Stelco Holdings Inc. Reports Record Revenue and Earnings in Q3 2021 and Raises Dividend by 50%

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

Stelco Holdings Inc. third quarter highlights include:

• Revenue of $1,354 million for the quarter, up 47% from Q2 2021
• Operating income of $770 million for the quarter, representing a 57% margin for the quarter
• Adjusted EBITDA* of $787 million for the quarter, representing a 58% Adjusted EBITDA* margin, up 92% from Q2 2021
• Adjusted Net Income* of $629 million and Adjusted Net Income* per share¹ of $7.60
• Shipping Volume* of 710,000 tons for the quarter up 5% from Q2 2021
• Record cash generation resulting in $410 million cash balance at the end of Q3 while returning a record $413 million to shareholders during the quarter
• Average Selling Price* per net ton of $1,808, up 40% from Q2 2021
• Declared quarterly dividend of $0.30 per share, up 50%, payable on November 30, 2021

HAMILTON, ON, Nov. 10, 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 financial results of the Company for the three and nine months ended September 30, 2021. Stelco Holdings is the 100% owner of Stelco Inc. ("Stelco"), the operating company.

Selected Financial Information:

(in millions Canadian dollars, except volume, per share and nt figures)	Q3 2021		Q3 2020		Change		Q2 2021		Change		YTD 2021		YTD 2020		Change
Revenue ($)	1,354		237		471	%	918		47	%	2,937		1,093		169	%
Operating income (loss) ($)	770		(69)		NM		393		96	%	1,330		(46)		NM
Net income (loss) ($)	614		(88)		NM		363		69	%	1,096		(112)		NM
Adjusted Net Income (Loss) ($) *	629		(81)		NM		383		64	%	1,184		(97)		NM
Net income (loss) per common share (diluted) ($) ^1	7.42		(0.99)		NM		4.09		81	%	12.64		(1.26)		NM
Adjusted Net Income (Loss) per common share (diluted) ($) * ^1	7.60		(0.91)		NM		4.32		76	%	13.65		(1.09)		NM
Average Selling Price per nt ($) *	1,808		683		165	%	1,292		40	%	1,360		698		95	%
Shipping Volume (in thousands of nt) *	710		334		113	%	679		5	%	2,064		1,531		35	%
Adjusted EBITDA (Loss) ($) *	787		(39)		NM		410		92	%	1,382		15		9,113	%
Adjusted EBITDA (Loss) per nt ($) *	1,108		(117)		NM		604		83	%	670		10		6,600	%

*	See "Non-IFRS measures" for a description of certain Non-IFRS measures used in this Press Release and "Non-IFRS Measures Reconciliation" below.
^1	Based on weighted average of number of shares outstanding during Q3 2021 of 82,766 thousand, which is higher than the September 30, 2021 shares outstanding of 77,315 thousand, due to the repurchase and cancellation of 11,398 thousand shares in August 2021.
NM = Not Meaningful

"I am thrilled to today announce the best quarterly results in Stelco's history. Once again, our business has demonstrated our ability to take full advantage of strong market conditions and deliver record results for our shareholders," said Alan Kestenbaum, Executive Chairman and Chief Executive Officer. "In the third quarter we realized exceptional value from our strategic capital investments and maintained our industry leading low-cost position while at the same time demonstrating the benefits of our tactical flexibility model to achieve very favorable pricing. As a result, we were able to record $787 million of Adjusted EBITDA – almost double our record results from the previous quarter – and grow our already industry-leading Adjusted EBITDA margin¹ to 58%."

"Stelco's record results continued to be fueled by management's consistent focus on reducing costs through strategic investments and a top-down focus to keep revenue flowing through to the bottom line," said Kestenbaum. "By year end, we expect to substantially complete the upgrade of our Lake Erie Works coke battery which will further improve our cost position, and we anticipate further gains through reduced electricity costs and lower CO2 emissions upon the completion of our carbon-reducing 65MW electricity cogeneration project in the first half of 2022. With rising electricity costs around the world increasingly impacting everyone and especially our electricity dependent competitors, we expect to receive even more significant benefits than originally planned from this asset both on a real and relative basis."

"Additionally, in keeping with our continued focus on returning cash to shareholders we are increasing our dividend by 50%," continued Kestenbaum. "This represents an approximately 3% yield and will bring the total returned to shareholders this year up to $454 million."

Paul Scherzer, Chief Financial Officer, added, "The commitment of the entire Stelco team to maintaining a low-cost structure, as evidenced by our industry-leading profit margins, has been at the core of our success and has allowed the business to capitalize on favourable pricing and strong demand in recent months. We expect these conditions to continue through the fourth quarter of 2021 and expect our shipments will remain consistent with what we delivered on a quarterly basis in the first half of the year."

"We have experienced tremendous growth and improvement from where our business was a year ago due in large part to our successful project to introduce North America's first smart blast furnace and the resulting gains in our productivity," continued Scherzer. "During the third quarter we were able to continue funding the remaining components of our strategic capital plan with internally generated funds and completed the quarter with a cash balance of $410 million, which has continued to grow. Our management team remains closely aligned with the interests of our shareholders and we will continue to explore opportunities to generate accretive value while staying true to our core principles and deepening our competitive advantage."

_____________________________

1  Represents Adjusted EBITDA for the quarter divided by total revenue for the quarter.

Third Quarter 2021 Financial Review:

Compared to Q3 2020

Q3 2021 revenue increased $1,117 million, or 471%, from $237 million in Q3 2020, primarily due to a 165% increase in Average Selling Price per net ton, a 113% increase in Shipping Volumes and higher non-steel sales of $61 million. The Average Selling Price per net ton of our steel products increased from $683 per nt in Q3 2020 to $1,808 per nt in Q3 2021. Our Shipping Volumes increased 376 thousand nt to 710 thousand nt from 334 thousand nt in Q3 2020, which was impacted by the Company's blast furnace upgrade project resulting in lower steel inventory available for sale during Q3 2020. Non-steel sales increased $61 million, from $9 million in Q3 2020 to $70 million during Q3 2021.

The Company realized operating income of $770 million for the quarter, compared to an operating loss of $69 million in Q3 2020, a change of $839 million consisting of an increase in revenue of $1,117 million, partly offset by an increase in cost of goods sold of $274 million and higher selling, general and administrative expenses of $4 million.

Finance costs increased by $10 million, from $16 million in Q3 2020, due to the following: $3 million related to the remeasurement impact from our employee benefit commitment and $5 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 $614 million for the quarter, compared to a net loss of $88 million in the third quarter of 2020, a change of $702 million primarily due to the following: $839 million increase in operating income and $11 million deferred tax recovery, partly offset by $125 million current tax expense, $10 million in higher finance costs, $9 million increase in finance and other loss, and $3 million increase in other costs. Adjusted Net Income totaled $629 million in Q3 2021, a change of $710 million from an Adjusted Net Loss of $81 million in Q3 2020.

Adjusted EBITDA in Q3 2021 totaled $787 million, an increase of $826 million from an Adjusted EBITDA Loss of $39 million in Q3 2020, which reflects an increase in Average Selling Price per net ton, higher Shipping Volumes and higher non-steel sales during the period.

Compared to Q2 2021

Q3 2021 revenue increased $436 million, or 47%, from $918 million in Q2 2021, primarily due to 40% higher Average Selling Price per net ton, a 5% increase in Shipping Volumes, from 679 thousand nt in Q2 2021 to 710 thousand nt in Q3 2021, and an increase in non-steel sales of $29 million.

The Company realized an operating income of $770 million in Q3 2021 compared to $393 million in Q2 2021, and an Adjusted EBITDA of $787 million, up 92% compared to $410 million during Q2 2021, which mostly reflects an increase in Average Selling Price per net ton and Shipping Volumes, and higher non-steel sales.

Summary of Net Tons Shipped by Product:

(in thousands of nt)

Tons Shipped by Product	Q3 2021		Q3 2020		Change		Q2 2021		Change		YTD 2021		YTD 2020		Change
Hot-rolled	542		211		157	%	490		11	%	1,499		1,081		39	%
Coated	123		76		62	%	142		(13)	%	405		297		36	%
Cold-rolled	11		16		(31)	%	9		22	%	52		66		(21)	%
Other ^a	34		31		10	%	38		(11)	%	108		87		24	%
Total	710		334		113	%	679		5	%	2,064		1,531		35	%
Shipments by Product (%)
Hot-rolled	76	%	63	%			72	%			73	%	71	%
Coated	17	%	23	%			21	%			20	%	19	%
Cold-rolled	2	%	5	%			1	%			2	%	4	%
Other ^a	5	%	9	%			6	%			5	%	6	%
Total	100	%	100	%			100	%			100	%	100	%

^a	Includes other steel products: pig iron, slabs and non-prime steel sales.

Statement of Financial Position and Liquidity:

On a consolidated basis, Stelco Holdings ended Q3 2021 with cash of $410 million and $224 million of availability under its revolving credit facility at September 30, 2021. The following table shows selected information regarding the Stelco Holdings' consolidated balance sheet as at the noted dates:

(millions of Canadian dollars)
As at	September 30, 2021		December 31, 2020
ASSETS
Cash	410		59
Trade and other receivables	534		183
Inventories	487		509
Total current assets	1,456		791
Derivative asset	127		133
Property, plant and equipment, net	969		845
Deferred tax asset	56		—
Total non-current assets	1,162		988
Total assets	2,618		1,779
LIABILITIES
Trade and other payables	740		668
Derivative liabilities	—		84
Asset-based lending facility	15		15
Income taxes payable	125		—
Obligations to independent employee trusts	221		36
Total current liabilities	1,152		847
Asset-based lending facility	72		113
Obligations to independent employee trusts	358		462
Total non-current liabilities	521		651
Total liabilities	1,673		1,498
Total equity	945		281

Stelco Holdings and its subsidiaries ended Q3 2021 with current assets of $1.5 billion, which exceeded current liabilities of $1.2 billion by $304 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 $579 million of obligations to independent pension and OPEB trusts, which includes $470 million of employee benefit commitments and $109 million under a mortgage note payable associated with the June 2018 land purchase. Non-current liabilities of $521 million as at September 30, 2021 include $358 million of obligations to independent pension and OPEB trusts. Stelco Holdings' consolidated equity totaled $945 million at September 30, 2021.

Declaration of Quarterly Dividend

Stelco's Board of Directors approved the payment of a regular quarterly dividend of $0.30 per share which will be paid on November 30, 2021, to shareholders of record as of the close of business on November 24, 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, Thursday, November 11, 2021, at 9:00 a.m. ET. To access the call, please dial 1 [phone] or 1 [phone] and use access code 460732. The conference call will also be webcasted live on the Investor Relations section of Stelco's web site at https://investors.stelco.com. 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 November 11, 2021 until 11:59 p.m. ET on November 25, 2021 by dialing 1 [phone] or 1 [phone] and using the access code 086064.

Consolidated Financial Statements and Management's Discussion and Analysis

The Company's unaudited consolidated financial statements for the three and nine months ended September 30, 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. 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 distributors of steel products.

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 common share (diluted)", ''Adjusted EBITDA'', ''Adjusted EBITDA per nt'', "Adjusted EBITDA margin", ''Average 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, 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 September 30, 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" or "does not anticipate", "believes", or variations of such words and phrases or statements 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 operate the business as one of the lowest-cost integrated steel producers in North America; expectations regarding the timing and benefits associated with our LEW coke battery upgrade project; and expectations that the construction of the cogeneration facility at our Lake Erie Works will be completed on schedule and that the facility will further reduce our costs, increase our energy reliability and improve our environmental footprint.

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 effects 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 effects 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 SHIPPING VOLUME ESTIMATES FOR THE FORTH QUARTER OF 2021

The estimates with respect to our Shipping Volumes during the fourth quarter of 2021 referenced herein are based on a number of assumptions in addition to the foregoing assumptions, including, but not limited to, the following material assumptions: 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 effects on revenue and costs; the Company's ability to attract new customers and further develop and maintain existing customers; currency exchange and interest rates; the impact of competition; and growth in steel markets and industry trends.

We believe that our performance and our ability to achieve these shipments during the fourth quarter of 2021 depend on a number of material factors including: (i) sustained global demand growth; (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; (v) continued signs of a broad economic recovery, together with ongoing economic support from federal, provincial, and local governments in respect of the recovery from 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.

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 September 30, 2021, which is available on the Company's website and on SEDAR (www.sedar.com).

Stelco Holdings Inc.
Consolidated Statements of Income (Loss)
(unaudited)

	Three months ended September 30,						Nine months ended September 30,
(millions of Canadian dollars)	2021			2020			2021			2020
Revenue from sale of goods	$	1,354		$	237		$	2,937		$	1,093
Cost of goods sold	571			297			1,569			1,109
Gross profit (loss)	783			(60)			1,368			(16)
Selling, general and administrative expenses	13			9			38			30
Operating income (loss)	770			(69)			1,330			(46)
Other income (loss) and (expenses)
Finance costs	(26)			(16)			(129)			(61)
Finance and other income (loss)	(13)			(4)			(32)			2
Other costs	(3)			—			(4)			(6)
Share of income (loss) from joint ventures	—			1			—			(1)
Income (loss) before income taxes	728			(88)			1,165			(112)
Current income tax expense	(125)			—			(125)			—
Deferred income tax recovery	11			—			56			—
Net income (loss)	$	614		$	(88)		$	1,096		$	(112)

Stelco Holdings Inc. Consolidated Balance Sheets (millions of Canadian dollars) (unaudited)
As at	September 30, 2021			December 31, 2020
ASSETS
Current assets
Cash	$	410		$	59
Restricted cash		10			8
Trade and other receivables		534			183
Inventories		487			509
Prepaid expenses and deposits		15			32
Total current assets	$	1,456		$	791
Non-current assets
Derivative asset		127			133
Property, plant and equipment, net		969			845
Intangible assets		8			8
Investment in joint ventures		2			2
Deferred tax asset		56			—
Total non-current assets	$	1,162		$	988
Total assets	$	2,618		$	1,779
LIABILITIES
Current liabilities
Trade and other payables	$	740		$	668
Derivative liabilities		—			84
Other liabilities		51			44
Asset-based lending facility		15			15
Income taxes payable		125			—
Obligations to independent employee trusts		221			36
Total current liabilities	$	1,152		$	847
Non-current liabilities
Provisions		7			6
Pension benefits		13			11
Other liabilities		71			59
Asset-based lending facility		72			113
Obligations to independent employee trusts		358			462
Total non-current liabilities	$	521		$	651
Total liabilities	$	1,673		$	1,498
EQUITY
Common shares		446			512
Retained earnings (Accumulated deficit)		499			(231)
Total equity	$	945		$	281
Total liabilities and equity	$	2,618		$	1,779

Non-IFRS Measures Results

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

	Three months ended September 30,								Nine months ended September 30,
(millions of Canadian dollars)	2021					2020			2021			2020
Net income (loss)	$			614		$	(88)		$	1,096		$	(112)
Add back/(Deduct) following items:
Remeasurement of employee benefit commitment ^1				3			—			79			(1)
Loss from commodity-based swaps				—			4			27			4
Loss on derivative asset				13			—			6			—
Other costs				3			—			4			6
Transaction-based and other corporate-related costs				—			1			1			4
Other				—			2			—			2
Total adjusted items before tax				19			7			117			15
Tax impact of above items				(4)			—			(29)			—
Total adjusted items after tax				15			7			88			15
Adjusted Net Income (Loss)	$			629		$	(81)		$	1,184		$	(97)

^1	Remeasurement of employee benefit commitment for change in the timing of estimated cash flows and future funding requirements.

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

(millions of Canadian dollars, except where otherwise noted)	Three months ended September 30,					Nine months ended September 30,
	2021			2020		2021			2020
Net income (loss)	$	614		$	(88)	$	1,096		$	(112)
Add back/(Deduct) following items:
Finance costs	26			16		129			61
Income tax expense (recovery):
Current	125			—		125			—
Deferred	(11)			—		(56)			—
Depreciation	17			27		50			52
Loss from commodity-based swaps	—			4		27			4
Loss on derivative asset	13			—		6			—
Other costs	3			—		4			6
Transaction-based and other corporate-related costs	—			1		1			4
Finance income	—			(1)		—			(2)
Other	—			2		—			2
Adjusted EBITDA (Loss)	$	787		$	(39)	$	1,382		$	15
Adjusted EBITDA as a percentage of total revenue	58		%	NM		47		%	1		%

SOURCE Stelco

For investor enquiries: Paul D. Scherzer, Chief Financial Officer, [phone], [email protected]; For media enquiries: Trevor Harris, Vice-President, Corporate Affairs, [phone], [email protected]

Related Links

https://www.stelco.com/