REG - EZZ Steel Company - Half-year Report

Ezz Steel Co SAEAnnouncement

17/10/2023 16:00

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RNS Number : 4255Q  EZZ Steel Company - S.A.E.  17 October 2023

 

 

EZZ STEEL REPORTS CONSOLIDATED 1H 2023 RESULTS

 

Cairo, 17 October 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
June 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:

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(http://www.rns-pdf.londonstockexchange.com/rns/4255Q_1-2023-10-17.pdf)

 

 

Key Highlights

EGP Mn

 

                                1H23    1H22
   Net sales                    62,262  38,497
   Gross profit                 16,901  10,258
   Net profit before EBITDA*    15,216  8,947
   Net profit before tax**      (481)   5,576
   Net profit                   (810)   4,130
   Earnings per share (EPS)***  (1.21)  4.88

 

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

**      After allowing for an FX loss of EGP 13.1bn.

***    EPS = Net profit after tax & Minority Interest / No. of shares
at the end of the period, for the three months period ending 30 June 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 62,262 million in 1H23 compared to EGP
38,497 million in 1H22 (up 62%). Reinforcing steel bars and wire rod coils
(rebars) sales accounted for 56% of total sales, and hot rolled coils (HRC)
flat steel sales accounted for 43%.

·      Export sales amounted to $794 million in 1H23 (up 54% on 1H22
exports), of which HRC amounted to $509 million, and rebars amounted to $284
million. Exports in 1H22 amounted to $514 million, divided into HRC ($418
million) and rebars ($96 million).

·      In 1H23, 683 thousand tonnes of HRC were exported, representing
62% of total HRC sales. This is compared to 45% only in 1H22. As for rebars,
exports in 1H23 reached 445 thousand tonnes representing 31% of rebar sales,
compared to only 7% in 1H22.

·      Forex losses amounted to EGP 13.1 billion in 1H23 as the
Egyptian Pound continues to decrease against major currencies. This resulted
in a net loss before taxes amounting to EGP 481 million in 1H23, compared to a
net profit of EGP 5,576 million in 1H22. Income tax amounted to EGP 2.6
billion, and deferred tax (asset) EGP 2.3 billion. Net loss after tax
accordingly reached EGP 810 million in 1H23, compared to a net profit of EGP
4,130 million in 1H22.

·      Despite that inflation indicators globally appear to be
contained; central banks worldwide are still increasing interest rates to
limit any possibility. The US Federal Reserve raised the interest rate to 5.5%
in July 2023 (the highest in 22 years), hinting to raise it further if needed.
Worldwide central banks followed suit. In Egypt, CBE increased the lending
rate by 1% in August 2023 to 20.25%. The upward interest rates trend led to
higher interest and financing expenses of EGP 2,617 million in 1H23, an
increase of 59% compared to 1H22 (EGP 1,642 million). Interest increases after
the financial statements date will impact upcoming periods.

·      According to World Steel Association, global crude steel
production in H1 2023 decreased by 1.1% to 944m tons vis-a-vis the same period
last year. The result of output decline in the World is the inflationary
pressures, high interest rates and the fallouts from Russia - Ukraine
conflict. The prime regions where output reduction was most prominent are EU
(-10.9%), South America (-7%), North America (-3.5%), Russia and Ukraine
combined (-3.4%) and other Europe (-14.1%). Although China's production grew
by 6% in 1Q23, this rate couldn't be sustained in the 2Q23 (and 1H23 as a
whole) due to credit issues facing the real estate sector and environmental
considerations. Therefore, China's production growth in 1H23 was only 1.3%
compared to the same period last year.

 

·      An economic crunch and inflationary prices have reduced domestic
consumption of rebars by 28% to 2.8 million tonnes in 1H23 compared to the
same period last year. Actual output in 1H23 declined by 20% compared to the
same period last year reaching 3,567 thousand tonnes. Rebars exports during
1H23 reached 753 thousand tonnes.

·      The company's domestic sales of rebar went down from 1,503
thousand tonnes in 1H22 to 1,439 thousand tonnes in 1H23 (4%).

·      Local HRC consumption in 1H23 decreased to 668 thousand tonnes,
22% below 1H22. Ezz Steel HRC product remains the first option for local
manufacturing industries due to its high quality. Ezz Steel local HRC sales
also decreased by 18% from 497 thousand tonnes in 1H22 to 410 thousand tonnes
in 1H23.

·      Production of EFS's second electric arc furnace (EAF) which
started on May 17, 2023, reached 128 thousand tonnes in 2Q23 and planned to
reach 600 thousand tonnes in the second half of 2023.

·      On July 10(th), 2023, after the financial statements' date, the
Board of Directors of Al-Ezz Dekheila Steel Company - Alexandria (EZDK), in
which Ezz Steel is 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. The
price is at a 52.4% premium over the stock market closing price the day prior
to the decision (9/7). 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 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, which include the consolidated financial performance of EZDK.

 

 

 

Sales

 

Consolidated net sales for 1H23 were EGP 62.26 billion compared to EGP 38,50
billion in 1H22, representing a 62% increase.

 

Long steel products accounted for EGP 34.67 billion, or 56% of sales in 1H23,
while flat steel products represented 43% of sales at EGP 27.02 billion. Long
steel product exports accounted for 25% of its sales, while flat product
exports accounted for 58% of its sales.

 

 Sales Value  Domestic  %    Export  %

 EGPMn
 Long         25,900    75%  8,769   25%
 Flat         11,337    42%  15,685  58%

Long sales volume decreased 4% to reach 1.4 million tonnes during 1H23
compared to 1.5 million tonnes during 1H22. Flat sales volume increased 21% to
reach 1.09 million tonnes compared to 907 thousand tonnes during 1H22.

 

Ezz Steel's consolidated sales volumes totalled 2.53 million tonnes in 1H23
compared to 2.41 million tonnes in 1H22, an increase of 5%.

 

Production

 

Long steel production volumes totalled 1.49 million tonnes during 1H23
compared to 1.66 million tonnes in 1H22, a decrease of 10%. Flat steel
production volumes increased 25% to reach 1.14 million tonnes in 1H23 compared
to 912 thousand tonnes in 1H22.

 

Cost of Goods Sold

 

Consolidated Cost of Goods Sold in 1H23 represented 73% of sales realizing a
gross profit margin of 27%, almost the same percentages realized during 1H22.

 

Gross profit

Gross profit of EGP 16.90 billion was recorded in 1H23 for Ezz Steel
consolidated, a 65% increase compared to the EGP 10.26 billion recorded in
1H22.

EBITDA

Consolidated EBITDA for 1H23 amounted to EGP 15.2 billion, a 70% increase
compared to the EGP 8.9 billion recorded in 1H22.

Foreign Exchange Loss

Foreign exchange loss amounted to EGP 13.1 billion in 1H23.

Tax

During 1H23, Ezz Steel incurred an income tax of EGP 2.6 billion and a
deferred tax (asset) of EGP 2.3 billion.

Net profit/loss

Net loss reached EGP 810 million 1H23.

Net profit after minority interests

Net result after tax and minority interests recorded a loss of EGP 643.3
million for 1H23.

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 27.5 billion.

Outlook

·      Industry experts expect that global steel 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, global 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 2% expected growth in Chinese consumption in
2023.

·      Consumption in Egypt suffers from high inflation. In view of
this, consumption estimates for 2023 have been revised. It is expected that
the consumption of rebars will decrease from 7,916 thousand tonnes in 2022 to
about 6,650 thousand tonnes in 2023 (-19%), and the consumption of HRC will
also decrease from 1,700 thousand tons in 2022 to about 1,450 thousand tons
(-17%). Worth noting that the reduction in market size to a relatively
low-level following currency devaluation is usually temporary. The company
continues to closely follow up and review market developments.

 

·      Global steel producers face geopolitical and economic risks which
impact must be carefully studied and considered. Growth rates in the region
will undoubtedly decline, at least in the short term, as one of the
consequences of renewing the Palestinian-Israeli confrontations. Globally, the
Russian-Ukrainian conflict still exists without signs of a solution; this
renews fears of a global economy recession. It should be noted that both
Russia and Ukraine have important presence in the steel sector. As for China,
the credit problems of major real estate companies, which keeps popping up,
may drive the state to take decisions that limit their activities thus also
negatively affecting steel consumption. This would reflect on the global steel
sector: production, consumption, raw materials and consumables. Amid these
challenges, the company continues to reliably supply the local market,
maximize exports and cautiously consider its strategic growth, taking into
account all these variables, while always maintaining sufficient flexibility
in making and implementing decisions.

Divisional Overview

 Ezz Steel Standalone                1H 2023  1H 2022  2Q 2023  1Q 2023

 Sales (EGP):
 Value:                  Mn          10,806   6,809    6,232    4,574
 Volume:                 000 Tonnes  398      435      225      173
 Exports as % of Sales:              15%      -        22%      5%
 EBITDA:                 Mn          1,637    502      912      724
 Production:
 Long Products:          000 Tonnes  415      440      228      187
 Billets:                000 Tonnes  407      421      221      187

                                     1H23     1H 2022  2Q23     1Q23
 Ezz Steel Consolidated

 Sales (EGP):
 Value:                  Mn          62,262   38,497   34,413   27,849
 Volume:
 Long:                   000 Tonnes  1,439    1,503    775      663
 Flat:                   000 Tonnes  1,093    907      557      536
 Exports as % of Sales:
 Long:                               25%      8%       30%      19%
 Flat:                               58%      48%      67%      48%
 EBITDA:                 Mn          15,216   8,947    7,726    7,490
 EBT                     Mn          (481)    5,576    2,154    (2,635)
 Net Profit              Mn          (810)    4,130    1,680    (2,489)
 Production:
 Long Products:          000 Tonnes  1,492    1,660    776      716
 Flat Products:          000 Tonnes  1,138    912      572      566
 Billets:                000 Tonnes  1,530    1,661    785      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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