Algoma Steel stops the bleeding

After two consecutive quarters of unprofitability, Algoma Steel announced this afternoon that it turned a fourth-quarter profit of $10.l million.

"The employees of Algoma can be proud of the results achieved in the fourth quarter and throughout 2003," said president and chief executive officer Denis Turcotte.

"Improvements in customer and product mix, combined with a significantly lower cost structure, position the Company well to benefit from improving product pricing despite increasing raw material and energy costs expected in 2004," Turcotte said.

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The following are excerpts from an ASI news release:

********************************** Algoma Steel Inc. reports further improvement in the fourth quarter

SAULT STE. MARIE, ON, Feb. 4 - Algoma Steel Inc. today reported its results for the fourth quarter and the year ended December 31, 2003.

Fourth Quarter Highlights:

- EBITDA of $28.9 million. - Net income of $10.1 million or $0.33 per share. - Cost of sales down $25 per ton from the third quarter. - Intention to defer blast furnace reline until 2010.

Algoma Steel Inc. reported net income of $10.1 million for the three months ended December 31, 2003 (fully diluted income per common share of $0.33).

This compares to a net loss of $4.1 million for the three months ended December 31, 2002 and a net loss in the third quarter of 2003 of $12.3 million.

Net income of $8.4 million was realized for the twelve months ended December 31, 2003 compared to $16.5 million for the post-reorganization period of eleven months ended December 31, 2002. These results reflect a restatement of financial results as a result of an accounting change for the nine months ended September 30, 2003 and the eleven months ended December 31, 2002 due to a change in how the Company accounts for income taxes under the application of fresh start accounting.

This change results from recognizing tax assets at the restructuring date as a direct credit to the shareholders' equity rather than by flowing the benefit through the income statement.

The restatement has the effect of reducing net income for the nine months ended September 30, 2003 by $7.3 million and reducing net income for the eleven months ended December 31, 2002 by $26.0 million.

The restatement has no effect on income from operations, current or future cash flow, working capital or shareholders' equity. The Company had $125 million of unused availability under its credit facility at year-end after the payment in December of $26 million of interest on the 11% and 1% Notes.

The Company's cash position has been further improved in early 2004 with the receipt of $12.5 million on January 30, 2004 from the sale of the tube mill.

Sales in the fourth quarter of 2003 at $253.2 million were up $13.4 million from $239.8 million realized in the third quarter of 2003.

Steel shipments totaled 512,000 tons for the quarter, an increase of 2% from the 503,000 tons shipped in the previous quarter.

Average revenue per ton of $494 was up $17 per ton from the third quarter which is a reflection of stronger markets.

Cost per ton shipped of $417 was down $25 per ton from $442 per ton in the third quarter due mainly to higher production levels and lower raw material costs due to the stronger Canadian dollar.

Financial and operating results

Net income for the three months ended December 31, 2003 was $10.1 million, an improvement of $14.2 million from a net loss of $4.1 million for the three months ended December 31, 2002.

A 10.4% increase in shipments, lower operating costs and lower financial expenses more than offset significantly lower selling prices.

For the twelve months ended December 31, 2003, net income was $8.4 million, an improvement of $18.0 million from a net loss of $9.6 million for the same period in 2002.

The improvement was mainly attributable to lower financial expense (foreign exchange gain) and a net loss of $26.1 million in the pre-reorganization period of January 2002, partially offset by lower selling prices.

Administrative and selling expenses increased $6.6 million mainly due to expenditures for consulting fees in support of various improvement projects. Revenue was $253.2 million for the three months ended December 31, 2003 with average revenue per ton of $494 compared with revenue of $273.2 million and average revenue per ton of $589 for the three months ended December 31, 2002.

The decline in revenue per ton was due mainly to the significant strengthening of the Canadian dollar in 2003.

Steel shipments improved by 10.4% to 512,000 tons in the fourth quarter compared to 464,000 tons for the three months ended December 31, 2002.

Raw steel production was up 10.5% in the quarter versus the fourth quarter of 2002 largely due to the (planned maintenance) blast furnace outage experienced in the fourth quarter of 2002. Revenue for the fourth quarter increased by $13.4 million versus the three months ended September 30, 2003.

Shipments were up 9,700 tons (2%) versus the third quarter and the average revenue per ton improved by $17.

Steel prices hit their lowest level of the year in the third quarter and improved in the fourth quarter.

This was despite a further strengthening of the Canadian dollar versus the U.S. dollar of 4.9% (average quarter over quarter).

Higher production levels contributed to the increase in shipments over the previous quarter that had been adversely impacted by two power outages. Revenue for the twelve months ended December 31, 2003 was $1.080 billion, a 3.0% decline from $1.115 billion realized in the comparable period of 2002.

Average revenue per ton shipped of $498 compares with $522 per ton in the twelve months of 2002.

Shipment levels were 2% higher in 2003 at 2.17 million tons compared with 2.14 million tons in 2002. Cost of sales fell to $213.7 million for the three months ended December 31, 2003 from $245.6 million for the three months ended December 31, 2002, despite a 10.4% increase in shipments.

Cost of sales per ton shipped for the quarter at $417 was down $112 from the same period last year.

Several factors contributed to the significant improvement in the cost of sales per ton including lower raw material, fuel and utility costs, the absence of major maintenance expenditures associated with the blast furnace gunning of October 2002, lower employment costs, and the absence of several unfavourable year-end adjustments experienced in 2002.

For the twelve months ended December 31, 2003, cost of sales was $966.5 million or $445 per ton shipped as compared with $951.8 million or $446 per ton shipped in 2002.

Unit operating costs were virtually unchanged as higher scrap, fuel and labour costs were offset by lower raw material costs due to the appreciation of the Canadian dollar and several unfavourable year-end adjustments experienced in 2002.

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