RHI Magnesita N.V. (RHF.F) Earnings Call Transcript & Summary

Hello, everyone, and thank you for attending today's RHI Magnesita 2025 Half Year Results. My name is Kenneth and I'll be moderator today. [Operator Instructions] I would now like to pass the conference over to your host, Stefan Borgas, the CEO, to begin. Please go ahead.

Thank you very much. Good morning from Vienna. I'm here in the conference room together with Ian Botha, our CFO; and Chris Bucknall and the IR team. We are happy to give you the insights of what happened. These are turbulent times. So bear with us over the next 20, 25 minutes, we will tell you what happened in the first half and life in the refractory industry will continue. But let me start with the safety share. Safety is the most important number 1 priority in our company. And I want to share with you an event that happened just a few weeks ago in our plant in Foshan, in China, we had in RHI Magnesita 2 years ago and very unforced fatality in one of our plants in Austria where an employee that suffocated and pushed and eventually died from a raw material big-bag a large bag playing more than 1 ton of with one-and-one cloud material, that bag slip and employee and ultimately, this employee time, then we we're very open in the company and has showed this incident to all of our plants and subsequently changed our entire material handling policy and infrastructure all over the world. Well, 2 weeks ago in Bacon in China, a delivery truck came to the plant to deliver big bags of raw material, exactly the type of big packs that created this incident. The employees in our plants in China opened the truck and they saw that the trucks -- the banks were loaded stacked to on top of each other. And it was very clear that the moment they were going to release their security well. Some of these banks would have a large probability of sliding out of the truck and falling out. And two employees from the contractor from the delivery company were actually close to the truck. We're starting to work in to release these belts in order to offload -- and the employees immediately stopped out of rolling, they stopped the operation until they could bring equipment in order to do this in a safe way. This is, I think, a positive news on how this safety culture is starting to spread across the company and where front-line employees have received the power and are using the power to stop any kind of industrial activities if there is a safety risk. So with this, we are actually quite encouraged to see how the culture change program that we have initiated since this vitality all over the world is taking effect. Let me show you also the numbers on safety that we have -- more or less reflect this, we remain on a very low level, low accident level. We will start to report to you once you have the systems in place in all the plants all around the world, also the serious injury, fatality potentials that we're identifying because this will be the new safety KPI that RHI Magnesita that we'll focus on in order to continue to improve the safety to the future. With this, let me give you the summary before we go into the details of the market. Let me give you a summary of what happened in the first half of the year and maybe takeaway messages for this semester. First message is about the markets. The business environment in which we are with the third year of industrial recession, is extremely challenging. Still, the profit performance of the first half of the year for RHI Magnesita does not reflect what we believe that the business is capable of delivering even in this very tough market environment. As a management team, we know that we can do better. We have implemented a very detailed recovery implementation plan already in May this year that contains all of the necessary steps to restore profitability in the second half of this year and actually catch up what we have -- what we don't have in the P&L and balance sheet in the first half. You will hear a lot of details about this during the costs fall from Ian and myself. Second message is we are very confident that the steps that we have already taken that we have actually already started to develop and implement since the beginning of 2024. When we saw this development starting this market deterioration starting, these steps will increase our EBITDA markedly already in the second half of this year. This will deliver the necessary uplift in earnings so that we can reach our targets. Still, as a result, we have moved the full year guidance on adjusted EBITDA if we include the currency effects, if we exclude the currency effects, 1% to 6%, this is a new range lower than it is -- it has been before. So it's a EUR 380 million to EUR 400 million EBITDA level based on constant currency or 370 to 319 we account for the reduction in special U.S. dollar here. So it's somewhere between 1% and 6% lower than what we expected before. The single largest item responsible for the lower EBITDA in the first half is the movement of nonferrous metals, project deliveries from the first half into the second hand. Basically, this is the reason for the large difference between H1 and Page 2. These nonferrous metals projects are in our order book since a long time. Customers have partially already paid these in the form of deposits. Most of the products have already been produced and they're ready for delivery in the second half of this year. A large part of the price increase initiatives that we need for the second half uplift have already been agreed with customers and almost all of the cost reduction measures that we need in order to deliver the second half are already in full implementation or have already been implemented and the money has been spent in the first half so that we can harvest the benefits in the second. Third messages on the strategic direction, we believe that growth through acquisitions remains by far the best out to continue to generate value for shareholders in our industry. Currently, we are, of course, very focused on the integration of Resco in North America. And we have also, in the same region, been able to make a small bolt-on investments in a new recycling joint venture in the U.S. which is extremely complementary with the rest of site infrastructure, which will help us very much, especially in this current trade environment because we can introduce full circular economy business models in North America now with having this infrastructure. Allow us now to take you through into some more detail through the first presentation. And let's start with the financial pilots. As I mentioned at the start of the call, we don't consider the financial results for the first half to reflect what RHI Magnesita is capable of doing. We could see this development. We could see this developing during the course of the year. Therefore, we have -- we've been talking to you as well. So hopefully, it is not a total surprise for you that we adjust our guidance a little bit for the second half of the year. We have still achieved 35% of the annual target profits in the first half of the year, which is within the guidance that we have been talking about since the beginning of the year, where some of you told us that we're very bearish and very conservative. Well, unfortunately, that conservatism now proves to have been prudent. Already during the year now, we have been taking steps to address the root causes of this. And as you can see, the revenue line here, is not the main issue where revenue is actually fine -- not fine, but it's moderately lower with 2% lower. But the main issue is margin where we have a 260 basis point reduction. This is a real issue. Gross margin increased even more, of course, 330 basis points. Cash conversion is okay due to a little bit of working capital release because the business performance is a little bit lower. We are pleased to see that the contribution from rest is more or less on plan is one of the success stories here. Our Americas business, North and South America contributes to the vast majority of our profits in the first half of this year. So the recovery has to come from the other regions in H2. Our confidence in the recovery in the second half is demonstrated by the fact that we are able to recommend an interim dividend of EUR 0.60 per share. The discussion in the Board were very short on this. So we're quite confident here. This is in line with our policy. We don't need to change this. Gearing has reached a peak of 3.1x. This is not the qualified debt, but it is because of a little bit lower EBITDA in the first half, so we should take this with a grain pinch of salt because, of course, it's way the our profitabilities will be the way to the second half here. And then the recovery will be there. Let's go and dig a little bit in what happens. And here is the margin view. As you can see from the summary bridge here on -- the main driver of the decline in the EBITDA versus last year is price and mix, which accounts for EUR 80 million of the total reduction. On the pricing side, we have seen heavy competition from Chinese exporters and from local players fighting for market share because our customers are also faced with Chinese imports in their respective markets all around the world. It's pretty much the same story as we -- and therefore, of course, local refractory suppliers to local steel, cement, proper glass producers are fighting for a smaller for share of small market there as well. And those two effects compound the pricing pressure that we have seen. Actually, not surprisingly in the first half, but still pronounced there, but that's a development that has been ongoing for the last 18, evening 20 months. unfavorable product mix that we see in RHI Magnesita is caused by a relatively stable sales performance in steel -- and at the same time, a strong decline in the industrial projects business, mostly in the glass industry and nonferrous industry. These are higher margins because with the very high complexity of these projects compared to steel. But as you can see, there are also more volatile. So that contributes in the first half to this unfavorable product mix development. On top of that, like I mentioned before, the nonferrous business in the first half has been much more focus on repair activities, which is ongoing supply of materials and services to customers rather than big capital projects which again have a little bit lower margin than these large top of projects that are more complex. Those have all been -- almost all of them -- all of the ones that we want to deliver in the first half have been pushed into the second half. At the same time, the Cement business, which is also part of our industrial business is relatively strong but it's overall also a little bit lower margin segment in these complex industrial projects. So that contributes to the mix as well. But the strength of the cement industry indicates that the underlying construction industry is actually not as weak as sometimes it is writing about. The good news now is that this reverses in the second half of this year. We can see the higher value projects that are in our order book scheduled for delivery Several of them were postponed now in the second half, like I have explained. And mostly, this was triggered by the trade at companies all around the world are waiting until these new tariffs are settled so that they can then with more confidence finish up their capital projects. It's a problem almost in all regions around the world. We are not simply waiting for the market to turn around for us. wait under these projects come through. We are also taking decisive action now to make certain that those projects orders are fulfilled. We are also very focused on increasing prices in the steel business to range, reduce costs in our plants, but also in our administration and selling costs. We start to see the synergies from the West integration coming into the P&L in H2. In H1, this integration is mostly cost us money, but in H2 as will reverse and it will start to deliver. All these management actions put together, we'll then be able to deliver about EUR 120 million of better results, better EBITDA in impact. We have moved still our full year guidance to this EUR 380 million to EUR 400 million under constant currency terms in order to take care of the risk that, of course, is still there because I see so concentrated in the 6 months period. Let's go one level deeper yet and we talk it on price and on volumes to tell you what happened here. You can see in the bottom left of this chart, the prices for both steel and industrial deliveries have declined quite significantly since the beginning of 2023. So this is not new, and we're not surprised about this. We saw this coming. At the beginning, this was in line with lower input costs for the industry. So we didn't have a large margin effect. But as compressive pressure have increased, due to these 2 effects of lower local market volumes and additional Chinese imports pretty much everywhere. Now this is weighing on margins. There has been some 5% decline in average pricing. The difference in the first half is that our cost base has not declined anymore. And we flat costs that, of course, now has reduced margins. And this is difference between the first half of 2025 and the all of 2024. Competitive pressure is most intense in India, East Asia and Middle East, Turkey and Africa. The sales volumes in steel, we were actually not so bad. They're only down 1% if we exclude M&A. And of course, our M&A activities contributed to the fact that volume-wise were actually not down almost not down at all. The main volume this decline that we have experienced in the first before M&A are in the Industrial business, where the volumes actually decreased. If we include M&A respectively, the Resco acquisitions, our industrial funds are actually up 3% because the Resco business is very focused on the industry markets. So now let's talk about these two segments, steel and industrial more in detail. The gross margins in steel declined by 3 percentage points -- by 2 percentage points and revenue reduced by 3%. We're not so worried about the revenue level. This will come back with activity, but the margin decline is what we are focused on. This in steel, there is a part of the very broad range of products that our customers use, which are increasingly coming -- they are the ones that are most prone to this price competition. It's not the entire portfolio, but it's -- the comp -- at the moment, customers are very price sensitive. They're not so focus on product performance. They accept lower performance products as long as they can get a quick deal for the short term. Because the plants of our customers are not running at very high levels of capacity utilization or high-performance refractories are not that necessary. This is a cyclical issue at this point in the cycle, we are therefore able to use these lower-quality products. This means that price concessions are more in the discussion and price increases are very necessary. But even here, there's slight differences by region. Here is the regional view that you see. We have -- we are looking at the world now in 6 regions rather than 5 because we have split the India region and the Middle East, Turkey, Africa, which we call META region just recently at the beginning of this year. This is the in-region management now an opportunity to focus 100% on the growth opportunity in India and the META region, which is super diverse, gets much better attention from a new management -- this was a really good position as we can already see these two teams acting and taking place forward. There's also a change in the Americas where we move Mexico and to Latin America, but this is maybe a little bit less important. Although Mexico now gets more attention, especially with the U.S. team very much focused on the rest of integration. There were steel data shows that steel production declined in all of the 6 regions, except India. Our base business sales volume performance is broadly in line with this. So we don't also have a market share issue. I think we recovered a little bit because we were more disciplined on pricing than many competitors, and we lost a little bit of market share in the late 2024 and beginning of 2025. That will now start to recover in the second half of 2025. North American revenue growth is strong, but this is entirely due to M&A and not because of the market. In India, we keep pace with the volume growth, but revenue declined by 2%. This shows the effect of price competition. It is concerning. Let's look at the Industrial business overview. In the industrial business, the gross margin decline was pronounced, falling from 27% to 21%. This shows the effect of price concessions, but mostly product mix differences. The last and nonferrous were very weak while cement business was quite resilient actually. And that excludes the business for lower margin segments like I have explained before. The weakness in glass and nonferrous, however, is for different reasons in both. In glass, it's really due to the weakness of the glass end market. The sales of glass products are down pretty much equal our customers are suffering and we need to be with them during this time. In nonferrous, the end markets are okay. They have a healthy outlook. This was simply a postponement of projects due to tariff and trade uncertainties that's what we get from our customers, and they will complete these investment projects because they're almost all very far as fast. So we're not worried here about the surge. We can provide because the industrial business is so relevant in this semester, additional context for the industrial performance so that we get confidence in the second half. The chart at the bottom left sets out a half yearly adjusted EBITDA from the Industrial business going back to 2020. Remember that we've had a recovery from COVID and significant M&A since then, that's why you see all over positive development there. But in 2023, the annual industrial EBITDA was EUR 169 million. In 2024, it was EUR 151 million. And based on the guidance we have now given we see a EUR 50 million EBITDA benefit in the second half, largely coming from these NFM projects that are already in the order book and that have been prepaid for partially and then are also mostly produced, but that have been delayed for shipments. We are effectively guiding for our H2 EBITDA in Industrial to be around EUR 97 million. And this accounts -- this would then deliver an Industrial business of EUR 144 million, which is not super optimistic because it's lower than 2023 and 2024. So we are quite convinced about the fact that this step up is achievable in the second half of this year. We are -- just talking about the shift here from the H1 to the H2, and that has to do with timing of deliveries and nothing else. The remaining risk here, ladies and gentlemen, is that 1 or 2 or 3 of these deliveries slipped into January or February. Therefore, we took this risk into consideration and adjusted total guidance. What are the other management actions that we have taken. We provided this in the RNS in writing as well that I want to point it out again. We separated all the management actions that we have for the second half of the year. And we consider them to be higher or lower in risk on the delivery. The SG&A savings, the plant closure cost savings and the risk of synergies and ramp-ups are known -- this is very highly certain. Why? Because it's already also announced agreed and implementation, you just force in the P&L yet, but you will know in the second half of this year. We also have contracted around 70% of the price increases in steel that we need. It's already contracted and signed and the new deliveries are at this slightly higher prices. It is not a massive increase, but it's slightly higher prices to impact the margins to the normal levels and 2% lower margins. So this is classified with high certainty, maybe not the highest the higher because some negotiations are still ongoing. The phasing of the industrial projects that contributed EUR 50 million of the step-up is in our order book. We have to fulfill them. Nothing has to slip. It's a matter of operational delivery. So it's highly nice also. The uncertainty lies in securing the remaining price increases in steel, this is about EUR 10 million risk or a little bit less than this. And it's during the additional steel sales volumes in our demand plan because we've had -- there are some individual customer adjustments and that volume increase needs to some here, this also depends on the local market recovery country by country. So there is a little bit of risk in there, again, quantified at around EUR 10 billion. The total of the actions show that there's EUR 120 million step-up that would actually get us to a EUR 400 million EBITDA, adjusted EBITDA for the full year. even after the ForEx headwind. So including ForEx, it would bring us to EUR 410 million, which actually is above our original annual guidance. And we took a risk discount on this, and therefore, moved our full year guidance down to this EUR 380 million to EUR 400 million or EUR 370 million to EUR 390 million depends on whether you improve or exclude for the currency. Let me move a little bit more to the strategic update. And of course, here, everything is focused on the restart integration. The integration of Resco is progressing well. We recently completed our review of the first 100 days. We are very pleased with the progress on all fronts, and I tell you the feed that we get from the people both from the RHIM North America side and from the Resco side is really encouraging. It's a lot of fun to travel to these plants and see the energy that happens and we see hundreds and hundreds of the foreign after picture. So it's really from a culture perspective and atmosphere perspective, very encouraging to see what is happening is truly America and work there. Resco has been dealing with the same difficulties in the end markets, of course. So the base billers is slightly down, the financial contribution is -- has to be seen in that context. But still, we expect a EUR 10 million uplift from a full 6-month contribution and the benefit of the synergies in the second half just from that configuration. As in safety, our very first priority, always also there, we made a lot of changes. This is part of the energizing cocktail that moves the teams forward because, of course, this is a -- it makes the work environment just so much better and never increases the cautiousness on this. We have completed the early basic integration tasks and are now planning with more significant structural changes such as product transfers from Europe to the U.S. and from Brazil to the U.S. based on this new stronger U.S. network, there is a huge amount of detail involved in this. And of course, customers are trialing and testing these products as we go on, but this is all under really good solution. The North America region also will be the early adopter of our new ERP upgrade that will be launched at the end of this year. And then we will have the platform also to bring all the plants digitally into our China market data. This will happen in the first quarter of next year. Next topic I want to touch on quickly here on the strategy update is the tariff environment. I'm sure you're going to have questions on this or an some of our view. The tariff situation can change at very short notice. We have become very, very flexible here, especially in supply chain adjustments. We -- so this is a snapshot view. It could change next week. So please forgive us if we have a little bit different perspective in the future on what we present now but this is based on the trade agreements that we have been announced today, including the recent one in Europe. Our -- the European finished goods will most likely face a 15% tariff under the agreement. These are specialty products and specialty materials. Some of them will not be able to be produced in the U.S. unless we build totally new clients, and this is -- this doesn't make sense because the U.S. market is too small for this. So the debt burden has to be passed on in price increases. Brazil faces a potential 50% tariff -- that's very fluid because it's under negotiations. At the moment, that could have a much greater impact if that happens. So the -- even if the magnesite-based raw materials are exempted because they are critical minerals at the moment. So that will dampen the 50%. But still, this is a very serious discussion at a 50% tariff on finished goods from Brazil will clearly make those products highly competitive in the U.S. We could seek alternative sources in the short term. But in the medium term, we are planning to transfer these products to be made onshore in the U.S. This is a big focus of the Resco integration at the moment. When we consider the impact of tariffs on RHI Magnesita also important to consider the relative impact that will be felt by our customers here, many refractory producers worldwide rely on Chinese raw materials. They now face a 20% tariff to the U.S. for raw materials. The tariff on finished goods is higher -- and whatever the precise and of course, here, RHI Magnesita has a different situation because we can bring raw materials from other places also. Whatever the precise tariff levels -- we always seek to locate our production growth to our customers. This is our local-to-local strategy. But this works for 18%, maybe 85% of the foreign portfolio the rest has to be adjusted price wise, and it will be has to fit in the overall portfolio. So in the U.S., we plan to increase the domestic production to 75% from 50% before the acquisition. This is the short-term view there might be more potential eventually. And last topic which as I have before I hand over to Ian, I'm sorry for taking a little bit longer today, but I think the situation rewards this. The last topic I want to show you briefly is the U.S. recycling joint venture that we were able to complete just a few weeks ago with the company called BPI. They are a leader in minerals recycling, family-owned with a super honorable, very knowledgeable, very engaged family, fitting very well with our culture. We've got lots of really good interactions with them. And of course, they continue to run this business. It's very important because it allows us now to source secondary raw materials also in the U.S. and in light of trade barriers, this or an gets an additional impact here. We are basically following the same strategy that we have successfully implemented in Europe through our joint venture now known as Also with the Germany family, equally honorable and we're especially establishing contracts here. The BPI deal will enable us quickly to increase the source quantities of refractory raw materials from customer waste. This is currently a bottleneck in recycling in the U.S. We have the technology to upgrade this. We're bringing this now into BPI, and we target an increase of the recycling rate in North America. So this is the percentage of raw materials coming from waste from 15% currently to 20% because this is a level we've already achieved in Europe. Hopefully, it is obvious that by developing recycling capabilities in the U.S., we can avoid entirety issues we were discussing on the previous slide to be tariffs and especially on the raw material side, why? Because it's a local for local strategy also for raw materials at least for a good portion of them. So the tariff environment actually gives us a turbo user for this business, which, I guess, is the intention of mutation. Let me hand over to Dan to give you a bit more granularity on some of the financial numbers. Ian, please.

Thank you, Stefan, and good morning, everyone. As discussed, we faced a material drop in industrial projects demand alongside a competitive pricing environment particularly in India, in China, East Asia and our new region matter, which together were the key drivers of the P&L performance in the first half. Gross margin declined by 330 basis points as average selling prices fell while we continue to operate on a largely fixed cost base. The decline in adjusted EBITDA is driven by this gross margin pressure. Further down the P&L, foreign exchange effects also weighed on adjusted EPS. These are reported within finance charges, we recorded a EUR 13 million charge compared to a EUR 14 million gain in the first half of last year. An interim dividend of EUR 0.60 per share has been declared in line with the group's policy to pay 1/3 of the previous year's full dividend. Based on our forecast full year adjusted EPS for 2025, we expect dividend cover to be restored back towards 3x. Moving to revenue. First half revenue was EUR 1.67 billion, with the base business down 2% year-on-year in constant currency terms. At the revenue line, we faced an FX headwind from the weaker U.S. dollar and Indian rupee. Sales volumes were down 2% year-on-year, with still down 1% and Industrial down 4%, all before the impact of the Resco acquisition. This volume decline reduced revenue by EUR 31 million. Pricing mix declined by 5% or EUR 91 million. This is due to the aggressive price competition and a weaker sales mix. This reflects both a sharp drop in the high price, the high-margin industrial project volumes and volume growth in lower-priced markets, particularly India, cement steel and in China. Resco contributed EUR 19 million in revenue during the 5 months following its consolidation after the acquisition completed at the end of January. Turning to EBITDA to EBITA level -- there was an FX tailwind, primarily due to the weakness of the Brazilian real, the Turkish lira and the Argentinian peso. In these countries, we produce in local currency while generating a portion in hard currency of our revenue, and this creates a favorable margin effect. Currencies actually turned in swing given the weakness in the U.S. dollar, and this puts pressure on our second half EBITA, as you saw in Stefan's analysis, it reduces our second half EBITDA by around EUR 10 million when compared to the first half. The segment contributions for both steel and industrial were down by around EUR 50 million each. In steel, the decline was mainly driven by the price weakness in India and lower prices and volumes in meter. In Europe steel, EBIT declined by EUR 7 million primarily due to lower volumes. In Industrial, the decrease was almost entirely due to lower margins in industrial projects. This was the partially offset by lower SG&A costs, including reduced bonus for 2025 provision and an EUR 11 million EBITDA contribution from Resco during this period. The combination of factors that we experienced in the first half resulted in a very low refractory margin of 7.3% for the 6-month period. This is well below our historical track record of steadily improving margins and is not representative of what the business can sustainably deliver -- we expect margins to recover in the second half with refractory margin guidance for the full year at 9.5% to 10%, more in line with recent performance levels. Raw material margin contribution remained very close to record levels at 1.1 percentage points and is guided at 1% for the full year. Taken together, this suggests group guidance for an adjusted EBITA margin of 10.5% to 11% for the full year. As mentioned, a key reason for the margin decline in the first half was the 5% fall in average selling prices, whilst cost of goods sold remained broadly flat -- and you can see in the chart on the right that we faced pressure in several areas. Firstly, there was a sharp spike in alumina prices during the fourth quarter of last year. You can see that shown in light on which then quickly reversed in 2025, resulting in a group carrying high-cost inventory produced in the fourth quarter of last year into 2025. As a reminder, RHI Magnesita is not vertically integrated in alumina-based raw materials, can we purchase all of this material extremely because alumina prices normalized rapidly, it became difficult to pass on those cost increases to customers who are resistant to higher prices under these circumstances. Labor inflation remains a persistent theme across all regions, although CPI inflation has eased from its peak in 2022. It continues to rise, though in markets like Brazil that remains in positive territory globally. Finally, we saw a deterioration in our fixed cost absorption. This is due to lower industrial project volumes. These are fired rigs, which are inherently more complex and more capital intensive. This requires substantial infrastructure and fixed overheads. Today, we are operating only 27 of our 52 tunnel kilns globally, which further impacts efficiency and fixed cost absorption. Moving to working capital. Working capital has been a positive contribution in the first half, with a reduction of over EUR 100 million versus 30th of June 20 and excluding M&A. This is a normal trend for us in a weaker demand environment as business activity decreases with both inventory and accounts receivable reducing. Inventory coverage for both finished goods and raw materials is at targeted levels for the expected higher second half demand -- and we maintain our guidance for working capital intensity of around 24% at the year-end. We continue to work on sustainably reducing working capital as a tool to improve our return on invested capital in the medium term. Our digital upgrade program and the increased local for local production are very important enabling steps in this process. Much of our management focus during this period has been on taking steps to improve our margins, but we're also actively doing going to strengthen our cash generation. To this end, we completed a review and a reprioritization for 4 capital projects and have reduced the capital budget for 2025 to EUR 130 million from EUR 145 million previously. In addition, we are investing approximately EUR 35 million per year into our digital transformation program in line with IFRS requirements. This investment is charged through the income statement as incurred rather than capitalized. Now following significant M&A activity and in light of the structural overcapacity in certain of our markets, we have taken the next steps to optimize our plant network to reduce fixed costs. As announced in February, our full year results presentation, we are closing certain sites in Europe, in South America and the U.S., whilst modestly expanding capacity in the U.S. to support customer demand. To execute this program, we are spending a total of EUR 100 million between 2025 and 2027, comprising EUR 40 million in CapEx and EUR 60 million in restructuring costs. We expect a fast payback for this work with an EBITA benefit of EUR 10 million in 2025, EUR 20 million in 2026 and EUR 30 million and thereafter. In the first half of this year, we finalized the closure of Mines law and airboat plants in Germany. The EUR 10 million EBITDA benefit from 2025 from these closures is included in the market guidance and is revised entirely in the second half. This first part of the high certainty management actions to restore adjusted EBITDA paying. Our operating cash flow reduced to EUR 175 million, reflecting the lower adjusted EBITDA in the period. Our cash conversion though, remains strong at 124% supported by the release of working capital. Free cash flow reduced to EUR 70 million compared to EUR 103 million prior year. We expect a recovery in the second half as margins and activity improved. Our net debt reduced by EUR 7 million to EUR 1.245 billion, before accounted for the Resco acquisition, which added EUR 333 million to net debt, both the cash consideration paid and the net debt assumed as part of that transaction. Finally, our gearing increased to 3.1x at the half year, driven by the Rest acquisition and the drop in our adjusted EBITDA which reduced down to EUR 517 million on a trailing 12-month basis. During is expected to reduce to 2.8x by year-end, based on the management actions taken to restore margins and to improve our cash flow. Our average cost of debt remains attractive at 290 basis points with around 70% of our interest at fixed rates, and we continue to benefit from a broad range of financing solutions and long-term relationships with supportive lenders. I'll now hand you back to Stefan for some closing remarks.

Thank you very much. Let me summarize the outlook and the guidance in this very challenging market environment other than operational delivery measures have to be around price improvement and cost reduction. We are reducing our full year adjusted EBITDA guidance to EUR 380 million to EUR 400 million before currency changes. This still leaves us with a large uplift in earnings that needs to be delivered in the second half. We have high confidence that this can be achieved. And hopefully, we gave you all the components that we can also get the same confidence. In many cases, we identified these issues very early on. We started to take action and prepare this at the beginning of 2024 already. Network adjustments, plant closures don't happen within days or weeks even months in we planned a long time before and just at the. We know that the business could perform better than we have performed in the first half of this year. We are taking all necessary steps to get there. We have a really good focus inside our time managed to execute this people are all aligned around their measures and actions. We have no effecting has no blaming and no frictions from those kinds of sentiments. We don't simply tolerate lower phones. People are ambitious and so is the management team. And we don't just use the market conditions to play in the measures that we have defined in an optimal way could even allow us to exceed our previous guidance. Last but not least, let me put this back into the context of our investment case. I want to remind you of the strategic vision and the reasons to consider investments into our Ginnie. We are already the leader of the global refractory industry, and we are following an explicit strategy to grow our own company through acquisitions. Acquisitions have been shown by our internal analysis to be by far the best way to generate value for shareholders. This is a market where no 1 can rely on top line growth to do value creation for you. We have strong momentum in the strategy with 11 companies acquired since 2023 and a total value of over EUR 1 billion. We want to have broad geographic presence across a very wide range of customer industries to be able to provide total solutions for our customers' need and be balanced on the dependence of the individual end industry. With this, we continue to have ample opportunity for acquisitions also going into the next decade. The network that we have built today. Two acquisitions has further scope for optimization that no individual company would have had before. And it also offers high operational gearing in any kind of recovery in the market because it gets more and more flexible as we can make the same product in different plants all around the world. From a valuation perspective, you can invest into all of this with a very attractive dividend yield and driven by a free cash flow yield which is very attractive when you compare us to our U.K. listed group. Ladies and gentlemen, thank you for listening. Ian and I are now happy to answer your questions.

[Operator Instructions] And we will take our first audio question from Jonathan Hurn from Barclays.

I just had a few questions, if I may. First, just coming back on those that obviously, it's a big focus in you in terms of the rollout strategy for RHI. But obviously, if we look at that sort of leverage in is pretty high this year. I know it's going to come down by year-end, but it's still going to be quite elevated it feels in 2026. When do you honestly think you can get back on to that sort of M&A track or M&A road and start doing deals again? That was the first one. The second one, maybe for was just in terms of the sort of cost saving actions. Obviously, you've spelled them out in the second half of this year. But I just wanted to get some sort of color of what are the savings in the bridge the 2 million you called out EUR 20 million from network optimization. I think is it fair to say there's another EUR 10 million to come from SG&A savings in '26 and then potentially some more synergies from And then the third and final question, just on India, obviously, you're calling out it being tough in terms of pricing and so forth. I just wondered if you can give us some color would have been the dynamics Q2 versus Q1? Has it actually worsened here in the second quarter versus the first things still deteriorating. Those are questions.

The last 1 was India, right?

Yes. The last 1 is India, yes. And just in terms of that sort of Q2 versus Q1.

All right. Let Look, on the acquisitions, this is always a combination between opportunity and capability, right? And of course, our leverage is relatively elevated at the moment, but our degearing speed also is very high. So we don't need to wait ages in order to make additional acquisitions if the opportunity comes along. Having said that, all the focus operationally at the moment is on making this acquisition work, and we don't have anything in anything big in the pipeline in a very short term. But if the big opportunity comes along, we have the necessary firepower and support by shareholders and our bank in order to not walk away from it, at least not at the beginning. So I think I cannot say much anything different here, but hopefully, it's consistent with what we said before. On India, before again goes into the cost-saving bridge on India, the situation is -- I think you have to see it in a little bit longer context than just Q1 versus Q2. The India market is really the only growth market worldwide or the only major growth market worldwide that has -- that's in our industry, like in many other industries, already since 2 or 3 years. As a result of this, many entrepreneurs in the country and most of the foreign companies have invested in India in order to participate in this growth. And like we have remarked several times before, also since many years, over built. And this is now coming into the market. These over investments, if you look at them cumulatively by everyone, our being ready and are offered to the market at the same moment when Chinese imports are also increasing. So a headline, you have capacity growth in our customer industry of 8% or 9%. They experienced the same problem. So they bring half of what they have announced on to the market. So the actual real growth for us is more around 4% or 5% because of that effect in their industry. And all of this happening and at the same time when new capacities are coming on stream in the country. And that puts the pressure in India, especially on the margins. We saw this happening in the second half when we were extremely disciplined on pricing ourselves and we lost quite a bit of market share, especially in some of the very commoditized segments of the steel market is a little bit less pronounced than industrial because it's more differentiated and the business is more complex. But in the commoditized part of the steel market, this happened in the second half of 2024. And you see the poor performance of the India business now in the first half of this year. Not a huge difference between Q1 and Q2. But what we started to do, starting at the end of last year, we went back to our customers and said, okay, we need to become more competitive and we become more price competitive as well. Therefore, our margins declined. And you are now in the second half of this year, see the volume recovery of our own business in India. Therefore, our overall India volume development at the end of this year will reflect this kind of 5% volume growth at the market has also maybe will even be a knowledge about this because we have the recovery effect. For sure, the price discussions in India are super challenging especially in the commoditized segments and they can only eventually be completely successfully if you add additional technologies. We have a fantastic robotic project in India that we just published and are implementing. And I think this is the way of the future in that market. But it's a difficult environment.

Jonathan, on your cost question, you're exactly right. So there are three components to this. The first is the network optimization will deliver EUR 20 million run rate in 2026. The second -- in the second half in 2026. Just the second piece that on a run rate basis in 2026, we will expect to see EUR 20 million coming through from the SG&A measures that we've put in. Clearly, one of the cost questions that we have is this labor cost inflation, which constantly bites the improvements that we deliver -- and then the third piece is around fixed cost absorption. So all the focus that we have on driving operational excellence in our plants at the moment, that's being used to contain our fixed cost under absorption, which at the moment is running at around EUR 60 million as our plants are operating about 65% of their capacity Clearly, as demand improves and therefore, that drives the increase in our production, there is quite a lot of operational leverage that comes out of that. And we still you continue to see the growth in risk or synergies.

We will take our next question from Harry Philips from Peel Hunt.

Three from me as well. Just in terms of looking at the industrial project delivery profile for the second half. You've made very clear that the order book is there and the deposits have been paid. And then you talked a little bit about possible is to give sort of further deferral running over into 2016. I was just wondering the sort of cancellation risk that might be in there because when you look at the geography and industrial clearly, it's got a sort of European SKU. And then thinking about that is sort of European platform in totality, do you think you've got the cost base right for Europe post these current initiatives? And then lastly, just again in the detail, looking at the steel meter performance, and you've seen that was down 22%, which seems pretty aggressive. I was just wondering if there was a particular reason for that.