Stelco Holdings Inc. Reports First Quarter 2024 Results

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 March 31, 2024. Stelco Holdings is the 100% owner of Stelco Inc. (“Stelco”), the operating company.

Selected Financial Information

(in millions Canadian dollars, except volume, per share and net tons (nt) figures)	Q1 2024	Q1 2023	Change	Q4 2023	Change
Revenue ($)	746	687	9%	613	22%
Operating income (loss) ($)	121	18	572%	(16)	NM
Net income (loss) ($)	63	(11)	NM	(25)	NM
Adjusted Net Income ($) *	70	10	600%	9	678%
Net income (loss) per common share (diluted) ($)	1.14	(0.20)	NM	(0.45)	NM
Adjusted Net Income per common share (diluted) ($) *	1.27	0.18	606%	0.16	694%
Average Selling Price per nt ($) *	1,129	960	18%	941	20%
Shipping Volume (in thousands of nt) *	636	695	(8%)	609	4%
Adjusted EBITDA ($) *	153	65	135%	51	200%
Adjusted EBITDA per nt ($) *	241	94	156%	84	187%

* See "Non-IFRS measures" for a description of certain Non-IFRS measures used in this Press Release and “Non-IFRS Measures Reconciliation” below.

NM - Not Meaningful

“One of the foundational strengths of our business is our ability to control our costs and drive revenue through to the bottom line,” said Alan Kestenbaum, Executive Chairman and Chief Executive Officer. “As a result of our low-cost structure, in the first quarter of 2024, we were able to capitalize on a 20% increase in our Average Selling Price over the previous quarter and deliver $153 million in Adjusted EBITDA – a 200% increase over the previous quarter. This strong performance will allow us to continue to build upon the more than $2.1 billion that we have returned to shareholders since 2017, including through the repurchase of shares in the first quarter under our Normal Course Issuer Bid, and by again declaring an ordinary quarterly dividend of 50 cents per share.”

“In line with the guidance we provided, the increase in Adjusted EBITDA in the first quarter was largely due to the realization of improved pricing, which also led to an increase over the previous quarter in both revenue of 22% and Adjusted Net Income of 678%,” said Paul Scherzer, Chief Financial Officer. “The 21% EBITDA margin is once again the highest reported by any publicly-traded North American steelmaker. Following up on a successful first quarter, we anticipate Shipping Volume of approximately 625 thousand to 650 thousand net tons for the second quarter.”

“After ending the quarter with $645 million of cash and no borrowings under our revolving credit facility, we will continue to explore ways to deploy our capital in a strategic manner that is in the best interest of our shareholders,” continued Scherzer. “The close alignment of management with our shareholders remains at the core of our approach, as does our commitment to maintaining a strong balance sheet and making the necessary investments to reduce our costs and improve our already significant competitive advantage."

First Quarter 2024 Financial Review

Compared to Q1 2023

Q1 2024 revenue increased $59 million, or 9%, from $687 million in Q1 2023 to $746 million in Q1 2024, primarily due to an 18% increase in Average Selling Price per net ton, partly offset by an 8% decrease in Shipping Volume. The Average Selling Price of our steel products increased from $960 per nt in Q1 2023 to $1,129 per nt in Q1 2024. Our Shipping Volume decreased 59 thousand nt to 636 thousand nt from 695 thousand nt in Q1 2023. Also impacting revenue were non-steel sales which increased to $28 million in Q1 2024, from $20 million in Q1 2023.

The Company realized operating income of $121 million for the quarter, compared to $18 million in Q1 2023, an increase of $103 million consisting of higher revenue of $59 million, a decrease in cost of goods sold of $27 million and lower selling, general and administrative expenses of $17 million.

Finance costs increased by $7 million, from $29 million in Q1 2023 to $36 million in Q1 2024, primarily due to the following: $8 million connected to the period-over-period impact of foreign exchange translation on U.S. dollar denominated working capital and $2 million increase in inventory monetization arrangement finance charges, partly offset by $2 million lower accretion expense associated with our employee benefit commitment obligation and $1 million lower asset-based lending facility interest expense.

The Company realized net income of $63 million for the quarter, compared to a net loss of $11 million in the first quarter of 2023, a change of $74 million primarily due to the following: $103 million increase in operating income and $2 million change in finance and other income, partly offset by a $17 million increase in current tax expense, $7 million increase in finance costs and $7 million decrease in deferred tax recovery. Adjusted Net Income totaled $70 million in Q1 2024, an increase of $60 million from $10 million in Q1 2023.

Adjusted EBITDA in Q1 2024 totaled $153 million, an increase of $88 million from $65 million in Q1 2023, which mostly reflects an increase in Average Selling Price per net ton, partly offset by the impact of lower Shipping Volume.

Compared to Q4 2023

Q1 2024 revenue increased $133 million, or 22%, from $613 million in Q4 2023 to $746 million in Q1 2024, primarily due to a 20% increase in Average Selling Price per net ton and a 4% increase in Shipping Volume. The Average Selling Price of our steel products increased from $941 per nt in Q4 2023 to $1,129 per nt in Q1 2024. Our Shipping Volume increased from 609 thousand nt in Q4 2023 to 636 thousand nt in Q1 2024. Non-steel sales decreased by $12 million, from $40 million in Q4 2023 to $28 million during Q1 2024.

The Company realized operating income of $121 million in Q1 2024 compared to an operating loss of $16 million in Q4 2023, and Adjusted EBITDA of $153 million compared to $51 million during Q4 2023, which mostly reflects the impact from an increase in Average Selling Price per net ton and higher Shipping Volume.

Summary of Net Tons Shipped by Product

(in thousands of nt)

Tons Shipped by Product	Q1 2024	Q1 2023	Change	Q4 2023	Change
Hot-rolled	468	512	(9%)	421	11%
Coated	84	88	(5%)	82	2%
Cold-rolled	48	57	(16%)	49	(2%)
Other 1	36	38	(5%)	57	(37%)
Total	636	695	(8%)	609	4%
Shipments by Product (%)
Hot-rolled	74%	74%		69%
Coated	13%	13%		13%
Cold-rolled	7%	8%		8%
Other 1	6%	5%		10%
Total	100%	100%		100%

¹ Includes other steel products: pig iron and non-prime steel sales.

Statement of Financial Position and Liquidity

On a consolidated basis, the Company ended the period with total liquidity of $872 million, comprised of cash of $645 million and $227 million of availability under its revolving credit facility as at March 31, 2024. The following table shows selected information regarding the consolidated balance sheet as at the noted dates:

(millions of Canadian dollars)
As at		March 31, 2024		December 31, 2023
ASSETS
Cash		645		645
Trade and other receivables		230		185
Inventories		657		832
Total current assets		1,553		1,696
Property, plant and equipment, net		1,263		1,263
Deferred tax asset		3		3
Total non-current assets		1,363		1,369
Total assets		2,916		3,065
LIABILITIES
Trade and other payables		608		780
Other liabilities		70		73
Asset-based lending facility		15		15
Income taxes payable		16		2
Obligations to independent employee trusts		42		45
Total current liabilities		751		915
Other liabilities		419		429
Asset-based lending facility		35		38
Deferred tax liability		58		58
Obligations to independent employee trusts		296		298
Total non-current liabilities		840		854
Total liabilities		1,591		1,769
Total equity		1,325		1,296

Stelco Holdings and its subsidiaries ended Q1 2024 with current assets of $1,553 million, which exceeded current liabilities of $751 million by $802 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 $338 million of obligations to independent pension and OPEB trusts, which includes $235 million of employee benefit commitments and $103 million under a mortgage note payable associated with the June 2018 land purchase. Non-current liabilities of $840 million as at March 31, 2024 include $296 million of the aforementioned obligations to independent pension and OPEB trusts, as well as property and power generating equipment lease and other related obligations. Stelco Holdings' consolidated equity totaled $1,325 million at March 31, 2024. Total equity is calculated after giving effect to $63 million of comprehensive income for the three months ended March 31, 2024, $28 million of common share dividends declared and paid and $6 million of shares repurchased and cancelled.

Normal Course Issuer Bid

The Company received approval from the Toronto Stock Exchange (“TSX”) to commence a normal course issuer bid (“NCIB”) effective February 28, 2024. Under the terms of the NCIB, the Company is eligible to purchase up to 3,344,684 common shares. The NCIB expires on February 27, 2025, or such earlier date as Stelco may complete its purchases under the terms approved by 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 21, 2024, as calculated in accordance with the rules of the TSX. The average daily trading volume for the six months ended January 31, 2024 (“ADTV”), calculated in accordance with the rules of the TSX for purposes of the NCIB, was 214,539 common shares. Under the rules of the TSX, Stelco is entitled to repurchase, during each trading day, up to 25% of the ADTV, or 53,634 common shares (excluding purchases made pursuant to the block purchase exception), through the TSX. Repurchases in Q1 2024 under the NCIB were 162,068 shares.

Declaration of Quarterly Dividend

Stelco Holdings' Board of Directors approved the payment of a regular quarterly dividend of $0.50 per common share which will be paid on May 24, 2024, to shareholders of record as of the close of business on May 17, 2024.

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 on Thursday, May 9, 2024, at 9:00 a.m. ET. To access the call, please dial 1-833-470-1428 or 1-226-828-7575 and use access code 991803. The conference call will also be webcasted live on the Investor Relations section of Stelco’s web site at http://investors.stelco.com. A presentation that will accompany the conference call will be made 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 May 9, 2024, until 11:59 p.m. ET on May 23, 2024, by dialing 1-866-813-9403 or 1-226-828-7578 and using the access code 692781.

Consolidated Financial Statements and Management’s Discussion and Analysis

The Company’s Consolidated Financial Statements for the three months ended March 31, 2024, and Management’s Discussion & Analysis (MD&A) thereon are available under the Company’s profile on SEDAR+ at www.sedarplus.ca.

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 press release refers to certain non-IFRS measures that are not recognized under International Financial Reporting Standards ("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 common 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 three months ended March 31, 2024 available under the Company’s profile on SEDAR+ at www.sedarplus.ca.

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, acquisitions, opportunities, budgets, operations, financial results, taxes, dividend policy, Shipping Volume, 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" or "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 press release includes: statements regarding future cash generation and delivering positive results and strong returns to stakeholders; expectations regarding expected Shipping Volume in the second quarter of 2024; statements regarding strategic capital deployment; statements regarding our commitment to a strong balance sheet and cost reduction initiatives; statements regarding our dividend policy.

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 the utilization of and access to our production capacity; capital expenditures associated with accessing such production capacity; the ongoing impact of global conflicts on the international supply chain and economy overall; the impact of China's economic performance; the impact from government infrastructure spending globally; the impact of central banks' policy responses to global price inflation; the impact from inflationary cost pressures from energy prices and certain other high demand commodities; upgrades to our facilities and equipment; our research and development activities associated with advanced steel grades; impacts from higher interest rates; our ability to manage future costs relating to environmental compliance without such costs having a material adverse effect on our financial position; expectations that any increase in production capacity will not be affected by applicable environmental requirements, including air emissions requirements; our ability to source raw materials and other inputs at competitive rates; our ability to supply to new and existing 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, rules, and regulations, including environmental and international trade regulations; our ability to effectively mitigate the impact of any labour disputes; 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.

Key Assumptions Underlying our Q2 2024 Shipping Volume Estimates

The estimates with respect to our Shipping Volumes during the second quarter of 2024 referenced in this press release are based on a number of assumptions in addition to the foregoing 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 legal or regulatory developments; no adverse changes in economic conditions, or macro changes in the competitive environment affecting our business activities; maintenance and upgrades to existing facilities remaining on schedule and on budget and their anticipated effect on revenue and costs being fully realized; the Company’s ability to attract new customers and further develop and maintain existing customers; currency exchange and interest rates not having an adverse impact on steel demand; the impact of competition; and growth in steel markets and industry trends.

We believe that our performance and our ability to achieve these shipments during the second quarter of 2024 depend on a number of material factors including: (i) stable and consistent growth in global demand; (ii) continued steel production capacity curtailments in China; (iii) continued fair trade practices, particularly with respect to the North American market; (iv) higher interest rates and inflation not having an adverse impact on steel demand; and (v) stable supply and demand fundamentals in the rest of the world. These factors are also subject to a number of inherent risks, challenges and assumptions.

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 press 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 three months ended March 31, 2024, which is available on the Company’s website and on SEDAR+ (www.sedarplus.com).

Stelco Holdings Inc. Consolidated Statements of Income (Loss) (unaudited)
(millions of Canadian dollars)
Three months ended March 31,			2024				2023
Revenue from sale of goods		$	746			$	687
Cost of goods sold			617				644
Gross profit			129				43
Selling, general and administrative expenses			8				25
Operating income			121				18
Finance costs			(36	)			(29	)
Finance and other income			2				—
Other costs			(3	)			(2	)
Share of loss from joint ventures			—				(1	)
Income (Loss) before income taxes			84				(14	)
Current income tax expense			21				4
Deferred income tax recovery			—				(7	)
Net income (loss)		$	63			$	(11	)

Stelco Holdings Inc. Consolidated Balance Sheets (millions of Canadian dollars) (unaudited)
As at		March 31, 2024			December 31, 2023
ASSETS
Current assets
Cash		$	645		$	645
Restricted cash			9			10
Trade and other receivables			230			185
Inventories			657			832
Prepaid expenses and deposits			12			24
Total current assets		$	1,553		$	1,696
Non-current assets
Derivative asset			64			71
Property, plant and equipment, net			1,263			1,263
Intangible assets			14			13
Investment in joint ventures			19			19
Deferred tax asset			3			3
Total non-current assets		$	1,363		$	1,369
Total assets		$	2,916		$	3,065
LIABILITIES
Current liabilities
Trade and other payables		$	608		$	780
Other liabilities			70			73
Asset-based lending facility			15			15
Income taxes payable			16			2
Obligations to independent employee trusts			42			45
Total current liabilities		$	751		$	915
Non-current liabilities
Provisions			18			18
Pension benefits			14			13
Other liabilities			419			429
Asset-based lending facility			35			38
Deferred tax liability			58			58
Obligations to independent employee trusts			296			298
Total non-current liabilities		$	840		$	854
Total liabilities		$	1,591		$	1,769
EQUITY
Common shares			317			318
Retained earnings			1,008			978
Total equity		$	1,325		$	1,296
Total liabilities and equity		$	2,916		$	3,065

Non-IFRS Measures Reconciliation

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

(millions of Canadian dollars)
Three months ended March 31,			2024				2023
Net income (loss)		$	63			$	(11	)
Add back (Deduct) following items:
Loss on derivative asset			7				10
Share-based compensation expense (recovery)			(3	)			16
Other costs 1			3				2
Transaction-based and other corporate-related costs			2				—
Total adjusted items before tax			9				28
Tax impact of above items			(2	)			(7	)
Total adjusted items after tax			7				21
Adjusted Net Income		$	70			$	10

1

Represents certain non-routine items that include, but are not limited to, strategic project-based research and development costs, the write-down of certain capital projects that are no longer being pursued by the Company such as aborted construction in progress costs without future benefit to Stelco, and demolition costs not connected to the Company’s ongoing steelmaking operations.

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

(millions of Canadian dollars, except where otherwise noted)
Three months ended March 31,			2024				2023
Net income (loss)		$	63			$	(11	)
Add back (Deduct) following items:
Finance costs			36				29
Depreciation			33				32
Income tax expense (recovery):
Current			21				4
Deferred			—				(7	)
Finance income			(9	)			(10	)
Loss on derivative asset			7				10
Share-based compensation expense (recovery)			(3	)			16
Other costs 1			3				2
Transaction-based and other corporate-related costs			2				—
Adjusted EBITDA		$	153			$	65
Adjusted EBITDA as a percentage of total revenue			21	%			9	%

1

Represents certain non-routine items that include, but are not limited to, strategic project-based research and development costs, the write-down of certain capital projects that are no longer being pursued by the Company such as aborted construction in progress costs without future benefit to Stelco, and demolition costs not connected to the Company’s ongoing steelmaking operations.

 

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