Al Ezz Steel Rebars reports consolidated H1 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:

"The Egyptian market remained strong during the first half of 2009 and although domestic prices have declined in line with international prices, we continued to enjoy a sustained level of demand for our products."

Mr Chekaiban added, "Despite the cyclical nature of the steel industry, our flexible business model has enabled us to position ourselves as one of the best performers throughout the cycle. Even during industry downturns, such as over the last half year, this flexible model has allowed us to operate profitably, unlike the majority of our peers."

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 half of 2009 were LE6.4bn compared with LE11.1bn during the first half of 2008, representing a decline of 42%. 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 1,578 thousand tonnes during the first half of 2009, which represents a 2% increase over the 1,546 thousand tonnes sold during the same period in 2008. Flat steel volumes on the other hand witnessed a sharp decline from 940 thousand tonnes in the first half of 2008 to 523 thousand tonnes in the first half of 2009. This was due to the shutdown of the EFS production facility, with any residual demand met by production at EZDK, which increased by 10% to 492 thousand tonnes.

Long steel products accounted for 78% of total sales in the first half of 2009, while flat steel products represented 22% of sales. Long product exports accounted for less than 1% of total long sales, due to the continued strength of the domestic market demand for long products. Flat product exports accounted for 54% of total flat sales.

Long steel production volume reached 1,688 thousand tonnes during the first half of 2009 representing a 10% increase over the 1,533 thousand tonnes produced during the same period in 2008. Flat steel production volumes on the other hand were 45% lower at 470 thousand tonnes in the first half of 2009 when our EFS production facility was shutdown.

On a plant basis, ESR/ESM long steel production rose by 12% during the half, while EZDK long production was up by nine percent over the same period. Flat production at EZDK was up 18% in the first half of 2009, as production was increased to supply demand from EFS customers while EFS remained closed.

The contributions of ESR/ESM, EZDK and EFS to net sales for the period ending 30 June 2009 were 32%, 67%, and 1% respectively.

Ezzsteel's exposure to the weaker 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 half ended 30 June 2009 represented 89% of sales, compared to 75% in the first half of 2008. This figure was largely impacted by the shutdown in production at EFS during the half and the proportionally higher costs at EZDK.

- Gross profit

Gross profit of LE731m was recorded in H1 2009, a 73% decline from the LE2.7bn recorded in the first half of 2008. Lower profits were largely a result of production curtailment at EFS, and lower global steel pricing, as well as the continued weakness in the flat steel market.

- EBITDA

EBITDA for the period reached LE838m, down from LE2.7bn for the same period in 2008 representing a decrease of 69%.

- Net profit after tax and minority interests

For the six months to 30 June 2009, net profit after tax and minority interests was LE101m, down from LE1.0bn in the first half of 2008.

- Liquidity and capital resources

At the end of the period, Ezzsteel had cash on hand of LE2.4bn and net debt of LE5.4bn. The company has a conservative level of gearing of Net Debt / Equity of 0.88 times.

- Outlook

Ezzsteel remains confident about the continued strength of the Egyptian market, which has remained largely unaffected by the global economic slowdown. Long product demand is expected to continue to be strong, due to the private housing market and local real-estate activity. Conditions in the global flat steel market had been very weak since the last quarter of 2008, but we are starting to see some signals that there is a pickup in the market of flat steel, evidenced by the increase in flat product prices.

We continue to believe that our key competitive advantage lies in our flexibility and our product and market diversification; this is why our current expansion efforts are focused on vertical integration through:

- Adding a billet caster at our flat steel production facility in Suez (EFS) to enable the site to become flexible in producing either flat steel or semi-finished long products at times when the flat steel market is in a low cycle. Construction of the billet caster has already begun and it is expected to be in production during the first quarter of 2010.

- Adding a 1.8 million tonne per year DRI production facility to be located in Suez in order to further increase our level of backward integration and decrease our production costs, replicating our EZDK model at our other production facilities. Construction of the DRI facility has already started and it is expected to be in production during the 2nd half of 2011.