RHI Magnesita N.V. ($RHIM)

Welcome to today's RHI Magnesita Q1 Trading Update. My name is Seb and I'll be the operator for your call today. [Operator Instructions] I will now hand you over to Stefan Borgas, CEO, to begin. Please go ahead.

Thank you very much. Good morning from Vienna. I'm Stefan, RHI Magnesita CEO. I'm joined here in the room by Ian Botha, our CFO; and our Investor Relations team around Alex Ordosch. Let me give you the highlights, the key messages for the last 3 months or the first 3 months of the year and then I give you a bit of more granularity around this and Ian will give you some headline numbers. The 4 key messages. Unfortunately, demand for refractories across both of the big market segments, steel and industrial, was slightly weaker in the first quarter of 2026 than in the appropriate time period in 2025. Our own volumes into the steel market were more or less in line with prior year with some pricing coming through -- pricing benefits coming through. But our industrial project-related volumes remain subdued even compared to last year. First message, really still very soft demand. Second message. Our adjusted EBITA increased meaningfully year-on-year, which was all related to the continued execution of our self-help initiatives that we have put in place and that we continue to accelerate. Some pricing actions to catch up with cost increases actually, a lot of cost discipline around our company, network optimization in our production network and some targeted supply chain measures also supported this EBITA growth. Additional activities around the geopolitical surprises that we experienced during the first quarter really relying on our digital supply chain capabilities that we have now that we have built in the last years helped us to navigate through this difficulty around logistics problems around the Strait of Hormuz quite well. That's the second message, very good EBITA improvement. The third message. We can reconfirm our full year guidance for adjusted EBITA of EUR 435 million on a constant currency basis or EUR 400 million around if we take today's view on foreign exchange rates into consideration. Same outlook that we had in the full year 3 months ago. And that will translate together with our strong cash generation that we show a leverage reduction towards about 2.6x net debt to EBITDA. Those are the 3 key messages; very weak demand, really good progress on the profit development of the company, and affirmation of the guidance both on cash flow as well as on profitability. Let me give you bit more detail now about these topics. Demand remained weak. It's a challenging market in which we are and it is made more challenging through the geopolitical tensions. Our own steel volumes were broadly in line with the first quarter last year, some moderate pricing benefits, but the regional performance is actually quite different. On the industrial project side, our volumes stay subdued. In the steel segment, price improvements helped to have a slightly positive trend on the top line, on the revenue line. This is an encouraging performance because the global steel production fell by 2.3% in the first quarter of this year. 2.3% lower steel production globally just published by World Steel Association compared to the first quarter of 2025, which wasn't exactly banger. Our cost management measures together with the pricing benefit supported a recovery in the gross profit towards more normalized levels with a clear improvement compared to the prior year clearly. And based on our current visibility, we see early signs of a possible gradual improvement in steel demand through the remainder of 2026 although some of the Western world steel reporting early the first -- early ones from the first quarter are not super encouraging on the volume side. In industrial market, cement season was broadly normal not super strong. Earnings very similar level than first quarter of 2025, but industrial project-related volumes remain still very, very low. Nonferrous metals were broadly flat versus last year, but glass volumes in the first quarter were even lower than 2025. Also here our cost discipline together with some pricing action supported gross profit positive gross profit so that we could at least keep it flat year-over-year despite lower volumes. The order book in industrial projects shows a good improvement especially in nonferrous metals, in other market segments less so. So we are carefully confident about the improvements especially in the second quarter that is very clearly there because we're already producing materials against these orders. But also in the second half of the year, the order book looks slightly better than last year. I'd like to give you the regional perspective of this as well. North America -- not just the segment perspective. North America and Latin America continued to deliver strong earnings in Q1. In North America, the steel business performed well alongside quarterly steel production growth of 2.3% per year compared to last year despite supply chain disruptions because of all the winter storms. That happens in the U.S. so nothing to worry about and that equaled each other out over time not fully in the first quarter, but that will happen. In Latin America, our performance was more driven by the strength of the industrial business than by the steel business because steel in Latin America is down. India, China, East Asia and Middle East and Africa performed broadly in line with our expectations with a little bit stronger steel performance in those regions offsetting weaker industrial demand pretty much everywhere in this part of the world. Europe and CIS underperformed across both steel and industrial in terms of volumes reflecting this volume -- reflecting a volume shift from the first quarter into the second quarter especially on the industrial side. In Europe, the performance is expected to improve over the remainder of the year especially driven by the cost reductions that are now coming into the P&L step by step and by a recovery albeit slow in the industrial projects. Staying with Europe, we have to note that towards the end of the quarter, we announced a review of our production footprint in France, which includes the potential to close 1 plant there and to convert another one into a recycling hub because it's really well positioned there from a circular economy perspective in the middle of many, many customer sites. To advance this discussion, we are deeply engaged with the local works councils and we of course are totally committed to manage this transition responsibly together with them. The actions are part of the ongoing network optimization program that aims at improving our competitiveness, our operational efficiency, improve our customer service level and reduce our costs. The conflict in the Middle East had not had a material impact on the group's performance until now. Local customers in the Middle East clearly were affected. We had lower volumes to them because they produced less and they needed less. But our overall exposure to that region in the total context of RHI Magnesita is relatively small so we don't feel it in the total context very much yet. Important to be noticed or we're kind of proud that all shipments that were affected by this, you can imagine dozens and dozens of containers were affected when this incident happened some weeks ago, but all of them were successfully redirected via alternative routes with a superfast reaction that started even on the day of the very first attack that happened in that region. On that very day, we already redirected some of the shipments. And that shows that the supply chain capabilities that we have built in the last 3 years enable now a really rapid response service level for our customers that are not affected by such disruptions although -- even not the service level in that region. And therefore, I think we have a really world-leading supply chain capability and delivery capability for our customers now. More broadly speaking, inflationary pressures that are linked to the energy cost and freight costs and now also related raw material costs are being actively managed. We are largely able to mitigate the impact on RHI Magnesita through pricing measures, including surcharges for those activities. Customers are very cooperative. It doesn't affect them very much because it's such a small part of their total cost. So they work with us. It's a really good and open discussion with customers and pricing is generally accepted here. The longer-term impact of the conflict remains uncertain. We can just not predict this. We will continue to monitor this closely and if we can see structural changes, of course we will let everybody know and talk about it. Against this backdrop, our local-for-local strategy and our modern increasingly digitalized supply chain capabilities continue to support the service levels that we can offer to customers and we can really be confident that we can deliver here because we've just, as said, tested these capabilities. Let me hand over to Ian, who will give you a bit more details on the numbers. Ian?

Thank you, Stefan. Good morning. Adjusted EBITA in the first quarter increased by approximately 15% year-on-year or 46% on a constant currency basis. This improvement reflects sustained cost discipline and the ongoing benefits of self-help measures implemented in 2025 and in '26, supporting a recovery in profitability towards more normalized levels. Foreign exchange represented a significant headwind as we guided primarily due to the year-on-year depreciation of the U.S. dollar and the Indian rupee. We confirm our full year guidance for adjusted EBITA of EUR 435 million on a constant currency basis or approximately EUR 400 million after foreign exchange impacts. The improvement in earnings continues to be underpinned by 4 structural levers, most of which are progressing in line with our expectations. First, our network optimization program is on track. Second, SG&A reduction is delivering in line with expectations driven by digitalization, process standardization and the continued expansion of our shared services model. Third, pricing discipline remains strong supported by the ongoing expansion of our 4PRO offering. And finally, we are seeing early signs of a gradual improvement in the industrial business, particularly as Stefan mentioned, in nonferrous metals. These measures have already demonstrated their effectiveness in the second half of 2025 and we remain confident in their continued contribution to earnings improvement to 2026 and beyond. Turning to net debt. Net debt increased in Q1 compared to the year-end 2025 with leverage remaining broadly in line with recent levels. The increase was driven by higher working capital reflecting a planned buildup in inventories ahead of anticipated stronger sales in the second quarter, particularly in industrial projects. This buildup is consistent with normal seasonal patterns and is expected to unwind over the remainder of the year. Cash conversion for the full year is expected to exceed 90% supported by disciplined working capital management. Year-end working capital intensity is expected to be around 22%, in line with our earlier guidance although it will be higher at the half year as is normal. We expect net debt to decline over the course of the year to around EUR 1.4 billion with leverage reducing to approximately 2.6x by year-end. I will now hand you back to Stefan for closing comments.

Thank you, Ian. Not much left to say. Let me summarize our key messaging again. We delivered a solid start to the year in an environment of weaker demand both in the steel markets if we look at it from a global perspective and in the industrial markets as well. Second, our earnings had a meaningful improvement, all driven by disciplined execution of our self-help initiatives and supported by our strong supply chain agility and capability to sustainably deliver a best-in-class service to our customers. Third, we reconfirm our full year guidance both on profits as well as on cash flow. Thank you for joining us this morning and of course we're super happy about your questions and the discussion that will now follow.

[Operator Instructions] So starting with questions. From the phone, we have Jonathan Hurn with Barclays.

Just a few questions from me, please. Sorry if I missed this. But can you just talk about that sort of robust order intake you saw in the Middle East or you've seen in the Middle East for Q2? Is that kind of back to the level you were in sort of Q4 in terms of order intake or has it kind of normalized relative to where it was historically? So that was the first question on Middle East. The second question was just on the profitability. Obviously you've seen a good organic growth in terms of profit and also you called out the self-help measures. But can you just sort of talk us through maybe or break out how we think about the margin just between sort of the backward integration and the normal margin there? That was the second one. And the third one is just in terms of the industrial projects. So if we look at the sort of the history there, it looked like in terms of industrial products -- projects I should say, 2025 was the low. So what you're saying here is that we should actually get back to industrial project growth '26 on '25. That's essentially my 3 questions.

All right. Let me start and then maybe Ian can give you bit of a profit breakdown on the backward integration. Order intake in the Middle East, we didn't specifically talk about this. What we have experienced is a clear increase in order intake especially in nonferrous metals. For the second quarter of this year, the deliveries are in full implementation here. So clearly, there's a step-up and also a bit of a stronger order intake for the second half of this year again driven -- in the industrial business driven by industrial projects. In the Middle East, the trend is very similar. Industrial projects are little bit stronger than last year, that helps, but order intake in general isn't very much higher. We have benefited little bit from customers' need for short-term deliveries because we're able to fulfill those. So that gives us a bit of a market share improvement here. But otherwise, the Middle East isn't much stronger than last year at this point in time. In terms of profit split, backward integration margin is not improving. Raw material prices have not increased significantly. So there's not a big change this year. Our profit improvement in the company comes solely from the self-help measures that we have already talked about. So it's the cost reduction in the production network, it's the efficiency improvements, it's the SG&A measures and it's some cost reduction also on the raw material side doing that, of course that helps the backward integration. Industrial projects, we are still, Jonathan, in a very low level. There's no recovery to historic levels yet to be seen. In nonferrous, this is underway, but it's not a jump. It's a step-by-step improvement. So we are confident that we'll have a better nonferrous year this year than last year and then next year it should improve yet again because of the projects that are in the making that's already visible. And in glass, we see an increased number of requests for quote and project discussion, but not yet reflected in the order intake. We see some good business development in the refinery sector interestingly despite the Middle East or maybe because of the Middle East situation. So that segment also will help us. And we see some interesting activities especially in the interest of many of our cement customers around the world for more of a solution approach rather than simple commodity selling, which is also good because it helps us on the market share and it helps us on the stability of the business. This is the industrial improvement, but we're not at the level yet where we can say industrial projects will this year or even next year be back at the level of 2023, we're not there. Ian, any more comments on the profit improvement?

So we confirm our full year EBITA margin guidance of 11.5%. That includes 1% for backward integration. Our Magnesita-based raw material prices and our raw material plant utilization remains subdued. So essentially we're seeing a continuation of where we were at the end of 2025 so around 1%. Also just to mention on the absolute margin, that 11.5%, there is a timing dimension to it. So we would expect to see the second quarter normally being better than the first quarter and the second half to be better than the first half. So I think at around the half year, we should probably be looking at a margin of around 10.5%; but for the full year, the 11.5%. That's the very normal trend that you see in our business.

We had a question on the line from Harry Philips, but I believe he has withdrawn the question. So just moving on to those on the text side. So firstly, we have Jamie Murray. How do you see the EU regulation that is due to come into force in the H2 '26 impacting RHI in H2 '26 and 2027?

Okay. All things being equal, this regulation on steel and the enforcement of CBAM also supporting European production versus imports should help us moderately in the steel business on the volume side. So it's a slightly positive impact for the European business. And therefore, of course it's highly margin accretive because every volume improvement in Europe is almost gross margin drops down to profits because it's a fixed cost dilution topic. So that should be positive. Jamie, I don't want to quantify this specifically for '26 or '27. I think it's too early to tell. There was a lot of optimism 3 months ago. Now if you listen to customers, this is more careful. We were maybe the most pessimistic 3 months ago. Now it looks like our opinion is more mainstream. So let's see how this develops, but it's difficult to quantify.

We do have Harry Philips back on the line now.

Apologies for the slight logistics line there, but thankfully back on track. Just a little bit more on pricing, if you could. I get a sense maybe wrongly, but my sense is that what you're seeing in pricing this year is a sort of annualization of what you got through in the second half of last year. So is that a correct assumption? And then if it is, is there scope if Europe picks up in any way that we get into a sort of pricing positive environment? And then in terms of the project side of industrials, just sort of noting the commentary and I know in Jonathan's question, you were talking about it. But is that project side sort of deferrals of all projects have already been deferred or is this a sort of new set of projects that are again being pushed to the right?

Okay. So on pricing, there's 2 things going on here. There's the annualization of course that's fully ongoing. That has the effect that we already discussed several times. But there's also the surcharge -- new surcharges especially triggered by high energy costs and higher freight costs triggered by what's going on in the Strait of Hormuz. That is fully in implementation and you will see it in the revenue, but you will not see it dramatically in the profit of course. So that happens. There's a bit of a countermeasure here and that's in some of the more commoditized industrial projects not so much in nonferrous and not so much in the very sophisticated glass projects. But in more of the commoditized ones, aluminum and the simple blast furnaces; there's a huge hunger of all global competitors to finally improve the industrial projects order intake. So some pricing is not very conducive to margins. We try to stay out of it. And then if somebody wants to dump and not make any money by overpromising, then we don't participate in this. So that's a bit of a counter move on the pricing side. But in general, pricing is very stable with a maybe slow upwards trend. On industrial projects, we never expected higher industrial project delivery in the first quarter of this year so there hasn't been a lot of postponements. The second quarter always was the one, at least from the perspective of November, December last year, was always going to be the one with a high delivery percentage. That is still happening. Therefore, we have this inventory built up and this cash consumption in the first quarter. That will reverse now in the second quarter because we deliver these projects. So nothing to worry about. Much less of a postponement than we experienced last year. And the order intake for the second half of the year was weak 6 months ago, is a little bit better now. So we actually indeed see some glimpse of hope in the industrial projects for the second half of the year and of course that is a trend then that will continue into next year.

Just moving on to the next question via the webcast. This is from Andrew Douglas with Jefferies. Three questions. Firstly, please can you explain the increase in industrial order book given the soft market backdrop seems odd? Secondly, can you explain the delta between 15% growth in adjusted EBITA and plus 46% growth in constant currency terms seems a big FX hit? And third, please can you guide to the expected first half/second half split of sales and EBITA?

Yes. So the second half/first half split is more like in normal years so it's about 45% first half, 55% second half. We have no reason to believe that this will be very different this year. You remember last year that was super different. So we were all nervous in the half year or this is more normalized again. The industrial project growth is explained by 2 things. In nonferrous, it's really growth of the business because the related metals; zinc, lithium, but especially copper; are high; pricing for those is high. Demand is high. Capacities are at a high -- capacity utilization at those customers are at a high level. So there's a lot of activities there in order to keep the capacity utilization high and that is a positive effect. It's actual real demand improvement. On the glass side and in aluminum and in a couple of other markets, it is the effect of 2 years of very subdued low deliveries. And now some of the furnaces cannot be stretched another year so they need repairs. And that helps a little bit on the order book here. So that's not actually our customers' end demand, but it's the repair and maintenance cycle that supports our business. Yes, those are the 2 trends in industrial growth. Ian, on the ForEx effect.

Andrew, also just on the first half/second half split as Stefan highlighted, something much more normal this year. I think if you look at the first half, probably around EUR 170 million of our EUR 400 million and the second half would be around EUR 230 million. So first half would be up from EUR 140 million last year to EUR 170 million this year-ish and then the second half broadly similar and that gets you towards the 45% that Stefan mentioned. Currency has a material impact. We've guided on this. Really it's the impact of the -- guided impact of the weaker U.S. dollar and it's the weaker Indian rupee. So if you think last year the dollar was averaging around $1.12. Now it's averaging around $1.17, $1.18. Every cent movement is over EUR 4 million on our earnings. Likewise, the Indian rupee last year was averaging around INR 90. Now it's over INR 107 to INR 110 and so it's very material impact. Actually what we have also seen in the first quarter is the impact of the Mexican peso, the Turkish lira and the Chinese renminbi moving against us. So it's been a little bit weaker than actually even we guided in our trading update earlier this year.

Also a follow-up from Andrew. Please can you update us with your thoughts on M&A outlook? What is the pipeline looking like?

Pipeline looks very good. Discussions have started again, but no updates compared to what we said before, no cash out this year.

Great. And then we have from Jamie Murray. Can you provide any growth rates on revenue for steel and industrial in Q1?

Yes. So Jamie, in constant currency terms: steel would be up around 6%, industrial would be down around 6%. So in constant currency, we're looking at the group around 2% plus. But then obviously you've got the significant impact of currency impacting so down around 5% year-on-year on a reported basis. But with strong margin improvement coming through with the benefit of all of the self-help around network optimization, SG&A, operational excellence driving the earnings accretion.

[Operator Instructions] We have no further questions on the call or webcast. I'll hand the call back to the team for any closing comments.

Wonderful. Thank you very much for listening in this morning. Let me just repeat the 3 conclusions of the first quarter. We continue to be in an environment of weak demand negatively impacted by geopolitics. The outlook is in our expectations, but below what many other people in the market expect. In this environment, RHI Magnesita could deliver a meaningful improvement in earnings, all driven by self-help measures and supported by our significantly improved digitalized supply chain capability. Third message, we can reconfirm the guidance for the year of about EUR 400 million of EBITA and gearing of 2.6x net debt to EBITDA. Thank you very much for listening in this morning and we're looking forward to speaking with all of you during the course of the day and the week. Goodbye from Vienna.

Goodbye.

This concludes today's call. Thank you all very much for joining and you may now disconnect.