SOURCE: Tenaris S.A.

Tenaris S.A.

November 06, 2013 16:05 ET

Tenaris Announces 2013 Third Quarter Results

The Financial Information Contained in This Press Release Is Based on Unaudited Consolidated Condensed Interim Financial Statements Presented in U.S. Dollars ($) and Prepared in Accordance With International Financial Reporting Standards as Issued by the International Accounting Standard Board and Adopted by the European Union, or IFRS

LUXEMBOURG--(Marketwired - Nov 6, 2013) -   Tenaris S.A. (NYSE: TS) (BAE: TS) (BMV: TS) (MILAN: TEN) ("Tenaris") today announced its results for the quarter and nine months ended September 30, 2013 with comparison to its results for the quarter and nine months ended September 30, 2012.

Summary of 2013 Third Quarter Results

(Comparison with second quarter of 2013 and third quarter of 2012)

                   
    Q3 2013     Q2 2013     Q3 2012  
Net sales ($ million)   2,415     2,829     (15 %)   2,657     (9 %)
Operating income ($ million)   464     578     (20 %)   584     (21 %)
Net income ($ million)   314     430     (27 %)   434     (28 %)
Shareholders' net income ($ million)   300     418     (28 %)   433     (31 %)
Earnings per ADS ($)   0.51     0.71     (28 %)   0.73     (31 %)
Earnings per share ($)   0.25     0.35     (28 %)   0.37     (31 %)
EBITDA* ($ million)   622     730     (15 %)   679     (8 %)
EBITDA margin (% of net sales)   25.7 %   25.8 %         25.6 %      
                               

*EBITDA is defined as operating income plus depreciation, amortization and impairment charges/(reversals) and in Q3 2012 excludes a non-recurring gain of $49 million, recorded in Other operating income corresponding to a tax related lawsuit collected in Brazil.

Sales and operating income decreased with sequential sales affected principally by the impact of project delays on line pipe shipments in Brazil and a less favorable mix of OCTG products with lower sales in the Middle East and Africa, in addition to the seasonal impact of Northern Hemisphere plant stoppages. Net income was negatively affected by a $45 million deferred income tax provision, following the enactment of a new 10% withholding tax in Argentina.

Cash flow from operations amounted to $753 million for the quarter including a strong reduction in working capital. Our net cash position (cash and other current investments less total borrowings) increased to $785 million.

Interim Dividend Payment

Our board of directors approved the payment of an interim dividend of $0.13 per share ($0.26 per ADS), or approximately $153 million. The payment date will be November 21, 2013, and the ex-dividend date will be November 18, 2013.

Market Background and Outlook

Drilling activity in North America in the year to date has consolidated, supported by improving operator cash flows on higher oil prices and drilling efficiencies. Going into next year, it is expected that operator cash flows will support an increase in drilling activity if oil and gas prices remain close to current levels. In the rest of the world, oil and gas prices close to current levels should continue to support the ongoing expansion in drilling activity in the Middle East and offshore regions and onshore activity in other regions should remain stable.

In this environment, in the fourth quarter and going into 2014, we expect a strong level of sales in the Middle East and Africa and a rising level of sales in North America. In South America, although sales of OCTG products are expected to increase led by higher shale activity in Argentina, sales and shipments of line pipe products will continue to be affected by project delays in Brazil.

EBITDA margins are expected to remain stable while the overall EBITDA level should increase in line with sales.

Analysis of 2013 Third Quarter Results

                 
Tubes Sales volume
 (thousand metric tons)
  Q3 2013   Q2 2013     Q3 2012  
Seamless   614   677   (9 %)   642   (4 %)
Welded   224   286   (22 %)   305   (27 %)
Total   838   963   (13 %)   947   (12 %)
                         
                         
Tubes   Q3 2013     Q2 2013     Q3 2012  
(Net sales - $ million)                              
North America   928     986     (6 %)   1,260     (26 %)
South America   474     652     (27 %)   610     (22 %)
Europe   199     218     (9 %)   253     (21 %)
Middle East & Africa   468     626     (25 %)   236     98 %
Far East & Oceania   156     137     14 %   109     43 %
Total net sales ($ million)   2,225     2,619     (15 %)   2,469     (10 %)
Operating income ($ million)   434     553     (22 %)   560     (23 %)
Operating margin (% of sales)   19.5 %   21.1 %         22.7 %      
                               

Net sales of tubular products and services decreased 10% year on year and 15% sequentially. Sequentially, sales were mainly affected by lower shipments of offshore line pipe in Brazil and lower sales to the Middle East and Africa. Sequentially, North American sales declined principally due to lower sales of line pipe reflecting a more competitive situation for less differentiated products. In South America, sales declined due to lack of line pipe shipments in Brazil reflecting project implementation delays and premium OCTG stock adjustments in Argentina pursuant to the implementation of our alliance with YPF where we took over the management of their existing inventories. In the Middle East and Africa sales decreased compared to a record prior quarter due to the timing of shipments.

Operating income from tubular products and services, decreased 22% sequentially and 23% compared to the previous year. Sequentially, the decline in operating income was mainly due to the decline in sales and a lower operating margin due to the negative effect of lower sales on the absorption of fixed costs (i.e., depreciation and amortization).

                   

Others
  Q3 2013     Q2 2013     Q3 2012  
Net sales ($ million)   190     210     (10 %)   188     1 %
Operating income ($ million)   30     26     18 %   24     27 %
Operating margin (% of sales)   15.8 %   12.2 %         12.6 %      
                               

Net sales of other products and services decreased 10% sequentially and increased 1%year on year. The sequential decline in sales was mainly due to lower sales of industrial equipment in Brazil. Despite the sequential decline in sales, operating income increased 18% mainly due to better performance of our sucker rods and electric conduit businesses.

Selling, general and administrative expenses, or SG&A, amounted to $439 million, or 18.2% of net sales in the third quarter of 2013, compared to $529 million, 18.7% in the previous quarter and $459 million, 17.3% in the third quarter of 2012. The sequential decline in SG&A expenses was mainly due to lower selling expenses associated with lower shipment volumes and a reduction in the allowance for doubtful accounts following the collection of overdue accounts receivable.

Other operating results, amounted to an expense of $4 million in the third quarter of 2013, compared to an expense of $7 million in the previous quarter and an income of $44 million in the third quarter of 2012. The income in the third quarter of 2012, was related to a $49 million payment from the Brazilian government, in interest and monetary adjustment over a tax benefit received in 1991.

Financial results amounted to a loss of $17 million in the third quarter of 2013, compared to a loss of $11 million in the previous quarter and a loss of $24 million in the third quarter of 2012.

Equity in earnings of associated companies generated a gain of $10 million in the third quarter of 2013, compared to a gain of $12 million in the previous quarter and a gain of $11 million in the third quarter of 2012. These results were mainly derived from our equity investment in Ternium (NYSE: TX).

Income tax charges totaled $142 million in the third quarter of 2013, equivalent to 31.9% of income before equity in earnings of associated companies and income tax, compared to 26.4% in the previous quarter and 24.4% in the third quarter of 2012. In September 2013, Argentina enacted a law that amends its Income tax law. The law includes a new 10% withholding tax on dividend distributions made by Argentine companies to foreign beneficiaries. Accordingly, as of September 30, 2013, we recorded an income tax provision of $45 million, for the deferred tax liability on reserves for future dividends at our Argentine subsidiaries.

Results attributable to non-controlling interests amounted to gains of $14 million in the third quarter of 2013, compared to gains of $12 million in the previous quarter and gains of $1 million in the third quarter of 2012. In the third quarter of 2013, these results were mainly attributable to minority interests at our Japanese subsidiary NKKTubes.

Cash Flow and Liquidity of 2013 Third Quarter

Net cash provided by operations during the third quarter of 2013 was $753 million, compared to $611 million in the previous quarter and $491 million in the third quarter of 2012. Working capital decreased by $239 million during the third quarter of 2013, compared to a decrease of $56 million in the previous quarter and an increase of $107 million in the third quarter of 2012. The decrease in working capital in the third quarter of 2013, was mainly due to a decrease in trade receivables following lower sales.

Capital expenditures amounted to $206 million in the third quarter of 2013, compared to $180 million in the previous quarter and $187 million in the third quarter of 2012.

Our net cash (cash and other current investments less total borrowings) increased to $785 million, at the end of the third quarter of 2013, from $214 million at the end of the previous quarter.

Analysis of 2013 First Nine Months Results

                 
    9M 2013     9M 2012   Increase/
(Decrease)
 
Net sales ($ million)   7,923     8,076     (2 %)
Operating income ($ million)   1,595     1,771     (10 %)
Net income ($ million)   1,167     1,338     (13 %)
Shareholders' net income ($ million)   1,143     1,328     (14 %)
Earnings per ADS ($)   1.94     2.25     (14 %)
Earnings per share ($)   0.97     1.12     (14 %)
EBITDA* ($ million)   2,050     2,142     (4 %)
EBITDA margin (% of net sales)   25.9 %   26.5 %      
                   

*EBITDA is defined as operating income plus depreciation, amortization and impairment charges/(reversals) and in 9M 2012 excludes a non-recurring gain of $49 million, recorded in Other operating income corresponding to a tax related lawsuit collected in Brazil.

               
Tubes Sales volume
(thousand metric tons)
  9M 2013   9M 2012   Increase/
(Decrease)
 
Seamless   1,948   2,007   (3 %)
Welded   799   882   (9 %)
Total   2,747   2,889   (5 %)
               
               
Tubes   9M 2013     9M 2012     Increase/
(Decrease)
 
(Net sales - $ million)                  
North America   3,057     3,799     (20 %)
South America   1,721     1,612     7 %
Europe   686     800     (14 %)
Middle East & Africa   1,494     869     72 %
Far East & Oceania   375     365     3 %
Total net sales ($ million)   7,333     7,445     (2 %)
Operating income ($ million)   1,512     1,680     (10 %)
Operating margin (% of sales)   20.6 %   22.6 %      
                   

Net sales of tubular products and services decreased 2% to $7,333 million in the first nine months of 2013, compared to $7,445 million in the first nine months of 2012, reflecting a 5% decrease in volumes and a 4% increase in average selling prices.

Operating income from tubular products and services decreased 10% to $1,512 million in the first nine months of 2013, from $1,680 million in the first nine months of 2012, reflecting a 2% decrease in sales and a reduction of 200 basis points in the operating margin.

                   
Others   9M 2013     9M 2012     Increase/
(Decrease)
 
Net sales ($ million)   590     631     (6 %)
Operating income ($ million)   83     91     (9 %)
Operating margin (% of sales)   14.1 %   14.4 %      
                   

Net sales of other products and services decreased 6% to $590 million in the first nine months of 2013, compared to $631 million in the first nine months of 2012, mainly due to lower sales of industrial equipment in Brazil, coiled tubing and tubes for electric conduit, partially offset by higher sales of sucker rods.

Operating income from other products and services decreased 9% to $83 million in the first nine months of 2013, compared to $91 million during the first nine months of 2012, reflecting lower sales and stable margins.

SG&A amounted to $1,444 million, or 18.2% of net sales during the first nine months of 2013, compared to $1,390 million, or 17.2% in the same period of 2012. The increase in SG&A expenses was mainly due to higher selling expenses associated with higher shipments to the Middle East and Africa and an increase in provisions for contingencies and doubtful accounts.

Financial results were a loss of $37 million in the first nine months of 2013 compared to loss of $35 million in the same period of 2012.

Equity in earnings of associated companies generated a gain of $34 million in the first nine months of 2013, compared to a gain of $31 million in the first nine months of 2012. These gains were derived mainly from our equity investment in Ternium.

Income tax charges totaled $426 million in the first nine months of 2013, equivalent to 27.3% of income before equity in earnings of associated companies and income tax, compared to $429 million in the first nine months of 2012, equivalent to 24.7% of income before equity in earnings of associated companies and income tax. In September 2013, Argentina enacted a law that amends its Income tax law. The law includes a new 10% withholding tax on dividend distributions made by Argentine companies to foreign beneficiaries. Accordingly, as of September 30, 2013, we recorded an income tax provision of $45 million, for the deferred tax liability on reserves for future dividends at our Argentine subsidiaries.

Income attributable to non-controlling interests amounted to $24 million in the first nine months of 2013, compared to $10 million in the first nine months of 2012, mainly due to improved results at our Japanese subsidiary NKKTubes.

Cash Flow and Liquidity of 2013 First Nine Months

During the first nine months of 2013, net cash provided by operations was $1,928 million, compared to $1,514 million in the same period of 2012. Working capital decreased by $312 million in the first nine months of 2013, compared with an increase of $56 million in the first nine months of 2012.

Capital expenditures amounted to $570 million in the first nine months of 2013, compared with $588 million in the same period of 2012.

Our financial position changed from net debt of $271 million at the beginning of the year to net cash of $785 million at September 30, 2013.

Conference call

Tenaris will hold a conference call to discuss the above reported results, on November 7, 2013, at 09:00 a.m. (Eastern Time). Following a brief summary, the conference call will be opened to questions. To access the conference call dial in +1 866 515.2908 within North America or +1 617 399.5122 Internationally. The access number is "98924335". Please dial in 10 minutes before the scheduled start time. The conference call will be also available by webcast at www.tenaris.com/investors.

A replay of the conference call will be available on our webpage http://ir.tenaris.com/ or by phone from 01:00 pm on November 7 through 12:00 am on November 14. To access the replay by phone, please dial +1 888 286.8010 or +1 617 801.6888 and enter passcode "48749346" when prompted.

Some of the statements contained in this press release are "forward-looking statements". Forward-looking statements are based on management's current views and assumptions and involve known and unknown risks that could cause actual results, performance or events to differ materially from those expressed or implied by those statements. These risks include but are not limited to risks arising from uncertainties as to future oil and gas prices and their impact on investment programs by oil and gas companies.

Press releases and financial statements can be downloaded from Tenaris's website at www.tenaris.com/investors.

   
   
Consolidated Condensed Interim Income Statement  
   
(all amounts in thousands of U.S. dollars)   Three-month period ended September 30,     Nine-month period ended September 30,  
    2013     2012     2013     2012  
Continuing operations   Unaudited     Unaudited  
Net sales   2,415,061     2,657,069     7,922,636     8,075,910  
Cost of sales   (1,507,706 )   (1,658,967 )   (4,867,581 )   (4,964,776 )
Gross profit   907,355     998,102     3,055,055     3,111,134  
Selling, general and administrative expenses   (439,191 )   (458,716 )   (1,444,085 )   (1,389,514 )
Other operating income (expense) net   (4,484 )   44,174     (15,509 )   49,027  
Operating income   463,680     583,560     1,595,461     1,770,647  
Interest income   9,188     9,413     22,139     24,702  
Interest expense   (18,845 )   (18,247 )   (49,374 )   (40,860 )
Other financial results   (7,215 )   (15,154 )   (9,551 )   (18,549 )
Income before equity in earnings of associated companies and income tax   446,808     559,572     1,558,675     1,735,940  
Equity in earnings of associated companies   9,884     11,012     33,950     31,143  
Income before income tax   456,692     570,584     1,592,625     1,767,083  
Income tax   (142,404 )   (136,491 )   (426,055 )   (429,490 )
Income for the period   314,288     434,093     1,166,570     1,337,593  
                         
                         
Attributable to:                        
Owners of the parent   300,159     433,037     1,142,764     1,327,879  
Non-controlling interests   14,129     1,056     23,806     9,714  
    314,288     434,093     1,166,570     1,337,593  
             
                         
                         
Consolidated Condensed Interim Statement of Financial Position
 
(all amounts in thousands of U.S. dollars)   At September 30, 2013   At December 31, 2012
    Unaudited    
ASSETS                
Non-current assets                
  Property, plant and equipment, net   4,631,933       4,434,970    
  Intangible assets, net   3,095,411       3,199,916    
  Investments in associated companies   931,012       977,011    
  Other investments   2,477       2,603    
  Deferred tax assets   212,787       215,867    
  Receivables   120,639   8,994,259   142,060   8,972,427
                 
Current assets                
  Inventories   2,674,532       2,985,805    
  Receivables and prepayments   230,239       260,532    
  Current tax assets   149,798       175,562    
  Trade receivables   1,926,419       2,070,778    
  Available for sale assets   21,572       21,572    
  Other investments   1,439,417       644,409    
  Cash and cash equivalents   603,141   7,045,118   828,458   6,987,116
Total assets       16,039,377       15,959,543
                 
EQUITY                
Capital and reserves attributable to owners of the parent       12,048,287       11,328,031
Non-controlling interests       179,666       171,561
Total equity       12,227,953       11,499,592
                 
LIABILITIES                
Non-current liabilities                
  Borrowings   319,501       532,407    
  Deferred tax liabilities   717,706       728,541    
  Other liabilities   307,392       302,444    
  Provisions   72,028   1,416,627   67,185   1,630,577
                 
                 
Current liabilities                
  Borrowings   937,575       1,211,785    
  Current tax liabilities   240,168       254,603    
  Other liabilities   366,067       318,828    
  Provisions   19,878       26,958    
  Customer advances   26,837       134,010    
  Trade payables   804,272   2,394,797   883,190   2,829,374
Total liabilities       3,811,424       4,459,951
Total equity and liabilities       16,039,377       15,959,543
                 
                 
                 
Consolidated Condensed Interim Statement of Cash Flow  
   
    Three-month period ended
September 30,
    Nine-month period ended
September 30,
 
(all amounts in thousands of U.S. dollars)   2013     2012     2013     2012  
    Unaudited     Unaudited  
Cash flows from operating activities                        
Income for the period   314,288     434,093     1,166,570     1,337,593  
Adjustments for:                        
Depreciation and amortization   157,931     144,713     454,903     420,597  
Income tax accruals less payments   39,591     (20,417 )   64,612     (126,196 )
Equity in earnings of associated companies   (9,884 )   (11,012 )   (33,950 )   (31,143 )
Interest accruals less payments, net   5,119     (6,126 )   (29,902 )   (24,382 )
Changes in provisions   (1,487 )   (1,625 )   (2,404 )   (18,182 )
Changes in working capital   239,248     (107,051 )   311,705     (55,708 )
Other, including currency translation adjustment   8,363     58,804     (3,900 )   11,237  
Net cash provided by operating activities   753,169     491,379     1,927,634     1,513,816  
                         
Cash flows from investing activities                        
Capital expenditures   (206,282 )   (186,964 )   (569,841 )   (587,890 )
Acquisition of subsidiaries and associated companies   -     (6,228 )   -     (510,825 )
Proceeds from disposal of property, plant and equipment and intangible assets   12,637     883     19,383     3,798  
Dividends received from associated companies   -     6     16,127     18,708  
Changes in investments in short terms securities   (326,352 )   (469,351 )   (795,008 )   (457,984 )
Net cash used in investing activities   (519,997 )   (661,654 )   (1,329,339 )   (1,534,193 )
                         
Cash flows from financing activities                        
Dividends paid   -     -     (354,161 )   (295,134 )
Dividends paid to non-controlling interest in subsidiaries   (113 )   -     (18,642 )   (905 )
Acquisitions of non-controlling interests   -     (38 )   (7,768 )   (758,577 )
Proceeds from borrowings   537,301     491,143     1,757,691     1,705,377  
Repayments of borrowings   (787,227 )   (243,114 )   (2,141,999 )   (682,230 )
Net cash (used in) providedby financing activities   (250,039 )   247,991     (764,879 )   (31,469 )
                         
(Decrease) Increase in cash andcash equivalents   (16,867 )   77,716     (166,584 )   (51,846 )
                         
Movement in cash and cash equivalents                        
At the beginning of the period   606,026     693,712     772,656     815,032  
Effect of exchange rate changes   (3,006 )   3,567     (19,919 )   11,809  
                         
(Decrease) Increase in cash and cash equivalents   (16,867 )   77,716     (166,584 )   (51,846 )
At September 30,   586,153     774,995     586,153     774,995  
                         
    At September 30,     At September 30,  
    2013     2012     2013     2012  
Cash and cash equivalents                  
Cash and bank deposits   603,141     787,540     603,141     787,540  
Bank overdrafts   (16,988 )   (12,545 )   (16,988 )   (12,545 )
    586,153     774,995     586,153     774,995  

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