REG - EZZ Steel Company - 1st Quarter Results
06/07/2023 17:15
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RNS Number : 2514F EZZ Steel Company - S.A.E. 06 July 2023
EZZ STEEL REPORTS CONSOLIDATED FY22 RESULTS
Cairo, 6 July 2023 - 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
2023. The audited results have been prepared in accordance with Egyptian
Accounting Standards.
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financial statements related to this announcement:
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Key Highlights
EGP Mn
1Q23 1Q22
Net sales 27,849 18,641
Gross profit 8,113 4,603
Net profit before tax* (2,635) 1,754
Net profit (2,489) 1,217
Earnings per share (EPS)** (3.12) 1.42
* After allowing for an FX loss of EGP
8,889mn.
** EPS = Net profit after tax & Minority Interest / No. of
shares at the end of the period, for the three months period ending 31 March
2023.
For further information:
Ezz Steel
Ahmed Nabil +20 2 27989844 +20 100 177 7703
Eman Abou Zeid +20 2 27989900 +20 100 2500153
Comment
Commenting on the results, the board issued the following notes to the
shareholders:
· Sales amounted to EGP 27,849 million in 1Q23 compared to EGP
18,641 million in 1Q22 (increasing 49%). Reinforcing steel coils and bars
(rebars) sales accounted for 55% of total sales, and hot rolled coils (HRC)
flat steel sales accounted for 44%.
· Export sales amounted to $285 million in 1Q23, of which sales of
HRC amounted to $191 million, and sales of rebars amounted to $94 million.
Exports in 1Q22 amounted to $212 million, divided into sales of HRC ($184
million) and rabars ($28 million).
· The company continued to maximize its exports quantities to
secure the foreign currency needed to import raw materials and consumables. In
1Q23, 285 thousand tonnes of HRC were exported, representing 53% of total HRC
sales. This is compared to 37% only in 1Q22. As for rebars, exports in 1Q23
reached 147 thousand tonnes representing 22% of rebar sales, compared to only
4% in 1Q22.
· The economic slow-down in many regions around the world and
concerns about recession are negatively affecting steel product prices. By way
of background, prices had initially peaked around mid-2022 amid worries about
possible supply chains interruptions -which affected a number of commodities-
as a direct consequence of the Russian Ukrainian conflict. Since 3Q22, prices,
together with margins, started to decrease gradually: especially that
alternative suppliers were identified, and supply chains were again secured.
International steel products prices decreased about $40/ton in 1Q23 compared
to 4Q22; prices continue to trend downwards.
· Forex losses amounted to EGP 8,889 million in 1Q23. The Egyptian
Pound continues its downward trend compared to major currencies.
· Net loss before taxes amounted to EGP 2,635 million in 1Q23,
compared to a net profit of EGP 1,754 million in 1Q22. Income tax amounted to
EGP 1,192 million, and deferred tax (asset) EGP 1,338 million.
· Net loss after tax amounted to EGP 2,489 million in 1Q23,
compared to a net profit of EGP 1,217 million in 1Q22.
· Central banks worldwide continue to increase interest rates to
counter inflation. The US Federal Reserve raised the interest rate in the
United States from 4.5% at the beginning of 2023 - following a series of
increases in 2022 - to 5% (in two steps) by the end of the first quarter; then
to 5.25% at the beginning of May 2023 (after the fiscal period). CBE also
increased the lending rate by 2% to 19.25% on March 30, 2023. These
consecutive interest increases -in addition to CBE's abolishment the interest
rate initiative which had been in effect since March 2020 to support industry
at 8%- affected the income statement. Interest and financing expenses amounted
to EGP 1,203 million in 1Q23, an increase of 53% compared to 1Q22 (EGP 786
million). The recent increases in interest rates globally and locally will
further effect 2Q23.
· According to the Worldsteel Association (WSA), global crude
steel production remained stable in 1Q23 compared to the same period last
year. This is the result of China growing by 6% through abandoning its zero
Covid policy, in addition to the recovery of its real estate sector, on one
hand, and on the other hand, the decline of global production (other than
China) by 7% due to inflationary pressures, high interest rates and the
repercussions of the Russian-Ukrainian conflict. The regions most affected by
the decline in production were the European Union (-10%), North America (-4%),
Russia and Ukraine together (-12%) and the Middle East (-11%).
· Domestic consumption of rebars decreased 33% to 1.4 million
tonnes in 1Q23 compared to 2.1 million tonnes in 1Q22, as a result of high
inflation rates which affected consumption negatively.
· The company's local rebar sales decreased by 32% from 755
thousand tonnes in 1Q22 to 517 thousand tonnes in 1Q23, due to the decrease in
local consumption.
· Local HRC consumption in 1Q23 decreased to 396 thousand tonnes,
23% below 1Q22. In line with this, the company's local HRC sales also
decreased by 20% from 315 thousand tonnes in 1Q22 to 251 thousand tonnes in
1Q23.
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 1Q23 were EGP 27,849 million compared to EGP 18,641
million in 1Q22, representing a 49% increase.
Ezz Steel EZDK Ezz Steel
Standalone
Consolidated
Consolidated
EGPMn*
Long 4,061 11,171 15,232
Flat - 12,327 12,327
Others - 290 290
Total 4,061 23,788 27,849
*After the elimination of intercompany transactions.
Long steel products accounted for EGP 15.23 billion, or 55% of sales in 1Q23,
while flat steel products represented 44% of sales at EGP 12.33 billion. Long
steel product exports accounted 19% of its total sales ,while flat product
exports accounted for 48% of total flat sales.
Sales Value Domestic % Export %
EGPMn
Long 12,360 81% 2,872 19%
Flat 6,465 52% 5,862 48%
Long sales volume decreased 16% to reach 663 thousand tonnes during 1Q23
compared to 789 thousand tonnes during 1Q22. Flat sales volume increased 7% to
reach 536 thousand tonnes.
The group's consolidated sales volumes totalled 1.20 million tonnes in 1Q23
compared to 1.29 million tonnes in 1Q22, a decrease of 7%.
Production
Long steel production volumes totalled 716 thousand tonnes during 1Q23
compared to 808 thousand tonnes in 1Q22, a decrease of 11%. Flat steel
production volumes increased 19% to reach 566 thousand tonnes in 1Q23 compared
to 475 thousand tonnes in 1Q22.
Cost of Goods Sold
Consolidated Cost of Goods Sold in 1Q23 represented 71% of sales compared to
75% in 1Q22. Consequently, gross profit margin increased to reach 29% in 1Q23
compared to 25% in 1Q22.
EGPMn* ESR EZDK Ezz Steel
Standalone
Consolidated
Consolidated
Sales 4,061 23,788 27,849
COGS 3,242 16,494 19,736
COGS/Sales 80% 69% 71%
*After the elimination of intercompany transactions
Gross profit
Gross profit of EGP 8.11 billion was recorded for 1Q23 for Ezz Steel
consolidated, a 76% increase compared to the EGP 4.60 billion recorded in
1Q22.
EBITDA
Consolidated EBITDA for 1Q23 amounted to EGP 7.5 billion, a 88% increase
compared to the EGP 4.0 billion recorded in 1Q22.
Foreign Exchange Loss
Foreign exchange loss amounted to EGP 8,889 million in 1Q23.
Tax
During 1Q23, Ezz Steel had an income tax of EGP 1.192 billion and a deferred
tax of EGP 1.338 billion.
Net profit/loss
Net profit reached EGP 2.489 billion 1Q23, compared to EGP 1.217 billion in
1Q22.
Net profit after minority interests
Net result after tax and minority interests recorded a loss of EGP 1,660
million for 1Q23 compared to a profit of EGP 759 million in 1Q22.
Liquidity and capital resources
At the end of the period, Ezz Steel had cash on hand of EGP 20.2 billion and
net debt of EGP 22.7 billion.
Outlook
· Industry experts still predict that world steel consumption in
2023 would preserve its same level as 2022 (1,885 million tonnes). Earlier
market forecasts indicating the beginning of regaining strength associated
with limited growth was not achieved; inflation negatively affected the United
States, Europe and Japan, furthermore, the Russian Ukrainian conflict affected
the consumption of both countries. Balancing this is 2% expected growth in
Chinese consumption in 2023. It is also noted that Turkey requires
considerably higher quantities for the reconstruction of the misfortunate
areas hit by the February 2023 earthquake.
· Short term projections indicate that the trend of international
steel products prices is expected to be decreasing till year end. This would
constitute a challenge to producers. To contain the possible negative effect
on financial performance, the company stands to benefit from the technical
capabilities of its plants in maximizing production and sales of thin-gauges
HRC, and other value-added grades of HRC. With respect to rebars, the company
continues to produce the high tensile B500DWR grade (suitable also for
earthquake codes of design) which is successful both locally and in export
markets. Furthermore, there is an increase in the planned quantities of
production and sales with the second meltshop of EFS starting production in
2Q23.
· As expected, the local market suffered a shrinkage in
consumption as a result of inflation, prices increase and devaluation of
currency. Consequently, consumption forecasts are tentatively revised to a 20%
decrease in Rebar and HRC consumption compared to 2022. The company is closely
following local market consumption to plan its export and domestic sales
directions accordingly.
· Production of the second meltshop of EFS started on May 17,
2023. Operations finetuning is successfully underway. The company is
benefiting from its accumulated technical expertise to accelerate ramp-up to
capacity, thus achieving its objectives to maximize exports and meet local
demand. The electric arc furnace (EAF) capacity is 1.6 million tonnes
annually, production reached 120 thousand tonnes in the second quarter, and is
expected to reach 500 thousand tonnes in the second half of 2023 will.
Danieli, the world's renown steel technology and equipment supplier, provided
engineering, machinery & equipment, advised on installation and conducted
commissioning tests. This expansion cost is EGP 4.2 billion, financed by a EGP
2.2 billion loan with the balance from the group's internal resources.
· The world is following the development of the Russian-Ukrainian
war in its second year. Despite hopes for a settlement, or for the conflict to
calm-down, the ambiguity of the current situation projects fears that the
confrontation worsens, and possibilities of recession. This affects global
economy, and in particular the steel sector - due to the active presence of
the two countries as suppliers of raw materials and as exporters of products.
Divisional Overview
EZDK Standalone 1Q23 4Q22 1Q22
Sales (EGP):
Value: Mn 20,559 18,200 13,671
Volume:
Long: 000 Tonnes 489 557 588
Flat: 000 Tonnes 303 318 265
Exports as % of Sales:
Long: 24% 10% 6%
Flat: 44% 32% 44%
EBITDA: Mn 4,881 2,918 2,527
Production:
Long Products: 000 Tonnes 475 459 481
Flat Products: 000 Tonnes 311 290 278
Billets: 000 Tonnes 558 545 541
Ezz Steel Standalone 1Q23 4Q 2022 1Q22
Sales (EGP):
Value: Mn 4,574 4,879 3,393
Volume: 000 Tonnes 165 231 231
Exports as % of Sales: - -
EBITDA: Mn 724 343 243
Production:
Long Products: 000 Tonnes 187 223 216
Billets: 000 Tonnes 187 220 194
EZDK Consolidated 1Q23 4Q 2022 1Q22
Sales (EGP):
Value: Mn 25,037 21,241 17,161
Volume:
Long: 000 Tonnes 492 576 588
Flat: 000 Tonnes 536 498 503
Exports as % of Sales:
Long: 24% 10% 6%
Flat: 48% 26% 39%
EBITDA: Mn 6,729 3,782 3,738
EBT Mn (2,428) 1,026 1,734
Net Profit Mn (2,351) 924 1,190
Production:
Long Products: 000 Tonnes 529 557 592
Flat Products: 000 Tonnes 566 478 475
Billets: 000 Tonnes 558 579 614
Ezz Steel Consolidated 1Q23 4Q 2022 1Q22
Sales (EGP):
Value: Mn 27,849 23,341 18,641
Volume:
Long: 000 Tonnes 663 799 789
Flat: 000 Tonnes 536 498 503
Exports as % of Sales:
Long: 19% 7% 4%
Flat: 48% 26% 39%
EBITDA: Mn 7,490 4,152 3,981
EBT Mn (2,635) 1,083 1,754
Net Profit Mn (2,489) 939 1,217
Production:
Long Products: 000 Tonnes 716 780 808
Flat Products: 000 Tonnes 566 478 475
Billets: 000 Tonnes 745 799 808
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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