EARNINGS / Methanex reports 1st 3 months Results
VANCOUVER, April 22 /CNW/ - Methanex Corporation recorded net earnings of
US$2.2 million (US$0.01 per share) and generated cash from operations of
US$30.8 million (US$0.18 per share) for the first quarter ended March 31,
1998.
Pierre Choquette, Methanex's President and CEO, commented, ''Earnings and
cash generation in the first quarter of 1998 have declined significantly from
the levels achieved in 1997.'' Mr. Choquette added, ''This has been a quarter
of transition where we have seen a change from a balanced market in the second
half of 1997 to a long market in early 1998. Under these conditions we have
experienced a 30% reduction in realized prices and a reduction in sales of our
own produced methanol as we move earlier-purchased material through inventory.
Going forward, we intend to meet market needs by maximizing our own production
and focusing on our longer-term low-cost strategy. A significant initiative
to further lower our cost structure is our 975,000 tonne third plant in Chile,
which is on schedule for start-up in the first half of 1999.'' Mr. Choquette
concluded, ''The Company continues to enjoy a strong balance sheet,
underscoring our recent announcement to repurchase a further 10.7 million
shares over the next twelve months.''
The 1998 first quarter earnings compare to US$36.5 million (US$0.20 per
share) for Q4'97 and US$50.7 million (US$0.27 per share) for Q1'97, while the
cash generation compares to US$77.4 million (US$0.42 per share) for Q4'97 and
US$95.7 million (US$0.51 per share) for Q1'97.
The second quarter contract methanol price in Europe has been settled at
DM250 per tonne, which was equivalent to US$137 per tonne (US$0.41 per gallon)
at the time of contract settlement, while the indicative US spot price has
shown some recovery to just under $0.30 per gallon.
Methanex is a Vancouver based, publicly traded company engaged in the
worldwide production and marketing of methanol. Methanex shares are listed
for trading on the Toronto and Montreal stock exchanges in Canada under the
trading symbol ''MX'' and on The NASDAQ Stock Market in the United States
under the trading symbol ''MEOHF.''
A conference call is scheduled for Thursday, April 23 at 1:00pm EST
(10:00am PST) to review these first quarter results. Access to the call may
be obtained by calling the Confertech operator at 416-620-7013 ten minutes
prior to the call. A post-view version of the conference call will be
available until April 27 at 416-620-4100 (reservation No.860326), and
thereafter on our Shareholder Direct line at 1-800-64-MEOHF (-63643) or on our
web site at www.methanex.com.
Interim Report to Shareholders
For the three months ended March 31, 1998
-----------------------------------------
At March 31, 1998, the number of common shares outstanding was
175,595,023.
Contact Information
Methanex Investor Relations
1800 - 200 Burrard Street
Vancouver, BC Canada V6C 3M1
Share Information
Methanex Corporation's common shares are listed for trading on the
Toronto and Montreal exchanges under the symbol MX and on The NASDAQ Stock
Market under the symbol MEOHF.
Transfer Agents & Registrars
CIBC Mellon Trust Company
393 University Avenue, 5th Floor
Toronto, Ontario, Canada M5G 2M7
Toll free in North America: 1-800-387-0825
Investor Information
All financial reports, news releases and corporate information can be
accessed on the Internet on our website or by calling our toll free investor
line.
E-mail:
invest@methanex.com
Internet:
methanex.com
Methanex Shareholder Direct line:
1-800-64-MEOHF 1-800-646-3643
Message to Shareholders
------------------------
(Except where otherwise noted all currency amounts are stated in United
States dollars.)
Results from Operations
For the three months ended March 31, 1998, Methanex recorded net earnings
of $2.2 million ($0.01 per share) compared to net earnings of $50.7 million
($0.27 per share) for the same period in 1997 and net earnings of $36.5
million ($0.20 per share) for the three months ended December 31, 1997.
Earnings from operations were $0.6 million in the first quarter of 1998, a
decrease from $44.5 million in the fourth quarter of 1997. The decrease in
earnings from operations was principally due to lower methanol prices, lower
sales volumes, losses on sale of purchased methanol and higher unit costs as a
result of reduced production. This was partially offset by an insurance
settlement for recovery of lost contribution from the 1997 unplanned shutdown
of the Company's second plant in Chile.
In the first quarter of 1998 average realized prices declined by almost
$30 to $158 per tonne. By the end of the quarter contract pricing in the U.S.
had deteriorated to $115 per tonne ($0.35 per gallon). The reduction in
pricing was the result of a number of factors. Starting in late 1996 and
throughout 1997, very strong demand and poor industry operating rates helped
to keep pricing strong. In contrast, during the first quarter of 1998,
methanol industry operating rates were at near record levels and world supply
increased with the startup of an 850,000 tonne facility in Saudi Arabia.
Demand was negatively impacted by economic problems in Asia. In addition,
demand was further affected by reduced MTBE production, as a result of
downtime for maintenance, and inventory reductions in anticipation of further
declines in the price of methanol.
The price decline impacted margins on both Company produced product and
purchased methanol. Methanex entered 1998 with almost 500,000 tonnes of
purchased methanol either in inventory or committed for delivery in the early
months of the year. Most of this product was purchased at fixed prices and,
as a result of the price decline, Methanex incurred losses on this product.
Methanex's sales volumes were impacted by weakness in demand. First
quarter 1998 sales volumes were 1.4 million tonnes compared to 1.7 million
tonnes in the fourth quarter of 1997. Sales of Methanex-produced product
decreased to 0.9 million tonnes in the first quarter of 1998 from 1.1 million
tonnes during the fourth quarter of 1997. In addition to planned turnarounds
at Methanex's New Zealand facilities, production has been reduced at other
sites while the methanol purchased in late 1997 and early 1998 is moved
through inventory. Going forward, Methanex intends to continue to focus on its
longer-term low-cost strategy and meet market needs by maximizing its own
production.
We anticipate a transition period where customers and producers rebalance
their inventories and where high cost producers adjust production levels. A
number of high cost producers in Russia, China and other areas such as the
U.S. Gulf Coast have already cut back production.
In the U.S. Gulf, where natural gas costs typically represent up to 70% -
75% of delivered cash costs, natural gas prices are currently high. We
believe that, at current methanol contract prices, these U.S. producers are
experiencing negative cash margins. Methanex, for example, has taken the
decision, based on market conditions, to extend the current maintenance
shutdown at the Fortier facility until the end of May. We are seeing evidence
of other U.S. Gulf producers reducing or shutting-in production.
Liquidity and Capital Projects
Cash generated from operations before changes in non-cash working capital
for the first quarter of 1998 was $30.8 million ($0.18 per share) compared
with $77.4 million ($0.42 per share) in the fourth quarter of 1997. The lower
cash generation is due principally to lower methanol prices and lower sales
volumes.
Construction of our new low-cost plant in Chile (Chile III) is proceeding
on schedule. During the first quarter of 1998, cash construction costs were
$46 million and cash costs to complete the project are estimated to be
approximately $190 million.
The financial position of the Company continues to be excellent. The
cash balance at March 31, 1998 was $439 million and the Company has undrawn
credit facilities of $387 million. This strong financial position has allowed
Methanex to undertake the recently announced repurchase of up to 10.7 million
shares over a twelve month period under a normal course issuer bid.
Methanex's financial capacity is sufficient to complete the share
repurchase, complete the construction of Chile III, fund our share of the
Qatar project and pursue other projects that will enhance its global position
in methanol.
Short-term Outlook
Methanol prices remain weak early in the second quarter but U.S. Gulf
spot prices, which are generally indicative of trends in contract pricing,
have shown some signs of recovery. The European second quarter contract price
has been set at DM250 per tonne ($137 per tonne). The price of methanol will
ultimately depend on the strength of global demand, industry operating
performance and the actions of high-cost producers in regions such as the
United States, Europe, Russia and China. Regardless of the outcome, the
Company's strong financial position, management's drive to lower costs and the
Company's global supply network will ensure that Methanex is well positioned
to continue to enhance its leadership position in the methanol industry.
Pierre Choquette
President and Chief Executive Officer
April 22, 1998
<<
Financial Highlights
(unaudited)
Consolidated Statements of Earnings 3 months ended March 31
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(thousands of U.S. dollars,
except per share amounts) 1998 1997
Revenue $ 229,052 $ 332,673
Cost of sales and operating expenses 203,606 233,474
Depreciation and amortization 24,889 31,209
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228,495 264,683
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Earnings from operations before
undernoted items 557 67,990
Interest expense -6,356 -8,247
Interest and other income 8,101 5,366
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1,745 -2,881
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Earnings before income and other taxes 2,302 65,109
Income taxes -88 -14,454
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Net earnings $ 2,214 $ 50,655
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Weighted average number of common
shares outstanding(x) 175,574,823 189,171,805
Net earnings per common share $ 0.01 $ 0.27
Cash generated from operations
per common share(xx) $ 0.18 $ 0.51
(x) number of common shares outstanding at March 31, 1998: 175,595,023
(xx) before changes in non-cash working capital
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Financial Highlights
(unaudited) March 31 December 31
Consolidated Balance Sheets 1998 1997
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(thousands of U.S. dollars)
Assets
Current assets:
Cash and cash equivalents $ 438,950 $ 492,316
Receivables 198,998 241,656
Inventories 82,916 89,272
Prepaid expenses 9,119 12,364
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729,983 835,608
Property, plant and equipment 1,070,903 1,064,634
Other assets 87,653 68,629
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$ 1,888,539 $ 1,968,871
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Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued
liabilities $ 113,890 $ 197,987
Current maturities on
long-term debt and other
long-term liabilities 5,200 5,145
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119,090 203,132
Long-term debt 398,541 398,481
Other long-term liabilities 61,812 62,419
Deferred income taxes 115,301 113,366
Shareholders' equity
Capital stock 720,677 720,569
Retained earnings 473,118 470,904
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1,193,795 1,191,473
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$ 1,888,539 $ 1,968,871
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Financial Highlights
(unaudited)
Consolidated Statements of Changes
in Financial Position 3 months ended March 31
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(thousands of U.S. dollars) 1998 1997
Cash provided by (used in):
Operations:
Net earnings $ 2,214 $ 50,655
Add:
Depreciation and amortization 24,889 31,209
Deferred income taxes 1,935 11,265
Other 1,777 2,538
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Cash generated from operations before
changes in non-cash working capital 30,815 95,667
Accounts receivable and accounts payable -8,845 -42,127
Inventories and prepaid expenses 8,076 4,248
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30,046 57,788
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Financing:
Repayment of long-term debt
and other long-term liabilities -1,548 -1,205
Issue of shares on exercise of
incentive stock options 108 1,940
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-1,440 735
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Investments:
Property, plant and equipment -28,388 -25,489
Accounts payable and accrued liabilities
related to capital expenditures -32,597 -4,044
Other assets -20,987 602
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-81,972 -28,931
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Increase (decrease) in cash position -53,366 29,592
Cash position, beginning of period 492,316 383,892
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Cash position, end of period $ 438,950 $ 413,484
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>>
Notes to Consolidated Financial Statements (unaudited)
Three months ended March 31, 1998
The consolidated financial statements are prepared in accordance with
generally accepted accounting principles in Canada. The consolidated
financial statements have been prepared from the books and records without
audit, however, in the opinion of management, all adjustments which are
necessary to the fair presentation of the results of the interim period have
been made.
These consolidated financial statements should be read in conjunction
with the consolidated financial statements and related notes which are
included in the Methanex 1997 Annual Report.
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 has entered into
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
The Company has received a proposal from Revenue Canada to reassess the
Company's 1991 Canadian income tax return. The potential reassessment may
reduce the amount of tax depreciation available at December 31, 1991 and
thereby increase cumulative income taxes and interest to March 31, 1998 in an
amount aggregating approximately $93 million.
The Company has responded to Revenue Canada's proposal. It is not
determinable whether Revenue Canada's proposal will lead to a reassessment. If
a reassessment is issued, the Company will file a notice of objection to
appeal the reassessment. Based on advice received from legal counsel,
management believes its position should be sustained.
In a related tax matter, a writ of summons was filed in the Supreme Court
of British Columbia in December 1997 naming Methanex as a co-defendant in a
civil case claiming damages equivalent to the income tax alleged owing plus
interest by former subsidiaries. As of April 22, 1998, the writ had not been
served on any of the defendants. Legal counsel has provided the opinion, with
which management concurs, that there is a high probability that Revenue Canada
will not succeed in this action.
<<
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Financial Highlights
(unaudited)
Quarterly
History 1998 1997 Q4 Q3 Q2 Q1 1996 Q4 Q3 Q2 Q1
Q1
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Methanol
sales
volume
(thousands
of tonnes)
Company
produced
product 913 5,049 1,137 1,159 1,328 1,425 4,580 1,194 1,158 1,181 1,047
Purchased
product 532 1,854 587 513 400 354 1,557 430 364 357 406
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1,445 6,903 1,724 1,672 1,728 1,779 6,137 1,624 1,522 1,538 1,453
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Methanol
production
(thousands
of tonnes)
North
America 318 1,551 378 322 394 457 1,741 441 470 392 438
New
Zealand 257 1,905 446 350 560 549 1,847 508 497 484 358
Chile 412 1,635 314 466 422 433 867 238 220 185 224
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987 5,091 1,138 1,138 1,376 1,439 4,455 1,187 1,187 1,061 1,020
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Methanol
price
($/
Tonne) 158 187 187 184 195 184 149 160 151 141 141
($/
Gallon) 0.48 0.56 0.56 0.55 0.59 0.55 0.45 0.48 0.45 0.42 0.42
Per share information
Earnings
(x) $ 0.01 1.10 0.20 0.27 0.34 0.27 0.45 0.20 0.13 0.06 0.08
Cash
Flow
(xx) $ 0.18 2.02 0.42 0.47 0.58 0.51 1.18 0.40 0.33 0.23 0.23
>>
(x) Earnings per share for 1996 before write-down of property, plant and
equipment
(xx) Before changes in non-cash working capital |
