/NOT FOR DISTRIBUTION TO U.S. NEWSWIRE
SERVICES OR FOR DISSEMINATION IN THE
UNITED STATES/
Stelco Holdings Inc. third quarter 2019 highlights
include:
- Q3 2019 revenue of $475
million
- Q3 2019 operating income of $9
million
- Q3 2019 adjusted EBITDA* of $23
million and adjusted EBITDA per ton* of $35
- Q3 2019 steel shipping volumes* of 654 thousand net
tons
- Company declares a regular quarterly dividend of
$0.10 per share payable on
November 29, 2019 to shareholders of
record as of the close of business on November 25, 2019
- Stelco to expand its product mix by adding pig iron
production and shipments in 2020
HAMILTON, ON, Nov. 13, 2019 /CNW/ - Stelco Holdings Inc.
("Stelco Holdings" or the "Company") (TSX: STLC), a
low cost, integrated and independent steelmaker with one of the
newest and most technologically advanced integrated steelmaking
facilities in North America, today
announced financial results of the Company for the three months
ended September 30, 2019. Stelco
Holdings is the 100% owner of Stelco Inc. ("Stelco"), the
operating company.
Stelco Holdings Inc. Highlights:
Selected Financial Information:
(in millions except
volume, per share
and nt figures)
|
Q3
2019
|
Q3 2018
|
Change
|
Q2 2019
|
Change
|
YTD
2019
|
YTD
2018
|
Change
|
Revenue
($)
|
475
|
619
|
(23)%
|
431
|
10%
|
1,423
|
1,812
|
(21)%
|
Operating income
($)
|
9
|
138
|
(93)%
|
3
|
200%
|
56
|
358
|
(84)%
|
Net income
($)
|
—
|
125
|
NM
|
1
|
(100)%
|
44
|
143
|
(69)%
|
Adjusted net income
(loss) ($)*
|
(11)
|
174
|
(106)%
|
6
|
(283)%
|
55
|
389
|
(86)%
|
|
|
|
|
|
|
|
|
|
Net income per common
share (diluted)
($)
|
—
|
1.41
|
NM
|
0.01
|
(100)%
|
0.50
|
1.61
|
(69)%
|
Adjusted net income
(loss) per common
share (diluted) ($)*
|
(0.12)
|
1.96
|
(106)%
|
0.07
|
(271)%
|
0.62
|
4.38
|
(86)%
|
|
|
|
|
|
|
|
|
|
Average selling price
per nt ($)*
|
704
|
980
|
(28)%
|
761
|
(7)%
|
763
|
880
|
(13)%
|
Shipping volume* (in
thousands of nt)
|
654
|
586
|
12%
|
545
|
20%
|
1,811
|
1,947
|
(7)%
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
($)*
|
23
|
193
|
(88)%
|
32
|
(28)%
|
131
|
447
|
(71)%
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA per
nt ($)*
|
35
|
330
|
(89)%
|
59
|
(41)%
|
72
|
230
|
(69)%
|
*
|
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.
|
"I am pleased to report that we were able to increase our
shipments by 20%, quarter-over-quarter, including a 31% increase in
our sales of cold-rolled and coated sheet products," said
David Cheney, Stelco Holdings' Chief
Executive Officer. "This is validation from our customers that our
capital investment to install state-of-the-art batch annealing and
tempering capabilities was what the market demanded. We
expect to grow our cold-rolled and coated shipments, including
galvanized, to further diversify our product mix and increase
sales of value-added products. Looking forward, demand from
our customers remains strong and we affirm our expectation to ship
approximately 1.3 million tons over the second half of the
year."
"At the end of Q2, we said that we would achieve run-rate cost
savings of $25-$50 million by the end Q2 2020. We have so
far achieved approximately $23
million in run-rate cost reductions. These savings are
permanent and exclude favorable changes in raw material
prices. Additionally, we expect achieve up to $20 million in annual savings as a result of
early employee retirement initiatives we recently implemented"
continued Cheney.
"I am excited to announce yet another organic growth investment
with the installation of a new pig iron making facility to be
constructed at our Lake Erie Works facility. We currently
plan to complete the construction of the new facility to coincide
with our blast furnace reline scheduled for Q2 of 2020, and to be
in a position to commence pig iron shipments the following
quarter. We have executed a letter of intent for the sale of
a meaningful portion of the first two years' output. This
investment will further amplify our tactical flexibility by
providing the capability to produce more than one-million tons of
pig iron annually.
"We ended the third quarter in a strong liquidity position with
$349 million of cash and an undrawn
ABL revolver. In November, we added liquidity with a $100 million ABL term loan. Adding
low-cost, incremental liquidity like this term loan, which is
pre-payable at any time without penalty, enables Stelco to continue
to efficiently invest in our assets and grow our business, both
organically and by exploring accretive M&A opportunities as
they arise.
"With respect to creating value from the Hamilton lands, we continue to lease existing
surplus buildings which now brings us to approximately 28% leased,
up from 21% at the end of the last quarter. Demand for the
remaining buildings is very strong and we expect the pace of
leasing to continue to accelerate. Our property has also
served as an attractive location for content creators in the film
and television industry and as such, we have generated revenue for
utilizing our property as a location for content creation. We
expect this revenue source to grow, and importantly, to attract
land developers who see Hamilton,
and our land in particular, as a prime location for development of
content to satisfy industry wide shortages of quality studio space,
among other uses. While Stelco will always focus on its core
business of producing steel, it is exciting to be able to monetize
our non-core assets and create value for our shareholders with this
exceptional and unique piece of real estate.
"Our Board has approved another regular dividend of $0.10 per share, marking the eighth consecutive
quarter that Stelco has declared such a dividend - a result we are
exceptionally proud of. We believe our continued focus on our
customers, product diversification and growth, combined with
continued efforts to lower our costs and improve our overall
financial position will allow us to maintain our leading role in
the industry. Our willingness to invest and challenge ourselves to
innovate, will place Stelco in a position of strength as we operate
through the balance of the year and into 2020," concluded
Cheney.
Third Quarter 2019 Financial Review:
Compared to Q3 2018
Q3 2019 revenue decreased $144
million, or 23%, from $619
million in Q3 2018 to $475
million in Q3 2019, primarily due to a 28% decrease in
average selling price for steel and a $31
million decrease in non-steel sales, partly offset by a 12%
increase in steel shipping volumes. The average selling price of
our steel products decreased from $980/nt in Q3 2018 to $704/nt in Q3 2019, due largely to decreases in
market prices for flat steel products. Shipping volumes increased
68 thousand nt, from 586 thousand nt in Q3 2018 to 654 thousand nt
in Q3 2019 reflecting strong demand in Q3 2019 and to lower sales
in Q3 2018, due in part to an extended hot strip mill outage in the
prior year quarter.
Operating income decreased by $129
million, or 93%, from $138
million in Q3 2018, mainly due to lower revenue of
$144 million, partly offset by lower
cost of sales of $11 million and
selling, general and administrative expenses of $4 million during Q3 2019. Cost of sales includes
raw material and conversion costs, depreciation and freight
associated with inventory sold during the period.
Finance costs decreased by $3
million, or 25%, from $12
million in Q3 2018, due to a $9
million increase in favorable remeasurement recoveries
and $2 million lower accretion
expense associated with our employee benefit commitment obligation,
partly offset by $4 million related
to the period-over-period gross impact of foreign exchange
translation on U.S. dollar denominated working capital and
$2 million increase in interest on
loans and borrowings.
Net income for the quarter of nil decreased by $125 million, or 100%, from $125 million in Q3 2018, primarily due to lower
gross profit of $133 million,
$2 million decrease in finance and
other income, partly offset by lower selling, general and
administrative expenses of $4
million, $3 million in lower
finance costs and $2 million decrease
in restructuring costs. Adjusted net income decreased $185 million year-over-year, from $174 million in Q3 2018 to an adjusted net loss
of $11 million in Q3 2019.
Adjusted EBITDA in Q3 2019 totaled $23
million, a decrease of $170
million from adjusted EBITDA of $193
million in Q3 2018, which reflects the decrease in revenue
from lower market steel prices, higher freight costs, as well as
lower non-steel sales, partly offset by higher steel shipping
volumes.
Compared to Q2 2019
Revenue increased 10%, from $431
million in Q2 2019 to $475
million in Q3 2019, which reflects a 20% increase in steel
shipping volumes, from 545 thousand nt in Q2 2019 to 654 thousand
nt in Q3 2019, partly offset by a 7% decrease in average selling
price, from $761/nt in Q2 2019 to
$704/nt in Q3 2019 and lower
non-steel sales. Operating income increased to $9 million in Q3 2019, from $3 million in Q2 2019. Adjusted EBITDA decreased
to $23 million, down 28% from Q2 2019
adjusted EBITDA of $32 million, primarily due to lower average
selling prices, higher freight costs and lower non-steel sales,
partly offset by higher steel shipping volumes realized.
Summary of Net Tons Shipped by Product:
(in thousands
of nt)
Tons Shipped
by
Product
|
Q3
2019
|
Q3 2018
|
Change
|
Q2 2019
|
Change
|
YTD
2019
|
YTD 2018
|
Change
|
Hot-rolled
|
425
|
446
|
(5)%
|
375
|
13%
|
1,317
|
1,527
|
(14)%
|
Coated
|
87
|
82
|
6%
|
67
|
30%
|
220
|
259
|
(15)%
|
Cold-rolled
|
26
|
19
|
37%
|
19
|
37%
|
49
|
67
|
(27)%
|
Other
1
|
116
|
39
|
197%
|
84
|
38%
|
225
|
94
|
139%
|
Total
|
654
|
586
|
12%
|
545
|
20%
|
1,811
|
1,947
|
(7)%
|
|
|
|
|
|
|
|
|
|
Shipments by
Product (%)
|
|
|
|
|
|
|
|
|
Hot-rolled
|
65%
|
76%
|
|
69%
|
|
73%
|
78%
|
|
Coated
|
13%
|
14%
|
|
12%
|
|
12%
|
13%
|
|
Cold-rolled
|
4%
|
3%
|
|
3%
|
|
3%
|
4%
|
|
Other
1
|
18%
|
7%
|
|
16%
|
|
12%
|
5%
|
|
Total
|
100%
|
100%
|
|
100%
|
|
100%
|
100%
|
|
1 Includes
other steel products: slabs and non-prime steel
inventory.
|
Statement of Financial Position and Liquidity:
On a consolidated basis, Stelco Holdings ended Q3 2019 with cash
and cash equivalents of $349 million
and $115 million of capacity under
ABL revolver, which remained completely undrawn at September 30, 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
|
September 30,
2019
|
December 31,
2018
|
ASSETS
|
|
|
Cash and cash
equivalents
|
349
|
438
|
Trade and other
receivables
|
136
|
252
|
Inventories
|
508
|
468
|
Total current
assets
|
1,018
|
1,194
|
Total
assets
|
1,665
|
1,655
|
|
|
|
LIABILITIES
|
|
|
Trade and other
payables
|
544
|
436
|
Total current
liabilities
|
653
|
579
|
Total non-current
liabilities
|
527
|
508
|
Total
liabilities
|
1,180
|
1,087
|
|
|
|
Total
equity
|
485
|
568
|
Stelco Holdings and its subsidiaries ended Q3 2019 with current
assets of $1.0 billion, which
exceeded current liabilities of $653
million by $365 million.
Stelco Holdings' liabilities include $542
million of obligations to independent pension and OPEB
trusts, which includes $430 million
of employee benefit commitments and $112
million under a mortgage note payable associated with the
June 2018 land purchase. Long term
liabilities of $527 million as at
September 30, 2019, include
$471 million of obligations to
independent pension and OPEB trusts. Stelco Holdings' consolidated
equity totaled $485 million at
September 30, 2019.
Asset-Based Lending Facility (ABL) Amendment
Effective November 4, 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 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-revolver term loan. The other terms of the ABL
agreement have remained substantially similar to the original
agreement.
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 November 29, 2019, to
shareholders of record as of the close of business on November 25, 2019.
The regular quarterly dividend has been designated as an
"eligible dividend" for purposes of the Income Tax Act
(Canada).
Quarterly Results Conference Call
Stelco management will host a conference call to discuss its
results tomorrow, Thursday, November 14,
2019, at 9:00 a.m. ET. To
access the call, please dial 1 (888) 390 - 0605 or 1 (416) 764 -
8609 and reference "Stelco". The conference call will also be
webcasted live on the Investor Relations section of Stelco's web
site at https://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 November 14, 2019 until 11:59 p.m. ET on November
28, 2019 by dialing 1- 888 390 0541 or 1- 416 764 8677 and
using the pin number 178532#.
Consolidated Financial Statements and Management's Discussion
and Analysis
The Company's unaudited interim condensed consolidated financial
statements for the period ended September 30, 2019, and
Management's Discussion & Analysis thereon are available under
the Company's profile on SEDAR at www.sedar.com.
About Stelco
Stelco is a low cost, integrated and independent steelmaker with
one of the newest and most technologically advanced integrated
steelmaking facilities in North
America. Stelco produces flat-rolled value-added steels,
including premium-quality coated, cold-rolled and hot-rolled steel
products. With first-rate gauge, crown, and shape control, as well
as reliable uniformity of mechanical properties, our steel products
are supplied to customers in the construction, automotive and
energy industries across Canada
and the United States as well as
to a variety of steel services centres, which are regional
distributers of steel products.
Non-IFRS Measures
This news release refers to certain non-IFRS measures that are
not recognized under International Financial Reporting Standards
("IFRS") and do not have a standardized meaning prescribed by IFRS.
These measures are not recognized measures under IFRS, do not have
a standardized meaning prescribed by IFRS and therefore may not be
comparable to similar measures presented by other companies.
Rather, these measures are provided as additional information to
complement those IFRS measures by providing further understanding
of our results of operations from management's perspective.
Accordingly, these measures should not be considered in isolation
nor as a substitute for analysis of our financial information
reported under IFRS. We use non-IFRS measures including "adjusted
net income", "adjusted net income per share", ''adjusted EBITDA'',
''adjusted EBITDA per nt'', ''selling price per nt'', and
''shipping volume'' to provide supplemental measures of our
operating performance and thus highlight trends in our core
business that may not otherwise be apparent when relying solely on
IFRS financial measures. We also believe that securities analysts,
investors and other interested parties frequently use non-IFRS
measures in the evaluation of issuers. Our management uses these
non-IFRS financial measures to facilitate operating performance
comparisons from period-to-period, to prepare annual operating
budgets and forecasts, and drive performance through our management
compensation program. For a reconciliation of these non-IFRS
measures, refer to the Company's "Non-IFRS Measures Reconciliation"
section below. For a definition of these non-IFRS measures, refer
to the Company's MD&A for the period ended September 30,
2019 available under the Company's profile on SEDAR at
www.sedar.com.
Forward-Looking Information
This release contains ''forward-looking information'' within the
meaning of applicable securities laws. Forward-looking information
may relate to our future outlook and anticipated events or results
and may include information regarding our financial position,
business strategy, growth strategy, budgets, operations, financial
results, taxes, dividend policy, plans and objectives of our
Company. Particularly, information regarding our expectations of
future results, performance, achievements, prospects or
opportunities is forward-looking information. In some cases,
forward-looking information can be identified by the use of
forward-looking terminology such as ''plans'', ''targets'',
''expects'' or ''does not expect'', ''is expected'', ''an
opportunity exists'', ''budget'', ''scheduled'', ''estimates'',
''outlook'', ''forecasts'', ''projection'', ''prospects'',
''strategy'', ''intends'', ''anticipates'', ''does not
anticipate'', ''believes'', or variations of such words and phrases
or state that certain actions, events or results ''may'',
''could'', ''would'', ''might'', ''will'', ''will be taken'',
''occur'' or ''be achieved''. In addition, any statements that
refer to expectations, intentions, projections or other
characterizations of future events or circumstances may be forward
looking statements. Forward-looking statements are not historical
facts but instead represent management's expectations, estimates
and projections regarding future events or circumstances. The
forward-looking statements contained herein are presented for the
purpose of assisting the holders of our securities and financial
analysts in understanding our financial position and results of
operations as at and for the periods ended on the dates presented,
as well as our financial performance objectives, vision and
strategic goals, and may not be appropriate for other purposes.
Forward-looking information in this news release includes our
advancement of strategic initiatives, expectations in respect of
shipment volumes being more closely aligned with historical
customer demands resulting in anticipated shipments of
approximately 1.3 million tons during the second half of 2019,
expectations that the Company's willingness to invest and innovate
will allow the Company to succeed; expectations regarding potential
mergers and acquisition opportunities and the Company's belief that
the $100 million ABL term loan may
allow the Company to efficiently invest in any such opportunities,
expectations regarding annualized cost reductions including
anticipated run-rate cost savings of up to $20 million through the implementation of the
early employee retirement initiative, statements with respect to
the construction of a pig iron facility at the Company's Lake Erie
Works facility, expectations regarding the construction schedule
and capital cost of the pig iron facility and anticipated
production and shipment timing and volumes that may be realized
upon completion of project, expectations that the Company will be
able to sell a meaningful portion of anticipated output from our
pig iron facility to a third party customer in keeping with an
executed letter of intent, our belief that demand for our remaining
buildings is very strong and our expectation that the pace of
leasing will continue to accelerate, expectations that our real
estate development initiatives will create a growing source of
revenue and will attract land developers to our real property,
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 source raw
materials and other inputs; our ability to supply to new customers
and markets; our ability to effectively manage costs; our ability
to attract and retain key personnel and skilled labour; our ability
to obtain and maintain existing financing on acceptable terms;
currency exchange and interest rates; the impact of competition;
changes in laws, rule, and regulations, including international
trade regulations; our ability to continue to access the U.S.
market without any adverse trade restrictions; upgrades to existing
facilities remaining on schedule and on budget and their
anticipated effect on revenue and costs; and growth in steel
markets and industry trends, as well as those set out in this press
release, are material factors made in preparing the forward-looking
information and management's expectations contained in this press
release.
Such forward-looking information is subject to known and unknown
risks, uncertainties, assumptions and other factors that may cause
the actual results, level of activity, performance or achievements
to be materially different from those expressed or implied by such
forward-looking information, including: North American and global
steel overcapacity; imports and trade remedies; competition from
other producers, imports or alternative materials; and the
availability and cost of inputs placing downward pressure on steel
prices or increasing our costs; as well as those described in the
Company's annual information form dated February 15, 2019 and
the Company's MD&A for the period ended June 30, 2019 available under the Company's
profile on SEDAR at www.sedar.com.
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: our ability to continue to access the U.S. market
without any adverse trade restrictions; consistent demand for steel
in North America; no significant
additional legal or regulatory developments, no material failure to
any of our operations, no changes in economic conditions, or macro
changes in the competitive environment affecting our business
activities; upgrades to existing facilities and the construction of
new facilities remaining on schedule and within budget and their
anticipated effect on revenue and costs being fully realized; our
ability to attract new customers and further develop and maintain
existing customers; currency exchange and interest rates; the
impact of competition; and growth in steel markets and industry
trends. We note that: (i) potential further changes to trade
regulations in the United States;
(ii) a failure by Canada or the
U.S. to ratify the Canada-U.S.-Mexico-Agreement on North American
trade; and/or (iii) the outcome of trade deliberations between the
U.S. and China could materially
alter underlying assumptions around anticipated shipping volumes
and the steel market, generally.
Key Assumptions Underlying Our Cost Reduction Estimates
The estimates with respect to anticipated results from our
ongoing cost reduction initiatives included in this press release
are based on a number of assumptions, including, but not limited
to, the following material assumptions: the successful execution of
our cost reduction strategy by management; anticipated run-rate
cost savings resulting from the early employee retirement
initiative being fully realized; cost savings initiatives being
implemented in a manner that does not adversely affect our ability
to operate safely and sustainably and without impacting our ability
to ship products to customers as required; no unforeseen additional
costs being incurred by us in connection with implementing such
cost savings items; there being no change in governmental or
industry regulations, including environmental regulations, trade
matters, taxes or other regulatory initiatives that could result in
increased costs on a net ton basis; the existing costs incurred by
us in connection with the production and manufacture of steel
products that are not targeted for cost-reduction remaining flat;
anticipated growth and maintenance capital expenditures not
increasing; no material failure occurring with respect to any of
our planned or existing production facilities; the willingness of
our suppliers and/or customers to accept price reductions or price
increases, as applicable; upgrades to existing facilities and
construction of new facilities remaining on schedule and within
budget and their anticipated effect on revenue and costs being
fully realized; our ability to successfully reduce our reliance on
contractors in a sustainable manner; our ability to successfully
improve production yields; our ability to enhance utilization of
secondary materials; our ability to maintain positive employee and
labour relations; favourable currency exchange and interest rates;
and growth in steel markets and industry trends.
Key Assumptions Underlying the Pig Iron Facility Project
The estimated budget, schedule and production volumes with
respect to the planned 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 of the new facility on terms acceptable to the
Company; expectations that third party contractors and suppliers
will deliver and construct in accordance with agreed upon budgets
and schedules; our ability to obtain any applicable regulatory
approvals required to construct a pig iron facility at our Lake
Erie Works facility; expectations that, upon completion, the pig
iron facility will produce in accordance with its design capacity;
expectations that the market for pig iron does not experience a
material adverse change between now and Q3 2020 when shipments are
expected to begin; expectations that a third party customer, with
whom we have entered into a letter of intent to sell a material
portion of the pig iron facility's production, will remain
committed to the letter of intent; the planned blast furnace reline
proceeding on schedule and, upon completion, performing in such a
manner so as to provide the pig iron facility with sufficient
molten metal to meet the pig iron facility's production capacity;
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 period ended
September 30, 2019, which is available on the Company's
website and on SEDAR (www.sedar.com).
Stelco Holdings Inc.
Consolidated statements of
income
(unaudited)
|
Three months ended
September 30,
|
Nine months ended
September 30,
|
(millions of Canadian
dollars)
|
2019
|
2018
|
2019
|
2018
|
Revenue from sale of
goods
|
$
|
475
|
$
|
619
|
$
|
1,423
|
$
|
1,812
|
Cost of goods
sold
|
457
|
468
|
1,332
|
1,414
|
Gross
profit
|
18
|
151
|
91
|
398
|
Selling, general and
administrative expenses
|
9
|
13
|
35
|
40
|
Operating
income
|
9
|
138
|
56
|
358
|
|
|
|
|
|
Other income
(loss) and (expenses)
|
|
|
|
|
Finance
costs
|
(9)
|
(12)
|
(15)
|
(198)
|
Finance and other
income (loss)
|
1
|
3
|
6
|
(7)
|
Restructuring and
other costs
|
(1)
|
(3)
|
(1)
|
(8)
|
Share of loss from
joint ventures
|
—
|
(1)
|
(2)
|
(2)
|
Income before
income taxes
|
—
|
125
|
44
|
143
|
Income tax
expense
|
—
|
—
|
—
|
—
|
Net
income
|
$
|
—
|
$
|
125
|
$
|
44
|
$
|
143
|
Stelco Holdings Inc.
Consolidated balance sheets
(unaudited)
(millions of Canadian
dollars)
|
|
|
As at
|
September 30,
2019
|
December 31,
2018
|
ASSETS
|
|
|
Current
assets
|
|
|
Cash and cash
equivalents
|
$
|
349
|
$
|
438
|
Restricted
cash
|
15
|
8
|
Trade and other
receivables
|
136
|
252
|
Inventories
|
508
|
468
|
Prepaid
expenses
|
10
|
28
|
Total current
assets
|
$
|
1,018
|
$
|
1,194
|
|
|
|
Non-current
assets
|
|
|
Property, plant and
equipment, net
|
636
|
448
|
Intangible
assets
|
7
|
7
|
Investment in joint
ventures
|
4
|
6
|
Total non-current
assets
|
$
|
647
|
$
|
461
|
Total
assets
|
$
|
1,665
|
$
|
1,655
|
|
|
|
LIABILITIES
|
|
|
Current
liabilities
|
|
|
Trade and other
payables
|
$
|
544
|
$
|
436
|
Other
liabilities
|
38
|
40
|
Obligations to
independent employee trusts
|
71
|
103
|
Total current
liabilities
|
$
|
653
|
$
|
579
|
|
|
|
Non-current
liabilities
|
|
|
Provisions
|
5
|
5
|
Pension
benefits
|
5
|
2
|
Other
liabilities
|
46
|
13
|
Obligations to
independent employee trusts
|
471
|
488
|
Total non-current
liabilities
|
$
|
527
|
$
|
508
|
Total
liabilities
|
$
|
1,180
|
$
|
1,087
|
|
|
|
EQUITY
|
|
|
Common
shares
|
512
|
512
|
Treasury
shares
|
—
|
(1)
|
Retained earnings
(deficit)
|
(27)
|
57
|
Total
equity
|
$
|
485
|
$
|
568
|
Total liabilities
and equity
|
$
|
1,665
|
$
|
1,655
|
Non-IFRS Measures Results
The following table provides a reconciliation of net income to
adjusted net income (loss) for the period indicated:
|
Three months ended
September 30,
|
Nine months ended
September 30,
|
(millions of Canadian
dollars)
|
2019
|
2018
|
2019
|
2018
|
Net
income
|
$
|
—
|
$
|
125
|
$
|
44
|
$
|
143
|
Add
back/(Deduct):
|
|
|
|
|
Remeasurement of
employee benefit commitment 1
|
(11)
|
(2)
|
(27)
|
159
|
Tariff related costs
(recovery) 2
|
(1)
|
39
|
19
|
50
|
Separation costs
related to USS support services 3
|
2
|
5
|
9
|
15
|
Restructuring and
other costs 4
|
2
|
3
|
4
|
8
|
Property related idle
costs included in cost of goods sold 5
|
1
|
3
|
3
|
3
|
Carbon tax expense
(recovery) 6
|
(2)
|
—
|
1
|
—
|
Share-based
compensation (recovery) 7
|
(2)
|
—
|
1
|
—
|
Batch annealing
facility startup related costs 8
|
—
|
—
|
1
|
—
|
Loss from
commodity-based swaps
|
—
|
—
|
—
|
10
|
Secondary offering
cost
|
—
|
1
|
—
|
1
|
Adjusted net
income (loss)
|
$
|
(11)
|
$
|
174
|
$
|
55
|
$
|
389
|
1
|
Remeasurement of
employee benefit commitment for change in the timing of estimated
cash flows and future funding requirements.
|
2
|
Includes tariff and
tariff related costs associated with U.S. bound steel shipments. In
connection with the US administration announcing effective May 19,
2019, the elimination of all tariffs imposed under Section 232 on
imports of aluminum and steel products from Canada, the Company has
modified the definition of Adjusted Net Income and Adjusted Net
Income per common share to include tariff and tariff related costs
as a non-recurring item adjustment from earnings. The prior periods
have been restated to reflect the change in presentation. Refer to
'Non-IFRS Performance Measures' section in the MD&A for
further details.
|
3
|
Includes ERP
implementation costs associated with the process of separating from
USS, management fees and shared services arrangement
costs.
|
4
|
Restructuring and
other costs includes certain non-routine items that include, but
are not limited to, building demolition costs, professional fees
and travel related expenses. For 2018, restructuring costs include
legal fees and other costs connected to Stelco's emergence from
CCAA proceedings.
|
5
|
Includes utility
costs incurred by Stelco for non-operating and idled assets
acquired from the Land Vehicle on June 5, 2018.
|
6
|
Represents a non-cash
carbon tax provision for the period, connected to Stelco's
estimated requirements under the Greenhouse Gas Pollution Pricing
Act (Federal Backstop) for industrial facilities with greenhouse
gas emissions. Actual cash payments related to the carbon taxes, if
any, are not expected to occur until the year 2020 at the
earliest.
|
7
|
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.
|
8
|
Represents
incremental employee training and other costs connected with
Stelco's new batch annealing facility that was completed during Q2
2019 and commenced operations during June 2019. Refer to
'Results of Operations' section of the MD&A for further
details.
|
The following table provides a reconciliation of net income to
adjusted EBITDA periods indicated:
|
Three months ended
September 30,
|
Nine months ended
September 30,
|
(millions of Canadian
dollars, except where otherwise noted)
|
2019
|
2018
|
2019
|
2018
|
Net
income
|
$
|
—
|
$
|
125
|
$
|
44
|
$
|
143
|
Add
back/(Deduct):
|
|
|
|
|
Finance
income
|
(1)
|
(3)
|
(4)
|
(3)
|
Depreciation
|
15
|
8
|
38
|
22
|
Tariff related costs
(recovery) 1
|
(1)
|
39
|
19
|
50
|
Finance
costs
|
9
|
12
|
15
|
198
|
Separation costs
related to USS support services 2
|
2
|
5
|
9
|
15
|
Restructuring and
other costs 3
|
2
|
3
|
4
|
8
|
Property related idle
costs included in cost of goods sold 4
|
1
|
3
|
3
|
3
|
Share-based
compensation (recovery) 5
|
(2)
|
—
|
1
|
—
|
Carbon tax expense
(recovery) 6
|
(2)
|
—
|
1
|
—
|
Batch annealing
facility startup related costs 7
|
—
|
—
|
1
|
—
|
Loss from
commodity-based swaps
|
—
|
—
|
—
|
10
|
Secondary offering
cost
|
—
|
1
|
—
|
1
|
Adjusted
EBITDA
|
$
|
23
|
$
|
193
|
$
|
131
|
$
|
447
|
|
|
|
|
|
Adjusted EBITDA as
a percentage of total revenue
|
5%
|
31%
|
9%
|
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
|
Includes ERP
implementation costs associated with the process of separating from
USS, management fees and shared services arrangement
costs.
|
3
|
Restructuring and
other costs includes certain non-routine items that include, but
are not limited to, building demolition costs, professional fees
and travel related expenses. For 2018, restructuring costs include
legal fees and other costs connected to Stelco's emergence from
CCAA proceedings.
|
4
|
Includes utility
costs incurred by Stelco for non-operating and idled assets
acquired from the Land Vehicle on June 5, 2018.
|
5
|
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.
|
6
|
Represents a non-cash
carbon tax provision for the period, connected to Stelco's
estimated requirements under the Greenhouse Gas Pollution Pricing
Act (Federal Backstop) for industrial facilities with greenhouse
gas emissions. Actual cash payments related to the carbon taxes, if
any, are not expected to occur until the year 2020 at the
earliest.
|
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.
|
SOURCE Stelco