HAMILTON, Ontario--(BUSINESS WIRE)--Stelco Holdings Inc. (“Stelco Holdings” or the “Company”), (TSX: STLC), a low cost, integrated and independent steelmaker with one of the newest and most technologically advanced integrated steelmaking facilities in North America, today announced financial results of the Company for the three months ended March 31, 2023. Stelco Holdings is the 100% owner of Stelco Inc. (“Stelco”), the operating company.
Selected Financial Information:
(in millions Canadian dollars, except volume, per share and net tons (nt) figures) |
Q1 2023 |
Q1 2022 |
Change |
Q4 2022 |
Change |
Revenue ($) |
687 |
906 |
(24%) |
674 |
2% |
Operating income ($) |
18 |
381 |
(95%) |
47 |
(62%) |
Net income (loss) ($) |
(11) |
262 |
NM |
23 |
NM |
Adjusted Net Income ($) * |
10 |
268 |
(96%) |
32 |
(69%) |
|
|
|
|
|
|
Net income (loss) per common share (diluted) ($) |
(0.20) |
3.52 |
NM |
0.39 |
NM |
Adjusted Net Income per common share (diluted) ($) * |
0.18 |
3.61 |
(95%) |
0.55 |
(67%) |
|
|
|
|
|
|
Average Selling Price per nt ($) * |
960 |
1,493 |
(36%) |
963 |
— % |
Shipping Volume (in thousands of nt) * |
695 |
594 |
17% |
670 |
4 % |
|
|
|
|
|
|
Adjusted EBITDA ($) * |
65 |
402 |
(84%) |
82 |
(21%) |
|
|
|
|
|
|
Adjusted EBITDA per nt ($) * |
94 |
677 |
(86%) |
122 |
(23%) |
* See "Non-IFRS measures" for a description of certain Non-IFRS measures used in this Press Release and “Non-IFRS Measures Reconciliation” below.
NM - Not Meaningful
“The first quarter of 2023 saw Stelco impacted by low sales prices and higher input costs resulting from the remnants of inflationary pressures,” said Alan Kestenbaum, Executive Chairman and Chief Executive Officer. “Despite these challenges, we were able to deploy our tactical flexibility business model and increase our shipments by 4% over the previous quarter to 695,000 net tons.”
“We are optimistic about the path forward as prices in the second quarter have improved to more favourable levels, lead-times have normalized, and we have begun to see some relief from certain inflationary pressures that are already positively impacting our input costs in the second quarter,” continued Kestenbaum. “We anticipate a significantly more robust level of earnings in the second quarter and a continued buildup in cash so that we can effectively deploy our capital allocation strategy.”
“Our Adjusted EBITDA of $65 million translated to 9% Adjusted EBITDA margin for the quarter, down slightly from Q4 2022,” said Paul Scherzer, Chief Financial Officer. “Once again we were able to close out the quarter with in excess of $800 million of cash and over $1 billion of total liquidity. These are positive achievements in the face of the challenges we saw through the latter part of 2022 and Q1 2023 and are testament to our management team’s commitment to driving revenue through to the bottom line. We look forward to achieving stronger Adjusted EBITDA margins in the second quarter as our Average Selling Prices increase significantly from the low levels of Q1. We also expect that our Shipping Volume during the second quarter of 2023 will be approximately in line with the average of our trailing four quarters’ realized levels.”
“This quarter we are pleased to continue our regular quarterly cash dividend of $0.42 per share and add to the over $1.8 billion in capital that has been returned to our valued investors since our IPO in 2017,” continued Scherzer. “We look forward to continuing to build on our success and remain committed to our core values including maintaining a strong balance sheet and exploring opportunities to deploy our capital in a manner that generates value for our shareholders.”
First Quarter 2022 Financial Review
Compared to Q1 2022
Q1 2023 revenue decreased $219 million, or 24%, from $906 million in Q1 2022, primarily due to a 36% decrease in Average Selling Price per net ton, partly offset by a 17% increase in Shipping Volume. The Average Selling Price per net ton of our steel products decreased from $1,493 per nt in Q1 2022 to $960 per nt in Q1 2023. Our Shipping Volume increased 101 thousand nt to 695 thousand nt from 594 thousand nt in Q1 2022.
The Company realized operating income of $18 million for the quarter, compared to $381 million in Q1 2022, a decrease of $363 million consisting of a decline in revenue of $219 million, an increase in cost of goods sold of $139 million, and higher selling, general and administrative expenses of $5 million.
Finance costs increased by $2 million, from $27 million in Q1 2022 to $29 million in Q1 2023, due to the following: $7 million higher accretion expense related to lease and other related obligations and a $5 million increase in interest on loans and borrowings, partly offset by $6 million connected to the period-over-period impact of foreign exchange translation on U.S. dollar denominated working capital, $3 million lower accretion expense associated with our employee benefit commitment obligation, and a $2 million change related to the remeasurement impact from our employee benefit commitment obligation.
The Company realized a net loss of $11 million for the quarter, compared to net income of $262 million in the first quarter of 2022, a change of $273 million primarily due to the following: $363 million decrease in operating income, $3 million lower finance and other income, and $2 million higher finance costs, partly offset by an $80 million decrease in current tax expense, $12 million change in deferred taxes and $4 million decrease in other costs. Adjusted Net Income totaled $10 million in Q1 2023, a change of $258 million from $268 million in Q1 2022.
Adjusted EBITDA in Q1 2023 totaled $65 million, a decrease of $337 million from $402 million in Q1 2022, which mostly reflects a decrease in Average Selling Price per net ton, the impact of higher Shipping Volume and increased cost of goods sold in the period.
Compared to Q4 2022
Q1 2023 revenue increased $13 million, or 2%, from $674 million in Q4 2022, primarily due a 4% increase in Shipping Volume. Our Shipping Volume increased from 670 thousand nt in Q4 2022 to 695 thousand nt in Q1 2023. The Average Selling Price per net ton of our steel products declined less than 1% from $963 per nt in Q4 2022 to $960 per nt in Q1 2023. Non-steel sales decreased by $9 million, from $29 million in Q4 2022 to $20 million during Q1 2023.
The Company realized operating income of $18 million in Q1 2023 compared to $47 million in Q4 2022, and Adjusted EBITDA of $65 million compared to $82 million during Q4 2022, which mostly reflects an increase in cost of goods sold, lower Average Selling Price per net ton and the impact of higher Shipping Volume in the period.
Summary of Net Tons Shipped by Product:
(in thousands of nt)
Tons Shipped by Product |
Q1 2023 |
Q1 2022 |
Change |
Q4 2022 |
Change |
Hot-rolled |
512 |
416 |
23% |
480 |
7% |
Coated |
122 |
111 |
10% |
112 |
9% |
Cold-rolled |
23 |
19 |
21% |
23 |
—% |
Other a |
38 |
48 |
(21%) |
55 |
(31%) |
Total |
695 |
594 |
17% |
670 |
4% |
|
|
|
|
|
|
Shipments by Product (%) |
|
|
|
|
|
Hot-rolled |
74 % |
70 % |
|
72% |
|
Coated |
18 % |
19 % |
|
17% |
|
Cold-rolled |
3 % |
3 % |
|
3% |
|
Other a |
5 % |
8 % |
|
8% |
|
Total |
100 % |
100 % |
|
100% |
|
a Includes other steel products: pig iron and non-prime steel sales.
Statement of Financial Position and Liquidity:
On a consolidated basis, the Company ended the period with total liquidity in excess of $1 billion, comprised of cash of $809 million and $239 million of availability under its revolving credit facility as at March 31, 2023. The following table shows selected information regarding the consolidated balance sheet as at the noted dates:
(millions of Canadian dollars) |
|
|
As at |
March 31, 2023 |
December 31, 2022 |
ASSETS |
|
|
Cash |
809 |
809 |
Trade and other receivables |
217 |
147 |
Inventories |
599 |
789 |
Total current assets |
1,672 |
1,796 |
|
|
|
Property, plant and equipment, net |
1,211 |
1,199 |
Deferred tax asset |
3 |
2 |
Total non-current assets |
1,336 |
1,335 |
Total assets |
3,008 |
3,131 |
|
|
|
LIABILITIES |
|
|
Trade and other payables |
587 |
663 |
Other liabilities |
70 |
83 |
Asset-based lending facility |
15 |
15 |
Income taxes payable |
1 |
2 |
Obligations to independent employee trusts |
146 |
143 |
Total current liabilities |
819 |
906 |
|
|
|
Other liabilities |
410 |
404 |
Asset-based lending facility |
50 |
54 |
Deferred tax liability |
12 |
18 |
Obligations to independent employee trusts |
316 |
315 |
Total non-current liabilities |
818 |
820 |
Total liabilities |
1,637 |
1,726 |
|
|
|
Total equity |
1,371 |
1,405 |
Stelco Holdings and its subsidiaries ended Q1 2023 with current assets of $1,672 million, which exceeded current liabilities of $819 million by $853 million. Non-current assets include the derivative asset representing the fair value of Stelco's option to purchase a 25% ownership interest in the Minntac mine. Stelco Holdings' liabilities include $462 million of obligations to independent pension and OPEB trusts, which includes $357 million of employee benefit commitments and $105 million under a mortgage note payable associated with the June 2018 land purchase. Non-current liabilities of $818 million as at March 31, 2023 include $316 million of the aforementioned obligations to independent pension and OPEB trusts, as well as property and power generating equipment lease and other related liabilities. Stelco Holdings' consolidated equity totaled $1,371 million at March 31, 2023. Total equity is after giving effect to $23 million of common share dividends paid and $11 million comprehensive loss for the period ended March 31, 2023.
Declaration of Quarterly Dividend
Stelco Holdings Board of Directors approved the payment of a regular quarterly dividend of $0.42 per share which will be paid on May 23, 2023, to shareholders of record as of the close of business on May 18, 2023.
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, May 11, 2023, at 9:00 a.m. ET. To access the call, please dial 1-833-470-1428 or 1-404-975-4839 and use access code 375796. 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 May 11, 2023 until 11:59 p.m. ET on May 25, 2023 by dialing 1-866-813-9403 or 1-226-828-7578 and using the access code 752528.
Consolidated Financial Statements and Management’s Discussion and Analysis
The Company’s consolidated financial statements for the three months ended March 31, 2023, 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, as well as pig iron and metallurgical coke. With first-rate gauge, crown, and shape control, as well as uniform through-coil mechanical properties, our steel products are supplied to customers in the construction, automotive, energy, appliance, and pipe and tube industries across Canada and the United States as well as to a variety of steel service centres, which are distributors of steel products. At Stelco, we understand the importance of our business reflecting the communities we serve and are committed to diversity and inclusion as a core part of our workplace culture, in part, through active participation in the BlackNorth Initiative.
Non-IFRS Measures
This news release refers to certain non-IFRS measures that are not recognized under International Financial Reporting Standards ("IFRS"), do not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of our results of operations from management's perspective. Accordingly, these measures should not be considered in isolation nor as a substitute for analysis of our financial information reported under IFRS. We use non-IFRS measures including "Adjusted Net Income", "Adjusted Net Income per common share", ''Adjusted EBITDA'', ''Adjusted EBITDA per nt'', ''Average Selling Price per nt'', and ''Shipping Volume'' to provide supplemental measures of our operating performance and thus highlight trends in our core business that may not otherwise be apparent when relying solely on IFRS financial measures. We also believe that securities analysts, investors and other interested parties frequently use non-IFRS measures in the evaluation of issuers. Our management uses these non-IFRS financial measures to facilitate operating performance comparisons from period-to-period, to prepare annual operating budgets and forecasts, and drive performance through our management compensation program. For a reconciliation of these non-IFRS measures, refer to the Company's "Non-IFRS Measures Reconciliation" section below. For a definition of these non-IFRS measures, refer to the Company’s MD&A for the three months ended March 31, 2023 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, acquisitions, opportunities, budgets, operations, financial results, taxes, dividend policy, Average Selling Prices, Shipping Volumes, Adjusted EBITDA margins, plans and objectives of our Company. Particularly, information regarding our expectations of future results, performance, achievements, prospects or opportunities is forward-looking information. In some cases, forward-looking information can be identified by the use of forward-looking terminology such as "plans", "targets", "expects" or "does not expect", "is expected", "an opportunity exists", "budget", "goal", "scheduled", "estimates", "outlook", "forecasts", "projection", "prospects", "strategy", "intends", "anticipates", "does not anticipate", "believes", or variations of such words and phrases or state that certain actions, events or results "may", "could", "would", "might", "will", "will be taken", "occur" or "be achieved". In addition, any statements that refer to expectations, intentions, projections or other characterizations of future events or circumstances may be forward looking statements. Forward-looking statements are not historical facts but instead represent management's expectations, estimates and projections regarding future events or circumstances. The forward-looking statements contained herein are presented for the purpose of assisting the holders of our securities and financial analysts in understanding our financial position and results of operations as at and for the periods ended on the dates presented, as well as our financial performance objectives, vision and strategic goals, and may not be appropriate for other purposes.
Forward-looking information in this news release includes: statements targeting an anticipated increase in earnings in the second quarter; statements regarding an anticipated buildup of cash during the second quarter; statements regarding an effective deployment of our capital allocation strategy; expectations regarding stronger Adjusted EBITDA margins in the second quarter; expectations regarding significant increases to Average Selling Prices in the second quarter; expectations regarding expected Shipping Volumes in the second quarter; statements regarding our dividend policy; statements regarding our strong balance sheet; and statements regarding capital deployment opportunities.
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: an increase to the Average Selling Price of our products, our ability to achieve Shipping Volumes that are relatively consistent with our previous four fiscal quarters; our ability to complete capital projects on schedule and within budget and their anticipated effect on revenue and costs; our ability to obtain all applicable regulatory approvals required for our current and future operations; 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; 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; relaxation of inflationary input costs; stabilization of the interest rate environment; and growth in steel markets and industry trends, as well as those set out in this press release, are material factors made in preparing the forward-looking information and management's expectations contained in this press release.
Key Assumptions Underlying our Q2 2023 Shipping Volumes, Average Selling Prices and Adjusted EBITDA Margin Estimates
The estimates with respect to our Shipping Volumes, Average Selling Prices and Adjusted EBITDA margins during the second quarter of 2023 referenced herein are based on a number of assumptions in addition to the foregoing assumptions, including, but not limited to, the following material assumptions: (i) stable growth in global demand for steel; (ii) no material change to steel production capacity curtailments in China; (iii) the Company’s ability to continue to access the U.S. market without any adverse trade restrictions; (iv) no significant legal or regulatory developments, changes in economic conditions, or macro changes in the competitive environment affecting our business activities; (v) upgrades to existing facilities remaining on schedule and on budget; (vi) continuation of fair trade practices, particularly with respect to the North American market; (vii) transportation and supply chains remaining stable and not experiencing a significant interruption; and (viii) stable supply and demand fundamentals in the rest of the world. These factors are also subject to a number of inherent risks, challenges and assumptions.
There can be no assurance that such information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. Accordingly, readers should not place undue reliance on forward looking information, which speaks only as of the date made. The forward-looking information contained in this press release represents our expectations as of the date of this 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 three months ended March 31, 2023, which is available on the Company’s website and on SEDAR (www.sedar.com).
Stelco Holdings Inc.
|
||||||
(millions of Canadian dollars) |
|
|
||||
Three months ended March 31, |
|
2023 |
|
|
2022 |
|
Revenue from sale of goods |
$ |
687 |
|
$ |
906 |
|
Cost of goods sold |
|
644 |
|
|
505 |
|
Gross profit |
|
43 |
|
|
401 |
|
|
|
|
||||
Selling, general and administrative expenses |
|
25 |
|
|
20 |
|
Operating income |
|
18 |
|
|
381 |
|
|
|
|
||||
Finance costs |
|
(29 |
) |
|
(27 |
) |
Finance and other income |
|
— |
|
|
3 |
|
Other costs |
|
(2 |
) |
|
(6 |
) |
Share of loss from joint ventures |
|
(1 |
) |
|
— |
|
Income (Loss) before income taxes |
|
(14 |
) |
|
351 |
|
|
|
|
||||
Current income tax expense |
|
4 |
|
|
84 |
|
Deferred income tax expense (recovery) |
|
(7 |
) |
|
5 |
|
Net income (loss) |
$ |
(11 |
) |
$ |
262 |
|
Stelco Holdings Inc.
|
||||
As at |
March 31, 2023 |
December 31, 2022 |
||
ASSETS |
|
|
||
Current assets |
|
|
||
Cash |
$ |
809 |
$ |
809 |
Restricted cash |
|
9 |
|
9 |
Trade and other receivables |
|
217 |
|
147 |
Inventories |
|
599 |
|
789 |
Prepaid expenses and deposits |
|
38 |
|
42 |
Total current assets |
$ |
1,672 |
$ |
1,796 |
|
|
|
||
Non-current assets |
|
|
||
Derivative asset |
|
98 |
|
108 |
Property, plant and equipment, net |
|
1,211 |
|
1,199 |
Intangible assets |
|
8 |
|
8 |
Investment in joint ventures |
|
16 |
|
18 |
Deferred tax asset |
|
3 |
|
2 |
Total non-current assets |
$ |
1,336 |
$ |
1,335 |
Total assets |
$ |
3,008 |
$ |
3,131 |
|
|
|
||
LIABILITIES |
|
|
||
Current liabilities |
|
|
||
Trade and other payables |
$ |
587 |
$ |
663 |
Other liabilities |
|
70 |
|
83 |
Asset-based lending facility |
|
15 |
|
15 |
Income taxes payable |
|
1 |
|
2 |
Obligations to independent employee trusts |
|
146 |
|
143 |
Total current liabilities |
$ |
819 |
$ |
906 |
|
|
|
||
Non-current liabilities |
|
|
||
Provisions |
|
19 |
|
18 |
Pension benefits |
|
11 |
|
11 |
Other liabilities |
|
410 |
|
404 |
Asset-based lending facility |
|
50 |
|
54 |
Deferred tax liability |
|
12 |
|
18 |
Obligations to independent employee trusts |
|
316 |
|
315 |
Total non-current liabilities |
$ |
818 |
$ |
820 |
Total liabilities |
$ |
1,637 |
$ |
1,726 |
|
|
|
||
EQUITY |
|
|
||
Common shares |
|
318 |
|
318 |
Retained earnings |
|
1,053 |
|
1,087 |
Total equity |
$ |
1,371 |
$ |
1,405 |
Total liabilities and equity |
$ |
3,008 |
$ |
3,131 |
Non-IFRS Measures Reconciliation
The following table provides a reconciliation of net income (loss) to Adjusted Net Income for the periods indicated:
(millions of Canadian dollars) |
|
|
||||
Three months ended March 31, |
|
2023 |
|
|
2022 |
|
Net income (loss) |
$ |
(11 |
) |
$ |
262 |
|
Add back/(Deduct) following items: |
|
|
||||
Share-based compensation 1 |
|
16 |
|
|
2 |
|
Loss (Gain) on derivative asset |
|
10 |
|
|
(2 |
) |
Other costs 2 |
|
2 |
|
|
6 |
|
Remeasurement of employee benefit commitment 3 |
|
— |
|
|
2 |
|
Total adjusted items before tax |
|
28 |
|
|
8 |
|
Tax impact of above items |
|
(7 |
) |
|
(2 |
) |
Total adjusted items after tax |
|
21 |
|
|
6 |
|
Adjusted Net Income |
$ |
10 |
|
$ |
268 |
|
| 1 | Share-based compensation consists of costs connected with the Company's Total Shareholder Return Based Incentive Program and other share-based compensation plans. |
|
| 2 | Other costs primarily includes the write-down of certain capital projects that are no longer being pursued by the Company, representing aborted construction in progress costs without future benefit to Stelco, and demolition costs for certain buildings (and other assets) not connected to the Company's ongoing operations. |
|
| 3 | Remeasurement of employee benefit commitment for change in the timing of estimated cash flows and future funding requirements. |
|
The following table provides a reconciliation of net income (loss) to Adjusted EBITDA for the periods indicated:
(millions of Canadian dollars, except where otherwise noted) |
|
|
||||
Three months ended March 31, |
|
2023 |
|
|
2022 |
|
Net income (loss) |
$ |
(11 |
) |
$ |
262 |
|
Add back/(Deduct) following items: |
|
|
||||
Depreciation |
|
32 |
|
|
19 |
|
Finance costs |
|
29 |
|
|
27 |
|
Share-based compensation 1 |
|
16 |
|
|
2 |
|
Loss (Gain) on derivative asset |
|
10 |
|
|
(2 |
) |
Finance income and other |
|
(10 |
) |
|
(1 |
) |
Income tax expense (recovery): |
|
|
||||
Current |
|
4 |
|
|
84 |
|
Deferred |
|
(7 |
) |
|
5 |
|
Other costs 2 |
|
2 |
|
|
6 |
|
Adjusted EBITDA |
$ |
65 |
|
$ |
402 |
|
|
|
|
||||
Adjusted EBITDA as a percentage of total revenue |
|
9 |
% |
|
44 |
% |
| 1 | Share-based compensation consists of costs connected with the Company's Total Shareholder Return Based Incentive Program and other share-based compensation plans. |
|
| 2 | Other costs primarily includes the write-down of certain capital projects that are no longer being pursued by the Company, representing aborted construction in progress costs without future benefit to Stelco, and demolition costs for certain buildings (and other assets) not connected to the Company's ongoing operations. |
