Tenaris Announces 2021 Third Quarter Results

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, Nov. 03, 2021 (GLOBE NEWSWIRE) -- Tenaris S.A. (NYSE and Mexico: TS and EXM Italy: TEN) ("Tenaris") today announced its results for the quarter and nine months ended September 30, 2021 with comparison to its results for the quarter and nine months ended September 30, 2020.

Summary of 2021 Third Quarter Results

(Comparison with second quarter of 2021 and third quarter of 2020)

                               3Q 2021        2Q 2021            3Q 2020 
  Net sales ($ million)       1,754      1,529      15%     1,013       73% 
  Operating income (loss) ($ 
   million)                     231        152      52%       (70) 
  Net income (loss) ($ 
   million)                     326        290      12%       (36) 
  Shareholders' net income 
   (loss) ($ million)           330        294      12%       (33) 
  Earnings (losses) per ADS 
   ($)                         0.56       0.50      12%     (0.06) 
  Earnings (losses) per 
   share ($)                   0.28       0.25      12%     (0.03) 
  EBITDA ($ million)            379        301      26%       107      254% 
  EBITDA margin (% of net 
   sales)                      21.6%      19.7%              10.6% 

Our sales in the third quarter rose by a further 15% sequentially, led by North and South America, even as sales in the Middle East continue to be affected by destocking and those in Europe by seasonal factors. Our EBITDA margin rose above 20% following an increase in average selling prices while the increase in cost of sales was contained, despite higher raw materials and energy costs, by an improved industrial performance and higher absorption of fixed costs.

With the continuing ramp up of operations at our industrial facilities in the United States, including the reopening of our Ambridge, PA, seamless pipe mill and our Baytown, TX, heat treatment and finishing facilities, and higher activity levels, working capital during the quarter increased by $276 million. Cash provided by operating activities totaled $53 million and with capital expenditures of $74 million during the quarter, our free cash flow was slightly negative and our net cash position at September 30, 2021 declined to $830 million compared to $854 million in the previous quarter.

Interim Dividend Payment

Our board of directors approved the payment of an interim dividend of $0.13 per share ($0.26 per ADS), or approximately $153 million. The payment date will be November 24, 2021 , with an ex-dividend date on November 22, 2021 and record date on November 23, 2021.

Termination of NKKTubes joint venture

On November 2, 2021, Tenaris reached a preliminary agreement with JFE Holdings Inc. ("JFE") to terminate the joint venture for the operation of the seamless pipe manufacturing facility in Kawasaki, Japan.

The facility, located in the Keihin steel complex owned by JFE, has been operated by NKKTubes, a company owned 51% by Tenaris and 49% by JFE, since 2000. NKKTubes has been dependent on JFE's Keihin steel complex for the supply of raw materials, energy and other essential services.

On March 27, 2020, JFE had informed Tenaris of its decision to permanently cease as from JFE's fiscal year ending March 2024 the operations of its steel manufacturing facilities located at the Keihin complex. In light of that development, Tenaris and JFE engaged in discussions and ultimately determined that the project was no longer economically sustainable and, accordingly, amicably agreed to terminate their joint venture and liquidate NKKTubes.

The parties have agreed to cease NKKTubes' manufacturing operations by the end of June 2022 and to dissolve the company by the end of December 2022.

Tenaris and JFE highly recognize the contribution of NKKTubes' employees. The parties are committed to work in good faith to provide adequate communication and support under the present circumstances.

Tenaris and JFE are also committed to ensure the supply of tubular material, including 13 Chrome alloy products, to NKKTubes' international customers after its closure. In addition, JFE will support NKKTubes' domestic customers according to customers' needs.

Tenaris and JFE will also engage in an open dialogue with suppliers, local community groups and governmental entities affected by the NKKTubes dissolution.

Tenaris and JFE intend to continue discussing cooperatively with respect to other aspects of the dissolution of the joint venture, with a view towards reaching a definitive agreement prior to June 2022.

For information on the accounting impact of the NKKTubes termination, see note 23 Subsequent events to the consolidated condensed interim financial statements as of September 30, 2021.

Market Background and Outlook

The strength of the global economic rebound so far this year and lower levels of investment in the energy sector over the past years have resulted in a tighter energy market. As OPEC+ countries continue to contain production levels and large, publicly listed US shale producers restrain capital spending, global oil inventories have declined below 5-year average levels and are supportive of high prices.

Drilling activity in the U.S. and Canada continues to increase led by private operators and further gradual increases are likely in the coming months. In Latin America, drilling activity has shown a recovery this year, with higher activity in the Vaca Muerta shale in Argentina and in Colombia as well as the offshore regions of Brazil, Mexico and Guyana. In the Eastern Hemisphere, drilling activity is now recovering gradually and this recovery should extend further in the coming months though demand for OCTG will continue to be tempered by ongoing destocking in key Middle East markets.

We anticipate that sales will show a further increase in the fourth quarter, again led by North America, where the market has absorbed excess OCTG inventories and prices are increasing. Our EBITDA margin in the fourth quarter should remain close to the current level as price increases compensate for raw material, energy and logistic cost increases.

On October 27, 2021, in response to a petition from U.S. Steel Tubular Products, a small number of other U.S. domestic welded OCTG producers, and a steelworkers' union, the U.S. Department of Commerce (DOC) initiated anti-dumping duty investigations on OCTG imports from Mexico, Argentina and Russia and countervailing duty investigations on OCTG imports from Russia and South Korea. The International Trade Commission (ITC) is required to make a preliminary determination of injury. In case of a negative ITC determination, the investigations will be terminated. Otherwise, the investigations will proceed until the DOC and the ITC make final determinations. Tenaris, which imports OCTG from Argentina and Mexico to complement its production in the United States, believes that the petition is unjustified and intends to vigorously challenge any claim that its imports are causing or threatening injury to the U.S. domestic OCTG industry. At this time, Tenaris cannot predict the outcome of this matter or estimate the potential impact, if any, that the resolution of this matter may have on Tenaris's business. Over the past 15 years, Tenaris has realized substantial investments, more than any other company, in acquisitions and new production to build up a competitive OCTG production system in the United States; we believe we are well placed to continue serving our customers even in case of an adverse resolution of the matter.

Analysis of 2021 Third 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)                                    3Q 2021    2Q 2021       3Q 2020 
  Seamless                                     675  611   10%     383   76% 
  Welded                                        71   79  (10%)     99  (28%) 
  Total                                        746  690    8%     482   55% 

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:

  Tubes                        3Q 2021        2Q 2021             3Q 2020 
  (Net sales - $ million) 
  North America                 901        706       28%      353      155% 
  South America                 314        230       37%      131      140% 
  Europe                        141        170      (17%)     126       12% 
  Middle East & Africa          199        228      (13%)     262      (24%) 
  Asia Pacific                   52         62      (17%)      75      (31%) 
  Total net sales ($ 
   million)                   1,607      1,397       15%      946       70% 
  Operating income (loss) ($ 
   million)                     200        130       53%      (66)     402% 
  Operating margin (% of 
   sales)                      12.4%       9.3%              (6.9%)