RHI Magnesita N.V. (LON: RHIM), the leading global supplier of refractory products, systems and solutions, today announced a trading update for the three months to September 2019.
Trading
Since the Company’s interim results in August, the global steel market has weakened further, with world-wide production declining quarter on quarter. As a result of these declines, customers have significantly reduced their inventories during the quarter across their supply chain including refractory products.
This market environment has led to lower volumes sold and accordingly lower fixed cost recovery from reduced plant utilisation, which together have more than offset the Company’s ongoing cost saving initiatives. Despite contributions from the price increases implemented in April 2019, third quarter Steel revenues are down 14% against the same period in 2018 (this comparison includes the exit from Iran in 2018). A materially lower contribution from the Steel Division in H2 2019 against the first half is now expected.
The Industrial Division has continued the strong performance seen in H1 2019 into the third quarter. The order book remains robust across all of the division’s end markets, especially in Cement, with project visibility extending into 2020.
Post-merger integration and production optimisation
RHI Magnesita N.V. continues to make strong progress with its integration plans following the merger of RHI with Magnesita and remains on track to realise the synergy targets of at least €90 million in 2019 and €110 million by 2020.
Further progress has been made to address the operational issues experienced at four European plants and the challenges in the supply chain, as outlined in the 2018 results. The Company is on track with these operational improvements and continues to expect to substantially resolve these issues in 2019, however the planned benefits have been offset by reduced plant utilisation and fixed cost recovery.
As part of its long-term strategy, management has started to implement further initiatives to reduce the Group’s long-term costs and optimise its operating network. Details of these plans will be set out at the Company’s Capital Markets Day on 14th November.
Outlook
Despite the strong, ongoing performance of the Industrial Division and the self-help opportunities available to the Group, the continued deterioration in Steel sales volumes and the lower fixed cost recovery from reduced plant utilisation, have more than offset these benefits. Consequently, expectations for the current financial year have reduced to an adjusted EBITA in the range of €400-410 million.
Our customers have poor visibility and their end-markets are likely to remain challenging. The Group, however, will continue to execute its strategy, realising the benefits of its integrated model, its growth in new markets, and its additional cost savings and efficiency initiatives, with an increased focus on free-cash-flow generation.
