Stelco Holdings Inc. Announces Results of Stelco Inc. for Third Quarter 2017 – Markets Insider

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(Note: All dollar figures herein are Canadian dollars, unless otherwise noted)

  • Year-to-date revenue increased 16% to $1,149 million
  • Year-to-date adjusted EBITDA increased 116% to $147 million1

HAMILTON, ON, Nov. 13, 2017 /CNW/ – Stelco Holdings Inc. (“Stelco” 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 Stelco Inc. for the three and nine months ended September 30, 2017. Stelco Holdings Inc. is the 100% owner of the operating company, Stelco Inc.

Subsequent to the end of the third quarter, the Company completed an initial public offering (“IPO”) of 13,529,750 common shares at a price of $17.00 per share for total gross proceeds of $230,005,750, which closed on November 10, 2017. The shares are listed for trading on the Toronto Stock Exchange under the symbol “STLC”. The financial results presented in this news release reflect Stelco Inc. prior to its acquisition by the Company as part of the pre-closing transactions relating to the IPO.

“We are extremely pleased with the financial results for the third quarter and year-to-date, both consistent with management expectations.  A key performance driver was the blast furnace outage taken in the third quarter, which increased production levels to 29 heats per day from 21, or by 38%. The strong production performance has continued into the fourth quarter as well,” said Alan Kestenbaum, Stelco Executive Chairman and Chief Executive Officer. “With its legacy issues addressed and a strong balance sheet, Stelco is poised to grow organically – via increased production, product innovation, the repatriation of former customers, and through disciplined acquisitions. If the right opportunities present themselves, we will be poised to act. I appreciate the support that investors gave the IPO and share their optimism for this iconic Company’s future. We look forward to creating value to the benefit of our valued customers, employees and shareholders.”

______________________
1 See “Non-IFRS Measures” below for a reconciliation of the foregoing non-IFRS measure to its most directly comparable measure calculated in accordance with IFRS.

Third Quarter 2017 Financial Highlights

  • The planned blast furnace outage was successfully executed in the third quarter of 2017, resulting in a 38% increase in heats per day, a measure of production volume of liquid steel
  • Revenue was $336 million, a decrease of $37 million, or 10% year-over-year from $373 million for the same period in 2016, largely as a result of the blast furnace outage
  • Operating profit was $0, a decrease of $44 million year-over-year from $44 million for the same period in 2016
  • Adjusted earnings before interest, income taxes, depreciation, and amortization (“EBITDA”) (a non-IFRS measure) was $7 million, consistent with the midpoint of the range disclosed in the Company’s final long-form supplemented PREP prospectus dated November 2, 2017 (the “Prospectus”)

Year-to-date 2017 Financial Highlights

  • Revenue for the nine months ended September 30, 2017 was $1,149 million, an increase of $159 million, or 16%, year-over-year from $990 million for the same period in 2016. Average selling price (a non-IFRS measure) for the nine months ended September 30, 2017 was $814 per net ton (“nt”) versus $654 per nt for the same period in 20162
  • Operating profit was $61 million, an increase of $53 million, or 663%, year-over-year from $8 million for the same period in 2016
  • Adjusted EBITDA was $147 million, an increase of $79 million, or 116%, year-over-year from $68 million for the same period in 2016

Summary Financial Table for Periods Ended September 30:

(in millions, except volume and per nt figures)

3-Months Ended

9-Months Ended

Trailing 12-

Months Ended3

2017

2016

2017

2016

2017

Revenue ($)

336

373

1,149

990

1,461

Operating profit ($)

44

61

8

44

Adjusted EBITDA ($)

7

65

147

68

167

Average selling price per nt ($)

818

749

814

654

779

Shipping volume (in thousands of nt) 2

411

498

1,411

1,513

1,875

________________________
2 See “Non-IFRS Measures” below for a reconciliation of the foregoing non-IFRS measure to its most directly comparable measure calculated in accordance with IFRS.

3 The selected consolidated financial data for the trailing twelve months ended September 30, 2017 has been derived from our audited consolidated financial statements for the year ended December 31, 2016 and from our unaudited interim condensed consolidated financial statements for the three and nine months ended September 30, 2017 by adding the financial activity from the last three months of 2016 to the first nine months of 2017. The Company believes this period provides useful information about the performance of our operations.

 

Third Quarter 2017 Financial Results

Revenue in the third quarter of 2017 totaled approximately $336 million, a decrease of $37 million, or 10%, from revenue of $373 million in the third quarter of 2016. The year-over-year revenue decrease was largely due to lower shipping volumes, which decreased from 498 thousand nt in the third quarter of 2016 to 411 thousand nt in the third quarter of 2017, a 17% decrease. The volume decrease was largely due to the production impact of a planned blast furnace outage in the current quarter. The outage, which began on August 14 and was completed on September 9, resulted in a 38% increase in heats per day relative to heats per day experienced prior to the outage. Partially offsetting the shipping volume decline was an increase in average selling price year-over-year. Average selling price in the third quarter of 2017 was $818 per nt, a 9% increase from the $749 per nt average selling price in the third quarter of 2016. The increase in the selling price per nt was due to the improvement of the market price of steel.

Operating profit in the third quarter of 2017 was $0 million, a decrease of $44 million from operating profit of $44 million in the third quarter of 2016. Gross profit decreased by $39 million, or 76%, from $51 million in the third quarter of 2016 to $12 million in the third quarter of 2017 due to a combination of lower revenue, higher raw material costs, incremental outage costs, and lower cost absorption due to lower production levels.  Raw material costs increased year-over-year due to market price increases in materials such as metallurgical coal, scrap metal and iron ore.  The lost production due to the blast furnace outage in the current quarter resulted in an increase in unabsorbed manufacturing cost variances. Partially offsetting raw material price increases were year-over-year decreases in pension and other post-employment benefit (“OPEB”) costs. Selling, general and administrative costs increased approximately $5 million year-over-year, from $7 million in the third quarter of 2016 to $12 million in the third quarter of 2017, due to higher administrative charges and repatriation of functions previously performed by the Company’s prior owner.

Adjusted EBITDA in the third quarter of 2017 totaled $7 million, a decrease of $58 million from adjusted EBITDA of $65 million in the third quarter of 2016. The year-over-year change reflects the decrease in revenue, largely due to the current year’s blast furnace outage, and increases in operating and selling, general and administrative expenses.

Year-to-date 2017

For the nine months ended September 30, 2017, revenue totaled $1,149 million, an increase of $159 million, or 16%, from revenue of $990 million in 2016, primarily due to the improved average selling price per nt. Average selling price per nt increased by $160 per nt, from $654 per nt in the nine months ended September 30, 2016, to $814 per nt in the nine months ended September 30, 2017. The increase in the selling price per nt was due to the improved market price of steel.

Operating profit for the nine months ended September 30, 2017, was $61 million, an increase of $53 million, or 663%, from operating profit of $8 million for the same period in 2016. Gross profit increased by $96 million, or 356%, from $27 million in the nine months ended September 30, 2016 to $123 million in the nine months ended September 30, 2017 due to increases in revenue, offset by an increase in cost of goods sold per nt. The higher cost of goods sold was attributed to an increase in raw material costs, unabsorbed manufacturing cost variances and incremental expenses incurred as a result of the blast furnace outage. Raw material costs increased year-over-year due to market price increases for material such as metallurgical coal and scrap metal, partially offset by decreased costs of iron ore year-over-year.  In addition, other manufacturing cost variances were higher by approximately 22%.

For the nine months ended September 30, 2017, adjusted EBITDA increased by $79 million, from $68 million in the nine months ended September 30, 2016 to $147 million, for the same period in 2017. The improvement was largely due to improved revenue due to market steel price increases, partially offset by higher raw material and unabsorbed manufacturing cost variances. Adjusted EBITDA included the following non-routine, non-recurring, and/or non-cash adjustments: gain related to emergence from Companies’ Creditor Arrangement Act (“CCAA”), restructuring costs related to CCAA, provision on pension and other post-employment benefits, separation costs related to previous owner support services, and acquisition related costs. 

Quarterly Results Conference Calls

The Company intends to host quarterly results investor calls starting with its fourth quarter results. Timing of the fourth quarter results and conference call information will be provided closer to that time.

Consolidated Financial Statements and Management’s Discussion and Analysis

The Company’s (including both Stelco Holdings Inc. and Stelco Inc.) unaudited interim condensed consolidated financial statements for the three and nine months ended September 30, 2017, and MD&A 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 makes reference 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 ”EBITDA”, ”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.

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 contain forward-looking information. Statements containing forward-looking information are not historical facts but instead represent management’s expectations, estimates and projections regarding future events or circumstances.

The forward-looking information includes, among other things, statements relating to the continuation of the strong production performance into the fourth quarter, the Company’s position to grow organically and the future actions relating thereto and the anticipation of creating value.

This forward-looking information and other forward-looking information are 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.  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 those described in the MD&A and referred to under the heading “Risk Factors” in the Prospectus at www.sedar.com in respect of the Company’s initial public offering that closed on November 10, 2017.

Stelco Inc. – Supplemental Financial Schedules

Interim condensed consolidated statements of profit or loss

(In millions of Canadian dollars)

(unaudited)

Three Months Ended

Nine Months Ended

September 30,

2017

September 30,

2016

September 30,

2017

September 30,

2016

$

$

$

$

Operations

Revenue from sale of goods

336

373

1,149

989

Commission income

1

Total revenue

336

373

1,149

990

Cost of goods sold

324

322

1,026

963

Gross profit

12

51

123

27

Selling, general and administrative expenses

12

7

62

19

Operating profit (loss)

44

61

8

Finance costs

12

54

133

136

Finance income

(1)

Share of loss of joint ventures

1

Restructuring costs

1

9

33

26

Gain on emergence from CCAA

(3,665)

Other income

(1)

(3)

(1)

Income (loss) before income taxes

(13)

(18)

3,563

(153)

Income tax expense

Income (loss) for the period

(13)

(18)

3,563

(153)

 

Interim condensed consolidated statements of comprehensive income (loss)

(In millions of Canadian dollars)

(unaudited)

Three Months Ended

Nine Months Ended

September 30,

2017

September 30,

2016

September 30,

2017

September 30,

2016

$

$

$

$

Income (loss) for the period

(13)

(18)

3,563

(153)

Other comprehensive loss – Items that will not

subsequently be reclassified to profit or loss

Remeasurement losses on pension benefit

obligations

18

(53)

(251)

Other comprehensive income (loss) for the

period, net of income taxes

18

(53)

(251)

Total comprehensive income (loss) for the

period, net of income taxes

(13)

3,510

(404)

 

Interim condensed consolidated statements of financial position

(In millions of Canadian dollars)

(unaudited)

September 30,

2017

December 31,

2016

$

$

Assets

Current

Cash and cash equivalents

22

188

Restricted cash

19

9

Trade and other receivables

117

237

Inventories

367

314

Prepaid expenses

17

47

Total current assets

542

795

Property, plant and equipment, net

303

378

Investment property

21

Investment in joint ventures

5

6

Total non-current assets

308

405

Total assets

850

1,200

Liabilities and equity (deficiency)

Current

Trade and other payables

168

457

Current portion of long-term debt

1,822

Other liabilities

23

1,172

Employee benefit commitment

41

Total current liabilities

232

3,451

Long-term debt

11

Provisions

5

5

Pension and other post-employment benefits

1,030

Other liabilities

31

1

Employee benefit commitment

278

Total non-current liabilities

325

1,036

Total liabilities

557

4,487

Equity (deficiency)

Common shares

2,325

2,325

Contributed surplus

500

430

Retained deficit

(2,532)

(6,042)

Total equity (deficiency)

293

(3,287)

Total liabilities and equity

850

1,200

 

Interim condensed consolidated statements of cash flows

(In millions of Canadian dollars)

(unaudited)

Nine Months Ended

September 30, 2017

September 30, 2016

$

$

Operating activities

Income (loss) for the period

3,563

(153)

Adjustments to reconcile income (loss) to cash provided by (used in) operating activities:

Depreciation

19

22

Interest expense and foreign exchange

107

134

Share of loss of joint ventures

1

Provision on pension and other post-employment benefits                          

26

36

Employee benefit commitment

(6)

Payments to creditors under CCAA (note 13)

(237)

Gain on emergence from CCAA (note 13)

(3,665)

Changes in non-cash working capital balances related to operations:

Trade and other receivables

21

(2)

Inventories

(53)

18

Prepaid expenses

30

5

Trade and other payables

84

12

Other liabilities

5

(3)

87

30

Cash provided by (used in) operating activities

(105)

69

Investing activities

Purchases of property, plant and equipment

(22)

(10)

Project costs

(2)

Restricted cash

(10)

1

Cash used in investing activities

(32)

(11)

Financing activities

Repayment of long-term debt

(193)

Proceeds of long-term debt

94

Proceeds from owner’s contribution

70

Cash used in financing activities

(29)

Net (decrease) increase in cash and cash equivalents

(166)

58

Cash and cash equivalents, beginning of period

188

162

Cash and cash equivalents, end of period

22

220

 

Non-IFRS Measures Reconciliation

The following table provides a reconciliation of income (loss) for the period to adjusted EBITDA and certain other non-IFRS measures for the periods indicated:

(In $ millions, except volume and per nt)

Trailing 12

months ended

September 306

Three months ended

September 30,

Nine months ended

September 30,

2017

2017

2016

2017

2016

Income (loss) for the period

3,480

(13)

(18)

3,563

(153)

Depreciation

26

4

8

19

22

Finance costs

194

12

54

133

136

Finance income

(2)

(1)

EBITDA

3,698

3

44

3,714

5

Adjustments to EBITDA:

Gains related to emergence from CCAA1

(3,665)

(3,665)

Acquisition related costs2

18

18

Provision on pension and other post-employment benefits3

49

2

12

26

37

Restructuring costs4

43

1

9

33

26

Separation costs related to previous owner support services5

24

1

21

Adjusted EBITDA

167

7

65

147

68

Adjusted EBITDA as a percentage of total revenue

11%

2%

17%

13%

7%

Selling Price per nt (in dollars per nt)

779

818

749

814

654

Adjusted EBITDA per nt (in dollars per nt)

89

17

131

104

45

Shipping Volume (in thousands of nt)

1,875

411

498

1,411

1,513

Hot-rolled

1,320

299

366

998

1,124

Cold-rolled

51

12

4

43

6

Coated

407

78

105

302

307

Other

96

22

23

68

76

1.

Represents the gain from the implementation of the CCAA plan on June 30, 2017.  Refer to note 13 of the unaudited interim condensed consolidated financial statements of Stelco Inc. for the three and nine months ended September 30, 2017.

2.

Acquisition costs related to the purchase of Stelco Inc. by Bedrock.

3.

Represents difference between total cash funding obligation for pensions and OPEBs and amount already reflected in EBITDA.

4.

Restructuring expenses relates to the CCAA proceedings, which primarily included legal fees, financial advisor fees, court-appointed monitor fees, interim financing fees and other related restructuring expenses. The Company implemented its CCAA plan on June 30, 2017.

5.

Relates to previous owner support service expenses incurred while the Company is in the process of separating from the previous owner and enhancing its own support functions.

6.

The reconciliation of EBITDA and Adjusted EBITDA and certain other non-IFRS measures for the trailing 12 months ended September 30, 2017 has been derived from our audited consolidated financial statements for the year ended December 31, 2016 and from our unaudited interim condensed consolidated financial statements for the three and nine months ended September 30, 2017 by adding the financial activity from the last three months of 2016 to the first nine months of 2017. The Company believes this period provides useful information about the performance of our operations.

SOURCE Stelco

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