Q3 2009 Q2 2009 Q3 2008
------- ----------------- -----------------
Net sales (US$ million) 1,771.5 2,096.3 (15%) 3,074.0 (42%)
Operating income (US$ million) 360.6 436.8 (17%) 931.8 (61%)
Net income (US$ million) 237.3 336.4 (29%) 631.2 (62%)
Shareholders' net income (US$
million) 229.9 343.3 (33%) 570.6 (60%)
Earnings per ADS (US$) 0.39 0.58 (33%) 0.97 (60%)
Earnings per share (US$) 0.19 0.29 (33%) 0.48 (60%)
EBITDA (US$ million) 488.3 563.1 (13%) 1,064.6 (54%)
EBITDA margin (% of net sales) 28% 27% 35%
Our results in the third quarter reflect weak demand for our products and
services from our customers in all regions though sales in the Middle East
and Africa region registered a modest year on year increase. Shipments of
tubular products fell 50% year on year and 16% sequentially. However, our
EBITDA margin stabilized on a sequential basis as lower input costs offset
lower prices. Earnings per share declined by 60% year on year reflecting
the decline in sales and margins. However, cash flow from operations
remained strong and we reduced our investment in working capital by a
further US$359.5 million. Our net financial position (total financial debt
less cash and other current investments) is now net cash positive with a
balance of US$556.9 million at the end of the period.
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 26, 2009 (however, because such date is not a
business day in the US, shareholders in all jurisdictions may receive their
interim dividend on or after November 27, 2009, which is the first business
day following the stated payment date), and the ex-dividend date will be
November 23, 2009.
Market Background and Outlook
Global oil prices have risen during the first nine months of 2009 from
their low of around US$30 per barrel at the beginning of the year and now
stand around US$75-80 per barrel. The increase in oil prices is supported
by expectations for a continuing recovery in the outlook for global growth
led by the resilient performance of the Chinese economy and OPEC actions to
curtail production. North American gas prices have recently rebounded from
their lows below US$3.00 per million BTU but production has not yet fallen
in line with demand and gas in storage is now at historically high levels.
The international count of active drilling rigs, as published by Baker
Hughes, continued to decline during the third quarter. It averaged 969
during the third quarter of 2009, 1% lower than the second quarter of 2009
and 12% lower than the same quarter of the previous year. The corresponding
rig count in the US, however, started to rebound in July driven mainly by
an increase in oil drilling activity and lower rig rates. It averaged 973
during the third quarter, 4% higher than the second quarter of 2009 but 51%
lower than the third quarter of 2008. In Canada, the corresponding rig
count, which is affected by seasonal drilling patterns, averaged 187 during
the quarter, a decrease of 57% compared to third quarter of 2008.
Whereas demand for our pipes this year has been severely affected by the
decline in oil and gas drilling activity and the actions taken by customers
to adjust to reduced cash flows and a less favorable market outlook, in the
third quarter our level of incoming orders by volume is recovering. In
addition, in the US and Canadian markets, inventory levels, although they
remain high, have been coming down from the extraordinarily high levels
they reached in the first quarter of this year. With activity levels now
stabilizing, the oil price at an attractive level, and inventories closer
to more reasonable levels, we can expect pipe shipments in our Tubes
operating segment to begin showing a moderate increase in the fourth
quarter.
During this quarter the order backlog for our large-diameter pipes for
pipeline projects in South America has continued to decline and we
therefore expect lower shipments going forward.
Our production costs should start to benefit from efficiencies associated
with an increase in production levels, and from the effect of the actions
underway to reduce our structural costs.
Our average selling prices in the coming quarters will reflect a gradual
adjustment to the lower levels currently in the market and, consequently,
any recovery in net sales and EBITDA will be more modest than that of our
shipments.
Analysis of 2009 Third Quarter Results
Increase/
Sales volume (metric tons) Q3 2009 Q3 2008 (Decrease)
------- ------- --------
Tubes - Seamless 407,000 669,000 (39%)
Tubes - Welded 67,000 263,000 (75%)
Tubes - Total 474,000 932,000 (49%)
Projects - Welded 97,000 155,000 (37%)
Total 571,000 1,087,000 (47%)
Increase/
Tubes Q3 2009 Q3 2008 (Decrease)
------- ------- --------
(Net sales - $ million)
North America 515.6 1,280.8 (60%)
South America 225.9 368.3 (39%)
Europe 176.9 408.1 (57%)
Middle East & Africa 360.4 344.2 5%
Far East & Oceania 82.3 169.9 (52%)
Total net sales ($ million) 1,361.0 2,571.3 (47%)
Cost of sales (% of sales) 58% 53%
Operating income ($ million) 285.8 856.2 (67%)
Operating income (% of sales) 21% 33%
Net sales of tubular products and services decreased 47% to US$1,361.0
million in the third quarter of 2009, compared to US$2,571.3 million in the
third quarter of 2008, in line with shipments as lower like for like prices
were offset by a richer product mix. All regions were affected except for
the Middle East and Africa which benefited from higher sales of deepwater
line pipe products in West Africa. In North America, notwithstanding higher
demand for OCTG products in Mexico, demand for OCTG products in the US and
Canada declined precipitously due to the decline in drilling activity and
inventory reductions. Sales in South America were affected by low levels
of demand in Venezuela and Argentina. In Europe, sales were affected by
lower demand from the industrial sector, lower demand from distributors
serving the process and power plant sector and lower sales of OCTG
principally in Romania. Sales in the Far East & Oceania were lower mainly
in Japan and China.
Increase/
Projects Q3 2009 Q3 2008 (Decrease)
------- ------- --------
Net sales ($ million) 288.7 319.1 (10%)
Cost of sales (% of sales) 71% 73%
Operating income ($ million) 59.5 44.3 34%
Operating income (% of sales) 21% 14%
Net sales of pipes for pipeline projects decreased 10% to US$288.7 million
in the third quarter of 2009, compared to US$319.1 million in the third
quarter of 2008, reflecting a lower level of shipments to gas and other
pipeline projects in Brazil and Colombia.
Increase/
Others Q3 2009 Q3 2008 (Decrease)
------- ------- --------
Net sales ($ million) 121.7 183.6 (34%)
Cost of sales (% of sales) 74% 68%
Operating income ($ million) 15.2 31.4 (52%)
Operating income (% of sales) 12% 17%
Net sales of other products and services decreased 34% to US$121.7 million
in the third quarter of 2009, compared to US$183.6 million in the third
quarter of 2008. Although demand for our Brazilian industrial equipment
business remained firm, demand for our US electric conduit business was
substantially lower and sales of sucker rods were affected by lower
activity.
Selling, general and administrative expenses, or SG&A, increased as a
percentage of net sales to 18.5% in the quarter ended September 30, 2009
compared to 14.7% in the corresponding quarter of 2008, mainly due to the
effect of fixed and semi-fixed expenses over lower revenues.
Net interest expenses decreased to US$20.6 million in the third quarter of
2009 compared to US$21.5 million in the same period of 2008. Interest
expenses in the third quarter of 2009, include US$11.1 million of losses on
interest rate swaps entered into in order to minimize the volatility effect
of floating rate debt assumed to finance the acquisitions of Maverick and
Hydril.
Other financial results recorded a loss of US$15.4 million during the third
quarter of 2009, compared to a loss of US$31.7 million during the third
quarter of 2008. These results largely reflect gains and losses on net
foreign exchange transactions and the changes in 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$10.3
million in the third quarter of 2009, compared to a gain of US$24.3 million
in the third quarter of 2008. These gains mainly derived from our equity
investment in Ternium.
Income tax charges totalled US$97.6 million in the third quarter of 2009,
equivalent to 30% of income before equity in earnings of associated
companies and income tax, compared to US$272.7 million in the third quarter
of 2008, equivalent to 31% of income before equity in earnings of
associated companies and income tax.
Income attributable to minority interest decreased to US$7.4 million in the
third quarter of 2009, compared to US$60.5 million in the corresponding
quarter of 2008 as we registered lower profits at our Confab subsidiary and
losses at our NKKTubes subsidiary.
Cash Flow and Liquidity
Net cash provided by operations during the third quarter of 2009 was
US$772.4 million (US$2,647.0 million in the first nine months), compared to
US$242.8 million in the third quarter of 2008 (US$1,085.7 million in the
first nine months). Working capital decreased by US$359.5 million during
the third quarter, mainly due to inventories decrease of US$248.2 million
and trade receivables decrease of US$241.6 million, partially offset by a
decrease in customer advances of US$104.2 million.
Capital expenditures amounted to US$101.5 million in the third quarter of
2009 (US$327.8 million in the first nine months), compared to US$131.8
million in the third quarter of 2008 (US$337.1 million in the first nine
months).
During the first nine months of 2009, total financial debt decreased by
US$1,263.7 million to US$1,713.3 million at September 30, 2009 from
US$2,977.0 million at December 31, 2008. Net financial debt during the
first nine months of 2009 decreased by US$1,949.3 million to a positive net
cash position of US$556.9 million at September 30, 2009.
Analysis of 2009 First Nine Months Results
Net income attributable to equity holders in the company during the first
nine months of 2009 was US$939.2 million, or US$0.80 per share (US$1.59 per
ADS), which compares with net income attributable to equity holders in the
company during the first nine months of 2008 of US$2,031.1 million, or
US$1.72 per share (US$3.44 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$1,483.0 million, or 24% of net sales, compared to
US$2,456.4 million, or 28% of net sales. Operating income plus depreciation
and amortization was US$1,858.8 million, or 29% of net sales, compared to
US$2,853.8 million, or 32% of net sales.
Increase/
Sales volume (metric tons) 9M 2009 9M 2008 (Decrease)
------- ------- --------
Tubes - Seamless 1,483,000 2,126,000 (30%)
Tubes - Welded 242,000 815,000 (70%)
Tubes - Total 1,725,000 2,941,000 (41%)
Projects - Welded 271,000 457,000 (41%)
Total 1,996,000 3,398,000 (41%)
Increase/
Tubes 9M 2009 9M 2008 (Decrease)
------- ------- --------
(Net sales - $ million)
North America 2,192.4 3,099.9 (29%)
South America 720.2 897.1 (20%)
Europe 661.8 1,336.5 (50%)
Middle East & Africa 1,208.4 1,385.5 (13%)
Far East & Oceania 387.7 533.5 (27%)
Total net sales ($ million) 5,170.4 7,252.5 (29%)
Cost of sales (% of sales) 55% 54%
Operating income ($ million) 1,312.1 2,198.2 (40%)
Operating income (% of sales) 25% 30%
Net sales of tubular products and services decreased 29% to US$5,170.4
million in the first nine months of 2009, compared to US$7,252.5 million in
the first nine months of 2008, due to a sharp reduction in volumes, which
was partially offset by higher average selling prices, reflecting in part
higher proportion of sales of specialized high-end products.
Increase/
Projects 9M 2009 9M 2008 (Decrease)
------- ------- --------
Net sales ($ million) 765.4 959.0 (20%)
Cost of sales (% of sales) 72% 72%
Operating income ($ million) 154.0 173.2 (11%)
Operating income (% of sales) 20% 18%
Net sales of pipes for pipeline projects decreased 20% to US$765.4 million
in the first nine months of 2009, compared to US$959.0 million in the first
nine months of 2008, reflecting lower deliveries in Brazil, Argentina and
Colombia to gas and other pipeline projects.
Increase/
Others 9M 2009 9M 2008 (Decrease)
------- ------- --------
Net sales ($ million) 366.4 572.9 (36%)
Cost of sales (% of sales) 81% 71%
Operating income ($ million) 16.8 85.0 (80%)
Operating income (% of sales) 5% 15%
Net sales of other products and services decreased 36% to US$366.4 million
in the first nine months of 2009, compared to US$572.9 million in the first
nine months of 2008, reflecting lower sales of electric conduit pipes and
sucker rods, partially offset by higher sales of industrial equipment.
Selling, general and administrative expenses, or SG&A, increased as a
percentage of net sales to 17.6% in the nine months ended September 30,
2009 compared to 15.1% in the corresponding nine months of 2008, mainly due
to the effect of fixed and semi-fixed expenses over lower revenues.
Net interest expenses decreased to US$71.4 million in the first nine months
of 2009 compared to US$93.0 million in the same period of 2008 reflecting a
lower net debt position and lower interest rates. Interest expenses in the
first nine months of 2009, include US$ 14.1 million in losses on interest
rate swaps entered into in order to minimize the volatility effect of
floating rate debt.
Other financial results recorded a loss of US$67.6 million during the first
nine months of 2009, compared to a loss of US$41.2 million during the first
nine months of 2008. These results largely reflect gains and losses on net
foreign exchange transactions and the changes in 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$68.2
million in the first nine months of 2009, compared to a gain of US$122.3
million in the first nine months of 2008. These gains were derived mainly
from our equity investment in Ternium.
Income tax charges totalled US$417.2 million in the first nine months of
2009, equivalent to 31% of income before equity in earnings of associated
companies and income tax, compared to US$701.1 million in the first nine
months of 2008, equivalent to 30% of income before equity in earnings of
associated companies and income tax.
Result for discontinued operations amounted to a loss of US$28.1 million in
the first nine months of 2009, corresponding to our Venezuelan operations
that are being nationalized, compared to a gain of US$417.8 million in the
corresponding period of 2008, of which US$394.3 million corresponded to the
result of the sale of Hydril's pressure control business.
Income attributable to minority interest decreased to US$27.7 million in
the first nine months of 2009, compared to US$130.0 million in the
corresponding nine months of 2008, mainly reflecting lower results at our
Confab and NKKTubes subsidiaries.
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 Three-month period Nine-month period
of U.S. dollars) ended September 30, ended September 30,
---------------------- ----------------------
2009 2008 2009 2008
---------- ---------- ---------- ----------
Continuing operations (Unaudited) (Unaudited)
Net sales 1,771,475 3,073,978 6,302,107 8,784,402
Cost of sales (1,080,161) (1,712,417) (3,708,372) (5,015,248)
---------- ---------- ---------- ----------
Gross profit 691,314 1,361,561 2,593,735 3,769,154
Selling, general and
administrative expenses (327,234) (450,453) (1,110,240) (1,328,491)
Other operating income
(expense), net (3,528) 20,688 (504) 15,741
---------- ---------- ---------- ----------
Operating income 360,552 931,796 1,482,991 2,456,404
Interest income 10,435 16,910 23,172 45,591
Interest expense (31,007) (38,442) (94,589) (138,566)
Other financial results (15,377) (31,664) (67,643) (41,236)
---------- ---------- ---------- ----------
Income before equity in
earnings of associated
companies and income tax 324,603 878,600 1,343,931 2,322,193
Equity in earnings of
associated companies 10,294 24,290 68,229 122,253
---------- ---------- ---------- ----------
Income before income tax 334,897 902,890 1,412,160 2,444,446
Income tax (97,583) (272,668) (417,175) (701,132)
---------- ---------- ---------- ----------
Income for continuing
operations 237,314 630,222 994,985 1,743,314
Discontinued operations
Result for discontinued
operations - 935 (28,138) 417,841
---------- ---------- ---------- ----------
Income for the period 237,314 631,157 966,847 2,161,155
Attributable to:
Equity holders of the
Company 229,873 570,635 939,188 2,031,149
Minority interest 7,441 60,522 27,659 130,006
---------- ---------- ---------- ----------
237,314 631,157 966,847 2,161,155
---------- ---------- ---------- ----------
Consolidated Condensed Interim Statement of Financial Position
(all amounts in thousands of
U.S. dollars) At September 30, 2009 At December 31, 2008
--------------------- ---------------------
(Unaudited)
ASSETS
Non-current assets
Property, plant and
equipment, net 3,193,279 2,982,871
Intangible assets, net 3,707,914 3,826,987
Investments in associated
companies 578,758 527,007
Other investments 31,835 38,355
Deferred tax assets 195,778 390,323
Receivables 81,143 7,788,707 82,752 7,848,295
---------- ----------
Current assets
Inventories 1,902,555 3,091,401
Receivables and prepayments 225,905 251,481
Current tax assets 234,587 201,607
Trade receivables 1,295,386 2,123,296
Available for sale assets 21,572 -
Other investments 528,861 45,863
Cash and cash equivalents 1,741,352 5,950,218 1,538,769 7,252,417
---------- ----------
---------- ----------
Total assets 13,738,925 15,100,712
========== ==========
EQUITY
Capital and reserves
attributable to the Company’s
equity holders 8,982,765 8,176,571
Minority interest 618,746 525,316
---------- ----------
Total equity 9,601,511 8,701,887
========== ==========
LIABILITIES
Non-current liabilities
Borrowings 844,946 1,241,048
Deferred tax liabilities 872,861 1,053,838
Other liabilities 202,024 223,142
Provisions 84,695 89,526
Trade payables 3,018 2,007,544 1,254 2,608,808
---------- ----------
Current liabilities
Borrowings 868,358 1,735,967
Current tax liabilities 322,041 610,313
Other liabilities 250,986 242,620
Provisions 35,986 28,511
Customer advances 152,690 275,815
Trade payables 499,809 2,129,870 896,791 3,790,017
---------- ----------
Total liabilities 4,137,414 6,398,825
========== ==========
Total equity and liabilities 13,738,925 15,100,712
========== ==========
Consolidated Condensed Interim Statement of Cash Flows
Three-month period Nine-month period
ended September 30, ended September 30,
(all amounts in thousands ---------------------- ----------------------
of U.S. dollars) 2009 2008 2009 2008
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
Cash flows from operating
activities
Income for the period 237,314 631,157 966,847 2,161,155
Adjustments for:
Depreciation and
amortization 127,789 134,885 375,850 403,758
Income tax accruals less
payments (15,741) (309,497) (345,431) (219,750)
Equity in earnings of
associated companies (10,294) (24,290) (67,367) (122,386)
Income from the sale of
pressure control business - - (394,323)
Interest accruals less
payments, net 5,741 34,401 (17,957) 26,507
Changes in provisions (10,174) (4,404) 4,026 10,839
Changes in working capital 359,488 (257,464) 1,534,948 (803,078)
Other, including currency
translation adjustment 78,278 37,986 196,070 22,969
---------- ---------- ---------- ----------
Net cash provided by
operating activities 772,401 242,774 2,646,986 1,085,691
========== ========== ========== ==========
Cash flows from investing
activities
Capital expenditures (101,460) (131,772) (327,795) (337,138)
Acquisitions of
subsidiaries and minority
interest (29) (8,003) (73,564) (9,868)
Proceeds from the sale of
pressure control business - 1,113,805
Proceeds from disposal of
property, plant and
equipment and intangible
assets 1,676 3,340 12,004 12,166
Investments in short terms
securities (255,411) 324,934 (482,998) 60,533
Dividends received 3,680 - 8,903 13,636
Other - - - (3,428)
---------- ---------- ---------- ----------
Net cash (used in) provided
by investing activities (351,544) 188,499 (863,450) 849,706
========== ========== ========== ==========
Cash flows from financing
activities
Dividends paid - - (354,161) (295,134)
Dividends paid to minority
interest in subsidiaries (5,522) (4,981) (32,698) (60,117)
Proceeds from borrowings 245,961 301,117 509,802 731,205
Repayments of borrowings (554,689) (444,709) (1,704,173) (1,777,464)
---------- ---------- ---------- ----------
Net cash used in financing
activities (314,250) (148,573) (1,581,230) (1,401,510)
========== ========== ========== ==========
Increase in cash and cash
equivalents 106,607 282,700 202,306 533,887
Movement in cash and cash
equivalents
At the beginning of the
period 1,608,695 1,319,049 1,525,022 954,303
Effect of exchange rate
changes 18,118 (138,107) 15,788 (24,548)
Decrease due to
deconsolidation - - (9,696) -
Increase in cash and cash
equivalents 106,607 282,700 202,306 533,887
---------- ---------- ---------- ----------
At September 30, 1,733,420 1,463,642 1,733,420 1,463,642
========== ========== ========== ==========
---------------------- ----------------------
Cash and cash equivalents At September 30, At September 30,
---------------------- ----------------------
2009 2008 2009 2008
Cash and bank deposits 1,741,352 1,489,787 1,741,352 1,489,787
Bank overdrafts (7,932) (26,145) (7,932) (26,145)
---------- ---------- ---------- ----------
1,733,420 1,463,642 1,733,420 1,463,642
---------- ---------- ---------- ----------
Contact Information: Giovanni Sardagna Tenaris 1-888-300-5432 www.tenaris.com