Ezz Steel full-year net profit pulled down by costs

Egypt's Ezz Steel Co reported a 53 percent drop in full-year 2010 net profit on Tuesday after surging costs outweighed higher selling prices.

Net profit was LE116.08 million (US$19.5 million) versus LE249.56 million in 2009. Net sales grew 40 percent but cost of sales rose by 46 percent, causing operating profit to tumble 61 percent, according to a company statement.

Analyst Omar Taha at investment bank Beltone said the lower profit was to be expected – the company's operating margins were squeezed all year – but the standalone results did not include earnings from its high-performing unit Ezz Dekhaila.

"Last year saw prices continue to rebound but growth in raw material prices outpaced that increase," said Taha. "These results are not indicative of the group… Including Ezz Dekhaila, we expect an increase in 2010 net profit."

The results predate turmoil that engulfed Ezz Steel when a popular uprising unseated President Hosni Mubarak in February and sparked a series of corruption investigations targeting Mubarak's business allies, including company founder Ahmed Ezz.

The company has parted ways with Ezz as he fights graft charges from prison, and has replaced him with managing director Paul Chekaiban.

Ahmed Ezz, who was a top official in Mubarak's now disbanded party, is accused of illegally monopolizing Egypt's steel market and squandering public funds.

He said in a letter sent to media from jail that the charges against him were unfounded and a fair trial would prove his innocence.

Ezz's shares have lost half of their value this year.

Analysts have said the corruption probe has deflected investor attention from what remains a positive business outlook for the top player in one of Egypt's most vital industries.

The company showed sharp improvements in its results in the first three quarters of 2010 as it raised prices to recoup higher raw material costs and changed its pricing model in line with top global producers Vale and BHP-Billiton.

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