Emirates Steel Arkan swings to Q2 profit on higher sales and rising commodity prices

Company’s revenue grew more than 13 times annually to $700m in the second quarter

Emirates Steel Arkan's plant in Mussaffah. The company was formed after the merger of Emirates Steel and Arkan Building Materials last year. Photo: Emirates Steel Arkan

Emirates Steel Arkan, the largest public steel and building materials company in the UAE, swung to a profit in the second quarter on rising sales volumes and commodity prices.

The company, formed after the merger of Emirates Steel and Arkan Building Materials last year, posted a net profit of Dh207.27 million ($56.43m) in the three-month period ended June, compared with a loss of Dh24.46m during the same quarter last year, it said in a statement on Tuesday to the Abu Dhabi Securities Exchange, where its shares are traded.

It attributed the results to higher sales volumes and elevated prices, enhanced operational efficiency and a supportive commodity market environment.

“Ever since our merger last year, the group has been reporting strong revenue and profit growth in all three quarters,” group chief executive Saeed Alremeithi told the National.

“Clearly, operational efficiencies resulting from the merger and high commodity prices have helped.”

In the second quarter, the company's revenue rose more than 13 times to Dh2.57 billion ($700.20m). Assets stood at Dh12.17bn at the end of June, up about 1 per cent from the end of December.

“During the second quarter, the management continued the integration of Arkan and Emirates Steel, creating increased opportunities for growth and employment,” said chairman Hamad Alhammadi.

“The group is also actively supporting Operation 300bn, the UAE’s industrial strategy, which will enhance prospects for new business.”

The company’s net profit for the first six months of 2022 increased to Dh279.86m, compared with a pre-merger loss of Dh23.24m in the first half of 2021, while revenue rose to Dh4.61bn, from Dh418m, during the period.

“During the first half of 2022, the group enhanced the efficiency of its plants [and] that brought about significant cost savings,” Mr Alremeithi said.

“We have in place a process of prudent raw materials inventory management and keep finished product volumes at low levels to take advantage of and manage the risks associated with increasing price volatility.”

During the first six months of the year, Emirates Steel Arkan significantly reduced its debt burden by bringing down the net debt-to-equity ratio to 21 per cent at the end of June, from 32 per cent at the end of December.

The company also managed to reduce its debt burden by about Dh700m during the first half of the year.

“Profitable trading income, very tight working capital control and inventory management helped us to achieve significant cost efficiencies to reduce our debt ratio,” chief financial officer Stephen Pope told the National.

Despite the global economic uncertainty amid China’s Covid-19 resurgence, high inflation and elevated energy prices, Emirates Steel Arkan forecasts a stronger outlook for sales and profitability, both in the region and in the more than 60 export markets where it sells its products.

“To expand the company’s customer base and product reach to more markets, we are undertaking product diversification to suit demand dynamics,” Mr Alremeithi said.

“We are expanding our sheet pile range, including the development of a range of U-shape piles, widely used in the construction industry,” he said.

Work on the new U-shape range began during the second quarter and it is expected to be brought to market in early 2023.

Emirates Steel Arkan also plans to launch the ES600, a high-tensile steel rebar, in the second half of the year, which will support customers’ efforts to become more environmentally friendly.

The lightweight ES600 will also help to reduce the company's carbon footprint from steel production, it said.