REG - RHI Magnesita N.V. - 2022 Full Year Results
27/02/2023 07:00
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RNS Number : 0663R RHI Magnesita N.V. 27 February 2023
27 February 2023
RHI Magnesita N.V.
("RHI Magnesita" or the "Company" or "Group")
2022 Full Year Results
"Market share gains and price increases deliver
strong revenue and EBITA growth"
RHI Magnesita, the leading global supplier of high-grade refractory products,
systems and solutions, today announces its final results for the year ended 31
December 2022 ("2022" or the "Year").
Financial results 2022 2021 Change 2021 constant currency adjusted Change Constant currency adjusted
(€m unless stated otherwise)
Revenue 3,317 2,551 30% 2,729 22%
Adjusted EBITA 384 280 37% 318 21%
Adjusted EBITA margin 11.6% 11.0% 60bps 11.7% (10)bps
Adjusted EPS (€/per share) 4.82 4.52 7%
Net debt(2) 1,168 1,014 15%
Net debt to adjusted EBITDA(2) 2.3x 2.6x (0.3)x
2022 2021
(€m unless stated otherwise) Reported Reported
Revenue 3,317 2,551
EBITA 372 236
Profit before tax 270 289
EPS (€/per share) 3.31 5.10
Dividend(3) (€/per share) 1.60 1.50
1. Adjusted figures are alternative performance measures "APMs"
excluding impairments, amortisation of intangibles and exceptional items to
enable an understanding of the underlying performance of the business. Full
details are shown in the APM section.
2. 2022 net debt includes the impact of IFRS 16 of €64 million. 2022
adjusted net debt figures are shown including the impact of IFRS 16 (€56
million) to facilitate comparison between reporting periods.
3. Recommended final dividend of €1.10 per share, subject to AGM
approval on 24 May 2023. Full year dividend of €1.60 per share includes the
interim dividend of €0.50 per share paid to shareholders on 23 September
2022.
Highlights
- Market share gains and €600 million price increase programme
support strong financial results
o Revenue increased 30% to €3,317 million (2021: €2,551 million), and by
22% adjusted for constant currency (2021: €2,729 million)
- Higher costs fully offset through €600 million price increase programme
o Increased sales volumes and market share gains in both steel and
industrial segments, benefitting from higher inventory levels providing
security of supply
- Shipped refractory volumes for steel (1)%, outperforming world steel
association production volumes ex-China (7)%
o Adjusted EBITA increased 37% to €384 million (2021: €280 million) and
21% in constant currency terms, with margins stable at 11.6% (2021: 11.7%)
despite significant cost increases in energy, raw materials and freight with
margin resilience supported by benefits from the Production Optimisation Plan
o Net debt to Adjusted EBITDA moderately decreased to 2.3x, ahead of 2.4x
target due to stronger profitability and deliberately higher inventories
- Available liquidity €1,121 million (2021: €1,181 million)
- Long dated debt amortisation profile with competitive cost of debt
- Significant strategic progress in target geographies and product
segments led significantly by M&A and organic growth in India; M&A
will contribute €25-30 million EBITDA in 2023
o Acquisition of SÖRMAŞ (87% shareholding) in Türkiye and establishment
of new MIRECO recycling joint venture with Horn & Co. in Germany completed
in 2022
o Acquisition of the Indian refractory business of Dalmia Bharat
Refractories Limited ("DBRL") and Hi-Tech Chemicals Limited ("Hi-Tech")
completed in January 2023, will strengthen industrials business and flow
control offering in India
o Agreed acquisition of 65% stake in Jinan New Emei, flow control business
based in China in January 2023
o Revenue growth of 10% in China and 35% in India
- Refractory market leader in sustainability and innovation
o Secondary raw materials recycling rate now at 10.5% (2021: 6.8%),
supporting 8% reduction in CO(2) intensity compared to 2018 baseline
o Awarded 'A-' from the Carbon Disclosure Project and sector leader status
from Sustainalytics
o New product sales represented 19% of revenue in 2022 (2021: 16%) and sales
and solutions contracts increased to 32% of revenue (2021: 29%)
- Additional refinancing was conducted in 2022 to maintain liquidity
levels, extend debt maturities and establish links to the Group's
sustainability performance.
- Final dividend of €1.10 per share recommended, total full year
dividend in respect of 2022 €1.60 per share
Outlook and guidance
Volatility and uncertainty are expected to persist across all markets except
India in 2023. The subdued volumes in Q4 2022 are expected to continue into H1
2023, as a contraction in construction activity will affect steel, cement and
lime, non-ferrous metals and glass demand globally. However, demand softness
will be offset by continued strong growth in India and the Group will also
benefit from additional earnings from new acquisitions and cost savings from
its strategic initiatives.
The Group's outlook for revenue, EBITDA and EBITA in 2023 is broadly in line
with current analyst consensus, with up to a 5% reduction in sales volumes and
lower refractory pricing expected to lead to lower revenues, before
contribution from new acquisitions. Costs are expected to remain flat or
increase as higher energy and labour costs offset lower sea freight and
purchased raw materials, resulting in a Group EBITA margin of around 10% in
2023 (2022: 11.6%).
Gearing levels may increase from the 2.3x recorded on 31 December 2022 due to
€200 million of cash outflow from M&A (DBRL, Hi-Tech and Jinan New Emei)
and lower profitability in 2023 caused by lower demand.
Commenting on the results, Chief Executive Officer, Stefan Borgas said:
"In 2022 we demonstrated the benefits of focusing on our customers, as the
investment we made in higher working capital enabled us to both gain market
share and increase prices, adding around €600 million to revenues as higher
costs were passed on. I am pleased to report growing progress on our M&A
strategy with acquisitions in India, China, Türkiye and Europe agreed or
completed during the year. Whilst the outlook for 2023 is more uncertain than
prior years due to slowing demand for refractories and softer pricing in
certain regions, RHI Magnesita is able to face these challenges in a much
stronger condition as a result of the implementation of its strategic cost
savings and sales strategies over the past four years. "
For further enquiries, please contact:
Investors: Chris Bucknall, Head of Investor Relations, +43 699 1870 6490
Media: Hudson Sandler, +44 020 7796 4133, rhimagnesita@hudsonsandler.com
Conference call
The presentation will be broadcast live at the Hudson Sandler offices at 25
Charterhouse Square, London EC1M 6AE and will also be broadcast live via
webcast and conference call at 9.30am UK time, 27 February 2023. The webcast
can be accessed using the following link:
https://www.investis-live.com/rhimagnesita/63ea5f694aa86d15007b31ad/pqqkk
(https://protect-de.mimecast.com/s/Mu7hC83GOVfL7RQJunKDVq?domain=email.investis.com)
. A replay will be available on the same link shortly after event.
About RHI Magnesita
RHI Magnesita is the leading global supplier of high-grade refractory
products, systems and solutions which are critical for high-temperature
processes exceeding 1,200°C in a wide range of industries, including steel,
cement, non-ferrous metals and glass. With a vertically integrated value
chain, from raw materials to refractory products and full performance-based
solutions, RHI Magnesita serves customers around the world, with around 13,500
employees in 33 main production sites and more than 70 sales offices. RHI
Magnesita intends to leverage its leadership in terms of revenue, scale,
product portfolio and diversified geographic presence to target strategically
those countries and regions benefitting from more dynamic economic growth
prospects.
The Group maintains a premium listing on the Official list of the London Stock
Exchange (symbol: RHIM) and is a constituent of the FTSE 250 index, with a
secondary listing on the prime segment of the Vienna Stock Exchange (Wiener
Börse). For more information please visit: www.rhimagnesita.com
(http://www.rhimagnesita.com)
CEO REVIEW
RHI Magnesita is a resilient business with a proven track record of
profitability throughout economic cycles. This year we have maintained margins
and gained market share, in large part through the prioritisation of local
product availability, against a backdrop of unprecedented inflation in our key
input costs. Given the highly volatile supply chain environment in 2022, we
prioritised security of supply for customers by maintaining elevated levels of
inventory. As supply chains started to normalise towards the end of the year,
we were able to release some of this inventory, reducing our average finished
goods coverage ratio to 1.8 months against our target of 1.9 months.
Refractories are essential for our customers to operate and I am pleased that
we were able to respond to changing market dynamics during the year in a way
that enhanced our value proposition and market position.
We have also been focused on extending our sustainability leadership within
the refractory industry, both as a partner for our customers through the
continued industrial transition to a low-carbon economy and through the work
we are doing to reduce our own CO(2) emissions.
Health & Safety
The health and safety of our employees in the workplace is our first priority.
I am pleased to report that the Group's lost time injury frequency rate
remained well below our target of 0.50 per 200,000 hours, at 0.20 (2021:
0.19). We attained ISO 45001 certifications at three further plants and work
is ongoing to roll this out further across the network.
Operational and financial performance
The Group delivered adjusted EBITA of €384 million in 2022, an
outperformance against analyst consensus expectations for the year, and an
EBITA margin of 11.6%. Reported 2022 revenues of €3.3 billion compares to
analyst consensus forecast at the start of 2022 for revenues of €2.6
billion, an increase of €700 million in revenue with no change to sales
volumes. Refractories are a small part of our customers' cost base at between
1% and 3% of operating costs, but they are essential for all high temperature
production processes. The non-discretionary nature of our products combined
with our low costs of production are the driving factors behind our long-term
track record of profitability, throughout numerous downturns and challenging
periods.
Gearing, measured as the ratio of Net Debt to EBITDA, reduced to 2.3x at the
year end from 2.7x at 30 June 2022, slightly better than guided in November
2022 due to a stronger than forecast EBITDA performance in Q4.
Inventory monthly demand coverage ratios have gradually reduced to target
levels as supply chains normalise, balancing the need to keep plants running
at a high enough capacity utilisation to avoid loss of margin due to a lower
fixed cost absorption.
Prioritising high levels of local product availability meant that we were able
to seamlessly supply our customers, leading directly to market share gains. As
a result, RHIM's overall steel volumes outperformed the wider market in
contracting by only 1% compared to steel production globally (World Steel
Association), which recorded a 4% contraction, or 7% excluding China.
A key risk to our operations during the year was energy security in Europe.
This region is an important source of specialist products that are shipped
globally to other regions as well as supplying our European customers. I am
proud that we moved quickly in Q1 2022, as we saw the crisis emerging, and we
were prudent in our approach to commit €7 million of capital investments
towards installing alternative fuel infrastructure to reduce our reliance on
natural gas. This is just one example of how we effectively responded to high
levels of supply chain volatility this year.
Strategic delivery
Two key pillars of our long-term strategy are to increase our competitive
position by investing in the rationalisation and modernisation of our
production footprint and to grow in new markets through consolidation. I am
pleased to report that we have demonstrated good progress in both areas in
2022.
We have transformed our production network through major investments in our
refractory plants and raw material assets. We have achieved economies of scale
through various initiatives including plant expansions and a higher degree of
automation and digitalisation. The cost-saving benefits of our Production
Optimisation Plan, together with substantial price increases to reflect higher
input costs, have enabled us to maintain margins even though costs increased
by 30% in 2022. Whilst these efficiency gains are currently being offset by
higher production and distribution costs, they will enable us to sustainably
grow margins in the longer term.
M&A progress
During 2022 we completed the acquisitions of Söğüt Refrakter Malzemeleri
Anonim Şirketi ("SÖRMAŞ") in Türkiye for €46 million and entered into a
recycling joint venture with Horn & Co Minerals Recovery GmbH & Co KG
("Horn & Co") in Germany for €13 million in exchange for a 51% ownership
stake and we have since formed the new entity Horn & Co RHIM Minerals
Recovery GmbH ("MIRECO"). We also progressed construction of a new non-basic
shaped refractory plant in Chongqing, China, together with our joint venture
partner Liangyou following our acquisition of the existing mixed operations
there in Q4 2021. The new plant is on track to start production in H2 2023.
During January 2023, we completed two important strategic acquisitions in
India, including the €78 million acquisition of the refractory business of
Hi-Tech Chemicals Limited ("Hi-Tech") in Jamshedpur, Jharkhand. Hi-Tech is a
specialised flow control refractory business and will thus strengthen and
enlarge RHI Magnesita's position in the domestic and international flow
control markets.
Secondly, we acquired the Indian refractory business of Dalmia Bharat
Refractories Limited ("DBRL"), in exchange for 27 million shares in RHI
Magnesita India Limited, the Group's 70% owned locally listed subsidiary
(reduced to 60% post completion). With the production footprint and the
product offering being highly complementary, the DBRL acquisition will greatly
benefit our position within the industrials sector, especially in cement. At
the same time, we will be able to increasingly serve customers with a 'local
for local' approach and supply them with the broadest range of products and
services, more so than any other player in the region.
These transactions strengthen our market position within the fast-growing
Indian market, with steel production growth in India of 6% in 2022 and a 7-8%
CAGR forecast until 2030. We were able to utilise highly valued equity in our
listed Indian subsidiary to fund this acquisition, reducing the impact of the
transaction on the Group's balance sheet.
In January 2023, we agreed to acquire a 65% shareholding in Jinan New Emei
Industries Co. Ltd. ("Jinan New Emei"), for €40 million. Jinan New Emei,
based in Shandong, China, is a well-established producer for refractory slide
gates, nozzles and mixes. This acquisition will further strengthen our
presence in both China and in flow control.
Taken together, these acquisitions are expected to contribute between €25-30
million of incremental EBITDA in 2023, with further upside from synergies of
between 30% and 50% of target EBITDA to be delivered over the next two to
three years.
Given the substantial completion of the Production Optimisation Plan, we have
built a strong platform from which to embark on the next stage of our
strategy, which is to accelerate inorganic growth in geographies and product
segments where we continue to be under-represented.
Our people
The strategic progress and financial performance we have delivered this year
is founded on the dedication and professionalism of our employees. I would
like to highlight the contribution of our operations, sales, procurement and
special project teams who have worked tirelessly to navigate volatile and
unpredictable markets whilst achieving production targets and making necessary
upgrades to our planning and logistics processes. A special mention must also
go to our M&A and technical teams for whom the transactions agreed and
completed in 2022 represent multiple years of sourcing, engagement, diligence
and negotiations with target companies. We now look to the experience and
knowledge of our integration teams to realise the benefits of these new
additions to the Group as quickly as possible.
Our markets and outlook
Volatility and uncertainty are expected to persist across all markets except
India in 2023. The subdued volumes in Q4 2022 are expected to continue into H1
2023, as a contraction in construction activity will affect steel, cement and
lime, non-ferrous metals and glass demand globally. However, demand softness
will be offset by continued strong growth in India and the Group will also
benefit from additional earnings from new acquisitions and cost savings from
its strategic initiatives.
The Group's outlook for revenue, EBITDA and EBITA in 2023 is broadly in line
with current analyst consensus, with up to a 5% reduction in sales volumes and
lower refractory pricing expected to lead to lower revenues, before
contribution from new acquisitions. Costs are expected to remain flat or
increase as higher energy and labour costs offset lower sea freight and
purchased raw materials, resulting in a Group EBITA margin of around 10% in
2023 (2022: 11.6%).
Gearing levels may increase from the 2.3x recorded on 31 December 2022 due to
€200 million of cash outflow from M&A (DBRL, Hi-Tech and Jinan New Emei)
and lower profitability in 2023 caused by lower demand.
FINANCIAL REVIEW
Reporting approach
The Company uses a number of alternative performance measures ("APMs"), in
addition to those reported in accordance with International Financial
Reporting Standards ("IFRS"), which reflect the way in which the Board and the
Executive Management Team assesses the underlying performance of the business.
The Group's results are presented on an "adjusted" basis, using APMs that are
not defined or specified under the requirements of IFRS, but are derived from
the IFRS financial statements. The APMs are used to improve the comparability
of information between reporting periods and to address investors'
requirements for clarity and transparency of the Group's underlying financial
performance. The APMs are used internally in the management of our business
performance, budgeting and forecasting. A reconciliation of key metrics to the
reported financials is presented in the section titled APMs.
All references to comparative 2021 numbers in this review are on a reported
basis, unless stated otherwise. Figures presented at constant currency
represent 2021 translated to average 2022 exchange rates as disclosed in Note
3 to the Financial Statements.
All reported volume changes year-on-year are excluding mineral sales. Revenue
for mineral sales is reported under the industrials division.
Revenue
The Group recorded revenue of €3,317 million, 22% higher than 2021 (€2,729
million) on a constant currency basis and by 30% on a reported revenue basis
(€2,551 million). The FX revenue tailwind was largely due to a significant
appreciation of key currencies against the euro including: 11% appreciation of
US dollar (39% of Group revenues), appreciation of Brazilian real by 14% (6%
of Group revenues), appreciation of Indian rupee by 6% (7% of Group revenue)
and appreciation of Chinese Yuan by 8% (6% of Group revenues). The Turkish
lira depreciated by 66% against the euro (1% of Group revenues). The Group
benefited from a material increase in product price increases throughout 2022
of €600 million to offset a significant rise in input costs including
labour, raw materials and energy.
Raw material prices
The price of high grade dead burned magnesia ("DBM") from China was on average
2.2% higher in 2022 compared to 2021, and medium grade DBM was on average 7.7%
higher.
During 2022 raw material prices softened following a sharp increase in prices
during Q4 2021, with high grade Chinese DBM declining by 14% in 2022 and
medium grade DBM from China declining by 22%. The price of Chinese
electrofused magnesia declined by 25% given weak demand and overcapacity.
Chinese raw materials prices softened during 2022 given stable energy markets
and subsidies in China, keeping local production costs low. Prices are likely
to remain at current levels through H1 2023.
Steel Division
The Group's Steel Division delivered revenue of €2,371 million, an increase
of 30% on a reported basis (2021: €1,823 million) and 21% on a constant
currency basis (2021: €1,961 million) and represents 71% of Group revenue.
Revenue from South America increased by 40% on a reported basis and by 22% on
a constant currency basis. Reported revenue from North America increased by
38%, and 22% on a constant currency basis. Volumes in South America decreased
by 5% and in North America also decreased by 2%; however the Group was
successfully able to implement price increases across these regions which was
coupled with a strong FX tailwind from the strength of the US dollar and
Brazilian real. Revenue in India & West Asia increased by 35%, and by 27%
on a constant currency basis, as it benefited from significant steel market
growth reflected in shipped volumes, which increased by 9%. Revenue in Europe
and Türkiye increased by 20%, or by 22% on a constant currency basis, given
small market share gains and the implementation of price increases in the
region to off-set high inflationary pressures, notably energy. Volumes in the
Europe & Türkiye region decreased by 8%. Revenue in China and East Asia
increased by 12%, or 3% on a constant currency basis, with regional steel
volumes flat despite the slowdown in China and steel production contraction.
Industrial Division
The Industrial Division recorded revenues of €946 million, 30% higher on a
reported basis (2021: €729 million) and 23% higher than 2021 (2021: €767
million) on a constant currency basis. Cement and lime represents 11% of Group
revenues, and in 2022 grew by 18% to €378 million, from €322 million in
2021. Pricing for cement and lime recovered in 2022 following softer pricing
in 2021 given the lower raw material pricing environment in 2020. Non-ferrous
metal revenues increased by 51% in 2022 to €219 million (2021: €145
million), largely due to significant price increases during 2022, where
implementation was delayed in 2021 due to later cycle contracts, and also from
increased demand, especially for copper and nickel. Revenue in the glass
division increased by 47% to €154 million from €105 million in 2021,
benefiting from increased demand from China and from the solar panel market.
Industrial applications increased by 9% to €102 million (2021: €94
million). Mineral sales recorded revenue of €92 million (2021: €63
million).
Cost of goods sold
Cost of goods sold increased by 30% to €2,554 million in 2022, from €1,968
million and by 22% from €2,097 million on a constant currency basis.
Cost inflation was especially high compared to 2021 across purchased raw
materials, energy, plant personnel costs, freight and supplies. Cost of
production was also higher due to fixed cost under absorption as production
was reduced to lower inventory levels, an impact of €63 million.
Externally purchased raw materials costs increased by €197 million to
€1,173, an increase of 20% on the prior year on constant currency (2021:
€976 million).
Energy markets became extremely volatile in 2022 following a significant
increase in costs starting in H2 2021 as post pandemic demand returned,
coupled by the Russia/Ukraine conflict which caused a shortage of natural gas
globally and especially in Europe. Energy costs during the year increased by
41% on constant currency to €285 million from €202 million in 2021. The
Group had pre-purchased 53% of its energy contracts (including European
natural gas and power contracts), mitigating some of this volatility.
The cost of ocean freight lanes, which substantially increased during 2021,
started to normalise in 2022 as represented by the Shanghai Containerised
Freight Index, which was on average 12% lower in 2022 than 2021, reflective of
overall Asia outbound freight rates returning back to pre-pandemic levels.
However, the cost of some commonly used freight lanes by the Group such as
inbound to North America (East Coast) and South America from Europe remained
very high and significantly above pre-pandemic levels. Port congestion
decreased significantly however, which has improved planning accuracy. Land
freight and transport costs increased during 2022, mostly due to fuel and
labour costs. Compared to 2021, freight costs increased by 17% on constant
currency to €285 million in 2022 (2021: €244 million).
General supplies such as pallets, packaging and spare parts increased to
€171 million, an increase of 18% on constant currency (2021: €145
million).
Gross profit
The Group recorded gross profit of €763 million in 2022, an increase of 31%
(2021: €584 million) and 21% on a constant currency basis (2021: €632
million). Gross margin was 23.0%, 10bps higher than 2021 (2021: 22.9%),
however 20bps lower on a constant currency basis (2021: 23.2%). Strength of
major currencies against the euro such as the US dollar, Indian rupee and
Brazilian real were an FX tailwind to gross profit.
Broadly stable gross margin on an FX adjusted basis reflects how effectively
the price increase programme offset the inflationary cost pressures of raw
material, energy, freight and labour.
On a divisional basis, gross profit in the Steel Division of €521 million
represented an increase of 32% against the previous year (2021: €394
million), while gross margin increased by 40bps to 22.0%, (2021: 21.6%). Gross
profit in the Industrial Division amounted to €242 million (2021: €190
million), up by 27% against the prior year, and gross margin declined by 50bps
to 25.6% (2021: 26.1%).
Steel 2022 2021 reported Change
Revenue (€m) 2,371 1,823 30%
Gross profit (€m) 521 394 32%
Gross margin 22.0% 21.6% 40bps
Industrial 2022 2021 reported Change
Revenue (€m) 946 729 30%
Gross profit (€m) 242 190 27%
Gross margin 25.6% 26.1% (50)bps
SG&A
Total selling, general and administrative expenses, before R&D related
expenses, were €375 million, representing a 26% increase against the prior
year (2021: €297 million) given inflationary costs. Personnel and
personnel-related expenses increased by €32 million. FX impacted SG&A by
a further €14 million. The Group also incurred bad debts of €4 million.
Additional expenditure in the year related to supply chain management
initiatives, digitalisation and sustainability.
Depreciation and amortisation
Depreciation for 2022 amounted to €116 million (2021: €109 million), 6%
higher than 2021. Depreciation was flat on a constant currency basis (2021:
€117 million). Depreciation in 2023 is expected to be around €120 million,
excluding depreciation of the assets of DBRL, Hi-Tech and Jinan New Emei.
These will contribute a further c.€10 million in depreciation in 2023.
Amortisation of intangible assets amounted to €29 million in 2022 (2021:
€22 million).
Adjusted EBITDA
Adjusted EBITDA amounted to €500 million, up by 28% compared to 2021 (2021:
€389 million). The adjusted EBITDA margin for 2022 was 15.1%, compared to
15.2% in the prior year, a decrease of 10bps. At constant currency, EBITDA
margin was 80bps lower (2021: 15.9%)
Adjusted EBITA
The Group delivered adjusted EBITA in 2022 of €384 million, an increase of
37% compared to 2021 (2021: €280 million), as the €600 million increase in
revenues more than offset the €542 million of supply chain, raw material and
energy related cost headwinds and slightly softer sales volumes of €16
million. The Group realised an incremental €24 million in 2021 from its
strategic initiative programmes, with cost-saving initiatives contributing
€10 million and sales strategies €14 million.
Given the success of the price increases over the year, revenue grew by 30% in
line with cost of sales which also increased by 30%, and the Group adjusted
EBITA margin increased by 60bps to 11.6% (2021: 11.0%). On a constant currency
basis it remained broadly flat at 11.6% (2021: 11.7%).
The Group's vertical integration margin was impacted by higher cost of
production of raw materials for internal consumption given higher energy and
labour costs, and it consequently decreased by 70bps to 2.5% (2021: 3.2%). The
Group's refractory margin improved by 130bps to 9.1%, as the Group recovered
its supply chain headwind costs through price increases compared to 2021 where
there was a delay in implementing price increases to cover the higher cost
environment. The EBITA contribution of the Group's raw material assets was
€81 million, unchanged from 2021 (2021: €81 million), based on external
market price benchmarks for the raw materials produced.
(€m) 2022 2021 2021 at % change reported % change at constant currency
reported
constant currency
Revenue 3,317 2,551 2,729 30% 22%
Cost of sales (2,554) (1,968) (2,097) 30% 22%
Gross profit 763 584 632 31% 21%
SG&A (375) (297) (308) 26% 22%
R&D expenses (33) (28) (29) 17% 13%
OIE (11) (44) (42) (74)% (73)%
EBIT 344 214 252 61% 36%
Amortisation 29 22 24 29% 21%
EBITA 372 236 276 58% 35%
Adjusted items 11 44 42 (74)% (73)%
Adjusted EBITA(1) 384 280 318 37% 21%
Refractory EBITA 303 199 - 52%
Vertical integration EBITA 81 81 - -
1.Adjusted EBITA is an APM used by the Group. Refer to the APMs section for
definitions.
Net finance costs
Net finance costs in 2022, including gains and losses relating to foreign
exchange, amounted to €73 million (2021: €25 million).
Net interest expense amounted to €19 million in 2022 (2021: €7 million),
with interest expenses on borrowings of €27 million (2021: €21 million)
and interest income of €8 million (2021: €14 million). Interest income in
2021 benefited from a one-off gain of €11 million relating to a favourable
indirect tax ruling in Brazil. Interest income in 2022 benefited from a higher
interest rate environment. Interest expenses on borrowings increased due to
higher benchmark interest rates on floating debt, and the average cost of
borrowing increased from 1.4% to 1.9% (including swaps), as well as higher
average gross debt.
Foreign exchange losses of €23 million were incurred including losses on
embedded currency derivatives in sales contracts of €13 million and net
exchange losses on translation of monetary assets and liabilities of €10
million. This given the considerably more volatile foreign exchange
movements in 2022. Comparatively, a foreign exchange gain of €3 million was
incurred in 2021.
Other net financial expenses amounted to €31 million in 2022 (2021: €21
million). This was mostly due to the recurring non-cash impact of the onerous
raw material supply contract, imposed as an EU remedy upon the merger of RHI
and Magnesita of €9 million (2021: €6 million), factoring costs of €7
million (2021: €5 million), interest costs and fair value adjustments on
puttable or fixed term non-controlling interest liabilities of €1 million
(2021: €4 million) and pension charges of €6 million (2021: €5 million).
Other mainly includes transaction costs and interest on finance leases.
(€m) 2022 2021
Net interest expenses (19) (7)
Interest income 8 14
Interest expenses (27) (21)
FX effects (23) 3
Balance sheet translation (10) (2)
Derivatives (13) 5
Other net financial expenses (31) (21)
Present value adjustment (9) (6)
Factoring costs (7) (5)
Pension charges (6) (5)
Non-controlling interest expenses (1) (4)
Other (8) (1)
Total (73) (25)
Adjusted net financial expenses of c.€65 million are guided for 2023,
comprising net interest expenses on debt facilities and cash balances of
c.€40 million (2022: €19 million) and other financial expenses of c.€25
million including above others, present value adjustments, pensions charges,
factoring and transactions costs.
The expected increase in net interest expenses is driven by higher interest
costs on floating debt facilities and newly refinanced facilities as well as
additional borrowings to fund acquisitions during the period.
Other expenses that are excluded from the adjusted net financial expenses
guidance given above include the potential impact of foreign exchange rates on
balance sheet translations and the value of embedded derivatives in sales
contracts, which amounted to expenses of €23 million in 2022.
Items excluded from adjusted performance
In order to accurately assess the performance of the business, the Group
excludes certain items from its adjusted figures, to better understand
underlying performance. In 2022, these adjustments comprise:
· €11 million recorded in "restructurings, other income and expenses",
relating to the reversal of the impairment of the Mainzlar plant, Germany and
Russia bad debts and inventory write downs, land sales, termination of a sales
agent contract, one-off project expenses, acquisitions and internal business
restructurings;
· €29 million amortisation of intangible assets;
· €7 million non-cash other net financial expenses, these include €6
million non-cash present value adjustment of the provision for the
unfavourable contract required to satisfy EU remedies at the time of the
combination of RHI and Magnesita to form RHI Magnesita; and
· €24 million income tax adjustments mainly from non-cash one-off
(i) restructuring, (ii) charges following agreements with tax authorities on
the allocation of group functions and responsibilities, (iii) adjustments to
prior year tax provisions.
Taxation
Total tax for 2022 in the income statement amounted to €104 million (2021:
€39 million), representing a 38% reported effective tax rate (2021: 14%).
The effective tax rate in 2022 increased mainly from non-cash one-off items
including (i) restructuring, (ii) charges following agreements with tax
authorities on the allocation of group functions and responsibilities, and
(iii) reduction in the deferred tax asset valuation following the reduction in
the Austrian tax rate. See note 14.
Reported profit before tax amounted to €270 million (2021: €289 million).
Adjusted profit before tax amounted to €318 million (2021: €270 million),
with an adjusted effective tax rate of 25% (2021: 18%). Adjusted items include
tax expenses related to one-off restructuring or unrelated business items.
The adjusted effective tax rate guidance is between 23-25% for 2023.
Profit after tax
On a reported basis, the Group recorded a profit after tax of €167 million
(2021: €250 million) and earnings per share of €3.31 per share in 2022
(2021: €5.10 per share). Adjusted profit after tax was €237 million (2021:
€222 million) and adjusted earnings per share for 2022 was €4.82 per share
(2021: €4.52 per share).
A full reconciliation of EBITA to EPS and adjusted EBITA to adjusted EPS can
be found on the table below.
(€m) 2022 Items excluded from adjusted performance 2022 2021 Items excluded from adjusted performance 2021
reported
adjusted
reported
adjusted
EBITA 372 11 384 236 44 280
Amortisation (29) 29 - (22) 22 -
Net financial expenses (73) 7 (66) (25) 6 (19)
Result of profit in joint ventures 0 - 0 100 (91) 9
Profit before tax 270 47 318 289 (19) 270
Income tax (104) 24 (80) (39) (10) (49)
Profit after tax 167 70 237 250 (28) 222
Non-controlling interest 11 - 11 7 - 7
Profit attributable to shareholders 156 70 226 243 (28) 215
Shares outstanding(1) 47.0 - 47.0 47.6 - 47.6
Earnings per share 3.31 1.51 4.82 5.10 (0.58) 4.52
(€ per share)
1. Total issued and outstanding share capital as at 31 December 2022 was
47,017,695. The Company held 2,460,010 ordinary shares in treasury. Weighted
average number of shares used for basic earnings per share 47,000,708.
2. EBITA reconciled to revenue above under the Adjusted EBITA section of
the financial review.
3. Numbers may not cast due to rounding.
Earnings guidance
The Group's outlook for revenue, EBITDA and EBITA in 2023 is broadly in line
with current analyst consensus.
Refractory sales volumes are expected to be up to 5% lower in 2023, reflecting
lower steel demand from customers in China and South America, and a
contraction in construction activity which will affect steel, cement and lime,
non-ferrous metals and glass demand globally.
Finished goods pricing is forecast to be softer compared to 2022 as lower raw
material prices and normalisation of sea freight rates are only partially
offset by higher energy and labour costs for non-vertically integrated
competitors.
Reduced costs from lower prices for externally purchased raw materials and
normalised sea freight rates are expected to be offset by higher year on year
energy costs and labour inflation. Whilst spot energy prices in certain
geographies and benchmarks have returned to lower levels, oil prices remain
elevated and the Group's overall hedged position for energy prices in 2023 is
an increase on 2022 actual costs. Broadly flat unit costs are therefore
expected to lead to a direct pass through of lower pricing to profitability.
The low vertical integration EBITA margin contribution of 1.7% recorded in the
second half of 2022 is expected to persist into 2023 due to lower global
prices for magnesite and dolomite based raw materials, combined with higher
energy and labour costs at the Group's raw material production sites.
Refractory margins may also be impacted by lower refractory pricing, resulting
in a total Group EBITA margin of around 10% in 2023 (2022: 11.6%).
Working capital
Working capital increased by €241 million to €918 million (2021: €677
million), which represented 25.4% in working capital intensity (2021: 23.3%),
measured as a percentage of the last three months' annualised revenue of
€3,615 million.
Working capital comprised; €1,049 million of inventory (2021: €977
million) and inventory intensity of 29.0% (2021: 33.6%), accounts receivable
of €375 million (2021: €349 million) and accounts receivable intensity of
10.4% (2021: 12.0%) and accounts payable of €507 million (2021: €649
million) and accounts payable intensity of 14.0% (2021: 22.3%).
Inventories increased by €72 million during 2022 to €1,049 million (2021:
€977 million), given inflationary costs and foreign exchange impacts.
Non-cash foreign exchange translation differences amounted to €23 million,
given the volatile foreign exchange movements during 2022. Cost inflation of
finished goods and raw material increased the inventory value by a further
€195 million. The inventory balance increased by an additional €19 million
from M&A. These headwinds more than off-set the reduced inventory volumes
to 607 kilotonnes, 182 kilotonnes lower than at year-end 2021 (2021: 789
kilotonnes). The volume reduction had a positive impact on the inventory
balance of €(165) million.
A decision was taken in 2021 to pro-actively increase inventory of raw
materials and finished products given disruption across ocean freight lanes
and supply bottlenecks, as economies re-opened. As these have improved in
recent months, the finished goods coverage ratio has been reduced from 2.5x
months at 31 December 2021 to 1.8x months at 31 December 2022, and raw
materials coverage ratio from 2.4x months at 31 December 2021 to 2.3x months
at 31 December 2022.
Accounts receivable increased by €26 million at the end of 2022 reflective
of higher product pricing and including an additional €10 million of
accounts receivable from the integration of SÖRMAŞ and Horn & Co.
Accounts receivable is calculated as trade receivables plus contract assets
less contract liabilities, and a full reconciliation can be found in the APMs
section.
Accounts payable decreased by €143 million to €507 million (2021: €649
million), due to a lower volume of externally purchased raw materials than in
2021. Accounts payable refers to trade payables as per the financial
statements on note 32.
Working capital financing, used to provide low-cost liquidity and support the
Group's commercial offering to customers, stood at €314 million at the end
of the year (31 December 2021: €320 million). This comprised €245 million
of accounts receivable financing (factoring) (2021: €178 million) and €69
million of accounts payable financing (forfeiting) (2021: €142 million).
Working capital financing levels vary according to business activity, and the
Group targets an upper limit of €320 million.
Working capital cash outflow amounted to €195 million. Non-cash negative
impact from working capital on the balance sheet amounted to €46 million,
with €24 million relating to consolidation of M&A and €22 million
relating to currency translation.
The Group made good progress in reducing its inventory volumes by 23% in 2022,
with a weighting towards H2. In 2023 the Group plans to keep production
volumes broadly in line with demand. The Group is running at higher levels of
inventory compared to before the pandemic in 2019, as it prioritises security
of supply for its customers. This delivered material benefits in the form of
market share gains and price increases in 2022. Given the value creation from
higher inventory levels in 2022, the Group is now targeting for working
capital intensity to remain at around 25% during 2023.
Other assets and liabilities
Cash flows from other assets and liabilities amounted to €(2) million (2021:
€(115) million) mainly relating to; indirect and other tax of €29 million
(2021: €(53) million), employee pension pay outs and pension provision
movements of €(25) million (2021: €(19) million), employee variable
remuneration and employee related provisions of €16 million (2021: €(17)
million) and other of €(21) million (2021: €(25) million).
Capital expenditure
Capital expenditure ("capex") in 2022 was €157 million (2021: €252
million), comprising €77 million of maintenance capex (2021: €75 million)
and €79 million of project capex including €13 million from businesses
acquired (2021: €177 million). Capex has started to return to lower levels
in 2022, following the peak capex year for the Group in 2021 as it invested in
its production optimisation plan. In 2022, the Group invested €37 million
(2021: €61 million) towards its raw material assets, including maintenance
capex of €13 million (2021: €13 million) and project capex of €24
million (2021: €48 million).
The project capex of €79 million spent in 2022 was below prior guidance of
€115 million given delayed projects and the Group's decision to temporarily
suspend the project at Contagem, Brazil. Project capex amounting to €20
million has moved into 2023 from 2022, to complete the Brumado tunnel kiln,
the Alumina plant expansion at Chongqing, China and the manufacturing
execution systems ("MES") project at Radenthein, Austria.
Capital expenditure in 2023 is expected to be around €200 million. This
comprises €85 million of maintenance capex and €75 million of expansionary
capex, both as previously guided. In addition, there is €20 million of
maintenance and integration capex at new acquisitions in India and China and
€20 million of expansionary capex previously guided to be incurred in 2022
carried forward into 2023 due to the timing of payments on capital projects.
Cash flow
The Group generated adjusted operating cash flow of €155 million in 2022
(2021: €(254) million outflow), representing cash flow conversion from
adjusted EBITA of 40% (2021: (91)%). Adjusted operating cash flow was
materially higher in 2022 compared to 2021, given lower expansionary capex,
following the peak investment on the Production Optimisation Plan in 2021.
Despite the inflationary environment, the inventory volume reduction helped to
lower working capital cash outflow in 2022 compared to 2021. Lower cash
outflows were coupled with higher EBITDA by 28%.
Free cash flow was €43 million (2021: €(347) million). Income taxes paid
€54 million (2021: €39 million) and net interest paid were €36 million
(2021: €25 million).
Cash change in net debt was an increase of €82 million (2021: €416
million). Investment in subsidiaries including the acquisitions of Horn and
SÖRMAŞ amounted to €65 million (2021: €3 million - inflow). Dividend
payments were flat €71 million (2021: €71 million).
Cash flow €m(1,2) 2022 2021
Adjusted EBITDA 500 389
Share based payments - gross non-cash 8 6
Working capital changes (195) (283)
Changes in other assets and liabilities (2) (115)
Investments in PPE, IA (157) (252)
Adjusted operating cash flow(3) 155 (254)
Income taxes paid (54) (39)
Cash effects of other income/expenses and restructuring (24) (51)
Cash inflows from the sale of PPE, IA 2 12
Cash inflows from the sale of financial assets 3 0
Investment subsidies received 1 2
Cash inflow from joint ventures and associates 0 8
Net interest paid/received (36) (25)
Net derivative cash inflow/outflow (2) 1
Dividend payments to NCI (2) (1)
Free cash flow 43 (347)
Investment in subsidiaries net of cash (SÖRMAŞ, Horn, Chongqing) (65) 3
Cash in from sales of subsidiaries net of cash 9 95
Treasury stock 0 (96)
Dividend payments (71) (71)
Change financial receivables from joint ventures & associates 2 0
Cash change in net debt (82) (416)
Debt from acquisitions (Horn/SÖRMAŞ) (19) -
New lease obligations (20) (13)
Exchange effects (33) (3)
Actual change in net debt (154) (432)
1.The cash flow reconciliation to net debt has been restated to reflect a
change in definitions of adjusted operating cash flow, free cash flow and cash
change in net debt.
2. A full reconciliation to the change in cash and cash equivalents can be
found in the APMs section.
3. Adjusted operating cash flow is an APM. A definition and reconciliation can
be found in the APMs section.
Net debt(1)
Net debt at the end of 2022 was €1,168 million (2022: €1,014 million),
comprising total borrowing of €1,624 million, IFRS 16 leases of €64
million, cash and cash equivalents of €521 million.
Net debt to Adjusted EBITDA at the year-end was 2.3x (2021: 2.6x) and as such
an outperformance against most recent guidance in November 2022 that leverage
at the end of the year would be around 2.4x.
Additional refinancing was conducted in 2022 to maintain liquidity levels,
extend debt maturities and establish links to the Group's sustainability
performance.
In May 2022, RHIM refinanced the outstanding principal of €260m of the
€305 million OeKB Term Loan maturing in June 2023 and increased the overall
facility amount by signing an additional OeKB-backed tranche of €90 million.
The total outstanding loan balance as of 31 December 2022 is €350 million
and the refinanced loan now has a final maturity in May 2027. In July 2022,
the Group secured a new environmental, social and governance ("ESG") linked
€250 million term loan maturing in 2027 of which proceeds were used to
refinance the $200 million term loan maturing in 2023 at very competitive
interest rates. Additionally, the maturity of the Group's €600 million
Syndicated RCF was extended by one year to 2028 through the execution of the
third extension option.
Out of the total gross debt of €1,624 million, 96% is denominated in euro.
The floating to fixed ratio of the gross debt is 24% to 76% and the average
interest rate is 1.9% (including swaps).
Total liquidity for the Group at year end was €1,121 million, including
undrawn committed facilities of €600 million and a cash balance of €521
million.
The Group will have debt maturities of €215 million in 2023, of which €79
million are rollable facilities.
Gearing levels may increase from the 2.3x recorded on 31 December 2022 due to
€200 million of cash outflow from M&A (DBRL, Hi-Tech and Jinan New Emei)
and lower profitability in 2023 caused by lower demand.
RHI Magnesita India Limited ("RHIM India"), the Group's 60% owned subsidiary
which is listed on the National Stock Exchange of India and the Bombay Stock
Exchange, has requested authority from its shareholders to raise funds from
the issuance of new equity up to an amount of ₹1,500 crore (c.€170
million). The proceeds from any potential equity raise would be used for the
repayment or partial repayment of ₹1,300 crore (c.€147 million) of loans
used to finance the acquisitions of DBRL and Hi-Tech, which completed in
January 2023, and for general corporate purposes. If approved, the shareholder
authority would remain in place for 12 months. Any equity raise carried out
under this authority is subject to market conditions. The Group will retain
its majority shareholding in RHIM India and possibly participate in the equity
raise.
1. Net debt is an APM. The definitions and calculations thereof can be found
in the APMs section.
Change to target gearing range
As part of its stated capital allocation policy, the Group has previously
sought to maintain a net debt to EBITDA ratio of 0.5 to 1.5x, with potential
to increase to over 2.0x in the case of M&A. The Board believes it is
appropriate to revise the targeted gearing range, considering:
(i) the Group's current and forecast level of gearing in the
medium term;
(ii) the resilience of margins and profitability throughout
economic cycles;
(iii) the improved reliability for customers resulting from
higher levels of working capital in 2022; and
(iv) the strength of the current M&A pipeline.
For the duration of the expected phase of consolidation in the refractory
industry, the Group will now target a net debt to EBITDA ratio of 1.0 to 2.0x,
with flexibility to increase to over 2.5x in the case of compelling M&A
opportunities. The Board believes that it is in the interests of shareholders
to seek this increased flexibility due to the acquisition opportunities that
are available and the demonstrated stability of the Group's earnings.
Return on invested capital(1)
Return on invested capital (ROIC) is used to assess the Group's efficiency in
executing its capital allocation strategy, which is aimed at enabling organic
growth, disciplined M&A and shareholder returns.
The Group ROIC in 2022 was 11.6% (2021: 9.6%), from a total of €2,587
million of invested capital (2021: €2,291 million) and €301 million net
operating profit after tax (NOPAT) (2021: €219 million). Raw material ROIC
was 12.3% (2021: 16.2%), from a total of €466 million of invested capital
(2021: €377 million) and €57 million NOPAT (2021: €61 million).
1. ROIC is an APM used by the Group. The definitions and calculations thereof
can be found in the APMs section.
Strategic initiatives
The Group is progressing two significant strategic programmes to sustainably
increase earnings:
The Production Optimisation Plan seeks to rationalise the Group's global
production footprint through the closure of up to ten sites (with a focus on
Europe and South America) and investments in remaining facilities to increase
plant scale and specialisation, reduce raw material costs and implement new
technologies.
The Group has completed all plant closures and projects across North America,
Germany, India and China during 2022. The Group completed its project to
create the leading Dolomite Resource Centre in Europe through the investment
in a new mine and installation of a tunnel kiln at Hochfilzen, Austria. It
also made substantial progress at its Radenthein plant, Austria.
In 2022, the cost reduction initiatives delivered EBITA benefit of €76
million, representing an incremental increase of €10 million on 2021.
The cumulative targeted benefits from sales strategies in 2023 remains
€40-60 million. However, total savings to be derived from the cost
optimisation plan are now expected to be in the region of €85 million in
2023 compared to the previously guided figure of €110 million, due to the
suspension of the second stage of the Contagem plant upgrade in Brazil and the
decision not to close the Mainzlar plant in Germany. The full benefits of the
strategic cost savings are now expected to be realised from the start of 2024
due to construction delays at the rotary kiln in Brumado. The Mainzlar plant
will operate more competitively in the future following the launch of a new
line of doloma products to serve new customers, with raw material sourced from
Hochfilzen, Austria.
The Group's sales strategies seek to grow RHI Magnesita's presence in new
markets including India and China, increase market share in the flow control
product range and expand the solutions business targeting 40% of revenue by
2025, supported by investment in digitalisation.
Sales strategies delivered €32 million of cumulative EBITA in 2022. The
Group is targeting to achieve the lower end of €40 - 60 million in 2023 but
exceeded its target of €30 million in 2022. The Group increased the
percentage of Group revenue from solutions contracts to 32% in 2022 (2021:
29%).
The Group benefitted from strong organic and inorganic revenue contribution
from new markets, and the JV with Chongqing in China and acquisition of
SÖRMAŞ in Türkiye. It will benefit further in 2023 from the acquisitions of
the refractory business of Hi-Tech and the Indian refractory business of DBRL,
both based in India. Increased flow control sales are expected in 2023
following successful trials during 2022. Flow Control is a target product
group given its higher margins, higher return on capital and complimentary
cross-selling to customers.
Flow Control pricing increased at a lower rate than refractory linings,
especially in the tundish product segment, and percentage of revenue decreased
to 15.8% (2021: 17.0%). 2021 Flow Control revenue was restated to €433
million (from €430 million) due to a re-classification internally).
For more information on the strategic initiatives, read pages 14 and 25 of the
strategic review in the 2022 Annual Report.
M&A
The Group targets acquisition opportunities in new markets in which it is
underrepresented such as India, China and Türkiye and complementary to its
existing plant footprint. It also targets new product segments, such as the
non-basic segment (e.g. Alumina). The Group seeks to achieve synergies in
excess of 30% EBITDA upon integration, and integration would usually complete
within two years.
In December 2021, the Group completed the acquisition of a 51% ownership stake
in Chongqing Boliang Refractory Materials in return for an initial
consideration of €5 million and is currently investing €15 million into a
new production capacity to build a state-of-the-art Alumina fired bricks plant
to serve the Cement market. The new plant is on-track to start production in
Q3 2023.
In May 2022, the Group acquired a 51% stake in Horn & Co Minerals Recovery
GmbH & Co KG to combine its recycling activities in Europe to create a
newly formed entity, MIRECO Horn & Co. RHIM Minerals Recovery GmbH. The
Group increased its recycling rate to 10.5% in 2022 and benefited from
increased availability of raw material supply.
In September 2022, the Group completed its acquisition of an 87% ownership
stake in Söğüt Refrakter Malzemeleri Anonim Şirketi (SÖRMAŞ), a producer
of refractories for the cement, steel, glass and other industries in Türkiye,
for a consideration €45 million in cash.
On 5 January 2023, the Group closed the acquisition of the Indian refractory
business Dalmia Bharat Refractories Limited (DBRL) via a Share Swap Agreement,
in exchange for 27 million shares in RHI Magnesita India Limited, a 60% owned
subsidiary of the Group which is listed on the Bombay Stock Exchange and
National Stock Exchange of India. DBRL is one of the leading refractory
producers in India with production capacity of over 300 ktpa from five
refractory plants, inclusive of a 51% joint venture in Katni, India. Following
the acquisition, the Group's shareholding in RHI Magnesita Limited reduced
from 70% to 60% and the Dalmia Bharat Group and minority shareholders in DBRL
now hold a combined 14% stake in RHI Magnesita India Limited. Based on the
closing share price of RHI Magnesita India Limited on 18 November 2022 of
₹645 per share, the Consideration Shares had a value of approximately
₹17,424 million (€212 million). DBRL recorded adjusted EBITDA of ₹945
million (€12 million) in the year to 31 March 2022 and had Gross Assets of
₹13,925 million (€170 million) at 31 March 2022. The Group will
consolidate its earnings and approximately €54 million of net debt through
its majority shareholding in RHI Magnesita India Limited, resulting in a
marginal increase in gearing at Group level. The acquisition is expected to be
accretive to Group earnings per share.
As announced on 13 January 2023, the Group entered into an agreement to
acquire a 65% shareholding in Jinan New Emei Industries Co. Ltd, a company
registered in China. Jinan New Emei is a well-established producer of
refractory slide gate plates and systems, nozzles and mixes for use in steel
flow control, employing over 1,300 people and headquartered in Shandong
province, China. The Group will acquire the initial 65% shareholding for a
total cash consideration of around €40 million (CNY 293 million).
On 31 January 2023, the Group, through its listed subsidiary in India, RHI
Magnesita India Limited, completed the acquisition of the flow control
refractory business of Hi-Tech Chemicals Limited (Hi-Tech) for a total
consideration of c.€78 million. The refractory business recorded profit
before tax of €8.2 million in the year to 31 March 2022. The acquisition
will further strengthen the Group's position in the high-growth market of
India, as well as its target market flow control. The acquisition will be
funded through a combination of intercompany loans from the Group and local
bank lending.
The Group spent €65 million in cash on transactions in 2022 and expects to
spend a further c.€200 million in cash in 2023 from the transactions
announced in late 2022 and early 2023.
The aggregate incremental EBITDA contribution from MIRECO, SÖRMAŞ, Hi-Tech,
DBRL and Jinan New Emei is expected to be €25-30 million in 2023. EBITDA
synergies of between 30 and 50% of trailing EBITDA are targeted following the
full integration of each business into the Group's global network over the
next two to three years.
Returns to shareholders
The Board's capital allocation policy remains to support the long-term Group
strategy, providing flexibility for both organic and inorganic investment
opportunities and delivering attractive shareholder returns over the midterm.
These opportunities will be considered against a framework of strategic fit,
risk profile, rates of return, synergy potential and balance sheet strength.
The Group spent €79 million on project capital expenditure in 2022, which
includes investment towards the Production Optimisation Plan and M&A. In
2022 the Group incurred total capital expenditure of €157 million.
Given the resilient performance of the business in 2022, the Board has
recommended a final dividend of €1.10 per share for the full financial year,
and €52 million in aggregate. This represents a dividend cover of 3.0x
adjusted earnings per share. Subject to approval at the AGM on 24 May 2023,
the final dividend will be payable on 6 July 2023 to shareholders on the
register at the close of trading on 9 June 2023. The ex-dividend date is 8
June 2023. This represents a full year dividend of €1.60 per share.
The Board's dividend policy remains to target a dividend cover of below 3.0x
adjusted earnings over the medium term. Dividends will be paid on a
semi-annual basis with one third of the prior year's full year dividend being
paid at the interim.
OPERATIONAL REVIEW
Revenue 2022 2021 reported 2021 (constant currency) % change (reported) % change (constant currency)
Europe & Türkiye 866 701 696 24% 24%
Steel 571 474 468 20% 22%
Industrial 295 227 228 30% 29%
North America 890 659 740 35% 20%
Steel 694 505 569 38% 22%
Industrial 196 154 172 27% 14%
South America 515 359 409 43% 26%
Steel 389 279 319 40% 22%
Industrial 125 80 90 56% 39%
China & East Asia 420 376 405 12% 4%
Steel 231 206 225 12% 3%
Industrial 189 171 180 11% 5%
India/West Asia/Africa 627 455 478 38% 31%
Steel 486 359 381 35% 27%
Industrial 141 96 97 47% 45%
Total 3,317 2,551 2,729 30% 22%
Total steel 2,371 1,822 1,961 30% 21%
Total industrial 946 729 767 30% 23%
Steel overview
Supplying the steel market with refractory products and services accounts for
c.70% of RHI Magnesita revenues and the Group retains its position as the
market leader globally with a c.15% market share (c.30% excl. China and East
Asia). Refractory products line all steel making applications, protecting
equipment from extremely high temperatures of up to around 1,800°C, chemical
reactions, and abrasion of molten steel. Refractory product applications
include iron making (blast furnace 'BF' or direct reduction of iron 'DRI'),
the primary steel making process (basic oxygen furnace 'BOF' or electric arc
furnace 'EAF') as well as ingot and continuous casting. RHI Magnesita offers a
complete set of products and solutions for the entire steel making process.
The shortest lifespan of a refractory product in the steel-making process is
c.4 hours (the refractory part of a slide gate), whilst the longest lifespan
of a refractory product for the steel making process is c.6 months (the
lifetime of the working inner lining of the primary steel making application
(BOF or EAF)). Refractories used in the steel-making processes are therefore
classified as an operating expense by steel producers, accounting for around
2-3% of the cost of steel production, on average.
Steel Division revenues increased by 30% to €2,371 million (2021: €1,823
million), and by 21% in constant currency (2021: €1,961 million), largely as
a result of the price increases across the product range introduced in order
to mitigate inflationary cost pressures.
Compared to a contraction of global steel production of 4% (7% ex-China),
according to World Steel Association data, the Group's steel volumes decreased
by just 1%. Therefore, volumes outperformed local steel production,
demonstrating market share gains despite price increases.
In 2022, steel demand slowed, following a strong rebound in 2021 as markets
recovered after COVID-19 lockdowns. Economies globally were softer, as a
result of sharp increases in inflation, high supply chain volatility, monetary
tightening with rising interest rates and China's slow down. The
Russia/Ukraine conflict had a profound impact on energy markets globally,
especially in Europe. The appreciation of the US dollar on major global
currencies presented another headwind globally, impacting US denominated debt
in some economies, which reduced capacity for fiscal and private spending and
debt roll-over. However, the India steel market, the second largest steel
market globally, grew significantly in 2022, with steel production in India
increasing by 6%.
Freight availability and costs started to ease during 2022, following
significant disruption in the prior year. Supply chains were further disrupted
by supernormal energy costs and labour market tightness, which had an adverse
impact on production costs, specifically raw material production. Ocean
freight rates on lanes inbound to North America from South America and Europe
remained stubbornly high with poor reliability.
Industrial overview
In addition to its Steel Division, RHI Magnesita supplies refractory products
to customers in the cement and lime, non-ferrous metals, glass, energy,
environmental and chemicals industries. Overall, the Industrial Division makes
up c.30% of Group revenues. These customer applications have longer
replacement cycles, on average between 1 - 20 years, and are classified as
capital expenditure projects. Given the longer replacement cycles, refractory
products account for only between 0.2% - 1.5% of the customer cost base. RHI
Magnesita has a significant market share globally of c.30% in the cement and
lime business, c.30% market share in the non-ferrous metals business, c.20% in
glass, and c.5% across industrial applications (energy, environment,
chemicals, foundry and aluminium).
The Industrial Division recorded revenue of €946 million in 2022, an
increase of 30% compared to 2021 (2021: €729 million), or 23% in constant
currency (2021: €767 million). This was significantly higher given
successful cost increases passed on to customers from energy surcharges, in
addition to favourable foreign exchange movements.
The cement and lime business makes up 11% of Group revenues and in 2022
recorded revenue of €378 million (2021: €339 million in constant
currency). Cement and lime volumes were lower across all regions other than
North America, and globally volumes were 4% lower compared to 2021. This was
due to lower construction activity in most geographies, with China impacted by
COVID-19 lockdowns and Europe by the Russia/Ukraine conflict.
Demand for non-ferrous metal refractory products was very strong in 2022,
given higher volumes of shipments to complex projects for base metals
producers, and the delivery of some delayed projects from 2021. The Group
recorded 44% higher revenue than the prior year in constant currency to €219
million (2021: €152 million). This was largely due to the effect of price
increases, but also a significant increase in volumes by 22%, globally. The
non-ferrous metals business is the most profitable customer segment for RHI
Magnesita, and the gross margin was 37% in 2022 (2021: 41%). Markets related
to decarbonisation industries such as electric vehicles and batteries,
including the copper, nickel, lead and zinc markets, reached pre-COVID-19
level volumes in 2022. However, ferro-alloy markets have not yet recovered to
pre-COVID-19 volumes. Two new greenfield copper projects have been contracted
in Asia.
The Group's glass business was very strong in 2022 and recorded 41% higher
revenue in constant currency of €154 million (2021: €109 million). Higher
volumes of 9% were supported by demand from China and an increase in demand
from container and bottle production, as well as solar panels. Demand for
insulating materials such as glass and mineral wool also increased in the
year, from rising energy costs and an increased focus on CO2
reduction measures.
Industrial applications of refractory products include environment, energy,
chemicals, aluminium and foundry businesses. Revenue relating to these
applications increased by 4% in constant currency to €102 million (2021:
€99 million). Volumes increased by 5%, and increased demand was mostly from
the waste incineration sector and the aluminium industry. However, there was
some pressure on the energy-intensive industries like petrochemicals, given
higher energy costs.
The minerals business recorded revenue of €92 million, 47% higher than in
2021 (2021: €63 million) and 36% higher in constant currency (2021: €68
million).
Europe & Türkiye
In Europe & Türkiye, revenues increased by 24% to €866 million (2021:
€701 million) and by 24% in constant currency €696 million), despite lower
volumes compared to 2021 as business was lost from sanctioned customers in
Russia. The steel market was softer in the second half of the year given high
inflation and energy costs. High inflation and consequently higher interest
rates across Europe resulted in higher financing costs, which reduced end
market demand (specifically relating to construction). High energy costs led
to some EAF shutdowns regionally, as the cost of production became too high.
Demand for white goods slowed following an initial boom after the supply chain
constraints started in 2021, whilst automotive demand remained soft, due to
supply chain bottlenecks for semiconductors persisting.
However, the Group expanded market share across steel and industrial
industries across the region by c.2 ppts to c.22%, whilst successfully
implementing price increases to cover inflationary input costs, especially
relating to energy. Steel revenue in the region increased by 22% in constant
currency to €571 million (2021: €468 million). According to the World
Steel Association, steel production in the region contracted by 14%, where
high energy prices forced some steel mills to close. However, the Group
shipped volumes exceeded regional steel production materially, and the region
recorded 8% lower steel volumes compared to the prior year, a decline mainly
attributable to business lost in Russia. Steel demand is expected to continue
to contract in 2023 with energy availability remaining tight, exacerbated by
lower demand from a slowdown in China.
Industrial Division revenues increased by 29% in constant currency to €295
million (2021: €228 million), given price increases across all segments.
However, European customers in the Industrial Division were more sensitive to
price increases towards the end of the year, as input cost increases started
to flatten. The Group's end markets of construction and machinery have been
especially impacted by the slowdown in the European market, driving a
reduction in demand for steel and cement, whereas demand for glass and
non-ferrous metals remained strong and is characteristically affected later in
the economic cycle.
The supply chain issues in the region started to ease towards the end of 2022,
including stabilisation of major ocean freight lanes to China. As supply
chains slowly started to normalise, the region was able to reduce inventory
coverage ratio to 1.4, from 1.7 at the end of 2021. RHI Magnesita was able to
seamlessly serve its customers with considerably reduced lead times compared
to 2021.
The Russia/Ukraine conflict had an unprecedented impact on the global energy
markets, and more specifically on the availability and cost of natural gas.
The European plant network, made up of 12 refractory production plants and
four raw material plants (excluding recycling facilities), relies heavily on
natural gas. In order to mitigate the impact of a natural gas supply shortage
on production, €7 million on capex was invested during the year to install
the necessary infrastructure in the plants to substitute natural gas with
liquefied petroleum gas (LPG).
In the region, the Group continued to strengthen its flow control product line
and secured new business for isostatic pressed products and tundish slide gate
systems.
A customer in Slovenia expanded its solutions contract to cover connected
machinery and refractory optimisation, and another contract was won with a
customer in Eastern Europe which included digitalisation tools and a stock
management system.
Digitalisation at the customer site continues to be a major focus, used as a
tool to cement and win market share in the region. A contract was secured to
supply a large French customer with the AGELLIS system, enabling visibility of
the steel bath level in the tundish, and allowing for increased steel yield
and lower costs. Another major customer in Eastern Europe implemented a suite
of RHI Magnesita digital tools, including stock management, connected
machines, a refractory consumption dashboard and the customer portal.
It is becoming increasingly common for customers to request products with a
lower carbon footprint. The technical datasheets of RHI Magnesita's entire
refractory portfolio provide full transparency of the carbon footprint and are
unique within the refractory industry. In the UK, a major steel customer has
converted to the tundish lining solution, which is 100% free of natural gas
consumption. A customer in Austria implemented basic gunning mixes with an
ultra-lower CO2 footprint. The sustainability agenda in the region was
significantly supported by the joint venture with Horn & Co., creating
'MIRECO', to increase use of secondary raw material.
North America
Revenues for the year totalled €890 million in North America, an increase of
35% compared to 2021 (2021: €659 million) or by 20% on a constant currency
basis (2021: €740 million). The US dollar appreciated against the euro on
average by c.11% over the year. Growth in revenue was reflective of the price
increases implemented over the first half of the year. Prices stabilised in
the second half of the year given softer raw material costs and lower inbound
freight costs to North America from China.
Revenue for steel in North America was €694 million, an increase of 22%
versus 2021 in constant currency (2021: €569 million). Steel production in
the region contracted by 6%, according to World Steel Association data.
Shipped refractory volumes were stronger than regional steel production and
contracted by just 2%. The steel market started to soften in H2 2022, and by
the end of the year average steel prices and lead times for domestic producers
had reverted to near pre-pandemic levels, as the strong recovery of the US
economy slowed. Sharp interest rate increases by the Federal Reserve to cool
inflation has led to a slowdown of manufacturing activities and construction.
the Biden government's $1 trillion infrastructure spend is expected to bolster
demand despite the deteriorating economic environment. Meanwhile, vehicle
production in North America is expected to remain strong provided supply chain
bottlenecks ease, such as semiconductor availability.
Industrial Division revenues increased by 14% in constant currency to €196
million compared to 2021 (2021: €172 million) thanks to price increases and
a 4% increase in volumes. Within the industrial product range, non-ferrous
metals increased by 20% on a constant currency basis whilst volumes increased
by 7% and cement and lime adjusted revenue increased by 17% with volume
increase of 6%.
Despite headwinds impacting North America, operational execution continued to
be a priority and high inventory volume levels allowed for shorter lead times
for customers. Inventory coverage ratios reached 3.0x at the end of 2022 from
4.3x at the beginning of the year, given an increased focus on reducing
inventory following a peak in H2 2022, as supply chains stabilised.
The region made good progress in flow control, completing customer trials in
new tundish mix product lines, which benefit the customer through increased
productivity and efficiency in shorter re-lining and pre-heating times. The
region has also run successful trials with its customers across the ISO and
slide gate product lines.
The solutions business model is prominent in the North American market, and
accounts for over 40% of revenues. In 2022, a contract was secured for nine
years, worth $150 million, for a steel customer based in the US. Another major
steel customer has renewed solutions contracts across eight sites in the US,
varying between one to five years tenure.
Across technology and digitalisation, new contracts were secured for the
Terminator XL (laser scanner for residual refractory lining measurement with
Automatic Guided Gunning) and Hot Vision EAF (visualisation camera at
high-temperature environment) with major American steel customers. Across the
industrial space, digital refractory profile mapping was extended to cement
and lime customers. In 2022, 17 steel customers in North America implemented
the SAR+ (Refractory Application System) to collect data to control refractory
consumption and this will soon be rolled out across non-ferrous metals too.
The Group implemented new R&D projects in 2022, which will increase
recycled refractory volume by c.40%, increasing the rate in the region from 4%
to 7%. Secondary raw material was converted into other new sustainable
products such as ladle backfill, increasing recovery rates further. New
K-binder technology (a new type of organic binder used in refractory recipes)
was introduced for some steel applications, which is also a cost-competitive
way to reduce Scope 1 and 2 emissions since it substitutes the firing process
with lower temperature tempering.
South America
South America recorded revenue of €515 million, a significant increase of
43% on 2021 (2021: €359 million), or by 26% in constant currency (2021:
€409 million). This was due to the successful management of price increases
as inflationary costs and surcharges were passed through to customers in the
Steel and Industrial Divisions. The demand in Q4 2022 started to soften, given
a highly competitive cost environment. Steel revenue increased by 22% in
constant currency to €389 million (2021: €319 million). Shipped refractory
volumes in the Steel Division were 5% lower than in 2021, compared to steel
production in the region which was also 5% lower, according to World Steel
Association data.
Industrial revenues in constant currency increased by 39% over the period to
€125 million (2021: €90 million), almost entirely driven by the price
increases as industrial volumes increased by 2%.
Steel demand in many countries in South America experienced a contraction in
2022, driven by challenges from a high inflationary environment leading to
customer destocking and slowing construction, and lower export demand. Tighter
fiscal policy, inflation and higher interest rates could also reduce GDP
growth in the region in 2023, coupled with lower commodity prices reducing
demand. The automotive sector in the region has also been affected by the
scarcity of semiconductors produced in Asia. The manufacturing sector, mainly
in Brazil, was impacted by delays to imports of inputs, shortage of raw
materials and high costs.
Inventory coverage ratio reached 1.7x months in the region from 2.3x months at
the end of 2021, owing to a more regionalised business model and supply chains
started to normalise towards the end of the year.
A new solutions package for value-added services for the cement industry is
being piloted in North and South America, which will be available in three
tiers of service levels.
Currently, the Group provides over 100 digital solutions to all the industries
it serves. The Group's leading research and development expertise combined
with cutting-edge technologies like image recognition, Artificial
Intelligence, and Blockchain have produced solutions like RefracChain (a
platform which hosts smart contracts), LES (Lining Evaluation Scan), APO
(Automated Process Optimisation), ARO (Automated Refractory Optimisation) and
Connected Machines.
Circular economy agreements were made with two major cement and lime customers
based on a bundled offer of refractory sales and returned material, allowing
for a record level of use of secondary raw material to be reached in the
region. Over 200 tonnes of secondary raw material per month will be used for
cement products, following investment in patented washed material technology.
South America achieved over a 10% recycling rate during 2022 due to combined
sourcing, processing, consumption and sales efforts. Over the year, spent
refractories also from the paper, cellulose and aluminium industries were
collected, supporting customers across all markets with their recycling
efforts. In Argentina, the Group focused on supplying a full range of
high-quality recycled products to the regional market, in a closed loop
approach with steel customers.
India, West Asia & Africa
The India, West Asia & Africa region recorded revenue of €627 million in
2022, a significant increase of 31% in constant currency compared to 2021
(€478 million). This increase was mostly due to price increases, supported
by 8% higher sales volumes. On a reported basis, revenue increased by 38%
(2021: €455 million). The steel market in India continued to grow in 2022,
given higher levels of urban consumption and infrastructure spending, driving
demand for capital goods, automobiles and materials for roads and metro
projects. India's demand outlook remains strong, led by an increase in India's
steel consumption per capita and supported by the government's target to
double India steel production capacity by 2030. In West Asia and Africa,
higher oil prices are expected to bolster demand for construction activities
in the medium term as well as from large infrastructure projects in Egypt.
Steel revenue grew by 27% in the region in constant currency to €486 million
(2021: €381 million), with a 9% increase in volumes. This is against a 5%
increase in steel production in the region, according to World Steel
Association data, which demonstrated significant market share gains. Steel
production in India is expected to be stronger than previously anticipated in
2023 given the reversal of a policy to impose an export duty of 15% on steel,
although this is expected to be somewhat offset by the imposition of import
duties on raw materials.
In West Asia and Africa, further price increases will be implemented in 2023,
as some contracts do not yet fully reflect the higher cost environment. There
has been a strong focus on increasing the number of solutions contracts in
West Asia and Africa, to protect customers from supply chain volatility.
Industrial revenue increased by 47% in constant currency to €141 million
compared to 2021 (€96 million). This was driven by price increases and
through the sale of more profitable products such as non-ferrous metals.
Industrials volumes increased by 3%.
Adjusted revenue in the cement business increased by 31% however cement
volumes in the India/West Asia/Africa region decreased by 3%. Some market
share in the cement business was selectively lost in India, given tight plant
capacity. However, the Group's market share in cement grew in West Asia and
Africa, coupled with higher margins. A dynamic pricing approach has been taken
across the region for industrial customers, offsetting cost volatility.
High inventory levels ensured seamless supply for customers and reduced supply
chain volatility. A concerted effort was made to create a more localised
supply chain and allow for a reduction in inventory. Shifting some production
to India from Europe reduced inventory at sea, and the inventory coverage
ratio in the region reduced to 1.5x at year end (2021: 2.4x).
Digitalisation in the region has gained traction and in 2022 the SAR+ was
implemented to two customers in West Asia and Africa, and there was increased
utilisation of the customer portal for solutions contracts. The EMLI
(Electromagnetic Level Indicator) was installed at the tundish of a major
steel customer in India, the first of its kind in the region. The APO was
installed at two major customer sites in India on steel applications, and a
further two were implemented in West Asia.
Within flow control, successful trials were executed in the isostatic thin
slab segment, tundish cold setting mixes, slide gates and purge beams which
either led to customer orders in the region or are expected to convert into
orders in 2023. Lastly, a major steel customer in the region made a new order
for billet caster refractories.
China & East Asia
The China & East Asia region recorded a revenue increase of 12% compared
to 2021, to €420 million (€376 million) on a reported basis and by 4% on a
constant currency basis (2021: €405 million) given the depreciation of the
euro against the Chinese Yuan and US dollar. Volumes increased by 2% and the
Group was able to pass through some inflationary costs. Steel revenues in the
region increased by 3% in constant currency to €231 million (2021: €225
million), whilst volumes were flat. Comparatively, World Steel Association
data reported a contraction of steel production in China of 2% and a 3%
contraction in the region of China and East Asia.
The Chinese economy cooled in 2022, impacted by strict COVID-19 lockdowns
aligned to its zero COVID-19 policy, which was abolished in December 2022. The
Chinese real estate market, and therefore construction, was especially weak
during the year. Infrastructure investment from government measures is
expected to support this end market in 2023. Given the Group has a steel
market share of just 1% in the largest steel market globally, China still
presents a compelling growth opportunity. Outside of China, developed markets
Japan and South Korea weakened towards the end of 2022, impacted by rising
material costs and labour shortages causing construction delays. The region
was also impacted by currency devaluation and lower demand. Recovery is
expected in 2023 led by the automotive end market, as supply chain issues
ease, and yet downside risks remain, given the region is a net exporter of
steel against a weakening global economic backdrop.
Industrial revenue increased by 5% in 2022 compared to the prior year in
constant currency to €189 million (2021: €180 million), driven by volumes
increasing by 4%. This is reflective of progress to regionalise the cement
market, new technology in glass and winning contracts in non-ferrous metals
with key customers.
Supply of refractories into the Chinese and Eastern Asian cement market is
expected to strengthen in 2023, with the opening of the new Alumina fired
bricks plant in Chongqing, China.
Given higher input costs in the western hemisphere, sourcing of some raw
materials and finished products was moved to Asia, which helped to reduce lead
time and this ensured products could be priced more competitively. Inventory
coverage ratios decreased to 1.5x at 31 December 2022, from 1.6x at 31
December 2021.
The Group targets the high-quality steel segment in the region. Here the
Group's leading capabilities in R&D will benefit sales in 2023 as
customers opt for more sophisticated products and services, especially in flow
control, such as isostatic products and slide gates. Successful trials of
isostatic products have been initiated in Japan and Korea. Given China's cost
competitive position, new tundish mixes have been developed in China as an
alternative to Eskişehir, Türkiye, given the inflationary environment in
Türkiye.
The solutions business model continues to be an effective way of winning and
retaining market share. The Group was selected to be the complete solutions
provider of refractories for future projects with the largest steel producer
in the world, based in China. A major contract with the largest steel producer
in Vietnam was successfully renegotiated for three years at a price of €65
million, where RHI Magnesita manage their working capital, helping to drive
efficiency gains against volatile supply chains. The Group have agreed to
partner with a major customer based in South Korea on the design and
development of refractories for the DRI smelting unit, as the sustainable
partner of choice, as customers start to decarbonise their processes.
Alternative performance measures ("APMs")
Definitions of APMs used by the Group are set out below, including the purpose
and usefulness of each APM and a reconciliation to the nearest IFRS equivalent
measure, or a reference to a reconciliation appearing elsewhere in this
document. In general, APMs are presented externally to meet investor and
analyst requirements for clarity and transparency of the Group's underlying
financial performance. APMs are also used internally in the management of the
Group's business performance, budgeting and forecasting. APMs are non-IFRS
measures which enable investors and other readers to review alternative
measurements of financial performance but they should not be used in isolation
from the main financial statements. Commentary within the Annual Report,
including the Financial Review, as well as the Consolidated Financial
Statements and the accompanying notes, should be referred to in order to fully
appreciate all the factors and context affecting the Group's financial
performance. Readers are strongly encouraged not to rely on any single
financial measure and to carefully review the Group's reporting in its
entirety.
Performance APMs
Adjusted EBITDA
Adjusted EBITDA is a key non-IFRS measure that the CEO, EMT and Directors use
internally to assess the underlying financial performance of the Group and is
viewed as relevant to capital intensive industries. The ratio of Net Debt to
Adjusted EBITDA is used as a measure of financial gearing.
Adjusted EBITDA is defined as EBIT, as presented in the Consolidated Statement
of Profit or Loss, before amortisation, depreciation, and Excluded items (see
definition below).
Adjusted EBITA
Adjusted EBITA is a key non-IFRS measure that the CEO, EMT and Directors use
internally to assess the underlying performance of the Group.
It is determined consistently with Adjusted EBITDA, but includes depreciation
expense of property, plant and equipment to reflect the wear and tear cost and
future replacement of productive assets on the Group.
Adjusted EPS
Adjusted EPS is a key non-IFRS measure and one of the Group's KPIs. It is used
to assess the Group's underlying operational performance, post tax and
non-controlling interests on a per share basis.
This measure is based on Adjusted EBITA after finance income and expenses,
taxes, share of profit or loss from associates and joint ventures and
non-controlling interest. Share of profit or loss from associates and joint
ventures is adjusted to exclude impairments and gains or losses recognised on
disposals.
It excludes finance income and expenses, including foreign exchange, that are
not directly related to operational performance. This includes the non-cash
present value adjustments for the unfavourable contract that was required to
satisfy EU remedies put in place at the time of the RHI and Magnesita merger
in 2017.
Taxes are adjusted to remove the impacts of items already excluded as well as
certain tax impacts that do not affect the underlying performance of the
business.
Excluded items
Items that are excluded (Excluded items) in arriving at the Group's Adjusted
measures of Adjusted EBITA, EBITDA and EPS include:
Other income, other expenses and Restructuring expenses as reflected on the
Statement of Consolidated Profit and Loss as well as gains and losses within
Interest income, interest expenses and other net financial expenses that are
regarded as one off in nature and not reflective of the underlying operational
performance of the business. Excluded items includes impairments of property,
plant and equipment, goodwill, intangibles and investments in equity accounted
units, restructuring related provisions, gains/losses from the disposal of
assets, subsidiaries, associates and joint ventures. The tax impacts of the
above Excluded Items as well as one off tax income/expenses not affecting
pre-tax profit, such as the accounting one-off impacts of changes in tax
rates, are also adjusted for.
Cash flow performance measures
Operating Cash flow and Free cash flow
Adjusted operating cash flow is a key non-IFRS measure used by management and
the directors to reflect the operational cash generation capacity of the Group
before the cash impacts of Excluded Items (see definition above).
It is defined as Adjusted EBITDA adjusted for working capital items, changes
in other assets and liabilities and capital expenditure and other non-cash
items, such as share based payments. This APM is reconciled to Net Cash flow
from operating activities as follows:
€m 2022 2021
Adjusted operating cash flow (APM) 154.7 (254.4)
Add: Capital expenditure (1) 156.7 252.1
Less: Income Taxes paid (1) (53.7) (38.6)
Other income/expenses and restructuring items (1) (23.8) (51.0)
Net cash flow from operating activities (1) 233.9 (91.9)
(1) As reflected in the Consolidated Statement of Cash Flows
Free cash flow is determined from the IFRS measures of Net cash flow from
operating activities, net cash used In investing activities and net cash (used
in)/provided by financing activities and excludes the cash impacts of
purchases and disposals of business and subsidiaries, dividends paid to equity
shareholders of the Group, share capital transactions with shareholders,
proceeds and repayment of borrowings and current borrowings and repayment of
leases.
Free cash flow is reconciled to Cash changes in net debt in the table in the
cash flow section of the Financial Review and then to Change in cash and cash
equivalents, in the Net Debt APM.
Balance sheet
Liquidity
Liquidity comprises cash and cash equivalents, short term marketable
securities and undrawn committed credit facilities.
€m 2022 2021
Cash and cash equivalents (1) 520.7 580.8
Add: Revolving credit facility (RCF) 600.0 600.0
Liquidity (APM) 1120.7 1180.8
(1) As reflected in the Consolidated Statement of Financial Position
Net Debt
Net Debt is the excess of current and non-current borrowings, associated debt
derivatives for which hedge accounting is applied and lease liabilities over
cash and cash equivalents and short-term marketable securities. The Board uses
this measure for the purposes of capital management. A reconciliation of Net
Debt is included in note 34.
€m 2022 2021
Cash changes in net debt (81.7) (415.5)
Proceeds from borrowings (1) 344.4 516.1
Repayment of borrowings (1) (278.0) (112.7)
Change in current borrowings (1) (13.9) 5.5
Repayment of lease obligations (1) (20.6) (16.3)
Change in cash and cash equivalents (1) (49.8) (22.9)
(1) As reflected in the Consolidated Statement of Cash Flows
Working capital
Working capital consists of inventories less trade receivables and other
receivables plus trade payables and other payables. Working capital intensity
provides a measure of how efficient the Company is in managing operating cash
conversion cycles. It is measured as Working capital divided by trailing
three-month revenues (annualised) and is expressed as a percentage.
€m 2022 2021
Inventories (Note 21) 1,049.2 976.5
Trade receivables (Note 22) 433.4 403.7
Contract assets (Note 22) 3.5 3.6
Contract liabilities (Note 32) (61.8) (57.9)
Accounts receivable 375.0 349.4
Trade payables (Note 32) (506.5) (649.2)
Total working capital 917.7 676.7
Return on invested capital (ROIC)
ROIC reflects the annualised return on invested capital of the Group. It is
calculated as NOPAT (net operating profit after tax) divided by total invested
capital at the balance sheet date.
€m 2022 2021
Revenue (1) 3,317.2 2,551.4
Cost of sales (1) (2,553.8) (1,967.9)
Selling and marketing expenses (1) (131.3) (108.1)
General and administrative expenses (1) (277.2) (217.4)
Income taxes paid (2) (53.7) (38.5)
NOPAT 301.2 219.5
(1) As reflected in the Consolidated Statement of Profit and Loss
(2) As reflected in the Consolidated Statement of Cash Flows
€m 2022 2021
Goodwill (3) 136.9 114.4
Other intangible assets (3) 316.6 282.6
Property, plant and equipment (3) 1,203.7 1089.7
Investments in joint ventures and associates (3) 5.7 5.7
Other non-current assets (3) 40.0 41.2
Deferred tax assets (3) 128.2 202.4
Inventories (3) 1,049.1 976.5
Trade and other receivables (3) 578.9 568.2
Income tax receivables (3) 38.7 35.1
Deferred tax liabilities (3) (62.0) (48.4)
Trade and other current liabilities (3) (780.3) (883.2)
Income tax liabilities (3) (38.3) (38.2)
Current provisions (3) (30.1) (55.0)
Invested capital 2,587.1 2,291.0
Return on invested capital (2) 11.6% 9.6%
(3) As reflected in the Consolidated Statement of Financial Position
FORWARD LOOKING STATEMENTS
This announcement contains (or may contain) certain forward-looking statements
with respect to certain of the Company's current expectations and projections
about future events. These statements, which sometimes use words such as
"aim", "anticipate", "believe", "intend", "plan", "estimate", "expect" and
words of similar meaning, reflect the directors' beliefs and expectations and
involve a number of risks, uncertainties and assumptions which could cause
actual results and performance to differ materially from any expected future
results or performance expressed or implied by the forward-looking statement.
Statements contained in this announcement regarding past trends or activities
should not be taken as a representation that such trends or activities will
continue in the future. The information contained in this announcement is
subject to change without notice and, except as required by applicable law,
the Company does not assume any responsibility or obligation to update
publicly or review any of the forward-looking statements contained in it and
nor does it intend to. You should not place undue reliance on forward looking
statements, which apply only as of the date of this announcement. No statement
in this announcement is or is intended to be a profit forecast or profit
estimate or to imply that the earnings of the Company for the current or
future financial years will necessarily match or exceed the historical or
published earnings of the Company. As a result of these risks, uncertainties
and assumptions, the recipient should not place undue reliance on these
forward looking statements as a prediction of actual results or otherwise. The
Company has no obligation or undertaking to update or revise the
forward-looking statements contained in this announcement to reflect any
change in its expectations or any change in events, conditions, or
circumstances on which such statements are based unless required to do so by
applicable regulations.
Consolidated Financial Statements 2022
Consolidated Statement of Profit or Loss
for the year ended 31 December 2022
in € million Note 2022 2021
Revenue (5) 3,317.2 2,551.4
Cost of sales (5) (2,553.8) (1,967.9)
Gross profit 763.4 583.5
Selling and marketing expenses (131.3) (108.1)
General and administrative expenses (277.2) (217.4)
Result from operating joint ventures and associates 0.1 0.0
Restructuring (6) 6.8 (58.8)
Other income (7) 4.8 29.1
Other expenses (8) (23.0) (14.5)
EBIT 343.6 213.8
Interest income (11) 8.3 14.2
Interest expenses on borrowings (27.4) (20.7)
Net (expense)/income on foreign exchange effects and related derivatives (12) (23.3) 2.8
Other net financial expenses (13) (30.7) (21.2)
Net finance costs (73.1) (24.9)
Result from joint ventures and associates 0.0 100.2
Profit before income tax 270.5 289.1
Income tax (14) (103.7) (39.4)
Profit after income tax 166.8 249.7
RHI Magnesita N.V. shareholders 155.7 243.1
Non-controlling interests (26) 11.1 6.6
in €
Earnings per share - basic (15) 3.31 5.10
Earnings per share - diluted (15) 3.26 5.05
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2022
in € million Note 2022 2021
Profit after income tax 166.8 249.7
Currency translation differences
Unrealised results from currency translation 49.9 66.6
Unrealised results from net investment hedge and foreign operations (37) (5.4) (10.2)
Deferred taxes thereon (14) (3.2) 4.1
Current taxes thereon (14) 4.1 0.1
Reclassification to profit or loss - Disposal subsidiaries 0.7 (7.9)
Cash flow hedges
Unrealised fair value changes (36) 58.0 8.7
Reclassification to profit or loss (7.2) 0.0
Deferred taxes thereon (14) (11.9) (2.1)
Items that will be reclassified subsequently to profit or loss, if necessary 85.0 59.3
Remeasurement of defined benefit plans
Remeasurement of defined benefit plans (29) 58.0 25.3
Deferred taxes thereon (14) (18.5) (5.2)
Share of other comprehensive income of joint ventures and associates 0.0 0.6
Reclassification to other reserves due to disposal of joint ventures and 0.0 (0.5)
associates
Items that will not be reclassified to profit or loss 39.5 20.2
Other comprehensive income after income tax 124.5 79.5
Total comprehensive income 291.3 329.2
RHI Magnesita N.V. shareholders 282.7 320.5
Non-controlling interests (26) 8.6 8.7
Consolidated Statement of Financial Position
as at 31 December 2022
in € million Note 31.12.2022 31.12.2021
ASSETS
Non-current assets
Goodwill (17) 136.9 114.4
Other intangible assets (18) 316.6 282.6
Property, plant and equipment (19) 1,203.7 1,089.7
Investments in joint ventures and associates 5.7 5.7
Other non-current financial assets (35) 55.1 14.6
Other non-current assets (20) 40.0 41.2
Deferred tax assets (14) 128.2 202.4
1,886.2 1,750.6
Current assets
Inventories (21) 1,049.1 976.5
Trade and other current receivables (22) 578.9 568.2
Income tax receivables (14) 38.7 35.1
Other current financial assets (35) 1.3 2.9
Cash and cash equivalents (23) 520.7 580.8
2,188.7 2,163.5
4,074.9 3,914.1
EQUITY AND LIABILITIES
Equity
Share capital (24) 49.5 49.5
Group reserves (25) 951.7 736.4
Equity attributable to shareholders of RHI Magnesita N.V. 1,001.2 785.9
Non-controlling interests (26) 47.4 36.3
1,048.6 822.2
Non-current liabilities
Borrowings (27) 1,404.9 1,321.0
Other non-current financial liabilities (28) 92.8 106.0
Deferred tax liabilities (14) 62.0 48.4
Provisions for pensions (29) 214.7 269.0
Other personnel provisions (30) 51.7 68.7
Other non-current provisions (31) 80.0 63.6
Other non-current liabilities 6.3 5.9
1,912.4 1,882.6
Current liabilities
Borrowings (27) 215.1 213.7
Other current financial liabilities (28) 50.1 19.2
Trade payables and other current liabilities (32) 780.3 883.2
Income tax liabilities (14) 38.3 38.2
Current provisions (31) 30.1 55.0
1,113.9 1,209.3
4,074.9 3,914.1
Consolidated Statement of Cash Flows
for the year ended 31 December 2022
in € million Note 2022 2021
Cash generated from/(used in) operations (33) 287.5 (53.3)
Income tax paid less refunds (53.7) (38.5)
Net cashflow from operating activities 233.8 (91.8)
Investments in property, plant and equipment and intangible assets (156.7) (252.1)
Investments in subsidiaries net of cash acquired (63.2) 3.2
Cash flows from sale of subsidiaries net of cash disposed of 0.0 (4.8)
Cash receipts from the sale of equity instruments of interests in joint 8.7 100.0
ventures
Cash inflows from the sale of property, plant and equipment 1.8 12.2
Cash inflows from the sale of financial assets 2.8 0.0
Dividends received from joint ventures and associates 0.0 7.6
Investment subsidies received 0.7 2.4
Interest received 6.1 2.7
Cash inflows/outflows from non-current receivables 0.1 (0.1)
Net cash used in investing activities (199.7) (128.9)
Repurchase of treasury shares 0.0 (95.5)
Acquisition of non-controlling interests (1.4) 0.0
Dividends paid to RHI Magnesita shareholders (70.5) (71.2)
Dividend paid to non-controlling interests (1.5) (1.4)
Proceeds from long-term financing 344.4 516.1
Repayments of long-term financing (278.0) (112.7)
Changes in current borrowings (12.2) 5.5
Interest payments (41.0) (26.6)
Repayment of lease obligations (20.6) (16.3)
Interest payments from lease obligations (1.3) (1.1)
Cash flows from derivatives (1.8) 0.9
Net cash (used in)/provided by financing activities (34) (83.9) 197.7
Total cash flow (49.8) (23.0)
Change in cash and cash equivalents (49.8) (23.0)
Cash and cash equivalents at beginning of period 580.8 589.2
Foreign exchange impact (10.3) 14.6
Cash and cash equivalents at end of period (23) 520.7 580.8
Consolidated Statement of Changes in Equity
for the year ended 31 December 2022
Group reserves
Accumulated other comprehensive income
in € million Share Treasury shares Additional Mandatory reserve Retained earnings Cash flow hedges Defined Currency translation Equity attributable Non-controlling interests Total equity
capital
paid-in
benefit plans
to shareholders
capital
of RHI Magnesita N.V.
Note (24) (25) (25) (25) (25) (25) (25) (25) (26)
31.12.2021 49.5 (117.0) 361.3 288.7 532.8 (7.1) (125.1) (197.2) 785.9 36.3 822.2
Profit after income tax - - - - 155.7 - - - 155.7 11.1 166.8
Currency translation differences - - - - - - - 48.6 48.6 (2.5) 46.1
Cash flow hedges - - - - - 38.9 - - 38.9 - 38.9
Defined benefit plans - - - - - - 39.5 - 39.5 - 39.5
Other comprehensive income after income tax - - - - - 38.9 39.5 48.6 127.0 (2.5) 124.5
Total comprehensive income - - - - 155.7 38.9 39.5 48.6 282.7 8.6 291.3
Transactions with shareholders
Dividends - - - - (70.5) - - - (70.5) (1.5) (72.0)
Share transfer/vested LTIP - 0.9 - - (0.9) - - - - - -
Change in non-controlling interests due to addition to consolidated companies - - - - - - - - - 6.1 6.1
(1))
Reclassification of puttable non-controlling interests without a change of - - - - (4.8) - - - (4.8) (6.1) (10.9)
control (1))
Change in non-controlling interests due to addition to consolidated companies - - - - - - - - - 5.0 5.0
(2))
Change in non-controlling interests without a change of control (2)) - - - - (0.4) - - - (0.4) (1.0) (1.4)
Share-based payment expenses - - - - 8.3 - - - 8.3 - 8.3
Transactions with shareholders - 0.9 - - (68.3) - - - (67.4) 2.5 (64.9)
31.12.2022 49.5 (116.1) 361.3 288.7 620.2 31.8 (85.6) (148.6) 1,001.2 47.4 1,048.6
1) Further information is provided under Note (35) and Note (42).
2) Further information is provided under Note (42).
Group reserves
Accumulated other comprehensive income
in € million Share Treasury shares Additional Mandatory reserve Retained earnings Cash flow hedges Defined Currency translation Accumulated other comprehensive income/expenses relating to disposal groups Equity attributable Non-controlling interests Total equity
capital
paid-in
benefit plans
to shareholders
capital
of RHI Magnesita N.V.
Note (24) (25) (25) (25) (25) (25) (25) (25) (26)
31.12.2020 49.5 (21.5) 361.3 288.7 376.8 (13.7) (145.7) (257.1) 7.8 646.1 20.0 666.1
Profit after income tax - - - - 243.1 - - - - 243.1 6.6 249.7
Currency translation differences - - - - - - - 58.5 (7.9) 50.6 2.1 52.7
Cash flow hedges - - - - - 6.6 - - - 6.6 - 6.6
Defined benefit plans - - - - - - 20.0 - 0.1 20.1 - 20.1
Share of other comprehensive income of joint ventures and associates - - - - (0.5) - 0.6 - - 0.1 - 0.1
Other comprehensive income after income tax - - - - (0.5) 6.6 20.6 58.5 (7.8) 77.4 2.1 79.5
Total comprehensive income - - - - 242.6 6.6 20.6 58.5 (7.8) 320.5 8.7 329.2
Dividends - - - - (71.2) - - - - (71.2) (1.4) (72.6)
Shares repurchased (1)) - (95.5) - - - - - - - (95.5) - (95.5)
Reclassification of puttable non-controlling interests without change of - - - - (1.6) - - 1.4 - (0.2) 9.0 8.8
control
Change in non-controlling interests due to addition to consolidated companies - - - - - - - - - - 3.4 3.4
Reclassification of puttable non-controlling interests without a change of - - - - (20.0) - - - - (20.0) (3.4) (23.4)
control
Share-based payment expenses - - - - 6.2 - - - - 6.2 - 6.2
Transactions with shareholders - (95.5) - - (86.6) - - 1.4 - (180.7) 7.6 (173.1)
31.12.2021 49.5 (117.0) 361.3 288.7 532.8 (7.1) (125.1) (197.2) 0.0 785.9 36.3 822.2
1) The share buyback programme initiated in December 2020 has been completed
in April 2021. The share buyback program was subsequently extended in May 2021
and completed in August 2021.
Notes
to the Consolidated Financial Statements 2022
1. Authorisation of Financial Statements and Statement of Compliance with
International Financial Reporting Standards
The Consolidated Financial Statements of RHI Magnesita N.V. and its
subsidiaries (collectively referred to as RHIM or the Group) for the year
ended 31 December 2022 were approved and authorised for issue by the board of
directors on 26 February 2023 and will be submitted for adoption to the Annual
General Meeting of shareholders on 24 May 2023. RHIM a public limited company
under Dutch law, is registered with the Dutch Trade Register of the Chamber of
Commerce under the number 68991665 and has its corporate seat in Arnhem,
Netherlands. The administrative seat and registered office is located at
Kranichberggasse 6, 1120 Vienna, Austria.
The Group is a global industrial group whose core activities include the
development and production, sale, installation and maintenance of high-grade
refractory products and systems used in industrial high-temperature processes
exceeding 1,200°C.
Basis for preparation
The Consolidated Financial Statements of the Group have been prepared on a
going concern basis and in accordance with IFRSs as issued by the IASB and
interpretations issued by the IFRIC, as endorsed by the European Union (EU).
The accounting policies that follow have been consistently applied to all
years presented, except where otherwise indicated. With the exception of
specific items such as derivative financial instruments and plan assets for
defined benefit obligations, the Consolidated Financial Statements are
prepared on a historical cost basis.
The financial year of RHI Magnesita N.V. and the Group corresponds to the
calendar year. Subsidiaries with a financial year different to the Group, due
to local legal requirements, provide financial information to allow
consolidation consistent with the Group's financial year. The Consolidated
Financial Statements are presented in Euros and all values are rounded to the
nearest € million, except where otherwise indicated. The Group has availed
the exemption provided by section 264 paragraph 3 HGB of the German commercial
Code for the following entities: RHI Urmitz AG & Co. KG (Koblenz),
Magnesita Refractories GmbH (Wiesbaden), RHI GLAS GmbH (Wiesbaden), RHI
Refractories Site Services GmbH (Wiesbaden), RHI Magnesita Deutschland AG
(Wiesbaden). The exemption permits these entities, which are consolidated, to
not prepare their stand-alone Financial Statements under local regulations.
Basis of consolidation
The Consolidated Financial Statements consolidate the Financial Statements of
the Group. Subsidiaries are consolidated from the date on which the Group
obtains control, including when control is obtained via potential voting
rights, and continue to be consolidated until the date that control ceases.
The financial information of subsidiaries is prepared for the same reporting
year as the parent company, using consistent accounting policies. When the
Group ceases to have control, any retained interest in the entity is
remeasured to its fair value, with the change in carrying amount recognised in
the Statement of Profit or Loss. The fair value is the initial carrying amount
for the purposes of subsequently accounting for the retained interest as an
associate, joint venture or financial asset. In addition, any amounts
previously recognised in Other Comprehensive Income in respect of that entity
are accounted for as if the Group had directly disposed of the related assets
or liabilities. This treatment may mean that amounts previously recognised in
Other Comprehensive Income are recycled through the Statement of Profit or
Loss. Intercompany balances and transactions, including unrealised profits
arising from intragroup transactions, are eliminated in full. Unrealised
losses are eliminated in the same way as unrealised gains except that they are
only eliminated to the extent that there is no evidence of impairment.
Non-controlling interests represent the equity in subsidiaries that is not
attributable, directly or indirectly, to the Group's shareholders.
Please refer to the Company Financial Statements of RHI Magnesita N.V. for a
list of the Company's subsidiaries, joint ventures and associates in which it
holds more than 20%.
Going concern
In considering the appropriateness of adopting the going concern basis in
preparing the Consolidated Financial Statements, the Directors have assessed
the potential cash generation of the Group and considered a range of downside
scenarios that model different degrees of potential economic downturn, using
the same model performed for the viability assessment. This assessment covers
the period to 31 December 2024.
The scenarios considered by the Directors include a severe but plausible
downside and a reverse stress test which determines the level of EBITDA that
could breach the Group's debt covenant. Further mitigating actions within
management control would be undertaken in such scenarios, including but not
limited to: fixed cost and capital expenditure reduction, raising debt or
reducing or cancelling the dividend. These mitigation actions were not
incorporated in the downside modelling.
The Directors have also considered the Group's current liquidity and available
facilities. As of 31 December 2022, the Consolidated Statement of Financial
Position reflects cash and cash equivalents of €520.7 million. In addition,
the Group has access to a €600 million Revolving Credit Facility (RCF),
which is currently undrawn and not relied upon for the purpose of the going
concern assessment. The Group is in compliance with the debt covenant.
In the scenarios assessed and taking into account liquidity, available
resources and before the inclusion of all mitigating actions, the Directors
consider it is appropriate to continue to adopt the going concern basis in
preparing the Consolidated Financial Statements for the period ended 31
December 2022.
2. Impact of new financial reporting standards and interpretations
Adoption of new financial reporting standards and interpretations
The following amendments of standards have become effective during the
reporting period. None of these amendments had a material impact on the
Group's accounting and measurement principles.
Standard Title Effective date(1)) Effects on RHI Magnesita Consolidated Financial Statements
Amendments of standards
IFRS 3 Amendments to IFRS 3 Business Combinations (Update of an outdated reference to 01.01.2022 No material impact
the Conceptual Framework in IFRS 3 without significantly changing the
requirements in the standard)
IAS 16 Amendments to IAS 16 Property Plant and Equipment (Proceeds received from 01.01.2022 No material impact
selling items produced while the entity is preparing the asset for its
intended use, is prohibited from deducting against the cost of an item of
PP&E. Instead, such proceeds are to be recognised in profit or loss)
IAS 37 Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets 01.01.2022 No material impact
(Onerous Contracts - Cost of Fulfilling a Contract. It clarifies that the
direct costs of fulfilling a contract include both the incremental costs of
fulfilling the contract and an allocation of other costs directly related to
fulfilling contracts)
Annual Improvements 2018-2020 Annual Improvements to IFRS Standards 2018-2020 (IFRS 1, IFRS 9, IFRS 16 and 01.01.2022 No material impact
IAS 41)
1) According to EU Endorsement Status Report of 22.09.2022.
New financial reporting standards and interpretations not yet applied
The following financial reporting standards have been adopted by the EU and
were not early adopted and are not expected to have a significant impact on
the Group.
Standard Title Effective date(1)) Impact
New standards
Amendments of standards
IFRS 17 Amendments to IFRS 17 Insurance contracts (Require a current measurement model 01.01.2023 No material impact
where estimates are remeasured in each reporting period. Also allows a choice
recognising changes in discount rates)
IAS 12 Amendments to IAS 12 Income Taxes (Require to recognise deferred tax on 01.01.2023 No material impact
transactions that, on initial recognition, give rise to equal amounts of
taxable and deductible temporary differences)
IAS 1 Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice 01.01.2023 No material impact
Statement 2 (Disclosure of material rather than significant accounting
policies)
IAS 8 Amendments to IAS 8 Accounting policies (Changes in Accounting Estimates and 01.01.2023 No material impact
Errors clarifies how to distinguish changes in accounting policies from
changes in accounting estimates)
1) According to EU Endorsement Status Report of 22.09.2022.
The IASB issued further standards, amendments to standards and interpretations
yet to be adopted by the EU. They are not expected to have a significant
impact on the Group.
Standard Title Effective date(1)) Impact
New standards
Amendments of standards
IAS 1 Amendments to IAS 1 Presentation of Financial Statements (Classification of 01.01.2023 No material impact
Liabilities as Current or Non-current, depending on the rights that exist at
the end of the reporting period)
IFRS 16 Amendments to IFRS 16 Leases (Lease Liability in a Sale and Leaseback) 01.01.2024 No material impact
1) According to EU Endorsement Status Report of 22.09.2022.
3. Significant Accounting Policies, Judgements and Estimates
Interests in other entities
Business combinations
Business combinations are accounted for using the acquisition method. The
identifiable assets acquired and liabilities assumed, including any contingent
consideration, are recognised at their fair values at the acquisition date.
The amount of the purchase consideration and value of non-controlling interest
on acquisition, if any, above the fair value of assets and liabilities is
recognised as goodwill (see separate policy). Negative goodwill, if any, is
recognised within other income immediately. Transaction costs related to a
business combination are expensed as incurred. When control is obtained, any
non-controlling interest is recognised as the proportionate share of the
identifiable net assets. The acquisition of a non-controlling interest in a
subsidiary and the sale of an interest while retaining control, are accounted
for as transactions within equity unless they result in the loss of control.
The difference between the purchase consideration or sale proceeds after tax
and the relevant proportion of the non-controlling interest, measured by
reference to the carrying amount of the interest's net assets at the date of
acquisition or sale, is recognised in retained earnings as a movement in
equity attributable to the Group's shareholders.
Where the Group acquires less than 100% of shares in a business combination,
IFRS 3 'Business Combinations' allows an accounting policy choice whereby
non-controlling interest is either reflected at fair value including
allocation of goodwill or at the fair value of the assets and liabilities
acquired, excluding goodwill. This accounting policy choice can be exercised
individually for each acquisition. For business combinations achieved in
stages, the Group's previously held equity interest is remeasured to fair
value at the acquisition date. Any gains and losses arising from such
remeasurement are recognised in profit or loss.
Net assets of subsidiaries not attributable to the Group are shown separately
in equity as non-controlling interests.
As part of a business acquisition or subsequently, the Group may enter into
agreements with non-controlling interests in the form of a call or written put
option to acquire the outstanding shares. A call option provides the Group
with the right to acquire the outstanding shares not already owned while a
written put option allows the non-controlling interest to sell their shares to
the Group. The option price may be based on an earnings multiple such as
EBITDA subject to contractual limits, if any, or may be fixed and exercisable
at a future date. A financial liability is recognised on the written put
option at the present value of the estimated redemption amount. Where the
option is assessed to result in the non-controlling interest transferring the
risks and rewards of ownership to the Group, on acquisition, the financial
liability forms part of the purchase consideration with no value assigned to
non-controlling interests. The financial liability is measured in line with
IAS 32 'Financial Instruments: Presentation' at amortised cost with subsequent
changes in value reflected in the Statement of Profit or Loss. For fixed price
call and put options, the risks and rewards of ownership relating to the
outstanding shares are assumed to have transferred to the Group.
Where the risks and rewards of ownership under the option are not transferred
to the Group, the financial liability is not considered as part of the
purchase consideration and a non-controlling interest is recognised on
acquisition. The financial liability is initially recognised against equity.
The Group applies the provisions of IAS 32 'Financial Instruments:
Presentation' and subsequently derecognises the non-controlling interest to
the extent that it is equal or less than the financial liability, against
equity. The financial liability is measured at amortised cost with changes in
the carrying amount reflected in the Statement of Profit or Loss.
Dividends paid to non-controlling interest with a fixed price or option are
reflected as an expense within other finance expense unless there is a
contractual right to reduce the liability.
Goodwill may also arise upon investments in joint ventures and associates,
being the surplus of the cost of investment over the Group's share of the net
fair value of the identifiable net assets. Any such goodwill is recorded
within the corresponding investment in joint ventures and associates.
Significant judgements: Control over Horn & Co Minerals Recovery and SÖRMAŞ
During the year, the Group acquired 51.0% and 86,8% interest in Horn & Co
Minerals Recovery ("Mireco") and SÖRMAŞ, respectively. Judgement is required
in assessing the level of control or influence over another entity in which
the Group holds an interest. The Group considered its respective rights and
power to control in terms of the purchase agreements and judged that the Group
controls both entities and consolidated these from the date of control. The
Group exercises control over Mireco and SÖRMAŞ as it has the power to steer
the relevant activities of the business and can use this power to affect the
variable returns that it is exposed to. This is achieved through the Group's
voting rights and management representation.
Significant judgements: Recognition of non-controlling interest of Mireco
The acquisition of Mireco includes a call and written put option for the Group
to acquire the outstanding shares based on an EBITDA to net debt earnings
multiple. The Group has judged, based on the terms and pricing of the call and
written put option, that the risks and rewards of ownership associated with
the outstanding shares have not been transferred and a non-controlling
interest was recognised on acquisition. The financial liability arising from
the call and written put option has been recognised against the carrying value
of the non-controlling interest and equity in accordance with the Group's
policy.
Significant estimates
Estimates relating to the calculation of fair values of acquired assets,
liabilities and contingent liabilities are required within the context of
business combinations.
Where intangible assets are identified, estimates are necessary for the
determination of fair values by means of discounted cash flows, including the
duration, amount of future cash flows, and discount rate. Fair values of
physical assets are estimated with reference to comparable assets in the
market.
When making estimates in the context of purchase price allocations on major
acquisitions, the Group consults with independent experts who accompany the
execution of the discretionary decisions and record it in appraisal documents.
The Group has a period of one year from the date of control of the acquired
businesses to update initial fair value estimates. The Group does not expect
changes in these fair value estimates to have a significant impact on the
recognised assets and liabilities over the remaining measurement period.
Goodwill and Other intangible assets
Goodwill
Goodwill arising on consolidation represents the excess of the cost of
acquisition over the Group's interest in the fair value of the identifiable
assets, liabilities and contingent liabilities of a subsidiary at the date of
acquisition. Goodwill is initially recognised at cost and is subsequently
measured at cost less any accumulated impairment losses. Goodwill recognised
as an asset is reviewed for impairment at least annually.
On disposal of a subsidiary, the attributable amount of goodwill is included
in the determination of the profit or loss on disposal.
Other intangible assets
Mining rights
Mining rights were recognised in the course of the purchase price allocation
for Magnesita and are amortised based on the depletion of the related mines.
Depletion is calculated based on the volume mined in the period in proportion
to the total estimated economically viable volume.
Customer relationships
Customer relationships arise from the acquisition of business and are measured
at assigned fair values on acquisition, less accumulated amortisation and
impairments. These intangibles are amortised on a straight-line basis over
their expected useful lives.
Development costs
Research costs are expensed in the year incurred and included in general and
administrative expenses. Development costs, including internally developed
software are only capitalised if the costs can be measured reliably and are
expected to result in future economic benefits either through use or sale.
Capitalisation will also only arise when the product or process development
can be clearly defined and is feasible in technical, economic and capacity
terms. For internally developed software, costs are capitalised when these can
be directly and conclusively allocated to individual programmes and represent
a significant extension or improvement on existing software. All other
internally developed software costs are expensed. Development costs are
amortised on a straight-line basis over their expected useful lives of up to
ten years, with internally developed software amortised over a period of up to
four years. Amortisation is recognised in cost of sales.
Other intangible assets
These mainly represent purchased third party software, land-use rights and
patent fees and are recognised when future associated economic benefits are
expected to accrue to the Group. These intangibles are initially measured at
their acquisition cost and amortised over their expected useful lives.
The useful lives of the Group's main classes of intangible assets are:
Customer relationships 6 to 15 years
Internally generated intangible assets 4 to 18 years
Other intangible assets 4 to 65 years
The useful economic lives of intangible assets are reviewed regularly and
adjusted if necessary.
The carrying value of other intangible assets are assessed at each reporting
period for indicators of impairments. See below for accounting policy relating
to impairment of non-current assets other than goodwill and intangible assets
with indefinite useful live.
Significant judgement: Mineral Rights
Management have assessed that given the few or no viable alternatives for the
Group's refractory products, which are extracted from the Group's mines and
used in the construction and automotive industries together with their
continued use in the transition to a green economy, no indicators of
impairment have arisen and as a consequence the useful lives remain unchanged.
Property, plant and equipment
Property, plant and equipment is measured at acquisition or construction cost,
less accumulated depreciation and accumulated impairment losses. These assets
are depreciated on a straight-line basis over their expected useful life to
their estimated residual values and from when they are available for use in
the manner intended by management.
Construction costs of assets comprise of direct costs as well as a
proportionate share of capitalisable overhead costs and borrowing costs. If
borrowed funds are directly attributable to an investment, borrowing costs are
capitalised as a cost of the assets. If no direct connection between an
investment and borrowed funds can be demonstrated, the average rate on
borrowed capital of the Group is used as the capitalisation rate due to the
central funding of the Group.
Expected demolition and disposal costs at the end of an asset's useful life
are capitalised as part of its acquisition cost and recorded as a provision.
The recognition criteria are a legal or constructive obligation towards a
third party and the ability to reliably estimate future cost.
Land and plant under construction are not depreciated. Depreciation of
property, plant and equipment is based on the following useful lives:
Real estate, land and buildings 8 to 50 years
Technical equipment, machinery 8 to 50 years
Other plant, furniture and fixtures 3 to 35 years
The carrying value of property, plant and equipment is assessed at each
reporting period for indicators of impairments. See below for accounting
policy relating to impairment of non-current assets other than goodwill and
intangible assets with indefinite useful live.
The residual values and economic useful lives of property, plant and
equipment, are reviewed regularly and adjusted if necessary.
When components of plant or equipment have to be replaced at regular
intervals, the relevant replacement costs are capitalised when economic
benefits are expected to arise to the Group. The carrying amount of the
replaced components is derecognised. Regular maintenance and repair costs are
expensed as incurred.
Gains or losses from the disposal of property, plant and equipment, which
result as the difference between the net realisable value and the carrying
amount, are recognised as income or expense in the Consolidated Statement of
Profit or Loss.
Significant estimates
Management uses its experience to estimate the remaining useful life of an
asset. The actual useful life of an asset may be impacted by an unexpected
event that may result in an adjustment to the carrying amount of the asset. No
such events are expected to arise which would have a material impact on
carrying values within 12 months from the balance sheet date.
Leases
A contract, or part of a contract, that conveys the right to control the use
of an identified asset for a period of time in exchange for payments to be
made to the owners (lessors) is accounted for as a lease. Contracts are
assessed to determine whether it is or contains, a lease at inception or when
the terms and conditions of a contract are significantly changed. The lease
term is the non-cancellable period of a lease, together with contractual
options to extend or to terminate the lease early, where it is reasonably
certain that an extension option will be exercised, or a termination option
will not be exercised. At the commencement of a lease contract, a right-of-use
asset and a corresponding lease liability are recognised, except for low-value
items or for lease terms of less than 12 months. The commencement date of a
lease is the date on which the underlying asset is made available for use. The
lease liability is measured at an amount equal to the present value of the
lease payments during the lease term that are not paid at that date. The lease
liability includes contingent rentals and variable lease payments that depend
on an index, rate, or where they are fixed payments in substance.
The lease liability is remeasured when the contractual cash flows of variable
lease payments change due to a change in an index or rate when the lease term
changes following a reassessment. Lease payments are discounted using the
interest rate implicit in the lease. If that rate is not readily available,
the incremental borrowing rate is applied. The incremental borrowing rate
reflects the rate of interest that the lessee would have to pay to borrow over
a similar term and similar security, the funds necessary to obtain an asset of
a similar nature and value to the right-of-use asset in a similar economic
environment.
In general, a corresponding right-of-use asset is recognised for an amount
equal to each lease liability, adjusted by the amount of any pre-paid lease
payment relating to the specific lease contract, less any lease incentives and
for estimated restoration and removal costs. The depreciation on right-of-use
assets is recognised in the Statement of Profit or Loss. Right-of-use assets
are assessed for impairment indicators (see accounting policy on impairment of
non-current assets).
Impairment of goodwill, property, plant and equipment and other intangible assets
Goodwill
Goodwill is reviewed at least annually for impairment. Any impairment loss is
recognised as an expense immediately and is not subsequently reversed. For the
purpose of impairment testing, goodwill is allocated to groups of individual
Cash-Generating Units (CGUs) expected to benefit from the combination. If the
recoverable amount of the CGU is less than the carrying amount of goodwill
allocated to it, the resulting impairment loss is applied first to the
allocated goodwill and then to the other assets on a pro-rata basis of the
carrying amount of each asset. Reversals of impairment losses on goodwill are
not permitted. The cash flows used to determine the recoverable amount of the
CGU, including goodwill, is consistent with the description provided below for
property, plant and equipment and other intangibles.
Significant estimates: Goodwill
Management makes use of various estimates and assumptions in determining the
cash flow forecasts used in the impairment testing for goodwill. Key input
assumptions include discount rates used to discount cash flows and the
perpetual growth rate of the associated CGU. The effect of a 10% adverse
change in the estimated discount rate or an adverse change of 50% in the
perpetual growth rate would not result in an impairment of goodwill. For
further details on goodwill impairment, refer to Note (17).
Property, plant and equipment and other intangibles
Property, plant and equipment, including right-of-use assets and intangible
assets are tested for impairment if there is any indication that the value of
these items may be impaired. An asset is considered to be impaired if its
recoverable amount is less than its carrying amount. In the Group, individual
assets do not generate cash inflows independent of one another and assets are
combined in CGUs, which largely generate independent cash inflows. These CGUs
are combined in strategic business units and reflect the market presence and
appearance and drive cash inflows. The organisational structures of the Group
reflect these units. In addition to the joint management and control of the
business activities in each unit, the sales know-how, the knowledge of the
long-standing customer relationships or knowledge of the customer's production
facilities and processes further support these units. Product knowledge is
manifested in the application-oriented knowledge of chemical, physical and
thermal properties of RHI Magnesita products. The services offered extend over
the life cycle of products at the customer's plant, from the appropriate
installation and support of optimal operations, to environmentally sound
disposal with the customer or sustainable reuse in the Group's production
process. These factors determine cash inflow to a significant extent and
consequently form the basis for the CGU structures.
The CGUs of the strategic business unit Steel are Linings and Flow Control.
These two CGUs are determined according to the production stages in the
process of steel production. In the Industrial business unit, each industry
line of business (Glass, Cement/Lime, Non-Ferrous Metals and Environment,
Energy, Chemicals) forms a separate CGU. All raw material producing facilities
are combined in one CGU.
The recoverable amount of a CGU is the higher of its fair value less costs of
disposal and its value in use (present value of future cash flows). In
assessing value in use, the estimated future cash flows of the asset or CGU in
its present condition are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time value of
money and the risks, including country, specific to the CGU. In determining
fair value less costs to sell, consideration will be given to whether the
value of the CGU can be determined from an active market (e.g., recognised
exchange) or a binding sale agreement which are classified as level 1 in the
fair value hierarchy under IFRS 13 'Fair Value Measurements'. Where this is
not determinable, fair value less costs to sell for a CGU is usually estimated
with reference to a discounted cash flow model, similar to the method used for
value in use, but may include estimates of future production, revenues, costs
and capital expenditure not included in the determination of value in use.
Additionally, cash flow estimates include the impact of tax and are discounted
using a post-tax discount rate. An estimate made on this basis is classified
as level 3 in the fair value hierarchy.
The cash flows used in determining the recoverable amount are aligned with the
first four years of the strategic business and financial planning models and
incorporates a terminal value. The terminal value is based on a growth rate
derived from the difference of the current and the possible degree of
utilisation of the assets. To forecast the CGUs' cash flows, management
predicts the growth rate using external sources for the development of the
customers' industries and expert assumptions, including forecasts about the
regional growth of steel production and the output of the non-steel clients.
Growth rates are also influenced by the development of the specific refractory
consumption patterns, including technological improvements.
If the carrying amount is higher than the recoverable amount, an impairment
loss equivalent to the resulting difference is recognised in the Statement of
Profit or Loss. If the reason for an impairment loss recognised in the past
for property, plant and equipment or for other intangible assets ceases to
exist, a reversal of the impairment is recognised in profit or loss. An
impairment loss is reversed only to the extent that the CGUs carrying amount
does not exceed the carrying amount that would have been determined, net of
depreciation or amortisation, if no impairment loss had been recognised in
prior years.
Significant judgements
Management reviewed CGUs for indicators of impairment. These indicators
included both external factors affecting the CGUs, such as laws and
regulations in specific countries and global and local economic conditions and
internal factors, including but not limited to, useful lives of assets, major
breakdowns or decisions to divest from certain businesses. Based on the
impairment indicator review, no impairment indicators were identified at any
of the CGU, which did not have goodwill allocated to it.
Additionally, management has assessed the useful lives of assets and these
continue to be appropriate due to the limited refractory and other product
alternatives available and as the steel and industrial sectors in which the
Group operates, continue to play a significant part in the transition towards
sustainable output and the transition to a green economy.
Financial instruments
A financial instrument is any contract that gives rise to a financial asset of
one entity and a financial liability or equity instrument of another entity.
In general, financial instruments can be classified to be measured
subsequently at amortised cost, fair value through profit or loss or fair
value through other comprehensive income. Classification of financial assets
depends on the contractual terms of the cash flows as well as on the entity's
business model for managing the financial assets. The business model
determines whether cash flows will result from collecting contractual cash
flows, selling the financial assets, or both.
Financial assets are classified as amortised cost, if the contractual cash
flows include solely payments of principal and interest and held in order to
collect the contractual cash flows. If the contractual cash flows include
solely payments of principal and interest, but are held collect both the
contractual cash flows and sell the financial asset, then they are classified
as fair value through other comprehensive income. If the contractual cash
flows do not solely include payments of principal and interest, then they are
classified as fair value through profit or loss.
The Group initially recognises securities on the trading date when it becomes
a party to the contractual provisions of the instruments. All other financial
assets and financial liabilities are initially recognised on the date when
they are originated. Financial instruments, except for trade receivables, are
initially recognised at fair value. Financial assets are derecognised if the
entity transfers substantially all the risks and rewards or if the entity
neither transfers nor retains substantially all the risks and rewards and has
not retained control. Financial liabilities are derecognised when the
contractual obligations are settled, withdrawn or have expired.
Investment in debt securities are subsequently measured at fair value through
profit and loss, as the contractual terms of cash flows do not solely include
payments of principal and interest.
Investments in equity securities, including non-consolidated subsidiaries, are
of minor importance and recognised and measured at fair value through profit
or loss, since the irrevocable option for subsequent measurement at fair value
through OCI was not exercised.
Financial assets at amortised costs are measured by applying the effective
interest method.
Trade and other current receivables
Trade receivables are recognised initially at the amount of consideration that
is unconditional, unless they contain significant financing components when
they are recognised at fair value and subsequently carried at amortised cost
minus any valuation allowances. Valuation allowances are calculated in
accordance with the simplified approach of the impairment model for financial
instruments (see impairment of financial assets below).
In factoring arrangements, trade receivables are derecognised where the Group
transfers substantially all the risks and rewards associated with the
financial assets.
Cash and cash equivalents
Cash and cash equivalents include cash on hand, cheques received, cash at
banks and short-term cash deposits with an original term of up to three
months. Moreover, investments in money market funds exposed to insignificant
value fluctuations due to their high credit rating and investments in
short-term money market instruments that can be converted to defined cash
amounts within a few days at any time, are also reflected as cash equivalents.
Borrowings
Financial liabilities include liabilities to financial institutions and other
lenders and are measured at fair value less directly attributable transaction
costs at initial recognition. In subsequent periods, these liabilities are
measured at amortised cost applying the effective interest rate method.
A financial liability is derecognised when the obligation under the liability
is discharged (by payment or legal release), cancelled or expires.
When an existing financial liability is replaced by another from the same
lender on substantially different terms, or the terms of an existing liability
are substantially modified, such an exchange or modification is treated as the
derecognition of the original liability and the recognition of a new
liability. The terms are substantially different if the discounted present
value of the cash flows under the new terms, including any fees paid net of
any fees received and discounted using the original effective interest rate,
is at least 10% different from the discounted present value of the remaining
cash flows of the original financial liability. The difference in the
respective carrying amounts is subsequently recognised in the Statement of
Profit or Loss, including any costs or fees.
Trade payables and other current liabilities
These liabilities are initially recognised at fair value, and subsequently
measured at amortised cost. The Group may participate in supply chain finance
arrangements whereby suppliers may elect to receive a discounted early payment
of their invoice from a bank as opposed to the agreed contractual payment
terms. Where this arises, the Group settles the amount owed to the bank. The
invoice due date as well as the value of the original liability remains
unaltered. The Group assesses whether these arrangements modify the terms of
the original trade payable. Financial liabilities subject to supply chain
finance arrangements, that do not modify the terms of the original invoice,
continue to be classified as trade payables.
Significant Judgement: Trade payables subject to supply chain finance arrangements
Management have judged that trade payables subject to supply chain finance
arrangements do not modify the terms of the original invoice and as such the
affected invoices continue to be recognised as such.
Derivative financial instruments and hedging activities
Derivative financial instruments not designated as hedges
Derivative contracts are used in the management of interest rate risk,
commodity price risk and foreign currency risk. These derivative financial
instruments, which are not designated in an effective hedging relationship in
accordance with IFRS 9 'Financial Instruments', are recognised initially at
fair value on the date on which a derivative contract is entered into and
subsequently remeasured at fair value with changes in fair value reflected in
the Statement of Profit or Loss. Derivatives are carried as assets when the
fair value is positive and as liabilities when the fair value is negative.
Derivative financial instruments include forward exchange contracts and
embedded derivatives in open orders denominated in a currency other than the
functional currency of either contracting party, with the assessment made on a
case-by-case basis at the respective forward rate on the reporting date. These
forward rates are based on spot rates, including forward premiums and
discounts. Unrealised valuation gains or losses and results from the
realisation are recognised in the Statement of Profit or Loss in net expense
of foreign exchange effects and related derivatives.
Forward purchase or sale arrangements for the physical delivery of
non-financial assets that are entered into in line with the Group's expected
purchase, sale or usage requirements ("own use") and are normally entered into
to hedge the associated price risk are not recognised or measured at fair
value. These forward contracts are assessed to be off-balance-sheet executory
contracts due to their own use features. If the own use exemption is not met,
the forwards will be recognised at fair value, with fair value remeasurement
recorded in the Statement of Profit or Loss.
Significant Judgement: Own use exemption on gas and power forward purchase and physical delivery CO(2)-certificate forwards
Due to the reduction of free CO(2) emission certificates and the expected
increase in CO(2) market prices, the Group hedges the associated price risk by
use of physical delivery forward purchases for own use. The Group also enters
into fixed price and quantity forward gas and power contracts to secure supply
for its production process and reduce price volatility. The own use exemption
does not require fair value recognition and measurement of the forward
purchases and thus avoid volatility in the Statement of Profit of Loss. The
own use exemption requires that purchases of these forward contracts will be
utilised. The Group settles the forwards through physical delivery and does
not intend to sell any (unexpected) surplus of either gas, power or CO(2)
emission certificates for speculative purposes. Management have judged that
these forward purchases based on current and expected future requirements
satisfy the own use exemption and have not applied fair value recognition and
measurement.
Derivative financial instruments designated as Cash flow hedges
For derivative financial instruments which are designated as an effective cash
flow hedge in accordance with IFRS 9 'Financial Instruments', hedge accounting
is applied. The hedging instruments, used to hedge the underlying items, are
measured at fair value with the effective part of the fair value changes
recorded in Other Comprehensive Income as an unrealised gain or loss. At the
time of the realisation of the underlying transaction, the fair value changes
of the hedging instrument recognised in Other Comprehensive Income is recycled
to the Statement of Profit or Loss. Ineffective parts of the cash flow hedges
are recognised immediately in the Statement of Profit or Loss. Where the
hedged item is a non-financial asset or liability, the amount accumulated in
Other Comprehensive Income is transferred to the initial carrying amount of
the asset or liability. If the hedged transaction is no longer expected to
take place, the accumulated amount recorded in Other Comprehensive Income is
reclassified to the Statement of Profit or Loss. All relationships between
hedging instruments and hedged items are documented, as well as risk
management objectives and strategies for undertaking hedge transactions. The
effectiveness of hedges is also continually assessed and hedge accounting is
discontinued when there is a change in the risk management strategy.
Hedge of net investment
Hedges of net investments in foreign operations are accounted for similarly to
cash flow hedges. Any gain or loss on the hedging instrument relating to the
effective portion of the hedge are recognised in Other Comprehensive Income
and presented in the currency translation difference reserve within equity
while any gains or losses relating to the ineffective portion are recognised
in the Statement of Profit or Loss. On disposal of the foreign operation, the
cumulative amount of any such gains or losses in Other Comprehensive Income is
reclassified to the Statement of Profit or Loss.
Impairment of financial assets
Impairment of certain financial assets is based on expected credit losses
(ECL). Expected credit losses are defined as the difference between all
contractual cash flows the entity is entitled under the contract and the cash
flows expected to be received. The measurement of expected credit losses is
generally a function of the probability of default, loss given default and the
exposure at default.
Loss allowance is measured for expected credit losses on debt instruments,
trade receivables and contract assets measured at amortised cost. The amount
of expected credit losses is updated at each reporting date to reflect changes
in credit risk since initial recognition of the respective financial
instrument.
The Group recognises lifetime ECL for trade receivables and contract assets by
applying the simplified approach. The ECL on these financial assets are
generally estimated using a provision matrix based on the Group's historical
credit loss experience for customer groups located in different geographic
regions. Forward-looking information is incorporated in the determination of
the applicable loss rates for trade receivables. For the Group, the general
economic development of the countries in which it sells its goods and services
is relevant in determining if the adjustment of the historical loss rates is
necessary.
For all other financial instruments, the Group recognises lifetime ECL when
there has been a significant increase in credit risk since initial
recognition. However, if the credit risk on the financial instrument has not
increased significantly since initial recognition, the Group measures the loss
allowance for that financial instrument at an amount equal to 12-month ECL.
Lifetime ECL represents the expected credit losses that will result from all
possible default events over the expected life of a financial instrument. In
contrast, 12-month ECL represents the portion of lifetime ECL that is expected
to result from default events on a financial instrument that are possible
within 12 months after the reporting date.
The Group makes use of the practical expedient for financial instruments with
an 'investment grade' rating that it is assumed to be of low credit risk and
with no significant increase in the credit risk. Under the practical
expedient, the expected credit loss is calculated using the 12-month ECL.
Among other factors, the Group considers a significant increase in credit risk
to have taken place when contractual payments are more than 30 days past due.
The Group assumes that a default event has occurred when trade receivables are
180 days past due unless reasonable and supportable information confirms
otherwise. For those financial instruments where objective evidence of default
is present, an individual assessment of expected credit losses takes place.
Generally, financial instruments are written off when there is no reasonable
expectation of recovering amounts due.
Inventories
Inventories are stated at the lower of cost or net realisable value as of the
reporting date. The determination of acquisition cost of purchased materials
is based on the average cost. Finished goods and work in progress are valued
at fixed and variable production cost. The net realisable value is the
estimated selling price in the ordinary course of business minus any estimated
cost to complete and to sell the goods. Impairments due to reduced usability
are reflected in the calculation of the net realisable value.
Provisions
Provisions are recognised when the Group incurs a legal or constructive
obligation as a result of past events, it is probable that an outflow of
resources will be required to meet this obligation, and the amount of the
obligation can be reliably estimated.
Provisions for warranties are created for individual contracts at the time of
the sale of goods or after the service has been provided. The amounts of the
provisions are based on the expected or actual warranty claims.
Provisions for restructuring are recognised once a detailed formal
restructuring plan has been developed and announced prior to the reporting
date or whose implementation was commenced prior to the reporting date.
The Group recognises provisions for demolition and disposal costs and
environmental damages. The Group's facilities and its refractory, exploration
and mining operations are subject to environmental and governmental laws and
regulations in each of the jurisdictions in which it operates. These laws
govern, among other things, reclamation or restoration of the environment in
mined areas and the clean-up of contaminated properties. These provisions
include the estimated demolition and disposal costs of plants and buildings as
well as environmental restoration costs arising from mining activities, based
on the present value of estimated cash flows of the expected costs. The
estimated future costs of asset retirements are reviewed annually and
adjusted, if appropriate.
A provision for an onerous or unfavourable contract is recognised when the
expected benefits to be derived from a contract are lower than the unavoidable
cost of meeting its obligations under the contract. Provisions are measured at
the present value of the unavoidable costs of meeting the obligation under the
contract which exceed the economic benefits expected to arise from that
contract.
Provisions for labour and civil contingencies are recognised for all risks
referring to legal proceedings that represent a probable loss. Assessment of
the likelihood of loss includes analysis of available evidence, including the
opinion of internal and external legal advisors of the Group.
Provisions are measured at their discounted settlement value as of the
reporting date if the discounting effect is material.
If maturities cannot be estimated, they are shown within current provisions.
Employee related benefits
Provisions for Post-employment benefits
Pension plans
With respect to post-employment benefits relating to pensions, a
differentiation is made between defined contribution and defined benefit
plans.
Defined contribution plans limit the Group's obligation to the agreed
contributions to earmarked pension schemes. The contributions are expensed as
incurred.
Defined benefit plans require the Group to provide agreed benefits to active
and former employees and their dependents.
Pension obligations are measured using the projected unit credit method and is
netted against the fair value of the plan assets, if any. If the plan assets
are not sufficient to cover the obligation, the net obligation is recognised
as a liability. However, if the plan assets exceed the obligations, the net
surplus recognised is limited to reductions of future contribution payments to
the plan and is presented as other non-current assets in the Statement of
Financial Position. The Group applies the requirements of IFRIC 14 and
restricts recognition of the net surplus by applying an asset recognition
ceiling where the Group does not have an unconditional right to a refund,
assuming full settlement of the liabilities. Changes in the asset ceiling are
recorded in Other Comprehensive Income.
The present value of defined benefit obligations are determined separately for
each plan, annually, by independent qualified actuaries. The present value of
future benefits is based on the length of service, expected wage/salary
developments and pension adjustments.
The expense to be recognised in a period includes current and past service
costs, settlement gains and losses, interest expenses from the interest
accrued on obligations, interest income from plan assets and administration
costs paid from plan assets. The net interest expense is shown separately in
net finance costs. All other expenses related to defined benefit plans are
allocated to the costs of the relevant functional areas.
Actuarial assumptions required to calculate these obligations include the
discount rate, increases in wages/salaries and pensions, retirement starting
age and probability of employee turnover and actual claims. The calculation is
based on local demographic parameters.
Interest rates, which are based on high-quality corporate bonds issued with
comparable maturities and currencies, are applied to determine the present
value of pension obligations. In countries where there is not a sufficiently
liquid market for high-quality corporate bonds, the returns on government
bonds are used as a basis.
The rates of increase for wages/salaries are based on an average of past
years, which is also considered to be realistic for the future, while the
retirement age is based on the respective statutory provisions of the country
concerned.
Remeasurement gains and losses are recorded net of deferred taxes under Other
Comprehensive Income in the period incurred.
Significant estimate: Pension plans
The measurement of defined benefit obligation and plan assets requires use of
estimates such as discount rates, mortality rates, salary increases and
inflation. These estimates are reviewed and update when a valuation is
performed by third party experts. Further details of the estimates and
assumptions together with sensitivities on changes to assumptions is reflected
in Note (29). Changes in these assumptions may result in differences between
cash outflows expected at the reporting date and actual cash outflows.
Other post employment benefits
Includes provisions for termination benefits primarily related to obligations
to employees whose employment is subject to Austrian law.
Employees who joined an Austrian company before 31 December 2002 receive a
one-off lump-sum termination benefit as defined by Austrian labour legislation
if the employer terminates the employment or when the employee retires and is
regarded as a post employment benefit under IAS 19 'Employee Benefits'. The
termination payment depends on the relevant salary at the time of the
termination as well as the number of years of service and ranges between two
and 12 monthly salaries. These obligations are measured using the projected
unit credit method applying an accumulation period of 25 years. Remeasurement
gains and losses are recorded directly to other comprehensive income after
considering tax effects.
For employees who joined an Austrian company after 31 December 2002,
employers are required to make regular contributions equal to 1.53% of the
monthly wage/salary to a statutory termination benefit scheme. The company has
no further obligations. Claims by employees to termination benefits are filed
with the statutory termination benefit scheme, while the continuous
contributions are treated as defined contribution plans and included in the
personnel expenses of the functional areas.
Other employee benefits
This includes service anniversary bonuses, payments to semi-retirees and
lump-sum settlements.
Service anniversary bonuses are one-time special payments that are dependent
on the employee's wage/salary and length of service. The employer is required
by collective bargaining agreements or company agreements to make these
payments after an employee has reached a certain number of years of
uninterrupted service with the same company. Obligations are mainly related to
service anniversary bonuses in Austrian and German group companies. Provisions
for service anniversary bonuses are calculated based on the projected unit
credit method. Remeasurement gains or losses are recorded in the personnel
costs of the functional areas.
Local labour laws and other similar regulations require individual group
companies to create provisions for semi-retirement obligations. The
obligations are partially covered by qualified plan assets and are reported on
a net basis in the Statement of Financial Position.
Income taxes
Income tax expense represents the sum of current tax and deferred tax.
Income tax is recognised in the Statement of Profit or Loss, except to the
extent that it relates to items recognised in Other Comprehensive Income or
directly in equity, including tax related impacts.
Current tax is based on the taxable profit for the period and is determined in
accordance with the rules applicable in the relevant jurisdictions and
includes taxes relating to prior periods. The liability for current tax is
calculated using tax rates and laws that have been enacted or substantively
enacted at the balance sheet date.
Deferred tax is provided, using the liability method, on temporary differences
at the balance sheet date between the tax bases of assets and liabilities and
their carrying amounts for financial reporting purposes. Deferred tax
liabilities are recognised for all taxable temporary differences except:
• Where the deferred tax liability arises on initial recognition of goodwill
• Where the deferred tax liability arises on the initial recognition of an
asset or liability in a transaction that is not a business combination, at the
time of the transaction, affects neither accounting profit nor taxable profit
or loss and, at the time of the transaction, does not give rise to equal
taxable and deductible temporary differences
• In respect of taxable temporary differences associated with investments in
subsidiaries and associates and interest in joint arrangements, where the
Group is able to control the timing of the reversal of the temporary
differences and it is probable that the temporary differences will not reverse
in the foreseeable future
• For financial instruments which were issued by subsidiaries to
non-controlling interests and which are classified as a financial liability in
accordance with IFRS
Deferred tax assets are recognised for deductible temporary differences,
carry-forward of unused tax credits and unused tax losses, to the extent that
it is probable that taxable profit will be available against which these can
be utilised, except where the deductible temporary difference arises from the
initial recognition of an asset or liability in a transaction that is not a
business combination and at the time of the transaction, affects neither
accounting profit nor taxable profit and loss and, at the time of the
transaction, does not give rise to equal taxable and deductible temporary
differences.
In respect of deductible temporary differences associated with investments in
subsidiaries, associates and interest in joint arrangements, deferred tax
assets are recognised only to the extent that it is probable that the
temporary differences will reverse in the foreseeable future and taxable
profit will be available against which the temporary differences can be
utilised.
The carrying amount of deferred tax assets is reviewed at each balance sheet
date and reduced to the extent that it is no longer probable or increased to
the extent that it is probable that sufficient taxable profit will be
available to allow all or part of the deferred tax asset to be utilised.
Deferred tax assets and liabilities are measured at the tax rates that are
expected to apply in the period when the asset is realised or the liability is
settled, based on tax rates and tax laws that have been enacted or
substantively enacted at the balance sheet date. Deferred taxes of the
Austrian group companies are determined at the corporation tax rate which is
expected to be applicable when the temporary differences reverse (24.0% if the
temporary difference is reversing in 2023 and 23.0% if the temporary
difference reverses in 2024 or later). Deferred tax assets and liabilities of
the Brazilian group companies are measured at 34.0%.
Deferred tax assets and liabilities are offset only when there is a legally
enforceable right to set off current tax assets against current tax
liabilities and when the deferred tax assets and liabilities relate to income
taxes levied by the same taxation authority on either the same taxable entity
or different taxable entities where there is an intention to settle the
current tax assets and liabilities on a net basis or to realise the assets and
settle the liabilities simultaneously.
Where tax legislation may not be clear or result in uncertainty, the Group
will determine its tax obligations and resulting income tax expense using an
approach which it believes has a probable chance of being accepted by the tax
authorities based on historical experience, legal advice and communication
with the tax authorities, as appropriate. Where the Group adopts an approach
to an uncertain tax position that it regards as having a less than probable
chance of being accepted by the tax authorities, the income tax expense and
resulting income and deferred tax balances are adjusted to reflect this
uncertainty using either the most likely outcome method or the expected value
method.
Significant judgement: Uncertain tax treatments and recognition of deferred tax assets
Management makes judgements in relation to the recognition of current and
deferred income taxes. In making judgements, management believes that the tax
positions the Group adopts are in line with the applicable legislation and
reflect the probable outcome. The tax obligations and receivables, upon audit
by the tax authorities at a future date, may differ as a result of differing
interpretations. These interpretations may impact the expected timing and
quantum of taxes payable and recoverable.
Significant estimates: Recognition of deferred tax assets
Income tax expense is based on the tax laws applicable in the individual
countries. Due to their complexity, the tax items presented may be subject to
different interpretations by local finance authorities. When determining the
amount of the deferred tax assets to be recognised, mainly relating to
tax-losses, an estimate is required of future taxable income which is
influenced by factors such as prices, gross profit margins and interest rates.
A 10% change in the future taxable profit from the assumption made on the
reporting date within the planning period defined for the accounting and
measurement of deferred taxes would not result in a significant change in the
carrying amount of deferred tax assets on recognised tax losses, over a
12-month period from the date of these Consolidated Financial Statements.
Revenue, income and expenses
Revenue from contracts with customers
Revenue from the sale of goods and services is recognised at an amount that
reflects the consideration to which the Group expects to be entitled in
exchange for those goods or services. Revenue is recognised to the extent that
it is highly probable that there will not be a significant reversal of revenue
in future periods. If the consideration in a contract includes a variable
amount, the Group estimates the amount of consideration to which it will be
entitled at inception and limits the recognition of revenue subject to the
variability, until it is highly probable that a significant reversal of
cumulative revenue recognised will not occur. The Group applies the practical
expedient in IFRS 15 'Revenue from Contracts with Customers' and does not
recognise the impact of financing for payment terms as the average credit
terms is currently 60 days. At contract inception, the Group identifies the
goods or services promised in the contract and assesses which of the promised
goods or services shall be identified as separate performance obligation.
Promised goods or services give rise to separate performance obligations if
they are capable of being distinct. Revenue is recognised as control is
transferred, either over time or at a point of time. Control is defined as the
ability to direct the use of and obtain substantially all of the economic
benefits from an asset.
For the delivery of refractory products, the goods promised are distinct and
control of the goods is passed to the customer typically when physical
possession has been transferred. The transport service does not give rise to a
separate performance obligation to which a part of revenue would have to be
allocated, as this service is usually performed before control of the products
is transferred to the customer.
In consignment arrangements, the Group retains control of the goods generally
until a withdrawal of the products from the consignment occurs. Most of the
products within consignment arrangements have a high stock turnover rate.
The Group provides services (e.g. supervision, installation) that are either
sold separately or bundled together with the sale of products to a customer.
Contracts for bundled sales of products and installation services usually
comprise of two performance obligations being (1) the promise to transfer
products and (2) provide services which are capable of being distinct and
separately identifiable in the context of the contract. Accordingly, the
transaction price is allocated based on the relative stand-alone selling
prices of the product and service. Revenue from services is recognised over
time using an input method to measure progress towards completion of the
service as the customer simultaneously receives and consumes the benefits
provided by the Group.
Contracts for bundled sales of refractory products and non-refractory products
(e.g. machines) provided to the customer free of charge comprise two
performance obligations that are separately identifiable. Consequently, the
Group allocates the transaction price based on the relative stand-alone
selling prices of these performance obligations and allocates revenue to the
non-refractory product which is delivered free of charge.
Expected penalty fees from guaranteed durabilities on refractory products are
considered as a variable consideration in the form of a contract or a refund
liability. However, the estimation of the variable consideration is not
subject to a constraint as the Group has significant experience with promising
durabilities and as a consequence does not expect significant reversal of
revenue recognised in prior periods. All other product warranties issued by
the Group guarantee that the transferred products correspond to the
contractually agreed specifications and are classified as assurance type
warranties. Consequently, no separate distinct performance obligation to the
customer exists.
If transfer of goods or services to a customer is performed before the
customer pays consideration or before payment is due and is conditional on
something other than the passage of time, a contract asset, excluding any
amounts presented as a receivable is recognised.
If a customer pays consideration before the entity transfers a good or service
to the customer, the entity shall present the contract as a contract liability
when the payment is made.
Contract costs, which are defined as the incremental costs of obtaining a
contract, are recognised as an asset where the Group expects to recover those
costs, except for those costs which are expected to be recovered within 12
months.
As the term of customer contracts is less than one year, the Group adopted the
practical expedient not to disclose performance obligations for contracts with
original expected duration of less than one year.
Significant Judgement: Revenue recognition
For customer contracts in the Steel segment with variable payment arrangements
where the transaction price depends on the customer's production performance,
(e.g. quantity of steel produced) management has determined that the
commitment to transfer each of the products and services to the customer is
not separately identifiable from the other commitments in the context of such
contracts. The customer expects complete refractory management for the agreed
product areas in the steel plant in order to enable steel production. Thus,
only one performance obligation being the performance of a management
refractory service, exists.
Cost of sales
Cost of sales comprises the production cost of goods sold as well as the
purchase price of merchandise sold. In addition to direct material and
production costs, it also includes overheads including depreciation charges on
production equipment, amortisation charges of intangible assets as well as
impairment losses and reversals of impairment losses of inventories. Moreover,
cost of sales also includes the costs of services provided by the Group or
services received.
Selling and marketing expenses
This item includes personnel expenses for the sales staff as well as
depreciation charges and other operating expenses related to the market and
sales processes.
General and administrative expenses
General and administrative expenses primarily consist of personnel expenses
for the administrative functions, legal and other consulting costs, expenses
for research and non-capitalisable development costs.
Interest income and expenses
Interest income and expenses are recognised in accordance with the effective
interest method.
Dividends
Dividends from investments that are not accounted for using the equity method
are recognised in the Statement of Profit or Loss at the time the legal claim
arises.
Foreign currency translation
Functional currency and presentation currency
The Consolidated Financial Statements are presented in Euro, which represents
the functional and presentation currency of RHI Magnesita N.V.
Consolidated subsidiary financial information is based on the currency of the
primary economic environment in which it operates (functional currency).
Foreign currency transactions and balances
In individual subsidiaries, joint ventures and associates, transactions in
foreign currency are translated into the functional currency at the rate of
exchange prevailing on the dates of the transaction. Gains and losses arising
from the settlement of such transactions and the measurement of monetary
assets and liabilities in foreign currencies at the closing rate are
recognised in the Statement of Profit or Loss under net expense on foreign
exchange effects and related derivatives. Unrealised currency translation
differences from monetary items which form part of a net investment in a
foreign operation are recognised in Other Comprehensive Income in equity. When
a non-derivative financial instrument is designated as the hedging instrument
in a net investment hedge in a foreign operation, the effective portion of the
foreign exchange gains and losses is recognised in the currency translation
difference reserve within equity. Non-monetary items, other than those
measured at fair value, are carried at historical rates and not retranslated
subsequent to initial recognition.
Group companies
Financial information of foreign subsidiaries with a functional currency
different to the Euro are translated as follows:
Assets and liabilities are translated at the closing rate on the reporting
date of the Group, while monthly income and expenses and consequently the
profit or loss for the year as presented in the Statement of Profit or Loss
are translated at the respective closing rates of the previous month.
Differences resulting from this translation process and differences resulting
from the translation of amounts carried forward from the prior year are
recorded under Other Comprehensive Income without recognition to profit or
loss. Monthly cash flows are translated at the respective closing rates of the
previous month. Goodwill and adjustments to the fair value of assets and
liabilities related to the purchase price allocations of a subsidiary outside
the European currency area are recognised as assets and liabilities of the
respective subsidiary and translated at the closing rate.
On disposal of a non-Euro functional currency subsidiary, joint venture or
associate, the related accumulated exchange gains and losses recognised in
equity are reclassified to the Statement of Profit or Loss. In addition, when
monetary items cease to form part of a net investment in a foreign operation
or when in case of a net investment hedge the foreign operation is disposed,
the currency translation differences previously recognised in Other
Comprehensive Income are reclassified to profit or loss.
The Euro exchange rates of the currencies of the Group's significant
operations are shown in the following table:
Closing rate Average rate(1))
Currencies 1 € = 31.12.2022 31.12.2021 2022 2021
Brazilian Real BRL 5.63 6.30 5.47 6.38
Canadian Dollar CAD 1.45 1.44 1.37 1.49
Chinese Renminbi Yuan CNY 7.42 7.20 7.09 7.68
Indian Rupee INR 88.26 83.89 82.50 87.76
US Dollar USD 1.07 1.13 1.06 1.19
1) Arithmetic mean of the monthly closing rates.
4. Climate change and energy transition
In 2019 the Group announced its commitment to reduce Scope 1 and Scope 2 and 3
(raw materials) CO(2) emissions intensity by 15% by 2025, compared to a 2018
baseline. The below describes how the Group has considered climate related
impacts in some key areas of the Consolidated Financial Statements and how
this translates into the valuation of its assets and measurement of
liabilities, as progress is made in reducing its own CO(2) emissions and
prepares for the energy transition and technological changes that are likely
to affect its customer industries.
Note (3) includes the significant accounting estimates, judgements and key
sources of estimation uncertainties and how those uncertainties have the
potential to have a material effect on the Consolidated Statement of Financial
Position in the next 12 months. This note describes the key areas of climate
impacts that potentially have longer-term effects on amounts recognised at 31
December 2022.
Financial planning assumptions
As disclosed in the Sustainability section on page 65, climate related risks
faced by the Group include physical and transitional risks. The most material
transitional risk impact is expected to be higher operating costs due to an
increase in the level or scope of carbon pricing and changes to regulatory
frameworks. This risk is most prominent in Europe where the existing system of
allowances is to be replaced by the Carbon Border Adjustment Mechanism, with
all existing CO(2) emissions allowances to be progressively phased out by
2034. The Group has also identified climate related opportunities, such as
increased demand for its products arising from the transition by its customers
to lower-carbon emitting industrial processes and increased demand for
refractory products that are produced with a lower carbon footprint.
The Consolidated Financial Statements are based on reasonable and supportable
assumptions that represent management's current best estimate of the range of
economic conditions that may exist in the foreseeable future. The Group has
performed an assessment of the potential future impact of climate change on
key elements of its Consolidated Financial Statements utilising the
Paris-aligned Mitigation and Hot House World Limited mitigation scenarios. The
largest impact from higher carbon prices as contained in these scenarios is
from 2026 onwards. The negative impacts are concentrated within the Group's
assets located in Europe whilst opportunities are expected to be global in
nature.
The Group is investing in the research and development of new technologies for
the manufacturing of refractories which may enable it over the long term to
avoid or capture its CO(2) emissions and thereby mitigate the impact of higher
carbon prices.
Impairment of Goodwill and PP&E
Cash flow projections for its CGUs are based on the Group's one-year internal
forecasts, the results of which are reviewed by the Board. The forecasts are
extrapolated to five years based on management's expectations. Management then
applies a terminal value which is derived from the fifth year forecasted cash
flows.
The nominal growth rate is equal to the long-term rate of growth in
steel/cement and/or inflation (depending on the country and business involved)
and in any case no higher than the average long-term growth rate of the
reference market. The Group has also taken account of the long-term impact of
climate change, in particular by considering in the estimation of the terminal
value a long-term growth rate in line with the change in steel/cement demand
in 2030-2050 based on the specific characteristics of the businesses involved.
The Group is not currently subject to the European Carbon Border Adjustment
Mechanism ('CBAM'). However, management believes that it is plausible that the
CBAM could impact the Group from 2030 and have modelled the potential impact
of the CBAM into its EU assets. Management is currently assessing the strategy
and options to maximise the opportunities and minimise the impact of this
regulation. Absent to any mitigating action by management, it is expected that
the gross profit could reduce by 26% from 2030, on average across the EU
assets and increase by 20% in regions outside the EU.
Restoration provisions
Management recognises liabilities that are expected to be incurred in relation
to rehabilitation and restoration of the mining sites. As of balance sheet
date, the Group's mines have an expected life between 13 and 100 years. The
introduction of more stringent legislation could result in our mining
operations to become uneconomical earlier than anticipated thus affecting the
timing of our restoration liabilities. The discount rate used to measure asset
restoration provisions is between 10-50-years term, in line with available
government bond rates.
Management does not expect any reasonably possible change in the expected
timing of restoration of our mines to have a material effect on the Group
total provisions, assuming cash flows remain unchanged.
Deferred Tax assets
In jurisdictions where new or additional climate change related legislation is
enacted, our taxable profits could be affected thereby impacting the
recoverability of deferred tax assets. It is expected that sufficient deferred
tax liabilities and forecasted taxable profits are available for recovery of
the deferred tax assets recognised at 31 December 2022. The assessment of
deferred taxes is described in Note (14). For certain deferred tax assets
recognised in Brazil, the period extends beyond 5 years. Currently, no
legislation is in place in Brazil that could limit the timing and, or the
extent of the recognised deferred tax assets.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5. Segmental analysis
The Group comprises the operating segments Steel and Industrial. The
segmentation of the business activities reflects the internal control and
reporting structures and is regularly monitored by the Chief Executive Officer
(Chief Operating Decision Maker (CODM)), who has the responsibility over
allocation of resources and evaluates the performance of each segment.
The Steel segment specialises in supporting customers in the steel-producing
and steel-processing industry. The Industrial segment serves customers in the
glass, cement/lime, non-ferrous metals and environment, energy and chemicals
industries. The main activities of the two segments consist of market
development, global sales of high-grade refractory bricks, mixes and special
products as well as providing services at the customers' sites.
The globally located manufacturing sites, which extract and process raw
materials, are combined in one strategic business unit. The allocation of
manufacturing cost of the production plants to the Steel and Industrial
Divisions is based on the supply flow.
Statements of Profit or Loss up to gross profit are available for each
segment. Revenues and Gross profit are the key internal performance measures
provided to and used by the CODM. Selling and marketing expenses, general and
administrative expenses, restructuring and write-down expenses, other income
and expenses, profit of joint ventures, net finance costs and income taxes are
managed centrally and separately and thus not allocated to the segments.
Segment assets include trade receivables and inventories, which are available
to the operating segments and are reported to the CODM for control and
measurement, property, plant and equipment, goodwill and other intangible
assets, are allocated to the segments based on the capacity of the productive
assets base. All other assets are not allocated.
Segment reporting by operating company division
The following tables show the financial information for the operating segments
for the year 2022 and the previous year:
2022 in € million Steel Industrial Group 2022
Revenue 2,371.4 945.8 3,317.2
Gross profit 521.0 242.4 763.4
EBIT 343.6
Net finance costs (73.1)
Profit before income tax 270.5
Depreciation and amortisation charges (101.2) (43.3) (144.5)
Segment assets 31.12.2022 2,231.9 911.3 3,143.2
Investments in joint ventures and associates 31.12.2022 5.7
Reconciliation to total assets 926.0
4,074.9
Additions to property, plant and equipment and intangible assets 128.6 68.8 197.4
2021 in € million Steel Industrial Group 2021
Revenue 1,822.9 728.5 2,551.4
Gross profit 393.7 189.8 583.5
EBIT 213.8
Net finance costs (24.9)
Result from joint ventures and associates 100.2
Profit before income tax 289.1
Depreciation and amortisation charges (93.1) (38.0) (131.1)
Segment assets 31.12.2021 2,146.3 724.2 2,870.5
Investments in joint ventures and associates 31.12.2021 5.7
Reconciliation to total assets 1,037.9
3,914.1
Additions to property, plant and equipment and intangible assets 196.0 83.5 279.5
No single customer contributed 10% or more to consolidated revenue in 2022 and
in 2021. Companies that are known to be part of a group are treated as one
customer.
When allocating revenue to product groups, a distinction is made between
shaped products (e.g. hydraulically pressed bricks, fused cast bricks,
isostatically pressed products), unshaped products (e.g. repair mixes,
construction mixes and castables), refractory management services (e.g. full
line service, contract business, cost per performance) as well as other
revenue. Other mainly includes revenue from the sale of non-group refractory
products.
In the reporting year, revenue is classified by product group as follows:
in € million Steel Industrial Group 2022
Shaped products 1,100.4 692.6 1,793.0
Unshaped products 449.3 192.1 641.4
Management refractory services 755.7 0.2 755.9
Other 66.0 60.9 126.9
Revenue(1)) 2,371.4 945.8 3,317.2
In 2021, revenue was classified by product group as follows:
in € million Steel Industrial Group 2021
Shaped products 842.7 518.9 1,361.6
Unshaped products 338.2 146.0 484.2
Management refractory services 575.0 0.0 575.0
Other 67.0 63.6 130.6
Revenue(1)) 1,822.9 728.5 2,551.4
1) Revenue includes €1,047.9 million (2021: €749.2 million) relating to
the Solutions Business. Solutions Business is a customer classification that
is characterised by sales of end-to-end solutions covering large parts of the
customer process chain.
Revenue from shaped and unshaped products is transferred to the customers at a
point in time, whereas revenue from management refractory services is
transferred over time. Other revenue amounting to €44.7 million (2021:
€48.0 million) is transferred over time and an amount of €82.2 million
(2021: €82.6 million) is transferred at a point of time.
Segment reporting by country
The Revenue is based on the locations of the customers.
in € million 2022 2021
Netherlands 11.2 8.2
USA 586.5 416.8
India 344.0 255.4
Brazil 367.8 252.0
PR China 221.6 201.2
Other countries 1,786.1 1,417.8
Revenue 3,317.2 2,551.4
The carrying amounts of goodwill, other intangible assets and property, plant
and equipment are classified based on the location of the Group companies:
in € million 31.12.2022 31.12.2021
Brazil 464.8 396.5
Austria 352.9 331.4
USA 234.1 229.3
PR China 171.4 161.8
Other countries 434.0 367.7
Goodwill, intangible assets and property, plant and equipment 1,657.2 1,486.7
6. Restructuring
Summary of restructuring and write-down expenses recognised as follows:
in € million 2022 2021
Restructuring income/(expenses) 6.8 (58.8)
2022
Following the approval by the regional government in Germany for the repair,
upgrade and connection of the railway infrastructure to the Mainzlar plant,
the Group committed to continue with its operations. The commitment was
regarded as an indicator of an impairment reversal, following the write down
of the non-current assets in 2020 of €7.7 million. The reversal of the write
down amounted to €5.3 million in 2022. Additionally, around €6.4 million
in employee restructuring and plant dismantling provisions were reversed.
The Group decided to close the operations at the plant in Dashiqiao, China,
resulting in employee restructuring expenses of €2.2 million. Plant idling
costs incurred during 2022 of €3.4 million are included within restructuring
expenses. The Group continues its negotiations with the joint venture partner
to exit its share of the net assets and amounts due of €26.4 million, see
Note (28).
2021
In September 2021, the plant in Dashiqiao, China, was shut down and production
suspended. The recoverable amount of Dashiqiao's assets was deemed to be equal
to the fair value less costs of disposal and was estimated with reference to
the difference between net assets to be given up and the amount of the
expected waiver of the dividend liability as per 31 December 2021. As a
result, write-down expenses of €29.0 million were recognised, of which
€8.7 million was attributable to the Segment Steel and €20.3 million to
the Segment Industrial. Further €2.4 million of idle costs were incurred
until 31 December 2021 and recorded as restructuring expenses.
For the plant closure at Trieben, Austria, restructuring expenses amounting to
€16.3 million were recognised. These mainly related to dismantling and site
clean-up costs of €3.1 million and write-down expenses on non-current assets
of €12.2 million, of which €8.6 million was attributable to the Segment
Steel and €3.6 million to the Segment Industrial. The recoverable amount of
these assets was estimated with reference to their expected scrap value, which
was deemed negligible.
Following the sale of the plants in Drogheda, Ireland and Porsgrunn in Norway
in February 2021, €9.9 million expenses mainly relating to environmental
risks were recognised.
In the course of the plant closure in Hagen, Germany, restructuring expenses
totalling to €0.6 million were recognised and land was sold resulting in a
gain of €4.1 million.
Employee restructuring expenses of €4.7 million were recognised in 2021
under the Group's 2020 reorganisation plans, which ended in early 2022.
7. Other income
in € million 2022 2021
Net amortisation of Oberhausen provision 2.0 7.5
Result from deconsolidation incl. recycling of OCI components to P&L 0.0 6.8
Income from the disposal of non-current assets 0.5 6.2
Miscellaneous income 2.3 8.6
Other income 4.8 29.1
The net amortisation of the Oberhausen provision includes €9.2 million
(2021: €7.5 million) release for the performance against the onerous
contract, offset by €7.2 million (2021: €0.0 million) arising from updated
estimates. Miscellaneous income mainly includes Government subsidies accrued
for certain operational expenses. In 2021, the result from deconsolidation
amounting to €6.8 million relates to the disposal of RHI Normag AS,
Porsgrunn, Norway and Premier Periclase Limited, Drogheda, Ireland.
8. Other expenses
in € million 2022 2021
Expenses for strategic projects (10.1) (4.7)
Losses from the disposal of non-current assets (1.7) (2.6)
Miscellaneous expenses (11.2) (7.2)
Other expenses (23.0) (14.5)
Expenses for strategic projects amounting to €10.1 million (2021: €4.7
million) mainly include legal and consulting fees related to business
development activities during the year. Miscellaneous expenses mainly consist
of accounts receivables and inventory write downs arising from the
Ukraine/Russia conflict.
9. Expense categories
The presentation of the Consolidated Statement of Profit or Loss is based on
the function of expenses. The following table shows a classification by
expense category for 2022 and the previous year:
in € million 2022 2021
Changes in inventories, own work capitalised 64.3 259.0
Cost of materials (1,365.0) (1,205.1)
Energy Costs (285.7) (187.2)
Personnel costs (627.8) (547.6)
Depreciation and amortisation charges (144.5) (131.1)
Write-down expenses 0.0 (41.3)
Other income 27.1 41.2
Freight expenses (285.3) (222.4)
Other expenses (356.8) (303.1)
Total cost of sales, selling and marketing, administrative and restructuring (2,973.7) (2,337.6)
expenses
Cost of materials includes expenses for raw materials and supplies and
purchased goods of €1,317.6 million (2021: €1,166.8 million) and expenses
for services received amounting to €47.4 million (2021: €38.3 million).
Amortisation charges of intangible assets are largely recognised within cost
of sales. Other expenses mainly include commissions, repairs and maintenance,
travel costs, external consulting and information technology costs.
Research and development costs amounted to €41.9 million (2021: €36.7
million), of which €8.6 million (2021: €8.7 million) in development cost
were capitalised. Amortisation and impairment of development costs recognised
within cost of sales was €3.5 million (2021: €3.5 million).
Payments associated with short-term leases of equipment and vehicles and all
leases of low-value assets are recognised as an expense in the Statement of
Profit or Loss. Short-term leases are leases with a lease term of 12 months or
less. Low-value assets comprise IT equipment, office furniture and other small
items. Expenses for short-term, low-value and variable lease payments in 2022
amount to €3.5 million (2021: €2.2 million).
Other income of €27.1 million (2021: €41.2 million) mainly includes:
Mainzlar reversal of prior year non-current assets write-down of €5.3
million, see Note (6), income from research grants amounted to €4.3 million
(2021: €4.0 million), profit on disposal of non-current assets, insurance
reimbursements and amortization of grants related to assets.
10. Personnel costs
Personnel costs consist of the following components:
in € million 2022 2021
Wages and salaries (478.5) (415.2)
Pension and other post employment benefits
Defined benefit plans (4.8) (5.6)
Defined contribution plans (11.4) (6.2)
Other expenses termination benefits (5.2) (7.8)
Social security contribution (99.2) (86.6)
Fringe benefits (28.7) (26.2)
Personnel expenses (without interest expenses) (627.8) (547.6)
Average employee numbers
The average number of employees of the RHI Magnesita Group based on full time
equivalents amounts to:
2022 2021
Salaried employees 6,391 5,720
Waged workers 7,119 6,564
Number of employees on annual average 13,510 12,284
124 full time equivalents of salaried employees work in the Netherlands (2021:
108 employees). Total includes average employees of newly acquired businesses
from the date of acquisition.
11. Interest income
Includes interest income on cash at banks and similar income amounting to
€8.0 million (2021: €2.7 million) and on securities and shares amounting
to €0.3 million (2021: €0.6 million). 2021 included interest income of
€10.9 million relating to the successful judicial proceeding against tax
authorities in Brazil, see Note (22).
12. Foreign exchange effects and related derivatives
The net (loss)/gain on foreign exchange effects and related derivatives
consists of the following items:
in € million 2022 2021
Foreign exchange losses (10.0) (2.0)
Foreign exchange (losses)/gains from related derivative financial instruments (13.3) 4.8
Net (losses)/gains on foreign exchange effects and related derivatives (23.3) 2.8
13. Other net financial expenses
Other net financial expenses consist of the following items:
in € million 2022 2021
Net interest expense relating to personnel provisions (5.7) (4.6)
Unwinding of discount of provisions and payables (8.5) (5.6)
Interest expense on non-controlling interest liabilities (5.3) (5.2)
Interest expense on lease liabilities (1.3) (1.1)
Income from the revaluation of NCI put options 4.7 1.1
Other interest and similar expenses(1)) (14.6) (5.8)
Other net financial expenses (30.7) (21.2)
1) Includes mainly costs associated with the trade receivables factoring
programme of €7.2 million (2021: €5.2 million).
14.
Taxation
Income tax
Income tax consists of the following items:
in € million 2022 2021
Current tax expense (52.7) (43.2)
Deferred tax (expense)/income relating to
temporary differences (11.9) (12.2)
tax loss carryforwards (39.1) 16.0
(51.0) 3.8
Income tax (103.7) (39.4)
The current tax expense includes favourable net income tax adjustments for
previous periods of €2.3 million (2021: €8.4 million favourable).
In recognising deferred tax assets, the Group has considered the impacts of
the global economic environment in which it operates. In this context, the
relevant uncertainties and potential adverse effects of economic turmoil were
taken into consideration when evaluating the recoverability of deferred tax
assets, including accumulated tax losses. In arriving at its conclusions, the
Group's latest forecasts and assumptions, as used for goodwill impairment
testing and viability statement assessment, were considered. The Group's
forecasted period is four years with the fifth year being the terminal year,
consistent with goodwill impairment testing. In Brazil, however, a longer time
frame is used due to the annual limitation for use of losses (30% of the
taxable profits of the relevant year) which requires a longer-term prediction.
Information on tax contingencies is provided under Note (39).
In addition to the income taxes recognised in the Consolidated Statement of
Profit or Loss, a tax expense of €29.5 million (2021: €3.1 million,
income), was recognised in Other Comprehensive Income mainly relating to cash
flow hedges and measurement gains and losses on employee post-employment
benefits.
A reconciliation of the difference between the income tax expense, which would
result from the application of the Austrian corporate tax rate of 25% on the
profit before income tax, and the income tax reported is shown below:
in € million 2022 2021
Profit before income tax 270.5 289.1
Income tax expense calculated at 25% (2021: 25%) 67.6 72.3
Different foreign tax rates 5.9 5.1
Expenses not deductible for tax purposes, non-creditable taxes 21.4 17.6
Non-taxable income and tax benefits (25.7) (17.4)
Tax losses and temporary differences of the financial year not recognised 2.3 7.8
Utilisation of previously unrecognised loss carryforwards and temporary 0.0 (4.0)
differences
Recognition of previously unrecognised loss carryforwards and temporary (3.1) (37.9)
differences
Change in write down of deferred tax assets 3.0 1.4
Deferred tax expense due to tax rate changes 2.7 (0.2)
Deferred tax assets derecognised 23.6 0.0
Deferred income tax relating to prior periods 5.2 2.6
Deferred income tax relating to foreign currency translation on non-monetary 2.8 0.2
items
Current income tax relating to prior periods (2.3) (8.4)
Other 0.3 0.3
Recognised tax expense 103.7 39.4
Effective tax rate (in %) 38.4% 13.6%
In 2022, expenses not deductible for tax purposes mainly includes: transfer
pricing mismatches and adjustments of €3.4 million (2021: €2.6 million);
tax impact of share based payment and other employee costs of €2.9 million
(2021: €1.4 million); inflation, inventory and FX adjustments and exempt
income in South America of €3.0 million (2021: €0.5 million); impact of
thin capitalisation rules in Argentina of €2.0 million (2021: €1.2
million); non-creditable withholding taxes in Austria of €2.4 million (2021:
€1.8 million); and non-deductible subsidiary recharged expenses of €1.2
million. Furthermore, other non-deductible expenses in 2021 included debt
waiver costs of €1.6 million and certain technology costs recharged from
subsidiaries of €1.8 million.
In 2022, non-taxable income and tax benefits mainly includes: tax incentives
in Brazil of €7.4 million (2021: €1.6 million); additional tax
depreciation in Austria of €7.5 million (€2021: €7.5 million) relating
to historical acquisitions; non-taxable income from the write down of shares
of €2.1 million in Austria; income of foreign permanent establishments in
Austria of €1.0 million (2021: €1.8 million); and inflationary adjustments
in Mexico of €3.1 million (2021: €0.8 million). Furthermore, other
non-taxable income in 2021 includes income from restructuring of €1.3
million in Austria.
Deferred tax assets derecognised pursuant to a tax position reassessment in
2022, of €23.6 million including income adjustments following agreement with
the tax authorities on the allocation of certain group functions and includes
€8.7 million adjustment in relation to an intercompany debt waiver. These
tax impacts are primarily non-cash in nature and had the effect of reducing
previously recognised tax losses. The cash tax impact was €1.4 million and
is included within current income tax relating to prior periods.
Deferred taxes expense relating to prior periods and change in write down of
deferred tax assets, arises mainly from Mexico, of €2.5 million and €2.1
million respectively, following an internal review. Deferred income tax
relating to foreign currency translation of local currency tax base is due to
the devaluation of the Turkish Lira against the Euro of €2.8 million. In
2021, a deferred tax asset of €37.7 million was recognised resulting from a
tax depreciation for future periods and the recognition of previously
unrecognised temporary differences.
The change in the tax rate in Austria from 25% to 24% in 2023 and 23% in 2024,
resulted in a €2.4 million increase in the expense from deferred taxes on
taxable and deductible temporary differences.
The favourable current income tax adjustment relating to prior periods arose
mainly from the Netherlands of €2.2 million and an additional charge of
€1.4 million following the allocation of certain group functions and
responsibilities to Austria mentioned above.
Due to the recognition of the €37.7 million of deferred tax asset in 2021,
the Group's effective tax rate was 13.6%. In 2022, the Group's effective tax
rate was 38.3%. Drivers for the 2022 effective tax rate were mainly the
non-cash (€23.6 million) and cash (€1.4 million) tax impacts as mentioned
above, deferred tax adjustments from Mexico of €4.6 million and the lower
income tax rate in Austria of €2.7 million. The Group's Adjusted effective
tax rate, once the impacts of these one-off items are excluded reduced to
around 25.3% (2021: 18.0%).
Deferred taxes
Deferred taxes are related to the following significant balance sheet items
and tax loss carryforwards:
31.12.2022 2022 31.12.2021 2021
in € million Deferred tax assets Deferred tax liabilities (Expense)/Income Deferred tax assets Deferred tax liabilities (Expense)/Income
Property, plant and equipment, intangible assets 25.1 113.3 (6.1) 41.3 109.6 17.0
Inventories 20.8 9.0 6.3 16.3 11.0 (12.5)
Trade receivables, other assets 11.0 21.1 (17.2) 25.0 5.2 (0.8)
Pensions and other personnel provisions 41.9 0.3 (4.6) 61.7 0.2 (3.2)
Other provisions 27.4 0.6 0.2 25.5 0.3 (1.4)
Trade payables, other liabilities 22.2 6.7 9.5 20.4 12.2 (11.3)
Tax loss carried forward 68.8 0.0 (39.1) 102.3 0.0 16.0
Offsetting (89.0) (89.0) 0.0 (90.1) (90.1) 0.0
Deferred taxes 128.2 62.0 (51.0) 202.4 48.4 3.8
Tax losses generated by subsidiaries in the current or the prior year,
recognised net deferred tax assets on temporary differences and tax loss
carryforwards of €1.9 million (2021: €160.8 million). Deferred tax assets
have been recognised as sufficient taxable income is expected to be generated
in the future.
Tax loss carryforwards totalled €345.0 million at 31 December 2022 (2021:
€477.0 million). A significant part of the tax loss carryforwards originated
in Brazil and Austria where their deduction can be carried forward
indefinitely. Furthermore, there are tax loss carryforwards in China expiring
within the next five years. The annual utilisation of tax loss carryforwards
is limited to 75% in Austria and 30% in Brazil of their respective taxable
profits. Deferred tax assets were not recognised on tax losses of €116.5
million (2021: €118.7 million).
in € million 31.12.2022 31.12.2021
Year of expiry
2022 0.4 0.4
2023 0.2 9.3
2024 7.4 7.6
2025 1.8 1.9
2026 2.1 2.4
2027 11.9 0.2
2028 or later 0.8 0.3
Not subject to expiration 91.9 96.6
Total unrecognised tax losses 116.5 118.7
No deferred tax assets were recognised on temporary differences totalling
€209.0 million (2021: €216.0 million), which are expected to reverse by
2034.
Taxable temporary differences of €1,113.7 million (2021: €814.4 million)
and temporary deductible differences of €7.2 million (2021: €116.8
million) were not recognised on shares in subsidiaries as the distributions of
profit or the sale of the investments are controlled by the Group.
Income tax receivables
Income tax receivables amounting to €38.7 million (2021: €35.1 million)
are mainly related to income tax receivables relating to prior periods, tax
prepayments and deductible withholding taxes.
Income tax liabilities
Income tax liabilities amounting to €38.3 million (2021: €38.2 million)
primarily include income taxes for the current year and previous years.
15. Earnings per share
Earnings per share is calculated by dividing the profit or loss attributable
to the shareholders of the Group by the weighted average number of shares
outstanding during the financial year.
2022 2021
Profit after income tax attributable to RHI Magnesita N.V. shareholders (in 155.7 243.1
€ million)
Weighted average number of shares for basic EPS 47,000,708 47,629,647
Effects of dilution from share options 793,302 519,546
Weighted average number of shares for dilutive EPS 47,794,010 48,149,193
Earnings per share basic (in €) 3.31 5.10
Earnings per share diluted (in €) 3.26 5.05
The weighted average number of shares for basic and dilutive EPS considers the
weighted average effect of the newly issued ordinary shares as well the effect
of changes in treasury shares during the reporting period. As of 31 December
2022, there are 849,046 diluting options (2021: 554,238).
16. Dividend payments and proposed dividend
The final proposed dividend is subject to the approval of the Annual General
Meeting on 24 May 2023 and was not recognised as a liability in these
Consolidated Financial Statements. The final proposed dividend for 2022 will
amount to €1.10 per share (2021: € 1.00 per share).
In line with the Group's dividend policy, the Board paid out an interim
dividend in September 2022 of €0.50 per share for the first half of 2022
amounting to €24.0 million. The total dividend for 2022, which includes the
proposed final dividend, yet to be approved, amounts to €1.60 per share
(2021: €1.50 per share).
Based on a resolution adopted by the Annual General Meeting of RHI Magnesita
N.V. on 25 May 2022, the final dividend for 2021 amounted to €1.00 per share
and was paid out in June 2022, amounting to €47.0 million. The total
dividend for 2021 amounted to €1.50 per share.
17. Goodwill
in € million 2022 2021
Carrying amount at beginning of the year 114.4 110.8
Newly acquired businesses 20.6 0.0
Currency translation 1.9 3.6
Carrying amount at year-end 136.9 114.4
Impairment of goodwill
Goodwill is tested for impairment at least annually based on the CGU to which
it is allocated. The Group's goodwill is primarily within the Steel segment
and assigned to the CGU as identified below.
As in the previous year, the impairment test is based on the value in use; the
recoverable amount is determined using the discounted cash flow method and
incorporates the terminal value. The assumptions were updated considering the
latest economic developments, including energy and raw material prices. The
Group is subject to environmental and other laws and regulations and has
established environmental policies and procedures aimed at compliance with
these laws. Impairment testing incorporated considerations for increased
energy and raw material prices in its Budget and the Long-Term Plan and
estimates the total increase in investments in research and development costs
at approximately €36.0 million. Current technology used by the customer
industries requiring advanced heat-resistant materials for their production
depend on refractory materials and in our view will remain in use in the
observable future.
The net cash flows are discounted using a discount rate that is calculated
taking into account the weighted average cost of capital of comparable
companies; the corresponding parameters are derived from capital market
information. In addition, country-specific risk premiums are considered in the
weighted average cost of capital. The discount rate ranges between 7.9% and
10.6% in 2022 (2021: 7.7% and 9.8%).
The net cash flows used for impairment testing are based on the strategic
business and financial planning model of the Group including the 2023 budget
and the Long-Term Plan, as approved by the Board. The cash flows are geared to
a steady-state business development, which balances out possible economic or
other non-sustainable fluctuations in the detailed planning period and forms
the basis for the calculation of the terminal value. As in the previous year,
the terminal value is based on a growth rate derived from the difference
between the current and possible degree of asset capacity and utilisation.
The forecasts include cash flows from future maintenance investments while
expansion investments are included when there has been a significant cash
outflow or significant payment obligations have been entered into due to
services received and it is sufficiently certain that the investment measure
will be completed. Cash flows for other expansion investments are excluded
from the discounted cash flow model; this applies in particular to expansion
investments that have been decided on but that have not begun. To forecast the
CGUs' cash flows, management predicts the growth rate using external sources
for the development of the customer's industries; regional growth rates of the
steel production and output of the non-steel clients in combination with the
development of the specific refractory consumption including technological
improvements.
Working capital is included in the carrying amount of the CGUs; therefore, the
recoverable amount only takes into account changes in working capital.
A summary of the key assumptions relating to goodwill testing is reflected in
the table below:
2022 2021
Discount rate before Tax Perpetual annuity growth rate Goodwill Discount rate before Tax Perpetual annuity growth rate Goodwill
in € million
in € million
Steel Division - Linings 10.8% 0.9% 107.2 8.4% 0.9% 83.5
Steel Division - Flow Control 11.1% 0.9% 28.5 8.7% 0.9% 29.6
As a sensitivity, the effect of an adverse change of 10% in the estimated
discount rates at 31 December 2022 or an adverse change of 50% in the
perpetual growth rate would not result in an impairment of goodwill.
18. Other intangible assets
2022
in € million Mining rights Customer relationship Internally generated intangible assets Other intangible assets Total
Cost at 31.12.2021 139.3 99.2 70.9 145.4 454.8
Currency translation 12.6 4.4 0.1 1.0 18.1
Additions 0.0 0.0 8.7 7.2 15.9
Additions initial consolidation 0.0 28.5 0.0 0.0 28.5
Retirements and disposals 0.0 0.0 (0.8) (0.7) (1.5)
Reclassifications 0.0 0.0 (0.4) 3.9 3.5
Cost at 31.12.2022 151.9 132.1 78.5 156.8 519.3
Accumulated amortisation 31.12.2021 11.1 35.3 44.8 81.0 172.2
Currency translation 0.9 0.7 0.0 0.3 1.9
Amortisation charges 2.5 9.4 4.0 13.0 28.9
Retirements and disposals 0.0 0.0 0.0 (0.7) (0.7)
Reclassifications 0.0 0.0 0.0 0.4 0.4
Accumulated amortisation 31.12.2022 14.5 45.4 48.8 94.0 202.7
Carrying amounts at 31.12.2022 137.4 86.7 29.7 62.8 316.6
2021
in € million Mining rights Customer relationship Internally generated intangible assets Other intangible assets Total
Cost at 31.12.2020 133.1 95.1 62.0 121.3 411.5
Currency translation 6.2 4.2 0.2 4.9 15.5
Additions 0.0 0.0 8.8 9.9 18.7
Retirements and disposals 0.0 (0.1) (0.1) (4.1) (4.3)
Reclassifications 0.0 0.0 0.0 13.4 13.4
Cost at 31.12.2021 139.3 99.2 70.9 145.4 454.8
Accumulated amortisation 31.12.2020 8.5 27.9 40.7 68.7 145.8
Currency translation 0.5 1.6 0.2 2.3 4.6
Amortisation charges 2.1 5.8 4.0 10.5 22.4
Impairment charges 0.0 0.0 0.0 3.7 3.7
Retirements and disposals 0.0 0.0 (0.1) (3.8) (3.9)
Reclassifications 0.0 0.0 0.0 (0.4) (0.4)
Accumulated amortisation 31.12.2021 11.1 35.3 44.8 81.0 172.2
Carrying amounts at 31.12.2021 128.2 63.9 26.1 64.4 282.6
Internally generated intangible assets comprise capitalised software and
product development costs.
The customer relations from the former Magnesita Group have a carrying amount
of €61.1 million (2021: €63.6 million) and a remaining useful life
between six to ten years.
Other intangible assets include in particular acquired patents, trademark
rights, software, and land-use rights. The land-use rights have a carrying
amount of €20.9 million (2021: €20.0 million) and a remaining useful life
between 15 to 55 years.
There are no restrictions on the sale of intangible assets.
19. Property, plant and equipment
2022
in € million Real Technical Other plant, furniture and fixtures Prepayments Right-of-use assets Total
estate,
equipment,
made and
land and
machinery
plant under
buildings
construction(1))
Cost at 31.12.2021 670.3 1,143.6 379.4 209.7 87.1 2,490.1
Currency translation 11.0 13.2 4.9 11.2 2.6 42.9
Additions (2)) 8.2 14.9 15.1 122.6 20.7 181.5
Additions initial consolidation 6.0 2.9 0.6 0.3 7.0 16.8
Retirements and disposals (10.8) (85.0) (34.5) (0.5) (5.0) (135.8)
Reclassifications 27.5 53.5 27.2 (111.7) 0.0 (3.5)
Cost at 31.12.2022 712.2 1,143.1 392.7 231.6 112.4 2,592.0
Accumulated depreciation 31.12.2021 311.5 793.4 260.3 1.5 33.7 1,400.4
Currency translation 0.3 5.7 1.1 0.1 1.2 8.4
Depreciation charges 15.1 54.1 26.2 0.0 20.2 115.6
Reversal of impairment charges (1.5) (3.0) (0.9) (0.3) (0.3) (6.0)
Retirements and disposals (8.0) (82.7) (34.2) 0.0 (4.8) (129.7)
Reclassifications 0.0 0.0 (0.4) 0.0 0.0 (0.4)
Accumulated depreciation 31.12.2022 317.4 767.5 252.1 1.3 50.0 1,388.3
Carrying amounts at 31.12.2022 394.8 375.6 140.6 230.3 62.4 1,203.7
1) Prepayments made and plant under construction include €10.2 million
relating to intangible assets. €3.5 million was transferred to intangibles
assets during the year.
2) Including €1.5 million capitalised borrowing costs within Additions.
2021
in € million Real Technical Other plant, furniture and fixtures Prepayments Right-of-use assets Total
estate,
equipment,
made and
land and
machinery
plant under
buildings
construction(1))
Cost at 31.12.2020 598.6 1,039.4 330.9 164.9 76.8 2,210.6
Currency translation 18.5 32.7 8.3 4.0 2.5 66.0
Additions 25.3 47.5 17.9 156.8 13.4 260.9
Retirements and disposals (4.1) (18.5) (5.4) 0.0 (5.6) (33.6)
Reclassifications 32.0 42.5 27.7 (116.0) 0.0 (13.8)
Cost at 31.12.2021 670.3 1,143.6 379.4 209.7 87.1 2,490.1
Accumulated depreciation 31.12.2020 277.1 720.5 230.9 1.1 22.4 1,252.0
Currency translation 4.8 19.2 5.8 0.0 0.7 30.5
Depreciation charges 12.8 56.3 23.4 0.0 16.0 108.5
Impairment charges 18.3 14.6 4.3 0.4 0.0 37.6
Retirements and disposals (1.2) (16.7) (4.9) 0.0 (5.4) (28.2)
Reclassifications (0.3) (0.5) 0.8 0.0 0.0 0.0
Accumulated depreciation 31.12.2021 311.5 793.4 260.3 1.5 33.7 1,400.4
Carrying amounts at 31.12.2021 358.8 350.2 119.1 208.2 53.4 1,089.7
1) Prepayments made and plant under construction include €6.0 million
relating to intangible assets.
Prepayments made and plant under construction includes €212.0 million (2021:
€179.2 million) mainly relating to the expansion of a production plant in
Austria and a magnesite plant in Brazil during 2022. The spend in 2021 mainly
related to the expansion of a magnesite plant in Brazil.
There are no restrictions on the sale of property, plant and equipment.
The Right-of-use assets per category developed as follows as of 31 December
2022:
in € million Right-of-use assets Right-of-use assets Right-of-use assets Total
land and buildings
technical equipment and machinery
other equipment, furniture and fixtures
Cost at 31.12.2021 47.8 31.9 7.4 87.1
Currency translation 1.0 1.5 0.1 2.6
Additions 16.7 1.2 2.8 20.7
Additions initial consolidation 5.1 0.1 1.8 7.0
Retirements and disposals (1.8) (1.7) (1.5) (5.0)
Cost at 31.12.2022 68.8 33.0 10.6 112.4
Accumulated depreciation 31.12.2021 15.4 14.4 3.9 33.7
Currency translation 0.4 0.6 0.2 1.2
Depreciation charges 11.2 6.1 2.9 20.2
Reversal of impairment charges 0.0 (0.2) (0.1) (0.3)
Retirements and disposals (1.7) (1.7) (1.4) (4.8)
Accumulated depreciation 31.12.2022 25.3 19.2 5.5 50.0
Carrying amounts at 31.12.2022 43.5 13.8 5.1 62.4
The Right-of-use assets per category developed as follows as of 31 December
2021:
in € million Right-of-use assets Right-of-use assets Right-of-use assets Total
land and buildings
technical equipment and machinery
other equipment, furniture and fixtures
Cost at 31.12.2020 40.4 30.7 5.7 76.8
Currency translation 1.0 1.3 0.2 2.5
Additions 8.7 1.6 3.1 13.4
Retirements and disposals (2.3) (1.7) (1.6) (5.6)
Cost at 31.12.2021 47.8 31.9 7.4 87.1
Accumulated depreciation 31.12.2020 9.3 9.8 3.3 22.4
Currency translation 0.2 0.4 0.1 0.7
Depreciation charges 8.2 5.8 2.0 16.0
Retirements and disposals (2.3) (1.6) (1.5) (5.4)
Accumulated depreciation 31.12.2021 15.4 14.4 3.9 33.7
Carrying amounts at 31.12.2021 32.4 17.5 3.5 53.4
The average lease term is eight years for land and buildings, six years for
technical equipment and three years for other equipment, furniture and
fixtures. Impacts resulting from extension and termination options, as well as
residual value guarantees are immaterial. Detail on lease liabilities is in
Note (28).
20. Other non-current assets
in € million 31.12.2022 31.12.2021
Tax receivables 18.7 27.1
Other non-current assets 21.3 14.1
Other non-current assets 40.0 41.2
Tax receivables relate to input tax credits, which are expected to be utilised
in the medium term. Other non-current assets mainly include deferred mine
stripping costs.
21. Inventories
in € million 31.12.2022 31.12.2021
Raw materials and supplies 303.3 300.2
Work in progress 206.7 151.5
Finished products and goods 526.3 512.4
Prepayments made 12.8 12.4
Inventories 1,049.1 976.5
Inventories include €8.4 million (2021: €6.9 million) carried at net
realisable value. Net write-down expenses amount to €8.0 million (2021:
€3.4 million).
There are no restrictions on the disposal of inventories.
22. Trade and other current receivables
in € million 31.12.2022 31.12.2021
Trade receivables 433.4 403.7
Contract assets 3.5 3.6
Other tax receivables 106.4 113.7
Dividend receivables 0.0 8.7
Prepaid expenses 5.9 3.9
Other current receivables 29.7 34.6
Trade and other current receivables 578.9 568.2
thereof financial assets 433.9 414.4
thereof non-financial assets 145.0 153.8
The Group enters into factoring agreements and sells trade receivables to
financial institutions. Trade receivables sold at the end of the year was
€245.1 million (2021: €178.1 million). These have been derecognised as
substantially all risks and rewards as well as control have been transferred.
Payments received from customers following the sale are recognised in current
borrowings until repaid to the factorer.
Other tax receivables include VAT, receivables from energy tax refunds,
research, education and apprentice subsidies. Other tax receivables at
31.12.2021 included €12.1 million receivable from the tax authorities in
Brazil following a successful judicial proceeding relating to revenue-based
taxes.
Other current receivables mainly relate to advances for insurance, IT services
as well as custom and import-related services and costs.
23. Cash and cash equivalents
in € million 31.12.2022 31.12.2021
Cash at banks and in hand 471.8 565.4
Money market funds 48.9 15.4
Cash and cash equivalents 520.7 580.8
Cash and cash equivalents include restricted cash totalling €23.2 million at
31 December 2022 (2021: €5.7 million). Restricted cash is mainly related
to cash and cash equivalents held in Argentina, which has restrictive foreign
exchange control regulations and performance guarantees. In addition, €2.0
million (2021: €2.0 million) is held in escrow in Austria and not available
for use by the Group. €28.5 million in cash and cash equivalents (2021:
€17.3 million) are accounted for by subsidiaries with non-controlling
interests or subsidiaries with put options to acquire the non-controlling
shareholder.
24. Share capital
At 31 December 2022, the authorised share capital of RHI Magnesita N.V.
amounts to €100,000,000 divided into 100,000,000 ordinary shares, of which
47,017,695 (2021: 46,999,019) fully paid-in ordinary shares are issued and
outstanding. In addition, there are 2,460,010 (2021: 2,478,686) treasury
shares held by the company. All outstanding RHI Magnesita shares grant the
same rights. The shareholders are entitled to dividends and have one voting
right per share at the Annual General Meeting. There are no shares with
special control rights.
25. Group reserves
Treasury shares
At 31 December 2022, RHI Magnesita treasury shares amount to 2,460,010 (2021:
2,478,686).
Additional paid-in capital
At 31 December 2022, as well as at 31 December 2021, additional paid-in
capital comprised premiums on the issue of shares less issue costs by RHI
Magnesita N.V.
Mandatory reserve
The articles of association stipulate a mandatory reserve of €288,699,230.59
which was created in connection with the merger. No distributions, allocations
or additions may be made and no losses of the Company may be allocated to the
mandatory reserve.
Retained earnings
Retained earnings includes the result of the financial year and results that
were earned by consolidated companies during prior periods, but not
distributed.
Accumulated other comprehensive income
Cash flow hedge reserves includes gains and losses from the effective part of
cash flow hedges less tax effects. The accumulated gain or loss from the hedge
allocated to reserves is only reclassified to the Statement of Profit or Loss
if the hedged transaction also influences the result or is terminated.
Reserves for defined benefit plans include the gains and losses from the
remeasurement of defined benefit pension and termination benefit plans taking
into account tax effects. No reclassification of these amounts to the
Statement of Profit or Loss will be made in future periods.
Currency translation includes the accumulated currency translation differences
from translating the Financial Statements of foreign subsidiaries, unrealised
currency translation differences from monetary items which are part of a net
investment in a foreign operation, net of related income taxes, as well as the
effective portion of foreign exchange gains or losses when a financial
instrument is designated as the hedging instrument in net investment hedge in
a foreign operation.
26. Non-controlling interests
Non-controlling interests in RHI Magnesita India Limited ("RHIM India").
In the course of the merger of the two Indian subsidiaries RHI CLASIL Private
Limited and RHI India Private Limited in June 2021, into RHI Orient
Refractories Limited and renamed to RHI Magnesita India Limited the Group
shareholding changed from 66,5% to 70,2% and the share of the non-controlling
interests decreased from 33.5% to 29.8%. RHIM India, based in New Delhi, India
is a listed company on the BSE Limited, Mumbai, India and NSE Limited, Mumbai,
India. The company is included in the Steel segment. The current reporting
period and the previous reporting period are not fully comparable as a
consequence of the merger in 2021. The carrying amount of the non-controlling
interests is determined as follows:
in € million 31.12.2022 31.12.2021
Non-current assets 50.4 51.1
Current assets 168.3 153.9
Non-current liabilities (2.5) (2.8)
Current liabilities (71.7) (80.9)
Net assets before intragroup eliminations 144.5 121.3
Intragroup eliminations 0.1 (0.5)
Net assets 144.6 120.8
Percentage of non-controlling interests 29.8% 29.8%
Carrying amount of non-controlling interests 43.1 36.0
The aggregate Statement of Profit or Loss and Statement of Comprehensive
Income are shown below:
in € million 2022 2021
Revenue 294.6 167.4
Operating expenses, net finance costs and income tax (257.4) (146.9)
Profit after income tax before intragroup eliminations 37.2 20.5
Intragroup eliminations 0.6 1.2
Profit after income tax 37.8 21.7
thereof attributable to non-controlling interests of RHIM India 11.3 6.6
in € million 2022 2021
Profit after income tax 37.8 21.7
Other comprehensive (expense)/income (8.2) 8.0
Total comprehensive income 29.6 29.7
thereof attributable to non-controlling interests of RHIM India 8.8 8.7
The following table shows the summarised Statement of Cash Flows of RHIM
India:
in € million 2022 2021
Net cash flow from operating activities 21.5 (1.4)
Net cash flow from investing activities (6.9) (5.2)
Net cash flow from financing activities (6.4) (3.6)
Total cash flow 8.2 (10.2)
Net cash flow from financing activities includes dividend payments to
non-controlling interests amounting to €1.5 million (2021: €1.4 million).
Non-Controlling interest includes 10.6% in SÖRMAŞ, which was acquired on 1
September 2022, with a carrying amount of the non-controlling interest of
€3.8 million at 31 December 2022. Further information relating to this
acquisition is provided under Note (42). In line with the Group's accounting
policy, the carrying amount of non-controlling interest is reduced to nil and
replaced with a financial liability where the Group has provided a written put
option (usually together with a call option) to acquire the shares not
controlled by the Group. The Group has in place a written put option with the
49.0% non-controlling interest in RHI Magnesita (Chongqing) Refractory
Materials Co., Ltd., China, with the carrying value of the liability at 31
December 2022 of €21.3 million. The Group also has a written put option with
the 49.0% non-controlling interest in Mireco, with the carrying value of the
liability at 31 December 2022 of €8.4 million. Further detail on the written
put options is provided under Note (28).
27. Borrowings
Borrowings include all interest-bearing liabilities due to financial
institutions and other lenders.
Total
in € million 31.12.2022 current non-current
Syndicated & Term Loan 942.4 130.7 811.7
Bonded loans ("Schuldscheindarlehen") 585.0 0.0 585.0
Other credit lines and other loans 84.6 84.6 0.0
Total liabilities to financial institutions 1,612.0 215.3 1,396.7
Other financial liabilities 9.0 0.1 8.9
Capitalised transaction costs (1.0) (0.3) (0.7)
Borrowings 1,620.0 215.1 1,404.9
Total
in € million 31.12.2021 current non-current
Syndicated & Term Loan 791.5 58.3 733.2
Bonded loans ("Schuldscheindarlehen") 650.0 65.0 585.0
Other credit lines and other loans 88.2 88.2 0.0
Total liabilities to financial institutions 1,529.7 211.5 1,318.2
Other financial liabilities 7.4 3.2 4.2
Capitalised transaction costs (2.4) (1.0) (1.4)
Borrowings 1,534.7 213.7 1,321.0
On 5 May 2022, the Group amended and extended its €305.0 million OeKB Term
Loan maturing in June 2023, of which €260.0 million was outstanding as at 31
December 2021, increasing the total loan amount outstanding to €350.0
million and extending the final maturity to May 2027. The margin payable on
the OeKB Term Loan will be adjusted based on the Group's EcoVadis ESG rating
performance and the variable interest rate is based on the EURIBOR. The
interest payments are due on a quarterly basis.
On 29 July 2022, the Group refinanced its existing $200 million USD Term Loan
maturing in August 2023 with a new €250 million EUR Term Loan with a
maturity in July 2027. The margin payable on the EUR Term Loan is adjusted
based on the Group's EcoVadis ESG rating performance and the variable interest
rate is based on the EURIBOR. Interest payments are due on a quarterly basis.
In November 2022, the Group exercised its third and last extension option and
thereby extended the maturity of the committed RCF (€600.0 million) by one
year to 2028.
In December 2022, the Group entered into an INR 7.0 billion (around €78.8
million) bilateral term loan to finance the announced acquisition of Hi Tech
at its Indian subsidiary, see Note (44) for further information.
Net debt excluding lease liabilities/Adjusted EBITDA is the key financial
covenant of the loan agreements and is shown under Note (38). Compliance with
the covenants is measured on a semi-annual basis. In line with the Covenant
requirements, net debt excluding lease liabilities to Adjusted EBITDA cannot
exceed 3.5x. Breach of covenants leads to an anticipated maturity of loans.
During 2022 and 2021, the Group met all covenant requirements.
Considering interest swaps, 73% (2021: 70%) of the liabilities to financial
institutions carry fixed interest and 27% (2021: 30%) carry variable interest.
The following table shows fixed interest terms and conditions, taking into
account interest rate swaps, without liabilities from deferred interest:
Interest terms fixed until Effective annual interest rate Currency 31.12.2022 Carrying amount in € million Interest terms fixed until Effective annual interest rate Currency 31.12.2021 Carrying amount in € million
2023 EURIBOR + margin EUR 372.3 2022 EURIBOR + margin EUR 403.3
Variable rate + margin EUR 34.0 1.87% EUR 65.0
Various - Variable rate Var. 27.4
0.25% EUR 115.0 Variable rate + margin EUR 34.0
2024 3.10% EUR 35.0 Various - Variable rate Var. 12.5
2025 0.59% EUR 177.0 2023 0.79% EUR 374.7
2027 2.72% EUR 751.8 4.09% USD 176.8
2028 0.92% EUR 86.5 2024 3.10% EUR 35.0
2029 1.52% EUR 8.0 2025 0.59% EUR 177.0
2031 1.28% EUR 5.0 2027 1.00% EUR 152.0
2028 0.92% EUR 86.5
2029 1.52% EUR 8.0
2031 1.28% EUR 5.0
1,612.0 1,529.8
The table above shows how long the interest rates are fixed, rather than the
maturity of the underlying instruments.
28. Other financial liabilities
Other financial liabilities include the negative fair value of derivative
financial instruments as well as lease liabilities and fixed-term and puttable
non-controlling interests payable in Group companies. Additional explanation
on derivative financial instruments is provided under Note (36).
31.12.2022 31.12.2021
in € million Current Non-current Total Current Non-current Total
Forward exchange contracts 0.6 0.0 0.6 0.0 0.0 0.0
Interest rate swaps 0.0 0.0 0.0 0.0 9.6 9.6
Commodity swaps 0.9 0.2 1.1 0.0 0.0 0.0
Derivatives in open orders 9.5 0.0 9.5 0.1 0.0 0.1
Derivative financial liabilities 11.0 0.2 11.2 0.1 9.6 9.7
Lease liabilities 17.5 46.4 63.9 16.1 39.4 55.5
Fixed-term or puttable non-controlling interests 21.6 46.2 67.8 3.0 57.0 60.0
Other financial liabilities 50.1 92.8 142.9 19.2 106.0 125.2
Fixed terms or puttable non-controlling interest reflects amounts payable to
non-controlling interest where the Group has entered into agreements to
purchase the shares not already controlled. The purchase agreements generally
provide for a call and written option at a fixed price or based on earnings
multiple, such as EBITDA and capped subject to contractual limits, if any, to
be exercised in the future. The carrying amount represents the discounted
value of the expected settlement for the following non-controlling interest:
31.12.2022 31.12.2021
in € million
Horn & Co. Minerals Recovery GmbH & Co.KG 49.00% 8.4 0.0
RHI Magnesita (Chongqing) Refractory Materials Co., Ltd. 49.00% 21.3 23.5
Liaoning RHI Jinding Magnesia Co., Ltd. 16.67% 26.4 23.5
RHI Refractories Liaoning Co., Ltd. 34.00% 11.7 13.0
Other financial liabilities 67.8 60.0
During the period, €5.3 million (2021: €5.2 million) was recognised as an
interest expense on the liability and €4.7 million income (2021: €1.1
million income) was recognised within other net financial expenses as an
adjustment to the amount payable where the written put option price is based
on earnings multiple or is affected by a change in the discount rate. See Note
(13)
29. Provisions for pensions
The net liability from pension obligations in the Consolidated Statement of
Financial Position is as follows:
in € million 31.12.2022 31.12.2021
Present value of pension obligations 395.5 495.0
Fair value of plan assets (186.6) (255.5)
Deficit of funded plans 208.9 239.5
Asset ceiling 3.8 28.6
Net liability from pension obligations 212.7 268.1
Overfunded pension plans 2.0 0.9
Other pension plans 214.7 269.0
The present value of pension obligations by beneficiary groups is as follows:
in € million 31.12.2022 31.12.2021
Active beneficiaries 64.2 88.4
Vested terminated beneficiaries 43.4 68.4
Retirees 287.9 338.2
Present value of pension obligations 395.5 495.0
The pension obligations are measured using the following actuarial assumptions
for the key countries in which the Group operates:
in % 31.12.2022 31.12.2021
Interest rate
Austria and Germany 3.8% 0.9%
Brazil 10.5% 8.4%
United Kingdom 4.8% 1.8%
USA 5.0% 2.8%
Future salary increase
Austria 4.5% 3.3%
Germany 2.5% 2.5%
Brazil 4.3% 3.0%
United Kingdom 3.3% 3.5%
USA 3.3% 3.3%
Future pension increase
These are average values which were weighted with the present value of the
respective pension obligation.
The calculation of the actuarial interest rate for the Eurozone countries is
based on a yield curve for returns of high-quality corporate bonds denominated
in EUR with an average rating of AA, which is derived from pooled index
values. The calculation of the actuarial interest rate for the USD and GBP
currency area is based on a yield curve for returns of high-quality corporate
bonds denominated in USD and GBP with an average rating of AA, which is
derived from pooled index values. Where there are very long-term maturities,
the yield curve follows the performance of bonds without credit default risk.
The interest rate is calculated annually at 31 December, taking into account
the expected future cash flows which were determined based on the current
personal and commitment data.
The calculation in Austria was based on the AVÖ 2018-P demographic
calculation principles for salaried employees from the Actuarial Association
of Austria. In Germany, the Heubeck 2018 G actuarial tables were used as a
basis. In the other countries, country-specific mortality tables were applied.
The main pension regulations are described below:
The Austrian group companies account for €81.2 million (2021:
€100.5 million) of the present value of pension obligations and for
€18.1 million (2021: €20.6 million) of the plan assets. The agreed
benefits include pensions, invalidity benefits and benefits for surviving
dependents. Commitments in the form of company or individual agreements depend
on the length of service and the salary at the time of retirement. For the
majority of commitments, the amount of the pension subsidy is limited to 75%
of the final remuneration including a pension pursuant to the General Social
Insurance Act (ASVG). RHI Magnesita has concluded pension reinsurance policies
for part of the commitments. The pension claims of the beneficiaries are
limited to the coverage capital required for these commitments. Pensions are
predominantly paid in the form of annuities and are partially indexed. For
employees joining the Company after 1 January 1984, no defined benefits were
granted. Rather, a defined contribution pension model is in place. In
addition, there are commitments based on the deferred compensation principle,
which are fully covered by pension reinsurance policies and commitments for
preretirement benefits for employees in mining operations.
The pension plans of the German group companies account for €107.7 million
(2021: €146.3 million) of the present value of pension obligations and for
€0.7 million (2021: €0.7 million) of the plan assets. The benefits
included in company agreements comprise pensions, invalidity benefits and
benefits for surviving dependents. The amount of the pension depends on the
length of service for the majority of the commitments and is calculated as a
percentage of the average monthly wage/salary of the last 12 months prior to
retirement. In some cases, commitments to fixed benefits per year of service
have been made. The pensions are predominantly paid in the form of annuities
and are adjusted in accordance with the development of the consumer price
index for Germany. The pension plans are closed for new entrants, except one
contribution-based plan. There is no defined contribution model on a voluntary
basis. Individual commitments have been made, with major part of them being
retired beneficiaries.
The pension plan of the US group company Magnesita Refractories Company, York,
USA, accounts for €71.6 million (2021: €86.8 million) of the present
value of pension obligations and for €63.3 million (2021: €79.0 million)
of the plan assets. The pension plan is a non-contributory defined benefit
plan covering a portion of the employees of the company. The plan is subject
to the provisions of the Employee Retirement Income Security Act of 1974
(ERISA). Effective 21 June 1999, the company offered the participants the
opportunity to elect to participate in a single enhanced defined contribution
plan. Participants who made this election are no longer eligible for future
accruals under this plan. All benefits accrued as of the date of transfer will
be retained. Employees hired after 21 June 1999 and employees that did not
meet the plan's eligibility requirements as of 21 June 1999 are not eligible
for this plan. The pensions are predominantly paid in the form of annuities
and are adjusted annually based on the US consumer price index. The company's
contributions for the year ended 31 December 2021 met, or exceeded, the
minimum funding requirements of ERISA.
The pension plan of the UK group company Magnesita Refractories Ltd.,
Dinnington, United Kingdom, accounts for €39.0 million (2021:
€67.1 million) of the present value of pension obligations and holds
€41.2 million (2021: €95.7 million) of assets, although only
€39.0 million (2021: €67.1 million) of the plan assets are reflected on
the balance sheet due to the application of International Financial Reporting
Interpretations Committee 14 (IFRIC 14) (asset ceiling). The company sponsors
a funded defined benefit pension plan for qualifying UK employees. The plan is
administered by a separate Board of Trustees which is legally separate from
the company. The trustees are composed of representatives of both the employer
and employees, plus an independent professional trustee. The trustees are
required by law to act in the interest of all relevant beneficiaries and are
responsible for the investment policy with regard to the assets plus the
day-to-day administration of the benefits. Under the plan, employees are
entitled to annual pensions on retirement at age 65. During 2022, the Board of
Trustees agreed to a buy-in of the defined benefit obligation with a third
party insurer in the United Kingdom. In terms of the buy-in, the insurer
assumed the obligations relating to the plan from July 2022 while the plan
assets were liquidated and transferred to the Insurer at a value of around
€61.7 million. Until the defined benefit scheme is wound up (the buy-out),
the Group will continue to recognise the pension obligation and the value of
the insurance policy as a plan asset equal to the pension obligation. The
surplus plan assets of €2.2 million, at 31 December 2022 are not recognised
due to the application of the IFRIC 14 and the asset ceiling requirements. It
is expected that the plan will be wound up during 2023 with the remaining
surplus, net of adjustments, tax payments and other minor expenses will be
refunded to the Group. The decrease in the value of the plan assets between 31
December 2021 and its liquidation arose mainly from adverse market movements
in early 2022.
The pension liabilities of the Brazilian group company Magnesita Refratários
S.A. account for €49.9 million (2021: €44.1 million) of the present value
of pension obligations and for €29.1 million (2021: €24.6 million) of the
plan assets. The pension plan qualifies as an optional benefit plan. Employees
are entitled to contribute to the plan, with the company contributing 1.5
times this value. The agreed benefits include pensions, invalidity benefits
and benefits for surviving dependents. Commitments in the form of company or
individual agreements depend on the length of service and salary at the time
of retirement. For the majority of commitments, the amount of the company
pension obligation is limited to 75% of the final remuneration. At retirement,
the employee may choose to receive up to 25% of his/her amount at once or
receive it on a pro-rata base with different options of monthly quotes.
The following table shows the development of net liability from pension
obligations:
in € million 2022 2021
Net liability from pension obligations at beginning of year 268.1 303.6
Currency translation 4.5 2.5
Pension cost 8.8 8.5
Remeasurement (gains)/losses (48.1) (26.0)
Benefits paid (17.3) (17.6)
Employers' contributions to external funds (3.3) (2.9)
Net liability from pension obligations at year-end 212.7 268.1
The present value of pension obligations developed as follows:
in € million 2022 2021
Present value of pension obligations at beginning of year 495.0 523.3
Currency translation 11.7 15.4
Current service cost 3.4 4.2
Interest cost 11.8 8.9
Remeasurement (gains)/losses
from changes in demographic assumptions 0.0 (3.7)
from changes in financial assumptions (107.5) (24.1)
due to experience adjustments 13.5 6.0
Benefits paid (33.0) (34.4)
Employee contributions to external funds 0.6 0.5
Disposal due to settlement 0.0 (1.1)
Present value of pension obligations at year-end 395.5 495.0
The movement in plan assets is shown in the table below:
in € million 2022 2021
Fair value of plan assets at beginning of year 255.5 240.2
Currency translation 6.2 14.5
Interest income 6.8 5.1
Administrative costs (paid from plan assets) (0.4) (0.2)
(Loss)/Income on plan assets less interest income (69.7) 10.4
Benefits paid (15.7) (16.8)
Employers' contributions to external funds 3.3 2.9
Employee contributions to external funds 0.6 0.5
Disposal due to settlement 0.0 (1.1)
Fair value of plan assets at year-end 186.6 255.5
The changes in the asset ceiling are shown below:
in € million 2022 2021
Asset ceiling at beginning of year 28.6 20.4
Currency translation (0.9) 1.6
Interest expense 0.0 0.4
(Losses)/gains from changes in asset ceiling less interest expense (23.9) 6.2
Asset ceiling at year-end 3.8 28.6
At 31 December 2022, the weighted average duration of pension obligations
amounts to 10.5 years (2021: 12 years).
The following amounts were recorded in the Consolidated Statement of Profit or
Loss:
in € million 2022 2021
Current service cost 3.4 4.2
Interest cost 11.8 8.9
Interest income (6.8) (5.1)
Interest expense from asset ceiling 0.0 0.4
Administrative costs (paid from plan assets) 0.4 0.2
Pension expense recognised in profit or loss 8.8 8.6
The remeasurement results recognised in other comprehensive income are shown
in the table below:
in € million 2022 2021
Accumulated remeasurement losses at beginning of year 143.6 170.0
Remeasurement gains on present value of pension obligations (94.0) (21.8)
Losses/(gains) on plan assets less interest income 69.7 (10.4)
(Losses)/gains from changes in asset ceiling less interest expense (23.9) 6.2
Reclassification to other reserves 0.0 (0.4)
Accumulated remeasurement losses at year-end 95.4 143.6
The present value of plan assets is distributed to the following classes of
investments:
31.12.2022 31.12.2021
in € million Active market No active market Total Active market No active market Total
Insurances 0.0 82.1 82.1 0.0 43.8 43.8
Equity instruments 34.4 0.0 34.4 48.8 0.0 48.8
Debt instruments 22.0 2.5 24.5 97.0 3.3 100.3
Cash and cash equivalents 11.8 0.7 12.5 11.2 0.1 11.3
Other assets 32.0 1.1 33.1 49.9 1.4 51.3
Fair value of plan assets 100.2 86.4 186.6 206.9 48.6 255.5
The present value of the insurances to cover the Austrian pension plans
corresponds to the coverage capital. Insurance companies predominantly invest
in debt instruments and to a low extent in equity instruments and properties.
Plan assets do not include own financial instruments or assets utilised by the
Group.
RHI Magnesita works with professional fund managers for the investment of plan
assets. They act on the basis of specific investment guidelines adopted by the
pension fund committee of the respective pension plans. The committees consist
of management staff of the finance department and other qualified executives.
They meet regularly in order to approve the target portfolio with the support
of independent actuarial experts and to review the risks and the performance
of the investments. In addition, they approve the selection or the extension
of contracts of external fund managers.
The largest part of the other assets is invested in pension reinsurance, which
creates a low counterparty risk towards insurance companies. In addition, the
Group is exposed to interest risks and longevity risks resulting from defined
benefit commitments.
The Group generally endows the pension funds with the amount necessary to meet
the legal minimum allocation requirements of the country in which the fund is
based. Moreover, the Group makes additional allocations at its discretion from
time to time. In the financial year 2023, RHI Magnesita expects employer
contributions to external plan assets to amount to €3.1 million and direct
payments to entitled beneficiaries to €16.2 million. In the previous year,
employer contributions of €3.0 million and direct pension payments of
€19.2 million had been expected for the financial year 2022.
The following sensitivity analysis shows the change in present value of the
pension and termination benefit obligations if one key parameter changes,
while the other influences are maintained constant. In reality, it is rather
unlikely that these influences do not correlate. The present value of the
pension obligations for the sensitivities shown was calculated using the same
method as for the actual present value of the pension obligations (projected
unit credit method).
31.12.2022 31.12.2021
in € million Change of assumption Pension plans Termination benefits Pension plans Termination benefits
in percentage points
or years
Present value of the obligations 395.5 31.5 495.0 44.1
Interest rate +0.25 (9.7) (1.4) (14.8) (1.4)
(0.25) 10.1 0.5 15.6 1.5
Salary increase +0.25 0.3 0.5 0.7 1.4
(0.25) (0.3) (1.4) (0.7) (1.4)
Pension increase +0.25 8.0 - 11.3 -
(0.25) (7.4) - (10.9) -
Life expectancy +1 year 9.1 - 19.8 -
(1) year (8.1) - (20.6) -
These changes would have no immediate effect on the result of the period as
remeasurement gains and losses are recorded in other comprehensive income
without impact on profit or loss. The assumptions regarding the interest rate
are reviewed semi-annually; all other assumptions are reviewed at the end of
the year.
30. Other personnel provisions
in € million 31.12.2022 31.12.2021
Termination benefits 31.5 44.1
Service anniversary bonuses 17.9 21.4
Semi-retirements 2.3 3.2
Other personnel provisions 51.7 68.7
Provisions for termination benefits
The provision for termination benefits relates mainly to employees that joined
an Austrian company before 31 December 2022 and are subject to a one-off
lump-sum termination benefit under Austrian legislation. This is regarded as a
post-employment benefit and accounted for consistently with pensions benefits
described above.
Provision for the Austrian termination benefits, which accounts for over 90%
of the balance (2021: 94%) were based on the following measurement
assumptions:
in % 31.12.2022 31.12.2021
Interest rate 3.8% 0.9%
Future salary increase 3.9% 3.5%
The interest rate for the measurement of termination benefit obligations in
the Euro area was determined taking into account the Company specific duration
of the portfolio.
Provisions for termination benefits developed as follows:
in € million 2022 2021
Provisions for termination benefits at beginning of year 44.1 46.4
Currency translation 0.1 0.0
Additions initial consolidation 0.4 0.0
Current service cost 1.0 1.2
Interest cost 0.5 0.4
Remeasurement (gains)/losses
from changes in financial assumptions (11.0) (1.8)
from changes in demographic assumptions 0.0 1.9
due to experience adjustments 1.1 0.5
Benefits paid (4.7) (4.8)
Loss / (Gain) on settlement 0.0 0.3
Provisions for termination benefits at year-end 31.5 44.1
Payments for termination benefits are expected to amount to €1.3 million in
the year 2023. In the previous year, the payments for termination benefits
expected for 2022 amounted to €2.3million.
The following remeasurement gains and losses were recognised in other
comprehensive income:
in € million 2022 2021
Accumulated remeasurement losses at beginning of year 27.7 27.6
Remeasurement (gains)/losses (9.9) 0.6
Reclassification to other reserves 0.0 (0.5)
Accumulated remeasurement losses at year-end 17.8 27.7
At 31 December 2022 the duration of Austrian termination benefit obligations
amounts to 12.6 years (2021: 14 years).
Provisions for service anniversary bonuses
The measurement of provisions for service anniversary bonuses relating to
employees in Austria and Germany is based on an interest rate of 3.8% (2021:
0.8%) and considers salary increases of 5.6% (2021: 4.6%) in Austria and 2.5%
in Germany (2021: 2.5%).
Provisions for semi-retirement
The funded status of provisions for obligations to employees with
semi-retirement contracts is shown in the table below:
in € million 31.12.2022 31.12.2021
Present value of semi-retirement obligations 5.8 7.6
Fair value of plan assets (3.4) (4.4)
Provisions for semi-retirement obligations 2.4 3.2
External plan assets are ring-fenced from all creditors and exclusively serve
to meet semi-retirement obligations.
31. Other Provisions
The development of provisions is shown in the table below:
in € million Onerous/unfavourable contracts Labour and civil contingencies Demolition/disposal costs, Restructuring costs Other Total
environmental damages
31.12.2021 53.9 7.1 19.5 33.5 4.6 118.6
Currency translation 5.8 0.9 0.5 0.0 (0.1) 7.1
Reversals (2.6) (2.4) (0.4) (10.5) 0.0 (15.9)
Additions 9.4 5.8 4.3 3.5 1.4 24.4
Additions interest 6.0 1.0 1.4 0.0 0.1 8.5
Use (10.2) (5.2) (2.5) (14.2) (1.7) (33.8)
Reclassifications 0.0 1.2 0.4 (0.3) (0.1) 1.2
31.12.2022 62.3 8.4 23.2 12.0 4.2 110.1
non-current 49.9 8.4 21.7 0.0 0.0 80.0
current 12.4 0.0 1.5 12.0 4.2 30.1
In November 2017, the Group sold a plant located in Oberhausen, Germany, in
order to satisfy the conditions imposed by the European Commission in their
approval of the Acquisition of Control of Magnesita. Under the terms, the
Group remains obligated to provide raw materials at cost and recognised a
provision for unfavourable contracts as part of the purchase price allocation
to reflect the foregone profit margin and is reflected within
Onerous/unfavourable contracts. The non-current portion of this contract
obligation amounts to €49.9 million as of 31.12.2022 (2021: €43.1 million)
and the current portion to €10.7 million (2021: €8.0 million). The
unwinding of the discount led to a credit of €6.0 million in 2022 (2021:
€7.5 million). In addition, current provisions for other unfavourable
contracts amount to €1.7 million (2021: €2.9 million).
The provision for labour and civil contingencies primarily comprises labour
litigation amounting to €3.6 million (2021: €4.9 million) arising mainly
in Brazil.
The provision for demolition and disposal costs and environmental damages
primarily includes provisions for the estimated costs of mining site
restoration of several mines in Brazil amounting to €4.7 million (2021:
€2.9 million) and various sites in the USA amounting to €7.2 million
(2021: €6.0 million).
Provisions for restructuring costs amounting to €12.0 million at 31 December
2022 (2021: €33.5 million) primarily consist of estimated benefit
obligations to employees due to termination of employment and dismantling
costs. €6.2 million (2021: €14.9 million) relate to the remaining
redundancy costs at Mainzlar, Germany for employees not subject to the restart
of operations, €3.5 million (2021: €4.5 million) to the plant closure in
Trieben, Austria, €0.8 million (2021: €4.6 million) to the plant closure
in Kruft, Germany. Following the decision to restart operations at Mainzlar,
€4.5 million of severance provisions were reversed and €3.2 million was
paid while €1.0 million in plant closure costs were reversed.
Other consists mainly of provisions for claims arising from warranties and
other similar obligations from the sale of refractory products.
32.
Trade payables and other current liabilities
in € million 31.12.2022 31.12.2021
Trade payables 506.5 649.2
Contract liabilities 61.8 57.9
Liabilities to employees 97.2 80.9
Taxes other than income tax 35.0 29.3
Capital expenditure payable 43.1 24.3
Payables from commissions 7.7 7.3
Other current liabilities 29.0 34.3
Trade payables and other current liabilities 780.3 883.2
thereof financial liabilities 566.4 692.9
thereof non-financial liabilities 213.9 190.3
Trade payables include an amount of €68.8 million (2021:
€142.0 million) for raw material purchases subject to supply chain finance
arrangements.
Contract liabilities mainly consist of prepayments received on orders. In 2022
€57.9 million revenue was recognised related to contract liabilities
recognised as of 31 December 2021.
The item liabilities to employees primarily consists of obligations for wages
and salaries, payroll taxes and employee-related duties, performance bonuses,
unused vacation and flextime credits.
33. Cash generated from/(used in) operations
in € million 2022 2021
Profit after income tax 166.8 249.7
Adjustments for
income tax 103.7 39.4
depreciation 115.6 108.7
amortisation 28.9 22.4
(write-up)/write-down of property, plant and equipment and intangible assets (6.0) 41.3
income from the reversal of investment subsidies (0.7) (0.9)
impairment losses/loss from sale/(write-ups) on securities 1.5 (0.2)
losses/(gains) from the disposal of property, plant and equipment 2.4 (6.3)
losses/(gains) from the disposal of subsidiaries 1.1 (5.2)
net interest expense and derivatives 47.3 24.4
result from joint ventures and associates (0.2) (100.2)
other non-cash changes 26.1 (12.7)
Changes in working capital
inventories (30.0) (474.3)
trade receivables (12.5) (132.6)
contract assets 0.0 (1.6)
trade payables (156.8) 314.8
contract liabilities 4.5 10.7
Changes in other assets and liabilities
other receivables and assets 25.7 (56.9)
provisions (49.4) (49.0)
other liabilities 19.5 (24.8)
Cash generated from/(used in) operations 287.5 (53.3)
Other non-cash changes includes: expenses on the employee long-term incentive
programme of € 8.3 million (2021: € 6.2 million); net interest expenses
for defined benefit pension plans amounting to €5.7 million (2021:
€4.6 million) and net remeasurement gains of monetary foreign currency
positions and derivative financial instruments of €13.2 million (2021:
€6.4 million).
34. Net cash flow from financing activities
The reconciliation of movements of financial liabilities and assets to cash
flows arising from financing activities for the current and the prior year is
shown in the tables below:
Cash changes Non-cash changes
in € million 31.12.2021 Changes in foreign exchange rates Interest and other fair value changes Reclassifications Additions from initial consolidation Additions and modifications of leases (IFRS 16) 31.12.2022
Borrowings(1)) (1,539.1) (52.5) (19.4) (1.3) 0.0 (12.0) 0.0 (1,624.3)
Lease liabilities (55.5) 20.6 (1.3) 0.0 0.0 (7.0) (20.7) (63.9)
Cash and cash equivalents 580.8 (49.8) (10.3) 0.0 0.0 0.0 0.0 520.7
Net debt (1,013.8) (81.7) (31.0) (1.3) 0.0 (19.0) (20.7) (1,167.5)
Liabilities to fixed-term or puttable non-controlling interests (60.0) 2.1 1.6 (0.6) 0.0 (10.9) 0.0 (67.8)
1) Included within Borrowings is interest payable of €4.3 million at
31.12.2022 and €4.4 million at 31.12.2021. Interest payable is reflected
within Trade payables and other current liabilities on the Consolidated
Statement of Financial Position.
Cash changes Non-cash changes
in € million 31.12.2020 Changes in foreign exchange rates Interest and other fair value changes Additions Reclassifications Additions and modifications of leases (IFRS 16) 31.12.2021
Borrowings(1)) (1,114.5) (408.9) (15.3) (0.4) 0.0 0.0 0.0 (1,539.1)
Lease liabilities (56.8) 16.3 (1.6) 0.0 0.0 0.0 (13.4) (55.5)
Cash and cash equivalents 589.2 (23.0) 14.6 0.0 0.0 0.0 0.0 580.8
Net debt (582.1) (415.6) (2.3) (0.4) 0.0 0.0 (13.4) (1,013.8)
Liabilities to fixed-term or puttable non-controlling interests (38.8) 1.3 (3.7) (4.2) (23.4) 8.8 0.0 (60.0)
1) Included within Borrowings is interest payable of €4.4 million at
31.12.2021 and €4.4 million at 31.12.2020. Interest payable is reflected
within Trade payables and other current liabilities on the Consolidated
Statement of Financial Position.
35.
Additional disclosures on financial instruments
The following tables show the carrying amounts and fair values of financial
assets and liabilities by measurement category and level and the allocation to
the measurement category. In addition, carrying amounts are shown aggregated
according to measurement category.
31.12.2022 31.12.2021
in € million Measurement category Level Carrying amount Fair value Carrying amount Fair value
IFRS 9(1))
Other non-current financial assets
Marketable securities FVPL 1 9.0 9.0 13.2 13.2
Shares FVPL 3 0.5 0.5 0.5 0.5
Interest derivatives designated as cash flow hedges - 2 42.4 42.4 0.0 0.0
Other non-current financial assets AC - 3.2 0.9 -
Trade and other current receivables AC - 433.9 414.4 -
Other current financial assets
Derivatives FVPL 2 1.1 1.1 2.5 2.5
Other current financial receivables AC - 0.2 0.4 -
Cash and cash equivalents(3)) AC - 520.7 580.8 -
Financial assets 1,011.0 1,012.7
Non-current and current borrowings
Liabilities to financial institutions AC 2 1,612.0 1,578.1 1,529.7 1,547.1
Other financial liabilities AC 2 8.0 5.0 -
Non-current and current other financial liabilities
Lease liabilities AC 2 63.9 55.5 -
Derivatives FVPL 2 9.5 9.5 0.1 0.1
Interest derivatives designated as cash flow hedges - 2 0.0 9.6 9.6
Forward exchange contracts FVPL 2 0.6 0.6 0.0 0.0
Commodity swaps designated as cash flow hedges - 2 1.1 1.1 0.0 0.0
Liabilities to fixed-term or puttable non-controlling interests(2)) AC 2/3 67.8 67.8 60.0 60.0
Trade payables and other current liabilities AC - 566.4 692.9 -
Financial liabilities 2,329.3 2,352.8
Aggregated according to measurement category
Financial assets measured at FVPL 10.6 16.2
Financial assets measured at amortised cost 958.0 996.5
Financial liabilities measured at amortised cost 2,318.1 2,343.1
Financial liabilities measured at FVPL 10.1 0.1
1) FVPL: Financial assets/financial liabilities measured at fair value
through profit or loss.
AC: Financial assets/financial liabilities measured at amortised
cost.
2) Including the put option of the acquired Mireco amounting to €8.4
million, see Note (42).
3) Thereof €3.6 million related to cash in Russia.
In the RHI Magnesita Group marketable securities, derivative financial
instruments, shares, and interests in subsidiaries not consolidated are
measured at fair value.
Fair value is defined as the amount for which an asset could be exchanged, or
a liability settled, between market participants in an arm's length
transaction on the day of measurement. When the fair value is determined it is
assumed that the transaction in which the asset is sold or the liability is
transferred takes place either in the main market for the asset or liability,
or in the most favourable market if there is no main market. RHI Magnesita
considers the characteristics of the asset or liability to be measured which a
market participant would consider in pricing. It is assumed that market
participants act in their best economic interest.
RHI Magnesita takes into account the availability of observable market prices
in an active market and uses the following hierarchy to determine fair value:
Level 1: Prices quoted in active markets for identical financial instruments.
Level 2: Measurement techniques in which all important data used are based on
observable market data.
Level 3: Measurement techniques in which at least one significant parameter is based on
non-observable market data.
The fair value of securities, shares, and interests in subsidiaries not
consolidated is based on price quotations at the reporting date (Level 1),
where such quotations exist. In other cases, a valuation model (Level 3) would
be used for such instruments with the exception if such instruments are
immaterial to the Group, in which case amortised cost serves as an
approximation of fair value.
The fair value of interest derivatives in a hedging relationship (interest
rate swaps) is determined by calculating the present value of future cash
flows based on current yield curves taking into account the corresponding
terms (Level 2).
The fair value of other derivative contracts corresponds to the market value
of the forward exchange contracts and the embedded derivatives in open orders
denominated in a currency other than the functional currency. These
derivatives are measured using quoted forward rates that are currently
observable (Level 2).
RHI Magnesita takes into account reclassifications in the measurement
hierarchy at the end of the reporting period in which the changes occur. Other
than those from the initial application of IFRS 9, there were no shifts
between the different measurement levels in the two reporting periods.
Liabilities to financial institutions, other financial liabilities, lease
liabilities and liabilities to fixed-term or puttable non-controlling
interests are carried at amortised cost in the Consolidated Statement of
Financial Position. The fair values of the liabilities to financial
institutions are only disclosed in the Notes and calculated at the present
value of the discounted future cash flows using yield curves that are
currently observable (Level 2). The carrying amount of other financial
liabilities approximate their fair value at the reporting date. RHI Magnesita
recognised a put option liability related to the newly acquired group company
Mireco in May 2022 amounting to €10.9 million, see Note (42). The fair value
is based on the present value of performance-related contractual cashflows
with a maturity in 2032 for Mireco. The principal valuation parameters are
deemed to be non-observable (Level 3). Other liabilities to fixed-term or
puttable non-controlling interests are valued at Level 2 of the fair value
hierarchy.
The carrying amounts of financial receivables approximately correspond to
their fair value as due to the amount of the existing receivables no material
deviation between the fair value and the carrying amount is assumed and the
credit default risk is accounted for by forming valuation allowances.
Trade and other current receivables and liabilities as well as cash and cash
equivalents are predominantly short-term. Therefore, the carrying amounts of
these items approximate fair value at the reporting date.
No contractual netting agreement of financial assets and liabilities were in
place as at 31 December 2022 and 31 December 2021.
Net results by measurement category in accordance with IFRS 9
The effect of financial instruments on the income and expenses recognised in
2022 and 2021 is shown in the following table, classified according to the
measurement categories defined in IFRS 9:
in € million 2022 2021
Net loss from financial assets and liabilities measured at fair value through (14.6) 7.2
profit or loss
Net loss from financial assets and liabilities measured at amortised cost 4.6 0.5
The net gain from financial assets and liabilities measured at fair value
through profit or loss includes income from securities and shares, income from
the disposal of securities and shares, impairment losses and income from
reversals of impairment losses, unrealised results from the measurement of a
long-term commodity futures contract, changes in the market value and realised
results of forward exchange contracts and embedded derivatives in open orders
in a currency other than the functional currency of RHI Magnesita, interest
derivatives which do not meet the requirements of hedge accounting in
accordance with IFRS 9 'Financial Instruments' and interest income from
securities.
The net loss from financial assets and liabilities measured at amortised cost
includes changes in valuation allowances, losses on derecognition and fair
value gains and losses on the measurement of non-controlling interest put
options. Net finance costs include interest income amounting to
€8.3 million (2021: €14.2 million) and interest expenses of
€47.5 million (2021: € 33.0 million), which result from financial assets
and liabilities measured at amortised cost.
Other non-current financial assets
Other non-current financial assets consist of the following items:
in € million 31.12.2022 31.12.2021
Interests in subsidiaries not consolidated 3.0 0.6
Marketable securities and shares 9.5 13.7
Interest rate swaps 42.4 0.0
Other non-current financial receivables 0.2 0.3
Other non-current financial assets 55.1 14.6
Accumulated impairments on investments, securities and shares amount to €4.3
million (2021: €3.6 million).
Other current financial assets
This item of the Consolidated Statement of Financial Position consists of the
following components:
in € million 31.12.2022 31.12.2021
Derivatives in open orders 1.0 2.4
Forward exchange contracts 0.1 0.1
Current portion of non-current loans 0.2 0.4
Other current financial assets 1.3 2.9
36. Derivative financial instruments
Interest rate swaps
The Group has concluded interest rate swaps to hedge the cash flow risk
associated to financial liabilities carrying variable interest rates into
fixed interest rates. Variable interest cash flows of financial liabilities
were designated as hedged items. The Group has established a hedge ratio of
1:1 and the cash flow changes of the underlying hedged items are balanced out
by the cash flow changes of the interest rate swaps. Potential hedge
ineffectiveness could arise out of differences in critical terms between the
interest rate swaps and the loans. Credit risk may affect hedge effectiveness,
however this risk is assessed to be very low as only international banks with
high credit ratings are the counterparties to the interest rate swap.
Following the refinancing of the OeKB Euro and USD term loans, see Note (27),
the associated interest rate swaps were closed out which resulted in a pre-tax
gain of €1.0 million (2021: €0.0 million) recognised in the income
statement through other comprehensive income. The Group entered into new
interest swap instruments on both refinanced borrowings to fix the interest
rate. These interest rate swaps are treated as cash flow hedges for accounting
purposes. At 31 December 2022, the fair value of these interest rate swaps was
€28.9 million.
The fair value of all interest rate swaps was €42.4 million at the reporting
date (2021: €-9.6 million) and is shown in other non-current financial
assets (liabilities) in the Consolidated Statement of Financial Position. For
the reporting period of 2022, €59.1 million (2021: €8.7 million) has been
recognised in other comprehensive income as fair value movements of the
hedging instrument and €7.2 million (2021: €0.0 million) has been
reclassified from Other Comprehensive Income to profit or loss and recognised
within other net financial expenses reflecting the settlement of the hedging
instrument when interest on the underlying debt is paid. No ineffectiveness
has been recognised in profit or loss.
The financial effect of the hedged item and the hedging instrument for the
year 2022 and 2021 is shown as follows:
in € million Carrying amount Statement of Financial Position Change in fair value recognised in Other Comprehensive Income Nominal amount
2022 42.4 Other non-current 59.1 USD 0.0 million
financial assets
EUR 709.2million
2021 (9.6) Other non-current 8.7 USD 200 million
financial liabilities
EUR 369.2 million
in € million Cash flow hedge reserve within Other comprehensive income Balance net of deferred tax
2022 42.4 32.7
2021 (9.6) (7.2)
Forward exchange contracts
Foreign exchange forward contracts are entered into to reduce the Group's
exposure to currency movements based on the internal risk assessment and
analysis conducted.
The nominal value and fair value of forward exchange contracts as of
31 December 2022 are shown in the table below:
31.12.2022
Purchase Sale Nominal value Fair value in € million
in million
EUR USD EUR 25.0 0.1
USD INR USD 8.5 0.0
INR EUR INR 4,000.0 (0.6)
Forward exchange contracts (0.5)
The nominal value and fair value of forward exchange contracts as of
31 December 2021 are shown in the table below:
31.12.2021
Purchase Sale Nominal value Fair value in € million
in million
USD BRL BRL 80.0 0.1
EUR USD USD 0.0 0.0
Forward exchange contracts 0.1
37. Financial risk management
Financial risks are incorporated in RHI Magnesita's corporate risk management
and are centrally controlled by Corporate Treasury.
None of the following risks have a significant influence on the going concern
of the RHI Magnesita Group.
Credit risks
The maximum credit risk from recognised financial assets amounts to
€1,011.0 million (2021: €1,012.7 million) and is primarily related to
investments with banks and receivables due from customers.
The credit risk with banks related to investments (especially cash and cash
equivalents) is reduced as business transactions are only carried out with
prime financial institutions with a good credit rating. Individual counterpart
exposures limits are assigned to each financial institution based on a matrix
composed of the credit rating (S&P or Moody's) and balance sheet assets.
Receivables from customers are hedged as far as possible through credit
insurance and collateral arranged through banks (guarantees, letters of
credit) in order to mitigate credit and default risk. Credit and default risks
are monitored continuously, and provisions are formed for risks that have
occurred and are identifiable.
In the following, the credit risk from trade receivables is shown classified
by customer industry, by foreign currency and by term.
This credit risk, which is hedged by existing credit insurance and letters of
credit, is shown by customer segment in the following table:
in € million 31.12.2022 31.12.2021
Steel 284.6 300.4
Industrial 148.8 103.3
Trade receivables 433.4 403.7
Credit insurance and letters of credit (214.5) (206.2)
Net credit exposure 218.9 197.5
The movement in the valuation allowance in respect of trade and other
receivables and contract assets during the year and the previous year was as
follows.:
in € million 2022 2021
Individually assessed - Collectively assessed - Individually assessed - Collectively assessed -
credit impaired
not credit impaired
credit impaired
not credit impaired
Accumulated valuation allowance at beginning of year 23.2 0.6 30.0 0.6
Currency translation 0.8 - 0.3 -
Addition 7.3 0.3 3.5 -
Use (1.3) - (5.2) -
Reversal (0.6) - (5.4) -
Accumulated valuation allowance at year-end 29.4 0.9 23.2 0.6
For trade receivables and contract assets, for which no objective evidence of
impairment exists, lifetime expected credit losses have been calculated using
a provision matrix as shown below. To measure the expected credit losses,
trade receivables have been grouped based on shared credit risk
characteristics and the days past due.
in € million Trade receivables - days past due
31.12.2022 Not past due less than 30 days more than 31 days Total
Expected credit loss rate in % 0,02-0,34% 0,07-0,81% 0,31-49,48%
Gross carrying amount invoiced 385.6 10.8 3.0 399.4
Lifetime expected credit loss (0.5) (0.1) (0.4) (1.0)
in € million Trade receivables - days past due
31.12.2021 Not past due less than 30 days more than 31 days Total
Expected credit loss rate in % 0.03-0.37% 0.06-0.86% 0.25-50.55%
Gross carrying amount invoiced 351.9 26.3 7.2 385.4
Lifetime expected credit loss (0.4) (0.1) (0.5) (1.0)
Liquidity risk
Liquidity risk refers to the risk that financial obligations cannot be met
when due. The Group's financial policy is based on long-term financial
planning and is centrally controlled and monitored continuously at RHI
Magnesita. The liquidity requirements resulting from budget and medium-term
planning are secured by concluding appropriate financing agreements. As of
31 December 2022, RHI Magnesita has a committed Revolving Credit Facility
(RCF) of €600.0 million, which was unutilised (2021: committed RCF was
€600.0 million and was also unutilised). The RCF is a syndicated facility
with multiple international banks and matures in 2028. The liquidity of the
Group's subsidiaries is managed regionally, while access to liquidity and
optimised cash levels is ensured by Corporate Treasury, which supports
business needs and lowers borrowing costs.
Non-derivative financial instruments
An analysis of the terms of non-derivative financial liabilities based on
undiscounted cash flows including the related interest payments shows the
following expected cash outflows:
Remaining term
in € million Carrying amount 31.12.2022 Cash up to 1 year 2 to 5 years over 5 years
outflows
Borrowings
fixed interest 469.0 481.4 118.5 274.3 88.6
variable interest 1,143.1 1,284.7 132.9 1129.1 22.7
Other financial liabilities 8.0 8.1 (0.2) 8.3 0.0
Lease liabilities 63.9 70.2 18.5 33.6 18.1
Liabilities to fixed-term or puttable non-controlling interests 67.8 182.8 21.6 15.7 145.5
Trade payables and other current liabilities 506.5 506.5 506.5 0.0 0.0
Non-derivative financial liabilities 2,258.3 2,533.7 797.8 1461.0 274.9
Remaining term
in € million Carrying amount 31.12.2021 Cash up to 1 year 2 to 5 years over 5 years
outflows
Borrowings
fixed interest 534.0 551.4 69.9 337.3 144.2
variable interest 995.7 1,022.9 154.3 706.7 161.9
Other financial liabilities 5.0 5.4 2.3 3.0 0.1
Lease liabilities 55.5 59.9 16.9 29.7 13.3
Liabilities to fixed-term or puttable non-controlling interests 60.0 197.9 3.0 20.0 174.9
Trade payables and other current liabilities 692.9 688.5 688.5 0.0 0.0
Non-derivative financial liabilities 2,343.1 2,526.0 934.9 1096.7 494.4
Derivative financial instruments
The remaining terms of derivative financial instruments based on expected
undiscounted cash flow as of 31 December 2022 and 31 December 2021 are shown
in the table below:
Remaining term
in € million Carrying amount 31.12.2022 Cash flows up to 1 year 2 to 5 years over 5 years
Receivables from derivatives with net settlement
Interest rate swaps 42.4 42.4 0.0 40.6 1.8
Forward exchange contracts 0.1 0.1 0.1 0.0 0.0
Derivatives in open orders 1.0 1.0 1.0 0.0 0.0
Liabilities from derivatives with net settlement
Derivatives in open orders 9.5 9.5 9.5 0.0 0.0
Commodity swaps 1.1 1.1 0.9 0.2 0.0
Forward exchange contracts 0.6 0.6 0.6 0.0 0.0
Remaining term
in € million Carrying amount 31.12.2021 Cash flows up to 1 year 2 to 5 years over 5 years
Receivables from derivatives with net settlement
Forward exchange contracts 0.1 0.1 0.1 0.0 0.0
Derivatives in open orders 2.4 2.4 2.4 0.0 0.0
Liabilities from derivatives with net settlement
Interest rate swaps 9.6 12.5 7.5 4.9 0.1
Derivatives in open orders 0.1 0.1 0.1 0.0 0.0
Foreign currency risks
Foreign currency risks arise where business transactions (operating
activities, investments, financing) are conducted in a currency other than the
functional currency of a company. They are monitored at Group level and
analysed with respect to hedging options. Usually, the net position of the
Group in the respective currency serves as the basis for decisions regarding
the use of hedging instruments.
Foreign currency risks arise in financial instruments which are denominated in
a currency other than the functional currency and are monetary in nature.
These include trade receivables and payables, cash and cash equivalents as
well as financial liabilities as shown in the Consolidated Statement of
Financial Position. Equity instruments are not of a monetary nature, and
therefore not linked to a foreign currency risk in accordance with IFRS 7
'Financial Instruments: Disclosures'.
The majority of foreign currency financial instruments in the Group result
from operating activities and intragroup financing transactions. The Group may
designate intragroup balances as part of a net investment hedge in accordance
with IAS 21 'The Effects of Changes in Foreign Exchange Rates' with the
effective portion of exchange gains and losses recognised in equity.
Significant provisions denominated in foreign currencies are also included in
the analysis of risk.
The following table shows the foreign currency positions in the major
currencies as of 31 December 2022:
in € million USD EUR GBP INR Other Total
Financial assets 813.3 69.5 11.2 5.2 60.3 959.5
Financial liabilities, provisions (664.5) (100.7) (15.4) (0.4) (28.7) (809.7)
Net foreign currency position 148.8 (31.2) (4.2) 4.8 31.6 149.8
The foreign currency positions as of 31 December 2021 are structured as
follows:
in € million USD EUR GBP INR Other Total
Financial assets 654.7 56.0 14.5 30.3 68.4 823.9
Financial liabilities, provisions (622.9) (72.8) (14.2) (0.4) (17.6) (727.9)
Net foreign currency position 31.8 (16.8) 0.3 29.9 50.8 96.0
The disclosures required by IFRS 7 for foreign exchange risks include a
sensitivity analysis that shows the effects of hypothetical changes in the
relevant risk variables on profit or loss and equity. In general, all
non-functional currencies in which Group companies enter into financial
instruments are considered to be relevant risk variables. The effects on a
particular reporting period are determined by applying the hypothetical
changes in these risk variables to the financial instruments held by the Group
as of the reporting date. It is assumed that the positions on the reporting
date are representative for the entire year. The sensitivity analysis does not
include the foreign exchange differences that result from translating the net
asset positions of the foreign group companies into the Group currency, the
Euro.
A 10% appreciation or devaluation of the relevant functional currency against
the following major currencies as of 31 December 2022 would have had the
following effect on profit or loss and equity (both excluding income tax):
Appreciation of 10% Devaluation of 10%
in € million (Loss)/gain Equity Gain/(loss) Equity
US Dollar (12.9) (12.9) 15.8 15.8
Euro 1.3 5.9 (1.6) (7.2)
Indian Rupee (0.4) (0.4) 0.5 0.5
Other currencies (2.5) (2.5) 3.0 3.0
The effect in equity also includes the exchange effects recorded directly in
Other comprehensive income in line with the Group's policy.
The hypothetical effect on profit or loss at 31 December 2021 can be
summarised as follows:
Appreciation of 10% Devaluation of 10%
in € million Gain/(loss) Equity Gain/(loss) Equity
US Dollar (19.1) (8.6) 23.3 10.6
Euro 1.8 6.3 (2.1) (7.7)
Indian Rupee (2.7) (2.7) 3.3 3.3
Other currencies (4.0) (4.0) 4.8 4.8
The effect in equity also includes the exchange effects recorded directly in
Other comprehensive income in line with the Group's policy.
Net investment hedge
On 29 July 2022, RHIMGMBH refinanced its USD 200 million loan with a new
ESG-linked EUR 250 million loan. Further information is provided under Note
(27). As a result, the Group's exposure to the USD foreign exchange risk on
these investments ceased to exist. The cumulative translation effect of €
20.1 million (loss) before tax (2022: €15.1 million post tax; 2021: €10.6
million) is presented in the translation difference reserve within equity.
The impact of the net investment hedge is shown as follows:
in € million Carrying amount Statement of Financial Position Recognised in Other Comprehensive Income Nominal amount
July 2022 196.9 Non-current borrowings (20.1) USD 200 million
2021 176.8 Non-current borrowings (14.1) USD 200 million
Interest rate risks
The interest rate risk in the RHI Magnesita Group is primarily related to
financial instruments carrying variable interest rates, which may lead to
fluctuations in results and cash flows. At 31 December 2022, interest rate
hedges amounting to a nominal value of €709.2 million (2021:
€369.2 million) and a nominal value of USD 0.0 million (2021: USD
200.0 million) existed. In all cases, a variable interest rate was converted
into a fixed interest rate through interest rate swaps. Further information is
provided under Note (36).
The exposure to interest rate risks is presented through sensitivity analyses
in accordance with IFRS 7. These analyses show the effects of changes in
market interest rates on interest payments, interest income and interest
expense and on equity.
The RHI Magnesita Group measures fixed interest financial assets and financial
liabilities at amortised cost and did not use the fair value option - a
hypothetical change in the market interest rates for these financial
instruments at the reporting date would have had no effect on profit and loss
or equity.
Changes in market interest rates on financial instruments designated as cash
flow hedges to protect against interest rate-related payment fluctuations are
considered with hedge accounting have an effect on equity and are therefore
included in the equity-related sensitivity analysis. If the market interest
rate as of 31 December 2022 had been 25 basis points higher or lower, equity
would have been €1.1 million (2021: €1.1 million) higher or lower
considering tax effects.
Changes in market interest rates have an effect on the interest result of
primary variable interest financial instruments whose interest payments are
not designated as hedged items as a part of cash flow hedge relationships
against interest rate risks and are therefore included in the calculation of
the result-related sensitivities. If the market interest rate as of
31 December 2022 had been 25 basis points higher or lower, the interest
result would have been €0.1 million (2021: €0.3 million) lower or higher.
Commodity forward
Commodity price risk
The Group manages its exposure to commodity prices, namely gas and electricity
purchases in Europe, by entering into forward fixed price take or pay
contracts with various suppliers to mitigate and reduce the impact of price
volatility and secure the energy supply for its production process. These
contracts are accounted for as executory contracts as the commodities
purchases are for own use purposes. The Group's Energy Risk policy sets out
thresholds for fixing quantities based on the expected usage which is usually
over a five-year period with lower levels of forward purchases in the outer
years.
In line with the above strategy, the Group may also enter into financial
commodity swap contracts to fix prices for expected purchases not covered by
the fixed price take or pay contracts within the overall defined thresholds.
These commodity swaps (the hedging instrument) are treated as cash flow hedges
for accounting purposes to hedge the underlying price of the commodity (hedged
item) used in the production process. The settlement of the commodity swaps is
aligned with expected gas deliveries to reduce the risk of hedge
ineffectiveness. Additionally, the counterparties to the hedging instruments
are financial institutions with a high investment grade credit rating to
reduce the credit risk exposure and any hedge ineffectiveness that may arise.
In the second half of 2022, the Group entered into commodity swap contracts
for small volumes as part of the above strategy. At the end of the year, the
fair value of the commodity swaps was €1.1 million and is reflected within
liabilities. The loss was recognised within equity. The notional quantities of
gas hedged using these instruments were 186.000 MwH.
Other market price risk
RHI Magnesita holds certificates in an investment fund amounting to €9.0
million (2021: €13.2 million) to provide the legally required coverage of
personnel provisions of Austrian group companies. The market value of these
certificates is influenced by fluctuations of the worldwide volatile stock and
bond markets.
38. Capital management
The objectives of the capital management strategy of the RHI Magnesita Group
are to continue as a going concern and to provide a capital base to finance
growth and investments, to service debt, and to increase shareholders value,
including the payment of dividends to shareholders.
The RHI Magnesita Group manages its capital structure through careful
monitoring and assessment of the overall economic framework conditions,
credit, interest rate and foreign exchange risks and the requirements and
risks related to operations and strategic projects.
31.12.2022 31.12.2021
Net debt (in € million)(1)) 1,167.5 1,013.8
Net gearing ratio (in %) 111.3% 123.3%
Net debt to Adjusted EBITDA 2.34x 2.61x
1) Further information is provided under Note (34).
Net debt, which reflects borrowings and lease liabilities net of cash and cash
equivalents and short-term marketable securities held for trading, is managed
by Corporate Treasury. The main task of the Corporate Treasury department is
to execute the capital management strategy as well as to secure liquidity to
support business operations on a sustainable basis, to use banking and
financial services efficiently and to limit financial risks while at the same
time optimising earnings and costs.
The net gearing ratio is the ratio of net debt to total equity.
Net debt excluding lease liabilities/Adjusted EBITDA is the main financial
covenant of loan agreements. The key performance indicator for net debt in the
RHI Magnesita Group is the group leverage, which reflects the ratio of Net
debt to Adjusted EBITDA, including lease liabilities. It is calculated as
follows:
in € million 31.12.2022 31.12.2021
EBIT 343.6 213.8
Amortisation 28.9 22.4
Restructuring and write-down expenses (6.8) 58.8
Other operating income and expenses 18.2 (14.6)
Adjusted EBITA 383.9 280.4
Depreciation 115.6 108.7
Adjusted EBITDA 499.5 389.1
Total debt 1,624.3 1,539.1
Lease liabilities 63.9 55.5
Less: Cash and cash equivalents 520.7 580.8
Net debt 1,167.5 1,013.8
Net debt excluding IFRS 16 lease liabilities 1,103.6 958.3
Net debt to Adjusted EBITDA 2.34x 2.61x
Net debt to Adjusted EBITDA excluding IFRS 16 lease liabilities 2.21x 2.46x
In both 2022 and 2021, all externally imposed capital requirements were met.
The Group has sufficient liquidity headroom within its committed debt
facilities.
39. Contingent liabilities
At 31 December 2022, warranties, performance guarantees and other guarantees
amount to €61.9 million (2021: €52.5 million). Contingent liabilities have
a remaining term of between two months and three years. Based on past
experience, the probability that contingent liabilities are realised is
considered to be low.
Individual administrative proceedings and lawsuits which result from ordinary
activities are pending as of 31 December 2022 or can potentially be exercised
against RHI Magnesita in the future. The related risks were analysed with a
view to their probability of occurrence.
Taxation contingencies
The calculation of income taxes is based on the tax laws applicable in the
individual countries in which the Group operates. Due to their complexity, the
tax items presented in the Consolidated Financial Statements may be subject to
different interpretations by local finance authorities. In this context it
should be noted that a tax provision is generally recognised when the Group
has a present obligation as a result of a past event, and when it is
considered probable that there will be a future outflow of funds.
The Group is continually adapting its global presence to improve customer
service and maintain its competitive advantage, and leads open discussions
with tax authorities about, e.g., transfer of functions and related profit
between related parties and exit taxation. In this regard, disputes may arise,
where the Group's management understanding differs from the positions of the
local authorities. In such cases, when an appeal is available, management's
judgements are based on a likely outcome approach, taking into consideration
advise from professional firms and previous experiences when assessing the
risks.
The Group is party to several tax proceedings in Brazil which involve
estimated contingent liabilities amounting to €243.0 million (2021: €200.8
million). These tax proceedings are as follows:
Income Tax relating to historical corporate transactions
There are three proceedings in which Brazilian Federal Tax Authorities issued
tax assessments which rejected the deduction of goodwill generated in two
corporate transactions that where undertaken 2007 and 2008, for Corporate
Income Taxes. The tax authorities issued assessments arguing that such
transactions cannot generate deductions as they do not fulfill the
requirements provided by law. Although the Group has been broadly successful,
the tax authorities have appealed those outcomes. The final outcome of these
proceedings is expected within one and three years. The exposure of €157.0
million (2021: €130.6 million) is limited to the fiscal tax years ended 2018
at which stage all available goodwill tax deductions had been made.
Royalties
The Group is party to 38 proceedings where the Brazilian Mining Authorities
("ANM") challenged the criteria used for calculating and paying the Financial
Compensation for Exploration of Mineral Resources ("CFEM"), which are mining
royalties payable by every mining company. The authorities have mainly
disputed the basis of production costs estimates used in the determination of
the royalties that are payable. The claims relate to fiscal years up to 2017,
following which the legislation for royalties was changed. The Group, together
with its technical and legal advisors continues to challenge ANM assessments.
Most of the procedures are ongoing within the ANM administrative courts. Final
decisions of the first cases are expected within four to five years. As of
31.12.2022, the potential risk amounts to €28.2 million, including interest
and penalties (2021: €23.6 million).
Corporate income and other taxes
There are several tax assessments in Brazil mainly relating to: offsetting
federal tax payables and receivables, social security contributions,
offsetting certain federal tax debts with corporate income tax credits. The
potential risks of these tax assessments amount €57.8 million (2021: €46
million).
Civil litigation contingencies
Magnesita Refratários S.A., Contagem, Brazil, is party to a public civil
action for damages allegedly caused by overloaded trucks in contravention to
Brazilian traffic legislation. In 2017, a decision was rendered in favour of
Magnesita in the trial court. The decision is being appealed by the Public
Ministry of Minas Gerais. The final decision is expected in ten years. The
potential loss from this proceeding amounts to € 15.5 million as of 31
December 2022 (2021: €11.6 million).
A class action against a Brazilian subsidiary relates to the working
conditions of existing and former employees based at a customer's plant. A
technical expertise appointed by the court indicated the exposure of
approximately 900 current and employees to unhealthy conditions. The Company
is currently assessing the number of current and former employees that may be
entitled to compensation ('adicional de insalubridade'). In parallel, an
external advisor has been engaged to determine the potential exposure should
an unfavourable decision arise. Initial estimates are expected by the end of
first quarter in 2023. The expected timing of court judgement is unknown.
Management is unable to quantify the potential risk exposure as at 31 December
2022.
Other minor proceedings and lawsuits in which subsidiaries are involved have
no significant impact on the financial position and performance of the Group.
40. Other financial commitments
Capital commitments amount to €20.4 million at 31 December 2022 (2021:
€35.5 million) and are exclusively due to third parties. They are shown at
nominal value.
In addition, the RHI Magnesita Group has purchase commitments related to the
supply with raw materials, especially for electricity, natural gas, strategic
raw materials as well as for the transport of raw materials within the Group.
This results in other financial commitments of the nominal value of
€399.7 million at the reporting date (2021: €410.8 million). The
remaining terms of the contracts amount to up to four years. Purchases from
these arrangements are recognised in accordance with the usual course of
business. Purchase contracts are regularly reviewed for imminent losses, which
may occur, for example, when requirements fall below the agreed minimum
purchase volume or when contractually agreed prices deviate from the current
market price level.
41. Independent Auditor's remuneration
in € million 2022 2021
Fees in respect of the audit of the Consolidated and Parent Company Financial (1.1) (1.0)
Statements(1))
Other audit fees, in respect of subsidiaries to PwC network firms (1.8) (1.6)
Total audit fees (2.9) (2.6)
Other non-audit services - Interim review(1)) (0.2) (0.2)
Total fees (3.1) (2.8)
1) Total fees to PricewaterhouseCoopers Accountants N.V. (Netherlands)
totalled €1.3 million (2021: €1.2 million).
42. Business Combinations
Acquisition of Horn & Co Minerals Recovery Group
On 3 May 2022, RHI Magnesita Group acquired a 51% ownership stake in Horn
& Co Minerals Recovery Group ("Mireco"), a company focused on the
recycling of various refractory products. Mireco was acquired for a cash
consideration of €13.3 million in order to accelerate the Group's use of
secondary raw materials in its refractory production. In the short term, the
arrangement will give RHI Magnesita access to additional quantities of
secondary raw material and improve productivity in the recycling process. In
the longer term the new business will make high quality green raw materials
available to the entire refractory industry in Europe. New technologies for
the automation of sorting, for new cleaning purposes and for process
automation are being developed with research partners and at RHI Magnesita's
own technology centre in Leoben, Austria.
The fair values of the assets and liabilities recognised 'based on the
preliminary purchase price allocation' as a result of the acquisition are
presented as follows:
in € million preliminary fair values
Property plant and equipment 13.2
Intangible assets: Customer relationships 12.1
Other non-current financial assets 2.3
Inventories 5.3
Trade and other receivables 1.4
Cash and cash equivalents 0.2
Total assets acquired 34.5
Trade and other liabilities 2.7
Other employee obligations 0.8
Income Taxes payable 0.3
Other liabilities 0.1
Current Borrowings 4.3
Right of use liabilities 7.0
Deferred tax liabilities 3.9
Non-current borrowings 2.8
Total liabilities assumed 21.9
Net identifiable assets acquired 12.6
Less: Non-controlling interests (6.1)
Goodwill 6.8
Consideration paid 13.3
Consideration paid, net of cash acquired for purposes of the Statement of Cash 13.1
Flows
The fair value step-up that was identified in the course of the preliminary
purchase price allocation amounts to €13.1 million. €1.1 million relate to
land and €12.1 million relate to customer relationships. Additionally,
right-of-use assets and corresponding liabilities of €7.0 million were also
recognised. The deferred tax liability recognised on these preliminary fair
value uplifts was €3.9 million.
The goodwill of the preliminary purchase price allocation is attributable to
the improved productivity in recycling and an enlarged product portfolio. The
goodwill is fully deductible for tax purposes. The fair values attributed to
assets and liabilities and the resulting goodwill are preliminary and subject
to adjustment for a period of one year from the acquisition as allowed under
the accounting standards. On finalisation of the fair values, adjustments,
including tax impacts, if any, will be reflected against goodwill. The fair
values of the acquired assets and liabilities including initial purchase price
allocations are expected to be finalised within the first half of 2023. The
business of Mireco is included within the Group's Steel Operating segment.
The Group recognises non-controlling interests in an acquired entity at the
non-controlling interest's proportionate share of the acquired entity's net
identifiable assets.
The non-controlling interests have the option to sell their remaining equity
stake to RHI Magnesita at any time by 2032. The Group initially recognised the
non-controlling interests of €6.1 million within equity. The put option
liability of €10.9 million was initially recognised against the
non-controlling interest, reducing it to zero and the difference was reflected
against the Group's Retained income. The put option liability is recognised as
a financial liability. Further information on the fair value of the put option
is provided under Note (28).
Direct costs relating to the acquisition of Mireco and expensed in the
Consolidated Statement of Profit or Loss amounted to €0.5 million.
Revenue and net profit after tax attributed to the Mireco acquisition from
date of control and included in the Consolidated Statement of Profit or Loss
was €18.8 million and €0.9 million, respectively. Its contribution to
Adjusted EBITA was €1.6 million.
Had it been acquired from 1 January 2022, Group revenue and net profit after
tax would have been higher by €29.7 million and €0.6 million,
respectively.
Acquisition of SÖRMAŞ
On 1 September 2022, the Group completed the acquisition of 86,8% ownership
stake in Söğüt Refrakter Malzemeleri Anonim Şirketi ("SÖRMAŞ"), a
producer of refractories for the cement, steel, glass and other industries in
Turkiye, for a consideration of €46.4 million in cash.
in € million preliminary fair values
Property plant and equipment 3.6
Intangible assets: Customer relationships 10.5
Intangible assets: Order backlogs 5.9
Inventories 14.1
Trade and other receivables 14.7
Cash and cash equivalents 1.5
Total assets acquired 50.3
Trade and other liabilities 2.9
Other employee obligations 0.4
Income Taxes payable 0.7
Current Borrowings 4.9
Deferred tax liabilities 3.8
Total liabilities assumed 12.7
Net identifiable assets acquired 37.6
Less: Non-controlling interests (5.0)
Goodwill 13.8
Consideration paid 46.4
Consideration paid, net of cash acquired for purposes of the Statement of Cash 44.9
Flows
The fair value step-up that was identified in the course of the preliminary
purchase price allocation amounts to €16.4 million. €10.5 million relate
to customer relationships allocated to the Steel operating segment and €5.9
million to customer order backlogs. The deferred tax liability recognised on
these preliminary fair value uplifts was €3.8 million.
The fair values attributed to assets and liabilities and the resulting
goodwill are preliminary and subject to adjustment for a period of one year
from the acquisition as allowed under the accounting standards. On
finalisation of the fair values, adjustments, including tax impacts, if any,
will be reflected against goodwill. The fair values of the acquired assets and
liabilities including initial purchase price allocation are expected to be
finalised by the third quarter of 2023. The business of SÖRMAŞ is mainly
attributed to the Industrial division with the resulting goodwill allocated to
Cement/Lime business.
Direct costs relating to the acquisition of SÖRMAŞ and expensed in the
Consolidated Statement of Profit or Loss amounted to €0.7 million.
Revenue and net loss after tax attributed to the SÖRMAŞ acquisition from
date of control and included in the Consolidated Statement of Profit or Loss
was €12.0 million and €1.0 million, respectively. Its contribution to
Adjusted EBITA was €2.6 million.
Had it been acquired from 1 January 2022, Group revenue and net profit after
tax would have been higher by €36.6 million and €3.3 million,
respectively.
Following the acquisition in September 2022, the Group acquired an additional
2.58% of the outstanding share capital for a total consideration of €1.4
million. This transaction has no impact on the Consolidated Statement of
Profit or Loss and no adjustment to goodwill. The consideration paid is
reflected within financing activities in the Consolidated statement of Cash
Flows.
43. Transactions with related parties
Related companies include subsidiaries that are not consolidated, joint
ventures, associates and MSP Foundation, Liechtenstein, as a shareholder of
RHI Magnesita N.V. since it exercises significant influence based on its share
of more than 25% in RHI Magnesita N.V. In accordance with IAS 24.9 `Related
Party Disclosures`, the personnel welfare foundation of Stopinc AG,
Switzerland, and Chestnut Beteiligungs GmbH, Germany (shareholder of the
Group, which is related to a director) are considered related companies.
Related persons are persons having authority and responsibility for planning,
directing and controlling the activities of the Group (key management
personnel) and their close family members. Key management personnel comprise
of members of the Board of Directors of RHI Magnesita N.V. and the Executive
Management Team.
Related companies
In 2022 and 2021, the Group conducted the following transaction with its
related companies:
Joint ventures Associates
in € million 2022 2021 2022 2021
Revenue from the sale of goods and services 0.7 1.0 0.0 0.0
Purchase of raw materials 4.0 5.0 0.0 14.4
Interest income 0.0 0.1 0.7 0.2
Loans 0.0 0.0 0.0 0.8
Trade liabilities 0.5 0.0 0.0 1.3
Dividends received 0.0 6.8 0.0 0.0
In 2021, the Group charged electricity and stock management costs to the joint
venture MAGNIFIN Magnesiaprodukte GmbH & Co KG, St. Jakob, Austria, and
purchased raw materials. The 50% stake in Magnifin was sold as of 30 December
2021 and final disposal proceeds of € 8.7 million were received in 2022. In
2021, the associate Sinterco S.A., Nameche, Belgium, sold sintered doloma to
the RHI Magnesita Group. The Group financing receivable (2021: €0.8 million)
from a loan agreement with Sinterco is received.
In 2022 and 2021, no transactions were carried out between the RHI Magnesita
Group and MSP Foundation and Chestnut Beteiligungs GmbH, with the exception of
the dividend paid.
A service relationship with respect to the company pension scheme of the
employees of Stopinc AG exists between the personnel welfare foundation of
Stopinc AG and the fully consolidated subsidiary Stopinc AG. Stopinc AG makes
contribution payments to the plan assets of the foundation to cover pension
obligations. The pension plan is recognised as a defined benefit plan and is
included in Note (29). At 31 December 2022, no current accounts receivable
existed (2021: €0.0 million). In the past reporting period, employer
contributions amounting to €0.6 million (2021: €0.6 million) were made
to the personnel welfare foundation. At 31 December 2022, a net asset from
overfunded pension plans of €1.7 million (2021: €0.8million) is
recognised.
Related persons
Remuneration of key management personnel of the Group, which is subject to
disclosure in accordance with IAS 24 'Related Party Disclosures', comprises
the remuneration of the active Board of Directors and the Executive Management
Team (EMT).
in € million 2022 2021
Executive Directors and EMT
Salaries and short-term incentive schemes 6.6 5.5
Share based remuneration 4.6 3.9
Other 1.3 1.0
Total 12.5 10.4
Non- Executive Directors(1)) 1.1 1.2
Employee Representatives(2)) 0.3 0.4
(1) Compensation paid to Non-Executive Directors reflects short-term employee
benefits, mainly fees for services as Directors.
(2) Employee representatives acting as Non-Executive Directors do not receive
additional compensation for these services. The compensation relates to the
expense as employees.
Share Dealing reports of persons discharging managerial responsibilities are
published on the websites of RHI Magnesita N.V. and via regulatory news
services. The members of the Board of Directors are covered by Directors &
Officers insurance at RHI Magnesita.
Detailed and individual information on the remuneration of the Board of
Directors is presented in the Annual Report on Remuneration, in the
Remuneration Committee report and the Remuneration Policy on pages 132 to 157
of the Annual Report of the RHI Magnesita Group.
RHI Magnesita and a close relative of a Non-Executive Director concluded a
non-remunerated consultancy agreement to advise the Group on the economic and
political framework in countries in which it does not yet have strong business
links.
44. Material events after the reporting date
Acquisition of Dalmia OCL Limited ("DOCL")
On 21 November 2022, the Group announced the acquisition of DOCL. DOCL is a
refractory business located in India. It has five manufacturing facilities
spread across the east, south, central and western region of India with a
total annual production capacity of about 300,000 tonnes and around 1,200
employees.
The acquisition completed on 5 January 2023. The Group acquired 100% of DOCL
through the issue of 27 million shares in its subsidiary RHI Magnesita India
Limited ("RHIM India") which is listed on the Bombay Stock Exchange of India.
The market share price of RHIM India closed at around 877 INR (Indian Rupees)
on the day of the exchange (around €10/share). Following the share swap, the
Group settled a related party payable in DOCL of INR 3.9 billion (around €45
million), to the previous shareholders. This was settled through a new
external debt facility in DOCL of INR 6.3 billion (around €72 million)
maturing in January 2024. The remaining facility will be used for working
capital purposes.
Following the issue of shares in RHIM India, the Group's interest in this
subsidiary decreased from 70.2% to 60.1%. The Group continues to exercise
control and will continue to consolidate RHIM India.
Acquisition of Jinan New Emei ("Jinan")
In January 2023, the Group entered into an agreement to acquire a 65.0%
shareholding in Jinan New Emei Industries Co. Ltd, a company registered in
China. Jinan is a leading producer of refractory slide gate plates and
systems, nozzles and mixes for use in steel flow control, employing over 1,300
people and headquartered in Shandong province, China.
Under the terms of the acquisition, the Group will acquire the initial 65.0%
shareholding for a total cash consideration of €40 million (CNY 293
million), of which 80% is payable on closing with the remaining 20% deferred
to one year after closing. The Group has also agreed to acquire the remaining
35.0% in 2026 with the consideration calculated at an agreed average annual
multiple of EBITDA and subject to a cap of €137 million (CNY 1 billion).
The acquisition is subject to competition authority clearance and is expected
to complete within 2023.
Acquisition of Hi Tech.
On 31 January 2023, the Group completed the acquisition of the refractory
business of Hi-Tech Chemicals Limited ("Hi-Tech"). It operates a
state-of-the-art fully automated facility in the city of Jamshedpur,
Jharkhand, manufacturing high-qualitative flow control products largely for
the steel industry.
The business was acquired by the Group's subsidiary RHIM India. Total
consideration paid for the acquisition amounts to around INR 7.3 billion
(around €83 million) and is subject to final working capital adjustments.
The acquisition was mainly funded through utilising INR 6.2 billion (around
€69 million) from the INR 7.0 billion term loan with a maturity in December
2023 through RHIM India.
Statement of the Board of Directors
Statement pursuant to Article 5:25c, paragraph 2, subsection c. of the Dutch
Financial Markets Supervision Act ("Wet op het financieel toezicht").
The Consolidated Financial Statements for the year ended 31 December 2022,
have been prepared on a going concern basis and in accordance with IFRSs, as
issued by the IASB and interpretations issued by the IFRIC, and as endorsed by
the European Union (EU).
To our knowledge,
• the Consolidated Financial Statements referred to above give a true and
fair view of the assets, liabilities, financial position, and profit of RHI
Magnesita N.V. and the undertakings included in the consolidation as a whole;
and
• the Annual Report for RHI Magnesita Group (comprising RHI Magnesita NV and
its affiliated companies whose details are included in its Financial
Statements) for the year ended 31 December 2022 gives a true and fair view of
the state of affairs as of the balance sheet date, the development and course
of business during the financial year, and that the Annual Report describes
the material risks that the RHI Magnesita Group faces.
Vienna, 26 February 2023
Executive Directors
Stefan Borgas Ian Botha
Non-Executive Directors
Herbert Cordt John Ramsay
Janet Ashdown David Schlaff
Stanislaus Prinz zu Sayn-Wittgenstein Janice "Jann" Brown
Karl Sevelda Marie-Hélène Ametsreiter
Sigalia Heifetz Wolfgang Ruttenstorfer
Employee Representative Directors
Karin Garcia Martin Kowatsch
Michael Schwarz
Company Financial Statements of RHI Magnesita N.V.
Company Balance Sheet as at 31 December 2022
(before appropriation of result)
in € million Note 31.12.2022 31.12.2021
ASSETS
Non-current assets
Property, plant and equipment 0.2 0.5
Non-current financial assets (A) 943.3 644.8
Securities 0.5 0.5
Deferred tax assets 10.8 32.5
Total non-current assets 954.8 678.3
Current assets
Receivables from group companies 52.2 138.1
Other current receivables 0.4 0.4
Cash and cash equivalents (B) 1.6 0.6
Total current assets 54.2 139.1
Total assets 1,009.0 817.4
EQUITY AND LIABILITIES
Equity
Share capital (C) 49.5 49.5
Additional paid-in capital (D) 361.3 361.3
Legal and mandatory reserves (E) 86.3 84.3
Other reserves 464.5 164.7
Treasury shares (F) (116.1) (117.0)
Result for the period (L) 155.7 243.1
Shareholders' Equity 1,001.2 785.9
Non-current liabilities
Non-current liabilities (G) 0.2 2.0
Current liabilities
Other current liabilities (H) 7.6 29.5
Total liabilities 7.8 31.5
Total equity and liabilities 1,009.0 817.4
Company Statement of Profit or Loss for the period 1 January 2022 to 31 December 2022
in € million Note 2022 2021
General and administrative expenses (I) (22.0) (25.5)
Result before taxation (22.0) (25.5)
Net financial result (J) 0.0 0.1
Profit before income tax (22.0) (25.4)
Income tax (18.8) 29.3
Net result from investments (K) 196.5 239.2
Net result for the period (L) 155.7 243.1
Movements in Shareholders' Equity
Legal and mandatory reserves Other reserves
in € million Share Treasury shares Additional Cash flow hedges Currency translation Mandatory reserve Retained earnings Net result Equity attributable to shareholders
capital
paid-in
capital
31.12.2021 49.5 (117.0) 361.3 (7.1) (197.3) 288.7 164.7 243.1 785.9
Appropriation of prior year result 243.1 (243.1) -
Net result 155.7 155.7
Share transfer / Vested LTIP 0.9 (0.9) 0.0
Share-based expenses 8.3 8.3
Dividends (70.5) (70.5)
Net income / (expense) recognised directly in equity 38.9 48.7 34.2 121.8
31.12.2022 49.5 (116.1) 361.3 31.8 (148.6) 288.7 378.9 155.7 1,001.2
Legal and mandatory reserves Other reserves
in € million Share Treasury shares Additional Cash flow hedges Currency translation Mandatory reserve Retained earnings Net result Equity attributable to shareholders
capital
paid-in
capital
31.12.2020 49.5 (21.5) 361.3 (13.7) (249.3) 288.7 206.3 24.8 646.1
Appropriation of prior year result 24.8 (24.8) -
Net result 243.1 243.1
Shares repurchased (95.5) (95.5)
Share-based expenses 6.2 6.2
Dividends (71.2) (71.2)
Net income / (expense) recognised directly in equity 6.6 52.0 (1.4) 57.2
31.12.2021 49.5 (117.0) 361.3 (7.1) (197.3) 288.7 164.7 243.1 785.9
General
RHI Magnesita N.V. (the "Company"), a public company with limited liability
under Dutch law is registered with the Dutch Trade Register of the Chamber of
Commerce under the number 68991665 and has its corporate seat in Arnhem,
Netherlands. The administrative seat and registered office is located at
Kranichberggasse 6, 1120 Vienna, Austria.
The shares of RHI Magnesita N.V. (ISIN code NL0012650360) are listed on the
Main Market of the London Stock Exchange and are included in the FTSE 250
index. The Company holds a secondary listing on the Vienna Stock Exchange
(Wiener Börse).
Basis of preparation
The Company Financial Statements have been prepared in accordance with the
provisions of Part 9 of Book 2 of the Dutch Civil Code. The Company uses the
option of Section 362, subsection 8, of Part 9, Book 2, of the Dutch Civil
Code to prepare the Company Financial Statements on the basis of the same
accounting principles as those applied for the Consolidated Financial
Statements. Valuation is based on recognition and measurement requirements of
accounting standards adopted by the EU (i.e. only IFRS that is adopted for use
in the EU at the date of authorisation) as explained further in the Notes to
the Consolidated Financial Statements.
The Company has issued a declaration of joint and several liability as
referred to in section 403, Book 2 of the Dutch Civil Code in respect of one
of its consolidated participations, namely Trading B.V.
Fiscal Unity
For corporate income tax purposes, RHI Magnesita NV, Vienna Branch, acts as
the head of a corporate tax group in Austria with the following companies:
· RHI Magnesita GmbH
· Veitscher Vertriebsgesellschaft GmbH
· "Veitsch-Radex" Vertriebgesellschaft GmbH
· Refractory Intellectual Property GmbH
· Veitsch-Radex GmbH
· Radex Vertriebsgesellschaft GmbH
· RHI Refractories Raw Material GmbH
· Lokalbahn Mixnitz-St. Erhard Aktien-Gesellschaft
According to the group and tax compensation agreement, which forms a legal
requirement for the Austrian corporate tax group, tax compensation payments
within the corporate tax group are calculated based on the stand-alone method,
without charging negative tax compensations. In case of a taxable profit, the
respective tax group member has to pay a tax compensation to RHI Magnesita
N.V. as the head of the corporate tax group amounting to the legally
applicable corporate tax rate (25.0% for 2022). In case of a taxable loss, the
respective tax group member does not receive a negative tax compensation by
RHI Magnesita N.V., but rather the taxable loss is carried forward internally
and reduces the calculation base for any future tax compensation payment by
the respective tax group member to RHI Magnesita N.V. (group internal carry
forward of losses). Any tax compensation payment by tax group members to RHI
Magnesita N.V. is reduced by withholding taxes paid by the respective group
member, which RHI Magnesita N.V. could credit against any corporate income tax
due in Austria. For cases of termination of the corporate tax group or cases
in which a tax group member leaves the corporate tax group, the group and tax
compensation agreement foresees a final tax compensation true-up.
The corporate income tax rate for the Company is 25% (2021: 25%). The
effective tax rate is 86.0% (2021: 115.3%) with an income tax expense of
€18.8 million (2021: €29.4 million income) on a loss before income tax of
€22.0 million (2021: €25.4 million loss). The higher effective income tax
rate is mainly attributable to deferred tax asset revaluations on transfer
pricing adjustments and intercompany debt waiver losses of €17.5 million in
2022, non-deductible expenses and non-taxable income of €0.9 million (2021:
€ 1.6 million) and the tax effect of subsidiaries included within the fiscal
unity without a corresponding impact on losses before income tax.
All income and expenses are settled through their intercompany (current)
accounts.
Significant accounting policies
Non-current financial assets
Investments in Group companies in the Company Financial Statements are
accounted for using the equity method.
Receivables from Group companies
Accounts receivables are measured at fair value and are subsequently measured
at amortised cost, less allowance for credit losses. The carrying amount of
the accounts receivable approximates the fair value.
Net result from investments
The share in the result of investments comprises the share of the Company in
the result of these investments.
Fixed assets
(A) Financial fixed assets
The financial fixed assets comprise investments in:
31.12.2022 31.12.2021
Name and registered office of the company Country of core activity Share in % Share in %
RHI Magnesita Deutschland AG, Wiesbaden, Germany Germany 12.5 12.5
RHI Refractories Raw Material GmbH, Vienna, Austria Austria 25.0 25.0
RHI Magnesita GmbH, Vienna, Austria Austria 100.0 100.0
The investments have developed as follows:
in € million 2022 2021
At beginning of year 644.8 480.6
Transactions with non-controlling interests without change of control (5.2) (21.7)
Capital contributions 0.0 70.0
Changes from currency translation and cash flow hedges 87.7 58.6
Changes from defined benefit plans 39.5 20.2
Equity settled transaction 0.0 (2.1)
Dividend distribution (20.0) (200.0)
Net result from investments 196.5 239.2
Balance at year-end 943.3 644.8
The following list, prepared in accordance with the relevant legal
requirements (Dutch Civil Code, Book 2, Sections 379), shows all companies in
which RHI Magnesita N.V. holds a direct or indirect share of at least 20%:
31.12.2022 31.12.2021
Ser. no. Name and registered office of the company Share- Share in % Share- Share in %
holder
holder
1. RHI Magnesita N.V., Arnhem, Netherlands
2. Agellis Group AB, Lund, Sweden 46. 100.0 46. 100.0
3. Baker Refractories Holding Company, Delaware, USA 35. 100.0 35. 100.0
4. Baker Refractories I.C., Inc., Delaware, USA 3. 100.0 3. 100.0
5. D.S.I.P.C.-Didier Société Industrielle de Production et de 7. 100.0 7. 100.0
Constructions, Valenciennes, France
6. RHI Magnesita Belgium N.V., Evergem, Belgium 60.,94. 100.0 60.,94. 100.0
7. RHI Magnesita Deutschland AG, Wiesbaden, Germany 1.,46. 100.0 1.,46. 100.0
8. Dutch Brasil Holding B.V., Arnhem, Netherlands 100. 100.0 100. 100.0
9. Dutch MAS B.V., Arnhem, Netherlands 7. 100.0 7. 100.0
10. Dutch US Holding B.V., Arnhem, Netherlands 100. 100.0 100. 100.0
11. FE "VERA", Dnipro, Ukraine 46. 100.0 46. 100.0
12. Feuerfestwerk Bad Hönningen GmbH, Wiesbaden, Germany 105. 100.0 105. 100.0
13. GIX International Limited, Dinnington, United Kingdom 106. 100.0 106. 100.0
14. Horn & Co. Minerals Recovery GmbH, Siegen, Germany 62. 51.0 - 0.0
15. INDRESCO U.K. Ltd., Dinnington, United Kingdom 13. 100.0 13. 100.0
16. Intermetal Engineers Private Limited, Mumbai, India 44. 99.9 44. 99.9
17. Liaoning RHI Jinding Magnesia Co., Ltd., Dashiqiao City, PR China 1) 46. 83.3 46. 83.3
18. LLC "RHI Wostok Service", Moscow, Russia 46.,62. 100.0 46.,62. 100.0
19. LLC "RHI Wostok", Moscow, Russia 46.,62. 100.0 46.,62. 100.0
20. Lokalbahn Mixnitz-St. Erhard GmbH, Vienna, Austria 85. 100.0 85. 100.0
21. LWB Holding Company, Delaware, USA - 0.0 47. 100.0
22. LWB Refractories Belgium S.A., Liège, Belgium 37.,105. 100.0 37.,105. 100.0
23. LWB Refractories Beteiligungs GmbH & Co. KG, Wiesbaden, Germany - 0.0 47. 100.0
24. LWB Refractories Hagen GmbH, Wiesbaden, Germany 105. 100.0 105. 100.0
25. LWB Refractories Holding France S.A.S., Valenciennes, France 105. 100.0 105. 100.0
26. RHI Magnesita Turkey Refractories, Eskisehir, Turkey 2) 46. 100.0 46. 100.0
27. Magnesita Asia Refractory Holding Ltd, Hong Kong, PR China 25. 100.0 25. 100.0
28. Magnesita Finance S.A., Luxembourg, Luxembourg 8. 100.0 8. 100.0
29. Magnesita International Limited, London, United Kingdom - 0.0 42. 100.0
30. Magnesita Malta Finance Ltd., St. Julians, Malta 31.,105. 100.0 31.,105. 100.0
31. Magnesita Malta Holding Ltd., St. Julians, Malta 37.,105. 100.0 37.,105. 100.0
32. Magnesita Mineração S.A., Brumado, Brazil 42. 100.0 42. 100.0
33. Magnesita Refractories (Canada) Inc., Montreal, Canada 3. 100.0 3. 100.0
34. Magnesita Refractories (Dalian) Co. Ltd., Dalian, PR China 28. 100.0 28. 100.0
35. Magnesita Refractories Company, York, USA 21. 100.0 21. 100.0
36. Magnesita Refractories Mexico S.A. de C.V., Monterrey, Mexico 3.,4. 100.0 3.,4. 100.0
37. Magnesita Refractories GmbH, Wiesbaden, Germany 105. 100.0 105. 100.0
38. Magnesita Refractories Ltd., Dinnington, United Kingdom 3. 100.0 3. 100.0
39. Magnesita Refractories Middle East FZE, Dubai, United Arab Emirates 28. 100.0 28. 100.0
40. Magnesita Refractories S.C.S., Valenciennes, France 25.,105. 100.0 25.,105. 100.0
41. Magnesita Refractories S.R.L., Milano, Italy 105. 100.0 105. 100.0
42. Magnesita Refratários S.A., Contagem, Brazil 8. 100.0 8. 100.0
43. Magnesita Resource (Anhui) Company. Ltd., Chizhou, PR China 63. 100.0 63. 100.0
44. RHI Magnesita India Limited 8.,10.,106. 70.2 8.,10.,106. 70.2
31.12.2022 31.12.2021
Ser. no. Name and registered office of the company Share- Share in % Share- Share in %
holder
holder
45. Producción RHI México, S. de R.L. de C.V., Ramos Arizpe, Mexico 93.,106. 100.0 93.,106. 100.0
46. Radex Vertriebsgesellschaft m.b.H., Leoben, Austria 102. 100.0 102. 100.0
47. Rearden G Holdings Eins GmbH, Wiesbaden, Germany 28. 100.0 28. 100.0
48. Refractarios Argentinos S.A.I.C.M., San Nicolás, Argentina 8.,50. 100.0 8.,50. 100.0
49. Refractarios Magnesita Chile S/A, Santiago, Chile - 0.0 42.,48. 100.0
50. Refractarios Magnesita Colombia S/A, Sogamoso, Colombia 8. 100.0 8. 100.0
51. Refractarios Magnesita del Perú S.A.C., Lima, Peru 8.,50. 100.0 8.,50. 100.0
52. Refractory Intellectual Property GmbH & Co KG, Vienna, Austria 53.,62. 100.0 53.,62. 100.0
53. Refractory Intellectual Property GmbH, Vienna, Austria 62. 100.0 62. 100.0
54. Reframec Manutenção e Montagens de Refratários S.A., Contagem, Brazil - 0.0 42. 100.0
55. RHI Argentina S.R.L., Buenos Aires, Argentina - 0.0 10.,106. 100.0
56. RHI Canada Inc., Burlington, Canada 106. 100.0 106. 100.0
57. RHI Chile S.A., Santiago, Chile 13.,106. 100.0 13.,106. 100.0
58. RHI Dinaris GmbH, Wiesbaden, Germany - 0.0 94. 100.0
59. RHI Finance A/S, Hellerup, Denmark 62. 100.0 62. 100.0
60. RHI GLAS GmbH, Wiesbaden, Germany 94. 100.0 94. 100.0
61. RHI ITALIA S.R.L., Brescia, Italy 62. 100.0 62. 100.0
62. RHI Magnesita GmbH, Vienna, Austria 1. 100.0 1. 100.0
63. RHI Magnesita China Ltd., Shanghai, China 46. 100.0 46. 100.0
64. RHI Magnesita (Chongqing) Refractory Materials Co., Ltd. 63. 51.0 63. 51.0
65. RHI Magnesita Distribution B.V., Rotterdam, Netherlands - 0.0 67. 100.0
66. RHI Magnesita Re Limited, Guernsey, United Kingdom 46. 100.0 - 0.0
67. RHI Magnesita Trading B.V., Rotterdam, Netherlands 62. 100.0 62. 100.0
68. RHI Magnesita Vietnam Company Limited, Ho Chi Minh City, Vietnam 78. 100.0 78. 100.0
69. RHI Magnesita Services Europe Gerbstedt GmbH, Gerbstedt/Hübitz, Germany - 0.0 70. 100.0
70. RHI Magnesita Services Europe GmbH, Kerpen, Germany - 0.0 7. 100.0
71. RHI MARVO S.R.L., Bucharest, Romania 46.,100. 100.0 46.,100. 100.0
72. RHI Magnesita Properties MO, LLC, Missouri, USA - 0.0 101. 100.0
73. RHIM Mireco Mitterdorf GmbH, St.Barbara im Mürztal, Austria 14. 100.0 - 0.0
74. RHI Refractories (Dalian) Co., Ltd., Dalian, PR China 46. 100.0 46. 100.0
75. RHI Refractories (Site Services) Ltd., Dinnington, United Kingdom 15. 100.0 15. 100.0
76. RHI Refractories Africa (Pty) Ltd., Sandton, South Africa 46. 100.0 46. 100.0
77. RHI Refractories Andino C.A., Puerto Ordaz, Venezuela 106. 100.0 106. 100.0
78. RHI Refractories Asia Pacific Pte. Ltd., Singapore 62. 100.0 62. 100.0
79. RHI Refractories Egypt LLC., Cairo, Egypt - 0.0 46.,100. 100.0
80. RHI Refractories France SA, Valenciennes, France 3) 97. 100.0 97. 100.0
81. RHI Refractories Ibérica, S.L., Oviedo, Spain 97. 100.0 97. 100.0
82. RHI Refractories Liaoning Co., Ltd., Bayuquan, PR China 1) 46. 66.0 46. 66.0
83. RHI Refractories Mercosul Ltda., Sao Paulo, Brazil - 0.0 100.,106. 100.0
84. RHI Refractories Nord AB, Stockholm, Sweden 97. 100.0 97. 100.0
85. RHI Refractories Raw Material GmbH, Vienna, 1.,46.,62. 100.0 1.,46.,62. 100.0
Austria
86. RHI Refractories Site Services GmbH, Wiesbaden, Germany 7. 100.0 7. 100.0
87. RHI Refractories UK Limited, Bonnybridge, United Kingdom 7. 100.0 7. 100.0
88. RHI Refratários Brasil Ltda, Contagem, Brazil; i.l. 10.,42. 100.0 10.,42. 100.0
31.12.2022 31.12.2021
Ser. no. Name and registered office of the company Share- Share in % Share- Share in %
holder
holder
89. RHI Sales Europe West GmbH, Urmitz, Germany - 0.0 7.,94. 100.0
90. RHI Trading (Dalian) Co., Ltd., Dalian, PR China 46. 100.0 46. 100.0
91. RHI Ukraina LLC, Dnepropetrovsk, Ukraine 46.,100. 100.0 46.,100. 100.0
92. RHI United Offices America, S.A. de C.V., Monterrey, Mexico 67.,93. 100.0 67.,93. 100.0
93. RHI Refractories España, S.L., Lugones, Spain 7.,9. 100.0 7.,9. 100.0
94. RHI Urmitz AG & Co. KG, Mülheim-Kärlich, Germany 7.,86. 100.0 7.,86. 100.0
95. RHI US Ltd., Delaware, USA 10. 100.0 10. 100.0
96. RHI-Refmex, S.A. de C.V., Ramos Arizpe, Mexico 93.,106. 100.0 93.,106. 100.0
97. SAPREF AG für feuerfestes Material, Basel, Switzerland 106. 100.0 106. 100.0
98. SÖRMAŞ SÖĞÜT REFRAKTER MALZEMELERİ ANONİM ŞİRKETİ (Sörmas), 46. 89.2 - 0.0
Söğüt / Bilecik, Turkiye
99. RHI Magnesita Interstop AG, Hünenberg, Switzerland 7.,46. 100.0 7.,46. 100.0
100. Veitscher Vertriebsgesellschaft m.b.H., Vienna, Austria 62. 100.0 62. 100.0
101. Veitsch-Radex America LLC., Delaware, USA 95. 100.0 95. 100.0
102. Veitsch-Radex GmbH & Co OG, Vienna, Austria 62.,103. 100.0 62.,103. 100.0
103. Veitsch-Radex GmbH, Vienna, Austria 62. 100.0 62. 100.0
104. Veitsch-Radex Vertriebsgesellschaft m.b.H., Vienna, Austria 62. 100.0 62. 100.0
105. Vierte LWB Refractories Holding GmbH, Wiesbaden, Germany 47. 100.0 23.,47. 100.0
106. VRD Americas B.V., Arnhem, Netherlands 46.,62. 100.0 46.,62. 100.0
107. Zimmermann & Jansen GmbH, Wiesbaden, Germany 7. 100.0 7. 100.0
108. Dr.-Ing. Petri & Co. Unterstützungsgesellschaft m.b.H., Wiesbaden, 7. 100.0 7. 100.0
Germany
109. Horn & Co Minerals Recovery Verwaltungs GmbH, Siegen, Germany 14. 100.0 - 0.0
110. Horn & Co. Polska sp. z o.o., Poland 14. 100.0 - 0.0
111. Magnesita Refractories A.B., Stocksund, Sweden; i.l. 105. 100.0 105. 100.0
112. Magnesita Refractories PVT Ltd, Mumbai, India 47.,105. 100.0 47.,105. 100.0
113. Magnesita Refractories S.A. (Pty) Ltd., Sandton, South Africa 37. 100.0 37. 100.0
114. MAG-Tec Participações Ltda. Ltda., Contagem, Brazil; i.l. 42. 98.7 42. 98.7
115. Minerals and Metals Recovering - Mireco Aktiebolag, Fagersta, Sweden 14. 100.0 - 0.0
116. Mireco SARL, Entzheim, France 14. 100.0 - 0.0
117. Mireco SH.P.K, Kosovo 14. 100.0 - 0.0
118. Refractarios Especiales Y Moliendas S.A., Buenos Aires, Argentina - 0.0 48. 100.0
119. Refractarios Magnesita Uruguay S/A, Montevideo, Uruguay - 0.0 42. 100.0
120. RHI Réfractaires Algérie E.U.R.L., Sidi Amar, Algeria 80. 100.0 80. 100.0
121. Rudgruvans Industrier AB, Fagersta, Sweden 14. 100.0 - 0.0
Equity-accounted joint ventures and associated companies . .
122. Chongqing Boliang Refractory Materials Co. Ltd, Chongqing, China 63. 51.0 63. 51.0
123. Magnesita Envoy Asia Ltd., Kaohsiung, Taiwan 3. 50.0 3. 50.0
124. Sinterco S.A., Nameche, Belgium 47. 70.0 47. 70.0
1) In accordance with IAS 32, fixed-term or puttable non-controlling
interests are shown under liabilities.
2) Further shareholders are VRD Americas B.V., Lokalbahn Mixnitz St. Erhard
GmbH and Veitscher Vertriebsgesellschaft mbH.
3) Further shareholders are RHI Magnesita Deutschland AG and RHI GLAS GmbH.
i.l. in liquidation
Current assets
(B) Cash and cash equivalents
Cash and cash equivalents are at RHI Magnesita N.V.'s free disposal.
Equity
(C) Share capital
The Company's authorised share capital amounts to €100,000,000, comprising
100,000,000 ordinary shares, each of €1 nominal value. As at 31 December
2022, RHI Magnesita N.V.'s issued and fully paid-in share capital consists of
47,017,695 ordinary shares (2021: 46,999,019 ordinary shares). For additional
information on treasury shares see (F).
(D) Additional paid-in capital
Additional paid-in capital comprises premiums on the issue of shares less
issue costs by RHI Magnesita N.V.
(E) Legal and mandatory reserves
Cash flow hedges
The item cash flow hedges include gains and losses from the effective part of
cash flow hedges less tax effects. Further information on hedge accounting is
included in Note (36) and Note (37) of the Consolidated Financial Statements.
Currency translation
Currency translation includes the accumulated currency translation differences
from translating the Financial Statements of foreign subsidiaries as well as
unrealised currency translation differences from monetary items which are part
of a net investment in a foreign operation, net of related income taxes. If
foreign companies are deconsolidated, the currency translation differences are
recognised in the Statement of Profit or Loss as part of the gain or loss from
the sale of shares in subsidiaries. In addition, when monetary items cease to
form part of a net investment in a foreign operation, the currency translation
differences of these monetary items previously recognised in other
comprehensive income are reclassified to profit or loss.
The cash flow hedges reserve and the currency translation reserve are legal
reserves and are restricted for distribution.
Legal and mandatory reserve
The articles of association stipulate a mandatory reserve of €288,699,230.59
which was created in connection with the merger of RHI Refractories and
Magnesita in 2017.
No distributions, allocations or additions may be made, and no losses of the
Company may be allocated to the mandatory reserve.
Legal and mandatory reserves represent legal and statutory reserves in line
with Chapter 7 'Decree on financial statements formats' of the Dutch Civil
Code.
(F) Treasury shares
As at 31 December 2022, RHI Magnesita treasury shares amount to 2,460,010
(2021: 2,478,686).
Non-Current liabilities
(G) Other non-current liabilities
in € million 31.12.2022 31.12.2021
Personnel provisions 0.1 1.7
Provisions for pensions 0.1 0.0
Other non-current financial liabilities 0.0 0.3
Total non-current liabilities 0.2 2.0
Current liabilities
(H) Other current liabilities
in € million 31.12.2022 31.12.2021
Trade payables 1.2 1.6
Payables to group companies 0.4 21.5
Accrued liabilities 6.0 6.4
Total current liabilities 7.6 29.5
The current liabilities are due in less than one year. The fair value of other
current liabilities approximates the book value, due to their short-term
character.
(I) General and administrative expenses
in € million 2022 2021
External services/consulting expenses (2.0) (2.6)
Cost for principal services Austria 0.0 3.0
Personnel expenses (18.4) (22.9)
Other expenses (1.6) (3.0)
Total general and administrative expenses (22.0) (25.5)
in € million 2022 2021
Wages and salaries (16.5) (19.7)
Social security charges (1.1) (2.0)
Pension contributions (0.4) (0.5)
Other employee costs (0.4) (0.7)
Total wages and salaries (18.4) (22.9)
(J) Net financial result
The 2022 net financial result amounts to €0.0 million (2021:
€0.1 million).
(K) Net results from investments
In year 2022, the full year results of the investments amount to a profit of
€196.5 million (2021: €239.2 million) and are recognised in the Company
Statement of Profit or Loss.
(L) Net result for the period
In 2022, there are no differences in the result between the Company Financial
Statements and the Consolidated Financial Statements.
Proposed appropriation of result
It is proposed that pursuant to Article 27 clause 1 of the articles of
association of the Company the result shown in RHI Magnesita N.V. income
statement be appropriated as follows:
in € million 2022
Profit attributable to shareholders 155.7
In accordance with Article 27 clause 1 to be transferred to reserves 0.0
At the disposal of the General Meeting of Shareholders 155.7
For 2022, the Board of Directors will propose a dividend of €1.10 per share
for the shareholders of RHI Magnesita N.V. The proposed dividend is subject to
the approval by the Annual General Meeting on 24 May 2023.
Other notes
Number of employees
The average number of employees of RHI Magnesita N.V. during 2022 amounts to 8
(2021: 67).
Off balance sheet commitments
RHI Magnesita N.V. as an ultimate parent company provided a corporate
guarantee of €1,549.4 million (2021: €1,530.3 million) for the
borrowings of the Group. The Borrowings are as disclosed in Note (27).
Additionally €20.1 million (2021: €79.2 million) of corporate guarantees
are issued in favour of customers and suppliers of the Group.
Other information
Information regarding independent auditor's fees, number of employees of RHI
Magnesita Group and the remuneration of the Board of Directors is included in
Note (41), (10) and (43) of the Consolidated Financial Statements.
The Company opened a branch in Vienna, Austria and started as of February 2020
to employ staff in the branch office and undertake services.
Material events after the reporting date
There were no material events after the reporting date other than those
disclosed in Note (44) of the Consolidated Financial Statements.
Vienna, 26 February 2023
Board of Directors
Executive Directors
Stefan Borgas Ian Botha
Non-Executive Directors
Herbert Cordt John Ramsay
Janet Ashdown David Schlaff
Stanislaus Prinz zu Sayn-Wittgenstein Janice "Jann" Brown
Karl Sevelda Marie-Hélène Ametsreiter
Sigalia Heifetz Wolfgang Ruttenstorfer
Employee Representative Directors
Karin Garcia Martin Kowatsch
Michael Schwarz
Other information
Provisions of the articles of association on profit and distributions
The stipulations of Article 27 and 28 of the Articles of Association
concerning profit and distributions are:
27 Profit and distributions
27.1 The Board may resolve that the profits realised during a financial year
will fully or partially be appropriated to increase and/or form reserves. With
due regard to Article 26.2, a deficit may only be offset against the reserves
prescribed by law to the extent this is permitted by law.
27.2 The allocation of profits remaining after application of Article 27.1
shall be determined by the General Meeting. The Board shall make a proposal
for that purpose. A proposal to make a distribution of profits shall be dealt
with as a separate agenda item at the General Meeting.
27.3 Distribution of profits shall be made after adoption of the annual
accounts if permitted under the law given the contents of the annual accounts.
27.4 The Board may resolve to make interim distributions and/or to make
distributions at the expense of any reserve of the Company, other than the
Mandatory Reserve.
27.5 Distributions on shares may be made only up to an amount which does not
exceed the amount of the Distributable Equity. If it concerns an interim
distribution, the compliance with this requirement must be evidenced by an
interim statement of assets and liabilities as referred to in Section 2:105
paragraph 4 of the Dutch Civil Code. The Company shall deposit the statement
of assets and liabilities at the Dutch Trade Register within eight days after
the day on which the resolution to make the distribution is published.
27.6 Distributions on shares payable in cash shall be paid in Euro, unless the
Board determines that payment shall be made in another currency.
27.7 The Board is authorised to determine that a distribution on shares will
not be made in cash but in kind or in the form of shares, or to determine that
shareholders may choose to accept the distribution in cash and/or in the form
of shares, all this out of the profits and/or at the expense of reserves,
other than the Mandatory Reserve, and all this if and in so far the Board has
been designated by the General Meeting in accordance with Article 6.1. The
Board shall set the conditions under which such a choice may be made.
28 Release for payment
Distributions of profits and other distributions shall be made payable four
weeks after adoption of the relevant resolution, unless the Board or the
General Meeting at the proposal of the Board determine another date.
Independent auditor's report
To: the general meeting of RHI Magnesita N.V.
Report on the financial statements 2022
Our opinion
In our opinion:
• the consolidated financial statements of RHI Magnesita N.V.
together with its subsidiaries ('the Group') give a true and fair view of the
financial position of the Group as at 31 December 2022 and of its result and
cash flows for the year then ended in accordance with International Financial
Reporting Standards as adopted by the European Union ('EU-IFRS') and with Part
9 of Book 2 of the Dutch Civil Code;
• the company financial statements of RHI Magnesita N.V. ('the
Company') give a true and fair view of the financial position of the Company
as at 31 December 2022 and of its result for the year then ended in accordance
with Part 9 of Book 2 of the Dutch Civil Code.
What we have audited
We have audited the accompanying financial statements 2022 of RHI Magnesita
N.V., Arnhem. The financial statements comprise the consolidated financial
statements of the Group and the company financial statements.
The consolidated financial statements comprise:
· the consolidated statement of financial position as at 31 December
2022;
· the following consolidated statements for the year 2022: profit or
loss, comprehensive income, cash flows and changes in equity; and
· the notes to the consolidated financial statements, comprising the
significant accounting policies and other explanatory information.
The company financial statements comprise:
· the company balance sheet as at 31 December 2022;
· the company statement of profit or loss for the period 1 January 2022
to 31 December 2022; and
· the notes, comprising a summary of the accounting policies applied
and other explanatory information.
The financial reporting framework applied in the preparation of the financial
statements is EU-IFRS and the relevant provisions of Part 9 of Book 2 of the
Dutch Civil Code for the consolidated financial statements and Part 9 of Book
2 of the Dutch Civil Code for the company financial statements.
The basis for our opinion
We conducted our audit in accordance with Dutch law, including the Dutch
Standards on Auditing. We have further described our responsibilities under
those standards in the section 'Our responsibilities for the audit of the
financial statements' of our report.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Independence
We are independent of RHI Magnesita N.V. in accordance with the European Union
Regulation on specific requirements regarding statutory audit of
public-interest entities, the 'Wet toezicht accountantsorganisaties' (Wta,
Audit firms supervision act), the 'Verordening inzake de onafhankelijkheid van
accountants bij assuranceopdrachten' (ViO, Code of Ethics for Professional
Accountants, a regulation with respect to independence) and other relevant
independence regulations in the Netherlands. Furthermore, we have complied
with the 'Verordening gedrags- en beroepsregels accountants' (VGBA, Dutch Code
of Ethics).
Our audit approach
We designed our audit procedures with respect to the key audit matters, fraud
and going concern, and the matters resulting from that, in the context of our
audit of the financial statements as a whole and in forming our opinion
thereon. The information in support of our opinion, like our findings and
observations related to individual key audit matters, our audit approach
regarding fraud risks and our audit approach regarding going concern was set
up in this context and we do not provide a separate opinion or conclusion on
these matters.
Overview and context
RHI Magnesita N.V. is a global producer and supplier of refractory products,
systems and solutions. The Group is comprised of several components and
therefore we considered our group audit scope and approach as set out in the
section 'The scope of our group audit'. We paid specific attention to the
areas of focus driven by the operations of the Group, as set out below.
During 2022, the Company executed price increases resulting in increased
revenues compared to prior year and offsetting the impact from cost inflation
from energy, raw materials and labour. Profit before tax adjusted for
exceptional items increased to €318 million. Management considered these
developments when preparing its financial statements. This affected the
determination of materiality, the scope of our group audit and our audit
procedures as described in the section 'Materiality', 'The scope of our audit'
and 'Key audit matters'.
As part of designing our audit, we determined materiality and assessed the
risks of material misstatement in the financial statements. In particular, we
considered where the board of directors made important judgements, for
example, in respect of significant accounting estimates that involved making
assumptions and considering future events that are inherently uncertain. In
these considerations, we paid attention to, amongst others, the assumptions
underlying the physical and transition risk related to climate change. In note
3 of the financial statements, the Company describes the areas of judgement in
applying accounting policies and the key sources of estimation uncertainty.
Given the significant estimation uncertainty and the related higher inherent
risks of material misstatement in the impairment assessment of goodwill and
other intangible assets and the recognition and valuation of tax positions, we
considered these matters as key audit matters as set out in the section 'Key
audit matters' of this report.
Apart from key audit matters and the impact from the climate change on our
audit, as described below, other areas of focus in our audit were the asset
impairment considerations on construction projects and the purchase price
allocation for acquisitions made in 2022. In addition, we performed audit
procedures on the items marked 'audited' in the remuneration report.
RHI Magnesita N.V. assessed the possible effects of climate change and its
plans to meet a zero-waste product life cycle strategy on its financial
position, refer to the sections 'Principal risks' and 'Sustainability' of the
Group's Strategic Report where management defined potential physical as well
as transitional risks, risk mitigating activities, risk governance, strategy
and metrics.
Management acknowledged that the inherent likelihood of the climate change
related risk has risen due to the increasing regulatory complexity in various
countries and stakeholders' expectations. The potential reputational risk
remains high and financial impact of this risk was further assessed during
2022.
Climate change initiatives and commitments impact the preparation of the
Group's financial statements in a variety of ways, all with inherent
uncertainties. In the reporting period management further expanded its
analysis of the impact of climate related risks (physical and transitional) on
major assumptions incorporated in forecasts and disclosures in the financial
statements. The Company assessed specific financial risks and opportunities
from initiatives on carbon pricing, the Carbon Border Adjustment Mechanism
(CBAM) as well as the opportunities from recycling and other initiatives to
lower carbon emissions for its customers.
In note 4 of the financial statements, management highlighted that it
incorporated considerations around climate change and the energy transition in
its financial planning assumptions. The most important transitional risk
impact is expected to be higher operating costs due to an increase in the
level or scope of carbon pricing. Management also sees opportunities in
increased demand for products that can support customers reducing carbon
emissions. Within the financial statements management acknowledged the impact
of climate risks on the valuation of goodwill and property, plant and
equipment, restoration provisions, and deferred tax assets. Due to the high
degree of estimation uncertainty the impact of the effects of climate risk on
the financial statements will be assessed by management on an ongoing basis.
As we have not been engaged in expressing assurance over the sustainability
reporting, our procedures in this context consisted primarily of making
inquiries with officers of the entity and determining the plausibility of the
information reported. During our planning procedures, we made enquiries of
management to understand and assess the extent of potential impact of climate
related risk on the Group's financial statements. We challenged the
appropriateness of management's assessment of the potential impact (e.g.
estimated useful life of assets, potential diminished access to financing) on
major accounting estimates. The impact of climate related risks is not
considered to be a separate key audit matter.
We ensured that the audit teams at both Group and component level included the
appropriate skills and competences which are needed for the audit of an
international industrial products company. We therefore included in our team
experts and specialists in the areas of valuations, employee benefits, IT and
corporate income taxes.
The outline of our audit approach was as follows:
Materiality
• Overall materiality: €14 million.
Audit scope
• We conducted audit work in 13 locations.
• Site visits were conducted to Austria, Brazil, India and the
Integrated Business Services Centre (Oviedo, Spain). We have also performed
(remote) file reviews for the Netherlands, Austria, Brazil, China, India,
Türkiye and the USA.
• Audit coverage: 83% of consolidated revenue, 84% of consolidated
total assets and 72% of consolidated profit before tax.
Key audit matters
• Valuation of goodwill and other intangible assets
• Recognition and valuation of tax positions
Materiality
The scope of our audit was influenced by the application of materiality, which
is further explained in the section 'Our responsibilities for the audit of the
financial statements'.
Based on our professional judgement we determined certain quantitative
thresholds for materiality, including the overall materiality for the
financial statements as a whole as set out in the table below. These, together
with qualitative considerations, helped us to determine the nature, timing and
extent of our audit procedures on the individual financial statement line
items and disclosures and to evaluate the effect of identified misstatements,
both individually and in aggregate, on the financial statements as a whole and
on our opinion.
Overall group materiality €14.0 million (2021: €12.6 million)
Basis for determining materiality We used our professional judgement to determine overall materiality. As a
basis for our judgement, we used 5% of profit before tax adjusted for
exceptional items.
Rationale for benchmark applied We used profit before tax adjusted for exceptional items (i.e., restructuring,
certain items included in other income and expenses and financial expenses and
amortization of intangible assets) as the primary benchmark, a generally
accepted auditing practice, based on our analysis of the common information
needs of the users of the financial statements. On this basis, we believe that
profit before tax adjusted for exceptional items is the most relevant metric
for the financial performance of the Group.
Component materiality Based on our judgement, we allocate materiality to each component in our audit
scope that is less than our overall group materiality. The range of
materiality allocated across components was between €1.2 million and €12
million.
We also take misstatements and/or possible misstatements into account that, in
our judgement, are material for qualitative reasons.
We agreed with the board of directors that we would report to them any
misstatement identified during our audit above €0.8 million (2021: €0.7
million) as well as misstatements below that amount that, in our view,
warranted reporting for qualitative reasons.
The scope of our group audit
RHI Magnesita N.V. is the parent company of a group of entities. The financial
information of this group is included in the consolidated financial statements
of RHI Magnesita N.V.
We tailored the scope of our audit to ensure that we, in aggregate, provide
sufficient coverage of the financial statements for us to be able to give an
opinion on the financial statements as a whole, taking into account the
management structure of the Group, the nature of operations of its components,
the accounting processes and controls, and the markets in which the components
of the Group operate. In establishing the overall group audit strategy and
plan we determined the type of work required to be performed at component
level by the group engagement team and by each component auditor.
Our audit primarily focused on the significant components of the Group: RHI
Magnesita GmbH (Austria), RHI US Ltd (USA), and Magnesita Refratários S.A.
(Brazil). We subjected those three components to audits of their complete
financial information, as they are individually financially significant to the
Group. Additionally, we selected nine components for audit procedures to
achieve appropriate coverage on financial line items in the consolidated
financial statements. Those additional components also cover entities that
include significant or higher risk areas defined during the risk assessment
process.
In total, in performing these procedures, we achieved the following coverage
on the financial line items:
Revenue 83%
Total assets 84%
Profit before tax 72%
None of the remaining components individually represented more than 3% of
total group revenue or total group assets. For those remaining components we
performed, among other things, analytical procedures to corroborate our
assessment that there were no significant risks of material misstatements
within those components.
Where component auditors performed the work, we determined the level of
involvement we needed to have in their work to be able to conclude whether we
had obtained sufficient and appropriate audit evidence as a basis for our
opinion on the consolidated financial statements as a whole.
We issued instructions to the component audit teams in our audit scope. These
instructions included amongst others our risk analysis, materiality and the
scope of the work. We explained to the component audit teams the structure of
the Group, the main developments that were relevant for the component
auditors, the risks identified, the materiality levels to be applied and our
global audit approach. We had individual calls with each of the in-scope
component audit teams, both during the year and upon conclusion of their work.
During these calls, we discussed the significant accounting and audit issues
identified by the component auditors, their reports, the findings of their
procedures and other matters that could be of relevance for the consolidated
financial statements.
The group engagement team visits the component teams and local management on a
rotational basis. In the current year, the group audit team visited the RHI
Magnesita finance functions in Austria, Brazil and India given the size of
these operating locations. We also visited the Integrated Business Services
location office in Spain. During our visits we met with local management and
component auditors, discussed significant business developments, accounting
matters and the areas of significant risks. Furthermore, we reviewed selected
working papers of the component auditors in the Netherlands, Austria, Brazil,
China, India, Türkiye, and the USA. We also conducted a series of video
conference meetings with local management along with our component teams.
During these meetings, we discussed the strategy and financial performance of
the local businesses, as well as the audit plan and execution, significant
risks and other relevant audit topics.
The group engagement team performed the audit work for the parent company RHI
Magnesita N.V. as well as the Integrated Business Services (IBS) office
activities in Spain on areas such as fixed assets, cash and cash equivalents
and aspects of accounts payable and accounts receivable. In addition, the
group engagement team performed audit work over the headquarter-related
activities in Vienna. This includes the audit of IT systems, group
consolidation, inventory valuation, financial statement disclosures,
remuneration disclosures and several complex items, such as goodwill
impairment testing, share-based compensation and compliance of accounting
positions taken by the Group in accordance with EU-IFRS.
By performing the procedures outlined above at the components, combined with
additional procedures exercised at group level, we have been able to obtain
sufficient and appropriate audit evidence on the Group's financial
information, to provide a basis for our opinion on the financial statements.
Audit approach to fraud risks
We identified and assessed the risks of material misstatements of the
financial statements due to fraud. During our audit we obtained an
understanding of the entity and its environment and the components of the
internal control system. This included management's risk assessment process,
management's process for responding to the risks of fraud and monitoring the
internal control system and how the board of directors exercised oversight, as
well as the outcomes. We refer to section 'Effective risk management' of the
Strategic report for management's fraud risk assessment and section
'Sustainability governance' of the Strategic report in which management
reflects on this fraud risk assessment.
We evaluated the design and relevant aspects of the internal control system
and in particular the fraud risk assessment, as well as the code of conduct,
whistle blower procedures and incident registration process, among other
things.
As part of our process of identifying fraud risks, we, together with our
forensic specialists, evaluated fraud risk factors with respect to financial
reporting fraud, misappropriation of assets and bribery and corruption. We
assessed whether those factors indicate that a risk of material misstatement
due to fraud is present. In doing this:
· We performed an inquiry of audit committee members as to fraud risks
and related party transactions to identify the areas of their concerns in
relation to fraud.
· We inquired with the chief audit executive about fraud cases
identified throughout the year and reviewed the reports of the Internal Audit
Function relevant to the reporting period. We also assessed the matters
reported through the Group's whistleblowing and complaints procedure and
results of management's investigation and follow-up on such matters.
· We inquired with Group and local executives and sales managers, other
members of management and the board of directors as to whether they have any
knowledge of (suspected) fraud, their views on overall fraud risks within the
Group and their perspectives on the Groups mitigating controls addressing the
risk of fraud.
· We assessed the IT environment around key systems. We paid specific
attention to the access safeguards in the IT system and the possibility that
these lead to violations of the segregation of duties.
We identified the following fraud risks and performed the following specific
procedures:
Identified fraud risks Our audit work and observations
Risk of management override of controls • Where relevant to our audit, we evaluated the design and effectiveness of
controls in the processes of generating and processing journal entries. We
It is generally presumed that management is in a unique position to perpetrate assessed whether deficiencies in controls may create additional opportunities
fraud because of the available opportunity to manipulate accounting records for fraud and incorporated respective corroborative procedures in our audit
and prepare fraudulent financial statements by overriding manual controls, approach. We paid specific attention to non-routine transactions and areas of
such as those related to journal entries, related party transactions, significant management judgement. We also paid specific attention to the
significant accounting estimates, etc. access safeguards in the IT system, possibility of functional segregation and
together with management followed up on business rationale for conflicting
user rights granted within the IT environment.
Adjusted EBITDA and adjusted EBITA are key financial measures that the We considered the outcome of our audit procedures over the estimates and
executive management and Directors use to assess the performance of the Group. significant accounting areas and assessed whether control deficiencies and
Adjusted EBITA and adjusted operating cash flow are also a key financial misstatements identified could be indicative of fraud. Where necessary, we
target for executive management. Focus on meeting financial targets could planned and performed additional auditing procedures to ensure that fraud
provide to management an incentive for bypassing of controls. risks are sufficiently addressed in our audit.
We evaluated key accounting estimates and judgements used in accounting areas
where management judgement is applied (e.g., timing of acquisition of group
companies, valuation of provisions) for biases, including retrospective
reviews of prior year's estimates where available.
We performed data analysis focused on journal entries related to the fraud
risk factors identified during our fraud risk assessment. Where we identified
instances of unexpected journal entries, we performed audit procedures.
We evaluated whether the business rationale (or lack thereof) of the
significant transactions concluded in 2022 suggests that the Group may have
entered into those to engage in fraudulent financial reporting or to conceal
misappropriation of assets.
We incorporated an element of unpredictability in the nature, timing, and
extent of audit procedures.
We performed substantive testing procedures over the consolidation entries.
Our audit procedures did not identify indications of specific fraud or
suspicions of fraud with respect to management override of controls.
Risk of fraud in revenue recognition We discussed and inquired with the audit committee and executive management
about their views on overall fraud risks within the Group, their perspectives
As part of our risk assessment and based on a presumption that there are risks on the Group's mitigating controls addressing the risk of fraud in revenue and
of fraud in revenue recognition, we considered the risk of fraud in revenue whether they have any knowledge of (suspected) fraud.
recognition. This relates to the presumed management incentive that exists to
overstate revenue in order to meet financial targets, guidance provided to the Where relevant to our audit, we have evaluated the design of the internal
market or shareholder expectations. control measures that are intended to mitigate the risk of fraud and error in
revenue recognition and assessed the effectiveness of those measures.
We also paid specific attention to the processes surrounding the relevant IT
systems. Through data analysis, we tested both expected and unexpected journal
entries and performed relevant testing on revenue transactions throughout the
In this context, we consider this as a risk of fraud focused to overstate year and the receivable balances at year end.
revenue through the recording of non-existent transactions.
We did not identify specific indications of fraud or suspicion of fraud in
respect of revenue recognition.
We reviewed lawyer's letters and correspondence with regulators. During the
audit we remained alert to indications of fraud. We also considered the
outcome of our other audit procedures and evaluated whether any findings were
indicative of fraud or non-compliance of laws and regulations. Whenever we
identify any indications of fraud, we re-evaluate our fraud risk assessment
and its impact on our audit procedures.
Audit approach going concern
As disclosed in section 'Principles and methods' in the financial statements,
management prepared the financial statements on the assumption that the entity
is a going concern and that it will continue all its operations for at least
12 months from the date of preparation of the financial statements. Our
procedures to evaluate the board of directors' going-concern assessment
included, amongst others:
· Review of management's going-concern assessment and sensitivity
analysis. We corroborated management's analysis with the approved budget 2023
and facts and circumstances that came to our attention from our auditing
procedures.
· Inquiries of corporate and local management as to their knowledge of
going-concern risks beyond the period of management's assessment.
· Review of management's analysis of the forecasted levels of net debt,
available undrawn borrowing facilities, compliance with debt covenants and the
debt maturity profile.
· Corroboration of consistency between management's going-concern
analysis, the analysis of the forecasted levels of net debt with the future
cash flow forecast as incorporated in the goodwill impairment test. In
evaluating management's forecasts and cash flows we performed a look-back
analysis to assess the accuracy of the forecasting process.
· An analysis of the financial position at balance sheet date in
comparison to prior year's year end to assess whether events or circumstances
exist that may lead to a going-concern risk.
· Consideration of the potential indications of the component's
going-concern uncertainty based on audit procedures performed by the component
auditors. We evaluated the impact of such indications on the overall use of
the going-concern assumption applied by the Group.
Our procedures did not result in outcomes contrary to management's assumptions
and judgements used in the application of the going concern assumption.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were
of most significance in the audit of the financial statements. We have
communicated the key audit matters to the board of directors. The key audit
matters are not a comprehensive reflection of all matters identified by our
audit and that we discussed. In this section, we described the key audit
matters and included a summary of the audit procedures we performed on those
matters.
We addressed the key audit matters in the context of our audit of the
financial statements as a whole, and in forming our opinion thereon. We do not
provide separate opinions on these matters or on specific elements of the
financial statements. Any comment or observation we made on the results of our
procedures should be read in this context.
Key audit matter Our audit work and observations
Recognition and valuation of tax positions • With regard to recognition and valuation of deferred tax assets we have
requested and obtained evidence for the existence and accuracy of the tax
Refer to note 3, 4, 14 and 39 of the consolidated financial statements losses carried forward and assessed the expiration dates per jurisdiction.
Where there was uncertainty around the acceptance of losses by the tax
The Group recorded deferred tax assets for tax losses carried forward for the authorities, we requested, received and read tax opinions from the Group's tax
amount of €68.8 million. Reference is made to note 14 of the financial advisors.
statements.
In auditing recoverability, we have critically assessed the underlying
Deferred tax assets are capitalised based on the assumption that sufficient assumptions of the forecasted taxable income through agreeing the forecasted
taxable income will be generated against which losses carried forward and future taxable profits with approved business plans in a tax jurisdiction. We
other deductible temporary differences can be offset. This assumption is based also assessed the past performance against the expected future tax profits in
on estimates of the current and the estimated taxable results, and any future the business plans used by the Group, by using our knowledge of the Group and
measures implemented by the Company in several jurisdictions concerned that the industry in which it operates. In addition, we have considered the local
will have an effect on income tax, taking into account the available remaining carry-forward period together with any applicable restrictions in
carry-forward period. The Group also has losses and other temporary recovery for each individual jurisdiction.
differences for which no deferred tax asset has been recognised in these
consolidated financial statements. With regard to recognition and valuation of uncertain tax positions we have
requested and obtained management's valuation of tax positions, reviewed
As described in Note 39 of the financial statements the Group is also a party correspondence with the tax authorities, independent legal and tax opinions
to several tax proceedings in Brazil which involve estimated contingent and latest available tax filings. We also corroborated tax assessment with the
liabilities amounting to € 243.0 million. Given that the tax legislation in group management and local auditors. We analysed the outcomes of resolution of
Brazil is complex and unpredictable this could give rise to significant tax disputes within territory (Brazil) where uncertain tax positions were
uncertainties and the Company's estimate of tax liabilities may differ from identified.
interpretations by the relevant tax authorities as to how regulations should
be applied to actual transactions. Judgement is therefore required by Where significant management estimates and judgements involved are susceptible
management to determine whether it is probable that an uncertain tax position to management bias, we have critically reviewed the underlying facts to assess
should be recognised and or will not be sustained. Judgement is required by recognition and assessed the recoverability of the deferred tax assets and
management in determining the degree of probability of an unfavourable outcome uncertain tax positions.
for non-income tax claims and the ability of management to make a reasonable
estimate of the amount of loss. Based on the audit procedures performed, we found the Group's estimates and
judgement used in the recognition and valuation of tax positions to be
Due to the inherent level of uncertainty, significant judgement involved, supported by the available evidence.
potential limitations in the recoverability of deferred tax assets and
uncertain tax positions, we considered the valuation of tax positions to We assessed and corroborated the adequacy and appropriateness of the
be a key audit matter for our audit. disclosures made in the consolidated financial statements.
Valuation of goodwill and other intangible assets • As part of our audit procedures, we have evaluated and challenged the
composition of management's future cash flow forecast and process applied to
Refer to note 3, 4, and 17 of the consolidated financial statements identify and define cash-generating units, recalculate the recoverable amount,
test for impairment, recalculate the capital cost rate and the growth rate as
The Group capitalised goodwill of €136.9 million, mainly related to the well as the calculation model.
acquisition of the Magnesita Group in 2017 with new acquisitions in 2022
increasing goodwill by €20.6 million. In addition, the Company capitalised We have reconciled the assumed future cash flows used in the budget planning
other intangible assets of €316.6 million. These assets form part of with the information included in the forecast made by management.
cash-generating units ('CGUs') to the extent that they independently generate
cash inflows. If and to the extent to which these CGUs include goodwill or Given that the areas where significant management estimates and judgements
intangible assets with indefinite useful lives, or show signs of impairment, involved are susceptible to management bias and creates opportunities for
the recoverable amount is assessed. Annual planning process data is used to fraud, we, with the support of our valuation specialists, have evaluated
make assumptions on the discount rates, profitability as well as growth rates, management's assumptions such as revenue and margin, the discount rate,
and sensitivity analysis are carried out regarding any accounting effects. The terminal value, operational and capital expenditure. We have obtained
assessment did not result in an impairment. corroborative evidence for these assumptions. We performed analysis to assess
the reasonableness of forecasted revenues and margins and obtained further
As disclosed in note 4 of the financial statements, the Group has considered explanations when considered necessary. We also compared the forecast to prior
the long-term impact of climate change, in particular by considering a year's forecast and actuals. We compared the long-term growth rates used in
long-term growth rate in the estimation of the terminal value in line with the determining the terminal value with economic and industry forecasts. We have
change in steel and cement demand based on the specific characteristics of the reperformed calculations, compared the methodology applied with generally
businesses involved. Management also considered the potential impact of the accepted valuation techniques, assessed appropriateness of the cost of capital
CBAM regulation on its assets located within Europe and is currently assessing for the company and comparable assets, as well as considered territory
the strategy and options to maximise the opportunities and minimise the impact specific factors. Finally, we assessed the appropriateness of the disclosure
of this regulation. of the key assumptions and sensitivities underlying the tests.
In the 'Principal risks' section of the annual report, management acknowledges Based on the audit procedures performed, we found the assumptions to be
the potential impact of climate related risks on its business strategy and reasonable and supported by the available evidence.
committed €9 million investments in the next three-year R&D program to
pilot new sustainable production technologies. This is not expected to have a
material impact on the impairment assessment of goodwill.
We identified the impairment assessment as a key audit matter due to
significant estimates and assumptions about the discount rates, profitability
and growth rates.
Report on the other information included in the annual report
The annual report contains other information. This includes all information in
the annual report in addition to the financial statements and our auditor's
report thereon.
Based on the procedures performed as set out below, we conclude that the other
information:
· is consistent with the financial statements and does not contain
material misstatements; and
· contains all the information regarding the directors' report and the
other information that is required by Part 9 of Book 2 and regarding the
remuneration report required by the sections 2:135b and 2:145 subsection 2 of
the Dutch Civil Code.
We have read the other information. Based on our knowledge and the
understanding obtained in our audit of the financial statements or otherwise,
we have considered whether the other information contains material
misstatements.
By performing our procedures, we comply with the requirements of Part 9 of
Book 2 and section 2:135b subsection 7 of the Dutch Civil Code and the Dutch
Standard 720. The scope of such procedures was substantially less than the
scope of those procedures performed in our audit of the financial statements,
except for the audit performed on information in the remuneration report
marked 'audited'.
The board of directors is responsible for the preparation of the other
information, including the directors' report and the other information in
accordance with Part 9 of Book 2 of the Dutch Civil Code. The board of
directors is responsible for ensuring that the remuneration report is drawn up
and published in accordance with sections 2:135b and 2:145 subsection 2 of the
Dutch Civil Code.
Report on other legal and regulatory requirements and ESEF
Our appointment
We were appointed as auditors of RHI Magnesita N.V. by the board of directors
following the passing of a resolution by the shareholders at the annual
meeting held on 4 October 2017. Our appointment has been renewed annually by
the shareholders and now represents a total period of uninterrupted engagement
of six years.
European Single Electronic Format (ESEF)
RHI Magnesita N.V. has prepared the annual report, including the financial
statements, in ESEF. The requirements for this format are set out in the
Commission Delegated Regulation (EU) 2019/815 with regard to regulatory
technical standards on the specification of a single electronic reporting
format (these requirements are hereinafter referred to as: the RTS on ESEF).
In our opinion, the annual report prepared in XHTML format, including the
partially marked-up consolidated financial statements, as included in the
reporting package by RHI Magnesita N.V., complies, in all material respects,
with the RTS on ESEF.
The board of directors is responsible for preparing the annual report,
including the financial statements, in accordance with the RTS on ESEF,
whereby the board of directors combines the various components into a single
reporting package. Our responsibility is to obtain reasonable assurance for
our opinion on whether the annual report in this reporting package complies
with the RTS on ESEF.
Our procedures, taking into account Alert 43 of the NBA (Royal Netherlands
Institute of Chartered Accountants), included amongst others:
· Obtaining an understanding of the entity's financial reporting
process, including the preparation of the reporting package.
· Obtaining the reporting package and performing validations to
determine whether the reporting package, containing the Inline XBRL instance
document and the XBRL extension taxonomy files, has been prepared, in all
material respects, in accordance with the technical specifications as included
in the RTS on ESEF.
· Examining the information related to the consolidated financial
statements in the reporting package to determine whether all required mark-ups
have been applied and whether these are in accordance with the RTS on ESEF.
No prohibited non-audit services
To the best of our knowledge and belief, we have not provided prohibited
non-audit services as referred to in article 5(1) of the European Regulation
on specific requirements regarding statutory audit of public-interest
entities.
Services rendered
The services, in addition to the audit, that we have provided to the Company
or its controlled entities, for the period to which our statutory audit
relates, are disclosed in note 41 to the financial statements.
Responsibilities for the financial statements and the audit
Responsibilities of the board of directors for the financial statements
The board of directors is responsible for:
· the preparation and fair presentation of the financial statements in
accordance with EU-IFRS and Part 9 of Book 2 of the Dutch Civil Code; and for
· such internal control as the board of directors determines is
necessary to enable the preparation of the financial statements that are free
from material misstatement, whether due to fraud or error.
As part of the preparation of the financial statements, the board of directors
is responsible for assessing the Company's ability to continue as a
going-concern. Based on the financial reporting frameworks mentioned, the
board of directors should prepare the financial statements using the going
concern basis of accounting unless the board of directors either intends to
liquidate the Company or to cease operations or has no realistic alternative
but to do so. The board of directors should disclose in the financial
statements any event and circumstances that may cast significant doubt on the
Company's ability to continue as a going concern.
The board of directors is responsible for overseeing the Company's financial
reporting process.
Our responsibilities for the audit of the financial statements
Our responsibility is to plan and perform an audit engagement in a manner that
allows us to obtain sufficient and appropriate audit evidence to provide a
basis for our opinion. Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error and to issue an auditor's report
that includes our opinion. Reasonable assurance is a high but not absolute
level of assurance, which makes it possible that we may not detect all
material misstatements. Misstatements may arise due to fraud or error. They
are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of the financial statements.
Materiality affects the nature, timing and extent of our audit procedures and
the evaluation of the effect of identified misstatements on our opinion.
A more detailed description of our responsibilities is set out in the appendix
to our report.
Rotterdam, 26 February 2023
PricewaterhouseCoopers Accountants N.V.
Original has been signed by A. F. Westerman RA
Appendix to our auditor's report on the financial statements 2022 of RHI Magnesita N.V.
In addition to what is included in our auditor's report, we have further set
out in this appendix our responsibilities for the audit of the financial
statements and explained what an audit involves.
The auditor's responsibilities for the audit of the financial statements
We have exercised professional judgement and have maintained professional
scepticism throughout the audit in accordance with Dutch Standards on
Auditing, ethical requirements and independence requirements. Our audit
consisted, among other things of the following:
· Identifying and assessing the risks of material misstatement of the
financial statements, whether due to fraud or error, designing and performing
audit procedures responsive to those risks, and obtaining audit evidence that
is sufficient and appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than for
one resulting from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the intentional override of internal
control.
· Obtaining an understanding of internal control relevant to the audit
in order to design audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control.
· Evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures made by the
board of directors.
· Concluding on the appropriateness of the board of directors' use of
the going-concern basis of accounting, and based on the audit evidence
obtained, concluding whether a material uncertainty exists related to events
and/or conditions that may cast significant doubt on the Company's ability to
continue as a going concern. If we conclude that a material uncertainty
exists, we are required to draw attention in our auditor's report to the
related disclosures in the financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit
evidence obtained up to the date of our auditor's report and are made in the
context of our opinion on the financial statements as a whole. However, future
events or conditions may cause the Company to cease to continue as a going
concern.
· Evaluating the overall presentation, structure and content of the
financial statements, including the disclosures, and evaluating whether the
financial statements represent the underlying transactions and events in a
manner that achieves fair presentation.
Considering our ultimate responsibility for the opinion on the consolidated
financial statements, we are responsible for the direction, supervision and
performance of the group audit. In this context, we have determined the nature
and extent of the audit procedures for components of the Group to ensure that
we performed enough work to be able to give an opinion on the financial
statements as a whole. Determining factors are the geographic structure of the
Group, the significance and/or risk profile of group entities or activities,
the accounting processes and controls, and the industry in which the Group
operates. On this basis, we selected group entities for which an audit or
review of financial information or specific balances was considered necessary.
We communicate with the board of directors regarding, among other matters, the
planned scope and timing of the audit and significant audit findings,
including any significant deficiencies in internal control that we identify
during our audit. In this respect, we also issue an additional report to the
audit committee in accordance with article 11 of the EU Regulation on specific
requirements regarding statutory audit of public-interest entities. The
information included in this additional report is consistent with our audit
opinion in this auditor's report.
We provide the board of directors with a statement that we have complied with
relevant ethical requirements regarding independence, and to communicate with
them all relationships and other matters that may reasonably be thought to
bear on our independence, and where applicable, related actions taken to
eliminate threats or safeguards applied.
From the matters communicated with the board of directors, we determine those
matters that were of most significance in the audit of the financial
statements of the current period and are therefore the key audit matters. We
describe these matters in our auditor's report unless law or regulation
precludes public disclosure about the matter or when, in extremely rare
circumstances, not communicating the matter is in the public interest.
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