Algoma Steel Group Inc. (“Algoma” or “the Company”), a leading Canadian producer of hot and cold rolled steel sheet and plate products, announced results for its fiscal fourth quarter and full year ended March 31, 2022.
Unless otherwise specified, all amounts are in Canadian dollars.
Business Highlights and Fiscal 2022 to Fiscal 2021 Fourth Quarter Comparisons
- Consolidated revenue of $941.8 million, up 47.5% from $638.5 million in the prior-year quarter.
- Consolidated income from operations of $310.6 million, compared to $130.0 million in the prior-year quarter.
- Net income of $242.9 million, compared to $100.1 million in the prior-year quarter.
- Adjusted EBITDA of $334.4 million and Adjusted EBITDA margin of 35.5%, compared to $166.9 million and 26.1% in the prior-year quarter (See “Non-IFRS Measures” below).
- Cash flows generated from operations of $443.8 million, compared to $133.9 million in the prior-year quarter.
- Shipments of 547,217 tons, down from 621,843 tons in the prior-year quarter.
- Paid first quarterly dividend of US$0.05/share.
- Launched Normal Course Issuer Bid in March.
Fiscal 2022 to Fiscal 2021 Full Year Comparisons
- Consolidated revenue of $3,806.0 million, up 112.0% from $1,794.9 million the prior-year.
- Consolidated income from operations of $1,411.0 million, up from $84.8 million the prior-year.
- Net income of $857.7 million, compared to a net loss of $76.1 million the prior-year.
- Adjusted EBITDA of $1,503.2 million and Adjusted EBITDA margin of 39.5%, compared to $199.2 million and 11.1% the prior-year (See “Non-IFRS Measures” below).
- Cash flows generated from operations of $1,263.4 million, compared to $8.1 million the prior-year.
- Shipments of 2,297,159 tons, compare to 2,102,086 tons the prior-year.
Michael Garcia, the Company’s Chief Executive Officer, commented, “Our strong results for the fiscal fourth quarter capped off an incredible year at Algoma, one that produced record revenues, profitability and cash flows. Relentless execution by the entire team delivered these strong results across what was truly a tumultuous year for both steel and raw material markets. It is through this hard work and dedication that we have positioned ourselves to drive additional value creation for our shareholders on two fronts simultaneously. Our transformational electric arc furnace project is advancing as planned towards a 2024 startup, and today we are announcing the next phase of our capital allocation program with a US$400 million substantial issuer bid which would represent roughly a third of today’s market capitalization.”
Mr. Garcia continued, “I would like to personally thank Mike McQuade for his outstanding leadership over the critically important last three years at Algoma, and look forward to his continued mentorship and guidance in his continuing role as a member of the board. The future for Algoma has never looked brighter, and I am honored to have been chosen to be at the helm during these exciting times.”
Fourth Quarter Fiscal 2022 Financial Results
Fourth quarter revenue totaled $941.8 million, up 47.5% from $638.5 million in the prior-year quarter. As compared with the prior-year quarter, steel revenue was $879.9 million, up 50.2% from $585.6 million, and revenue per ton of steel sold was $1,721, up 67.6% from $1,027.
Income from operations was $310.6 million, compared to $130.0 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 and alloys.
Net income in the fourth quarter was $242.9 million, compared to $100.1 million in the prior-year quarter. The improvement was driven primarily by the factors described above under income from operations.
Adjusted EBITDA in the fourth quarter was $334.4 million, compared with $166.9 million for the prior-year quarter. This resulted in an Adjusted EBITDA margin of 35.5%. Average realized price of steel net of freight and non-steel revenue was $1,608 per ton, up 70.7% from $942 per ton in the prior-year quarter. Cost per ton of steel products sold was $947, up 47.4% from $643 in the prior-year quarter. Shipments for the fourth quarter decreased by 12.0% to 547,217 tons, compared to 621,843 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.
Full Year Fiscal 2022 Financial Results
Full year revenue totaled $3,806.0 million, up 112.0% from $1,794.9 million the prior-year. As compared with 2021, steel revenue was $3,548.8 million, up 119.7% from $1,615.1 million, and revenue per ton of steel sold was $1,657, up 94.0% from $854.
Income from operations was $1,411.0 million, compared to $84.8 million the prior-year. 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 and alloys, as well as increases in employee profit sharing.
Net income for the year was $857.7 million, compared to a net loss of $76.1 million in 2021. 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. and higher income taxes.
Adjusted EBITDA for the full year was $1,503.2 million, compared with $199.2 million for the prior-year. This resulted in an Adjusted EBITDA margin of 39.5%. Average realized price of steel net of freight and non-steel revenue was $1,545 per ton, up 101.2% from $768 per ton in the prior-year. Cost per ton of steel products sold was $857, up 32.7% from $646 in the prior-year. Shipments for the year increased by 9.3% to 2,297,159 tons, compared to 2,102,086 tons in the prior-year. See “Non-IFRS Measures” below for an explanation of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income.
Normal Course Issuer Bid
On March 3, 2022 the Company announced the commencement of a normal course issuer bid (“NCIB”) after receiving approval from the Toronto Stock Exchange (“TSX”), 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 on the TSX and 300,000 on NASDAQ. The NCIB expires on March 2, 2023 if not fully exercised. No shares were repurchased under the NCIB during the fiscal year ended March 31, 2022. Subsequent to March 31, 2022, as at May 31 2022, the company has acquired and cancelled 1,089,691 shares under the NCIB. The Company will be suspending share repurchases under the NCIB until after the expiration of the proposed substantial issuer bid.
Substantial Issuer Bid
The Company announced today that it intends to commence a US$400 million substantial issuer bid (“SIB”), as part of its overall capital allocation strategy, under which the Company plans to offer to purchase for cancellation from shareholders up to US$400 million of the Company’s outstanding common shares by way of a “modified Dutch auction” which will permit shareholders to choose, within the pricing range determined by the Company, the number of shares and the price at which they wish to tender such shares, with the purchase price for all tendering shareholders being the lowest purchase price per share that will enable the Company to purchase the maximum number of shares properly tendered to the offer, up to US$400 million. The Company believes that the SIB represents an equitable and efficient means of providing value to its shareholders. The pricing range of the SIB and further details will be announced separately, prior to the commencement of the SIB, which is anticipated to occur prior to the end of June.
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, which would match its downstream finishing capacity, and would be expected to reduce the Company’s annual carbon emissions by approximately 70%.
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 July 15, 2022 to holders of record of common shares of the Corporation as of the close of business on June 27, 2022. This dividend is designated as an “eligible dividend” for Canadian income tax purposes.
The outlook that follows constitutes forward-looking statements (as defined below) and is based on a number of assumptions and subject to a number of risks. Actual results could vary materially as a result of numerous factors, including certain risk factors, many of which are beyond our control. Please see “Cautionary Statement Regarding Forward-Looking Statements” below.
In addition to the other assumptions and factors described in this news release, our outlook assumes continued high prices of steel, ongoing inflationary pressures on raw material inputs, labor, and logistics costs, and the absence of material changes in our industry or the global economy. The following statements supersede all prior statements made by us and are based on current expectations.
Based on our current information regarding our operations and end markets, we currently expect the following for the first quarter of fiscal 2023:
- Adjusted EBITDA*: $335 million to $355 million
*See Non-IFRS Financial Measures.
Conference Call and Webcast Details
A webcast and conference call was held on Wednesday, June 15, 2022 at 11:00 a.m. Eastern time, reviewing the Company’s fiscal fourth quarter and full year results, discussing recent events, and conducting 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. To access the replay of the call, dial 844-512-2921 (domestic) or 412-317-6671 (international) with passcode 13730393.
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