Saturday, July 08, 2000

Sleeker NS Group refocuses

Newport Steel parent expects profits to follow drilling rebound

By Mike Boyer
The Cincinnati Enquirer

        There's a new look at NS Group Inc., the Newport-based specialty steel maker that owns Newport Steel in Wilder. The management team under new CEO Rene J. Robichaud, a former Wall Street investment banker, is smaller and more focused.

        The number of vice presidents has shrunk from nine a year ago to five. For the first time, the company has one manager, William W. Beible, executive vice president and COO, overseeing its two steel plants — Newport Steel and Koppel Steel in Ambridge, Pa.

        Three new board members representing the oil industry have expanded the company's board of directors to nine members.

        The company is linking its computer systems so operations in Texas and Oklahoma, Newport and Pennsylvania can communicate and share information.

        The moves are part of a cultural change initiated by Mr. Robichaud, 42, who joined the company a year ago after 14 years working on Wall Street.

  • CEO: Rene J. Robichaud, former investment banker who joined the company a year ago.
  • Business: Melts scrap metal to produce seamless and welded tubular steel for oil and natural-gas drilling and line pipe. The company also produces metal bars used to make gears and other industrial goods. A Cincinnati-based subsidiary, Imperial Adhesives, makes a variety of adhesives for shoes and other products.
  • Financial: Reported a loss of $48 million on sales of $242 million in the fiscal year ending last September.
  • Employees: 1,800, including about 800 at Newport Steel Corp. in Wilder.
  • History: Company traces it roots to Swift Iron and Steel Works in 1858, which made armor plate. Clifford R. Borland, chairman, led three other former Interlake Steel Co. executives who acquired Newport Steel is a leveraged buyout in 1980.
  • Stock price: Closed at $20.31 on Friday, down 13 cents.
        “The old culture was for each business entity to operate independently and there was a great deal of focus on manufacturing. NS Group was more of a holding company which would buy assets and sell them. And we didn't really take the time to create a strong presence in the energy community,” he said from the company's offices at Ninth and Lowell streets.

        “All those things are changing. We are operating our businesses in a coordinated fashion. Looking for the best ideas from any business and then incorporating them throughout the company. We are operating NS Group as an operating company, not a holding company. We are balancing the need to have low cost with the need to meet customer requirements.”

        Such corporate cultural changes never come easy, but Mr. Robichaud thinks they are being accepted within the company.

        “People understand it. They understand we needed to change,” he said. “We're doing these changes at a reasonable, not a breakneck, pace.”

        The moves comes as the market for the company's main product, oil and natural gas drilling pipe, known as Oil Country Tubular Goods, has rebounded from the worst market in memory thanks to the sharp rise in oil and natural gas prices.

        With the price of crude hovering around $10 a barrel, Mr. Robichaud said, “Last year was the worst year in perhaps 50 years for oil and natural gas drilling.”

        The oil and natural gas rig count, a proxy for U.S. drilling activity, fell below 500 active rigs in April a year ago.

        “Demand for our products almost completely evaporated,” said Mr. Robichaud. “Hence we lost a lot of money. Even though we laid off nearly 600 in this company out of a peak of 1,800 employees, that wasn't enough to stem the losses.”

        In the fiscal year ending last September, NS Group lost $48 million.

        The good news is with oil selling around $30 a barrel and natural gas selling for more than $4 per thousand cubic feet, NS Group's order books are full again.

        The active number of drilling rigs is around 900 in the United States, depending on who's doing the counting.

        NS Group's employment is back at 1,800, including about 800 at Newport Steel, and the company expects to be profitable again in the September quarter.

        Mark Parr, an analyst with McDonald Investments in Cleveland, expects NS Group to earn about 11 cents a share in the September quarter vs. a loss of 51 cents a share a year ago.

        In the just completed June quarter, he estimates the company will report a loss of 18 cents a share vs. a loss of 53 cents a share a year ago.

        NS Group's stock, which was hovering around $6 a share at the start of the year, has more than tripled — hitting a new 52-week high of $21.50 on Wednesday.

        Mr. Parr points out that's only about half the slightly more than $41 a share the shares reached in October 1997.

        Mr. Robichaud said NS Group doesn't need $30 a barrel oil to prosper.

        “I believe we'll have a healthier drilling environment in this country for at least the next two, three years,” he said.

        The reason is continuing tight supplies for natural gas, increasingly the fuel of choice for generating electricity in the United States.

        “There's not the ability to bring a lot of natural gas to market quickly and there's not a lot of inventory,” he said.

        He said more than 80 percent of the active drilling rigs today in the United States are looking for natural gas, not oil.

        “What's exciting to us,” he said, “is that to find natural gas today you have to go deeper than before; and wells aren't as big as before, so you have to drill more.”

        Over the last three years, NS Group spent about $70 million on new capital equipment including about $25 million on an electric arc furnace at the Wilder mill to improve the company's ability to make steel.

        “We're just now starting to see the fruits of that,” Mr. Robichaud said.

        He said the Wilder plant's melt shop isn't yet operating as efficiently as the company would like, but is “producing steel at prices that are still better than we can buy it.”

        He said the mill needs to eliminate some bottlenecks between the furnace and the plant's caster.

        “Last year when things were so bad, we cut back on maintenance. We had to for survival. And going from nearly nothing to going to 100 percent means you have to do a lot of catch-up work,” he said. “It's very exciting to see what we can do in the next 12 months with our people and our equipment.”

        Mr. Robichaud said he believes NS Group, which last year had sales of $243 million, down from a peak of $481 million in 1997, can double its size in five years.

        “If you do the math, that says you're growing at 14 percent a year,” he said. “That can be tough in a cyclical, mature business, but it's something that can be done and we're focused on it.”

        Asset sales and purchases to expand the business are within the realm of possibility, Mr. Robichaud said, but nothing is imminent.

        The company is still sitting on about $55 million in cash, the remaining proceeds from its 1997 secondary stock offering.

        While Mr. Robichaud is new to the steel industry, he's no stranger to NS Group.

        He had served as a financial adviser to the company since 1996 and helped recapitalize the business through that secondary stock offering.

        “I knew the people. I liked the people,” he said. “I believed I could help them, and bring them in a direction that would make this company a more capable supplier to our customer base and a vigorous competitor.”

        While Mr. Robichaud said he's still learning the technical side of the steel business, “what I do know is cyclical businesses. I've been an adviser to cyclical businesses for a long time.”

        “This is a very, very healthy and attractive challenge for anybody who considers themselves a manager,” he said. “I felt that way a year ago and I still feel that way today.”


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