REG - RHI Magnesita N.V. - RHI Magnesita half-year results
01/08/2022 07:00
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RNS Number : 3503U RHI Magnesita N.V. 01 August 2022
1 August 2022
RHI Magnesita N.V.
("RHI Magnesita" or the "Company" or the "Group")
Strong first half earnings supported by price increases and market share gains
RHI Magnesita, the leading global supplier of high-grade refractory products,
systems and solutions, today announces its unaudited results for the six
months ended 30 June 2022 ("H1 2022" or the "Period").
Financial results
(€m unless stated otherwise) H1 2022 H1 2021 Change H1 2021 Change
Constant Currency Constant Currency
Adjusted(1) Adjusted(2)
Revenue 1,594 1,200 32.8% 1,273 25.3%
Adjusted EBITDA 245 179 36.6% 192 27.7%
Adjusted EBITA 188 128 47.0% 136 37.8%
Adjusted EBITA margin 11.8% 10.7% 110bps 10.7% 110bps
Adjusted EPS €2.58 €2.05
Net debt 1,238 812
Net debt to adjusted LTM EBITDA
2.7x 2.2x
H1 2022 H1 2021
Reported
Revenue 1,594 1,200
Reported EBITA 177 136
Profit before tax 142 125
EPS €2.06 €2.01
Dividend per share €0.50 €0.50
(1 ) H1 2021 adjusted for constant currency for H1 2022 average FX rates
(2) Adjustments of €11 million to reported EBITA include €4m of write
downs relating to the Russia/Ukraine conflict, and €2m relating to power
purchase agreement commitments
Operational highlights
· Price increases of €293 million since H1 2021 successfully
executed, driving strong top line growth and offsetting cost inflation from
energy, raw materials and labour
· Significant market share gains in steel following investment in
production network and inventory support earnings, as customers continue to
prioritise security of supply
· Recycling rate increased to 9.3% (H1 2021: 6.1%) leading to raw
material supply and CO(2) emissions benefits following new joint venture with
Horn & Co
Financial highlights
· Reported revenue increased 33% to €1,594 million (H1 2021: €1,200
million) and by 25% in constant currency terms (H1 2021: €1,273 million)
· Adjusted EBITA increased by 47% to €188 million (H1 2021: €128
million), or 38% in constant currency
· Net debt of €1,238 million (31 December 2021: €1,014 million) in
line with management expectations and guidance, as reduction in inventory
volumes is offset by the increase in value of inventories and accounts
receivable due to cost inflation and price increases
· Interim dividend of €0.50 per share declared
Outlook
· Expectations for full year earnings in 2022 unchanged, based on
strong demand in the year to date and order book for the second half
· Global growth outlook impacted by inflation and monetary policy
response, labour and energy market tightness and ongoing supply chain
disruption
· Margins to be maintained through further price increases and with
support from strategic cost saving initiatives
· Gearing expected to reduce in the second half, targeting Net Debt :
EBITDA towards 2.0x by year end depending on earnings performance
Commenting on the results, Chief Executive Officer, Stefan Borgas, said:
"In the first half of 2022 we further demonstrated the benefits of
prioritising customer deliveries in an environment of continued supply chain
volatility. Our investment in inventories to ensure our customers remain
supplied with essential refractories has underlined the importance of supply
reliability and has enabled us to simultaneously increase prices and gain
market share. Following major investments in our production network, SG&A
reduction and progress on our sales strategies, the Group is in a strong
position to maintain its leadership position in the refractory industry and to
navigate future challenges."
A presentation for investors and analysts will be held today starting at
8:15am UK time (9:15am CET). The presentation will be webcast live and details
can be found on: https://ir.rhimagnesita.com/ (https://ir.rhimagnesita.com/) .
Alternatively the webcast can be accessed here
(https://www.investis-live.com/rhimagnesita/62d51afd59bc741400a85b29/h1-results-2022)
.
For further enquiries, please contact:
Investors: Chris Bucknall, Head of Investor Relations, +43 699 1870 6490
Media: Mark Garraway, Hudson Sandler, +44 777 1860 938
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 28 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
HEALTH AND SAFETY
The Group maintained high standards in occupational health and safety, though
there was some deterioration in injury frequency rates since 2020. The lost
time injury frequency rate remained stable at 0.2 per 200,000 hours worked (H1
2021: 0.2). In 2022 the priority areas for health and safety improvements are
preventative measures by tracking leading indicators and near misses as well
as specific campaigns focused on hand safety, tool use and lockout procedures.
FINANCIAL OVERVIEW
Reported revenue increased by 33% to €1,594 million, as price increases of
€293 million were realised in the first half, with additional costs from
freight, energy, labour and raw materials fully passed on to customers.
Revenue increased by 25% on a constant currency basis after adjusting for
changes in foreign exchange rates, notably the strengthening of the US dollar
versus the Euro which benefited revenues in the first half.
Adjusted EBITA increased by 47% to €188 million (H1 2021: €128 million)
representing a margin of 11.8% (H1 2021: 10.7%), supported primarily by the
price increase programme.
Freight, energy and raw material costs were respectively 18%, 60% and 12%
higher in H1 2022 compared to H1 2021 on a constant currency basis, reflecting
significant global inflation in each category due to supply chain disruption
and energy shortages resulting from the rapid recovery of global demand
following the COVID-19 pandemic, geopolitical instability and continuing
lockdowns affecting port capacity and logistics in key locations. Cost
inflation was most pronounced in the first quarter, before easing in some
areas in Q2. International containerised freight prices peaked in January 2022
and have since stabilised at elevated levels.
Net debt increased to €1,238 million (31 December 2021: €1,014 million)
despite a reduction in inventory volumes, as the value of both raw material
and finished goods inventories increased and supply chain reliability remained
poor. Accounts receivable increased due to higher finished goods prices whilst
accounts payables reduced in line with lower capital expenditure on production
optimisation projects.
Working capital intensity of 29.3% remained above the medium-term target range
of 15-18% as the Group continues to prioritise security of supply to its
customers throughout a period of ongoing global supply chain disruption.
Available liquidity was €1,043 million at the period end (31 December 2021:
€1,181 million). The Group's gearing measured as the ratio of Net Debt to
Adjusted EBITDA increased slightly to 2.7x (31 December 2021: 2.6x). Operating
cash flow reduced to €(76) million (H1 2021: €(55) million) with higher
working capital requirements offsetting the improvement in earnings due to
price increases.
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 €90m. The
total outstanding loan balance as of 30 June 2022 was €350m and the
refinanced loan now has a final maturity in May 2027.
On 29 July 2022, the Group secured a new ESG linked €250 million term loan
maturing in 2027 of which the proceeds will be used to refinance the $200
million term loan maturing in 2023, significantly improving the Group's debt
maturity profile as well as benefiting from a wholly euro denominated profile.
The facility was secured at very competitive interest rates and within the
same margin grid as the $200 million term loan through its core relationship
banks.
OUTLOOK
Order books for both the Steel and Industrial businesses remain at normal
levels, with six months of visibility in steel and approaching one year for
industrial. The outlook for global growth faces challenges from inflation and
monetary policy response, labour and energy market tightness and ongoing
supply chain disruption.
More frequent and dynamic pricing discussions with customers have restored
margins to acceptable levels following the delays in passing on cost increases
in 2021. The Group is confident that any further cost increases in 2022 can be
passed on quickly to customers, who continue to value security of supply over
price.
Management is focused on reducing working capital in the second half of the
year with a target to reduce Net Debt : Adjusted EBITDA, towards 2.0x by the
year end depending on earnings performance, as margins are maintained, higher
cost inventory is sold, overall inventory volumes are reduced, and further
measures are taken to reduce accounts receivable. Following investments in its
production network and progress on sales strategies, the Group is well
positioned to navigate future volatility with a lower cost base and enhanced
cash generating potential.
CAPITAL ALLOCATION AND SHAREHOLDER RETURNS
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 incurred €58 million of capital expenditure in H1 2022, comprising
€36 million of project expenditure (H1 2021: €70 million) and €22
million of maintenance capex (H1 2021: €21 million).
Consistent with the Company's dividend policy to pay an interim dividend equal
to one third of the previous final dividend, the Board has declared an interim
dividend of €0.50 per share representing €23.5 million in aggregate. The
interim dividend will be paid on 23 September 2022 to shareholders on the
register on 26 August 2022.
The acquisition of SÖRMAŞ in Turkey announced in H2 2021 is on track to
complete in the second half of 2022. Further M&A progress was made during
the period with the acquisition and joint venture established with Horn &
Co. to accelerate the Group's use of secondary raw materials in its refractory
products. Whilst the Group's priority in the second half will be to reduce
gearing, alongside the planned investment in ongoing strategic projects, it
will continue to assess bolt-on acquisition opportunities where the value
creation case is compelling.
SUSTAINABILITY
The Group has continued its leadership in the field of Sustainability with a
further increase in the use of secondary raw material to 9.3% in the first
half of 2022 (H1 2021: 6.1%). Increasing the usage of recycled raw materials
is the fastest route for the Group to reduce its CO(2) emissions in the short
term, since residual refractory material has already been processed from its
raw carbonate form. Each tonne of recycled raw material used avoids the
release of approximately two tonnes of CO(2) which would otherwise be emitted
in the manufacturing process.
On 3 May 2022, RHI Magnesita agreed a new joint venture with Horn & Co.
Group to accelerate the Group's use of secondary raw materials in its
refractory products. The joint venture will give RHI Magnesita access to
additional quantities of secondary raw material and improve productivity in
the recycling process. In the longer term it is intended to grow the business
to become a leading supplier of high quality recycled materials to the broader
refractory industry in Europe.
RHI Magnesita was awarded a 'Gold' ESG rating by EcoVadis in June 2022,
maintaining the high level of performance established in 2021 and reflecting
the Group's industry leading capabilities and transparency in sustainability.
REGIONALISATION
The Group adopted further regionalisation of its management structures during
the first half, including the creation of new regional functions and the
separation of the Americas business unit into North and South America. The
regionalisation programme is intended to further strengthen our support to
customers, increase agility and responsiveness to changes in local market
conditions, advance the local-for-local supply strategy and encourage faster
decision making in response to ongoing supply chain volatility.
STRATEGIC INITIATIVES
In 2019, RHI Magnesita launched a series of strategic initiatives aimed at
generating a cumulative annual EBITA contribution of €110 million from cost
savings and €40-60 million from sales initiatives in flow control, new
markets and heat management solutions, enabled by digitalisation in 2023.
In the first half of 2022 the Group's €46 million investment at Hochfilzen,
Austria was completed, on-time and on-budget, transforming the site it into a
new European hub for low-cost dolomite-based materials. Capacity was also
transferred from Kruft to the newly expanded Urmitz plant in Germany. The
project is on-budget and on-schedule, with the ramp up of production ongoing.
The Radenthein investment is delivering efficiency benefits with further
savings expected as the new systems are implemented during 2022.
In China, the Group has made good progress in H1 2022 in developing its Dalian
plant to increase capacity into flow control products and magnesia shaped
bricks. The construction of the tunnel kiln and new plant in currently
underway at Chongquing, the Group's recent Joint Venture, currently targeting
the cement sector but with scope to expand into more industries.
In Brazil, design updates to the second stage of the Contagem project are
expected to be adopted to reflect changes in key parameters including local
inflation, exchange rates and freight costs. Completion of the project is now
scheduled for H2 2023. The Brumado project has been impacted by construction
delays and is now scheduled for completion in H1 2023. It is anticipated that
Contagem and Brumado will require an additional 10-15% of capital expenditure
in 2022 and 2023.
Growth in new markets continued, with revenues increasing by 41% and 32% in
India and China, respectively. Flow control revenue increased by 23% to €249
million (H1 2021: €203 million) and solutions contracts accounted for 32% of
revenue in the first half of 2022 (H1 2021: 29%).
RAW MATERIALS
Raw material prices increased significantly in Q4 2021, before stabilizing at
elevated levels in H1 2022. Chinese suppliers reduced production due to power
shortages, energy rationing and high energy costs. Global energy shortages
have resulted in high prices for materials which are energy intensive to
produce, such as fused alumina and fused magnesia.
RUSSIA AND UKRAINE
RHI Magnesita's activities have been impacted by the conflict in Ukraine and
sanctions applied to its customers in Russia. To date, the Group has incurred
write downs in inventory and accounts receivables of around €4 million.
Uncertainty remains over the security of supply of natural gas from Russia to
Europe and contingency plans have been prepared, intended to offset limited
gas availability through switching to alternative fuels, including Liquified
Petroleum Gas and solid fuels. The Group will incur approximately €6 million
of additional Capex in 2022 to prepare for potential gas supply disruption.
STEEL
Steel H1 2022 H1 2021 H1 2021 Change Change
(Reported) (Constant currency) (Reported) (Constant currency)
Revenue (€m) 1,150 855 911 34.5% 26.2%
Gross Profit (€m) 258 184 197 40.2% 31.0%
Gross margin 22.4% 21.5% 21.6% 90bps 80bps
Adj EBITA (€m) 128 86 95 48.9% 34.7%
Adj EBITA margin 11.1% 10.1% 10.4% 100bps 70bps
Steel regions by revenue (€m) H1 2022 H1 2021 H1 2021 Change Change
(Reported) (Constant currency) (Reported) (Constant currency)
Europe, CIS, Turkey 281 233 229 20.6% 22.7%
North America 327 236 259 38.6% 26.3%
South America 187 132 152 41.7% 23.0%
China and East Asia 121 93 101 30.1% 19.8%
India, Africa, West Asia 234 161 169 45.3% 38.5%
The steel sector accounts for around 70% of Group revenues with market demand
closely aligned to global steel production volumes. Refractory products are
used to line steel producing equipment to protect against extreme temperatures
of up to 1,800 degrees C. RHI Magnesita offers a comprehensive product and
service offering for all steel applications, including primary iron and steel
making as well as ingot and continuous casting.
Revenue in the first six months of 2022 increased by 35% to €1,150 million
during the period (H1 2021: €855 million) and by 26% on a constant currency
basis, driven by successful price increases across the product range to offset
inflationary pressures in the supply chain.
The Steel division recorded a gross margin of 22.4%, an increase of 90bps
compared to H1 2021 of 21.5% as price increases were reflected in margins. The
steel business has a fast replacement cycle, ranging from 20 minutes to 2
months depending on the application, enabling faster implementation of new
pricing.
Demand has continued to be strong and order book visibility extends to the end
of H2 2022, though there are indications of a possible moderation of demand in
FY 2023.
Europe, CIS and Turkey
Revenue in Europe, CIS and Turkey increased by 21% to €281 million (H1 2021:
€233 million). On a constant currency basis, revenue increased by 23%. World
Steel Association data indicates that steel production in Europe, CIS and
Turkey decreased by 10% in H1 2022 compared to H1 2021. RHI Magnesita's
shipped refractory volumes were broadly in line with H1 2021, representing an
outperformance against the market contraction.
Growth in flow control has been progressing well in the region with several
large orders realised following the completion of trials. The region has also
grown sales of a new cold-setting mixes product range, which deliver higher
than average margins as well as significant energy savings for customers.
During the first half, RHI Magnesita signed a new three-year solutions
contract with a key customer in Spain. The contract covers all refractory
consumables including functional products and mixes, machinery, equipment and
technical on-site services.
North America
Revenue in North America increased by 39% to €327 million (H1 2021: €236
million), mostly due to increase in pricing. On a constant currency basis,
revenue increased by 26% over the period. Reported revenue benefited from
exchange rate movements as the US dollar strengthened against the Euro during
the period.
Shipped volumes were broadly flat, decreasing by 1% in H1 2022 compared to H1
2021, comparable to World Steel Association data indicating that steel
production in the region decreased by 2%. Supply chain challenges including
land and sea freight disruption continued to affect customer deliveries.
Investments to optimize production at York, Pennsylvania, are largely complete
and are driving improved efficiency and increased output of dolomite based
refractories. Expanding production at York reduces lead times, working capital
requirements and reliance on international freight whilst improving service
levels for customers in North America, in line with the Group's
local-for-local strategy. Other measures taken to mitigate restricted
availability of raw materials have included the development of alternative raw
materials for binder additives, developed by RHI Magnesita's own R&D
function.
Market share increased at several key customer sites in the flow control
segment as optimization of the Saybrook plant supported sales growth.
A five year contract was signed with a key customer to provide heat management
solutions for electric arc furnace, argon oxygen decarburization and ladle
applications. Another major steel customer also extended an existing solutions
contract for seven years, covering electric arc furnace refractories and
automated gunning machinery.
RHI Magnesita's range of digital products and customer portal offer increased
transparency for sales teams and customers. Several clients in the region
adopted the new customer portal and 'Gather' application during the first
half, which collates information from plant inspections.
South America
Revenue in South America increased by 42% to €187 million (H1 2021: €132
million), due to an increase in average finished product prices and market
share gains. On a constant currency basis, revenue increased by 23% as sales
benefited from the strengthening of the Brazilian real against the euro.
Steel production in South America contracted by 3% according to the World
Steel Association, whilst RHI Magnesita shipped volumes increased by 2%.
The Group increased its proportion of revenue from solutions contracts and a
new five year contract commencing in March 2023 was agreed with a major
customer.
The region achieved a recycling rate of 9.3% in finished products, a
significant increase on the 6.8% rate delivered in H1 2021.
China and East Asia
China and East Asia revenue increased by 30% to €121 million (H1 2021:
€93 million), with China revenue up 28% and East Asia 31%. On a constant
currency basis, regional revenue increased by 20% as reported revenue
benefited from the strength of the Chinese yuan and the US dollar against the
euro. The revenue increase was driven by both higher shipped volumes and
price increases.
Steel output in the region declined by 6% over the period and by a contraction
of 6% in China, as slowing growth was compounded by port and factory shutdowns
due to Covid-19 related restrictions.
The Group has continued to drive efficiency savings and expand capacity in the
region through its production optimisation programme. A temper furnace was
installed in the Dalian plant in March 2022 to increase capacity of shaped
magnesia products and flow control production capacity at Dalian has also
increased by 25%.
The Group has further strengthened its heat management solutions business in
the region with one major contract increased in scope from EAF only to a
solutions contract for the entire plant. A solutions contract in Vietnam was
also successfully extended for a further three years.
As part of the Group's digitalisation strategy, a new Manufacturing Execution
System ("MES") has been developed to track, control and optimise the
refractory manufacturing processes from raw material through to finished
product. The new MES is in the implementation phase in Dalian and is on track
for completion in H2 2022. Continued success in digital product sales for
customer use was demonstrated by the installation of AGELLIS infrared camera
measurement technology at a major client's sites in Japan and New Zealand.
India, West Asia and Africa
Revenue in the India, West Asia and Africa region increased by 45% to €234
million (H1 2021: €161 million). On a constant currency basis, revenue
increased by 38%, as reported revenue benefited from a slight strengthening of
the Indian rupee against the euro.
The revenue increase was driven by both market share gain and higher pricing,
with shipped volumes increasing by 9% compared to a 4% increase in regional
steel production recorded by the World Steel Association.
As part of the Group's production optimization programme, the Group has
invested into expanding production at its Cuttack and Vizag plants and output
at these facilities has been ramping up successfully in H1 2022.
The Group has continued to build its flow control presence in India,
converting several customer trials into regular orders with key customers.
Successful trials of slide gates, purgebeam and cold setting tundish mixes
were completed.
The first installation in the region of Electromagnetic Level Identification
("EMLI") was completed during the first half, along with Automated Process
Optimisation ("APO") and SAR+ (Refractory Application System) installations,
which will collect data to control refractory consumption.
During the period, the Group established a long term contract with a major
customer for processing spent refractories, under which RHI Magnesita will
sort, separate and segregate secondary raw material in its Cuttack plant.
Steel outlook
The outlook for end markets has weakened against an uncertain macroeconomic
backdrop, with the construction and automotive sectors facing ongoing supply
chain constraints. Risks to demand in Europe remain due to the ongoing
conflict in Ukraine and the possibility of energy market disruption in the
second half of 2022.
In the US, steel production is expected to benefit from the $1 trillion
infrastructure bill and new steel plant construction over the period 2023-25.
In South America, pressure on current pricing levels from competitors is
anticipated in H2 and some customers are indicating that they plan to reduce
steel output in the remainder of the year.
Steel production volumes in India have been impacted by the imposition of a
15% export duty from 22 March, however order books remain strong until the end
of 2022.
INDUSTRIAL
Industrial H1 2022 H1 2021 H1 2021 Change Change
Reported (Constant (reported) (constant currency)
currency)
Revenue (€m) 444 346 362 28.3% 22.7%
Gross Profit (€m) 115 87 89 32.2% 29.2%
Gross margin 25.9% 25.3% 24.6% 60bps 130bps
Adj EBITA (€m) 60 42 42 42.9% 42.9%
Adj EBITA margin 13.6% 12.0% 11.5% 160bps 210bps
Industrial by segment by revenue (€m) H1 2022 H1 2021 H1 2021 Change Change
Reported (Constant (reported) (constant currency)
currency)
Cement & Lime 181 163 171 11.0% 5.8%
Nonferrous metals 107 71 74 50.7% 44.6%
Process industries 156 112 117 39.3% 33.3%
The Industrial division serves customers in the cement, lime, non-ferrous
metals and process industries including glass, foundries, aluminum and "EEC"
(environment, energy and chemical industries). Revenue in the first six months
of 2022 increased by 28% to €444 million (H1 2021: €346 million). On a
constant currency basis, revenue increased by 23%. The Industrial division
recorded a gross margin of 25.9%, (H1 2021: 25.3%), an increase of 60bps,
following the implementation of price increases to offset higher production
and delivery costs.
Cement & Lime
Revenue for Cement & Lime increased by 11.0% on a reported basis to €181
million (H1 2021: €163 million) and by 5.8% on a constant currency basis.
Price increases implemented across the division were largely offset by lower
volumes in H1, with many of the winter repair season deliveries taking place
in Q4 2021 rather than Q1 2022. Overall, market share has remained stable.
Following the successful roll out of the Automated Process Optimisation
("APO") tool, used in the steel and non-ferrous metals ("NFM") industries to
improve predictability of lining wear rates, the Group has developed a similar
tool for the Cement industry which is being piloted in several locations.
The Group acquired a 51% ownership stake in a new joint venture in Chongqing
in December 2021 in return for initial consideration of €5 million and an
investment of €12 million in new production capacity targeting the cement
sector with scope to expand into more industries. Civil works at the site have
now completed, with construction of the tunnel kiln and new plant underway and
the project is expected to complete by Q2 2023.
Nonferrous metals
Revenue for nonferrous metals increased by 51% in the period to €107 million
compared to the prior year (H1 2021: €71 million), and by 45% on a constant
currency basis. The increased revenue was due to higher prices and the release
of a backlog in projects built up in 2021 following supply chain disruptions
compounded by the unscheduled maintenance at Radenthein in Q3 2021.
Process industries
Revenue for process industries increased by 39% on a reported basis to €156
million (H1 2021: €112 million) and by 33% on a constant currency basis.
Revenue was substantially higher during the period due to both price increases
and a higher volume of shipped finished products. Price increases are slower
to implement in the process industries segment given the longer replacement
cycles (5 - 10 years), and the Group therefore expects to recover further
margin in this segment in H2 2022.
As part of its digitalization strategy, the Group has successfully trialed a
webshop as an additional sales channel for the process industries business
which will be rolled out in 2023.
Industrial outlook
Demand has continued to be strong across the order book, with visibility
extending to 12 months. However, the medium term outlook for end markets
driving the industrial business has weakened due to uncertain macroeconomic
conditions.
FINANCE REVIEW
Reporting approach
The Company uses a number of alternative performance measures ("APMs"), in
addition to those reported in accordance with 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 which 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 H1 2021 figures in this review are on a reported
basis, unless stated otherwise. Figures presented at constant currency
represent H1 2021 translated to average H1 2022 exchange rates of 1 Euro to
1.10 USD, 1 Euro to 7.11 CNY, 1 Euro to 5.63 BRL, 1 Euro to 83.37 INR, 1 Euro
to 15.86 TRY.
Group performance
Revenue for the Period amounted to €1,594 million (H1 2021: €1,200
million), up by 33%. On a constant currency basis, revenue increased by 25%
over the Period. The increase in revenue was driven by a stronger steel
business, where reported revenue increased by 35% to €1,150 million (H1
2021: €855 million). Industrial sector reported revenue increased by 29% to
€444 million (H1 2021: €346 million).
The Group cost of goods sold over the Period amounted to €1,221 million (H1
2021: €929 million), an increase of 31% compared to the same period last
year. On a constant currency basis, cost of goods sold was 24% higher (H1
2021: €987 million). Raw material costs increased by 12%, energy costs by
60%, freight costs by 18% and labour costs by 11% on a constant currency
basis, contributed to the increase in cost of goods sold versus H1 2021.
The Group delivered gross margin of 23.4%, an increase of 80bps compared to
the same period last year (H1 2021: 22.6%). Gross margin over the period for
the Steel business increased by 90bps to 22.4% (H1 2021: 21.5%). The
Industrial business gross margin was stronger at 25.9%, increasing by 60bps
(H1 2021: 25.3%).
Selling, General and Administrative ("SG&A") expenses, excluding R&D
expenses, amounted to €181 million in H1 2022 (H1 2021: €140 million), 29%
higher than the comparative period. SG&A as a percentage of revenue
reduced to 11.4% (H1 2021: 11.7%). Higher SG&A in the period was mainly
due to increased personnel costs, including wage inflation, and strategic
investments into sales initiatives including digitalisation, supply chain
optimisation and sustainability.
Other income and expenses amounted to €(11) million in H1 2022 (H1 2021:
€8 million), comprising a €(4) million write down of receivables and
inventories in Russia and Ukraine, €(2) million relating to the amortisation
of the Oberhausen provision and €(2) million relating to plant closure costs
at Dashiquo, China.
Adjusted EBITDA margin was 15.4%, compared to 14.9% in H1 2021, increasing by
50bps. Adjusted EBITDA increased by 37% to €245 million (H1 2021: €179
million).
(€m) H1 2022 H1 2021 H1 2021 % Change Reported % Change at constant currency
Reported at constant currency
Revenue 1,594 1,200 1,273 32.8% 25.3%
Cost of Sales -1,221 -929 987 23.7% 31.6%
Gross Profit 373 272 286 37.5% 30.5%
Gross margin 23.4% 22.6% 22.5% 80bps 90bps
SG&A -181 -140 -146 29.3% 23.9%
R&D expenses -18 -14 -15 23.7% 18.1%
OIE -10 8 9 (229)% (215)%
EBIT 164 126 134 30.9% 22.3%
Amortization -13 -10 -11 25.0% 17.6%
EBITA 177 136 146 30.4% 21.9%
Adjusted items 11 -8 -10 (238)% (210)%
Adjusted EBITA 188 128 136 47.0% 37.8%
Adjusted EBITA increased by 47% on a reported basis, to €188 million (H1
2021: €128 million), mainly due to price increases which successfully offset
higher production and distribution costs.
The Group recorded an Adjusted EBITA margin of 11.8%, increasing by 110bps
compared to 10.7% for the same period last year. The Refractory margin
contributed 8.4% of Group EBITA margin (H1 2021: 7.6%) and the vertical
integration contributed 3.4% (H1 2021: 3.1%).
Net financial expenses in H1 2022 amounted to €(22) million (H1 2021:
€(6.5) million), with net interest expenses of €(10) million (H1 2021:
€(2.7) million) and other net financial expenses of €(16) million (H1
2021: €(10) million). Net interest expenses in H1 2021 benefited from €5
million of interest income following a Brazilian Supreme Court ruling that
resulted in a refund of revenue-based taxes previously overpaid into interest
income. Net interest expenses on borrowings increased due to an increase in
margin on the Group's debt facilities linked to higher leverage levels,
additional gross borrowings, and the higher base rates on variable interest
facilities.
Total foreign exchange and derivative variances amounted to a €4.0 million
positive contribution (H1 2021: €6.8 million).
Reported profit before tax amounts to €142 million (H1 2021: €125
million). Total tax for H1 2022 in the income statement amounted to €38
million (H1 2021: €26 million), representing a 27% reported effective tax
rate (H1 2021: 21%). The reported effective tax rate in the period was
higher than the prior period given the tax effect of extraordinary expenses in
Austria and other jurisdictions, most notably the recognition of profit of a
swap under local GAAP but not for IFRS purposes and the revaluation of the
deferred tax asset incurred at FY21 following the reduction of Austrian
corporation tax from 25% to 23%.
On a reported basis, the Group recorded a profit after tax of €104 million
(H1 2021: €99 million) and earnings per share of €2.06 (H1 2021: €2.01).
Adjusted profit before tax amounts to €169 million (H1 2021: €130
million), and the respective adjusted effective tax rate is 24% (H1 2021:
22%). On an adjusted basis, profit after tax was €129 million (H1 2021:
€101 million) and adjusted earnings per share for H1 2022 were €2.58 (H1
2021: €2.05 per share), which is stated after excluding other income and
expenses and restructuring charges (€11 million) and other financial income
and expenses (€3.1 million). The full year adjusted effective tax rate is
expected to be between 23-25% in 2022, due to the tax effect of extraordinary
expenses in Austria and, to a lesser extent, in other jurisdictions, most
notably the revaluation of the deferred tax asset following the reduction of
the Austrian corporation tax rate from 25% to 23%.
Earnings per share H1 2022 Items excluded from H1 2022
Reported adjusted performance Adjusted
(€m unless otherwise stated)
EBITA 177 11 188
Amortisation 13 13
Net financial expenses (22) 3.1 (19)
Result of profit in joint ventures
Profit before tax 142 169
Income tax (38) (41)
Profit after tax 104 129
Non-controlling interest 7.3 7.3
Profit attributable to shareholders 97 121
Shares outstanding (shares, m) 47.0 47.0
Earnings per share €2.06ps €2.58ps
Cash flow and working capital
Operating cash flow, which is presented to reflect net cash inflow from
operating activities before tax and net finance expenses, was €(76) million
for H1 2022 (H1 2021: €(55) million), representing a net outflow given the
increase in the value of inventories since 31 December 2021.
Working capital increased to €999 million at H1 2022 (30 June 2021: €457
million) from €677 million at year end as cost inflation increased the value
of raw material and finished goods inventories held. During H2 2021, the Group
increased its volumes of inventories, in response to the supply chain
volatility and in order to ensure security of supply. Inventories volumes
increased in H2 2021 but decreased somewhat in H1 2022 as the Group took
measures to reduce stocks of finished goods. Despite the reduction in volumes,
the value of inventories increased to €1,143 million at 30 June 2022 (30
June 2021: €703 million), up from €977 million at the 2021 year end.
Higher valuation of stock also drove an increase in accounts receivable to
€403 million at 30 June 2022 (30 June 2021: €251 million), and up from
€349 million at the 2021 year end. Accounts receivable is defined as trade
receivables plus contracts assets, less contract liabilities in financial
notes 6 and 8. Accounts payable was €547 million (30 June 2021: €497
million) compared to €649 million at the year-end 2021 as capital
expenditure on production optimisation projects reduced.
Working capital intensity, measured as a percentage of the last three months'
annualised revenue (€3,416 million) increased by 10.8 ppt, to 29.3% (H1
2021: 18.5%). Accounts receivable intensity was 11.8% (H1 2021: 10.1%) and
accounts payable intensity was 16.0% (H1 2021: 20.1%). As previously guided,
working capital intensity is not expected to reduce to the medium term target
range of 15 - 18% during 2022, due to ongoing supply chain disruptions.
Working capital financing, used to provide low cost liquidity and support the
Group's commercial offering to customers, stood at €321 million on 30 June
2022 (30 June 2021: €287 million), comprising €209 million of accounts
receivable financing (factoring) and €111 million of accounts payable
financing (forfeiting). Working capital financing levels vary according to
business activity, and the Group's Board has set a ceiling of €320 million.
An increase in working capital of €322 million since FY 2021 offset by a
positive currency impact of €56 million resulted in a net cash outflow of
€267 million.
The Group incurred €58 million of capital expenditure (H1 2021: €91
million), of which €22 million was maintenance related and €36 million was
deployed in strategic projects. Full year guidance for project related capital
expenditure has been increased to €115 million including the additional €6
million allocated to mitigating natural gas supply disruption and €15
million due to unfavourable foreign exchange movements, with the most material
currency pair being the Euro against Brazilian real and €10 million has been
allocated from 2022 to 2023. Maintenance capital expenditure of €85
million is unchanged. Capital expenditure in 2023 has been increased by €10
million to €160 million, given the inflationary environment and anticipated
increased expenditure to complete the investment projects in Brazil.
Net interest payments on net debt and further refinancing costs amounted to
€12 million in the Period (H1 2021: €11 million).
Cash Flow
€m H1 2022 H1 2021
Adjusted EBITA 188 128
Working Capital -266 -75
Changes in Other Assets/Liabilities 4 -68
Capital Expenditure -58 -91
Depreciation 57 51
Operating Cash Flow(1) -76 -55
Cash tax -36 -24
Net financial expenses -12 -11
Restructuring/Transaction Costs -12 -33
Dividend payments -47 -35
Acquisitions of treasury shares - -73
Acquisitions -18 -
Right of use assets -4 -1
Non-cash FX translation on debt -3 -2
Realised FX -7 -9
Other -10 12
Free Cash Flow(1) -224 -232
(1) Further detail on the adjustments can be found in Alternative Performance
Measures section
Financial position
The Group's net debt at 30 June 2022 was €1,238 million, comprising total
debt of €1,627 million, leases of €54 million and cash and cash
equivalents and marketable securities of €443 million.
As at 30 June 2022, total leases amounted to €54 million (H1 2021: €51
million), which under IFRS 16 is included in the Company's net debt position.
The Group's leverage position has increased to 2.7x net debt to EBITDA (31
December 2021: 2.6x) and has increased by 0.5x since H1 2021. As previously
guided, leverage is expected to reduce towards 2.0x during the second half of
2022.
Total liquidity for the Group at 30 June 2022 was €1,043 million, including
undrawn committed facilities of €600 million.
The Group will have debt maturities of €122 million in the second half of
2022 and €356 million in 2023, of which €80 million is payable in 2022 and
€322 million in 2023.
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 30 June 2022 is €350
million and the refinanced loan now matures in May 2027.
On 29 July 2022, the Group secured a new ESG linked €250 million term loan
maturing in 2027 of which the proceeds will be used to refinance the $200
million term loan maturing in 2023 at very competitive interest rates and
within the same margin grid as the $200 million term loan.
Out of the total gross debt of €1,627 million, 87% is denominated in Euro.
The floating to fixed ratio of the gross debt is 34% to 66% and the average
interest rate is 1.53% (including swaps).
Return on invested capital
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.
Group ROIC in H1 2022 was 10.3% (H1 2021: 9.6%), from a total of €2,692
million of invested capital (H1 2021: €2,296 million) and €139 million
recorded net operating profit after tax (NOPAT) (H1 2021: €99 million). ROIC
for raw materials assets was 16.9% (H1 2021: 14.2%), from a total of €467
million of invested capital (H1 2021: €430 million) and €40 million NOPAT
(H1 2021: €30 million). ROIC for refractory assets was 9.0% (H1 2021: 8.8%),
from a total of €2,225 million of invested capital (H1 2021: €1,545
million) and €100 million NOPAT (H1 2021: €68 million).
PRINCIPAL RISKS AND UNCERTAINTIES
The Group has an established risk management process based on a formally
approved framework and regular risk surveys among functional and operational
managers aimed at systematically identifying, assessing and mitigating risks
and uncertainties in the Group.
Material and major risks with potentially high impacts on the Group, its
results or its ability to achieve its strategic objectives are reviewed
regularly by the Board.
The risks considered by the Board to be the principal risks were presented in
the 2021 Annual Report, which is available on the Group's website at
www.rhimagnesita.com.
The Board has reconsidered the principal risks and uncertainties of the Group
and assessed the broader macro and external risk environment and has
determined that those risks reported in the 2021 Annual Report remain relevant
for the remaining half of the 2022 financial year.
The risk likelihood and/or potential impact of five out of the eleven
principal risks have changed during H1 2022, as highlighted in the summary
table below.
The risks arising from the current macro-economic environment added additional
attention to RHIM's management team. The war between Russia and Ukraine
generated uncertainties on energy supply and energy prices. Additionally, the
risk of recession is being potentialized by high inflation and increasing
interest rates. All those factors brought further responsiveness from the
Company's management. The current macro-economic environment is being subject
to enhanced monitoring and mitigation.
The Company is experiencing an increase competitivity in regions such as South
America and Europe. Consequently, the principal risk impacted by such
challenges increased their potential to exceed the risk appetite and are being
subject to enhanced monitoring and mitigation.
On the other hand, the Company has been effective in identifying the need for
price increases and passing them through to customers. This has had a positive
effect on the risk level associated with this principal risk. The remaining
six principal risks are largely unchanged compared to the 2021 Annual Report -
these are listed below.
The risks may occur independently from each other or in combination. In the
event that they occur in combination, their impact may be reinforced. The
Group might be facing other risks than the ones mentioned here, some of them
being currently unknown or not considered to be material.
The updated comprehensive analysis of the principal risks faced by RHI
Magnesita will be included in the 2022 Annual Report.
Macroeconomic environment and condition of customer industries leading to Increased Increased risk of a weaker macro-economic backdrop driving weaker customer
significant sales volume reductions. demand, high inflation and higher interest rates, including given the
Russia/Ukraine war driving high oil and natural gas prices, risk of further
Covid lockdowns in China and Central Banks intervention to reduce inflation.
The Group monitors various leading indicators and undertakes scenario
planning, defining a range of actions to be taken in each scenario.
Supplier dependency risk Unchanged
Inability to execute key strategic initiatives Unchanged
Significant changes in the competitive environment or speed of disruptive Increased RHIM's competitive position could be impacted by changes in freight costs,
innovation competitors reducing prices, increased imported competition, particularly in
Europe.
Externally driven costs have been successfully passed on to customers in 2022,
the Production Optimisation plan is structurally reducing the
Group's finished goods and raw materials cost position and customers
continue to value the services, security of supply and technologically
advanced products offered by the Group.
Reliability of the end-to-end value chain Increased Due to ongoing logistics challenges, risk of further Covid lockdowns in China,
risk of European gas shortages and uncertain future refractory demand, it is
more challenging to determine the right inventory levels. The Group's focus
remains on seamlessly supplying customers and it continues to carry higher
inventory levels than normal.
Sustainability - Environmental and climate risks Unchanged
Sustainability - Health & Safety risks Unchanged
Regulatory and compliance risks Unchanged
Cyber and information security risk Unchanged
Ability to predict and pass cost increases to customers Decreased Externally driven costs have been successfully passed on to customers over
past 9 months. The process to identify the need for price increases and pass
them through is more mature. This remains a key area of management focus with
ongoing cost inflation
Organizational capacity to execute strategy, including demonstrating Company Increased Slightly increased given the increased difficulty of attracting and retaining
cultural values talent, particularly for mid-level positions. Senior level retention remains
high in most areas. Salary inflation is being captured by the salary benchmark
mechanism and is monitored to react with a tailored and fast approach in case
of changes.
RELATED PARTY TRANSACTIONS
RHI Magnesita enters into arrangements with a number of its subsidiaries and
affiliated companies in the course of its business. These arrangements relate
to service transactions and financing agreements and RHI Magnesita treat these
arrangements as related party transactions. Furthermore, RHI Magnesita
includes transactions with key management personnel as related party
transactions. As of the balance sheet date, 30 June 2022, there have been no
significant changes in the related party transactions from those described in
RHI Magnesita's 2021 Annual Report. More information can be found in note 19
of the Condensed consolidated interim financial statements.
GOING CONCERN
In considering the appropriateness of adopting the going concern basis in
preparing the interim condensed 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. This assessment covers the period of a minimum
of 12 months from the date of signing the condensed consolidated financial
statements. This assessment considers the period up to the subsequent
financial year end, 31 December 2023, for any indicators that the going
concern preparation is not appropriate.
The scenarios considered by the Directors include a severe but plausible
downside and a reverse stress test which determines how much revenue could
reduce before breaching the Group's debt covenants. Further mitigating actions
within management control would be taken under each scenario, including fixed
cost reduction but these were not incorporated in the downside modelling.
The Directors have also considered the Group's current liquidity and available
facilities. As of 30 June 2022, the Group balance sheet reflects cash and cash
equivalents of €443.4 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 all scenarios assessed, taking into account liquidity and available
resources and before the inclusion of all mitigating actions within management
control, the Group was able to maintain sufficient liquidity to continue
trading. On the basis of the assessment performed, the Directors consider it
is appropriate to continue to adopt the going concern basis in preparing the
condensed consolidated financial statements for the period ended 30 June 2022.
ALTERNATIVE PERFORMANCE MEASURE ("APM")
APMs used by the Group are reviewed below to provide a definition from each
non-IFRS APM to its IFRS equivalent, and to explain the purpose and usefulness
of each APM.
In general, APMs are presented externally to meet investors' requirements for
further clarity and transparency of the Group's underlying financial
performance. The APMs are also used internally in the management of our
business performance, budgeting and forecasting.
APMs are non-IFRS measures. As a result, APMs allow investors and other
readers to review different kinds of revenue, profits and costs and should not
be used in isolation. Commentary within the Year-End Results, 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 that affect our business. We strongly encourage readers not to rely on
any single financial measure, but to carefully review our reporting in its
entirety.
Adjusted results at a constant currency
H1 2021 figures presented at constant currency represent H1 2021 reported
figures translated at average H1 2022 exchange rates.
EBITA
EBIT, as presented in Consolidated Statement of Profit and Loss, excluding
amortisation and impairments of goodwill and intangible assets and reconciled
in note (7) borrowings.
EBITDA
EBIT, as presented in Consolidated Statement of Profit and Loss, excluding
depreciation, amortisation and impairments and reconciled in note (7)
borrowings.
Adjusted EBITDA and EBITA
To provide further transparency and clarity to the ongoing, underlying
financial performance of the Group, adjusted EBITDA and EBITA are used. Both
measures exclude other income and expenses as presented in Consolidated
Statement of Profit or Loss and reconciled in note (7) borrowings.
Adjusted earnings per share ("Adjusted EPS")
Adjusted EPS is used to assess the Company's operational performance per
ordinary share outstanding. It is calculated using adjusted EBITA (as
described above) and removes the impact of certain foreign exchange effects,
amortisation, one-off restructuring expenses and impairments, other non-cash
financial income and expenses, that are not directly related to operational
performance. Effective tax rate for adjusted EPS is calculated by applying the
effective tax rate normalised for restructuring expenses and impairments. A
reconciliation of reported EPS from the condensed consolidated statement of
profit or loss can to adjusted EPS can be found in the table 'Earnings per
share' above.
Operating cash flow and free cash flow
Alternative measures for cash flow are presented to reflect net cash inflow
from operating activities before certain items. Free cash flow is considered
relevant to reflect the cash performance of business operations after meeting
the usual obligations of financing and tax. It is therefore measured before
all other remaining cash flows, being those related to acquisitions and
disposals, other equity-related and debt-related funding movements, and
foreign exchange impacts on financing and investing activities. A
reconciliation can be found in the table 'cash flow' above.
Working capital
Working capital and intensity provides a measure how efficient the Company is
in managing operating cash conversion cycles. Working capital is the sum of
manageable working capital, composed of inventories, trade receivables and
trade payables, contract assets and contract liabilities. Working capital
intensity is measured as a percentage of last three months annualised revenue
(€3,416 million).
Accounts receivable is defined as trade receivables plus contracts assets,
less contract liabilities in financial notes (6) and (8). Accounts payable
is defined at trade payables in financial note (8).
Net debt
We present an alternative measure to bring together the various funding
sources that are included in the Consolidated Statement of Financial Position
and the accompanying notes. Net debt is a measure defined in the Group's
principal financing arrangements and reflects the net indebtedness of the
Group and includes; all cash, cash equivalents and marketable securities
(€443 million), any debt or debt-like items (€1,627 million), and IFRS 16
leases (€54 million). Net debt can be reconciled to note (7) borrowings.
Return on invested capital
ROIC is calculated as adjusted net operating profit after tax (NOPAT), divided
by total invested capital for the year. Invested capital is a sum of
non-current assets including deferred tax assets, trade and other current
receivables, inventories and income tax receivables less other non-current
financial assets, deferred tax liabilities, trade and other current
liabilities, income tax liabilities and current provisions. Adjusted net
operating profit after tax (NOPAT) is calculated as sum of Adjusted EBITA,
Amortisation expense and result from joint ventures and associates less income
taxes paid.
Liquidity
Liquidity comprises cash and cash equivalents €443 million and unutilised
credit facilities of €600 million. Liquidity can be reconciled in the Going
Concern section of note (1).
DEFINITIONS
RHI Magnesita or the Company or the Group RHI Magnesita N.V. or RHI Magnesita N.V. and its subsidiary undertakings, as
appropriate
H1 2022 or the Period Six months ended 30 June 2022
H1 2021 Six months ended 30 June 2021
FY 2021 Twelve months ended 31 December 2021
APMs Alternative performance measures
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.
Condensed Consolidated Interim Financial Statements
as at 30.06.2022
Condensed Consolidated Statement of Financial Position
as at 30 June 2022
in € million Note 30.06.2022 31.12.2021
ASSETS
Non-current assets
Goodwill 126.0 114.4
Other intangible assets 311.3 282.6
Property, plant and equipment (4) 1,150.1 1,089.7
Investments in joint ventures and associates 5.9 5.7
Other non-current financial assets 27.5 14.6
Other non-current assets 50.7 41.2
Deferred tax assets 178.5 202.4
1,850.0 1,750.6
Current assets
Inventories (5) 1,143.3 976.5
Trade and other current receivables (6) 628.6 568.2
Income tax receivables 46.2 35.1
Other current financial assets 7.6 2.9
Cash and cash equivalents 443.4 580.8
2,269.1 2,163.5
4,119.1 3,914.1
EQUITY AND LIABILITIES
Equity
Share capital 49.5 49.5
Group reserves 959.0 736.4
Equity attributable to shareholders of RHI Magnesita N.V. 1,008.5 785.9
Non-controlling interests 43.8 36.3
1,052.3 822.2
Non-current liabilities
Borrowings (7) 1,349.8 1,321.0
Other non-current financial liabilities 105.3 106.0
Deferred tax liabilities 56.1 48.4
Provisions for pensions 222.2 269.0
Other personnel provisions 58.8 68.7
Other non-current provisions 76.7 63.6
Other non-current liabilities 5.5 5.9
1,874.4 1,882.6
Current liabilities
Borrowings (7) 277.2 218.1
Other current financial liabilities 25.7 19.2
Trade payables and other current liabilities (8) 797.9 878.8
Income tax liabilities 44.6 38.2
Current provisions (9) 47.0 55.0
1,192.4 1,209.3
4,119.1 3,914.1
Condensed Consolidated Statement of Profit or Loss
For the six months ended 30 June 2022
in € million for the six months ended 30 June Note 2022 2021
Revenue (14) 1,594.4 1,200.3
Cost of sales (1,221.0) (928.7)
Gross profit 373.4 271.6
Selling and marketing expenses (66.8) (52.2)
General and administrative expenses (131.8) (102.0)
Result from operating joint ventures and associates 0.1 0.0
Restructuring (0.3) (3.0)
Other income 2.1 16.3
Other expenses (12.3) (5.1)
EBIT 164.4 125.6
Interest income 3.0 6.8
Interest expenses on borrowings (13.1) (9.5)
Net income on foreign exchange effects and related derivatives (10) 4.0 6.8
Other net financial expenses (11) (15.9) (10.6)
Net finance costs (22.0) (6.5)
Result from joint ventures and associates 0.0 5.4
Profit before income tax 142.4 124.5
Income tax (12) (38.1) (25.9)
Profit after income tax 104.3 98.6
RHI Magnesita N.V. shareholders 97.0 97.1
Non-controlling interests 7.3 1.5
in €
Earnings per share - basic 2.06 2.01
Earnings per share - diluted 2.03 1.99
Condensed Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2022
in € million for the six months ended 30 June Note 2022 2021
Profit after income tax 104.3 98.6
Currency translation differences
Unrealised results from currency translation 135.3 57.4
Deferred taxes thereon (12.7) (5.7)
Current taxes thereon 1.3 0.3
Unrealised results from net investment hedge (14.7) (5.4)
Deferred taxes thereon 3.7 1.3
Reclassification to profit or loss - Disposal subsidiaries 0.6 (8.6)
Cash flow hedges
Unrealised fair value changes 21.5 4.0
Deferred taxes thereon (5.4) (1.0)
Items that will be reclassified subsequently to profit or loss, if necessary 129.6 42.3
Remeasurement of defined benefit plans
Remeasurement of defined benefit plans 56.3 27.0
Deferred taxes thereon (15.3) (7.9)
Items that will not be reclassified to profit or loss 41.0 19.1
Other comprehensive income after income tax 170.6 61.4
Total comprehensive income 274.9 160.0
RHI Magnesita N.V. shareholders 267.4 158.2
Non-controlling interests 7.5 1.8
Condensed Consolidated Statement of Cash Flows
For the six months ended 30 June 2022
in € million for the six months ended 30 June Note 2022 2021
Cash (used in) from operations (13) (37.5) (4.1)
Income tax paid less refunds (35.7) (24.3)
Net cashflow from operating activities (73.2) (28.4)
Investments in property, plant and equipment and intangible assets (57.6) (90.9)
Investments in subsidiaries net of cash acquired (18.3) 0.0
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 0.0
ventures
Cash inflows from the sale of property, plant and equipment 0.8 6.1
Dividends received from joint ventures and associates 0.0 0.4
Investment subsidies received 0.0 2.4
Interest received 3.2 1.7
Cash outflows / inflows from non-current receivables 0.0 0.1
Net cash used in investing activities (63.2) (85.0)
Acquisition of treasury shares 0.0 (73.5)
Dividend payments to RHI Magnesita N.V. shareholders (47.0) (35.0)
Proceeds from borrowings and loans 90.0 65.0
Repayments of borrowings and loans (8.7) (82.6)
Changes in current borrowings (19.2) (12.3)
Interest payments (14.4) (11.7)
Repayment of lease obligations (8.8) (7.1)
Interest payments from lease obligations (0.6) (0.5)
Cash flows from derivatives (4.3) (2.2)
Net cash provided by (used in) financing activities (13.0) (159.9)
Total cash flow (149.4) (273.3)
Change in cash and cash equivalents (149.4) (273.3)
Cash and cash equivalents at beginning of period 580.8 589.2
Currency translation differences 12.0 16.2
Cash and cash equivalents at end of period 443.4 332.1
Condensed Consolidated Statement of Changes in Equity
For the six months ended 30 June 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
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 - - - - 97.0 - - - 97.0 7.3 104.3
Currency translation differences - - - - - - - 113.3 113.3 0.2 113.5
Market valuation of cash flow hedges - - - - - 16.1 - - 16.1 - 16.1
Remeasurement of defined benefit plans - - - - - - 41.0 - 41.0 - 41.0
Other comprehensive income after income tax - - - - - 16.1 41.0 113.3 170.4 0.2 170.6
Total comprehensive income - - - - 97.0 16.1 41.0 113.3 267.4 7.5 274.9
Dividends - - - - (47.0) - - - (47.0) - (47.0)
Change in non-controlling interests due to addition to consolidated - - - - - - - - - 6.1 6.1
companies(1))
Reclassification of puttable non-controlling interests without a change of - - - - (1.9) - - - (1.9) (6.1) (8.0)
control(2))
Share-based payment expenses - - - - 4.1 - - - 4.1 - 4.1
Transactions with shareholders - - - - (44.8) - - - (44.8) - (44.8)
30.06.2022 49.5 (117.0) 361.3 288.7 585.0 9.0 (84.1) (83.9) 1,008.5 43.8 1,052.3
1) Further information is provided under Note (3).
2) Further information is provided under Note (3) and Note (15).
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/ Equity attributable to Non-controlling interests Total equity
capital
paid-in
benefit plans
expenses relating to disposal groups
shareholders
capital
of RHI Magnesita N.V.
Note
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 - - - - 97.1 - - - - 97.1 1.5 98.6
Currency translation differences - - - - - - - 46.9 (7.9) 39.0 0.3 39.3
Market valuation of cash flow hedges - - - - - 3.0 - - - 3.0 - 3.0
Remeasurement of defined benefit plans - - - - - - 19.0 - 0.1 19.1 - 19.1
Other comprehensive income after income tax - - - - - 3.0 19.0 46.9 (7.8) 61.1 0.3 61.4
Total comprehensive income - - - - 97.1 3.0 19.0 46.9 (7.8) 158.2 1.8 160.0
Dividends - - - - (47.7) - - - - (47.7) - (47.7)
Shares repurchased (1)) - (73.5) - - - - - - - (73.5) - (73.5)
Reclassification of puttable non-controlling interests without change of - - - - (1.6) - - 1.4 - (0.2) 9.0 8.8
control
Share-based payment expenses - - - - 3.1 - - - - 3.1 - 3.1
Transactions with shareholders - (73.5) - - (46.2) - - 1.4 - (118.3) 9.0 (109.3)
30.06.2021 49.5 (95.0) 361.3 288.7 427.7 (10.7) (126.7) (208.8) 0.0 686.0 30.8 716.8
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 Condensed Consolidated Interim Financial Statements
Basis of preparation
1. 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 Condensed Consolidated Interim Financial Statements ("Interim Statements")
of RHI Magnesita N.V ("the Company") and its subsidiaries (collectively
referred to as "RHI Magnesita / Group") have been prepared in accordance with
IAS 34 Interim Financial Reporting as issued by the International Accounting
Standards Board ("IASB") and on the basis of the same accounting principles as
those used in the Company's Annual Financial Statements for the year ended 31
December 2021.
The Condensed Consolidated Interim Financial Statements do not include all
information and disclosures required in the Annual Financial Statements and
should therefore be read in conjunction with RHI Magnesita's Consolidated
Financial Statements as of 31 December 2021. All amounts in the explanatory
notes and tables are shown in € million, unless indicated otherwise. For
computational reasons, rounding differences may occur.
The Condensed Consolidated Interim Financial Statements as of 30 June 2022
were not audited but reviewed by PricewaterhouseCoopers Accountants N.V.
Going concern
In considering the appropriateness of adopting the going concern basis in
preparing the interim condensed 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. This assessment covers the period of a minimum of
12 months from the date of signing the condensed consolidated financial
statements. This assessment considers the period up to the subsequent
financial year end, 31 December 2023, for any indicators that the going
concern preparation is not appropriate.
The scenarios considered by the Directors include a severe but plausible
downside and a reverse stress test which determines how much revenue could
reduce before breaching the Group's debt covenant. Further mitigating actions
within management control would be taken under each scenario, including fixed
cost reduction but these were not incorporated in the downside modelling.
The Directors have also considered the Group's current liquidity and available
facilities. As of 30 June 2022, the Group balance sheet reflects cash and cash
equivalents of €443.4 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 all scenarios assessed, taking into account liquidity and available
resources and before the inclusion of all mitigating actions within management
control, the Group was able to maintain sufficient liquidity to continue
trading. On the basis of the assessment performed, the Directors consider it
is appropriate to continue to adopt the going concern basis in preparing the
condensed consolidated financial statements for the period ended 30 June 2022.
2. Principles of accounting and measurement
There were no changes regarding principles of accounting and measurement
compared to the Consolidated Financial Statements as of 31 December 2021.
Significant accounting judgements and estimates.
Impairment of property, plant and equipment, goodwill and other intangible assets
No triggers for an impairment review as of 30 June 2022 were identified.
Pensions and termination benefits
The Group's defined benefit plans are reviewed every six months to determine
any changes to the fair value of the plan assets or present value of the
defined benefit obligations. As a result of the review during the first half
of 2022, the Group's total net defined benefit plan deficit as at 30 June 2022
is €255.0 million, compared to a deficit of €312.2 million at 31 December
2021. The movement for the first half principally reflects net actuarial gains
reported in other comprehensive income arising from increases in discount
rates in Brazil, the Euro zone and the US which are partly offset by negative
asset performance.
Ukraine
The war in Ukraine has led to increased global economic uncertainty with
sanctions imposed on Russia. Trade receivables of €2.9 million from our
clients in Ukraine and Russia and inventory in the amount of €0.8 million
have been fully written off in the first half of 2022. As of 30 June 2022, the
cash balance held in Russia amounts to €5.7 million. There are no cash
restrictions on this balance. Payments of €1.1 million from sanctioned
Russian customers are held in an escrow like account and are shown as
restricted cash until approval is granted from OeNB (Austria Central Bank).
Property, plant and equipment in Russia amounts to €0.8 million. This
comprises the warehouse and the office building. Both are still in use and not
impaired. Further information is provided in the Principial Risks and
Uncertaintites Note in the front section of the report.
3. Methods of consolidation
Subsidiaries
On 3 May 2022 RHI Magnesita Group acquired a 51% ownership stake in Horn &
Co. Group ("RHIMHORN") 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.
RHI Magnesita Group exercises control over RHIMHORN, as through voting rights
and management representation, it has the power to steer the relevant
activities of the business and can use this power to affect the variable
returns from the company that it is exposed to. Therefore, RHIMHORN is
accounted for as a fully consolidated entity.
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 Fair Value as at 03.05.2022
Property, plant and equipment 6.2
Intangible assets: customer relationsships 12.1
Other non-current financial assets 2.4
Inventories 5.3
Trade and other receivables 1.3
Cash and cash equivalents 0.2
Total assets acquired 27.5
Non-current borrowings 2.8
Deferred tax liabilities 3.9
Non-current provisions 0.1
Current borrowings 4.2
Trade and other liabilities 3.6
Income tax liabilities 0.4
Total liabilities assumed 15.0
Net identifiable assets acquired 12.5
Less: Non-controlling interests (6.1)
Goodwill 6.9
Net assets acquired 13.3
The fair value step-up that was identified in the course of the preliminary
purchase price allocation amounts to €13.1 million. Thereof €1.1 million
relate to land and €12.0 million relate to customer relationships.
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 value of the acquried trade receivables amounting to €0.7 million
is equal to the gross contractual amount for trade receivables.
The Group recognises non-controlling interests in an acquired entity either at
fair value or at the non-controlling interest's proportionate share of the
acquired entity's net identifiable assets. This decision is made on an
acquisition-by-acquisition basis. For the non-controlling interests in
RHIMHORN, the Group elected to recognise the non-controlling interests at its
proportionate share of the acquired net identifiable assets.
The non-controlling interests have the option to sell their remaining equity
stake to RHI Magnesita at any time by 2032. RHI Magnesita opts to account for
the non-controlling interests in accordance with IFRS 10. Thus, the
non-controlling interests are initially recognised in accordance with IFRS 3
within equity while the put option liability is initially recognised against
the non-controlling interest, reducing it to zero. The put option liability is
recognised as a financial liability in accordance with IFRS 9. Further
information on the fair value of the put option is provided under Note (15).
4. Property, plant and equipment
In the first half of 2022 additions to property, plant and equipment amount to
€48.5 million (1-6/2021: €90.8 million) and mainly refer to an expansion
of a production plant in Austria and a magnesite plant in Brazil as well as to
production optimisation and digitalisation projects.
5. Inventories
Inventories as presented in the Condensed Consolidated Statement of Financial
Position consist of the following items:
in € million 30.06.2022 31.12.2021
Raw materials and supplies 359.6 300.2
Work in progress 187.3 151.5
Finished products and goods 585.0 512.4
Prepayments made 11.4 12.4
Inventories 1,143.3 976.5
Inventories include €12.5 million (31.12.2021: 6.9 million) carried at net
realisable value. Net write-down expenses amount to €8.2 million (2021: €
3.4 million).
The value of the Group's inventories has increased as a result of higher costs
of production including the purchase of raw materials, energy, freight and
labour costs.
6. Trade and other current receivables
Trade and other current receivables as presented in the Condensed Consolidated
Statement of Financial Position are classified as follows:
in € million 30.06.2022 31.12.2021
Trade receivables 468.7 403.7
Contract assets 5.0 3.6
Other taxes receivable 109.5 113.7
Receivables from employees 10.1 5.4
Prepaid expenses 4.7 3.9
Prepaid transaction costs related to financial liabilities 2.6 2.6
Receivables from joint ventures and associates and non-consolidated 0.8 1.1
subsidiaries
Receivables from property transactions 0.6 1.3
Emission rights 0.3 0.0
Receivables from dividends 0.0 8.7
Other current receivables 26.3 24.2
Trade and other current receivables 628.6 568.2
thereof financial assets 469.7 414.4
thereof non-financial assets 158.9 153.8
RHI Magnesita entered into factoring agreements and sold trade receivables to
financial institutions. The balance sold totalled €209.3 million as of
30 June 2022 (31.12.2021: €178.1 million). The trade receivables have been
derecognised as substantially all risks and rewards as well as control have
been transferred. Payments received from customers in the period between the
last sale of receivables and the reporting date are recognised in current
borrowings.
Other taxes receivable include VAT credits and receivables from energy tax
refunds, research, education and apprentice subsidies.
Other current receivables mainly relate to advances for insurance, IT services
as well as custom and import related services and costs.
7. Borrowings
Borrowings include all interest-bearing liabilities due to financial
institutions and other lenders.
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.
Net debt excluding lease liabilities/adjusted EBITDA is the main financial
covenant of the loan agreements. Compliance with the covenants is measured on
a semi-annual basis. Covenant ratio is limited at 3.5x as at 30 June 2022.
Breach of covenants leads to an anticipated maturity of loans. During 2022 and
2021, the Group met all covenant requirements.
The disclosures in this section include certain Alternative Performance
Measures (APMs). For more information on the APMs used by the Group, including
definitions, please refer to page 21. 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. Adjusted
EBITDA is calculated on a yearly basis, considering the last six months of
2021 and the first six months of 2022.
in € million 30.06.2022 30.06.2021
EBIT 252.7 144.3
Amortisation 28.7 19.9
Restructuring and write-down expenses 52.3 103.0
Other operating income and expenses 6.9 (12.3)
Adjusted EBITA 340.6 254.9
Depreciation 114.1 110.6
Adjusted EBITDA 454.7 365.5
Total debt 1,627.0 1,093.3
Lease liabilities 54.4 51.2
Cash and cash equivalents 443.4 332.1
Net debt 1,238.0 812.4
Net debt excluding IFRS 16 lease liabilities 1,183.6 761.2
Net debt to adjusted EBITDA 2.72x 2.22x
Net debt to adjusted EBITDA excluding IFRS 16 lease liabilities 2.60x 2.08x
8. Trade payables and other current liabilities
Trade payables and other current liabilities included in the Condensed
Consolidated Statement of Financial Position consist of the following items:
in € million 30.06.2022 31.12.2021
Trade payables 546.8 649.2
Contract liabilities 70.8 57.9
Liabilities to employees 98.2 80.9
Taxes other than income tax 34.8 29.3
Payables from property transactions 19.0 24.3
Payables from commissions 8.6 7.3
Liabilities to joint ventures and associates and non-consolidated subsidiaries 0.7 2.0
Dividend liabilities 0.4 0.4
Other current liabilities 18.6 27.5
Trade payables and other current liabilities 797.9 878.8
thereof financial liabilities 575.8 688.5
thereof non-financial liabilities 222.1 190.3
Trade payables include an amount of €111.3 million (31.12.2021:
€142.0 million) for raw material purchases for supply chain finance
arrangements which reflect lower forfaiting tonnage in the first half of 2022.
9. Current provisions
Provisions for restructuring costs amounting to €22.7 million as of 30 June
2022 (31.12.2021: €33.5 million) primarily consist of benefit obligations to
employees due to termination of employment and dismantling costs. The main
driver for the movement in the provision is the utilisation of the
restructuring provision as the programmes are rolled out. In the first half of
2022 €2.9 million (1-6/2021: €7.3 million) of provisions for restructuring
costs were reversed.
Provisions for contract obligations include the current portion of the
Oberhausen contract obligation amounting to €10.8 million as of 30 June 2022
(31.12.2021: €8.0 million).
10. Foreign exchange effects and related derivatives
The net gain and expense on foreign exchange effects and related derivatives
consists of the following items:
in € million for the six months ended 30 June 2022 2021
Foreign exchange gains 109.9 8.3
Gains from related derivative financial instruments 5.8 3.8
Foreign exchange losses (103.3) (0.3)
Losses from related derivative financial instruments (8.4) (5.0)
Net gain on foreign exchange effects and related derivatives 4.0 6.8
The net gain on foreign exchange effects in the current reporting period
resulted mainly from the revaluation of the US Dollar against the Euro.
11. Other net financial expenses
Other net financial expenses consist of the following items:
in € million for the six months ended 30 June 2022 2021
Net interest expense personnel provisions (2.6) (2.6)
Unwinding of discount of provisions and payables (3.5) (3.5)
Interest expense on non-controlling interests (3.3) (1.8)
Impairment losses on securities (1.4) 0.0
Interest expense on lease liabilities (0.6) (0.5)
Reversal of impairment losses on securities 0.0 0.2
Income from the valuation of put options 0.0 1.1
Other interest and similar expenses (4.5) (3.5)
Other net financial expenses (15.9) (10.6)
12. Income tax
The effective tax rate of the first half of 2022 amounts to 26.8% (1-6/2021:
20.8%).
Total tax for the first half of 2022 in the Condensed Consolidated Statement
of Profit or Loss amounted to €38.1 million (1-6/ 2021: €25.9 million),
which includes tax income for prior years of €3.2 million (1-6/2021: tax
income for prior years of €1.9 million).
13. Cash used in operations
in € million for the six months ended 30 June 2022 2021
Profit after income tax 104.3 98.6
Adjustments for
income tax 38.1 25.9
depreciation 56.9 51.4
amortisation 13.0 10.4
write-up of property, plant and equipment and intangible assets (0.4) 0.0
income from the reversal of investment subsidies (0.3) (0.3)
write-ups / impairment losses on securities 1.4 (0.2)
losses/ (gains) from the disposal of property, plant and equipment 0.8 (4.4)
losses/ (gains) from the disposal of subsidiaries 0.7 (6.8)
net interest expense and derivatives 22.0 12.0
result from joint ventures and associates (0.1) (5.4)
other non-cash changes (7.7) (14.5)
Changes in working capital
inventories (109.2) (209.4)
trade receivables (41.2) (29.1)
contract assets (1.4) (7.8)
trade payables (125.7) 166.9
contract liabilities 10.9 4.4
Changes in other assets and liabilities
other receivables and assets (1.1) (28.8)
provisions (12.9) (24.5)
other liabilities 14.4 (42.5)
Cash used in operations (37.5) (4.1)
The negative cashflow from operations is mainly due to the weaker working
capital performance in inventory which is largely attributable to the
constrained global logistics supply chain alongside higher inventory costs for
raw materials and finished good.
14. Segment reporting
Segment reporting by operating company division
The following tables show the key financial information for the operating
segments for the first half of 2022 and the first half of 2021:
in € million for the six months ended 30 June 2022 Steel Industrial Group
Revenue 1,150.1 444.3 1,594.4
Gross profit 258.1 115.3 373.4
EBIT 164.4
Net finance costs (22.0)
Profit before income tax 142.4
Depreciation and amortisation charges (50.7) (19.2) (69.9)
Segment assets 30.06.2022 2,389.0 815.4 3,204.4
Investments in joint ventures and associates 30.06.2022 5.9
Reconciliation to total assets 908.8
4,119.1
in € million for the six months ended 30 June 2021 Steel Industrial Group
Revenue 854.7 345.6 1,200.3
Gross profit 184.2 87.4 271.6
EBIT 125.6
Net finance costs (6.5)
Share of profit of joint ventures and associates 5.4
Profit before income tax 124.5
Depreciation and amortisation charges (43.4) (18.4) (61.8)
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
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 for the six months ended 30 June 2022 Steel Industrial Group
Shaped products 540.0 323.6 863.6
Unshaped products 205.3 92.8 298.1
Management refractory services 372.6 0.0 372.6
Other 32.2 27.9 60.1
Revenue 1,150.1 444.3 1,594.4
In the comparable period in 2021, revenue was classified by product group as
follows:
in € million for the six months ended 30 June 2021 Steel Industrial Group
Shaped products 383.8 240.7 624.5
Unshaped products 160.2 72.4 232.6
Management refractory services 275.6 0.0 275.6
Other 35.1 32.5 67.6
Revenue 854.7 345.6 1,200.3
Total revenue includes revenue from Solution Business amounting to €508.3
million (1-6/2021: €340.1 million). Thereof, €454.3 million (1-6/2021:
€299.5 million) are attributable to Segment Steel and €54.0 million
(1-6/2021: €40.6 million) are attributable to Segment Industrial. Solution
Business is a customer classification, where RHI Magnesita sums up all
customer relations in which we enable our customers to focus on their core
competences. It is typically characterised by sales of end-to-end solutions
covering large parts of the customer process chain. Examples of this would be
CPP/FLS, but also customers where we focus on technological development of
bespoke products or where we are a strategic partner.
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 €24.5 million (1-6/2021:
€27.3 million) is transferred over time and an amount of €35.6 million
(1-6/2021: €40.3 million) is transferred at a point of time.
Segment reporting by country
Revenue in the first half of 2022 and in the first half of 2021 is classified
by customer sites as follows:
in € million for the six months ended 30 June 2022 Steel Industrial Group
Netherlands 5.0 0.7 5.7
All other countries
USA 243.2 38.6 281.8
Brazil 132.6 52.0 184.6
India 145.7 22.6 168.3
PR China 44.8 61.9 106.7
Mexico 53.2 23.9 77.1
Germany 43.0 28.2 71.2
Italy 47.6 9.9 57.5
Canada 27.6 25.8 53.4
Saudi Arabia 32.3 4.7 37.0
Other countries, each below €34.1 million 375.1 176.0 551.1
Revenue 1,150.1 444.3 1,594.4
in € million for the six months ended 30 June 2021 Steel Industrial Group
Netherlands 2.8 0.2 3.0
All other countries
USA 170.8 30.3 201.1
India 101.4 18.1 119.5
Brazil 85.2 28.9 114.1
PR China 35.0 45.6 80.6
Germany 40.2 23.0 63.2
Mexico 41.5 21.1 62.6
Canada 21.7 23.8 45.5
Italy 35.9 9.0 44.9
Russia 27.0 9.2 36.2
Other countries, each below €21.8 million 293.2 136.4 429.6
Revenue 854.7 345.6 1,200.3
15. 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 accordance with IFRS 13. In addition, carrying
amounts are shown aggregated according to measurement category.
30.06.2022 31.12.2021
in € million Measurement category Level Carrying amount Fair value Carrying amount Fair value
IFRS 9(1))
Other non-current financial assets
Interests in subsidiaries not consolidated FVPL 3 3.0 3.0 0.6 0.6
Marketable securities FVPL 1 11.8 11.8 13.2 13.2
Shares FVPL 3 0.5 0.5 0.5 0.5
Interest derivatives designated as cash flow hedges - 2 11.9 11.9 0.0 0.0
Other non-current financial receivables AC - 0.3 - 0.3 -
Trade and other current receivables AC - 469.7 - 414.4 -
Other current financial assets
Derivatives FVPL 2 7.4 7.4 2.5 2.5
Other current financial receivables AC - 0.2 - 0.4 -
Cash and cash equivalents(3)) AC - 443.4 - 580.8 -
Financial assets 948.2 1,012.7
Non-current and current borrowings
Liabilities to financial institutions AC 2 1,622.4 1,607.8 1,534.1 1,551.6
Other financial liabilities AC 2 4.6 - 5.0 -
Non-current and current other financial liabilities
Lease liabilities AC 2 54.5 - 55.5 -
Derivatives FVPL 2 3.3 3.3 0.1 0.1
Interest derivatives designated as cash flow hedges - 2 0.0 0.0 9.6 9.6
Liabilities to fixed-term or puttable non-controlling interests(2)) AC 2/3 73.2 73.2 60.0 60.0
Trade payables and other current liabilities AC - 575.8 - 688.5 -
Financial liabilities 2,333.8 2,352.8
Aggregated according to measurement category
Financial assets measured at FVPL 22.7 16.8
Financial assets measured at amortised cost 913.6 995.9
Financial liabilities measured at amortised cost 2,330.5 2,343.1
Financial liabilities measured at FVPL 3.3 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 for the acquired Horn Group amounting to €8.0
million, see Note (3)
3) thereof €1.1 million relate to cash received from sanctioned Russian
customers. Further information is provided under Note (2).
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 marketable 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 Condensed 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. In May 2022,
RHI Magnesita recognised a put option liability related to the newly acquired
group company RHIMHORN (see Note 3), amounting to €8.0 million. The fair
value is based on the present value of performance-related contractual
cashflows with a maturity in 2032. 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 30 June 2022 and 31 December 2021.
16. Dividend payments and proposed dividend
Based on a resolution adopted by the Annual General Meeting of RHI Magnesita
N.V. on 25 May 2022 the final dividend amounts to €1.00 per share for the
shareholders of RHI Magnesita N.V for 2021. The dividend was paid out in June
2022, amounting to €47.0 million.
In line with the Group's dividend policy the Board declared an interim
dividend of €0.50 per share for the first half of 2022 to be paid out in
September 2022.
17. Contingent liabilities
As of 30 June 2022, contingent liabilities amount to €61.0 million
(31.12.2021: €52.5 million). Of this total, warranties, performance
guarantees and other guarantees account for €60.8 million (31.12.2021:
€52.3 million).
Furthermore, Magnesita Refratários S.A., Contagem, Brazil, is party to a
public civil action for damages caused by overloaded trucks in contravention
with the Brazilian traffic legislation. The potential loss from this
proceeding amounts to €15.2 million as at 30 June 2022 (31.12.2021: €11.6
million).
Uncertain tax treatments
The Group is subject to various material claims which arise in the ordinary
course of its business in Brazil in relation to corporate income tax, mining
royalties, VATs and social security contributions. The Group is in formal
dispute proceedings regarding a number of these tax claims. The resolution of
tax positions, through negotiation with the relevant tax authorities or
litigation, can take several years to complete. In assessing whether these
claims should be provided for in the Interim Statements, Management has
considered them in the context of the applicable laws in Brazil. Management
has applied judgement in assessing the likely outcome of the claims and has
estimated the financial impact based on external tax and legal advice and
prior experience of such claims.
RHI Magnesita is party to a number of tax proceedings in Brazil with a total
exposure of €241.2 million as of 30 June 2022 (31.12.2021: €200.8
million). The movement is mainly driven by the appreciation of Brazilian Reais
against Euro. The main dispute relates to whether or not the Goodwill assessed
in business combinations is deductible and amortisable for Corporate Income
Tax purposes. The tax authorities issued assessments for 2011, 2016 and 2019
arguing that some of such transactions cannot generate deductions as they do
not fulfill the requirements provided by law. The Group has partially won the
cases for 2011 and 2016 and are now waiting resolution in the Administrative
Superior Court. In relation to the 2019 case, the Group was notified in July
2021 on the first level decision which upheld the tax assessment. The Group
has appealed to the Tax Court of Appeals and are awaiting the outcome.
Management continues to consider a negative outcome not probable, which is
supported on the evaluation from the external legal counsel. Consequently, no
provision has been recognised as of 30 June 2022.
18. Other financial commitments
As of 30 June 2022, the RHI Magnesita Group has commitments for the purchase
of property, plant and equipment in the amount of €58.5 million (31.12.2021:
€ 35.5 million).
19. Disclosures on related parties
The nature of related party transactions as of 30 June 2022 are in line with
the transactions disclosed in Note (61) of the 2021 Group Financial
Statements. All transactions with related parties are conducted on an arm's
length basis and in accordance with normal business terms.
Related companies
No material transactions took place between the Group and related companies
and persons.
Related persons
There is a non-remunerated consultancy agreement in place between RHI
Magnesita and a close relative of a Non-Executive Director to advise the Group
on the economic and political framework in countries in which it does not yet
have strong business links.
20. Material events after the reporting date 30.06.2022
On 29 July 2022 the Group refinanced its existing $200 million USD loan
maturing in August 2023 with a new €250 million EUR loan with a maturity in
July 2027.
After the reporting date on 30 June 2022, there were no other events of
significance which may have a material effect on the financial position and
performance of the RHI Magnesita Group.
Statement of the Board of Directors
We confirm to the best of our knowledge:
1. In connection with the statement ex Article 5:25d Paragraph 2 sub c
Financial Markets Supervision Act ("Wet op het financieel toezicht").
-The Condensed Consolidated Interim Financial Statements for the six-month
period ended 30 June 2022, which have been prepared in accordance with IAS 34
'Interim Financial Reporting' as adopted by the EU, 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;
-The management report for the six-month period ended 30 June 2022 as
presented in the report on unaudited half year results includes a fair view of
the information required pursuant to article 5:25d paragraphs 8 and 9 of the
Dutch Financial Markets supervision Act ("Wet op het financieel toezicht").
2. In connection with provisions of Disclosure Guidance and Transparency Rules
(DTR) 4.2 Half-yearly financial reports, as adopted by the UK Financial
Conduct Authority. This half-yearly financial report includes a fair review of
the information required by the:
- DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of
important events that have occurred during the first six months of the
financial year and their impact on the condensed set of financial statements;
and a description of the principal risks and uncertainties for the remaining
six months of the financial year; and
- DTR 4.2.8R of the Disclosure and Transparency Rules, being related parties'
transactions that have taken place in the first six months of the current
financial year and that have materially affected the financial position or the
performance of the Group during that period; and any changes in the related
parties' transactions described in the last annual report that could do so.
Vienna, 31 July 2022
Executive Directors
Stefan Borgas Ian Botha
Non-Executive Directors
Herbert Cordt John Ramsay
Janet Ashdown David Schlaff
Stanislaus Prinz zu Sayn-Wittgenstein-Berleburg Fiona Paulus
Janice Brown Karl Sevelda
Marie-Hélène Ametsreiter Sigalia Heifetz
Wolfgang Ruttenstorfer
Employee Representative Directors
Karin Garcia Martin Kowatsch
Michael Schwarz
Independent auditor's review report
To: the board of directors of RHI Magnesita N.V.
Introduction
We have reviewed the accompanying condensed consolidated interim financial
information for the six-month period ended 30 June 2022 of RHI Magnesita N.V.,
('the interim financial information'), Arnhem, the Netherlands, which
comprises the Condensed Consolidated Statement of Financial Position as at 30
June 2022, the Condensed Consolidated Statement of Profit or Loss, the
Condensed Consolidated Statement of Comprehensive Income, the Condensed
Consolidated Statement of Changes in Equity, the Condensed Consolidated
Statement of Cash Flows for the period then ended and the selected explanatory
notes. The board of directors is responsible for the preparation and
presentation of this (condensed) interim financial information in accordance
with IAS 34, 'Interim Financial Reporting' as adopted by the European Union.
Our responsibility is to express a conclusion on this interim financial
information based on our review.
Scope
We conducted our review in accordance with Dutch law including standard 2410,
Review of Interim Financial Information Performed by the Independent Auditor
of the entity. A review of interim financial information consists of making
inquiries, primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A review is
substantially less in scope than an audit conducted in accordance with
auditing standards and consequently does not enable us to obtain assurance
that we would become aware of all significant matters that might be identified
in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the accompanying condensed consolidated interim financial
information for the six-month period ended 30 June 2022 is not prepared, in
all material respects, in accordance with IAS 34, 'Interim Financial
Reporting' as adopted by the European Union.
Rotterdam,31 July 2022
PricewaterhouseCoopers Accountants N.V.
Original has been signed by A. F. Westerman RA
partner
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