Tenaris S.A. 2014 Fourth Quarter and Annual Results Summary
Business Context and Reporting Period
This Form 6-K filing, dated February 20, 2015, reports the audited consolidated financial results for Tenaris S.A. for the fourth quarter and full year ended December 31, 2014. Tenaris is a global manufacturer of tubular products for the oil and gas industry. The results are presented in U.S. dollars in accordance with IFRS.
Key Financial Metrics
| Metric | Q4 2014 | Q4 2013 | FY 2014 | FY 2013 |
|---|---|---|---|---|
| Net Sales ($ million) | 2,677 | 2,674 | 10,338 | 10,597 |
| Operating Income ($ million) | 350 | 589 | 1,899 | 2,185 |
| Net Income ($ million) | 195 | 408 | 1,366 | 1,574 |
| EBITDA ($ million) | 712 | 745 | 2,720 | 2,795 |
| EBITDA Margin | 26.6% | 27.8% | 26.3% | 26.4% |
| Earnings per ADS ($) | 0.33 | 0.69 | 2.28 | 2.63 |
| Cash Flow from Operations ($ million) | 206 | 464 | 2,044 | 2,377 |
| Net Cash Position ($ million) | 1,300 | 1,660 | 1,300 | 911 |
Note: Net Cash Position is defined as cash and other current investments less total borrowings.
Material Changes vs. Prior Period
- Profitability Decline: Q4 2014 Net Income fell 52% year-over-year to $195 million. Full-year 2014 Net Income declined 13% to $1,366 million.
- Impairment Charges: Operating income was significantly impacted by a $206 million impairment charge on welded pipe assets in Colombia and Canada due to declining oil prices and drilling activity. Additionally, a $49 million impairment was recorded on the investment in Usiminas (Brazil) due to deteriorating iron ore prices.
- Revenue Stability: Full-year net sales remained relatively flat (-2%) despite a 3% decrease in average selling prices, driven by higher volumes in North America offsetting declines in Brazil and the Middle East.
- Regional Shifts: North American sales increased 13% annually, while South American sales dropped 19% and Middle East & Africa sales fell 13% due to destocking in Saudi Arabia.
- Liquidity: The net cash position improved to $1.3 billion at year-end 2014 from $911 million in 2013, despite $1.1 billion in capital expenditures and $531 million in dividends paid.
Guidance, Outlook, and Risks
- 2015 Outlook: Management expects a 30% decline in OCTG (Oil Country Tubular Goods) consumption in 2015 compared to 2014. Demand is expected to bottom in the second half of 2015 before a gradual recovery.
- Market Risks: The primary risk is the prolonged decline in oil and gas prices, leading to reduced drilling activity, particularly in North America. Other risks include trade case uncertainties in the U.S. and Canada, and destocking in the Eastern Hemisphere.
- Strategic Response: Tenaris is adjusting operations to a low-price environment by strengthening market position, reducing costs, and reviewing its investment program.
- Dividends: The Board proposes an annual dividend of $0.45 per share ($0.90 per ADS), totaling approximately $531 million. A payment of $0.30 per share is scheduled for May 20, 2015.
Investor Verification Checklist
- Verify the magnitude of the $206 million impairment charge on welded pipe assets in Colombia and Canada and its impact on future asset valuations.
- Confirm the status of the Usiminas investment and the $49 million impairment related to the Brazilian iron ore market.
- Monitor the 30% projected decline in 2015 OCTG consumption against actual drilling activity data in North America.
- Review the impact of the recent trade case ruling on imports in the U.S. and Canada on future North American sales volumes.
- Assess the sustainability of the dividend payout given the projected revenue decline and capital expenditure requirements.