/NOT FOR DISTRIBUTION TO U.S. NEWSWIRE
SERVICES OR FOR DISSEMINATION IN THE
UNITED STATES/
Stelco Holdings Inc. second quarter 2019 highlights
include:
- Q2 2019 revenue of $431
million
- Q2 2019 operating income of $3
million
- Q2 2019 adjusted EBITDA* of $32
million and adjusted EBITDA per net ton* of $59
- Q2 2019 steel shipping volumes* of 545 thousand net
tons
- Company declares a regular quarterly dividend of
$0.10 per share payable on
August 30, 2019 to shareholders of
record as of the close of business on August
23, 2019
- Balance sheet continues to strengthen, with total liquidity
of $515 million** at the end of Q2
2019, and current cash balance of $455
million** in August
2019
HAMILTON, ON, Aug. 13, 2019 /CNW/ - Stelco Holdings Inc.
("Stelco Holdings" or the "Company"), (TSX: STLC), a
low cost, integrated and independent steelmaker with one of the
newest and most technologically advanced integrated steelmaking
facilities in North America, today
announced financial results of the Company for the three months
ended June 30, 2019. Stelco Holdings
is the 100% owner of Stelco Inc. ("Stelco"), the operating
company.
Selected Financial Information:
|
|
|
|
|
|
|
|
|
(in millions except
volume, per share and nt figures)
|
Q2
2019
|
Q2 2018
|
Change
|
Q1 2019
|
Change
|
YTD
2019
|
YTD
2018
|
Change
|
Revenue
($)
|
431
|
711
|
(39)%
|
517
|
(17)%
|
948
|
1,193
|
(21)%
|
Operating income
($)
|
3
|
162
|
(98)%
|
44
|
(93)%
|
47
|
220
|
(79)%
|
Net income (loss)
($)
|
1
|
(11)
|
NM
|
43
|
(98)%
|
44
|
18
|
144%
|
Adjusted net income
($)*
|
6
|
165
|
(96)%
|
60
|
(90)%
|
66
|
215
|
(69)%
|
|
|
|
|
|
|
|
|
|
Net income (loss) per
common share
(diluted) ($)
|
0.01
|
(0.12)
|
NM
|
0.48
|
(98)%
|
0.50
|
0.20
|
150%
|
Adjusted net income
per common share
(diluted) ($)*
|
0.07
|
1.86
|
(96)%
|
0.68
|
(90)%
|
0.74
|
2.42
|
(69)%
|
|
|
|
|
|
|
|
|
|
Average selling price
per nt ($)*
|
761
|
898
|
(15)%
|
827
|
(8)%
|
796
|
837
|
(5)%
|
Shipping volume* (in
thousands of nt)
|
545
|
748
|
(27)%
|
612
|
(11)%
|
1,157
|
1,361
|
(15)%
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
($)*
|
32
|
185
|
(83)%
|
76
|
(58)%
|
108
|
254
|
(57)%
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA per
nt ($)*
|
59
|
247
|
(76)%
|
124
|
(52)%
|
93
|
187
|
(50)%
|
*
|
During Q2 2019, with
the repeal of tariffs on US bound sales of steel, we have amended
the definitions of Adjusted Net Income and Adjusted EBTIDA to
remove tariff related costs, and have restated the prior periods to
reflect this change in presentation. See "Non-IFRS measures" for a
description of certain Non-IFRS measures used in this Press Release
and "Non-IFRS Measures Reconciliation" below.
|
**
|
June 30, 2019, total
liquidity of $515 million includes $277 million of cash and $238
million of capacity under Stelco's ABL revolver. Current cash
position of $455 million represents cash in the Company's bank
accounts at the close of business on August 12, 2019 (US dollar
balances translated to Canadian dollars at an exchange rate of
1.3234).
|
"I am very proud of our organization and our results this
quarter. We faced a number of strong headwinds, including:
destocking, falling market prices and continued 232 tariffs, that
impacted us throughout the quarter," said David Cheney, Stelco Holdings' Chief Executive
Officer. "Despite these headwinds, we lowered our cost per ton, we
remained profitable, and we generated positive cash flow. Further,
as the quarter concluded many of the previously mentioned headwinds
ceased and were replaced with tailwinds: customer demand is strong,
reflected in a robust order book and extended lead times; steel
prices have rallied; 232 tariffs have been eliminated; and we are
aggressively pursuing further cost reductions. Looking
forward, starting with the third quarter, we expect volumes should
be more closely aligned with our historical customer demand, and we
are targeting a further annualized $25-50 million of cost reductions in the second
half of the year."
"In June 2019, Stelco accomplished
two important goals that it committed to since our IPO less than
two years ago. First, we completed the construction of a
state-of-the-art batch annealing facility and commenced shipments
of fully processed, annealed, cold-rolled steel sheet during the
period. The restart of a modernized and upgraded temper mill, along
with installation of new annealing furnaces, will allow Stelco to
add a full range of up to 200,000 net tons of fully processed
cold-rolled steel to its product mix. With completion of this
project, Stelco will now be able to increase service to markets
that demand these high-quality products such as, the automotive,
appliance, and service centre markets, as well as the pre-painted
steel market for architectural applications. These products have
historically realized higher prices than the full-hard cold-rolled
products that we continue to offer, and represent a continued
expansion of product capabilities to enhance tactical flexibility
and meet the needs of our customers. Second, we announced a
strategic partnership with DTE Energy to advance our co-generation
power plant project at Lake Erie.
We expect this project will require a relatively limited capital
investment by Stelco and, upon completion, we expect to save at
least $20 million annually through
lower power costs.
"We also continue to return value to our shareholders as our
Board has approved the regular quarterly dividend of $0.10 per share. We ended the quarter with no
financial debt, $277 million in cash,
and $515 million in total liquidity.
Since the end of the quarter, our current cash has grown to
$455 million. Overall, we are
optimistic for the future as Stelco is extremely well positioned to
deliver attractive organic and inorganic growth," continued
Cheney.
"On the land, we executed a lease on a 125,000 square foot
building with a net present value in excess of $20 million, with one of our key customers. We
continue to be actively engaged with potential tenants for
additional unused buildings at attractive market rents. Activity in
the Greater Toronto and
Hamilton Area (GTHA) remains
robust and we will continue to build shareholder value as we
extract value from this important asset.
"In closing, we have continued to build our liquidity and cash
in anticipation of exceptional emerging market opportunities to
grow our business inorganically at attractive acquisition costs. We
are excited to be in a uniquely strong position to execute on this
aspect of our business plan, and to deliver excellent returns to
our shareholders," concluded Cheney.
Second Quarter 2019 Financial Review:
Compared to Q2 2018
Q2 2019 revenue decreased $280
million, or 39%, from $711
million in Q2 2018, primarily due a 27% decrease in steel
shipping volumes,15% decrease in average steel selling prices, and
lower non-steel sales of $23 million. Shipping volumes
decreased 203 thousand nt, from 748 thousand nt in Q2 2018 to 545
thousand nt in Q2 2019. The average selling price of our steel
products decreased from $898/nt in Q2 2018 to
$761/nt in Q2 2019.
Operating income decreased by $159
million, or 98%, from $162
million in Q2 2018, mainly due to lower revenue of
$280 million, partly offset by lower
cost of sales of $118 million and
selling, general and administrative expenses of $3 million during Q2 2019. Cost of sales includes
raw material and conversion costs, depreciation, freight and
tariffs associated with inventory sold during the period.
Finance costs decreased by $167
million, or 98%, from $170
million in Q2 2018, due to a $166
million gross remeasurement recovery on 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, partly offset by
$3 million increase in interest on loans and borrowings and
$1 million higher accretion expense
associated with our employee benefit commitment obligation.
During the second quarter of 2018, Stelco incurred a
remeasurement charge of $157 million
in connection with an amended other post-employment benefit funding
agreement that reduced Stelco's exposure to future variable funding
requirements and provided the independent employee life and health
trusts established as part of Stelco Companies' Creditors
Arrangement Act (CCAA) reorganization, with an increased fixed
funding commitment over a 25-year term.
Net income for the quarter was $1
million, an improvement from a net loss of $11 million in the second quarter of 2018, which
benefited from $167 million lower
finance costs, $2 million gross
increase in finance and other income, $2
million less restructuring costs and lower selling,
general and administrative expenses of $3 million, partly
offset by lower gross profit of $162
million. Adjusted net income1 decreased
$159 million year-over-year, from
$165 million in Q2 2018 to an
adjusted net income of $6 million in
Q2 2019.
Adjusted EBITDA in Q2 2019 totaled $32
million, a decrease of $153
million from adjusted EBITDA of $185 million in Q2
2018, which reflects the decrease in revenue from lower market
average price of steel and shipping volumes as well as less
non-steel sales, partly offset by lower cost of sales.
Compared to Q1 2019
Revenue decreased 17%, from $517
million in Q1 2019 to $431
million in Q2 2019, which reflects an 11% decrease in steel
shipping volumes, from 612 thousand nt in Q1 2019 to 545 thousand
nt in Q2 2019 and an 8% decrease in average selling price, from
$827/nt in Q1 2019 to $761/nt in Q2 2019, partly offset by higher
non-steel sales. Operating income decreased to $3 million in Q2 2019, down 93% from Q1 2019
operating income of $44 million.
Adjusted EBITDA decreased to $32
million, down 58% from Q1 2019 adjusted EBITDA of
$76 million, primarily due to lower average selling prices and
shipping volumes realized, partially offset by lower cost of sales
and higher non-steel sales.
Summary of Net Tons Shipped by Product:
(in thousands of nt)
|
|
|
|
|
|
|
|
|
Tons Shipped
by
Product
|
Q2
2019
|
Q2 2018
|
Change
|
Q1 2019
|
Change
|
YTD
2019
|
YTD 2018
|
Change
|
Hot-rolled
|
375
|
590
|
(36)%
|
517
|
(27)%
|
892
|
1,081
|
(17)%
|
Coated
|
67
|
93
|
(28)%
|
66
|
2%
|
133
|
177
|
(25)%
|
Cold-rolled
|
19
|
33
|
(42)%
|
4
|
375%
|
23
|
48
|
(52)%
|
Other
1
|
84
|
32
|
163%
|
25
|
236%
|
109
|
55
|
98%
|
Total
|
545
|
748
|
(27)%
|
612
|
(11)%
|
1,157
|
1,361
|
(15)%
|
|
|
|
|
|
|
|
|
|
Shipments by
Product (%)
|
|
|
|
|
|
|
|
|
Hot-rolled
|
69%
|
79%
|
|
84%
|
|
77%
|
79%
|
|
Coated
|
12%
|
12%
|
|
11%
|
|
11%
|
13%
|
|
Cold-rolled
|
4%
|
5%
|
|
1%
|
|
2%
|
4%
|
|
Other
1
|
15%
|
4%
|
|
4%
|
|
10%
|
4%
|
|
Total
|
100%
|
100%
|
|
100%
|
|
100%
|
100%
|
|
1
|
Includes other steel
products: slabs, painted steel products and non-prime steel
inventory.
|
Statement of Financial Position and Liquidity:
On a consolidated basis, Stelco Holdings ended Q2 2019 with cash
and cash equivalents of $277 million and $238 million of capacity under ABL revolver which
remains completely undrawn. 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,
2019
|
December 31,
2018
|
ASSETS
|
|
|
Cash and cash
equivalents
|
277
|
438
|
Trade and other
receivables
|
170
|
252
|
Inventories
|
466
|
468
|
Total current
assets
|
933
|
1,194
|
Total
assets
|
1,513
|
1,655
|
|
|
|
LIABILITIES
|
|
|
Trade and other
payables
|
401
|
436
|
Total current
liabilities
|
521
|
579
|
Total non-current
liabilities
|
498
|
508
|
Total
liabilities
|
1,019
|
1,087
|
|
|
|
Total
equity
|
494
|
568
|
Stelco Holdings and its subsidiaries ended Q2 2019 with current
assets of $933 million, which exceeded current liabilities of
$521 million by $412 million. Stelco Holdings'
liabilities include $552 million of obligations to independent
pension and OPEB trusts, which includes $439 million of
employee benefit commitments and $113 million under a mortgage
note payable associated with the June
2018 land purchase. Long term liabilities of
$498 million as at June 30, 2019 include
$470 million of obligations to independent pension and OPEB
trusts. Stelco Holdings' consolidated equity totaled
$494 million as at June 30, 2019.
Receivables Purchase Agreement (RPA)
During June 2019, Stelco entered
into a Receivables Purchase Agreement (RPA) with a Schedule II bank
(the Purchaser), enabling Stelco Inc. from time to time, to sell
certain customers' trade receivables to the Purchaser on a
non-recourse, uncommitted revolving basis. Under the terms of the
RPA, the aggregate maximum purchase limit under this arrangement is
$108 million and requires that Stelco
continue to administer and process in the collection of receivables
and remit those collections to the Purchaser. Stelco has
derecognized the trade receivables sold under the RPA from the
Consolidated Balance Sheet as substantially all of the risks and
rewards have been transferred to the Purchaser.
Acquisition of Land and Buildings
On May 8, 2019, Stelco completed
the acquisition of certain land parcels and buildings (collectively
the Remaining Lands) adjacent to Stelco's Hamilton Works operation
for total cash consideration of $21
million, which includes $0.5
million in transaction costs. The acquisition of the
Remaining Lands completes the Company's repurchase of all Hamilton
Works lands which were previously sold to Legacy Lands Limited
Partnership prior to Stelco emergence from the Companies' Creditors
Arrangement Act (CCAA) reorganization on June 30, 2017.
The Company continues to receive the benefit of the
environmental release in respect of the Hamilton Works
lands that was granted by the Ministry of the Environment,
Conservation and Parks on closing of the CCAA reorganization.
Declaration of Quarterly Dividend
Stelco Holding's Board of Directors approved the payment of
a regular quarterly dividend of $0.10
per share, which will be paid on August
30, 2019, to shareholders of record as of the close of
business on August 23, 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, Wednesday, August 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://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
14, 2019 until 11:59 p.m. ET
on August 28, 2019 by dialing 1- 888
390 0541 or 1- 416 764 8677 and using the pin number
299077#.
Consolidated Financial Statements and Management's Discussion
and Analysis
The Company's unaudited interim condensed consolidated financial
statements for the period ended June 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 June 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.
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; the Company's ability to continue to access the U.S.
market without any adverse trade restrictions; no significant
additional legal or regulatory developments, changes in economic
conditions, or macro changes in the competitive environment
affecting our business activities; upgrades to existing facilities
remaining on schedule and on budget and their anticipated effect on
revenue and costs; the Company's ability to attract new customers
and further develop and maintain existing customers; 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
the Company's cost reduction strategy by management; cost savings
initiatives will be implemented in a manner that does not adversely
affect the Company's ability to operate safely and sustainably and
without impacting the Company's ability to ship products to
customers as required; no unforeseen additional costs will be
incurred by the Company in connection with implementing such cost
savings items; there will be no change in governmental or industry
regulations, including environmental regulations, trade matters,
taxes or other regulatory initiatives that would result in
increased costs on a net ton basis; the existing costs incurred by
the Company in connection with the production and manufacture of
steel products that are not targeted for cost-reduction will remain
flat; the Company's anticipated growth and maintenance capital
expenditures will not increase; the ability of the Company's
suppliers and/or customers to accept price reductions or price
increases, as applicable; upgrades to existing facilities remaining
on schedule and on budget and their anticipated effect on revenue
and costs; the Company's ability to reduce its reliance on
contractors in a sustainable manner; improving production yields;
enhancing utilization of secondary materials; maintaining positive
employee and labour relations; currency exchange and interest
rates; and growth in steel markets and industry trends.
Key Assumptions Underlying the Cogeneration Plant Project
The estimated annual cost savings resulting from the potential
construction of a cogeneration power plant to serve our
Lake Erie facility referenced in
this press release are based on a number of assumptions, including,
but not limited to, the following material assumptions: the
Company's ability to enter into a definitive agreement with DTE to
engineer, procure and design a cogeneration power plant at our
Lake Erie facility on terms
acceptable to the Company; the Company's ability to obtain the
applicable regulatory approvals required to develop a cogeneration
facility at our Lake Erie
facility; the Company's ability to secure publicly available grant
funding on terms acceptable to the Company; expectations regarding
the current and future prices of electricity in the Province of
Ontario; expectations regarding
the Company's current and future production levels at our
Lake Erie facility; and
expectations regarding the actual cost of constructing the
cogeneration power plant and the annual costs associated with
maintaining the plant being within the range currently estimated by
management of the Company.
Forward-looking information in this news release includes our
advancement of strategic initiatives, expectations concerning the
Company's expectations on increased margins, reduction of tariff
costs, the expected results from the Company's participation in
higher margin segments of the steel industry, expectations in
respect of shipment volumes being more closely aligned with
historically customer demands, expectations concerning mergers and
acquisition opportunities, expectations regarding the declaration
of a dividend, expectations regarding annualized cost reductions,
statements with respect to the development of the cogeneration
power plant at Lake Erie, the
expected capital cost of the project and anticipated cost savings
that would be realized upon completion of project, and the
emergence of exceptional market opportunities to grow our business
inorganically at attractive acquisition costs. 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.
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, 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
June 30,
|
|
Six months ended June
30,
|
(millions of Canadian
dollars)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Revenue from sale of
goods
|
$
|
431
|
|
$
|
711
|
|
$
|
948
|
|
$
|
1,193
|
Cost of goods
sold
|
416
|
|
534
|
|
875
|
|
946
|
Gross
profit
|
15
|
|
177
|
|
73
|
|
247
|
Selling, general and
administrative expenses
|
12
|
|
15
|
|
26
|
|
27
|
Operating
income
|
3
|
|
162
|
|
47
|
|
220
|
|
|
|
|
|
|
|
|
Other income
(loss) and (expenses)
|
|
|
|
|
|
|
|
Finance
costs
|
(3)
|
|
(170)
|
|
(6)
|
|
(186)
|
Finance and other
income (loss)
|
2
|
|
—
|
|
5
|
|
(10)
|
Restructuring and
other costs
|
—
|
|
(2)
|
|
—
|
|
(5)
|
Share of loss from
joint ventures
|
(1)
|
|
(1)
|
|
(2)
|
|
(1)
|
Income (loss)
before income taxes
|
1
|
|
(11)
|
|
44
|
|
18
|
Income tax
expense
|
—
|
|
—
|
|
—
|
|
—
|
Net income
(loss)
|
$
|
1
|
|
$
|
(11)
|
|
$
|
44
|
|
$
|
18
|
Stelco Holdings
Inc.
Consolidated
balance sheets
(unaudited)
|
|
As at
|
June 30,
2019
|
|
December 31,
2018
|
ASSETS
|
|
|
|
Current
assets
|
|
|
|
Cash and cash
equivalents
|
$
|
277
|
|
$
|
438
|
Restricted
cash
|
10
|
|
8
|
Trade and other
receivables
|
170
|
|
252
|
Inventories
|
466
|
|
468
|
Prepaid
expenses
|
10
|
|
28
|
Total current
assets
|
$
|
933
|
|
$
|
1,194
|
|
|
|
Non-current
assets
|
|
|
Property, plant and
equipment, net
|
569
|
|
448
|
Intangible
assets
|
7
|
|
7
|
Investment in joint
ventures
|
4
|
|
6
|
Total non-current
assets
|
$
|
580
|
|
$
|
461
|
Total
assets
|
$
|
1,513
|
|
$
|
1,655
|
|
|
|
|
LIABILITIES
|
|
|
|
Current
liabilities
|
|
|
|
Trade and other
payables
|
$
|
401
|
|
$
|
436
|
Other
liabilities
|
38
|
|
40
|
Obligations to
independent employee trusts
|
82
|
|
103
|
Total current
liabilities
|
$
|
521
|
|
$
|
579
|
|
|
|
|
Non-current
liabilities
|
|
|
|
Provisions
|
5
|
|
5
|
Pension
benefits
|
4
|
|
2
|
Other
liabilities
|
19
|
|
13
|
Obligations to
independent employee trusts
|
470
|
|
488
|
Total non-current
liabilities
|
$
|
498
|
|
$
|
508
|
Total
liabilities
|
$
|
1,019
|
|
$
|
1,087
|
|
|
|
|
EQUITY
|
|
|
|
Common
shares
|
512
|
|
512
|
Treasury
shares
|
—
|
|
(1)
|
Retained earnings
(deficit)
|
(18)
|
|
57
|
Total
equity
|
$
|
494
|
|
$
|
568
|
Total liabilities
and equity
|
$
|
1,513
|
|
$
|
1,655
|
Non-IFRS Measures Results
- The following table provides a reconciliation of net income
(loss) to adjusted net income for the period indicated:
|
Three months ended
June 30,
|
Six months ended June
30,
|
(millions of Canadian
dollars, except where otherwise noted)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Net income
(loss)
|
$
|
1
|
|
$
|
(11)
|
|
$
|
44
|
|
$
|
18
|
Add
back/(Deduct):
|
|
|
|
|
|
|
|
Remeasurement of
employee benefit commitment 1
|
(9)
|
|
157
|
|
(16)
|
|
161
|
Tariff related costs
2
|
7
|
|
11
|
|
20
|
|
11
|
Separation costs
related to USS support services 3
|
2
|
|
6
|
|
7
|
|
10
|
Carbon tax expense
4
|
—
|
|
—
|
|
3
|
|
—
|
Restructuring and
other costs 5
|
2
|
|
2
|
|
2
|
|
5
|
Share-based
compensation 6
|
1
|
|
—
|
|
3
|
|
—
|
Property related idle
costs included in cost of goods sold 7
|
1
|
|
—
|
|
2
|
|
—
|
Batch annealing
facility startup related costs 8
|
1
|
|
—
|
|
1
|
|
—
|
Loss from
commodity-based swaps
|
—
|
|
—
|
|
—
|
|
10
|
Adjusted net
income
|
$
|
6
|
|
$
|
165
|
|
$
|
66
|
|
$
|
215
|
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
|
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.
|
5
|
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.
|
6
|
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.
|
7
|
Includes utility
costs incurred by Stelco for non-operating and idled assets
acquired from the Land Vehicle on June 5, 2018.
|
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
(loss) to adjusted EBITDA periods indicated:
|
Three months ended
June 30,
|
Six months ended June
30,
|
(millions of Canadian
dollars, except where otherwise noted)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Net income
(loss)
|
$
|
1
|
|
$
|
(11)
|
|
$
|
44
|
|
$
|
18
|
Add
back/(Deduct):
|
|
|
|
|
|
|
|
Finance
income
|
(1)
|
|
—
|
|
(3)
|
|
—
|
Depreciation
|
15
|
|
7
|
|
23
|
|
14
|
Tariff related costs
1
|
7
|
|
11
|
|
20
|
|
11
|
Separation costs
related to USS support services 2
|
2
|
|
6
|
|
7
|
|
10
|
Finance
costs
|
3
|
|
170
|
|
6
|
|
186
|
Share-based
compensation 3
|
1
|
|
—
|
|
3
|
|
—
|
Carbon tax expense
4
|
—
|
|
—
|
|
3
|
|
—
|
Restructuring and
other costs 5
|
2
|
|
2
|
|
2
|
|
5
|
Property related idle
costs included in cost of goods sold 6
|
1
|
|
—
|
|
2
|
|
—
|
Batch annealing
facility startup related costs 7
|
1
|
|
—
|
|
1
|
|
—
|
Loss from
commodity-based swaps
|
—
|
|
—
|
|
—
|
|
10
|
Adjusted
EBITDA
|
$
|
32
|
|
$
|
185
|
|
$
|
108
|
|
$
|
254
|
|
|
|
|
|
|
|
|
Adjusted EBITDA as
a percentage of total revenue
|
7%
|
|
26%
|
|
11%
|
|
21%
|
1
|
Includes tariff and
tariff related costs associated with U.S. bound steel shipments. In
connection with the US administration announcing effective May 20,
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
|
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.
|
4
|
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.
|
5
|
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.
|
6
|
Includes utility
costs incurred by Stelco for non-operating and idled assets
acquired from the Land Vehicle on June 5, 2018.
|
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.
|
1
|
See "Non-IFRS
measures" for a description of certain Non-IFRS measures used in
this Press Release and "Non-IFRS Measures Reconciliation"
below.
|
SOURCE Stelco