensive income for the year attributable to Owners

of the parent arises from

Continuing operations

Discontinued operations

(*) Tenaris recognized its share over the effects on the adoption of IAS 29, “Financial Reporting in Hyperinflationary
Economies” by Ternium ($49.3 million) in other comprehensive income as a currency translation adjustment.

The accompanying notes are an integral part of these Consolidated Financial Statements.

(96,916)

(6,701)

1,848

(132)

151,762

4,502

(9,548)

512

(101,867)

147,251

7,963

(1,932)

(3,855)

2,176

(99,691)

774,209

776,713

(2,504)

774,209

776,713

–

776,713

(8,635)

1,338

(376)

(7,673)

139,578

675,967

683,531

(7,564)

675,967

591,989

91,542

683,531

37,187

(7,525)

(23)

3,473

421

33,533

(230)

(1,760)

(5,475)

(7,465)

26,068

84,807

81,702

3,105

84,807

40,291

41,411

81,702

Tenaris

Consolidated Statement of Financial Position

All amounts in thousands of U.S. dollars

AT DECEMBER 31

Notes

2018

2017

ASSETS

NON-CURRENT ASSETS

Property, plant and equipment, net

Intangible assets, net

Investments in non-consolidated companies

Other equity investments

Other investments

Deferred tax assets

Receivables, net

CURRENT ASSETS

Inventories, net

Receivables and prepayments, net

Current tax assets

Trade receivables, net

Derivative financial instruments

Other investments

Cash and cash equivalents

Total assets

EQUITY

Capital and reserves attributable to owners of the parent

Non-controlling interests

Total equity

LIABILITIES

NON-CURRENT LIABILITIES

Borrowings

Deferred tax liabilities

Other liabilities

Provisions

CURRENT LIABILITIES

Borrowings

Derivative financial instruments

Current tax liabilities

Other liabilities

Provisions

Customer advances

Trade payables

Total liabilities

Total equity and liabilities

20 (i)

21 (ii)

20 (ii)

22 (ii)

6,063,908

1,465,965

805,568

–

118,155

181,606

151,905

2,524,341

155,885

121,332

1,737,366

9,173

487,734

428,361

29,187

379,039

213,129

36,089

509,820

11,978

250,233

165,693

24,283

62,683

119.

9,017,064

8,787,107

6,229,143

1,660,859

640,294

21,572

128,335

153,532

183,329

2,368,304

135,699

132,334

1,214,060

8,230

1,192,306

5,464,192

330,221

5,381,154

14,251,299

14,398,218

11,782,882

92,610

11,875,492

11,482,185

98,785

11,580,970

657,444

746,349

34,645

457,970

217,296

36,438

931,214

39,799

102,405

157,705

32,330

56,707

693,673

1,718,363

750,739

2,070,899

2,375,807

14,251,299

2,817,248

14,398,218

Contingencies, commitments and restrictions on the distribution of profits are disclosed in Note 24.

The accompanying notes are an integral part of these Consolidated Financial Statements.

Annual Report

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)

120.

Balance at December 31, 2017

1,180,537

118,054

609,733

(824,423)

(320,569)

Changes in accounting policies (Section II AP)

–

2,786

Balance at December 31, 2017 restated

1,180,537

118,054

609,733

(824,423)

(317,783)

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 for the year

Total comprehensive income (loss) for the year

Acquisition and other changes in

non-controlling interests

Dividends paid in cash

–

(96,673)

–

6,135

(6,673)

–

1,848

(3,987)

–

(94,825)

(4,525)

–

(2)

–

Balance at December 31, 2018

1,180,537

118,054

609,733

(919,248)

(322,310)

(1) The Company has an authorized share capital of a single class of 2.5 billion shares having a nominal value of $1.00 per share.

As of December 31, 2018 there were 1,180,536,830 shares issued. All issued shares are fully paid.

(2) Other reserves include mainly the result of transactions with non-controlling interest 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 in financial instruments
measured at fair value through other comprehensive income.

(3) The Distributable Reserve and Retained Earnings calculated according to Luxembourg Law are disclosed in Note 24.

The accompanying notes are an integral part of these Consolidated Financial Statements.

Tenaris

ATTRIBUTABLE TO OWNERS OF THE PARENT

Total

121.

Retained
Earnings (3)

Total

Non-controlling
Interests

10,718,853

11,482,185

98,785

11,580,970

5,220

8,006

8,018

10,724,073

11,490,191

98,797

11,588,988

876,063

(2,163)

873,900

–

876,063

(96,673)

6,135

(6,673)

(2,139)

(99,350)

776,713

(243)

(104)

–

(341)

(2,504)

(96,916)

6,031

(6,667)

(2,139)

(99,691)

774,209

–

(2)

(22)

(24)

(484,020)

(3,661)

(487,681)

11,116,116

11,782,882

92,610

11,875,492

Annual Report

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)

Balance at December 31, 2016

1,180,537

118,054

609,733

(965,955)

(313,088)

122.

Income (loss) for the year

Currency translation adjustment

Remeasurements of post employment benefit

obligations, net of taxes

Change in value of available for sale financial

instruments and cash flow hedges net of tax

From other comprehensive income of

non-consolidated companies

Other comprehensive income (loss) for the year

Total comprehensive income (loss) for the year

Acquisition and other changes in

non-controlling interests

Dividends paid in cash

–

151,080

–

(7,423)

4,549

(9,548)

136

141,532

(2,738)

–

4,743

–

Balance at December 31, 2017

1,180,537

118,054

609,733

(824,423)

(320,569)

Balance at December 31, 2015

1,180,537

118,054

609,733

(1,006,767)

(298,682)

Income for the year

Currency translation adjustment

Remeasurements of post employment benefit

obligations, net of taxes

Change in value of available for sale financial

instruments and cash flow hedges net of tax

From other comprehensive income of

non-consolidated companies

Other comprehensive income (loss) for the year

Total comprehensive income (loss) for the year

Acquisition and other changes in

non-controlling interests

Dividends paid in cash

–

37,339

–

(1,781)

(7,573)

3,473

(5,054)

40,812

(14,408)

–

Balance at December 31, 2016

1,180,537

118,054

609,733

(965,955)

(313,088)

(1) The Company has an authorized share capital of a single class of 2.5 billion shares having a nominal value of $1.00 per share.

As of December 31, 2017 and 2016 there were 1,180,536,830 shares issued. All issued shares are fully paid.

(2) Other reserves include mainly the result of transactions with non-controlling interest that do not result in a loss of control, the
remeasurement of post-employment benefit obligations and the changes in value of cash flow hedges and in available for sale
financial instruments.

The accompanying notes are an integral part of these Consolidated Financial Statements.

Tenaris

ATTRIBUTABLE TO OWNERS OF THE PARENT

Total

123.

Retained
Earnings

Total

Non-controlling
Interests

10,658,136

11,287,417

125,655

11,413,072

544,737

(8,348)

536,389

–

544,737

151,080

(7,423)

682

126

151,762

(7,297)

4,549

(24)

4,525

(9,412)

–

(9,412)

138,794

683,531

784

(7,564)

139,578

675,967

–

(4,743)

4,694

(49)

(484,020)

(24,000)

(508,020)

10,718,853

11,482,185

98,785

11,580,970

11,110,469

11,713,344

152,712

11,866,056

55,298

3,441

58,739

–

55,298

37,339

(1,781)

(7,573)

(1,581)

26,404

81,702

(152)

(209)

–

(336)

3,105

37,187

(1,990)

(7,548)

(1,581)

26,068

84,807

–

(1,073)

(1,071)

(507,631)

(29,089)

(536,720)

10,658,136

11,287,417

125,655

11,413,072

Annual Report

Consolidated Statement of Cash Flows

All amounts in thousands of U.S. dollars

YEAR ENDED DECEMBER 31

CASH FLOWS FROM OPERATING ACTIVITIES

Income for the year

ADJUSTMENTS FOR:

Depreciation and amortization

Income tax accruals less payments

Equity in earnings of non-consolidated companies

Interest accruals less payments, net

Changes in provisions

Income from the sale of Conduit business

Changes in working capital

124.

Derivatives, currency translation adjustment and others

Net cash provided by (used in) operating activities

CASH FLOWS FROM INVESTING ACTIVITIES

Capital expenditures

Changes in advance to suppliers of property, plant and equipment

Proceeds from disposal of Conduit business

Investment in non-consolidated companies

Acquisition of subsidiaries

Investment in companies under cost method

Loan to non-consolidated companies

Repayment of loan by non-consolidated companies

Proceeds from disposal of property, plant and equipment and intangible assets

Dividends received from non-consolidated companies

Changes in investments in securities

Net cash provided by (used in) investing activities

CASH FLOWS FROM FINANCING ACTIVITIES

Dividends paid

Dividends paid to non-controlling interest in subsidiaries

Changes in non-controlling interests

Proceeds from borrowings

Repayments of borrowings

Net cash used in financing activities

Increase (decrease) in cash and cash equivalents

MOVEMENT IN CASH AND CASH EQUIVALENTS

At the beginning of the year

Effect of exchange rate changes

Increase (decrease) in cash and cash equivalents

At December 31,

CASH AND CASH EQUIVALENTS

Cash and bank deposits

Bank overdrafts

The accompanying notes are an integral part of these Consolidated Financial Statements.

Notes

2018

2017

2016

9 & 10

26 (ii)

26 (iii)

26 (i)

873,900

536,389

58,739

664,357

58,494

(193,994)

6,151

(8,396)

–

(737,952)

(51,758)

610,802

608,640

(193,989)

(116,140)

11,550

(17,245)

(89,694)

(853,184)

91,648

(22,025)

662,412

(128,079)

(71,533)

(2,567)

15,597

–

330,964

(1,968)

863,565

9 & 10

(349,473)

(558,236)

(786,873)

11c

4,851

–

(14,740)

9,370

6,010

25,722

717,368

399,108

(484,020)

(3,498)

(24)

7,077

327,631

–

(10,418)

(3,681)

(10,956)

3,900

5,443

22,971

565,387

349,118

(484,020)

(24,000)

(49)

50,989

–

(17,108)

–

(116,616)

74,222

23,609

20,674

652,755

(98,348)

(507,631)

(29,089)

(1,071)

1,019,302

1,196,781

1,180,727

(1,432,202)

(1,090,129)

(1,295,560)

(900,442)

(401,417)

(652,624)

109,468

(74,324)

112,593

330,090

(12,841)

109,468

426,717

428,361

(1,644)

426,717

398,580

5,834

(74,324)

330,090

330,221

(131)

330,090

286,198

(211)

112,593

398,580

399,900

(1,320)

398,580

26 (iv)

Tenaris

Index to the notes to the
Consolidated Financial Statements

General Information

IV.

Other notes to the Consolidated Financial Statements

II.

Accounting policies (“AP”)

Basis of presentation

Group accounting

Segment information

Foreign currency translation

Property, plant and equipment

Intangible assets

Impairment of non-financial assets

Other investments

Inventories

Trade and other receivables

Cash and cash equivalents

Equity

Borrowings

Current and deferred income tax

Employee benefits

Provisions

Trade and other payables

Revenue recognition

Earnings per share

Financial instruments

Non-current assets held for sale

and discontinued operations

III.

Financial risk management

Financial Risk Factors

125.

Segment information

Cost of sales

Selling, general and administrative expenses

Labor costs (included in Cost of sales and in Selling,

general and administrative expenses)

Other operating income and expenses

Financial results

Income tax

Dividends distribution

Property, plant and equipment, net

10.

Intangible assets, net

11.

Investments in non-consolidated companies

12.

Receivables - non current

13.

Inventories

14.

Receivables and prepayments

15.

Current tax assets and liabilities

16.

Trade receivables, net

17.

Cash and cash equivalents and other investments

18.

Borrowings

19.

Deferred income tax

21.

Non-current allowances and provisions

22.

Current allowances and provisions

23.

Derivative financial instruments

24.

Contingencies, commitments and restrictions

on the distribution of profits

25.

Acquisition of subsidiaries

26.

Cash flow disclosures

Cost of sales and other selling expenses

20.

Other liabilities

Category of financial instruments and

27.

Discontinued Operations

classification within the fair value hierarchy

28.

Related party transactions

Fair value estimation

29.

Principal subsidiaries

Accounting for derivative financial instruments

30.

Nationalization of Venezuelan Subsidiaries

and hedging activities

31.

Fees paid to the Company's principal accountant

32.

Subsequent event

33.

Update as of April 1, 2019

Annual Report
I. General information

II. Accounting policies

126.

Tenaris S.A. (the “Company”) was established
as a public limited liability company (societé
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 29 to
these Consolidated Financial Statements.

The Company’s shares trade on the Buenos Aires
Stock Exchange, 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 20, 2019.

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.

Following the sale of the steel electric conduit
business in North America, known as Republic
Conduit, in January 2017, the results of the
mentioned business are presented as discontinued
operations in accordance with IFRS 5, “Non-
current Assets Held for Sale and Discontinued
Operations”. Consequently, all comparative
amounts related to discontinued operations
within each line item of the Consolidated Income
Statement are reclassified into discontinued
operations. The Consolidated Statement of
Cash Flows includes the cash flows for continuing
and discontinued operations, cash flows from
discontinued operations and earnings per share
are disclosed separately in Note 27, as well as
additional information detailing net assets of

Tenaris127.

disposal group classified as held for sale and
discontinued operations.

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.

1. Accounting pronouncements applicable as

from January 1, 2018 and relevant for Tenaris

the amounts recognized in the financial statements.
In accordance with the transition provisions in
IFRS 9, Tenaris has adopted the new rules using
the retrospective approach, meaning that the
cumulative impact of the adoption was recognized
in the opening retained earnings and other reserves
of the current period as of January 1, 2018 and that
comparatives were not restated.

The new impairment model requires recognition
of impairment provisions based on expected credit
losses rather than on incurred credit losses.
The impact of this change was a decrease of
$6.4 million in the allowance for doubtful accounts.

IFRS 9, “Financial instruments”
Tenaris has adopted IFRS 9, “Financial
instruments” from 1 January 2018 which resulted in
changes in accounting policies and adjustments to

The measurement category and the carrying
amount of financial assets and liabilities in
accordance with IAS 39 and IFRS 9 at January 1,
2018 are compared as follows:

FINANCIAL ASSETS

Closing balance December 31, 2017 - IAS 39

Reclassified bonds and other fixed income from HTM to FVOCI

Reclassified fixed income from FVPL to amortized cost

Reclassified bonds and other fixed income from FVPL to FVOCI

Opening balance January 1, 2018 - IFRS 9

FINANCIAL LIABILITIES

Closing balance December 31, 2017 - IAS 39

Opening balance January 1, 2018

Opening balance January 1, 2018 - IAS 39

Reclassify investments from HTM to FVOCI

Reclassify investments from FVPL to FVOCI

Opening balance January 1, 2018 - IFRS 9

FVPL

Held to maturity

Amortized cost
(loans &
receivables 2017)

FVOCI
(Available
for sale 2017)

1,163,808

–

(550,646)

(153,702)

459,460

39,799

344,336

(344,336)

–

1,541,724

–

550,646

–

2,092,370

1,716,598

21,572

344,336

–

153,702

519,610

Effect on other reserves

Effect on retained earnings

(320,569)

3,126

(352)

(317,795)

10,718,853

–

352

10,719,205

Annual Report

128.

IFRS 15, “Revenue from contracts with customers”
The Company has adopted IFRS 15, “Revenue
from contracts with customers” from January
1 2018, which resulted in changes in accounting
policies and adjustments to the amounts
recognized in the financial statements. The policy
sets out the requirements in accounting for revenue
arising from contracts with customers and is
based on the principle that revenue is recognized
when control of a good or service is transferred
to the customer. In accordance with the transition
provisions in IFRS 15, the group has adopted
the new rules using the modified retrospective
approach, meaning that the cumulative impact of
the adoption was recognized in retained earnings
as of January 1, 2018 and that comparatives were
not restated.

The impact of the adoption as of January 1, 2018
on the aggregate of revenues, cost of sales and
selling expenses was a decrease of $0.7 million net.

2. New and amended standards not yet adopted

and relevant for Tenaris

IFRS 16, “Leases”
In January 2016, the IASB issued IFRS 16,
"Leases". The new standard will result in almost
all leases recognized on the balance sheet (except
for short term and low value leases), as the
distinction between operating and finance leases
is removed. IFRS 16 must be applied on annual
periods beginning on or after January 1, 2019.

The Company has assessed the effects of applying
the new standard and the main area affected will
be the accounting for operating leasing.

The Company expects to recognize right-of-use
assets and lease liabilities of approximately $260
million on January 1, 2019.

The Company intends to adopt this standard using
the simplified transition approach and will not
restate comparative amounts for the year prior to
first adoption.

Other accounting pronouncements that became
effective during 2018 have no material effect on
the Company’s financial condition or results of
operations.

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

Tenaris
129.

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.

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.

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.

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 20% and 50% of the voting rights.
Investments in non-consolidated companies
(associated and joint ventures) are accounted
for by the equity method of accounting and
are initially recognized at cost. The Company’s
investment in non-consolidated companies
includes goodwill identified in acquisition, net
of any accumulated impairment loss.

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

Annual Report
130.

statements of non-consolidated companies
have been 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 (losses) of non-consolidated companies.
The Company’s pro-rata share of changes in other
reserves is recognized in the Consolidated Statement
of Changes in Equity under Other Reserves.

Ternium
At December 31, 2018, Tenaris holds 11.46% of
Ternium S.A (“Ternium”)’s common stock. The
following factors and circumstances evidence that
Tenaris has significant influence (as defined by
IAS 28, “Investments in associates companies and
Joint Ventures”) over Ternium, and as a result
the Company’s investment in Ternium has been
accounted for under the equity method:

•

Both the Company and Ternium are under the
indirect common control of San Faustin S.A.;
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.à r.l, a
wholly owned subsidiary of San Faustin S.A. and
Ternium’s main shareholder, dated January 9, 2006,
Techint Holdings S.à.r.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.

Usiminas
At December 31, 2018, Tenaris holds through
its Brazilian subsidiary Confab Industrial S.A.
(“Confab”), 5.2% of the shares with voting rights
and 3.07% of Usinas Siderúrgicas de Minas Gerais
S.A. (“Usiminas”) total share capital.

The acquisition of Usiminas shares was part of
a larger transaction performed on January 16,
2012, pursuant to which Ternium, certain of its
subsidiaries and Confab joined Usiminas’ existing
control group through the acquisition of ordinary
shares representing 27.7% of Usiminas’ total voting
capital and 13.8% of Usiminas’ total share capital.
A shareholders’ agreement governed the rights and
obligations of the several control group members.

In April and May 2016 Tenaris’s subsidiary Confab
subscribed, in the aggregate, to 1.3 million preferred
shares (BRL1.28 per share) for a total amount of
BRL1.6 million (approximately $0.5 million) and
11.5 million ordinary shares (BRL5.00 per share) for
a total amount of BRL57.5 million (approximately
$16.6 million). The preferred and ordinary shares
were issued on June 3, 2016 and July 19, 2016,
respectively. Consequently as of December 31, 2018
Tenaris owns 36.5 million ordinary shares and 1.3
million preferred shares of Usiminas.

In 2014, a conflict arose between the T/T Group
(comprising Confab and Ternium’s subsidiaries
Ternium Investments, Ternium Argentina
and Prosid Investments) and Nippon Steel &
Sumitomo Metal Corporation (“NSSMC”) with
respect to the governance of Usiminas.

On February 8, 2018, Ternium Investments resolved
the dispute with NSSMC, and on April 10, 2018,

Tenaris

131.

the T/T Group entities (including Confab), NSSMC
and Previdência Usiminas entered into a new
shareholders’ agreement for Usiminas, amending
and restating the previously existing shareholders
agreement (the “New SHA”). Usiminas’ control
group now holds, in the aggregate, 483.6
million ordinary shares bound to the New SHA,
representing approximately 68.6% of Usiminas’
voting capital, with the T/T Group holding
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); NSSMC holding approximately 45.9%
of the total shares held by the control group; and
Previdência Usiminas holding the remaining 7%
of the total shares held by the control group.

The New SHA reflects the agreed-upon corporate
governance rules for Usiminas, including,
among others, an alternation mechanism for the
nomination of each of the chief executive officer
and the Chairman of the board of directors, as
well as a mechanism for the nomination of other
members of Usiminas’ executive board. The
New SHA also incorporates an exit mechanism
consisting of a buy-and-sell procedure, exercisable
at any time during the term of the New SHA after
the fourth-and-a-half-year anniversary from the
May 2018 election of Usiminas’ executive board.
Such exit mechanism shall apply with respect
to shares held by NSSMC and the T/T Group,
and would allow either Ternium or NSSMC to
purchase all or a majority of the Usiminas shares
held by the other shareholder.

In connection with the execution of the New SHA,
Confab and the Ternium entities amended and
restated their separate shareholders’ agreement

governing their respective rights and obligations as
members of the T/T Group to include provisions
relating to the exit mechanism and generally to
conform such separate shareholders’ agreement to
the other provisions of the New SHA. The rights
of Confab and Ternium and its subsidiaries within
the Ternium - Tenaris Group are governed under
such amended and restated separate shareholders
agreement. Those circumstances evidence that
Tenaris has significant influence over Usiminas,
and consequently, accounted it for under the equity
method (as defined by IAS 28).

Techgen
Techgen S.A. de C.V. (“Techgen”) is a Mexican
joint venture company owned 48% by Ternium,
30% by Tecpetrol International S.A. and 22%
by Tenaris. Techgen operates a natural gas-fired
combined electric power plant in the Pesquería
area of the State of Nuevo Leon, México. Tenaris,
Ternium and Tecpetrol International S.A. are
parties to a shareholders’ agreement relating
to the governance of Techgen, In addition, the
Company, Ternium and Tecpetrol International
S.A. are under the indirect common control of San
Faustin S.A. Those circumstances evidence that
Tenaris has significant influence over Techgen, and
consequently, accounted it for under the equity
method (as defined by IAS 28).

Tenaris carries its investment in Ternium, Usiminas
and Techgen under the equity method, with no
additional goodwill or intangible assets recognized.
Tenaris reviews investments in non-consolidated
companies for impairment whenever events or
changes in circumstances indicate that the asset’s
carrying amount may not be recoverable, such as a
significant or prolonged decline in fair value below

Annual Report132.

the carrying value. At December 31, 2018, 2017
and 2016, no impairment provisions were recorded
on Tenaris’s investment in Ternium and Usiminas.
See Note 11.

C. Segment information
The Company is organized in 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 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. Corporate general and administrative
expenses have been allocated to the Tubes segment.

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, energy and
raw materials that exceed internal requirements.

Tenaris’s Chief Operating Decision Maker (CEO)
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;
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.

Tenaris

•

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. 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.

133.

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.

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 income as a gain or loss from the sale.

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

Annual Report134.

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(R), “Borrowing Costs”.
Assets for which borrowing costs are capitalized
are those that require a substantial period of time
to prepare for their intended use.

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

Buildings and improvements

Plant and production equipment

Vehicles, furniture and fixtures, and other equipment

No Depreciation

30-50 years

10-40 years

4-10 years

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”, did not materially affect
depreciation expenses for 2018, 2017 and 2016.

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. 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

Tenaris135.

Consolidated Statement of Financial Position
under Intangible assets, net.

For the purpose of impairment testing, goodwill is
allocated to a subsidiary or group of subsidiaries 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 3 years. Amortization charges are mainly
classified as Selling, general and administrative
expenses in the Consolidated Income Statement.

Management’s re-estimation of assets useful lives,
performed in accordance with IAS 38, did not
materially affect amortization expenses for 2018,
2017 and 2016.

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 10
years. Amortization charges are mainly classified
as Selling, general and administrative expenses in
the Consolidated Income Statement.

The balance of acquired trademarks that
have indefinite useful lives according to
external appraisal amounts to $86.7 million at
December 31, 2018 and 2017, and are included
in Hydril CGU. Main factors considered in the
determination of the indefinite useful lives include
the years that they have been in service and their
recognition among customers in the industry.

Management’s re-estimation of assets useful lives,
performed in accordance with IAS 38, did not
materially affect amortization expenses for 2018,
2017 and 2016.

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 2018, 2017 and 2016 totaled $63.4
million, $63.7 million and $68.6 million, respectively.

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 and
Hydril groups.

Annual Report
136.

method over the initial expected useful life of
approximately 14 years for Maverick and 10 years
for Hydril.

facility and, accordingly, each of such subsidiary
represents the lowest level of asset aggregation that
generates largely independent cash inflows.

Maverick’s Tubes business, has experienced a
significant change in its customers portfolio. While
initially Maverick was selling OCTG products mostly
to distributors, today it is selling mostly through Rig
Direct® to end users. By the end of 2018, Maverick
supplied the majority of its customers of OCTG
products with Rig Direct® services. Additionally,
line pipe products while still being sold largely to
distributors due to the different nature of this market,
are now focused on large pipeline projects through
a completely different set of distributors. Based on
these circumstances, the Company has reviewed the
useful life of Maverick’s Tubes customer relationships
and decided to reduce the remaining useful life from
2 years to zero, consequently a higher amortization
charge of approximately $109 million was recorded
in the Consolidated Income Statement under Selling,
general and administrative expenses for the year
ended December 31, 2018.

As of December 31, 2018 the residual value of
Maverick’s coiled tubing customer relationships
amounts to $19.9 million and the residual useful life
is 2 years, while Hydril’s customer relationships is
fully amortized.

G. 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 (cash generating units, or CGU). Most
of the Company’s principal subsidiaries that
constitute a CGU have a single main production

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 lives, including goodwill, are
subject to at least an annual impairment test.

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.

TenarisThe value in use of each CGU is determined on
the basis of the present value of net future cash
flows which would be generated by such CGU.
Tenaris uses cash flow projections for a five year
period with a terminal value calculated based on
perpetuity and appropriate discount rates.

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.

Non-financial assets other than goodwill that
suffered an impairment are reviewed for possible
reversal at each reporting date.

Tenaris regularly conducts assessments of the
carrying values of its assets. The value-in-use was
used to determine the recoverable value. 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%.

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.

•

For purposes of assessing key assumptions,
Tenaris uses external sources of information and
management judgment based on past experience.

137.

The main key assumptions used in estimating
the value in use are discount rate, growth rate
and competitive and economic factors applied to
determine Tenaris’s cash flow projections, such as
oil and gas prices, average number of active oil and
gas drilling rigs (rig count), capital expenditure
programs for Tenaris’s customers, and raw
material costs.

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 taking
into account the industry, country and size of the
business. In 2018, the main discount rates used
were in a range between 8.7% and 11.7%.

Growth rate: considers the long-term average
growth rate for the oil and gas industry, the
inflation impact on prices and costs, the higher
demand to offset depletion of existing fields and
the Company’s expected market penetration.

Oil and gas prices and customer’s capital
expenditures: based on industry analysts’ reports
and management’s expectations of market
development respectively.

Annual Report

138.

•

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.

financial asset is sold. Exchange gains and losses
and impairments related to the financial assets
are immediately recognized in the Consolidated
Income Statement. FVTOCI instruments with
maturities greater than 12 months after the balance
sheet date are included in non-current assets.

The main factors that could result in additional
impairment charges in future periods would be an
increase in the discount rate or a decrease in growth
rate used in the Company’s cash flow projections,
a deterioration of the business, competitive and
economic factors, such as a decrease in oil and gas
prices, and the evolution of the rig count.

As of December 31, 2018, for all CGUs, a
reasonably possible change in key assumptions
would not cause the carrying amount to exceed
recoverable amount.

No impairment charge was recorded in 2018, 2017
and 2016.

H. 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” (FVTOCI).
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

Other investments in financial instruments and
time deposits are categorized as financial assets
“at fair value through profit or loss” 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).

I. 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 is based on the normal
level of production capacity. Supplies and raw
material cost is mainly based on the FIFO method
while goods in progress and finished goods cost
are mainly based on specific historical production
costs for each production order. Tenaris estimates

Tenaris

139.

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.

J. 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.

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 historical loss
rates are adjusted to reflect current and forward-
looking information on macroeconomic factors
affecting the ability of the customers to settle
the receivables.

K. 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.

L. Equity

1. Equity components
The Consolidated Statement of Changes in Equity
includes:

Tenaris applies the IFRS 9 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

•

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.

Annual Report
140.

2. Share capital
The Company has an authorized share capital of a
single class of 2.5 billion shares having a nominal
value of $1.00 per share. Total ordinary shares
issued and outstanding as of December 31, 2018,
2017 and 2016 are 1,180,536,830 with a par value
of $1.00 per share with one vote each. All issued
shares are fully paid.

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 24 (iii)).

M. 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.

N. 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 the Consolidated
Statement of Other Comprehensive Income.

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 basis of assets and liabilities and
their carrying amounts in the financial statements.
The principal temporary differences arise from fair
value adjustments of assets acquired in business
combinations, the effect of currency translation
on depreciable fixed assets and inventories,
depreciation on property, plant and equipment,
valuation of inventories and provisions for pension
plans. 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.

TenarisDeferred 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.

O. 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.

141.

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.

Annual Report142.

Tenaris sponsors funded and unfunded defined
benefit pension plans in certain subsidiaries. The
most significant are:

service as well as determination of final average
pay. As of December 31, 2018 the outstanding
liability for this plan amounts to $8.2 million.

•

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, 2018
the outstanding liability for this plan amounts to
$41.2 million.

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, 2018 the outstanding
liability for this plan amounts to $17.3 million.

•

Funded retirement benefit plans held in Canada for
salary and hourly employees hired prior 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

•

Funded retirement benefit plan held in the US 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, hired before a certain date. As of
December 31, 2018 the outstanding liability for
these plans amounts to $13.7 million.

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 vest ratably over a period of four years and
will be mandatorily redeemed by the Company ten
years after grant date, with the option of an early
redemption at seven years after the grant date. From
2018 units were vest ratably over the same period
and will be mandatorily redeemed by the Company
seven years after grant date. As the cash 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”.

Tenaris143.

As of December 31, 2018 and 2017, the
outstanding liability corresponding to the Program
amounts to $91.2 million and $79.2 million,
respectively. The total value of the units granted
(vested and unvested) to date under the program,
considering the number of units and the book
value per share as of December 31, 2018 and 2017,
is $106 million and $94.8 million, respectively.

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 and long-
service leave are accrued as earned.

Compensation to employees in the event of
dismissal is charged to income in the year in which
it becomes payable.

P. 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 24.

Q. 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.

R. Revenue recognition
Revenue comprises the fair value of the
consideration received or receivable for the sale

Annual Report
144.

of goods and 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. 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. 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 cannot have the
ability to use the product or to direct it to another
customer; (d) the usual payment terms apply.

In addition, some contracts include a right of
return. Therefore, a provision and a right to the
returned goods are recognized for the products
expected to be returned. Accumulated experience
is used to estimate such returns.

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.

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.

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, the Company does not adjust any of
the transaction prices for the time value of money.

S. 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.

T. 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 no dilutive potential ordinary shares.

TenarisU. 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 classification depends on the Company’s
business model for managing the financial assets
and contractual terms of the cash flows.

145.

Financial assets and liabilities are recognized and
derecognized on their settlement date.

Since January 1, 2018 the Company classifies its
financial instruments according to the following
measurement categories:

Accounting for derivative financial instruments
and hedging activities is included within the
Section III, Financial Risk Management.

•

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
(“FVOCI”): 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 (“FVPL”):
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.

Until December 2017, Tenaris’s non derivative
financial instruments were classified according to
the following categories:

•

Financial instruments at fair value through profit
and loss: comprised mainly Other Investments
current, investments in certain financial debt
instruments and time deposits held for trading
expiring in less than ninety days from the
measurement date (included within cash and
cash equivalents).
Loans and receivables: comprised cash and cash
equivalents, trade receivables and other receivables
and were measured at amortized cost using the
effective interest rate method less any impairment.
Available for sale assets: comprised the Company’s
interest in the Venezuelan Companies.
Held to maturity: comprised financial assets that
the Company had both the ability and the intention
to hold to maturity. They were measured at
amortized cost using the effective interest method.
Other financial liabilities: comprise borrowings,
trade and other payables and were measured
at amortized cost using the effective interest
rate method.

The classification depended on the nature and
purpose that the Company set to the financial
instrument.

Annual Report146.

Financial assets and liabilities were recognized and
derecognized on their settlement date.

Financial assets were initially measured at fair
value, net of transaction costs, except for those
financial assets classified as financial assets at fair
value through profit or loss.

Financial liabilities, including borrowings, were
initially measured at fair value, net of transaction
costs and subsequently measured at amortized cost
using the effective interest method, with interest
expense recognized on an effective yield basis.

V. Non-current assets held for sale and

discontinued operations
Non-current assets (or disposal groups) are
classified as held for sale if their carrying amount
will be recovered principally through a sale
transaction rather than through continuing use
and a sale is considered highly probable. They are
measured at the lower of their carrying amount
and fair value less costs to sell, except for assets
such as deferred tax assets, assets arising from
employee benefits and financial assets that are
carried at fair value.

An impairment loss is recognized for any initial or
subsequent write-down of the asset (or disposal

group) to fair value less costs to sell. A gain is
recognized for any subsequent increase in fair value
less costs to sell of an asset (or disposal group), but
not in excess of any cumulative impairment loss
previously recognized.

Non-current assets (including those that are
part of a disposal group) are not depreciated or
amortized while they are classified as held for sale.
Interest and other expenses attributable to the
liabilities of a disposal group classified as held for
sale continue to be recognized.

Non-current assets classified as held for sale and the
assets of a disposal group classified as held for sale
are presented separately from the other assets in the
balance sheet. The liabilities of a disposal group
classified as held for sale are presented separately
from other liabilities in the balance sheet.

A discontinued operation is a component of the
entity that has been disposed of or is classified as
held for sale and that represents a separate line
of business or geographical area of operations,
is part of a single coordinated plan to dispose of
such a line of business or area of operations, or is
a subsidiary acquired exclusively with a view to
resale. The results of discontinued operations are
presented separately in the Consolidated Income
Statement. See Note 27.

Tenaris147.

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 0.04 as of
December 31, 2018 and 0.08 as of December 31,
2017. The Company does not have to comply with
regulatory capital adequacy requirements.

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 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 23 Derivative financial instruments).

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, 2018 and 2017:

All amounts Long / (Short) in thousands of U.S.dollars

AS OF DECEMBER 31

2018

2017

CURRENCY EXPOSURE / FUNCTIONAL CURRENCY

Argentine Peso / U.S. dollar

(186,867)

(64,482)

Euro / U.S. dollar

(175,419)

(365,926)

Annual Report

148.

The main relevant exposures correspond to:

•

Argentine Peso / U.S. dollar
As of December 31, 2018 and 2017 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 $1.9 million and $0.6 million
as of December 31, 2018 and 2017 respectively.

Euro / U.S. dollar
As of December 31, 2018 and 2017, 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 $1.3 million and $3.7 million
as of December 31, 2018 and 2017, respectively,
which would have been to a large extent offset
by changes in currency translation adjustment
included in Tenaris’s net equity position.

Considering the balances held as of December 31,
2018 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
$3.6 million (including a loss / gain of $2.3 million
due to foreign exchange derivative contracts), which
would be partially offset by changes to Tenaris’s
net equity position of $1.9 million. For balances
held as of December 31, 2017, a simultaneous 1%
favorable / unfavorable movement in the foreign
currencies exchange rates relative to the U.S. dollar,
would have generated a pre-tax gain / loss of
$5.3 million (including a loss / gain of $6.7 million
due to foreign exchange derivative contracts), which
would have been partially offset by changes to
Tenaris’s net equity position of $3.4 million.

The Company entered into foreign exchange
derivative contracts to mitigate the exposure to
fluctuations in exchange rates.

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 interest
rate swaps to mitigate the exposure to changes
in the interest rates.

TenarisThe following table summarizes the proportions of
variable-rate and fixed-rate debt as of each year end.

149.

AS OF DECEMBER 31

Fixed rate (*)

Variable rate

Total

(*) Out of the $520 million fixed rate borrowings $493 million are short-term.

Amount in
thousands of
U.S. dollars

520,471

18,536

539,007

2018

Percentage

97%

Amount in
thousands of
U.S. dollars

946,215

19,644

965,859

2017

Percentage

98%

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 $8.2 million in 2018 and
$8.0 million in 2017.

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 2018, 2017
and 2016.

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 J).

As of December 31, 2018 and 2017 trade
receivables amount to $1,737.4 million and
$1,214.1 million respectively. Trade receivables
have guarantees under credit insurance of
$181.7 million and $190.7 million, letter of credit
and other bank guarantees of $62.3 million and

Annual Report

150.

$42.2 million, and other guarantees of $42.2 million
and $14.1 million as of December 31, 2018 and
2017 respectively.

instruments as of December 31, 2018, in comparison
with approximately 71% as of December 31, 2017.

As of December 31, 2018 and 2017 past due trade
receivables amounted to $368.4 million and $230.9
million, respectively. The amount of past due trade
receivables up to 15 days amounted to $139 million
and $50 million respectively. Consequently the past
due trade receivables over 15 days amounted to
$229.4 million and $180.9 million. As of December
31, 2018 and 2017, guaranteed trade receivables
amounted to $31.5 million and $27.3 million while
$66.5 million and $78.4 million are included in the
allowance for doubtful accounts. Both the allowance
for doubtful accounts and the existing guarantees
are sufficient to cover doubtful trade receivables.

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 83% of Tenaris’s liquid financial
assets correspond to Investment Grade-rated

VI. Liquidity risk
Tenaris financing strategy aims to maintain
adequate financial resources and access to
additional liquidity. During 2018, 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
7% of total assets at the end of 2018 compared to
11% at the end of 2017.

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 three months at the date of purchase), and ii)
Other Investments (fixed income securities, time
deposits, and fund investments).

Tenaris
151.

Tenaris holds primarily investments in money
market funds and variable or fixed-rate securities
from investment grade issuers. As of December 31,
2018 and 2017, Tenaris does not have direct
exposure to financial instruments issued by
European sovereign counterparties.

Tenaris holds its investments primarily in
U.S. dollars. As of December 31, 2018 and 2017,
U.S. dollar denominated liquid assets represented
approximately 95% and 93% of total liquid
financial assets respectively.

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 (“FVOCI”) and fair value
through profit and loss (“FVPL”). 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:

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
one year, in general Tenaris does not hedge this risk.

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).

Annual Report152.

The following tables present the financial
instruments by category and levels as of December
31, 2018 and 2017.

DECEMBER 31, 2018

MEASUREMENT CATEGORIES

Carrying
Amount

Amortized
Cost

FVOCI

FVPL

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

U.S. government securities

Non - U.S. government securities

Corporates securities

Structured notes

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

DERIVATIVE FINANCIAL INSTRUMENTS

Total

(*) Includes balances related to interest in our Venezuelan companies, see Note 30.

–

166,094

160,198

21,230

–

166,094

21,230

1,077

24,912

140,105

–

113,830

–

48,711

–

2,071

19,159

9,173

4,326

–

4,326

–

428,361

487,734

300,410

198,912

9,932

91,566

187,324

1,077

24,912

142,176

19,159

9,173

118,155

113,830

4,326

268,163

300,410

198,912

9,932

91,566

–

1,737,366

139,474

–

307,790

188,185

119,605

539,007

693,673

11,978

2,445,413

328,635

194,927

539,007

693,673

–

1,232,680

–

11,978

Tenaris

153.

AT FAIR VALUE

Level 1

Level 2

Level 3

160,198

168,165

–

19,159

–

168,165

1,077

24,912

142,176

–

113,830

–

19,159

–

19,159

9,173

–

4,326

–

4,326

–

48,659

–

442,193

28,384

52,985

–

11,978

–

Annual Report

154.

DECEMBER 31, 2017

MEASUREMENT CATEGORIES

Carrying
Amount

Loans &
Receivables

Held to
Maturity

Available
for sale

ASSETS

CASH AND CASH EQUIVALENTS

Cash at banks

Liquidity funds

Short – term investments

OTHER INVESTMENTS

Fixed Income (time-deposit, zero coupon bonds, commercial papers)

Certificates of Deposits

Commercial Papers

Other notes

Bonds and other fixed income

U.S. government securities

Non - U.S. government securities

Corporates securities

Structured notes

Mortgage and asset-backed securities

Others

OTHER INVESTMENTS NON - CURRENT

Bonds and other fixed Income

Other Investments

TRADE RECEIVABLES

RECEIVABLES C AND NC

Foreing exchange derivatives contracts

Other receivables

Other receivables (non-financial)

AVAILABLE FOR SALE ASSETS

Total

LIABILITIES

BORROWINGS C AND NC

TRADE PAYABLES

OTHER LIABILITIES

Foreign exchange derivatives contracts

Other liabilities (non-financial)

Total

–

220,838

–

220,838

–

36,283

184,555

–

123,498

–

330,221

150,948

66,033

113,240

1,192,306

437,406

297,788

9,943

129,675

754,800

130,477

161,063

378,831

68,044

16,385

100

128,335

123,498

4,837

150,948

–

1,214,060

327,258

176,716

–

176,716

–

8,230

176,716

142,312

21,572

965,859

750,739

197,504

39,799

157,705

1,541,724

344,336

965,859

750,739

–

1,716,598

–

21,572

–

Tenaris

MEASUREMENT CATEGORIES

AT FAIR VALUE

155.

Fair value
through profit
and loss

Level 1

Level 2

Level 3

179,273

–

66,033

113,240

971,468

437,406

297,788

9,943

129,675

533,962

130,477

124,780

194,276

68,044

16,385

100

4,837

–

4,837

–

8,230

–

66,033

113,240

459,476

9,943

–

9,943

–

449,533

130,477

124,780

194,276

–

511,992

427,463

297,788

–

129,675

84,429

–

68,044

16,385

100

–

8,230

–

1,163,808

638,749

520,222

–

39,799

–

39,799

–

39,799

–

39,799

–

4,837

–

4,837

–

21,572

26,409

–

Annual Report156.

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 three months, forward and
interest rate derivative instruments) is determined by

using valuation techniques which maximize the use
of observable market data when available and rely
as little as possible on entity specific estimates. If all
significant inputs required to value an instrument
are observable, the instrument is included in Level
2. Tenaris values its assets and liabilities included
in this level using bid prices, interest rate curves,
broker quotations, current exchange rates, forward
rates and implied volatilities obtained from market
contributors as of the valuation date.

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 30).

TenarisThe following table presents the changes in Level 3
assets and liabilities:

157.

YEAR ENDED DECEMBER 31

At the beginning of the year

Addition / (Decrease)

Currency translation adjustment and others

At the end of the year

Assets / Liabilities

2018

2017

26,409

26,768

(192)

52,985

23,242

3,117

26,409

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 comprised primarily of fixed rate
debt and variable rate debt with a short term
portion where interest has already been fixed.
They are classified under other financial liabilities
and measured at their amortized cost. Tenaris
estimates that the fair value of its main financial

Annual Report
158.

liabilities is approximately 99.3% of its carrying
amount including interests accrued in 2018 as
compared with 99.4% in 2017. Fair values were
calculated using standard valuation techniques for
floating rate instruments and comparable market
rates for discounting flows.

The carrying amount of investments valuated at
amortized cost approximates its fair value.

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 as hedges
of particular risks associated with recognized
assets or liabilities or highly probable forecast
transactions. These transactions (mainly currency
forward contracts on highly probable forecast
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. 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 full fair value of a hedging
derivative is classified as a current or non-current
asset or liability according to its expiry date.

Tenaris
159.

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 derivatives that are used in hedging
transactions are highly effective in offsetting
changes in the fair value or cash flow of hedged
items. At December 31, 2018 and 2017, the effective
portion of designated cash flow hedges which is
included in Other Reserves in equity amounts to
$0.9 million and $0.2 million debit respectively (see
Note 23 Derivative financial instruments).

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 23.

Annual ReportIV. Other notes to the
Consolidated financial statements

(In the notes all amounts are shown in thousands of U.S. dollars, unless otherwise stated)

160.

1. Segment information
As mentioned in section II. AP – C, the Segment
Information is disclosed as follows:

Reportable operating segments

All amounts in million U.S. dollar

YEAR ENDED DECEMBER 31, 2018

IFRS - Net Sales

MANAGEMENT VIEW - Operating income

Difference in cost of sales

Direct cost and others

Absorption

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

Tubes

Other

Continuing
operations

Discontinued
operations

7,233

702

112

127

(15)

(34)

(2)

–

777

346

645

426

–

7,659

783

119

133

(14)

(34)

–

872

909

194

1,103

349

664

–

Tenaris

All amounts in million U.S. dollar

YEAR ENDED DECEMBER 31, 2017

IFRS - Net Sales

MANAGEMENT VIEW - Operating income

Difference in cost of sales

Direct cost and others

Absorption

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

YEAR ENDED DECEMBER 31, 2016

IFRS - Net Sales

MANAGEMENT VIEW - Operating income

Difference in cost of sales

Direct cost and others

Absorption

Differences in depreciation and amortization

Differences in selling, general and administrative expenses

Differences in other operating income (expenses), net

IFRS - operating (loss) income

Financial income (expense), net

(Loss) income before equity in earnings of non-consolidated companies

and income tax

Equity in losses of non-consolidated companies

Income before income tax

Capital expenditures

Depreciation and amortization

Tubes

Other

Continuing
operations

Discontinued
operations

161.

4,966

323

5,289

115

164

115

(3)

292

550

594

–

(6)

–

163

165

115

(3)

335

(23)

312

116

428

558

609

(1)

–

Tubes

Other

Continuing
operations

Discontinued
operations

4,015

(108)

(114)

(5)

(71)

278

(8)

–

752

643

4,294

(116)

(122)

(4)

(5)

(59)

(37)

785

657

235

–

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 $52, $53 and $47 million in 2018, 2017 and 2016, respectively.

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 and changes on the valuation of inventories
according to cost estimation internally defined.

Annual Report

162.

Geographical information

All amounts in thousands of U.S. dollars

YEAR ENDED DECEMBER 31, 2018

Net sales

Total assets

Trade receivables

Property, plant and

equipment, net

Capital expenditures

Depreciation and amortization

YEAR ENDED DECEMBER 31, 2017

Net sales

Total assets

Trade receivables

Property, plant and

equipment, net

Capital expenditures

Depreciation and amortization

YEAR ENDED DECEMBER 31, 2016

Net sales

Total assets

Trade receivables

Property, plant and

equipment, net

Capital expenditures

Depreciation and amortization

North
America

South
America

Europe

Middle East
& Africa

Asia
Pacific

Unallocated
(*)

Total
continuing
operations

Total
discontinued
operations

3,611,509

1,462,044

724,733

1,559,988

7,971,311

2,489,522

1,913,589

791,190

280,801

3,859,060

1,133,113

196,220

441,705

68,603

108,558

215,202

848,178

77,467

82,769

2,451,357

1,142,142

545,777

7,925,520

2,975,599

2,002,658

582,204

234,877

3,914,229

1,190,145

430,142

354,091

58,949

126,273

214,944

878,788

57,285

93,900

588,746

383,358

94,040

2,047

10,389

937,439

391,029

135,524

102,481

7,562

12,094

1,320,297

1,210,527

565,173

1,055,994

7,467,842

2,803,848

1,925,784

229,390

204,746

3,652,032

1,237,391

646,545

381,811

59,780

128,458

161,291

847,318

35,270

113,875

593,649

308,919

106,941

24,166

11,053

300,314

482,563

66,815

129,517

5,136

20,936

211,789

441,546

46,511

143,500

4,153

22,282

141,601

482,132

50,339

158,257

19,201

21,912

–

7,658,588

805,568

14,251,299

–

1,737,366

6,063,908

349,473

664,357

–

5,288,504

11,899

661,866

14,398,218

–

1,214,060

6,229,143

558,091

608,640

–

4,293,592

578,603

13,851,858

–

954,685

6,001,939

784,962

657,109

–

145

–

234,911

151,417

33,620

41,470

1,911

5,303

There are no revenues from external customers attributable to the Company’s country of
incorporation (Luxembourg). For geographical information purposes, “North America”
comprises Canada, Mexico and the USA (33%); “South America” comprises principally
Argentina (13%), Brazil and Colombia; “Europe” comprises principally Italy and Romania;
“Middle East and Africa” comprises principally Egypt, Kazakhstan, Nigeria and Saudi Arabia
and; “Asia Pacific” comprises principally China, Japan, Indonesia and Thailand.

(*) For 2018 includes Investments in non-consolidated companies, for 2017 and 2016 includes
Investments in non-consolidated companies and Other equity investments for $21.6 million
(see Note 11 and 30).

Tenaris

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. Tenaris’s revenues
related to governmental institutions represents
aproximately 14% and 16% in 2018 and 2017
respectively. At December 2018, 2017 and 2016,

the Company recognized contract liabilities related
to customer advances in the amount of $ 62.7,
56.7 and 39.7 million, respectively. These amounts
related to years 2017 and 2016 were reclassified
to revenues during the subsequent year. In these
periods, no significant adjustment in revenues were
performed related to performance obligations
previously satisfied.

163.

2. Cost of sales

All amounts in thousands of U.S. dollars

YEAR ENDED DECEMBER 31

2018

2017

2016

INVENTORIES AT THE BEGINNING OF THE YEAR

2,368,304

1,563,889

1,843,467

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

Maintenance expenses

Allowance for obsolescence

Taxes

Other

LESS: INVENTORIES AT THE END OF THE YEAR (*)

From discontinued operations

(*) Inventories as of December 31, 2016 include $ 29.8 million related to discontinued operations.

3,400,396

2,794,503

1,528,532

275,130

855,040

432,497

8,220

185,782

25,457

133,308

119,507

244,035

778,408

383,490

18,621

183,370

(12,917)

18,542

88,823

199,210

658,975

376,965

27,244

122,553

32,765

16,693

89,575

5,435,337

4,496,875

3,052,512

(2,524,341)

(2,368,304)

(1,593,708)

–

(7,403)

(136,587)

5,279,300

3,685,057

3,165,684

Annual Report164.

3. Selling, general and administrative expenses

All amounts in thousands of U.S. dollars

YEAR ENDED DECEMBER 31

Services and fees

Labor cost

Depreciation of property, plant and equipment

Amortization of intangible assets

Commissions, freight and other selling expenses

Provisions for contingencies

Allowances for doubtful accounts

Taxes

Other

From discontinued operations

2018

2017

2016

128,090

470,928

16,968

206,672

491,555

23,498

1,751

71,110

99,404

132,301

443,338

17,979

188,550

339,759

17,664

(5,421)

56,826

81,061

123,653

441,355

16,965

241,238

243,401

30,841

(12,573)

67,724

76,563

1,509,976

1,272,057

1,229,167

–

(2,041)

(32,238)

1,509,976

1,270,016

1,196,929

Tenaris4. Labor costs (included in Cost of sales and in

Selling, general and administrative expenses)

All amounts in thousands of U.S. dollars

YEAR ENDED DECEMBER 31

165.

2018

2017

2016

Wages, salaries and social security costs

1,250,783

1,144,341

988,794

Severance indemnities

Defined contribution plans

Pension benefits - defined benefit plans

Employee retention and long term incentive program

From discontinued operations

The following table shows the geographical
distribution of the employees:

COUNTRY

Mexico

Argentina

USA

Italy

Romania

Brazil

Colombia

Canada

Indonesia

Japan

Other

From discontinued operations

25,225

13,217

15,390

21,353

34,497

12,401

15,066

15,441

73,741

10,758

10,563

16,474

1,325,968

1,221,746

1,100,330

–

(853)

(28,306)

1,325,968

1,220,893

1,072,024

2018

2017

2016

5,728

5,569

2,410

2,173

1,877

1,374

1,106

1,034

554

399

1,248

23,472

–

5,139

5,221

1,953

2,088

1,870

1,382

1,003

919

506

410

1,114

21,605

–

23,472

21,605

4,968

4,755

1,636

1,979

1,631

1,166

750

473

509

458

1,074

19,399

(323)

19,076

Annual Report166.

5. Other operating income and expenses

All amounts in thousands of U.S. dollars

YEAR ENDED DECEMBER 31

OTHER OPERATING INCOME

Net income from other sales

Net rents

Other

OTHER OPERATING EXPENSES

Contributions to welfare projects and non-profits organizations

Loss on fixed assets and material supplies disposed / scrapped

Allowance for doubtful receivables

Other

From discontinued operations

2018

2017

2016

3,604

4,909

6,546

4,395

4,325

1,796

16,275

4,852

–

15,059

10,516

21,127

11,379

–

1,179

–

12,558

–

12,558

9,158

118

–

9,360

(1)

9,359

9,534

432

1,388

11,411

(248)

11,163

Tenaris

6. Financial results

All amounts in thousands of U.S. dollars

YEAR ENDED DECEMBER 31

Interest Income

Net result on changes in FV of financial assets at FVTPL

Finance Income (*)

Finance Cost

Net foreign exchange transactions results (**)

Foreign exchange derivatives contracts results (***)

Other

Other financial results

Net financial results

From discontinued operations

167.

2018

2017

2016

42,244

(2,388)

39,856

51,525

(3,920)

47,605

60,405

5,799

66,204

(36,942)

(27,072)

(22,329)

28,845

6,576

(1,035)

34,386

(48,955)

(8,996)

14,392

(2,146)

(31,310)

11,447

(43,559)

(22,009)

37,300

(23,026)

–

37,300

(23,017)

21,866

21,954

(*) In 2018 includes $3.6 million of interest related to instruments carried at FVTPL.

(***) In 2016 includes the negative impact from Brazilian Real appreciation against the U.S. dollar on

(**) In 2018 includes the result from the Argentine peso depreciation against the U.S. dollar on Peso
denominated financial, trade, social and fiscal payables and receivables at Argentine subsidiaries
with functional currency U.S. dollar, together with the positive impact from Euro depreciation
against the U.S. dollar on Euro denominated intercompany liabilities in subsidiaries with
functional currency U.S. Dollar, largely offset by an increase in currency translation adjustment
reserve from our Italian subsidiary.

In 2017 includes the negative impact from Euro appreciation against the U.S. dollar on Euro
denominated intercompany liabilities in subsidiaries with functional currency U.S. Dollar, largely
offset by an increase in currency translation adjustment reserve from our Italian subsidiary.

hedging instruments and of Cash and cash equivalent and other investments denominated in U.S.
dollar in subsidiaries with functional currency Brazilian Real, partially offset by an increase in
currency translation adjustment reserve from the Brazilian subsidiaries

Annual Report168.

7. Income tax

All amounts in thousands of U.S. dollars

YEAR ENDED DECEMBER 31

Current tax

Deferred tax

From discontinued operations

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:

All amounts in thousands of U.S. dollars

YEAR ENDED DECEMBER 31

2018

2017

2016

343,104

(113,897)

229,207

–

229,207

184,016

(100,432)

83,584

(100,720)

(17,136)

174,410

(132,969)

41,441

(24,339)

17,102

2018

2017

2016

Income before income tax

1,103,107

427,711

34,430

Tax calculated at the tax rate in each country

Non taxable income / Non deductible expenses, net

Changes in the tax rates

Effect of currency translation on tax base (*)

Accrual / Utilization of previously unrecognized tax losses

Tax charge

207,422

(57,591)

1,824

77,552

–

6,456

40,298

(62,968)

(922)

–

229,207

(17,136)

(91,628)

51,062

4,720

105,758

(52,810)

17,102

(*) Tenaris applies the liability method to recognize deferred income tax on temporary differences
between the tax bases of assets 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 basis 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

Non Taxable income/ Non deductible expenses,
net, includes a net tax charge of approximately
$59 million booked in the last quarter of 2018
related to impact resulting from the special tax
revaluation regime of fixed assets in Argentina
(option granted by Law to Argentinian Tax payers).

Changes in the tax rates, in 2017 it includes mainly
the effect of the changes in tax rate in Argentine

and US subsidiaries for approximately $46 million
and $15.2 million respectively.

Accrual/ Utilization of previously unrecognized
tax losses, includes a deferred tax income of
approximately $45 million booked in the last quarter
of 2016 related to capital losses. The amount was
carried forward in line with US Regulation in force
and offset in 2017 capital gains.

Tenaris169.

8. Dividends distribution
On October 31, 2018, the Company’s Board of
Directors approved the payment of an interim
dividend of $0.13 per share ($0.26 per ADS), or
approximately $153 million, paid on November 21,
2018, with an ex-dividend date of November 19, 2018.

On May 2, 2018, the Company’s Shareholders
approved an annual dividend in the amount of $0.41
per share ($0.82 per ADS). The amount approved
included the interim dividend previously paid in
November 22, 2017 in the amount of $0.13 per share
($0.26 per ADS). The balance, amounting to $0.28
per share ($0.56 per ADS), was paid on May 23,
2018. In the aggregate, the interim dividend paid in
November 2017 and the balance paid in May 2018
amounted to approximately $484.0 million.

On May 3, 2017, the Company’s Shareholders
approved an annual dividend in the amount of $0.41

per share ($0.82 per ADS). The amount approved
included the interim dividend previously paid in
November 23, 2016 in the amount of $0.13 per share
($0.26 per ADS). The balance, amounting to $0.28
per share ($0.56 per ADS), was paid on May 24,
2017. In the aggregate, the interim dividend paid in
November 2016 and the balance paid in May 2017
amounted to approximately $484.0 million.

On May 4, 2016 the Company’s Shareholders
approved an annual dividend in the amount of
$0.45 per share ($0.90 per ADS). The amount
approved included the interim dividend previously
paid in November 25, 2015 in the amount of
$0.15 per share ($0.30 per ADS). The balance,
amounting to $0.30 per share ($0.60 per ADS), was
paid on May 25, 2016. In the aggregate, the interim
dividend paid in November 2015 and the balance
paid in May 2016 amounted to approximately
$531.2 million.

Annual Report170.

9. Property, plant and equipment, net

All amounts in thousands of U.S. dollars

YEAR ENDED DECEMBER 31, 2018

COST

Values at the beginning of the year

Translation differences

Additions

Disposals / Consumptions

Transfers / Reclassifications

Values at the end of the year

DEPRECIATION

Accumulated at the beginning of the year

Translation differences

Depreciation charge

Transfers / Reclassifications

Disposals / Consumptions

Land
and civil
buildings

Industrial buildings,
plant and production
equipment

Vehicles,
furniture and
fixtures

Work in
progress

Spare
parts and
equipment

Total

712,061

(5,628)

723

(221)

25,643

732,578

101,197

(1,383)

11,153

–

(53)

11,954,585

370,542

(117,977)

681

(21,836)

306,116

(5,458)

1,245

(10,269)

21,200

12,121,569

377,260

167,079

(2,269)

294,163

(42)

(331,553)

127,378

42,413

13,246,680

(424)

20,756

(3,541)

3,993

(131,756)

317,568

(35,909)

25,399

63,197

13,421,982

6,612,871

303,469

(72,141)

417,229

173

(21,232)

(4,939)

21,083

(671)

(8,682)

–

7,017,537

(78,463)

449,465

(498)

(29,967)

7,358,074

Accumulated at the end of the year

110,914

6,936,900

310,260

At December 31, 2018

621,664

5,184,669

67,000

127,378

63,197

6,063,908

Tenaris

All amounts in thousands of U.S. dollars

YEAR ENDED DECEMBER 31, 2017

COST

Land
and civil
buildings

Industrial buildings,
plant and production
equipment

Vehicles,
furniture and
fixtures

Work in
progress

Spare
parts and
equipment

Total

171.

Values at the beginning of the year

599,710

10,034,500

346,486

1,492,572

25,404

12,498,672

Translation differences

Additions

Disposals / Consumptions

Increase due to business combinations (*)

Transfers / Reclassifications

Values at the end of the year

DEPRECIATION

Accumulated at the beginning of the year

Translation differences

Depreciation charge

Transfers / Reclassifications

Disposals / Consumptions

5,493

(1,293)

2,187

105,901

712,061

89,274

1,204

9,406

1,699

(386)

178,598

7,423

(3,966)

5,654

1,732,376

5,518

1,252

(7,319)

2,444

22,161

284

497,423

(94)

–

(1,823,106)

331

18,490

(1,812)

–

190,224

524,651

(14,484)

10,285

37,332

11,954,585

370,542

167,079

42,413

13,246,680

6,125,552

281,907

114,675

368,850

7,575

(3,781)

4,959

23,213

(405)

(6,205)

–

6,496,733

120,838

401,469

8,869

(10,372)

7,017,537

Accumulated at the end of the year

101,197

6,612,871

303,469

At December 31, 2017

610,864

5,341,714

67,073

167,079

42,413

6,229,143

(*) Related to Garrett LLC acquisition, see Note 25.

Property, plant and equipment include capitalized
interests for net amounts at December 31, 2018
and 2017 of $37.4 million and $39.5 million,
respectively. The average capitalization interest rate
applied during 2017 was 1.97%.

Annual Report

172.

10. Intangible assets, net

All amounts in thousands of U.S. dollars

YEAR ENDED DECEMBER 31, 2018

COST

Values at the beginning of the year

Translation differences

Additions

Transfers / Reclassifications

Disposals

Information
system
projects

Licenses,
patents and
trademarks (*)

Goodwill

Customer
relationships

Total

560,692

465,963

2,090,073

2,058,859

5,175,587

(6,153)

31,632

(5,493)

(56)

(183)

273

–

(1,482)

(4,137)

–

(10,473)

31,905

(5,493)

(1,538)

Values at the end of the year

580,622

464,571

2,085,936

2,058,859

5,189,988

AMORTIZATION

Accumulated at the beginning of the year

478,946

372,746

797,592

1,865,444

3,514,728

Translation differences

Amortization charge

Disposals

(5,551)

40,635

(46)

–

720

–

173,537

–

(5,551)

214,892

(46)

Accumulated at the end of the year

513,984

373,466

797,592

2,038,981

3,724,023

At December 31, 2018

66,638

91,105

1,288,344

19,878

1,465,965

(*) Includes Proprietary Technology.

Tenaris

All amounts in thousands of U.S. dollars

YEAR ENDED DECEMBER 31, 2017

COST

Values at the beginning of the year

Translation differences

Additions

Transfers / Reclassifications

Increase due to business combinations (**)

Disposals

Values at the end of the year

AMORTIZATION

173.

Information
system
projects

Licenses,
patents and
trademarks (*)

Goodwill

Customer
relationships

Total

554,330

6,265

28,335

(28,371)

133

–

461,619

2,090,257

2,058,946

5,165,152

483

5,105

(92)

–

(1,152)

(184)

–

(87)

–

6,477

33,440

(28,463)

133

(1,152)

560,692

465,963

2,090,073

2,058,859

5,175,587

Accumulated at the beginning of the year

408,373

362,292

797,592

1,734,068

3,302,325

Translation differences

Amortization charge

Transfers / Reclassifications

5,232

65,249

–

10,546

(92)

–

131,376

–

5,232

207,171

–

Accumulated at the end of the year

478,946

372,746

797,592

1,865,444

3,514,728

At December 31, 2017

81,746

93,217

1,292,481

193,415

1,660,859

(*) Includes Proprietary Technology.

(**) Related to Garrett LLC acquisition.

The geographical allocation of goodwill for the year
ended December 31, 2018 was $1,168.5 million for
North America, $117.1 million for South America,
$1.9 million for Europe and $0.7 million for Middle
East & Africa.

Annual Report

174.

The carrying amount of goodwill allocated by
CGU, as of December 31, 2018, was as follows:

All amounts in million U.S.dollars

As of December 31, 2018

Tubes Segment

Other Segment

Total

CGU

OCTG (USA)

Tamsa (Hydril and other)

Siderca (Hydril and other)

Hydril

Coiled Tubing

Confab

Other

Total

Maverick
Acquisition

Hydril
Acquisition

Other

Maverick
Acquisition

225

–

225

–

346

265

309

–

920

–

139

–

225

365

358

309

1,288

11. Investments in non-consolidated companies

YEAR ENDED DECEMBER 31

At the beginning of the year

Translation differences

Equity in earnings of non-consolidated companies

Dividends and distributions received (*)

Decrease / increase in equity reserves and others

At the end of the year

(*) Related to Ternium and Usiminas of which 25.7 were collected during the year.

2018

2017

640,294

1,848

193,994

(26,581)

(3,987)

557,031

(9,548)

116,140

(22,971)

(358)

805,568

640,294

Tenaris

The principal non-consolidated companies are:

175.

Company

Country of incorporation

% ownership at December 31,

Value at December 31,

a) Ternium (*)

b) Usiminas (**)

Others

Luxembourg

Brazil

–

(*) Including treasury shares

(**) At December 31, 2018 and 2017 the voting rights were 5.2%.

2018

2017

2018

2017

11.46%

3.07%

–

11.46%

3.08%

–

725,548

72,988

7,032

805,568

563,735

70,642

5,917

640,294

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.

Tenaris’s ownership stake a market value of
approximately $622.5 million. At December 31,
2018, the carrying value of Tenaris’s ownership
stake in Ternium, based on Ternium’s IFRS
Financial Statements, was approximately
$725.5 million.

At December 31, 2018, the closing price of
Ternium’s ADSs as quoted on the New York
Stock Exchange was $27.1 per ADS, giving

As of December 31, 2018 the Company concluded
that the carrying amount does not exceed the
recoverable value of the investment.

Annual Report

176.

Summarized selected financial information of
Ternium, including the aggregated amounts of assets,
liabilities, revenues and profit or loss is as follows:

TERNIUM

Non-current assets

Current assets

Total assets

Non-current liabilities

Current liabilities

Total liabilities

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

2018

2017

8,121,824

4,426,038

7,727,283

4,395,283

12,547,862

12,122,566

3,236,756

1,826,530

3,442,521

2,827,275

5,063,286

6,269,796

1,091,321

842,347

11,454,807

2,971,479

1,506,647

1,176,964

9,700,296

2,297,271

886,219

815,434

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, 2018, the closing price of
the Usiminas’ ordinary and preferred shares,

as quoted on the B3 - Brasil Bolsa Balcão S.A,
was BRL11.44 ($2.95) and BRL9.22 ($2.38),
respectively, giving Tenaris’s ownership stake a
market value of approximately $110.8 million.
As that date, the carrying value of Tenaris’s
ownership stake in Usiminas was approximately
$73 million.

Tenaris

Summarized selected financial information of
Usiminas, including the aggregated amounts of assets,
liabilities, revenues and profit or loss is as follows:

177.

USIMINAS

Non-current assets

Current assets

Total assets

Non-current liabilities

Current liabilities

Total liabilities

Non-controlling interests

Revenues

Gross profit

Net income for the year attributable to owners of the parent

2018

2017

4,696,896

2,148,322

5,661,947

2,193,096

6,845,218

7,855,043

1,933,207

2,344,042

860,862

920,924

2,794,069

3,264,966

369,333

425,988

3,766,241

3,367,937

612,156

194,381

513,712

74,019

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. The company started producing
energy on December 1, 2016 and has a power
capacity of 900 megawatts. As of December
31, 2018, Tenaris held 22% of Techgen’s share
capital, and its affiliates, Ternium and Tecpetrol
International S.A. (a wholly-owned subsidiary
of San Faustin S.A., the controlling shareholder
of both Tenaris and Ternium), held 48% and
30% respectively.

Techgen is a party to transportation capacity
agreements for a purchasing capacity of 150,000
MMBtu/Gas per day starting on August 1, 2016 and
ending on July 31, 2036, and a party to a contract
for the purchase of power generation equipment
and other services related to the equipment. As
of December 31, 2018, Tenaris’s exposure under
these agreements amounted to $55.1 million and
$1.8 million respectively. Furthermore, during the
quarter, Techgen entered a contract for the purchase
of clean energy certificates. As of December 31,
2018 Tenaris’s exposure under this agreement
amounted to $17.1 million.

Annual Report

178.

Tenaris issued a corporate guarantee covering 22%
of the obligations of Techgen under a syndicated
loan agreement between Techgen and several
banks, which was used in the construction of the
facility. The main covenants under the corporate
guarantee are Tenaris’s commitment to maintain its
participation in Techgen or the right to purchase at
least 22% of Techgen’s firm energy, and compliance
with a maximum permitted leverage ratio. As
of December 31, 2018, the amount outstanding
under the loan agreement was $600 million and,
as a result, the amount guaranteed by Tenaris was
approximately $132 million. For a description of the

recently agreed-upon refinancing of the syndicated
loan agreement and the release of Tenaris’s
corporate guarantee, see “Subsequent events –
Techgen refinancing.”

During 2018 the shareholders of Techgen made
additional investments, in Techgen, in form of
subordinated loans, which in case of Tenaris
amounted to $14.7 million. In the same period,
there were repayments of these loans for
$9.4 million. As of December 31, 2018, the
aggregate outstanding principal amount under
these loans was $98.6 million.

12. Receivables – non current

YEAR ENDED DECEMBER 31

2018

2017

Receivables from related parties

Receivable Venezuelan subsidiaries

Tax credits

Legal deposits

Employee advances and loans

Advances to suppliers and other advances

Others

Derivative financial instruments

Government entities

Allowances for doubtful accounts – see Note 21 (I)

58,128

48,659

16,025

12,446

3,740

7,592

5,263

–

88,595

27,075

29,404

13,568

5,891

12,443

6,353

–

641

151,905

183,970

–

(641)

151,905

183,329

Tenaris13. Inventories

YEAR ENDED DECEMBER 31

Finished goods

Goods in process

Raw materials

Supplies

Goods in transit

Allowance for obsolescence – see Note 22 (I)

14. Receivables and prepayments

179.

2018

2017

1,025,999

709,497

256,816

504,286

237,539

923,316

619,796

281,083

486,002

274,175

2,734,137

2,584,372

(209,796)

(216,068)

2,524,341

2,368,304

YEAR ENDED DECEMBER 31

2018

2017

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

Miscellaneous

Allowance for other doubtful accounts – see Note 22 (I)

31,599

2,182

6,521

23,467

4,896

63,321

30,683

36,587

2,085

12,205

25,205

17,353

28,397

20,122

162,669

141,954

(6,784)

(6,255)

155,885

135,699

Annual Report
180.

15. Current tax assets and liabilities

YEAR ENDED DECEMBER 31

CURRENT TAX ASSETS

V.A.T. credits

Prepaid taxes

CURRENT TAX LIABILITIES

Income tax liabilities

V.A.T. liabilities

Other taxes

16. Trade receivables, net

YEAR ENDED DECEMBER 31

Current accounts

Receivables from related parties

Allowance for doubtful accounts – see Note 22 (I)

2018

2017

67,322

54,010

76,714

55,620

121,332

132,334

182,711

18,091

49,431

250,233

35,210

14,313

52,882

102,405

2018

2017

1,778,796

1,240,769

25,105

51,676

1,803,901

1,292,445

(66,535)

(78,385)

1,737,366

1,214,060

TenarisThe following table sets forth details of the aging
of trade receivables:

181.

AT DECEMBER 31, 2018

Trade Receivables

Not Due

Past due

1 - 180 days

> 180 days

Guaranteed

Not guaranteed

Guaranteed and not guaranteed

Expected loss rate

Allowance for doubtful accounts

Nominative allowances for doubtful accounts

286,250

1,517,651

1,803,901

0.07%

(1,396)

(65,139)

254,743

1,180,788

1,435,531

0.04%

(564)

–

30,884

260,675

291,559

0.17%

(510)

(1,436)

Net Value

1,737,366

1,434,967

289,613

AT JANUARY 1, 2018

Guaranteed

Not guaranteed

Guaranteed and not guaranteed

Expected loss rate

Allowance for doubtful accounts

Nominative allowances for doubtful accounts

247,079

1,045,366

1,292,445

0.08%

(1,075)

(77,310)

219,764

841,737

1,061,501

0.04%

(447)

–

22,978

115,245

138,223

0.17%

(252)

–

Net Value

1,214,060

1,061,054

137,971

Effect of adoption of new standard

(6,423)

–

Net Value after adoption of new standard

1,207,637

1,061,054

137,971

623

76,188

76,811

0.43%

(322)

(63,703)

12,786

4,337

88,384

92,721

0.43%

(376)

(77,310)

15,035

(6,423)

8,612

Trade receivables are mainly denominated in
U.S. dollars.

Annual Report182.

17. Cash and cash equivalents and Other investments

YEAR ENDED DECEMBER 31

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

Others

OTHER INVESTMENTS - NON-CURRENT

Bonds and other fixed Income

Others

2018

2017

81,211

160,198

186,952

428,361

300,410

187,324

–

150,948

66,033

113,240

330,221

437,406

754,800

100

487,734

1,192,306

113,829

4,326

118,155

123,498

4,837

128,335

Tenaris

18. Borrowings

YEAR ENDED DECEMBER 31

NON-CURRENT

Bank borrowings

Finance lease liabilities

Costs of issue of debt

CURRENT

Bank borrowings

Bank overdrafts

Finance lease liabilities

Costs of issue of debt

Total Borrowings

183.

2018

2017

29,214

34,626

–

(27)

(40)

29,187

34,645

508,143

1,644

(11)

509,820

539,007

930,957

131

138

(12)

931,214

965,859

Annual Report
184.

The maturity of borrowings is as follows:

AT DECEMBER 31, 2018

1 year or less

1 - 2 years

2 - 3 years

3 - 4 years

4 - 5 years

Over 5 years

Total

Financial lease

Other borrowings

Total borrowings

Interest to be accrued (*)

Total

AT DECEMBER 31, 2017

Financial lease

Other borrowings

Total borrowings

Interest to be accrued (*)

Total

(*)

Includes the effect of hedge accounting.

509,776

509,820

8,182

518,002

138

931,076

931,214

14,512

945,726

–

4,271

1,175

5,446

4,876

4,935

1,212

6,147

–

4,771

1,166

5,937

–

4,484

1,203

5,687

–

20,145

169

20,314

–

4,978

1,190

6,168

–

20,248

174

20,422

–

538,963

539,007

10,692

549,699

197

965,662

965,859

18,290

984,149

Tenaris

Significant borrowings include:

In million of USD

Disbursement date

Borrower

Type

Original &
Outstanding

Final maturity

2018

Tamsa

Siderca

Bank loans

TuboCaribe

Bank loan

347

2019

May 2019

185.

As of December 31, 2018, 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, 2018 and 2017, considering hedge
accounting where applicable.

2018

2017

Total borrowings

3.98%

3.73%

Annual Report186.

Breakdown of long-term borrowings by currency
and rate is as follows:

Non current borrowings

Currency

USD

EUR

Others

Total non-current borrowings

Interest rates

Year ended December 31

Fixed

Variable

2018

2017

18,762

9,023

1,402

–

29,187

19,120

13,828

1,638

34,645

Breakdown of short-term borrowings by currency
and rate is as follows:

Current borrowings

Currency

USD

EUR

MXN

ARS

Others

Interest rates

Year ended December 31

Variable

Fixed

Variable

Fixed

Variable

Fixed

2018

2017

16,847

138,303

198

4,178

301,047

49,125

17,640

187,872

169

839

412,719

311,829

138

Total current borrowings

509,820

931,214

Tenaris

Borrowings evolution

Year ended December 31, 2018

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

187.

Non current

Current

34,645

(623)

(1,330)

(5)

(3,500)

–

931,214

(8,191)

(411,570)

(6,646)

3,500

1,513

29,187

509,820

19. Deferred income tax
Deferred income taxes are calculated in full on
temporary differences under the liability method
using the tax rate of each country.

Deferred tax liabilities

The evolution of deferred tax assets and
liabilities during the year are as follows:

At the beginning of the year

Effect of adoption of new standards

Translation differences

Charged directly to other comprehensive income

Income statement charge

At December 31, 2018

At the beginning of the year

Translation differences

Charged directly to other comprehensive income

Income statement credit (charge)

At December 31, 2017

(*)

Includes the effect of currency translation on tax base (See Note 7).

Fixed
assets (*)

Inventories

Intangible
and Other

Total

744,926

34,934

55,585

835,445

–

(876)

–

(33,055)

710,995

625,488

2,241

–

117,197

744,926

–

(9,886)

25,048

288

(9,468)

46,532

(784)

288

(52,409)

782,575

36,891

152,281

814,660

(2)

–

(1,955)

34,934

(583)

(96,136)

55,585

2,262

(583)

19,106

835,445

Annual Report

188.

Deferred tax assets

Provisions and
allowances

Inventories

Tax
losses (*)

Other

Total

At the beginning of the year

Effect of adoption of new standards

Translation differences

Charged directly to other comprehensive income

Income statement charge / (credit)

At December 31, 2018

(26,475)

(89,555)

(354,944)

(60,033)

(531,007)

952

2,532

6,852

–

1,447

–

1,523

–

1,014

–

(42,327)

(16,116)

(86,585)

(396,257)

(164)

(38)

1,587

(27,536)

(86,184)

788

4,955

1,610

(61,488)

(585,142)

At the beginning of the year

Translation differences

Charged directly to other comprehensive income

Income statement charge / (credit)

At December 31, 2017

(33,276)

(94,176)

(199,326)

(81,838)

(408,616)

(223)

–

7,024

(972)

–

5,593

322

–

(606)

(778)

(1,479)

(778)

(155,940)

23,189

(120,134)

(26,475)

(89,555)

(354,944)

(60,033)

(531,007)

(*) As of December 31, 2018, the net unrecognized deferred tax assets amount to $127.3 million.

Tenaris

The estimated recovery analysis of deferred tax
assets and deferred tax liabilities is as follows:

YEAR ENDED DECEMBER 31

Deferred tax assets to be recovered after 12 months

Deferred tax liabilities to be recovered after 12 months

189.

2018

2017

(452,330)

739,670

(405,416)

808,108

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:

YEAR ENDED DECEMBER 31

Deferred tax assets

Deferred tax liabilities

The movement in the net deferred income tax
liability account is as follows:

YEAR ENDED DECEMBER 31

At the beginning of the year

Effect of adoption of new standards

Translation differences

Charged directly to Other Comprehensive Income

Income statement credit

At the end of the year

2018

2017

(181,606)

379,039

197,433

(153,532)

457,970

304,438

2018

2017

304,438

406,044

823

4,171

1,898

–

783

(1,361)

(113,897)

(101,028)

197,433

304,438

Annual Report190.

20. Other liabilities

I. Other liabilities – Non current

YEAR ENDED DECEMBER 31

Post-employment benefits

Other-long term benefits

Miscellaneous

Post-employment benefits

Unfunded

YEAR ENDED DECEMBER 31

Values at the beginning of the year

Translation differences

Current service cost

Interest cost

Curtailments and settlements

Remeasurements (*)

Benefits paid from the plan

Other

At the end of the year

(*) For 2018 a gain of $0.2 million is attributable to demographic assumptions and a gain
of $3.7 million to financial assumptions. For 2017 a loss of $0.09 million is attributable
to demographic assumptions and a loss of $10.8 million to financial assumptions.

2018

2017

115,087

78,492

19,550

125,012

68,244

24,040

213,129

217,296

2018

2017

101,889

(3,849)

7,400

5,070

–

(3,946)

(9,719)

473

97,318

96,229

2,893

7,851

5,462

10,907

(22,107)

633

101,889

TenarisThe principal actuarial assumptions used
were as follows:

YEAR ENDED DECEMBER 31

Discount rate

Rate of compensation increase

191.

2018

2017

2% - 7%

0% - 3%

1% - 7%

0% - 3%

As of December 31, 2018, an increase / (decrease)
of 1% in the discount rate assumption of the main
plans would have generated a (decrease) / increase
on the defined benefit obligation of $7 million and
$6.2 million respectively, and an increase / (decrease)
of 1% in the rate of compensation assumption of
the main plans would have generated an increase /
(decrease) impact on the defined benefit obligation
of $3.4 million and $3.0 million respectively. The
above sensitivity analyses are based on a change

in discount rate and rate of compensation while
holding all other assumptions constant. In practice,
this is unlikely to occur, and changes in some of the
assumptions may be correlated.

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

Present value of funded obligations

Fair value of plan assets

Liability (*)

(*) In 2018 and 2017, $3.3 million corresponding to an overfunded plan were reclassified within

other non-current assets, respectively.

2018

2017

146,885

(132,438)

14,447

165,486

(145,692)

19,794

Annual Report192.

The movement in the present value of funded
obligations is as follows:

YEAR ENDED DECEMBER 31

At the beginning of the year

Translation differences

Current service cost

Interest cost

Remeasurements (*)

Benefits paid

At the end of the year

(*) For 2018 a loss of $0.4 million is attributable to demographic assumptions and a gain of
$8.4 million to financial assumptions. For 2017 a gain of $0.4 million is attributable to
demographic assumptions and a loss of $4.1 million to financial assumptions. respectively.

The movement in the fair value of plan assets
is as follows:

YEAR ENDED DECEMBER 31

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

2018

2017

165,485

(8,182)

1,328

5,691

(7,984)

(9,453)

146,885

159,612

7,300

592

6,034

3,602

(11,654)

165,486

2018

2017

(145,692)

(132,913)

7,514

(4,936)

3,967

(3,108)

9,453

364

(6,802)

(5,849)

(5,874)

(6,230)

11,654

323

(132,438)

(145,692)

TenarisThe major categories of plan assets as a percentage
of total plan assets are as follows:

193.

YEAR ENDED DECEMBER 31

Equity instruments

Debt instruments

Others

The principal actuarial assumptions used
were as follows:

YEAR ENDED DECEMBER 31

Discount rate

Rate of compensation increase

2018

2017

53.5%

42.8%

3.7%

53.4%

42.9%

3.7%

2018

2017

4 % - 5 %

0 % - 3 %

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.

/ (decrease) on the defined benefit obligation of
$1.6 million and $1.5 million respectively. The
above sensitivity analyses are based on a change
in discount rate and rate of compensation while
holding all other assumptions constant. In practice,
this is unlikely to occur, and changes in some of the
assumptions may be correlated.

The employer contributions expected to be paid for
the year 2019 amount approximately to $3.3 million.

The methods and types of assumptions used in
preparing the sensitivity analysis did not change
compared to the previous period.

Annual Report194.

II. Other liabilities – current

YEAR ENDED DECEMBER 31

Payroll and social security payable

Miscellaneous

21. Non-current allowances and provisions

I. Deducted from non current receivables

YEAR ENDED DECEMBER 31

Values at the beginning of the year

Translation differences

Used

Values at the end of the year

2018

2017

148,069

17,624

165,693

141,886

15,819

157,705

2018

2017

(641)

110

531

–

(913)

106

166

(641)

TenarisII. Liabilities

YEAR ENDED DECEMBER 31

Values at the beginning of the year

Translation differences

Additional provisions

Reclassifications

Used

Values at the end of the year

22. Current allowances and provisions

I. Deducted from assets

195.

2018

2017

36,438

(5,261)

14,397

(2,406)

(7,079)

36,089

63,257

366

3,994

(7,591)

(23,588)

36,438

YEAR ENDED DECEMBER 31, 2018

Values at the beginning of the year

Effect of adoption of new standards

Translation differences

Additional allowances

Used

At December 31, 2018

YEAR ENDED DECEMBER 31, 2017

Values at the beginning of the year

Translation differences

Reversals / (additional) allowances

Used

At December 31, 2017

Allowance for doubtful
accounts - Trade receivables

Allowance for other doubtful
accounts - Other receivables

Allowance for
inventory obsolescence

(78,385)

6,423

329

(1,751)

6,849

(66,535)

(85,724)

(345)

5,421

2,263

(78,385)

(6,255)

–

359

(1,179)

291

(6,784)

(6,332)

(220)

(84)

381

(6,255)

(216,068)

–

3,575

(25,457)

28,154

(209,796)

(240,242)

(3,575)

12,917

14,832

(216,068)

Annual Report196.

II. Liabilities

YEAR ENDED DECEMBER 31, 2018

Values at the beginning of the year

Translation differences

Additional provisions

Reclassifications

Used

At December 31, 2018

YEAR ENDED DECEMBER 31, 2017

Values at the beginning of the year

Translation differences

Additional provisions

Reclassifications

Used

At December 31, 2017

Sales risks

Other claims and
contingencies

11,396

(103)

2,638

–

(7,117)

6,814

13,885

247

4,238

–

(6,974)

11,396

20,934

(2,205)

6,463

2,406

(10,129)

17,469

8,871

227

9,432

7,591

(5,187)

20,934

Total

32,330

(2,308)

9,101

2,406

(17,246)

24,283

22,756

474

13,670

7,591

(12,161)

32,330

23. Derivative financial instruments

Net fair values of derivative financial instruments
The net fair values of derivative financial
instruments, in accordance with IFRS 13, are:

YEAR ENDED DECEMBER 31

2018

2017

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

(*) Includes $52 thousand of non-current derivatives

5,604

3,621

9,225

(11,667)

(311)

(11,978)

(2,753)

2,036

6,194

8,230

(34,770)

(5,029)

(39,799)

(31,569)

Tenaris
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 2018 and 2017, were as follows:

197.

Purchase currency

Sell currency

USD

ARS

BRL

USD

EUR

USD

MXN

USD

KWD

CAD

ARS

USD

EUR

USD

MXN

USD

JPY

USD

Others

Total

Term

2019

2018

2019

2018

2019

2018

2019

Fair Value

Hedge Accounting Reserve

2018

2017

(6,542)

(13,715)

–

(131)

203

–

888

–

271

522

2,089

(53)

(17)

5,660

(367)

(20,447)

490

(101)

(630)

(2,072)

(392)

2018

(895)

–

(411)

–

390

–

2017

(1,067)

–

1,881

–

(534)

–

(520)

–

(2,753)

(31,569)

(916)

(240)

Following is a summary of the hedge
reserve evolution:

Equity Reserve Dec-16

Movements 2017

Equity Reserve Dec-17

Movements 2018

Equity Reserve Dec-18

Foreign Exchange

Total Cash flow Hedge

(4,742)

4,502

(240)

(676)

(916)

Tenaris estimates that the cash flow hedge reserve
at December 31, 2018 will be recycled to the
Consolidated Income Statement during 2019.

Annual Report198.

24. 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.

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, Tenaris was able to make a reliable
estimate of the expected loss or range of probable
loss and 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 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 Tenaris could incur
a charge to earnings which could have a material
adverse effect on Tenaris’s 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, 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 Industrial S.A. (“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 subsdiaries that acquired a participation in
Usiminas’ control group in January 2012.

Tenaris199.

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. The Superior Court of Justice
will review admissibility of CSN’s appeal, and, if
declares it admissible, will 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.

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 currently 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, Confab was
ordered to pay an amount of approximately
BRL89.8 million (approximately $23.2 million)
(including interest, fees and expenses). On October
15, 2018, Confab filed a request for homologation
of the settlement agreement mentioned above,
as such settlement agreement remains valid and

Annual Report
200.

binding between the parties. On November 8,
2018, the settlement agreement was homologated
by the court.

•

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 BRL57.8 million (approximately
US$ 14.9 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 BRL49.5 million (approximately
$12.8 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. 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.

and related matters. In addition, the Company has
voluntarily notified the U.S. Securities and Exchange
Commission and the U.S. Department of Justice.
The Company continues to review these matters
and to respond to requests from and otherwise
cooperate with the appropriate authorities. 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 resolution of these matters.

Petroamazonas penalties
On January 22, 2016, Petroamazonas (“PAM”),
an Ecuadorian state-owned oil company, imposed
penalties to the Company’s Uruguayan subsidiary,
Tenaris Global Services S.A. (“TGS”), for its
alleged failure to comply with delivery terms under
a pipe supply agreement. The penalties amount
to approximately $22.5 million as of the date
hereof. On June 27, 2018, TGS initiated arbitration
proceedings against PAM before the Quito
Chamber of Commerce Arbitration Center, seeking
the annulment of the penalties. In September 2018,
PAM filed its response to the arbitration claim. The
claim is currently in evidentiary stage before the
arbitration panel. Tenaris believes, based on the
advice of counsel, that PAM had no legal basis to
impose the penalties and that TGS has meritorious
defenses against PAM. However, the Company
cannot predict the outcome of a claim against a
state-owned company.

Contractor claim for additional costs
Tenaris Bay City Inc. (“Tenaris Bay City”), a
U.S. subsidiary of the Company, received claims
from a contractor for alleged additional costs in
the construction of a project located in the Bay
City area for an amount initially stated to be in
excess of $90 million; however, subsequently the
contractor amended the amount of the claim to
$48 million plus attorneys’ fees and arbitration

Tenaris
201.

costs. On June 30, 2017, the contractor filed a
demand for arbitration of these claims. An arbitral
panel was selected and a scheduling order issued.
The parties have already submitted statements of
claim and responses to the other party’s claim. The
final trial hearings on this matter have begun in
February 2019. 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.

Claim for differences on gas supply prices
On July 7, 2016, Siderca was notified of a claim
initiated by an Argentine state-owned company
for an amount of $25.4 million, allegedly owed
as a result of differences in the price paid for gas
supplied to Siderca during three months in 2013.
In November 2018, Siderca was notified of a
decision issued by the competent administrative
agency confirming that Siderca paid the correct
price for its gas purchases. As the decision was
not appealed, it became final and, accordingly, the
claim was finalized in favor of Siderca.

Tax assessment in Mexico regarding tax
deductions on purchases of scrap
In 2017, Tamsa and Servicios Generales Tenaris
Tamsa S.A (“Segeta”), two Mexican subsidiaries of
the Company, were informed that the Mexican tax
authorities had determined that the tax deductions
associated with certain purchases of scrap made by
the companies during 2013 failed to comply with
applicable requirements and, accordingly, should
be rejected. Tamsa and Segeta filed their respective
responses and complaints against the determination
and provided additional information evidencing
compliance with applicable requirements for the
challenged tax deductions. On August 30, 2018
and January 24, 2019, administrative decisions
were issued in the proceedings against Segeta and
Tamsa, respectively, determining a tax obligation in
the amount of MXN1,540 million (approximately

$78 million) for Segeta and MXN3,749 million
(approximately $190 million) for Tamsa. On
October 15, 2018 and March 8, 2019, Segeta
and Tamsa filed revocation requests (recursos de
revocación exclusivos) against the August 2018
decision as to Segeta and the January 2019 decision
as to Tamsa. On March 27, 2019, Segeta was notified
that the Mexican tax authorities had reversed and
left without effects their former tax determination.
Tenaris believes, based on the advice of counsel and
on the recent favorable resolution regarding Segeta,
that it is unlikely that the ultimate resolution of either
tax assessment will result in a material obligation.

Putative class actions
The Company is aware that, following its November
27, 2018 announcement that its Chairman and
CEO Paolo Rocca was included in an Argentine
court investigation known as the Notebooks Case,
two putative class action complaints were filed in
the U.S. District Court for the Eastern District of
New York purportedly on behalf of purchasers
of Tenaris securities from May 1, 2014 through
November 27, 2018. The individual defendants
named in the complaint are Tenaris’s Chairman and
CEO and Tenaris’s CFO. Neither the Company nor
any of the individual defendants have been served.
Each complaint alleges that during the class period
(May 2014-November 2018), the Company and the
individual defendants inflated the Tenaris share price
by failing to disclose that sale proceeds received by
Ternium (in which Tenaris held an 11.46% stake)
when Sidor was expropriated by Venezuela were
received or expedited as a result of alleged improper
payments made to Argentine officials. The complaint
does not specify the damages that plaintiff is seeking.

Investigation concerning alleged price overcharges
in Brazil
In 2018, two Brazilian subsidiaries of the Company
were notified of formal charges arising from a

Annual Report
202.

review by the Tribunal de Contas da Uniao (TCU)
for alleged price overcharges on goods supplied to
Petróleo Brasileiro S.A- Petrobras under a supply
contract. Both companies have already filed their
defenses. The estimated amount of this claim is
BRL27 million (approximately $7 million). Tenaris
believes, based on the advice of counsel and
external consultants, that the prices charged under
the Petrobras contract do not result in overprices
and that it is unlikely that the ultimate resolution
of this matter will result in a material obligation.

II. Commitments and other purchase orders
Set forth is a description of Tenaris’s main
outstanding commitments:

capacity). Monthly payments are determined
on the basis of capacity charges, operation
costs, back-up power charges, and transmission
charges. As of the seventh contract year (as long
as Techgen’s existing or replacing bank facility has
been repaid in full), the Tenaris company has the
right to suspend or early terminate the contract
if the rate payable under the agreement is higher
than the rate charged by the Comisión Federal de
Electricidad (“CFE”) or its successors. The Tenaris
company may instruct Techgen to sell to any
affiliate, to CFE, or to any other third party all or
any part of unused contracted energy under the
agreement and the Tenaris company will benefit
from the proceeds of such sale.

•

A Tenaris company entered into a contract with
Transportadora de Gas del Norte S.A. for the
service of natural gas transportation to the facilities
of Siderca, an Argentine subsidiary of Tenaris. As
of December 31, 2018, the aggregate commitment
to take or pay the committed volumes for a 9-year
term totalled approximately $40.1 million.

Several Tenaris companies entered into a contract
with Praxair S.A. for the service of oxygen
and nitrogen supply. As of December 31, 2018,
the aggregate commitment to take or pay the
committed volumes for a 14-year term totalled
approximately $57.7 million.

Several Tenaris companies entered into a contract
with Graftech for the supply of graphite electrodes.
As of December 31, 2018, the aggregate commitment
to take or pay the committed volumes totalled
approximately $55 million.

A Tenaris company entered into a 25-year contract
(effective as of December 1, 2016, through
December 1, 2041) with Techgen for the supply
of 197 MW (which represents 22% of Techgen’s

•

A Tenaris company entered into a contract with
Vale International S.A. for the supply of iron ore,
for which it is committed to purchase at least 70%
of its annual iron ore needs, up to 770 thousand
tons of pellets annually. The contract expires on
December 31, 2020. The aggregate commitment
amounts to approximately $136.9 million.

A Tenaris company entered into a contract with
Canadian National Railway for the service of
rail transportation from its raw material supplier
to its Canadian production center. The total
commitment ending June 30, 2020 is $22.8 million.

A Tenaris company entered into a contract with
Air Liquide Mexico, S. de R.L de C.V. for the
supply of argon gas. As of December 31, 2018,
the aggregate commitment totalled approximately
$20.8 million.

Additionally the Company issued performance
guarantees mainly related to long term commercial
contracts with several customers and parent
companies guarantees for approximately
$2.1 billion.

TenarisIII. Restrictions to the distribution of profits and

payment of dividends
As of December 31, 2018, equity as defined under
Luxembourg law and regulations consisted of:

All amounts in thousands of U.S. dollars

Share capital

Legal reserve

Share premium

Retained earnings including net income for the year ended December 31, 2018

Total equity in accordance with Luxembourg law

203.

1,180,537

118,054

609,733

16,439,438

18,347,762

At least 5% of the Company’s net income per year,
as calculated in accordance with Luxembourg law
and regulations, must be allocated to the creation of
a legal reserve equivalent to 10% of the Company’s
share capital.

As of December 31, 2018, 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.

Annual Report204.

At December 31, 2018, distributable amount
under Luxembourg law totals $17.0 billion,
as detailed below:

All amounts in thousands of U.S. dollars

Retained earnings at December 31, 2017 under Luxembourg law

Other income and expenses for the year ended December 31, 2018

Dividends approved

Retained earnings at December 31, 2018 under Luxembourg law

Share premium

Distributable amount at December 31, 2018 under Luxembourg law

16,956,761

(33,303)

(484,020)

16,439,438

609,733

17,049,171

25. Acquisition of subsidiaries

In September 2017, Tenaris acquired 100% of
Garrett (a pipe services and trucking business)
through the payment of a price of $10.4 million.

If the acquisition had occurred on January 1, 2017,
Tenaris’s unaudited pro forma net sales and net
income from continuing operations would not have
changed materially.

Tenaris26. Cash flow disclosures

205.

YEAR ENDED DECEMBER 31

2018

2017

2016

(I) CHANGES IN WORKING CAPITAL

Inventories

Receivables and prepayments and Current tax assets

Trade receivables

Other liabilities

Customer advances

Trade payables

(II) INCOME TAX ACCRUALS LESS PAYMENTS

Tax accrued

Taxes paid

(III) INTEREST ACCRUALS LESS PAYMENTS, NET

Interest accrued

Interest received

Interest paid

(IV) CASH AND CASH EQUIVALENTS

Cash at banks, liquidity funds and short - term investments

Bank overdrafts

(176,443)

(804,415)

30,144

(517,579)

(22,984)

5,976

(57,066)

(4,564)

(259,375)

4,226

17,039

193,905

244,720

53,639

146,824

(79,046)

(95,112)

59,939

(737,952)

(853,184)

330,964

229,207

(170,713)

(17,136)

(176,853)

41,441

(169,520)

58,494

(193,989)

(128,079)

(2,914)

40,613

(31,548)

6,151

428,361

(1,644)

426,717

(20,534)

50,001

(17,917)

11,550

330,221

(131)

330,090

(43,872)

60,163

(18,858)

(2,567)

399,900

(1,320)

398,580

Annual Report

206.

27. Discontinued Operations

On December 15, 2016, Tenaris entered into an
agreement with Nucor Corporation (NC) pursuant
to which it has sold to NC the steel electric conduit
business in North America, known as Republic
Conduit for an amount of $328 million (net of

transaction costs). The sale was completed on
January 19, 2017, with effect from January 20,
2017. The result of this transaction was an
after-tax gain of $89.7 million, calculated as the
net proceeds of the sale less the book value of net
assets held for sale, the corresponding tax effect
and related expenses.

2017

2016

1,848

89,694

91,542

41,411

–

41,411

YEAR ENDED DECEMBER 31

Income from discontinued operations

After tax gain on the sale of Conduit

Net Income for discontinued operations

Details of Conduit sale

Cash received

Transaction and other costs

Carrying amount of net assets sold

Gain on sale before income tax

Income tax expense on gain

Gain on sale after income tax

331,295

(3,663)

(137,814)

189,817

(100,123)

89,694

The financial performances presented are relative
to the 19 days of January 2017 and for the years
ended December 31 and 2016.

TenarisAnalysis of the result of discontinued operations

All amounts in thousands of U.S. dollars, unless otherwise stated

207.

YEAR ENDED DECEMBER 31

2017

2016

Revenues

Gross profit

Net income

Basic and diluted earnings per share (U.S. dollars per share)

Basic and diluted earnings per ADS (U.S. dollars per ADS)

Summarized cash flow information is as follows:

Cash at the beginning

Cash at the end

(Decrease) Increase in cash

(Used in) provided by operating activities

Provided by (used in) investing activities

Used in financing activities

11,899

4,496

1,848

–

234,911

98,324

41,411

0.04

0.07

2017

2016

18,820

206

(18,614)

(3,046)

(15,600)

15,343

18,820

3,477

24,535

(1,058)

(20,000)

These amounts were estimated only for disclosure
purposes, as cash flows from discontinued
operations were not managed separately from
other cash flows.

The following table shows the current and non-
current assets and liabilities of disposal group as
at 31 December 2016, and the carrying amounts of
assets and liabilities as at the date of sale.

Annual Report208.

Current and non-current assets and liabilities of disposal group

AT DECEMBER 31

NON-CURRENT ASSETS

CURRENT ASSETS

Total assets of disposal group classified as held for sale

NON-CURRENT LIABILITIES

CURRENT LIABILITIES

Total liabilities of disposal group classified as held for sale

At January 19, 2017

At December 31, 2016

87,332

69,332

156,664

5,294

13,556

18,850

87,364

64,053

151,417

5,376

12,718

18,094

28. Related party transactions

As of December 31, 2018:

•

San Faustin S.A., a Luxembourg société anonyme
(“San Faustin”), owned 713,605,187 shares in the
Company, representing 60.45% of the Company’s
capital and voting rights.

San Faustin owned all of its shares in the
Company through its wholly-owned subsidiary
Techint Holdings S.à.r.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 Dutch private foundation

(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 0.08% of the
Company’s outstanding shares.

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

Tenarisas “Other”. The following transactions were carried
out with related parties:

209.

All amounts in thousands of U.S. dollars

YEAR ENDED DECEMBER 31

I. TRANSACTIONS

A. SALES OF GOODS AND SERVICES

Sales of goods to non-consolidated parties

Sales of goods to other related parties

Sales of services to non-consolidated parties

Sales of services to other related parties

B. PURCHASES OF GOODS AND SERVICES

Purchases of goods to non-consolidated parties

Purchases of goods to other related parties

Purchases of services to non-consolidated parties

Purchases of services to other related parties

2018

2017

2016

23,709

131,548

7,641

5,647

32,362

94,624

11,637

3,751

168,545

142,374

245,186

106,624

9,556

46,179

234,361

17,711

12,077

50,794

21,174

32,613

9,542

2,948

66,277

67,048

20,150

11,528

53,530

407,545

314,943

152,256

AT DECEMBER 31

2018

2017

II. PERIOD-END BALANCES

A. ARISING FROM SALES / PURCHASES OF GOODS / SERVICES

Receivables from non-consolidated parties

Receivables from other related parties

Payables to non-consolidated parties

Payables to other related parties

122,135

24,419

(33,197)

(17,595)

95,762

117,853

50,815

(49,354)

(14,475)

104,839

Directors’ and senior management compensation
During the years ended December 31, 2018, 2017
and 2016, the cash compensation of Directors
and Senior managers amounted to $33.7 million,
$45.8 million and $38.6 million respectively. These
amounts include cash benefits paid to certain
senior managers in connection with the pre-existing

retirement plans. In addition, Directors and Senior
managers received 558, 484 and 500 thousand units
for a total amount of $5.6 million, $4.7 million
and $4.8 million respectively in connection with
the Employee retention and long term incentive
program mentioned in Note O Employee benefits –
Other long term benefits.

Annual Report

210.

29. 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, 2018.

Company

Country of
Incorporation

Main activity

Percentage of ownership
at December 31 (*)

Algoma Tubes Inc.

Confab Industrial S.A. and subsidiaries

Canada

Brazil

Manufacturing of seamless steel pipes

Manufacturing of welded steel pipes

Kazakhstan Pipe Threaders Limited Liability Partnership

Kazakhstan

Threading of premium products

Hydril Company and subsidiaries (except detailed) (a)

USA

Manufacture and marketing of

and capital goods

Dalmine S.p.A.

Maverick Tube Corporation and subsidiaries

S.C. Silcotub S.A.

NKKTubes

Siat Sociedad Anónima

Prudential Steel Ltd.

Siderca Siderca Sociedad Anónima Industrial

y Comercial and subsidiaries

Italy

USA

Romania

Japan

Argentina

Canada

Argentina

premium connections

Manufacturing of seamless steel pipes

Manufacturing of welded steel pipes

Manufacturing of seamless steel pipes

Manufacturing of welded and seamless

steel pipes

Manufacturing of welded steel pipes

Manufacturing of seamless steel pipes

2018

2017

2016

100%

51%

100%

51%

100%

51%

100%

P.T. Seamless Pipe Indonesia Jaya

Indonesia

Manufacturing of seamless steel products

89%

77%

(*) All percentages rounded.

(a) Tenaris Investments S.a.r.l. holds 100% of Hydril's subsidiaries shares except for Technical

Drilling & Production Services Nigeria. Ltd where it holds 80%.

Tenaris

Company

Country of
Incorporation

Main activity

Percentage of ownership
at December 31 (*)

211.

Tubos de Acero de Mexico S.A.

Tenaris Global Services (U.S.A.) Corporation

Tenaris Bay City, Inc.

Mexico

USA

Manufacturing of seamless steel pipes

Marketing of steel products

Manufacturing of seamless steel pipes

Tenaris Global Services (UK) Ltd

United Kingdom

Holding company and marketing of

Tenaris Investments Switzerland AG and subsidiaries

Switzerland

Holding Company

steel products

Tenaris Financial Services S.A.

Tenaris Global Services (Canada) Inc.

Tenaris Investments S.àr.l.

Tenaris Connections BV

Uruguay

Canada

Financial company

Marketing of steel products

Luxembourg

Holding company

Netherlands

Development, management and

licensing of intellectual property

2018

2017

2016

100%

Tenaris Global Services S.A. and subsidiaries

Uruguay

Holding company and marketing of

100%

(except detailed) (b)

steel products

Talta - Trading e Marketing Sociedade Unipessoal Lda.

Portugal

Holding Company

100%

(*) All percentages rounded.

(b) Tenaris Investments S.a.r.l. holds 97.5% of Tenaris Supply Chain S.A, 60% of Gepnaris S.A.

and 40% of Tubular Technical Services and Pipe Coaters, and 49% of Amaja Tubular Services
Limited and Tubular Services Angola Ltd.

Annual Report

212.

30. 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.

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 $87.3 million for the breaches and
ordered Venezuela to pay an additional amount

of $85.5 million in pre-award interest, aggregating
to a total award of $172.8 million, payable in full
and net of any applicable Venezuelan tax, duty or
charge. The tribunal granted Venezuela a grace
period of six months from the date of the award to
make payment in full of the amount due without
incurring post-award interest, and resolved that
if no, or no full, payment is made by then, post-
award interest will apply at the rate of 9% per
annum. As of December 31, 2018, post-award
interest amounted to approximately $50 million.

On March 14, 2016, Venezuela requested the
rectification of the award pursuant to article 49(2)
of the ICSID Convention and ICSID Arbitration
Rule 49. The tribunal denied Venezuela’s request
on June 24, 2016, ordering Venezuela to reimburse
Tenaris and Talta for their costs. On September 21,
2016, Venezuela submitted a request for annulment
of the award as well as the stay of enforcement
of the award in accordance with the ICSID
Convention and Arbitration Rules. On March 24,
2017, an ad hoc committee constituted to decide
on Venezuela´s requests rendered its decision to lift
the stay of enforcement of the award. On August
8, 2018, the ad hoc committee rejected Venezuela’s
application to annul the award.

On June 8, 2018, Tenaris and Talta filed an action
in federal court in the District of Columbia to

Tenaris213.

recognize and enforce the awards. Tenaris and Talta
are in the process of effecting service on Venezuela
in accordance with US law.

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 $137 million and ordered Venezuela to
reimburse Tenaris and Talta $3.3 million in legal
fees and ICSID administrative costs. In addition,
Venezuela was ordered to pay interest from April
30, 2008 until the day of effective payment at a rate
equivalent to LIBOR + 4% per annum, which as
of December 31, 2018 amounted to approximately
$102 million.

On April 11, 2017, Venezuela submitted a request
for annulment of the award as well as the stay
of enforcement of the award in accordance with
the ICSID Convention and Arbitration Rules. On
February 23, 2018, an ad hoc committee constituted
to decide on Venezuela’s requests rendered its
decision to lift the stay of enforcement of the award.
On December 28, 2018, the ad hoc committee
rejected Venezuela’s application to annul the award.

On June 8, 2018, Tenaris and Talta filed an action
in federal court in the District of Columbia to
recognize and enforce the awards. Tenaris and
Talta are in the process of effecting service on
Venezuela in accordance with US law.

As of December 31, 2018 the Company has
receivables related to its interest in the Venezuelan
Companies for a total amount of approximately
$49 million (see Note III.B).

Annual Report214.

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

Audit Fees

Audit-Related Fees

Tax Fees

All Other Fees

Total

2018

2017

2016

3,841

3,995

3,588

–

3,891

4,136

3,669

Tenaris32. Subsequent events

was appointed as managing director and chief
executive officer of SSP.

215.

Acquisition of Saudi Steel Pipe Company

a) Acquisition
On January 21, 2019, Tenaris acquired 47.79%
of the shares of Saudi Steel Pipe Company
(“SSP”), a welded steel pipes producer listed on
the Saudi stock market, for a total amount of
SAR529.8 million (approximately $141 million).
The amount was paid with Tenaris cash in hand.
SSP’s facilities are located in the Eastern Province
of the Kingdom of Saudi Arabia and have a
manufacturing capacity of 360,000 tons per year.
SSP started its operations in 1980 and serves
energy industrial and commercial segments, is
qualified to supply products with major national
oil companies in the region. Upon closing of
the acquisition, four Tenaris’s nominees were
appointed as new members of the SSP’s board
of directors and a senior executive with Tenaris

The Company has begun consolidating SSP’s
balances and results of operations as from
January 21, 2019.

b) Fair value of net assets acquired
The application of the purchase method requires
certain estimates and assumptions specially
concerning the determination of the fair values of
the acquired intangible assets and property, plant and
equipment as well as the liabilities assumed at the
date of the acquisition. The fair values determined at
the acquisition date are based mainly on discounted
cash flows and other valuation techniques.

The preliminary 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:

SAR million

USD million

Property, Plant and Equipment

Intangible assets

Investment in associated

Working capital

Cash and Cash Equivalents

Other Receivables

Borrowings

Employees end of service benefits

Net assets acquired

Tenaris acquired 47.79% of total assets and
liabilities shown above, approximately $112 million.

675

278

168

(304)

(59)

878

180

(81)

(16)

234

Annual Report216.

The preliminary purchase price allocation disclosed
above is currently under analysis with the assistance
of a third party expert. Following IFRS 3, the
Company will continue reviewing the allocation
and make any necessary adjustments (mainly over
Property, Plant and Equipment, Intangible Assets
and Provisions) during the twelve months following
the acquisition date.

Agreement to build welded pipe plant in West

Siberia
On February 5, 2019 Tenaris entered into an
agreement with PAO Severstal to build a welded pipe
plant to produce OCTG products in the Surgut area,
West Siberia, Russian Federation. Tenaris will hold a
49% interest in the company, while PAO Severstal will
own the remaining 51%. The commencement of the
project is subject to regulatory approvals and other
customary conditions. The plant, which is estimated
to require an investment of $240 million and a
two-year construction period, is planned to have an
annual production capacity of 300,000 tons.

Techgen refinancing
On February 13, 2019, Techgen entered into a
$640 million loan agreement with several banks
to refinance its obligations under the existing
syndicated loan. Techgen’s obligations under
the new facility, which is “non-recourse” on the
sponsors, will be guaranteed by a Mexican security
trust covering Techgen’ shares, assets and accounts
as well as Techgen’s affiliates rights under certain
contracts. In addition, Techgen’s collection and
payment accounts not subject to the trust have
been pledged in favor of the lenders under the new
loan agreement, and certain direct agreements
–customary for these type of transactions– have
been entered into with third parties and affiliates,
including in connection with the agreements for
the sale of energy produced by the project and the
agreements for the provision of gas and long-term

maintenance services to Techgen. The commercial
terms and conditions governing the purchase,
by the Company’s Mexican subsidiary Tamsa,
of 22% of the energy generated by the project
remain unchanged.

The proceeds of the new loan, which is expected
to be drawn on or about February 26, 2019, will
be used to repay all loans outstanding under the
existing facility. Upon repayment of such loans,
Tenaris’s corporate guarantee thereunder will be
automatically released.

Annual Dividend Proposal
On February 20, 2019 the Company’s Board of
Directors proposed, for the approval of the Annual
General Shareholders' meeting to be held on May 6,
2019, 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 21, 2018. 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 22,
2019, with an ex-dividend date of May 20, 2019.
These Consolidated Financial Statements do not
reflect this dividend payable.

Tenaris217.

33. Update as of April 1, 2019 (1)

On March 22, 2019, Tenaris entered into a definitive
agreement to acquire from TMK, a Russian
company and manufacturer of steel pipes, 100%
of the shares of its wholly owned U.S. subsidiary
IPSCO, for $1,209 million. The transaction is
subject to regulatory approvals, including approval
by the U.S. antitrust authorities, and other
customary conditions. IPSCO is a U.S. domestic
producer of seamless and welded OCTG and line
pipe products, with an annual production capacity
of 450,000 metric tons of steel bars, 400,000 metric
tons of seamless pipes and 1,000,000 metric tons
of welded pipes, and production facilities spread
throughout the country.

/s/ Edgardo Carlos

Chief Financial Officer
Edgardo Carlos

(1) This note was added subsequent to the approval of these Consolidated Financial

Statements by the Company’s Board of Directors on February 20, 2019.

Annual Report218.

TenarisTenaris S.A.
Société Anonyme
Annual accounts

Audited Annual Accounts as at December 31, 2018

219.

Annual Report220.

Tenaris221.

Annual Report222.

Tenaris223.

Annual Report224.

TenarisTenaris S.A. Balance Sheet
as at December 31, 2018

Expressed in United States Dollars

ASSETS

C. FIXED ASSETS

III. Financial assets

1. Shares in affiliated undertakings

D. CURRENT ASSETS

II. Debtors

4. Other debtors

a) becoming due and payable within one year

IV. Cash at bank and in hand

Total assets

CAPITAL, RESERVES AND LIABILITIES

A. CAPITAL AND RESERVES

I. Subscribed capital

II. Share premium account

IV. Reserves

1. Legal reserve

V. Profit brought forward

VI. Loss for the financial year

VII. Interim dividend

C. CREDITORS

6. Amounts owed to affiliated undertakings

a) becoming due and payable within one year

b) becoming due and payable after more than one year

8. Other creditors

c) Other creditors

i) becoming due and payable within one year

Total capital, reserves and liabilities

The accompanying notes are an integral part of these annual accounts.

Note(s)

2018

2017

225.

18,377,497,729

18,901,294,713

18,377,497,729

18,901,294,713

29,424

1,179,762

1,209,186

50,317

2,604,919

2,655,236

18,378,706,915

18,903,949,949

1,180,536,830

609,732,757

4,5

118,053,683

16,626,210,710

17,162,462,624

(33,303,298)

(52,231,813)

4,7

(153,469,788)

18,347,760,894

18,865,084,293

9,307,610

13,625,275

12,994,846

13,055,356

8,013,136

12,815,454

30,946,021

38,865,656

18,378,706,915

18,903,949,949

Annual Report

Tenaris S.A. Profit and loss account
for the year ended December 31, 2018

Expressed in United States Dollars

226.

8. Other operating expenses

11. Other interest receivable and similar income

a) derived from affiliated undertakings

b) other interest and similar income

14. Interest payable and similar expenses

a) concerning affiliated undertakings

b) other interest and similar expenses

16. Loss after taxation

17. Other taxes not shown under items 1 to 16

18. Loss for the period

The accompanying notes are an integral part of these annual accounts.

Note

2018

2017

(32,014,300)

(50,919,271)

–

342,463

1,584

200,596

(1,594,693)

(1,294,907)

(31,194)

(212,265)

(33,297,724)

(52,224,263)

(5,574)

(7,550)

(33,303,298)

(52,231,813)

Tenaris

Notes to the audited annual accounts
as at December 31, 2018

1. General information
Tenaris S.A. (the “Company” or “Tenaris”) was
established on December 17, 2001 under the name
of Tenaris Holding S.A. as a public limited liability
company under Luxembourg’s 1929 holding
company regime (société anonyme holding).
On June 26, 2002, the Company changed its name
to Tenaris S.A. On January 1, 2011, the Company
became an ordinary public limited liability
company (société anonyme).

Tenaris’s object is to invest mainly in companies
that manufacture and market steel tubes and other
related businesses.

The financial year starts on January 1 and ends on
December 31 of each year.

Tenaris prepares and publishes consolidated
financial statements which include further
information on Tenaris and its subsidiaries. The
consolidated financial statements are available at
the registered office of the Company, 29, Avenue de
la Porte-Neuve –L-2227– 3rd Floor, Luxembourg.

2. Summary of significant accounting policies

227.

2.1. Basis of presentation
These annual accounts have been prepared in
accordance with Luxembourg legal and regulatory
requirements under the historical cost convention.

Accounting policies and valuation rules are,
besides the ones laid down by the law of 19
December 2002, determined and applied by the
Board of Directors.

The preparation of these annual accounts requires
management to make certain accounting estimates
and assumptions that might affect the reported
amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the reporting
dates, and the reported amounts of income and
charges during the reporting years. Actual results
may differ from these estimates.

2.2. Foreign currency translation
Current and non-current assets and liabilities
denominated in currencies other than the United

Annual Report228.

States Dollar (“USD”) are translated into USD
at the rate of exchange at the balance sheet date.
Non-current assets remain at the exchange rate on
the day of incorporation. The resulting gains or
losses are reflected in the Profit and loss account
for the financial year. Income and expenses in
currencies other than the USD are translated into
USD at the exchange rate prevailing at the date of
each transaction.

2.3. Financial assets
Shares in affiliated undertakings are stated at
purchase price, adding to the price paid the
expenses incidental thereto.

Whenever necessary, the Company conducts
impairment tests on its financial assets in
accordance with Luxembourg regulations.

value will be reduced to recognize this decline. If
there is a change in the reasons for which the value
adjustments were made, these adjustments could
be reversed, if appropriate.

2.4. Debtors
Debtors are valued at their nominal value. They
are subject to value adjustments where their
recovery is compromised. These value adjustments
are not continued if the reasons for which the value
adjustments were made have ceased to apply.

2.5. Cash at bank and in hand
Cash at bank and in hand mainly comprise cash
at bank and liquidity funds. Assets recorded in
cash at bank and in hand are carried at fair market
value or at historical cost which approximates fair
market value.

In case of other than a temporary decline in
respect of the financial assets value, its carrying

2.6. Creditors
Creditors are stated at nominal value.

Tenaris3. Financial assets

Shares in affiliated undertakings
Tenaris holds 100% of the shares of Tenaris
Investments S.à r.l. (“Tenaris Investments”)
with registered office in Luxembourg and holds,
indirectly through this wholly-owned subsidiary,
100% of the shares of Confab Industrial S.A.,
Inversiones Lucerna Limitada, Maverick Tube

Corporation, Siderca S.A.I.C., Talta - Trading e
Marketing, Sociedade Unipessoal Lda., Tenaris
Investments Switzerland AG, Tubos de Acero
de México S.A., Algoma Tubes Inc., Siderca
International ApS, S.C. Silcotub S.A. and Tenaris
Connections BV, 50% of the shares of Exiros B.V
and 11.5% of the shares of Ternium S.A.

Movements during the financial year are as follows:

229.

Expressed in United States Dollars

Gross book value - opening balance

Decreases for the financial year (a)

Gross book value - closing balance

Accumulated value adjustments - opening balance

Allocations for the financial year

Accumulated value adjustments - closing balance

Net book value - opening balance

Net book value - closing balance

(a) On December 7, 2010, Tenaris entered into a master credit agreement with Tenaris Investments

pursuant to which, upon request from Tenaris, Tenaris Investments may, but shall not be required
to, from time to time make loans to Tenaris. Any loan under the master credit agreement may be
repaid or prepaid from time to time through a reduction of the capital of Tenaris Investments by
an amount equivalent to the amount of the loan then outstanding (including accrued interest). As
a result of reductions in the capital of Tenaris Investments made during the financial year ended
December 31, 2018, in connection with cancellations of loans to Tenaris, the value of the
participation of Tenaris in Tenaris Investments decreased by USD 523.8 million.

21,840,586,057

(523,796,984)

21,316,789,073

(2,939,291,344)

–

(2,939,291,344)

18,901,294,713

18,377,497,729

Annual Report230.

As of December 31, 2018 Tenaris Investments
reported an equity of USD 20.5 billion and a profit
for the financial year of USD 0.8 billion.

4. Capital and reserves

Expressed in United States Dollars

Item

Subscribed
capital

Share
premium

Legal
reserve

Retained
earnings

Interim
dividend

Capital and
reserves

Balance at the beginning of the financial year

1,180,536,830

609,732,757

118,053,683

17,110,230,811

(153,469,788)

18,865,084,293

Loss for the financial year

Dividend paid (1)

Interim Dividend (2)

–

(33,303,298)

–

(33,303,298)

(484,020,101)

153,469,788

(330,550,313)

–

(153,469,788)

Balance at the end of the financial year

1,180,536,830

609,732,757

118,053,683

16,592,907,412

(153,469,788)

18,347,760,894

(1) As approved by the ordinary shareholders’ meeting held on May 2, 2018.

(2) As approved by the board of directors’ meeting held on October 31, 2018.

The authorized capital of the Company amounts
to USD 2.5 billion. The total authorized share
capital of the Company is represented by
2,500,000,000 shares with a par value of USD 1
per share. The total capital issued and fully paid-
up at December 31, 2018 was 1,180,536,830 shares
with a par value of USD 1 per share.

The board of directors is authorized until June
5, 2020, to increase the issued share capital,
through issues of shares within the limits of the
authorized capital.

Tenaris

5. Legal reserve

6. Distributable amounts

231.

In accordance with Luxembourg law, the Company
is required to set aside a minimum of 5% of its
annual net profit for each financial year to a legal
reserve. This requirement ceases to be necessary
once the balance on the legal reserve has reached
10% of the issued share capital. The Company’s
reserve has already reached this 10%. If the legal
reserve later falls below the 10% threshold, at least
5% of net profits must be allocated again toward
the reserve. The legal reserve is not available for
distribution to the shareholders.

Dividends may be paid by Tenaris upon the
ordinary shareholders’ meeting approval to the
extent distributable retained earnings exist.

At December 31, 2018, profit brought forward after
deduction of the loss and the interim dividend for
the financial year of Tenaris under Luxembourg law
totaled approximately USD 16.4 billion.

The share premium amounting to USD 0.6 billion
can also be reimbursed.

7. Interim dividend paid

In November 2018, the Company paid an interim
dividend of USD 153.5 million based on the
board of directors’ decision of October 31,
2018 and in compliance with the conditions set
out in the “Amended law of August 10, 1915 on
commercial companies” regarding the payment
of interim dividends.

Annual Report232.

8. Balances with affiliated undertakings

Expressed in United States Dollars

Within a year

After more than
one year and
within five years

After more than
five years

Total at
December 31,
2018

Total at
December 31,
2017

CREDITORS BECOMING DUE AND PAYABLE

Siderca Sociedad Anónima Industrial y Comercial

Tenaris Investments S.à r.l.

Tenaris Solutions Uruguay S.A.

Maverick Tube Corporation

Tubos de Acero de México, S.A.

Dalmine S.p.A.

Others

Total

3,840,212

2,302,948

1,357,479

623,103

175,082

1,004,677

4,109

4,361,289

3,270,209

11,471,710

10,124,090

–

217,918

–

3,195,509

2,269,819

310,531

–

2,302,948

4,552,988

2,892,922

703,531

1,004,677

4,109

7,505,239

3,622,332

3,189,854

864,435

734,576

9,676

9,307,610

4,579,207

9,046,068

22,932,885

26,050,202

9. Other operating charges

Expressed in United States Dollars

Services and fees (*) (**)

Board of director’s accrued fees

Others

(*) Includes compensations of senior management (USD 20.6 million in 2018 versus USD 35.0 million in 2017), and other

services and fees (USD 9.1 million in 2018 versus USD 13.8 million in 2017).

(**) In addition to the audit fees, during the financial year the Company received from the statutory auditor audit-related

services for a total amount of USD 22 thousand. No tax-related fees or other fees for services rendered by the statutory
auditor were accrued during the financial year.

Total fees accrued for professional services rendered by PwC Network firms to Tenaris S.A. and its subsidiaries are

disclosed in note 31 to the Company’s consolidated financial statements.

2018

2017

29,719,526

48,795,557

1,456,664

838,110

1,295,833

827,881

32,014,300

50,919,271

Tenaris

10. Taxes

For the financial year ended December 31, 2018
the Company did not realize any profits subject to
tax in Luxembourg. The Company is liable to the
minimum Net Wealth Tax.

11. Parent Company

Tenaris’s controlling shareholders as of December 31,
2018 were as follows:

•

San Faustin S.A., a Luxembourg société anonyme
(“San Faustin”), owned 713,605,187 shares in the
Company, representing 60.45% of the Company’s
capital and voting rights.

San Faustin owned all of its shares in the
Company through its wholly-owned subsidiary
Techint Holdings S.à r.l., a Luxembourg société à
responsabilité limitée, who is the holder of record
of the above-mentioned Tenaris shares.

Rocca & Partners Stichting Administratiekantoor
Aandelen San Faustin, a Dutch private foundation
(Stichting) (“RP STAK”) held 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 0.08% of the
Company’s outstanding shares.

233.

12. Putative class actions

The Company is aware that, following its November
27, 2018 announcement that its chairman and
CEO Paolo Rocca was included in an Argentine
court investigation known as the Notebooks Case,
two putative class action complaints were filed in
the U.S. District Court for the Eastern District of
New York purportedly on behalf of purchasers
of Tenaris securities from May 1, 2014 through
November 27, 2018. The individual defendants
named in the complaint are Tenaris’s Chairman
and CEO and Tenaris’s CFO. Neither the Company
nor any of the individual defendants have been
served. Each complaint alleges that during the class
period (May 2014-November 2018), the Company
and the individual defendants inflated the Tenaris
share price by failing to disclose that sale proceeds
received by Ternium (in which Tenaris indirectly
held an 11.5% stake) when Sidor was expropriated
by Venezuela were received or expedited as a result
of alleged improper payments made to Argentine
officials. The complaint does not specify the
damages that plaintiff is seeking.

Annual Report234.

13. Off balance sheet commitments

14. Subsequent event

The Company issued a guarantee covering the
22% of the obligation of Techgen S.A. de C.V.
(“Techgen”), a Mexican natural gas-fired combined
cycle electric power plant in the Pesquería area
of the State of Nuevo Leon, Mexico, under a
syndicated loan agreement between Techgen and
several banks. As of December 31, 2018 the amount
guaranteed was approximately USD 132 million.

Annual Dividend Proposal
On February 20, 2019 the Company’s board
of directors proposed, for the approval of the
annual general shareholders' meeting to be held
on May 6, 2019, the payment of an annual
dividend of USD 0.41 per share (USD 0.82 per
ADS) or approximately USD 484 million, which
includes the interim dividend of USD 0.13 per
share (USD 0.26 per ADS), or approximately
USD 153 million, paid in November 2018. If the
annual dividend is approved by the shareholders,
a dividend of USD 0.28 per share (USD 0.56 per
ADS), or approximately USD 331 million will be
paid on May 22, 2019, with an ex-dividend date
on May 20, 2019. These annual accounts do not
reflect this dividend payable.

/s/ Edgardo Carlos

Chief Financial Officer
Edgardo Carlos

TenarisExhibit I – Alternative
Performance Measures

EBITDA, Earnings before interest, tax,

depreciation and amortization
EBITDA provides an analysis of the operating
results excluding depreciation and amortization
and impairments, as they are non-cash variables
which can vary substantially from company to
company depending on accounting policies and
the accounting value of the assets. EBITDA is an
approximation to pre-tax operating cash flow and

reflects cash generation before working capital
variation. EBITDA is widely used by investors when
evaluating businesses (multiples valuation), as well
as by rating agencies and creditors to evaluate the
level of debt, comparing EBITDA with net debt.
EBITDA is calculated in the following manner:

EBITDA = Operating results + Depreciation and
amortization + Impairment charges/(reversals).

235.

Millions of U.S. dollars

FOR THE YEAR ENDED DECEMBER 31

Operating income (loss)

Depreciation and amortization

Depreciation and amortization from discontinued operations

Impairment

EBITDA

2018

2017

2016

872

664

–

1,536

335

609

–

943

(59)

662

(5)

–

598

Annual Report236.

Net cash/(debt) position
This is the net balance of cash and cash equivalents,
other current investments and fixed income
investments held to maturity less total borrowings.
It provides a summary of the financial solvency and
liquidity of the company. Net cash / (debt) is widely
used by investors and rating agencies and creditors
to assess the company’s leverage, financial strength,
flexibility and risks.

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).

Millions of U.S. dollars

AT DECEMBER 31

Cash and cash equivalents

Other current investments

Non-current Investments

Derivatives hedging borrowings and investments

Borrowings – current and non-current

Net cash position

2018

2017

2016

428

488

114

(6)

(539)

485

330

1,192

123

(33)

(966)

647

400

1,633

248

(35)

(840)

1,406

Free Cash Flow
Free cash flow is a measure of financial performance,
calculated as operating cash flow less capital
expenditures. FCF represents the cash that a
company is able to generate after spending the

money required to maintain or expand its asset base.
Free cash flow is calculated in the following manner:

Free cash flow = Net cash (used in) provided by
operating activities – Capital expenditures.

Millions of U.S. dollars

FOR THE YEAR ENDED DECEMBER 31

Net cash provided by (used in) operating activities

Capital expenditures

Free cash flow

2018

2017

2016

611

(349)

261

(22)

(558)

(580)

864

(787)

TenarisInvestor information

Investor Relations Director
Giovanni Sardagna

General inquiries
investors@tenaris.com

237.

ADS depositary bank
Deutsche Bank
CUSIP No. 88031M109

Internet
www.tenaris.com

Luxembourg Office
29 avenue de la Porte-Neuve
3rd Floor
L-2227 Luxembourg
(352) 26 47 89 78 tel
(352) 26 47 89 79 fax

Phones
USA 1 888 300 5432
Argentina (54) 11 4018 2100
Italy (39) 02 9925 0954
Mexico (52) 55 5282 9900

Stock information
New York Stock Exchange (TS)
Mercato Telematico Azionario (TEN)
Mercado de Valores de Buenos Aires (TS)
Bolsa Mexicana de Valores, S.A.B. de C.V. (TS)

Annual Reportwww.tenaris.com