Cost-cutting Algoma Steel springs back to profitability

In its first earnings disclosure since announcing a merger agreement last month with New York-based Legato Merger Corp., Algoma Steel is reporting fourth-quarter net profit of $114 million.

That's up significantly from a $73.5-million loss in the previous quarter, also up from a $19-million profit in the same quarter last year.

“I attribute these results to the concerted efforts of our employees," said Michael McQuade, chief executive officer.

"Our continued focus on safety is demonstrated by our outperformance of the lost-time injury rate for our industry and the fact that we have kept our workplace COVID-free," McQuade said in a written statement.

"Together we have achieved substantial cost reductions over the year, all while increasing shipments of quality steel products to our customers. These results, together with the merger, position Algoma Steel for growth in pursuit of strategic initiatives in our sustainability transformation.”

Financial statements for the fiscal year ended March 31, 2021 issued Thursday evening show annual EBITDA (earnings before interest, taxes, depreciation and amortization) of $199.2 million.

The EBITDA metric is used to appraise a firm's operating performance and is often seen as a proxy for cash flow.

The steelmaker says it achieved $35 million in annualized savings through more than 200 cost-cutting projects during the past year.

It's projecting more than $15 million in additional savings before the end of December.

Improving market dynamics, with better selling prices and more shipments, are also cited as contributing to the company's improved performance.

Shipments for the fourth quarter totalled 622,000 tons, resulting in steel revenue of $633 million, up 50 per cent from $421 million in the previous quarter and up 28 per cent from $493 million in the fourth quarter of fiscal 2020.

The Sault steel works ran at 96 per cent of capacity during the fourth quarter, the company says.

The merger deal with Legato is expected to close in the third quarter of 2021, providing potential for a major investment in electric arc steelmaking that Algoma hopes will reduce its annual carbon dioxide emissions by three million tonnes a year.

The switch would also improve EBITDA by US$150 million a year.