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RHI Magnesita's stock price experienced a significant increase, rising 16.1% following its Q3 2025 earnings call. The company maintained its full-year guidance, with adjusted EBITDA expected to reach between €370 million and €390 million. Despite a challenging market environment, RHI Magnesita reported improvements in its EBITDA margin and outlined strategic advancements in robotics and local production.
Key Takeaways
- RHI Magnesita's stock surged 16.1% after the earnings call.
- Full-year EBITDA guidance remains unchanged at €370-390 million.
- The company is advancing in robotics solutions across key markets.
- Cost reduction measures are contributing to performance improvements.
- Market conditions remain challenging, but strategic initiatives are in place.
Company Performance
RHI Magnesita demonstrated resilience in Q3 2025, with a notable recovery in its EBITDA margin, which improved to 12.7% from the first half of the year. The company highlighted its efforts in integrating robotics solutions, which are gaining traction in the U.S., India, and Germany. Additionally, the integration of RESCO and increased local production in North America are strengthening its competitive position.
Financial Highlights
- Adjusted EBITDA year-to-date: €136 million
- EBITDA margin: 12.7%
- Expected year-end net debt: €1.5 million
- Cash conversion: 90%
- Target: Deleveraging to around 3x net debt to EBITDA
Market Reaction
RHI Magnesita's stock price rose by 16.1% following the earnings call, reflecting investor confidence in the company's strategic direction and financial performance. This surge comes amid a challenging market environment, with the stock trading closer to its 52-week high of 3885, compared to its low of 1932.
Outlook & Guidance
The company maintained its full-year guidance for adjusted EBITDA between €370 million and €390 million. Looking ahead to 2026, RHI Magnesita anticipates stronger performance driven by continued benefits from self-help measures, price improvements, and modest volume increases. However, potential challenges such as currency headwinds and labor inflation remain.
Executive Commentary
Stefan Borgas, CEO, stated, "We delivered the strong recovery that we expected to deliver, but in a still very challenging environment." CFO Ian Botha noted, "The first half was our weakest period since 2017, while the second half is shaping up to be one of our strongest." These comments underscore the company's confidence in its strategic initiatives despite ongoing market challenges.
Risks and Challenges
- Weak overall market conditions, particularly in steel volumes.
- Challenging pricing environment in regions like China and India.
- Potential currency headwinds impacting financial performance.
- Higher variable compensation and labor inflation could affect margins.
- Backward integration margins are currently at a historical low of 1%.
The company remains focused on improving backward integration profitability and exploring opportunities in external raw material sales in the chemical markets.
Full transcript - RHI Magnesita NV (RHIM) Q3 2025:
Seb, Call Operator, RHI Magnesita: Hello everyone, and welcome to today's RHI Magnesita November Trading Update Call. My name is Seb, and I'll be the operator for your call today. If you would like to ask a question during the Q&A session, please press Star 1 on your telephone keypad. If you would like to withdraw your question, please press Star 2. You can also submit a question on the webcast. I will now hand over to Stefan Borgas to begin the call. Please go ahead.
Stefan Borgas, CEO, RHI Magnesita: Thank you very much, Seb. Good morning, ladies and gentlemen. Thank you for joining RHI Magnesita's 10-month trading update. Ian and I will lead you through what happened during the quarter over the course of the next 15-20 minutes, and then we'll be happy to answer your questions, of course. Before I go into details, let me start with three key messages, really, that perhaps you can think of taking away. Firstly, first message, we delivered the strong recovery that we expected to deliver, but in a still very challenging environment during the second half of this year. We remain fully on track to meet our 2025 school year guidance that we gave to you throughout the first half of this year. Second message, the overall market remains very, very weak.
Therefore, the performance increase that we have now seen in the second half is delivered by our self-help efforts. They are clearly paying off. This is better cost efficiency, good continued pricing discipline, but also progress with the integration of the RESCO acquisition in North America. All of these are boosting our earnings in the second half versus the first half. Third message, we are now quite well positioned for a stronger 2026 compared to the full year of 2025 because we can take this momentum of our self-help measures and a little bit stronger order book into the first half of 2025 and have a clearly better performance there than in the first half of 2025. We take that into 2026. All right, let me go a little bit more into detail now.
RHI Magnesita delivered a marked improvement through the past four months, largely driven by our self-help actions around cost reduction, both in our plans but also in the whole SG&A area. We benefited from some price increases also that came through. I'll get into a little bit more detail later. The adjusted EBITDA year-to-date October reached EUR 136 million. This is a margin of almost 13%, 12.7%. This is a clear step up from the first half. This is also quite a bit higher than usually what we experience in the third quarter because the third quarter usually is the weakest quarter of the year, is the seasonally soft period usually. From a revenue perspective, this is still the case, but the profitability is much better. How does this split between the businesses?
Our steel volumes remain quite subdued, although a little bit improving compared to the first half. The steel volumes can be explained with continued softness, maybe even bigger softness in the Western world, especially because the automotive markets are very weak. That has been offset. The overall steel business has been offset by market share recoveries in India and META that we had lost in the second half of 2024 and at the beginning of 2025 because of pricing discipline at that time. We've been a little bit more price flexible, so we recovered the volumes in these regions. The slight volume recovery in steel is not due to an overall improvement of the markets, but just to this market share effect that we've had in the Middle East, Türkiye, Africa regions, and India.
Our industrial order book has strengthened in the recent months compared to the very, very weak H1. H1 2025 was really extraordinarily weak. We've not experienced this before. We have good visibility, of course, for the rest of the year, for all the industrial project order deliveries, and also into the first half of 2026. Still, our orders for especially the higher margin business in non-ferrous metals and glass projects remain at a very low point. The order volumes in 2025 as a total will be 40% below the average of the last 10 years, ups or downs. The non-ferrous order book has already started to improve somewhat, but in glass, we do not see this improvement at all yet anywhere in the world.
The pricing environment across the world remains challenging, if not very challenging, particularly in the markets with strong overcapacities among refractory producers and our customers' industries as well. These markets are China and the regions that are directly exposed to Chinese export, particularly India, East Asia, and the Middle East. There, the pricing environment is really challenging. We achieved modest price increases in the Americas, in Europe, and a little bit also in India, although by no means to the level that we were targeting. The price increases there are supported by customer confidence in our local-for-local supply model. Here, the trade balances, the trade wars help, but also our four pro contracts are fully service inclusion contracts. They are also supported by multiple sourcing options. Last but not least, by our innovation pipeline that has started to bring new solutions to our customers.
Our robotics solution, especially in flow control applications, have gained good traction this last month. We have, with this introduction of these robotics solutions, strengthened customer partnerships in many regions and differentiate us in the high-tech segments of the market. Recent highlight includes a full tandish robotic system implementation in the U.S., our very first advanced robotics installation in India, and a ladle robot solution at a customer in Germany. This is really happening all over the world. Looking at backward integrations, one of the pillars of RHI Magnesita, margins remain still at historical low, at around 1% contribution to our EBITDA. This is very low. This reflects depressed raw material prices, especially in magnesite-based raw materials. We are taking targeted action to improve this profitability because we can't change pricing as we're price takers in the raw material business.
These targeted improvement actions include the expansion into selected non-refractory markets, which we haven't traditionally looked at before, but also the introduction of new raw material grades that offer a structural cost advantage. Of course, from an operational perspective, switching selected kiln operations to lower-cost energy sources wherever we can do this. These steps that we have decided on our board in the third quarter of this year will progressively strengthen the earnings from backward integration over the next two years, purely out of self-help measures again. The RESCO integration, as another piece of the RHI Magnesita puzzle, continues to progress successfully. Synergies are being delivered in line with our ambitious expectations. The acquisition has significantly strengthened our North American footprint.
Local production now covers just above 65% of US demand, up from 50% before the acquisition, and we expect to exceed 75% by the end of next year, with more potential for a higher local-for-local production percentage even after this. This takes another year because, of course, now we're going into improvements, physical improvements, investments in the plants in North America. This integration supports our strategy of building a more balanced, regionally self-sufficient global supply network with sourcing alternatives for each product category on top of just the local-for-local production. With this, we can leverage our global network and provide resilience to all of our customers against supply chain disruptions. If we take this together, these actions demonstrate that RHI Magnesita can deliver real earnings improvement, even in subdued demand conditions, almost entirely out of self-help actions.
Before handing over to Ian, just leave you with a couple of thoughts on the tariff environment, which has remained very volatile. In North America, we have successfully passed through the increased import tariffs on refractory products to customers, more or less maintaining margins and also supply reliability. Our local-for-local strategy with production now over 65%, as I mentioned, remains a key competitive advantage in seamlessly supplying our U.S. customers, also in mitigating cost and logistical risks. More recently, however, the tariffs introduced on raw materials and finished goods exported from Brazil to the U.S., being higher now than the tariffs from China to the U.S., have created new headwinds for our RHI Magnesita's business.
With these summary comments about the quarter or about the last month since the half year, let me hand over to Ian, who will take you through a couple of the financial metrics and the bridge of our self-help actions in a little bit more detail. Ian. Thank you, Stefan, and good morning, ladies and gentlemen. The contrast between the two halves of this year could not be clearer. The first half was our weakest period since 2017, while the second half is shaping up to be one of our strongest. In the four months to October, we achieved adjusted EBITDA of EUR 136 million, over 40% higher than the first half run rate, with margins improving to 12.7%. This improved performance was driven primarily by cost-saving measures benefiting the steel business, along with modest pricing improvements in certain regions despite the continued weak volumes.
In the fourth quarter, we see a step up in volumes in the industrial segment, supported by the cement season and planned deliveries of higher-margin industrial projects. Overall, the improvement over this period has very largely been achieved through disciplined management actions rather than stronger demand. We remain firmly on track with the bridge that we shared at the interim results, and I'd like to go through each of the key components. We expect to fully deliver the guided €10 million EBITDA improvement in the second half from each of the key self-help measures: €10 million from SG&A cost savings, €10 million from plant closures, €10 million from RESCO synergies. These are all sustainable actions that will have a full year impact in 2026. Despite tough markets, pricing actions are on track and expected to deliver around €25 million in additional second-half earnings.
This is up from the 21 million contracted at the time of our interims. This mainly comes through from North America, from Latin America, from Europe, with a smaller and more recent contribution from India. Steel volumes have shown a modest improvement due to the market share recoveries in India and META on the first half average, reflecting progress towards the previously identified potential 20 million EBITDA uplift in the second half. We see industrial EBITDA improve, helped by the start of the cement season and strong delivery of high-margin projects in the final quarter. We will make good progress towards the 50 million EBITDA uplift potential in the second half, even if we do not reach the full amount this year. The outlook for November and for December is solid, with all major orders secured.
Turning finally to cash flow and to leverage, working capital has risen temporarily to support the stronger order book, but we expect solid cash generation through to year-end, enabling deleveraging to around three times net debt to EBITDA, with a year-end net debt of approximately EUR 1.5 million. Our full-year cash conversion should remain strong at roughly 90%. Our full-year guidance remains unchanged, with adjusted EBITDA of EUR 370-390 million and a margin of 10.5-11%. This is despite the additional headwinds since our first-half update from currency impacts and the U.S. tariffs on imports of finished goods and raw materials from Brazil, each which reduced our second-half EBITDA by over EUR 5 million. With that, I'll now hand you back to Stefan for some closing comments. Thanks, Ian.
To summarize, we've delivered the strong performance over the past four months that we planned for, confirming the effectiveness of our management actions. We expect this momentum from the second half to continue into the first half of 2026, hopefully the full year, supported by all of the self-help programs that we just talked about and the order book that we already have visibility on for the first half of next year, although normal seasonality needs to be considered, so it's not a direct H2 equals H1 performance, of course. While the end markets remain subdued, also into next year, we are confident that RHI Magnesita is well positioned to navigate the current cycle and capture upsides as the conditions will then eventually normalize.
I'd really like to thank all of our employees, colleagues across our RHI Magnesita group around the world for their continued commitment and execution of all of these hundreds or maybe thousands of different actions. Thank you for listening. Ian and I now are open for all of your questions. Please. Thank you. If you would like to ask a question, please press Star 1 on your telephone keypad. If you would like to withdraw your question, please press Star 2. You can also submit your question via the webcast. The first question is from Jonathan Hearn at Barclays. Please go ahead. Hey, guys. Good morning. Just a few questions from me, please. Firstly, Ian, if we could just come back to the profit bridge, but not focus on 2025, but instead focus on FY2026.
Can you just talk us through the main moving parts of that profit bridge, essentially the contribution from the various buckets that we can expect in 2026, please? That was the first one. The second one was just in terms of the backward integration margin. Obviously, you're taking actions there. Could you maybe sort of quantify what you think the benefit of those actions will be to the integration margin? And then thirdly, just looking further ahead, I think you said in your statement that the benefits potentially from the EU cutting tariffs free import quota will come through in maybe late 2026, possibly more likely 2027. Can you just give us a feel for how material you think that potentially could be to you? Those are three questions. Thank you. All right. Let me start from the back, and then for the first one, hand over to Ian.
The EU tariff or the EU protection measures, especially on steel imports, which is a mix between tariffs and quotas, should have a positive effect on the production rate in Europe. That is the purpose of the measure, of course. Therefore, we should see an improved demand from our European customers, positively impacting the production rates in our European plants. Because our European plants are the most expensive one from a fixed cost perspective, we will get an overproportionate operational leverage effect there. To put a number against this, I think, is highly speculative, first from a timing perspective, because we do not know exactly when this will be put in place. As we wrote, we expect this to affect maybe the tail end of next year.
From a volume perspective, it's even more difficult to predict because, of course, the volumes of steel produced in Europe depend not just on these protection measures, but also on the overall demand in Europe as a whole. Really, I don't want to put any numbers here, but it's a volume impact and then an operational leverage impact on top of that because our European plants will be positively affected. As to the backward integration, we haven't quantified this to you guys quite on purpose because we are not quite sure how fast we can implement these measures. Of course, we don't want to overpromise in a short period of time. The overall package has a good double-digit million EBIT improvement, EBITDA improvement potential. We just have to start with these measures now and see how quickly we can improve them, implement them.
They depend a lot on how customers will accept this, on customer acceptance of some new products, which is going to be the bottleneck. They will be implemented during the course of 2026 and 2027. If you would ask me to speculate, I would say we will probably reach about one-third of these benefits in 2026 and the remaining two-thirds in 2027 if we look at the run rate. It is about, yeah, good double-digit million potential. Ian, you want to talk about the moving parts of the first half of 2026? Yeah. Thanks, Stefan. Good morning, Jonathan. We are not seeking to move consensus for 2026, which is just below €410 million. I think that we see a much more normal first-half, second-half split than we have seen in 2025.
The building blocks, clearly, we're going to get the increase from firstly, the annualized benefit of the self-help, all of which is sustainable, the plant measures, the SG&A measures, the RESCO synergies. Plus, we will see the start coming through of the raw material measures. We expect our price improvements to be sustained. We're not expecting big price changes going into 2026. We also should see a small benefit coming through from volume, probably not much more than 1%. Steel demand remains very soft outside of India, but we'll just have this small improvement that we can see on our industrial projects in the second half of this year being sustained, still well below normal. Against these positives, we're going to have the negatives of the annualized impact of currency headwinds.
We'll also have slightly higher variable compensation, and we're seeing continued high SG&A, so high labor inflation impacting SG&A and our plants. Great, guys. Very helpful. Thank you very much for that. Our next question is from Harry Phillips at Peel Hunt. Please go ahead. Excuse me. Good morning, everyone. Again, a couple of questions, please. Just thinking about the market share, regaining a market share in META and India, and just how, I mean, I suppose I can sort of guess it one way how you might have done it, but just how you're doing that. Is it particularly just lowering price to become more competitive? Is it sort of approaching customers in a different way, different terms and conditions, different inventory profiles? That sort of angle would be very helpful.
Secondly, thinking about tariffs more into North America, just in terms of as RESCO becomes or becomes the platform for more local-for-local, the benefits potentially from the tariffs there, and you can see local production already ticking along sort of reasonably higher, well, much higher than a year ago. Also, the flip and the headwind presented by Brazil imports into North America and how those two might balance out, please. Okay. The market share gains, really, this is a bouquet of different effects. The first one is simply the recovery of the market share that we lost in the second half of last year in India because we were very, very disciplined on pricing and did not release any pricing at that time. Mostly in the commodity segments, this happened, and now we regained this back by accepting somewhat lower margins.
We could get a bit of a price concession, but not very much, especially not on the commodity. That is one aspect. In India, the contract periods usually go from July to June. As you negotiate these contracts after the end of the fiscal year in India in the second quarter of the calendar year, you implement the new contracts as of July. That is why now these volumes are in our P&L in the second half of this year, more in the commodity parts of the market. We have changed the game at some of our customers in India by being much more aggressive in pushing a full solution concept.
The Indian market was not very or still is not very much used to this concept, but we are starting to make very good progress, especially in many of the new steel plants that are coming on stream now. One of the frustrations is that whenever you start with a new steel plant, you suffer under potential delays that the startup has, and we see this again in the second half of this year. Some of these volumes simply moved into next year because the plants start up a couple of months later, and that makes a difference, of course. Here, we can implement more of a full solution concept with a much higher service level and a much higher robotics and automation level. That is the second piece of the bucket.
In the Middle East, Türkiye, and Africa, the effect is much more on the recovery of some lumpy ordering in some of the countries. Some of the countries in this region buy through letter of credit tools, and sometimes these letter of credits do not get approved for a while. You have very large orders covering three-quarters of the demand of a full year in one or two months because the letter of credit is then available. That is a little bit what happened here. There, it is more of a seasonality effect. The frustration in the Middle East, in the Middle East region, especially in the Middle East, is the fact that the region is very much flooded by Chinese imports, and it suffers under commoditization. Here, we have some more work to do in order to introduce solutions as well.
This gives you a bit of granularity, I hope. Turning to North America, the benefits of the tariffs are there. They're in the P&L. We are quite happy with the profitability of the business in North America. It's not super stellar, but it's very satisfying still. Of course, some of these pricing benefits get eaten up by a higher cost of production in the U.S. That is why the measures are in place, right? Because producing in the U.S., in U.S. plants, is more expensive than producing in other parts of the world and then importing to the U.S. That is why it only happens now that the tariffs are there. From that perspective, the tariffs do exactly what they're intended to do. They bring production back. The recent duties against Brazil, of course, eat up some of this benefit for us again. Why?
Because, of course, the U.S. is not self-reliant in especially raw materials. If we bring, we have traditionally brought raw materials from Brazil to the U.S., and we can't do this anymore. We need to now import raw materials from China into the U.S. because simply the tariffs on Brazil make it uncompetitive to bring it from Brazil. We have shifted the supply chain just like everyone else also in the market. Of course, this weighs a little bit on our margins because we don't have the benefit in Brazil anymore on the sale of these raw materials. This is the biggest effect that we have here. That could change if the duty regime against Brazil changes. Of course, we're following this as excitedly as you are. There is a smaller effect in the U.S. as well that goes against us.
Ian has indicated this is the weakness of the US dollar that, of course, eats up some of the price increases that we've been able to put through. Fantastic. If I could just one final question. In terms of the sort of new thinking and ideas around backward integration, would that mean you would look to sell more sort of externally than you traditionally have done to sort of crystallize and maximize the opportunity in introducing these new sort of grades and other factors? Yeah. There are two components here. One is to sell more of the raw materials externally, but in non-refractory markets. These are chemical markets that, where we especially coming out of Brazil, the high quality of the minerals that we have are quite well suited to some chemical markets that we have not simply given enough attention to in the past.
That is what we have that we are in the process of changing now. Those chemical markets require a relatively long approval time period. The effect of that piece is probably only going to be there in 2027 and not in 2026 because we are going to spend 2026 in approving our product in these applications. We have a very competitive offering here compared to what is on the market today. The second piece, which is a little bit the bigger piece, is the optimization of the product portfolio for refractories. With the certain reduction of magnesium oxide content, we can optimize the mining outputs, have a higher percentage of the ore that we bring from the mine convert into raw materials, and therefore get a better dilution of the fixed cost and then the overall cost improvement. This is under full implementation already now.
It requires some formulation adjustments in the downstream refractories, mostly internal, actually. Of course, we need to make trials at customers and put it into place. Here, we will already see benefits in the second half of 2026. Those are the two big blocks. Excellent. Many thanks indeed. Next question, please. Our next question is from Vanessa Jeffries with Jefferies. Please go ahead. Morning, guys. Congratulations on the great update. Just one more on the market share regains. Would you be able to quantify how much market share there is left to regain in India and if you're still at the kind of 30% market share level? Obviously, still integrating RESCO, but wondering if there's more to do on the M&A front. Sorry. Go on. Yeah. On RESCO, on India, we have recovered this market share now.
I think with the new, a little bit more confident experience that we have now on the solutions and on the robotics, there could be interesting opportunity. Maybe not, but it's for sure over the next couple of years because we have learned now through the pressure of the last year and a half, two years, that if we play the commodity game, then we go into this downward spiral of the market. Unfortunately, many competitors have overbuilt capacities in India in the last two years, and now the refractory capacity is higher than it actually should be for the size of the market. That is accelerated by Chinese imports at the same time, which are still competitive and still possible. Decommoditizing this now with this new solution was a good experience of the last six, nine months.
I think with this approach, we will be able to continue to improve our market share somewhat in these, especially with the more sophisticated customers. Yes, we are back to the roughly 30% market share now that we had in India before. Okay. I am just wondering if there is anything interesting out there on the M&A. Yeah. Many things interesting out there in the M&A. As you know, we are always taking a look at this. We have a good focus on deleveraging at the moment, however. This is the primary focus at this moment in time. Opportunities come along, our M&A team is very focused, actually, also on some smaller divestitures that we have the opportunity to do now on non-core parts of the business. Always exploring. Okay. Thank you.
As a reminder, for any further questions, please press star one on your telephone keypad. We have no further questions on the call at this time, so I'll hand back to Stefan for closing comments. Thank you very much for dialing in this morning. Let me repeat our key messages for the last four months. First, we delivered the recovery that we expected to deliver, and we remained fully on track for our 2025 guidance. Second, the overall market demand remains very, very weak. Therefore, improvements come almost exclusively from self-help measures, cost efficiency improvement, some pricing differentiation, especially in relation to solutions and progress with the RESCO integration. Third, we are well positioned for a stronger 2026 with a good momentum now coming mostly from these self-help measures and a solid, more balanced order book for 2026.
Thank you very much for listening this morning, and we're looking forward for interaction with all of you during the course of the next days and weeks. Goodbye from Vienna. This concludes today's conference call. Thank you very much for joining. You may now disconnect your line.
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