Stelco Holdings Inc.

Hello, and welcome to the Stelco Holdings Inc. Fourth Quarter 2022 Earnings Call. My name is Alex, and I'll be coordinating the call today. If you'd like to ask a question at the end of the presentation, you can press star 1 on your telephone keypad. If you'd like to withdraw your question, you may press star 2. I'll now hand over to your host, Trevor Harris, to begin. Trevor, please go ahead.

Good morning, everyone, and welcome to Stelco's year-end earnings conference call. Speaking on the call today to discuss our fourth quarter and full year results for 2022 will be Alan Kestenbaum, our Executive Chairman and Chief Executive Officer, and Paul Scherzer, our Chief Financial Officer. Yesterday, after the market closed, we issued a press release overviewing Stelco's financial results for the fourth quarter and full year of 2022. This press release, along with the company's financial statements and management's discussion and analysis, have been posted on CDAR and on our investor relations website at investors.stelco.com. We have provided a link to the presentation referenced on today's call on our website as well. I'd like to inform everyone that comments made on today's call may contain forward-looking statements which involve assumptions which have inherent risks and uncertainties. Actual results may differ materially from statements made today, so do not place undue reliance upon them. Stelco management disclaims any obligation to update forward-looking statements except as required by law. With that in mind, I would ask everyone on today's call to read the legal disclaimers on page two of the accompanying earnings presentation and also to refer to the risks and assumptions outlined in Stelco's public disclosures. In particular, the 2022 management's discussion and analysis sections relating to forward-looking information and risks and uncertainties, as well as our filings with securities commissions in Canada. The appendix of our presentation, and the non-IFRS performance measures and review of non-IFRS measures of our MD&A provide definitions and reconciliations of the non-IFRS measures that we use today. Please also note that all dollar figures referenced to on today's call will be in Canadian dollars unless otherwise noted. Following today's prepared remarks, Alan and Paul will be taking questions. To maximize efficiency, we would ask that all participants who would like to ask a question please limit themselves to one question and one follow-up before re-queuing. With that, I would now like to turn the call over to Alan.

Thank you, Trevor, and good morning, everyone. Once again, Stelco's team delivered excellent results in 2022, and we again led the industry in adjusted EBITDA margin at 34%, while making 2022 the second best year in Stelco's history. While inflationary pressures impacted our costs as we moved through 2022, Stelco was able to mitigate some of those pressures with the low-cost operating structure that we have created through our strategic capital investment and relentless focus on reducing costs. Since the end of Q4 of 2022, the business is now once again on the upswing with a reversal of all of the factors that impacted us last quarter, namely a reduction in the cost of key inputs, an increase in steel prices, which as reported by CRU, have increased by more than 37% since reaching a low point in early December. Further increases announced across our industry just last week, a lengthening of lead times and increased demand all at a time where inventory levels at key customers are lower than normal. All of this should result in increasingly stronger results in the coming months and quarters. As for capital allocation, we have ensured that our shareholders participated in the outstanding financial success of 2022 by returning unprecedented value to them. Specifically, over the course of the year, we returned $781 million to shareholders through the repurchase and retirement of 29% of the common shares that were outstanding at the start of last year. Together with share purchases in prior years, This represents a total reduction of 38% of the shares outstanding since our IPO. Additionally, Stelco paid cash dividends to shareholders in 2022 at an aggregate or an excess of 10% of our share price at the beginning of the year. The total returns this past year were more than $1 billion, bringing the total capital return to our valued shareholders to more than $1.8 billion since our IPO in 2017. which is almost eight times what we raised in our IPO. When viewed as a percentage of market capitalization, this level of return to shareholders is unprecedented in our industry over that timeframe. And we are just continuing with this. As part of our ongoing commitment to deploying our capital in the best interest of our shareholders, we have launched a normal course issuer bid that will allow Stelco to purchase 3.3 million common shares or approximately 6% of the company's shares currently outstanding. As we have said many times, our senior management team thinks and acts like shareholders because as a group, we are. And this close alignment with the interests of our public shareholders ensures we will continue to identify opportunities to deploy capital in a manner that maximizes returns. 2022 also saw our business complete our five-year strategic capital investment plan that was initiated immediately upon taking control of the business in 2017. The final components of that strategy included the commissioning of our electricity cogeneration facility and the completion of the rehabilitation and upgrade of our Lake Erie Works coke battery. Collectively, the $900 million we have invested to date has allowed Stelco to increase production of steel, enhance efficiency throughout our processes, and lower our cost structure, while also making reductions to our carbon footprint. These investments were all completed while holding true to our philosophy of avoiding financial leverage. We have built a strong business that was able to complete these investments only with cash generated from our operations, while continuing to deliver industry-leading capital returns to our shareholders. As we look to the future opportunities to deploy our capital, We will remain focused on preserving our strong balance sheet and ensuring that future investments in our operations provide exceptional returns and do not compromise the financial health of our business.