Al Ezz Gds Regs Regulatory News (AEZD)

EZZ STEEL REPORTS CONSOLIDATED Q1 2020 RESULTS

Cairo, 10 August 2020 - 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 March 2020. The audited results have been prepared in accordance with Egyptian Accounting Standards.

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

**EPS = Net profit after tax & Minority Interest / No. of shares at the end of the period

Comment

Commenting on the results, Mr Paul Chekaiban, Chairman and Managing Director of Ezz Steel, said:

"Overall, we registered higher sales volumes in the first quarter of 2020 compared to 4Q19. Ezzsteel also optimised the flexibility of the raw materials mix in the production facilities. This meant that we were able to return to a gross profit in 1Q20, after having reported a gross loss in 4Q19. The net loss in 1Q20 was lower than 1Q19, and much lower than in 4Q19.

The negative effect of COVID-19 dampened the positive volume trend we saw at the beginning of the quarter; in particular export quantities suffered the most. Contraction in GDP worldwide took its toll on consumption, and with it finished product prices. In contrast, iron ore was among the very few commodities which didn't follow the downward price trend. This put pressure on the steel sector across the world.

In Egypt, the exceptionally high utilities and interest rate costs, in addition to the lack of protection on flat steel, also contributed heavily to the overall loss in 1Q20. During the quarter, as part of the stimulus package to counter the economic pressure of the pandemic, the government reduced interest rates and natural gas price; however, further reductions are needed.

Looking forward: In Egypt, the decision to suspend building permits for 6 months will have detrimental effect on private local consumption until it expires. Worldwide, we expect the economic effects of COVID-19 to continue to be the biggest challenge for the remainder of 2020.

About Ezz Steel

Ezz Steel (formerly: Al Ezz Steel Rebars) is the largest independent steel producer in the Middle East and North Africa, and the Egyptian market leader, with a total actual capacity of 7 million tonnes of finished steel per annum.

In 2019, the Company produced 3.3 million tonnes of long products (typically used in construction) and 1.1 million tonnes of flat products (typically used in consumer / industrial goods). 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 successful acquisition of EFS/ERM, both are full subsidiaries of EZDK.

Sales & Production

*Includes figures for ERM

Ezz Steel's consolidated net sales for Q1 2020 were EGP 10.8 billion, representing a decrease of 15 per cent year on year. This decrease was driven by an 18 per cent decrease in flat sales and a 13 percent decrease in long sales. The decline in long sales was particularly evident in the export market as protection measures worldwide continued to have a negative effect. Prices declined in Egypt and international market for both long and flat steel during Q1 2020.

Long steel products accounted for EGP 8.0 billion, or 74 per cent of sales in Q1 2020, while flat steel products represented 25 per cent of sales at EGP 2.7 billion. Long product exports accounted for 5 per cent of total long sales. Flat product exports accounted for 40 per cent of total flat sales.

Long sales volumes were 941 thousand tonnes during Q1 2020, 3 per cent higher than the 912 thousand tonnes sold during the same period last year. Consolidated flat sales volumes increased by 2 per cent to reach 323 thousand tonnes in Q1 2020.

The group's consolidated sales volumes totalled 1,265 thousand tonnes in Q1 2020, an increase of 3 per cent from the 1,229 thousand tonnes in Q1 2019.

Long steel production volumes totalled 932 thousand tonnes during Q1 2020, up 4 per cent compared to Q1 2019. Flat steel production volumes increased by 15 per cent to 357 thousand tonnes for the period, compared to 310 thousand tonnes in the previous year.

Cost of Goods Sold

Consolidated Cost of Goods Sold for Q1 2020 represented 99 per cent of sales, leading to a decrease in gross profit margin from 2.4% in Q1 2019 to 0.7% in 2020. High iron ore price compared to product prices, high utilities cost, and lack of sufficient local market protection were the main factors that led to such decrease in gross profit. While interest rates and natural gas prices where reduced as part of the COVID-19-related stimulus package, this reduction was not sufficient - particularly in view of iron ore being one of the few commodities that did not partake in the overall downward price trend.

Ezz Steel Standalone reported a COGS/Sales ratio of 99% for Q1 2020, compared to 98% in Q1 2019. At EZDK Consolidated the COGS/Sales ratio stood at 99%.

*Includes figures for ERM

Gross profit

Gross profit of 80.5 million was recorded for Q1 2020, a decline of 73 per cent from the 303 million in Q1 2019.

EBITDA

EBITDA for Q1 2020 amounted to a loss of EGP 37 million, compared to EGP 236 million in Q1 2020.

Tax

During FY 2019, Ezz Steel had deferred taxes in the amount of EGP 72.8 million and income tax of EGP 8.8 million.

Net result after tax and minority interests

Net result after tax and minority interests recorded a loss of EGP 860 million for Q1 2020, compared to a loss of EGP 1,082 million during the same period in 2019.

Liquidity and capital resources

At the end of the period, Ezz Steel had cash on hand of EGP 2.26 and net debt of EGP 29.5.

Outlook

Looking forward: In Egypt, the decision to suspend building permits for 6 months will have detrimental effect on private local consumption until it expires. Worldwide, we expect the economic effects of COVID-19 to continue to be the biggest challenge for the remainder of 2020. 

Divisional Overview

*Figures include ERM

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 3-month period ending 31 March 2020. 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.