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 and Net cash / debt. See exhibit I for more details on these alternative performance measures.
LUXEMBOURG, Oct. 31, 2018 (GLOBE NEWSWIRE) -- Tenaris S.A. (NYSE, Buenos Aires and Mexico: TS and MTA Italy: TEN) (“Tenaris”) today announced its results for the quarter and nine months ended September 30, 2018 with comparison to its results for the quarter and nine months ended September 30, 2017.
Summary of 2018 Third Quarter Results
(Comparison with second quarter of 2018 and third quarter of 2017)
3Q 2018
2Q 2018
3Q 2017
Net sales ($ million)
1,899
1,788
6%
1,303
46%
Operating income ($ million)
258
222
16%
79
227%
Net income ($ million)
247
166
48%
95
160%
Shareholders’ net income ($ million)
247
168
47%
105
135%
Earnings per ADS ($)
0.42
0.29
47%
0.18
135%
Earnings per share ($)
0.21
0.14
47%
0.09
135%
EBITDA ($ million)
394
363
8%
225
75%
EBITDA margin (% of net sales)
20.7%
20.3%
17.3%
In the third quarter of 2018, sales rose reflecting an increase in average selling prices, particularly in North America where prices have risen to compensate higher costs including tariffs, and higher sales of line pipe for complex projects, including shipments for the second Zohr offshore welded pipeline in Egypt. Operating income rose 16% sequentially on better absorption of fixed costs, while net income rose 48% sequentially boosted by lower deferred tax charges relating to the revaluation of the Mexican currency and higher equity in earnings from non-controlled companies.
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 21, 2018 , with an ex-dividend date on November 19, 2018 and record date on November 20, 2018.
Market Background and Outlook
After increasing through the first half of the year, growth in drilling activity in North America paused during the third quarter reflecting constraints on pipeline takeaway capacity in the Permian and Canada and widening oil price differentials. In Latin America, drilling activity has also increased during the year, particularly in Colombia and the new Guyana offshore play, and is slowly picking up in Mexico and the Vaca Muerta shale play in Argentina. In the rest of the world, a gradual recovery in drilling activity is taking hold in many regions but offshore drilling activity remains subdued.
In the fourth quarter, we expect to finish the year strongly with a high level of shipments to the Zohr project and a seasonal increase in sales in Canada, with margins in line with the current level. In the first quarter of 2019, sales should remain in line with those of the fourth quarter with margins similar to the current level, while, for the rest of the year, our results will be influenced by the implementation of USMCA and the application of Section 232 tariffs within the agreement.
Analysis of 2018 Third Quarter Results
Tubes Sales volume (thousand metric tons)
3Q 2018
2Q 2018
3Q 2017
Seamless
654
689
(5%)
527
24%
Welded
199
146
37%
120
66%
Total
853
834
2%
647
32%
Tubes
3Q 2018
2Q 2018
3Q 2017
(Net sales - $ million)
North America
887
827
7%
633
40%
South America
334
310
8%
256
30%
Europe
148
179
(17%)
117
26%
Middle East & Africa
350
299
17%
170
106%
Asia Pacific
77
71
9%
51
51%
Total net sales ($ million)
1,797
1,686
7%
1,228
46%
Operating income ($ million)
233
197
18%
66
253%
Operating margin (% of sales)
13.0%
11.7%
5.4%
Net sales of tubular products and services increased 7% sequentially and 46% year on year. The sequential increase reflects a 2% increase in volumes and a 4% increase in average selling prices, particularly in North America. In North America, in addition to the increase in realized prices we had higher sales in Canada reflecting seasonal effects. In South America sales increased due to an increase in activity in Colombia and Argentina. In Europe sales declined reflecting seasonally lower sales of mechanical and line pipe products and lower sales of premium OCTG in the North Sea and Russia. In the Middle East and Africa sales increased reflecting higher sales of OCTG in Saudi Arabia and the start of shipments to Zohr’s second pipeline. In Asia Pacific we had higher sales in China and Australia.
Operating income from tubular products and services, amounted to $233 million in the third quarter of 2018, compared to $197 million in the previous quarter and $66 million in the third quarter of 2017. Sequentially, the increase in operating income is due to an improvement in gross profit, as higher sales prices and volumes, more than offset an increase in raw material costs, and the cost of import tariffs in the United States. Additionally, SG&A, declined slightly.
Others
3Q 2018
2Q 2018
3Q 2017
Net sales ($ million)
102
103
(1%)
75
36%
Operating income ($ million)
26
25
2%
13
93%
Operating income (% of sales)
25.2%
24.5%
17.8%
Net sales of other products and services declined 1% sequentially but increased 36% year on year. Despite the decline in sales, operating income increased 2% sequentially due to an increase in results at our sucker rods business.
Selling, general and administrative expenses, or SG&A, amounted to $336 million, or 17.7% of net sales in the third quarter of 2018, compared to $338 million, 18.9% in the previous quarter and $305 million, 23.4% in the third quarter of 2017. Sequentially, an increase in selling expenses, due to higher sales, was offset by lower labor and service costs and therefore SG&A declined 1.2 percentage points of sales.
Financial results amounted to a gain of $13 million in the third quarter of 2018, compared to a gain of $39 million in the previous quarter and a loss of $7 million in the third quarter of 2017. The gain of the quarter corresponds mainly to an FX gain of $11 million related to the Argentine peso devaluation on Peso denominated financial, trade, social and fiscal payables at Argentine subsidiaries which functional currency is the U.S. dollar.
Equity in earnings of non-consolidated companies generated a gain of $56 million in the third quarter of 2018, compared to $41 million in the previous quarter and $25 million in the third quarter of 2017. These results are mainly derived from our equity investment in Ternium (NYSE:TX) and Usiminas.
Income tax charge amounted to $80 million in the third quarter of 2018, compared to $135 million in the previous quarter and $1 million in the third quarter of 2017. Sequentially, the main reason for the lower income tax is the impact of FX movements on the tax base at our Mexican subsidiaries; during the third quarter of 2018 an appreciation of the Mexican peso reduced our deferred income tax by $21 million, while in the previous quarter a devaluation of the Mexican peso increased our deferred tax by $31 million.
Cash Flow and Liquidity of 2018 Third Quarter
Net cash provided by operating activities during the third quarter of 2018 was $50 million, compared to $351 million in the previous quarter and a use of $2 million in the third quarter of last year. During the third quarter of 2018 we used $301 million for the increase in working capital following higher inventories primarly from production anticipation for the Zohr project and the Canadian winter season to be shipped during the fourth quarter as well as higher raw material costs and the impact of Section 232 duties, while recivables were affected by higher sales and some payment delays by some customers.
Capital expenditures continued to decline reaching $78 million for the third quarter of 2018, compared to $104 million in the previous quarter and $143 million in the third quarter of 2017.
Our net cash position slightly declined to $408 million at September 30, 2018.
Analysis of 2018 First Nine Months Results
9M 2018
9M 2017
Increase/(Decrease)
Net sales ($ million)
5,554
3,700
50
%
Operating income (loss) ($ million)
693
167
316
%
Net income ($ million)
649
374
73
%
Shareholders’ net income ($ million)
650
385
69
%
Earnings per ADS ($)
1.10
0.65
69
%
Earnings per share ($)
0.55
0.33
69
%
EBITDA ($ million)
1,110
624
78
%
EBITDA margin (% of net sales)
20.0%
16.9%
Tubes Sales volume (thousand metric tons)
9M 2018
9M 2017
Increase/(Decrease)
Seamless
1,994
1,564
27
%
Welded
630
290
117
%
Total
2,624
1,854
42
%
Tubes
9M 2018
9M 2017
Increase/(Decrease)
(Net sales - $ million)
North America
2,521
1,654
52
%
South America
929
686
35
%
Europe
480
364
32
%
Middle East & Africa
1,105
631
75
%
Asia Pacific
215
152
41
%
Total net sales ($ million)
5,249
3,488
50
%
Operating income ($ million)
623
142
339
%
Operating income (% of sales)
11.9%
4.1%
Net sales of tubular products and services increased 50% to $5,249 million in the first nine months of 2018, compared to $3,488 million in the first nine months of 2017, reflecting a 42% increase in volumes and a 6% increase in average selling prices.
Operating income from tubular products and services amounted to $623 million in the first nine months of 2018 compared to $142 million in the first nine months of 2017. Results improved following a 42% increase in shipment volumes, higher sales and utilization of production capacity that translated into better absorption of fixed costs, including a decline in SG&A expenses as a percentage of sales.
Others
9M 2018
9M 2017
Increase/(Decrease)
Net sales ($ million)
305
212
44
%
Operating income ($ million)
70
24
186
%
Operating margin (% of sales)
22.8%
11.5%
Net sales of other products and services increased 44% to $305 million in the first nine months of 2018, compared to $212 million in the first nine months of 2017, reflecting increased sales in our Sucker Rods and Coiled Tubing businesses,while operating income increased 186% reflecting higher margins.
SG&A amounted to $1,023 million, or 18.4% of net sales during the first nine months of 2018, compared to $926 million, or 25.0% in the same period of 2017. Despite a 10% increase in SG&A expenses, SG&A as a percentage of sales declined 660 basis points following a 50% increase in sales.
Financial results amounted to a gain of $44 million in the first nine months of 2018 compared to a loss of $27 million in the same period of 2017. The gain in the first nine months of 2018 corresponds mainly to an FX gain of $41 million; $31 million related to the Argentine peso devaluation on Peso denominated financial, trade, social and fiscal payables at Argentine subsidiaries which functional currency is the U.S. dollar, $14 million related to the Euro depreciation on Euro denominated intercompany liabilities (offset in the currency translation reserve in equity), partially offset by a loss of $4 million due to the devaluation of the Canadian dollar.
Equity in earnings of non-consolidated companies generated a gain of $143 million in the first nine months of 2018, compared to a gain of $90 million in the first nine months of 2017. These results are mainly derived from our equity investment in Ternium (NYSE:TX) and Usiminas.
Income tax amounted to a charge of $231 million in the first nine months of 2018, compared to a gain of $53 million in the first nine months of 2017. The increase in income tax charges reflects both the improvement in results and the effect of 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 2018 First Nine Months
During the first nine months of 2018, net cash provided by operations was $372 million, compared to cash used of $9 million in the same period of 2017. Working capital increased by $659 million in the first nine months of 2018 and by $532 million in the first nine months of 2017.
Capital expenditures amounted to $274 million in the first nine months of 2018, compared with $437 million in the same period of 2017. The decline in investments is related with the conclusion of works at our new greenfield seamless mill in Bay City, Texas.
We maintained a net cash position of $408 million at September 30, 2018.
Conference call
Tenaris will hold a conference call to discuss the above reported results, on November 1, 2018, 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 +1 877 730 0732 within North America or +1 530 379 4676 Internationally. The access number is “4796176”. 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 November 1 through 11:59 pm on November 9, 2018. To access the replay by phone, please dial 855 859 2056 or 404 537 3406 and enter passcode “4796176” 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 ended September 30,
Nine-month period ended September 30,
2018
2017
2018
2017
Continuing operations
Unaudited
Unaudited
Net sales
1,898,892
1,302,924
5,553,611
3,699,588
Cost of sales
(1,305,232)
(918,338)
(3,837,295)
(2,607,923)
Gross profit
593,660
384,586
1,716,316
1,091,665
Selling, general and administrative expenses
(335,714)
(304,723)
(1,022,922)
(926,286)
Other operating income (expense), net
551
(808)
(264)
1,180
Operating income
258,497
79,055
693,130
166,559
Finance Income
10,804
11,776
29,786
35,762
Finance Cost
(8,586)
(6,501)
(29,182)
(18,459)
Other financial results
10,839
(12,549)
43,156
(44,631)
Income before equity in earnings of non-consolidated companies and income tax
271,554
71,781
736,890
139,231
Equity in earnings of non-consolidated companies
55,930
24,752
142,876
90,153
Income before income tax
327,484
96,533
879,766
229,384
Income tax
(80,355)
(1,307)
(230,931)
53,295
Income for continuing operations
247,129
95,226
648,835
282,679
Discontinued operations
Result for discontinued operations
-
-
-
91,542
Income for the period
247,129
95,226
648,835
374,221
Attributable to:
Owners of the parent
246,927
104,854
650,238
384,505
Non-controlling interests
202
(9,628)
(1,403)
(10,284)
247,129
95,226
648,835
374,221
Consolidated Condensed Interim Statement of Financial Position
(all amounts in thousands of U.S. dollars)
At September 30, 2018
At December 31, 2017
Unaudited
ASSETS
Non-current assets
Property, plant and equipment, net
6,092,025
6,229,143
Intangible assets, net
1,590,979
1,660,859
Investments in non-consolidated companies
743,748
640,294
Other equity investments
21,572
21,572
Other investments
180,620
128,335
Deferred tax assets
190,224
153,532
Receivables, net
130,049
8,949,217
183,329
9,017,064
Current assets
Inventories, net
2,664,573
2,368,304
Receivables and prepayments, net
163,606
135,698
Current tax assets
143,484
132,334
Trade receivables, net
1,659,023
1,214,060
Derivative financial instruments
10,088
8,231
Other investments
794,330
1,192,306
Cash and cash equivalents
236,303
5,671,407
330,221
5,381,154
Total assets
14,620,624
14,398,218
EQUITY
Capital and reserves attributable to owners of the parent
11,691,657
11,482,185
Non-controlling interests
95,340
98,785
Total equity
11,786,997
11,580,970
LIABILITIES
Non-current liabilities
Borrowings
31,553
34,645
Deferred tax liabilities
474,135
457,970
Other liabilities
215,586
217,296
Provisions
37,125
758,399
36,438
746,349
Current liabilities
Borrowings
702,577
931,214
Derivative financial instruments
76,294
39,799
Current tax liabilities
210,695
102,405
Other liabilities
241,521
157,705
Provisions
20,828
32,330
Customer advances
60,577
56,707
Trade payables
762,736
2,075,228
750,739
2,070,899
Total liabilities
2,833,627
2,817,248
Total equity and liabilities
14,620,624
14,398,218
Consolidated Condensed Interim Statement of Cash Flow
Three-month period ended September 30,
Nine-month period ended September 30,
2018
2017
2018
2017
Cash flows from operating activities
Unaudited
Unaudited
Income for the period
247,129
95,226
648,835
374,221
Adjustments for:
Depreciation and amortization
135,044
146,293
417,247
457,359
Income tax accruals less payments
36,987
(30,804)
104,838
(160,622)
Equity in earnings of non-consolidated companies
(55,930)
(24,752)
(142,876)
(90,153)
Interest accruals less payments, net
(811)
2,683
5,964
7,572
Changes in provisions
(5,194)
(2,048)
(10,815)
(21,968)
Income from the sale of Conduit business
-
-
-
(89,694)
Changes in working capital
(301,306)
(240,003)
(658,961)
(531,724)
Derivatives, currency translation adjustment and others
(6,074)
50,975
7,288
45,883
Net cash provided by (used in) operating activities
49,845
(2,430)
371,520
(9,126)
Cash flows from investing activities
Capital expenditures
(77,938)
(143,356)
(273,669)
(437,162)
Changes in advance to suppliers of property, plant and equipment
719
1,880
4,937
6,209
Acquisition of subsidiaries
-
(10,418)
-
(10,418)
Proceeds from disposal of Conduit business
-
-
-
327,631
Loan to non-consolidated companies
(11,220)
-
(14,740)
(10,956)
Repayment of loan by non-consolidated companies
3,900
1,950
9,370
3,900
Proceeds from disposal of property, plant and equipment and intangible assets
1,491
1,520
4,199
4,398
Investment in companies under cost method
-
-
-
(3,681)
Dividends received from non-consolidated companies
-
-
25,722
22,971
Changes in investments in securities
(47,655)
341,975
348,423
512,046
Net cash (used in) provided by investing activities
(130,703)
193,551
104,242
414,938
Cash flows from financing activities
Dividends paid
-
-
(330,550)
(330,550)
Dividends paid to non-controlling interest in subsidiaries
(590)
-
(1,698)
(19,200)
Changes in non-controlling interests
5
(3)
4
(34)
Proceeds from borrowings
147,296
342,228
723,303
861,963
Repayments of borrowings
(251,584)
(370,665)
(948,436)
(888,515)
Net cash (used in) financing activities
(104,873)
(28,440)
(557,377)
(376,336)
(Decrease) increase in cash and cash equivalents
(185,731)
162,681
(81,615)
29,476
Movement in cash and cash equivalents
At the beginning of the period
427,256
270,837
330,090
398,580
Effect of exchange rate changes
(5,495)
1,260
(12,445)
6,722
(Decrease) increase in cash and cash equivalents
(185,731)
162,681
(81,615)
29,476
At September 30,
236,030
434,778
236,030
434,778
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 September 30,
Nine-month period ended September 30,
2018
2017
2018
2017
Operating income
258,497
79,055
693,130
166,559
Depreciation and amortization
135,044
146,293
417,247
457,359
EBITDA
393,541
225,348
1,110,377
623,918
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 September 30,
Nine-month period ended September 30,
2018
2017
2018
2017
Net cash provided by (used in) operating activities
49,845
(2,430)
371,520
(9,126)
Capital expenditures
(77,938)
(143,356)
(273,669)
(437,162)
Free cash flow
(28,093)
(145,786)
97,851
(446,288)
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,
2018
2017
Cash and cash equivalents
236,303
436,359
Other current investments
794,330
1,146,153
Non-current Investments
176,178
222,992
Derivatives hedging borrowings and investments
(64,525)
14,492
Borrowings – current and non-current
(734,130)
(831,533)
Net cash / (debt)
408,156
988,463
Giovanni Sardagna Tenaris 1-888-300-5432 www.tenaris.com
