Algoma Steel (ASTL) - 2024 Q3 - Quarterly Report

Condensed Interim Consolidated Financial Statements This section presents the company's interim financial performance, position, equity changes, and cash flows for the reported periods Statements of Net (Loss) Income Algoma reported a wider net loss of $84.8 million for the three months ended December 31, 2023, and a significant decrease in net income for the nine-month period year-over-year Consolidated Statement of Net (Loss) Income (in millions CAD) | Metric | Three Months Ended Dec 31, 2023 | Three Months Ended Dec 31, 2022 | Nine Months Ended Dec 31, 2023 | Nine Months Ended Dec 31, 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $615.4 | $567.8 | $2,175.2 | $2,101.1 | | (Loss) income from operations | $(36.9) | $(65.7) | $164.2 | $268.8 | | Net (loss) income | $(84.8) | $(69.8) | $77.2 | $318.9 | | Basic EPS | $(0.78) | $(0.64) | $0.71 | $2.50 | | Diluted EPS | $(0.78) | $(0.64) | $0.60 | $1.66 | Statements of Comprehensive (Loss) Income The company recorded a total comprehensive loss of $170.2 million for the third quarter of fiscal 2024, a substantial increase from the prior-year period, driven by net loss and unfavorable foreign exchange translations Consolidated Statement of Comprehensive (Loss) Income (in millions CAD) | Metric | Three Months Ended Dec 31, 2023 | Three Months Ended Dec 31, 2022 | Nine Months Ended Dec 31, 2023 | Nine Months Ended Dec 31, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net (loss) income | $(84.8) | $(69.8) | $77.2 | $318.9 | | Other comprehensive (loss) income | $(85.4) | $13.0 | $(86.4) | $141.7 | | Total comprehensive (loss) income | $(170.2) | $(56.8) | $(9.2) | $460.6 | Statements of Financial Position Total assets increased to $2.65 billion as of December 31, 2023, primarily due to property, plant, and equipment, while total shareholders' equity slightly decreased Financial Position Highlights (in millions CAD) | Metric | Dec 31, 2023 | Mar 31, 2023 | | :--- | :--- | :--- | | Cash | $94.7 | $247.4 | | Total Current Assets | $1,343.4 | $1,366.3 | | Property, plant and equipment, net | $1,300.0 | $1,081.3 | | Total Assets | $2,651.6 | $2,455.6 | | Total Current Liabilities | $466.6 | $343.4 | | Total Liabilities | $1,210.9 | $993.4 | | Total Shareholders' Equity | $1,440.7 | $1,462.2 | Statement of Changes in Shareholders' Equity Shareholders' equity decreased to $1.44 billion by December 31, 2023, primarily due to other comprehensive loss and dividends paid, partially offset by net income for the nine-month period Changes in Shareholders' Equity (Nine Months Ended Dec 31, 2023, in millions CAD) | Description | Amount | | :--- | :--- | | Balance at March 31, 2023 | $1,462.2 | | Net income | $77.2 | | Other comprehensive loss | $(86.4) | | Dividends paid | $(20.8) | | Other (stock issuance, etc.) | $8.5 | | Balance at December 31, 2023 | $1,440.7 | Statements of Cash Flows Operating activities generated $173.7 million for the nine months ended December 31, 2023, but significant capital expenditures resulted in an overall decrease in the company's cash position Cash Flow Summary (Nine Months Ended, in millions CAD) | Metric | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Cash generated by operating activities | $173.7 | $81.8 | | Cash used in investing activities | $(369.7) | $(267.7) | | Cash generated by (used in) financing activities | $44.1 | $(544.5) | | Decrease in cash | $(152.7) | $(670.6) | | Ending cash balance | $94.7 | $244.7 | Notes to the Condensed Interim Consolidated Financial Statements This section provides detailed disclosures and explanations for key accounts and transactions presented in the condensed interim consolidated financial statements Note 4: Revenue Total revenue for the third quarter increased to $615.4 million, with the United States remaining the largest market and one customer representing over 10% of total revenue Revenue by Product (Nine Months Ended, in millions CAD) | Product | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Sheet & Strip | $1,585.9 | $1,683.8 | | Plate | $388.0 | $256.2 | | Other | $201.3 | $161.1 | | Total | $2,175.2 | $2,101.1 | Revenue by Geography (Nine Months Ended, in millions CAD) | Geography | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Canada | $845.9 | $746.5 | | United States | $1,299.7 | $1,328.3 | | Rest of the world | $29.6 | $26.3 | - For the nine months ended December 31, 2023, sales to a single customer amounted to $285.7 million, representing over 10% of total revenue[28] Note 5: Cost of Sales Cost of sales increased for both the quarter and nine-month period, primarily due to higher Carbon Tax expenses and net inventory write-downs - Carbon Tax recognized in cost of sales increased significantly to $18.2 million for the nine months ended Dec 31, 2023, compared to $4.3 million for the same period in 2022[30] - For the nine-month period ended Dec 31, 2023, the company recorded net inventory write-downs of $13.5 million due to net realizable value being lower than cost[32] Note 11: Property, Plant and Equipment, Net Net property, plant, and equipment increased to $1.3 billion due to significant investments in the Electric Arc Furnace project, with revised useful lives for blast furnace assets impacting depreciation - The company is transitioning to Electric Arc Furnaces (EAF) and has adjusted the useful lives of existing blast furnace assets to be fully depreciated by December 31, 2029, which increased depreciation by $5.8 million in Q3 2023[46] - During the nine months ended Dec 31, 2023, additions to property under construction for the EAF project totaled a net cost of $164.4 million[48] - Property under construction includes $205.5 million in prepaid progress payments for the EAF transition as of December 31, 2023[48] Note 12: Bank Indebtedness The company increased its asset-based revolving credit facility to US $300 million and extended its maturity, with $331.9 million of unused availability as of December 31, 2023 - The Revolving Credit Facility was upsized to US $300 million and its term was extended to May 2028[51] Revolving Credit Facility Status (in millions CAD) | Metric | Dec 31, 2023 | Mar 31, 2023 | | :--- | :--- | :--- | | Amount Drawn | $5.4 | $1.9 | | Unused Availability | $331.9 | $279.2 | Note 15: Governmental Loans Governmental loans increased to $140.2 million due to additional funds received under the Federal SIF EAF Loan agreement, supporting the transition to electric arc furnace steelmaking Governmental Loans Movement (Nine Months Ended Dec 31, 2023, in millions CAD) | Description | Amount | | :--- | :--- | | Balance at March 31, 2023 | $120.4 | | Loan Issued (net of repayments) | $51.4 | | Governmental benefit recognized | $(40.4) | | Accretion of benefit | $8.8 | | Balance at December 31, 2023 | $140.2 | Note 21: Capital Stock The company had 104.0 million shares outstanding and renewed its Normal Course Issuer Bid to acquire up to 5% of shares, with no purchases made under the renewed program as of the reporting date - The company renewed its Normal Course Issuer Bid (NCIB) in March 2023, authorizing the purchase of up to 5,178,394 shares, with no shares purchased under this renewed plan as of December 31, 2023[88] - In July 2022, the company completed a Substantial Issuer Bid (SIB), purchasing 41.0 million common shares for an aggregate amount of US $400 million[89] Note 25: Warrant Liability The company has 24.18 million warrants outstanding, accounted for as a liability, with a $20.4 million loss recognized from fair value changes in the income statement for the third quarter Warrant Liability Fair Value Change (in millions CAD) | Period | P&L Impact (Loss)/Gain | | :--- | :--- | | Three Months Ended Dec 31, 2023 | $(20.4) | | Nine Months Ended Dec 31, 2023 | $(3.2) | | Nine Months Ended Dec 31, 2022 | $67.1 | Note 30: Dividends The Board declared a quarterly dividend of US$0.05 per common share, with total dividends paid amounting to $20.8 million for the nine months ended December 31, 2023 - A dividend of US$0.05 per share was declared on November 2, 2023, and paid on December 29, 2023[130] - Total dividends paid during the nine-month period ended December 31, 2023, were $20.8 million[130] Note 31: Subsequent Event A significant operational incident occurred on January 20, 2024, involving a structural collapse that caused major disruptions to coke-making and ironmaking operations, with damages still being assessed - A structural collapse of a key utilities support structure occurred on January 20, 2024, causing significant disruptions to coke-making and ironmaking operations[131]