RHI Magnesita NV
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RHI Magnesita NV
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Ladies and gentlemen, welcome to the RHI Magnesita Half Year Results 2020 Call. My name is Abby, and I will be coordinating today's call. [Operator Instructions] I will now transfer you to your host, Stefan Borgas, the CEO. Stefan, please go ahead.
Thank you very much. Good morning, ladies and gentlemen, from Vienna. I'm happy to present the half year results of RHI Magnesita. We will go through what happened in the half year, do an operational review and the financial review, summarize it and then, as usual, look forward to your questions and answers. Let me start with the operational highlights. I'm really, really proud CEO this morning because I look to an organization who has taken the shock of the pandemic as an opportunity to look at our company and make sure that we get through this crisis well. And we find additional opportunities to come out of this crisis stronger than before. So first, I really want to say thanks to all the women and men in RHI Magnesita who have done what they have -- what you can see today over the last months. Our liquidity is firmly secured in a very difficult subdued market environment. We have no worries. We have no threats to our liquidity, that is stable, and we could survive a much longer subdued market environment for many, many quarters if we needed to. At the same time, we are now ready for a market turn. We can see some early signs here, and we are ready to move up with the market as much as possible even if it becomes bigger than it was in 2019. And last but not least, we have identified a quite substantial amount of new additional self-help measures that are going to create value for RHI Magnesita in any market conditions. So we're attacking them. We are taking charge and putting them into place. If we turn on our operational business to our health and safety environment, you can see that we have continued to make excellent, new additional progress on our accident rate. This is also due to the fact that the COVID focus has helped us to not only focus on health due to infections, but on health due to accidents as well. At the same time, this improved KPI is also an indication that in our plants, the operations are becoming managed more and more tightly, you will see it later in some of the production problems we've had in the past that we recovered during the course of this semester. We also were able to publish for the first time our sustainability targets. And I'm sure many of you have seen this, but this is not a paper program. If we can move to the sustainability slide, please. This is not a paper program, but this is a program which is active, live and kicking. And of course, the financial highlights of the semester are the following: we've had a substantially lower revenue. I will explain this a little bit more in detail later. Of course, as a result, our profits also went down, but our margins are relatively resilient, especially considering that we are in an environment of contracting raw material margins, which were substantial last year. This is now more or less out of the system. So what you see here is the resilience of our specialty refractory business really that supports this good margin development. Our cash conversion also is quite satisfactory. Why? Because we have not cut any CapEx. On the contrary, we have, in some areas, accelerated the spending of money for our production network because the value that we get out of this starting even in the second half of this year, but mostly next year and thereafter is quite stunning. Our net debt is flat, and our liquidity is very, very stable at an amount over EUR 1.1 billion. Let me go a little bit more into the depth of what happened in the first semester. On Slide 9, you can see the revenue bridge. This revenue bridge is compared to the first half of 2019, of course. And there are 2 things really that happened. One is the reduction of our revenue due to a contraction of raw material prices, which, of course, we had to pass on to our customers, at least in some regions. Because competitors have led the way there, and we followed in order to keep our market share. This is an effect that mostly happened in the second half of 2019. So this is nothing new. But we can see the effect, of course, also in this semester's numbers. And the second big effect, of course, is the reduction of revenue due to the COVID contraction of the market, stoppage of many customers of almost EUR 200 million if we take the number for the semester. If we split this now up by division, you can see that the -- in the steel division, the margin reduction happened in the second half of the last -- of last year. And despite lower volumes, with all the measures we were able to take short term on -- short-term crisis measures, but also more long-term measures that we are starting to put in place, we are able to keep our margins relatively flat despite much lower sales. So I think the business is proving its resistance against these kinds of pandemic -- such as -- these kinds of market downturns such as this pandemic. In the industrial business, the margin resistance is equally strong. It is very flat here. We have less of an effect on the raw material prices because it's a much more specialized business, and we have a different set of competitors who are less aggressive in passing on raw material fluctuations quickly to customers. So this is more stable if we compare it to the first half of last year. But we also have a top line effect due to COVID, this is maybe a little bit more pronounced than we had expected at the beginning of this crisis at the first -- at the last update that we gave you. Mostly, these are projects that have been now delayed for much longer than even our customers had indicated. So the top line here is a little bit weaker than we had thought. This will also continue in the second half of this year. Just to give you some support on how the recovery could come now in the second half of the year and in subsequent quarters after that, our business is very significantly driven by the construction industry. So should the government really implement their infrastructure investments. This will help. We are looking with quite some confidence into this direction. The other industries, including automotive, are not as significant for RHI Magnesita. So this is more of a basket where our bets are hedged across several other industries. And maybe this wasn't known until we put this chart in the presentation this time. On Slide 13, we have -- you can see the strategy work that we have done. Of course, in every crisis, the strategy of the company should be put up on a -- up for review. We should make sure that we are doing all the right things. And I can -- I'm happy to confirm that not only are we doing the right things, but in the 3 buckets that we have explained to you quite in detail since our Capital Markets Day last year, we have identified some additional opportunities that we hadn't seen before with a second look around. Some of this we can already quantify in the competitiveness box, we think we are in the process of reducing our SG&A by another EUR 30 million. We have announced this internally on Monday of this week. Several hundred employees have already left the company as a result of this. We have streamlined our management. We have flattened our hierarchies. We have decentralized our decision-making, all as a response to COVID, but with the clear intention that this is a long-term improvement. So this EUR 30 million at the end of next year are in our additional opportunities. We also have found some additional opportunities in our production network in addition to the EUR 40 million that we have already indicated to you. This is much more complicated to calculate. So we're in the process of developing the details here. And as soon as we have those, we will publish what additional contribution could come from here. We are also in the middle of ensuring that our raw material network is -- performance, I can assure you that we are in the lowest quartile of the cost curve with all of our raw material plants, except those that we have already handled on the fused magnesia side. And last but not least, of course, this pandemic has shown to us, like to everybody else, the digitalization is a technology that can be used much more aggressively than in the past and implemented much faster. Also here, we're developing a lot of implementation plans, and we will publish any additional potential as soon as we have it. So very active work here and this is one of the reasons why also our self-help is so strong. Before I hand over to Ian to go through the details of the finances, let me just explain what our assumptions are in the current environment. We assume that the impact from the pandemic from the shutdowns that the world has gone through or still is in the middle of going through will last longer than maybe the majority of economists assume. We're getting prepared for this. Therefore, we have adjusted our base. We have reduced our fixed cost block so that we can stay flexible. We also assume that the globalization of the last 15 years will come to a certain halt, and we will now, in the next years, more go into regional trade blocks. And as a result of this, we have adapted our own decision-making and our own resource allocation away from the center towards our regional platforms. The third assumption we take is that we don't know what we don't know. This is a more volatile world. And even when we recover now in the second half of the year and thereafter, the need to stay flexible and to adjust will be very high. And the fourth assumption we have is that digitalization will be much more pronounced. It is technology -- these are technologies that we can now implement again much less -- with much less contradiction and with much -- with many more people supporting them. So we will accelerate our digital tool implementations especially in the business model side, but also on the cost side in the plant. With this, I would like to hand over to Ian, who will walk you through the details of our numbers.
Thank you, Stefan, and good morning, ladies and gentlemen. As Stefan highlighted, in the first 6 months, the group delivered a resilient performance in tough market conditions. Revenue was EUR 1.2 billion, down 22.7% year-on-year in constant currency terms, with our steel and industrial businesses down by broadly similar levels. This reduction mirrors the declines experienced in our customers' industries, together with the impact of lower refractory pricing, largely as a result of lower raw material prices. Adjusted EBITA was EUR 133 million, down 45% year-on-year, impacted by lower fixed cost absorption as a result of lower production volume. This was partially offset by the COVID-19 measures the group introduced to preserve cash and reduce fixed costs in the short term. The business delivered a still robust gross margin of 23.8% and EBITA margin of 11.4%. And profit after tax of EUR 88 million, adjusted earnings per share of EUR 1.77 tracked the adjusted EBITA. Moving to Slide 17 and starting on the left, first half EBITA of EUR 133 million benefited from currency movements of EUR 10 million with the benefit of the stronger U.S. dollar more than offsetting the impact of weaker emerging market currencies, notably the Brazilian real. Price and mix were down by EUR 64 million, largely due to lower raw material prices, which put downward pressure on refractory pricing. As you can see, COVID-19 had a marked impact on our business, reducing first half EBITA by EUR 63 million, driven by weaker demand from our customers, and lower production, which led to lower fixed cost absorption. This was partially offset by the EUR 25 million of fixed cost reduction measures realized as part of the group's response to COVID-19. These include the temporary closure of 3 plants in Europe and 1 in Mexico, the introduction of short time working arrangements in some plants, which added EUR 3 million and other fixed cost reduction actions. We are on track to deliver a further EUR 25 million of fixed cost savings in the second half. We recouped EUR 9 million from the operational issues experienced in 2018 at 4 of our European plants, and you can also start to see the benefits from the production optimization plan, delivering EUR 3 million in the first half. Turning to Slide 18. As I mentioned, COVID-19 had a marked impact on our first half performance. Q2 revenue was only EUR 532 million, down 17% against the first quarter, with EBITA down 34% quarter-on-quarter to EUR 53 million, impacted also by lower fixed cost absorption. Now this belies some quite different performances across the regions and divisions. Steel Middle East, Asia, CIS, China were all up slightly. Steel Europe continued to be weak and the steel markets of South America, North America and India were all heavily impacted in Q2, each down 1/4 on Q1. Our industrial projects business is traditionally lumpier, and we saw a number of projects delayed from the first half. Turning to Slide 19. We are pleased with the resilience of our refractory's margin, which at the half year stood at 9.1%, up from 8.5% in the second half of 2019. It reflects the ongoing benefit of the merger synergies, the various cost savings initiatives and the focus on generating an acceptable margin on all of our business. Over time, we expect our self-help measures to drive further growth in the refractory margin. In addition, we continue to benefit from our backward integration, although this contribution reduced materially in the first half, in line with falling magnesia-based raw material prices. Backward integration contributed EUR 27 million of EBITA and 2.3 percentage points of margin in the first half, down from 4.1% in H2 2019. At today's price levels, backward integration contributes 2.3 percentage points to the 2020 EBITA margin. As you can see on Slide 20, the price of magnesia-based raw materials continues to fall in the first half, down by as much as 34% since the beginning of the year, driven by increasing Chinese supply and falling demand given the global slowdown. During the first half, we conducted a review of the group's raw material cost of production relative to our competitors. This confirmed that the majority of the group's raw material plants are very well positioned on their respective industry cost curves. The review also confirmed that our cost to produce electro-fused magnesia are too high relative to Chinese sourced material. As you know, in early 2020, we closed our EFM plants in Norway and Brazil, and instead entered into lower cost, long-term supply agreements with Chinese producers. Turning to Slide 21 and starting with the chart on the left, working capital before trade finance reduced by EUR 93 million in the first half to EUR 720 million, reflecting the group's focus on working capital management. Our use of trade finance acts as a shock absorber, moderating the cash consequences of increases or decreases in working capital. In the first half, factoring and forfeiting reduced by EUR 67 million to EUR 223 million as business activities slowed. In the chart in the center, you can see the net reduction in working capital was EUR 26 million to EUR 497 million. Working capital intensity increased to 23.4%, this is calculated on the Q2 revenue, which is then annualized. Inventory reduced to EUR 578 million, but intensity remains high. The measures that we have in place will reduce inventory in the second half of the year further. Accounts receivable has been well-managed with overdues in absolute and percentage terms hitting a post-merger low, and we have seen no increase in bad debt. We are on track to reduce working capital intensity in the second half and for it to be a source of cash for the business. Turning to CapEx on Slide 22. We are going through a period of structurally higher CapEx spend until 2022 with peak CapEx in 2021. This is consistent with our strategy where we are seeking to increase our competitiveness by advancing the production optimization plan to consolidate our plant footprint and modernize our plant to reduce costs. We expect to invest EUR 150 million in CapEx in 2020, comprising EUR 85 million of maintenance capital and EUR 65 million of project capital. And in the first half, we spent total CapEx of EUR 52 million. Turning to cash flow on Slide 23. The business generated operating cash flow of EUR 93 million. This despite the challenges of the coronavirus, and continuing to execute our strategic CapEx programs. Cash conversion was 70% and was moderated by the reduction in trade finance. The group's net debt has remained stable at EUR 666 million. Net debt-to-EBITDA increased to 1.5 due to the fall in EBITA in the first half, 1.5 is at the top end of our target leverage range, but still significantly below our only covenant of 5x. Our liquidity position remains extremely strong with EUR 1.1 billion of available resources and no material repayment until 2023. Consistent with the full year, we are not declaring an interim dividend at this time, given the uncertainty relating to COVID-19 and to prudently preserve cash. The Board appreciates the importance of dividends and shareholder returns more broadly, and we will continue to review this through the rest of the year, intending to resume dividend payments at the earliest opportunity. Moving to Slide 25. As Stefan outlined earlier, our strategy remains on track. The business improvement initiatives that we are progressing to protect the business in the short term and strengthen it in the long term are progressing well. The turnaround of the 2018 operational issues is largely complete. And we will realize the EUR 15 million of savings in 2020 as planned. The production optimization plan remains on track to achieve the planned EUR 40 million of EBITA benefit by 2022. In the first half, we closed the Hagen and Trieben plants, and we are looking to expand this optimization of the network to extract more cost savings than outlined here and we will provide an update on this later in the year when we have completed the work, and we've engaged the necessary stakeholders. Our sales strategies have been delayed given access issues during the pandemic. However, firm foundations continue to be built. We've had a number of successful field trials in flow control and in digital services, where the customer response has been positive. And finally, as announced today, we are cutting our sales and administration costs sustainably by EUR 30 million, with EUR 10 million delivered in the second half of 2020 and an additional EUR 20 million in 2021. This is being achieved through a combination of rightsizing our organization, business process streamlining, moving more activities into our shared service centers and regionalization. 540 SG&A staff will be leaving our business, 450 between the 1st of August and the 31st of December, and a further 90 in 2021. This will incur severance costs of EUR 30 million, of which EUR 5 million has been accrued for in the first half. Thank you, and I'll now hand you back to Stefan.
Thank you very much, Ian, clear and concise. Let me summarize. RHI Magnesita is operating from a very secure base. We have been able to test and demonstrate how secure our base is and how strong our liquidity will be even under sustained problems. Second, we are ready for the market upturn. All the arrows are available. The entire organization is ready to serve our customers as they bring their operations back online all around the world as the pandemic goes up. Third, we have identified through the work on liquidity and through the verification of our strategy that we actually have more self-help in our company in all areas and self-help will help us independently from any market environment. And last but not least, we also would be ready for acquisitions in case that other competitors or players in the industry are ready to join the RHI Magnesita family. We have active -- we have a team ready to go, and we have liquidity ready to be deployed in order to generate more shareholder value. With this, I'm at the end of my summary. Ian and I are finished with the data we wanted to present to you, and we're really looking forward to your questions now.
[Operator Instructions] Our first question comes from Mark Davis Jones from Stifel.
Two questions, please. Firstly, on the raw material side, just to be clear, that is just an optimization of your footprint with no change in the view of the attractiveness of the vertical integration across the group more broadly?
That's absolutely correct. We are very convinced that the backward integration adds value even in a low raw material environment. As you can see, 2%, 2.5% additional EBITA margin. This is under the condition that raw material plants are really at the low end of the cost curve. And we are very determined to continue to verify this, to monitor the market. And wherever we are not, we will not enter or even exit existing raw material production, but this is -- there's no threat to this now.
Okay. And then on the cost savings, obviously, very good progress on that front. But is there anything in there that is temporary through the first half that we expect to come back in terms of government's furlough schemes or short time working that is reverting to more normal patterns?
Yes, there are 2 pieces to this. There's the short-term cost savings that are all these measures that you just mentioned. Short work or government furloughs or vacation, mandatory vacations, things like that. Travel bans, hiring freeze, these are short-term measures. Of course, they will not sustain for the long run. But we have a significant amount of sustainable cost savings in this area that we have started to implement in addition to what we have already indicated. Ian, anything to add?
Yes. Mark, just to give you the segmentation. That EUR 25 million is split EUR 15 million into our plant, EUR 10 million into SG&A. EUR 20 million of the EUR 25 million is cash, as EUR 5 million is a consequence of low depreciation as a result of low levels of activity. On furlough type schemes globally or government incentives, the first half number was just short of EUR 3 million. And we have a similar figure in the second half of the year. These are only short-term measures, and that's why the structural measures that we are thereafter implementing are important. But we have EUR 25 million in the second quarter and EUR 25 million across the second half.
Of those short-term measures, that excludes the longer-term ones, right?
Yes.
[Operator Instructions] Our next question comes from James Zaremba from Barclays.
One question. One point you alluded to, Stefan was about, I guess, the difference in operational leverage in the second half of last year versus, I guess, the first half of this year in terms of being able to maintain a relatively stable gross margin aside from the kind of raw material movements. I was wondering if you could just provide a bit more kind of color around that, what the kind of key differences were and what we could think going forward. And then a second point, in terms of your comments around pricing, and I suppose your competitors are passing on the raw material gains. Just in terms of across the portfolio. And again, any comments on what are the certain segments where you do very much have to follow market pricing and others not? So a little bit of color around that would be very helpful.
Yes. So what happened in the last -- in the second part of last year, after we had put through a global price increase across the world in all regions because raw material prices were still high, and we didn't have appropriate margins. Those price increases in the first half of 2019, late 2018 -- beginning of 2018 were quite successful. And then in the second half of 2019, when raw material prices from China came back down in those markets in which Chinese raw materials play a significant role because of the Chinese offering directly to the market or local competitors buying raw materials in China and passing through this benefit, in those markets -- in the commodity segments of those markets, mostly in the steel business, we couldn't keep the prices up. And because of the discipline that we usually have on prices, we lost -- we not only had to give back those prices following those competitors, but we also lost some volumes at that time. And that's what you see in the numbers as a late effect of this time. This is finished. This is true. I think on the market share side, we did quite a bit of work on market share analysis now. We are very confident that we kept our 2019 market share, maybe improved it a little bit because we lost some points here and there. So on that side, I'm very confident. And if we look at pricing also, there was a bit of a downward price trend in those same regions, Europe, India, China than last year because raw material prices went down again a little bit. That's what you saw also in the first half of the year. But this has almost come to an end. All of this in the commodity segments entirely in the steel industry. It's also important to see, that's why we put an example of the nonmagnesite-based raw materials in the deck, if you look on Slide 20, that this price dynamism mostly happened in the magnesite-based raw materials, which are the ones we are backward integrated in. That's where we had the advantage. And now the advantage is gone, again, with the exception of the 2%, 2.5% additional margin that we have compared to nonbackward-integrated competitors. That's what's going on here. Does this answer your question?
Yes. Largely. I suppose, also a little bit in terms of, as you said, I suppose, you lost some volume because of that. And then you lost some volumes for reasons in the first half this year. And I suppose I was wanting in terms of dealing with that volume decline, I guess, why we were able to offset it in this first half, but maybe weren't in the second half of last year?
Well, I mean, the first half of this year is very unsuited for volume recovery because of what happened -- because of the overlaying effect of COVID, of course. But in terms of contracting and in terms of market share, we actually have regained some volumes.
And then I suppose kind of the second question around, one would be around -- kind of in terms of the temporary savings. Some of those savings, they seem sort of connected where actually if you had lower volumes next year, they would stay around, such as, I guess, the depreciation coming down on less usage. Is that fair?
So that's true for a minority of the EUR 25 million. So yes, it would apply to the depreciation, it would also apply to some of the energy, but that's probably not much more than about EUR 8 million of that EUR 25 million, the rest is pretty deliberate initiatives that you can only really sustain in the second half. And that's why we've actually put in place these more structural measures to reduce our SG&A, to review our plant footprint and to focus on increasing the variabilization of our fixed costs, particularly at our swing plants.
Our next question is from Harry Philips from Peel Hunt.
A couple of questions, please. The first is around China. How is your Chinese strategy evolving? If I remember rightly, earlier in the year, you said you're getting to the point where M&A there was a real possibility. And then second, just in terms of the steel customers of yours, in terms of their inventory positions, I can sort of see why you say markets might be subdued through Q3 and maybe into Q4. But you've also talked about excess inventory. What's your view on that at the current time, please?
Okay. Let me talk about China first. In China, we have made excellent progress because after all the investments into our market organization into our sales force and technical force, support structures, we have now seen real significant volume increase in the business in China in the first half of this year. There was a little bit of a bump in the road in the COVID closures in China in February, March. But in general, we've -- in absolute terms, we've seen quite good growth of volume in China. Revenue-wise, this is compensated almost completely because of the price -- raw material prices passed back through, but margins are pretty good there and profit generation is also pretty good there. So from that perspective, I'm quite happy with the progress we've made in China. The comment that we are -- the comment around M&A in China has to do with the fact that now because we are much more entrenched in the market, we would be ready for acquisitions in China. Because we have the competence now to actually evaluate them, which before, we didn't really have; therefore, we were careful. I didn't ever insinuate that we have a deal ready to go. So we're not there. But we would be ready to go. On customers' inventories, in the steel industry, this is not a huge concern. Maybe there's 1 or 2 months of additional inventory in the chain, but not much. So we're not so worried about this. As soon as steel companies will increase their production, probably a couple of months later, we will see it in the business, maybe even faster than that. The one area where we are concerned about inventories is in our cement business, one part of our industrial business. Because in our cement business, which was very strong in the spring cement season, February, March, the first quarter cement season, we believe that quite a bit of those refractories have actually not been installed in cement kilns because they were already shut down and customers are holding with installing them until the next cement season. That's why we are a little bit more careful on the cement offtake in the fourth quarter and first quarter of next year. It could be an inventory effect here. Therefore, we're -- we need to see and -- what happens there. That we'd not be so bullish.
We currently have no more phone questions. So we're just going to start with the webcast questions. So our first webcast question is from Richard Paige from Numis. And Richard is asking, "Can I ask your views on overall steel market inventory levels, how quickly would you expect a recovery in end market demand feed through to your sales?"
I think I already answered this. We don't see significant steel market inventories, maybe 1 or 2 months in addition to normal levels. So the recovery should come relatively soon after the steel production increases again.
So we have 3 new questions registered in the bridge. So I will just start off with Anthony Plom from Berenberg.
So I have 3 questions, if that's all right. So just looking at the sales by product types, it looks like monolithics were down, I think, just about 17% versus the sort of shaped refractory, so brick is down 25%. I wonder if there's sort of anything to read into that or if that's just due to sort of high levels of maintenance work. And also, I can't remember if there's any margin difference between the 2? Any help on that would be very useful. Then on working capital, clearly, very impressive performance in the first half. So if I missed this in the presentation, but obviously, if demand picks up, I just wonder how we should think about that trending. And then finally, quite interested in the sustainability targets. Just any more color on how you're going to achieve those would be very useful.
Okay. There is no significant difference in margins between shaped and unshaped, at least not in gross margin. I think that difference, nothing special to read into this, has to do with portfolio changes and a little bit of customer mix. So I wouldn't be too nervous about this. Demand picking up. Of course, this is the billion-dollar question. We have seen very little improvement for -- between June and July, actually no improvement in June and July. Very little improvement for August and September. After that, it becomes more fuzzy still, especially because of the Americas, we don't -- nobody really knows what's happening with the pandemic in the Americas. In Brazil, actually, we see some good hope because of the weakness of the reals, the competitiveness of the Brazilian steel industry is quite strong. So Brazilian steel makers are starting to -- are starting up blast furnaces in order to increase output. Hopefully, they can put this into place and are not hindered by COVID measures in Brazil. This is the concern. In the U.S., it's probably more fuzzy. We have to see how this continues, especially in the southern states, where, of course, the modern steel industry now is there. So demand pick up, I don't dare to make any really predictions, especially not for the fourth quarter of this year. But everything points to an improvement. If that happens, as I said, we are ready to go. Your last question was around the sustainability targets. I think we can go 1 by 1, on CO2 emission reduction, the main focus here is on the change of energy sources away from coal towards gas, mostly and also on reducing virgin raw material usage versus using raw materials out of waste sources. Those are the 2 big levers here. Energy, there's -- there are small step improvement measures, best practice exchanges that could reduce all over energy consumption per tonne. NOx and SOx is very -- it's a very standard set of continuously upgrading the technologies all over the world. China was behind some years ago. Now China, the plants in China are leading the group because the Chinese standards are very, very strict now. So we've acted first there, but now we implement this in the rest of the world as well. Recycling, I already spoke about. Safety, I gave an extra chart. 0 accident clearly is our objective. On diversity, we made some good progress already in the first half, with the SG&A measures that Ian explained in detail, these 540 people changing. One, there's an overproportionate reduction on the -- in the upper leadership levels. We're flattening the organization. And as a result of this, we have changed an overproportionate amount of people here and as a result, our female leadership now is at 22%. So we're on the path towards this 1/3 by 2025. And on the community side, of course, the pandemic glues us together with our communities all over the world. We have much more exchange than ever before. So this is making very good progress as well.
And then I can just add on the working capital, as you would have seen on Slide 21, we're sitting with the 23.4% intensity at the moment. And that's based on a 3-month period because we recognize that our working capital cycle is typically about 100 days running from -- inventory cycle running from our mines to our plant into the warehouses and sometimes then into consignment stock. So we use that 1 quarter intentionally rather than using it over a 12-month period because it reflects the reality. We would expect that 23.4% to move back down towards where we were at the end of 2019 at 18.3%. With the accounts receivable and accounts payable, the half year numbers being good numbers for the end of the year, but really the reduction to come through with inventory. So really, if you see an improvement in underlying activity, the focus is really on the intensity percentage.
Our next question comes from Mark Fielding from RBC.
In terms of the business, looking a bit further out, I just wondered as the COVID thing has developed, have you seen anything that makes you think structurally the business has a different medium-term demand outlook maybe compared to where we used to be in 2018, 2019? And then how do you think about structural changes post COVID? And how does that fit in with things like these SG&A savings and the production optimization that you're doing?
So this is a very complex question. We spent a lot of time on this. So I can give you a 3.5-hour dissertation answer. Let me try to make this a little bit quicker than that. It depends on the region, and it depends on the time horizon. As I explained before, our assumption is that total demand of our customers' materials will not recover so quickly. Now the definition -- the question is what is so quickly, it could be 6, 9 months in an optimistic case or it could be 2 years or 3 years. So what we have done is we have adapted our structures to this. So the speed is one aspect of this recovery. And here, we really have made and will still make a significant amount of more changes and Ian causes the flexibilization of our fixed cost. This is not really a cap, but we're through a whole set of different measures, we're making sure that when we have lower demand, the fixed cost is not -- we don't carry it. So it becomes variable. And when we have very high demand, the fixed cost will go up again, maybe even a little bit more expensive than it was at the same level before. So that's one aspect. The second aspect here is the regional aspect. I think we have -- because of trade blocks becoming a little bit more protectionism, at least that's what it looks like, I think we have to expect that export volumes of -- also of our customers' products will reduce to a certain extent. And that means whatever is not consumed in the region in terms of customer capacity and then demand for ourselves will also disappear to a certain extent. I think that would -- if this is the case, Europe would suffer, North America would still pretty much stay the way it is. South America would benefit and China would benefit and India would benefit. So I think those are the aspects to take a look at. But there's absolutely no reason to believe that the overall global demand for our products would be any different once the end product demand has recovered.
Can I ask a brief sort of related follow-up to that? In terms of just specifically, India, obviously, one of the target growth areas, just what you're seeing there? There's a feeling that market got a bit competitive a year or so back. Has that all sort of faded away with the tougher backdrop? Or how do we think about the world?
Well, I think India, there's 2 things to consider. India very much is a market -- the refractory market in India is very much dominated by Chinese imports, especially on the shaped side. And therefore, this effect of raw material competition is as pronounced as it is in China itself, just simply with a 6-week delay because the supply chain takes 6 weeks from China to India. So that's the competitive environment. But there's also the Make in India effort of the government and of the whole country, where step-by-step, production moves back into the country or moves it to the country. And for the refractories, this looks like it could be a trend on shaped refractories. There's quite a few players who are building plants or activating shaped plants and will stop importing shaped finished products, but import raw materials. This is a structural change in India. We are part of this. As you know, we have bought a plant in India last year in Cuttack in the Northeast, where we are fully able to take advantage of this trend. And of course, India's recovery, India's COVID recovery is slow. The country is really struggling.
Our next question comes from Andrew Douglas from Jefferies.
I have 3 quick questions, hopefully. Can I ask -- going back to your sustainability commentary. Can I ask, is RHI Magnesita being kind of good corporate citizens and doing the right thing for the world? Or is this actually driving market share gains? I mean do your customers actually care whether it's X percent or Y percent? Are they asking you to do it? And if you don't, then you can't compete for the next tender. Are your peers able to kind of compete with you guys in terms of what you're doing, therefore, if they can't, they're losing out on market share? Or is this just kind of doing the right thing for the world? Secondly, on digitization, I'm working on the assumption that with you guys being a very significant player versus the rest of your peers across most of your businesses, your ability to be kind of at the front end, I guess, driving the digital agenda actually means you're going to win market share from this? Or is this something that you guys have been a little bit behind the curve and need to invest in? And then thirdly, just a point of clarity. The Mark's question starts with regard to temporary benefits that drop out. I thought I heard you say that there's EUR 3 million in the first half, another EUR 3 million in the second half, which then ultimately will drop out next year. Is that right? Or have I misunderstood?
Last question, I'll hand over to Ian in a moment. On sustainability, let me try to give you an honest answer here. Are we trying to be a good corporate citizen? Or is this going to be a competitive advantage? Both. It depends on what it is. I don't think customers will pay us very much more or even buy from us if our diversity ratio changes. But we're not -- we don't want to increase female leadership because we want to be a good corporate citizen, but because we think we will then make much better business decisions. And actually, in all those teams where this is already in place, that's exactly the reality. So we do it not for altruistic reasons in this category, but we do it for the benefit of the business, at least indirectly. On safety and health, this always was an aspect of employer attractiveness. But actually, this is becoming also a competitive advantage. Difficult to quantify, but there are a lot of safety programs that we have successfully implemented in RHI Magnesita that our customers ask us to transfer to them. So here's a direct link. On recycling and using raw materials for waste, this always was looked at as low-quality cheap products, so without really much benefit. And here, we see the most market change with our customers. Really, if we come with a green product with a much lower CO2 footprint, customers are willing to buy this in equal conditions. We're not yet at the point where they're ready to pay a premium. But I think this is in the making. So I think here, we have quite good -- we have quite good prospects. Similar, your question on digitalization. We are not behind the curve at all. I think in terms of the industry, in terms of digitalization, we're not looking at the refractory industry anymore as our benchmark. We're looking at other industries that are more advanced from us. And we're trying to transfer behaviors and tools from other industries also from the B2C area into RHI Magnesita and therewith into the refractory industry. And I'm totally convinced that this will become a competitive advantage. Very clearly, this is geared towards that. The benefits from restructuring, Ian?
So these are 2020 benefits only aimed at addressing the lower fixed cost absorption because of COVID-19. What may continue past 2020 is the low levels of depreciation, if we continue to see lower levels of underlying activity, that impact was EUR 5 million in H1 and is a further EUR 5 million in H2. So -- and there's a little bit more of other costs. So certainly, no more than EUR 10 million to EUR 15 million will be sustained past the end of this year.
[Operator Instructions] We currently have no further questions.
All right. Ladies and gentlemen, thank you very much for dialing in this morning. It's exactly 10:02, 1 hour after we started. So I'm happy that we have the discipline together to stick to the time line. Thank you very much for your question and your participation. We're looking forward to interacting with you over the course of the next days and weeks. Don't hesitate ever to contact us should you have any questions or any great ideas that we can implement in RHI Magnesita. We're open for everything. Thank you, and goodbye from Vienna.
Thank you.
Ladies and gentlemen, this concludes today's call. Thank you so much for joining. You may now disconnect your line.