Stelco Holdings Inc. Reports Improved Fourth Quarter and Annual 2020 Results

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Stelco Holdings Inc. fourth quarter highlights include:

• Revenue of $424 million for the quarter
• Shipments of 489,000 tons for the quarter
• Operating income of $39 million for the quarter, up from a loss in Q4 2019
• Adjusted EBITDA* of $60 million for the quarter, up 500% from Q4 2019
• Declared quarterly dividend of $0.10 per share payable on March 4, 2021
• Transformational year for the Company with extended pellet agreement, acquisition of Minntac Option, completion of blast furnace upgrade project, groundbreaking for new cogeneration facility and installation of new pig iron caster

HAMILTON, ON, Feb. 17, 2021 /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 year ended December 31, 2020. Stelco Holdings is the 100% owner of Stelco Inc. ("Stelco"), the operating company.

Selected Financial Information:

"The fourth quarter completed what has been an unprecedented year in the history of Stelco that saw us complete several strategic priorities and generate exceptional returns for our shareholders, including the highest total shareholder return in the North American steel Industry*, even in the face of the ongoing global pandemic," said Alan Kestenbaum, Executive Chairman and Chief Executive Officer. "The upgrade and modernizing projects, which resulted in North America's only 'smart' blast furnace, and the commissioning of our pig iron caster have positioned Stelco to succeed across all points of the market cycle by diversifying our product mix and modernizing our facilities. These investments will be supported by our strategic, long-term iron ore pellet supply agreement and our option to acquire 25% of the high-quality, low cost Minntac mine. We increased our capacity by more than 10% as a result of these investments and have also made investments to support our continued development of the next generation of high strength steels for the automotive market. We have also secured an agreement with DTE Energy Services to construct and operate an electricity cogeneration facility that will further reduce our costs, increase energy reliability, and improve our environmental footprint."

"These achievements take us into 2021 with renewed momentum and further enhance Stelco's industry-leading cost position," continued Kestenbaum. "Our end-markets are very strong as the broader economy and our key markets continue to grow and diversify. Stelco is positioned to capitalize on emerging opportunities, in particular in the electric vehicle market, with increased capacity to produce a full suite of products in response to market demands. While the blast furnace upgrade project startup resulted in lower shipments than in the fourth quarter of the prior year, we managed to increase substantially our Adjusted EBITDA and Adjusted Net Income year over year. Moreover, I am pleased to announce that we have already, in just four short months after the restart of the blast furnace, achieved several daily and weekly production records for both hot metal and steel production and are excited about the opportunities this project has created for our business. Our strategic investment of more than $600 million into our facilities since mid-2017 has provided Stelco's management team with the necessary tools to take full advantage of our tactical flexibility model and capitalize on the improved pricing we have witnessed through the early part of 2021."

Paul Scherzer, Chief Financial Officer, added: "Throughout this period of strategic investment we have remained focused on preserving the strength of our balance sheet and maintaining a positive cash position. These policies, combined with our strong alignment with our shareholders, have made us one of the only publicly traded steel companies in North America that did not have to access the debt or equity markets last year to support its business or its capital investments. Now, as a result of the financial flexibility our operations and balance sheet afford, we are pleased to reinstate our quarterly dividend of $0.10 per share. Moreover, I want to highlight that on the cost side, despite a quarter which included the re-start of our steelmaking operations, we have already realized many of the cost benefits of our blast furnace upgrade, as evidenced by our strong Adjusted EBITDA of $123 per net ton in Q4."

Fourth Quarter 2020 Financial Review:

Compared to Q4 2019

Q4 2020 revenue decreased $11 million, or 3%, from $435 million in Q4 2019, primarily due to a 23% decrease in steel shipping volumes, partly offset by a 10% increase in average steel selling prices and higher non-steel sales of $50 million. Our shipping volumes decreased 144 thousand nt, from 633 thousand nt in Q4 2019 to 489 thousand nt in Q4 2020, primarily due to the impact of the Company's blast furnace upgrade project completed during October 2020, and precautionary temporary suspension of steel production in connection with the cyberattack during Q4 2020. The average selling price of our steel products increased from $659 per nt in Q4 2019 to $728 per nt in Q4 2020. Non-steel sales increased $50 million, from $18 million in Q4 2019 to $68 million during Q4 2020, mostly due to higher metallurgical coke sales.

The Company realized operating income of $39 million for the quarter, compared to an operating loss of $6 million in Q4 2019, a change of $45 million consisting of a decrease in cost of goods sold of $63 million, partly offset by a decrease in revenue of $11 million and an increase in selling, general and administrative expenses of $7 million.

Finance costs decreased by $23 million, from $13 million in Q4 2019, due to the following: $14 million related to the period-over-period impact of foreign exchange translation on U.S. dollar denominated working capital and $12 million related to the remeasurement impact from our employee benefit commitment, partly offset by $3 million increase in interest on loans and borrowings.

The Company realized a net loss of $47 million for the quarter, compared to a net loss of $24 million in the fourth quarter of 2019, a change of $23 million primarily due to the following: $45 million increase in operating income and $23 million in lower finance costs, more than offset by $90 million decrease in finance and other income mainly due to a loss on commodity-based swaps, and $2 million higher restructuring and other costs. Adjusted net income totaled $45 million in Q4 2020, an increase of $58 million from an adjusted net loss of $13 million in Q4 2019.

Adjusted EBITDA in Q4 2020 totaled $60 million, an increase of $50 million from $10 million in Q4 2019, which reflects an increase in average steel selling prices, lower cost of goods sold and higher non-steel sales during the period.

Compared to Q3 2020

Q4 2020 revenue increased $187 million, or 79%, from $237 million in Q3 2020, primarily due to a 155 thousand nt or 46% increase in steel shipping volumes, from 334 thousand nt in Q3 2020 to 489 thousand nt in Q4 2020, 7% higher average selling prices and an increase in non-steel sales of $59 million.

The Company realized operating income of $39 million in Q4 2020 compared to an operating loss of $69 million in Q3 2020, and an adjusted EBITDA of $60 million compared to adjusted EBITDA loss of $39 million during Q3 2020, which reflects the impact of the Company's completed blast furnace upgrade project during the period, and an increase in average selling prices and non-steel sales.

Full Year 2020 Financial Review:

Revenue for 2020 decreased $324 million, or 18%, from $1.8 billion in 2019, primarily due to a 17% decrease in steel shipping volumes and 3% lower average steel selling prices, partly offset by higher non-steel sales of $33 million. Shipping volumes decreased from 2.4 million nt in 2019 to 2.0 million nt in 2020, mainly due to the impact of the Company's completed blast furnace upgrade project, which included a scheduled outage of our steelmaking facilities for approximately 11 weeks, resulting in significantly lower steel inventory available for sale during the period. The average selling price for our steel products decreased from $729 per nt in 2019 to $705 per nt in 2020. Non-steel sales increased $33 million, from $59 million in 2019 to $92 million in 2020, mostly due to higher coke sales during the period.

Operating income for the year decreased $57 million, from $50 million in 2019 to an operating loss of $7 million in 2020 consisting of a decrease in revenue of $324 million and higher selling, general and administrative expenses of $2 million during 2020, partly offset by lower cost of sales of $269 million.

Finance costs increased $23 million, or 82%, from $28 million in 2019, due to the following: $14 million related to the remeasurement impact of our employee benefit commitment, $8 million higher interest on loans and borrowings, and $4 million related to the period-over-period impact of foreign exchange translation on U.S. dollar denominated working capital and the settlement of foreign exchange forward contracts entered during the period, partly offset by $4 million lower accretion expense associated with our employee benefit commitment obligation.

Net loss for the year was $159 million, compared to net income of $20 million in 2019, a change of $179 million primarily due to the following; $94 million decrease in finance and other income mainly due to a loss on commodity-based swaps, $57 million in lower operating income, $23 million in higher finance costs and a $7 million increase in restructuring and other costs. Adjusted net income decreased $94 million period-over-period, from $42 million in 2019 to an adjusted net loss of $52 million in 2020.

Adjusted EBITDA in 2020 totaled $75 million, a decrease of $66 million from $141 million in 2019, which reflects the decrease in steel shipping volumes and average steel selling prices, partly offset by higher non-steel sales during the period.

Summary of Net Tons Shipped by Product:

(in thousands of nt)

Statement of Financial Position and Liquidity:

On a consolidated basis, Stelco Holdings ended Q4 2020 with cash of $59 million and $43 million available for advances under the ABL revolver at December 31, 2020. The following table shows selected information regarding the Stelco Holdings' consolidated balance sheet as at the noted dates:

Stelco Holdings and its subsidiaries ended Q4 2020 with current assets of $791 million, which is lower than current liabilities of $847 million by $56 million. Non-current assets include the derivative asset representing the US$100 million in payments made for the Minntac option. Stelco Holdings' liabilities include $498 million of obligations to independent pension and OPEB trusts, which include $388 million of employee benefit commitments and $110 million under a mortgage note payable associated with the June 2018 land purchase. Non-current liabilities of $651 million as at December 31, 2020 include $462 million of obligations to independent pension and OPEB trusts. Stelco Holdings' consolidated equity totaled $281 million at December 31, 2020.

Completion of Strategic Capital Projects

On October 13, 2020, Stelco Holdings announced that its wholly-owned subsidiary, Stelco, successfully completed the blast furnace upgrade and reline project at its Lake Erie Works Facility. It is expected that the upgrades to our blast furnace will result in improved quality, increased hot metal production of up to 300,000 net tons per annum, and a reduction of up to $30 per net ton in costs to produce our steel coils. As a result of this investment, Stelco has achieved multiple production records, including a new weekly record for hot metal production from the Lake Erie Works blast furnace, as well as a weekly record for primary steel production during the first week of February 2021.

On January 28, 2021, Stelco Holdings announced that its wholly-owned subsidiary, Stelco, successfully commissioned the new pig iron caster at its Lake Erie Works facility which has the capability of casting up to one million net tons of pig iron per year. The addition of the pig iron caster to Stelco's operations further supports the Company's tactical flexibility strategy and will allow the Company to capitalize on increased capacity resulting from the recently completed blast furnace upgrade project. Stelco's new pig iron caster enables it to access the growing pig iron market created by continued expansion of electric arc furnace production that is increasing the demand for iron units and placing increased pressure on the existing supply of scrap steel.

Declaration of Quarterly Dividend

Stelco's Board of Directors approved the payment of a regular quarterly dividend of $0.10 per share which will be paid on March 4, 2021, to shareholders of record as of the close of business on February 26, 2021.

The regular quarterly dividend has been designated as an "eligible dividend" for purposes of the Income Tax Act (Canada).

Quarterly Results Conference Call

Stelco management will host a conference call to discuss its results tomorrow, Thursday, February 18, 2021, at 9:00 a.m. ET. To access the call, please dial 1 (888) 390-0546 or 1 (416) 764-8688 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 18, 2021 until 11:59 p.m. ET on March 4, 2021 by dialing 1 (888) 390-0541 or 1 (416) 764-8677 and using the PIN 075916#.

Consolidated Financial Statements and Management's Discussion and Analysis

The Company's audited consolidated financial statements for the year ended December 31, 2020, 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. In addition to being North America's only integrated producer of pig iron, 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 service centres, which are regional distributers of steel products. At Stelco, we understand the importance of our business reflecting the communities we serve and are committed to making diversity and inclusion a core part of our workplace culture, in part, through active participation in the BlackNorth Initiative.

Non-IFRS Measures

This news release refers to certain non-IFRS measures that are not recognized under International Financial Reporting Standards ("IFRS") and do not have a standardized meaning prescribed by IFRS. These measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of our results of operations from management's perspective. Accordingly, these measures should not be considered in isolation nor as a substitute for analysis of our financial information reported under IFRS. We use non-IFRS measures including "adjusted net income", "adjusted net income per share", "adjusted EBITDA", "adjusted EBITDA per nt", "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, 2020 available under the Company's profile on SEDAR at www.sedar.com.

Forward-Looking Information

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

Forward-looking information in this news release includes: expectations that we will be able to successfully adapt to changing market conditions and succeed across all points of the market cycle by diversifying our product mix and modernizing our facilities with upgrade and modernizing projects, such as, the recently completed pig iron caster and blast furnace upgrade and reline project; expectations that we will continue to operate the business as one of the lowest-cost integrated steel producers in North America and that the foregoing modernizing projects will further enhance our low-cost position; our advancement of strategic initiatives and our intention to continue making strategic investments in our business including with respect to next generation, high strength steels for the automotive market; expectations that we will sustainably achieve a lower cost operating structure, increased steelmaking capacity, and improved product quality as a result of the recently completed blast furnace reline and upgrade project; expectations that the construction of the cogeneration facility at our Lake Erie Works will be completed on schedule and that the facility will further reduce our costs, increase our energy reliability and improve our environmental footprint; expectations that we will be able to fully capitalize on a recovery in the steel market and that we will be able to take advantage of the current pricing and demand environment witnessed during the early part of 2021; expectations that we will be able to capitalize on any opportunities that emerge, particularly with respect to the electric vehicle market; expectations that any increased production that we are able to maintain will enable us to produce a full suite of products in response to market demands; expectations that our current operations and financial position will afford us financial flexibility; expectations that we will be able to access the broader market for pig iron; and expectations that the market demand for pig iron will increase.

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 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.

Key Assumptions Underlying Our Blast Furnace and Pig Iron Production Estimates

The estimated cost efficiencies and production volumes associated with the recently completed blast furnace upgrade and reline project and the pig iron caster included in this press release are based on a number of assumptions, including, but not limited to, the following material assumptions: facilities producing in accordance with design capacity, as applicable; recently experienced increases in the production volume from our LEW blast furnace remaining consistent on an annual basis; expectations that the market for steel does not experience a material adverse change; and expectations that our customers will continue to purchase material volumes of production. 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 17, 2021 and the Company's MD&A for the period ended December 31, 2020 available under the Company's profile on SEDAR at www.sedar.com.

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 December 31, 2020, which is available on the Company's website and on SEDAR (www.sedar.com).

Non-IFRS Measures Results
The following table provide a reconciliation of net income (loss) to adjusted net income (loss) for the period indicated:

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

SOURCE Stelco