A Message from Roger K. Newport
AK Steel 2017 Annual Report
I am pleased with the great progress we made in 2017 to strengthen the overall foundation of our company and drive a long term, sustainable increase in shareholder value. Our performance was very solid in terms of operational execution, employee safety, product quality, and environmental compliance.
Safety and Social Responsibility
Our employees are our most important asset and safety is our highest priority. Our team again delivered strong results in safety. In fact, three of our facilities—Ashland Works, Zanesville Works and Mountain State Carbon—went the entire year without a single OSHA recordable case.
From an environmental standpoint, in 2017 we set company records for both air and water compliance, demonstrating our strong commitment throughout our operations of keeping the environment in the forefront. Most notably, substantial compliance improvements at both our Dearborn and Mountain State Carbon facilities helped lead the way for both of these achievements.
I am also particularly proud of the fact that our employees continued to give back to the communities where we work and live. In 2017, we saw another increase in employee volunteer activities at all of our facilities, and the evidence is clear that our entire team is truly making a difference in the lives of those in need.
More than 200 teams of employees volunteered together through our AK CARES program to support a variety of nonprofit organizations and events.
As part of our 100th year celebration at our Mountain State Carbon facility, we honored our Mountain State team with a special donation to the local community food pantry.
Growing our Company
We continued important work to further transform our company into an innovative steel solutions provider.
These solutions leverage our broadening portfolio of stainless, electrical, and carbon steels, as well as tubular carbon and stainless steel products. We also took a transformational step to expand our products and services with the strategic acquisition of Precision Partners, with their advanced capabilities in tooling and complex hot- and cold-stamped components.
Over the past two years, we have meaningfully enhanced our portfolio of products, production capabilities, and facilities, while at the same time strengthening our capital structure.
Strengthening our Financial Position
I was pleased with the progress we made in our financial performance in 2017, fully recognizing our results were impacted by several successful planned maintenance outages. We delivered sales of $6.1 billion on shipments of 5.6 million tons of flat-rolled steel.
As a result of our recent financial performance, we were able to re-finance $680 million of our senior notes, allowing us to lower our debt levels and also reduce our annual interest costs by approximately $18 million.
And as part of our work to enhance our core business, we completed major hot-end investments at our Middletown and Mansfield facilities. We also finished replacing large tanks that contain the coating solution at our Middletown electrogalvanizing line.
At our facility in Mansfield, we installed new, state of the art technology in the melt shop that will lower our costs and provide more operational flexibility and product capabilities for the manufacturing of our stainless products. All of these projects were completed safely, on budget, and on time.
Progress in Trade Support
During 2017, we continued our fight to ensure fair trade in the steel industry in the United States. I joined other steel industry leaders at the White House as President Trump initiated the Section 232 Investigation, and I testified about the unfair global trade issues that the steel industry faces related to the dumping of steel into the U.S.
We supported President Trump’s bold action in early 2018 to impose global, broad based trade actions, including a 25 percent tariff on steel and other actions, to protect our national security interests and combat the unfairly traded imports that have been eroding the U.S. steel industry over a very long time.
Steel dumping is threatening our country’s national security. Other countries and some consumers of steel are identifying loopholes or other ways to cheat our trade laws to bring cheap, dumped steel products into the United States, including electrical steels, a critical product needed to build transformers that power our homes and businesses. Their actions have a sole objective of getting around our country’s trade laws.
Our American made electrical steels serve as a great example. The Section 232 remedies implemented by President Trump currently do not include electrical steel that has been slightly processed, such as slit, stacked and or wound into a core. This presents an unintended loophole that some will attempt to use to get around the 232 remedy and we will fight hard to make sure our trade laws are enforced.
As the last remaining producer of grain oriented electrical steel in the U.S., we are working with the Department of Commerce to close that loophole, because a stable domestic manufacturing base for cores and transformers, built from domestically produced electrical steel, is vital to the national security interests of the U.S. It is the backbone of our country’s electrical grid.
We are making progress, however I expect that our industry will continue to face challenges from significant global overcapacity well into the foreseeable future, and much more work still needs to be done.
While we fight for fair trade, we are continuing to move forward and invest in our steel operations and develop new products to meet our customers’ needs today and for the future.
On the innovation front, we had another exciting year. In conjunction with our expanded Research and Innovation team, we held the grand opening of our new state of the art Research and Innovation Center in Middletown, Ohio. This is an investment in our future and will help ensure that AK Steel remains a leader in product and process innovation to serve the needs of our valued customers – and our customers are very excited.
In 2017, we launched additional NEXMET™ Advanced High Strength Steel products on the newly installed equipment at our upgraded Dearborn Works hot dip galvanizing line. Our customers are continuing to test these products and look forward to what they can bring to serve their vehicle lightweighting needs.
As a result of our work to drive innovation and our extensive customer services, we were honored by Fiat Chrysler Automobiles (FCA). We proudly accepted FCA’s Raw Materials Supplier of the Year Award, recognizing our team’s performance.
We were pleased to complete the first year of a three year project with the Department of Energy to develop the next generation of non-oriented electrical steels for use in electric motors. The $1.8 million grant targets research to improve the efficiency of electrical motors by at least 30 percent. We are excited about this groundbreaking project, and its potential application for the fast-growing market of hybrid and battery electric vehicles.
On behalf of the company and all of our employees, I was honored to be named Steelmaker of the Year from the Association for Iron & Steel Technology (AIST). The award recognizes AK Steel’s work to empower employees to drive research and innovation, quality, safety, environmental stewardship and productivity, and our voice for change in the steel industry.
Expanding our Growth Platform
In 2017, we welcomed almost 1,000 employees to the AK Steel family with the acquisition of Precision Partners, a leading tool and die company and provider of hot- and cold-stamped components.
We are thrilled about the value that this acquisition will bring to our customers to provide them with the best solutions to meet their steel needs—especially in the automotive market.
The acquisition of this tool and die innovator is enabling us to quickly get fully formed prototype parts with our innovative steel products to customers and showcase true component solutions through a prototype, in addition to computer models and flat rolled steel samples. This is truly a step change in our business and demonstrates to our customers we can significantly lightweight automotive parts quickly by applying more of AK Steel’s high strength, highly formable grades of steel.
Delivering our Strategy
We laid out our strategy a couple of years ago and are making great progress. Our strategy is to create shareholder value by:
- Commercializing innovative products and services,
- Transforming our operations to significantly improve our competitive cost position, while
- Driving further growth – organically and through acquisitions – into new markets and downstream businesses.
Our actions during this period have demonstrated that we are executing on our strategy:
- In 2014, we acquired our Dearborn operations. This allowed us to lower our costs, optimize our assets and to make significant advances in the next generation of advanced high strength coated and cold rolled carbon steel products in a very cost effective manner.
- We knew that we needed to strengthen our balance sheet to give us the financial flexibility to grow our business. We made solid progress on this front in each of the last three years.
- We expanded our Research and Innovation team and built a new, state of the art innovation facility. These investments will support AK Steel as a leader in product and process innovation to serve the future needs of our valued customers.
- And, we are continuing our downstream growth, including the expansion of our tubular operations into Mexico and the recent acquisition of Precision Partners.
We will continue to execute on our strategy in 2018, further solidifying our position as an industry leader in providing innovative steel solutions and unparalleled value to our customers. We believe we are well positioned to provide long-term sustainable steel solutions that are cost effective, environmentally responsible and, most importantly, help our customers succeed.
We appreciate the work of the entire AK Steel team as we make these important strides together. And we thank our shareholders for their ongoing support.
As we look forward into 2018 and beyond, I am excited about the future of our company. We will continue to execute our strategy to increase the value of our company for our shareholders.
Roger K. Newport