IPSCO Inc. Update
16 December 1999
IPSCO Inc. Update
REGINA, Saskatchewan--Dec. 16, 1999-- IPSCO(TSE:IPS.) Higher price realizations, lower costs and higher production levels at its Montpelier, Iowa steelworks, and increased demand for oil country tubular goods are all positive signs suggesting higher profits for IPSCO Inc. in the year 2000, despite expected substantially lower sales of large diameter pipe and higher raw material costs, the Company said today.IPSCO said that it contemplated capital expenditures in the neighborhood of US$325 million, of which about $275 million would be spent on the Mobile County, Alabama steelworks, scheduled to commence production in early 2001.
In commenting on its prospects for 2000 IPSCO noted that by year-end it would have essentially completed shipments of large diameter pipe for the Alliance pipeline project and that orders in hand for comparable products for 2000 were only 25 percent of the 1999 level. "While replacing the lost contribution to profit from this business will be a challenge, on the volume side we expect heavier drilling activity in western Canada to result in higher sales of oil country tubular goods, small diameter linepipe, and cut-to-length sheet and plate used by tank fabricators. Further, while new facilities are not highly profitable in the first full year of operation after commissioning, we are expecting higher shipped tonnages from our Blytheville, Arkansas; Houston, Texas; and Toronto, Ontario operations", said Roger Phillips, president and chief executive officer. While in absolute tonnage terms sales could be as much as 20 percent above 1999 the incremental business would not be as profitable on a unit basis.
In 2000 IPSCO is expecting to produce just under two million tons of steel at its steelworks in Montpelier, Iowa, and Regina, Saskatchewan and to purchase as much as 450,000 tons of hot rolled coil. IPSCO said that its Montpelier steelworks was currently undergoing a 16 day shutdown with corrections to the slab reheat furnace and rolling mill being made. The Company said that these changes should be the last major ones required to correct design problems that were the subject of a lawsuit with Mannesmann Demag. Montpelier production in 2000 could reasonably be expected to exceed by 40 percent 1999 levels the Company said. The removal of major bottlenecks would permit continuous as opposed to sporadic operations with positive impact on unit conversion costs.
IPSCO said that hot rolled coil prices had improved in the last half of 1999 and a plate price increase effective 1 November, followed by one announced for 1 February 2000 were all good signs. It also noted that price increases for small diameter linepipe, oil country tubulars, hollow structurals, and standard pipe had been effected in both the U.S. and Canada. IPSCO pointed out however that just as increased demand meant higher end product prices it also meant escalating scrap prices, offsetting partially the positive impact on its bottom line.
Apart from the major capital spending on the Mobile County steelworks IPSCO stated that it was projecting spending about US$35 million on maintenance type capital expenditures in Canada and the U.S. and another US$15 million on as yet unapproved strategic projects to broaden its coil processing and tubular product offerings. This spending would be financed from internal cash generation, drawing down funds on a previously negotiated subordinated note, and some recourse to IPSCO's bank lines.
IPSCO said that legal costs associated with its lawsuit would increase its selling, general, and administrative costs. Also interest on its subordinated notes, estimated at just under US$5 million after tax would be deducted from net income, as would preferred dividends that would be about the same as 1999.
IPSCO said that its positive view could be thrown off should a major economic downturn occur or if energy prices were to fall substantially, causing revisions to drilling plans already in place. The role of imports was also a question mark. The trade case in the U.S. against six countries had not yet reached its final stage and a successful 201 action regarding linepipe imports to the U.S. awaited decision by the President. IPSCO also noted that product price increases did not always have an immediate impact and that while over a year-long period product prices tended to increase faster than scrap there was the risk that over a few months' period scrap increases could get ahead of selling price improvements. Thus while the year 2000 seemed very likely to produce better earnings for the common shareholders the quarter by quarter results would not necessarily be higher than the preceding calendar quarter. For instance it said that the first quarter of 2000 would feel the full brunt of dropping large diameter gas transmission pipe sales. But the full impact of price increases for other products and cost improvements at Montpelier would not click in on 1 January and rather would affect the bottom line gradually as the year progressed. IPSCO said it was hopeful, however, that each calendar quarter in 2000 would be more profitable than the same quarter of 1999.
IPSCO said that it was issuing in press release form much more information than usual with respect to its year-over-year outlook, in response to the wish of regulators that public companies provide greater information to shareholders generally. "While in theory they are correct, in practice I am not sure how effective this will be. Financial analysts covering the steel industry as a whole provide a useful role for shareholders in that they have a broader view of the whole industry. Consequently they often have a better view, for instance, as to whether or not, or by how much announced price increases would really be put in place. And since in the final analysis prices have more impact on steel companies' bottom lines than any other factor this is a factor for shareholders to bear in mind", said Roger Phillips.
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 1998 Annual Report for its fiscal year ended December 31, 1998.