Stelco Holdings Inc. Reports Results for Q1 2022: Most Profitable First Quarter on Record

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, 2022. Stelco Holdings is the 100% owner of Stelco Inc. (“Stelco”), the operating company.

Selected Financial Information

Alan Kestenbaum, Executive Chairman and Chief Executive Officer said, “Despite encountering weaker demand that started in Q4 2021 and inflationary pressures that were experienced across the broader economy throughout the first quarter, we were able to deliver over $400 million in Adjusted EBITDA and a 44% margin representing, yet again, an industry-leading Adjusted EBITDA margin.”

“Our continued success is largely driven by our unwavering focus on maintaining and deepening our industry leading low-cost position,” continued Kestenbaum. “To further this position we recently completed the rehabilitation and upgrade of our Lake Erie Works coke battery, and later in the second quarter we expect to complete our 65MW electricity cogeneration facility – two more components of our strategic capital plan. We expect that these projects will further lower our cost structure, reduce our emissions profile and improve the overall efficiency of our operations.”

“Looking ahead, since the end of the first quarter we have seen an improvement in end-market demand as well as restocking at the distribution level which, taken together with a significant rise in scrap prices affecting the cost structures of many of our competitors, have improved prices and our anticipated shipments for Q2,” said Kestenbaum.

“While in the early part of the first quarter we saw deterioration in both pricing and volume compared to the fourth quarter of 2021, we did experience some recovery commencing in the last month of the period,” said Paul Scherzer, Chief Financial Officer. “As a result, we ended the first quarter with $796 million in cash, even after making our substantial tax payment for 2021 and returning $215 million of capital to our shareholders this quarter through repurchasing and cancelling 5.1 million shares for an aggregate purchase price of $193 million via our completed Substantial Issuer Bid (SIB) and ongoing Normal Course Issuer Bid (NCIB), as well as our quarterly dividend. Our ability to end the period with a healthy balance of cash after completing these transactions speaks to the robustness of our company and our commitment to maintaining a strong balance sheet.”

“As a result of our continued success, I am pleased to announce that we will be continuing our $0.30 per share dividend this quarter,” continued Scherzer. “We will continue to pursue opportunities to effectively deploy our capital and are pleased to deliver these returns to our shareholders with whom our management team remains closely aligned.”

First Quarter 2022 Financial Review

Compared to Q1 2021

Q1 2022 revenue increased $241 million, or 36%, from $665 million in Q1 2021, primarily due to a 56% increase in Average Selling Price per net ton and higher non-steel sales of $1 million, partly offset by a 12% decrease in Shipping Volumes. The Average Selling Price of our steel products increased from $959 per nt in Q1 2021 to $1,493 per nt in Q1 2022. Our Shipping Volumes decreased 81 thousand nt to 594 thousand nt from 675 thousand nt in Q1 2021.

The Company realized operating income of $381 million for the quarter, compared to $167 million in Q1 2021, an increase of $214 million consisting of an increase in revenue of $241 million, partly offset by an increase in cost of goods sold of $21 million and higher selling, general and administrative expenses of $6 million.

Finance costs decreased by $39 million, from $66 million in Q1 2021 to $27 million in Q1 2022, due to the following: $50 million related to the gross remeasurement impact from our employee benefit commitment and $2 million in lower interest on loans and borrowings, partly offset by $11 million related to the period-over-period impact of foreign exchange translation on U.S. dollar denominated working capital and $2 million increase in accretion of employee benefit commitment.

The Company realized net income of $262 million for the quarter, compared to $119 million in the first quarter of 2021, a change of $143 million primarily due to the following: $214 million increase in operating income, $39 million in lower finance costs, and $20 million change in finance income and other losses, partly offset by $84 million in current tax expense, $40 million change in deferred taxes, and $6 million increase in other costs. Adjusted Net Income totaled $268 million in Q1 2022, a change of $96 million from $172 million in Q1 2021.

Adjusted EBITDA in Q1 2022 totaled $402 million, an increase of $217 million from $185 million in Q1 2021, which reflects an increase in Average Selling Price per net ton, partly offset by lower Shipping Volumes and higher cost of goods sold.

Compared to Q4 2021

Q1 2022 revenue decreased $280 million, or 24%, from $1,186 million in Q4 2021, primarily due to a 19% lower Average Selling Price per net ton and a 5% decrease in Shipping Volumes, from 626 thousand nt in Q4 2021 to 594 thousand nt in Q1 2022. Non-steel sales decreased $12 million, from $31 million in Q4 2021 to $19 million during Q1 2022, mainly due to lower metallurgical coke sales during the period.

The Company realized operating income of $381 million in Q1 2022 compared to $653 million in Q4 2021, and Adjusted EBITDA of $402 million compared to $673 million during Q4 2021, which mostly reflects lower Average Selling Price per net ton, a decrease in Shipping Volumes and lower non-steel sales.

Summary of Net Tons Shipped by Product

Statement of Financial Position and Liquidity

On a consolidated basis, the Company ended the period with cash of $796 million and $244 million of availability under its revolving credit facility as at March 31, 2022. The following table shows selected information regarding the consolidated balance sheet as at the noted dates:

Stelco Holdings and its subsidiaries ended Q1 2022 with current assets of $1,653 million, which exceeded current liabilities of $891 million by $762 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 $601 million of obligations to independent pension and OPEB trusts, which includes $493 million of employee benefit commitments and $108 million under a mortgage note payable associated with the June 2018 land purchase. Non-current liabilities of $547 million as at March 31, 2022 include $386 million of the aforementioned obligations to independent pension and OPEB trusts. Stelco Holdings' consolidated equity totaled $1,485 million at March 31, 2022. Total equity is after giving effect to $193 million of shares repurchased and cancelled by the Company in Q1 2022.

Declaration of Quarterly Dividend

Stelco Holdings' Board of Directors approved the payment of a regular quarterly dividend of $0.30 per share which will be paid on May 20, 2022, to shareholders of record as of the close of business on May 16, 2022.

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, Friday, May 6, 2022, at 9:00 a.m. ET. To access the call, please dial 1-833-950-0062 or 1-226-828-7575 and use access code 570501. 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 6, 2022 until 11:59 p.m. ET on May 20, 2022 by dialing 1-845-709-8569 and using the access code 033775.

Consolidated Financial Statements and Management’s Discussion and Analysis

The Company’s consolidated financial statements for the three months ended March 31, 2022, 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 companies. 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, 2022 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", "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: expectations that we will continue to operate the business so as to maintain and deepen our position as one of the lowest-cost integrated steel producers in North America; expectations regarding the advancement of our strategic capital plan during the second quarter of 2022, including, but not limited to, the rehabilitation and upgrade of our Lake Erie Works coke battery and our 65MW electricity cogeneration facility; expectations that upon the completion of such capital projects, we will experience an improvement in our cost structure, a reduction in our emissions profile and an improvement in the overall efficiency of our operations; expectations regarding shipments for the second quarter of 2022; expectations regarding the robustness of our business and our ability to maintain a strong balance sheet; statements regarding the pursuit of opportunities and the effective deployment of capital; expectations that we will continue to deliver returns to our shareholders; expectations that the purchase of shares under the NCIB will continue and be advantageous to the shareholders of the Company.

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 new facilities operating at their design capacity; our integrated steel producing facility not being negatively impacted during the integration of such new facilities; our existing facilities operating at their design capacity; our ability to source necessary volumes of raw materials and other inputs at competitive prices; our iron ore pellet supply agreement providing us with substantially all of our iron ore requirements at competitive prices during the term of the agreement; the market demand for iron units continuing to face increased pressure; our ability to supply to new customers and markets; our ability to effectively manage costs; our ability to attract and retain key personnel and skilled labour; our ability to obtain and maintain existing financing on acceptable terms; currency exchange and interest rates; the ongoing impact of the COVID-19 pandemic on our business, operations, employees, customers, suppliers and the economy overall; the ongoing impact of the hostilities in eastern Europe and elsewhere on the international supply chain and economy overall; the impact of competition; changes in laws, rule, and regulations, including international trade regulations; our ability to continue to access the U.S. market without any adverse trade restrictions; upgrades to existing facilities remaining on schedule and on budget and their anticipated effect on revenue and costs; and growth in steel markets and industry trends, as well as those set out in this press release, are material factors made in preparing the forward-looking information and management's expectations contained in this press release.

There can be no assurance that such information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. Accordingly, readers should not place undue reliance on forward looking information, which speaks only as of the date made. The forward-looking information contained in this press release represents our expectations as of the date of this news release and is 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, 2022, which are available on the Company’s website and on SEDAR (www.sedar.com).

Non-IFRS Measures Reconciliation

The following table provides a reconciliation of net income to Adjusted Net Income for the periods indicated:

The following table provides a reconciliation of net income to Adjusted EBITDA for the periods indicated:

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For Further Information

For investor enquiries: Paul D. Scherzer, Chief Financial Officer, (905) 577-4432, [email protected]

For media enquiries: Trevor Harris, Vice-President, Corporate Affairs, (905) 577-4447, [email protected]