October 31, 2018 at 5:08 PM EDT

Tenaris Announces 2018 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, Oct. 31, 2018 (GLOBE NEWSWIRE) -- Tenaris S.A. (NYSE, Buenos Aires and Mexico: TS and MTA Italy: TEN) (“Tenaris”) today announced its results for the quarter and nine months ended September 30, 2018 with comparison to its results for the quarter and nine months ended September 30, 2017.

Summary of 2018 Third Quarter Results

(Comparison with second quarter of 2018 and third quarter of 2017)

  3Q 2018 2Q 2018 3Q 2017
Net sales ($ million) 1,899 1,788 6% 1,303 46%
Operating income ($ million) 258 222 16% 79 227%
Net income ($ million) 247 166 48% 95 160%
Shareholders’ net income ($ million) 247 168 47% 105 135%
Earnings per ADS ($) 0.42 0.29 47% 0.18 135%
Earnings per share ($) 0.21 0.14 47% 0.09 135%
EBITDA ($ million) 394 363 8% 225 75%
EBITDA margin (% of net sales) 20.7% 20.3%   17.3%  
           

In the third quarter of 2018, sales rose reflecting an increase in average selling prices, particularly in North America where prices have risen to compensate higher costs including tariffs, and higher sales of line pipe for complex projects, including shipments for the second Zohr offshore welded pipeline in Egypt.  Operating income rose 16% sequentially on better absorption of fixed costs, while net income rose 48% sequentially boosted by lower deferred tax charges relating to the revaluation of the Mexican currency and higher equity in earnings from non-controlled companies. 

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 21, 2018 , with an ex-dividend date on November 19, 2018 and record date on November 20, 2018.

Market Background and Outlook

After increasing through the first half of the year, growth in drilling activity in North America paused during the third quarter reflecting constraints on pipeline takeaway capacity in the Permian and Canada and widening oil price differentials. In Latin America, drilling activity has also increased during the year, particularly in Colombia and the new Guyana offshore play, and is slowly picking up in Mexico and the Vaca Muerta shale play in Argentina. In the rest of the world, a gradual recovery in drilling activity is taking hold in many regions but offshore drilling activity remains subdued.

In the fourth quarter, we expect to finish the year strongly with a high level of shipments to the Zohr project and a seasonal increase in sales in Canada, with margins in line with the current level. In the first quarter of 2019, sales should remain in line with those of the fourth quarter with margins similar to the current level, while, for the rest of the year, our results will be influenced by the implementation of USMCA and the application of Section 232 tariffs within the agreement.

Analysis of 2018 Third Quarter Results

Tubes Sales volume (thousand metric tons) 3Q 2018 2Q 2018 3Q 2017
Seamless   654   689 (5%)     527                           24%  
Welded   199   146 37%     120                           66%  
Total    853    834 2%      647                           32%  

 

Tubes 3Q 2018 2Q 2018 3Q 2017
(Net sales - $ million)          
North America 887   827   7%   633                           40%  
South America 334   310   8%   256                           30%  
Europe 148   179   (17%)   117                           26%  
Middle East & Africa 350   299   17%   170                           106%  
Asia Pacific 77   71   9%   51                           51%  
Total net sales ($ million) 1,797   1,686   7%   1,228                           46%  
Operating income ($ million) 233   197   18%   66                           253%  
Operating margin (% of sales) 13.0%   11.7%     5.4%                            
                                         

Net sales of tubular products and services increased 7% sequentially and 46% year on year. The sequential increase reflects a 2% increase in volumes and a 4% increase in average selling prices, particularly in North America. In North America, in addition to the increase in realized prices we had higher sales in Canada reflecting seasonal effects. In South America sales increased due to an increase in activity in Colombia and Argentina. In Europe sales declined reflecting seasonally lower sales of mechanical and line pipe products and lower sales of premium OCTG in the North Sea and Russia. In the Middle East and Africa sales increased reflecting higher sales of OCTG in Saudi Arabia and the start of shipments to Zohr’s second pipeline. In Asia Pacific we had higher sales in China and Australia.

Operating income from tubular products and services, amounted to $233 million in the third quarter of 2018, compared to $197 million in the previous quarter and $66 million in the third quarter of 2017. Sequentially, the increase in operating income is due to an improvement in gross profit, as higher sales prices and volumes, more than offset an increase in raw material costs, and the cost of import tariffs in the United States. Additionally, SG&A, declined slightly.

Others 3Q 2018 2Q 2018 3Q 2017
Net sales ($ million) 102   103   (1%)   75                         36%  
Operating income ($ million) 26   25   2%     13                         93%  
Operating income (% of sales) 25.2%    24.5%     17.8%                          

Net sales of other products and services declined 1% sequentially but increased 36% year on year. Despite the decline in sales, operating income increased 2% sequentially due to an increase in results at our sucker rods business.

Selling, general and administrative expenses, or SG&A, amounted to $336 million, or 17.7% of net sales in the third quarter of 2018, compared to $338 million, 18.9% in the previous quarter and $305 million, 23.4% in the third quarter of 2017. Sequentially, an increase in selling expenses, due to higher sales, was offset by lower labor and service costs and therefore SG&A declined 1.2 percentage points of sales.

Financial results amounted to a gain of $13 million in the third quarter of 2018, compared to a gain of $39 million in the previous quarter and a loss of $7 million in the third quarter of 2017. The gain of the quarter corresponds mainly to an FX gain of $11 million related to the Argentine peso devaluation on Peso denominated financial, trade, social and fiscal payables at Argentine subsidiaries which functional currency is the U.S. dollar.

Equity in earnings of non-consolidated companies generated a gain of $56 million in the third quarter of 2018, compared to $41 million in the previous quarter and $25 million in the third quarter of 2017. These results are mainly derived from our equity investment in Ternium (NYSE:TX) and Usiminas.

Income tax charge amounted to $80 million in the third quarter of 2018, compared to $135 million in the previous quarter and $1 million in the third quarter of 2017. Sequentially, the main reason for the lower income tax is the impact of FX movements on the tax base at our Mexican subsidiaries; during the third quarter of 2018 an appreciation of the Mexican peso reduced our deferred income tax by $21 million, while in the previous quarter a devaluation of the Mexican peso increased our deferred tax by $31 million.

Cash Flow and Liquidity of 2018 Third Quarter

Net cash provided by operating activities during the third quarter of 2018 was $50 million, compared to $351 million in the previous quarter and a use of $2 million in the third quarter of last year. During the third quarter of 2018 we used $301 million for the increase in working capital following higher inventories primarly from production anticipation for the Zohr project and the Canadian winter season to be shipped during the fourth quarter as well as higher raw material costs and the impact of Section 232 duties, while recivables were affected by higher sales and some payment delays by some customers.

Capital expenditures continued to decline reaching  $78 million for the third quarter of 2018, compared to $104 million in the previous quarter and $143 million in the third quarter of 2017.

Our net cash position slightly declined to $408 million at September 30, 2018.

 

Analysis of 2018 First Nine Months Results

  9M 2018 9M 2017 Increase/(Decrease)
Net sales ($ million) 5,554 3,700 50 %
Operating income (loss) ($ million) 693 167 316 %
Net income ($ million) 649 374 73 %
Shareholders’ net income ($ million) 650 385 69 %
Earnings per ADS ($) 1.10 0.65 69 %
Earnings per share ($) 0.55 0.33 69 %
EBITDA ($ million) 1,110 624 78 %
EBITDA margin (% of net sales) 20.0% 16.9%  

 

Tubes Sales volume (thousand metric tons) 9M 2018 9M 2017 Increase/(Decrease)
Seamless   1,994   1,564 27 %
Welded   630   290 117 %
Total    2,624    1,854 42 %

 

Tubes 9M 2018 9M 2017 Increase/(Decrease)
(Net sales - $ million)      
North America 2,521   1,654   52 %
South America 929   686   35 %
Europe 480   364   32 %
Middle East & Africa 1,105   631   75 %
Asia Pacific 215   152   41 %
Total net sales ($ million) 5,249   3,488   50 %
Operating income ($ million) 623   142   339 %
Operating income (% of sales) 11.9%   4.1%    
           

Net sales of tubular products and services increased 50% to $5,249 million in the first nine months of 2018, compared to $3,488 million in the first nine months of 2017, reflecting a 42% increase in volumes and a 6% increase in average selling prices.

Operating income from tubular products and services amounted to $623 million in the first nine months of 2018 compared to $142 million in the first nine months of 2017. Results improved following a 42% increase in shipment volumes, higher sales and utilization of production capacity that translated into better absorption of fixed costs, including a decline in SG&A expenses as a percentage of sales.

Others 9M 2018 9M 2017 Increase/(Decrease)
Net sales ($ million) 305   212   44 %
Operating income ($ million) 70   24   186 %
Operating margin (% of sales) 22.8%   11.5%    
           

Net sales of other products and services increased 44% to $305 million in the first nine months of 2018, compared to $212 million in the first nine months of 2017, reflecting increased sales in our Sucker Rods and Coiled Tubing businesses,while operating income increased 186% reflecting higher margins.

SG&A amounted to $1,023 million, or 18.4% of net sales during the first nine months of 2018, compared to $926 million, or 25.0% in the same period of 2017. Despite a 10% increase in SG&A expenses, SG&A as a percentage of sales declined 660 basis points following a 50% increase in sales.

Financial results amounted to a gain of $44 million in the first nine months of 2018 compared to a loss of $27 million in the same period of 2017. The gain in the first nine months of 2018 corresponds mainly to an FX gain of $41 million; $31 million related to the Argentine peso devaluation on Peso denominated financial, trade, social and fiscal payables at Argentine subsidiaries which functional currency is the U.S. dollar, $14 million related to the Euro depreciation on Euro denominated intercompany liabilities (offset in the currency translation reserve in equity), partially offset by a loss of $4 million due to the devaluation of the Canadian dollar.

Equity in earnings of non-consolidated companies generated a gain of $143 million in the first nine months of 2018, compared to a gain of $90 million in the first nine months of 2017. These results are mainly derived from our equity investment in Ternium (NYSE:TX) and Usiminas.

Income tax amounted to a charge of $231 million in the first nine months of 2018, compared to a gain of $53 million in the first nine months of 2017. The increase in income tax charges reflects both the improvement in results and the effect of the Argentine and Mexican peso devaluation on the tax base at our Argentine and Mexican subsidiaries which have the U.S. dollar as their functional currency.

Cash Flow and Liquidity of 2018 First Nine Months

During the first nine months of 2018, net cash provided by operations was $372 million, compared to cash used of $9 million in the same period of 2017. Working capital increased by $659 million in the first nine months of 2018 and by $532 million in the first nine months of 2017.

Capital expenditures amounted to $274 million in the first nine months of 2018, compared with $437 million in the same period of 2017. The decline in investments is related with the conclusion of works at our new greenfield seamless mill in Bay City, Texas.

We maintained a net cash position of $408 million at September 30, 2018.

Conference call

Tenaris will hold a conference call to discuss the above reported results, on November 1, 2018, 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 “4796176”. 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 1 through 11:59 pm on November 9, 2018. To access the replay by phone, please dial 855 859 2056 or 404 537 3406 and enter passcode “4796176” 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,
  2018   2017   2018   2017  
Continuing operations Unaudited Unaudited
Net sales 1,898,892   1,302,924   5,553,611   3,699,588  
Cost of sales (1,305,232)   (918,338)   (3,837,295)   (2,607,923)  
Gross profit 593,660   384,586   1,716,316   1,091,665  
Selling, general and administrative expenses (335,714)   (304,723)   (1,022,922)   (926,286)  
Other operating income (expense), net 551   (808)   (264)   1,180  
Operating income 258,497   79,055   693,130   166,559  
Finance Income 10,804   11,776   29,786   35,762  
Finance Cost (8,586)   (6,501)   (29,182)   (18,459)  
Other financial results 10,839   (12,549)   43,156   (44,631)  
Income before equity in earnings of non-consolidated companies and income tax 271,554   71,781   736,890   139,231  
Equity in earnings of non-consolidated companies 55,930   24,752   142,876   90,153  
Income before income tax 327,484   96,533   879,766   229,384  
Income tax (80,355)   (1,307)   (230,931)   53,295  
Income for continuing operations 247,129   95,226   648,835   282,679  
         
Discontinued operations        
Result for discontinued operations  -     -     -    91,542  
Income for the period 247,129   95,226   648,835   374,221  
         
Attributable to:        
Owners of the parent 246,927   104,854   650,238   384,505  
Non-controlling interests 202   (9,628)   (1,403)   (10,284)  
  247,129   95,226   648,835   374,221  


 

 

Consolidated Condensed Interim Statement of Financial Position

(all amounts in thousands of U.S. dollars) At September 30, 2018   At December 31, 2017
  Unaudited    
ASSETS          
Non-current assets          
  Property, plant and equipment, net 6,092,025     6,229,143  
  Intangible assets, net 1,590,979     1,660,859  
  Investments in non-consolidated companies 743,748     640,294  
  Other equity investments 21,572     21,572  
  Other investments 180,620     128,335  
  Deferred tax assets 190,224     153,532  
  Receivables, net 130,049 8,949,217   183,329 9,017,064
Current assets          
  Inventories, net 2,664,573     2,368,304  
  Receivables and prepayments, net 163,606     135,698  
  Current tax assets 143,484     132,334  
  Trade receivables, net 1,659,023     1,214,060  
  Derivative financial instruments 10,088     8,231  
  Other investments 794,330     1,192,306  
  Cash and cash equivalents 236,303 5,671,407   330,221 5,381,154
Total assets   14,620,624     14,398,218
EQUITY           
  Capital and reserves attributable to owners of the parent   11,691,657     11,482,185
  Non-controlling interests   95,340     98,785
Total equity   11,786,997     11,580,970
LIABILITIES          
Non-current liabilities          
  Borrowings 31,553     34,645  
  Deferred tax liabilities 474,135     457,970  
  Other liabilities 215,586     217,296  
  Provisions 37,125 758,399   36,438 746,349
Current liabilities          
  Borrowings 702,577     931,214  
  Derivative financial instruments 76,294     39,799  
  Current tax liabilities 210,695     102,405  
  Other liabilities 241,521     157,705  
  Provisions 20,828     32,330  
  Customer advances 60,577     56,707  
  Trade payables 762,736 2,075,228   750,739 2,070,899
Total liabilities   2,833,627     2,817,248
Total equity and liabilities   14,620,624     14,398,218


 

 

Consolidated Condensed Interim Statement of Cash Flow

    Three-month period ended September 30, Nine-month period ended September 30,
    2018   2017   2018   2017  
Cash flows from operating activities   Unaudited Unaudited
           
Income for the period   247,129   95,226   648,835   374,221  
Adjustments for:          
Depreciation and amortization   135,044   146,293   417,247   457,359  
Income tax accruals less payments   36,987   (30,804)   104,838   (160,622)  
Equity in earnings of non-consolidated companies   (55,930)   (24,752)   (142,876)   (90,153)  
Interest accruals less payments, net   (811)   2,683   5,964   7,572  
Changes in provisions   (5,194)   (2,048)   (10,815)   (21,968)  
Income from the sale of Conduit business    -     -     -    (89,694)  
Changes in working capital   (301,306)   (240,003)   (658,961)   (531,724)  
Derivatives, currency translation adjustment and others   (6,074)   50,975   7,288   45,883  
Net cash provided by (used in) operating activities   49,845   (2,430)   371,520   (9,126)  
           
Cash flows from investing activities          
Capital expenditures   (77,938)   (143,356)   (273,669)   (437,162)  
Changes in advance to suppliers of property, plant and equipment   719   1,880   4,937   6,209  
Acquisition of subsidiaries    -    (10,418)    -    (10,418)  
Proceeds from disposal of Conduit business    -     -     -    327,631  
Loan to non-consolidated companies   (11,220)    -    (14,740)   (10,956)  
Repayment of loan by non-consolidated companies    3,900   1,950   9,370   3,900  
Proceeds from disposal of property, plant and equipment and intangible assets   1,491   1,520   4,199   4,398  
Investment in companies under cost method    -     -     -    (3,681)  
Dividends received from non-consolidated companies    -     -    25,722   22,971  
Changes in investments in securities   (47,655)   341,975   348,423   512,046  
Net cash (used in) provided by investing activities   (130,703)   193,551   104,242   414,938  
           
Cash flows from financing activities          
Dividends paid    -     -    (330,550)   (330,550)  
Dividends paid to non-controlling interest in subsidiaries   (590)    -    (1,698)   (19,200)  
Changes in non-controlling interests   5   (3)   4   (34)  
Proceeds from borrowings   147,296   342,228   723,303   861,963  
Repayments of borrowings   (251,584)   (370,665)   (948,436)   (888,515)  
Net cash (used in) financing activities   (104,873)   (28,440)   (557,377)   (376,336)  
           
(Decrease) increase in cash and cash equivalents   (185,731)   162,681   (81,615)   29,476  
Movement in cash and cash equivalents          
At the beginning of the period   427,256   270,837   330,090   398,580  
Effect of exchange rate changes   (5,495)   1,260   (12,445)   6,722  
(Decrease) increase in cash and cash equivalents   (185,731)   162,681   (81,615)   29,476  
At September 30,   236,030   434,778   236,030   434,778  


 

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,
  2018 2017 2018 2017
Operating income 258,497 79,055 693,130 166,559
Depreciation and amortization 135,044 146,293 417,247 457,359
EBITDA 393,541 225,348 1,110,377 623,918
         

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 September 30, Nine-month period ended September 30,
  2018 2017 2018 2017
Net cash provided by (used in) operating activities 49,845 (2,430) 371,520 (9,126)
Capital expenditures (77,938) (143,356) (273,669) (437,162)
Free cash flow (28,093) (145,786) 97,851 (446,288)
         

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 and Non-Current)+/- Derivatives hedging borrowings and investments– Borrowings (Current and Non-Current).

   
(all amounts in thousands of U.S. dollars) At September 30,
  2018   2017  
Cash and cash equivalents 236,303   436,359  
Other current investments 794,330   1,146,153  
Non-current Investments 176,178   222,992  
Derivatives hedging borrowings and investments (64,525)   14,492  
Borrowings – current and non-current (734,130)   (831,533)  
Net cash / (debt) 408,156   988,463  

 

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

 

 

 

Source: Tenaris S.A.

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