October 30, 2019 at 4:40 PM EDT

Tenaris Announces 2019 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, Free cash flow and Net cash / debt. See exhibit I for more details on these alternative performance measures.

LUXEMBOURG, Oct. 30, 2019 (GLOBE NEWSWIRE) -- Tenaris S.A. (NYSE and Mexico: TS and MTA Italy: TEN) (“Tenaris”) today announced its results for the quarter and nine months ended September 30, 2019 with comparison to its results for the quarter and nine months ended September 30, 2018.

Summary of 2019 Third Quarter Results

(Comparison with second quarter of 2019 and third quarter of 2018)

  3Q 2019 2Q 2019 3Q 2018
Net sales ($ million) 1,764 1,918 (8%) 1,899 (7%)
Operating income ($ million) 187 234 (20%) 258 (28%)
Net income ($ million) 101 240 (58%) 247 (59%)
Shareholders’ net income ($ million) 107 241 (56%) 247 (57%)
Earnings per ADS ($) 0.18 0.41 (56%) 0.42 (57%)
Earnings per share ($) 0.09 0.20 (56%) 0.21 (57%)
EBITDA ($ million) 322 370 (13%) 394 (18%)
EBITDA margin (% of net sales) 18.2% 19.3%    20.7%  

Our third quarter sales fell 8% sequentially and 7% year on year, despite gains in the Middle East and Mexico, reflecting ongoing activity reductions in the US and Argentine shales, which is affecting prices throughout the Americas, and a downturn in our European industrial sales. Our EBITDA margin was affected by a decline in average selling prices and the impact of major maintenance stoppages in the northern hemisphere, principally in Mexico. Net income for the quarter was further affected by the impact of currency devaluations on our income tax charge in Argentina and Mexico and by a lower contribution from our equity investment in Ternium.

Despite the decline in net income, we generated a free cash flow of $287 million, or 16% of revenues, which included a further decline in working capital of $157 million, and we ended the quarter with a net cash position of $964 million.

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 20, 2019 , with an ex-dividend date on November 18, 2019 and record date on November 19, 2019.

Market Background and Outlook

During the third quarter, drilling activity in the US shales fell further, as operators chose to prioritize investor returns over production growth and maintain spending within budget limits announced at the beginning of the year. We do not expect a recovery in US shale drilling activity going into 2020. In Canada, the situation is similar with drilling activity well down on last year and no recovery expected over last year in the upcoming winter drilling season.

In Latin America, drilling activity in Argentina is declining as operators put on hold their investment plans for Vaca Muerta pending more clarity on the policy measures that will be adopted by the incoming government. In Mexico, offshore drilling activity has been increasing.

In the Eastern Hemisphere, drilling activity continues to improve, led by gas developments in the Middle East, and a gradual recovery in offshore basins.

Price levels for steel pipe products in North America have been affected by the decline in demand, the increased competitiveness of domestic welded pipe products reflecting lower costs of hot rolled coils, and continuing high import levels, despite the application of US Section 232 tariffs and quotas.

In the fourth quarter, our sales will be affected by lower average selling prices and the activity slowdowns in the USA and Argentina. We expect to mitigate much of the impact of lower average selling prices with lower costs and maintain our EBITDA margin in line with that of this third quarter. Going into 2020, we expect a recovery in sales, particularly for offshore and gas drilling activity, as well as in margins and cash flow as we work on reducing costs and working capital.

Analysis of 2019 Third Quarter Results

Tubes Sales volume (thousand metric tons) 3Q 2019 2Q 2019 3Q 2018
Seamless   645   674 (4%)   654 (1%)
Welded   150   173 (13%)   199 (25%)
Total   796   846 (6%)   853 (7%)

 

Tubes 3Q 2019 2Q 2019 3Q 2018
(Net sales - $ million)          
North America 772 863 (11%) 887 (13%)
South America 308 337 (9%) 334 (8%)
Europe 136 194 (30%) 148 (8%)
Middle East & Africa 369 315 17% 350 5%
Asia Pacific 77 105 (27%) 77 (1%)
Total net sales ($ million) 1,661 1,814 (8%) 1,797 (8%)
Operating income ($ million) 163 216 (25%) 233 (30%)
Operating margin (% of sales) 9.8% 11.9%   13.0%  

Net sales of tubular products and services decreased 8% sequentially and year on year. The sequential decrease reflects a 6% decrease in volumes and a 3% decrease in average selling prices. In North America our sales declined affected by a general decline in prices for all products and lower volumes of line pipe products. In South America, sales of OCTG products in Argentina started to decline in September, and we had lower sales of conductor casing in Brazil. In Europe sales declined reflecting seasonally lower sales of mechanical and line pipe products and lower sales of premium OCTG in the North Sea. In the Middle East and Africa sales increased mainly due to large orders sold in India. In Asia Pacific we had lower sales throughout the region.

Operating income from tubular products and services, amounted to $163 million in the third quarter of 2019, compared to $216 million in the previous quarter and $233 million in the third quarter of 2018. Sequentially, operating income was affected by lower sales and a decrease of 210 basis points in the operating margin. The 3% decline in prices was only partially offset by lower costs as a decline in direct costs was offset by a worse industrial performance related to the plant maintenance stoppages in the northern hemisphere, mainly in Mexico.

Others 3Q 2019 2Q 2019 3Q 2018
Net sales ($ million) 102 104 (1%) 102 0%
Operating income ($ million) 24 18 32%   26 (6%)
Operating income (% of sales) 23.6% 17.7%   25.2%  

Net sales of other products and services declined 1% sequentially and remained flat year on year. The improvement in operating income is mainly related to our industrial equipment business in Brazil.

Selling, general and administrative expenses, or SG&A, amounted to $333 million, or 18.9% of net sales in the third quarter of 2019, compared to $339 million, 17.7% in the previous quarter and $336 million, 17.7% in the third quarter of 2018. Sequentially, a reduction in logistic and general expenses was partially offset by higher allowances for doubtful accounts.

Financial results amounted to a gain of $8 million in the third quarter of 2019, compared to a loss of $6 million in the previous quarter and a gain of $13 million in the third quarter of 2018. The gain of the quarter corresponds mainly to an FX gain of $14 million related to the Argentine peso devaluation (36%) on trade, social and financial payables at Argentine subsidiaries which functional currency is the U.S. dollar, partially offset by a $5 million loss due to the devaluation of the Brazilian Real (9%) on U.S. dollar denominated intercompany liabilities at our Brazilian subsidiaries which functional currency is the Brazilian Real, largely compensated by an increase in currency translation adjustment reserve from the Brazilian subsidiaries.

Equity in earnings of non-consolidated companies generated a gain of $13 million in the third quarter of 2019, compared to $26 million in the previous quarter and $56 million in the third quarter of 2018. These results are mainly derived from our equity investment in Ternium (NYSE:TX) and Usiminas.

Income tax charge amounted to $108 million in the third quarter of 2019, compared to $15 million in the previous quarter and $80 million in the third quarter of 2018. This quarter’s income tax includes a charge of approximately $76 million mainly related to the devaluation of the Argentine and Mexican Peso affecting the tax base of our subsidiaries in these two countries. Such effect impacted current income tax charge for $35 million and deferred income tax for $41 million.

Cash Flow and Liquidity of 2019 Third Quarter

Net cash provided by operating activities during the third quarter of 2019 was $374 million, compared to $342 million in the previous quarter and $50 million in the third quarter of last year. During the third quarter of 2019 the operating cash flow includes $157 million from the reduction in working capital.

After capital expenditure of $87 million we generated free cash flow of $287 million (16% of revenues) and ended the quarter with a net cash position of $964 million.

Analysis of 2019 First Nine Months Results

  9M 2019 9M 2018 Increase/(Decrease)
Net sales ($ million) 5,554   5,554   0 %
Operating income (loss) ($ million) 681   693   (2 %)
Net income ($ million) 583   649   (10 %)
Shareholders’ net income ($ million) 591   650   (9 %)
Earnings per ADS ($) 1.00   1.10   (9 %)
Earnings per share ($) 0.50   0.55   (9 %)
EBITDA ($ million) 1,082   1,110   (3 %)
EBITDA margin (% of net sales) 19.5 % 20.0 %  

 

Tubes Sales volume (thousand metric tons) 9M 2019 9M 2018 Increase/(Decrease)
Seamless   1,959   1,994 (2 %)
Welded   507   630 (20 %)
Total   2,467   2,624 (6 %)

 

Tubes 9M 2019 9M 2018 Increase/(Decrease)
(Net sales - $ million)      
North America 2,529   2,521   0 %
South America 975   929   5 %
Europe 488   480   2 %
Middle East & Africa 985   1,105   (11 %)
Asia Pacific 263   215   23 %
Total net sales ($ million) 5,239   5,249   0 %
Operating income ($ million) 618   623   (1 %)
Operating income (% of sales) 11.8 % 11.9 %  

Net sales of tubular products and services remained flat, amounting to $5,239 million in the first nine months of 2019, compared to $5,249 million in the first nine months of 2018, reflecting a 6% decrease in volumes offset by a 6% increase in average selling prices.

Operating income from tubular products and services amounted to $618 million in the first nine months of 2019 compared to $623 million in the first nine months of 2018. Results remained relatively flat reflecting stable revenues and margins.

Others 9M 2019 9M 2018 Increase/(Decrease)
Net sales ($ million) 315   305   3 %
Operating income ($ million) 63   70   (9 %)
Operating margin (% of sales) 20.1 % 22.8 %  

Net sales of other products and services increased 3% to $315 million in the first nine months of 2019, compared to $305 million in the first nine months of 2018, however operating income declined due to a reduction in margins.

SG&A remained flat, amounting to $1,017 million, or 18.3% of net sales during the first nine months of 2019, compared to $1,023 million, or 18.4% in the same period of 2018.

Financial results amounted to a gain of $26 million in the first nine months of 2019 compared to a gain of $44 million in the same period of 2018. While in both periods the gains are mainly related to the Argentine peso devaluation, the nine-month period of 2018 also benefited from the Euro depreciation. In the first nine months of 2019 we had an FX gain of $28 million; $34 million gain related to the Argentine peso devaluation (53%) on Peso denominated liabilities at Argentine subsidiaries which functional currency is the U.S. dollar, partially offset by a $6 million loss due to the devaluation of the Brazilian Real (7%) on U.S. dollar denominated intercompany liabilities at our Brazilian subsidiaries which functional currency is the Brazilian Real.

Equity in earnings of non-consolidated companies generated a gain of $69 million in the first nine months of 2019, compared to a gain of $143 million in the first nine months of 2018. These results are mainly derived from our equity investment in Ternium (NYSE:TX) and Usiminas.

Income tax amounted to a charge of $193 million in the first nine months of 2019, compared to $231 million in the first nine months of 2018. Both periods charges were affected by 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 2019 First Nine Months

During the first nine months of 2019, net cash provided by operations was $1,264 million, compared to $372 million in the same period of 2018. While in the first nine months of 2019 our working capital decreased by $503 million in the same period of 2018 it increased by $659 million.

Capital expenditures amounted to $270 million in the first nine months of 2019, similar to $274 million in the same period of 2018.

Free cash flow amounted to $994 million (18% of revenues) in the first nine months of 2019, compared to $98 million (2%) in the same period of 2018.

We reached a net cash position of $964 million at September 30, 2019.

Conference call

Tenaris will hold a conference call to discuss the above reported results, on October 31, 2019, at 10:00 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 “5688609”. 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 1.00 pm ET on October 31 through 11:59 pm ET on November 8, 2019. To access the replay by phone, please dial 855 859 2056 or 404 537 3406 and enter passcode “5688609” 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,
  2019   2018   2019   2018  
Continuing operations Unaudited Unaudited
Net sales 1,763,783   1,898,892   5,553,507   5,553,611  
Cost of sales (1,248,691 ) (1,305,232 ) (3,863,309 ) (3,837,295 )
Gross profit 515,092   593,660   1,690,198   1,716,316  
Selling, general and administrative expenses (333,111 ) (335,714 ) (1,017,085 ) (1,022,922 )
Other operating income (expense), net 5,139   551   7,511   (264 )
Operating income 187,120   258,497   680,624   693,130  
Finance Income 13,015   10,804   36,212   29,786  
Finance Cost (13,454 ) (8,586 ) (31,723 ) (29,182 )
Other financial results 8,340   10,839   21,670   43,156  
Income before equity in earnings of non-consolidated companies and income tax 195,021   271,554   706,783   736,890  
Equity in earnings of non-consolidated companies 13,235   55,930   68,659   142,876  
Income before income tax 208,256   327,484   775,442   879,766  
Income tax (107,741 ) (80,355 ) (192,639 ) (230,931 )
Income for the period 100,515   247,129   582,803   648,835  
         
Attributable to:        
Owners of the parent 106,548   246,927   590,913   650,238  
Non-controlling interests (6,033 ) 202   (8,110 ) (1,403 )
  100,515   247,129   582,803   648,835  

Consolidated Condensed Interim Statement of Financial Position

(all amounts in thousands of U.S. dollars) At September 30, 2019   At December 31, 2018
  Unaudited    
ASSETS          
Non-current assets          
  Property, plant and equipment, net 6,111,975     6,063,908  
  Intangible assets, net 1,565,891     1,465,965  
  Right-of-use assets, net 240,182      -   
  Investments in non-consolidated companies 856,524     805,568  
  Other investments 42,605     118,155  
  Deferred tax assets 217,608     181,606  
  Receivables, net 154,718 9,189,503   151,905 8,787,107
Current assets          
  Inventories, net 2,387,367     2,524,341  
  Receivables and prepayments, net 111,673     155,885  
  Current tax assets 157,056     121,332  
  Trade receivables, net 1,310,213     1,737,366  
  Derivative financial instruments 4,697     9,173  
  Other investments 322,763     487,734  
  Cash and cash equivalents 1,537,005 5,830,774   428,361 5,464,192
Total assets   15,020,277     14,251,299
EQUITY           
Capital and reserves attributable to owners of the parent   11,955,266     11,782,882
Non-controlling interests   200,939     92,610
Total equity   12,156,205     11,875,492
LIABILITIES          
Non-current liabilities          
  Borrowings 49,050     29,187  
  Lease liabilities 201,693       -   
  Deferred tax liabilities 380,809     379,039  
  Other liabilities 239,921     213,129  
  Provisions 38,748 910,221   36,089 657,444
Current liabilities          
  Borrowings 873,822     509,820  
  Lease liabilities 37,781       -   
  Derivative financial instruments 18,088     11,978  
  Current tax liabilities 130,961     250,233  
  Other liabilities 233,838     165,693  
  Provisions 27,921     24,283  
  Customer advances 79,581     62,683  
  Trade payables 551,859 1,953,851   693,673 1,718,363
Total liabilities   2,864,072     2,375,807
Total equity and liabilities   15,020,277     14,251,299

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)   2019   2018   2019   2018  
Cash flows from operating activities   Unaudited  Unaudited
           
Income for the period   100,515   247,129   582,803   648,835  
Adjustments for:          
Depreciation and amortization   134,624   135,044   401,179   417,247  
Income tax accruals less payments   9,015   36,987   (145,404 ) 104,838  
Equity in earnings of non-consolidated companies   (13,235 ) (55,930 ) (68,659 ) (142,876 )
Interest accruals less payments, net   (3,411 ) (811 ) (3,706 ) 5,964  
Changes in provisions   (3,182 ) (5,194 ) (2,208 ) (10,815 )
Changes in working capital   157,313   (301,306 ) 503,358   (658,961 )
Currency translation adjustment and others   (7,889 ) (6,074 ) (3,696 ) 7,288  
Net cash provided by operating activities   373,750   49,845   1,263,667   371,520  
           
Cash flows from investing activities          
Capital expenditures   (86,643 ) (77,938 ) (269,707 ) (273,669 )
Changes in advance to suppliers of property, plant and equipment   1,149   719   3,185   4,937  
Acquisition of subsidiaries, net of cash acquired    -     -    (132,845 )  -   
Additions to associated companies   (9,800 )  -    (9,800 )  -   
Loan to non-consolidated companies    -    (11,220 )  -    (14,740 )
Repayment of loan by non-consolidated companies     -    3,900   40,470   9,370  
Proceeds from disposal of property, plant and equipment and intangible assets   437   1,491   1,173   4,199  
Dividends received from non-consolidated companies    -     -    28,974   25,722  
Changes in investments in securities   24,463   (47,655 ) 254,369   348,423  
Net cash (used in) provided by investing activities   (70,394 ) (130,703 ) (84,181 ) 104,242  
           
Cash flows from financing activities          
Dividends paid    -     -    (330,550 ) (330,550 )
Dividends paid to non-controlling interest in subsidiaries   (1,200 ) (590 ) (1,872 ) (1,698 )
Changes in non-controlling interests    -    5   1   4  
Payments of lease liabilities   (9,388 )  -    (28,835 )  -   
Proceeds from borrowings   387,000   147,296   1,031,716   723,303  
Repayments of borrowings   (320,743 ) (251,584 ) (733,837 ) (948,436 )
Net cash (used in) provided by financing activities   55,669   (104,873 ) (63,377 ) (557,377 )
           
Increase (decrease) in cash and cash equivalents   359,025   (185,731 ) 1,116,109   (81,615 )
Movement in cash and cash equivalents          
At the beginning of the period   1,183,017   427,256   426,717   330,090  
Effect of exchange rate changes   (6,513 ) (5,495 ) (7,297 ) (12,445 )
Increase (decrease) in cash and cash equivalents   359,025   (185,731 ) 1,116,109   (81,615 )
At September 30,   1,535,529   236,030   1,535,529   236,030  

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 ended
September 30,
Nine-month period ended
September 30,
  2019 2018 2019 2018
Operating income 187,120 258,497 680,624 693,130
Depreciation and amortization 134,624 135,044 401,179 417,247
EBITDA 321,744 393,541 1,081,803 1,110,377

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,
  2019   2018   2019   2018  
Net cash provided by operating activities 373,750   49,845   1,263,667   371,520  
Capital expenditures (86,643 ) (77,938 ) (269,707 ) (273,669 )
Free cash flow 287,107   (28,093 ) 993,960   97,851  

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,
  2019   2018  
Cash and cash equivalents 1,537,005   236,303  
Other current investments 322,763   794,330  
Non-current Investments 38,678   176,178  
Derivatives hedging borrowings and investments (11,492 ) (64,525 )
Borrowings – current and non-current (922,872 ) (734,130 )
Net cash / (debt) 964,082   408,156  

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

 

Source: Tenaris S.A.

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