RHI Magnesita: Transformal Year 2017 with a Strong Performance
In addition to the cross-border merger, RHI Magnesita recorded a strong operating performance in the financial year which is attributable to the company’s efficient operations, improving macroeconomic environment and the engagement of all employees worldwide. “We continue to successfully implement our planned integration actions and remain very confident in achieving significant synergies. Now, we expect the EUR 70 million in synergies to be already capture fully in 2019, with at least EUR 40 million in 2018”, commented CEO Stefan Borgas.
Adjusted pro-forma revenue for 2017 was EUR 2677,2 million, an 11,1 % increase over the figures of EUR 2409,1 million achieved in 2016. The increase reflects sales growth in both the steel and industrial divisions, supported by strong industrial production globally.
The adjusted pro-forma EBITA was EUR 304,1 million, 38,7 % above the adjusted pro-forma performance for 2016. The adjusted pro-forma EBITA margin reached 11,4 %. The improvement was mostly driven by higher sales with resulting better fixed cost dilution, in addition to the company’s initiatives to improve efficiency in its operations.
The adjusted pro-forma sales to steel totalled EUR 1913,1 million, up by 14,2 % over 2016 adjusted pro-forma sales. The robust performance was largely driven by the 5,3 % increase in world steel production in 2017. According to the World Steel Association, global steel production totalled 1,69 billion t, compared with 1,61 billion t in 2016, with output expanding in almost all regions, with steel production increasing simultaneously in Europe, North America and South America, after a few years of production declines. In addition, RHI Magnesita’s growth initiatives evolved constructively, especially in USA, Brazil and India, where deliveries growth surpassed underlying steel market growth.
The adjusted pro-forma revenue of the Industrial Division grew by 2,6 % in 2017, to EUR 658,8 million, compared to EUR 642,1 million in 2016. Growth was led by the cement segment, especially in the second half of the year. The raw material crisis in China also influenced the demand for refractories, as some customers anticipated orders to secure supply. Despite recovering metal prices in 2017, there were virtually no greenfield projects in the nonferrous segment in the year, thus reducing most of the business to standard repairs with very few major new relining activities. Demand for refractories from the glass industry improved during the year, especially from flat glass, as some projects came online during the year. For the container glass segment, demand remained nearly flat year-over-year. Finally, sales to the Environment – Energy – Chemical (EEC) segment were flat compared to the previous year, as oil and gas prices have not recovered yet to a level that would trigger substantial new investments.
The refractory raw material markets suffered a dramatic change after the Chinese government enforced stricter environmental controls which caused temporary and permanent closures of raw material facilities during the year. This measure caused a significant imbalance between supply and demand and, consequently, Chinese-sourced raw material prices skyrocketed. Prices for the two main magnesite-based raw materials, dead-burned magnesia (DBM) and electro-fused magnesia (EFM), from China have more than doubled during the year and remain well above historical levels. This environment created significant challenges for all refractory producers and forced price adjustments across the supply chain. Moreover, the environment created scarcity of important raw material for the refractory industry across the globe. RHI Magnesita’s vertically integrated business model, with high quality raw material sources, allowed the Company to ensure supply to its customers while managing to maintain competitive costs.