SOURCE: Tenaris S.A.

April 26, 2017 21:11 ET

Tenaris Announces 2017 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; Additionally, this press release includes non-IFRS alternative performance measures i.e., EBITDA, Net cash / debt and Free Cash Flow; See exhibit I for more details on these alternative performance measures

LUXEMBOURG--(Marketwired - Apr 26, 2017) - Tenaris S.A. (NYSE: TS) (BAE: TS) (BMV: TS) (MILAN: TEN) ("Tenaris") today announced its results for the quarter ended March 31, 2017 in comparison with its results for the quarter ended March 31, 2016.

Summary of 2017 First Quarter Results

(Comparison with fourth and first quarter of 2016, with Conduit operations reclassified as discontinued operations)

                     
    1Q 2017     4Q 2016       1Q 2016  
Net sales ($ million)   1,154     1,046       10 %     1,206       (4 %)
Operating income ($ million)   36     6       519 %     29       23 %
Net income ($ million)   206     24       740 %     28       636 %
Shareholders' net income ($ million)   205     34       507 %     18       1029 %
Earnings per ADS ($)   0.35     0.06       507 %     0.03       1029 %
Earnings per share ($)   0.17     0.03       507 %     0.02       1029 %
EBITDA* ($ million)   198     172       15 %     191       4 %
EBITDA margin (% of net sales)   17.2 %   16.5 %             15.8 %        
                                     

*EBITDA includes severance charges of $9 million in Q1 2017, $8 million in Q4 2016 and $13 million in Q1 2016. If these charges were not included EBITDA would have been $207 million (18%) in Q1 2017, $180 million (17%) in Q4 2016,and $204 million (17%) in Q1 2016.

Our sales rose 10% quarter on quarter reflecting a strong increase in demand in USA and Canada, partially offset by lower sales in the Middle East and Africa. Our EBITDA continues to recover from the low point reached in the second quarter of last year and our net income benefited from an after tax gain of $92 million from the sale of Republic Conduit and a positive income tax charge.

Net cash provided by operations was $26 million, with an increase in working capital of $105 million reflecting higher inventories and receivables. Capital expenditures amounted to $139 million and our net cash position (cash, other current investments and fixed income investments held to maturity less total borrowings) rose to $1.6 billion, including the $328 million we collected from the sale of Republic Conduit.

Market Background and Outlook

Four months into 2017, the recovery in shale drilling in the USA and Canada has been impressive. With oil and gas prices remaining rangebound ($50-55/bbl, $3.00-3.30/million BTU), however, we expect the pace of the recovery will slow down. In the rest of the world, signs of recovery are more scarce, as oil and gas companies focus on strengthening cash flow and their financial position. In Latin America, drilling activity has been recovering from a very low base and, in Argentina various operators have announced investments in the Vaca Muerta shale play.

We estimate that global demand for OCTG products in 2017 will increase in the range of 35-40% with respect to 2016. The demand increase is concentrated in USA and Canada, where we have been implementing our Rig Direct™ program, reopening our Canadian mills and starting up the heat treatment and threading facilities of our new mill in Bay City, Texas.

Our sales and EBITDA in the second quarter should be in line with those of this first quarter as further increases in sales in the USA are counterbalanced by seasonal effects in Canada and a lower quarterly level of shipments to the Middle East. In the second half of the year, sales should increase driven by higher demand from Rig Direct™ customers in North America and Argentina and line pipe shipments to Eastern Mediterranean offshore gas projects in the fourth quarter. Our EBITDA should also increase with margins improving based on a better absorption of fixed costs. Although pricing conditions are improving, particularly in North America, average revenue per ton will continue to be held back by a changing regional mix and the prices in our Eastern Hemisphere backlog.

Analysis of 2017 First Quarter Results

             
Tubes Sales volume (thousand metric tons) 1Q 2017   4Q 2016   1Q 2016  
Seamless 509   458   11 % 366   39 %
Welded 74   67   10 % 146   (49 %)
Total 583   526   11 % 512   14 %
             
Tubes 1Q 2017   4Q 2016   1Q 2016  
(Net sales - $ million)                    
North America 477   336   42 % 380   25 %
South America 203   212   (4 %) 350   (42 %)
Europe 130   122   7 % 133   (2 %)
Middle East & Africa 230   275   (17 %) 239   (4 %)
Asia Pacific 46   38   20 % 28   61 %
Total net sales ($ million) 1,085   983   10 % 1,130   (4 %)
Operating income ($ million) 31   5   512 % 21   46 %
Operating margin (% of sales) 2.8 % 0.5 %     1.9 %    
                     

Net sales of tubular products and services increased 10% sequentially but declined 4% year on year. In North America sales increased 42% sequentially, reflecting an increase in drilling activity in the United States and Canada. In South America sales declined 4% due to lower demand for OCTG and line pipe in Argentina partially offset by higher shipments of connectors in Brazil and higher OCTG demand in Colombia. In Europe sales increased 7% as demand for mechanical pipe and line pipe for power generation and hydrocarbon processing industry remained stable while higher sales of OCTG in North Sea were partially offset by lower sales elsewhere. In the Middle East and Africa sales declined 17% as shipments for Zohr phase 1 were completed in January and we had a low level of demand in sub-Saharan Africa. In Asia Pacific sales increased 20% due to Rig Direct sales to Chevron in Thailand at full regimen but demand in the rest of the region continues to be low.

Operating income from tubular products and services amounted to $31 million in the first quarter of 2017, compared to $5 million in the previous quarter and $21 million in the first quarter of 2016. The sequential increase is a result of an improvement in the margin; while average selling prices remained stable, we were able to reduce our costs due to a better absorption of fixed costs on higher volumes.

                   
Others   1Q 2017     4Q 2016     1Q 2016  
Net sales ($ million)   68     63     9 %   76     (10 %)
Operating income ($ million)   5     1     675 %   8     (34 %)
Operating income (% of sales)   7.9 %   1.1 %         10.8 %      
                               

Net sales of other products and services increased 9% sequentially but declined 10% year on year. The sequential increase in sales and operating income is due to increased revenues of sucker rods, coiled tubing and excess energy.

Selling, general and administrative expenses, or SG&A, amounted to $294 million, or 25.5% of net sales, in the first quarter of 2017, compared to $280 million, 26.8% in the previous quarter and $279 million, 23.1% in the first quarter of 2016. Sequentially, SG&A declined as a percentage of sales due to a better absorption of fixed costs on higher sales and lower provisions for contingencies.

Financial results amounted to a loss of $4 million in the first quarter of 2017, compared to a gain of $23 million in the previous quarter and a loss of $15 million in the first quarter of 2016, mainly explained by the negative impact from Euro appreciation against the U.S. dollar on Euro denominated intercompany liabilities in subsidiaries with functional currency U.S. dollar. These results are to a large extent offset in equity, in the currency translation adjustment reserve.

Equity in earnings of non-consolidated companies generated a gain of $35 million in the first quarter of 2017, compared to a gain of $15 million in the previous quarter and a gain of $12 million the first quarter of 2016. These results are mainly derived from our equity investment in Ternium (NYSE: TX) and Usiminas (BSP: USIM).

Income tax amounted to a gain of $47 million in the first quarter of 2017, primarily reflecting the effect of the Mexican and Argentine peso revaluation on the tax base used to calculate deferred taxes at our Mexican and Argentine subsidiaries which have the U.S. dollar as their functional currency. This result offsets to a large extent the income tax charge for the same concept that was generated in the previous quarter due to a devaluation of the Mexican and Argentine peso.

Results for discontinued operations amounted to $92 million in the first quarter of 2017, reflecting the after tax result of the sale of Republic Conduit, which was closed in January 2017.

Results attributable to non-controlling interests amounted to zero in the first quarter of 2017, compared to a $9 million loss in the previous quarter and a gain of $10 million attributable to non-controlling interests in the first quarter of 2016. These results are mainly originated at our subsidiray in Japan, NKKTubes and at our pipe coating subsidiary in Nigeria.

Cash Flow and Liquidity

Net cash provided by operations during the first quarter of 2017 was $26 million, compared to $309 million in the first quarter of 2016 and $79 million used in the previous quarter.

Capital expenditures amounted to $139 million for the first quarter of 2017, compared to $158 million in the previous quarter and $230 million in the first quarter of 2016.

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 $1.6 billion, compared to $1.4 billion at the beginning of the year, as in January 2017 we collected $328 million from the sale of Republic Conduit.

Conference call

Tenaris will hold a conference call to discuss the above reported results, on April 28, 2017, 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 " 9094268". 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 ET on April 28th, through 11.59 pm on May 6th, 2017. To access the replay by phone, please dial 855 859 2056 or 404 537 3406 and enter passcode "9094268" 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,  
    2017     2016  
Continuing operations   Unaudited  
Net sales   1,153,860     1,206,350  
Cost of sales   (823,856 )   (897,062 )
Gross profit   330,004     309,288  
Selling, general and administrative expenses   (294,431 )   (278,848 )
Other operating income (expense), net   441     (1,130 )
Operating income   36,014     29,310  
Finance Income   12,927     19,895  
Finance Cost   (5,938 )   (4,304 )
Other financial results   (11,415 )   (30,098 )
Income before equity in earnings of non-consolidated companies and income tax   31,588     14,803  
Equity in earnings of non-consolidated companies   35,200     11,727  
Income before income tax   66,788     26,530  
Income tax   47,245     (6,441 )
Income for continuing operations   114,033     20,089  
             
Discontinued operations            
Result for discontinued operations   91,542     7,861  
Income for the period   205,575     27,950  
             
Attributable to:            
Owners of the parent   205,127     18,161  
Non-controlling interests   448     9,789  
    205,575     27,950  
             
 
Consolidated Condensed Interim Statement of Financial Position
 
(all amounts in thousands of U.S. dollars)   At March 31, 2017   At December 31, 2016
    Unaudited    
ASSETS                
Non-current assets                
  Property, plant and equipment, net   6,048,740       6,001,939    
  Intangible assets, net   1,804,676       1,862,827    
  Investments in non-consolidated companies   598,546       557,031    
  Available for sale assets   21,572       21,572    
  Other investments   317,666       249,719    
  Deferred tax assets   153,277       144,613    
  Receivables, net   201,989   9,146,466   197,003   9,034,704
Current assets                
  Inventories, net   1,673,034       1,563,889    
  Receivables and prepayments, net   173,246       124,715    
  Current tax assets   151,690       140,986    
  Trade receivables, net   1,010,528       954,685    
  Other investments   1,613,665       1,633,142    
  Cash and cash equivalents   427,619   5,049,782   399,737   4,817,154
  Assets of disposal group classified as held for sale       -       151,417
Total assets       14,196,248       14,003,275
EQUITY                
Capital and reserves attributable to owners of the parent       11,530,615       11,287,417
Non-controlling interests       106,930       125,655
Total equity       11,637,545       11,413,072
LIABILITIES                
Non-current liabilities                
  Borrowings   31,587       31,542    
  Deferred tax liabilities   557,764       550,657    
  Other liabilities   215,272       213,617    
  Provisions   42,280   846,903   63,257   859,073
Current liabilities                
  Borrowings   676,644       808,694    
  Current tax liabilities   102,770       101,197    
  Other liabilities   202,133       183,887    
  Provisions   25,895       22,756    
  Customer advances   62,265       39,668    
  Trade payables   642,093   1,711,800   556,834   1,713,036
  Liabilities of disposal group classified as held for sale       -       18,094
Total liabilities       2,558,703       2,590,203
Total equity and liabilities       14,196,248       14,003,275
                 
                 
   
Consolidated Condensed Interim Statement of Cash Flows  
   
    Three-month period ended March 31,  
(all amounts in thousands of U.S. dollars)   2017     2016  
Cash flows from operating activities   Unaudited  
             
Income for the period   205,575     27,950  
Adjustments for:            
Depreciation and amortization   162,218     163,155  
Income tax accruals less payments   (92,930 )   (16,171 )
Equity in earnings of non-consolidated companies   (35,200 )   (11,727 )
Interest accruals less payments, net   (8,555 )   (19,399 )
Changes in provisions   (17,838 )   6,798  
Income from the sale of Conduit business   (89,694 )   -  
Changes in working capital   (104,937 )   102,915  
Other, including currency translation adjustment   7,495     55,626  
Net cash provided by operating activities   26,134     309,147  
             
Cash flows from investing activities            
Capital expenditures   (138,615 )   (230,249 )
Changes in advance to suppliers of property, plant and equipment   3,503     14,258  
Proceeds from disposal of Conduit business   327,631     -  
Loan to non-consolidated companies   (9,006 )   (10,384 )
Proceeds from disposal of property, plant and equipment and intangible assets   1,962     1,723  
Changes in investments in securities   (48,469 )   129,928  
Net cash provided by (used in) investing activities   137,006     (94,724 )
             
Cash flows from financing activities            
Dividends paid to non-controlling interest in subsidiaries   -     (4,311 )
Acquisitions of non-controlling interests   (18 )   (366 )
Proceeds from borrowings   624,183     253,471  
Repayments of borrowings   (762,670 )   (220,833 )
Net cash (used in) provided by financing activities   (138,505 )   27,961  
             
Increase in cash and cash equivalents   24,635     242,384  
Movement in cash and cash equivalents            
At the beginning of the period   398,580     286,198  
Effect of exchange rate changes   3,526     2,161  
Increase in cash and cash equivalents   24,635     242,384  
At March 31,   426,741     530,743  
             
    At March 31,  
Cash and cash equivalents   2017     2016  
Cash and bank deposits   427,619     531,762  
Bank overdrafts   (878 )   (1,019 )
    426,741     530,743  
             
             

Exhibit I - Alternative performance measures

EBITDA, Earnings before interest, tax, depreciation and amortization.

EBITDA provides an analysis of the operating results excluding depreciation and amortization and impairments, as they are non-cash variables which can vary substantially from company to company depending on accounting policies and the accounting value of the assets. EBITDA is an approximation to pre-tax operating cash flow and reflects cash generation before working capital variation. EBITDA is widely used by investors when evaluating businesses (multiples valuation), as well as by rating agencies and creditors to evaluate the level of debt, comparing EBITDA with net debt.

EBITDA is calculated in the following manner:

EBITDA = Operating results + Depreciation and amortization + Impairment charges/(reversals).

       
(all amounts in thousands of U.S. dollars)   Three-month period ended March 31,  
    2017   2016  
Operating income   36,014   29,310  
Depreciation and amortization   162,218   163,155  
Depreciation and amortization from discontinued operations   0   (1,362 )
EBITDA   198,232   191,103  
           

Net Cash / (debt)

This is the net balance of cash and cash equivalents, other current investments and fixed income investments held to maturity less total borrowings. It provides a summary of the financial solvency and liquidity of the company. Net cash / (debt) is widely used by investors and rating agencies and creditors to assess the company's leverage, financial strength, flexibility and risks.

Net cash/debt is calculated in the following manner:

Net cash= Cash and cash equivalents + Other investments (Current) + Fixed income investments held to maturity - Borrowings (Current and Non-current).

       
(all amounts in thousands of U.S. dollars)   At March 31,  
    2017     2016  
Cash and cash equivalents   427,619     531,762  
Other current investments   1,613,665     2,036,183  
Fixed income investments held to maturity   316,003     367,834  
Borrowings - current and non-current   (708,231 )   (999,622 )
Net cash / (debt)   1,649,056     1,936,157  
             

Free Cash Flow

Free cash flow is a measure of financial performance, calculated as operating cash flow less capital expenditures. FCF represents the cash that a company is able to generate after spending the money required to maintain or expand its asset base.

Free cash flow is calculated in the following manner:

Free cash flow = Net cash (used in) provided by operating activities - Capital expenditures.

       
    Three-month period ended March 31,  
    2017     2016  
Net cash provided by operating activities   26,134     309,147  
Capital expenditures   (138,615 )   (230,249 )
Free cash flow   (112,481 )   78,898  
             

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