24 July 2024

RHI Magnesita N.V.

("RHI Magnesita" or the "Company" or "Group")

 

2024 Half Year Results

 

Resilient margins, strong cash conversion and M&A mostly offset ongoing weaker demand environment

 

RHI Magnesita, the leading global supplier of high-grade refractory products, systems and solutions, today announces its unaudited results for the six months ended 30 June 2024 ("H1 2024" or the "Period").

 

Financial results (Adjusted, €m unless stated otherwise)1	H1 2024	H1 2023	Change	H1 2023 (constant currency)	Change (constant currency)
Revenue	1,728	1,734	0%	1,716	1%
Adjusted EBITDA	258	265	(3)%	271	(5)%
Adjusted EBITA	190	200	(5)%	207	(8)%
Adjusted EBITA margin	11.0%	11.6%	(60)bps	12.0%	(100)bps
Adjusted EPS (€/per share)	2.59	2.53	2%
Adjusted Operating Cash Flow	233	228	2%
Net debt2	1,274	1,124	13%
Net debt to Pro Forma Adjusted EBITDA3	2.4	2.1

 

(Reported, €m unless stated otherwise)	H1 2024	H1 2023
Revenue	1,728	1,734
Gross profit	416	414
EBITA	174	184
Profit before income tax	143	111
Profit after income tax	111	83
EPS (€/per share)	2.15	1.71
Dividend (€/per share)	0.60	0.55

1.  Adjusted figures are alternative performance measures "APMs" excluding impairments, amortisation of intangibles and exceptional items to enable an understanding of the underlying performance of the business. Full details are shown in the APM section.

2.  H1 2024 Net debt includes the impact of IFRS 16 of €66 million. For further details see Note 11.

3.  Pro Forma Adjusted EBITDA is used to assess financial gearing and includes a full year of Adjusted EBITDA contribution from businesses acquired during the year.

 

Operational and strategic highlights

• Steel division sales volumes decreased by 1% excluding M&A, due to weaker than forecast steel output in all regions except India in H1
• Industrial division demand reduced, with 10% lower sales volumes excluding M&A, due to customer capital project cycle, movement of certain project deliveries to H2 and subdued cement demand in markets outside India
• Production increased to match sales volumes following destocking in 2023
• Recycling rate increased to 13.2% (H1 2023: 13.0%), €5 million acquisition of Refrattari Trezzi in Italy further strengthens European recycling footprint
• Increasing customer demand for RHI Magnesita's automated solutions and robotics in SAM, NAM and India regions
• Intended $430 million acquisition of Resco Group now subject to Second Phase Review by US merger authorities and expected to complete in late H2 2024 or early 2025
• Key green steel contract win in April reinforces sustainability leadership position - RHI Magnesita to design and supply refractory linings for furnaces to be installed by SMS group at Thyssenkrupp's €2 billion Duisburg project

 

Financial highlights

• Revenue of €1,728 million in line with H1 2023 (€1,734 million) as M&A contribution offsets 3% decline in sales volumes and 4% lower pricing in the base business
• Adjusted EBITA of €190 million (H1 2023: €200 million) reflecting lower volumes and lower backward integration benefits, as price and mix impacts were balanced by reduced input costs
• Adjusted EBITA margin of 11.0% (H1 2023: 11.6%) in line with guidance, comprising high refractory margin of 10.2% (H1 2023: 9.8%) and very low raw material margin contribution of 0.8% (H1 2023: 1.8%)
• M&A contribution to Adjusted EBITDA of €34 million (H1 2023: €15 million) represents progress against full year guidance of approximately €80 million, with second half weighting for synergy benefits and similar demand and pricing conditions to the base business. The contribution to Adjusted EBITA was €27 million and full year guidance for Adjusted EBITA from M&A is €65 million
• Adjusted EPS increased 2% to €2.59 per share (H1 2023: €2.53 per share) supported by FX related gains
• Working capital reduced by €80 million to €894 million (31 December 2023: €974 million), driven by lower receivables and higher payables
• Adjusted Operating Cash Flow of €233 million with strong EBITA cash conversion of 123% (H1 2023: 114%), supported by second half phasing for capex
• Net Debt reduced to €1,274 million (31 December 2023: €1,304 million), gearing stable and within guided range at 2.4x (31 December 2023 Net debt to Pro Forma Adjusted EBITDA: 2.3x)
• Interim dividend of €0.60 per share declared, in line with policy

 

Outlook

• Refractory demand remains subdued in all key geographies with the exception of India, following a period of weaker than forecast steel output in the first half of the year, lower capex at industrial customers leading to fewer projects and reduced activity in the key end markets of construction and transportation
• RHI Magnesita remains on track to achieve Adjusted EBITA of at least €410 million, as previously guided, based on higher sales volumes and unit cost savings resulting from increased capacity utilisation and efficiency measures
• Second half order book is supported by normal seasonality in the cement market, the push back of certain industrial project deliveries previously scheduled for the first half and a higher weighting of steel sales in H2 as China steel exports reduce
• The Group continues to take action to preserve margins and is well positioned to increase output into a future recovery, with significant operational gearing and fixed cost absorption benefits to be realised once customer demand returns. The timing of such recovery remains uncertain

 

Stefan Borgas, Chief Executive Officer, said: "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. We have taken appropriate measures to safeguard profitability and cash generation throughout this period, as demonstrated by the release of €80 million 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. We remain 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 in the remainder 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 CO₂ emissions and to provide enabling technologies for our customers to do the same."

 

For further enquiries, please contact:

Investors: Chris Bucknall, Head of Investor Relations, +43 699 1870 6490, chris.bucknall@rhimagnesita.com

Media: Hudson Sandler, +44 020 7796 4133, rhimagnesita@hudsonsandler.com

 

Conference call

A presentation for investors and analysts will be held on 24 July 2024 starting at 8:15am UK time (9:15am CET). The presentation will be webcast live and details can be found on: https://ir.rhimagnesita.com/. Alternatively the webcast can be accessed using the following link:

https://www.investis-live.com/rhimagnesita/6662ee06806e6315001f447b/wrqq

A replay will be available on the same link shortly after event. 

 

About RHI Magnesita

RHI Magnesita is the leading global supplier of high-grade refractory products, systems and solutions which are critical for high-temperature processes exceeding 1,200°C in a wide range of industries, including steel, cement, non-ferrous metals and glass. With a vertically integrated value chain, from raw materials to refractory products and full performance-based solutions, RHI Magnesita serves customers around the world, with around 22,000 employees in 47 main production sites, 9 recycling facilities and more than 70 sales offices. RHI Magnesita intends to leverage its leadership in terms of revenue, scale, product portfolio and diversified geographic presence to target strategically those countries and regions benefitting from more dynamic economic growth prospects.

The Group maintains a premium listing on the Official list of the London Stock Exchange (symbol: RHIM) and is a constituent of the FTSE 250 index, with a secondary listing on the prime segment of the Vienna Stock Exchange (Wiener Börse). For more information please visit: www.rhimagnesita.com

 

FORWARD LOOKING STATEMENTS

This announcement contains (or may contain) certain forward-looking statements with respect to certain of the Company's current expectations and projections about future events. These statements, which sometimes use words such as "aim", "anticipate", "believe", "intend", "plan", "estimate", "expect" and words of similar meaning, reflect the directors' beliefs and expectations and involve a number of risks, uncertainties and assumptions which could cause actual results and performance to differ materially from any expected future results or performance expressed or implied by the forward-looking statement. Statements contained in this announcement regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. The information contained in this announcement is subject to change without notice and, except as required by applicable law, the Company does not assume any responsibility or obligation to update publicly or review any of the forward-looking statements contained in it and nor does it intend to. You should not place undue reliance on forward looking statements, which apply only as of the date of this announcement. No statement in this announcement is or is intended to be a profit forecast or profit estimate or to imply that the earnings of the Company for the current or future financial years will necessarily match or exceed the historical or published earnings of the Company. As a result of these risks, uncertainties and assumptions, the recipient should not place undue reliance on these forward-looking statements as a prediction of actual results or otherwise. The Company has no obligation or undertaking to update or revise the forward-looking statements contained in this announcement to reflect any change in its expectations or any change in events, conditions, or circumstances on which such statements are based unless required to do so by applicable regulations. The numbers presented throughout this announcement may not sum precisely to the totals provided and percentages may not precisely reflect the absolute figures, due to rounding.

 

OVERVIEW

 

Health & safety

A core value of the Group is to maintain a safe working environment for its employees and contractors. 

It is with deep sorrow that we report a fatal incident occurred at one of the Group's plants in China in June 2024. A thorough investigation of the root cause of this incident has been carried out and procedural changes will be implemented worldwide to prevent recurrence.

Following three tragic fatalities over the past 18 months in its operations the Group has commenced a wide-ranging review of safety procedures, risks, preventive measures and safety culture, with external support from DSS+. The Board and management are fully committed to making all necessary changes and improvements to eliminate fatalities, serious injuries and in the longer term to achieve zero harm.

During H1 2024 the lost time injury frequency ("LTIF"), excluding recently acquired businesses, decreased significantly to 0.07 per 200,000 hours worked (H1 2023: 0.25), whilst total recordable injury frequency ("TRIF") reduced to 0.33 per 200,000 hours worked (H1 2023: 0.58).

 

Financial overview

Reported revenue decreased by 0.3% to €1,728 million (H1 2023: €1,734 million) as a €223 million revenue contribution from M&A completed in 2023 offset a 3% decline in sales volumes and a 4% decline in average pricing in the base business, due to expected product mix changes and price reductions.

Price reductions were in line with guidance to be up to 5% lower than 2023. Sales volumes in the base business were anticipated to be flat in 2024 versus the prior year, as a moderate recovery in steel volumes balanced a cyclical reduction in industrial sales. However, global steel production was weaker than forecast in all regions except India in the first half of 2024.

The key input costs of purchased raw materials, energy and freight were lower on average compared to H1 2023. Reduced input costs combined with better fixed cost absorption to offset the 4% decline in pricing, and the revenue impact of changing product mix towards lower priced refractories in the industrial segments of Cement & Lime, NFM and other industrials. An increase in SG&A largely due to M&A and a reduced contribution from the Group's raw material assets resulted in Adjusted EBITA of €190 million (H1 2023: €200 million) at a margin of 11.0%, in line with guidance. Refractory margin contribution increased to a record high of 10.2 ppts whilst the contribution from raw material assets reduced to 0.8 ppts due to low benchmark prices for refractory raw materials.

Adjusted EPS increased to €2.59 per share (H1 2023: €2.53) supported by an FX gain of €14 million (H1 2023: loss of €15 million). Net interest expenses of €19 million were higher than €18 million incurred in H1 2023 but better than anticipated in full year guidance of €50 million due to repayment of higher margin facilities and lower base rates.

Net debt decreased to €1,274 million, a reduction of €30 million from the €1,304 million reported at 31 December 2023, as cash generation from the base business and 2023 M&A exceeded the final dividend payment of €59 million and €39 million allocated to investments and acquisitions, net of proceeds from disposals. Gearing, measured as the ratio of net debt to pro forma Adjusted EBITDA, increased to 2.4x (31 December 2023: 2.3x), due to the decrease in pro forma Adjusted EBITDA in the 12 months to 30 June 2024 to €541 million, compared to €561 million in the 12 months to 31 December 2023.

 

M&A

The intended acquisition of Resco for up to $430 million has moved into second phase review by US merger authorities and the expected timing for completion is now late 2024 or early 2025.

The Group acquired Refrattari Trezzi for an enterprise value of €5 million in June 2024. Refrattari Trezzi is a recycling specialist based in Italy and the transaction is an important step towards achieving RHI Magnesita's decarbonisation targets in Europe, which to date have largely been delivered through recycling. Together with the Group's Joint Venture MIRECO, a strong platform has been established to further advance the circular economy in European refractories.

The Group allocated €46 million of capital to acquisitions and investments in the Period including Resco, Refrattari Trezzi, Seven Refractories Cyprus, Jinan New Emei and MCi Carbon. A non-cash gain of €7 million was realised from the disposal of the Group's interest in its Dashiqiao joint venture in China.

M&A completed in 2023 contributed €34 million to Adjusted EBITDA against guidance of approximately €80 million for the full year, as acquired businesses experienced similar demand and pricing conditions to the base business and as the realisation of synergy benefits is weighted towards the second half. The recently acquired non-basic European project business delivered a strong performance during the first half, supported by resilient demand from glass and aluminium customers.

 

Raw materials

Magnesite and dolomite based raw material prices remained at a cyclical low in H1 2024, with the exception of medium grade dead burned magnesia ("DBM") from China delivered to Europe, which increased as a result of higher freight costs. Whilst remaining at lower average levels than H1 2023, magnesite based raw material prices increased slightly during the Period, as loss making Chinese producers withdrew marginal production from the market. The lower average price levels for magnesite based raw materials resulted in a record low EBITA contribution from vertical integration of 0.8ppts (H1 2023: 1.8ppts). The raw material margin contribution is expected to remain low at around 1.0 ppts in 2024 and will be driven by the timing of recovery in global demand for refractories.

Alumina-based refractory raw materials (in which the Group is not vertically integrated) increased in price significantly during the first half of 2024, due to supply constraints in the global alumina and bauxite markets combined with increasing demand for alumina for aluminium production. A price increase programme has commenced for alumina-based refractories to maintain margins on these products.

 

Sustainability

RHI Magnesita increased its Ecovadis rating to 76 in June 2024 (2023: 72), triggering a reduction in the margin payable on approximately €2 billion of debt facilities, which will result in an annual saving of c.€0.5 million on debt interest expenses. Ecovadis recognised the Group's commitment to sustainability and its improved performance in labour and human rights and sustainable procurement practices. RHI Magnesita is ranked in the 97^th percentile of industrial companies covered by Ecovadis and received a 'Gold' rating.

Recycling rates increased to 13.2% (H1 2023: 13.0%), with a significant increase in absolute volumes of secondary raw materials usage offset by the effect of M&A completed in 2023, as new businesses joined the Group with an initially lower level of recycled raw material usage. The Group maintains its target to achieve a recycling rate of 15% by 2025, including the dilutive impact of M&A. Since 2019, over 1 million tonnes of CO₂ emissions have been averted as a result of the Group's recycling activities and the use of secondary raw materials remains the primary route by which CO₂ emissions reductions have been achieved. During the Period, a new business unit was established to assess the possibility to grow sales of recycled minerals to customers outside the Group, in addition to supplying RHI Magnesita's internal requirements.

RHI Magnesita continues to invest in the research and development of a wide range of CO₂ emissions reduction technologies to reduce its carbon footprint in the long term. During the first half of 2024, the Group invested €3 million in a further funding round for its technology partner MCi Carbon and progressed a pilot plant project in Newcastle, Australia to demonstrate the remineralisation of CO₂ using the MCi Carbon process.

A key contract was awarded to the Group for the design and supply of refractories for DRI Open Bath Furnaces to be installed by SMS group at Thyssenkrupp's €2 billion, 2.3 Mtpa Duisburg project in North Rhine-Westphalia, Germany. This contract award demonstrates RHI Magnesita's leading position in the refractory industry, with unique capabilities to partner with OEMs and customers for the development of the new technologies that will enable the decarbonisation of the steel industry and other hard to abate sectors. Green steel production is expected to result in an increase in demand for the refractory products in which RHI Magnesita already has a leading market position, technical knowledge and extensive vertical integration.

 

Outlook and guidance updates

Refractory demand remains subdued in all key geographies with the exception of India, following a period of weaker than forecast steel output in the first half of the year, lower capex at industrial customers leading to fewer projects and reduced activity in the key end markets of construction and transportation. RHI Magnesita remains on track to achieve Adjusted EBITA of at least €410 million in 2024, as previously guided, based on higher sales volumes and unit cost savings resulting from increased capacity utilisation and efficiency measures. Second half volumes are expected to be supported by normal seasonality in the cement market, the push back of certain industrial project deliveries previously scheduled for the first half and a higher weighting of steel sales volumes in the second half of the year as China steel exports reduce. The Group continues to take action to preserve margins and is well positioned to increase output into a future recovery, with significant operational gearing and fixed cost absorption benefits to be realised once customer demand returns. The timing of such recovery remains uncertain.

Capital expenditure guidance of €170 million issued at the full year results is revised to €135 million due to the reclassification of €35 million of spending on digital architecture and ERP system upgrade as an expense, which will not be capitalised. The previously guided c.€100 million of spending over three years on digital upgrades from 2024-26 will be reported under 'Other expenses' in the Profit and Loss statement and will be excluded from Adjusted EBITDA, Adjusted EBITA and Adjusted EPS. Expenses of €15 million on this item were incurred in the first half of 2024.

Working capital intensity of approximately 24% is targeted in 2024 and the Group expects to maintain Net debt to Pro Forma Adjusted EBITDA within the guided range of 2.0-c.2.5x for periods of compelling M&A.

Guidance for net interest expenses in 2024 is reduced from €50 million to €45 million due to the repayment of higher cost facilities and lower base rates. Guidance for other adjusted net financial expenses is also reduced from €35 million to €30 million, resulting in €75 million of adjusted net finance expenses guided for 2024.

Guidance for non-controlling interest expense in 2024 is increased from approximately €10 million to €20 million to reflect the €9 million expense already incurred in the first half of 2024 and positive outlook for India. All other guidance remains as set out in the Group's Full Year Results announcement dated 28 February 2024.

 

Capital allocation and shareholder returns

The Board's capital allocation policy remains to support the long-term Group strategy, providing flexibility for both organic and inorganic investment opportunities and delivering attractive shareholder returns over the midterm. These opportunities will be considered against a framework of strategic fit, risk profile, rates of return, synergy potential and balance sheet strength.

The Group incurred €35 million of project capital expenditure in the first half (H1 2023: €38 million), in recently acquired assets. Maintenance capital expenditure in the period was €26 million (H1 2023: €25 million). Total capital expenditure was therefore €68 million (H1 2023: €63 million), against full year 2024 guidance of €135 million, including M&A.

Consistent with the Company's dividend policy to pay an interim dividend equal to one third of the previous final dividend, the Board has declared an interim dividend of €0.60 per share representing €28 million in aggregate. The interim dividend will be paid on 26 September 2024 to shareholders on the register on 30 August 2024.

 

OPERATIONAL REVIEW

 

Steel overview

Steel	H1 2024	H1 2023 reported	H1 2023 (constant currency)	Change	Change (constant currency)
Revenue (€m)	1,185	1,203	1,192	(1)%	(1)%
Gross profit (€m)	268	260	269	3%	0%
Gross margin	22.6%	21.6%	22.6%	100bps	0bps

 

Supplying refractory products and services to the steel industry accounted for c.69% of RHI Magnesita's revenues in H1 2024. Refractory products are required to protect steel making equipment from extremely high temperatures of up to 1,800°C, chemical corrosion and abrasion. Refractory product applications include iron making (blast furnace or direct reduction), primary steel-making (basic oxygen furnace or electric arc furnace) as well as ingot and continuous casting. RHI Magnesita offers a complete range of products and solutions for the steel making process. The lifespan of refractory products in the steel making process can range from hours to months depending on the application, for example a slide gate is a consumable item that may need to be replaced every four hours whilst the lining of a primary steel making furnace could require re-lining at six month intervals. Refractory consumption in steel making is therefore classified as an operating expense by steel producers and usually accounts for around 2-3% of operating costs, on average.

Steel segment revenues decreased by 1% to €1,185million (H1 2023: €1,203 million, constant currency €1,192 million). Global steel demand in all regions excluding India declined in H1 2024 due to weakness in the key end markets of construction, transportation and consumer goods. High inflation and interest rates continued to impact consumer demand and the cost of financing for new capital projects in many economies.

Shipped volumes of steel refractories decreased by 2% as steel exports from China reduced domestic steel production volumes in several of the Group's core geographic markets in Europe and the Americas.

Sales from the Group's Advanced Technology portfolio gathered momentum during the first half, with increasing customer interest and orders in South America, North America and India. A growing proportion of contracts now include products from the Advanced Technology portfolio, which includes systems, sensors, robotics and specialist machinery. This range of products brings a broad range of benefits to the customer such as health and safety improvements, increased productivity and process reliability. Each component can be networked and performance enhancements made using intelligent data evaluation, allowing for continuous optimisation and stability.

 

Industrial overview

Industrial	H1 2024	H1 2023 reported	H1 2023 (constant currency)	Change	Change (constant currency)
Revenue (€m)	543	531	524	2%	4%
Gross profit (€m)	148	154	151	(4)%	(2)%
Gross margin	27.2%	29.0%	28.7%	(180)bps	(150)bps

 

RHI Magnesita is a leading supplier of refractory products and services to customers in the cement and lime, non-ferrous metals, glass, energy, environmental and chemicals industries. These Industrial customers accounted for c.31% of Group revenues in H1 2024 and have longer replacement cycles compared to Steel customers, ranging from one to 20 years. Refractories are classified as capital expenditure by Industrial customers and represent between 0.2% and 1.5% of total costs over the life cycle of a facility.

The Industrial division increased revenues by 2% to €543 million (H1 2023: €531 million) or 4% in constant currency terms, with shipped volumes increasing by 10%. The main drivers for the increase in shipped volumes was the strong business performance in the regions Europe 32% and India 31% driven by M&A contributions, offsetting weaker demand in North America, South America and China. Excluding the contribution from M&A, volumes decreased by 10% and revenues decreased by 14%.

 

Cement & lime

Cement and lime revenues of €188 million represented 11% of Group revenues in H1 2024 (H1 2023: €214 million) and decreased by 12%, mainly driven by lower volumes and prices in all regions. The cement maintenance season in Q1 2024 was weaker than the prior year due to low utilization of cement kilns during 2023 caused by a global slowdown in construction activity.

 

Non-ferrous metals

Non-ferrous metal ("NFM") refractory revenues accounted for 7% of the Groups revenues in H1 2024 and decreased by 8% to €127 million (H1 2023: €138 million), driven by a 8% decrease in volumes and flat pricing. The NFM market is project based and linked to the capital project cycles of customers in the metals and mining sector which is a longer and later cycle business compared to the steel industry. Strong project based activity in 2023 reduced as expected in the first half of 2024.

 

Other

Glass refractory shipped volumes increased by 13% in H1 2024, contributing to an increase in revenues of 26% from €82million to €104 million in H1 2024 and represented 6% of Group revenues. The main driver for growth in this segment were the contributions from acquisitions completed in Europe in 2023. Excluding M&A revenues decreased by 24% driven by weakness in construction end markets.

Revenues from other industrial applications accounted for 5% of the Groups revenues in H1 2024 and includes the customer markets of energy, environment, chemicals, foundry and aluminium. Revenues increased by 71% to €94million (H1 2023: €55 million), largely due to the impact of acquisitions. Excluding M&A, revenues decreased by 1%.

 

Minerals

Raw materials not utilised internally by the Group are sold in the open market and reported under Minerals generating revenues of €30million in H1 2024 (H1 2023: €41 million). The decrease in revenues resulted from lower sales volumes and weaker market prices for refractory raw materials.

 

Regional business units

 

Revenue	H1 2024	H1 2023 reported	H1 2023 (constant currency)	% change (reported)	% change (constant currency)
Europe, CIS & Türkiye	465	426	419	9%	11%
Steel	280	287	280	(2)%	0%
Industrial	185	139	139	33%	33%
North America	432	476	475	(9)%	(9)%
Steel	329	348	348	(5)%	(5)%
Industrial	103	128	127	(19)%	(19)%
India, West Asia & Africa	355	361	358	(2)%	(1)%
Steel	264	282	280	(6)%	(6)%
Industrial	91	79	78	16%	16%
South America	258	258	255	0%	1%
Steel	191	182	183	5%	5%
Industrial	67	76	72	(11)%	(7)%
China & East Asia	187	172	168	8%	11%
Steel	120	103	101	17%	19%
Industrial	66	69	67	(4)%	(1)%
Minerals	30	41	41	(27)%	(26)%
Total	1,728	1,734	1,716	0%	1%

 

Europe, CIS & Türkiye

Europe, CIS & Türkiye revenues increased by 9% to €465 million (H1 2023: €426 million), or by 11% in constant currency terms, due to positive contributions from M&A, notably in the non-basic project business and Seven Refractories. Excluding M&A, revenues decreased by 12% to €369 million. Shipped volumes increased by 12% but decreased by 3% excluding M&A.

Gross profit increased by 8% to €102 million (H1 2023: €95million) with lower gross margins of 21.9% (H1 2023: 22.2%) due to pricing pressure and higher unit costs resulting from low capacity utilisation.

Steel revenues remained flat in constant currency and decreased by 2% on a reported basis. Türkiye performed particularly strongly in the first six months, recording a volume increase of 29.4%. This was mainly a recovery from weak volumes in H1 2023 when the region was affected by earthquakes which resulted in temporary shutdowns of steel plants. Steel production in the European Union declined slightly, reflecting temporary plant suspensions and reduced end market demand from regional construction and automotive industries.

Industrial volumes increased by 32% and revenues by 33% in constant currency terms, supported by the acquisition of non-basic process industries focused P-D Refractories in the fourth quarter of 2024. Excluding the contribution from M&A, industrial segments reported a decrease in revenues of 15% to €118 million and a decrease in shipped volumes of 13%, reflecting the weak demand environment.

Plant capacity utilisation remained at low levels, leading to ongoing under-absorption of fixed costs.

New customer wins in the waste to energy segment were achieved, strengthening RHI Magnesita's position in this market and further diversifying the business. New product sales initiatives were focused on high recycling content product ranges, to further improve sustainability performance.

In April 2024 RHI Magnesita was awarded a major new contract for the design and supply of refractory linings for two DRI Open Bath Furnaces ("DRI-OBF") to be installed by SMS group as the original equipment manufacturer ("OEM") as part of Thyssenkrupp's flagship €2 billion, 2.3 Mtpa green steel project at its Duisburg site in North Rhine-Westphalia, Germany. The Duisburg project will produce steel from 2027, initially using natural gas for direct reduction of iron ore and subsequently, through the use of hydrogen, reducing CO₂ emissions to close to zero. RHI Magnesita's contract as the refractory supplier to the OEM represents material new project revenue and validation of the Group's strategy to position itself as the leading supplier of refractory linings and services for OBF, EAF and BOF converters, which are expected to be essential for the large-scale adoption of green steel production globally.

 

North America

Revenues in North America decreased by 9% to €432 million (H1 2023: €476 million) or by 9% in constant currency terms, largely driven by a volume decline of 8% and lower pricing.

Gross profit decreased to €116 million (H1 2023: €133 million) at a margin of 26.8% (H1 2023: 28.0%), mainly due to higher unit costs resulting from low capacity utilisation.

Steel revenues decreased by 5% to €329 million (H1 2023: €348 million), driven by weaker customer demand with shipped volumes decreasing by 5%.

Despite the subdued steel market, pricing remained resilient and only moderately decreased compared to H1 2023. The North America region continues to benefit from new contracts to supply recent greenfield and brownfield developments, all of which are new or expanding EAF plants, with further new plants anticipated to come online in 2025. Low customer demand in Mexico was exacerbated by some lost production due to strike action in local plants, now resolved.

In the Industrial segments of Cement & Lime, NFM and Other industrials, revenues declined to €103 million, representing a decrease of 19% (H1 2023: €128 million). The main factor impacting revenues was a decrease in sales volumes of 19%, largely due to a cyclical downturn in customer project activity.

The US recycling rate increased to a record high of 13.5% (2023: 8.3%), through strengthening the partnership with recycling processors and continued development of the regional recycling team. The high-recycling content gunning mixes developed and produced in the region have become a benchmark for the Group in sales and recycling consumption.

 

India, West Asia & Africa

Revenues in India, West Asia & Africa decreased by 2% to €355 million (H1 2023: €361 million) or by 1% in constant currency. Excluding M&A, revenues decreased by 3%. Although steel output growth in the region was positive, RHI Magnesita's steel sales volumes decreased by 4% for the first six months of 2024, as the Group prioritised pricing and margins over market share. Steel volumes were also impacted by a temporary suspension of shipments to a key customer due to overdue payments (now resolved), a reduction in orders around the time of the Indian elections and increased competition from Chinese exporters. The order book for the second half of 2024 indicates a recovery in steel sales volumes.

Following M&A in 2023 new opportunities are being pursued in iron-making refractories, and a substantial order has been secured for coke oven repair. The Group also received an order for a fully automated robotic solution, including multiple systems over a multi-year contract, its first such contract in India, during the Period.

Gross profit increased by 4% to €82 million (H1 2023: €78 million) with increased gross margins of 23.1% (H1 2023: 21.6%) supported by pricing discipline and lower input costs.

Gross margin in steel increased slightly to 22.0% (H1 2023: 19.9%).

Industrial revenues increased by 16% to €91million (H1 2023: €79 million) largely due to the contribution of the DBRL acquisition, which led to an 31% increase in sales volumes of industrial refractories. Industrial gross margin declined to 26.4% (H1 2023: 27.7%) due to the mix effect of strong growth in lower priced product ranges.

 

South America

Revenues in South America were flat at €258 million (H1 2023: €258 million) and 1% higher in constant currency terms (H1 2023: €255 million). A high inflation environment, combined with reduced consumer spending and economic challenges in Argentina continued to affect economic activity in the region, impacting RHI Magnesita's end customers. Despite market weakness, the business region continues to benefit from long-term partnerships with its customers who value RHI Magnesita's local supply guarantee and high-quality performance refractories. Gross profit increased to €77 million (H1 2023: €73 million) at a margin of 29.7% (H1 2023: 28.3%).

Steel revenues increased by 5% to €191 million (H1 2023: €182 million) as price increases more than offset a 3% reduction in shipped volumes.

Industrial revenues decreased by 11%, mainly driven by lower shipped volumes which reduced by 6%. Demand for cement and lime refractories remained below 2023 levels driven by weak customer demand, excluding in Brazil where demand remained stable. Reduced economic activity in Argentina, the second most important market in the region, impacted revenues.

The region significantly improved its recycling rate, reaching 12.3% in H1 2024, from 11.0% in H1 2023. This improvement was driven by sourcing, research and development, processing, consumption, and sales efforts, highlighting the Group's commitment to sustainability and efficient resource management.

The Brumado expansion project has been completed and commissioned with the recent startup of the rotary kiln. The project increases the life of the Brumado mine to c.120 years and further improves its cost competitiveness. The kiln is currently in ramp up and will increase low-cost production capacity in advance of an expected recovery in end market demand.

 

China & East Asia

Revenues in China & East Asia increased to €187 million (H1 2023: €172 million), an increase of 8%, or 11% in constant currency terms, as the acquisition of Jinan New Emei offset pricing pressure in the region. Due to declining domestic steel production, the refractory market in China currently suffers from oversupply and weak pricing. Exports of surplus refractory production have impacted surrounding regions, such as East Asia, India and West Asia.

RHI Magnesita's Gross profit in China & East Asia increased to €38 million (H1 2023: €32 million) reflecting the revenue increase and higher gross margin of 20.5% (H1 2023: 18.6%).

Shipped volumes of steel refractories excluding M&A in China increased by 2%. In East Asia, low demand combined with competing exports from China resulted in temporary plant closures, driving an 8% decrease in revenues in constant currency terms. Steel revenues in the region excluding M&A decreased by 7% to €84 million.

Sales volumes in the Industrial segments decreased by 3% and revenues decreased by 4% to €66 million from €69 million in H1 2023. The Cement & lime segment experienced low shipped volumes due to weak construction activity resulting from the subdued real estate market in China. Glass volumes were similarly adversely impacted by both a weak construction market and a downturn in the solar energy industry.

 

FINANCIAL REVIEW

 

Reporting approach

The Company uses a number of alternative performance measures (APMs) in addition to measures reported in accordance with International Financial reporting Standards as adopted by the European Union ("IFRS"), which reflect the way in which the Board and the Executive Management Team assesses the underlying performance of the business. The Group's results are presented on an "adjusted" basis, using APMs that are not defined or specified under the requirements of IFRS, but are derived from the IFRS financial statements. The APMs are used to improve the comparability of information between reporting periods and to address investors' requirements for clarity and transparency of the Group's underlying financial performance. The APMs are used internally in the management of our business performance, budgeting and forecasting. A reconciliation of key metrics to the reported financials is presented in the section titled APMs.

All references to comparative 2023 numbers in this review are on a reported basis, unless stated otherwise. All reported volume changes year-on-year are excluding mineral sales.

 

Revenue

The Group recorded revenues of €1,728 million, a 0.7% increase on a constant currency basis (H1 2023: €1,716). On a reported basis, revenues decreased by 0.3% (H1 2023: €1,734 million), due to the depreciation of certain key currencies against the Euro, including the US dollar, Chinese yuan, Brazilian real and Indian rupee. Foreign exchange effects impacted revenues in Euro terms by €18 million.

 

	H1 2024	H1 2023 reported	H1 2023 (constant currency)	Change	Change (constant currency)
Steel
Revenue (€m)	1,185	1,203	1,192	(1)%	(1)%
Gross profit (€m)	268	260	269	3%	0%
Gross margin	22.6%	21.6%	22.6%	100bps	0bps
Adjusted EBITA (€m)	117	110	119	7%	(2)%
Adjusted EBITA margin	9.9%	9.1%	10.0%	80bps	(10)bps
Industrial
Revenue (€m)	543	531	524	2%	4%
Gross profit (€m)	148	154	151	(4)%	(2)%
Gross margin	27.2%	29.0%	28.7%	(180)bps	(150)bps
Adjusted EBITA (€m)	73	91	88	(20)%	(17)%
Adjusted EBITA margin	13.4%	17.1%	16.7%	(370)bps	(330)bps

 

Steel revenues decreased to €1,185 million, a decrease of 1% on a reported basis (H1 2023: €1,203 million) and 1% on a constant currency basis (H1 2023: €1,192 million), representing 69% of Group revenue in the first six month of 2024. The main driver behind the decrease in revenues were a subdued steel market lead by weak demand in all regions as well as pricing pressure, both partially offset by M&A contributions. Sales volumes in the Steel segment decreased by 2%.

Industrial revenues increased by 2% to €543 million (H1 2023: €531 million) and by 4% in constant currency terms (H1 2023: €524 million), outperforming steel revenue growth due to contributions from M&A. Cement and lime revenues decreased by 12% to €188 million (H1 2023: €214 million), while non-ferrous metal revenues decreased by 8% to €127 million (H1 2023: €138 million). Revenues in the glass business increased by 26% to €104 million (H1 2023: €82 million) driven by strong contributions from M&A. Revenues from industrial applications increased by 71% to €94 million (H1 2023: €55 million), also due to M&A.

Industrial revenues include revenues from mineral sales of €30 million, which were 27% lower than the prior year (H1 2023: €41 million), due to lower market prices for refractory raw materials.

 

Cost of goods sold

Cost of goods sold decreased by 1% to €1,312 million from €1,320 million in H1 2023 and increased by 1% on a constant currency basis. The cost of purchased raw materials decreased by 10% to €535 million (H1 2023: €594 million). Plant-related labour costs increased by 16% during the first six month of 2024 from €218 million to €253 million, mainly due to acquisitions as well as salary increases to offset the impact of inflation. Following a period of disruption and high inflation in 2023, freight and energy costs decreased by 23% and 15% respectively in H1 2024. Since May freight costs have increased significantly again due to ongoing conflicts in the Red Sea, low water levels in the Panama channel and equipment failure at major ports in Singapore and Malaysia. The lower shipping capacity combined with longer sea routes have led to an increase in freight costs and are expected to continue in H2 2024.

Unit costs in H1 2024 were impacted negatively by low production capacity utilisation, leading to under-absorption of fixed costs. Expenditure on general supplies including pallets, packaging and spare parts increased in line with the business growth to €275 million compared to €211 million in H1 2023.

 

Raw material prices

Average raw material prices were lower in H1 2024 compared with H1 2023, with the price of high-grade dead burned magnesia ("DBM") from China declining 2%. The main driver for the decrease in DBM was oversupply combined with lower customer demand for refractories globally. Lower raw material prices usually result in lower finished goods pricing for refractories worldwide, as production costs for non-vertically integrated competitors are reduced.

Alumina, another key raw material feedstock for the manufacturing of refractories, recorded a 37% price increase since the end of H1 2023, driven by tight bauxite markets in China and elevated alumina demand for aluminium production. Higher alumina prices combined with increased freight costs experienced towards the end of H1 2024 led to higher cost of goods sold for the Group towards the end of H1 2024, which is in the process of being passed on to customers via price increases.

 

Gross profit

Gross profit was flat at €416 million (H1 2023: €414 million) lower raw material costs partially offset by higher plant related personnel costs and gross margins were also relatively stable at 24.1% (H1 2023: 23.9%). The positive contribution from M&A was offset by lower sales volumes in the base business. The benefits of reduced raw material, energy and freight input costs and improved fixed cost absorption were balanced out by pricing and product mix impacts, as anticipated in the Group's full year 2024 earnings guidance.

Gross profit in the Steel segment increased to €268 million (H1 2023: €260 million) despite the 2% decline in shipped volumes, as higher margins offset the reduction in sales. The Industrial division recorded a slight decrease in gross profit to €148 million (H1 2023: €154 million) with margins of 27.2%, 180bps lower compared to H1 2023, as lower shipped volumes in cement & lime, glass and NFM were only partially offset by the contribution from M&A.

 

(€m)	H1 2024	H1 2023 reported	H1 2023 (constant currency)	Change	Change (constant currency)
Revenue	1,728	1,734	1,716	0%	1%
Cost of sales	(1,312)	(1,320)	(1,296)	(1)%	1%
Gross profit	416	414	420	0%	(1)%
SG&A	(222)	(213)	(213)	4%	4%
R&D expenses	(23)	(22)	(22)	1%	1%
OIE	(16)	(16)	(16)	2%	3%
EBIT	155	163	169	(5)%	(8)%
Amortisation	19	22	22	(14)%	(14)%
EBITA	174	184	191	(6)%	(9)%
Adjusted items	16	16	16	2%	3%
Adjusted EBITA	190	200	207	(5)%	(8)%
Refractory EBITA	176	170	-	4%	-
Vertical integration EBITA	14	30	-	(53)%	-

 

Selling, general and administrative expenses (SG&A), before R&D-related expenses, amounted to €222 million in H1 2024, a 4% increase compared to the previous reporting period (H1 2023: €213 million), attributable to increases in labour costs and M&A additions.

Other income and expenses amounted to €16 million in H1 2024, (H1 2023: €16 million) including €15 million of expenditure on digital architecture, including an ERP system upgrade as set out in "Items excluded from adjusted performance" below.

Depreciation increased by 5% to €68 million (H1 2023: €64 million), including €7 million of depreciation relating to assets acquired in the previous year. Depreciation in 2024 is expected to be around €140 million.

 

Adjusted EBITDA

The Group recorded Adjusted EBITDA of €258 million, a 3% decrease compared to the previous reporting period (H1 2023: €265 million). Adjusted EBITDA margin decreased to 14.9% (H1 2023: 15.3%) a decrease of 40bps, reflecting an increase in SG&A. Adjusted EBITDA margin decreased by 90bps on a constant currency basis.

 

Adjusted EBITA

Adjusted EBITA decreased to €190 million from €200 million in H1 2023, in line with the decreased Adjusted EBITDA. Adjusted EBITA from businesses acquired amounted to €27 million, with the base business excluding M&A recording a reduction in Adjusted EBITA, mainly due to lower like for like sales volumes and pricing pressure. Adjusted EBITA margin reduced to 11.0% (H1 2023: 11.6%) as M&A contributions were offset by weaker sales mix and lower pricing as well as a record low vertical integration margin.

Vertical integration contributed 0.8ppts of the total Adjusted EBITA margin of 11.0%, lower than the 1.8ppts contribution from vertical integration in H1 2023, primarily due to the decline in the price of key refractory raw materials. Lower raw material prices negatively impact the calculation of the contribution from the Group's raw material assets, which is based on the theoretical cost of acquiring those raw materials in the open market. The Group continues to expect a contribution of 2.5ppts to 3.5ppts from its vertical integration over the longer term due to the competitive cost position of its raw material assets.

The Group's refractory business contributed a historic high 10.2ppts towards the total Adjusted EBITA margin of 11.0%, an increase of 50 bps compared to the 9.7ppts contribution in 2023, reflecting lower input costs, the benefits of M&A synergies and structural cost reductions resulting from the Group's strategic cost-saving initiatives.

Adjusted EBITA and Adjusted EBITDA both exclude €16 million of Items excluded from adjusted performance (H1 2023: €16 million), including restructuring costs, M&A-related costs and other expenses as set out in "Items excluded from adjusted performance" below.

Adjusted EBITA in 2024 is expected to be at least €410 million.

 

Net finance expenses

Net finance expenses, which includes interest payable on borrowings net of interest income on cash balances, gains and losses relating to foreign exchange, pension expenses, present value adjustments, factoring costs and non-controlling interest expenses, decreased to €12 million (H1 2023: €51 million).

Net interest expenses increased to €19 million (H1 2023: €18 million) due to higher base rates on variable interest rate facilities. Interest expenses on borrowings of €32 million (H1 2023: €27 million) were offset by €14 million of interest income on cash balances on deposit (H1 2023: €9 million).

Foreign exchange gains of €14 million were incurred in the first six months of 2024 compared to foreign exchange related losses of €15 million in H1 2023, mainly driven by US Dollar strength, Brazilian Real and Mexican Peso weakness and a €3 million IAS29 hyperinflation adjustment related to Argentina.

Other net financial expenses amounted to €8 million (H1 2023: €19 million) including factoring costs of €5 million (H1 2023: €5 million), pension charges of €4 million (H1 2023: €5 million) and present value adjustments of €4 million (H1 2023: €4 million).

Guidance for net interest expenses in 2024 is reduced from €50 million to €45 due to the repayment of higher cost facilities and lower base rates. Guidance for other adjusted net financial expenses is also reduced from €35 million to €30 million, resulting in €75 million of adjusted net finance expenses guided for 2024.

 

(€m)	H1 2024	H1 2023
Net interest expenses	(19)	(18)
Interest income	14	9
Interest expenses	(32)	(27)
FX effects	14	(15)
Balance sheet translation	23	(23)
Derivatives	(9)	8
Other net financial expenses	(8)	(19)
Present value adjustment	(4)	(4)
Factoring costs	(5)	(5)
Pension charges	(4)	(5)
Non-controlling interest expenses	(3)	(3)
Capitalization of borrowing costs	2	1
Interest expense - Transaction costs	-	(1)
Other	7	(2)
Total net finance expenses	(12)	(51)

 

Items excluded from adjusted performance

In order to accurately assess the underlying performance of the business, the Group excludes certain items from Adjusted EBITA related to other income and expenses of €16 million associated with:

·    €(15)million of expenses relating to digital architecture update and ERP system upgrade

·    €(9) million of losses on disposal of Argentinian bonds

·    €(7) million of expenses related to M&A activities

·    €(2) million of other expenses

·    €9 million historical FX gains from disposal of assets (non-cash effect)

·    €7 million of amortisation of onerous contracts imposed by EU as part of the merger with Magnesita

 

Taxation

Total tax for H1 2024 in the income statement amounted to €32 million (H1 2023: €28 million), representing a 22% reported effective tax rate (H1 2023: 25%).

Reported profit before tax amounted to €143 million (H1 2023: €111 million). Adjusted profit before tax amounted to €173 million (H1 2023: €159 million), with an adjusted effective tax rate of 24% (H1 2023: 24%). Adjusted items include non-taxable IFRS revenues related to put option valuation and sale of fixed assets in China, as well as non-deductible legal restructuring costs.

The adjusted effective tax rate guidance is between 23-25% for 2024.

 

Profit after tax

On a reported basis the Group recorded profit after tax of €111 million (H1 2023: €83 million), profit attributable to shareholders of €102 million (H1 2023: €81 million) and earnings per share of €2.15 (H1 2023: €1.71).

Adjusted profit after tax increased to €131 million (H1 2023: €121 million) and Adjusted earnings per share was €2.59 (H1 2023: €2.53). A full reconciliation of EBITA to EPS and Adjusted EBITA to Adjusted EPS can be found in the table in the APMs section.

Profit attributable to shareholders is stated after non-controlling interests of €9 million (H1 2023: €3 million). The Group, holding a majority stake of 56% in RHI Magnesita India Ltd., attributes most of its non-controlling interests to the earnings consolidated from this subsidiary. Guidance for non-controlling interest expense in 2024 is increased from approximately €10 million to €20 million to reflect the €9 million expense already incurred in the first half of 2024 and positive outlook for India.

 

(€m)	H1 2024	Items excluded from adjusted performance	H1 2024 adjusted	H1 2023 reported	Items excluded from adjusted performance	H1 2023 adjusted
EBITA	174	16	190	184	16	200
Amortisation	(19)	19	-	(22)	22	-
Net financial expenses	(12)	(5)	(17)	(51)	10	(41)
Profit before tax	143	30	173	111	48	159
Income tax	(32)	(10)	(42)	(28)	(10)	(38)
Profit after tax	111	20	131	83	38	121
Non-controlling interest	9	-	9	3	-	3
Profit attributable to shareholders	102	20	122	81	38	119
Shares outstanding	47	-	47	47	-	47
Earnings per share	2.15	0.43	2.59	1.71	0.81	2.53

 

Working capital

Working capital excluding M&A decreased to €748 million (30 June 2023: €834 million) driven by a decrease in accounts receivable in line with reduced business activity. Including additional working capital resulting from M&A in 2023, working capital increased to €894 million.

Working capital intensity excluding M&A, measured as a percentage of the last three months' annualised revenue, decreased to 24.3% (30 June 2023 excluding M&A: 25.7%). Excluding M&A, accounts receivable intensity was 10.8% (30 June 2023 excluding M&A: 8.6%), accounts payable intensity was 14.7% (30 June 2023 excluding M&A: 12.9%) and inventory intensity decreased to 28.2% (30 June 2023 excluding M&A: 30.1%). Including the impact of M&A, working capital intensity decreased to 25.3% (30 June 2023: 26.0%).

Inventories excluding M&A decreased to €869 million (30 June 2023 excluding M&A: €974 million), as a result of lower input costs and reduced inventory volumes. Including M&A, inventories were €997 million (30 June 2023: €1,053 million) with demand coverage ratios at targeted levels.

Accounts receivable excluding M&A decreased to €332 million (30 June 2023 excluding M&A: €278 million), reflecting the lower level of business activity. Accounts receivable is calculated as trade receivables excluding factoring plus contract assets less contract liabilities and downpayments received, and a full reconciliation can be found in the APMs section. Including M&A, accounts receivable increased to €422 million (30 June 2023: €389 million).

Accounts payable excluding M&A reduced to €453 million (30 June 2023 excluding M&A: €418 million) due to lower volumes and pricing of raw materials purchased, reflecting the subdued demand environment. Including M&A, accounts payable increased to €525 million (30 June 2023: €502 million).

Working capital financing, used to provide low-cost liquidity and support the Group's commercial offering to customers, was €289 million on 30 June 2024 (30 June 2023: €310 million), comprising €245 million of accounts receivable financing (factoring) and €44 million of accounts payable financing (forfaiting). Working capital financing levels vary according to business activity, and the Board has set an internal limit of €320 million on its use.

The decrease in overall working capital (including M&A) of €80 million versus 31 December 2023 level of €974 million was driven by the reduction in accounts receivable and increase in payables, with inventories remaining stable.

Working capital intensity is targeted to be approximately 24% in 2024.

 

Acquisitions

In April 2024 the Group announced its intention to acquire Resco Group, a US based producer of alumina monolithics and wide range of basic and non-basic refractories, for an enterprise value of up to $430 million. Completion of the transaction, which is conditional on Second Phase Review in the US, is expected to occur in late H2 2024 or early 2025.

In June 2024 the Group announced the €5 million acquisition of Refrattari Trezzi, a recycling specialist in Italy, thereby expanding its production footprint to Italy.

The Group allocated €46 million of capital to acquisitions and investments in the Period, including €33 million of prepayments for the intended acquisition of Resco, €5 million for the acquisition of Refrattari Trezzi, €3 million for the purchase of the remaining 49% stake in Seven Refractories Cyprus not already owned by the Group, a €3 million deferred payment for Jinan New Emei and €3 million invested in an equity fundraising for MCi Carbon. Expenditure on acquisitions and investments was partially offset by a non-cash gain of €7 million arising from the disposal of the Group's interest in its Dashiqiao joint venture in China.

Acquisitions agreed or completed since January 2023 are expected to contribute €80 million to Adjusted EBITDA in 2024 (H1 2024: €34 million), or €65 million of EBITA.

 

Cash flow

Adjusted operating cash flow increased to €233 million (H1 2023: €228 million) representing cash flow conversion from Adjusted EBITA of 123% (H1 2023: 114%), supported by the €80 million release of working capital.

Free cash flow decreased to €103 million (H1 2023: €167 million), mainly due to €33 million of prepayments related to the intended acquisition of Resco, recorded in 'Other investing activities' and a €3 million investment in MCi Carbon. The €33 million Resco prepayments are not expected to be refundable in the event that the transaction does not complete.

Cash income tax payments increased to €36 million (H1 2023: €24 million) and net interest paid also increased to €36 million (H1 2023: €23 million).

Cash dividends paid in the first six months of 2024 amounted to €59 million (H1 2023: €0).

Cash flow €m	H1 2024	H1 2023
Adjusted EBITDA	258	265
Share based payments - gross non-cash	5	4
Working capital changes	86	41
Changes in other assets and liabilities	(47)	(18)
Investments in PPE, IA	(68)	(63)
Adjusted operating cash flow	233	228
Income taxes paid	(36)	(24)
Cash effects of other income/expenses and restructuring	(17)	(14)
Investments in financial assets1	(22)	(5)
Cash inflows from the sale of PPE, IA2	8	2
Cash inflows from the sale of financial assets	15	-
Investment subsidies received	2	-
Dividends received	1	-
Net interest paid/received	(36)	(23)
Net derivative cash inflow/outflow	(13)	3
Dividend payments to NCI	(1)	-
Other investing activities4	(33)	-
Free cash flow	103	167
Investment in subsidiaries net of cash5	(8)	(173)
Proceeds from share issue in subsidiaries	-	100
Investments in NCI	(3)	-
Payment for share issue costs	-	(2)
Dividend payments	(59)	-
Change financial receivables from joint ventures & associates	-	3
Cash change in net debt	33	95
Debt from acquisitions	-	(55)
New lease obligations	(7)	(6)
Exchange effects	4	(2)
Others	-	12
Actual change in net debt	30	44

1.  Includes purchase of BOPREAL securities in Argentina, blue chip bond swap losses and €3 million investment in MCi Carbon

2.  Includes €7 million realised upon sale of the Group's interests in the Dashiqiao joint venture

3.  Includes €11 million cash inflow from the sale of BOPREAL securities in Argentina

4.  Comprises €33 million of prepayments related to the intended acquisition of Resco

5.  Includes €5 million acquisition of Refrattari Trezzi and €3 million deferred payment for acquisition of Jinan New Emei

 

Financial position

Net debt decreased to €1,274 million, comprising total debt of €1,812 million, leases of €66 million and cash and cash equivalents of €605 million.

Total leases of €66 million (2023: €64 million) are included in the Group's Net debt position as required by IFRS 16.

The Group's leverage position was 2.4x net debt to pro forma Adjusted EBITDA (31 December 2023: 2.3x).

Available liquidity at 30 June 2024 was €1,405 million, comprising undrawn committed facilities of €800 million and cash and cash equivalents of €605 million.

Out of the total gross debt of €1,812 million, 97% is denominated in euro. The floating to fixed ratio of the gross debt is 29% floating to 71% fixed and the weighted average cost of debt as of 30 June 2024 was 3.07%, including swaps.

The Group will seek to maintain the ratio of Net debt to Pro Forma Adjusted EBITDA within the guided range of 2.0-2.5x or above for periods of compelling M&A.

 

Return on invested capital

ROIC is used to assess the Group's efficiency in executing its capital allocation strategy, which is aimed at enabling organic growth, disciplined M&A and shareholder returns. ROIC is an APM, see the APM section for full details of how ROIC reconciles to IFRS metrics.

Under the APM definition, ROIC was 8.8% in H1 2024 (H1 2023:11.1%) based on average invested capital of €3,089million (H1 2023: €2,780 million) and NOPAT of €136 million (H1 2023: €154 million). ROIC generated by the Group's raw material assets was 2.6% (H1 2023: 10.1%) and ROIC from the refractory business was 10.0% (H1 2023: 11.9%). The main drivers of the decrease in ROIC were the increase in Average Invested Capital to €3,089 million (H1 2023: €2,780 million) as a result of M&A transactions completed in the 12 month period to 30 June 2024 and the reduction in contribution from the Raw material assets.

 

PRINCIPAL RISKS AND UNCERTAINTIES

The Group has an established risk management process based on a formally approved framework including standardised risk assessments aimed at systematically identifying and assessing risks and uncertainties amongst the functional and operational areas of RHIM Regions and Group.

Material and major risks with potentially significant impacts on the Group, its results or its ability to achieve its strategic objectives are discussed with the Executive Management Team and reviewed regularly by the Board. The risks considered by the Board to be the principal risks were presented in the 2023 Annual Report, published on 28 February 2024, which is available on the Group's website at www.rhimagnesita.com.

As part of the Group's risk monitoring processes, the Board has assessed the broader internal and external risk environment and updated the principal risks and uncertainties and have determined that nine out of ten risks reported in the 2023 Annual Report are relevant for the remaining half of the 2024 financial year. The risk Ability to strategically price and deliver price increases was removed. The risk has been replaced with the risk of Trade Compliance.

The risk scoring of six out of the ten principal risks have changed compared to H2 2023 as highlighted in the summary table below. The regulatory and compliance risks have decreased due to the creation of a new principal risk related to Trade Compliance matters due to the Group operating in an overall more complex regulatory environment primarily as a result of geopolitical tensions and acquisition activities.

In addition to the principal risks, emerging risks were considered and evaluated.

Overall, RHIM's risk landscape remains at a stable overall level, compared to H2 2023.

The risks may occur independently from each other or in combination. If they occur in combination, their impact may be reinforced. The Group might be facing other risks than the ones mentioned here, some of them being currently unknown or not considered to be material. The updated comprehensive analysis of the principal risks and emerging risks faced by RHI Magnesita will be included in the 2024 Annual Report.

 

Principal risk	Correlated risk from RHIM Group risk dashboard	Change description
1 - Macroeconomic environment and geopolitical risk	Unchanged
2 - Inability to execute key strategic initiatives	Increased	The key strategic initiatives remain on track to deliver longer-term benefits but are nonetheless complex and interdependent in nature. The risk level has been increased to reflect the wider scope due to recent M&A and emerging challenges as the execution phase progresses. Management are developing corrective plans to address the emerging risks and ensure delivery of the longer-term benefits.
3 - Significant changes in the competitive environment or speed of disruptive innovation	Unchanged
4 - Reliability of the end-to-end value chain	Increased	Low plant utilisation levels during the current period of reduced customer demand create the risk of potential inefficiencies in the plant network and under-absorption of fixed costs. This risk is increasing due to recent acquisitions and evolving global challenges.
5 - Sustainability - Environmental and climate risks	Decreased	The risk remains a high focus area for RHIM mainly driven by the targets and aims for decarbonisation.   The current risk score has decreased due to the effective short-term delivery of Sustainability improvements and the assessment of RHI Magnesita's readiness for longer term challenges regarding this risk.
6 - Sustainability -Health and safety risks	Unchanged
7 - Regulatory and compliance risks (excluding Trade Compliance)	Decreased	This risk has been re-evaluated and has been split into two principal risks. Trade Compliance has been separated and is reported as Principal risk nine. Whilst there are a wide range of Ethics, Anti-Corruption and Bribery and other compliance risks faced by RHIM the risk score reduces due to the typical low materiality of issues identified and the restructuring of Compliance risks.
8 - Cyber and information security risk	Decreased	The inherent risk of potential Cyber Attacks is at a high and increasing level. However, RHIM's residual risk score decreases due to recent strengthened internal controls and awareness programs.
9 - Trade Compliance	NEW	The specific risk in relation to sanctions regimes has become increasingly complex and therefore this risk has been identified as a distinct principal risk and given increased focus by Management.
10 - Organizational capacity to execute strategy, incl. company cultural values	Unchanged

 

 

GOING CONCERN

In considering the appropriateness of adopting the going concern basis in preparing the Interim Financial Statements, the Directors have assessed the potential cash generation of the Group and considered a reverse stress scenario that models a breach of the Group covenants under a very severe but possible economic downturn. This assessment considers the period up to the subsequent financial year end, 31 December 2025, for any indicators for which the going concern basis of preparation is not appropriate.

The reverse stress test determines how much volumes could reduce before breaching the Group's debt covenants and adjusts for price deflation. Further examples of mitigating actions within management control would be taken under this scenario, including fixed cost mitigation, working capital management, SG&A reduction and deferring capital expenditure but these were not incorporated in the downside modelling.

The Directors have also considered the Group's current liquidity and available facilities. As of 30 June 2024, the Condensed Consolidated Statement of Financial Position reflects cash and cash equivalents of €605 million (31 December 2023: €704 million). In addition, the Group has access to a €600 million (31 December 2023: €600 million) Revolving Credit Facility (RCF) and a €200 million syndicated term loan (31 December 2023: nil), to be utilised for the intended acquisition of the Resco Group, which are currently undrawn and not relied upon for the purpose of the going concern assessment. The Group has complied with the debt covenants.

On the basis of the assessment performed, the Directors consider it is appropriate to continue to use the going concern basis in preparing the Interim Financial Statements for the period ended 30 June 2024.

 

ALTERNATIVE PERFORMANCE MEASURES (APMs)

Definitions of APMs used by the Group are set out below. The purpose and usefulness of each APM and a reconciliation to the nearest IFRS equivalent measure, or a reference to a reconciliation appearing elsewhere in this document. In general, APMs are presented externally to meet investor and analyst requirements for clarity and transparency of the Group's underlying financial performance. APMs are also used internally in the management of the Group's business performance, budgeting and forecasting. APMs are non-IFRS measures which enable investors and other readers to review alternative measurements of financial performance, but they should not be used in isolation from the main financial statements. Commentary within the Annual Report, including the Financial Review, the Consolidated Financial Statements and the accompanying notes, should be referred to in order to fully appreciate all the factors and context affecting the Group's financial performance. Readers are strongly encouraged not to rely on any single financial measure and to carefully review the Group's reporting in its entirety.

Performance APMs

Adjusted EBITDA

Adjusted EBITDA is a key non-IFRS measure that the Executive Management Team (EMT) and Directors use internally to assess the underlying financial performance of the Group and is viewed as relevant to capital intensive industries. The ratio of Net Debt to Adjusted EBITDA is used as a measure of financial gearing.

Adjusted EBITDA is defined as EBIT, as presented in the Condensed Consolidated Statement of Profit or Loss, before amortisation, depreciation, and Excluded Items (see definition below).

Pro Forma Adjusted EBITDA

Pro Forma Adjusted EBITDA is used to assess financial gearing and includes a full year of Adjusted EBITDA contribution from businesses acquired during the year.

Adjusted EBITA

Adjusted EBITA is a key non-IFRS measure that the EMT and Directors use internally to assess the underlying performance of the Group.

Adjusted EBITA is determined consistently with Adjusted EBITDA, but includes depreciation expense of property, plant and equipment to reflect the wear and tear cost and future replacement of productive assets.

Adjusted EPS

Adjusted EPS is a key non-IFRS measure and one of the Group's KPIs. Adjusted EPS is used to assess the Group's underlying operational performance, post tax and non-controlling interests on a per share basis.

This measure is based on Adjusted EBITA after finance income and expenses, taxes, share of profit or loss from associates and joint ventures and non-controlling interest. Share of profit or loss from associates and joint ventures is adjusted to exclude impairments and gains or losses recognised on disposals.

Adjusted EPS excludes finance income and expenses and certain foreign exchange effects, that are not directly related to operational performance. This includes the non-cash present value adjustments for the Oberhausen provision.

Taxes are calculated by applying the effective tax rate normalised for restructuring expenses and impairments.

Excluded items

Items that are excluded (Excluded Items) in arriving at the Group's Adjusted measures of Adjusted EBITA, EBITDA and EPS include:

Other income, other expenses and restructuring expenses as reflected on the Consolidated Statement of Profit or Loss as well as gains and losses within interest income, interest expenses and other net financial expenses that are non-recurring in nature and not reflective of the underlying operational performance of the business. Excluded items include restructuring related provisions, costs in relation to corporate transactions and other non-recurring costs. The tax impacts of the above Excluded Items are also adjusted for.

Cash flow performance measures

Adjusted operating cash flow and Free cash flow

Adjusted operating cash flow is a key non-IFRS measure used by the EMT and the Directors to reflect the operational cash generation capacity of the Group before the cash impacts of Excluded Items (see definition above).

Adjusted operating cash flow is defined as Adjusted EBITDA adjusted for working capital items, changes in other assets and liabilities and capital expenditure and other non-cash items, such as share based payments. This APM is reconciled to Net Cash flow from operating activities as follows:

€m	H1 2024	H1 2023
Adjusted operating cash flow (APM)	233	228
Capital expenditure1	68	63
Income Taxes paid1	(36)	(24)
Other income/expenses and restructuring items2	(17)	(14)
Net cash flow from operating activities1	249	252

1.         As reflected in the Condensed Consolidated Statement of Cash Flows

2.         Net cash impact of adjusting Other income, Other expenses and Restructuring

 

Free cash flow is determined from the IFRS measures of Net cash flow from operating activities, net cash used in investing activities and net cash (used in)/provided by financing activities and excludes the cash impacts of purchases and disposals of business and subsidiaries, dividends paid to equity shareholders of the Group, share capital transactions with shareholders, proceeds and repayment of borrowings and current borrowings and repayment of leases.

Free cash flow is reconciled to Cash changes in Net debt in the table in the Cash flow and working capital section. Cash changes in Net debt is reconciled to Change in cash and cash equivalents in the Net Debt APM reconciliation.

Balance sheet

Liquidity

Liquidity comprises cash and cash equivalents, short term marketable securities and undrawn committed credit facilities.

 

€m	H1 2024	H1 2023
Cash and cash equivalents1	605	760
Revolving credit facility	600	600
Syndicated term loan	200	-
Liquidity (APM)	1,405	1,360

1.         As reflected in the Condensed Consolidated Statement of Financial Position

 

Net Debt

Net Debt is the excess of current and non-current borrowings, associated debt derivatives for which hedge accounting is applied and lease liabilities over cash and cash equivalents and short-term marketable securities. The Board uses this measure for the purpose of capital management. A reconciliation of Net Debt is included in Note 11 to the Condensed Consolidated Interim Financial Statements.

 

€m	H1 2024	H1 2023
Cash changes in Net debt	33	93
Proceeds from borrowings1	13	205
Repayment of borrowings1	(109)	(7)
Change in current borrowings1	(42)	(37)
Repayment of lease obligations1	(10)	(11)
Cash inflow from financial assets1	12	-
Change in cash and cash equivalents1	(103)	243

1.         As reflected in the Condensed Consolidated Statement of Cash Flows

 

Working capital

Working capital consists of inventories plus trade receivables and other receivables minus trade payables and other payables. Working capital intensity provides a measure of how efficient the Company is in managing operating cash conversion cycles. It is measured as Working capital divided by trailing three-month revenues (annualised) and is expressed as a percentage.

 

€m	H1 2024	H1 2023
Inventories (Note 9)	997	1,053
Trade receivables (Note 10)	475	460
Contract assets (Note 10)	2	4
Contract liabilities (Note 14)	(55)	(76)
Accounts receivable	422	388
Trade payables (Note 14)	(525)	(502)
Total working capital	894	940

1.         As reflected in the Condensed Consolidated Statement of Financial Position

 

Return on invested capital (ROIC)

ROIC reflects the annualised return on invested capital of the Group. The Group has amended its definition of ROIC to use Average Invested Capital, being the average of the level of Invested Capital at the beginning and end of the financial year. ROIC is calculated as NOPAT (net operating profit after tax) divided by average invested capital of the year.

 

€m	H1 2024	H1 2023
Revenue1	1,728	1,734
Cost of sales1	(1,312)	(1,320)
Selling and marketing expenses1	(65)	(73)
General and administrative expenses1	(180)	(162)
Income taxes paid2	(36)	(24)
NOPAT	136	154
€m	H1 2024	H1 2023
Goodwill3	348	357
Other intangible assets3	443	438
Property, plant and equipment3	1,322	1,311
Investments in joint ventures and associates3	6	5
Other non-current assets3	66	35
Deferred tax assets3	148	133
Inventories3	997	1,053
Trade and other receivables3	611	621
Income tax receivables3	39	39
Deferred tax liabilities3	(61)	(68)
Trade and other current liabilities3	(788)	(871)
Income tax liabilities3	(44)	(49)
Current provisions3	(30)	(33)
Invested capital	3,056	2,973
Average invested capital	3,089	2,780
Return on invested capital4	8.8%	11.1%

1.         As reflected in the Condensed Consolidated Statement of Profit and Loss

2.         As reflected in the Condensed Consolidated Statement of Cash Flows

3.         As reflected in the Condensed Consolidated Statement of Financial Position

4.         NOPAT divided by average invested capital of the year.

 

GLOSSARY

CEO	Chief Executive Officer
CFO	Chief Financial Officer
CIS	Commonwealth Of Independent States
CO2	Carbon dioxide
CoGS	Cost of Goods Sold
DBM	Dead Burned Magnesia
DBRL	Dalmia Bharat Refractories Limited
DRI	Direct Reduced Iron
DSR	Dalmia Seven Refractories Ltd
EAF	Electric Arc Furnace
EBIT	Earnings Before Interest and Taxes
EBITA	Earnings Before Interest, Taxes and Amortisation
EBITDA	Earnings Before Interest, Taxes, Depreciation and Amortisation
EMT	Executive Management Team
EPS	Earnings Per Share
ERP	Enterprise Resource Planning
EU	European Union
FX	Foreign Exchange
IAS	International Accounting Standards
IFRS	International Financial Reporting Standards
Jinan New Emei	Jinan New Emei Industries Co. Ltd
LTIF	Lost Time Injury Frequency
LTIP	Long-Term Incentive Plan
M&A	Mergers & Acquisitions
N.V.	Naamloze Vennootschap (public limited liability company)
NAM	North America
NFM	Non-Ferrous Metals
NOPAT	Net Operating Profit After Tax
OBF	Open Bath Furnace
OCF	Operating Cash Flow
OEM	Original Equipment Manufacturer
OIE	Other Income and Expenses
P-D Refractories	P-D Refractories CZ a.s.
PIFOT	Process In Full On Time
PPE	Property, Plants & Equipment / Personal Protective Equipment
RFC	Revolving Credit Facility
ROIC	Return On Invested Capital
SAM	South America
Second Phase Review	A request for additional information and documentary materials ('Second Request') from the US Department of Justice pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976
SG&A	Selling, General and Administrative Expenses
SÖRMAŞ	Söğüt Refrakter Malzemeleri Anonim Şirketi
TRIF	Total Recordable Injury Frequency
UK	United Kingdom