Canadian steel mill Stelco held its first earnings call since becoming a publically held company and reported stellar results for the fourth quarter. The company, formerly owned by U.S. Steel, presented a strong balance sheet, no debt and no legacy liabilities.
Revenue for the quarter increased 45 percent from a year ago to $452 million. Adjusted EBITDA jumped 245 percent to $69 million. Shipping volume increased 28 percent year-over-year to 592,000 net tons.
The company has $250 million in cash and total liquidity of $519 million including funds available from an undrawn revolver account. Stelco was able to offer a 10 cent per share dividend to shareholders.
“Our initiatives designed to increase production, improve efficiency and expand margins started to take hold during the fourth quarter, resulting in a significant increase in revenues and an improvement in profitability,” said Executive Chairman and CEO Alan Kestenbaum. “We ended 2017 by setting a new single-month steel production record for our Lake Erie Works (LEW) facility in December, giving us momentum and increased confidence as we move into 2018.”
Kestenbaum said company goals are to optimize production, expand margins, and maintain a strong balance sheet.
Excess capacity at the Lake Erie Works hot strip mill is being filled by purchasing outside slabs. Stelco is working to increase coating and advanced- and ultra-high strength steel capabilities. The initiative is ahead of schedule and currently shipping commercial quantities and trial amounts of AHSS and coated steel to automotive accounts, including the OEM sector. Excess coke from Hamilton Work’s coke battery is being sold to third parties.
Improvements at Lake Erie Works last year resulted in a 27 percent year-over-year increase in steel production and a 38 percent increase in heats per day.
Stelco has also entered into a multi-year agreement with a third party to pay a substantial portion of dock enhancement costs to improve shipping capabilities.
Stelco plans to pursue higher margin business and downstream products. Kestenbaum called the environment “favorable now with rising prices” and expects the market to continue to move in a positive direction. Currently, there is a two-month lag on spot price realization.
Kestenbaum said the company is very actively looking at inorganic growth opportunities. The debt-free condition of the company and strong liquidity have attracted a number of potential investment opportunities that Stelco is considering.
Kestenbaum addressed the Section 232 recommendations expressing confidence that Canada will be exempted from any additional tariffs or quotas.
“Although we are strategically prepared for a range of potential scenarios, and don’t in any way want to be presumptuous in predicting a likely outcome at this stage, we are pleased to see that the report contains language suggesting that as a nation Canada does not represent a threat to the U.S. steel industry and, more importantly, that Canada is viewed as a valuable partner. Even though we currently only ship 10 percent of our output to the USA, we are hopeful that we will be exempt altogether. Additionally, as part of our margin enhancement strategy, we have been methodically working to diversify the products we sell and the end markets we serve and believe in doing so we have inherently built optionality in our business strategy.”
When asked during the earnings call about potential for circumvention complaints from U.S. producers regarding slab imports, Kestenbaum said Stelco would be careful to avoid such a possibility, including not pursuing such imports.
“We have been in conversation with the Canadian government about circumvention and explained to them the sensitivity in the United States, and they are considering measures to prevent that,” he said.
“We would not get anywhere close to that line and raise the specter of complaints from the U.S. industry that we are somehow a window for slabs from one of the bad guys.”
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