Tenaris Announces 2022 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, Net cash / debt and Operating working capital days. See exhibit I for more details on these alternative performance measures.

LUXEMBOURG, Nov. 03, 2022 (GLOBE NEWSWIRE) -- Tenaris S.A. (NYSE and Mexico: TS and EXM Italy: TEN) (“Tenaris”) today announced its results for the quarter ended September 30, 2022 in comparison with its results for the quarter ended September 30, 2021.

Summary of 2022 Third Quarter Results

	3Q 2022		2Q 2022				3Q 2021
Net sales ($ million)	2,975		2,800		6	%	1,754		70	%
Operating income ($ million)	803		663		21	%	231		248	%
Net income ($ million)	608		634		(4	%)	326		86	%
Shareholders’ net income ($ million)	606		637		(5	%)	330		84	%
Earnings per ADS ($)	1.03		1.08		(5	%)	0.56		84	%
Earnings per share ($)	0.51		0.54		(5	%)	0.28		84	%
EBITDA ($ million)	946		806		17	%	379		149	%
EBITDA margin (% of net sales)	31.8	%	28.8	%			21.6	%

Our third quarter sales increased 6% sequentially as further pricing gains more than compensated lower shipments, which were affected by lower deliveries to pipeline projects and seasonal factors. Our EBITDA increased a further 17% sequentially with the margin rising above 30% following the increase in average selling prices which offset the increase in costs of raw materials and energy. Net income decreased 4% sequentially affected by non-operating items: lower results from our equity participation in non-consolidated companies (Ternium and Usiminas) and higher financial expenses.

Our free cash flow for the quarter remained positive at $113 million despite an increase in working capital of $601 million related to a buildup of inventories in anticipation of increased shipments and an increase in receivables. Our capital investments for the quarter, which included $56 million for the wind farm in Argentina, also increased. Our net cash position increased to $700 million at September 30, 2022.

Interim Dividend Payment

Our board of directors approved the payment of an interim dividend of $0.17 per share ($0.34 per ADS), or approximately $201 million. The payment date will be November 23, 2022 , with an ex-dividend date on November 21, 2022 and record date on November 22, 2022.

Market Background and Outlook

In an environment of high geopolitical and macro-economic risk, global economic growth is slowing, and energy prices have come off their recent highs. Conditions in the energy industry, however, remain supportive for an increased level of investment, with low levels of spare capacity and inventories, uncertainty about the impact of further sanctions on Russian exports and a renewed focus on energy security around the world. Global energy provision is constrained and all sources of supply will be needed to meet growing demand.

Drilling activity has increased this year and is expected to increase further, particularly in the Middle East and offshore. Global demand for OCTG is increasing and is expected to surpass pre-Covid levels in 2023. Pipeline activity is also advancing to support oil and gas developments, notably in Argentina and the Middle East.

In the fourth quarter, we anticipate further growth in sales boosted by higher shipments to pipeline projects and additional pricing gains. At the same time, our EBITDA margin should continue to benefit from higher operating leverage while our free cash flow should continue to recover.

US Trade Case

On October 27, 2021, the U.S. Department of Commerce (“DOC”) announced the initiation of antidumping duty investigations of oil country tubular goods (“OCTG”) from Argentina, Mexico, and Russia and countervailing duty investigations of OCTG from Russia and South Korea.

On October 26, 2022, the ITC issued a final determination that the imports under investigation caused injury to the U.S. OCTG industry. As a result of the investigation, Tenaris is required to pay antidumping duties (at a rate of 78.30% for imports from Argentina and 44.93% for imports from Mexico) on its imports of OCTG from Argentina and Mexico for five years. Tenaris has been paying such duties since May 11, 2022, reflecting the amount of such deposits in its production costs. The duty rates may be reset periodically based on the results of the review process.

Analysis of 2022 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 2022	2Q 2022			3Q 2021
Seamless	750	815	(8	%)	675	11	%
Welded	106	75	41	%	71	49	%
Total	856	890	(4	%)	746	15	%

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 2022		2Q 2022				3Q 2021
(Net sales - $ million)
North America	1,761		1,583		11	%	901		95	%
South America	600		462		30	%	314		91	%
Europe	190		259		(27	%)	141		35	%
Middle East & Africa	234		260		(10	%)	199		18	%
Asia Pacific	46		67		(31	%)	52		(11	%)
Total net sales ($ million)	2,832		2,632		8	%	1,607		76	%
Operating income ($ million)	780		636		23	%	200		290	%
Operating margin (% of sales)	27.5	%	24.2	%			12.4	%

Net sales of tubular products and services increased 8% sequentially and 76% year on year. On a sequential basis volumes shipped decreased 4%, affected by lower deliveries to pipeline projects and seasonal factors, while average selling prices increased 12% sequentially, more than offsetting the lower volumes. In North America, sales increased thanks to higher OCTG prices throughout the region and higher shipments of OCTG in Canada. In South America we had higher sales of OCTG to offshore projects in Guyana and higher sales for pipelines in Argentina. In Europe sales declined due to lower sales for offshore line pipe projects and lower sales of industrial products. In the Middle East and Africa sales declined as we had lower sales in Saudi Arabia and lower sales of high alloy products in UAE. In Asia Pacific sales declined reflecting the discontinuation of sales from NKKTubes in Japan and lower sales in China.

Operating results from tubular products and services amounted to a gain of $780 million in the third quarter of 2022 compared to a gain of $636 million in the previous quarter and $200 million in the third quarter of 2021. Our operating margin improved as tubes price increases more than offset higher energy and raw material costs.

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:

Others	3Q 2022		2Q 2022				3Q 2021
Net sales ($ million)	143		168		(15	%)	147		(2	%)
Operating income ($ million)	23		27		(12	%)	31		(26	%)
Operating margin (% of sales)	16.2	%	15.8	%			21.4	%

Net sales of other products and services decreased 15% sequentially and 2% year on year. Sequentially, sales declined mainly due to lower sales of excess raw materials and lower sales of pipes for plumbing applications in Italy.

Selling, general and administrative expenses, or SG&A, amounted to $403 million, or 13.6% of net sales, in the third quarter of 2022, compared to $412 million, 14.7% in the previous quarter and $317 million, 18.1% in the third quarter of 2021. Sequentially, our SG&A expenses decreased mainly due to a reduction in logistic costs associated with lower shipments.

Financial results amounted to a loss of $29 million in the third quarter of 2022, compared to a loss of $11 million in the previous quarter and a loss close to zero in the third quarter of 2021. The financial result of the quarter includes a $30 million loss related to a dividend distribution in kind (Argentine sovereign bonds) paid by an Argentine subsidiary of the Company, which was impacted by the change in value of such bonds from the local Argentine market to the International market. This is related to foreign exchange control measures in Argentina, please see note 18 to our consolidated condensed interim financial statements for the nine-month period ended September 30, 2022.

Equity in earnings of non-consolidated companies generated a gain of $5 million in the third quarter of 2022, compared to a gain of $103 million in the previous quarter and a gain of $154 million in the third quarter of 2021. The result of the quarter includes a $32 million loss from an impairment in Usiminas ($19 million from our direct investment in Usiminas and $13 million from our indirect investment in Usiminas through Ternium). Excluding the impairment loss the equity in earnings of non-consolidated companies would have amounted to $37 million.

Income tax charge amounted to $171 million in the third quarter of 2022, compared to $120 million in the previous quarter and $59 million in the third quarter of 2021. The increase in income tax mainly reflects better results at several subsidiaries following the improvement in activity.

Cash Flow and Liquidity of 2022 Third Quarter

Net cash generated by operating activities during the third quarter of 2022 was $242 million, compared to $428 million in the previous quarter and $53 million in the third quarter of 2021. During the third quarter of 2022 cash generated by operating activities is net of an increase in working capital of $601 million mainly related to a buildup of inventories in anticipation of increased shipments and higher receivables reflecting the increase in sales.

With capital expenditures of $129 million, which include $56 million invested in the wind farm in Argentina, our free cash flow amounted to $113 million during the quarter and our net cash position amounted to $700 million at September 30, 2022.

Analysis of 2022 First Nine Months Results

	9M 2022		9M 2021		Increase/(Decrease)
Net sales ($ million)	8,142		4,464		82	%
Operating income ($ million)	1,950		434		349	%
Net income ($ million)	1,746		717		143	%
Shareholders’ net income ($ million)	1,746		730		139	%
Earnings per ADS ($)	2.96		1.24		139	%
Earnings per share ($)	1.48		0.62		139	%
EBITDA ($ million)	2,379		877		171	%
EBITDA margin (% of net sales)	29.2	%	19.6	%

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

Net sales ($ million)	9M 2022			9M 2021			Increase/(Decrease)
Tubes	7,667	94	%	4,084	91	%	88	%
Others	475	6	%	380	9	%	25	%
Total	8,142			4,464			82	%

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)	9M 2022	9M 2021	Increase/(Decrease)
Seamless	2,337	1,782	31	%
Welded	231	221	5	%
Total	2,568	2,003	28	%

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	9M 2022		9M 2021		Increase/(Decrease)
(Net sales - $ million)
North America	4,691		2,122		121	%
South America	1,411		710		99	%
Europe	681		454		50	%
Middle East & Africa	676		623		9	%
Asia Pacific	207		174		19	%
Total net sales ($ million)	7,667		4,084		88	%
Operating income ($ million)	1,887		368		413	%
Operating margin (% of sales)	24.6	%	9.0	%

Net sales of tubular products and services increased 88% to $7,667 million in the first nine months of 2022, compared to $4,084 million in the first nine months of 2021 due to an increase of 28% in volumes and a 46% increase in average selling prices. Sales increased in all regions, mainly in North America where there was a recovery in volumes and prices throughout the region, led by the U.S. onshore market. Average drilling activity in the first nine months of 2022 increased 54% in the United States & Canada and 13% internationally compared to the first nine months of 2021.

Operating results from tubular products and services amounted to a gain of $1,887 million in the first nine months of 2022 compared to $368 million in the first nine months of 2021. The improvement in operating results was driven by the recovery in sales and margins, as higher tubes prices and an improvement in industrial performance due to the increased levels of activity and utilization of production capacity more than offset the increase in raw material and energy costs.

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:

Others	9M 2022		9M 2021		Increase/(Decrease)
Net sales ($ million)	475		380		25	%
Operating income ($ million)	63		66		(5	%)
Operating margin (% of sales)	13.2	%	17.4	%

Net sales of other products and services increased 25% to $475 million in the first nine months of 2022, compared to $380 million in the first nine months of 2021, mainly due to higher sales of our oilfield services business in Argentina which offers hydraulic fracturing and coiled tubing services, higher sales of sucker rods and excess raw materials, partially offset by lower sales fro