Tenaris S.A. 2013 Fourth Quarter and Annual Results Summary
Business Context and Reporting Period
This Form 6-K filing, dated February 26, 2014, reports the audited consolidated financial results for Tenaris S.A. for the fourth quarter and full year ended December 31, 2013. Tenaris is a global manufacturer of tubular products and services for the oil and gas industry. The financial statements are prepared in accordance with IFRS and presented in U.S. dollars.
Key Financial Metrics
| Metric | Q4 2013 | Q4 2012 | FY 2013 | FY 2012 |
|---|---|---|---|---|
| Net Sales ($ million) | 2,674 | 2,758 | 10,597 | 10,834 |
| Operating Income ($ million) | 589 | 586 | 2,185 | 2,357 |
| Net Income ($ million) | 408 | 364 | 1,574 | 1,701 |
| Shareholders' Net Income ($ million) | 409 | 371 | 1,551 | 1,699 |
| EBITDA ($ million) | 745 | 733 | 2,795 | 2,875 |
| EBITDA Margin | 27.8% | 26.6% | 26.4% | 26.5% |
| Earnings per ADS ($) | 0.69 | 0.63 | 2.63 | 2.88 |
| Cash Flow from Operations ($ million) | 428 | 347 | 2,355 | 1,860 |
| Capital Expenditures ($ million) | 184 | 202 | 753 | 790 |
| Net Cash Position ($ million) | 911 | (271)* | 911 | (271)* |
*Note: FY 2012 ended with a net debt position of $271 million; FY 2013 ended with a net cash position of $911 million.
Material Changes vs. Prior Period
- Quarterly Performance: Q4 2013 net sales rose 11% sequentially but declined 3% year-over-year. Operating income increased 27% sequentially and 1% year-over-year. Net income grew 30% sequentially and 12% year-over-year.
- Annual Performance: Full-year 2013 net sales decreased 2% to $10.6 billion, driven by a decline in North America offset by a 68% surge in Middle East and Africa sales. Operating income fell 7% year-over-year, and net income declined 7%.
- Liquidity Transformation: The company shifted from a net debt position of $271 million in 2012 to a net cash position of $911 million in 2013, driven by strong operating cash flows ($2.4 billion) and reduced borrowings.
- Regional Shifts: North American sales dropped 18% annually due to lower shipments and prices. Conversely, Middle East and Africa sales reached record levels due to natural gas drilling and deepwater projects.
Guidance, Outlook, and Risks
- 2014 Outlook: Management expects 2014 results to be in line with 2013. This outlook assumes stable activity in the Middle East and Africa, increased activity in the Gulf of Mexico, and offsetting negative impacts from the U.S. market and Brazil.
- Trade Risks: The U.S. Department of Commerce issued a preliminary anti-dumping ruling on February 18, 2014, imposing duties on imports from most subject countries (excluding Korea). Management expects this to negatively impact U.S. sales in coming quarters, though they believe the final determination will support the case against Korean imports.
- Operational Risks: Continued project delays in Brazil and uncertainties regarding future oil and gas prices remain key risks.
- Dividends: The Board proposed an annual dividend of $0.43 per share ($0.86 per ADS), totaling approximately $508 million. This includes an interim dividend of $153 million already paid in November 2013. The remaining balance is proposed for payment in May 2014.
Investor Verification Checklist
- U.S. Trade Case Impact: Verify the final determination of the U.S. anti-dumping duties and their specific effect on Tenaris's North American sales volume and pricing in 2014.
- Brazil Project Delays: Monitor the status of line pipe and industrial equipment projects in Brazil, which contributed to lower sales and operating losses in the "Others" segment.
- Argentina Currency Exposure: Review the impact of Argentine peso devaluation on future financial results, tax rates, and the valuation of peso-denominated debt.
- Dividend Approval: Confirm shareholder approval of the proposed annual dividend at the May 7, 2014, general meeting.
- Oil Price Sensitivity: Assess how fluctuations in global oil prices may alter exploration and production investment programs, directly affecting demand for OCTG products.