STLC Stelco Holdings Inc

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

Stelco Holdings Inc. fourth quarter highlights include:

• Revenue of $1,186 million for the quarter, up 180% from Q4 2020 and down 12% from Q3 2021
• Operating income of $653 million for the quarter, representing a 55% margin
• Adjusted EBITDA* of $673 million for the quarter, representing a 57% Adjusted EBITDA* margin
• Adjusted Net Income* of $525 million and Adjusted Net Income* per share of $6.79, down 17% from Q3 2021
• Shipping Volume* of 626,000 tons for the quarter, up 28% from Q4 2020 and down 12% from Q3 2021
• Average Selling Price* per net ton of $1,845, up 153% from Q4 2020 and up 2% from Q3 2021
• Declared quarterly dividend of $0.30 per share payable on March 9, 2022

HAMILTON, ON, Feb. 23, 2022 /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 year ended December 31, 2021. Stelco Holdings is the 100% owner of Stelco Inc. ("Stelco"), the operating company.

Selected Financial Information:

"Today Stelco is reporting our most successful year on record, and I could not be prouder of our team for delivering these results," stated Alan Kestenbaum, Executive Chairman and Chief Executive Officer. "Over the past four and a half years, we have invested strategically and remained tactically flexible in order to take full advantage of our industry leading low-cost position and capitalize on favourable market conditions. As a result, we have returned almost $1 billion to our shareholders since our IPO in 2017 and are reporting record EBITDA, net income and margins for the 2021 year."

"We completed 2021 with over $2 billion of Adjusted EBITDA and an industry-leading Adjusted EBITDA margin of 50%. While we certainly benefited from exceptional price levels for much of the year, it is our low-cost structure and ability to drive revenue through to the bottom line that sets us apart from our North American competitors," continued Kestenbaum. "In 2022, however, we expect to see pressure on margins due to lower pricing and inflationary pressures on some of our cost inputs as well as a reduction in demand. As such, we will work even harder to further improve our cost structure where we can as we complete the final stages of our Lake Erie coke battery rehabilitation and upgrade, and bring our 65MW electricity cogeneration project online. Our goal is to ensure that Stelco remains profitable through every point of the market cycle."

"Of course, our management team remains very closely aligned with the interests of our fellow shareholders," added Kestenbaum. "That alignment is core to our approach and led to our $562 million of share repurchases completed since August 2021. Furthermore, I am happy to announce that we are maintaining our regular dividend of $0.30 per share, which is triple the year ago level."

Paul Scherzer, Chief Financial Officer, added, "Our success in 2021 was driven by the commitment of the entire Stelco team to maintaining our low-cost structure and driving shipments to capitalize on unprecedented market conditions. While the outlook for 2022 is unclear, we expect that the foundation we have built through strategic investments over the past four years, and the continued commitment of our employees to continually and relentlessly focus on costs, will allow Stelco to remain the North American leader in steel industry profit margin."

"We entered 2022 with total liquidity of almost $1.2 billion, including $955 million of cash on hand, $164 million of which was used for the Substantial Issuer Bid completed earlier this month that continued our track record of returning capital to shareholders," continued Scherzer. "Our balance sheet remains strong, and we have completed virtually all of the spending in our self-funded $700 million strategic capital plan. Going forward we will continue to pursue opportunities to generate accretive value for our shareholders and invest in our business to ensure long-term sustainability."

Fourth Quarter 2021 Financial Review:

Compared to Q4 2020

Q4 2021 revenue increased $762 million, or 180%, from $424 million in Q4 2020, primarily due to a 153% increase in Average Selling Price per net ton and a 28% increase in Shipping Volumes, partly offset by lower non-steel sales of $37 million. The Average Selling Price per net ton of our steel products increased from $728 per nt in Q4 2020 to $1,845 per nt in Q4 2021. Our Shipping Volumes increased 137 thousand nt to 626 thousand nt from 489 thousand nt in Q4 2020. Non-steel sales decreased $37 million, from $68 million in Q4 2020 to $31 million during Q4 2021, mainly due to lower metallurgical coke sales during the period.

The Company realized operating income of $653 million for the quarter, compared to $39 million in Q4 2020, an increase of $614 million consisting of an increase in revenue of $762 million, partly offset by an increase in cost of goods sold of $146 million and higher selling, general and administrative expenses of $2 million.

Finance costs increased by $43 million, from a $10 million finance cost recovery in Q4 2020 to finance costs of $33 million in Q4 2021, due to the following: $23 million related to the gross remeasurement impact from our employee benefit commitment, $20 million related to the period-over-period impact of foreign exchange translation on U.S. dollar denominated working capital, and $2 million increase in accretion of employee benefit commitment, partly offset by $3 million lower in interest on loans and borrowings.

The Company realized net income of $513 million for the quarter, compared to a net loss of $47 million in the fourth quarter of 2020, a change of $560 million primarily due to the following: $614 million increase in operating income, $89 million decrease in finance income and other losses, $23 million deferred tax recovery and $4 million decrease in other costs, partly offset by $127 million current tax expense and $43 million in higher finance costs. Adjusted Net Income totaled $525 million in Q4 2021, a change of $480 million from $45 million in Q4 2020.

Adjusted EBITDA in Q4 2021 totaled $673 million, an increase of $613 million from $60 million in Q4 2020, which reflects an increase in Average Selling Price per net ton and higher Shipping Volumes, partly offset by higher cost of goods sold and lower non-steel sales during the period.

Compared to Q3 2021

Q4 2021 revenue decreased $168 million, or 12%, from $1,354 million in Q3 2021, primarily due to a 12% decrease in Shipping Volumes, from 710 thousand nt in Q3 2021 to 626 thousand nt in Q4 2021, partly offset by 2% higher Average Selling Price per net ton. Non-steel sales decreased $39 million, from $70 million in Q3 2021 to $31 million during Q4 2021.

The Company realized an operating income of $653 million in Q4 2021 compared to $770 million in Q3 2021, and Adjusted EBITDA of $673 million compared to $787 million during Q3 2021, which mostly reflects a decrease in Shipping Volumes and lower non-steel sales, partly offset by higher Average Selling Price per net ton.

Full Year 2021 Financial Review:

Revenue for 2021 increased $2,606 million, or 172%, to $4,123 million in 2021 from $1,517 million in 2020, primarily due to 109% higher Average Selling Price per net ton, 33% increase in Shipping Volumes and $68 million higher non-steel sales. Shipping Volumes increased from 2,020 thousand nt in 2020 to 2,690 thousand nt in 2021. The Average Selling Price for our steel products increased from $705/nt in 2020 to $1,473/nt in 2021. Non-steel sales increased $68 million, from $92 million in 2020 to $160 million in 2021, mostly due to higher iron oxide, nut coke and kish sales, partly offset by lower metallurgical coke sales during the year.

Operating income for the year increased $1,990 million, from an operating loss of $7 million in 2020 to  operating income of $1,983 million in 2021 consisting of an increase in revenue of $2,606 million, partly offset by higher cost of goods sold of $606 million and higher selling, general and administrative expenses of $10 million during 2021.

Finance costs increased $111 million from $51 million in 2020, due to the following: $103 million related to the gross remeasurement impact of our employee benefit commitment, $4 million higher accretion expense associated with our employee benefit commitment and $4 million related to the period-over-period impact of foreign exchange translation on U.S. dollar denominated working capital.

Net income for the year was $1,609 million, compared to a net loss of $159 million in 2020, a change of $1,768 million primarily due to the following; $1,990 million in higher operating income, $79 million deferred tax recovery, $55 million decrease in finance income and other losses and $6 million decrease in other costs, partly offset by $252 million in current income tax expense and $111 million in higher finance costs. Adjusted Net Income increased $1,761 million period-over-period, from an Adjusted Net Loss of $52 million in 2020 to an Adjusted Net Income of $1,709 million in 2021.

Adjusted EBITDA in 2021 totaled $2,055 million, an increase of $1,980 million, from $75 million in 2020, which reflects the increases in Average Selling Price per net ton, Shipping Volumes and non-steel sales during the period.

Summary of Net Tons Shipped by Product:

(in thousands of nt)

Statement of Financial Position and Liquidity:

On a consolidated basis, the Company ended the year with cash of $955 million and $240 million of availability under its revolving credit facility as at December 31, 2021. The following table shows selected information regarding the consolidated balance sheet as at the dates noted:

Stelco Holdings and its subsidiaries ended Q4 2021 with current assets of $2,015 million, which exceeded current liabilities of $1,258 million by $757 million. Non-current assets include the derivative asset representing the fair value of Stelco's option to purchase a 25% ownership interest in the Minntac mine. Stelco Holdings' liabilities include $595 million of obligations to independent pension and OPEB trusts, which includes $487 million of employee benefit commitments and $108 million under a mortgage note payable associated with the June 2018 land purchase. Non-current liabilities of $541 million as at December 31, 2021 include $383 million of the aforementioned obligations to independent pension and OPEB trusts. Stelco Holdings' consolidated equity totaled $1,438 million at December 31, 2021. Total equity is after giving effect to $398 million of shares repurchased by the Company in August 2021, and does not consider the impact of the $164 million share repurchase completed in February 2022.

Normal Course Issuer Bid

The Company has received approval from the Toronto Stock Exchange ("TSX") to commence a normal course issuer bid ("NCIB"). Stelco Holdings is entitled to purchase up to 4,353,418 common shares pursuant to the NCIB. The NCIB will commence on February 28, 2022 and end on February 27, 2023, or such earlier date as Stelco Holdings may complete its purchases pursuant to the notice of intention filed with the TSX.

The maximum number of common shares that may be repurchased for cancellation under the NCIB represents approximately 10% of the Company's public float as of February 22, 2022, as calculated in accordance with the rules of the TSX. As of February 22, 2022, the Company had 72,874,242 common shares issued and outstanding. The average daily trading volume for the six months ended January 31, 2022 ("ADTV"), calculated in accordance with the rules of the TSX for purposes of the NCIB, was 467,996 common shares.  Under the rules of the TSX, Stelco Holdings is entitled to repurchase, during each trading day, up to 25% of the ADTV or 116,999 common shares (excluding purchases made pursuant to the block purchase exception) through the TSX.

The Board of Directors of the Company believes that the underlying value of the Company may not be reflected in the market price of the common shares from time to time and that, accordingly, the purchase of common shares will increase the proportionate interest in the Company of, and be advantageous to, all remaining shareholders of Stelco Holdings.

Repurchases will be made through the facilities of the TSX as well as through other designated exchanges and alternative trading systems in Canada in accordance with applicable regulatory requirements. The price paid for such repurchased shares will be the market price of such shares at the time of acquisition or such other price as may be permitted by the TSX. All common shares repurchased under the NCIB will be cancelled. The actual number of shares and timing of the repurchases under the NCIB will be determined by the Company.

Declaration of Quarterly Dividend

Stelco Holding's Board of Directors approved the payment of a regular quarterly dividend of $0.30 per share which will be paid on March 9, 2022, to shareholders of record as of the close of business on March 4, 2022.

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, February 24, 2022, at 9:00 a.m. ET. To access the call, please dial 1 (833) 950-0062 or 1 (226) 828-7575 and use access code 326859. 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 February 24, 2022 until 11:59 p.m. ET on March 10, 2022 by dialing 1 (866) 813-9403 or 1 (226) 828-7578 and using the access code 134073.

Consolidated Financial Statements and Management's Discussion and Analysis

The Company's consolidated financial statements for the year ended December 31, 2021, and Management's Discussion & Analysis thereon are available under the Company's profile on SEDAR at www.sedar.com.

About Stelco

Stelco is a low cost, integrated and independent steelmaker with one of the newest and most technologically advanced integrated steelmaking facilities in North America. Stelco produces flat-rolled value-added steels, including premium-quality coated, cold-rolled and hot-rolled steel products, as well as pig iron and metallurgical coke. With first-rate gauge, crown, and shape control, as well as uniform through-coil mechanical properties, our steel products are supplied to customers in the construction, automotive, energy, appliance, and pipe and tube industries across Canada and the United States as well as to a variety of steel service centres, which are distributors of steel products. At Stelco, we understand the importance of our business reflecting the communities we serve and are committed to diversity and inclusion as a core part of our workplace culture, in part, through active participation in the BlackNorth Initiative.

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'', ''Average Selling Price per nt'', and ''Shipping Volume'' to provide supplemental measures of our operating performance and thus highlight trends in our core business that may not otherwise be apparent when relying solely on IFRS financial measures. We also believe that securities analysts, investors and other interested parties frequently use non-IFRS measures in the evaluation of issuers. Our management uses these non-IFRS financial measures to facilitate operating performance comparisons from period-to-period, 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 year ended December 31, 2021 available under the Company's profile on SEDAR at www.sedar.com.

Forward-Looking Information

This release contains "forward-looking information" within the meaning of applicable securities laws. Forward-looking information may relate to our future outlook and anticipated events or results and may include information regarding our financial position, business strategy, growth strategy, acquisition, opportunities, budgets, operations, financial results, taxes, dividend policy, plans and objectives of our Company. Particularly, information regarding our expectations of future results, performance, achievements, prospects or opportunities is forward-looking information. In some cases, forward-looking information can be identified by the use of forward-looking terminology such as "plans", "targets", "expects" or "does not expect", "is expected", "an opportunity exists", "budget", "goal", "scheduled", "estimates", "outlook", "forecasts", "projection", "prospects", "strategy", "intends", "anticipates", "does not anticipate", "believes", or variations of such words and phrases or state that certain actions, events or results "may", "could", "would", "might", "will", "will be taken", "occur" or "be achieved". In addition, any statements that refer to expectations, intentions, projections or other characterizations of future events or circumstances may be forward looking statements. Forward-looking statements are not historical facts but instead represent management's expectations, estimates and projections regarding future events or circumstances. The forward-looking statements contained herein are presented for the purpose of assisting the holders of our securities and financial analysts in understanding our financial position and results of operations as at and for the periods ended on the dates presented, as well as our financial performance objectives, vision and strategic goals, and may not be appropriate for other purposes.

Forward-looking information in this news release includes: expectations that we will be able to successfully adapt to changing market conditions and succeed across all points of the market cycle; expectations that we will continue to operate the business as one of the lowest-cost integrated steel producers in North America; our advancement of strategic initiatives and our intention to continue making strategic investments in our business; expectations regarding achieving a lower cost operating structure; expectations that upon completion, the cogeneration facility and coke battery rehabilitation and upgrade at our Lake Erie Works will improve our cost structure; expectations that we will be able to pursue opportunities to generate accretive value for our shareholders and invest in our business to ensure long-term sustainability; expectations that margins will be under pressure in 2022 due to lower pricing and inflationary pressure on costs inputs and reduced demand; expectations concerning the aggregate number of shares to be purchased under the NCIB and the belief that the underlying value of the Company may not be reflected in the market price of the common shares; expectation that the purchase of shares under the NCIB will increase the proportionate interest in the Company of, and be advantageous to the remaining shareholders of the Company.

Undue reliance should not be placed on forward-looking information. The forward-looking information in this press release is based on our opinions, estimates and assumptions in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we currently believe are appropriate and reasonable in the circumstances. Despite a careful process to prepare and review the forward-looking information, there can be no assurance that the underlying opinions, estimates and assumptions will prove to be correct. Certain assumptions in respect of: our ability to complete new capital projects on schedule and within budget and their anticipated effect on revenue and costs; our ability to obtain all applicable regulatory approvals required in connection with new facilities; our ability to source necessary volumes of raw materials and other inputs at competitive prices; our iron ore pellet supply agreement providing us with competitively priced iron ore pellets during the term of the agreement; our facilities operating at design capacity; the market demand for iron units continuing to face increased pressure; our ability to supply to new customers and markets; our ability to effectively manage costs; our ability to attract and retain key personnel and skilled labour; our ability to obtain and maintain existing financing on acceptable terms; currency exchange and interest rates; the ongoing impact of the COVID-19 pandemic on our business, operations, employees, customers, suppliers and the economy overall; the impact of competition; changes in laws, rule, and regulations, including international trade regulations; our ability to continue to access the U.S. market without any adverse trade restrictions; upgrades to existing facilities remaining on schedule and on budget and their anticipated effect on revenue and costs; and growth in steel markets and industry trends, as well as those set out in this press release, are material factors made in preparing the forward-looking information and management's expectations contained in this press release.

There can be no assurance that such information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. Accordingly, readers should not place undue reliance on forward looking information, which speaks only as of the date made. The forward-looking information contained in this press release represents our expectations as of the date of this news release and are subject to change after such date. Stelco Holdings disclaims any intention or obligation or undertaking to update publicly or revise any forward-looking statements, whether written or oral, whether as a result of new information, future events or otherwise, except as required by law.

Selected Financial Information

The following includes financial information prepared by management in accordance with IFRS. This financial information does not contain all disclosures required by IFRS, and accordingly should be read in conjunction with Stelco Holdings Inc.'s Consolidated Financial Statements and MD&A for the year ended December 31, 2021, which is available on the Company's website and on SEDAR (www.sedar.com).

Non-IFRS Measures Results

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

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

SOURCE Stelco