Century Company: Financial Analysis

Company’s Overview

Glencore International is the company responsible for starting Century Aluminum Company in 1955 (Century Aluminum, 2012). Glencore International was in need of a company that would act as a holding for its aluminum assets since Glencore International was involved in aluminum products. Century Aluminum Company was therefore the best option to act as a holding for Glencore’s aluminum producing assets. The assets in question consisted of Ravenswood Aluminum Corporation, which was an incorporated manufacturer of aluminum products. Ravenswood Company was based in West Virginia and could produce over 200,000 tons of aluminum (Century Aluminum, 2012). From the time of its inception, Century Aluminum Company was dedicated to overseeing the objectives of Ravenswood which were to increase profitability levels through, among other things, engaging in investments that would prove efficient. This efficiency was meant to offer enrichment to the finished products. For two years, Ravenswood Company dedicated itself in achieving competence and efficiency by enhancing productivity of workers and good codes of conduct until 1997 when it was deemed necessary to change its name from Ravenswood Aluminum Company to Century Aluminum.

As a new company, there had to be lots of investments so as to attain a stable base in the business environment. For a span of three years from its inception, Century had invested about $130 million (Century Aluminum, 2012). Some of the major investments that attracted much attention consisted of facilitating the setting up of new anodes cranes and other facilities that assisted in the cleaning of the already spent anodes. About $ 28 million was used in a project meant to increase the capacity of the company to produce plates that could be heat treated (Century Aluminum, 2012). Century proceeded to acquire the operations of Alocoa, based in California in 1998. Century was interested in the operations of the cast plate at Alocoa after Alcoa became interested in purchasing Alumax Inc. The US department of Justice cleared Alocoa to acquire Alumax and in the process, it became easier for Century to acquire Alcoa at California. Century experienced drastic growth as explained by the fact that by the end of the same year it acquired Alcoa, the company had transformed from one that relied on supplying aluminum to one that could supply aerospace with premium products.

This was an immense growth bearing in mind the time from when the company was formed to the time it took to start producing and supplying those premium products to the commercial transportation industry, and automotive markets. From the fabricating and rolling businesses the company owned, Century decided to sell the fabricating plant in the late 1999 to Pechiney, which was an aluminum producing French company (Century Aluminum, 2012). The sale was attributed to the stiff competition Century faced against other companies that invested in the rolling operations just like Century. Withstanding such stiff competition required a big company with the necessary financial capabilities to engage in such a venture. For that reason, Pechiney was best placed to fill that gap as it was a bigger company than Century with a broad base and which could meet the demands in the aerospace and other markets. Pechiney could easily inject additional resources to meet the demand and withstand the stiff competition.

Before the end of 2003, Alcan Inc acquired Pechiney Company and continued to oversee the growth and expansion of the Company’s products. Century has continued in the production of aluminum products by acquiring additional prime aluminum facility. It also continued to purchase additional shares in other companies such as Mt. Holy South Carolina plant where it acquired 23 percent shares in 2000. By 2004, Century had acquired Nordural Aluminum, located in Iceland and this was made possible because Century had achieved its strategic objectives of reducing costs and diversifying its geographical asset foundation (Century Aluminum, 2012. Century Company continued to increase the quantity of aluminum and shares in other companies as a development strategy until 2009, when it was hit recession and closed down in 2009 (Hunt, 2011).

Century Company’s vulnerability to the current financial threats such as; recession, higher interest rates, and global competition.

Recession, higher interest rates, and global competition are known to cause havoc to companies and other business ventures. Recession has caused business closures due to the high cost of doing business. Companies dealing in either exportation or importation of products and services are at a high risk of encountering recession. Higher interest rates can also cause constraints in the running of businesses whereby, getting returns on investment becomes challenging.

Century Aluminum company is extremely vulnerable to current financial threats such as recession. Bearing in mind the company deals in aluminum products, which are imported on numerous occasions, the Company can be directed threatened by any change in aluminum price. This can be explained by the way the company was affected by the global recession in 2009 (Hunt, 2011).This recession caused the company to close its business as it proved too expensive to conduct business at that time due to the high cost of raw materials. During this trying time, more than 500 workers in the said company lost their jobs. This shows that the company is extremely vulnerable due to factors such as recession. During the recession period, the cost of aluminum rose to nearly $ 3,300 which was a record high. Century Company could not manage the risen cost of aluminum, as well as, other production costs. There was no option except to close the company down. The fact that Century Company was among those that closed down due to the financial crises, then another recession may force it to close down again as it has not fully recovered from the effects of the recession. This makes the company extremely vulnerable to recession.

Century Company is also extremely vulnerable from high interest rates. Such a company requires massive capital to operate and sometimes the company may be forced to seek loans from the banking institutions to facilitate their growth developments. If these loans are to be paid with a high interest, the company is at the risk of experiencing losses. These losses may emanate from the fact that; to start a business in aluminum industry, a lot of capital is expected as the entire process is expensive. Coupling this with the fact that the loans are to be paid with a high interest rate, chances of the company experiencing extreme losses are exceptionally high.

The company has been facing extensive competition from other companies such as; Nucor Corporation, Tata Steel Europe Ltd, Baosteel Group Corp. among others (Century Aluminum, 2012). This shows that there are numerous companies dealing in similar products and these companies place Century Company at a risky position. The aluminum sector is such a technically competitive zone and thus vulnerable. It is easy to recall that Century experienced stiff competition from other companies in the fabricating sector prompting it to sell the fabrication operations to Pechiney. This shows that if there was no company ready to purchase the fabricating plant from Century, it could have easily closed the fabricating plant to reduce on operation costs, as it was proving costly to run the plant bearing in mind that stiff competition was also ubiquitous. The company remains vulnerable as shown by the high cost of aluminum stocks. For the better of 2011, the prices of aluminum stocks have been on an extremely low side and the prices were greatly affected as a result. These prices fell below the output cost price sending signals of business failures if the situation continued to slacken. Extremely competitive business fields, a business dealing in products that have to be imported and low stocks prices are factors that make Century Company vulnerable in the business environment. Change in world markets for raw materials puts it at the risk of closing down.

Financial Performance

Based on the financial trends of the company, it can be deduced that these trends may impact negatively on the company in the future periods. To analyze the company critically, the challenges of the company have to be evaluated. One of these is the fact that the company was extensively affected by the recession prompting it to close down in 2009. The company has an outstanding short term debt of $7.82M and an outstanding long term debt of $249.5M as at Dec 2011 (The Street, 2012(a). As at Dec 2010, the company had an outstanding short term debt of $7.82M, no debt as at Dec 2009, and an outstanding debt of &182.82M, as at Dec 2008. This reveals the grim situation of affairs prevalent in Century. It can be seen that within a year (Dec 2008- Dec 2009), the company was able to clear the &182.82M, but within the period (Dec 2010- Dec 2011), the company was unable to pay the short term loan, which was less in value compared to the one in Dec 2008 (The Street, 2012(a). This can be taken to mean that the company was in financial turmoil if it could not pay the outstanding debt. The most outstanding mark with the debt in question is that no amount had been deducted from the debt. This may be taken to state the company did not make efforts to pay at least some amount of the debt. On another scale, the long term debts revealed another predicament. As at Dec 2010, Century Company had a debt of $248.53M while after one year, at Dec 2011, the company’s long term debt had increased to $249.51M (The Street, 2012(a).

This financial report shows a grave situation in which the company is and if those results are anything to go by, it would take the company longer than expected to be back in operation. It can also be revealed that the company had no employees as at Dec 2011. This is with respect to about 1300 workers as at Dec 2010. This shows a 100 percent workers’ lay off. The company shows a downward trend from the recession period and puts the company in a tight spot as rising from such a position is challenging and would require more than just good leadership skills. If recession, high interest rates, and competition reoccurred, the company would be devastated.

Stock Price Analysis

The stock prices were not constant as they would sometimes fall and rise. Aluminum stock prices fell drastically in early 2011to a point below the output cost for many producing companies. This strained those companies as the stock prices could not fetch significant monetary resources capable of reviving a diminishing business venture. There is tangible risk in stock prices of Century Company noting the trend in the global market. The stock has not been doing well in the financial markets (The Street, 2012(b). There appears to be no space for the current financial stress to subside thus giving the financial market time to recover. There have been recent dislodgments in the capital, as well as, financial markets which could highly diminish the recovery of the economy.

All the same, there may be ready market for aluminum products in Asia as countries like China and India invade the international market searching for the products. The Asian market seems in need of aluminum products and this may be a good omen to the state of affairs in Century where things have been challenging. The large number of industries in China and India, and the need for aluminum products to enhance projects in Asia may be a way out for companies that have been troubled. Otherwise, if there is no change in the current state of affairs, companies such as Century may be forced out of business completely. These types of shares whose prices fluctuate may attract a value investor (Easterling, 2005). This is because; such an investor is aware of the potential the stocks possess and would, therefore embark on a buying spree as long as they are on a low value waiting to sell highly when prices rise.

References

Century Aluminum. (2012). Company. Web.

Easterling, E. (2005). Unexpected returns: understanding secular stock market cycles. Fort Bragg, CA: Cypress House.

Hunt, J. (2011). Rumors swirl around Century Aluminum reopening. Web.

The Street. (2012(a). Century Aluminum Company. Web.

The Street. (2012(b). Company income statement. Web.

Appendix A

Century Company Balance Sheet

Dec 2011 Dec 2010 Dec 2009 Dec 2008
Assets
Cash and Equivalents 183.40M 304.30M 198.23M 129.40M
Receivables 92.31M 94.91M 56.96M 143.38M
Inventories 171.96M 155.91M 131.47M 138.11M
Other Current Assets 0.00 0.00 0.00 43.63M
Total Current Assets 488.32M 577.08M 489.47M 514.13M
Property, Plant & Equipment, Gross 1.22B 1.86B 1.83B 1.80B
Accumulated Depreciation & Depletion n.a. 600.65M 531.95M 462.82M
Property, Plant & Equipment, Net 1.22B 1.26B 1.30B 1.34B
Intangibles 0.00 0.00 0.00 32.53M
Other Non-Current Assets 104.55M 89.01M 73.99M 149.40M
Total Non-Current Assets 1.32B 1.35B 1.37B 1.52B
Liabilities & Shareholder Equity
Total Assets 1.81B 1.92B 1.86B 2.04B
Accounts Payable 128.08M 133.38M 110.01M 102.14M
Short Term Debt 7.82M 7.82M 0.00 182.82M
Other Current Liabilities 0.00 0.00 7.82M 70.96M
Total Current Liabilities 193.36M 254.86M 212.66M 426.76M
Long Term Debt 249.51M 248.53M 247.62M 275.00M
Deferred Income Taxes 90.96M 86.00M 81.62M 71.80M
Other Non-Current Liabilities 238.98M 179.15M 252.12M 303.01M
Minority Interest -3.44M 0.00 0.00 0.00
Total Non-Current Liabilities 579.45M 513.68M 581.36M 649.82M
Total Liabilities 772.82M 768.54M 794.02M 1.08B
Preferred Stock Equity 1.00K 1.00K 1.00K 0.00
Common Stock Equity 1.04B 1.15B 1.07B 959.52M
Common Par 932.00K 928.00K 925.00K 491.00K
Additional Paid In Capital 2.51B 2.50B 2.50B 2.24B
Cumulative Translation Adjustment n.a. 0.00 0.00 0.00
Retained Earnings -1.29B -1.30B -1.36B -1.14B
Treasury Stock -45.89M 0.00 0.00 0.00
Other Equity Adjustments -134.59M -49.98M -74.27M -137.21M
Total Capitalization 1.29B 1.40B 1.32B 1.23B
Total Equity 1.04B 1.15B 1.07B 959.52M
Total Liabilities & Stock Equity 1.81B 1.92B 1.86B 2.04B
Total Common Shares Outstanding 89.60M 92.77M 92.53M 49.05M
Preferred Shares n.a. 82.52K 83.45K 155.79K
Treasury Shares n.a. 0.00 0.00 0.00
Basic Weighted Shares Outstanding 91.85M 92.68M 75.34M 44.76M
Diluted Weighted Shares Outstanding 92.26M 93.30M 75.34M 44.76M
Number of Employees NA 1300 1260 1370
Number of Part-Time Employees NA 0 0 0

Appendix B

Century Company Income Statement

Dec 2011 Dec 2010 Dec 2009 Dec 2008
Sales 1.36B 1.17B 899.25M 1.97B
Cost of Sales 1.20B 990.18M 885.27M 1.57B
Gross Operating Profit 153.57M 179.10M 13.98M 395.89M
Selling, General, and Administrative Expenses 46.03M 46.80M 47.88M 48.22M
Research & Development n.a. 0.00 0.00 0.00
Operating Income before D & A (EBITDA) 107.54M 132.29M -33.90M 347.67M
Depreciation & Amortization 64.05M 66.70M 79.65M 84.27M
Interest Income 303.00K 1.06M 1.87M 7.80M
Other Income – Net 3.24M 30.07M -76.27M -746.63M
Special Income / Charges n.a. 0.00 0.00 -94.84M
Total Income Before Interest Expenses (EBIT) 47.03M 96.73M -187.95M -553.36M
Interest Expense 24.79M 25.62M 30.39M 25.64M
Pre-Tax Income 22.24M 71.10M -218.34M -579.00M
Income Taxes 14.36M 11.13M -12.36M 319.31M
Minority Interest -3.44M 0.00 0.00 0.00
Net Income From Continuing Operations 11.32M 59.97M -205.98M -898.32M
Net Income From Discontinued Operations 0.00 0.00 0.00 0.00
Net Income From Total Operations 11.32M 59.97M -205.98M -898.32M
Extraordinary Income/Losses 0.00 0.00 0.00 0.00
Income From Cum. Effect of Acct. Change 0.00 0.00 0.00 0.00
Income From Tax Loss b/f 0.00 0.00 0.00 0.00
Other Gains / Losses 0.00 0.00 0.00 0.00
Total Net Income 11.32M 59.97M -205.98M -898.32M
Normalized Income
(Net Income From Continuing Operations,
Ex. Special Income / Charge)
n.a. 59.97M -205.98M -803.47M
Preferred Dividends
Net Income Available To Common 0.00 59.97M -205.98M -898.32M
Basic EPS from Continuing Ops. 0.11 0.59 -2.73 -20.07
Basic EPS from Discontinued Ops. 0.00 0.00 0.00 0.00
Basic EPS from Total Operations 0.11 0.59 -2.73 -20.07
Basic EPS from Extraordinary Inc. 0.00 0.00 0.00 0.00
Basic EPS from Cum Effect of Accounting Change 0.00 0.00 0.00 0.00
Basic EPS from Tax Loss b/f. 0.00 0.00 0.00 0.00
Basic EPS from Other Gains (Losses) 0.00 0.00 0.00 0.00
Basic EPS, Total 0.11 0.59 -2.73 -20.07
Basic Normalized Net Income/Share n.a. 0.59 -2.73 -17.95
EPS fr Continuing Ops. 0.11 0.59 -2.73 -20.07
EPS fr Discontinued Ops 0.00 0.00 0.00 0.00
EPS fr Total Ops. 0.11 0.59 -2.73 -20.07
EPS fr Extraord. Inc. 0.00 0.00 0.00 0.00
EPS fr Cum Effect of Accounting Change 0.00 0.00 0.00 0.00
EPS fr Tax Loss Carfd. 0.00 0.00 0.00 0.00
EPS fr Other Gains (L) 0.00 0.00 0.00 0.00
EPS, Total 0.11 0.59 -2.73 -20.07
Diluted Normalized Net Inc/Shr
(Net Income From Continuing Operations,
Ex. Special Income / Charge)
n.a. 0.59 -2.73 -17.95
Dividends Paid per Share 0.00 0.00 0.00 0.00

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