Emirates Steel Arkan, the UAE's largest public steel and building materials business, reported an increase in its first-half net profit on the back of lower expenses and a rise in other income.
Net profit for the six months to the end of June climbed to Dh280.5 million ($76.3 million), from Dh279.9 million in the same period last year, the company said in a statement on Tuesday to the Abu Dhabi Securities Exchange, where its shares are traded.
Selling and distribution expenses for the period dropped 11 per cent to Dh25.2 million. General and administrative expenses also slid about 9 per cent to Dh158 million.
Other income in the first six months of the year surged to Dh3.1 million, from Dh507,000 in the same period last year.
Revenue, meanwhile, decreased about 4 per cent annually to Dh4.4 billion.
“Emirate Steel Arkan’s overall performance continued to be strong in the first six months of 2023 with healthy profits in line with our expectations, further demonstrating our agility and resilience despite volatile market conditions,” group chief executive Saeed Al Remeithi said.
“This performance was delivered by focusing on higher-value-added products with improved margins and enhanced efficiencies. Better capital control and targeted capital expenditure has also strengthened our balance sheet to support our ability to drive our growth strategy forward.”
Formed after the merger of Emirates Steel and Arkan Building Materials in 2021, Emirates Steel Arkan is majority owned by Abu Dhabi holding company ADQ.
It supplies products to the manufacturing and construction sectors in the UAE and more than 70 other markets.
Emirates Steel Arkan's first-half revenue from the steel division totalled Dh3.95 billion and profit from the division amounted to Dh224.8 million.
Revenue from the building materials division for the period rose 9 per cent year-on-year to Dh475.8 million and the profit jumped 180 per cent to Dh56 million, primarily driven by the growth in the UAE construction sector.
The group's earnings before interest, taxes, depreciation and amortisation rose 3 per cent annually to Dh612 million, Emirates Steel Arkan said.
The company's second-quarter profit declined 38 per cent annually to Dh128.3 million on the back of lower revenue as steel production during the period decreased due to operational reasons.
“There was nothing fundamental … it was really operational in terms of the planning of our annual shutdown procedures, which we do in the summer to reduce electricity costs and so forth,” Stephen Pope, chief financial officer, told The National.
The company's second-half performance, in terms of revenue and profit, is expected to “be very much in line with the first half,” as the domestic market remains strong, Mr Pope said.
UAE's construction sector continues to perform well amid a rise in real estate prices boosting demand for steel locally as new projects get started.
The company's steel production capacity is about 3.5 million tonnes per annum with 45 per cent of it being exported to international markets including in Europe, the Americas and Asia with the rest catering to the domestic market.
The company has reduced its borrowings by over a billion dirhams in 2022 and by a further Dh450 million in the first half of 2023, he said.
“We've really deleveraged the company. The reasons for that … obviously we are facing significant increases in interest charges, so get the debt off the balance sheet and reduce our finance costs.”
“The other is clearly that we are preparing our balance sheet to get us through troubled times, but more importantly, so we can raise finance for our expansion plans, the major one being the joint venture that we are developing with our Japanese friends.”
Last month, Emirates Steel Arkan and AD Ports Group, the operator of industrial cities and free zones in Abu Dhabi, have signed a non-binding initial agreement with Japanese firms to establish a low-carbon iron supply complex in Abu Dhabi.
The company has pledged to reduce its carbon emissions by 40 per cent by 2030 and achieve net-zero emissions by 2050, in line with the UAE’s reduction targets and its goals for exporting low-carbon steel.
When asked about media reports on potential investment in Germany’s Thyssenkrupp’s steel unit, Mr Al Remeithi said they “are looking to all opportunities on the horizon, whether it's local or international, that support our growth strategy”.
“I think one important point … a lot of companies are approaching us and leveraging our decarbonisation levels … being one of the lower … being in a leading position, I would say as a company in terms of carbon dioxide emissions compared with others.”
“For example, today we are a company less by 45 per cent of carbon dioxide emissions intensity if we compare this with the world average of steel producers,” he said.