RHI Magnesita reports continued momentum in first quarter
Refractory specialist RHI Magnesita said in an update on Friday that its momentum of improving EBITA and margins continued through the first quarter, despite lower sales volumes, which were in line with management expectations and overall market demand.
The FTSE 250 company said refractory sales volumes were 8% lower than the first three months of 2022, driven by a slowdown in construction activity that softened steel and cement demand outside of India and China.
On the other hand, demand in the industrial projects segment remained robust.
The prices of magnesite-based raw materials remained at relatively low levels throughout the period, with the group's vertical integration margin remaining largely unchanged from the low level of the second half of 2022.
Despite higher energy costs, refractory margins were resilient due to slower cost escalation based on lower freight and purchased raw material costs.
Profitability was supported by the benefits of the group's strategic sales and cost reduction initiatives, the contribution from recent acquisitions in Türkiye and India, together with geographic and product diversification, the board said.
EBITA margins in the first quarter were ahead of guidance of approximately 10% for 2023, although pricing pressure was expected to occur in the rest of the year as input costs reduced for refractory producers globally.
The group said it was able to reduce its net debt-to-EBITDA ratio to 2.2x after a successful qualified institutional placement (QIP) in India, which raised €101m through the placing of 15.7 million new shares in RHI Magnesita India.
It said its pro forma leverage, including a 12-month historic pro forma EBITDA contribution from businesses acquired during the period and the proceeds of the QIP, was 2.1x EBITDA.
Total investments in mergers and acquisitions of €155m were completed during the first quarter, including the acquisitions of the Indian refractory business of Dalmia Bharat Refractories and Hi-Tech Chemicals, and a €5m investment in MCi Carbon, Australia.
The acquisitions of Dalmia OCL and Hi-Tech completed in India during the first quarter increased the group's local market share from around 20% to 30%, and represented “significant progress” in RHI’s strategic goal to grow in markets in which it was under-represented, including in India, China, and Türkiye.
Looking ahead, the board said order book trends suggested the potential for a gradual recovery in steel customer demand in the short term, although the outlook for end markets and customer volumes remained uncertain, and a significant recovery in volumes was not expected, in line with most economic forecasts globally.
The board said it was confident in the group's ability to achieve its current guidance for the 2023 financial year, provided that customer demand continued to recover over the coming months, and pressure on pricing remained limited to the passing-on of cost normalisation.
Leverage measured as a ratio of net debt-to-EBITDA was expected to remain above 2.0x, as the group further executed on its merger and acquisition pipeline.
“RHI Magnesita benefited from resilient pricing in the first quarter as we fulfilled orders placed in the fourth quarter of 2022 during the peak inflationary period,” said chief executive officer Stefan Borgas.
“Our improved refractory-margin performance benefits from the investments we have made to rationalise our network, and leaves us well placed to meet expectations for the year.”
Borgas said signs of a recovery in short-term demand were visible in the firm’s order book, adding that while the industry remained exposed to volatility in end markets, it still assumed that no major recession would occur globally.
“We have continued to make steady progress in mergers and acquisitions as we identify value-adding opportunities to grow our business through consolidation in key target geographies and product areas, whilst carefully managing our balance sheet.”
Reporting by Josh White for Sharecast.com.