REG - RHI Magnesita N.V. - Earnings on track for full year expectations

RHI Magnesita NVAnnouncement

19/10/2022 07:00

For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20221019:nRSS3343Da&default-theme=true

RNS Number : 3343D  RHI Magnesita N.V.  19 October 2022

19 October 2022

 

RHI Magnesita N.V.

("RHI Magnesita" or "the Company" or "the Group")

 

Earnings on track for full year expectations

 

RHI Magnesita today issues its trading statement in respect of the three-month
period to 30 September 2022 ("Q3").

 

Q3 trading

Overall demand conditions in the Steel business during Q3 were in line with
expectations, but varied by region, demonstrating RHI Magnesita's resilience
due to its balanced and diversified global footprint. The anticipated
softening in Europe resulting from destocking and temporary idling of steel
mills due to high energy prices and weaker end markets was largely offset by
stronger demand in India and the Industrials business. In the USA order books
remain robust, despite 4% lower steel production volumes in the year to date.
Steel production in South America is also approximately 4% lower year to date
but remains globally competitive and order books for the Group's products are
at normal levels. In China & East Asia the segments in which the Group
operates performed relatively better compared to the overall volume decline in
the region. In India & West Asia the Group benefited from an ongoing broad
based growth trend, with year to date steel production increasing by 7% versus
2021, according to latest available World Steel Association data.

Order book visibility for the Industrial projects business remained strong
globally, as the Group's customers continue to benefit from high commodity
prices. The cement repair season is expected to proceed as normal in Q4 2022
and Q1 2023, with any under-utilisation of cement kilns during 2023 unlikely
to impact refractory consumption until Q4 2023.

Refractory margins increased, supported by ongoing price increases on finished
goods. As guided, the margin contribution from the Group's raw material
production assets was impacted during Q3 due to a combination of lower global
prices for magnesite and dolomite based raw materials and higher costs of
production at the Group's facilities. Margin contribution from the Group's raw
material assets is expected to be constrained throughout H2 2022 due to
foreign exchange rates and higher energy and freight costs compared to raw
material producers based in China.

The pace of cost escalation slowed in Q3 although inflationary pressures
persist in spot energy markets and on certain freight routes utilised by the
Group. Higher costs of production, in particular those relating to higher
energy costs, continue to be successfully passed on to customers via increased
product pricing.

 

Production optimisation plan

Strategic projects in Europe relating to the Group's production optimisation
plan are mechanically complete, with the main outstanding item being the
installation and integration of the Manufacturing Execution System ("MES") at
Radenthein in Austria. The related benefits will start to be realized over the
course of 2023.

In Brazil, the Group's projects at Brumado (raw materials) and Contagem
(finished goods) have been impacted by supply chain related delays, cost
inflation, contractor availability and changes to key parameters such as
foreign exchange rates and freight costs which underpinned the original
project design. The Group has therefore decided to postpone further work on
the Contagem expansion for the time being, to allow the operations teams to
focus on improving operational delivery.

Completing the Brumado upgrade as soon as possible is now the primary focus in
the region. The lining of the new rotary kiln is scheduled to be carried out
in Q4 and production from the new facilities is expected to commence in H1
2023. The project will deliver a significant increase in capacity of
dead-burned magnesia, a higher quality and higher value product range, lower
production cost and a significant increase in mine life, due to the ability to
process a broader range of lower grade material including previously extracted
material classified as waste.

 

M&A update

RHI Magnesita completed its acquisition of an 87% stake in SÖRMAŞ Söğüt
Refrakter Malzemeleri Anonim Şirketi ("SÖRMAŞ"), a producer of refractories
for the cement, steel, glass and other industries in Türkiye, on 1 September
2022 for a cash consideration of €46 million.

The acquisition significantly expands the Group ́s locally manufactured
product portfolio and serves as a production hub and platform for business
growth in Türkiye and the wider region. With an enlarged product portfolio,
further potential exists from the opportunity to deliver full-line service
solutions to customers in Türkiye.

SÖRMAŞ recorded revenue of €19.2 million and EBITDA of €6.6 million in
the six months to 30 June 2022. Previously exported raw materials will now be
consumed in Türkiye thus almost doubling the volumes of locally produced
refractories compared to SÖRMAŞ stand-alone.

The Group, through its listed subsidiary RHI Magnesita India Limited, has also
agreed to acquire the flow control refractory business of Hi-Tech Chemicals
Limited (the "Refractory Business") for a consideration of approximately
€77.5 million in cash. The acquisition will expand the Group's presence in
India and the wider region. The Refractory Business recorded profit before tax
of €8.2 million in the year to 31 March 2022 and had Gross Assets
of €36.1 million at 31 March 2022. The acquisition will be funded through a
combination of intercompany loans from the Group and local bank lending.

 

Energy supply

The Group's contingency plans for ensuring continuity of energy supplies in
Europe are progressing according to plan. New infrastructure to offset
potentially reduced gas availability through switching to alternative fuels,
including Liquified Petroleum Gas ("LPG"), and solid fuels, is expected to be
in operation by the end of 2022. The Group has secured contracts for the
supply of LPG at fixed prices and is investing approximately €15 million to
secure natural gas in physical storage in Austria. Together these measures can
replace up to 50% of the Group's normal usage of natural gas in Europe in the
event of supply rationing.

 

 

Financial position

Inventory was maintained at elevated levels during the quarter to ensure
customer deliveries. Whilst inventory volumes were stable, the value of
inventory held on the balance sheet increased in Q3 due to the effect of
foreign exchange rate changes and higher costs of production, in particular
relating to energy.

In order to accelerate the reduction of inventory towards target coverage
ratios, management have reduced planned production volumes for the second
half, whilst seeking to manage the potential adverse effect on margins due to
lower fixed cost absorption in plants operating below full capacity. Release
of finished goods inventory is expected in Q4 based on the timing of shipments
and the production plan for the period. Raw material inventories reduced in Q3
and will continue to reduce in Q4 as higher cost raw material is processed and
sold.

Following c.€70 million of expenditure on acquisitions in the year to date,
continuing high levels of inventory to meet customer deliveries in Q4 and
additional spending on natural gas for physical storage, gearing reduced only
modestly in the third quarter. The Group is confident of achieving a further
reduction in gearing in Q4, now targeting a level of 2.4x net debt to EBITDA
or below by the year end.

Available liquidity at 30 September 2022 was over €1.0 billion with no major
debt maturities scheduled until 2027. The Group's average cost of debt at 30
September 2022 was 166 bps with approximately two thirds of interest expenses
at a fixed rate.

 

Outlook

Having delivered a strong performance in the first nine months, the Group is
comfortably on track to meet analyst consensus expectations for EBITA in the
2022 financial year. The outlook for the steel business in Europe in Q4 and
into the first half of 2023 has softened, as anticipated, due to reduced
levels of customer activity. As a counterbalance, the demand for steel
refractories in other geographies remains robust and demand for industrial
projects and cement worldwide is not showing signs of weakness, with order
books remaining strong into mid 2023. The potential downside to revenues in
2023 is expected to be broadly balanced out by additional earnings from
acquisitions that have already been agreed or completed and incremental
benefits from the Group's strategic initiatives.

 

Stefan Borgas, Chief Executive Officer, said: "Throughout this period of
ongoing volatility in key input costs and regional demand imbalances the Group
is well positioned following the major investments we made in the optimisation
and regionalisation of our production network since 2019. We have successfully
secured the energy supplies to our operations in Europe through switching to
alternative fuels. We are therefore able to maintain our earnings guidance for
the full year despite challenging operating conditions and to remain a
reliable partner for our customers."

 

 

Conference call

 

A conference call will be hosted at 8:15am UK time to discuss the trading
update:

 

 Dial in                        UK 020 3936 2999

                                Austria 0800 802 898

                                International +44 20 3936 2999
 Access code                    901480
 Webcast and playback facility  Link
                                (https://www.investis-live.com/rhimagnesita/63441d9f3bb8290c0080e28d/pppkq)

 

For further enquiries, please contact:

Chris Bucknall, Head of Investor Relations

Tel +43 699 1870 6490

E‐mail: chris.bucknall@rhimagnesita.com

 

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 29 main production sites and more than 70 sales offices. RHI
Magnesita intends to build on its leadership in revenue, scale, product
portfolio and diversified geographic presence to expand further in high growth
markets.

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 Vienna Stock Exchange (Wiener Börse). For more
information please visit: www.rhimagnesita.com

This announcement contains inside information for the purposes of Article 7 of
the Market Abuse Regulation (596/2014/EU).

 

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
 or visit
www.rns.com (http://www.rns.com/)
.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
.   END  TSTBKFBDBBDBCKD