SOURCE: Tenaris S.A.

Tenaris S.A.

November 01, 2017 16:45 ET

Tenaris Announces 2017 Third 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 and Net cash / debt. See exhibit I for more details on these alternative performance measures.

LUXEMBOURG--(Marketwired - Nov 1, 2017) -  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, 2017 with comparison to its results for the quarter and nine months ended September 30, 2016.

Summary of 2017 Third Quarter Results

(Comparison with second quarter of 2017 and third quarter of 2016)

                   
    Q3 2017   Q2 2017   Q3 2016
Net sales ($ million)   1,303     1,243     5 %   987     32 %
Operating income (loss) ($ million)   79     51     54 %   (33 )   342 %
Net income ($ million)   95     73     30 %   15     515 %
Shareholders' net income ($ million)   105     75     41 %   17     532 %
Earnings per ADS ($)   0.18     0.13     41 %   0.03     532 %
Earnings per share ($)   0.09     0.06     41 %   0.01     532 %
EBITDA ($ million)   225     200     12 %   133     69 %
EBITDA margin (% of net sales)   17.3 %   16.1 %         13.5 %      
                               

Sales rose strongly in the Americas quarter on quarter reflecting seasonal factors in Canada, improved product mix and pricing in US onshore and higher activity from private operators in Argentina. Overall growth in sales, however, was held back by a trough in shipments to projects in the Middle East and Africa and for National Oil Company contracts under renewal as well as seasonal factors in European sales to distributors of line pipe and industrial products. Earnings per share, operating income and EBITDA margins all rose on lower general and administrative expenses and a recovery in margins in our non-tubular businesses.

During the quarter, we had a build up of inventories of $216 million in anticipation of higher shipments in the forthcoming quarter and net cash flow used in operations amounted to $2 million. After capital expenditures of $143 million, our net cash position (cash, other current investments and fixed income investments held to maturity less total borrowings) declined to $974 million at the end of the quarter.

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 22, 2017, with an ex-dividend date on November 20, 2017 and record date on November 21, 2017.

Appointment to the Audit Committee

Our board of directors appointed Mr. Carlos Condorelli to the audit committee. Mr. Condorelli will contribute to the Committee his expertise and extensive experience in audit and accounting.

Market Background and Outlook

Drilling activity in the USA and Canada, which rose at a rapid pace in the first half of the year, has now stabilized as operators turn their attention to improving returns on capital amidst uncertainty about the recovery in oil and gas prices and the prospect of higher financing costs. In the rest of the world, recovery remains more elusive, though conditions in some markets, like the North Sea, are gradually improving and Middle East drilling activity remains stable. In Latin America, drilling activity in Argentina has started to recover driven by investments in the Vaca Muerta shale play, while, in Mexico, despite the positive results of the energy reform program, a significant recovery in activity remains distant.

We are currently starting up our Bay City rolling mill with the first pipe rolled on 18 October. This will reinforce our Rig Direct™ service program in North America with a shorter and more efficient supply chain, reducing lead times and inventory requirements.

In the fourth quarter and going into 2018, we expect our sales in the Americas to continue growing as we consolidate and expand our Rig Direct™ program in North America and activity in the Vaca Muerta shale play in Argentina increases. We also expect higher sales in the rest of the world, boosted by shipments for East Meditarrenean pipelines, higher shipments to Middle East customers and higher sales in Europe. EBITDA and operating income should also grow, with margins benefiting from higher plant utilization and containment of fixed costs.

Analysis of 2017 Third Quarter Results

             
Tubes Sales volume
(thousand metric tons)
  Q3 2017   Q2 2017   Q3 2016
Seamless   527   529   (0 %)   416   27 %
Welded   120   96   25 %   62   95 %
Total   647   624   4 %   477   36 %
                         
Tubes   Q3 2017     Q2 2017   Q3 2016
(Net sales - $ million)                              
North America   633     548     16 %   282     124 %
South America   256     227     13 %   225     14 %
Europe   117     132     (11 %)   126     (7 %)
Middle East & Africa   170     212     (20 %)   251     (32 %)
Asia Pacific   51     55     (7 %)   34     52 %
Total net sales ($ million)   1,228     1,175     5 %   917     34 %
Operating income (loss) ($ million)   66     46     43 %   (32 )   305 %
Operating margin (% of sales)   5.4 %   3.9 %         (3.5 %)      
                               

Net sales of tubular products and services increased 5% sequentially and 34% year on year, in line with the increase in shipment volumes. In North America, sales increased due to the seasonal recovery in Canada and better pricing and product mix in the United States. In South America sales increased due to an increase in activity at Vaca Muerta. In Europe sales declined reflecting seasonally lower sales of mechanical and line pipe products and lower sales of premium OCTG in Russia. In the Middle East and Africa sales reached a low point this quarter but are expected to recover strongly in the coming quarters led by shipments for East Mediterranean line pipe projects. In Asia Pacific we had lower sales of line pipe for complex projects.

Operating income from tubular products and services, amounted to $66 million in the third quarter of 2017, compared to $46 million in the previous quarter and a loss of $32 million in the third quarter of 2016. Sequentially, the increase in operating income is due to a reduction in selling, general and administrative expenses, mainly labor costs and services and fees.

             

Others
  Q3 2017   Q2 2017   Q3 2016
Net sales ($ million)   75     68     10 %   69     8 %
Operating income (loss)($ million)   13     6     136 %   (0 )      
Operating margin (% of sales)   17.8 %   8.3 %         (0.6 %)      
                               

Net sales of other products and services increased 10% sequentially and 8% year on year. The increase in sales and operating income is mostly related to our energy related businesses, sucker rods and coiled tubing.

Selling, general and administrative expenses, or SG&A, amounted to $305 million, or 23.4% of net sales in the third quarter of 2017, compared to $327 million, 26.3% in the previous quarter and $304 million, 30.9% in the third quarter of 2016. The sequential decline in SG&A expenses is mainly explained by lower labor costs and services and fees.

Other operating results, amounted to a loss of $1 million in the third quarter of 2017, compared with a gain of $2 million in the previous quarter and a gain of $17 million in the third quarter of 2016 when we recorded the sale of land not used in the production process of the Company.

Financial results amounted to a loss of $7 million in the third quarter of 2017, compared to a loss of $16 million in the previous quarter and a gain of $4 million in the third quarter of 2016. The loss of the quarter is mainly due to net foreign exchange transactions loss because of the Euro appreciation on Euro denominated intercompany-debt in subsidiaries with US dollar functional currency. These losses 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 $25 million in the third quarter of 2017, compared to $30 million in the previous quarter and $27 million in the third quarter of 2016. These results are mainly derived from our equity investment in Ternium (NYSE: TX) and Usiminas.

Results attributable to non-controlling interests amounted to a loss of $10 million in the third quarter of 2017, compared to a loss of $1 million in the previous quarter and a loss of $1 million in the third quarter of 2016. These results were mainly attributable to non-controlling interests at our Japanese subsidiary NKKTubes and at our subsidiaries in Ghana and Indonesia.

Cash Flow and Liquidity of 2017 Third Quarter

Net cash used by operating activities during the third quarter of 2017 was $2 million, compared to $33 million in the previous quarter and a cash generation of $254 million in the third quarter of last year. During the third quarter of 2017 we used $216 million for the increase in working capital related to the increase in shipments and production.

Capital expenditures amounted to $143 million for the third quarter of 2017, compared to $155 million in the previous quarter and $187 million in the third quarter of 2016. Capital expenditures mainly relates to the progress in the construction of the greenfield seamless facility in Bay City, Texas.

We maintained a net cash position (cash, other current investments and fixed income investments held to maturity less total borrowings) of $974 million at September 30, 2017.

Analysis of 2017 First Nine Months Results

             
    9M 2017   9M 2016   Increase/
(Decrease)
Net sales ($ million)   3,700     3,248     14 %
Operating income (loss) ($ million)   167     (65 )   357 %
Net income ($ million)   374     34     992 %
Shareholders' net income ($ million)   385     21     1,689 %
Earnings per ADS ($)   0.65     0.04     1,689 %
Earnings per share ($)   0.33     0.02     1,689 %
EBITDA ($ million)   624     426     47 %
EBITDA margin (% of net sales)   16.9 %   13.1 %      
                   
                   
Tubes Sales volume (thousand metric tons)   9M 2017   9M 2016   Increase/
(Decrease)
Seamless   1,564   1,177   33 %
Welded   290   288   1 %
Total   1,854   1,465   27 %
               
Tubes   9M 2017   9M 2016   Increase/
(Decrease)
(Net sales - $ million)                  
North America   1,654     929     78 %
South America   686     820     (16 %)
Europe   364     421     (13 %)
Middle East & Africa   631     765     (18 %)
Asia Pacific   152     98     56 %
Total net sales ($ million)   3,488     3,033     15 %
Operating income (loss) ($ million)   142     (76 )   286 %
Operating income (% of sales)   4.1 %   (2.5 %)      
                   

Net sales of tubular products and services increased 15% to $3,488 million in the first nine months of 2017, compared to $3,033 million in the first nine months of 2016, reflecting a 27% increase in volumes and a 9% decrease in average selling prices.

Operating income from tubular products and services amounted $142 million in the first nine months of 2017 compared to a loss of $76 million in the first nine months of 2016. Results improved following a 27% increase in shipment volumes, increasing sales and the utilization of production capacity and therefore the absorption of fixed costs. Additionally, severance charges were lower as market conditions improved.

             
Others   9M 2017   9M 2016   Increase/
(Decrease)
Net sales ($ million)   212     215     (2 %)
Operating income ($ million)   24     11     115 %
Operating margin (% of sales)   11.5 %   5.3 %      
                   

Net sales of other products and services decreased 2% to $212 million in the first nine months of 2017, compared to $215 million in the first nine months of 2016, while operating income increased 115% reflecting higher margins.

SG&A amounted to $926 million, or 25.0% of net sales during the first nine months of 2017, compared to $916 million, or 28.2% in the same period of 2016. Despite a 1% increase in SG&A expenses, SG&A as a percentage of sales declined following a 14% increase in sales.

Financial results were a loss of $27 million in the first nine months of 2017 compared to a loss of $1 million in the same period of 2016. The loss in the first nine months of 2017 is mainly due to the Euro appreciation on Euro denominated intercompany-debt in subsidiaries with US dollar functional currency. These losses 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 $90 million in the first nine months of 2017, compared to a gain of $57 million in the first nine months of 2016. These results are mainly derived from our equity investment in Ternium (NYSE: TX) and Usiminas.

Income tax amounted to a gain of $53 million in the first nine months of 2017, compared to a gain of $10 million in the first nine months of 2016, this result reflects primarily the effect of the Mexican peso revaluation on the tax base used to calculate deferred taxes at our Mexican subsidiaries which have the U.S. dollar as their functional currency.

Results attributable to non-controlling interests amounted to a loss of $10 million in the first nine months of 2017, compared to a gain of $13 million in the first nine months of 2016. These negative results were mainly attributable to non-controlling interests at our Japanese subsidiary NKKTubes and at our subsidiaries in Ghana and Indonesia while positive results recorded during the first nine months of 2016 were mainly attributable to our pipe coating subsidiary in Nigeria.

Cash Flow and Liquidity of 2017 First Nine Months

During the first nine months of 2017, net cash used in operations was $9 million, compared to $942 million provided by operations in the same period of 2016. Working capital increased by $581 million in the first nine months of 2017, while it decreased by $559 million in the first nine months of 2016.

Capital expenditures amounted to $437 million in the first nine months of 2017, compared with $629 million in the same period of 2016. These investments are to a great extent related to the construction of the new greenfield seamless mill in Bay City, Texas.

We maintained a net cash position (cash, other current investments and fixed income investments held to maturity less total borrowings) of $974 million at September 30, 2017.

Conference call

Tenaris will hold a conference call to discuss the above reported results, on November 2, 2017, 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 +1 877 730 0732 within North America or +1 530 379 4676 Internationally. The access number is "5088749". 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 November 2nd, through 11.59 pm on November 10th, 2017. To access the replay by phone, please dial +1 855 859 2056 or +1 404 537 3406 and enter passcode "5088749" 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,
    2017   2016   2017   2016
Continuing operations   Unaudited   Unaudited
Net sales   1,302,924     986,525     3,699,588     3,247,792  
Cost of sales   (918,338 )   (731,450 )   (2,607,923 )   (2,408,135 )
Gross profit   384,586     255,075     1,091,665     839,657  
Selling, general and administrative expenses   (304,723 )   (304,469 )   (926,286 )   (916,477 )
Other operating income (expense), net   (808 )   16,717     1,180     11,943  
Operating income (loss)   79,055     (32,677 )   166,559     (64,877 )
Finance Income   11,776     14,226     35,762     58,333  
Finance Cost   (6,501 )   (6,913 )   (18,459 )   (16,031 )
Other financial results   (12,549 )   (3,427 )   (44,631 )   (43,355 )
Income (loss) before equity in earnings of non-consolidated companies and income tax   71,781     (28,791 )   139,231     (65,930 )
Equity in earnings of non-consolidated companies   24,752     26,586     90,153     56,925  
Income (loss) before income tax   96,533     (2,205 )   229,384     (9,005 )
Income tax   (1,307 )   5,732     53,295     9,707  
Income for continuing operations   95,226     3,527     282,679     702  
                         
Discontinued operations                        
Result for discontinued operations   -     11,961     91,542     33,559  
Income for the period   95,226     15,488     374,221     34,261  
                         
Attributable to:                        
Owners of the parent   104,854     16,603     384,505     21,498  
Non-controlling interests   (9,628 )   (1,115 )   (10,284 )   12,763  
    95,226     15,488     374,221     34,261  
                         
                         
Consolidated Condensed Interim Statement of Financial Position
 
(all amounts in thousands of U.S. dollars)   At September 30, 2017   At December 31, 2016
    Unaudited    
ASSETS                
Non-current assets                
  Property, plant and equipment, net   6,192,271       6,001,939    
  Intangible assets, net   1,729,391       1,862,827    
  Investments in non-consolidated companies   625,105       557,031    
  Available for sale assets   21,572       21,572    
  Other investments   227,927       249,719    
  Deferred tax assets   152,059       144,613    
  Receivables, net   187,571   9,135,896   197,003   9,034,704
Current assets                
  Inventories, net   2,204,815       1,563,889    
  Receivables and prepayments, net   182,292       124,715    
  Current tax assets   188,287       140,986    
  Trade receivables, net   1,066,522       954,685    
  Other investments   1,146,153       1,633,142    
  Cash and cash equivalents   436,359   5,224,428   399,737   4,817,154
  Assets of disposal group classified as held for sale       -       151,417
Total assets       14,360,324       14,003,275
EQUITY                
Capital and reserves attributable to owners of the parent       11,495,733       11,287,417
Non-controlling interests       96,710       125,655
Total equity       11,592,443       11,413,072
LIABILITIES                
Non-current liabilities                
  Borrowings   34,977       31,542    
  Deferred tax liabilities   507,612       550,657    
  Other liabilities   222,315       213,617    
  Provisions   38,072   802,976   63,257   859,073
Current liabilities                
  Borrowings   796,556       808,694    
  Current tax liabilities   106,529       101,197    
  Other liabilities   228,221       183,887    
  Provisions   25,973       22,756    
  Customer advances   85,818       39,668    
  Trade payables   721,808   1,964,905   556,834   1,713,036
  Liabilities of disposal group classified as held for sale       -       18,094
Total liabilities       2,767,881       2,590,203
Total equity and liabilities       14,360,324       14,003,275
                 
                 
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)   2017   2016   2017   2016
Cash flows from operating activities   Unaudited   Unaudited
                         
Income for the period   95,226     15,488     374,221     34,261  
Adjustments for:                        
Depreciation and amortization   146,293     167,520     457,359     494,638  
Income tax accruals less payments   (30,804 )   (47,047 )   (160,622 )   (115,778 )
Equity in earnings of non-consolidated companies   (24,752 )   (26,586 )   (90,153 )   (56,925 )
Interest accruals less payments, net   2,683     59     7,572     (12,848 )
Changes in provisions   (2,048 )   5,676     (21,968 )   13,847  
Income from the sale of Conduit business   -     -     (89,694 )   -  
Changes in working capital   (215,926 )   148,955     (581,148 )   559,187  
Currency translation adjustment and Others   26,898     (10,554 )   95,306     26,004  
Net cash (used in) provided by operating activities   (2,430 )   253,511     (9,127 )   942,386  
                         
Cash flows from investing activities                        
Capital expenditures   (143,356 )   (187,376 )   (437,162 )   (628,799 )
Changes in advance to suppliers of property, plant and equipment   1,880     7,622     6,209     41,974  
Proceeds from disposal of Conduit business   -     -     327,631     -  
Investment in non-consolidated companies   -     -     -     (17,108 )
Loan to non-consolidated companies   1,950     (11,550 )   (7,056 )   (35,398 )
Acquisition of subsidiaries   (10,418 )   -     (10,418 )   -  
Investment in companies under cost method   -     -     (3,681 )   -  
Proceeds from disposal of property, plant and equipment and intangible assets   1,520     18,253     4,398     22,232  
Dividends received from non-consolidated companies   -     -     22,971     20,674  
Changes in investments in securities   341,975     93,841     512,046     419,523  
Net cash provided by (used in) investing activities   193,551     (79,210 )   414,938     (176,902 )
                         
Cash flows from financing activities                        
Dividends paid   -     -     (330,550 )   (354,161 )
Dividends paid to non-controlling interest in subsidiaries   -     (24,000 )   (19,200 )   (28,311 )
Acquisitions of non-controlling interests   (3 )   (309 )   (34 )   (786 )
Proceeds from borrowings   341,747     295,029     862,118     770,971  
Repayments of borrowings   (370,184 )   (368,324 )   (888,670 )   (976,228 )
Net cash (used in) financing activities   (28,440 )   (97,604 )   (376,336 )   (588,515 )
                         
Increase in cash and cash equivalents   162,681     76,697     29,475     176,969  
Movement in cash and cash equivalents                        
At the beginning of the period   270,837     392,643     398,580     286,198  
Effect of exchange rate changes   1,260     (1,217 )   6,722     4,956  
Increase in cash and cash equivalents   162,681     76,697     29,475     176,969  
At September 30,   434,778     468,123     434,777     468,123  
                         
                         

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
September 30,
  Nine-month period ended
September 30,
    2017   2016   2017   2016
Operating income   79,055   (32,677 )   166,559   (64,877 )
Depreciation and amortization   146,293   167,520     457,359   494,638  
Depreciation and amortization from discontinued operations   -   (1,353 )   -   (4,081 )
EBITDA   225,348   133,490     623,918   425,680  
                     

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 September 30,
    2017   2016
Cash and cash equivalents   436,359     468,613  
Other current investments   1,146,153     1,830,590  
Fixed income investments held to maturity   222,992     283,833  
Borrowings - current and non-current   (831,533 )   (745,959 )
Net cash / (debt)   973,971     1,837,077  

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