RHI Magnesita released Half Year Financial Results 2020

2020-08-05

Aug. 5, 2020 - RHI Magnesita, the leading global supplier of refractory products, systems and services, announces its results for the six months ended June 30, 2020.

FINANCE REVIEW

Revenue for the Period amounted to €1,171 million (H1 2019 €1,515 million), down by 22.7%. The reduction in revenue was driven by weakness in both the Steel Division, where revenue declined by 22.4% to €820 million (H1 2019 €1,057 million) and the Industrial Division, where revenue was down 23.5% to €351 million (H1 2019 €458 million).

The Group delivered gross margin of 23.8%, a reduction of 290bps against the same period last year. Gross margin over the period for the Steel Division decreased by 310bps to 22.4% (H1 2019 25.5%). The Industrial Division gross margin was more resilient at 27.2%, decreasing by 250bps (H1 2019 29.7%).

Adjusted EBITDA margin for the last six months was 16.6%, compared to 19.8% over the same period last year, decreasing by 320 bps and reflective of the weaker market backdrop. The depreciation for the Full Year 2020 is likely to be lower, at around €120 million, largely due to currency effects.

Adjusted EBITA declined by 45.4% on a constant currency basis, to €133 million (H1 2019 €244 million), predominantly due to COVID-19 driving weaker volumes and lower fixed cost absorption in our production. Additionally, operating profit was affected by the falls in raw material prices. This has been partially offset by the measures the Group has introduced in response to the challenging market backdrop. The Group has also started to derive benefits from the Production Optimisation Plan, announced at the Capital Markets Day in November 2019, of €3 million, and will benefit from the acceleration of this programme in H2.

The Group recorded an EBITA margin of 11.4% down by 470bps compared to 16.1% for the same period last year. The Refractory margin contributed 9.1% of Group EBITA margin (H1 2019 9.5%) and the backward integration contributed 2.3% (H1 2019 5.7%).

Net financial expenses in H1 2020 amounted to €37.1 million (H1 2019 €45.3 million), as the Group continues to benefit from lower net bank interest expenses following the refinancing completed in H2 2018 and H1 2019. Interest expenses on borrowing were €9.3 million (H1 2019 €19.4 million) and €14.8 million (H1 2019 €19.9 million) was recognised in other net financial expenses. Total foreign exchange and derivative variances amounted to €15.5 million (H1 2019 €9.5 million).

Total tax for H1 2020 in the income statement amounted to €19.0 million (H1 2019 €43.5 million), representing a 27.1% effective tax rate (FY 2019: 25.5%). This tax rate is higher than recent years as a consequence of lower volumes and restructuring charges not benefitting from tax deductibility. Adjusted profit before tax amounts to €112.4 million, and the respective adjusted effective tax rate is 22.0% (FY 2019: 20.6%).

On a reported basis, the Group has recorded a profit after tax of €51.2 million (H1 2019 €121.2 million) and earnings per share of €1.03 in H1 2020 (H1 2019 €2.31). Adjusted earnings per share for H1 2020 were €1.77, which is stated after excluding other income and expenses and restructuring charges (€21.4 million), the impact of amortisation (€10.0 million), other financial income and expenses (€3.5 million), foreign exchange variances on Intercompany dividends (€7.4 million) and a higher implied tax charge of (€5.8 million).

SUMMARY

(€m unless stated otherwise)	H1 2020 Adjusted1	H1 2019 Adjusted2	Change
Revenue	1,171	1,515	(22.7)%
Adjusted EBITA	133	244	(45.4)%
Adjusted EBITA margin	11.4%	16.1%	(470)bps
Adjusted EPS	€1.77	€3.20	(44.5)%
Net debt	666	669
Net debt to adjusted LTM EBITDA	1.5x	1.1x

	H1 2020 Reported	H1 2019 Reported
Revenue	1,171	1,541
EBITA	112	228
Profit before tax	70	165
EPS	€1.03	€2.31

¹ Adjusted figures are alternative performance measures which reflect the way in which Management assesses the underlying performance of the business. Full details of the APMs can be found on page 15

² H1 2019 Adjusted for constant currency at H1 2020 average FX rates

OPERATIONAL HIGHLIGHTS

      • Responded swiftly to a very challenging environment; safe working conditions established, and liquidity, production and supply chains maintained

      • Prudent measures quickly taken to preserve cash, including reduced capex and dividend suspension

      • Short term cost savings measures successfully executed, reducing fixed costs by €25m Q2 2020, with a similar level of savings expected in H2 2020

      • Strategy remains on track; key initiatives extended to further improve cost effectiveness

o  Production Optimisation Plan on track, and opportunities to expand the scope identified
o  Additional selling and administration run-rate savings identified of €10 million in 2020 and €30 million in 2021

o  Review of internal raw material sourcing to maximise quality and cost advantage

FINANCIAL HIGHLIGHTS

      • Revenue decreased by 22.7% at constant currency, reflecting the impact of COVID-19 on customer demand 

o Steel revenue decreased by 22.4% 

o Industrial revenue decreased by 23.5% 

      • Robust adjusted EBITA margin performance of 11.4%

o Refractory margin of 9.1% in H1 2020 (H1 2019 9.5%)

o 2.3% margin contribution from backward integration, despite further falls in raw material prices

      • Positive operating free cash flow of €93 million (H1 2019 €129 million) 

      • Stable net debt of €666 million (H1 2019: €669 million and FY 2019: €650 million) and strong financial position with liquidity of €1.1 billion

OUTLOOK

      • Conditions through Q2 have been consistent with the Group's COVID-19 planning assumptions and activity levels expected to remain subdued into Q3, with limited visibility thereafter

      • Strategy unchanged with appropriate actions implemented to ensure that the business can manage effectively through an extended period of subdued demand
      • Efficiency initiatives will support profitability in H2 and beyond
      • Strong financial position ensures the Group is well equipped to take advantage of growth opportunities when markets improve

Commenting on the results, Chief Executive Officer, Stefan Borgas, said:

"The response of colleagues across the business to the COVID-19 crisis has been outstanding. As a result of everyone's efforts, RHI Magnesita has been able to establish safe working conditions, and maintain its production capabilities and supply chains to serve our customers throughout this challenging period. Conditions in our key markets have been consistent with the assumptions made for our Covid-19 scenario planning work and we have reacted quickly to reduced demand by taking prudent measures to preserve cash and manage costs. Whilst revenues and profits are down materially in H1, the Group has maintained double digit operating margins and positive operating cash flow.

"Activity levels are likely to remain subdued in Q3, with limited visibility into Q4. However, our strategy remains on track and we have extended a number of our key initiatives to further improve, for the longer term, our overall cost effectiveness. These initiatives, reducing SG&A and further consolidating our production network, will support the profitability in both H2 2020 and beyond.

"The long-term economic impact of COVID-19 remains uncertain. However, the business is taking appropriate actions to ensure it is able to manage effectively through an extended period of subdued demand. With significant financial strength, RHI Magnesita is well equipped to take advantage of growth opportunities when markets improve and will exit this period of disruption with positive strategic momentum."