LUXEMBOURG--(Marketwired - Apr 26, 2017) - Tenaris S.A. (
Summary of 2017 First Quarter Results
(Comparison with fourth and first quarter of 2016, with Conduit operations reclassified as discontinued operations)
| 1Q 2017 | 4Q 2016 | 1Q 2016 | ||||||||||||||||
| Net sales ($ million) | 1,154 | 1,046 | 10 | % | 1,206 | (4 | %) | |||||||||||
| Operating income ($ million) | 36 | 6 | 519 | % | 29 | 23 | % | |||||||||||
| Net income ($ million) | 206 | 24 | 740 | % | 28 | 636 | % | |||||||||||
| Shareholders' net income ($ million) | 205 | 34 | 507 | % | 18 | 1029 | % | |||||||||||
| Earnings per ADS ($) | 0.35 | 0.06 | 507 | % | 0.03 | 1029 | % | |||||||||||
| Earnings per share ($) | 0.17 | 0.03 | 507 | % | 0.02 | 1029 | % | |||||||||||
| EBITDA* ($ million) | 198 | 172 | 15 | % | 191 | 4 | % | |||||||||||
| EBITDA margin (% of net sales) | 17.2 | % | 16.5 | % | 15.8 | % | ||||||||||||
*EBITDA includes severance charges of $9 million in Q1 2017, $8 million in Q4 2016 and $13 million in Q1 2016. If these charges were not included EBITDA would have been $207 million (18%) in Q1 2017, $180 million (17%) in Q4 2016,and $204 million (17%) in Q1 2016.
Our sales rose 10% quarter on quarter reflecting a strong increase in demand in USA and Canada, partially offset by lower sales in the Middle East and Africa. Our EBITDA continues to recover from the low point reached in the second quarter of last year and our net income benefited from an after tax gain of $92 million from the sale of Republic Conduit and a positive income tax charge.
Net cash provided by operations was $26 million, with an increase in working capital of $105 million reflecting higher inventories and receivables. Capital expenditures amounted to $139 million and our net cash position (cash, other current investments and fixed income investments held to maturity less total borrowings) rose to $1.6 billion, including the $328 million we collected from the sale of Republic Conduit.
Market Background and Outlook
Four months into 2017, the recovery in shale drilling in the USA and Canada has been impressive. With oil and gas prices remaining rangebound ($50-55/bbl, $3.00-3.30/million BTU), however, we expect the pace of the recovery will slow down. In the rest of the world, signs of recovery are more scarce, as oil and gas companies focus on strengthening cash flow and their financial position. In Latin America, drilling activity has been recovering from a very low base and, in Argentina various operators have announced investments in the Vaca Muerta shale play.
We estimate that global demand for OCTG products in 2017 will increase in the range of 35-40% with respect to 2016. The demand increase is concentrated in USA and Canada, where we have been implementing our Rig Direct™ program, reopening our Canadian mills and starting up the heat treatment and threading facilities of our new mill in Bay City, Texas.
Our sales and EBITDA in the second quarter should be in line with those of this first quarter as further increases in sales in the USA are counterbalanced by seasonal effects in Canada and a lower quarterly level of shipments to the Middle East. In the second half of the year, sales should increase driven by higher demand from Rig Direct™ customers in North America and Argentina and line pipe shipments to Eastern Mediterranean offshore gas projects in the fourth quarter. Our EBITDA should also increase with margins improving based on a better absorption of fixed costs. Although pricing conditions are improving, particularly in North America, average revenue per ton will continue to be held back by a changing regional mix and the prices in our Eastern Hemisphere backlog.
Analysis of 2017 First Quarter Results
| Tubes Sales volume (thousand metric tons) | 1Q 2017 | 4Q 2016 | 1Q 2016 | |||||||
| Seamless | 509 | 458 | 11 | % | 366 | 39 | % | |||
| Welded | 74 | 67 | 10 | % | 146 | (49 | %) | |||
| Total | 583 | 526 | 11 | % | 512 | 14 | % | |||
| Tubes | 1Q 2017 | 4Q 2016 | 1Q 2016 | |||||||
| (Net sales - $ million) | ||||||||||
| North America | 477 | 336 | 42 | % | 380 | 25 | % | |||
| South America | 203 | 212 | (4 | %) | 350 | (42 | %) | |||
| Europe | 130 | 122 | 7 | % | 133 | (2 | %) | |||
| Middle East & Africa | 230 | 275 | (17 | %) | 239 | (4 | %) | |||
| Asia Pacific | 46 | 38 | 20 | % | 28 | 61 | % | |||
| Total net sales ($ million) | 1,085 | 983 | 10 | % | 1,130 | (4 | % ) | |||
| Operating income ($ million) | 31 | 5 | 512 | % | 21 | 46 | % | |||
| Operating margin (% of sales) | 2.8 | % | 0.5 | % | 1.9 | % | ||||
Net sales of tubular products and services increased 10% sequentially but declined 4% year on year. In North America sales increased 42% sequentially, reflecting an increase in drilling activity in the United States and Canada. In South America sales declined 4% due to lower demand for OCTG and line pipe in Argentina partially offset by higher shipments of connectors in Brazil and higher OCTG demand in Colombia. In Europe sales increased 7% as demand for mechanical pipe and line pipe for power generation and hydrocarbon processing industry remained stable while higher sales of OCTG in North Sea were partially offset by lower sales elsewhere. In the Middle East and Africa sales declined 17% as shipments for Zohr phase 1 were completed in January and we had a low level of demand in sub-Saharan Africa. In Asia Pacific sales increased 20% due to Rig Direct sales to Chevron in Thailand at full regimen but demand in the rest of the region continues to be low.
Operating income from tubular products and services amounted to $31 million in the first quarter of 2017, compared to $5 million in the previous quarter and $21 million in the first quarter of 2016. The sequential increase is a result of an improvement in the margin; while average selling prices remained stable, we were able to reduce our costs due to a better absorption of fixed costs on higher volumes.
| Others | 1Q 2017 | 4Q 2016 | 1Q 2016 | ||||||||||||
| Net sales ($ million) | 68 | 63 | 9 | % | 76 | (10 | %) | ||||||||
| Operating income ($ million) | 5 | 1 | 675 | % | 8 | (34 | %) | ||||||||
| Operating income (% of sales) | 7.9 | % | 1.1 | % | 10.8 | % | |||||||||
Net sales of other products and services increased 9% sequentially but declined 10% year on year. The sequential increase in sales and operating income is due to increased revenues of sucker rods, coiled tubing and excess energy.
Selling, general and administrative expenses , or SG&A, amounted to $294 million, or 25.5% of net sales, in the first quarter of 2017, compared to $280 million, 26.8% in the previous quarter and $279 million, 23.1% in the first quarter of 2016. Sequentially, SG&A declined as a percentage of sales due to a better absorption of fixed costs on higher sales and lower provisions for contingencies.
Financial results amounted to a loss of $4 million in the first quarter of 2017, compared to a gain of $23 million in the previous quarter and a loss of $15 million in the first quarter of 2016, mainly explained by the negative impact from Euro appreciation against the U.S. dollar on Euro denominated intercompany liabilities in subsidiaries with functional currency U.S. dollar. These results are to a large extent offset in equity, in the currency translation adjustment reserve.
Equity in earnings of non-consolidated companies generated a gain of $35 million in the first quarter of 2017, compared to a gain of $15 million in the previous quarter and a gain of $12 million the first quarter of 2016. These results are mainly derived from our equity investment in Ternium (
Income tax amounted to a gain of $47 million in the first quarter of 2017, primarily reflecting the effect of the Mexican and Argentine peso revaluation on the tax base used to calculate deferred taxes at our Mexican and Argentine subsidiaries which have the U.S. dollar as their functional currency. This result offsets to a large extent the income tax charge for the same concept that was generated in the previous quarter due to a devaluation of the Mexican and Argentine peso.
Results for discontinued operations amounted to $92 million in the first quarter of 2017, reflecting the after tax result of the sale of Republic Conduit, which was closed in January 2017.
Results attributable to non-controlling interests amounted to zero in the first quarter of 2017, compared to a $9 million loss in the previous quarter and a gain of $10 million attributable to non-controlling interests in the first quarter of 2016. These results are mainly originated at our subsidiray in Japan, NKKTubes and at our pipe coating subsidiary in Nigeria.
Cash Flow and Liquidity
Net cash provided by operations during the first quarter of 2017 was $26 million, compared to $309 million in the first quarter of 2016 and $79 million used in the previous quarter.
Capital expenditures amounted to $139 million for the first quarter of 2017, compared to $158 million in the previous quarter and $230 million in the first quarter of 2016.
At the end of the quarter, our net cash position (cash, other current investments and fixed income investments held to maturity less total borrowings) amounted to $1.6 billion, compared to $1.4 billion at the beginning of the year, as in January 2017 we collected $328 million from the sale of Republic Conduit.
Conference call
Tenaris will hold a conference call to discuss the above reported results, on April 28, 2017, 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 +1 877 730 0732 within North America or +1 530 379.4676 Internationally. The access number is " 9094268". 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 April 28th, through 11.59 pm on May 6th, 2017. To access the replay by phone, please dial 855 859 2056 or 404 537 3406 and enter passcode "9094268" 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, | |||||
| 2017 | 2016 | |||||
| Continuing operations | Unaudited | |||||
| Net sales | 1,153,860 | 1,206,350 | ||||
| Cost of sales | (823,856 | ) | (897,062 | ) | ||
| Gross profit | 330,004 | 309,288 | ||||
| Selling, general and administrative expenses | (294,431 | ) | (278,848 | ) | ||
| Other operating income (expense), net | 441 | (1,130 | ) | |||
| Operating income | 36,014 | 29,310 | ||||
| Finance Income | 12,927 | 19,895 | ||||
| Finance Cost | (5,938 | ) | (4,304 | ) | ||
| Other financial results | (11,415 | ) | (30,098 | ) | ||
| Income before equity in earnings of non-consolidated companies and income tax | 31,588 | 14,803 | ||||
| Equity in earnings of non-consolidated companies | 35,200 | 11,727 | ||||
| Income before income tax | 66,788 | 26,530 | ||||
| Income tax | 47,245 | (6,441 | ) | |||
| Income for continuing operations | 114,033 | 20,089 | ||||
| Discontinued operations | ||||||
| Result for discontinued operations | 91,542 | 7,861 | ||||
| Income for the period | 205,575 | 27,950 | ||||
| Attributable to: | ||||||
| Owners of the parent | 205,127 | 18,161 | ||||
| Non-controlling interests | 448 | 9,789 | ||||
| 205,575 | 27,950 | |||||
| Consolidated Condensed Interim Statement of Financial Position | |||||||||
| (all amounts in thousands of U.S. dollars) | At March 31, 2017 | At December 31, 2016 | |||||||
| Unaudited | |||||||||
| ASSETS | |||||||||
| Non-current assets | |||||||||
| Property, plant and equipment, net | 6,048,740 | 6,001,939 | |||||||
| Intangible assets, net | 1,804,676 | 1,862,827 | |||||||
| Investments in non-consolidated companies | 598,546 | 557,031 | |||||||
| Available for sale assets | 21,572 | 21,572 | |||||||
| Other investments | 317,666 | 249,719 | |||||||
| Deferred tax assets | 153,277 | 144,613 | |||||||
| Receivables, net | 201,989 | 9,146,466 | 197,003 | 9,034,704 | |||||
| Current assets | |||||||||
| Inventories, net | 1,673,034 | 1,563,889 | |||||||
| Receivables and prepayments, net | 173,246 | 124,715 | |||||||
| Current tax assets | 151,690 | 140,986 | |||||||
| Trade receivables, net | 1,010,528 | 954,685 | |||||||
| Other investments | 1,613,665 | 1,633,142 | |||||||
| Cash and cash equivalents | 427,619 | 5,049,782 | 399,737 | 4,817,154 | |||||
| Assets of disposal group classified as held for sale | - | 151,417 | |||||||
| Total assets | 14,196,248 | 14,003,275 | |||||||
| EQUITY | |||||||||
| Capital and reserves attributable to owners of the parent | 11,530,615 | 11,287,417 | |||||||
| Non-controlling interests | 106,930 | 125,655 | |||||||
| Total equity | 11,637,545 | 11,413,072 | |||||||
| LIABILITIES | |||||||||
| Non-current liabilities | |||||||||
| Borrowings | 31,587 | 31,542 | |||||||
| Deferred tax liabilities | 557,764 | 550,657 | |||||||
| Other liabilities | 215,272 | 213,617 | |||||||
| Provisions | 42,280 | 846,903 | 63,257 | 859,073 | |||||
| Current liabilities | |||||||||
| Borrowings | 676,644 | 808,694 | |||||||
| Current tax liabilities | 102,770 | 101,197 | |||||||
| Other liabilities | 202,133 | 183,887 | |||||||
| Provisions | 25,895 | 22,756 | |||||||
| Customer advances | 62,265 | 39,668 | |||||||
| Trade payables | 642,093 | 1,711,800 | 556,834 | 1,713,036 | |||||
| Liabilities of disposal group classified as held for sale | - | 18,094 | |||||||
| Total liabilities | 2,558,703 | 2,590,203 | |||||||
| Total equity and liabilities | 14,196,248 | 14,003,275 | |||||||
| Consolidated Condensed Interim Statement of Cash Flows | ||||||
| Three-month period ended March 31, | ||||||
| (all amounts in thousands of U.S. dollars) | 2017 | 2016 | ||||
| Cash flows from operating activities | Unaudited | |||||
| Income for the period | 205,575 | 27,950 | ||||
| Adjustments for: | ||||||
| Depreciation and amortization | 162,218 | 163,155 | ||||
| Income tax accruals less payments | (92,930 | ) | (16,171 | ) | ||
| Equity in earnings of non-consolidated companies | (35,200 | ) | (11,727 | ) | ||
| Interest accruals less payments, net | (8,555 | ) | (19,399 | ) | ||
| Changes in provisions | (17,838 | ) | 6,798 | |||
| Income from the sale of Conduit business | (89,694 | ) | - | |||
| Changes in working capital | (104,937 | ) | 102,915 | |||
| Other, including currency translation adjustment | 7,495 | 55,626 | ||||
| Net cash provided by operating activities | 26,134 | 309,147 | ||||
| Cash flows from investing activities | ||||||
| Capital expenditures | (138,615 | ) | (230,249 | ) | ||
| Changes in advance to suppliers of property, plant and equipment | 3,503 | 14,258 | ||||
| Proceeds from disposal of Conduit business | 327,631 | - | ||||
| Loan to non-consolidated companies | (9,006 | ) | (10,384 | ) | ||
| Proceeds from disposal of property, plant and equipment and intangible assets | 1,962 | 1,723 | ||||
| Changes in investments in securities | (48,469 | ) | 129,928 | |||
| Net cash provided by (used in) investing activities | 137,006 | (94,724 | ) | |||
| Cash flows from financing activities | ||||||
| Dividends paid to non-controlling interest in subsidiaries | - | (4,311 | ) | |||
| Acquisitions of non-controlling interests | (18 | ) | (366 | ) | ||
| Proceeds from borrowings | 624,183 | 253,471 | ||||
| Repayments of borrowings | (762,670 | ) | (220,833 | ) | ||
| Net cash (used in) provided by financing activities | (138,505 | ) | 27,961 | |||
| Increase in cash and cash equivalents | 24,635 | 242,384 | ||||
| Movement in cash and cash equivalents | ||||||
| At the beginning of the period | 398,580 | 286,198 | ||||
| Effect of exchange rate changes | 3,526 | 2,161 | ||||
| Increase in cash and cash equivalents | 24,635 | 242,384 | ||||
| At March 31, | 426,741 | 530,743 | ||||
| At March 31, | ||||||
| Cash and cash equivalents | 2017 | 2016 | ||||
| Cash and bank deposits | 427,619 | 531,762 | ||||
| Bank overdrafts | (878 | ) | (1,019 | ) | ||
| 426,741 | 530,743 | |||||
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, | ||||
| 2017 | 2016 | ||||
| Operating income | 36,014 | 29,310 | |||
| Depreciation and amortization | 162,218 | 163,155 | |||
| Depreciation and amortization from discontinued operations | 0 | (1,362 | ) | ||
| EBITDA | 198,232 | 191,103 | |||
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) + Fixed income investments held to maturity - Borrowings (Current and Non-current).
| (all amounts in thousands of U.S. dollars) | At March 31, | |||||
| 2017 | 2016 | |||||
| Cash and cash equivalents | 427,619 | 531,762 | ||||
| Other current investments | 1,613,665 | 2,036,183 | ||||
| Fixed income investments held to maturity | 316,003 | 367,834 | ||||
| Borrowings - current and non-current | (708,231 | ) | (999,622 | ) | ||
| Net cash / (debt) | 1,649,056 | 1,936,157 | ||||
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.
| Three-month period ended March 31, | ||||||
| 2017 | 2016 | |||||
| Net cash provided by operating activities | 26,134 | 309,147 | ||||
| Capital expenditures | (138,615 | ) | (230,249 | ) | ||
| Free cash flow | (112,481 | ) | 78,898 | |||
Giovanni Sardagna Tenaris 1-888-300-5432 www.tenaris.com
