Dofasco Inc. reported strong earnings for 2003, claiming to be the most profitable flat-rolled steelmaker in North America in 2003.
Dofasco's 2003 net income was U.S. $118.4 million ($1.56 per share), compared to $122.8 million ($1.63 per share) in 2002. Eliminating a non-cash charge on the disposal of its remaining equity value in Quebec Cartier Mining Company (QCM), and eliminating QCM's earnings for 2003, Dofasco said it earned pro-forma net income of $133.9 million ($1.78 per common share) in 2003.
"Dofasco people demonstrated exceptional strength of purpose throughout the year. Once again, they performed well in a continuing difficult environment while many of our competitors sustained losses," said Don Pether, president and CEO. "Dofasco overcame major challenges, including significant increases in scrap prices, high energy costs, and a strong Canadian dollar. Dofasco continues to generate strong internal cash flows and is well-positioned to pursue growth, which will advance our competitive positioning. In this environment, our strong balance sheet, our flexible cost structure, and our fully-funded pension plan also represent strategic advantages."
For the fourth quarter of 2003, Dofasco's net income was $2.6 million ($0.03 per share) compared to a loss of $57.0 million ($0.76 per share) in the same quarter in 2002, which included a $118.5 million non-cash impairment write-down of Dofasco's share of QCM's assets. Eliminating the 2003 QCM non-cash charge and fourth quarter QCM earnings, pro-forma net income in the fourth quarter of 2003 was $26.8 million ($0.35 per share).
The steel maker's 2003 consolidated sales were $3.55 billion, compared to $3.58 billion in 2002. Steel shipments hit a record 4.833 million tons, an increase from 4.827 million tons in 2002, the company said.
Dofasco's Steel Operations segment, which includes the company's Hamilton operations, reported income before income taxes of $181.7 million for the year, compared to $313.8 million for 2002, due to lower average revenues, higher costs per ton and a higher foreign exchange loss. Shipments from Hamilton were 4.09 million tons compared to 4.12 million tons in 2002. Average revenue per ton decreased by $2 during the year mainly due to the lower pricing resulting from the weaker U.S. dollar and weaker spot market prices, partially offset by a higher-value product mix. Average cost per ton increased by $24 largely caused by higher scrap and energy costs and lower production levels.
Gallatin Steel achieved record production and shipments, Dofasco said. Production reached 1.49 million tons (1.43 million tons in 2002) and shipments were 1.48 million tons (1.42 million tons in 2002). However, because of lower selling prices and significantly higher scrap costs, Dofasco's share of Gallatin's pre tax income was $2.9 million compared to $46.6 million in 2002, the company said.
Effective Dec. 31, 2003, the restructuring of Dofasco's investment in Quebec Cartier Mining Company (QCM) was completed. The restructuring resulted in a conversion of Dofasco's $20 million in notes into preferred shares of QCM and a disposal of the $27.9 million remaining equity value of Dofasco's holdings in QCM as at Dec. 31, 2003, which is reported on Dofasco's financial statements as a non-cash charge against earnings. As a preferred shareholder, Dofasco will account for its investment in QCM on a cost basis rather than by proportionate consolidation. Dofasco, CAEMI, and Investissement Quebec, all shareholders of QCM, will continue to support future mine development. Dofasco's support will not be greater than $34.5 million between 2004 and 2010. The restructuring will enable QCM to undertake the $350 million capital investment for mine development required to extend the mine life through 2016. Dofasco's current iron ore supply contracts with QCM will remain in place.
The company said it continued to implement its 5-year, $700-million Finishing Division Improvement Program. In December, the company upgraded its coupled pickle line cold mill. This, the company said, will enable Dofasco to further increase throughput and raise quality.
"Looking forward, we expect ongoing volatility and uncertainty in several key areas," said Mr. Pether. "For instance, the rapid growth of the steel market in China continues to push raw material costs to record levels. These costs are being absorbed through the value chain, and we will continue to work with our customers to re-calibrate for this global shift. We are also countering these forces by looking for opportunities to enhance revenues, reduce costs, and move toward a higher value-added product mix."
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