May 2, 2019 at 4:42 PM EDT

Tenaris Announces 2019 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, May 02, 2019 (GLOBE NEWSWIRE) -- Tenaris S.A. (NYSE, Buenos Aires and Mexico: TS and MTA Italy: TEN) (“Tenaris”) today announced its results for the quarter ended March 31, 2019 in comparison with its results for the quarter ended March 31, 2018.

Summary of 2019 First Quarter Results

(Comparison with fourth and first quarter of 2018)

  1Q 2019 4Q 2018 1Q 2018
Net sales ($ million) 1,872   2,105   (11 %) 1,866   0 %
Operating income ($ million) 259   179   45 % 212   22 %
Net income ($ million) 243   225   8 % 235   3 %
Shareholders’ net income ($ million) 243   226   8 % 235   3 %
Earnings per ADS ($) 0.41   0.38   8 % 0.40   3 %
Earnings per share ($) 0.21   0.19   8 % 0.20   3 %
EBITDA* ($ million) 390   426   (8 %) 354   10 %
EBITDA margin (% of net sales) 20.9 % 20.2 %   19.0 %  

In the first quarter of 2019, sales declined 11% quarter-on-quarter, reflecting no deliveries of offshore line pipe for East Mediterranean gas projects concluded in the previous quarter and the slowdown in the US and Canadian markets. Operating income, which benefited from a $15 million recovery of tariffs paid on the import of steel bars into the United States to feed our Bay City mill, was 22% higher year-on-year on similar revenues, while net income for the quarter amounted to 13% of sales.

During the quarter, our working capital declined by $199 million, reflecting mostly a reduction in receivables and inventories. With operating cash flow of $548 million and capital expenditures of $86 million, our free cash flow amounted to $462 million (25% of revenues) and after paying $141 million for our investment in Saudi Steel Pipe (SSP), consolidating $74 million of SSP’s net debt and collecting $40 million from Techgen´s credits, our net cash position increased by $281 million to reach $766 million at the end of the quarter.

Market Background and Outlook

In the USA, there has been a limited slowdown in drilling activity in the year to date following the oil price downturn in the fourth quarter of last year and a more disciplined approach to capital expenditure by shale operators. In Canada, the slowdown has been more pronounced with a lack of pipeline takeaway capacity and government-mandated production cuts. Although oil prices have recovered in the year to date, capital discipline by shale operators is likely to persist through the year, which may limit any increase in drilling activity.

In Latin America, the recovery in drilling activity in Mexico may be tempered by financial constraints,  while, in the rest of the region, drilling activity is expected to remain relatively stable, with shale drilling activity in Argentina switching from gas to oil.

In the eastern Hemisphere, drilling activity is expected to continue its gradual recovery with a focus on gas developments.

Following a solid performance in the first quarter, we expect to consolidate our sales around this level in the next quarter and hold margins at a similar level to last year. With a stable level of sales, and limited capital investment requirements, we should continue to generate a strong free cash flow during the year.

Analysis of 2019 First Quarter Results

Tubes Sales volume (thousand metric tons) 1Q 2019 4Q 2018 1Q 2018
Seamless   640    700 (9 %)   651 (2 %)
Welded   184    247 (26 %)   285 (35 %)
Total   824   947 (13 %)   936 (12 %)

 

Tubes 1Q 2019 4Q 2018 1Q 2018
(Net sales - $ million)          
North America 893   967   (8 %) 807   11 %
South America 330   356   (7 %) 285   16 %
Europe 158   148   7 % 153   4 %
Middle East & Africa 301   436   (31 %) 456   (34 %)
Asia Pacific 81   77   5 % 66   23 %
Total net sales ($ million) 1,763   1,984   (11 %) 1,766   0 %
Operating income ($ million) 238   154   55 % 194   23 %
Operating margin (% of sales) 13.5 % 7.7 %   11.0 %  

Net sales of tubular products and services decreased 11% sequentially and were flat year on year. Sequentially a 13% decrease in volumes was partially offset by a 2% increase in average selling price resulting from a better product mix (higher proportion of seamless pipes). In North America sales decreased 8% sequentially, due to lower sales in the US onshore, reflecting activity reductions by our Rig Direct® customers. In South America sales declined 7% sequentially, reflecting lower sales of OCTG in Argentina. In Europe sales increased 7% thanks to higher sales of offshore line pipe products. In the Middle East and Africa sales decreased 31% sequentially, after the end of deliveries of line pipe products for the Zohr project in the East Mediterranean, while they were partially offset by $40 million sales from SSP. In Asia Pacific sales increased 5% thanks to an increase in sales of OCTG products to LNG projects in Australia.

Operating income from tubular products and services amounted to $238 million in the first quarter of 2019, compared to $154 million in the previous quarter and $194 million in the first quarter of 2018. In the previous quarter operating income was negatively affected by $109 million charge to amortization of customer relationships. Still after correcting for the one off effect in the previous quarter, the operating margin improved based on a better product mix(reflecting a mix of products with higher participation of seamless products) and a reduction in selling expenses.

Others 1Q 2019 4Q 2018 1Q 2018
Net sales ($ million) 109   121   (10 %) 100   9 %
Operating income ($ million) 21   25   (17 %)   19   11 %
Operating income (% of sales) 19.1 % 20.7 %   18.7 %  

Net sales of other products and services decreased 10% sequentially but increased 9% year on year. The sequential decrease in sales is mainly related to lower sales of sucker rods and coiled tubing.

Selling, general and administrative expenses, or SG&A, amounted to $345 million, or 18.5% of net sales, in the first quarter of 2019, compared to $487 million, 23.1% in the previous quarter and $350 million, 18.7% in the first quarter of 2018. In the previous quarter SG&A was negatively affected by $109 million charge to amortization of customer relationships. In addition to the one off charge, selling expenses declined reflecting lower volumes.

Financial results amounted to a gain of $24 million in the first quarter of 2019, compared to a loss of $6 million in the previous quarter and a loss of $8 million in the first quarter of 2018. The gain of the quarter corresponds mainly to an FX gain of $26 million, $21 million related to the Argentine peso devaluation on a net short position in local currency at Argentine subsidiaries which functional currency is the U.S. dollar.

Equity in earnings of non-consolidated companies generated a gain of $29 million in the first quarter of 2019, compared to a gain of $51 million in the previous quarter and a gain of $46 million in the first quarter of 2018. These results are mainly derived from our equity investment in Ternium (NYSE:TX) and Usiminas (BSP:USIM).

Income tax charge amounted to $70 million in the first quarter of 2019 or 22% of income before income tax, including $8 million net charges, related to foreign exchange variations, mainly in Argentina and Mexico.

Cash Flow and Liquidity

Net cash provided by operations during the first quarter of 2019 was $548 million, compared with $239 million in the previous quarter and a use of cash of $30 million in the first quarter of 2018. Working capital decreased by $199 million, reflecting, in part, the reduction in sales as well as a decrease in inventories.

Capital expenditures amounted to $86 million for the first quarter of 2019, compared to $76 million in the previous quarter and $92 million in the first quarter of 2018.

Free cash flow of the quarter amounted to $462 million (25% of revenues), compared to $163 million in the previous quarter and a negative free cash flow of $122 million in the first quarter of 2018.

After paying $141 million for our investment in SSP, consolidating $74 million of SSP’s net debt at the end of the quarter and collecting $40 million from Techgen´s credits, our net cash position amounted to $766 million, compared to $485 million at the beginning of the year.

Conference call

Tenaris will hold a conference call to discuss the above reported results, on May 3, 2019, 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 +1 866 789 1656 within North America or +1 630 489.1502 Internationally. The access number is “1691768”. 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 May 3, through 11.59 pm on May 11, 2019. To access the replay by phone, please dial 855 859 2056 or 404 537 3406 and enter passcode “1691768” 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,
  2019   2018  
Continuing operations Unaudited
Net sales 1,871,759   1,866,235  
Cost of sales (1,271,799 ) (1,305,506 )
Gross profit 599,960   560,729  
Selling, general and administrative expenses (345,366 ) (349,634 )
Other operating income (expense), net 4,422   1,102  
Operating income 259,016   212,197  
Finance Income 10,461   9,373  
Finance Cost (6,982 ) (10,174 )
Other financial results 20,915   (7,066 )
Income before equity in earnings of non-consolidated companies and income tax 283,410   204,330  
Equity in earnings of non-consolidated companies 29,135   46,026  
Income before income tax 312,545   250,356  
Income tax (69,956 ) (15,122 )
Income for the period 242,589   235,234  
     
Attributable to:    
Owners of the parent 242,879   234,983  
Non-controlling interests (290 ) 251  
  242,589   235,234  

Consolidated Condensed Interim Statement of Financial Position

(all amounts in thousands of U.S. dollars) At March 31, 2019   At December 31, 2018
  Unaudited    
ASSETS          
Non-current assets          
  Property, plant and equipment, net 6,197,512     6,063,908  
  Intangible assets, net 1,576,436     1,465,965  
  Right-of-use assets, net 233,899      -   
  Investments in non-consolidated companies 851,442     805,568  
  Other investments 111,119     118,155  
  Deferred tax assets 163,231     181,606  
  Receivables, net 156,954 9,290,593   151,905 8,787,107
Current assets          
  Inventories, net 2,462,762     2,524,341  
  Receivables and prepayments, net 141,985     155,885  
  Current tax assets 117,958     121,332  
  Trade receivables, net 1,528,467     1,737,366  
  Derivative financial instruments 11,614     9,173  
  Other investments 432,604     487,734  
  Cash and cash equivalents 897,767 5,593,157   428,361 5,464,192
Total assets   14,883,750     14,251,299
EQUITY           
Capital and reserves attributable to owners of the parent   12,005,132     11,782,882
Non-controlling interests   211,041     92,610
Total equity   12,216,173     11,875,492
LIABILITIES          
Non-current liabilities          
  Borrowings 56,980     29,187  
  Lease liabilities 193,745     -  
  Deferred tax liabilities 364,938     379,039  
  Other liabilities 228,306     213,129  
  Provisions 37,511 881,480   36,089 657,444
Current liabilities          
  Borrowings 622,735     509,820  
  Lease liabilities 35,959     -  
  Derivative financial instruments 3,462     11,978  
  Current tax liabilities 238,622     250,233  
  Other liabilities 202,057     165,693  
  Provisions 29,496     24,283  
  Customer advances 57,234     62,683  
  Trade payables 596,532 1,786,097   693,673 1,718,363
Total liabilities   2,667,577     2,375,807
Total equity and liabilities   14,883,750     14,251,299

Consolidated Condensed Interim Statement of Cash Flows

    Three-month period ended March 31,
(all amounts in thousands of U.S. dollars)   2019   2018  
Cash flows from operating activities   Unaudited
       
Income for the period   242,589   235,234  
Adjustments for:      
Depreciation and amortization   131,335   141,802  
Income tax accruals less payments   9,951   (24,816 )
Equity in earnings of non-consolidated companies   (29,135 ) (46,026 )
Interest accruals less payments, net   560   620  
Changes in provisions   (1,870 ) 1,527  
Changes in working capital   199,489   (363,552 )
Currency translation adjustment and others   (5,303 ) 25,644  
Net cash provided by (used in) operating activities   547,616   (29,567 )
       
Cash flows from investing activities      
Capital expenditures   (85,686 ) (91,938 )
Changes in advance to suppliers of property, plant and equipment   501   (414 )
Acquisition of subsidiaries, net of cash acquired   (132,845 )  -   
Loan to non-consolidated companies    -    (2,200 )
Repayment of loan by non-consolidated companies    40,470   1,950  
Proceeds from disposal of property, plant and equipment and intangible assets   262   1,484  
Changes in investments in securities   66,777   84,616  
Net cash (used in) investing activities   (110,521 ) (6,502 )
       
Cash flows from financing activities      
Changes in non-controlling interests   1    -   
Payments of lease liabilities   (10,171 )  -   
Proceeds from borrowings   184,396   277,711  
Repayments of borrowings   (139,052 ) (248,041 )
Net cash provided by financing activities   35,174   29,670  
       
Increase (decrease) in cash and cash equivalents   472,269   (6,399 )
Movement in cash and cash equivalents      
At the beginning of the period   426,717   330,090  
Effect of exchange rate changes   (1,484 ) 1,050  
Increase (decrease) in cash and cash equivalents   472,269   (6,399 )
At March 31,   897,502   324,741  

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,
  2019 2018
Operating income 259,016 212,197
Depreciation and amortization 131,335 141,802
EBITDA 390,351 353,999

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

(all amounts in thousands of U.S. dollars) At March 31,
  2019   2018  
Cash and cash equivalents 897,767   328,675  
Other current investments 432,604   999,576  
Non-current Investments 106,945   234,739  
Derivatives hedging borrowings and investments 8,184   (6,063 )
Borrowings – current and non-current (679,715 ) (1,005,595 )
Net cash / (debt) 765,785   551,332  

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,
  2019   2018  
Net cash provided by (used in) operating activities 547,616   (29,567 )
Capital expenditures (85,686 ) (91,938 )
Free cash flow 461,930   (121,505 )

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

 

 

 

Source: Tenaris S.A.

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