Steel products inside a SMC Trading Investment JSC's warehouse. (Photo: smc.vn) Thefirst two steel companies have announced their financial statements for thefourth quarter of 2021, showing less-than-positive results.
SMCTrading Investment JSC (SMC) said that in the last quarter of 2021, the companyrecorded a net revenue increase of 37.3 percent on-year to 6.1 trillion VND (271.5million USD), but profit after tax fell 78.7 percent to 34.07 billion VND.Notably, the gross profit margin decreased from 7.6 percent to only 2.1 percent.
In2021, the company’s net revenue edged up 35.4 percent to 21.3 trillion VND,with profit after tax up by 184.9 percent to 903.06 billion VND.
Inthe first six months of 2021, when steel prices rose sharply, SMC reported agross profit margin of 10.2 percent, much higher than in the fourth quarter of2021.
Meanwhile,in its fourth-quarter results of 2021, Thai Nguyen Iron and Steel JSC (TIS)showed that its net revenue rose 34.1 percent year-on-year to 3.2 trillion VNDwith profits after tax at 9.63 billion VND, after posting a loss of 6.74 billionVND in the same period of 2020.
However,its gross profit margin dropped sharply from 6.1 percent to negative 0.4 percent,causing the company to do business below cost in the fourth quarter of 2021.The company only escaped losses thanks to a significant decrease in financialexpenses.
In2021, TIS recorded an increase of 26.1 percent in net revenue to 12.1 trillionVND, with profit after tax up over 16.5 times to 122.67 billion VND.
Inthe first half of 2021, TIS's gross profit margin increased to 9.4 percentthanks to higher global steel prices.
Bothcompanies had increased their inventories in 2021, the financial reportsshowed, but they started to make provision for devaluation in inventory in thefourth quarter as steel prices cooled down.
Accordingly,in 2021, SMC has made provision for devaluation in inventory of 112.93 billionVND compared to only 1.1 billion VND at the beginning of the year. Of which,the company noted to make provision of 47.16 billion VND for raw materials; 42.8billion VND for finished products inventory; and 23 billion VND for goods.
AtTIS, the company just made provision of 7.68 billion VND for inventory comparedto zero VND at the beginning of the year. The company did not explain in detailthe provision for these items. However, it is most likely because of rawmaterials and finished products related to the inventory at the beginning ofthe year.
Inthe international market, steel prices have reversed the uptrend since May.From May 7, 2021 to January 21, global steel prices decreased by 20.6 percentfrom 5,740 yuan per tonne to 4,560 yuan per tonne. If steel prices continue toremain at the current level or fall lower, this will negatively affectbusinesses in the steel sector that have carried out rising inventorystrategies, especially commercial enterprises.
Steelcompanies all increased inventories in the first nine months of 2021. In termsof value, Hoa Sen Group (HSG)’s inventory increased by 6.8 trillion VND, NamKim Group (NKG) rose by 4.8 trillion VND in inventory and SMC increased 1.7billion VND in inventory.
Stockinginventory amid the volatility of raw material prices is a double-edgedsword. If the price of raw materials and goods increases, enterprises' profitmargins improve, leading to higher profits for the company. However, if therally cycle is over, prices of raw materials and goodsreverse then businesses must raise the provision for devaluation ininventory, lowing companies' profit margins.
During2016-2017, steel companies benefited from higher steel prices, resulting in asharp rise in profits. However, as prices plummeted in 2018-2019, a series ofsteel producers announced sharp drops in business resultsand entered a prolonged restructuring period./.
VNA
