Algoma Steel Announces Results For The Quarter Ended June 30, 1998
28 July 1998
Algoma Steel Announces Results For The Quarter Ended June 30, 1998
Business Editors
SAULT STE. MARIE, ONTARIO--July 28, 1998--Algoma
Steel (TSE:ALG.) Algoma Steel today announced its
financial results for the quarter ended June 30, 1998
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Financial Highlights
1997 1998
---- ----
Q2 Q3 Q4 Q1 Q2
-- -- -- -- --
Sales (millions) $318.3 $319.8 $323.7 $328.7 $324.6
EBITDA(1) (millions) $39.7 $42.4 $36.3 $34.5 $35.9
Net income (millions) $14.1 $14.6 $6.9 $1.5 $1.4
Net income per share $0.27 $0.28 $0.13 $0.03 $0.03
Weighted average shares
outstanding (millions) 51.87 52.09 52.26 52.31 52.35
Per Ton Shipped
Revenue $623 $620 $653 $621 $632
EBITDA(1) $78 $82 $73 $65 $70
(1) Earnings before interest, taxes, depreciation and
amortization.
Steel Shipments (000's of net tons)
1997 1998
-------------------- -----------
Q2 Q3 Q4 Q1 Q2
-- -- -- -- --
Sheet 306 312 288 306 298
Plate 104 104 100 117 115
Structurals 60 55 59 57 55
Tubulars 41 45 49 49 46
--- --- --- --- ---
Total 511 516 496 529 514
--- --- --- --- ---
Summary
Net income in the second quarter was $1.4 million or $.03 per
share which was virtually unchanged from the first quarter at $1.5
million or $.03 per share but down from the second quarter of 1997 at
$14.1 million or $.27 per share. The full effect of interest expense
is included in 1998 resulting in an increase in net financial expense
to $19.3 million in the second quarter versus $5.6 million in the
second quarter of 1997. Earnings in 1998 were also affected by direct
and indirect costs related to the start-up of the Direct Strip
Production Complex.
Direct Strip Production Complex (DSPC)
Direct start-up costs totalled $7.2 million in the quarter which
is a reduction of $2.1 million from the first quarter. Increased
production and improved yields were the main reasons for the reduction
in start-up costs in the second quarter.
The start-up of the new facility has been slower than expected,
but significant progress has been realized.
Production levels have improved in July and we are optimistic
that the DSPC will achieve a production level and product capability
that will allow the existing 106" strip mill to close in the fourth
quarter.
Financial Results
Income from operations was $20.9 million versus $20.3 million in
the first quarter. The level of operating income in the second quarter
continues to reflect the direct and indirect costs associated with the
start-up of the DSPC.
Selling prices were higher for plate and there was a reduction in
structural prices. Sheet and seamless tube prices were little changed.
By-product sales increased over the first quarter due to the opening
of the navigation season.
Cash flow from operations before working capital declined to
$18.7 million from $26.6 million in the first quarter. The decline
reflects an increase in pension funding to $13.0 million from $7.9
million in the previous quarter. Pension funding will decline
significantly in the second half.
Inventories increased during the quarter to $396 million from
$354 million in the first quarter. The increase was caused mainly by
higher than planned slab production due to the production shortfall
from the DSPC and purchases of semi-finished steel. A significant
inventory reduction is expected in the second half through lower
purchases of semi-finished steel, higher production from the DSPC, and
the repair and temporary operation of a reheat furnace to increase
production capability for hot rolling of plate and strip. Operations
Raw steel production declined to 597,000 tons from 613,000 tons
in the first quarter. Shipments declined to 514,000 tons from 529,000
tons in the first quarter.
The Algoma Ore Division was safely and successfully closed in
June as planned and on budget. Demolition and rehabilitation work on
the mine and related plant sites has commenced.
Senior Management Change
Steve Boniferro has joined Algoma's senior management in the
position of Vice President--Human Resources. He was formerly Area
Co-ordinator Northwestern Ontario for the United Steelworkers of
America and has played a key role at Algoma Steel for the last several
years as the Steelworkers Co-chair on Algoma's Joint Steering
Committee.
Trade
The preliminary margin determined in the fourth administrative
review on plate covering sales to the U.S. from August, 1996 to July,
1997 was 0.28 percent. The Company has requested the U.S. Department
of Commerce to revoke the anti-dumping order against Algoma. A
decision on this request and the final margin for the fourth review is
expected in the fourth quarter. The decisions from the first two
administrative reviews are being appealed by the U.S. industry.
In May, the Canadian International Trade Tribunal decided against
continuation of their 1993 injury finding concerning plate originating
from eight countries. The finding is being appealed by the Canadian
plate producers. The decision on a similar review covering cold rolled
sheet from five countries is expected later this month.
The Company continues to monitor the high level of imports of
various products into Canada.
Outlook
General demand for sheet products continues to be strong, but the
continued high level of imports and the GM strike are a concern.
Structural demand and prices have weakened as a result of increased
imports. The market for tubulars has softened. The plate market
remains strong.
Algoma Steel Inc.
1998 Second Quarter Report
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Unaudited - Expressed in Canadian dollars
Consolidated statements of income and retained earnings
Three months ended Six months ended
June 30 June 30
1998 1997 1998 1997
--------- --------- --------- ---------
(millions of dollars) (note 1) (note 1)
Sales $ 324.6 $ 318.3 $ 653.3 $ 617.6
--------- --------- --------- ---------
Cost of sales 277.9 269.1 562.2 514.4
Administrative and
selling expense 10.8 9.5 20.7 19.2
Depreciation and
amortization 15.0 14.9 29.2 29.5
--------- --------- --------- ---------
303.7 293.5 612.1 563.1
--------- --------- --------- ---------
Income from operations 20.9 24.8 41.2 54.5
Net financial expense 19.3 5.6 37.6 12.9
--------- --------- --------- ---------
Income before
income taxes 1.6 19.2 3.6 41.6
--------- --------- --------- ---------
Provision for income taxes
- current (3.0) 2.3 (6.1) 5.6
- deferred 3.2 2.8 6.8 5.6
--------- --------- --------- ---------
0.2 5.1 0.7 11.2
--------- --------- --------- ---------
Net income $ 1.4 $ 14.1 $ 2.9 $ 30.4
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income
per common share $ 0.03 $ 0.27 $ 0.06 $ 0.61
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average common
shares outstanding
- millions 52.35 51.87 52.33 50.26
--------- --------- --------- ---------
--------- --------- --------- ---------
Retained earnings
Balance, beginning
of period $ 291.1 $ 254.0 $ 289.6 $ 237.7
Net income 1.4 14.1 2.9 30.4
--------- --------- --------- ---------
Balance,
end of period $ 292.5 $ 268.1 $ 292.5 $ 268.1
--------- --------- --------- ---------
--------- --------- --------- ---------
Operations
(thousands of net tons)
Raw steel production 597 579 1,210 1,164
--------- --------- --------- ---------
Steel shipments 514 511 1,043 1,010
--------- --------- --------- ---------
Note 1. Certain comparative figures have been reclassified to
conform to the presentation adopted in the current period.
Algoma Steel Inc.
1998 Second Quarter Report
Unaudited - Expressed in Canadian dollars
Consolidated statements of financial position
As at June 30
--------------------
1998 1997
--------- ----------
(millions of dollars) (note 1)
Current assets
Cash $ - $ 41.2
Accounts receivable 177.0 172.1
Inventories 396.3 357.4
Prepaid expenses 3.2 7.4
--------- ----------
576.5 578.1
--------- ----------
Other assets
Deposits in escrow 0.9 45.6
Fixed assets, net 915.9 758.7
Unamortized blast
furnace lining 37.2 46.2
Deferred charges 48.9 26.5
--------- ----------
1,002.9 877.0
--------- ----------
Total assets 1579.4 1,455.1
--------- ----------
--------- ----------
Current liabilities
Bank indebtedness 57.9 -
Accounts payable and
accrued liabilities 217.8 199.1
Construction holdbacks/
payables - DSPC 1.9 14.8
Income and other
taxes payable 2.8 31.4
Current portion of
long-term debt 3.5 3.3
--------- ----------
283.9 248.6
--------- ----------
Other liabilities
Long-term debt 478.9 450.7
Accrued pension
liability and
post-employment
benefit obligation 360.4 346.4
Deferred income taxes 59.2 40.7
--------- ----------
898.5 837.8
--------- ----------
Shareholders' equity
Common shares 185.6 181.7
Shareholders' deficiency
on restructuring (81.1) (81.1)
Retained earnings 292.5 268.1
--------- ----------
397.0 368.7
--------- ----------
Total liabilities and
shareholders' equity $ 1,579.4 $ 1,455.1
--------- ----------
--------- ----------
Note 1. Certain comparative figures have been reclassified to
conform to the presentation adopted in the current period.
Algoma Steel Inc.
1998 Second Quarter Report
Unaudited - Expressed in Canadian dollars
Consolidated statements of cash flow
Three months Six months
ended ended
June 30 June 30
1998 1997 1998 1997
-------- --------- -------- --------
(millions of dollars)
Cash provided by (used in)
Operating activities
Cash from operations $ 18.7 $ 36.8 $45.3 $76.0
Decrease (increase)
in operating
working capital (10.1) 32.3 (80.6) 20.1
-------- --------- -------- --------
8.6 69.1 (35.3) 96.1
-------- --------- -------- --------
Investing activities
Net additions
to fixed assets
- Direct strip
production
complex (2.5) (31.1) (9.8) (78.0)
- Capitalized
interest
on DSPC - (10.7) - (19.9)
- Other (20.9) (13.9) (40.7) (21.2)
Deposits in escrow - (0.2) 25.3 12.2
-------- --------- -------- --------
(23.4) (55.9) (25.2) (106.9)
-------- --------- -------- --------
Financing activities
Repayment of
long-term debt (0.8) (0.8) (1.7) (1.6)
Common share proceeds 0.2 - 0.5 50.5
Increase in bank
indebtedness 15.4 - 57.9 -
-------- --------- -------- --------
14.8 (0.8) 56.7 48.9
-------- --------- -------- --------
Cash
Change during period - 12.4 (3.8) 38.1
Balance, beginning
of period - 28.8 3.8 3.1
-------- --------- -------- --------
Balance, end
of period $ - $ 41.2 $ - $41.2
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*T