SOURCE: Tenaris S.A.

May 06, 2008 16:43 ET

Tenaris Announces 2008 First Quarter Results

The Financial and Operational Information Contained in This Press Release Is Based on Unaudited Consolidated Condensed Interim Financial Statements Prepared in Accordance With International Financial Reporting Standards (IFRS) and Presented in U.S. Dollars

LUXEMBOURG--(Marketwire - May 6, 2008) - Tenaris S.A. (NYSE: TS) (BAE: TS) (MXSE: TS) (MILAN: TEN) ("Tenaris") today announced its results for the quarter ended March 31, 2008 with comparison to its results for the quarter ended March 31, 2007.

Summary of 2008 First Quarter Results

(Comparison with fourth and first quarters of 2007)

                               Q1 2008      Q4 2007           Q1 2007
                               -------  ----------------  --------------
Net sales (US$ million)        2,626.2  2,628.0      (0%) 2,425.3      8%
Operating income (US$ million)   710.9    756.7      (6%)   757.6     (6%)
Net income (US$ million)         500.0    595.8     (16%)   509.4     (2%)
Shareholders’ net income (US$
 million)                        473.0    546.5     (13%)   480.3     (2%)
Earnings per ADS (US$)            0.80     0.93     (13%)    0.81     (2%)
Earnings per share (US$)          0.40     0.46     (13%)    0.41     (2%)
EBITDA (US$ million)             845.4    890.9      (5%)   858.1     (1%)
EBITDA margin (% of net sales)      32%      34%               35%

Our earnings per share in the first quarter of 2008 were marginally lower than that recorded in the first quarter of 2007. At the operating level, our results reflect lower shipments of seamless pipe products in the Middle East and Africa region partially offset by higher demand for our welded pipe products in North America and in our Projects segment. Margins in dollars per ton for our seamless and welded pipe products remained stable compared to the fourth quarter of 2007 notwithstanding higher costs. Free cash flow (net cash provided by operations less capital expenditures) totaled US$480.5 million during the quarter, and net debt declined to US$2,501.2 million as of March 31, 2008.

Market Background and Outlook

In the first quarter of 2008, global oil prices continued to rise reflecting steady global demand and concerns about supply. North American gas prices also rose reflecting a tighter market as seasonally adjusted storage levels declined from the high levels of the past two years. Despite the recent increase in North American gas prices, they remain below international prices for LNG and residual fuel oil as US gas production has increased in line with demand.

Oil and gas companies continue to increase their level of spending and drilling activity to offset declining rates of production from mature fields and to explore and develop new reserves. However, the supply-side response to high international oil and gas prices is constrained by limited industry resources, restrictions on the access to the majority of the world's known reserves and the time needed to develop significant new reserves.

The international count of active drilling rigs, as published by Baker Hughes, averaged 1046 during the first quarter of 2008, an increase of 7% compared to the same quarter of the previous year and 3% higher than the fourth quarter of 2007. The corresponding rig count in USA, which is more sensitive to North American gas prices, was 2% higher in the first quarter of 2008 than the same quarter of the previous year but registered a 1% decline compared to the fourth quarter of 2007. In Canada, however, the corresponding rig count during the first quarter of 2008 was 5% lower than in the first quarter of 2007.

Demand for our OCTG and other pipe products from the oil and gas industry is expected to increase this year, particularly in North America following last year's destocking by U.S. distributors. However, inventory adjustments will continue to affect some markets and competitive activity is increasing in many areas reflecting higher capacity availability.

Demand for our large diameter pipes for pipeline projects in South America remains good as we continue to make deliveries to previously contracted gas pipeline infrastructure projects in Brazil and Argentina. Orders for new projects in Brazil and Colombia have been received and we expect to maintain a strong level of sales in this segment in 2008.

Steelmaking raw material costs for our seamless pipe products and steel costs for our welded pipe products have risen steeply in the year to date and are expected to go on rising in the near term. Energy and labor costs are also increasing. Pipe prices, are also rising, though not at the same pace across all markets. We expect that, over time, we will maintain our margins in dollars per ton notwithstanding the increased volatility in costs.

Annual Shareholders Assembly

The annual general shareholders' meeting of the Company will take place at 11:00 am on June 4, 2008 in Luxembourg. The notice and agenda for the meeting, the shareholder meeting brochure and proxy statement together with the Company's 2007 annual report can be downloaded from our website at www.tenaris.com/investors and may be obtained on request by calling 1-800-555-2470 (within the USA) or + 1-267-468-0786 (outside the USA).

Analysis of 2008 First Quarter Results

                                                                Increase/
Sales volume (metric tons)           Q1 2008        Q1 2007    (Decrease)
                                   ------------  ------------  ----------
Tubes - Seamless                        691,000       746,000         (7%)
Tubes - Welded                          282,000       252,000         12%
Tubes - Total                           973,000       998,000         (3%)
Projects - Welded                       132,000        75,000         76%
Total                                 1,105,000     1,073,000          3%


                                                                Increase/
Tubes                                Q1 2008       Q1 2007     (Decrease)
                                   -----------   -----------   ----------
(Net sales - $ million)
North America                            832.6         727.8          14%
South America                            238.2         260.5          (9%)-
Europe                                   447.6         418.7           7%
Middle East & Africa                     475.7         580.0         (18%)
Far East & Oceania                       176.6         157.7          12%
Total net sales ($ million)            2,170.7       2,144.7           1%
Cost of sales (% of sales)                  54%           50%
Operating income ($ million)             637.4         722.0         (12%)
Operating income (% of sales)               29%           34%

Net sales of tubular products and services rose 1% to US$2,170.7 million in the first quarter of 2008, compared to US$2,144.7 million in the first quarter of 2007, as an increase in our average selling price for tubular products and services and an increase in sales volume of welded pipe products offset a 7% decline in sales volume of seamless pipe products. Sales rose in North America, where there was a recovery in demand in USA following a period of inventory destocking but demand in Canada continued to be affected by lower drilling activity. Sales in South America declined due primarily to lower sales in Ecuador. Sales in the Middle East and Africa declined as sales of OCTG products were lower throughout the region.

                                                               Increase/
Projects                             Q1 2008       Q1 2007     (Decrease)
                                   -----------   -----------   ----------
Net sales ($ million)                    271.7         124.4          118%
Cost of sales (% of sales)                  72%           66%
Operating income ($ million)              51.3          26.3           95%
Operating income (% of sales)               19%           21%

Net sales of pipes for pipeline projects rose 118% to US$271.7 million in the first quarter of 2008, compared to US$124.4 million in the first quarter of 2007, reflecting a relatively high level of deliveries to gas and other pipeline projects in Brazil and deliveries to the loops expansion project in Argentina.

                                                                Increase/
Others                               Q1 2008       Q1 2007     (Decrease)
                                   -----------   -----------   ----------
Net sales ($ million)                    183.8         156.2           18%
Cost of sales (% of sales)                  73%           82%
Operating income ($ million)              22.2           9.3          140%
Operating income (% of sales)               12%            6%

Net sales of other products and services rose 18% to US$183.8 million in the first quarter of 2008, compared to US$156.2 million in the first quarter of 2007, led by higher sales of electric conduit pipes.

Selling, general and administrative expenses, or SG&A, increased as a percentage of net sales to 15.7% in the quarter ended March 31, 2008 compared to 15.4% in the corresponding quarter of 2007 due to an increase in amortization expenses following the incorporation of Hydril. Amortization of customer relationships and other intangibles acquired with Hydril amounted to US$20.3 million in the quarter, or 0.8% of net sales.

Net interest expense rose to US$54.8 million in the first quarter of 2008 compared to a net interest expense of US$35.5 million in the same period of 2007 reflecting an increased net debt position following the Hydril acquisition.

Other financial results contributed a loss of US$14.3 million during the first quarter of 2008, compared to a loss of US$13.0 million during the first quarter of 2007.

Equity in earnings of associated companies generated a gain of US$50.0 million in the first quarter of 2008, compared to a gain of US$25.9 million in the first quarter of 2007. These gains were derived mainly from our equity investment in Ternium (NYSE: TX). In April 2008, the Venezuelan government announced its intention to nationalize Ternium's subsidiary Sidor, and negotiations regarding the transfer of Termium's interest in Sidor are currently in progress. The impact of Sidor's nationalization on Ternium's earnings, and our share in them, is not determinable at this time.

Income tax charges totalled US$208.6 million in the first quarter of 2008, equivalent to 33% of income from continuing operations before equity in earnings of associated companies and income tax, compared to US$225.5 million, or 32% of income before equity in earnings of associated companies and income tax, in the first quarter of 2007.

Income from discontinued operations amounted to US$16.8 million in the first quarter of 2008. This income corresponds to the Hydril pressure control business, whose sale was completed on April 1, 2008. An after-tax gain of approximately US$400 million will be recorded in the second quarter in respect of this disposal.

Income attributable to minority interest was US$26.9 million in the first quarter of 2008, compared to US$29.1 million in the corresponding quarter of 2007. Although operating and financial results at our Confab subsidiary were higher during the period, they were lower at our NKKTubes subsidiary.

Cash Flow and Liquidity

Net cash provided by operations during the first quarter of 2008 was US$568.9 million, compared to US$688.3 million in the first quarter of 2007. Working capital increased by US$218.7 million during the quarter with the value of inventories rising by US$149.8 million, reflecting rising input costs, and trade receivables increased by $61.0 million.

Capital expenditures amounted to US$88.5 million for the first quarter of 2008, compared to US$119.9 million in the first quarter of 2007.

During the first quarter of 2008, total financial debt decreased by US$303.0 million to US$3,717,2 million at March 31, 2008 from US$4,020.2 million at December 31, 2007, and net financial debt decreased by US$469.0 million to US$2,501.2 million at March 31, 2008. Our net financial debt position decreased further at the beginning of the second quarter following the divestment of the Hydril pressure control business which was completed on April 1, 2008.

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


Consolidated Condensed Interim Income Statement

(all amounts in thousands of U.S. dollars,       Three-month period ended
 unless otherwise stated)                               March 31,
                                                --------------------------
                                                    2008          2007
                                                ------------  ------------
Continuing operations                                   (Unaudited)
Net sales                                          2,626,187     2,425,299
Cost of sales                                     (1,500,689)   (1,291,498)
                                                ------------  ------------
Gross profit                                       1,125,498     1,133,801
Selling, general and administrative expenses        (413,594)     (374,267)
Other operating income (expense), net                   (991)       (1,937)
                                                ------------  ------------
Operating income                                     710,913       757,597
Interest income                                       12,269        22,191
Interest expense                                     (67,092)      (57,727)
Other financial results                              (14,302)      (13,043)
                                                ------------  ------------
Income before equity in earnings of associated
 companies and income tax                            641,788       709,018
Equity in earnings of associated companies            49,994        25,907
                                                ------------  ------------
Income before income tax                             691,782       734,925
Income tax                                          (208,606)     (225,531)
                                                ------------  ------------
Income for continuing operations                     483,176       509,394

Discontinued operations
Income for discontinued operations                    16,787             -
                                                ------------  ------------

Income for the period                                499,963       509,394
                                                ------------  ------------

Attributable to:
Equity holders of the Company                        473,043       480,304
Minority interest                                     26,920        29,090
                                                ------------  ------------
                                                     499,963       509,394
                                                ============  ============




Consolidated Condensed Interim Balance Sheet

(all amounts in thousands of
 U.S. dollars)                    At March 31, 2008   At December 31, 2007
                                --------------------- ---------------------
                                    (Unaudited)
ASSETS
Non-current assets
  Property, plant and
   equipment, net                3,350,197             3,269,007
  Intangible assets, net         4,469,360             4,542,352
  Investments in associated
   companies                       562,691               509,354
  Other investments                 35,138                35,503
  Deferred tax assets              313,149               310,590
  Receivables                       56,917  8,787,452     63,738  8,730,544
                                ----------            ----------
Current assets
  Inventories                    2,748,654             2,598,856
  Receivables and prepayments      203,859               222,410
  Current tax assets               200,602               242,757
  Trade receivables              1,809,803             1,748,833
  Other investments                135,448                87,530
  Cash and cash equivalents      1,080,555  6,178,921    962,497  5,862,883
                                ----------            ----------
Current and non current assets
 held for sale                                650,698               651,160
                                           ----------            ----------
                                            6,829,619             6,514,043
Total assets                               15,617,071            15,244,587

EQUITY
Capital and reserves
 attributable to the Company’s
 equity holders
  Share capital                  1,180,537             1,180,537
  Legal reserves                   118,054               118,054
  Share premium                    609,733               609,733
  Currency translation
   adjustments                     345,984               266,049
  Other reserves                    20,132                18,203
  Retained earnings              5,286,744  7,561,184  4,813,701  7,006,277
                                ----------            ----------
Minority interest                             576,793               523,573
                                           ----------            ----------
Total equity                                8,137,977             7,529,850
                                           ==========            ==========

LIABILITIES
Non-current liabilities
  Borrowings                     2,753,441             2,869,466
  Deferred tax liabilities       1,224,758             1,233,836
  Other liabilities                197,898               185,410
  Provisions                        96,329                97,912
  Trade payables                        32  4,272,458         47  4,386,671
                                ----------            ----------
Current liabilities
  Borrowings                       963,773             1,150,779
  Current tax liabilities          426,381               341,028
  Other liabilities                272,771               252,204
  Provisions                        28,421                19,342
  Customer advances                375,569               449,829
  Trade payables                   869,846  2,936,761    847,842  3,061,024
                                ----------            ----------
  Liabilities associated with
   current and non-current
   assets held for sale                       269,875               267,042
                                           ----------            ----------
                                            3,206,636             3,328,066
Total liabilities                           7,479,094             7,714,737

Total equity and liabilities               15,617,071            15,244,587




Consolidated Condensed Interim Cash Flow Statement


                                                 Three-month period ended
                                                        March 31,
                                                --------------------------
(all amounts in thousands of U.S. dollars)          2008          2007
                                                ------------  ------------
                                                        (Unaudited)

Cash flows from operating activities
Income for the period                                499,963       509,394
Adjustments for:
Depreciation and amortization                        134,483       100,487
Income tax accruals less payments                    107,538       125,377
Equity in earnings of associated companies           (49,994)      (25,907)
Interest accruals less payments, net                  54,308        45,429
Changes in provisions                                  7,496        (7,230)
Changes in working capital                          (218,720)      (90,519)

Other, including currency translation
 adjustment                                           33,857        31,243
                                                ------------  ------------
Net cash provided by operating activities            568,931       688,274
                                                ============  ============

Cash flows from investing activities
Capital expenditures                                 (88,455)     (119,912)
Acquisitions of subsidiaries and minority
 interest                                             (1,026)       (1,750)
Decrease in subsidiaries                                   -        (1,195)
Proceeds from disposal of property, plant and
 equipment and intangible assets                       5,007         2,693
Investments in short terms securities                (47,918)       (5,084)
Other                                                 (3,428)            -
                                                ------------  ------------
Net cash used in investing activities               (135,820)     (125,248)
                                                ============  ============

Cash flows from financing activities
Dividends paid to minority interest in
 subsidiaries                                              -        (3,359)
Proceeds from borrowings                             130,387        48,174
Repayments of borrowings                            (490,277)     (360,899)
                                                ------------  ------------
Net cash used in financing activities               (359,890)     (316,084)
                                                ============  ============

                                                ============  ============
Increase in cash and cash equivalents                 73,221       246,942
                                                ============  ============

Movement in cash and cash equivalents
At the beginning of the period                       954,303     1,365,008
Effect of exchange rate changes                       45,461         2,736
Increase in cash and cash equivalents                 73,221       246,942
At March 31,                                       1,072,985     1,614,686


Cash and cash equivalents                              At March 31,
                                                --------------------------
                                                    2008          2007
                                                ------------  ------------
Cash and bank deposits                             1,080,555     1,634,812
Bank overdrafts                                       (7,570)      (20,105)
Restricted bank deposits                                   -           (21)
                                                   1,072,985     1,614,686

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