Release Date: February 27, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- RHI Magnesita NV (RMGNF, Financial) achieved an increase in adjusted EBITA margins from 11.4% to 11.7%, despite facing declining demand and weaker pricing.
- The company completed a significant EUR391 million acquisition of Resco Products in North America, marking its largest acquisition since the 2017 merger, which is expected to bring substantial benefits to the US market.
- RHI Magnesita NV (RMGNF) maintained a strong cash conversion rate above 100% and controlled gearing within the guided range.
- The company is on track to meet its 2025 decarbonization targets and has set ambitious new sustainability goals for 2030.
- RHI Magnesita NV (RMGNF) has launched innovative technologies like the Raptor sorting technology to enhance recycling capabilities, demonstrating its commitment to sustainability and operational excellence.
Negative Points
- RHI Magnesita NV (RMGNF) faced a third consecutive year of declining demand from customers, impacting overall revenue.
- The company experienced a 1% decline in sales volumes and a 6% reduction in pricing, leading to a challenging revenue environment.
- The backward integration margin contribution was at a record low of 0.8%, due to low magnesite prices and low capacity utilization at raw material plants.
- The start of 2025 has been weak with no visible recovery in demand across industries, posing a challenge for future growth.
- Pricing pressure and ongoing low volume demand are expected to continue, potentially impacting margins and financial performance in 2025.
Q & A Highlights
Q: Can you provide more details on the growth performance in China, given the decline in steel production and your comments on exports? How did your base volume increase by 5%?
A: We have a small market share in China, so gaining a few large contracts can significantly impact our growth. We've also made progress in Southeast Asia and benefited from the full-year integration of our acquisitions in China. The refractory margin improvement is mainly due to operational excellence, not pricing, as prices fell in late 2024. As for 2025, we haven't seen a significant pickup in US steel production yet, and discussions on import duties are ongoing but not yet implemented.
Q: Regarding raw materials, if magnesium prices remain flat and alumina prices rise, will you face margin compression?
A: Yes, that's correct. While fused magnesia prices have started to increase, we are only backward integrated into sintered magnesia, where price increases are minimal. On the alumina side, prices have risen, impacting costs for the next six months. If competitors absorb this peak, we may see margin compression, especially in the first half of the year.
Q: What synergies do you expect from the Resco acquisition beyond plant optimization?
A: We target synergies of 30-50% of EBITA in the outer years. Network synergies will take time, but non-network synergies like raw material and administrative cost consolidation will come this year. However, one-time costs will balance these out, so cash flow benefits may not be immediate.
Q: Can you elaborate on the local-for-local production strategy in North America with Resco? Is 75% the optimal level?
A: We aim for 75% local production, with potential to reach 80-85%. We don't want 100% local production to maintain flexibility for customers and manage costs effectively. High-tech products will still be produced in select locations globally.
Q: With the Resco acquisition being your largest deal, will your focus be on integration, or are you still pursuing new acquisitions?
A: Both. Acquisitions are crucial for structural growth, but we need to focus on integrating Resco effectively. While the number and volume of transactions may be lower this year, acquisitions remain a strategic pillar.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
