Emirates Steel Arkan posts fourth-quarter net profit of $34m on higher sales

Strong international demand and cost-efficiency programmes drove profitability, company says

An Emirates Steel Arkan plant in Mussaffah. The UAE's largest public steel and building materials company swung to a profit last year. Antonie Robertson / The National

Emirates Steel Arkan, the largest public steel and building materials business in the UAE, reported a significant rise in its fourth-quarter net profit as cost efficiencies and higher sales drove income.

Net income for the three months to the end of December reached Dh125 million ($34 million), compared with an impairment charge-driven loss of Dh518 million in the same period in 2021, the company said in a statement on Monday to the Abu Dhabi Securities Exchange, where its shares are traded.

Revenue stood at Dh2.3 billion, slightly lower than the Dh2.4 billion reported in the same quarter in 2021.

The company, formed after the merger of Emirates Steel and Arkan Building Materials in 2021, also reported that full-year net profit for 2022 rose to Dh508.45 million.

That compares with a pre-merger performa loss [non recurring losses, costs and expenditures such as restructuring costs] of Dh6.36 billion in 2021, Emirates Steel Arkan said in a filing on Monday to the Abu Dhabi Securities Exchange, where its shares are traded.

Revenue for the 12 months ended December rose 10 per cent to Dh9.5 billion in 2022, from Dh8.6 billion in the previous year.

“We were able to deliver a strong financial performance for the full year [in] 2022 despite the transformation we have been going through following the merger,” group chief executive Saeed Al Remeithi told The National.

“Despite [it] being a bumpy year, in terms of global economic headwinds and the lingering impact of Covid-19 pandemic on many economies, we have been able to report strong revenues and profits.”

The group’s full-year earnings before interest, taxes, depreciation and amortisation rose 51 per cent to Dh1.16 billion.

The company attributed the turnaround in profit to strong international demand and the steps taken by the group to enhance operational efficiencies following the merger.

“The first full-year results of the group clearly demonstrate the value of combining Emirates Steel and Arkan, which has created a UAE steel and building materials champion that is globally competitive,” chairman Hamad Al Hammadi said.

“Despite the global economic headwinds, the increasing reach of our products is testament to consumers’ trust and preference for ‘Made in UAE’ products.”

The company's Namaa cost reduction and transformation programme, launched in 2021, contributed about Dh400 million to the group’s ebitda, the company said.

Chief financial officer Stephen Pope said tight working capital control and inventory management helped the company to achieve “significant cost efficiencies” to reduce its debt ratio.

“We have been going through very uncertain times. Thus, it was important for us to keep a tight check on inventories to reduce pricing risks. We are operating in challenging times, in terms of credit risks from our customers. So, tight controls on receivables are important to us,” he said.

Due to “increased profitability and strict working capital controls”, Emirates Steel Arkan's net bank borrowings fell 52 per cent to Dh1.1 billion as of December 31, 2022.

Despite global economic headwinds, the company is confident of robust expansion in sales and revenue during the current year.

The group grew its international export footprint by 25 per cent to 70 countries last year, from 56 in 2021.

“Most of the global markets where we export have big scope for further expansion,” said Mr Al Remeithi.

“In addition, the UAE, GCC and the wider Middle East economies are growing at a rapid pace. Despite a forecast of [a] slowdown in many global markets, the GCC’s outlook remains robust and that should drive our sales and revenue growth in the current year.”

To expand its customer base and product reach to more markets, Emirates Steel Arkan is diversifying its products to suit demand dynamics, he said.

The company is expanding its sheet pile range, including the development of a range of U-shape piles that are widely used in the construction industry.

We have been going through very uncertain times. Thus, it was important for us to keep a tight check on inventories to reduce pricing risks

Emirates Steel Arkan's chief financial officer Stephen Pope

It is also studying options for the production of flat steel as part of its strategy to diversify its client base and increase the number of its manufacturing industry customers.

During the third quarter of last year, the group entered into a partnership with Itochu Corporation and JFE Steel Corporation to study the construction of a ferrous raw material production plant in Abu Dhabi.

“In 2022, we were focused on expanding our export market footprint and adding more value-added products to our portfolio. Clearly, there has been strong growth in demand for low-carbon steel from our key export markets,” he said.

The company is developing environmentally friendly steel and increasing the use of scrap in its plants as part of efforts to make its products attractive to “environmentally sensitive customers”.

“The group is working closely with our advisers to ensure its net-zero plan is fully aligned to the UAE’s carbon-reduction targets and our targets for exporting low-carbon steel,” Mr Al Remeithi said.

The UAE aims to become carbon neutral by 2050 with new investments worth Dh600 billion planned in clean and renewable energy sources over the next three decades.

UAE companies are taking steps to reduce emissions in line with the national strategy.