Tenaris S.A.

Earnings Release • Nov 1, 2017

News Details

Corporate | 1 November 2017 21:46

Tenaris Announces 2017 Third Quarter Results

DGAP-News: Tenaris S.A. / Key word(s): Interim Report

01.11.2017 / 21:46

The issuer is solely responsible for the content of this announcement.

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LUXEMBOURG — (Marketwired) — 11/01/17 — Tenaris S.A. (NYSE: TS)

(BAE: TS) (BMV: TS) (MILAN: TEN) (‘Tenaris’) today announced its

results for the quarter and nine months ended September 30, 2017 with

comparison to its results for the quarter and nine months ended

September 30, 2016.

Summary of 2017 Third Quarter Results

(Comparison with second quarter of 2017 and third quarter of 2016)

Q3 2017 Q2 2017 Q3 2016

——– ————— —————

Net sales ($ million) 1,303 1,243 5% 987 32%

Operating income (loss) ($ million) 79 51 54% (33) 342%

Net income ($ million) 95 73 30% 15 515%

Shareholders’ net income ($

million) 105 75 41% 17 532%

Earnings per ADS ($) 0.18 0.13 41% 0.03 532%

Earnings per share ($) 0.09 0.06 41% 0.01 532%

EBITDA ($ million) 225 200 12% 133 69%

EBITDA margin (% of net sales) 17.3% 16.1% 13.5%

Sales rose strongly in the Americas quarter on quarter reflecting

seasonal factors in Canada, improved product mix and pricing in US

onshore and higher activity from private operators in Argentina.

Overall growth in sales, however, was held back by a trough in

shipments to projects in the Middle East and Africa and for National

Oil Company contracts under renewal as well as seasonal factors in

European sales to distributors of line pipe and industrial products.

Earnings per share, operating income and EBITDA margins all rose on

lower general and administrative expenses and a recovery in margins

in our non-tubular businesses.

During the quarter, we had a build up of inventories of $216 million

in anticipation of higher shipments in the forthcoming quarter and

net cash flow used in operations amounted to $2 million. After

capital expenditures of $143 million, our net cash position (cash,

other current investments and fixed income investments held to

maturity less total borrowings) declined to $974 million at the end

of the quarter.

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 22, 2017, with an ex-dividend date on

November 20, 2017 and record date on November 21, 2017.

Appointment to the Audit Committee

Our board of directors appointed Mr. Carlos Condorelli to the audit

committee. Mr. Condorelli will contribute to the Committee his

expertise and extensive experience in audit and accounting.

Market Background and Outlook

Drilling activity in the USA and Canada, which rose at a rapid pace

in the first half of the year, has now stabilized as operators turn

their attention to improving returns on capital amidst uncertainty

about the recovery in oil and gas prices and the prospect of higher

financing costs. In the rest of the world, recovery remains more

elusive, though conditions in some markets, like the North Sea, are

gradually improving and Middle East drilling activity remains stable.

In Latin America, drilling activity in Argentina has started to

recover driven by investments in the Vaca Muerta shale play, while,

in Mexico, despite the positive results of the energy reform program,

a significant recovery in activity remains distant.

We are currently starting up our Bay City rolling mill with the first

pipe rolled on 18 October. This will reinforce our Rig Direct(TM)

service program in North America with a shorter and more efficient

supply chain, reducing lead times and inventory requirements.

In the fourth quarter and going into 2018, we expect our sales in the

Americas to continue growing as we consolidate and expand our Rig

Direct(TM) program in North America and activity in the Vaca Muerta

shale play in Argentina increases. We also expect higher sales in the

rest of the world, boosted by shipments for East Meditarrenean

pipelines, higher shipments to Middle East customers and higher sales

in Europe. EBITDA and operating income should also grow, with margins

benefiting from higher plant utilization and containment of fixed

costs.

Analysis of 2017 Third Quarter Results

Tubes Sales volume

(thousand metric tons) Q3 2017 Q2 2017 Q3 2016

——- —————- ——————–

Seamless 527 529 (0%) 416 27%

Welded 120 96 25% 62 95%

Total 647 624 4% 477 36%

Tubes Q3 2017 Q2 2017 Q3 2016

——- —————– —————–

(Net sales – $ million)

North America 633 548 16% 282 124%

South America 256 227 13% 225 14%

Europe 117 132 (11%) 126 (7%)

Middle East & Africa 170 212 (20%) 251 (32%)

Asia Pacific 51 55 (7%) 34 52%

Total net sales ($ million) 1,228 1,175 5% 917 34%

Operating income (loss) ($

million) 66 46 43% (32) 305%

Operating margin (% of sales) 5.4% 3.9% (3.5%)

Net sales of tubular products and services increased 5% sequentially

and 34% year on year, in line with the increase in shipment volumes.

In North America, sales increased due to the seasonal recovery in

Canada and better pricing and product mix in the United States. In

South America sales increased due to an increase in activity at Vaca

Muerta. In Europe sales declined reflecting seasonally lower sales of

mechanical and line pipe products and lower sales of premium OCTG in

Russia. In the Middle East and Africa sales reached a low point this

quarter but are expected to recover strongly in the coming quarters

led by shipments for East Mediterranean line pipe projects. In Asia

Pacific we had lower sales of line pipe for complex projects.

Operating income from tubular products and services, amounted to $66

million in the third quarter of 2017, compared to $46 million in the

previous quarter and a loss of $32 million in the third quarter of

2016. Sequentially, the increase in operating income is due to a

reduction in selling, general and administrative expenses, mainly

labor costs and services and fees.

Others Q3 2017 Q2 2017 Q3 2016

——- ————- ———–

Net sales ($ million) 75 68 10% 69 8%

Operating income (loss)($ million) 13 6 136% (0)

Operating margin (% of sales) 17.8% 8.3% (0.6%)

Net sales of other products and services increased 10% sequentially

and 8% year on year. The increase in sales and operating income is

mostly related to our energy related businesses, sucker rods and

coiled tubing.

Selling, general and administrative expenses, or SG&A, amounted to

$305 million, or 23.4% of net sales in the third quarter of 2017,

compared to $327 million, 26.3% in the previous quarter and $304

million, 30.9% in the third quarter of 2016. The sequential decline

in SG&A expenses is mainly explained by lower labor costs and

services and fees.

Other operating results, amounted to a loss of $1 million in the

third quarter of 2017, compared with a gain of $2 million in the

previous quarter and a gain of $17 million in the third quarter of

2016 when we recorded the sale of land not used in the production

process of the Company.

Financial results amounted to a loss of $7 million in the third

quarter of 2017, compared to a loss of $16 million in the previous

quarter and a gain of $4 million in the third quarter of 2016. The

loss of the quarter is mainly due to net foreign exchange

transactions loss because of the Euro appreciation on Euro

denominated intercompany-debt in subsidiaries with US dollar

functional currency. These losses 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

$25 million in the third quarter of 2017, compared to $30 million in

the previous quarter and $27 million in the third quarter of 2016.

These results are mainly derived from our equity investment in

Ternium (NYSE: TX) and Usiminas.

Results attributable to non-controlling interests amounted to a loss

of $10 million in the third quarter of 2017, compared to a loss of $1

million in the previous quarter and a loss of $1 million in the third

quarter of 2016. These results were mainly attributable to

non-controlling interests at our Japanese subsidiary NKKTubes and at

our subsidiaries in Ghana and Indonesia.

Cash Flow and Liquidity of 2017 Third Quarter

Net cash used by operating activities during the third quarter of

2017 was $2 million, compared to $33 million in the previous quarter

and a cash generation of $254 million in the third quarter of last

year. During the third quarter of 2017 we used $216 million for the

increase in working capital related to the increase in shipments and

production.

Capital expenditures amounted to $143 million for the third quarter

of 2017, compared to $155 million in the previous quarter and $187

million in the third quarter of 2016. Capital expenditures mainly

relates to the progress in the construction of the greenfield

seamless facility in Bay City, Texas.

We maintained a net cash position (cash, other current investments

and fixed income investments held to maturity less total borrowings)

of $974 million at September 30, 2017.

Analysis of 2017 First Nine Months Results

Increase/

9M 2017 9M 2016 (Decrease)

———- ———- ———-

Net sales ($ million) 3,700 3,248 14%

Operating income (loss) ($ million) 167 (65) 357%

Net income ($ million) 374 34 992%

Shareholders’ net income ($ million) 385 21 1,689%

Earnings per ADS ($) 0.65 0.04 1,689%

Earnings per share ($) 0.33 0.02 1,689%

EBITDA ($ million) 624 426 47%

EBITDA margin (% of net sales) 16.9% 13.1%

Increase/

Tubes Sales volume (thousand metric tons) 9M 2017 9M 2016 (Decrease)

———- ———- ———-

Seamless 1,564 1,177 33%

Welded 290 288 1%

Total 1,854 1,465 27%

Increase/

Tubes 9M 2017 9M 2016 (Decrease)

———- ———- ———-

(Net sales – $ million)

North America 1,654 929 78%

South America 686 820 (16%)

Europe 364 421 (13%)

Middle East & Africa 631 765 (18%)

Asia Pacific 152 98 56%

Total net sales ($ million) 3,488 3,033 15%

Operating income (loss) ($ million) 142 (76) 286%

Operating income (% of sales) 4.1% (2.5%)

Net sales of tubular products and services increased 15% to $3,488

million in the first nine months of 2017, compared to $3,033 million

in the first nine months of 2016, reflecting a 27% increase in

volumes and a 9% decrease in average selling prices.

Operating income from tubular products and services amounted $142

million in the first nine months of 2017 compared to a loss of $76

million in the first nine months of 2016. Results improved following

a 27% increase in shipment volumes, increasing sales and the

utilization of production capacity and therefore the absorption of

fixed costs. Additionally, severance charges were lower as market

conditions improved.

Increase/

Others 9M 2017 9M 2016 (Decrease)

———- ———- ———-

Net sales ($ million) 212 215 (2%)

Operating income ($ million) 24 11 115%

Operating margin (% of sales) 11.5% 5.3%

Net sales of other products and services decreased 2% to $212 million

in the first nine months of 2017, compared to $215 million in the

first nine months of 2016, while operating income increased 115%

reflecting higher margins.

SG&A amounted to $926 million, or 25.0% of net sales during the first

nine months of 2017, compared to $916 million, or 28.2% in the same

period of 2016. Despite a 1% increase in SG&A expenses, SG&A as a

percentage of sales declined following a 14% increase in sales.

Financial results were a loss of $27 million in the first nine months

of 2017 compared to a loss of $1 million in the same period of 2016.

The loss in the first nine months of 2017 is mainly due to the Euro

appreciation on Euro denominated intercompany-debt in subsidiaries

with US dollar functional currency. These losses 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

$90 million in the first nine months of 2017, compared to a gain of

$57 million in the first nine months of 2016. These results are

mainly derived from our equity investment in Ternium (NYSE: TX) and

Usiminas.

Income tax amounted to a gain of $53 million in the first nine months

of 2017, compared to a gain of $10 million in the first nine months

of 2016, this result reflects primarily the effect of the Mexican

peso revaluation on the tax base used to calculate deferred taxes at

our Mexican subsidiaries which have the U.S. dollar as their

functional currency.

Results attributable to non-controlling interests amounted to a loss

of $10 million in the first nine months of 2017, compared to a gain

of $13 million in the first nine months of 2016. These negative

results were mainly attributable to non-controlling interests at our

Japanese subsidiary NKKTubes and at our subsidiaries in Ghana and

Indonesia while positive results recorded during the first nine

months of 2016 were mainly attributable to our pipe coating

subsidiary in Nigeria.

Cash Flow and Liquidity of 2017 First Nine Months

During the first nine months of 2017, net cash used in operations was

$9 million, compared to $942 million provided by operations in the

same period of 2016. Working capital increased by $581 million in the

first nine months of 2017, while it decreased by $559 million in the

first nine months of 2016.

Capital expenditures amounted to $437 million in the first nine

months of 2017, compared with $629 million in the same period of

2016. These investments are to a great extent related to the

construction of the new greenfield seamless mill in Bay City, Texas.

We maintained a net cash position (cash, other current investments

and fixed income investments held to maturity less total borrowings)

of $974 million at September 30, 2017.

Conference call

Tenaris will hold a conference call to discuss the above reported

results, on November 2, 2017, 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

‘5088749’. 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 2nd,

through 11.59 pm on November 10th, 2017. To access the replay by

phone, please dial +1 855 859 2056 or +1 404 537 3406 and enter

passcode ‘5088749’ 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

Three-month period

(all amounts in thousands of ended Nine-month period ended

U.S. dollars) September 30, September 30,

2017 2016 2017 2016

———————————————–

Continuing operations Unaudited Unaudited

Net sales 1,302,924 986,525 3,699,588 3,247,792

Cost of sales (918,338) (731,450) (2,607,923) (2,408,135)

———————————————–

Gross profit 384,586 255,075 1,091,665 839,657

Selling, general and

administrative expenses (304,723) (304,469) (926,286) (916,477)

Other operating income

(expense), net (808) 16,717 1,180 11,943

———————————————–

Operating income (loss) 79,055 (32,677) 166,559 (64,877)

Finance Income 11,776 14,226 35,762 58,333

Finance Cost (6,501) (6,913) (18,459) (16,031)

Other financial results (12,549) (3,427) (44,631) (43,355)

———————————————–

Income (loss) before equity

in earnings of non-

consolidated companies and

income tax 71,781 (28,791) 139,231 (65,930)

Equity in earnings of non-

consolidated companies 24,752 26,586 90,153 56,925

———————————————–

Income (loss) before income

tax 96,533 (2,205) 229,384 (9,005)

Income tax (1,307) 5,732 53,295 9,707

———————————————–

Income for continuing

operations 95,226 3,527 282,679 702

———————————————–

Discontinued operations

Result for discontinued

operations – 11,961 91,542 33,559

———————————————–

Income for the period 95,226 15,488 374,221 34,261

———————————————–

Attributable to:

Owners of the parent 104,854 16,603 384,505 21,498

Non-controlling interests (9,628) (1,115) (10,284) 12,763

———————————————–

95,226 15,488 374,221 34,261

———————————————–

Consolidated Condensed Interim Statement of Financial Position

(all amounts in thousands of

U.S. dollars) At September 30, 2017 At December 31, 2016

———————– ———————–

Unaudited

ASSETS

Non-current assets

Property, plant and

equipment, net 6,192,271 6,001,939

Intangible assets, net 1,729,391 1,862,827

Investments in non-

consolidated companies 625,105 557,031

Available for sale assets 21,572 21,572

Other investments 227,927 249,719

Deferred tax assets 152,059 144,613

Receivables, net 187,571 9,135,896 197,003 9,034,704

———– ———–

Current assets

Inventories, net 2,204,815 1,563,889

Receivables and

prepayments, net 182,292 124,715

Current tax assets 188,287 140,986

Trade receivables, net 1,066,522 954,685

Other investments 1,146,153 1,633,142

Cash and cash equivalents 436,359 5,224,428 399,737 4,817,154

———– ———–

Assets of disposal group

classified as held for

sale – 151,417

———– ———–

Total assets 14,360,324 14,003,275

———– ———–

EQUITY

Capital and reserves

attributable to owners of

the parent 11,495,733 11,287,417

Non-controlling interests 96,710 125,655

———– ———–

Total equity 11,592,443 11,413,072

———– ———–

LIABILITIES

Non-current liabilities

Borrowings 34,977 31,542

Deferred tax liabilities 507,612 550,657

Other liabilities 222,315 213,617

Provisions 38,072 802,976 63,257 859,073

———– ———–

Current liabilities

Borrowings 796,556 808,694

Current tax liabilities 106,529 101,197

Other liabilities 228,221 183,887

Provisions 25,973 22,756

Customer advances 85,818 39,668

Trade payables 721,808 1,964,905 556,834 1,713,036

———– ———–

Liabilities of disposal

group classified as held

for sale – 18,094

———– ———–

Total liabilities 2,767,881 2,590,203

———– ———–

Total equity and liabilities 14,360,324 14,003,275

———– ———–

Consolidated Condensed Interim Statement of Cash Flow

Three-month period Nine-month period

ended ended

September 30, September 30,

—————————————

(all amounts in thousands of U.S.

dollars) 2017 2016 2017 2016

—————————————

Cash flows from operating activities Unaudited Unaudited

Income for the period 95,226 15,488 374,221 34,261

Adjustments for:

Depreciation and amortization 146,293 167,520 457,359 494,638

Income tax accruals less payments (30,804) (47,047) (160,622) (115,778)

Equity in earnings of non-

consolidated companies (24,752) (26,586) (90,153) (56,925)

Interest accruals less payments, net 2,683 59 7,572 (12,848)

Changes in provisions (2,048) 5,676 (21,968) 13,847

Income from the sale of Conduit

business – – (89,694) –

Changes in working capital (215,926) 148,955 (581,148) 559,187

Currency translation adjustment and

Others 26,898 (10,554) 95,306 26,004

—————————————

Net cash (used in) provided by

operating activities (2,430) 253,511 (9,127) 942,386

—————————————

Cash flows from investing activities

Capital expenditures (143,356) (187,376) (437,162) (628,799)

Changes in advance to suppliers of

property, plant and equipment 1,880 7,622 6,209 41,974

Proceeds from disposal of Conduit

business – – 327,631 –

Investment in non-consolidated

companies – – – (17,108)

Loan to non-consolidated companies 1,950 (11,550) (7,056) (35,398)

Acquisition of subsidiaries (10,418) – (10,418) –

Investment in companies under cost

method – – (3,681) –

Proceeds from disposal of property,

plant and equipment and intangible

assets 1,520 18,253 4,398 22,232

Dividends received from non-

consolidated companies – – 22,971 20,674

Changes in investments in securities 341,975 93,841 512,046 419,523

—————————————

Net cash provided by (used in)

investing activities 193,551 (79,210) 414,938 (176,902)

—————————————

Cash flows from financing activities

Dividends paid – – (330,550) (354,161)

Dividends paid to non-controlling

interest in subsidiaries – (24,000) (19,200) (28,311)

Acquisitions of non-controlling

interests (3) (309) (34) (786)

Proceeds from borrowings 341,747 295,029 862,118 770,971

Repayments of borrowings (370,184) (368,324) (888,670) (976,228)

—————————————

Net cash (used in) financing

activities (28,440) (97,604) (376,336) (588,515)

—————————————

—————————————

Increase in cash and cash

equivalents 162,681 76,697 29,475 176,969

—————————————

Movement in cash and cash

equivalents

At the beginning of the period 270,837 392,643 398,580 286,198

Effect of exchange rate changes 1,260 (1,217) 6,722 4,956

Increase in cash and cash

equivalents 162,681 76,697 29,475 176,969

—————————————

At September 30, 434,778 468,123 434,777 468,123

—————————————

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 Nine-month period

(all amounts in thousands of U.S. ended ended

dollars) September 30, September 30,

—————————————

2017 2016 2017 2016

Operating income 79,055 (32,677) 166,559 (64,877)

Depreciation and amortization 146,293 167,520 457,359 494,638

Depreciation and amortization from

discontinued operations – (1,353) – (4,081)

—————————————

EBITDA 225,348 133,490 623,918 425,680

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 September 30,

2017 2016

———————–

Cash and cash equivalents 436,359 468,613

Other current investments 1,146,153 1,830,590

Fixed income investments held to maturity 222,992 283,833

Borrowings – current and non-current (831,533) (745,959)

———————–

Net cash / (debt) 973,971 1,837,077

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The issuer is solely responsible for the content of this announcement.

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Language:	English
Company:	Tenaris S.A.
	Luxemburg
ISIN:	LU0156801721

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