REG - EZZ Steel Company - 1st Quarter Results

Ezz Steel Co SAEAnnouncement

06/06/2022 07:01

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RNS Number : 6713N  EZZ Steel Company - S.A.E.  02 June 2022

 

EZZ STEEL REPORTS CONSOLIDATED 1Q22 RESULTS

 

Cairo, 02 June 2022 - Ezz Steel (EGX: ESRS; London Stock Exchange: AEZD), the
largest independent producer of steel in the MENA region and market leader in
Egypt, today announced its consolidated results for the period ending 31 March
2022. The audited results have been prepared in accordance with Egyptian
Accounting Standards.

Paste the following link into your web browser to download a PDF of the full
financial statements related to this announcement:

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(http://www.rns-pdf.londonstockexchange.com/rns/6713N_1-2022-6-2.pdf)

 

Key Highlights

EGP Mn

 

                                1Q22    1Q21
   Net sales                    18,641  13,498
   Gross profit                 4,603   2,870
   EBITDA*                      4,337   2,701
   Net profit before tax**      1,754   1,243
   Net profit                   1,217   1,188
   Earnings per share (EPS)***  1.42    1.47

 

*        EBITDA = sales - cost of goods sold - selling & marketing
expense - G&A expense + depreciation and         amortisation

**      After allowing for an FX loss of EGP 1,133mn.

***    EPS = Net profit after tax & Minority Interest / No. of shares
at the end of the period, for the three months period ending 31 March 2022.

 

 

 

 

 For further information:

 Ezz Steel
    Ahmed Nabil            +20 2 27989844  +20 100 177 7703
    Haya Azab              +20 2 27989900  +20 122 998 8739

Comment

Commenting on the results, the board issued the following notes to the
shareholders:

·      Sales amounted to EGP 18,641 million in 1Q22, compared to EGP
13,498 million in 1Q21. Rebars sales constituted 57% of total sales, and sales
of hot-rolled flat steel (HRC) 42%.

·      Ezz Steel achieved an export sales value of USD 212 million in
1Q22, of which sales of HRC reached USD 184 million and sales of Wire Rods
reached USD 28 million. Comparatively, in 1Q21 exports amounted to USD 269
million dollars, of which USD 208 million from HRC sales and USD 61 million
from Wire Rods sales. In 1Q22, the Company's domestic sales of HRC rose as
local HRC consumption grew. Being the largest supplier of HRC to the local
market, the Company continues to balance its export goals with its domestic
commitments.

·      Net profit before taxes amounted to EGP 1,754 million in 1Q22,
compared to EGP 1,243 million in 1Q21. The income tax amounted to EGP 560
million and deferred tax (income) EGP 23 million. Thus, net profit after tax
amounted to EGP 1,217 million in 1Q22, an increase of 2.4% compared to that of
1Q21 (EGP 1,188 million).

·      Global steel consumption decreased 6.8% in 1Q22 to reach 457
million tonnes, compared to 1Q21 consumption of 490 million tonnes. China
continues to enforce strict measures to reduce its environmental emission,
consequently, its consumption decreased 10.5%, deeming it the chief reason for
the decrease in global consumption.

·      Domestic consumption of rebars increased 38% to reach 2.145
million tonnes in 1Q22 compared to 1.555 million tonnes in 1Q21, when the
market was suffering from slow building permits procedures, and from the
negative effect of COVID-19.

·      The Company's rebars sales increased 33% from 595 thousand tonnes
1Q21 to 789 thousand tonnes in 1Q22. National projects continue to maintain
demand at relatively high levels. Furthermore, the Company still sees
opportunities for growth in its rebars production. The expected market growth
coincides with the upcoming operation of EFS's second melt-shop, which has a
capacity of 1.6 million tonnes per annum. The melt-shop is scheduled to
commence operations in 4Q22.

·      The local market is witnessing a significant growth in HRC
consumption, increasing 37% to reach 512 thousand tonnes in 1Q22 compared to
373 thousand tonnes in 1Q21. The increase was driven by downstream industries
- such as the engineering and cold-rolling industries - increasing local HRC
supply (namely, from Ezz Steel) over imported HRC, in addition to increasing
their product exports. Ezz Steel continues to support the local industries
dependent on HRC as the largest supplier, with a 60% market share. Local HRC
sales in 1Q22 amounted to 315 thousand tonnes, compared to 260 thousand tonnes
in 1Q21.

·      The Central Bank of Egypt adopted the necessary measures to
tackle the economic challenges facing emerging markets, including Egypt.
First, the interest rate was increased by 1% on 21 March 2022, and then by an
additional 2% on 19 May 2022 (after the financial quarter). The impact of this
on Ezz Steel is relatively limited given that the majority of Ezz Steel's
local currency loans finance working capital, and therefore, benefit from the
Central Bank's preferential 8% interest rate industry-support initiative,
which remains unchanged. Second, the Egyptian Pound exchange rate was
liberalized on 21 March 2022, consequently, the currency devalued against the
US Dollar and other major currencies by c.17%. This economic development
strengthens the competitiveness of the Company's exports in the global
markets.

·      In January 2022, EZDK acquired 18% of the total equity of
Egyptian Steel. EZDK financed EGP 1.25 billion i.e. 50% of the investment
value from its cashflow. The agreement between the two parties stipulates that
the remaining 50% be paid in two equal instalments: the first in January 2023
and the second in January 2024.

·      The Russia-Ukraine conflict has affected - and will continue to
affect - the global economy, especially through the increased risk of limited
commodity availability and inflation. Such risks led to an increase in the
prices of raw materials of most industries, including iron and steel at the
outset of the events. Russia and Ukraine are important suppliers of iron ore,
billet, scrap, HRC, and rebars to Europe. As a result of the uncertainty,
Russia and Ukraine's trading partners searched for alternative suppliers. Ezz
Steel has succeeded in securing raw materials and consumable from other global
sources. Additionally, the advanced technical flexibility of all of Ezz
Steel's plants allows it to reduce its consumption of iron (DRI) in favour of
scrap and vice versa, giving it greater resilience in managing different
variables.

 

About Ezz Steel

Ezz Steel is the largest steel producer in the Arab World and North Africa
according to the World Top Steel Makers for 2020 published by World Steel
Association (WSA). The Company is the Egyptian market leader with a total
capacity of 7 million tonnes of finished steel products per annum. Ezz Steel
was established on 2/4/1994 as an Egyptian joint stock company in accordance
with the provisions of Law No. 159 for the year 1981.

In 2021, the Company produced 2.9 million tonnes of long products (typically
used in construction) and 2.1 million tonnes of flat products (typically used
in engineering industries, automotive, steel pipes and consumer products). Ezz
Steel deploys the latest in modern steel-making technology and is committed to
further increasing vertical integration across its plants, boosting
operational flexibility.

 

Operational Review

 

All of the below financial breakdowns are based on Ezz Steel's consolidated
financials, which include the consolidated financial performance of EZDK.
Following the latter's acquisition of EFS/ERM, both are full subsidiaries of
EZDK.

 

Sales

 

Consolidated net sales for 1Q22 were EGP 18,641 million compared to EGP 13,498
million in 1Q21, representing a 38% increase.

 

              Ezz Steel    EZDK           Ezz Steel

Standalone
Consolidated
Consolidated
 EGPMn*
    Long      2,995        7,620          10,615
    Flat      -            7,778          7,778
    Others    -            248            248
 Total        2,995        15,646         18,641

*after the elimination of intercompany transactions.

 

Long steel products accounted for EGP 10.6 billion, or 57% of sales in 1Q22,
while flat steel products represented 42% of sales at EGP 7.8 billion. Flat
product exports accounted for 39% of total flat sales.

 

 Sales Value  Domestic  %    Export  %

 EGPMn
 Long         10,160    96%  455     4%
 Flat         4,740     61%  3,038   39%

Long sales volume increased 33% to reach 789 thousand tonnes during 1Q22. Flat
sales volume increased 6% to reach 503 thousand tonnes.

 

The group's consolidated sales volumes totalled 1.29 million tonnes in 1Q22
compared to 1.13 million tonnes in 1Q21, an increase of 14%.

 

Production

 

Long steel production volumes totalled 808 thousand tonnes during 1Q22
compared to 715 thousand tonnes in 1Q21, an increase of 13%. Flat steel
production volumes decreased 5% to reach 475 thousand tonnes compared to 500
thousand tonnes in 1Q21.

 

Cost of Goods Sold

 

Consolidated Cost of Goods Sold for 1Q22 represented 75% of sales compared to
79% in 1Q21. Consequently, gross profit margin reached 25% in 1Q22 compared to
21% in 1Q21.

 

Ezz Steel Standalone reported a COGS/Sales ratio of 90% for 1Q22.

 

 EGPMn*      ESR                                 EZDK           Ezz Steel

Standalone
Consolidated
Consolidated
 Sales                      2,995                15,645         18,641
 COGS        2,685                               11,352         14,037
 COGS/Sales  90%                                 73%            75%

*after the elimination of intercompany transactions

Gross profit

Gross profit of EGP 4.6 billion was recorded for 1Q22 for Ezz Steel
consolidated, a 60% increase compared to the EGP 2.9 billion recorded in 1Q21.

EBITDA

Consolidated EBITDA for 1Q22 amounted to EGP 4.3 billion an increase of 61%
compared to the EGP 2.7 billion recorded in 1Q21.

Foreign Exchange Loss

The devaluation of the Egyptian Pound by c. 17% on March 21, 2022 resulted in
an unrealized foreign exchange loss of EGP 1,133 million.

Tax

During 1Q22, Ezz Steel had an income tax of EGP 560 million and a deferred tax
(income) of EGP 23 million.

Net profit

Net profit reached EGP 1.2 billion in 1Q22.

Net result after tax and minority interests

Net result after tax and minority interests recorded a profit of EGP 759
million for 1Q22 compared to EGP 784 million in 1Q21.

Liquidity and capital resources

At the end of the period, Ezz Steel had cash on hand of EGP 5.7 billion and
net debt of EGP 29.5 billion.

Outlook

 

·      Industry experts, led by the World Steel Association, updated
their forecast for 2022 consumption to a marginal growth of c. 0.4% should the
Russia-Ukraine conflict continue. Previously, experts forecasted a growth
between 2% and 3%. Raw material and finished product prices increased
noticeably at the beginning of the conflict, however prices are currently
witnessing a downward correction. That said, the healthy margin between raw
material and finished product prices- which continues from 3Q20- allows
manufacturers to compete while maintaining good returns.

·      Egypt has adopted important measures to address the rising
inflation and to revitalize the local market. Such measures include
stimulating industry and industrial investment, and planning to achieve a
higher export benchmark of USD 100 billion. In the context of the State's
commitment to this ambitious development program, banks continue to extend
working capital facilities to industry at a preferential interest rate of 8%
annually, despite the rise in lending and discount rates. Furthermore, the
government is taking measures to encourage private sector investment while
carrying on with national projects. In this context, domestic consumption of
rebars is expected to reach 7.7 million tonnes in 2022, an increase of c. 5%
compared to 2021. Similarly, the domestic consumption of flat steel is
expected to rise c. 10% over last year's.

·      The Company is in the process of obtaining certification for
international sustainability and expects to receive it in 3Q22. Additionally,
in response to the global rollout of the carbon tax, the Company is
considering obtaining an Environmental Product Declaration (EPD) certificate
to capitalize on its low carbon footprint compared to that of competitors.

 

Divisional Overview

 EZDK Standalone                         1Q22    1Q21   4Q21

 Sales (EGP):
               Value:        Mn          13,671  8,847  15,375
               Volume:
               Long:         000 Tonnes  588     390    610
               Flat:         000 Tonnes  265     311    266
 Exports as % of Sales:
               Long:                     6%      21%    4%
               Flat:                     44%     41%    52%
               EBITDA:       Mn          2,876   1,859  2,228
 Production:
 Long Products:              000 Tonnes  481     487    424
 Flat Products:              000 Tonnes  278     280    268
               Billets:      000 Tonnes  541     500    543

 Ezz Steel Standalone                    1Q22    1Q21   4Q21

 Sales (EGP):
               Value:        Mn          3,393   2,092  4,187
               Volume:       000 Tonnes  231     176    261
 Exports as % of Sales:                  -       -      -
               EBITDA:       Mn          226     213    236
 Production:
 Long Products:              000 Tonnes  216     194    194
               Billets:      000 Tonnes  194     224    218

 

 EZDK Consolidated                              1Q22    1Q21    4Q21

 Sales (EGP):
                        Value:      Mn          17,161  11,719  17,384
                        Volume:
                        Long:       000 Tonnes  588     427     619
                        Flat:       000 Tonnes  503     535     454
 Exports as % of Sales:
                        Long:                   6%      19%     4%
                        Flat:                   39%     52%     52%
                        EBITDA:     Mn          4,136   2,501   3,390
                        EBT         Mn          1,734   1,822   2,221
                        Net Profit  Mn          1,190   1,175   1,840
 Production:
 Long Products:                     000 Tonnes  592     522     539
 Flat Products:                     000 Tonnes  475     500     472
                        Billets:    000 Tonnes  614     532     543
 Ezz Steel Consolidated                         1Q22    1Q21    4Q21

 Sales (EGP):
              Value:                Mn          18,641  13,498  18,762
              Volume:
              Long:                 000 Tonnes  789     595     839
              Flat:                 000 Tonnes  503     535     454
 Exports as % of Sales:
              Long:                             4%      14%     3%
              Flat:                             39%     52%     52%
              EBITDA:               Mn          4,337   2,701   3,579
              EBT                   Mn          1,754   1,243   2,306
              Net Profit            Mn          1,217   1,188   1,638
 Production:
 Long Products:                     000 Tonnes  808     715     733
 Flat Products:                     000 Tonnes  475     500     472
              Billets:              000 Tonnes  808     756     761

 

 

 

Disclaimer:

This press release is issued by Ezz Steel (formerly: Al Ezz Steel Rebars
S.A.E.) the "Company", in connection with the disclosure of the Company's
financial results for the quarter ending 31 March 2022. This press release
includes forward-looking statements. These forward-looking statements include
all matters that are not historical facts. In particular, the statements
regarding the Company's strategy, the expected strength of demand for long and
flat products in Egypt and in regional and international markets, and other
future events or prospects are forward looking statements. Recipients of this
document should not place undue reliance on forward looking statements because
they involve known and unknown risks, uncertainties and other factors that are
in many cases beyond the control of the Company. By their nature, forward
looking statements involve risks and uncertainties because they relate to
events and depend on circumstances that may or may not occur in the future.
Forward-looking statements are not guarantees of future performance and the
Company's actual results of operations, financial condition and liquidity, and
the development of the industry in which the Company operates may differ
materially from those expressed in or implied by the forward-looking
statements contained in this document. The cautionary statements set forth
above should be considered in connection with any subsequent written or oral
forward-looking statements that the Company, or persons acting on its behalf,
may issue. Various factors could cause actual results to differ materially
from those expressed or implied by the forward-looking statements in this
document including worldwide economic trends, global and regional trends in
the steel industry, the economic and political climate of Egypt and the Middle
East, changes in the business strategy of the Company, and various other
factors. These forward-looking statements reflect the Company's judgment at
the date of this document and are not intended to give any assurances as to
future results. The Company undertakes no obligation to update these
forward-looking statements, and it will not publicly release any revisions it
may make to these forward-looking statements that may result from events or
circumstances arising after the date of this document. None of Ezz Steel, any
of its directors, officers or employees or any other person can give any
assurance regarding the future accuracy of the information set forth herein or
as to the actual occurrence of any predicted developments. Furthermore, no
such parties shall assume, and each of them expressly disclaims, any
obligation (except as required by law or the rules of the ESE, the LSE or the
FCA) to update any forward-looking statements or to conform these
forward-looking statements to Ezz Steel's actual results.

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