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Algoma Steel Group Inc., a leading Canadian producer of hot and cold rolled steel sheet and plate products, today announced results for its fiscal third quarter ended December 31, 2021. Unless otherwise specified, all amounts are in Canadian dollars.
Michael McQuade, the Company’s Chief Executive Officer, commented, “Continued record pricing for our products, the construct of our contracted order book, and solid execution by our employees combined to deliver outstanding revenue growth, record quarterly Adjusted EBITDA, and robust free cash generation during our fiscal third quarter 2022. We further enhanced our balance sheet by repaying all USD $358 million of our outstanding senior debt at par and commenced construction of our transformative electric arc furnace project. As a result of our outstanding calendar 2021 financial results, all 37.5 million of the shares issuable pursuant to the terms of the earnout rights issued in connection with our October 2021 merger with Legato Merger Corp. have been earned. Approximately 35.9 million of these shares will be issued immediately, with the balance reserved for issuance to the holders of vested Long-Term Incentive Plan awards.”
Mr. McQuade continued, “Our strong results were achieved against a backdrop of continued market volatility and in spite of several previously announced shipping constraints, including extended customer holiday shutdowns, logistical supply chain constraints, and COVID-related challenges. Calendar 2021 was a period of profound change for the company, one that saw us return to public markets and generate significant cash flow. This allows us to execute on our organic growth strategy while at the same time pursuing a capital allocation policy that includes a quarterly dividend and an NCIB program for potential share repurchases. Armed with our robust balance sheet, strong projected cash flows, and funding to support the transformation to electric arc steelmaking, we are driving the process that is expected to substantially increase our production capacity while dramatically reducing our carbon emissions, resulting in additional long-term value for our stakeholders.”
Third Quarter Fiscal 2022 Financial Results
Third quarter revenue totaled $1.06 billion, up 147.6% from $430.0 million in the prior-year quarter. As compared with the prior-year quarter, steel revenue was $1.01 billion, up 163.0% from $383.8 million, and revenue per ton of steel sold was $1,927, up 145.5% from $785.
Income from operations was $446.1 million, compared to a loss from operations of $17.7 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, natural gas and alloys.
Net income in the third quarter was $123.0 million, compared to a net loss of $73.5 in the prior-year quarter. The improvement was driven primarily by the factors described above under income from operations, offset by listing expenses and transaction costs associated with the merger with Legato Merger Corp.
Adjusted EBITDA in the third quarter was $457.3 million, compared with $11.7 million for the prior-year quarter. This resulted in an Adjusted EBITDA margin of 42.9%. Net sales realizations averaged $1,827 per ton, up 160.6% from $701 per ton in the prior-year quarter. Cost per ton of steel products sold was $946, up 46.2% from $647 in the prior-year quarter. Shipments for the third quarter increased by 0.9% to 552,554 tons, compared to 547,733 tons in the prior-year quarter. See “Non-IFRS Measures” below for an explanation of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to Net Income”.
Quarterly Dividend
The Company’s board of directors has instituted a quarterly dividend, beginning with the payment of a dividend of USD $0.05 on each common share outstanding, payable on March 31, 2022 to holders of record of common shares of the Corporation as of the close of business on Feb 28th, 2022. This dividend is designated as an “eligible dividend” for Canadian income tax purposes.
NCIB
The Company intends to file with the Toronto Stock Exchange (“TSX”) a notice of intention to commence a normal course issuer bid (“NCIB”), as part of its overall capital allocation strategy.
If accepted by the TSX, the Company would be permitted under the NCIB to purchase for cancellation, through the facilities of the TSX, alternative Canadian trading systems or The NASDAQ Stock Market (“Nasdaq”), up to 5% of the Company’s outstanding common shares as of the commencement of the NCIB during the 12 months following such TSX acceptance. The exact number of common shares subject to the NCIB will be determined on the date of acceptance of the notice of intention by the TSX.
The NCIB will be effected in accordance with the TSX’s NCIB rules and Rule 10b-18 under the U.S. Securities Exchange Act of 1934, as amended, which contain restrictions on the number of common shares that may be purchased on a single day, subject to certain exceptions for block purchases, based on the average daily trading volumes of the Company’s common shares on the applicable exchange.
All common shares purchased by the Company under the NCIB will be purchased at prevailing market prices. The actual number of common shares that may be purchased, and the timing of any such purchases, will be determined by the Company, subject to the applicable terms and limitations of the NCIB (including any automatic repurchase plan adopted in connection therewith). All common shares acquired by the Company under the NCIB will be cancelled.
The Company intends to commence the NCIB two trading days after TSX acceptance of the NCIB. The NCIB will terminate one year after its commencement, or earlier if the maximum number of common shares under the NCIB have been purchased. Although the Company has a present intention to acquire its common shares pursuant to the NCIB, the Company will not be obligated to make any purchases and purchases may be suspended by the Company at any time. The Company reserves the right to terminate the NCIB earlier if it determines that it is appropriate to do so.
In connection with the NCIB program, the Company intends to enter into an automatic repurchase plan with its designated broker to allow for purchases of its common shares during certain pre-determined black-out periods, subject to certain parameters as to price and number of shares. Outside of these pre-determined black-out periods, shares will be repurchased in accordance with management’s discretion, subject to applicable law.
The Company reviews all elements of its capital allocation strategy on an ongoing basis. The Company continues to focus on supporting its electric arc furnace project; however, the Company plans to commence the NCIB because it believes that the market price of its common shares may not, from time to time, fully reflect their value and accordingly the purchase of common shares would be in the best interests of the Company and an attractive use of available funds.
Conference Call and Webcast Details
A webcast and conference call will be held on Friday, February 11th, 2022 at 11:00 a.m. Eastern time to review the Company’s third 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 Third Quarter Conference Call. To access the replay of the call, dial 844-512-2921 (domestic) or 412-317-6671 (international) with passcode 13726743.
Consolidated Financial Statements and Management’s Discussion and Analysis
The Company’s unaudited condensed interim consolidated financial statements for the three and nine months ended December 31, 2021, and Management’s Discussion & Analysis thereon are available under the Company’s profile on the Securities and Exchange Commission’s EDGAR website at www.sec.gov and under the Company’s profile on SEDAR at www.sedar.com.
