Tenaris Announces 2012 First Quarter Results

The Financial and Operational Information Contained in This Press Release Is Based on Unaudited Consolidated Financial Statements Presented in U.S. Dollars and Prepared in Accordance With International Financial Reporting Standards as Issued by the International Accounting Standard Board and Adopted by the European Union, or IFRS

Marketwired

LUXEMBOURG--(Marketwire -04/26/12)- Tenaris S.A. (TS - News) (TS.BA - News) (TS.MX - News) (TEN.MI - News) ("Tenaris") today announced its results for the quarter ended March 31, 2012 in comparison with its results for the quarter ended March 31, 2011.

Summary of 2012 First Quarter Results

(Comparison with fourth and first quarters of 2011)

 

Q1 2012 Q4 2011 Q1 2011
Net sales (US$ million) 2,617.3 2,750.6 (5%) 2,324.0 13%
Operating income (1) (US$ million) 566.2 538.0 5% 428.6 32%
Net income (US$ million) 453.4 426.3 6% 324.2 40%
Shareholders' net income (US$ million) 443.8 399.6 11% 319.4 39%
Earnings per ADS (US$) 0.75 0.68 11% 0.54 39%
Earnings per share (US$) 0.38 0.34 11% 0.27 39%
EBITDA (1) (US$ million) 704.4 691.9 2% 558.0 26%
EBITDA margin (% of net sales) 27% 25% 24%

(1) Effective January 1, 2012, we recorded the Mexican employee statutory profit sharing provision (US$14.1 million in IQ 2012), under labor costs instead of recording it in the income tax line. Comparative amounts have been reclassified to conform to changes in presentation in the current period (lower operating income offset by lower income tax amounting to US$17.7 million in IVQ 2011 and US$12.9 million in IQ2011).

Our first quarter sales decreased 5% sequentially as sales were impacted by lower line pipe shipments for HPI and pipeline projects and we had lower OCTG shipments in Colombia and Saudi Arabia. However, our EBITDA and operating margins continued to improve reflecting lower raw material costs and plant allocation efficiencies. Operating income rose 5% sequentially and earnings per share rose 11% sequentially and 39% year on year.

Cash provided by operating activities reached US$605 million during the quarter and, after investing US$505 million in Usiminas and US$196 million in capital expenditures, our net cash position (cash and other current investments less total borrowings) decreased by US$65 million ending the quarter at US$259 million.

Change in Functional Currency of Mexican, Canadian and Japanese Subsidiaries

Starting January 1, 2012, the Company changed the functional currency of its Mexican, Canadian and Japanese subsidiaries, from their respective local currencies to the U.S. dollar. From that date forward, the results of these subsidiaries have been and will be measured in U.S. dollars.

Market Background and Outlook

Global demand for energy, in spite of the difficult economic situation in Europe and unusually warm winter in the USA, continues to rise and energy companies are increasing their investments in exploration and production activity. Demand for tubular products for complex applications is growing at a faster pace than that for standard applications as investments are taking place in more difficult operating environments.

Drilling activity is expected to remain stable this year in North America, as higher oil drilling offsets lower gas drilling. In the rest of the world, it is expected to increase supported by current oil and gas prices and led by growth in the development of deepwater and unconventional reserves as well as complex conventional gas drilling.

Sales to oil and gas customers, particularly of premium products, are expected to increase during the year but sales to HPI, power generation and industrial customers in Europe will continue to be affected by weak economic activity.

Average selling prices may increase due to product mix improvements but operating margins are expected to remain close to current levels during the rest of 2012.

Sales and operating income are expected to continue to show strong year on year growth during the remainder of the year.

Analysis of 2012 First Quarter Results

 


Sales volume (metric tons) Q1 2012 Q4 2011 Q1 2011
Tubes - Seamless 664,000 709,000 (6%) 621,000 7%
Tubes - Welded 251,000 234,000 7% 233,000 8%
Tubes - Total 915,000 943,000 (3%) 854,000 7%
Projects - Welded 43,000 71,000 (39%) 75,000 (43%)
Total 958,000 1,014,000 (6%) 929,000 3%



Tubes Q1 2012 Q4 2011 Q1 2011
(Net sales - $ million)
North America 1,289.2 1,174.0 10% 978.5 32%
South America 323.2 360.1 (10%) 318.2 2%
Europe 263.1 268.0 (2%) 243.8 8%
Middle East & Africa 284.8 389.1 (27%) 297.8 (4%)
Far East & Oceania 128.5 174.7 (26%) 129.0 (0%)
Total net sales ($ million) 2,288.7 2,365.9 (3%) 1,967.3 16%
Cost of sales (% of sales) 60% 62% 61%
Operating income ($ million) 508.6 477.8 6% 359.2 42%
Operating income (% of sales) 22% 20% 18%

Net sales of tubular products and services decreased 3% sequentially but increased 16% year on year. In North America, sales rose sequentially in Canada and the United States. In South America, sales decreased sequentially due principally to lower OCTG shipments in Colombia where activity has been affected by rig movements and contract discussions. In Europe, sales remained flat as demand from distributors for industrial and line pipe products continues to be weak due to low economic activity. In the Middle East & Africa, sales decreased sequentially mainly due to lower OCTG sales to Saudi Arabia and lower sales to HPI projects. In the Far East & Oceania sales decreased sequentially mainly due to lower line pipe shipments and lower OCTG sales to China.

Operating income from tubular products and services increased 6% sequentially, despite the decrease in sales, as the operating margin increased 2 percentage points, reflecting lower raw material costs and plant allocation efficiencies.

 

Projects Q1 2012 Q4 2011 Q1 2011
Net sales ($ million) 140.1 186.0 (25%) 175.0 (20%)
Cost of sales (% of sales) 67% 71% 69%
Operating income ($ million) 26.1 28.3 (8%) 31.8 (18%)
Operating income (% of sales) 19% 15% 18%

Projects net sales amounted to US$140.1 million in the first quarter of 2012, compared to US$186.0 million in the previous quarter and US$175.0 million in the first quarter of 2011. Sequentially, the 25% decrease in revenues reflected a 40% decrease in shipments, due to lower shipments to pipeline projects in Brazil, Argentina and Peru, partially offset by a 25% increase in average selling prices due to a better product mix, which was also reflected in the improvement in the operating margin.

 

Others Q1 2012 Q4 2011 Q1 2011
Net sales ($ million) 188.6 198.6 (5%) 181.7 4%
Cost of sales (% of sales) 71% 72% 68%
Operating income ($ million) 31.5 32.0 (2%) 37.5 (16%)
Operating income (% of sales) 17% 16% 21%

Net sales of other products and services amounted to US$188.6 million in the first quarter of 2012, 5% lower sequentially and 4% higher relative to the first quarter of 2011. The sequential decrease in sales and operating income was mainly due to lower sales of industrial equipment in Brazil, partially offset by higher sales of sucker rods and of pipes for electric conduits.

Selling, general and administrative expenses, or SG&A, amounted to 17.0% of net sales in the first quarter of 2012, compared to 17.3% in the previous quarter and 19.4% in the first quarter of 2011. In absolute terms, SG&A also decreased, amounting to US$444.1 million in the first quarter of 2012, compared to US$474.8 million in the previous quarter and US$451.3 million in the first quarter of 2011. The sequential decrease was due to lower amortization of intangible assets, lower selling expenses (due to a decrease in volumes and a recovery of previously provisioned doubtful accounts), partially offset by higher labor costs.

Net interest expenses amounted to US$0.3 million in the first quarter of 2012, compared to US$2.0 million in the previous quarter and US$5.4 million in the first quarter of 2011.

Other financial results generated a gain of US$13.1 million during the first quarter of 2012, compared to a loss of US$5.4 million in the previous quarter and a gain of US$1.1 million during the first quarter of 2011. These results largely reflect gains and losses on net foreign exchange transactions and the fair value of derivative instruments and are partially offset by changes to our net equity position. These gains and losses are mainly attributable to variations in the exchange rates between our subsidiaries' functional currencies (other than the US dollar) and the US dollar in accordance with IFRS. During the first quarter of 2012, these gains were mainly derived from the strengthening of the Brazilian real (+2.9%) on a U.S. dollar denominated debt position in Brazil.

Equity in earnings of associated companies generated a gain of US$19.2 million in the first quarter of 2012, compared to a gain of US$13.0 million in the previous quarter and a gain of US$24.3 million in the first quarter of 2011. These results were derived mainly from our equity investment in Ternium (TX - News).

Income tax charges totaled US$144.7 million in the first quarter of 2012, equivalent to 25% of income before equity in earnings of associated companies and income tax, compared to 21% in the previous quarter and 28% in the first quarter of 2011.

Income attributable to non-controlling interests amounted to US$9.6 million in the first quarter of 2012, compared to US$26.8 million in the previous quarter and US$4.8 million in the first quarter of 2011. The sequential decrease is mainly due to losses at our Japanese subsidiary during the quarter.

Cash Flow and Liquidity

Net cash provided by operations during the first quarter of 2012 was US$604.7 million, compared to US$456.2 million in the previous quarter and US$165.7 million in the first quarter of 2011.

Capital expenditures amounted to US$196.4 million for the first quarter of 2012, compared to US$188.7 million in the previous quarter and US$210.6 million in the first quarter of 2011. In addition, during the quarter we invested US$504.6 million in Usiminas.

At the end of the quarter, our net cash position (cash and other current investments less total borrowings) amounted to US$258.6 million.

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.

 



Consolidated Condensed Interim Income Statement

Three-month period
(all amounts in thousands of U.S. dollars) ended March 31,
2012 2011
------------- -------------
Continuing operations Unaudited
Net sales 2,617,349 2,323,965
Cost of sales (1,611,097) (1,445,679)
------------- -------------
Gross profit 1,006,252 878,286
Selling, general and administrative expenses (444,143) (451,329)
Other operating income (expenses) net 4,092 1,621
------------- -------------
Operating income 566,201 428,578
Interest income 9,583 7,687
Interest expense (9,925) (13,041)
Other financial results 13,081 1,058
------------- -------------
Income before equity in earnings of associated
companies and income tax 578,940 424,282
Equity in earnings of associated companies 19,162 24,285
------------- -------------
Income before income tax 598,102 448,567
Income tax (144,674) (124,370)
------------- -------------
Income for the period / year 453,428 324,197
============= =============

Attributable to:
Equity holders of the Company 443,840 319,374
Non-controlling interests 9,588 4,823
------------- -------------
453,428 324,197
============= =============



Consolidated Condensed Interim Statement of Financial Position

(all amounts in thousands of U.S. dollars)
-------------------- --------------------
At March 31, 2012 At December 31, 2011
-------------------- --------------------
Unaudited
ASSETS
Non-current assets
Property, plant and equipment,
net 4,184,142 4,053,653
Intangible assets, net 3,330,778 3,375,930
Investments in associated
companies 1,179,985 670,248
Other investments 2,574 2,543
Deferred tax assets 236,263 234,760
Receivables 137,042 9,070,784 133,280 8,470,414
--------- ---------

Current assets
Inventories 2,864,315 2,806,409
Receivables and prepayments 273,638 241,801
Current tax assets 148,110 168,329
Trade receivables 1,957,577 1,900,591
Available for sale assets 21,572 21,572
Other investments 420,193 430,776
Cash and cash equivalents 1,076,803 6,762,208 823,743 6,393,221
--------- ---------- --------- ----------
Total assets 15,832,992 14,863,635
========== ==========

EQUITY
Capital and reserves attributable
to the Company's equity holders 10,985,560 10,506,227
Non-controlling interests 689,110 666,716
---------- ----------
Total equity 11,674,670 11,172,943
========== ==========

LIABILITIES
Non-current liabilities
Borrowings 425,139 149,775
Deferred tax liabilities 797,324 828,545
Other liabilities 231,009 233,653
Provisions 74,353 72,975
Trade payables 1,727 1,529,552 2,045 1,286,993
--------- ---------

Current liabilities
Borrowings 813,255 781,101
Current tax liabilities 386,261 326,480
Other liabilities 336,782 305,214
Provisions 24,096 33,605
Customer advances 156,888 55,564
Trade payables 911,488 2,628,770 901,735 2,403,699
--------- ---------- --------- ----------
Total liabilities 4,158,322 3,690,692
========== ==========
Total equity and liabilities 15,832,992 14,863,635
========== ==========




Consolidated Condensed Interim Statement of Cash Flows

--------------------------
Three-month period
ended March 31,
--------------------------
(all amounts in thousands of U.S. dollars) 2012 2011
------------ ------------
Unaudited
Cash flows from operating activities
Income for the period 453,428 324,197
Adjustments for:
Depreciation and amortization 138,159 129,384
Income tax accruals less payments 49,495 31,760
Equity in earnings of associated companies (19,162) (24,285)
Interest accruals less payments, net (18,293) (14,038)
Changes in provisions (8,131) 18,017
Changes in working capital (5,036) (379,990)
Other, including currency translation adjustment 14,237 80,610
------------ ------------
Net cash provided by operating activities 604,697 165,655
============ ============

Cash flows from investing activities
Capital expenditures (196,395) (210,620)
Acquisitions of subsidiaries and associated
companies (504,597) -
Proceeds from disposal of property, plant and
equipment and intangible assets 4,772 1,255
Changes in investments in short term securities 10,583 10,952
------------ ------------
Net cash used in investing activities (685,637) (198,413)
============ ============

Cash flows from financing activities

Dividends paid to non-controlling interest in
subsidiaries (905) -
Acquisitions of non-controlling interests (12) (5,050)
Proceeds from borrowings 545,779 309,280
Repayments of borrowings (237,103) (231,530)
------------ ------------
Net cash provided by financing activities 307,759 72,700
============ ============

------------------------------------------------ ============ ============
Increase in cash and cash equivalents 226,819 39,942
------------------------------------------------ ============ ============

Movement in cash and cash equivalents
At the beginning of the period 815,032 820,165
Effect of exchange rate changes 18,708 5,121
Increase in cash and cash equivalents 226,819 39,942
------------ ------------
At March 31, 1,060,559 865,228
============ ============

At March 31,
Cash and cash equivalents 2012 2011
Cash and bank deposits 1,076,803 903,814
Bank overdrafts (16,244) (38,586)
------------ ------------
1,060,559 865,228
============ ============

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

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