Tenaris S.A. (NYSE and Mexico: TS and MTA Italy: TEN) (“Tenaris”)
today announced its results for the quarter ended March 31, 2020 in
comparison with its results for the quarter ended March 31, 2019.
Summary of 2020 First Quarter Results
(Comparison with fourth and first quarter of 2019)
|
1Q 2020 |
4Q 2019 |
1Q 2019 |
Net sales ($ million) |
1,762 |
|
1,741 |
|
1 |
% |
1,872 |
|
(6 |
%) |
Operating (loss) income ($ million) |
(510 |
) |
152 |
|
(436 |
%) |
259 |
|
(297 |
%) |
Net (loss) income ($ million) |
(666 |
) |
148 |
|
(548 |
%) |
243 |
|
(374 |
%) |
Shareholders’ net (loss) income ($ million) |
(660 |
) |
152 |
|
(535 |
%) |
243 |
|
(372 |
%) |
(Loss) earnings per ADS ($) |
(1.12 |
) |
0.26 |
|
(535 |
%) |
0.41 |
|
(372 |
%) |
(Loss) earnings per share ($) |
(0.56 |
) |
0.13 |
|
(535 |
%) |
0.21 |
|
(372 |
%) |
EBITDA* ($ million) |
280 |
|
290 |
|
(4 |
%) |
390 |
|
(28 |
%) |
EBITDA margin (% of net sales) |
15.9 |
% |
16.7 |
% |
|
20.9 |
% |
|
*EBITDA is defined as operating (loss) income
plus depreciation, amortization and impairment charges /
(reversals). EBITDA includes severance charges of $23 million in Q1
2020. If these charges were not included EBITDA would have been
$303 million (17.2%).
These first quarter results include the
consolidation of IPSCO which we acquired on January 2, 2020. Our
sales in the first quarter remained in line with those of the
previous quarter even after the integration of IPSCO, reflecting a
low sales backlog at the completion of the acquisition and
continuing declines in key markets in North and South America
during the period as well as ongoing destocking actions at Aramco.
Our EBITDA declined 4% sequentially to $280 million affected by
losses at IPSCO and severance charges amounting to $23 million,
primarily in North America.
Our operating income includes impairment charges
of $622 million on the carrying value of goodwill and other assets
in the United States, mainly related to the former IPSCO business
and our welded pipe operations. These impairment charges reflect
the severe change in business conditions we are experiencing with
the collapse in oil demand and prices, and their impact on drilling
activity and the demand for steel pipe products, resulting from the
ongoing measures taken around the world to contain the COVID-19
pandemic and their impact on economic activity. Our net income for
the quarter was further affected by: i) the impact of currency
devaluations on income tax and foreign exchange results and ii) a
lower contribution from our equity investments.
During the quarter, we reduced our working
capital by $317 million, reflecting reductions in receivables and
inventories. With operating cash flow of $516 million and capital
expenditures of $68 million, our free cash flow amounted to $448
million (25% of revenues). After paying $1.1 billion for the
acquisition of IPSCO in January 2020, at March 31, 2020 our
positive net cash position amounted to $271 million.
Market Background and Outlook
The rapid decline in economic activity and
unprecedented collapse in global oil demand as a result of the
measures taken to contain the spread of the COVID-19 pandemic
around the world has resulted in an equally unprecedented collapse
in oil prices, due to the imbalance between production, storage
capacity and demand. At this moment, it is not possible to
determine how long it will take for economic activity and oil and
gas demand to recover and for supply and demand to rebalance. In
this environment, investments in exploration and production of oil
and gas are being severely curtailed and are not expected to
recover in the short term.
We are taking action to preserve adequate levels
of operation while protecting the health and safety of our
employees, fulfill our commitments to customers, strengthen the
medical response capability in the local communities where we have
our operations and ensure the financial stability of the
company.
To mitigate the impact of expected lower sales,
we are working on a worldwide rightsizing program and cost
containment plan aimed at preserving financial resources and
liquidity and maintaining the continuity of our operations. The
actions include:
- adjusting the level of our
operations and workforce around the world, including the temporary
closure of facilities and production lines in the USA;
- downsizing our fixed cost
structure, including pay reductions for the board and senior
management with aggregated cost savings of approximately $220
million by year end;
- reducing capital expenditures and
R&D expenses by approximately $150 million compared to
2019;
- proposing to limit the payment of
the dividend in respect of the 2019 fiscal year to the $153 million
payment already made as an interim dividend during November;
- reducing working capital in
accordance with activity levels.
For the second quarter of 2020, we are expecting
a substantial reduction in sales and margins, particularly in the
Americas, though sales in the rest of the world may remain more
stable. In this highly uncertain environment, sales could be around
35% lower than the first quarter and our EBITDA margin, excluding
restructuring charges, could fall to a high single digit. We do,
however, expect to reduce working capital further and continue to
generate positive free cash flow.
Annual Dividend Proposal
The board of directors proposes, for the
approval of the annual general shareholders’ meeting to
be held on June 2, 2020, to limit the dividend in respect of
the 2019 fiscal year to the $153 million payment already made as an
interim dividend in November 2019.
Analysis of 2020 First
Quarter Results |
|
|
|
|
|
|
|
Tubes Sales volume (thousand metric tons) |
1Q 2020 |
4Q 2019 |
1Q 2019 |
Seamless |
665 |
641 |
4 |
% |
640 |
4 |
% |
Welded |
170 |
164 |
4 |
% |
184 |
(8 |
%) |
Total |
835 |
805 |
4 |
% |
824 |
1 |
% |
Tubes |
1Q 2020 |
4Q 2019 |
1Q 2019 |
(Net sales - $ million) |
|
|
|
|
|
North America |
878 |
|
779 |
|
13 |
% |
893 |
|
(2 |
%) |
South America |
224 |
|
265 |
|
(15 |
%) |
330 |
|
(32 |
%) |
Europe |
134 |
|
153 |
|
(13 |
%) |
158 |
|
(15 |
%) |
Middle East & Africa |
331 |
|
352 |
|
(6 |
%) |
301 |
|
10 |
% |
Asia Pacific |
90 |
|
82 |
|
10 |
% |
81 |
|
11 |
% |
Total net sales ($ million) |
1,657 |
|
1,631 |
|
2 |
% |
1,763 |
|
(6 |
%) |
Operating (loss) income ($ million) |
(478 |
) |
138 |
|
(446 |
%) |
238 |
|
(301 |
%) |
Operating margin (% of sales) |
-28.8 |
% |
8.5 |
% |
|
13.5 |
% |
|
Net sales of tubular products and services
increased 2% sequentially but declined 6% year on year.
Sequentially a 4% increase in volumes was partially offset by a 2%
decrease in average selling price. In North America sales increased
13% sequentially, reflecting the increase from the integration of
IPSCO and the Canadian seasonal effect. In South America sales
declined 15% sequentially, reflecting declining sales in Argentina
and Colombia but a good quarter for sales of large diameter casing
for offshore drilling in Brazil. In Europe sales decreased 13% due
to declining level of sales in line pipe for downstream projects
and OCTG in the North Sea as COVID-19 restrictions start to become
effective. In the Middle East and Africa sales decreased 6%
sequentially, reflecting lower sales in Saudi Arabia due to ongoing
destocking by Aramco partially compensated by deliveries of
offshore line pipe to a project in West Africa. In Asia Pacific
sales increased 10% thanks to an increase in sales in Australia and
China.
Operating result from tubular products and
services amounted to a loss of $478 million in the first quarter of
2020, compared to gains of $138 million in the previous quarter and
$238 million in the first quarter of 2019. In this quarter, we
recorded an impairment of $582 million on our Tubes segment,
affecting our welded pipe assets in the U.S. and the newly acquired
IPSCO business. Additionally, during the quarter we had severance
charges of $23 million.
Others |
1Q 2020 |
4Q 2019 |
1Q 2019 |
Net sales ($ million) |
105 |
|
109 |
|
(4 |
%) |
109 |
|
(4 |
%) |
Operating (loss) income ($ million) |
(32 |
) |
14 |
|
(329 |
%) |
21 |
|
(252 |
%) |
Operating margin (% of sales) |
-30.2 |
% |
12.6 |
% |
|
19.1 |
% |
|
Net sales of other products and services
decreased 4% sequentially and year on year. The sequential decrease
in sales is mainly related to lower sales of coiled tubing
partially offset by improvement in other businesses. During the
quarter Others segment operating income was affected by impairment
charges of $40 million related to the sucker rods and coiled tubing
businesses in the United States.
Selling, general and administrative
expenses, or SG&A, amounted to $357 million, or 20.3%
of net sales, in the first quarter of 2020, compared to $349
million, 20.0% in the previous quarter and $345 million, 18.5% in
the first quarter of 2019. Sequentially, our amortization of
intangibles increased by $20 million: $8 million due to the
integration of IPSCO and $12 million due to a one-off charge as
IPSCO’s software was fully amortized. Additionally, our selling
expenses increased $11 million and we had leaving indemnities
related to administrative workers of $10 million, partially offset
by a decline in services and fees of $10 million (consultancy and
legal fees in the previous quarter related to acquisition of IPSCO)
and $13 million lower taxes.
Other operating results
included an impairment of $622 million on our U.S. businesses,
mainly our welded pipe assets and the newly acquired IPSCO
business.
Financial results amounted to a
loss of $22 million in the first quarter of 2020, compared to a
loss of $7 million in the previous quarter and a gain of $24
million in the first quarter of 2019. The loss of the quarter
corresponds mainly to an FX loss, net of derivatives results of $18
million from a 29% Brazilian Real devaluation on intercompany debt
denominated in U.S. dollars at our Brazilian subsidiary which
functional currency is the Brazilian Real. This result is to a
large extent offset by changes to our currency translation
reserve.
Equity in earnings of
non-consolidated companies
generated a gain of $2 million in the first quarter of 2020,
compared to a gain of $13 million in the previous quarter and a
gain of $29 million in the first quarter of 2019. This quarter´s
results reflect a gain from our investment in Techgen, partially
offset by a loss in Ternium (NYSE:TX).
Income tax
charge amounted to $136 million in the first
quarter of 2020, compared to $10 million in the previous quarter
and $70 million in the first quarter of 2019. During this quarter
we recorded deferred tax charges of $111 million related to the
devaluation of several currencies against the U.S. dollar, mainly
the effect of the 25% devaluation of the Mexican Peso on the tax
base used to calculate deferred taxes at our Mexican 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 2020 was $516 million, compared with $264 million in the
previous quarter and $548 million in the first quarter of 2019.
Working capital decreased by $317 million, reflecting, in part, the
reduction in activity and expected demand.
Capital expenditures amounted to $68 million for
the first quarter of 2020, compared to $80 million in the previous
quarter and $86 million in the first quarter of 2019.
Free cash flow of the quarter amounted to $448
million (25% of revenues), compared to $184 million in the previous
quarter and $462 million in the first quarter of 2019.
After paying $1.1 billion for the acquisition of
IPSCO in January 2020, at March 31, 2020 our positive net cash
position amounted to $271 million.
Conference call
Tenaris will hold a conference call to discuss
the above reported results, on April 30, 2020, 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 “7090759”. Please dial in 10
minutes before the scheduled start time. The conference call will
be also available by webcast at
ir.tenaris.com/events-and-presentations.
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 30, through 1.00 pm on May 8, 2020. To
access the replay by phone, please dial +1855 859 2056 or +1 404
537 3406 and enter passcode “7090759” 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, |
|
2020 |
2019 |
Continuing operations |
Unaudited |
Net sales |
1,762,311 |
|
1,871,759 |
|
Cost of sales |
(1,293,665 |
) |
(1,271,799 |
) |
Gross profit |
468,646 |
|
599,960 |
|
Selling, general and administrative expenses |
(357,045 |
) |
(345,366 |
) |
Impairment charge |
(622,402 |
) |
- |
|
Other operating income (expense), net |
1,256 |
|
4,422 |
|
Operating (loss) income |
(509,545 |
) |
259,016 |
|
Finance Income |
1,877 |
|
10,461 |
|
Finance Cost |
(8,442 |
) |
(6,982 |
) |
Other financial results |
(15,742 |
) |
20,915 |
|
(Loss) income before equity in earnings of non-consolidated
companies and income tax |
(531,852 |
) |
283,410 |
|
Equity in earnings of non-consolidated companies |
1,889 |
|
29,135 |
|
(Loss) income before income tax |
(529,963 |
) |
312,545 |
|
Income tax |
(135,769 |
) |
(69,956 |
) |
(Loss) income for the period |
(665,732 |
) |
242,589 |
|
|
|
|
Attributable to: |
|
|
Owners of the parent |
(660,068 |
) |
242,879 |
|
Non-controlling interests |
(5,664 |
) |
(290 |
) |
|
(665,732 |
) |
242,589 |
|
Consolidated Condensed Interim Statement of Financial
Position |
|
|
|
|
(all amounts in thousands of
U.S. dollars) |
At March 31, 2020 |
|
At December 31, 2019 |
|
Unaudited |
|
|
ASSETS |
|
|
|
|
|
Non-current assets |
|
|
|
|
|
Property, plant and equipment, net |
6,450,499 |
|
|
6,090,017 |
|
Intangible assets, net |
1,470,105 |
|
|
1,561,559 |
|
Right-of-use assets, net |
251,449 |
|
|
233,126 |
|
Investments in non-consolidated companies |
853,205 |
|
|
879,965 |
|
Other investments |
25,238 |
|
|
24,934 |
|
Deferred tax assets |
230,412 |
|
|
225,680 |
|
Receivables, net |
152,647 |
9,433,555 |
|
157,103 |
9,172,384 |
Current assets |
|
|
|
|
|
Inventories, net |
2,235,251 |
|
|
2,265,880 |
|
Receivables and prepayments, net |
104,399 |
|
|
104,575 |
|
Current tax assets |
140,282 |
|
|
167,388 |
|
Trade receivables, net |
1,183,989 |
|
|
1,348,160 |
|
Derivative financial instruments |
7,859 |
|
|
19,929 |
|
Other investments |
174,387 |
|
|
210,376 |
|
Cash and cash equivalents |
841,722 |
4,687,889 |
|
1,554,299 |
5,670,607 |
Total assets |
|
14,121,444 |
|
|
14,842,991 |
EQUITY |
|
|
|
|
|
Capital and reserves attributable to owners of the parent |
|
11,222,321 |
|
|
11,988,958 |
Non-controlling interests |
|
191,352 |
|
|
197,414 |
Total equity |
|
11,413,673 |
|
|
12,186,372 |
LIABILITIES |
|
|
|
|
|
Non-current liabilities |
|
|
|
|
|
Borrowings |
175,195 |
|
|
40,880 |
|
Lease liabilities |
201,988 |
|
|
192,318 |
|
Deferred tax liabilities |
419,888 |
|
|
336,982 |
|
Other liabilities |
254,536 |
|
|
251,383 |
|
Provisions |
73,075 |
1,124,682 |
|
54,599 |
876,162 |
Current liabilities |
|
|
|
|
|
Borrowings |
523,203 |
|
|
781,272 |
|
Lease liabilities |
44,369 |
|
|
37,849 |
|
Derivative financial instruments |
63,090 |
|
|
1,814 |
|
Current tax liabilities |
118,064 |
|
|
127,625 |
|
Other liabilities |
213,204 |
|
|
176,264 |
|
Provisions |
14,107 |
|
|
17,017 |
|
Customer advances |
76,833 |
|
|
82,729 |
|
Trade payables |
530,219 |
1,583,089 |
|
555,887 |
1,780,457 |
Total liabilities |
|
2,707,771 |
|
|
2,656,619 |
Total equity and liabilities |
|
14,121,444 |
|
|
14,842,991 |
Consolidated Condensed Interim Statement of Cash
Flows |
|
|
|
|
|
Three-month period ended March 31, |
(all amounts in thousands of U.S. dollars) |
|
2020 |
2019 |
Cash flows from operating activities |
|
Unaudited |
|
|
|
|
(Loss) income for the period |
|
(665,732 |
) |
242,589 |
|
Adjustments for: |
|
|
|
Depreciation and amortization |
|
166,977 |
|
131,335 |
|
Impairment Charge |
|
622,402 |
|
- |
|
Income tax accruals less payments |
|
86,258 |
|
9,951 |
|
Equity in earnings of non-consolidated companies |
|
(1,889 |
) |
(29,135 |
) |
Interest accruals less payments, net |
|
3,136 |
|
560 |
|
Changes in provisions |
|
(11,490 |
) |
(1,870 |
) |
Changes in working capital |
|
316,971 |
|
199,489 |
|
Currency translation adjustment and others |
|
(555 |
) |
(5,303 |
) |
Net cash provided by operating activities |
|
516,078 |
|
547,616 |
|
|
|
|
|
Cash flows from investing activities |
|
|
|
Capital expenditures |
|
(68,044 |
) |
(85,686 |
) |
Changes in advance to suppliers of property, plant and
equipment |
|
(427 |
) |
501 |
|
Acquisition of subsidiaries, net of cash acquired |
|
(1,063,848 |
) |
(132,845 |
) |
Repayment of loan by non-consolidated companies |
|
- |
|
40,470 |
|
Proceeds from disposal of property, plant and equipment and
intangible assets |
|
518 |
|
262 |
|
Changes in investments in securities |
|
31,294 |
|
66,777 |
|
Net cash (used in) investing activities |
|
(1,100,507 |
) |
(110,521 |
) |
|
|
|
|
Cash flows from financing activities |
|
|
|
Changes in non-controlling
interests |
|
1 |
|
1 |
|
Payments of lease
liabilities |
|
(14,961 |
) |
(10,171 |
) |
Proceeds from borrowings |
|
219,158 |
|
184,396 |
|
Repayments of borrowings |
|
(314,494 |
) |
(139,052 |
) |
Net cash (used in) provided by financing
activities |
|
(110,296 |
) |
35,174 |
|
|
|
|
|
(Decrease) increase in cash and cash
equivalents |
|
(694,725 |
) |
472,269 |
|
Movement in cash and cash equivalents |
|
|
|
At the beginning of the
period |
|
1,554,275 |
|
426,717 |
|
Effect of exchange rate
changes |
|
(19,686 |
) |
(1,484 |
) |
(Decrease) increase in cash
and cash equivalents |
|
(694,725 |
) |
472,269 |
|
|
|
839,864 |
|
897,502 |
|
|
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 March 31, |
|
2020 |
2019 |
Operating
income |
(509,545 |
) |
259,016 |
Depreciation and amortization |
166,977 |
|
131,335 |
Impairment Charge |
622,402 |
|
- |
EBITDA |
279,834 |
|
390,351 |
|
|
|
|
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, |
|
2020 |
2019 |
Cash and cash
equivalents |
841,722 |
|
897,767 |
|
Other current investments |
174,387 |
|
432,604 |
|
Non-current Investments |
14,858 |
|
106,945 |
|
Derivatives hedging borrowings and investments |
(61,477 |
) |
8,184 |
|
Current Borrowings |
(523,203 |
) |
(622,735 |
) |
Non-current Borrowings |
(175,195 |
) |
(56,980 |
) |
Net cash / (debt) |
271,092 |
|
765,785 |
|
|
|
|
|
|
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, |
|
2020 |
2019 |
Net cash provided by operating activities |
516,078 |
|
547,616 |
|
Capital expenditures |
(68,044 |
) |
(85,686 |
) |
Free cash flow |
448,034 |
|
461,930 |
|
Giovanni
Sardagna
Tenaris 1-888-300-5432www.tenaris.com
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