RHI Magnesita cautious on full-year outlook amid market challenges

(Sharecast News) - Refractory products and systems specialist RHI Magnesita reported resilience and growth in its first half on Wednesday, despite challenges in the market, although it struck a downbeat tone on its full-year outlook. The FTSE 250 company said its revenue reached €1.73bn in the six months ended 30 June, making for a 9% increase from the same period in 2022, primarily due to higher pricing and contributions from recent acquisitions.

Adjusted EBITA for the period rose to €200m from €188m a year earlier, with the board reporting that despite lower sales volumes, factors such as currency tailwinds, higher pricing, strategic sales initiatives, and contributions from acquisitions had supported its EBITA and margin.

Price increases contributed significantly to the EBITA growth, amounting to €167m compared to the first half of last year.

RHI Magnesita's recent mergers and acquisitions played a role in its financial performance, with the firm reporting that it generated €19m in adjusted EBITDA from them in the period, with a total contribution expected to reach €40m for the full year.

Moreover, strategic initiatives since 2019 had cumulatively contributed €131m to EBITA, successfully achieving the guided range for the 2023 period.

Adjusted earnings per share for the half-year remained relatively stable at 253 euro cents per share, compared to 258 cents per share in the first half of 2022.

That was put down to higher debt interest charges and currency fluctuations.

RHI Magnesita said its focus on cash flow management was evident in the significant improvement in free cash flow, which reached €167m in the period, swinging from a €146m outflow in the first half of last year.

Additionally, its efforts to reduce debt were successful, with net debt decreasing to €1.12bn and its pro forma net debt-to-adjusted EBITDA ratio declining to 2.1x.

Operationally, RHI Magnesita recorded a 5% increase in steel revenues, driven by higher pricing, which compensated for an 8% decline in sales volumes amid subdued global market demand.

Its industrial division also performed well, benefiting from a strong pricing recovery and the later cycle nature of the project business, resulting in an improved gross margin of 29.0%.

Looking ahead, RHI Magnesita said there was still an element of uncertainty in key end markets, adding that it expected continued weakness in demand for the second half.

Although pricing remained resilient, competitive pressure could arise in the coming months.

Additionally, lower production volumes could offset the benefits of lower input costs.

As a result, the board revised its full-year outlook, with its adjusted EBITA margin now expected to be between 10.5% and 11.5%, as it aimed to achieve full-year adjusted EBITA, including acquisition contributions, of at least €360m.

An interim dividend of 55 euro cents per share was declared for the period.

"In the first half of the year we continued to experience challenging conditions in the steel market as a result of low demand volumes in all geographies with the exception of India," said chief executive officer Stefan Borgas.

"However, I am pleased to report that the resilience of our business model and strategy has been demonstrated by strong pricing, sector diversification, the delivery of material benefits from our strategic sales initiatives and a growing contribution from acquisitions.

"We have generated free cash flow of €167m, compared to an outflow of €146m in the first half of 2022, and we are now on course to deliver full-year EBITA of at least €360m with a margin of between 10.5% and 11.5%."

Borgas said that was higher than expected at the start of the year, but with the benefits from lower input costs eroded by fixed cost under-absorption due to low production volumes.

"Five acquisitions completed in 2023 year to date have been funded through operating cash flows and an equity raise in India, enabling us to reduce gearing to 2.1x pro forma EBITDA, in line with our targeted range.

"We are continuing to progress the transformation of our business and the delivery of our strategy, despite the challenging overall demand conditions."

At 0800 BST, shares in RHI Magnesita were down 1.6% at 2,824p.

Reporting by Josh White for Sharecast.com.