Algoma Steel confirms third-quarter loss

After two consecutive quarters in the black, Algoma Steel is once again bleeding red ink.

Blaming low steel prices, high operating costs, unfavourable Canadian dollar exchange rates and production problems caused by the summer's power outages, the company today declared a third-quarter loss of $13.6 million.

That compares to a profit of $28.6 million achieved during the same period last year.

"Fourth quarter results are expected to improve as steel prices recover and operations stabilize," President and Chief Executive Officer Denis Turcotte said in a written statement.

Company management will meet tomorrow with representatives of SooToday.com and other local news organizations.

The following are excerpts from a news release issued by the company this morning:

**************************************************************** Algoma Steel Inc. reports continued progress in the third quarter SAULT STE. MARIE, ON, Oct. 29 - Algoma Steel Inc. today reported its results for the third quarter ended September 30, 2003.

Highlights:

- $32 million cash provided from operating activities - Net loss of $13.6 million - Costs of sales down $8 per ton in spite of lower production levels - Final payment on term loan completed ($9 million) - New four-year banking agreement established

Algoma Steel Inc. reported a net loss of $13.6 million for the three months ended September 30, 2003 (basic loss of $0.57 per common share).

This compares to net income of $28.6 million for the three months ended September 30, 2002.

Bank indebtedness declined by $7.2 million and the final payment of $9 million was made on the term loan.

For the nine months ended September 30, 2003, net income was $5.6 million which compares to net income of $19.7 million for the nine months ended September 30, 2002.

Sales in the third quarter 2003 of $239.8 million were down from sales of $312.8 million in the same quarter of 2002, reflecting the lower pricing environment in 2003 in contrast to the favourable price environment which existed in the third quarter of 2002.

Steel shipments decreased to 502,000 tons compared to 552,000 tons for the third quarter of 2002.

Average revenue per ton of $477 was $89 per ton lower than the $566 per ton realized in the third quarter of 2002.

Cost per shipped ton was $442 for the quarter up from $436 per ton in 2002.

An improvement in operating costs, mainly due to lower raw material costs and generally lower spending levels, was offset by the negative effect of lower production levels. Denis Turcotte, President and Chief Executive Officer, said "The third quarter was difficult as we experienced the negative effects of low prices, an increase in the Canadian dollar exchange rate, continued cost pressure, and production problems predominantly associated with power outages.

"In spite of these difficulties, the Company continued to make progress in positioning Algoma for the future.

"Unit operating costs continued to drop, combining with working capital reductions to generate $32 million of cash from operations.

"These results allowed us to repay the $9 million remaining on the term loan and renegotiate a new four-year banking agreement which provides access to additional liquidity at a lower cost.

"Fourth quarter results are expected to improve as steel prices recover and operations stabilize." Sales in the third quarter of 2003 declined to $239.8 million from $288 million in the second quarter of 2003.

Steel shipments decreased to 502,000 tons from 590,000 tons in the second quarter.

The decline in steel shipments was due to the absence of inventory reductions realized in the second quarter and lower production levels.

Average revenue per ton of $477 decreased by $12 per ton from the second quarter due to further price declines associated with the market bottom experienced in July.

Cost per shipped ton of $442 was down from $450 per ton in the second quarter due mainly to lower labour and raw material costs and generally lower spending levels.

Financial and operating results Net loss for the three months ended September 30, 2003 was $13.6 million, a decline of $42.2 million from net income of $28.6 million for the three months ended September 30, 2002.

The quarter over quarter decline was mainly the result of lower steel prices (appreciation of the Canadian dollar and a weak market), lower shipments and higher operating costs (lower production level), offset in part by lower financial expenses.

For the nine months ended September 30, 2003, net income declined by $14.1 million to $5.6 million from $19.7 million realized for the same period in 2002.

Lower average revenue per ton shipped and higher operating costs account for the decline from last year, offset in part by lower financial expense and the absence of non-recurring items associated with the restructuring in January 2002.

Revenue was $239.8 million for the three months ended September 30, 2003 with average revenue per ton of $477 compared with revenue of $312.8 million and average revenue per ton of $566 for the three months ended September 30, 2002.

The decline in revenue per ton was due to the lower pricing environment in the third quarter of 2003 versus 2002 with the significant strengthening of the Canadian dollar in 2003 as a contributing factor.

Steel shipments declined by 9% to 502,000 tons in the third quarter compared to 552,000 tons for the three months ended September 30, 2002.

Revenue for the third quarter declined by $48.4 million versus the three months ended June 30, 2003.

Shipments were down 88,000 tons (15%) versus the second quarter and the average revenue per ton fell by $12.

Steel prices hit their lowest level of the year in the third quarter and have since strengthened.

The decline in steel shipments was due mainly to a much smaller drawdown of inventories and lower production levels due, in part, to two power outages.

Revenue for the nine months ended September 30, 2003 was $826.8 million, a 2% decline from $842.5 million realized in the comparable period of 2002.

To read more ASI results, please click here.