Methanex Reports Higher Earnings in Q2 2015
(firmenpresse) - VANCOUVER, BRITISH COLUMBIA -- (Marketwired) -- 07/29/15 -- For the second quarter of 2015, Methanex (TSX: MX)(NASDAQ: MEOH) reported Adjusted EBITDA(1) of $129 million and Adjusted net income(1) of $51 million ($0.56 per share on a diluted basis(1)). This compares with Adjusted EBITDA(1) of $97 million and Adjusted net income(1) of $21 million ($0.23 per share on a diluted basis(1)) for the first quarter of 2015. Net income attributable to Methanex shareholders was $104 million in the second quarter compared to $9 million in the first quarter of 2015.
John Floren, President and CEO of Methanex commented, "Our second quarter Adjusted net income reflects higher average realized methanol pricing compared to the first quarter of 2015. Prices increased as the margins for most methanol energy applications improved relative to the first quarter, in alignment with higher oil and related product prices. These energy applications, especially methanol-to-olefins, have continued to drive growth in demand for our product. The higher average realized pricing in Q2 was partially offset by lower produced product sales volume relative to the first quarter. Net income attributable to Methanex shareholders of $104 million in the second quarter of 2015 includes a $57 million after tax gain related to the termination of a terminal services agreement."
Mr. Floren continued, "Construction of our one million tonne Geismar 2 plant is proceeding very well, and if the pace achieved to date continues then we would expect to achieve first methanol by the end of 2015 and complete the project with no change to our total cost estimate. Production from our Geismar 1 facility continued to exceed our expectations, producing 276,000 tonnes during the second quarter of 2015. During the quarter, we also undertook a major refurbishment of our Medicine Hat facility and resumed operations in mid-July. We expect that this refurbishment will support increased production reliability of our plant for years to come."
"We returned over $85 million to shareholders in the second quarter of 2015 in the form of dividends and share repurchases. With cash on hand, an undrawn credit facility, robust balance sheet, and strong future cash flow generation capability, we are well positioned to meet our financial commitments, invest to grow the Company and return excess cash to shareholders."
A conference call is scheduled for July 30, 2015 at 12:00 noon ET (9:00 am PT) to review these second quarter results. To access the call, dial the conferencing operator ten minutes prior to the start of the call at (416) 340-8530, or toll free at (800) 769-8320. A playback version of the conference call will be available until August 20, 2015 at (905) 694-9451, or toll free at (800) 408-3053. The passcode for the playback version is 4843537. Presentation slides summarizing the Q2 2015 results and a simultaneous audio-only webcast of the conference call can be accessed from our website at . The webcast will be available on the website for three weeks following the call.
Methanex is a Vancouver-based, publicly traded company and is the world''s largest producer and 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" and on the NASDAQ Global Market in the United States under the trading symbol "MEOH".
FORWARD-LOOKING INFORMATION WARNING
This second quarter 2015 press release contains forward-looking statements with respect to us and the chemical industry. Refer to Forward-Looking Information Warning in the attached second quarter 2015 Management''s Discussion and Analysis for more information.
Interim Report for the Three and Six Months Ended June 30, 2015
Share Information
Methanex Corporation''s common shares are listed for trading on the Toronto Stock Exchange under the symbol MX and on the Nasdaq Global Market under the symbol MEOH.
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Investor Information
All financial reports, news releases and corporate information can be accessed on our website at .
Contact Information
At July 29, 2015 the Company had 90,263,298 common shares issued and outstanding and stock options exercisable for 1,716,224 additional common shares.
SECOND QUARTER MANAGEMENT''S DISCUSSION AND ANALYSIS
Except where otherwise noted, all currency amounts are stated in United States dollars.
FINANCIAL AND OPERATIONAL HIGHLIGHTS
This Second Quarter 2015 Management''s Discussion and Analysis ("MD&A") dated July 29, 2015 for Methanex Corporation ("the Company") should be read in conjunction with the Company''s condensed consolidated interim financial statements for the three and six month periods ended June 30, 2015 as well as the 2014 Annual Consolidated Financial Statements and MD&A included in the Methanex 2014 Annual Report. Unless otherwise indicated, the financial information presented in this interim report is prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The Methanex 2014 Annual Report and additional information relating to Methanex is available on SEDAR at and on EDGAR at .
FINANCIAL AND OPERATIONAL DATA
PRODUCTION SUMMARY
New Zealand
Our New Zealand methanol facilities produced 487,000 tonnes of methanol in the second quarter of 2015 compared with 481,000 tonnes in the first quarter of 2015. Mechanical issues at our two Motunui facilities resulted in lost production of approximately 110,000 tonnes during the second quarter of 2015. The New Zealand facilities are capable of producing up to 2.4 million tonnes annually, depending on natural gas composition.
Trinidad
In Trinidad, we own 100% of the Titan facility with an annual operating capacity of 875,000 tonnes and have a 63.1% interest in the Atlas facility with an annual operating capacity of 1,125,000 tonnes (63.1% interest). Production in Trinidad during the quarter was impacted by gas curtailments at both plants. The Titan facility produced 183,000 tonnes in the second quarter of 2015 compared with 186,000 tonnes in the first quarter of 2015. The Atlas facility produced 236,000 tonnes (63.1% interest) in the second quarter of 2015 compared with 209,000 tonnes (63.1% interest) in the first quarter of 2015.
We continue to experience some natural gas curtailments to our Trinidad facilities due to a mismatch between upstream commitments to supply the Natural Gas Company of Trinidad and Tobago (NGC) and downstream demand from NGC''s customers including Atlas and Titan. We are engaged with key stakeholders to find a solution to this issue, but in the meantime expect to continue to experience gas curtailments to the Trinidad site.
Geismar, United States
In late January 2015, the Geismar 1 plant commenced production and since start up has been operating at full rates, producing 276,000 tonnes during the second quarter of 2015 compared to 180,000 tonnes during the first quarter of 2015. We continue to make excellent progress on the construction of Geismar 2 and if the pace achieved to date continues, we would expect to be producing first methanol by the end of 2015. Once complete, the Geismar 2 facility will add approximately one million incremental tonnes to our annual operating capacity.
Egypt
On a 100% basis, the Egypt methanol facility produced 16,000 tonnes in the second quarter of 2015 (Methanex share of 8,000 tonnes) compared with 16,000 tonnes (Methanex share of 8,000 tonnes) in the first quarter of 2015. Production during the second quarter of 2015 continued to be impacted by natural gas supply restrictions and we idled the plant in June due to lack of natural gas availability. Although the restart date and future operating rates are difficult to predict, our current expectation is that we will be able to resume operations at reduced rates after the peak Egyptian summer electricity consumption period ends.
The Egypt facility has experienced periodic natural gas supply restrictions since mid-2012. Gas restrictions became more significant in 2014 and 2015. We cannot predict when the gas supply situation will improve, but are optimistic that recent developments for upstream gas supply in Egypt will result in improved gas deliveries in the future.
Medicine Hat, Canada
During the second quarter of 2015, we produced 51,000 tonnes at our Medicine Hat facility compared with 127,000 tonnes during the first quarter of 2015. The Medicine Hat facility underwent a planned major refurbishment during the second quarter of 2015 and returned to normal operation in mid-July.
Chile
During the second quarter of 2015, we produced 40,000 tonnes in Chile supported by natural gas supplies from both Chile and Argentina through a tolling arrangement.
As a result of insufficient natural gas feedstock from Chile and Argentina during the southern hemisphere winter, we idled our Chile operations in May 2015. We believe that we will be able to secure sufficient natural gas from Chilean sources supplemented by Argentine gas to restart our operations later in 2015.
The future of our Chile operations is primarily dependent on the level of natural gas exploration and development in southern Chile and our ability to secure a sustainable natural gas supply to our facilities on economic terms from Chile and Argentina.
FINANCIAL RESULTS
For the second quarter of 2015, we reported net income attributable to Methanex shareholders of $104 million ($1.15 per share on a diluted basis) compared with net income attributable to Methanex shareholders for the first quarter of 2015 of $9 million ($0.09 income per share on a diluted basis).
For the second quarter of 2015, we recorded Adjusted EBITDA of $129 million and Adjusted net income of $51 million ($0.56 per share on a diluted basis). This compares with Adjusted EBITDA of $97 million and Adjusted net income of $21 million ($0.23 per share on a diluted basis) for the first quarter of 2015. During the second quarter of 2015, we recorded a gain of $65 million ($57 million, net of tax) related to the termination of a terminal services agreement, which has been excluded from Adjusted net income.
We calculate Adjusted EBITDA and Adjusted net income by including amounts related to our equity share of the Atlas (63.1% interest) and Egypt (50% interest) facilities and by excluding the mark-to-market impact of share-based compensation as a result of changes in our share price and the impact of certain items associated with specific identified events. Refer to the Additional Information - Supplemental Non-GAAP Measures section for a further discussion on how we calculate these measures. Our analysis of depreciation and amortization, finance costs, finance income and other expenses and income taxes is consistent with the presentation of our consolidated statements of income and excludes amounts related to Atlas.
A reconciliation from net income attributable to Methanex shareholders to Adjusted net income and the calculation of Adjusted net income per common share is as follows:
We review our financial results by analyzing changes in Adjusted EBITDA, mark-to-market impact of share-based compensation, depreciation and amortization, finance costs, finance income and other expenses and income taxes. A summary of our consolidated statements of income is as follows:
Adjusted EBITDA (attributable to Methanex shareholders)
Our operations consist of a single operating segment - the production and sale of methanol. We review the results of operations by analyzing changes in the components of Adjusted EBITDA. For a discussion of the definitions used in our Adjusted EBITDA analysis, refer to the How We Analyze Our Business section.
The changes in Adjusted EBITDA resulted from changes in the following:
Average realized price
Methanex''s average realized price for the second quarter of 2015 was higher compared to the first quarter of 2015. Non-discounted posted prices moved higher through the quarter in Asia Pacific and the United States, and remained flat in Europe compared to the first quarter of 2015 (refer to the Supply/Demand Fundamentals section for more information). Our average non-discounted posted price for the second quarter of 2015 was $403 per tonne compared with $382 per tonne for the first quarter of 2015 and $523 per tonne for the second quarter of 2014. Our average realized price for the second quarter of 2015 was $350 per tonne compared with $337 per tonne for the first quarter of 2015 and $450 per tonne for the second quarter of 2014. The change in average realized price for the second quarter of 2015 increased Adjusted EBITDA by $26 million compared with the first quarter of 2015 and decreased Adjusted EBITDA by $198 million compared with the second quarter of 2014.
Sales volume
Methanol sales volume excluding commission sales volume was higher in the second quarter of 2015 compared with the first quarter of 2015 by 127,000 tonnes and with the second quarter of 2014 by 230,000 tonnes. Higher methanol sales volume excluding commission sales volume for these periods increased Adjusted EBITDA by $12 million and $26 million, respectively. For the six month period ended June 30, 2015, compared with the same period in 2014, methanol sales volume excluding commission sales volume were higher by 237,000 tonnes resulting in higher Adjusted EBITDA by $30 million.
Total cash costs
The primary drivers of changes in our total cash costs are changes in the cost of methanol we produce at our facilities (Methanex-produced methanol) and changes in the cost of methanol we purchase from others (purchased methanol). All of our production facilities except Medicine Hat are underpinned by natural gas purchase agreements with pricing terms that include base and variable price components linked to the price of methanol. We supplement our production with methanol produced by others through methanol offtake contracts and purchases 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 Methanex-produced and purchased methanol costs primarily depend on changes in methanol pricing and the timing of inventory flows.
In a rising price environment, our margins at a given price are higher than in a stable price environment as a result of timing of methanol purchases and production versus sales. Conversely, the opposite applies when methanol prices are decreasing.
The impact on Adjusted EBITDA from changes in our cash costs are explained below:
Methanex-produced methanol costs
We purchase natural gas for the New Zealand, Trinidad, Geismar, Egypt and Chile methanol facilities under natural gas purchase agreements where the unique terms of each contract include a base price and a variable price component linked to the price of methanol. This reduces our commodity price risk exposure. The variable price component of each gas contract is adjusted by a formula related to methanol prices above a certain level. For the second quarter of 2015 compared with the first quarter of 2015, Methanex-produced methanol costs were lower by $5 million. For the three and six months ended June 30, 2015 compared with the same periods in 2014, Methanex-produced methanol costs were lower by $45 million and $111 million, respectively. Changes in Methanex-produced methanol costs for all periods presented are primarily due to the impact of changes in realized methanol prices on the variable portion of our natural gas costs and changes in the mix of production sold from inventory.
Proportion of Methanex-produced methanol sales
The cost of purchased methanol is directly linked to the selling price for methanol at the time of purchase and the cost of purchased methanol is generally higher than the cost of Methanex-produced methanol. Accordingly, an increase in the proportion of Methanex-produced methanol sales results in a decrease in our overall cost structure for a given period. For the second quarter of 2015 compared with the first quarter of 2015, a lower proportion of Methanex-produced methanol sales decreased Adjusted EBITDA by $14 million. For the three and six months ended June 30, 2015 compared with the same periods in 2014, a lower proportion of Methanex-produced methanol sales decreased Adjusted EBITDA by $20 million and $21 million, respectively.
Purchased methanol costs
Changes in purchased methanol costs for all periods presented are primarily as a result of changes in methanol pricing.
Other, net
Changes in other costs for all periods presented are primarily as a result of lower logistics costs.
Mark-to-Market Impact of Share-based Compensation
We grant share-based awards as an element of compensation. Share-based awards granted include stock options, share appreciation rights, tandem share appreciation rights, deferred share units, restricted share units and performance share units. For all the share-based awards, share-based compensation is recognized over the related vesting period for the proportion of the service that has been rendered at each reporting date. Share-based compensation includes an amount related to the grant-date value and a mark-to-market impact as a result of subsequent changes in the fair value of the share-based awards primarily driven by the Company''s share price. The grant-date value amount is included in Adjusted EBITDA and Adjusted net income. The mark-to-market impact of share-based compensation as a result of changes in our share price is excluded from Adjusted EBITDA and Adjusted net income and analyzed separately.
The Methanex Corporation share price increased from US $53.57 per share at March 31, 2015 to US $55.66 per share at June 30, 2015. As a result of this increase, we recorded a $4 million mark-to-market expense on share-based compensation in the second quarter of 2015 compared with a $14 million mark-to-market expense in the first quarter of 2015 and an $8 million recovery in the second quarter of 2014.
Depreciation and Amortization
Depreciation and amortization was $47 million for the first and second quarter of 2015 compared with $33 million for the second quarter of 2014. Depreciation and amortization was higher in the second quarter of 2015 compared with the second quarter of 2014 primarily due to higher unabsorbed depreciation recognized for production sites impacted by natural gas restrictions and production outages and the commencement of depreciation associated with the start-up of our Geismar 1 facility during the first quarter of 2015.
Finance Costs
Finance costs before capitalized interest primarily relate to interest expense on the unsecured notes, limited recourse debt facilities, and finance leases. Finance costs were lower during the second quarter of 2015 compared with the first quarter of 2015 primarily due to a $3 million make-whole payment made in the first quarter of 2015 in conjunction with the early repayment of $150 million of senior notes and lower debt levels as a result of the repayment. Capitalized interest relates to interest costs capitalized for the Geismar project. The Geismar 1 facility commenced production during the first quarter of 2015 and accordingly, we ceased capitalizing interest costs related to Geismar 1 from the date that the facility commenced commercial operations.
Finance Income and Other Expenses
The change in finance income and other expenses for all periods presented was primarily due to the impact of changes in foreign exchange rates. Higher foreign exchange losses in 2015 were the result of the significant strengthening of the U.S. dollar against most major currencies during 2015.
Income Taxes
A summary of our income taxes for the second quarter of 2015 compared with the first quarter of 2015 is as follows:
We earn the majority of our earnings in Trinidad, Chile, Canada, New Zealand, the United States and Egypt. In Trinidad and Chile, the statutory tax rate is 35%. The statutory rates in Canada and New Zealand are 26% and 28%, respectively. Effective July 1, 2015, an increase in the statutory tax rate will increase the tax rate to 26.5% in Canada. The United States statutory tax rate is 36% and the Egypt statutory tax rate is 30%. As the Atlas entity is accounted for using the equity method, any income taxes related to Atlas are included in earnings of associate and therefore excluded from total income taxes but included in the calculation of Adjusted Net Income.
For the second quarter of 2015, the effective tax rate based on adjusted net income was 23% compared with 11% for the first quarter of 2015. Adjusted net income represents the amount that is attributable to Methanex shareholders and excludes the mark-to-market impact of share-based compensation and the impact of certain items associated with specific identified events. The effective tax rate differs from period to period depending on the source of earnings and the impact of foreign exchange fluctuations against the United States dollar on our tax balances.
SUPPLY/DEMAND FUNDAMENTALS
Entering the third quarter of 2015, we estimate that methanol demand, excluding methanol demand from integrated methanol to olefins facilities, is approximately 61 million tonnes on an annualized basis.
Our average realized price in the second quarter of 2015 increased to $350 per tonne from $337 per tonne achieved in the first quarter of 2015. Demand growth continued to be driven by methanol-to-olefins, and traditional demand was also healthy during the quarter. Pricing to date in the third quarter of 2015 is slightly lower, pressured by lower methanol affordability for some energy applications amidst lower crude oil and olefin prices. We rolled our July North America contract price at $442 per tonne, held our EU quarterly contract price flat at EUR365 per tonne for the third quarter of 2015, and moderately reduced our July Asia Pacific contract price by $15 per tonne to $375 per tonne. We also recently announced decreases to our North America and Asia contract prices for August, to $416 per tonne and $360 per tonne, respectively.
We continued to see stable demand growth from chemical applications in China and the rest of the world. We estimate that traditional chemical derivatives consume approximately 60% of global methanol and believe that growth is correlated to GDP and industrial production growth rates. Energy related methanol demand continued to grow. There are now ten completed MTO / MTP plants in China which are dependent on merchant methanol supply, and these have the capacity to consume almost 10 million tonnes of methanol annually. There are also a number of other MTO / MTP plants at various stages of construction which are anticipated to be completed in the 2015-2016 timeframe. The future operating rates and methanol consumption from these facilities will depend on a number of factors, including pricing for their various final products and the impact of feedstock costs on relative competitiveness. Direct methanol blending into gasoline in China has remained strong and we believe that future growth in this application is supported by numerous provincial fuel-blending standards. Fuel blending has continued to gain interest outside of China with several countries currently conducting demonstration programs to test the use of methanol-blended fuels.
The methanol price will ultimately depend on the strength of the global economy, industry operating rates, global energy prices, new supply additions and the strength of global demand. Over the next few years, outside of China the majority of new capacity additions are expected in North America. We have recently started up our first one million tonne Geismar 1 facility in Louisiana, and are targeting to be producing first methanol from the second one million tonne Geismar 2 facility by the end of 2015. In addition, a 1.3 million tonne Celanese plant is under construction in Clear Lake, Texas and we understand that it is targeted for completion later in 2015. OCI N.V. has commenced construction of a 1.8 million tonne plant in Beaumont, Texas. We expect that production from new capacity in China will be consumed in that country.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities in the second quarter of 2015 increased by $45 million to $82 million compared with $37 million for the first quarter of 2015 and decreased by $158 million compared to $240 million for the second quarter of 2014. Cash flows from operating activities for the six month period ended June 30, 2015 were $119 million compared with $419 million for the same period in 2014. The changes in cash flows from operating activities resulted from changes in the following:
During the second quarter of 2015 we paid a quarterly dividend of $0.275 per share, or $25 million.
On April 29, 2015, the Board of Directors approved a new 5% normal course issuer bid, which allows us to repurchase for cancellation up to 4.6 million shares. Under the current normal course issuer bid, we are authorized to purchase up to a further 3.8 million shares by May 5, 2016. During the quarter we repurchased 1.1 million shares for $61 million including 0.3 million shares purchased pursuant to a previous bid that expired on May 5, 2015.
We operate in a highly competitive commodity industry and believe it is appropriate to maintain a conservative balance sheet and financial flexibility. At June 30, 2015, our cash balance was $485 million, including $74 million related to the 50% non-controlling interest in Egypt. 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 maintenance, turnarounds and catalyst changes for existing operations is currently estimated to be $130 million for the 18 month period to the end of 2016. The estimated remaining capital expenditures related to our Geismar project are approximately $185 million, excluding capitalized interest.
We believe we are well positioned to meet our financial commitments, invest to grow the Company and continue to deliver on our commitment to return excess cash to shareholders.
CONTROLS AND PROCEDURES
For the three months ended June 30, 2015, 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.
ADDITIONAL INFORMATION - SUPPLEMENTAL NON-GAAP MEASURES
In addition to providing measures prepared in accordance with International Financial Reporting Standards (IFRS), we present certain supplemental non-GAAP measures. These are Adjusted EBITDA, Adjusted net income, Adjusted net income per common share, Adjusted revenue and operating income. These measures do not have any standardized meaning prescribed by generally accepted accounting principles (GAAP) and therefore are unlikely to be comparable to similar measures presented by other companies. These supplemental non-GAAP measures are provided to assist readers in determining our ability to generate cash from operations and improve the comparability of our results from one period to another. We believe these measures are useful in assessing operating performance and liquidity of the Company''s ongoing business 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 (attributable to Methanex shareholders)
Adjusted EBITDA differs from the most comparable GAAP measure, net income attributable to Methanex shareholders, because it excludes the mark-to-market impact of share-based compensation, depreciation and amortization, finance costs, finance income and other expenses, income tax expense (recovery), the 50% non-controlling interest in the Egypt facility, gain related to the termination of terminal services agreement and Argentina gas settlement. Adjusted EBITDA includes an amount representing our 63.1% interest in the Atlas facility.
Adjusted EBITDA and Adjusted net income exclude the mark-to-market impact of share-based compensation related to the impact of changes in our share price on share appreciation rights, tandem share appreciation rights, deferred share units, restricted share units and performance share units. The mark-to-market impact related to performance share units that is excluded from Adjusted EBITDA and Adjusted net income is calculated as the difference between the grant date value determined using a Methanex total shareholder return factor of 100% and the fair value recorded at each period end. As share-based awards will be settled in future periods, the ultimate value of the units is unknown at the date of grant and therefore the grant date value recognized in Adjusted EBITDA and Adjusted net income may differ from the total settlement cost.
The following table shows a reconciliation from net income attributable to Methanex shareholders to Adjusted EBITDA:
Adjusted Net Income and Adjusted Net Income per Common Share
Adjusted net income and Adjusted net income per common share are non-GAAP measures because they exclude the mark-to-market impact of share-based compensation and the impact of certain items associated with specific identified events. The following table shows a reconciliation of net income attributable to Methanex shareholders to Adjusted net income and the calculation of Adjusted net income per common share:
Adjusted Revenue (attributable to Methanex shareholders)
A reconciliation from revenue to Adjusted revenue is as follows:
Operating Income
Operating income is reconciled directly to a GAAP measure in our consolidated statements of income.
QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of selected financial information for the prior eight quarters is as follows:
FORWARD-LOOKING INFORMATION WARNING
This Second Quarter 2015 Management''s Discussion and Analysis ("MD&A") as well as comments made during the Second Quarter 2015 investor conference call contain forward-looking statements with respect to us and our industry. These statements relate to future events or our future performance. All statements other than statements of historical fact are forward-looking statements. Statements that include the words "believes," "expects," "may," "will," "should," "potential," "estimates," "anticipates," "aim," "goal" 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:
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:
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:
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 implied by 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 Adjusted EBITDA (refer to the Additional Information - Supplemental Non-GAAP Measures section for a description of each non-GAAP measure and reconciliations to the most comparable GAAP measures).
In addition to the methanol that we produce at our facilities ("Methanex-produced methanol"), we also purchase and re-sell methanol produced by others ("purchased methanol") and we sell methanol on a commission basis. We analyze the results of all methanol sales together, excluding commission sales volume. The key drivers of changes in Adjusted EBITDA are average realized price, cash costs and sales volume which are defined and calculated as follows:
We own 63.1% of the Atlas methanol facility and market the remaining 36.9% of its production through a commission offtake agreement. A contractual agreement between us and our partners establishes joint control over Atlas. As a result, we account for this investment using the equity method of accounting, which results in 63.1% of the net assets and net earnings of Atlas being presented separately in the consolidated statements of financial position and consolidated statements of income, respectively. For purposes of analyzing our business, Adjusted EBITDA, Adjusted net income and Adjusted net income per common share include an amount representing our 63.1% equity share in Atlas.
We own 50% of the 1.26 million tonne per year Egypt methanol facility and market the remaining 50% of its production through a commission offtake agreement. We account for this investment using consolidation accounting, which results in 100% of the revenues and expenses being included in our financial statements with the other investors'' interests in the methanol facility being presented as "non-controlling interests". For purposes of analyzing our business, Adjusted EBITDA, Adjusted net income and Adjusted net income per common share exclude the amount associated with the other investors'' non-controlling interests.
Methanex Corporation
Consolidated Statements of Income (unaudited)
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Consolidated Statements of Financial Position (unaudited)
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Methanex Corporation
Notes to Condensed Consolidated Interim Financial Statements (unaudited)
Except where otherwise noted, tabular dollar amounts are stated in thousands of U.S. dollars.
1. Basis of presentation:
Methanex Corporation (the Company) is an incorporated entity with corporate offices in Vancouver, Canada. The Company''s operations consist of the production and sale of methanol, a commodity chemical. The Company is the world''s largest producer and supplier of methanol to the major international markets of Asia Pacific, North America, Europe and South America.
These condensed consolidated interim financial statements are prepared in accordance with International Accounting Standards (IAS) 34, Interim Financial Reporting, as issued by the International Accounting Standards Board (IASB) on a basis consistent with those followed in the most recent annual consolidated financial statements, with the exception of the early adoption of IFRS 9 "Financial Instruments" as described in the Company''s annual consolidated financial statements.
These condensed consolidated interim financial statements do not include all of the information required for full annual financial statements and were approved and authorized for issue by the Audit, Finance & Risk Committee of the Board of Directors on July 29, 2015.
These condensed consolidated interim financial statements should be read in conjunction with the Company''s consolidated financial statements for the year ended December 31, 2014.
2. Inventories:
Inventories are valued at the lower of cost, determined on a first-in first-out basis, and estimated net realizable value. The amount of inventories included in cost of sales and operating expenses and depreciation and amortization for the three and six month periods ended June 30, 2015 is $502 million (2014 - $545 million) and $962 million (2014 - $1,236 million), respectively.
3. Property, plant and equipment:
4. Interest in Atlas joint venture:
On December 31, 2014, the Company reclassified the presentation related to purchases of inventory from associate. The reclassification has been reflected in the comparative figures. For the three month and six month periods ended June 30, 2014 the reclassification resulted in a decrease to earnings of associate by $0.7 million and $0.8 million, respectively.
b) Contingent liability:
The Board of Inland Revenue of Trinidad and Tobago has issued assessments against Atlas in respect of the 2005, 2006, 2007 and 2008 financial years. All subsequent tax years remain open to assessment. The assessments relate to the pricing arrangements of certain long-term fixed price sales contracts from 2005 to 2019 related to methanol produced by Atlas. Atlas had partial relief from corporation income tax until late July 2014.
The Company has lodged objections to the assessments. Based on the merits of the cases and legal interpretation, management believes its position should be sustained.
5. Long-term debt:
During the three months ended June 30, 2015, the Company made repayments on its other limited recourse debt facilities of $0.9 million.
At June 30, 2015, management believes the Company was in compliance with all significant terms and default provisions related to long-term debt obligations.
6. Finance costs:
Finance costs are primarily comprised of interest on borrowings and finance lease obligations, the effective portion of interest rate swaps designated as cash flow hedges, amortization of deferred financing fees, and accretion expense associated with site restoration costs. Included in finance costs for the six months ended June 30, 2015 is $3 million in interest paid in conjunction with the early repayment of $150 million of unsecured notes during the three months ended March 31, 2015. Interest during construction of the Geismar plants is capitalized until the plants are substantially completed and ready for productive use.
7. Net income per common share:
Diluted net income per common share is calculated by considering the potential dilution that would occur if outstanding stock options and, under certain circumstances, tandem share appreciation rights ("TSARs") were exercised or converted to common shares.
Outstanding TSARs may be settled in cash or common shares at the holder''s option and for purposes of calculating diluted net income per common share, the more dilutive of the cash-settled and equity-settled method is used, regardless of how the plan is accounted for. Accordingly, TSARs that are accounted for using the cash-settled method will require adjustments to the numerator and denominator if the equity-settled method is determined to have a dilutive effect on diluted net income per common share as compared to the cash-settled method.
A reconciliation of the numerator used for the purpose of calculating diluted net income per common share is as follows:
Stock options and, if calculated using the equity-settled method, TSARs are considered dilutive when the average market price of the Company''s common shares during the period disclosed exceeds the exercise price of the stock option or TSAR. A reconciliation of the denominator used for the purposes of calculating basic and diluted net income per common share is as follows:
8. Share-based compensation:
(i) Outstanding units:
Information regarding units outstanding at June 30, 2015 is as follows:
(ii) Compensation expense related to SARs and TSARs:
Compensation expense for SARs and TSARs is measured based on their fair value and is recognized over the vesting period. Changes in fair value each period are recognized in net income for the proportion of the service that has been rendered at each reporting date. The fair value at June 30, 2015 was $61.1 million compared with the recorded liability of $56.0 million. The difference between the fair value and the recorded liability of $5.1 million will be recognized over the weighted average remaining vesting period of approximately 1.73 years. The weighted average fair value was estimated at June 30, 2015 using the Black-Scholes option pricing model.
For the three and six month periods ended June 30, 2015, compensation expense related to SARs and TSARs included an expense in cost of sales and operating expenses of $6.3 million (2014 - recovery of $2.7 million) and an expense of $25.0 million (2014 - expense of $15.5 million), respectively. This included an expense of $3.1 million (2014 - recovery of $5.8 million) and an expense of $18.5 million (2014 - expense of $8.6 million), respectively, related to the effect of the change in the Company''s share price for the three and six month periods ended June 30, 2015.
(iii) Compensation expense related to stock options:
For the three and six month periods ended June 30, 2015, compensation expense related to stock options included in cost of sales and operating expenses was $0.2 million (2014 - $0.2 million) and $0.4 million (2014 - $0.4 million), respectively. The fair value of each stock option grant was estimated on the grant date using the Black-Scholes option pricing model.
b) Deferred, restricted and performance share units:
Deferred, restricted and performance share units outstanding at June 30, 2015 are as follows:
Compensation expense for deferred, restricted and performance share units is measured at fair value based on the market value of the Company''s common shares and is recognized over the vesting period. Changes in fair value are recognized in net income for the proportion of the service that has been rendered at each reporting date. The fair value of deferred, restricted and performance share units at June 30, 2015 was $44.0 million compared with the recorded liability of $40.1 million. The difference between the fair value and the recorded liability of $3.9 million will be recognized over the weighted average remaining vesting period of approximately 1.3 years.
For the three and six month periods ended June 30, 2015, compensation expense related to deferred, restricted and performance share units included in cost of sales and operating expenses was an expense of $3.7 million (2014 - expense of $1.5 million) and an expense of $6.4 million (2014 - expense of $8.3 million), respectively. This included a expense of $0.4 million (2014 - recovery of $2.1 million) and an recovery of $0.3 million (2014 - expense of $1.0 million) related to the effect of the change in the Company''s share price for the three and six month periods ended June 30, 2015.
9. Changes in non-cash working capital:
Changes in non-cash working capital for the three and six month periods ended June 30, 2015 and 2014 were as follows:
10. Financial instruments:
Financial instruments are either measured at amortized cost or fair value. Changes in fair value of derivative financial instruments are recorded in earnings unless the instruments are designated as cash flow hedges.
The Company designates as cash flow hedges forward exchange contracts to sell euro at a fixed US dollar exchange rate. At June 30, 2015, the Company had outstanding forward exchange contracts designated as cash flow hedges to sell a notional amount of EUR90.0 million in exchange for US dollars. The euro contracts had a negative fair value of $0.3 million recorded in current liabilities at June 30, 2015 (December 31, 2014 - $1.1 million positive fair value recorded in current assets). The euro forward exchange contracts designated as cash flow hedges are measured at fair value based on industry-accepted valuation models and inputs obtained from active markets. Changes in fair value of derivative financial instruments designated as cash flow hedges have been recorded in other comprehensive income.
The carrying values of the Company''s financial instruments approximate their fair values, except as follows:
There is no publicly traded market for the limited recourse debt facilities. The fair value disclosed on a recurring basis and categorized as Level 2 within the fair value hierarchy is estimated by reference to current market prices for debt securities with similar terms and characteristics. The fair value of the unsecured notes disclosed on a recurring basis and also categorized as Level 2 within the fair value hierarchy was estimated by reference to a limited number of small transactions in June 2015. The fair value of the Company''s unsecured notes will fluctuate until maturity.
11. Gain on termination of terminal services agreement:
During the quarter, we recorded a gain of $65 million ($57 million, net of tax) related to the termination of a terminal services agreement.
Contacts:
Sandra Daycock
Director, Investor Relations
Methanex Corporation
604-661-2600
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Datum: 29.07.2015 - 17:45 Uhr
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News-ID 1375607
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