Algoma Steel Announces Results for the Quarter Ended March 31, 1999
3 May 1999
Algoma Steel Announces Results for the Quarter Ended March 31, 1999
SAULT STE. MARIE, Ontario--May 3, 1999--Algoma Steel Inc.(TSE:ALG.) Algoma Steel today announced its financial results for the quarter ended March 31, 1999.
Financial Highlights
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1998 1999
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Q1 Q2 Q3 Q4 Q1
-- -- -- -- --
Sales (millions) $328.7 $324.6 $324.3 $294.4 $295.7
EBITDA(1) (millions) $34.4 $35.9 $23.7 $10.3 $(4.0)
Loss on Closure of
Tubular and Structural
Operations $(27.5) $ -
Net Income/(Loss)
(millions) $1.5 $1.4 $(12.9) $(49.1) $(30.5)
Net Income/(Loss)
Per Share $0.03 $0.03 $(0.25) $(0.94) $(0.58)
Weighted average shares
outstanding
(millions) 52.31 52.35 52.40 52.52 52.64
Per Ton Shipped
Revenue $621 $632 $637 $677 $566
EBITDA(1) $65 $70 $47 $24 $(8)
(1) Earnings before interest, taxes, depreciation and amortization.
Steel Shipments (000's of net tons)
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1998 1999
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Q1 Q2 Q3 Q4 Q1
-- -- -- -- --
Sheet 306 298 318 285 351
Plate 117 115 118 82 110
Structurals 57 55 48 51 48
Tubulars 49 46 25 17 13
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Total 529 514 509 435 522
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Summary
A net loss of $30.5 million or $0.58 per share was incurred in the first quarter which compares to a fourth quarter net loss of $21.6 million (excluding the loss from discontinued operations) and net income of $1.5 million in the first quarter of 1998. The decline in earnings from the fourth quarter was due to lower selling prices. Shipment levels rebounded from the low levels realized in the fourth quarter, but the increase in shipments was primarily in spot markets at low price levels. This is a consequence of high levels of imported steel in 1998.
Unused availability from the banking facility was $115 million as of March 31. This reflects the benefits of continuing reductions in inventories and tight control of all aspects of spending including capital expenditures.
Improvement is expected in future quarters due to higher selling prices for sheet and benefits originating from the Direct Strip Production Complex. In addition, the Company's focus on flat rolled products should result in decreased costs and improved profitability.
Direct Strip Production Complex (DSPC)
Total production from the DSPC in the first quarter increased to 216,000 tons from 190,000 tons in the previous quarter. Production in March and April was at the higher levels of 85,000 tons and 91,000 tons respectively after production of 65,000 tons and 6,000 tons in January and February respectively. The cost of hot rolled coils from the DSPC in March was lower than the cost of coils from the older 106" strip mill. The benefit of lower coil costs will be reflected in the financial results for future quarters.
Management expects to experience continuing increases in roduction levels from the DSPC during 1999 as reliability in both the casting and rolling processes continues to improve.
Financial and Operating Results
A loss from operations of $19.5 million was incurred in the first quarter versus a loss of $6.2 million in the fourth quarter. As noted above, this decline reflects lower prices realized on all major product lines, particularly on sheet products.
Steel shipments rebounded to 522,000 tons from 435,000 tons in the fourth quarter with the increase concentrated in sheet and plate products. However, the additional sheet sales were transacted at the low prices prevailing in the spot markets. Selling prices were down on all products by approximately $30 per ton for a total negative effect of $15 million.
Cash flow from operations before changes in working capital was negative $20 million in the first quarter versus positive cash flow of $12.5 million in the fourth quarter of 1998. The decline reflects the increased operating loss and deferred tax credits. A lesser factor was the return to more typical pension funding of $6 million in the first quarter versus $2 million in the fourth quarter. An increased investment in working capital of $10 million occurred in spite of a reduction in inventories of $45 million. This reflects an increase in accounts receivable to a more typical level and reduced payables due to the payment of interest on the First Mortgage Notes in the first quarter.
The structural mill was closed at the end of April. The tubular facilities are gradually being closed down with the final finishing operations expected to be completed in the third quarter.
Praxair has commenced construction of a new 1,500 ton per day oxygen plant in Sault Ste. Marie which is scheduled for completion in June, 2000 at a capital cost of $40 million. The new plant will provide improved reliability and an increase in oxygen production supporting higher raw steel output.
The Company continues to make good progress on its comprehensive Year 2000 program. Algoma is on schedule to have all critical systems fully tested by the end of the second quarter. Many aspects of the program are now complete. Total spending on the project has reached approximately $11 million with approximately $1 million incurred during the first quarter.
In April, the Company and its two steelworker locals reached an agreement to extend the existing collective agreements for one year to July 31, 2000.
Trade
In early March, Revenue Canada made a preliminary determination that hot rolled sheet and strip from France, Romania, the Russian Federation and the Slovak Republic is being dumped into Canada. Provisional duties ranging from 26 percent to 77 percent have been imposed by Revenue Canada. An injury inquiry by the Canadian International Trade Tribunal is underway with a final decision to be rendered in mid-July.
Revenue Canada is continuing its investigation into the dumping of cold rolled sheet originating in or exported from Argentina, Belgium, New Zealand, the Russian Federation, the Slovak Republic, Spain and Turkey. Provisional duties ranging from 12 percent to 71 percent have been imposed by Revenue Canada.
The Canadian industry is closely monitoring the level of imports from a variety of countries. If unfairly traded imports continue to erode and suppress prices in Canada and cause the loss of market share for Canadian producers, additional trade complaints will be filed.
Outlook
The demand and pricing outlook for sheet has improved with better prices expected over the next few quarters. Improved performance from the DSPC is expected to generate further cost reductions for sheet and an improved product mix.
The decision to focus on flat rolled products is a key strategic step for Algoma. The benefits from decreased costs and improved profitability should start to be evident by the fourth quarter of 1999.
A. ADAM H. EARL JOUDRIE
PRESIDENT AND CHAIRMAN OF THE BOARD
CHIEF EXECUTIVE OFFICER
Sault Ste. Marie, Ontario
May 3, 1999
Algoma Steel Inc.
1999 First Quarter Report
Unaudited - Expressed in Canadian dollars
Consolidated statements of income (loss) and retained earnings
Three months
ended
March 31
1999 1998
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(millions of dollars)
Sales $ 295.7 $ 328.7
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Cost of sales 289.4 284.4
Administrative and selling expense 10.3 9.9
Depreciation and amortization 15.5 14.2
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315.2 308.5
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Income (loss) from operations (19.5) 20.2
Net financial expense 22.0 18.2
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Income (loss) before income taxes (41.5) 2.0
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Provision for income taxes - current 0.9 (3.1)
- deferred (11.9) 3.6
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(11.0) 0.5
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Net income (loss) $ (30.5) $ 1.5
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Net income (loss) per common share $ (0.58) $ 0.03
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Weighted average common shares
outstanding - millions 52.64 52.31
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Retained earnings
Balance, beginning of period $ 230.4 $ 289.6
Net income (loss) (30.5) 1.5
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Balance, end of period $ 199.9 $ 291.1
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Operations
(thousands of net tons)
Raw steel production 607 598
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Steel shipments 522 529
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Algoma Steel Inc.
1999 First Quarter Report
Unaudited - Expressed in Canadian dollars
Consolidated statements of financial position
As at March 31
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1999 1998
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(millions of dollars)
Current assets
Accounts receivable $ 177.5 $ 190.8
Income and other taxes recoverable 13.4 -
Inventories 316.8 353.8
Prepaid expenses 3.7 4.0
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511.4 548.6
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Other assets
Deposits in escrow 1.0 0.9
Fixed assets, net 899.6 905.3
Unamortized blast furnace lining 30.6 39.4
Deferred charges 54.5 35.1
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985.7 980.7
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Total assets $ 1,497.1 $1,529.3
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Current liabilities
Bank indebtedness $ 84.5 $ 42.5
Accounts payable and accrued liabilities 182.5 198.9
Income and other taxes payable - 5.7
Current portion of long-term debt 4.7 3.4
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271.7 250.5
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Other liabilities
Long-term debt 491.3 463.3
Accrued pension liability and
post-employment benefit obligation 376.8 364.1
Deferred income taxes 52.1 56.0
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920.2 883.4
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Shareholders' equity
Common shares 186.4 185.4
Shareholders' deficiency on restructuring (81.1) (81.1)
Retained earnings 199.9 291.1
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305.2 395.4
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Total liabilities and shareholders' equity $ 1,497.1 $1,529.3
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Algoma Steel Inc.
1999 First Quarter Report
Unaudited - Expressed in Canadian dollars
Consolidated statements of cash flow
Three months
ended
March 31
1999 1998
-------- --------
(millions of dollars)
Cash provided by (used in)
Operating activities
Cash from operations $ (20.0) $ 26.6
Increase in operating working capital (9.9) (70.5)
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(29.9) (43.9)
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Investing activities
Net additions to fixed assets (8.2) (27.1)
Deposits in escrow - 25.3
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(8.2) (1.8)
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Financing activities
Repayment of long-term debt (1.1) (0.6)
Increase in bank indebtedness 39.2 42.5
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38.1 41.9
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Cash
Change during period - (3.8)
Balance, beginning of period - 3.8
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Balance, end of period $ - $ -
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