REG - EZZ Steel Company - 3rd Quarter Results
30/11/2022 16:45
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RNS Number : 1417I EZZ Steel Company - S.A.E. 30 November 2022
EZZ STEEL REPORTS CONSOLIDATED 9M22 RESULTS
Cairo, 30 November 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 30
September 2022. 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
9M22 9M21
Net sales 60,644 49,056
Gross profit 14,388 9,918
Net profit before tax* 7,843 4,866
Net profit 5,708 3,760
Earnings per share (EPS)** 6.91 4.65
* After allowing for an FX loss of EGP
1,435mn.
** EPS = Net profit after tax & Minority Interest / No. of
shares at the end of the period, for the three months period ending 30
September 2022.
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:
· After the date of the financial statements, the following two
important economic decrees were passed:
o On 27 October 2022, CBE announced that it is moving to a durably flexible
exchange rate regime, leaving the forces of supply and demand to determine the
value of the EGP against other foreign currencies. Consequently, the Egyptian
Pound devalued by 16% to the US Dollar in commercial banks on the same day,
with further devaluation following. As at the date of this release, the
USD/EGP rate reached 24.55, an increase of about 25.6% in the rate, what will
impact the financial statements of 4Q22.
o On 20 November 2022, the Prime Minister resolved to cancel the interest rate
initiative which had been in effect since March 2020 to support industry at
8%. Accordingly, companies will now pay CBE's Corridor price (prevailing
Lending Rate is 14.25%) plus a margin to be agreed with commercial banks'
lenders.
· Sales amounted to EGP 60,644 million in 9M22, compared to EGP
49,056 million in 9M21. Rebars sales constituted 61% of total sales, and sales
of hot-rolled flat steel (HRC) 37%.
· The local market witnessed an increase in consumption of both
rebars and HRC in the first 9 months of 2022 compared to the same period in
2021. As the largest producer, and be a reliable supplier to the local market,
Ezz Steel continues to increase sales of both products to meet the higher
demand. The Company maintained its market share and balanced export goals with
its local commitments.
· Export sales reached USD 656 million in 9M22, of which sales of
HRC were USD 539 million and sales of Wire Rods and Rebars were USD 117
million. This compares to exports of USD 1,014 million in 9M21, of which Hot
Rolled Coil (HRC) sales contributed USD 823 million and Wire Rod and rebars
sales USD 191 million. The drop in export figures can be attributed to
directing more quantities to satisfy the increasing local consumption, and
also to a cooling down in the level of HRC prices.
· Forex loss reached EGP 1,435 million in 9M22, the majority of
which was incurred in 1Q22 upon a devaluation of 17% in the EGP to the USD in
March 2022, the remainder was a result of another 5% drop in 3Q22.
After the date of the financial period (on 30 September), the Company incurred
additional Forex loss as a result of CBE's decision on 27 October to move to a
flexible exchange rate. Please refer to the Company disclosure to EGX on 30
October 2022 in this respect. The full magnitude of the year's Forex loss will
depend on the rate of EGP against USD and other major currencies by year end.
· Net profit before taxes amounted to EGP 7,843 million in 9M22,
compared to EGP 4,866 million in 9M21. The income tax amounted to EGP 1,958
million and deferred tax (obligation) EGP 176 million. Thus, net profit after
tax amounted to EGP 5,708 million in 9M22 compared to EGP 3,760 million in
9M21).
· According to World Steel Association statistics, global crude
steel production decreased 4.3% in 9M22 to reach 1,405 million tonnes, down
from 1,468 million tonnes in 9M21. This stems largely from a 3.4% decrease in
China's production (which accounts for 56% of the world's figures), due to
extended shutdowns to avoid another outspread of COVID, limiting credit to the
real estate sector, and stricter environmental measures. Production in Europe
was also hit by the war between Russia and Ukraine, as well as with the
soaring energy prices. Notwithstanding, production increased in Asia (other
than China), South America and the Middle East.
· Domestic consumption of rebars increased 15% to reach 6.017
million tonnes in 9M22 compared to 5.150 million tonnes in 9M21. National
projects maintained their consumption, yet with a slightly lower trend in
3Q22. Private building consumption, on the other hand, is gaining momentum and
continues to increase.
· The Company's local rebars sales increased 25% from 1,845
thousand tonnes in 9M21 to 2,316 thousand tonnes in 9M22. Ezz Steel's decision
two years ago to fully upgrade its standard product to the high tensile rank
(B500DWR) is bearing fruits. The high quality and proven savings strengthened
the brand across all types of consumers.
· Local HRC consumption maintained its highs of last year. It
reached 1,174 thousand tonnes in 9M22, above the 1,142 thousand tonnes of 9M21
by 2.8%. National projects continue to be an important consumer. As for
downstream industries. Ezz Steel's HRC has been always the feedstock of choice
for Egyptian consumers, given its quality and reliability.
· Ezz Steel's local HRC sales in 9M22 reached 773 thousand tonnes,
13% above 9M21 (682 thousand tonnes).
· The Company has been able to overcome the immediate effects of
the Russia-Ukraine war, which is still ongoing since February 2022. Russian
and Ukrainian suppliers of raw materials, consumables and spare parts were
substituted with reliable and quality-assured international suppliers. With
concern about availability of steel products fading, margins have normalised.
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 9M22 were EGP 60,644 million compared to EGP 49,056
million in 9M21, representing a 24% increase.
Ezz Steel EZDK Ezz Steel
Standalone
Consolidated
Consolidated
EGPMn*
Long 10,464 26,706 37,170
Flat - 22,712 22,712
Others - 762 762
Total 10,464 50,180 60,644
*after the elimination of intercompany transactions.
Long steel products accounted for EGP 37.17 billion, or 61% of sales in 9M22,
while flat steel products represented 37% of sales at EGP 22.71 billion. Flat
product exports accounted for 43% of total flat sales.
Sales Value Domestic % Export %
EGPMn
Long 35,041 94% 2,129 6%
Flat 12,999 57% 9,713 43%
Long sales volume increased 17% to reach 2.45 million tonnes during 9M22
compared to 2.1 million tonnes during 9M21. Flat sales volume decreased 14% to
reach 1,33 million tonnes.
The group's consolidated sales volumes totalled 3.77 million tonnes in 9M22
compared to 3.64 million tonnes in 9M21, an increase of 4%.
Production
Long steel production volumes totalled 2.49 million tonnes during 9M22
compared to 2.17 million tonnes in 9M21, an increase of 15%. Flat steel
production volumes decreased 17% to reach 1.31 thousand tonnes in 9M22
compared to 1.58 million tonnes in 9M21.
Cost of Goods Sold
Consolidated Cost of Goods Sold for 9M22 represented 76% of sales compared to
80% in 9M21. Consequently, gross profit margin increased to reach 24% in 9M22
compared to 20% in 9M21.
Ezz Steel Standalone reported a COGS/Sales ratio of 88% for 9M22.
EGPMn* ESR EZDK Ezz Steel
Standalone
Consolidated
Consolidated
Sales 10,464 50,180 60,644
COGS 9,238 37,019 46,256
COGS/Sales 88% 74% 76%
*after the elimination of intercompany transactions
Gross profit
Gross profit of EGP 14.39 billion was recorded for 9M22 for Ezz Steel
consolidated, a 45% increase compared to the EGP 9.92 billion recorded in
9M21.
EBITDA
Consolidated EBITDA for 9M22 amounted to EGP 12.7 billion, a 51% increase
compared to the EGP 8.4 billion recorded in 9M21.
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 1,435 million.
Tax
During 9M22, Ezz Steel had an income tax of EGP 1,958 million and a deferred
tax of EGP 176 million.
Net profit
Net profit reached EGP 5,708 billion in 9M22.
Net profit after minority interests
Net result after tax and minority interests recorded a profit of EGP 3,682
million for 9M22 compared to EGP 2,481 million in 9M21.
Liquidity and capital resources
At the end of the period, Ezz Steel had cash on hand of EGP 6.8 billion and
net debt of EGP 26.4 billion.
Outlook
· Although the Russian-Ukrainian war is taking its toll on world
consumption causing a decrease in world steel consumption (estimated to reach
1,870 million tonnes), industry experts' outlook for 2023 is a 1% increase to
reach 1,889 million tonnes; as for China, experts forecast no further
deterioration in 2023.
· Egypt's rebars consumption is estimated to increase by 10% Y-o-Y
in 2022 to reach 8.05 million tons. The sustained positive trend and recent
demand build-up imply an opportunity for more growth in 2023. Local
consumption of HRC in 2022 is also estimated to reach c. 1.67 million tonnes,
a Y-o-Y increase of 18%. Consumption level in Egypt has good potential: it
comes from a very low base level, whether as a developing country relying on
reinforced concrete for much of its construction and development, or on per
capita basis.
· Central banks worldwide continue to increase interest rates to
curb inflation. Demand-side inflation continues as consumers are making up for
two years of COVID restrictions. Furthermore, elevated prices of many
commodities, drive supply-side inflation. The ongoing Russian-Ukrainian war is
a main cause for the supply-side inflation. This is casting a degree of
ambiguity on the world's economic outlook and there are some fears of
recession. With respect to the steel sector, the price margin between raw
material and product prices -which managed to maintain high grounds up to
mid-2022- have normalised. Hopefully, the political efforts that are being
exerted succeed in reaching a prompt and swift resolution for the conflict.
· Ezz Steel's share and leading role in the local market gives it
an edge in absorbing some of the pressure on steel sector. Furthermore, the
second meltshop of EFS is scheduled to start operations in 1Q23. This will
allow the Company to increase export quantities - enabling it to secure the
foreign currency component needed for operations - without compromising
supplies to local market.
Divisional Overview
EZDK Standalone 9M22 9M21 3Q22 2Q22
Sales (EGP):
Value: Mn 43,511 32,555 16,509 13,331
Volume:
Long: 000 Tonnes 1,680 1,449 602 490
Flat: 000 Tonnes 808 830 306 237
Exports as % of Sales:
Long: 8% 17% 4% 15%
Flat: 44% 50% 36% 52%
EBITDA: Mn 8,621 4,784 2,638 3,457
Production:
Long Products: 000 Tonnes 1,456 1,435 455 521
Flat Products: 000 Tonnes 857 833 297 282
Billets: 000 Tonnes 1,638 1,548 560 537
Ezz Steel Standalone 9M22 9M21 3Q22 2Q22
Sales (EGP):
Value: Mn 11,787 8,983 4,978 3,416
Volume: 000 Tonnes 703 644 268 204
Exports as % of Sales: - -
EBITDA: Mn 964 718 462 259
Production:
Long Products: 000 Tonnes 672 644 232 225
Billets: 000 Tonnes 625 649 204 227
EZDK Consolidated 9M22 9M21 3Q22 2Q22
Sales (EGP):
Value: Mn 54,208 43,834 19,660 17,386
Volume:
Long: 000 Tonnes 1,791 1,488 690 513
Flat: 000 Tonnes 1,325 1,543 419 404
Exports as % of Sales:
Long: 8% 17% 4% 15%
Flat: 43% 57% 32% 56%
EBITDA: Mn 11,690 7,654 3,244 4,709
EBT Mn 7,390 4,535 1,953 3,704
Net Profit Mn 5,503 3,235 1,417 2,896
Production:
Long Products: 000 Tonnes 1,822 1,526 602 627
Flat Products: 000 Tonnes 1,310 1,579 398 437
Billets: 000 Tonnes 1,875 1,582 635 627
Ezz Steel Consolidated 9M22 9M21 3Q22 2Q22
Sales (EGP):
Value: Mn 60,644 49,056 22,147 19,856
Volume:
Long: 000 Tonnes 2,449 2,096 946 714
Flat: 000 Tonnes 1,325 1,543 419 404
Exports as % of Sales:
Long: 6% 12% 3% 11%
Flat: 43% 57% 32% 56%
EBITDA: Mn 12,658 8,389 3,712 4,966
EBT Mn 7,843 4,866 2,266 3,822
Net Profit Mn 5,708 3,760 1,579 2,913
Production:
Long Products: 000 Tonnes 2,494 2,171 834 852
Flat Products: 000 Tonnes 1,310 1,579 398 437
Billets: 000 Tonnes 2,500 2,231 838 853
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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