Ispat International N.V. Reports First Quarter 2004 Results
06 May 2004 - 7:05PM
PR Newswire (US)
Ispat International N.V. Reports First Quarter 2004 Results
ROTTERDAM, The Netherlands, May 6 /PRNewswire-FirstCall/ -- Ispat
International N.V., , today reported a net income of $102 million
or 85 cents per share for the first quarter of 2004 as compared to
net income of $51 million or 41 cents per share for the first
quarter of 2003. The current quarter's results include the benefit
of an after tax gain of $23 million at Ispat Inland resulting from
a reassessment of property taxes for the years 2002 and 2003.
Excluding this benefit, the first quarter net income would have
been $79 million or 65 cents per share. Consolidated sales and
operating income for the first quarter were $1.8 billion and $158
million, respectively, as compared to $1.3 billion and $75 million,
respectively, for the first quarter of 2003. Total steel shipments
increased by 10% to 4.2 million tons. Debt at the end of the first
quarter was $2.3 billion. Capital expenditure for the first quarter
of 2004 was $21 million. At March 31, 2004 the Company's
consolidated cash, cash equivalents and short term investments
totaled $104 million. The Company also had approximately $383
million available to it under various un-drawn lines of credit and
bank credit arrangements(1). Ispat International N.V. is one of the
largest and most global steel producers, with major steelmaking
operations in the United States, Canada, Mexico, Trinidad, Germany
and France. The Company produces a broad range of flat and long
products sold mainly in the North American Free Trade Agreement
(NAFTA) participating countries and the European Union (EU)
countries. Ispat International N.V. is a member of the LNM Group.
This news release contains forward-looking statements that involve
a number of risks and uncertainties. These statements are based on
current expectations whereas actual results may differ. Among the
factors that could cause actual results to differ are the risk
factors listed in the Company's most recent SEC filings. For
further information, visit our web site: http://www.ispat.com/
CONSOLIDATED BALANCE SHEETS UNDER U.S. GAAP As at March 31,
December 31, In millions of U.S. Dollars 2004 2003 (Unaudited)
(Audited) ASSETS Current Assets Cash and cash equivalents,
including short term 104 80 investments Trade accounts receivable -
net 617 507 Inventories 852 828 Prepaid expenses and other 145 105
Deferred tax assets 30 30 Total Current Assets 1,748 1,550
Property, plant and equipment - net 3,047 3,091 Investments in
affiliates and Joint Ventures 256 252 Deferred tax assets 512 535
Intangible pension assets 115 117 Other assets 110 90 Total Assets
5,788 5,635 LIABILITIES AND SHAREHOLDERS' EQUITY Current
Liabilities Payable to banks and current portion of long-term 225
363 debt Trade accounts payable 636 577 Accrued expenses and other
current liabilities 464 492 Deferred tax liabilities 29 28 Total
Current Liabilities 1,354 1,460 Long term debt including affiliates
2,101 1,914 Deferred tax liabilities 87 74 Deferred employee
benefits 1,894 1,906 Other long term obligations 130 132 Total
Liabilities 5,566 5,486 Shareholders' equity Common shares 7 7
Additional paid-up capital 446 476 Retained earnings 309 207
Cumulative other comprehensive income (540) (541) Total
Shareholders' equity 222 149 Total Liabilities and Shareholders'
Equity 5,788 5,635 CONSOLIDATED FINANCIAL & OTHER INFORMATION
AS PER U.S. GAAP For the Quarter Ended March 31, In millions of
U.S. Dollars, except 2004 2003 share, per share and other data
(Unaudited) (Unaudited) STATEMENT OF INCOME DATA Sales 1,755 1,328
Costs and expenses: Cost of sales (exclusive of 1,502 1,167
depreciation shown separately) Depreciation 51 45 Selling, general
and administrative 44 41 expenses 1,597 1,253 Operating income
(loss) 158 75 Operating margin 9.0% 5.6% Other income (expense) -
net 26 20 Financing costs: Interest (expense) (41) (44) Interest
income 1 3 Net gain (loss) from foreign exchange (1) 6 (41) (35)
Income (loss) before taxes 143 60 Income tax expense (benefit):
Current 4 4 Deferred 37 3 41 7 Net income before change in
accounting 102 53 principle Cumulative effect of change in - (2)
accounting principle Net income (loss) 102 51 Basic and diluted
earnings per common 0.85 0.41 share Weighted average common shares
121 124 outstanding (in millions) OTHER DATA Total shipments of
steel products including inter-company shipments (thousands of
tons) 4,224 3,832 (1) Certain regroupings have been made to the
prior period's financial statements in order to conform to 2004
groupings. CONSOLIDATED STATEMENTS OF CASH FLOWS AS PER U.S. GAAP
For the Quarter Ended March 31, In millions of U.S. Dollars 2004
2003 (Unaudited) (Unaudited) Operating activities: Net income 102
51 Adjustments required to reconcile net income to net cash
provided from operations: Depreciation 51 45 Deferred employee
benefit costs (6) 6 Net foreign exchange loss (gain) - (4) Deferred
income tax 39 3 Undistributed earnings from joint (27) (15)
ventures Other operating expenses (10) (5) Changes in operating
assets and liabilities, net of effects from purchases of
subsidiaries: Trade accounts receivable (135) 23 Inventories (31)
(26) Prepaid expenses and other assets (36) (32) Trade accounts
payable 66 (19) Accrued expenses and other (22) 4 liabilities Net
cash provided (used) by (9) 31 operating activities Investing
activities: Purchase of property, plant and (21) (19) equipment
Proceeds from sale of assets and investments 18 18 including
affiliates and joint ventures Investments in affiliates and 8 11
joint ventures Net cash provided (used) by 5 10 investing
activities Financing activities: Proceeds from payable to banks 930
716 Proceeds from long-term debt 854 38 including from affiliates
Payments of payable to banks (1,013) (742) Payments of long-term
debt (713) (58) including affiliates Purchase of treasury stock
(30) (2) Capital contribution (2) - Sale of treasury stock 2 - Net
cash provided (used) by 28 (48) financing activities Net increase
(decrease) in cash 24 (7) and cash equivalents Effect of exchange
rate changes - 1 on cash Cash and cash equivalent: At the beginning
of the period 80 77 At the end of the period 104 71 Analysis of
Results of Operations and Financial Condition This is not Operating
and Financial Review and Prospects ("OFRP"). The OFRP, as an annual
document is filed as part of the Company's annual report (Form
20-F) under Item 5 - Operating and Financial Review and Prospects.
The summary consolidated financial and other information, including
accounts of Ispat International N.V. ("Ispat International" or "the
Company") and its consolidating subsidiaries are prepared in
accordance with U.S. GAAP. All material inter-company balances and
transactions have been eliminated. Quantitative information on
total shipments of steel products includes inter-company shipments.
All references to 'Net Sales' exclude freight and handling costs
and fees. Management uses 'Net Sales' to manage the business, which
is based on net realizations from sales transactions. Management
believes that 'Net Sales' reflects a true underlying commercial
reality of the sales performance. All analysis presented in this
earnings release is prepared using "Net Sales". The term 'ton' as
discussed herein refers to short ton and the term 'tonne' used
herein refers to metric tonne. All references to iron ore pellets,
direct reduced iron ('DRI') and scrap are in tonnes, and all
references to steel products are in tons. The term 'steel products'
as used herein refers to semi-finished and finished steel products
and excludes DRI. All references to 'Ispat International' are to
'Ispat International N.V.'; to 'Ispat Inland' are to Ispat Inland
Inc.; to 'Imexsa' or 'Ispat Mexicana' are to Ispat Mexicana, S.A.
de C.V.; to 'Ispat Sidbec' are to Ispat Sidbec Inc.; to 'Caribbean
Ispat' are to Caribbean Ispat Limited; to 'Ispat Europe Group' are
collectively to Ispat Hamburger Stahlwerke GmbH ('IHSW'), Ispat
Stahlwerke Ruhrort GmbH ('ISRG'), Ispat Walzdraht Hochfeld GmbH
('IWHG'), Ispat Unimetal S.A., Trefileurope S.A. and SMR SNC. The
Company has made, and may continue to make, various forward-looking
statements with respect to its financial position, business
strategy, projected costs, projected savings, and plans and
objectives of management. Such forward-looking statements are
identified by the use of the forward-looking words or phrases such
as 'anticipates', 'intends', 'expects', 'plans', 'believes',
'estimates', or words or phrases of similar import. These
forward-looking statements are subject to numerous assumptions,
risks and uncertainties, and the statements looking forward beyond
the second quarter of 2004 are subject to greater uncertainty
because of the increased likelihood of changes in underlying
factors and assumptions. Actual results could differ materially
from those anticipated in the forward-looking statements. First
Quarter 2004 Compared with First Quarter 2003 Results of Operations
Revenue Sales increased by 32% to $1,755 million in the first
quarter of 2004 from $1,328 million. The increase in shipments by
10% combined with a 16% increase in average selling prices
including appreciation of the Euro and the Canadian $ resulted in a
32% increase in net sales to $1,678 million. The following table
summarizes the stand-alone numbers of net sales for our principal
operating subsidiaries.
-------------------------------------------------------------------------
Subsidiary Net Sales(2) Changes in
---------------------------------- Q1 2004 Q1 2003 Net Sales
Shipments Average Selling Price $ Million $ Million % % %
-------------------------------------------------------------------------
Ispat Inland 647 536 21 13 7 Ispat Mexicana 270 194 39 12 24 Ispat
Sidbec 178 137 30 3 12* Caribbean Ispat 103 93 10 (6) 17 Ispat
Europe Group 464 334 39 12 1*
-------------------------------------------------------------------------
* For Ispat Sidbec and Ispat Europe Group change in Net Selling
Price is based on C$ and Euro prices respectively. Net sales at
Ispat Inland increased by 21% due to an increase in average price
per ton by 7% across most product lines, base price increases,
favorable mix due to higher sales of cold rolled and coated
products and implementation of surcharges to cover increase in
input costs on certain shipments. Overall shipments increased by
13% due to stronger demand across most markets and the realization
of increased production resulting from the successful reline of
Blast Furnace No.7. Ispat Mexicana's net sales were higher by 39%
due to increase in average selling prices by 24% and a 12% increase
in shipments. The demand for slabs remained strong in all major
markets. Ispat Sidbec's net sales increased by 30% primarily due to
a 28% increase in average selling prices in US$ (12% in Canadian $)
and 3% increase in shipments due to the improving demand in all
market segments. Net sales at Caribbean Ispat increased 10% due to
increase in demand for its products in all of its principal
markets, as well as improved prices. Steel sales increased by 9%
due to a 21% increase in selling prices and 9% decline in
shipments. DRI sales increased by 12% due to an increase in average
selling prices by 17%, offset by a reduction of shipment by 4%.
These sales were largely to affiliates. Net sales at Ispat Europe
increased by 39% in US$ dollars (19% in Euros) due to improving
demand for long products in Europe. Shipments increased by 12%;
however, transaction prices remained flat due to earlier
commitments. Cost of sales Cost of sales increased by 29% to $1,502
million. This increase is due to an increase in input costs as well
as appreciation of the Euro and Canadian $, which translates into
higher US$ costs. Overall, cost per ton in US$ increased by 12%
primarily due to higher prices of most of the inputs, including
scrap, iron ore, natural gas, alloys and higher transportation
costs. These increases in input costs are driven by the continued
strong global demand. Ispat Inland's cost per ton increased by 8%,
excluding a one-time reversal of provision for property taxes. The
increase in costs was due to a steep increase in scrap and coke
costs. Costs of other inputs such as alloys, natural gas also
increased. Higher operating and sales volumes partially mitigated
the cost increase on a per ton basis. Due to the reline of Blast
Furnace No.7, fewer slabs were purchased thereby reducing costs.
Ispat Mexicana's cost per ton increased by 21%. Substantial
increases in prices of natural gas and pellet feed costs (price and
freight) were the main reasons for the increase in cost per ton.
Ispat Sidbec's cost per ton increased by 25% in US$ (11% in
Canadian $) due to steep increase in scrap prices. Cost per ton at
Caribbean Ispat increased by 19%. The increase was mainly due to an
increase in the cost of iron ore (price and freight). Ispat
Europe's cost per ton increased by 21% in US$ (4% in Euros)
primarily due to increase in prices of scrap. Gross profit Gross
profit is Net Sales less Cost of Sales (excluding depreciation).
Management believes that gross profit and gross profit margin
provide useful management information. Gross profit increased to
$253 million, an increase of 57% over the first quarter of 2003.
Gross margin for the first quarter was 14% compared to 12% in the
same period in 2003. The increase is due to higher levels of
activities (both production and shipment). In addition, the current
quarter gross profit benefited from a pre-tax gain of $35 million
from a release of property taxes provision for earlier years.
Comparative numbers of gross margin at the principal operating
subsidiaries were:
----------------------------------------------------------
Subsidiary Gross Margin (%) Q1 2004 Q1 2003
---------------------------------------------------------- Ispat
Inland 17.4 14.1 Ispat Mexicana 15.5 13.0 Ispat Sidbec 13.1 11.0
Caribbean Ispat 22.3 19.9 Ispat Europe Group 6.8 10.0
----------------------------------------------------------
Operating income The Company had an operating income of $158
million compared to $75 million in the same quarter last year. The
increase came from higher gross profit. Depreciation increased by
13% primarily due to capitalization in 2003 at some facilities as
well as appreciation of the Canadian $ and the Euro. Selling
general and administrative expenses increased by 7%. The increase
was mainly due to the appreciation of the Euro and the Canadian $.
In local currency terms, selling, general and administrative
expenses remained at prior year levels. Comparative numbers of
Operating Income and Operating Margin at the principal operating
subsidiaries were:
---------------------------------------------------------------
Subsidiary Operating Income / Operating Margin (Loss) $ Million (%)
Q1 2004 Q1 2003 Q1 2004 Q1 2003
---------------------------------------------------------------
Ispat Inland 81 44 12.5 8.3 Ispat Mexicana 30 16 11.1 8.1 Ispat
Sidbec 14 6 7.7 4.7 Caribbean Ispat 17 12 16.1 13.2 Ispat Europe
Group 5 11 1.1 3.3
---------------------------------------------------------------
Other income / (expense) During the quarter, other income included
a gain of $9 million realized by Ispat Mexicana from the sale of a
ship and a gain of $7 million realized by Ispat Inland from the
sale of environmental credits. Financing costs Net interest expense
has reduced by $1 million mainly due to a reduction in interest
rates and reduction in debt. Income tax The Company's deferred tax
expenses increased due to higher profits. Net income There was a
net income of $102 million in the first quarter of 2004 compared to
a net income of $51 million in the first quarter of 2003 due to the
reasons discussed above. In first quarter 2003, the company took a
charge of $2 million due to change of accounting principle.
Liquidity and Capital Resources During the first quarter working
capital increased by $158 million primarily due to higher levels of
trade receivables and inventories to support the higher levels of
operations and sales. Capital expenditure during the first quarter
was $21 million. During the quarter, Ispat Inland made a
contribution of $32 million to its pension fund in accordance with
its agreement with the Pension Benefit Guaranty Corporation. As at
March 31, 2004 the Company's cash and cash equivalents were $104
million, (December 31, 2003: $80 million). In addition, the
Company's operating subsidiaries had available borrowing capacity
under their various credit lines, including receivable factoring
facilities, of $383 million (December 31, 2003: $337 million). The
following table summarizes working capital facilities at the main
operating units:
----------------------------------------------------------------------
Subsidiary Limit Utilization Availability(3) ($ Millions) Mar 2004
Dec 2003 Mar 2004 Dec 2003 Mar 2004 Dec 2003
----------------------------------------------------------------------
Ispat Inland 391 381 199 281 192 100 Ispat Sidbec 112 123 34 30 78
93 Caribbean Ispat 62 65 45 61 17 4 Ispat Europe 75 75 50 50 25 25
----------------------------------------------------------------------
In addition to the credit facilities listed above, certain European
subsidiaries had the following receivable factoring facilities:
-------------------------------------------------------------------------
Subsidiary Limit Utilization Availability3 ($ Millions) Mar 2004
Dec 2003 Mar 2004 Dec 2003 Mar 2004 Dec 2003
-------------------------------------------------------------------------
Ispat Europe - 257 261 185 159 72 102 Receivables factoring
-------------------------------------------------------------------------
The increased utilization of receivable factoring is due to higher
levels of activity and increase in sales. The Company's total debt
including affiliates, both long and short term, was $2,326 million.
The corresponding amount as at December 31, 2003 was $2,277
million. Total debt for each of the principal operating
subsidiaries is summarized below.
-------------------------------------------------------------------------
Subsidiary Long Term Debt Payable to Current Portion Total Debt
(LTD) Bank of LTD ($ Mar 2004 Dec 2003 Mar 2004 Dec Mar 2004 Dec
2003 Mar Dec Millions) 2003 2004 2003
-------------------------------------------------------------------------
Ispat 1,166 1,100 31 21 1 7 1,198 1,128 Inland Ispat 357 387 - - 42
31 399 418 Mexicana Ispat 232 118 7 30 16 119 255 267 Sidbec
Caribbean 79 80 45 61 26 26 150 167 Ispat Ispat 134 139 50 50 1 1
185 190 Europe
-------------------------------------------------------------------------
Ispat Inland issued senior secured notes of $800 million in a
private offering comprising $150 million principal amount of
floating-rate notes maturing in 2010 and $650 million principal
amount of 93/4% fixed-rate notes maturing in 2014. The proceeds
from this issue were used to prepay in full the outstanding amount
of $662 million of the Term Loans, as well as to pay down the
borrowings under its revolving credit facilities. Ispat Sidbec
concluded agreements with its lenders whereby maturities of
repayments were extended up to January 2006. During the quarter the
company purchased 3.3 million of its own shares at an average price
of $9.20 per share from the market under the previously announced
share buy back program. Outlook for second quarter 2004 Demand in
our principal markets is expected to be strong. We expect improved
selling prices across all product segments and overall shipments at
first quarter levels. On the other hand, we see increase in cost
per ton due to continued pricing pressure on all major inputs.
Working capital is expected to increase due to increases in input
prices and higher accounts receivable. Capital expenditure in the
second quarter will be higher at approximately $40 million due to
work on restart of the DRI module at Ispat Sidbec and installation
of Ruhrstahl Heraeus Top Lance at Ispat Mexicana. Debt reduction
will continue to be one of our key priorities and we expect to
reduce our debt in this quarter. Interest costs are expected to
increase due to the higher interest rates arising from the
refinancing of Ispat Inland's debt. Overall, we expect to benefit
from the strong market conditions for our products. We look forward
with confidence to a better quarter.
--------------------------------- (1) Corresponding
exercisable/available limits are lower, which are based on the
level of inventory/receivable. (2) Net Sales numbers are standalone
numbers for certain operating subsidiaries and include
inter-company shipments. (3) Corresponding exercisable limits are
lower, which are based on the level of inventory/receivable.
DATASOURCE: Ispat International N.V. CONTACT: Ispat International
Limited, T.N. Ramaswamy, Director, Finance, + 44-20-7543-1174;
Citigate Financial Intelligence, John McInerney / Jessica Wolpert,
Investor Relations, +1-201-499-3535 / +1-201-499-3533
Copyright