Algoma Steel Group Inc. (NASDAQ: ASTL; TSX: ASTL) (“Algoma” or “the
Company”), a leading Canadian producer of hot and cold rolled steel
sheet and plate products, today announced results for its fiscal
first quarter ended June 30, 2022.
Unless otherwise specified, all amounts are in
Canadian dollars.
Business Highlights and Fiscal 2023 to Fiscal 2022 First
Quarter Comparisons
- Consolidated revenue of $934.1
million, up 18.4% from $789.1 million in the prior-year
quarter.
- Consolidated income from operations
of $328.9 million, compared to $252.2 million in the prior-year
quarter.
- Net income of $301.4 million, or
$1.49 per diluted share, compared to $203.6 million, or $2.84 per
diluted share in the prior-year quarter.
- Adjusted EBITDA of $357.7 million
and Adjusted EBITDA margin of 38.3%, compared to $280.8 million and
35.6% in the prior-year quarter (see “Non-IFRS Measures”
below).
- Cash flows generated from operations
of $276.6 million, compared to $121.1 million in the prior-year
quarter.
- Shipments of 537,524 tons, compared
to 610,057 tons in the prior-year quarter.
- Paid quarterly dividend of
US$0.05/share.
- Completed US$400 million Substantial
Issuer Bid (“SIB”) in July, resulting in a repurchase of
approximately 27.9% of shares issued and outstanding at the time
that the SIB was commenced.
- In July, the Company and United
Steelworkers Local 2724, the union representing Algoma’s technical,
professional and front-line supervisory employees, successfully
entered into a new labour agreement.
- In July, the Company and the
Negotiating Committee of United Steelworkers Local 2251, the union
representing Algoma’s hourly employees, agreed to a 15-day
extension beyond the original July 31, 2022 expiry for the purposes
of finalizing a new labour agreement.
Michael Garcia, the Company’s Chief Executive
Officer, commented, “The momentum we established in fiscal 2022
continued with another quarter of strong results in what has been a
volatile operational environment. We delivered year-over-year
improvement in revenue and adjusted EBITDA even as we undertook a
significant planned outage to upgrade our plate mill facility. Our
results continue to reflect our differentiated execution, along
with the hard work and dedication of the entire Algoma team.”
Mr. Garcia continued, “This summer has been a
busy time for Algoma. The construction of our transformative
electric arc furnace project continues on budget and on time
towards a targeted startup in 2024. At the same time, the first of
our two-phase plate mill modernization project was completed and is
ramping up during the third calendar quarter of this year. In July
we significantly advanced our capital allocation program by
repurchasing approximately 28% of our outstanding shares. We
continue our focus on disciplined execution during dynamic market
conditions.”
“Our discussions with United Steelworkers Local
2251 regarding a new labour agreement are ongoing, and the recent
15-day extension of those talks demonstrates the willingness and
desire of both sides to reach a fair and equitable agreement. We
are operating the facilities normally while these talks continue
and look forward to working together as we advance our collective
strategy of becoming one of North America’s leading producers of
green steel.”
First Quarter Fiscal 2023 Financial
Results
First quarter revenue totaled $934.1 million, up
18.4% from $789.1 million in the prior-year quarter. As compared
with the prior-year quarter, steel revenue was $877.4 million, up
21.4% from $722.9 million, and revenue per ton of steel sold was
$1,738, up 34.4% from $1,293.
Average realized price of steel net of freight
and non-steel revenue was $1,632 per ton, up 37.8% from $1,185 per
ton in the prior-year quarter. Cost per ton of steel products sold
was $920, up 32.4% from $695 in the prior-year quarter. Shipments
for the first quarter decreased by 11.9% to 537,524 tons, compared
to 610,057 tons in the prior-year quarter.
Income from operations was $328.9 million,
compared to $252.2 million in the prior-year quarter. The year over
year increase was primarily due to an increase in the selling price
of steel, partially offset by an increase in the purchase price of
inputs, including iron ore, scrap, alloys and natural gas, as well
as an increase in employee profit sharing expense compared to the
prior year.
Net income in the first quarter was $301.4
million, or $1.49 per diluted share, compared to $203.6 million, or
$2.84 per diluted share, in the prior-year quarter. The improvement
in net income was driven primarily by the factors described above
under income from operations, while the decrease in diluted
earnings per share reflected the higher share count resulting from
the Company’s merger with Legato Merger Corporation in October of
2021.
Adjusted EBITDA in the first quarter was $357.7
million, compared with $280.8 million for the prior-year quarter.
This resulted in an Adjusted EBITDA margin of 38.3%, an improvement
of 270 basis points versus the prior-year quarter. See “Non-IFRS
Measures” below for an explanation of Adjusted EBITDA and a
reconciliation of Adjusted EBITDA to net income.
Substantial Issuer Bid (Share
Repurchase)
On July 27, 2022, the Company completed a US$400
million SIB, as part of its overall capital allocation strategy,
resulting in the Company repurchasing 41,025,641 outstanding common
shares, or approximately 27.9% of issued and outstanding common
shares as of the time the SIB was announced, at a price of US$9.75
per share. Immediately following the completion of the SIB, the
Company had 105,403,930 outstanding common shares.
Normal Course Issuer Bid (Share
Repurchase)
On March 3, 2022 the Company announced the
commencement of a normal course issuer bid (“NCIB”) after receiving
approval from the Toronto Stock Exchange, authorizing the Company
to acquire up to a maximum of 7,397,889 shares, or 5% of its issued
and outstanding shares as of February 18, 2022, subject to a
maximum of 16,586 shares per day. The NCIB expires on March 2, 2023
if not fully exercised. The Company repurchased 1,572,968 shares
from the market under the NCIB during the fiscal quarter ended June
30, 2022 at an average price of US$9.11 per share for a total
consideration of US$14.3 million. The NCIB was temporarily
suspended during the SIB as required under applicable law and stock
exchange rules. The Company intends to resume share repurchases
under the NCIB starting on August 4, 2022.
Electric Arc Furnace
In November 2021, the Board of Directors
authorized the Company to construct two new state-of-the-art
electric arc furnaces (“EAF”) to replace its existing blast furnace
and basic oxygen steelmaking operations. The $700 million project
is expected to take two years to complete and is advancing as
expected. Following the transformation to EAF steelmaking, Algoma’s
facility is anticipated to have an annual raw steel production
capacity of approximately 3.7 million tons, matching its downstream
finishing capacity, and reducing the Company’s annual carbon
emissions by approximately 70%. To date the project remains on
schedule and on budget.
Quarterly Dividend
The Company’s board of directors has declared a
regular quarterly dividend in the amount of US$0.05 on each common
share outstanding, payable on September 30, 2022 to holders of
record of common shares of the Corporation as of the close of
business on August 31, 2022. This dividend is designated as an
“eligible dividend” for Canadian income tax purposes.
Conference Call and Webcast
Details
A webcast and conference call will be held on
Thursday, August 4, 2022 at 11:00 a.m. Eastern Time to review the
Company’s fiscal first quarter results, discuss recent events, and
conduct a question-and-answer session.
The live webcast and archived replay of the
conference call can be accessed on the Investors section of the
Company’s website at www.algoma.com. For those unable to access the
webcast, the conference call will be accessible domestically or
internationally by dialing 877-425-9470 or 201-389-0878,
respectively. Upon dialing in, please request to join the Algoma
Steel First Quarter Conference Call. To access the replay of the
call, dial 844-512-2921 (domestic) or 412-317-6671 (international)
with passcode 13731533.
Consolidated Financial Statements and
Management's Discussion and Analysis
The Company's unaudited condensed interim
consolidated financial statements for the three months ended June
30, 2022, and Management's Discussion & Analysis thereon are
available under the Company’s profile on the Securities and
Exchange Commission’s (“SEC”) EDGAR website at www.sec.gov and
under the Company's profile on SEDAR at www.sedar.com.
Cautionary Statement Regarding Forward-Looking
Statements
This news release contains “forward-looking
information” under applicable Canadian securities legislation and
“forward-looking statements” within the meaning of the U.S. Private
Securities Litigation Reform Act of 1995 (collectively, “forward
looking statements”), including statements regarding Algoma’s
strategic objectives, its expectation to pay a quarterly dividend,
Algoma’s ability to reach agreements with labour unions and
potential purchases under the NCIB. These forward-looking
statements generally are identified by the words “believe,”
“project,” “expect,” “anticipate,” “estimate,” “intend,”
“strategy,” “future,” “opportunity,” “plan,” “pipeline,” “may,”
“should,” “will,” “would,” “will be,” “will continue,” “will likely
result,” and similar expressions. Forward-looking statements are
predictions, projections and other statements about future events
that are based on current expectations and assumptions. Many
factors could cause actual future events to differ materially from
the forward-looking statements in this document, including but not
limited to: the risks that Algoma will be unable to realize its
business plans and strategic objectives, including its investment
in and transition to EAF ; the risks associated with the steel
industry generally; and changes in general economic conditions,
including as a result of the COVID-19 pandemic, inflation and the
ongoing conflict in Ukraine; and the risk of being unable to reach
an agreement with United Steelworkers Local 2251 in the time
required or at all. The foregoing list of factors is not exhaustive
and readers should also consider the other risks and uncertainties
set forth in the section entitled “Risk Factors” and “Cautionary
Note Regarding Forward-Looking Statements” inAlgoma’s Annual Report
on Form 20-F filed with the SEC (available at www.sec.gov), and the
Ontario Securities Commission (“OSC”) (available under Algoma’s
SEDAR profile at www.sedar.com), and in Algoma’s other public
filings with the SEC and the OSC. Forward-looking statements speak
only as of the date they are made. Readers are cautioned not to put
undue reliance on forward-looking statements, and Algoma assumes no
obligation and does not intend to update or revise these
forward-looking statements, whether as a result of new information,
future events, or otherwise.
Non-IFRS Financial
Measures
To supplement our financial statements, which
are prepared in accordance with International Financial Reporting
Standards as issued by the International Accounting Standards Board
(“IFRS”), we use certain non-IFRS measures to evaluate
the performance of Algoma. These terms do not have any standardized
meaning prescribed within IFRS and, therefore, may not be
comparable to similar measures presented by other companies.
Rather, these measures are provided as additional information to
complement those IFRS measures by providing a further understanding
of our financial performance from management’s perspective.
Accordingly, they should not be considered in isolation nor as a
substitute for analysis of our financial information reported under
IFRS.
Adjusted EBITDA, as we define it, refers to net
(loss) income before amortization of property, plant, equipment and
amortization of intangible assets, finance costs, interest on
pension and other post-employment benefit obligations, income
taxes, restructuring costs, impairment reserve, foreign exchange
loss (gain), finance income, carbon tax, changes in fair value of
warrant, earnout and share-based compensation liabilities,
transaction costs, share based compensation related to performance
share units and business combination adjustments. Adjusted EBITDA
margin is calculated by dividing Adjusted EBITDA by revenue for the
corresponding period. Adjusted EBITDA is not intended to represent
cash flow from operations, as defined by IFRS, and should not be
considered as alternatives to net earnings, cash flow from
operations, or any other measure of performance prescribed by IFRS.
Adjusted EBITDA, as we define and use it, may not be comparable to
Adjusted EBITDA as defined and used by other companies. We consider
Adjusted EBITDA to be a meaningful measure to assess our operating
performance in addition to IFRS measures. It is included because we
believe it can be useful in measuring our operating performance and
our ability to expand our business and provide management and
investors with additional information for comparison of our
operating results across different time periods and to the
operating results of other companies. Adjusted EBITDA is also used
by analysts and our lenders as a measure of our financial
performance. In addition, we consider Adjusted EBITDA margin to be
a useful measure of our operating performance and profitability
across different time periods that enhance the comparability of our
results. However, these measures have limitations as analytical
tools and should not be considered in isolation from, or as
alternatives to, net income, cash flow from operations or other
data prepared in accordance with IFRS. Because of these
limitations, such measures should not be considered as measures of
discretionary cash available to invest in business growth or to
reduce indebtedness. We compensate for these limitations by relying
primarily on our IFRS results using such measures only as
supplements to such results. See the financial tables below for a
reconciliation of the non-IFRS financial measures reported
herein.
About Algoma Steel Group Inc.
Based in Sault Ste. Marie, Ontario, Canada,
Algoma is a fully integrated producer of hot and cold rolled steel
products including sheet and plate. With a current raw steel
production capacity of an estimated 2.8 million tons per year,
Algoma’s size and diverse capabilities enable it to deliver
responsive, customer-driven product solutions straight from the
ladle to direct applications in the automotive, construction,
energy, defense, and manufacturing sectors. Algoma is a key
supplier of steel products to customers in Canada and Midwest USA
and is the only producer of plate steel products in Canada. The
Company’s mill is one of the lowest cost producers of hot rolled
sheet steel (HRC) in North America owing in part to its
state-of-the-art Direct Strip Production Complex (“DSPC”), which is
the newest thin slab caster in North America with direct coupling
to a basic oxygen furnace (BOF) melt shop.
Algoma has achieved several meaningful
improvements over the last several years that are expected to
result in enhanced long-term profitability for the business. Algoma
has upgraded its DSPC facility and recently installed its No. 2
Ladle Metallurgy Furnace. Additionally, the Company has cost
cutting initiatives underway and is in the process of modernizing
its plate mill facilities.
Today Algoma is on a transformation journey,
investing in its people and processes, optimizing and modernizing
to secure a sustainable future. Our customer focus, growing
capability and courage to meet the industry’s challenges head-on
position us firmly as your partner in steel.
Algoma Steel Group Inc. Condensed Interim Consolidated
Statements of Financial Position (Unaudited) |
|
|
As at, |
June 30, 2022 |
March 31, 2022 |
expressed in millions of Canadian dollars |
|
|
Assets |
|
|
Current |
|
|
Cash |
$ |
1,136.9 |
|
$ |
915.3 |
|
Restricted cash |
|
3.9 |
|
|
3.9 |
|
Taxes receivable |
|
2.7 |
|
|
- |
|
Accounts receivable, net |
|
324.1 |
|
|
402.3 |
|
Inventories, net |
|
637.7 |
|
|
480.0 |
|
Prepaid expenses and deposits |
|
92.7 |
|
|
79.9 |
|
Margin payments |
|
- |
|
|
29.5 |
|
Derivative financial instruments |
|
8.9 |
|
|
- |
|
Other assets |
|
5.8 |
|
|
5.6 |
|
Total current assets |
$ |
2,212.7 |
|
$ |
1,916.5 |
|
Non-current |
|
|
Property, plant and equipment, net |
$ |
854.5 |
|
$ |
773.7 |
|
Intangible assets, net |
|
1.2 |
|
|
1.1 |
|
Other assets |
|
2.1 |
|
|
2.3 |
|
Total non-current assets |
$ |
857.8 |
|
$ |
777.1 |
|
Total assets |
$ |
3,070.5 |
|
$ |
2,693.6 |
|
Liabilities and Shareholders' Equity |
|
|
Current |
|
|
Bank indebtedness |
$ |
0.3 |
|
$ |
0.1 |
|
Accounts payable and accrued liabilities |
|
764.5 |
|
|
261.9 |
|
Taxes payable and accrued taxes |
|
162.0 |
|
|
64.3 |
|
Current portion of other long-term liabilities |
|
0.4 |
|
|
0.4 |
|
Current portion of governmental loans |
|
10.0 |
|
|
10.0 |
|
Current portion of environmental liabilities |
|
4.3 |
|
|
4.5 |
|
Derivative financial instruments |
|
- |
|
|
28.8 |
|
Warrant liability |
|
63.9 |
|
|
99.4 |
|
Earnout liability |
|
18.7 |
|
|
22.7 |
|
Share-based payment compensation liability |
|
37.2 |
|
|
45.4 |
|
Total current liabilities |
$ |
1,061.3 |
|
$ |
537.5 |
|
Non-current |
|
|
Long-term governmental loans |
$ |
85.0 |
|
$ |
85.2 |
|
Accrued pension liability |
|
180.2 |
|
|
118.1 |
|
Accrued other post-employment benefit obligation |
|
210.2 |
|
|
239.8 |
|
Other long-term liabilities |
|
4.0 |
|
|
4.0 |
|
Environmental liabilities |
|
34.4 |
|
|
33.5 |
|
Deferred income tax liabilities |
|
104.2 |
|
|
92.9 |
|
Total non-current liabilities |
$ |
618.0 |
|
$ |
573.5 |
|
Total liabilities |
$ |
1,679.3 |
|
$ |
1,111.0 |
|
Shareholders' equity |
|
|
Capital stock |
$ |
931.4 |
|
$ |
1,378.0 |
|
Accumulated other comprehensive income |
|
199.8 |
|
|
152.0 |
|
Retained earnings |
|
282.3 |
|
|
77.8 |
|
Contributed deficit |
|
(22.3 |
) |
|
(25.2 |
) |
Total shareholders' equity |
$ |
1,391.2 |
|
$ |
1,582.6 |
|
Total liabilities and shareholders' equity |
$ |
3,070.5 |
|
$ |
2,693.6 |
|
|
|
|
Algoma Steel Group Inc. Condensed Interim Consolidated
Statements of Net Income (Unaudited) |
|
|
Three month periods ended |
June 30, 2022 |
June 30, 2021 |
expressed in millions of Canadian dollars, except for per share
amounts |
|
|
Revenue |
$ |
934.1 |
|
$ |
789.1 |
|
|
|
Operating expenses |
|
|
Cost of sales |
$ |
576.8 |
|
$ |
510.2 |
Administrative and selling expenses |
|
28.4 |
|
|
26.7 |
Income from operations |
$ |
328.9 |
|
$ |
252.2 |
|
|
|
Other (income) and expenses |
|
|
Finance income |
$ |
(1.9 |
) |
$0- |
Finance costs |
|
4.7 |
|
|
15.1 |
Interest on pension and other post-employment benefit
obligations |
|
3.4 |
|
|
2.9 |
Foreign exchange (gain) loss |
|
(11.7 |
) |
|
10.0 |
Transaction costs |
|
- |
|
|
2.9 |
Change in fair value of warrant liability |
|
(38.4 |
) |
|
- |
Change in fair value of earnout liability |
|
(4.1 |
) |
|
- |
Change in fair value of share-based compensation
liability |
|
(9.4 |
) |
|
- |
|
$ |
(57.4 |
) |
$ |
30.9 |
Income before income taxes |
$ |
386.3 |
|
$ |
221.3 |
Income tax expense |
|
84.9 |
|
|
17.7 |
Net
income |
$ |
301.4 |
|
$ |
203.6 |
|
|
|
|
|
|
Net
income per common share |
|
|
Basic |
$ |
1.98 |
|
$ |
2.84 |
Diluted |
$ |
1.49 |
|
$ |
2.84 |
|
|
|
Algoma Steel Group Inc. Condensed Interim Consolidated
Statements of Cash Flows (Unaudited) |
|
|
Three month periods ended |
June 30, 2022 |
June 30, 2021 |
expressed in millions of Canadian dollars |
|
|
Operating activities |
|
|
Net Income |
$ |
301.4 |
|
$ |
203.6 |
|
Items not affecting cash: |
|
|
Amortization of property, plant and equipment and intangible
assets |
|
22.6 |
|
|
20.7 |
|
Deferred income tax expense (benefit) |
|
(0.6 |
) |
|
17.7 |
|
Pension expense in excess of funding (pension funding in excess of
expense) |
|
(0.3 |
) |
|
(7.3 |
) |
Post-employment benefit funding in excess of expense |
|
(2.1 |
) |
|
(1.6 |
) |
Unrealized foreign exchange loss (gain) on: |
|
|
accrued pension liability |
|
(4.0 |
) |
|
3.0 |
|
post-employment benefit obligations |
|
(7.3 |
) |
|
4.3 |
|
Finance costs |
|
4.7 |
|
|
15.1 |
|
Interest on pension and other post-employment benefit
obligations |
|
3.4 |
|
|
2.9 |
|
Accretion of governmental loans and environmental liabilities |
|
3.1 |
|
|
3.0 |
|
Unrealized foreign exchange loss (gain) on government loan
facilities |
|
(2.9 |
) |
|
1.2 |
|
Decrease in fair value of warrant liability |
|
(38.4 |
) |
|
- |
|
Decrease in fair value of earnout liability |
|
(4.1 |
) |
|
- |
|
Decrease in fair value of share-based compensation liability |
|
(9.4 |
) |
|
- |
|
Other |
|
(1.4 |
) |
|
0.9 |
|
|
$ |
264.7 |
|
$ |
263.5 |
|
Net change in non-cash operating working capital |
|
12.2 |
|
|
(141.9 |
) |
Environmental liabilities paid |
|
(0.2 |
) |
|
(0.5 |
) |
Cash
generated by operating activities |
$ |
276.6 |
|
$ |
121.1 |
|
Investing activities |
|
|
Acquisition of property, plant and equipment |
($ |
80.1 |
) |
($ |
19.1 |
) |
Cash
used in investing activities |
($ |
80.1 |
) |
($ |
19.1 |
) |
Financing activities |
|
|
Bank indebtedness advanced (repaid), net |
$ |
0.2 |
|
($ |
86.9 |
) |
Repayment of term loans |
|
- |
|
|
(3.4 |
) |
Repayment of governmental loans |
|
(2.5 |
) |
|
- |
|
Interest paid |
|
(0.1 |
) |
|
(10.7 |
) |
Common shares repurchased and cancelled |
|
(3.7 |
) |
|
- |
|
Cash
used in financing activities |
($ |
6.1 |
) |
($ |
101.0 |
) |
Effect of exchange rate changes on cash |
$ |
31.2 |
|
($ |
0.3 |
) |
Cash |
|
|
Increase in cash |
|
221.6 |
|
|
0.7 |
|
Opening balance |
|
915.3 |
|
|
21.2 |
|
Ending balance |
$ |
1,136.9 |
|
$ |
21.9 |
|
|
|
|
Algoma Steel Group Inc. Reconciliation of Net Income to
Adjusted EBITDA |
|
|
|
millions of dollars |
Three months ended June 30, 2022 |
|
Three months ended June 30, 2021 |
Net income |
$ |
301.4 |
|
|
$ |
203.6 |
|
|
|
|
|
Amortization of property, plant and equipment and
amortization of intangible assets |
|
22.6 |
|
|
|
20.7 |
|
Finance costs |
|
4.7 |
|
|
|
15.1 |
|
Interest on pension and other post-employment benefit
obligations |
|
3.4 |
|
|
|
2.9 |
|
Income
taxes |
|
84.9 |
|
|
|
17.7 |
|
Foreign exchange (gain) loss |
|
(11.7 |
) |
|
|
10.0 |
|
Finance income |
|
(1.9 |
) |
|
|
- |
|
Inventory
write-downs (amortization on property, plant and equipment in
inventory) |
|
0.3 |
|
|
|
Carbon
tax |
|
3.0 |
|
|
|
(0.6 |
) |
Decrease in fair value of warrant liability |
|
(38.4 |
) |
|
|
- |
|
Decrease in fair value of earnout liability |
|
(4.1 |
) |
|
|
- |
|
Decrease in fair value of share-based payment compensation
liability |
|
(9.4 |
) |
|
|
- |
|
Transaction costs |
|
- |
|
|
|
2.9 |
|
Share-based compensation |
|
2.9 |
|
|
|
8.5 |
|
Adjusted EBITDA (i) |
$ |
357.7 |
|
|
$ |
280.8 |
|
Net
income Margin |
|
32.3 |
% |
|
|
25.8 |
% |
Net
income / ton |
$ |
560.69 |
|
|
$ |
333.67 |
|
Adjusted EBITDA Margin (ii) |
|
38.3 |
% |
|
|
35.6 |
% |
Adjusted EBITDA / ton |
$ |
665.46 |
|
|
$ |
460.34 |
|
|
|
|
|
(i) See "Non-IFRS Financial Measures" in this Press Release for
information regarding the limitations of using Adjusted
EBITDA. |
(ii)
Adjusted EBITDA Margin is Adjusted EBITDA as a percentage of
revenue. |
|
|
|
For more information, please contact:
Michael MoracaTreasurer & Investor
Relations OfficerAlgoma Steel Group Inc.
Phone: 705.945.3300E-mail: IR@algoma.com
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