Stelco Holdings Inc. Announces Results of Stelco Inc. for Third Quarter 2017

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

(Note: All dollar figures herein are Canadian dollars, unless otherwise noted)

• Year-to-date revenue increased 16% to $1,149 million
• Year-to-date adjusted EBITDA increased 116% to $147 million¹

HAMILTON, ON, Nov. 13, 2017 /CNW/ - Stelco Holdings Inc. ("Stelco" 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 financial results of Stelco Inc. for the three and nine months ended September 30, 2017. Stelco Holdings Inc. is the 100% owner of the operating company, Stelco Inc.

Subsequent to the end of the third quarter, the Company completed an initial public offering ("IPO") of 13,529,750 common shares at a price of $17.00 per share for total gross proceeds of $230,005,750, which closed on November 10, 2017. The shares are listed for trading on the Toronto Stock Exchange under the symbol "STLC". The financial results presented in this news release reflect Stelco Inc. prior to its acquisition by the Company as part of the pre-closing transactions relating to the IPO.

"We are extremely pleased with the financial results for the third quarter and year-to-date, both consistent with management expectations.  A key performance driver was the blast furnace outage taken in the third quarter, which increased production levels to 29 heats per day from 21, or by 38%. The strong production performance has continued into the fourth quarter as well," said Alan Kestenbaum, Stelco Executive Chairman and Chief Executive Officer. "With its legacy issues addressed and a strong balance sheet, Stelco is poised to grow organically – via increased production, product innovation, the repatriation of former customers, and through disciplined acquisitions. If the right opportunities present themselves, we will be poised to act. I appreciate the support that investors gave the IPO and share their optimism for this iconic Company's future. We look forward to creating value to the benefit of our valued customers, employees and shareholders."

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¹ See "Non-IFRS Measures" below for a reconciliation of the foregoing non-IFRS measure to its most directly comparable measure calculated in accordance with IFRS.

Third Quarter 2017 Financial Highlights

• The planned blast furnace outage was successfully executed in the third quarter of 2017, resulting in a 38% increase in heats per day, a measure of production volume of liquid steel
• Revenue was $336 million, a decrease of $37 million, or 10% year-over-year from $373 million for the same period in 2016, largely as a result of the blast furnace outage
• Operating profit was $0, a decrease of $44 million year-over-year from $44 million for the same period in 2016
• Adjusted earnings before interest, income taxes, depreciation, and amortization ("EBITDA") (a non-IFRS measure) was $7 million, consistent with the midpoint of the range disclosed in the Company's final long-form supplemented PREP prospectus dated November 2, 2017 (the "Prospectus")

Year-to-date 2017 Financial Highlights

• Revenue for the nine months ended September 30, 2017 was $1,149 million, an increase of $159 million, or 16%, year-over-year from $990 million for the same period in 2016. Average selling price (a non-IFRS measure) for the nine months ended September 30, 2017 was $814 per net ton ("nt") versus $654 per nt for the same period in 2016²
• Operating profit was $61 million, an increase of $53 million, or 663%, year-over-year from $8 million for the same period in 2016
• Adjusted EBITDA was $147 million, an increase of $79 million, or 116%, year-over-year from $68 million for the same period in 2016

Summary Financial Table for Periods Ended September 30:

(in millions, except volume and per nt figures)

	3-Months Ended		9-Months Ended		Trailing 12- Months Ended^3
	2017	2016	2017	2016	2017
Revenue ($)	336	373	1,149	990	1,461
Operating profit ($)	-	44	61	8	44
Adjusted EBITDA ($)	7	65	147	68	167
Average selling price per nt ($)	818	749	814	654	779
Shipping volume (in thousands of nt)^2	411	498	1,411	1,513	1,875

________________________
² See "Non-IFRS Measures" below for a reconciliation of the foregoing non-IFRS measure to its most directly comparable measure calculated in accordance with IFRS.

³ The selected consolidated financial data for the trailing twelve months ended September 30, 2017 has been derived from our audited consolidated financial statements for the year ended December 31, 2016 and from our unaudited interim condensed consolidated financial statements for the three and nine months ended September 30, 2017 by adding the financial activity from the last three months of 2016 to the first nine months of 2017. The Company believes this period provides useful information about the performance of our operations.

Third Quarter 2017 Financial Results

Revenue in the third quarter of 2017 totaled approximately $336 million, a decrease of $37 million, or 10%, from revenue of $373 million in the third quarter of 2016. The year-over-year revenue decrease was largely due to lower shipping volumes, which decreased from 498 thousand nt in the third quarter of 2016 to 411 thousand nt in the third quarter of 2017, a 17% decrease. The volume decrease was largely due to the production impact of a planned blast furnace outage in the current quarter. The outage, which began on August 14 and was completed on September 9, resulted in a 38% increase in heats per day relative to heats per day experienced prior to the outage. Partially offsetting the shipping volume decline was an increase in average selling price year-over-year. Average selling price in the third quarter of 2017 was $818 per nt, a 9% increase from the $749 per nt average selling price in the third quarter of 2016. The increase in the selling price per nt was due to the improvement of the market price of steel.

Operating profit in the third quarter of 2017 was $0 million, a decrease of $44 million from operating profit of $44 million in the third quarter of 2016. Gross profit decreased by $39 million, or 76%, from $51 million in the third quarter of 2016 to $12 million in the third quarter of 2017 due to a combination of lower revenue, higher raw material costs, incremental outage costs, and lower cost absorption due to lower production levels.  Raw material costs increased year-over-year due to market price increases in materials such as metallurgical coal, scrap metal and iron ore.  The lost production due to the blast furnace outage in the current quarter resulted in an increase in unabsorbed manufacturing cost variances. Partially offsetting raw material price increases were year-over-year decreases in pension and other post-employment benefit ("OPEB") costs. Selling, general and administrative costs increased approximately $5 million year-over-year, from $7 million in the third quarter of 2016 to $12 million in the third quarter of 2017, due to higher administrative charges and repatriation of functions previously performed by the Company's prior owner.

Adjusted EBITDA in the third quarter of 2017 totaled $7 million, a decrease of $58 million from adjusted EBITDA of $65 million in the third quarter of 2016. The year-over-year change reflects the decrease in revenue, largely due to the current year's blast furnace outage, and increases in operating and selling, general and administrative expenses.

Year-to-date 2017

For the nine months ended September 30, 2017, revenue totaled $1,149 million, an increase of $159 million, or 16%, from revenue of $990 million in 2016, primarily due to the improved average selling price per nt. Average selling price per nt increased by $160 per nt, from $654 per nt in the nine months ended September 30, 2016, to $814 per nt in the nine months ended September 30, 2017. The increase in the selling price per nt was due to the improved market price of steel.

Operating profit for the nine months ended September 30, 2017, was $61 million, an increase of $53 million, or 663%, from operating profit of $8 million for the same period in 2016. Gross profit increased by $96 million, or 356%, from $27 million in the nine months ended September 30, 2016 to $123 million in the nine months ended September 30, 2017 due to increases in revenue, offset by an increase in cost of goods sold per nt. The higher cost of goods sold was attributed to an increase in raw material costs, unabsorbed manufacturing cost variances and incremental expenses incurred as a result of the blast furnace outage. Raw material costs increased year-over-year due to market price increases for material such as metallurgical coal and scrap metal, partially offset by decreased costs of iron ore year-over-year.  In addition, other manufacturing cost variances were higher by approximately 22%.

For the nine months ended September 30, 2017, adjusted EBITDA increased by $79 million, from $68 million in the nine months ended September 30, 2016 to $147 million, for the same period in 2017. The improvement was largely due to improved revenue due to market steel price increases, partially offset by higher raw material and unabsorbed manufacturing cost variances. Adjusted EBITDA included the following non-routine, non-recurring, and/or non-cash adjustments: gain related to emergence from Companies' Creditor Arrangement Act ("CCAA"), restructuring costs related to CCAA, provision on pension and other post-employment benefits, separation costs related to previous owner support services, and acquisition related costs. 

Quarterly Results Conference Calls

The Company intends to host quarterly results investor calls starting with its fourth quarter results. Timing of the fourth quarter results and conference call information will be provided closer to that time.

Consolidated Financial Statements and Management's Discussion and Analysis

The Company's (including both Stelco Holdings Inc. and Stelco Inc.) unaudited interim condensed consolidated financial statements for the three and nine months ended September 30, 2017, and MD&A 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. 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 services centres, which are regional distributers of steel products.

Non-IFRS Measures

This news release makes reference 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 ''EBITDA'', ''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.

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, 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 contain forward-looking information. Statements containing forward-looking information are not historical facts but instead represent management's expectations, estimates and projections regarding future events or circumstances.

The forward-looking information includes, among other things, statements relating to the continuation of the strong production performance into the fourth quarter, the Company's position to grow organically and the future actions relating thereto and the anticipation of creating value.

This forward-looking information and other forward-looking information are 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.  Such 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 those described in the MD&A and referred to under the heading "Risk Factors" in the Prospectus at www.sedar.com in respect of the Company's initial public offering that closed on November 10, 2017.

Stelco Inc. - Supplemental Financial Schedules

Interim condensed consolidated statements of profit or loss
(In millions of Canadian dollars) (unaudited)
	Three Months Ended		Nine Months Ended
	September 30, 2017	September 30, 2016	September 30, 2017	September 30, 2016
	$	$	$	$
Operations
Revenue from sale of goods	336	373	1,149	989
Commission income	—	—	—	1
Total revenue	336	373	1,149	990
Cost of goods sold	324	322	1,026	963
Gross profit	12	51	123	27
Selling, general and administrative expenses	12	7	62	19
Operating profit (loss)	—	44	61	8
Finance costs	12	54	133	136
Finance income	—	—	(1)	—
Share of loss of joint ventures	—	—	1	—
Restructuring costs	1	9	33	26
Gain on emergence from CCAA	—	—	(3,665)	—
Other income	—	(1)	(3)	(1)
Income (loss) before income taxes	(13)	(18)	3,563	(153)
Income tax expense	—	—	—	—
Income (loss) for the period	(13)	(18)	3,563	(153)

Interim condensed consolidated statements of comprehensive income (loss)
(In millions of Canadian dollars) (unaudited)
		Three Months Ended		Nine Months Ended
		September 30, 2017	September 30, 2016	September 30, 2017	September 30, 2016
		$	$	$	$
Income (loss) for the period		(13)	(18)	3,563	(153)
Other comprehensive loss – Items that will not subsequently be reclassified to profit or loss
	Remeasurement losses on pension benefit obligations	—	18	(53)	(251)
Other comprehensive income (loss) for the period, net of income taxes		—	18	(53)	(251)
Total comprehensive income (loss) for the period, net of income taxes		(13)	—	3,510	(404)

Interim condensed consolidated statements of financial position
(In millions of Canadian dollars) (unaudited)
	September 30, 2017	December 31, 2016
	$	$
Assets
Current
Cash and cash equivalents	22	188
Restricted cash	19	9
Trade and other receivables	117	237
Inventories	367	314
Prepaid expenses	17	47
Total current assets	542	795
Property, plant and equipment, net	303	378
Investment property	—	21
Investment in joint ventures	5	6
Total non-current assets	308	405
Total assets	850	1,200
Liabilities and equity (deficiency)
Current
Trade and other payables	168	457
Current portion of long-term debt	—	1,822
Other liabilities	23	1,172
Employee benefit commitment	41	—
Total current liabilities	232	3,451
Long-term debt	11	—
Provisions	5	5
Pension and other post-employment benefits	—	1,030
Other liabilities	31	1
Employee benefit commitment	278	—
Total non-current liabilities	325	1,036
Total liabilities	557	4,487
Equity (deficiency)
Common shares	2,325	2,325
Contributed surplus	500	430
Retained deficit	(2,532)	(6,042)
Total equity (deficiency)	293	(3,287)
Total liabilities and equity	850	1,200

Interim condensed consolidated statements of cash flows (In millions of Canadian dollars) (unaudited)
		Nine Months Ended
		September 30, 2017	September 30, 2016
		$	$
Operating activities
Income (loss) for the period		3,563	(153)
Adjustments to reconcile income (loss) to cash provided by (used in) operating activities:
	Depreciation	19	22
	Interest expense and foreign exchange	107	134
	Share of loss of joint ventures	1	—
	Provision on pension and other post-employment benefits	26	36
	Employee benefit commitment	(6)	—
	Payments to creditors under CCAA (note 13)	(237)	—
	Gain on emergence from CCAA (note 13)	(3,665)	—
Changes in non-cash working capital balances related to operations:
	Trade and other receivables	21	(2)
	Inventories	(53)	18
	Prepaid expenses	30	5
	Trade and other payables	84	12
	Other liabilities	5	(3)
		87	30
Cash provided by (used in) operating activities		(105)	69
Investing activities
Purchases of property, plant and equipment		(22)	(10)
Project costs		—	(2)
Restricted cash		(10)	1
Cash used in investing activities		(32)	(11)
Financing activities
Repayment of long-term debt		(193)	—
Proceeds of long-term debt		94	—
Proceeds from owner's contribution		70	—
Cash used in financing activities		(29)	—
Net (decrease) increase in cash and cash equivalents		(166)	58
Cash and cash equivalents, beginning of period		188	162
Cash and cash equivalents, end of period		22	220

Non-IFRS Measures Reconciliation

The following table provides a reconciliation of income (loss) for the period to adjusted EBITDA and certain other non-IFRS measures for the periods indicated:

(In $ millions, except volume and per nt)		Trailing 12 months ended September 30^6	Three months ended September 30,		Nine months ended September 30,
		2017	2017	2016	2017	2016
Income (loss) for the period		3,480	(13)	(18)	3,563	(153)
Depreciation		26	4	8	19	22
Finance costs		194	12	54	133	136
Finance income		(2)	-	-	(1)	-
EBITDA		3,698	3	44	3,714	5
Adjustments to EBITDA:
	Gains related to emergence from CCAA^1	(3,665)	-	-	(3,665)	-
	Acquisition related costs^2	18	-	-	18	-
	Provision on pension and other post-employment benefits^3	49	2	12	26	37
	Restructuring costs^4	43	1	9	33	26
	Separation costs related to previous owner support services^5	24	1	-	21	-
Adjusted EBITDA		167	7	65	147	68
Adjusted EBITDA as a percentage of total revenue		11%	2%	17%	13%	7%
Selling Price per nt (in dollars per nt)		779	818	749	814	654
Adjusted EBITDA per nt (in dollars per nt)		89	17	131	104	45
Shipping Volume (in thousands of nt)		1,875	411	498	1,411	1,513
	Hot-rolled	1,320	299	366	998	1,124
	Cold-rolled	51	12	4	43	6
	Coated	407	78	105	302	307
	Other	96	22	23	68	76

1.	Represents the gain from the implementation of the CCAA plan on June 30, 2017.  Refer to note 13 of the unaudited interim condensed consolidated financial statements of Stelco Inc. for the three and nine months ended September 30, 2017.
2.	Acquisition costs related to the purchase of Stelco Inc. by Bedrock.
3.	Represents difference between total cash funding obligation for pensions and OPEBs and amount already reflected in EBITDA.
4.	Restructuring expenses relates to the CCAA proceedings, which primarily included legal fees, financial advisor fees, court-appointed monitor fees, interim financing fees and other related restructuring expenses. The Company implemented its CCAA plan on June 30, 2017.
5.	Relates to previous owner support service expenses incurred while the Company is in the process of separating from the previous owner and enhancing its own support functions.
6.	The reconciliation of EBITDA and Adjusted EBITDA and certain other non-IFRS measures for the trailing 12 months ended September 30, 2017 has been derived from our audited consolidated financial statements for the year ended December 31, 2016 and from our unaudited interim condensed consolidated financial statements for the three and nine months ended September 30, 2017 by adding the financial activity from the last three months of 2016 to the first nine months of 2017. The Company believes this period provides useful information about the performance of our operations.

SOURCE Stelco

For investor enquiries: Don Newman, Chief Financial Officer, 905.528.2511, [email protected]; For media enquiries: Trevor Harris, Vice-President, Corporate Affairs, 905.577.4447, [email protected]

Related Links

http://www.stelco.ca