Tenaris Announces 2008 Third 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 - November 06, 2008) - 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, 2008 with comparison to its results for the quarter and nine months ended September 30, 2007. Summary of 2008 Third Quarter Results (Comparison with second quarter of 2008 and third quarter of 2007) Q3 2008 Q2 2008 Q3 2007 ------- ------------- ------------- Net sales (US$ million) 3,118.5 3,148.4 (1%) 2,433.8 28% Operating income (US$ million) 933.9 823.7 13% 671.7 39% Net income (US$ million) 631.2 1,030.0 (39%) 436.4 45% Shareholders' net income (US$ million) 570.6 987.5 (42%) 401.0 42% Earnings per ADS (US$) 0.97 1.67 (42%) 0.68 42% Earnings per share (US$) 0.48 0.84 (42%) 0.34 42% EBITDA (US$ million) 1,068.8 958.1 12% 804.5 33% EBITDA margin (% of net sales) 34% 30% 33% Our operating results in the third quarter reached a quarterly high with operating income up 39% year on year and 13% sequentially. Sales rose strongly in North America where the market environment remained favourable and we continue to advance our alliance business model. Operating margins, after falling in the first half of the year as costs increased rapidly, recovered to the levels recorded in 2007. Our net financial debt (total financial debt less cash and other current investments) amounted to US$1,488 million, broadly in line with the previous quarter as our cash flow generation has been negatively affected by the timing of tax payments and by an increase in working capital mainly due to the increase in inventories. Payment of Interim Dividend Tenaris's 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, on November 27, 2008 (or, only in those jurisdictions where such date is not a business day, on November 28, 2008), with an ex-dividend date of November 24. Market Background and Outlook Since September the world economy has undergone a major financial crisis whose consequences are spreading to the real economy throughout the world. Business conditions have changed so rapidly that at this point it is not clear how deep and long the impact on the real economy, and consequently on the demand for energy, will be. We are expecting a gradual reduction in exploration and production budgets and consequently, drilling activity and demand for OCTG and other pipe products in 2009 and 2010, both in North America and globally. However, we believe that the energy sector will be impacted less than most other sectors of the economy mainly due to the constraints on the supply base which is characterized by ever increasing depletion rates, difficulties in replacing reserves and the long lead times to develop new reserves. Global oil prices, after peaking in July in excess of US$140 per barrel, have retreated rapidly to the current level of US$60-70 per barrel in the expectation of reduced global demand in the current recessionary environment. North American gas prices also rose rapidly during the first half of this year and have fallen even more sharply since then to their current levels of US$6-7 per million BTU as increased investment in US gas production resulted in significantly higher production levels for the first time in many years.. During the third quarter, the international count of active drilling rigs, as published by Baker Hughes, continued to rise and averaged 1,096, an increase of 1% over the previous quarter and one of 7% compared to the same quarter of the previous year. The U.S. rig count increased 6% compared to the second quarter of 2008 and was up 11% compared to the third quarter of 2007. In Canada, activity has risen from last year's low levels, with the rig count registering a 24% increase in the third quarter of 2008 compared to the same quarter of 2007, and is now up 9% for the first nine months of 2008 compared to the same period of 2007. Demand for OCTG and other pipe products from the oil and gas industry has increased so far this year, particularly in North America, following last year's distributor destocking activities and increased drilling activity. In the rest of the world, however, apparent demand for OCTG products has lagged operative consumption due to inventory adjustment activity in the larger Middle East markets. Demand for high-end pipe products has also increased in the year to date reflecting the increasing complexity of drilling activity in most regions worldwide. Steelmaking raw material costs for our seamless pipe products and steel costs for our welded pipe products rose steeply in the first half of the year but, more recently, have fallen as the global financial crisis and the recessionary environment has had an almost immediate impact on global steelmaking activity. Pipe prices, which had been adjusting to the rising cost environment at different paces across markets, have been showing resilience as demand remains firm but are likely to come under pressure if demand weakens. We expect to maintain a good level of net sales and operating income for our tubular products going into 2009. Analysis of 2008 Third Quarter Results Increase/ Sales volume (metric tons) Q3 2008 Q3 2007 (Decrease) ---------- ---------- ---------- Tubes - Seamless 682,000 659,000 3% Tubes - Welded 263,000 240,000 10% Tubes - Total 945,000 899,000 5% Projects - Welded 155,000 127,000 22% Total 1,100,000 1,026,000 7% Increase/ Tubes Q3 2008 Q3 2007 (Decrease) ---------- ---------- ---------- (Net sales - $ million) North America 1,280.8 744.1 72% South America 398.4 310.6 28% Europe 408.1 360.3 13% Middle East & Africa 344.2 471.7 (27%) Far East & Oceania 169.9 175.9 (3%) Total net sales ($ million) 2,601.4 2,062.6 26% Cost of sales (% of sales) 53% 54% Operating income ($ million) 859.5 615.5 Operating income (% of sales) 33% 30% Net sales of tubular products and services rose 26% to US$2,601.4 million in the third quarter of 2008, compared to US$2,062.6 million in the third quarter of 2007 due to higher volumes and higher average selling prices. Sales in North America were up by 72% as market conditions reflected a surge in oil and gas drilling activity and comparatively low levels of OCTG inventories. In South America sales increased 28% reflecting a good level of demand in the Andean countries. In the Middle East and Africa, our sales continue to be affected by inventory adjustments and lower demand for our API products in the region. Increase/ Projects Q3 2008 Q3 2007 (Decrease) ---------- ---------- ---------- Net sales ($ million) 319.1 235.6 35% Cost of sales (% of sales) 73% 72% Operating income ($ million) 44.3 42.0 5% Operating income (% of sales) 14% 18% Net sales of pipes for pipeline projects increased 35% to US$319.1 million in the third quarter of 2008, compared to US$235.6 million in the third quarter of 2007, reflecting a high level of shipments to gas and other pipeline projects in Brazil and Colombia. Increase/ Others Q3 2008 Q3 2007 (Decrease) ---------- ---------- ---------- Net sales ($ million) 198.0 135.6 46% Cost of sales (% of sales) 69% 73% Operating income ($ million) 30.1 14.2 112% Operating income (% of sales) 15% 10% Net sales of other products and services rose 46% to US$198.0 million in the third quarter of 2008, compared to US$135.6 million in the third quarter of 2007, mainly reflecting higher sales of excess raw materials, welded pipes for electric conduits in the USA and sucker rods. Selling, general and administrative expenses, or SG&A, decreased as a percentage of net sales to 14.7% in the quarter ended September 30, 2008 compared to 15.9% in the corresponding quarter of 2007. Other operating income totaled US$19.6 million mainly due to a reimbursement from insurance in Italy and earnings from the disposal of assets. Net interest expenses decreased to US$23.3 million in the third quarter of 2008 compared to US$57.1 million in the same period of 2007 reflecting a lower net debt position and lower interest rates. Other financial results recorded a loss of US$32.0 million during the third quarter of 2008, compared to a loss of US$12.9 million during the third quarter of 2007. 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. They arise due to the fact that most of our subsidiaries prepare their financial statements in currencies other than the US dollar in accordance with IFRS. Equity in earnings of associated companies generated a gain of US$24.3 million in the third quarter of 2008, compared to a gain of US$18.3 million in the third quarter of 2007. These gains mainly derived from our equity investment in Ternium. Income tax charges totalled US$271.7 million in the third quarter of 2008, equivalent to 31% of income before equity in earnings of associated companies and income tax, compared to US$195.9 million in the third quarter of 2007, equivalent to 33% of income before equity in earnings of associated companies and income tax. Income attributable to minority interest rose to US$60.5 million in the third quarter of 2008, compared to US$35.4 million in the corresponding quarter of 2007. Although net results at our Confab subsidiary were higher during the period, they were partially offset by lower net results at our NKKTubes subsidiary. Cash Flow and Liquidity Net cash provided by operations during the third quarter of 2008 was US$242.8 million (US$1,085.7 million in the first nine months), compared to US$889.8 million in the third quarter of 2007 (US$1,789.1 million in the first nine months). Cash flow in the third quarter was affected by the tax payment on earnings from the sale of Hydril pressure control business and the postponement from the second to the third quarter of tax payments in Italy. Working capital increased by US$257.5 million during the third quarter driven primarily by an increase in inventories which rose US$342.2 million. Capital expenditures amounted to US$131.8 million in the third quarter of 2008 ($337.1 million in the first nine months), compared to US$105.4 million in the third quarter of 2007 (US$334.6 million in the first nine months). During the first nine months of 2008, total financial debt decreased by US$1,015.3 million to US$3,004.9 million at September 30, 2008 from US$4,020.2 million at December 31, 2007. Net financial debt during the first nine months of 2008 decreased by US$1,482.0 million to US$1,488.2 million at September 30, 2008 following the collection of Hydril's pressure control business sale for US$1,114 million and the payment of the balance of the annual dividend, amounting to approximately US$295 million in June 2008. As of September 30, we had US$1.5 billion of liquidity in cash and cash equivalents. Analysis of 2008 First Nine Months Results Net income attributable to equity holders in the company during the first nine months of 2008 was US$2,031.1 million, or US$1.72 per share (US$3.44 per ADS), which compares with net income attributable to equity holders in the company during the first nine months of 2007 of US$1,377.2 million, or US$1.17 per share (US$2.33 per ADS). Net income for the first nine months of 2008 includes the result for the sale of Hydril's pressure control business of US$394.3 million, or US$0.33 per share (US$0.67 per ADS). Operating income was US$2,468.6 million, or 28% of net sales, compared to US$2,200.5 million, or 30% of net sales. Operating income plus depreciation and amortization was US$2,872.3 million, or 32% of net sales, compared to US$2,558.4 million, or 35% of net sales. Increase/ Sales volume (metric tons) 9M 2008 9M 2007 (Decrease) ---------- ---------- ---------- Tubes - Seamless 2,157,000 2,156,000 0% Tubes - Welded 815,000 706,000 15% Tubes - Total 2,972,000 2,862,000 4% Projects - Welded 457,000 317,000 44% Total 3,429,000 3,179,000 8% Increase/ Tubes 9M 2008 9M 2007 (Decrease) ---------- ---------- ---------- (Net sales - $ million) North America 3,099.9 2,165.7 43% South America 970.8 897.7 8% Europe 1,336.5 1,200.6 11% Middle East & Africa 1,385.5 1,598.9 (13%) Far East & Oceania 533.5 536.8 (1%) Total net sales ($ million) 7,326.2 6,399.7 14% Cost of sales (% of sales) 54% 51% Operating income ($ million) 2,204.1 2,057.0 7% Operating income (% of sales) 30% 32% Net sales of tubular products and services rose 14% to US$7,326.2 million in the first nine months of 2008, compared to US$6,399.7 million in the first nine months of 2007. The improvement was mainly driven by our North American operations as the market strongly recovered from last year level both in terms of volumes and prices. In Middle East and Africa the market continues to be affected by inventory reductions. Increase/ Projects 9M 2008 9M 2007 (Decrease) ---------- ---------- ---------- Net sales ($ million) 959.0 560.9 71% Cost of sales (% of sales) 72% 71% Operating income ($ million) 173.2 106.7 62% Operating income (% of sales) 18% 19% Net sales of pipes for pipeline projects increased 71% to US$959.0 million in the first nine months of 2008, compared to US$560.9 million in the first nine months of 2007, reflecting higher deliveries in Brazil, Argentina and Colombia to gas and other pipeline projects. Increase/ Others 9M 2008 9M 2007 (Decrease) ---------- ---------- ---------- Net sales ($ million) 607.9 453.5 34% Cost of sales (% of sales) 70% 78% Operating income ($ million) 91.3 36.8 148% Operating income (% of sales) 15% 8% Net sales of other products and services rose 34% to US$607.9 million in the first nine months of 2008, compared to US$453.5 million in the first nine months of 2007, reflecting higher sales of electric conduit pipes, sucker rods and industrial equipment. Selling, general and administrative expenses, or SG&A, decreased as a percentage of net sales to 15.2% in the nine months ended September 30, 2008 compared to 15.7% in the corresponding nine months of 2007. Net interest expenses decreased to US$96.8 million in the first nine months of 2008 compared to US$140.4 million in the same period of 2007 reflecting a lower net debt position and lower interest rates. Other financial results recorded a loss of US$45.2 million during the first nine months of 2008, compared to a loss of US$10.7 million during the first nine months of 2007. 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. They arise due to the fact that most of our subsidiaries prepare their financial statements in currencies other than the US dollar in accordance with IFRS. Equity in earnings of associated companies generated a gain of US$122.4 million in the first nine months of 2008, compared to a gain of US$73.6 million in the first nine months of 2007. These gains were derived mainly from our equity investment in Ternium. Income tax charges totalled US$698.9 million in the first nine months of 2008, equivalent to 30% of income before equity in earnings of associated companies and income tax, compared to US$662.1 million in the first nine months of 2007, equivalent to 32% of income before equity in earnings of associated companies and income tax. Income from discontinued operations amounted to US$411.1 million in the first nine months of 2008. This included the result of the sale of Hydril's pressure control business, completed on April 1, 2008, amounting to US$394.3 million. Income attributable to minority interest rose to US$130.0 million in the first nine months of 2008, compared to US$103.0 million in the corresponding nine months of 2007. [Although net results at our Confab subsidiary were higher during the period, they were lower at our NKKTubes subsidiary.] 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. As required by the articles 36 and 39 of Consob Regolamento Mercati n. 16191 dated October 29, 2007, Tenaris states as follows: Tenaris has received from its subsidiaries copies of their by-laws, articles of incorporation or other organizational documents (as applicable in their respective jurisdictions of organization), together with information regarding the composition and powers of their governing bodies. In addition, Tenaris has taken appropriate action to ensure that its subsidiaries (i) provide to the external auditors any information as may be necessary to conduct the audit of Tenaris's annual and interim accounts and (ii) have adequate accounting systems enabling them regularly to provide both to Tenaris's management and its external auditors any economic, financial or other data as may be required for the preparation or audit, as the case may be, of Tenaris's consolidated accounts. Consolidated Income Statement (all amounts in thousands of U.S. dollars, unless Three-month period ended Nine-month period ended otherwise stated) September 30, September 30, ------------------------ ------------------------ 2008 2007 2008 2007 ----------- ----------- ----------- ----------- Continuing operations (Unaudited) (Unaudited) Net sales 3,118,512 2,433,773 8,893,084 7,414,040 Cost of sales (1,745,064) (1,375,736) (5,088,664) (4,041,552) ----------- ----------- ----------- ----------- Gross profit 1,373,448 1,058,037 3,804,420 3,372,488 Selling, general and administrative expenses (459,165) (387,632) (1,350,835) (1,160,908) Other operating income (expense), net 19,633 1,277 14,966 (11,075) Operating income 933,916 671,682 2,468,551 2,200,505 ----------- ----------- ----------- ----------- Interest income 16,881 22,635 45,660 65,017 Interest expense (40,184) (79,728) (142,454) (205,437) Other financial results (32,032) (12,851) (45,188) (10,725) Income before equity in earnings of associated companies and income tax 878,581 601,738 2,326,569 2,049,360 ----------- ----------- ----------- ----------- Equity in earnings of associated companies 24,290 18,280 122,386 73,585 Income before income tax 902,871 620,018 2,448,955 2,122,945 ----------- ----------- ----------- ----------- Income tax (271,714) (195,856) (698,910) (662,070) Income for continuing operations 631,157 424,162 1,750,045 1,460,875 ----------- ----------- ----------- ----------- Discontinued operations Income for discontinued operations - 12,202 411,110 19,369 Income for the period 631,157 436,364 2,161,155 1,480,244 ----------- ----------- ----------- ----------- Attributable to: Equity holders of the Company 570,635 400,952 2,031,149 1,377,206 Minority interest 60,522 35,412 130,006 103,038 ----------- ----------- ----------- ----------- 631,157 436,364 2,161,155 1,480,244 ----------- ----------- ----------- ----------- Consolidated Balance Sheet (all amounts in thousands of U.S. dollars) At September 30, 2008 At December 31, 2007 (Unaudited) --------------------- --------------------- ASSETS Non-current assets Property, plant and equipment, net 3,307,590 3,269,007 Intangible assets, net 4,347,873 4,542,352 Investments in associated companies 630,426 509,354 Other investments 38,099 35,503 Deferred tax assets 356,333 310,590 Receivables 50,857 8,731,178 63,738 8,730,544 ---------- ---------- Current assets Inventories 3,334,040 2,598,856 Receivables and prepayments 248,805 222,410 Current tax assets 143,251 242,757 Trade receivables 2,027,081 1,748,833 Other investments 26,997 87,530 Cash and cash equivalents 1,489,787 7,269,961 962,497 5,862,883 ---------- ---------- Current and non current assets held for sale - 651,160 ---------- ---------- 7,269,961 6,514,043 ---------- ---------- Total assets 16,001,139 15,244,587 EQUITY Capital and reserves attributable to the Company's equity holders 8,686,199 7,006,277 Minority interest 572,234 523,573 ---------- ---------- Total equity 9,258,433 7,529,850 LIABILITIES Non-current liabilities Borrowings 1,600,884 2,869,466 Deferred tax liabilities 1,111,196 1,233,836 Other tax liabilities 7,772 - Other liabilities 181,872 185,410 Provisions 100,292 97,912 Trade payables 1,155 3,003,171 47 4,386,671 ---------- ---------- Current liabilities Borrowings 1,404,051 1,150,779 Current tax liabilities 560,430 341,028 Other liabilities 296,819 252,204 Provisions 27,801 19,342 Customer advances 360,093 449,829 Trade payables 1,090,341 3,739,535 847,842 3,061,024 ---------- ---------- Liabilities associated with current and non-current assets held for sale - 267,042 ---------- ---------- 3,739,535 3,328,066 ---------- ---------- Total liabilities 6,742,706 7,714,737 Total equity and liabilities 16,001,139 15,244,587 Consolidated Cash Flow Statement Three-month period Nine-month period ended September 30, ended September 30, ---------------------- ---------------------- (all amounts in thousands of U.S. dollars) 2008 2007 2008 2007 ---------- ---------- ---------- ---------- (Unaudited) (Unaudited) Cash flows from operating activities Income for the period 631,157 436,364 2,161,155 1,480,244 Adjustments for: - - Depreciation and amortization 134,885 140,876 403,758 371,647 Income tax accruals less payments (309,497) 29,211 (219,750) (220,582) Equity in earnings of associated companies (24,290) (18,280) (122,386) (73,585) Income from the sale of pressure control business - - (394,323) - Interest accruals less payments, net 34,401 58,654 26,507 63,519 Changes in provisions (4,404) (799) 10,839 (4,279) Changes in working capital (257,464) 220,034 (803,078) 94,669 Other, including currency translation adjustment 37,986 23,695 22,969 77,498 ---------- ---------- ---------- ---------- Net cash provided by operating activities 242,774 889,755 1,085,691 1,789,131 ---------- ---------- ---------- ---------- Cash flows from investing activities Capital expenditures (131,772) (105,419) (337,138) (334,568) Acquisitions of subsidiaries and minority interest (8,003) (45) (9,868) (1,927,227) Other disbursements relating to the acquisition of Hydril - - - (71,580) Proceeds from the sale of pressure control business - - 1,113,805 - Decrease in subsidiaries - - - (1,195) Proceeds from disposal of property, plant and equipment and intangible assets 3,340 2,327 12,166 6,923 Dividends received - - 13,636 11,496 Investments in short terms securities 324,934 (45,035) 60,533 (30,842) Other - - (3,428) - ---------- ---------- ---------- ---------- Net cash provided by / (used in) investing activities 188,499 (148,172) 849,706 (2,346,993) ---------- ---------- ---------- ---------- Cash flows from financing activities Dividends paid - - (295,134) (354,161) Dividends paid to minority interest in subsidiaries (4,981) (5,393) (60,117) (45,315) Proceeds from borrowings 301,117 243,937 731,205 2,451,963 Repayments of borrowings (444,709) (228,611) (1,777,464) (1,247,324) ---------- ---------- ---------- ---------- Net cash (used in) / provided by financing activities (148,573) 9,933 (1,401,510) 805,163 ---------- ---------- ---------- ---------- Increase in cash and cash equivalents 282,700 751,516 533,887 247,301 Movement in cash and cash equivalents At the beginning of the period 1,319,049 883,042 954,303 1,365,008 Effect of exchange rate changes (138,107) 13,996 (24,548) 36,245 Increase in cash and cash equivalents 282,700 751,516 533,887 247,301 At September 30, 1,463,642 1,648,554 1,463,642 1,648,554 Cash and cash equivalents At September 30, At September 30, 2008 2007 2008 2007 Cash and bank deposits 1,489,787 1,651,780 1,489,787 1,651,780 Bank overdrafts (26,145) (3,205) (26,145) (3,205) Restricted bank deposits - (21) - (21) 1,463,642 1,648,554 1,463,642 1,648,554 Non-cash financing activity Conversion of debt to equity in subsidiaries - - - 35,140 Contact: Giovanni Sardagna Tenaris 1-888-300-5432 www.tenaris.com This announcement was originally distributed by Hugin. The issuer is solely responsible for the content of this announcement.