00:00:00: Basenradio Network AG, das Vorstandsinterview.

00:00:09: Welcome to BasenRadio!

00:00:11: My name is Andreas.

00:00:13: H.I.

00:00:13: Magnesita is the global leader in an indispensable niche market.

00:00:19: The company protects steel plants glassworks and cement kilns from extreme heat.

00:00:26: It's a refractory product with certain temperatures exceeding one thousand two hundred degree Celsius, many wear out regularly creating recurring demand.

00:00:36: The group combines Austrian and Brazilian routes.

00:00:40: the legal structure is Dutch and... ...the primary listing is London secondary listing in Vienna.

00:00:47: Mr Bota what do customers really buy?

00:00:51: Refractory bricks safety or planned availability?

00:00:56: Andreas, they buy all three.

00:00:58: Our customers by a combination of our refractory products which can be bricks or with the very unique shape or mixes Which are sprayed on in the customer environment to services The design that testing the installation?

00:01:17: the maintenance of their environment.

00:01:19: Or They can buy solution which is all the products All the services that we offer.

00:01:26: They do this because we can support them to improve the quality of their product, ...the operational efficiency of their environment and reduce their cost.

00:01:36: Increasingly... We could also help them improve their sustainability footprint.

00:01:40: How would you describe your company Erige i Magnicita?

00:01:44: how Do I get in contact with Your products?

00:01:48: maybe without knowing?

00:01:49: so refractories as You introduced is a key enabler for modern-day life, all high temperature applications require refractories.

00:02:01: So whether it is in kilns smelters furnaces nuclear reactors that are producing a range of products from steel copper and nickel Platinum group metals All these are extruded through environments containing Refractories.

00:02:20: the

00:02:20: product you're selling some last years Some last only a few hours, which must be good for your business.

00:02:29: How predictable does this wear make?

00:02:32: Your business is.

00:02:33: sixty

00:02:33: five percent of our revenue comes out off the steel sector.

00:02:37: here are refractories or consumed in a matter of minutes hours or days and these refractory's are Operating cost items.

00:02:47: four customers typically representing one to two percent of the customer's cost base.

00:02:53: The other thirty-five percent goes into industrial applications.

00:02:57: Around forty per cent of that is an operating cost, particularly in the cement industry where there's annual rebuild and another sixty percent of their thirty five percent go to industrial projects.

00:03:11: These are projects in copper, nickel, platinum group metals In lithium Where all refractories or capex items and part of a much bigger capex project for our customer.

00:03:26: You're the CFO, the financial officer.

00:03:28: you know all the figures.

00:03:30: is RHI Magnicita?

00:03:32: sufficiently diversified steel generates more than two-third of revenue?

00:03:37: The higher margin glass business as I learned remains little bit weak.

00:03:43: Andreas yes...you just need to look at our EBIT A margins to see the resilience of our margins over multiple cycles, Over many years.

00:03:53: That resilience comes from the diversification.

00:03:56: Diversification both across segment.

00:03:59: so steel sixty five percent Of our revenue.

00:04:02: industrial thirty-five percent of our revenue Steel being a relatively early cycle industry and Industrial Being a relatively late cycle Industry.

00:04:12: but also because we are diversified by end customer segment, with construction representing around forty-five percent of end customer demand.

00:04:23: Vehicles representing around sixteen percent off in customer demand and heavy equipment representing around twelve percent.

00:04:31: we are also diversified geographically with the United States being our single biggest market but with a very important position in Europe In India in the Middle East in Latin America and China East Asia.

00:04:47: And all of that diversification, the fact our product is an essential item for customers to produce means we have a level of margin stability and cash flow stability which are core part in investment case.

00:05:03: What about cost side?

00:05:05: How can I imagine?

00:05:06: it costs raw products materials energy transport.

00:05:12: so indeed raw materials is the single largest component of our cost base, representing over seventy percent of the aggregate costs that we incur.

00:05:23: We are backward integrated which means that we produce the large majority of the raw material by volume and value that we consume.

00:05:33: in particular we produced the Magnesite and Dolomites based raw material In Turkey, in Austria and Brazil.

00:05:46: And the United States that we then convert into our high-temperature refractory applications.

00:05:55: The other key consumables are raw materials from graphite alumina which will purchase clearly energy and then labour.

00:06:04: What about current situation of global crisis with some not so easy transport ways sometimes or the tax issues of for the US.

00:06:14: So certainly we have been impacted by The Middle East and conflict, And buy the U?

00:06:21: S tariffs.

00:06:21: from a?

00:06:23: u s tariff perspective We completed a very important acquisition last year the acquisition Of a resco in the us market A high quality industrial player That over time is moving our local-for-local production towards eighty percent.

00:06:42: So we are very much a US based, U.S producer and that is important for our u.s customers who look for high quality products and services And have an expectation That we can support them.

00:06:58: the tariff arrangements We have navigated Very well.

00:07:01: The core geography where?

00:07:10: And that has meant we have moved and are moving production capacity from Brazil into North America to better supply our customers.

00:07:21: From a Middle East conflict perspective in the supply chain here, We're particularly proud of how we've responded.

00:07:28: The maturity of our supply chain infrastructure means that we have seamlessly supplied our customers at all times And you'll understand that's an important issue given our products are essential items for customers to produce.

00:07:45: That said, we have seen higher costs which we've been passing on to the customer.

00:07:49: We see impact because of Middle East conflict and delays in industrial projects both into second half this year and into twenty-twenty seven and beyond as customers adopted a more cautious approach.

00:08:07: How can we guess your genuine operational strengths?

00:08:11: We have on one side the revenue that remains more or less flat by.

00:08:17: One point six billion during the first half and then other site, we haven't adjusted a PTA that increased by almost twenty percent to one hundred sixty five million.

00:08:28: so is it them cost issue that you're lowering the cost?

00:08:33: so in this challenging market environment that we are operating in, where in particular the industrial project part of our business which is the highest margin component to our business.

00:08:45: Is experiencing a temporary cyclical low and wear steel markets or soft but resilient and starting to show improvement?

00:08:56: In that challenging market environments what is delivering?

00:09:03: and in particular that self-help is focused around four key areas.

00:09:07: The first, around SG&A cost reduction.

00:09:11: so a reduction in our sales general administration costs through increased standardization automation roll out of the new SAP ERP and greater use of our shared server center.

00:09:23: secondly it's around network optimization to better consolidate production on smaller footprint to reduce our fixed costs while seamlessly supplying our customers.

00:09:35: Thirdly, it is around moving our customers up our margin curve as we move customers from buying only products to products plus services and hopefully a full solution offering where they buy all the product's service technology that are available.

00:09:56: We've been speaking to the market about new raw material measures that we are advancing, to structurally reduce our raw material cost space and sell Magnesite based raw materials traditionally going from outside into non-refractory markets in agriculture, hydro metallurgical and other areas.

00:10:18: That is driving improvement not just over the last twelve months but will continue in coming periods.

00:10:27: The CFO also is looking at the net debt, where for one point five billion interests are also rising?

00:10:36: What takes from your perspective priority?

00:10:40: deliberating dividends or further

00:10:43: acquisitions?".

00:10:44: So net debt isn't indeed temporarily higher following the acquisition of Resco for four hundred and ten million dollars early.

00:10:54: Our priority from a capital allocation perspective remains on spending what we need to on maintenance capex which is around eighty million per annum.

00:11:02: The dividend, which is typically around eighty five million euros per year... We have a dividend policy which we've consistently applied over many years To keep our dividend cover below three times.

00:11:15: It's very important part of our investment case and RHIM today has the highest dividend yield in our sector within both the FTSEE-XI and FTSEA-XII.

00:11:28: After those two, Our current priority is on deleveraging And we are seeking to reduce our net debt to EBITDA from RMBDF of RMBKG down towards RMBPKG this year and below that in RMBQG.

00:11:44: The strength of our operating cash flow over the last three years each year around four hundred million euros and the high-cash conversion that we have, over ninety percent gives us a level of confidence.

00:11:58: That every year in absence doing further M&A We will reduce leverage by zero point three to zero point four turns.

00:12:06: after that our priority from growth perspective is M& A but we are clear that even as we work on m&a In order for us to be able to deliver our balance sheet.

00:12:24: You're facing a change in the board, CEO will go and new one will come.

00:12:29: Stefan Borgas leaves group at end of October.

00:12:32: Gustavo Franco takes over.

00:12:34: what does it mean?

00:12:35: For this strategy of Regine

00:12:38: This is a seamless transition.

00:12:40: Stefan has led transformation after the combination at the end of twenty seventeen changing the culture The footprint, the systems and processes in our organization.

00:12:53: Gustavo has been part of the leadership team for many years including over recent years as a part of executive management team And he will transition seamlessly into that role.

00:13:05: From the first November.

00:13:06: there is no change In strategy.

00:13:09: we'll continue to focus on reducing costs Moving customers up margin curve with four pro solutions offering and advancing

00:13:28: M&A.

00:13:43: So we've received a very positive response from investors at the Matega conference.

00:13:48: We're really pleased to be here, our investment case is as the industry leader in the refractory market globally diversified business operating eighty plants across fifty geographies that are backward integrated with strong operational cash flow and technology sustainability leadership able deliver differentiated returns through cycle.

00:14:12: Currently, our business has been going through a challenging period from the market backdrop and investors are intrigued to learn about the operational leverage coming through from self-help on costs and revenue.

00:14:27: The potential for improvement comes through higher top line as markets improve in both industrial and steel supported by regulatory chains around or the core components of our investment case.

00:14:46: Thank you for this interview!