SOURCE: Tenaris S.A.

April 27, 2016 22:51 ET

Tenaris Announces 2016 First Quarter Results

The Financial and Operational 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 - Apr 27, 2016) - Tenaris S.A. (NYSE: TS) (BAE: TS) (BMV: TS) (MILAN: TEN) ("Tenaris") today announced its results for the quarter ended March 31, 2016 in comparison with its results for the quarter ended March 31, 2015.

Summary of 2016 First Quarter Results

(Comparison with fourth and first quarter of 2015)

             
             
    Q1 2016   Q4 2015   Q1 2015
Net sales ($ million)   1,257   1,420   (11%)   2,254   (44%)
Operating income ($ million)   42   24   73%   379   (89%)
Net income (loss) ($ million)   28   (45)   162%   254   (89%)
Shareholders' net income (loss) ($ million)   18   (47)   139%   255   (93%)
Earnings (loss) per ADS ($)   0.03   (0.08)   139%   0.43   (93%)
Earnings (loss) per share ($)   0.02   (0.04)   139%   0.22   (93%)
EBITDA* ($ million)   205   223   (8%)   527   (61%)
EBITDA margin (% of net sales)   16.3%   15.7%       23.4%    
                     
                     

*EBITDA is defined as operating income plus depreciation, amortization and impairment charges/(reversals). EBITDA includes severance charges of $12 million in Q1 2016, $34 million in Q4 2015 and $16 million in Q1 2015. If these charges were not included EBITDA would have been $218 million, 17.3% of sales in Q1 2016, $257 million, 18.1% of sales in Q4 2015,and $543 million, 24.1% of sales in Q1 2015.

Sales continue to decline sequentially affected by ongoing reductions in drilling activity worldwide and continuing pressure on selling prices, though average selling prices for the quarter were supported by sales of coating services for offshore line pipe projects in sub-Saharan Africa. Our EBITDA margin, however, remained stable sequentially supported by lower selling, general and administrative expenses. Net income returned to a positive level reflecting improved operating results, a positive contribution from non-consolidated companies and a lower tax charge.

Cash provided by operating activities reached $309 million during the quarter and after capital expenditures of $230 million we had positive free cash flow of $79 million. Our net cash position (cash, other current investments and fixed income investments held to maturity less total borrowings) rose to $1.9 billion at March 31, 2016.

Market Background and Outlook

Oil prices have risen from their January lows, but will need to sustain higher levels for some months before oil and gas companies begin to increase investment levels. Meanwhile, drilling activity continues to decline in North America and the rest of the world with rig counts reaching post-war lows in the United States and Canada. With the reduction in activity, OCTG inventory levels in many parts of the world remain high in relation to consumption and we will see a second consecutive year of net destocking.

Over the past month, we have seen a rapid escalation in steel and raw material costs while OCTG pipe prices continue to decline on reduced consumption and pressure from excess inventories on the ground. This is unsustainable and we expect that OCTG prices will adjust to the new raw material and steel cost situation.

In this environment, our sales and margins in the next two quarters will be affected by volume and price declines reflecting lower drilling activity, the completion of deliveries to major South American pipeline projects and the current severe pricing context. By the end of the year, however, we expect sales to begin to recover based on a likely pick up in drilling activity in North America and our current order backlog for our Eastern Hemisphere operations.

We will continue to adjust our operations in these unfavorable conditions, concentrating on cost and cash flow management while strengthening our market position in preparation for an eventual recovery.

Analysis of 2016 First Quarter Results

             
             
Tubes Sales volume
 (thousand metric tons)
  Q1 2016   Q4 2015   Q1 2015
Seamless   366   440   (17%)   655   (44%)
Welded   146   145   1%   160   (8%)
Total   512   585   (12%)   815   (37%)
                     
                     
             
             
Tubes   Q1 2016   Q4 2015   Q1 2015
(Net sales - $ million)                    
North America   380   487   (22%)   961   (60%)
South America   350   440   (20%)   487   (28%)
Europe   133   119   12%   236   (44%)
Middle East & Africa   239   199   20%   314   (24%)
Far East & Oceania   28   47   (40%)   78   (64%)
Total net sales ($ million)   1,130   1,292   (13%)   2,077   (46%)
Operating income ($ million)   21   5   294%   370   (94%)
Operating income (% of sales)   1.9%   0.4%       17.8%    
                     
                     

Tubes Operating income includes severance charges of $11 million in Q1 2016, $28 million in Q4 2015 and $15 million in Q1 2015.

Net sales of tubular products and services decreased 13% sequentially and 46% year on year. In North America sales declined due to lower drilling activity throughout the region and high OCTG inventory levels in relation to consumption. In South America sales declined due to lower drilling activity in Argentina and Colombia. In Europe sales increased sequentially due to a good level of shipments in the North Sea. In the Middle East & Africa our sales increased as we started to see a gradual increase in sales to national oil companies in the Middle East and we had a high level of sales of coating services for offshore line pipe projects in sub-Saharan Africa. In the Far East and Oceania, the decline in sales reflected a steep decline in shipments to Indonesia, Oceania and China.

Operating income from tubular products and services amounted to $21 million in the first quarter of 2016, compared to $5 million in the previous quarter and $370 million in the first quarter of 2015. The sequential increase is a result of a decline in selling, general and administrative expenses, mainly due to the collection of doubtful accounts provisioned in previous quarters and lower intangibles amortization charges, as in the previous quarter we suffer the full year effect of the reestimation in the useful life of customer relationships in Canada.

             
             
Others   Q1 2016   Q4 2015   Q1 2015
Net sales ($ million)   127   128   (1%)   177   (28%)
Operating income ($ million)   21   19   11%   9   132%
Operating income (% of sales)   16.6%   14.9%       5.1%    
                     
                     

Net sales of other products and services decreased 1% sequentially as a decline in sales of industrial equipment in Brazil and sucker rods was offset by higher sales of pipes for electric conduit in the United States. The operating margin increased following an improvement in the results of our electric conduit business in the United States.

Selling, general and administrative expenses, or SG&A, amounted to $287 million, or 22.8% of net sales, in the first quarter of 2016, compared to $369 million, 26.0% in the previous quarter and $436 million, 19.4% in the first quarter of 2015. Sequentially SG&A declined 22%, due to lower charges for doubtful accounts, as we collected receivables from PDVSA provisioned in previous quarters, and lower amortization of intangibles.

Financial results amounted to a loss of $15 million in the first quarter of 2016, compared to a gain of $19 million in the previous quarter and a loss of $1 million in the same period of 2015. Losses in this quarter are mostly due to the impact from the Euro appreciation on Euro denominated intercompany liabilities in subsidiaries with functional currency U.S. dollar and the impact from the Brazilian Real appreciation on hedging instruments. These results are to a large extent offset by changes to our currency translation reserve.

Equity in earnings of non-consolidated companies generated a gain of $12 million in the first quarter of 2016, compared to a loss of $46 million in the previous quarter and a gain of $8 million the first quarter of 2015. These results are mainly derived from our equity investment in Ternium (NYSE: TX) and Usiminas (BSP: USIM). In the fourth quarter of 2015 these results were negatively affected by impairment charges on our investment in Usiminas.

Income tax charges totaled $11 million in the first quarter of 2016. During this quarter our tax rate was negatively affected by the effect of the Argentine peso devaluation on the tax base used to calculate deferred taxes at our Argentine subsidiaries which have the U.S. dollar as their functional currency.

Results attributable to non-controlling interests amounted to $10 million in the first quarter of 2016, compared to $2 million in the previous quarter and losses of $1 million in the first quarter of 2015. Results during this quarter are mainly attributable to our pipe coating subsidiary in Nigeria.

Cash Flow and Liquidity

Net cash provided by operations during the first quarter of 2016 was $309 million, compared to $203 million in the previous quarter and $878 million in the first quarter of 2015.

Capital expenditures amounted to $230 million for the first quarter of 2016, compared to $307 million in the previous quarter and $261 million in the first quarter of 2015.

At the end of the quarter, our net cash position (cash, other current investments and fixed income investments held to maturity less total borrowings) amounted to $1.9 billion, compared to $1.8 billion at the beginning of the year.

Conference call

Tenaris will hold a conference call to discuss the above reported results, on April 28, 2016, at 10:00 a.m. (Eastern Time). Following a brief summary, the conference call will be opened to questions. To access the conference call dial in +1 877 730.0732 within North America or +1 530 379.4676 Internationally. The access number is "89190308". 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 1:00 pm on April 28 through 11:59 pm on May 6. To access the replay by phone, please dial +1 855 859.2056 or +1 404 537.3406 and enter passcode "89190308" 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.

Consolidated Condensed Interim Income Statement

       
       
(all amounts in thousands of U.S. dollars)   Three-month period ended March 31,  
    2016     2015  
Continuing operations   Unaudited  
Net sales   1,257,254     2,253,555  
Cost of sales   (927,393 )   (1,440,692 )
Gross profit   329,861     812,863  
Selling, general and administrative expenses   (286,567 )   (436,107 )
Other operating income (expense), net   (1,130 )   2,617  
Operating income   42,164     379,373  
Finance Income   19,895     12,107  
Finance Cost   (4,304 )   (6,257 )
Other financial results   (30,158 )   (7,270 )
Income before equity in earnings of non-consolidated companies and income tax   27,597     377,953  
Equity in earnings of non-consolidated companies   11,727     7,915  
Income before income tax   39,324     385,868  
Income tax   (11,374 )   (131,925 )
Income for the period   27,950     253,943  
             
Attributable to:            
Owners of the parent   18,161     255,082  
Non-controlling interests   9,789     (1,139 )
    27,950     253,943  
             
             

Consolidated Condensed Interim Statement of Financial Position

         
         
(all amounts in thousands of U.S. dollars)   At March 31, 2016   At December 31, 2015
    Unaudited    
ASSETS                
Non-current assets                
  Property, plant and equipment, net   5,840,103       5,672,258    
  Intangible assets, net   2,087,412       2,143,452    
  Investments in non-consolidated companies   495,319       490,645    
  Available for sale assets   21,572       21,572    
  Other investments   369,511       394,746    
  Deferred tax assets   193,752       200,706    
  Receivables   213,890   9,221,559   220,564   9,143,943
Current assets                
  Inventories   1,604,225       1,843,467    
  Receivables and prepayments   154,818       148,846    
  Current tax assets   178,317       188,180    
  Trade receivables   1,152,667       1,135,129    
  Other investments   2,036,183       2,140,862    
  Cash and cash equivalents   531,762   5,657,972   286,547   5,743,031
Total assets       14,879,531       14,886,974
EQUITY                
Capital and reserves attributable to owners of the parent       11,808,693       11,713,344
Non-controlling interests       158,097       152,712
Total equity       11,966,790       11,866,056
LIABILITIES                
Non-current liabilities                
  Borrowings   33,649       223,221    
  Deferred tax liabilities   681,655       750,325    
  Other liabilities   233,450       231,176    
  Provisions   63,711   1,012,465   61,421   1,266,143
                 
Current liabilities                
  Borrowings   965,973       748,295    
  Current tax liabilities   161,328       136,018    
  Other liabilities   218,580       222,842    
  Provisions   13,503       8,995    
  Customer advances   90,495       134,780    
  Trade payables   450,397   1,900,276   503,845   1,754,775
Total liabilities       2,912,741       3,020,918
Total equity and liabilities       14,879,531       14,886,974
                 
                 

Consolidated Condensed Interim Statement of Cash Flows

       
       
    Three-month period ended March 31,  
(all amounts in thousands of U.S. dollars)   2016     2015  
Cash flows from operating activities   Unaudited  
             
Income for the period   27,950     253,943  
Adjustments for:            
Depreciation and amortization   163,155     147,737  
Income tax accruals less payments   (16,171 )   14,137  
Equity in earnings of non-consolidated companies   (11,727 )   (7,915 )
Interest accruals less payments, net   (19,399 )   (4,451 )
Changes in provisions   6,798     (10,586 )
Changes in working capital   102,915     515,636  
Other, including currency translation adjustment   55,626     (30,608 )
Net cash provided by operating activities   309,147     877,893  
             
Cash flows from investing activities            
Capital expenditures   (230,249 )   (261,259 )
Changes in advance to suppliers of property, plant and equipment   14,258     2,294  
Net loan to non-consolidated companies   (10,384 )   (6,288 )
Proceeds from disposal of property, plant and equipment and intangible assets   1,723     554  
Cash flows from purchases and sales of securities, net   129,928     (536,731 )
Net cash used in investing activities   (94,724 )   (801,430 )
             
Cash flows from financing activities            
Dividends paid to non-controlling interest in subsidiaries   (4,311 )   -  
Acquisitions of non-controlling interests   (366 )   -  
Proceeds from borrowings   253,471     607,310  
Repayments of borrowings   (220,833 )   (418,195 )
Net cash provided by financing activities   27,961     189,115  
             
Increase in cash and cash equivalents   242,384     265,578  
Movement in cash and cash equivalents            
At the beginning of the period   286,198     416,445  
Effect of exchange rate changes   2,161     (10,206 )
Increase in cash and cash equivalents   242,384     265,578  
At March 31,   530,743     671,817  
             
    At March 31,  
Cash and cash equivalents   2016     2015  
  Cash and bank deposits   531,762     675,619  
  Bank overdrafts   (1,019 )   (3,802 )
    530,743     671,817  
             

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