REG - EZZ Steel Company - 1st Quarter Results
09/07/2024 14:00
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RNS Number : 7252V EZZ Steel Company - S.A.E. 09 July 2024
EZZ STEEL REPORTS CONSOLIDATED 1Q24 RESULTS
Cairo, 9 July 2024 - 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
2024. 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
1Q24 1Q23
Net sales 50,165 27,849
Gross profit 8,053 8,113
EBITDA* 5,090 7,490
Net profit before tax** 3,163 (2,635)
Net profit 1,262 (2,489)
Earnings per share (EPS)*** 1.71 (3.12)
* EBITDA = sales - cost of goods sold - selling & marketing
expense - G&A expense + depreciation and amortization
** After allowing for an FX loss of EGP 254.7 mn.
*** EPS = Net profit after tax & Minority Interest / No. of shares
at the end of the period, for the fiscal year ending 31 March 2024.
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 revenue reached EGP 50,165 million (equivalent to $1,001
million) in 1Q24, up from EGP 27,849 million (equivalent to $865 million) in
1Q23. This is an increase of 15.7% in USD terms (steel products are among key
commodities the prices of which are dollar-based internationally). Reinforcing
steel and HRC accounted for 67% and 31% of total sales respectively in 1Q24.
Sales volumes increased from 1,199 thousand tonnes in 1Q23 to 1,466 thousand
tonnes in 1Q24 (22%). Reinforcing steel volume reached 926 thousand tonnes
(63%) while HRC volume has been 540 thousand tonnes (37%).
· Ezz Steel's exports reached $410 million in 1Q24. HRC exports
amounted to $274 million (66.8% of the total), and reinforcing steel amounted
to $136 million (33.2%), compared to $285 million in 1Q23, of which HRC
amounted to $191 million and reinforcing steel $94 million.
· In 1Q24, 411 thousand tonnes of HRC were exported, representing
76% of total HRC sales. This is compared to 285 thousand tonnes in 1Q23 (53%
of HRC sales). As for reinforcing steel, exports reached 231 thousand tonnes
representing 25% of its sales, compared to 147 thousand tonnes in 1Q23 (22%).
· The company's domestic sales of reinforcing steel went up from
517 thousand tonnes in 1Q23 to 692 thousand tonnes in 1Q24 (34%). Domestic
sales of HRC decreased by 49% from 251 thousand tonnes in 1Q23 to 128 thousand
tonnes in 1Q24 as the company concentrated on exports.
· Forex losses reached EGP 255 million in 1Q24. This represents
the effect of change in forex rates to the EGP on the net foreign liability.
By way of background, Ezz Steel was the only listed company which accounted
for the de-facto devaluation of the EGP throughout 2023; this contained the
forex losses in 1Q24. Going forward after EGP floatation, and unifying the
range of forex rates, it is expected that forex gains/losses would reflect
real change in foreign currency rates in the banking sector.
· The Central Bank of Egypt (CBE) increased the lending rate on 1
February 2024 by 2%, and on 6 March 2024 by 6% to reach 28.25%. Interest
expense increased to EGP 2,107 million in 1Q24 (up 75%), compared to EGP1,203
million in 1Q23. Such high level of interest rate is expected to be temporary
to contain inflation and is expected to decrease gradually.
· Net profit after tax reached EGP 1,262 million in 1Q24, compared
to a net loss of EGP 2,489 million in 1Q23.
· Egypt's consumption of reinforcing steel has been in a downward
trend since 2016 in which the country's consumption reached 8.6 million
tonnes. Although there has been a relative increase in the consumption of 1Q24
over 1Q23 by 8% to 1,550 thousand tons (from 1,429 thousand tons), according
to the Ministry of Supply & Internal Trading, this comes from a low base.
In absolute, the consumption in 1Q24 is still considered low.
· The production of reinforcing steel in Egypt moved in a
different direction; it increased by 24% to 2.1 million tons in 1Q24, compared
to 1.7 million tons in 1Q23. Robust growth of production is attributed to
elevated exports: from 336 thousand in 1Q23 to 400 thousand in 1Q24 (19%).
Manufacturers used export proceeds to secure the foreign currency required to
import raw materials.
· HRC domestic consumption also dropped by 23% from 396 thousand
tons in 1Q23 to 306 thousand tons in 1Q24. The devaluation of the EGP and the
critical shortage of foreign currency adversely impacted economic growth, and
the rising costs diminished consumers' purchasing power.
· In line with reinforcing steel, HRC, production increased by 1%
in 1Q24 as its exports increased by 44% from 285 thousand tons in 1Q23 to 411
thousand tons in 1Q24.
· In the medium term, the successful flotation of the Egyptian
pound on March 6, 2024, the new economic measures adopted, and the
implementation of the new building legislations are still expected to spur
growth and increase consumption. However, on the short term, lack of liquidity
and higher costs due to inflation act as a drag on demand.
· With better availability of foreign currency, towards the end of
1Q24, re-rollers started to maximise their imports of billets. Billets are
rolled into reinforcing steel: this is the last manufacturing stage in
reinforcing steel production, it represents about 10% only of the value added
of fully integrated production. The absence of safeguard measures and/or other
means of trade protection to support the Egyptian industry -similar to what is
applied by most steel producing countries- is encouraging unfair competition.
For example, USA applies 25% safeguard tariff on billets. Key producing
countries like Turkey impose 17% tariffs on billet imports, Saudi Arabia 12%,
Algeria 11%, whereas Vietnam and South Africa impose 10% each as a standard
custom duty. In Egypt the custom duty in zero.
· HRC imports also increased from 145 thousand tons in 1Q23 to 175
thousand tons in Q1 2024, a 21% rise, facilitated by low entry barriers. Egypt
still lacks measures or trade actions to curb the unfair practices associated
with imported HRC. In the European Union (EU) -27 countries- a duty of 25% is
imposed once a preset quota is reached. The USA imposes antidumping as well as
safeguard tariffs amounting together to 66% (41% antidumping on particular
countries and 25% safeguard). In Turkey, which is one of the key exporting
countries of HRC, the import tariff is 15%, in addition to 9% antidumping on
particular countries. In Brazil, the standard custom duty is 25%, while in
Saudi Arabia, Algeria, Malaysia, India and Indonesia the duty is 10%. In Egypt
however, the custom duty on HRC is only 5%.
· The global steel sector maintained crude steel production at 469
million tons in 1Q24, matching the output of 1Q23. This stability was
bolstered by a notable 10% increase in India's production to 37 million tons,
largely driven by government-funded initiatives. In China, crude steel
production decreased from 261 million tons in 1Q23 to 257 million tons in
1Q24. The industry also encountered challenges in Europe and the United States
as rising inflation and high interest rates negatively affected demand.
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 2023 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 2023, the Company produced 3.52 million tonnes of long products (typically
used in construction) and 2.33 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
The below financial breakdowns are based on Ezz Steel's consolidated
financials.
Sales
Consolidated net sales for 1Q24 were EGP 50.16 billion compared to EGP 27.85
billion in 1Q23, representing a 80% increase.
Long steel products accounted for EGP 33.77 billion, or 67% of sales in 1Q24,
while flat steel products represented 31% of sales at EGP 15.75 billion. Long
steel product exports accounted for 17% of its sales, while flat product
exports accounted for 66% of its sales.
Sales Value Domestic % Export %
EGPMn
Long 28,158 83% 5,610 17%
Flat 5,311 34% 10,442 66%
Long sales volume increased 40% to reach 926 thousand tonnes during 1Q24
compared to 663 thousand tonnes during 1Q23. Flat sales volume increased 1% to
reach 540 thousand tonnes compared to 536 thousand tonnes during 1Q23.
Ezz Steel's consolidated sales volumes totalled 1.47 thousand tonnes in 1Q24
compared to 1.20 thousand tonnes in FY22, an increase of 23%.
Production
Long steel production volumes totalled 1.03 million tonnes during 1Q24, 44%
increase compared to 716 thousand tonnes during 1Q23. Flat steel production
volumes didn't change as it reached 567 thousand tonnes in 1Q24 compared to
566 thousand tonnes in 1Q23.
Cost of Goods Sold
Consolidated Cost of Goods Sold in 1Q24 represented 84% of sales compared to
71% in 1Q23, to reflect a decrease of realized gross profit margin from 29% in
1Q23 to 16% in 1Q24.
Gross profit
Gross profit reached EGP 8.05 billion in 1Q24, compared to the EGP 8.11
billion in 1Q23.
EBITDA
Consolidated EBITDA for 1Q24 amounted to EGP 5.1 billion, a 32% decrease
compared to the EGP 7.5 billion in 1Q23.
Foreign Exchange Loss
Foreign exchange loss amounted to EGP 255 million in 1Q24.
Tax
During 1Q24, Ezz Steel incurred an income tax of EGP 1,182 million and a
deferred tax (liability) of EGP 720 million.
Net profit/loss before Tax
Net profit reached EGP 3,163 million 1Q24.
Net profit after Tax
Net result after tax recorded a profit of EGP 1,262 million for 1Q24.
Liquidity and capital resources
At the end of the period, Ezz Steel had cash on hand of EGP 26.7 billion and
net debt of EGP 37.2 billion.
Outlook
· Global steel demand forecast in 2024 is somewhat blurred by the
outlook for China's consumption. Although the formal message is that the
country's property market will undergo structural transition and will
therefore positively affect China's (and the world's) consumption, so far in
2024 this has not materialized yet. Notwithstanding, WSA continues to project
global steel demand in 2024 at 1.92 billion tons, a 1.9% increase over 2023.
· The EGP flotation on 6 March 2024 is undoubtedly cementing
economic stability. Although there would be prudent limitations on public
spending, and inflation constraints would somewhat restricting private
spending, it is conservatively anticipated therefore that Egypt's steel
consumption in 2024 will be at the same level of 2023: in the range of 6.5
million tonnes.
· The Egyptian steel industry is facing internal and external
challenges. The heavy flow of imported material into Egypt, whether billets or
HRC, comes at the expense of local manufacturing. It is only expected to
exacerbate further in the absence of meaningful and effective measures to curb
unfair trade. Exports, on the other hand, have to struggle with additional
trade barriers, including for example a new more stringent EU quota system.
This lack of reciprocity puts the Egyptian industry at a handicap. The
country's steel manufacturers assemblies are coordinating with the government
to reach common ground in tackling such an important and sensitive matter.
Divisional Overview
Ezz Steel Standalone 1Q24 4Q 2023 1Q23
Sales (EGP):
Value: Mn 11,901 8,296 4,574
Volume: 000 Tonnes 284 233 173
Exports as % of Sales: 7% - 5%
EBITDA: Mn 1,172 1,861 724
Production:
Long Products: 000 Tonnes 258 243 187
Billets: 000 Tonnes 230 231 187
1Q24 4Q 2023 1Q23
Ezz Steel Consolidated
Sales (EGP):
Value: Mn 50,165 39,672 27,849
Volume:
Long: 000 Tonnes 926 945 663
Flat: 000 Tonnes 540 567 536
Exports as % of Sales:
Long: 17% 16% 19%
Flat: 66% 52% 48%
EBITDA: Mn 5,090 9,804 7,490
EBT Mn 3,163 1,252 (2,635)
Net Profit Mn 1,262 1,212 (2,489)
Production:
Long Products: 000 Tonnes 1,032 1,025 716
Flat Products: 000 Tonnes 567 601 566
Billets: 000 Tonnes 1,111 1,104 745
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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