Stelco Holdings Inc. Reports Second Consecutive Quarter of Record Results in Q2 2021 and Doubles Dividend

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

Stelco Holdings Inc. second quarter highlights include:

• Revenue of $918 million for the quarter, up 123% from Q2 2020
• Operating income of $393 million, representing a 43% margin for the quarter, up 2,356% from Q2 2020
• Adjusted EBITDA* of $410 million, representing a 45% margin for the quarter, up 1,106% from Q2 2020
• Adjusted Net Income* of $380 million, representing $4.28 per share, up 3,700% from Q2 2020
• Shipments* of 679,000 tons for the quarter, up 18% from Q2 2020
• Average selling price of $1,292 per net ton, up 85% from $700 per net ton in Q2 2020
• Declared increased quarterly dividend of $0.20 per share payable on August 31, 2021

HAMILTON, ON, Aug. 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 six months ended June 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)	Q2 2021	Q2 2020	Change		Q1 2021	Change		YTD 2021	YTD 2020	Change
Revenue ($)	918	411	123 %		665	38 %		1,583	856	85 %
Operating income ($)	393	16	2,356 %		167	135 %		560	23	2,335 %
Net income (loss) ($)	363	—	NM		119	205 %		482	(24)	NM
Adjusted net income (loss) ($) *	380	10	3,700 %		155	145 %		535	(16)	NM
Net income (loss) per common share (diluted) ($)	4.09	—	NM		1.34	205 %		5.43	(0.27)	NM
Adjusted net income (loss) per common share (diluted) ($) *	4.28	0.11	3,791 %		1.75	145 %		6.03	(0.18)	NM
Average selling price per nt ($) *	1,292	700	85 %		959	35 %		1,126	703	60 %
Shipping volume (in thousands of nt) *	679	576	18 %		675	1 %		1,354	1,197	13 %
Adjusted EBITDA ($) *	410	34	1,106 %		185	122 %		595	54	1,002 %
Adjusted EBITDA per nt ($) *	604	59	924 %		274	120 %		439	45	876 %

*	See "Non-IFRS measures" for a description of certain Non-IFRS measures used in this Press Release and "Non-IFRS Measures Reconciliation" below.
NM = Not Meaningful

"I am delighted to be announcing our second consecutive quarter of record results, as our strategy and capital investments have allowed Stelco to benefit from the tremendous opportunity in the steel market and create industry-leading profit margins," said Alan Kestenbaum, Executive Chairman and Chief Executive Officer. "With quarterly adjusted net income of $380 million and adjusted EBITDA of $410 million, we are delivering on the expectations we set at the end of the first quarter and continuing to build momentum and capitalize on the favourable pricing trends and low-cost position that we have created."

"Even with our record results, we remain focused on further improving our cost structure," said Kestenbaum. "We are continuing our work to upgrade our Lake Erie Works coke battery. Once this project is complete, we expect to benefit from increased levels of productivity and efficiencies which will reduce our coke production costs and provide our business with a further advantage over our competitors. Similarly, construction of the 65MW electricity cogeneration project is well underway and once commissioned in the second half of 2022, will reduce our electricity costs and further execute on our CO₂ reduction efforts."

Paul Scherzer, Chief Financial Officer, added, "Our continued focus on reducing costs and maximizing margins has contributed greatly to the success of our business through the first half of 2021. We have continued to demonstrate our ability to produce industry-leading margins and generate cash. In the quarter, we paid down in full the revolving portion of our asset-based loan, continued to use internally generated funds for the final stages of our major capital plan, which will wind down over the coming months, and ended the quarter with $247 million of available cash, a balance that continues to grow significantly and now stands at more than $400 million. In recognition of this continued success and our strong financial position, I am pleased to announce that we are doubling our quarterly dividend to $0.20 per share. The close alignment of management with our shareholders remains at the core of our approach, as does our commitment to maintaining a strong balance sheet and making the necessary investments to reduce our costs and improve our already significant competitive advantage."    

Second Quarter 2021 Financial Review:

Compared to Q2 2020

Q2 2021 revenue increased $507 million, or 123%, from $411 million in Q2 2020, primarily due to an 85% increase in average steel selling prices, an 18% increase in steel shipping volumes and higher non-steel sales of $33 million. Our shipping volumes increased 103 thousand nt, from 576 thousand nt in Q2 2020 to 679 thousand nt in Q2 2021. The average selling price of our steel products increased from $700 per nt in Q2 2020 to $1,292 per nt in Q2 2021. Non-steel sales increased $33 million, from $8 million in Q2 2020 to $41 million during Q2 2021, mostly due to higher metallurgical coke, iron ore pellet fines and kish sales.

The Company realized operating income of $393 million for the quarter, compared to $16 million in Q2 2020, a change of $377 million consisting of an increase in revenue of $507 million, partly offset by an increase in cost of goods sold of $131 million and a decrease in selling, general and administrative expenses of $1 million.

Finance costs increased by $25 million, from $12 million in Q2 2020, due to the following: $24 million related to the remeasurement impact from our employee benefit commitment and $1 million higher accretion expense in connection with the employee benefit commitment.

The Company realized net income of $363 million for the quarter, compared to nil in the second quarter of 2020, a change of $363 million primarily due to the following: $377 million increase in operating income and $10 million deferred tax recovery and a $4 million decrease in restructuring and other costs, partly offset by $25 million in higher finance costs and a $4 million decrease in finance and other income. Adjusted net income totaled $380 million in Q2 2021, a change of $370 million from adjusted net income of $10 million in Q2 2020.

Adjusted EBITDA in Q2 2021 totaled $410 million, an increase of $376 million from $34 million in Q2 2020, which reflects an increase in average steel selling prices, higher shipping volumes and higher non-steel sales during the period.

Compared to Q1 2021

Q2 2021 revenue increased $253 million, or 38%, from $665 million in Q1 2021, primarily due to 35% higher average selling prices, a 1% increase in steel shipping volumes, from 675 thousand nt in Q1 2021 to 679 thousand nt in Q2 2021 and an increase in non-steel sales of $23 million. 

The Company realized operating income of $393 million in Q2 2021 compared to $167 million in Q1 2021, and adjusted EBITDA of $410 million compared to $185 million during Q1 2021, which mostly reflects an increase in average selling prices and higher non-steel sales.

Summary of Net Tons Shipped by Product:

(in thousands of nt)

Tons Shipped by Product	Q2 2021		Q2 2020		Change		Q1 2021		Change		YTD 2021		YTD 2020		Change
Hot-rolled	490		423		16 %		467		5 %		957		870		10 %
Coated	142		109		30 %		140		1 %		282		221		28 %
Cold-rolled	9		15		(40)%		32		(72)%		41		50		(18)%
Other ^a	38		29		31 %		36		6 %		74		56		32 %
Total	679		576		18 %		675		1 %		1,354		1,197		13 %
Shipments by Product (%)
Hot-rolled	72 %		73 %				69 %				71 %		73 %
Coated	21 %		19 %				21 %				21 %		18 %
Cold-rolled	1 %		3 %				5 %				3 %		4 %
Other ^a	6 %		5 %				5 %				5 %		5 %
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 Q2 2021 with cash of $247 million and had $221 million of availability under the ABL revolver at June 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	June 30, 2021	December 31, 2020
ASSETS
Cash	247	59
Trade and other receivables	329	183
Inventories	420	509
Total current assets	1,013	791
Derivative asset	140	133
Property, plant and equipment, net	928	845
Deferred tax asset	45	—
Total non-current assets	1,123	988
Total assets	2,136	1,779
LIABILITIES
Trade and other payables	586	668
Derivative liabilities	—	84
Asset-based lending facility	15	15
Obligations to independent employee trusts	172	36
Total current liabilities	825	847
Asset-based lending facility	76	113
Obligations to independent employee trusts	400	462
Total non-current liabilities	566	651
Total liabilities	1,391	1,498
Total equity	745	281

Stelco Holdings and its subsidiaries ended Q2 2021 with current assets of $1.0 billion, which exceeded current liabilities of $825 million by $188 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 $572 million of obligations to independent pension and OPEB trusts, which includes $463 million of employee benefit commitments and $109 million under a mortgage note payable associated with the June 2018 land purchase. Non-current liabilities of $566 million as at June 30, 2021 include $400 million of obligations to independent pension and OPEB trusts. Stelco Holdings' consolidated equity totaled $745 million at June 30, 2021.

Declaration of Quarterly Dividend

Stelco's Holding's Board of Directors approved the payment of a regular quarterly dividend of $0.20 per share which will be paid on August 31, 2021, to shareholders of record as of the close of business on August 25, 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, August 11, 2021, at 9:00 a.m. ET. To access the call, please dial 1 [phone] or 1 [phone] and reference "Stelco". The conference call will also be webcasted live on the Investor Relations section of Stelco's web site 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 August 11, 2021 until 11:59 p.m. ET on August 26, 2021 by dialing 1 [phone] or 1 [phone] and using the PIN 235671#.

Consolidated Financial Statements and Management's Discussion and Analysis

The Company's unaudited interim consolidated financial statements for the three and six months ended June 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 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 June 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", "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 be able to successfully adapt to changing market conditions and succeed across all points of the market cycle by diversifying our product mix and modernizing our facilities with upgrade and modernizing projects, such as, the upgrade of our Lake Erie Works coke battery and the construction of our electricity co-generation plant; expectations that we will continue to operate the business as one of the lowest-cost integrated steel producers in North America and that our modernizing projects will further enhance our low-cost position; our advancement of strategic initiatives and our intention to continue making strategic investments in our business including with respect to next generation, high strength steels for the automotive market; expectations that we will sustainably achieve a lower cost operating structure, increased steelmaking capacity, and improved product quality as a result of the recently completed blast furnace reline and upgrade project; 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; expectations that we will be able to take advantage of the current pricing and demand environment witnessed during the first half of 2021; expectations that we will be able to capitalize on any opportunities that emerge; expectations that any increased production that we are able to maintain will enable us to produce a full suite of products in response to market demands; expectations that our current operations and financial position will afford us financial flexibility; expectations that we will be able to access the broader market for pig iron; and expectations that the market demand for pig iron will increase.

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 iron ore pellet supply agreement providing us with competitively priced iron ore pellets during the term of the agreement; 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.

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 June 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 June 30,				Six months ended June 30,
(millions of Canadian dollars)	2021		2020		2021		2020
Revenue from sale of goods	$	918	$	411	$	1,583	$	856
Cost of goods sold	514		383		998		812
Gross profit	404		28		585		44
Selling, general and administrative expenses	11		12		25		21
Operating income	393		16		560		23
Other income (loss) and (expenses)
Finance costs	(37)		(12)		(103)		(45)
Finance and other income (loss)	(2)		2		(19)		6
Other costs	(1)		(5)		(1)		(6)
Share of loss from joint ventures	—		(1)		—		(2)
Income (loss) before income taxes	353		—		437		(24)
Deferred tax recovery	10		—		45		—
Net income (loss)	$	363	$	—	$	482	$	(24)

Stelco Holdings Inc. Consolidated Balance Sheets (In millions of Canadian dollars) (unaudited)
As at	June 30, 2021		December 31, 2020
ASSETS
Current assets
Cash	$	247	$	59
Restricted cash	8		8
Trade and other receivables	329		183
Inventories	420		509
Prepaid expenses and deposits	9		32
Total current assets	$	1,013	$	791
Non-current assets
Derivative asset	140		133
Property, plant and equipment, net	928		845
Intangible assets	8		8
Investment in joint ventures	2		2
Deferred tax asset	45		—
Total non-current assets	$	1,123	$	988
Total assets	$	2,136	$	1,779
LIABILITIES
Current liabilities
Trade and other payables	$	586	$	668
Derivative liabilities	—		84
Other liabilities	52		44
Asset-based lending facility	15		15
Obligations to independent employee trusts	172		36
Total current liabilities	$	825	$	847
Non-current liabilities
Provisions	7		6
Pension benefits	12		11
Other liabilities	71		59
Asset-based lending facility	76		113
Obligations to independent employee trusts	400		462
Total non-current liabilities	$	566	$	651
Total liabilities	$	1,391	$	1,498
EQUITY
Common shares	512		512
Retained earnings (Accumulated deficit)	233		(231)
Total equity	$	745	$	281
Total liabilities and equity	$	2,136	$	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 June 30,				Six months ended June 30,
(millions of Canadian dollars)	2021		2020		2021		2020
Net income (loss)	$	363	$	—	$	482	$	(24)
Add back/(Deduct):
Remeasurement of employee benefit commitment ^1	24		—		76		(1)
Deferred tax recovery	(10)		—		(45)		—
Loss from commodity-based swaps	—		—		27		—
Loss (gain) on derivative asset	2		—		(7)		—
Other costs	1		5		1		6
Transaction-based and other corporate-related costs	—		2		1		3
Realized gain from commodity-based swaps	—		2		—		—
Other	—		1		—		—
Adjusted net income (loss)	$	380	$	10	$	535	$	(16)

^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 for the periods indicated:

	Three months ended June 30,					Six months ended June 30,
(millions of Canadian dollars, except where otherwise noted)	2021		2020			2021		2020
Net income (loss)	$	363	$	—		$	482	$	(24)
Add back/(Deduct):
Finance costs	37		12			103		45
Deferred tax recovery	(10)		—			(45)		—
Depreciation	17		12			33		25
Loss from commodity-based swaps	—		—			27		—
Loss (gain) on derivative asset	2		—			(7)		—
Transaction-based and other corporate-related costs	—		2			1		3
Other costs	1		5			1		6
Realized gain from commodity-based swaps	—		2			—		—
Finance income	—		—			—		(1)
Other	—		1			—		—
Adjusted EBITDA	$	410	$	34		$	595	$	54
Adjusted EBITDA as a percentage of total revenue	45 %				8%	38 %		6 %

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/