Tenaris S.A. Form 6-K Summary
Business Context and Reporting Period
This filing contains the Consolidated Condensed Interim Financial Statements for Tenaris S.A., a global steel pipe manufacturer, for the nine-month period ended September 30, 2015. The report was filed on November 5, 2015. The company operates primarily in the oil and gas sector, with significant exposure to North American drilling activity. The 2014 comparative figures have been restated to reflect a reduction in the carrying amount of the company's investment in Usiminas.
Key Financial Metrics (Nine Months Ended Sept 30, 2015)
| Metric | 2015 (USD '000) | 2014 (USD '000) |
|---|---|---|
| Net Sales | 5,680,827 | 7,661,457 |
| Gross Profit | 1,819,219 | 3,033,369 |
| Operating Income | 171,036 | 1,548,657 |
| Net Income (Loss) | (29,401) | 934,934 |
| Net Income Attributable to Owners | (33,508) | 911,599 |
| Operating Cash Flow | 2,012,315 | 1,837,776 |
| Cash and Cash Equivalents | 497,753 | 417,645 |
| Total Borrowings (Current + Non-Current) | 998,898 | 999,240 |
Note: All amounts in thousands of U.S. dollars unless otherwise stated.
Material Changes vs. Prior Period
- Revenue Decline: Net sales decreased by approximately 26% year-over-year, driven by reduced drilling activity and lower demand, particularly in North America.
- Profitability Reversal: The company reported a net loss of $29.4 million compared to a net income of $934.9 million in the prior year. This was primarily due to a significant impairment charge.
- Impairment Charge: A non-cash impairment charge of $400.3 million was recorded in the third quarter of 2015, affecting welded pipe assets in the USA. This was triggered by declining oil prices and reduced customer investment.
- Workforce Adjustments: Labor costs included approximately $142.6 million in severance indemnities ($85.6 million in Cost of Sales and $57 million in SG&A) related to workforce adjustments.
- Cash Flow Strength: Despite the net loss, operating cash flow increased to $2.01 billion, supported by a $1.35 billion improvement in working capital.
Outlook, Risks, and Unusual Items
- Market Conditions: Management notes that drilling activity and demand continue to decline, exacerbated by high levels of unfairly traded imported products in North America.
- Impairment Sensitivity: Future impairment charges could occur if oil prices decline further, the discount rate increases, or growth rates decrease. A 100 basis point increase in the discount rate could generate an additional $126 million impairment.
- Legal Contingencies:
- Italy Tax Assessment: A second tax assessment of approx. $278 million regarding 2008 dividend withholding is ongoing; management believes a material obligation is not probable based on recent court rulings.
- CSN Lawsuit: A lawsuit by CSN regarding the 2012 Usiminas acquisition is pending appeal in Brazil. Tenaris believes the claims are groundless and has recorded no provision.
- Dividends: The Board approved an interim dividend of $0.15 per share ($0.30 per ADS), payable November 25, 2015.
Investor Verification Checklist
- Impairment Assumptions: Verify the sensitivity of the $400.3 million impairment charge to changes in oil price forecasts and discount rates.
- Working Capital: Analyze the $1.35 billion positive change in working capital to determine if it is sustainable or a one-time inventory reduction.
- North American Exposure: Assess the impact of continued low rig counts and import competition on the "Tubes" segment, which accounts for the majority of sales.
- Legal Reserves: Monitor the status of the Italian tax assessment and the CSN lawsuit for potential future provisions.
- Capital Expenditures: Review the $824 million in capital expenditures, specifically the progress and funding of the Bay City, Texas seamless facility.