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Stelco Holdings Inc. second quarter highlights include:
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HAMILTON, Ontario — 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 and six months ended June 30, 2022. Stelco Holdings is the 100% owner of Stelco Inc. (“Stelco”), the operating company.
(in millions Canadian dollars, except volume, per share and net tons (nt) figures)
Net income per common share (diluted) ($)
Adjusted Net Income per common share (diluted) ($) *
Average Selling Price per nt ($)*
Shipping Volume (in thousands of nt) *
* See “Non-IFRS measures” for a description of certain Non-IFRS measures used in this Press Release and “Non-IFRS Measures Reconciliation” below.
Alan Kestenbaum, Executive Chairman and Chief Executive Officer said, “Over the course of an eventful second quarter for Stelco, we fulfilled several commitments to our shareholders by unlocking the value of the Hamilton lands thus completing another critical component of our strategic capital plan. At the same time, we were able to capitalize on a resurgence in pricing during the very early part of the quarter to deliver $464 million in Adjusted EBITDA and remain the industry leader with a 45% Adjusted EBITDA margin.”
“The sale of the Hamilton lands was a strategic transaction for Stelco and our shareholders that will keep Stelco operating in the community we have called home for over 100 years,” continued Kestenbaum. “In addition to the $1.1 billion of capital we have returned to shareholders since our IPO in 2017, we are now offering to return up to an additional $1 billion to our shareholders through our recently announced Substantial Issuer Bid.”
“While our ongoing commitment to reducing our costs and our strategic investments have positioned Stelco to continue to operate profitably despite deteriorating market conditions, we are faced now with even stronger headwinds, including the sharply negative reversal in pricing trends that began early in the quarter with benchmark CRU pricing declining by over 40% since the recent peak in late-April and inflationary pressures on some of our key inputs such as natural gas, coal and alloys. Of course, we will work tirelessly to mitigate and overcome some of these challenges,” concluded Kestenbaum.
“The second quarter began with a continuation of the pricing and volume recovery we experienced at the end of Q1, however the market reversed course early in the quarter, and we were met with softening demand and substantially deteriorating pricing,” said Paul Scherzer, Chief Financial Officer. “Accordingly, we are reiterating our guidance for the third and fourth quarters of 2022. It is expected that Adjusted EBITDA in Q3 will be materially below the Q2 level, and further weakening is expected in our Q4 results. This assumes that the lower prices and shorter lead-times being experienced currently fully impact results and prevail through the remainder of 2022.”
“Our commitment to effectively deploying our capital and delivering returns to shareholders will continue with a $0.30 per share dividend this quarter,” continued Scherzer. “We are confident that even after the completion of our SIB, our balance sheet strength will enable us to weather the anticipated weaker second half of 2022.”
Q2 2022 revenue increased $119 million, or 13%, from $918 million in Q2 2021, primarily due to a 12% increase in Average Selling Price per net ton and higher non-steel sales of $12 million, partly offset by lower Shipping Volumes. The Average Selling Price of our steel products increased from $1,292 per nt in Q2 2021 to $1,453 per nt in Q2 2022. Our Shipping Volumes decreased 2 thousand nt to 677 thousand nt from 679 thousand nt in Q2 2021.
The Company realized operating income of $440 million for the quarter, compared to $393 million in Q2 2021, an increase of $47 million consisting of an increase in revenue of $119 million, partly offset by an increase in cost of goods sold of $71 million.
Finance costs decreased by $29 million, from $37 million in Q2 2021 to $8 million in Q2 2022, due to the following: $25 million related to the gross remeasurement impact from our employee benefit commitment and $9 million related to the period-over-period impact of foreign exchange translation on U.S. dollar denominated working capital during the period, partly offset by $2 million increase in accretion of our employee benefit commitment obligation and $2 million higher accretion expense related to lease and other related obligations.
The Company realized net income of $554 million for the quarter, compared to $363 million in the second quarter of 2021, a change of $191 million primarily due to the following: $260 million gain on sale of land and buildings, $47 million increase in operating income and $29 million in lower finance costs, partly offset by $91 million in current tax expense, $39 million change in deferred taxes, $13 million change in finance income and other losses, and $2 million increase in other costs. Adjusted Net Income totaled $356 million in Q2 2022, a decrease of $27 million from $383 million in Q2 2021 (noting that the Company was not a taxpayer in Q2 2021).
Adjusted EBITDA in Q2 2022 totaled $464 million, an increase of $54 million from $410 million in Q2 2021, which reflects an increase in Average Selling Price per net ton, partly offset by higher cost of goods sold.
Q2 2022 revenue increased $131 million, or 14%, from $906 million in Q1 2022, primarily due to a 14% increase in Shipping Volumes, from 594 thousand nt in Q1 2022 to 677 thousand nt in Q2 2022, partly offset by 3% lower Average Selling Price per net ton. Non-steel sales increased $34 million, from $19 million in Q1 2022 to $53 million during Q2 2022, mainly due to higher metallurgical coke tailings sales during the period.
The Company realized operating income of $440 million in Q2 2022 compared to $381 million in Q1 2022, and Adjusted EBITDA of $464 million compared to $402 million during Q1 2022, which mostly reflects an increase in Shipping Volumes and higher non-steel sales, partly offset by lower Average Selling Price per net ton.
Summary of Net Tons Shipped by Product: (in thousands of nt)
a Includes other steel products: pig iron, slabs and non-prime steel sales.
Statement of Financial Position and Liquidity:
On a consolidated basis, the Company ended the period with cash of $1,503 million and $247 million of availability under its revolving credit facility as at June 30, 2022. The following table shows selected information regarding the consolidated balance sheet as at the noted dates:
Property, plant and equipment, net
Obligations to independent employee trusts
Obligations to independent employee trusts
Stelco Holdings and its subsidiaries ended Q2 2022 with current assets of $2,432 million, which exceeded current liabilities of $975 million by $1,457 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 $467 million of obligations to independent pension and OPEB trusts, which includes $360 million of employee benefit commitments and $107 million under a mortgage note payable associated with the June 2018 land purchase. Non-current liabilities of $635 million as at June 30, 2022 include $293 million of the aforementioned obligations to independent pension and OPEB trusts and property lease-related liabilities in connection with a sale and leaseback transaction described below. Stelco Holdings’ consolidated equity totaled $2,002 million at June 30, 2022. Total equity is after giving effect to $209 million of shares repurchased by the Company in 2022 through June 30th, including $10 million of treasury shares cancelled subsequent to quarter end.
Sale and Leaseback of Hamilton Land and Buildings
In connection with the sale and leaseback transaction with an affiliate of Slate Asset Management announced on June 1, 2022, the Company received gross proceeds of $518 million and recorded a gain on the sale of $260 million on the interim condensed consolidated statements of income.
Stelco Holdings’ Board of Directors approved the payment of a regular quarterly dividend of $0.30 per share which will be paid on September 9, 2022, to shareholders of record as of the close of business on September 6, 2022.
The regular quarterly dividend has been designated as an “eligible dividend” for purposes of the Income Tax Act (Canada).
Stelco management will host a conference call to discuss its results tomorrow, Thursday, August 11, 2022, at 9:00 a.m. ET. To access the call, please dial 1 (844) 200-6205 or 1 (646) 904-5544 and use access code 906790. 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 August 11, 2022 until 11:59 p.m. ET on August 25, 2022 by dialing 1 (866) 813-9403 and using the access code 844659.
Consolidated Financial Statements and Management’s Discussion and Analysis
The Company’s consolidated financial statements for the three and six months ended June 30, 2022, and Management’s Discussion & Analysis thereon are available under the Company’s profile on SEDAR at www.sedar.com.
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.
This news 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 period ended June 30, 2022 available under the Company’s profile on SEDAR at www.sedar.com.
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: statements regarding Stelco’s continued operation in Hamilton; 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 the strength of our balance sheet will enable us to weather any market deterioration experienced during the second half of 2022 regardless of any change to our balance sheet as a result of the substantial issuer bid; expectations that margins will be under pressure in the second half of 2022 due to lower pricing and inflationary pressure on costs inputs and reduced demand; and the benefits of strategic investments to improve efficiency and lower costs.
Key Assumptions Underlying our Q3 and Q4 Adjusted EBITDA Estimates:
Guidance regarding Q3 and Q4 2022 Adjusted EBITDA referenced in this press release are based on a number of assumptions, including, but not limited to, the following material assumptions:
We believe that our performance and our ability to achieve these forecasts depends on a number of material factors including: (i) sustained demand from our customers; (ii) continued steel production capacity curtailments in China; (iii) continued fair trade practices, particularly with respect to the North American market; (iv) the COVID-19 pandemic not having an adverse impact on North American demand for our products; and (v) stable supply and demand fundamentals in the rest of the world, other than factors related to the conflict in Eastern Europe. These factors are also subject to a number of inherent risks, challenges and assumptions.
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.
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, 2022, which is available on the Company’s website and on SEDAR ( www.sedar.com).
Stelco Holdings Inc. Consolidated Statements of Income (unaudited)
Revenue from sale of goods
Selling, general and administrative expenses
Finance and other income (loss)
Gain on sale of land and buildings
Deferred income tax expense (recovery)
(In millions of Canadian dollars) (unaudited)
Property, plant and equipment, net
Obligations to independent employee trusts
Obligations to independent employee trusts
The following table provides a reconciliation of net income to Adjusted Net Income for the periods indicated:
Add back/(Deduct) following items:
Gain on sale of land and buildings
Loss (Gain) on derivative asset
Remeasurement of employee benefit commitment 3
Transaction-based and other corporate-related costs
Total adjusted items before tax
Tax impact of above items
Total adjusted items after tax
1 Other costs primarily includes the write-down of certain capital projects that are no longer being pursued by the Company, representing aborted construction in progress costs without future benefit to Stelco, and demolition costs for certain buildings (and other assets) not connected to the Company’s ongoing operations.
2 Share-based compensation represents costs in connection with the Company’s Total Shareholder Return Incentive Program which commenced during the first quarter of 2022.
3 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 to Adjusted EBITDA for the periods indicated:
(millions of Canadian dollars, except where otherwise noted)
Add back/(Deduct) following items:
Gain on sale of land and buildings
Loss (Gain) on derivative asset
Transaction-based and other corporate-related costs
Adjusted EBITDA as a percentage of total revenue
1 Other costs primarily includes the write-down of certain capital projects that are no longer being pursued by the Company, representing aborted construction in progress costs without future benefit to Stelco, and demolition costs for certain buildings (and other assets) not connected to the Company’s ongoing operations.
2 Share-based compensation represents costs in connection with the Company’s Total Shareholder Return Incentive Program which commenced during the first quarter of 2022.
View source version on businesswire.com: https://www.businesswire.com/news/home/20220810005274/en/
For investor enquiries: Paul D. Scherzer, Chief Financial Officer, (905) 577-4432, paul.scherzer@stelco.com
For media enquiries: Trevor Harris, Vice-President, Corporate Affairs, (905) 577-4447, trevor.harris@stelco.com
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