RHI Magnesita warns on earnings as steel markets deteriorate further
Refractory products and systems supplier RHI Magnesita updated the market on its trading for the third quarter on Thursday, reporting that since its interim results in August, the global steel market had weakened further, with global production declining quarter-on-quarter.
The FTSE 250 company said that as a result of those declines, customers had “significantly reduced” their inventories during the three month period ended 30 September across their supply chain. including refractory products.
It said that market environment had led to lower volumes sold, and accordingly lower fixed-cost recovery from reduced plant utilisation, which together had more-than-offset the firm’s ongoing cost saving initiatives.
“Despite contributions from the price increases implemented in April 2019, third quarter steel revenues are down 14% against the same period in 2018, including the exit from Iran in 2018, the board said in its statement.
“A materially lower contribution from the steel division in the second half of 2019, against the first half, is now expected.”
RHI Magnesita said the industrial division continued its strong performance seen in the first half into the third quarter.
The order book there remained “robust” across all of the division's end markets, especially in cement, with project visibility extending into 2020.
RHI Magnesita said it was still making “strong progress” with its integration plans, following the merger of RHI with Magnesita, and remained on track to realise its synergy targets of at least €90m in 2019 and €110m by 2020.
“Further progress has been made to address the operational issues experienced at four European plants and the challenges in the supply chain, as outlined in the 2018 results,” the board added.
“The company is on track with these operational improvements and continues to expect to substantially resolve these issues in 2019, however the planned benefits have been offset by reduced plant utilisation and fixed cost recovery.”
As part of its long-term strategy, the firm’s management said it had started to implement further initiatives to reduce the group's long-term costs, and optimise its operating network.
“Despite the strong ongoing performance of the industrial division and the self-help opportunities available to the group, the continued deterioration in steel sales volumes and the lower fixed cost recovery from reduced plant utilisation have more than offset these benefits.
“Consequently, expectations for the current financial year have reduced to an adjusted EBITA in the range of €400m to €410m.”
RHI Magnesita said its customers had “poor visibility”, and their end-markets were likely to remain challenging.
“The group, however, will continue to execute its strategy, realising the benefits of its integrated model, its growth in new markets, and its additional cost savings and efficiency initiatives, with an increased focus on free-cash-flow generation.”