Tenaris S.A. Form 6-K Summary
Business Context and Reporting Period
This filing contains the Consolidated Financial Statements for Tenaris S.A. for the years ended December 31, 2016, 2015, and 2014. The report was furnished to the SEC on February 24, 2017. Tenaris is a global manufacturer of steel pipes and related services, primarily for the oil and gas industry. The company operates through one major reportable segment, "Tubes," and reported discontinued operations related to the sale of its North American steel electric conduit business (Republic Conduit).
Key Financial Metrics (Year Ended Dec 31, 2016)
| Metric | 2016 (USD '000s) | 2015 (USD '000s) | 2014 (USD '000s) |
|---|---|---|---|
| Net Sales | 4,293,592 | 6,903,123 | 10,141,459 |
| Gross Profit | 1,127,908 | 2,155,363 | 4,001,044 |
| Operating Income (Loss) | (59,057) | 165,795 | 1,880,532 |
| Net Income (Loss) | 58,739 | (74,425) | 1,181,176 |
| Net Income Attributable to Owners | 55,298 | (80,162) | 1,158,517 |
| Operating Cash Flow | 863,565 | 2,215,004 | 2,044,067 |
| Total Assets | 14,003,275 | 14,886,974 | 16,393,379 |
| Total Borrowings | 840,236 | 971,516 | 1,088,137 |
| Cash and Cash Equivalents | 399,737 | 286,547 | 417,645 |
Margins (2016): Gross Margin was 26.3%. Operating Margin was -1.4%. Net Margin was 1.4%.
Material Changes vs. Prior Period
- Revenue Decline: Net sales decreased 37.8% to $4.29 billion in 2016 compared to $6.90 billion in 2015, driven by lower volumes and prices in the oil and gas sector.
- Profitability Shift: The company returned to profitability in 2016 with a net income of $58.7 million, reversing a net loss of $74.4 million in 2015. This improvement was largely due to the absence of significant impairment charges recorded in 2015 ($400.3 million) and 2014 ($205.8 million).
- Discontinued Operations: The Republic Conduit business was classified as held for sale in 2016, contributing $41.4 million to net income. The sale was completed in January 2017 for $332.4 million.
- Debt Reduction: Total borrowings decreased by approximately $131 million to $840.2 million, with a significant reduction in non-current borrowings.
- Equity in Non-Consolidated Companies: Equity earnings from associates (primarily Ternium and Usiminas) turned positive in 2016 ($71.5 million) compared to a loss of $39.6 million in 2015.
Guidance, Outlook, Risks, and Contingencies
Management Commentary: Management noted that the 2016 results reflect the impact of the downturn in the oil and gas industry. The company maintained a conservative approach to liquidity and reduced capital expenditures to $786.9 million in 2016 compared to $1.13 billion in 2015.
Dividends: The Board proposed an annual dividend of $0.41 per share ($0.82 per ADS) for approval in May 2017, including an interim dividend of $0.13 per share already paid in November 2016.
Key Risks and Contingencies:
- Venezuelan Nationalization: Tenaris has received arbitration awards totaling approximately $309.8 million (including interest) against Venezuela for the nationalization of its subsidiaries (Tavsa, Matesi, Comsigua). Venezuela has requested annulment of the awards, and enforcement remains uncertain.
- Legal Proceedings: Significant ongoing litigation includes a tax assessment in Italy (Dalmine) regarding withholding taxes on dividends (approx. $235 million claimed by authorities, though Tenaris believes it is not probable to result in a material obligation) and claims by CSN regarding the Usiminas acquisition (dismissed by courts but subject to potential further appeal).
- Commodity and FX Risk: The company is exposed to fluctuations in raw material prices and foreign exchange rates, particularly the Argentine Peso, Euro, and Brazilian Real.
- Investigation: The company is cooperating with Italian, Swiss, and U.S. authorities regarding an investigation into potential payments related to affiliates and officers of Petrobras (Operation Lava Jato).
Investor Verification Checklist
- Discontinued Operations: Verify the final net proceeds from the Republic Conduit sale and the impact on 2017 earnings.
- Venezuelan Arbitration: Monitor the status of the annulment proceedings and the likelihood of collecting the $309.8 million award.
- Impairment Sensitivity: Review the sensitivity analysis for goodwill (specifically OCTG USA) regarding discount rates and growth assumptions, as further deterioration in oil prices could trigger new impairments.
- Italian Tax Dispute: Track the Supreme Court appeal regarding the 2007 tax assessment and the status of the 2008 assessment.
- Capital Expenditures: Confirm the progress and funding requirements for the new seamless pipe mill in Bay City, Texas, given the $175.8 million in commitments.