Rhi Magnesita Nv · LSE:RHIM
Rhi Magnesita Nv — Investor Day (November 2019)
93 slides from Rhi Magnesita Nv's investor day presentation, Nov 14, 2019
Slide 1: RHI Magnesita Capital Markets Day
8 RHI MAGNESITA 14 November 2019
Slide 2: Agenda
Agenda 8.00am_ Registration & coffee 8.30am_Introduction and strategy update Stefan Borgas, CEO followed by Q&A 9.00am_ Developing the business model Gustavo Franco, CSO followed by Q&A 9.45am Optimising production Gerd Schubert, COO followed by Q&A 10.30am Coffee break (30 minutes) Capital Markets
Slide 3: Introducing the team
3 RHI MAGNESITA Introducing the team & Stefan Borgas g Tan Botha Chief Executive Officer Chief Financial Officer Gustavo Franco > Gerd Schubert < Luis Bittencourt Chief Sales Officer Chief Operating Officer Chief Technology Officer Capital Markets Day | November 2019
Slide 4: Strategy update
8 RHI MAGNESITA Strategy update Stefan Borgas, CEO
Slide 5: Overview
Overview 3 RHI MAGNESITA Merger of RHI and Magnesita in 2017 created the world’s leading refractory business Highlights # 14,000 employees @ 32 production sites in 15 countries * 10 raw material sites across 4 continents * 10,000 customers * €80m of synergies to date and on track to deliver €110m by
Slide 6: Global leader in a highly fragmented market
3 RHI MAGNESITA Global leader in a highly fragmented market Growth opportunity through consolidation Global market share VESUVIUS 34% \ Medium & small G Chinese > companies «K SHINAGAWA REFRATECHNI 9 ntocast Capital Markets Day | November 2019 Total market size: Show c. €20bn Regional market share!
Slide 7: Serving a blue chip client base
Serving a blue chip client base STEEL Fa ArcelorMittal TATA STEEL & POSCco fe] GERDAU Qe ecm = Severstal Jsw GC) S) seeiomamics,nc: & wREI Serving 1,050 of 1,300 plants! Note:1) Approximate number of plants worldwide, excluding China, based on Company estimates Capital Markets Day | November 2019 CE
Slide 8: Mega trends underpin long-term market growth
3 RHI MAGNESITA Mega trends underpin long-term market growth * Mega trends ~— Urbanisation New cities, roads, railways, — Globalisation houses, offices, cars — Motorisation — Industrialisation Steel, Cement, Energy, Glass, « Emerging trends reshaping the future of the steel industry Aluminum, Copper
Slide 9: Refractories are essential for our modern world
3 RHI MAGNESITA Refractories are essential for our modern world Concrete Copper Steel Glass Aluminium 1,500°C 1,350°C 1,760°C 1,650°C 1,250°C (N CN IN CN ON tonne of STEEL 1 tonne of CEMENT 1 tonne of GLASS 1 tonne of ALUMINIUM 1 tonne of COPPER demands ~10-15 Kg demands ~1 Kg demands ~4 Kg demands
Slide 10: Our strategic difference
3 RHI MAGNESITA Our strategic difference Largest Full suite of global footprint products & services Benefiting from scale and Delivering more than refractory materials proximity to customers to address customers’ needs Backward integration Low cost operator Technical and financial advantage Underpin
Slide 11: More than 70 sales offices worldwide
+ More than 70 sales offices worldwide
Slide 12: Backwards integration is a strategic advantage
3 RHI MAGNESITA Backwards integration is a strategic advantage Certainty awit SGU raw materials Unrivalled se offering for reading industry customers Unique Simple solutions mining and Global footprint for the geology market 70% backwards integrated in basic raw materials / 50% in total raw material
Slide 13: Technological leadership
Technological leadership Raw materials advantage 2. Hubs os Centers Experts! Applied R&D +110 2.2% 12% . Innovation PhD's / Masters' R&D asa New product % of revenue as % revenues! of revenues* Notes: 1) R&D + Technical Marketing and Product management 2) Defined as products and brands less than 5 y
Slide 14: Group's strategy builds on strengths, to benefit from the market opportunities
3 RHI MAGNESITA Group's strategy builds on strengths, to benefit from the market opportunities Execute cost Expand business . Grow new markets reduction model Increase EBITA per annum by €70-€80m One time cost of €220m, of which 1/3 is financed by net working capital reduction Capital Markets Day |
Slide 15: Full suite of products complemented by knowledge and services
3 Full suite of products complemented by ma MAGNESIA knowledge and services Example: Steel customer IL}, {e] ; yO V Technology ib H —— — —— Solutions 5 Electric Arc Furnace Steel t refining facility Direct ea t Reduction Continuous se Casting Blast . Furnace a Basic Oxygen ‘urnace . t FullLine Servi
Slide 16: Expanding our solutions offering
3 RHI MAGNESITA Expanding our solutions offering Innovation to further enhance business model Current solutions offering Supply chain Refractory products Technical services Q Future innovation services @ Functional refractory * On-site consulting & * Warehousing @ Recycling of waste products supervi
Slide 17: Consistent focus on cost
Consistent focus on cost Adjusted EBITA margin (%) 610bp v 15.2% 13.9% of ; 2016 2017 2018 H12019 Capital Markets Day | November 2019 3 RHI MAGNESITA Consistent gross margin (%) 24.4% 25.3% 23.9% BOE 2016 2017 2018 H1 2019 Fixed cost discipline (SG&A in €m and %') 15.9% 10.3% c.10% 2016 2017 2018 20
Slide 18: Significant further cost improvement opportunities
Significant further cost improvement opportunities Ongoing operational excellence |: * Implementation of processes and systems oh ¢ Culture and behaviour change Production Optimisation Plan * Plant consolidation * Plant specialisation and cost reduction @ Raw material re-organisation @ Implement sta
Slide 19: Weak volume backdrop for Steel division in 2019
LE Weak volume backdrop for Steel division in 2019 Driven by customer destocking, selective market exit and some direct market volume loss * Destocking at customer sites | ene * Internal inventory + Exit from Iran market due to reduction sanctions * Dolomite supply constraints * Tactical volume redu
Slide 20: Our 2025 Sustainability targets
3 RHI MAGNESITA Our 2025 Sustainability targets: Scope 1 CO, emissions Safety Reduce by 15% per tonne by 2025! Strong safety culture with zero accidents Diversity Energy Improve gender diversity on Board and in senior Reduce by 5% per tonne 2025 leadership by 33% by 2025 NOx and SOx emissions f Comm
Slide 21: Culture
Culture Critical to success of the merger and future growth 8 RHI MAGNESITA Customer- focused and innovative Performance driven and accountable Open decision making ina respectful environment Cross-functional, collaborative and pragmatic across the global organization Capital Markets Day | November
Slide 22: Our people
Our people Performance driven and accountable Strengthening the team New international graduate programme - 15 new planned hires globally Employer branding launch with more than 70,000 followers on LinkedIn Incentivisation Creation of one global bonus scheme and anew role profiling framework Capital
Slide 23: Key messages
Key messages @ Merger of RHI and Magnesita created global refractories leader with clear strategic differentiators * Integration significantly complete @ Resilient business model # Strong balance sheet provides opportunities for continued investment and consolidation * Compelling opportunities in ne
Slide 24: Developing the business model
8 RHI MAGNESITA Developing the business model Gustavo Franco, Chief Sales Officer
Slide 25: Key messages
Key messages # Expansion of business model to increase value in core markets @ Significant opportunity in selected growth markets * Price management programme demonstrates “value-based approach” strategy * Business model to be complemented by digital solutions Capital Markets Day | November 2019 3 R
Slide 26: Our business at a glance
e Our business at a glance Steel 70% of revenues Cement/Lime 1 O% of revenues Non-ferrous metals T% of revenues Glass! 7% of revenues Energy, Environmental, Chemicals! 6% of revenues Industrial division Project businesses Note: 1) Includes revenue from mineral sales Capital Markets Day | November 20
Slide 27: How do we create value for RHI Magnesita
How do we create value for RHI Magnesita Capital Markets Day | November 2019 Digitalising the refractory world Missing customer demands Flexible business Value Disconnecting model creation from raw material prices Increasing market share in Maintaining growth markets market share in core markets 3 R
Slide 28: The focus on a value-based approach, disconnecting from raw material prices
3 RHI MAGNESITA The focus on a value-based approach, disconnecting from raw material prices Value focus 600 500 wt, . *. 17% 400 300 200 100 9 ® 2016 2017 H1 2018 H2 2018 H1 2019 we Notes: 1) Source: Bloomberg - Raw material index for magnesia grade 97 2) 2016 and 2017 are adjusted pro-forma figures
Slide 29: Deep dive: steel
Deep dive: steel Significant potential in growth markets a RHIM Market Share! Cluster: Core Markets Steel Prod. — 388mt (21%) Group revenue — €1,694m (77%) Cluster: Long-term prospects Steel Prod. — 312mt (17%) Group revenue— €272m (12%) Cluster: Focus growth Markets Steel Prod. —1,034mt (57%) Group
Slide 30: Cluster: core markets
Cluster: core markets Maintaining market share in Core Markets Market trajectory North America Mature market @ Larger players including RHI Magnesita taking market share Europe ¢ Tightening environmental restrictions ¢ Mature market with heavy exposure to automotive South America * Dynamic market wi
Slide 31: Maintaining market share through solutions business model
RHI MAGNESITA Cluster: core markets Maintaining market share through solutions business model Client cost structure Client benefit Current solutions portfolio v Reduced downtime v Lower refractory consumption v Lower energy and other raw materials consumption v Higher productivity RHI Magnesita bene
Slide 32: Strategy for selling solutions
3 RHI MAGNESITA Strategy for selling solutions Customer benefits Ze Productivity mm. Supply Flexibility ‘ul Reducing consumption of refractories and 7om'o Flexibility of supply to meet fluctuating higher output of finished products customer demand @: Working Capital [e-] Capex Savings Optimising cus
Slide 33: Cluster: focus growth markets
3 RHI MAGNESITA Cluster: focus growth markets Local for local strategy to pursue profitable growth in China & India PChing ii ¢ Implementing “Local for local” strategy # India merger to consolidate Indian entities, operations and sales — Further ramp-up of sales force teams — Develop localised produ
Slide 34: Industrial division
3 RHI MAGNESITA Industrial division Continued strong momentum in the short term Market trajectory Impact Strategic orientation Cement ¢ Steady growth in line with GDP and regional construction activity Focus on capturing local market growth and * Local for local - Cement typically locally produced a
Slide 35: Cement market focus
3 RHI MAGNESITA Cement market focus Rotary kiln @ RHI Magnesita is the global leader * Consolidated market * Competitive advantage coming from vertical integration (high quality, low cost raw material) * Consistent business model (product and supply chain) bringing reliability and just in time deliv
Slide 36: Expanding our solutions offering
3 RHI MAGNESITA Expanding our solutions offering Innovation to further enhance business model Current solutions offering Supply chain Refractory products Technical services Q Future innovation services @ Functional refractory * On-site consulting & * Warehousing @ Recycling of waste products supervi
Slide 37: Digitalisation offers exciting new solutions
RHI MAGNESITA Digitalisation offers exciting new solutions Current solutions offerings Expanded solutions offerings Mg0-C Product 3B Product Sime -P — Smart i = Application Application G : Smart AAR Supply Chain Supply Chain € . — Smart @ Hi Service | Plant ie Capital Markets Day | November 2019
Slide 38: Digitalisation offers exciting new solutions
Digitalisation offers exciting new solutions Capital Markets Day | November 2019 3 RHI MAGNESITA 38
Slide 39: Experience-based vs data-driven decision making
3 RHI MAGNESITA Today's reality in steel plants: Virtual reality in steel plant maintenance: Experience-based decision making Data-driven decision making Capital Markets Day | November 2019
Slide 40: Key messages
Key messages # Expansion of business model to increase value in core markets @ Significant opportunity in selected growth markets * Price management programme demonstrates “value-based approach” strategy * Business model to be complemented by digital solutions Capital Markets Day | November 2019 3 R
Slide 41: RHI MAGNESITA
RHI MAGNESITA
Slide 42: Optimising production
—— 7 = a tha 8 RHI MAGNESITA Optimising production “rr Gerd Schubert, Chief Operating Officer
Slide 43: Operations strategy
3 RHI MAGNESITA Operations strategy Environmental, health & safety * Continuously improve working environment @ Lead industry safety standards « Reduce impact of operations on the environment Operational excellence « Extract day-to-day cost savings J: * Offset cost inflation Be the lowest cost produ
Slide 44: Safety - first priority
So Safety - first priority Continuous improvement in Lost Time Injury Frequency (LTIF) 3.9 3.4 Kxe) 27 1.7 [| 0. 13 14 15 16 2011 12 7 18 H119 Capital Markets Day | November 2019 3 RHI MAGNESITA Key focus areas identified to further improve and reach our goal of zero-accidents * Increased focus on s
Slide 45: Operational excellence
[as Operational excellence Key initiatives Key achievements in 2019 3 RHI MAGNESITA Yearly target Implementation of processes and systems Focus on minimising machine downtime, manufacturing cost reductions and increased productivity « Process mapping and bottleneck improvement resulting in lead time
Slide 46: Raw material integration
So Raw material integration e Backward integration is a key enabler of lower cost production - Local raw material supply, minimising transport costs Supply security Internal control of technical specifications and quality Ensure competitive production costs e Use of recycled materials increasingly i
Slide 47: Current global production footprint
3 RHI MAGNESITA Current global production footprint Global footprint — a strategic advantage * Ability to serve a global customer base — Only global full-service refractory player — Productions in all major regions — Customer proximity — Minimising transport/logistics costs Current challenges Raw ma
Slide 48: Production Optimisation Plan
Production Optimisation Plan Concept Plant consolidation « Reduce higher cost production « Focus on growth markets ¢ Focus on flexible production Plant specialisation and cost reduction ¢ Invest in automation ie Create centres of excellence '¢ Develop capacity for growth markets Build regional suppl
Slide 49: Production Optimisation Plan: Europe
ZS RHI MAGNESITA Production Optimisation Plan Europe Plant Plan we Hagen (Germany) Closure. 180 FTE reduction Plant consolidation Trieben (Austria) Closure, 230 FTE reduction Mainzlar (Germany) Closure, 130 FTE reduction Automation and Plant specialisation | Radenthein (Austria) Modernisation 2022 J
Slide 50: Production Optimisation Plan: Americas
Production Optimisation Plan Americas Plant consolidation Plant specialisation and cost reduction Raw materials Capital Markets Day | November 2019 Plant Burlington (Canada) Plan Closure, 40 FTE reduction Dolomite centre of excellence York (USA) Expand capacity (16 k tonnes) 2020 Reduce plant comple
Slide 51: Production Optimisation Plan: China and India
Production Optimisation Plan China and India Plant Plant specialisation and cost reduction [bas Plan Plant ramp-up (local-for- Chizhou (China) pee 2019 Cuttack (India) New plant acquisition 2019 Vizag (india) Capacity expansion to support 2021 sales growth . Revival of mine and new rotary Raw materi
Slide 52: Production Optimisation Plan: Financial benefits
a Production Optimisation Plan Financial benefits 3 RHI MAGNESITA Production €m 2020 2021 2022 it Current Planned Sites Costs to achieve 80 70 40 omnlamerica g a Runratebenefit 5 15-30 40 Europe 7 13 South America 3 3 Asia 7 7 China 4 4 India 3 3 TOTAL 32 27 Capital Markets Day | November 2019 52
Slide 53: Key messages
3 RHI MAGNESITA Key messages To be the lowest cost producer of technically advanced, refractory Operational Excellence programmes will continue to deliver Continue to improve Health & Safety . - conversion costs reducing year-on-year materials oy ’ Raw materials integration a critical advantage - su
Slide 54: RHI MAGNESITA
RHI MAGNESITA
Slide 55: Coffee break
RHI MAGNESITA Coffee break
Slide 56: Leading the industry through innovation
8 RHI MAGNESITA Leading the industry through innovation Luis Bittencourt, Chief Technology Officer
Slide 57: R&D — From raw materials to refractories
3 RHI MAGNESITA R&D — From raw materials to refractories 480 technical experts across 90 countries to consult, develop and deliver innovative solutions directly to clients Capital Markets Day | November 2019 o 2 3 480 R&D Hubs R&D Centers Experts! (Austria and Brazil) (USA, China, India) @ +110 2.2%
Slide 58: Industry trends
Industry trends Environmental and social pressures ¢ Solutions for enhancing safety and ergonomics * Increasing usage of recycled materials * CO, and energy saving refractories ¢ Solutions for cleaner steel processes Cost efficiency * Substitution of low-availability/higher cost raw materials * Grow
Slide 59: R&D strategy
R&D strategy Maintaining technology leadership Raw materials advantage: Enhancing our raw material competitive advantage and developing new raw material concepts Applied R&D: Developing customer-specific applications and solutions Innovation: Leading the industry to find the next generation of techn
Slide 60: Backwards integration is a strategic advantage
o 3 RHI MAGNESITA Backwards integration is a strategic advantage Certainty awit of supply raw materials Unrivalled offering for customers Unique Global solutions footprint for the market Capital Markets Day | November 2019 Leading industry returns Simple mining and geology 60
Slide 61: High quality sites, globally, supporting unique solutions to the market
3 RHI MAGNESITA High quality sites, globally, supporting unique solutions to the market Raw material Production sites Annual production Standard DBM’ Brumado (Brazil) ~720 k tonnes 90%-97% Eskisehir (Turkey) Hochfilzen (Austria) one Breitenau (Austria) 1 ° 6 million High purity DBM’ Brumado (Brazil)
Slide 62: Consistently low-cost raw material production
3 RHI MAGNESITA Consistently low-cost raw material production Market prices versus internal production (€/mt) External market price Market price of DBM 97 126% average premium® RHIM produced (63% average premium pre 2017) DBM 96} RHIM produced DBM 98' Internal cost of production for equivalent grade
Slide 63: Applied R&D
ew 3 RHI MAGNESITA Applied R&D Significantly improved financial discipline since merger * Focus on high-return and fast-payback projects — Typical payback time <1 year * Improved response time — Aiming to reduce time to market by 50% by 2020 * Maximising the NPV of each R&D project — Disciplined app
Slide 64: Applied R&D: New rotary kiln solution
ow Applied R&D New rotary kiln solution Standard MgO-Spinel brick aL oS x Spinel grain Spinel layer on DBM grains Capital Markets Day | November 2019 3 RHI MAGNESITA Problem: * Spinels are used in rotary kiln bricks to increase thermal shock resistance and flexibility, however they are also associat
Slide 65: Applied R&D: helping customers be more sustainable and efficient
Applied R&D 3 RHI MAGNESITA How we help our customers to be more sustainable and efficient Energy saving and clean steel solutions o Problem: Poor thermal insulation properties of refractory products containing carbon How we solved it: « New technologies involving low thermal conductivity products (
Slide 66: Innovation — The 2025 targets
6 Innovation — The 2025 targets Our ambition is to lead the industry with the next generation of breakthrough technologies 3 RHI MAGNESITA Priority development themes % 10% Recycled raw materials het 15% CO, reduction per tonne of product @ 10% Energy saving at customers oe”) 5% reduction of Energy
Slide 67: Recycling process
3 6 Recycling process Targeting 10% recycled materials by 2025 | 2019} 2020-2021 4 2022+ Recycling benefits RHI MAGNESITA Business Establishment of Business 1 Oo% Development own operations Consolidation . recycling rate means * Contracts * Facilities ready * New products * Trading * Growth to full
Slide 68: ~85% of our CO2 emissions are on calcination/sintering
~85% of our CO2 emissions are on calcination/sintering →
Slide 69: Coating Technologies
6 Coating Technologies 10% energy saving in Steel by 2025 3 RHI MAGNESITA Enhancing properties and abilities of refractories through a chemically altered surface either within the refractories itself or through their outer layer * Our technologies are adapting to demanding environments, modifying re
Slide 70: Pioneering new production techniques
ee LE Pioneering new production techniques —N 5% reduction of Energy per tonne of product in our plants by 2025 Develop new processes for refractory and raw material production with significant cost reduction 3D printing Microwave drying No firing Degradable molds for unique Precast shapes Carbon fr
Slide 71: Digital Fingerprint and big data integration
6 Digital Fingerprint and big data integration 3 RHI MAGNESITA Problem: * If undesirable properties in the refractory brick formed, it was difficult to pin-point where in the lifecycle the properties were compromised @ A high number of variables are involved in the lifecycle e.g. raw material compos
Slide 72: Next generation innovation
Next generation innovation Identify and implement new technologies in partnership 3 RHI MAGNESITA Technical « Bi-annual meeting with senior management presence Advisory Participants: Senior external experts, R&D and Technical Marketing leaders, Committee consultants in case of requiring external exp
Slide 73: Key messages
Key messages Raw materials advantage: Maintaining our raw material competitive advantage and developing new raw material concepts Applied R&D: Developing customer-specific applications and solutions Innovation: Leading the industry with the next generation of breakthrough technologies Capital Market
Slide 74: RHI MAGNESITA
RHI MAGNESITA
Slide 75: Delivering value
8 RHI MAGNESITA Delivering value lan Botha, CFO
Slide 76: Key messages
3 RHI MAGNESITA Key messages @ Significant financial progress since merger ® Ontrack to deliver remaining merger synergies, turnaround of 2018 operational issues and price management programme * Additional EBITA benefit of €70m-€80m by 2022 from key initiatives: — Production Optimisation Plan to del
Slide 77: Significant financial progress since merger
3 RHI MAGNESITA Significant financial progress since merger Revenue growth Adjusted EBITA growth Material margin improvement fo) €3.1bN ass%caar €428M 240% cacr 15.2% 4. 610bps? 2018 revenues 2018 Adjusted EBITA H1 2019 adjusted EBITA margin Synergy delivery on track Strengthened balance sheet Divid
Slide 78: Material margin improvement
3 RHI MAGNESITA Material margin improvement Adjusted EBITA a (%) 15. oes 610 bps 13.9% 230 1202 | ) : 2016! 2017! 2018 H1 2019 Notes: 1)2016 and 2017 ere adjusted pro-forma figures including the purchase price allocation 2) Includes FX movements that amounts to-20bps Capital Markets Day | November 2
Slide 79: Strengthened balance sheet
3 RHI MAGNESITA Strengthened balance sheet * Meaningful deleveraging since merger 2.6x 7 Z 1.9x é e Within capital allocation strategy target range, with 5 . Le aE further deleveraging expected 5 8 | 3 * €920m of cash and undrawn committed facilities! 936 0.5 g * Financial flexibility for investment
Slide 80: Business model
ZS Business model Through the cycle refractory margin, enhanced by Backward Integration % RHI: RHI 16 standalone : Magnesita 14 i 14% 12 10 Backward integration margin 8 6 T™% T% 4 Refractory margin 2010 2011 2012 2013 2014 2015 2016 2017 2018 H1 2019 @ Atcurrent raw material prices, backward integr
Slide 81: Strategy supports continued profitability
3 RHI MAGNESITA Strategy supports continued profitability Adjusted EBITA (€m) 400 - 410 Capital Markets Day | November 2019 Potential annual EBITA upside (€: 2020 2022 ¥ Remaining merger synergies 20 20 Y Turnaround of operational issues 15 15 Y Price management programme 10 10-20 Y¥ Production Opti
Slide 82: Financial benefit of the Production Optimisation Plan
3 RHI MAGNESITA Financial benefit of the Production Optimisation Plan Investment phasing Plant consolidation Costs to achieve 80 70 40 Plant specialisation Run-rate cost benefit! 5 15-30 40 and cost reduction * Cost to achieve of €190m — €135m capital expenditure Raw material re-organisation — €55m
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