(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 Information: Contact: Giovanni Sardagna Tenaris 1-888-300-5432 www.tenaris.com