RHI Magnesita ups synergy target

As part of the merger, RHIM delisted from the Vienna Stock Exchange in favour of London. Dividends are more commonly paid once a year in Austria, and management initially planned to focus on de-leveraging before announcing a new dividend policy. However, with net debt expected to reach 1.5 times cash the profit ratio target by the end of the year (it is at 1.6 times currently), the board is assessing potential payouts following the finalisation of the tender offer for Magnesita's shares.

One of the group’s selling points is vertical integration – it controls the whole life cycle of its products from mining the raw materials to recycling them once they are spent. In the past few years, raw material costs in the refractory market have been pushed up by supply restrictions from China, but RHIM has protected itself by sourcing around half of its volumes from mines it owns, mostly outside China. The result of this, together with merger synergies and increased volumes, has been a 450 basis point expansion in margins in the period.

Most revenue – 73 per cent in the first half of 2018 – comes from supplying the global steel industry. Growth has been strong here, with constant-currency revenues 29.3 per cent higher on last year's pro-forma numbers, while the gross profit margin is up 320 basis points to 25.9 per cent. Investors will naturally be concerned about the potential impact of trade tariffs, and while management says it is too early to quantify the effects on the business, it is confident that geographic diversification of both production and clients will reduce any risks. As it looks to future growth, RHIM has consolidated three subsidiaries in India and invested €20m in a plant and mine in China, with the intention of expanding operations in both markets.

Consensus forecasts are for adjusted EPS of 502p in 2018 (from 389p in 2017).