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VANCOUVER, BRITISH COLUMBIA -- (MARKET WIRE) -- 10/27/09 -- Methanex Corporation (TSX: MX)(NASDAQ: MEOH)(SANTIAGO: Methanex) -
For the third quarter of 2009, Methanex reported Adjusted EBITDA(1) of $31.0 million and a net loss of $0.8 million ($0.01 per share on a diluted basis). This compares with Adjusted EBITDA of $24.8 million and a net loss of $5.7 million ($0.06 per share on a diluted basis) for the second quarter of 2009.
Bruce Aitken, President and CEO of Methanex, commented, "It is pleasing to see the beginning of recovery in our numbers for the quarter. Sales volumes are up 13% from Q2 2009 and realized methanol prices rose about 16%. These results translated into improved EBITDA, cash generation and earnings. However, the quarter was negatively impacted by a number of mostly one-off costs such as stock-based compensation and unplanned outages at our plants in Chile and Trinidad."
Mr. Aitken added, "During the third quarter, methanol demand increased in all regions globally and industry supply was impacted by many planned and unplanned outages. These factors have led to a recent strong recovery in methanol prices which provides upward momentum to our earnings in the fourth quarter. And with increases in production expected from our Chile operations and our new project in Egypt over the next year, there is significantly more upside potential to our earnings."
Mr. Aitken concluded, "With US$197 million of cash on hand at the end of the quarter, a strong balance sheet, no near term refinancing requirements, and an undrawn credit facility, we are well positioned to continue to invest to grow the Company."
A conference call is scheduled for October 28, 2009 at 11:00 am ET (8:00 am PT) to review these third quarter results. To access the call, dial the Conferencing operator ten minutes prior to the start of the call at (416) 340-8018, or toll free at (866) 223-7781. A playback version of the conference call will be available for fourteen days at (416) 695-5800, or toll free at (800) 408-3053. The security passcode for the playback version is 6704266. There will be a simultaneous audio-only webcast of the conference call, which can be accessed from our website at www.methanex.com. In addition, an audio recording of the conference call can be downloaded from our website for three weeks after the call.
Methanex is a Vancouver-based, publicly traded company and is the world's largest supplier of methanol to major international markets. Methanex shares are listed for trading on the Toronto Stock Exchange in Canada under the trading symbol "MX", on the NASDAQ Global Market in the United States under the trading symbol "MEOH", and on the foreign securities market of the Santiago Stock Exchange in Chile under the trading symbol "Methanex". Methanex can be visited online at www.methanex.com.
FORWARD-LOOKING INFORMATION WARNING
This Third Quarter 2009 press release contains forward-looking statements with respect to us and the chemical industry. Refer to Forward-Looking Information Warning in the attached Third Quarter 2009 Management's Discussion and Analysis for more information.
(1) Adjusted EBITDA is a non-GAAP measure that does not have any standardized meaning prescribed by Canadian generally accepted accounting principles (GAAP) and therefore is unlikely to be comparable to similar measures presented by other companies. Refer to Additional Information - Supplemental Non-GAAP Measures in the attached Third Quarter 2009 Management's Discussion and Analysis for a description of each supplemental non-GAAP measure and a reconciliation to the most comparable GAAP measure.
Interim Report For the Three Months Ended September 30, 2009 At October 27, 2009 the Company had 92,108,242 common shares issued and outstanding and stock options exercisable for 2,680,636 additional common shares. Share Information Methanex Corporation's common shares are listed for trading on the Toronto Stock Exchange under the symbol MX, on the Nasdaq Global Market under the symbol MEOH and on the foreign securities market of the Santiago Stock Exchange in Chile under the trading symbol Methanex. Transfer Agents & Registrars CIBC Mellon Trust Company 320 Bay Street Toronto, Ontario, Canada M5H 4A6 Toll free in North America: 1-800-387-0825 Investor Information All financial reports, news releases and corporate information can be accessed on our website at www.methanex.com. Contact Information Methanex Investor Relations 1800 - 200 Burrard Street Vancouver, BC Canada V6C 3M1 E-mail: invest@methanex.com Methanex Toll-Free: 1-800-661-8851
THIRD QUARTER MANAGEMENT'S DISCUSSION AND ANALYSIS
Except where otherwise noted, all currency amounts are stated in United States dollars.
This Third Quarter 2009 Management's Discussion and Analysis dated October 27, 2009 should be read in conjunction with the 2008 Annual Consolidated Financial Statements and the Management's Discussion and Analysis included in the Methanex 2008 Annual Report. The Methanex 2008 Annual Report and additional information relating to Methanex is available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.
Three Months Ended Nine Months Ended
--------------------------- ------------------
($ millions, except Sep 30 Jun 30 Sep 30 Sep 30 Sep 30
where noted) 2009 2009 2008 2009 2008
------------------------------------------------------- ------------------
Sales volumes (thousands
of tonnes)
Produced methanol 943 941 946 2,884 2,534
Purchased methanol 480 329 429 1,079 1,639
Commission sales (1) 194 161 172 486 483
------------------------------------------------------- ------------------
Total sales volumes 1,617 1,431 1,547 4,449 4,656
Methanex average
non-discounted posted
price ($ per tonne) (2) 251 211 499 227 564
Average realized price
($ per tonne) (3) 222 192 413 205 455
Adjusted EBITDA (4) 31.0 24.8 139.5 68.9 343.7
Cash flows from
operating activities 1.4 14.0 127.6 83.3 269.5
Cash flows from
operating activities
before changes in
non-cash working
capital (4) 36.3 17.7 103.5 58.8 271.4
Operating income
(loss) (4) 3.1 (4.0) 108.3 (16.7) 263.0
Net income (loss) (0.8) (5.7) 70.0 (25.0) 172.7
Basic net income (loss)
per common share (0.01) (0.06) 0.75 (0.27) 1.81
Diluted net income (loss)
per common share (0.01) (0.06) 0.74 (0.27) 1.81
Common share information
(millions of shares):
Weighted average
number of common
shares 92.1 92.0 93.9 92.0 95.2
Diluted weighted
average number of
common shares 92.1 92.0 94.3 92.0 95.7
Number of common
shares outstanding,
end of period 92.1 92.0 93.4 92.1 93.4
------------------------------------------------------- ------------------
(1) Commission sales represent volumes marketed on a commission basis.
Commission income is included in revenue when earned.
(2) Methanex average non-discounted posted price represents the average of
our non-discounted posted prices in North America, Europe and Asia
Pacific weighted by sales volume. Current and historical pricing
information is available at www.methanex.com.
(3) Average realized price is calculated as revenue, net of commissions
earned, divided by the total sales volumes of produced and purchased
methanol.
(4) These items are non-GAAP measures that do not have any standardized
meaning prescribed by Canadian generally accepted accounting principles
(GAAP) and therefore are unlikely to be comparable to similar measures
presented by other companies. Refer to Additional Information -
Supplemental Non-GAAP Measures for a description of each non-GAAP
measure and a reconciliation to the most comparable GAAP measure.
PRODUCTION SUMMARY
YTD YTD
(thousands Q3 2009 Q2 2009 Q3 2008 Q3 2009 Q3 2008
of Capacity Product- Product- Product- Product- Product-
tonnes) (1) ion ion ion ion ion
--------------------------------------------------------------------------
Chile I, II,
III and IV 960 197 252 246 677 816
Titan 213 188 165 200 576 646
Atlas (63.1%
interest) 268 257 275 284 736 865
New Zealand (2) 350 202 203 126 599 370
--------------------------------------------------------------------------
1,791 844 895 856 2,588 2,697
--------------------------------------------------------------------------
(1) The production capacities for our Trinidad plants are stated at
original nameplate capacity. These facilities are able to operate above
original nameplate capacity as a result of efficiencies gained through
improvements and experience at these plants. The production capacity
for our facilities in Chile and New Zealand may be higher than original
nameplate capacity as, over time, these figures have been adjusted to
reflect ongoing operating efficiencies at these facilities.
(2) In October 2008, we restarted one of our two idled 900,000 tonne per
year facilities at our Motunui site in New Zealand and we idled our
530,000 tonne per year Waitara Valley facility. We have the flexibility
to operate the Motunui plant or the Waitara Valley plant or both
depending on methanol supply and demand dynamics and the availability
of natural gas on commercially acceptable terms and accordingly, we
have included both of these facilities in the production capacity for
New Zealand. We have excluded the second Motunui facility from
production capacity in New Zealand as we currently do not intend to
restart this facility.
Chile
Our methanol facilities in Chile produced 197,000 tonnes during the third quarter of 2009 compared with 252,000 tonnes during the second quarter of 2009. Production from our Chile facilities for the third quarter of 2009 was lower compared with the second quarter of 2009 primarily due to plant mechanical issues that led to unplanned outages in the third quarter of 2009 which resulted in lost production of approximately 65,000 tonnes.
We are currently operating our methanol facilities in Chile at approximately 25 to 30% of capacity primarily due to curtailments of our natural gas supply from Argentina - refer to the Management's Discussion and Analysis included in our 2008 Annual Report for more information.
Our goal is ultimately to return to operating all four of our plants in Chile with natural gas from suppliers in Chile. We are pursuing investment opportunities with the state-owned energy company Empresa Nacional del Petroleo (ENAP), GeoPark Chile Limited (GeoPark) and others to help accelerate natural gas exploration and development in southern Chile. During 2007, we signed an agreement with GeoPark under which we provided $40 million in financing to support and accelerate GeoPark's natural gas exploration and development activities in the Fell block in southern Chile and we have recently signed an agreement to provide a further $18 million in financing to support GeoPark's natural gas exploration and development activities in southern Chile. GeoPark has agreed to supply us with all natural gas sourced from the Fell block under a ten-year exclusive supply arrangement. In May 2008, we signed an agreement with ENAP to accelerate natural gas exploration and development in the Dorado Riquelme exploration block in southern Chile and to supply natural gas to our production facilities in Chile. Final government approvals were received in the third quarter of 2009. Under the arrangement, we fund a 50% participation in the block and as at September 30, 2009, we had contributed approximately $60 million. For the third quarter of 2009 approximately 50% of total production at our Chilean facilities was produced with natural gas supplied from the Fell and Dorado Riquelme blocks. We expect natural gas supply from these blocks to further increase during 2009 and we expect that we will be able to startup a second plant at our Chile site later in 2009. We believe the increased natural gas supply and the startup of a second plant will result in more than 20% higher production from our Chile site over the next year.
There continues to be other investment activities supporting the acceleration of natural gas exploration and development in areas of southern Chile. In late 2007, the government of Chile completed an international bidding round to assign oil and natural gas exploration areas that lie close to our production facilities and announced the participation of five international oil and gas companies. Under the terms of the agreements from the bidding round there are minimum investment commitments. Planning and exploration activities have commenced. In July 2008, we announced that under the international bidding round, the Otway exploration block in southern Chile was awarded to a consortium that includes Wintershall, GeoPark, and Methanex. Wintershall and GeoPark each own a 42% interest in the consortium and we own a 16% interest. Exploration work is expected to commence during the fourth quarter of 2009. The minimum exploration investment committed in the Otway block by the consortium for the first phase is $11 million over the next three years.
We cannot provide assurance that ENAP, GeoPark or others will be successful in the exploration and development of natural gas or that we will obtain any additional natural gas from suppliers in Chile on commercially acceptable terms.
Trinidad
Our Atlas and Titan methanol facilities in Trinidad represent over 2.0 million tonnes of competitive cost annual capacity. Our methanol facilities in Trinidad produced a total of 445,000 tonnes during the third quarter of 2009 compared with 440,000 tonnes during the second quarter of 2009. We completed planned turnaround activities for the Titan facility in June and early July 2009 and we also had an unplanned outage at our Atlas facility during the third quarter of 2009.
New Zealand
Our New Zealand facilities produced 202,000 tonnes during the third quarter of 2009 compared with 203,000 tonnes during second quarter of 2009.
In October 2008, we restarted one of our two idled 900,000 tonne per year facilities at our Motunui site in New Zealand and we idled our smaller scale 530,000 tonne Waitara Valley facility. We have the flexibility to operate the Motunui plant or the Waitara Valley plant or both depending on methanol supply and demand dynamics and the availability of natural gas on commercially acceptable terms.
EARNINGS ANALYSIS
Our operations consist of a single operating segment - the production and sale of methanol. In addition to the methanol that we produce at our facilities, we also purchase and re-sell methanol produced by others and we sell methanol on a commission basis. We analyze the results of all methanol sales together. The key drivers of changes in our Adjusted EBITDA for methanol sales are average realized price, sales volume and cash costs.
For a further discussion of the definitions and calculations used in our Adjusted EBITDA analysis, refer to How We Analyze Our Business.
For the third quarter of 2009, we recorded Adjusted EBITDA of $31.0 million and a net loss of $0.8 million ($0.01 per share on a diluted basis). This compares with Adjusted EBITDA of $24.8 million and a net loss of $5.7 million ($0.06 per share on a diluted basis) for the second quarter of 2009 and Adjusted EBITDA of $139.5 million and net income of $70.0 million ($0.74 per share on a diluted basis) for the third quarter of 2008.
For the nine months ended September 30, 2009, we recorded Adjusted EBITDA of $68.9 million and a net loss of $25.0 million ($0.27 per share on a diluted basis). This compares with Adjusted EBITDA of $343.7 million and net income of $172.7 million ($1.81 per share on a diluted basis) during the same period in 2008.
Adjusted EBITDA
The increase (decrease) in Adjusted EBITDA resulted from changes in the following:
Q3 2009 Q3 2009 YTD Q3 2009
compared with compared with compared with
($ millions) Q2 2009 Q3 2008 YTD Q3 2008
--------------------------------------------------------------------------
Average realized price $ 42 $ (272) $ (993)
Sales volumes 7 6 (21)
Total cash costs (43) 157 739
--------------------------------------------------------------------------
$ 6 $ (109) $ (275)
--------------------------------------------------------------------------
Average realized price
Three Months Ended Nine Months Ended
-------------------------- ------------------
($ per tonne, except Sep 30 Jun 30 Sep 30 Sep 30 Sep 30
where noted) 2009 2009 2008 2009 2008
------------------------------------------------------ ------------------
Methanex average
non-discounted
posted price (1) 251 211 499 227 564
Methanex average
realized price 222 192 413 205 455
Average discount 12% 9% 17% 10% 19%
------------------------------------------------------ ------------------
(1) Methanex average non-discounted posted price represents the average of
our non-discounted posted prices in North America, Europe and Asia
Pacific weighted by sales volume. Current and historical pricing
information is available at www.methanex.com.
The global economic slowdown in the latter part of 2008 led to a sudden and significant reduction in global methanol demand and an increase in global inventories. This resulted in a decrease in contract methanol pricing during the fourth quarter of 2008 and into 2009. During 2009, global methanol demand has improved and as a result of this improvement in demand and some planned and unplanned plant outages across the industry, methanol prices have increased recently - refer to Supply/Demand Fundamentals section below for more information. Our average non-discounted posted price for the third quarter of 2009 was $251 per tonne compared with $211 per tonne for the second quarter of 2009 and $499 per tonne for the third quarter of 2008. Our average realized price for the third quarter of 2009 was $222 per tonne compared with $192 per tonne for the second quarter of 2009 and $413 per tonne for the third quarter of 2008. The changes in our average realized price for the third quarter of 2009 increased Adjusted EBITDA by $42 million compared with the second quarter of 2009 and decreased Adjusted EBITDA by $272 million compared with third quarter of 2008. Our average realized price for the nine months ended September 30, 2009 was $205 per tonne compared with $455 per tonne for the same period in 2008 and this decreased our Adjusted EBITDA by $993 million.
For the third quarter of 2009 our average realized price was approximately 12% lower than our average non-discounted posted price. This compares with approximately 9% lower for the second quarter of 2009 and 17% lower for the third quarter of 2008. We have entered into long-term contracts for a portion of our production volume with certain global customers where prices are either fixed or linked to our costs plus a margin and accordingly, we expect the discount from our average non-discounted posted prices to widen during periods of higher methanol pricing.
Sales volumes
Total methanol sales volumes excluding commission sales volumes for the third quarter of 2009 were higher than the second quarter of 2009 and the third quarter of 2008 by 153,000 tonnes and 48,000 tonnes, respectively. This resulted in higher Adjusted EBITDA of $7 million and $6 million, respectively. Total methanol sales volumes excluding commission sales volumes for the nine months ended September 30, 2009 were lower compared with the same period in 2008 by 209,000 tonnes and this resulted in lower Adjusted EBITDA of $21 million.
Total cash costs
The primary driver of changes in our total cash costs are changes in the cost of methanol we produce at our facilities and changes in the cost of methanol we purchase from others. Our production facilities are underpinned by natural gas purchase agreements with pricing terms that include base and variable price components. The variable component is adjusted in relation to changes in methanol prices above pre-determined prices at the time of production. We supplement our production with methanol produced by others through methanol offtake contracts and on the spot market to meet customer needs and support our marketing efforts within the major global markets. We have adopted the first-in, first-out method of accounting for inventories and it generally takes between 30 and 60 days to sell the methanol we produce or purchase. Accordingly, the changes in Adjusted EBITDA as a result of changes in natural gas costs and purchased methanol costs will depend on changes in methanol pricing and the timing of inventory flows.
Total cash costs for the third quarter of 2009 were higher compared with the second quarter of 2009 by $43 million. Natural gas costs on sales of produced methanol were higher during the third quarter of 2009 compared with the second quarter of 2009 by $9 million primarily as a result of the impact of higher methanol pricing. Purchased methanol costs were higher as a result of the impact of higher methanol pricing during the third quarter of 2009 compared with the second quarter of 2009 and this resulted in higher cash costs by $18 million. Purchased methanol represented a higher proportion of our overall sales volumes during the third quarter of 2009 compared with second quarter of 2009 and this resulted in higher cash costs by $6 million. Selling, general and administrative expenses were also higher for the third quarter of 2009 compared with the second quarter of 2009 by $3 million primarily due to higher stock-based compensation expense as a result of the impact of changes in our share price. During the third quarter of 2009, we had unplanned outages at our Chile and Trinidad facilities and this resulted in higher unabsorbed fixed costs for the third quarter of 2009 compared with the second quarter of 2009 by $3 million. Ocean freight costs were higher during the third quarter of 2009 compared with the second quarter of 2009 by $4 million primarily as a result of lower backhaul margins and higher fuel costs.
Total cash costs for the third quarter of 2009 and nine months ended September 30, 2009 were lower than comparable periods in 2008 by $157 million and $739 million, respectively. Natural gas costs on sales of produced methanol and other costs were lower during the third quarter of 2009 and nine months ended September 30, 2009 than comparable periods in 2008 by $65 million and $218 million, respectively, primarily as a result of the impact of lower methanol pricing. Purchased methanol costs were lower as a result of the impact of lower methanol pricing for the third quarter of 2009 and nine months ended September 30, 2009 compared with the same periods in 2008 and this resulted in lower cash costs by $99 million and $366 million, respectively. Purchased methanol represented a lower proportion of our overall sales volumes for the nine months ended September 30, 2009 compared with the same period in 2008 and this resulted in lower cash costs by approximately $146 million. Stock-based compensation costs were higher for the third quarter of 2009 and nine months ended September 30, 2009 compared with the same periods in 2008 by $11 million and $4 million, respectively, primarily as a result of a significant recovery of stock-based compensation expense during the third quarter of 2008 as a result a decrease in our share price in that period. Other selling, general and administrative costs were lower for the third quarter of 2009 and nine months ended September 30, 2009 compared with the same periods in 2008 by $4 million and $13 million, respectively primarily as a result of cost reduction initiatives during 2009.
Depreciation and Amortization
Depreciation and amortization was $28 million for the third quarter of 2009 compared with $29 million for the second quarter of 2009 and $31 million for the third quarter of 2008.
Interest Expense
Three Months Ended Nine Months Ended
-------------------------- ------------------
Sep 30 Jun 30 Sep 30 Sep 30 Sep 30
($ millions) 2009 2009 2008 2009 2008
------------------------------------------------------ ------------------
Interest expense before
capitalized interest $ 13 $ 12 $ 13 $ 39 $ 40
Less capitalized interest (6) (5) (4) (18) (10)
------------------------------------------------------ ------------------
Interest expense $ 7 $ 7 $ 9 $ 21 $ 30
------------------------------------------------------ ------------------
Interest expense before capitalized interest for the third quarter of 2009 was $13 million compared with $12 million for the second quarter of 2009 and $13 million for the third quarter of 2008. We have limited recourse debt for our joint venture project to construct a 1.3 million tonne per year methanol facility in Egypt. Interest costs related to this project are capitalized.
Interest and Other Income
Three Months Ended Nine Months Ended
-------------------------- ------------------
Sep 30 Jun 30 Sep 30 Sep 30 Sep 30
($ millions) 2009 2009 2008 2009 2008
------------------------------------------------------ ------------------
Interest and other income $ 1 $ 2 $ 1 $ - $ 12
------------------------------------------------------ ------------------
Interest and other income for the third quarter of 2009 was income of $1 million compared with $2 million for the second quarter of 2009 and $1 million for the third quarter of 2008. The decrease in interest and other income during the third quarter of 2009 compared with the second quarter of 2009 was primarily due to the impact of changes in foreign exchange rates. Interest and other income for the nine months ended September 30, 2009 compared with the same period in 2008 was lower by $12 million primarily as a result of lower interest income earned on cash balances in 2009 and a $5 million gain on sale of ammonia production assets during 2008.
Income Taxes
We recorded an income tax recovery for the third quarter of 2009 of $1.4 million compared with a recovery of $3.3 million for the second quarter of 2009. The effective tax rate for the nine months ended September 30, 2009 was 35% compared with 30% for the same period in 2008.
The statutory tax rate in Chile and Trinidad, where we earn a substantial portion of our pre-tax earnings, is 35%. Our Atlas facility in Trinidad has partial relief from corporation income tax until 2014. In Chile the tax rate consists of a first tier tax that is payable when income is earned and a second tier tax that is due when earnings are distributed from Chile. The second tier tax is initially recorded as future income tax expense and is subsequently reclassified to current income tax expense when earnings are distributed.
SUPPLY/DEMAND FUNDAMENTALS
During the fourth quarter of 2008, the global financial crisis and weak economic environment led to a sharp reduction in global demand for most traditional methanol derivatives (which represent approximately 70% of global methanol demand) while demand for methanol into energy related applications remained relatively stable. Methanol blending into gasoline in China has been particularly strong and we believe that future growth in this application is supported by recent regulatory changes in that country. Overall, we estimate global methanol demand declined by about 15% in the fourth quarter of 2008 to approximately 36 million tonnes measured on an annualized basis compared with the third quarter of 2008. In reaction to this decrease in demand, many high cost methanol plants operated at lower rates or were shut down, particularly in China, where we estimate approximately 6 million tonnes of high cost methanol production capacity shut down during the fourth quarter of 2008 and net imports into China increased significantly to replace domestic production that had shut down. In reaction to this decrease in global demand, there was a significant decrease in spot and contract methanol pricing during the fourth quarter of 2008 and this lower pricing environment persisted through most of the first half of 2009.
Methanex Non-Discounted Regional Posted Prices (1)
Oct Sep Aug Jul
(US$ per tonne) 2009 2009 2009 2009
----------------------------------------------------
United States 316 279 239 226
Europe (2) 328 224 224 224
Asia 300 280 265 250
----------------------------------------------------
(1) Discounts from our posted prices are offered to
customers based on various factors.
(2) EUR 223 for Q4 2009 (Q3 2009 - EUR 159)
converted to United States dollars.
During 2009, global methanol demand has partially recovered to the current level of approximately 40 million tonnes measured on an annualized basis. Demand recovery in the first half of 2009 was mainly focused in Asia (particularly in China), while more recently we have also seen some recovery in demand in other regions including Europe and North America. As a result of the improvement in demand and significant industry supply challenges methanol prices have increased recently. There have been a number of planned and unplanned plant outages across the industry and we understand that two new world scale methanol plants that commenced operations in the last twelve months have been operating at reduced rates. Our average non-discounted posted price in October is approximately $315 per tonne compared to a price of $251 per tonne and $211 per tonne in the third quarter of 2009 and second quarter of 2009, respectively.
In response to increased demand and higher methanol prices some high cost production, particularly in China, has recently restarted. The next increments of world scale capacity outside of China are four plants with capacity totaling 4.0 million tonnes under construction and are scheduled to start up operations in 2010, including our own 1.3 million tonne per year plant in Egypt which is expected to commence operations in the first half of 2010.
Methanol demand into traditional derivatives is correlated to industrial production and we believe that methanol demand into traditional derivatives should improve further when the macro economic environment improves. Over the past two years, high energy prices have driven demand for methanol into energy applications such as gasoline blending and DME, primarily in China. Recent regulatory changes have improved the demand outlook for methanol gasoline blending in China and we believe demand potential into these energy derivatives will be stronger in a higher energy price environment.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities before changes in working capital in the third quarter of 2009 were $36 million compared with $18 million for the second quarter of 2009 and $103 million for the third quarter of 2008. The change in cash flows for the third quarter of 2009 compared with these periods is primarily a result of the change in earnings levels.
During the third quarter of 2009, we paid a quarterly dividend of US$0.155 per share, or $14 million.
We are constructing a 1.3 million tonne per year methanol facility in Egypt. We expect the methanol facility to begin operations in the first half of 2010. We own 60% of Egyptian Methanex Methanol Company S.A.E. ("EMethanex") which is the company that is developing the project and we will sell 100% of the methanol produced from the facility. We account for our investment in EMethanex using consolidation accounting. This results in 100% of the assets and liabilities of EMethanex being included in our financial statements. The other investors' interest in the project is presented as "non-controlling interest". During the third quarter of 2009, total plant and equipment construction costs related to our project in Egypt were $47 million. EMethanex has limited recourse debt facilities of $530 million. As at September 30, 2009, a total of $458 million of this limited recourse debt has been drawn with $32 million being drawn during the third quarter of 2009. The total estimated future costs to complete the project, excluding financing costs and working capital, are expected to be approximately $108 million. Our 60% share of future equity contributions, excluding financing costs and working capital, is estimated to be approximately $22 million and we expect to fund these expenditures from cash generated from operations and cash on hand.
We have an agreement with ENAP to accelerate natural gas exploration and development in the Dorado Riquelme hydrocarbon exploration block in southern Chile. Under the arrangement, we fund a 50% participation in the block and have contributed $60 million to date. We expect to make further contributions over the next three years to fully realize the potential of the block. These contributions will be based on annual budgets established by ENAP and Methanex in accordance with the Joint Operating Agreement that governs this development.
We also have an agreement with GeoPark under which we have provided $40 million in financing, of which GeoPark has repaid $8 million to date, to support and accelerate GeoPark's natural gas exploration and development activities in the Fell block in southern Chile. We have recently entered into an agreement to provide a further $18 million in financing to support GeoPark's natural gas exploration and development activities in southern Chile. This financing is expected to be provided later in 2009 and into 2010.
In August 2009, we entered into a $200 million unsecured revolving credit facility to replace the credit facility that was scheduled to expire in mid-2010. The new credit facility is provided by highly rated financial institutions and expires in mid-2012.
We operate in a highly competitive commodity industry and believe it is appropriate to maintain a conservative balance sheet and to retain financial flexibility. Our cash balance at September 30, 2009 was $197 million and we have a strong balance sheet, no near term re-financing requirements, and an undrawn $200 million credit facility provided by highly rated financial institutions that expires in mid-2012. We invest our cash only in highly rated instruments that have maturities of three months or less to ensure preservation of capital and appropriate liquidity. Our planned capital maintenance expenditure program directed towards major maintenance, turnarounds and catalyst changes for existing operations, is currently estimated to total approximately $80 million for the period to the end of 2011.
We believe we are well positioned to meet our financial commitments and continue to invest to grow the Company.
The credit ratings for our unsecured notes at September 30, 2009 were as follows: --------------------------------------------------------- Standard & Poor's Rating Services BBB- (negative) Moody's Investor Services Ba1 (stable) Fitch Ratings BBB- (stable) Credit ratings are not recommendations to purchase, hold or sell securities and do not comment on market price or suitability for a particular investor. There is no assurance that any rating will remain in effect for any given period of time or that any rating will not be revised or withdrawn entirely by a rating agency in the future. ---------------------------------------------------------
SHORT-TERM OUTLOOK
As a result of improvement in demand and some planned and unplanned plant outages across the industry, methanol prices have increased recently.
Although the recovery in methanol demand has been strong there continues to be uncertainty caused by the difficult global economic environment. The methanol price will ultimately depend on industry operating rates, global energy prices, the rate of industry restructuring and the strength of global demand. We believe that our financial position and financial flexibility, outstanding global supply network and low cost position will provide a sound basis for Methanex to continue to be the leader in the methanol industry and invest to grow the Company.
CONTROLS AND PROCEDURES
For the three months ended September 30, 2009, no changes were made in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
CHANGES IN ACCOUNTING POLICIES
On January 1, 2009, we adopted CICA Handbook Section 3064, Goodwill and Intangible Assets. This new accounting standard, replaces Section 3062, Goodwill and Other Intangible Assets. Section 3064 expands on the standards for recognition, measurement and disclosure of intangible assets. The impact of the retroactive adoption of this standard on our consolidated financial statements at January 1, 2009 is approximately $13 million recorded as a reduction to opening retained earnings and property plant and equipment. The amount relates to certain pre-operating expenditures that have been capitalized to property, plant and equipment at December 31, 2008 that would have been required to be expensed under this new standard. The impact for the three and nine month periods ended September 30, 2009 was an increase to selling, general and administrative expenses of approximately $0.7 million (2008 - $0.9 million) and $3.3 million (2008 - $2.7 million), respectively.
TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)
In February 2008, the Canadian Accounting Standards Board confirmed January 1, 2011 as the changeover date for Canadian publicly accountable enterprises to start using International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). IFRS uses a conceptual framework similar to Canadian GAAP, but there are significant differences in recognition, measurement and disclosures.
As a result of the IFRS transition, changes in accounting policies are likely and may materially impact our consolidated financial statements. The IASB will also continue to issue new accounting standards during the conversion period, and as a result, the final impact of IFRS on our consolidated financial statements will only be measured once all the IFRS applicable at the conversion date are known.
We have established a working team to manage the transition to IFRS. Additionally, we have established an IFRS steering committee to monitor progress and review and approve recommendations from the working team for the transition to IFRS. The working team provides regular updates to the IFRS steering committee and to the Audit, Finance & Risk Committee of the Board.
We have developed a plan to convert our consolidated financial statements to IFRS at the changeover date of January 1, 2011 with comparative financial results for 2010. The IFRS transition plan addresses the impact of IFRS on accounting policies and implementation decisions, infrastructure, business activities, and control activities.
During the latter half of 2008 we commenced the accounting policy selection phase and are addressing, on a priority basis, those areas which we believe may cause the most significant impact to our consolidated financial statements. In conjunction with the accounting policy selection phase, we are identifying the impact of IFRS on infrastructure (including financial reporting expertise and information technology and data systems), business activities (including financial covenants and compensation arrangements), and control activities (including internal control over financial reporting and disclosure controls and procedures). During the third quarter of 2009, we have continued to focus our efforts in researching and documenting significant impact areas and continue to progress the accounting policy selection phase. We have begun to review our selection of IFRS accounting policies with our auditors to ensure consistent interpretation of IFRS guidance in key areas.
We will continue to provide updates on the status of the project and its impact on financial reporting in our quarterly and annual Management's Discussion and Analysis throughout the convergence period to January 1, 2011.
ADDITIONAL INFORMATION - SUPPLEMENTAL NON-GAAP MEASURES
In addition to providing measures prepared in accordance with Canadian generally accepted accounting principles (GAAP), we present certain supplemental non-GAAP measures. These are Adjusted EBITDA, operating income and cash flows from operating activities before changes in non-cash working capital. These measures do not have any standardized meaning prescribed by Canadian GAAP and therefore are unlikely to be comparable to similar measures presented by other companies. We believe these measures are useful in evaluating the operating performance and liquidity of the Company's ongoing business. These measures should be considered in addition to, and not as a substitute for, net income, cash flows and other measures of financial performance and liquidity reported in accordance with Canadian GAAP.
Adjusted EBITDA
This supplemental non-GAAP measure is provided to assist readers in determining our ability to generate cash from operations. We believe this measure is useful in assessing performance and highlighting trends on an overall basis. We also believe Adjusted EBITDA is frequently used by securities analysts and investors when comparing our results with those of other companies. Adjusted EBITDA differs from the most comparable GAAP measure, cash flows from operating activities, primarily because it does not include changes in non-cash working capital, other cash payments related to operating activities, stock-based compensation expense, other non-cash items, interest expense, interest and other income (expense), and current income taxes.
The following table shows a reconciliation of cash flows from operating activities to Adjusted EBITDA:
Three Months Ended Nine Months Ended
-------------------------- ------------------
Sep 30 Jun 30 Sep 30 Sep 30 Sep 30
($ thousands) 2009 2009 2008 2009 2008
------------------------------------------------------ ------------------
Cash flows from
operating activities $ 1,434 $ 14,037 $ 127,645 $ 83,324 $ 269,544
Add (deduct):
Changes in non-cash
working capital 34,825 3,685 (24,183) (24,526) 1,844
Other cash payments (16) 4,477 435 5,751 2,556
Stock-based
compensation expense (4,602) (1,453) 5,870 (7,929) (3,965)
Other non-cash items (1,226) (2,169) (117) (5,544) (4,030)
Interest expense 6,622 6,972 9,444 21,153 29,764
Interest and other
income (expense) (1,256) (1,903) (615) 422 (12,449)
Current income taxes (4,751) 1,135 21,050 (3,711) 60,451
------------------------------------------------------ ------------------
Adjusted EBITDA $ 31,030 $ 24,781 $ 139,529 $ 68,940 $ 343,715
------------------------------------------------------ ------------------
Operating Income and Cash Flows from Operating Activities before Non-Cash Working Capital
Operating income and cash flows from operating activities before changes in non-cash working capital are reconciled to Canadian GAAP measures in our consolidated statements of income and consolidated statements of cash flows, respectively.
QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of selected financial information for the prior eight quarters is as follows:
Three Months Ended
---------------------------------------------
($ thousands, except Sep 30 Jun 30 Mar 31 Dec 31
per share amounts) 2009 2009 2009 2008
--------------------------------------------------------------------------
Revenue $ 316,932 $ 245,501 $ 254,007 $ 408,384
Net income (loss) (831) (5,743) (18,406) (3,949)
Basic net income (loss)
per common share (0.01) (0.06) (0.20) (0.04)
Diluted net income (loss)
per common share (0.01) (0.06) (0.20) (0.04)
--------------------------------------------------------------------------
Three Months Ended
---------------------------------------------
($ thousands, except Sep 30 Jun 30 Mar 31 Dec 31
per share amounts) 2008 2008 2008 2007
--------------------------------------------------------------------------
Revenue $ 569,876 $ 600,025 $ 735,934 $ 731,057
Net income 70,045 38,059 64,598 171,697
Basic net income per
common share 0.75 0.40 0.66 1.74
Diluted net income per
common share 0.74 0.40 0.66 1.72
--------------------------------------------------------------------------
FORWARD-LOOKING INFORMATION WARNING
This Third Quarter 2009 Management's Discussion and Analysis ("MD&A") contains forward-looking statements with respect to us and the chemical industry. Statements that include the words "believes", "expects", "may", "will", "should", "seeks", "intends", "plans", "estimates", "anticipates", or the negative version of those words or other comparable terminology and similar statements of a future or forward-looking nature identify forward-looking statements.
More particularly and without limitation, any statements regarding the following are forward looking statements:
- expected demand for methanol and its derivatives,
- expected new methanol supply and timing for start-up of same,
- expected shut downs (either temporary or permanent) or re-starts of existing methanol supply (including our own facilities), including, without limitation, timing of planned maintenance outages,
- expected prices of methanol,
- anticipated production rates of our plants, including timing of the start-up of a second plant in Chile,
- expected levels of natural gas supply to our plants,
- capital committed by third parties towards future natural gas exploration in Chile, anticipated results of natural gas exploration in Chile and timing of same,
- expected operating costs, including natural gas feedstock costs and logistics costs,
- expected capital expenditures and future sources of funding for such capital expenditures,
- expected tax rates,
- expected cash flows and earnings capability,
- anticipated completion date of, and cost to complete, our methanol project in Egypt,
- availability of committed credit facilities and other financing,
- shareholder distribution strategy and anticipated distributions to shareholders,
- commercial viability of, or ability to execute, future projects or capacity expansions,
- financial strength and ability to meet future financial commitments,
- expected global or regional economic activity (including industrial production levels) and expected timing for recovery from the current economic recession, and
- expected actions of third parties, including governments, gas suppliers, courts and tribunals.
We believe that we have a reasonable basis for making such forward-looking statements. The forward-looking statements in this document are based on our experience, our perception of trends, current conditions and expected future developments as well as other factors. Certain material factors or assumptions were applied in drawing the conclusions or making the forecasts or projections that are included in these forward-looking statements, including, without limitation, future expectations and assumptions concerning the following:
- supply of, demand for, and price of, methanol, methanol derivatives, natural gas, oil and oil derivatives,
- production rates of our facilities,
- success of natural gas exploration in Chile and New Zealand,
- receipt of third party consents or approvals, including without limitation, governmental approvals related to natural gas exploration rights, rights to purchase natural gas, and other rights and projects,
- operating costs including natural gas feedstock and logistics costs, capital costs, tax rates, cash flows, foreign exchange rates and interest rates,
- completion date and cost of our methanol project in Egypt,
- availability of committed credit facilities and other financing,
- global and regional economic activity (including industrial production levels),
- absence of a material negative impact from major natural disasters or global pandemics,
- absence of a material negative impact from changes in laws or regulations, and
- performance of contractual obligations by customers, suppliers and other third parties.
However, forward-looking statements, by their nature, involve risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements. The risks and uncertainties primarily include those attendant with producing and marketing methanol and successfully carrying out major capital expenditure projects in various jurisdictions, including without limitation:
- conditions in the methanol and other industries, including fluctuations in supply, demand and price for methanol and its derivatives, including demand for methanol for energy uses,
- the price of natural gas, oil and oil derivatives,
- the success of natural gas exploration and development activities in southern Chile and New Zealand and our ability to obtain any additional gas in those regions or other regions on commercially acceptable terms,
- the timing of start-up and cost to complete our new methanol joint venture project in Egypt,
- the ability to successfully carry out corporate initiatives and strategies,
- actions of competitors and suppliers,
- actions of governments and governmental authorities including implementation of policies or other measures by the Chinese government or other governments that could impact the demand for methanol,
- changes in laws or regulations,
- import or export restrictions, anti-dumping measures, increases in duties, taxes and government royalties, and other actions by governments that may adversely affect our operations,
- world-wide economic conditions, and
- other risks described in our 2008 Management's Discussion and Analysis and this Third Quarter 2009 Management's Discussion and Analysis.
In addition to the foregoing risk factors, the current uncertain economic environment and its impact on global economies has added additional risks and uncertainties including changes in capital markets and corresponding effects on the company's investments, our ability to access existing or future credit and defaults by customers, suppliers or insurers.
Having in mind these and other factors, investors and other readers are cautioned not to place undue reliance on forward-looking statements. They are not a substitute for the exercise of one's own due diligence and judgment. The outcomes anticipated in forward-looking statements may not occur and we do not undertake to update forward-looking statements except as required by applicable securities laws.
HOW WE ANALYZE OUR BUSINESS
Our operations consist of a single operating segment - the production and sale of methanol. We review our results of operations by analyzing changes in the components of our Adjusted EBITDA (refer to Supplemental Non-GAAP Measures for a reconciliation to the most comparable GAAP measure), depreciation and amortization, interest expense, interest and other income, and income taxes. In addition to the methanol that we produce at our facilities, we also purchase and re-sell methanol produced by others and we sell methanol on a commission basis. We analyze the results of all methanol sales together. The key drivers of changes in our Adjusted EBITDA for methanol sales are average realized price, sales volume and cash costs. The price, cash cost and volume variances included in our Adjusted EBITDA analysis are defined and calculated as follows:
PRICE
The change in Adjusted EBITDA as a result of changes in average realized price is calculated as the difference from period to period in the selling price of methanol multiplied by the current period total methanol sales volume excluding commission sales volume plus the difference from period to period in commission revenue.
COST
The change in our Adjusted EBITDA as a result of changes in cash costs is calculated as the difference from period to period in cash costs per tonne multiplied by the current period total methanol sales volume excluding commission sales volume in the current period plus the change in unabsorbed fixed cash costs, the change in consolidated selling, general and administrative expenses and the change in fixed storage and handling costs.
VOLUME
The change in Adjusted EBITDA as a result of changes in sales volumes is calculated as the difference from period to period in total methanol sales volume excluding commission sales volume multiplied by the margin per tonne for the prior period. The margin per tonne is calculated as the selling price per tonne of methanol less absorbed fixed cash costs per tonne and variable cash costs per tonne.
Methanex Corporation
Consolidated Statements of Income (Loss) (unaudited)
(thousands of U.S. dollars, except number of common shares and per share
amounts)
Three Months Ended Nine Months Ended
----------------------- -----------------------
Sep 30 Sep 30 Sep 30 Sep 30
2009 2008 2009 2008
--------------------------------------------------------------------------
(As adjusted (As adjusted
- note 2) - note 2)
Revenue $ 316,932 $ 569,876 $ 816,440 $ 1,905,836
Cost of sales and
operating expenses 285,902 430,347 747,500 1,562,121
Depreciation and
amortization 27,924 31,251 85,597 80,760
--------------------------------------------------------------------------
Operating income
(loss) before
undernoted items 3,106 108,278 (16,657) 262,955
Interest expense
(note 7) (6,622) (9,444) (21,153) (29,764)
Interest and other
income (expense) 1,256 615 (422) 12,449
--------------------------------------------------------------------------
Income (loss)
before income taxes (2,260) 99,449 (38,232) 245,640
Income tax (expense)
recovery:
Current 4,751 (21,050) 3,711 (60,451)
Future (3,322) (8,354) 9,541 (12,487)
--------------------------------------------------------------------------
1,429 (29,404) 13,252 (72,938)
--------------------------------------------------------------------------
Net income (loss) $ (831) $ 70,045 $ (24,980) $ 172,702
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Net income (loss)
per common
share:
Basic $ (0.01) $ 0.75 $ (0.27) $ 1.81
Diluted $ (0.01) $ 0.74 $ (0.27) $ 1.81
Weighted average
number of common
shares outstanding:
Basic 92,069,764 93,870,876 92,048,250 95,177,219
Diluted 92,069,764 94,328,208 92,048,250 95,665,831
Number of common
shares outstanding
at period end 92,108,242 93,396,142 92,108,242 93,396,142
See accompanying notes to consolidated financial statements.
Methanex Corporation
Consolidated Balance Sheets (unaudited)
(thousands of U.S. dollars)
Sep 30 Dec 31
2009 2008
--------------------------------------------------------------------------
(As adjusted
- note 2)
ASSETS
Current assets:
Cash and cash equivalents $ 197,436 $ 328,430
Receivables 242,758 213,419
Inventories 116,617 177,637
Prepaid expenses 22,263 16,840
--------------------------------------------------------------------------
579,074 736,326
Property, plant and equipment (note 4) 2,155,632 1,899,059
Other assets 116,931 168,988
--------------------------------------------------------------------------
$ 2,851,637 $ 2,804,373
--------------------------------------------------------------------------
--------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 194,645 $ 235,369
Current maturities on long-term debt (note 6) 28,333 15,282
Current maturities on other long-term
liabilities 8,707 8,048
--------------------------------------------------------------------------
231,685 258,699
Long-term debt (note 6) 889,321 772,021
Other long-term liabilities 90,665 97,441
Future income tax liabilities 289,651 299,192
Non-controlling interest 126,728 88,604
Shareholders' equity:
Capital stock 427,792 427,265
Contributed surplus 26,296 22,669
Retained earnings 794,717 862,507
Accumulated other comprehensive loss (25,218) (24,025)
--------------------------------------------------------------------------
1,223,587 1,288,416
--------------------------------------------------------------------------
$ 2,851,637 $ 2,804,373
--------------------------------------------------------------------------
--------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Methanex Corporation
Consolidated Statements of Shareholders' Equity (unaudited)
(thousands of U.S. dollars, except number of common shares)
Accumu-
lated
Other Total
Number of Contri- Compre- Share-
Common Capital buted Retained hensive holders'
Shares Stock Surplus Earnings Loss Equity
---------------------------------------------------------------------------
Balance,
December
31, 2007,
as
previously
reported 98,310,254 $ 451,640 $ 16,021 $ 876,348 $ (8,655) $1,335,354
Adjustments
for
retroactive
adoption
of new
accounting
policies:
Goodwill
and
intangibles
3064 (note 2) - - - (7,790) - (7,790)
Non-controlling
interest
proportionate
share
(note 2) - - - 1,858 3,462 5,320
---------------------------------------------------------------------------
Balance,
December
31, 2007,
as
adjusted 98,310,254 451,640 16,021 870,416 (5,193) 1,332,884
Net income
and other
comprehensive
loss, as
previously
reported - - - 172,298 (31,363) 140,935
Adjustments
for
retroactive
adoption
of new
accounting
policies:
Goodwill
and
intangibles
3064 (note 2) - - - (5,818) - (5,818)
Non-controlling
interest
proportionate
share
(note 2) - - - 2,273 12,531 14,804
------- ------- -------
Net income
and other
comprehensive
loss, as
adjusted 168,753 (18,832) 149,921
Compensation
expense
recorded
for stock
options - - 8,225 - - 8,225
Issue of
shares on
exercise
of stock
options 224,016 4,075 - - - 4,075
Reclassifi-
cation of
grant date
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