Tenaris Announces 2017 Third Quarter Results

LUXEMBOURG -- (Marketwired) -- 11/01/17 -- 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(TM) 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(TM) 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 $974 million at September 30, 2017. Analysis of 2017 First Nine Months Results Increase/ 9M 2017 9M 2016 (Decrease) ---------- ---------- ---------- Net sales ($ 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% Increase/ Tubes Sales volume (thousand metric tons) 9M 2017 9M 2016 (Decrease) ---------- ---------- ---------- Seamless 1,564 1,177 33% Welded 290 288 1% Total 1,854 1,465 27% Increase/ Tubes 9M 2017 9M 2016 (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 $76 million in the first nine months of 2016. Results improved following a 27% increase in shipment volumes, increasing sales and the utilization of production capacity and therefore the absorption of fixed costs. Additionally, severance charges were lower as market conditions improved. Increase/ Others 9M 2017 9M 2016 (Decrease) ---------- ---------- ---------- Net sales ($ 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 Three-month period (all amounts in thousands of ended Nine-month period ended U.S. dollars) September 30, 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 Nine-month period ended ended September 30, 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). Three-month period Nine-month period (all amounts in thousands of U.S. ended ended dollars) September 30, 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