Tenaris Announces 2010 Second Quarter Results
LUXEMBOURG, Aug 04, 2010 (MARKETWIRE via COMTEX News Network) -- Tenaris S.A. (NYSE: TS) (BAE: TS) (MXSE: TS) (MILAN: TEN) ("Tenaris") today announced its results for the quarter and semester ended June 30, 2010 with comparison to its results for the quarter and semester ended June 30, 2009.
Summary of 2010 Second Quarter Results
(Comparison with first quarter of 2010 and second quarter of 2009)
Q2 2010 Q1 2010 Q2 2009
------- ------------- -------------
Net sales (US$ million) 1,981.8 1,638.7 21% 2,096.3 (5%)
Operating income (US$ million) 405.3 309.3 31% 436.8 (7%)
Net income (US$ million) 295.0 222.2 33% 336.4 (12%)
Shareholders' net income (US$
million) 282.1 219.5 28% 343.3 (18%)
Earnings per ADS (US$) 0.48 0.37 28% 0.58 (18%)
Earnings per share (US$) 0.24 0.19 28% 0.29 (18%)
EBITDA (US$ million) 531.2 435.4 22% 563.1 (6%)
EBITDA margin (% of net sales) 27% 27% 27%
Our results in the second quarter include a strong recovery in OCTG shipments to the Middle East and South America. More generally, they reflect the recovery we are seeing in most of our markets, particularly in the United States where OCTG inventories have declined to more normal levels and oil and gas drilling activity continues to increase. Net sales, operating income and net income rose significantly on a sequential basis with EBITDA margin stable at 27%.
Cash flow from operations during the second quarter of 2010 remained positive although we increased our investment in working capital by US$187.7 million due to the increase in activity levels. Our net cash position (total financial debt less cash and other current investments) decreased by US$378.6 million to US$568.7 million during the quarter after paying a dividend of US$247.9 million in June and investing US$190.4 million in capital expenditures.
Market Background and Outlook
In the first half of 2010, global drilling activity has continued to recover led by substantially higher oil and gas shales drilling activity in the United States and Canada. Activity has increased in most markets reflecting the stability of oil prices at attractive levels and increased investment in regional gas developments.
In the second half of the year, we expect the global recovery in drilling activity to continue its gradual recovery but at a lower pace. Lower conventional gas drilling activity in North America will limit increases in the North American rig count and the International rig count, as published by Baker Hughes, has already returned to pre-crisis levels. Recovery in the hydrocarbon processing sector is also expected to take hold as refining projects move forward in the Middle East, Asia and Brazil.
In the second half, we expect revenues to increase driven by higher sales in the United States and Canada and a recovery of shipments in our Projects operating segment in the fourth quarter. Sales in other regions should remain stable. We also expect to maintain our operating margins as a percentage of sales at current levels as like-for-like price increases offset the impact of higher raw material and labor costs and a less favorable seamless/welded product mix.
Analysis of 2010 Second Quarter Results
Increase/
Sales volume (metric tons) Q2 2010 Q2 2009 (Decrease)
---------- ---------- ----------
Tubes - Seamless 603,000 497,000 21%
Tubes - Welded 179,000 65,000 175%
Tubes - Total 782,000 562,000 39%
Projects - Welded 32,000 90,000 (64%)
Total 814,000 652,000 25%
Increase/
Tubes Q2 2010 Q2 2009 (Decrease)
---------- ---------- ----------
(Net sales - $ million)
North America 736.4 661.0 11%
South America 315.3 244.9 29%
Europe 179.4 222.3 (19%)
Middle East & Africa 376.0 452.7 (17%)
Far East & Oceania 114.2 137.8 (17%)
Total net sales ($ million) 1,721.4 1,718.7 0%
Cost of sales (% of sales) 58% 57%
Operating income ($ million) 355.6 385.0 (8%)
Operating income (% of sales) 21% 22%
Net sales of tubular products and services amounted to US$1,721.4 million in the second quarter of 2010, flat compared to the second quarter of 2009, as a 39% increase in volumes was offset by lower average selling prices. In North America, higher sales were driven by a strong increase in demand for OCTG in the United States, which were partially offset by a decline in average selling prices. Sales increased strongly in South America, mainly due to a high demand in Argentina and Ecuador. In Europe, although demand for mechanical tubes and from energy related sectors increased, sales were negatively affected by lower average selling prices. Sales in the Middle East and Africa and in the Far East and Oceania were also negatively affected by lower average selling prices, which offset higher shipments mainly in the Middle East and North Africa.
Increase/
Projects Q2 2010 Q2 2009 (Decrease)
---------- ---------- -----------
Net sales ($ million) 94.0 254.4 (63%)
Cost of sales (% of sales) 63% 75%
Operating income ($ million) 19.0 45.5 (58%)
Operating income (% of sales) 20% 18%
Net sales of pipes for pipeline projects decreased 63% to US$94.0 million in the second quarter of 2010, compared to US$254.4 million in the second quarter of 2009, reflecting a decrease in shipments to gas and other pipeline projects in Brazil and Argentina.
Increase/
Others Q2 2010 Q2 2009 (Decrease)
---------- ---------- ----------
Net sales ($ million) 166.3 123.2 35%
Cost of sales (% of sales) 72% 78%
Operating income ($ million) 30.7 6.3 384%
Operating income (% of sales) 18% 5%
Net sales of other products and services increased 35% to US$166.3 million in the second quarter of 2010, compared to US$123.2 million in the second quarter of 2009, as all the main business activities included in the segment increased their revenues.
Selling, general and administrative expenses, or SG&A, increased as a percentage of net sales to 19.7% in the quarter ended June 30, 2010, compared to 18.9% in the corresponding quarter of 2009, mainly due to the effect of fixed expenses on lower revenues.
Net interest expenses increased to US$17.5 million in the second quarter of 2010 compared to US$16.3 million in the same period of 2009. Interest expenses in the second quarter of 2010 were negatively affected by higher interest rates, which are partially offset by foreign exchange gains recorded under other financial results. In addition, interest income in the second quarter of 2009 included one-off gains amounting to US$3.0 million.
Other financial results generated a loss of US$7.4 million during the second quarter of 2010, compared to a loss of US$15.9 million during the second quarter of 2009. These results largely reflect gains and losses on net foreign exchange transactions and the fair value of derivative instruments and are partially offset by changes to our net equity position. These gains and losses are mainly attributable to variations in the exchange rates between our subsidiaries' functional currencies (other than the US dollar) and the US dollar, in accordance with IFRS.
Equity in earnings of associated companies generated a gain of US$19.3 million in the second quarter of 2010, compared to a gain of US$66.5 million in the second quarter of 2009. These gains were derived mainly from our equity investment in Ternium.
Income tax charges totalled US$104.7 million in the second quarter of 2010, equivalent to 28% of income before equity in earnings of associated companies and income tax, compared to US$114.5 million in the second quarter of 2009, equivalent to 28% of income before equity in earnings of associated companies and income tax.
Results attributable to non-controlling interests amounted to a gain of US$12.9 million in the second quarter of 2010, compared with a loss of US$6.8 million in the second quarter of 2009, mainly due to better results at our Confab subsidiary and to the discontinuation of our Venezuelan operations.
Cash Flow and Liquidity
Net cash provided by operations during the second quarter of 2010 was US$58.6 million (US$494.9 million in the first half), compared to US$1.1 billion in the second quarter of 2009 (US$1.9 billion in the first half). Working capital increased by US$187.7 million during the second quarter of 2010, as inventories increased by US$242.6 million, trade receivables increased by US$121.3 million, partially offset by an increase in trade payables of US$179.2 million.
Capital expenditures amounted to US$190.4 million in the second quarter of 2010 (US$348.4 million in the first half), compared to US$106.5 million in the second quarter of 2009 (US$226.3 million in the first half).
During the first half of 2010, our net cash position decreased by US$107.0 million, from US$675.7 million at December 31, 2009, to US$568.7 million at June 30, 2010. Total financial debt during the first half of 2010 decreased by US$234.0 million to US$1.2 billion at June 30, 2010.
Analysis of 2010 First Half Results
Increase/
H1 2010 H1 2009 (Decrease)
---------- ---------- -----------
Net sales (US$ million) 3,620.5 4,530.6 (20%)
Operating income (US$ million) 714.6 1,122.4 (36%)
Net income (US$ million) 517.2 729.5 (29%)
Shareholders' net income (US$
million) 501.6 709.3 (29%)
Earnings per ADS (US$) 0.85 1.20 (29%)
Earnings per share (US$) 0.42 0.60 (29%)
EBITDA* (US$ million) 966.6 1,370.5 (29%)
EBITDA margin (% of net sales) 27% 30%
Net income attributable to equity holders in the Company during the first semester of 2010 was US$501.6 million, or US$0.42 per share (US$0.85 per ADS), which compares with net income attributable to equity holders in the Company during the first semester of 2009 of US$709.3 million, or US$0.60 per share (US$1.20 per ADS). Operating income was US$714.6 million, or 20% of net sales during the first semester of 2010, compared to US$1,122.4 million, or 25% of net sales during the first semester of 2009. Operating income plus depreciation and amortization for the first semester of 2010, was US$966.6 million, or 27% of net sales, compared to US$1,370.5 million, or 30% of net sales during the first semester of 2009.
Net Sales, Cost of Sales and Operating Income by segment
The following table shows our net sales by business segment for the periods indicated below:
Increase/
Net sales ($ million) H1 2010 H1 2009 (Decrease)
------------- ------------- ----------
Tubes 3,131.8 87% 3,809.4 84% (18%)
Projects 187.2 5% 476.6 11% (61%)
Others 301.4 8% 244.7 5% 23%
Total 3,620.5 100% 4,530.6 100% (20%)
The following table indicates our sales volume of seamless and welded pipes by business segment for the periods indicated below:
Increase/
Sales volume (metric tons) H1 2010 H1 2009 (Decrease)
---------- ---------- ----------
Tubes - Seamless 1,070,000 1,076,000 (1%)
Tubes - Welded 318,000 175,000 82%
Tubes - Total 1,388,000 1,251,000 11%
Projects - Welded 66,000 174,000 (62%)
Total 1,454,000 1,424,000 2%
Tubes
The following table indicates, for our Tubes business segment, net sales by geographic region, cost of sales as a percentage of net sales, operating income and operating income as a percentage of net sales for the periods indicated below:
Increase/
Tubes H1 2010 H1 2009 (Decrease)
---------- ---------- ----------
(Net sales - $ million)
North America 1,412.8 1,676.8 (16%)
South America 518.3 494.3 5%
Europe 378.8 484.9 (22%)
Middle East & Africa 625.3 848.0 (26%)
Far East & Oceania 196.6 305.4 (36%)
Total net sales ($ million) 3,131.8 3,809.4 (18%)
Cost of sales (% of sales) 58% 55%
Operating income ($ million) 634.7 1,026.3 (38%)
Operating income (% of sales) 20% 27%
Net sales of tubular products and services decreased 18% to US$3,131.8 million in the first half of 2010, compared to US$3,809.4 million in the first half of 2009, as an 11% increase in volumes was more than offset by a 26% reduction in average selling prices.
Cost of sales of tubular products and services, expressed as a percentage of net sales, rose from 55% in the first half of 2009, to 58% in the first half of 2010.
Operating income from tubular products and services decreased 38% to US$634.7 million in the first half of 2010, from US$1,026.3 million in the first half of 2009, mainly due to the reduction in sales. Operating income expressed as a percentage of net sales decreased to 20% in the first half of 2010, compared to 27% in the first half of 2009. Our operating income in the first half of 2010 was affected by the decrease in the average selling prices, by the effect of fixed and semi-fixed costs over lower revenues and by the time lag between raw material cost variations and their impact on the cost of sales.
Projects
The following table indicates, for our Projects business segment, net sales, cost of sales as a percentage of net sales, operating income and operating income as a percentage of net sales for the periods indicated below:
Increase/
Projects H1 2010 H1 2009 (Decrease)
---------- ---------- -----------
Net sales ($ million) 187.2 476.6 (61%)
Cost of sales (% of sales) 65% 72%
Operating income ($ million) 27.5 94.5 (71%)
Operating income (% of sales) 15% 20%
Net sales of pipes for pipeline projects decreased 61% to US$187.2 million in the first half of 2010, compared to US$476.6 million in the first half of 2009, reflecting lower deliveries in Brazil and Argentina to gas and other pipeline projects.
Operating income from pipes for pipeline projects decreased 71% to US$27.5 million in the first half of 2010, from US$94.5 million in the first half of 2009, mainly due to the reduction in sales.
Others
The following table indicates, for our Others business segment, net sales, cost of sales as a percentage of net sales, operating income and operating income as a percentage of net sales for the periods indicated below:
Increase/
Others H1 2010 H1 2009 (Decrease)
---------- ---------- ----------
Net sales ($ million) 301.4 244.7 23%
Cost of sales (% of sales) 72% 84%
Operating income ($ million) 52.4 1.6 3109%
Operating income (% of sales) 17% 1%
Net sales of other products and services increased 23% to US$301.4 million in the first half of 2010, compared to US$244.7 million in the first half of 2009, as all the main business activities included in the segment increased their revenues.
Operating income from other products and services increased to US$52.4 million in the first half of 2010, compared to US$1.6 million during the first half of 2009, mainly due to the improved results of our electric conduits operations in the United States.
Selling, general and administrative expenses, or SG&A, increased as a percentage of net sales to 20.4% in the semester ended June 30, 2010 compared to 17.3% in the corresponding semester of 2009, mainly due to the effect of fixed and semi-fixed expenses over lower revenues.
Net interest expenses decreased to US$30.5 million in the first half of 2010 compared to US$50.8 million in the same period of 2009, reflecting the change in our net debt position to a net cash position and lower interest rates.
Other financial results recorded a gain of US$0.3 million during the first half of 2010, compared to a loss of US$52.3 million during the first half of 2009. These results largely reflect gains and losses on net foreign exchange transactions and the fair value of derivative instruments and are partially offset by changes to our net equity position. These gains and losses are mainly attributable to variations in the exchange rates between our subsidiaries' functional currency (other than the US dollar) and the US dollar, in accordance with IFRS.
Equity in earnings of associated companies generated a gain of US$42.8 million in the first half of 2010, compared to a gain of US$57.9 million in the first half of 2009. These gains were derived mainly from our equity investment in Ternium.
Income tax charges totalled US$210.1 million in the first half of 2010, equivalent to 31% of income before equity in earnings of associated companies and income tax, compared to US$319.6 million in the first half of 2009, equivalent to 31% of income before equity in earnings of associated companies and income tax.
Results for discontinued operations reflected a loss of US$28.1 million in the first half of 2009, relating to the nationalization of certain Venezuelan subsidiaries by the Venezuelan government, while there were no discontinued operations in the first half of 2010.
Income attributable to non-controlling interests amounted to US$15.5 million in the first half of 2010, compared to US$20.2 million in the corresponding semester of 2009, mainly due to lower results at NKKTubes.
Corporate reorganization in light of the impending termination of Luxembourg's 1929 holding company regime
The Company was established as a societe anonyme holding under Luxembourg's 1929 holding company regime and the provisions relating thereto. 1929 holding companies are exempt from Luxembourg corporate and withholding tax over dividends distributed to holders of shares and ADSs. These benefits will terminate effective December 31, 2010. On January 1st, 2011, the Company will become an ordinary public limited liability company (societe anonyme) and, effective as from that date, the Company will be subject to all applicable Luxembourg taxes, including, among others, corporate income tax on its worldwide income, and its dividend distributions will generally be subject to Luxembourg withholding tax. However, dividends from high income tax subsidiaries will continue to be tax-exempt under Luxembourg's participation exemption.
At its August 4th, 2010 meeting, the Company's board of directors approved a multi-step corporate reorganization plan. This reorganization, which is expected to be completed prior to year-end, will include the contribution of all of the Company's assets and liabilities to a wholly-owned Luxembourg subsidiary and the restructuring of holdings in certain subsidiaries. Following the completion of the reorganization, and upon its conversion into an ordinary Luxembourg holding company, the Company will record a special reserve for tax purposes in a significant amount. The Company expects that its current overall tax burden will not increase and that any potential future dividend distributions out of such special reserve should be exempt from Luxembourg withholding tax.
Some of the statements contained in this press release are "forward-looking statements." Forward-looking statements are based on management's current views and assumptions and involve known and unknown risks that could cause actual results, performance or events to differ materially from those expressed or implied by those statements. These risks include but are not limited to risks arising from uncertainties as to future oil and gas prices and their impact on investment programs by oil and gas companies.
Press releases and financial statements can be downloaded from Tenaris's website at www.tenaris.com/investors.
Consolidated Condensed Interim Income Statement
(all amounts in thousands
of U.S. dollars, unless Three-month period Six-month period ended
otherwise stated) ended June 30, June 30,
---------------------- ----------------------
2010 2009 2010 2009
---------- ---------- ---------- ----------
Continuing operations (Unaudited) (Unaudited)
Net sales 1,981,762 2,096,344 3,620,483 4,530,632
Cost of sales (1,183,429) (1,264,899) (2,170,472) (2,628,211)
---------- ---------- ---------- ----------
Gross profit 798,333 831,445 1,450,011 1,902,421
Selling, general and
administrative expenses (391,144) (395,926) (738,531) (783,006)
Other operating income
(expense), net (1,886) 1,278 3,163 3,024
---------- ---------- ---------- ----------
Operating income 405,303 436,797 714,643 1,122,439
Interest income 4,352 8,163 11,500 12,737
Interest expense (21,889) (24,435) (41,958) (63,582)
Other financial results (7,368) (15,907) 323 (52,266)
---------- ---------- ---------- ----------
Income before equity in
earnings of associated
companies and income tax 380,398 404,618 684,508 1,019,328
Equity in earnings of
associated companies 19,288 66,514 42,814 57,935
---------- ---------- ---------- ----------
Income before income tax 399,686 471,132 727,322 1,077,263
Income tax (104,716) (114,518) (210,142) (319,592)
---------- ---------- ---------- ----------
Income for continuing
operations 294,970 356,614 517,180 757,671
Discontinued operations
Result for discontinued
operations - (20,176) - (28,138)
---------- ---------- ---------- ----------
Income for the period 294,970 336,438 517,180 729,533
Attributable to:
Equity holders of the
Company 282,098 343,268 501,647 709,315
Non-controlling interests 12,872 (6,830) 15,533 20,218
---------- ---------- ---------- ----------
294,970 336,438 517,180 729,533
---------- ---------- ---------- ----------
Consolidated Condensed Interim Statement of Financial Position
(all amounts in thousands of
U.S. dollars) At June 30, 2010 At December 31, 2009
--------------------- ---------------------
(Unaudited)
ASSETS
Non-current assets
Property, plant and
equipment, net 3,329,749 3,254,587
Intangible assets, net 3,576,341 3,670,920
Investments in associated
companies 635,180 602,572
Other investments 34,973 34,167
Deferred tax assets 217,197 197,603
Receivables 109,856 7,903,296 101,618 7,861,467
---------- ----------
Current assets
Inventories 2,062,844 1,687,059
Receivables and prepayments 229,644 220,124
Current tax assets 229,477 260,280
Trade receivables 1,291,338 1,310,302
Available for sale assets 21,572 21,572
Other investments 504,623 579,675
Cash and cash equivalents 1,276,814 5,616,312 1,542,829 5,621,841
---------- ---------- ---------- ----------
Total assets 13,519,608 13,483,308
EQUITY
Capital and reserves
attributable to the Company's
equity holders 9,203,282 9,092,164
Non-controlling interests 618,525 628,672
---------- ----------
Total equity 9,821,807 9,720,836
LIABILITIES
Non-current liabilities
Borrowings 461,535 655,181
Deferred tax liabilities 849,072 860,787
Other liabilities 187,089 192,467
Provisions 83,206 80,755
Trade payables 3,555 1,584,457 2,812 1,792,002
---------- ----------
Current liabilities
Borrowings 751,186 791,583
Current tax liabilities 201,201 306,539
Other liabilities 273,300 192,190
Provisions 27,865 28,632
Customer advances 44,357 95,107
Trade payables 815,435 2,113,344 556,419 1,970,470
---------- ---------- ---------- ----------
Total liabilities 3,697,801 3,762,472
Total equity and liabilities 13,519,608 13,483,308
Consolidated Condensed Interim Cash Flow Statement
Three-month period ended Six-month period ended
June 30, June 30,
------------------------ ------------------------
(all amounts in
thousands of U.S.
dollars) 2010 2009 2010 2009
Cash flows from
operating activities (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Income for the period 294,970 336,438 517,180 729,533
Adjustments for:
Depreciation and
amortization 125,888 126,320 251,916 248,061
Income tax accruals
less payments (87,690) (179,194) (115,948) (329,690)
Equity in earnings of
associated companies (19,784) (65,532) (43,310) (57,073)
Interest accruals less
payments, net 10,449 (47,865) 19,496 (23,698)
Changes in provisions (3,740) 25,675 1,684 14,200
Changes in working
capital (187,740) 787,515 (63,493) 1,175,460
Other, including
currency translation
adjustment (73,732) 127,781 (72,632) 117,792
----------- ----------- ----------- -----------
Net cash provided by
operating activities 58,621 1,111,138 494,893 1,874,585
----------- ----------- ----------- -----------
Cash flows from
investing activities
Capital expenditures (190,431) (106,506) (348,393) (226,335)
Acquisition of
subsidiaries and
changes in
non-controlling
interests (3,329) (67,593) (3,356) (73,535)
Proceeds from disposal
of property, plant and
equipment and
intangible assets 2,836 7,749 5,746 10,328
Dividends received from
associated companies 11,486 4,283 12,958 5,223
Investments in short
terms securities 141,157 (210,337) 75,052 (227,587)
----------- ----------- ----------- -----------
Net cash used in
investing activities (38,281) (372,404) (257,993) (511,906)
----------- ----------- ----------- -----------
Cash flows from
financing activities
Dividends paid (247,913) (354,161) (247,913) (354,161)
Dividends paid to
non-controlling
interests in
subsidiaries (14,577) (27,176) (14,577) (27,176)
Proceeds from
borrowings 151,533 69,096 349,856 263,841
Repayments of
borrowings (281,709) (808,801) (588,754) (1,149,484)
----------- ----------- ----------- -----------
Net cash used in
financing activities (392,666) (1,121,042) (501,388) (1,266,980)
----------- ----------- ----------- -----------
(Decrease) Increase in
cash and cash
equivalents (372,326) (382,308) (264,488) 95,699
Movement in cash and
cash equivalents
At the beginning of the
period 1,624,909 1,968,707 1,528,707 1,525,022
Effect of exchange rate
changes (8,182) 31,992 (19,818) (2,330)
Decrease due to
deconsolidation - (9,696) - (9,696)
(Decrease) Increase in
cash and cash
equivalents (372,326) (382,308) (264,488) 95,699
At June 30, 1,244,401 1,608,695 1,244,401 1,608,695
At June 30, At June 30,
------------------------ ------------------------
Cash and cash
equivalents 2010 2009 2010 2009
Cash and bank deposits 1,276,814 1,622,908 1,276,814 1,622,908
Bank overdrafts (32,413) (14,213) (32,413) (14,213)
1,244,401 1,608,695 1,244,401 1,608,695
Giovanni Sardagna Tenaris 1-888-300-5432 www.tenaris.com
SOURCE: Tenaris S.A.
http://www.tenaris.com
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