April 26, 2018 at 4:47 PM EDT

Tenaris Announces 2018 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 ("IFRS") as issued by the International Accounting Standard Board ("IASB") and in conformity with IFRS as adopted by the European Union ("EU"). 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, April 26, 2018 (GLOBE NEWSWIRE) -- Tenaris S.A. (NYSE:TS) (BAE:TS) (BMV:TS) (MILAN:TEN) ("Tenaris") today announced its results for the quarter ended March 31, 2018 in comparison with its results for the quarter ended March 31, 2017.

Summary of 2018 First Quarter Results

(Comparison with fourth and first quarter of 2017)

 1Q 20184Q 20171Q 2017
Net sales ($ million)1,866 1,589 17%1,154 62%
Operating income ($ million)212 168 26%36 489%
Net income ($ million)235 162 45%206 14%
Shareholders' net income ($ million)235 160 47%205 15%
Earnings per ADS ($)0.40 0.27 47%0.35 15%
Earnings per share ($)0.20 0.14 47%0.17 15%
EBITDA ($ million)354 319 11%  198 79%
EBITDA margin (% of net sales) 19.0%20.1% 17.2% 

In the first quarter of 2018, sales, which rose 17% quarter on quarter and 62% year on year, were boosted by an exceptional level of shipments for East Mediterranean pipelines and a high level of sales during the peak Canadian drilling season. Earnings per share, operating income and EBITDA continue to recover and benefit from higher absorption of fixed costs although the EBITDA margin was affected by higher raw material costs and lower margins on the East Mediterranean shipments. 

During the quarter, we had a further increase of working capital of $364 million, reflecting an increase in receivables associated with a high level of sales towards the end of the quarter. Net cash flow used in operations amounted to $30 million. After capital expenditures of $92 million, our net cash position declined to $557 million at the end of the quarter.

Market Background and Outlook

In the year to date, shale drilling activity in the USA has grown steadily while, in Canada, growth is being affected by takeaway capacity constraints and wider commodity price spreads. In the rest of the world, higher oil prices are leading to a gradual recovery in onshore drilling activity. In Latin America, despite promising results from the reform programs in Brazil and Mexico and further interest in the Vaca Muerta shale play in Argentina, drilling activity has been slow to pick up outside Colombia and the new deepwater play in Guyana.

The full extent of US Section 232 tariffs on steel imports is still unclear but as far as imports of steel pipes are reduced by quotas or the application of the 25% tariff, Tenaris expects to be well placed to increase production at its US domestic facilities.

In the coming quarters, we expect shipments to be lower than the first quarter but sales and margins should benefit from price increases that compensate recent increases in raw material costs. EBITDA and operating income should continue to show growth through the year.

Analysis of 2018 First Quarter Results

Tubes Sales volume (thousand metric tons)1Q 20184Q 20171Q 2017
Seamless  651  59310%  50928%
Welded  285  17167%  74283%
Total  936   764 23%  583 61%


Tubes1Q 20184Q 20171Q 2017
(Net sales - $ million)     
North America807 707 14%477 69%
South America 285 296 (4%)203 40%
Europe153 133 15%130 17%
Middle East & Africa456 290 57%230 98%
Asia Pacific66 51 29% 46 45%
Total net sales ($ million)1,766 1,478 20%1,085 63%
Operating income ($ million)194 150 29%31 524%
Operating margin (% of sales)11.0%10.1% 2.8% 

Net sales of tubular products and services increased 20% sequentially and 63% year on year. In North America sales increased 14% sequentially, reflecting high sales in Canada in the peak drilling season and higher sales in the United States onshore. In South America sales declined 4% sequentially, as slightly higher sales of OCTG in Argentina were offset by lower sales elsewhere. In Europe sales increased 15% thanks to an increase in demand for mechanical pipe and line pipe for power generation and hydrocarbon processing industry. In the Middle East and Africa sales increased 57%, boosted by an exceptional level of shipments of line pipe products for the Zohr project in the East Mediterranean and stable sales elsewhere. In Asia Pacific sales increased 29% thanks to higher shipments throughout the region and particularly in Thailand.

Operating income from tubular products and services amounted to $194 million in the first quarter of 2018, compared to $150 million in the previous quarter and $31 million in the first quarter of 2017. The sequential increase is a result of an improvement in the margin on higher sales. While during the quarter average selling prices declined 2% (reflecting a mix of products with higher participation of welded line pipe products) and costs of sales remained stable (higher direct cost of sales offset by a positive volume effect on fixed costs), the operating margin improved following the reduction of selling, general and administrative expenses as a percentage of sales.

Others1Q 20184Q 20171Q 2017
Net sales ($ million)100 111 (10%)68 46%
Operating income ($ million)19 18 2%  5 246%
Operating income (% of sales)18.7%16.5% 7.9% 

Net sales of other products and services decreased 10% sequentially but increased 46% year on year. The sequential decrease in sales is mainly related to lower sales of sucker rods.

Selling, general and administrative expenses, or SG&A, amounted to $350 million, or 18.7% of net sales, in the first quarter of 2018, compared to $344 million, 21.6% in the previous quarter and $294 million, 25.5% in the first quarter of 2017. 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 and doubtful accounts and the termination of the amortization of intangible assets of our Canadian subsidiary for $13 million.

Financial results amounted to a loss of $8 million in the first quarter of 2018, compared to a gain of $4 million in the previous quarter and a loss of $4 million in the first quarter of 2017. The loss of the quarter is mainly explained by lower interest results on a lower net cash position and a foreign exchange loss, net of derivatives results, of $7 million, mainly related to the negative impact from Euro appreciation against the U.S. dollar on Euro denominated intercompany liabilities in subsidiaries with functional currency U.S. dollar. The net foreign exchange loss is to a large extent offset in equity, in the currency translation adjustment reserve.

Equity in earnings of non-consolidated companies generated a gain of $46 million in the first quarter of 2018, compared to a gain of $26 million in the previous quarter and a gain of $35 million in the first quarter of 2017. These results are mainly derived from our equity investment in Ternium  (NYSE:TX) and Usiminas (BSP:USIM).

Income tax charge amounted to $15 million in the first quarter of 2018, positively affected by currency movements on the tax base used to calculate deferred taxes at our subsidiaries which have the U.S. dollar as their functional currency for $20 million. This compares to an income tax charge of $36 million in the previous quarter and an income tax gain of $47 million in the first quarter of last year positively affected by 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.

Cash Flow and Liquidity

Net cash used in operations during the first quarter of 2018 was $30 million as we had a further increase of working capital of $364 million, reflecting an increase in receivables associated with a high level of sales towards the end of the quarter, compared to a cash generation of $26 million in the first quarter of 2017 and $13 million used in the previous quarter.

Capital expenditures amounted to $92 million for the first quarter of 2018, compared to $121 million in the previous quarter and $139 million in the first quarter of 2017.

At the end of the quarter, our net cash position amounted to $557 million, compared to $680 million at the beginning of the year.

Conference call

Tenaris will hold a conference call to discuss the above reported results, on April 27, 2018, at 08:00 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 "4878327". 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 April 27th, through 10.59 pm on May 6th, 2018. To access the replay by phone, please dial 855 859 2056 or 404 537 3406 and enter passcode "4878327" 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,
 2018 2017 
Continuing operationsUnaudited
Net sales1,866,235 1,153,860 
Cost of sales(1,305,506)(823,856)
Gross profit560,729 330,004 
Selling, general and administrative expenses(349,634)(294,431)
Other operating income (expense), net1,102 441 
Operating income212,197 36,014  
Finance Income9,373 12,927 
Finance Cost(10,174)(5,938)
Other financial results(7,066)(11,415)
Income before equity in earnings of non-consolidated companies and income tax204,330 31,588 
Equity in earnings of non-consolidated companies46,026 35,200 
Income before income tax250,356 66,788 
Income tax(15,122)47,245 
Income for continuing operations235,234 114,033 
   
Discontinued operations  
Result for discontinued operations -  91,542 
Income for the period235,234  205,575 
   
Attributable to:  
Owners of the parent234,983 205,127 
Non-controlling interests251 448 
 235,234 205,575 
 

Consolidated Condensed Interim Statement of Financial Position

(all amounts in thousands of U.S. dollars)At March 31, 2018 At December 31, 2017
 Unaudited  
ASSETS     
Non-current assets     
  Property, plant and equipment, net6,218,278  6,229,143 
  Intangible assets, net1,635,785  1,660,859 
  Investments in non-consolidated companies681,323  640,294 
  Available for sale assets21,572  21,572 
  Other investments239,600  128,335 
  Deferred tax assets169,926   153,532 
  Receivables, net173,4469,139,930 183,3299,017,064
Current assets     
  Inventories, net2,384,411  2,368,304 
  Receivables and prepayments, net177,050  143,929 
  Current tax assets139,506  132,334 
  Trade receivables, net1,554,949  1,214,060 
  Other investments999,576  1,192,306 
  Cash and cash equivalents328,6755,584,167 330,2215,381,154
Total assets 14,724,097   14,398,218
EQUITY       
Capital and reserves attributable to owners of the parent 11,750,621  11,482,185
Non-controlling interests 99,191  98,785
Total equity 11,849,812  11,580,970
LIABILITIES     
Non-current liabilities     
  Borrowings34,948  34,645 
  Deferred tax liabilities413,135  457,970 
  Other liabilities220,085  217,296 
  Provisions39,031707,199 36,438746,349
Current liabilities     
  Borrowings970,647  931,214 
  Current tax liabilities108,847  102,405 
  Other liabilities208,645  197,504 
  Provisions31,264  32,330 
  Customer advances37,424  56,707 
  Trade payables810,2592,167,086 750,7392,070,899
Total liabilities 2,874,285  2,817,248
Total equity and liabilities 14,724,097  14,398,218
 

Consolidated Condensed Interim Statement of Cash Flows

  Three-month period ended March 31,
(all amounts in thousands of U.S. dollars) 2018 2017 
Cash flows from operating activities Unaudited
    
Income for the period 235,234 205,575 
Adjustments for:    
Depreciation and amortization 141,802 162,218  
Income tax accruals less payments (24,816)(92,930)
Equity in earnings of non-consolidated companies (46,026)(35,200)
Interest accruals less payments, net 620 (2,460)
Changes in provisions 1,527 (17,838)
Income from the sale of Conduit business  -  (89,694)
Changes in working capital (363,552)(104,937)
Currency translation adjustment and others 25,644 1,400 
Net cash (used in) provided by operating activities (29,567)26,134 
    
Cash flows from investing activities   
Capital expenditures (91,938)(138,615 )
Changes in advance to suppliers of property, plant and equipment (414)3,503 
Proceeds from disposal of Conduit business  -  327,631 
Loan to non-consolidated companies (250)(9,006)
Proceeds from disposal of property, plant and equipment and intangible assets 1,484 1,962 
Changes in investments in securities 84,616 (48,469)
Net cash (used in) provided by investing activities (6,502)137,006 
    
Cash flows from financing activities   
Acquisitions of non-controlling interests  -  (18)
Proceeds from borrowings 277,711 247,122 
Repayments of borrowings (248,041)(385,609)
Net cash provided by (used in) financing activities 29,670 (138,505)
    
(Decrease) increase in cash and cash equivalents (6,399)24,635  
Movement in cash and cash equivalents   
At the beginning of the period 330,090 398,580 
Effect of exchange rate changes 1,050 3,526 
(Decrease) increase in cash and cash equivalents (6,399)24,635 
At March 31, 324,741 426,741 
    

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,
  20182017
Operating income212,19736,014
Depreciation and amortization141,802162,218
EBITDA353,999198,232

Net Cash / (Debt)

This is the net balance of cash and cash equivalents, other current investments and non-current investments 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)+ Non Current Investments - Borrowings (Current and Non-current).

(all amounts in thousands of U.S. dollars) At March 31,
 2018 2017 
Cash and bank deposits328,675 427,619 
Other current investments999,576 1,613,665 
Non Current Investments234,739 316,003 
Borrowings(1,005,595)(708,231)
Net cash / (debt)557,395 1,649,056 

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.

(all amounts in thousands of U.S. dollars)Three-month period ended March 31,
 2018 2017 
Net cash (used in) provided by operating activities(29,567)26,134 
Capital expenditures(91,938)(138,615)
Free cash flow(121,505)(112,481)
 

Giovanni Sardagna     
Tenaris
1-888-300-5432
www.tenaris.com 

Source: Tenaris S.A.

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