RHI Magnesita NV
LSE:RHIM
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
2 734
3 785
|
| Price Target |
|
We'll email you a reminder when the closing price reaches GBX.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
RHI Magnesita NV
You don't have any saved screeners yet
Good morning, ladies and gentlemen, around the phone and around the webcast. I welcome you from Vienna as here with me Ian Botha, our CFO, who I can tell you is -- has fully taken charge. Great to see how Ian has arrived in the company. Also with us, Guy Marks in our London office on the call, and the IR team which is split between both locations.Let me start off maybe 5 minutes to summarize what we've already published in the IRF. Our channel hit their performance in the first quarter, continues to reflect the trends that we have already communicated. Markets all over the world are stable, but with a lot of talk around uncertainties, mainly driven by the macroeconomic environment. We are not nervous until now about this, but this is something that we need to continue to watch and follow.The first quarter sales performance was solid, very much exactly in line with our expectations. Our Steel division was a little bit weaker with a flat performance year-over-year because sales in North America and Asia were good. But in Europe, especially, sales were quite weak driven by the much lower steel production, especially countries like Germany, France and Italy.On the other hand, our Industrial Division had a very strong first quarter, both in the cement business, especially in South America, but also our project business as well, very, very good with a lot of new furnaces being installed in the first quarter.On the raw materials side, we have seen a little bit of cost easing on the magnesite base, raw materials, especially at the beginning of the quarter. This is sneaking back up now and some steady continuation of price of cost rises -- around your cost rises in the alumina area. So broadly speaking, I think we can talk about stable raw material pricing environment.We are continuing to invest a lot in future technology. We have a lot of regulatory demands around the world. Also in Asia, production infrastructure needs to be continued to be upgraded. So we have introduced a moderate price increase across our portfolio around the world. This is being discussed one by one with customers in a very, very constructive way. We haven't received any dramatic pushbacks but the discussions are very much early in the making. They're very differentiated from region to region, and market to market, and customer to customer. So we don't expect prices to have a significant impact on the P&L in 2019.On the operational side, we have made quite good progress in the first quarter. Month after month, our operations are getting better under control and we are quite confident that we will recoup the EUR 20 million of higher cost that we had last year, this year, and be able to add them as -- in the form of profits to the bottom line. Also on the integration delivery, everything continues to be on track. We're very confident to deliver the EUR 90 million total synergies in 2019 and EUR 110 million then by next year.On the balance sheet side, especially because January for us was a very weak month, mostly because customers around the world were much more careful than in previous quarters. Our inventory levels went up during the first part of the quarter and now are starting to unwind again and come down. We're not worried about this, but this is just what happened on the working capital side.If I've summarized everything, I can say we're quite well on track. Everybody is very concentrated in the company. The sales, operations, finance, all the support staff, all the management around the world is working together and tailor quite well in a focused, calm, quiet way. We're, together with our Board, very confident that we will meet the operational targets for 2019. So anyway, this is rather non-eventful quarterly trading update.With this, I come to the end of my summary, and I would be very happy to get into discussion and answer all your questions. Operator, would you please take over again.
[Operator Instructions] Our first question today comes from Mark Davies Jones, calling from Stifel.
If I can just dig into some of the details through the quarter. I think at the full year results, you were flagging some customer destocking and obviously, you said January is very weak. Have you seen that steel business progressively improve through the quarter? Are we back in a sort of slightly positive run rate at the end of Q1? Or is it more volatile than that? But I guess on the other side of the business, very strongly set in industrial, that looks like fairly broad strength. Would you anticipate that continuing over the next quarter or 2?
Okay. Let me start with the second part of the question. The Industrial business tends to be a little bit more lumpy than the Steel business because, of course, it's driven by projects and there were just a lot of projects coming to delivery in February and March, so that helps. The second quarter is going to be a little bit weaker than that but still the demand for Industrial business is very good. So on average, for the quarter, we should be at similar levels. On the Steel side, yes, January was very weak, actually, not just on Steel, also cement customers were careful in January. And this has steadily improved over the course of the quarter and also now, if we look in the second quarter, we don't see any such repeat than the destocking that we saw in January.
Our next question today comes from Ed Maravanyika, calling from Citigroup.
It's Ed from Citi. Just a quick one on raw materials pricing. Just to understand, if you can give it a little bit more color on why the variance in easing on the magnesium-based raw material prices side. And then on the alumina side, we're seeing increases. Is there a reason for that?
Yes. Again, let me start with the second question. Alumina prices have been very slowly increasing already throughout the second half of last year. Capacities are very full, supply capacities are very full. These are complex plants, though they are not hundreds of different suppliers. There is no big capacity expansion on the horizon here, so the supply and demand is very, very well-balanced and that leads to this small, but steady increases month after month after month. On the magnesite side, the situation is different because there are many more suppliers, or actually there used to be many more suppliers from which almost all of the non-captive producers are located in China. And in China, throughout 2018, capacities -- production capacities, have been rebuilds. Beijing, we completely rebuilt. So that they're now on really state-of-the-art environmentally, but also process-wise, quality-wise, more on state-of-the-art level whereas before they used to be rather small, very, very opportunistic producers. There has been a big consolidation so that many left, but now -- but capacities have come back throughout the fourth quarter. And you know that, of course, in China the December to March period is always the weakest period of the year because the international customers don't buy very much in December, January, and then the Chinese customers don't buy very much because of Chinese New Year in January and February. So there has been a stock buildup there and that has led to some price weakness. Stocks are now coming back down in China, and therefore, our prices have come back up a little bit. If you follow comments from those suppliers in the media, recently that there's price increase announcement already coming on the magnesia side as well. None of this is very disciplined.
We now have a question from Mark Fielding from RBC.
In terms of just the Q1 trends, am I right to think though that there would still be some -- I know you talk about pricing being stable, but year-on-year, is there still some pricing benefit within the numbers? And if so, could you just aggregate for us volumes versus pricing a bit, particularly in the context of the Industrial business, but also Steel.
Well, there's very little price benefit quarter-over-quarter. If we include the product mix exchanges that we also have and the regional mix exchanges. Last year, we've had quite significant price increases in the old world, in Europe. So in Europe, just looking at pricing, there is a benefit. But volumes are down significantly, so we don't see this in the overall picture so much. And so I think, roughly speaking, pricing is very stable, but on a good level. So margins are quite stable with all the noise coming from mostly portfolio side. Volumes year-over-year also are very, very stable. As I said before, weakness in Europe, especially a little bit in Brazil also in the first quarter of this year, but quite good volume performance in the U.S. and in Asia, including India. So also on a global basis, this is helping. On the industrial side, we've had very good projects business, nonferrous and glass, especially, another 2 above average businesses from a profitability perspective. So that's helped in the first quarter. This will weaken a little bit, but cement has been quite strong, especially in South Americas, and that will continue now to the second quarter. So again, a lot of little pieces moving, but nothing really significant, that will lead to some step changes.
Do you mind if I ask sort of a step up follow-up question, which is just -- in the context of the 5% overall sort of price rise that you've looked for, I mean, how do you -- if the world was now, and I get there's a lot of moving parts dictating raw material prices, but if it happens that somehow the world just was flat from where it was today, what is the source of raw material cost inflation that you would have in the year's time, in the business, given what we've seen in alumina and maybe magnesia just recovering a bit recently? And what are the other inflationary costs that you have to think about when you're thinking about your pricing outlook?
Well, we -- I think on the raw materials side, again, if we take all the moving parts, it's a pretty flattish outlook that we're looking at. But it's only April or April just finished, it's only early May. So what will happen during the rest of the year was raw materials, so I don't want to predict because it depends, again, on China very much because this is their biggest market. But we assume for now that, overall, on the raw materials side, we will have a pretty flattish picture. And other cost items, of course, we have salary cost increases like we have every year, especially in the more developing world/countries because that's where costs go up all the time. But we still have also of course the synergy effect that should balance out some of this. We have a good effort on -- to keep SG&A flat for the year. So for us, the biggest driver of cost is the investment in R&D because somehow we have to bring these technologies, of course, forward. And that's where we will have additional cost, but eventually it has a benefit with customers. And that's the story that we discussed with customers. And therefore, it's very constructive.
Our next question is from David Larkam calling from Numis.
Just on the price increases, I mean they're announced in April, I think. But you're saying it's not going to have any significant impact in the current year. So why such a lag?
Well, it's always like this. You give customers, a -- customers and account managers some time to discuss, let's say, the better part of 2 months because they have to get together for the details. And then, of course, they have to agree on when will they become effective. And we cannot -- customers have inventories 3 to 4 months. So adds inventory, June, July, August, September and then new deliveries after that could start to have an effect in the fourth quarter for pricing. But then you work together with customers in order not to take their budget too much either. We have many friends of our customers. We want to make sure that they're in good shape as well. So in the peak, if we should be successful with this measure, then in the big effect this will -- we will see this in the P&L this year.
And does that sort of delay work in the same way if raw material prices are coming down? Or your customers tend to be rather more -- rather quick at coming back for price reductions?
No. I think it would be very similar.
Okay. And then just, particularly on sort of nonferrous side...
No. Unless we have dramatic changes. If there's a jump in 25% cost in one of the cost items or a reduction of this, then this is a different situation. But this very rarely happens in this business.
Sure. Sure. And I was just sort of wondering, particularly, I think, the nonferrous, [ Emeris ] called this business, they were sort of very -- sort of cautious yesterday in their statements. Are you winning market shares, you think, there?
No. I think we're in very different markets. [ Carderus ] is very much in the repair business and they're very strong in alumina -- in aluminum production. We are very strong in other parts of the market and much more on the Project side. That's why we call this business unit, the Project business unit. So this is always revamping of whole furnaces that drives our business, and for [ Carderus ] it's much more the repair business that drives this. And this is different.
Okay. So you haven't seen the translating?
No. No. We've seen good solid outlook. And I think market share there are quite stable. All right. And [ David ], you had this -- you put this similar question on the webcast, we can take this out, right?
That is the original, Steve. But it's pretty the same. Similar mix.
Okay.
[Operator Instructions] We have no further questions. So I'll hand back to you.
Wonderful. Thank you very much. We don't have any new questions either in the webcast. So I think we can close the conference.Thank you very much, everybody, for dialing in. Thank you for your ongoing support, and we look very much forward to meeting you during the course of the next weeks and months and then talking to you then as a group at the half year announcement.Goodbye from Vienna and London from RHI Magnesita.