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Stelco Holdings Inc. fourth quarter and annual 2019 highlights include:
- Revenue of $435 million for the quarter, compared to $464 million for Q3 2019, and $1.8 billion for the year compared to $2.5 billion for 2018
- Net loss of $24 million for the quarter compared to nil for Q3 2019, and net income of $20 million for the year compared to $253 million for 2018
- Adjusted EBITDA* of $10 million for the quarter compared to $23 million for Q3 2019, and $141 million for the year compared to $614 million for 2018
- Shipments of 633,000 tons for the quarter compared to 654,000 tons for Q3 2019, and 2.4 million tons for the year compared to 2.6 million tons for 2018
- Company declared a regular quarterly dividend of $0.10 per share payable on March 4, 2020 to shareholders of record as of the close of business on February 28, 2020
HAMILTON, ON, Feb. 18, 2020 /CNW/ - Stelco Holdings Inc. ("Stelco Holdings" or the "Company"), STLC, a low cost, integrated and independent steelmaker with one of the newest and most technologically advanced integrated steelmaking facilities in North America, today announced financial results of the Company for the three months and full year ended December 31, 2019. Stelco Holdings is the 100% owner of Stelco Inc. ("Stelco"), the operating company.
Stelco Holdings Inc. Highlights:
Selected Financial Information:
(in millions except volume, per share and nt figures) | Q4 2019 | Q4 2018 | Change | Q3 2019 | Change | 2019 | 2018 | Change | |||
Revenue ($) 1 | 435 | 648 | (33)% | 464 | (6)% | 1,841 | 2,460 | (25)% | |||
Operating income (loss) ($) | (6) | 118 | (105)% | 9 | (167)% | 50 | 476 | (89)% | |||
Net income (loss) ($) | (24) | 110 | (122)% | — | NM | 20 | 253 | (92)% | |||
Adjusted net income (loss) ($) * | (13) | 123 | (111)% | (11) | NM | 42 | 512 | (92)% | |||
Net income (loss) per common share (diluted) ($) | (0.27) | 1.23 | (122)% | — | NM | 0.23 | 2.85 | (92)% | |||
Adjusted net income (loss) per common share (diluted) ($) * | (0.15) | 1.38 | (111)% | (0.12) | NM | 0.47 | 5.76 | (92)% | |||
Average selling price per nt ($) 1, * | 659 | 917 | (28)% | 688 | (4)% | 729 | 889 | (18)% | |||
Shipping volume (in thousands of nt) * | 633 | 673 | (6)% | 654 | (3)% | 2,444 | 2,620 | (7)% | |||
Adjusted EBITDA ($) * | 10 | 167 | (94)% | 23 | (57)% | 141 | 614 | (77)% | |||
Adjusted EBITDA per nt ($) * | 16 | 248 | (94)% | 35 | (54)% | 58 | 234 | (75)% | |||
1 | Certain comparative results have been adjusted to conform to the Q4 2019 presentation of revenue. |
* | 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. |
"Despite challenging market conditions, including an unprecedented drop in prices during the quarter that has since improved, we are pleased that we were able to deliver positive results in the fourth quarter, and through the entire second half of 2019," said David Cheney, Chief Executive Officer of Stelco Holdings Inc. "During the second half of 2019 we made sustainable and positive changes to our Company's product mix, evidenced by an increase in shipments of cold-rolled and coated sheet products by 66% over the first half of the year. This growth further proves the value created by our investment in state-of-the-art batch annealing and tempering capabilities. We have achieved an annual run rate of cold-rolled and other downstream product sales of approximately 600,000 net tons compared to approximately 400,000 net tons just about two years ago. Growth in these product lines of almost 50% demonstrates further penetration into higher value-added product markets, including automotive sales - something I and our entire Company are very proud of. Furthermore, we delivered on our shipping volume expectations for both the quarter and the second half of the year. Looking forward, we intend to continue to make strategic investments in our business to maximize the value of our assets and to further diversify our product mix. These principals are at the core of our tactical flexibility model and will guide our growth strategy in the coming years."
"At the core of these investments in 2020 will be the completion of two specific projects that will position Stelco for growth across both existing and new markets. Previously we noted our intent to proceed with the reline of our blast furnace at Lake Erie Works in Q2 2020. However, in response to current strong market demand along with materially improved prices in the near term, we are electing to commence the reline and commission our new pig iron caster in the second half of this year. As a result, we expect to commence shipments of pig iron during the fourth quarter of this year. We anticipate that the blast furnace reline will increase the production of hot metal and result in not only increased volumes, but also in reduced costs and increased product diversity. In conjunction with our continued cost reduction initiative, we expect that these projects will enable Stelco to begin to realize its full potential during Q4 of this year," continued Cheney.
"Over the past two and a half years, we have built a platform for success that has consistently returned value to our shareholders. In that regard, for the ninth consecutive quarter, our Board has approved a regular dividend of $0.10 per share. Overall, market conditions are quite favorable as evidenced by strong and growing lead times and an improved pricing dynamic. For Q1 2020, we expect to ship approximately 650,000 tons and realize improved pricing over Q4 2019," concluded Cheney.
Fourth Quarter 2019 Financial Review:
Q4 2019 revenue decreased $213 million, or 33%, from $648 million in Q4 2018, primarily due a 28% decrease in average steel selling prices, 6% lower steel shipping volumes and lower non-steel sales of $13 million. The average selling price of our steel products decreased from $917/nt in Q4 2018 to $659/nt in Q4 2019, due largely to decreases in market prices for flat steel products. Shipping volumes decreased 40 thousand nt, from 673 thousand nt in Q4 2018 to 633 thousand nt in Q4 2019, mostly from lower hot roll coil shipments partly offset by higher cold rolled, coated and slab shipments during the quarter.
The Company realized an operating loss of $6 million for the quarter, compared to operating income of $118 million in Q4 2018, a decrease of $124 million mainly due to the following; lower gross profit of $129 million (consisting of a decrease in revenue of $213 million, partly offset by lower cost of sales of $84 million), and less selling, general and administrative expenses of $5 million during Q4 2019. Cost of sales includes raw material and conversion costs, depreciation and freight associated with inventory sold during the period.
Finance costs decreased by $4 million, or 24%, from $17 million in Q4 2018, mainly due to the following; $20 million related to the period-over-period gross impact of favourable foreign exchange translation on U.S. dollar denominated working capital and $3 million lower accretion expense associated with our employee benefit commitment obligation, partly offset by the impact of a $16 million period-over-period remeasurement of our employee benefit commitment obligation and a $2 million increase in interest on loans and borrowings.
The Company realized a net loss of $24 million for the quarter, compared to net income of $110 million in the fourth quarter of 2018, a decrease of $134 million primarily due to the following; $129 million in lower gross profit, $9 million decrease in finance and other income, and $4 million increase in restructuring and other costs, partly offset by $5 million in lower selling, general and administrative expenses and $4 million in lower finance costs. Adjusted net income decreased $136 million year-over-year, from $123 million in Q4 2018 to an adjusted net loss of $13 million in Q4 2019.
Adjusted EBITDA in Q4 2019 totaled $10 million, a decrease of $157 million from adjusted EBITDA of $167 million in Q4 2018, which reflects the decrease in revenue from lower market average price of steel and decrease in shipping volumes realized, as well as lower non-steel sales during the quarter.
Full Year 2019 Financial Review:
Revenue for 2019 decreased $619 million, or 25%, from $2.5 billion in 2018 to $1.8 billion in 2019, primarily due to an 18% decrease in average steel selling prices, 7% lower steel shipping volumes and a decrease in non-steel sales of $71 million. The average selling price for our steel products decreased from $889/nt in 2018 to $729/nt in 2019. Shipping volumes decreased from 2.6 million nt in 2018 to 2.4 million nt in 2019, mainly from lower hot roll coil shipments partly offset by higher cold rolled and slab shipments during the year.
Operating income for the year was $50 million, compared to $476 million in 2018, a decrease of $426 million mainly due to the following; lower gross profit of $436 million (consisting of a decrease in revenue of $619 million, partly offset by lower cost of sales of $183 million), and a decrease in selling, general and administrative expenses of $10 million during 2019.
Finance costs decreased by $187 million, or 87%, from $215 million in 2018, primarily due to the $170 million year-over-year impact from remeasurement of our employee benefit commitment obligation and $27 million related to the favourable year-over-year impact of foreign exchange translation on U.S. dollar denominated working capital, partly offset by a $10 million increase in interest on loans and borrowings, which includes finance costs associated with the company's inventory monetization agreement and mortgage note in connection to the June 2018 land purchase.
Net income for the year was $20 million, compared to $253 million in 2018, a decrease of $233 million primarily due to the following; $436 million in lower gross profit, partly offset by $187 million in lower finance costs, $10 million decrease in selling, general and administrative expenses, $4 million increase in finance and other income and $3 million decrease in restructuring and other costs. Adjusted net income decreased $470 million year-over-year, from $512 million in 2018, to $42 million in 2019.
Adjusted EBITDA in 2019 totaled $141 million, a decrease of $473 million, from $614 million in 2018, which reflects the decrease in revenue from lower market average price of steel, a decrease in shipping volumes realized, as well as lower non-steel sales.
Summary of Net Tons Shipped by Product:
(in thousands of nt)
Tons Shipped by Product | Q4 2019 | Q4 2018 | Change | Q3 2019 | Change | 2019 | 2018 | Change |
Hot-rolled | 382 | 553 | (31)% | 425 | (10)% | 1,699 | 2,080 | (18)% |
Coated | 106 | 79 | 34% | 87 | 22% | 326 | 338 | (4)% |
Cold-rolled | 40 | 10 | 300% | 26 | 54% | 89 | 77 | 16% |
Other a | 105 | 31 | 239% | 116 | (9)% | 330 | 125 | 164% |
Total | 633 | 673 | (6)% | 654 | (3)% | 2,444 | 2,620 | (7)% |
Shipments by Product (%) | ||||||||
Hot-rolled | 60% | 82% | 65% | 70% | 79% | |||
Coated | 17% | 12% | 13% | 13% | 13% | |||
Cold-rolled | 6% | 1% | 4% | 4% | 3% | |||
Other a | 17% | 5% | 18% | 13% | 5% | |||
Total | 100% | 100% | 100% | 100% | 100% |
a |
Includes other steel products: slabs and non-prime steel sales. |
Statement of Financial Position and Liquidity:
On a consolidated basis, Stelco Holdings ended Q4 2019 with cash of $257 million and $148 million of capacity under its ABL revolver at December 31, 2019. The following table shows selected information regarding the Stelco Holdings' consolidated balance sheet as at the noted dates:
(millions of Canadian dollars) | ||||
As at | December 31, 2019 | December 31, 2018 | ||
ASSETS | ||||
Cash and cash equivalents | 257 | 438 | ||
Trade and other receivables | 158 | 252 | ||
Inventories | 483 | 468 | ||
Total current assets | 914 | 1,194 | ||
Total assets | 1,594 | 1,655 | ||
LIABILITIES | ||||
Trade and other payables | 444 | 436 | ||
Asset-based lending facility | 8 | — | ||
Total current liabilities | 521 | 579 | ||
Asset-based lending facility | 90 | — | ||
Total non-current liabilities | 623 | 508 | ||
Total liabilities | 1,144 | 1,087 | ||
Total equity | 450 | 568 | ||
Stelco Holdings and its subsidiaries ended Q4 2019 with current assets of $914 million, which exceeded current liabilities of $521 million by $393 million. Stelco Holdings' liabilities include $507 million of obligations to independent pension and OPEB trusts, which includes $395 million of employee benefit commitments and $112 million under a mortgage note payable associated with the June 2018 land purchase. Long term liabilities of $623 million as at December 31, 2019 include $472 million of obligations to independent pension and OPEB trusts. Stelco Holdings' consolidated equity totaled $450 million at December 31, 2019.
Asset-Based Lending Facility (ABL) Amendment
During November 2019, Stelco Inc. amended its ABL agreement. Amendments to the arrangement include, but are not limited to the following: i) addition of a $100 million non-revolver term loan with a maturity date of August 16, 2023, secured by certain machinery and equipment wholly-owned by the company, ii) term loan interest rate of either: a) Canadian prime rate plus 1.25% -1.75%, or b) CDOR/LIBOR plus a margin of 2.25% - 2.75%, and iii) the requirement that Stelco Inc. maintain minimum excess availability under the ABL of at least $50 million through December 31, 2020, and $75 million thereafter while the term loan is outstanding. The ABL's maximum borrowing capacity remains at $375 million (subject to available eligible accounts receivable, inventory, machinery and equipment), less the outstanding principal of the $100 million non-revolving term loan. The other terms of the ABL agreement have remained substantially similar to the original agreement.
Organization Change
On January 27, 2020 Stelco Holdings announced that Alan Kestenbaum, will return as the Company's Chief Executive Officer, effective February 21, 2020, at which point David Cheney will be stepping down and returning to Bedrock Industries.
Mr. Kestenbaum previously served as Stelco's Chief Executive Officer from the closing of Stelco's Initial Public Offering to February 2019 and is currently and will continue to act as Stelco's Executive Chairman. Mr. Kestenbaum noted that David Cheney "has been a valued member of the leadership team that culminated in the successful restructuring of Stelco Inc. and the initial public offering of the Company and its many achievements to date. The Board of Directors join me in thanking David for his contributions and leadership and we wish him well in his return to his previous role at Bedrock."
In addition to Mr. Kestenbaum returning to the role of Chief Executive Officer, on February 18, 2020, the Board of Directors appointed Ms. Heather Ross as Lead Director.
Declaration of Quarterly Dividend
Stelco's Board of Directors approved the payment of a regular quarterly dividend of $0.10 per share will be paid on March 4, 2020, to shareholders of record as of the close of business on February 28, 2020.
The regular quarterly dividend has been designated as an "eligible dividend" for purposes of the Income Tax Act (Canada).
Quarterly Results Conference Call
Stelco management will host a conference call to discuss its results tomorrow, Wednesday, February 19, 2020, at 9:00 a.m. ET. To access the call, please dial 1 (888) 390 - 0605 or 1 (416) 764 - 8609 and reference "Stelco". The conference call will also be webcasted live on the Investor Relations section of Stelco's web site at https://www.stelco.com/investors. A presentation that will accompany the conference call will also be available on the website prior to the conference call. Following the conclusion of the live call, a replay of the webcast will be available on the Investor Relations section of the Company's website for at least 90 days. A telephonic replay of the conference call will also be available from 12:00 p.m. ET on February 19, 2020 until 11:59 p.m. ET on March 4, 2020 by dialing 1- 888 390 0541 or 1- 416 764 8677 and using the pin number 500966#.
Consolidated Financial Statements and Management's Discussion and Analysis
The Company's audited consolidated financial statements for the year ended December 31, 2019, and Management's Discussion & Analysis thereon are available under the Company's profile on SEDAR at www.sedar.com.
About Stelco
Stelco is a low cost, integrated and independent steelmaker with one of the newest and most technologically advanced integrated steelmaking facilities in North America. Stelco produces flat-rolled value-added steels, including premium-quality coated, cold-rolled and hot-rolled steel products. With first-rate gauge, crown, and shape control, as well as reliable uniformity of mechanical properties, our steel products are supplied to customers in the construction, automotive and energy industries across Canada and the United States as well as to a variety of steel services centres, which are regional distributers of steel products.
Non-IFRS Measures
This news release refers to certain non-IFRS measures that are not recognized under International Financial Reporting Standards ("IFRS") and do not have a standardized meaning prescribed by IFRS. These measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of our results of operations from management's perspective. Accordingly, these measures should not be considered in isolation nor as a substitute for analysis of our financial information reported under IFRS. We use non-IFRS measures including "adjusted net income", "adjusted net income per share", ''adjusted EBITDA'', ''adjusted EBITDA per nt'', ''selling price per nt'', and ''shipping volume'' to provide supplemental measures of our operating performance and thus highlight trends in our core business that may not otherwise be apparent when relying solely on IFRS financial measures. We also believe that securities analysts, investors and other interested parties frequently use non-IFRS measures in the evaluation of issuers. Our management uses these non-IFRS financial measures to facilitate operating performance comparisons from period-to-period, to prepare annual operating budgets and forecasts, and drive performance through our management compensation program. For a reconciliation of these non-IFRS measures, refer to the Company's "Non-IFRS Measures Reconciliation" section below. For a definition of these non-IFRS measures, refer to the Company's MD&A for the period ended December 31, 2019 available under the Company's profile on SEDAR at www.sedar.com.
Forward-Looking Information
This release contains ''forward-looking information'' within the meaning of applicable securities laws. Forward-looking information may relate to our future outlook and anticipated events or results and may include information regarding our financial position, business strategy, growth strategy, budgets, operations, financial results, taxes, dividend policy, plans and objectives of our Company. Particularly, information regarding our expectations of future results, performance, achievements, prospects or opportunities is forward-looking information. In some cases, forward-looking information can be identified by the use of forward-looking terminology such as ''plans'', ''targets'', ''expects'' or ''does not expect'', ''is expected'', ''an opportunity exists'', ''budget'', ''scheduled'', ''estimates'', ''outlook'', ''forecasts'', ''projection'', ''prospects'', ''strategy'', ''intends'', ''anticipates'', ''does not anticipate'', ''believes'', or variations of such words and phrases or state that certain actions, events or results ''may'', ''could'', ''would'', ''might'', ''will'', ''will be taken'', ''occur'' or ''be achieved''. In addition, any statements that refer to expectations, intentions, projections or other characterizations of future events or circumstances may be forward looking statements. Forward-looking statements are not historical facts but instead represent management's expectations, estimates and projections regarding future events or circumstances. The forward-looking statements contained herein are presented for the purpose of assisting the holders of our securities and financial analysts in understanding our financial position and results of operations as at and for the periods ended on the dates presented, as well as our financial performance objectives, vision and strategic goals, and may not be appropriate for other purposes.
Forward-looking information in this news release includes our advancement of strategic initiatives and our intention to continue making strategic investments in our business; expectations that we will ship approximately 650,000 tons during the first quarter of 2020; expectations that we will realize improved pricing during Q1 2020 compared to pricing realized during Q4 2019; our belief that market conditions are favourable and improving based upon growing lead times and improved pricing dynamics; expectations that our capital projects and cost reduction initiatives will be successful and that Stelco will begin to realize its full potential during Q4 2020; expectations that the Company's willingness to invest and innovate will allow the Company to succeed; statements with respect to the construction of a pig iron facility at the Company's Lake Erie Works facility; expectations that we will make our first shipments of pig iron during the fourth quarter of 2020; statements with respect to the completion of a reline of our blast furnace facility at the Company's Lake Erie Works facility; expectations that the blast furnace will produce increased volumes of hot metal and result in reduced production costs and an increase in product diversity; expectations that these capital projects will position Stelco for growth across both existing and new markets; expectations regarding the anticipated production and shipment timing that may be realized upon completion of the projects, expectations regarding the future growth of our cold-rolled and coated shipments, including galvanized, and expectations regarding the ongoing diversification of our product mix with respect to value-added products, and the Company's belief that exceptional market opportunities to grow our business inorganically at attractive acquisition costs will emerge. Undue reliance should not be placed on forward-looking information. The forward-looking information in this press release is based on our opinions, estimates and assumptions in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we currently believe are appropriate and reasonable in the circumstances. Despite a careful process to prepare and review the forward-looking information, there can be no assurance that the underlying opinions, estimates and assumptions will prove to be correct. Certain assumptions in respect of our ability to complete new capital projects on schedule and within budget and their anticipated effect on revenue and costs; our ability to source raw materials and other inputs; our ability to supply to new customers and markets; our ability to effectively manage costs; our ability to attract and retain key personnel and skilled labour; our ability to obtain and maintain existing financing on acceptable terms; currency exchange and interest rates; the impact of competition; changes in laws, rule, and regulations, including international trade regulations; our ability to continue to access the U.S. market without any adverse trade restrictions; upgrades to existing facilities remaining on schedule and on budget and their anticipated effect on revenue and costs; and growth in steel markets and industry trends, as well as those set out in this press release, are material factors made in preparing the forward-looking information and management's expectations contained in this press release.
Such forward-looking information is subject to known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, level of activity, performance or achievements to be materially different from those expressed or implied by such forward-looking information, including: North American and global steel overcapacity; imports and trade remedies; competition from other producers, imports or alternative materials; and the availability and cost of inputs placing downward pressure on steel prices or increasing our costs; as well as those described in the Company's annual information form dated February 18, 2020 and the Company's MD&A for the period ended December 31, 2019 available under the Company's profile on SEDAR at www.sedar.com.
Key Assumptions Underlying Our Shipping Volume Estimates
The estimates with respect to our future shipping volumes included in this press release are based on a number of assumptions, including, but not limited to, the following material assumptions; the Company's ability to continue to access the U.S. market without any adverse trade restrictions; no significant additional legal or regulatory developments, changes in economic conditions, or macro changes in the competitive environment affecting our business activities; upgrades to existing facilities remaining on schedule and on budget and their anticipated effect on revenue and costs; the Company's ability to attract new customers and further develop and maintain existing customers; currency exchange and interest rates; the impact of competition; and growth in steel markets and industry trends. We note that: (i) potential further changes to trade regulations in the United States; (ii) a failure by Canada to ratify the Canada-U.S.-Mexico-Agreement on North American trade; and/or (iii) the outcome of trade deliberations between the U.S. and China could materially alter underlying assumptions around anticipated shipping volumes and the steel market, generally.
Key Assumptions Underlying the Blast Furnace Reline and Pig Iron Facility Projects
The estimated budget, schedule and production volumes with respect to the planned relined of our blast furnace and construction of our pig iron facility at Lake Erie Works referenced in this press release are based on a number of assumptions, including, but not limited to, the following material assumptions: our ability to enter into definitive agreements with third party contractors and suppliers with respect to the construction and commissioning of the facilities on terms acceptable to the Company; expectations that third party contractors and suppliers will deliver, construct and perform in accordance with agreed upon budgets and schedules; our ability to obtain any applicable regulatory approvals and permits required in connection with these projects; expectations that, upon completion, the our facilities will produce in accordance with anticipated design capacity; expectations that the market for steel and pig iron does not experience a material adverse change between now and Q4 2020 when shipments are expected to begin; expectations that our customers will continue to purchase material volumes of production upon completion of the projects; the planned blast furnace reline proceeding on schedule and, upon completion, performing in such a manner so as to provide molten metal to meet our production needs; and expectations that we will fully realize current and future production levels at our Lake Erie Works facility.
There can be no assurance that such information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. Accordingly, readers should not place undue reliance on forward looking information, which speaks only as of the date made. The forward-looking information contained in this press release represents our expectations as of the date of this news release, and are subject to change after such date. Stelco Holdings disclaims any intention or obligation or undertaking to update publicly or revise any forward-looking statements, whether written or oral, whether as a result of new information, future events or otherwise, except as required by law.
Selected Financial Information
The following includes financial information prepared by management in accordance with IFRS. This financial information does not contain all disclosures required by IFRS, and accordingly should be read in conjunction with Stelco Holdings Inc.'s Consolidated Financial Statements and MD&A for the year ended December 31, 2019, which is available on the Company's website and on SEDAR (www.sedar.com).
Stelco Holdings Inc.
Consolidated Statements of Income
(unaudited)
Three months ended December 31, | Year ended December 31, | |||||||||
(millions of Canadian dollars) | 2019 | 2018 | 2019 | 2018 | ||||||
Revenue from sale of goods | $ | 435 | $ | 648 | $ | 1,841 | $ | 2,460 | ||
Cost of goods sold | 430 | 514 | 1,745 | 1,928 | ||||||
Gross profit | 5 | 134 | 96 | 532 | ||||||
Selling, general and administrative expenses | 11 | 16 | 46 | 56 | ||||||
Operating income (loss) | (6) | 118 | 50 | 476 | ||||||
Other income (loss) and (expenses) | ||||||||||
Finance costs | (13) | (17) | (28) | (215) | ||||||
Finance and other income | 1 | 10 | 7 | 3 | ||||||
Restructuring and other costs | (5) | (1) | (6) | (9) | ||||||
Share of loss from joint ventures | (1) | — | (3) | (2) | ||||||
Income (loss) before income taxes | (24) | 110 | 20 | 253 | ||||||
Income tax expense | — | — | — | — | ||||||
Net income (loss) | $ | (24) | $ | 110 | $ | 20 | $ | 253 | ||
Stelco Holdings Inc.
Consolidated Balance Sheets
(unaudited)
As at | December 31, 2019 | December 31, 2018 | ||
ASSETS | ||||
Current assets | ||||
Cash and cash equivalents | $ | 257 | $ | 438 |
Restricted cash | 8 | 8 | ||
Trade and other receivables | 158 | 252 | ||
Inventories | 483 | 468 | ||
Prepaid expenses | 8 | 28 | ||
Total current assets | $ | 914 | $ | 1,194 |
Non-current assets | ||||
Property, plant and equipment, net | 670 | 448 | ||
Intangible assets | 7 | 7 | ||
Investment in joint ventures | 3 | 6 | ||
Total non-current assets | $ | 680 | $ | 461 |
Total assets | $ | 1,594 | $ | 1,655 |
LIABILITIES | ||||
Current liabilities | ||||
Trade and other payables | $ | 444 | $ | 436 |
Other liabilities | 34 | 40 | ||
Asset-based lending facility | 8 | — | ||
Obligations to independent employee trusts | 35 | 103 | ||
Total current liabilities | $ | 521 | $ | 579 |
Non-current liabilities | ||||
Provisions | 6 | 5 | ||
Pension benefits | 7 | 2 | ||
Other liabilities | 48 | 13 | ||
Asset-based lending facility | 90 | — | ||
Obligations to independent employee trusts | 472 | 488 | ||
Total non-current liabilities | $ | 623 | $ | 508 |
Total liabilities | $ | 1,144 | $ | 1,087 |
EQUITY | ||||
Common shares | 512 | 512 | ||
Treasury shares | — | (1) | ||
Retained earnings (deficit) | (62) | 57 | ||
Total equity | $ | 450 | $ | 568 |
Total liabilities and equity | $ | 1,594 | $ | 1,655 |
Non-IFRS Measures Results
The following table provide a reconciliation of net income (loss) to adjusted net income for the period indicated:
Three months ended December 31, | Year ended December 31, | |||||||
(millions of Canadian dollars, except where otherwise noted) | 2019 | 2018 | 2019 | 2018 | ||||
Net income (loss) | $ | (24) | $ | 110 | $ | 20 | $ | 253 |
Add back/(Deduct): | ||||||||
Tariff related costs 1 | — | 23 | 19 | 73 | ||||
Restructuring and other costs 2 | 5 | 1 | 6 | 9 | ||||
Transaction-based and other corporate-related costs 3 | 3 | — | 6 | — | ||||
Separation costs related to USS support services 4 | — | 5 | 9 | 20 | ||||
Property related idle costs included in cost of goods sold 5 | 2 | 2 | 5 | 5 | ||||
Share-based compensation 6 | 1 | — | 2 | — | ||||
Batch annealing facility startup related costs 7 | — | — | 1 | — | ||||
Remeasurement of employee benefit commitment 8 | 1 | (15) | (26) | 144 | ||||
Carbon tax expense (recovery) | (1) | — | — | — | ||||
Loss from commodity-based swaps | — | — | — | 10 | ||||
Secondary offering cost | — | — | — | 1 | ||||
Income related to buildings finance lease termination | — | (3) | — | (3) | ||||
Adjusted net income (loss) | $ | (13) | $ | 123 | $ | 42 | $ | 512 |
1 | Includes tariff and tariff related costs associated with U.S. bound steel shipments. In connection with the US administration announcing effective May 19, 2019, the elimination of all tariffs imposed under Section 232 on imports of aluminum and steel products from Canada, the Company has modified the definition of Adjusted Net Income and Adjusted Net Income per common share to include tariff and tariff related costs as a non-recurring item adjustment from earnings. The prior periods have been restated to reflect the change in presentation. Refer to 'Non-IFRS Performance Measures' section in the MD&A for further details. |
2 | Restructuring and other costs includes certain employee termination benefits and consulting costs. For 2018, restructuring costs include legal fees and other costs connected to Stelco's emergence from CCAA proceedings. |
3 | Represents certain non-routine items that include, but are not limited to, costs connected with Stelco Inc.'s withdrawn proposed senior secured notes offering during September 2019, building demolition costs, professional fees and travel related expenses. |
4 | Includes ERP implementation costs associated with the process of separating from USS, management fees and shared services arrangement costs. |
5 | Includes utility costs incurred by Stelco for non-operating and idled assets acquired from the Land Vehicle on June 5, 2018. |
6 | Share-based compensation consists of costs connected with share options awarded to certain members of the Company's executive senior leadership team during the period. |
7 | Represents incremental employee training and other costs connected with Stelco's new batch annealing facility that was completed during Q2 2019 and commenced operations during June 2019. Refer to 'Results of Operations' section of the MD&A for further details. |
8 | Remeasurement of employee benefit commitment for change in the timing of estimated cash flows and future funding requirements. |
The following table provides a reconciliation of net income (loss) to adjusted EBITDA periods indicated:
Three months ended December 31, | Year ended December 31 | ||||||||
(millions of Canadian dollars, except where otherwise noted) | 2019 | 2018 | 2019 | 2018 | |||||
Net income (loss) | $ | (24) | $ | 110 | $ | 20 | $ | 253 | |
Add back/(Deduct): | |||||||||
Depreciation | 13 | 13 | 51 | 35 | |||||
Finance costs | 13 | 17 | 28 | 215 | |||||
Tariff related costs 1 | — | 23 | 19 | 73 | |||||
Restructuring and other costs 2 | 5 | 1 | 6 | 9 | |||||
Transaction-based and other corporate-related costs 3 | 3 | — | 6 | — | |||||
Separation costs related to USS support services 4 | — | 5 | 9 | 20 | |||||
Property related idle costs included in cost of goods sold 5 | 2 | 2 | 5 | 5 | |||||
Share-based compensation 6 | 1 | — | 2 | — | |||||
Batch annealing facility startup related costs 7 | — | — | 1 | — | |||||
Finance income | (2) | (1) | (6) | (4) | |||||
Carbon tax expense (recovery) 8 | (1) | — | — | — | |||||
Loss from commodity-based swaps | — | — | — | 10 | |||||
Secondary offering cost | — | — | — | 1 | |||||
Income related to buildings finance lease termination | — | (3) | — | (3) | |||||
Adjusted EBITDA | $ | 10 | $ | 167 | $ | 141 | $ | 614 | |
Adjusted EBITDA as a percentage of total revenue | 2% | 26% | 8% | 25% | |||||
1 | Includes tariff and tariff related costs associated with U.S. bound steel shipments. In connection with the US administration announcing effective May 19, 2019, the elimination of all tariffs imposed under Section 232 on imports of aluminum and steel products from Canada, we have modified the definition of Adjusted EBTIDA and Adjusted EBITDA per nt to include tariff and tariff related costs as a non-recurring item adjustment from earnings. The prior periods have been restated to reflect the change in presentation. Refer to 'Non-IFRS Performance Measures' section in the MD&A for further details. |
2 | Restructuring and other costs includes certain employee termination benefits and consulting costs. For 2018, restructuring costs include legal fees and other costs connected to Stelco's emergence from CCAA proceedings. |
3 | Represents certain non-routine items that include, but are not limited to, costs connected with Stelco Inc.'s withdrawn proposed senior secured notes offering during September 2019, building demolition costs, professional fees and travel related expenses. |
4 | Includes ERP implementation costs associated with the process of separating from USS, management fees and shared services arrangement costs. |
5 | Includes utility costs incurred by Stelco for non-operating and idled assets acquired from the Land Vehicle on June 5, 2018. |
6 | Share-based compensation consists of costs connected with share options awarded to certain members of the Company's executive senior leadership team during the period. |
7 | Represents incremental employee training and other costs connected with Stelco's new batch annealing facility that was completed during Q2 2019 and commenced operations during June 2019. Refer to 'Results of Operations' section of the MD&A for further details. |
8 | Represents a non-cash carbon tax provision for the period, connected to Stelco's estimated requirements under the Greenhouse Gas Pollution Pricing Act (Federal Backstop) for industrial facilities with greenhouse gas emissions. Actual cash payments related to the carbon taxes, if any, are not expected to occur until the third quarter of 2020 at the earliest |
SOURCE Stelco
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