Algoma Central Corporation — Management Reports 2020

Feb 28, 2020

ALGOMA CENTRAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS

For the Years Ended December 31, 2019 and 2018

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General

This Management’s Discussion and Analysis (“MD&A”) of the Company should be read in conjunction with its interim consolidated financial statements for the year ended December 31, 2019 and 2018 and related notes thereto and has been prepared as at February 27, 2020.

This MD&A has been prepared by reference to the disclosure requirements established under National Instrument 51-102 “Continuous Disclosure Obligations” of the Canadian Securities Administrators. Additional information on the Company, including its 2019 Annual Information Form, is available on the SEDAR website at www.sedar.com or on the Company's website at www.algonet.com .

Important Information About This MD&A

The reporting currency used is the Canadian dollar and all amounts are reported in thousands of Canadian dollars, except for per share data, and unless otherwise noted.

Ocean Self-Unloaders

Adjusted Measures

Algoma participates in the world's largest pool of ocean-going selfunloaders (the "Pool"). The Pool’s commercial results reflect a pro-rata share of Pool revenue and voyage costs (in operating expenses) for eight 100% owned ships. Vessel operating expenses for these ships are recorded in operating expenses. Earnings from partially owned ships are included in the Company's joint venture, Marbulk. Algoma does not incur selling expenses on ocean self-unloader business, but instead pays a commercial fee to the Pool manager, which is reflected as an operating expense.

Management assesses results on a reported and adjusted basis and considers both as useful measures of performance. Adjusted results remove items of note from reported results and are used to calculate the adjusted measure noted below. Items of note include certain items of significance that arise from time to time which management believes are not reflective of underlying business performance. We believe that adjusted measures provides the reader with a better understanding of how management assesses underlying business performance and facilitate a more informed analysis of trends.

Global Short Sea Shipping

Adjusted Basic Earnings per Share

Revenue from the Global Short Sea segment, in which we participate via joint ventures, is not included in the consolidated revenue figure. The Company's 50% share of net earnings, adjusted for amortization arising from vessel purchase price allocation and intangibles, is included in net earnings of joint ventures in our Interim Condensed Consolidated Statement of Earnings.

Use of Non-GAAP Measures

The following summarizes non-GAAP financial measures utilized in this MD&A. As there is no generally accepted method of calculating these financial measures, they may not be comparable to similar measures reported by other corporations.

EBITDA refers to earnings before interest, taxes, depreciation, and amortization and the Company includes its share of the EBITDA of its equity interest in joint arrangements in this measure. EBITDA is not a recognized measure for financial statement presentation under generally accepted accounting principles as defined by IFRS. EBITDA is not intended to represent cash flow from operations and it should not be considered as an alternative to net earnings, cash flow from operations, or any other measure of performance prescribed by IFRS. The Company's EBITDA may also not be comparable to EBITDA used by other corporations, which may be calculated differently. The Company considers EBITDA to be a meaningful measure to assess its operating performance in addition to other IFRS measures. It is included because the Company believes it can be useful in measuring its ability to service debt, fund capital expenditures, and expand its business, and a metric that is based on it is used by credit providers in the financial covenants of the Company's senior secured long-term debt.

The Company adjusts reported Basic Earnings per Share to remove the impact of items of note, net of income taxes, and any other items specified to calculate the Adjusted Basic Earnings per Share. Return on equity is net earnings as a percent of average shareholders’ equity.

Impact of Seasonality on the Company

The nature of the Company's business is such that the earnings in the first quarter of each year are not indicative of the results for the other three quarters in the year. Due to the closing of the canal system and the winter weather conditions on the Great Lakes - St. Lawrence Waterway, the majority of the Domestic Dry-Bulk fleet does not operate for most of the first quarter. In addition, significant repair and maintenance costs are incurred in the first quarter to prepare the Domestic Dry-Bulk fleet for the upcoming navigation season. As a result, first quarter revenues and earnings are significantly lower than those of the remaining quarters in the year.

ALGOMA CENTRAL CORPORATION 2019 MANAGEMENT'S DISCUSSION AND ANALYSIS

Forward-Looking Statements

Algoma Central Corporation’s public communications often include written or oral forward-looking statements. Statements of this type are included in this document and may be included in other filings with Canadian securities regulators or in other communications. All such statements are made pursuant to the safe harbour provisions of any applicable Canadian securities legislation. Forward-looking statements may involve, but are not limited to, comments with respect to our objectives and priorities for 2020 and beyond, our strategies or future actions, our targets, expectations for our financial condition or share price and the results of or outlook for our operations or for the Canadian, U.S. and global economies. The words "may", "will", "would", "should", "could", "expects", "plans", "intends", "trends", "indications", "anticipates", "believes", "estimates", "predicts", "likely" or "potential" or the negative or other variations of these words or other comparable words or phrases, are intended to identify forward-looking statements.

By their nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties. There is significant risk that predictions, forecasts, conclusions or projections will not prove to be accurate, that our assumptions may not be correct and that actual results may differ materially from such predictions, forecasts, conclusions or projections. We caution readers of this document not to place undue reliance on our forward-looking statements as a number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed in the forward-looking statements.

The future outcomes that relate to forward-looking statements may be influenced by many factors, including but not limited to:

• general economic and market conditions in the countries in which we operate;

• our ability to attract and retain quality employees;

• interest rate and currency value fluctuations;

• our ability to execute our strategic plans and to complete and integrate acquisitions;

• critical accounting estimates;

• operational and infrastructure risks;

• on-time and on-budget delivery of new ships from shipbuilders;

• general political conditions;

• labour relations with our unionized workforce;

• the possible effects on our business of war or terrorist activities;

• disruptions to public infrastructure, such as transportation, communications, power or water supply, including water levels;

• technological changes;

• significant competition in the shipping industry and from other transportation providers;

• reliance on partnering relationships;

• appropriate maintenance and repair of our existing fleet by third-party contractors;

• health and safety regulations that affect our operations can change and be onerous and the risk of safety incidents can affect results;

• a change in applicable laws and regulations, including environmental regulations, could materially affect our results; economic conditions may prevent us from realizing sufficient investment returns to fund our defined benefit plans at the required levels;

• our ability to raise new equity and debt financing if required;

• • weather conditions or natural disasters;

• the seasonal nature of our business; and

• risks associated with the lease and ownership of real estate.

This should not be considered a complete list of all risks to which the Company may be subject from time to time. When relying on forwardlooking statements to make decisions with respect to the Company, investors and others should carefully consider these factors, as well as other uncertainties and potential events and the inherent uncertainty of forward-looking statements.

The Company does not undertake to update any forward-looking statements, whether written or oral, that may be made, from time to time, by the organization or on its behalf, except as required by law. The forward-looking information contained in this document is presented for the purpose of assisting our shareholders in understanding our financial position as at and for the periods ended on the dates presented and our strategic priorities and objectives and may not be appropriate for other purposes.

For more information, please see the discussion of risks in the Company’s Annual Information Form for the year ended December 31, 2019, which outlines in detail certain key factors that may affect the Company’s future results. The Annual Information Form can be found on the Company's website at www.algonet.com and on SEDAR at www.sedar.com.

ALGOMA CENTRAL CORPORATION 2019 MANAGEMENT'S DISCUSSION AND ANALYSIS

Financial Highlights

Consolidated revenue for 2019 was $567,908, an increase of 12% compared to $508,201 reported in 2018. The increase in revenue was primarily a result of having additional vessels in operation, improved rates and strong customer demand in both the Product Tanker and Ocean Self-Unloader segments. In the Domestic Dry-Bulk segment, revenue decreased due to lower overall volumes which was attributable to the reduction in capacity compared to 2018. This was offset by strong freight rates as a result of favourable contract renewals.

Operating earnings increased by $12,107 or 26% in 2019 compared to the previous year; however, net earnings in 2019 were $24,159, a decrease of $26,784 compared to 2018. Net earnings in 2018 include an after tax gain of $10,214 on certain shipbuilding contract cancellations whereas earnings in 2019 include a $15,542 impairment provision from the Company's investment in the NovaAlgoma Short Sea Carrier joint venture. Adjusting for these two items, net earnings were down approximately $1,028 compared to 2018.

The Global Short Sea Shipping businesses generated revenues in 2019 of $255,559 compared to $277,013 for the prior year. The Company has a 50% interest in these businesses.

For the years ended December 31	2019 2018
Revenue Operating earnings Net earnings Basic earnings per common share As at December 31 Common shares outstanding Total assets Total long-term financial liabilities	$ 567,908 $ 508,201 $ 58,370 $ 46,263 $ 24,159 $ 50,943 $ 0.63 $ 1.32 37,824,543 38,421,615 $ 1,147,377 $ 1,111,893 $ 334,853 $ 258,588

The Company uses EBITDA as a measure of the cash generating capacity of its businesses. The following table reconciles EBITDA to Net Earnings, the most comparable IFRS measure. EBITDA was $157,427 compared to $128,748 for the same period in 2018. EBITDA is determined as follows:

For the years ended December 31	2019 2018
Net earnings Adjustments to net earnings: Depreciation and amortization Impairment reversal Interest, net Foreign currency loss (gain) Income tax expense Joint ventures Interest expense Foreign exchange loss (gain) Depreciation Impairment of investment in joint ventures Income tax (recovery) expense	$ 24,159 $ 50,943 70,015 55,714 — (5,647) 18,693 11,747 886 (9,590) 5,109 8,550 6,167 4,923 884 (1,079) 15,608 12,658 15,970 — (64) 529
EBITDA	$ 157,427 $ 128,748

2020 Outlook

At this time the Company is not experiencing any impact from the Coronavirus outbreak or the pipeline protests. We are continuously monitoring both situations and will provide any updates as necessary.

Domestic Dry-Bulk

As the Algoma fleet is expected to remain at 19 vessels in 2020, we are expecting cargo volumes to rise slightly with fewer ship out of service days. Favourable contract renewals have resulted in improved rates, and we are therefore optimistic at the outlook for the year.

As we have noted in prior year reports, we invested in exhaust gas scrubber technology by installing closed-loop scrubbers in all of our new Equinox class vessels. For 2020, we will complete our first retrofit of a closed-loop scrubber to an existing ship when the Algoma Mariner is fitted with a scrubber during the winter lay-up. Completion of this work will bring the number of ships fitted with this technology to a total

of nine. This will increase to 11 ships when we take delivery of the newbuilds that are now under construction. Our investment in closed-loop

scrubbers enables Algoma’s dry-bulk Lakers to burn heavy fuel oil while meeting or exceeding regulations governing maximum sulphur oxide emissions. This eliminates the need for these ships to switch to more

costly low-sulphur or marine diesel fuels. We expect to recoup our investment in the technology by using the lower cost fuel oils on our scrubbed ships. While we made the original investment decision to ensure our new ships were environmentally sustainable, the economics of the investment are impacted positively by a widening spread between the cost of heavy fuels and low sulphur alternatives. As 2020 begins, this spread has approached record levels, due in part to the shifting market demand for low sulphur fuels as other fleets switch fuels to comply with IMO 2020. As Algoma is the only Canadian operator to have installed scrubbers and is the largest operator of

ALGOMA CENTRAL CORPORATION 2019 MANAGEMENT'S DISCUSSION AND ANALYSIS

scrubber-equipped vessels on the Great Lakes, we are currently benefiting from the price spread. It is impossible to predict if the price spread we are currently seeing in the market is sustainable, but we do expect heavy fuels to continue to be a cheaper alternative even as the market supply adjusts to the new IMO 2020 based demand dynamics. Over the past 24 months, 60% of our domestic dry-bulk contract base has been renewed. The contract renewals include improved freight rates and the segment has experienced positive results as a consequence. Only 9% of our contract base is up for renewal in 2020.

Availability of qualified crew still remains an industry issue. The Company has committed to increase its efforts in training and retention in 2020. Pilotage and availability of crew able to self-pilot our vessels will also be a focus and will require additional crew training.

Product Tankers

In the Product Tanker segment, demand over the last few years has been extraordinarily high; however, moving into 2020, demand is expected to return to more normal levels due to a reduction in refinery turnarounds by our major customer.

Additionally, fuel costs are expected to rise in 2020 as a result of our product tanker fleet, following a transition period, switching to diesel fuel as part of IMO 2020 regulations. Although diesel fuel is more expensive than heavy fuel, the cost will pass through to the customer. Utilization for the tanker fleet is expected to be similar to actual 2019 utilization; lower results for the year will be affected by the dry-docking and survey costs.

Ocean Self-Unloaders

The Pool is projecting a modest increase in customer demand, and volumes and freight rates are expected to improve slightly. Our own ships will be impacted by dry-dockings in 2020. Five ships will undergo planned dry-docking, including all three of our newly acquired vessels. This will impact revenue days and costs. Total dry-docking days in 2020 will approximate the vessel days gained from having the newly acquired ships for the full year. These ships were acquired in June, 2019.

The ocean self-unloader fleet will also be affected by IMO 2020 regulations. The fleet will transition from heavy fuel to diesel, raising fuel costs; similar to our product tanker segment, these costs are passed through to the customer.

The Product Tanker segment will also experience an increase in drydock expense as the Algoterra will undergo a planned regulatory drydocking in 2020. An additional three vessels are scheduled to undergo regulatory surveys during 2020 but will not require dry-dockings.

ALGOMA CENTRAL CORPORATION 2019 MANAGEMENT'S DISCUSSION AND ANALYSIS

Summary of Quarterly Results

The results for the last eight quarters were as follows:

								Basic Earnings
Year	Quarter			Revenue		Net Earnings (Loss)		(Loss) per Share
2019	Quarter	4	$	168,985	$	3,796	$	0.10
	Quarter	3	$	167,901	$	21,049	$	0.55
	Quarter	2	$	159,169	$	22,114	$	0.58
	Quarter	1	$	71,853	$	(22,800)		(0.59)
2018	Quarter	4	$	149,542	$	26,003	$	0.68
	Quarter	3	$	158,729	$	19,639	$	0.51
	Quarter	2	$	139,442	$	14,445	$	0.38
	Quarter	1	$	60,488	$	(9,142)	$	(0.23)

The following summarizes the trailing twelve month results on an adjusted and unadjusted basis in each of the last eight quarters:

Year Quarter	Trailing Twelve Months Revenue Net Earnings Basic Earnings per Share Adjustment to Basic Earnings per Share * Adjusted Basic Earnings per Share
2019 Quarter 4 Quarter 3 Quarter 2 Quarter 1 2018 Quarter 4 Quarter 3 Quarter 2 Quarter 1	$ 567,908 $ 24,159 $ 0.63 $ 0.42 $ 1.05 $ 548,465 $ 46,364 $ 1.21 $ (0.28) $ 0.93 $ 539,566 $ 44,954 $ 1.17 $ (0.26) $ 0.91 $ 519,566 $ 37,285 $ 0.97 $ (0.26) $ 0.71 $ 508,201 $ 50,943 $ 1.32 $ (0.26) $ 1.06 $ 498,094 $ 40,915 $ 1.06 $ 0.03 $ 1.09 $ 476,565 $ 54,044 $ 1.40 $ (0.27) $ 1.13 $ 461,270 $ 68,763 $ 1.77 $ (0.62) $ 1.15

• The following table summarizes the Adjustment to Basic Earnings per Share, by quarter, for certain items management believes are not reflective of underlying business performance.

(Loss) gain on shipbuilding contracts Impairment reversals (provisions) Sale of real estate properties	2017 2018 2019
	Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
	$ — $ — $ — $ — $ — $ (0.02) $ 0.15 $ — $ — $ — $ — — — — — — — 0.13 — — — (0.42) 0.35 0.28 (0.01) — — — — — — — —
	$ 0.35 $ 0.28 $ (0.01) $ — $ — $ (0.02) $ 0.28 $ — $ — $ — $ (0.42)

Trailing adjustment to EPS

$ 0.62 $ 0.27 $ (0.03) $ 0.26 $ 0.26 $ 0.26 $ 0.28 $ (0.42)

ALGOMA CENTRAL CORPORATION 2019 MANAGEMENT'S DISCUSSION AND ANALYSIS

Business Segment Discussion

Domestic Dry-Bulk

The Domestic Dry-Bulk segment includes the activities of the Company's Canadian flag dry-bulk vessels and its ship management business. During 2019, the Company operated 11 self-unloading bulk carriers and 8 gearless bulk carriers in its fleet. One of the bulk carriers is owned by a third party.

Financial Results Overview

Revenues for the Domestic Dry-Bulk segment decreased by 5% compared to 2018; this was attributable to a number of underlying factors. Overall volumes were down 5.5% which was primarily a result of a reduction in capacity compared to 2018 with one fewer vessel in operations; however, the reduction in volumes was offset by strong freight rates as a result of favourable contract renewals. Gross freight revenue per tonne increased 3% compared to 2018 and on a per vessel basis, vessel earnings were slightly higher in 2019.

An additional contributor to the decrease in revenue was a drop in the price of fuel, which is a large component of revenue as we pass this cost through to customers. The impact of lower fuel prices for the year contributed to a 17% decrease in fuel revenue, offset by a corresponding decrease in daily fuel expense.

Operating expenses decreased 4.5% compared to 2018. The decrease reflects the reduction in capacity and the decrease in fuel expense as noted above. This was offset by increases in crew costs and vessel incidents resulting in repair costs not covered by insurance. Overall, insurance-related costs increased 31% compared to 2018. In addition, 2019 experienced an increase in lay-up expenses due to extensive drydockings on a number of vessels as the Company has invested in repairing and maintaining the legacy fleet of older vessels.

The increase in depreciation expense reflects the addition of the Algoma Conveyor at the beginning of the operating season and depreciation charges related to capitalized dry-dock costs on other ships.

For the years ended December 31	2019 2018
Revenue Operating expenses Selling, general and administrative Depreciation and amortization	$ 281,680 $ 297,662 (212,844) (222,862) (11,289) (12,523) (24,112) (22,700)
Operating earnings Gain on foreign currency forward contracts Gain on cancellation of shipbuilding contracts Income tax expense	33,435 39,577 — 1,209 — 12,862 (9,238) (10,482)
Net earnings	$ 24,197 $ 43,166

EBITDA for Domestic Dry-Bulk for 2019 was $57,547, a decrease of 8% compared to 2018, reflecting the smaller fleet size, reduction in volumes and vessel out of service time. EBITDA is determined as follows:

For the years ended December 31	2019 2018
Net earnings Adjustments to net earnings: Depreciation and amortization Gain on foreign currency forward contracts Gain on cancellation of shipbuilding contracts Income tax expense	$ 24,197 $ 43,166 24,112 22,700 — (1,209) — (12,862) 9,238 10,482
EBITDA	$ 57,547 $ 62,277

ALGOMA CENTRAL CORPORATION 2019 MANAGEMENT'S DISCUSSION AND ANALYSIS

Revenue (millions)

Volume (millions)

Revenue Days

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Iron/Steel Iron/Steel 6,000
Construction Construction
5,000
Agriculture Agriculture
Salt Salt
4,000
$400 25MT
3,000
20MT
$300
15MT
2,000
$200
10MT
1,000
$100
5MT
$0 0MT 0
2018 2019 2018 2019 2015 2016 2017 2018 2019
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Overall volumes decreased 5.5% compared to 2018. The main cargo contributors were iron and steel and construction materials which experienced 10% and 24% drops in volumes, respectively. This was offset by a significant increase in the salt volumes, with a 44% increase in tonnage, and by higher freight rates.

Revenue days were down 6% compared to last year. The main contributors in the reduction was having one fewer vessel in operation and lost days due to higher incidents.

Fleet Renewal

navigation season. The vessel is the third Seawaymax 740' self-unloader and the eighth vessel to join her Equinox Class sister ships since the fleet renewal program was launched in 2010.

The Company currently has a Equinox Class Seawaymax 740' bulker under construction at the Yangzijiang Shipyard in China. This bulker is expected to begin operations in the spring of 2021.

In addition to the bulker, a 650' Equinox Class self-unloader, the Algoma Intrepid, is currently under construction at a Croatian shipyard. Contractual delivery is scheduled for late 2020. The full price of the Algoma Intrepid is due upon delivery.

As noted last year, the Company took delivery of the Algoma Conveyor late in 2018 and the vessel began operations at the start of the 2019

ALGOMA CENTRAL CORPORATION 2019 MANAGEMENT'S DISCUSSION AND ANALYSIS

Product Tankers

The domestic product tanker fleet provides safe and reliable transportation of liquid petroleum products throughout the Great Lakes, St. Lawrence Waterway and Atlantic Canada regions. This business unit consists of eight double-hull product tankers.

Financial Results Overview

Revenues for product tankers increased by $35,641 in 2019 compared to the prior year. The increase was primarily driven by high customer demand met, in part, by the two new ships operating in the fleet and with chartered capacity. The first of the new ships, the Algonorth entered operations at the end of 2018 and the Algoterra joined the fleet in the second quarter of 2019. Despite an increase in internal capacity, the use of outside charters during the year was still required; however, as a result of the extra capacity, charter days were slightly less compared to 2018.

The increase in depreciation and amortization during 2019 was a result of the addition of the Algonorth and Algoterra to operations. Additionally, increased amortization for the previous year dry-dockings impacted the 2019 depreciation expense.

Operating expenses increased by $16,369 during 2019 due to the increased capacity; crew, supplies and insurance costs were all higher as a result. The increase was offset by lower lay-up spending as a result of fewer dry-dockings in 2019. Fiscal 2018 was impacted by lost days due to dry-dockings as a result of the timing of regulatory dry-docks and the age of certain vessels in the fleet.

For the years ended December 31	2019 2018
Revenue Operating expenses Selling, general and administrative Depreciation and amortization	$ 141,912 $ 106,271 (104,439) (88,070) (4,019) (2,257) (13,555) (9,867)
Operating earnings Income tax expense	19,899 6,077 (5,273) (1,475)
Net earnings	$ 14,626 $ 4,602

EBITDA for Product Tankers was $33,454, an increase of $17,510 compared to the prior year. The increase reflects the two new tanker acquisitions, less reliance on outside chartered vessels and high customer demand. EBITDA is determined as follows:

For the years ended December 31	2019 2018
Net earnings Adjustments to net earnings: Depreciation and amortization Income taxes	$ 14,626 $ 4,602 13,555 9,867 5,273 1,475
EBITDA	$ 33,454 $ 15,944

ALGOMA CENTRAL CORPORATION 2019 MANAGEMENT'S DISCUSSION AND ANALYSIS

Vessel Days

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Algoma Fleet
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Chartered Vessels
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Overall customer demand was 23% higher in 2019 compared to 2018 due to refinery turn-arounds and higher volumes of petroleum products being moved through the system. Although there was a 2% decrease in outside charter days there was a 31% increase in revenue days as a result of the additional capacity in our owned fleet.

At the beginning of March, the Algoterra , a 2010-built product tanker was acquired and joined the Algoma fleet in operations in April. Both the Algonorth and the Algoterra have enabled the company to service the higher demand and enabled us to avoid even higher uses of outside charters in 2019.

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4,000
3,000
2,000
1,000
0
2015 2016 2017 2018 2019
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ALGOMA CENTRAL CORPORATION 2019 MANAGEMENT'S DISCUSSION AND ANALYSIS

Ocean Self-Unloaders

The Ocean Self-Unloader segment consists of eight ocean-going self-unloading vessels, a 50% interest in a ninth self-unloader and a 25% interest in a specialized ocean vessel. The eight self-unloaders are part of the world’s largest pool of ocean-going self-unloaders, which at the end of 2019 totalled 18 vessels.

Financial Results Overview

Revenues in the Ocean Self-Unloader segment increased by $41,148 in 2019 compared to 2018. The segment continues to experience improving Pool performance with growing customer demand, higher volumes and improved freight rates. The three new vessels that were acquired and began operations in June resulted in a 38% increase in revenue days.

Operating expenses increased by $25,933 compared to the previous year due to a 46% rise in operating days as result of the additional

capacity. Due to the larger fleet size, crew, supply and fuel costs were also higher compared to 2018. Additionally, as a result of the Algoma Integrity being on dry-dock from late in the first quarter until July, there was an increase in dry-dock expense in 2019.

Depreciation and amortization increased by $9,263 in 2019 compared to 2018 due to the three new vessels being added part way through the year.

For the years ended December 31	2019 2018
Revenue Operating expenses General and administrative Depreciation and amortization	$ 131,425 $ 90,277 (82,959) (57,026) (1,136) (2,338) (28,657) (19,394)
Operating earnings Net (loss) earnings from investments in joint ventures	18,673 11,519 (777) 717
Net earnings	$ 17,896 $ 12,236

EBITDA was $50,508, an increase of 52% compared to the prior year. EBITDA is determined as follows:

For the years ended December 31	2019 2018
Net earnings Adjustments to net earnings: Depreciation and amortization Joint Venture: Depreciation and amortization Impairment provision Interest expense Foreign exchange (gain) loss Income tax expense	$ 17,896 $ 12,236 28,657 19,394 2,215 1,855 428 — 625 706 696 (1,210) (9) 264
EBITDA	$ 50,508 $ 33,245

ALGOMA CENTRAL CORPORATION 2019 MANAGEMENT'S DISCUSSION AND ANALYSIS

Revenue & Dry-Dock Days

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Revenue Days
Days on Dry-Dock
3,000
2,000
1,000
0
2015 2016 2017 2018 2019
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Pool Volumes (millions)

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Gypsum Coal
Aggregates Other
30MT
25MT
20MT
15MT
10MT
5MT
0MT
2015 2016 2017 2018 2019
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The seven months of additional capacity accounted for almost all of the 38% increase in revenue days. As a result of the smooth transition of ownership, there were also minimal off-hire days experienced in 2019.

There was a 9% increase in Pool volumes primarily driven by higher volumes in coal and aggregates with a 22% and 17% increase, respectively, in 2019.

ALGOMA CENTRAL CORPORATION 2019 MANAGEMENT'S DISCUSSION AND ANALYSIS

Global Short Sea Shipping

The Global Short Sea Shipping segment comprises three joint ventures in which we hold 50% interests; NovaAlgoma Cement Carriers ("NACC"), NovaAlgoma Short Sea Carriers ("NASC") and NovaAlgoma Bulk Holdings ("NABH"). These joint ventures with Nova Marine Carriers SA are a reflection of a strategic intent to enter the global short sea shipping sector, focusing on niche markets featuring specialized equipment or services and lacking an existing dominant player.

Financial Results Overview

Revenue decreased in the Global Short Sea Shipping segment by $21,454 or 8% in 2019 compared to 2018. The decrease was primarily due to a reduction in the size of the mini-bulker fleet offset by a larger cement carrier fleet compared to last year. Additionally, the handy-size fleet had a full year of operation compared to only half the year in 2018.

Operating expenses decreased by 7% in 2019 driven by the smaller mini-bulker fleet, partially offset by higher operating costs in the cement and handy-size fleets due to the larger fleet sizes. In 2019 the cement fleet operated an average of 18 vessels compared to an average of 14 vessels in 2018. In the handy size fleet an average of five vessels were in operation in 2019 compared to two in 2018.

Depreciation and amortization increased by $5,022 in 2019 as a result of annualized depreciation on one vessel added late in 2018 in the cement fleet and the addition of two vessels in both the cement and handy-size fleets. The increase was also impacted by dry-dockings in the mini-bulker fleet.

The Company has been monitoring the financial results of its investment in NASC over the course of the year and net earnings continue to be below expectations. The joint venture has experienced challenges maintaining the number of vessels it once had under its commercial management. During the fourth quarter of 2019, the Company completed a review of the events and circumstances to determine if the carrying amount of the investment was greater than the recoverable amount. The review took into account the sustained decline in commercially managed vessels and associated cargo volumes.

As a result of the review, the Company determined that the current carrying value of its investment in NASC was impaired and recognized an impairment loss of $15,542 in net earnings from investments in joint ventures. The impairment loss was calculated as the amount by which the carrying value exceeded the net recoverable amount. In the absence of a reliable measure of a market value of the Company's equity interest in the joint venture, the net recoverable value was based on fair value, less costs of disposal, of the underlying net assets of the investment.

The segment recorded a gain of $8,832 on the sale of four mini-bulkers and two handy-size vessels during the year.

For the years ended December 31	2019 2018
Revenue Operating expenses Selling, general and administrative Depreciation and amortization	$ 255,559 $ 277,013 (207,751) (223,209) (8,730) (7,897) (25,352) (20,330)
Operating earnings Gain on sale of vessels Interest expense Foreign exchange loss Other income	13,726 25,577 8,832 — (11,083) (8,435) (376) (262) — 161
Earnings before undernoted Income tax recovery (expense) Net earnings of joint ventures Net earnings attributable to non-controlling interest	11,099 17,041 110 (530) 2,324 1,492 1,492 (1,115)
Net earnings	$ 15,025 $ 16,888
Company share of net earnings above Impairment of investment in joint ventures Amortization of vessel purchase price allocation and intangibles	$ 7,513 $ 8,444 (15,542) — (717) (638)
Company share included in net (loss) earnings of joint ventures	$ (8,746) $ 7,806

ALGOMA CENTRAL CORPORATION 2019 MANAGEMENT'S DISCUSSION AND ANALYSIS

Number of Owned Vessels at Year End

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2017 2018 2019
30
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In response to increasing customer requirements, the NACC Capri began operations domestically in 2019 bringing the total cement carriers owned by NovaAlgoma operating on the Great Lakes - St. Lawrence Waterway to three.

ALGOMA CENTRAL CORPORATION 2019 MANAGEMENT'S DISCUSSION AND ANALYSIS

Investment Properties

The Company owns a shopping centre and an apartment building located in Sault Ste. Marie, Ontario.

For the years ended December 31	2019 2018
Revenue Operating expenses Depreciation	$ 9,809 $ 11,113 (6,956) (7,300) (2,725) (2,783)
Operating earnings Income tax recovery (expense)	128 1,030 72 (355)
Net earnings	$ 200 $ 675

Corporate

The Corporate segment consists of revenue from management services provided to third parties, head office expenditures and other administrative expenses of the Company. Revenues are also generated from rental income provided by third party tenants in the Company's head office building. Operating expenses include the operating costs of that office building.

For the years ended December 31	2019 2018
Revenue Operating expenses Selling, general and administrative Depreciation	$ 3,082 $ 2,878 (1,042) (873) (14,839) (12,975) (966) (970)
Operating loss Foreign currency (loss) gain Interest, net Income tax recovery	(13,765) (11,940) (886) 2,213 (18,693) (11,577) 9,330 3,762
Net loss	$ (24,014) $ (17,542)

ALGOMA CENTRAL CORPORATION 2019 MANAGEMENT'S DISCUSSION AND ANALYSIS

Consolidated

Consolidated
For the years ended December 31	2019 2018
Revenue Operating expenses Selling, general and administrative Depreciation and amortization	$ 567,908 $ 508,201 (408,240) (376,131) (31,283) (30,093) (70,015) (55,714)
Operating earnings Impairment reversal Interest expense Interest income Foreign currency (loss) gain Income tax expense Net (loss) earnings from investments in joint ventures	58,370 46,263 — 6,864 (19,860) (25,499) 1,167 13,752 (886) 9,590 (5,109) (8,550) (9,523) 8,523
Net earnings	$ 24,159 $ 50,943

Interest Expense

Interest expense decreased by $5,639 compared to 2018 although interest expense on borrowings increased $1,076 higher as a result of higher average debt in 2019 compared to last year. Overall interest expense for 2018 included significant changes related to the cancellation of certain shipbuilding contracts.

For the years ended December 31	2019 2018
Interest expense on borrowings Amortization of financing costs Interest on employee future benefits, net Interest capitalized on vessels under construction Reversal of interest previously capitalized on shipbuilding contracts	$ (18,838) $ (17,762) (1,099) (1,109) (809) (319) 886 6,570 — (12,879)
	$ (19,860) $ (25,499)

Foreign Currency (Loss) Gain

There was a foreign currency loss of $886 in 2019 compared to a significant gain of $9,590 in 2018. The swing is a result of a slight reduction in currency related gains on cash this year compared to the previous year and a significant foreign exchange gain in 2018 resulting from the cancellation of certain shipbuilding contracts.

For the years ended December 31	2019 2018
Gain on foreign denominated cash Gain on return of capital from foreign subsidiary Foreign exchange (loss) gain on contract cancellation receivable Unrealized gain on foreign exchange forward contracts	$ 889 $ 1,959 — 254 (1,775) 6,168 — 1,209
	$ (886) $ 9,590

ALGOMA CENTRAL CORPORATION 2019 MANAGEMENT'S DISCUSSION AND ANALYSIS

Income Taxes

Earnings from the Company’s foreign subsidiaries are taxed in jurisdictions which have nil income tax rates. The Canadian statutory rate for the Company for both 2019 and 2018 was 26.5%. Any variation in the effective income tax rate from the statutory income tax rate is due mainly to the lower income tax rates applicable to foreign subsidiaries, the effect of taxable and non-taxable items that may or may not be included in earnings and changes to income tax provisions related to prior periods.

For the years ended December 31	2019 2018
Combined federal and provincial statutory income tax rate	26.5% 26.5%
Net earnings before income tax and net earnings of joint ventures	$ 38,791 $ 50,970
Expected income tax expense (Increase) decrease in expense resulting from: Effect of items that are not (deductible) taxable Foreign tax rates different from Canadian statutory rate Adjustments to prior period provision Other	$ (10,280) $ (13,507) (418) 2,440 4,991 3,189 557 (537) 41 (135)
Actual tax expense	$ (5,109) $ (8,550)

Cancellation of Shipbuilding Contracts in 2018

During 2018, the Company sent notice to a Croatian shipyard of its intention to cancel four shipbuilding contracts. Under the terms of the construction contract, the Company had a unilateral right to cancel. Algoma exercised its option due to significant delays in delivery dates as a result of the shipyard's difficulties to secure financing and cancelled all four contracts. In December 2018, the Company received a full refund, including interest, for one of the cancelled contracts and subsequent to the 2018 year end, refunds were received for the remaining three contracts.

The impact to the Statement of Earnings is as follows:

For the years ended December 31		2019		2018
Impairment reversal	$	—	$	6,864
Increase income on instalments		—		12,709
Write-off of supervision and other direct costs		—		(1,217)
Write-off of capitalized interest relating to ship construction		—		(12,879)
Foreign exchange (loss) gain		(1,775)		6,168
(Loss) gain on cancellation of shipbuilding contract		(1,775)		11,645
Income tax expense		—		(1,431)
	$	(1,775)	$	10,214

The net impact to the Balance Sheet is as follows:

For the years ended December 31		2018
Decrease to property, plant and equipment	$	(105,194)
Increase to other current receivables	$	68,040

Normal Course Issuer Bid

On March 19, 2019, the Company renewed its normal course issuer bid with the intention to purchase, through the facilities of the TSX, up to 1,920,735 of its Common Shares representing approximately 5% of the 38,414,715 Common Shares which were issued and outstanding as at the close of business on March 7, 2019 (the “NCIB”).

Subject to prescribed exceptions, the Company is allowed to purchase up to 1,000 Common Shares per day, representing approximately 25% of the average daily trading volume of 3,792 Common Shares per day during the six months ending March 7, 2019. The Company is able to buy back Common Shares anytime during the 12-month period beginning on March 19, 2019 and ending on March 18, 2020, or on such earlier date as the Company may complete its purchases pursuant to the NCIB, or provide notice of termination. Share purchases under the NCIB are conducted through the facilities of the TSX and other Canadian marketplaces/alternative trading systems.

The Company purchased a total of 597,072 Common Shares under its normal course issuer bids ("NCIB") during 2019 for an aggregate purchase price of $8.012. The current NCIB expires on March 18, 2020.

The Company intends to renew its normal course issuer bid upon receipt of the required approvals from regulatory authorities.

Contingencies

For information on contingencies, please refer to Note 27 of the consolidated financial statements for the years ending December 31, 2019 and 2018. There have been no significant changes in the items presented since December 31, 2019.

ALGOMA CENTRAL CORPORATION 2019 MANAGEMENT'S DISCUSSION AND ANALYSIS

Transactions with Related Parties

The Company's ultimate controlling party is The Honourable Henry N. R. Jackman, together with a trust created in 1969 by his father, Henry R. Jackman.

There were no transactions with related parties for the year ended December 31, 2019.

Financial Condition, Liquidity and Capital Resources

Statement of Cash Flows

Operating Activities

Net cash generated from operating activities in 2019 was $137,758 compared to cash generated of $83,349 in 2018. Significant contributors were the Product Tanker and Ocean Self-Unloader segments as well as a significant increase in net working capital.

Investing Activities

Net cash used in investing activities was primarily directed to the purchase of five vessels and investments in Global Short Sea Shipping, less the recovery of the final receivables relating to the 2018 contract cancellations.

Financing Activities

Net cash from financing activities relates to net proceeds on long-term debt used for capital purchases, less the payment of special dividends.

Net inflow (outflow) of cash related to the following activities:

For the years ended December 31	2019 2018
Net earnings Operating activities Investing activities Financing activities	$ 24,159 $ 50,943 $ 137,758 $ 83,349 $ (153,367) $ (46,683) $ 11,700 $ (81,426)

Capital Resources

The Company has cash on hand of $18,865 at December 31, 2019. Available credit facilities along with projected cash from operations for 2020 are expected to be more than sufficient to meet the Company's planned operating and capital requirements and other contractual obligations for the year.

The Company maintains credit facilities that are reviewed periodically to determine if sufficient capital is available to meet current and anticipated needs. The Company's bank credit facility (the "Facility") expires June 21, 2021 and comprises a $100 million Canadian dollar and a $100 million U.S. dollar senior secured revolving bank credit facility provided by a syndicate of seven banks. The Facility bears interest at rates that are based on the Company’s ratio of senior debt to earnings before interest, taxes, depreciation and amortization and ranges from 150 to 275 basis points above bankers’ acceptance or LIBOR rates. The Company has granted a general security agreement in favour of the senior secured lenders and has granted specific collateral mortgages covering its wholly owned vessels. The Company’s real estate assets and vessels that are not wholly owned are not directly encumbered under this Facility.

The Company is subject to certain covenants under the terms of the Bank Facility and the Notes, including ones with respect to maintaining defined financial ratios and other conditions. As at December 31, 2019, the Company was in compliance with all of its covenants.

Labour Update

Employees and Unions

The normal complement of employees is approximately 1,600, the majority of whom are unionized. The status of the various union agreements are provided below.

Shipboard Managers

All Captains and Chief Engineers of the Company are non-unionized. Navigation and Engineering Officers are represented by six separate bargaining units of the Canadian Merchant Service Guild. Two of these agreements expire on July 31, 2021 and four other agreements expire on May 31, 2023.

Unlicensed Employees

There are three bargaining units for unlicensed shipboard employees. The Seafarers’ International Union (SIU) represents two unlicensed employee bargaining units and the Canadian Maritime Union, a unit of Unifor, represents one unlicensed employee bargaining unit.

The collective bargaining agreement with one bargaining unit of the SIU expires May 31, 2023. The second collective bargaining agreement with the SIU expires on July 31, 2024. The collective agreement with UNIFOR expires on March 31, 2023.

Algoma Ship Repair

The collective agreement between Algoma Ship Repair and its hourly paid workers, who are represented by the United Steelworkers, expires on May 1, 2022.

ALGOMA CENTRAL CORPORATION 2019 MANAGEMENT'S DISCUSSION AND ANALYSIS

Three-Month Results Ending December 31, 2019 and 2018

The Domestic Dry-Bulk segment earnings decreased in the 2019 fourth quarter compared to the same period in 2018, which included a gain of $10,214 related to shipyard contract cancellations that year. Excluding this gain, earnings for 2019 decreased $3,592 compared to 2018. Although volumes were lower due to the reduction in the fleet size, this was more than offset by rate increases. The decrease in revenue for the quarter is entirely attributable to lower fuel prices. The decrease in segment earnings is otherwise a result of higher crew costs, repair costs due to incidents, and depreciation on the new vessel.

Results increased for both the Product Tanker and Ocean Self-Unloader segments in the 2019 fourth quarter due to added capacity within the fleets, two new product tankers and three new ocean self-unloaders, compared to last year. Additionally both segments are experiencing strong customer demand.

The decrease in earnings in the Global Short Sea Shipping segment in the 2019 fourth quarter compared to 2018 was driven by a $15,541 impairment provision in net earnings from the Company's investment in the NovaAlgoma Short Sea Carriers joint venture. Adjusting for this item the Global Short Sea segment earnings increased $2,026 driven by strong results in the cement carrier business.

For the years ended December 31	2019 2018
Revenues Domestic Dry-Bulk Product Tankers Ocean Self-Unloaders	$ 85,137 $ 89,390 38,728 32,190 41,916 24,014
Investment properties Corporate	165,781 145,594 2,504 2,712 700 1,237
	$ 168,985 $ 149,543
Operating earnings net of income tax Domestic Dry-Bulk Product Tankers Ocean Self-Unloaders Global Short Sea Shipping	$ 12,815 $ 26,622 3,266 458 6,778 3,991 (11,661) 1,854
Investment Properties Corporate	$ 11,198 $ 32,925 (17) 89 (7,385) (7,013)
Net earnings	$ 3,796 $ 26,001
Basic earnings per share Diluted earnings per share	$ 0.10 $ 0.68 $ 0.10 $ 0.64

ALGOMA CENTRAL CORPORATION 2019 MANAGEMENT'S DISCUSSION AND ANALYSIS

Critical Accounting Estimates

The Company's significant accounting policies are described in Note 4 to the consolidated financial statements. Some of these accounting policies require management to make estimates and assumptions about matters that are uncertain at the time the estimates and assumptions are made. Management believes that the estimates are reasonable; however, different estimates could potentially have a material impact on the Company's reported financial position or results of operations.

Employee Future Benefits

The Company provides pensions and post-employment benefits including health care, dental care and life insurance to certain employees. The determination of the obligations and expense for the employee future benefits is dependent on the selection of certain assumptions used by the Company in calculating such amounts. Those assumptions are disclosed in Note 20 to the Company’s consolidated financial statements, the most significant of which are the discount rate, the rate of increase in compensation, expected rates of return on plan assets, the rate of increase in the cost of health care and the estimated average remaining service lives of employees, some of which are defined by regulation. The assumptions are reviewed annually and the impact of any changes in the assumptions is reflected in actuarial gains or losses as disclosed in Note 20 to the consolidated financial statements. The significant accounting assumptions adopted are internally consistent and reflect the long-term nature of employee future benefits. Significant changes in assumptions could materially affect the Company’s reported employee future benefit obligations and future expense.

Property, Plant, and Equipment and Impairment

The Company reviews the depreciation periods of property, plant, and equipment on a regular basis for changes in estimated useful lives. The Company also reviews for impairment indicators on a quarterly basis, and at a minimum on an annual basis, whether there are any signs of impairment or a reversal of a previously recognized impairment in accordance with the Company’s accounting policy.

Change in Accounting Estimates

Employee Future Benefits

For 2019, the Company's assumed rate of compensation increases for purposes of calculating the current service cost that is included in the net benefit cost incurred, remained at 3.0% to 2020 and to 2.5% thereafter.

New Accounting Standards Applied

Leases

Effective January 1, 2019, the Company adopted IFRS 16 - Leases (IFRS 16), which supersedes IAS 17 - Leases (IAS 17) and its interpretive guidance.

IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a lease. IFRS 16 eliminates the classification of leases as either operating leases or finance leases and introduces a single lessee accounting model. IFRS 16 also substantially carries forward the lessor accounting requirements. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. Right-of-use assets and lease liabilities will be amortized and accreted with a different pattern of expense being recognized in the statement of earnings.

The Company applied this standard using a modified retrospective approach using the following practical expedients:

• The exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application; and

• The use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease; and

• For contracts entered into before the transition date, the Company relied on its assessment made applying IAS 17 and IFRIC 4 - Determining Whether an Arrangement Contains a Lease

On adoption of IFRS 16, the Company recognized lease liabilities in relation to leases which had previously been classified as operating leases under IAS 17. These liabilities were measured at the present value of the remaining lease payments, discounted using an incremental borrowing rate of 5.95% as of January 1, 2019.

The associated right-of-use asset was measured at an amount equal to the lease liability. There were no onerous lease contracts requiring an adjustment to the right-of-use assets at the date of initial application.

The change in accounting policy affected the following items in the balance sheet on January 1, 2019:

• Right-of-use asset - increase by $429

• Lease liability - increase by $429

The Company’s leasing activities

The Company leases property in the form of offices and warehouses. Rental contracts are typically for fixed periods from 5 years, but may have extension options. Where the Company is reasonably certain to extend the option, it is included in the term of the lease. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants.

The Company may from time to time enter into short term leases of vessels or tankers which are limited to a maximum of 12 months. Payments associated with short term leases are recognized on a straight-line basis as an expense in the interim condensed consolidated statement of earnings.

Prior to adoption of IFRS 16, all leases were classified as operating leases, which were charged to the consolidated statement of earnings on a straight-line basis over the period of the lease. From January 1, 2019, leases are recognized in full on the consolidated balance sheet with a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Company. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period producing a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset’s useful life and the lease term on a straight line basis.

Lease liabilities include the net present value of fixed payments and any variable payments which are based on an index, discounted using the Company’s incremental borrowing rate. Right-of-use assets are measured at the amount of the initial lease liability and adjusted for prepaid lease payments, initial direct costs and restoration costs, if applicable.

Some property leases contain variable payment terms for the Common Area Maintenance which is recorded directly to the consolidated statement of earnings.

Disclosure Controls and Procedures and Internal Controls over Financial Reporting

Disclosure Controls and Procedures

In accordance with the requirements of National Instrument 52-109 Certification of Disclosure in Issuer’s Annual and Interim Filings, the Company's management, including the Chief Executive Officer and the Chief Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures as of December 31, 2019. Under the supervision of and with the participation of the Chief Executive Officer and the Chief Financial Officer, management has concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2019.

ALGOMA CENTRAL CORPORATION 2019 MANAGEMENT'S DISCUSSION AND ANALYSIS

Internal Controls over Financial Reporting

The Company's management is responsible for designing, establishing and maintaining an adequate system of internal controls over financial reporting. The internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with IFRS. Because of inherent limitations, internal controls over financial reporting may not prevent or detect all misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate.

Management has used the criteria established in the 2013 Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission to assess, with the participation of the Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company’s internal controls over financial reporting. Based on this assessment, management has concluded that the Company's internal controls over financial reporting are operating effectively as of December 31, 2019.

Derivative Financial Instruments

The Company’s exposure to foreign currency fluctuations is related to its unhedged cash balances and unhedged net investment in foreign subsidiaries. The Company has hedged part of its investment in the subsidiaries and joint ventures against its foreign denominated longterm debt. At December 31, 2019 and 2018, the net investment in U.S. dollar foreign subsidiaries and joint ventures was $358,080 and $272,247 U.S. dollars, respectively. The amount used as a hedge at December 31, 2019 and 2018 was $125,000 and $75,000 U.S. dollars respectively.

The Company has significant commitments due for payment in U.S. dollars. For payments due in U.S. dollars, the Company mitigates the risk principally through U.S. dollar cash inflows and foreigndenominated debt.

As of December 31, 2018 the Company had U.S. dollar denominated foreign exchange forward contracts outstanding with a notional principal of $14,000 and fair value gain of $1,571. As of December 31, 2019 the Company did not have any U.S. dollar denominated foreign exchange forward contracts outstanding.

Changes in Internal Controls over Financial Reporting

During the year ended December 31, 2019, there have been no changes in the Company’s policies and procedures and other processes that comprise its internal control over financial reporting, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Contractual Obligations

The table below provides aggregate information about the Company's contractual obligations as at December 31, 2019 that affect the Company's liquidity and capital resource needs.

						2024 and
		2020	2021	2022	2023	Beyond
Long-term debt including equity component	$	80,076 $	172,553 $	150 $	5,196 $	80,184
Capital asset commitments		74,843	30,561	—	—	—
Interest payments on long-term debt		14,854	9,559	4,581	4,391	2,166
	$	169,773 $	212,673 $	4,731 $	9,587 $	82,350

Risks and Uncertainties

The following section describes both general and specific risks that could affect the Company’s financial performance. The risks described below are not the only risks facing the Company. Additional risks and uncertainties that are not currently known or that are currently considered immaterial may also materially and adversely affect the Company’s business operations.

Shipboard Personnel

The long-term challenge of recruiting and retaining skilled crews in the marine industry continues to be an area of focus. The challenge of recruiting new employees into the marine industry, competition for skilled labour from other sectors, competitors, or other entities operating in the marine industry is a growing challenge. The limited number of cadet berths is also a factor that needs to be addressed by the marine industry as a whole. A lack of properly skilled shipboard employees could lead to service delays and interruptions as the ability of the Company to fully utilize its domestic vessels could be affected. The Company continues to work with industry groups, its unions and educators to develop and enhance training programs to ensure an adequate supply of labour is available to meet its future needs.

Competitive Markets

Marine transportation is competitive in both domestic and international markets. Marine transportation is subject to competition from other forms of transportation such as road and rail freight. Competition may decrease the profitability associated with any particular contract and may increase the cost of acquisitions. The Company strives to differentiate itself from the competition with superior customer service, having vessels suited to each customer’s needs and maintaining a compliant, safe, efficient and reliable fleet.

Changes in general economic conditions or conditions specific to a particular customer may affect the demand for vessel capacity. The Company believes that due to the long-term nature of its service contracts, vessel configurations and geographic diversity it is well positioned in the market place and is able to withstand fluctuations in market conditions.

The geographic and operational diversity of the Company will help to mitigate negative economic impact to the sectors in which it operates.

Environmental

Environmental protection continues to be a dominant topic on the world legislative agenda and is a primary focus of the Company throughout its operations. Environmental issues such as aquatic invasive species, pollutant air emissions (SOx and NOx), greenhouse gases (GHGs) and marine protected areas continue to be scrutinized and regulated worldwide. A change in environmental legislation could

ALGOMA CENTRAL CORPORATION 2019 MANAGEMENT'S DISCUSSION AND ANALYSIS

have a significant impact on the Company’s future operations and profitability.

The Company’s fleets continue to monitor fuel sulphur levels in accordance with Emission Control Area (ECA) and Fleet Averaging requirements and remains in compliance with all requirements. The Company’s highly efficient Equinox Class ships are equipped with closed-loop exhaust gas scrubbers designed to meet the stringent ECA SOx limits. Vessels equipped with scrubbers are able to meet emission standards while burning high sulphur fuels. The availability of high sulphur fuels may be impacted by future demand for this fuel or environmental regulations. The Company’s other vessels use lower sulphur fuels to satisfy air emission rules, such as the upcoming 2020 global fuel sulphur cap, although the cost and availability of low sulphur fuels may present a risk. In addition there is no certainty the full cost of such fuels or cost related to converting to such fuels can be recovered from all customers, particularly in international markets.

Canada is a signatory to the IMO Ballast Water Convention. The Canadian government is currently finalizing amendments to its ballast water regulations to implement the international ballast water discharge standard for Canadian waters. These requirements, already in place in the United States, will require installation of ballast water treatment systems on the Company’s vessels during future dry dockings generally no later than September 2024. There are presently no U.S. Coast Guard approved ballast water treatment systems with operating limitations suitable for the Company’s vessels that operate in the Great Lakes; the current imposition of unachievable ballast water regulations for these vessels presents an economic and regulatory risk to the Company. Installation of treatment systems on the Company’s other (non-Great Lakes) vessels will have an impact on operating costs.

Nature of the Shipping Industry

The cyclical nature of the Great Lakes dry-bulk shipping industry may lead to decreases in shipping rates, which may reduce Algoma's revenue and earnings. The shipping business, including the dry-bulk market, has been cyclical in varying degrees, experiencing fluctuations in charter rates, profitability and volumes shipped. Algoma anticipates that the future demand for the Company's vessels and freight revenues will be dependent upon continued demand for commodities, economic growth in the United States and Canada, seasonal and regional changes in demand, and changes to the capacity of the Great Lakes fleet which cannot be predicted. Adverse economic, political, social or other developments could decrease demand and growth in the shipping industry and thereby reduce revenue and earnings.

entities have begun to compete more aggressively for staff. This is creating cost increases for companies in the industry both to retain qualified staff and in the form of high fees passed through by the agencies. The Company has attempted to mitigate the impact of these fees by hiring qualified staff; however, this may have the effect of increasing the Company’s costs. The ability of the Company to recover these cost increases from customers is uncertain.

Costs of Incidents

Operating vessels that can weigh up to approximately 40,000 tonnes when fully loaded and which carry materials that may be harmful to the environment is inherently risky. The potential costs that could be incurred by the Company because of these risks include damages caused to property owned by others, the cost of environmental contamination including fines and clean up costs, costs associated with damage to our own assets, and the impact of injuries sustained by our employees or by others. The Company has in place a system designed to guide its employees in the management of all of these risks and is focused on a process of learning and continuous improvement after any incident. The Company also carries insurance designed to provide financial mitigation of costs incurred as the result of an incident; however, there is no guarantee that the insurance coverage will be sufficient to provide full reimbursement of all costs, nor is there any assurance that such insurance will continue to be available in the future at a reasonable cost.

Foreign Exchange

The Company operates internationally and is exposed to risk from changes in foreign currency rates. The foreign currency exchange risk to the Company results primarily from changes in exchange rates between the Company’s reporting currency, the Canadian dollar, and the U.S. dollar. The Company’s exchange risk on earnings of foreign subsidiaries is diminished due to both cash inflows and outflows being denominated in the same currency.

Credit Risk

Credit risk arises from the potential that a counter party will fail to perform its obligations. The Company is exposed to credit risk from its customers. The Company believes that the credit risk for accounts receivable is limited due to the tight credit terms given to customers, minimal bad debts experience and a customer base that consists of a relatively few large industrial concerns in diverse industries.

Employee Future Benefits

Fluctuations, and the demand for vessels, in general, have been influenced by, among other factors:

• global and regional economic conditions;

• developments in international and Great Lakes trade;

• • changes in seaborne and other transportation patterns, such as port congestion and canal closures;

• weather, water levels and crop yields;

• political developments; and

Economic conditions may prevent the Company from realizing sufficient investment returns to fund the defined benefit pension plans at existing levels. Any increase in the regulatory funding requirements for the Company’s defined benefit pension plans, although a use of resources, is not expected to have a material impact on its cash flows. Effective January 1, 2010, the Company closed its defined benefit plans to new members and adopted defined contribution plans for all new employees.

• embargoes and strikes.

Judicial and Other Proceedings

The Company’s domestic dry-bulk vessels and product tankers operate primarily in the Great Lakes and the St. Lawrence River. Winter conditions during the December to March period and rising or changing water levels in ports in which the vessels load and unload have the effect of increasing or reducing operating days and cargo sizes, respectively, and this could affect the profitability of these vessels. Lower water levels can impact cargo sizes by reducing available draft while high water levels can limit access in certain waterways by restricting clearance above a ship.

From time to time, the Company is a party to judicial, arbitration, or similar proceedings either as claimant or as respondent. Although the Company will take any actions it deems necessary to represent its interests in these proceedings, the ultimate outcomes of such proceedings are outside of the control of the Company. The realizable value of any assets and the exposure to liabilities associated with such proceedings may be different than the carrying value of those assets or liabilities on the financial statements of the Company.

Fees and Tolls

Certain critical aspects of the Great Lakes St. Lawrence water transportation system are managed by government and quasigovernment agencies. These agencies typically charge fees or tolls for use of the system or for access to services that are required in order to use the system. Some of these agencies face the same shortage of qualified staff that is faced by the Company and in response, these

ALGOMA CENTRAL CORPORATION 2019 MANAGEMENT'S DISCUSSION AND ANALYSIS

ALGOMA CENTRAL CORPORATION 63 Church Street, Suite 600, St. Catharines, Ontario L2R 3C4 (905) 687-7888 www.algonet.com

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2019
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www.algonet.com