Tenaris Announces 2015 Second Quarter Results

The Financial and Operational Information Contained in This Press Release Is Based on Unaudited Consolidated 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

LUXEMBOURG -- (Marketwired) -- 08/05/15 -- Tenaris S.A. (NYSE: TS) (BAE: TS) (BMV: TS) (MILAN: TEN) ("Tenaris") today announced its results for the quarter ended June 30, 2015 in comparison with its results for the quarter ended June 30, 2014.

Summary of 2015 Second Quarter Results
(Comparison with first quarter of 2015 and second quarter of 2014)
Q2 2015 Q1 2015* Q2 2014
Net sales ($ million) 1,868 2,254 (17%) 2,661 (30%)
Operating income ($ million) 111 379 (71%) 549 (80%)
Net income ($ million) 72 254 (72%) 420 (83%)
Shareholders' net income ($ million) 66 255 (74%) 408 (84%)
Earnings per ADS ($) 0.11 0.43 (74%) 0.69 (84%)
Earnings per share ($) 0.06 0.22 (74%) 0.35 (84%)
EBITDA** ($ million) 265 527 (50%) 702 (62%)
EBITDA margin (% of net sales) 14.2% 23.4% 26.4%
*Q1 2015 results had been restated, following a re-evaluation of the carrying value of the Usiminas investment as of September 30, 2014. See "I General Information" to our unaudited consolidated financial statements as of June 30, 2015.
**EBITDA is defined as operating income plus depreciation, amortization and impairment charges / (reversals). EBITDA in Q2 2015 includes severance charges of $89 million. If these charges were not included EBITDA would have been $354 million with a margin of 18.9%.

Our second quarter sales were down 30% year on year, with our Tubes sales down 45% in North America and 21% in the rest of the world, reflecting activity reductions and customer inventory adjustments. Our EBITDA margin declined significantly reflecting restructuring charges along with production inefficiencies and a higher ratio of fixed costs resulting from low utilization of production capacity.

Cash flow from operations amounted to $548 million during the quarter, for a total of $1.4 billion during the first half. Following a dividend payment of $354 million in May 2015, and capital expenditures of $262 million during the second quarter, we maintained a net cash position (cash and other current investments less total borrowings) of $1.8 billion at the end of the quarter.

Market Background and Outlook

Oil and gas drilling activity in North America continued to decline during the second quarter but, over the last month, the US rig count has shown signs of stabilizing at around 50% of last year's level. The Canadian rig count is also down over 40% year on year. In most other areas of the world, oil and gas drilling activity continues to decline at a more gradual pace as companies reduce their investments, delaying projects as they adjust costs to the lower oil price environment.

Demand for OCTG products this year is being affected by the decline in drilling activity and by inventory adjustments which are ongoing in the Middle East, sub-Saharan Africa and in North America as the level of imports has declined.

We expect our revenues to decline further in the third quarter, when we will have an unusually low level of shipments of premium products. Average selling prices will be lower during the second half reflecting lower market prices and a less favorable product mix. Our margins in the third quarter will continue to be affected by low utilization of production capacity, but should improve in the fourth quarter as shipments start to recover.

Going into 2016, we expect shipments to continue to recover as customer inventory reductions come to an end and our margins will benefit from cost reduction measures and from the full impact of the current low raw material costs.

In the current difficult market conditions, we are advancing with the restructuring of our operations and remain focused on reducing our costs, strengthening our market position and enhancing our service deployment in key regions. Our expected cash flow will allow us to maintain our strong financial position.

Analysis of 2015 Second Quarter Results

Tubes

The following table indicates, for our Tubes business segment, sales volumes of seamless and welded pipes for the periods indicated below:

Tubes Sales volume
(thousand metric tons)
Q2 2015 Q1 2015 Q2 2014
Seamless 494 655 (25%) 703 (30%)
Welded 141 160 (12%) 199 (29%)
Total 635 815 (22%) 902 (30%)

The following table indicates, for our Tubes business segment, net sales by geographic region, operating income and operating income as a percentage of net sales for the periods indicated below:

Tubes Q2 2015 Q1 2015 Q2 2014
(Net sales - $ million)
North America 587 961 (39%) 1,069 (45%)
South America 466 487 (4%) 454 3%
Europe 189 236 (20%) 263 (28%)
Middle East & Africa 340 314 8% 560 (39%)
Far East & Oceania 100 78 29% 101 (1%)
Total net sales ($ million) 1,682 2,077 (19%) 2,447 (31%)
Operating income ($ million) 99 370 (73%) 538 (82%)
Operating income (% of sales) 5.9% 17.8% 22.0%
Q2 2015 Tubes operating income includes severance charges of $85 million. If these charges were not included operating income would have been $184 million with a margin of 10.9%.

Net sales of tubular products and services decreased 19% sequentially and 31% year on year. The sequential decline reflects a reduction in volumes of 22% partially offset by a 4% increase in the average selling price, which reflected the inclusion of certain high value products in the sales mix for the quarter. In North America sales declined due to the strong activity reductions and inventory adjustments in the U.S. onshore and Canada and moderately lower shipments in Mexico. In South America, sales declined due to lower OCTG sales in Brazil and the Andean Region, partially offset by higher shipments of pipeline projects in Brazil and Argentina and higher OCTG sales in Argentina. In Europe we had lower OCTG sales in Russia, the North Sea and Romania. In the Middle East and Africa sales increased mainly due to higher OCTG sales to Iraq. In the Far East and Oceania, sales increased due to a concentration of shipments of OCTG products in Indonesia.

Operating income from tubular products and services decreased 73% sequentially and 82% year on year. In addition to the effect of lower sales, operating income during the quarter was negatively affected by inefficiencies associated with low utilization of production capacity and severance costs to adjust the workforce to current market conditions, which amounted to $85 million for the segment.

Others

The following table indicates, for our Others business segment, net sales, operating income and operating income as a percentage of net sales for the periods indicated below:

Others Q2 2015 Q1 2015 Q2 2014
Net sales ($ million) 186 177 5% 214 (13%)
Operating income ($ million) 12 9 37% 12 8%
Operating income (% of sales) 6.7% 5.1% 5.6%

Net sales of other products and services increased 5% sequentially, mainly due to higher sales of industrial equipment in Brazil and pipes for electric conduit in the USA. Sequentially, the operating income increased following the increase in sales and a recovery in operating margins in these same businesses.

Selling, general and administrative expenses, or SG&A, amounted to $438 million, or 23.4% of net sales, in the second quarter of 2015, compared to $436 million, 19.4% in the previous quarter and $518 million, 19.5% in the second quarter of 2014. The sequential increase in percentage terms was mainly due to the effect of fixed and semi fixed expenses on lower sales and the effect of $34 million in severance indemnities related to the adjustment of the workforce to current market conditions.

Financial results in the second quarter of 2015 amounted to a loss of $8 million, compared to a loss of $1 million in the previous quarter and to zero in the second quarter of 2014.

Equity in earnings of non-consolidated companies amounted to $4 million in the second quarter of 2015, compared to $8 million in the previous quarter and $14 million in the second quarter of last year. These results are mainly derived from our equity investment in Ternium (NYSE: TX).

Income tax charges totalled $35 million in the second quarter of 2015, equivalent to 33.9% of income before equity in earnings of non-consolidated companies and income tax, compared to $132 million, or 34.9% in the previous quarter and $144 million or 26.2% in the second quarter of 2014. As in the previous quarter, during this quarter our tax rate was negatively affected by the effect of certain currencies devaluation against the U.S. dollar, on the tax base used to calculate deferred taxes at subsidiaries which have the U.S. dollar as their functional currency (e.g., Argentine and Mexican peso).

Results attributable to non-controlling interests amounted to gains of $6 million in the second quarter of 2015, compared to a $1 million loss in the previous quarter and $12 million gains in the second quarter of 2014. These results are mainly attributable to NKKTubes, our Japanese subsidiary.

Cash Flow and Liquidity of 2015 Second Quarter

Net cash provided by operations during the second quarter of 2015 was $548 million, compared to $878 million in the previous quarter and $566 million in the second quarter of 2014. Reductions in working capital (mainly inventories and trade receivables) amounted to $397 million during the second quarter and $516 million in the previous quarter.

Capital expenditures amounted to $262 million for the second quarter of 2015, compared to $261 million in the previous quarter and $223 million in the second quarter of 2014. Capital expenditures mainly relates to the progress in the construction of the greenfield seamless facility in Bay City, Texas.

Following a dividend payment of $354 million in May 2015, and capital expenditures of $262 million during the second quarter, we maintained a net cash position (cash and other current investments less total borrowings) of $1.8 billion at the end of the quarter.

Analysis of 2015 First Half Results
H1 2015 H1 2014 Increase/(Decrease)
Net sales ($ million) 4,122 5,241 (21%)
Operating income ($ million) 490 1,115 (56%)
Net income ($ million) 326 848 (62%)
Shareholders' net income ($ million) 321 830 (61%)
Earnings per ADS ($) 0.54 1.41 (61%)
Earnings per share ($) 0.27 0.70 (61%)
EBITDA ($ million) 792 1,421 (44%)
EBITDA margin (% of net sales) 19.2% 27.1%
2015 first half EBITDA includes severance charges of $105 million. If these charges were not included EBITDA would have been $897 million with a margin of 21.8%.

Our sales in the first half of 2015 declined 21% compared to the first half of 2014, mainly due to lower shipments of tubular products. EBITDA declined 44% to $792 million in the first half of 2015 compared to $1,421 million in the first half of the previous year, following the decline in sales and a reduction in the EBITDA margin, from 27.1% in the first half of 2014 to 19.2% in the first half of 2015. During the first half of 2015 we had severance costs amounting to $105 million, associated to the adjustment of the workforce to current market conditions. Net income attributable to owners of the parent during the first half of 2015 was $321 million, or $0.27 per share ($0.54 per ADS), which compares with $830 million, or $0.70 per share ($1.41 per ADS), in the first half of 2014. The 62% decline in net income mainly reflects a challenging operating environment affected by lower shipments, inefficiencies associated with low utilization of production capacity and severance costs to adjust the workforce to current market conditions.

Cash flow from operations amounted to $1,426 million during the first half of 2015, including working capital reductions of $912 million. Following a dividend payment of $354 million in May 2015, and capital expenditures of $523 million during the first half of 2015, we reached a net cash position (cash and other current investments less total borrowings) of $1.8 billion at the end of June 2015.

The following table shows our net sales by business segment for the periods indicated below:

Net sales ($ million) H1 2015 H1 2014 Increase/(Decrease)
Tubes 3,759 91% 4,865 93% (23%)
Others 363 9% 376 7% (4%)
Total 4,122 100% 5,241 100% (21%)

Tubes

The following table indicates, for our Tubes business segment, sales volumes of seamless and welded pipes for the periods indicated below:

Sales volume
(thousand metric tons)
H1 2015 H1 2014 Increase/(Decrease)
Seamless 1,149 1,372 (16%)
Welded 300 440 (32%)
Total 1,449 1,812 (20%)

The following table indicates, for our Tubes business segment, net sales by geographic region, operating income and operating income as a percentage of net sales for the periods indicated below:

Tubes H1 2015 H1 2014 Increase/(Decrease)
(Net sales - $ million)
North America 1,549 2,154 (28%)
South America 954 894 7%
Europe 425 519 (18%)
Middle East & Africa 654 1,096 (40%)
Far East & Oceania 178 202 (12%)
Total net sales ($ million) 3,759 4,865 (23%)
Operating income ($ million) 469 1,099 (57%)
Operating income (% of sales) 12.5% 22.6%
2015 first half Tubes operating income includes severance charges of $100 million. If these charges were not included operating income would have been $569 million with a margin of 15.1%.

Net sales of tubular products and services decreased 23% to $3,759 million in the first half of 2015, compared to $4,865 million in the first half of 2014, as a result of a 20% decline in shipments following the adjustment in oil and gas drilling activity in response to the collapse in oil and gas prices and inventory adjustments taking place in the Middle East and Africa and in the United States.

Operating income from tubular products and services decreased 57% to $469 million in the first half of 2015, from $1,099 million in the first half of 2014, following the decline in sales and a reduction in operating margins affected by inefficiencies associated with low utilization of production capacity and severance costs to adjust the workforce to current market conditions, which amounted to $100 million for the segment.

Others

The following table indicates, for our Others business segment, net sales, operating income and operating income as a percentage of net sales for the periods indicated below:

Others H1 2015 H1 2014 Increase/(Decrease)
Net sales ($ million) 363 376 (4%)
Operating income ($ million) 22 16 34%
Operating income (% of sales) 5.9% 4.3%

Net sales of other products and services decreased 4% to $363 million in the first half of 2015, compared to $376 million in the first half of 2014, mainly due to lower sales of sucker rods, reflecting the decline in activity in the oil and gas business.

Operating income from other products and services increased 34%, to $22 million in the first half of 2015, compared to $16 million during the first half of 2014, mainly due to an improvement in the operating margins of the industrial equipment business in Brazil.

Selling, general and administrative expenses, or SG&A, amounted to $874 million in the first half of 2015 and $1,007 million in the first half of 2014, however, it increased as a percentage of net sales to 21.2% in the first half of 2015 compared to 19.2% in the first half of 2014 mainly due to the effect of fixed and semi fixed expenses on lower sales and the effect of $38 million in severance indemnities related to the adjustment of the workforce to current market conditions.

Financial results amounted to a loss of $10 million in the first half of 2015, compared to a gain of $43 million in the first half of 2014. Net finance income amounted to $7 million in the first half of 2015, compared to $3 million in the first half of 2014. In the first half of 2014 we had positive other financial results amounting to $39 million, mainly due to the positive impact from the Argentine peso devaluation against the U.S. dollar on our Argentine peso-denominated borrowings and liabilities.

Equity in earnings of non-consolidated companies generated a gain of $12 million in the first half of 2015, compared to a gain of $33 million in the first half of 2014. These results are mainly derived from our equity investment in Ternium (NYSE: TX).

Income tax charges amounted to $167 million in the first half of 2015, equivalent to 34.7% of income before equity in earnings of non-consolidated companies and income tax, compared to $343 million in the first half of 2014, or 29.6% of income before equity in earnings of non-consolidated companies and income tax. During the first half of 2015, our tax rate was negatively affected by the effect of certain currencies devaluation against the U.S. dollar, on the tax base used to calculate deferred taxes at subsidiaries which have the U.S. dollar as their functional currency (e.g., Argentine and Mexican peso).

Income attributable to non-controlling interests amounted to $5 million in the first half of 2015, compared to $18 million in the first half of 2014. These results are mainly attributable to NKKTubes, our Japanese subsidiary.

Cash Flow and Liquidity of 2015 First Half

Net cash provided by operations during the first half of 2015 amounted to $1,426 million (including working capital reductions of $912 million), compared to $1,178 million in the first half of 2014.

Capital expenditures amounted to $523 million in the first half of 2015, compared to $412 million in the first half of 2014. The increase has to do mainly with the progress in the construction of the greenfield seamless facility in Bay City, Texas.

Following a dividend payment of $354 million in May 2015, our financial position at June 30, 2015, amounted to a net cash position (i.e., cash and other current investments less total borrowings) of $1.8 billion, compared with a net cash position of $1.3 billion at June 30, 2014.

Tenaris Files Half-Year Report

Tenaris S.A. announces that it has filed its half-year report for the six-month period ended June 30, 2015 with the Luxembourg Stock Exchange. The half-year report can be downloaded from the Luxembourg Stock Exchange's website at www.bourse.lu and from Tenaris's website at www.tenaris.com/investors.

Holders of Tenaris's shares and ADSs, and any other interested parties, may request a hard copy of the half-year report, free of charge, at 1-888-300-5432 (toll free from the United States) or 52-229-989-1940 (from outside the United States).

Conference call

Tenaris will hold a conference call to discuss the above reported results, on August 6, 2015, at 8:00 a.m. (Eastern Time). Following a brief summary, the conference call will be opened to questions. To access the conference call dial in +1 877 546 5018 within North America or +1 857 244 7550 Internationally. The access number is "80646056". 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 on August 6 through 11:59 pm on August 13. To access the replay by phone, please dial +1 888. 286.8010 or +1 617 801.6888 and enter passcode "42353815" 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 June 30, Six-month period ended June 30,
2015 2014 2015 2014
Continuing operations Unaudited Unaudited
Net sales 1,868,078 2,660,882 4,121,633 5,240,826
Cost of sales (1,324,377 ) (1,590,888 ) (2,765,069 ) (3,117,922 )
Gross profit 543,701 1,069,994 1,356,564 2,122,904
Selling, general and administrative expenses (437,620 ) (518,237 ) (873,727 ) (1,007,097 )
Other operating income (expense), net 5,041 (2,475 ) 7,658 (755 )
Operating income 111,122 549,282 490,495 1,115,052
Finance Income 10,978 15,655 23,085 27,120
Finance Cost (9,363 ) (10,618 ) (15,620 ) (23,621 )
Other financial results (9,718 ) (4,567 ) (16,988 ) 39,464
Income before equity in earnings of non-consolidated companies and income tax 103,019 549,752 480,972 1,158,015
Equity in earnings of non-consolidated companies 4,269 14,367 12,184 33,188
Income before income tax 107,288 564,119 493,156 1,191,203
Income tax (34,965 ) (144,219 ) (166,890 ) (343,284 )
Income for the period 72,323 419,900 326,266 847,919
Attributable to:
Owners of the parent 66,314 407,885 321,396 830,390
Non-controlling interests 6,009 12,015 4,870 17,529
72,323 419,900 326,266 847,919

On May 28, 2015, Tenaris restated its Consolidated Financial Statements as of and for the year ended December 31, 2014 to reduce the carrying amount of Tenaris' investment in Usiminas as of September 30, 2014. As a result of such restatement, the financial statements at March 31, 2015 were also restated to reflect such lower carrying value. See "I General Information" to our unaudited consolidated financial statements as of June 30, 2015.

Consolidated Condensed Interim Statement of Financial Position
(all amounts in thousands of U.S. dollars) At June 30, 2015 At December 31, 2014
Unaudited
ASSETS
Non-current assets
Property, plant and equipment, net 5,367,107 5,159,557
Intangible assets, net 2,674,520 2,757,630
Investments in non-consolidated companies 596,561 643,630
Available for sale assets 21,572 21,572
Other investments 1,561 1,539
Deferred tax assets 207,360 268,252
Receivables 247,522 9,116,203 262,176 9,114,356
Current assets
Inventories 2,142,391 2,779,869
Receivables and prepayments 237,192 267,631
Current tax assets 165,998 129,404
Trade receivables 1,531,594 1,963,394
Other investments 2,569,066 1,838,379
Cash and cash equivalents 519,230 7,165,471 417,645 7,396,322
Total assets 16,281,674 16,510,678
EQUITY
Capital and reserves attributable to owners of the parent 12,456,552 12,654,114
Non-controlling interests 155,450 152,200
Total equity 12,612,002 12,806,314
LIABILITIES
Non-current liabilities
Borrowings 25,557 30,833
Deferred tax liabilities 712,447 714,123
Other liabilities 269,925 285,865
Provisions 67,108 1,075,037 70,714 1,101,535
Current liabilities
Borrowings 1,235,138 968,407
Current tax liabilities 181,233 352,353
Other liabilities 374,119 296,277
Provisions 16,796 20,380
Customer advances 213,670 133,609
Trade payables 573,679 2,594,635 831,803 2,602,829
Total liabilities 3,669,672 3,704,364
Total equity and liabilities 16,281,674 16,510,678
Consolidated Condensed Interim Statement of Cash Flows
Three-month period ended June 30, Six-month period ended June 30,
(all amounts in thousands of U.S. dollars) 2015 2014 2015 2014
Cash flows from operating activities Unaudited Unaudited
Income for the period 72,323 419,900 326,266 847,919
Adjustments for:
Depreciation and amortization 153,464 153,079 301,201 305,743
Income tax accruals less payments (101,751 ) (12,379 ) (87,614 ) 58,411
Equity in earnings of non-consolidated companies (4,269 ) (14,367 ) (12,184 ) (33,188 )
Interest accruals less payments, net 1,838 (9,957 ) (2,613 ) (18,056 )
Changes in provisions 3,396 4,054 (7,190 ) 8,978
Changes in working capital 396,846 16,702 912,482 33,362
Other, including currency translation adjustment 26,242 9,454 (4,366 ) (24,839 )
Net cash provided by operating activities 548,089 566,486 1,425,982 1,178,330
Cash flows from investing activities
Capital expenditures (261,928 ) (223,177 ) (523,187 ) (412,222 )
Changes in advance to suppliers of property, plant and equipment 13,605 3,802 15,899 (24,849 )
Investment in non-consolidated companies - - - (1,380 )
Net loan to non-consolidated companies (3,461 ) (9,900 ) (9,749 ) (28,648 )
Proceeds from disposal of property, plant and equipment and intangible assets 1,319 2,579 1,873 6,606
Dividends received from non-consolidated companies 20,674 17,429 20,674 17,429
Changes in investments in short term securities (193,956 ) (195,629 ) (730,687 ) (500,075 )
Net cash used in investing activities (423,747 ) (404,896 ) (1,225,177 ) (943,139 )
Cash flows from financing activities
Dividends paid (354,161 ) (354,161 ) (354,161 ) (354,161 )
Dividends paid to non-controlling interest in subsidiaries - (400 ) - (48,289 )
Acquisitions of non-controlling interests (854 ) (50 ) (854 ) (140 )
Proceeds from borrowings (*) 516,584 712,807 1,123,894 1,207,214
Repayments of borrowings (*) (441,268 ) (531,530 ) (859,463 ) (1,000,200 )
Net cash used in financing activities (279,699 ) (173,334 ) (90,584 ) (195,576 )
Increase in cash and cash equivalents (155,357 ) (11,744 ) 110,221 39,615
Movement in cash and cash equivalents
At the beginning of the period 671,817 649,689 416,445 598,145
Effect of exchange rate changes 264 1,879 (9,942 ) 2,064
Increase in cash and cash equivalents (155,357 ) (11,744 ) 110,221 39,615
At June 30, 516,724 639,824 516,724 639,824
At June 30, At June 30,
Cash and cash equivalents 2015 2014 2015 2014
Cash and bank deposits 519,230 642,382 519,230 642,382
Bank overdrafts (2,506 ) (2,558 ) (2,506 ) (2,558 )
516,724 639,824 516,724 639,824

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

Source: Tenaris S.A.

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