CAIRO: In the heat of escalating steel prices and their resonance on the housing market, this week saw steel giant Ahmed Ezz and real estate developer Hisham Talaat Moustafa exchanging accusations over each other’s annual financial results.
According to local press, Al Ezz Steel Rebars posted financial statements that placed Talaat Moustafa Group’s (TMG) annual sales revenues at 70.9 percent, whereas Al Ezz Steel Rebars only recorded 14.6 percent in net revenues.
Al Ezz officials justified posting these results by saying they were proof that recent upsurges in property prices can be attributed to more than increases in steel prices. Company officials were quoted as saying that the cost of steel constituted only 13.5 percent of one square meter of a property, implying that real estate developers were the reason behind skyrocketing housing units.
Early this week, TMG Chairman Hisham Talaat Moustafa sent a warning letter to Al Ezz Steel Rebars accusing it of posting false information that could cost his company heavy financial losses. Moustafa also reportedly cited articles 63 and 64 of the Capital Market Decree, which stipulate a five-year prison sentence for anyone who spreads wrong information about a publicly traded company.
Egypt’s real estate conglomerate clarified that the company’s sales revenues only amounted to 14.2 percent – not 70.9 percent as stated in Al Ezz Steel’s data.
Moustafa, who is also chairman of the General Section of Real Estate Investment (GSREI), said in March that the GSREI would not overlook escalating prices in steel and cement, which “eventually affect not only the building and construction industries, but also domestic economy and society in general.
Experts put costs of building a square meter of “low-cost housing units today at an average of LE 1,300, compared to LE 1,000 in December.
According to HC Securities, construction costs in Egypt have surged 27 percent since January pressured by continued hikes in raw material prices, namely steel rebar and cement.
Steel currently sells at record highs of more than LE 5,500-6,000 per ton, up from LE 3,900 last December, while cement sells at around LE 420-500 per ton, up from last December’s LE 380 per ton.
Al Ezz Steel Rebars raised April 1 its local ex-factory selling price of rebar steel to LE 5,080 per ton ($920), including sales tax, versus the most recent price of LE 4,600 per ton. These increases mirror a continuing rise in global average prices, which were $800 per ton in February and are now around $900 per ton.
This is the company’s third price increase since the beginning of the year. The company, which controls a solid 65 percent of the market, has been steadily raising prices since October.
On more than one occasion, Moustafa accused steel and cement producers of unjustifiable raising prices, which adversely affected the country’s housing sector.
“Rising prices of construction material presents a predicament in Egypt, he said recently. “Within the last year and a half only, apartment prices have soared 80 percent [due to rising costs of steel and cement].
“Steel [producers] play the game very well. They say it’s due to rises in international prices, he continued. “These producers [benefit from] subsidized energy, cheap labor, and cheap land compared to international prices, but at the end of the day, they sell at international prices. They have to respect the purchasing power of Egyptians. They can’t put prices at the same levels with the US or Europe.
Despite ongoing steel and cement hikes, experts confirm that real estate developers also achieve high profit margins. “Dwellings average price per square meter reach levels as high as LE 8,000, stated HC Securities.
While both market players continue to point fingers at one another, their recent corporate results indicate that both companies are moving into the black.
TMG recently posted LE 1.32 billion ($237.4 million) net income in 2007, displaying 70.9 percent in net profit margin.
“The [firm’s] capital and revaluations gains reached LE 561.1 million and LE 512.1 million, respectively (a combined value of LE 1.1 billion) in FY07, boosting the company’s bottom line, HC Securities said in its recent report on TMG’s financial results.
The report also puts the group’s consolidated revenues at LE 1.86 billion and gross profit at LE 850.2 million, which means that gross profit was 45.5 percent up in 2007.
TMG said April 2 that it sold real estate units worth a total of LE 3.2 billion ($587 million) in the first quarter of 2008, about 130 percent up on the same period of 2007. The first-quarter sales mean that the company can achieve its full-year sales target of LE 12.5 billion, the company said in a press statement.
In contrast, Al Ezz Steel Rebars sales revenues hit around LE 16.3 billion in 2007, up from LE 11.6 billion in 2006, which places sales growth rate at 40.1 percent. The company’s net income soared LE 1.2 billion in 2007, versus LE 995 million in 2006. Operating profit rose LE 3.87 billion in 2007, up from LE 3 billion in 2006.
