RHI Magnesita reports continued weak demand conditions

(Sharecast News) - RHI Magnesita reported a steady third-quarter performance amid challenging demand conditions in an update on Monday, as it warned of softer full-year sales than previously expected. The FTSE 250 company said it now anticipated a 5% year-on-year increase in total sales volumes for 2024, slightly below previous projections due to weaker-than-expected demand.

It said that while base business volumes had declined, mergers and acquisitions contributed to the increase in sales.

Looking ahead, RHI Magnesita expected a boost in profitability and margins in the fourth quarter, driven by seasonal demand in its cement business, project deliveries in the industrial sector, and cost-saving initiatives.

The company said it had sustained its EBITA margins slightly above the 11% guidance despite pressure from soft demand, achieving year-to-date adjusted EBITA of between €400m and €410m.

Additionally, adjusted earnings per share were expected to align with the consensus of €5.00, aided by favourable currency movements.

For the year to date, revenues had held steady, with M&A activity compensating for declining pricing and subdued volumes in most markets except India.

Year-to-date sales volumes, including M&A, rose by 3%, while third-quarter volumes grew 2% sequentially from the second quarter.

However, pricing had decreased 4% compared to the previous year due to lower input costs and intensified competition.

Increased costs for raw materials, including alumina-based materials and electrofused magnesia, were expected to raise the cost of goods sold in the fourth quarter and beyond, prompting RHI Magnesita to implement a price increase to protect margins.

The company said it had continued expanding its advanced product offerings, now rebranded as '4PRO', including digital and sustainable solutions that had received positive customer feedback.

RHI Magnesita said it had also made gains in the green steel sector, securing contracts for refractory applications in environmentally-friendly steel production processes, such as electric arc and direct reduction furnaces.

In a move to enhance process efficiency, RHI Magnesita said it was restructuring its shared service network and had transferred global shared services to Capgemini, which would support the rollout of a new ERP system by 2027.

The company's acquisition of Resco Group, valued at up to $430m, was awaiting regulatory approval and was expected to close in the first quarter of 2025.

Cash conversion remained strong at 96% year-to-date, with gearing set to remain within the target range of 2.0x to 2.5x by year-end.

"RHI Magnesita has delivered another resilient performance in difficult market conditions in the midst of a global industrial recession, now in its third year," said chief executive officer Stefan Borgas.

"A strong step-up in earnings is required in the fourth quarter to achieve EBITA guidance. Such step-up was expected earlier but has repeatedly been delayed due to very weak customer demand.

"The normal seasonal upturn in cement and the timing of key industrial project deliveries however support a stronger fourth quarter compared to the first nine months of the year."

Borgas said that in India, mid-term demand outlook now looked "a notch softer" than expected six months ago, while outside of India, the company was not seeing any catalyst for a near-term recovery in customer demand.

"The restructuring of heavy industry and the construction sector inside China will take time, meanwhile structural oversupply is likely to continue to impact global steel markets negatively.

"RHI Magnesita's strategy to seek earnings growth through value-accretive mergers and acquisitions and improved operational performance does not rely on organic growth in our underlying markets.

"We see a broad addressable market and long lasting opportunity to continue our inorganic growth strategy, without adding new greenfield capacity to a global market which is already over-supplied, even in the few growth geographies."

At 0843 GMT, shares in RHI Magnesita were up 0.64% at 3,165p.

Reporting by Josh White for Sharecast.com.