Olin Corp (OLN) 2007 Q1 法說會逐字稿

Good day and welcome, everyone, to the Pioneer Announces First-Quarter 2007 Results. This call is being recorded. At this time, I would like to turn the call over to Mr. Gary Pittman. Please go ahead, sir.

Thank you. Good morning, everyone, and welcome to Pioneer's first-quarter 2007 results conference call. With me today is Mike McGovern, President and Chief Executive Officer, and Dave Scholes, Senior Vice President of Operations. We are pleased to have the opportunity to review with you the Company's results for the first quarter.

Let me remind everyone that as a result of this conference call, Pioneer's management may make certain statements regarding future expectations of Pioneer's business, Pioneer's results of operations, financial conditions and liquidity. These statements may be forward looking within the meaning of the Private Securities Litigation Reform Act. Such statements are subject to various risk factors that are also included in the Company's filings with the SEC, including Pioneer's Form 10-KA and Form 10-Q.

At this time, I would like to turn the call over to Pioneer's President, Mike McGovern.

Thank you, Gary. I just have a few comments to make. Let me start with the expansion of St. Gabriel. We have announced this previously, and what we are doing is the existing capacity at our St. Gabriel plant is 197 tons of chlorine, all delivered through Pioneer pipelines. As we have noted in the past, our competitors ship 150,000 tons of chlorine via railcar to our facility. We unload and we transport that through our pipeline to various customers.

This expansion will allow us the ability to manufacture at St. Gabriel and transport through our pipeline chlorine that we produce. We intend to expand the plant capacity by 25%, from 197,000 ECUs to 246,000. We will convert to membrane from mercury. As we've stated earlier, the cost would be approximately $142 million, and we believe we will be completed by the fourth quarter of 2008.

Since our last announcement, we have entered into three major contracts. The first is the Engineering and Procurement Agreement with BE&K, and they will provide the engineering design and the procurement of equipment-related instrumentation.

The second is a construction contract with Shaw Constructors under which Shaw will provide overall construction management and site construction work for the project. Shaw has a very large, experienced skilled workforce. This is critical, particularly in these times -- the success of our project.

The third contract is with Chlorine Engineers Corp., and they will provide the membrane cells for the project, together with the related engineering services and design specs. The driving factors in our selection process is the anticipated sale efficiency and the related capital costs, and we are very excited about partnering with Chlorine Engineers on this project.

As we look at pricing, we disclosed in the 10-Q on a quarter basis for '06 through '07, in the first quarter of '06 it was $616 per ECU, and it has declined to the first quarter of '07 to $522. It's important to note in April -- because we show the front month and disclose that in our 10-Q -- that the ECU price has increased to $540, an $18 increase. And this increase is due to the impact of a price increase announced in February of '07, $25 for chlorine and $40 for caustic. We've also, since the first quarter, announced in May another price increases for caustic of $50.

A final comment is on the EBITDA. Our EBITDA for the first quarter was $20.5 million. Again, our business is somewhat seasonal, and the fourth and the first quarter are our shoulder quarters.

At this time, I would like to turn it over to Dave Scholes.

Thanks, Mike. I would like to first talk about production. We had a very good first quarter, operating at 93% of capacity for the period. All of our plants ran well and we entered the second quarter operating very strong. We completed two of our 2007 scheduled outages, those at Henderson and our Becancour Number 2 circuit, and have none scheduled until the fourth quarter.

Our Henderson outage, which was scheduled for seven days, ran over by a couple of days due to some unexpected problems. The Becancour outage, which was also scheduled for seven days, finished right on time.

Manufacturing costs, our operating costs during the quarter, were impacted versus last year by timing of scheduled maintenance projects. As we have discussed in previous calls, we manage our projects, capital, expense maintenance projects and turnarounds using the same process for budgeting, approval and execution. During 2007, we spent relatively more of our expense maintenance project allocation during Q1 than in the same period of 2006.

Our operating costs were impacted favorably versus last year by our purchasing steam from a recently completed neighboring cogeneration facility for our Becancour plant. The cogen facility first began supplying steam to our plant late in Q3 of last year.

And finally, transportation costs -- we continue to experience historically extreme cost increases for the shipment of chlorine by rail, ranging from 15% to 30% on an annualized basis. Increases for certain individual wells have been as high as 100%. While rates for the shipment of caustic soda and other products by rail have also increased, they are more in line with our historical experience.

I will turn it back to Gary.

Thank you, Dave. At this time, I would like to highlight the net income. Pioneer reported net income of $7.2 million on revenues of $122 million for the first quarter in '07. That compares to net income of $16 million and revenues of $135 million for the first quarter of 2006. Revenues decrease was primarily due to the lower ECU netback prices that Mike discussed earlier.

Income tax -- our effective rate for income tax for the first quarter was 41%. That was higher than the statutory rate, primarily due to a revised estimate of our deferred tax expense. In 2007, we do expect to continue with the 37% tax rate for the remaining of the year. Also, within that 37%, we talked about the tax liability associated with the 10% senior notes. That created a $5.7 million tax liability, so that is also included within the 37% tax rate.

On March 26, 2007, we issued 120 million of 2 3/4 convertible senior subordinated notes. We received net proceeds of $116 million. We will be filing the registration rights agreement within the next couple of weeks.

The next item I'd like to discuss is the 10% senior secured notes. As we indicated with the convertible notes issuance, we redeemed the remaining $75 million senior secured notes. That redemption was announced in March of 2007. They were actually redeemed on April 24, 2007. With that redemption, we will have a redemption premium of 2.5%, which will result in $1.9 million of redemption premium. That premium will be recorded in the second quarter of Pioneer's results. And as I indicated earlier, with the redemption of the senior notes, there was a $5.7 million tax liability that was created as a capital gain for Canadian tax purposes.

With that, I'll turn it back over to Mike for any final comments.

I think it's time to move now to the questions.

(OPERATOR INSTRUCTIONS). CIBC World Markets.

This is [Luiz]. I have a couple questions. First, it seems that you are optimistic about pricing. Are you concerned that companies such as Westlake have plans to add capacity, and how that may affect pricing?

Pricing in this sector lacks clear visibility, so I start with that. The pricing that we see going forward, we've announced the price increases for the chlorine and for the caustic, and the market looks very comfortable for us right now. So we feel very comfortable on the pricing right now.

I have one more. My other question is on operating expenses. They were somewhat higher than we expected. I know that there are many factors there that you don't control, but given the high transportation costs, should we expect expenses to be at this level going forward, or should they be maybe lower or higher?

I think that in the Q, we've mentioned that in the first quarter, we had completed a number of maintenance expense projects at a higher spending rate than we had in the first quarter of 2006. And so in terms of maintenance expense projects, that, we believe, is a timing issue.

With regard to transportation by rail, we expect the cost of transport on chlorine by rail to continue to increase. The railroads have made it clear that they no longer want to transport chlorine by rail, and that if they must, they intend to transfer the risks associated with that, and thereby the cost to the shippers. So we do expect those increases to continue.

If I could just add on that, we do expect the rail to increase. Some of the projects that were successful last year that Dave undertook should reduce the fixed costs, so as we look year to year, it should be, when you take the increase in the rail and the reduced in the fixed costs, it should be flat to slightly up.

(OPERATOR INSTRUCTIONS). At this time, there are no further questions.

Let me close, then. Let me try the pricing question again. The way it was worded, I'm sorry, I don't think I gave a very appropriate answer. We think our plants are located in great -- logistically and in markets where we can be very cost effective, and that we can obtain prices to deliver a good return. So I would like to close with that. The other closing remarks, we appreciate everybody's participation or calling in, and we look forward to talking to you next quarter. Thank you. Bye.

That does conclude today's conference. You may disconnect your lines at any time.