Tenaris S.A. Q1 2011 Financial Summary
Business Context and Reporting Period
This Form 6-K filing, dated May 9, 2011, reports the unaudited consolidated financial results for Tenaris S.A. for the quarter ended March 31, 2011. Tenaris is a global manufacturer of tubular products and services for the oil and gas industry. The results are presented in U.S. dollars in accordance with International Financial Reporting Standards (IFRS).
Key Financial Metrics
| Metric (US$ Million) | Q1 2011 | Q4 2010 | Q1 2010 |
|---|---|---|---|
| Net Sales | 2,324.0 | 2,063.9 | 1,638.7 |
| Operating Income | 441.4 | 453.8 | 309.3 |
| Net Income | 324.2 | 321.2 | 222.2 |
| Shareholders' Net Income | 319.4 | 320.9 | 219.5 |
| EBITDA | 570.8 | 515.5 | 435.4 |
| EBITDA Margin | 25% | 25% | 27% |
| Earnings per ADS | $0.54 | $0.54 | $0.37 |
| Net Cash Position | $230.5 | N/A | N/A |
| Capital Expenditures | $210.6 | $286.1 | $158.0 |
Material Changes vs. Prior Periods
- Revenue Growth: Net sales increased 13% sequentially and 42% year-over-year (YoY), driven by higher shipment volumes across all segments. The Tubes segment saw a 12% sequential increase in sales.
- Profitability: Operating income rose 43% YoY but declined 3% sequentially. The sequential decline is attributed to a $67.3 million impairment reversal gain recorded in Q4 2010 at Canadian welded operations, which is not present in Q1 2011.
- Cost Structure: Cost of sales as a percentage of net sales increased to 61% in Q1 2011 from 60% in Q4 2010 and 59% in Q1 2010, reflecting higher raw material costs.
- Working Capital: Working capital increased by $392.9 million, primarily due to higher trade receivables and inventory levels associated with increased sales activity.
- Segment Performance:
- Tubes: Sales rose 39% YoY. North America sales grew 45% YoY; South America grew 57% YoY.
- Projects: Sales surged 88% YoY to $175.0 million, driven by gas pipeline projects in Argentina.
- Others: Sales increased 35% YoY, aided by higher sales of electric conduit pipes in the U.S. and industrial equipment in Brazil.
Guidance, Outlook, and Risks
Outlook: Management expects global drilling activity to continue rising throughout 2011, supported by oil price volatility and increased activity in the Middle East. Sales in the Tubes segment are expected to grow, while Projects and Others segments should show sustained growth. Operating income is projected to increase, though gains may be partially offset by rising raw material costs.
Risks and Contingencies:
- Geopolitical Risks: SG&A expenses included a $15.1 million provision for receivables and contingencies related to Libya.
- Taxation: A new tax on net equity in Colombia resulted in a $9.3 million charge.
- Market Volatility: Forward-looking statements are subject to risks regarding future oil and gas prices and their impact on customer investment programs.
Investor Verification Checklist
- Verify the sustainability of the 42% YoY revenue growth given the sequential decline in operating income margins.
- Confirm the impact of the $67.3 million Q4 2010 impairment reversal on the comparability of operating income trends.
- Monitor the $392.9 million increase in working capital and its effect on future cash flow generation.
- Assess the exposure to geopolitical risks in Libya and tax policy changes in Colombia.
- Review the net cash position of $230.5 million against capital expenditure requirements of $210.6 million for the quarter.