Al Ezz Steel Rebars reports consolidated Q1 2009 results

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

Commenting on the results, Mr Paul Chekaiban, Managing Director of Ezzsteel, said:

"Unlike many of its peers in the steel industry, Ezzsteel was able to operate profitably during the first quarter of 2009."

Chekaiban added, "Although the financial performance has been heavily impacted by the fall in steel prices and the weakness of the export markets, we continued to enjoy sustained demand on our steel products in the domestic market."

He added, "Ezzsteel remains committed to pursuing its growth strategy in order to further enhance its solid position in the steel industry."

Operational Review:

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

- Sales & Production:

Consolidated net sales for the first quarter of 2009 were LE3.4bn compared with LE5.0bn during the first quarter of 2008, representing a decline of 33%. This lower level of sales has resulted from lower steel prices, the prevailing weakness in the flat steel market and the shutdown at EFS.

Long steel sales volume reached 847 thousand tonnes during the first quarter of 2009, which represents an 8% increase over the 782 thousand tonnes sold during the same period in 2008. Flat steel volumes on the other hand witnessed a sharp decline from 503 thousand tonnes in the first quarter of 2008 to 209 thousand tonnes in the first quarter of 2009. This was mainly due to the shutdown of the EFS production facility.

Long steel products accounted for 81% of total sales in the first quarter of 2009, in comparison to 60% for the first quarter of 2008, while flat steel products represented 18% of sales in the first quarter of 2009. Long product exports accounted for less than one per cent of total long sales, due to the continued strength of the domestic market demand for long products.

Long steel production volume reached 835 thousand tonnes during the first quarter of 2009 representing an 8% increase over the 775 thousand tonnes produced during the same period in 2008. Flat steel production volumes on the other hand were 55% lower at 207 thousand tonnes in the first quarter of 2009.

On a plant basis, ESR/ESM long steel production rose by 17% during the quarter, while EZDK long production was up by two percent over the same period. Flat production at EZDK was down 11% in the first quarter of 2009, as a result of the prevailing weakness in the flat steel market. Given this weakness in the flat steel market production at EFS remained shutdown during the quarter.

The contributions of ESR/ESM, EZDK and EFS to net sales for the period ending 31 March 2009 were 34%, 65%, and 0.3% respectively.

Ezzsteel's exposure to the global steel market is primarily through its flat steel products, with long steel products primarily directed to serving the buoyant domestic market.

- Cost of Goods Sold:

Consolidated cost of goods sold for the quarter ended 31 March 2009 represented 90% of sales, compared to 74% in the first quarter of 2008. This figure was largely impacted by the proportionally higher costs at EZDK and the shutdown in production at EFS during the quarter.

- Gross profit:

Gross profit of LE324m was recorded in Q1 2009, a 75% decline from the LE1.3bn recorded in the first quarter of 2008. Lower profits were largely a result of some margin compression resulting from lower global steel pricing since the last quarter of 2008, as well as the continued weakness in the flat steel market, and production curtailment.

- EBITDA:

EBITDA for the period reached LE378m, down from LE1.3bn for the same period in 2008 representing a decrease of 72%.

- Net profit after tax and minority interests:

For the three months to 31 March 2009, net profit after tax and minority interests was LE66m, down from LE436m in the first quarter of 2008.

- Liquidity and capital resources:

At the end of the period, Ezzsteel had cash on hand of LE2.5bn and net debt of LE4.3bn. The company has a conservative level of gearing of Net Debt / Equity of 0.70 times.

- Outlook:

Ezzsteel remains confident about the continued strength of the Egyptian market. The structural elements of the Egyptian economy continue to remain solid and long product demand is expected to remain on track for the rest of 2009 owing to the resilience of the private housing market and real estate projects and the impetus from the infrastructure schemes.

Conditions remain weak in the global flat steel market and as a result production at EFS is not expected to resume in the first half of 2009.

While conditions in the global steel industry remain very challenging for most participants, ezzsteel remains well positioned and committed to its growth strategy.