Tenaris Announces 2015 First Quarter Results

LUXEMBOURG--(Marketwired - Apr 30, 2015) - Tenaris S.A. ( NYSE : TS ) ( BAE : TS ) ( BMV : TS ) ( MILAN : TEN ) ("Tenaris") today announced its results for the quarter ended March 31, 2015 in comparison with its results for the quarter ended March 31, 2014.

Summary of 2015 First Quarter Results

(Comparison with fourth and first quarters of 2014)

		Q1 2015		Q4 2014				Q1 2014
Net sales ($ million)		2,254		2,677		(16%)		2,580		(13%)
Operating income ($ million)		379		350		8%		566		(33%)
Net income ($ million)		221		195		14%		428		(48%)
Shareholders' net income ($ million)		222		195		14%		423		(47%)
Earnings per ADS ($)		0.38		0.33		14%		0.72		(47%)
Earnings per share ($)		0.19		0.17		14%		0.36		(47%)
EBITDA * ($ million)		527		712		(26%)		718		(27%)
EBITDA margin (% of net sales)		23.4%		26.6%				27.8%

*EBITDA is defined as operating income plus depreciation, amortization and impairment charges/(reversals). In the fourth quarter of 2014, operating income includes an impairment charge of $206 million on our welded pipe operations in Colombia and Canada and our net income includes an additional impairment charge of $49 million on our investment in Usiminas which is recorded in the equity in earnings of non-consolidated companies line. In the first quarter of 2015 we recorded an additional impairment of $17 million on our investment in Usiminas. 

Net sales in the first quarter declined 16% sequentially, affected by the rapid decline in drilling activity in North America and the reductions in exploration and production spending that are taking place around the world. Outside North America, sales declined significantly in Iraq, Ecuador and Australia while sales in South America were supported by shipments for pipeline projects in Argentina and Brazil. EBITDA declined 26% sequentially to $527 million with margins affected by inefficiencies associated with low utilization of production capacity.

Cash provided by operating activities reached $878 million during the quarter and at the end of the quarter we had a net cash position (cash and other current investments less total borrowings) of $1.9 billion.

Market Background and Outlook

The speed and the extent of the adjustment in oil and gas drilling activity in North America in response to the collapse in oil and gas prices is reflected in the fall in the number of drilling rigs in operation. In the United States, the rig count has already fallen more than 50% from last year's November peak and, in Canada, the rig count in the first quarter was down 40% year on year. In most other areas of the world, oil and gas drilling activity is declining, albeit at a more gradual pace, as companies have reduced exploration activity and are delaying projects seeking to reduce costs.

The impact of the decline in drilling activity on demand for OCTG is being amplified by the inventory adjustments that are taking place in the Middle East and sub-Saharan Africa and which are expected to take place in the United States, where high levels of imports and rapidly reducing consumption have pushed inventory levels to around ten months' future consumption.

After holding up well in the first quarter, we expect our sales to show further declines in the next two quarters before beginning a gradual recovery by the end of the year. Our margins over the next two quarters will be further affected by inefficiencies associated with low utilization of production capacity and other non-recurring restructuring costs but should return to a more balanced level by the end of the year once we see the full impact of lower raw material costs. 

While we are confident that the fundamentals for the oil and gas sector remain positive in the long-term, in the current difficult market conditions we are adjusting our operations and our costs and remain focused on strengthening our market position and enhancing our service deployment in key regions.

Analysis of 2015 First Quarter Results

Tubes Sales volume  (thousand metric tons)		Q1 2015		Q4 2014				Q1 2014
Seamless		655		745		(12%)		669		(2%)
Welded		160		239		(33%)		241		(34%)
Total		815		984		(17%)		910		(10%)

Tubes		Q1 2015		Q4 2014				Q1 2014
(Net sales - $ million)
North America		961		1,294		(26%)		1,085		(11%)
South America		487		483		1%		440		11%
Europe		236		213		11%		256		(8%)
Middle East & Africa		314		392		(20%)		536		(41%)
Far East & Oceania		78		115		(32%)		101		(23%)
Total net sales ($ million)		2,077		2,497		(17%)		2,418		(14%)
Operating income ($ million)		370		350		6%		561		(34%)
Operating income (% of sales)		17.8%		14.0%				23.2%

Operating income in the fourth quarter of 2014 includes an impairment charge of $206 million on our welded pipe operations in Colombia and Canada.

Net sales of tubular products and services decreased 17% sequentially and 14% year on year. In North America there was a strong reduction in onshore drilling activity in the United States and Canada and in Mexico activity declined in the Burgos and Marina regions. In South America sales were stable as higher shipments of line pipe products in Brazil and Argentina were offset by lower OCTG sales in Ecuador. In Europe sales increased sequentially due to a good level of shipments in the North Sea and Russia. In the Middle East & Africa our sales declined due to a reduction in activity in deepwater projects in Sub-Saharan Africa and lower sales in Iraq. In the Far East and Oceania, the decline in sales reflected lower sales of premium products in Indonesia and Australia.

Operating income from tubular products and services increased 6% sequentially, as results in the previous quarter were affected by an impairment charge of $206 million. Excluding the effect of the impairment, our operating income declined mainly reflecting lower shipments and inefficiencies resulting from lower capacity utilization.

Others		Q1 2015		Q4 2014				Q1 2014
Net sales ($ million)		177		180		(2%)		162		9%
Operating income ($ million)		9		1		1,422%		4		102%
Operating income (% of sales)		5.1%		0.3%				2.8%

Net sales of other products and services decreased 2% sequentially but increased 9% year on year. The sequential decline in sales was mainly due to lower sales at our industrial equipment business in Brazil, offset by higher sales of sucker rods and coiled tubing. The operating margin increased following an improvement in the results of our industrial equipment business in Brazil.

Selling, general and administrative expenses , or SG&A, amounted to $436 million, or 19.4% of net sales, in the first quarter of 2015, compared to $477 million, 17.8% in the previous quarter and $489 million, 18.9% in the first quarter of 2014. Despite a $41 million (9%) reduction in SG&A sequentially, it increased as a percentage of net sales due to the higher weight of fixed and semi-fixed expenses on lower sales.

Financial results amounted to a loss of $1 million in the first quarter of 2015, compared to a loss of $6 million in the previous quarter and a gain of $42 million in the same period of 2014. The loss in the first quarter of 2015 was due to foreign exchange losses, mainly attributed to the effect of the Brazilian Real devaluation (20.8%) on a short position in dollars at our Brazilian subsidiary. During the first quarter of 2014, we had a $51 million gain on foreign exchange results, mainly resulting from the Argentine peso devaluation (22.3%) on our short operative and financial position in Argentine pesos.

Equity in earnings of non-consolidated companies generated a loss of $25 million in the first quarter of 2015, compared to a loss of $23 million in the previous quarter and a gain of $19 million the first quarter of 2014. These results are mainly derived from our equity investment in Ternium ( NYSE : TX ) and Usiminas (BSP: USIM). These results were negatively affected by impairment charges on our investment in Usiminas, amounting to $17 million in the first quarter of 2015 and $49 million in the fourth quarter of 2014.

Income tax charges totaled $132 million in the first quarter of 2015, 34.9% of income before equity in earnings of non-consolidated companies and income tax, compared to $126 million, or 36.7% in the previous quarter and $199 million or 32.7% in the first quarter of 2014. During the first quarter 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.

Cash Flow and Liquidity

Net cash provided by operations during the first quarter of 2015 was $878 million, compared to $206 million in the previous quarter and $612 million in the first quarter of 2014.

Capital expenditures amounted to $261 million for the first quarter of 2015, compared to $375 million in the previous quarter and $189 million in the first quarter of 2014.

At the end of the quarter, our net cash position (cash and other current investments less total borrowings) amounted to $1.9 billion, compared to $1.3 billion at the end of the year.

Filing of Annual report on Form 20-F

As a result of an ongoing discussion with the U.S. SEC staff, regarding the carrying value of the Usiminas investment, Tenaris could be required to restate its financial statements for 2014 and for the first quarter of 2015. Therefore, Tenaris has sought an extension for the filing of its Annual Report on Form 20-F for the year ended December 31, 2014.

The value of Tenaris's investment in Usiminas, which was determined by the application of IFRS and tested for impairment using the value in use calculation as per IAS 36, amounted to $284 million as of September 30, 2014, $209 million as of December 31, 2014 and $153 million as of March 31, 2015, representing 1.2% of Tenaris's net worth.

For more information on the carrying value of the Usiminas investment, see note 12 to Tenaris's consolidated financial statements as of March 31, 2015.

Conference call

Tenaris will hold a conference call to discuss the above reported results, on May 1, 2015, 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 +1 877 280.4957 within North America or +1 857 244.7314 Internationally. The access number is " 11449917". 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 May 1 through 11:59 pm on May 8. To access the replay by phone, please dial +1 888 286.8010 or +1 617 801.6888 and enter passcode " 29639998" 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,
		2015			2014
Continuing operations		Unaudited
Net sales		2,253,555			2,579,944
Cost of sales		(1,440,692	)		(1,527,034	)
Gross profit		812,863			1,052,910
Selling, general and administrative expenses		(436,107	)		(488,860	)
Other operating income (expense), net		2,617			1,720
Operating income		379,373			565,770
Finance Income		12,107			11,465
Finance Cost		(6,257	)		(13,003	)
Other financial results		(7,270	)		44,031
Income before equity in earnings of non-consolidated companies and income tax		377,953			608,263
Equity in earnings of non-consolidated companies		(24,950	)		18,821
Income before income tax		353,003			627,084
Income tax		(131,925	)		(199,065	)
Income for the period		221,078			428,019
Attributable to:
Owners of the parent		222,217			422,505
Non-controlling interests		(1,139	)		5,514
		221,078			428,019

Consolidated Condensed Interim Statement of Financial Position
(all amounts in thousands of U.S. dollars)			At March 31, 2015				At December 31, 2014
			Unaudited
ASSETS
Non-current assets
	Property, plant and equipment, net		5,192,692				5,159,557
	Intangible assets, net		2,709,467				2,757,630
	Investments in non-consolidated companies		718,979				808,663
	Available for sale assets		21,572				21,572
	Other investments		1,559				1,539
	Deferred tax assets		230,338				268,252
	Receivables		257,814		9,132,421		262,176		9,279,389
Current assets
	Inventories		2,438,252				2,779,869
	Receivables and prepayments		249,283				267,631
	Current tax assets		129,657				129,404
	Trade receivables		1,675,941				1,963,394
	Other investments		2,375,110				1,838,379
	Cash and cash equivalents		675,619		7,543,862		417,645		7,396,322
Total assets					16,676,283				16,675,711
EQUITY
Capital and reserves attributable to owners of the parent					12,795,750				12,819,147
Non-controlling interests					150,817				152,200
Total equity					12,946,567				12,971,347
LIABILITIES
Non-current liabilities
	Borrowings		27,494				30,833
	Deferred tax liabilities		721,893				714,123
	Other liabilities		284,201				285,865
	Provisions		62,366		1,095,954		70,714		1,101,535
Current liabilities
	Borrowings		1,154,642				968,407
	Current tax liabilities		297,750				352,353
	Other liabilities		321,970				296,277
	Provisions		18,142				20,380
	Customer advances		188,704				133,609
	Trade payables		652,554		2,633,762		831,803		2,602,829
Total liabilities					3,729,716				3,704,364
Total equity and liabilities					16,676,283				16,675,711

Consolidated Condensed Interim Statement of Cash Flows
		Three-month period ended March 31,
(all amounts in thousands of U.S. dollars)		2015			2014
Cash flows from operating activities		Unaudited
Income for the period		221,078			428,019
Adjustments for:
Depreciation and amortization		147,737			152,664
Income tax accruals less payments		14,137			70,790
Equity in earnings of non-consolidated companies		24,950			(18,821	)
Interest accruals less payments, net		(4,451	)		(8,099	)
Changes in provisions		(10,586	)		4,924
Changes in working capital		515,636			16,660
Other, including currency translation adjustment		(30,608	)		(34,293	)
Net cash provided by operating activities		877,893			611,844
Cash flows from investing activities
Capital expenditures		(261,259	)		(189,045	)
Advance to suppliers of property, plant and equipment		2,294			(28,651	)
Investment in non-consolidated companies		-			(1,380	)
Net loan to non-consolidated companies		(6,288	)		(18,748	)
Proceeds from disposal of property, plant and equipment and intangible assets		554			4,027
Changes in investments in short terms securities		(536,731	)		(304,446	)
Net cash used in investing activities		(801,430	)		(538,243	)
Cash flows from financing activities
Dividends paid to non-controlling interest in subsidiaries		-			(47,889	)
Acquisitions of non-controlling interests		-			(90	)
Proceeds from borrowings		607,310			494,407
Repayments of borrowings		(418,195	)		(468,670	)
Net cash provided (used) in financing activities		189,115			(22,242	)
Increase in cash and cash equivalents		265,578			51,359
Movement in cash and cash equivalents
At the beginning of the period		416,445			598,145
Effect of exchange rate changes		(10,206	)		185
Increase in cash and cash equivalents		265,578			51,359
At March 31,		671,817			649,689
		At March 31,
Cash and cash equivalents		2015			2014
Cash and bank deposits		675,619			659,765
Bank overdrafts		(3,802	)		(10,076	)
		671,817			649,689