EARNINGS / NOVA Corporation Page 1
CALGARY, Jan. 27 /CNW/ -- NOVA Corporation (NOVA) today announced
unaudited full year net income of $362 million (78 cents per share) after
including an $85 million charge to earnings to write down certain assets.
NOVA's earnings prior to this write-down were $447 million (96 cents per
share), down from net income of $463 million (98 cents per share) in 1996. In
1997, strong performance from NOVA Gas Transmission (NGT) and improved
earnings from NOVA's investment in Methanex were not sufficient to offset
weaker results from NOVA Chemicals.
NOVA's fourth quarter earnings of $88 million (19 cents per share) prior
to the $85 million asset write-down are down from earnings of $115 million (25
cents per share) in the third quarter of 1997 and $140 million (30 cents per
share) in the fourth quarter of 1996. NOVA's fourth quarter financial
performance was negatively affected by an extended shutdown at the Corunna
ethylene plant and by weaker prices for the company's commodity chemicals.
''The recently announced union of the pipeline and energy services
businesses of NOVA and TransCanada builds a strong platform from which to
create added value for shareholders,'' said Vice-Chairman and Chief Executive
Officer Ted Newall. ''NOVA's solid operating results in 1997, including steady
performance improvements in our energy services businesses, support this
transaction. The significantly improved cost structure and the abundance of
growth opportunities in our chemicals business positions NOVA Chemicals well
as it emerges into the public markets.''
<<
NOVA Highlights Three Months Ended Year Ended
(unaudited; millions of -------------------------- -----------------
dollars, except per Dec. 31 Sept. 30 Dec. 31 Dec. 31 Dec. 31
share data) 1997 1997 1996 1997 1996
------- -------- ------- -------- -------
Net income
NOVA Chemicals $ 19 $ 49 $ 65 $ 196 $ 217
NOVA Gas Transmission 52 50 55 200 181
NOVA Gas International 16 16 25 51 66
Corporate 1 - (5) - (1)
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Net income before
asset write-down $ 88 $ 115 $ 140 $ 447 $ 463
Asset write-down (85) - (32) (85) (32)
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Net income $ 3 $ 115 $ 108 $ 362 $ 431
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Net income per share
(fully diluted)
- before asset write-down $ 0.19 $ 0.25 $ 0.30 $ 0.96 $ 0.98
- including asset
write-down $ 0.00 $ 0.25 $ 0.23 $ 0.78 $ 0.91
Revenue $1,208 $1,138 $1,191 $4,840 $4,686
Funds from operations $ 205 $ 201 $ 212 $ 815 $ 830
NOVA's trading symbol on the Alberta, Toronto, Montreal and New York
stock exchanges is ''NVA''. NOVA's Internet address is www.nova.ca
Forward Looking Information
The following information contains forward-looking statements with
respect to NOVA Corporation, its subsidiaries or affiliated companies. By
their nature, these forward-looking statements involve risks and uncertainties
that could cause actual results to differ materially from those contemplated
by the forward-looking statements. These risks and uncertainties include
commodity chemical prices, regulatory and competitive developments affecting
the Alberta pipeline, cost levels in both the chemicals and gas services
operations, Canadian/U.S. exchange rates, assumptions related to growth in
capital investment and other risks detailed from time to time in the publicly
filed disclosure documents and securities commission reports of NOVA
Corporation and its subsidiairies or affiliated companies.
BUSINESS REVIEW
NOVA Chemicals Three Months Ended Year Ended
(unaudited; millions of -------------------------- -----------------
dollars) Dec. 31 Sept. 30 Dec. 31 Dec. 31 Dec. 31
1997 1997 1996 1997 1996
------- -------- ------- -------- -------
Net income contribution
NOVA operated
facilities $ 10 $ 34 $ 56 $ 139 $ 200
Equity in earnings
of Methanex 9 15 9 57 17
Methanex asset
write-down - - (32) - (32)
------- ------- ------- ------- -------
$ 19 $ 49 $ 33 $ 196 $ 185
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------- ------- ------- ------- -------
Operating income
Olefins and polyolefins $ 72 $ 104 $ 110 $ 423 $ 414
Styrenics (22) (21) 6 (71) 17
Computer system
development costs (4) (3) (7) (15) (32)
------- ------- ------- ------- -------
$ 46 $ 80 $ 109 $ 337 $ 399
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Revenue $ 823 $ 815 $ 836 $3,360 $3,043
Capital expenditures $ 138 $ 80 $ 43 $ 328 $ 257
Capital employed $2,101 $2,094 $2,200 $2,117 $1,996
Investment in Methanex $ 601 $ 592 $ 544 $ 601 $ 544
Depreciation $ 62 $ 57 $ 64 $ 235 $ 221
>>
Highlights
Net income was $19 million in the fourth quarter, down $30 million from
the third quarter largely as a result of the unplanned extended shutdown of
the Corunna ethylene plant and weaker commodity chemicals prices. In October,
NOVA experienced difficulties restarting the Corunna plant following a planned
major maintenance shutdown. This resulted in lower production volumes of
ethylene, chemicals and energy products, which in turn negatively impacted
polyethylene production and sales volumes. Fourth quarter earnings were
adversely affected by approximately $13 million after-tax, somewhat higher
than originally anticipated.
Income from NOVA's operated chemicals businesses was $139 million in
1997, down $61 million from the $200 million earned from operations in 1996.
The effect of stronger polyethylene prices was not sufficient to offset the
negative impact of weaker styrenics prices and higher feedstock costs.
The outlook for polyethylene prices is stable in the near term. However,
price deterioration is generally expected as new capacity enters the market.
Styrenics prices are expected to remain at current low levels. Several
companies have recently announced plant shutdowns; at the end of December,
1997, NOVA discontinued its 80 million pound polystyrene tolling arrangement
at Bayer's Addyston, Ohio plant.
Approximately 20 per cent of NOVA's polyethylene sales are exported to
markets outside North America. Around 75% of these exports are directed at
Asia, with the majority going to China and Hong Kong. NOVA has not yet been
directly affected by the problems being experienced in certain Asian markets.
However, it is expected that the economic slowdown underway may have some near
term negative pricing implications for North American chemicals producers.
Longer term, the probable cancellation of future projects may reduce the
excess global supply earlier than anticipated.
A general decline in commodity chemicals prices is widely expected later
this year, and NOVA's management expects 1998 and 1999 to be challenging
years. Starting in 1999, NOVA is targeting approximately $100 million in
after-tax non-market related margin improvements which will help to offset
the negative impact of lower prices.
During 1997, NOVA Chemicals' equity interest in Methanex contributed $57
million to earnings, compared with $17 million in 1996 before the $32 million
write-down on assets. This substantial increase resulted mainly from a 26 per
cent increase in the average realized price of methanol and a 12 per cent
increase in methanol sales volumes.
<<
Average Benchmark Prices on the U.S. Gulf Coast(1)
($U.S. per pound, except Methanol)
Q4 Q3 Q2 Q1 Q4 Q3 Q2
1997 1997 1997 1997 1996 1996 1996
---- ---- ---- ---- ---- ---- ----
Polyethylene
- linear low-butene liner(2) $0.35 $0.37 $0.40 $0.38 $0.40 $0.40 $0.39
Styrene $0.30 $0.30 $0.30 $0.31 $0.30 $0.32 $0.33
Polystyrene $0.41 $0.41 $0.42 $0.43 $0.44 $0.47 $0.46
Propylene $0.19 $0.20 $0.20 $0.20 $0.18 $0.18 $0.17
Methanol ($ U.S. per
U.S. gallon)(3) $0.56 $0.55 $0.58 $0.55 $0.48 $0.45 $0.42
(1) Average benchmark prices are not the actual prices realized by NOVA
or any other petrochemical company
(2) Source: Phillip Townsend Associates Inc.
(3) Methanex's average realized price.
NOVA Gas Transmission Three Months Ended Year Ended
(unaudited; millions of -------------------------- -----------------
dollars) Dec. 31 Sept. 30 Dec. 31 Dec. 31 Dec. 31
1997 1997 1996 1997 1996
------- -------- ------- -------- -------
Net income contribution $ 52 $ 50 $ 55 $ 200 $ 181
Capital expenditures $ 61 $ 99 $ 93 $ 392 $ 255
Depreciation $ 48 $ 50 $ 49 $ 194 $ 182
Average investment base $5,039 $5,014 $4,841 $4,967 $4,817
>>
Highlights
NOVA Gas Transmission (NGT) contributed $52 million in earnings during
the fourth quarter of 1997, up slightly from the third quarter of 1997.
NGT earnings of $200 million in 1997 are up $19 million, or 10.5 per cent
over full year 1996 earnings and include $7 million of earnings related to
investment-base growth.
The Alberta Energy and Utilities Board (EUB) approved the Cost Efficiency
Incentive Settlement (CEIS) in December, 1996, and as a result, 1996 savings
of $8 million were booked during the fourth quarter of 1996. NOVA's share of
after-tax CEIS savings was $6 million during the fourth quarter of 1997 and
$16 million during the full-year 1997. Since inception of the CEIS, NGT has
shared $84 million before-tax in operating and financial cost savings with its customers.
On November 14, 1997, the EUB announced the approval of NGT's Palliser
Load Retention Service (LRS) rate, effective January 1, 1998. Approval of the
LRS enables NGT to address the short-haul pricing concerns of shippers on the
previously proposed Palliser Pipeline, and to retain volumes of gas
transported on the existing NGT system. For the three years remaining in the
CEIS, NGT will absorb one-quarter of the cost increase to other shippers
resulting from the LRS decision, or approximately $4 million after-tax per
year.
In December, National Energy Board regulatory hearings on the proposed
Alliance pipeline began. NGT is participating in these hearings as an
intervenor. While NOVA strongly supports the urgent need for additional export
capacity, the company is opposing the project primarily on the basis that it
represents $1 billion worth of unnecessary duplication of existing facilities
within Alberta.
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NOVA Gas International Three Months Ended Year Ended
(unaudited; millions of -------------------------- -----------------
dollars) Dec. 31 Sept. 30 Dec. 31 Dec. 31 Dec. 31
1997 1997 1996 1997 1996
------- -------- ------- -------- -------
Earnings contribution
prior to asset write-down $ 16 $ 16 $ 25 $ 51 $ 66
Asset write-down (85) - - (85) -
------- ------- ------- ------- -------
Net income contribution $ (69) $ 16 $ 25 $ (34) $ 66
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New investments $ 24 $ 6 $ 70 $ 17 $ 234
Capital expenditures $ 78 $ 59 $ 9 $ 289 $ 51
Depreciation $ 12 $ 8 $ 7 $ 36 $ 28
>>
Highlights
NOVA Gas International's (NGI) fourth quarter income contribution was $16
million, unchanged from the prior quarter. Including the write-down of
certain assets, NGI reported a loss of $69 million during the fourth quarter.
In 1997, NGI earned $51 million prior to the write-down, down $15 million from
the $66 million earned in 1996 largely as a result of lower earnings from
NOVA's equity investment in NGC Corporation.
During the fourth quarter of 1997, NOVA wrote down the carrying value of
certain assets by $85 million. A portion of this write-down relates to
PanAlberta Gas. On December 2, 1997, NOVA announced its intention to offer
Pan-Alberta for sale. A subsequent review of the value of Pan-Alberta's
assets and the incurrence of some foreign exchange trading losses resulted in
a one-time write-down.
In the fourth quarter, NGI's wholly-owned subsidiary, Novagas Canada Ltd.
(NCL) filed application with the British Columbia Government to build a $92
million natural gas processing plant and associated pipelines in the West
Stoddart area near Fort St. John, British Columbia. Natural gas and natural
gas liquids from the West Stoddart plant will be transported by pipeline to
the natural gas extraction plant being built by NCL at Redwater, Alberta. With
several significant projects now underway, NCL has increased its asset base to
approximately $217 million at the end of 1997, and is targeting a further $250
million of assets in service by the end of 1998.
On January 21, 1998, NGI and its partners announced that they had
received board approvals to proceed with Gasoducto del Pacifico, a U.S. $400
million integrated natural gas project in Chile. The project includes a 530
kilometre natural gas pipeline to be built from Argentina to Chile, a natural
gas transportation and marketing company and investment in a commercial and
residential natural gas distribution system. The pipeline, in which NGI will
have a 30 per cent interest, and related businesses are expected to be in
service by late 1999.
CORPORATE ANNOUNCEMENT
NOVA - TransCanada Merger Includes Split of Chemical Company
On January 26, NOVA Corporation and TransCanada PipeLines Ltd. announced
their intention to merge, creating the fourth largest energy services company
in North America. Immediately following the merger, the new enterprise will
be split into separate energy and chemicals businesses.
This merger announcement supersedes NOVA's November 11th announcement of
its intention to reorganize into two independent, publicly traded companies --
an energy services company and a chemicals company.
The merger is expected to be completed by the end of the second quarter
of 1998, and will be effective following shareholder approvals of both
companies and the receipt of the necessary tax, court and regulatory
clearances.
LIQUIDITY & CAPITAL
Cash Flow Remains Strong
Despite a 16 per cent drop in net income, NOVA's funds from operations
were $815 million, down only $15 million from $830 million in 1996. NOVA's
strong cash flow will be used to support the company's aggressive capital
expenditure program in place for 1998.
Capital Investment Increases
During 1997, NOVA's capital expenditures were $1,009 million compared
with $537 million in 1996. In 1998, NGT expects to invest $430 million to
expand the natural gas pipeline system in Alberta. NOVA Chemicals will
spend approximately $500 million primarily to maintain, debottleneck and build
new facilities, including a new ethylene and polyethylene plant which are
expected to start-up in the year 2000, in Alberta. NGI expects to invest $320
million related to construction of natural gas processing facilities in
Western Canada and expansion of the Foothills Pipe Line, and $90 million for
construction of the Gas Pacifico pipeline in South America.
Foreign Currency Hedging - NOVA Chemicals
NOVA uses forward currency contracts and options to reduce its exposure
to fluctuations in the U.S. dollar. At December 31, 1997, NOVA had forward
contracts and options in place to hedge a total of U.S.$2.8 billion of net
revenues. These contracts mature from 1998 to 2002 and have an average
exchange rate of $0.743 per Canadian dollar ($1.34 per U.S. dollar). At
December 31, 1996, net revenues of U.S.$2.3 billion, from 1997 to 2001, were
hedged at an average rate of $0.746 per Canadian dollar ($1.34 per U.S.
dollar).
Share Buyback Program
With the November 11, 1997 announcement of its intention to split the
company into separate energy services and chemicals businesses, NOVA has
suspended its share buyback program. Since the beginning of NOVA's share
buyback programs in 1996, 35.4 million shares have been bought back at an
average cost of $12.10 per share, reducing NOVA's shares outstanding by 7 per
cent.
Dividends
NOVA's Board of Directors has approved the payment of a quarterly
dividend of $0.10 per share payable on February 15, 1998 to shareholders of
record as of January 30, 1998.
<<
Capitalization(1)
(unaudited; millions of dollars) Dec. 31 Sept. 30 Dec. 31
1997 % 1997 % 1996 %
------- -------- -------
Regulated Businesses(2)
Long-term debt(3) $3,785 67 $3,747 67 $3,774 67
Shareholders' equity 1,880 33 1,851 33 1,885 33
------- -------- -------
$5,665 $5,598 $5,659
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------- -------- -------
Non-regulated Businesses
Long-term debt and
current bank loans(3) $1,415 39 $1,283 36 $1,107 36
Shareholders' equity 2,173 61 2,228 64 1,990 64
------- -------- -------
$3,588 $3,511 $3,097
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(1) Includes proportionately consolidated businesses.
(2) Includes NGT, NOVA's proportionate share of Foothills Pipe Lines
Ltd. and the ethylene cost-of-service operations.
(3) Includes current portion and is net of cash available for debt
repayment.
NOVA's total return to shareholders was 15.6 per cent for the year ended
December 31, 1997, compared with a total return of 15.0 per cent for the TSE
100. The majority of NOVA's share price appreciation occurred in the fourth
quarter after the company signaled its intention to reorganize.
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