Al Ezz Steel Rebars reports consolidated full year 2008 results

The audited results have been prepared in accordance with Egyptian Accounting Standards.

Commenting on the results, Mr Ahmed Ezz, Chairman and Managing Director of Ezzsteel, said:

"2008 was an outstanding year for Ezzsteel, in which we achieved record sales and profits, and the highest turnover of any listed Egyptian industrial company. Despite cost pressures and the global downturn that was seen during the fourth quarter, Ezzsteel was still able to significantly improve year on year profitability."

Ezz added, "The Egyptian market, where we are the market leader, has proven extremely resilient to the global financial crisis and economic downturn. This has resulted both in strong demand for our long products and continued access to funding, to further enhance our robust financial position. As a result of our operational flexibility and modern technology, we have been able to adapt quickly to changing market conditions and limit our exposure to weaker export markets."

"While much of the global steel sector is at a standstill due to the global economic turmoil, we continue to pursue our growth strategy and are confident that Ezzsteel will emerge even stronger from these challenging markets," he stated.

Operational Review:

1. Sales and Production:

All of the below financial breakdowns are based on Ezzsteel's consolidated financials which include the financial performance of ESR/ESM, EZDK and EFS.

Consolidated net sales for 2008 were LE21.8bn compared with LE16.2bn during 2007, representing a rise of 35%. Long steel products accounted for 69% of total sales and flat steel products represented 31% of sales in 2008.

The contributions of ESR/ESM, EZDK and EFS to net sales for the period ending 31 December 2008 were 30%, 53%, and 17% respectively.

- Long products:

Long product volumes sold were very strong in 2008 as sales were again primarily directed towards servicing the construction growth within the local market, which at c.10% grew more than twice the GDP growth rate in the fourth quarter1. Local demand for long products rose by 21% over 2007 to reach a record market size of 5.0 million tonnes per annum in 2008. This has been largely attributable to the growth of the private home building sector.

In line with the global steel industry, local prices for long products rose strongly in the first nine months of 2008, before a sharp decline in the fourth quarter. However, while prices fell, the demand for long steel products in the Egyptian market remained robust, unlike the significant drop in demand in most other markets.

Long products production for 2008 reached 3,184,895 tonnes compared with 3,125,974 during 2007, representing a 2% year-on-year increase. Given the significant production cuts necessitated by the deterioration of demand in the large steel consuming markets, Ezzsteel was one of the few steel companies able to achieve year on year production increases.

- Flat products:

The global market for flat products also performed strongly in the first nine months of the year, before severe demand destruction in the fourth quarter led to sharp price declines and heightened volatility. As a result, a large number of steel producers took action to curtail production in the fourth quarter to improve industry fundamentals.

Ezzsteel's exposure to the global steel market is primarily through its flat steel production at EFS, of which the majority is sold to export markets. Consequently, in November, the Company stopped flat steel production at EFS until global market conditions improve. Ezzsteel's flat production at EZDK continues unaffected.

Flat products production for 2008 was 1,423,100 tonnes, which was 17% lower than 2007 production of 1,707,630 tonnes. Flat steel production volumes were lower as a result of damage to an electrical transformer at EZDK in July and the decision to shutdown production at EFS in November.

2. Cost of Goods Sold:

Consolidated cost of goods sold for the year ended 31 December 2008 represented 80% of consolidated net sales, compared to 76% in 2007. While the ratio had been maintained at 76% at the end of third quarter 2008, this rose by year end as a result of the significant drop in steel prices in the fourth quarter and management's decision to consume the more expensive raw materials rather than carry over into 2009.

There were structural increases in both gas and electricity costs in Egypt during the first half of 2008, as global energy prices increased. However, despite these increases, both electricity and gas costs for Ezzsteel remain highly competitive on a global basis.

3. Gross profit:

Gross profit of LE4.3bn in 2008 represented an increase of 18% over the LE3.6bn recorded in 2007, largely as a result of record selling prices during the first nine months of the year.

Gross profit per tonne of LE929 /tonne in 2008 represented an increase of 25% over the LE745 /tonne recorded in 2007. This strong increase in profitability per tonne was achieved even though the 2007 levels were the highest recorded to date.

4. EBITDA:

EBITDA for the period reached LE4.5bn, up from LE4.0bn for the same period in 2008 representing an increase of 12%.

EBITDA per tonne for the period reached LE965 / tonne, up from LE815 / tonne for the
same period in 2007 representing an increase of 18%.

5. Tax and deferred tax:

Ezzsteel continues to be one of the largest corporate tax payers in Egypt, with Tax and Deferred Tax amounting to LE746m for 2008, up from LE653m in 2007.

6. Net profit after tax and minority interests:

For the year ended 31 December 2008, net profit after tax and minority interests was LE1.2bn, up 9% from the comparable period in 2007.

7. Liquidity and capital resources:

Ezzsteel completed a successful LE1.1bn bond issue in June and conducted a capital increase of LE1.8bn by way of a rights issue in September.

At the end of the period, Ezzsteel had cash on hand of LE4.1bn and net debt of LE3.6bn. The company has a conservative level of gearing of Net Debt / Equity of 0.51 times, and Net Debt / EBITDA of 0.80 times.

During the year, Ezzsteel also increased its stake in EZDK from 50.28% to 53.24%.

8. Outlook:

Despite the global slowdown, the Egyptian economy has remained resilient with continued strong demand, particularly in respect of private home building. The local market for long products is expected to continue to grow significantly throughout 2009 due to private construction and infrastructure projects that are part of the stimulus package announced in late 2008.

Ezzsteel's exposure to the global steel industry, through its exports of flat steel, will remain limited while EFS remains shutdown until market conditions improve.

Reflective of the global price environment for finished products, the price of raw materials fell sharply during the fourth quarter of 2008. Raw material prices in 2009 are expected to continue to trade at levels that closely follow movements in global steel prices.

Ezzsteel is well positioned to outperform many international peers, and continues to be one of the best performing steel producers globally, due to a number of factors:
• Leading market position in a high growth market.
• Modern technology and operational flexibility allow swift response to changing market dynamics.
• Strong financial position and continued access to funding.
• Reiterated commitment to its growth plans.