Novamerican Steel Inc.
NASDAQ : TONS

Novamerican Steel Inc.

June 29, 2005 15:07 ET

Novamerican Reports 30th Consecutive Profitable Quarter

MONTREAL, QUEBEC--(CCNMatthews - June 29, 2005) - Novamerican Steel Inc. (NASDAQ:TONS) announced today its financial results for the second quarter ended May 28, 2005. (All amounts are in U.S. dollars).



SUMMARY OF FINANCIAL HIGHLIGHTS
(in thousands of U.S. dollars, except per share and tons data)

QUARTER ENDED
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May 28, 2005 May 28, 2004 Change
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Net sales $217,962 $204,286 $13,676
Gross margin 19.7% 29.8% -10.1%
Net income $8,676 $20,553 ($11,877)
Basic income per share $0.88 $2.12 ($1.24)
Diluted income per share $0.84 $2.07 ($1.23)

Tons sold 229,979 251,394 (21,415)
Tons processed 259,391 233,752 25,639
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489,370 485,146 4,224
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SIX MONTHS ENDED
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May 28, 2005 May 28, 2004 Change
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Net sales $424,319 $351,715 $72,604
Gross margin 20.3% 28.1% -7.8%
Net income $18,775 $27,589 ($8,814)
Basic income per share $1.91 $2.84 ($0.93)
Diluted income per share $1.82 $2.80 ($0.98)

Tons sold 435,741 480,301 (44,560)
Tons processed 502,317 441,356 60,961
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938,058 921,657 16,401
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SECOND QUARTER RESULTS

Despite difficult market conditions, the Company achieved its 30th consecutive profitable quarter.

Sales for the second quarter increased by $13.7 million, or 6.7%, to $218.0 million from $204.3 million for the same period in 2004.

Sales for the six months ended May 28, 2005 increased by $72.6 million, or 20.6%, to $424.3 million from $351.7 million in 2004.

Tons sold and processed in the second quarter of 2005 increased by 4,224 tons, or 0.9%, to 489,370 tons from 485,146 in the second quarter of 2004. While tons sold in the second quarter of 2005 decreased by 21,415 tons or 8.5%, tons processed increased by 25,639 tons or 11.0% compared with the second quarter of 2004.

Tons sold and processed for the six months ended May 28, 2005 increased by 16,401 tons, or 1.8%, to 938,058 tons from 921,657 tons in 2004. While tons sold for the six months ended May 28, 2005 decreased by 44,560 tons or 9.3%, tons processed increased by 60,961 tons or 13.8% compared with the same period in 2004.

The gross margin for the second quarter 2005 decreased to 19.7% from 29.8% in 2004.

The gross margin for the six months ended May 28, 2005 decreased to 20.3% from 28.1% in 2004.

Net income for the second quarter decreased by $11.9 million, or 57.8% to $8.7 million, or $0.88 per share ($0.84 after dilution), versus $20.6 million, or $2.12 per share ($2.07 after dilution), for the same period in 2004. It was adversely affected by non-recurring costs of the Company's secondary share issue in the amount of $1.0 million.

Net income for the six months ended May 28, 2005 decreased by $8.8 million, or 31.9%, to $18.8 million, or $1.91 ($1.82 after dilution) per share, versus $27.6 million, or $2.84 per share ($2.80 after dilution), for the first six months of 2004.

OPERATIONS

The second quarter proved to be more difficult than anticipated due to continued downward price pressure which adversely affected margins. Tons sold were down from the same period last year due mostly to the absence of customer hedge buying which characterized the first six months of 2004. Lead times at North American steel mills remained short and many customers reduced inventories to minimum levels in an environment of declining prices.

OUTLOOK

Flat rolled steel prices will likely remain under pressure throughout the summer months due to seasonally weak demand and ongoing reductions in inventories. Management believes the supply/demand balance is approaching equilibrium, which should lead to price stability sometime in August or September. There appears to be a softening in demand which may be explained by steel buyers delaying purchases in anticipation of lower pricing and/or extended summer shutdowns.

COMPANY DESCRIPTION

Novamerican Steel Inc., based in Montreal, Canada with twelve operating locations in Canada and eleven operating locations in the United States, processes and distributes carbon steel, stainless steel and aluminum products, including carbon steel tubing for structural and automotive markets.

FORWARD-LOOKING (SAFE HARBOUR) STATEMENTS

Except for historical information contained herein, the matters set forth in this press release are forward-looking statements that involve risks and uncertainties including, but not limited to, product demand, competition, regulatory approvals, the effect of economic conditions and technological difficulties and other risks detailed in the Company's filings with the U.S. Securities and Exchange Commission.



Novamerican Steel Inc. and Subsidiaries - Consolidated Financial
Statements
(unaudited)

CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
(In accordance with U.S. GAAP, in thousands of U.S. dollars, except
per share and tons data)


Three months ended Six months ended
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May 28, May 29, May 28, May 29,
2005 2004 2005 2004
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$ $ $ $
Net sales 217,962 204,286 424,319 351,715
Cost of sales 175,013 143,328 338,124 253,027
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Gross margin 42,949 60,958 86,195 98,688
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Operating expenses
Plant 10,793 10,197 21,558 20,570
Delivery 6,398 5,205 11,127 9,894
Selling 3,304 3,359 6,891 6,515
Administrative and
general 7,804 8,337 15,213 16,026
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28,299 27,098 54,789 53,005
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Operating income 14,650 33,860 31,406 45,683
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Interest expense 1,368 1,219 2,518 2,530
Share in income of a
joint venture (143) (111) (260) (196)
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1,225 1,108 2,258 2,334
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Income before income
taxes 13,425 32,752 29,148 43,349
Income taxes 4,749 12,199 10,373 15,760
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Net income 8,676 20,553 18,775 27,589
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Net income per share
Basic 0.88 2.12 1.91 2.84
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Diluted 0.84 2.07 1.82 2.80
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Weighted average
number of shares
outstanding 9,877,084 9,700,000 9,831,587 9,700,000
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Comprehensive income
Net income 8,676 20,553 18,775 27,589
Change in cumulative
translation
adjustment (1,978) (1,679) (6,388) (4,045)
Change in fair value
of interest rate
swap, net of
deferred income
taxes 93 322 260 289
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6,791 19,196 12,647 23,833
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Tons sold 229,979 251,394 435,741 480,301
Tons processed 259,391 233,752 502,317 441,356
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489,370 485,146 938,058 921,657
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CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In accordance with U.S. GAAP, in thousands of U.S. dollars, except
share data)

Accumulated
Other Total
Common Shares Retained Comprehensive Shareholders'
Number Amount Earnings Income Equity
---------------------------------------------------------------------
$ $ $ $
Balance at
November
27, 2004 9,786,089 29,609 184,782 16,317 230,708
Options
exercised 370,137 5,182 5,182
Net income 18,775 18,775
Changes in
cumulative
translation
adjustment (6,388) (6,388)
Change in
fair value
of interest
rate swap,
net of
deferred
income taxes - - - 260 260
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Balance at
May 28,
2005 10,156,226 34,791 203,557 10,189 248,537
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CONSOLIDATED STATEMENT OF CASH FLOWS
(In accordance with U.S. GAAP, in thousands of U.S. dollars)

Three months ended Six months ended
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May 28, May 29, May 28, May 29,
2005 2004 2005 2004
---------------------------------------------------------------------
$ $ $ $
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income 8,676 20,553 18,775 27,589
Adjustments to
reconcile net
income to net
cash from
operating
activities
Depreciation and
amortization 2,508 2,307 4,843 4,289
Share in income of
a joint venture (143) (111) (260) (196)
Deferred income
taxes 63 804 (178) 750
Loss (gain) on
disposal of
property, plant
and equipment 104 (16) 104 451
Changes in working
capital items
Accounts receivable 864 (20,538) (1,874) (34,778)
Income taxes
receivable (2,814) - (2,814) 595
Inventories 27,236 (3,740) 2,954 (21,800)
Prepaid expenses
and other (2,197) 337 (2,077) (674)
Accounts payable
and accrued
liabilities (13,548) 5,201 (21,097) 10,108
Income taxes
payable (5,655) 7,580 (19,402) 8,389
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Net cash from
(used for)
operating
activities 15,094 12,377 (21,026) (5,277)
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CASH FLOWS FROM
INVESTING
ACTIVITIES
Issue of common
shares 5,182 - 5,182 -
Acquisition of
minority interest - - (204) (161)
Distribution from
a joint venture - - - 255
Additions to
property, plant
and equipment (1,012) (2,626) (2,645) (4,692)
Proceeds from
disposal of
property, plant
and equipment 114 29 119 2,421
Other assets - (75) - (124)
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Net cash from
(used for)
investing
activities 4,284 (2,672) 2,452 (2,301)
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CASH FLOWS FROM
FINANCING
ACTIVITIES
Net increase
(decrease)
in bank
indebtedness (4,868) (1,240) 20,514 (2,557)
Advance due to
an employee 75 - 495 -
Proceeds from
long-term debt (3,937) 2,679 2,345 15,746
Repayment of
long-term debt (1,706) (9,522) (3,032) (12,225)
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Net cash from
(used for)
financing
activities (10,436) (8,083) 20,322 964
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Effect of
exchange rate
changes on cash
and cash
equivalents (201) (165) (461) (297)
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Net increase
(decrease) in
cash and cash
equivalents 8,741 1,457 1,287 (6,911)
Cash and cash
equivalents,
beginning of
period 4,008 2,897 11,462 11,265
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Cash and cash
equivalents,
end of period 12,749 4,354 12,749 4,354
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SUPPLEMENTAL
DISCLOSURE OF
CASH FLOW
INFORMATION
Interest paid 1,686 1,488 2,340 2,316
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Income taxes
paid 13,772 3,988 30,723 6,140
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CONSOLIDATED BALANCE SHEETS
(In accordance with U.S. GAAP, in thousands of U.S. dollars)

May 28, May 29, November 27,
2005 2004 2004
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unaudited unaudited audited
$ $ $
Current assets
Cash and cash equivalents 12,749 4,354 11,462
Accounts receivable 123,511 113,718 125,718
Income taxes receivable 2,866 - -
Inventories 165,156 111,926 172,850
Prepaid expenses and other 2,841 1,974 799
Deferred income taxes 1,115 1,505 1,651
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308,238 233,477 312,480
Investment in a joint venture 2,523 3,298 2,263
Property, plant and equipment 101,830 101,183 106,308
Goodwill 12,992 12,791 12,789
Other assets 745 1,258 1,040
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426,328 352,007 434,880
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LIABILITIES
Current liabilities
Current portion of long-term debt 53,120 4,936 4,855
Fair value of interest rate swap 300 - -
Bank indebtedness 23,478 15,454 3,442
Accounts payable and accrued
liabilities 79,707 83,183 103,964
Income taxes payable - 8,239 19,988
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156,605 111,812 132,249
Long-term debt 7,429 55,714 56,766
Fair value of interest rate swap - 1,271 741
Deferred income taxes 13,757 13,662 14,416
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177,791 182,459 204,172
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SHAREHOLDERS' EQUITY
Share capital 34,791 28,404 29,609
Retained earnings 203,557 139,460 184,782
Accumulated other comprehensive
income 10,189 1,684 16,317
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248,537 169,548 230,708
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426,328 352,007 434,880
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Conference call: Wednesday June 29, 2005 at 5:00 pm. Please call 514-368-6455 for details.

Contact Information

  • Novamerican Steel Inc.
    Christopher H. Pickwoad, CA,
    Chief Financial Officer
    (514) 368-6455
    www.novamerican.com