REG - EZZ Steel Company - Annual Financial Report 2022 IFRS
22/03/2024 16:45
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RNS Number : 0314I EZZ Steel Company - S.A.E. 22 March 2024
EZZ STEEL REPORTS CONSOLIDATED FY22 RESULTS
Cairo, 2 April 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
December 2022. The audited results have been prepared in accordance with
Egyptian Accounting Standards.
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Key Highlights
EGP Mn
FY22 FY21
Net sales 83,984 67,819
Gross profit 18,778 13,770
Net profit before tax* 8,926 7,171
Net profit** 6,647 5,397
Earnings per share (EPS)** 7.98 6.61
* After allowing for an FX loss of EGP
3,472mn.
** Net profit does not include the related FX losses achieved in
1Q23 amounting to EGP 5.281 bn. for the period from 1/1/2023 till 1/3/2023
according the company's disclosure to EGX and LSE on 1/3/2023.
*** EPS = Net profit after tax & Minority Interest / No. of shares
at the end of the period, for the three months period ending 31 December 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:
· Sales amounted to EGP 83,984 million in 2022 compared to EGP
67,819 million in 2021 (24% increase). Rebar sales accounted for 61% of total
sales, and hot rolled (HRC) flat steel sales accounted for 38%.
· Export sales amounted to $797 million in 2022, of which sales of
HRC amounted to $639 million, and sales of steel coils and rebars amounted to
$157 million. Exports in 2021 amounted to $1,291 million, of which HRC sales
for $1,079 million and of steel coils and reinforcing steel sales for $212
million. The decrease in exports was due to directing more quantities to meet
the growing domestic consumption and also to the normalization in HRC price
levels.
· As a result of lack of liquidity in foreign currencies in the
banking sector, it has become vital for industrial companies to maximize their
exports to cover their import requirements. Starting from 4Q22, the company
shifted towards increasing exports gradually once again in order to secure the
foreign currency needed for importing raw materials and consumables. The
company took advantage of its active client network in more than 25 countries
to achieve its goal -not only in HRC, but also in rebars.
· Foreign Exchange Loss amounted to EGP 3,472 million in 2022, in
addition to EGP 994 million of losses related to financing fixed assets, which
were capitalized in accordance with the accounting standards. The Egyptian
pound had lost about 17% against the US dollar in March 2022, then another 5%
drop in 3Q22; on October 27, 2022, CBE announced a shift towards a flexible
exchange rate, again resulting in further devaluation: the Egyptian Pound
continues to be in a downward trend.
· Net profit before taxes amounted to EGP 8,926 million in 2022,
compared to EGP 7,171 million in 2021. Income tax amounted to EGP 2,484
million, and deferred tax (asset) EGP 206 million.
· Net profit after tax amounted to EGP 6,647 million in 2022,
compared to EGP 5,397 million in 2021 (23% increase). It is important to
clarify that the full impact of FX losses in 2022 is beyond what was posted in
the profit and loss account (or capitalized on fixed assets) from an
accounting perspective. The company incurred additional forex losses the
impact of which will appear in 1Q23, given that the official price of the US
dollar was EGP 24.8 at the closing of 2022, and then starting January it
ascended to reach EGP 29.6 by January 15, 2023 (and increased gradually after
that). Accordingly, the company disclosed to the Egyptian Stock Exchange in
March 2023 that currency losses for the period from 1/1/2023 to 1/3/2023
amounted to EGP 5.281 bn.
· Globally, central banks increased interest rates to contain
inflation. In the United States (where the US Federal Reserve set the fiscal
policy) interest rates rose from 0.25% at the beginning of the year to 4.5% at
year end. In Egypt, the Corridor rate, which is regulated by the Central
Bank of Egypt (CBE), increased from 9.25% at the beginning of 2022 to 17.25%
at the end of the year (the "Lending Rate"). Furthermore, In 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%. With the expiry of most
of the 8% interest rate facilities, the larger effect of an elevated interest
rate environment will begin to impact the income statement starting from 1Q23.
· According to World Steel Association statistics, global crude
steel production decreased by 3.9% in 2022 to reach 1,885 million tonnes, from
1,962 million tonnes in 2021. This stems largely from a 1.7% decrease in
China's production (which accounts for 54% of the world's figures), due to
extended shutdowns to avoid another outspread of COVID, constraining the Real
Estate sector, along with more concern for the environment. It is noted that
China is reconsidering these procedures. Global production in general has also
been impacted of war between Russia and Ukraine, the increase in the cost of
energy and the inflation that emerged at the end of Covid and its restrictive
measures. the production of the European Union decreased by 10.8%, North
America by 5.5%, and Russia and Ukraine by 20%. But on the other hand, Middle
East production rose 6.6%.
· Domestic consumption of rebars increased 8% to reach 7,895
million tonnes in FY22 compared to 7,344 million tonnes in FY21. Private
building consumption had witnessed good growth; however, high inflation rates
is posing limitations on such consumption. In 4Q22 consumption was 1,905
million tonnes 10% below 3Q22 (2,107 million tonnes).
· The company's local sales of rebars increased by 15% from 2,659
thousand tons in 2021 to 3,058 thousand tons in 2022. High tensile steel of
the rank (B500DWR), with its superior qualities and proven savings, continues
to top the demand among consumers. Towards the end of the year, in line with
the decline in local consumption, local rebars sales dropped in 4Q22 to 743
thousand tonnes by 20% compared to 3Q22 (918 thousand tonnes).
· Local HRC consumption increased to reach 1,655 thousand tonnes in
FY22, 10% above the 1,508 thousand tonnes of FY21. The most important
consuming segments are steel pipes and cold rolling, while the largest growth
was in steel structures, and steel pipes. Worth mentioning that consumption of
HRC in Egypt increased with a very good rates starting 2018; since then the
average compounded annual growth rate (CAGR) reached 10.8% compensating for
the limited growth for over a decade before that. Ezz Steel product remains
the first choice for local downstream industries based on HRC -for its high
quality, company-customer stable relation, in addition to imports decline
coupled with Egyptian Pound devaluation.
· The company's domestic sales of HRC in 2022 increased to 1,127
thousand tons, up 24% over 2021 (906 thousand tons).
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 2022, the Company produced 3.3 million tonnes of long products (typically
used in construction) and 1.8 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 FY22 were EGP 83,984 million compared to EGP 67,819
million in FY21, representing a 24% increase.
Ezz Steel EZDK Ezz Steel
Standalone
Consolidated
Consolidated
EGPMn*
Long 14,402 36,434 50,836
Flat - 32,062 32,062
Others - 1,086 1,086
Total 14,402 69,582 83,984
*After the elimination of intercompany transactions.
Long steel products accounted for EGP 50.84 billion, or 61% of sales in FY22,
while flat steel products represented 38% of sales at EGP 32.06 billion. Flat
product exports accounted for 38% of total flat sales.
Sales Value Domestic % Export %
EGPMn
Long 47,718 94% 3,118 6%
Flat 19,886 62% 12,176 38%
Long sales volume increased 11% to reach 3.25 million tonnes during FY22
compared to 2.94 million tonnes during FY21. Flat sales volume decreased 9% to
reach 1.82 million tonnes.
The group's consolidated sales volumes totalled 5.07 million tonnes in FY22
compared to 4.93 million tonnes in FY21, an increase of 3%.
Production
Long steel production volumes totalled 3.27 million tonnes during FY22
compared to 2.90 million tonnes in FY21, an increase of 13%. Flat steel
production volumes decreased 13% to reach 1.79 thousand tonnes in FY22
compared to 2.05 million tonnes in FY21.
Cost of Goods Sold
Consolidated Cost of Goods Sold for FY22 represented 78% of sales compared to
80% in FY21. Consequently, gross profit margin increased to reach 22% in FY22
compared to 20% in FY21.
EGPMn* ESR EZDK Ezz Steel
Standalone
Consolidated
Consolidated
Sales 14,402 69,582 83,984
COGS 12,770 52,436 65,206
COGS/Sales 89% 75% 78%
*After the elimination of intercompany transactions
Gross profit
Gross profit of EGP 18.78 billion was recorded for FY22 for Ezz Steel
consolidated, a 36% increase compared to the EGP 13.77 billion recorded in
FY21.
EBITDA
Consolidated EBITDA for FY22 amounted to EGP 16.8 billion, a 43% increase
compared to the EGP 11.8 billion recorded in FY21.
Foreign Exchange Loss
The devaluation of the Egyptian Pound resulted in an unrealized foreign
exchange loss of EGP 3,472 million.
Tax
During FY22, Ezz Steel had an income tax of EGP 2,484 million and a deferred
tax of EGP 206 million.
Net profit
Net profit reached EGP 6.6 billion in FY22, compared to EGP 5.4 billion in
FY21
Net profit after minority interests
Net result after tax and minority interests recorded a profit of EGP 4,252
million for FY22 compared to EGP 3,521 million in FY21.
Liquidity and capital resources
At the end of the period, Ezz Steel had cash on hand of EGP 13.2 billion and
net debt of EGP 19.9 billion.
Outlook
· Industry experts forecast that world consumption in 2023 would
maintain the same level as 2022 (1,885 million tonnes). Initial forecasts
indicated that the market would start regaining its strength and could witness
limited growth. However, world inflation is affecting consumption negatively,
especially in the United States, Europe and Japan. Naturally, the Russian
Ukrainian conflict is affecting the consumption of both countries. Balancing
this, is 4% expected growth in Chinese consumption in 2023. It is also noted
that Turkey plans to consume considerably higher quantities needed for the
reconstruction of the misfortunate areas hit by the earthquake of February
2023.
· Consumption in Egypt started to suffer from high inflation and
price increase as a consequence of the Egyptian Pound devaluing to foreign
currencies. In view of this, local rebar and flat steel consumption estimate
has been revised downwards to a drop of - initially- 10% below its level in
2022. It is worth noting that the reduction in market size to a relatively low
level following currency devaluation is usually temporary. This is exactly
what happened in 2017 after the first floating of the Egyptian Pound before
the end of 2016. Development in market consumption will be closely followed
and reviewed periodically.
· Interest rate levels continue to increase globally and locally in
an effort to contain inflation. The US Fed's most recent increase has been
0.25% in March 2023 (9(th) increase in a row); now interest rate in USA ranges
between 4.75 % and 5%. Although the possibility of further increases remain,
however, the negative effect on the banking sector -three banks already went
bankrupt- and on economic activities, might deter decisions to pass new
increases. In Egypt, the Central Bank of Egypt (CBE) lifted the rates several
times since the beginning of 2022. Most recently, on 30 March 2023, interest
rates were pushed up again: the Lending Rate increased from 17.25% to 19.25%.
Undoubtedly, this exceptionally high level of interest rates, coupled with
cancelling the 8% low interest rate facilities initiative to industry,
constitute a huge burden on manufacturers and consumers alike.
· Egyptian companies capable to export -among the most important of
which is Ezz Steel- are committed to maximize their exports to support the
national economy. In order to shrink the gap, which has recently expanded,
between the State's forex sources and applications, exporting companies resort
to export quantities the proceeds of which cover at least its imports of raw
materials and consumables. This is of utmost importance to maintain same level
of production. In this context Ezz Steel increased the percentage of its
exports of flat steel and of rebars. Such elevated active export orientation
comes contemporaneous with the start-up of the second melt shop of EFS (in
April 2023). Ramp-up in production form the new unit would enable the company
to achieve its ambitious export goals, while satisfying the local market in
order to maintain its market share.
· The humanitarian disaster in South East Turkey and North West
Syria as a consequence of February 2023 earthquake will require two or three
years to re-build the essential structures needed to resume life and activity
in the area. Ezz Steel directs some its flat steel export shipments to Turkey,
an important part of which is used in the re-construction efforts. In general,
the heavy re-construction activities in Turkey leads to a temporary shift in
the direction of steel trade to and from Turkey and Europe. The company
follows this dynamic situation closely to optimize its export strategy.
· It is the second year for the Russian Ukrainian war without a
solution in the horizon. Ambiguity continues to prevail, and with it there are
fears of recession. In spite of the important presence of the two countries in
the iron and steel sector, clients of both countries -including Ezz Steel-
managed to secure their requirements from other international suppliers.
However, aspiring for a prompt resolution for the conflict, the return of
Russia and Ukraine to the international trade of iron and steel will be a
significant and influential event as and when it occurs.
Divisional Overview
EZDK Standalone FY 2022 FY 2021 4Q 2022 3Q 2022
Sales (EGP):
Value: Mn 61,711 47,931 18,200 16,509
Volume:
Long: 000 Tonnes 2,238 2,059 557 602
Flat: 000 Tonnes 1,126 1,097 318 306
Exports as % of Sales:
Long: 9% 13% 10% 4%
Flat: 40% 51% 32% 36%
EBITDA: Mn 11,539 6,835 2,918 2,638
Production:
Long Products: 000 Tonnes 1,915 1,859 459 455
Flat Products: 000 Tonnes 1,146 1,101 290 297
Billets: 000 Tonnes 2,183 2,090 545 560
Ezz Steel Standalone FY 2022 FY 2021 4Q 2022 3Q 2022
Sales (EGP):
Value: Mn 16,666 13,170 4,879 4,978
Volume: 000 Tonnes 934 905 231 268
Exports as % of Sales: - - -
EBITDA: Mn 1,307 924 343 462
Production:
Long Products: 000 Tonnes 895 839 223 232
Billets: 000 Tonnes 845 867 220 204
EZDK Consolidated FY 2022 FY 2021 4Q 2022 3Q 2022
Sales (EGP):
Value: Mn 75,448 61,218 21,241 19,660
Volume:
Long: 000 Tonnes 2,366 2,106 576 690
Flat: 000 Tonnes 1,824 1,997 498 419
Exports as % of Sales:
Long: 8% 13% 10% 4%
Flat: 38% 56% 26% 32%
EBITDA: Mn 15,472 10,825 3,782 3,244
EBT Mn 8,416 6,757 1,026 1,953
Net Profit Mn 6,428 5,837 924 1,417
Production:
Long Products: 000 Tonnes 2,379 2,065 557 602
Flat Products: 000 Tonnes 1,787 2,051 478 398
Billets: 000 Tonnes 2,454 2,125 579 635
Ezz Steel Consolidated FY 2022 FY 2021 4Q 2022 3Q 2022
Sales (EGP):
Value: Mn 83,984 67,819 23,341 22,147
Volume:
Long: 000 Tonnes 3,248 2,936 799 946
Flat: 000 Tonnes 1,824 1,997 498 419
Exports as % of Sales:
Long: 6% 9% 7% 3%
Flat: 38% 56% 26% 32%
EBITDA: Mn 16,810 11,773 4,152 3,712
EBT Mn 8,926 7,171 1,083 2,266
Net Profit Mn 6,647 5,397 939 1,579
Production:
Long Products: 000 Tonnes 3,274 2,904 780 834
Flat Products: 000 Tonnes 1,787 2,051 478 398
Billets: 000 Tonnes 3,299 2,992 799 838
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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