EZZSTEEL Strategic Audit

Presented to: Dr. Saneya El-Galaly

Prepared by:
Mohamed Abdel-Kader El-Zanaty
Mohamed Ahmed Gaafer
Mohamed Abdel-Raouf Kenawy

OCT. 2018
INTRODUCTION

Ezzsteel is the largest independent steel producer in the Middle East and North Africa,
exporting high-quality steel products to many countries on four continents around the world. It
is becoming firmly established as a global player in the steel industry, and leads the way by
adopting the most advanced steelmaking technology.

The company’s state-of-the-art plants, strategically located close to major road links and
international ports, produce 5.8 million tons of flat steel, rebar and wire rod in a wide range of
grades to meet many challenging international standards and customer specifications.

The Ezzsteel brand is synonymous with quality. High-grade raw materials, highly automated
processes and continuous monitoring deliver steel quality that is second to none.

A skilled and dedicated workforce of more than 8,000 people puts the ezzsteel stamp of
quality on every product. A spirit of excellence and continuous improvement pervades the
Ezzsteel culture, embodied by its founder and president Mr Ahmed Ezz and upheld by the
company’s exceptionally trained and highly motivated professionals.

Expansion and development never cease at Ezzsteel. Investments of more than $4 billion in
the latest technology have ensured that the quality and accuracy of the company’s products is
continuously refined and improved, along with the environmental performance of its plants.

Ezzsteel’s new Direct Reduced Iron (DRI) mega module at Ain Sokhna is a significant
investment in vertical integration, and further strengthens the company’s position in the steel
industry. Such an investment in upstream operations increases the efficiency of ezzsteel and
consequently enhances its competitiveness, both regionally and internationally. With this
addition, ezzsteel has become the second largest DRI producer worldwide, with a capacity of
5.1 million tons per year.

EZZ STEEL Page 1

History

Corporate Information

Ezzsteel is the largest independent producer of steel in the MENA region and is the market
leader in Egypt. The company produces long and flat products at its manufacturing facilities
strategically located in the port cities of Alexandria and Suez and in the Egyptian interior at
Sadat City and 10th of Ramadan City and sells them to customers around the world.

Ezzsteel is the market leader in Egypt for long products, which consist principally of rebars
and wire rods, which are used for strengthening concrete in building and other construction
applications, and also in flat products, which consist of hot rolled coil, which are thin gauge
sheets manufactured to precise specification for makers of consumer goods and industrial
products.

Ezzsteel total production capacity is 5.8 million tons of finished steel per annum,, divided into
the two main products of steel namely, long products with a capacity of 3.5 million tons and
flat products with a capacity of 2.3 million tons.

Company Production capacity

Owns a factory for the production and production of pallet with a
capacity of about 850 thousand tons per year, in addition to rolling steps
Ezz Steel Company
with a total production capacity of about one million tons of iron
annually
It has 3 production lines for the production of DRI with 3.2 million tons
El Ezz Company
annually, in addition to 4 smelting furnaces and three rolling lines with
For Exchanges &
an annual production capacity of 2 million tons of reinforcing steel and 1
Steel
million tons of flat steel.
It has a production capacity of about 1.95 million tons per year. It also
owns a production line with a total production capacity of 500 thousand
Al - Ezz Factories
tons per year, in addition to a small factory for the production of
Company
reinforcing steel nets with a production capacity of about 20 thousand
tons annually.
The company has a factory consisting of a smelting furnace, a flat steel
El Ezz For Flat production line and two pipes for rolling the pellet. The production
Steel capacity of the company's factory is 1.1 million tons of the production of
Manufacturing the complex (which is directed to the production of pellet and / or flat
steel).
Factories and production capacity

EZZ STEEL Page 2

Geographical distribution of the Group companies on the land of Egypt

Geographical distrib ution of the Group companies in Egypt

Ownership structure

The Group of Four companies has the following statement:

1) Ezz Steel Company ESR - El Ezz for the steel industry previously - (the parent company is
owned by the industrial group Ezz by about 66%).
2) Ezz Dekheila Steel Company - Alexandria EZDK (owned by ESR 55%).
3) Al-Ezz Factories for Shuttering ERM (owned by ESR by 99%).
4) El Ezz for flat steel industry EFS is owned by EZDK 55% owned by ESR by 34% to
become the direct and indirect subsidiary of the company 89%

EZZ STEEL Page 3

Ezz Steel Company (El Ezz for Steel Industry)
(EGX 30) was established in 1994 and started production in 1995. Ezz Industrial Group holds about
66% of its capital and the rest to other shareholders through the public subscription (thousands of
shareholders). It is considered the parent company It owns a factory in Sadat City on an area of 400
thousand square meters. The factory consists of a furnace (electric arc furnace) with an annual
capacity of 850 thousand tons of steel boxes (Bilt), which enables the company to produce rebar
according to For all international specifications in addition to two rolling lines with annual capacity
of 1.06 million tons of limit Arm arm lengths anchored in different diameters.

El Ezz El Dekheila Steel Company Alexandria EZDK

Listed in 1982 on an area of 2.5 million square meters in front of Dekheila port in Alexandria, the
company started production in 1986. The company's production volume increased from 745 thousand
tons in mid-1988. To about 2.9 million tons in 2010 through three units for the production of reduced
iron and 3 furnaces and crucible and electric furnace, 4 units of rolling ash and wires and 4 units of
rolling coils and 3 units of continuous casting, and the company produces iron and rebar (Coils and
lengths).

Flat steel and the company is considered the best model in Egypt and the Middle East for the
production of iron and steel as well as being the largest industrial company in Egypt has increased
ownership of the total of Ezz to reach about 55% and does not need the company currently to add any
production processes where the company's current efforts are focused on maximizing production
capacity and reduce costs Production is greatly improved and added in production lines.

Al-Ezz Co. For Shutters ERM

Owned by Ezz Steel Company (99%), which in 1995 acquired its shares from Al Baraka Steel
Company, then "Sheikh / Saleh Kamal" and owns a factory in 10th of Ramadan city with an area of
about 60 thousand m2 and consists of rolling line with an annual capacity of 500 Thousand tons of
reinforcing steel, and the company has initially set up a factory with DRI technology in Suez with a
production capacity estimated at 1.95 million tons was The production is expected to begin at the end
of 2011, but due to the events of the revolution, the absence of security and political instability, the
project was suspended. Once the deal was approved again, the factory was started to complete the
work. Work from manufacture in the last quarter of 2015 and began production on 22/12/2015.

Al Ezz for Flat Steel Industry EFS

The company was established in July 1998 and started actual production in July 2004 on an area of
1.1 million m2 in the industrial area northwest of the Gulf of Suez to produce 1.2 million tons of flat
steel. The factory consists of 1.35 million tons of electric melting furnace and continuous casting unit
And a solid steel rolling line with a capacity of 1.2 million tons, in addition to a skin trans unit. The
production line is designed with the latest international technology in this field.

EZZ STEEL Page 4

VISION AND MISSION

Vision:

To maintain our position as a leading fully integrated steel producer in the region, a company
admired worldwide for its principles, people, partnerships, performance and passion for
excellence.

Mission:

• Entering new markets and expanding existing markets through continuous product
development.
• Aligning products and processes to the evolving needs of our markets, aiming to
maximize customer satisfaction.
• Maintaining strict compliance with all national and international competition standards,
guidelines and legislation.
• Building superior capabilities among our people and organizations through ongoing
learning and development programs.
• Establishing a strong commitment to efficient benchmarked manufacturing processes
and investing in the most up-to-date technology.
• Creating a culture that focuses on cost-effectiveness and adding value for customers.
• Developing distinguished associations with business, governmental and social
development partners.
• Winning the continued support of investors, customers, suppliers, employees,
governments.

EZZ STEEL Page 5

EXECUTIVE OFFICERS

Mr.Nouh was appointed Co-Managing Director

Mr. Hassan Nouh of ezzsteel in March 2014. Prior to this
Co-Managing Director appointment, he served as the General Manager
of ezzsteel from February 2005.

Mr Ibrahim was appointed the Technical

Mr. Farouk Ibrahim Corporate Officer of ezzsteel in 1994. He is the
Corporate Technical Chairman of EZDK, a position he has held since
Officer May 2011. He is also General Technical Manager
of EZDK, a position he has held since 2000

Mr. Samir Naaman Mr.Naaman was appointed the Sales Corporate

Corporate Sales Officer Officer of ezzsteel in 1999.

Mr. George Matta

Mr. Matta was appointed the Marketing
Corporate Marketing
Corporate Officer of ezzsteel in 1997
Officer

Mr. Nabil El Khatib

Mr. El Khatib was appointed the Procurement
Corporate Procurement
Corporate Officer of ezzsteel in 1994.
Officer

Board of Directors

Financial Statement Analysis

Capital

The authorized capital at 31 Dec. 2018 8 Bill LE

The Issued capital at 31 Dec. 2018 2716325 LE

Number of Shares 543265027

Share Book Value 5.00 LE

EZZ STEEL Page 6

Major Financial Indicators

- 2016 2017 Percentage change

Sales 23.189 41.742 %80+
Gross profit 2.512 4.335 %73+
EBITDA 2.404 4.420 %84+
Net profit / loss 162 (1.580 )
Earnings per share .30 ( 2.91 )
Net Debt / Equity Ratio 1.87 2.15

180
160
140
120
100
2017
80
60 2016
40
20
0
sales GP EBITDA NP EPS ND/ER

50

40

30 2016

20 2017
change
10

0
sales

100%
80% Change

60% 2017

40% 2016

20%
0%
EBITDA Net Debt / Equity Ratio

EZZ STEEL Page 7

Corporate Governance

Ezz Steel, through its business units, has established itself as a leader in the manufacture of a
comprehensive range of steel products in Egypt and an emerging seller of steel products on
international markets. The scale of production is such that Ezz Steel is a significant buyer of
raw materials, particularly within Egypt. This position of success and leadership is built on a
sound foundation of the pursuit of excellence in all aspects of our business from technical
expertise, exacting quality control, product innovation, meeting customer needs, competitive
pricing, to world class standards of corporate governance. Responsibilities of Success and
Leadership With the rewards of success and leadership go responsibilities, for Ezz Steel, for
each of its business units, and for each individual manager. We accept those responsibilities.
Our quest for excellence starts and finishes with our commitment to lawful, ethical conduct.
As we are becoming an increasingly international business we must follow a set of
internationally acceptable standards.

Industry Analysis

External Environment

Natural Physical Environment:

• A good climatic nature that allows freedom of movement and transport of goods. ( O )
• Egypt enjoys a good climatic environment with a net climate with no wind, storms or
floods that gives the industry a competitive advantage over other countries. ( O )
• High temperatures during the summer adversely affect the performance of workers. ( T)

Societal Environment

• The increase in population in Egypt plays a key role in the successive governments in
Egypt to provide adequate housing and construction of road networks, water stations
and other infrastructure works to accommodate the increase, which has a positive
impact on the flourishing of the iron and steel industry in Egypt. ( O )
• The World Bank praised the economic reforms that took place on the ground and
improved the credit rating of Egypt at the global level, which had a positive impact on
the industry. ( O )
• This industry in Egypt was affected during the past years by several economic factors,
including the unavailability of hard currency necessary to import raw materials. ( T )
• The economic decision to float the Egyptian pound on 3/11/2016 has improved the
availability of currency in the banking sector, which was reflected positively on the
management of currencies necessary to import the production of products in general,
but it also had a negative impact on the rise in prices. ( T )

EZZ STEEL Page 8

 • The presence of a large percentage of the total population in the age of young people
between 15 and 24 years, which is a good indicator of the iron and steel industry as
these ages need to marry and procreation and stability in the appropriate housing ( O )
• In the middle of 2016, the steel industry in Egypt added the latest types of
clean liquid technology production, which is the least emitting, low
consumption and saving energy. ( O )
• The iron industry is one of the industries that are negatively affected by the legislation
issued by governments, including the increase in taxes on sales and intervention in
determining the prices of products, whether increase or decrease and directing or lifting
subsidies on electricity and petroleum materials, including natural gas, which is the fuel
engine for the iron industry in general, The laws on investment, which play an
important role in encouraging investors to establish more projects. ( T )
• The imposition of temporary dumping duties on imports of Chinese, Ukrainian and
Turkish rebar by the Ministry of Commerce and Industry in early 2017, which led to a
sharp decline during the first half of 2017 of Egypt's imports of reinforcing steel. ( O )

Task Environment

• Threat of New Entrants

In order for a new competitor to enter the industry, he must first obtain a license from
the Industrial Development Authority and then find the necessary financing and
contract with one of the international expert houses specialized in the establishment of
rebar factories that need not to be financed so the risk of entering new competitors As a
result of the inability of any investor to enter this industry only the investors who
belong to them and have sufficient experience to adapt to the different circumstances
and challenges facing the industry. ( O )
• Rivalry among Existing Firms
There is competition within the industry, but the factor that reduces this risk is the
urgent market need and the increasing demand for the permanent future of the industry
as a result of several factors other than the increase in population and the expansion of
new city cities and product is indispensable and the absence of alternative.The industry
is characterized by a small number of competitors. They also feature large barriers at
the exit because they require huge fixed costs. ( T )

EZZ STEEL Page 9

 • Threat of Substitute Products or Services
There is no real alternative to the iron and steel industry so far. ( O )
• The Bargaining Power of Buyers
The industry's clients range from natural persons, construction companies, real estate
companies, government companies, and armed forces. They are strategic products that
complement the construction process. There is no substitute for this, so the bargaining
power of customers is low. ( O )
• The Bargaining Power of Suppliers
There is a strong influence on the part of the suppliers because the machines, equipment
and tools used by the activity are available abroad, and the raw material for the industry
is only available externally and has no local production. ( T )

Threat of New Entrants

• low
Rivalry among Existing Firms
• Low
Threat of Substitute Products or Services
• Low
The Bargaining Power of Buyers
• Low
The Bargaining Power of Suppliers
• High

Porters Five Forces

Comparative industry structure analysis Radar analysis for two years prediction:
Rivalry
35
30
25
20
15
threat of entry 10 substitutes
5 NOW
0
AFTER

buyers suppliers

RADAR Matrix

EZZ STEEL Page 10

Comment:

This industry is characterized by stability during this year and the years of comparison
because of the difficulty of the presence of new competitors as it is a capital-intensive industry
as well as government legislation is high and in the absence of alternatives.

EFAS

Weighted
External Factors Weight Rating
Score

Opportunities

Non existing Substitutes for steel industry .15 5 .75

Rapid urbanization & construction backlog .10 4 .40

The increase in population rate .15 4 .60

The difficulty of the entry of new competitors .10 3 .30

Threats

High energy prices .15 4 .60

governmental intervention in pricing and taxation .10 4 .60
Interest and exchange rate .15 4 .60
Strong competitors .10 3 .30
Total scores 1.00 -- 4.15

Internal Environment:
Corporate Structure
• Separated the supervision function of the Board of Directors from the business
execution function of the executive officers. This creates an environment where the
Board of Directors is able to focus on formulation of management strategies and the
oversight of business execution, while the executive officers can focus on business
execution. (S)
• The Decision Authority Regulations clearly set out the scope of matters to be decided
by the President and Representative Director. This clarifies the decision-making
process for management and the structure of responsibility, while also expediting
decision-making by rational delegation of authority. (S)

EZZ STEEL Page 11

 Corporate Culture
• Innovation, Dynamism, Team-Spirit, Integrity and Quality Focused defined ezz steel
corporate values. (S)
• Pride on our team-spirit, working together to achieve our goals. We emphasize integrity
in every aspect of our business: We perform our duties with honesty, dedication,
reliability and openness. Our decisions and actions consistently meet the highest ethical
standards; we keep our word, deliver on our promises. (S)
• Focused on quality and seeking excellence in everything we do; we continuously
challenge and improve our structures and processes. (S)

Corporate Resources

Marketing

• Strong market share and brand equity (S )

• The largest production capacity of reinforcing steel reaches 4700 thousand tons per
year. ( S )

Finance

• Cost management in view of inflation and increases in the price of fuel. ( W )

• The Group achieved an estimated loss of LE 389 million ( W )
• Low profitability margins ( W )
• High debt level compared to peers. (w)

R&D

• They invests in R&D to develop their market position (S)

Operations

• There are many expected operational risks (W)

Human Resources

• Top management secures human resources with the capabilities of good

communication with stakeholders, (S)
• Employee Stock Ownership plan (ESOP) which positively reflect on the corporate
performance.(S)
• Training programs to enhance labor skills and quality output. (S).

EZZ STEEL Page 12

IFAS

Weighted
Internal Factors Weight Rating
Score

Strengths

Strong market share and brand equity .20 5 1.00

High turnover and working capital .10 3 .30

Quality product and Powerful R&D .10 4 .40

Training programs to enhance labor skills .10 3 .30

Weaknesses

Low profitability margins .15 4 .60

Highly product cost .15 4 .60
Working locations .15 4 .60
Many expected operational risks .05 3 .15
Total scores 1.00 -- 3.95

Industry Matrix Index

Ezz steel Group Bashai Steel Group Al-Jarhi Steel Group

Key success factors Weight Rate Weighted Rate Weighted Rate Weighted
Score Score Score
Financial capabilities .15 4 .60 4 .60 3 .45
Assets .15 5 .75 4 .60 3 .45
Technology .10 4 .40 4 .40 3 .30
The nature of the
competitive advantage of
the product and product .15 5 .75 3 .45 2 .30
quality and Distribution
strategy
Linkage of technology to .15 5 .75 3 .45 2 .30
market demand
Product price .05 3 .15 4 .20 5 .25
Brand .10 5 .50 4 .40 3 .30
Geographical spread of
factories and production .05 4 .20 4 .20 3 .15
capacities
Safety .05 5 .25 5 .25 5 .25
Availability of skilled
.05 4 .20 4 .20 3 .15
labour
Total Weighted Score 1.00 4.55 3.55 2.90

EZZ STEEL Page 13

Risk Characteristics

The degree of
Characteristics Description
risk
The iron and steel industry is characterized by low operating leverage.
The bulk of the operating costs are considered to be variable costs more
Cost Structure Low than the fixed costs. The production process is highly dependent on the
raw materials and the production requirements which represent a large
proportion of the cost of the produced unit. The profitability margin of
the unit produced is almost constant
The activity is one of the activities related to the economic situation
"cyclicityity" as it thrives in periods of prosperity and shrinks in the
event of recession and this is evident through the country suffered from a
state of political and economic turmoil followed by a relative stagnation
Cyclicality High in the iron and steel industry as it linked to the contracting activity from
stagnation The country is expected to witness a state of prosperity and
economic growth in the coming period in light of the stability of the
political situation, which will encourage and push many investments
from abroad, which will be reflected mainly on all economic sectors and
is expected to increase demand for all domestic iron products Globally
Iron ore sources are found in more than one country in the world,
notably Russia, Ukraine, China, Australia, Brazil and Canada. The
Bargaining Power Group's companies are flexible in using raw materials as they can use
Medium
of Suppliers Iron Ore For the manufacture of Dry, or the use of scrap, or the use of
direct pellet, so this diversity gives the group advantage in the selection
of cheaper raw material.
As iron is a strategic and indispensable industries as well as the limited
Bargaining Power number of factories operating in the market so the risk of demand for
Low iron is low as well as the diversity of users of iron, both local and
of customers
external and therefore the risk is low depends on the company's network
of large distributors
The costs for each stage vary in the iron manufacturing stages depending
on the type (rolling, smelting, iron reduction). In addition to the high
cost of constructing iron factories, it requires experience in the
Barriers to Entry Medium manufacturing process. It depends on the skills and skills that are
difficult to learn easily. Currently there are 5 senior players in Egypt
(Ezz Group, Suez Steel, Beshay, Al Markabi and Egyptian Iron), as well
as 3 senior players in the reduction phase (Ezz Group, Suez Steel,
Bashay)
There are no alternatives to the iron product so far and therefore there
Substitutes Low are no substitutes for the associated industries, which is an indispensable
strategic commodity
The iron and steel industry has the advantage of adding all the costs to
Profitability Low the end consumer in addition to the appropriate profit margin, because
there is no alternative so far and the demand is high.
The iron industry is one of the industries that is negatively affected by
the legislation issued by the successive governments on the inputs of the
industrial tax collector, customs, electricity and petroleum products. It is
&Law also affected by the rise in the interest rates of the Central Bank. This
High
Regulations industry relies heavily on the import of iron ore and production
requirements from abroad. So they are also affected by legislation and
laws related to the banking system and its dependencies on financing
expenses and availability of hard currency necessary for importation.

EZZ STEEL Page 14

Analysis of Strategic Factors
SFAS Matrix
Weighted
Strategic Factors Weight Rating
Score

Non existing Substitutes for steel industry (O1 ) .10 5 .50

The increase in population rate ( O2 ) .10 4 .40

High energy prices ( T1 ) .15 3 .45
Interest & exchange rate ( T2 ) .15 3 .45

Strong market share and brand equity ( S1 ) .20 4 .80

Quality product and Powerful R&D ( S2 ) .05 3 .15

Low profitability margins ( W1 ) .15 3 .45

Highly product cost ( W2) .10 4 .40

Total scores 1.00 -- 3.60

SWOT Analysis

Strengths Weaknesses

Strong market share and brand equity Low profitability margins

High turnover and working capital Highly product cost
Quality product and Powerful R&D Working locations
Training programs to enhance labor skills Many expected operational risks

Opportunities Threats

Non existing Substitutes for steel industry High energy prices

Rapid urbanization & construction backlog Governmental intervention in pricing and taxation
The increase in population rate Interest and exchange rate
The difficulty of the entry of new competitors Strong competitors

EZZ STEEL Page 15

Strategic Alternatives and recommended strategy

TOWS Analysis
Strengths (S) Weaknesses (W)

Internal Factors S1 Strong market share and brand

(IFAS) equity W1 Low profitability margins
S2 High turnover and working capital W2 Highly product cost
S3 Quality product and Powerful W3 Working locations
R&D W4 Many expected operational risks
S4 Training programs to enhance
External Factors labour skills
(EFAS)

Opportunities (O) SO Strategies WO Strategies

O1 Non existing
Substitutes for steel
industry S1, O3 Competitive advantage W2, O2 Market growth
O2 Rapid urbanization & S3, O3 Market penetration W2, O3 Product development
construction backlog S3, O2 Product development W1, O3, O2 Increasing on sales
O3 The increase in S1, O2 Market growth
population rate
O4 The difficulty of the
entry of new competitors

Threats (T) ST Strategies WT Strategies

S2, T4 product development

T1 High energy prices
T2 Governmental
Intervention in pricing and
taxation
T3 Interest and exchange
rate
T4 Strong competitors
S3, T1 RESEARCING about the
green energy to overcome the high
energy prices
S2, T4 growth strategy
S1, T2 any new governmental
interventions will be faced from
our market share and we will
increase it back by our high
working capital

Strategy Formulation

Corporate Strategy

Corporate strategy is hierarchically highest strategic plan of the organization, which defines the global goals
and ways of their achieving within strategic management. Growth strategy refers to a strategy that adopt
expansion of company’s activates

EZZ STEEL Page 16

 1. Concentration:
Horizontal Growth- Horizontal integration,
Horizontal integration is the acquisition of a business operating at the same level of the value chain in
a similar or different industry. This is in contrast to vertical integration, where firms expand into
upstream or downstream activities, which are at different stages of production.

Pros cons
Good financial results and potential for high The greater the number of business
returns activities the more difficult is the total
Spreading the risk through different sectors management task
of the economy by identify industries in
which the business activity slowdown does
not coincide with the slowdown with the
slowdowns in the main business of the
company
Increase market share open new markets
Wider and better career opportunities

Vertical growth – Vertical integration

Vertical integration is a strategy where a firm acquires business operations within the same production
vertical. It can be forward or backward in nature. Vertical integration can help companies reduce costs
and improve efficiencies by decreasing transportation expenses and reducing turnaround time, among
other advantages. However, sometimes it is more effective for a company to rely on the established
expertise and economies of scale of other vendors rather than trying to become vertically integrated.

ezzsteel’s new Direct Reduced Iron (DRI) mega module at AinSokhna is a significant investment in
vertical integration, and further strengthens the company’s position in the steel industry. Such an
investment in upstream operations increases the efficiency of ezzsteel and consequently enhances its
competitiveness, both regionally and internationally. With this addition, ezzsteel has become the
second largest DRI producer worldwide, with a capacity of 5.1 million tons per year.

Pros
Decreasing costs and better competition
Increased ability to create credibility for
new products
Improve marketing or technological
intelligence
cons
Lose access to information from suppliers or
customers
Lack of experience and hence difficult to
compete Might increase cost due to extra
management cost

2. Diversification
Diversification is a risk management technique that mixes a wide variety of investments within a
portfolio. The rationale behind this technique contends that a portfolio constructed of different kinds of
investments will, on average, yield higher returns and pose a lower risk than any individual investment
found within the portfolio.

Pros cons
Diversification encourages efficient capital More control process has to be in place
allocation Limited innovation

EZZ STEEL Page 17

Business strategy
A. Competitive strategy
B. Product differentiation

It's an approach that a business takes to develop a unique product or service that customers will find
better than or in another way distinctive from products or services offered by competitors.
Differentiation strategy is a way for a business to distinguish itself from the competition. If successful,
it allows the business the opportunity to charge a premium for the good or service. Keep in mind,
however, that the business often encounters higher costs to offer the unique product or service and
thus, needs to be successful in attracting customers to cover that extra cost.

Pros cons
Customers develop brand loyalty for a Difficult to maintain uniqueness in the
product customers eye
Differentiation creates barriers to entry for Could achieve greater differentiation
other companies with focused marketing

Functional strategy
Marketing strategy, Product Development strategy
• Marketing strategy will help you identify your best customers, understand their needs and implement
the most effective marketing methods
• Brand Extension, using a successful brand name to market other products
• Give visibility into marketing plan for team members and stakeholders
R&D Strategy, product and process innovation and improvement
• Refers to innovative activities undertaken by corporations or governments in developing new services
or products, or improving existing services or products

HR Strategy,
• HR Strategy is the strategy adopted by an organization which aims at integrating an organization's
culture, its employees and system by coordinating a set of actions to get the required business goals

Recommended strategy

Recommended corporate strategy, Concentration (Horizontal integration)

• Ezz can apply this strategy by developing its products and opening new factories and increase its
market share through targeting different segments which lead to increase market share and gaining
more profit.

Recommended Business strategy, Product differentiation

• To increase market share Ezzsteel need to differentiate its products to compete with current
competitors
• A good product differentiation strategy may gain brand loyalty, which is paramount to any successful
business. This strategy focuses on a buyer's perception of value. As long as the seller continues to
provide high quality, the customer base will remain strong

EZZ STEEL Page 18

 Recommended functional strategy, R&D Strategy
• Ezzsteel will need to develop its product R&D (Research & Development) plays a very important role
in the success of a business. R&D contributes to sustainability of business. Many companies do not
understand the importance of R&D until it is too late. It is the R&D function that provides a platform
for creativity and innovation to flourish in an organisation.
• Ezzsteel still needs the help of R&D to overcome the Operational risks and also on the energy prices.

Strategic Position

Ezz steel is the market leader in Steel industry in Egypt for many years and it is able to generate cash
to maintain high share of the market.
Implementation

Implementation of strategy is the process through which a chosen strategy is put into action. It
involves the design and management of systems to achieve the best integration of people, structure,
processes and resources in achieving organizational objectives.

Implementation of Strategy affects an organization from top to bottom; it affects all the functional
and divisional areas of business. Ezz steel should focus on recommended strategies such as horizontal
integration, product differentiation and R & D in the coming years to gain more market share and
increase export quota and put these strategies into practice using company resources and staff
capacities at all functional levels to implement its strategic plan; Increase efficiency and quality to try
to please customers.

Evaluation & Control

We recommend that performance indicators be used as benchmarks to recognize the success of

implementing the recommended strategies, especially when opening a new market abroad or at the
local market level. We expect an increase in profits, especially after the start of the Ain Sukhna plant
in early 2019 which will directly affect EPS and ROE. We can use a standard to evaluate the
performance of the company and follow the deviation in the implementation plan and see if other
competitors are better or are on track. Ezz steel should not use a large number of controls to avoid
confusion, but the controls should be used in a timely manner and corrective measures should be
applied to not depart from the specific plan and strategy.

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