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15/11/2017

TUBOS REUNIDOS EBITDA REACHES 15 MILLION EUROS IN THE FIRST 9 MONTHS

 

Guillermo Ulacia, Executive Vice-Chairman of Tubos Reunidos:

“The management committee of Tubos Reunidos has validated the successful execution of 33 initiatives in the Transforma|3600 Value Creation Plan, which will represent a recurring EBITDA improvement of €4.8 million in a base year [1], accounting for 2% of the Group's operating costs.

The third-quarter results are affected by the seasonal nature of production (production shutdown in August), the decrease in activity in the Beasley (Texas) facilities due to Hurricane Harvey, the upward pressure on raw materials and other consumables, and the effect of the depreciation of the dollar during the period.

The pace of sales growth in the first nine months of the year was maintained, and we have been on track in the fulfilment of objectives for the year as a whole. In addition, we have accelerated the execution of the improvement plans included in the Transforma 3600 project.”


1.- Sales and consolidated results in the first nine months

Pipe sales amounted to €220.2 million in the first nine months of the year, an increase of 54% year-on-year, with a 45% increase in the volume of tons sold and a 24% increase in the average price supported by higher prices in the North American market and the higher turnover of OCTG products from Tubos Reunidos, which incorporate a higher value including own threaded products and processing at RDT and the TRPT threading plant in Alava.  

The order backlog for the fourth quarter remained at levels that enabled it to meet the Group's annual turnover targets. 

EBITDA (2) for the first nine months amounted to €15 million, a substantial improvement over the -€5.7 million obtained in the same period in 2016.

This improvement was mainly supported by the increased use and performance of the production plants and by a more suitable product mix for the facilities which, as a whole, offset the higher raw material prices, the depreciation of the dollar and the start-up costs during the year of the new production facilities, RDT and TRPT.

The improvement in operating income in the first nine months compared with 2016 is not fully reflected in net income due to the increase in financial costs and exchange rate differences resulting from the depreciation of the dollar, as well as the extraordinary losses resulting from the divestment of the Almesa distribution subsidiary in the second quarter of 2017. Net income for the third quarter amounted to -€9.5 million.

 

2.- Cash Flow and Net Financial Debt

Operating cash flow (3)  amounted to €3.9 million for the first nine months of 2017. As a result, due to the significant increase in sales and attendant investment in working capital (€18.7 million) and Capex (€15.9 million) from net payments from previous years' investments based on the 2014-2017 Strategic Plan, there was a net financial debt (4) of €228.7 million by 30 September.

During the third quarter, investment payables fell to €3.1 million, a significantly lower amount than in previous quarters as the payments of the Strategic Investment Plan are completed. This, together with the outstanding invoicing portfolio and the results of the measures to reduce working capital in the context of the Transforma 3600, Plan, will lead to a reduction in debt below the levels of September by year-end.

 

3.- Value Creation - Transforma 3600 Plan      

After a first diagnosis phase and a second phase of planning and deployment of initiatives, by the end of the first semester Tubos Reunidos began the execution phase of the Transforma 3600, Value Creation Plan, defined with the ambition of increasing the Group's EBITDA by €45 million (on a base year with volumes of 2014 and mix and prices of 2017).

Since the beginning of the execution of the Plan, the successful implementation of 33 initiatives has been validated. These initiatives will represent a recurring annual improvement of €4.8 million over the Group's base EBITDA.

Tubos Reunidos is accelerating the implementation of the Plan in order to shorten its execution period, initially set at 24 months. The successful implementation of 83 additional initiatives scheduled for completion before the end of 2017 would increase the Group's annual recurring base EBITDA by €18.6 million (counting the €4.8 million in improvements already achieved).

 

4.- Outlook

Following strong growth in the first half of 2017, shale drilling activity in North America has stabilised, in turn stabilising demand for OCTG, which remains solid at 2.4x higher levels than in 2016.

For its part. production supply in the region has increased and as a result prices have stabilised, also at levels higher than in 2016. With our positioning in this market and increased product and service capabilities, and once we resume our activity in RDT after Hurricane Harvey, we expect to maintain our current positive sales and pricing levels in this segment.

The pace of recovery in other OCTG geographic markets from the historic lows of 2015 and 2016 is still slow, as is business in projects for the power generation, refining and petrochemical sectors, where competition remains fierce. The growth in demand for piping for industrial and mechanical uses remains positive in terms of both volume and price.

For Q4 2017, we expect to maintain our turnover levels with the dispatching of our order backlog at the close of the third quarter. The sustained increase in raw materials costs and the effects of the dollar depreciation will continue to affect our margins, although improvements from the implementation of Transforma 3600 will mitigate these effects in the coming months.  

 

 

1 Impact calculated on base EBITDA:  2014 TMs, 2017 prices and product mix.  

2 Earnings before interest, taxes, depreciation and amortisation

3 Operating cash flow is calculated as the cash flow from operations before investment/divestment of working capital. 

Calculated as external resources minus other current financial assets, derivative financial instruments and cash and other equivalent liquid resources.

 

 

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