Gulf News - Abu Dhabi’s Emirates Steel Arkan makes full use of 2021’s merger dynamics

Vijay Valecha, Special to Gulf News November 13, 2022

Abu Dhabi’s leading steel manufacturer Emirates Steel and Arkan Building Materials Company completed their merger in October 2021, and thus embarked on the start of an upward trajectory.

During the pandemic, the construction industry faced many headwinds due to global supply chain disruptions. Yet, the GCC construction sector remained resilient and experienced a pickup in activity driven by government-funded infrastructure projects. In addition, the merger helped unlock value in the form of a diversified revenue stream, cost control and an increase in operational efficiencies.

The group delivers a range of products to various industries, including construction, energy, and transportation. Its finished products are shipped to more than 70 markets and used in maritime engineering, construction of skyscrapers, and infrastructure projects in markets such as the US.

The financial performance for the nine months ended September 30 validates the strategic alliance. The company has a market cap of Dh12.3 billion and investors have seen the stock appreciate 26 per cent year-to-date.

Solid on financials

For the nine months, revenue surged to Dh7.12 billion, with 95 per cent generated from the manufacture and distribution of long steel products, boosted by strong sales into Europe and the Americas and an increased volume of orders from inside the UAE.

The group was able to overcome any sourcing issues through alternate lines of supply, and mitigate commodity cost increases through higher average sales prices. This enabled the company to generate a net income of Dh383.15 million for the nine months. The resulting basic earnings per share from continuing operations was Dh0.056.

The balance sheet improved considerably through a fall in borrowings from Dh2.35 billion to Dh1.84 billion. Additionally, tight working capital control and inventory management contributed to significant cost efficiencies that reduced the debt ratio. The company’s sizeable cash reserve is bound to aid in planning for further growth opportunities. At present, it doesn’t pay dividends, which essentially means that all its profits are to be reinvested.

Expansion with green hydrogen

Emirates Steel Arkan recently announced a partnership with Japan’s Itochu Corp. to study the feasibility of a ferrous raw material production facility in Abu Dhabi. The material would first be created using a decarbonised method that would reduce the iron ore by using natural gas, while also including provisions for using renewable energy power sources and green hydrogen for the reduction process.

Moreover, the group signed a prelim agreement with Abu Dhabi National Energy Co. (TAQA) for supply of green hydrogen to produce low-carbon steel. These opportunities are right on the nose as the UAE government aims to become carbon neutral by 2050, with new investments worth Dh600 billion projected in clean and renewable energy sources over the next three decades.