SOURCE: Tenaris S.A.

August 03, 2016 16:50 ET

Tenaris Announces 2016 Second Quarter Results

The Financial and Operational Information Contained in This Press Release Is Based on Unaudited Consolidated 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 - Aug 3, 2016) - Tenaris S.A. (NYSE: TS) (BAE: TS) (BMV: TS) (MILAN: TEN) ("Tenaris") today announced its results for the quarter ended June 30, 2016 in comparison with its results for the quarter ended June 30, 2015.

 
Summary of 2016 Second Quarter Results
 
(Comparison with first quarter of 2016 and second quarter of 2015)
    Q2 2016   Q1 2016       Q2 2015    
Net sales ($ million)   1,121   1,257   (11%)   1,868   (40%)
Operating (loss) income ($ million)   (40)   42   (194%)   111   (136%)
Net (loss) income ($ million)   (9)   28   (133%)   72   (113%)
Shareholders' net (loss) income ($ million)   (13)   18   (173%)   66   (120%)
(Loss) earnings per ADS ($)   (0.02)   0.03   (173%)   0.11   (120%)
(Loss) earnings per share ($)   (0.01)   0.02   (173%)   0.06   (120%)
EBITDA* ($ million)   124   205   (40%)   265   (53%)
EBITDA margin (% of net sales)   11.1%   16.3%       14.2%    
                     

* EBITDA is defined as operating income plus depreciation, amortization and impairment charges/(reversals). EBITDA includes severance charges of $43 million in Q2 2016, $13 million in Q1 2016 and $89 million in Q2 2015. If these charges were not included EBITDA would have been $167 million (15%) in Q2 2016, $218 million (17%) in Q1 2016 and $354 million (19%) in Q2 2015.

In the second quarter, our sales continued to decline (11% compared to the previous quarter). They were affected by continuing declines in activity throughout North America, the termination of shipments to pipeline projects in Brazil and Argentina and the erosion of prices throughout the world. Our margins also declined and we incurred an operating loss on our Tubes business, which, in addition to lower prices, was affected by a higher ratio of fixed costs resulting from low utilization of production capacity and further restructuring charges.

Cash flow from operations, however, remained positive, amounting to $380 million during the quarter, as we made further reductions in our working capital. Even after capital expenditures of $211 million and a dividend payment of $354 million, our net cash position (cash, other current investments and fixed income investments held to maturity less total borrowings) remains solid at $1.8 billion at the end of the quarter.

Market Background and Outlook

The oil market has moved closer to a balance between supply and demand. North American drilling activity, after falling to a new post-war low in the second quarter, seems to have bottomed out and some oil and gas operators are starting to add back rigs. In the rest of the world, drilling activity may also be close to reaching the bottom. The pace of any recovery, however, will be subdued while oil prices remain low and the financial position of the oil and gas industry and its suppliers continues to deteriorate.

Our sales in the third quarter will continue to be affected by low levels of activity in North America and further price declines reflecting the intense competitive environment in the Eastern Hemisphere. In the fourth quarter, however, we should see a recovery in sales volumes and capacity utilization levels based on the current order backlog for our operations in the Middle East and Asia Pacific and a pick up in drilling activity in North America, accompanied by a gradual improvement in our EBITDA.

Analysis of 2016 Second Quarter Results

Tubes

The following table indicates, for our Tubes business segment, sales volumes of seamless and welded pipes for the periods indicated below:

             
Tubes Sales volume
 (thousand metric tons)
  Q2 2016   Q1 2016   Q2 2015
Seamless   395   366   8%   494   (20%)
Welded   80   146   (45%)   141   (43%)
Total   475   512   (7%)   635   (25%)
                     

The following table indicates, for our Tubes business segment, net sales by geographic region, operating income and operating income as a percentage of net sales for the periods indicated below:

             
Tubes   Q2 2016   Q1 2016   Q2 2015
(Net sales - $ million)                    
North America   266   380   (30%)   587   (55%)
South America   245   350   (30%)   466   (47%)
Europe   162   133   22%   189   (14%)
Middle East & Africa   276   239   16%   340   (19%)
Asia Pacific   36   28   26%   100   (64%)
Total net sales ($ million)   985   1,130   (13%)   1,682   (41%)
Operating (loss) income ($ million)1   (65)   21   (408%)   99   (166%)
Operating (loss) income (% of sales)   (6.6%)   1.9%       5.9%    
                     

1 Tubes operating income includes severance charges of $39 million in Q2 2016, $11 million in Q1 2016 and $85 million in Q2 2015.

Net sales of tubular products and services decreased 13% sequentially and 41% year on year. The sequential decline reflects a volume decline of 7% and an average price decline of 6%. In North America sales declined due to the spring break-up in Canada, lower activity in Mexico and further reductions in drilling activity in the United States and lower prices across the region. In South America, sales declined due to the completion of deliveries to major pipeline projects in Brazil and Argentina. In Europe we had higher sales to industrial and process and power clients. In the Middle East and Africa sales increased due to higher OCTG shipments to the Middle East partially offset by lower sales of OCTG and deepwater line pipe to sub-Saharan Africa. In Asia Pacific, sales increased due to a good level of shipments of OCTG products in Indonesia.

Operating results from tubular products and services were a loss of $65 million compared to a gain of $21 million in the previous quarter and $99 million in the previous year. In addition to the effect of lower sales, following a decline in volumes and prices, Tubes operating income during the quarter was negatively affected by a higher ratio of fixed costs resulting from low utilization of production capacity and further severance costs to adjust the workforce to current market conditions, which amounted to $39 million for the segment.

Others

The following table indicates, for our Others business segment, net sales, operating income and operating income as a percentage of net sales for the periods indicated below:

             
Others   Q2 2016   Q1 2016   Q2 2015
Net sales ($ million)   136   127   7%   186   (27%)
Operating income ($ million)   25   21   20%   12   103%
Operating income (% of sales)   18.6%   16.6%       6.7%    
                     

Net sales of other products and services increased 7% sequentially, mainly due to higher sales of pipes for electric conduit in the United States. Sequentially, the operating income also 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 $342 million, or 30.5% of net sales, in the second quarter of 2016, compared to $287 million, 22.8% in the previous quarter and $438 million, 23.4% in the second quarter of 2015. SG&A during the quarter included $24 million of severance charges compared to $3 million in the previous quarter and $34 million in the second quarter of 2015. Additionally, the sequential increase in SG&A is explained by a $31 million variation in the allowance for doubtful accounts as in the previous quarter we had a gain of $28 million from collection of previously provisioned accounts (mainly PDVSA) while in this quarter we have a charge of $3 million.

Financial results improved $25 million versus the previous quarter, amounting to a gain of $10 million, compared to a loss of $15 million in the previous quarter and a loss of $8 million in the second quarter of 2015. Sequentially finance income increased $4 million due to higher returns on our investments while other financial results improved $20 million mostly due to the positive impact from the Euro devaluation on Euro denominated intercompany liabilities in subsidiaries with functional currency U.S. dollar, which are to a large extent offset by changes to our currency translation reserve.

Equity in earnings of non-consolidated companies amounted to $19 million in the second quarter of 2016, compared to $12 million in the previous quarter and $4 million in the second quarter of last year. These results are mainly derived from our equity investment in Ternium (NYSE: TX).

Income tax amounted to a credit of $2 million in the second quarter of 2016, as we have a loss before equity in earnings of non-consolidated companies and income tax of $30 million.

Income attributable to non-controlling interests amounted to $4 million in the second quarter of 2016, compared to $10 million in the previous quarter and $6 million in the second quarter of 2015. During the first half of 2016 these results are mainly attributable to our pipe coating subsidiary in Nigeria while last year they were mainly attributable to NKKTubes, our Japanese subsidiary.

Cash Flow and Liquidity of 2016 Second Quarter

Net cash provided by operations during the second quarter of 2016 was $380 million, compared to $309 million in the previous quarter and $548 million in the second quarter of 2015. Reductions in working capital (mainly trade receivables and inventories) amounted to $307 million during the second quarter and $103 million in the previous quarter.

Capital expenditures amounted to $211 million for the second quarter of 2016, compared to $230 million in the previous quarter and $262 million in the second quarter of 2015. Capital expenditures mainly relates to the progress in the construction of the greenfield seamless facility in Bay City, Texas.

Following a dividend payment of $354 million in May 2016, and capital expenditures of $211 million during the second quarter, we maintained a net cash position (i.e., cash, other current investments and fixed income investments held to maturity less total borrowings) of $1.8 billion at the end of the quarter.

 
Analysis of 2016 First Half Results
 
    H1 2016   H1 2015   Increase/(Decrease)
Net sales ($ million)   2,378   4,122   (42%)
Operating income ($ million)   2   490   (100%)
Net income ($ million)   19   326   (94%)
Shareholders' net income ($ million)   5   321   (98%)
Earnings per ADS ($)   0.01   0.54   (98%)
Earnings per share ($)   0.00   0.27   (98%)
EBITDA ($ million)1   329   792   (58%)
EBITDA margin (% of net sales)   13.9%   19.2%    
             

1 EBITDA includes severance charges of $56 million in H1 2016 and $105 million in H1 2015. If these charges were not included EBITDA would have been $385 million (16%) in H1 2016 and $897 million (22%) in H1 2015.

Our sales in the first half of 2016 declined 42% compared to the first half of 2015, mainly due to lower shipments of tubular products. EBITDA declined 58% to $329 million in the first half of 2016 compared to $792 million in the first half of the previous year, following the decline in sales and a reduction in the EBITDA margin, from 19.2% to 13.9%. EBITDA includes severance charges, due to the adjustment of the workforce to current market conditions, which amounted to $56 million in the first half of 2016 and $105 million in the first half of 2015. Net income attributable to owners of the parent during the first half of 2016 was $5 million or $0.01 per ADS, which compares with $321 million or $0.54 per ADS in the first half of 2015. The decline in net income mainly reflects a challenging operating environment affected by lower shipments and prices, a higher ratio of fixed costs resulting from low utilization of production capacity and severance costs to adjust the workforce to current market conditions.

Cash flow from operations amounted to $689 million during the first half of 2016, including working capital reductions of $410 million. Following a dividend payment of $354 million in May 2016, and capital expenditures of $441 million during the first half of 2016, we reached a net cash position (i.e., cash, other current investments and fixed income investments held to maturity less total borrowings) of $1.8 billion at the end of June 2016.

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

             
Net sales ($ million)   H1 2016   H1 2015   Increase/(Decrease)
Tubes   2,115   89%   3,759   91%   (44%)
Others   263   11%   363   9%   (28%)
Total   2,378   100%   4,122   100%   (42%)
                     

Tubes

The following table indicates, for our Tubes business segment, sales volumes of seamless and welded pipes for the periods indicated below:

             
Sales volume
(thousand metric tons)
  H1 2016   H1 2015   Increase/(Decrease)
Seamless   761   1,149   (34%)
Welded   226   300   (25%)
Total   987   1,449   (32%)
             

The following table indicates, for our Tubes business segment, net sales by geographic region, operating income and operating income as a percentage of net sales for the periods indicated below:

             
Tubes   H1 2016   H1 2015   Increase/(Decrease)
(Net sales - $ million)            
North America   646   1,549   (58%)
South America   595   954   (38%)
Europe   295   425   (31%)
Middle East & Africa   515   654   (21%)
Asia Pacific   64   178   (64%)
Total net sales ($ million)   2,115   3,759   (44%)
Operating income ($ million) 1   (44)   469   (109%)
Operating income (% of sales)   (2.1%)   12.5%    
             

1 Tubes operating income includes severance charges of $50 million in the first half of 2016 and $100 million in the first half of 2015. If these charges were not included operating income would have been $7 million in the first half of 2016 and $569 million in the first half of 2015.

Net sales of tubular products and services decreased 44% to $2,115 million in the first half of 2016, compared to $3,759 million in the first half of 2015, as a result of a 32% decline in shipment volumes and a 17% decline in average selling prices. Sales were negatively affected by the adjustment in oil and gas drilling activity in response to the collapse in oil and gas prices and inventory adjustments taking place particularly in North America. In the first half of 2016, the average number of active drilling rigs, or rig count, declined 39% worldwide (56% in the United States and Canada and 19% in the rest of the world) compared to the average rig count in the first half of 2015.

Operating results from tubular products and services decreased 109% to a loss of $44 million in the first half of 2016, from income of $469 million in the first half of 2015. Results have been negatively affected by the decline in sales and a reduction in operating margins affected by a higher ratio of fixed costs resulting from low utilization of production capacity and severance costs to adjust the workforce to current market conditions.

Others

The following table indicates, for our Others business segment, net sales, operating income and operating income as a percentage of net sales for the periods indicated below:

             
Others   H1 2016   H1 2015   Increase/(Decrease)
Net sales ($ million)   263   363   (28%)
Operating income ($ million)   46   22   115%
Operating income (% of sales)   17.6%   5.9%    
             

Net sales of other products and services decreased 28% to $263 million in the first half of 2016, compared to $363 million in the first half of 2015, mainly due to lower sales of sucker rods, coiled tubing and industrial equipment in Brazil, partially offset by higher sales of pipes for electric conduit in the United States.

Operating income from other products and services increased 115%, to $46 million in the first half of 2016, compared to $22 million during the first half of 2015, 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 $629 million in the first half of 2016 and $874 million in the first half of 2015, however, it increased as a percentage of net sales to 26.4% in the first half of 2016 compared to 21.2% in the first half of 2015 mainly due to the effect of fixed and semi fixed expenses on lower sales.

Financial results amounted to a loss of $5 million in the first half of 2016, compared to a loss of $10 million in the first half of 2015. Net finance income amounted to a gain of $35 million in the first half of 2016, compared to a gain of $7 million in the first half of 2015. Other financial results amounted to a loss of $40 million in the first half of 2016, compared to a loss of $17 million in the first half of 2015. During the first half of 2016 other financial results were negatively affected by the Euro appreciation on Euro denominated intercompany liabilities, largely offset in currency translation adjustment and by the Brazilian Real appreciation on hedging instruments.

Equity in earnings of non-consolidated companies generated a gain of $30 million in the first half of 2016, compared to a gain of $12 million in the first half of 2015. These results are mainly derived from our equity investment in Ternium (NYSE: TX). 

Income tax charges amounted to $9 million in the first half of 2016, compared to $167 million in the first half of 2015.

Income attributable to non-controlling interests amounted to $14 million in the first half of 2016, compared to $5 million in the first half of 2015. Results during the first half of 2016 are mainly attributable to our pipe coating subsidiary in Nigeria, while in the previous year they were mainly related to NKKTubes, our Japanese subsidiary.

Cash Flow and Liquidity of 2016 First Half

Net cash provided by operations during the first half of 2016 amounted to $689 million (including working capital reductions of $410 million), compared to $1,426 million in the first half of 2015 (including working capital reductions of $912 million). In addition to the lower reduction in working capital the decline is mainly due to lower operating results.

Capital expenditures amounted to $441 million in the first half of 2016, compared to $523 million in the first half of 2015, as we continue progressing in the construction of the greenfield seamless facility in Bay City, Texas.

Following a dividend payment of $354 million in May 2016, our financial position at June 30, 2016, amounted to a net cash position (i.e., cash, other current investments and fixed income investments held to maturity less total borrowings) of $1.8 billion, similar to the level we had a year ago.

Tenaris Files Half-Year Report

Tenaris S.A. announces that it has filed its half-year report for the six-month period ended June 30, 2016 with the Luxembourg Stock Exchange. The half-year report can be downloaded from the Luxembourg Stock Exchange's website at www.bourse.lu and from Tenaris's website at www.tenaris.com/investors.

Holders of Tenaris's shares and ADSs, and any other interested parties, may request a hard copy of the half-year report, free of charge, at 1-888-300-5432 (toll free from the United States) or 52-229-989-1159 (from outside the United States).

Conference call

Tenaris will hold a conference call to discuss the above reported results, on August 4, 2016, at 9:00 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 "46366875". 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 12:00 pm ET on August 4 through 11:59 pm on August 12, 2016. To access the replay by phone, please dial +1 855. 859.2056 or +1 404 537.3406 and enter passcode "46366875" 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 June 30,     Six-month period ended June 30,  
    2016     2015     2016     2015  
Continuing operations   Unaudited     Unaudited  
Net sales   1,120,673     1,868,078     2,377,927     4,121,633  
Cost of sales   (814,847 )   (1,324,377 )   (1,742,240 )   (2,765,069 )
Gross profit   305,826     543,701     635,687     1,356,564  
Selling, general and administrative expenses   (341,996 )   (437,620 )   (628,563 )   (873,727 )
Other operating income (expense), net   (3,644 )   5,041     (4,774 )   7,658  
Operating (loss) income   (39,814 )   111,122     2,350     490,495  
Finance Income   24,212     10,978     44,107     23,085  
Finance Cost   (4,814 )   (9,363 )   (9,118 )   (15,620 )
Other financial results   (9,776 )   (9,718 )   (39,934 )   (16,988 )
(Loss) income before equity in earnings of non-consolidated companies and income tax   (30,192 )   103,019     (2,595 )   480,972  
Equity in earnings of non-consolidated companies   18,612     4,269     30,339     12,184  
(Loss) income before income tax   (11,580 )   107,288     27,744     493,156  
Income tax   2,403     (34,965 )   (8,971 )   (166,890 )
(Loss) income for the period   (9,177 )   72,323     18,773     326,266  
                         
Attributable to:                        
Owners of the parent   (13,266 )   66,314     4,895     321,396  
Non-controlling interests   4,089     6,009     13,878     4,870  
    (9,177 )   72,323     18,773     326,266  
                         
                         
 
Consolidated Condensed Interim Statement of Financial Position
 
(all amounts in thousands of U.S. dollars)   At June 30, 2016   At December 31, 2015
    Unaudited    
ASSETS                
Non-current assets                
  Property, plant and equipment, net   5,945,317       5,672,258    
  Intangible assets, net   2,032,412       2,143,452    
  Investments in non-consolidated companies   524,625       490,645    
  Available for sale assets   21,572       21,572    
  Other investments   330,856       394,746    
  Deferred tax assets   197,906       200,706    
  Receivables   201,547   9,254,235   220,564   9,143,943
Current assets                
  Inventories   1,533,666       1,843,467    
  Receivables and prepayments   126,817       148,846    
  Current tax assets   162,188       188,180    
  Trade receivables   1,019,342       1,135,129    
  Other investments   1,879,082       2,140,862    
  Cash and cash equivalents   394,351   5,115,446   286,547   5,743,031
Total assets       14,369,681       14,886,974
EQUITY                
Capital and reserves attributable to owners of the parent       11,468,566       11,713,344
Non-controlling interests       161,922       152,712
Total equity       11,630,488       11,866,056
LIABILITIES                
Non-current liabilities                
  Borrowings   32,859       223,221    
  Deferred tax liabilities   661,377       750,325    
  Other liabilities   228,634       231,176    
  Provisions   64,291   987,161   61,421   1,266,143
                 
Current liabilities                
  Borrowings   787,187       748,295    
  Current tax liabilities   124,813       136,018    
  Other liabilities   250,208       222,842    
  Provisions   14,296       8,995    
  Customer advances   68,939       134,780    
  Trade payables   506,589   1,752,032   503,845   1,754,775
Total liabilities       2,739,193       3,020,918
Total equity and liabilities       14,369,681       14,886,974
                 
                 
   
Consolidated Condensed Interim Statement of Cash Flows  
   
    Three-month period ended June 30,     Six-month period ended June 30,  
(all amounts in thousands of U.S. dollars)   2016     2015     2016     2015  
Cash flows from operating activities   Unaudited     Unaudited  
                         
Income for the period   (9,177 )   72,323     18,773     326,266  
Adjustments for:                        
Depreciation and amortization   163,963     153,464     327,118     301,201  
Income tax accruals less payments   (52,560 )   (101,751 )   (68,731 )   (87,614 )
Equity in earnings of non-consolidated companies   (18,612 )   (4,269 )   (30,339 )   (12,184 )
Interest accruals less payments, net   (10,786 )   1,838     (30,185 )   (2,613 )
Changes in provisions   1,373     3,396     8,171     (7,190 )
Changes in working capital   307,317     396,846     410,232     912,482  
Other, including currency translation adjustment   (1,790 )   26,242     53,836     (4,366 )
Net cash provided by operating activities   379,728     548,089     688,875     1,425,982  
                         
Cash flows from investing activities                        
Capital expenditures   (211,174 )   (261,928 )   (441,423 )   (523,187 )
Changes in advance to suppliers of property, plant and equipment   20,094     13,605     34,352     15,899  
Investment in non-consolidated companies   (17,108 )   -     (17,108 )   -  
Net loan to non-consolidated companies   (13,464 )   (3,461 )   (23,848 )   (9,749 )
Proceeds from disposal of property, plant and equipment and intangible assets   2,256     1,319     3,979     1,873  
Dividends received from non-consolidated companies   20,674     20,674     20,674     20,674  
Changes in investments in securities   195,754     (193,956 )   325,682     (730,687 )
Net cash used in investing activities   (2,968 )   (423,747 )   (97,692 )   (1,225,177 )
                         
Cash flows from financing activities                        
Dividends paid   (354,161 )   (354,161 )   (354,161 )   (354,161 )
Dividends paid to non-controlling interest in subsidiaries   -     -     (4,311 )   -  
Acquisitions of non-controlling interests   (111 )   (854 )   (477 )   (854 )
Proceeds from borrowings   242,471     516,584     495,942     1,123,894  
Repayments of borrowings   (407,071 )   (441,268 )   (627,904 )   (859,463 )
Net cash used by financing activities   (518,872 )   (279,699 )   (490,911 )   (90,584 )
                         
Increase in cash and cash equivalents   (142,112 )   (155,357 )   100,272     110,221  
Movement in cash and cash equivalents                        
At the beginning of the period   530,743     671,817     286,198     416,445  
Effect of exchange rate changes   4,012     264     6,173     (9,942 )
Increase in cash and cash equivalents   (142,112 )   (155,357 )   100,272     110,221  
At June 30,   392,643     516,724     392,643     516,724  
    At June 30,     At June 30,  
Cash and cash equivalents   2016     2015     2016     2015  
Cash and bank deposits   394,351     519,230     394,351     519,230  
Bank overdrafts   (1,708 )   (2,506 )   (1,708 )   (2,506 )
    392,643     516,724     392,643     516,724  
Net financial position      
    At June 30,              
    2016     2015              
Cash and bank deposits   392,643     516,724              
Bank overdrafts   1,708     2,506              
Other current investments   1,879,082     2,569,066              
Fixed income investments held to maturity   329,182     -              
Borrowings   (820,046 )   (1,260,695 )            
Net cash / (debt)   1,782,569     1,827,601              
                         

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