RHI Magnesita maintains forecasts amid 'difficult' end markets
RHI Magnesita reported “robust” first half performance on Monday, despite what it called “difficult” end markets, with revenue rising 2.2% to €1.54bn (£1.43bn) in the six months ended 30 June.
The FTSE 250 refractory giant said that reflected the strength of the dollar, as well as a “strong” performance from its industrial division, while the steel division turned in a weaker period.
Adjusted EBITA was ahead 12.3% year-on-year at €234m, which the board said was driven by the further realisation of synergies totalling €10m, and the strength of the industrial division.
Its adjusted EBITA margin continued to progress to 15.2% - up 140 basis points from the prior year, and in line with the firm’s strategy.
Operating free cash flow totalled €129m, down from €136m year-on-year, which was the result of EBITA growth, offset by working capital outflow of €118m - in particular, accounts receivable and accounts payable.
RHI Magnesita said it maintained its “strong” financial position, with net debt at 1.1x EBITDA, compared to the 1.2x it reported for the 2018 financial year, after making final payments of €45m in respect of the acquisition of Magnesita, and the €58m impact of IFRS 16 lease accounting.
The board announced an interim dividend of 50 euro cents per share, in line with its progressive dividend policy.
On the operational front, RHI Magnesita reiterated its “strong” performance from the industrial division, but also noted the increasing uncertainty in steel markets, with lower volumes and selective market share loss seen in the steel division in Europe and North America.
It said that was pPartly driven by customer destocking, after a strong 2018.
Those challenges were offset in the period by an “encouraging” market response to the price rise programme across the portfolio, and resilience from geographic and customer diversification, the board said.
It added that its growth markets continued to perform strongly, with the first major solutions contract won in China alongside revenue growth of 17% there, and India revenue growth of 16%.
The firm reported good margin performance, despite a “less supportive” raw material backdrop, adding that it was “firmly on track” for its expected additional €20m synergy benefit for 2019.
Improvement plans to recover €20m in 2019 of the €40m operating underperformance during 2018, relating to four plants, was also progressing in line with expectations.
RHI Magnesita said it saw some working capital expansion in the first half, which was expected to be partly recovered by year-end.
“I am pleased to announce a robust financial performance in the first half of 2019, which has seen a very strong performance from our industrial division, offsetting a slightly softer performance from the steel division in more challenging market conditions,” said chief executive officer Stefan Borgas.
“Against this backdrop, we have seen the benefits of both our geographic and market diversification, as well as the strength of our operating platform.
“As a result, these challenges have so far been offset by our strategic initiatives.”
Borgas said those included the benefits generated from the company’s growth strategies, particularly in the industrial division and across Asia, as well as its ability to secure price increases.
In addition, he said the company saw further realisation of the synergies which continued to accrue from the merger, alongside operational improvements.
“Our steel customers' end markets are experiencing lower volume demand in 2019, particularly in Europe.
“As a result of the broader macroeconomic uncertainties, we have seen both volumes and visibility deteriorate in several of our markets, together with lower order backlogs and inventory reductions in the entire supply chain.”
In the second half of the year, the company expected the current market uncertainty to continue, which with poor visibility, Borgas said there was the possibility of reduced customer inventories.
“However, the self-help measures at our disposal, the initial benefits of the price rise programme announced in April and the momentum in our industrial division underpin our confidence in further progress.
“Consequently, management expectations for the full year operating results remain unchanged.”