Stelco Holdings Inc. Reports Third Quarter 2019 Results

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

Stelco Holdings Inc. third quarter 2019 highlights include:

• Q3 2019 revenue of $475 million
• Q3 2019 operating income of $9 million
• Q3 2019 adjusted EBITDA* of $23 million and adjusted EBITDA per ton* of $35
• Q3 2019 steel shipping volumes* of 654 thousand net tons
• Company declares a regular quarterly dividend of $0.10 per share payable on November 29, 2019 to shareholders of record as of the close of business on November 25, 2019
• Stelco to expand its product mix by adding pig iron production and shipments in 2020

HAMILTON, ON, Nov. 13, 2019 /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 months ended September 30, 2019. Stelco Holdings is the 100% owner of Stelco Inc. ("Stelco"), the operating company.

Stelco Holdings Inc. Highlights:

Selected Financial Information:

(in millions except volume, per share and nt figures)	Q3 2019		Q3 2018		Change		Q2 2019		Change		YTD 2019		YTD 2018		Change
Revenue ($)	475		619		(23)%		431		10%		1,423		1,812		(21)%
Operating income ($)	9		138		(93)%		3		200%		56		358		(84)%
Net income ($)	—		125		NM		1		(100)%		44		143		(69)%
Adjusted net income (loss) ($)*	(11)		174		(106)%		6		(283)%		55		389		(86)%
Net income per common share (diluted) ($)	—		1.41		NM		0.01		(100)%		0.50		1.61		(69)%
Adjusted net income (loss) per common share (diluted) ($)*	(0.12)		1.96		(106)%		0.07		(271)%		0.62		4.38		(86)%
Average selling price per nt ($)*	704		980		(28)%		761		(7)%		763		880		(13)%
Shipping volume* (in thousands of nt)	654		586		12%		545		20%		1,811		1,947		(7)%
Adjusted EBITDA ($)*	23		193		(88)%		32		(28)%		131		447		(71)%
Adjusted EBITDA per nt ($)*	35		330		(89)%		59		(41)%		72		230		(69)%

*	See "Non-IFRS measures" for a description of certain Non-IFRS measures used in this Press Release and "Non-IFRS Measures Reconciliation" below. Per net ton figures are now presented for steel shipments only and prior period per net ton metrics have been restated.

"I am pleased to report that we were able to increase our shipments by 20%, quarter-over-quarter, including a 31% increase in our sales of cold-rolled and coated sheet products," said David Cheney, Stelco Holdings' Chief Executive Officer. "This is validation from our customers that our capital investment to install state-of-the-art batch annealing and tempering capabilities was what the market demanded.  We expect to grow our cold-rolled and coated shipments, including galvanized, to further  diversify our product mix and increase sales of value-added products.  Looking forward, demand from our customers remains strong and we affirm our expectation to ship approximately 1.3 million tons over the second half of the year."

"At the end of Q2, we said that we would achieve run-rate cost savings of $25-$50 million by the end Q2 2020.  We have so far achieved approximately $23 million in run-rate cost reductions.  These savings are permanent and exclude favorable changes in raw material prices.  Additionally, we expect achieve up to $20 million in annual savings as a result of early employee retirement initiatives we recently implemented" continued Cheney.

"I am excited to announce yet another organic growth investment with the installation of a new pig iron making facility to be constructed at our Lake Erie Works facility.  We currently plan to complete the construction of the new facility to coincide with our blast furnace reline scheduled for Q2 of 2020, and to be in a position to commence pig iron shipments the following quarter.  We have executed a letter of intent for the sale of a meaningful portion of the first two years' output.  This investment will further amplify our tactical flexibility by providing the capability to produce more than one-million tons of pig iron annually. 

"We ended the third quarter in a strong liquidity position with $349 million of cash and an undrawn ABL revolver. In November, we added liquidity with a $100 million ABL term loan.  Adding low-cost, incremental liquidity like this term loan, which is pre-payable at any time without penalty, enables Stelco to continue to efficiently invest in our assets and grow our business, both organically and by exploring accretive M&A opportunities as they arise.

"With respect to creating value from the Hamilton lands, we continue to lease existing surplus buildings which now brings us to approximately 28% leased, up from 21% at the end of the last quarter. Demand for the remaining buildings is very strong and we expect the pace of leasing to continue to accelerate.  Our property has also served as an attractive location for content creators in the film and television industry and as such, we have generated revenue for utilizing our property as a location for content creation. We expect this revenue source to grow, and importantly, to attract land developers who see Hamilton, and our land in particular, as a prime location for development of content to satisfy industry wide shortages of quality studio space, among other uses.  While Stelco will always focus on its core business of producing steel, it is exciting to be able to monetize our non-core assets and create value for our shareholders with this exceptional and unique piece of real estate.

"Our Board has approved another regular dividend of $0.10 per share, marking the eighth consecutive quarter that Stelco has declared such a dividend - a result we are exceptionally proud of.  We believe our continued focus on our customers, product diversification and growth, combined with continued efforts to lower our costs and improve our overall financial position will allow us to maintain our leading role in the industry. Our willingness to invest and challenge ourselves to innovate, will place Stelco in a position of strength as we operate through the balance of the year and into 2020," concluded Cheney.

Third Quarter 2019 Financial Review:

Compared to Q3 2018

Q3 2019 revenue decreased $144 million, or 23%, from $619 million in Q3 2018 to $475 million in Q3 2019, primarily due to a 28% decrease in average selling price for steel and a $31 million decrease in non-steel sales, partly offset by a 12% increase in steel shipping volumes. The average selling price of our steel products decreased from $980/nt in Q3 2018 to $704/nt in Q3 2019, due largely to decreases in market prices for flat steel products. Shipping volumes increased 68 thousand nt, from 586 thousand nt in Q3 2018 to 654 thousand nt in Q3 2019 reflecting strong demand in Q3 2019 and to lower sales in Q3 2018, due in part to an extended hot strip mill outage in the prior year quarter.

Operating income decreased by $129 million, or 93%, from $138 million in Q3 2018, mainly due to lower revenue of $144 million, partly offset by lower cost of sales of $11 million and selling, general and administrative expenses of $4 million during Q3 2019. Cost of sales includes raw material and conversion costs, depreciation and freight associated with inventory sold during the period.

Finance costs decreased by $3 million, or 25%, from $12 million in Q3 2018, due to a $9 million increase in  favorable remeasurement recoveries and $2 million lower accretion expense associated with our employee benefit commitment obligation, partly offset by $4 million related to the period-over-period gross impact of foreign exchange translation on U.S. dollar denominated working capital and $2 million increase in interest on loans and borrowings.

Net income for the quarter of nil decreased by $125 million, or 100%, from $125 million in Q3 2018, primarily due to lower gross profit of $133 million, $2 million decrease in finance and other income, partly offset by lower selling, general and administrative expenses of $4 million, $3 million in lower finance costs and $2 million decrease in restructuring costs. Adjusted net income decreased $185 million year-over-year, from $174 million in Q3 2018 to an adjusted net loss of $11 million in Q3 2019.

Adjusted EBITDA in Q3 2019 totaled $23 million, a decrease of $170 million from adjusted EBITDA of $193 million in Q3 2018, which reflects the decrease in revenue from lower market steel prices, higher freight costs, as well as lower non-steel sales, partly offset by higher steel shipping volumes.

Compared to Q2 2019

Revenue increased 10%, from $431 million in Q2 2019 to $475 million in Q3 2019, which reflects a 20% increase in steel shipping volumes, from 545 thousand nt in Q2 2019 to 654 thousand nt in Q3 2019, partly offset by a 7% decrease in average selling price, from $761/nt in Q2 2019 to $704/nt in Q3 2019 and lower non-steel sales. Operating income increased to $9 million in Q3 2019, from $3 million in Q2 2019. Adjusted EBITDA decreased to $23 million, down 28% from Q2 2019 adjusted EBITDA of $32 million, primarily due to lower average selling prices, higher freight costs and lower non-steel sales, partly offset by higher steel shipping volumes realized.

Summary of Net Tons Shipped by Product:
(in thousands of nt)

Tons Shipped by Product	Q3 2019		Q3 2018		Change		Q2 2019		Change		YTD 2019		YTD 2018		Change
Hot-rolled	425		446		(5)%		375		13%		1,317		1,527		(14)%
Coated	87		82		6%		67		30%		220		259		(15)%
Cold-rolled	26		19		37%		19		37%		49		67		(27)%
Other ^1	116		39		197%		84		38%		225		94		139%
Total	654		586		12%		545		20%		1,811		1,947		(7)%
Shipments by Product (%)
Hot-rolled	65%		76%				69%				73%		78%
Coated	13%		14%				12%				12%		13%
Cold-rolled	4%		3%				3%				3%		4%
Other ^1	18%		7%				16%				12%		5%
Total	100%		100%				100%				100%		100%

¹ Includes other steel products: slabs and non-prime steel inventory.

Statement of Financial Position and Liquidity:

On a consolidated basis, Stelco Holdings ended Q3 2019 with cash and cash equivalents of $349 million and $115 million of capacity under ABL revolver, which remained completely undrawn at September 30, 2019. 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, 2019		December 31, 2018
ASSETS
Cash and cash equivalents	349		438
Trade and other receivables	136		252
Inventories	508		468
Total current assets	1,018		1,194
Total assets	1,665		1,655
LIABILITIES
Trade and other payables	544		436
Total current liabilities	653		579
Total non-current liabilities	527		508
Total liabilities	1,180		1,087
Total equity	485		568

Stelco Holdings and its subsidiaries ended Q3 2019 with current assets of $1.0 billion, which exceeded current liabilities of $653 million by $365 million. Stelco Holdings' liabilities include $542 million of obligations to independent pension and OPEB trusts, which includes $430 million of employee benefit commitments and $112 million under a mortgage note payable associated with the June 2018 land purchase. Long term liabilities of $527 million as at September 30, 2019, include $471 million of obligations to independent pension and OPEB trusts. Stelco Holdings' consolidated equity totaled $485 million at September 30, 2019.

Asset-Based Lending Facility (ABL) Amendment

Effective November 4, 2019, Stelco Inc. amended its ABL agreement. Amendments to the arrangement include, but are not limited to the following: i) addition of a $100 million non-revolver term loan with a maturity date of August 16, 2023, secured by certain machinery and equipment wholly-owned by the company, ii) term loan interest rate of either: a) Canadian prime rate plus 1.25% -1.75%, or b) CDOR/LIBOR plus a margin of 2.25% - 2.75%, and iii) the requirement that Stelco Inc. maintain minimum excess availability under the ABL at least $50 million through December 31, 2020, and $75 million thereafter while the term loan is outstanding. The ABL's maximum borrowing capacity remains at $375 million (subject to available eligible accounts receivable, inventory, machinery and equipment), less the outstanding principal of the $100 million non-revolver term loan. The other terms of the ABL agreement have remained substantially similar to the original agreement.

Declaration of Quarterly Dividend

Stelco's Board of Directors approved the payment of a regular quarterly dividend of $0.10 per share will be paid on November 29, 2019, to shareholders of record as of the close of business on November 25, 2019.

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 14, 2019, at 9:00 a.m. ET. To access the call, please dial 1 (888) 390 - 0605 or 1 (416) 764 - 8609 and reference "Stelco". 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 14, 2019 until 11:59 p.m. ET on November 28, 2019 by dialing 1- 888 390 0541 or 1- 416 764 8677 and using the pin number 178532#.

Consolidated Financial Statements and Management's Discussion and Analysis

The Company's unaudited interim condensed consolidated financial statements for the period ended September 30, 2019, 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 distributers 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 September 30, 2019 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, 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 our advancement of strategic initiatives, expectations in respect of shipment volumes being more closely aligned with historical customer demands resulting in anticipated shipments of approximately 1.3 million tons during the second half of 2019, expectations that the Company's willingness to invest and innovate will allow the Company to succeed; expectations regarding potential mergers and acquisition opportunities and the Company's belief that the $100 million ABL term loan may allow the Company to efficiently invest in any such opportunities, expectations regarding annualized cost reductions including anticipated run-rate cost savings of up to $20 million through the implementation of the early employee retirement initiative, statements with respect to the construction of a pig iron facility at the Company's Lake Erie Works facility, expectations regarding the construction schedule and capital cost of the pig iron facility and anticipated production and shipment timing and volumes that may be realized upon completion of project, expectations that the Company will be able to sell a meaningful portion of anticipated output from our pig iron facility to a third party customer in keeping with an executed letter of intent, our belief that demand for our remaining buildings is very strong and our expectation that the pace of leasing will continue to accelerate, expectations that our real estate development initiatives will create a growing source of revenue and will attract land developers to our real property, expectations regarding the future growth of our cold-rolled and coated shipments, including galvanized, and expectations regarding the ongoing diversification of our product mix with respect to value-added products, and the Company's belief that exceptional market opportunities to grow our business inorganically at attractive acquisition costs will emerge. 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 source raw materials and other inputs; 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.

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: 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 15, 2019 and the Company's MD&A for the period ended June 30, 2019 available under the Company's profile on SEDAR at www.sedar.com.

Key Assumptions Underlying Our Shipping Volume Estimates

The estimates with respect to our future shipping volumes included in this press release are based on a number of assumptions, including, but not limited to, the following material assumptions: our ability to continue to access the U.S. market without any adverse trade restrictions; consistent demand for steel in North America; no significant additional legal or regulatory developments, no material failure to any of our operations, no changes in economic conditions, or macro changes in the competitive environment affecting our business activities; upgrades to existing facilities and the construction of new facilities remaining on schedule and within budget and their anticipated effect on revenue and costs being fully realized; our 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 note that: (i) potential further changes to trade regulations in the United States; (ii) a failure by Canada or the U.S. to ratify the Canada-U.S.-Mexico-Agreement on North American trade; and/or (iii) the outcome of trade deliberations between the U.S. and China could materially alter underlying assumptions around anticipated shipping volumes and the steel market, generally.

Key Assumptions Underlying Our Cost Reduction Estimates

The estimates with respect to anticipated results from our ongoing cost reduction initiatives included in this press release are based on a number of assumptions, including, but not limited to, the following material assumptions: the successful execution of our cost reduction strategy by management; anticipated run-rate cost savings resulting from the early employee retirement initiative being fully realized; cost savings initiatives being implemented in a manner that does not adversely affect our ability to operate safely and sustainably and without impacting our ability to ship products to customers as required; no unforeseen additional costs being incurred by us in connection with implementing such cost savings items; there being no change in governmental or industry regulations, including environmental regulations, trade matters, taxes or other regulatory initiatives that could result in increased costs on a net ton basis; the existing costs incurred by us in connection with the production and manufacture of steel products that are not targeted for cost-reduction remaining flat; anticipated growth and maintenance capital expenditures not increasing; no material failure occurring with respect to any of our planned or existing production facilities; the willingness of our suppliers and/or customers to accept price reductions or price increases, as applicable; upgrades to existing facilities and construction of new facilities remaining on schedule and within budget and their anticipated effect on revenue and costs being fully realized; our ability to successfully reduce our reliance on contractors in a sustainable manner; our ability to successfully improve production yields; our ability to enhance utilization of secondary materials; our ability to maintain positive employee and labour relations; favourable currency exchange and interest rates; and growth in steel markets and industry trends.

Key Assumptions Underlying the Pig Iron Facility Project

The estimated budget, schedule and production volumes with respect to the planned construction of our pig iron facility at Lake Erie Works referenced in this press release are based on a number of assumptions, including, but not limited to, the following material assumptions: our ability to enter into definitive agreements with third party contractors and suppliers with respect to the construction of the new facility on terms acceptable to the Company; expectations that third party contractors and suppliers will deliver and construct in accordance with agreed upon budgets and schedules; our ability to obtain any applicable regulatory approvals required to construct a pig iron facility at our Lake Erie Works facility; expectations that, upon completion, the pig iron facility will produce in accordance with its design capacity; expectations that the market for pig iron does not experience a material adverse change between now and Q3 2020 when shipments are expected to begin; expectations that a third party customer, with whom we have entered into a letter of intent to sell a material portion of the pig iron facility's production, will remain committed to the letter of intent; the planned blast furnace reline proceeding on schedule and, upon completion, performing in such a manner so as to provide the pig iron facility with sufficient molten metal to meet the pig iron facility's production capacity; and expectations that we will fully realize current and future production levels at our Lake Erie Works facility.

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, 2019, which is available on the Company's website and on SEDAR (www.sedar.com).

Stelco Holdings Inc.
Consolidated statements of income
(unaudited)

	Three months ended September 30,				Nine months ended September 30,
(millions of Canadian dollars)	2019		2018		2019		2018
Revenue from sale of goods	$	475	$	619	$	1,423	$	1,812
Cost of goods sold	457		468		1,332		1,414
Gross profit	18		151		91		398
Selling, general and administrative expenses	9		13		35		40
Operating income	9		138		56		358
Other income (loss) and (expenses)
Finance costs	(9)		(12)		(15)		(198)
Finance and other income (loss)	1		3		6		(7)
Restructuring and other costs	(1)		(3)		(1)		(8)
Share of loss from joint ventures	—		(1)		(2)		(2)
Income before income taxes	—		125		44		143
Income tax expense	—		—		—		—
Net income	$	—	$	125	$	44	$	143

Stelco Holdings Inc.
Consolidated balance sheets
(unaudited)

(millions of Canadian dollars)
As at	September 30, 2019		December 31, 2018
ASSETS
Current assets
Cash and cash equivalents	$	349	$	438
Restricted cash	15		8
Trade and other receivables	136		252
Inventories	508		468
Prepaid expenses	10		28
Total current assets	$	1,018	$	1,194
Non-current assets
Property, plant and equipment, net	636		448
Intangible assets	7		7
Investment in joint ventures	4		6
Total non-current assets	$	647	$	461
Total assets	$	1,665	$	1,655
LIABILITIES
Current liabilities
Trade and other payables	$	544	$	436
Other liabilities	38		40
Obligations to independent employee trusts	71		103
Total current liabilities	$	653	$	579
Non-current liabilities
Provisions	5		5
Pension benefits	5		2
Other liabilities	46		13
Obligations to independent employee trusts	471		488
Total non-current liabilities	$	527	$	508
Total liabilities	$	1,180	$	1,087
EQUITY
Common shares	512		512
Treasury shares	—		(1)
Retained earnings (deficit)	(27)		57
Total equity	$	485	$	568
Total liabilities and equity	$	1,665	$	1,655

Non-IFRS Measures Results

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

	Three months ended September 30,				Nine months ended September 30,
(millions of Canadian dollars)	2019		2018		2019		2018
Net income	$	—	$	125	$	44	$	143
Add back/(Deduct):
Remeasurement of employee benefit commitment ^1	(11)		(2)		(27)		159
Tariff related costs (recovery) ^2	(1)		39		19		50
Separation costs related to USS support services ^3	2		5		9		15
Restructuring and other costs ^4	2		3		4		8
Property related idle costs included in cost of goods sold ^5	1		3		3		3
Carbon tax expense (recovery) ^6	(2)		—		1		—
Share-based compensation (recovery) ^7	(2)		—		1		—
Batch annealing facility startup related costs ^8	—		—		1		—
Loss from commodity-based swaps	—		—		—		10
Secondary offering cost	—		1		—		1
Adjusted net income (loss)	$	(11)	$	174	$	55	$	389

1	Remeasurement of employee benefit commitment for change in the timing of estimated cash flows and future funding requirements.
2	Includes tariff and tariff related costs associated with U.S. bound steel shipments. In connection with the US administration announcing effective May 19, 2019, the elimination of all tariffs imposed under Section 232 on imports of aluminum and steel products from Canada, the Company has modified the definition of Adjusted Net Income and Adjusted Net Income per common share to include tariff and tariff related costs as a non-recurring item adjustment from earnings. The prior periods have been restated to reflect the change in presentation. Refer to 'Non-IFRS Performance Measures' section in the MD&A for further details.
3	Includes ERP implementation costs associated with the process of separating from USS, management fees and shared services arrangement costs.
4	Restructuring and other costs includes certain non-routine items that include, but are not limited to, building demolition costs, professional fees and travel related expenses. For 2018, restructuring costs include legal fees and other costs connected to Stelco's emergence from CCAA proceedings.
5	Includes utility costs incurred by Stelco for non-operating and idled assets acquired from the Land Vehicle on June 5, 2018.
6	Represents a non-cash carbon tax provision for the period, connected to Stelco's estimated requirements under the Greenhouse Gas Pollution Pricing Act (Federal Backstop) for industrial facilities with greenhouse gas emissions. Actual cash payments related to the carbon taxes, if any, are not expected to occur until the year 2020 at the earliest.
7	Share-based compensation consists of costs connected with share options awarded to certain members of the Company's executive senior leadership team during the period.
8	Represents incremental employee training and other costs connected with Stelco's new batch annealing facility that was completed during Q2 2019 and commenced operations during June 2019. Refer to 'Results of Operations' section of the MD&A for further details.

The following table provides a reconciliation of net income to adjusted EBITDA periods indicated:

	Three months ended September 30,				Nine months ended September 30,
(millions of Canadian dollars, except where otherwise noted)	2019		2018		2019		2018
Net income	$	—	$	125	$	44	$	143
Add back/(Deduct):
Finance income	(1)		(3)		(4)		(3)
Depreciation	15		8		38		22
Tariff related costs (recovery) ^1	(1)		39		19		50
Finance costs	9		12		15		198
Separation costs related to USS support services ^2	2		5		9		15
Restructuring and other costs ^3	2		3		4		8
Property related idle costs included in cost of goods sold ^4	1		3		3		3
Share-based compensation (recovery) ^5	(2)		—		1		—
Carbon tax expense (recovery) ^6	(2)		—		1		—
Batch annealing facility startup related costs ^7	—		—		1		—
Loss from commodity-based swaps	—		—		—		10
Secondary offering cost	—		1		—		1
Adjusted EBITDA	$	23	$	193	$	131	$	447
Adjusted EBITDA as a percentage of total revenue	5%		31%		9%		25%

1	Includes tariff and tariff related costs associated with U.S. bound steel shipments. In connection with the US administration announcing effective May 19, 2019, the elimination of all tariffs imposed under Section 232 on imports of aluminum and steel products from Canada, we have modified the definition of Adjusted EBTIDA and Adjusted EBITDA per nt to include tariff and tariff related costs as a non-recurring item adjustment from earnings. The prior periods have been restated to reflect the change in presentation. Refer to 'Non-IFRS Performance Measures' section in the MD&A for further details.
2	Includes ERP implementation costs associated with the process of separating from USS, management fees and shared services arrangement costs.
3	Restructuring and other costs includes certain non-routine items that include, but are not limited to, building demolition costs, professional fees and travel related expenses. For 2018, restructuring costs include legal fees and other costs connected to Stelco's emergence from CCAA proceedings.
4	Includes utility costs incurred by Stelco for non-operating and idled assets acquired from the Land Vehicle on June 5, 2018.
5	Share-based compensation consists of costs connected with share options awarded to certain members of the Company's executive senior leadership team during the period.
6	Represents a non-cash carbon tax provision for the period, connected to Stelco's estimated requirements under the Greenhouse Gas Pollution Pricing Act (Federal Backstop) for industrial facilities with greenhouse gas emissions. Actual cash payments related to the carbon taxes, if any, are not expected to occur until the year 2020 at the earliest.
7	Represents incremental employee training and other costs connected with Stelco's new batch annealing facility that was completed during Q2 2019 and commenced operations during June 2019. Refer to 'Results of Operations' section of the MD&A for further details.

SOURCE Stelco

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

Related Links

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