Mr. Alan Kestenbaum reports

STELCO HOLDINGS INC. REPORTS SECOND QUARTER 2023 RESULTS

Stelco Holdings Inc. has released the financial results of the company for the three and six months ended June 30, 2023. Stelco Holdings is the 100-per-cent owner of Stelco Inc. (Stelco), the operating company.

"I am pleased to report substantial improvement in our results quarter over quarter with significant growth in all our key financial metrics, including $215-million in adjusted EBITDA, representing a 231-per-cent increase over the first quarter," said Alan Kestenbaum, executive chairman and chief executive officer. "The improvement over last quarter is a direct result of our ability to take advantage of our industry-leading low-cost position and to effectively deploy our tactical flexibility business model, and our 26-per-cent adjusted EBITDA margin in the quarter again leads the North American industry.

"During the second quarter, we experienced relief from certain of the inflationary pressures that have impacted our costs over the last several quarters and benefited from a more normalized market with stabilized price levels and lead times," continued Mr. Kestenbaum. "In the coming months, I am optimistic that we will realize continued cost reduction as we take advantage of opportunities in the market and look forward to furthering our commitment to our investors by deploying our capital in a manner that benefits our shareholders."

"The $123-million in adjusted net income for the second quarter was a substantial improvement from the $10-million we generated in the first quarter," said Paul Scherzer, chief financial officer. "Our financial performance allowed the business to generate cash from operations and we once again ended the period with total liquidity in excess of $1-billion, including $784-million of cash. By continuing to drive our revenue through to the bottom line, we have positioned our business to be able to capitalize on favourable market conditions and continue to allocate capital in the best interests of our shareholders. Looking forward, we anticipate our shipping volume for Q3 will be approximately 675,000 net tons.

"Based on these strong results, we have declared a cash dividend of 42 cents per share for this quarter, bringing the total to $1.9-billion in capital that has been returned to our valued investors over the past five and a half years," continued Mr. Scherzer. "We are extremely proud of this track record as it represents a return of more than eight times the equity capital raised from our IPO in 2017."

Second quarter 2023 financial review

Compared with Q2 2022

Q2 2023 revenue decreased $196-million, or 19 per cent, from $1,037-million in Q2 2022, primarily due to a 16-per-cent decrease in the average selling price per net ton and a 4-per-cent decrease in the shipping volume. The average selling price per net ton of the company's steel products decreased from $1,453 per net ton in Q2 2022 to $1,217 per net ton in Q2 2023. The shipping volume decreased 24,000 net tons to 653,000 net tons from 677,000 net tons in Q2 2022. Also impacting revenue were non-steel sales, which decreased to $46-million in Q2 2023, from $53-million in Q2 2022.

The company realized operating income of $186-million for the quarter, compared with $440-million in Q2 2022, a decrease of $254-million consisting of a decline in revenue of $196-million and an increase in cost of goods sold of $58-million.

Finance costs increased by $23-million, from $8-million in Q2 2022 to $31-million in Q2 2023, due to the following: $11-million connected to the period-over-period impact of foreign exchange translation on U.S.-dollar-denominated working capital, $5-million-higher accretion expense related to lease and other related obligations, $5-million remeasurement charge related to a lease related obligation, and a $5-million increase in interest on loans and borrowings, partly offset by $4-million-lower accretion expense associated with the company's employee benefit commitment obligation.

The company realized net income of $117-million for the quarter, compared with $554-million in the second quarter of 2022, a change of $437-million, primarily due to the following: $260-million gain on sale of land buildings in Q2 2022, $254-million decrease in operating income, $23-million higher finance costs and a $1-million increase in other costs, partly offset by $67-million decrease in current tax expense, $21-million change in finance income and other losses, and a $13-million decrease in deferred taxes. Adjusted net income totalled $123-million in Q2 2023, a change of $233-million from $356-million in Q2 2022.

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) in Q2 2023 totalled $215-million, a decrease of $249-million from $464-million in Q2 2022, which mostly reflects a decrease in average selling price per net ton, the impact of lower shipping volume, increased cost of goods sold and lower non-steel sales gross margin realized in the period.

Compared with Q1 2023

Q2 2023 revenue increased $154-million, or 22 per cent, from $687-million in Q1 2023, primarily due to a 27-per-cent increase in the average selling price per net ton, partly offset by a 6-per-cent decrease in the shipping volume. The average selling price per net ton of the company's steel products increased from $960 per net ton in Q1 2023 to $1,217 per net ton in Q2 2023. The shipping volume decreased from 695,000 net tons in Q1 2023 to 653,000 net tons in Q2 2023. Non-steel sales increased by $26-million, from $20-million in Q1 2023 to $46-million during Q2 2023.

The company realized operating income of $186-million in Q2 2023, compared with $18-million in Q1 2023, and adjusted EBITDA of $215-million, compared with $65-million during Q1 2023, which mostly reflects an increase in the average selling price per net ton 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 $784-million and $258-million of availability under its revolving credit facility as at June 30, 2023. The attached table shows selected information regarding the consolidated balance sheet as at the noted dates.

Stelco Holdings and its subsidiaries ended Q2 2023 with current assets of $1,774-million, which exceeded current liabilities of $837-million by $937-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 $402-million of obligations to independent pension and OPEB trusts, which includes $297-million of employee benefit commitments and $105-million under a mortgage note payable associated with the June, 2018, land purchase. Non-current liabilities of $816-million as at June 30, 2023, include $298-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 $1,465-million at June 30, 2023. Total equity is calculated after giving effect to $46-million of common share dividends paid and the $106-million comprehensive income for the six months ended June 30, 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 Aug. 24, 2023, to shareholders of record as of the close of business on Aug. 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 on Thursday, Aug. 10, 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 749727. 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 Aug. 10, 2023m until 11:59 p.m. ET on Aug. 24, 2023, by dialling 1-866-813-9403 or 1-226-828-7578 and using the access code 102817.

Consolidated financial statements and management's discussion and analysis (MD&A)

The company's consolidated financial statements for the three and six months ended June 30, 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, Stelco'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 it 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.

Non-IFRS (international financial reporting standards) measures

This news release refers to certain non-IFRS measures that are not recognized under international financial reporting standards, do not have a standardized meaning prescribed by IFRS and therefore may not be comparable with similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of the company's results of operations from management's perspective. Accordingly, these measures should not be considered in isolation nor as a substitute for analysis of the company's financial information reported under IFRS. Stelco uses non-IFRS measures, including adjusted net income, adjusted net income per common share, adjusted EBITDA, adjusted EBITDA per net ton, average selling price per net ton and shipping volume, to provide supplemental measures of its operating performance and thus highlight trends in its core business that may not otherwise be apparent when relying solely on IFRS financial measures. The company also believes that securities analysts, investors and other interested parties frequently use non-IFRS measures in the evaluation of issuers. Stelco's management uses these non-IFRS financial measures to facilitate operating performance comparisons from period to period, to prepare annual operating budgets and forecasts, and to drive performance through Stelco's management compensation program. For a definition of these non-IFRS measures, refer to the company's MD&A for the three and six months ended June 30, 2023, available under the company's profile on SEDAR.

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