Mr. Alan Kestenbaum reports

STELCO HOLDINGS INC. REPORTS THIRD QUARTER 2023 RESULTS

Stelco Holdings Inc. has released its financial results for the three and nine months ended Sept. 30, 2023. Stelco Holdings is the 100-per-cent owner of Stelco Inc., the operating company.

"We are pleased with this quarter's results despite a relatively weaker pricing environment that existed this quarter," said Alan Kestenbaum, executive chairman and chief executive officer. "We have built a business that generates significant cash, which in turn has allowed us to deliver industry-leading returns to our shareholders, and I am proud that we are able to continue that trend in the third quarter. In addition to our quarterly dividend of 42 cents per share, Stelco will be providing our shareholders with a special dividend of $3 per share, bringing the total capital returned to shareholders to more than $2-billion since our IPO in 2017 -- a record that we are exceptionally proud of.

"With the upward trajectory in steel prices that commenced a few weeks ago and continued solid market demand, we expect to see improved results starting in 2024," continued Mr. Kestenbaum. "Our continued focus on cost reductions and efficiency in our operations and lower input costs will afford our business the opportunity to continue our strong track record of generating cash and delivering results that benefit our shareholders."

"Despite seeing an 11-per-cent decrease in our average selling price quarter over quarter, the business was able to generate $153-million in adjusted EBITDA in the third quarter due to our ability to control our costs and drive revenue through to the bottom line," said Paul Scherzer, chief financial officer. "We have a proven track record of generating returns at every point of the market cycle and the third quarter was no exception. We continued to generate cash flow from operations and ended the period with total liquidity in excess of $1-billion, including $841-million of cash. This strong financial position has afforded us the opportunity to once again return excess capital to our shareholders through the $3 per share special dividend announced today."

"We anticipate that we will continue to build on our track record of generating positive returns for all our stakeholders," continued Mr. Scherzer. "Looking ahead to the fourth quarter, we anticipate our shipping volume will be approximately 600,000 to 625,000 net tons, and adjusted EBITDA will be lower, but with increasing prices and expanding lead times we are anticipating a stronger first quarter in 2024. Over six years, we have developed a strong track record of delivering results, and we look forward to continuing this trend through the fourth quarter and into next year."

Third quarter 2023 financial review

Compared with Q3 2022

Q3 2023 revenue decreased $70-million, or 8 per cent, from $846-million in Q3 2022, primarily due to a 7-per-cent decrease in average selling price per net ton (nt) and a 4-per-cent decrease in shipping volume. The average selling price of Stelco's steel products decreased from $1,162 per nt in Q3 2022 to $1,083 per nt in Q3 2023. Stelco's shipping volume decreased 25,000 nt to 661,000 nt from 686,000 nt in Q3 2022. Also impacting revenue were non-steel sales, which increased to $60-million in Q3 2023, from $49-million in Q3 2022.

The company realized operating income of $121-million for the quarter, compared with $217-million in Q3 2022, a decrease of $96-million consisting of a decline in revenue of $70-million and an increase in cost of goods sold of $32-million, partly offset by lower selling, general and administrative expenses of $6-million.

Finance costs increased by $15-million, from $17-million in Q3 2022 to $32-million in Q3 2023, due to the following: $15-million connected to the period-over-period impact of foreign exchange translation on U.S.-dollar-denominated working capital, $3-million increase in interest on loans and borrowings, and $1-million higher accretion expense related to lease and other related obligations, partly offset by $3-million related to the remeasurement impact from Stelco's employee benefit commitment obligation and $2-million lower accretion expense associated with Stelco's employee benefit commitment obligation.

The company realized net income of $68-million for the quarter, compared with $158-million in the third quarter of 2022, a change of $90-million primarily due to the following: $96-million decrease in operating income, $15-million higher finance costs, and a $6-million change in finance and other income, partly offset by a $20-million decrease in current tax expense and a $7-million decrease in deferred taxes. Adjusted net income totalled $76-million in Q3 2023, a decrease of $87-million from $163-million in Q3 2022.

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) in Q3 2023 totalled $153-million, a decrease of $92-million from $245-million in Q3 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 Q2 2023

Q3 2023 revenue decreased $65-million, or 8 per cent, from $841-million in Q2 2023, primarily due to an 11-per-cent decrease in average selling price per net ton, partly offset by a 1-per-cent increase in shipping volume. The average selling price of Stelco's steel products decreased from $1,217 per nt in Q2 2023 to $1,083 per nt in Q3 2023. Stelco's shipping volume increased from 653,000 nt in Q2 2023 to 661,000 nt in Q3 2023. Non-steel sales increased by $14-million, from $46-million in Q2 2023 to $60-million during Q3 2023.

The company realized operating income of $121-million in Q3 2023, compared with $186-million in Q2 2023, and adjusted EBITDA of $153-million, compared with $215-million during Q2 2023, which mostly reflects the impact of a decrease in 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 $841-million and $200-million of availability under its revolving credit facility as at Sept. 30, 2023. An attached table shows selected information regarding the consolidated balance sheet as at the noted dates.

Stelco Holdings and its subsidiaries ended Q3 2023 with current assets of $1,885-million, which exceeded current liabilities of $900-million by $985-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 $345-million of obligations to independent pension and OPEB trusts, which include $240-million of employee benefit commitments and $105-million under a mortgage note payable associated with the June, 2018, land purchase. Non-current liabilities of $831-million as at Sept. 30, 2023, include $300-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 $1.51-billion at Sept. 30, 2023. Total equity is calculated after giving effect to $69-million of common share dividends declared and paid and $174-million of comprehensive income for the nine months ended Sept. 30, 2023.

Declaration of dividends

Stelco Holdings' board of directors approved the payment of a special dividend of $3 per share and an ordinary quarterly dividend of 42 cents per share, both of which will be paid on Nov. 28, 2023, to shareholders of record as of the close of business on Nov. 22, 2023.

The ordinary quarterly dividend and the special dividend have been designated as eligible dividends 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, Nov. 9, 2023, at 9 a.m. ET. To access the call, please dial 1-833-470-1428 or 1-226-828-7575 and use access code 156038. 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 Nov. 9, 2023, until 11:59 p.m. ET on Nov. 23, 2023, by dialling 1-866-813-9403 or 1-929-458-6194 and using the access code 782516.

Consolidated financial statements and management's discussion and analysis

The company's consolidated financial statements for the three and nine months ended Sept. 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.

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