Tenaris Announces 2006 Fourth Quarter and Annual Results

Tenaris S.A. (NYSE:TS) (BI:TEN) (BMV:TS) (BCBA:TS) ("Tenaris”) today announced its results for the fourth quarter and year ended December 31, 2006 with comparison to its results for the fourth quarter and year ended December 31, 2005. Summary of 2006 Fourth Quarter Results   (Comparison with third quarter of 2006 and fourth quarter of 2005)       Q4 2006 Q3 2006 Q4 2005 Net sales (US$ million) 2,460.9  1,803.6  36% 1,734.8  42% Operating income (US$ million) 812.6  695.6  17% 574.2  42% Net income (US$ million) 612.0  510.4  20% 414.8  48% Shareholders’ net income (US$ million) 574.8  479.5  20% 381.0  51% Earnings per ADS (US$) 0.97  0.81  20% 0.64  51% Earnings per share (US$) 0.49  0.41  20% 0.32  51% EBITDA (US$ million) 901.6  751.3  20% 631.8  43% EBITDA margin (% of net sales) 37% 42% 36% These fourth quarter results are the first that reflect the consolidation of Maverick Tube Corporation which was acquired on October 5, 2006 and the sale of a majority participation in Dalmine Energie, our Italian energy supply business, on December 1, 2006. Strong demand for our specialized pipe products, including TenarisBlue® premium connection products, was the principal factor for the increase in operating income. The contribution of the former Maverick operations to earnings in this quarter was affected by the slowdown in drilling activity in Canada and the delayed start up of the Louisville Conduit plant. Income from the sale of a majority participation in Dalmine Energie contributed earnings of US$0.03 per share (US$0.06 per ADS). Free cash flow (net cash provided by operations less capital expenditures) totaled US$359.6 million, and net debt at December 31, 2006 was US$2,095.3 million. Summary of 2006 Annual Results       FY 2006 FY 2005 Increase/(Decrease) Net sales (US$ million) 7,727.7  6,209.8  24% Operating income (US$ million) 2,792.5  1,945.9  44% Net income (US$ million) 2,059.4  1,387.3  48% Shareholders’ net income (US$ million) 1,945.3  1,277.5  52% Earnings per ADS (US$) 3.30  2.16  52% Earnings per share (US$) 1.65  1.08  52% EBITDA (US$ million) 3,047.5  2,160.1  41% EBITDA margin (% of net sales) 39% 35% Our 2006 annual results reflect a further year of strong growth at Tenaris and benefited from good market conditions and the positioning we have built up over a number of years. Earnings per share grew 52% in 2006 following growth of 65% in 2005. Demand for our high-quality tubular products and services from the oil and gas industry remained firm throughout the year particularly in the Middle East and Africa. Following the recent integration of the former Maverick operations, sales in 2007 are expected to grow strongly in North America. Annual Dividend Proposal The board of directors proposes, for the approval of the annual general shareholders’ meeting to be held on June 6, 2007, the payment of an annual dividend of US$0.30 per share (US$0.60 per ADS), or approximately US$354 million. If the annual dividend is approved by the shareholders, it will be paid on June 21 2007 with an ex-dividend date of June 18, 2007. Changes in Segment Reporting Following the acquisition of Maverick and the sale of a majority participation in Dalmine Energie, we reassessed the definition of our business segments. Starting with the financial statements for the year and quarter ended December 31, 2006, Tenaris will report under three business segments: Tubes (tubular products and services), Projects (pipes for pipeline projects), and Others (other products and services). The operating results of the former Maverick energy products division are included in Tubes and those of its electrical products division are included in Others. The operating results of Dalmine Energie are classified as discontinued operations. Market Background and Outlook In 2006, global demand for oil and gas continued to rise reflecting economic growth and the importance of oil and gas in the energy matrix. Encouraged by continuing high levels of oil and gas prices, oil and gas companies throughout the world continued 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. The international count of active drilling rigs, as published by Baker Hughes, rose steadily quarter on quarter throughout the year to average 952 during the fourth quarter, showing an increase of 9% compared to the same quarter of the previous year matching the average increase for the year overall compared to 2005. The corresponding percentage annual rig count increases in the U.S. and Canadian markets, which are more sensitive to North American natural gas prices, were 19% and 3% respectively. For the fourth quarter, however, the Canadian rig count registered a 23% decline compared to the fourth quarter of 2005. The U.S. rig count, although up 16% over the fourth quarter of 2005, was flat compared to the third quarter of 2006. We estimate that global apparent consumption of OCTG (oil country tubular goods) in 2006 grew approximately 14% compared to 2005, and will continue to grow in 2007. However, the rate of growth is expected to slow from the high rates of the past three years and we are likely to see downwards inventory adjustments in North America. Demand from the energy sector for specialized pipe products, including premium connections, used in complex drilling and other high-performance applications, is expected to remain strong. Favorable market conditions and increased demand for our specialized pipe products, including premium connections, helped us to record sales growth and an increase in operating margin for our tubular products and services (Tubes) segment in the first nine months of the year. The consolidation of the energy products division of Maverick within this segment during the fourth quarter resulted in an increase in sales but a reduction in the operating margin from the previous quarter. For 2007, we expect to record further growth in sales in our Tubes segment due to the consolidation of Maverick for the full year and to maintain, or improve, the segment operating margin from that recorded in the fourth quarter of 2006 as we make progress in integrating welded OCTG and line pipe products under our sales strategy for North America. Demand for our large diameter pipes for pipeline projects in South America in 2006 was affected by delays in the implementation of major gas pipeline infrastructure projects in Brazil and Argentina. This resulted in a substantial decline in shipments and margins in our Projects segment from those recorded in 2005 notwithstanding an increase in sales for pipeline projects in North America and Africa. With orders in hand for the delayed projects in Brazil and Argentina and deliveries expected to begin at the end of the first quarter, we expect a significant increase in sales and improved margins in 2007 for our Projects segment, assuming there are no further delays to deliveries to these projects. Analysis of 2006 Fourth Quarter Results         Sales volume (metric tons) Q4 2006 Q4 2005 Increase/(Decrease) Tubes - Seamless 730,000  738,000  (1%) Tubes – Welded 264,000  -  Tubes - Total 994,000  738,000  35% Projects - Welded 98,000  110,000  (11%) Total 1,092,000  848,000  29%         Tubes Q4 2006 Q4 2005 Increase/(Decrease) (Net sales - $ million) North America 770.8  413.6  87% South America 244.9  223.9  9% Europe 363.5  289.8  25% Middle East & Africa 613.4  306.7  100% Far East & Oceania 139.5  222.9  (37%) Total net sales ($ million) 2,132.2  1,456.9  46% Cost of sales (% of sales) 49% 50% Operating income ($ million) 761.9  524.5  45% Operating income (% of sales) 36% 36% Net sales of tubular products and services rose 46% to US$2,132.2 million in the fourth quarter of 2006, compared to US$1,456.9 million in the fourth quarter of 2005, due to the incorporation of sales from the former Maverick operations and an increase in the average selling price of our tubular products. Sales rose particularly in the Middle East and Africa as there was strong demand for our TenarisBlue® premium connection and other specialized OCTG products and services particularly in Saudi Arabia where there has been a sustained increase in investment in oil and gas drilling activity. In North America, excluding the sales from the former Maverick operations, there was an increase in sales of our deepwater riser and flowline products in the Gulf of Mexico but a decline in sales of OCTG products and services in Canada where sales were affected by a slowdown in drilling activity and distributor inventory adjustments. In South America, there was an increase in sales in Colombia, reflecting the incorporation of the former Maverick operations in that country but sales of OCTG products and services were lower in Venezuela as PDVSA drew down inventories and in Argentina where oil and gas drilling activity was affected by strike activity. In Europe, the increase in sales was due mainly to higher average selling prices reflecting a product mix more oriented to specialized products. In the Far East and Oceania, sales declined primarily due to lower sales of OCTG products and services in the region.         Projects Q4 2006 Q4 2005 Increase/(Decrease) Net sales ($ million) 172.4  195.1  (12%) Cost of sales (% of sales) 72% 62% Operating income ($ million) 23.1  44.0  (48%) Operating income (% of sales) 13% 23% Net sales of pipes for pipeline projects declined 12% to US$172.4 million in the fourth quarter of 2006, compared to US$195.1 million in the fourth quarter of 2005, due to lower sales volumes. The increased level of activity compared to the third quarter of 2006 reflects sales for pipeline projects in Peru, North America and Africa. Operating margins and sales in this segment are expected to improve once deliveries to delayed projects in Brazil and Argentina commence.         Others Q4 2006 Q4 2005 Increase/(Decrease) Net sales ($ million) 156.3  82.8  89% Operating income ($ million) 27.6  5.8  371% Operating income (% of sales) 18% 7% Net sales of other products and services rose 89% to US$156.3 million in the fourth quarter of 2006, compared to US$82.8 million in the fourth quarter of 2005, reflecting the inclusion of sales of conduit pipes from the former Maverick electrical products division and higher sales of hot briquetted iron from our plant in Venezuela. Selling, general and administrative expenses, or SG&A, increased as a percentage of net sales to 14.1% in the quarter ended December 31, 2006 compared to 13.6% in the corresponding quarter of 2005 due primarily to an increase in amortization expenses following the incorporation of Maverick. Amortization of customer relationships and other intangibles acquired with Maverick amounted to US$38 million in the quarter and will be a recurring expense. Other operating expenses included a write-off of US$2.8 million in relation to fixed assets at our Romanian steel shop. Net interest expenses rose to US$33.5 million in the fourth quarter of 2006 compared to net interest expenses of US$4.4 million in the same period of 2005 reflecting an increased net debt position following the Maverick acquisition. Other financial results contributed a gain of US$18.2 million during the fourth quarter of 2006, compared to a loss of US$15.4 million during the fourth quarter of 2005. These results largely reflect gains and losses on net foreign exchange transactions and the fair value of derivative instruments and are to a large extent offset by changes to our net equity position. They arise due to the fact that most of our subsidiaries prepare their financial statements in currencies other than the U.S. Dollar in accordance with IFRS. Equity in earnings of associated companies generated a gain of US$17.9 million in the fourth quarter of 2006, compared to a gain of US$22.4 million in the fourth quarter of 2005. These gains were derived mainly from our equity investment in Ternium. Income tax charges totaled US$243.7 million in the fourth quarter of 2006, equivalent to 31% of income before equity in earnings of associated companies and income tax. Income from discontinued operations amounted to US$40.4 million in the fourth quarter of 2006, compared to US$1.4 million in the fourth quarter of 2005. Income attributable to minority interest rose to US$37.2 million in the fourth quarter of 2006, compared to US$33.9 million in the corresponding quarter of 2005 reflecting higher operating and financial results at our NKKTubes subsidiaries partially offset by lower operating and financial results at our Confab subsidiary. Cash Flow and Liquidity Net cash provided by operations during the fourth quarter of 2006 was US$499.0 million (US$1,810.9 million for the year), compared to US$363.4 million in the fourth quarter of 2005 (US$1,295.3 million during the year). Working capital increased by US$218.9 million during the fourth quarter. Inventories increased by US$175.7 million and trade receivables by US$112.4 million. The increase in working capital for the full year was US$469.5 million. Capital expenditures increased to US$139.4 million for the fourth quarter of 2006, compared to US$90.0 million in the fourth quarter of 2005. This fourth quarter coincided with the peak disbursement period in the implementation of our two-year investment program to increase capacity for specialized products. Capital expenditure for the full year increased to US$441.5 million in 2006 compared to US$284.5 million in 2005. During 2006, total financial debt increased by US$2,640.9 million to US$3,651.2 million at December 31, 2006 from US$1,010.3 million at December 31, 2005, reflecting the use of debt to finance the acquisition of Maverick. Net financial debt during 2006 increased by US$1,912.3 million to US$2,095.3 million at December 31, 2006. Analysis of 2006 Annual Results         Sales volume (metric tons) Q4 2006 Q4 2005 Increase/(Decrease) Tubes - Seamless 2,919,000  2,870,000  2% Tubes – Welded 297,000  -  Tubes - Total 3,216,000  2,870,000  12% Projects - Welded 281,000  501,000  (44%) Total – Tubes + Projects 3,497,000  3,371,000  4%         Tubes FY 2006 FY 2005 Increase/(Decrease) Net sales ($ million) - North America 1,992.4  1,663.5  20% - South America 960.0  838.8  14% - Europe 1,314.4  1,022.7  29% - Middle East & Africa 1,895.3  933.0  103% - Far East & Oceania 662.3  666.0  (1%) Total net sales 6,824.3  5,124.0  33% Cost of sales (% of sales) 47% 53% Operating income ($ million) 2,670.5  1,701.5  57% Operating income (% of sales) 39% 33% Net sales of tubular products and services rose 33% to US$6,824.3 million in 2006, compared to US$5,124.0. million in 2005, due primarily to an increase in the average selling price of our tubular products and services and the incorporation of sales from the former Maverick operations in the fourth quarter. Sales rose particularly strongly in the Middle East and Africa as there was strong demand for our TenarisBlue® premium connection and other specialized OCTG products and services, particularly in Saudi Arabia but more generally throughout the region, where there has been a sustained increase in investment in oil and gas drilling activity. In North America, excluding sales from the former Maverick operations, sales declined primarily due to reduced demand for our OCTG products and services in Mexico, where drilling activity was impacted by oilfield cost inflation and Pemex budgetary constraints, as well as lower sales of line pipe products for process and power plant construction to engineering companies in the USA and Canada. In South America, an increase in average selling prices offset a decline in sales of OCTG products in Venezuela as PDVSA reduced its stock of tubular inventories during the year. In Europe, there was an increase in sales of line pipe products to European-based process and power plant contractors and of OCTG products and services for the North Sea and a reduction in sales of tubes to industrial and automotive customers. In the Far East and Oceania, although the average selling price of our products increased, sales volumes of line pipe products to process and power plant customers in China and throughout the region declined, as did sales of industrial products in Japan and OCTG products throughout the region. Operating income from tubular products and services rose 57% to US$2,670.5 million in 2006, from US$1,701.5 million, reflecting the increase in sales and an increase in the gross margin.         Projects FY 2006 FY 2005 Increase/(Decrease) Net sales ($ million) 453.5  790.0  (43%) Cost of sales (% of sales) 72% 66% Operating income ($ million) 56.3  179.6  (69%) Operating income (% of sales) 12% 23% Net sales of pipes for pipeline projects declined 43% to US$453.5 million in 2006, compared to US$790.0 million in 2005, due to lower sales volumes. Regional demand for pipes for pipeline projects in South America was strong in 2005 due to a significant number of projects in Brazil. In 2006, demand in the region was affected as large pipeline projects planned in Brazil and Argentina were delayed. Sales to projects outside South America increased with sales made to pipeline projects in North America and Africa. Operating income from pipes for pipeline projects fell 69% to US$56.3 million in 2006, from US$179.6 million, due primarily to the decrease in shipments, higher logistics costs and higher administrative costs expressed as a percentage of net sales.         Others FY 2006 FY 2005 Increase/(Decrease) Net sales ($ million) 449.9  295.8  52% Operating income ($ million) 65.7  64.8  (1%) Operating income (% of sales) 15% 22% Net sales of other products and services rose 52% to US$449.9 million in 2006, compared to US$295.8 million in 2005, as sales of the principal product categories (hot briquetted iron, sucker rods, metallic structures) included in this segment all increased and the sales of conduit pipes from the former Maverick electrical products division were included from the fourth quarter. Operating income from other products and services rose 1% to US$65.7 million in 2006, from US$64.8 million in 2005, due to higher sales. The operating margin decreased due primarily to a reduction in margins on sales of hot briquetted iron. These sales represented around 40% of total sales in this segment in 2006. Selling, general and administrative expenses, or SG&A, increased marginally as a percentage of net sales to 13.6% in 2006 compared to 13.4% in 2005. Total SG&A rose to US$1,054.8 million in 2006, from US$832.3 million in 2005, due to higher labor costs, higher commission, freight and other selling expenses (reflecting higher sales) and increased charges for amortization of intangible assets relating principally to assets acquired in connection with the Maverick acquisition. Net interest expenses totaled US$31.8 million in 2006, compared to net interest expenses of US$28.8 million in 2005. Net interest expenses increased substantially in the fourth quarter of 2006 reflecting the change in net debt position following the acquisition of Maverick. Other financial results contributed a gain of US$26.8 million in 2006, compared to a loss of US$79.8 million during 2005. These results largely reflect gains and losses on net foreign exchange transactions and the fair value of derivative instruments and are to a large extent offset by changes to our net equity position. They arise due to the fact that most of our subsidiaries prepare their financial statements in currencies other than the US dollar in accordance with IFRS. Equity in earnings of associated companies generated a gain of US$94.7 million in 2006, compared to a gain of US$117.4 million in 2005. These gains were derived mainly from our equity investment in Ternium and our former indirect equity investment in Sidor, prior to its exchange for an investment in Ternium in September 2005. Income tax charges of US$870.0 million were recorded during 2006, equivalent to 31% of income before equity in earnings of associated companies and income tax, compared to income tax charges of US$567.4 million, equivalent to 31% of income before equity in earnings of associated companies and income tax, during 2005. Income from discontinued operations amounted to US$47.2 million in 2006, compared to a breakeven result in 2005. Income attributable to minority interest was US$114.1 million in 2006, compared to US$109.8 million in 2005. Higher income attributable to minority interest at our NKKTubes subsidiary more than offset a decline in income attributable to minority interest at our Confab subsidiary. Some of the statements contained in this press release are "forward-looking statements.” Forward-looking statements are based on management’s current views and assumptions and involve known and unknown risks that could cause actual results, performance or events to differ materially from those expressed or implied by those statements. These risks include but are not limited to risks arising from uncertainties as to future oil and gas prices and their impact on investment programs by oil and gas companies Consolidated Income Statement   (Thousands of U.S. dollars) Three-month period ended December 31, Year ended December 31, 2006  2005  2006  2005  Continuing operations Net sales 2,460,910  1,734,761  7,727,745  6,209,791  Cost of sales (1,298,328) (912,493) (3,884,226) (3,429,365) Gross profit 1,162,582  822,268  3,843,519  2,780,426  Selling, general and administrative expenses (347,871) (236,367) (1,054,806) (832,315) Other operating income 3,226  58  13,077  12,396  Other operating expenses (5,311) (11,739) (9,304) (14,595) Operating income 812,626  574,220  2,792,486  1,945,912  Interest income 17,495  8,783  60,798  23,815  Interest expense (51,018) (13,138) (92,576) (52,629) Other financial results 18,225  (15,440) 26,826  (79,772) Income before equity in earnings of associated companies and income tax 797,328  554,425  2,787,534  1,837,326  Equity in earnings of associated companies 17,942  22,433  94,667  117,377  Income before income tax 815,270  576,858  2,882,201  1,954,703  Income tax (243,679) (163,416) (869,977) (567,368) Income for continuing operations 571,591  413,442  2,012,224  1,387,335    Discontinued operations Income (loss) for discontinued operations 40,403  1,402  47,180  (3)   Income for the Year 611,994  414,844  2,059,404  1,387,332    Attributable to: Equity holders of the Company 574,750  380,960  1,945,314  1,277,547  Minority interest 37,244  33,884  114,090  109,785  611,994  414,844  2,059,404  1,387,332  Consolidated Balance Sheet   (Thousands of U.S. dollars) At December 31, 2006 At December 31, 2005   ASSETS Non-current assets Property, plant and equipment, net 2,939,241  2,230,038  Intangible assets, net 2,844,498  159,099  Investments in associated companies 422,958  257,234  Other investments 26,834  25,647  Deferred tax assets 291,641  194,874  Receivables 41,238  6,566,410  65,852  2,932,744    Current assets Inventories 2,372,308  1,376,113  Receivables and prepayments 272,632  143,282  Current tax assets 202,718  102,455  Trade receivables 1,625,241  1,324,171  Other investments 183,604  119,907  Cash and cash equivalents 1,372,329  6,028,832  707,356  3,773,284    Total assets 12,595,242  6,706,028    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 3,954  (59,743) Other reserves 28,757  2,718  Retained earnings 3,397,584  5,338,619  1,656,503  3,507,802    Minority interest 363,011  268,071  Total equity 5,701,630  3,775,873    LIABILITIES Non-current liabilities Borrowings 2,857,046  678,112  Deferred tax liabilities 991,945  353,395  Other liabilities 186,724  154,378  Provisions 92,027  43,964  Trade payables 366  4,128,108  1,205  1,231,054  Current liabilities Borrowings 794,197  332,180  Current tax liabilities 565,985  452,534  Other liabilities 187,701  138,875  Provisions 26,645  36,945  Customer advances 352,717  113,243  Trade payables 838,259  2,765,504  625,324  1,699,101    Total liabilities 6,893,612  2,930,155    Total equity and liabilities 12,595,242  6,706,028  Consolidated Cash Flow Statement   Three-month period ended December 31, Twelve-month period ended December 31, (Thousands of U.S. dollars) 2006  2005  2006  2005      Cash flows from operating activities Income for the year 611,994  414,844  2,059,404  1,387,332  Adjustments for: Depreciation and amortization 88,996  57,573  255,004  214,227  Income tax accruals less payments 54,889  45,062  56,836  149,487  Equity in earnings of associated companies (17,942) (22,433) (94,667) (117,377) Interest accruals less payments, net 20,453  (1,087) 21,909  1,919  Income from disposal of investment and other (39,548) (46,481) -  Changes in provisions 687  6,920  8,894  6,497  Proceeds from Fintecna arbitration award net of BHP settlement -  -  -  66,594  Changes in working capital (218,863) (132,563) (469,517) (433,939) Other, including currency translation adjustment (1,622) (4,966) 19,474  20,583  Net cash provided by operating activities 499,044  363,350  1,810,856  1,295,323    Cash flows from investing activities Capital expenditures (139,395) (90,046) (441,472) (284,474) Acquisitions of subsidiaries (2,347,772) (290) (2,387,249) (48,292) Proceeds from disposal of subsidiary 52,995  -  52,995  -  Convertible loan to associated companies -  (414) -  (40,358) Proceeds from disposal of property, plant and equipment and intangible assets (1,221) 4,582  15,347  9,995  Dividends and distributions received from associated companies -  -  -  59,127  Changes in restricted bank deposits -  1,392  2,027  11,452  Reimbursement from trust funds -  -  -  (119,907) Changes in investments in short terms securities (48,953) 24,752  (63,697) 119,666  Net cash used in investing activities (2,484,346) (60,024) (2,822,049) (292,791)   Cash flows from financing activities Dividends paid -  (149,928) (204,233) (349,439) Dividends paid to minority interest in subsidiaries (3,573) (6,394) (23,194) (14,318) Proceeds from borrowings 2,739,385  446,931  3,033,230  1,222,861  Repayments of borrowings (661,770) (444,227) (1,105,098) (1,463,233) Net cash provided by (used) in financing activities 2,074,042  (153,618) 1,700,705  (604,129) Increase in cash and cash equivalents 88,740  149,708  689,512  398,403    Movement in cash and cash equivalents At the beginning of the period 1,276,412  531,462  680,591  293,824  Effect of exchange rate changes (144) (579) (5,095) (11,636) Increase in cash and cash equivalents 88,740  149,708  689,512  398,403  At December 31, 2006 1,365,008  680,591  1,365,008  680,591    Cash and cash equivalents At December 31, At December 31, 2006  2005  2006  2005  Cash and bank deposits 1,372,329  707,356  1,372,329  707,356  Bank overdrafts (7,300) (24,717) (7,300) (24,717) Restricted bank deposits (21) (2,048) (21) (2,048) 1,365,008  680,591  1,365,008  680,591