Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- RHI Magnesita NV (WBO:RHIM, Financial) delivered a resilient set of results despite a challenging global demand environment.
- The company achieved a strong cash flow performance, with a cash conversion rate of 123% of EBITA and EUR233 million in operating cash flow, marking the highest since its listing in 2017.
- RHI Magnesita NV maintained stable revenues compared to the first half of 2023, supported by contributions from acquisitions.
- The company is actively transforming its business through strategic acquisitions, sustainability leadership, and the development of new products and technologies.
- RHI Magnesita NV is making significant progress in sustainability, with increased recycling rates and a notable reduction in CO2 emissions, positioning itself as a leader in the refractory industry.
Negative Points
- Global demand remains weak, with no short-term catalysts expected to drive a significant recovery in the second half of 2024.
- Steel sales volumes decreased by 1%, and industrial sales volumes were down by 10% compared to the previous period.
- Pricing has trended lower for both steel and industrial divisions, with an average reduction of 4% across the businesses.
- The company reported a tragic fatality at one of its plants in China, highlighting ongoing challenges in workplace health and safety.
- RHI Magnesita NV faces competitive pressures, particularly from Chinese imports affecting market share in regions like India and Southeast Asia.
Q & A Highlights
Q: What gives you confidence that the export flood from China will reduce in the second half, and does this also apply to raw materials?
A: Stefan Borgas, CEO: Many geographies are implementing import tariffs, making domestic steel production more competitive against Chinese imports. This trend is evident globally. Historically, Chinese steel exports decrease in the second half of the year. Regarding raw materials, there's a focus on quality and environmental improvements in China, particularly affecting alumina prices. However, magnesite-based raw materials remain abundant, with slight recent increases not factored into 2024 projections.
Q: Is there any significant risk or concern around the Resco deal, and is it included in this year's guidance?
A: Stefan Borgas, CEO: The Resco deal is proceeding as expected, with no significant risks. The second request investigation was anticipated, and the deal is expected to close by the end of this year or early next year. It is not included in the 2024 guidance.
Q: Can you provide more color on the refractory margin of 10.2% and its future progression?
A: Stefan Borgas, CEO: The refractory margin results from optimizing raw materials, plant operations, and supply chain management. There is potential for further improvement, especially through acquisitions. Ian Botha, CFO, added that a 14% EBITA margin is achievable over time, with operational leverage and raw material price normalization contributing to this.
Q: What is happening in the broader refractory marketplace, and how are competitors behaving?
A: Stefan Borgas, CEO: Competition varies by region. In China, it's fragmented and volume-focused. In India, there's a risk of oversupply due to plant expansions. European competition is more strategic, focusing on supply and technology. North America remains disciplined, while Mexico and some South American markets face Chinese import challenges.
Q: Can you explain the discrepancy in Indian market performance compared to overall production?
A: Stefan Borgas, CEO: The discrepancy is due to a shipment stop with a large customer and increased Chinese imports affecting market share. Additionally, the Indian elections caused a temporary pause in orders, which are expected to recover in the second half.
Q: Can you expand on the pipeline of green steel projects? Is Duisburg a one-off or a regular opportunity?
A: Stefan Borgas, CEO: Currently, green steel projects are significant but not regular. RHI Magnesita has won key projects, including a hydrogen-based steel plant, but these are not yet frequent enough to be a regular business contribution.
Q: Does the full-year guidance include further recovery in capacity utilization and fixed cost absorption?
A: Ian Botha, CFO: Yes, the guidance includes a modest increase in capacity utilization and fixed cost absorption, aligning production with increased sales volumes.
Q: Does the 14% EBITA margin target include vertical integration assumptions?
A: Ian Botha, CFO: Yes, the 14% EBITA margin target includes assumptions of vertical integration benefits.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
