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.
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
Tenaris1-888-300-5432www.tenaris.com
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