Methanex Corporation - News Release
Methanex third quarter results
Methanex Corporation MX
Shares issued 173,136,748 Oct 20 close $4.00
Wed 20 Oct 99 News Release
Mr. Pierre Choquette reports
Methanex recorded a net loss of $10.2-million (U.S.) (six cents per share)
for the third quarter ended Sept. 30, 1999. The third quarter 1999 results
compare with a net loss of $23.1-million (U.S.) ($0.13 per share) for the
second quarter 1999 and a net loss of $20.8-million (12 cents per share)
for the third quarter 1998. Cash generated from operations before changes
in non-cash working capital was $24.3-million (U.S.) for the third quarter
1999 compared with $3.1-million (U.S.) for the second quarter 1999.
Pierre Choquette, president and chief executive officer of Methanex,
commented: "The stronger cash generation and improved results in the third
quarter are due primarily to stronger pricing. Methanol demand continues to
be strong in all regions and for all derivatives, including MTBE." Mr.
Choquette continued, "The majority of our major capital spending is behind
us and we continue to have a strong cash position. Our low cost position
will ensure that we maximize cash generation in periods of improving
prices."
During the quarter, Methanex secured an additional 130 petajoules of
natural gas for its New Zealand plants which extends the methanol
production capability by approximately 3.4 million tonnes.
There have been a number of recent developments relating to MTBE. Mr.
Choquette noted, "The Environmental Protection Agency's blue ribbon panel
on gasoline and oxygenates released its report acknowledging that
reformulated gasoline provides substantial air quality benefits and that
the major cause of gasoline containing MTBE in water is leaking underground
storage tanks. Subsequent attention has focused on the panel's
recommendation that MTBE usage be substantially reduced which is
inconsistent with the bulk of the panel's findings." Mr. Choquette added,
"Methanex has made a submission to the North American Free Trade
Agreement's commission for environmental co-operation to review
California's record of enforcing environmental laws related to underground
storage tanks and water protection."
Mr. Choquette also commented on Methanex's business strategy. "One of the
priorities that we set for 1999 was to challenge our single product focus.
We recently completed this review and, in addition to maintaining our focus
on tightly managing our methanol business, we will pursue two areas for
growth. We have consolidated our methanol market development initiatives
such as fuel cells and our proprietary technology developments into a
focused emerging energy applications business. In addition we will seek out
diversification opportunities in which our core competencies can be
leveraged."
Results from operations
Methanex's reported net loss for the third quarter of 1999 was
$10.2-million (six cents per share) compared with a net loss of
$23.1-million (13 cents per share) for the second quarter of 1999. The
decrease in reported net loss was principally due to an increase in the
average realized methanol price. The average realized methanol price
increased to $115 per tonne from $99 per tonne in the second quarter.
For the nine months ended Sept. 30, 1999, Methanex reported a net loss of
$72.8-million (42 cents per share) compared with a net loss of
$46.7-million (27 cents per share) for the same period in 1998. The
operating loss was $93.5-million for the nine months ended Sept. 30, 1999,
compared with $61-million for the corresponding period in 1998. The
increase in reported operating loss was primarily the result of the impact
of lower methanol prices which was partially offset by improved costs. The
average realized price for the nine months ended Sept. 30, 1999, was $102
per tonne compared with $126 per tonne for the corresponding period in
1998. Costs were lower for the nine months ended Sept. 30, 1999, due to
higher production, lower logistics costs and a higher proportion of sales
from lower cost facilities, including Chile III.
The methanol price strengthened in the third quarter primarily due to
continuing strong demand in all regions and for all derivatives, including
MTBE. The U.S. contract net transaction price increased from $118 per tonne
(35 cents per gallon) in June to $132 per tonne (40 cents per gallon) in
September. Prices in Asia and Europe also increased for the quarter. The
1999 fourth quarter contract price in Europe has been settled at $121
(European) per tonne, which was equivalent to $130 (U.S.) per tonne at the
time of settlement compared with $114 (U.S.) per tonne for the third
quarter of 1999 and $97 per tonne for the second quarter 1999. U.S. spot
prices are currently in the range of $115 per tonne (35 cents per gallon).
Methanex has maintained its leading market position in each major market.
Sales for the nine months ended Sept. 30, 1999, increased to five million
tonnes from 4.4 million tonnes for the same period in 1998. In the third
quarter of 1999 sales were 1.7 million tonnes compared with 1.6 million
tonnes in the second quarter of 1999.
Liquidity and capital projects
Methanex continues to be financially strong. At Sept. 30, 1999, Methanex
had a cash balance of $144-million and an undrawn $291-million credit
facility. The cash, combined with the undrawn credit facility, provides
Methanex with the financial capacity and flexibility to weather the current
difficult business environment.
Cash generated from operations before changes in non-cash working capital
was $24.3-million for the third quarter of 1999 compared with $3.1-million
for the second quarter of 1999. The higher cash generation was principally
due to higher methanol prices.
At Sept. 30, 1999, the estimated cash requirements for capital expenditures
for the remainder of 1999 were approximately $12-million to complete the
financing of the construction of Chile III and approximately $350-million
to complete major maintenance and other planned capital expenditures.
New Zealand natural gas
During the quarter, Methanex secured an additional 130 petajoules of
natural gas for its New Zealand plants which extends the methanol
production capability by approximately 3.4 million tonnes. Methanex is
continuing its discussions with gas suppliers to develop additional
longer-term gas supply for the New Zealand operations.
MTBE
There have been a number of recent developments relating to MTBE. The
Environmental Protection Agency's blue ribbon panel on gasoline and
oxygenates released its report acknowledging that reformulated gasoline
provides substantial air quality benefits and that the major cause of
gasoline containing MTBE in water is leaking underground storage tanks.
Subsequent attention has focused on the panel's recommendation that MTBE
usage be substantially reduced which is inconsistent with the bulk of the
panel's findings. In California, legislation reiterating the MTBE ban
decision was passed in senate, but without a specific effective date. The
company has made a submission to the NAFTA's commission for environmental
co-operation to review California's record of enforcing environmental laws
related to underground storage tanks and water protection. The company is
also continuing to progress its claim for damages under the NATFA.
California MTBE consumption represents approximately 6 per cent of global
methanol demand.
Strategy update
One of the priorities that Methanex set for 1999 was to challenge its
single product focus. The company completed this process during a recent
review of its business strategy. In addition to maintaining its focus on
tightly managing its methanol business, including its drive to continue to
reduce its cost structure and to participate in industry restructuring, the
company will pursue two areas for growth. Methanex has consolidated its
methanol market development initiatives such as fuel cells and its
proprietary technology developments into a focused emerging energy
applications business. In addition, the company will seek out
diversification opportunities in which its core competencies can be
leveraged.
Short-term outlook
Methanol prices have continued to strengthen due primarily to strong demand
from all derivatives, including MTBE. Significant competitor capacity
additions, however, are coming on-stream before the end of 1999 and are
expected to fully impact the market by the first quarter of 2000. In order
to accommodate this new supply, industry restructuring of high cost
production is expected to take place. In this difficult environment the
company will continue to focus on lowering all aspects of its cost
structure including the restructuring of its higher cost Kitimat and
Fortier North American assets and by maximizing production from its
low-cost assets, including the new low-cost Chile III.
The methanol price will ultimately depend on the extent of industry
restructuring, industry operating rates and the strength of global demand.
The company's financial flexibility, excellent financial position,
outstanding global supply network and low cost position will ensure that
Methanex continues to be the leader in the methanol industry.
Except where noted, all prices are in U.S. dollars.
CONSOLIDATED STATEMENT OF OPERATIONS
Three months ended Sept. 30
(in thousands of U.S. dollars)
1999 1998
Revenue $ 197,998 $ 178,299
Cost of sales
and operating
expenses 179,985 174,019
Depreciation
and amortization 29,175 30,210
--------- ---------
Operating loss
before undernoted
items (11,162) (25,930)
Interest expense (8,060) (5,163)
Interest and
other income 3,013 5,841
--------- ---------
Loss before
income taxes (16,209) (25,252)
Income tax
recovery 6,059 4,500
--------- ---------
Net loss ($ 10,150) ($ 20,752)
========= =========
Net loss per
common share six cents 12 cents
CONSOLIDATED STATEMENT OF OPERATIONS
Nine months ended Sept. 30
(in thousands of U.S. dollars)
1999 1998
Revenue $ 509,531 $ 558,494
Cost of sales
and operating
expenses 517,618 537,973
Depreciation
and amortization 85,385 81,542
--------- ---------
Operating loss
before undernoted
items (93,472) (61,021)
Interest expense (16,624) (17,351)
Interest and
other income 9,865 21,113
--------- ---------
Loss before
income taxes (100,231) (57,259)
Income tax
recovery 27,453 10,606
--------- ---------
Net loss ($ 72,778) ($ 46,653)
========= =========
Net loss per
common share 42 cents 27 cents
Natural gas
Production from the company's New Zealand operations is dependent on the
supply of gas from the Maui and Kapuni fields. A reduction in the recovery
of natural gas from the fields underlying the contracted gas could
potentially reduce the company's gas entitlements. The company is in
discussions with gas suppliers to develop a longer term gas supply for the
New Zealand operations. There can be no assurance that the company will be
able to secure additional gas in New Zealand at economically attractive
terms.
Income taxes
Revenue Canada has reassessed the company's 1991 Canadian income tax
return. If the reassessment is upheld, the amount of tax depreciation
available at Dec. 31, 1991, would be reduced and thereby increase
cumulative income taxes and interest payable to Sept. 30, 1999, in an
amount totalling approximately $101-million.
The company has filed a notice of objection to appeal the reassessment.
Based on advice received from legal counsel, management believes its
position should be sustained.
WARNING: The company relies upon litigation protection for
"forward-looking" documents.
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