SOURCE: Tenaris S.A.

Tenaris S.A.

November 03, 2011 05:52 ET

Tenaris Announces 2011 Third Quarter Results

LUXEMBOURG--(Marketwire - Nov 3, 2011) - The financial information contained in this press release is based on unaudited consolidated condensed interim financial statements presented in U.S. dollars (US$) and prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standard Board and adopted by the European Union, or IFRS.

Tenaris S.A. (NYSE: TS) (BAE: TS) (MXSE: TS) (MILAN: TEN) ("Tenaris") today announced its results for the quarter and nine months ended September 30, 2011 with comparison to its results for the quarter and nine months ended September 30, 2010.

Summary of 2011 Third Quarter Results

(Comparison with second quarter of 2011 and third quarter of 2010)

Q3 2011 Q2 2011 Q3 2010
Net sales (US$ million) 2,494.8 2,403.1 4% 2,027.2 23%
Operating income (US$ million) 485.3 412.4 18% 405.1 20%
Net income (US$ million) 365.5 304.7 20% 302.7 21%
Shareholders' net income (US$ million) 325.0 287.2 13% 304.8 7%
Earnings per ADS (US$) 0.55 0.49 13% 0.52 7%
Earnings per share (US$) 0.28 0.24 13% 0.26 7%
EBITDA (US$ million) 620.3 548.4 13% 531.1 17%
EBITDA margin (% of net sales) 25% 23% 26%

*EBITDA is defined as operating income plus depreciation, amortization and impairment charges/(reversals)

Operating income rose 18% on higher sales and a recovery of margins in our Tubes operating segment which more than offset a lower contribution from our Projects operating segment. Sales of premium OCTG products, particularly in the Middle East and Mexico, grew strongly contributing to a higher value product mix and our costs benefitted from a more favorable plant mix and currency movements.

Cash flow from operations increased and our net cash position (cash and other current investments less total borrowings) rose by US$162.7 million to US$227.6 million at the end of the quarter.

Interim Dividend Payment

Our board of directors approved the payment of an interim dividend of US$0.13 per share (US$0.26 per ADS), or approximately US$153 million. The payment date will be November 24, 2011 (however, because such date is not a business day in the U.S., shareholders in all jurisdictions may receive their interim dividend on or after November 25, 2011, which is the first business day following the stated payment date), and the ex-dividend date will be November 21, 2011.

Market Background and Outlook

Drilling activity has been increasing steadily in most regions, with the exception of North Africa, and is supported by current oil and gas prices. The European financial crisis and concerns about a Chinese slowdown are resulting in increased economic uncertainty and commodity price volatility but have not been reflected in energy prices.

Sales of our products and services to the oil and gas sector are increasing driven by a continued high level of activity in North America, higher activity in the Middle East and the ramp up of operations at our new plant in Veracruz; in particular, demand for our premium OCTG products is rising in most regions reflecting the increasing complexity of drilling operations worldwide. Downstream projects are moving forward and our sales to this sector remain stable subject to the normal fluctuations associated with project activity.

Sales and operating income are expected to continue improving in the coming quarters unless the global financial and economic situation deteriorates substantially.

Analysis of 2011 Third Quarter Results

Sales volume (metric tons) Q3 2011 Q2 2011 Q3 2010
Tubes - Seamless 650,000 633,000 3% 581,000 12%
Tubes - Welded 216,000 198,000 9% 205,000 5%
Tubes - Total 866,000 831,000 4% 786,000 10%
Projects - Welded 53,000 68,000 (22%) 39,000 36%
Total 919,000 899,000 2% 825,000 11%
Tubes Q3 2011 Q2 2011 Q3 2010
(Net sales - $ million)
North America 1,034.8 946.0 9% 848.7 22%
South America 338.4 327.9 3% 320.7 6%
Europe 275.3 279.0 (1%) 161.5 70%
Middle East & Africa 358.8 303.7 18% 338.6 6%
Far East & Oceania 143.0 141.2 1% 116.0 23%
Total net sales ($ million) 2,150.3 1,997.8 8% 1,785.5 20%
Cost of sales (% of sales) 61% 63% 61%
Operating income ($ million) 429.2 322.0 33% 367.6 17%
Operating income (% of sales) 20% 16% 21%

Net sales of tubular products and services increased 8% sequentially and 20% year on year. Sequentially, the 8% increase in sales reflects a 4% increase in volumes and a 3% increase in average selling prices. In North America, sales increased due to higher sales in Mexico and Canada. In South America, an increase in sales of OCTG products in Argentina was partially offset by lower sales in Ecuador. In Europe, sales decreased slightly, as seasonally lower sales of non-OCTG products to European distributors were largely offset by higher sales of OCTG products. In the Middle East & Africa, higher sales of high value OCTG products in Saudi Arabia were partially offset by lower sales of other products in the Middle East. In the Far East & Oceania, higher shipments of structural pipe for jack-up rigs offset lower sales of OCTG in China.

Operating income from tubular products and services increased 33% sequentially as sales rose 8% and operating margin recovered to close to that of a year ago reflecting improvements in product mix and costs benefitted from a more favorable plant mix.

Projects Q3 2011 Q2 2011 Q3 2010
Net sales ($ million) 150.8 212.4 (29%) 95.3 58%
Cost of sales (% of sales) 67% 65% 66%
Operating income ($ million) 27.3 51.5 (47%) 12.6 117%
Operating income (% of sales) 18% 24% 13%

Projects net sales amounted to US$150.8 million in the third quarter of 2011, a decrease of 29% sequentially and an increase of 58% year on year. Sequentially, the decrease in sales and operating income reflects a decrease in volumes of 22%, due to the timing in projects deliveries, and a decrease in operating margins, which in the previous quarter were positively affected by a high proportion of shipments to offshore projects.

Others Q3 2011 Q2 2011 Q3 2010
Net sales ($ million) 193.7 192.9 0% 146.4 32%
Cost of sales (% of sales) 73% 68% 72%
Operating income ($ million) 28.7 38.9 (26%) 24.8 16%
Operating income (% of sales) 15% 20% 17%

Net sales of other products and services were flat sequentially and increased 32% year on year. Sequentially, sales of industrial equipment in Brazil and of steel pipes for electric conduits in the United States increased, but they were mostly offset by lower sales of other products. Operating income decreased sequentially, mainly due to a decrease in margins to a level similar to that of a year ago.

Selling, general and administrative expenses, or SG&A, amounted to 18.5% of net sales in the third quarter of 2011, similar to the third quarter of 2010 and lower than the 19.5% of the previous quarter. Sequentially, SG&A decreased as a percentage of net sales due to a positive effect of higher revenues and a slight decrease in SG&A from US$468.3 million in the second quarter 2011 to US$462.4 million in the third quarter of 2011.

Net interest expenses amounted to US$8.5 million in the third quarter of 2011, compared to net interest expenses of US$5.7 million in the previous quarter and net interest income of US$4.0 million in the third quarter of 2010.

Other financial results generated a gain of US$28.0 million during the third quarter of 2011, compared to a loss of US$12.4 million in the previous quarter and a loss of US$16.2 million during the third quarter of 2010. 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. During the third quarter of 2011, these gains were mainly attributable to the revaluation of the U.S. dollar against the Brazilian real (+18.6%), as our Brazilian subsidiaries held a positive net financial position in the U.S. dollar in the quarter.

Equity in earnings of associated companies generated a gain of US$1.5 million in the third quarter of 2011, compared to a gain of US$22.7 million in the previous quarter and a gain of US$15.6 million in the third quarter of 2010. These gains were derived mainly from our equity investment in Ternium and reflected lower results at Ternium.

Income tax charges totalled US$140.8 million in the third quarter of 2011, equivalent to 28% of income before equity in earnings of associated companies and income tax, compared to 28% in the previous quarter and 27% in the third quarter of 2010.

Income attributable to non-controlling interests amounted to US$40.5 million in the third quarter of 2011, compared to US$17.5 million in the previous quarter and to losses attributable to non-controlling interests of US$2.1 million in the third quarter of 2010. Sequentially, the increase is due to the better financial results of our Brazilian operations due to the revaluation of the U.S. dollar against the Brazilian real.

Cash Flow and Liquidity of 2011 Third Quarter

Net cash provided by operations during the third quarter of 2011 was US$336.3 million, compared to US$325.1 million in the previous quarter and US$122.1 million in the third quarter of 2010. Working capital remained flat during the third quarter of 2011, compared to an increase of US$95.1 million in the previous quarter and US$427.9 million in the third quarter of 2010, when it increased due to an uneven distribution of shipments during the quarter and to an increase in raw material inventories.

Capital expenditures amounted to US$212.1 million in the third quarter of 2011, compared to US$251.2 million in the previous quarter and US$212.8 million in the third quarter of 2010.

Our net cash position (cash and other current investments less total borrowings) increased to US$227.6 million, at the end of the third quarter, from US$64.9 million at the end of the previous quarter, following a dividend payment of US$247.9 million in June 2011.

Analysis of 2011 First Nine Months Results

9M 2011 9M 2010 Increase/(Decrease)
Net sales (US$ million) 7,221.9 5,647.7 28%
Operating income (US$ million) 1,339.1 1,119.7 20%
Net income (US$ million) 994.4 819.9 21%
Shareholders' net income (US$ million) 931.6 806.5 16%
Earnings per ADS (US$) 1.58 1.37 16%
Earnings per share (US$) 0.79 0.68 16%
EBITDA* (US$ million) 1,739.5 1,497.6 16%
EBITDA margin (% of net sales) 24% 27%
Sales volume (metric tons) 9M 2011 9M 2010 Increase/(Decrease)
Tubes - Seamless 1,904,000 1,651,000 15%
Tubes - Welded 647,000 523,000 24%
Tubes - Total 2,551,000 2,174,000 17%
Projects - Welded 196,000 105,000 87%
Total 2,747,000 2,279,000 21%
Tubes 9M 2011 9M 2010 Increase/(Decrease)
(Net sales - $ million)
North America 2,959.3 2,261.6 31%
South America 984.5 839.0 17%
Europe 798.1 540.3 48%
Middle East & Africa 960.3 963.9 (0%)
Far East & Oceania 413.2 312.6 32%
Total net sales ($ million) 6,115.4 4,917.4 24%
Cost of sales (% of sales) 61% 59%
Operating income ($ million) 1,123.3 1,002.3 12%
Operating income (% of sales) 18% 20%

Net sales of tubular products and services increased 24% to US$6,115.4 million in the first nine months of 2011, compared to US$4,917.4 million in the first nine months of 2010, reflecting a 17% increase in volumes and a 6% increase in average selling prices.

Operating income from tubular products and services increased 12% to US$1,123.3 million in the first nine months of 2011, from US$1,002.3 million in the first nine months of 2010, as a 24% increase in sales was partially offset by a reduction in the operating margin. Operating income expressed as a percentage of net sales decreased to 18% in the first nine months of 2011, compared to 20% in the first nine months of 2010. The lower operating margin in the first nine months of 2011 reflects an increase in raw materials and other costs, which was just partially offset by an increase in average selling prices.

Projects 9M 2011 9M 2010 Increase/(Decrease)
Net sales ($ million) 538.1 282.6 90%
Cost of sales (% of sales) 67% 65%
Operating income ($ million) 110.6 40.1 175%
Operating income (% of sales) 20% 14%

Net sales of pipes for pipeline projects increased 90% to US$538.1 million in the first nine months of 2011, compared to US$282.6 million in the first nine months of 2010, reflecting an 87% increase in volumes and a 2% increase in average selling prices.

Operating income from pipes for pipeline projects increased 175% to US$110.6 million in the first nine months of 2011, from US$40.1 million in the first nine months of 2010, reflecting an increase in sales and higher operating margins.

Others 9M 2011 9M 2010 Increase/(Decrease)
Net sales ($ million) 568.4 447.8 27%
Cost of sales (% of sales) 70% 72%
Operating income ($ million) 105.2 77.3 36%
Operating income (% of sales) 19% 17%

Net sales of other products and services increased 27% to US$568.4 million in the first nine months of 2011, compared to US$447.8 million in the first nine months of 2010, as all the main business activities included in the segment increased their revenues.

Operating income from other products and services increased 36% to US$105.2 million in the first nine months of 2011, compared to US$77.3 million during the first nine months of 2010, reflecting higher sales and operating margins, mainly due to the improved results of, our electric conduits operations in the United States, our industrial equipment business in Brazil and from higher sales of sucker rods.

SG&A amounted to 19.1% of net sales during the first nine months of 2011, compared to 19.6% in the same period of 2010.

Net interest expenses amounted to US$19.6 million in the first nine months of 2011 compared to US$26.5 million in the same period of 2010.

Other financial results amounted to a gain of US$16.7 million during the first nine months of 2011, compared to a loss of US$15.9 million during the first nine months of 2010. 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$48.5 million in the first nine months of 2011, compared to a gain of US$58.4 million in the first nine months of 2010. These gains were derived mainly from our equity investment in Ternium.

Income tax charges totalled US$390.3 million in the first nine months of 2011, equivalent to 29% of income before equity in earnings of associated companies and income tax, compared to US$315.8 million in the first nine months of 2010, equivalent to 29% of income before equity in earnings of associated companies and income tax.

Income attributable to non-controlling interests amounted to US$62.8 million in the first nine months of 2011, compared to US$13.4 million in the first nine months of 2010, mainly due to a better performance at our Brazilian operations.

Cash Flow and Liquidity of 2011 First Nine Months

During the first nine months of 2011, net cash provided by operations was US$827.1 million, compared to US$617.0 million in the same period of 2010. Working capital increased by US$489.7 million in the first nine months of 2011, similar to the increase in the first nine months of 2010.

Capital expenditures amounted to US$673.9 million in the first nine months of 2011, compared with US$561.2 million in the same period of 2010.

Our net cash position (cash and other current investments less total borrowings) at September 30, 2011, amounted to US$227.6 million, a decrease of US$48.0 million since the beginning of the year.

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) Three-month period
ended September 30,
Nine-month period
ended September 30,
2011 2010 2011 2010
Continuing operations (Unaudited) (Unaudited)
Net sales 2.494.840 2.027.242 7.221.927 5.647.725
Cost of sales (1.548.822 ) (1.252.583 ) (4.506.632 ) (3.423.055 )
Gross profit 946.018 774.659 2.715.295 2.224.670
Selling, general and administrative expenses (462.415 ) (370.267 ) (1.380.530 ) (1.108.798 )
Other operating income (expense), net 1.654 694 4.303 3.857
Operating income 485.257 405.086 1.339.068 1.119.729
Interest income 5.547 13.968 19.747 25.468
Interest expense (14.073 ) (10.003 ) (39.362 ) (51.961 )
Other financial results 28.019 (16.223 ) 16.669 (15.900 )
Income before equity in earnings of associated companies and income tax 504.750 392.828 1.336.122 1.077.336
Equity in earnings of associated companies 1.514 15.575 48.519 58.389
Income before income tax 506.264 408.403 1.384.641 1.135.725
Income tax (140.776 ) (105.696 ) (390.253 ) (315.838 )
Income for the period 365.488 302.707 994.388 819.887
Attributable to:
Equity holders of the Company 324.991 304.812 931.583 806.459
Non-controlling interests 40.497 (2.105 ) 62.805 13.428
365.488 302.707 994.388 819.887

Consolidated Condensed Interim Statement of Financial Position

(all amounts in thousands of U.S. dollars) At September 30, 2011 At December 31, 2010
(Unaudited)
ASSETS
Non-current assets
Property, plant and equipment, net 4.029.640 3.780.580
Intangible assets, net 3.434.038 3.581.816
Investments in associated companies 669.958 671.855
Other investments 48.238 43.592
Deferred tax assets 217.219 210.523
Receivables 138.509 8.537.602 120.429 8.408.795
Current assets
Inventories 2.772.199 2.460.384
Receivables and prepayments 241.974 282.536
Current tax assets 170.405 249.317
Trade receivables 1.798.844 1.421.642
Available for sale assets 21.572 21.572
Other investments 634.238 676.224
Cash and cash equivalents 764.787 6.404.019 843.861 5.955.536
Total assets 14.941.621 14.364.331
EQUITY
Capital and reserves attributable to the Company's equity holders 10.344.372 9.902.359
Non-controlling interests 644.721 648.221
Total equity 10.989.093 10.550.580
LIABILITIES
Non-current liabilities
Borrowings 177.120 220.570
Deferred tax liabilities 852.279 934.226
Other liabilities 225.878 193.209
Provisions 79.057 83.922
Trade payables 2.378 1.336.712 3.278 1.435.205
Current liabilities
Borrowings 994.331 1.023.926
Current tax liabilities 270.732 207.652
Other liabilities 356.959 233.590
Provisions 40.285 25.101
Customer advances 78.364 70.051
Trade payables 875.145 2.615.816 818.226 2.378.546
Total liabilities 3.952.528 3.813.751
Total equity and liabilities 14.941.621 14.364.331

Consolidated Condensed Interim Statement of Cash Flow

Three-month period ended
September 30,
Nine-month period ended
September 30,
(all amounts in thousands of U.S. dollars) 2011 2010 2011 2010
Cash flows from operating activities (Unaudited) (Unaudited)
Income for the period 365.488 302.707 994.388 819.887
Adjustments for:
Depreciation and amortization 135.064 125.974 400.465 377.890
Income tax accruals less payments 70.379 48.406 107.008 (67.542 )
Equity in earnings of associated companies (1.514 ) (15.575 ) (48.519 ) (58.885 )
Interest accruals less payments, net (635 ) 817 (28.455 ) 20.313
Changes in provisions (9.597 ) 3.596 10.319 5.280
Changes in working capital (1.735 ) (427.899 ) (489.686 ) (491.392 )
Other, including currency translation adjustment (221.176 ) 84.062 (118.460 ) 11.430
Net cash provided by operating activities 336.274 122.088 827.060 616.981
Cash flows from investing activities
Capital expenditures (212.139 ) (212.825 ) (673.930 ) (561.218 )
Proceeds from disposal of property, plant and equipment and intangible assets 1.372 1.215 3.339 6.961
Dividends and distributions received from associated companies - 774 17.229 13.732
Investments in short terms securities 236.668 (137.375 ) 41.986 (62.323 )
Net cash provided by (used in) investing activities 25.901 (348.211 ) (611.376 ) (602.848 )
Cash flows from financing activities
Dividends paid - - (247.913 ) (247.913 )
Dividends paid to non-controlling interests in subsidiaries (5.964 ) (4.442 ) (11.699 ) (19.019 )
Acquisitions of non-controlling interests (90 ) 395 (16.579 ) (2.961 )
Proceeds from borrowings 223.723 19.862 713.518 369.718
Repayments of borrowings (174.150 ) (145.114 ) (715.262 ) (733.868 )
Net cash provided by (used in) financing activities 43.519 (129.299 ) (277.935 ) (634.043 )
Increase (decrease) in cash and cash equivalents 405.694 (355.422 ) (62.251 ) (619.910 )
Movement in cash and cash equivalents
At the beginning of the period 362.043 1.244.401 820.165 1.528.707
Effect of exchange rate changes (13.621 ) 11.790 (3.798 ) (8.028 )
Increase (decrease) in cash and cash equivalents 405.694 (355.422 ) (62.251 ) (619.910 )
At September 30, 754.116 900.769 754.116 900.769
At September 30, At September 30,
Cash and cash equivalents 2011 2010 2011 2010
Cash and bank deposits 764.787 919.027 764.787 919.027
Bank overdrafts (10.671 ) (18.258 ) (10.671 ) (18.258 )
754.116 900.769 754.116 900.769

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