Mr. Alan Kestenbaum reports

STELCO HOLDINGS INC. REPORTS FIRST QUARTER 2023 RESULTS

Stelco Holdings Inc. has released the financial results of the company for the three months ended March 31, 2023. Stelco Holdings is the 100-per-cent owner of Stelco Inc. (Stelco), the operating company.

"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 per cent 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 Mr. 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-per-cent 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 42 cents 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 Mr. 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 with Q1 2022

Q1 2023 revenue decreased $219-million or 24 per cent from $906-million in Q1 2022, primarily due to a 36-per-cent decrease in average selling price per net ton, partly offset by a 17-per-cent increase in shipping volume. The average selling price per net ton of the company's steel products decreased from $1,493 per net tons (nt) in Q1 2022 to $960 per nt in Q1 2023. Stelco's shipping volume increased 101,000 nt to 695,000 nt from 594,000 nt in Q1 2022.

The company realized operating income of $18-million for the quarter, compared with $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 Stelco's employee benefit commitment obligation and a $2-million change related to the remeasurement impact from the company's employee benefit commitment obligation.

The company realized a net loss of $11-million for the quarter, compared with a 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 totalled $10-million in Q1 2023, a change of $258-million from $268-million in Q1 2022.

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) in Q1 2023 totalled $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 with Q4 2022

Q1 2023 revenue increased $13-million or 2 per cent from $674-million in Q4 2022, primarily due a 4-per-cent increase in shipping volume. Stelco's shipping volume increased from 670,000 nt in Q4 2022 to 695,000 nt in Q1 2023. The average selling price per net ton of the company's steel products declined less than 1 per cent 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 with $47-million in Q4 2022, and adjusted EBITDA of $65-million, compared with $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.

Statement of financial position and liquidity

On a consolidated basis, the company ended the period with total liquidity in excess of $1-billion, comprising cash of $809-million and $239-million of availability under its revolving credit facility as at March 31, 2023. The attached table shows selected information regarding the consolidated balance sheet as at the noted dates.

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-per-cent ownership interest in the Minntac mine. Stelco Holdings' liabilities include $462-million of obligations to independent pension and OPEB (other postemployment benefits) trusts, including $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 totalled $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 42 cents 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 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 webcast live on the investor relations section of Stelco's website. 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 p.m. ET on May 11, 2023, until 11:59 p.m. ET on May 25, 2023, by dialling 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 and analysis thereon are available under the company's profile on SEDAR.

About Stelco Holdings Inc.

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, the company's 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. Stelco understands the importance of its business reflecting the communities the company serves and is committed to diversity and inclusion as a core part of its workplace culture, in part, through active participation in the BlackNorth initiative.

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