RHI Magnesita revenue stable amid challenging market

(Sharecast News) - Refractory products specialist RHI Magnesita reported stable revenue and resilient margins in its half-year results on Wednesday, despite a challenging demand environment. The FTSE 250 company reported revenue of €1.73bn for the six months ended 30 June, nearly unchanged from €1.73bn in the same period last year.

That stability was achieved through contributions from mergers and acquisitions, which offset a 3% decline in sales volumes and a 4% decrease in base business pricing.

Adjusted EBITA for the period was €190m, down from €200m in the first half of 2023, reflecting lower volumes and reduced backward integration benefits.

Despite that, price and mix impacts were balanced by reduced input costs, resulting in an adjusted EBITA margin of 11%, compared to 11.6% last year.

M&A activities contributed €34m to adjusted EBITDA, showing progress toward the full-year guidance of around €80m.

Adjusted earnings per share increased 2% to €2.59 per share, supported by foreign exchange gains.

On the operational front, RHI Magnesita noted a 1% decrease in steel division sales volumes, excluding M&A, due to weaker-than-expected steel output in all regions except India.

The industrial division saw a 10% reduction in demand, attributed to the customer capital project cycle and subdued cement demand outside India.

Despite those challenges, production increased to match sales volumes following destocking in 2023, and the recycling rate improved to 13.2%.

The company said its financial health remained robust, with working capital reduced by €80m to €894m, and net debt decreased to €1.27bn.

Its adjusted operating cash flow totalled €233m, reflecting strong EBITA cash conversion of 123%.

An interim dividend of 60 euro cents per share was declared, consistent with the company's policy.

Strategically, RHI Magnesita said it was advancing its recycling capabilities with a €5m acquisition in Italy, and was experiencing increasing customer demand for automated solutions and robotics, particularly in South and North America and India.

The company's planned $430m acquisition of Resco Group was under a second-phase review by US merger authorities, with completion expected late in 2024 or early 2025.

Looking ahead, RHI Magnesita said it expected to achieve an adjusted EBITA of at least €410m for the full year, supported by higher sales volumes and unit cost savings from increased capacity utilisation and efficiency measures.

The company said it anticipated a stronger second half, bolstered by seasonal demand in the cement market and deferred industrial project deliveries.

While the timing of a full market recovery remained uncertain, the firm said it was well-positioned to capitalise on future demand increases, leveraging its operational gearing and fixed cost absorption benefits.

"Demand for refractories was weaker than expected in the first half of 2024 as conditions in the global construction, transportation and other key end markets remained subdued with no positive catalysts evident in the short term," said chief executive officer Stefan Borgas.

"We have taken appropriate measures to safeguard profitability and cash generation throughout this period, as demonstrated by the release of €80m of working capital in the first half of the year and the delivery of our EBITA margin guidance.

"Record refractory margins compensated for the temporarily lower contribution from our raw material assets."

Borgas said the company remained on track to achieve full-year guidance despite the "very weak" external market conditions experienced in the first half, with markedly higher sales volumes anticipated for the rest of the year.

"We have been able to advance our strategic M&A ambitions over the last three years and the contribution to earnings from acquisitions will grow as integrations progress and synergies are realised.

"We are proud to have been chosen in April to design and supply refractories to SMS as the original equipment manufacturer for Thyssenkrupp's Duisburg green steel project.

"This is a welcome validation of our strategy to lead the refractory industry in sustainability, which will deliver value in the long term as we seek to reduce our own carbon dioxide emissions and to provide enabling technologies for our customers to do the same."

Reporting by Josh White for Sharecast.com.