LONDON (ShareCast) - (Sharecast News) - Refractory products company RHI Magnesita said on Tuesday that the difficult market environment of the second half of 2019 had continued into the first quarter of 2020, with limited impact from the Covid-19 coronavirus pandemic felt in those first three months.
The FTSE 250 firm said trading activity in the steel division remained weak in Europe and South America, though that was "largely offset" by a robust performance in North America.

It said its industrial division continued to perform well, particularly in cement.

"Overall, demand levels were similar to the final quarter of 2019 with EBITA slightly ahead, in line with management expectations," the board said in its statement.

"Raw material prices have fallen further in 2020, given the reduction in overall demand and uninterrupted supply from China, which has had a consequential impact on the pricing of some of the group's products."

Looking at the second quarter, RHI Magnesita said the trading environment had become "increasingly challenging" in the second quarter as a result of Covid-19, with a significant slowdown in customer activity and a fall in order book levels, as expected.

In the steel division, customer production had reduced in response to the economic slowdown caused by the crisis.

To date, the firm's industrial division had remained more resilient, particularly in areas where maintenance work had been accelerated during shutdowns, although there were some project postponements.

"In response to the challenges of Covid-19, the business continues to focus on the health and safety of its employees, supporting our customers' operations, cash preservation and cost reduction measures," the board explained.

In China, it said its plants had remained open through the crisis.

Its production also remained open in Europe and the Americas, but a production slowdown would become necessary during May.

While there were short-term plant closures in India, as a result of rapidly introduced government restrictions, those facilities had now partially reopened.

"The business has increased the focus on cost management which includes the temporary closure of three plants in Europe and one plant in Mexico; the introduction of short time working arrangements; the deferral of at least €45m of capital expenditure in 2020; no final 2019 dividend proposal; and fixed cost reduction actions, such as a hiring freeze on all non-critical roles and restricting discretionary expenditure," the board said.

In recognition of those steps, the board and the executive management team had elected to reduce their fees and salary for at least the next three months.

The group's previously-announced production optimisation programme remained on track,, with benefits of a €40m improvement in EBITA by 2022 expected, and an additional benefit of €15m in 2020 from the turnaround of the previously-identified operational issues.

RHI Magnesita said it continued to have a strong focus on liquidity preservation, especially on managing inventories and collecting accounts receivable.

Working capital increased "modestly" in the first quarter, and could increase further in the second quarter, the board said.

The group claimed to have a "strong" liquidity position, which increased to €1.2bn in the first quarter, comprising cash and cash equivalents of €0.5bn and fully committed undrawn facilities of €0.7bn.

It has a long-term debt maturity profile, the board said, and was "significantly beneath" its net debt-to-EBITDA covenant.

"The overall impact of Covid-19 and, in particular, the extent and the duration of its effects on the global economy and our business, and the speed of economic recovery remain very uncertain," the board said of the outlook.

"Whilst the impact will be material in the short term, the business is taking appropriate actions and has sufficient liquidity to withstand an extended period of uncertainty.

"Longer term, the group is well positioned to take advantage of growth opportunities when markets improve and is focused on ensuring that it can exit this period of disruption with positive strategic momentum."

At 0906 BST, shares in RHI Magnesita were up 2.65% at 2,406p.

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