Compañía de Minas Buenaventura S.A.A. press release
NCX: Record PE Sales and Strong Cash Flow despite Volatile Market; Non-Cash STYRENIX Asset Charge
NYSE - New York Stock Exchange · Peru
PITTSBURGH, January 31 /CNW/ - NOVA Chemicals Corporation (NYSE:NCX)(TSX:NCX):
All financial information is in U.S. dollars unless otherwise indicated.
NOVA Chemicals Corporation (NOVA Chemicals) reported a net loss of $781 million ($9.46 per share loss) for the fourth quarter of 2006. The loss includes a $772 million after-tax ($9.35 per share) non-cash restructuring charge related to the write-down of assets in the STYRENIX business unit. This write-down reduces the carrying value of STYRENIX assets to reflect the estimated realizable value of the future cash flows from those assets (see page 4).
The fourth quarter results also include an unrealized gain on feedstock derivatives totaling $5 million after-tax ($0.06 per share). This mark-to-market adjustment was required to record positions that do not qualify for hedge accounting treatment.
The net loss for the fourth quarter compares to a net loss of $24 million ($0.29 per share loss) for the third quarter of 2006, and a net loss of $66 million ($0.80 per share loss) for the fourth quarter of 2005. NOVA Chemicals reported a net loss of $703 million ($8.52 per share loss) for 2006 compared to a net loss of $101 million ($1.22 per share loss) for 2005.
"We were able to generate cash and reduce debt by about $100 million despite the sharp decline in domestic prices and margins. Our inventory control data and our logistics infrastructure allowed us to take rapid action to export a large amount of polyethylene to Asia with very good netbacks."
"The write-down of the STYRENIX assets is consistent with our restructuring effort and clears the decks for action. We remain confident that we will be able to finalize a shareholder value-building pathway for the business," said Jeff Lipton, NOVA Chemicals' President and CEO.
Fourth quarter net loss from the businesses was $12 million ($0.14 per share loss) versus net income of $83 million ($1.00 per share) in the third quarter of 2006.
NOVA Chemicals' three business units have been further segmented for financial reporting purposes. See page 2 for the breakdown of net income by the new reporting segments, and page 3 for additional details.
Net Income (Loss) Fourth Quarter Full Year ($U.S. Millions) 2006 2006 Olefins/Polyolefins $35 $379 Performance Styrenics (14) (29) STYRENIX (33) (152) Net income (loss) from the Businesses $(12) $198
NOVA Chemicals will host a conference call today, Wednesday, January 31, 2007 for investors and analysts at 10 a.m. EDT (8 a.m. MDT; 7 a.m. PDT). Media are welcome to join this call in "listen-only" mode. The dial-in number for this call is (416) 406-6419. The replay number is (416) 695-5800 (Reservation No. 3209629). The live call is also available on the Internet at www.investorcalendar.com (ticker symbol NCX)
NOVA Chemicals Highlights (millions of U.S. dollars except per share amounts and as noted) These highlights should be read in conjunction with NOVA Chemicals' other interim and annual financial statement disclosures, as well as its 2005 Annual Report.
Three Months Ended Year Ended Dec. 31 Sept. 30 Dec. 31 Dec. 31 Dec. 31 2006 2006(1) 2005(1) 2006 2005(1)
Revenue $1,635 $1,712 $1,433 $6,519 $5,616 Adjusted EBITDA(2) $98 $197 $81 $604 $461 Operating income (loss)(3) $(837) $13 $(76) $(680) $3
Net income (loss) Olefins/Polyolefins Joffre Olefins $66 $85 $34 $324(7) $154 Corunna Olefins (12) 4 (19) 25(7) 2 Polyethylene (27) 35 21 32(7) 71 Eliminations 8 (1) 4 (2) 9 Olefins/Polyolefins Total 35 123 40 379 236
Performance Styrenics (14) (5) (7) (29) (14)
STYRENIX Styrene Monomer (13) (14) (28) (61) (81) North American Solid Polystyrene (14) (10) (3) (44) (33) NOVA Innovene European JV (7) (10) (27) (47) (92) Eliminations 1 (1) (1) - - STYRENIX Total (33) (35) (59) (152) (206)
Corporate(4) (769) (107) (40) (901) (117)
Net loss $(781) $(24) $(66) $(703) $(101)
Loss per common share basic $(9.46) $(0.29) $(0.80) $(8.52) $(1.22) diluted $(9.46) $(0.29) $(0.80) $(8.52) $(1.22)
Weighted-average common shares outstanding (millions)(5) (6) basic 83 83 82 83 83 diluted 83 83 82 83 83
(1) See Note 1 to Consolidated Financial Statements on page 21 for a discussion of the prior period restatement related to stock-based compensation. The impact to net loss for the three months ended Sept. 30, 2006 and Dec. 31, 2005 was a $1 million benefit and a $2 million benefit, respectively. The impact to net loss for the year ended Dec. 31, 2005 was a $3 million benefit.
(2) Net income (loss) before restructuring charges, income taxes, other gains and losses, interest expense and depreciation and amortization (see Consolidated Statements of Net Loss and Reinvested Earnings (Deficit) on page 18; and Supplemental Measures on page 12).
(3) Net income (loss) before income taxes, other gains and losses and interest expense (see Consolidated Statements of Net Loss and Reinvested Earnings (Deficit) on page 18 and Supplemental Measures on page 12).
(4) See tables on page 12 for a description of all Corporate Items.
(5) Weighted-average number of common shares outstanding during the period used to calculate the loss per share (see Note 6, page 24).
(6) For periods where there are losses, diluted shares are the same as basic shares because outstanding securities such as stock options that could potentially dilute earnings per share would be anti-dilutive and are therefore excluded from outstanding diluted shares.
(7) One-third of the $60 million benefit from Canadian tax-rate reductions was allocated to each reportable segment within the Olefins/Polyolefins business unit.
NOVA Chemicals Supplemental Financial Data (millions of U.S. dollars) This Supplemental Financial Data should be read in conjunction with NOVA Chemicals' other interim and annual financial statement disclosures, as well as its 2005 Annual Report.
Three Months Ended Year Ended Dec. 31 Sept. Dec. 31 Dec. 31 Dec. 31 2006 30 2005 2006 2005 2006
Depreciation and amortization expense Olefins/Polyolefins $46 $44 $42 $179 $166 Performance Styrenics 2 4 4 12 13 STYRENIX 27 27 28 108 111 $75 $75 $74 $299 $290
Capital expenditures Olefins/Polyolefins $24 $22 $81 $93 $256 Performance Styrenics 14 16 39 81 86 STYRENIX 8 9 9 24 77 $46 $47 $129 $198 $419
Average capital employed(1) NOVA Chemicals $ 3,407 $3,759 $3,324 $ 3,629 $3,339 Olefins/Polyolefins $2,358 $2,503 $2,071 $2,414 $2,025 Performance Styrenics $265 $265 $223 $242 $230 STYRENIX(2) $ 870 $1,108 $1,100 $ 1,070 $1,157
After-tax return (loss) on capital employed(3) NOVA Chemicals (88.0)% 0.9% (5.0)% (15.9)% (0.5)% Olefins/Polyolefins 8.9% 22.5% 10.2% 18.6% 13.8% Performance Styrenics (18.3)% (4.8)% (9.8)% (9.1)% (4.1)% STYRENIX (9.8)% (8.1)% (17.6)% (9.7)% (14.7)%
Funds from operations(4) $58 $77 $39 $297 $262
Loss on average common equity(5) (286.1)% (7.0)% (20.9)% (55.6)% (7.5)%
(1) Average capital employed equals cash expended on plant, property and equipment (less accumulated depreciation and amortization) and working capital, and excludes assets under construction and investments. Amounts are converted to U.S. dollars using quarter-end exchange rates (see Supplemental Measures on page 12).
(2) As of Dec. 31, 2006, the capital employed, including cash expended on plant, property and equipment (less accumulated depreciation and amortization and any asset write-downs) and working capital, and excluding assets under construction and investments, for STYRENIX was $392 million.
(3) After-tax return (loss) on capital employed equals NOVA Chemicals' net income (loss) plus after-tax interest expense (annualized) divided by average capital employed (see Supplemental Measures on page 12).
(4) See Supplemental Measures on page 12.
(5) Loss on average common equity equals annualized net loss divided by average common equity.
Reportable Segment Change
Based on results of a Securities and Exchange Commission (SEC) routine, periodic review of NOVA Chemicals' financial statements, NOVA Chemicals has increased the number of reportable business segments from three to seven. These new reporting segments have been grouped according to NOVA Chemicals' business structure:
Olefins/Polyolefins Performance Styrenics STYRENIX 1. Joffre Olefins 4. Performance Styrenics 5. Styrene Monomer 6. North American Solid 2. Corunna Olefins Polystyrene (SPS) 7. NOVA Innovene European 3. Polyethylene Joint Venture
This change increases the amount of detail disclosed but does not impact the operation of the business units or the previously reported financial position, results of operations or cash flows for the Company. Current and future financial reports will reflect this reporting structure. Prior periods have been restated accordingly.
Progress with Cost Reduction and STYRENIX Restructuring
Cost Reduction
On June 26, 2006, NOVA Chemicals announced plans to restructure its North American operations to better align resources and reduce costs. The Company set a cost-reduction target of $125 million per year, to be achieved by the end of 2007. NOVA Chemicals has already taken necessary actions to achieve annual cost savings of $127 million in 2007. In total, the Company expects to save $140 million annually commencing in 2008.
(millions of U.S. dollars/year) Targeted Expected Annual Savings Savings 2007 2008
STYRENIX - North America $15(1) $12 $12 NOVA Innovene improvements 30 37 41 (NOVA Chemicals' share) Styrene contract expiration 30 22 30 Total STYRENIX $75 $71 $83 Other company-wide savings 50(1) 56 57 Total Savings $125 $127 $140
(1) Beginning with the first quarter of 2007, NOVA Chemicals will no longer allocate interest, taxes or corporate charges to the business segments. As such, $15 million of the original targeted savings in STYRENIX associated with corporate charges has been re-classified to other company-wide savings.
STYRENIX Restructuring
On July 20, 2006, NOVA Chemicals announced, as part of its restructuring, that it would pursue all strategic options available for the STYRENIX business unit including: sale, formation of a joint venture with other producers, or spin-out. A number of options continue to be aggressively pursued.
Each year, NOVA Chemicals reviews the carrying value of its plant, property and equipment to determine if this value will be recoverable through projected future cash flows from these assets. To estimate future cash flows, NOVA Chemicals uses third-party forecasts of market conditions and product margins. During 2006, the third-party forecasts for products sold by the STYRENIX business unit were revised to reflect weaker market conditions than were expected at the time of the earlier forecast. It was determined that the carrying value of the STYRENIX assets was greater than the estimated future cash flows. Accordingly, the assets were written down to the estimated realizable value of the assets, resulting in a non-cash charge of $860 million ($772 million after-tax). The realizable value was estimated using discounted cash flow analysis and information gathered during the investigation of strategic options for STYRENIX.
(millions of U.S. dollars) Europe North America Total Book value Before write-down $383 $719 $1,102 After write-down 63 179 242 Write-down before-tax $320 $540 860 Tax recovery at 36% (308) Tax valuation reserve(1) 220 Net tax recovery (88)
Write-down, after-tax $772
(1) Recording the future income tax recovery on the write-down resulted in a future income tax asset of $220 million in the U.S. and Swiss subsidiaries. NOVA Chemicals established a valuation reserve that will reduce the amount of the tax benefit recorded in 2006.
The write-down will reduce future depreciation charges. The Company estimates that depreciation charges will decrease by about $80 million per year from 2007 to approximately 2017 as a result of this write-down. In addition, there is a potential future income tax benefit related to this write-down that will be recognized when the business records profits. See Note 3 in the Notes to the Consolidated Financial Statements on page 22 for more details.
OLEFINS/POLYOLEFINS BUSINESS UNIT Financial Highlights (millions of U.S. dollars except as noted) Three Months Ended Year Ended Dec. 31 Sept. 30 Dec. 31 Dec. 31 Dec. 31 2006 2006 2005 2006 2005 Revenue Joffre Olefins(1) $427 $417 $555 $1,744 $1,704 Corunna Olefins(1) 515 557 232 1,997 1,430 Polyethylene(1) 455 507 445 1,922 1,628 Eliminations (348) (335) (333) (1,382) (1,176) Total $1,049 $1,146 $899 $4,281 $3,586
EBITDA(2) Joffre Olefins $125 $153 $73 $558 $313 Corunna Olefins 2 26 (14) 83 67 Polyethylene (13) 77 59 120 202 Eliminations(3) 9 (1) 7 (5) 14 Total $123 $255 $125 $756 $596
Operating income (loss)(4)(5) Joffre Olefins $111 $141 $60 $506 $262 Corunna Olefins (14) 10 (25) 24 17 Polyethylene (29) 61 41 52 137 Eliminations(3) 9 (1) 7 (5) 14 Total $77 $211 $83 $577 $430
Sales Volumes (millions of pounds) Polyethylene(6) Standard Products 722 698 537 2,726 2,403 Performance Products 143 102 110 513 438 Total 865 800 647 3,239 2,841
(1) Before intersegment eliminations between the business units.
(2) Net income (loss) before income taxes, other gains and losses, interest expense, depreciation and amortization (see Supplemental Measures on page 12).
(3) Represents intersegment profit eliminations.
(4) Net income (loss) before income taxes, other gains and losses and interest expense (see Supplemental Measures on page 12).
(5) To conform with changes in internal segment analysis and reporting, beginning with the first quarter of 2007, NOVA Chemicals will no longer allocate interest, taxes or corporate charges to the business segments and accordingly will only report segment results down to the operating income (loss) line. Assuming NOVA Chemicals had removed corporate charges from operating income (loss) in the fourth quarter of 2006, operating income (loss) before corporate charges for the Joffre Olefins, Corunna Olefins and Polyethylene segments would have been $119 million, $(11) million and $(24) million, respectively.
(6) The Joffre site produces Standard Products as well as Performance Products, including SCLAIR(R) and SURPASS(R) resins that are produced using Advanced SCLAIRTECH(TM) technology. The other sites produce Standard Products.
Operating Highlights Average Benchmark Prices(1) (U.S. dollars per pound, unless otherwise noted) Three Month Average Year Average Dec. 31 Sept. 30 Dec. 31 Dec. 31 Dec. 31 2006 2006 2005 2006 2005 Benchmark Principal Products: Ethylene(2) $0.45 $0.51 $0.56 $0.48 $0.44 Polyethylene - LLDPE butene liner(3) $0.58 $0.69 $0.76 $0.65 $0.60 Polyethylene - weighted- average benchmark(4) $0.61 $0.71 $0.78 $0.67 $0.63
Benchmark Raw Materials: AECO natural gas (dollars per mmBTU)(5) $6.07 $5.03 $9.72 $5.75 $7.25 NYMEX natural gas (dollars per mmBTU)(6) $6.62 $6.53 $12.85 $7.26 $8.55 WTI crude oil (dollars per barrel) (7) $60.21 $70.48 $60.02 $66.21 $56.56
(1) Average benchmark prices do not necessarily reflect actual prices realized by NOVA Chemicals or any other petrochemical company.
(2) Source: Chemical Market Associates, Inc. (CMAI) U.S. Gulf Coast (USGC) Net Transaction Price.
(3) Linear Low-Density Polyethylene (LLDPE) butene liner. Source: Townsend Polymer Services Information (TPSI).
(4) Benchmark prices weighted according to NOVA Chemicals' sales volume mix in North America. Source for benchmark prices: TPSI.
(5) Source: Canadian Gas Price Reporter, weighted average daily spot gas price, values in millions of British Thermal Units (mmBTU).
(6) Source: New York Mercantile Exchange (NYMEX) Henry Hub 3-Day Average Close.
(7) Source: NYMEX WTI daily spot-settled price average for calendar month.
Review of Operations
Olefins/Polyolefins
The Olefins/Polyolefins business unit reported net income of $35 million in the fourth quarter of 2006 compared with net income of $123 million in the third quarter of 2006. The quarter-over-quarter decline in earnings was primarily related to a significant reduction in polyethylene pricing as North American demand fell due to inventory de-stocking by customers. In addition, ethane feedstock costs were higher in the fourth quarter due to higher Alberta natural gas prices.
Joffre Olefins
Fourth Quarter 2006 Versus Third Quarter 2006
The Joffre Olefins segment reported net income of $66 million in the fourth quarter of 2006 compared with $85 million in the third quarter of 2006. The quarter-over-quarter decline in earnings was due to higher feedstock costs and declining ethylene prices, which were partially offset by higher ethylene sales volume.
Relative to the third quarter, Joffre Olefins' average ethane feedstock costs were higher in the fourth quarter due to higher Alberta natural gas prices. The average AECO cash natural gas price in the fourth quarter was up 21% while the average price of NYMEX contract natural gas was up 1%, reflecting a return to more normal basis differential in the fourth quarter. The average USGC ethane price was down 19%. USGC ethane prices averaged 142% of NYMEX natural gas cash prices, down from an average of 189% in the previous quarter.
The combination of higher Alberta natural gas prices and lower USGC ethane prices resulted in a lower Alberta Advantage in the fourth quarter. The Alberta Advantage averaged 7(cents) per pound of ethylene production cash cost in the fourth quarter of 2006, down from the record 17(cents) per pound in the third quarter, but stronger than it has been in most previous fourth quarters. NOVA Chemicals uses ethylene produced at its Joffre, Alberta, facility to make approximately 65% of its total polyethylene.
Fourth Quarter 2006 Versus Fourth Quarter 2005
The Joffre Olefins segment reported net income of $66 million in the fourth quarter of 2006 compared with $34 million in the fourth quarter of 2005. The increase in earnings was primarily due to lower feedstock costs as the AECO cash natural gas price was 38% lower in the fourth quarter of 2006 versus the same quarter one year ago. The Alberta Advantage was 7(cents) per pound this quarter versus 3(cents) per pound in the same quarter of 2005.
2006 Versus 2005
The Joffre Olefins segment reported net income of $324 million in 2006 compared with $154 million in 2005. The year-over-year increase in earnings was primarily due to lower feedstock costs as AECO cash natural gas price was 21% lower in 2006 than 2005. The Alberta Advantage was 11(cents) per pound in 2006 versus 6(cents) per pound in 2005. The segment also benefited from a $20 million tax rate adjustment due to lower future Canadian tax rates that were enacted in 2006.
Corunna Olefins
Fourth Quarter 2006 Versus Third Quarter 2006
The Corunna Olefins segment reported a net loss of $12 million in the fourth quarter of 2006 compared with net income of $4 million in the third quarter of 2006. The quarter-over-quarter decline was primarily due to lower co-product pricing, which was only partially offset by lower feedstock costs.
NOVA Chemicals' co-product prices were down 20%, primarily driven by lower propylene and energy co-product pricing during the quarter. WTI crude oil price declined 15% from the third quarter while NOVA Chemicals' average crude oil cost of sales decreased 6% due to its use of FIFO accounting.
Fourth Quarter 2006 Versus Fourth Quarter 2005
The Corunna Olefins segment reported a net loss of $12 million in the fourth quarter of 2006 compared to a net loss of $19 million in the same period one year ago. In the fourth quarter of 2005, the Corunna ethylene flexi-cracker underwent a major maintenance turnaround which experienced a delayed re-start due to issues relating to newly installed equipment.
2006 Versus 2005
The Corunna Olefins segment reported net income of $25 million in 2006 compared with $2 million in 2005. Volumes increased in 2006 versus 2005 as a result of approximately 11 months of Corunna operations versus approximately 9 months in 2005. A slight reduction in product margins largely offset the volume gains. The segment also benefited from a $20 million tax rate adjustment due to lower future Canadian tax rates that were enacted in 2006.
Polyethylene
Fourth Quarter 2006 Versus Third Quarter 2006