RHI Magnesita upbeat on recent trading

RHI Magnesita reported continued momentum in improving profitability and margins in a trading update on Thursday, supported by sustained refractory pricing and cost reduction efforts.

The AIM-traded firm said that in the first quarter, refractory sales volumes excluding mergers and acquisitions experienced a 7% year-on-year decline, which aligned with overall market demand.

Demand for steel, cement, and glass, excluding India, remained soft due to a slowdown in construction activity.

The company also noted some glass project postponements, although the non-ferrous metals segment demonstrated resilience in demand.

As expected, given the subdued demand backdrop and decreasing input costs, RHI Magnesita started experiencing sales price deflation in several markets.

The board said the trend was projected to continue and potentially accelerate throughout the rest of the year.

It said the refractory EBITA margin contribution for the period, excluding vertical integration benefits, exceeded expectations.

The company achieved that through cost deflation in April and May, primarily driven by reduced freight and purchased raw material costs.

However, weaker fixed cost absorption due to lower production volumes partially offset these gains.

RHI Magnesita acknowledged that the continued lower pricing environment for magnesite-based raw materials restrained its vertical integration EBITA margin contribution.

The margin contribution aligned with the 1.8% of group margin achieved in the second half of 2022.

As a result, the overall adjusted EBITA margin for the period reached 12.1%, an improvement compared to 11.6% in 2022.

The company reported unaudited adjusted EBITA of €174m - a significant increase from €155m in the previous year.

In terms of the financial position, RHI Magnesita said its net debt-to-EBITDA remained relatively stable, similar to the 2.1x ratio reported at the end of March.

The firm’s absolute net debt as at 31 May remained largely unchanged from the end of December, supported by “robust” operating cash flow.

RHI Magnesita maintained a significant liquidity reserve of €1.2bn.

Net working capital, excluding the consolidation of mergers and acquisitions, slightly decreased compared to its level at the end of 2022.

The reduction in inventory and accounts receivable was mostly offset by lower accounts payable, as the firm emphasised its commitment to ensuring the security of supply for customers to support recent market share gains.

Capital expenditure for the first five months of 2023 amounted to €42m, out of the projected total expenditure of €200m for the year.

The board said the spending was weighted towards the second half of the year.

Merger and acquisition activities contributed to an increase in net debt by €268m during the first five months of the year.

However, RHI Magnesita said it successfully raised around €101m through a qualified institutional placement in April, as a result, was planning to invest €22m in RHI Magnesita India via a preferential issue, expected to be completed in June.

The acquisition of Seven Refractories, announced earlier, for a cash consideration of €95m, was meanwhile anticipated to be finalized in the second half of the year.

“The outlook for the group's key end markets and consequently customer volumes remains uncertain, with the order book currently suggesting only a moderate volume increase in the second half, if at all, resulting in ongoing under-absorption of fixed cost,” the board said of its outlook.

“Pricing pressure is expected to continue and possibly accelerate through the remainder of the year.

“Supported by the stronger than expected performance in the first five months of the year, the board now expects a modest outperformance on its earlier 2023 EBITA and EBITA margin guidance.”

Leverage, measured as a ratio of net debt-to-EBITDA, was meanwhile expected to remain above 2.0x as the group further executed on its merger and acquisition pipeline.

At 0939 BST, shares in RHI Magnesita were up 0.54% at 2,594p.

Reporting by Josh White for Sharecast.com.