Rhi Magnesita Nv · LSE:RHIM
Rhi Magnesita Nv — FY2018 Earnings Presentation
50 slides from Rhi Magnesita Nv's earnings presentation, Mar 27, 2019
Slide 1: 2018 FY Results
LX RHI MAGNESITA 2018 FY Results 27 March 2019
Slide 2: Disclaimer
Disclaimer Financial information contained herein, as well as other operational information, were not audited by independent auditors and may include forward-looking statements and reflects the current views and perspectives of the management on the evolution of macro- economic environment, conditio
Slide 3: Agenda
Agenda 1 Highlights of 2018 2 Financial review 3 Operational and strategic review 4 Summary and outlook 5 Appendix 3
Slide 4: Highlights of 2018
Highlights of 2018
Slide 5: 2018 highlights
2018 highlights €3.1bn 21% 1 1.2x 0.7x Net debt / adjusted EBITDA 2018 revenue 13.9% 460bps 1 15.4% 680bps 2018 adjusted EBITA margin Working capital intensity €428m 81% 1 €1.50 100% 2018 adjusted EBITA Proposed final dividend per share Notes:1) Represents the change between 2018 and 2017 adjusted p
Slide 6: Delivering the value of the merger
Delivering the value of the merger Merger commitments 2018 achievements Capture €40m of synergies in first year of merger €70m delivered in 2018 and €110m 2020 target on and €70m altogether track Offset merger related divestments and revenue Business revenue growth; volume up 5% in 2018 dissyner
Slide 7: 2018 operational highlights
2018 operational highlights Strong delivery in the first full financial year of RHI Magnesita Strong performance underpinned by robust demand and pricing environment Significant step up in operating margins Continued benefit of vertically integrated model Outperformance on synergy delivery (€70m aga
Slide 8: Prioritising safety
Prioritising safety Our goal is to build an industry leading safety culture with zero accidents Improving safety performance Continued focus on safety Intensive ‘Safety First’ campaign is yielding benefits Lost Time Injury Frequency (“LTIF”) rate reduced by 60% in 2018 to all 1.7 time low of 0.4 Tar
Slide 9: A clear and compelling strategy
A clear and compelling strategy Enabling us to add value through a full suite of products & services People Progress in 2018 Hire, retain and motivate talent and Integration of c.14,000 employees worldwide nurture a meritocratic, performance- Roll out of cultural values and international career prog
Slide 10: Financial review
Financial review
Slide 11: Profit and loss
Profit and loss Overview €m 2018 20171 Change Significant revenue growth of 21% driven by: Revenue 3,081.4 2,549.6 21% Robust end markets CoGS (2,344.5) (1,989.1) 18% Continued high raw material pricing Gross profit 736.9 560.5 31% Growth in Steel and Industrial Divisions Gross margin 23.9% 22.0% 19
Slide 12: 2018 revenue bridge
2018 revenue bridge Pricing 2018 407 3,081 Revenue 2,677 125 2,550 -128 Volume FX 2017 reported revenue FX 2017 Revenue on constant currency basis 2017 adjusted Constant currency 2017 adjusted proforma Volume Price and mix 2018 Revenue pro-forma revenue adjustment revenue on constant currency basis
Slide 13: 2018 EBITA bridge
2018 EBITA bridge 134 benefits amounted to €70m SynergyPricing 2018(ahead of Revenue 428 €60m target) -42 EBITA benefitting from both good volume growth Volume and price/mix development 30 Financial performance driven by the underlying 304 70 strength of the markets in which we operate FX 2017 Steel
Slide 14: Reconciliation of adjusted earnings
Reconciliation of adjusted earnings Reported Adjusted €m 2018 Adjustment items 2018 EBITA 427.2 0.9 428.1 Amortisation (28.6) 28.6 - Net financial expenses (162.7) 76.6 (86.1) Share of profit of joint ventures 10.1 10.1 Profit before tax 246.0 352.2 Income tax (23.9%) (58.9) (25.4) (84.3)1 Profit af
Slide 15: Cash flow overview
Cash flow overview Operating free cash flow driven by increase in adjusted EBITA and working capital efficiency Working capital requirements were cash generative, albeit partially offset by inventory consumption and higher raw material prices Net financial expenses of €62.8m expected to decrease in
Slide 16: Effective working capital management
Effective working capital management Leading to strong cash generation Working capital intensity Accounts receivable 14.3% 8.9% 22.2% 15.4% 2017 2018 Accounts payables 610 511 17.2% 15.1% 20171 20182 % of Revenue Working Capital (€m) 2017 2018 Inventory 25.3% 21.6% 2017 2018 Notes: 1) Working capita
Slide 17: Capital structure
Capital structure Solid credit profile and commitment to de-leveraging current business 2.6x During 2018 RHIM refinanced c.€800 million of its capital 1.9x structure, including the redemption of Magnesita’s legacy Bonds, 1.6x achieving funding costs commensurate with its stronger credit 1.2x profile
Slide 18: 2019 technical guidance
2019 technical guidance Synergy benefits: further €20m P&L impact in 2019 (cumulative €90m) Total capital expenditure: €175m Maintenance capex: €110m Additional project capex: €65m Dolomite expansion in Chizhou: €30m Supporting growth projects in York and India, cost saving initiatives in Supply Cha
Slide 19: Operational and strategic review
Operational and strategic review
Slide 20: Robust organic growth capacity, alongside significant expansion potential
Robust organic growth capacity, alongside significant expansion potential Delivering through-cycle growth – 1-3% organic and 1-3% through acquisitions Core / existing markets Supported by global High market share in Further technical and R&D Product & Europe / Americas penetration into capabilities
Slide 21: Steel Division – 2018 review
Steel Division – 2018 review Revenue (€m) and gross margin (%) 2018 performance Strong revenue growth in North America – increased crude steel production, focus on key strategic initiatives, enhanced 23.7% product portfolio and market price adjustments 23.1% Good organic growth in Europe – despite a
Slide 22: Stable global steel production with growing uncertainty
Stable global steel production with growing uncertainty Steel market overview Steel production volumes (Mt)1 Global crude steel production +4.6% in 20181 2,000 US +6.2% 1,800 China +6.6% 1,600 India +4.9% 1,400 EU -0.3% 1,200 Continued focus amongst steel producers in improving competitiveness and p
Slide 23: Industrial Division – 2018 review
Industrial Division – 2018 review Revenue (€m) and gross margin (%) 2018 performance 24.5% Cement / Lime 22.5% €321m revenue; driven by price increases and portfolio +33% optimisation Successful step towards turnaround of business unit in 2018 877 Project businesses3 658 Strong business unit perform
Slide 24: Continued GDP growth supporting Industrial Division demand
Continued GDP growth supporting Industrial Division demand Industrial market overview RHI Magnesita Industrial revenue by sector3 2018 global GDP growth +3.7%, projected to be +3.3% in 20191 Relative stability in cement & lime from a global perspective; Project businesses demand expected to increase
Slide 25: High market share in Europe and Americas with opportunities in India, China and CIS
High market share in Europe and Americas with opportunities to occupy ‘white spaces’ in India, China and CIS RHI Magnesita revenue by region vs market size Steel Production1 1000m tonnes South America High MEA Europe 300m tonnes North RHI Magnesita America market share India 100m tonnes Low Other CI
Slide 26: India – world's 2nd largest steel market
India – world’s 2nd largest steel market RHI Magnesita well-positioned to benefit from expanding refractory demand Indian business continued to grow ahead of steel market in 2018 Reorganisation and simplification of local business and increase in capacity to meet demand requirements better aligned w
Slide 27: 'China for China' strategy
‘China for China’ strategy Locally focused to exploit significant growth market opportunities Implementation of new business plan and strong, locally focused management team 2018 revenue +36% to €166m – demonstrates growth and focus on this market New R&D team has developed specific, strategic and e
Slide 28: Synergy target exceeded in 2018; €90m expected in 2019
Synergy target exceeded in 2018; €90m expected in 2019 €110m ⬢ €70m synergies (vs €60m target) in the 2018 P&L and €110m in synergies to be achieved by 2020 €90m ⬢ Expected total cash restructuring costs are projected to be SG&A €100m-€120m, with €52m of cash €70m outflows disbursed during 2018 ⬢ In
Slide 29: Continued EBITA margin potential
Continued EBITA margin potential Adjusted EBITA margin progression Further margin potential 3.7 Continued volume growth and associated operational 2.6 leverage 3.7 2.5 2.0 1.7 Further product price increases 1.7 2.6 1.2 1.2 1.1 1.1 1.0 1.013.8% 14.0% 2.5 2.0 0.8 0.8 0.7 0.6 1.7 0.6 Further penetrati
Slide 30: Capital allocation strategy
Capital allocation strategy Balanced and dynamic capital allocation enabling long term growth & shareholder returns Cash Maintenance Organic investment Strong cash flow investment Commitment to capital deployment for generation from €110m investment growth and cost savings operating business per yea
Slide 31: Progressive dividend policy
Progressive dividend policy A sustainable dividend policy linked to adjusted earnings and cash flow generation Underpinned by strong performance and having reached leverage of 1.2x net debt to adj. EBITDA in 2018, the Board has recommended: A final dividend of €1.50 per share for 2018 Represents a 1
Slide 32: Summary and outlook
Summary and outlook
Slide 33: Raw material outlook
Raw material outlook Significant price rises in refractory raw materials1 Outlook 550 As a result of potential further export taxes, more restrictive allocation of explosives, strict environment enforcement and the nationalisation or controlled 500 consolidation of mining operations in China, the st
Slide 34: Summary and outlook
Summary and outlook Setting the business on the right path to achieve its full potential 2018: a year of progress and success Strong performance in first full year post merger Outperformance of synergy targets Delivered growth ahead of underlying markets alongside step up in profitability Refinancin
Slide 35: Appendix
Appendix gi | ib ui I Herts t ny f lo NeveyShaseas
Slide 36: Clear and compelling investment case
Clear and compelling investment case Clear strategy and Strong market position with 15% global market share (30% ex-China), clear leadership in Americas, Europe and Middle East with broadest value-added solution offering 1 strong competitive Opportunity to develop and leverage technology across regi
Slide 37: Impact of foreign currency movements
Impact of foreign currency movements EBITDA sensitivity 2018 exchange rates ∆ in EBITDA vs € Unit 1€= Closing rate Average rate (€m) USD +1 cent 4.61 USD 1.15 1.18 CNY +0.01 yuan -0.20 CNY 7.87 7.81 BRL +0.10 reais 2.72 BRL 4.45 4.31 INR +1 rupee 0.64 INR 80.0 80.7 37
Slide 38: Combined selected financials per currency
Combined selected financials per currency Revenues COGS and SG&A EBITDA per currency Others Others Others EUR 9% 10% 4% INR INR 6% 5% 4% INR 8% BRL BRL 11% 10% EUR 42% 50% EUR BRL 19% 59% USD1 26% 34% USD1 USD1 Notes: 1) USD exposure includes CNY. CNY exposure is ~5% of total revenues and ~12% of Co
Slide 39: P&L reconciliation
P&L reconciliation 2017 pro-forma figures a b c = a+b+c d e = e/d-1 Purchase Price 2017 Constant 2017 Adjusted pro- P&L 2017 Adjusted pro- Allocation currency pro- 2018 Δ forma Reclassifications forma adjustment forma Revenue 2,677.2 4.0 2,681.2 2,549.6 3,081.4 21% COGS (1,999.3) (49.5) (31.4) (2,08
Slide 40: P&L reconciliation
P&L reconciliation 2017 reported figures a b c = a+b+c Purchase Price Allocation 2017 Reported P&L reclassifications 2017 Adjusted adjustment Revenue 1,946.1 4.0 1,950.1 COGS (1,485.6) (30.5) (27.3) (1,543.4) Gross profit 460.5 (30.5) (23.3) 406.7 SG&A (292.5) 0.5 47.7 (244.3) Other income/expenses
Slide 41: Net financial expenses
Net financial expenses Detailed overview (€m) 2018 Recurring Non-recurring Interest income 9.7 9.7 – Interest expense (48.5) (48.5) – Foreign exchange (81.3) (19.6) (61.7) Other financial expenses (42.6) (27.6) (15.0) Total (162.7) (86.1) (76.6) Net interest expenses Post refinancing, net interest e
Slide 42: Impact of IFRS 16
Impact of IFRS 16 After application of IFRS16 Net impact (€m) (€m) Depreciation 12.7 12.7 Other expenses -13.3 -13.3 Profit and loss EBIT -0.6 -0.6 statement Interest expenses on borrowings 0.6 0.6 Profit before tax 0.0 0.0 Cash flow from operations 13.3 13.3 Cash flow Net cash flow from financing a
Slide 43: Company background
Company background
Slide 44: Refractories are critical to all high-temperature industrial processes
Refractories are critical to all high-temperature industrial processes ⬢ Refractories are critical consumable or Main end markets investment goods for high-temperature €20 billion worldwide industry manufacturing processes ⬢ Fireproof materials consumed whilst ◼ Steel protecting clients’ production
Slide 45: Refractories are continuously consumed during finished goods production
Refractories are continuously consumed during finished goods production Key industries Applications Replacement % of clients’ Refractory characteristics costs Consumable product Steel Basic oxygen-, 20 minutes to ~3.0% electric arc furnace 2 months Systems and solutions for casting ladles complete r
Slide 46: A complex range of tailored refractory products are required for each application
A complex range of tailored refractory products are required for each application Bricks Example of refractory application for steel ladle 2 3 1 Permanent lining 2 Non-basic, 3 Basic, ex. ex. Alumina Mag-Carbon 4 1 Monolothics and pre casts 5 6 8 4 Mixes 5 Pre Castables Functional products 7 9 6 Sli
Slide 47: Serving all blue chip clients in every industry
Serving all blue chip clients in every industry Steel Cement Glass Metals Serving 1376 Serving 800 Serving 650 Serving 1060 of 1250 plants1 of 1537plants1 of 900 plants1 of 2000 plants1 Notes: 1) ex-China 47
Slide 48: The industry's largest dedicated research team
The industry’s largest dedicated research team, pushing the boundaries of what is possible We drive innovation in every aspect of our Global research team of 250+ employees, of which 98 have masters and PHDs, working out of 2 research hubs and 3 business, from materials, robotics and Big Data, cente
Slide 49: On-site technical experts consult, develop and deliver innovative solutions
On-site technical experts consult, develop and deliver innovative solutions directly to clients 340+ technical engineers across 90 countries, working on-site with clients to provide custom- made solutions, installation support, recycling, post-mortem analysis and more. A combination of… …ensures cus
Slide 50: Unrivalled competitive advantage through vertical integration
Unrivalled competitive advantage through vertical integration, in multiple sites 1.6 million 70% tonnes of raw vertical integration in materials produced dolomite and magnesite and Main raw material sites per year 50% for all raw materials Certainty of supply High quality materials Cost competitiven