Tenaris S.A. Form 6-K Summary
Business Context and Reporting Period
This Form 6-K, filed on September 1, 2009, furnishes Tenaris S.A.'s unaudited half-year report for the six-month period ended June 30, 2009. Tenaris is a leading global manufacturer and supplier of steel pipe products and related services for the energy industry, organized into three segments: Tubes, Projects, and Others. The financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) and expressed in U.S. dollars.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2009 | Six Months Ended June 30, 2008 |
|---|---|---|
| Net Sales | $4,530.6 million | $5,710.4 million |
| Gross Profit | $1,902.4 million (42.0% margin) | $2,407.6 million (42.2% margin) |
| Operating Income | $1,122.4 million (24.8% margin) | $1,524.6 million (26.7% margin) |
| Net Income (Continuing Ops) | $757.7 million | $1,113.1 million |
| Net Income (Total) | $729.5 million | $1,530.0 million |
| Net Income Attributable to Equity Holders | $709.3 million ($0.60/share) | $1,460.5 million ($1.24/share) |
| Operating Cash Flow | $1,874.6 million | $842.9 million |
| Total Financial Debt | $2.0 billion | $3.0 billion (Dec 31, 2008) |
| Net Financial Debt | $0.1 billion | $1.4 billion (Dec 31, 2008) |
| Cash and Cash Equivalents | $1,608.7 million | $1,319.0 million |
Material Changes vs. Prior Period
- Revenue Decline: Net sales decreased 21% year-over-year, driven by a sharp reduction in volumes across all segments due to lower oil and gas drilling activity and high inventory levels in North America.
- Segment Performance:
- Tubes: Sales down 19% to $3,809.4 million; operating income down 24% to $1,026.3 million.
- Projects: Sales down 26% to $476.6 million; operating income down 27% to $94.5 million.
- Others: Sales down 37% to $244.7 million; operating income collapsed 97% to $1.6 million due to losses in U.S. electric conduit operations.
- Discontinued Operations: Results from Venezuelan operations (Tavsa, Matesi, Comsigua) are now classified as discontinued operations due to nationalization, resulting in a loss of $28.1 million for the period, compared to a gain of $416.9 million in 2008 (which included the sale of Hydril's pressure control business).
- Debt Reduction: Total financial debt decreased by $1.0 billion to $2.0 billion, and net financial debt dropped to $0.1 billion, supported by strong operating cash flows and working capital management.
Outlook, Risks, and Unusual Items
- Market Outlook: Management expects sales and operating income to be lower in the second half of 2009 than the first due to persistent low demand and downward price adjustments. A recovery in shipments is anticipated in 2010, though revenue recovery may lag due to price declines.
- Venezuela Nationalization: The Venezuelan government announced the nationalization of Tenaris subsidiaries Tavsa, Matesi, and Comsigua. Tenaris has reserved its rights under bilateral investment treaties and international law, consenting to ICSID arbitration. Compensation terms are currently under negotiation or subject to expropriation proceedings.
- Acquisition: In April 2009, Tenaris acquired a 77.45% stake in Seamless Pipe Indonesia Jaya (SPIJ) for $69.5 million.
- Legal and Regulatory Risks:
- FCPA Investigation: The Company is voluntarily investigating potential improper sales agency payments in Central Asia that may violate the U.S. Foreign Corrupt Practices Act (FCPA) and has notified the SEC and DOJ.
- Asbestos Litigation: Subsidiary Dalmine faces ongoing asbestos-related claims in Italy with estimated potential liabilities of approximately $17.3 million.
- Customer Claim: A lawsuit regarding defective well casing was settled for $15 million, with a provision of $12.7 million recorded.
- Tax Status: Tenaris's tax-exempt status in Luxembourg is set to terminate on December 31, 2010, which may result in a higher future tax burden.
Key Facts for Investor Verification
- Verify the status and potential compensation outcomes of the nationalization proceedings for Tavsa, Matesi, and Comsigua in Venezuela.
- Monitor the progress and potential penalties associated with the ongoing FCPA investigation regarding Central Asia sales agency payments.
- Assess the impact of the 2010 termination of the Luxembourg tax-exempt status on future effective tax rates.
- Review the recovery trajectory of North American OCTG inventory levels and drilling rig counts to validate the 2010 shipment recovery outlook.
- Confirm the valuation and collectibility of the receivables held against the Venezuelan government and nationalized entities.