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, 2023.
Unless otherwise specified, all amounts are in
Canadian dollars.
Business Highlights and Fiscal 2024 to Fiscal 2023 First
Quarter Comparisons
- Consolidated revenue of $827.2
million, compared to $934.1 million in the prior-year quarter.
- Consolidated income from operations
of $164.3 million, compared to $328.9 million in the prior-year
quarter.
- Net income of $130.9 million,
compared to $301.4 million in the prior-year quarter.
- Adjusted EBITDA of $191.2 million
and Adjusted EBITDA margin of 23.1%, compared to $357.7 million and
38.3% in the prior-year quarter (See “Non-IFRS Measures”
below).
- Cash flows generated from operations
of $163.9 million, compared to $276.6 million in the prior-year
quarter.
- Shipments of 569,433 tons, compared
to 537,524 tons in the prior-year quarter.
- Declared quarterly dividend of
US$0.05/share.
Michael Garcia, the Company’s Chief Executive
Officer, commented, “Thanks to the dedicated efforts of our
employees, we delivered results that were modestly ahead of our
previously disclosed outlook. We also made substantial progress on
our transformative EAF project, deploying the next $74 million in
the quarter to bring the cumulative total invested at June 30,
2023, to $341 million, or roughly 40% of the total expected cost,
funded from existing excess cash from operations, as well as draws
on committed project loan facilities. We expect to fund the
remainder of the project with a combination of cash on hand,
availability under our federal Strategic Innovation Fund (SIF)
loan, drawdown of excess working capital, and expected cash flows
from operations. We are uniquely positioned to simultaneously
deliver strong financial results from our existing portfolio while
advancing towards EAF commissioning, expected at the end of
2024.”
First Quarter Fiscal 2024 Financial
Results
First quarter revenue totaled $827.2 million,
compared to $934.1 million in the prior year quarter. As compared
with the prior year quarter, steel revenue was $754.5 million,
compared to $877.4 million, and revenue per ton of steel sold was
$1,453, compared to $1,738.
Income from operations was $164.3 million,
compared to $328.9 million in the prior-year quarter. The year over
year decrease was primarily due to a decrease in the selling price
of steel, higher costs due to increases in the purchase price of
key inputs such as metallurgical coke, coal and ore pellets and
higher usage of purchased coke. Net income in the first quarter was
$130.9 million, compared to net income of $301.4 million in the
prior-year quarter. The decrease was driven primarily by the
factors described above under income from operations.
Adjusted EBITDA in the first quarter was $191.2
million, compared with $357.7 million for the prior-year quarter.
This resulted in an Adjusted EBITDA margin of 23.1%. Average
realized price of steel net of freight and non-steel revenue was
$1,323 per ton, compared to $1,632 per ton in the prior-year
quarter. Cost per ton of steel products sold was $950, compared to
$920 in the prior-year quarter. Shipments for the first quarter
increased by 5.9% to 569,433 tons, compared to 537,524 tons in the
prior-year quarter. See “Non-IFRS Measures” below for an
explanation of Adjusted EBITDA and a reconciliation of net income
to Adjusted EBITDA.
Electric Arc Furnace
The Company has made substantial progress on the
construction of two new state-of-the-art electric arc furnaces
(“EAF”) to replace its existing blast furnace and basic oxygen
steelmaking operations. The project timing and budget remain
consistent with the outlook provided in the fiscal fourth quarter
2023 earnings release. As of June 30, 2023, the cumulative
investment was approximately $341 million of the total projected
cost of $825 million to $875 million, including approximately $74
million during the fiscal first quarter. Following the
transformation to EAF steelmaking, Algoma’s facility is expected to
reach an annual raw steel production capacity of approximately 3.7
million tons, matching its downstream finishing capacity, and to
generate an approximate 70% reduction in the Company’s annual
carbon emissions.
Quarterly Dividend
The Board has declared a regular quarterly
dividend in the amount of US$0.05 on each common share outstanding,
payable on September 29, 2023, to holders of record of common
shares of the Corporation as of the close of business on August 25,
2023. 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
Friday, August 11, 2023 at 11:00 a.m. EDT 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 13740289.
Consolidated Financial Statements and
Management's Discussion and Analysis
The Company's unaudited interim consolidated
financial statements for the three months ended June 30, 2023, and
Management's Discussion & Analysis thereon are available under
the Company’s profile on the U.S. Securities and Exchange
Commission’s (“SEC”) EDGAR website at www.sec.gov and under the
Company's profile on SEDAR+ at www.sedarplus.ca.
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
trends in the pricing of steel and other key inputs in the
steelmaking process, Algoma’s expectation to continue to pay a
quarterly dividend, Algoma’s transition to EAF steelmaking,
including the progress, costs and timing of completion of the
Company’s EAF project, Algoma’s future as a leading producer of
green steel, Algoma’s modernization of its plate mill facilities,
transformation journey, ability to deliver greater and long-term
value, ability to offer North America a secure steel supply and a
sustainable future, and investment in its people, and processes,
statements regarding the Company’s intended use of cash on hand,
cash from operations and proceeds from the Company’s credit
facilities, and the Company’s strategy, plans or future financial
or operating performance. These forward-looking statements
generally are identified by the words “believe,” “project,”
“expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,”
“opportunity,” “plan,” “design,” “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. Readers should
also consider the other risks and uncertainties set forth in the
section entitled “Risk Factors” and “Cautionary Note Regarding
Forward-Looking Information” in Algoma’s Annual Information Form,
filed by Algoma with applicable Canadian securities regulatory
authorities (available under the company’s SEDAR+ profile at
www.sedarplus.ca) and with the SEC, as part of Algoma’s Annual
Report on Form 40-F (available at www.sec.gov), as well as in
Algoma’s current reports with the Canadian securities regulatory
authorities and SEC. 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
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, foreign exchange loss (gain), finance income, carbon tax,
changes in fair value of warrant, earnout and share-based
compensation liabilities, and share-based compensation related to
performance share units. 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 profit 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 net income (loss) to Adjusted
EBITDA.
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. Driven by a purpose to build
better lives and a greener future, Algoma is positioned to deliver
responsive, customer-driven product solutions to applications in
the automotive, construction, energy, defense, and manufacturing
sectors. Algoma is a key supplier of steel products to customers in
North America and is the only producer of discrete plate products
in Canada. Its state-of-the-art Direct Strip Production Complex
(“DSPC”) is one of the lowest-cost producers of hot rolled sheet
steel (HRC) in North America.
Algoma is on a transformation journey,
modernizing its plate mill and adopting electric arc technology
that builds on the strong principles of recycling and environmental
stewardship to significantly lower carbon emissions. Today Algoma
is investing in its people and processes, working safely, as a team
to become one of North America's leading producers of green
steel.
As a founding industry in their community,
Algoma is drawing on the best of its rich steelmaking tradition to
deliver greater value, offering North America the comfort of a
secure steel supply and a sustainable future as your partner in
steel.
Algoma Steel Group Inc.
Condensed Interim Consolidated
Statements of Financial Position(Unaudited)
As at, |
June 30, 2023 |
March 31, 2023 |
expressed in millions of Canadian dollars |
|
|
Assets |
|
|
Current |
|
|
Cash |
$300.6 |
|
$247.4 |
|
Restricted cash |
3.9 |
|
3.9 |
|
Taxes receivable |
8.3 |
|
- |
|
Accounts receivable, net |
302.1 |
|
291.2 |
|
Inventories |
759.3 |
|
722.7 |
|
Prepaid expenses and deposits |
99.5 |
|
94.4 |
|
Other assets |
6.5 |
|
6.7 |
|
Total current assets |
$1,480.2 |
|
$1,366.3 |
|
Non-current |
|
|
Property, plant and equipment, net |
$1,139.1 |
|
$1,081.3 |
|
Intangible assets, net |
0.9 |
|
0.9 |
|
Other assets |
7.6 |
|
7.1 |
|
Total non-current assets |
$1,147.6 |
|
$1,089.3 |
|
Total assets |
$2,627.8 |
|
$2,455.6 |
|
Liabilities and Shareholders' Equity |
|
|
Current |
|
|
Bank indebtedness |
$1.2 |
|
$1.9 |
|
Accounts payable and accrued liabilities |
271.5 |
|
204.6 |
|
Taxes payable and accrued taxes |
52.8 |
|
14.4 |
|
Current portion of other long-term liabilities |
0.5 |
|
0.4 |
|
Current portion of governmental loans |
11.9 |
|
10.0 |
|
Current portion of environmental liabilities |
4.1 |
|
4.5 |
|
Warrant liability |
38.7 |
|
57.3 |
|
Earnout liability |
14.4 |
|
16.8 |
|
Share-based payment compensation liability |
28.8 |
|
33.5 |
|
Total current liabilities |
$423.9 |
|
$343.4 |
|
Non-current |
|
|
Long-term governmental loans |
$115.1 |
|
$110.4 |
|
Accrued pension liability |
199.9 |
|
184.0 |
|
Accrued other post-employment benefit obligation |
225.5 |
|
222.9 |
|
Other long-term liabilities |
3.9 |
|
3.7 |
|
Environmental liabilities |
32.9 |
|
32.3 |
|
Deferred income tax liabilities |
87.7 |
|
96.7 |
|
Total non-current liabilities |
$665.0 |
|
$650.0 |
|
Total liabilities |
$1,088.9 |
|
$993.4 |
|
Shareholders' equity |
|
|
Capital stock |
$958.8 |
|
$958.4 |
|
Accumulated other comprehensive income |
265.7 |
|
313.6 |
|
Retained earnings |
335.5 |
|
211.6 |
|
Contributed deficit |
(21.1 |
) |
(21.4 |
) |
Total shareholders' equity |
$1,538.9 |
|
$1,462.2 |
|
Total liabilities and shareholders' equity |
$2,627.8 |
|
$2,455.6 |
|
|
|
|
Algoma Steel Group Inc. Condensed
Interim Consolidated Statements of Net
Income (Unaudited)
Three month period ended |
June 30, 2023 |
June 30, 2022 |
expressed in millions of Canadian dollars, except for per share
amounts |
|
|
Revenue |
$827.2 |
|
$934.1 |
|
|
|
|
Operating expenses |
|
|
Cost of sales |
$639.5 |
|
$576.8 |
|
Administrative and selling expenses |
23.4 |
|
28.4 |
|
Income from operations |
$164.3 |
|
$328.9 |
|
|
|
|
Other (income) and expenses |
|
|
Finance income |
($3.3) |
|
($1.9 |
) |
Finance costs |
5.1 |
|
4.7 |
|
Interest on pension and other post-employment benefit
obligations |
4.8 |
|
3.4 |
|
Foreign exchange loss (gain) |
11.0 |
|
(11.7 |
) |
Change in fair value of warrant liability |
(17.5) |
|
(38.4 |
) |
Change in fair value of earnout liability |
(2.0) |
|
(4.1 |
) |
Change in fair value of share-based compensation liability |
(4.0) |
|
(9.4 |
) |
|
($5.9) |
|
($57.4 |
) |
Income before income taxes |
$170.2 |
|
$386.3 |
|
Income tax expense |
39.3 |
|
84.9 |
|
Net
income |
$130.9 |
|
$301.4 |
|
|
|
|
|
|
|
Net
income per common share |
|
|
Basic |
$1.21 |
|
$1.98 |
|
Diluted |
$0.85 |
|
$1.49 |
|
|
|
|
Algoma Steel Group
Inc.Condensed Interim Consolidated Statements of
Cash Flows(Unaudited)
Three month period ended |
June 30, 2023 |
June 30, 2022 |
expressed in millions of Canadian dollars |
|
|
Operating activities |
|
|
Net income |
$130.9 |
|
$301.4 |
|
Items not affecting cash: |
|
|
Depreciation of property, plant and equipment and intangible
assets |
23.3 |
|
22.6 |
|
Deferred income tax benefit |
(7.0 |
) |
(0.6 |
) |
Pension funding below (in excess) of expense |
1.2 |
|
(0.3 |
) |
Post-employment benefit funding in excess of expense |
(1.9 |
) |
(2.1 |
) |
Unrealized foreign exchange loss (gain) on accrued pension
liability |
4.1 |
|
(4.0 |
) |
Unrealized foreign exchange loss (gain) on post-employment benefit
obligations |
4.9 |
|
(7.3 |
) |
Finance costs |
5.1 |
|
4.7 |
|
Interest on pension and other post-employment benefit
obligations |
4.8 |
|
3.4 |
|
Accretion of governmental loans and environmental liabilities |
3.6 |
|
3.1 |
|
Unrealized foreign exchange loss (gain) on government loan
facilities |
2.6 |
|
(2.9 |
) |
Decrease in fair value of warrant liability |
(17.5 |
) |
(38.4 |
) |
Decrease in fair value of earnout liability |
(2.0 |
) |
(4.1 |
) |
Decrease in fair value of share-based payment compensation
liability |
(4.0 |
) |
(9.4 |
) |
Other |
1.5 |
|
(1.4 |
) |
|
$149.6 |
|
$264.7 |
|
Net change in non-cash operating working capital |
14.9 |
|
12.2 |
|
Environmental liabilities paid |
(0.6 |
) |
(0.2 |
) |
Cash
generated by operating activities |
$163.9 |
|
$276.6 |
|
Investing activities |
|
|
Acquisition of property, plant and equipment |
($106.4 |
) |
($80.1 |
) |
Cash
used in investing activities |
($106.4 |
) |
($80.1 |
) |
Financing activities |
|
|
Bank indebtedness (repaid) advanced, net |
($0.7 |
) |
$0.2 |
|
Transaction costs on bank indebtedness |
(1.0 |
) |
- |
|
Governmental loans received |
18.5 |
|
- |
|
Governmental loans benefit on below-market rate of interest
loans |
(12.2 |
) |
- |
|
Repayment of governmental loans |
(2.5 |
) |
(2.5 |
) |
Interest paid |
(0.1 |
) |
(0.1 |
) |
Common shares repurchased and cancelled |
- |
|
(3.7 |
) |
Cash
generated by (used in) financing activities |
$2.0 |
|
($6.1 |
) |
Effect of exchange rate changes on cash |
($6.3 |
) |
$31.2 |
|
Cash |
|
|
Increase in cash |
53.2 |
|
221.6 |
|
Opening balance |
247.4 |
|
915.3 |
|
Ending balance |
$300.6 |
|
$1,136.9 |
|
|
|
|
Algoma Steel Group
Inc.Reconciliation of Net Income to Adjusted
EBITDA
millions of dollars |
Three monthsended June 30,2023 |
|
Three monthsended June 30,2022 |
Net income |
$130.9 |
|
|
$301.4 |
|
|
|
|
|
Depreciation
of property, plant and equipment and amortization of intangible
assets |
23.3 |
|
|
22.6 |
|
Finance costs |
5.1 |
|
|
4.7 |
|
Interest on pension and other post-employment benefit
obligations |
4.8 |
|
|
3.4 |
|
Income taxes |
39.3 |
|
|
84.9 |
|
Foreign exchange loss (gain) |
11.0 |
|
|
(11.7 |
) |
Finance income |
(3.3 |
) |
|
(1.9 |
) |
Inventory write-downs (depreciation on property, plant and
equipment in inventory) |
0.4 |
|
|
0.3 |
|
Carbon tax |
2.5 |
|
|
3.0 |
|
Decrease in fair value of warrant liability |
(17.5 |
) |
|
(38.4 |
) |
Decrease in fair value of earnout liability |
(2.0 |
) |
|
(4.1 |
) |
Decrease in fair value of share-based payment compensation
liability |
(4.0 |
) |
|
(9.4 |
) |
Share-based compensation |
0.7 |
|
|
2.9 |
|
Adjusted EBITDA (i) |
$191.2 |
|
|
$357.7 |
|
Net
income Margin |
15.8 |
% |
|
32.3 |
% |
Net
income / ton |
$229.9 |
|
|
$560.7 |
|
Adjusted EBITDA Margin (ii) |
23.1 |
% |
|
38.3 |
% |
Adjusted EBITDA / ton |
$335.8 |
|
|
$665.4 |
|
|
|
|
|
(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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