Tenaris Announces 2019 Third Quarter Results

October 30, 2019 4:40 PM

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, Free cash flow and Net cash / debt. See exhibit I for more details on these alternative performance measures.

LUXEMBOURG, Oct. 30, 2019 (GLOBE NEWSWIRE) -- Tenaris S.A. (NYSE and Mexico: TS and MTA Italy: TEN) (“Tenaris”) today announced its results for the quarter and nine months ended September 30, 2019 with comparison to its results for the quarter and nine months ended September 30, 2018.

Summary of 2019 Third Quarter Results

(Comparison with second quarter of 2019 and third quarter of 2018)

3Q 20192Q 20193Q 2018
Net sales ($ million)1,7641,918(8%)1,899(7%)
Operating income ($ million)187234(20%)258(28%)
Net income ($ million)101240(58%)247(59%)
Shareholders’ net income ($ million)107241(56%)247(57%)
Earnings per ADS ($)0.180.41(56%)0.42(57%)
Earnings per share ($)0.090.20(56%)0.21(57%)
EBITDA ($ million)322370(13%)394(18%)
EBITDA margin (% of net sales)18.2%19.3% 20.7%

Our third quarter sales fell 8% sequentially and 7% year on year, despite gains in the Middle East and Mexico, reflecting ongoing activity reductions in the US and Argentine shales, which is affecting prices throughout the Americas, and a downturn in our European industrial sales. Our EBITDA margin was affected by a decline in average selling prices and the impact of major maintenance stoppages in the northern hemisphere, principally in Mexico. Net income for the quarter was further affected by the impact of currency devaluations on our income tax charge in Argentina and Mexico and by a lower contribution from our equity investment in Ternium.

Despite the decline in net income, we generated a free cash flow of $287 million, or 16% of revenues, which included a further decline in working capital of $157 million, and we ended the quarter with a net cash position of $964 million.

Interim Dividend Payment

Our board of directors approved the payment of an interim dividend of $0.13 per share ($0.26 per ADS), or approximately $153 million. The payment date will be November 20, 2019 , with an ex-dividend date on November 18, 2019 and record date on November 19, 2019.

Market Background and Outlook

During the third quarter, drilling activity in the US shales fell further, as operators chose to prioritize investor returns over production growth and maintain spending within budget limits announced at the beginning of the year. We do not expect a recovery in US shale drilling activity going into 2020. In Canada, the situation is similar with drilling activity well down on last year and no recovery expected over last year in the upcoming winter drilling season.

In Latin America, drilling activity in Argentina is declining as operators put on hold their investment plans for Vaca Muerta pending more clarity on the policy measures that will be adopted by the incoming government. In Mexico, offshore drilling activity has been increasing.

In the Eastern Hemisphere, drilling activity continues to improve, led by gas developments in the Middle East, and a gradual recovery in offshore basins.

Price levels for steel pipe products in North America have been affected by the decline in demand, the increased competitiveness of domestic welded pipe products reflecting lower costs of hot rolled coils, and continuing high import levels, despite the application of US Section 232 tariffs and quotas.

In the fourth quarter, our sales will be affected by lower average selling prices and the activity slowdowns in the USA and Argentina. We expect to mitigate much of the impact of lower average selling prices with lower costs and maintain our EBITDA margin in line with that of this third quarter. Going into 2020, we expect a recovery in sales, particularly for offshore and gas drilling activity, as well as in margins and cash flow as we work on reducing costs and working capital.

Analysis of 2019 Third Quarter Results

Tubes Sales volume (thousand metric tons)3Q 20192Q 20193Q 2018
Seamless 645 674(4%) 654(1%)
Welded 150 173(13%) 199(25%)
Total 796 846 (6%) 853(7%)

Tubes3Q 20192Q 20193Q 2018
(Net sales - $ million)
North America772863(11%)887(13%)
South America308337(9%)334(8%)
Europe136194(30%)148(8%)
Middle East & Africa36931517%3505%
Asia Pacific77105(27%)77(1%)
Total net sales ($ million)1,6611,814(8%)1,797(8%)
Operating income ($ million)163216(25%)233(30%)
Operating margin (% of sales)9.8%11.9% 13.0%

Net sales of tubular products and services decreased 8% sequentially and year on year. The sequential decrease reflects a 6% decrease in volumes and a 3% decrease in average selling prices. In North America our sales declined affected by a general decline in prices for all products and lower volumes of line pipe products. In South America, sales of OCTG products in Argentina started to decline in September, and we had lower sales of conductor casing in Brazil. In Europe sales declined reflecting seasonally lower sales of mechanical and line pipe products and lower sales of premium OCTG in the North Sea. In the Middle East and Africa sales increased mainly due to large orders sold in India. In Asia Pacific we had lower sales throughout the region.

Operating income from tubular products and services, amounted to $163 million in the third quarter of 2019, compared to $216 million in the previous quarter and $233 million in the third quarter of 2018. Sequentially, operating income was affected by lower sales and a decrease of 210 basis points in the operating margin. The 3% decline in prices was only partially offset by lower costs as a decline in direct costs was offset by a worse industrial performance related to the plant maintenance stoppages in the northern hemisphere, mainly in Mexico.

Others3Q 20192Q 20193Q 2018
Net sales ($ million)102104(1%)1020%
Operating income ($ million)241832% 26(6%)
Operating income (% of sales)23.6%17.7% 25.2%

Net sales of other products and services declined 1% sequentially and remained flat year on year. The improvement in operating income is mainly related to our industrial equipment business in Brazil.

Selling, general and administrative expenses, or SG&A, amounted to $333 million, or 18.9% of net sales in the third quarter of 2019, compared to $339 million, 17.7% in the previous quarter and $336 million, 17.7% in the third quarter of 2018. Sequentially, a reduction in logistic and general expenses was partially offset by higher allowances for doubtful accounts.

Financial results amounted to a gain of $8 million in the third quarter of 2019, compared to a loss of $6 million in the previous quarter and a gain of $13 million in the third quarter of 2018. The gain of the quarter corresponds mainly to an FX gain of $14 million related to the Argentine peso devaluation (36%) on trade, social and financial payables at Argentine subsidiaries which functional currency is the U.S. dollar, partially offset by a $5 million loss due to the devaluation of the Brazilian Real (9%) on U.S. dollar denominated intercompany liabilities at our Brazilian subsidiaries which functional currency is the Brazilian Real, largely compensated by an increase in currency translation adjustment reserve from the Brazilian subsidiaries.

Equity in earnings of non-consolidated companies generated a gain of $13 million in the third quarter of 2019, compared to $26 million in the previous quarter and $56 million in the third quarter of 2018. These results are mainly derived from our equity investment in Ternium (NYSE: TX) and Usiminas.

Income tax charge amounted to $108 million in the third quarter of 2019, compared to $15 million in the previous quarter and $80 million in the third quarter of 2018. This quarter’s income tax includes a charge of approximately $76 million mainly related to the devaluation of the Argentine and Mexican Peso affecting the tax base of our subsidiaries in these two countries. Such effect impacted current income tax charge for $35 million and deferred income tax for $41 million.

Cash Flow and Liquidity of 2019 Third Quarter

Net cash provided by operating activities during the third quarter of 2019 was $374 million, compared to $342 million in the previous quarter and $50 million in the third quarter of last year. During the third quarter of 2019 the operating cash flow includes $157 million from the reduction in working capital.

After capital expenditure of $87 million we generated free cash flow of $287 million (16% of revenues) and ended the quarter with a net cash position of $964 million.

Analysis of 2019 First Nine Months Results

9M 20199M 2018Increase/(Decrease)
Net sales ($ million)5,554 5,554 0%
Operating income (loss) ($ million)681 693 (2%)
Net income ($ million)583 649 (10%)
Shareholders’ net income ($ million)591 650 (9%)
Earnings per ADS ($)1.00 1.10 (9%)
Earnings per share ($)0.50 0.55 (9%)
EBITDA ($ million)1,082 1,110 (3%)
EBITDA margin (% of net sales)19.5%20.0%

Tubes Sales volume (thousand metric tons)9M 20199M 2018Increase/(Decrease)
Seamless 1,959 1,994(2%)
Welded 507 630(20%)
Total 2,467 2,624 (6%)

Tubes9M 20199M 2018Increase/(Decrease)
(Net sales - $ million)
North America2,529 2,521 0%
South America975 929 5%
Europe488 480 2%
Middle East & Africa985 1,105 (11%)
Asia Pacific263 215 23%
Total net sales ($ million)5,239 5,249 0%
Operating income ($ million)618 623 (1%)
Operating income (% of sales)11.8%11.9%

Net sales of tubular products and services remained flat, amounting to $5,239 million in the first nine months of 2019, compared to $5,249 million in the first nine months of 2018, reflecting a 6% decrease in volumes offset by a 6% increase in average selling prices.

Operating income from tubular products and services amounted to $618 million in the first nine months of 2019 compared to $623 million in the first nine months of 2018. Results remained relatively flat reflecting stable revenues and margins.

Others9M 20199M 2018Increase/(Decrease)
Net sales ($ million)315 305 3%
Operating income ($ million)63 70 (9%)
Operating margin (% of sales)20.1%22.8%

Net sales of other products and services increased 3% to $315 million in the first nine months of 2019, compared to $305 million in the first nine months of 2018, however operating income declined due to a reduction in margins.

SG&A remained flat, amounting to $1,017 million, or 18.3% of net sales during the first nine months of 2019, compared to $1,023 million, or 18.4% in the same period of 2018.

Financial results amounted to a gain of $26 million in the first nine months of 2019 compared to a gain of $44 million in the same period of 2018. While in both periods the gains are mainly related to the Argentine peso devaluation, the nine-month period of 2018 also benefited from the Euro depreciation. In the first nine months of 2019 we had an FX gain of $28 million; $34 million gain related to the Argentine peso devaluation (53%) on Peso denominated liabilities at Argentine subsidiaries which functional currency is the U.S. dollar, partially offset by a $6 million loss due to the devaluation of the Brazilian Real (7%) on U.S. dollar denominated intercompany liabilities at our Brazilian subsidiaries which functional currency is the Brazilian Real.

Equity in earnings of non-consolidated companies generated a gain of $69 million in the first nine months of 2019, compared to a gain of $143 million in the first nine months of 2018. These results are mainly derived from our equity investment in Ternium (NYSE: TX) and Usiminas.

Income tax amounted to a charge of $193 million in the first nine months of 2019, compared to $231 million in the first nine months of 2018. Both periods charges were affected by the Argentine and Mexican peso devaluation on the tax base at our Argentine and Mexican subsidiaries which have the U.S. dollar as their functional currency.

Cash Flow and Liquidity of 2019 First Nine Months

During the first nine months of 2019, net cash provided by operations was $1,264 million, compared to $372 million in the same period of 2018. While in the first nine months of 2019 our working capital decreased by $503 million in the same period of 2018 it increased by $659 million.

Capital expenditures amounted to $270 million in the first nine months of 2019, similar to $274 million in the same period of 2018.

Free cash flow amounted to $994 million (18% of revenues) in the first nine months of 2019, compared to $98 million (2%) in the same period of 2018.

We reached a net cash position of $964 million at September 30, 2019.

Conference call

Tenaris will hold a conference call to discuss the above reported results, on October 31, 2019, 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 “5688609”. 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 October 31 through 11:59 pm ET on November 8, 2019. To access the replay by phone, please dial 855 859 2056 or 404 537 3406 and enter passcode “5688609” 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.

Press releases and financial statements can be downloaded from Tenaris’s website at www.tenaris.com/investors.

Consolidated Condensed Interim Income Statement

(all amounts in thousands of U.S. dollars)Three-month period endedSeptember 30, Nine-month period endedSeptember 30,
2019 2018 2019 2018
Continuing operationsUnauditedUnaudited
Net sales1,763,783 1,898,892 5,553,507 5,553,611
Cost of sales(1,248,691)(1,305,232)(3,863,309)(3,837,295)
Gross profit515,092 593,660 1,690,198 1,716,316
Selling, general and administrative expenses(333,111)(335,714)(1,017,085)(1,022,922)
Other operating income (expense), net5,139 551 7,511 (264)
Operating income187,120 258,497 680,624 693,130
Finance Income13,015 10,804 36,212 29,786
Finance Cost(13,454)(8,586)(31,723)(29,182)
Other financial results8,340 10,839 21,670 43,156
Income before equity in earnings of non-consolidated companies and income tax195,021 271,554 706,783 736,890
Equity in earnings of non-consolidated companies13,235 55,930 68,659 142,876
Income before income tax208,256 327,484 775,442 879,766
Income tax(107,741)(80,355)(192,639)(230,931)
Income for the period100,515 247,129 582,803 648,835
Attributable to:
Owners of the parent106,548 246,927 590,913 650,238
Non-controlling interests(6,033)202 (8,110)(1,403)
100,515 247,129 582,803 648,835

Consolidated Condensed Interim Statement of Financial Position

(all amounts in thousands of U.S. dollars)At September 30, 2019 At December 31, 2018
Unaudited
ASSETS
Non-current assets
Property, plant and equipment, net6,111,975 6,063,908
Intangible assets, net1,565,891 1,465,965
Right-of-use assets, net240,182 -
Investments in non-consolidated companies856,524 805,568
Other investments42,605 118,155
Deferred tax assets217,608 181,606
Receivables, net154,7189,189,503 151,9058,787,107
Current assets
Inventories, net2,387,367 2,524,341
Receivables and prepayments, net111,673 155,885
Current tax assets157,056 121,332
Trade receivables, net1,310,213 1,737,366
Derivative financial instruments4,697 9,173
Other investments322,763 487,734
Cash and cash equivalents1,537,0055,830,774 428,3615,464,192
Total assets 15,020,277 14,251,299
EQUITY
Capital and reserves attributable to owners of the parent 11,955,266 11,782,882
Non-controlling interests 200,939 92,610
Total equity 12,156,205 11,875,492
LIABILITIES
Non-current liabilities
Borrowings49,050 29,187
Lease liabilities201,693 -
Deferred tax liabilities380,809 379,039
Other liabilities239,921 213,129
Provisions38,748910,221 36,089657,444
Current liabilities
Borrowings873,822 509,820
Lease liabilities37,781 -
Derivative financial instruments18,088 11,978
Current tax liabilities130,961 250,233
Other liabilities233,838 165,693
Provisions27,921 24,283
Customer advances79,581 62,683
Trade payables551,8591,953,851 693,6731,718,363
Total liabilities 2,864,072 2,375,807
Total equity and liabilities 15,020,277 14,251,299

Consolidated Condensed Interim Statement of Cash Flow

Three-month period endedSeptember 30, Nine-month period endedSeptember 30,
(all amounts in thousands of U.S. dollars) 2019 2018 2019 2018
Cash flows from operating activities Unaudited Unaudited
Income for the period 100,515 247,129 582,803 648,835
Adjustments for:
Depreciation and amortization 134,624 135,044 401,179 417,247
Income tax accruals less payments 9,015 36,987 (145,404)104,838
Equity in earnings of non-consolidated companies (13,235)(55,930)(68,659)(142,876)
Interest accruals less payments, net (3,411)(811)(3,706)5,964
Changes in provisions (3,182)(5,194)(2,208)(10,815)
Changes in working capital 157,313 (301,306)503,358 (658,961)
Currency translation adjustment and others (7,889)(6,074)(3,696)7,288
Net cash provided by operating activities 373,750 49,845 1,263,667 371,520
Cash flows from investing activities
Capital expenditures (86,643)(77,938)(269,707)(273,669)
Changes in advance to suppliers of property, plant and equipment 1,149 719 3,185 4,937
Acquisition of subsidiaries, net of cash acquired - - (132,845) -
Additions to associated companies (9,800) - (9,800) -
Loan to non-consolidated companies - (11,220) - (14,740)
Repayment of loan by non-consolidated companies - 3,900 40,470 9,370
Proceeds from disposal of property, plant and equipment and intangible assets 437 1,491 1,173 4,199
Dividends received from non-consolidated companies - - 28,974 25,722
Changes in investments in securities 24,463 (47,655)254,369 348,423
Net cash (used in) provided by investing activities (70,394)(130,703)(84,181)104,242
Cash flows from financing activities
Dividends paid - - (330,550)(330,550)
Dividends paid to non-controlling interest in subsidiaries (1,200)(590)(1,872)(1,698)
Changes in non-controlling interests - 5 1 4
Payments of lease liabilities (9,388) - (28,835) -
Proceeds from borrowings 387,000 147,296 1,031,716 723,303
Repayments of borrowings (320,743)(251,584)(733,837)(948,436)
Net cash (used in) provided by financing activities 55,669 (104,873)(63,377)(557,377)
Increase (decrease) in cash and cash equivalents 359,025 (185,731)1,116,109 (81,615)
Movement in cash and cash equivalents
At the beginning of the period 1,183,017 427,256 426,717 330,090
Effect of exchange rate changes (6,513)(5,495)(7,297)(12,445)
Increase (decrease) in cash and cash equivalents 359,025 (185,731)1,116,109 (81,615)
At September 30, 1,535,529 236,030 1,535,529 236,030

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 endedSeptember 30, Nine-month period endedSeptember 30,
2019201820192018
Operating income187,120258,497680,624693,130
Depreciation and amortization134,624135,044401,179417,247
EBITDA321,744393,5411,081,8031,110,377

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 endedSeptember 30, Nine-month period endedSeptember 30,
2019 2018 2019 2018
Net cash provided by operating activities373,750 49,845 1,263,667 371,520
Capital expenditures(86,643)(77,938)(269,707)(273,669)
Free cash flow287,107 (28,093)993,960 97,851

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 and Non-Current)+/- Derivatives hedging borrowings and investments– Borrowings (Current and Non-Current).

(all amounts in thousands of U.S. dollars)At September 30,
2019 2018
Cash and cash equivalents1,537,005 236,303
Other current investments322,763 794,330
Non-current Investments38,678 176,178
Derivatives hedging borrowings and investments(11,492)(64,525)
Borrowings – current and non-current(922,872)(734,130)
Net cash / (debt)964,082 408,156

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

Source: Tenaris S.A.

Categories

Globe Newswire Press Releases

Next Articles