Tenaris S.A. announced its results for the quarter and semester ended 30 June 2012 with comparison to its results for the quarter and semester ended 30 June 2011.
Summary of 2012 Second Quarter Results
The company's results during the second quarter continued to improve as net sales rose sequentially and it consolidated the margin improvements it made in the first quarter. Higher sales of premium products for deepwater operations in the Gulf of Mexico and Brazil and in the Eastern Hemisphere regions, as well as a partial recovery of line pipe shipments in Brazil, more than offset the impact of seasonally lower sales in Canada.
Cash flow from operations remains strong and amounted to US$414.5 million for the quarter. However, Tenaris ended the quarter with a net debt position (total borrowings less cash and other current investments) of US$540.5 million, after the acquisition of Confab’s non-controlling interests for US$758.5 million, the payment of US$295.1 million in dividends and capital expenditures of US$204.5 million.
Market Background and Outlook
Global demand for energy, in spite of the deteriorating economic climate in Europe, remains stable and energy companies are maintaining their programs in exploration and production activity for 2012. Demand for tubular products for complex applications is growing as investments take place in more difficult and unconventional operating environments.
With the recent volatility in oil prices and continuing low natural gas prices, drilling activity in North America is expected to decline by the end of the year, as lower gas drilling is not likely to be compensated by additional oil drilling. In the rest of the world, drilling activity should continue to increase led by the growth in the development of deepwater and unconventional reserves as well as complex conventional gas drilling.
In the second half of the year, sales to oil and gas customers, particularly in South America and in the Eastern Hemisphere, are expected to increase, while sales to the industrial markets will decline reflecting the slowdown in industrial activity, particularly in Europe.
Operating margins for the rest of 2012 are expected to remain close to current levels as mix improvements, lower raw material costs and increased efficiency in our industrial system offset the impact of lower prices in less differentiated segments.
Sales and operating income are expected to continue to show solid year on year growth during the remainder of the year but third quarter results will be affected by seasonal factors.
Analysis of 2012 Second Quarter Results
Net sales of tubular products and services increased 6% sequentially and 21% year on year. In North America, higher sequential sales in the U.S., particularly in the Gulf of Mexico, and Mexico were offset by a seasonal reduction in sales in Canada. In South America, sales increased sequentially due primarily to higher shipments in Venezuela. In Europe, sales of OCTG products increased while sales to European distributors remain weak. In the Middle East & Africa, the sequential increase in sales was due to an improvement in the product mix and a strong level of shipments to Iraq. In the Far East & Oceania, higher sales of OCTG in China offset lower sales of other products in the region.
Operating income from tubular products and services increased 8% sequentially and 72% year on year. The sequential increase in operating income was mainly attributable to the increase in sales and a slight increase in the operating margin.
Projects net sales amounted to US$187.8 million in the second quarter of 2012, an increase of 34% sequentially and a decrease of 12% relative to the second quarter of 2011. Sequentially, the increase in sales was due primarily to an increase in shipments of line pipe to projects in Brazil following low deliveries in the previous quarter.
Operating income from Projects increased 82%, reflecting an increase in net sales and higher operating margins.
Net sales of other products and services amounted to US$196.0 million in the second quarter of 2012, an increase of 4% sequentially and 2% relative to the second quarter of 2011. Despite the sequential increase in sales, mainly attributable to higher sales of sucker rods, operating income decrease due to lower operating margins.
Analysis of 2012 First Half Results
Net income attributable to equity holders in the company during the first semester of 2012 was US$904.9 million, or US$0.77 per share (US$1.53 per ADS), which compares with net income attributable to equity holders in the Company during the first semester of 2011 of US$606.6 million, or US$0.51 per share (US$1.03 per ADS). Operating income was US$1,187.1 million, or 22% of net sales during the first semester of 2012, compared to US$838.4 million, or 18% of net sales during the first semester of 2011. Operating income plus depreciation and amortization for the first semester of 2012, was US$1,463.0 million, or 27% of net sales, compared to US$1,103.8 million, or 23% of net sales during the first semester of 2011.
Net sales of tubular products and services increased 19% to US$4,706.4 million in the first half of 2012, compared to US$3,965.1 million in the first half of 2011, reflecting a 10% increase in volumes and an 8% increase in average selling prices.
Cost of sales of tubular products and services, expressed as a percentage of net sales, decreased from 62% in the first half of 2011, to 60% in the first half of 2012, as tubes price increases offset the increase in raw material costs that took place in the first half of 2011.
Operating income from tubular products and services increased 56% to US$1,056.7 million in the first half of 2012, from US$678.7 million in the first half of 2011, due to a 19% increase in sales and an increase of 5 percentage points in the operating margin, due to lower cost of sales as a percentage of sales (60% in first half 2012 vs. 62% in first half 2011) and lower SG&A as a percentage of sales (18% in first half 2012 vs. 21% in first half 2011), due to a better absorption of fixed and semi-fixed expenses on higher sales.
Net sales of other products and services increased 3% to US$384.6 million in the first half of 2012, compared to US$374.6 million in the first half of 2011, mainly due to higher sales of sucker rods.
Operating income from other products and services decreased to US$57.0 million in the first half of 2012, compared to US$76.4 million during the first half of 2011, as the increase in sales was offset by a lower operating margin.
Headquartered in Luxembourg, Tenaris is a leading global manufacturer and supplier of steel pipe products and services for the world's energy industry and for all other industrial applications. Its customers include most of the world's leading oil and gas companies as well as engineering companies engaged in constructing oil and gas gathering, transportation, processing and power generation facilities. Its principal products include casing, tubing, line pipe, and mechanical and structural pipes.