Tenaris Announces 2014 First Quarter Results

LUXEMBOURG--(Marketwired - May 1, 2014) - Tenaris S.A. (NYSE: TS) (BAE: TS) (BMV: TS) (MILAN: TEN) ("Tenaris") today announced its results for the quarter ended March 31, 2014 in comparison with its results for the quarter ended March 31, 2013.

Summary of 2014 First Quarter Results
(Comparison with fourth and first quarters of 2013)
		Q1 2014		Q4 2013				Q1 2013
Net sales ($ million)		2,580		2,674		(4%)		2,678		(4%)
Operating income ($ million)		566		589		(4%)		554		2%
Net income ($ million)		428		408		5%		423		1%
Shareholders' net income ($ million)		423		409		3%		425		(1%)
Earnings per ADS ($)		0.72		0.69		3%		0.72		(1%)
Earnings per share ($)		0.36		0.35		3%		0.36		(1%)
EBITDA* ($ million)		718		745		(4%)		699		3%
EBITDA margin (% of net sales)		27.8%		27.8%				26.1%

*EBITDA is defined as operating income plus depreciation, amortization and impairment charges/(reversals)

In the first quarter, although we benefited from improving trends in the U.S. market and the usual seasonal effect in Canada, our sales declined 4% sequentially, due primarily to lower sales in the Middle East, following the exceptional level of sales we had in the fourth quarter of 2013, as well as in Mexico, Colombia and Venezuela. We maintained our EBITDA and operating margins at a high level reflecting operating efficiencies and a continuing good mix of products.

Cash provided by operating activities reached $612 million during the quarter and at the end of the quarter we had a net cash position (cash and other current investments less total borrowings) of $1.3 billion.

Market Background and Outlook

In the United States, drilling activity is picking up, particularly in the Permian basin, but during the first quarter drilling efficiencies were affected by the cold weather. Looking into the second half of the year, the final determination in the anti-dumping trade case will have an impact on our sales. In Canada, drilling activity in the first quarter was in line with the previous year and we expect that to continue through the year in accordance with the usual seasonal variations.

In Mexico, Pemex is concentrating on its most productive regions and reorganizing as the reform of the energy sector moves forward. We expect a recovery in sales in the second half as additional rigs are being contracted. 

In South America, shale drilling activity is increasing in Argentina while, in Brazil, projects continue to be delayed and our sales of line pipe and OCTG products in Brazil will be affected throughout the year.

In the Eastern Hemisphere, drilling activity has been increasing led by the Middle East and deepwater drilling in sub-Saharan Africa. However, purchases of OCTG in the Middle East in the last few quarters have been at an exceptionally high level and we expect an inventory adjustment in the coming quarters, which should be partially compensated by higher sales in sub-Saharan Africa and other countries of the region.

Considering these various factors, we expect our overall results for 2014 to be in line with those for 2013. 

Analysis of 2014 First Quarter Results
Tubes Sales volume (thousand metric tons)		Q1 2014		Q4 2013				Q1 2013
Seamless		669		665		1%		657		2%
Welded		241		249		(3%)		289		(17%)
Total		910		914		(1%)		946		(4%)

Tubes		Q1 2014		Q4 2013				Q1 2013
(Net sales - $ million)
North America		1,085		1,019		6%		1,143		(5%)
South America		440		516		(15%)		595		(26%)
Europe		256		205		25%		268		(4%)
Middle East & Africa		536		628		(15%)		400		34%
Far East & Oceania		101		112		(10%)		82		23%
Total net sales ($ million)		2,418		2,480		(3%)		2,488		(3%)
Operating income ($ million)		561		585		(4%)		526		6%
Operating income (% of sales)		23.2%		23.6%				21.1%

Net sales of tubular products and services decreased 3% sequentially and 3% year on year. In North America, sales increased reflecting higher seasonal sales in Canada and higher onshore drilling activity from our customers in the Permian, partially offset by lower activity in Mexico. In South America, sales decreased due to lower OCTG sales in Colombia and Venezuela. In Europe, sales increased due to higher OCTG and line pipe offshore sales in the North Sea. In the Middle East and Africa, sales remained strong but declined from the exceptional level of the previous quarter, when we had a record level of sales to Saudi Arabia. In the Far East and Oceania, the decline in sales reflected lower sales of line pipe in the region and lower sales for Australian offshore developments.

Operating income from tubular products and services decreased 4% sequentially, mainly reflecting a reduction in sales, but increased 6% year on year. The year on year increase in operating income is mainly due to a richer mix of products sold together with improved operational efficiencies.

Others		Q1 2014		Q4 2013				Q1 2013
Net sales ($ million)		162		194		(16%)		190		(15%)
Operating income ($ million)		4		5		(20%)		28		(79%)
Operating income (% of sales)		2.8%		2.4%				14.5%

Net sales of other products and services decreased 16% sequentially and 15% year on year. The sequential decline in sales was mainly due to lower sales at our industrial equipment business in Brazil and of sucker rods, while the decline in operating income was mainly due to lower margins at our industrial equipment business in Brazil.

Selling, general and administrative expenses, or SG&A, amounted to $489 million, or 18.9% of net sales, in the first quarter of 2014, compared to $497 million, 18.6% in the previous quarter and $476 million, 17.8% in the first quarter of 2013.

Financial results amounted to a gain of $42 million in the first quarter of 2014, compared to a gain of $8 million in the previous quarter and a loss of $9 million in the same period of 2013. During the quarter we had a $51 million gain on foreign exchange results, mainly resulting from the Argentine peso devaluation (22.3%) on our short operative and financial position in Argentine pesos.

Equity in earnings of associated companies generated a gain of $19 million in the first quarter of 2014, compared to a gain of $12 million in the previous quarter and in the first quarter of 2013. These results are mainly derived from our equity investment in Ternium (NYSE: TX) and Usiminas (BSP: USIM).

Income tax charges totaled $199 million in the first quarter of 2014, 32.7% of income before equity in earnings of associated companies and income tax, compared to $202 million, or 33.8% in the previous quarter and $134 million or 24.6% in the first quarter of 2013. As in the previous quarter, our tax rate was negatively affected primarily by the effect of the Argentine peso devaluation on the tax base used to calculate deffered tax at our Argentine subsidiaries which have the U.S. dollar as their functional currency.

Results attributable to non-controlling interests amounted to gains of $6 million in the first quarter of 2014, compared to losses of $1 million in the previous quarter and of $2 million in the first quarter of 2013. These results are mainly attributable to NKKTubes, our Japanese subsidiary.

Cash Flow and Liquidity

Net cash provided by operations during the first quarter of 2014 was $612 million, compared to $427 million in the previous quarter and $556 million in the first quarter of 2013.

Capital expenditures amounted to $189 million for the first quarter of 2014, compared to $184 million in the previous quarter and in the first quarter of 2013.

At the end of the quarter, our net cash position (cash and other current investments less total borrowings) amounted to $1.3 billion.

Conference call

Tenaris will hold a conference call to discuss the above reported results, on May 2, 2014, 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 +1 877 474.9502 within North America or +1 857 244.7555 Internationally. The access number is "64180052". 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 2:00 pm on May 2 through 12:00 am on May 9. To access the replay by phone, please dial +1 888 286.8010 or +1 617 801.6888 and enter passcode "11333713" 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,
		2014		2013
Continuing operations		Unaudited
Net sales		2,579,944		2,678,305
Cost of sales		(1,527,034)		(1,645,432)
Gross profit		1,052,910		1,032,873
Selling, general and administrative expenses		(488,860)		(475,565)
Other operating income (expense) net		1,720		(3,723)
Operating income		565,770		553,585
Interest income		9,062		6,081
Interest expense		(13,003)		(13,909)
Other financial results		46,434		(1,381)
Income before equity in earnings of associated companies and income tax		608,263		544,376
Equity in earnings of associated companies		18,821		12,197
Income before income tax		627,084		556,573
Income tax		(199,065)		(133,856)
Income for the period		428,019		422,717
Attributable to:
Owners of the parent		422,505		424,777
Non-controlling interests		5,514		(2,060)
		428,019		422,717

Consolidated Condensed Interim Statement of Financial Position
(all amounts in thousands of U.S. dollars)			At March 31, 2014				At December 31, 2013
			Unaudited
ASSETS
Non-current assets
	Property, plant and equipment, net		4,754,390				4,673,767
	Intangible assets, net		3,027,964				3,067,236
	Investments in associated companies		932,822				912,758
	Other investments		1,816				2,498
	Deferred tax assets		201,401				197,159
	Receivables		209,129		9,127,522		152,080		9,005,498
Current assets
	Inventories		2,705,667				2,702,647
	Receivables and prepayments		199,777				220,224
	Current tax assets		134,675				156,191
	Trade receivables		2,064,390				1,982,979
	Available for sale assets		21,572				21,572
	Other investments		1,531,776				1,227,330
	Cash and cash equivalents		659,765		7,317,622		614,529		6,925,472
Total assets					16,445,144				15,930,970
EQUITY
Capital and reserves attributable to owners of the parent					12,724,313				12,290,420
Non-controlling interests					136,992				179,446
Total equity					12,861,305				12,469,866
LIABILITIES
Non-current liabilities
	Borrowings		175,894				246,218
	Deferred tax liabilities		744,204				751,105
	Other liabilities		281,510				277,257
	Provisions		70,925		1,272,533		66,795		1,341,375
Current liabilities
	Borrowings		736,213				684,717
	Current tax liabilities		320,600				266,760
	Other liabilities		305,367				250,997
	Provisions		26,509				25,715
	Customer advances		102,592				56,911
	Trade payables		820,025		2,311,306		834,629		2,119,729
Total liabilities					3,583,839				3,461,104
Total equity and liabilities					16,445,144				15,930,970

Consolidated Condensed Interim Statement of Cash Flows
		Three-month period ended March 31,
(all amounts in thousands of U.S. dollars)		2014		2013
		Unaudited
Cash flows from operating activities
Income for the period		428,019		422,717
Adjustments for:
Depreciation and amortization		152,664		145,370
Income tax accruals less payments		70,790		15,213
Equity in earnings of associated companies		(18,821)		(12,197)
Interest accruals less payments, net		(8,099)		(30,725)
Changes in provisions		4,924		3,134
Changes in working capital		16,660		16,321
Other, including currency translation adjustment		(34,293)		(4,168)
Net cash provided by operating activities		611,844		555,665
Cash flows from investing activities
Capital expenditures		(189,045)		(183,885)
Advance to suppliers of property, plant and equipment		(28,651)		7,746
Investment in associated companies		(1,380)		-
Loan to associated companies		(18,748)		-
Proceeds from disposal of property, plant and equipment and intangible assets		4,027		4,386
Dividends received from associated companies		-		1,196
Changes in investments in short terms securities		(304,446)		(158,582)
Net cash used in investing activities		(538,243)		(329,139)
Cash flows from financing activities
Dividends paid to non-controlling interest in subsidiaries		(47,889)		(16,671)
Acquisitions of non-controlling interests		(90)		(538)
Proceeds from borrowings		494,407		625,732
Repayments of borrowings		(468,670)		(677,045)
Net cash used in financing activities		(22,242)		(68,522)
Increase in cash and cash equivalents		51,359		158,004
Movement in cash and cash equivalents
At the beginning of the period		598,145		772,656
Effect of exchange rate changes		185		(5,106)
Increase in cash and cash equivalents		51,359		158,004
At March 31,		649,689		925,554
		At March 31,
		2014		2013
Cash and cash equivalents
Cash and bank deposits		659,765		948,777
Bank overdrafts		(10,076)		(23,223)
		649,689		925,554