Q2 2009 Q1 2009 Q2 2008
------- ------- -------
Net sales (US$ million) 2,096.3 2,434.3 (14%) 3,110.1 (33%)
Operating income (US$ million) 436.8 685.6 (36%) 816.0 (46%)
Net income (US$ million) 336.4 393.1 (14%) 1,030.0 (67%)
Shareholders’ net income (US$
million) 343.3 366.0 (6%) 987.5 (65%)
Earnings per ADS (US$) 0.58 0.62 (6%) 1.67 (65%)
Earnings per share (US$) 0.29 0.31 (6%) 0.84 (65%)
EBITDA (US$ million) 563.1 807.4 (30%) 948.3 (41%)
EBITDA margin (% of net sales) 27% 33% 30%
Our results in the second quarter reflect significantly lower demand for
our products and services in the light of the evolving global economic
crisis and its impact on the activities of our customers. Shipments of
tubular products fell 47% year on year and 19% sequentially, with the US
and European markets being particularly affected. Our operating margins,
particularly in our North American welded pipe operations, are being
affected by very low production levels and our decision to maintain our
industrial system and human resources prepared for the future recovery in
demand. Our net income decreased 67% compared to the second quarter of
2008, however a significant part of this decrease is related to one-off
gains recorded on the sale of subsidiaries in the second quarter of last
year. Our net income for continuing operations, declined 44% compared to
the second quarter of 2008. However, our cash flow from operations was
strong as we reduced our investment in working capital by US$787.5 million.
Consequently our net financial debt (total financial debt less cash and
other current investments) decreased by US$659.8 million to US$121.9
million during the quarter after paying a dividend of US$354.2 million in
June.
During the quarter, we re-presented the results of our Venezuelan
operations that are in the process of being nationalized as discontinued
operations.
Market Background and Outlook
Following their collapse in the second half of 2008 to a low of around
US$30 per barrel at the end of the year, global oil prices have risen
during the first half of 2009 and have reached the level of US$60-70 per
barrel. This reflects increased optimism for a recovery in global economic
growth led by China together with an expected decline in non-OPEC
production and ongoing OPEC actions to cut production. North American gas
prices, however, have fallen during the first half of 2009 to current
levels of around US$3.50 per million BTU as the carry over of 2008 US
production increases combined with reduced demand has resulted in high
levels of gas in storage.
The international count of active drilling rigs, as published by Baker
Hughes, continued to decline during the second quarter. It averaged 982
during the second quarter of 2009, 4% lower than the first quarter of 2009
and 9% lower than the same quarter of the previous year. The corresponding
rig count in USA, which is more sensitive to North American gas prices,
fell sharply in the first half and is now down 56% from its high in
September 2008 but has shown signs of stabilizing in recent weeks. It
averaged 936 during the second quarter, 29% lower than the first quarter of
2009 and 50% lower than the second quarter of 2008. In Canada, the
corresponding rig count, which is affected by seasonal drilling patterns,
averaged 90 during the quarter, a decrease of 47% compared to second
quarter of 2008 and its lowest level since 1993.
Demand for our pipes from the global energy industry has been 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, including procurement delays and cancellations and the
postponement of new project activity. Demand in the US and Canada has been
further affected by extraordinarily high levels of OCTG inventories. Demand
for pipes from the industrial and power generation segments remain at low
levels.
We expect shipments for our large-diameter pipes for pipeline projects in
South America, in the second half of the year, to remain close to the
levels shown during the first half, however the order backlog continues to
decline as new projects are postponed.
Steel and steelmaking raw material costs have stabilized and in recent
weeks have shown some increase. However our costs, particularly at our
North American welded pipe operations, will continue to be adversely
affected by low production levels and the high cost of raw material
inventories procured under different market conditions, partially offset by
the actions taken to reduce our structural costs.
With low levels of demand likely to persist until the end of the year and
prices adjusting downwards we expect that our sales and operating income
will be lower in the second half of the year than the first. We expect that
there will be a recovery in our shipments going into 2010 but that our
revenues may not recover to the same extent considering the lagged effect
of price declines in our results.
Analysis of 2009 Second Quarter Results
Sales volume (metric tons) Q2 2009 Q2 2008 Increase/(Decrease) ------------------------- ------- --------- ------------------ Tubes - Seamless 497,000 771,000 (36%) Tubes - Welded 65,000 270,000 (76%) Tubes - Total 562,000 1,041,000 (46%) Projects - Welded 90,000 170,000 (47%) Total 652,000 1,211,000 (46%) Tubes Q2 2009 Q2 2008 Increase/(Decrease) ----- ------- ------- ------------------ (Net sales - $ million) North America 661.0 986.5 (33%) South America 244.9 304.1 (19%) Europe 222.3 480.8 (54%) Middle East & Africa 452.7 565.6 (20%) Far East & Oceania 137.8 187.1 (26%) Total net sales ($ million) 1,718.7 2,524.1 (32%) Cost of sales (% of sales) 57% 56% Operating income ($ million) 385.0 706.2 (45%) Operating income (% of sales) 22% 28%Net sales of tubular products and services decreased 32% to US$1,718.7 million in the second quarter of 2009, compared to US$2,524.1 million in the second quarter of 2008, as a 46% decrease in volumes was partially offset by higher average selling prices. In North America, although demand remained firm in Mexico, it declined precipitously in the USA as it was affected by the decline in drilling activity and by the extraordinary high level of OCTG inventories following the previous surge in imports from China. Sales in South America were affected by lower demand in Venezuela and Argentina. In Europe, sales were affected by lower demand from the industrial sector, lower demand from distributors serving the process plant sector and lower sales of OCTG in Romania. Sales in the Middle East and Africa were affected by lower sales of OCTG products in North Africa and the Caspian region. Sales in the Far East & Oceania were lower throughout the region.
Projects Q2 2009 Q2 2008 Increase/(Decrease) -------- ------- ------- ------------------ Net sales ($ million) 254.4 368.1 (31%) Cost of sales (% of sales) 75% 71% Operating income ($ million) 45.5 77.6 (41%) Operating income (% of sales) 18% 21%Net sales of pipes for pipeline projects decreased 31% to US$254.4 million in the second quarter of 2009, compared to US$368.1 million in the second quarter of 2008, reflecting a decrease in shipments to gas and other pipeline projects in Brazil and Argentina, partially offset by higher average selling prices.
Others Q2 2009 Q2 2008 Increase/(Decrease) ------ ------- ------- ------------------ Net sales ($ million) 123.2 218.0 (43%) Cost of sales (% of sales) 78% 72% Operating income ($ million) 6.3 32.5 (81%) Operating income (% of sales) 5% 15%Net sales of other products and services decreased 43% to US$123.2 million in the second quarter of 2009, compared to US$218.0 million in the second quarter of 2008. Although demand for our Brazilian industrial equipment business remained firm, demand for our U.S. electric conduit business was substantially lower and sales of sucker rods were affected by lower activity. Our Venezuelan HBI operation was re-presented as discontinued operation. Selling, general and administrative expenses, or SG&A, increased as a percentage of net sales to 18.9% in the quarter ended June 30, 2009, compared to 15.1% 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$16.3 million in the second quarter of 2009 compared to US$17.5 million in the same period of 2008, as we reduced our net debt. Other financial results generated a loss of US$15.9 million during the second quarter of 2009, compared to a gain of US$4.2 million during the second quarter of 2008. These results largely reflect gains and losses on net foreign exchange transactions and the fair value of derivative instruments and are partially offset by changes to our net equity position. These gains and losses are mainly attributable to variations in the exchange rates between our subsidiaries' functional currencies (other than the US dollar) and the US dollar, in accordance with IFRS. Equity in earnings of associated companies generated a gain of US$66.5 million in the second quarter of 2009, compared to a gain of US$48.1 million in the second quarter of 2008. These gains were derived mainly from our equity investment in Ternium. Income tax charges totalled US$114.5 million in the second quarter of 2009, equivalent to 28% of income before equity in earnings of associated companies and income tax, compared to US$219.3 million in the second quarter of 2008, equivalent to 27% of income before equity in earnings of associated companies and income tax. Our tax rate for the quarter was lower than the one posted in the first quarter, as we incurred losses in subsidiaries located in countries with higher than average tax rates. The result in the second quarter of 2008 benefited from a tax reduction equivalent to US$28.3 million incurred on the reversal of deferred taxes in Italy due to the anticipated payment of taxes at a reduced rate. Results for discontinued operations generated a loss of US$20.2 million in the second quarter of 2009, related to our businesses in Venezuela that are in the process of being nationalized. In the second quarter of 2008, we registered a gain of US$398.5 million, out of which US$394.3 million were from the sale of Hydril's pressure control business. Results attributable to minority interest amounted to a loss of US$6.8 million in the second quarter of 2009, as losses were incurred at our NKKTubes subsidiary and at our Venezuelan subsidiaries, partially offset by the results at our Confab subsidiary. Second quarter 2008 minority interest amounted to US$42.6 mainly reflecting positive results at Confab and NKKTubes. Cash Flow and Liquidity Net cash provided by operations during the second quarter of 2009 was US$1.1 billion (US$1.9 billion in the first half), compared to US$274.0 million in the second quarter of 2008 (US$842.9 million in the first half). Working capital decreased by US$787.5 million during the second quarter, as we reduced our trade receivables by US$498.4 million and our inventories by US$412.9 million, which was partially offset by a decrease in trade payables and customer advances amounting to US$117.0 million. Capital expenditures amounted to US$106.5 million in the second quarter of 2009 ($226.3 million in the first half), compared to US$116.9 million in the second quarter of 2008 (US$205.4 million in the first half). During the first half of 2009, total financial debt decreased by US$1.0 billion to US$2.0 billion at June 30, 2009 from US$3.0 billion at December 31, 2008. Net financial debt during the first half of 2009 decreased by US$1.3 billion to US$121.9 million at June 30, 2009. Analysis of 2009 First Half Results Net income attributable to equity holders in the company during the first semester of 2009 was US$709.3 million, or US$0.60 per share (US$1.20 per ADS), which compares with net income attributable to equity holders in the company during the first semester of 2008 of US$1,460.5 million, or US$1.24 per share (US$2.47 per ADS). Operating income was US$1,122.4 million, or 25% of net sales during the first semester of 2009, compared to US$1,524.6 million, or 27% of net sales during the fist semester of 2008. Operating income plus depreciation and amortization for this semester was US$1,370.5 million, or 30% of net sales, compared to US$1,789.3 million, or 31% of net sales during the first semester of 2008.
Sales volume (metric tons) H1 2009 H1 2008 Increase/(Decrease) ------------------------- --------- --------- ------------------ Tubes - Seamless 1,076,000 1,457,000 (26%) Tubes - Welded 175,000 552,000 (68%) Tubes - Total 1,251,000 2,009,000 (38%) Projects - Welded 174,000 302,000 (42%) Total 1,424,000 2,311,000 (38%) Tubes H1 2009 H1 2008 Increase/(Decrease) ----- ------- ------- ------------------ (Net sales - $ million) North America 1,676.8 1,819.1 (8%) South America 494.3 528.8 (7%) Europe 484.9 928.4 (48%) Middle East & Africa 848.0 1,041.3 (19%) Far East & Oceania 305.4 363.7 (16%) Total net sales ($ million) 3,809.4 4,681.2 (19%) Cost of sales (% of sales) 55% 55% Operating income ($ million) 1,026.3 1,342.0 (24%) Operating income (% of sales) 27% 29%Net sales of tubular products and services decreased 19% to US$3,809.4 million in the first half of 2009, compared to US$4,681.2 million in the first half of 2008, due to a sharp reduction in volumes, which was partially offset by higher average selling prices, reflecting in part a higher proportion of sales of specialized high-end products.
Projects H1 2009 H1 2008 Increase/(Decrease) -------- ------- ------- ------------------ Net sales ($ million) 476.6 639.8 (26%) Cost of sales (% of sales) 72% 71% Operating income ($ million) 94.5 128.9 (27%) Operating income (% of sales) 20% 20%Net sales of pipes for pipeline projects decreased 26% to US$476.6 million in the first half of 2009, compared to US$639.8 million in the first half of 2008, reflecting lower deliveries in Brazil and Argentina to gas and other pipeline projects.
Others H1 2009 H1 2008 Increase/(Decrease) ------ ------- ------- ------------------ Net sales ($ million) 244.7 389.4 (37%) Cost of sales (% of sales) 84% 72% Operating income ($ million) 1.6 53.7 (97%) Operating income (% of sales) 1% 14%Net sales of other products and services decreased 37% to US$244.7 million in the first half of 2009, compared to US$389.4 million in the first half of 2008, mainly reflecting lower sales of welded pipes for electric conduits in the USA and sucker rods. Selling, general and administrative expenses, or SG&A, increased as a percentage of net sales to 17.3% in the semester ended June 30, 2009 compared to 15.4% in the corresponding semester of 2008, mainly due to the effect of fixed and semi-fixed expenses over lower revenues. Net interest expenses decreased to US$50.8 million in the first half of 2009 compared to US$71.4 million in the same period of 2008 reflecting a lower net debt position and lower interest rates. Other financial results recorded a loss of US$52.3 million during the first half of 2009, compared to a loss of US$9.6 million during the first half of 2008. 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$57.9 million in the first half of 2009, compared to a gain of US$98.0 million in the first half of 2008. These gains were derived mainly from our equity investment in Ternium. Income tax charges totalled US$319.6 million in the first half of 2009, equivalent to 31% of income before equity in earnings of associated companies and income tax, compared to US$428.5 million in the first half of 2008, equivalent to 30% of income before equity in earnings of associated companies and income tax. Income from discontinued operations amounted to a loss of US$28.1 million in the first half of 2009 corresponding to our Venezuelan operations that are being nationalized, compared to a gain of US$416.9 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 amounted to US$20.2 million in the first half of 2009, compared to US$69.5 million in the corresponding semester of 2008, mainly reflecting lower results at NKKTubes and at our Venezuelan 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
of U.S. dollars, unless Three-month period Six-month period
otherwise stated) ended June 30, ended June 30,
---------------------- ----------------------
2009 2008 2009 2008
---------- ---------- ---------- ----------
Continuing operations (Unaudited) (Unaudited)
Net sales 2,096,344 3,110,103 4,530,632 5,710,424
Cost of sales (1,264,899) (1,820,717) (2,628,211) (3,302,831)
---------- ---------- ---------- ----------
Gross profit 831,445 1,289,386 1,902,421 2,407,593
Selling, general and
administrative expenses (395,926) (469,669) (783,006) (878,038)
Other operating income
(expense), net 1,278 (3,708) 3,024 (4,947)
---------- ---------- ---------- ----------
Operating income 436,797 816,009 1,122,439 1,524,608
Interest income 8,163 16,493 12,737 28,681
Interest expense (24,435) (33,962) (63,582) (100,124)
Other financial results (15,907) 4,235 (52,266) (9,572)
---------- ---------- ---------- ----------
Income before equity in
earnings of associated
companies and income tax 404,618 802,775 1,019,328 1,443,593
Equity in earnings of
associated companies 66,514 48,102 57,935 97,963
---------- ---------- ---------- ----------
Income before income tax 471,132 850,877 1,077,263 1,541,556
Income tax (114,518) (219,339) (319,592) (428,464)
---------- ---------- ---------- ----------
Income for continuing
operations 356,614 631,538 757,671 1,113,092
Discontinued operations
Result for discontinued
operations (20,176) 398,497 (28,138) 416,906
---------- ---------- ---------- ----------
Income for the period 336,438 1,030,035 729,533 1,529,998
Attributable to:
Equity holders of the
Company 343,268 987,471 709,315 1,460,514
Minority interest (6,830) 42,564 20,218 69,484
---------- ---------- ---------- ----------
336,438 1,030,035 729,533 1,529,998
---------- ---------- ---------- ----------
Consolidated Condensed Interim Statement of Financial Position
(all amounts in thousands
of U.S. dollars) At June 30, 2009 At December 31, 2008
----------------------- ----------------------
(Unaudited)
ASSETS
Non-current assets
Property, plant and
equipment, net 3,122,122 2,982,871
Intangible assets, net 3,736,821 3,826,987
Investments in associated
companies 575,628 527,007
Other investments 29,488 38,355
Deferred tax assets 217,686 390,323
Receivables 84,595 7,766,340 82,752 7,848,295
----------- -----------
Current assets
Inventories 2,150,785 3,091,401
Receivables and
prepayments 228,791 251,481
Current tax assets 203,244 201,607
Trade receivables 1,536,984 2,123,296
Available for sale assets 21,572 -
Other investments 273,450 45,863
Cash and cash equivalents 1,622,908 6,037,734 1,538,769 7,252,417
----------- -----------
----------- -----------
Total assets 13,804,074 15,100,712
EQUITY
Capital and reserves
attributable to the
Company’s equity holders 8,637,036 8,176,571
Minority interest 569,535 525,316
----------- -----------
Total equity 9,206,571 8,701,887
LIABILITIES
Non-current liabilities
Borrowings 998,251 1,241,048
Deferred tax liabilities 867,000 1,053,838
Other liabilities 209,365 223,142
Provisions 79,470 89,526
Trade payables 2,418 2,156,504 1,254 2,608,808
----------- -----------
Current liabilities
Borrowings 1,019,972 1,735,967
Current tax liabilities 333,638 610,313
Other liabilities 247,478 242,620
Provisions 51,385 28,511
Customer advances 256,922 275,815
Trade payables 531,604 2,440,999 896,791 3,790,017
----------- -----------
Total liabilities 4,597,503 6,398,825
Total equity and
liabilities 13,804,074 15,100,712
Consolidated Condensed Interim Cash Flow Statement (Unaudited)
Three-month period ended Six-month period ended
(all amounts in June 30, June 30,
thousands of U.S. ------------------------ ------------------------
dollars) 2009 2008 2009 2008
----------- ----------- ----------- -----------
Cash flows from
operating activities
Income for the period 336,438 1,030,035 729,533 1,529,998
Adjustments for:
Depreciation and
amortization 126,320 134,390 248,061 268,873
Income tax accruals
less payments (179,194) (17,791) (329,690) 89,747
Equity in earnings of
associated companies (65,532) (48,102) (57,073) (98,096)
Income from the sale of
pressure control
business - (394,323) (394,323)
Interest accruals less
payments, net (47,865) (62,202) (23,698) (7,894)
Changes in provisions 25,675 7,747 14,200 15,243
Changes in working
capital 787,515 (326,894) 1,175,460 (545,614)
Other, including
currency translation
adjustment 127,781 (48,874) 117,792 (15,017)
----------- ----------- ----------- -----------
Net cash provided by
operating activities 1,111,138 273,986 1,874,585 842,917
----------- ----------- ----------- -----------
Cash flows from
investing activities
Capital expenditures (106,506) (116,911) (226,335) (205,366)
Acquisitions of
subsidiaries and
minority interest (67,593) (839) (73,535) (1,865)
Proceeds from the sale
of pressure control
business 1,113,805 1,113,805
Proceeds from disposal
of property, plant and
equipment and
intangible assets 7,749 3,819 10,328 8,826
Investments in short
terms securities (210,337) (216,483) (227,587) (264,401)
Dividends received 4,283 13,636 5,223 13,636
Other - - - (3,428)
----------- ----------- ----------- -----------
Net cash (used in)
provided by investing
activities (372,404) 797,027 (511,906) 661,207
----------- ----------- ----------- -----------
Cash flows from
financing activities
Dividends paid (354,161) (295,134) (354,161) (295,134)
Dividends paid to
minority interest in
subsidiaries (27,176) (55,136) (27,176) (55,136)
Proceeds from
borrowings 69,096 299,701 263,841 430,088
Repayments of
borrowings (808,801) (842,478) (1,149,484) (1,332,755)
----------- ----------- ----------- -----------
Net cash used in
financing activities (1,121,042) (893,047) (1,266,980) (1,252,937)
----------- ----------- ----------- -----------
(Decrease) Increase in
cash and cash
equivalents (382,308) 177,966 95,699 251,187
Movement in cash and
cash equivalents
At the beginning of the
period 1,968,707 1,072,985 1,525,022 954,303
Effect of exchange rate
changes 31,992 68,098 (2,330) 113,559
Decrease due to
deconsolidation (9,696) - (9,696) -
Increase in cash and
cash equivalents (382,308) 177,966 95,699 251,187
At June 30, 1,608,695 1,319,049 1,608,695 1,319,049
Cash and cash
equivalents At June 30, At June 30,
------------------------ ------------------------
2009 2008 2009 2008
Cash and bank deposits 1,622,908 1,337,838 1,622,908 1,337,838
Bank overdrafts (14,213) (18,789) (14,213) (18,789)
1,608,695 1,319,049 1,608,695 1,319,049
Contact Information: Contact: Giovanni Sardagna Tenaris 1-888-300-5432 www.tenaris.com