Part 1 of 2 - IPSCO Inc. Fourth Quarter 1998 Results
8 February 1999
Part 1 of 2 - IPSCO Inc. Fourth Quarter 1998 Results
REGINA, Saskatchewan--Feb. 5, 1999-- (TSE:IPS.) (Alberta Stock Exchange:IPS.) IPSCO Inc. announced today that its fourth quarter 1998 after-tax earnings were $23.6 million, 38 percent lower than the last quarter a year earlier.
After deducting preferred share dividends, net income available to common shareholders was $22.4 million. For the full year after-tax earnings reached $113.2 million. After deducting preferred share dividends, for the full year the net income available to common shareholders was $112.1 million. Operating profit per ton shipped was $93 for the quarter and $111 for the full year compared with $130 for the quarter and $137 for the year in 1997 (x). Principal reasons for the lower yearly results were high levels of imports entering North America at unfairly traded prices and a less active oil and gas drilling sector. Earnings per common share on the 40.7 million outstanding common shares were $0.55 for the quarter and $2.75 for the year compared to $0.94 and $3.25 for the comparable periods in 1997.
Annual shipments at 1,635,700 tons exceeded that of 1997 by 18 percent. This disguised a drop of 20 percent in Canada which was more than offset by an almost five-fold increase in steel mill product shipments to U.S. customers. The U.S. represented about half of the Company's total shipments. Sales revenues were $246.1 million for the quarter and $1,099.3 million for the year, 18 percent lower than the same quarter in the prior year and seven percent higher than in the previous year.
Tonnage of steel mill products shipped, which comprised hot rolled coil and discrete plate, was 79 percent higher than the previous year. Further fabricated products which include cut-to-length steel, standard pipe, hollow structurals, and energy related tubular products fell three percent. Included in these figures was a drop of 48 percent in shipments of oil country tubular goods and small diameter line pipe in Canada reflecting reduced drilling rates. Shipments of hollow structural tubing and standard pipe were down 20 percent in Canada and up 11 percent in the U.S. Cut-to-length steel shipments to Canadian customers fell 27 percent while American customers saw a 30 percent increase.
Year-over-year average realized unit selling prices of the Company's products and the unit cost of scrap, the company's principal raw material, decreased by three percent.
The Company's employees, and the communities in which they live, shared in the fortunes of the Company through its profit sharing plans with payouts to employees (excluding management performance bonuses) and contributions to charities and community services at $7.4 million and $1.5 million respectively in 1998 as compared to $9.1 million and $1.1 million in 1997.
IPSCO said that major capital spending was directed to three projects designed to enhance the geographic and product ranges of the Company's further fabricating operations. These are two 300,000-ton per annum coil processing facilities encompassing temper mill/cut-to-length equipment located in Toronto and Houston and a 300,000-ton per annum ultra high speed small diameter pipe mill in Blytheville, Arkansas. These and other improvement projects saw capital spending amount to $62.8 million for the quarter and $161 million for the year.
In the fourth quarter IPSCO completed two financings. In November the Company offered 6 million 5.50 percent Cumulative Redeemable First Preferred Shares, Series 1 at a price of $25.00 per share in Canada. In December, following the preferred share issue, the company completed a U.S. $100 million financing through the private placement of junior subordinated notes.
At the end of the year IPSCO announced that it had selected Mobile County, Alabama as the site of its second U.S. steelworks. Construction of the 1,250,000 ton per annum facility is expected to commence in the first quarter of 1999. Construction is expected to take approximately 24 months.
IPSCO said the overall outlook for U.S. and Canadian steel producers for 1999 remained murky. It said that it fully expected that as the result of current and possible future trade cases, especially those in the United States, conditions would gradually return to those that had prevailed over the past few years, i.e. it is expected import penetration will drop and prices will gradually improve. But just how long it would take for excess inventories, accumulated by distributors through massive purchases of offshore steel, to be liquidated, thus permitting the return to those more normal conditions, was still a question mark. IPSCO said that its ability to profitably increase third party sales from its Montpelier Steelworks would have a major impact on the financial results for the coming year. In addition, however, the new coil processing facility at Toronto, Ontario is just completing final commissioning and initial pipe production at the new Blytheville, Arkansas operation is expected this month. Both of these facilities and the coil processing operation scheduled to come on stream in Houston, Texas in the last half of the year should be positive from a financial point of view. IPSCO said that its large diameter pipe facility was fully booked for the balance of the year but that the low drilling rates prevalent for most of 1998 are not expected to change drastically in 1999, so that the demand for smaller diameter tubular products for energy applications should stay low.
On balance IPSCO said that it was cautiously optimistic that its financial results would show modest improvement in 1999 as compared to 1998 but cautioned that there are still many uncertainties which could have either a negative or a positive impact on the actual results.
IPSCO said that its capital spending program for 1999 would be in the range of U.S. $110 to $140 million with the bulk of the spending being directed to the new steelworks in Mobile, Alabama. The balance of capital outlays would be directed to completing the various expansion projects such as the Blytheville, Houston, and Toronto facilities already mentioned. Spending on other initiatives would be minimal pending an improvement in overall steel markets.
The Company also stated that effective 1 January 1999 it would be reporting its financial results in U.S. dollars. Ed Tiefenbach, Vice President and Chief Financial Officer stated, "The decision to change the currency of IPSCO's financial statements has been made to reflect the company's growing American presence. With the completion of the company's Montpelier Steelworks approximately 70 percent of the value of IPSCO's fixed assets are located in the U.S. As a result of the facilities now operating or under construction in the U.S., sales volumes and revenues generated in the U.S. are also expected to increase." In addition, many of the cost inputs for Canadian steelmaking are U.S. dollar related.
(x) For accounting purposes, commissioning of the Montpelier, Iowa steelworks was completed on 3 May 1998. Tonnage shipments reported in the financial statements are from the start of the year. However, in accordance with generally accepted accounting principles in Canada the financial statements include revenue from 4 May 1998 onward. Sales, net income, and operating profit per ton discussed in the balance of this release are based on this approach.
This news release contains forward looking information with respect to IPSCO's operations and beliefs. Actual results may differ from these forward looking statements due to numerous factors, including those discussed in IPSCO's 1997 Annual Report for its fiscal year ended December 31, 1997.