Guillermo Ulacia, Executive Vice-Chairman of Tubos Reunidos:
“In the first half of the year Tubos Reunidos group continued to post sales growth and a positive trend in contracting, bolstered by the sturdy OCTG market in North America. By the end of the period, it had an order backlog that will allow it to meet its annual turnover goals”
“Operating results (EBITDA) for the period reached 16,3 million euros compared to -2 million euros in the first six months of 2016, even factoring in the high price of raw materials, slumping sales of alloy piping for power generation, refining and petrochemicals, and the depreciation of the dollar”.
“The Value Creation Plan, 3600 Transform, has confirmed the potential for improvement of EBITDA by 45 million euros within 24 months from the beginning of its execution at the end of the first semester”.
“The Group posted earnings of -8.1 million euros, also spurred by the negative extraordinary results of the domestic distribution network, Almesa, which was sold off in the second quarter, and wider negative exchange gaps”
Consolidated Sales and Results in the half-year period
Over the first six months of the year, Tubos Reunidos reached a net turnover amount of 163.5 million euros (+58% year-on-year) .
For the period, sales of piping amounted to 155.7 million euros, a year-on-year increase of 58%, with a 56% rise in volume (T) sold and a slight increase in the average price.
Increased sales in OCTG over the first six months of the year, both in terms of volume and price, stemmed from the significant rebound in investment in the drilling and production of shale in North America.
After the investment in new product solutions and the acquisition of Rotary Drilling Tools Inc.'s assets in the second half of 2016, Tubos Reunidos's greater positioning in this segment and geographic area allowed the Group to harness the high growth in this market.
By regions, Spain and Rest of Europe present positive progress (+28% and +29% respectively) due to the level of sales of large-diameter piping, especially mechanical, for the construction and industrial sector, segments that also present positive evolution in North America and which, as a whole, posted 63% growth over the half-year period compared to the same period last year.
Growth in the Far East (+39%) took place particularly in the energy, refining and petrochemical sectors, with more projects awarded over the half-year period than in the Middle East, which, combined with lower sales of utility piping, saw a 51% decline in sales.
The pace of contracting remained positive in the second quarter, and by the end of the period, the Group had an order backlog that will allow it to meet its yearly turnover targets.
For the half-year period, EBITDA reached 16.3 million euros, compared to -2 million euros in the first six months of 2016. The EBITDA margin on sales was 10% for the half-year period, basically bolstered by the higher levels of utilisation and yield of the production plants, a more satisfactory mix for production facilities, and the implementation of cost and efficiency improvements. These circumstances served to partially absorb the higher raw materials and energy costs.
The domestic distribution business, which was channelled through the Group's subsidiary Almesa and reclassified as held for sale in Q4 2016, was spun off in Q2. As a result, extraordinary negative results due to discontinued operations rose to 2.2 million euros for the period and 3.6 million euros for the half-year period.
The depreciation of the dollar generated negative exchange differences amounting to 1.8 million euros for the quarter, which led to worse financial results (-4.2 million euros for the period).
Affected by these factors, the Group's earnings were -8.1 million euros in the second quarter and 8,0 million euros for the first half of 2017.
Value Creation - 3600 Transform Plan
At its General Shareholders' Meeting, Tubos Reunidos presented its Value Creation – 3600 Transform Plan, which represents a leap forward to a new business model that will allow it to guarantee its sustainability, restoring the ability of its business to generate cash and profit yield for the shareholder, with a target ROCE above 7%.
In the initial stage, the Company performed a comprehensive 3600 analysis including all its areas. Taking best sector practices at the global level as reference, it identified potential improvements in EBITDA of 45 million euros (on a base year with 2014 volumes and current prices), which will be implemented over 24 months from the beginning of its execution at the end of the first semester.
In the second phase, Tubos Reunidos implemented a planning initiative and roll-out process involving the entire organisation, confirming the identified potential and developing a detailed plan which execution has already started. .
In the first half of 2017, Tubos Reunidos harnessed the growth of OCTG demand in North America, bolstered by a greater and quicker responsiveness and improved product and service in the U.S.
Shale drilling increase in North America rose to an average 1,022 active platforms in the first half of 2017, compared to 524 for the same period in 2016 (+72%).
The pace of recovery in this market slowed by the end of the half-year period, with oil prices under USD 50/barrel and distributor inventories at normalised levels once supply increased. Thus, following a sharp rise during the first half of the year, prices began to stabilise, with a greater supply-demand balance. For the second half of the year, we expect to maintain a good level of both sales volume and prices in this market. Competition remains strong while prices remain low in the other business sectors.
Our production facilities in the United States are gradually restarting production after a week of shutdown due to safety measures taken in the wake of Hurricane Harvey.Approximately 30% of the staff has suffered the impact with access difficulties, so the productive start is being conditioned by the availability of staff.
In the second half of 2017, we continue to implement the Transforma 3600 Plan initiatives that amount to more than 400 and will increase our EBITDA by 45 million euros over a 24-month period. The order book continues with a good rhythm in volumes and prices which will be reflected in the sales of the next quarters.
However, the sustained increase in the cost of raw materials and lower revenues from the depreciation of the US dollar will mitigate the positive impact of higher volumes and improvements obtained from Transforma 3600, assuming an erosion in the third and fourth EBITDA margin quarter of 2017.
 ROCE (Return on capital employed): EBIT(1-Tax Rate)/Capital employed