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Stelco Reports 2nd Quarter Results
07/26/2007 - Stelco reports EBITDA of $53 million and a $19-million net loss before income tax, showing solid improvements over the previous quarter.
Stelco Inc. reported EBITDA of $53 million for the second quarter ended June 30, 2007, a substantial improvement over the $13 million EBITDA in the first quarter of 2007. Net loss before income tax was $19 million, which compares to a net loss before income tax of $35 million for the first quarter.
Results included asset impairment charges, workforce reduction costs, a write-off of financing fees, and foreign exchange gains. Excluding the impact of these items, Stelco would have achieved net income before income tax of $5 million for the second quarter.
Second Quarter Highlights—Shipments of 1,089,000 tons reflect an increase of 18% compared to shipments of 922,000 tons in the first quarter of 2007. Revenues of $717 million compare to revenues of $609 million in the first quarter 2007.
Hamilton operations achieved record productivity levels in the second quarter, attributable in part to the shutdown of older facilities and a workforce reduction of approximately 400 employees. In addition, the Lake Erie Steel hot strip mill set a quarterly production record of 796,000 tons.
Stelco also entered into an agreement in the second quarter to sell its interest in the Wabush mine.
Second Quarter Operations—Costs decreased to $610 per ton, an improvement of $36 per ton over first quarter costs. Stelco said the improvement is the result of the continuing impact of cost-reduction initiatives as well as input cost reductions.
During the quarter, Stelco consolidated its hot rolling at the corporation's newly expanded and
modernized Lake Erie Steel mill. The newly expanded mill allowed Stelco to close its 56-Inch 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 will increase revenues from hot roll steel sales.
Management Comments—“Although many of the choices we have made were difficult, we have already seen positive benefits from these actions,” said Rodney Mott, President and CEO commented. “These changes will help Stelco continue to improve financial performance and service to our customers.”
Strategic Initiatives—Stelco recently confirmed that it is reviewing its strategic options in light of ongoing steel industry consolidation. The corporation has appointed a special committee of directors and financial advisors to assist in this review, which includes 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—Stelco noted that all major customer groups, including automotive, construction and service centers, are continuing to adjust their purchasing and inventory levels as a result of the uncertainty over both demand and pricing. Stelco said it expects 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.
The company noted that pricing is currently under pressure due to seasonal shutdowns in the automotive sector and the relative strength of the Canadian dollar versus U.S. currency. Stelco said it expects this pressure to continue in the near term, and 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."
Stelco said it would continue to transition the Hamilton Steel operation into a lower cost producer. The 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.
Stelco, one of Canada's largest steel companies, 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.
