A Message from Roger K. Newport
2018 Annual Report
We made strong progress in 2018, generating our highest net income in a decade and enabling our company to further strengthen its balance sheet.
During the year, we continued to focus on our strategy to commercialize innovative new products and services, transform our operations to improve our competitive position, and drive future growth – both organically and through acquisitions – into new markets and downstream businesses.
Our results remained strong in terms of financial performance, operational execution, product quality, employee safety and our renewed commitment to sustainability.
Best Earnings in a Decade
We were pleased with our 2018 results. For the full-year 2018, we delivered net income of $186.0 million, and adjusted net income of $200.5 million. Sales were $6.8 billion on shipments of 5.7 million tons of flat-rolled steel, an increase of 12% over 2017 sales. I’m proud to share that these were our best earnings in a decade.
Part of our strategy is to move into downstream businesses that add value and complement our flat-rolled steel products.
In 2017, we acquired Precision Partners, a producer of die design and tooling, and hot- and coldstamped components for the auto industry. Since that time, our collaboration with Precision Partners, AK Tube and our auto customers has gone very well.
Precision Partners used its innovative production process and technical expertise and was awarded a strong level of new business which will ramp up next year.
In addition, AK Tube is continuing to expand its capabilities and in 2018 delivered record financial results.
Today, AK Steel remains the only domestic steel producer to make carbon, stainless and electrical steel products. And we are also the only North American producer of electrical steel to support our nation’s electrical grid.
As a result, we are uniquely positioned to provide innovative steel solutions for our customers here in the U.S. and in many countries around the world.
Renewed Focus on Sustainability
We took an important step forward in 2018 to reinforce our commitment to safety, the environment, our communities, and social responsibility by producing an expanded Sustainability Report. The new report provides more detail about the important results being led across our sites.
From an environmental standpoint, for the second year in a row, we set company records for water compliance performance, and plant records for air and water compliance.
Substantial environmental enhancements at Butler Works, Mansfield Works and AK Coal helped lead the way for these achievements.
Throughout all that we do, the safety of our employees remains our highest priority, and the core foundation of operating our business. We continued to lead the industry in safety performance by a wide margin in 2018.
Zanesville Works, Ashland Works and AK Tube tied their best annual records with zero days away from work cases. In fact, employees at Zanesville have worked more than 15 years without a single day away from work case.
I am especially proud of the progress we have made with the culture of our company, and our service in communities where we live and work.
In 2018, a growing number of our employees gave back through our AK CARES program. More than 1,200 employees volunteered for over 100 nonprofit activities, giving more than 3,200 hours to community service projects.
I hope you will read more about these and other results in our expanded Sustainability Report on our website at AKSteel.com
Trade Actions and Ashland Works
In January 2019 we announced the difficult decision of our plans to close our already largely idled Ashland Works by the end of the year.
These plans include closing the hot-end operations, which have been idled since late 2015, and a single operating coating line. We are transitioning the Ashland coating line products to our other existing units with excess capacity – including Rockport, Dearborn and Middletown Works.
We carefully weighed the long-term operation of Ashland Works in the context of our strategy to focus on improving our competitive cost position while continuing to deliver more innovative, value-added products.
We also evaluated recent trade actions and the domestic and global steel markets.
Our Administration’s strong actions in addressing unfair global steel trade issues, including the Section 232 tariffs, have strengthened our industry. However, global overcapacity – particularly from China – remains a systemic problem.
This, along with recent U.S. announcements of new steelmaking capacity and the restart of idled mills will create more competition in the commodity steel market in the United States.
So, in this environment, we concluded that a restart of the Ashland hot operations would not enhance our earnings profile, nor provide an adequate return to our investors over the long-term.
This was a very difficult decision – particularly given the impact on our Ashland Works’ employees and their families. We are already assisting and encouraging our 230 employees working at Ashland to take advantage of both existing and upcoming job openings at our other facilities as the Ashland Works operations wind down later in 2019. Nearly 170 employees from Ashland Works have already taken positions at other AK Steel plants since the 2015 idling.
Driving Innovation Across Our Company
Our Research and Innovation team continued to work collaboratively across our operations and with numerous automotive customers to incorporate our Third Generation Advanced High Strength Steels, namely NEXMET® 1000 and NEXMET 1200, into their current and future vehicle designs.
These materials are made using our new technology at our Dearborn Works coating line, and feature an incredible combination of high strength and high formability.
This past year, AK Steel launched TRAN-COR® X, our new grain oriented electrical steel for power transformers.
We also received our second prestigious Department of Energy award in two years to support collaborative upstream research. With this new $1.2 million award, our Research team will explore the development of new steels for light-weighting of automotive applications.
In 2018, AK Steel received a very special honor from General Motors. We were the only steelmaker in North America recognized as a 2017 Supplier of the Year for our performance, quality and innovation.
During the year, we were also proud to partner with IAM Local 1943 to launch a new state certified 18-month apprenticeship program in maintenance mechanics at Middletown Works.
This program is one of the first of its kind for us, with our very qualified and experienced hourly employees serving as certified instructors. It will be a key part of developing our employees and capabilities in a very competitive job market.
The company offers other types of apprenticeship programs at Butler and Dearborn Works, and recently began a new program at Rockport Works. This supports and builds on our long history of deep technical expertise across our facilities.
Executing Our Strategy
As we now progress through 2019, we remain excited about the future of our company. We will continue to take actions to strengthen and expand our foundation to increase the value of our company to shareholders.
We are very optimistic about the future and we believe that many of the factors that impact the steel market remain fundamentally good overall.
And we are committed to working across our company to make our business even stronger as an innovative steel solutions provider.
We have made great strides in the past few years as we execute on our strategic objectives to build a stronger foundation for our company.
So on behalf of all of our employees, I want to thank you for your support. I look forward to continued progress in 2019.
Roger K. Newport