UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
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for the fiscal year ended
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Commission file number:
(Exact name of Registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English)
(Jurisdiction of incorporation or organization)
(Address of principal )
Tel. +
Fax. + (352) 26 47 89 79
e-mail: investors@tenaris.com
(Name, Telephone, E-Mail and/or Facsimile number and Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Name of Each Exchange On Which Registered
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* Ordinary shares of Tenaris S.A. are not directly listed for trading but only in connection with the registration of American Depositary Shares which are evidenced by American Depositary Receipts.
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
** Includes
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes
Note – checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
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Accelerated Filer |
Non-accelerated filer |
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Emerging growth company |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
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U.S. GAAP |
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Other |
If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow. Item 17 Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Please send copies of notices and communications from the Securities and Exchange Commission to:
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Diego E. Parise Mitrani, Caballero & Ruiz Moreno Abogados Bouchard 680, 13th Floor (C1106ABJ) Buenos Aires, Argentina (54 11) 4590-8600 |
Patrick S. Brown, Esq. Sullivan & Cromwell LLP 1888 Century Park East Los Angeles, California 90067-1725 (310) 712-6600 |
TABLE OF CONTENTS
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| Annual Report 2023 |
FORM 20-F CROSS REFERENCE GUIDE
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Item |
Item in Form 20-F |
Cross-reference to consolidated management report |
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Part I |
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Item 1 |
Identity of Directors , Senior Management and Advisors |
None - Not applicable |
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Item 2 |
Offer Statistics and Expected Timetable |
None - Not applicable |
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Item 3 |
Key Information |
Key Information |
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3.A |
[Reserved] |
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3.B |
Capitalization and Indebtedness |
None - Not applicable |
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3.C |
Reasons for the Offer and Use of Proceeds |
None - Not applicable |
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3.D |
Risk Factors |
Key Information - Risk Factors |
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Item 4 |
Information on the Company |
Information on the Company |
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4.A |
History and Development of the Company |
Information on the Company - History and Development of the Company |
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4.B |
Business Overview |
Information on the Company - Business Overview |
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4.C |
Organizational Structure and Subsidiaries |
Information on the Company - Organizational Structure and Subsidiaries |
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4.D |
Property, Plant and Equipment |
Information on the Company - Business Overview |
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Item 4A |
Unresolved Staff Comments |
None - Not applicable |
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Item 5 |
Operating and Financial Review and Prospects |
Operating and Financial Review and Prospects - Overview |
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5.A |
Operating Results |
Operating and Financial Review and Prospects - Operating Results |
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5.B |
Liquidity and Capital Resources |
Operating and Financial Review and Prospects - Liquidity and Capital Resources |
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5.C |
Research and Developments, Patents and Licenses, Etc. |
Information on the Company - Business Overview |
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5.D |
Trend Information |
Operating and Financial Review and Prospects - Trend Information |
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5.E |
Critical Accounting Estimates |
Operating and Financial Review and Prospects - Critical Accounting Estimates |
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Item 6 |
Directors, Senior Management and Employees |
Directors, Senior Management and Employees |
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6.A |
Directors and Senior Management |
Directors, Senior Management and Employees - Directors and Senior Management |
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6.B |
Compensation |
Directors, Senior Management and Employees - Compensation |
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6.C |
Board Practices |
Directors, Senior Management and Employees - Board Practices |
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6.D |
Employees |
Directors, Senior Management and Employees - Employees |
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6.E |
Share Ownership |
Directors, Senior Management and Employees - Share Ownership |
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6.F |
Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation |
None - Not applicable |
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Item 7 |
Major Shareholders and Related Party Transactions |
Major Shareholders and Related Party Transactions |
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7.A |
Major Shareholders |
Major Shareholders and Related Party Transactions - Major Shareholders |
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7.B |
Related Party Transactions |
Major Shareholders and Related Party Transactions - Related Party Transactions |
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7.C |
Interest of Experts and Counsel |
None - Not applicable |
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Item 8 |
Financial Information |
Financial Information |
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8.A |
Consolidated Statements and Other Financial Information |
Financial Information - Consolidated Statements and Other Financial Information |
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8.B |
Significant Changes |
None - Not applicable |
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Item 9 |
The Offer and Listing |
The Offer and Listing |
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9.A |
Offer and Listing Details |
The Offer and Listing - Offer and Listing Details |
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9.B |
Plan of Distribution |
None - Not applicable |
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9.C |
Markets |
The Offer and Listing - Offer and Listing Details |
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9.D |
Selling Shareholders |
None - Not applicable |
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9.E |
Dilution |
None - Not applicable |
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9.F |
Expenses of the Issue |
None - Not applicable |
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Item 10 |
Additional Information |
Additional Information |
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10.A |
Share Capital |
None - Not applicable |
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10.B |
Memorandum and Articles of Association |
Corporate Governance Statement - Corporate Governance |
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10.C |
Material Contracts |
Information on the Company - Business Overview |
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10.D |
Exchange Controls |
Additional Information - Exchange Controls |
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10.E |
Taxation |
Additional Information - Taxation |
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10.F |
Dividends and Paying Agents |
None - Not applicable |
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10.G |
Statement by Experts |
None - Not applicable |
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10.H |
Documents on Display |
Additional Information - Documents on Display |
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10.I |
Subsidiary Information |
None - Not applicable |
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10.J |
Annual Report to Security Holders |
None - Not applicable |
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Item 11 |
Quantitative and Qualitative Disclosure about Market Risk |
Quantitative and Qualitative Disclosure about Market Risk |
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Item 12 |
Description of Securities Other Than Equity Securities |
Description of Securities Other Than Equity Securities |
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12.A |
Debt Securities |
None - Not applicable |
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12.B |
Warrants and Rights |
None - Not applicable |
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12.C |
Other Securities |
None - Not applicable |
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12.D |
American Depositary Shares |
Description of Securities Other Than Equity Securities - American Depositary Shares |
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Part II |
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Item 13 |
Defaults, Dividend Arrearages and Delinquencies |
None - Not applicable |
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Item 14 |
Material Modifications to the Rights of Security Holders and Use of Products |
None - Not applicable |
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Item 15 |
Controls and Procedures |
Controls and Procedures |
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Item 16 |
[Reserved] |
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Item 16A |
Audit Committee Financial Expert |
Audit Committee Financial Expert |
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Item 16B |
Code of Ethics |
Code of Ethics |
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Item 16C |
Principal Accountant Fees and Services |
Principal Accountant Fees and Services |
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Item 16D |
Exemption from the Listing Standards for Audit Committee |
None - Not applicable |
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Item 16E |
Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
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Item 16F |
Change in Registrant's Certifying Accountant |
Change in Registrant's Certifying Accountant |
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Item 16G |
Corporate Governance |
Corporate Governance Statement |
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Item 16H |
Mine Safety Disclosure |
None - Not applicable |
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Item 16I |
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections |
None - Not applicable |
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Item 16K |
Cybersecurity |
Cybersecurity |
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Part III |
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Item 17 |
Financial Statements |
Financial Statements |
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Item 18 |
Financial Statements |
Financial Statements |
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Item 19 |
Exhibits |
Exhibits |
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| Annual Report 2023 |
2023 has been an outstanding year for Tenaris with record financial results under most metrics: net sales of $14.9 billion, EBITDA of $4.9 billion, net income of $4.0 billion, operating cash flow of $4.4 billion. As a global supplier of pipes to the energy industry, we have developed a unique presence in the most challenging developments in the oil and gas industry, serving its most important players.
With these results and net cash of $3.4 billion in our balance sheet, we are increasing returns to shareholders. We are proposing to increase our annual dividend to 60 cents per share. Together with the share buyback program we initiated in November, this would imply an 8% yield to shareholders for the year at current prices.
We have extended the perimeter of our operations through a series of acquisitions. In Saudi Arabia, we increased our stake in GPC to gain a controlling position in this large diameter welded pipe mill that produces conductor casing and large diameter line pipe. With the acquisition of the Shawcor pipe coating business, we are strengthening our line pipe business, especially for offshore line pipe, where Shawcor has a leading position in anti-corrosive and insulation coatings. In the United States, we increased the flexibility and overall capacity of our US industrial system by acquiring additional heat treatment and threading facilities. Each of these integrations to our global industrial system enhances our capacity to serve our wide customer base with a growing range of products and services.
Our globally integrated industrial and supply chain systems produced and shipped over four million tons of pipes to customers around the world last year. Many of these pipes are delivered directly to our customer operations in the field under our Rig Direct® service program that now serves over 500 rigs worldwide.
Under this program, which requires investment in working capital, service yard infrastructure, logistics and digital systems, we are enhancing customer intimacy and differentiation, adding services to simplify customer operations and reduce on-site labor requirements. With our Rig Direct® program, which now incorporates our RunReadyTM service, we are reducing inventories in North America and transforming the supply chain. We are also extending our Rig Direct® service to other regions around the world.
In the U.S. and Canada, we have strengthened our positioning among large operators. We were recently awarded a long-term agreement by ExxonMobil to serve their unconventional operations in the United States which confirms the preference that large operators are giving to our industrial footprint, specialized products and supply service. We are now serving the ten largest operators in the country, who have maintained a stable level of operations even as the overall rig count in the U.S. has declined.
Our sales for offshore operations and projects grew more than 50% during the year. In Guyana, where the development of prolific deepwater reserves is transforming the country, we are serving ExxonMobil’s operations under a long-term contract, while in Brazil we are supplying Petrobras with a wide range of products for the Buzios development. We are also supplying a number of offshore gas pipeline projects around the world.
Our sales are growing in the Middle East, where we have increased our local content and presence. In Saudi Arabia, Aramco, while postponing some of offshore oil expansion plans, is expanding its conventional and unconventional gas drilling activity. We are supplying premium seamless OCTG following a tender awarded to replenish depleted stocks and are ramping up deliveries of conductor and surface casing from our local welded pipe subsidiaries. The growth in gas drilling activity will also provide valuable opportunities for sales of line pipe as Aramco proceeds with its master gas pipeline program.
We recently inaugurated a new industrial complex in Abu Dhabi, along with officials from ADNOC and the Ministry of Industry and Advanced Technology. This includes a new premium threading facility, training facilities and an expanded service yard, which will support the Rig Direct® service we are providing to ADNOC under our long-term agreement, and contribute to industrial development in the Emirates.
Our industrial system, operating at a high level through the year, has performed well in supporting our global positioning. In relation to safety, however, we had three fatalities in our operations after four years with none. We deeply regret the loss of life and are reinforcing our preventive actions with a particular focus on the activities of contractors working in our system.
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| Annual Report 2023 |
We made a significant advance in our decarbonization program, when, after a $200 million investment, we successfully put into operation our first wind farm in Argentina. The Buena Ventura wind farm now supplies 100 MW of power, through the interconnected grid, to our industrial facilities in Campana, meeting close to 50% of its total electric power requirements and contributing to a lower energy costs. We are now moving forward with a similar investment to build a second wind farm.
Our community education programs, which reach 10,500 students, are also enjoying success in improving education standards and outcomes. The Roberto Rocca Technical School in Campana, in its tenth year, was nominated as one of the top ten schools in the world for innovation. Its students, who benefit from the school’s inclusive approach, comfortably outperform the national private school average in subjects like Maths. Over 90% of those graduating from the school have entered university and many have additionally obtained attractive job placements while furthering their education.
As we look forward to 2024, Tenaris, with its extended global reach, enhanced competitive differentiation and exceptional financial position, is well placed to strengthen its positioning around the world. The current favorable market conditions in the Middle East and offshore, are expected to continue through the year while, in the Americas, we are consolidating a solid position ready to seize further opportunities as they arise.
Around the world, demand for primary energy is growing and will continue to grow to meet the needs of developing countries. The energy transition is advancing with increasing levels of investment in clean energy and decarbonization of supply chains. Continued investment in oil and gas will also be required for many more years to accompany this transition and secure affordable energy for all.
I would like to give a special thanks to our employees, without whose continuous efforts and commitment, our many achievements during 2023 would not have been possible. I would also like to thank our customers, shareholders and suppliers for the confidence they continue to place in us.
Sincerely,
| /s/Paolo Rocca | |
| Paolo Rocca | |
| March 27, 2024 |
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| Annual Report 2023 |
Unless otherwise specified or if the context so requires:
- References in this annual report to “the Company” are exclusively to Tenaris S.A., a Luxembourg société anonyme.
- References in this annual report to “Tenaris”, “we”, “us” or “our” are to Tenaris S.A. and its consolidated subsidiaries. See “II. Accounting Policies A. Basis of presentation” and “II. Accounting Policies B. Group accounting” to our audited consolidated financial statements included in this annual report.
- References in this annual report to “San Faustin” are to San Faustin S.A., a Luxembourg société anonyme and the Company’s controlling shareholder.
- “shares” refers to ordinary shares, par value $1.00, of the Company.
- “ADSs” refers to the American Depositary Shares, which are evidenced by American Depositary Receipts, and represent two shares each.
- “OCTG” refers to oil country tubular goods. See “Information on the Company – Business Overview – Our Products”.
- “tons” refers to metric tons; one metric ton is equal to 1,000 kilograms, 2,204.62 pounds, or 1.102 U.S. (short) tons.
- “billion” refers to one thousand million, or 1,000,000,000.
- “U.S. dollars”, “US$”, “USD” or “$” each refers to the United States dollar.
- “EUR” refers to the Euro.
- “ARS” refers to the Argentine peso.
- “BRL” refers to the Brazilian real.
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| Annual Report 2023 |
Accounting Principles
We prepare our consolidated financial statements in accordance with International Financial Reporting Standards (“IFRS” or “IFRS Accounting Standards”), as issued by the International Accounting Standards Board (“IASB”), and in accordance with IFRS, as adopted by the European Union. IFRS differs in certain significant aspects from generally accepted accounting principles in the United States, commonly referred to as U.S. GAAP. Additionally, this annual report includes certain non-IFRS alternative performance measures such as EBITDA, Net cash/debt position and Free Cash Flow. See Exhibit 15.2 for more details on these alternative performance measures.
We publish consolidated financial statements presented in increments of a thousand U.S. dollars. This annual report includes our audited consolidated statements of financial position as of 31 December 2023 and 2022, and the related consolidated income statements, consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows for each of the three years in the period ended 31 December 2023, including the related notes (collectively referred to as the “consolidated financial statements”).
Rounding
Certain monetary amounts, percentages and other figures included in this annual report have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.
Our Internet Website is Not Part of this Annual Report
We maintain an Internet website at www.tenaris.com. Information contained in or otherwise accessible through our Internet website is not a part of this annual report. All references in this annual report to this Internet site are inactive textual references to these URLs, or “uniform resource locators” and are for informational reference only. We assume no responsibility for the information contained on our Internet website.
Industry Data
Unless otherwise indicated, industry data and statistics (including historical information, estimates or forecasts) in this annual report are contained in or derived from internal or industry sources believed by Tenaris to be reliable. Industry data and statistics are inherently predictive and are not necessarily reflective of actual industry conditions. Such statistics are based on market research, which itself is based on sampling and subjective judgments by both the researchers and the respondents, including judgments about what types of products and transactions should be included in the relevant market. In addition, the value of comparisons of statistics for different markets is limited by many factors, including that (i) the markets are defined differently, (ii) the underlying information was gathered by different methods and (iii) different assumptions were applied in compiling the data. Such data and statistics have not been independently verified, and the Company makes no representation as to the accuracy or completeness of such data or any assumptions relied upon therein.
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| Annual Report 2023 |
This annual report and any other oral or written statements made by us to the public may contain “forward-looking statements” within the meaning of and subject to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. This annual report contains forward-looking statements, including with respect to certain of our plans and current goals and expectations relating to Tenaris’s future financial condition and performance.
Sections of this annual report that by their nature contain forward-looking statements include, but are not limited to, “Key Information”, “Information on the Company”, “Operating and Financial Review and Prospects”, “Financial Information” and “Quantitative and Qualitative Disclosure About Market Risk”.
We use words and terms such as “aim”, “will likely result”, “will continue”, “contemplate”, “seek to”, “future”, “objective”, “goal”, “should”, “will pursue”, “anticipate”, “estimate”, “expect”, “project”, “intend”, “plan”, “believe” and words and terms of similar substance to identify forward-looking statements, but they are not the only way we identify such statements. All forward-looking statements are management’s present expectations of future events and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These factors include the risks related to our business and industry discussed under “Key Information – Risk Factors”, including among them, the following:
- our ability to implement our business strategy and to adapt it adequately to the energy transition;
- our ability to grow through acquisitions, joint ventures and other investments, or integrate newly acquired businesses or assets;
- our ability to provide value added products and services and price such products and services in accordance with our strategy;
- trends in the levels of investment in oil and gas exploration and drilling worldwide;
- the competitive environment or level of consolidation in our business and our industry;
- the impact of climate change legislation, including increasing regulatory requirements and extensive technology and market changes aimed at transitioning to a lower-carbon economy and reducing greenhouse gas (“GHG”) emissions;
- the physical risks resulting from climate change, including natural disasters, increased severity of extreme weather events, chronic climate changes and long-term shifts in weather patterns;
- our ability to absorb cost increases and to secure supplies of essential raw materials and energy;
- our ability to adjust fixed and semi-fixed costs to fluctuations in product demand;
- the impact of the world’s economy on the energy sector in general, or our business and operations;
- general macroeconomic changes, including high inflation rates, inflation containment measures and foreign exchange measures, as well as, international conflicts, public health epidemics and other political, social, or economic conditions and developments in the countries in which we operate or distribute pipes, including developments in connection with the Russia-Ukraine and Middle East armed conflicts; and
- changes to applicable laws and regulations, including the imposition of tariffs or quotas or other trade barriers.
By their nature, certain disclosures relating to these and other risks are only estimates and could be materially different from what actually occurs in the future. As a result, actual future gains or losses or other occurrences or developments that may affect our financial condition and results of operations could differ materially from those that have been estimated. You should not place undue reliance on forward-looking statements, which speak only as of the date of this annual report. Except as required by law, we are not under any obligation, and expressly disclaim any obligation to, update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.
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| Annual Report 2023 |
You should carefully consider the risks and uncertainties described below, together with all other information contained in this annual report, before making any investment decision. Any of these risks and uncertainties could have a material adverse effect on our business, revenues, financial condition and results of operations, which could in turn affect the price of shares and ADSs.
Risks Relating to Our Business and Industry
Sales and profitability may fall as a result of downturns in the international price of oil and gas and other factors and circumstances affecting the oil and gas industry
We are a global steel pipe manufacturer with a strong focus on manufacturing products and providing related services for the oil and gas industry. The oil and gas industry is a major consumer of steel pipe products worldwide, particularly for products manufactured under high quality standards and demanding specifications. Demand for steel pipe products from the oil and gas industry has historically been volatile and depends primarily upon the number of oil and natural gas wells being drilled, completed and reworked, and the depth, length and drilling conditions of these wells. The level of exploration, development and production activities of, and the corresponding capital spending by, oil and gas companies, including national oil companies, depends primarily on current and expected future prices of oil and natural gas and is sensitive to the industry’s view of future economic growth and the resulting impact on demand for oil and natural gas. Several factors, such as the supply and demand for oil and gas, the development and availability of new drilling technology, political and global economic conditions, and government regulations affect these prices. Among others, the following factors have had or are likely to have an impact on oil and gas prices:
- drilling technology has allowed producers in the United States and Canada to increase production from their reserves of tight oil and shale gas in response to changes in market conditions more rapidly than in the past;
- consolidation in the oil and gas industry is likely to impact prices, with 2023 marking a year of rapid consolidation in the U.S. oil and gas industry. In October 2023, ExxonMobil (“Exxon”) agreed to acquire Pioneer Natural Resources for $60 billion, a transaction that would make Exxon the largest operator in the Permian Basin, the highest producing oil field in the United States; Chevron followed suit by striking a deal to acquire Hess in a $53 billion transaction that would provide the company with access to reserves in Guyana. Upstream operators such as Diamondback Energy, Permian Resources, and Ovintiv have also announced acquisitions in recent months to expand their North American footprint and shale inventory;
- government initiatives to reduce GHG emissions, such as the introduction of a carbon tax or carbon-pricing systems (such as the EU Carbon Border Adjustment Mechanism), the adoption of “cap-and-trade” systems (such as the EU Emissions Trading System (“ETS”)) or other measures to promote the use of renewable energy sources, or electric vehicles, are also expected to affect oil and gas prices. For more information on risks relating to climate change regulations, see “Key Information – Risk Factors – Risks Relating to Our Business and Industry - Climate change legislation and increasing regulatory requirements aimed at transitioning to a lower-carbon economy may reduce demand for our products and services and result in unexpected capital expenditures and costs, and negatively affect our reputation.”
When the price of oil and gas falls, oil and gas companies generally reduce spending on production and exploration activities and, accordingly, make fewer purchases of steel pipe products. Major oil-and gas-producing nations and companies have frequently collaborated to balance the supply (and thus the price) of oil in the international markets. A major vehicle for this collaboration has been the Organization of Petroleum Exporting Countries (“OPEC”) and many of our customers are state-owned companies in member countries of OPEC, which plays a significant role in trying to counter falling prices, as was the case in 2020, when the industry was hit by the effects of the COVID-19 pandemic.
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| Annual Report 2023 |
Climate change legislation and increasing regulatory requirements aimed at transitioning to a lower-carbon economy may reduce demand for our products and services and result in unexpected capital expenditures and costs, and negatively affect our reputation
There is an increased attention on GHG emissions and climate change from different sectors of society. The Paris Agreement, adopted at the 2015 United Nations Climate Conference, sets out the global framework to limit the rising temperature of the planet and to strengthen the countries’ ability to deal with the effects of climate change. The EU ETS signaled a major EU energy policy to combat global warming based on a “cap & trade” program, and the European Green Deal, launched in 2019, focuses on adopting the required policies and measures aimed at reaching zero GHG emissions in Europe by 2050. The EU taxonomy classification system, which establishes a list of environmentally sustainable economic activities, is designed to help the EU scale up sustainable investment and implement the European Green Deal. More recently, the EU adopted the Corporate Sustainability Reporting Directive (“CSRD”), which requires European large and medium companies and listed issuers to disclose information on their risks and opportunities arising from social and environmental issues, and on the impacts of their activities on people and the environment (which, in the case of the Company, will apply with respect to its 2024 annual report). In the United States, the U.S. Inflation Reduction Act of 2022 calls for a reduction of carbon emissions by roughly 40% by 2030. Also, in response to an increasing investor focus and reliance on climate and Environmental, Social and Governance (“ESG”) related disclosure and investment, the U.S. Securities and Exchange Commission (“SEC”) adopted, in March 2024, climate-related disclosure rules that will require registrants, including Tenaris from fiscal year 2025, to significantly expand the climate-related disclosures in their periodic reports, including information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition, and certain climate-related financial statement metrics in a note to their audited financial statements. Other countries are introducing or considering similar measures or regulations, which aim at lowering emissions or which enhance disclosure of climate-related matters, including carbon emissions. If there is no meaningful progress in lowering emissions in the years ahead, there is an increased likelihood of abrupt policy interventions as governments attempt to meet their environmental goals by adopting policy, legal, technology and market changes in the transition to a low-carbon global economy.
We provide products and services to the oil and gas industry, which accounts, directly and indirectly, for a significant portion of GHG emissions. Existing and future legislation and regulations related to GHG emissions (such as increased pricing of GHG emissions and enhanced emissions-reporting obligations) and climate change, as well as government initiatives to promote the use of alternative energy sources and substitute existing products and services with lower emissions options (with many jurisdictions implementing tax advantages and other subsidies to promote the development of renewable energy sources, or even requiring minimum thresholds for power generation from renewable sources) may significantly curtail demand for and production of fossil fuels, such as oil and natural gas. These initiatives, together with the growing social awareness regarding climate change and other environmental matters, have resulted in increased investor and consumer demand for renewable energy and additional compliance requirements for fossil energy projects, which are likely to become more stringent over time and to result in substantial increases in costs for the oil and natural gas industry, potentially leading to write-offs and early retirement of existing assets. Furthermore, ongoing technological developments in the renewable energy industry are making renewable energy increasingly competitive with fossil-fuels. If this trend continues, energy demand could shift increasingly towards more environmentally sustainable sources such as hydroelectrical, solar, wind and other renewable energies, which would, in turn, reduce demand for oil and natural gas, thus negatively affecting demand for our products and services and, ultimately, our future results of operations. In addition, adoption of new climate change legislation in the countries in which Tenaris operates could result in incremental operating costs (such as incremental compliance costs and increased insurance premiums) and unexpected capital expenditures and, eventually, affect our competitiveness and reduce our market share. Also, shifts in customer preferences and failure to respond to shareholders’ demand for climate-related measures and environmental standards could harm our reputation, adversely affect the ability or willingness of our customers or suppliers to do business with us, negatively impact workforce management and planning, erode stakeholder support and restrict or reduce access to financial resources. For more information on Tenaris’s climate change initiatives, please see “Operating and Financial Review and Prospects – Overview – Climate Change”.
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The physical risks resulting from climate change, including extreme weather conditions and shifts in weather patterns, have in the past and may in the future adversely affect our operations and financial results
Our business has been, and in the future could be, affected by severe weather in areas where we operate, which could materially affect our operations and financial results. Extreme weather conditions and natural disasters such as hurricanes, extreme wind, flooding or coastal storm surges have resulted, and may in the future result, in the shutdown of our facilities, evacuation of our employees, and activity disruptions at our clients’ well-sites or in our supply chain. For example, the severe freeze in the United States and Mexico in early 2021, caused gas and power shortages in Texas, resulting in additional costs and production disruptions and losses.
Chronic climate changes, such as changes in precipitation patterns and rises in average temperatures and sea levels, may result in increased operating costs or capital expenditures due to supply shortages or damage to facilities, higher insurance premiums or reduced availability of insurance, decreases in revenue derived from lower production capacity, and write-offs or early retirement of assets, all of which could adversely affect our financial condition, results of operations and cash flows. For more information on Tenaris’s climate change initiatives, please see “Operating and Financial Review and Prospects – Overview – Climate Change”.
Competition in the global market for steel pipe products may cause us to lose market share and hurt our sales and profitability
The global market for steel pipe products is highly competitive, with the primary competitive factors being price, quality, service and technology. In recent years, substantial investments have been made, especially in China but also in the United States and the Middle East, to increase production capacity of seamless steel pipe products, and as a result there is significant excess production capacity, particularly for “commodity” or standard product grades. Production capacity of more specialized product grades has also increased. At the same time, the high cost and long lead times required to develop the most complex projects, particularly deepwater projects, led to a slowdown in new developments in a context of low and more volatile oil prices. Despite our efforts to develop products and services that differentiate us from our competitors, reduced demand for steel pipe products from these complex projects means that the competitive environment is expected to remain intense in the coming years and our effective competitive differentiation, together with our ability to vertically integrate and to provide value added services, will be key success factors. In addition, there is a risk of unfairly traded steel pipe imports in markets in which Tenaris produces and sells its products, and we can give no assurance with respect to the application of antidumping duties and tariffs or the effectiveness of any such measures.
Our sales may be affected as a result of antidumping and countervailing duty proceedings or by the imposition of other import restrictions or local content requirements
Because of the global nature of our operations, we export and import products from several countries and, in many jurisdictions, we supplement domestic production with imported products. We import OCTG from Argentina and Mexico to complement our significant and growing production in the United States. From time to time, local producers seek the imposition of import restrictions or the initiation of antidumping or countervailing duty proceedings. For example, in October 2021, the U.S. Department of Commerce (“DOC”) initiated antidumping duty investigations of OCTG imports from Argentina, Mexico, and Russia and countervailing duty investigations of OCTG imports from Russia and South Korea, which resulted in a determination by the International Trade Commission (“ITC”), issued in October 2022, that the imports under investigation caused injury to the U.S. OCTG industry, bringing the investigation phase to a conclusion. Although Tenaris and other parties have appealed the agencies’ determinations from the investigation to the Court of International Trade, Tenaris is required to pay antidumping duty deposits while the order is in effect. For more information on this matter, please refer to note 27 “Contingencies, commitments and restrictions to the distribution of profits” to our audited consolidated financial statements included in this annual report. Antidumping or countervailing duty proceedings, any resulting penalties or any other form of import restriction have in the past impeded, and may in the future restrict, our access to important export markets for our products, thereby adversely impacting our sales or limiting our opportunities for growth.
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In addition, several jurisdictions have begun to impose or expand local content requirements. For example, in recent years Saudi Arabia has implemented various measures aimed at increasing local content particularly from suppliers to state-owned companies such as Saudi Arabian Oil Company (“Saudi Aramco”) and we can expect that measures favoring the development of local production will increase as Saudi Arabia seeks to create employment opportunities for its citizens and diversify its economy away from its dependence on oil and gas production. Other countries, such as Brazil, Ecuador, Indonesia, Nigeria and the United Arab Emirates, have also put in place significant local content requirements. Other mechanisms, such as Europe’s Carbon Border Adjustment Mechanism (“CBAM"), could have a similar impact. For more information, see “Key Information – Risk Factors – Risks Relating to Our Business and Industry - The cost of complying with environmental regulations and potential environmental and product liabilities may increase our operating costs and negatively impact our business, financial condition, results of operations and prospects”. If countries impose or expand local content requirements or put in place regulations limiting our ability to import certain products, our competitive position could be negatively affected. Therefore, if any of these risks materialize, we may not continue to compete effectively against existing or potential producers and preserve our current shares of geographic or product markets, and increased competition may have a material impact on the pricing of our products and services, which could in turn adversely affect our revenues, profitability and financial condition.
Our sales may also be affected as a result of other international trade regulations
The shipment of goods and services across international borders subjects us to extensive trade laws and regulations. Our import and export activities are governed by customs laws and regulations in each of the countries where we operate. Moreover, the European Union, the United States and other countries control the import and export of certain goods and services and impose related import and export recordkeeping and reporting obligations. Those governments have also imposed economic sanctions against certain countries, persons and other entities, such as sanctions that restrict or prohibit transactions involving Iran, Syria, Venezuela and Russia or their citizens or companies. For more information on the impact on our business of the sanctions on Russia as a result of the armed conflict in Ukraine, see “Risks Relating to Our Business and Industry – An escalation of the Russia-Ukraine war and other armed conflicts may adversely affect our operations”. Similarly, we are subject to the U.S. anti-boycott laws. Trade laws and regulations are complex and frequently changing, and they may be enacted, amended, enforced or interpreted in a manner that could materially impact our operations. For example, in March 2018, under Section 232 of the Trade Expansion Act of 1962 (“Section 232”), the United States imposed a 25% tariff on steel articles imported from all countries, with the exemption of Canada and Mexico, as member states of the USMCA, and imports of steel tubes from Australia, Argentina, Brazil and South Korea (the latter three with specific quotas per product). The U.S. government has granted successive exemptions on imports from Italy, Mexico, Romania and Argentina, of steel billets to be used at our Bay City mill, with the latest being granted in December 2023 for the import of 200,000 tons from Argentina, Italy and Romania. Exemptions are granted only for a one-year term and future requests might not be granted, thus adversely affecting our operations or revenues. On October 31, 2021, the United States and the EU reached an agreement whereby Section 232 tariffs were replaced with tariff-rate quotas for steel melted and poured in Europe starting on January 1, 2022, and steel products imported from the EU for a period of two calendar years (i.e., until 31 December 2023) without the need to reapply. This agreement allows Tenaris to import, through December 31, 2023, up to 299,376 tons of billets from Italy and Romania without paying the 25% annual tariff. On December 28, 2023, the United States renewed this agreement allowing Tenaris to import, through December 31, 2025, up to 419,749 tons of billets from Italy and Romania per year without paying the 25% tariff. There is no guarantee that additional tariffs on steel exports to the U.S. market will not be reimposed in the future. Failure to comply with applicable trade regulations could also result in criminal and civil penalties and sanctions.
Increases in the cost of raw materials, energy and other costs, limitations or disruptions to the supply of raw materials and energy, and price mismatches between raw materials and our products may hurt our profitability
The manufacture of seamless steel pipe products requires substantial amounts of steelmaking raw materials and energy; welded steel pipe products, in turn, are processed from steel coils and plates. The availability and pricing of a significant portion of the raw materials and energy we require are subject to supply and demand conditions, which can be volatile, and to tariffs and other government regulations, which can affect continuity of supply and prices. In addition, disruptions, restrictions or limited availability of energy resources in markets where we have significant operations could lead to higher costs of production and eventually to production cutbacks at our facilities in such markets. For example, in early 2021 we suffered gas and power shortages in Texas caused by a severe freeze affecting the United States and Mexico, which resulted in additional costs and production losses. Also, the Russian invasion of Ukraine in 2022, resulted in a spike in European energy costs. Additionally, in early 2024, we experienced some delays in the delivery times to our customers in relation to orders that had to be diverted because of the ongoing shipping crisis in the Red Sea.
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At any given time, we may be unable to obtain an adequate supply of critical raw materials with price and other terms acceptable to us. The availability and prices of raw materials may also be negatively affected by new laws and regulations, including import controls, sanctions and other trade restrictions, allocation by suppliers, interruptions in production, accidents or natural disasters, armed conflicts, chronic climate change, changes in exchange rates, worldwide price fluctuations, and the availability and cost of transportation. For further information related to the impact on our business of the armed conflict in Ukraine, see “Key Information – Risk Factors – Risks Relating to Our Business and Industry – An escalation of the Russia-Ukraine war and other armed conflicts may adversely affect our operations”. Raw material and energy prices could also be affected by the introduction of carbon prices or taxes, or as a result of changes in production processes, such as an increased use of metal scrap, adopted by steelmaking companies seeking to reduce carbon emissions. In addition, we may not be able to recover, partially or fully, increased costs of raw materials and energy through increased selling prices for our products, or it may take an extended period of time to do so, and limited availability could force us to curtail production, which could adversely affect our sales and profitability.
Our results of operations and financial condition could be adversely affected by low levels of capacity utilization or failure to retain qualified workforce
Like other manufacturers of steel-related products, we have fixed and semi-fixed costs (e.g., labor and other operating and maintenance costs) that cannot adjust rapidly to fluctuations in product demand for several reasons, including operational constraints and regulatory restrictions. If demand for our products falls significantly, or if we are unable to operate due to, for example, governmental measures or unavailability of workforce, these costs may adversely affect our profitability and financial condition. For example, in response to the abrupt and steep downturn of the oil and gas industry resulting from the oil crisis and the COVID-19 pandemic in 2020, we were required to implement cost-containment measures and liquidity preservation initiatives, including reduction of our operating activities in several jurisdictions, temporary closure of facilities in the United States and review of our capital expenditure plans. Temporary suspensions of operations or closure of facilities generally lead to layoffs of employees, as was our case during the oil crisis and the COVID-19 pandemic, which may in turn give rise to labor conflicts and impact operations. Cost containment measures may also affect profitability and result in charges for asset impairments. In turn, in times of economic growth and high demand for our products we may not be able to retain qualified workforce or hire additional employees soon enough. For example, during the post-pandemic recovery period, when we brought production at our Bay City mill to full capacity, we faced some difficulties in hiring skilled workers. Moreover, certain consequences of climate change, such as shifts in customer preferences, stigmatization of our industry or failure to respond to shareholder demands for climate-related measures could negatively impact workforce management and planning, adversely affecting employee attraction and retention.
Adverse economic or political conditions in the countries where we operate or sell our products and services may decrease our sales or disrupt our manufacturing operations, thereby adversely affecting our revenues, profitability and financial condition
We have significant operations in various countries, including Argentina, Brazil, Canada, China, Colombia, Indonesia, Italy, Mexico, Nigeria, Romania, Saudi Arabia, the United Arab Emirates and the United States, and we sell our products and services throughout the world. Therefore, like other companies with worldwide operations, our business and operations have been, and could in the future be, affected from time to time to varying degrees by political, economic, social and public health developments and changes in laws and regulations. These developments and changes may include, among others, nationalization, expropriation or forced divestiture of assets; restrictions on production, imports and exports; antidumping or countervailing duties; travel, transportation or trade bans; inte