EARNINGS / Prudential Steel First Quarter Earnings
PRUDENTIAL STEEL LTD.
TSE SYMBOL: PTS
APRIL 16, 1998
Prudential Steel - Reduce Shipments Affects First Quarter
Earnings
CALGARY, ALBERTA--
/T/
HIGHLIGHTS
Three Months Ended March 31
1998 1997
Earnings per share $0.20 0.38
Shipments, Metric Tonnes 68,265 95,877
Per Tonne 1998 1997
Sales $941 $955
Cost of Sales $762 $736
Gross Profit $179 $219
/T/
Prudential Steel Ltd. announced net income in the first quarter
1998 of $6.1 million or basic earnings of $0.20 per share ($0.19
fully diluted). This is a reduction from the extraordinary
results of the first quarter 1997. Given the prevailing
environment in the energy sector, Prudential is satisfied with the
overall performance of the company due to the following factors:
- 1997 was an exceptional and unusual year;
- First quarter 1998 is the best first quarter in the history of
the company, excepting the first quarter of 1997;
- The company is in a strong financial position, with $92 million
in working capital and no debt;
- Gross margins remain strong;
- Labour costs are set for a three-year term with a new collective
agreement;
- Our recently upgraded manufacturing facilities are operating
very efficiently; and
- Our U.S. expansion in Longview, Washington, is proceeding as
planned.
First quarter 1998 earnings, result from a reduction of volumes
following the reduced level of western Canadian oil and gas
industry activity, which has been adversely affected by declining
world oil prices, import penetration and weather related problems.
In addition, during the fourth quarter of 1997, record shipments
created a short-term, end-user inventory surplus which affected
the overall demand in the first quarter 1998.
We remain optimistic for the remainder of 1998 and through 1999.
Prudential's exploration and production customers continue to
shift their focus to gas wells which require more OCTG and line
pipe. Large scale gas transmission pipelines are scheduled to come
on stream in late 1998 and 1999, creating opportunities in our
line pipe business. Markets for our industrial products are
expected to improve. With expanded capacity, Prudential is
striving to displace 1997's increased import penetration into our
markets. Prudential Steel will continue to capitalize on these
opportunities in 1998 to expand our western Canadian market
presence.
Product shipments for the quarter totalled 68,265 tonnes, down 29
per cent from the record first quarter of 1997. Sales for the
quarter were $64.3 million down 30 per cent, compared to $91.5
million in the first quarter 1997.
Record line pipe shipments in 1997 created a significant effect on
shipments in the first quarter 1998, which declined by 60 per cent
from the first quarter 1997. First quarter 1998 shipments of Oil
Country Tubular Goods decreased by 13 per cent compared to the
same period in 1997. Industrial product shipments also declined 29
per cent over first quarter 1997, due to lower than anticipated
shipments into the British Columbia market.
Capital Program Update
Prudential's expansion to the United States in Longview,
Washington is on schedule and is anticipated to be operational by
the end of 1998. Upgrades previously announced to Mill #2 in the
amount $7.3 million capital expenditure program are on schedule
for completion in July 1998.
Outlook
Predictions for western Canadian energy industry tubular
consumption become challenging in the face of uncertain commodity
prices. The industry consensus is that the 1998 drilling activity
will not meet 1997 levels. An early and prolonged spring break-up
may affect demand in the early part of the second quarter,
traditionally Prudential's slowest period of activity. The
balance of 1998 is expected to be a period of strong activity, as
a gas focussed industry bodes well for Prudential Steel.
Dividend Declared
The Board of Directors on April 16, 1998 declared a dividend of
$0.05 per share for the shareholders of record at the close of
business on June 15, 1998 to be paid on or about June 30, 1998.
Annual Meeting Announcement
Shareholders are invited to attend Prudential Steel Ltd.'s Annual
General Meeting on Tuesday, April 28, 1998 at 3:30 p.m. Calgary
time in the McMurray Room of the Calgary Petroleum Club.
Prudential Steel is listed on The Toronto Stock Exchange and
trades under the symbol PTS.
/T/
-----------------------------------------------------------
PREPARED WITHOUT AUDIT
Prudential Steel Ltd.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
($ in Thousands, except per share amounts)
-----------------------------------------------------------
THREE MONTHS
ENDED MARCH 31
1998 1997
$ $
-----------------------------------------------------------
Sales 64,270 91,541
Cost of sales 52,011 70,577
-----------------------------------------------------------
Gross profit 12,259 20,964
-----------------------------------------------------------
Expenses
Selling, general and administration 2,120 2,007
Interest income (351) (136)
Depreciation 889 927
-----------------------------------------------------------
2,658 2,798
-----------------------------------------------------------
Income before income taxes 9,601 18,166
Income taxes 3,536 6,665
-----------------------------------------------------------
Net income for the period 6,065 11,501
Retained earnings, beginning of period 79,518 42,254
Cash dividends (1,511) (1,257)
-----------------------------------------------------------
Retained earnings, at March 31 84,072 52,498
-----------------------------------------------------------
Earnings per share - Basic 0.20 0.38
- Fully diluted 0.19 0.38
-----------------------------------------------------------
Shipments, metric tonnes 68,265 95,877
-----------------------------------------------------------
-----------------------------------------------------------
PREPARED WITHOUT AUDIT
Prudential Steel Ltd.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
($ in Thousands)
-----------------------------------------------------------
AS AT
AS AT MARCH 31 DECEMBER
1998 1997 1997
$ $ $
-----------------------------------------------------------
Current Assets
Cash and
cash equivalents 10,995 14,151 26,279
Accounts receivable 24,136 50,832 53,183
Inventories 93,010 51,252 64,285
Prepaid expenses 929 470 468
Corporate taxes recoverable 36 -- --
-----------------------------------------------------------
Total current assets 129,070 116,705 144,215
-----------------------------------------------------------
Current Liabilities
Accounts payable and
accrued liabilities 37,068 40,743 38,070
Income taxes payable --- 5,152 12,687
-----------------------------------------------------------
Total current liabilities 37,068 45,895 50,757
-----------------------------------------------------------
Working capital 92,002 70,810 93,458
Property, plant,
and equipment 34,460 24,333 28,434
Deferred
pension expense 1,776 1,530 1,863
-----------------------------------------------------------
Capital employed 128,238 96,673 123,755
-----------------------------------------------------------
Deduct
Post employment
benefits payable 469 453 465
Deferred income taxes 1,805 2,058 1,910
-----------------------------------------------------------
Shareholders' equity 125,964 94,162 121,380
-----------------------------------------------------------
Shareholders' equity
is represented by
Common shares 41,892 41,664 41,862
Retained earnings 84,072 52,498 79,518
-----------------------------------------------------------
125,964 94,162 121,380
-----------------------------------------------------------
On behalf of the Board:
J. Donald Wilson Norman W. Robertson
President and Chief Executive Officer Chairman of the Board
-----------------------------------------------------------
PREPARED WITHOUT AUDIT
Prudential Steel Ltd.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
($ in Thousands)
-----------------------------------------------------------
THREE MONTHS
ENDED MARCH 31
1998 1997
$ $
-----------------------------------------------------------
Operating Activities
Net income for the period 6,065 11,501
Add (deduct) items not affecting cash
Depreciation 889 927
Deferred income taxes (105) (196)
Deferred pension expense 87 62
Accrued post employment benefits 4 7
Gain on sale of property,
plant and equipment --- (4)
-----------------------------------------------------------
6,940 12,297
Net change in non-cash working
capital balances related to
operating activities (14,222) 511
-----------------------------------------------------------
Cash (used in) provided by
operating activities (7,282) 12,808
-----------------------------------------------------------
Financing Activities
Dividends paid (1,511) (1,257)
Common shares issued 30 381
-----------------------------------------------------------
Cash used in financing activities (1,481) (876)
-----------------------------------------------------------
Investing Activities
Purchase of property,
plant and equipment (6,915) (171)
Proceeds from sale of property,
plant and equipment --- 3
Net change in non-cash working capital
capital balances related to
investing activities 394 (84)
-----------------------------------------------------------
Cash used in investing activities (6,521) (252)
-----------------------------------------------------------
Net (decrease) increase in cash (15,284) 11,680
Cash position, beginning of period 26,279 2,471
-----------------------------------------------------------
Cash position, at March 31 10,995 14,151
----------------------------------------------------------- |
