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. for the six-month period ended June 30, 2017. The report was filed on August 2, 2017. Tenaris is a global leader in the steel pipe manufacturing and distribution business, with operations across North America, South America, Europe, the Middle East, Africa, and Asia Pacific.
Key Financial Metrics (Six Months Ended June 30, 2017)
| Metric | 2017 (USD '000) | 2016 (USD '000) |
|---|---|---|
| Net Sales | 2,396,664 | 2,261,267 |
| Gross Profit | 707,079 | 584,582 |
| Operating Income | 87,504 | (32,200) |
| Net Income (Total) | 278,995 | 18,773 |
| Net Income (Continuing Ops) | 187,453 | (2,825) |
| Net Income (Discontinued Ops) | 91,542 | 21,598 |
| EPS (Basic & Diluted, Total) | $0.24 | $0.00 |
| Cash and Cash Equivalents | 271,224 | 399,737 |
| Total Borrowings | 852,865 | 840,236 |
Note: All amounts in thousands of U.S. dollars unless otherwise stated. Net income for 2017 includes a significant gain from discontinued operations.
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased by 6.0% to $2.40 billion, driven primarily by higher volumes and pricing in the Tubes segment.
- Profitability Turnaround: Operating income for continuing operations improved from a loss of $32.2 million in 2016 to a profit of $87.5 million in 2017. This was aided by a reduction in SG&A expenses and improved gross margins.
- Discontinued Operations: The 2017 results include a one-time after-tax gain of $89.7 million from the sale of the Republic Conduit business (North American steel electric conduit) to Nucor Corporation, completed in January 2017.
- Cash Flow: Operating cash flow turned negative at $(6.7) million compared to $688.9 million in 2016. This was primarily due to a significant increase in working capital requirements (inventory build-up) and the timing of tax payments, partially offset by the gain on the Conduit sale.
- Capital Expenditures: Capex decreased to $293.8 million from $441.4 million in the prior year, reflecting a slowdown in the Bay City, Texas seamless facility construction relative to the prior period's pace.
Guidance, Outlook, Risks, and Contingencies
Management Commentary: Management highlighted the successful divestiture of the Conduit business and the continued progress on the Bay City seamless facility. The company noted that net income under the "Management View" was $209.8 million, differing from IFRS net income due to functional currency impacts and inventory valuation methods.
Dividends: Shareholders approved an annual dividend of $0.41 per share ($0.82 per ADS). The balance of $0.28 per share was paid in May 2017.
Key Risks and Contingencies:
- Venezuelan Nationalization: Tenaris has won arbitration awards totaling approximately $309.8 million (including interest) against Venezuela for the nationalization of subsidiaries Tavsa, Matesi, and Comsigua. Venezuela has requested annulment of these awards; enforcement proceedings are ongoing.
- Italian Tax Assessment: An Italian subsidiary (Dalmine) faces a tax assessment of approximately $257 million regarding 2008 dividend withholding taxes. Tenaris believes the claim is not probable to result in a material obligation based on favorable lower court rulings, but the case is under appeal.
- Legal Proceedings: Ongoing litigation includes claims by CSN regarding the Usiminas acquisition (dismissed at first and second instance, potential appeal pending) and the Veracel Celulose accident litigation (aggregate claim approx. $38.6 million).
- Investigation: The company is cooperating with Italian, Swiss, and U.S. authorities regarding an investigation into payments potentially linked to Petrobras officers ("Operation Lava Jato"). No provision has been recorded as the outcome is unpredictable.
Investor Verification Checklist
- Discontinued Operations Impact: Verify the sustainability of earnings by excluding the $89.7 million one-time gain from the Republic Conduit sale.
- Working Capital Trends: Analyze the $365 million increase in working capital usage and the rise in inventory levels ($1.99 billion) to assess future cash flow pressure.
- Venezuelan Recovery: Monitor the status of the ICSID annulment proceedings regarding the $309.8 million award against Venezuela.
- Italian Tax Liability: Track the outcome of the second-instance tax court hearing scheduled for September 2017 regarding the $257 million assessment.
- Capex Execution: Review progress on the Bay City, Texas seamless facility, which remains a primary driver for future capacity expansion.