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Tenaris Announces 2019 Second Quarter Results

July 31, 2019

The financial and operational information contained in this press release is based on unaudited consolidated condensed interim financial statements presented in U.S. dollars and prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standard Board and adopted by the European Union, or IFRS. Additionally, this press release includes non-IFRS alternative performance measures i.e., EBITDA, Free Cash Flow and Net cash / debt. See exhibit I for more details on these alternative performance measures.

LUXEMBOURG, July 31, 2019 (GLOBE NEWSWIRE) -- Tenaris S.A. (NYSE, Buenos Aires and Mexico: TS and MTA Italy: TEN) (“Tenaris”) today announced its results for the quarter ended June 30, 2019 in comparison with its results for the quarter ended June 30, 2018.

Summary of 2019 Second Quarter Results

(Comparison with first quarter 2019 and second quarter of 2018)

 2Q 20191Q 20192Q 2018
Net sales ($ million)1,918 1,872 2%1,788 7%
Operating income ($ million)234 259 (9%)222 5%
Net income ($ million)240 243 (1%)166 44%
Shareholders’ net income ($ million)241 243 (1%)168 43%
Earnings per ADS ($)0.41 0.41 (1%)0.29 43%
Earnings per share ($)0.20 0.21 (1%)0.14 43%
EBITDA ($ million)370 390 (5%)363 2%
EBITDA margin (% of net sales)19.3%20.9% 20.3% 

In the second quarter of 2019, sales rose 2% quarter-on-quarter, as higher sales in Mexico and various Eastern Hemisphere markets compensated for a seasonal decline in sales in Canada. Operating income declined 9% quarter on quarter resulting from the non-repetition of the $15 million tariff recovery recorded in the previous quarter and higher maintenance costs associated with a major overhaul of our facilities in Mexico. Net income amounted to 12.5% of sales.

During the quarter, our free cash flow amounted to $245 million, as we continued to reduce our working capital in the amount of $147 million. Following a dividend payment of $331 million in May 2019, we maintained a net cash position (i.e., cash, other current and non-current investments less total borrowings) of $706 million at the end of the quarter.

Appointment of Chief Financial Officer

As previously announced on June 11, 2019, effective as of August 5, 2019, Ms. Alicia Mondolo will assume the position of Chief Financial Officer, replacing Edgardo Carlos.

Market Background and Outlook

In the USA, drilling activity has slowed down and is likely to remain around the present level as oil and gas prices have been subdued and operators maintain a disciplined approach to capital expenditures. In Canada, drilling activity remains well down on last year with no recovery expected before the end of the year.

In Latin America, drilling activity is expected to remain at current levels until the end of the year amid uncertainty about elections in Argentina and the financial position of Pemex.

In the eastern Hemisphere, drilling activity continues to improve, led by gas developments in the Middle East, and a gradual recovery in some offshore basins.

In the third quarter, our sales will be affected by lower average selling prices, seasonal factors and the impact of major maintenance stoppages amplified by the triennial intervention in Mexico, before recovering in the fourth quarter.  We expect to mitigate most of the impact of lower average selling prices with lower costs and complete the year with an overall EBITDA margin similar to that of 2018.

Analysis of 2019 Second Quarter Results

Tubes

The following table indicates, for our Tubes business segment, sales volumes of seamless and welded pipes for the periods indicated below:

Tubes Sales volume (thousand metric tons)2Q 2019 1Q 20192Q 2018
Seamless  674   640 5%  689 (2%)
Welded  173   184 (6%)  146 19%
Total  846    824  3%  834  1%

The following table indicates, for our Tubes business segment, net sales by geographic region, operating income and operating income as a percentage of net sales for the periods indicated below:

Tubes2Q 20191Q 20192Q 2018
(Net sales - $ million)     
North America863 893 (3%)827 4%
South America337 330 2%310 9%
Europe194 158 22%179 9%
Middle East & Africa315 301 5%299 5%
Asia Pacific105 81 29%71 47%
Total net sales ($ million)1,814 1,763 3%1,686 8%
Operating income ($ million)216 238 (9%)197 10%
Operating margin (% of sales)11.9%13.5% 11.7% 

Net sales of tubular products and services increased 3% sequentially and 8% year on year. Sales increased in all regions except North America, in line with the increase in volumes as average selling prices remained flat. In North America sales declined 3% following the decline in Canada due to the spring break-up season, largely offset by higher sales in Mexico. In South America we had higher sales of conductor casing in Brazil. In Europe we had a strong quarter in the North Sea and higher sales of line pipe to distributors. In the Middle East and Africa sales increased due to higher sales in Kuwait, UAE and Northern Africa. In Asia Pacific, sales increased due to higher sales in China and Indonesia.

Operating results from tubular products and services decreased 9% sequentially, from a gain of $238 million in the previous quarter to a gain of $216 million in the second quarter of 2019. Despite the increase in revenues, our operating margin decreased 160 basis points mainly due to flat average selling prices despite higher costs (resulting principally from the non-repetition of the $15 million tariff recovery recorded in the previous quarter and higher maintenance costs associated with a major overhaul of our facilities in Mexico).

Others

The following table indicates, for our Others business segment, net sales, operating income and operating income as a percentage of net sales for the periods indicated below:

Others2Q 20191Q 20192Q 2018
Net sales ($ million)104 109 (5%)103 1%
Operating income ($ million)18 21 (12%)  25 (27%)
Operating income (% of sales)17.7%19.1% 24.5% 

Net sales of other products and services decreased 5% sequentially and increased 1% compared to the second quarter of 2018. The sequential decrease is mainly related to lower sales of energy and scrap.

Selling, general and administrative expenses, or SG&A, amounted to $339 million, or 17.7% of net sales, in the second quarter of 2019, compared to $345 million, 18.5% in the previous quarter and $338 million, 18.9% in the second quarter of 2018. Sequentially SG&A decreased 2% due to lower allowance for doubtful accounts and logistic costs, partially offset by higher consultancy fees, general expenses and provisions for contingencies.

Financial results amounted to a loss of $6 million in the second quarter of 2019, compared to a gain of $24 million in the previous quarter and a gain of $39 million in the second quarter of 2018, as during the 2Q 2019 there was a general appreciation of our most significant currencies versus the U.S. dollar, while in the previous quarter there was a significant depreciation of the Argentine peso. The loss of the quarter corresponds mainly to an FX loss of $8 million; $5 million loss related to the Japanese Yen appreciation mainly on newly recorded leasing liabilities (after adoption of IFRS 16), $1 million loss related to the Argentine peso appreciation on trade, social and fiscal payables at Argentine subsidiaries which functional currency is the U.S. dollar and $1 million loss on Euro denominated intercompany liabilities due to the appreciation of the Euro.

Equity in earnings of non-consolidated companies amounted to $26 million in the second quarter of 2019, compared to $29 million in the previous quarter and $41 million in the second quarter of last year. These results are mainly derived from our equity investment in Ternium (NYSE:TX).

Income tax charge amounted to $15 million in the second quarter of 2019, compared to $70 million in the previous quarter and $135 million in the second quarter of last year. During the quarter, our income tax charge was reduced mainly by the effect of the Argentine peso revaluation on the tax base at our Argentine subsidiaries which have U.S. dollar as their functional currency, and the application of the fiscal inflation adjustment in Argentine subsidiaries(~$25 million).

Cash Flow and Liquidity of 2019 Second Quarter

Net cash provided by operating activities during the second quarter of 2019 was $342 million, compared to $548 million in the first quarter of 2019 and $351 million in the second quarter of last year. During the second quarter of 2019 we generated $147 million from the reduction in working capital.

Free cash flow amounted to $245 million after capital expenditures of $97 million. Following a dividend payment of $331 million in May 2019, we maintained a net cash position (i.e., cash, other current and non-current investments, derivatives hedging borrowings and investments less total borrowings) of $706 million at the end of the quarter.

Analysis of 2019 First Half Results

 6M 20196M 2018Increase/(Decrease)
Net sales ($ million)3,790 3,655 4%
Operating income (loss) ($ million)494 435 14%
Net income ($ million)482 402 20%
Shareholders’ net income ($ million)484 403 20%
Earnings per ADS ($)0.82 0.68 20%
Earnings per share ($)0.41 0.34 20%
EBITDA ($ million)760 717 6%
EBITDA margin (% of net sales)20.1%19.6% 

Our sales in the first half of 2019 increased 4% compared to the first half of 2018. While volumes sold declined 6%, average selling prices increased 10% as the proportion of seamless pipes sold increased after completion of deliveries to Zohr project in the Middle East and Africa region. Sales increased in all regions, except in the Middle East and Africa. EBITDA increased 6% to $760 million in the first half of 2019 compared to $717 million in the first half of 2018, following the increase in sales. Net income attributable to owners of the parent during the first half of 2019 was $484 million or $0.82 per ADS, which compares with $403 million or $0.68 per ADS in the first half of 2018. The improvement in net income mainly reflects a better operating environment together with a lower income tax, partially offset by lower financial results and results from associated companies.

Cash flow provided by operating activities amounted to $890 million during the first half of 2019, including a reduction in working capital of $346 million. Following a dividend payment of $331 million in May 2019, and capital expenditures of $183 million during the first half of 2019, we maintained a positive net cash position (i.e., cash, other current and non-current investments, derivatives hedging borrowings and investments less total borrowings) of $706 million at the end of June 2019.

The following table shows our net sales by business segment for the periods indicated below:

Net sales ($ million)6M 20196M 2018Increase/(Decrease)
Tubes3,578 94%3,452 94%4%
Others212 6%203 6%5%
Total3,790 100%3,655 100%4%

Tubes

The following table indicates, for our Tubes business segment, sales volumes of seamless and welded pipes for the periods indicated below:

Tubes Sales volume (thousand metric tons)6M 2019 6M 2018 Increase/(Decrease)
Seamless  1,314   1,340 (2%)
Welded  357   431 (17%)
Total  1,671    1,771  (6%)

The following table indicates, for our Tubes business segment, net sales by geographic region, operating income and operating income as a percentage of net sales for the periods indicated below:

Tubes6M 20196M 2018Increase/(Decrease)
(Net sales - $ million)   
North America1,757 1,634 8%
South America667 595 12%
Europe352 331 6%
Middle East & Africa616 755 (18%)
Asia Pacific186 137 36%
Total net sales ($ million)3,578 3,452 4%
Operating income ($ million)455 391 16%
Operating income (% of sales)12.7%11.3% 

Net sales of tubular products and services increased 4% to $3,578 million in the first half of 2019, compared to $3,452 million in the first half of 2018, as a reduction of 6% in volumes was offset by an increase in average selling prices as the proportion of seamless pipes increased following the completion of deliveries of

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