HAMILTON, ON, July 25 /CNW/ - Stelco Inc. ("Stelco" or the "Corporation") (TSX:STE) today reported EBITDA(x) of $53 million for the second quarter ended June 30, 2007, a substantial improvement over the $13 million EBITDA(x) in the first quarter of 2007. Net loss before income tax for the second quarter was $19 million, compared to a net loss before income tax of $35 million for the first quarter. The net loss before income tax for the second quarter included asset impairment charges, workforce reduction costs, a write-off of financing fees and foreign exchange gains. Excluding the impact of these items, the Corporation would have achieved net income before income tax of $5 million for the second quarter.
Second Quarter Highlights
- Hamilton operations achieved record productivity levels in the second
quarter assisted by the shutdown of older facilities and a workforce
reduction of approximately 400 employees.
- The Lake Erie Steel hot strip mill set a quarterly production record
of 796,000 tons.
- Shipments increased by 18% to 1,089,000 tons from 922,000 in the
first quarter of 2007, and revenue increased to $717 million from
$609 million in the first quarter 2007.
- As previously disclosed, the Corporation entered into an agreement to
sell its interest in the Wabush mine.
Operations
Second quarter costs decreased to $610 per ton, an improvement of $36 per ton over the first quarter. The quarter-over-quarter cost improvement results from a combination of the continuing impact of cost reduction initiatives implemented by management along with input cost reductions. During the quarter hot rolling was consolidated at the Corporation's newly expanded and modernized Lake Erie Steel mill, which allowed for the closure of the 56" mill, the No.2 pickle line and other related facilities at the Hamilton Steel operations. This initiative has reduced the Hamilton workforce by approximately 400 employees, will reduce production costs and increase revenues from hot roll steel sales.
Rodney Mott, President and Chief Executive Officer, commented, "Although many of the choices we have made were difficult, we have already seen positive benefits from these actions. These changes will help Stelco continue to improve financial performance and service to our customers."
Strategic Initiatives
On June 1, 2007, the Corporation confirmed that it is reviewing strategic options for Stelco in light of the ongoing consolidation of the steel industry. The Corporation has appointed a special committee of directors and financial advisors to assist in this review, which includes the evaluation of possible transactions relating to the sale of all or part of the Corporation. There is no assurance that a transaction will result from these discussions or as to the timing, structure or terms of any transaction.
Outlook
All major customer groups, including automotive, construction and service centres are continuing to adjust their purchasing and inventory levels as a result of the uncertainty over both demand and pricing. It is expected that this will continue until there is increased confidence in the marketplace. Shipments to the pipe and tube markets and shipments of slab to other steel producers are strong and are expected to remain strong for the near future.
Pricing is currently under pressure due to seasonal shutdowns in the automotive sector and the relative strength of the Canadian dollar versus US currency. We expect this pressure to continue in the near term. The Corporation will continue to participate in the market while working vigorously to lower overall costs.
Mr. Mott said, "The realization of ongoing cost reduction programs should allow Stelco to continue to improve future results, even with slowdowns at some of our key market sectors and pressure on pricing."
The Corporation will continue to transition the Hamilton Steel operation into a lower cost producer. The many initiatives undertaken thus far, including the closure of outdated and inefficient operations and the focus on semi-finished and value added products, have shown promising results that are expected to continue moving forward.
Financial and Operational Summary
Stelco's financial and operational summary, as well as its consolidated statements of financial position and cash flow summary, are attached. These materials should be reviewed in conjunction with the Corporation's unaudited interim financial statements, including the notes thereto, and the related management's discussion and analysis, a copy of which can be viewed on the Corporation's website at www.stelco.ca or on SEDAR at www.sedar.com.
(x) EBIDTA is a non-Canadian GAAP measure which may not be comparable
to measures used by other companies. Please refer to the note
regarding Non-GAAP Financial Measures in the accompanying
financial and operational summary of the Corporation.
Conference call
The Corporation will conduct a conference call on second quarter results on Wednesday, July 25 at 11:00 am EDT. The webcast will be available on Stelco's web site at www.stelco.ca. Please choose "Investor Centre" and select "Webcasts". Please log in at least 15 minutes prior to the call.
About Stelco
Stelco is one of Canada's largest steel companies. It is focused on its two Ontario-based integrated steel businesses located in Hamilton and in Nanticoke. These operations produce high quality value-added hot rolled, cold rolled, coated sheet and bar products. To learn more about Stelco and its businesses, please refer to our Web site at www.stelco.ca.
CAUTION REGARDING FORWARD-LOOKING INFORMATION
This press release contains "forward-looking information" that is based on Stelco's expectations, estimates and projections as of the date of this press release or as of the date which such information is identified to be given. This forward-looking information includes, among other things, factors relating to the business, financial position, operations and prospects of Stelco, including: Stelco's strategies and plans to reduce costs and the anticipated outcome of such strategies and plans; anticipated productivity levels and profitability; labour matters related to Stelco's predominantly unionized workforce; pension matters; consolidation in the steel industry; Stelco's energy and raw material costs and the availability of such materials; the volatility of selling prices for steel; international trade matters, including increases in steel imports into Canada; employee matters, including staffing levels, the retention of the skills and knowledge of Stelco's employees and the ability to attract and retain new employees; changes to environmental laws and regulations concerned with, among other things, emissions into the air, discharges to water or land, noise control and the generation, handling, storage, transportation and disposal of toxic substances; new technological developments and Stelco's ability to make capital expenditures to maintain and enhance its technological ability; development of new products; planned capital expenditures; and currency fluctuations in the US dollar and their impact on the Corporation's US dollar denominated long-term debt steel pricing, and costs. Often, but not always, forward-looking information can be identified by the use of words and phrases such as ''plans'', ''expects'' or ''does not expect'', ''is expected'', ''budget'', ''scheduled'', ''estimates'', ''forecasts'', ''intends'', ''anticipates'' or ''does not anticipate'', or ''believes'', or variations of such words and phrases or states that certain actions, events or results ''may'', ''could'', ''would'', ''might'' or ''will'' be taken, occur or be achieved.
Forward-looking information involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Stelco to be materially different from any future results, performance or achievements expressed or implied by the forward-looking information. Actual results, performance and achievements are likely to differ, and may differ materially, from those expressed or implied by the forward-looking information contained herein. Such forward-looking information is based on a number of assumptions which may prove to be incorrect, including, but not limited to: exchange rates, energy and other anticipated and unanticipated costs; pension contributions and expenses; the supply and demand for, deliveries of, and the level and volatility of prices of, steel and raw materials; the continued availability of financing on appropriate terms; market competition; the impact on Stelco of various environmental regulations and initiatives; and Stelco's ongoing relations with its employees and staffing levels. While Stelco anticipates that subsequent events and developments may cause Stelco's views to change, Stelco specifically disclaims any obligation to update this forward-looking information. This forward-looking information should not be relied upon as representing Stelco's views as of any date subsequent to the date of this press release.
Stelco Inc.
Financial and Operational Summary
($ in millions, except as indicated(x)) Quarter 2, Quarter 1,
(unaudited) 2007 2007
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Net sales $ 717 $ 609
Costs 664 596
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EBITDA(1) 53 13
Amortization of property, plant, and equipment 28 31
Amortization of intangible assets - 1
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Operating loss before the following: 25 (19)
Asset impairment charges 38 -
Employee future benefits - workforce reduction costs 9 -
Foreign exchange (gain) loss on long-term debt (30) (3)
Interest on long-term debt and revolving term loans 20 19
Write off of financing fees 7 -
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Loss before income tax (19) (35)
Income tax expense 22 4
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Net loss $ (41) $ (39)
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Average revenue per ton (x)$ 658 (x)$ 661
Cost per ton (x)$ 610 (x)$ 646
Semi-finished steel production (thousands
of net tons) 1,084 1,100
Shipments (thousands of net tons) 1,089 922
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(1) Non-GAAP Financial Measures
The financial information contained in this press release is presented in
accordance with Canadian GAAP. Reference is also made to "EBITDA", which
is a non-Canadian GAAP measure. "EBITDA" refers to operating earnings
(losses) before interest, income taxes, amortization and other non-
operating income and expenses such as workforce reduction costs, foreign
exchange gains and losses on long-term debt. Information concerning
EBITDA has been included in this press release because management
considers it to be, and uses it as, a meaningful indicator for assessing
the operating performance of the Corporation. EBITDA does not represent
cash generated from operations as defined by Canadian GAAP and it is not
necessarily indicative of cash available to fund cash needs. Non-Canadian
GAAP earnings measures (such as EBITDA) do not have any standardized
meaning and therefore the Corporation's use of EBITDA measures may not be
comparable to measures used by other companies. A reconciliation to net
loss, which is a Canadian GAAP measure, is presented above in the
Financial and Operational Summary.
Stelco Inc.
Consolidated Statements of Financial Position
At At
June 30 December 31
(in millions) (unaudited) 2007 2006
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Assets
Current assets
Cash and cash equivalents $ 31 $ -
Accounts receivable 379 214
Inventories 553 693
Prepaid expenses 32 28
Future income taxes 18 27
Assets held for sale 130 -
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1,143 962
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Other assets
Property, plant and equipment 1,575 1,743
Intangible assets 5 1
Other 11 32
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1,591 1,776
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Total Assets $ 2,734 $ 2,738
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Liabilities and Shareholders' Deficit
Current liabilities
Accounts payable and accrued $ 196 $ 220
Income and other taxes 11 1
Employee future benefits 57 58
Pension liability 58 65
Long-term debt due within one year 13 13
Liabilities held for sale 82 -
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417 357
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Other liabilities
Employee future benefits 1,236 1,254
Pension liability 295 338
Long-term debt 596 342
Revolving term loans 220 383
Future income taxes 77 88
Asset retirement obligation 1 24
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2,425 2,429
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Total Liabilities 2,842 2,786
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Shareholders' Deficit
Capital stock 149 149
Contributed surplus 21 1
Warrants 3 3
Retained deficit (281) (201)
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Total Shareholders' Deficit (108) (48)
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Total Liabilities and Shareholders' Deficit $ 2,734 $ 2,738
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Stelco Inc.
Cash Flow Summary
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Quarter 2, Quarter 1,
(in millions) 2007 2007
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Cash provided by (used for):
Net loss $ (41) $ (39)
Adjustments to net loss for items not affecting
cash 34 8
Changes in operating elements of working capital 14 (47)
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Operating activities 7 (78)
Investing activities (8) (9)
Financing activities 24 95
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Net change in cash position $ 23 $ 8
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%SEDAR: 00001549E