SOURCE: Tenaris S.A.

Tenaris S.A.

August 01, 2012 15:30 ET

Tenaris Announces 2012 Second Quarter Results

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

LUXEMBOURG--(Marketwire - Aug 1, 2012) -  Tenaris S.A. (NYSE: TS) (BAE: TS) (BVM: TS) (MILAN: TEN) ("Tenaris") today announced its results for the quarter and semester ended June 30, 2012 with comparison to its results for the quarter and semester ended June 30, 2011.

Summary of 2012 Second Quarter Results

(Comparison with first quarter of 2012 and second quarter of 2011)

   
    Q2 2012     Q1 2012     Q2 2011  
Net sales (US$ million)   2,801.5     2,617.3     7 %   2,403.1     17 %
Operating income (US$ million)   620.9     566.2     10 %   409.8     52 %
Net income (US$ million)   460.2     453.4     1 %   304.7     51 %
Shareholders' net income (US$ million)   461.1     443.8     4 %   287.2     61 %
Earnings per ADS (US$)   0.78     0.75     4 %   0.49     61 %
Earnings per share (US$)   0.39     0.38     4 %   0.24     61 %
EBITDA (US$ million)   758.6     704.4     8 %   545.8     39 %
EBITDA margin (% of net sales)   27 %   27 %         23 %      
                               

Our results during the second quarter continued to improve as our net sales rose sequentially and we consolidated the margin improvements we made in the first quarter. Higher sales of premium products for deepwater operations in the Gulf of Mexico and Brazil and in the Eastern Hemisphere regions, as well as a partial recovery of line pipe shipments in Brazil, more than offset the impact of seasonally lower sales in Canada.

Cash flow from operations remains strong and amounted to US$414.5 million for the quarter. However, we ended the quarter with a net debt position (total borrowings less cash and other current investments) of US$540.5 million, after the acquisition of Confab's non-controlling interests for US$ 758.5 million, the payment of US$295.1 million in dividends and capital expenditures of US$204.5 million.

Market Background and Outlook

Global demand for energy, in spite of the deteriorating economic climate in Europe, remains stable and energy companies are maintaining their programs in exploration and production activity for 2012. Demand for tubular products for complex applications is growing as investments take place in more difficult and unconventional operating environments.

With the recent volatility in oil prices and continuing low natural gas prices, drilling activity in North America is expected to decline by the end of the year, as lower gas drilling is not likely to be compensated by additional oil drilling. In the rest of the world, drilling activity should continue to increase led by the growth in the development of deepwater and unconventional reserves as well as complex conventional gas drilling.

In the second half of the year, sales to oil and gas customers, particularly in South America and in the Eastern Hemisphere, are expected to increase, while sales to the industrial markets will decline reflecting the slowdown in industrial activity, particularly in Europe.

Operating margins for the rest of 2012 are expected to remain close to current levels as mix improvements, lower raw material costs and increased efficiency in our industrial system offset the impact of lower prices in less differentiated segments.

Sales and operating income are expected to continue to show solid year on year growth during the remainder of the year but third quarter results will be affected by seasonal factors.

Analysis of 2012 Second Quarter Results

                 
Sales volume (metric tons)   Q2 2012   Q1 2012     Q2 2011  
Tubes - Seamless   701,000   664,000   6 %   633,000   11 %
Tubes - Welded   237,000   251,000   (6 %)   198,000   20 %
Tubes - Total   938,000   915,000   3 %   831,000   13 %
Projects - Welded   55,000   43,000   28 %   68,000   (19 %)
Total   993,000   958,000   4 %   899,000   10 %
                         
                         
Tubes   Q2 2012     Q1 2012     Q2 2011  
(Net sales - $ million)                              
North America   1,291.2     1,289.2     0 %   946.0     36 %
South America   345.2     323.2     7 %   327.9     5 %
Europe   287.8     263.1     9 %   279.0     3 %
Middle East & Africa   361.4     284.8     27 %   303.7     19 %
Far East & Oceania   132.0     128.5     3 %   141.2     (7 %)
Total net sales ($ million)   2,417.6     2,288.7     6 %   1,997.8     21 %
Cost of sales (% of sales)   59 %   60 %         63 %      
Operating income ($ million)   548.1     508.6     8 %   319.4     72 %
Operating income (% of sales)   23 %   22 %         16 %      
                               

Net sales of tubular products and services increased 6% sequentially and 21% year on year. In North America, higher sequential sales in the United States, particularly in the Gulf of Mexico, and Mexico were offset by a seasonal reduction in sales in Canada. In South America, sales increased sequentially due primarily to higher shipments in Venezuela. In Europe, sales of OCTG products increased while sales to European distributors remain weak. In the Middle East & Africa, the sequential increase in sales was due to an improvement in the product mix and a strong level of shipments to Iraq. In the Far East&Oceania, higher sales of OCTG in China offset lower sales of other products in the region.

Operating income from tubular products and services increased 8% sequentially and 72% year on year. The sequential increase in operating income was mainly attributable to the increase in sales and a slight increase in the operating margin.

                   
Projects   Q2 2012     Q1 2012     Q2 2011  
Net sales ($ million)   187.8     140.1     34 %   212.4     (12 %)
Cost of sales (% of sales)   64 %   67 %         65 %      
Operating income ($ million)   47.4     26.1     82 %   51.5     (8 %)
Operating income (% of sales)   25 %   19 %         24 %      
                               

Projects net sales amounted to US$187.8 million in the second quarter of 2012, an increase of 34% sequentially and a decrease of 12% relative to the second quarter of 2011. Sequentially, the increase in sales was due primarily to an increase in shipments of line pipe to projects in Brazil following low deliveries in the previous quarter.

Operating income from Projects increased 82%, reflecting an increase in net sales and higher operating margins.

                   
Others   Q2 2012     Q1 2012     Q2 2011  
Net sales ($ million)   196.0     188.6     4 %   192.9     2 %
Cost of sales (% of sales)   73 %   71 %         68 %      
Operating income ($ million)   25.5     31.5     (19 %)   38.9     (35 %)
Operating income (% of sales)   13 %   17 %         20 %      
                               

Net sales of other products and services amounted to US$196.0 million in the second quarter of 2012, an increase of 4% sequentially and 2% relative to the second quarter of 2011. Despite the sequential increase in sales, mainly attributable to higher sales of sucker rods, operating income decrease due to lower operating margins.

Selling, general and administrative expenses, or SG&A, amounted to 17.4% of net sales in the second quarter of 2012, compared to 17.0% in the previous quarter and 19.5% in the second quarter of 2011.

Net interest expenses amounted to US$7.0 million in the second quarter of 2012, compared to US$0.3 million in the previous quarter and US$5.7 million in the second quarter of 2011. Sequentially net interest expenses increased due to an increase in our indebtedness to finance the acquisition of the non-controlling interests of Confab, in addition to lower income from our financial investments.

Other financial results generated a loss of US$16.5 million during the second quarter of 2012, compared to a gain of US$13.1 million in the previous quarter and a loss of US$12.4 million during the second quarter of 2011. These results largely reflect gains and losses on net foreign exchange transactions (US$27.8 million loss in IIQ12 compared with US$16.0 million gain in IQ12), which to a large extent are offset by changes to our net equity position, and the fair value of derivative instruments (US$13.0 million gain in IIQ12 compared with US$5.5 million loss in IQ12). These results were mainly attributable to an 11% devaluation of the Brazilian real over U.S. dollar denominated debt.

Equity in earnings of associated companies generated a gain of US$11.1 million in the second quarter of 2012, compared to a gain of US$19.2 million in the previous quarter and a gain of US$22.7 million in the second quarter of 2011. These gains were derived mainly from our equity investment in Ternium.

Income tax charges totalled US$148.3 million in the second quarter of 2012, equivalent to 25% of income before equity in earnings of associated companies and income tax, compared to 25% in the previous quarter and 28% in the second quarter of 2011.

Results attributable to non-controlling interests amounted to losses of US$0.9 million in the second quarter of 2012, compared to income of US$9.6 million in the previous quarter and income of US$17.5 million in the second quarter of 2011. Non-controlling interests during the quarter included only one month of our Brazilian operations' results, as in May 2012, we completed the acquisition of all its non-controlling interests.

Cash Flow and Liquidity of 2012 Second Quarter

Net cash provided by operations during the second quarter of 2012 was US$414.5 million, compared to US$604.7 million in the previous quarter and US$325.1 million in the second quarter of 2011. Working capital decreased by US$53.1 million during the second quarter of 2012, compared to an increase of US$5.0 million in the previous quarter and US$118.6 million in the second quarter of 2011.

Capital expenditures amounted to US$204.5 million in the second quarter of 2012, compared to US$196.4 million in the previous quarter and US$251.2 million in the second quarter of 2011.

At the end of the quarter, our net debt position (total borrowings less cash and other current investments) amounted to US$540.5 million, following the acquisition of Confab's non-controlling interests for US$758.5 million and a dividend payment of US$295.1 million in May.

Analysis of 2012 First Half Results

                   
    H1 2012     H1 2011     Increase/
(Decrease)
 
Net sales (US$ million)   5,418.8     4,727.1     15 %
Operating income (US$ million)   1,187.1     838.4     42 %
Net income (US$ million)   913.6     628.9     45 %
Shareholders' net income (US$ million)   904.9     606.6     49 %
Earnings per ADS (US$)   1.53     1.03     49 %
Earnings per share (US$)   0.77     0.51     49 %
EBITDA* (US$ million)   1,463.0     1,103.8     33 %
EBITDA margin (% of net sales)   27 %   23 %      
                   

Net income attributable to equity holders in the Company during the first semester of 2012 was US$904.9 million, or US$0.77 per share (US$1.53 per ADS), which compares with net income attributable to equity holders in the Company during the first semester of 2011 of US$606.6 million, or US$0.51 per share (US$1.03 per ADS). Operating income was US$1,187.1 million, or 22% of net sales during the first semester of 2012, compared to US$838.4 million, or 18% of net sales during the first semester of 2011. Operating income plus depreciation and amortization for the first semester of 2012, was US$1,463.0 million, or 27% of net sales, compared to US$1,103.8 million, or 23% of net sales during the first semester of 2011.

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:

                   
Net sales ($ million)   H1 2012     H1 2011     Increase/
(Decrease)
 
Tubes   4,706.4   87 %   3,965.1   84 %   19 %
Projects   327.9   6 %   387.3   8 %   (15 %)
Others   384.6   7 %   374.6   8 %   3 %
Total   5,418.8   100 %   4,727.1   100 %   15 %
                           

The following table indicates our sales volume of seamless and welded pipes by business segment for the periods indicated below:

               
Sales volume (metric tons)   H1 2012   H1 2011   Increase/
(Decrease)
 
Tubes - Seamless   1,365,000   1,254,000   9 %
Tubes - Welded   488,000   431,000   13 %
Tubes - Total   1,853,000   1,685,000   10 %
Projects - Welded   98,000   143,000   (31 %)
Total   1,951,000   1,828,000   7 %
               

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:

                   
Tubes   H1 2012     H1 2011     Increase/
(Decrease)
 
(Net sales - $ million)                  
North America   2,580.3     1,924.5     34 %
South America   668.5     646.1     3 %
Europe   550.9     522.8     5 %
Middle East & Africa   646.2     601.5     7 %
Far East & Oceania   260.5     270.2     (4 %)
Total net sales ($ million)   4,706.4     3,965.1     19 %
Cost of sales (% of sales)   60 %   62 %      
Operating income ($ million)   1,056.7     678.7     56 %
Operating income (% of sales)   22 %   17 %      
                   

Net sales of tubular products and services increased 19% to US$4,706.4 million in the first half of 2012, compared to US$3,965.1 million in the first half of 2011, reflecting a 10% increase in volumes and an 8% increase in average selling prices.

Cost of sales of tubular products and services, expressed as a percentage of net sales, decreased from 62% in the first half of 2011, to 60% in the first half of 2012, as tubes price increases offset the increase in raw material costs that took place in the first half of 2011.

Operating income from tubular products and services increased 56% to US$1,056.7 million in the first half of 2012, from US$678.7 million in the first half of 2011, due to a 19% increase in sales and an increase of 5 percentage points in the operating margin, due to lower cost of sales as a percentage of sales (60% in first half 2012 vs. 62% in first half 2011) and lower SG&A as a percentage of sales (18% in first half 2012 vs. 21% in first half 2011), due to a better absorption of fixed and semi-fixed expenses on higher 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:

                   
Projects   H1 2012     H1 2011     Increase/
(Decrease)
 
Net sales ($ million)   327.9     387.3     (15 %)
Cost of sales (% of sales)   65 %   66 %      
Operating income ($ million)   73.4     83.3     (12 %)
Operating income (% of sales)   22 %   21 %      
                   

Projects net sales decreased 15% to US$327.9 million in the first half of 2012, compared to US$387.3 million in the first half of 2011, reflecting a 31% decrease in volumes, partially offset by a 23% increase in average selling prices.

Operating income from projects decreased 12% to US$73.4 million in the first half of 2012, from US$83.3 million in the first half of 2011, mainly reflecting a decrease in sales, partially offset by higher operating margins.

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:

                   
Others   H1 2012     H1 2011     Increase/
(Decrease)
 
Net sales ($ million)   384.6     374.6     3 %
Cost of sales (% of sales)   72 %   68 %      
Operating income ($ million)   57.0     76.4     (25 %)
Operating income (% of sales)   15 %   20 %      
                   

Net sales of other products and services increased 3% to US$384.6 million in the first half of 2012, compared to US$374.6 million in the first half of 2011, mainly due to higher sales of sucker rods.

Operating income from other products and services decreased to US$57.0 million in the first half of 2012, compared to US$76.4 million during the first half of 2011, as the increase in sales was offset by a lower operating margin.

Selling, general and administrative expenses, or SG&A, decreased as a percentage of net sales to 17.2% in the semester ended June 30, 2012 compared to 19.5% in the corresponding semester of 2011, mainly due to the effect of fixed and semi-fixed expenses over higher revenues.

Net interest expenses decreased to US$7.3 million in the first half of 2012 compared to US$11.1 million in the same period of 2011.

Other financial results recorded a loss of US$3.4 million during the first half of 2012, compared to a loss of US$11.4 million during the first half of 2011. 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$30.2 million in the first half of 2012, compared to a gain of US$47.0 million in the first half of 2011. These gains were derived mainly from our equity investment in Ternium.

Income tax charges amounted to US$293.0 million in the first half of 2012, equivalent to 25% of income before equity in earnings of associated companies and income tax, compared to US$234.0 million in the first half of 2011, equivalent to 29% of income before equity in earnings of associated companies and income tax. During the first half of 2012, the tax rate benefited from a more favorable mix of companies.

Income attributable to non-controlling interests amounted to US$8.7 million in the first half of 2012, compared to US$22.3 million in the corresponding semester of 2011. In May 2012, we completed the acquisition of all the non-controlling interests of Confab.

Cash Flow and Liquidity of 2012 First Half

Net cash provided by operations during the first half of 2012 rose to US$1,019.2 million, compared to US$490.8 million in the first half of 2011, mainly due to higher result and lower investments in working capital in the first half of 2012.

Capital expenditures amounted to $400.9 million in the first half of 2012, compared to US$461.8 million in the first half of 2011.

Following our investments in Brazil during the first semester of 2012, amounting to US$1.3 billion(US$504.6 million in Usiminas and US$758.5 million in Confab) and the payment of a dividend of US$295.1 million, our financial position at June 30, 2012, amounted to a net debt position (total borrowings less cash and other current investments) of US$540.5 million, compared with a net cash position of US$323.6 million at December 31, 2011.

Tenaris Files Half-Year Report

Tenaris S.A. announces that it has filed its half-year report for the six-month period ended June 30, 2012 with the Luxembourg Stock Exchange. The half-year report can be downloaded from the Luxembourg Stock Exchange's website at www.bourse.lu and from Tenaris's website at www.tenaris.com/investors.

Holders of Tenaris's shares and ADSs, and any other interested parties, may request a hard copy of the half-year report, free of charge, at 1-888-300-5432 (toll free from the United States) or 52-229-989-1940 (from outside the United States).

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 June 30,     Six-month period ended June 30,  
    2012     2011     2012     2011  
Continuing operations   (Unaudited)     (Unaudited)  
Net sales   2,801,492     2,403,122     5,418,841     4,727,087  
Cost of sales   (1,694,712 )   (1,525,696 )   (3,305,809 )   (2,971,375 )
Gross profit   1,106,780     877,426     2,113,032     1,755,712  
Selling, general and administrative expenses   (486,655 )   (468,648 )   (930,798 )   (919,977 )
Other operating income (expenses) net   761     1,028     4,853     2,649  
Operating income   620,886     409,806     1,187,087     838,384  
Interest income   5,706     6,513     15,289     14,200  
Interest expense   (12,688 )   (12,248 )   (22,613 )   (25,289 )
Other financial results   (16,476 )   (12,408 )   (3,395 )   (11,350 )
Income before equity in earnings of associated companies and income tax   597,428     391,663     1,176,368     815,945  
Equity in earnings of associated companies   11,056     22,720     30,218     47,005  
Income before income tax   608,484     414,383     1,206,586     862,950  
Income tax   (148,325 )   (109,680 )   (292,999 )   (234,050 )
Income for the period/year   460,159     304,703     913,587     628,900  
                         
Attributable to:                        
Equity holders of the Company   461,089     287,218     904,929     606,592  
Non-controlling interests   (930 )   17,485     8,658     22,308  
    460,159     304,703     913,587     628,900  
                         
                         
                         
Consolidated Condensed Interim Statement of Financial Position
 
(all amounts in thousands of U.S. dollars)   At June 30, 2012   At December 31, 2011
    (Unaudited)    
ASSETS                
Non-current assets                
  Property, plant and equipment, net   4,215,747       4,053,653    
  Intangible assets, net   3,286,788       3,375,930    
  Investments in associated companies   1,095,767       670,248    
  Other investments   2,546       2,543    
  Deferred tax assets   226,741       234,760    
  Receivables   135,614   8,963,203   133,280   8,470,414
                 
Current assets                
  Inventories   2,985,056       2,806,409    
  Receivables and prepayments   294,679       241,801    
  Current tax assets   150,119       168,329    
  Trade receivables   1,952,603       1,900,591    
  Available for sale assets   21,572       21,572    
  Other investments   419,409       430,776    
  Cash and cash equivalents   742,618   6,566,056   823,743   6,393,221
Total assets       15,529,259       14,863,635
                 
EQUITY                
Capital and reserves attributable to the Company's equity holders       10,699,313       10,506,227
Non-controlling interests       178,365       666,716
Totalequity       10,877,678       11,172,943
                 
LIABILITIES                
Non-current liabilities                
  Borrowings   676,077       149,775    
  Deferred tax liabilities   791,006       828,545    
  Other liabilities   204,156       233,653    
  Provisions   67,511       72,975    
  Trade payables   1,524   1,740,274   2,045   1,286,993
                 
Current liabilities                
  Borrowings   1,026,468       781,101    
  Current tax liabilities   243,405       326,480    
  Other liabilities   446,146       305,214    
  Provisions   22,512       33,605    
  Customer advances   163,883       55,564    
  Trade payables   1,008,893   2,911,307   901,735   2,403,699
Total liabilities       4,651,581       3,690,692
Total equity and liabilities       15,529,259       14,863,635
                 
                 
                 
Consolidated Condensed Interim Statement of Cash Flow  
   
    Three-month period ended June 30,     Six-month period ended June 30,  
(all amounts in thousands of U.S. dollars)   2012     2011     2012     2011  
    (Unaudited)     (Unaudited)  
Cash flows from operating activities                        
Income for the period   460,159     304,703     913,587     628,900  
Adjustments for:                        
Depreciation and amortization   137,725     136,017     275,884     265,401  
Income tax accruals less payments   (155,274 )   15,475     (105,779 )   47,235  
Equity in earnings of associated companies   (11,056 )   (22,720 )   (30,218 )   (47,005 )
Interest accruals less payments, net   37     (13,782 )   (18,256 )   (27,820 )
Changes in provisions   (8,426 )   1,899     (16,557 )   19,916  
Changes in working capital   53,139     (118,567 )   48,103     (498,557 )
Other, including currency translation adjustment   (61,804 )   22,106     (47,567 )   102,716  
Net cash provided by operating activities   414,500     325,131     1,019,197     490,786  
                         
Cash flows from investing activities                        
Capital expenditures   (204,531 )   (251,171 )   (400,926 )   (461,791 )
Acquisitions of subsidiaries and associated companies   -     -     (504,597 )   -  
Proceeds from disposal of property, plant and equipment and intangible assets   1,383     712     6,155     1,967  
Dividends and distributions received from associated companies   18,702     17,229     18,702     17,229  
Changes in investments in short term securities   784     (205,634 )   11,367     (194,682 )
Net cash used in investing activities   (183,662 )   (438,864 )   (869,299 )   (637,277 )
                         
Cash flows from financing activities                        
Dividends paid   (295,134 )   (247,913 )   (295,134 )   (247,913 )
Dividends paid to non-controlling interest in subsidiaries   -     (5,735 )   (905 )   (5,735 )
Acquisitions of non-controlling interests   (758,527 )   (11,439 )   (758,539 )   (16,489 )
Proceeds from borrowings   668,455     180,515     1,214,234     489,795  
Repayments of borrowings   (202,013 )   (309,582 )   (439,116 )   (541,112 )
Net cash used in financing activities   (587,219 )   (394,154 )   (279,460 )   (321,454 )
                         
Decrease in cash and cash equivalents   (356,381 )   (507,887 )   (129,562 )   (467,945 )
Movement in cash and cash equivalents                        
At the beginning of the period   1,060,559     865,228     815,032     820,165  
Effect of exchange rate changes   (10,466 )   4,702     8,242     9,823  
Decrease in cash and cash equivalents   (356,381 )   (507,887 )   (129,562 )   (467,945 )
At June 30,   693,712     362,043     693,712     362,043  
             
    At June 30,     At June 30,  
Cash and cash equivalents   2012     2011     2012     2011  
Cash at banks, liquidity funds and short-term investments   742,618     424,287     742,618     424,287  
Bank overdrafts   (48,906 )   (62,244 )   (48,906 )   (62,244 )
    693,712     362,043     693,712     362,043  
                         

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