Ispat International N.V. Reports First Quarter 2004 Results

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