Stelco Reports Strong Third Quarter 2018 Results

Third quarter 2018 highlights include:

Q3 2018 operating income of $137 million
Q3 2018 revenue increased by $283 million, or 84%, from revenue of $336 million in Q3 2017
Q3 2018 Adjusted EBITDA of $154 million and adjusted EBITDA per ton of $263, up 2,100% and 1,447%, respectively, compared to Q3 2017
Industry-leading Adjusted EBITDA margin of 25% in Q3 2018, up from 2% in Q3 2017, an increase of 1,150%
Q3 2018 steel shipping volumes of 586,000 net tons, up 43% compared to Q3 2017
Q3 2018 Tariff adjusted EBITDA of $193 million, up 2,657% from $7 million in Q3 2017, and up 4% from $186 million from Q2 2018
Board has approved, subject to TSX approval, a share repurchase program (normal course issuer bid) of up to 4,440,681 shares
Board has approved the regular quarterly dividend of $0.10 per share

HAMILTON, ONTARIO, November 13, 2018 - Stelco Holdings Inc. (“Stelco Holdings” or the “Company”), (TSX: STLC), a low cost, integrated and independent steelmaker with one of the newest and most technologically advanced integrated steelmaking facilities in North America, today announced financial results of the Company and that of Stelco Inc. (“Stelco” or “Stelco Inc.”) for the three and nine months ended September 30, 2018. Stelco Holdings is the 100% owner of Stelco, the operating company.

Stelco Inc. Highlights: Selected Financial Information:

(in millions except volume and per nt figures)	Q3 2018	Q3 2017	Change	Q2 2018	Change	YTD 2018	YTD 2017	Change
Revenue ($)	619	336	84%	711	(13)%	1,812	1,149	58 %
Operating income ($)	137	—	NM	161	(15)%	355	61	482 %
Net income (loss) ($)	123	(13)	NM	(12)	NM	139	3,563	(96)%
Adjusted EBITDA ($)*	154	7	NM	175	(12)%	399	147	171 %
Tariff Adjusted EBITDA*	193	7	NM	186	4 %	449	147	205 %
Adjusted net income (loss) ($)*	131	(9)	NM	153	(14)%	333	(4)	NM
Selling price per nt ($)*	980	793	24%	898	9 %	880	794	11 %
Adjusted EBITDA per nt ($)*	263	17	NM	234	12 %	205	104	97 %
Tariff Adjusted EBITDA per nt ($)*	329	17	NM	249	32 %	231	104	122 %
Shipping volume* (in thousands of nt)	586	411	43%	748	(22)%	1,947	1,411	38 %

* See "Non-IFRS measures" for a description of certain Non-IFRS measures used in this Press Release and “Non-IFRS Measures Reconciliation” below. Per net ton figures are now presented for steel shipments only and prior period per net ton metrics have been restated.

“Stelco’s strong financial performance during the first half of the year continued into the quarter, demonstrating the strength of our business model and our operational improvements, despite the impact from our planned outage at our hot strip mill in September and tariffs,” said Alan Kestenbaum, the Company’s Executive Chairman and Chief Executive Officer. “Our third quarter 2018 operating income was $137 million and adjusted EBITDA was $154 million, which represents what we believe to be the North American industry-leading adjusted EBITDA margin1, 2 of 25%, despite being the only reporting steel company in North America subject to 232 tariffs. Our tariff adjusted EBITDA1 (calculated by adding back $39 million of tariffs to our adjusted EBITDA figure), was a record high since being acquired by Bedrock of $193 million. Our strong financial performance was the result of improved steel selling prices, Stelco's low cost position, and strong domestic steel demand from our customers.”

“This quarter we invested in initiatives to enhance our operational efficiency, such as improvements at our hot strip mill, to better enable us to participate in higher margin segments of the steel market including auto advanced high strength steel (AHSS), High Strength Low Alloy (HSLA) and value-added coated markets. We are maintaining significant liquidity, financial strength, and flexibility to drive both inorganic and organic growth through accretive transactions and growth initiatives in our core steel business. We continue to see strong demand from our customers across all end markets. In the fourth quarter, we are expecting a significant increase in shipments, stable pricing and higher earnings.”

Kestenbaum concluded, “I would like to express our gratitude to the Canadian government, in particular the Prime Minister, the Minister of Finance, the Minister for Foreign Affairs and the Minister of Innovation, Science and Economic Development, for introducing retaliatory tariffs and for the initiation of safeguard measures that cover the import of a number of steel products, including both hot rolled sheet and pre-painted sheet. The recently implemented safeguard measures on October 25 are providing market stability by limiting the amount of off-shore imports that threaten to be diverted to Canada as a result of the Section 232 tariffs in the United States. With these measures in place, we expect growth in our business related to our recent investments, including the installation of annealing furnaces, and the recent work on the hot strip mill, that have enhanced our product capabilities. Our plan of action utilizing our tactical flexibility business model is to increase margins even further by selling higher value margin products while also reducing our tariff costs on shipments to the United States in 2019 to as close to zero as possible, while the government continues its discussions on removal of the 232 tariffs.”

Third Quarter 2018 Financial Review:

Q3 2018 revenue increased $283 million, or 84%, from revenue of $336 million in Q3 2017. The year-over- year revenue increase was due primarily to a 43% increase in steel shipping volumes and a 24% increase in average steel selling price, as well as an increase in non-steel sales. Shipping volumes increased from 411 thousand nt in Q3 2017 to 586 thousand nt in Q3 2018. Average selling price increased from $793/nt in Q3 2017 to $980/nt in Q3 2018.

Finance costs remained flat compared to Q3 2017 due to a $4 million increase in interest on loans and borrowings, $4 million higher accretion expense associated with our employee benefit commitment obligation, offset by $3 million related to the gross impact period-over-period of foreign exchange translation on U.S. dollar denominated working capital, $2 million remeasurement recovery on our employee benefit commitment obligation due to a change in timing of estimated cash flows and future funding requirements, and $3 million lower accretion on financial lease obligations and other interest costs.

Net income for the quarter was $123 million, up from a net loss of $13 million in the third quarter of 2017, which benefited from an increase in operating income of $137 million, partially offset by higher restructuring costs. Adjusted net income¹ increased $140 million year-over-year, from an adjusted net loss of $9 million in Q3 2017 to adjusted net income of $131 million in Q3 2018. The improvement was largely due to higher revenue and lower selling, general and administrative expenses, excluding the ERP implementation costs, partly offset by higher finance costs, excluding the adjustment for remeasurement recovery related to the employee benefit commitments.

Adjusted EBITDA in Q3 2018 totaled $154 million, an increase of $147 million from adjusted EBITDA of $7 million in Q3 2017. Tariff adjusted EBITDA of $193 million in Q3 2018, up from $7 million compared to Q3 2017 and up from $186 million from Q2 2018. The year-over-year improvement reflects the increase in revenue from increased shipping volumes and an improvement in the market price of steel.

On a sequential basis, our financial performance was impacted by a planned upgrade at our hot strip mill intended to provide better gauge control and increased rolling force, and enable Stelco to better participate in the AHSS, HSLA, and value added coated steel markets. Were it not for the $10 million of costs related to the outage, the adjusted EBITDA would have been even higher at $164 million and the tariff adjusted EBITDA would have been $203 million. Revenue decreased 13%, from $711 million in Q2 2018 to $619 million in Q3 2018. The decrease in revenue reflects a 22% decrease in steel shipping volumes, from the recent record 748 thousand nt in Q2 2018 to 586 thousand nt in Q3 2018, partially offset by a 9% increase in average selling price, which increased from $898/nt in Q2 2018 to $980/nt in Q3 2018, as well as an increase in non-steel sales. Operating income decreased to $137 million in Q3 2018, down 15% from Q2 2018 operating income of $161 million. Adjusted EBITDA decreased to $154 million, down 12% from Q2 2018, primarily due to lower shipping volumes, higher tariff and outage related costs, partially offset by higher selling prices. Despite the outage, we achieved a 25% adjusted EBITDA margin, remaining flat compared to Q2 2018.

Summary of Net Tons Shipped by Product:

(in thousands of nt)

Tons Shipped by Product Hot-rolled Coated Cold-rolled Other Total	Q3 2018 Q3 2017 446 299 82 78 19 12 39 22	Change 49% 5% 58% 77%	Q2 2018 Change 590 (24)% 93 (12)% 33 (42)% 32 22 %		YTD 2018 1,527 259 67 94	YTD 2017 998 302 43 68	Change 53 % (14)% 56 % 38 %
586 411	43%	748	(22)%	1,947	1,411	38 %
Shipments by Product (%) Hot-rolled Coated Cold-rolled Other Total	76% 73% 14% 19% 3% 3% 7% 5%		79% 13% 4% 4%		78% 13% 4% 5%	71% 21% 3% 5%
100% 100%		100%		100%	100%

Stelco Holdings Highlights:

Stelco Holdings’ consolidated statements of income primarily include Stelco’s financial results for the period. The following is a financial summary of Stelco Holdings' results for the third quarter of 2018 and 2017 as well as the first nine months of 2018:

Selected Financial Information:

(in millions except volume and per nt figures)	Q3 2018	Q3 2017	Change	Q2 2018	Change	YTD 2018
Revenue ($)	619	336	84%	711	(13)%	1,812
Operating income (loss) ($)	138	(17)	NM	162	(15)%	358
Net income (loss) ($)	125	(30)	NM	(11)	NM	143
Net income (loss) per share ($)	1.41	(0.40)	NM	(0.12)	NM	1.61
Adjusted EBITDA ($)*	154	7	NM	174	(11)%	397
Tariff Adjusted EBITDA*	193	7	NM	185	4 %	447
Adjusted net income (loss) ($)*	135	(11)	NM	154	(12)%	339
Adjusted net income per share ($)*	1.52	(0.15)	NM	1.73	(12)%	3.82
Average selling price per nt ($)*	980	793	24%	898	9 %	880
Adjusted EBITDA per nt ($)*	263	17	NM	233	13 %	204
Tariff Adjusted EBITDA per nt ($)*	329	17	NM	247	33 %	230
Shipping volume* (in thousands of nt)	586	411	43%	748	(22)%	1,947

¹ See "Non-IFRS measures" for a description of certain Non-IFRS measures used in this Press Release and “Non-IFRS Measures Reconciliation” below.

² North American steel industry comparables are based on public filings and press releases issued by: Steel Dynamics Inc., Nucor Corporation, United States Steel Corporation, AK Steel Holding Corporation, Commercial Metals Company and Timken Steel Corporation. The information about other issuers was obtained from public sources and has not been verified by the Company. The comparable issuers face different risks from those applicable to the Company. Investors are cautioned that past performance is not indicative of future performance and the performance of the Company may be materially different from the comparable issuers. Investors are cautioned to not put undue reliance on the comparables. Adjusted EBITDA is not necessarily based on the same definition across all issuers.

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