/NOT FOR DISTRIBUTION TO U.S. NEWSWIRE
SERVICES OR FOR DISSEMINATION IN THE
UNITED STATES/
Stelco Holdings Inc. fourth quarter and annual 2019
highlights include:
- Revenue of $435 million for
the quarter, compared to $464 million
for Q3 2019, and $1.8 billion for the
year compared to $2.5 billion for
2018
- Net loss of $24 million for
the quarter compared to nil for Q3 2019, and net income of
$20 million for the year compared to $253 million for 2018
- Adjusted EBITDA* of $10
million for the quarter compared to $23 million for Q3 2019, and $141 million
for the year compared to $614 million
for 2018
- Shipments of 633,000 tons for the quarter compared to
654,000 tons for Q3 2019, and 2.4 million tons for the year
compared to 2.6 million tons for 2018
- Company declared a regular quarterly dividend of
$0.10 per share payable on
March 4, 2020 to shareholders of
record as of the close of business on February 28,
2020
HAMILTON, ON, Feb. 18, 2020 /CNW/ - Stelco Holdings Inc.
("Stelco Holdings" or the "Company"), (TSX:
STLC), a low cost, integrated and independent steelmaker with one
of the newest and most technologically advanced integrated
steelmaking facilities in North
America, today announced financial results of the Company
for the three months and full year ended December 31, 2019. Stelco Holdings is the 100%
owner of Stelco Inc. ("Stelco"), the operating company.
Stelco Holdings Inc. Highlights:
Selected Financial Information:
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|
|
|
|
|
|
|
|
(in millions except
volume, per share
and nt
figures)
|
Q4
2019
|
Q4 2018
|
Change
|
Q3 2019
|
Change
|
2019
|
2018
|
Change
|
Revenue ($)
1
|
435
|
648
|
(33)%
|
464
|
(6)%
|
1,841
|
2,460
|
(25)%
|
Operating income
(loss) ($)
|
(6)
|
118
|
(105)%
|
9
|
(167)%
|
50
|
476
|
(89)%
|
Net income (loss)
($)
|
(24)
|
110
|
(122)%
|
—
|
NM
|
20
|
253
|
(92)%
|
Adjusted net income
(loss) ($) *
|
(13)
|
123
|
(111)%
|
(11)
|
NM
|
42
|
512
|
(92)%
|
|
|
|
|
|
|
|
|
|
Net income (loss) per
common share
(diluted)
($)
|
(0.27)
|
1.23
|
(122)%
|
—
|
NM
|
0.23
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2.85
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(92)%
|
Adjusted net income
(loss) per common
share (diluted) ($)
*
|
(0.15)
|
1.38
|
(111)%
|
(0.12)
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NM
|
0.47
|
5.76
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(92)%
|
|
|
|
|
|
|
|
|
|
Average selling price
per nt ($) 1, *
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659
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917
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(28)%
|
688
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(4)%
|
729
|
889
|
(18)%
|
Shipping volume (in
thousands of nt) *
|
633
|
673
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(6)%
|
654
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(3)%
|
2,444
|
2,620
|
(7)%
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA ($)
*
|
10
|
167
|
(94)%
|
23
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(57)%
|
141
|
614
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(77)%
|
|
|
|
|
|
|
|
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|
Adjusted EBITDA per
nt ($) *
|
16
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248
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(94)%
|
35
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(54)%
|
58
|
234
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(75)%
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1
|
Certain comparative
results have been adjusted to conform to the Q4 2019 presentation
of revenue.
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*
|
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.
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"Despite challenging market conditions, including an
unprecedented drop in prices during the quarter that has since
improved, we are pleased that we were able to deliver positive
results in the fourth quarter, and through the entire second half
of 2019," said David Cheney, Chief
Executive Officer of Stelco Holdings Inc. "During the second half
of 2019 we made sustainable and positive changes to our Company's
product mix, evidenced by an increase in shipments of cold-rolled
and coated sheet products by 66% over the first half of the year.
This growth further proves the value created by our investment in
state-of-the-art batch annealing and tempering capabilities. We
have achieved an annual run rate of cold-rolled and other
downstream product sales of approximately 600,000 net tons compared
to approximately 400,000 net tons just about two years ago. Growth
in these product lines of almost 50% demonstrates further
penetration into higher value-added product markets, including
automotive sales - something I and our entire Company are very
proud of. Furthermore, we delivered on our shipping volume
expectations for both the quarter and the second half of the year.
Looking forward, we intend to continue to make strategic
investments in our business to maximize the value of our assets and
to further diversify our product mix. These principals are at the
core of our tactical flexibility model and will guide our growth
strategy in the coming years."
"At the core of these investments in 2020 will be the completion
of two specific projects that will position Stelco for growth
across both existing and new markets. Previously we noted our
intent to proceed with the reline of our blast furnace at Lake Erie
Works in Q2 2020. However, in response to current strong market
demand along with materially improved prices in the near term, we
are electing to commence the reline and commission our new pig iron
caster in the second half of this year. As a result, we expect to
commence shipments of pig iron during the fourth quarter of this
year. We anticipate that the blast furnace reline will increase the
production of hot metal and result in not only increased volumes,
but also in reduced costs and increased product diversity. In
conjunction with our continued cost reduction initiative, we expect
that these projects will enable Stelco to begin to realize its full
potential during Q4 of this year," continued Cheney.
"Over the past two and a half years, we have built a platform
for success that has consistently returned value to our
shareholders. In that regard, for the ninth consecutive quarter,
our Board has approved a regular dividend of $0.10 per share. Overall, market conditions are
quite favorable as evidenced by strong and growing lead times and
an improved pricing dynamic. For Q1 2020, we expect to ship
approximately 650,000 tons and realize improved pricing over Q4
2019," concluded Cheney.
Fourth Quarter 2019 Financial Review:
Q4 2019 revenue decreased $213
million, or 33%, from $648
million in Q4 2018, primarily due a 28% decrease in average
steel selling prices, 6% lower steel shipping volumes and lower
non-steel sales of $13 million. The average selling price of
our steel products decreased from $917/nt in Q4 2018 to $659/nt in Q4 2019, due largely to decreases in
market prices for flat steel products. Shipping volumes decreased
40 thousand nt, from 673 thousand nt in Q4 2018 to 633 thousand nt
in Q4 2019, mostly from lower hot roll coil shipments partly offset
by higher cold rolled, coated and slab shipments during the
quarter.
The Company realized an operating loss of $6 million for
the quarter, compared to operating income of $118 million in
Q4 2018, a decrease of $124 million mainly due to the
following; lower gross profit of $129 million (consisting of a
decrease in revenue of $213 million,
partly offset by lower cost of sales of $84
million), and less selling, general and administrative
expenses of $5 million during Q4
2019. Cost of sales includes raw material and conversion costs,
depreciation and freight associated with inventory sold during the
period.
Finance costs decreased by $4
million, or 24%, from $17
million in Q4 2018, mainly due to the following;
$20 million related to the period-over-period gross impact of
favourable foreign exchange translation on U.S. dollar denominated
working capital and $3 million lower
accretion expense associated with our employee benefit commitment
obligation, partly offset by the impact of a $16 million period-over-period remeasurement of
our employee benefit commitment obligation and a $2 million
increase in interest on loans and borrowings.
The Company realized a net loss of $24
million for the quarter, compared to net income of
$110 million in the fourth quarter of
2018, a decrease of $134 million
primarily due to the following; $129
million in lower gross profit, $9
million decrease in finance and other income, and
$4 million increase in restructuring
and other costs, partly offset by $5 million in lower selling,
general and administrative expenses and $4
million in lower finance costs. Adjusted net income
decreased $136 million
year-over-year, from $123 million in
Q4 2018 to an adjusted net loss of $13
million in Q4 2019.
Adjusted EBITDA in Q4 2019 totaled $10
million, a decrease of $157
million from adjusted EBITDA of $167 million in Q4
2018, which reflects the decrease in revenue from lower market
average price of steel and decrease in shipping volumes realized,
as well as lower non-steel sales during the quarter.
Full Year 2019 Financial Review:
Revenue for 2019 decreased $619
million, or 25%, from $2.5
billion in 2018 to $1.8 billion
in 2019, primarily due to an 18% decrease in average steel selling
prices, 7% lower steel shipping volumes and a decrease in non-steel
sales of $71 million. The average selling price for our steel
products decreased from $889/nt in 2018 to $729/nt in
2019. Shipping volumes decreased from 2.6 million nt in 2018 to 2.4
million nt in 2019, mainly from lower hot roll coil shipments
partly offset by higher cold rolled and slab shipments during the
year.
Operating income for the year was $50 million, compared to
$476 million in 2018, a decrease of $426 million mainly
due to the following; lower gross profit of $436 million
(consisting of a decrease in revenue of $619 million, partly
offset by lower cost of sales of $183 million), and a decrease
in selling, general and administrative expenses of $10 million
during 2019.
Finance costs decreased by $187 million, or 87%,
from $215 million in 2018, primarily due
to the $170 million year-over-year impact from
remeasurement of our employee benefit commitment obligation and
$27 million related to the favourable year-over-year
impact of foreign exchange translation on U.S. dollar denominated
working capital, partly offset by
a $10 million increase in interest on loans and
borrowings, which includes finance costs associated with the
company's inventory monetization agreement and mortgage note in
connection to the June 2018 land purchase.
Net income for the year was $20
million, compared to $253
million in 2018, a decrease of $233
million primarily due to the following; $436 million in lower gross profit, partly offset
by $187 million in lower finance
costs, $10 million decrease in
selling, general and administrative expenses, $4 million increase in finance and other income
and $3 million decrease in
restructuring and other costs. Adjusted net income decreased
$470 million year-over-year, from
$512 million in 2018, to $42 million in 2019.
Adjusted EBITDA in 2019 totaled $141 million, a decrease
of $473 million, from $614 million in 2018, which
reflects the decrease in revenue from lower market average price of
steel, a decrease in shipping volumes realized, as well as lower
non-steel sales.
Summary of Net Tons Shipped by Product:
(in thousands of nt)
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Tons Shipped
by
Product
|
Q4
2019
|
Q4 2018
|
Change
|
Q3 2019
|
Change
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2019
|
2018
|
Change
|
Hot-rolled
|
382
|
553
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(31)%
|
425
|
(10)%
|
1,699
|
2,080
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(18)%
|
Coated
|
106
|
79
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34%
|
87
|
22%
|
326
|
338
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(4)%
|
Cold-rolled
|
40
|
10
|
300%
|
26
|
54%
|
89
|
77
|
16%
|
Other
a
|
105
|
31
|
239%
|
116
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(9)%
|
330
|
125
|
164%
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Total
|
633
|
673
|
(6)%
|
654
|
(3)%
|
2,444
|
2,620
|
(7)%
|
|
|
|
|
|
|
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Shipments
by
Product
(%)
|
|
|
|
|
|
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Hot-rolled
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60%
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82%
|
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65%
|
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70%
|
79%
|
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Coated
|
17%
|
12%
|
|
13%
|
|
13%
|
13%
|
|
Cold-rolled
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6%
|
1%
|
|
4%
|
|
4%
|
3%
|
|
Other
a
|
17%
|
5%
|
|
18%
|
|
13%
|
5%
|
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Total
|
100%
|
100%
|
|
100%
|
|
100%
|
100%
|
|
a
|
Includes other steel
products: slabs and non-prime steel sales.
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Statement of Financial Position and Liquidity:
On a consolidated basis, Stelco Holdings ended Q4 2019 with cash
of $257 million and $148 million
of capacity under its ABL revolver at December 31, 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
|
December 31,
2019
|
December 31,
2018
|
ASSETS
|
|
|
Cash and cash
equivalents
|
257
|
438
|
Trade and other
receivables
|
158
|
252
|
Inventories
|
483
|
468
|
Total current
assets
|
914
|
1,194
|
Total
assets
|
1,594
|
1,655
|
|
|
|
LIABILITIES
|
|
|
Trade and other
payables
|
444
|
436
|
Asset-based lending
facility
|
8
|
—
|
Total current
liabilities
|
521
|
579
|
Asset-based lending
facility
|
90
|
—
|
Total non-current
liabilities
|
623
|
508
|
Total
liabilities
|
1,144
|
1,087
|
|
|
|
Total
equity
|
450
|
568
|
Stelco Holdings and its subsidiaries ended Q4 2019 with current
assets of $914 million, which exceeded current liabilities of
$521 million by $393 million. Stelco Holdings'
liabilities include $507 million of obligations to independent
pension and OPEB trusts, which includes $395 million of
employee benefit commitments and $112 million under a mortgage
note payable associated with the June
2018 land purchase. Long term liabilities of
$623 million as at December 31, 2019 include
$472 million of obligations to independent pension and OPEB
trusts. Stelco Holdings' consolidated equity totaled
$450 million at December 31, 2019.
Asset-Based Lending Facility (ABL) Amendment
During November 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 of 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-revolving
term loan. The other terms of the ABL agreement have remained
substantially similar to the original agreement.
Organization Change
On January 27, 2020 Stelco
Holdings announced that Alan Kestenbaum, will return as the
Company's Chief Executive Officer, effective February 21,
2020, at which point David Cheney will be stepping down
and returning to Bedrock Industries.
Mr. Kestenbaum previously served as Stelco's Chief Executive
Officer from the closing of Stelco's Initial Public Offering
to February 2019 and is currently and will continue to
act as Stelco's Executive Chairman. Mr. Kestenbaum noted
that David Cheney "has been a valued member of the
leadership team that culminated in the successful restructuring of
Stelco Inc. and the initial public offering of the Company and its
many achievements to date. The Board of Directors join me in
thanking David for his contributions and leadership and we wish him
well in his return to his previous role at Bedrock."
In addition to Mr. Kestenbaum returning to the role of Chief
Executive Officer, on February 18,
2020, the Board of Directors appointed Ms. Heather Ross as Lead Director.
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 March 4, 2020, to
shareholders of record as of the close of business on
February 28, 2020.
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, February 19,
2020, 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 February 19, 2020 until 11:59 p.m. ET on March 4,
2020 by dialing 1- 888 390 0541 or 1- 416 764 8677 and using
the pin number 500966#.
Consolidated Financial Statements and Management's Discussion
and Analysis
The Company's audited consolidated financial statements for the
year ended December 31, 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 December 31,
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 and our intention to continue
making strategic investments in our business; expectations that we
will ship approximately 650,000 tons during the first quarter of
2020; expectations that we will realize improved pricing during Q1
2020 compared to pricing realized during Q4 2019; our belief that
market conditions are favourable and improving based upon growing
lead times and improved pricing dynamics; expectations that our
capital projects and cost reduction initiatives will be successful
and that Stelco will begin to realize its full potential during Q4
2020; expectations that the Company's willingness to invest and
innovate will allow the Company to succeed; statements with respect
to the construction of a pig iron facility at the Company's Lake
Erie Works facility; expectations that we will make our first
shipments of pig iron during the fourth quarter of 2020; statements
with respect to the completion of a reline of our blast furnace
facility at the Company's Lake Erie Works facility; expectations
that the blast furnace will produce increased volumes of hot metal
and result in reduced production costs and an increase in product
diversity; expectations that these capital projects will position
Stelco for growth across both existing and new markets;
expectations regarding the anticipated production and shipment
timing that may be realized upon completion of the projects,
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 complete new
capital projects on schedule and within budget and their
anticipated effect on revenue and costs; 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 18, 2020 and the Company's MD&A for
the period ended December 31, 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; 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 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 the Blast Furnace Reline and Pig Iron
Facility Projects
The estimated budget, schedule and production volumes with
respect to the planned relined of our blast furnace and
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 and
commissioning of the facilities on terms acceptable to the Company;
expectations that third party contractors and suppliers will
deliver, construct and perform in accordance with agreed upon
budgets and schedules; our ability to obtain any applicable
regulatory approvals and permits required in connection with these
projects; expectations that, upon completion, the our facilities
will produce in accordance with anticipated design capacity;
expectations that the market for steel and pig iron does not
experience a material adverse change between now and Q4 2020 when
shipments are expected to begin; expectations that our customers
will continue to purchase material volumes of production upon
completion of the projects; the planned blast furnace reline
proceeding on schedule and, upon completion, performing in such a
manner so as to provide molten metal to meet our production needs;
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 year ended
December 31, 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
December 31,
|
Year ended December
31,
|
(millions of Canadian
dollars)
|
2019
|
2018
|
2019
|
2018
|
Revenue from sale of
goods
|
$
|
435
|
$
|
648
|
$
|
1,841
|
$
|
2,460
|
Cost of goods
sold
|
430
|
514
|
1,745
|
1,928
|
Gross
profit
|
5
|
134
|
96
|
532
|
Selling, general and
administrative expenses
|
11
|
16
|
46
|
56
|
Operating income
(loss)
|
(6)
|
118
|
50
|
476
|
|
|
|
|
|
Other income
(loss) and (expenses)
|
|
|
|
|
Finance
costs
|
(13)
|
(17)
|
(28)
|
(215)
|
Finance and other
income
|
1
|
10
|
7
|
3
|
Restructuring and
other costs
|
(5)
|
(1)
|
(6)
|
(9)
|
Share of loss from
joint ventures
|
(1)
|
—
|
(3)
|
(2)
|
Income (loss)
before income taxes
|
(24)
|
110
|
20
|
253
|
Income tax
expense
|
—
|
—
|
—
|
—
|
Net income
(loss)
|
$
|
(24)
|
$
|
110
|
$
|
20
|
$
|
253
|
Stelco Holdings Inc.
Consolidated Balance Sheets
(unaudited)
As at
|
December 31,
2019
|
December 31,
2018
|
ASSETS
|
|
|
Current
assets
|
|
|
Cash and cash
equivalents
|
$
|
257
|
$
|
438
|
Restricted
cash
|
8
|
8
|
Trade and other
receivables
|
158
|
252
|
Inventories
|
483
|
468
|
Prepaid
expenses
|
8
|
28
|
Total current
assets
|
$
|
914
|
$
|
1,194
|
|
|
|
Non-current
assets
|
|
|
Property, plant and
equipment, net
|
670
|
448
|
Intangible
assets
|
7
|
7
|
Investment in joint
ventures
|
3
|
6
|
Total non-current
assets
|
$
|
680
|
$
|
461
|
Total
assets
|
$
|
1,594
|
$
|
1,655
|
|
|
|
LIABILITIES
|
|
|
Current
liabilities
|
|
|
Trade and other
payables
|
$
|
444
|
$
|
436
|
Other
liabilities
|
34
|
40
|
Asset-based lending
facility
|
8
|
—
|
Obligations to
independent employee trusts
|
35
|
103
|
Total current
liabilities
|
$
|
521
|
$
|
579
|
|
|
|
Non-current
liabilities
|
|
|
Provisions
|
6
|
5
|
Pension
benefits
|
7
|
2
|
Other
liabilities
|
48
|
13
|
Asset-based lending
facility
|
90
|
—
|
Obligations to
independent employee trusts
|
472
|
488
|
Total non-current
liabilities
|
$
|
623
|
$
|
508
|
Total
liabilities
|
$
|
1,144
|
$
|
1,087
|
|
|
|
EQUITY
|
|
|
Common
shares
|
512
|
512
|
Treasury
shares
|
—
|
(1)
|
Retained earnings
(deficit)
|
(62)
|
57
|
Total
equity
|
$
|
450
|
$
|
568
|
Total liabilities
and equity
|
$
|
1,594
|
$
|
1,655
|
Non-IFRS Measures Results
The following table provide a reconciliation of net income
(loss) to adjusted net income for the period indicated:
|
Three months ended
December 31,
|
Year ended December
31,
|
(millions of Canadian
dollars, except where otherwise noted)
|
2019
|
2018
|
2019
|
2018
|
Net income
(loss)
|
$
|
(24)
|
$
|
110
|
$
|
20
|
$
|
253
|
Add
back/(Deduct):
|
|
|
|
|
Tariff related costs
1
|
—
|
23
|
19
|
73
|
Restructuring and
other costs 2
|
5
|
1
|
6
|
9
|
Transaction-based and
other corporate-related
costs
3
|
3
|
—
|
6
|
—
|
Separation costs
related to USS support services 4
|
—
|
5
|
9
|
20
|
Property related idle
costs included in cost of goods sold 5
|
2
|
2
|
5
|
5
|
Share-based
compensation 6
|
1
|
—
|
2
|
—
|
Batch annealing
facility startup related costs 7
|
—
|
—
|
1
|
—
|
Remeasurement of
employee benefit commitment 8
|
1
|
(15)
|
(26)
|
144
|
Carbon tax expense
(recovery)
|
(1)
|
—
|
—
|
—
|
Loss from
commodity-based swaps
|
—
|
—
|
—
|
10
|
Secondary offering
cost
|
—
|
—
|
—
|
1
|
Income related to
buildings finance lease termination
|
—
|
(3)
|
—
|
(3)
|
Adjusted net
income (loss)
|
$
|
(13)
|
$
|
123
|
$
|
42
|
$
|
512
|
|
|
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, 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.
|
2
|
Restructuring and
other costs includes certain employee termination benefits and
consulting costs. For 2018, restructuring costs include legal fees
and other costs connected to Stelco's emergence from CCAA
proceedings.
|
3
|
Represents certain
non-routine items that include, but are not limited to, costs
connected with Stelco Inc.'s withdrawn proposed senior secured
notes offering during September 2019, building demolition costs,
professional fees and travel related expenses.
|
4
|
Includes ERP
implementation costs associated with the process of separating from
USS, management fees and shared services arrangement
costs.
|
5
|
Includes utility
costs incurred by Stelco for non-operating and idled assets
acquired from the Land Vehicle on June 5, 2018.
|
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
|
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.
|
8
|
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 periods indicated:
|
Three months ended
December 31,
|
Year ended December
31
|
(millions of Canadian
dollars, except where otherwise noted)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Net income
(loss)
|
$
|
(24)
|
$
|
110
|
$
|
20
|
$
|
253
|
Add
back/(Deduct):
|
|
|
|
|
Depreciation
|
13
|
13
|
51
|
35
|
Finance
costs
|
13
|
17
|
28
|
215
|
Tariff related costs
1
|
—
|
23
|
19
|
73
|
Restructuring and
other costs 2
|
5
|
1
|
6
|
9
|
Transaction-based and
other corporate-related costs 3
|
3
|
—
|
6
|
—
|
Separation costs
related to USS support services 4
|
—
|
5
|
9
|
20
|
Property related idle
costs included in cost of goods sold 5
|
2
|
2
|
5
|
5
|
Share-based
compensation 6
|
1
|
—
|
2
|
—
|
Batch annealing
facility startup related costs 7
|
—
|
—
|
1
|
—
|
Finance
income
|
(2)
|
(1)
|
(6)
|
(4)
|
Carbon tax expense
(recovery) 8
|
(1)
|
—
|
—
|
—
|
Loss from
commodity-based swaps
|
—
|
—
|
—
|
10
|
Secondary offering
cost
|
—
|
—
|
—
|
1
|
Income related to
buildings finance lease termination
|
—
|
(3)
|
—
|
(3)
|
Adjusted
EBITDA
|
$
|
10
|
$
|
167
|
$
|
141
|
$
|
614
|
|
|
|
|
|
Adjusted EBITDA as
a percentage of total revenue
|
2%
|
26%
|
8%
|
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
|
Restructuring and
other costs includes certain employee termination benefits and
consulting costs. For 2018, restructuring costs include legal fees
and other costs connected to Stelco's emergence from CCAA
proceedings.
|
3
|
Represents certain
non-routine items that include, but are not limited to, costs
connected with Stelco Inc.'s withdrawn proposed senior secured
notes offering during September 2019, building demolition costs,
professional fees and travel related expenses.
|
4
|
Includes ERP
implementation costs associated with the process of separating from
USS, management fees and shared services arrangement
costs.
|
5
|
Includes utility
costs incurred by Stelco for non-operating and idled assets
acquired from the Land Vehicle on June 5, 2018.
|
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
|
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.
|
8
|
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 third quarter of 2020 at
the earliest
|
SOURCE Stelco