Algoma Steel Group Inc. — Form 20-F Summary
Period mismatch: The request specifies 2020 Q4, but the supplied filing is Algoma’s audited annual report for the fiscal year ended March 31, 2022. Its comparable quarterly data covers Q4 FY2022 (three months ended March 31, 2022) versus Q4 FY2021. The filing does not provide a clear standalone Q4 FY2020 summary.
Business context and reporting period
Algoma is an integrated Canadian steel producer based in Sault Ste. Marie, Ontario, selling sheet and plate products primarily in North America. The filing presents audited IFRS results in Canadian dollars (C$) for FY2022, FY2021 and FY2020, and quarterly comparisons for Q4 FY2022 and Q4 FY2021. Algoma completed its merger with Legato and became publicly traded on Nasdaq and the TSX in October 2021.
Key financial metrics
| Metric | Q4 FY2022 | Q4 FY2021 | FY2022 | FY2021 |
|---|---|---|---|---|
| Revenue | C$941.8 million | C$638.5 million | C$3,806.0 million | C$1,794.9 million |
| Operating income | C$310.6 million | C$130.0 million | C$1,411.0 million | C$84.8 million |
| Net income (loss) | C$242.9 million | C$100.1 million | C$857.7 million | (C$76.1 million) |
| Adjusted EBITDA | C$334.4 million | C$166.9 million | C$1,503.2 million | C$199.2 million |
| Adjusted EBITDA margin | 35.5% | 26.1% | 39.5% | 11.1% |
| Steel shipments | 547,217 tons | 621,843 tons | 2,297,159 tons | 2,102,086 tons |
| Net sales realization per ton | C$1,608 | C$942 | C$1,545 | C$768 |
| Cash generated by operating activities | C$443.8 million | C$133.9 million | C$1,263.4 million | C$8.1 million |
Adjusted EBITDA and net sales realization are non-IFRS measures defined by the Company; they should not be treated as substitutes for IFRS results or cash available for discretionary uses.
At March 31, 2022, cash was C$915.3 million, compared with C$21.2 million a year earlier. Bank indebtedness was C$0.1 million, and C$278.2 million of revolving-credit availability remained unused. Secured term loans and the Algoma Docks term loan were repaid in full in November 2021. Governmental loans totaled C$95.2 million, including C$10.0 million current. Current assets were C$1,916.5 million and current liabilities C$537.5 million. Net defined-benefit pension liability was C$118.1 million; other post-employment benefit obligations were C$239.8 million.
Material changes versus comparable periods
- Q4 revenue rose 47.5% year over year, mainly on higher steel selling prices, while shipment volume fell 12.0%; Q4 net sales realization per ton increased 70.8%.
- FY2022 revenue more than doubled and the Company moved from a C$76.1 million net loss to C$857.7 million net income. Steel revenue increased C$1,933.7 million, principally because of higher selling prices; shipment volume rose 9.3%.
- FY2022 cost of steel products sold increased 45.0% to C$1,968.5 million, reflecting higher shipments and higher prices for key inputs, including iron ore, scrap, alloys and natural gas, as well as employee profit sharing. FY2021 had benefited from C$52.8 million of Canada Emergency Wage Subsidy reductions; no such funding was received in FY2022.
- Operating cash flow improved substantially. FY2022 cash flow from operations was C$1,263.4 million, versus C$8.1 million in FY2021; working capital used C$21.1 million in FY2022 versus C$137.7 million in FY2021.
- FY2022 included a C$235.6 million non-cash listing expense and C$26.5 million of merger transaction costs. It also included a C$78.1 million gain on the change in fair value of earnout liability and a C$6.4 million loss on warrant liability fair value changes.
Outlook, management commentary, risks and unusual items
- EAF transformation: The Board authorized construction of two electric arc furnaces to replace blast-furnace steelmaking. Estimated project cost is C$700 million; completion was expected between April and June 2024. Management projected about 70% lower carbon emissions and up to 900,000 tons of additional annual liquid-steel capacity. These are forward-looking estimates, not achieved results.
- Project funding and execution: Up to C$200 million of federal SIF loans and C$220 million of Canada Infrastructure Bank financing were committed for the EAF project. The filing says no amounts had been advanced under these EAF facilities as of March 31, 2022. Construction delays, cost overruns, permitting, power availability, scrap supply and hybrid-mode operating requirements are material risks. Regional grid upgrades may not be completed until 2029 or later.
- Other investment: The plate mill modernization program was expected to cost about C$120 million, partly supported by approximately C$50 million in government loan facilities, with completion targeted for November 2022.
- Capital returns: Algoma paid its first quarterly dividend of US$0.05 per common share on March 31, 2022. After year-end, the Board approved pursuing a US$400 million modified Dutch auction share repurchase, subject to terms and completion. The filing also reports an NCIB authorization; no shares had been repurchased under it by March 31, 2022.
- Post-year-end environmental incident: On June 9, 2022, lubricant from the hot mill entered the water-treatment facility and an estimated 1,000–1,250 liters were discharged into the St. Mary’s River. The Company reported that the impact and potential liabilities remained unknown and that it had not received regulatory orders or offenses as of the filing.
- Principal business risks: Steel-price cyclicality and input-cost volatility; competition, imports and trade policy; dependence on a single operating site and blast furnace; labor negotiations (collective agreements expired July 31, 2022); pension and retiree obligations; environmental compliance and carbon pricing; currency exposure; and execution, power and raw-material risks related to the EAF project. The Russia-Ukraine conflict and inflation were cited as sources of potential market, energy, supply and cyber risk.
- Guidance: The filing does not provide clear quantified near-term earnings or revenue guidance. Management stated that ongoing sustaining capital spending was expected to average approximately C$50–C$60 million annually, in addition to major growth-project spending.
- Audit and controls: Deloitte issued an unqualified opinion on the IFRS financial statements. The report did not include management’s assessment or auditor attestation of internal control over financial reporting because of the SEC transition relief for newly public companies; management concluded disclosure controls were effective at March 31, 2022.
Important facts for investors to verify
- Confirm the intended period: this filing reports FY2022 and Q4 FY2022, not 2020 Q4.
- Check subsequent filings for EAF schedule, total cost, funding drawdowns, grid-power arrangements, permits and progress toward the projected emissions and capacity benefits.
- Review subsequent disclosures on the June 2022 river discharge, regulatory findings, remediation costs and any resulting claims.
- Reconcile cash generation and the exceptionally strong steel-price contribution with subsequent steel prices, input costs, shipment volumes and working-capital movements.
- Verify the terms and outcome of the proposed US$400 million share repurchase, dividend policy, and the effects of share-based awards, earnout rights and warrants on dilution.
- Monitor pension funding, environmental commitments, governmental-loan repayment obligations, revolving-credit availability and covenant compliance.