RHI Magnesita provides trading update

Refractory sales volumes in the Period excluding M&A were 7% lower year on year, in line with overall market demand. Steel, cement and glass demand outside of India remains soft due to a slowdown in construction activity, with some glass project postponements now evident. Demand in the non-ferrous metals segment continues to be resilient. As anticipated due to the subdued demand backdrop and reducing input costs, the Group is beginning to experience sales price deflation in a number of its markets which is expected to continue and possibly accelerate through the remainder of the year.

Refractory EBITA margin contribution for the Period, which excludes vertical integration benefits, was better than expected, supported by cost deflation in April and May, as the cost of freight and purchased raw material reduced, partially offset by weaker fixed cost absorption due to lower production volumes.

The continued lower pricing environment for magnesite-based raw materials means that the Group’s vertical integration EBITA margin contribution remains subdued and in line with the 1.8% of Group margin delivered in the second half of 2022.

As a result, the overall Adjusted EBITA margin for the Period was 12.1% (2022: 11.6%), delivering Unaudited Adjusted EBITA of €174 million (2022: €155 million).

Financial position

Net debt to EBITDA remains at a similar level to the 2.1x reported at 31 March 2023, including a 12 month historic contribution from businesses acquired during the period.

Absolute net debt at 31 May 2023 was largely unchanged from 31 December 2022, supported by strong operating cashflow. The Group continues to retain significant liquidity of €1.2 billion.

Net Working capital (before consolidation of M&A) was down slightly from its 31 December 2022 level, as reductions in inventory and accounts receivable were largely offset by lower accounts payable. The Group continues to prioritise security of supply for its customers in order to support recent market share gains.

Total capital expenditure in the five months to 31 May 2023 was €42 million, out of overall guidance of €200 million for 2023, with spending weighted towards the second half.

A increased net debt by €268 million in the first five months of the year, which was partially offset by the Qualified Institutional Placement (“QIP”) by RHI Magnesita India Ltd, which raised approximately €101 million in April 2023. The QIP is to be followed by an equity investment of €22 million by the Group in RHI Magnesita India Ltd via a Preferential Issue which is expected to complete in June 2023. In the second half of the year the previously announced acquisition of Seven Refractories for a cash consideration of €95 million is expected to be completed.

Outlook

The outlook for the Group’s key end markets and consequently customer volumes remains uncertain, with the order book currently suggesting only a moderate volume increase in H2, if at all, resulting in ongoing under-absorption of fixed costs. Pricing pressure is expected to continue and possibly accelerate through the remainder of the year.

Supported by the stronger than expected performance in the first five months of the year, the Board now expects a modest outperformance on its earlier 2023 EBITA and EBITA margin guidance.

Leverage, measured as a ratio of net debt to EBITDA, is expected to remain above 2.0x as the Group further executes on its M&A pipeline.

Read the article online at: https://www.worldcement.com/asia-pacific-rim/20062023/rhi-magnesita-provides-trading-update/