Tenaris S.A. Form 6-K Summary
Business Context and Reporting Period
This Form 6-K, filed on April 27, 2010, furnishes the notice of the Annual General Meeting of Shareholders scheduled for June 2, 2010, along with the 2009 Annual Report. Tenaris S.A. is a leading global supplier of steel pipe products and related services for the energy industry. The financial data presented covers the fiscal year ended December 31, 2009, compared to the prior year ended December 31, 2008.
Key Financial Metrics (Year Ended Dec 31, 2009)
| Metric | 2009 (US$ Millions) | 2008 (US$ Millions) |
|---|---|---|
| Net Sales | 8,149 | 11,988 |
| Operating Income | 1,814 | 3,126 |
| EBITDA | 2,318 | 4,044 |
| Net Income | 1,208 | 2,276 |
| Cash Flow from Operations | 3,064 | 1,465 |
| Capital Expenditures | 461 | 443 |
| Total Financial Debt | 1,447 | 2,977 |
| Net Financial Debt / (Cash) | (676) | 1,392 |
| Earnings Per Share (Basic/Diluted) | $0.98 | $1.80 |
Material Changes vs. Prior Period
- Revenue Decline: Net sales decreased 32% to $8.1 billion, driven by a 41% drop in pipe shipments due to the global economic crisis and inventory adjustments in the oil and gas sector.
- Profitability: Operating income fell 42% to $1.8 billion. However, the 2009 results did not include the $502.9 million impairment charge recorded in 2008 related to North American operations.
- Balance Sheet Strengthening: The company significantly reduced its debt load, decreasing total financial debt by $1.5 billion. Tenaris moved from a net debt position of $1.4 billion in 2008 to a net cash position of $0.7 billion in 2009.
- Operational Efficiency: Despite lower volumes, cash flow from operations more than doubled to $3.1 billion, primarily due to a $1.7 billion reduction in working capital (lower inventories and receivables).
- Discontinued Operations: Results from Venezuelan subsidiaries (Tavsa and Matesi), which were nationalized in 2009, are reported as discontinued operations, resulting in a loss of $28.1 million for the year.
Guidance, Outlook, and Risks
- Outlook: Management anticipates a recovery in demand, particularly in North America (driven by shale gas) and the Middle East. The company is ramping up production to meet this demand and expects the new rolling mill in Veracruz to begin operations in October 2010.
- Dividend Proposal: The Board proposes an annual dividend of $0.34 per share ($0.68 per ADR), which includes the interim dividend of $0.13 paid in November 2009. The remaining balance of $0.21 per share is proposed for payment in June 2010.
- Key Risks:
- Venezuela Nationalization: The company is pursuing claims for fair compensation regarding the nationalization of its Venezuelan assets (Tavsa, Matesi, Comsigua) under bilateral investment treaties.
- FCPA Investigation: Tenaris is voluntarily cooperating with the SEC and DOJ regarding an investigation into sales agency payments in Central Asia that may have violated the Foreign Corrupt Practices Act. The potential loss is currently indeterminable.
- Market Volatility: Demand remains sensitive to oil and gas prices and drilling activity. Competition is expected to remain fierce, particularly from subsidized Chinese imports.
Investor Verification Checklist
- Verify the status of the ongoing FCPA investigation and any potential penalties or settlements.
- Monitor the progress of compensation negotiations regarding the nationalized Venezuelan assets.
- Track the utilization rates of the new Veracruz rolling mill and the Dalmine mill investment.
- Confirm the approval of the proposed $0.34 per share dividend at the June 2, 2010 Annual General Meeting.
- Review the impact of rising raw material costs on future gross margins, as noted in the management discussion.