REG - EZZ Steel Company - 3rd Quarter Results

Ezz Steel Co SAEAnnouncement

11/12/2023 16:30

For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20231211:nRSK3803Wa&default-theme=true

RNS Number : 3803W  EZZ Steel Company - S.A.E.  11 December 2023

 

EZZ STEEL REPORTS CONSOLIDATED 9M 2023 RESULTS

 

Cairo, 11 December 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 30
September 2023. 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:

http://www.rns-pdf.londonstockexchange.com/rns/3803W_1-2023-12-11.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/3803W_1-2023-12-11.pdf)

 

 

Key Highlights

EGP Mn

 

                                9M23     9M22
   Net sales                    103,241  60,644
   Gross profit                 27,998   14,388
   Net profit before EBITDA*    25,435   12,658
   Net profit before tax**      (2,236)  7,843
   Net profit                   (1,928)  5,708
   Earnings per share (EPS)***  (2.16)   6.91

 

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

**      After allowing for an FX loss of EGP 23.9bn.

***    EPS = Net profit after tax & Minority Interest / No. of shares
at the end of the period, for the three months period ending 30 September
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 highlighted the following to the
shareholders:

·    Sales amounted to EGP 103,241 million in 9M23 compared to EGP 60,644
million in 9M22 (up 70%). Reinforcing steel bars and wire rod coils (rebars)
sales accounted for 60% of total sales, and hot rolled coils (HRC) flat steel
sales accounted for 39%.

·    Export sales amounted to $1,214 million in 9M23 (up 85% on 9M22
exports), of which HRC amounted to $771 million, and rebars amounted to $443
million. Exports in 9M22 amounted to $656 million, divided into HRC ($539
million) and rebars ($117 million).

·    In 9M23, 1,049 thousand tonnes of HRC were exported, representing
64% of total HRC sales. This is compared to 42% only in 9M22. As for rebars,
exports in 9M23 reached 723 thousand tonnes representing 29% of rebar sales,
compared to only 5% in 9M22. The Company continues to give upmost priority to
exports as the export proceeds secures productions needs of imported raw
materials and consumables.

·    Forex losses amounted to EGP 23,898 million in 9M23 as the Egyptian
Pound continues to decrease against major currencies. This resulted in a net
loss before taxes amounting to EGP 2,236 million in 9M23, compared to a net
profit of EGP 7,843 million in 9M22. Income tax amounted to EGP 4,170 million,
and deferred tax (asset) EGP 4,478 million. Net loss after tax accordingly
reached EGP 1,928 million in 9M23, compared to a net profit of EGP 5,708
million in 9M22.

·    The US Federal Reserve has been raising the interest rate
aggressively to contain inflation for almost 2 years; the most recent was in
July 2023 to 5.5% (the highest in 22 years). Worldwide central banks followed
suit. In Egypt, CBE also has been increasing the lending rate, most recently
by 1% in August 2023 to 20.25%. The upward interest rates trend led to higher
interest and financing expenses of EGP 4,232 million in 9M23, an increase of
69% compared to 9M22 (EGP 2,497 million). There are signs that international
interest rates have reached a plateau, and might even start coming down before
long. However, in Egypt, the high interest rates are expected to be
maintained. The financial statements of the Company will continue to be
impacted therefore by higher interest costs in the upcoming periods.

 

·    The World Steel Association reported a marginal 0.1% increase in
global crude steel production in 9 months 2023 compared to the same period in
2022. This is driven by China's (1.7%) growth to 795m tons and India's (11.6%)
to 104m tons, fueled by domestic construction and infrastructure spending.
Nevertheless, regional economic challenges and the impact of the war in
Ukraine negatively affected Turkey (-10%), EU (-9.1%), and South America
(-6.2%). The future remains uncertain - necessitating a cautious approach to
navigate these turbulent times.

·    Egypt domestic long products market consumption in 9M34 market
reached 4.6 million tonnes, 30% lower compared to the same period in 2022.

·    The company's domestic sales of rebars went down from 2,316 thousand
tonnes in 9M22 to 1,779 thousand tonnes in 9M23 (23%).

·    HRC domestic market consumption in 9M23 is down 17% year-on-year
(YoY).

·    Ezz Steel's HRC exports in 9M23 surged by 92% YoY to 1,049 thousand
tonnes.  Ezz Steel local HRC sales decreased by 23% from 773 thousand tonnes
in 9M22 to 593 thousand tonnes in 9M23. Worth noting that the sustained
production of EFS's second meltshop, which started in May '23, helped increase
production and sales in general and HRC in particular.

·    On July 10(th), 2023, the Board of Directors of Al-Ezz Dekheila
Steel Company - Alexandria (EZDK), in which Ezz Steel was a 64.063%
shareholder, approved a voluntary delisting from EGX, and EZDK's buying the
shares of those objecting and not willing to continue with the company after
delisting at a price of EGP 1,250/share, a 52.4% premium over the stock market
closing price the day prior to the decision. The company obtained its
extraordinary general assembly approval on August 5(th), 2023. Sales orders
amounted to 35.626%, thus, the minority stake decreased to 0.311%. EGX
delisted the company's shares from trading in the Primary Market on October
2(nd), 2023, and included it in the Orders Market as of October 9(th), 2023.

 

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 2021 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 2022, the Company produced 3.27 million tonnes of long products (typically
used in construction) and 1.79 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.

 

Sales

 

Consolidated net sales for 9M23 were EGP 103.24 billion compared to EGP 60.64
billion in 9M22, representing a 70% increase.

 

Long steel products accounted for EGP 61.75 billion, or 60% of sales in 9M23,
while flat steel products represented 39% of sales at EGP 40.72 billion. Long
steel product exports accounted for 22% of its sales, while flat product
exports accounted for 58% of its sales.

 

 Sales Value  Domestic  %    Export  %

 EGPMn
 Long         48,095    78%  13,651  22%
 Flat         16,952    42%  23,767  58%

Long sales volume increased 2% to reach 2.50 million tonnes during 9M23
compared to 2.45 million tonnes during 9M22. Flat sales volume increased 23%
to reach 1.64 million tonnes compared to 1.33 million tonnes during 9M22.

 

Ezz Steel's consolidated sales volumes totalled 4.15 million tonnes in 9M23
compared to 3.77 million tonnes in 9M22, an increase of 10%.

 

 

Production

 

Long steel production volumes totalled 2.50 million tonnes during 9M23 almost
same volume compared to 9M22. Flat steel production volumes increased 32% to
reach 1.73 million tonnes in 9M23 compared to 1.31 thousand tonnes in 9M22.

 

Cost of Goods Sold

 

Consolidated Cost of Goods Sold in 9M23 represented 72.9% of sales compared to
76.3% in 9M22, to reflect an increase of realized gross profit margin from
23.7% in 9M22 to 27.1% in 9M23.

 

Gross profit

 

Gross profit of EGP 28.0 billion was recorded in 9M23 for Ezz Steel
consolidated, a 94% increase compared to the EGP 14.4 billion recorded in
9M22.

 

EBITDA

 

Consolidated EBITDA for 9M23 amounted to EGP 25.4 billion, a 100% increase
compared to the EGP 12.7 billion recorded in 9M22.

 

Foreign Exchange Loss

 

Foreign exchange loss amounted to EGP 23.9 billion in 9M23.

 

Tax

 

During 9M23, Ezz Steel incurred an income tax of EGP 4.2 billion and a
deferred tax (asset) of EGP 4.5 billion.

 

Net profit/loss

 

Net loss reached EGP 2.24 billion 9M23.

 

Net profit after minority interests

 

Net result after tax and minority interests recorded a loss of EGP 1.15
billion for 9M23.

 

Liquidity and capital resources

 

At the end of the period, Ezz Steel had cash on hand of EGP 28.9 billion and
net debt of EGP 38.2 billion.

 

 

Outlook

 

·    The global steel industry is expected to experience a modest rebound
in 2023 of approximately 1.8% (according to World Steel Association) despite
the ongoing challenges posed by high inflation, rising interest rates, and
geopolitical tensions. The global steel demand forecast for 2024 is cautiously
more optimistic, suggesting that the industry is poised for a moderate rebound
of 2% despite the ongoing challenges.

·    According to the International Monetary Fund the global economy has
faced major challenges over the past years, including inflation, sluggish
growth, and a decline in GDP growth from 3.5% in 2022 to 3% in 2023 and will
decline to 2.9% in 2024. Contributing to this slowdown are tighter financial
conditions, weak trade, and reduced business and demand. While hopes are
pinned on the swift expansion of Asian economies, near-term risks persist,
such as geopolitical tensions and potential adverse effects of monetary policy
tightening.

·    Egypt's steel industry has been experiencing a challenging period in
2023, with a projected 17% decline in local long and flat steel consumption
compared to 2022. This downward trend is attributed to a combination of
economic challenges, including high inflation and currency devaluation, which
eroded consumer purchasing power and increased production costs for steel
producers. These factors have contributed to a decrease in local demand for
steel products. The industry is expected to gradually rebound once the current
economic headwinds subside. The initial forecast for 2024 is a 5% growth in
the consumption of both rebars and HRC.

·    In the meantime, steel producers in many countries, including Egypt,
are adapting to the changing market conditions by focusing on cost
optimization, exploring new export markets, and investing in new
environmentally friendly and high-quality production.

 

Divisional Overview

 

 Ezz Steel Standalone                9M 2023  9M 2022  3Q 2023  2Q 2023

 Sales (EGP):
 Value:                  Mn          19,339   11,787   8,533    6,232
 Volume:                 000 Tonnes  654      703      481      225
 Exports as % of Sales:              11%      -        13%      22%
 EBITDA:                 Mn          3,019    964      1,383    912
 Production:
 Long Products:          000 Tonnes  640      672      226      228
 Billets:                000 Tonnes  617      625      210      221

                                     9M23     9M 2022  3Q23     2Q23
 Ezz Steel Consolidated

 Sales (EGP):
 Value:                  Mn          103,241  60,644   75,392   34,413
 Volume:
 Long:                   000 Tonnes  2,503    2,449    1,839    775
 Flat:                   000 Tonnes  1,642    1,325    1,106    557
 Exports as % of Sales:
 Long:                               22%      6%       23%      30%
 Flat:                               58%      43%      63%      67%
 EBITDA:                 Mn          25,435   12,658   10,219   7,726
 EBT                     Mn          (2,236)  7,843    (1,755)  2,154
 Net Profit              Mn          (1,928)  5,708    (1,118)  1,680
 Production:
 Long Products:          000 Tonnes  2,494    2,494    1,001    776
 Flat Products:          000 Tonnes  1,727    1,310    589      572
 Billets:                000 Tonnes  2,522    2,500    992      785

 

 

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.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
 or visit
www.rns.com (http://www.rns.com/)
.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
.   END  QRTBUBDDRGBDGXB