Q1 2008 Q4 2007 Q1 2007
------- ---------------- --------------
Net sales (US$ million) 2,626.2 2,628.0 (0%) 2,425.3 8%
Operating income (US$ million) 710.9 756.7 (6%) 757.6 (6%)
Net income (US$ million) 500.0 595.8 (16%) 509.4 (2%)
Shareholders’ net income (US$
million) 473.0 546.5 (13%) 480.3 (2%)
Earnings per ADS (US$) 0.80 0.93 (13%) 0.81 (2%)
Earnings per share (US$) 0.40 0.46 (13%) 0.41 (2%)
EBITDA (US$ million) 845.4 890.9 (5%) 858.1 (1%)
EBITDA margin (% of net sales) 32% 34% 35%
Our earnings per share in the first quarter of 2008 were marginally lower
than that recorded in the first quarter of 2007. At the operating level,
our results reflect lower shipments of seamless pipe products in the Middle
East and Africa region partially offset by higher demand for our welded
pipe products in North America and in our Projects segment. Margins in
dollars per ton for our seamless and welded pipe products remained stable
compared to the fourth quarter of 2007 notwithstanding higher costs. Free
cash flow (net cash provided by operations less capital expenditures)
totaled US$480.5 million during the quarter, and net debt declined to
US$2,501.2 million as of March 31, 2008.
Market Background and Outlook
In the first quarter of 2008, global oil prices continued to rise
reflecting steady global demand and concerns about supply. North American
gas prices also rose reflecting a tighter market as seasonally adjusted
storage levels declined from the high levels of the past two years. Despite
the recent increase in North American gas prices, they remain below
international prices for LNG and residual fuel oil as US gas production has
increased in line with demand.
Oil and gas companies continue to increase their level of spending and
drilling activity to offset declining rates of production from mature
fields and to explore and develop new reserves. However, the supply-side
response to high international oil and gas prices is constrained by limited
industry resources, restrictions on the access to the majority of the
world's known reserves and the time needed to develop significant new
reserves.
The international count of active drilling rigs, as published by Baker
Hughes, averaged 1046 during the first quarter of 2008, an increase of 7%
compared to the same quarter of the previous year and 3% higher than the
fourth quarter of 2007. The corresponding rig count in USA, which is more
sensitive to North American gas prices, was 2% higher in the first quarter
of 2008 than the same quarter of the previous year but registered a 1%
decline compared to the fourth quarter of 2007. In Canada, however, the
corresponding rig count during the first quarter of 2008 was 5% lower than
in the first quarter of 2007.
Demand for our OCTG and other pipe products from the oil and gas industry
is expected to increase this year, particularly in North America following
last year's destocking by U.S. distributors. However, inventory adjustments
will continue to affect some markets and competitive activity is increasing
in many areas reflecting higher capacity availability.
Demand for our large diameter pipes for pipeline projects in South America
remains good as we continue to make deliveries to previously contracted gas
pipeline infrastructure projects in Brazil and Argentina. Orders for new
projects in Brazil and Colombia have been received and we expect to
maintain a strong level of sales in this segment in 2008.
Steelmaking raw material costs for our seamless pipe products and steel
costs for our welded pipe products have risen steeply in the year to date
and are expected to go on rising in the near term. Energy and labor costs
are also increasing. Pipe prices, are also rising, though not at the same
pace across all markets. We expect that, over time, we will maintain our
margins in dollars per ton notwithstanding the increased volatility in
costs.
Annual Shareholders Assembly
The annual general shareholders' meeting of the Company will take place at
11:00 am on June 4, 2008 in Luxembourg. The notice and agenda for the
meeting, the shareholder meeting brochure and proxy statement together with
the Company's 2007 annual report can be downloaded from our website at
www.tenaris.com/investors and may be obtained on request by calling
1-800-555-2470 (within the USA) or + 1-267-468-0786 (outside the USA).
Analysis of 2008 First Quarter Results
Increase/
Sales volume (metric tons) Q1 2008 Q1 2007 (Decrease)
------------ ------------ ----------
Tubes - Seamless 691,000 746,000 (7%)
Tubes - Welded 282,000 252,000 12%
Tubes - Total 973,000 998,000 (3%)
Projects - Welded 132,000 75,000 76%
Total 1,105,000 1,073,000 3%
Increase/
Tubes Q1 2008 Q1 2007 (Decrease)
----------- ----------- ----------
(Net sales - $ million)
North America 832.6 727.8 14%
South America 238.2 260.5 (9%)-
Europe 447.6 418.7 7%
Middle East & Africa 475.7 580.0 (18%)
Far East & Oceania 176.6 157.7 12%
Total net sales ($ million) 2,170.7 2,144.7 1%
Cost of sales (% of sales) 54% 50%
Operating income ($ million) 637.4 722.0 (12%)
Operating income (% of sales) 29% 34%
Net sales of tubular products and services rose 1% to US$2,170.7 million in
the first quarter of 2008, compared to US$2,144.7 million in the first
quarter of 2007, as an increase in our average selling price for tubular
products and services and an increase in sales volume of welded pipe
products offset a 7% decline in sales volume of seamless pipe products.
Sales rose in North America, where there was a recovery in demand in USA
following a period of inventory destocking but demand in Canada continued
to be affected by lower drilling activity. Sales in South America declined
due primarily to lower sales in Ecuador. Sales in the Middle East and
Africa declined as sales of OCTG products were lower throughout the region.
Increase/
Projects Q1 2008 Q1 2007 (Decrease)
----------- ----------- ----------
Net sales ($ million) 271.7 124.4 118%
Cost of sales (% of sales) 72% 66%
Operating income ($ million) 51.3 26.3 95%
Operating income (% of sales) 19% 21%
Net sales of pipes for pipeline projects rose 118% to US$271.7 million in
the first quarter of 2008, compared to US$124.4 million in the first
quarter of 2007, reflecting a relatively high level of deliveries to gas
and other pipeline projects in Brazil and deliveries to the loops expansion
project in Argentina.
Increase/
Others Q1 2008 Q1 2007 (Decrease)
----------- ----------- ----------
Net sales ($ million) 183.8 156.2 18%
Cost of sales (% of sales) 73% 82%
Operating income ($ million) 22.2 9.3 140%
Operating income (% of sales) 12% 6%
Net sales of other products and services rose 18% to US$183.8 million in
the first quarter of 2008, compared to US$156.2 million in the first
quarter of 2007, led by higher sales of electric conduit pipes.
Selling, general and administrative expenses, or SG&A, increased as a
percentage of net sales to 15.7% in the quarter ended March 31, 2008
compared to 15.4% in the corresponding quarter of 2007 due to an increase
in amortization expenses following the incorporation of Hydril.
Amortization of customer relationships and other intangibles acquired with
Hydril amounted to US$20.3 million in the quarter, or 0.8% of net sales.
Net interest expense rose to US$54.8 million in the first quarter of 2008
compared to a net interest expense of US$35.5 million in the same period of
2007 reflecting an increased net debt position following the Hydril
acquisition.
Other financial results contributed a loss of US$14.3 million during the
first quarter of 2008, compared to a loss of US$13.0 million during the
first quarter of 2007.
Equity in earnings of associated companies generated a gain of US$50.0
million in the first quarter of 2008, compared to a gain of US$25.9 million
in the first quarter of 2007. These gains were derived mainly from our
equity investment in Ternium (
Consolidated Condensed Interim Income Statement
(all amounts in thousands of U.S. dollars, Three-month period ended
unless otherwise stated) March 31,
--------------------------
2008 2007
------------ ------------
Continuing operations (Unaudited)
Net sales 2,626,187 2,425,299
Cost of sales (1,500,689) (1,291,498)
------------ ------------
Gross profit 1,125,498 1,133,801
Selling, general and administrative expenses (413,594) (374,267)
Other operating income (expense), net (991) (1,937)
------------ ------------
Operating income 710,913 757,597
Interest income 12,269 22,191
Interest expense (67,092) (57,727)
Other financial results (14,302) (13,043)
------------ ------------
Income before equity in earnings of associated
companies and income tax 641,788 709,018
Equity in earnings of associated companies 49,994 25,907
------------ ------------
Income before income tax 691,782 734,925
Income tax (208,606) (225,531)
------------ ------------
Income for continuing operations 483,176 509,394
Discontinued operations
Income for discontinued operations 16,787 -
------------ ------------
Income for the period 499,963 509,394
------------ ------------
Attributable to:
Equity holders of the Company 473,043 480,304
Minority interest 26,920 29,090
------------ ------------
499,963 509,394
============ ============
Consolidated Condensed Interim Balance Sheet
(all amounts in thousands of
U.S. dollars) At March 31, 2008 At December 31, 2007
--------------------- ---------------------
(Unaudited)
ASSETS
Non-current assets
Property, plant and
equipment, net 3,350,197 3,269,007
Intangible assets, net 4,469,360 4,542,352
Investments in associated
companies 562,691 509,354
Other investments 35,138 35,503
Deferred tax assets 313,149 310,590
Receivables 56,917 8,787,452 63,738 8,730,544
---------- ----------
Current assets
Inventories 2,748,654 2,598,856
Receivables and prepayments 203,859 222,410
Current tax assets 200,602 242,757
Trade receivables 1,809,803 1,748,833
Other investments 135,448 87,530
Cash and cash equivalents 1,080,555 6,178,921 962,497 5,862,883
---------- ----------
Current and non current assets
held for sale 650,698 651,160
---------- ----------
6,829,619 6,514,043
Total assets 15,617,071 15,244,587
EQUITY
Capital and reserves
attributable to the Company’s
equity holders
Share capital 1,180,537 1,180,537
Legal reserves 118,054 118,054
Share premium 609,733 609,733
Currency translation
adjustments 345,984 266,049
Other reserves 20,132 18,203
Retained earnings 5,286,744 7,561,184 4,813,701 7,006,277
---------- ----------
Minority interest 576,793 523,573
---------- ----------
Total equity 8,137,977 7,529,850
========== ==========
LIABILITIES
Non-current liabilities
Borrowings 2,753,441 2,869,466
Deferred tax liabilities 1,224,758 1,233,836
Other liabilities 197,898 185,410
Provisions 96,329 97,912
Trade payables 32 4,272,458 47 4,386,671
---------- ----------
Current liabilities
Borrowings 963,773 1,150,779
Current tax liabilities 426,381 341,028
Other liabilities 272,771 252,204
Provisions 28,421 19,342
Customer advances 375,569 449,829
Trade payables 869,846 2,936,761 847,842 3,061,024
---------- ----------
Liabilities associated with
current and non-current
assets held for sale 269,875 267,042
---------- ----------
3,206,636 3,328,066
Total liabilities 7,479,094 7,714,737
Total equity and liabilities 15,617,071 15,244,587
Consolidated Condensed Interim Cash Flow Statement
Three-month period ended
March 31,
--------------------------
(all amounts in thousands of U.S. dollars) 2008 2007
------------ ------------
(Unaudited)
Cash flows from operating activities
Income for the period 499,963 509,394
Adjustments for:
Depreciation and amortization 134,483 100,487
Income tax accruals less payments 107,538 125,377
Equity in earnings of associated companies (49,994) (25,907)
Interest accruals less payments, net 54,308 45,429
Changes in provisions 7,496 (7,230)
Changes in working capital (218,720) (90,519)
Other, including currency translation
adjustment 33,857 31,243
------------ ------------
Net cash provided by operating activities 568,931 688,274
============ ============
Cash flows from investing activities
Capital expenditures (88,455) (119,912)
Acquisitions of subsidiaries and minority
interest (1,026) (1,750)
Decrease in subsidiaries - (1,195)
Proceeds from disposal of property, plant and
equipment and intangible assets 5,007 2,693
Investments in short terms securities (47,918) (5,084)
Other (3,428) -
------------ ------------
Net cash used in investing activities (135,820) (125,248)
============ ============
Cash flows from financing activities
Dividends paid to minority interest in
subsidiaries - (3,359)
Proceeds from borrowings 130,387 48,174
Repayments of borrowings (490,277) (360,899)
------------ ------------
Net cash used in financing activities (359,890) (316,084)
============ ============
============ ============
Increase in cash and cash equivalents 73,221 246,942
============ ============
Movement in cash and cash equivalents
At the beginning of the period 954,303 1,365,008
Effect of exchange rate changes 45,461 2,736
Increase in cash and cash equivalents 73,221 246,942
At March 31, 1,072,985 1,614,686
Cash and cash equivalents At March 31,
--------------------------
2008 2007
------------ ------------
Cash and bank deposits 1,080,555 1,634,812
Bank overdrafts (7,570) (20,105)
Restricted bank deposits - (21)
1,072,985 1,614,686
Contact Information: Nigel Worsnop Tenaris 1-888-300-5432 www.tenaris.com