RHI Magnesita have released their Q324 financial results.
Q3 trading
Revenues in the nine months to 30 September were in line with the prior year period, with the contribution from M&A offsetting expected softness in pricing and lower sales volumes than expected, due to ongoing weak customer demand. Customer demand remains subdued in all markets except India.
Q3 year-to-date sales volumes including M&A increased by 3% year-on-year. Q324 sales volumes were up 2% on Q2 2024.
Pricing pressure continued in Q3 as forecast, with year-to-date pricing now 4% lower compared to the prior year, in line with guidance for a decline of up to 5% in 2024, reflecting lower input costs for the industry with competitors becoming increasingly aggressive on pricing as a result.
Whilst year on year input costs are lower, some externally purchased raw material costs have increased during H2 due to higher prices for both alumina based material and electrofused magnesia, with additional increases announced by suppliers for 2025. This will increase cost of goods sold in Q4 and 2025. A price increase programme has been implemented to maintain margins.
Adjusted EBITA in Q3 was in line with the levels reported in Q1 and Q2, as cost saving initiatives and operational efficiencies offset lower refractory prices and fixed cost under-absorption, to deliver an Adjusted EBITA margin slightly higher than the 11.0% guided for the full year. The EBITA margin contribution from vertical integration remained at a record low of 0.8% whilst refractory margins remained at record highs.
Strong operational delivery combined with new product offerings
4PRO – more than products and services
RHI Magnesita has continued to upgrade its customer offering with advanced products, automation and sustainability options being made available via tailored and digitalised solutions contracts. Re-branded under ‘4PRO’, the new offering is gaining traction with customers seeking efficiency gains and quality improvements across all regions.
Green steel contract wins
The Group is continuing to win further new business with OEMs for refractory applications in green steel production. Such contracts represent material new project revenue and validation of the Group's strategy to position itself as the leading supplier of refractory linings and services for Direct Reduction, Open Bath, Electric Arc and Basic Oxygen furnaces, which are expected to be essential for the large-scale adoption of green steel production globally.
Customers respond positively to the continuous improvement of the offering as measured by net promoter scores and PIFOT (“Produced in full and on time”) metrics, which increased to record highs in Q3.
Process optimisation
A restructuring and upgrade of the Group’s shared service centre network is being implemented with the aim of delivering further service improvements for customers, broader career opportunities for employees and SG&A savings for the company. To achieve this, RHI Magnesita is transferring the majority of its global shared services operations to Capgemini, a global leader in process design, digital transformation and shared services operations. Capgemini’s operations will support the Group in the implementation of the new ERP system which is scheduled to take place between mid 2025 and mid 2027.
M&A update
No new M&A transactions were agreed or completed during Q3.
The Group’s intended acquisition of Resco Group for an enterprise value of up to $430 million, remains subject to Second Phase Review by US merger control authorities. Completion of the transaction is now expected to occur in Q125.
M&A transactions completed in 2023 are broadly on track to achieve the 2024 guidance of €80 million contribution to Group Adjusted EBITDA.
Financial position
Cash conversion remained strong at 96% in the year to date, as further modest working capital reductions were realized, mainly resulting from lower input costs. Working capital intensity increased to 26% ahead of the seasonal uplift in Q4 cement sales but is on track to reduce to the guided level of approximately 24% by the year end.
Net debt remained at a similar level to that reported at the 2024 Half Year results. Gearing measured as a ratio of net debt to Adjusted EBITDA is expected to be within the target range of 2.0-2.5x at the year end.
2024 outlook
Sales volume guidance for 2024 was previously for the base business to remain flat, with M&A increasing shipped volumes by up to 10%. Following weaker than expected demand, sales volumes are now expected to be around 5% higher in 2024 compared to the prior year, including the contribution from M&A and with a slight decline in the base business.
An increase in profitability and margins in Q4 is expected due to normal seasonality of the cement business, the timing of project deliveries in the Industrial segment and cost benefits from efficiency programmes.
Whilst 2024 revenues and profits have been severely impacted by continued weak customer demand, a strong focus on execution has enabled the preservation of EBITA margins slightly above guidance of 11.0% in the year to date.
Adjusted EBITA for 2024 is expected to be between €400 million and €410 million, taking into account year-to-date performance and no further customer delays in deliveries scheduled for Q4.
Supported by favourable foreign exchange movements, Adjusted EPS is expected to be in line with the current analyst consensus of €5.00 per share.
The Group remains well positioned for a recovery in customer production volumes whenever it may occur. Such a change has the potential for significant upside from operational gearing and recovered raw material margin contribution.
Stefan Borgas, Chief Executive Officer, said:
“RHI Magnesita has delivered another resilient performance in difficult market conditions in the midst of a global industrial recession, now in its third year. A strong step-up in earnings is required in the fourth quarter to achieve EBITA guidance. Such step-up was expected earlier but has repeatedly been delayed to due to very weak customer demand. The normal seasonal upturn in cement and the timing of key industrial project deliveries however support a stronger Q4 compared to the first nine months of the year.
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