REG - EZZ Steel Company - Half-year Report

Ezz Steel Co SAEAnnouncement

10/09/2024 15:45

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RNS Number : 6256D  EZZ Steel Company - S.A.E.  10 September 2024

 

EZZ STEEL REPORTS CONSOLIDATED 1H24 RESULTS

 

Cairo, 10 September 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 30
June 2024. 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/6256D_1-2024-9-10.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/6256D_1-2024-9-10.pdf)

 

Key Highlights

EGP Mn

 

                                1H24     1H23
   Net sales                    100,684  62,262
   Gross profit                 18,047   16,901
   EBITDA*                      11,182   15,216
   Net profit before tax**      4,655    (481)
   Net profit                   2,276    (810)
   Earnings per share (EPS)***  2.93     (1.21)

 

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

**      After allowing for an FX loss of EGP 1.33 bn.

***    EPS = Net profit after tax & Minority Interest / No. of shares
at the end of the period, for the fiscal year ending 30 June 2024.

 

 

Comment

Commenting on the results, the board issued the following notes to the
shareholders:

·      Sales revenue reached EGP 100,684 million in 1H24, up from EGP
62,262 million in 1H23.

·      Ezz Steel's exports reached $822 million in 1H24 where HRC
exports amounted to $544 million (66.2% of the total), and reinforcing steel
amounted to $278 million (33.8%). This is compared to $794 million in 1H23, of
which HRC amounted to $509 million and reinforcing steel $284 million.

·      Forex losses reached EGP 1.33 billion in 1H24. As of 2Q24,
shortly after the EGP floatation, the forex rates in the banking sector
started once again to reflect actual rates transacted in Egypt. This was
preceded by a long period of considerable discrepancy between the theoretical
banking rates and the actual transaction rates.

·      The Central Bank of Egypt (CBE) increased the lending rate twice
in 1Q24 to reach 28.25%. Interest expense increased to EGP 5,795 million in
1H24 (up 121%), compared to EGP 2,617 million in 1H23.

·      Egypt's consumption of reinforcing steel in 1H24, according to
data from the Ministry of Supply & Internal Trading, began to improve -
particularly following the flotation of the Egyptian pound on 6 March 2024.
This policy shift enhanced dollar availability, and spurred increased
construction activity resulting in a 9% rise in market consumption compared to
1H23, with consumption reaching 3.059 million tons. It is noted however, that
this remains considerably lower than the consumption level that prevailed 8
years ago in 2016 which reached 8.6 million tonnes.

·      In 1H24, HRC domestic consumption declined by 12% year-on-year
from 668 thousand tonnes to 589 thousand tonnes, primarily due to a slowdown
in infrastructure projects. Considering the lag between HRC and reinforcing
steel domestic consumption trend, it is expected that HRC consumption would
gradually pick up.

·      Egypt reinforcing steel exports in 1H24 fell by 13% vs. 1H23
driven by declining export prices.

·      As previously anticipated imports of billets to Egypt surged to
382 thousand tonnes in 1H24 (of which 70% were in 2Q24 after the EGP
floatation) compared to 70 thousand tonnes in 1H23 (a significant increase of
446%). This circumvents measures taken against dumped reinforcing steel,
replacing them with imported billets, hence unfairly gaining market share
(given that rerolling of billets into reinforcing steel represents only about
10% of the value added of fully integrated production).

·      HRC imports in 1H24, surged by 31%, vs. same period in 2023,
from 254 thousand tonnes to 333 thousand tonnes, with imports market share
increasing by 19%, hence posing a serious threat to local producers. This is
driven by the absence of meaningful and effective measures to curb unfair
trade on HRC products. As with billet imports, this situation highlights the
urgent need for government intervention to protect the HRC sector in Egypt.

·      In the first half of 2024, global crude steel production
declined in major economies such as China, the United States, Russia, and
Japan, largely due to economic challenges and weaker domestic demand. China's
production decline is primarily due to the ongoing downturn in its real estate
sector. However, strong growth in countries like India (7.4%), Turkey (17%),
Iran (6%), and Brazil (2%) helped stabilize global output at 955 million tons,
in 1H24 same level as 1H23 according to the World Steel Association (WSA).

·      On August 8(th), 2024 (after the date of the financial period)
the European Commission initiated an anti-dumping proceeding concerning
imports of hot-rolled flat steel originating in Egypt, India, Japan and
Vietnam. The company had disclosed this to EGX and LSE. The investigation was
initiated following a complaint submitted by the European Steel Association
(Eurofer) requesting the European Commission to impose anti-dumping duties on
its imports from those four countries. With respect to Egypt, this applies on
the EU imports from Ezz Steel which is the sole Egyptian exporter of flat
steel.

·      Ezz Steel emphasizes its commitment to fair trade, and its full
compliance with the trade principles stipulated by the WTO. The European Union
is undoubtedly a key market for Ezz Steel's flat steel exports. Accordingly,
the Company will fully cooperate with the EU investigation authority, provide
all the data required, and submit its defences and arguments to protect its
and the Egyptian industry interests.

 

Outlook

 

·      Globally, in 2024, the World Steel Association forecasts a
fragile recovery in global steel demand, predicting a 1.7% increase to 1.85
billion tonnes. This marks a gradual rebound after years of stagnation and
volatility. However, growth remains constrained by ongoing geopolitical and
economic uncertainties. Concerns about China's economic trajectory,
particularly amid its structural transitions in the property market, could
affect both Chinese and global steel consumption. Chinese steel exports are
projected to surpass 100 million tons this year, the highest level since 2016.
However, this aggressive export strategy is creating friction in global
markets, as many countries struggle to compete with China's low-cost steel. In
response, several nations, including the U.S., EU, Canada, South Africa,
Turkey and Brazil, have imposed higher tariffs and various trade measures to
protect their domestic industries. There is a serious risk that the imbalance
between China's production and consumption, leading to very high exports,
would transform world steel trade to become very protective and restrictive.

·      Locally, Egypt reinforcing steel consumption is expected to
increase by a moderate 5% in 2024 to 6.8 million tonnes. This growth is
anticipated to be driven by the ongoing completion of infrastructure projects,
the resolution of contractor receivables, and the expected resumption of new
construction permits. Consumption of HRC is expected to remain stable in 2024
at 1.5 million tonnes before increasing thereafter.

·      Provisional results of the hot rolled flat steel dumping
investigation of four counties including Egypt initiated by the European
Commission, are expected in a few months. Although Ezz Steel categorically
denies the dumping allegations of Eurofer, it cannot underestimate the risk
that the European Commission might impose an anti-dumping duty.

 

Divisional Overview

 

 Ezz Steel Standalone        1H 2024  1H 2023  2Q 2024  1Q 2024

 Sales (EGP):
 Value:                  Mn  26,073   10,806   14,172   11,901

 Exports as % of Sales:      2.3%     11.4%    -        4.67%
 EBITDA:                 Mn  1,949    1,637    777      1,172

 Ezz Steel Consolidated

 Sales (EGP):
 Value:                  Mn  100,684  62,262   50,519   50,165
 Exports as % of Sales:
 Long:                       19%      25%      21%      17%
 Flat:                       71%      58%      75%      66%
 EBITDA:                 Mn  11,182   15,216   6,092    5,090
 EBT                     Mn  4,655    (481)    1,492    3,163
 Net Profit              Mn  2,276    (810)    1,014    1,262

 

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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