Tenaris S.A. announced its results for the quarter ended March 31, 2021 in comparison with its results for the quarter ended March 31, 2020.
*EBITDA is defined as operating income (loss) plus depreciation, amortization and impairment charges / (reversals). EBITDA includes severance charges of $5 million in 1Q 2021, 37 million in 4Q 2020 and $23 million in 1Q 2020. If these charges were not included EBITDA would have been $201 million (17.0%) in 1Q 2021, $229 million (20.3%) in 4Q 2020 and $303 million (17.2%) in 1Q 2020.
Our sales in the first quarter increased 5% sequentially as a recovery in sales in North America was tempered by lower sales in the Eastern Hemisphere. EBITDA, which included $23 million of additional costs associated to the Winter Storm Uri, increased 2% sequentially reflecting continued improvements in our industrial performance. Net income benefited from a strong contribution from our investment in Ternium.
During the quarter, working capital increased by $83 million, mainly due to higher inventories which reflect the increased levels of activity. With operating cash flow of $70 million and capital expenditures of $45 million, our free cash flow amounted to $25 million (2% of revenues). Our positive financial position remained flat during the quarter and amounted to $1,084 million at March 31, 2021.
Market Background and Outlook
Although the COVID-19 pandemic is still deeply affecting many countries in the world, particularly in Latin America where we have a significant proportion of our operations, the global economic outlook is improving as vaccination programs progress and fiscal stimulus programs are implemented. Oil prices are stabilizing around $60/bbl and inventories are returning to more normal levels as global consumption is increasing along with industrial production and mobility, while OPEC+ countries continue to contain production levels.
Drilling activity in the U.S. has risen over the past months, and may continue to rise further through the year, while, in Canada, where it is subject to seasonal fluctuations, it is currently higher than in the corresponding month of last year. In Latin America, drilling activity has risen so far this year and the recovery should consolidate. In the Eastern Hemisphere, drilling activity has bottomed out and should increase later this year.
We anticipate a further recovery in sales and EBITDA, led by North America but also including other regions, over the following quarters. EBITDA margins should reach around 20% by the third quarter, as price increases compensate for higher raw material costs.
Our North American industrial facilities are preparing to meet higher demand. We expect to hire one thousand additional employees in the U.S. during the year as we ramp up our facilities in Bay City and McCarty (TX) to full production and open our facilities in Conroe (TX), Koppel (PA), Ambridge (PA) and Baytown (TX). Meanwhile, we are advancing with our investments to consolidate our Canadian industrial operations in Sault Ste Marie (ON) and to expand the size range of steel bars at Koppel to supply our Bay City mill.
Net sales of tubular products and services increased 3% sequentially but declined 35% year on year. Sequentially an 8% increase in volumes was partially offset by a 5% decrease in average selling prices. In North America sales increased 31% sequentially, reflecting higher sales across the region but particularly strong in the United States as activity ramps up. In South America sales increased 4% sequentially, reflecting higher sales in Argentina. In Europe sales increased 5% reflecting higher sales of mechanical products to the industrial sector. In the Middle East and Africa sales decreased 33% sequentially, reflecting lower sales of high-end OCTG in Qatar and Iraq, lower sales of line pipe in Saudi Arabia due to ongoing destocking and a reduction in coating services in West Africa. In Asia Pacific sales decreased 12% due to lower sales of high alloy products in China.
Operating result from tubular products and services amounted to a gain of $38 million in the first quarter of 2021, compared to a gain of $3 million in the previous quarter and a loss of $478 million in the first quarter of 2020, when we recorded an impairment of $582 million. During the quarter operating results for the Tubes segment include $23 million higher costs associated to the Winter Storm Uri and $5 million of leaving indemnities. Our operating income and margin during the quarter continued to improve reflecting a better industrial performance.
Net sales of other products and services increased 26% sequentially and decreased 2% year on year. The sequential increase in sales is mainly related to higher sales of excess raw materials and sucker rods.
Selling, general and administrative expenses, or SG&A, amounted to $255 million, or 21.6% of net sales, in the first quarter of 2021, compared to $242 million, 21.4% in the previous quarter and $357 million, 20.3% in the first quarter of 2020. SG&A expenses during the quarter included $3 million of leaving indemnities compared to $16 million in the previous quarter. Sequentially, our SG&A expenses increased mainly due to higher selling expenses associated with higher sales and because the previous quarter benefited from a $9 million gain from a provision reversal.
Other operating results amounted to a gain of $8 million in the first quarter of 2021, compared to $14 million in the previous quarter and $1 million in the first quarter of 2020. The gain of the quarter is mainly related to recoveries of duties in the U.S. and a recovery of fiscal credits in Brazil while in the previous quarter the gain was mainly related to a recovery of fiscal credits in Brazil.
Financial results amounted to a gain of $12 million in the first quarter of 2021, compared to a loss of $14 million in the previous quarter and a loss of $22 million in the first quarter of 2020. The gain of the quarter is mainly due to a 5% Euro depreciation on Euro denominated intercompany liabilities at subsidiaries whose functional currency is the U.S. dollar, a results which is to a large extent offset in equity.
Equity in earnings of non-consolidated companies generated a gain of $79 million in the first quarter of 2021, compared to a gain of $81 million in the previous quarter and a gain of $2 million in the first quarter of 2020. These results are mainly derived from our participation in Ternium and reflect the good dynamics at the flat steel sector derived from record high steel prices.
Income tax charge amounted to $42 million in the first quarter of 2021, compared to a credit of $35 million in the previous quarter and a charge of $136 million in the first quarter of 2020. Taxes increased during the quarter due to the better results at several subsidiaries following the improvement in activity, and the effect on deferred taxes of the devaluation of the Mexican Peso and the Japanese Yen, on the tax base used to calculate deferred taxes at our subsidiaries in those countries, which have the U.S. dollar as their functional currency.
Cash Flow and Liquidity
Net cash provided by operations during the first quarter of 2021 was $70 million, compared with $139 million in the previous quarter and $516 million in the first quarter of 2020. Working capital increased by $83 million, reflecting higher inventories, partially offset by an increase in trade payables and a decrease in receivables.
Capital expenditures amounted to $45 million for the first quarter of 2021, compared to $38 million in the previous quarter and $68 million in the first quarter of 2020.
Free cash flow of the quarter amounted to $25 million (2% of revenues), compared to $101 million in the previous quarter and $448 million in the first quarter of 2020.
Our financial position remained flat during the quarter and amounted to $1,084 million at March 31, 2021.