Tubos Reunidos improves its results in the second quarter of 2016, compared to the first quarter, although overall figures for the first half have remained negative. This improvement, within a context of significant decrease in demand, increased competition and lower prices, has been possible thanks to the measures taken by the Company in terms of greater efficiency, containing costs and an important sales effort.
As a result, the Company had a net loss in the second quarter of 8.2 million euros (4.2 million euros approximately with the capital gain from the divestment of the automotive business), compared to losses of 11.1 million euros in the previous quarter. In the same way, turnover n the second quarter was 3.1% higher than in the first quarter, placing it at 57.4 million euros.
Net turnover in the first six months of 2016 amounted to 113.1 million euro, with a decrease of 34.1% compared with the same period of the previous year.
EBITDA stood at 3.3 million euros negative during the period. The net loss reached 19.4 million euros, which, once the capital gain obtained by divestment of the automotive business is included, would be a loss of approximately 15.4 million euros.
Tubos Reunidos is intensifying the adaptation measures to the transformation taking place in the sector with a new Extraordinary Efficiency Plan, which will enable it to better cope with the situation in the short term and structurally strengthen its competitiveness.
1.- Divestment of automotive business
On 21 June 2016, the Group announced and reported to the CNMV that, with the aim of concentrating on its core business as a global supplier of seamless tube solutions, and along with the other shareholders in its automotive business, it had reached a binding agreement with the Mubea Group for the sale of all its shareholdings in the companies Inauxa and EDAI, including the Inaumex and Inautek subsidiaries of the latter.
The transaction was definitively sealed on 29 July 2016, after closing of the first half. The purchase price amounts to 33 million euros, representing a capital gain of 4 million euros in the consolidated financial statements of Tubos Reunidos and a cash inflow of approximately 15.9 million euros for the Group.
2.- Continuity in low sales levels due to lower global demand for tubing and strong competition.
Group sales in the first half have remained conditional by the reduced investment in the oil and gas sector caused by the fall in the price of the oil, leading to lower demand for tubing and greater competition.
Demand has continued to suffer, particularly in the OCTG segment, with a global reduction of 39% in the average number of active drilling rigs compared to the same period of the previous year, and to an even greater extent in North America, where this reduction was 57%. Group sales in other products and geographical markets have also decreased, given the continuity in investment cuts and delays in refining, petrochemical and power generation projects, in addition to stiff competition.
3.- Adaptation measures and Extraordinary Efficiency Plan
Tubos Reunidos has been implementing interim and structural adaptation measures to the decline in sales, including cost savings plans and optimization of all industrial, operational and corporate processes. As of June 2016, the Group has made positive progress, achieving 92% of its cost reduction target, which means a decrease of 13 million euros for 2016 as a whole, compared to 2015.
In view of the situation, the Group has launched an Extraordinary Efficiency Plan to expand the scope of the measures in progress and accelerate their execution, in order to achieve better results than those set previously, to better face the environment in the short term and to consolidate the target structural competitiveness improvements.
4.- Reduce net financial debt and reinforce liquidity position.
Tubos Reunidos has maintained the goal of debt reduction, optimization of working capital and reinforcement of its liquidity position as its management priority. As at 30 June 2016, net financial debt (excluding the automotive business) amounts to 180.3 million euros. After receiving 15.9 million euros from the sale of the automotive business, the Group’s net financial debt would amount to 164.4 million of euros, a reduction of 4.3 million euros in comparison to the final figures for financial year exercise 2015.
At the date of this report, the Company has renewed 68% of debts with financial institutions and the limits of short and long term credit lines that mature in 2016 as planned obtaining an adequate level of liquidity to face the market context. The Group financing structure remains flexible and diversified, continuing with the optimization of conditions.
5.- Inauguration and start of production at the new plant with Marubeni Itochu Steel Inc.
On 13 May 2016, the Group opened its new plant, together with its partner Marubeni-Itochu Steel Inc. (MISI). This started the threading of high value added OCTG tube, manufactured at the Amurrio plant, with API threads (license obtained in May 2016) and the first orders for Premium threaded tube from JFE Steel Corporation have been formalized.
The new plant has already enabled the commercial position of the Group to be strengthened in 2016 with top tier customers, which it could not access previously, to diversify and open new segments for special products and geographical markets, such as the Middle East and Africa, where more drilling and production activity is being maintained, and others like Europe and Asia. The worldwide network of partner field service centres provides a logistical and service advantage which, coupled with the highly competitive position of the new plant, should bring about a growth in special tube sales, a goal aligned with the strategic priorities of the Group, beginning in 2016.
6.- Annual General Meeting of shareholders and announcement of preparation of a new Strategic Plan 2017-2020.
As reported to the CNMV, the Ordinary General Meeting of Shareholders of Tubos Reunidos was held on 29 June 2016, at which the accounts for financial year 2015 and all the points on the agenda were approved by a large majority. The Group announced the preparation of a new Strategic Plan 2017-2020, advancing in the transformation of the Group towards a new industrial, corporate and commercial model, oriented to offering Premium Tubular Solutions in a more competitive and global manner.
The better sales performance in Europe and the Middle East, based on greater added value products with new customer approvals, has partly mitigated the greater fall in sales in the American market, which accounted for 16% of Group tube sales in the first semester, compared to 35% in the same period last year. This decrease has occurred mainly in OCTG tubing and piping, due to lower oil and gas drilling and production activity, as well as in standard large diameter mechanical steel tube products for the industrial sector.
By activity sectors, Group sales performed best in the power generation, refining and petrochemical segments, although they were also affected by project delays and lower global activity, with the biggest decreases in the oil and gas sector (OCTG and piping) and in industry and construction in more standard products.
Sales efforts and focusing on new products have enabled an improved product mix, with 78% of sales in the first semester as a whole being in special products, compared to 72% in the same period of the previous year.
At the end of the second quarter, the price of oil showed a tendency toward stabilisation at much higher levels than at the start of the half. An increase has been noted in the number of drilling asset items in North America, as well as a slight improvement in tube prices. Tubos Reunidos has seen increases in orders placed in this market and in other segments as a result of the sales activities carried out, especially in new products with greater added value. Nevertheless, uncertainty remains high as regards short term evolution.
Tubos Reunidos continues to work with the aim of overcoming the crisis and being strengthened by promoting the opportunities offered by the new threading plant and the strategic agreement with Marubeni-Itochu Steel Inc., with the commercial spotlight focusing on special products in the best situated segments concerning automotive, power generation and gas production in the Middle East, intensifying the scope of the cost reduction and efficiency improvement measures, as well as reinforcing liquidity and financial strength.
As a result of the measures taken, Tubos Reunidos expects to continue the results improvement already initiated in the second quarter.
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