STLC Stelco Holdings Inc

/NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES/

Stelco Holdings Inc. first quarter highlights include:

• Revenue of $665 million for the quarter, up 57% from Q4 2020
• Operating income of $167 million for the quarter, up 328% from Q4 2020
• Adjusted Net Income* of $155 million and Adjusted Net Income* per share of $1.75, up 243% from Q4 2020
• Shipments* of 675,000 tons for the quarter, up 38% from Q4 2020
• Adjusted EBITDA* of $185 million for the quarter, up 208% from Q4 2020
• Declared quarterly dividend of $0.10 per share payable on May 19, 2021

HAMILTON, ON, May 4, 2021 /CNW/ - Stelco Holdings Inc. ("Stelco Holdings" or the "Company"), (TSX: STLC), a low cost, integrated and independent steelmaker with one of the newest and most technologically advanced integrated steelmaking facilities in North America, today announced strong financial results of the Company for the three months ended March 31, 2021. Stelco Holdings is the 100% owner of Stelco Inc. ("Stelco"), the operating company.

Selected Financial Information:

"Our outstanding results in the first quarter are a clear validation of the extensive strategic investments we have made in our operating facilities over the past few years, highlighted by the completion of our upgrade to create North America's only 'smart' blast furnace late last year," said Alan Kestenbaum, Executive Chairman and Chief Executive Officer. "Our well-invested and upgraded assets, combined with the continued deployment of our tactical flexibility model, delivered the highest volume of shipments and generated the highest revenue our business has seen since the second quarter of 2018. We are fully realizing the promised benefits of the increased blast furnace capacity, as demonstrated by the increased shipments, and continue to set new benchmarks for hot metal and steel production. We have taken full advantage of the rising tide in pricing and met the demand of our customers by delivering record volumes of high value-added cold-rolled and coated products. We more than doubled our shipments of these products to customers over the fourth quarter of 2020, and in turn achieved the highest volume of shipments of cold-rolled and coated sheet products since acquiring the Company in mid-2017."

"We are continuing to benefit from our industry-leading cost position and generated $185 million in Adjusted EBITDA – our best quarterly performance in over two years and the highest EBITDA margin of any reporting North American steel producer¹," continued Kestenbaum. "We are gaining momentum and are looking to further advance our cost position with continued strategic investments at Lake Erie Works in our ongoing coke battery upgrade and our electricity cogeneration facility that is currently under construction. During the first quarter, we also completed the commissioning of our new pig iron caster which will further enhance our tactical flexibility and allow us to re-shape the pig iron market in North America and provide up to one million tons of high-quality iron units to the expanding, but scrap constrained, electric arc furnace steel sector. All signs point to continued robust demand and strong pricing in the near term, and I am excited by the prospects for Stelco as we fully deploy our strategy and build upon the gains we have made in the early part of this year."

"As we continue to generate cash, we are now beginning to turn our attention towards capital allocation decisions which are available to us to continue to build shareholder value," said Kestenbaum. "Lack of constraints, thanks to our position as the lowest net debt steel producer in North America, coupled with our lack of exposure to the volatility of post-employment benefit plans, enables us to convert very high levels of EBITDA into free cash flow for us to evaluate many different capital allocation options."

Paul Scherzer, Chief Financial Officer, added, "The results we achieved in the first quarter are testament to the hard work of our employees and reflect our continued commitment to controlling our costs and maximizing the financial return on our capital investments. However, this is only the beginning. We have not historically issued guidance, other than shipments, but want to impress upon the market the earnings power of Stelco. Assuming the current forward curve for hot-rolled coil on the CME, level quarterly shipments at our anticipated product mix, and our current cost structure, we could generate Adjusted EBITDA in excess of $2 billion over the whole of 2021. Additionally, the alignment of management with our shareholders remains at the core of our approach and is unique within the North American steel industry. I am pleased that we are in a strong financial position and able to once again provide a quarterly dividend of $0.10 per share. Our strategy has been proven, and we will not deviate from our commitment to maintaining a strong balance sheet and positive cash position."

First Quarter 2021 Financial Review:

Compared to Q1 2020

Q1 2021 revenue increased $220 million, or 49%, from $445 million in Q1 2020, primarily due to a 36% increase in average steel selling prices, a 9% increase in steel shipping volumes and higher non-steel sales of $11 million. Our shipping volumes increased 54 thousand nt, from 621 thousand nt in Q1 2020 to 675 thousand nt in Q1 2021. The average selling price of our steel products increased from $705 per nt in Q1 2020 to $959 per nt in Q1 2021. Non-steel sales increased $11 million, from $7 million in Q1 2020 to $18 million during Q1 2021, mostly due to higher metallurgical coke, kish and scrap sales.

The Company realized operating income of $167 million for the quarter, compared to $7 million in Q1 2020, a change of $160 million consisting of an increase in revenue of $220 million, partly offset by an increase in cost of goods sold of $55 million and an increase in selling, general and administrative expenses of $5 million.

Finance costs increased by $33 million, from $33 million in Q1 2020, mostly due to the following: $53 million related to the remeasurement impact from our employee benefit commitment, partly offset by $21 million related to the period-over-period impact of foreign exchange translation on U.S. dollar denominated working capital.

The Company realized net income of $119 million for the quarter, compared to a net loss of $24 million in the first quarter of 2020, a change of $143 million primarily due to the following: $160 million increase in operating income and $35 million deferred tax recovery, partly offset by $33 million in higher finance costs, $21 million decrease in finance and other income mainly due to a loss on commodity-based swaps. Adjusted net income totaled $155 million in Q1 2021, a change of $181 million from an adjusted net loss of $26 million in Q1 2020.

Adjusted EBITDA in Q1 2021 totaled $185 million, an increase of $165 million from $20 million in Q1 2020, which reflects an increase in average steel selling prices, higher shipping volumes and higher non-steel sales during the period.

Compared to Q4 2020

Q1 2021 revenue increased $241 million, or 57%, from $424 million in Q4 2020, primarily due to a 186 thousand nt or 38% increase in steel shipping volumes, from 489 thousand nt in Q4 2020 to 675 thousand nt in Q1 2021 and 32% higher average selling prices, partly offset by a decrease in non-steel sales of $50 million.

The Company realized an operating income of $167 million in Q1 2021 compared to $39 million in Q4 2020, and an adjusted EBITDA of $185 million compared to $60 million during Q4 2020, which reflects an increase in shipping volumes and average selling prices.

Summary of Net Tons Shipped by Product:

(in thousands of nt)

Statement of Financial Position and Liquidity:

On a consolidated basis, Stelco Holdings ended Q1 2021 with cash of $47 million and $109 million of borrowing base available under the ABL revolver at March 31, 2021. The following table shows selected information regarding the Stelco Holdings' consolidated balance sheet as at the noted dates:

Stelco Holdings and its subsidiaries ended Q1 2021 with current assets of $729 million, which exceeded current liabilities of $628 million by $101 million. Non-current assets include the derivative asset representing the fair value of Stelco's option to purchase a 25% ownership interest in the Minntac mine. Stelco Holdings' liabilities include $552 million of obligations to independent pension and OPEB trusts, which includes $442 million of employee benefit commitments and $110 million under a mortgage note payable associated with the June 2018 land purchase. Non-current liabilities of $755 million as at March 31, 2021 include $516 million of obligations to independent pension and OPEB trusts. Stelco Holdings' consolidated equity totaled $391 million at March 31, 2021.

Completion of Strategic Capital Projects

On January 28, 2021, Stelco Holdings announced that its wholly-owned subsidiary, Stelco, successfully commissioned the new pig iron caster at its Lake Erie Works facility, which has the capability of casting up to one million tons of pig iron per year. The addition of the pig iron caster to Stelco's operations further supports the Company's tactical flexibility strategy and will allow the Company to fully capitalize on increased capacity resulting from the recently completed blast furnace upgrade project.

With the expansion of electric arc furnace ("EAF") production in North America, the demand for iron units is placing increased pressure on the existing supply of scrap steel, making pig iron an increasingly highly valued commodity in the production of EAF steel. Stelco's new pig iron caster enables it to access this market and enhances its complete suite of products ranging from pig iron, to semi-finished steel, to hot- rolled sheet, to high value-added cold-rolled and coated products, as well as advanced high strength steels. This optionality will allow the Company to maximize production and pursue markets that yield the highest rate of return for its stakeholders.

Declaration of Quarterly Dividend

Stelco's Board of Directors approved the payment of a regular quarterly dividend of $0.10 per share which will be paid on May 19, 2021, to shareholders of record as of the close of business on May 14, 2021.

The regular quarterly dividend has been designated as an "eligible dividend" for purposes of the Income Tax Act (Canada).

Quarterly Results Conference Call

Stelco management will host a conference call to discuss its results tomorrow, Wednesday, May 5, 2021, at 9:00 a.m. ET. To access the call, please dial 1 (888) 390-0546 or 1 (416) 764-8688 and reference "Stelco". The conference call will also be webcasted live on the Investor Relations section of Stelco's website at https://www.stelco.com/investors. A presentation that will accompany the conference call will also be available on the website prior to the conference call. Following the conclusion of the live call, a replay of the webcast will be available on the Investor Relations section of the Company's website for at least 90 days. A telephonic replay of the conference call will also be available from 12:00 p.m. ET on May 5, 2021 until 11:59 p.m. ET on May 19, 2021 by dialing 1 (888) 390-0541 or 1 (416) 764-8677 and using the PIN 074150#.

Consolidated Financial Statements and Management's Discussion and Analysis

The Company's unaudited interim consolidated financial statements for the three months ended March 31, 2021, and Management's Discussion & Analysis thereon are available under the Company's profile on SEDAR at www.sedar.com.

About Stelco

Stelco is a low cost, integrated and independent steelmaker with one of the newest and most technologically advanced integrated steelmaking facilities in North America. In addition to being North America's only integrated producer of pig iron, Stelco produces flat-rolled value-added steels, including premium-quality coated, cold-rolled and hot-rolled steel products.  With first-rate gauge, crown, and shape control, as well as reliable uniformity of mechanical properties, our steel products are supplied to customers in the construction, automotive and energy industries across Canada and the United States as well as to a variety of steel service centres, which are regional distributors of steel products. At Stelco, we understand the importance of our business reflecting the communities we serve and are committed to diversity and inclusion as a core part of our workplace culture, in part, through active participation in the BlackNorth Initiative.

Non-IFRS Measures

This news release refers to certain non-IFRS measures that are not recognized under International Financial Reporting Standards ("IFRS") and do not have a standardized meaning prescribed by IFRS. These measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of our results of operations from management's perspective. Accordingly, these measures should not be considered in isolation nor as a substitute for analysis of our financial information reported under IFRS. We use non-IFRS measures including "adjusted net income", "adjusted net income per share", ''adjusted EBITDA'', ''adjusted EBITDA per nt'', ''selling price per nt'', and ''shipping volume'' to provide supplemental measures of our operating performance and thus highlight trends in our core business that may not otherwise be apparent when relying solely on IFRS financial measures. We also believe that securities analysts, investors and other interested parties frequently use non-IFRS measures in the evaluation of issuers. Our management uses these non-IFRS financial measures to facilitate operating performance comparisons from period-to-period, to prepare annual operating budgets and forecasts, and drive performance through our management compensation program. For a reconciliation of these non-IFRS measures, refer to the Company's "Non-IFRS Measures Reconciliation" section below. For a definition of these non-IFRS measures, refer to the Company's MD&A for the period ended March 31, 2021 available under the Company's profile on SEDAR at www.sedar.com.

Forward-Looking Information

This release contains "forward-looking information" within the meaning of applicable securities laws. Forward-looking information may relate to our future outlook and anticipated events or results and may include information regarding our financial position, business strategy, growth strategy, acquisition, opportunities, budgets, operations, financial results, taxes, dividend policy, plans and objectives of our Company. Particularly, information regarding our expectations of future results, performance, achievements, prospects or opportunities is forward-looking information. In some cases, forward-looking information can be identified by the use of forward-looking terminology such as "plans", "targets", "expects" or "does not expect", "is expected", "an opportunity exists", "budget", "scheduled", "estimates", "outlook", "forecasts", "projection", "prospects", "strategy", "intends", "anticipates", "does not anticipate", "believes", or variations of such words and phrases or state that certain actions, events or results "may", "could", "would", "might", "will", "will be taken", "occur" or "be achieved". In addition, any statements that refer to expectations, intentions, projections or other characterizations of future events or circumstances may be forward looking statements. Forward-looking statements are not historical facts but instead represent management's expectations, estimates and projections regarding future events or circumstances. The forward-looking statements contained herein are presented for the purpose of assisting the holders of our securities and financial analysts in understanding our financial position and results of operations as at and for the periods ended on the dates presented, as well as our financial performance objectives, vision and strategic goals, and may not be appropriate for other purposes.

Forward-looking information in this news release includes: expectations that we will continue to fully realize the expected benefits of increased blast furnace production capacity realized to date; expectations that we will further advance our cost position through strategic investments at Lake Erie Works, including with respect to the ongoing coke battery upgrade and construction of an electricity cogeneration facility; expectations that our new pig iron caster will further enhance our tactical flexibility and allow us to re-shape the pig iron market in North America; expectations regarding the production capacity of the pig iron caster; expectations regarding the market demand and price for our products; expectations regarding Stelco's strategic prospects; expectations regarding future capital allocation and shareholder value; expectations that we will continue to operate the business as one of the lowest-cost integrated steel producers in North America; expectations regarding our ability to convert revenue into net income and free cash flow; expectations regarding our ability to maintain a strong balance sheet and a positive cash position; expectations regarding the production capability of the pig iron caster and our ability to capitalize on such capability by accessing the market for pig iron; and expectations that the pig iron caster will allow the Company to maximize production and pursue markets that yield the highest rate of return for stakeholders.

Undue reliance should not be placed on forward-looking information. The forward-looking information in this press release is based on our opinions, estimates and assumptions in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we currently believe are appropriate and reasonable in the circumstances. Despite a careful process to prepare and review the forward-looking information, there can be no assurance that the underlying opinions, estimates and assumptions will prove to be correct. Certain assumptions in respect of: our ability to complete new capital projects on schedule and within budget and their anticipated effect on revenue and costs; our ability to obtain all applicable regulatory approvals required in connection with new facilities; our ability to source necessary volumes of raw materials and other inputs at competitive prices; our facilities operating at design capacity; the market demand for iron units continuing to face increased pressure; our ability to supply to new customers and markets; our ability to effectively manage costs; our ability to attract and retain key personnel and skilled labour; our ability to obtain and maintain existing financing on acceptable terms; currency exchange and interest rates; the impact of competition; changes in laws, rule, and regulations, including international trade regulations; our ability to continue to access the U.S. market without any adverse trade restrictions; upgrades to existing facilities remaining on schedule and on budget and their anticipated effect on revenue and costs; and growth in steel markets and industry trends, as well as those set out in this press release, are material factors made in preparing the forward-looking information and management's expectations contained in this press release.

Key Assumptions Underlying Our Pig Iron Production Estimates

The estimated production volumes associated with the recently completed pig iron caster included in this press release are based on a number of assumptions in addition to the foregoing assumptions, including, but not limited to, the following material assumptions: facilities producing in accordance with design capacity, as applicable; recently experienced increases in the production volume from our LEW blast furnace remaining consistent on an annual basis; expectations that the market for steel does not experience a material adverse change; and expectations that our customers will continue to purchase material volumes of production.

Key Assumptions Underlying our Adjusted EBITDA Estimates

The Adjusted EBITDA estimate for the whole of 2021 included in this press release is based on a number of assumptions in addition to the foregoing assumptions, including, not limited to, the following material assumptions: the current forward curve for hot-rolled coil remaining relatively proximate to current pricing; our ability to maintain quarterly shipments through 2021 that are relatively consistent with the first quarter of 2021; the Company not experiencing a significant change to its current cost structure; interest rates remain at historical low levels and exchange rates remain stable; the Company's ability to continue to access the U.S. market without any adverse trade restrictions; no significant legal or regulatory developments, changes in economic conditions, or macro changes in the competitive environment affecting our business activities; upgrades to existing facilities remaining on schedule and on budget and their anticipated effect on revenue and costs; the Company's ability to attract new customers and further develop and maintain existing customers; the impact of competition; and growth in steel markets and industry trends.

We believe that our performance and our ability to achieve this estimate depends on a number of material factors including: (i) sustained demand; (ii) continued steel production capacity curtailments in China; (iii) continued fair trade practices, particularly with respect to the North American market; (iv) the COVID-19 pandemic not having an adverse impact on North American demand for our products or our ability to produce; (v) continued signs of a broad economic recovery, together with ongoing economic support from federal, provincial, and local governments in respect of the COVID-19 pandemic; and (vi) stable supply and demand fundamentals in the rest of the world. These factors are also subject to a number of inherent risks, challenges and assumptions.

Forward-looking information is subject to known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, level of activity, performance or achievements to be materially different from those expressed or implied by such forward-looking information, including: COVID-19; North American and global steel overcapacity; imports and trade remedies; competition from other producers, imports or alternative materials; and the availability and cost of inputs placing downward pressure on steel prices or increasing our costs; as well as those described in the Company's annual information form dated February 17, 2021 and the Company's MD&A for the period ended December 31, 2020 available under the Company's profile on SEDAR at www.sedar.com.

There can be no assurance that such information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. Accordingly, readers should not place undue reliance on forward looking information, which speaks only as of the date made. The forward-looking information contained in this press release represents our expectations as of the date of this news release and are subject to change after such date. Stelco Holdings disclaims any intention or obligation or undertaking to update publicly or revise any forward-looking statements, whether written or oral, whether as a result of new information, future events or otherwise, except as required by law.

Selected Financial Information

The following includes financial information prepared by management in accordance with IFRS. This financial information does not contain all disclosures required by IFRS, and accordingly should be read in conjunction with Stelco Holdings Inc.'s Consolidated Financial Statements and MD&A for the period ended  March 31, 2021, which are available on the Company's website and on SEDAR (www.sedar.com).

Non-IFRS Measures Results

The following table provide a reconciliation of net income (loss) to adjusted net income (loss) for the period indicated:

The following table provides a reconciliation of net income (loss) to adjusted EBITDA for the periods indicated:

SOURCE Stelco