Rhi Magnesita Nv · LSE:RHIM
Rhi Magnesita Nv — FY2023 Earnings Presentation
40 slides from Rhi Magnesita Nv's earnings presentation, Feb 28, 2024
Slide 1: Full Year Results 2023
Full Year Results 2023 Sustainable Growth 28 February 2024
Slide 2: Agenda
Agenda 1 FY overview 2 M&A update 3 Financial review 4 Summary and outlook 5 Q&A 6 Appendix 2023 Full Year Results | February 2024 2
Slide 3: Health & Safety
Health & Safety A core value at RHI Magnesita Two recent tragic fatalities in Austria, met with a Improvement in injury rates since 2018 comprehensive management response TRIF LTIF Injury indicators: ⁃ LTIF1 0.16 (2022: 0.20), lowest since pandemic year 1.07 ⁃ TRIF2 0.46 (2022: 0.54) 0.93 2023 focus
Slide 4: Financial highlights FY 2023
Financial highlights FY 2023 Significant cash generation driven by resilient profitability and working capital release Revenue Adjusted EBITA Adjusted EBITA Adjusted operating Adjusted EPS margin cash flow €3.6bn €409m 11.4% €413m €4.98 8% 7% (20)bps 166% 3.4% M&A Adjusted EBITDA Dividend declared W
Slide 5: M&A growth on resilient base business
M&A growth on resilient base business Pricing and acquisitions offset organic volume decline Revenue growth driven by pricing and M&A Revenue growth of 10% in constant currency despite very € million 9% 3.572 weak demand environment 4% ⁃ Steel volumes -3% excluding M&A, pricing flat 3.236 ⁃ Industri
Slide 6: Steel business overview
Steel business overview Resilient gross margin, pricing maintained and unit costs stable Revenue €m 1,2 Including M&A, steel revenue increased by 4% to €2,461 million (+6% in constant currency) 22.0% 22.3% Steel sales volumes excluding M&A reduced by 3% 21.6% ⁃ WSA global steel production excluding
Slide 7: Steel segment performance by region
Steel segment performance by region M&A drives strong revenue outperformance in Europe, China and India regions China & East Asia €239m Europe, CIS &Türkiye 20% Steel Segment Revenue 2023 €575m North America 8% €673m 24% 23% 3% North America -1% India, West Asia & Africa -1% -2% -2% -3% €2,461m Euro
Slide 8: Industrial business overview
Industrial business overview Restored gross margin of 27.7% due to catch-up price effects and later cycle timing Revenue €m Industrial segment revenue including minerals sales 27.7% increased by 17% to €1,111 million (+20% in constant 26.1% 25.6% currency) Gross margin 210bps higher versus FY 2022 1
Slide 9: Sustainability leadership
Sustainability leadership Recycling of reclaimed refractories continues to deliver significant CO2 savings Use of secondary raw material Secondary raw material use increased to 12.6% (2022: 10.5%) % of total raw material used Recycling activities since 2018 have avoided the emission of 1.3 12.6 10.5
Slide 10: M&A update
M&A update Stefan Borgas, CEO
Slide 11: M&A strategy in progress
M&A strategy in progress Nine acquisitions completed since December 2021 in key target geographies and product segments All acquisitions have been focused in a Europe/Türkiye China priority product segment or target geography Industrial Non-basic Consideration: €46m Consideration: €5m Each transacti
Slide 12: Industry consolidation opportunity
Industry consolidation opportunity RHI Magnesita is strengthening its clear global leadership position in the refractory industry and spreads global best technology, quality & sustainability standards Europe India China P-D Refractories Jinan New Emei Dalmia GSB Chongqing SORMAS MIRECO Hi-Tech Seven
Slide 13: M&A financials
M&A financials Acquisitions largely funded by cash flow and India equity raise Base business vs Group, €m 2024 EBITDA from M&A guidance €80m1 543 561 4.98 487 4.48 Synergy targets Base Business 56 80 mostly delivered within first two 2023 acquisitions Group incl. M&A 35 years Group Pro Forma 2022 ac
Slide 14: Financial Review
Sensitivity: Internal Financial Review Ian Botha, CFO 2023 Full Year Results | February 2024 14
Slide 15: Profit and loss summary
Sensitivity: Internal Profit and loss summary Higher revenue and EBITA offset at EPS level by increased finance charges, including FX €m 2023 20221 Change Revenue growth supported by M&A and price resilience with Revenue 3,572 3,317 8% 2% FX headwind Gross profit 857 763 12% Gross profit margin incr
Slide 16: 2023 revenue bridge
Sensitivity: Internal 2023 revenue bridge Pricing, strategic sales initiatives and M&A offset lower sales volumes €m 356 3,572 3,317 81 3,236 248 111 116 2022 Revenue FX effect 2022 Revenue at Sales volumes Price Strategic Initiatives M&A 2023 Revenue constant currency 2023 Full Year Results | Febru
Slide 17: 2023 EBITA bridge
Sensitivity: Internal 2023 EBITA bridge EBITA increased 7% as M&A delivers growth whilst pricing offsets volume and cost impacts €m 116 48 39 409 4 388 54 384 17 16 30 2022 EBITA FX effect 2022 EBITA Sales volumes Fixed cost Price Labour costs other SG&A Strategic M&A 2023 EBITA at constant under In
Slide 18: Record refractory margin of 9.7ppts
Sensitivity: Internal Record refractory margin of 9.7ppts Vertical integration margin for the time being lower at 1.7ppts due to cyclical low in refractory raw material prices FY H1 H2 FY RHI standalone RHI Magnesita 2022 2023 2023 2023 Consistent margin resilience, minimum 11% Refractory EBITA (€m)
Slide 19: Cost detail
Sensitivity: Internal Cost detail Cost deflation in some key categories offset by low capacity utilisation in H2 Cost of goods sold Raw materials Energy Absolute COGS +10%, shipped volumes +11% DBM prices softening since Q1 22 Gas prices have normalized; oil prices remains flat 2,714 DBM 97% (China)
Slide 20: Working capital
Working capital Disciplined reduction in inventory and receivables contributes €123 million release of working capital in base business Working capital balances Inventory % of L3M annualised revenue 25.4% 24.2% 33.6% 29.0% 23.3% 23.0% 24.3% 24.8% 1,232 1,272 997 1,092 977 1,049 996 837 677 918 794 9
Slide 21: Capital expenditure
Capital expenditure Peak capex has passed, now returning to levels closer to depreciation 2023 capex of €180 million (against guidance of €200 million): 252 ⁃ €86 million maintenance capex ⁃ €74 million project capex ⁃ €19 million in M&A 180 170 156 157 177 156 19 2024 capex to return to lower level
Slide 22: Strong cash flow generation in 2023
Strong cash flow generation in 2023 Adjusted operating cash flow of €413 million driven by strong profitability and working capital release Adjusted operating cash flow and Cash Conversion €m1 Net debt bridge €m 102% 88% 111% 101% 30 29 40% -84% 88 100 1,304 438 413 1,163 359 325 290 H1: €(84)m H2:
Slide 23: Stable gearing supports M&A strategy
Stable gearing supports M&A strategy €443 million 2023 M&A programme funded by operating cash flow and India equity raise Pro forma leverage of 2.3x4 (2022: 2.3x), within target Net debt and liquidity €m gearing range for compelling M&A 2.6x 2.3x 2.3x Leverage expected to be controlled within 2.0-2.
Slide 24: Summary & outlook
Summary & outlook
Slide 25: Trading outlook and 2024 guidance
Trading outlook and 2024 guidance M&A annualisation will be offset by lower vertical integration margin and pricing pressure • Key end markets of construction and transportation remain P&L 2024 guidance 2023 actual subdued, glass and non-ferrous metals volumes to reduce Base business flat volumes, M
Slide 26: Our performance in context
Our performance in context RHIM has navigated the recent downturn in steel production without margin decline, whilst executing significant M&A at the bottom of the refractory market EBITDA margin Global China China raw Energy World Steel Production YoY change financial crisis downturn material crisi
Slide 27: Investment case
Investment case (i) EBITDA and free cash flow comparable to FTSE 100 peers; (ii) highest free cash flow yield in the sector; (iii) compelling M&A growth story; (iv) high operational gearing to market recovery EBITDA 20231 RHI Magnesita Free cash flow 20231 Free cash flow yield 1 €m FTSE 1002 €m 27 F
Slide 28: Q&A
Q&A
Slide 29: Appendix
3 RHI MAGNESITA Appendix
Slide 30: Delivering our strategic sales initiatives
Delivering our strategic sales initiatives Strong organic and/or M&A led revenue growth over last 5 years in key target areas China €m Base business 2023 M&A India €m Solutions contracts Acquisition of DBRL & Hi-Tech reduced to 27% of Group Acquisition of Acquisition of Chongqing New Emei 477 revenu
Slide 31: Capital allocation framework
Capital allocation framework After maintenance capex and dividend, M&A, organic investments and buybacks compete for capital Leverage target 1.0– 2.0x and up to c.2.5x for compelling M&A opportunities M&A pipeline presents opportunity to continue consolidation of the refractory industry Leverage 1.0
Slide 32: P&L overview
Sensitivity: Internal P&L overview 2023 Full Year Results | February 2024 32
Slide 33: 2023 EBITA - Adjusted items
Sensitivity: Internal 2023 EBITA - Adjusted items €m 409 384 31 11 Restructuring costs 11 Restructuring costs 1 Plant closures 5 Plant closures (1) M&A related costs 14 M&A related costs 4 Oberhausen provision (11) Oberhausen provision (2) Board response to tender 4 Others 9 Others 8 Total 11 Total
Slide 34: Disciplined inventory management
Disciplined inventory management Production volumes held consistently below sales over last eight quarters to reduce inventory Production and sales volumes Production Volume Inventory volumes excluding M&A Finished Product excluding M&A Sales Volume kt Raw Material kt 500 450 400 350 300 250 200 0 Q
Slide 35: Cash flow reconciliation
Cash flow reconciliation €m 2023 2022 Adjusted EBITDA 543 500 Share based payments - gross non cash 9 8 Working capital changes 53 (195) Changes in other assets and liabilities (12) (2) Investments in Property, Plant & Equipment and Intangible assets (180) (157) Adjusted operating cash flow 413 155
Slide 36: Net financial expenses
Net financial expenses €m 2023 2022 Net financial expenses (39) (19) Interest income 20 8 Interest expenses (58) (27) FX effects (30) (23) Balance sheet translation (41) (10) Derivatives 11 (13) Other net financial expenses (32) (31) Present value adjustment on provisions (inc. Oberhausen onerous co
Slide 37: Reconciliation of adjusted earnings
Reconciliation of adjusted earnings Items excluded Items excluded €m 2023 from adjusted 2023 2022 from adjusted 2022 reported adjusted reported adjusted performance performance EBITA1 378 0 409 372 11 384 Items excluded from adjusted EPS: Amortisation (44) 44 0 (29) 29 - ⁃ €20 million non-recurring
Slide 38: Impact of foreign currency movement
Impact of foreign currency movement EBITA sensitivity in 2023 2023 exchange rates Appreciation vs EUR Depreciation vs EUR Increase / Increase / FY 2023 FY 2023 FY 2023 FY 2022 (decrease) (decrease) Opening Closing Average Average Unit in EBITA (€m) Unit in EBITA (€m) EUR: Rate Rate Rate Rate USD -1
Slide 39: Return on invested capital
Return on invested capital Group ROIC1 2023 2022 Average Invested Capital (€m) 2,854 2,439 NOPAT (€m) 305 301 ROIC (%) 10.7% 12.3% Vertical integration ROIC 2023 2022 Average Invested Capital (€m) 483 424 NOPAT (€m) 43 60 ROIC (%) 8.9% 14.1% Refractory ROIC 2023 2022 Average Invested Capital (€m) 2,
Slide 40: 2024 guidance detail
2024 guidance detail P&L 2024 guidance 2023 actual Revenues (i) Volumes Base business flat volumes, M&A full year effect adds 10% 3% revenue decline from volumes Revenues (ii) Pricing Pricing pressure to patially offset benefit of M&A 13% revenue growth from pricing and M&A Depreciation c.€140m €134