TIDMRHIM
RNS Number : 1408V
RHI Magnesita N.V.
05 August 2020
RHI Magnesita N.V.
("RHI Magnesita" or the "Company" or the "Group")
Resilient performance in tough market conditions
RHI Magnesita, the leading global supplier of high-grade
refractory products, systems and solutions, today announces its
unaudited results for the six months ended 30 June 2020 ("H1 2020"
or the "Period").
Highlights
(EURm unless stated otherwise) H1 2020 H1 2019 Change
Adjusted(1) Adjusted(2)
-------------------------------- ------------- ------------- ---------
Revenue 1,171 1,515 (22.7)%
-------------------------------- ------------- ------------- ---------
Adjusted EBITA 133 244 (45.4)%
-------------------------------- ------------- ------------- ---------
Adjusted EBITA margin 11.4% 16.1% (470)bps
-------------------------------- ------------- ------------- ---------
Adjusted EPS EUR1.77 EUR3.20 (44.5)%
-------------------------------- ------------- ------------- ---------
Net debt 666 669
-------------------------------- ------------- ------------- ---------
Net debt to adjusted
LTM EBITDA 1.5x 1.1x
H1 2020 H1 2019
Reported Reported
------------------- ---------- ----------
Revenue 1,171 1,541
------------------- ---------- ----------
EBITA 112 228
------------------- ---------- ----------
Profit before tax 70 165
------------------- ---------- ----------
EPS EUR1.03 EUR2.31
(1) Adjusted figures are alternative performance measures which
reflect the way in which Management assesses the underlying
performance of the business. Full details of the APMs can be found
on page 15
(2) H1 2019 Adjusted for constant currency at H1 2020 average FX
rates
Operational Highlights
-- Responded swiftly to a very challenging environment; safe
working conditions established, and liquidity, production and
supply chains maintained
-- Prudent measures quickly taken to preserve cash, including
reduced capex and dividend suspension
-- Short term cost savings measures successfully executed,
reducing fixed costs by EUR25m Q2 2020, with a similar level of
savings expected in H2 2020
-- Strategy remains on track; key initiatives extended to further improve cost effectiveness
o Production Optimisation Plan on track, and opportunities to
expand the scope identified
o Additional selling and administration run-rate savings
identified of EUR10 million in 2020 and EUR30 million in 2021
o Review of internal raw material sourcing to maximise quality
and cost advantage
Financial Highlights
-- Revenue decreased by 22.7% at constant currency, reflecting
impact of COVID-19 on customer demand
o Steel revenue decreased by 22.4%
o Industrial revenue decreased by 23.5%
-- Robust adjusted EBITA margin performance of 11.4%
o Refractory margin of 9.1% in H1 2020 (H1 2019 9.5%)
o 2.3% margin contribution from backward integration, despite
further falls in raw material prices
-- Positive operating free cash flow of EUR93 million (H1 2019 EUR129 million)
-- Stable net debt of EUR666 million (H1 2019: EUR669 million
and FY 2019: EUR650 million) and strong financial
position with liquidity of EUR1.1 billion
Outlook
-- Conditions through Q2 have been consistent with the Group's
COVID-19 planning assumptions and activity levels expected to
remain subdued into Q3, with limited visibility thereafter
-- Strategy unchanged with appropriate actions implemented to
ensure that the business can manage effectively through an extended
period of subdued demand
-- Efficiency initiatives will support profitability in H2 and beyond
-- Strong financial position ensures the Group is well equipped
to take advantage of growth opportunities when markets improve
Commenting on the results, Chief Executive Officer, Stefan
Borgas, said:
"The response of colleagues across the business to the COVID-19
crisis has been outstanding. As a result of everyone's efforts, RHI
Magnesita has been able to establish safe working conditions, and
maintain its production capabilities and supply chains to serve our
customers throughout this challenging period. Conditions in our key
markets have been consistent with the assumptions made for our
Covid-19 scenario planning work and we have reacted quickly to
reduced demand by taking prudent measures to preserve cash and
manage costs. Whilst revenues and profits are down materially in
H1, the Group has maintained double digit operating margins and
positive operating cash flow.
"Activity levels are likely to remain subdued in Q3, with
limited visibility into Q4. However, our strategy remains on track
and we have extended a number of our key initiatives to further
improve, for the longer term, our overall cost effectiveness. These
initiatives, reducing SG&A and further consolidating our
production network, will support the profitability in both H2 2020
and beyond.
"The long-term economic impact of COVID-19 remains uncertain.
However, the business is taking appropriate actions to ensure it is
able to manage effectively through an extended period of subdued
demand. With significant financial strength, RHI Magnesita is well
equipped to take advantage of growth opportunities when markets
improve and will exit this period of disruption with positive
strategic momentum."
A presentation for investors and analysts will be held today
starting at 8.00am. The presentation will be webcast live and
details can be found on: https://ir.rhimagnesita.com/ . A dial-in
facility is also available on +44 20 3936 2999 with participant pin
code 781294.
For further enquiries, please contact:
Investors: Guy Marks, Head of Investor
Relations +44 (0) 7932 013 357
guy.marks@rhimagnesita.com
Media: Matthew Denham, Teneo + 44 (0) 7825 735596
matthew.denham@teneo.com
About RHI Magnesita
RHI Magnesita is the leading global supplier of high-grade
refractory products, systems and solutions which are critical for
high-temperature processes exceeding 1,200degC in a wide range of
industries, including steel, cement, non-ferrous metals and glass.
With a vertically integrated value chain, from raw materials to
refractory products and full performance-based solutions, RHI
Magnesita serves customers around the world, with around 13,000
employees in 35 main production sites and more than 70 sales
offices. RHI Magnesita intends to leverage its leadership in terms
of revenue, scale, product portfolio and diversified geographic
presence to target strategically those countries and regions
benefitting from more dynamic economic growth prospects.
Its shares have a premium listing on the London Stock Exchange
(symbol: RHIM) and are a constituent of the FTSE 250 index. For
more information please visit: www.rhimagnesita.com .
OVERVIEW
The response of colleagues across the business to the COVID-19
crisis has been outstanding. As a result of everyone's efforts, RHI
Magnesita has been able to safely maintain its production
capabilities and supply chains to serve our customers throughout
this challenging period. We have reacted quickly to reduced demand
by taking prudent measures to preserve cash and manage costs.
Whilst revenues and profits are down materially in H1, the Group
has maintained double digit operating margins and positive
operating cash flow.
Revenue for the six months to June 2020 was EUR1,171 million, a
decrease of 22.7% compared to the same period last year on an
adjusted constant currency basis. This performance broadly mirrors
the declines experienced by our customers' and is consistent with
the scenario planning originally set out at the 2019 Full Year
Results in April. The unprecedented challenges of the COVID-19
pandemic have impacted customer activity heavily with a resultant
sharp reduction in volumes across both the Steel and the Industrial
Divisions. Although there has been some variability between
geographies and end market segments, most of the business units
experienced a material drop in volumes in the second quarter.
Adjusted EBITA of EUR133 million, was down 45.4% on the prior
year. The Group has taken swift and effective actions to protect
ongoing profitability by implementing a broad range of measures to
preserve cash and reduce fixed costs. These include, the temporary
closure of three plants in Europe and one in Mexico, the
introduction of short time working arrangements in some plants, the
deferral of EUR45 million of capital expenditure from 2020 and
other fixed cost reduction actions. These short-term initiatives
achieved a saving of EUR25 million in the second quarter of 2020
and have helped to maintain a double-digit Adjusted EBITA margin of
11.4%, down 470bps on the prior year. Beyond these short-term
measures, management has identified additional sales and
administration savings of EUR10 million in 2020 and EUR30 million
in 2021. These measures will further enhance the Group's
competitive position on costs.
Despite raw material prices continuing to fall in H1 2020, the
Group's backward integration contributed 2.3% points towards the
Adjusted EBITA margin, equivalent to EUR27 million of EBITA. This
further demonstrates the value of the Group's integrated business
model.
The Group's financial position remains strong, with stable net
debt of EUR666m (H1 2019: EUR669m), available liquidity of
approximately EUR1.1 billion and net debt to adjusted EBITDA
significantly below covenant levels. The Group continues to have a
strong focus on working capital management, especially inventories
and accounts receivable, and expects to make further progress in
the second half.
Underpinning the Group's operational performance is its
continued focus on Health and Safety, beyond COVID-19, where a
further improvement has been made in the lost time injury frequency
rate, to achieve 0.1 lost time injury frequency rate per 200,000
hours worked, down from 0.3 in 2019. The Group continues to benefit
from the preventative KPI's that have been implemented in order to
reach our goal of zero-accidents.
There has been a number of isolated incidents of employees
testing positive for COVID-19, most notably in Brazil and India,
and alongside strict precautions on site, the Group has worked to
ensure adequate healthcare provision in both our plants and the
communities in which they operate.
Notwithstanding the short-term pressures of COVID-19, the
Company continues to progress its Sustainability agenda and remains
committed to reaching its 2025 target to reduce CO(2) emissions per
tonne by 15%. The Group continues to explore new technologies to
reduce our Scope 1, 2 and 3 CO(2) emissions. As an example, we have
launched the new low-carbon ANKRAL LC series, with a 13% lower
carbon footprint, which has been well received by customers. CO(2)
emissions reduction is also one of the benefits offered in the
"Cost-Per-Saving" model, set out in more detail below. In the first
half 2020 the Group is very pleased to be have been awarded a
'Silver' rating by Eco Vadis.
BUSINESS IMPROVEMENT PROGRAMMES
Further progress has been made to address the operational issues
experienced at four European plants and the challenges in the
supply chain, as originally outlined in the 2018 full year results.
Whilst current production levels are at lower levels, the Company
has now fully resolved these issues and recouped a further EUR9
million in H1 2020 and is on-track to deliver the targeted EUR15
million for the full-year.
The Group has taken swift and effective actions to protect
ongoing profitability by implementing a broad range of measures to
preserve cash and reduce fixed costs. These short-term initiatives
achieved a saving of EUR25 million in the second quarter of 2020
and will generate a similar level of cost savings in the second
half.
Alongside the successful execution of short-term cost saving and
cash preservation initiatives in Q2 2020, management is also
conducting a detailed and ambitious review of the Group's cost base
on a long-term basis, to make sure the business is right-sized and
prepared for the challenges and opportunities ahead.
As previously announced, these plans have included sales and
administration cost savings, including reducing the scale of the
first three levels of management by 20%. The new structure was
implemented on August 1(st) . The more efficient organisational
structure creates a better platform to accelerate the long-term
strategy and ensure that costs are aligned to current market
conditions. In total this reduction in headcount, will generate
run-rate sales and administration savings of EUR10 million in 2020
and EUR30 million in 2021. Severance costs of EUR30 million will be
incurred, of which EUR4.8 million was recognised during H1
2020.
The Production Optimisation Plan, set out at the Capital Markets
Day in November 2019, remains on track to achieve the planned EUR40
million of EBITA benefit by 2022, delivering initial benefits in H1
2020 of EUR3 million. Actions in the first half included the
closure of our facilities at Hagen and Trieben. Management now
believes there is significant scope to increase the anticipated
benefits of this programme, by also embedding the learnings from
COVID-19. Further details will be announced later in 2020.
RAW MATERIALS
Raw material prices fell over the first six months of the year,
due to continued over-supply from China. DBM 97 has continued to
fall in the first half of this year, overall from a high of around
USD 1,200 per tonne in the fourth quarter of 2018, to USD 320 at
the end of June. Fused Magnesia has also continued to fall in the
first half and is now at around USD 475 per tonne.
Despite raw material prices continuing to fall in H1 2020, the
Group's backward integration contributed 2.3% points towards the
Adjusted EBITA margin, equivalent to EUR27 million of EBITA. This
further demonstrates the value of the Group's integrated business
model.
In H1 2020, RHI Magnesita conducted an extensive review of the
Group's raw material and mining costs relative to its competitors
and other suppliers. The primary conclusion of this review was that
the majority of the Group's facilities produce raw materials at
very competitive rates. The review also confirmed that our internal
costs to produce grades of fused magnesia are too high, relative to
Chinese sourced equivalent materials. This has informed the
decision in early 2020 to suspend fused magnesia production
facilities in Posgrunn, Norway and Contagem, Brazil and to enter
into long term alternative supply arrangements.
UPDATE ON SERVICES, SOLUTIONS & INNOVATION
The development of the solutions business model continues to
progress. The Group secured a strategic digital partnership with a
European customer based on inventory management and the newly
launched APO (Automatic Process Optimisation) tool to improve
maintenance forecasting at our customers' plants.
Whilst customer site access has been restricted by COVID-19
precautions, the Group has continued to take an active approach in
its sales strategies, especially its sustainability offering.
Specifically, one European customer entered into a
"Cost-per-saving" contract where the savings the Group delivers in
CO(2) emissions per tonne increase the value of the contract.
Digitalisation remains a key element of the Company's growth
strategy, particularly underpinning the development of our
Solutions model. We are very pleased to have signed a strategic
partnership with Microsoft. This partnership will accelerate our
digital offering and support new ways of working with our
customers.
Current digitalisation initiatives the Group is working on
include: Augmented Reality solutions to assist employees onsite
service and sales activities and customers increasing self-service;
Digital Supply Chain to track raw material through to products at
customer site, to better control manufacturing quality and on-site
performance; IoT Edge solutions to connect machinery at customers'
sites to enable predictive maintenance; and Digital Twins modelling
to improve energy efficiency and reduce maintenance costs.
CAPITAL ALLOCATION POLICY AND SHAREHOLDER RETURNS
The Board's capital allocation policy remains to support the
long-term Group strategy, providing flexibility for both organic
and inorganic investment opportunities and delivering attractive
shareholder returns over the mid-term. These opportunities will be
considered against a framework of strategic fit, risk profile,
rates of return, synergy potential and balance sheet strength.
Dividends and share buybacks, when appropriate, are an integral
part of the Company's capital allocation policy and approach to
shareholder returns.
In April, the Board has decided not to recommend the payment of
a final dividend for 2019 because of the uncertainty relating to
COVID-19 and to prudently preserve cash. The economic uncertainty
remains, particularly in respect of further outbreaks and
consequential economic weakness. The Board, therefore, is not
declaring an interim dividend for H1 2020 at this time.
The Board appreciates the importance of dividends, and
shareholder returns more broadly, and will continue to review this,
intending to resume dividend payments at the earliest
opportunity.
OUTLOOK
We continue to expect that our markets will remain challenging
in the short term, with activity levels likely to remain subdued
into Q3 and limited visibility into Q4. However, the strategy
remains on track and the Group has extended a number of key
initiatives to further improve, for the longer term, its overall
cost effectiveness. These initiatives, reducing SG&A and
further consolidating our production network, will support the
profitability in both H2 2020 and beyond.
The long-term economic impact of COVID-19 remains uncertain.
However, the business is taking appropriate actions to manage
effectively through an extended period of subdued demand. With
significant financial strength, RHI Magnesita is well positioned to
take advantage of growth opportunities when markets improve and
will exit this period of disruption with positive strategic
momentum.
STEEL DIVISION
Steel Q2 2020 Q1 2020 Change(1) H1 2020 H1 2019 Change(2)
------------------ ------- ------- --------- -------- -------- ----------
Revenue (EURm) 372 448 (16.8)% 820 1,057 (22.4)%
Gross Profit
(EURm) 79 105 (25.0)% 184 270 (31.9) %
Gross margin 21.2% 23.4% (220)bps 22.4% 25.5% (310)bps
Adj EBITA (EURm) 83 157 (47.3)%
Adj EBITA margin 10.1% 14.8% (470)bps
(1) Change Q1 2020 on a constant currency basis versus Q2
2020
(2) Change H1 2019 on a constant currency basis versus H1
2020
World Steel Association data showed that over the Period, Steel
production globally contracted by 6.0% compared to the same period
last year. The first quarter contracted by 1.0% and the second by
9.7%. Excluding China, Steel production globally contracted by
14.3%, with a contraction of 3.6% in the first quarter and 24.8% in
the second quarter, driving weaker demand from the Group's steel
customers across all regions.
These significant falls in customer production caused Steel
Division revenues to decline by 22.4% in H1 2020 to EUR820 million
compared to the same period last year at constant currency (H1 2019
EUR1,057 million). Gross margin declined over the same period by
310bps to 22.4%, which was predominantly due to lower sales volumes
causing poorer fixed cost absorption and lower raw material
prices.
Europe
The European steel market, which was already subdued by
reductions in demand in 2019 especially from weakness in the
automotive sector, was impacted further by the challenges of
COVID-19, prompting further steel production reductions and plant
shutdowns. Including the Commonwealth of Independent States (CIS),
European steel production declined by 12.3% against the same period
last year according to the World Steel Association. Q1 contracted
by 4.9%, whilst Q2 contracted by 19.7% against the same periods
last year. Steel Division revenues in Europe (including CIS)
declined by 31.7% on a constant currency basis, to EUR222 million
(H1 2019 EUR325 million) with customer activity in Southern Europe
and Western Europe most heavily impacted. Without a local source of
dolomite, the Group has struggled to maintain competitive product
pricing on dolomite-based products in Europe and has lost some
market share. The investment in dolomite production at Holchfilzen,
as part of the production optimisation plan, aims to address
this.
North America
In North America, Steel revenue declined 13.9%, to EUR233
million (H1 2019 EUR271 million). The regional performance
outperformed World Steel Association data, where North America has
declined by 17.6% over the same period. North America had a very
strong performance in the first quarter, versus the first quarter
of 2019, as the business regained market share. However, the second
quarter financial performance was heavily impacted by COVID-19 as
volumes declined in line with the reduced levels of steel output.
Though market share remained stable into the second quarter,
progress in sales strategies were delayed due to locally enforced
restrictions, especially on customer sites.
North American steel capacity utlisation declined from around
80% to near 50% in the first six months of 2020. This was primarily
driven by the stoppage of automobile production for a large
proportion of the second quarter, an end-market that heavily
influences local steel production. Automotive production restarted
at the end of the second quarter, and so a moderate increase in
steel production is expected in the third quarter, with improved
capacity utilisation . The business anticipates some restarting of
idled blast furnaces in the third quarter, in response to improved
end-markets.
South America
With South America being a significant exporter of steel, the
decline in global demand heavily impacted local production. The
effects of the pandemic in the region were felt from April, leading
to a sharp drop in production throughout the second quarter of
2020. In addition, the currency fluctuations of the Brazilian Real
have brought further challenges to the industry in the pricing of
industrial goods and exports. In South America, Steel Division
revenue in H1 2020 declined by 23.5%, to EUR129 million, compared
to the same period last year on a constant currency basis (H1 2019
EUR169 million). This decline in revenue was worse than steel
production activity in the region, which according to World Steel
Association data declined by 19.9% over the same period. This
difference was a function of product mix between Electric Arc
Furnace (EAF) and integrated steel plants customers, some market
share losses as customers diversified suppliers, and currency
effects.
China
COVID-19 impacted the Chinese economy in the first quarter of
2020, with the automotive sector the hardest hit. However, by the
end of April the steel market was nearly fully recovered. In China,
Steel revenue increased by 60.7% in H1 2020 compared to H1 2019 on
a constant currency basis, to EUR31 million and volume shipments
were almost double the same period of 2019. According to World
Steel Association data, China Steel grew by 1.4% over the Period,
compared to 2019. The acceleration of growth in the Steel Division
in China is primarily driven by the annualisation effects of
contracts won in 2019.
India
The Indian economy started to slow-down in 2019, with the
subsequent impact of COVID-19 and the enforcement of a strict
nationwide lock down in late March 2020 further weakening the
economy. This exacerbated an already over-supplied steel market, as
global demand fell sharply. The strict lockdown measures also
severely disrupted the workforce and supply chains of the steel
industry, including the transportation of raw materials and
finished goods. In India, revenue declined by 25.9% to EUR81
million in H1 2020, compared to the same period of 2019 on a
constant currency basis. The revenue decline is broadly in line
with regional crude steel production, which according to WSA has
contracted by 24.2% over the comparative period.
APAC ex-China and India
Outside of India and China, APAC revenue declined by 31.2% to
EUR55 million in H1 2020 compared to the same period last year, on
a constant currency basis, impacted by lower raw material prices.
This compared to World Steel Association data, which indicated a
contraction of 11.4% against the same Period. Taiwan and South
Korea were particularly weak. In Vietnam, the Group has continued
to win solutions contracts, although overall revenues were
down.
Middle East and Africa
Excluding the contribution from Iran in 2019, revenue in MEA
increased by 14.6% a constant currency basis in H1 2020 to EUR40.3
million, outperforming steel production in this region, which
contracted by 19.9% in the same period, excluding Iran. The
business performed resiliently in Saudi Arabia and in Oman, the
Group won a second solutions contract, with annualized revenue of
USD 50 million.
Steel division outlook
The impact of COVID-19 on the steel industry has been severe and
economic conditions globally remain fragile. Steel production was
down significantly in Q2 2020 and significant production capacity
remains offline. Customer demand for our products is therefore weak
and uncertain. With only limited visibility in the order book, the
Group anticipates Q3 2020 volumes to be similar to Q2. Whilst some
uptick in trading might be expected in Q4, the performance of the
business globally in H2 could also be adversely affected by any
deterioration in the COVID-19 situation or further industrial
slow-downs. The Group is mindful of these risks and will continue
to manage its cost and production base carefully.
INDUSTRIAL DIVISION
Industrial Q2 2020 Q1 2020 Change(1) H1 2020 H1 2019 Change(2)
--------------------- ------- ------- --------- -------- -------- ----------
Revenue (EURm) 160 191 (16.2)% 351 458 (23.5)%
Gross profit (EURm) 39 56 (30.6)% 96 136 (29.9)%
Gross margin 24.5% 29.6% (510)bps 27.2% 29.7% (250)bps
Adjusted EBITA
(EURm) 50 86 (41.3)%
Adjusted EBITA
margin 14.4% 18.8% (440)bps
(1) Change Q1 2020 on a constant currency basis versus Q2
2020
(2) Change H1 2019 on a constant currency basis versus H1 2020
Revenue in the first six months of 2020 amounted to EUR351
million (H1 2019 EUR458 million), down by 23.5% at constant
currency. The Industrial Division maintained a relatively resilient
gross margin of 27.2%, down by 250bps, against weaker revenues.
Cement/Lime
Cement/Lime segment revenue was EUR160 million, a decline of
12.1% against the first six months of 2019 (H1 2019 EUR182
million). The Cement/Lime segment performed well in the first
quarter, broadly in line with the strong first quarter of 2019 and
reflective of the high seasonal demand, during the annual repair
cycle. Whilst a weaker Q2 performance is a characteristic of the
Cement industry, it was affected by COVID-19 in the second quarter,
with a sharp contraction in demand in its key end-markets, leading
to reduced production and some temporary closures of cement plants
in certain regions.
Industrial projects
The Industrial Projects segment (Non-ferrous metals, Glass and
Energy, Environment and Chemicals) achieved revenue of EUR191
million in H1 2020, a decline of 31% compared to the same period
last year. The weaker revenue performance was largely due to a
decline in demand in the Non-ferrous metal sector. Demand in the
NFM sector was affected by weaker metal production levels globally,
resulting in some temporary plant closures. The Glass segment was
more resilient, however still experienced some project
postponements in Q2. The segment benefitted from increased demand
in the pharmaceutical sector, off-set by weaker demand in
construction and automotive glass.
Industrial Division outlook
Whilst the factors affecting the performance of the Industrial
Division are broader than the Steel Division, the macro-economic
uncertainty and commodity and oil price volatility has resulted in
a challenging environment, in which customer capital expenditure
has reduced and project decisions have been delayed. The Group
anticipates that Cement/Lime segment out-turn will broadly follow
the performance in Q2 2020, although the recovery of the Cement
industry may be accelerated by potential governmental stimulus
programmes especially in infrastructure projects. The Industrials
Projects segment is likely to be more volatile depending on the
award and phasing of new projects.
FINANCE REVIEW
Revenue for the Period amounted to EUR1,171 million (H1 2019
EUR1,515 million), down by 22.7%. The reduction in revenue was
driven by weakness in both the Steel Division, where revenue
declined by 22.4% to EUR820 million (H1 2019 EUR1,057 million) and
the Industrial Division, where revenue was down 23.5% to EUR351
million (H1 2019 EUR458 million).
The Group delivered gross margin of 23.8%, a reduction of 290bps
against the same period last year. Gross margin over the period for
the Steel Division decreased by 310bps to 22.4% (H1 2019 25.5%).
The Industrial Division gross margin was more resilient at 27.2%,
decreasing by 250bps (H1 2019 29.7%).
Adjusted EBITDA margin for the last six months was 16.6%,
compared to 19.8% over the same period last year, decreasing by 320
bps and reflective of the weaker market backdrop. The depreciation
for the Full Year 2020 is likely to be lower, at around EUR120
million, largely due to currency effects.
Adjusted EBITA declined by 45.4% on a constant currency basis,
to EUR133 million (H1 2019 EUR244 million), predominantly due to
COVID-19 driving weaker volumes and lower fixed cost absorption in
our production. Additionally, operating profit was affected by the
falls in raw material prices. This has been partially offset by the
measures the Group has introduced in response to the challenging
market backdrop. The Group has also started to derive benefits from
the Production Optimisation Plan, announced at the Capital Markets
Day in November 2019, of EUR3 million, and will benefit from the
acceleration of this programme in H2.
The Group recorded an EBITA margin of 11.4% down by 470bps
compared to 16.1% for the same period last year. The Refractory
margin contributed 9.1% of Group EBITA margin (H1 2019 9.5%) and
the backward integration contributed 2.3% (H1 2019 5.7%).
Net financial expenses in H1 2020 amounted to EUR37.1 million
(H1 2019 EUR45.3 million), as the Group continues to benefit from
lower net bank interest expenses following the refinancing
completed in H2 2018 and H1 2019. Interest expenses on borrowing
were EUR9.3 million (H1 2019 EUR19.4 million) and EUR14.8 million
(H1 2019 EUR19.9 million) was recognised in other net financial
expenses. Total foreign exchange and derivative variances amounted
to EUR15.5 million (H1 2019 EUR9.5 million).
Total tax for H1 2020 in the income statement amounted to
EUR19.0 million (H1 2019 EUR43.5 million), representing a 27.1%
effective tax rate (FY 2019: 25.5%). This tax rate is higher than
recent years as a consequence of lower volumes and restructuring
charges not benefitting from tax deductibility. Adjusted profit
before tax amounts to EUR112.4 million, and the respective adjusted
effective tax rate is 22.0% (FY 2019: 20.6%).
On a reported basis, the Group has recorded a profit after tax
of EUR51.2 million (H1 2019 EUR121.2 million) and earnings per
share of EUR1.03 in H1 2020 (H1 2019 EUR2.31). Adjusted earnings
per share for H1 2020 were EUR1.77, which is stated after excluding
other income and expenses and restructuring charges (EUR21.4
million), the impact of amortisation (EUR10.0 million), other
financial income and expenses (EUR3.5 million), foreign exchange
variances on Intercompany dividends (EUR7.4 million) and a higher
implied tax charge of (EUR5.8 million).
H1 2020 Items excluded from H1 2020
(EURm) Reported adjusted performance Adjusted
------------------------------------- ---------- ----------------------------------- -------------------
EBITA 111.8 21.4 133.2
-----------------------------------
Amortisation (10.0) 10.0 -
-----------------------------------
Net financial expenses (37.1) 10.9 (26.2)
-----------------------------------
Result of profit in joint ventures 5.4 - 5.4
-----------------------------------
Profit before tax 70.2 42.3 112.4
-----------------------------------
Income tax (19.0) (5.8) (24.8)
-------------------------------------- ---------- ----------------------------------- -------------------
Profit after tax 51.2 87.7
-------------------------------------- ---------- ----------------------------------- -------------------
Non-controlling interest (0.8) (0.8)
Profit attributable to shareholders 50.4 86.9
Shares outstanding(1) 49.1 49.1
-------------------------------------- ---------- ----------------------------------- -------------------
Earnings per share 1.03 1.77
-------------------------------------- ---------- ----------------------------------- -------------------
(1) Weighted average number of shares outstanding at 30 June
2020
CASH FLOW AND WORKING CAPITAL
Operating free cash flow, which is presented to reflect net cash
inflow from operating activities before tax and net finance
expenses, was EUR93 million for H1 2020 (H1 2019 EUR129 million),
representing an improved cash conversion of 70% (H1 2019 55%).
Operating free cash flow was down due to the significantly lower
revenues and weaker operational performance in the first six months
of 2020.
Working capital, overall, reduced to EUR497 million compared to
the same period last year (H1 2019 EUR642 million, FY 2019 EUR523
million), reflecting the success of the Group's working capital
initiatives, such as the introduction of the Total Network
Optimisation tool, part of the Group's supply chain transformation
programme.
Working Capital led to a cash outflow of EUR10 million. The
overall improvement in working capital (EUR26 million), was offset
by the adverse impact from currency (EUR37 million). The
acquisition of Missouri Refractories Co Inc in January 2020
contributed an additional cash inflow of EUR2 million. Over the
Period, Inventories reduced by 4% to EUR578 million (FY 2019 EUR603
million), Accounts Receivable reduced by 33% to EUR183 million (FY
2019 EUR274 million), and Accounts Payable reduced by 26% to EUR263
million (FY 2019 EUR354 million) primarily as a result of lower
business activity.
Working capital intensity, measured as a percentage of the last
three months annualised revenue, increased in H1 2020 to 23.4%
compared to 21.0% in the same period last year. Working capital
intensity also increased against the 18.3% achieved for the FY
2019. Additional measures have been implemented in the period to
mitigate increased inventory intensity levels. The Group continues
to manage its working capital levels closely and we expect to see
an improvement in working capital intensity second half of
2020.
There has been no increase in bad debts to date and the Group's
overdues as a percentage of sales reduced to the lowest level since
the merger, through a strong focus on customer accounts receivable
management. However, this area continues to require focus from the
Group, especially in India.
In the first six months, the Group reduced its expenditure on
maintenance projects in line with lower production volumes.
However, it continues to prioritise capital expenditure on
strategic projects, which remain on track despite COVID-19. Of the
EUR57 million spent on capital expenditure in the first six months
of 2020 (H1 2019 EUR50 million), EUR25 million was spent on
maintenance and EUR32 million spent on strategic projects. In H2,
the Group currently plans to spend around EUR93 million, although
this figure is likely to increase with the extension of the
production optimisation plan.
Net interest payments on net debt and further refinancing costs
amounted to EUR17 million in the Period (H1 2019 EUR33
million).
Cash Flow
H1 2020 H1 2019
EURm EURm
------------------------------------- -------- --------
Adjusted EBITA 133 234
Working Capital -10 -118
Changes in Other Assets/Liabilities -34 -9
Capital Expenditure (including
pre-payments) -57 -50
Depreciation 61 71
------------------------------------- -------- --------
Operating Free Cash Flow(1) 93 129
------------------------------------- -------- --------
Cash tax -21 -28
Net financial expenses -17 -33
Restructuring/Transaction Costs -10 -3
Dividend payments -25 0
Magnesita minority acquisition 0 -45
------------------------------------- -------- --------
Free Cash Flow(1) 20 21
------------------------------------- -------- --------
(1) Further detail on the adjustments can be found in
Alternative Performance Measures section
FINANCIAL POSITION
The Group continues to have a strong financial position with a
resilient balance sheet and no material debt maturity before
2023.
The Group's net debt as at 30 June 2020 was EUR666 million,
comprising total debt of EUR1,199 million, cash and cash
equivalents and marketable securities of EUR533 million. As at 30
June 2020, total operating and financial leases amounted to EUR59
million (H1 2019 EUR58 million), which is included in the Company's
net debt position following the introduction of IFRS 16 Leases.
At 1.5x net debt to EBITDA at H1 2020, the Group is
significantly beneath its net debt to EBITDA covenant, which with
the support of our banking group has been prudently increased from
3.5x to 5.0x until December 2021 and thereafter will revert to
3.5x. However, it is at the upper end of the Company target range
of 0.5-1.5x, due to EBITDA falling during the period and the Group
intends to prioritise returning to below range in the short term.
The group will have debt maturities of EUR16 million in the second
half of 2020 and EUR41 million in 2021.
30 June
Capitalisation Table 2020 (EURm)
OeKB Term Loan 466
US$ Term Loan + RCF 178
Schuldschein 400
Other Loans and Facilities(1) 154
Total Gross Indebtedness 1,199
---------------------------------- ---------------
Cash, Equivalents and Marketable
Securities 533
---------------------------------- ---------------
Net Debt 666
---------------------------------- ---------------
(1) Including IFRS 16 lease liabilities of EUR59 million
PRINCIPAL RISKS AND UNCERTAINTIES
The Group has an established risk management process based on a
formally approved framework and regular risk surveys among
functional and operational managers aiming at systematically
identifying, assessing and mitigating risks and uncertainties in
the Group. Material and major risks with potential high impacts on
the Group, its results or its ability to achieve its strategic
objectives are reviewed regularly by the Board.
The risks considered by the Board to be the principal ones are
presented in the 2019 Annual Report which is available on the
Group's website at www.rhimagnesita.com . Those risks were reviewed
in the course of the regular risk survey and were found to be still
relevant for the first half of the financial year:
1. Macroeconomic environment and condition of customer
industries leading to significant sales volume reductions;
2. Inability to execute key strategic initiatives;
3. Lack of competitiveness of internally sourced raw materials
(principally Fused Magnesia), fluctuations in exchange rates and
energy prices;
4. Significant changes in the competitive environment or speed of disruptive innovation;
5. Business interruption and supply chain disruption;
6. Sustainability - environment risks;
7. Sustainability - health & safety risks;
8. Regulatory and compliance risks;
9. Cyber information security risk; and
10. Product quality failure.
The level of uncertainty regarding the future development of the
macroeconomic environment has increased since we presented the 2019
Annual Report due to COVID-19 pandemic, alongside pre-existing
geopolitical pressures and the potential adoption of new trade
barriers and tariffs by several countries. The risks may occur
independently from each other or in combination. In case they occur
in combination their impact may be reinforced. Also, the Group is
facing other risks than the ones mentioned here, some of them being
currently unknown or not considered to be material.
The risk likelihood and potential impact of some of the
principal risks have increased during H1 2020 primarily due to
COVID-19. As a consequence, these principal risks increased their
potential to exceed the risk appetite and are being subject to
enhanced monitoring and mitigation.
A description of RHI Magnesita's risk management practices,
principal risks and how they impact. The updated integrated
comprehensive analysis of the principal risks faced by RHI
Magnesita will be included in the 2020 Annual Report.
RELATED PARTY TRANSACTIONS
RHI Magnesita enters into arrangements with a number of its
subsidiaries and affiliated companies in the course of its
business. These arrangements relate to service transactions and
financing agreements and RHI Magnesita considers these arrangements
to be related party transactions. Furthermore, RHI Magnesita
considers transactions with key management personnel to be related
party transactions. As of the balance sheet date, 30 June 2020,
there have been no significant changes in the related party
transactions from those described in RHI Magnesita's 2019 Annual
Report.
GOING CONCERN
The global economic downturn due to the COVID-19 pandemic during
the first half of 2020 resulted in a reduction of revenue for RHI
Magnesita Group as the economic activities in the Steel and
Industrial Segments are closely linked to the developments of the
global markets. Given the ongoing uncertainties in scope and length
of this development, the market environment may remain volatile and
challenging. Therefore, the Group cannot give a reliable estimate
on potential future quantitative impacts. However, it is not
expected that the COVID-19 pandemic will have a material negative
impact on the ability of the Group to operate as a going concern.
As already disclosed in the Consolidated Financial Statements 2019,
as part of assessing the ability to continue as a going concern,
RHI Magnesita conducted three scenario analyses (Scenario A, B and
C) considering different levels of revenue reduction, working
capital implications and mitigation actions. In each scenario,
sufficient liquidity and headroom on the Group's covenants were
demonstrated. Based on the available information for the first six
months of 2020, our most recent full year forecast is midway
between Scenarios A and B. The Group has still no information
available that Scenario C is likely to occur. The Group remains
compliant with its financing covenant and will have sufficient
liquidity to meet obligations when they fall due for a period of at
least 12 months after release of the Condensed Interim Financial
Statements 2020. As of 30 June 2020, the Group continues to benefit
from a strong financial position, with low leverage and significant
liquidity. As at 30 June 2020 the Group has liquid resources of
EUR532.5 million comprising cash and cash equivalents, as well as
since January 2020 a committed and unutilised credit facility
amounting to EUR600.0 million. Furthermore, no material repayments
of borrowings to financial institutions until 2023 have to be made.
Therefore, it is very likely that liquidity security is ensured for
a period of at least 12 months after the date of release of the
Condensed Interim Financial Statements 2020.
ALTERNATIVE PERFORMANCE MEASURE ("APM")
APMs used by the Group are reviewed below to provide a
definition from each non--IFRS APM to its IFRS equivalent, and to
explain the purpose and usefulness of each APM.
In general, APMs are presented externally to meet investors'
requirements for further clarity and transparency of the Group's
underlying financial performance. The APMs are also used internally
in the management of our business performance, budgeting and
forecasting.
APMs are non--IFRS measures. As a result, APMs allow investors
and other readers to review different kinds of revenue, profits and
costs and should not be used in isolation. Commentary within the
Year-End Results, including the Financial Review, as well as the
Consolidated Financial Statements and the accompanying notes,
should be referred to in order to fully appreciate all the factors
that affect our business. We strongly encourage readers not to rely
on any single financial measure, but to carefully review our
reporting in its entirety.
Adjusted pro-forma results at a constant currency
Adjusted and Adjusted results at constant currency The H1 2018
Adjusted results are, where appropriate, adjusted to reflect the
purchase price allocation ("PPA") related to the acquisition of
Magnesita and other adjustments. This measure provides an
estimation of the historical financial performance of the current
Group structure. H1 2018 figures presented at constant currency
represent H1 2018 reported figures translated at average H1 2019
exchange rates.
EBITA
EBIT, as presented in Consolidated Statement of Profit and Loss,
excluding amortisation and impairments.
EBITDA
EBIT, as presented in Consolidated Statement of Profit and Loss,
excluding depreciation, amortisation and impairments.
Adjusted EBITDA and EBITA
To provide further transparency and clarity to the ongoing,
underlying financial performance of the Group, adjusted EBITDA and
EBITA are used. Both measures exclude other income and expenses as
presented in Consolidated Statement of Profit and Loss.
Adjusted earnings per share ("Adjusted EPS")
Adjusted EPS is used to assess the Company's operational
performance per ordinary share outstanding. It is calculated using
adjusted EBITA (as described above) and removes the impact of
certain foreign exchange effects, amortisation, one-off
restructuring expenses and impairments, other non-cash financial
income and expenses, that are not directly related to operational
performance. Effective tax rate for adjusted EPS is calculated by
applying the effective tax rate normalised for restructuring
expenses and impairments.
Operating cash flow and free cash flow
Alternative measures for cash flow are presented to reflect net
cash inflow from operating activities before certain items. Free
cash flow is considered relevant to reflect the cash performance of
business operations after meeting the usual obligations of
financing and tax. It is therefore measured before all other
remaining cash flows, being those related to acquisitions and
disposals, other equity-related and debt-related funding movements,
and foreign exchange impacts on financing and investing
activities.
Working capital
Working capital and intensity provides a measure how efficient
the Company is in managing operating cash conversion cycles.
Working capital is the sum of manageable working capital, composed
of inventories, trade receivables and trade payables and other
receivables and payables. Working capital intensity is measured as
a percentage of last three months annualised revenue.
Net debt
We present an alternative measure to bring together the various
funding sources that are included in the Consolidated Balance Sheet
and the accompanying notes. Net debt is a measure defined in the
Group's principal financing arrangements and reflects the net
indebtedness of the Group and includes all cash, cash equivalents
and marketable securities; and any debt or debt-like items.
Condensed Consolidated Interim Financial Statements as of 30.06.2020
Condensed Consolidated Statement of Financial Position
as of 30.06.2020
in EUR million Notes 30.06.2020 31.12.2019
============================================= ====== =========== ===========
ASSETS
============================================= ====== =========== ===========
Non-current assets
============================================= ====== =========== ===========
Goodwill 114.7 117.5
Other intangible assets 276.9 319.0
Property, plant and equipment (10) 997.2 1,106.8
Investments in joint ventures and associates (6) 15.2 19.5
Other non-current financial assets 14.8 15.4
Other non-current assets 36.5 39.5
Deferred tax assets 186.8 181.9
============================================= ====== =========== ===========
1,642.1 1,799.6
============================================= ====== =========== ===========
Current assets
============================================= ====== =========== ===========
Inventories (11) 578.2 602.7
Trade and other current receivables (12) 338.1 432.7
Income tax receivables 20.8 17.3
Other current financial assets 1.1 0.1
Cash and cash equivalents 532.5 467.2
============================================= ====== =========== ===========
1,470.7 1,520.0
============================================= ====== =========== ===========
3,112.8 3,319.6
============================================= ====== =========== ===========
EQUITY AND LIABILITIES
============================================= ====== =========== ===========
Equity
============================================= ====== =========== ===========
Share capital 49.5 49.5
Group reserves 677.7 774.4
----------- -----------
Equity attributable to shareholders of RHI
Magnesita N.V. 727.2 823.9
Non-controlling interests 20.4 20.8
============================================= ====== =========== ===========
747.6 844.7
============================================= ====== =========== ===========
Non-current liabilities
===================================================== =========== ===========
Borrowings (13) 1,023.2 983.5
Other non-current financial liabilities 97.5 105.1
Deferred tax liabilities 50.6 54.0
Provisions for pensions (14) 319.1 328.1
Other personnel provisions (15) 74.5 75.8
Other non-current provisions 75.8 98.5
Other non-current liabilities 6.3 7.3
============================================= ====== =========== ===========
1,647.0 1,652.3
============================================= ====== =========== ===========
Current liabilities
============================================= ====== =========== ===========
Borrowings (13) 116.7 71.5
Other current financial liabilities (20) 49.2 31.9
Trade payables and other current liabilities (16) 464.3 614.0
Income tax liabilities 38.7 35.4
Current provisions (17) 49.3 69.8
============================================= ====== =========== ===========
718.2 822.6
============================================= ====== =========== ===========
3,112.8 3,319.6
============================================= ====== =========== ===========
Condensed Consolidated Statement of Profit or Loss
from 01.01.2020 to 30.06.2020
in EUR million for the six months ended 30
June Notes 2020 2019
=============================================== ====== ======== ==========
Revenue (25) 1,170.8 1,541.5
Cost of sales (891.7) (1,141.8)
=============================================== ====== ======== ==========
Gross profit 279.1 399.7
=============================================== ====== ======== ==========
Selling and marketing expenses (60.6) (66.5)
General and administrative expenses (95.2) (113.1)
Restructuring and write-down expenses (18) (13.8) (6.1)
Other income (19) 7.7 15.3
Other expenses (20) (15.3) (15.5)
=============================================== ====== ======== ==========
EBIT 101.9 213.8
=============================================== ====== ======== ==========
Interest income 2.5 3.5
Interest expenses on borrowings (9.3) (19.4)
Net expense on foreign exchange effects and
related derivatives (21) (15.5) (9.5)
Other net financial expenses (22) (14.8) (19.9)
=============================================== ====== ======== ==========
Net finance costs (37.1) (45.3)
=============================================== ====== ======== ==========
Share of profit/ (loss) of joint ventures
and associates (6) 5.4 (3.8)
=============================================== ====== ======== ==========
Profit before income tax 70.2 164.7
=============================================== ====== ======== ==========
Income tax (23) (19.0) (43.5)
=============================================== ====== ======== ==========
Profit after income tax 51.2 121.2
=============================================== ====== ======== ==========
attributable to shareholders of RHI Magnesita
N.V. 50.4 113.5
attributable to non-controlling interests 0.8 7.7
in EUR
Earnings per share - basic 1.03 2.31
Earnings per share - diluted 1.01 2.31
=============================================== ====== ======== ==========
Condensed Consolidated Statement of Comprehensive Income
from 01.01.2020 to 30.06.2020
in EUR million for the six months ended 30
June Notes 2020 2019
=============================================== ======== ======== =======
Profit after income tax 51.2 121.2
=============================================== ======== ======== =======
Currency translation differences
Unrealised results from currency translation (7) (169.0) 14.1
Deferred taxes thereon 27.4 (0.4)
Current taxes thereon 1.2 (0.3)
Unrealised results from net investment hedge 0.1 0.0
Reclassification to profit or loss 0.3 0.0
Cash flow hedges
Unrealised fair value changes (7.9) (10.0)
Deferred taxes thereon 2.0 2.5
Reclassification to profit or loss 0.0 (0.7)
=============================================== ======== ======== =======
Items that will be reclassified subsequently
to profit or loss, if necessary (145.9) 5.2
=============================================== ======== ======== =======
Remeasurement of defined benefit plans
Remeasurement of defined benefit plans (14/15) (6.9) (40.7)
Deferred taxes thereon 1.8 12.0
=============================================== ======== ======== =======
Items that will not be reclassified to profit
or loss (5.1) (28.7)
=============================================== ======== ======== =======
Other comprehensive loss after income tax (151.0) (23.5)
=============================================== ======== ======== =======
Total comprehensive (expense)/ income (99.8) 97.7
=============================================== ======== ======== =======
attributable to shareholders of RHI Magnesita
N.V. (99.4) 88.2
attributable to non-controlling interests (0.4) 9.5
=============================================== ======== ======== =======
Condensed Consolidated Statement of Cash Flows
from 01.01.2020 to 30.06.2020
in EUR million Notes 2020 2019
================================================= ====== ======= ========
Cash generated from operations (24) 124.1 176.3
================================================= ====== ======= ========
Income tax paid less refunds (21.1) (27.8)
================================================= ====== ======= ========
Net cash inflow from operating activities 103.0 148.5
================================================= ====== ======= ========
Investments in property, plant and equipment
and intangible assets (57.7) (50.3)
Investments in subsidiaries net of cash acquired (8.5) (0.5)
Cash inflows from the sale of property, plant
and equipment 2.3 1.4
Cash inflows from the sale of securities
and shares 0.0 38.1
Dividends received from joint ventures and
associates 9.8 12.6
Interest received 2.9 3.9
Investments in/ cash inflows from non-current
receivables 0.1 0.0
================================================= ====== ======= ========
Net cash (outflow)/ inflow from investing
activities (51.1) 5.2
================================================= ====== ======= ========
Acquisition of non-controlling interests 0.0 (44.6)
Dividend payments to shareholders of the
Group (24.5) 0.0
Proceeds from borrowings and loans 96.5 225.3
Repayments of borrowings and loans (3.6) (254.0)
Changes in current borrowings (7.2) (3.2)
Interest payments (13.4) (29.0)
Repayment of lease obligations (8.1) (6.4)
Interest payments from lease obligations (0.6) (0.4)
Cash flows from derivatives 0.0 (7.3)
================================================= ====== ======= ========
Net cash inflow/ (outflow) from financing
activities 39.1 (119.6)
================================================= ====== ======= ========
Total cash flow 91.0 34.1
================================================= ====== ======= ========
Change in cash and cash equivalents 91.0 34.1
================================================= ====== ======= ========
Cash and cash equivalents at beginning of
year 467.2 491.2
Foreign exchange impact (25.7) 0.7
Cash and cash equivalents at half year-end 532.5 526.0
================================================= ====== ======= ========
Condensed Consolidated Statement of
Changes in Equity
from 01.01.2020 to 30.06.2020
Group reserves
--------- ----------------------- ------------------------------------------
Accumulated other
comprehensive
income
-------------------------------
Equity
attributable
to
shareholders
Additional Cash Defined of RHI
Share Treasury paid-in Mandatory Retained flow benefit Currency Magnesita Non-controlling Total
in EUR million capital shares capital reserve earnings hedges plans translation N.V. interests equity
=============== ======== ========= =========== ========== ========= ======= ======== ============ ============= ================ ========
Notes (14/15)
=============== ======== ========= =========== ========== ========= ======= ======== ============ ============= ================ ========
01.01.2020 49.5 (18.8) 361.3 288.7 379.6 (11.0) (145.6) (79.8) 823.9 20.8 844.7
=============== ======== ========= =========== ========== ========= ======= ======== ============ ============= ================ ========
Profit after
income
tax - - - - 50.4 - - - 50.4 0.8 51.2
=============== ======== ========= =========== ========== ========= ======= ======== ============ ============= ================ ========
Currency
translation
differences - - - - - - - (138.8) (138.8) (1.2) (140.0)
Market
valuation of
cash flow
hedges - - - - - (5.9) - - (5.9) - (5.9)
Remeasurement
of defined
benefit plans - - - - - - (5.1) - (5.1) - (5.1)
=============== ======== ========= =========== ========== ========= ======= ======== ============ ============= ================ ========
Other
comprehensive
expense after
income
tax - - - - - (5.9) (5.1) (138.8) (149.8) (1.2) (151.0)
=============== ======== ========= =========== ========== ========= ======= ======== ============ ============= ================ ========
Total
comprehensive
expense - - - - 50.4 (5.9) (5.1) (138.8) (99.4) (0.4) (99.8)
=============== ======== ========= =========== ========== ========= ======= ======== ============ ============= ================ ========
Share-based
expenses - - - - 2.7 - - - 2.7 - 2.7
=============== ======== ========= =========== ========== ========= ======= ======== ============ ============= ================ ========
Transactions
with
shareholders - - - - 2.7 - - - 2.7 - 2.7
=============== ======== ========= =========== ========== ========= ======= ======== ============ ============= ================ ========
30.06.2020 49.5 (18.8) 361.3 288.7 432.7 (16.9) (150.7) (218.6) 727.2 20.4 747.6
=============== ======== ========= =========== ========== ========= ======= ======== ============ ============= ================ ========
Group reserves
----------------------- ------------------------------------------
Accumulated other
comprehensive
income
-------------------------------
Equity
attributable
to
shareholders
Additional Cash Defined of RHI
Share paid-in Mandatory Retained flow benefit Currency Magnesita Non-controlling Total
in EUR million capital capital reserve earnings hedges plans translation N.V. interests equity
================ ======== =========== ========== ========= ======= ======== ============ ============= ================ ========
Notes (14/15)
================ ======== =========== ========== ========= ======= ======== ============ ============= ================ ========
01.01.2019 48.3 305.5 288.7 351.0 (5.0) (114.2) (73.8) 800.5 84.8 885.3
================ ======== =========== ========== ========= ======= ======== ============ ============= ================ ========
Profit after
income tax - - - 113.5 - - - 113.5 7.7 121.2
================ ======== =========== ========== ========= ======= ======== ============ ============= ================ ========
Currency
translation
differences - - - - - - 11.5 11.5 1.9 13.4
Market
valuation of
cash
flow hedges - - - - (8.1) - - (8.1) (0.1) (8.2)
Remeasurement
of defined
benefit plans - - - - - (28.7) - (28.7) - (28.7)
================ ======== =========== ========== ========= ======= ======== ============ ============= ================ ========
Other
comprehensive
income
after income
tax - - - - (8.1) (28.7) 11.5 (25.3) 1.8 (23.5)
================ ======== =========== ========== ========= ======= ======== ============ ============= ================ ========
Total
comprehensive
income - - - 113.5 (8.1) (28.7) 11.5 88.2 9.5 97.7
================ ======== =========== ========== ========= ======= ======== ============ ============= ================ ========
Dividends - - - (74.2) - - - (74.2) - (74.2)
Issue of
ordinary shares
related to the
mandatory
tender offer of
Magnesita 1.2 55.8 - - - - - 57.0 - 57.0
Acquisition in
non-controlling
interests
without change
of control - - - (16.9) 0.1 (2.1) (4.6) (23.5) (74.0) (97.5)
Share-based
expenses - - - 1.3 - - - 1.3 - 1.3
================ ======== =========== ========== ========= ======= ======== ============ ============= ================ ========
Transactions
with
shareholders 1.2 55.8 - (89.8) 0.1 (2.1) (4.6) (39.4) (74.0) (113.4)
================ ======== =========== ========== ========= ======= ======== ============ ============= ================ ========
30.06.2019 49.5 361.3 288.7 374.7 (13.0) (145.0) (66.9) 849.3 20.3 869.6
================ ======== =========== ========== ========= ======= ======== ============ ============= ================ ========
Explanatory Notes
to the Condensed Consolidated Interim Financial Statements as of 30.06.2020
PRINCIPLES AND METHODS
1. General
RHI Magnesita N.V. (the "Company"), a public company with
limited liability under Dutch law is registered with the Dutch
Trade Register
of the Chamber of Commerce under the number 68991665 and has its
corporate seat in Arnhem, Netherlands. The administrative seat
and registered office is located at Kranichberggasse 6, 1120
Vienna, Austria.
The Condensed Consolidated Interim Financial Statements as of 30
June 2020 were prepared in accordance with the requirements of IAS
34 "Interim Financial Reporting" and with the International
Financial Reporting Standards (IFRS) as endorsed by the European
Union (EU).
The Condensed Consolidated Interim Financial Statements do not
include all information and disclosures required in the Annual
Financial Statements and should therefore be read in conjunction
with RHI Magnesita's Consolidated Financial Statements as of 31
December 2019. All amounts in the explanatory notes and tables are
shown in EUR million, unless indicated otherwise. For computational
reasons, rounding differences may occur.
The Condensed Consolidated Interim Financial Statements as of 30
June 2020 were not audited but reviewed by PricewaterhouseCoopers
Accountants N.V.
Update of disclosures related to significant uncertainties and
going concern linked to COVID-19
The global economic downturn due to the COVID-19 pandemic during
the first half of 2020 resulted in a reduction of revenue for the
Group as the economic activities in the Steel and Industrial
Segments are closely linked to the global economy. Given the
ongoing uncertainties, the market environment may remain volatile
and challenging. Therefore, the Group cannot give a reliable
estimate on future quantitative impacts. However, it is not
expected that the COVID-19 pandemic will have a material negative
impact on the ability of the Group to operate as going concern. As
already disclosed in the Consolidated Financial Statements 2019, as
part of assessing the ability to continue as a going concern, RHI
Magnesita conducted three scenario analyses (Scenario A, B and C)
considering different levels of revenue reduction, working capital
implications and mitigating actions. In each scenario, sufficient
liquidity and headroom on the Group's covenants were demonstrated.
Based on the available information for the first six months 2020,
our most recent forecast is midway between Scenarios A and B. The
Group has still no expectation that Scenario C is likely to occur.
The Group remains compliant with its financing covenant and will
have sufficient liquidity to meet obligations when they fall due
for a period of at least 12 months after release of the Condensed
Consolidated Interim Financial Statements 2020. As of 30 June 2020,
the Group continues to benefit from a strong financial position,
with low leverage and significant liquidity. As at 30 June 2020 the
Group has liquid resources of EUR532.5 million comprising cash and
cash equivalents as well as since January 2020 a committed and
unutilised credit facility amounting to EUR600.0 million.
Furthermore, no material repayments of borrowings to financial
institutions until 2023 have to be made. Therefore, it is highly
likely that liquidity security is maintained for a period of at
least 12 months after the date of release of the Condensed
Consolidated Interim Financial Statements 2020.
2. Initial application of new financial reporting standards
Except for the changes described below, the same accounting and
measurement principles were used as in the previous year:
Effects on
RHI Magnesita
Consolidated
Publication Financial
Standard Title (EU endorsement)(1) Statements
============ =================================== ===================== ===============
Amendments of standards
================================================= ===================== ===============
31.10.2018
No material
IAS 1, IAS 8 Definition of Material (29.11.2019) effect
22.10.2018
IFRS 3 Business Combinations (21.04.2020) No effect
29.03.2018
Amendments to References to
the Conceptual Framework in
Various IFRS Standards (29.11.2019) No effect
28.05.2020
Amendment to IFRS 16 Leases
IFRS 16 Covid 19-Related Rent Concessions (28.05.2020) No effect
============ =================================== ===================== ===============
1) According to EU Endorsement Status Report of 06.07.2020.
IFRS 16 "Amendment to IFRS 16 Leases Covid-19-Related Rent
Concessions"
The amendment permits lessees, as a practical expedient, not to
assess whether particular rent concessions occurring as a direct
consequence of the COVID-19 pandemic are lease modifications and
instead to account for those rent concessions as if they are not
lease modifications.
The practical expedient only applies to rent concessions
occurring as a direct consequence of the COVID-19
pandemic and only if the following conditions are met cumulatively:
-- The change in lease payments results in revised consideration
for the lease that is substantially the same as, or less than, the
consideration for the lease immediately preceding the change;
-- Any reduction in lease payments affects only payments due on or before 30 June 2021; and
-- There is no substantive change to other terms and conditions of the lease.
RHI Magnesita has evaluated the effect of applying the amendment
to IFRS 16 Leases "COVID-19-Related Rent Concessions" with the
conclusion that there is no effect to be expected to the
Group.
3. New financial reporting standards not yet applied
The IASB issued further standards, amendments to standards and
interpretations, whose application is, however, not yet mandatory
as at
30 June 2020. The following financial reporting standards had
not yet been adopted by the EU and were not applied early on a
voluntary basis. They are not expected to have a significant impact
on the RHI Magnesita Condensed Consolidated Interim Financial
Statements.
Expected
effects on
Mandatory RHI Magnesita
application Consolidated
for Financial
Standard Title Publication(1) RHI Magnesita Statements
=================== =============================== =============== ================== ==================
New standards and interpretations
==================================================== =============== ================== ==================
IFRS 14 Regulatory Deferral Accounts 30.01.2014 No EU endorsement Not relevant
IFRS 17 Insurance Contracts 18.05.2017 01.01.2021 Not relevant
Amendments of standards
==================================================== =============== ================== ==================
Classification of Liabilities No material
IAS 1 as Current or Non-current 23.01.2020 01.01.2023 effects expected
Amendments to IFRS 3 Business
Combinations; IAS 16 Property
Plant and Equipment; IAS
37 Provisions, Contingent
Liabilities and Contingent
IFRS 3, IAS 16, IAS Assets as well as Annual No material
37 Improvements 2018-2020 14.05.2020 01.01.2022 effects expected
Amendments to IFRS 4 Insurance
Contracts - deferral of
IFRS 4 IFRS 9 25.06.2020 01.01.2021 Not relevant
=================== =============================== =============== ================== ==================
1) According to EU Endorsement Status Report of 06.07.2020.
4. Changes in comparative information
Consolidated Statement of Profit or Loss
In 2019 RHI Magnesita initiated its Production Optimisation Plan
which led to a recognition of restructuring expenses and asset
write-downs. In line with the materiality principle this effect has
been disclosed separately on the face of the Statement of Profit or
Loss, therefore the comparative figures for the first six months
2019 have been adjusted accordingly.
Segment reporting
Segment assets include trade receivables and inventories, which
are available to the operating segments and are reported to the
management for control and measurement, as well as property, plant
and equipment, goodwill and other intangible assets, which are
allocated to the segments based on the capacity of the assets
provided to the segments. The assets that contribute to the raw
material production for internal use are now allocated to the
segment based on its relative revenue contribution. This results in
a more transparent reporting of the revenue generated through its
assets. The comparative figures for segment assets as well the
segmentation for depreciation and amortisation charges have been
adjusted accordingly.
5. Group of consolidated companies
Acquisition of MORCO
On 29 January 2020 the Group acquired 100% of shares in Missouri
Refractories Co, Inc. (MORCO) in order to strengthen its position
in the North American refractory market. The purchase price
amounted to EUR8.8 million and was paid in cash. The site is
strategically located in the Midsouth of the United States, a
region that is growing in importance for RHI Magnesita. It produces
over 400 high-quality monolithic mixes, which serve a multitude of
industries, including steel, cement, lime and glass.
The fair values of the assets and liabilities recognised as a
result of the acquisition are presented as follows:
in EUR million 29.01.2020
============================================= ===========
Property, plant and equipment 2.4
Inventories 1.4
Trade and other current receivables 1.8
Cash and cash equivalents 0.3
Deferred tax liabilities (0.1)
Trade payables and other current liabilities (0.8)
============================================= ===========
Net assets acquired 5.0
============================================= ===========
Goodwill 3.8
============================================= ===========
Purchase price 8.8
============================================= ===========
The goodwill created in the course of the acquisition reflects
the expected strategic advantage for the Group in the North
American refractory market and is allocated to the Cash Generating
Unit Linings. The goodwill cannot be deducted for tax purposes.
The external costs related to the acquisition amounted to EUR0.1
million and are recognised in other expenses.
The fair value of trade and other current receivables acquired
amounts to EUR1.8 million and corresponds to the gross contractual
amount for trade and other current receivables.
In the period from February to June 2020, MORCO generated
revenue of EUR3.3 million and profit after income tax of EUR0.2
million. If the acquisition had been carried out at 1 January 2020,
consolidated revenue would have amounted to EUR4.2 million and
profit after income tax to EUR0.3 million.
6. Investments in joint ventures and associates
For the first six months of 2020 the profit share of joint
venture MAGNIFIN Magnesiaprodukte GmbH & Co KG., St.Jakob,
Austria amounted to EUR5.5 million (1-6 2019: EUR5.3 million).
7. Foreign currency translation
The Euro exchange rates of currencies important for the RHI
Magnesita Group are shown in the following table:
Closing rate Average rate(1)
========= ======================== ====================
Currencies 1 EUR = 30.06.2020 31.12.2019 1-6/2020 1-6/2019
====================== ========= =========== =========== ========= =========
Argentine Peso ARS 78.94 67.09 70.23 46.43
Brazilian Real BRL 6.06 4.51 5.28 4.36
Canadian Dollar CAD 1.53 1.46 1.50 1.51
Chilean Peso CLP 917.28 842.57 893.25 769.83
Chinese Renminbi Yuan CNY 7.93 7.81 7.76 7.66
Indian Rupee INR 84.70 79.90 81.08 79.36
Mexican Peso MXN 25.91 21.19 23.39 21.87
Norwegian Krone NOK 10.91 9.88 10.68 9.75
Pound Sterling GBP 0.91 0.85 0.87 0.87
Swiss Franc CHF 1.07 1.09 1.07 1.13
South African Rand ZAR 19.39 15.78 18.04 16.11
US Dollar USD 1.12 1.12 1.10 1.13
====================== ========= =========== =========== ========= =========
1) Arithmetic mean of the monthly closing rates.
8. Impairment testing
Impairment of property, plant and equipment, goodwill and other
intangible assets
Property, plant and equipment, including right-of-use assets,
intangible assets and goodwill, are tested for impairment if there
is any indication that the value of these items may be impaired.
The ongoing economic uncertainty in connection with the COVID-19
crisis and the reduction of customer production in the Steel and
Industrial Division is an indication that RHI Magnesita's assets
may be impaired. As a result, management performed an impairment
test as of 30 June 2020.
Basis for planning
The key assumptions used to calculate the recoverable amount and
to determine the Cash Generating Units to be tested were those
disclosed in the Annual Consolidated Financial Statements as of 31
December 2019 and updated considering the latest developments of
the COVID-19 pandemic. Consequently, a U-shape recovery was
considered as a base scenario for the planning period. This
scenario is based on external market indicators as well as on the
current status of the internal demand plan. It considers the
different speed of recovery for the relevant CGUs. The effects from
the fix costs reduction measures have been considered to the extent
to which the Group has already implemented this plan.
2020 2019
================================================= =================================================
Discount Perpetual Discount Perpetual
rate before annuity growth Goodwill rate before annuity growth Goodwill
Tax rate in EUR million Tax rate in EUR million
================ ============= ================ ================ ============= ================ ================
Steel Division
- Linings 9.1% 0.9% 86.6 7.9% 0.9% 88.6
Steel Division
- Flow Control 8.9% 0.9% 27.2 7.7% 0.9% 27.2
================ ============= ================ ================ ============= ================ ================
The remaining goodwill of EUR 0.9 million (31.12.2019: EUR1.7
million) is spread among the remaining CGU's, all of them having
sufficient headroom.
Result of impairment test
Based on the impairment test conducted at 30 June 2020, the
recoverability of the assets was demonstrated in all CGUs.
Sensitivity to changes in assumptions
The growth rate assumptions have been updated for the current
economic outlook. It is however possible that due to the economic
uncertainty there may be a need to reduce the growth rate in the
future. The discount rate has been adjusted to reflect the risks
which are specific to the respective CGUs and was estimated based
on the weighted average cost of capital. In the future it may be
required to adapt the discount rate based on the changing risks for
the industry.
Sensitivity analyses are also performed as part of the
impairment test. In their calculation one of the main parameters is
changed as follows: increase in the discount rate by 25%, reduction
in the form of the contribution margin by 10% and reduction of the
growth rate in terminal value by 50%. In all CGUs, these
simulations do not result in impairments. Likewise, in all CGUs a
reduction of the discount rate by 25%, an increase in profitability
in the form of the contribution margin by 10% and an increase in
the growth rate in terminal value by 50% do not result in reversals
of impairments.
9. Principles of accounting and measurement
RHIM Group reviewed its estimates regarding usage and physical
wear and tear of property, plant and equipment on plants and
productions sites. This reassessment resulted in a decrease of
depreciation expenses by EUR5.1 million in the current reporting
period and by EUR10.2 million on a full year basis. A detailed
breakdown of the effects for future periods is impracticable as of
now.
10. Property, plant and equipment
In the first half of 2020 additions to property, plant and
equipment amount to EUR51.1 million (01-06/2019: EUR44.4 million)
and mainly refer to an expansion of a dolomite plant in
Austria.
11. Inventories
Inventories as presented in the Consolidated Statement of
Financial Position consist of the following items:
in EUR million 30.06.2020 31.12.2019
============================ =========== ===========
Raw materials and supplies 128.3 134.5
Work in progress 120.4 123.9
Finished products and goods 318.1 334.0
Prepayments made 11.4 10.3
============================ =========== ===========
Inventories 578.2 602.7
============================ =========== ===========
12. Trade and other current receivables
Trade and other current receivables as presented in the
Statement of Financial Position are classified as follows:
in EUR million 30.06.2020 31.12.2019
=========================================================== =========== ===========
Trade receivables 227.7 317.5
Contract assets 1.9 1.9
Other taxes receivable 68.9 84.9
Receivables from joint ventures and associates 0.9 2.1
Prepaid expenses 4.4 2.3
Receivables from property transactions 2.3 2.7
Emission rights 1.7 1.7
Receivables from employees 8.2 3.4
Prepaid transaction costs related to financial liabilities 2.0 0.0
Receivables from non-consolidated subsidiaries 0.2 0.2
Other current receivables 19.9 16.0
=========================================================== =========== ===========
Trade and other current receivables 338.1 432.7
=========================================================== =========== ===========
thereof financial assets 233.0 324.2
thereof non-financial assets 105.1 108.5
=========================================================== =========== ===========
RHI Magnesita entered into factoring agreements and sold trade
receivables to financial institutions. The balance sold totalled
EUR 193.5 million as of 30 June 2020 (31.12.2019: EUR 223.0
million). The trade receivables have been derecognised as
substantially all risks and rewards as well as control have been
transferred. Payments received from customers in the period between
the last sale of receivables and the reporting date are recognised
in current borrowings.
Other taxes receivable include VAT credits and receivables from
energy tax refunds, research, education and apprentice
subsidies.
13. Borrowings
Borrowings include all interest-bearing liabilities due to
financial institutions and other lenders.
In January 2020 RHI Magnesita has refinanced its USD 400.0
million revolving credit facility in order to further strengthen
the capital structure and extend the debt maturity. The new
revolving credit facility has been converted to EUR, increased to
EUR600.0 million and the maturity has been extended to 2025.
RHI Magnesita strengthened its financial structure by signing a
new EUR60.0 million 2-year term loan guaranteed by the Austrian
export credit agency (OeKB) in April 2020. RHI Magnesita took out
this revolving credit facility under the program of "COVID-19-Help"
in order to ensure location security and business continuity. The
interest rate is the OeKB refinancing rate plus a margin between
0.5% and 0.7%, according to Group Leverage. RHI Magnesita borrows
currently at the lowest margin of 0.5%. The final maturity of the
loan is March 2022. Cash inflows from the new term loan in the
amount of EUR60.0 million are shown in the Consolidated Statement
of Cash Flows in proceeds from borrowings and loans.
Net debt excluding lease liabilities/adjusted EBITDA is the main
financial covenant of the loan agreements. Compliance with the
covenants is measured on a semi-annual basis. Covenant ratio is
limited at 3.5. Breach of covenants leads to an anticipated
maturity of loans. The covenant ratio was renegotiated in the
course of COVID-19 and will be limited at 5.0 as at 31 December
2020 and at 30 June 2021. During 2020 and 2019, the Group met all
covenant requirements. The key performance indicator for net debt
in the RHI Magnesita Group is the Group leverage, which reflects
the ratio of net debt to adjusted EBITDA, including lease
liabilities. Adjusted EBITDA is calculated on a yearly basis,
considering the last six months of 2019 and the first six months of
2020.
Calculation of the two ratios is as follows:
in EUR million 30.06.2020 30.06.2019
==================================================== =========== ===========
EBIT 161.4 408.9
Amortisation 22.1 27.2
Restructuring and write-down expenses 119.8 20.1
Other operating income and expenses 3.8 (2.3)
==================================================== =========== ===========
Adjusted EBITA 307.1 453.9
==================================================== =========== ===========
Depreciation 136.0 134.0
==================================================== =========== ===========
Adjusted EBITDA 443.1 587.9
==================================================== =========== ===========
Total debt 1,139.9 1,137.1
Lease liabilities 58.8 58.2
Cash and cash equivalents 532.5 526.0
==================================================== =========== ===========
Net debt 666.2 669.3
==================================================== =========== ===========
Net debt excluding IFRS 16 lease liabilities 607.4 611.1
==================================================== =========== ===========
Net debt to adjusted EBITDA 1.50x 1.14x
==================================================== =========== ===========
Net debt to adjusted EBITDA excluding IFRS 16 lease
liabilities (being financial covenant) 1.37x 1.04x
==================================================== =========== ===========
14. Provisions for pensions
For interim reports, provisions for pensions are determined
based on a forecast for the entire year prepared by an actuary. If
there are significant changes in the actuarial assumptions during
the year, a remeasurement of the net liabilities from employee
related defined benefit obligations is recognised.
As of 30 June 2020, the decrease in the actuarial interest rate
to 6.4% (31.12.2019: 6.8%) in Brazil and to 2.8% (31.12.2019: 3.2%)
in the US led to an increase in pension obligations of EUR6.9
million and to a decrease in Other Comprehensive Income of EUR5.1
million (after deferred taxes). As of 30 June 2019, the decrease in
the actuarial interest rate in the euro area to 1.0% (31.12.2018:
1.7%), to 7.4% (31.12.2018: 8.7%) in Brazil and to 3.6%
(31.12.2018: 4.3%) in the US led to an increase in pension
obligations of EUR36.6 million and to a decrease in Other
Comprehensive Income of EUR25.6 million (after deferred taxes).
15. Other personnel provisions
As of 30 June 2020, the actuarial interest rate in the euro area
stayed on the same level as at year-end 2019.
As of 30 June 2019, the decrease in the actuarial interest rate
in the euro area to 1.0% (31.12.2018: 1.7%) led to an increase in
severance pay obligations of EUR4.1 million and to a decrease in
Other Comprehensive Income of EUR3.1 million (after deferred
taxes).
16. Trade payables and other current liabilities
Trade payables and other current liabilities included in the
Consolidated Statement of Financial Position consist of the
following items:
in EUR million 30.06.2020 31.12.2019
============================================= =========== ===========
Trade payables 263.2 354.1
Contract liabilities 46.9 45.5
Liabilities to employees 87.2 87.5
Taxes other than income tax 29.7 49.7
Payables from commissions 7.6 8.2
Customers with credit balances 5.0 6.6
Payables from property transactions 3.1 17.0
Liabilities to non-consolidated subsidiaries 0.7 0.7
Dividend liabilities 0.4 25.0
Liabilities to joint ventures and associates 0.4 0.7
Other current liabilities 20.1 19.0
============================================= =========== ===========
Trade payables and other current liabilities 464.3 614.0
============================================= =========== ===========
thereof financial liabilities 280.5 412.3
thereof non-financial liabilities 183.8 201.7
============================================= =========== ===========
Trade payables include an amount of EUR30.4 million (31.12.2019:
EUR67.4 million) for raw material purchases subject to supply chain
finance arrangements.
Other current liabilities include EUR1.5 million (31.12.2019:
EUR1.3 million) investment reimbursement obligation to the former
subsidiary Dolomite Franchi S.p.A., and other accrued expenses.
17. Current provisions
Provisions for restructuring costs amount to EUR21.4 million as
of 30 June 2020 (31.12.2019: EUR31.8 million) and primarily consist
of benefit obligations to employees due to termination of
employment resulting from corporate reorganisation of RHI
Magnesita. Thereof, EUR5.4 million (31.12.2019: EUR12.1 million)
relate to the plant closure in Hagen, Germany, and EUR1.7 million
(31.12.2019: EUR4.0 million) to the partial shut-down of the plant
in Trieben, Austria.
RHI Magnesita initiated a project to review the Group's cost
base on a long-term basis with the objective to streamline its
organisation to preserve liquidity and restore profitability. As a
result, provisions for restructuring costs amounting to EUR4.8
million were recognised in the current reporting period.
In the first half of 2020 EUR0.9 million of provisions for
restructuring costs were reversed.
Provisions for contract obligations include the current portion
of the Oberhausen contract obligation amounting to EUR7.3 million
as of
30 June 2020 (31.12.2019: EUR10.4 million).
18. Restructuring and write-down expenses
Plant rationalisation
In the current reporting period additional restructuring
expenses for the plant closure in Hagen, Germany, amounting to
EUR6.6 million have been recognised. These expenses refer to
redundancy payments, scrapping of inventories and other costs
incurred in the course of the closure of the plant. For the partial
shut-down of the plant in Trieben, Austria, restructuring expenses
in the amount of EUR0.9 million have been recognised in the first
six months of 2020 and are related to scrapping of inventories. The
plant rationalisation program has been initiated in the second half
of 2019 and it is expected to be completed in 2020. Further
information is provided under Note (17).
Organisational restructuring
Management is conducting a detailed and far-reaching review of
the Group's cost base on a long-term basis, to make sure the
business is right-sized and prepared for the challenges and
opportunities ahead. Until 30 June 2020 these plans included
reduction in the first three levels of management by 20% and the
new structure will be implemented on 1 August 2020. As a result,
restructuring expenses in the amount of EUR4.8 million have been
recognised and are related to redundancy payments. As this project
is still ongoing, further restructuring expenses are to be expected
in the second half of 2020.
Restructuring costs for the first half of 2019 amounting to
EUR6.1 million were primarily related to costs for termination of
employment incurred in connection with the corporate reorganisation
of RHI Magnesita.
In the current and in the comparative reporting period no
impairment expenses according to IAS 36 were recognised.
19. Other income
The individual components of other income are:
in EUR million for the six months ended 30 June 2020 2019
================================================ ===== =====
Amortisation of Oberhausen provision 3.8 9.7
Income from the disposal of non-current assets 1.2 1.7
Income from the reversal of provisions 0.3 0.0
Miscellaneous income 2.4 3.9
================================================ ===== =====
Other income 7.7 15.3
================================================ ===== =====
20. Other expenses
Other expenses include:
in EUR million for the six months ended 30 June 2020 2019(1)
================================================ ======= ========
Result from derivatives from supply contracts (10.9) (2.9)
Expenses for strategic projects (1.8) (4.5)
Losses from the disposal of non-current assets (0.7) (0.5)
Result from deconsolidation (0.3) 0.0
Miscellaneous expenses (1.6) (7.6)
================================================ ======= ========
Other expenses (15.3) (15.5)
================================================ ======= ========
1 Adjusted to reflect the changes in presentation.
RHI Magnesita Group terminated its energy supply contract
following the closure of the fused magnesia plant in Porsgrunn,
Norway. The original contract term was December 2023 and the
settlement payment amounts to EUR24.0 million. Payment will be made
in two installments in July 2020 (EUR8.5 million) and January 2021
(EUR15.5 million). Since 2015 this energy supply contract has been
accounted for as a derivative financial instrument in accordance
with IFRS 9, as the "own-use-exemption" was no longer applicable as
the majority of the contracted electricity was sold on the market.
As of 30 June 2020, measurement of this financial instrument is
based on the settlement payment and recognised as other financial
liability.
21. Foreign exchange effects and related derivatives
The net expense on foreign exchange effects and related
derivatives consists of the following items:
in EUR million for the six months ended 30 June 2020 2019
===================================================== ======== =======
Foreign exchange gains 105.0 37.8
Gains from related derivative financial instruments 1.5 14.3
Foreign exchange losses (122.0) (37.7)
Losses from related derivative financial instruments 0.0 (23.9)
===================================================== ======== =======
Net expense on foreign exchange effects and related
derivatives (15.5) (9.5)
===================================================== ======== =======
The net expense on foreign exchange effects in the current
reporting period resulted mainly from the devaluation of the
Brazilian Real against the US Dollar.
22. Other net financial expenses
Other net financial expenses consist of the following items:
in EUR million for the six months ended 30 June 2020 2019
======================================================== ======= =======
Interest income on plan assets 1.3 1.8
Interest expense on provisions for pensions (4.0) (6.0)
Interest expense on provisions for termination benefits (0.3) (0.6)
Interest expense on other personnel provisions (0.1) (0.2)
-------------------------------------------------------- ------- -------
Net interest expense personnel provisions (3.1) (5.0)
Unwinding of discount of provisions and payables (3.5) (8.8)
Interest expense on non-controlling interests (1.9) (3.2)
Interest expense on lease liabilities (0.6) (0.4)
Gains from the disposal of securities and shares 0.0 0.4
Reversal of impairment losses on securities 0.0 0.5
Impairment losses on securities (0.4) 0.0
Expenses from the valuation of put options (0.9) 0.0
Other interest and similar expenses (4.4) (3.4)
======================================================== ======= =======
Other net financial expenses (14.8) (19.9)
======================================================== ======= =======
23. Income tax
The tax rate of the first half of 2020 amounts to 27.0%
(1-6/2019: 26.4%).
Total tax for the first half of 2020 in the Consolidated
Statement of Profit or Loss amounted to EUR19.0 million (1-6/
2019:EUR43.5 million), which includes tax income for prior years of
EUR1.5 million (1-6/2019: tax expense for prior years of EUR5.7
million). An effective tax rate between 30% and 32% is anticipated
for the full year 2020.
Regarding the recognition of tax expenses, deferred tax assets,
and deferred tax liabilities, RHI Magnesita has evaluated the
impacts of the economic scenario arising, mainly, out of COVID-19's
implications to a global downturn. In this context, the relevant
uncertainties and potential negative effects of the downturn for
the Group's financial results were taken into consideration when
evaluating the recoverability of the tax assets. Special focus was
given to working with the latest forecasts and assumptions to
minimise the effects of economic uncertainty to reach an assessment
that reflects the best analysis possible, considering the
circumstances and information available. Based on this analysis we
concluded that there is no need for an impairment of deferred tax
assets.
As a result from the growing impact of COVID-19 on the global
economy, several tax measures were proposed and implemented by tax
authorities across the globe. RHI Magnesita started monitoring
these measures and where applicable, proceeds with applications for
special deferral or reduction of tax payments.
24. Net cash flow from operating activities
in EUR million for the six months ended 30
June 2020 2019
================================================== ======= =======
Profit after income tax 51.2 121.2
Adjustments for
income tax 19.0 43.5
depreciation 61.1 71.3
amortisation 9.9 14.2
write-down of property, plant and equipment
and intangible assets 0.1 0.0
income from the reversal of investment subsidies (0.3) (0.2)
write-ups / impairment losses on securities 0.4 9.1
gains from the disposal of property, plant
and equipment (0.6) (1.2)
losses/ gains from the disposal of securities
and shares 0.0 (0.4)
losses from the disposal of subsidiaries 0.3 0.0
net interest expense and derivatives 17.1 32.8
share of profit of joint ventures and associates (5.4) (5.8)
other non-cash changes 25.2 21.2
Changes in working capital
inventories (12.8) (21.1)
trade receivables 70.5 (28.6)
contract assets (0.1) 0.0
trade payables (70.2) (45.3)
contract liabilities 2.8 (22.7)
Changes in other assets and liabilities
other receivables and assets (5.7) 12.2
provisions (24.5) (24.0)
other liabilities (13.9) 0.1
=================================================== ======= =======
Cash generated from operations 124.1 176.3
=================================================== ======= =======
25. Segment reporting
Segment reporting by operating company division
The following tables show the key financial information for the
operating segments for the first half of 2020 and the first half of
2019:
in EUR million for the six months ended 30
June 2020 Steel Industrial Group 2020
================================================= ======== =========== ===========
Revenue 820.1 350.7 1,170.8
================================================= ======== =========== ===========
Gross profit 183.6 95.5 279.1
================================================= ======== =========== ===========
EBIT 101.9
================================================= ======== =========== ===========
Net finance costs (37.1)
Share of profit of joint ventures and associates 5.4
================================================= ======== =========== ===========
Profit before income tax 70.2
================================================= ======== =========== ===========
Depreciation and amortisation charges (50.1) (20.9) (71.0)
Segment assets 30.06.2020 1,605.4 591.2 2,196.6
Investments in joint ventures and associates
30.06.2020 15.2
Reconciliation to total assets 901.0
-----------
3,112.8
================================================= ======== =========== ===========
in EUR million for the six months ended 30
June 2019 Steel Industrial Group 2019
================================================= ======== =========== ===========
Revenue 1,077.1 464.4 1,541.5
================================================= ======== =========== ===========
Gross profit 269.5 130.2 399.7
================================================= ======== =========== ===========
EBIT 213.8
================================================= ======== =========== ===========
Net finance costs (45.3)
Share of profit of joint ventures and associates (3.8)
================================================= ======== =========== ===========
Profit before income tax 164.7
================================================= ======== =========== ===========
Depreciation and amortisation charges(1) (62.9) (22.6) (85.5)
Segment assets 31.12.2019(1) 1,759.1 706.3 2,465.4
Investments in joint ventures and associates
31.12.2019 19.5
Reconciliation to total assets 834.7
-----------
3,319.6
================================================= ======== =========== ===========
1 Adjusted to reflect the changes in presentation.
When allocating revenue to product groups, a distinction is made
between shaped products (e.g. hydraulically pressed bricks, fused
cast bricks, isostatically pressed products), unshaped products
(e.g. repair mixes, construction mixes and castables), refractory
management services as well as other revenue. Other mainly includes
revenue from the sale of non-group refractory products.
In the reporting year, revenue is classified by product group as
follows:
in EUR million for the six months ended 30
June 2020 Steel Industrial Group 2020
=========================================== ====== =========== ===========
Shaped products 378.1 245.5 623.6
Unshaped products 140.1 72.0 212.1
Management refractory services 262.1 0.0 262.1
Other 39.8 33.2 73.0
=========================================== ====== =========== ===========
Revenue 820.1 350.7 1,170.8
=========================================== ====== =========== ===========
In the comparing period, revenue was classified by product group
as follows:
in EUR million for the six months ended 30
June 2019 Steel Industrial Group 2019
=========================================== ======== =========== ===========
Shaped products 508.7 319.7 828.4
Unshaped products 165.8 88.4 254.2
Management refractory services 340.7 0.0 340.7
Other 61.9 56.3 118.2
=========================================== ======== =========== ===========
Revenue 1,077.1 464.4 1,541.5
=========================================== ======== =========== ===========
Revenue from shaped and unshaped products is transferred to the
customers at a point in time, whereas revenue from management
refractory services is transferred over time. Other revenue
amounting to EUR32.9 million (1-6/2019: EUR48.1 million) is
transferred over time and an amount of EUR40.1 million (1-6/2019:
EUR70.1 million) is transferred at a point of time.
Segment reporting by country
Revenue in the first half of 2020 and in the first half of 2019
is classified by customer sites as follows:
in EUR million for the six months ended 30
June 2020 Steel Industrial Group
============================================ ====== =========== ========
Netherlands 3.8 3.4 7.2
All other countries
USA 166.6 35.9 202.5
Brazil 93.9 30.7 124.6
India 80.6 14.9 95.5
PR China 30.7 38.7 69.4
Mexico 45.2 17.1 62.3
Germany 35.3 22.2 57.5
Italy 32.3 10.0 42.3
Canada 21.0 20.2 41.2
Russia 28.6 9.6 38.2
Other countries, each below EUR30.3 million 282.1 148.0 430.1
============================================ ====== =========== ========
Revenue 820.1 350.7 1,170.8
============================================ ====== =========== ========
in EUR million for the six months ended 30
June 2019 Steel Industrial Group
============================================ ======== =========== ========
Netherlands 7.0 2.8 9.8
All other countries
USA 183.3 32.5 215.8
Brazil 146.7 33.6 180.3
India 108.8 21.7 130.5
Germany 53.5 38.0 91.5
PR China 19.1 65.1 84.2
Mexico 57.4 22.9 80.3
Italy 47.6 11.6 59.2
Canada 25.0 26.2 51.2
Russia 36.5 3.7 40.2
Other countries, each below EUR28.0 million 392.2 206.3 598.5
============================================ ======== =========== ========
Revenue 1,077.1 464.4 1,541.5
============================================ ======== =========== ========
26. Additional disclosures on financial instruments
The following tables show the carrying amounts and fair values
of financial assets and liabilities by measurement category and
level and the allocation to the measurement category in accordance
with IFRS 13. In addition, carrying amounts are shown aggregated
according to measurement category.
30.06.2020 31.12.2019
======================================= ============================================= ======================
Measurement
category Carrying Carrying
in EUR million IFRS 9(1) Level amount Fair value amount Fair value
======================================== ============== ====== ========= =========== ========= ===========
Other non-current financial assets
Interests in subsidiaries not
consolidated FVPL 3 0.6 0.6 0.7 0.7
Marketable securities FVPL 1 12.9 12.9 13.3 13.3
Shares FVPL 3 0.5 0.5 0.5 0.5
Other non-current financial
receivables AC - 0.8 - 0.9 -
Trade and other current receivables AC - 233.0 - 324.2 -
Other current financial assets
Derivatives FVPL 2 1.1 1.1 0.1 0.1
Cash and cash equivalents AC - 532.5 - 467.2 -
======================================== ============== ====== ========= =========== ========= ===========
Financial assets 781.4 806.9
======================================== ============== ====== ========= =========== ========= ===========
Non-current and current borrowings
Liabilities to financial institutions AC 2 1,131.4 1,146.5 1,043.1 1,056.6
Other financial liabilities and
capitalised transaction costs AC 2 8.5 - 11.9 -
Non-current and current other
financial liabilities
Lease liabilities AC 2 58.8 - 61.9 -
Derivatives FVPL 2 3.0 3.0 24.5 24.5
Settlement of energy supply contract AC - 24.0 - 0.0 -
Interest derivatives designated
as cash flow hedges - 2 22.7 22.7 14.8 14.8
Liabilities to fixed-term or
puttable non-controlling interests AC 2 38.2 - 35.8 -
Other non-current liabilities - - - - -
Trade payables and other current
liabilities AC - 280.5 - 412.3 -
======================================== ============== ====== ========= =========== ========= ===========
Financial liabilities 1,567.1 1,604.3
======================================== ============== ====== ========= =========== ========= ===========
Aggregated according to measurement
category
======================================== ============== ====== ========= =========== ========= ===========
Financial assets measured at
FVPL 15.1 14.6
Financial assets measured at
amortised cost 766.3 792.3
Financial liabilities measured
at amortised cost 1,541.4 1,565.0
Financial liabilities measured
at FVPL 3.0 24.5
======================================== ============== ====== ========= =========== ========= ===========
1) FVPL: Financial assets/financial liabilities measured at fair
value through profit or loss.
AC: Financial assets/financial liabilities measured at amortised
cost.
In the RHI Magnesita Group marketable securities, derivative
financial instruments, shares, and interests in subsidiaries not
consolidated are measured at fair value.
Fair value is defined as the amount for which an asset could be
exchanged, or a liability settled, between market participants in
an arm's length transaction on the day of measurement. When the
fair value is determined it is assumed that the transaction in
which the asset is sold or the liability is transferred takes place
either in the main market for the asset or liability, or in the
most favourable market if there is no main market. RHI Magnesita
considers the characteristics of the asset or liability to be
measured which a market participant would consider in pricing. It
is assumed that market participants act in their best economic
interest.
RHI Magnesita takes into account the availability of observable
market prices in an active market and uses the following hierarchy
to determine fair value:
Level
1: Prices quoted in active markets for identical financial instruments.
Level Measurement techniques in which all important data used are based
2: on observable market data.
Level Measurement techniques in which at least one significant parameter
3: is based on non-observable market data.
===== =====================================================================
The fair value of securities, shares, and interests in
subsidiaries not consolidated is based on price quotations at the
reporting date (Level 1), where such quotations exist. In other
cases a valuation model (Level 3) would be used for such
instruments with the exception that such instruments are immaterial
to the Group, in which case amortised cost serves as an
approximation of fair value.
The fair value of interest derivatives in a hedging relationship
(interest rate swaps) is determined by calculating the present
value of future cash flows based on current yield curves taking
into account the corresponding terms (Level 2).
The fair value of other derivative contracts corresponds to the
market value of the forward exchange contracts and the embedded
derivatives in open orders denominated in a currency other than the
functional currency, as well as the market value of a long-term
power supply contract, which was classified as a derivative
financial instrument since 2015. These derivatives are measured
using quoted forward rates that are currently observable (Level
2).
A detailed analysis on COVID-19 and its impact on the Group is
provided under Note (1). The effect on the fair value of financial
assets and liabilities as at 30 June 2020 is considered to be
immaterial to the Group.
RHI Magnesita takes into account reclassifications in the
measurement hierarchy at the end of the reporting period in which
the changes occur. Apart from the initial application of IFRS 9,
there were no shifts between the different measurement levels in
the two reporting periods.
Liabilities to financial institutions, other financial
liabilities and capitalised transaction costs, lease liabilities
and liabilities to fixed-term or puttable non-controlling interests
are carried at amortised cost in the Consolidated Statement of
Financial Position. The fair values of the liabilities to financial
institutions are only shown in the notes and calculated at the
present value of the discounted future cash flows using yield
curves that are currently observable (Level 2).
The financial receivables approximately correspond to the fair
value as due to the amount of the existing receivables no material
deviation between the fair value and the carrying amount is assumed
and the credit default risk is accounted for by forming valuation
allowances.
The remaining terms of trade and other current receivables and
liabilities as well as cash and cash equivalents are predominantly
short. Therefore, the carrying amounts of these items approximate
fair value at the reporting date.
At the two reporting dates, no contractual netting agreement of
financial assets and liabilities were in place.
27. Dividend payments and proposed dividend
On 23 July 2019 the Board of Directors of RHI Magnesita N.V.
approved the 2019 interim dividend of EUR0.50 per share amounting
to
EUR 24.5 million. The 2019 interim dividend was paid on 9
January 2020.
In April, the Board has decided not to recommend the payment of
a final dividend for 2019 because of the uncertainty relating to
COVID-19 and to prudently preserve cash. The economic uncertainty
remains, particularly in respect of further outbreaks and
consequential economic weakness. The Board, therefore, is not
declaring an interim dividend for the first half of 2020.
The Board appreciates the importance of dividends, and
shareholder returns more broadly, and will continue
review, intending to resume dividend payments at the earliest opportunity.
Dividend payments to the shareholders of RHI Magnesita N.V. have
no income tax consequences for RHI Magnesita N.V.
28. Contingent liabilities
As of 30 June 2020, contingent liabilities amount to EUR49.6
million (31.12.2019: EUR44.3 million). Of this total, warranties,
performance guarantees and other guarantees account for EUR49.3
million (31.12.2019: EUR44.0 million) and sureties for EUR0.3
million (31.12.2019: EUR0.3 million).
RHI Magnesita is party to tax proceedings in Brazil with the
estimated amount of EUR177.8 million as of 30 June 2020
(31.12.2019: EUR233.5 million), translated from Brazilian Real into
Euro using the closing rate on the reporting date. For these
proceedings, for which no provision was set up according to IFRS,
as management classified risks of loss (based on the evaluation of
legal advisors) as possible but not probable. These tax proceedings
had no significant development in local currency up to 30 June 2020
and are described in the Notes to the Consolidated Financial
Statements of 31 December 2019.
Furthermore, Magnesita Refratários S.A., Contagem, Brazil, is
party to a public civil action for damages caused by overloaded
trucks in contravention with the Brazilian traffic legislation. The
potential loss from this proceeding amounts to EUR9.9 million as at
30 June 2020 (31.12.2019: EUR13.3 million).
There were no other significant changes in contingent
liabilities as of 30 June 2020. Further information on contingent
liabilities is provided in the Consolidated Financial Statements as
of 31 December 2019.
RHI Magnesita is continually adapting its global presence to
better serve its customers and maintain its competitive advantage.
As a result, in this way the Group maintains discussions with tax
authorities about functions transferred between related parties and
their exit value. However due to its nature, they do not impact the
Group's accounts.
29. Other financial commitments
As of 30 June 2020, the RHI Magnesita Group has commitments for
the purchase of property, plant and equipment in the amount of 80.7
million (31.12.2019: EUR 5.0million).
30. Employees
In the first half of 2020 the average number of employees of the
RHI Magnesita Group based on full time equivalents amounts to
12.999 (1-6/2019: 14,701). 135 (1-6/2019: 75) full time equivalents
of salaried employees work in the Netherlands.
31. Disclosures on related parties
The nature of related party transactions as of 30 June 2020 are
in line with the transactions disclosed in Note (62) of the 2019
Group Financial Statements. All transactions with related parties
are conducted on an arm's length basis and in accordance with
normal business terms.
Related companies
In the first half of 2020 the RHI Magnesita Group received a
dividend payment from MAGNIFIN Magnesiaprodukte GmbH & Co KG.,
St. Jakob, Austria which amounted to EUR9.8 million (1-6/2019:
EUR10.1 million) and purchased raw materials from Sinterco S.A.,
Namêche, Belgium which amounted to EUR8.1 million (1-6/2019:
EUR11.3 million). No other material transactions took place between
the Group and related companies and persons.
Related persons
RHI Magnesita and a close relative of a Non-Executive Director
concluded a non-remunerated consultancy agreement to advise the
Group on the economic and political framework in countries in which
it does not yet have strong business links.
Equity-settled share option plan (LTIP)
On 8 April 2020 RHI Magnesita Group granted a new equity settled
share option plan (LTIP 2020) with a fair value of EUR6.7 million
as per 30 June 2020 for 370.014 shares with a share price of
EUR22,7 at grant date. The vesting date will be 7 April 2023.
32. Seasonal and cyclical influence
Explanations regarding seasonal and cyclical influences on the
operating activities of RHI Magnesita Group can be found in the
report of the divisions in the management commentary.
33. Material events after the reporting date 30.06.2020
After the reporting date on 30 June 2020, there were no other
events of special significance which may have a material effect on
the financial position and performance of the RHI Magnesita
Group.
Statement of the Board of Directors
Statement ex Article 5:25d Paragraph 2 sub c Financial Markets
Supervision Act ("Wet op het financieel toezicht").
To our knowledge:
1. The Condensed Consolidated Interim Financial Statements for
the six-month period ended 30 June 2020, which have been prepared
in accordance with IAS 34 'Interim Financial Reporting' as adopted
by the EU, give a true and fair view of the assets, liabilities,
financial position, and profit of RHI Magnesita N.V. and the
undertakings included in the consolidation as a whole;
2. The management report of the Executive Board for the
six-month period ended 30 June 2020 as presented in the report on
unaudited half year results includes a fair view of the information
required pursuant to article 5:25d paragraphs 8 and 9 of the Dutch
Financial Markets supervision Act ("Wet op het financieel
toezicht").
Vienna, 4 August 2020
Executive Directors
Stefan Borgas Ian Botha
Non-Executive Directors
Herbert Cordt James Leng
Stanislaus Prinz zu Sayn-Wittgenstein-Berleburg David Schlaff
Celia Baxter John Ramsay
Janet Ashdown Wolfgang Ruttenstorfer
Andrew Hosty Karl Sevelda
Fiona Paulus
Employee Representative Directors
Franz Reiter Michael Schwarz
Independent Auditor's Review Report
To: the board of directors of RHI Magnesita N.V.
Introduction
We have reviewed the accompanying condensed consolidated interim
financial information for the six-month period ended 30 June 2020
of RHI Magnesita N.V., Arnhem, which comprises the condensed
consolidated statement of financial position as of 30 June 2020,
the condensed consolidated statement of profit or loss, the
condensed consolidated statement of comprehensive income, the
condensed consolidated statement of changes in equity, the
condensed consolidated statement of cash flows for the period then
ended and the selected explanatory notes. The board of directors is
responsible for the preparation and presentation of this
(condensed) interim financial information in accordance with IAS
34, 'Interim Financial Reporting' as adopted by the European Union.
Our responsibility is to express a conclusion on this interim
financial information based on our review.
Scope
We conducted our review in accordance with Dutch law including
standard 2410, Review of Interim Financial Information Performed by
the Independent Auditor of the entity. A review of interim
financial information consists of making inquiries, primarily of
persons responsible for financial and accounting matters, and
applying analytical and other review procedures. A review is
substantially less in scope than an audit conducted in accordance
with auditing standards and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the accompanying condensed consolidated
interim financial information for the six-month period ended 30
June 2020 is not prepared, in all material respects, in accordance
with IAS 34, 'Interim Financial Reporting' as adopted by the
European Union.
Amsterdam,4 August 2020
PricewaterhouseCoopers Accountants N.V.
Original has been signed by E.M.W.H. van der Vleuten RA MSc
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR FLFETTVISIII
(END) Dow Jones Newswires
August 05, 2020 02:00 ET (06:00 GMT)
Rhi Magnesita N.v (LSE:RHIM)
Gráfica de Acción Histórica
De Mar 2024 a Abr 2024
Rhi Magnesita N.v (LSE:RHIM)
Gráfica de Acción Histórica
De Abr 2023 a Abr 2024
