The
global leader
in refractories
Annual Report 2017
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CONTENTS
Strategic Report
We are RHI Magnesita
Key Operating and
Financial Highlights
RHI Magnesita at a Glance
Chairman and CEO’s Letter
Business Model
Our Value Chain Explained
Our Strategic Priorities
Divisional Performance
Financial Review
Risk Management and Internal
Control System
Corporate Social Responsibility
Business Ethics, Values and
Human Rights
People, Culture and Communities
Environment and Energy
Innovation, Research
and Development
01
02
04
06
08
10
12
14
16
22
26
30
32
40
46
Governance
Board of Directors
Executive Management Team
Corporate Governance
Audit Committee Report
Remuneration Committee Report
Directors’ Remuneration Policy
Annual Report on Remuneration
Financial Statements
Independent Auditors’ Report
Consolidated Statement
of Financial Position
Consolidated Statement
of Profit and Loss
Consolidated Statement
of Comprehensive Income
Consolidated Statement
of Cash Flows
Consolidated Statement
of Changes in Equity
Notes to the Consolidated
Financial Statements 2017
52
56
58
68
70
73
82
94
102
103
104
105
106
108
Other information
Global Reporting Initiative G4 Index 196
IBC
Shareholder Information
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R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
1
We are
RHI Magnesita
The driving force
RHI Magnesita is the global leader in
refractories. We have the largest number
of locations around the world and the most
innovative, reliable products and solutions.
Our mission
At RHI Magnesita, innovation takes place
in extreme conditions. It is the materials,
robotics, sensors, Big Data and machine
learning that is transforming industry
across the world. It is also the everyday
problem-solving of all of our people,
making processes quicker, products more
cost-effective, and solutions and services
more beneficial for our customers.
2
S T R AT E G I C R E P O R T
R H I M A G N E S I TA
Key Operating and
Financial Highlights
COMPELLING INVESTMENT CASE
Solid strategy and
competitive advantages
Best market position with 15% market
share, clear leadership in Americas,
Europe and Middle East with broadest
value-added solution offering
Opportunity to develop and
leverage technology across
regions and portfolio
Highest level of vertical integration
in the industry with unique mineral
sources and 50%+ self-sufficiency
in all raw materials
Rapid deleveraging and
strong cash conversion
Strong cash flows from operating
business supported by synergies
and organic growth opportunities
Cash usage priority on deleveraging
within two years to reach investment
grade rating
Significant
synergy potential
At least €70 million EBITA synergies
in SG&A, procurement and
production network
Additional “below the line”
opportunities in working capital,
capex, financing and tax under
intensive evolution
ADJUSTED PRO-FORMA RESULTS
€2,677m
Revenue
€304m
Adjusted pro-forma EBITA
1.9x
Net Debt/Adjusted pro-forma
EBITDA
11.4%
Adjusted pro-forma EBITA
margin
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
3
4
S T R AT E G I C R E P O R T
R H I M A G N E S I TA
RHI Magnesita
at a Glance
Refractory products are
used in all the world’s
high-temperature
industrial processes.
Without them, the steel, cement, lime,
non-ferrous metals, glass, energy,
environment and chemical industries
couldn’t exist. As the most highly vertically
integrated business in our sector, our talented
team of more than 14,000 employees
across 40 countries control the shipment of
refractory products more than 180 countries
worldwide. Our annual investment of
€37 million in research makes us the
industry’s largest dedicated research team,
pushing the boundaries of what is possible.
2 4 . 0 % revenue
North
America
Adjusted pro-forma Revenue1
by industry (%)
45.8
25.6
28.4
25.9
74.4
Steel
Industrial
Cement/Lime
Other Process Industries
Non-ferrous Metals
1 Revenue split considers only refractory
segments and does not take into account the
effect of any divestitures.
INDUSTRIAL
Our Industrial Division provides
refractory solutions for the
cement, lime, non-ferrous metals
and glass industries as well as
the environment, energy and
chemicals sectors, providing a
wide range of services required
by the complex demands of
its customers.
STEEL
Our Steel Division provides its
customers with a broad range
of customised solutions and
comprehensive packages for
steel production consisting of
refractories (basic and non-basic
mixes and bricks), machinery,
flow control systems, and
Full Line Service solutions.
South
America
17.9% reve n u e
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
5
2 3 . 2 % revenue
Europe
Middle East/
Africa
15.1% rev e n u
e
1 9 . 9 % revenue
Asia-
Pacific
17.9% reve n u e
Providing everything, for everyone, everywhere
€2.7bn
2017 adjusted
pro-forma revenue
180
Countries shipped
worldwide
€37m 13
Annual investment
in research
Raw material sites
in four continents
>14,000
Employees spread more
than 40 countries
35
Main production sites
across 16 countries
10,000
Customers served
globally
6
S T R AT E G I C R E P O R T
R H I M A G N E S I TA
Chairman and
CEO’s Letter
HERBERT CORDT
CHAIRMAN
STEFAN BORGAS
CHIEF EXECUTIVE OFFICER
Without any doubt 2017 is what one would call
a truly extraordinary business year that will go
down in the Company history as the year when
we successfully implemented and completed
the merger of RHI and Magnesita.
In many ways, this was a transformative
effort. The market opening at the London
Stock Exchange at the end of October
2017 was an extraordinary milestone and
served as a symbolic act to mark the
success of our listing in the Premium
Segment on the London Stock Exchange
as well as the rise of RHI Magnesita to the
top of the refractory industry. The merger
reshaped the sector’s framework as
RHI Magnesita is by far the global market
leader and thus the new driving force of
the industry.
Despite the extensive efforts to make this
cross-border merger transaction possible,
RHI Magnesita recorded a solid operating
performance in 2017 which is attributable
to the Company’s efficient operations and
the macroeconomic tailwind. Customer
industries grew and global steel
production outside China increased by
4%; the combined revenue is up by 11%1.
This positive development resulted in
some plants running at high capacity.
Though, the continued shortage of raw
materials from China caused higher
material procurement prices and had a
significant impact on our cost structure,
as price increases could not be fully
passed on to customers yet. Supplying
our customers continuously throughout
this period continues to be our number
one focus.
1
Adjusted pro-forma revenue
RHI Magnesita was confronted with a
series of one-off effects, which reduced
EBITA: the expenses related to the
merger, currency effects, as well as
the EU-induced regulatory remedies.
The operating EBITA excluding one-offs
was 39% higher compared to 2016.
Our strategy
RHI Magnesita’s strategy is based on
the combination of both companies’
strengths to capture synergies. There
are many complementary aspects:
RHI Magnesita’s strategic competitive
advantages are built on an enlarged
portfolio of products and services, higher
customer proximity due to a broader
geographical footprint, technology
leadership as well as a higher raw
material integration that grants supply
certainty, consistent high quality and cost
competitiveness. The combination will
capture synergies and drive efficiencies;
the synergy effects of roughly €70 million
per year will be fully implemented in
2019 but will lead to immediate EBITDA
improvements. The synergies are also
essential to deleverage our balance
sheet and allow for future investments.
The combination is associated with a
series of challenges and opportunities
– not only at the strategic and economic
levels, but also for our employees.
The merger now offers the unique
opportunity to create a new, common
corporate culture and creates many
career opportunities.
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
7
It is not just about being
the biggest and strongest.
To us, it is about using our
competitive advantages to
set the pace of innovation
and progress in our
industry and deliver the
best for our customers.
Our culture
Immediately after the completion of the
transaction, management presented the
new brand, which aims to have an effect
both internally and externally: global
leadership and innovation are the
messages directed at all external and
internal stakeholders. Together with
customer focus and performance
accountability these values build the
foundation for our four cultural themes
and help us navigate and achieve our
ambitions as one global Company.
Our structure
In the course of the merger, the corporate
structure was changed. As a result, the
Company’s shares have been listed in
the Premium Segment of the London
Stock Exchange since 27 October 2017.
As of 18 December 2017, the share were
admitted to the FTSE 250 stock index.
This major step was taken because the
share’s visibility is significantly better
in the London marketplace and the
financial community has an in-depth
understanding of the refractory industry.
Austrian retail investors can continue to
trade RHI Magnesita’s shares on the
global market segment of the Vienna
Stock Exchange.
RHI Magnesita’s Place of Effective
Management (PoEM) and its
headquarters are in Vienna. The
Company follows the UK and Dutch
Corporate Governance Code.
The Annual General Meeting will be held
on 7 June 2018.
In summary
On behalf of the Board of Directors
and the Executive Management Team,
we would like to take the opportunity
of expressing our gratitude to our
shareholders, suppliers and customers for
the confidence and trust they continued
to show in our Company, our products
and services and our staff throughout
this exciting year. We thank all employees
for their contribution and efforts in 2017,
making this extraordinarily challenging
year a success by managing both the
merger and the operating business well.
2018 will be an important year for RHI
Magnesita. The Board is looking forward
to the coming year with confidence and
are working on meeting future challenges
together with the management team.
The claim “The driving force of
the refractory industry” reflects
RHI Magnesita’s leadership in every
aspect of the refractory business. It is
not just about being the biggest and
strongest. To us, it’s about using our
competitive advantages to set the pace
of innovation and progress in our industry
and deliver the best for our customers.
Together we are convinced that we can
do more than meet the future – we can
shape it!
HERBERT CORDT
CHAIRMAN
STEFAN BORGAS
CEO
8
S T R AT E G I C R E P O R T
R H I M A G N E S I TA
Business
Model
As the leading company in the refractory
industry, RHI Magnesita has developed
a resilient business model to create value
sustainably for all of our stakeholders.
We have the resources
...and the strategy
1
2
3
4
5
Financial strength
Our focus on working capital management
and cash generation remains strong, we
continue to be well financed with high
liquidity and a robust balance sheet.
Production facilities and raw material sites
With a vertically integrated value chain,
RHI Magnesita serves more than 10,000
customers in a majority of countries around
the world.
Know-how and expertise
Our technical engineers across 90
countries, working on-site with clients
to provide custom-made solutions.
Skilled and motivated people
The employees’ comprehensive
knowledge, their competence, ideas
and their high commitment and motivation
continue to drive our success.
Strong relationships with
all our stakeholders
We operate daily with integrity, honesty,
reliability as well as a respectful contact
with employees and business partners.
Markets
Worldwide presence with strong
local organisations and solid market
positions in most major markets.
Portfolio
Comprehensive refractory product
portfolio including basic, non-basic,
functional products and services in
high-performance segments.
Technology
Top solution provider in the refractory
industry with an extensive portfolio
based on innovative technologies
and digitalisation.
Competitiveness
Cost competitive and safe production
network supported by lowest cost
G&A services.
People
Hire, retain and motivate talent and
nurture a meritocratic, performance-
driven, client-focused friendly culture.
Read more on page 13
Our cultural
themes
Act customer-focused
and innovatively
We put the customer at the
centre of everything we are doing.
We are innovating in every aspect
of our business.
Have open decision-making
in a respectful environment
Allowing us to make fast decisions
at all business levels by being
transparent in our dissemination
against the reasons why.
Operate cross-functionally,
collaboratively and pragmatically
We base our decisions on one
company, one P&L level. We strive
to keep it simple and fast paced.
Are performance-driven
and accountable
Our every action has a result-driven
methodology, striving to be ambitious
and entrepreneurial; with a risk to
reward mindset.
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
9
...to add value through a full
suite of products and services
...to create benefits for all
our stakeholders
o u s
u
n ti n
o
C
r e s e arch and develop
m
e
nt
Recycling
and disposal
Raw materials
mining and
management
Our
customers
Customer
application
and services
Production
(shaping
and firing)
Packaging
and logistics
throughout the c y c l e
What differentiates us...
We drive innovation in every
aspect of our business, from
materials, robotics and Big Data,
to bespoke new business models
and efficient new processes, under
extreme conditions. With our own
on-site technical experts able
to consult, develop and deliver
innovative solutions directly to
clients. Our unique ability to cover
every step of the way along the
value chain, allows RHI Magnesita
a significant competitive
advantage – enabling us to build
a global refractory leader with a
distinctive customer proposition
based on technology and cost
competitiveness to ensure
manufacturing of essential
materials for the world.
More of our value chain
on pages 10 and 11
Our investors
Our clear objective is to create the maximum
shareholder value. This is supported by a solid
strategy based on our competitive advantage
around a strong global market share, opportunities
to develop and leveraging of technologies.
Furthermore, we are well on track with integration
and deleveraging.
Our customers
Our products account for only around 1% to 5% of
our customers’ production costs. But their reliability
– from supply to the product performance – is
absolutely crucial. As we are the most vertically
integrated company in the industry, we are able
to support the success of our customers.
Our people
Our people are the most important resource we
have. We are creating numerous opportunities for
our employees to develop including educational
tracks, international development paths and
special initiatives for the future management of
our Company. 100% safety of our employees is
one of the most important operative targets for
RHI Magnesita.
Our environment
We have taken the lead in applying technology
to make refractory products efficiently without
harming people or the environment. Through
digitisation, robotisation, automation and new
materials we continue to make our factories cleaner
and greener. To ensure this, we have established
an integrated management system to ensure we
are consistently meeting those high standards.
Our communities
We are committed to responsible management
through compliance of pertaining laws, striving
for ethically sound practice. We are able to look
back on centuries-old history in some of our local
operations and are fully aware of the responsibility
we therefore have for the local communities.
1 0
S T R AT E G I C R E P O R T
R H I M A G N E S I TA
Our Value
Chain Explained
Mining
Crushing
Firing in the rotary kiln 1,800°C
Mixing
Packaging
Press max. 3,200t
Heat treatment max 350°C
Quality assurance
Packaging
CONTINUOUS RESEARCH & DEVELOPMENT THROUGHOUT THE CYCLE
UNSHAPED REFRACTORY
PRODUCTS
CUSTOMERS: STEEL
INDUSTRY EXAMPLE
UNFIRED REFRACTORY
PRODUCTS
Installation in
a LD converter
Use: pig iron is
turned into steel
LOGISTICS
FIRED REFRACTORY
PRODUCTS
Removal
Press max. 3,200t
Firing in the tunnel kiln max 1,800°C for three days
Quality assurance
Packaging
Recycling
Disposal
As the leading company in the refractory
industry, RHI Magnesita has developed
a resilient business model to create value
sustainably for all of our stakeholders.
RHI Magnesita covers all steps along
the entire value chain. This enables
RHI Magnesita to offer its customers
high-quality refractory products based
on research and development, its own raw
materials and technological product and
process know-how. The core processes
along the value chain include mining,
crushing, mixing, firing, packaging,
transportation, customer application,
recycling and disposal according to legal
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
1 1
CONTINUOUS RESEARCH & DEVELOPMENT THROUGHOUT THE CYCLE
UNSHAPED REFRACTORY
PRODUCTS
CUSTOMERS: STEEL
INDUSTRY EXAMPLE
Mining
Crushing
Firing in the rotary kiln 1,800°C
Mixing
Packaging
Press max. 3,200t
Heat treatment max 350°C
Quality assurance
Packaging
UNFIRED REFRACTORY
PRODUCTS
Installation in
a LD converter
Use: pig iron is
turned into steel
LOGISTICS
FIRED REFRACTORY
PRODUCTS
Removal
Press max. 3,200t
Firing in the tunnel kiln max 1,800°C for three days
Quality assurance
Packaging
Recycling
Disposal
requirements. One of the basic materials
for refractory products is magnesite, a
mineral that RHI Magnesita mines in both
underground and surface mines. The
magnesite ore is crushed and fired at
1,800°C in special kilns. In the burning
process, the CO2 contained in the
magnesite is released; moreover, the
material’s density is increased. Then the
bricks and mixes are either mixed with
binding agents, packaged and shipped
as repair materials, or pressed in different
sizes and shapes with a pressure of up
to 3,200 tonnes. Depending on the
application, the refractory bricks are then
either subjected to heat treatment at up
to 350°C or fired at up to 1,800°C in
tunnel kilns for three days. While so-
called unfired products are primarily used
in the steel industry, the main applications
of fired products are in the cement,
non-ferrous metals, process and mineral
industries. If a service contract has been
concluded, the refractory products are
also installed by experienced employees
of the RHI Magnesita Group. After their
use in the customer’s production process,
worn refractory linings are broken out
and, if possible, reused as secondary raw
materials. RHI Magnesita thus stands for the
entire cycle from raw material production
to recycling of finished products.
1 2
S T R AT E G I C R E P O R T
R H I M A G N E S I TA
Our Strategic
Priorities
Enabling enhanced strategic growth by joining forces
in the course of 2017, we started the creation of the
globally leading refractory producer RHI Magnesita.
Strategic rationale of the merger
The merger of RHI and Magnesita
can clearly be seen as a strategic
combination that captures synergies,
drives efficiencies by establishing a
leading market position, strengthening
our global geographic cluster, leveraging
technology capabilities and retaining
raw material integration.
The strategic rationale for the
combination was to complement one
another’s footprints and become a more
competitive, vertically integrated global
provider of products, systems and
services in the refractory industry. As
a result of our extended geographical
reach and product and services portfolio,
RHI Magnesita has enhanced access to
the core markets, customer base and
geographical regions. Upon completion
of the combination, RHI Magnesita has
become the leading player in the global
refractory market. A market that is
otherwise characterised by high
fragmentation and intense competition,
with more than 2,000 competitors
worldwide; though we see clear
indications that the market will
consolidate strongly, especially driven
by efforts of the Chinese authorities
in the mid to long term.
Due to the greater scale, enhanced
market position and cost synergies of the
merger, RHI Magnesita is well positioned
to compete and grow further in this
consolidating industry. RHI Magnesita’s
defined strategy is to be seen in this light
and focuses on capturing growth options
while delivering identified synergies and
pivots around our vision to become the
driving force of the refractory industry.
This has been comprehensively
developed around five main topics,
which we are tackling in the years to
come: markets, portfolio, technology,
competitiveness and people. These pillars
give us the framework to structurally
pursue growth ambitions while ensuring
success in the integration and not losing
sight of our technological long-term goals.
Link to remuneration
To ensure the full focus of our top
management, strategic priorities for
2018 and beyond have been allocated
to respective managers and will be a core
base for the long-term remuneration
system of RHI Magnesita.
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
1 3
Markets
Worldwide lead with strong
local organisations and
significant market positions
including China
Our focus for the year ahead
We want to achieve a clear market leader
position in all major basic markets. Taking
into account the differing market trends
and our position in the respective regions,
a selective market approach needs to be
derived. In developed markets in North
America, Europe and South America,
we will focus on ensuring full integration
of the companies and capitalizing
all synergy potentials. In developing
countries like China and India, our
strategic approach is more focused
on enhancing our local market positions
by strengthening the local teams and
our footprint.
Portfolio
Comprehensive refractory
product portfolio including
basic, non-basic, functional
products and services in
high-performance segments
Our focus for the year ahead
RHI Magnesita has already developed a
leading market position in basic products
especially in the lining for the steel
industry. It is our clear goal, to further
extend our current market position in
high end/quality application through
product portfolio extensions especially
in the non-basic and functional
product segments.
RHI Magnesita, with its high vertical
integration, was able to rely more on
stable supply of raw materials in the
past year. Though we have understood
the importance of recycling refractory
material, not only for economic but more
importantly for environmental reasons.
Therefore, we will put an enhanced
focus on this topic in the coming years.
Technology
Top solution provider in the
refractory industry with an
extensive portfolio based
on innovative technologies
and digitalisation
Our focus for the year ahead
RHI Magnesita has always attached great
importance to research and development.
The innovative power is based on
decades of hard work and driving edge
technological research. RHI Magnesita’s
global research team consists of 251
employees, of which one third have
Master’s and PHDs in refractories or similar
topics, working out of two research hubs
and two centres globally. Additionally,
RHI Magnesita’s technical marketing
staff of around 400 employees services
our customers worldwide.
We will continue investing in R&D to
create products that have a distinct
competitive advantage by cost or by
product performance. Furthermore,
we will deepen our knowledge about
our customers’ processes in order to
stay ahead in the marketplace.
Competitiveness
Cost competitive and safe
production and sales network
supported by lowest cost
G&A services
Our focus for the year ahead
The market environment of the last years
was characterised by structural excess
capacities in many customer industries
and the aggressive export strategy of
some Chinese producers. We expect this
to continue but on a lower level. Though
we believe that the high pressure on the
market prices and on the profitability of
manufacturers, and subsequently also
on suppliers, is about to stay.
Therefore, competitiveness is the backbone
of RHI Magnesita’s future success. This does
not only take into account achieving the
derived synergies but also to set up and
ensure cost-efficiency along the whole
value chain. This remains a must in the
prevailing market environment. Therefore,
we have started various projects on the top
management level to ensure the optimal set
up of our plants and our global supply chain.
People
Hire, retain and motivate
talent and nurture a
meritocratic, performance-
driven, client-focused and
friendly culture
Our focus for the year ahead
Our employees are the single most
important success factor and the reason
for the long and proud history of our
Company. The merger of RHI and
Magnesita has created a truly global
player and this we need to ensure at
all levels of our Company. Therefore,
we are developing ways to encourage
international careers, enhancing
geographical, gender and functional
diversity and are generally establishing
a culture of trust and openness. We
believe in our young talent and have
built a meritocratic environment in
which they can nurture.
1 4
1 4
S T R AT E G I C R E P O R T
S T R AT E G I C R E P O R T
R H I M A G N E S I TA
R H I M A G N E S I TA
Divisional
Performance
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
1 5
Steel
Division
With its Steel Division, RHI Magnesita provides
its customers with a broad range of customised
solutions and comprehensive packages for steel
production consisting of refractories (basic and
non-basic mixes and bricks), machinery, flow
control systems, and Full Line Service solutions.
Sales to the Steel Division accounted for
67.3% of the Company’s total revenue
in 2017, compared to 64.9% in 2016.
Revenue amounted to €1,308.8 million
in 2017, up by 22.2% when compared to
2016. This improvement was largely due
to the strong pick-up in steel production
in 2017, in addition to the two months
of Magnesita’s sales that started to
be consolidated in November 2017.
As a result, gross profit in 2017 stood
at €302.7 million, representing 23.1%
of the Steel Division’s sales 290 bps
higher than 2016.
According to the World Steel Association,
steel output in 2017 reached 1.69 billion
tonnes, up 5.3% from 2016. In Europe,
the improvement of the underlying
market was the main driver for RHI
Magnesita’s sales performance
in the region during the year.
A combination of antidumping measures,
economic growth and robust exports
boosted the performance of sectors using
steel. Steel output in EU increased by
4.1 % compared with 2016, with the
strongest growth recorded in Austria,
France, Germany, Italy, Poland and Spain.
In North America (excl. Mexico), steel
output increased by 4.6% year-on-year.
After a few years of decline, the US steel
industry recovered on the back of higher
internal demand, stronger economic
activity and supported by the trade cases
enacted in 2016. Steel output in the
US posted a 4% increase year-on-year,
despite higher imports, which continue
to impact the local industry. Capacity
utilisation improved to 75% in 2017
from 70% in 2016. Sales in the region
outperformed the market, as key growth
initiatives came into fruition, with two
new EAF plants starting production
during the year.
Higher deliveries in Latin America
were driven by the 7.7% surge in steel
production year-on-year, with Brazil
(+9.9%), Mexico (+6.3%) and Argentina
(+12.1%) posting strong performance.
Production in Brazil was driven by the
positive momentum for flats – led by the
auto sector demand – and exports, led
mainly by the ramp-up of CSP. Likewise,
the expansion in Mexico was boosted
by the combination of higher internal
demand, which grew by 4.4% year-on-
year, and exports, which jumped 15.4%.
In Argentina, the positive performance
was driven by higher demand and
supported by the renaissance of public
works and infrastructure projects.
Steel production in the CIS remained
virtually flat year-on-year. Lower
production in Ukraine was offset by
higher output in Russia and Moldova.
Business in Russia, the most important
market in the region, recorded mid
single-digit growth, with higher deliveries
to EAF, ladle and tundish applications.
Moreover, market share gains in flow
control contributed to sales growth
in the region.
Performance in Africa was slightly
positive. The Egyptian market reacted
positively to the implementation of import
duties on billets from several countries,
in addition to the stronger local demand.
In South Africa, steel production was
adversely affected by higher imports from
China, but rebounded in the second half
as antidumping and import duties led
refractory consumption to return to
normal levels.
The market environment in Asia-Pacific
was dominated by China and its effect
on all steel-producing countries, as it
remains a major exporter to the region.
In 2017, several countries implemented
antidumping measures on steel products
from China. Initiatives by the Chinese
government to cut capacity, improve
product quality, rationalise and
modernise the local industry led to lower
Chinese exports and higher steel prices.
Countries like Thailand, the Philippines
and Malaysia were among the biggest
beneficiaries of such developments, with
steel output increasing significantly over
2016. Concurrently, Vietnam has become
one of the largest steel producers in the
region after the ramp-up of Formosa
Ha Tinh Steel Corporation during 2017.
Finally, steel output in India recorded
a 6.2% increase over 2016. Sales in
Asia-Pacific recorded double-digit
growth in 2017, with positive performance
across the product spectrum.
1 6
1 6
S T R AT E G I C R E P O R T
S T R AT E G I C R E P O R T
R H I M A G N E S I TA
R H I M A G N E S I TA
Divisional
Performance
Industrial
Division
The Industrial Division provides refractory
solutions for the cement, lime, non-ferrous
metals and glass industries as well as the
environment, energy and chemicals sectors.
RHI Magnesita supplies its Industrial
Division customers with high-grade
refractory systems. Through the
continuous expansion of its technological
capabilities and problem-solving
expertise, RHI Magnesita can provide a
wide range of services required by the
complex demands of its customers.
Demand for Cement/Lime is closely
linked to the construction industry.
Production of, and demand for, non-
ferrous metals are closely associated
with the market price of such non-ferrous
metals, including nickel, zinc, copper,
aluminium, tin and lead. Demand for
glass is also linked to the construction
industry as well as automobile industry. In
the environmental, energy and chemicals
business, demand is closely linked to
the development of the oil price, which
is the main driver for new projects.
Sales to this Division accounted for
29.7% of the Company’s total revenue,
compared to 32.6% in 2016. Revenue
from sales to the Industrial Division
amounted to €577.6 million in 2017,
up 7.2% compared to 2016. This
improvement was largely explained
by the positive performance of sales
to the cement segment, in addition
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
1 7
to the two months of Magnesita’s sales that
started to be consolidated in November
2017. Gross profit for 2017 amounted
to €130.2 million, representing 22.5%
of the Industrial Division sales.
In comparison to 2016, gross
margin was 70 bps lower in 2017.
Cement/Lime
Revenue contribution of the cement
business increased from 35.2% of the
Industrial Division sales in 2016 to 38.8%
in 2017, and as a percentage of the
Company’s total revenue, represented
11.7% in 2017 (2016: 11.5% in 2016).
Sales to cement customers amounted
to €226.8 million in 2017, up 19.8%
from the €189.3 million obtained in
2016. Such improvement was driven by
a significantly better market environment
in 2017, especially in the second half
of the year. The raw material crisis in
China also influenced the demand for
refractories as customers anticipated
orders to secure supply.
Regarding the market environment
in 2017, demand for cement in China
continued to rise in 2017 with the
development of construction projects.
China is by far the largest cement
producer in the world and the largest
RHI Magnesita market for cement
products. Nevertheless, the Chinese
government has recently prohibited
capacity expansion in 2018 with the
objective to eliminate inefficient capacity
and replace it with more modern and
environmentally friendly facilities.
In India, the second largest cement
producer worldwide, demand declined
year-on-year, influenced by lower
investments in infrastructure and housing
projects. Sales in the region remained
nearly stable over 2016, with new
contracts offsetting the weaker
underlying demand.
In Europe, cement production performed
positively after several years of constant
decline. In North America, the year was
also very positive for the cement industry,
with higher demand and consequently
higher capacity utilization. RHI Magnesita
sales exceeded market growth, buoyed
by a greenfield project in the region.
Lower activity in Latin America drove
weaker performance of the repair
business in the region. Demand in Brazil,
which suffered massive declines in the
previous years, has apparently stabilised,
despite still being at low levels.
customers in China was slightly weaker
in 2017. On the other hand, higher sales
were recorded to the Chinese copper
and nickel industries. A positive trend
continued in Africa with capacity
expansion planned or already in
development. The highlight in the region
was the supply for a new plant in Algeria,
in addition to several repair orders in
Algeria, Libya, Nigeria and South Africa,
which also contributed to the positive
performance in the region. RHI Magnesita
also supplied to large relining projects
in ferronickel in New Caledonia and for
a ferrochrome Kazakh smelter.
Non-ferrous metals
Revenue contribution of the non-ferrous
business was slightly lower in 2017, from
27.2% of the Industrial Division sales in
2016 to 25.3% in 2017. As a percentage
of the Company’s total revenue, this
segment represented 7.6% in 2017
(2016: 8.9% in 2016). Sales to non-
ferrous customers remained stable
in 2017, at €147.7 million, compared
to €146.5 million in 2016.
Other process industries
Other process industries are comprised
mostly of glass, EEC (environment,
energy and chemicals) and mineral
industries. In 2017, this segment
accounted for 35.9% of the Industrial
Division sales (2016: 37.6%) and
10.8% of the Company’s total revenue
(2016: 12.3%). Revenue in 2017 amounted
to €209.8 million, up by 3.5% over the
€202.7 million recorded in 2016.
Despite recovering metal prices in 2017,
there were virtually no greenfield projects
in most of the non-ferrous segments in
the year, consequently, reducing most of
the business to standard repairs with very
few major new relining activities. Nickel,
which had recovered since the mid-2016,
lost ground in the first half of 2017. Zinc
continued the strong upwards rally to
close the year at the highest level in
five years, while copper only picked
up significantly after the summer. Lead
and aluminium also ended the year at
significantly higher levels compared
to 2016.
The strategic decision to carve out
the fused cast businesses led to higher
profitability in the glass business. This
decision was based on the increasing
price pressure driven by the oversupply
from India and China. Demand of
refractories for the glass industry
improved during the year, especially from
flat glass, as greenfield projects globally
came into operation throughout the year.
For the container glass segment, demand
remained nearly flat year-on-year. Repair
activities started to recover, however, from
more efficient plants in which refractory
life is usually longer.
In 2017, sales to the lead sector were
weaker, especially because of two
important relining projects in Mexico and
the US delivered in 2016. Furthermore,
demand from copper and aluminium
Sales to the EEC segment were flat
compared to 2016, as oil and gas prices
had recovered to a level that could trigger
new investments.
1 8
S T R AT E G I C R E P O R T
R H I M A G N E S I TA
Financial
Review
OCTAVIO LOPES,
CHIEF FINANCIAL OFFICER
Adjusted pro-forma revenue for 2017 was
€2.677 million, an increase of 11% over
the adjusted pro-forma revenue of
€2.409 million achieved in 2016. The
increase reflected sales growth in both
Steel and Industrial Divisions, supported by
a more favourable market environment
compared with 2016.
Adjusted pro-forma results (unaudited)
The reported statutory results consolidate
ten months of results for RHI and two
months of results for RHI Magnesita,
which means that the consolidated
financial statements only include two
months of results of Magnesita Refratários.
As such, in an effort to provide comparable
information for the two-year time period,
the Directors have carefully considered
it appropriate to provide and analyse
adjusted pro-forma results for the
combined Group as if it had always existed.
Given the changes in capital
structure arising from the acquisition of
Magnesita, the historical interest, tax and
dividend charges are not deemed to be
meaningful. As a result, adjusted
pro-forma results have only been
provided down to EBIT.
Adjusted pro-forma results are stated
before the impact of items such as:
divestments, restructuring expenses,
merger-related adjustments and other
non-merger related other income
and expenses, which are generally
non-recurring.
Adjusted pro-forma revenue for 2017
was €2,677.2 million, a 11.1% increase
over the adjusted pro-forma revenue of
€2,409.1 million achieved in 2016. The
increase reflects sales growth in both the
Steel and Industrial Divisions, supported
by strong industrial production globally.
Adjusted pro-forma sales to steel totalled
€1,913.1 million, up by 14.2% over 2016
adjusted pro-forma sales. The robust
performance was largely driven by the
5.3% increase in world steel production
in 2017. According to the World Steel
Association, global steel production
totalled 1.69 billion tonnes, compared
with 1.61 billion tonnes in 2016, with
output expanding in almost all regions,
with steel production increasing
simultaneously in Europe, North America
and South America, after a few years of
production declines. In addition, RHI
Magnesita’s growth initiatives evolved
constructively, especially in the US,
Brazil and India, where deliveries
growth surpassed underlying steel
market growth.
Adjusted pro-forma revenue of the
Industrial Division grew by 2.6% in 2017,
to €658 million, compared to
Adjusted pro-forma Revenue1
by industry (%)
45.8
25.6
28.4
25.9
74.4
Steel
Industrial
Cement/Lime
Other Process Industries
Non-ferrous Metals
1 Revenue split considers only refractory
segments and does not take into account
the effect of any divestitures.
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
1 9
Adjusted pro-forma results
a
b
c
d
e
f
g
a + b + c + d
+ e + f + g
Revenue
COGS
Gross Profit
SG&A
Other Operating Income and
Expenses
EBIT
Amortisation
EBITA
EBITA margin
Depreciation
EBITDA
EBITDA margin
Reported
2017
Results
1,946.1
(1,485.6)
460.5
(292.6)
(124.8)
43.1
(13.6)
56.7
2.9%
(59.9)
116.6
6.0%
Magnesita
Jan-Oct
2017
Prelim.
PPA1 effect
Merger-
related
adjustments
Foreign
exchange
variations2
Disposed
business3
Non-merger
related other
income/
expenses
Adjusted
pro-forma
2017
Adjusted
pro-forma
2016
846.1
(614.0)
232.1
(130.8)
(96.1)
5.2
(4.4)
9.6
1.1%
(29.9)
39.5
4.7%
–
2.2
2.2
(8.2)
–
(6.0)
(8.2)
2.2
–
2.2
–
–
–
(24.4)
(162.3)
(186.7)
–
–
–
–
–
(48.2)
(48.2)
–
(186.7)
(48.2)
–
–
(186.7)
(48.2)
115.1
(98.1)
17.0
(7.3)
–
9.6
(0.1)
9.7
8.5%
(2.0)
11.8
10.2%
–
–
–
–
2,677.2
(1,999.3)
677.9
(399.8)
(10.4)
(10.4)
–
(10.4)
(3.1)
(7.3)
–
278.1
(26.0)
304.1
11.4%
(84.7)
388.8
14.5%
2,409.1
(1,822.1)
587.0
(382.1)
–
204.9
(14.4)
219.3
9.1%
(90.2)
309.5
12.8%
1 Purchase price allocation
2 Foreign exchange variations booked within Other Operating Income/Expenses
3 (i) Divestments related to the merger-control remedies imposed by European Commission of the production sites in Marone, Italy (RHI), Lugones, Spain (RHI) and
Oberhausen, Germany (Magnesita) and fused cast business in San Vito, Italy, and Sherbinska, Russia; and (ii) the suspension of production in Aken, Germany.
€642.1 million in 2016. Growth was led by
the cement segment, especially in the
second half of the year. The raw material
crisis in China also influenced the
demand for refractories, as some
customers anticipated orders to secure
supply. Despite recovering metal prices in
2017, there were virtually no greenfield
projects in the non-ferrous segment in
the year, thus reducing most of the
business to standard repairs with very few
major new relining activities. Demand for
refractories from the glass industry
improved during the year, especially from
flat glass, as some projects came online
during the year. For the container glass
segment, demand remained nearly flat
year-on-year. Finally, sales to the EEC
segment were flat compared to 2016, as
oil and gas prices have not recovered yet
to a level that would trigger substantial
new investments.
Reported Group revenue amounted to
€1,946.1 million, up by 17.9% over 2016 as a
result of growth in both steel and industrial
sales, as explained above, and the
consolidation of Magnesita revenues from
1 November 2017. Reported revenue from
the Steel Division totalled €1,308.8 million
in 2017, whereas the Industrial Division
amounted to €577.6 million.
Adjusted pro-forma EBITA
Adjusted pro-forma EBITA was
€304.1 million, 38.7% above the adjusted
pro-forma obtained in 2016. Adjusted
pro-forma EBITA margin reached 11.4%,
up 230 bps compared to the adjusted
pro-forma margin in 2016. The
improvement was mostly driven by
higher sales with resulting better
fixed cost dilution, in addition to the
Company’s initiatives to improve
efficiency in its operations.
The refractory raw material markets
suffered a dramatic change after the
Chinese government enforced stricter
environmental controls that caused
temporary and permanent closures of
raw material facilities during the year.
This measure caused a significant
imbalance between supply and demand
and, consequently, Chinese-sourced raw
material prices skyrocketed. Prices for the
two main magnesite-based raw materials,
dead-burned magnesite and electro-
fused magnesia, from China have more
than doubled during the year and
remain well above historical levels.
This environment created significant
challenges for all refractory producers
and forced price adjustments across the
supply chain. Moreover, the environment
Adjusted pro-forma revenue
by geography
North America
Europe
Asia-Pacific
South America
MEA-CIS
24.0%
23.2%
19.9%
17.9%
15.1%
2 0
S T R AT E G I C R E P O R T
R H I M A G N E S I TA
Financial Review
continued
created scarcity of important raw material
for the refractory industry across the
globe. RHI Magnesita’s partially vertically
integrated business model, with high-
quality raw material sources, allowed
the Company to ensure supply to its
customers while managing to maintain
competitive costs.
Reported EBITA, which does not
exclude transaction costs, merger related
adjustments, foreign exchange variations,
disposed businesses and non-merger
related expenses, which are generally
non-recurring, amounted to €56.7 million
in 2017, with a 2.9% margin.
Dividends
For the financial year 2017, the Board will
propose a dividend of €0.75 per share,
which corresponds to a dividend payment
of €33.6 million for the shareholders
of RHI Magnesita N.V. The proposed
dividend is subject to the approval by the
Annual General Meeting of Shareholders
on 7 June 2018 and was not recognised
as a liability in the consolidated financial
statements 2017.
Working capital
Working capital performance is
measured in both absolute values and
as a percentage of total sales by the
Group. Cash flow generation from
trading working capital amounted to
€10.8 million, with a higher consumption
of inventories being offset by an
improvement on the trade payables
terms. Absolute values for working capital
at year-end amounted to €610.2 million.
Working capital intensity, measured as
a percentage of adjusted pro-forma
second half annualized revenue, stood at
22.2% at the end of 2017. At the end of
2016, RHI and Magnesita, had combined
working capital equal to €667.8 million,
equivalent to 27.8% of adjusted pro-
forma 2016 revenue.
Net debt
Net debt amounted to €750.8 million
at year-end, compared to €298.8 million
in 2016. The net debt number already
includes the acquisition of the control
of Magnesita in October 2017 and the
proceeds of the merger-related
divestments received in November
2017. Leverage, measured by net debt/
adjusted pro-forma EBITDA, stood at
1.9x at year-end.
Synergies
We continue to successfully implement
our planned integration actions and
remain very confident in achieving
significant synergies. We expect
synergies of at least €40 million to
flow into the profit and loss in 2018
and €70 million are now expected to
be fully captured by 2019. Total cash
restructuring costs to achieve these
synergies are projected to amount
to €70 million, of which €53 million
have already been expensed in 2017.
Most cash outflows related to these
restructuring costs will be incurred
over 2018.
90% of the initial synergies are a result
of expected (i) SG&A reductions, (ii)
lower procurement costs with external
suppliers due to the consolidation of the
procurement efforts of the two companies
after the merger and (iii) optimization of
the enlarged production network, with
reductions in production and supply chain
costs. At this point, these initiatives are
either already implemented or backed
by a comprehensive execution plan.
A dedicated integration team is working
on several additional fronts which may
lead to incremental savings that will be
communicated when they reach an
adequate maturity level.
Due to the very high volatility in the
global raw material markets the planning
uncertainty has increased and could
provide additional risks but also upsides.
RHI Magnesita expects to complete a
very significant refinancing of its capital
structure over the course of 2018, taking
advantage of its strong financial standing
and significantly lower leverage ratios
than anticipated when these facilities
were originally structured. With that,
the Group is confident that net interest
expenses will be reduced by at least
€10 milion in 2018 and €20 million in
2019, in comparison with the adjusted
pro-forma net interest expenses of
approximately €50 million expected for
RHI Magnesita in 2018, in light of the
facilities outstanding as of 31 December
2017, notwithstanding the increase of
treasury rates in the G10.
Integrated Tender Offer
The Group is required – in accordance
with Brazilian laws and regulations – to
make a mandatory public offer in Brazil
that must be addressed to all remaining
Magnesita shareholders and must be
made on the same terms and conditions
as those made available to the Sellers
under the SPA, including as to purchase
price and form of consideration.
The Group has decided to combine
the mandatory offer with a so-called
“Delisting Tender Offer” in an Integrated
Tender Offer and filed the respective
request with the Brazilian Securities
Commission in November 2017.
According to the original and subsequent
filings, shareholders of Magnesita will
have the option of selling each Magnesita
share in exchange for (i) R$17.81, adjusted
by SELIC (the Brazilian benchmark
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
2 1
Taxation
The Group taxation charge, excluding
specific adjusting items (i.e. non-
capitalized tax losses and temporary
differences of the financial year, deferred
tax expense due to tax rate changes
and one off non-deductible expenses),
was €6.3 million (2016: €25.8 million).
The effective tax rate, excluding
specific adjusting items, was 26.6%
(2016: 24.4%). Note 44 of the financial
statements provides additional information
on the Group’s taxation charge.
Net result
RHI Magnesita reported a loss of
€12.9 million in 2017, compared to a
€75.9 million profit in 2016. The loss
was driven by transaction costs, merger
related adjustments, foreign exchange
variations, disposed businesses and
non-merger related expenses, which
are generally non-recurring.
Pension
The Group sponsors multiple pensions
plans whose liability are subject to
future asset performance, interest rate
fluctuations, actuarial assumptions,
benefit plan changes and government
regulations. The majority of the Group’s
obligations fall under defined benefit
pension plans in its subsidiaries in Austria,
Germany, United States and Brazil.
The total net liability amounted to
€308.7 million at the end of 2017.
Note 28 of the consolidated financial
statements provides additional information
on the Group’s pension plans.
Cash flow
Cash flow generation in 2017 was mainly
driven by the increase in free cash flow
from operations of €221.6 million, an
increase of 36.2% over the €162.7 million
generated in 2016. The net cash flow
from investing activities totalled a positive
income of €33.3 million, driven by the
net cash inflow of €45.1 million from
acquired subsidiaries (cash disbursement
less the cash and cash equivalent
received from the acquired company).
Additionally, the proceeds from the
divestment businesses in the amount of
€30.6 million also led to a positive cash
flow from investing activities. Net cash
flow from financing activities added up
€16.4 million, which resulted from the
funding raised relating to the acquisition
of Magnesita, as described in Note 26.
The Group had an overall cash
generation of €271.3 million in 2017.
Capital expenditure
We continue to invest in our strategic
priorities with investments of
€72.0 million in 2017, in line with
the €70.8 million invested in the
previous year.
OCTAVIO LOPES
CFO
interest rate) from 26 October 2017 until
the date of the settlement of the auction
of the Integrated Tender Offer, plus
0.1998 RHI Magnesita share or (ii) for
a cash-only alternative consideration.
The consideration of the cash-only
alternative offer will be the higher of
(i) R$31.09, adjusted by SELIC from
26 October 2017 until the date of
the settlement of the auction of the
Integrated Tender Offer, and (ii)
R$35.56, not adjusted by SELIC.
Since the cash plus shares option was
equivalent to R$57.73 on 28 February
2018, based on RHI Magnesita’s share
price and the exchange rate prevailing
on that date, the Group expects that
substantially all of Magnesita’s minority
shareholders will tender their shares
and opt for the cash plus shares
consideration. If 100% of Magnesita
minority shareholders tender their
shares and opt for the cash plus shares
consideration, the Group will disburse
R$445.7 million, adjusted by SELIC
from 26 October 2017 until the date
of the settlement of the auction of the
Integrated Tender Offer, and issue
an additional 5,000,000 shares.
The Integrated Tender Offer is expected
to be completed during 2018.
Other reported financial KPIs
Finance costs
Net financial result amounted to
€30.6 million in 2017, compared to
€21.2 million in 2016. The increase was
essentially driven by the consolidation of
two months of Magnesita’s P&L in 2017
and, to a lower extent, the increase of
the net debt due to the acquisition of
Magnesita at the end of October 2017.
2 2
S T R AT E G I C R E P O R T
R H I M A G N E S I TA
Risk Management and
Internal Control System
The Group has established a formal risk management framework with the
objective of systematically identifying, assessing and controlling uncertainties
and risks related to existing operations and future development areas.
Risk framework
A bottom-up identification and assessment
process was conducted for the first time in
the combined Company after the closing
of the merger transaction. This process is
based on the direct and full integration of
all functional and operational managers,
uniform structures and methods as well as
the use of professional software, and makes
sure that material risks can be discussed
and monitored adequately by the senior
executives and the Board.
The Board is aware of the central
importance of a formally approved risk
policy and risk appetite specifying the
nature and extent of the risks acceptable
to the Group. The future design of such a
risk policy for the combined Company and
its alignment with the corporate strategy
are currently work-in-progress and in
preparation for discussion with the Board.
Risks considered to be non-acceptable
because of their nature or their potential
financial or qualitative impact are being
mitigated by appropriate strategies. The
implementation and effectiveness of the
defined mitigation measures are being
reviewed continuously. For that purpose,
the impact of risks are considered before
and after the implementation of those
mitigation measures.
The risks identified in the following
are those the Board considers to be
the principal ones and which may have
a significant impact on the results of
the Group and on its ability to achieve
its strategic objectives. They may occur
independently from each other or in
combination. In case they occur in
combination their impact may be
reinforced. Also, the Group is facing
other risks than the one mentioned here,
some of them being currently unknown
or not considered to be material.
Risk appetite
The definition of a risk policy and risk
appetite is essential to the implementation
of an appropriate risk framework and
culture. RHI Magnesita has started
a discussion with the Board and
Management team to elaborate the
new risk policy of the company and is
in the process of defining the following
cornerstones. RHI Magnesita has a
selective approach to risk and enters only
desired risks. Different level of risks can be
accepted depending on which company
goals are considered:
The Company has a minimalist approach
to risks in the health and safety, legal and
compliance areas especially as far as
the compliance of financial reporting
is concerned. Risks in those areas have
to be consequently minimized.
The production of refractory materials
makes its necessary to use potentially
hazardous materials and emissions linked to
the production processes cannot be totally
avoided. Also the company is aware that
taking limited financial risks is necessary to
implement its strategies. In those areas, the
company has a cautious approach to risk,
which has to be avoided or reduced by
appropriate mitigation measures.
By striving for worldwide presence, a
competitive production network and
technology leadership, the Group has
a flexible understanding of risk and is
prepared to take some under the right
conditions. Nevertheless those risks have
to be managed and closely monitored.
Management “In-Control” statement
The Directors have to make sure that
the Company has adequate internal risk
management and control systems in place.
During 2017, a Financial Prospects and
Procedures report was produced by
PwC on RHI, and a Financial Prospects
and Procedures report was produced by
EY on Magnesita. These reports, issued
in October 2017, indicated no material
deficiencies and were reviewed by and
extensively discussed with the Directors.
Following the completion of the merger,
these procedures were reviewed again
internally and additional procedures have
been duly implemented to guarantee
proper consolidation of the financials of the
enlarged Group, as part of the integration
plan reviewed by the Directors.
Additionally, a bottom-up risk identification
and assessment process was conducted
for the first time in the combined Company
after closing of the acquisition of Magnesita
and combination of the two companies.
This process is based on the direct and full
integration of all functional and operational
managers, uniform structures and methods
as well as the use of specialized software
and makes sure that material risks can be
discussed and monitored adequately
by the Directors.
In light of the above, the Directors believe
that the Company’s financial control and
risk management systems assure that the
Annual Report does not include any
material errors or omissions. Furthermore,
the Directors believe that while further
improvements can be made as the Group
becomes fully integrated, the operational
and compliance controls are appropriate
to adequately mitigate the risks associated
with the Company’s strategy and activities.
Further, the Executive Management Team
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
2 3
actively monitors the operation of the
internal risk management and control
systems and carries a systematic assessment
of their design and effectiveness at least
once a year. During 2018, special attention
will be taken to the risks associated with the
implementation of the integration plan
between RHI and Magnesita.
Financial risks
Financial risks are presented in the Note 57,
page 178 of this Annual Report.
Viability statement
The Directors have assessed the viability
of the Group over a three-year period to
December 2020, the period covered by
the latest business plan, taking account
of the Group’s current position, individual
asset performance forecasts, current net
gearing ratio as disclosed in note 58 of
the consolidated financial statements
and the potential impact of the principal
risks disclosed on pages 24 and 25
The business plan considers the Group’s
cash flow, capital commitments, financial
resources, debt covenants and other key
financial risks. Part of the process for the
listing at the London Stock Exchange, was
a detailed stress test based on this business
plan. This test reviewed the viability
considering major risk (including changing
market conditions, access to financial
instruments, ability to capture the planned
synergies, exchange rate scenarios,
production interruption) and focused in
detail on the period from 2018 till June
2019. Because the business plan covers
a longer period and the impact of the
considered risks was modelled for the full
span, the Directors could assess the viability
for the Group over a three-year period.
The Directors believe that the Group is
well-placed to manage its principal risks
successfully. In making this statement the
Directors have considered the resilience
of the Group, taking account of its current
position, the risk appetite, the principal
risks facing the business in severe
but reasonable scenarios, and the
effectiveness of any mitigating actions.
Based on this assessment, the Directors
have a reasonable expectation that
the Group and Company will be able
to continue in operation and meet its
liabilities as they fall due over the period
to December 2020. The Directors have
determined that the three-year period to
December 2020 is an appropriate period
having regard to the Group’s business
model, strategy principal risks and
uncertainties, and viability.
Internal control system
The Board is ultimately responsible for
maintaining effective risk management,
which includes the Group’s risk
governance structure, the Group’s
system of internal controls and the
Group’s internal audit approach.
The Group has implemented an internal
audit function, with a dual reporting line
to the CFO and the Audit Committee. The
internal audit function is an integral part of
the Group’s risk management framework,
providing assurance to the Audit
Committee and the Board on the
effectiveness of mitigation actions and
internal controls.
The internal audit function conducts
its activities in a risk based manner,
developing an audit plan, based on the
results of the risk assessment of various
business units and strategic priorities that
are approved by the Audit Committee.
The internal audit function conducts
systematic and ad hoc operational audits
and special investigations, reporting
the most relevant observations and
recommendations regarding the
effectiveness of the risk management
and internal control procedures to the
Audit Committee.
The group has in place a risk management
and an internal control system in relation
to its financial reporting process and
the process of preparing the financial
statements. These systems include policies
and procedures to ensure that adequate
accounting records are maintained and
transactions are recorded accurately and
fairly to permit the preparation of financial
statements in accordance with the
applicable accounting standards.
The Board reviews the effectiveness
of the system of internal financial,
operational and compliance controls
and the risk management. The Board
examines whether the system of internal
controls operated effectively throughout
the year and will make recommendations
when appropriate.
These systems are based on the three
lines of defence model that the Company
has implemented, supported by an
internal control guideline reflecting the
responsibility for risk management and
internal controls at all management levels.
The internal audit function supports these
systems by activities based on risk oriented
audits and the Company’s internal control
guideline and standards.
For the accounting process, an accounting
handbook is available that addresses
all the internal control issues into the
accounting process.
No matter how comprehensive a risk
management and control system may be,
it cannot be assumed to be exhaustive, nor
can it provide certainty that it will prevent
negative developments from occurring
in the Group’s business and business
environment or that response to risk
will be fully effective. The Group’s risk
management framework is designed
to avoid or mitigate rather than to
eliminate the risks associated with the
accomplishment of the Group’s strategic
objectives. It provides reasonable
assurance but not absolute assurance
against material misstatement or loss.
In 2016, the Group had not identified
any major failings in its internal risk
management and control system.
2 4
S T R AT E G I C R E P O R T
R H I M A G N E S I TA
Risk Management and
Internal Control System
continued
Macroeconomic
environment and
condition of customer
industries
Fluctuations in
exchange rates
and energy prices,
increasing volatility
of raw material prices
Business interruption
and supply chain
PRINCIPAL RISKS
MITIGATION
¥ Diversified customer base in
term of industries and geographies
¥ Diversified product portfolio
in terms of technology and prices
¥ Technological leadership
¥ Optimisation of the production
network to increase cost flexibility
¥ Continuous monitoring of revenue
and profitability performance
¥ Active balance sheet and exposure
management
¥ Improvement of energy efficiency
¥ Vertical integration and usage
of own raw material
¥ Supply chain optimisation
¥ Diversified production network
in terms of geographies
¥ Centralised supply chain management
allowing production transfers and
substitutions in case of disruption
¥ Operational risk management and
maintenance policies
¥ Risk based investment policy
¥ Global insurance coverage
Changes in global economic and adverse
political developments used to and are
expected to have a noticeable impact on
the Group’s revenue and profitability.
The demand for refractory products is
directly influenced by steel production,
the investment climate, metal and energy
prices and the production methods used
by customers.
Due to the Group’s cost structure,
fluctuations in sales volume have an
impact on the utilization of the production
capacities, and consequently on the
Group’s profitability.
Due to the Group’s global sales and
production activities, revenue and
profitability may be impacted by
currency fluctuations.
The Group relies on the external supply
of energy and raw material for its
production activities. Fluctuations in
demand and/or supply on the global
markets have a significant impact on
the prices and hence on the production
costs for refractory products.
As a producing company, the Group is
exposed to business interruption risk
resulting either from natural catastrophes,
fire, machinery breakdown or supply
chain disruption.
The Group partly relies on a small
number of production sites or a small
number of external suppliers for
certain materials.
The inability to produce or supply those
materials may have a significant impact
on the Group’s ability to produce and
deliver its products.
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
2 5
Regulatory and
compliance risks
PRINCIPAL RISKS
MITIGATION
Full compliance with laws and
regulations is a matter of course for the
Group. Nevertheless, like many other
internationally operating corporations, it
is confronted with increasing regulatory
complexity and is exposed to regulatory
and compliance risks that may result in
financial losses or operational restrictions.
¥ Development and implementation
of best practices through a code of
conduct and further compliance
policies and procedures
¥ Implementation of an effective
internal control system, in particular
in exposed processed
¥ Global communication and training
Environment, health
and safety risks
of compliance programmes
¥ Whistle-blowing system
(Compliance Helpline)
¥ Ethical values supported by
corporate culture
¥ Usage of recycling material wherever
possible
¥ Selection of raw materials and additives
according to ecological criteria
¥ Regular environmental audits and risk
monitoring at all sites
¥ Regular legal compliance checks
¥ Worldwide health and safety policies
¥ Health and safety objectives defined
as goals for top executives
¥ Quality management
Controlled emissions and usage of
potentially hazardous materials are
inherent to the production of refractory
products. Regulatory changes in this area
may result in higher production costs
and additional investment needs. Also
the risk of uncontrolled emissions at our
production sites exists and may result
in high financial losses and liabilities.
Especially at our production sites,
employees and contractors may be
exposed to health and safety hazards
which cannot be completely eliminated.
Also, our products may potentially cause
accidents at the customers’ sites.
Risks related
to the merger
Considerable integration efforts are
necessary to deliver the planned
synergies and the expected benefits
of the merger. The risks associated with
the merger include, for example, the
diversion of management attention,
operational disruptions and increased
employee and/or customer churn.
¥ Preparation of integration
at an early stage
¥ Dedicated project team
¥ Continuous monitoring of
risk and performance
¥ Establishment of a strong, common
corporate culture
2 6
S T R AT E G I C R E P O R T
R H I M A G N E S I TA
Corporate Social
Responsibility
RHI Magnesita is committed to a high level of corporate social
responsibility (CSR) and stands for the responsible use of resources,
respect for human rights, employee development, health and safety
as well as social engagement in the communities.
As a globally operating, resource- and
energy-intensive industrial company, it
is also confronted with a great number
of challenges that it strives to tackle with
appropriate measures. Through various
initiatives and measures the Group
also contributes to and supports the
Sustainable Development Goals (SDGs)
of the United Nations. The supported
SDGs are highlighted in the respective
sections. G4-15
Non-financial performance indicators
are important value drivers in a company
that are not directly reflected in the
statement of profit or loss, the statement
of financial position or the statement of
cash flows, but account for a substantial
part of the Company’s success.
An outstanding market position as well
as a competitive advantage and a leading
edge in innovation are generated by
the interaction of a variety of intangible
factors and are reflected in the
financial indicators.
This combined report meets the
requirements of the G4 Guidelines of
the Global Reporting Initiative (GRI) in
the core option and covers all CSR
activities of the RHI Magnesita Group
in the financial year 2017. Therefore,
it is to be regarded as a consolidated
non-financial statement for the whole
Group. Taking into account the fact that
the merger between RHI and Magnesita
was completed at the end of October
2017, non-financial performance
indicators of the last financial year
include 12-month figures for former
RHI companies and two-month figures
for former Magnesita companies and are
based on definitions developed by RHI
for previous reporting periods. For the
previous year's legacy RHI performance
data are reported. In cases where certain
data and key figures cannot be assessed
throughout the Group, it is accordingly
noted in the report or only country-
specific information is provided.
An overview of the information to be
published in accordance with GRI G4
including the respective page number
can be found at the end of this annual
report. The report also complies with
the legislation in the United Kingdom and
the Netherlands regarding the reporting
of non-financial information by which
Directive 2014/95/EU of the European
Union has been implemented.
A reference table on the topics to be
reported is available on the corporate
website. G4-15, G4-28, G4-32
SUSTAINABLE DEVELOPMENT GOALS
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
2 7
Key CSR topics G4-18, G4-19, G4-24 to G4-27
Based on the GRI principle of materiality,
the focus of this report is placed on the key
CSR topics of the RHI Magnesita Group.
In the year 2015, the materiality of the
CSR topics was reviewed and reprioritised.
An online survey was conducted to
integrate stakeholders worldwide.
Internal stakeholders were chosen by their
function in the Group and their relation
to CSR topics. The selection of external
stakeholders such as customers, suppliers,
authorities, associations as well as
education and research institutions was
based on their contact points with the
Company. The questions were related
to topics that should be at the centre
of CSR management and of reporting,
and to the evaluation of the Group’s CSR
performance. The results showed that the
topics identified in 2013 have maintained
their relevance for the Group and
its stakeholders.
Until a new materiality analysis is carried
out, the following 12 topics defined by
RHI are also considered to be material for
the RHI Magnesita Group, and within the
organisation are relevant to all companies
included in the consolidated financial
statements 2017: G4-20
¥ Sustainable profitable growth
¥ Innovation
¥ Governance, business ethics and values
¥ Communication
¥ Product responsibility and
quality management
¥ Raw materials and mining
¥ Environmental protection and emissions
¥ Recycling and waste management
¥ Energy efficiency
¥ Responsible employer
¥ Human rights
¥ Good corporate citizenship
All of these topics are of “high” or
“very high” importance, with “profitable
growth” and “innovation” clearly rated
as most important both from an internal
and external perspective.
External assessment of the Group’s
CSR performance
More and more customers of RHI
Magnesita focus on corporate social
responsibility in their supply chain and
therefore require an assessment of their
suppliers. As a result of such an evaluation,
the Group received a golden award from
the international assessment platform
EcoVadis for the extensive measures in
the areas of environment, labour practices
and human rights, fair business practices
and sustainable procurement.
Engagement in associations
and organisations G4-16
RHI Magnesita and its subsidiaries are
members in various associations and
organisations, among others:
¥ in special interest groups
(e.g. Federation of Austrian Industries,
the Brazilian National Confederation
of Industry, Confederation of
Indian Industry)
¥ in chambers of commerce
(e.g. Austrian Federal Economic
Chamber, ICC Austria)
MATERIALITY MATRIX
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i
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A
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R
E
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A
T
R
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I
12
11
4
5
2 3
6
10
9
7
8
1
high
IMPORTANCE FOR RHI MAGNESITA
very high
1. Good corporate citizenship
2. Raw materials and mining
3. Human rights
4. Governance, business ethics
and values
5. Environmental protection
and emissions
6. Responsible employer
7. Recycling and waste
management
8. Communication
9. Energy efficiency
10. Product responsibility and
quality management
Innovation
11.
12. Sustainable profitable growth
2 8
S T R AT E G I C R E P O R T
R H I M A G N E S I TA
Corporate Social Responsibility
continued
Table 1: Economic value
generated according to GRI
in € million
2015
2016
2017
Revenue and
other operating
income
Interest income
and dividends
Economic value
generated
1,758.5 1,655.8 1,949.7
14.0
12.5
15.9
1,772.5 1,668.3 1,965.6
Distribution of economic value generated
Operating costs1
(1,152.0) (1,063.0) (1,269.4)
Personnel costs2
(408.1)
(398.7)
(431.8)
(30.5)
(30.5)
(31.0)
Payments to
shareholders
Payments to
outside creditors
Payments to
public sector
entities
Residual
economic value
(35.7)
(44.9)
(52.0)
125.9
114.2
156.5
(20.3)
(17.0)
(24.9)
Materials & Mining (ABM)
¥ in trade associations such as:
– World Refractories Association
(WRA)
– European Refractories Producers
Federation (PRE), via the Association
of the Austrian Mining and Steel
Producing Industry of the Austrian
Federal Economic Chamber
– Association of the Austrian Mining
and Steel Producing Industry of
the Austrian Federal Economic
Chamber
– Austrian Society for Metallurgy
Association of the German
Refractory Industry
– Steel Institute VDEh, formerly
Association of German Steel
Manufacturers (VDEh),
– Brazilian Association of Metallurgy,
– Brazilian Association of Refractories
Producers (ABRAFAR)
– Latin-American Association of
Refractories Producers (ALAFAR)
¥ in respACT – Austrian Business
Council for Sustainable Development
Financial indicators according to GRI G4-EC1
In 2016, the RHI Magnesita Group
generated an economic value of
€1,965.6 million. After costs incurred
and payments to shareholders, outside
creditors and public sector entities
totalling €1,809.1 million, the
residual economic value amounts to
€156.5 million. Figures for the years
2015 and 2016 are legacy RHI data.
The presentation corresponds to the
definition of GRI. These are financial
flows derived from the statement of
profit or loss.
1 Cost of sale + selling and marketing expenses
+ general and administrative expenses + other
operating expenses + restructuring costs
(excluding personnel costs, depreciation
and amortisation and other taxes)
2 Personnel costs adjusted for non-cash
personnel costs related to restructuring
The Code of Conduct
comprises binding
requirements and
fundamental rules of good
corporate conduct with
respect to all relevant
compliance issues.
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
2 9
3 0
S T R AT E G I C R E P O R T
R H I M A G N E S I TA
Business Ethics,
Values and Human Rights
RHI Magnesita is committed to responsible management.
The Group’s intention is to go beyond risk mitigation through
compliance with pertaining laws and to strive for ethically sound
practice for the sake of the Company and all stakeholders. Integrity,
honesty, reliability as well as a respectful contact with employees
and business partners form the basis of the Company’s daily activities.
Not only the achievements made but
also the corporate values are essential for
the trust and confidence the customers,
partners, investors and the public place
in RHI Magnesita. To enable this, a
comprehensive compliance programme,
which provides both the guidelines
and the tools, is implemented and
continuously improved throughout
the Group.
The RHI Magnesita compliance
programme
The compliance programme centres
on the RHI Magnesita Code of Conduct,
which was developed under the
leadership of the Executive Management
Team and coordinated with the Board.
Based on the corporate values, it
comprises binding requirements and
fundamental rules of good corporate
conduct with respect to all relevant
compliance issues such as ensuring
fair and corruption-free competition,
avoiding conflicts of interest and
compliance with the relevant
environmental regulations, labour
and social laws. G4-42
The Code of Conduct was updated in
the course of the merger to reflect the
new corporate identity of the combined
Group but also to integrate the highest
compliance standards from both
companies. Additional policies and
procedures provide for detailed guidance
where necessary. The Code of Conduct
is valid worldwide throughout the entire
RHI Magnesita Group and binding for all
employees regardless of their position or
type of employment. Third parties acting
on behalf of the Company are required
to adhere to the same standards and to
advocate fair and sustainable business
activities together with RHI Magnesita.
All contracts with sales consultants
and agents contain comprehensive
compliance provisions, adherence to
which is subject to a monitoring and
appraisal process. On the other hand,
suppliers and service providers have
been obliged to comply with the
principles required by RHI Magnesita
via the Supplier Code of Conduct.
Since 2016, the commitment to comply
with the Supplier Code of Conduct
has also been an integral part of the
general purchasing conditions.
G4-56, G4-HR4, G4-HR5, G4-HR6
In order to mitigate new risks resulting
from changes in the internal and external
environment, RHI Magnesita conducts
periodic risk assessments. Whenever
significant increases in compliance risks
are identified, corresponding controls
are evaluated. Based on the resulting
findings, adequate prevention measures
– from internal regulations through
appropriate processes and controls to
supporting IT systems – are developed
and implemented. The adequacy and
effectiveness of the measures are
reviewed on a regular basis and
improved continuously. G4-SO3
A prominent component of the
compliance programme is ongoing
communication and education.
The Compliance Office delivers regular
trainings on various compliance topics
and conducts workshops with managers
and key personnel on current questions
and challenges. In 2016, the main focus
was on anti-trust and competition law.
Training measures covered the whole
team responsible for the completion of
the merger and for the integration of RHI
and Magnesita, in total more than 200
people from all functions and regions.
In addition, a new e-learning program
has been developed covering all aspects
of the Code of Conduct. It will be
rolled-out in the second quarter of 2018
and shall be made available not only to
employees but also to business partners.
Moreover, comprehensive information
on various risk-relevant topics is offered
on the intranet and per email, and the
Compliance Office supports operational
units on an ongoing basis with practical
advice in daily business.
Another central element of the RHI
Magnesita compliance programme is the
Compliance Helpline. This system offers
different communication channels –
a web portal, a telephone hotline and
email – and is available in ten different
languages. Both employees and external
parties have the opportunity to report
compliance violations or suspicious facts
to an independent channel. The system
is operated by an external service
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
3 1
provider assuring full protection of the
reporting person’s identity. All indications
of serious misconduct will be investigated
by the Compliance Office, which also
makes recommendations regarding
the appropriate corrective actions and
disciplinary or legal steps, if applicable.
In 2017, a total of 16 reports were received.
In 13 cases an internal investigation was
conducted, while three reports were not
related to compliance issues. G4-58
Finally, institutionalised reporting by
the Compliance Office to the Executive
Management Team and the Audit
Committee provides for a continuous
adaptation and further development of
the compliance programme as well as
its alignment to the Group’s strategic
requirements. G4-43
Fighting corruption
Fighting corruption is one of the top
priorities of the RHI Magnesita
compliance programme. The Group
is convinced that competition can be
decided based on the commitment
of its employees and the quality of its
products and services, without any
undue influence. Accordingly, strict
anti-corruption rules, including rules
governing invitations, gifts, donations,
sponsoring and similar benefits, have
been adopted. As a principle decision,
RHI Magnesita refrains from any
contribution related to political parties,
authorities and officials. Compliance with
these rules is achieved through internal
guidelines, defined processes, regular
trainings and audits. G4-SO6
Based on the results of the compliance
risk assessment and past experience in
the various markets, the effectiveness
of the internal control system is regularly
evaluated and adapted to fit with the
Company’s processes and the actual risks
it faces in different countries and industries.
Prevention of corruption has been an
important part of RHI Magnesita’s training
SUPPORTED SDGs
programme for several years, also
because in some fast-growing markets
that the Group is engaged in, it is exposed
to higher corruption risks. In addition to
specifying clear guidelines, practical
examples and case studies are used to
teach the borderline between acceptable
hospitality and undue influence. If there
are nevertheless any doubts regarding
correct behaviour, the Compliance Office
provides advice to exposed employees.
G4-SO4
Moreover, employees as well as business
partners are called upon to report
suspicious facts to the Compliance
Helpline. In the reporting year, five
cases of suspicions related to corrupt
practices were reported and thereupon
investigated by the Compliance Office.
Two of them were closed due to lack of
evidence, three cases are still under
investigation. G4-SO5
Human rights
As a globally operating company with
production sites in Europe, North America,
South America and Asia, RHI Magnesita
encounters a wide variety of cultural
conditions and standards, both internally
and externally. As stated in the Code of
Conduct, the Company makes a clear
commitment to compliance with human
and civil rights as well as the applicable
labour and social laws and has established
this matter as part of the compliance
programme throughout the Group.
RHI Magnesita attaches top priority to
dealing with each other appreciatively
and respectfully, as well as to providing
equal opportunities for all people.
The Company strictly rejects any form of
discrimination based on race, skin colour,
religion, gender, age, origin, nationality,
disability, sexual orientation as well as
(sexual) harassment, offensive behaviour,
aggression, hurtful behaviour, improper
behaviour or any other violation of
human rights.
Embedded in the larger scope of
the compliance programme, not only
all employees but also suppliers and
external service providers are required
to comply with these principles, which
is explicitly stated as part of contractual
agreements. Compliance with those
provisions can be checked by RHI
Magnesita at any time. G4-HR4, G4-HR5, G4-HR6
Human rights aspects are also explained
in the course of compliance training
and understanding is enhanced with
the participants using practical examples.
Should there be any suspicion that human
rights have been violated, the Compliance
Helpline provides an appropriate reporting
system. In the event of reasonable
suspicion of human rights violation,
the Compliance Office will initiate a
comprehensive investigation. In the year
2017, two cases regarding workplace
practices were reported via the
Compliance Helpline and investigated.
G4-HR2, G4-HR3, G4-HR12
RHI Magnesita reports on the measures
it has taken to prevent modern slavery
and human trafficking in its business
and supply chain. The statements in
accordance with the UK Modern Slavery
Act 2015 and the California Transparency
in Supply Chains Act are available on the
corporate website.
3 2
S T R AT E G I C R E P O R T
R H I M A G N E S I TA
People and
Communities
The employees’ comprehensive knowledge, their competence,
ideas and their high commitment and motivation are indispensable
to the success of RHI Magnesita. Only as an attractive employer
for existing employees and for potential job applicants will RHI
Magnesita be able to win the best qualified people, develop them,
use their potential in the long term and consequently also stay
competitive as a Company.
With more than 14,000 highly
skilled employees from 40 countries,
RHI Magnesita is faced with a variety of
challenges including filling key positions
with the right people, reacting to a
threatening shortage of skilled labour,
ongoing digitisation, the ageing of
personnel due to demographic changes,
succession management and transfer of
knowledge between generations, creating
equal opportunities and development
opportunities as well as responding to
individual needs regarding work-life
balance. The Group strives to overcome
these challenges with measures such as
training, apprenticeship programmes or
targeted employer branding measures,
also because the failure to attract,
develop or retain skilled or qualified
employees could negatively impact
the Company’s business.
The year 2017 was characterised by
the preparation for the merger between
RHI and Magnesita. As a result of the
combination of the two companies,
the entire organisational structure,
including personnel management was
restructured. The new structure of
the human resources (HR) organisation
is based on the following areas: Centres
of Expertise, Global HR Business Partners
and Regional and Local HR Business
Partners. The Centres of Expertise are
small departments working on global
frameworks to design HR tools, processes
and policies. The Global HR Business
Partners are responsible for translating
these frameworks for their respective
client group. The Regional and Local HR
Business Partners, the biggest group of
HR employees, help on the spot where
the business takes place with a daily
connection to the business needs.
The human resources organisation
understands itself as a strategic partner
or managers rather than an administrative
control function. As part of the
transformation of the Group, the human
resources policies and processes of the
two former companies are gradually
being aligned and simplified in line
with the new corporate culture based
on accountability.
In the reporting year, a joint Global
Management Assessment project was
carried out in partnership with an external
consultant to ensure neutrality in the
process. The objective of the project was
to identify the available strengths and
development areas in the combined
management team with focus on building
a strong leadership to execute the new
strategy. Staffing decisions for the
combined Company were taken in a
transparent and fair nomination and
selection process steered by the human
resources organisation and management.
To give employees the opportunity
to proactively apply for positions in
departments of their interest, RHI
Magnesita provided various channels for
the submission of generic applications.
Clear communication and continuous
information were crucial to ensure
retention and reduce uncertainty
among employees.
By the end of the financial year 2017,
the number of employees increased
by 95% from 7,385 to 14,389 as a result
of the combination. 42.9% of the
employees in fully consolidated
companies of the RHI Magnesita Group
worked in South America, 28.6% in
Western Europe, 17.4% in Asia-Pacific,
8.2% in North America, 1.6% in the Near
and Middle East, 0.8% in Africa and
0.5% in Eastern Europe. G4-9, G4-10
Key personnel figures in the RHI
Magnesita Group are shown in table 2.
RHI Magnesita generally concludes
permanent contracts with employees.
At the end of the year 2017, 93% of
the employees had a permanent
employment contract with the Company.
Seasonal workers are only employed at
the Turkish raw material and production
site in Eskisehir for climate reasons.
Temporary workers are mainly hired to
cover order peaks in production. G4-10
Due to the combination of RHI and
Magnesita as well as resulting overlaps
and synergy targets, a workforce
reduction had to be started in the previous
financial year. Social compensation plans
and severance packages were agreed
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
3 3
upon between representatives of
employers and employees to mitigate
the impacts of the separation from the
Company. The turnover rate, defined as
all exits (including retirements, excluding
seasonal workers, temporary workers
as well as exits due to the sale of certain
legal entities in connection with the
merger) divided by the average number
of employees for the year, amounted
to 9.8% in 2016. From a regional
perspective, the rate was highest in
North America, at 18%, followed by
Africa at 13%, Eastern Europe at 12%,
South America at 11%, Near and Middle
East at 9%, Western Europe at 8%. The
Asia-Pacific region recorded the lowest
turnover rate, at 7%. The turnover rate is
a consolidated figure for former RHI and
former Magnesita employees and covers
the business year 2017 in case of both
companies, since other calculation
methods would not provide meaningful
data. The average affiliation with the
Group was 9.24 years. G4-LA1
Diversity
Staff diversity contributes to an innovative
climate in the Company, so it is important
to use diversity to maintain the Group’s
competitiveness and economic success.
RHI Magnesita’s staff consists of people
from a total of 76 nationalities. Employees
with 17 different nationalities work at
the Company’s administrative seat in
Vienna, Austria. The average age of
RHI Magnesita employees amounts to
39 years, with 59.9% of the employees
falling into the age group of 30 to 50
years. The under-30 age group includes
21.2% of the employees and 18.9% are
more than 50 years old. The worldwide
share of women was approximately
10.2%. Please refer to table 3. The share
of women in the Executive Management
Team was 12.5%, while the share of
women in the first three reporting levels
amounted to 7.6%, 8.4% and 17.1% at the
end of the financial year 2017. G4-10, G4-LA12
SUPPORTED SDGs
Table 2: Key personnel indicators
Annual average number of employees1
Number of employees at 12/31
Revenue in € million
Revenue per employee in €1,000
EBIT in € million
EBIT per employee in €1,000
Value added in € million2
Value added per employee in €1,000
Personnel expenses in € million
Personnel expenses per employee in €1,000
Personnel expenses in % of revenue
2017
8,569
14,389
1,946.1
227.1
43.1
5.0
497.7
58.1
454.6
53.1
23.4%
2016
% Change
7,678
7,385
1,651.2
215.1
116.1
15.1
514.8
67.0
398.7
51.9
24.1%
11.6%
94.8%
17.9%
5.6%
-62.9%
-66.9%
-3.3%
-13.3%
14.0%
2.3%
-0.7pp
1 Weighted by level of employment
2 Value added: EBIT + personnel expenses (excl. interest expenses for personnel provisions)
Table 3: Gender diversity
At 12/31/2017
Employee Group
Salaried employees
Waged workers
Commercial apprentices
Technical apprentices
Total
Number
women
1,268
166
11
18
1,463
% by
gender
21.9
2.0
38.0
9.3
10.17
Number
men
4,528
8,205
18
175
% by
gender
78.1
98.0
62.0
90.7
Total
5,796
8,371
29
193
12,926
89.83
14,389
3 4
S T R AT E G I C R E P O R T
R H I M A G N E S I TA
People and Communities
continued
>14,000
employees worldwide
76
different nationalities
The topics of diversity and equal
opportunities are continuously promoted
through different initiatives. The focus
is placed on making the most out of the
potential of both genders, all age groups
and people with disabilities. RHI Magnesita
attaches great importance to getting girls
and women interested in a technical
career in the industry. Making female
role models in technical professions
visible has become an integral part of the
Company’s profile at career events. As
a partner of the initiative of the Austrian
company OMV AG “Austria is looking
for the Technikqueens”, RHI Magnesita
strived to inspire girls at an early stage
to pursue a technical profession. In 2017,
the initiative was completed with a
closing workshop in which all 25 girls
and their female mentors participated.
Furthermore, the four mentees of RHI
Magnesita had the opportunity to gain
insight into a typical working day of the
female engineers of the Company during
a shadowing day. Three participants of
the “Technikqueens” initiative were also
offered a summer internship in Vienna,
during which they gained valuable
working experience in an international
and innovative working environment.
To make staff diversity more visible, the
Group promotes videos with employees
of different nationalities and gender. The
purpose of the videos is to provide insight
into the success stories and the everyday
work life of the employees. Moreover,
the network for the promotion of an
interdepartmental exchange of female
engineers at the location in Vienna was
further boosted. As part of a demography
project launched in Germany and
Austria, a workshop was organised to
evaluate possibilities for age-appropriate
work in order to sustainably secure
employees’ ability to work at an older
age. Further workshops are planned at
different locations to share best practices
in 2018. Employees at an older age
also have the opportunity to join health
management initiatives of the Company
and make use of flexible working hour
models. Internationalisation is
promoted through international career
opportunities and training courses on
intercultural competence.
The PRISMA programme aims to
promote social inclusion and offers the
opportunity to hire and train people with
disabilities in Brazil. It recognizes their
potential and proves that people with
disabilities can achieve professional
and financial autonomy when given the
chance. RHI Magnesita encourages
diversity and always treats its employees
with respect, fairness and dignity without
tolerating discrimination of any kind.
The salary of new employees in the
Group is based on training, professional
experience and the management level
of the respective position. No difference
is made between men and women. 81%
of the management functions at RHI
Magnesita’s production sites worldwide
were held by local employees at the end
of the 2017 financial year. G4-LA13, G4-EC6
Training, advanced education and
personnel development G4-LA10
RHI Magnesita takes account of
demographic changes in society and
the related shortage of skilled labour by
offering apprentice training. At the end of
the 2017 financial year, 222 apprentices
were employed in Austria, Colombia,
Germany, Ireland and Switzerland, with
87% of them working in technical
apprenticeships. The share of female
apprentices was 13% after 12% in the year
2016. About 62% of them worked in a
technical apprenticeship. Additional
offers such as language courses or stays
at locations abroad as part of apprentice
exchange programmes promote the
mobility of young people and
consequently enhance their job
opportunities. Other training measures
include social and digital competence,
energy efficiency, methods of modern
production technology, occupational
safety and general business
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
3 5
administration. The target is to cover the
demand for skilled professionals with
apprentices who have been trained to
meet these specific requirements.
In addition, to that, a programme
preparing school students for the world
of work was conducted in Brazil, part
of which the students worked mainly
in administrative areas at the sites in
Contagem, Brumado and Matozinhos.
The internship programme represented
another important initiative in Brazil. In
the framework of this programme
university and technical students with
potential were recruited to gain practical
knowledge and skills in the Company. To
support their development, the students
received on the job training from
managers, technical and social skills
training as well as regular feedback on
their work. The programme helps fill
open positions within the Company with
young talent and offered a great chance
for the students to start their careers.
RHI Magnesita offers its employees a wide
range of development opportunities,
which are aligned to the abilities,
knowledge and needs of the respective
person. In advanced training, RHI
Magnesita distinguishes between open
training, development programmes and
talent management initiatives. In open
training, there is a strong focus on
conveying knowledge internally, i.e.
training courses for employees held
by employees. In the reporting year,
emphasis was put on measures preparing
for the combination of RHI and Magnesita.
Therefore, the offer of e-learning content
as complement to conventional seminars
was only selectively extended. In addition
to the existing training offer, a so-called
Sales Academy was established that
focuses on the training of technical skills
as well as offering e-learning training
units for sales employees.
Knowledge building and personal
development for defined functions are
promoted in customised development
programmes, which extend over a longer
period of time and several modules.
In 2017, the “Customer Performance
Management (CPM) Negotiation
Excellence Program”, tailored to support
RHI Magnesita’s sales processes by
training negotiation skills as well as
CPM tools, was set-up and launched
with two pilot groups, namely with one
international group on management level
and with one for German-speaking sales
managers. Besides the existing training
programmes, which prepare managers
and experts (e.g. project managers) for
their tasks in a structured manner, the
previous year’s focus was on adapting
training contents to meet the combined
Company’s demands. In 2016, 94
employees from former RHI plants from
the countries Austria, Belgium, Canada,
Germany, Italy, Mexico, Spain, Sweden,
Switzerland, the United Kingdom and
the USA participated in development
programmes. Former Magnesita’s Global
Leadership Development Program
focused on developing employees from
the higher levels of the organisation such
as vice presidents, Directors, managers
and senior specialists. Internal and
external multipliers and different
3 6
S T R AT E G I C R E P O R T
R H I M A G N E S I TA
People and Communities
continued
methods were used in the programme
such as workshops, forums or e-learning.
The participants’ satisfaction with the
initiatives of the programme were
measured through surveys; the results
showed a satisfaction rate of
82% regarding all initiatives.
New talent management cycles were
put on hold due to the merger. Instead,
there was a strong focus on the retention
of existing talent: employees with
especially high potential were offered
new job opportunities within the new
organisational structure and were given
the chance to develop new skills and
work on projects related to the merger.
In former RHI plants the annual appraisal
interview represented a central starting
point for the definition of further
development opportunities within the
Group. In Austria, the rate of interviews
conducted amounted to 89%, in
Germany to 69%, and worldwide to 64%.
In former Magnesita plants a process
called “People Cycle” was used to follow
up performance and career development
of employees from professional level to
managers and Directors. It included for
instance the assessment of competencies
as well as the creation of individual
development plans and goals. In the
current financial year the practices will
be aligned with each other so that a
newly designed process for performance
and career development reviews can be
implemented as of 2019. G4-LA11
Health and safety at work
Health and safety at work is a high-
priority topic at RHI Magnesita. It goes
beyond written policies and procedures
and constitutes an integral part of the
corporate culture. Every employee is
expected to take responsibility for their
own and their colleagues’ safety;
executives play a special role in this
regard. At the production sites,
employees are required to work with
different machines and chemicals which
may involve various health and safety
risks. In order to minimise work related
risks, the Group has introduced a number
of measures such as uniform minimum
standards for wearing personal protective
equipment, clear instructions on working
in specific working environments (e.g.
confined spaces) or with hazardous
materials as well as measures to improve
personal conduct of employees.
Occupational health and safety is part
of the integrated management system.
At the end of the year 2017, 20 sites of
the Group were certified according to
the Occupational Health and Safety
Assessment Series (OHSAS) 18001:2007.
Based on uniform definitions throughout
the Group, RHI Magnesita collects
parametres on accident development
as well as reported near accidents for
the purpose of accident prevention. As
at the end of 2017, unsafe situations are
also reported in order to further minimise
the likelihood of accidents. RHI Magnesita
also collects and analyses accident
related figures of subcontractors and
external service providers to further
reduce occupational health and safety
risks. The accident rate, defined as the
number of accidents resulting in lost time
of more than eight hours per 200,000
working hours, is determined on a
monthly basis. In addition, this figure
is a bonus-relevant indicator for the
Executive Management Team and
managers in the operations area.
The accident rate was reduced
significantly in every region and was
lowered from 1.74 in 2016 to 1.06 in 2017.
The number of days lost based on an
eight-hour working day per 200,000
working hours amounted to 28.25
compared with 33.5 in 2016. The
calculations take into account employees
of the RHI Magnesita Group and leased
personnel. The figures include former
RHI sites and since November 2017 also
former Magnesita sites that form part
of the Group since the merger. However,
data does not cover the Indian subsidiary
Orient Refractories Ltd., the Belgian joint
venture Sinterco S.A. as well as some
small sales offices. G4-LA6 Please refer to
Table 4.
Besides Group-wide campaigns and
taking into account the fact that not
every production site faces the same
challenges, RHI Magnesita conducts
campaigns tailored to regional or local
needs. In 2016 for example, a winter
campaign was implemented at selected
sites to avoid harm resulting from special
risks during the cold season.
The involvement of employees is a
key factor in preventing accidents and
occupational illnesses. 80% of lost
hours due to work related accidents
at the plants are the result of personal
misbehaviour which means that a great
number of these accidents could be
avoided. This is why RHI Magnesita
regards the improvement of behavioural
based safety of employees as one of the
most significant issues. At regularly held
Safety Minutes at the OHSAS-certified
locations, safety-relevant topics are
discussed with a focus on employees’
own behaviour. At several production
sites special observation audits have
been introduced to strengthen the safe
behaviour of employees. Additionally,
formal employer-employee committees
for occupational health and safety were
set up to work together on health and
safety topics. G4-LA5
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
3 7
Table 4: Accident rate, lost
days, fatal accidents G4-LA6
Category
Year Europe America
Asia
Total
Accidents 2017
1.87
0.21 0.47
1.06
Accidents 2016 2.58 0.56 0.69
1.74
2.75
Accidents 2015
1.85
Lost days* 2017 42.00 16.50 14.75 28.25
Lost days 2016 43.50 14.75 23.25 33.50
1.01 0.66
Lost days 2015 47.25 62.25 38.25 46.00
Fatal
accidents 2017
Fatal
accidents 2016
Fatal
accidents 2015
0
0
0
0
0
0
0
0
0
0
0
0
* Lost days mean scheduled work days. Data
only include lost days due to work-related
accidents.
Data for the years 2015 and 2016 are legacy
RHI data.
The Safety Leadership Program of
RHI Magnesita was extended to include
the training of communication skills
on health and safety related topics
in order to shape the safety culture
further. The programme also covers
legal requirements and corporate rules.
In addition, special workshops were
organised in 2017 for the plant managers
of selected plants to further improve
their safety performance. Moreover,
RHI Magnesita introduced so-called
Quick Check Booklets for employees
to do a last minute risk assessment.
A higher awareness of residual hazards
is to be reached in this way before
starting a new task.
Numerous local company agreements
regarding health and safety are in place
at the Group, for example regarding
non-smoker protection, alcohol at the
workplace or data protection relating
to accident reports and their processing.
In Austria, impulse tests have been used
since 2006 to assess psychological
stresses, which are then discussed at
workshops in order to minimise them. G4-LA8
In the financial year 2017, no work related
diseases were reported. Workers with
a high incidence or risk of disease
associated with their job are not
specifically reported. This aspect is
covered by local reporting requirements,
if legally necessary. G4-LA6, G4-LA7
Corporate benefits G4-LA2
In general, all employees are entitled to
corporate benefits. The individual benefits
exceed the legally required level and
vary according to region. All employees
without a separate bonus agreement
participate in the economic success of
RHI Magnesita and receive a bonus linked
to the Company’s economic results and,
in some cases, to the achievement of
defined goals in the team.
Where it is legally possible, the Company
supports pension plans with deferred
compensation models. In such models,
employees use part of their monthly
remuneration for pension provisions.
Moreover, RHI Magnesita provides
accident insurance and health insurance
for business travel abroad for employees
worldwide. Medical or safety-related
emergencies are especially challenging
when they occur during a business trip.
Therefore, a 24/7 emergency hotline for
medical and safety-relevant questions is
available to employees. The assistance
provided ranges from preventive advice
to concrete support on site. A country
information portal offering up-to-date
information about the destination
country, potential health and safety
risks, natural hazards and political
events supports employees in
optimally planning business trips.
Furthermore, RHI Magnesita provides
local benefits such as meal allowances,
transportation allowances, special
shopping conditions, private health
insurance as well as cultural and
sports offers.
Work-life balance
RHI Magnesita is convinced that the
best performance is achieved when it
is easy for employees to combine their
professional and private life. Flexible
working hours, home office solutions,
part-time models, advanced education
and models for returning to work after
parental leave facilitate a reconciliation
of professional and private life. At the
end of the reporting period, 10.8% of our
female employees worldwide and 0.5%
of our male employees worked part time.
In the course of the year 2017, 48 people
were on parental leave in Austria, of
whom 17 women and seven men started
their parental leave in the reporting year.
The childcare options provided by
RHI Magnesita range from kindergarten
places to childcare vouchers and
daycare. G4-10, G4-LA3
3 8
S T R AT E G I C R E P O R T
R H I M A G N E S I TA
People and Communities
continued
Table 5: Collective bargaining
agreements G4-11
At 31/12/2017
Employees
covered
Employees
not covered
Region
% Share
% Share
Western Europe
Eastern Europe
Near Middle East
Africa
North America
South America
Asia-Pacific
Total
94.2
68.3
0.0
92.6
81.25
72.4
0.0
71.85
5.8
31.7
100.0
7.4
18.75
27.6
100.0
28.15
In Brazil, employees and their families
are offered specialised support and
guidance in personal as well as financial
and legal matters such as divorce or
debt management. Moreover, an event
called “Portas Abertas” (Open Doors) is
organised every year for family members
to visit the plants and thus strengthen
the relationship between families and
the Company. In 2017, such an event took
place in Contagem, Brumado, Santa Luz,
Uberaba and Ponte Alta.
Employee representation
RHI Magnesita considers its employee
representatives worldwide business
partners. Active exchange between
management and employee
representatives was sought, for example
through participation in works council
conferences. Dealing with each other
is characterised by mutual respect
and openness, which allows solving
difficult problems together and to the
best possible satisfaction of all parties
involved. Worldwide, 71.85% of our
employees are covered by collective
bargaining agreements. G4-11Please refer
to table 5.
Internal communication
The employees of RHI Magnesita
work at more than 100 locations on all
continents. This results in a need for
reliable and prompt information within
the Group, while different languages,
time zones and cultures impose great
challenges. The combination of RHI and
Magnesita with the purpose of joining
forces and building the global leader
in refractories was also a combination of
two companies with different corporate
cultures. Thus, the topic of corporate
culture was a priority area of integration
planning. An extensive cultural survey
was conducted in both companies at
the beginning of the year 2017 with more
than 4,000 employees participating.
Based on the findings of the survey,
a team of executives defined four cultural
themes that emphasize a collaborative
and cross-functional way of working for
the benefit of customers and value fresh
thinking and new ideas. The new brand
and logo “RHI Magnesita” was also
intended to mark the starting point of
cultural transformation and were created
as a basis for a common corporate
culture. The RHI Magnesita brand helps
connect the employees of the combined
Company and demonstrates the onset
of change and transformation both
internally and externally. The rebranding
was rolled out to all locations around
the world until the completion of the
combination and thus served as an
unmistakable signal for integration.
Cultural integration and transformation
calls for completely new strategies and
tools, especially in the area of internal
communication. In November 2017,
an employee application, the
“myRHIMagnesita-App” was made
available worldwide to all employees of
the combined Company. This application
goes far beyond the classic one-way
communication channels and enables
cross-functional and cross-hierarchical
interaction; employees can comment,
discuss, exchange ideas on different
topics and build networks in a simple
way. Moreover, with the application the
Company is able to reach employees
working in production who previously had
no access to the intranet. Modern means
of online communication such as VoIP
telephony (Voice over Internet Protocol),
chat functions and online conferences
based on “Skype for Business” further
facilitate a fast and inexpensive exchange
of information. At the end of the year
2017, 50% of our employees could be
reached via the internal digital channels.
The objective is to further increase the
ratio mainly by promoting the application
among employees without a Company
email account.
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
3 9
RHI Magnesita assumes
social responsibility in
the regions where its
sites are located and
supports projects that
address local demands.
Development Cooperation and was
awarded the Trigos Austria 2017
sustainability award in the category
of “Best partnership – international
engagement”. The local stakeholders
carried on the activities after the project
ended which illustrates the sustainability
of the measures. Building on the success
of the project, in the past financial
year opportunities were explored in the
framework of a feasibility study to set up
a similar project at other production sites.
In Brazil a community relations officer is
working closely together with the local
communities at the raw material sites
to plan and implement projects that
address the demands of the communities
and help improve local conditions.
Exemplary initiatives include a project
focusing on digital inclusion by improving
the digital skills of local people and a
project helping employees and people
of the communities complete their
primary and secondary school studies.
Furthermore, the Volunteer Program with
more than 100 registered volunteers,
encourages the employees to express
their social engagement by participating
in various projects supported by the
Company.
For 2018, three topics were defined as
priority areas of social responsibility:
education and social inclusion, social
cohesion – support of various local
initiatives as good corporate citizen such
as sports, cultural and other initiatives –
as well as environment.
In addition to the digital activities,
which also included the implementation
of a new intranet and a new Company
website, an important starting point
for the cultural transformation at
RHI Magnesita was set through “town hall
meetings” and global leadership calls.
At more than 30 locations worldwide,
the Executive Management Team of RHI
Magnesita presented the key messages
on the new strategy, brand and corporate
culture, reaching more than 10,000
employees in person.
Social responsibility G4-SO1
RHI Magnesita assumes social
responsibility in the regions where its
sites are located and supports initiatives
and projects that address local demands.
In the year 2016, a guideline was
introduced in order to define clear rules
and a unified process for providing
contributions as well as to ensure
targeted donations and support
payments. Thematic priorities and the
maximum volume of contributions are
determined for the Group as a whole.
In 2016, education and social cohesion
were identified as the focal points for
donations and sponsoring activities
and approximately €0.9 million was
provided for various projects. €0.25
million was accounted for in India in
accordance with the local legal
requirements that regulate the spending
of companies in the area of social
responsibility. RHI Magnesita in Brazil
donated €0.35 million for social, health
and cultural projects in accordance with
the Brazilian tax incentive laws. G4-EC1
The demand of companies for skilled
workers is growing, this is why RHI
Magnesita started a global programme
in the year 2013, focusing on an
improvement in the technical vocational
training of young people in Mexico and
Turkey. The three-year project was 50%
co-financed by the Austrian
4 0
S T R AT E G I C R E P O R T
R H I M A G N E S I TA
Environment
and Energy
RHI Magnesita strives
to make production as
resource-friendly and
energy-efficient as
possible, especially in
terms of raw material
and energy
consumption.
At the same time, administrative
obligations by local authorities have been
permanently increasing in the previous
years. The corporate environmental policy
also reflects the Group’s commitment
to environmental protection,
nevertheless it has to be borne in mind
that the refractory industry is resource
and energy intense by its nature.
Specialists from research, development
and production work in a global network
to reduce the impact on the environment
to the greatest possible extent. A central
competence centre for environmental
protection, energy, health and
occupational safety coordinates
RHI Magnesita’s activities and defines
corporate environmental guidelines,
for example, with respect to uniform
measuring methods, in order to
ensure comparable data. The global
environmental management system of
the Group was recertified at 17 production
sites at the end of the year 2017
according to the international standard
ISO 14001:2015. The multi-site certificate
and further site certificates are published
on the corporate website. In addition,
the production sites without an external
certification also use the key elements of
the environmental management system.
Regular internal due diligences of
the plants ensure compliance with the
relevant legal requirements. Moreover,
RHI Magnesita’s products and services
also contribute to more energy-efficient
production and reduced emissions at
customers’ sites.
In 2017, the RHI Magnesita Group invested
€15.5 million in environmental measures,
which comprise environmental
investments, waste disposal costs and
services such as certifications and
consulting. For example, the second
stage of the modification of the smelter
at the Radenthein plant, Austria, was
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
4 1
completed. The focus of this second
phase was on redesigning the mixing
processes whereby diffuse dust emissions
are also reduced at the site. The entire
project is scheduled to be finished in the
current financial year. Further important
environmental projects were the
installation of a waste gas cleaning system
in Veitsch, Austria, at the hot mixers in the
tempering line as well as the installation
of a denitrification unit at the raw material
plant in Dashiqiao, China. G4-EN31
Integrated management system
The integrated management system
(IMS) of RHI Magnesita in the areas of
quality (ISO 9001), environment (ISO
14001) and occupational health and
safety (OHSAS 18001) serves as an
instrument to ensure the continuous
improvement of performance and
processes throughout the Group.
Operational and administrative processes
are audited internally and externally at
regular intervals; identified improvement
measures are subsequently implemented
and monitored as part of the continuous
improvement process (CIP). A Group-
wide CIP tool to process and track
process improvements and improvement
measures is planned to be introduced
in 2018-2019. This is another step to
network the knowledge gained through
group wide improvement initiatives.
In 2016, the quality and environmental
management systems were thoroughly
revised and adapted to meet the
requirements of the revisions of the
international standards ISO 9001 and
ISO 14001. Already existing corporate
activities such as risk management
and stakeholder management were
considered accordingly in the framework
of IMS to be in line with the new
requirements. The quality management
system of the Group is externally certified
according to ISO 9001:2015 by a
multi-site certificate at 27 sites.
SUPPORTED SDGs
Additional site certificates as well as the
full list of certificates can be found on the
corporate website.
Complaint management constitutes
a significant aspect of the quality
management at RHI Magnesita.
Customer complaint management
aims at closely monitoring customer
satisfaction and covers all relevant
aspects of a customer order. Its goal
is to identify measures to sustainably
improve the product or the service to
meet customer requirements and thus
increase customer satisfaction.
As a post-merger activity, corporate
IMS will integrate all existing systems
throughout the Group until the year
2020. This also includes a consolidated
reporting, audit and certification process.
Raw material mining G4-EN1
RHI Magnesita attaches major
importance to backward integration, that
is our own production of raw materials.
The most important raw materials are
sintered magnesia, fused magnesia
and sintered doloma. Access to and
availability of high-quality raw materials
are decisive for refractory products
because they have a significant influence
on their performance characteristics.
Deposits of the naturally occurring
minerals magnesite and dolomite can
be found all over the world. 70% of the
global magnesite deposits are located
in China, North Korea and Russia. Raw
dolomite can often be found in the earth’s
crust, however, it must have special
characteristics to be used for refractory
purposes. As access to own raw materials
provides a strategic advantage, RHI
Magnesita employs geologists and
mining engineers to further prospect
and evaluate deposits suitable for the
refractory industry.
The Group operates raw material sites on
three continents. Brumado, Brazil has the
biggest deposits; magnesite is mined in
the open-pit system at this site. Other
surface mines are situated in Turkey,
Eskisehir and Hochfilzen, Austria, while
underground mining of raw magnesite is
used at the Austrian sites Breitenau and
Radenthein. In addition, part of the raw
material supply of the site in Hochfilzen,
Austria, is secured by the recovery of
production waste, called fine tailings.
44,000 tonnes of raw materials were
returned in this way to the production
process in 2017. Dolomite is extracted
in the surface mining operation in York,
USA. Long-term mining licences secure
the access to the deposits. Moreover,
joint ventures were established to further
ensure the supply of the raw material
plants of the Company.
RHI Magnesita also pursues an alternative
method of extracting raw materials
from seawater in Europe. The seawater
process plants are located in Porsgrunn,
Norway and Drogheda, Ireland. In this
production method, the magnesium
chloride contained in seawater is
converted into magnesium hydroxide
and calcium chloride in a reactor using
hydrated lime or dolime. The magnesium
4 2
S T R AT E G I C R E P O R T
R H I M A G N E S I TA
Environment and Energy
continued
hydroxide settles in a sedimentation basin
and is then dehydrated in filter systems.
It is heat-treated to turn it into caustic
magnesia, which is then fired to become
sintered magnesia or charged to the
fusion process. This process requires
more energy than the treatment of
magnesite ore due to the two-stage
procedure, but enables higher raw
material qualities.
inevitable as carbon dioxide is already
contained in the raw material. RHI
Magnesita uses two processes for the
production of raw materials. Magnesia is
produced by firing magnesite from mines
(“dry route”), or extracted from seawater
(“wet route”). In both processes the CO2
emissions are largely raw material related;
therefore, the options to lower emissions
are limited.
Reforestation and recultivation G4-EN13
The mining of raw materials involves
interference with nature. RHI Magnesita
takes comprehensive measures to restore
natural habitats, especially in the surface
mines, but also in the surroundings of
production sites. In many cases, the
activities go beyond national regulations
and nature conservation requirements;
they are considered to be a process
that takes several years and requires
sustainable commitment. In Eskisehir,
Turkey, for example, 2,500 trees were
planted in cooperation with the
Osmangazi University and the local
forestry office in 2017. With this
campaign, the area planted with trees
has grown to 174 hectares. In Brazil an
area of 13 hectares was reforested in the
reporting period at the site in Uberaba
and an area of 7.3 hectares at the site
in Brumado. At the site in Hochfilzen,
Austria, the Schmerlhalde West mine
dump, which is located at a sea level
of 1,820 metres in the Weißenstein
magnesite mine, was also recultivated.
As is appropriate for the high Alpine
environment, plants and trees such
as mountain pines, larches and willow
cuttings were planted.
CO2 emissions G4-EN15, G4-EN16, G4-EN19
The production of raw materials for
refractories is energy-intensive and
associated with emissions. On the one
hand, the materials only obtain the
necessary refractory properties at
temperatures of 1,800°C and above; on
the other hand, carbon dioxide is released
in the treatment of raw materials. This is
For example, in the production of one
tonne of magnesia using the dry route,
1.4 tonnes of carbon dioxide are created,
which consists of 1.0 tonnes of CO2
contained in the raw material and 0.4
tonnes from the use of the fuel.
Consequently, carbon dioxide bound in
the raw material accounts for more than
70% of the emissions and cannot be
avoided in the production process. Less
than 20% of the emissions come from
the thermal energy required to separate
the magnesium oxide from carbon
dioxide and the fusion energy for crystal
formation. 10% is related to energy losses
of the plant such as heat losses and waste
gas temperature. Theoretically, a third of
this could be reduced, which
corresponds to about 0.05 tonnes of
carbon dioxide. As RHI Magnesita
continuously takes measures to enhance
energy efficiency, the physical and
thermal possibilities have been nearly
exhausted.
In 2017, the Group’s total CO2 emissions
added up to 1.95 million tonnes compared
to 1.65 million tonnes in 2016. The CO2
emissions of the former Magnesita plants
have been taken into account only for the
period after the merger and account for
around 0.3 million tonnes. The CO2
emissions of the former RHI plants were
comparable to the previous year. The
main part of CO2 emissions, 90%, was
accounted for by direct carbon dioxide
emissions, i.e. emissions related to the
Company’s own production processes.
Around 60% of the direct CO2 emissions
come from the European sites that are
subject to the emissions trading system
of the European Union and are externally
audited. The emissions of the site
Eskisehir, Turkey are shown under the
region Asia since they are not subject to
the EU emissions trading system. Indirect
CO2 emissions, which are derived from
power consumption, accounted for
10% of the total CO2 emissions. Shown
in a simplified manner, the carbon
dioxide emissions created in electricity
production are integrated based on
a European primary energy mix. Raw
material production accounted for 89%
of the direct CO2 emissions, and the
production of finished products for 11%.
The production option “dry route” was
responsible for 85% of raw material
production related carbon dioxide
emissions, while the “wet route” option
accounted for approximately 15% of the
emissions. Please refer to table 6.
Use of secondary raw materials G4-EN27
RHI Magnesita attaches great importance
on the sustainable and intelligent use of
resources. The recycling of used
refractory products constitutes one of the
major strategic initiatives of the Company
going forward. The objective is to reuse a
large part of the refractory products used
by customers as high-grade recycling
materials. Due to chemical changes of
the refractory materials during use in
customer aggregates, only a certain
portion of the scrap material has been
recovered directly to produce refractory
materials so far. RHI Magnesita intends
to tap this unused potential to a much
greater extent by applying alternative
treatment methods. The recovery of
refractory materials has several
advantages. On the one hand, it serves
to secure the supply with raw materials
in the long term and to reduce cost-
intensive raw material procurement;
on the other hand, it also enables a
significant reduction of CO2 emissions
and energy consumption. Moreover, the
recycling of scrap materials reduces the
volume of waste and cuts disposal costs.
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
4 3
Table 6: CO2 emissions in 1,000 tonnes G4-EN15, G4-EN16
Direct CO2 emissions (Scope 1)
Europe
America
Asia
Total direct CO2 emissions
Indirect CO2 emissions (Scope 2)
Total
Data of the years 2015 and 2016 are legacy RHI data.
2015
1,265
22
112
1,399
246
1,645
2016
958
14
475
1,447
200
1,647
2017
1,000
258
490
1,748
202
1,950
Table 7: Development of energy consumption G4-EN3
Energy
consumption
Natural gas
Electricity
Coal/coke
Diesel/petrol/oil
LPG/propane
2015
2,067
529
476
267
134
2016
2,264
452
520
170
10
in GWh
2017
2,530
435
647
253
12
in 1,000 GJ
2017
9,106
1,564
2,330
912
45
2016
8,151
1,626
1,873
613
36
2015
7,440
1,905
1,713
961
483
Total
3,473
3,416
3,877
12,502
12,299
13,957
Data of the years 2015 and 2016 are legacy RHI data.
Energy efficiency G4-EN3, G4-EN6
As a Company operating in an energy-
intensive industry, RHI Magnesita
attaches great importance to the concept
of “energy efficiency” for economic and
ecological reasons. To ensure competitive
production of refractory materials, a
highly energy-efficient process along the
entire value chain is necessary due to the
energy intensity, in particular in the area
of raw material production. Moreover, the
efficient use of energy contributes to the
reduction of CO2 emissions. In 2016, the
Group’s absolute energy consumption
totalled 3,880 gigawatt hours compared
with 3,420 gigawatt hours in 2016.
The increase in energy consumption
compared with 2016 is mainly attributable
to the combination of RHI and Magnesita.
The energy consumption of the former
RHI plants was comparable to 2016.
Please refer to table 7.
The energy mix in the RHI Magnesita
Group consists of natural gas, electricity,
diesel, petrol, oil, liquefied petroleum
gas (LPG), propane, coal and coke.
Renewable energies cannot be used for
reasons related to production technology,
as the required firing temperatures
cannot be achieved with these fuels.
The improvement of the specific energy
consumption, which is on the one hand
achieved through the continuous
development of processes and on the
other hand through investments, is
supported at certain European production
sites by the energy management system
according to ISO 50001. The Group has
set the target to reduce specific energy
consumption, i.e. energy consumption in
relation to production volume, by 0.5%
per year. In 2016, this target was achieved
again and savings of 1,930 megawatt
hours were realised. The target set is
highly ambitious, as the specific energy
requirements of the Group heavily depend
on the product mix and the capacity
utilisation of the plants. If a larger volume
of products of an energy-intensive
product group is produced, specific
4 4
S T R AT E G I C R E P O R T
R H I M A G N E S I TA
Environment and Energy
continued
energy consumption will increase.
In addition, customers’ growing quality
demands often lead to higher firing
temperatures, longer firing times or more
demanding after-treatment, which causes
higher energy consumption in the
manufacturing process. At the same time,
these refractory solutions help support the
customers’ energy efficiency efforts. Fired
refractories are predominantly produced
in tunnel kilns, which are among the most
energy-efficient firing aggregates if
utilisation is consistent and high and firing
temperatures are stable. If utilisation
fluctuates and batch sizes decrease, these
advantages cannot be used. Moreover, the
demands placed on flue gas purification
are increasing. However, additional energy
is required to ensure a clean thermal
afterburning process at a minimum
temperature of 750°C. Due to the process
improvements successfully implemented
in the past, the possibilities for further
improvements in rotary kilns are only
marginal. On the one hand, a minimum
amount of dissociation energy is required
to produce sinter; on the other hand, there
are also mechanical limits to further
insulation.
Waste management G4-EN23, G4-EN27
RHI Magnesita continuously reduces
ceramic scrap and returns it to the
production process in order to minimise
the quantity of waste. Residual materials
that cannot be avoided are handled by
licensed waste companies. In 2016, the
Group reported 52,000 tonnes of
non-hazardous waste and 3,750 tonnes
of hazardous waste. Distinction between
non-hazardous and hazardous waste
is regulated in the respective national
legislations. The increase in the total
amount of waste compared with 2016
is mostly attributable to the merger.
The quantities of hazardous and non-
hazardous waste of the former RHI sites
were comparable to 2016. Please refer
to table 8.
75% of the waste consisted of ceramic
scrap and mineral waste, which could not
be returned to production so far due to
mixing with other materials or because
of insufficient grain size. Internal residues
can only be reused to a limited extent.
This primarily depends on the product
mix as only defined residues can be used
for high-grade products. In the reporting
year, the Group placed a strong focus in
its environmental programme on the
efforts to avoid creating ceramic waste
through the help of technical and
organisational measures. Positive results
were seen in the reporting period, for
instance, in China where an increasing
share of mineral residues such as filter
dusts could be separated and sorted out
at a very early stage and when meeting
quality requirements be returned to the
production process.
Since 2009, the Group has been working
with an innovative packaging solution
for refractories that was in use at 13
production sites in 2016. The intelligent
stretch foil offers a high transport
protection and also reduces the amount
of packaging waste at the customer site,
as it does not require cardboard
packaging and tyre bands made of steel
or plastic. In addition, the replacement
of conventional shrink packaging with
stretchhood packaging leads to savings
of around 280,000 cubic metres of gas
per year according to calculations at pilot
plants. Of a total of 1,300,000 packaging
units shipped in 2017, 75% were
packaged using this method compared
to 84% in the year 2016. The decrease
in the share of stretchhood packaging
is due to the merger between RHI and
Magnesita, as the method is still to be
extended to former Magnesita plants.
Reduction of dust emissions G4-EN21
Dust is primarily generated in firing and
treatment processes. RHI Magnesita
continuously works on maintaining both
collected and diffuse dust emissions at a
low level. This is achieved among other
things through preventive and systematic
maintenance and service. In the reporting
year, the programme focusing on a
reduction of diffuse dust was continued
as an essential part of the environmental
programme. Major projects at the
Austrian sites in Radenthein and Veitsch
as well as structural adaptations of
material conveyor belts at handover
points produced remarkable successes.
In addition to positive effects on the
environment, there is also an economic
benefit as the material is maintained in
the production cycle.
Water consumption G4-EN8
Water is primarily used for cooling
purposes in the Group, but also to wash
raw materials. A very low percentage
of the water is used for briquetting and
in production as part of the recipe. In
the financial year 2017, RHI Magnesita
used 5.5 million cubic metres of water,
compared with 5.2 million cubic
metres in 2016. The increase in water
consumption compared with the previous
year is mostly attributable to the
combination of RHI and Magnesita.
The Austrian sites accounted for 75%
and primarily utilised ground water.
At these sites, the use of water is the most
environmentally friendly type of cooling
since no cooling circuits or energy have
to be employed for alternative air cooling.
At locations where water is scarcer, for
example in Mexico and India, air cooling
systems, among other things, and
process water for irrigation are used.
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
4 5
Sustainable transport concepts G4-EN30
RHI Magnesita strives to optimize its
transport routes and transport costs
through efficient logistics concepts and
to minimise negative impacts on the
environment. Measures including the
reduction of empty trips, optimal
utilisation of the means of transport, an
increase in the share of purely rail-based
transport or a reduction of traffic on roads
through combined transport contribute
to realizing these requirements. The
accomplishment of the targets linked
with these measures is regularly reviewed
internally and externally as part of the
integrated management system. In 2016,
the Group successfully increased the
share of rail transports from the Austrian
plants as a follow-up measure to the
“Distribution Network Study” project that
was completed in 2016. Moreover, the
number of supra-regional round trips for
raw material and finished good flows
within the Group was increased. By
means of round trips, empty trips can be
avoided and thus negative environmental
effects can be reduced by cutting back
on kilometres driven.
As a post-merger activity RHI Magnesita
launched the “Transport Logistics
Network Study” project, a comprehensive
analysis of the combined logistics
network of RHI and Magnesita using
state-of-the-art optimisation tools.
Based on this analysis as well as on the
results of workshops with strategic
logistics partners, both economic and
ecological benefits are planned to be
generated through optimised utilisation
of all means of transport, reduced ton
kilometres, a streamlined warehousing
network, optimised selection of transport
modes and an extended implementation
of round trips. The improvement
measures will start to be implemented
in the first quarter of 2018.
Table 8: Development of waste volume G4-EN23
Hazardous waste
Non-hazardous waste
Waste in tonnes
Europe
America
Asia
Total
2015
2,160
60
100
2,320
2016
2,450
40
30
2017
3,620
90
40
2015
2016
2017
38,000
30,000
32,000
11,000
9,000
3,000
11,000
10,000
10,000
2,520
3,750
58,000
44,000
52,000
Data of the years 2015 and 2016 are legacy RHI data.
As a result of the combined efforts of
R&D and the Austrian production plant
Radenthein, RHI Magnesita developed
an alternative and coal tar pitch could be
substituted by non-hazardous petroleum
based materials. The existing production
process was adapted to the new
substance and no negative impact on
product performance was identified.
By using non-hazardous raw materials,
the amount of hazardous waste is
reduced when refractory products
are disposed of. Another advantage
is the fact that products not containing
hazardous substances can be reused
more easily as no test of substitute
substances is required.
Use of substitute materials to protect
health and the environment G4-PR1, G4-EN27
In order to reduce the effects of hazardous
substances on the health of employees of
RHI Magnesita and those of the customers
as well as on the environment, research
and development strongly focuses
on the search for substitute materials.
New substances are tested for potential
dangers before they are used, and
provided that appropriate alternatives
are available, hazardous materials are
replaced by less hazardous or non-
hazardous substances. The classification
in accordance with chemical legislation
and an evaluation of the impact of the
substances on health and the environment
guarantee a safe production process and
the safe use of the products at the
customer’s site.
RHI Magnesita complies with the relevant
legal requirements concerning chemicals.
The authorisation process of the REACH
Regulation (EC No 1907/2006,
“Registration, Evaluation, Authorisation
and Restriction of Chemicals”) provides
for strict requirements for instance
regarding the use of the substance
coal tar pitch. For more than 30 years,
coal tar pitch was the only material used
for vacuum-pressure impregnation of
refractory bricks and functional products.
4 6
S T R AT E G I C R E P O R T
R H I M A G N E S I TA
Innovation,
Research and
Development
Innovative power is one of the key
prerequisites for RHI Magnesita to
remain competitive in the contested
global refractories market and to
secure sustainable profitable growth.
Addressing ideas systematically
and turning them into marketable
products, processes and services
is a decisive lever for RHI Magnesita
to generate growth.
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
4 7
The Company builds on the innovative
power of its employees to live up to its
claim of technology leadership.
Innovation management gives creativity
a structure and ensures that ideas are
converted to marketable products,
services and new business models.
Innovation management
The “Innovation Management”
department, which was established
in the year 2013, was integrated into the
“Corporate Development” department
in 2016. This represents an important
step in the harmonisation of the key
topics strategy, innovation and mergers
and acquisitions (M&A). Bundling these
individual, yet interlinked disciplines
allows RHI Magnesita to systematically
analyse, develop and leverage potentials
in targeted markets and technologies.
Innovation management translates
identified strategic areas into the context
of the Company, aligns them with the
Company’s overall strategy and ensures
their implementation. The close
connection with the M&A team supports
the decision-making as to whether the
development of certain technologies
should be pursued by the Company itself
or through external M&A projects. The
acquisition of the Swedish Agellis Group
in 2016 demonstrates how the integration
of technology leaders from different
industries can support the overall
innovation strategy of RHI Magnesita.
Not only does the advanced
measurement technology for both steel
and non-ferrous plants broaden RHI
Magnesita’s overall portfolio, but it also
offers opportunities for future innovative
products and services in order to serve
customers with the best possible
production assistance. The department
“Corporate Development” therefore
assumes a trans-disciplinary as well as
cross-divisional function, which ensures
the strict coherence of all strategic
activities within the Company, while a
systematic process supports efficient and
effective procedures within the Group.
SUPPORTED SDGs
In workshops and as part of the
continuous improvement process, ideas
are generated and processed in a
structured manner based on a defined
innovation process.
The improvement and further development
of manufacturing processes is one of the
main topics of innovation management
at RHI Magnesita. The Company’s clear
objective is the identification, development
and utilisation of new, high-performance
production technologies and services
that lead to a significant boost in
efficiency and enable the manufacturing
of products with superior material
properties and/or functionalities.
Through this approach RHI Magnesita
not only creates the basis for patentable,
innovative processes, but also sets new
standards in the field of refractories.
The ongoing advancements due to
digitisation and the increasing degree
of automation have a significant
contribution to the development of
existing production processes and
services. Through analysis, evaluation
and prioritisation of existing technologies,
innovation management ensures their
quick and seamless integration. Trends
such as Big Data, connectivity, artificial
intelligence and predictive maintenance
are only a few aspects which open up
new opportunities for the Company. The
clear objective is to align RHI Magnesita’s
activities to new trends and to implement
new business and service models that
fulfil the demands of the Company’s
stakeholders.
Intellectual property: patents and
trademarks
Based on patents and trademarks, the
new products, systems and technologies
of RHI Magnesita are internationally
protected in the market and their abuse
is prevented.
RHI Magnesita continuously examines
the patentability of newly developed
products, systems and technologies in
order to provide targeted intellectual
property protection for the Group’s new
refractory solutions, thus strategically
securing the Company’s market position
as a global leader in the refractory
industry. In 2016, 15 priority patent
applications were filed to provide a
competitive advantage for the Company.
They included patent applications
regarding the geometries of refractory
components, improved technologies
for customer furnaces and advanced
compositions of refractory raw materials.
After the merger of RHI and Magnesita
the patent portfolio comprised 170 patent
families at the end of the year 2017.
A well-established monitoring process
is used to analyse competitors’ patent
activities in the market and to further
secure legal compliance.
4 8
S T R AT E G I C R E P O R T
R H I M A G N E S I TA
Innovation, Research and Development
continued
RHI Magnesita: new trademark
The trademark portfolio of the Group
consists of trademarks such as Radex,
Deltek, Compac, Ankerharth, Dola,
Stampmag, Sindoform or Gnox; this
portfolio is currently optimised to the
market needs. G4-4
The new trademark “RHI Magnesita” and
the logo have been internationally
registered. The logo, formed from the
symbol of infinity and the shapes of the
core products of the Company, represents
the continuity of our commitment and
service, the interconnection of our people
and customers worldwide and the
underlying solidity of our products.
Organisation and strategic approaches
of research and development
The research and development division
consists of four R&D centres which are
located in Leoben (Austria), Contagem
(Brasil), York (USA) and Dalian (China).
At the end of the year 2017, more than
240 people with 17 different nationalities
worked in research and development;
the share of women was 25%. G4-LA12
In line with the corporate strategy,
targeted research and development
activities were continued in the reporting
period. The most important R&D focal
points included:
¥ the further development of special
ceramics such as isostatically pressed
components, complex cast products
and slide gate plates, among others in
view of the optimisation of clean steel
applications
¥ the development of methods for
non-destructive material testing in line
with quality assurance and the
optimisation of production processes
through Big Data analyses of the
production parametres
¥ the use of recycled raw materials and
research of new methods for the
treatment and reuse of refractory
materials changed during operation
¥ the use of new raw materials and
combination of materials
¥ the development of environmentally
friendly binder systems
The most important scientific cooperation
partners in 2016 included Austrian higher
education institutions such as the
University of Leoben, Johannes Kepler
University, Joanneum Research, the
University of Graz and the Graz University
of Technology, the Vienna University
of Technology, as well as the Federal
University of São Carlos in Brazil, the
Slovak Academy of Sciences, McGill
University in Canada and Fraunhofer-
Gesellschaft in Germany. RHI Magnesita
also worked closely with technology
leaders in the steel industry such as
voestalpine Stahl Donawitz, voestalpine
Stahl Linz, Böhler Edelstahl and Primetals
Technologies at competence centres
promoted by the Austrian Research
Promotion Agency.
Research costs before subsidies and
capitalisation amounted to €24 million
in 2017.
Basic research
In basic research, which is often
conducted in collaboration with scientific
cooperation partners and within the
framework of subsidised competence
centres, an important focus lies on
gaining an understanding of corrosion
and erosion mechanisms of RHI
Magnesita products in different customer
processes. The further development of
the models for the simulation systems
used at RHI Magnesita also takes place
as part of scientific collaborations.
The simulation and modelling methods
used include the finite element method
(FEM), computational fluid dynamics
(CFD), the discrete element method
(DEM), thermochemical simulations and
water modelling. These methods enable
the analysis of the flow conditions of
liquid steel from the steel ladle through
the tundish to solidification in the mould.
Based on the models, customer-specific
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
4 9
The processes are also examined using
modelling and simulation. The objective
is to further develop the environmental
standards and to lower the energy
consumption of RHI Magnesita.
The area of material development looks
for alternatives for substances, which may
no longer be used within the EU after the
implementation of the REACH Regulation
(EC No 1907/2006, “Registration,
Evaluation, Authorisation and Restriction
of Chemicals”) or are considered to cause
concern. New developments with
reduced emissions have already been
successfully placed in the market.
design and refractory solutions are
offered. In the reporting year, the
understanding of flow-relevant
parametres in the casting channel of
the slide gate system was improved using
the new water model for the simulation
of slide gate valves.
Development of new products and
production methods
Innovative raw materials and production
processes provide the basis for new
products. New fused raw materials are
developed based on phase-theory
considerations and thermochemical
calculations at the test plants in Leoben
and Contagem and developed further
until ready for series production at the
production facilities. In addition to classic
oxidic raw materials, research also deals
with non-oxidic raw materials, which
have turned out to be promising.
A new technology for the application
of a thin material layer in the bore of
isostatically pressed refractories has been
developed. This R&D advance enables
that a thin insulating and/or anti-clogging
layer can be introduced into a range of
continuous casting products.
Optimisation of existing products and
production methods as well as process
improvements
To enhance existing production
processes, the process data and data
from the automatic product test facilities
are interlinked and analysed on the basis
of Big Data approaches. In the framework
of a project launched in the year 2016
in cooperation with VRVis, a leading
Austrian research institution in visual
computing, a customised software tool
has been developed and is being
permanently updated for the rapid
processing of complex mass data in
order to be able to derive proposals
for optimisation.
In order to optimize products and adapt
them to customer requirements, used
refractory materials taken from a variety
of customer aggregates are thoroughly
studied. The proposals for optimisation
derived from the analyses lead to a longer
service life of refractory linings and to
improvements of the customer’s specific
process costs. The results of these
analyses often serve as a basis for
product innovations.
The close interdisciplinary cooperation
between material development, design
development in the simulation
department and production process
development enables further
improvements of the properties of
existing products and optimal adaptation
to customer needs. Examining raw
material alternatives to existing products
in order to secure raw material availability
and to optimize the customer’s total
cost of ownership is also one of the
fundamental activities of research
and development.
Knowledge transfer to customers is an
important cornerstone in R&D. At the
Training Center Cement in Leoben,
Austria, customers are familiarised with
RHI Magnesita’s refractory products and
lining techniques in seminars lasting
several days. The participants can learn
and practice handling refractory products
on a full-scale model of a cement rotary
kiln using modern lining machinery.
Environmental protection and energy
efficiency G4-EN6, G4-EN27
Together with specialists at the
production sites, processes and process
data are documented, analysed and
measures are derived to stabilise
processes and save resources. The main
focus is on energy-intensive processes
such as drying, curing and sintering.
5 0
G O V E R N A N C E
R H I M A G N E S I TA
Governance
Board of Directors
Executive Management Team
Corporate Governance
Audit Committee Report
Remuneration Committee Report
Directors’ Remuneration Policy
Annual Report on Remuneration
52
56
58
68
70
73
82
Governance
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
5 1
5 2
G O V E R N A N C E
R H I M A G N E S I TA
Board
of Directors
Executive
Directors
STEFAN BORGAS
A German national, Chief Executive
Officer of the Company with effect from
October 2017.
OCTAVIO LOPES
A Brazilian national, Chief Financial
Officer of the Company with effect from
October 2017.
Stefan was Chief Executive Officer at RHI
from December 2016 until October 2017.
From 2012 to 2016, he was president
and Chief Executive Officer at Israel
Chemicals Ltd. Between 2004 and
2012, he was Chief Executive Officer
at Lonza Group. Before this, he worked
at BASF Group, where he held various
management positions from 1998 to
2004. Stefan was elected new President
of the World Refractories Association
in January 2018. Stefan has a business
administration degree from the University
Saarbrücken and an MBA from the
University of St. Gallen-HSG.
Octavio was Chairman of Magnesita from
July 2016. He was Chief Executive Officer
of Magnesita from June 2012 until June
2016 and Chief Executive Officer of
Magnesita International from June 2016
until October 2017. He held several
positions, including Managing Director
and Partner, at GP Investments, between
1997 and 2016. From 2004 until 2007,
he was the Chief Executive Officer of
Equatorial Energia. Octavio has
previously served as a member of the
Board of several companies including
Magnesita, BHG, San Antonio, Tempo,
Equatorial, CEMAR, Allis, Gafisa, and
Submarino. He holds a Bachelor's degree
in economics from the University of São
Paulo and an MBA from the Wharton
School at the University of Pennsylvania,
of which he is a member of the Latin
American Executive Board.
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
5 3
Non-Independent
Non-Executive
Directors
HERBERT CORDT
An Austrian national, Chairman of the
Company with effect from October 2017.
Herbert was Chairman of the Supervisory
Board of RHI from 2010 until 2017 as well
as Vice-Chairman from 2007 to 2010.
He was a member of the Advisory Board at
Delta Partners, Dubai from 2013 to 2015
as well as Watermill Group Boston, where
he is serving since 2013. Herbert was a
senior advisor at Citigroup in London from
1999 to 2014. From 1992, he has been
Managing Partner at CORDT & PARTNER
Management- und Finanzierungsconsulting
GesmbH. He was Managing Director at
GASKOKS – Österreichische
Warenhandelsgesellschaft mbH from
1991. In this capacity he served on several
Supervisory Boards of leading Austrian
Industrial companies. From 1979 to 1984,
he was Vice Governor at Österreichische
Postsparkasse. He also worked as adviser
for the Federal Finance Minister of Austria
from 1975 to 1979. Additionally, he is a
member of the Board of Advisors for the
MSFS Program, School of Foreign Service
at Georgetown University, Washington,
DC since 2015. Herbert graduated from
the Diplomatic Academy of Vienna
(Diplomatische Akademie Wien) and
obtained a Doctorate in Law from the
University of Vienna as well as a Master of
Science Degree in Foreign Service from
Georgetown University Washington D.C.
DAVID A. SCHLAFF
An Austrian national, Non-Executive
Director of the Company with effect from
October 2017.
David is Chief Investment Officer at M-Tel
Holding GmbH since 2008, where he is
responsible for due diligence and
acquisitions as well as the management
of investments. From 2004 to 2007, he
was a member of the management team
at LH Financial Services Corporation,
where he developed and implemented
a new corporate strategy. Previously he
worked for Forstmann-Leff Associates
Inc. David was a member of the
Supervisory Board at RHI from 2010 until
2017. Between 2007 and 2011, he was
also a member of the Board of Advisors at
Latrobe Specialty Steel Company. From
2010 to 2011, he was a member of the
Supervisory Council at A/S Ventspils
Nafta. He holds a Bachelor’s Degree
in Business Administration from the
Interdisciplinary Center Herzliya in Israel.
STANISLAUS PRINZ ZU
SAYN-WITTGENSTEIN
A German national, Non-Executive
Director of the Company with effect from
October 2017.
Stanislaus was Chief Executive Officer
and Chief Restructuring Officer at
Energieservice Westfalen Weser
GmbH in 2015. From 2013 to 2015, he
was Chief Financial Officer and Deputy
Chief Executive Officer at Westfalen
Weser Energie GmbH & Co KG and
member of the Supervisory Boards of
Stadtwerke Lage GmbH and Stadtwerke
Hessisch-Oldendorf GmbH. Between
2004 and 2012 Stanislaus held
numerous management positions
within the E.ON group. Previously, he was
Managing Director at GMD Gesellschaft
für medizinische Datenverarbeitung mbH
and Director at the Deutsche Bank AG,
Investment Banking Division. He was a
member of the Supervisory Board of RHI
since 2001 until 2017. Between 2000
and 2002, he was a member of the
supervisory board of Didier Werke AG.
Since 2016, he is a member of the
Supervisory Board of Endurance Capital
AG, a German industrial holding
company that invests in mid cap special
situations. Stanislaus holds a Master’s
Degree in Business Administration from
MIT Sloan School of Management and
studied Business Administration and
Economics at Université de Fribourg
and is a Chartered Financial Analyst.
FERSEN LAMBRANHO
A Brazilian national, Non-Executive
Director of the Company with effect from
October 2017.
Fersen is a member of the board and
Chairman of GP Investments. He joined
the firm in 1998 and became a managing
director in 1999. Prior to joining GP,
Fersen was CEO of Lojas Americanas,
where he worked for 12 years and was
a board member from 1998 to 2003.
Fersen currently serves on the boards
of Centauro, GP Advisors, Spice Private
Equity, LEON Restaurants and RHI
Magnesita. He has previously served
as chairman of the boards of Oi, Contax,
Gafisa, ABC Supermercados and
Magnesita. In addition, he previously
served on the board of BRMalls,
San Antonio, Allis, BHG, Estácio,
BRZ Investimentos, Tele Norte
Leste Participações, São Carlos
Empreendimentos e Participações,
Playcenter, Shoptime, Farmasa, BR
Properties, GP Investments Acquisition
Corp and Americanas.com. He is also
a board member of several non-profit
entities, such as Fundação Bienal de
São Paulo, the São Paulo Museum of Art
and COPPEAD-UFRJ. Fersen holds a
Bachelor's degree in civil engineering
from the Universidade Federal do Rio de
Janeiro and a Msc degree in business
administration from COPPEAD-UFRJ.
He also completed the Owner President
Management Program at the Harvard
Business School.
5 4
G O V E R N A N C E
R H I M A G N E S I TA
Board of Directors
continued
Independent
Non-Executive
Directors
JAMES LENG
A British national, Deputy Chairman
and Senior Independent Director of the
Company with effect from October 2017.
James has had an extensive non-
executive career with a number of
international publicly listed companies
which include Chairman of Corus Group
plc (2001 to 2008), the global steel
company sold to Tata Steel of India,
Chairman of HSBC Bank plc (2010 to
2013) and Chairman of Nomura European
Holdings plc (2015 to 2017). Directorships
include AON plc (risk management
services), Alstom SA (engineering),
Pilkington plc (glass), Hanson plc
(aggregates and building products) and
IMI plc (engineering). Other notable
positions include drectorships of TNK-BP
(Russian oil and gas) and lead Non-
Executive Director at the UK’s Ministry of
Justice. In the early part of 2009, he was
a Director and Chairman designate of Rio
Tinto. In an executive capacity James was
Chief Executive Officer of two publicly
listed companies: from 1995 to 2001 at
Laporte PLC, an international specialty
chemical company, and before that at
Low & Bonar PLC, a diverse materials and
packaging company. His early business
years were spent at John Waddington
plc, where he was Managing Director of
a number of their subsidiaries including
consumer goods and packaging
companies.
CELIA BAXTER
A British national, Non-Executive
Director of the Company with effect
from October 2017.
JOHN RAMSAY
A British national, Non-Executive
Director of the Company with effect
from October 2017.
Celia is currently a Non-Executive
Director at Bekaert SA and a Non-
Executive Director and Remuneration
Chair of Senior PLC. Celia was Director
of Group Human Resources for Bunzl plc
from 2003 to 2016. Previously she served
as Head of Human Resources of
Enterprise Oil plc, having been Director of
Group Human Resources at Tate & Lyle
plc. She started her professional career in
1982 at the Ford Motor Company where
she held several management positions.
In 1988 she joined KPMG Peat Marwick
as a Human Resources consultant. She
holds a PhD and BSc in botany from the
University of Reading.
ANDREW HOSTY
A British national, Non-Executive
Director of the Company with effect
from October 2017.
Andrew is Chief Executive of the Sir
Henry Royce Institute for Advanced
Materials. Previously, he was Chief
Operating Officer at Morgan Advanced
Materials plc, an appointment he held
from February 2013 until January 2016.
Before this, he held a number of senior
positions within Morgan Advanced
Materials plc, including as Chief
Executive Officer of Morgan Ceramics.
He joined the Morgan Advanced
Materials plc board in July 2010. Andrew
is currently also a Non-Executive Director
of Consort Medical PLC and of the Rights
and Issues Investment Trust PLC, and
was previously a Non-Executive Director
of Fiberweb plc from 2012 to 2013 and
President of the British Ceramics
Confederation from 2003 to 2005.
He is a fellow of the Royal Academy of
Engineering, and holds a PhD from the
Faculty of Engineering at the University of
Sheffield and a BSc in materials science.
John served as Chief Financial Officer of
Syngenta AG from 2007 to 2016 and was
also Interim Chief Executive Officer from
October 2015 to June 2016. Prior to this,
John served as Group Financial
Controller of Syngenta from 2000 to
2007 and as the Finance Head of Asia
Pacific for Zeneca Agrochemicals from
1993 to 1999. Earlier in his career he was
a Financial Controller of ICI Malaysia and
regional controller for Latin America.
Before joining ICI in 1984, he worked in
audit and tax at KPMG. John has been
a member of the Supervisory Board at
Koninklijke DSM N.V. since May 2017.
John was appointed a Non-Executive
Director of G4S plc with effect from
January 2018. He is a Chartered
Accountant and also holds an Honours
Degree in accounting.
WOLFGANG RUTTENSTORFER
An Austrian national, Non-Executive
Director of the Company with effect from
October 2017.
Wolfgang served as a member of the
Supervisory Board of RHI AG from 2012 to
2017 and, following the sickness related
absence of the CEO, as the Interim Chief
Executive Officer as a Member of the
Management Board of RHI AG from
26 June 2016 until 30 November 2016.
He started his professional career in 1976
at OMV, where he was a member of the
Management Board from 1992 to 1996,
Vice-Chairman of the Management
Board from 2000 to 2001 and Chief
Executive Officer and Chairman of the
Management Board from 2002 to 2011.
Between 1997 and 1999, he served as
Secretary in the Austrian Federal Ministry
of Finance. He was a member of the
Administrative Board of Roche Holding
from 2007 to 2011. From 2010 to 2014,
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
5 5
Employee
Representative
Directors
FRANZ REITER
An Austrian national. Director/Employee
representative from October 2017.
Franz has been with the Group since
1977 and is an Administrator at
Veitsch-Radex GmbH.
MICHAEL SCHWARZ
A German national. Director/Employee
representative from October 2017.
Michael has been with the Group since
1983 and is a member of the workers
council at Didier Werke A.G.
he was Chairman of the Supervisory
Board at Vienna Insurance Group as well
as a member of the Supervisory Board
at Telekom Austria. He was Chairman of
the Supervisory Board at CA Immobilien
Anlagen AG from 2009 to 2016.
Currently, Wolfgang is a member of the
Supervisory Board at Flughafen Wien AG
(since 2011), as well as a member of the
Administrative Board at NIS a.d. Naftna
industrija Srbije, Novi Sad, (since 2012)
and Chairman of the Supervisory Board
at Telekom Austria AG (since 2015) and a
member of the Supervisory Board of Erne
Fittings GmbH (since 2017). He graduated
from the Vienna University of Economics.
KARL SEVELDA
An Austrian national, Non-Executive
Director of the Company with effect from
October 2017.
Karl was Chief Executive Officer from
June 2013 to March 2017 and Deputy
Chief Executive Officer from 2010 to
2013 at Raiffeisen Bank International
AG. Previously, he joined Raiffeisen
Zentralbank Österreich AG in 1998,
where he was a member of the Board,
and responsible for corporate customers
and corporate, trade and export finance
worldwide until 2010. From 1986 to 1997,
he held several senior management
positions at Creditanstalt-Bankverein.
In 1985 he worked at Creditanstalt-
Bankverein in London and New York.
Between 1983 and 1985, he held the
position of Secretary to the Federal
Minister for Trade and Industry of
Austria. From 1977 to 1983, he was
responsible for corporate finance
and export finance at Creditanstalt-
Bankverein. Karl holds a Master and
Doctorate Degree from the Vienna
University of Economics and Business.
5 6
G O V E R N A N C E
R H I M A G N E S I TA
Executive
Management Team
3
6
1
4
7
2
5
8
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
5 7
1. STEFAN BORGAS –
CHIEF EXECUTIVE OFFICER
See biography on page 52
2. OCTAVIO LOPES –
CHIEF FINANCIAL OFFICER
See biography on page 52
3. GERD SCHUBERT –
CHIEF OPERATIONS OFFICER
After completing his doctorate in mineral
engineering at RWTH Aachen, Gerd
started his career at Degussa AG, where
he held several positions including
manager of a Brazilian plant, technical
director and plant group manager.
Following the acquisition by Ferro
Corporation, he managed the production
and technology divisions as Global
Operations and Restructuring Director.
In early 2014, he took over the function
of COO at the Pfleiderer Group and was
appointed to the Management Board of
RHI AG as COO/CTO in January 2017.
4. REINHOLD STEINER –
CHIEF SALES OFFICER
After completing his studies in petroleum
science at the University of Leoben,
Reinhold Steiner began his professional
career as Assistant to the Board of
voestalpine Schienen GmbH and held
several management positions in the
voestalpine Group. After working as a
managing director at the Russian CHTPZ
Group, he was a managing director in
the management consulting field before
joining RHI in 2012 as Head of Sales CIS
region. In 2013, he was appointed to the
Management Board of the RHI Group as
CSO Steel Division.
5. LUIS RODOLFO BITTENCOURT –
CHIEF TECHNOLOGY OFFICER
Luis has been working for Magnesita
for 31 years. He held several positions
in his career on the refractory and
mining activities starting as Raw Material
Research Engineer and becoming Raw
Material Research Manager, Mining/
Geology Manager, Technical Purchasing
Manager, Plant Manager, Quality Control
Manager, R&D Director, Minerals VP,
and R&D VP. He is currently President
of Magnesita Refratários in Brazil and
the Brazilian Refractory Producers
Association. He holds a Bachelor's
degree in mining engineering from
the Federal University of Minas Gerais-
Brazil, a Master’s degree in Metallurgical
Engineering from the University of Utah
(USA), and a PhD degree on Ceramic
Engineering from the University of
Missouri (USA).
6. THOMAS JAKOWIAK – EXECUTIVE VICE
PRESIDENT INTEGRATION MANAGEMENT
After studying applied geosciences at the
University of Leoben, Thomas started his
professional career as a sales engineer
with R&A Rost GmbH in Vienna. In the
year 2000, he joined the RHI Group
and was soon put in charge of the sales
management for the business unit in
the Asia-Pacific region. Since 2005, he
has been the Head of the Cement/Lime
business unit and was appointed to the
Management Board of RHI AG as CSO of
the Industrial Division at the beginning of
the year 2016.
7. LUIZ ROSSATO – EXECUTIVE VICE
PRESIDENT CORPORATE DEVELOPMENT
Luiz Rossato is Vice President and Head of
Corporate Development (Strategy, M&A,
Innovation and PMO) of the Company
since October 2017. Mr. Rossato joined
Magnesita Refratarios in 2008 and
was the Vice President of Legal, M&A
and Institutional Relations, as well as
responsible for Corporate Communication,
being a member of the Executive
Committee of Magnesita Refratários from
2012 until 2017. He graduated in law at
Mackenzie Presbyterian University, in
Brazil, and has more than 20 years of
work experience. He worked in renowned
law firms in Brazil, including Mattos Filho,
Veiga Filho, Marrey Jr. and Quiroga
Advogados, where he has participated
in important M&A, Capital Market and
Corporate Law transactions in general, as
well as experience in international offices
(New York and Milan). He was also a
corporate lawyer and company secretary
at Abyara Real Estate Planning until the
beginning of 2008. In 2012, he received
the “General Counsel of the Year – Latin
America” award by the International Law
Office and the Association of Corporate
Counsel, and in 2013 he attended the
Advanced Management Program at
Wharton University in the United States.
8. SIMONE OREMOVIC – EXECUTIVE
VICE PRESIDENT PEOPLE AND
CULTURE MANAGEMENT
Simone is Executive Vice President
People and Culture Management at RHI
Magnesita since November 2017. She is
in charge of all people topics across the
globe and is located in our Headquarters
in Vienna. Simone has 20 years of
experience in Human Resources. Before
joining RHI Magnesita, she started her
career in HR at General Electric and
worked in different operational and
corporate roles. Her main focus was
on leadership and talent management
as well as HR process. She is a certified
Six Sigma Master Black belt. After GE she
changed to Telekom Austria Group as HR
Director and then to IBM Austria, also in
a leading HR role. From 2013 to 2017 she
was a member of the Management Board
of Baxter AG and in charge of global HR
of the plasma production sites. Simone
has a degree from the European Business
School (Paris) and of the Economic
University of Vienna.
5 8
G O V E R N A N C E
R H I M A G N E S I TA
Corporate
Governance
RHI Magnesita N.V. (the “Company”) was incorporated as a public
company (naamloze vennootschap) under the laws of the Netherlands,
under the name RHI-MAG N.V., on 20 June 2017. The articles of
association of the Company (the “Articles of Association”) were most
recently amended with effect as of 26 October 2017, amending, among
other amendments, the name of the Company into RHI Magnesita N.V.
The Strategic Report, together with the Governance Report,
constitutes the report of the Directors within the meaning of
Section 2:391 of the Dutch Civil Code and has been approved
and signed by RHI Magnesita’s Board.
re-election, with an expectation that the Board will then
consider extending tenure for a further three-year period.
All Directors (other than Employee Nominated Directors) will
seek re-election on an annual basis.
Compliance with the Dutch Corporate Governance Code
and the UK Corporate Governance Code
The Company is committed to the highest standards of
corporate governance. The board of the Company (the “Board”)
has applied the principles of, complies and intends to continue
to comply with the requirements of, both the Dutch corporate
governance code (the “Dutch Corporate Governance Code” or
“DCGC”) and the United Kingdom corporate governance code
(the “UK Corporate Governance Code” or “UKCGC”) in full to
the fullest extent possible, except for a limited number of
deviations set out below.
Deviations from the Dutch Corporate Governance Code in 2017
The Company did not comply with the following provisions of
the Dutch Corporate Governance Code in 2017:
Best practice provision 2.2.2 of the Dutch Corporate
Governance Code
The Board is non-compliant with best practice provision
2.2.2 of the Dutch Corporate Governance Code. This provision
recommends that in case of a one-tier board a non-executive
director should be appointed for a period of four years.
Code provision B.2.3 of the UK Corporate Governance Code
recommends that non-executive Directors should be appointed
for specified terms, with the offer of any term beyond six years
subject to particularly rigorous review and take into account
the need for progressive refreshing of the Board, while provision
B.7.1 of the UK Corporate Governance Code recommends
that Directors should seek re-election on an annual basis.
The Company appoints the non-executive Directors of
the Company (the “Non-Executive Directors”) (other than
Employee Nominated Directors (as defined below)) for a term of
approximately three years, subject to performance and annual
Deviations from the UK Corporate Governance Code in 2017
The Company did not comply with the following provisions of
the UK Corporate Governance Code in 2017:
Code Provision A.3.1
The chairman of the Board (the “Chairman”) is not considered
to be independent for the purposes of the UK Corporate
Governance Code because he has served on the Board of
RHI AG (“RHI”) for more than nine years, which constitutes
non-compliance with Code provision A.3.1 of the UK Corporate
Governance Code that recommends that the Chairman should
on appointment meet the independence criteria of the UK
Corporate Governance Code. The Board believes that Mr. Cordt
demonstrates integrity and independence of character and
judgement, despite his non-independence under the UK
Corporate Governance Code, and that his experience as
Chairman of RHI AG’s supervisory board is valuable to the
Company, particularly in view of the acquisition by the
Company of shares in the capital of Magnesita Refratários S.A.
(“Magnesita”) and the further development of the group of
which the Company forms part (the “Group”), and therefore
warrants his appointment as Chairman.
Board and management structure G4-34
The Company has a one-tier board structure with a Board
consisting of both executive Directors (the “Executive
Directors”, and collectively with the Non-Executive Directors,
the “Directors”). As at the date of this annual report (the
“Annual Report”), the provisions of Dutch law that are
commonly referred to as the “large company regime”
(structuurregime) do not apply to the Company.
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
5 9
The Board has established three committees: an audit and
compliance committee (the “Audit and Compliance
Committee” or “Audit Committee”), a remuneration committee
(the “Remuneration Committee”) and a nomination committee
(the “Nomination Committee”, and together with the Audit and
Compliance Committee and the Remuneration Committee, the
“Committees”) to ensure a strong governance framework for
decision-making. While safety, health, environmental,
community and other corporate responsibility matters are regularly
reviewed, the Directors believe that these matters should be the
focus of a Board Committee and this will be established in 2018.
The Committees consist of Non-Executive Directors only.
Should the need arise the Board will establish additional
committees as appropriate. A summary of the role and
responsibilities of each Committee is shown on pages 62 to 64.
The Board
Powers, responsibilities and functioning
The Board is collectively responsible for and has the power to
conduct the general affairs of the Company. This role includes
being collectively responsible for the long-term success of the
Company, and for its leadership, strategy, values, standards,
control and management. G4-42
Pursuant to the Articles of Association, the Board may, if it elects
to do so, assign duties and powers to individual Directors and/or
committees that are composed of two or more Directors, with
the day-to-day management of the Company entrusted to
the Executive Directors. The Non-Executive Directors have the
task of supervising the performance of duties by the Executive
Directors as well as the general course of affairs of the Company
and the business connected with it. In addition, both Executive
Directors and Non-Executive Directors must perform such
duties as are assigned to them pursuant to the Articles of
Association and the Board rules adopted by the Board (the
“Board Rules”) or a resolution of the Board. Each Director has
a duty towards the Company to properly perform the duties
assigned to him or her. Furthermore, each Director has a duty to
act in the corporate interests of the Company and its business.
Under Dutch law, corporate interest extends to the interests of
all stakeholders of the Company, such as shareholders,
creditors, employees and other stakeholders.
Composition, appointment, term and dismissal G4-38 and G4-39
The Articles of Association provide that the Board shall consist
of one or more Executive Directors and three or more Non-
Executive Directors with a maximum of 19 Directors in total.
The majority of the Directors shall be Non-Executive Directors
and one-third of the Non-Executive Directors (rounded
upwards) (the “Employee Nominated Directors”) shall be
appointed in accordance with the reference terms
(referentievoorschriften) as referred to in Section 2:333k (12)(13)
of the Dutch Civil Code (the “DCC”). The exact number of
Executive Directors and Non-Executive Directors shall be
determined by the general meeting of the Company (the
“General Meeting”) taking into account the foregoing.
The General Meeting is authorised to resolve to amend the
Articles of Association, on the proposal of the Board. The
General Meeting may designate one Executive Director as CEO
and one Executive Director as CFO and may grant other titles to
Executive Directors, in each case for a term to be determined by
the General Meeting, which shall not be longer than the term of
office of the relevant person to the Board. An Executive Director
can have more than one title. Furthermore, the General Meeting
shall designate one Non-Executive Director as the Chairman
and one or more Non-Executive Directors as deputy chairman/
deputy chairmen (the “Deputy Chairman” or the “Deputy
Chairmen”), in each case for a term to be determined by the
General Meeting which shall not be longer than the term of
office of the relevant person to the Board. The General Meeting
will also decide whether a Director is appointed as an Executive
Director or as a Non-Executive Director.
Pursuant to the Articles of Association, Directors other than
the Employee Nominated Directors will be appointed by the
General Meeting. The Board may make a nomination for such
appointments by the General Meeting. The Executive Directors
shall not take part in discussions or decision-making by the
Board relating to nominations for the appointment of Directors.
A resolution to appoint a Director nominated by the Board may
be adopted by the General Meeting by an absolute majority of
votes cast, irrespective of the represented capital. A resolution
to appoint the Director other than in accordance with a
nomination by the Board may be adopted by the General
Meeting by an absolute majority of votes cast representing
more than one-third of the Company’s issued capital.
The Board as a whole is entitled to represent the Company.
Additionally, the chief executive officer of the Company (“CEO”)
and the Chairman, acting individually, and two Executive Directors,
acting jointly, are also authorised to represent the Company. In
addition, pursuant to the Articles of Association, the Board may
appoint officers who are authorised to represent the Company
within the limits of the specific powers delegated to them.
Pursuant to an agreement between the Company and Alumina
Holdings LLC (“Alumina”), the vehicle through which GP
Investments, Ltd. holds its participation in Magnesita, Alumina
is entitled to nominate one person for appointment as a
Non-Executive Director. Alumina elected to nominate Fersen
Lambranho for appointment, who was subsequently appointed
as Non-Executive Director.
6 0
G O V E R N A N C E
R H I M A G N E S I TA
Corporate Governance
continued
Non-Executive Directors (other than Employee Nominated
Directors) will be nominated for a term of three years, subject
to satisfactory performance and annual re-appointment at the
Annual General Meeting. This approach is consistent with Code
provision B.7.1 of the UK Corporate Governance Code which
recommends that Directors should seek re-election on an
annual basis. Employee Nominated Directors are appointed for
a term of not more than four years. The term of office for each
Director (other than Employee Nominated Directors) will end
on the day of the Annual General Meeting in the year following
appointment. Pursuant to the Articles of Association, Directors
may be re-appointed for an unlimited number of terms but it
is anticipated that the Non-Executive Directors (other than
Employee Nominated Directors) may be offered a second term
of three years, at the expiry of which they will not ordinarily
be considered for re-appointment.
The General Meeting has the power to suspend or remove a
Director at any time, by means of a resolution for suspension or
removal. The Directors may be suspended or removed by the
General Meeting upon a proposal by the Board. A resolution to
suspend or remove a Director requires adoption by at least an
absolute majority of the votes cast, if adopted upon a proposal
by the Board. A resolution by the General Meeting to suspend
or remove a Director other than upon such proposal requires
adoption by an absolute majority of the votes cast representing
at least one-third of the Company’s issued capital. Executive
Directors may also be suspended by the Board. The Executive
Directors shall not participate in the discussion or decision-
making process of the Board in relation to the making of any
proposal for suspension and removal of any Director.
Any suspension may be extended one or more times, but may
not last longer than three months in aggregate. If, at the end
of such period, no decision has been taken on termination
of the suspension or on removal of the relevant Director, the
suspension shall end. A suspension can be ended by the
General Meeting at any time.
From 20 June 2017, being the date of incorporation of the
Company, to 6 October 2017 the Board consisted of Stefan Borgas
(Executive Director), Herbert Cordt (Non-Executive Director) and
Wolfgang Ruttenstorfer (Non-Executive Director). With effect as
of 6 October 2017, one additional Executive Director and eight
additional Non-Executive Directors were appointed. At the date
of this Annual Report, the Board is composed as follows:
Name
Stefan Borgas
Octavio Lopes
Herbert Cordt
Fersen Lambranho
David A. Schlaff
Position
Executive Director (CEO)1
Executive Director (CFO)1
Non-Independent Non-Executive Director, Chairman1
Non-independent Non-Executive Director1
Non-independent Non-Executive Director1
Year of birth
1964
1971
1947
1961
1978
Date of
appointment
20 June 2017
6 October 2017
20 June 2017
6 October 2017
6 October 2017
Stanislaus Prinz zu Sayn-Wittgenstein
Non-independent Non-Executive Director1
1965
6 October 2017
Celia Baxter
Andrew Hosty
James Leng
John Ramsay
Independent Non-Executive Director2, 3
Independent Non-Executive Director2, 3
Independent Non-Executive Director2, 3
Deputy Chairman and Senior Independent Director
Independent Non-Executive Director2, 3
Wolfgang Ruttenstorfer
Independent Non-Executive Director2, 4
Karl Sevelda
Independent Non-Executive Director2, 3
1958
1965
1945
1957
1950
1950
6 October 2017
6 October 2017
6 October 2017
6 October 2017
20 June 2017
6 October 2017
Expiry/
reappointment
date
2018 AGM
2018 AGM
2018 AGM
2018 AGM
2018 AGM
2018 AGM
2018 AGM
2018 AGM
2018 AGM
2018 AGM
2018 AGM
2018 AGM
1 Non-independent within the meaning of the UK Corporate Governance Code but independent within the meaning of the Dutch Corporate Governance
Code due to a difference in independence requirements under the respective codes.
2 Independent within the meaning of the UK Corporate Governance Code.
3 Independent within the meaning of the Dutch Corporate Governance Code.
4 Mr. Ruttenstorfer is, as a result of having undertaken a management board role for RHI on a temporary basis between June and November 2016, not
considered to be independent within the meaning of the Dutch Corporate Governance Code. Notwithstanding this historic role, the Board considers
Mr. Ruttenstorfer to be independent for the purposes of the UK Corporate Governance Code.
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
6 1
The UKCGC requires that, excluding the Chairman, at least
half of the Board should comprise Non-Executive Directors
determined to be independent.
The Board has considered the independence of the Non-
Executive Directors, including potential conflicts of interest,
and the table above sets out those Directors considered
independent in character and judgement. Each of these
Directors has also confirmed that there is no reason why
they should not continue to be considered independent.
The Chairman’s other significant commitments are set out in
the table below: G4-41
Name of company
Function
Watermill Group Boston
Georgetown University, School of Foreign
Service, MSFS Program
Member of the advisory board
Member of the advisory board
CORDT & PARTNER Management- und
Managing partner
James Leng has been appointed the senior independent
director (the “Senior Independent Director”) to provide a
sounding board for the Chairman and to serve as an intermediary
for the other Directors where necessary. He is also available to
shareholders if they have concerns that the normal channels
of communication through the CEO and/or the Chairman has
failed to resolve or for which contact with them is inappropriate.
Board diversity G4-LA12
The Board also recognises the benefits that the experience of a
diverse Board can bring. The Company aims to ensure that the
Board represents a balance in terms of diversity, with criteria that
includes, background, age, gender, education, nationality, skills,
expertise and experience. The Board pursues a policy of having
at least 30% of the seats on the Board held by men and at least
30% of the seats on the Board held by women, in accordance
with the “balanced composition” requirement under Dutch law.
The Board is conscious that due to the recent formation of the
Company its current composition does not meet the “balanced
composition” required under Dutch law. However, the Board is
committed to encouraging diversity and will pursue its
programme in this regard.
Meetings and decision-making of the Board
The Board meets six times a year or additionally as often as
deemed necessary by the Chairman or the Deputy-Chairman.
Board papers are circulated in advance of meetings to allow
Directors sufficient time to consider their content prior to
the meeting.
Pursuant to Dutch law, an Executive Director may not be
allocated the tasks of: (i) serving as Chairman; (ii) participating
in the adoption of resolutions (including any deliberations
in respect of such resolutions) related to the remuneration
of Executive Directors; or (iii) nominating Directors for
appointment. Tasks that have not been specifically allocated
to a specific Director fall within the power of the Board as a
whole. The Directors share responsibility for all decisions and
acts of the Board and for the acts of each individual member
of the Board regardless of the allocation of tasks.
The Board has adopted Board Rules in accordance with the
Articles of Association. The Board Rules describe, inter alia,
the procedure of holding meetings and decision-making by the
Board, and the Board’s operating procedures. The Board Rules
have been established taking into account the Dutch Corporate
Governance Code and the UK Corporate Governance Code.
Pursuant to the Articles of Association and the Board Rules,
resolutions can be adopted without holding a meeting if the
proposal is submitted to all Directors, each of them consents
in writing and none of them has objected to this manner of
adopting resolutions.
Attendance at Board meetings in 2017:
Stefan Borgas
Octavio Lopes
Herbert Cordt
Fersen Lambranho
David A. Schlaff
Stanislaus Prinz zu Sayn-Wittgenstein
Celia Baxter
Andrew Hosty
James Leng
John Ramsay
Wolfgang Ruttenstorfer
Karl Sevelda
Eligible
to attend
Attended
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
2
2
2
3
3
3
3
3
3
6 2
G O V E R N A N C E
R H I M A G N E S I TA
Corporate Governance
continued
Conflict of interests and time commitment G4-41
Dutch law provides that a Director may not participate in the
discussions and decision-making by the Board if such Director
has a direct or indirect personal interest conflicting with the
interests of the Company or the business connected with it.
Pursuant to the Articles of Association, this prohibition does not
apply if all Directors have such a conflict of interest. A conflict
of interest only exists if in the situation at hand the Director is
deemed to be unable to serve the interests of the Company
and the business connected with it with the required level of
integrity and objectivity. Pursuant to the Articles of Association
and the Board Rules, the Board has adopted procedures under
which each Director is required to declare the nature and extent
of any personal conflict of interest to the other Directors.
All transactions in which there are conflicts of interest with
Directors will be agreed on terms that are customary in the
sector concerned and disclosed in the Annual Report.
The existence of a personal conflict (or a potential conflict) of
interest does not affect the authority to represent the Company,
as described under “—The Board—Powers, responsibilities and
functioning” above.
On appointment, and each subsequent year, Non-Executive
Directors are required to confirm in writing that they have
sufficient time to devote to the Company’s affairs. In addition,
they are required to seek prior approval from the Chairman
before taking on any additional external commitments that may
affect their time available to devote to the Company, and the
Board is advised of any changes. The Board is satisfied that all
Non-Executive Directors are contributing effectively to the
operation of the Board.
Group Company Secretary
Robert K Moorhouse FCIS
The Company Secretary advises the Board and ensures good
information flows and comprehensive practical support is
provided to the Directors. He maintains the Corporate
Governance Framework and organises Directors’ induction
and training. The Company Secretary communicates with
shareholders as appropriate and ensures due regard is paid
to their interests. Both appointment and removal of the
Company Secretary is a matter for the Board as a whole.
Performance of the Board, its Committees
and the Directors G4-44
During 2018 the Chairman of the Board and the Deputy
Chairman will lead a review of the Board’s effectiveness, its
Committees and individual Directors. The Board is committed
to future annual reviews being facilitated externally at least
once every three years.
Committees G4-38
Audit and Compliance Committee
The Terms of Reference of the Audit and Compliance
Committee available, in full on the Company’s website, are
summarised below:
¥ monitoring the integrity of the Company’s financial
statements, including its annual and half-yearly reports,
preliminary announcements and any other formal statements
relating to its financial performance;
¥ reviewing of and reporting to the Board on significant financial
reporting issues and judgements which those statements
contain having regard to any matters communicated to it by
the internal or external auditor;
¥ reviewing the Company’s internal financial control systems
and risk management that identify, assess, manage and
monitor financial risks, and its other internal control and risk
management systems;
¥ monitoring and assessing the compliance with
recommendations and observations from internal and external
auditors such as management letters and management’s
responses;
¥ monitoring the role and functioning of the internal audit
function and review of the Audit and Compliance Committee
effectiveness; review of compliance, whistle-blowing and
anti-fraud framework; and
¥ maintaining relations with the external auditor, including, in
particular, their independence, remuneration and any
non-audit services carried out by them for the Company.
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
6 3
All members of the Audit and Compliance Committee are
independent Non-Executive Directors from a UK Corporate
Governance standpoint, with at least one of whom having
recent and relevant financial experience and with competence
in accounting and/or auditing. The Audit and Compliance
Committee as a whole has competence relevant to the sector
in which the Company operates. Members of the Audit and
Compliance Committee are appointed by the Board on the
recommendation of the Nomination Committee in consultation
with the Chairman of the Audit and Compliance Committee.
The Audit and Compliance Committee consists of John Ramsay
(Chairman), Andrew Hosty and Wolfgang Ruttenstorfer.
The composition of the Audit and Compliance Committee is
compliant with the UK Corporate Governance Code and the
Dutch Corporate Governance Code.
Attendance at Audit and Compliance Committee meetings
in 2017:
¥ approve the design of, and determine targets for, any
performance related pay plans operated by the Company
and recommend to the Board for approval the total annual
payments made under such plans;
¥ review the design of all share incentive plans for approval by
the Board and shareholders. For any such plans, determine
each year whether awards will be made and, if so, the overall
amount of such awards, the individual awards to Executive
Directors, and other designated senior executives and the
performance targets to be used;
¥ determine the policy for, and scope of, retirement
arrangements for each Executive Director and other
designated senior executives;
¥ ensure that contractual terms on termination, and any
payments made, are fair to the individual and the Company,
that failure is not rewarded and that the duty to mitigate loss is
recognised; and
¥ oversee any major changes in employee benefits structures
throughout the Group.
¥ reviewing the performance of any retained advisers and the
Eligible to attend
Attended
effectiveness of the Remuneration Committee; and
John Ramsay
Andrew Hosty
Wolfgang Ruttenstorfer
1
1
1
1
1
1
The Company confirms that it complied with the provisions of
the Competition and Markets Authority’s Order for the financial
year under review.
¥ preparing the Remuneration Report.
The Remuneration Committee consists of at least three
members, all of whom are Non-Executive Directors who meet
the independence requirements of the Dutch and the UKCGC.
Members of the Remuneration Committee are appointed by the
Board, on the recommendation of the Nomination Committee in
consultation with the Chairman of the Remuneration Committee.
The Remuneration Committee consists of Celia Baxter
(Chairperson), James Leng and Karl Sevelda.
Remuneration Committee
The Terms of Reference of the Remuneration Committee,
available in full on the Company’s website are summarised below:
The composition of the Remuneration Committee is compliant
with the UK Corporate Governance Code and the Dutch
Corporate Governance Code.
¥ determine and agree with the Board the framework or broad
policy for the remuneration of the Chairman of the Board,
the Executive Directors and other members of the executive
management as it is designated to consider, to be proposed
by the Board for approval at the General Meeting;
¥ within the terms of the agreed policy and in consultation with
the Chairman and/or Group Chief Executive, as appropriate,
determine with agreement of the Board the total individual
remuneration package of the Chairman, each Executive Director,
and other designated senior executives including bonuses,
incentive payments and share options or other share awards;
Attendance at Remuneration Committee meetings in 2017:
Celia Baxter
James Leng
Karl Sevelda
Eligible to attend
Attended
2
2
2
2
2
2
6 4
G O V E R N A N C E
R H I M A G N E S I TA
Corporate Governance
continued
Executive Management Team G4-34
At the date of this Annual Report, the Executive Management
Team of the Company is composed as follows:
¥ Stefan Borgas, Chief Executive Officer (CEO);
¥ Octavio Lopes, Chief Financial Officer (CFO);
¥ Gerd Schubert, Chief Operations Officer;
¥ Reinhold Steiner, Chief Sales Officer;
¥ Luis Bittencourt, Chief Technology Officer;
¥ Thomas Jakowiak, Executive VP Integration Management;
¥ Luiz Rossato, Executive VP Corporate Development;
¥ Simone Oremovic, Executive VP People and Culture
Management.
There is a clear division of responsibilities as set out in the
“Reserved Matters for the Board” and those delegated to
the executive management team. The types of decisions
reserved for the Board include, among other items, overall
responsibility for strategy and management; major acquisitions
and investments; structure and capital; financial reporting and
controls; and corporate governance. The executive
management assist the Board with its responsibilities
concerning the strategy of the Company; make strategy
recommendations to the Board; is accountable for
implementing the Board’s decisions; and is responsible for
directing and overseeing the operations of the Company.
Transactions with majority shareholders
Since there are no legal or natural persons who hold at least
10% of the shares in the capital of the Company, no declaration
in accordance with best practice provision 2.7.5 of the Dutch
Corporate Governance Code has to be published. There have
been no transactions between the Company and MSP Stiftung
within the meaning of best practice provision 2.7.5 of the Dutch
Corporate Governance Code.
Outline of anti-takeover measures
No anti-takeover measures have been implemented.
The Committee has appointed Korn Ferry as consultants to
provide advice on the development of the Remuneration Policy
and the development of the annual bonus and performance
share plan and ad hoc remuneration matters. Korn Ferry is not
connected to the Company.
Nomination Committee
The Terms of Reference of the Nomination Committee, available
in full on the Company’s website are summarised below:
¥ reviewing the structure, size, functioning and composition
of the Board, the diversity policy and degree of achievement,
succession planning, and making recommendations to the
Board with regard to any changes;
¥ keeping under review succession plans for senior
management appointments, including in relation to the
Executive Directors, and the Company’s policy and process
in relation to the recruitment of candidates for these roles;
¥ making proposals for (re)appointments of Directors; and
¥ making recommendations concerning membership of the
Audit and Remuneration Committees and any other Board
Company as appropriate, in consultation with the Chairman
of those committees.
The Nomination Committee consists of at least three members,
a majority of whom are independent Non-Executive Directors.
Members of the Nomination Committee are appointed by the
Board, on the recommendation of the Nomination Committee in
consultation with the Chairman of the Nomination Committee.
The Nomination Committee consists of Herbert Cordt
(Chairman), James Leng and Celia Baxter.
The composition of the Nomination Committee is compliant
with the UKCGC and the Dutch Corporate Governance Code.
In view of the fact that the Company was only established and
the Directors appointed some two months before the end of the
financial year the Nomination Committee has held no formal
meetings. It is the intention that this Committee will meet at
least twice a year or on such further occasions as required.
It is the Board’s intention to establish a corporate responsibility
committee (the “Corporate Responsibility Committee”)
to oversee safety, health, environmental, community and
other corporate responsibility matters as soon as possible,
following Admission.
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
6 5
Major shareholdings G4-7
At the date hereof, the Company is aware of the following
persons holding directly or indirectly at least 3% of the issued
and outstanding shares in the capital of the Company:
The Directors receive regular updates on the Company’s major
shareholders, and receive reports on shareholder feedback at
each Board meeting. The Non-Executive Directors are invited
to attend the Company’s results presentations.
Shareholder
MSP Stiftung1
Alumina Holdings LLC2
Chestnut Beteiligungsgesellschaft mbH3
Silver Beteiligungsgesellschaft mbH3
Number
of shares
%
11,347,058
25.32
4,258,905
2,088,461
2,088,461
9.50
4.66
4.66
1 MSP Stiftung is a foundation under Liechtenstein law, whose founder is
Mag. Martin Schlaff has certain supervisory rights and the right to
unilaterally amend the foundation documents with respect to MSP
Stiftung. Upon completion of the Merger MSP Stiftung directly and Mr.
Schlaff indirectly (via MSP Stiftung) will hold 11,347,058 voting rights in
the issuer.
2 Alumina Holdings LLC is a corporation incorporated under the laws of
Delaware, USA, which is controlled, indirectly by GP Capital Partners III,
L.P. (“GPCPIII”) and GP Partners IV, L.P. (“GPCPIV”), private equity funds
whose ownership is dispersed. GPCPIII and GPCPIV are respectively
managed by GP Investments (Cayman) III, Ltd. and GP Investments IV,
Ltd., both of which are wholly owned subsidiaries of GP investments Ltd.
(“GP Investments”), a company headquartered in Bermuda. GP
Investments is listed on the Luxembourg Stock Exchange and is
controlled by Partners Holdings, Inc., a company incorporated under
the laws of the British Virgin Islands and controlled by Mr. Antonio
Bonchristiano and Mr. Fersen Lambranho.
3 Ms. Elizabeth Prinzessin zu Sayn-Wittgenstein holds a controlling
interest in Chestnut Beteiligungsgesellschaft mbH (“Chestnut”), while
Mr. Konstantin Alfred Winterstein exercises control over Silver
Beteiligungsgesellschaft mbH (“Silver”). Ms. Sayn-Wittgenstein made an
agreement with Mr. Winterstein which allows Chestnut to exercise the
voting rights of Silver in RHI. Ms. Sayn-Wittgenstein and Mr. Winterstein
hold a family relationship.
Communications with shareholders and other stakeholders
Communication with the Company’s investors is a priority for
the Board. The Company runs an extensive investor relations
programme, and the CEO, CFO and Director of Investor
Relations hold meetings with institutional investors throughout
the year, including results presentations, webcasts, road shows,
one-to-one meetings and investor tours.
The Company’s major shareholders are encouraged to meet
with the Chairman and the Senior Independent Director to
discuss any matters they may wish to raise.
Key shareholders and shareholder bodies were written to in
January 2018 as part of the consultation process with regard
to the development of the executive remuneration policy and
the adoption of a performance share plan. The consultation
is ongoing.
Culture
The combination of RHI and Magnesita is a blend of two
companies with complementary yet variant corporate cultures.
The development of a new joint corporate culture and the
definition of common principles has been a high priority.
Assisted by the findings of an employee survey, four cultural
themes have been defined. These cultural themes will underpin
the implementation of the vision and strategy of the new
Company. These themes will also serve as guiding principles
for all employees specifically embracing cooperation and daily
work within RHI Magnesita. In the course of 2018 a group of
employees, our “culture champions”, will support the
implementation of this new culture together with the integration
plan throughout the Group.
The following key cultural themes determine the actions of
RHI Magnesita:
¥ act customer-focused and innovatively
¥ have open decision-making in a respectful environment
¥ operate cross-functionally, collaboratively and pragmatically
across the global organisation
¥ be performance-driven and accountable.
RHI Magnesita is also committed to responsible management
and its activities are based on integrity, honesty, reliability and
respectful contact with employees and business partners.
The new Code of Conduct, the Compliance Helpline as well
as additional policies and procedures of our comprehensive
compliance programme are essential tools to embed the
corporate culture and values as well as the fundamental
legal and ethical rules RHI Magnesita stands for.
6 6
G O V E R N A N C E
R H I M A G N E S I TA
Corporate Governance
continued
Corporate governance declaration
The Dutch Corporate Governance Code requires companies
to publish a statement concerning their approach to corporate
governance and compliance with the Dutch Corporate
Governance Code. This is referred to in article 2a of the
decree on requirements for annual reports (Besluit inhoud
bestuursverslag) of 23 December 2004, as most recently
amended on 1 January 2018 (the “Decree”).
The information required to be included in this corporate
governance statement as described in articles 3, 3a and 3b of
the Decree, forms part of the Annual Report, which is available
on the Company’s website. The information required to be
included in this corporate governance statement as described
in sections 3, 3a and 3b of the Decree can be found in the
following chapters, sections and pages of the Annual Report
and are deemed to be included and repeated in this statement:
Statement of Directors' responsibilities
The Directors are responsible for preparing the Company’s
Annual Report. The Company’s Annual Report comprises the
Strategic Report, the Governance Report, the Consolidated
Financial Statements, the Company’s Financial Statements
and some other information. The Directors are responsible for
preparing the Annual Report in accordance with applicable law
and regulations. The Directors are required by law to prepare
the Annual Report for each financial year. The Directors have
prepared the Annual Report in accordance with International
Financial Reporting Standards (“IFRS”) as adopted by the
European Union and the relevant provisions of the Dutch Civil
Code. The Directors must not approve the Annual Report unless
they are satisfied that it gives a true and fair view of the state of
affairs of the Group and the Company and of the profit or loss of
the Group for that period. In preparing the Annual Report, the
Directors are required to:
¥ the information concerning compliance with the Dutch
(a) select suitable accounting policies and then apply them
Corporate Governance Code, as required by section three of
the Decree, can be found on page 58:
¥ the information concerning the Company’s main features of
the internal risk management and control systems relating to
the financial reporting process, as required by section 3a sub
a of the Decree, can be found on page 22:
¥ the information regarding the functioning of the General
Meeting and its main authorities and the rights of the
Company’s shareholders and holders of certificates of shares
and how they can be exercised, as required by section 3a sub
b of the Decree, can be found on page 62:
¥ the information regarding the composition and functioning of
the Board and its Committees, as required by section 3a sub
c of the Decree, can be found on page 62:
¥ the diversity policy with regard to the composition of the
Board and their Committees, can be found on page 61; and
¥ the information concerning the disclosure of the information
required by the Decree on Section 10 EU Takeover Directive,
as required by section 3b of the Decree, may be found on
page 64.
consistently;
(b) make judgements and accounting estimates that are
reasonable and prudent;
(c) state whether applicable IFRS as adopted by the European
Union and the relevant provisions of the Dutch Civil Code
have been followed, subject to any material departures
disclosed and explained in the Annual Report; and
(d) prepare the Annual Report on the going concern basis,
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose, with reasonable accuracy at any time,
the financial position of the Company and the Group and
enable them to ensure that the Annual Report complies with
applicable law and, as regards the consolidated financial
statements, Article four of the IAS Regulation. They are also
responsible for safeguarding the assets of the Company and the
Group and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
6 7
With reference to section 5.25c paragraph 2c of the Dutch
Act on Supervision, each of the Directors, whose names and
functions are listed in the Governance section, confirm that,
to the best of their knowledge:
¥ the Company’s financial statements and the consolidated
financial statements, which have been prepared in
accordance with IFRS as adopted by the European Union and
the relevant provisions of the Dutch Civil Code, give a true and
fair view of the assets, liabilities, financial position and profit or
loss of the Group;
¥ the Annual Report gives a true and fair view on the situation on
the balance sheet date, the development and performance of
the business and the position of the Company and the Group
companies of which the financial information is included in the
Annual Report and includes a description of the principal risks
and uncertainties that the Company faces; and
¥ having taken all matters considered by the Board and brought
to the attention of the Board during the financial year into
account, the Directors consider that the Annual Report, taken
as a whole is fair, balanced and understandable. The Directors
believe that the disclosures set out in the Annual Report
provide the information necessary for shareholders to assess
the Company’s position, performance, business model
and strategy.
After conducting a review of management analysis, the
Directors have reasonable expectation that the Group has
adequate resources to continue in operational existence for
the foreseeable future. For this reason, the Directors consider
it appropriate to adopt the going-concern basis in preparing
the Annual Report.
Directors are also required to provide a broader assessment of
viability over a longer period which can be found on page 23
(the “Viability Statement”) of the integrated report and accounts.
The financial statements on pages 94 to 202 were approved by
the Board on 20 March 2018 and signed on its behalf byHerbert
Cordt, Stefan Borgas, Octavio Lopes.
6 8
G O V E R N A N C E
R H I M A G N E S I TA
Audit
Committee Report
The Audit Committee advises the Board in relation to the financial
reporting process and its other responsibilities and prepares resolutions
of the Board in relation thereto.
The responsibilities of the Audit Committee focus on
supervising the activities of the Board with respect to:
¥ Supervising and monitoring the effect of internal risk
management and control systems, including supervision of
the enforcement of the relevant legislation and regulations,
and supervising the effects of the code of conduct;
¥ Supervising the recording, management and submission of
financial information by the Company (including choices of
accounting policies, application and assessment of the effects
of new rules, information regarding the handling of estimated
items in the financial statements, forecasts, work of the internal
auditor and the external auditor);
¥ Supervising the compliance with recommendations and
observations of the internal auditor and the external auditor;
¥ Supervising the functioning of the internal audit department
and controllers, and in particular, codetermining the plan of
action for the internal audit department and taking note of the
findings and considerations of the internal audit department;
¥ Supervising the policy of the Company on tax planning;
¥ Supervising the financing of the Company;
¥ Supervising the applications for information and
communication technology;
¥ Supervising the relationship with the external auditor
including, in particular, assessing its independence,
remuneration and non-audit related work for the Company;
¥ Determining the involvement of the external auditor in respect
of the contents and publication of financial reporting by the
Company (other than the Annual Accounts), and
acknowledging irregularities in respect of the content of the
financial reporting as may be reported by the external auditor;
¥ Recommending the appointment of an external auditor by the
General Meeting and
¥ Approving the Annual Accounts and the annual budget.
The Audit Committee maintains regular contact with and
supervises the external auditor.
The Audit Committee comprises three members, all of whom
are Independent Non-Executive Directors. Appointments to
the Committee are made by the Board. The Board has satisfied
itself that the Committee’s membership includes Directors with
recent and relevant financial experience.
The members of the Committee that served since 6 October
2017 were:
John Ramsay
Wolfgang Ruttensdorfer
Andrew Hosty
Chairman
Member
Member
Meetings attendance
The Committee meets as required, but not less than three times
a year.
Since 6 October 2017, the Audit Committee met on the
following dates:
¥ 13 December 2017
¥ 21 February 2018
¥ 8 March 2018
¥ 19 March 2018
All Audit Committee members have attended all meetings
of the Audit Committee to date.
The Chief Financial Officer was present at all meetings of the
Audit Committee to date.
The Chairman and the Chief Executive Officer were present
at all the meetings of the Audit Committee to the date with
the exception of the ones that took place on 8 March 2018
and 19 March.
The Chairman of the Committee has had monthly private
discussions with the external auditor and the CFO, since
December 2017.
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6 9
Committee activities
The main activities of the Committee included the following:
¥ The critical review of the significant financial reporting issues
in connection with the preparation of the Company's financial
and related formal statements, with the assistance of reports
received from management and the external auditor;
¥ An assessment of the scope and effectiveness of the systems
established to identify, assess, manage and monitor financial
and non-financial risks;
¥ Monitoring and reviewing the plans, work and effectiveness
of the internal audit function, including any actions taken
following any significant failures in internal controls;
¥ Review of the external auditor, its terms of engagement,
findings of its work and at the end of the audit process
reviewing its effectiveness;
¥ Review of the independence and objectivity of the external
auditor;
¥ Reviewing the process of purchase price allocation after the
merger of RHI and Magnesita and definition of appropriate
accounting policy regarding the transaction;
¥ Review of treasury guidelines; and
¥ Review of financing options.
External auditor
The Company’s external auditor, PricewaterhouseCoopers
Accountants N.V. (PwC), was appointed at the Annual General
Meeting held on 4 October 2017.
The external auditor reports to the Committee on the actions
taken to comply with professional and regulatory requirements
and with best practice designed to ensure its independence.
The performance of the external auditor is reviewed by the
Audit Committee on an annual basis through a qualitative
assessment of the services provided against the agreed
audit plan and taking account of feedback received from
management. Following this review, the Audit Committee is
satisfied that the external audit process operates effectively.
Internal control
In the course of the preparation of the merger of RHI and
Magnesita, there have been several internal and external
activities focused on the control environment of RHI and
Magnesita as a stand-alone entity as well as the newly founded
group. These have included:
¥ The full year audit of the 12 months ended 31 December 2017
of RHI Magnesita N.V. performed by PwC for the purpose of
this Annual Report and Accounts;
¥ The full year audit of the 12 months ended 31 December 2017
of Magnesita performed by PwC for the purpose of the Annual
Report and Accounts to be published under the regulations of
the stock-exchange of São Paulo;
¥ The half year audit of the six months ended 30 June 2017 of
RHI performed by PwC for the purposes of the Prospectus;
¥ The half year audit of the six months ended 30 June 2017 of
Magnesita performed by PwC for the purposes of the
Prospectus;
¥ Financial Prospects and Procedures report produced by
PwC on RHI and a Financial Prospectus and Procedures
report produced by EY on Magnesita.
The statutory audits have not resulted in any significant
control issues being brought to the attention of the Committee
that would require material adjustment to the accounts.
The Financial Prospectus and Procedure work concluded that
both businesses have well established and robust procedures,
systems, controls and people to enable them to comply with
their obligations, including compliance with the listing rules
and disclosure guidance and transparency rules. The Financial
Prospectus and Procedures work also enabled the Board to
attest in the Prospectus issued in September 2017 that
responsibility exists for the merged entity, RHI Magnesita N.V.,
to establish procedures that provide a reasonable basis for
making proper judgements on an ongoing basis as the Financial
Prospectus and Procedures of the Company and its Group.
The combined business is facing additional risks as a direct
result of the integration. This means that in 2018 there will be
more focus on areas of the business affected by integration
where changes in systems, personnel or processes could lead
to weaknesses in internal controls during the transitional period.
JOHN RAMSEY
CHAIRMAN OF THE AUDIT COMMITTEE
7 0
G O V E R N A N C E
R H I M A G N E S I TA
Remuneration
Committee Report
Dear Shareholders
I am pleased to present the Report of the Remuneration
Committee for the financial year ended 31 December 2017.
RHI Magnesita, the combination of the businesses of RHI and
Magnesita, was incorporated on 20 June 2017 and admitted
to the London Stock Exchange on 27 October 2017. As a Dutch
incorporated and registered company that is listed on the
London Stock Exchange, RHI Magnesita is required to comply
with both UK and Dutch reporting requirements including their
respective Corporate Governance Codes. The Board has also
determined to provide certain additional voluntary disclosures
recognising the importance of best practice and transparency
of reporting. Our Remuneration Report is compiled on this
basis and the following Annual General Meeting (“AGM”)
resolutions will be presented to shareholders at the AGM
for approval:
¥ A binding shareholder resolution to approve the new Directors’
Remuneration Policy. Subject to shareholders’ approval at the
AGM, the Directors’ Remuneration Policy will be effective from
1 January 2018 and is intended to operate for the three-year
period to January 2021; if approval is not obtained the current
policy will continue to apply.
¥ An advisory shareholder resolution to approve this Annual
Statement and the Annual Report on Remuneration; and
¥ A binding shareholder resolution to approve the new
RHI Magnesita long-term incentive plan.
Remit of the Committee
In consultation with the other Non-Executive Directors, the
Committee has responsibility for proposing to the Board the
remuneration for the Chairman and Executive Directors. It also
oversees and monitors the level and structure of remuneration
for senior management. As reflected by the proposed changes
to the UKCGC the Committee, in addition, will review and
provide input into the remuneration policy and structure for
Group employees as a whole. The Committee and the full
Board understand the importance and support the principle
of ensuring that both the remuneration policy for senior
management and employees as a whole are aligned and
supportive of the Group’s business strategy. Further, the
Committee has the benefit of the involvement of the employee
representatives who sit on the Board and therefore are able to
consider and comment on the Committee’s proposals to the
Board prior to the Board’s decisions on remuneration matters.
Review of 2017 and work of the Committee
Prior to the business combination, the Chief Executive Officer
(“CEO”) of RHI Magnesita was the CEO of the RHI business
and the Chief Financial Officer (“CFO”) was the CEO of the
Magnesita business. The remuneration structures, prior to
Admission, were set by the respective remuneration
committees of RHI for the CEO and Magnesita for the
CFO. As a short-term measure, the Directors’ remuneration
arrangements, in place at the time of Admission, were
adopted as the Directors’ Remuneration Policy, which allowed
the Executive Directors’ existing remuneration packages to
continue post Admission. Full details of these packages were
set out in the Admission document and are included in the
Annual Report on Remuneration.
The Committee’s time since Admission has been spent
predominantly on the design of the new Directors’
Remuneration Policy which is compliant with UK and Dutch
governance. As part of this design work we have considered
how to implement the policy for the financial year 2018.
The Committee’s work in this area has been informed by
consultation with our major shareholders. We have consulted
on our proposals face to face with our three largest shareholders
and corresponded with a further 15 shareholders and three
investor bodies to gather their views and opinions. The majority
of shareholders consulted were supportive of our proposals.
The Committee has produced a Remuneration Report
that provides a summary of the different elements of the
remuneration packages of the Executive Directors for the
financial year 2017 and the actual remuneration for the
period from the date of Admission (27 October 2017 to
31 December 2017).
At the end of the 2017 financial year, the Committee reviewed
the extent to which the targets under the respective pre-
Admission Annual Bonus Plans of RHI for the CEO and
Magnesita for the CFO had been met, taking into account
performance during 2017. The targets for the Annual Bonus for
the CEO were set at the beginning of 2017 by the remuneration
committee of RHI and were based on three financial measures
relating to the RHI business alone: RHI Group Operating
Earnings Before Interest and Tax (EBIT), RHI Group Operating
Return on Operating Average Capital Employed (ROACE) and
RHI Group Net Debt and a non-financial target relating to the
acquisition, merger and listing of RHI Magnesita. The targets for
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A N N U A L R E P O R T 2 0 1 7
7 1
the Annual Bonus for the CFO were set at the beginning of 2017
by the remuneration committee of Magnesita and were based
on two financial measures relating to the Magnesita business
alone: Magnesita Group Economic Profit and Magnesita Group
Operating Cash Flow and Magnesita Group safety key
performance indicators.
The targets and performance against them for both the CEO
and CFO have been subject to independent audit and are
disclosed in the Annual Report on Remuneration, resulting in an
award of 99.8% of base salary for the CEO and 101.0% of salary
for the CFO out of a maximum of 120% of salary respectively.
There were no long-term incentives subsisting at the time of
Admission. The CEO’s 2017 phantom share award vested prior
to Admission and will be paid in three equal tranches in 2018,
2019 and 2020.
Policy overview
The Remuneration Policy has been designed to be in line
with market practice for UK-listed companies, while taking
into account a number of legacy issues and Dutch law. In
determining the new Remuneration Policy and implementation
of that Policy for 2018 we have taken into account the existing
contractual entitlements and target remuneration levels of the
Executive Directors, as well as the remuneration policy in
operation at the time of Admission and the views of
shareholders gained during our consultation.
Certain aspects of this new policy are applicable to the current
Executive Directors only and reflect the historic structure of their
remuneration and legacy contracts, for example the salaries
of the CEO and CFO were set prior to Admission. Further, the
CFO will retain his legacy 2017 remuneration package for 2018
and the Committee will explore with him during the course
of 2018 how his package for 2019 can be aligned to the new
remuneration policy and strategy. It is our wish to bring the
Executive Directors’ remuneration packages within the new
remuneration strategy in the medium term while acknowledging
that this may practically only be fully achievable if and when
new incumbents are appointed.
Our forward-looking remuneration policy, structured in line
with market practice for UK-listed companies, comprises: base
salary; standard benefits and retirement allowance; annual
bonus with 50% of the bonus paid in excess of target being
invested in shares of the Company and held for at least three
years; and performance share awards with three-year
performance and vesting periods plus a requirement to hold the
vested shares (after sales to meet tax) for a two-year period post
vesting. The Executive Directors will also have a shareholding
requirement under which they will be required to build up over
five years a holding of shares in the Company which will be
retained while they are Executive Directors of the Company.
This shareholding requirement is set at 200% of their salary.
Implementation of the policy for 2018
Fixed pay
Both Executive Directors retain their 2017 level of fixed pay for
2018. However, the CEO’s base salary is reduced by 13% with
the reduction provided as a retirement allowance. No salary
increases will take place in 2018.
Annual bonus and long-term incentive awards
The CEO’s annual bonus opportunity for 2018 is 150% of salary
and the CFO’s 120% of salary. The bonus will be based 75% on
Group financial metrics (35% Operating EBIT measured on a
constant currency basis; 25% Free Cash Flow; 15% Synergy
targets) and 25% on key strategic priorities of the business,
which are critical to the future profitability of the Group.
The performance targets for the annual bonus are considered
by the Board to be commercially sensitive and will be disclosed
retrospectively in the 2018 Remuneration Report provided they
are not considered to still be commercially sensitive at that time.
The CEO will be granted a long-term incentive performance
share award in 2018 with the potential, if performance targets
are met, to receive three years later shares with a market value
at the date of grant (in 2018) of 200% of salary. The CFO will
not receive a long-term incentive as he is retaining his 2017
pre-Admission remuneration package which does not include a
long-term incentive element. The performance targets that will
determine vesting of the performance share award will be based
one-third on adjusted earnings per share (EPS) targets, one-
third on reported EBIT targets and the remaining third on
relative Total Shareholder Return (TSR).
7 2
G O V E R N A N C E
R H I M A G N E S I TA
Remuneration Committee Report
continued
Non-Executive Director remuneration
The structure of remuneration for the Non-Executive Directors
follows standard UK market practice with a base fee plus
additional Board Committee membership and chairmanship
fees. No incentives, pension or other similar forms of
remuneration are payable. Further details are set out in the
Remuneration Report.
Conclusion
We believe that the proposed Remuneration Policy and its
implementation for 2018 is strongly aligned to the Company’s
business strategy and long-term shareholder interests. We do
hope you will be supportive of our new policy, its application
for financial year 2018 and new long-term incentive plan.
CELIA BAXTER
CHAIRMAN OF THE REMUNERATION COMMITTEE
25% of the TSR part of the award will vest for matching the
FTSE 350 All Share Index performance and 100% for achieving
TSR that is at least 25% in absolute terms higher than the Index
(e.g. if Index TSR is 23% over three years then the vesting range
is TSR of 23% to 48%) (with straight line vesting in between).
Given the complexities of a merger on end of year reporting, the
Board will not be able to finalise the EPS and EBIT targets until
after this report is published. These targets will exceptionally
therefore not be included in the 2017 Remuneration Report
but will be included in the announcement to the market when
awards are made. Further details of the proposed long-term
incentive performance share awards are provided in the
notice of AGM.
Managing risk and ensuring alignment of pay with
shareholder returns
The Committee strongly believes that the Executive Directors’
pay should reflect the shareholders’ experience. The Committee
may therefore amend the annual bonus and/or performance
share plan awards if it considers the performance outcome
is not representative of the underlying performance of the
Company and/or there have been regulatory, environmental
or health and safety issues that the Committee considers
are of such severity that a scale back is appropriate. Further,
the Committee may recoup (through clawback and malus)
variable pay awards as detailed in the Remuneration Policy.
Cascade of policy
The principles of the Executive Directors’ Remuneration Policy,
including participation in the Group’s long-term incentive
plan through the grant of performance share awards will be
cascaded to the Executive Management Board.
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7 3
Directors’
Remuneration Policy
As a short-term measure, the directors’
remuneration arrangements in place
at the time of Admission were adopted
as the Directors’ Remuneration
Policy, which enabled the Executive
Directors’ remuneration packages
to continue post-Admission. The
intention of the newly appointed
Remuneration Committee was
to develop a new Remuneration
Policy for 2018 that complied
with UK governance.
This Directors’ Remuneration Policy will be presented to
shareholders at the June 2018 AGM. Subject to shareholder
approval, the policy will be effective from 1 January 2018 and is
intended to operate for the three-year period to January 2021.
Policy overview
The Remuneration Committee has responsibility for determining
the remuneration for the Chairman and Executive Directors.
The aim of the Company’s remuneration strategy is to provide
a level of fixed pay that, together with incentives, will attract,
retain and motivate high-calibre, high-performing executives,
aligning them to the long-term performance of the Company
and its long-term share performance while rewarding them
for creating and delivering shareholder value.
The remuneration policy put in place when the Company
listed replicated the Executive Directors’ existing remuneration
arrangements created by RHI and Magnesita for the CEO
and CFO respectively. This enabled the continuation of the
Executive Directors’ remuneration structure prior to listing while
a new policy was developed by the Remuneration Committee
to bring to the Company’s first AGM for approval.
Only certain aspects of this new policy are applicable to the
current Executive Directors and reflect the historic structure
of their remuneration and legacy contracts for example, the
salaries of the CEO and CFO were set prior to Admission.
In addition, the CFO will retain his legacy 2017 remuneration
package for 2018 and the Committee will explore with him
during the course of 2018 how his package for 2019 can be
aligned to the new forward-looking policy and remuneration
strategy. It is the Remuneration Committee’s wish to bring
the Executive Directors’ remuneration packages within the
new remuneration strategy within the medium term while
acknowledging that this may practically only be fully
achievable if and when new incumbents are appointed.
The remuneration policy has been structured in line with market
practice for UK-listed companies, while taking into account the
legacy issues and Dutch law.
The remuneration policy for Executive and
Non-Executive Directors
The table on pages 74 to 77 sets out the remuneration policy
for the Executive Directors.
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G O V E R N A N C E
R H I M A G N E S I TA
Directors’ Remuneration Policy
continued
Policy table for Executive Directors
Element and purpose
How it operates
Maximum opportunity
Performance related framework and recovery
Base salary
Salaries are paid monthly and reviewed annually.
The Company’s policy is to set salaries at
mid-market levels taking into account salaries
at companies of a similar size by market
capitalisation, revenue and any other factors
considered relevant by the Committee such
as international business mix and complexity.
Decisions on salary are influenced by:
• The performance and experience of the
individual
• The performance of the Group
• The individual’s role and responsibilities and
any change in those responsibilities
• Pay and employment conditions elsewhere in
the Group
• Rates of inflation and market-wide increases
across international locations
• The geographic location of the executive
The salaries of the CEO and CFO were set prior
to Admission.
There is no prescribed
maximum annual
base salary or
salary increase.
Salaries will be reviewed by the Committee
annually taking into account the various
factors noted in the “How it operates” section
of the policy.
In respect of salary
increases the
Committee is guided
by the general increase
for the broader
employee population
and region where the
executive is based.
Increases beyond this
may be awarded in
certain circumstances
such as where there is a
change in responsibility
and experience or the
scale of the role or size,
value or complexity of
the business.
Directors may participate in a defined
contribution plan, and/or receive cash in lieu
of all or some of such benefit.
For the CEO and new
Directors 15% of salary.
None
For the current CFO
30% of salary.
Exceptionally for
Executive Directors
outside of the UK an
amount as required by
local regulation and
in line with industry
norms.
There is no maximum
level of benefits
provided to an
Executive Director.
None
Only base salary is pensionable.
Exceptionally for Executive Directors outside the
UK the pension will be structured as required by
local regulation and in line with industry norms.
The CFO receives a cash payment in lieu of
pension of 30% of salary. This is a legacy
issue where the pension entitlement was set
on recruitment.
Benefits provided currently include: private
health insurance, life insurance, car/ car
allowance and fuel allowance.
The current CFO is entitled to reasonable
relocation expenses on termination of his
contract (by either party). This is a legacy issue
where the benefit was in place prior to Admission.
Additional benefits and tax payable as a result
of reimbursement of reasonable business
expenses may be provided from time to time
if the Committee decides payment of such
benefits and tax is appropriate and in line
with market practice.
To assist in the
recruitment
and retention of
appropriate talent.
To provide a fair
fixed level of pay
commensurate for
the role ensuring
no over reliance on
variable pay.
Retirement allowance
To provide competitive
retirement benefits
for recruitment and
retention purposes.
Other benefits
To provide a
competitive
benefit package
for recruitment and
retention purposes
as well as to support
the personal health
and well-being of
the executive.
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7 5
Element and purpose
How it operates
Maximum opportunity
Performance related framework and recovery
The annual bonus is based on the Group’s
performance as set and assessed by the
Committee on an annual basis.
The annual bonus is paid in cash and the
Executive Directors (except for the CFO in respect
of his 2018 annual bonus) are required to acquire
shares in the Company with 50% of the amount
paid in excess of target (after tax) which will be
held for a minimum period of three years.
Annual bonus
To provide focus
on the short-term
performance of the
Company and to
provide a reward for
achieving short-term
personal, strategic and
financial Company
performance.
To provide a
mechanism for
alignment with longer-
term performance and
shareholder alignment.
The requirement for
Executive Directors
to acquire shares with
their bonus aligns them
to the “development
of the market price
of the shares” in the
Company as provided
in the Dutch Corporate
Governance Code.
Up to 150% of base
salary maximum
potential opportunity.
Target potential
opportunity is 50% of
maximum opportunity.
Details of the performance targets set for the
year under review and performance against
them will normally be provided each year in the
Annual Report on Remuneration. If for reasons
of commercial sensitivity, the targets cannot
be disclosed then they will be disclosed in the
following year.
For 2018 the CFO’s
target potential
opportunity will be
100% of salary which
is 83.3% of maximum
(on the basis that his
maximum potential
opportunity will be
120% of salary), and
threshold potential
opportunity will be
66.6% of maximum
(being 80% of salary).
Performance normally measured over a
one-year period.
Targets will be based on the Group’s annual
financial and non-financial performance
for the particular performance year. At least
70% of the bonus will be subject to financial
performance metrics.
The Committee may scale back the bonus
that is payable if it considers the outcome
to be reasonably unacceptable or if it is not
representative of the underlying performance of
the Company and/or there have been regulatory,
environmental or health and safety issues that
the Committee considers are of such severity
that a scale back of the bonus is appropriate.
For the financial targets, not more than 25% of
the maximum potential bonus opportunity will
be payable for achieving threshold performance
rising on a graduated scale to 100% for maximum
performance. Threshold performance being the
level of performance required for the bonus to
start paying.
In relation to strategic targets the structure of
the target will vary based on the nature of the
target set and it will not always be practicable to
set targets using a graduated scale. Vesting may
therefore take place in full if specific criteria are
met in full.
Payments under the annual bonus plan may be
subject to clawback/malus for a period of three
years from payment in the event of a material
misstatement of the Company’s financial results,
an error in calculating the level of grant or level of
vesting or payment, a failure of risk management
including the liquidation of the Group, if the
participant has been guilty of fraud or gross
misconduct or the Company has been brought
into disrepute. The clawback/malus provisions
as set out above do not limit Article 2:135 of the
Dutch Civil Code.
7 6
G O V E R N A N C E
R H I M A G N E S I TA
Directors’ Remuneration Policy
continued
Policy table for Executive Directors continued
Element and purpose
How it operates
Maximum opportunity
Performance related framework and recovery
Performance share awards may take the form
of nil-cost options or conditional awards.
Awards are normally made annually.
Awards normally vest after three years subject
to performance and continued service. Where
Executive Directors cease employment or are
under notice prior to the three-year vesting date
different rules may apply.
Shares resulting from the exercise of an option
or vesting of a conditional award cannot be sold
until five years have elapsed from the date of
award, other than to pay tax.
To the extent an award vests, the Committee may
permit dividend equivalents to be paid either
in the form of cash or shares representing the
dividends that would have been paid on those
shares during the vesting period (and where the
award is a nil-cost option to the fifth anniversary
of award). Dividend equivalents are payments in
cash or shares equal to the value of the dividends
that would have been paid during the period
referred to above, on the number of shares
that vest.
Performance Share
awards granted
under the RHI
Magnesita Long-Term
Incentive Plan
To incentivise and
reward execution
of the longer-term
business strategy.
To provide alignment
to shareholders and
the longer-term
performance of the
Company and to
recognise and reward
value creation over
the longer term.
The “development
of the market price
of the shares” in
the Company is, as
required by the Dutch
Corporate Governance
Code, taken into
account by providing
a long-term incentive
using shares as the
delivery mechanism.
In addition, part of the
award is determined
by Total Shareholder
Return which is a
measure of share
price performance.
200% of salary
(face value of award)
annually (normal limit).
Where the face value
is the market value of
the shares subject to
an award at the time it
is awarded.
Awards vest based on three-year (or longer)
performance measured against a range of
challenging targets set and assessed by the
Remuneration Committee. The Committee will
determine the specific metrics and targets that
will apply to each award prior to the date of award
subject to the vesting of at least 25% of an award
being determined by Total Shareholder Return.
In exceptional
circumstances on
recruitment 250%
of salary (face value
of award).
The targets for each award will be set out in the
Annual Report on Remuneration.
In relation to financial targets not more than
25% of the total award will vest for threshold
performance rising on a graduated scale to
100% for maximum performance. Threshold
performance being the level of performance
required for the Performance Shares to start to
vest. In relation to strategic targets the structure
of the target will vary based on the nature of the
target set and it will not always be practicable
to set targets using a graduated scale and so
vesting may take place in full if specific criteria
are met in full.
The Committee may scale back the level
of vesting if it considers the outcome to
be reasonably unacceptable or if it is not
reflective of the underlying performance of the
Company and/or there have been regulatory,
environmental or health and safety issues that
the Committee considers are of such severity
that a scale back of the Performance Share
award is appropriate.
Performance Shares may be subject to
clawback/malus for three years from the date of
vesting in the event of a material misstatement
of the Company’s financial results, an error in
calculating the level of grant or level of vesting
or payment, a failure of risk management
including the liquidation of the Group, if the
participant has been guilty of fraud or gross
misconduct or the Company has been brought
into disrepute. The clawback/malus provisions
as set out above do not limit Article 2:135 of the
Dutch Civil Code.
Share ownership
To increase alignment
between management
and shareholders
and the longer-term
performance of
the Company.
Requirement for the Executive Directors is to
normally retain all of the shares acquired from
annual bonus payments following expiry of
the three-year holding period and normally
50% of vested Performance Shares (net of tax)
following the two-year holding period until the
shareholding requirement is achieved.
The Committee normally expects this
requirement to be met within five years of
appointment or approval of this Policy, if later.
None.
The level of
requirement will
be disclosed in the
Annual Report on
Remuneration.
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The table below sets out the remuneration policy for the Non-Executive Directors (including the Chairman).
Policy table for Non-Executive Directors
Element and purpose
How it operates
Maximum opportunity
Performance related framework and recovery
Non-Executive
Directors (including
the Chairman and
Deputy Chairman)
To provide fees
reflecting time
commitments and
responsibilities of
each role to enable
recruitment of
the right calibre
of Non-Executive
Directors who can
further the interests
of the Group through
their experience,
stewardship and
contribution to
strategic development
of the Group.
The Non-Executive Directors are paid a
basic fee. Supplemental fees may be paid
for additional responsibilities and activities,
including for a Committee Chairman and
member of the main Board Committees and
the Senior Independent Director.
Cash fee normally paid quarterly. The Chairman’s
fee is inclusive of all of his responsibilities.
Reasonable expenses incurred by the Non-
Executive Directors in carrying out their duties
may be reimbursed by the Company including
any personal tax payable by the Non-Executive
Directors as a result of reimbursement of those
expenses. The Company may also pay an
allowance in lieu of expenses if it deems this
is appropriate.
Fees are reviewed periodically.
There is no prescribed
maximum annual fee or
fee increase.
None.
The Board is guided by
the general increase
in the Non-Executive
market but may decide
to award a lower or
higher fee increase to
recognise, for example,
an increase in the scale,
scope or responsibility
of the role and/or take
account of relevant
market movements.
7 8
G O V E R N A N C E
R H I M A G N E S I TA
Directors’ Remuneration Policy
continued
Performance criteria and discretions
Selection of criteria
The Committee assesses annually at the beginning of the relevant
performance period which performance measures, or combination
and weighting of performance measures, are most appropriate for
both annual bonus and any performance share awarded to reflect
the Company’s strategic initiatives for the performance period.
The Committee has the discretion to change the performance
measures for awards granted in future years based upon the
strategic plans of the Company. The Committee sets what it
considers are demanding targets for variable pay in the context
of the Company’s trading environment and strategic objectives
and considering the Company’s internal financial planning, and
market forecasts. Any non-financial goals will be well defined.
Discretions retained by the Committee
The Committee operates the Group’s variable pay plans according
to their respective rules. In administering these plans, the
Committee may apply certain operational discretions.
These include the following:
¥ determining the extent of vesting based on the assessment
of performance;
¥ determining the status of leavers and, where relevant, the
extent of vesting;
¥ determining the extent of vesting of awards under share
based plans in the event of a change of control; and
¥ making appropriate adjustments required in certain
circumstances (e.g. rights issues, corporate restructuring
events, variation of capital and special dividends);
¥ adjusting existing targets if events occur that cause the
Committee to determine that the targets set are no longer
appropriate and that amendment is required so the relevant
award can achieve its original intended purpose, provided
that the new targets are not materially less difficult to satisfy.
The Committee also retains discretion to make non-significant
changes to the Policy without reverting to shareholders (for
example, for regulatory, tax, legislative or administrative purposes).
Executive Directors’ service contracts and payments for
loss of office
Service contracts and letters of appointment are available
for inspection at the Company’s registered office.
Service contracts and loss of office
It is the Company’s policy that notice periods for Executive
Directors will not exceed 12 months and the service contracts
for the Executive Directors Messrs Borgas and Lopes are
terminable by either the Company or the Executive Director
on 12 months’ notice.
The Committee’s policy in relation to termination of service
contracts is to deal with each case on its merits having regard
to the circumstances of the individual, the termination of
employment, any legal advice received and what is in the best
interests of the Company and its shareholders. An Executive
Director’s service contract may be terminated early (other
than for cause) by payment in lieu of salary in equal monthly
instalments over the notice period. The Company may include
pension contributions and benefits within the payment in lieu of
notice if this is deemed appropriate or is specifically provided for
in the service contract. Unless a contract specifically provides
otherwise, all payments would discontinue or reduce to the
extent that alternative employment is obtained. There are
no enhanced provisions on a change of control and there
are no specific severance arrangements.
An Executive Director’s service contract may be terminated
without notice for certain events such as gross misconduct
in which case no payments or compensation beyond sums
accrued to the date of termination will be paid.
The Company may also pay outplacement costs, legal
costs and other reasonable relevant costs associated with
termination and may settle any claim or potential claim relating
to the termination.
Treatment of variable pay awards on termination
Annual bonuses and Performance Share awards are non-
contractual and are dealt with in accordance with the rules
of the relevant plans except that if Octavio Lopes’ contract is
terminated by the Company before payment is made of his
2017 bonus then he shall remain entitled to that bonus to be
paid on the same date of payment as for the other executives
of the Company.
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
7 9
At the discretion of the Committee, in certain circumstances, for
example, to incentivise short-term retention and completion of
key business deliverables, and where poor performance is not
relevant to the cessation, a pro-rata bonus may become payable
at the normal payment date for the period of employment with
financial performance targets based on full year performance.
Where the Committee decides to make a payment, the rationale
will be fully disclosed in the Annual Report on Remuneration.
The default treatment for share based awards is that any
unvested award will lapse on termination of employment or, in
certain circumstances on the executive giving notice. However,
under the rules of the long-term incentive plan under which
Performance Share awards will be made, in certain prescribed
circumstances, such as death, injury, ill-health, retirement with
the Company’s agreement, redundancy, leaving the Group
because the employer company or business leaves the Group or
where the Committee determines otherwise, awards are eligible
to vest subject to the performance conditions being met over
the normal performance period (or a shorter period where the
participant has died) and with the award being reduced (unless
the Committee considers, in exceptional circumstances, a
different treatment is appropriate) by an amount to reflect the
proportion of the performance period not actually served.
Approach to recruitment and promotions
The recruitment package for a new Director would be set in
accordance with the terms of the Company’s approved
remuneration policy.
On recruitment, salary may be set below the normal market rate,
with phased increases as the Director gains experience.
Annual bonus opportunity will reflect the period of service for
the year.
The normal annual Performance Share award limit is 200% of
salary face value in a financial year (face value being the market
value of the shares subject to an award at the time it is awarded).
A higher limit of 250% of salary (face value) is included in the
recruitment policy for use in exceptional circumstances for the
Company to be able to attract and secure the right candidate
if required. A Performance Share award may be made shortly
after an appointment if the usual annual award date has passed.
On an internal appointment, any variable pay element awarded
in respect of their prior role will normally be allowed to continue
according to its terms.
The policy enables the Committee to include those benefits it
deems appropriate for an Executive Director. On recruitment,
this may include benefits such as relocation, housing or
schooling expenses. In arriving at a benefits package the
Committee’s prevailing consideration will be to pay only what
is considered necessary and appropriate taking into account
the importance of securing the right candidate for the job and
acting in the best interests of the Company’s shareholders and
limiting certain benefits to a specified period where possible.
On recruitment, the Company may compensate for incentive
pay (or benefit arrangements) foregone from a previous
employer. Replacement share awards would be made under
the Company’s long-term incentive plan and any subsequently
adopted share plans using the separate specific limit for these
purposes of 250% of salary (face value) or as necessary and as
permitted under the Listing Rules. The new awards would take
account of the structure of awards being forfeited (cash or
shares), quantum foregone, the extent to which performance
conditions apply, the likelihood of meeting any existing
performance conditions and the time left to vesting.
Policy for Executive Directors on external appointments
Subject to Board approval, Executive Directors may accept
external non-executive positions and retain the fees payable
for such appointments.
Non-Executive Directors
Letters of appointment and policy on recruitment
All Non-Executive Directors have letters of appointment for
a fixed period of three years, subject to reappointment each
year at the AGM. No additional compensation is payable on
termination, with fees being payable to the date of termination.
The appointments are terminable by either party on three
months’ written notice.
On appointment of a new Non-Executive Director, the fee
arrangement will be set in accordance with the approved
remuneration policy in force at that time.
8 0
G O V E R N A N C E
R H I M A G N E S I TA
Directors’ Remuneration Policy
continued
Legacy arrangements
In approving this Directors’ Remuneration Policy, authority is
given to the Company to honour any commitments entered in
to with Directors, which were fully disclosed in the Admission
document. Details of any such payments will be set out in the
Annual Report on Remuneration as they arise.
How the views of shareholders and employees
are taken into account
The Committee formally consults directly with employees on
executive pay via the Employee Representatives appointed to
the Board. In addition, the Committee takes due account of
the overall approach to remuneration and the remuneration
structures for employees in the Group when setting pay for
the Executive Directors, for example consideration is given to
Group-wide increases when determining any Executive Director
salary increases. The Committee receives periodic updates from
the CEO and Human Resources Director function of the Group
which includes employee feedback received on remuneration
practices across the Group. The Committee recognises the
importance of employee communication and this was a major
consideration in the appointment of the Employee
Representatives to the Board.
The Committee consulted with major shareholders on the
terms of the remuneration policy to be brought to shareholders
at the 2018 AGM and took note of guidance from shareholder
representative bodies. Views expressed and guidance provided
were taken into account when finalising the policy, for example
in ensuring that the design of the various elements of pay and
other parts of the policy is in line, as far as possible taking into
account that views differ between investors and that the policy
must support the strategy of the Company, with their views and
guidance. The Committee will consider any further shareholder
feedback received in relation to the policy at the AGM. This, plus
any feedback received from time to time, as well as guidance
from shareholder representative bodies more generally will
be considered as part of the Company’s annual review of
remuneration policy and implementation of that policy.
Remuneration comparison measurement was considered
as part of the Committee’s formulation of policy in terms of
considering remuneration data for companies of a comparable
size and complexity to the Company. This was only one of many
factors considered by the Committee.
The Committee has taken note of the views of the Executive
Directors with regard to the amount and structure of their
remuneration and the provisions of 3.1.2 of the Dutch
Corporate Governance Code (matters that should be taken
into consideration when formulating the remuneration
policy) have been brought to their attention.
How the Executive Directors’ Remuneration Policy relates to
the wider Group
The policy described above applies specifically to the
Company’s Executive and Non-Executive Directors. The
Committee is aware of and provides feedback on the wider
Group remuneration structures. The Company’s policy is for
the Executive Directors’ remuneration policy and structure to
be cascaded as far as practicable to the senior management
team and for the overriding principles to be taken into
account for the Group-wide policy.
Base salaries for the whole Group are operated under broadly
the same policy as for the Executive Directors. The key difference
between the Executive Directors’ policy and the wider Group’s
policy is that the Executive Directors’ packages (and the senior
management team to a lesser extent) are weighted more to
variable pay. Performance Share awards are reserved for those
identified as having the greatest potential to influence Group
level performance which, given the cost of operating such
a plan, the Committee considers is the right approach
and in the best interests of the Company and its shareholders.
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
8 1
Pay ratios
In formulating the Directors’ Remuneration Policy, the
Remuneration Committee has been cognisant of the relative
pay levels of the Executive Directors, the rest of the management
team and the Group employees. The Dutch Corporate
Governance Code recommends that from the financial year
2019, the UK Directors’ Reporting Regulations will require the
Committee to consider and report pay ratios including changes
from the prior year as part of its determination of executive pay.
Remuneration scenarios for Executive Directors
The Executive Director remuneration policy provides that a
significant proportion of remuneration is determined by Group
performance. The graph below illustrates how the total pay
opportunities vary under three different performance scenarios:
minimum, target and maximum. The graph has been prepared
on the basis of implementation of the policy in 2018 and ignores
the impact of future share price growth and the payment of
dividend equivalents.
RHI Magnesita was formed on 20 June 2017 and admitted to
trading on 27 October 2017. There is therefore no prior year
comparator information for this year’s reporting. Given the
complexities of the recent merger of two large groups providing
data for a large reference group is challenging. The pay ratio
of the CEO to the average employee for the period 27 October
2017 to 31 December 2017 is 50:1. This is arrived at using the
CEO’s Single Total Figure of remuneration shown on page 83
and the total employee remuneration figure (for the entire
RHI Magnesita Group) shown in the accounts on page 33 and
apportioned for the period 27 October 2017 to 31 December
2017. The total employee remuneration figure is for all
employees in all Group companies and includes countries
with significantly lower levels of pay than Europe and the United
States. The Committee will consider over the course of 2018
what further information can be provided to shareholders in
future years taking into account the Dutch and the new UK
requirements (details of which should be available later this
year) including what elements of pay should be covered and
what an appropriate representative reference group might be.
Assumptions
Minimum: Fixed pay only (base salary, pension and benefits).
Target: Fixed pay plus 50% of 2018 maximum annual bonus
opportunity for the CEO and 83.3% for the CFO with 50%
vesting of the 2018 Performance Share award for the CEO.
There is no 2018 Performance Share award for the CFO.
Maximum: Fixed pay plus maximum annual bonus opportunity
and 100% vesting of 2018 Performance Share award.
As required under the Dutch Corporate Code, scenario analyses
have been carried out as part of the formulation of the policy
and to establish that the policy results in appropriate and fair
levels of remuneration including that the level and ratio of fixed
to variable pay does not encourage inappropriate risk taking or
over-reliance on variable pay while ensuring there is sufficient
alignment to investors and the long-term performance of the
Company and development of the market value of the shares
of the Company.
Chief Executive Officer
€’000
Chief Financial Officer
£’000
Minimum
100%
€958
Minimum
Target
40%
26%
34%
€2,404
Target
Maximum
25%
32%
43%
€3,849
Maximum
100%
57%
52%
£735
43%
£1,285
48%
£1,395
Fixed pay
Annual bonus
Long-term incentives
Fixed pay
Annual bonus
8 2
G O V E R N A N C E
R H I M A G N E S I TA
Annual Report on
Remuneration
As a Dutch incorporated and
registered and UK listed company
RHI Magnesita is required to comply
with both UK and Dutch reporting
requirements including the UK and
Dutch Corporate Governance Codes.
The Board has also determined to provide certain additional
voluntary disclosures recognising the importance of best
practice and transparency of reporting. This Annual Report
is compiled on this basis.
The remuneration arrangements for the Executive Directors
contribute to long-term value creation:
¥ By providing a fair and appropriate level of fixed remuneration
that does not result in over-reliance on variable pay and undue
risk taking, thereby encouraging the executives to focus on
sustained long-term value creation.
¥ By providing a balance of short- and long-term incentives to
ensure there is focus on short term objectives that will over
time build to create long-term value creation as well as
long-term goals.
¥ By requiring executives to acquire and retain shares in the
Company.
¥ By offering long-term incentives where the reward is delivered
in shares which aligns executives to shareholder interests and
value as well as the performance of the Company over the
longer term.
¥ By requiring performance measures in our long-term incentive
to be measured over the longer term and for shares to be held
post vesting for a further two-year period.
¥ By incorporating metrics focused on long-term shareholder
value, such as total shareholder return.
A scenario analysis has been carried out as part of the formulation
and implementation of the policy and is referred to in more detail
in the policy section of this report. The Committee typically
reviews, on at least an annual basis, the impact of different
performance scenarios on the potential opportunity and
payouts to be received by Executive Directors and the alignment
of these with the returns that might be received by shareholders.
The pay ratio of the CEO to the average employee within the
Company is provided in the policy section of this report.
The following section provides details of how the
Company’s Directors were paid during the financial year
to 31 December 2017.
Remuneration Committee membership
Celia Baxter is the Chairman of the Committee and James
Leng and Karl Sevelda members of the Committee. They
are all Independent Non-Executive Directors within the
meaning of the UK and Dutch Corporate Governance Codes.
The Company Secretary is the Secretary to the Committee.
Other individuals, such as the Chief Executive Officer, the
Human Resources Director and external professional advisers
may be invited to attend for all or part of any meeting as and
when appropriate and necessary. No individual is present when
their own remuneration is discussed.
The Committee meets at least twice a year and at such other
times as the Chairman of the Committee shall require or as the
Board may direct. The Committee has formal terms of reference
that can be viewed on the Company’s website.
Advisers
Korn Ferry Hay Group (KF), signatories to the UK Remuneration
Consultants Group’s Code of Conduct, was appointed by the
Committee following Admission. KF provides advice to the
Committee on matters relating to executive remuneration.
KF provided no other services to the Company and the
Committee was satisfied that the advice provided by KF
was objective and independent. KF’s fees in respect of the
2017 financial year were £28,400. KF’s fees were charged
on the basis of the firm’s standard terms of business for
advice provided.
Remuneration arrangements for the Executive Directors
during the period 27 October 2017 and 31 December 2017
As a short-term measure, the Directors’ remuneration
arrangements in place at the time of Admission were adopted
as the Directors’ Remuneration Policy, which enabled the
Executive Directors’ remuneration packages to continue post
Admission. The structure of those remuneration packages for
the financial year 2017 is:
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
8 3
¥ Base salary, benefits and a retirement allowance as
described below.
¥ An annual bonus maximum opportunity of 120% of salary
for both Stefan Borgas and Octavio Lopes in respect of the
performance of the RHI and Magnesita businesses respectively
for the year ended 31 December 2017.
¥ For Stefan Borgas a one-off cash bonus of 100% of salary
payable in October 2017 in respect of the Acquisition of Control.
¥ For Stefan Borgas a phantom share award with potential
downward adjustment if the annual bonus does not pay
out at target payable in cash of 50% of salary and vesting
one-third annually.
¥ As part of his 2016 remuneration arrangements Octavio Lopes
received a one-off cash retention bonus of 200% of salary
with half payable in October 2017 and half payable in October
2018, both payments subject to his continued employment.
The intention of the newly appointed Remuneration Committee
was to develop a new Remuneration Policy for 2018, which
complied with UK and Dutch governance. The proposed
Remuneration Policy to be adopted from 1 January 2018
is detailed on pages 73 to 81.
Single total figure table (audited)
The remuneration for the Executive and Non-Executive Directors of the Company who performed qualifying services during the
period from the date of Admission 27 October to 31 December 2017 being 66 days is detailed below.
Director1,2
Executive Directors
Stefan Borgas
Octavio Lopes
Non-Executive Directors
Herbert Cordt
Celia Baxter
Andrew Hosty
Fersen Lambranho
James Leng
Stanislaus Prinz zu Sayn-Wittgenstein
John Ramsay
Wolfgang Ruttenstorfer
David A. Schlaff
Karl Sevelda
Year
Salary3
Taxable
benefits4
Bonus5
Long-term
incentives
Pension
Legacy
incentive
payments6
Total
remuneration
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
€171,780
£99,452
€1,539
€171,437
£3,696
£100,447
£39,781
£14,918
£14,014
£11,753
£18,534
£12,658
£14,014
£13,110
£11,753
£13,110
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– €132,225
€476,981
£29,836
–
£233,431
–
–
–
–
–
–
–
–
–
–
£39,781
£14,918
£14,014
£11,753
£18,534
£12,658
£14,014
£13,110
£11,753
£13,110
1 Employee representatives attending Board meetings do not receive remuneration for that role and are not Directors of the Company.
2 All amounts detailed in the table above are in respect of the period from Admission on 27 October 2017 to 31 December 2017. Amounts payable in respect
of the entire financial year 2017 have therefore been apportioned. All amounts are disclosed in the currencies in which the relevant elements of pay are set.
Actual payment may be made in the currency where the recipient resides using the exchange rate at the time of payment.
3 The annual base salary for Stefan Borgas was €950,000 and for Octavio Lopes was £550,000.
4 Benefits comprise for Stefan Borgas a car benefit of €8,500 for the year and for Octavio Lopes a package of standard insured benefits being private medical
and life insurance with an annual value of £20,440.
5 Stefan Borgas and Octavio Lopes received annual bonus payments determined by performance for the year ended 31 December 2017 against targets set at
the beginning of the year for the RHI and Magnesita businesses respectively. The amounts shown in the table are the pro-rating for the period 27 October
to 31 December 2017 of the total amounts payable.
6 Legacy incentive payments: This comprises the phantom share award for the CEO which was subject to a potential downward adjustment determined by
performance for the year ended 31 December 2017. The total value of the phantom shares is €731.247 and is payable in three equal annual instalments
in 2018, 2019 and 2020. The amount shown in the table is the pro-rating for the period 27 October to 31 December 2017 of the total amount payable.
The bonus payments to Stefan Borgas in connection with the Acquisition of Control and the retention bonus for Octavio Lopes of 100% of salary each,
paid in October 2017 are not included in the table above as they were paid and related to a period prior to Admission.
No loans, advances or guarantees have been provided to any Director.
8 4
G O V E R N A N C E
R H I M A G N E S I TA
Annual Report on Remuneration
continued
2017 Annual bonus (audited)
The targets for the annual bonus for the CEO and CFO were set at the beginning of 2017 by the remuneration committee of RHI for
the CEO and the remuneration committee of Magnesita for the CFO. The bonus for the CEO is determined by the performance of
RHI and for the CFO by the performance of Magnesita. The targets and performance against them for both the CEO and CFO have
been subject to an independent audit and are set out in the tables below.
The annual bonus for Stefan Borgas was determined following assessment of achievement of qualitative and quantitative targets as
set out below.
Measure and weighting
Operating EBIT (35%)
Operating ROACE (35%)
Performance
target for
threshold vesting
of 0% of salary
Performance
target for
target vesting
of 100% of salary
Performance
target for
maximum vesting
of 120% of salary
Actual
performance
Payment
(% of salary)
Cash bonus based
on salary of €171,780
(for period
27 October 2017 to
31 December 2017)
€100.0 million
€133.4 million
€160.0 million
€145.2 million
6.5%
8.7%
10.4%
10.4%
Reduction of Net Debt (15%)
€325.0 million
€311.0 million
€300.0 million
€320.3 million
Personal/strategic objectives (15%)*
Not achieved
Achieved
Over achieved
Achieved
Total as % salary
38.2%
41.8%
4.8%
15.0%
99.8%
€171,437
*The objectives set for the CEO were to ensure that the people, systems, processes and organisational structures were in place to ensure a smooth and
successful merger of the Austrian and Brazilian businesses and London Stock Exchange Listing as well as formulating a detailed plan to achieve the requisite
merger synergies. The Committee, assisted by the Chairman of the Board, conducted a review and assessment to evaluate performance against the objectives
set. The period of review included four months post Listing to the end of February 2018, which enabled the Committee to take into account the internal
operation of the merged organisation post Listing in terms of the objectives set. The Committee concluded that the objectives had been achieved taking into
account that key personnel, systems, processes and organisational structures were in place for the Listing and that the operation of the merged business and
Listing had proceeded smoothly and as expected. Additionally, the detailed plan of merger synergies is fully incorporated into the Group’s operations and
business plan.
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
8 5
The annual bonus for Octavio Lopes was determined following assessment of achievement of qualitative and quantitative targets
as set out below.
Measure and weighting
Economic Profit
(55% of Scorecard)
Operating Cash Flow
(35% of Scorecard)
Safety KPIs
(10% of scorecard)
• LTIR
• RR
Total
Performance
target for
threshold vesting
of 80% of salary
score 7
Performance
target for
target vesting
of 100% of salary
score 10
Performance
target for
maximum vesting
of 120% of salary
score 13
Actual
performance
Weighted
score
Cash bonus based
on salary of £99,452
(for period
27 October 2017 to
31 December 2017)
US$18.9 million
US$49.0 million
US$79.7 million
US$43.4 million
US$56.0 million
US$70.0 million
0.26
1.15
0.13
0.86
0.00
0.53
US$62.2 million
(score 11.3)
US$48.2 million
(score 8.2)
0.10
0.88
(score 10.4)
6.2
2.9
1.0
10.1
£100,447
Notes:
(a) Economic Profit (excl. Factoring) = Net Operating Profit after Tax (NOPAT) – Capital Charge. NOPAT = EBIT*(1-tax)
Capital Charge WACC* (Receivables (excl. Factoring) + Inventory – Payables + Other Working Capital + Net Tax Liabilities + PP&E + Other Net Assets)
(b) Operating Cash Flow = EBITDA – Cash tax – ∆ (Receivables (excl. Factoring) + Inventory – Payables + Other Working Capital) – Capex
(c) Safety KPIs = 60% LTIR + 40% RR
LTIR = Lost Time Injury Rate = (# of lost time incidents * 200k) / worked hours
RR = Recordable Rate = ((# of lost time incidents + # non-lost time incidents) *200k)/ worked hours
The performance targets for EP and OCF are based on the adjusted budget, which is Magnesita's budget for the year of 2017 adjusted for externalities
(actual steel market production output in Magnesita's established markets and actual foreign exchange rates)
This performance resulted in recommended annual bonuses of €171,437 being 99.8% of salary for Stefan Borgas and £100,447
being 101.0% of salary for Octavio Lopes for the period 27 October to 31 December 2017.
No bonuses were awarded to Non-Executive Directors.
8 6
G O V E R N A N C E
R H I M A G N E S I TA
Annual Report on Remuneration
continued
There were no changes in the Directors' interests in shares
between 31 December 2017 and 19 March 2018.
Under the share ownership requirements set out in the
Directors’ Remuneration Policy, the Executive Directors
are required to build normally over five years and maintain
a shareholding equivalent to at least 200% of salary. At the
2017 year-end, the Executive Directors each held shares in
the Company as detailed in the adjacent table. Stefan Borgas
holds 20% of annual salary in shares and Octavio Lopes holds
908% of annual salary in shares (based on the share price
of £39.05 (€44.02) on 31 December 2017).
There were no outstanding share awards held by the Executive
Directors as at 31 December 2017.
Review of past performance and CEO remuneration table
(unaudited)
The graph below shows the TSR of the Company and the FTSE
350 Index over the period from Admission to 31 December 2017.
This is considered an appropriate comparator for RHI Magnesita,
and aligns with the use of the FTSE 350 in the TSR performance
measure for the Performance Share awards.
RHI Magnesita TSR vs FTSE 350 since admission
Percentage increase/decrease since 27/10/2017
RHI Magnesita
FTSE 350
140
130
120
110
100
90
27/10/2017
31/12/2017
Number
of ordinary
shares held
4,300
127,894
–
1,002
379
–
–
–
2,130
–
–
11,347,058
Source: Datastream (Thompson Reuters)
–
–
Share awards where vesting is based on performance periods
ending during the period 27 October to 31 December 2017
(unaudited)
There were no share awards where vesting is determined based
on performance periods ending during the period 27 October
to 31 December 2017.
Share awards awarded during the period 27 October to
31 December 2017 (unaudited)
No share awards were awarded to the Directors during the
period 27 October to 31 December 2017, nor were there any
rights exercised during this period.
Statement of Directors’ shareholding and share interests
(unaudited)
For each Director, the total number of Directors’ interests
in shares at 31 December 2017 was as follows:
Executive Directors
Stefan Borgas
Octavio Lopes1
Non-Executive Directors
Herbert Cordt
Celia Baxter
Andrew Hosty
Fersen Lambranho1
James Leng
Stanislaus Prinz zu
Sayn-Wittgenstein2
John Ramsay
Franz Reiter
Wolfgang Ruttenstorfer
David A. Schlaff3
Michael Schwarz
Karl Sevelda
1 As detailed on page 65, 4,258,905 ordinary shares are held by Alumina
Holdings LLC, a corporate controlled by funds managed by GP
Investments, which is itself controlled, indirectly, by persons including
Fersen Lambranho and in which Octavio Lopes has a minority interest.
2 Mr. Stanislaus Prinz zu Sayn-Wittgenstein has a family relationship with
persons who control Chestnut and Silver, each of which holds 2,058,461
ordinary shares , as detailed on page 65
3 Mr David A. Schlaff is the son of Mag. Martin Schlaff, the founder of MSP
Stiftung, which holds 11,347,058 ordinary shares.
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
8 7
The information below is only in respect of the period
27 October to 31 December 2017.
Single figure
of total
remuneration1
Annual bonus
pay-out as %
of maximum
Long-term
incentive
vesting rates as
% of maximum2
2017
€476,981
83.16%
N/A
1 This figure relates to the period 27 October to 31 December 2017 only.
2 There was no long-term incentive subject to performance conditions
where the performance period ended during the period 27 October to
31 December 2017.
Percentage change in remuneration of the CEO (unaudited)
Because the Company was established on 20 June 2017 and
admitted to trading on 27 October 2017 there is no prior year
information to provide the disclosure required for the year-on-
year percentage change in remuneration received by the CEO,
compared with the change in remuneration received by all
RHI Magnesita employees.
Relative importance of spend on pay (unaudited)
Because the Company was established on 20 June 2017 and
admitted to trading on 27 October 2017 there is no prior year
information to provide the disclosure required on the change
in total staff pay compared with distributions to shareholders
by way of dividends, share buy-backs or any other significant
distributions or payments or other uses of profit or cash flow
between financial years 2016 and 2017.
Total gross employee pay
Dividends
27 October to
31 December
2017
€ million
82.2
33.6*
% change
No prior year
information
No prior year
information
* Dividend is subject to AGM approval and is not time apportioned.
Payments to past Directors (unaudited)
There were no payments to past Directors in the period
27 October to 31 December 2017.
Payments for loss of office (unaudited)
No payments were made to any Director in respect of loss
of office in the period 27 October to 31 December 2017.
Implementation of Policy for 2018 (unaudited information)
An explanation of how the Directors’ Remuneration Policy will
be applied during the financial year 2018 is set out below.
In determining the new Remuneration Policy and
implementation of that Policy for 2018, the Committee has
taken into account the existing contractual entitlements and
target remuneration levels of the Executive Directors as well as
the Remuneration Policy in operation at the time of Admission.
The CEO was historically part of the RHI business and the
CFO part of the Magnesita business.
One of the matters the Committee has had to address is how
to arrive at a policy that can be applied to both Directors over
the first policy period and that provides a remuneration package
commensurate to that which they received at their respective
companies but which is aligned as far as possible to UK market
practice and which supports the strategy of the new
merged Group.
The Committee has, where possible, within the parametres of
the CEO’s existing contract and remuneration arrangements,
provided a remuneration package that retains his target
remuneration level but is aligned as far as possible in terms of
structure to the new remuneration strategy. The CFO retains his
legacy 2017 remuneration package for 2018 and the Committee
will explore with him during the course of 2018 how his package
for 2019 can be aligned to the new forward-looking policy and
remuneration strategy.
8 8
G O V E R N A N C E
R H I M A G N E S I TA
Annual Report on Remuneration
continued
Implementation of the remuneration policy for the financial year ending 31 December 2018
At a Glance: the application set out below is dependent on the new policy being approved by shareholders at the 2018 AGM.
Policy element
Base salary from 1 January 2018
% increase from prior year
Retirement allowance
Annual bonus
Annual bonus metrics
S Borgas (CEO)
€826,000
-13% (note 1)
Allowance of 15% of base salary
Up to 150% of base salary
O Lopes (CFO)
£550,000
0%
Allowance of 30% of base
salary
Up to 120% of base salary
75% of the annual bonus to be determined by Group financial targets and 25% by strategic targets as follows:
35% Operating EBIT measured on a constant currency basis; 25% Free Cash Flow; 15% Synergy targets and 25%
strategic targets focusing on key strategic priorities of the business which are critical to the future profitability of
the Group. Payment under this element is subject to the threshold EBIT target being met.
Amount paid for threshold performance
0%
Amount paid for target performance
75% of salary (50% of max. annual bonus)
80% of salary (66.6% of
max) based on 2017 legacy
package
100% of salary (83.3% of
max. annual bonus) based
on 2017 legacy package
to apply for 2018
Payment of bonus in shares
50% of annual bonus in excess of target after tax is used by the executive to
acquire shares that are held for a minimum of three years
No requirement to purchase
shares for 2018
Performance Share Award
200% of base salary
No award for 2018
Performance Share Award metrics
33.3% of the award: relative TSR vs FTSE 350 Index
33.3% of the award: Reported EBIT
33.3% of the award: Adjusted EPS
Payment for threshold performance
25%
N/A
Malus and clawback
Malus applies to the period prior to vesting for performance share awards and payment of the annual bonus
Clawback applies to cash bonus and Performance Share awards for a period of three years following the date
of vesting and three years following any cash payment
Dividends on vested awards
Shareholding requirement
Participants are eligible for dividend equivalents on Performance Shares awarded
200% of base salary to be met within five years
Shareholding as % of salary at 2017 year-end 20%
Non-Executive fees:
Chairman (inclusive of all Committee fees)
Other Non-Executive Directors
Deputy Chair/ Senior Independent Director
Chairs of the Audit and Compliance, and
Remuneration Committees
Membership of the Audit and Compliance,
and Remuneration Committees
Chair of Nomination Committee (unless
filled by the Chairman) and Corporate
Responsibility Committee
Membership of the Nomination and
Corporate Responsibility Committee
Note 1: Base salary reduced by 13% with the 13% reduction provided as a retirement allowance.
908%
Annual fee
£220,000
£65,000
£25,000
£12,500
£7,500
£10,000
£5,000
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
8 9
Summary of 2017 and 2018 structure of remuneration packages
The summary below sets out how the Policy will be implemented in 2018 if shareholders approve it at the 2018 AGM. The CFO
retains his 2017 legacy remuneration package for 2018 as set out below.
Element of package
2017 structure
Salary
Benefits
CEO
€950,000
Company car
CFO
£550,000
Standard insured
benefits and relocation
as applicable
2018 structure
CEO
€826,000
Company car
CFO
£550,000
Standard insured
benefits and relocation
as applicable
Pension
Nil
30% salary
15% salary
30% salary
Performance based
annual bonus
Fixed bonus
Performance based
long-term incentive
Phantom share award
Max. opportunity 120%
salary
Max. opportunity 120%
salary
Max. opportunity 150%
salary
Max. opportunity 120%
salary
100% of salary payable
October 2017
Nil
50% of salary phantom
share award, with vesting
over three years.
Nil
Nil
Nil
Nil
200% of salary
Performance Share award
Nil
Nil
Nil
Nil
Note: As part of his 2016 remuneration arrangements the CFO received a retention bonus of 200% of salary payable half in October 2017 and half in October
2018 subject to him remaining employed.
Benefits
Benefits will be paid in line with the Directors’ Remuneration
Policy. The CEO and CFO retain the benefits that they were
entitled to on Admission. Details of the benefits received are
set out in the single figure table on page 83.
Base salary
There will be no salary increases for the Executive Directors
in 2018.
The CEO’s salary is reduced from €950,000 to €826,000
with effect from 1 January 2018 with the difference provided
as a retirement allowance (see below).
The CFO’s salary remains at £550,000.
Retirement allowance
The CEO did not have a retirement allowance at the time of
Admission. As part of the implementation of the new policy the
CEO’s salary is reduced as detailed above and he is provided
from the same date with a retirement allowance paid in cash
of 15% of salary to make good the reduction in salary.
The CFO retains his current cash retirement allowance of
30% of salary.
9 0
G O V E R N A N C E
R H I M A G N E S I TA
Annual Report on Remuneration
continued
Annual bonus
The maximum potential annual bonus opportunity for the
financial year ending 31 December 2018 will be 150% of
salary for the CEO and 120% of salary for the CFO.
The target opportunity for the CEO is 75% of salary.
Because the CFO remains on his legacy 2017 annual bonus
arrangements his target opportunity for 2018 is 100% of salary.
75% of the annual bonus to be determined by Group financial
targets and 25% by strategic targets as follows:
¥ 35% Operating EBIT measured on a constant currency basis;
¥ 25% Free Cash Flow;
¥ 15% Synergy targets;
¥ 25% strategic targets focusing on three key strategic priorities
of the business, which are critical to the future profitability of
the Group; and
¥ No bonus will be payable for strategic targets unless the
Threshold target for EBIT is met.
The CEO is required to use 50% of any bonus earned in excess
of target (net of tax) to acquire shares in the Company that
will be held for a minimum of three years. This element of the
forward-looking policy does not apply to the CFO for 2018.
Clawback and malus provisions apply.
In addition, as set out in the policy table, bonus payments
will be subject to the Committee agreeing that the proposed
bonus amounts, calculated by reference to performance
against the targets, appropriately reflect the Company’s overall
performance and shareholders’ experience. If the Committee
does not believe this to be the case, it may adjust the bonus
outturn accordingly.
The specific targets relating to the bonus have not been
disclosed at this stage as they are considered by the Committee
to be commercially sensitive and it is not considered in the
interests of shareholders to disclose further details on a
prospective basis. Details will be provided on a retrospective
basis in next year’s Annual Report on Remuneration.
Performance Share award
The Committee intends to make Performance Share awards
following the 2018 AGM provided that, the new policy and
long-term incentive plan are approved by shareholders at
that time.
The CEO will be awarded a Performance Share award over
shares with a face value at the date of award of 200% of
salary. Because the CFO remains on his legacy 2017
remuneration arrangements for 2018 he will not receive
a Performance Share award.
The extent to which any Performance Share award will vest
will be determined by relative Total Shareholder Return (TSR)
targets for 33.3% of the award, 33.3% reported EBIT targets and
the remaining 33.3% adjusted EPS. The TSR targets are detailed
below. The EBIT and EPS targets will be disclosed at the time
awards are made in the announcement to the market.
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
9 1
Shares resulting from the exercise of a Performance Share award
cannot be sold until five years have elapsed from the date of
award, other than to pay tax. Awards will be subject to clawback
and malus provisions.
Fees for Chairman and Non-Executive Directors
The Company’s approach to the remuneration for the Chairman
and Non-Executive Directors, set by the Board, was reviewed on
Admission. The table entitled At a Glance on page 88 provides
full details of the fee levels for 2018.
This Report was reviewed and approved by the Board on
20 March 2018 and signed on its behalf by order of the Board.
CELIA BAXTER
CHAIRMAN OF THE REMUNERATION COMMITTEE
Terminology for Performance Share awards
The RHI Magnesita long-term incentive plan (the Plan)
is subject to approval at the AGM and provided approval is
given, Performance Share awards will be granted under the
Plan following the AGM. The grant of an award is when
participants are told they will receive shares provided
performance targets are met. Participants do not receive
shares at the time an award is granted. Performance targets
are set at the time the award is granted and measured over a
performance period of three financial years. At the end of
the performance period the performance targets are tested
against performance. An award will vest if the performance
targets are met. If the performance targets are only met in
part then only part of the award will vest. When the award
vests the participant receives shares in the Company.
If therefore a participant is granted an award over 100 shares
but the performance targets are only met in part and only
50% of the award vests, the participant will receive
50 shares. Once an award vests the Executive Directors must
retain the vested shares for a further two years ( subject to the
sale of sufficient shares to meet any tax payable on vesting).
Measure: TSR vs FTSE 350 All Share
Index – 33.3% of the total award
% of award vesting
Target
nil
25%
Less than matching Index
Matching Index
Straight-line vesting
From Index to Index plus 25%1
100%
Index plus 25% or above1
1 For example, if Index TSR is 23% over three years then the vesting range
is TSR of 23% to 48%.
Financial
Statements
Independent Auditors’ Report
Consolidated Statement
of Financial Position
Consolidated Statement
of Profit and Loss
Consolidated Statement
of Comprehensive Income
Consolidated Statement
of Cash Flows
Consolidated Statement
of Changes in Equity
Notes to the Consolidated
Financial Statements 2017
94
102
103
104
105
106
108
9 4
F I N A N C I A L S TAT E M E N T S
R H I M A G N E S I TA
Independent
auditor’s report
To: the general meeting and the board of directors of
RHI Magnesita N.V.
Report on the financial
statements 2017
Our opinion
In our opinion:
¥ RHI Magnesita N.V.’s consolidated financial statements give
a true and fair view of the financial position of the Group as
at 31 December 2017 and of its result and cash flows for the
year then ended in accordance with International Financial
Reporting Standards as adopted by the European Union
(EU-IFRS) and with Part 9 of Book 2 of the Dutch Civil Code;
¥ RHI Magnesita N.V.’s company financial statements give a true
and fair view of the financial position of the Company as at
31 December 2017 and of its result for the year then ended in
accordance with Part 9 of Book 2 of the Dutch Civil Code.
What we have audited
We have audited the accompanying financial statements 2017
of RHI Magnesita N.V., Arnhem (‘the Company’). The financial
statements include the consolidated financial statements of
RHI Magnesita N.V. and its subsidiaries (together: ‘the Group’)
and the company financial statements.
The consolidated financial statements comprise:
¥ the consolidated statement of financial position as
at 31 December 2017;
¥ the following statements for 2017: the consolidated
statement of profit or loss and the consolidated
statements of comprehensive income, changes in
equity and cash flows; and
¥ the notes, comprising a summary of significant
accounting policies and other explanatory information.
The company financial statements comprise:
¥ the company balance sheet as at 31 December 2017;
¥ the company statement of profit or loss for the year
then ended;
¥ the notes, comprising a summary of the accounting
policies and other explanatory information.
The financial reporting framework that has been applied in the
preparation of the financial statements is EU-IFRS and the
relevant provisions of Part 9 of Book 2 of the Dutch Civil Code
for the consolidated financial statements and Part 9 of Book 2
of the Dutch Civil Code for the company financial statements.
The basis for our opinion
We conducted our audit in accordance with Dutch law,
including the Dutch Standards on Auditing. Our responsibilities
under those standards are further described in the section
‘Our responsibilities for the audit of the financial statements’
of our report.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of RHI Magnesita N.V. in accordance with
the European Regulation on specific requirements regarding
statutory audit of public interest entities, the ‘Wet toezicht
accountantsorganisaties’ (Wta, Audit firms supervision act), the
‘Verordening inzake de onafhankelijkheid van accountants bij
assuranceopdrachten’ (ViO – Code of Ethics for Professional
Accountants, a regulation with respect to independence) and
other relevant independence requirements in the Netherlands.
Furthermore, we have complied with the ‘Verordening gedrags-
en beroepsregels accountants’ (VGBA – Code of Ethics for
Professional Accountants, a regulation with respect to rules of
professional conduct).
Our audit approach
Overview and context
RHI Magnesita N.V. is a worldwide producer of refractory
products. Refractory products are used in all the world’s
high-temperature industrial processes. The group is comprised
of several components and therefore we considered our group
audit scope and approach as set out in the section ‘The scope of
our group audit’. We paid specific attention to the areas of focus
driven by the operations of the Group, as set out below.
The financial year 2017 was characterised by the acquisition
of Magnesita Refratários S.A. by subsidiary of RHI AG. This
acquisition had a major impact on the consolidated financial
statements of the company. This affected the determination
of materiality, the scope of our group audit and our audit
procedures as described in the sections ‘Materiality’, ‘The scope
of our audit’ and ‘Key audit matters’. Immediately before
acquisition, RHI AG merged with and into RHI Magnesita N.V.
As part of designing our audit, we determined materiality and
assessed the risks of material misstatement in the financial
statements. In particular, we considered where the directors
made important judgements; for example, in respect of
significant accounting estimates that involved making
assumptions and considering future events that are inherently
uncertain. In note 10 of the financial statements the company
describes the areas of judgment in applying accounting policies
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
9 5
and the key sources of estimation uncertainty. Given the
significant estimation uncertainty and the related higher
inherent risks of material misstatement in the recoverability of
deferred tax assets, accounting of the Magnesita acquisition,
valuation of goodwill and other intangible assets and
accounting of restructuring, we considered these to be key audit
matters as set out in the section ‘Key audit matters’ of this report.
predecessor auditors PwC Austria and PwC Brazil and discussed
the outcome thereof to confirm our understanding of the
opening balances, comparative figures and internal controls
within the Group. Based on these procedures, we have prepared
our risk assessment and audit strategy and prepared our audit
plan which has been discussed with the board of directors.
Besides the key audit matters, other areas of focus were the
disclosures concerning the transition to new accounting
standard IAS 18 – ‘Revenue’ to IFRS 15 ‘Revenue from contracts
with customers’ the transition from IAS 39 – ‘Financial
instruments’ to IFRS 9 – ‘Financial instruments’ issued but not
yet effective, and the effects of tax reform in the United States
of America. As in all of our audits, we also addressed the risk of
management override of internal controls, including evaluating
whether there was evidence of bias by the directors that may
represent a risk of material misstatement due to fraud.
We ensured that the audit teams both at group and at
component levels included the appropriate skills and
competences which are needed for the audit of an international
industrial products company. We therefore included specialists
in the areas of valuations, actuarial expertise, IT specialists and
tax specialists.
The outline of our audit approach was as follows:
Materiality
The scope of our audit is influenced by the application of
materiality which is further explained in the section
‘Our responsibilities for the audit of the financial statements’.
Based on our professional judgment, we determined certain
quantitative thresholds for materiality, including the overall
materiality for the financial statements as a whole as set out in
the table below. These, together with qualitative considerations,
helped us to determine the nature, timing and extent of our
audit procedures on the individual financial statement line
items and disclosures and to evaluate the effect of identified
misstatements, both individually and in aggregate, on the
financial statements as a whole and on our opinion.
Overall group
materiality
Basis for determining
materiality
€8.0 million.
We used our professional judgment to
determine overall materiality. As a basis
for our judgment we used approximately
2,5 % of earnings before interest, taxes,
depreciation and amortization (EBITDA).
We used approximately 2.5% of earnings
before interest, taxes, depreciation and
amortization (EBITDA) as the primary
benchmark, a generally accepted
auditing practice, based on our analysis
of the common information needs of
users of the financial statements.
On this basis we believe that EBITDA
is an important metric for the financial
performance of the company.
To each component in our audit scope,
we, based on our judgement, allocate
materiality that is less than our
overall group materiality. The range of
materiality allocated across components
was between €0.6 million and
€5.7 million. Certain components
were audited to a local statutory audit
materiality that was also less than our
overall group materiality.
We also take misstatements and/or possible misstatements
into account that, in our judgement, are material for
qualitative reasons.
We agreed with the directors that we would report to them
misstatements identified during our audit above €0.4 million
as well as misstatements below that amount that, in our view,
warranted reporting for qualitative reasons.
Materiality
¥ Overall materiality: €8.0 million.
Audit scope
¥ We conducted audit work in
35 locations. We paid particular
attention to the acquisition of
Magnesita Refratários S.A. that took
place in 2017.
Materiality
Rationale for
benchmark applied
Audit scope
Component
materiality
¥ Site visits were conducted to
3 countries – Germany, Austria and Brazil.
¥ Audit coverage: 90% of consolidated
revenue, 89% of consolidated total
assets, 80% of consolidated profit before
tax and 82% of consolidated EBITDA.
Key audit
matters
Key audit matters
¥ Recoverability of deferred income tax assets;
¥ Initial purchase price allocation acquisition Magnesita
Refratários S.A.;
¥ Valuation of goodwill and other intangible assets;
¥ Accounting for restructuring.
First year audit consideration
The Company established RHI Magnesita N.V. in June 2017,
became the ultimate parent of the group in October 2017
and subsequently listed their shares on the London
Stock Exchange per October 27, 2017. As a consequence
PricewaterhouseCoopers Accountants N.V. was appointed
the statutory auditor of the listed entity on October 4, 2017.
Prior to that date, other auditors organisations were the statutory
auditors of the consolidated financial information of the
Magnesita group and of the consolidated financial information
of the RHI group. We reviewed the auditor’s files of the
9 6
F I N A N C I A L S TAT E M E N T S
R H I M A G N E S I TA
Independent auditor’s report
continued
The scope of our group audit
RHI Magnesita N.V. is the parent company of a group of entities.
The financial information of this group is included in the
consolidated financial statements of RHI Magnesita N.V.
We tailored the scope of our audit to ensure that we performed
sufficient work to be able to give an opinion on the financial
statements as a whole, taking into account the management
structure of the Group, the nature of operations of its
components, the accounting processes and controls, and
the markets in which the components of the Group operate.
In establishing the overall group audit strategy and plan,
we determined the type of work required to be performed at
the component level by the group engagement team and by
each component auditor.
The group audit primarily focussed on the
significant components:
¥ RHI Magnesita N.V., Netherlands
¥ RHI Feuerfest GmbH, Austria
¥ Didier-Werke Aktiengesellschaft, Germany
¥ Veitsch-Radex GmbH & Co OG, Austria
¥ RHI Urmitz AG & Co, Austria
¥ Magnesit Anonim Sirekti, Turkey
¥ Magnesita Refratários S.A., Brazil
¥ Magnesita Mineracao S.A., Brazil
¥ Magnesita Refractories Company, USA
¥ Magnesita Refractories GmbH, Germany
¥ Stopinc Aktiengesellschaft, Switzerland
¥ RHI Dinaris GmbH, Germany
¥ Liaoning RHI Jinding Magnesia Co., Ltd, China
¥ RHI Refratários SA, Brazil
¥ Orient Refractories Limited, India
¥ RHI Glas GmbH, Germany
¥ Producción RHI México S. de R.L. de C.V., Mexico
17 components were subject to audits of their complete financial
information as those components are individually financially
significant to the group. In addition, 18 components were
subjected to specific risk-focussed audit procedures as
they include significant or higher risk areas. Additionally,
6 components were selected for audit procedures to
achieve appropriate coverage on financial line items in the
consolidated financial statements.
In total, in performing these procedures, we achieved the
following coverage on the financial line items:
Revenue
Total assets
Profit before tax
EBITDA
90%
89%
80%
82%
None of the remaining components represented more than
2% of total group revenue or total group assets. For those
remaining components we performed, among other things,
analytical procedures to corroborate our assessment that
there were no significant risks of material misstatements
within those components.
For group entities RHI Magnesita N.V., RHI Feuerfest GmbH,
Austria, Veitsch-Radex GmbH & Co OG, Austria, RHI
Refractories Raw Material GmbH, Austria, Lokalbahn
Mixnitz-St. Erhard Aktien-Gesellschaft, Austria, Veitsch-Radex
Vertriebsgesellschaft mbH, Austria and Refractory Intellectual
Porperty GmbH & Co KG, Austria, the group engagement team
performed the audit work. For all other components we used
component auditors who are familiar with the local laws and
regulations to perform the audit work.
Where the work was performed by component auditors, we
determined the level of involvement we needed to have in their
audit work to be able to conclude whether sufficient appropriate
audit evidence had been obtained as a basis for our opinion on
the consolidated financial statements as a whole.
The group engagement team visits the component teams on a
rotational basis. In the current year the group audit team visited
the Magnesita finance function in Brazil given the importance of
the judgements involved in the initial purchase price allocation
resulting from the acquisition of Magnesita, as well as visited the
Austrian and German operating locations.
The group consolidation, financial statement disclosures and a
number of complex items are audited by the group engagement
team at the head office. These include, acquisition accounting,
impairment testing and valuation of deferred tax assets and
restructuring provisions.
By performing the procedures above at components, combined
with additional procedures at group level, we have been able to
obtain sufficient and appropriate audit evidence on the Group’s
financial information, as a whole, to provide a basis for our
opinion on the financial statements.
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
9 7
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial
statements. We have communicated the key audit matters to the directors. The key audit matters are not a comprehensive
reflection of all matters that were identified by our audit and that we discussed. In this section, we described the key audit matters
and included a summary of the audit procedures we performed on those matters.
The key audit matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon. We do not provide separate opinions on these matters or on specific elements of the financial statements. Any comments
or observations we make on the results of our procedures should be read in this context.
Key audit matter
How our audit addressed the matter
Recoverability of deferred income tax assets
Refer to note 8, 10, 17 and 44 of the
consolidated financial statements
The Group capitalized deferred tax assets on tax loss carry-
forwards in the amount of €134.6 million and deductible
temporary differences arising on provisions for employee
benefits in the amount of €70.2 million. Reference is made
to Note 17 of the financial statements.
Deferred tax assets are capitalized based on the assumption
that sufficient taxable income will be generated against
which loss carry-forwards and other deductible temporary
differences can be offset. This assumption is based on
estimates of the current and the planned taxable results, and
any future measures implemented by the company in several
jurisdictions concerned that will have an effect on income tax.
Due to the inherent level of uncertainty, the potential
limitations in the recoverability of deferred income tax assets
and the significant judgement involved, we considered the
recoverability of deferred income tax assets to be a key audit
matter for our audit.
Initial purchase price allocation acquisition
Magnesita Refratários S.A.
Refer to note 5 of the consolidated financial statements
During the fiscal year 2017 RHI Magnesita Group acquired the
Magnesita Group. IFRS 3, Business Combinations, requires to
recognize the identifiable assets and liabilities at fair value at
the date of the acquisition, with the excess of the acquisition
cost over the identified fair value of recognized assets, and
liabilities as goodwill even if the purchase price allocation
(“PPA”) exercise was not completed at the balance sheet date.
This was considered a significant purchase to the whole group.
Management has engaged an independent valuator to issue
a report on the initial PPA, calculating fair values of the
identified assets and liabilities at the respective acquisition
date through, among other things, assessments of future
cash flows and assessing appropriate discount rates. The PPA
exercise for Magnesita was in an initial stage at the balance
sheet date. Goodwill, amounting to €171.7 million at the
acquisition date was initially recognized (see Note (5) Group
of consolidated companies).
We focused on this area as a key audit matter as the
accounting for the transaction was complex, the magnitude
of the transaction and the significant judgment involved in in
determining the fair value of acquired identifiable assets and
liabilities, in particular determining the allocation of purchase
consideration to separately identifiable intangible assets and
contingent liabilities.
We have requested and obtained confirmation letters from tax
advisors to confirm both the existence, accuracy and valuation
of the tax loss carry-forwards, taking into account the expiration
dates per jurisdiction. In addition we have assessed per tax
jurisdiction the level of potential offsetting deferred tax liabilities.
Furthermore, we have challenged the underlying assumptions
of the forecasted taxable income through agreeing the
forecasted future taxable profits with approved business plans
per entity/for the entities in a tax jurisdiction. We also assessed
the past performance against the expected future tax profits in
the business plans used by the company. In addition, we have
considered the local expiry periods together with any applicable
restrictions in recovery for each individual jurisdiction.
We assessed and corroborated the adequacy and
appropriateness of the disclosure made in the consolidated
financial statements.
The above procedures did not result in material audit findings.
We compared the Group’s accounting policies over business
combinations with requirements in EU-IFRS and evaluated
the competence, capabilities and objectivity of the
independent valuator and evaluated the work done thus far.
We engaged valuation specialists to compare the draft valuation
assumptions with external benchmarks (including a peer group
analysis to assess the discount rates) and to assess assumptions
underlying future cash flows based on our knowledge of the
Group and its subsidiaries.
We assessed the Group’s determination of the (initial) fair
values of the remaining assets and liabilities having regard to
the completeness of assets and liabilities identified and the
reasonableness of any underlying assumptions in their
respective valuation that would also include the assessment
on the reasonableness of the useful lives of the tangible and
intangible assets and the consideration given.
We assessed and corroborated the adequacy and
appropriateness of the disclosure made in the consolidated
financial statements.
We have established that, in accordance with IFRS 3, it
is appropriate to account for the purchase price on a
provisional basis.
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Independent auditor’s report
continued
Key audit matter
How our audit addressed the matter
Valuation of goodwill and other intangible assets
Refer to note 8, 10, 12, 13 and 40 of the
consolidated financial statements
The Group capitalized goodwill in the amount of EUR 210.4
million of which €171.7 million relates to the acquisition of
Magnesita, the remainder mainly relates to goodwill from
the Steel divisions Lining and Flow control. In addition, the
company capitalized intangible assets in the amount of
€217.6 million of which €161.4 million relates to the Magnesita
acquisition. These assets form part of cash-generating units
(or CGUs for short) to the extent that they independently
generate cash inflows. If and to the extent to which these
CGUs include goodwill or intangible assets with indefinite
useful lives or show signs for impairment, the recoverable
amount is assessed. Annual planning process data is used to
make assumptions on the discount rate, profitability as well
as growth rates, and sensitivity analyses are carried out with
regard to any accounting effects.
We identified the impairment assessment as a key audit matter
due to significant judgement and assumptions about the
discount rate, profitability as well as growth rates.
Goodwill and intangibles assets were identified as part of the
initial purchase price allocation (PPA) from the Magnesita
acquisition. Procedures performed on the preliminary PPA are
described in the key audit matter above.
As part of our audit procedures, we have evaluated and
challenged the composition of management’s future cash flow
forecasts and the process applied to identify and define cash-
generating units, calculate the recoverable amount, test for
impairment, calculate the capital cost rate and the growth rate,
as well as the calculation model.
We have reconciled the assumed future cash flows used in the
budget planning with the information included in the forecast
made by the management board.
With the support of our valuation specialists, we have evaluated
management’s assumptions such as revenue and margin, the
discount rate, terminal value, operational and capital expenditure
and number of employees. We have obtained corroborative
evidence for these assumptions. We performed analyses to
assess the reasonableness of forecasted revenues, margins and
expenditures in line with the level of activity forecasted and
corroboration to contracted revenue for the coming years and
price trends, and obtained further explanations when considered
necessary. We compared the long term growth rates used in
determining the terminal value, with economic and industry
forecasts. We have re-performed calculations, compared the
methodology applied with generally accepted valuation
techniques, assessed appropriateness of the cost of capital for
the company and comparable assets, as well as considered
territory specific factors and assessed appropriateness of
disclosure of the key assumptions and sensitivities underlying
the tests.
We found the assumptions to be consistent and supported by the
available evidence.
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9 9
Key audit matter
How our audit addressed the matter
Accounting for restructuring
Refer to note 34 and 40 of the consolidated
financial statements
The integration of the newly acquired subsidiaries led to a
consolidation of entities to achieve appropriate synergies for
the whole RHI Magnesita Group, leading to restructuring
expenses amounting to €62.7 million and restructuring
provisions amounting to €37.6 million per 31 December 2017.
The Group initiated a number of restructuring initiatives that
commenced in fiscal year 2017, and will continue in the next
years, reducing the company’s workforce and closure of
locations, requiring additional provisions once the IAS 37
criteria for recognising those are met (e.g. there is a detailed
formal plan approved and announcements are made).
Given that the restructuring provision resulted from the
acquisition and subsequent merger of RHI and Magnesita,
the inherent risk involved in timeliness and assessment of
expenditures related to restructurings, and the amount
involved, we consider this a key audit matter.
We assessed appropriateness of the restructuring expenses
that resulted from
1.
2.
3.
a loss of closure of the plant in Aken, Germany and;
the expenses provided for the closure of the Hilden office
in Germany planned for June 2018 as well as for;
the planned restructuring of the workforce,
through corroborating to (the timing of) announcements and
management’s decisions for restructuring. We reconciled
the provision with approved restructuring plans.
We have assessed and corroborated the adequacy and
appropriateness of the disclosure made in the consolidated
financial statements.
The above procedures did not reveal any material exceptions.
Report on the other information
included in the annual report
Report on other legal and
regulatory requirements
Our appointment
We were appointed as auditors of RHI Magnesita N.V. following
the passing of a resolution by the shareholders at the annual
meeting held on 4 October 2017.
No prohibited non-audit services
To the best of our knowledge and belief, we have not provided
prohibited non-audit services as referred to in Article 5(1) of the
European Regulation on specific requirements regarding
statutory audit of public interest entities.
Services rendered
The services, in addition to the audit, that we have provided to
the company and its controlled entities, for the period to which
our statutory audit relates, are disclosed in note 61 to the
consolidated financial statements.
In addition to the financial statements and our auditor’s report
thereon, the annual report contains other information that
consists of:
¥ the section strategic report;
¥ the section governance;
¥ the other information pursuant to Part 9 of Book 2 of the
Dutch Civil Code.
Based on the procedures performed as set out below, we
conclude that the other information:
¥ is consistent with the financial statements and does not
contain material misstatements;
¥ contains the information that is required by Part 9 of Book 2
of the Dutch Civil Code.
We have read the other information. Based on our knowledge
and understanding obtained in our audit of the financial
statements or otherwise, we have considered whether the
other information contains material misstatements.
By performing our procedures, we comply with the
requirements of Part 9 of Book 2 of the Dutch Civil Code and
the Dutch Standard 720. The scope of such procedures was
substantially less than the scope of those performed in our
audit of the financial statements.
The directors are responsible for the preparation of the
other information, including the directors’ report and the
other information in accordance with Part 9 of Book 2 of
the Dutch Civil Code.
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Independent auditor’s report
continued
Responsibilities for the financial
statements and the audit
Responsibilities of the directors for the financial statements
The directors are responsible for:
¥ the preparation and fair presentation of the financial
statements in accordance with EU-IFRS and with Part 9
of Book 2 of the Dutch Civil Code; and for
¥ such internal control as the directors determine is necessary
to enable the preparation of the financial statements that are
free from material misstatement, whether due to fraud or error.
As part of the preparation of the financial statements, the
directors are responsible for assessing the company’s ability
to continue as a going concern. Based on the financial
reporting frameworks mentioned, the directors should prepare
the financial statements using the going-concern basis of
accounting unless the directors either intend to liquidate
the company or to cease operations, or have no realistic
alternative but to do so. The directors should disclose events
and circumstances that may cast significant doubt on the
company’s ability to continue as a going concern in the
financial statements.
The board of directors is responsible for overseeing the
company’s financial reporting process.
Our responsibilities for the audit of the financial statements
Our responsibility is to plan and perform an audit engagement
in a manner that allows us to obtain sufficient and appropriate
audit evidence to provide a basis for our opinion. Our audit
opinion aims to provide reasonable assurance about whether
the financial statements are free from material misstatement.
Reasonable assurance is a high but not absolute level of
assurance which makes it possible that we may not detect all
misstatements. Misstatements may arise due to fraud or error.
They are considered to be material if, individually or in the
aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of the
financial statements.
Materiality affects the nature, timing and extent of our audit
procedures and the evaluation of the effect of identified
misstatements on our opinion.
A more detailed description of our responsibilities is set out in
the appendix to our report.
Rotterdam, 20 March 2018
PricewaterhouseCoopers Accountants N.V.
Original has been signed by E.M.W.H. van der Vleuten RA MSc
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Considering our ultimate responsibility for the opinion on
the company’s consolidated financial statements we are
responsible for the direction, supervision and performance
of the group audit. In this context, we have determined the
nature and extent of the audit procedures for components of
the group to ensure that we performed enough work to be
able to give an opinion on the financial statements as a whole.
Determining factors are the geographic structure of the group,
the significance and/or risk profile of group entities or activities,
the accounting processes and controls, and the industry in
which the group operates. On this basis, we selected group
entities for which an audit or review of financial information
or specific balances was considered necessary.
We communicate with the directors regarding, among
other matters, the planned scope and timing of the audit
and significant audit findings, including any significant
deficiencies in internal control that we identify during our audit.
In this respect we also issue an additional report to the audit
committee in accordance with Article 11 of the EU Regulation
on specific requirements regarding statutory audit of public-
interest entities. The information included in this additional
report is consistent with our audit opinion in this auditor’s report.
We provide the directors with a statement that we have
complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships
and other matters that may reasonably be thought to bear on
our independence, and where applicable, related safeguards.
From the matters communicated with the directors, we
determine those matters that were of most significance in
the audit of the financial statements of the current period
and are therefore the key audit matters. We describe these
matters in our auditor’s report unless law or regulation
precludes public disclosure about the matter or when, in
extremely rare circumstances, not communicating the matter
is in the public interest.
Appendix to our auditor’s report
on the financial statements 2017
of RHI Magnesita N.V.
In addition to what is included in our auditor’s report we
have further set out in this appendix our responsibilities for
the audit of the financial statements and explained what an
audit involves.
The auditor’s responsibilities for the audit of the
financial statements
We have exercised professional judgement and have
maintained professional scepticism throughout the audit
in accordance with Dutch Standards on Auditing, ethical
requirements and independence requirements. Our objectives
are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement,
whether due to fraud or error. Our audit consisted, among
other things of the following:
¥ Identifying and assessing the risks of material misstatement of
the financial statements, whether due to fraud or error,
designing and performing audit procedures responsive to
those risks, and obtaining audit evidence that is sufficient
and appropriate to provide a basis for our opinion. The risk
of not detecting a material misstatement resulting from fraud
is higher than for one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations,
or the intentional override of internal control.
¥ Obtaining an understanding of internal control relevant to the
audit in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company’s internal control.
¥ Evaluating the appropriateness of accounting policies used
and the reasonableness of accounting estimates and related
disclosures made by the directors.
¥ Concluding on the appropriateness of the directors’ use of
the going concern basis of accounting, and based on the
audit evidence obtained, concluding whether a material
uncertainty exists related to events and/or conditions that may
cast significant doubt on the company’s ability to continue as
a going concern. If we conclude that a material uncertainty
exists, we are required to draw attention in our auditor’s
report to the related disclosures in the financial statements
or, if such disclosures are inadequate, to modify our opinion.
Our conclusions are based on the audit evidence obtained
up to the date of our auditor’s report and are made in the
context of our opinion on the financial statements as a whole.
However, future events or conditions may cause the company
to cease to continue as a going concern.
¥ Evaluating the overall presentation, structure and content
of the financial statements, including the disclosures, and
evaluating whether the financial statements represent the
underlying transactions and events in a manner that achieves
fair presentation.
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2017 RHI Magnesita Group 2 as of 31.12.2017 Consolidated Statement of Financial Position in € million Notes 31.12.2017 31.12.2016 ASSETS Non-current assets Property, plant and equipment (11) 901.3 521.8 Goodwill (12) 210.4 37.8 Other intangible assets (13) 217.6 71.1 Investments in joint ventures and associates (14) 30.5 20.5 Other non-current financial assets (15) 25.1 18.9 Other non-current assets (16) 24.2 17.7 Deferred tax assets (17) 180.4 144.8 1,589.5 832.6 Current assets Inventories (18) 676.6 365.3 Trade and other current receivables (19) 530.0 399.1 Income tax receivables (20) 13.5 9.3 Other current financial assets (21) 34.1 3.0 Cash and cash equivalents (22) 442.4 182.9 1,696.6 959.6 3,286.1 1,792.2 EQUITY AND LIABILITIES Equity Share capital (23) 44.8 289.4 Group reserves (24) 576.2 219.3 Equity attributable to shareholders of RHI Magnesita N.V. 621.0 508.7 Non-controlling interests (25) 138.7 15.3 759.7 524.0 Non-current liabilities Non-current financial liabilities (26) 983.8 327.2 Other non-current financial liabilities (27) 55.5 66.9 Deferred tax liabilities (17) 11.7 13.5 Provisions for pensions (28) 308.7 236.8 Other personnel provisions (29) 82.5 80.6 Other non-current provisions (30) 53.8 4.5 Other non-current liabilities (31) 9.0 6.9 1,505.0 736.4 Current liabilities Current financial liabilities (26) 241.8 156.0 Other current financial liabilities (27) 17.4 15.6 Trade payables and other current liabilities (32) 671.4 312.7 Income tax liabilities (33) 16.1 18.4 Current provisions (34) 74.7 29.1 1,021.4 531.8 3,286.1 1,792.2 R H I M A G N E S I TA
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3 from 01.01.2017 to 31.12.2017 Consolidated Statement of Profit or Loss in € million Notes 2017 2016 Revenue (35) 1,946.1 1,651.2 Cost of sales (36) (1,485.6) (1,294.8) Gross profit 460.5 356.4 Selling and marketing expenses (37) (125.0) (105.2) General and administrative expenses (38) (167.5) (134.5) Other income (39) 91.2 102.7 Other expenses (40) (216.1) (103.3) EBIT 43.1 116.1 Interest income (41) 5.6 4.1 Interest expenses (42) (27.1) (17.5) Other net financial expenses (43) (9.1) (7.8) Net finance costs (30.6) (21.2) Share of profit of joint ventures and associates (14) 11.0 10.9 Profit before income tax 23.5 105.8 Income tax (44) (36.4) (29.9) Profit after income tax (12.9) 75.9 attributable to shareholders of RHI Magnesita N.V. (18.4) 74.0 attributable to non-controlling interests (25) 5.5 1.9 in € Earnings per share (basic and diluted) (53) (0.45) 1.86 1 0 4
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2017 RHI Magnesita Group 4 from 01.01.2017 to 31.12.2017 Consolidated Statement of Comprehensive Income in € million Notes 2017 2016 Profit after income tax (12.9) 75.9 Currency translation differences Unrealised results from currency translation (7) (44.3) (1.9) Deferred taxes thereon (44) 1.7 (0.6) Current taxes thereon (0.4) (1.9) Reclassification reserves to profit or loss (7) 40.7 (2.0) Deferred taxes thereon (44) (5.7) (0.1) Current taxes thereon (0.5) (0.4) Cash flow hedges Unrealised results from fair value change (56) 0.6 0.4 Deferred taxes thereon (44) (0.1) (0.2) Reclassification reserves to profit or loss (56) 0.5 0.0 Deferred taxes thereon (44) (0.1) 0.0 Fair value changes of available-for-sale financial instruments Unrealised results from fair value change (55) 0.0 0.1 Reclassification reserves to profit or loss (55) 0.0 (0.1) Items that will be reclassified subsequently to profit or loss, if necessary (7.6) (6.7) Remeasurement of defined benefit plans Remeasurement of defined benefit plans (28) (11.3) (10.2) Deferred taxes thereon (44) 2.9 3.8 Share of other comprehensive income of joint ventures (14) (0.1) (0.1) Items that will not be reclassified to profit or loss (8.5) (6.5) Other comprehensive income after income tax (16.1) (13.2) Total comprehensive income (29.0) 62.7 attributable to shareholders of RHI Magnesita N.V (28.5) 60.5 attributable to non-controlling interests (25) (0.5) 2.2 R H I M A G N E S I TA
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5 from 01.01.2017 to 31.12.2017 Consolidated Statement of Cash Flows in € million Notes 2017 2016 Profit after income tax (12.9) 75.9 Adjustments for income tax 36.4 29.9 depreciation and amortisation charges 72.7 65.1 impairment losses of property, plant and equipment and intangible assets 19.8 8.9 income from the reversal of investment subsidies (1.2) (1.0) (reversals of impairment losses)/impairment losses on securities 1.9 (0.5) losses from the disposal of property, plant and equipment 1.5 0.3 gains from the disposal of securities and shares 0.0 (0.9) losses from the disposal of subsidiaries 19.3 4.1 interest result 21.5 13.4 share of profit of joint ventures and associates (11.0) (10.9) other non-cash changes 82.6 (8.9) Changes in inventories (112.4) 29.0 trade receivables and receivables from long-term construction contracts 12.1 4.3 other receivables and assets 7.6 (10.0) provisions (15.2) (25.2) trade payables 111.1 26.9 prepayments received on orders 9.1 1.4 other liabilities 20.6 (1.5) Cash flow from operating activities 263.5 200.3 Income tax paid less refunds (41.9) (37.6) Net cash flow from operating activities (47) 221.6 162.7 Investments in subsidiaries net of cash 45.1 0.0 Cash flows from the sale of subsidiaries net of cash 30.6 (4.6) Investments in property, plant and equipment and intangible assets (72.0) (70.8) Cash inflows from the sale of property, plant and equipment 2.7 3.5 Investments in/ cash inflows from non-current receivables (0.2) 0.0 Investments in securities (11.8) 0.0 Cash inflows from the sale of securities and shares 21.8 6.1 Dividends received from joint ventures and associates 10.8 9.5 Investment subsidies received 1.2 0.4 Interest received 5.1 3.0 Net cash flow from investing activities (48) 33.3 (52.9) Capital expenses for the issue of shares (3.0) 0.0 Payments to non-controlling interests (0.6) 0.0 Dividend payments to shareholders of the Group (29.9) (29.9) Dividend payments to non-controlling interests (1.1) (0.6) Proceeds from non-current borrowings and loans 459.8 1.6 Repayments of non-current borrowings and loans (375.6) (29.0) Changes in current borrowings (8.3) (5.8) Interest payments (24.9) (17.0) Net cash flow from financing activities (49) 16.4 (80.7) Total cash flow 271.3 29.1 Change in cash and cash equivalents 271.3 29.1 Cash and cash equivalents at beginning of year 182.9 149.7 Changes due to currency translation (11.8) 4.1 Cash and cash equivalents at year-end (51) 442.4 182.9 Total interest paid (50) 25.6 17.5 Total interest received (50) 5.1 3.2 1 0 6
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2017 RHI Magnesita Group 6 from 01.01.2017 to 31.12.2017 Consolidated Statement of Changes in Equity in € million Share capital Additional paid-in capital Mandatory reserves Notes (23) (24) (24) 01.01.2017 289.4 38.3 - Profit after income tax - - - Currency translation differences - - - Cash flow hedges - - - Remeasurement of defined benefit plans - - - Share of other comprehensive income of joint ventures - - - Other comprehensive income after income tax - - - Total comprehensive income - - - Dividends - - - Issue of ordinary shares related to business combinations 5.0 174.5 - Costs for the issue of shares net of tax - (8.8) - Change in non-controlling interests due to addition to consolidated companies - - - Transactions with shareholders 5.0 165.7 - Disposal of defined benefit plans - - - Downstream merger from RHI AG to RHI Magnesita N.V. (249.6) (38.3) 288.7 Reclassifications (249.6) (38.3) 288.7 31.12.2017 44.8 165.7 288.7 in € million Share capital Additional paid-in capital Mandatory reserves Notes (23) (24) (24) 01.01.2016 289.4 38.3 - Profit after income tax - - - Currency translation differences - - - Cash flow hedges - - - Remeasurement of defined benefit plans - - - Share of other comprehensive income of joint ventures - - - Other comprehensive income after income tax - - - Total comprehensive income - - - Dividends - - - Other changes in equity - - - Transactions with shareholders - - - Reclassification due to disposal of defined benefit plans - - - 31.12.2016 289.4 38.3 0.0 R H I M A G N E S I TA
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7 Group reserves Accumulated other comprehensive income Equity attribut-able to share-holders of RHI Magnesita N.V. Non-controlling interests Total equity Retained earnings Cash flow hedges Defined benefit plans Currency translation (24) (24) (24) (24) (25) 331.0 (0.7) (100.3) (49.0) 508.7 15.3 524.0 (18.4) - - - (18.4) 5.5 (12.9) - - - (2.5) (2.5) (6.0) (8.5) - 0.8 - 0.8 0.1 0.9 - - (8.3) - (8.3) (0.1) (8.4) - - (0.1) - (0.1) - (0.1) - 0.8 (8.4) (2.5) (10.1) (6.0) (16.1) (18.4) 0.8 (8.4) (2.5) (28.5) (0.5) (29.0) (29.9) - - - (29.9) (1.2) (31.1) - - - - 179.5 - 179.5 - - - - (8.8) - (8.8) - - - - 0.0 125.1 125.1 (29.9) - - - 140.8 123.9 264.7 (1.0) - 1.0 - - - - (0.8) - - - - - - (1.8) - 1.0 - - - - 280.9 0.1 (107.7) (51.5) 621.0 138.7 759.7 Group reserves Accumulated other comprehensive income Equity attributable to shareholders of RHI AG Non-controlling interests Total equity Retained earnings Cash flow hedges Defined benefit plans Currency translation (24) (24) (24) (24) (25) 284.5 (0.9) (91.9) (41.8) 477.6 13.8 491.4 74.0 - - - 74.0 1.9 75.9 - - - (7.2) (7.2) 0.3 (6.9) - 0.2 - - 0.2 - 0.2 - - (6.4) - (6.4) - (6.4) - - (0.1) - (0.1) - (0.1) - 0.2 (6.5) (7.2) (13.5) 0.3 (13.2) 74.0 0.2 (6.5) (7.2) 60.5 2.2 62.7 (29.9) - - - (29.9) (0.7) (30.6) 0.5 - - - 0.5 - 0.5 (29.4) - - - (29.4) (0.7) (30.1) 1.9 - (1.9) - - - - 331.0 (0.7) (100.3) (49.0) 508.7 15.3 524.0 1 0 8
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2017 RHI Magnesita Group 8 to the Consolidated Financial Statements 2017 PRINCIPLES AND METHODS (1) General RHI Magnesita is a globally operating industrial group. The core activities of the RHI Magnesita Group comprise the development and production as well as the sale, installation and maintenance of high-grade refractory products and systems which are used in industrial high-temperature processes exceeding 1,200°C. RHI Magnesita supplies customers in the steel, cement, lime, glass and nonferrous metals industries. In addition, RHI Magnesita products are employed in the environment (waste incineration), energy (refractory construction) and chemicals (petrochemicals) sectors. The ultimate parent undertaking of the Group is RHI Magnesita N.V., a public company with limited liability under Dutch law. The company is registered with the Dutch Trade Register of the Chamber of Commerce under the number 68991665 and has its corporate seat in Arnhem, Netherlands. The administrative seat and registered office is located at Wienerbergstraße 9, 1100 Vienna, Austria. The shares of RHI Magnesita N.V. are listed on the Main Market of the London Stock Exchange and are included in the FTSE 250 index. RHI Magnesita N.V. was established on 20 June 2017 and became the ultimate parent of the RHI Magnesita Group as of 26 October 2017, after completing the corporate restructuring of RHI AG. Until then, RHI AG was the ultimate parent of the group. This restructuring represented a common control transaction that had no impact on the Consolidated Financial Statements, except for the reclassification of individual equity components. The Consolidated Financial Statements are prepared as of the reporting date of the Annual Financial Statements of RHI Magnesita N.V.. The financial year of RHI Magnesita N.V. corresponds to the calendar year. Insofar as financial years of companies included in the Consolidated Financial Statements do not end on the reporting date of RHI Magnesita N.V. on 31 December due to local legal requirements, interim Financial Statements are prepared for the purpose of consolidation. The reporting date of the Indian subsidiaries Orient Refractories Ltd., RHI Clasil Private Limited and RHI India Private Limited is 31 March. The Consolidated Financial Statements for the period from 1 January to 31 December 2017 were drawn up in accordance with all International Financial Reporting Standards (IFRSs) mandatory at the time of preparation as adopted by the European Union (EU). The presentation in the Consolidated Statement of Financial Position distinguishes between current and non-current assets and liabilities. Assets and liabilities are classified as current if they are due within one year or within a longer normal business cycle. Inventories as well as trade receivables and trade payables are generally presented as current items. Deferred tax assets and liabilities as well as assets and provisions for pensions and termination benefits are generally presented as non-current items. The Consolidated Statement of Profit or Loss is drawn up in accordance with the cost of sales method. Under this method, revenue is offset against the expenses incurred to generate it, which are allocated to the functions production, sales and administration. With the exception of specific items such as available-for-sale financial assets, derivative financial instruments and plan assets for defined benefit obligations, the Consolidated Financial Statements are prepared in accordance with the principle of historical acquisition and production costs. The measurement methods applied to the exceptions are described in the following. The preparation of the Consolidated Financial Statements in agreement with generally accepted accounting and valuation principles under IFRS, as adopted by the EU, requires the use of estimates and assumptions that influence the amount and presentation of assets and liabilities recognised as well as the disclosure of contingent Notes R H I M A G N E S I TA
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9 assets and liabilities as of the reporting date and the recognition of income and expenses during the reporting period. Although these estimates reflect the best knowledge of the management based on experience from comparable transactions, the actual values recognised at a later date may differ from these estimates. All amounts in the notes and tables are shown in € million, unless indicated otherwise. For computational reasons, rounding differences may occur. The Annual Report was prepared by the Board of Directors and authorized for issue on 20 March 2018 and is subject to adoption at the Annual General Meeting of Shareholders on 7 June 2018. (2) Initial application of new financial reporting standards In the financial year 2017, the following revised financial reporting standards including the changes in other standards, which are also adopted by the EU, were applied for the first time: 1) according to EU Endorsement Status Report of 27.02.2018 IAS 7 “Statements of Cash Flow: Disclosure initiative” The amendments to IAS 7 on the Statement of Cash Flows require additional information on changes in financial liabilities. The additional information affects both cash and non-cash changes. In order to meet the new disclosure requirements, additional information is presented in Note (49). (3) Other changes in comparative information In order to improve the informative value of the Consolidated Financial Statements as of 31 December 2017, the following changes in presentation were made compared to the previously published Financial Statements: The line item operating EBIT was eliminated from the Consolidated Statement of Profit or Loss because in the newly formed RHI Magnesita Group this represents no longer a key figure for measuring performance. Consequently, the former separately presented items result from derivatives from supply contracts, impairment losses, income from restructuring and restructuring expenses are now presented as other income and other expenses (see Notes (39) and (40)). Liabilities to fixed-term or puttable non-controlling interests of €32.0 million (31.12.2016: €32.5 million), which were previously included in financial liabilities (Note (26)), were reclassified to other financial liabilities (Note (27)) as this presentation is more appropriate. Personnel provisions in the Consolidated Statement of Financial Position are reported separately as provisions for pensions (Note (28)) and other personnel provisions (Note (29)). The information for the previous year was adjusted accordingly for all the above-mentioned changes in presentation. Standard Title Publication (EU endorsement)1) Mandatory application for RHI Magnesita Effects on RHI Magnesita Consolidated Financial Statements Amendments of standards Various Annual Improvements to IFRSs 2014-2016 Cycle 08.12.2016 (07.02.2018) 01.01.2017/ 01.01.2018 No effect IAS 7 Disclosure Initiative 29.01.2016 (06.11.2017) 01.01.2017 Additional notes disclosures IAS 12 Recognition of Deferred Tax Assets for Unrealized Losses 19.01.2016 (06.11.2017) 01.01.2017 No effect 1 1 0
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2017 RHI Magnesita Group 10 (4) New financial reporting standards not yet applied The IASB issued further standards, amendments to standards and interpretations, whose application is, however, not yet mandatory for the year 2017. They were not applied early on a voluntary basis. The following accounting standards were adopted by the EU by the time of the preparation of the RHI Magnesita Consolidated Financial Statements: 1) according to EU Endorsement Status Report of 27.02.2018 IFRS 9 “Financial Instruments” IFRS 9 was published in July 2014 and subsequently endorsed by the European Union on 22 November 2016. IFRS 9 includes revised guidance on classification and measurement of financial instruments, including a new expected credit loss model for calculating impairment on financial assets and new general hedge accounting requirements. The standard replaces existing guidance in IAS 39 Financial Instruments: Recognition and Measurement. RHI Magnesita will implement IFRS 9 per 1 January 2018 using the modified retrospective approach, meaning that the 2017 comparative numbers in the 2018 Financial Statements will not be restated. Any impact of IFRS 9 as of 1 January 2018 will be recognised directly in equity. RHI Magnesita has reviewed the impact of this new standard and has concluded that the impact is limited to the following: With regard to the revised classification and measurement principles, IFRS 9 contains three classification categories: “measured at amortised cost”, “fair value through other comprehensive income” and “fair value through profit or loss”. The standard eliminates the existing IAS 39 categories: “loans and receivables”, “held to maturity” and “available-for-sale”. For RHI Magnesita Group this new classification only means that the assets currently classified as “available-for-sale” or “financial assets at cost” will be classified as “fair value through other comprehensive income” or “fair value through profit or loss”, whereas all assets in the category “loans and receivables” will be recorded at “amortised cost”. Receivables that are part of factoring agreements will be classified as “fair value through profit or loss”. The resulting effect on the measurement of the financial assets will be immaterial for RHI Magnesita Group. With regard to the impact of the expected loss model on trade and other current receivables RHI Magnesita concluded that the impact is immaterial. Standard Title Publication (EU endorsement)1) Mandatory application for RHI Magnesita Expected effects on RHI Magnesita Consolidated Financial Statements New standards IFRS 2 Classification and Measurement of Share-based Payment Transactions 20.06.2016 (26.02.2018) 01.01.2018 No effect IFRS 4 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts 12.09.2016 (03.11.2017) 01.01.2018 Not relevant IFRS 9 Financial Instruments 24.07.2014 (22.11.2016) 01.01.2018 No material effects IFRS 15 Revenue from Contracts with Customers 28.05.2014 (11.09.2015)/ (22.09.2016) 01.01.2018 Timing differences in revenue recognition IFRS 15 Clarifications to IFRS 15 Revenue from Contracts with Customers 12.04.2016 (31.10.2017) 01.01.2018 Timing differences in revenue recognition IFRS 16 Leases 13.01.2016 (31.10.2017) 01.01.2019 Material effects expected Various Annual Improvements to IFRSs 2014-2016 Cycle 08.12.2016 (07.02.2018) 01.01.2017/ 01.01.2018 No effect R H I M A G N E S I TA
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11 IFRS 15 “Revenue from Contracts with Customers” IFRS 15 provides uniform regulations for revenue recognition which are applicable to all contracts with customers. IFRS 15 supersedes IAS 18 “Revenue” and IAS 11 “Construction Contracts“. The decisive factor for revenue recognition is no longer the transfer of significant risks and rewards, but rather, when the customer obtains control over the goods and services agreed and can benefit from them. IFRS 15 introduces a five-step model to determine revenue recognition. According to this model, the contract with the customer and the separate performance obligations therein has to be identified. Then the transaction price must be determined and allocated to the identified performance obligations. Revenue must then be recognised separately for each performance obligation in the amount of the allocated pro-rata transaction price. For this purpose, criteria were defined which distinguish between satisfying a performance obligation either at a point in time or over time. IFRS 15 is applicable to financial years starting on or after 1 January 2018. The RHI Magnesita Group will apply the modified retrospective method. Under this method, IFRS 15 is applied to those contracts that are not yet complete as of 1 January 2018. The cumulative effect of the initial application will be recognised as an adjustment of the opening balance of group reserves in the item retained earnings as of 1 January 2018. In an implementation project, RHI Magnesita analysed its business models in respect of the new regulations. Based on the analyses performed the effects of the initial application of IFRS 15 on the Consolidated Financial Statements are as follows: If contracts with customers include the delivery of products, revenue is recognised at the time when control over the products is passed to the customer in accordance with IFRS 15. Based on the individual Incoterms rule agreed in the customer contract, time of transfer of control over the products is determined. The Incoterms rules describe mainly the tasks, costs and risks involved in delivery of goods from the seller to the buyer. For the Incoterms rules CPT (Carriage paid to), CIP (Carriage and Insurance paid to) as well as for CFR (Cost and Freight) and CIF (Cost, Insurance and Freight) it was determined, that the time of passing control deviates from the time of transfer of significant risks and rewards. As a result revenue will be recognised at a later point in time. Therefore, the estimated effect from the initial application of IFRS 15 will result in a reduction of retained earnings as at 1 January 2018 in the amount of about €6.2 million. By applying IFRS 15, additional separate performance obligations can be identified in supply contracts with customers. When multiple independent performance obligations are identified, the transaction price has to be allocated to the components by reference to their relative standalone selling prices in the future. Accordingly, temporary shifts may occur in revenue recognition. The impact on revenue recognition is of minor importance. In addition to delivering products, the RHI Magnesita Group also provides various services. When services represent separate performance obligations within a contract, a corresponding transaction price has to be allocated to the service component. This may influence the timing of revenue recognition. Moreover, it causes an increase in revenue from providing services at the expense of revenue from the sale of products. The impact on revenue recognition is of minor importance. In the Steel segment, multi-component contracts with variable payment arrangements are concluded in some cases. For such contracts, the transaction price depends on the customer’s production performance (e.g. amount per ton of steel produced in the customer aggregate serviced). Pursuant to the current provisions on revenue recognition according to IAS 18, revenue for those refractory products is recognised in the Group based on the production performance achieved by the customer. If the customer already obtains control over the refractory products with the installation of the refractory materials in the aggregate, revenue must be recognised at this time in accordance with IFRS 15. Since the consideration to be paid by the customer is completely variable, revenue in the Group must be determined on the basis of an estimate. In such cases, revenue from refractory products is recognised earlier in accordance with IFRS 15. In the Consolidated Statement of Financial Position, receivables from customer contracts that have not been invoiced yet lead to the recognition of a contract asset. Most of the products supplied to the customers in this business model are consumables with very high turnover. Consequently, RHI Magnesita Group determined that revenue will only be recognised earlier 1 1 2
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2017 RHI Magnesita Group 12 and thus will have an effect on the Consolidated Financial Statements for those customer aggregates in which refractories with long durability are applied. As far as other products or services apart from refractory products represent separate performance obligations in such multi-component contracts, a variable transaction price has to be allocated to the components by reference to their relative standalone selling prices. This may influence the timing of revenue recognition. However, no material changes in revenue recognition are expected for such contracts with variable payment arrangements. IFRS 16 “Leases” The accounting standard IFRS 16, which was issued in January 2016, supersedes IAS 17 “Leases” and the related interpretations and is applicable to financial years beginning on or after 1 January 2019. Accounting for the lessor according to IFRS 16 is comparable to the current regulations. In contrast, accounting will change fundamentally for the lessee with the application of IFRS 16. In future, most leases will have to be recognised as assets and liabilities in the Statement of Financial Position of the lessee, regardless of whether they are considered operating or financing leases under the previous criteria of IAS 17. According to IFRS 16, a lessee recognises a right of use, which represents his right to use the underlying asset, and a liability from the lease, which reflects the obligation of lease payments. Exemptions are provided for short-term leases and assets of minor value. Moreover, the type of expenses related to these leases will change since IFRS 16 replaces the straight-line expenses for operating leases with a depreciation charge for rights of use and interest expenses for liabilities from the lease. In the Consolidated Statement of Cash Flows, there is a shift from cash flow from operating activities to cash flow from financing activities since the repayment of leasing liabilities must in any case be shown as cash flow from financing activities. As a lessee, RHI Magnesita can apply IFRS 16 based on the retrospective method or the modified retrospective method with optional simplification rules; the option chosen has to be applied consistently to all leases of the Group. RHI Magnesita currently intends to initially apply IFRS 16 as of 1 January 2019. At present it is still undecided which transition method the Group will choose and whether the exemption options will be used. RHI Magnesita has started to assess the possible effects on the Consolidated Financial Statements, but can currently not determine the precise effects of the application of IFRS 16 on the reported assets and liabilities. Due to the fact that obligations from rental and leasing contracts of €56.9 million exist in the RHI Magnesita Group as of 31 December 2017 (31.12.2016: €66.7 million) (see Note (60)), RHI Magnesita expects a significant extension of the Statement of Financial Position due to the initial application of IFRS 16. Together with the resulting shift between EBIT and net finance costs as well as the shift between cash flow from operating activities and financing activities, the Group expects a significant impact on the presentation of the asset, financial and earnings position. R H I M A G N E S I TA
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13 The following financial reporting standards were issued by the IASB, but had not yet been adopted by the EU at the time of the preparation of the RHI Magnesita Consolidated Financial Statements: 1) according to EU Endorsement Status Report of 27.02.2018 (5) Group of consolidated companies In addition to RHI Magnesita N.V. as the parent company, the RHI Magnesita Consolidated Financial Statements include the Financial Statements of 112 subsidiaries (31.12.2016: 77) and of the RHISA Employee Trust, Sandton, South Africa. In 2017 two joint ventures and two associates are accounted for under the equity method. In the previous year, the Group held only one investment in a joint venture. 19 (31.12.2016: three) subsidiaries and three (31.12.2016: three) other investments which are considered to be immaterial for the financial position and performance of the RHI Magnesita Group due to their suspended or minimal business activities are not included in the Consolidated Financial Statements. The group of consolidated companies developed as follows: Standard Title Publication1) Mandatory application for RHI Magnesita Expected effects on RHI Magnesita Consolidated Financial Statements New standards and interpretations IFRS 14 Regulatory Deferral Accounts 30.01.2014 No EU endorsement Not relevant IFRS 17 Insurance Contracts 18.05.2017 01.01.2021 No effect IFRIC 22 Foreign Currency Transactions and Advance Consideration 08.12.2016 01.01.2018 No effect IFRIC 23 Uncertainty over Income Tax Treatments 07.06.2017 01.01.2019 No effect Amendments of standards IAS 28 Long-term Interests in Associates and Joint Ventures 12.10.2017 01.01.2019 No effect IAS 40 Transfers of Investment Properties 08.12.2016 01.01.2018 No effect IFRS 9 Prepayment Features with Negative Compensation 12.10.2017 01.01.2019 No effect IFRS 10, IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture 11.09.2014 Postponed by EU No effect Various Annual Improvements to IFRSs 2015-2017 Cycle 12.12.2017 01.01.2019 No effect 2017 2016 Number of consolidated companies Full consolidation Equity method Full consolidation Equity method Balance at beginning of year 78 1 78 1 Additions 43 3 2 0 Retirements and disposals (7) 0 (2) 0 Balance at year-end 114 4 78 1 1 1 4
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2017 RHI Magnesita Group 14 Changes in the group of consolidated companies in the reporting year 2017 Acquisition of Magnesita On 26 October 2017 RHI Magnesita N.V. via its indirect, wholly-owned subsidiary Dutch Brasil Holding B.V. obtained control in Magnesita Refratários S.A. and its subsidiaries (Magnesita) after acquiring 50% plus one share and corresponding voting rights in Magnesita Refratários S.A.. Magnesita is a global group dedicated to the production and sale of an extensive line of refractory materials and industrial minerals, and distinguishes itself through its vertically integrated operations. Shares of Magnesita are listed on the Novo Mercado segment of the Brazilian Stock Exchange in São Paulo (“Novo Mercado”). The strategic rationale for the acquisition is to create a global, leading refractory company and become a more competitive, vertically integrated global provider of products, systems and services in the refractory industry. The purchase price amounts to €296.8 million and was paid in the form of 5,000,000 newly issued ordinary shares of RHI Magnesita N.V. and €117.3 million in cash. The closing price of EUR 35.9 per share was used as a basis for determining the fair value of the issued ordinary shares. The preliminary fair values of the acquired assets and liabilities according to IFRS at the acquisition date are presented as follows: in € million 26.10.2017 Property, plant and equipment 439.0 Other intangible assets 161.4 thereof customer relations 122.0 Investments in joint ventures and associates 9.9 Other non-current financial assets 4.3 Other non-current assets 16.3 Deferred tax assets 49.9 Inventories 244.7 Trade and other current receivables 175.6 Income tax receivables 9.2 Other current financial assets 42.7 Cash and cash equivalents 166.2 Assets held for sale 33.6 Non-current financial liabilities (550.8) Deferred tax liabilities (0.3) Provisions for pensions (81.0) Other personnel provisions (1.5) Other non-current provisions (51.7) Other non-current liabilities (2.0) Current financial liabilities (131.4) Current derivative financial liabilities (0.2) Trade and other current liabilities (238.4) Income tax liabilities (10.1) Current provisions (25.8) Liabilities relating to assets held for sale (9.4) Net assets 250.2 Non-controlling interest (125.1) Proportional share of net assets acquired 125.1 Goodwill 171.7 Purchase price 296.8 R H I M A G N E S I TA
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15 The purchase price allocation has not been finalized yet, as the valuations of the acquired assets and liabilities assumed have not been completely finalized. From today’s perspective the Group expects further fair value adjustments mainly on property, plant and equipment, intangible assets, inventories, provisions and deferred taxes. The remaining preliminary goodwill of €171.7 million essentially reflects expected synergies achieved by optimizing production capacities and cost structure as well as new business of the enlarged Group. Goodwill is not deductible for tax purposes. Non-controlling interests have been measured at their proportionate share of Magnesita’s identifiable net assets. Trade receivables comprise gross contractual receivables amounting to €145.0 million, of which €14.3 million are estimated as presumably irrecoverable, resulting in a fair value of €130.7 million. In case of receivables from joint ventures and associates of €17.8 million as well as other receivables amounting to €27.1 million the fair value corresponds to the gross amount. Due to the short-term nature of receivables, the Group assumes that the future cash flows correspond to the fair value. The acquisition-related costs reported under administrative expenses in the consolidated income statement amount to €24.4 million for the current financial year and €12 million in the previous year. In addition, the Group recognised €9.1 million issue costs, less income tax amounting to €0.3 million, directly in equity. In the period from November to December 2017, Magnesita generated revenue of €172.2 million and profit after income tax of €6.3 million. If the acquisition had been carried out at 1 January 2017, consolidated revenue would have amounted to €2,677.2 million and profit after income tax to €118.4 million. The pro-forma annual revenue and profit after income tax were determined under the assumption that the fair value adjustments and merger control divestments would have also been made as of 1 January 2017. The Group is required – in accordance with the share purchase agreement (SPA) and Brazilian laws and regulations – to make a mandatory public offer in Brazil which must be addressed to all remaining Magnesita shareholders and must be made on the same terms and conditions as those made available to the Sellers under the SPA, including as to purchase price and form of consideration. The Group decided to combine the mandatory offer with a so-called “delisting tender offer” in an Integrated Tender Offer and has filed with the Brazilian Securities Commission the respective request. According to the original and subsequent filings, shareholders of Magnesita will have the option of selling each Magnesita share in exchange of (i) R$17.81, adjusted by SELIC (the Brazilian benchmark interest rate) from 26 October 2017 until the date of the settlement of the auction of the Integrated Tender Offer, plus 0.1998 RHI Magnesita shares or (ii) a cash-only alternative consideration. The consideration of the cash-only alternative offer will be the higher of: (i) R$31.09, adjusted by SELIC from 26 October 2017 until the date of the settlement of the auction of the Integrated Tender Offer, and (ii) R$35.56, not adjusted by SELIC. Since the cash plus shares option was equivalent to R$57.73 on 28 February 2018, in light of the RHI Magnesita share price and the exchange rate prevailing on that date, the Group expects substantially all of Magnesita’s minority shareholders to tender their shares and opt for the cash plus shares consideration. If 100% of Magnesita’s minority shareholders tender their shares and opt for the cash plus shares consideration, the Group will disburse R$455.6 million, adjusted by SELIC from 26 October 2017 until the date of the settlement of the auction of the Integrated Tender Offer, and issue an additional 5,000,000 shares. The Integrated Tender Offer is expected to be completed during 2018. The difference between the amount paid in the Integrated Tender Offer and the book value of non-controlling interest acquired will be recognised directly in equity. 1 1 6
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2017 RHI Magnesita Group 16 Acquisition of Agellis On 13 October 2017, RHI Magnesita acquired 100% of the shares of Agellis Group AB (Agellis), located in Lund, Sweden. Agellis provides products optimizing the molten metal processing, aimed at increasing quality, reducing maintenance and assisting safety. This technical know-how was the main reason for the acquisition. The purchase price amounts to €5.6 million whereof €5.0 million were paid in cash and €0.6 million represent the recorded liability for an earn-out agreement. The earn-out is based on the revenue outcome of the financial year 2020 and will be paid in July 2021. The estimated earn-out corresponds to 52% of the maximum earn-out and has been discounted with the transaction internal rate of return. The fair values of the acquired assets and liabilities according to IFRS at the acquisition date are presented as follows: Goodwill amounting to €2.4 million primarily refers to the value of potential new customers and, to a limited extent, the assembled workforce. Goodwill is not deductible for tax purposes. Other additions Additions are related to the establishment of the RHISA Employee Trust, Sandton, in South Africa with effect from 13 March 2017. The operating activities of the RHI Magnesita Group in South Africa are subject to the Black Economic Empowerment legislation. Based on this, the RHI Magnesita Group has transferred 25.4% of the shares in RHI Refractories Africa (Pty) Ltd. to a trust, whose beneficiaries are employees of RHI Refractories Africa (Pty) Ltd. The trust is fully consolidated in the Consolidated Financial Statements since the RHI Magnesita Group can exercise a controlling influence on the trust due to the contractual terms and conditions. In addition, RHI Feuerfest GmbH, Vienna, Austria, was included for the first time in the Consolidated Financial Statements with effect from 19 May 2017. This company took over the operating activities after the corporate restructuring of former RHI AG. Furthermore, RHI Magnesita N.V. which is based in Arnhem, the Netherlands, and has its place of management in Austria, was established on 20 June 2017 and subsequently fully consolidated. As of 26 October 2017, after completing the corporate restructuring of RHI AG, the company became the ultimate parent of the RHI Magnesita Group. Disposals At the end of October 2017, all shares in the two entities REFEL S.p.A., San Vito al Tagliamento, Italy, and CJSC "RHI Podolsk Refractories", Moscow, Russia (together subsequently called Fused Cast) were sold. In order to satisfy the conditions imposed by the European Commission to approve the acquisition of Magnesita, the Group sold its magnesia-carbon bricks business concentrated in Oberhausen, Germany, as well as its entire dolomite business in the European Economic Area, which consisted of 100% shares in Dolomite Franchi S.p.A., Brescia, Italy, and its production site in Lugones, Spain (together subsequently called merger control divestments) at the end of November. in € million 13.10.2017 Property, plant and equipment 0.1 Other intangible assets 2.1 Other non-current financial assets 0.1 Deferred tax assets 0.9 Inventories 0.3 Trade and other current receivables 0.7 Trade and other current liabilities (1.0) Net assets 3.2 Goodwill 2.4 Purchase Price 5.6 R H I M A G N E S I TA
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17 The net assets disposed at the date of deconsolidation consist of the following items: The result from deconsolidation is determined as follows: The loss was recognised in other expenses in the Consolidated Statement of Profit or Loss. The selling price for the merger control divestments of €42.6 million consists of €40.0 million paid in cash and €2.6 million deferred consideration that will be due on the second anniversary of the disposal. The loss from deconsolidation of the merger control divestments includes an investment reimbursement obligation of €3.7 million to the former subsidiary Dolomite Franchi S.p.A.. The selling price for fused cast amounted to €0.3 million and was paid in cash. Changes in the group of consolidated companies in the previous year On 4 March 2016, the subsidiary RHI United Offices Europe, S.L. (100%), based in Lugones, Spain, was established and included in the Consolidated Financial Statements as of this date. On 1 September 2016, the subsidiary RHI United Offices America, S.A. de C.V. (100%), based in Monterrey, Mexico, was established. The purpose of these companies is the provision of internal administrative services. With effect from 12 May 2016 the subsidiary RHI Rückversicherungs AG (100%) based in Vaduz, Liechtenstein, was liquidated. As of 6 June 2016, all shares (100%) in RHI Monofrax, LLC, Wilmington, USA, were sold. The net assets disposed at the date of deconsolidation consist of the following items: Disposal groups in € million Merger control Fused Cast Property, plant and equipment 27.9 0.1 Other non-current assets 0.4 0.1 Inventories 24.5 11.2 Trade and other current receivables 44.7 2.1 Income tax receivables 1.6 0.5 Cash and cash equivalents 3.4 6.3 Deferred tax liability (2.2) 0.0 Provisions for pensions (1.1) 0.0 Other personnel provisions (2.7) (1.1) Trade payables and other current liabilities (43.4) (11.2) Income tax liability (0.4) (0.1) Current provision (0.2) 0.0 Net assets disposed 52.5 7.9 in € million Merger control Fused Cast Proceeds from the sale 42.6 0.3 Net assets disposed (52.5) (7.9) Reclassification currency translation differences 0.0 (1.8) Investment reimbursement (3.7) 0 Result from deconsolidation (13.6) (9.4) in € million 06.06.2016 Inventories 11.9 Trade and other current receivables 0.3 Cash and cash equivalents 4.6 Personnel provisions (5.6) Other non-current provisions (0.7) Trade payables and other current liabilities (2.7) Net assets disposed 7.8 1 1 8
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2017 RHI Magnesita Group 18 The result from deconsolidation is determined as follows: The loss, taking into account the transaction-related costs of €0.5 million incurred in the USA, was recognised in other expenses in the Consolidated Statement of Profit or Loss. The selling price of US$1 was paid in cash. Companies of the RHI Magnesita Group The main operating companies of the RHI Magnesita Group pursue the following core business activities: in € million 06.06.2016 Net assets disposed (7.8) Reclassification currency translation differences 3.7 Result from deconsolidation (4.1) Name and registered office of the company Country of core activity Core business activity Didier-Werke Aktiengesellschaft, Germany Germany Production Magnesit Anonim Sirketi, Turkey Turkey Mining, production, sales Magnesita Mineração S.A., Brazil Brazil Mining Magnesita Refractories Company, USA USA Mining, production, sales Magnesita Refractories GmbH, Germany Germany Production, sales Magnesita Refratários S.A., Brazil International Production, sales, Orient Refractories Limited, India India Production, sales RHI Canada Inc., Canada Canada Production, sales, provision of services RHI Feuerfest GmbH, Austria International Sales, R&D, financing RHI GLAS GmbH, Germany International Sales RHI Refractories (Dalian) Co., Ltd., PR China PR China Production RHI US Ltd., USA USA Production, sales, provision of services RHI-Refmex, S.A. de C.V., Mexico Latin America Sales Veitsch-Radex GmbH & Co OG, Austria Austria Mining, production R H I M A G N E S I TA
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19 The following list shows all companies in which RHI Magnesita holds a share of at least 20% (with the exception of the RHISA Employee Trust): 31.12.2017 31.12.2016 Ser. no. Name and registered office of the company Share- holder Share in % Share- holder Share in % 1. RHI Magnesita N.V., Arnhem, Netherlands - - 2. RHI AG, Vienna, Austria - - Fully consolidated subsidiaries 3. Agellis Group AB, Sund, Sweden 60. 100.0 - - 4. Baker Refractories Holding Company, Las Vegas, USA 47. 100.0 - - 5. Baker Refractories I.C., Inc., Las Vegas, USA 4. 100.0 - - 6. Baker Refractories, Las Vegas, USA 47. 100.0 - - 7. Betriebs- und Baugesellschaft mit beschränkter Haftung, Wiesbaden, Germany 12. 100.0 12. 100.0 8. CJSC "RHI Podolsk Refractories", Moskau, Russia - - 60.,114. 100.0 9. D.S.I.P.C.-Didier Société Industrielle de Production et de Constructions, Breuillet, France 12. 100.0 12. 100.0 10. Didier Belgium N.V., Evergem, Belgium 77.,108. 100.0 77.,108. 100.0 11. Didier Vertriebsgesellschaft mbH, Wiesbaden, Germany 12. 100.0 12. 100.0 12. Didier-Werke Aktiengesellschaft, Wiesbaden, Germany 1.,60. 100.0 2.,60. 100.0 13. Dolomite Franchi S.p.A., Brescia, Italy - - 60. 100.0 14. Dutch Brasil Holding B.V., Arnhem, Netherlands 114. 100.0 114. 100.0 15. Dutch MAS B.V., Arnhem, Netherlands 12. 100.0 12. 100.0 16. Dutch US Holding B.V., Arnhem, Netherlands 114. 100.0 114. 100.0 17. FE "VERA", Dnepropetrovsk, Ukraine 60. 100.0 60. 100.0 18. Feuerfestwerk Bad Hönningen GmbH, Hilden, Germany 119. 100.0 - - 19. FireShark Refractories GmbH, Vienna, Austria 75. 100.0 - - 20. Full Line Supply Africa (Pty) Ltd., Sandton, South Africa 86. 100.0 86. 100.0 21. GIX International Limited, Newark, United Kingdom 120. 100.0 120. 100.0 22. INDRESCO U.K. Ltd., Newark, United Kingdom 21. 100.0 21. 100.0 23. INTERSTOP (Shanghai) Co., Ltd., Shanghai, PR China 113. 100.0 113. 100.0 24. Latino America Refractories ApS, Hellerup, Denmark - - 120. 100.0 25. Liaoning RHI Jinding Magnesia Co., Ltd., Dashiqiao City, PR China1) 60. 83.3 60. 83.3 26. LLC "RHI Wostok Service", Moskau, Russia 60.,75. 100.0 2.,60. 100.0 27. LLC "RHI Wostok", Moskau, Russia 60.,75. 100.0 2.,60. 100.0 28. Lokalbahn Mixnitz-St. Erhard Aktien-Gesellschaft, Vienna, Austria 100. 100.0 100. 100.0 29. LWB Holding Company, Las Vegas, USA 61. 100.0 - - 30. LWB Refractories Belgium S.A., Liège, Belgium 49.,119. 100.0 - - 31. LWB Refractories Beteiligungs GmbH & Co. KG, Hilden, Germany 39.,61. 100.0 - - 32. LWB Refractories Hagen GmbH, Hagen, Germany 119. 100.0 - - 33. LWB Refractories Holding France S.A.S., Valenciennes, France 119. 100.0 - - 34. M.E. Refractories Company FZE i. l., Dubai, United Arab Emirates 38. 100.0 - - 35. Mag Data Participaçoes e Investimentos em Projetos de Mineração S.A., Contagem, Brazil 54. 100.0 - - 36. Magnesit Anonim Sirketi, Eskisehir, Turkey2) 60. 100.0 60. 100.0 37. Magnesita Asia Refractory Holding Ltd, Hong Kong, PR China 33. 100.0 - - 38. Magnesita Finance S.A., Luxembourg, Luxembourg 54. 100.0 - - 39. Magnesita Grundstücks-Beteiligungs GmbH, Hilden, Germany 54. 100.0 - - 40. Magnesita International Limited, London, United Kingdom 54. 100.0 - - 41. Magnesita Malta Finance Ltd., St. Julians, Malta 42.,119. 100.0 - - 1 2 0
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2017 RHI Magnesita Group 20 31.12.2017 31.12.2016 Ser. no. Name and registered office of the company Share- holder Share in % Share- holder Share in % 42. Magnesita Malta Holding Ltd., St. Julians, Malta 49.,119. 100.0 - - 43. Magnesita Mineração S.A., Brumado, Brazil 38.,54., 126. 100.0 - - 44. Magnesita NAM Insurance Company, Wilmington, USA 29. 100.0 - - 45. Magnesita Refractories (Canada) Inc., Montreal, Canada 4. 100.0 - - 46. Magnesita Refractories (Dalian) Co. Ltd., Dalian, PR China 38. 100.0 - - 47. Magnesita Refractories Company, York, USA 29. 100.0 - - 48. Magnesita Refractories de Mexico S.A. de C.V., Monterrey, Mexico 4.,5. 100.0 - - 49. Magnesita Refractories GmbH, Hilden, Germany 119. 100.0 - - 50. Magnesita Refractories Ltd., Dinnington, United Kingdom 4. 100.0 - - 51. Magnesita Refractories Middle East FZE, Dubai, United Arab Emirates 38. 100.0 - - 52. Magnesita Refractories S.C.S., Valenciennes, France 33.,119. 100.0 - - 53. Magnesita Refractories S.R.L., Trezzano Sul Naviglio, Italy 119. 100.0 - - 54. Magnesita Refratários S.A., Contagem, Brazil 14. 50.0 - - 55. Magnesita Resource (Anhui-Chizhou) Company. Ltd., Chizhou, PR China 37. 100.0 - - 56. Mezubag AG, Pfäffikon, Switzerland 113. 100.0 113. 100.0 57. Orient Refractories Limited, Neu Delhi, India 16. 69.6 16. 69.6 58. Premier Periclase Limited, Drogheda, Ireland 16. 100.0 16. 100.0 59. Producción RHI México, S. de R.L. de C.V., Ramos Arizpe, Mexico 91.,120. 100.0 91.,120. 100.0 60. Radex Vertriebsgesellschaft m.b.H., Leoben, Austria 116. 100.0 116. 100.0 61. Rearden G Holdings Eins GmbH, Hilden, Germany 38. 100.0 - - 62. REFEL S.p.A., San Vito al Tagliamento, Italy - - 12. 100.0 63. Refractarios Argentinos S.A.I.C.M., Buenos Aires, Argentina 54. 100.0 - - 64. Refractarios Magnesita Chile S/A, Santiago, Chile 63. 100.0 - - 65. Refractarios Magnesita Colombia S/A, Sogamoso, Colombia 54. 100.0 - - 66. Refractarios Magnesita del Perú S.A.C., Lima, Peru 54. 100.0 - - 67. Refractory Intellectual Property GmbH & Co KG, Vienna, Austria 68.,75. 100.0 2.,68. 100.0 68. Refractory Intellectual Property GmbH, Vienna, Austria 75. 100.0 2. 100.0 69. Reframec Manutenção e Montagens de Refratários S.A., Matozinhos, Brazil 54. 100.0 - - 70. RHI Argentina S.R.L., San Nicolás, Argentina 16.,120. 100.0 16.,120. 100.0 71. RHI Canada Inc., Burlington, Canada 120. 100.0 120. 100.0 72. RHI Chile S.A., Santiago, Chile 21.,120. 100.0 21.,120. 100.0 73. RHI Clasil Private Limited, Hyderabad, India1) 120. 53.7 120. 53.7 74. RHI Dinaris GmbH, Wiesbaden, Germany 108. 100.0 108. 100.0 75. RHI Feuerfest GmbH, Vienna, Austria 1. 100.0 - - 76. RHI Finance A/S, Hellerup, Denmark 75. 100.0 2. 100.0 77. RHI GLAS GmbH, Wiesbaden, Germany 108. 100.0 108. 100.0 78. RHI India Private Limited, Navi Mumbai, India 14.,120. 100.0 14.,120. 100.0 79. RHI ITALIA S.R.L., Brescia, Italy 75. 100.0 2. 100.0 80. RHI Marvo Feuerungs- und Industriebau GmbH, Gerbstedt, Germany 81. 100.0 81. 100.0 81. RHI MARVO Feuerungs- und Industriebau GmbH, Kerpen, Germany 12. 100.0 12. 100.0 82. RHI MARVO S.R.L., Ploiesti, Romania 60.,114. 100.0 60.,114. 100.0 83. RHI Normag AS, Porsgrunn, Norway 60. 100.0 60. 100.0 84. RHI Refractories (Dalian) Co., Ltd., Dalian, PR China 60. 100.0 60. 100.0 85. RHI Refractories (Site Services) Ltd., Newark, United Kingdom 22. 100.0 22. 100.0 R H I M A G N E S I TA
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21 31.12.2017 31.12.2016 Ser. no. Name and registered office of the company Share- holder Share in % Share- holder Share in % 86. RHI Refractories Africa (Pty) Ltd., Sandton, South Africa 60.,111. 100.0 60. 100.0 87. RHI Refractories Andino C.A., Puerto Ordaz, Venezuela 120. 100.0 120. 100.0 88. RHI Refractories Asia Ltd., Hongkong, PR China - - 112. 100.0 89. RHI Refractories Asia Pacific Pte. Ltd., Singapore 75. 100.0 2. 100.0 90. RHI Refractories Egypt LLC., Cairo, Egypt 60.,114. 100.0 60.,114. 100.0 91. RHI Refractories España, S.L., Lugones, Spain 12.,15. 100.0 12.,15. 100.0 92. RHI Refractories France SA, Breuillet, France3) 112. 100.0 112. 100.0 93. RHI Refractories Holding Company, Wilmington, USA 120. 100.0 120. 100.0 94. RHI Refractories Ibérica, S.L., Lugones, Spain 112. 100.0 112. 100.0 95. RHI Refractories Italiana s.r.l., Brescia, Italy 112. 100.0 112. 100.0 96. RHI Refractories Liaoning Co., Ltd., Bayuquan, PR China1) 60. 66.0 60. 66.0 97. RHI Refractories Lugones, S.L., Lugones, Spain - - - - 98. RHI Refractories Mercosul Ltda., Sao Paulo, Brazil 114.,120. 100.0 114.,120. 100.0 99. RHI Refractories Nord AB, Stockholm, Sweden 112. 100.0 112. 100.0 100. RHI Refractories Raw Material GmbH, Vienna, Austria 1.,60.,75. 100.0 2.,60. 100.0 101. RHI Refractories Site Services GmbH, Wiesbaden, Germany 12. 100.0 12. 100.0 102. RHI Refractories UK Limited, Bonnybridge, United Kingdom 12. 100.0 12. 100.0 103. RHI Refratários Brasil Ltda, Belo Horizonte, Brazil 14.,120. 100.0 14.,120. 100.0 104. RHI Sales Europe West GmbH, Mülheim-Kärlich, Germany 12.,112. 100.0 12.,112. 100.0 105. RHI Trading (Dalian) Co., Ltd., Dalian, PR China 60. 100.0 60. 100.0 106. RHI United Offices America, S.A. de C.V., Monterrey, Mexico 91.,107. 100.0 91.,107. 100.0 107. RHI United Offices Europe, S.L., Lugones, Spain 91. 100.0 91. 100.0 108. RHI Urmitz AG & Co. KG, Mülheim-Kärlich, Germany 11.,12. 100.0 11.,12. 100.0 109. RHI US Ltd., Wilmington, USA 16. 100.0 16. 100.0 110. RHI-Refmex, S.A. de C.V., Ramos Arizpe, Mexico 91.,120. 100.0 91.,120. 100.0 111. RHISA Employee Trust, Sandton, South Africa4) - 0.0 - - 112. SAPREF AG für feuerfestes Material, Basel, Switzerland 120. 100.0 120. 100.0 113. Stopinc Aktiengesellschaft, Hünenberg, Switzerland 12.,60. 100.0 12.,60. 100.0 114. Veitscher Vertriebsgesellschaft m.b.H., Vienna, Austria 75. 100.0 2. 100.0 115. Veitsch-Radex America LLC., Wilmington, USA 109. 100.0 109. 100.0 116. Veitsch-Radex GmbH & Co OG, Vienna, Austria 75.,117. 100.0 2.,117. 100.0 117. Veitsch-Radex GmbH, Vienna, Austria 75. 100.0 2. 100.0 118. Veitsch-Radex Vertriebsgesellschaft m.b.H., Vienna, Austria 75. 100.0 2. 100.0 119. Vierte LWB Refractories Holding GmbH, Hilden, Germany 31.,61. 100.0 - - 120. VRD Americas B.V., Arnhem, Netherlands 60.,75. 100.0 2.,60. 100.0 121. Zimmermann & Jansen GmbH, Düren, Germany 12. 100.0 12. 100.0 Subsidiaries not consolidated due to minor significance 122. Agellis Process AB, Lund, Sweden 3. 100.0 - - 123. Agellis Surface AB, Lund, Sweden 3. 100.0 - - 124. Araçuaí Holding S.A., São Paulo, Brazil 135. 100.0 - - 125. Dr.-Ing. Petri & Co. Unterstützungsgesellschaft m.b.H., Wiesbaden, Germany 12. 100.0 12. 100.0 126. Grayhill MDMM Holding Ltda., São Paulo, Brazil 54. 100.0 - - 127. INTERSTOP do Brasil Equipamentos Metalurgicos Ltda i. l., Barueri, Brazil - - 113. 100.0 128. Magnesita Australia PTY Ltd. i. l., Australia 37. 100.0 - - 129. Magnesita Refractories A.B., Köping, Sweden 119. 100.0 - - 130. Magnesita Refractories PVT Ltd, Mumbai, India 61.,119. 100.0 - - 131. Magnesita Refractories S.A. (Pty) Ltd., Middleburg, South Africa 49. 100.0 - - 1 2 2
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2017 RHI Magnesita Group 22 1) In accordance with IAS 32, fixed-term or puttable non-controlling interests are shown under liabilities. 2) Further shareholders are VRD Americas B.V., Lokalbahn Mixnitz St. Erhard Aktien-Gesellschaft and Veitscher Vertriebsgesellschaft mbH. 3) Further shareholders are Didier-Werke AG, RHI Dinaris GmbH and RHI GLAS GmbH. 4) Controlling influence due to contractual terms and conditions i.l. In liquidation (6) Methods of consolidation Subsidiaries Subsidiaries are companies over which RHI Magnesita N.V. exercises control. Control exists when the company has the power to decide on the relevant activities, is exposed to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The acquisition method is used to account for all business combinations. Under this method, the purchase price for the shares in a consolidated subsidiary is offset against the proportional share of net assets based on the fair value of the acquired assets and liabilities at the date of acquisition or when control is obtained. Intangible assets which were previously not recognised in the separate Financial Statements of the company acquired are also measured at fair value. Intangible assets identified when a company is acquired, including for example patents, brand names and customer relations, are only measured separately at the time of acquisition if they are identifiable and are in the control of the company and a future economic benefit is expected. For the acquisition of companies in which less than 100% of the shares are acquired, IFRS 3 allows an accounting policy choice whereby either goodwill proportionate to the share held or goodwill including the share accounted for by non-controlling interests can be recognised. This accounting policy choice can be exercised anew for any company acquisition. For the acquisition of Magnesita, non-controlling interests have been measured at their proportionate share of Magnesita’s identifiable net assets. The purchase price allocation at the date of acquisition can be made on a preliminary basis in justified cases. If adjustments are necessary in favour or at the expense of assets and liabilities within twelve months of the acquisition, they will be made accordingly. These adjustments will be presented in the notes. After completing the purchase price allocation, the determined goodwill is allocated to the relevant cash-generating unit and tested for impairment at this level. In accordance with the provisions of IFRS 3, negative 31.12.2017 31.12.2016 Ser. no. Name and registered office of the company Share- holder Share in % Share- holder Share in %132. MAG-Tec (MSA Service) Ltda., Contagem, Brazil 54. 98.7 - -133. Metal Data Participações Ltda., Rio de Janeiro, Brazil 54. 61.0 - -134. Metal Data S.A. – Mineração e Metalurgia, Contagem, Brazil 54.,133. 100.0 - -135. MMD Araçuaí Holding Ltda., São Paulo, Brazil 35.,54. 100.0 - -136. MPC, Metal Process Control AB, Lund, Sweden 3. 100.0 - -137. Refractarios Especiales Y Moliendas S.A., Buenos Aires, Argentina 63. 100.0 - -138. Refractarios Magnesita Uruguay S/A, Montevideo, Uruguay 54. 100.0 - -139. RHI Réfractaires Algérie E.U.R.L., Sidi Amar, Algeria 92. 100.0 92. 100.0 Equity-accounted joint ventures and associated companies 140. Krosaki Magnesita Refractories LLC, York, USA 47. 40.0 - -141. Magnesita Envoy Asia Ltd., Kaohsiung, Taiwan 4. 50.0 - -142. MAGNIFIN Magnesiaprodukte GmbH & Co KG, St. Jakob, Austria 114.,146. 50.0 114.,146. 50.0143. Sinterco S.A., Nameche, Belgium 61. 70.0 - - Other immaterial investments, measured at cost 144. LLC "NSK Refractory Holding", Moskau, Russia 60. 49.0 60. 49.0145. LLC "NSK Refractory", Novokuznetsk, Russia 60. 49.0 60. 49.0146. MAGNIFIN Magnesiaprodukte GmbH, St. Jakob, Austria 114. 50.0 114. 50.0 R H I M A G N E S I TA
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23 goodwill is immediately recognised to profit or loss in other income after renewed measurement of the identifiable assets, liabilities and contingent liabilities. Shares in net assets of subsidiaries that are not attributable to RHI Magnesita N.V. are shown separately under equity as non-controlling interests. The basis for non-controlling interests are the equity of the subsidiary concerned after adjustment to the accounting and measurement principles of the RHI Magnesita Group and proportional consolidation entries. Transaction costs which are directly related to business combinations are expensed as incurred. Conditional components of the purchase price are recorded at fair value at the date of initial consolidation. When additional shares are acquired in companies which are already included in the Consolidated Financial Statements as subsidiaries, the difference between the purchase price and the proportional carrying amount in the subsidiary’s net assets is offset against shareholders’ equity. Gains and losses from the sale of shares are also recorded in equity unless they lead to a loss of the controlling influence. In the case of a step acquisition and the related obtaining of a controlling interest, the difference between the carrying amount to be transferred and the fair value at the date of the initial full consolidation is realised through profit or loss. Intragroup receivables and liabilities as well as income and expenses are fully eliminated. Intragroup results related to intragroup deliveries of non-current assets and inventories as well as transfers of shares are eliminated. In accordance with IAS 12, deferred taxes are calculated on temporary differences arising from the consolidation. Subsidiaries are deconsolidated on the day control ends. Joint ventures and associates Shares in joint ventures and associates are accounted for using the equity method. A joint venture is a joint arrangement between the RHI Magnesita Group and one or several other partners whereby the parties that have joint control over the arrangement have rights to the net assets of the arrangement. An associate is an entity over which the RHI Magnesita Group has significant influence. Significant influence is the power to participate in an investee’s financial and operating policy decisions without control or joint control. A significant influence can be assumed if a company holds directly or indirectly 20% of the shares of the investee or has other abilities (e.g. through seats in the supervisory board) to influence the company’s financial and operating policy decisions. These presumptions can also be disproved if the company has no significant influence. At the date of acquisition, a positive difference between the acquisition costs and the share in the fair values of identified assets and liabilities of the joint ventures and associates is determined and recognised as goodwill. Goodwill is shown under the item investments in joint ventures and associates in the Statement of Financial Position. The acquisition cost of investments accounted for using the equity method is increased or decreased each year to reflect the change in the equity of the individual joint venture or associate that is attributable to the RHI Magnesita Group. Unrealised intragroup results from transactions with these companies are offset against the carrying amount of the investment on a pro-rata basis during consolidation, if they are material. RHI Magnesita examines at every reporting date whether there are objective indications of an impairment of the shares in joint ventures and associates. If such indications exist, the required impairment is determined as the 1 2 4
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2017 RHI Magnesita Group 24 difference between the recoverable amount and the carrying amount of the joint ventures and associates and recognised in profit and loss in the item share of profit of joint ventures and associates. The Financial Statements of the companies accounted for using the equity method are prepared in accordance with uniform accounting and measurement methods throughout the Group. (7) Foreign currency translation Functional currency and presentation currency The Consolidated Financial Statements are presented in Euro, which represents the functional and presentation currency of RHI Magnesita N.V.. The items included in the Financial Statements of each Group company are valued based on the currency of the primary economic environment in which the company operates (functional currency). Foreign currency transactions and balances Foreign currency transactions in the individual Financial Statements of group companies are translated into the functional currency based on the exchange rate in effect on the date of the transaction. Gains and losses arising from the settlement of such transactions and the measurement of monetary assets and liabilities in foreign currencies at the closing rate are recognised in profit or loss under other income or expenses. Contrary to this, unrealised currency translation differences from monetary items which form part of a net investment in a foreign business are recognised in other comprehensive income in equity. Non-monetary items in foreign currency are carried at historical rates. Group companies The Annual Financial Statements of foreign subsidiaries that have a functional currency differing from the Group presentation currency are translated into Euros as follows: Assets and liabilities are translated at the closing rate on the reporting date of the Group, while monthly income and expenses and consequently the profit for the year as presented in the Statement of Profit or Loss are translated at the respective closing rates of the previous month. Differences resulting from this translation process and differences resulting from the translation of amounts carried forward from the prior year are recorded under other comprehensive income without recognition to profit or loss. Monthly cash flows are translated at the respective closing rates of the previous month. Goodwill and adjustments to the fair value of assets and liabilities related to the purchase price allocations of a subsidiary outside the European currency area are recognised as assets and liabilities of the respective subsidiary and translated at the closing rate. The Euro exchange rates of currencies important for the RHI Magnesita Group are shown in the following table: 1) Arithmetic mean of the monthly closing rates Closing rate Average rate1) Currencies 1 € = 31.12.2017 31.12.2016 2017 2016 Argentine Peso ARS 22.93 16.74 18.65 16.27 Brazilian Real BRL 3.96 3.42 3.60 3.90 Canadian Dollar CAD 1.50 1.42 1.46 1.47 Chilean Peso CLP 735.00 700.25 733.37 748.21 Chinese Renminbi Yuan CNY 7.78 7.31 7.61 7.32 Indian Rupee INR 76.40 71.43 73.36 74.31 Mexican Peso MXN 23.56 21.77 21.27 20.48 Norwegian Krone NOK 9.85 9.09 9.30 9.31 Pound Sterling GBP 0.89 0.86 0.87 0.81 Swiss Franc CHF 1.17 1.08 1.11 1.09 South African Rand ZAR 14.75 14.33 15.02 16.40 US Dollar USD 1.20 1.05 1.12 1.11 R H I M A G N E S I TA
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25 (8) Principles of accounting and measurement Property, plant and equipment Property, plant and equipment is measured at acquisition or production cost, less accumulated depreciation on a systematic basis and impairments. These assets are depreciated on a straight-line basis over the expected useful life. Depreciation is calculated pro rata temporis beginning in the month the asset is available for use, i.e. when the asset is at its designated location and ready for operations as intended by management. Leased property, plant and equipment that qualifies as asset purchase financed with long-term funds is capitalised at the market value of the asset or the lower present value in accordance with IAS 17. The leased assets are depreciated on a systematic basis over the useful life. The payment obligations resulting from future lease instalments are discounted and recorded as liabilities. Current lease payments are apportioned between a finance charge and the amortisation of the outstanding liability. As of the reporting date, the property, plant and equipment leased through finance leases is of small scale. All other leases are treated as operating leases. The lease payments resulting from operating leases are recorded as expenses. The production costs of internally generated assets comprise direct costs as well as a proportional share of capitalisable production overheads and borrowing costs. If financing can be specifically allocated to an investment, the actual borrowing costs are capitalised as production costs. If no direct connection can be made, the average rate on borrowed capital of the Group is used as the capitalization rate due to the central funding of the Group. Expected demolition and disposal costs at the end of an asset’s useful life are capitalised as part of acquisition cost and recorded as a provision. The criteria for this treatment are a legal or constructive obligation towards a third party and the ability to prepare a reliable estimate. Real estate, land and plant under construction are not depreciated on a systematic basis. Depreciation of other material property, plant and equipment is based on the following useful lives in the RHI Magnesita Group: The residual carrying amounts and economic useful lives are reviewed regularly and adjusted if necessary. Depletion is recorded on raw material deposits of the volume actually mined in proportion to the estimated volume. When components of plant or equipment have to be replaced at regular intervals, the relevant replacement costs are capitalised as incurred if the criteria set forth in IAS 16 have been met. The carrying amount of the replaced components is derecognised. Regular maintenance and repair costs are expensed as incurred. Gains or losses from the disposal of property, plant and equipment, which result as the difference between the net realizable value and the carrying amount, are recognised as income or expense in the Consolidated Statement of Profit or Loss. Factory and office buildings 15 to 50 years Land improvement 8 to 30 years Crusher machines and mixing facilities 8 to 20 years Presses 10 to 12 years Tunnel, rotary and shaft kilns 50 years Other calcining and drying kilns 20 to 30 years Cars, other plant, furniture and fixtures 3 to 35 years 1 2 6
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2017 RHI Magnesita Group 26 Goodwill Goodwill is recognised as an asset in accordance with IFRS 3. It is tested for impairment at least once each year, or when events or a change in circumstances indicate that the asset could be impaired. In accordance with IFRS 3, negative goodwill is recognised through profit or loss immediately after a new assessment of the identified assets, liabilities and contingent liabilities. Other intangible assets Research costs are expensed in the year incurred and included under general and administrative expenses. Development costs also represent expenses in the period. They are recognised under general and administrative expenses. They are only capitalised if the allocable costs of the intangible asset can be measured reliably during its development period. Moreover, capitalization requires that the product or process development can be clearly defined, is feasible in technical, economic and capacity terms and is intended for own use or sale. In addition, future cash inflows which cover not only normal costs but also the related development costs must be expected. Capitalised development costs are amortised on a straight-line basis over the expected useful life, however, over a maximum of ten years, and recognised in cost of sales. The development costs for internally generated software are expensed as incurred if their primary purpose is to maintain the functionality of existing software. Expenses that can be directly and conclusively allocated to individual programmes and represent a significant extension or improvement over the original condition of the software are capitalised as production costs and added to the original purchase price of the software. These direct costs include the personnel expenses for the development team as well as an adequate, proportional share of overheads. Software is predominantly amortised on a straight-line basis over a period of four years. Purchased intangible assets are measured at acquisition cost, which also includes acquisition-related costs, less accumulated amortisation and impairments. Intangible assets with a finite useful life are amortised on a straight-line basis over the expected period of useful life. The following table shows the most important useful lives: Impairment of property, plant and equipment, goodwill and other intangible assets Property, plant and equipment and intangible assets, including goodwill, are tested for impairment if there is any indication that the value of these items may be impaired. Intangible assets with an indefinite useful life and goodwill are tested for impairment at least annually. An asset is considered to be impaired if its recoverable amount is less than the carrying amount. The recoverable amount of an asset is the higher of its fair value less costs of disposal and its value in use (present value of future cash flows). If the carrying amount is higher than the recoverable amount, an impairment loss equivalent to the resulting difference is recognised in the Consolidated Statement of Profit or Loss. If the reason for an impairment loss recognised in the past for property, plant and equipment and for other intangible assets ceases to exist, a reversal of impairment on the amortised acquisition and production costs is recognised in profit or loss. In the case of impairments related to cash-generating units (CGU) which contain goodwill, existing goodwill is initially reduced. If the required impairment exceeds the carrying amount of the goodwill, the difference is apportioned proportionately to the remaining non-current tangible and intangible assets of the CGU. Reversals of impairment losses recognised on goodwill are not permitted and are therefore not considered. The effects of impairment tests at the CGU level are shown in other income or other expenses in the Consolidated Statement of Profit or Loss. Patents 7 to 18 years Brand rights 20 years Land use rights 50 or 65 years Customer relations 6 to 15 years R H I M A G N E S I TA
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27 If there is an indication for an impairment of a specific asset, only this specific asset will be tested for impairment. Cash-generating units (CGU) In the RHI Magnesita Group the individual assets do not generate cash inflows independent of one another; therefore, no recoverable amount can be presented for individual assets. As a result, the assets are combined in CGUs, which largely generate independent cash inflows. These units are combined in strategic business units and reflect the market presence and the market appearance and are as such responsible for cash inflows. The organisational structures of the Group reflect these units. In addition to the joint management and control of the business activities in each unit, the sales know-how and the knowledge of RHI Magnesita’s products are also incorporated in these units. The sales know-how is reflected in long-standing customer relationships or knowledge of the customer’s production facilities and processes. Product knowledge is manifested in the application-oriented knowledge of chemical, physical and thermal properties of RHI Magnesita products. The services offered extend over the life cycle of RHI Magnesita products at the customer’s plant, from the appropriate installation and support of optimal operations, to environmentally sound disposal or sustainable reuse in RHI Magnesita’s production process. These factors determine cash inflow to a significant extent and consequently form the basis for the CGU structures of RHI Magnesita. The CGUs of the strategic business unit Steel are Linings and Flow Control. These two units are determined according to the production stages in the process of steel production. In the Industrial Division, each industry segment (glass, cement/lime, nonferrous metals and environment, energy, chemicals) forms a separate CGU. The independent CGU Fused Cast in the Industrial Division was sold in 2017. In the Raw Materials Division, all raw material producing facilities with the exception of Norway are combined in one CGU. The plant in Porsgrunn, Norway, was not included in the raw materials unit, but treated as a separate CGU because a management team was installed specifically for the coordination and implementation of the optimization measures due to the dimension and the special situation at the Porsgrunn plant. This organisation goes beyond plant management and also includes sub-tasks of the administration processes. As in the previous year, the impairment test is based on the value in use. The recoverable amount is determined using the discounted cash flow method and incorporates the terminal value. The detailed planning of the first five years is congruent with the strategic business and financial planning. Based on the detailed planning period, it is geared to a steady-state business development, which balances out possible economic or other non-sustainable fluctuations in the detailed planning period and forms the basis for the calculation of the terminal value. In the impairment test 2017, the terminal value is based on a growth rate derived from the difference of the current and the possible degree of utilisation of the assets. The net cash flows are discounted using the weighted average cost of capital (WACC). The weighted average cost of capital is calculated taking into account comparable companies (peer group). The corresponding parameters are derived from capital market information. In addition, country-specific risk premiums are considered in the weighted average cost of capital. The weighted average cost of capital before tax is determined per legal unit and weighted according to the share of revenue of the legal units. The weighted interest rates range between 5.7% and 8.6% in the year 2017. In the previous year, the interest rates determined on the same basis ranged between 6.4% and 8.0%. Composition of estimated future cash flows The estimates of future cash flows include forecasts of the cash flows from continued use. If assets are disposed at the end of their useful life, the related cash flows are also included in the forecasts. A simplified Statement of Cash Flows serves to determine the cash flows on the basis of strategic business and financial planning. The forecasts include cash flows from future maintenance investments. Expansion 1 2 8
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2017 RHI Magnesita Group 28 investments are only taken into account in the future cash flows when there has been a significant cash outflow or significant payment obligations have been entered into due to services received and it is sufficiently certain that the investment measure will be completed. All other expansion investments are not considered; this applies in particular to expansion investments that have been decided on but not begun. Future cash flows from financing and for income taxes are generally not included. For reasons of practicability, the expected cash flows also include tax payments, therefore the values in use are determined using an after-tax weighted average cost of capital. The after-tax weighted average cost of capital is iteratively reconciled to an implicit pre-tax weighted average cost of capital, which is indicated in the notes. If the result before tax is negative in the detailed planning period, tax inflows (tax refunds) are considered regardless of whether tax loss carryforwards exist. With respect to pension obligations, a differentiation is made between earned entitlements and entitlements yet to be earned. Provisions for pensions do not reduce the carrying value of a CGU; accordingly, pension payouts are not included in the recoverable amounts. Expected additions to provisions for pensions are considered cash effective with respect to service cost. The interest expense related to pension obligations represents a financing expense and is consequently not considered in the forecast of cash flows. Working capital is included in the carrying amount of the CGU; therefore, the recoverable amount only takes into account changes in working capital. Basis for Planning Basis for the impairment test was the five-year forward-looking business plan that was used on the one hand to support the decision making of the acquisition of Magnesita and on the other hand to support the listing at the London Stock Exchange. This business plan has been updated with the budget 2018 as starting point, that was approved by the Board, and developed with the growth rates used in the forward-looking business plan. In addition, an intangible asset with indefinite useful life of €1.8 million (31.12.2016: €1.8 million) is allocated to the Steel Division – Flow Control. The preliminary goodwill determined due to the Magnesita acquisition was not considered in the impairment calculation since the purchase price allocation is not complete yet and it is not possible to make a reliable estimate of the allocations to CGUs. On the other hand, no triggering events were identified that would lead to an impairment of the goodwill. 2017 2016 WACC before Tax Perpetual annuity growth rate Goodwill per group of CGUs in € million WACC before tax Perpetual annuity growth rate Goodwill in € million Preliminary goodwill not yet allocated 171.7 Steel Division - Linings 8.6% 0.9% 9.4 7.6% 0.9% 9.4 Steel Division - Flow Control 8.5% 0.9% 28.3 8.0% 0.9% 27.4 Industrial Division - Glass 7.2% 0.9% 0.0 7.0% 0.9% 0.0 Industrial Division - Cement 8.4% 0.9% 0.5 7.2% 0.9% 0.5 Industrial Division - Nonferrous 7.7% 0.9% 0.2 6.8% 0.9% 0.2 Industrial Division - EEC 8.0% 0.9% 0.3 7.0% 0.9% 0.3 Raw Material - Raw Material 7.9% 0.9% 0.0 6.7% 0.9% 0.0 Raw Material - Norway 5.7% 0.0% 0.0 6.5% 0.0% 0.0 R H I M A G N E S I TA
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29 Result of impairment test Based on the impairment test conducted in the financial year 2017, the recoverability of the assets was demonstrated in all CGUs. In the year 2016, the impairment losses for the former CGU Industrial/Fused Cast amounted to €8.0 million. In the first half of 2017, the Fused Cast plants were classified as a disposal group, which led to an additional impairment of €1.8 million. The disposal group was sold in the fourth quarter. As in the previous year, no reversals of impairments were made in the financial year 2017. Other financial assets and liabilities The Group initially recognises securities which are held for trading on the trading date when the entity becomes a party to the contractual provisions of the instruments. All other financial assets and financial liabilities are initially recognised on the date when they are originated. Financial assets are derecognised if the entity transfers substantially all the risks and rewards or if the entity neither transfers nor retains substantially all the risks and rewards and has not retained control. Financial liabilities are derecognised when the contractual obligations are settled, withdrawn or have expired. The item other financial assets in the Consolidated Statement of Financial Position of RHI Magnesita includes shares in non-consolidated subsidiaries and other investments, securities, financial receivables and positive fair values of derivative financial instruments. The item other financial liabilities includes negative fair values of derivative financial instruments as well as liabilities to fixed-term or puttable non-controlling interests. Shares in non-consolidated subsidiaries and investments in other companies are classified entirely as “available for sale” in the RHI Magnesita Group. These available-for-sale financial assets of minor significance are measured at cost. If there are indications that the fair value is lower, the lower value is recognised. Securities classified as available-for-sale are initially measured at fair value including any related transaction expenses. Subsequent measurement reflects fair value, with changes in fair value being recorded in other comprehensive income. The accumulated gains and losses from fair value measurement that are recorded under other comprehensive income are reclassified to the Statement of Profit or Loss with the disposal of the financial assets. Impairments are charged to profit or loss. Impairment losses on equity instruments recognised to profit or loss are reversed through other comprehensive income. Reversals of impairment for debt instruments are recognised to profit or loss. Securities are classified as at fair value through profit or loss if they are classified as held for trading or designated as such on initial recognition. Directly attributable transaction costs are recognised in profit or loss as incurred. Securities at fair value through profit or loss are measured at fair value and changes therein, including any interest income, are recognised in profit or loss. Financial receivables are measured at amortised cost applying the effective interest method. Any doubt concerning the collectability of the receivables is reflected in the use of the lower present value of the expected future cash flows. Foreign currency receivables are translated at the closing rate. Derivative financial instruments, which are not part of an effective hedging relationship in accordance with IAS 39 or do not meet the hedge accounting requirements, must be classified as held for trading in accordance with IFRS and measured at fair value through profit or loss. In the RHI Magnesita Group, this measurement category includes derivatives related to purchase obligations, forward exchange contracts, embedded derivatives in open orders that are denominated in currencies other than the functional currency as well as derivative financial instruments in the form of interest rate swaps. Derivative financial instruments relating to purchase obligations are accounted for in accordance with IAS 39 and concern a long-term power supply contract which provides for the purchase of fixed amounts of electricity at fixed 1 3 0
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2017 RHI Magnesita Group 30 prices. The measurement is made taking into account quoted electricity prices in the futures market. Based on the fixed amounts of electricity, the cash flows for the entire term of the contract are initially determined as the difference between forward rates and contractually fixed prices and discounted at the reporting date using a cost of borrowing rate corresponding to the term. The measurement effects resulting from this electricity derivative are shown as gain or loss from derivatives from supply contracts in the Statement of Profit or Loss. The measurement of forward exchange contracts and embedded derivatives in open orders denominated in a currency other than the functional currency is made on a case-by-case basis at the respective forward rate on the reporting date. These forward rates are based on spot rates, and also include forward premiums and discounts. Unrealised valuation gains or losses and results from the realisation are recognised to the Statement of Profit or Loss under other income or expenses. The underlying transactions for the derivatives are carried at amortised cost. For derivative financial instruments, which are incorporated in an effective hedging relationship in accordance with IAS 39, the provisions regarding hedge accounting are applied. RHI Magnesita has concluded derivative financial instruments in the form of interest rate swaps to hedge the cash flow risk of financial liabilities carrying variable interest. Hedging transactions are shown as part of cash flow hedge accounting. The interest rate swaps as hedging instruments are measured at fair value, which corresponds to the amount which RHI Magnesita would receive or has to pay on the reporting date when the financial instrument is terminated. The fair value is calculated using the interest rates and yield curves relevant on the reporting date. The effective part of the fair value changes is initially recorded in other comprehensive income as an unrealised gain or loss. Only at the time of the realisation of the underlying transaction, the contribution of the hedging instrument is shown in the Statement of Profit or Loss. Ineffective parts of the fair value changes of cash flow hedges are recognised immediately in the Statement of Profit or Loss. If the underlying transaction is no longer expected to take place, the accumulated amount previously recorded in other comprehensive income is reclassified to the Statement of Profit or Loss. Capital shares of non-controlling interests in subsidiaries with a fixed term are recognised under other financial liabilities in the Consolidated Statement of Financial Position in accordance with IAS 32. The liabilities are measured at amortised cost. The share of profit attributable to non-controlling interests is recognised under interest expenses in the Statement of Profit or Loss. Dividend payments to non-controlling interests reduce liabilities. Furthermore, the RHI Magnesita Group has entered into purchase obligations with non-controlling shareholders of a subsidiary. Based on these agreements, the shareholders receive the right to tender their shares at any time on previously defined conditions. In this case, IAS 32 provides for carrying a liability in the amount of the probable future exercise price. The difference between the estimated liability and the carrying amount of the non-controlling interest was recognised to equity at the time of initial recognition without affecting profit or loss. Subsequently, the liability to puttable non-controlling interests is measured at amortised cost and changes are recorded in net finance costs. Deferred taxes Deferred taxes are recognised on temporary differences between the tax base and the IFRS carrying amount of assets and liabilities, tax-loss carryforwards and consolidation entries. Deferred tax assets are recognised on temporary differences insofar as it is probable that sufficient deferred tax liabilities exist or that sufficient taxable income before the reversal of temporary differences is available for the settlement of deductible temporary differences. Deferred taxes are recognised on temporary differences relating to shares in subsidiaries and joint ventures, unless the parent company is in a position to control the timing of the reversal of the temporary differences and it is probable that the temporary differences will not reverse. No temporary differences are recognised for financial instruments which were issued by subsidiaries to non-controlling interests and which are classified as a financial liability in accordance with IFRS. R H I M A G N E S I TA
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31 The RHI Magnesita Group accounts for deferred tax assets for unused tax loss carryforwards to the extent that it is probable that a taxable income will be available. The calculation of deferred taxes is based on the tax rate expected in the individual countries at the time the deferred tax asset is realised or the liability is settled and generally reflects the enacted or substantively enacted tax rate on the reporting date. As in the previous year, deferred taxes of the Austrian group companies are determined at the corporation tax rate of 25%. Deferred tax assets and liabilities of the Brazilian group companies are measured at the tax rate of 34%. Tax rates from 12.5% to 35.0% (31.12.2016: 12.5% to 37.9%) were applied to the other companies. Deferred tax assets and liabilities are offset if there is an enforceable right to offset current tax receivables against current tax liabilities, and if the deferred taxes relate to income taxes due from/to the same tax authorities. Inventories Inventories are stated at acquisition or production cost, or at net realizable value as of the reporting date. The determination of acquisition cost of purchased inventories is based on the moving average price method. Finished goods and work in process are valued at fixed and variable production cost. The net realizable value is the estimated selling price in the ordinary course of business minus any estimated cost to complete and to sell the goods. Impairments due to reduced usability are reflected in the calculation of the net realizable value. Long-term construction contracts Construction contracts are accounted for using the percentage of completion method if the criteria defined in IAS 11 have been met. Under the percentage of completion method, production costs incurred plus an appropriate mark-up for profit based on the stage of completion are recognised under receivables from construction contracts and under revenue. The stage of completion is based on the expenses incurred as a percentage of the expected total expenses for the contract. Any expected losses on a contract are covered by provisions, which also reflect identifiable risks. Prepayments received from customers are deducted from contract receivables. Any resulting negative balance on a construction contract is recorded as a liability from construction contracts. Trade and other current receivables Receivables are initially measured at fair value and subsequently carried at amortised cost minus any valuation allowances. These valuation allowances are determined on an individual basis and reflect any recognizable risk of default. A default leads to the derecognition of the relevant receivables. Receivables denominated in foreign currencies are translated using the closing rate. Emission certificates Emission certificates acquired for a consideration are carried at cost and recognised to profit and loss in cost of sales when used up, written down to fair value or sold. In the case of a shortfall, a provision is recognised equivalent to the fair value of the lacking emission certificates. Emission certificates allocated free of charge are not accounted for. Proceeds from the sale of these rights are recognised as income. 1 3 2
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2017 RHI Magnesita Group 32 Cash and cash equivalents Cash on hand, checks received and cash at banks with an original term of a maximum of three months are shown under cash and cash equivalents. Moreover, shares in money market funds, which are only exposed to insignificant value fluctuations due to their high credit rating and investments in extremely short-term money market instruments and can be converted to defined cash amounts within a few days at any time, are also recorded under cash equivalents under IAS 7. Cash and cash equivalents denominated in foreign currencies are translated at the closing rate. Disposal groups held for sale Non-current assets and disposal groups which can be sold in their present state and whose sale is highly probable are classified as held for sale. Assets and liabilities which are intended to be sold together in a single transaction represent a disposal group held for sale and are shown separately from other assets and liabilities in the Statement of Financial Position. All accumulated income and expenses recorded in other comprehensive income which are related to disposal groups classified as held for sale are presented separately in the Consolidated Statement of Changes in Equity. Non-current assets and disposal groups which are classified as held for sale are carried at the lower of fair value less costs to sell and carrying amount. Impairments are initially allocated to existing goodwill and then to the non-current assets on a pro-rata basis, based on the carrying amount of each individual asset of the disposal group. Impairments beyond that are allocated to current assets pursuant to the liquidity principle and recognised through profit or loss in the item other expenses. Non-current assets are not depreciated as long as they are classified as held for sale. Financial liabilities Financial liabilities include liabilities to financial institutions and other lenders and are measured at fair value less directly attributable transaction costs at initial recognition. In subsequent measurements these liabilities are measured at amortised cost applying the effective interest method. Financial liabilities in foreign currency are translated at the closing rate. Provisions Provisions are recognised when the Group incurs a legal or constructive obligation as a result of past events, and it is probable that an outflow of resources will be required to meet this obligation, and the amount of the obligation can be reliably estimated. Non-current provisions are measured at their discounted settlement value as of the reporting date if the discount effect is material. If maturities cannot be estimated, they are shown under current provisions. Provisions for pensions With respect to post-employment benefits, a differentiation is made between defined contribution and defined benefit plans. Defined contribution plans limit the company’s obligation to the agreed amount of contributions to earmarked pension plans. The related expenses are shown in the functional areas and thus in EBIT. No provisions are necessary. Defined benefit plans require the company to provide the agreed amount of benefits to active and former employees and their dependents, with a differentiation made between pension systems financed through provisions and pension systems financed by funds. R H I M A G N E S I TA
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33 For pension plans financed through external funds, the pension obligation according to the projected unit credit method is netted out against the fair value of the plan assets. If the plan assets are not sufficient to cover the obligation, the net obligation is recognised under provisions for pensions. However, if the plan assets exceed the obligations, the asset recognised is limited to reductions of future contribution payments to the plan and is shown under other non-current assets. The present value of defined benefit obligations for current pensions, future pension benefits and similar obligations and the related expenses are calculated separately for each plan annually by independent qualified actuaries in accordance with the provisions of IAS 19. The present value of future benefits is based on the length of service, expected wage/salary developments and pension adjustments. The expense to be recognised in a period includes current and past service costs, settlement gains and losses, interest expenses from the interest accrued on obligations, interest income from plan assets and administration costs paid from plan assets. The net interest expense is shown separately in net finance costs. All other expenses related to defined benefit plans are allocated to the costs of the relevant functional areas. Actuarial assumptions are required to calculate these obligations, above all the interest rate used for discounting, but also the rates of increases in wages/salaries and pensions as well as the retirement starting age and probability of employee turnover and actual claims. The calculation is based on local biometric parameters. Interest rates chosen on the basis of the interest on high-quality corporate bonds issued with adequate maturities and currencies are applied to determine the present value of pension obligations. In countries where there is no sufficiently liquid market for high-quality corporate bonds, the returns on government bonds are used as a basis. The rates of increase for wages/salaries were based on an average of past years, which is also considered to be realistic for the future. The fluctuation probabilities were estimated specific to age or according to seniority. The retirement age used for the calculation is based on the respective statutory provisions of the country concerned. The calculation is based on the earliest possible retirement age according to the current statutory provisions of the respective country, among other things depending on gender and date of birth. Remeasurement gains and losses are recorded net of deferred taxes under other comprehensive income in the period incurred. Other personnel provisions Other personnel provisions include provisions for termination benefits, service anniversary bonuses, payments to semi-retirees, share-based payments and lump-sum settlements. Provisions for termination benefits are primarily related to obligations to employees whose employment is subject to Austrian law. Employees who joined an Austrian company before 31 December 2002 receive a one-off lump-sum termination benefit as defined by Austrian labour legislation if the employer terminates the employment relationship or when the employee retires. The amount of the termination payment depends on the relevant salary at the time of the termination as well as the number of years of service and ranges between two and twelve monthly salaries. These obligations are measured in accordance with IAS 19 using the projected unit credit method applying an accumulation period of 25 years. Remeasurement gains and losses are recorded directly to other comprehensive income after considering tax effects and shown in the Statement of Comprehensive Income. For employees who joined an Austrian company after 31 December 2002, employers are required to make regular contributions equal to 1.53% of the monthly wage/salary to a statutory termination benefit scheme. The company has no further obligations. Claims by employees to termination benefits are filed with the statutory 1 3 4
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2017 RHI Magnesita Group 34 termination benefit scheme, while the regular contributions are treated like defined contribution pension plans and included under personnel expenses of the functional areas. Service anniversary bonuses are one-time special payments that are dependent on the employee’s wage/salary and length of service. The employer is required by collective bargaining agreements or company agreements to make these payments after an employee has reached a certain number of uninterrupted years of service with the same company. Obligations are mainly related to service anniversary bonuses in Austrian and German group companies. Under IAS 19 service anniversary bonuses are treated as other long-term employee benefits. Provisions for service anniversary bonuses are calculated based on the projected unit credit method. Remeasurement gains or losses are recorded in the personnel costs of the functional areas in the period incurred. Local labour laws and other similar regulations require individual group companies to create provisions for semi-retirement obligations. The obligations are partially covered by qualified plan assets and are reported on a net basis in the Statement of Financial Position. For cash-settled share-based payments for the members of the former Management Board of RHI AG, a provision is recorded for the services received and measured at fair value on the date of receipt. Until the debt is settled, its fair value is recalculated at each reporting date and on the settlement date. All changes in fair value are recognised to profit or loss in general and administrative expenses. Obligations for lump-sum settlements are based on company agreements in individual companies. Other provisions Provisions for warranties are created for individual contracts at the time of the sale of the goods concerned, or after a service has been provided. The amounts of the provisions are based on the expected or actual warranty claims. Provisions for restructuring are created insofar as a detailed formal restructuring plan has been developed and announced prior to the reporting date or whose implementation was commenced prior to the reporting date. The Group recognises provisions for demolition and disposal costs and environmental damages. RHI Magnesita’s facilities and its refractory, exploration and mining operations are subject to environmental and governmental laws and regulations in each of the jurisdictions in which it operates. These laws govern, among other things, reclamation or restoration of the environment in mined areas and the clean-up of contaminated properties. Provisions for demolition and disposal costs and environmental damages include the estimated demolition and disposal costs of plants and buildings as well as environmental restoration costs arising from mining activities, based on the present value of estimated cash flows of the expected costs. The estimated future costs of deactivation of assets are reviewed annually and adjusted, if appropriate. Provisions for labour and civil contingencies are recognised for all risks referring to legal proceedings that represent probable loss. Assessment of the likelihood of loss includes analysis of available evidence, including the opinion of internal and external legal advisors of the RHI Magnesita Group. Trade payables and other current liabilities These liabilities are initially recognised at fair value, and subsequently measured at amortised cost. Liabilities denominated in foreign currencies are translated at the closing rate. R H I M A G N E S I TA
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35 Government grants Government grants to promote investments are recognised as deferred income and released through profit or loss over the useful life of the relevant asset distributed on a straight-line basis. Grants that were granted as compensation for expenses or losses are recognised to profit or loss in the periods in which the subsidized expenses are incurred. In the RHI Magnesita Group, they mainly include grants for research and employee development. Grants for research are recorded as income in general and administrative expenses. Revenue and expenses Revenue comprises the sale of products and services less rebates and other sales deductions. Revenue is realised when ownership and risk are transferred to the customer or when a service is performed, the consideration has been contractually defined or can otherwise be determined and the RHI Magnesita Group can therefore expect to collect the related receivable. If formal acceptance by the customer is agreed, the related revenue is only recognised after this acceptance has been received. Revenue on construction contracts is realised according to the percentage of completion method, if the requirements of IAS 11 have been met. Expenses are recognised to the Statement of Profit or Loss when a service is consumed or the costs are incurred. Interest income and expenses are recognised in accordance with the effective interest method. Dividends from investments that are not accounted for using the equity method are recognised to profit and loss at the time the legal claim arises. Income taxes are recognised according to the local regulations applicable to each company. Current and deferred income taxes are recognised in the Statement of Profit or Loss unless they are related to items which were recorded directly in equity or in other comprehensive income. In such a case, income taxes are also recorded in equity or other comprehensive income. RHI Feuerfest GmbH, Vienna, Austria, acts as the head of a corporate tax group. The corporate tax group of RHI AG, Vienna, Austria was terminated with 31 December 2016 due to the corporate restructuring of RHI AG in 2017. A new tax compensation agreement has been concluded and is in force since 1 January 2017 between the head of the group and eight Austrian group members. According to the group and tax compensation agreement, the members of the group have to pay a positive tax compensation of 20% of the taxable profit to the head of the group if the result is positive, as long as tax loss carry forwards exist with the head of the group; subsequently 25% of the taxable profit have to be paid. In case of a tax loss of the group member, the head of the group has to pay a negative tax compensation to the member of the group, with a rate of 12.5% being applied insofar as the loss can be utilised within the group. In case the losses of a group member were compensated (negative tax allocation payment) and this group member generates taxable income within the next three years (after compensation), the positive tax allocation amounts to 12.5%. In case of a loss in the tax group, an unused tax loss of a group member is retained and offset against future taxable profits of the group member. When the contract is terminated, a compensation payment is agreed for unused tax losses of a group member, which were allocated to the head of the group. In Germany, Didier-Werke Aktiengesellschaft, Wiesbaden, acts as the head of a tax group for corporate and trade tax purposes. The seven tax group members are obliged to transfer their profit or loss to Didier-Werke Aktiengesellschaft based on a profit or loss transfer agreement. Additionally, Didier-Werke Aktiengesellschaft, Wiesbaden, acts as the head of a tax group for input tax purposes with nine German tax group members. Furthermore, Rearden G Holdings Eins GmbH, Hagen, acts as the head of a two-level structure tax group with four group members for corporate, trade tax and input tax purposes. 1 3 6
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2017 RHI Magnesita Group 36 (9) Segment reporting The RHI Magnesita Group comprises the operating segments Steel, Industrial and Raw Materials. This segmentation of the business activities is geared to internal control and reporting. The segmentation into Steel and Industrial represents a grouping by the main customer industries. The Steel segment specializes in supporting customers in the steel-producing and steel-processing industry. The Industrial segment serves customers in the glass, cement/lime, nonferrous metals and environment, energy, chemicals industries. The main activities of the two segments consist of market development, global sales of high-grade refractory bricks, mixes and special products as well as providing services at the customers’ sites. The operating activities of the segment Raw Materials primarily consist of supplying group companies with raw materials. This includes mining magnesite and dolomite in mines owned by the Group and raw material production based on seawater, processing and finishing raw materials as well as purchasing and selling raw materials. Within the Group, raw materials are carried at market price. The globally located manufacturing sites, which process the raw materials, are combined in one organisational unit. The allocation of manufacturing cost variances of the production plants to the Steel and Industrial Divisions is based on the supply flow. The research activities of the RHI Magnesita Group are managed centrally. R&D costs are allocated directly to the three segments. The Shared Service Centre costs of the Group are allocated to the three operating segments according to the agreed Service Level Agreements. The allocation of expenses of Group management is based on external revenue. Statements of profit or loss up to EBIT are available for each segment. The gross profit serves the management of the RHI Magnesita Group for internal management. The profit of joint ventures and associates is allocated to the segments. Net finance costs and income taxes are managed on a group basis and are not allocated. Segment assets include trade receivables and inventories, which are available to the operating segments and are reported to the management for control and measurement, as well as property, plant and equipment, goodwill and other intangible assets, which are allocated to the segments based on the capacity of the assets provided to the segments. Investments in joint ventures and associates are allocated to the segments. All other assets are not allocated. The recognition of segment assets is determined on the basis of the accounting and measurement methods applied to the IFRS Consolidated Financial Statements. Data on revenue by country are disclosed by the sites of the customers. Data on non-current assets (property, plant and equipment and intangible assets) are disclosed on the basis of the respective locations of the companies of the RHI Magnesita Group. (10) Discretionary decisions, assumptions and estimates The RHI Magnesita Group used forward-looking assumptions and estimates, especially with respect to business combinations, non-current assets, valuation adjustments to inventories and receivables, provisions and income taxes to a certain extent in the application of accounting and measurement methods. The estimates are based on comparable values in the past, plan data and other findings regarding transactions to be accounted. The actual values may ultimately deviate from the assumptions and estimates made. The resulting changes in value of assets, liabilities, revenue and expenses are accounted for in the reporting period in which the change is made and in the affected future reporting periods. Business combinations (initial consolidation) Estimates relating to the calculation of fair values of acquired assets, liabilities and contingent liabilities are required within the context of business combinations. R H I M A G N E S I TA
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37 If intangible assets are identified, discretionary estimates are necessary for the determination of fair values by means of discounted cash flows, especially regarding the duration and amount of future cash flows, as well as for the determination of an adequate discount rate. When determining the fair value of land, buildings and technical plant, above all the estimate of comparability of the reference objects with the objects subject to valuation is discretionary. When making discretionary decisions in the context of purchase price allocations on major acquisitions, RHI Magnesita consults with independent experts who accompany the execution of the discretionary decisions and record it in appraisal documents. Impairment of intangible assets with finite useful lives and property, plant and equipment Intangible assets with a finite useful life and property, plant and equipment must be tested for impairment when events or a change in circumstances indicate that the carrying amount of an asset may not be recoverable. The carrying amounts of these assets amounted to €1,117.1 million at 31 December 2017 (31.12.2016: €591.1 million). In accordance with IAS 36, such impairment losses are determined through comparisons with the discounted future cash flows expected from the related assets of the cash-generating units (CGU). As part of the annual planning process, the impairment test is conducted for the CGUs defined in the RHI Magnesita Group, thus taking into account all changes resulting from updates of strategic planning. Sensitivity analyses are also performed as part of the impairment test. In their calculation one of the main parameters is changed as follows: increase in the discount rate by 10%, reduction in the form of the contribution margin by 10% and reduction of the growth rate in terminal value by 50%. In all CGUs these simulations do not result in impairments. Likewise, in all CGUs a reduction of the discount rate by 10%, an increase in profitability in the form of the contribution margin by 10% and an increase in the growth rate in terminal value by 50% do not result in reversals of impairments. Impairment of goodwill The effect of an adverse change by plus 10% in the estimated interest rates as of 31 December 2017 or by minus 10% in the contribution margin would not result in an impairment of goodwill recognised (carrying amount 31.12.2017: €38.7 million, 31.12.2016: €37.8 million). Impairment of other intangible assets with indefinite useful life The effect of an adverse change by plus 10% in the estimated interest rate as of 31 December 2017 or by minus 10% in the contribution margin would not result in an impairment charge to intangible assets with indefinite useful lives recognised (carrying amount at 31.12.2017 and 31.12.2016: €1.8 million). Provisions for pensions and termination benefits The present value of pension and termination benefit obligations depends on a number of factors, which are based on actuarial assumptions such as interest rates, future salary and pension increases as well as life expectancy. Due to the long-term orientation of these obligations, these assumptions are subject to significant uncertainties. The following sensitivity analysis shows the change in present value of the pension and termination benefit obligations if one key parameter changes, while the other influences are maintained constant. In reality, however, it is rather unlikely that these influences do not correlate. The present value of the pension obligations for the sensitivities shown was calculated using the same method as for the actual present value of the pension obligations (projected unit credit method). 1 3 8
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2017 RHI Magnesita Group 38 These changes would have no immediate effect on the result of the period as remeasurement gains and losses are recorded in other comprehensive income without impact on profit or loss. The assumptions regarding the interest rate are reviewed semi-annually; all other assumptions are reviewed at the end of the year. Other provisions The recognition and measurement of other provisions totalling €128.5 million (31.12.2016: €33.6 million) were based on the best possible estimates using the information available at the reporting date. The estimates take into account the underlying legal relationships and are performed by internal experts or, when appropriate, also by external experts. Despite the best possible assumptions and estimates, cash outflows expected at the reporting day may deviate from actual cash outflows. As soon as additional information is available, the estimates made are reviewed and provisions are also adjusted. Income taxes The calculation of income taxes of RHI Magnesita N.V. and its subsidiaries is based on the tax laws applicable in the individual countries. Due to their complexity, the tax items presented in the Financial Statements may be subject to different interpretations by local finance authorities. When determining the amount of the capitalisable deferred tax assets, an estimate of the management is required regarding the amount of future taxable income and the expected time. Should the future taxable profit deviate by 10% from the assumption made on the reporting date within the planning period defined for the accounting and measurement of deferred taxes, the net position of deferred tax assets amounting to €168.7 million (31.12.2016: €131.3 million) would have to be increased by €0.8 million (31.12.2016: €1.8 million) or reduced by €0.9 million (31.12.2016: €1.7 million). Other items With respect to the other items of the Statement of Financial Position, RHI Magnesita currently assumes that no material effects on the financial position and performance would result for the following financial years due to changes in the estimates and assumptions. Change of assumption in percentage points or years 31.12.2017 31.12.2016 in € million Pension plans Termination benefits Pension plans Termination benefits Present value of the obligations - 517.1 58.1 289.2 58.5 Interest rate +0.25 (14.9) (1.5) (7.6) (1.6) (0.25) 15.7 1.6 8.0 1.6 Salary increase +0.25 0.8 1.6 0.6 1.5 (0.25) (0.7) (3.5) (0.6) (1.4) Pension increase +0.25 10.6 - 5.0 - (0.25) (10.2) - (4.9) - Life expectancy +1 year 18.3 - 12.9 - (1) year (23.6) - (13.2) - R H I M A G N E S I TA
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39 NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION (11) Property, plant and equipment Property, plant and equipment developed as follows in the year 2017 and in the previous year: 1) preliminary in € million Real estate, land and buildings Raw material deposits Technical equipment, machinery Other plant, furniture and fixtures Prepayments made and plant under construction Total Cost at 01.01.2017 453.7 32.1 877.9 294.2 43.8 1,701.7 Currency translation (14.5) (0.5) (23.5) (6.5) (2.3) (47.3) Additions to consolidated companies1) 148.6 16.6 214.1 5.4 54.4 439.1 Additions 6.5 1.5 13.6 8.8 34.4 64.8 Retirements and disposals (20.4) 0.0 (24.4) (9.5) 0.0 (54.3) Reclassifications 7.3 1.0 16.5 6.1 (30.0) 0.9 Reclassification as held for sale (25.4) (5.1) (92.5) (10.6) (0.9) (134.5) Cost at 31.12.2017 555.8 45.6 981.7 287.9 99.4 1,970.4 Accumulated depreciation 01.01.2017 285.6 24.5 639.3 229.6 0.9 1,179.9 Currency translation (5.3) 0.0 (11.2) (5.0) (0.1) (21.6) Depreciation charges 8.7 0.5 36.4 14.3 0.0 59.9 Impairment losses 9.4 0.0 7.9 1.1 0.3 18.7 Retirements and disposals (19.6) 0.0 (23.1) (9.0) 0.0 (51.7) Reclassifications 0.4 0.0 0.0 0.0 0.0 0.4 Reclassification as held for sale (22.4) (3.6) (79.9) (10.3) (0.3) (116.5) Accumulated depreciation 31.12.2017 256.8 21.4 569.4 220.7 0.8 1,069.1 Carrying amounts at 31.12.2017 299.0 24.2 412.3 67.2 98.6 901.3 in € million Real estate, land and buildings Raw material deposits Technical equipment, machinery Other plant, furniture and fixtures Prepayments made and plant under construction Total Cost at 01.01.2016 448.0 31.8 877.0 286.3 49.2 1,692.3 Currency translation 0.2 0.0 (6.0) (0.2) (0.1) (6.1) Disposals of consolidated companies (4.2) 0.0 (15.4) (2.3) 0.0 (21.9) Additions 5.9 0.3 13.7 7.6 32.8 60.3 Retirements and disposals (5.3) 0.0 (11.0) (4.2) (0.7) (21.2) Reclassifications 9.1 0.0 19.6 7.0 (37.4) (1.7) Cost at 31.12.2016 453.7 32.1 877.9 294.2 43.8 1,701.7 Accumulated depreciation 01.01.2016 282.1 24.2 633.5 220.1 0.2 1,160.1 Currency translation 0.9 0.0 (3.9) 0.5 0.0 (2.5) Disposals of consolidated companies (4.2) 0.0 (15.4) (2.3) 0.0 (21.9) Depreciation charges 7.8 0.3 32.3 14.3 0.0 54.7 Impairment losses 4.0 0.0 2.9 1.0 0.9 8.8 Retirements and disposals (5.1) 0.0 (10.1) (4.0) 0.0 (19.2) Reclassifications 0.1 0.0 0.0 0.0 (0.2) (0.1) Accumulated depreciation 31.12.2016 285.6 24.5 639.3 229.6 0.9 1,179.9 Carrying amounts at 31.12.2016 168.1 7.6 238.6 64.6 42.9 521.8 1 4 0
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2017 RHI Magnesita Group 40 The impairment losses of €18.7 million are primarily related to the restructuring of operations in Germany and Brazil. In 2016, impairment losses of €8.8 million were mainly caused by the restructuring of the CGU Industrial/Fused Cast and the CGU Raw Materials/Norway. The item prepayments made and plant under construction includes plant under construction with a carrying amount of €96.5 million (31.12.2016: €41.7 million), with the modification of the smelter at the site in Radenthein, Austria, representing the largest investment project under construction of the financial year 2017. As in the previous year, there are no restrictions on the sale of property, plant and equipment. (12) Goodwill Goodwill developed as follows: 1) preliminary (13) Other intangible assets Other intangible assets changed as follows in the financial year 2017: 1) preliminary in € million 2017 2016 Cost at beginning of year 40.2 40.1 Currency translation (1.6) 0.1 Additions to consolidated companies1) 174.1 0.0 Reclassification as held for sale (0.4) 0.0 Cost at year-end 212.3 40.2 Accumulated impairment at beginning of year (2.4) (2.6) Currency translation 0.1 0.2 Reclassification as held for sale 0.4 0.0 Accumulated impairment at year-end (1.9) (2.4) Carrying amount at year-end 210.4 37.8 in € million Internally generated intangible assets Other intangible assets Total Cost at 01.01.2017 45.9 114.0 159.9 Currency translation (0.2) (10.0) (10.2) Additions to consolidated companies1) 0.0 163.5 163.5 Additions 4.1 1.5 5.6 Retirements and disposals 0.0 (0.6) (0.6) Reclassifications (0.6) (0.3) (0.9) Reclassification as held for sale (1.6) (1.7) (3.3) Cost at 31.12.2017 47.6 266.4 314.0 Accumulated amortisation 01.01.2017 27.7 61.1 88.8 Currency translation (0.2) (2.0) (2.2) Amortisation charges 3.8 9.0 12.8 Impairment losses 0.8 0.0 0.8 Retirements and disposals 0.0 (0.6) (0.6) Reclassifications (0.6) 0.2 (0.4) Reclassification as held for sale (1.3) (1.5) (2.8) Accumulated amortisation 31.12.2017 30.2 66.2 96.4 Carrying amounts at 31.12.2017 17.4 200.2 217.6 R H I M A G N E S I TA
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41 Other intangible assets changed as follows in the previous year: Internally generated intangible assets comprise capitalised software and product development costs. Other intangible assets include in particular acquired customer relations, patents, trademark rights, software, and land use rights. The customer relations of Magnesita have a preliminary carrying amount of €116.1 million and a remaining useful life of 8 to 15 years. The land use rights have a carrying amount of €26.0 million (31.12.2016: €23.4 million) and a remaining useful life of 20 to 60 years. As in the previous year, there are no restrictions on the sale of intangible assets. (14) Investments in joint ventures and associates The following investments in joint ventures and associates are accounted for using the equity method in the RHI Magnesita Consolidated Financial Statements: Joint ventures As in the previous year, the RHI Magnesita Group holds a share of 50% in MAGNIFIN Magnesiaprodukte GmbH & Co KG, a company based in St. Jakob, Austria. The company’s core business activity is the production and sale of halogen-free flame retardants for plastics. The investment in MAGNIFIN is treated as a financial investment. MAGNIFIN is set up as an independent vehicle. RHI Magnesita has a residual interest in the net assets of the company and accordingly classified its share as a joint venture. There are no listed market prices. in € million Internally generated intangible assets Other intangible assets Total Cost at 01.01.2016 42.2 130.5 172.7 Currency translation (0.2) (0.2) (0.4) Disposals of consolidated companies (1.1) (1.5) (2.6) Additions 5.0 1.0 6.0 Retirements and disposals 0.0 (17.5) (17.5) Reclassifications 0.0 1.7 1.7 Cost at 31.12.2016 45.9 114.0 159.9 Accumulated amortisation 01.01.2016 25.5 73.0 98.5 Currency translation (0.3) 0.1 (0.2) Disposals of consolidated companies (1.1) (1.5) (2.6) Amortisation charges 3.5 6.9 10.4 Impairment losses 0.1 0.0 0.1 Retirements and disposals 0.0 (17.5) (17.5) Reclassifications 0.0 0.1 0.1 Accumulated amortisation 31.12.2016 27.7 61.1 88.8 Carrying amounts at 31.12.2016 18.2 52.9 71.1 in € million 31.12.2017 31.12.2016 Investments in joint ventures 20.7 20.5 Investments in associates 9.8 0.0 Carrying amount at year-end 30.5 20.5 1 4 2
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2017 RHI Magnesita Group 42 The following table summarises the income and expenses of MAGNIFIN: Income taxes on the share of profit of MAGNIFIN amounting to €2.7 million (2016: €2.8 million) are recognised by the head of the tax group, RHI Feuerfest GmbH, Vienna, Austria, due to the legal form of the joint venture and transferred to Veitscher Vertriebsgesellschaft m.b.H., Vienna, Austria, in accordance with the provisions of the tax compensation agreement. The net assets of MAGNIFIN are shown in the table below: The development of the carrying amount of the share in MAGNIFIN in the RHI Magnesita Consolidated Financial Statements is shown below: In the course of the acquisition of Magnesita the Group acquired interests in an immaterial joint venture with a carrying amount of €0.1 million as of 31 December 2017 (26.10.2017: €0.1 million). The Group’s share of the profit after income tax, other comprehensive income and total comprehensive income for November and December 2017 amounts to less than €0.1 million. Associates In the course of the acquisition of Magnesita the Group acquired interests in Sinterco S.A.. Sinterco is located in Nameche, Belgium, and is dedicated to the production of sintered doloma. The direct parent, which is ultimately controlled by RHI Magnesita, holds a share of 70% in equity of Sinterco but does not have control over Sinterco due to a special agreement with the minority shareholder and accordingly classified its share as an associate. There are no listed market prices. in € million 2017 2016 Revenue 40.3 40.0 Profit before income tax 20.8 20.9 Depreciation 0.8 1.7 Interest expense 0.2 0.3 Other comprehensive income (0.2) (0.3) Total comprehensive income 20.6 20.6 in € million 31.12.2017 31.12.2016 Non-current assets 9.3 9.9 Current assets (without cash and cash equivalents) 10.2 12.9 Cash and cash equivalents 19.7 16.7 Non-current liabilities and provisions (4.0) (4.0) Current provisions (1.2) (1.1) Trade payables and other current liabilities (2.7) (3.2) Net assets 31.3 31.2 in € million 2017 2016 Proportional share of net assets at beginning of year 15.6 14.4 Share of profit 10.8 10.9 Share of other comprehensive income (remeasurement losses) (0.1) (0.1) Dividends received (10.7) (9.5) Other changes in value 0.0 (0.1) Proportional share of net assets at year-end 15.7 15.6 Goodwill 4.9 4.9 Carrying amount of investment at year-end 20.6 20.5 R H I M A G N E S I TA
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43 In November and December 2017 Sinterco generated revenue amounting to €4.0 million. Profit after income tax and total comprehensive income amount to less than €0.1 million. The net assets of Sinterco are shown in the table below: At 31 December 2017 as well as at 26 October 2017 the carrying amount of the investment in Sinterco in the RHI Magnesita Consolidated Financial Statements amounts to €9.1 million. In the course of the acquisition of Magnesita the Group acquired a second, but immaterial, associate with a carrying amount of €0.7 million as of 31 December 2017 (26.10.2017: €0.7 million). The Group’s share of the profit after income tax for November and December 2017 amounts to €0.1 million. Total comprehensive income including other comprehensive income of less than €0.1 million, amounts to €0.1 million. (15) Other non-current financial assets Other non-current financial assets consist of the following items: At 31 December 2017 accumulated impairments on investments, securities and shares of €3.8 million (31.12.2016: €2.0 million) are recognised. (16) Other non-current assets Other non-current assets include the following items: in € million 31.12.2017 26.10.2017 Non-current assets 26.3 26.0 Current assets 13.8 13.4 Non-current liabilities (20.7) (20.5) Current liabilities (6.4) (5.9) Net assets 13.0 13.0 in € million 31.12.2017 31.12.2016 Interests in subsidiaries not consolidated 0.8 0.0 Available-for-sale investments 0.4 0.4 Available-for-sale securities and shares 15.0 15.8 Securities designated as fair value through profit and loss 2.3 0.0 Interest derivatives designated as cash flow hedges 1.5 0.0 Non-current receivables from disposal of subsidiaries 2.6 0.0 Other non-current financial receivables 2.5 2.7 Other non-current financial assets 25.1 18.9 in € million 31.12.2017 31.12.2016 Receivables from other taxes 9.9 6.7 Stripping costs 8.0 8.3 Judicial deposits 3.7 0.0 Plan assets from overfunded pension plans 2.0 2.1 Prepaid expenses 0.6 0.6 Other non-current assets 24.2 17.7 1 4 4
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2017 RHI Magnesita Group 44 Prepaid expenses for stripping costs arising from mining raw materials in a surface mine are shown in non-current assets due to the planned use of the mine. Receivables from other taxes are related to input tax credits, which are expected to be utilised in the medium term. (17) Deferred taxes Deferred taxes are related to the following significant balance sheet items and loss carryforwards: 1) Comparative values adjusted to current presentation As of 31 December 2017, subsidiaries which generated tax losses in the past year or the previous year recognised net deferred tax assets on temporary differences and on tax loss carryforwards of €26.0 million (31.12.2016: €32.3 million). These assets are considered to be unimpaired because the companies concerned are expected to generate taxable income in the future. This assessment is based on measures implemented in 2016, which lead to increased taxable income. On the one hand, a subsidiary was sold; on the other hand, the financing of a subsidiary was optimized. Tax loss carryforwards totalled €609.7 million in the RHI Magnesita Group as of 31 December 2017 (31.12.2016: €383.7 million). A significant portion of the tax loss carryforwards originates in Austria and in Brazil and can be carried forward indefinitely. The annual offset of the tax loss carryforwards in Austria is limited to 75% and in Brazil to 30% of the respective tax profits. No deferred taxes were recognised for tax loss carryforwards of €157.7 million (31.12.2016: €156.9 million). The main part of the non-capitalised tax losses can be carried forward indefinitely. €3.4 million (31.12.2016: €25.8 million) will lapse at the earliest in the year 2020 if not used by then. In addition, no deferred tax assets were recognised for temporary differences totalling €16.2 million (31.12.2016: €2.2 million) as it is not sufficiently probable that they can be used. The deductible temporary differences can be carried forward indefinitely. Taxable temporary differences of €667.0 million (31.12.2016: €109.3 million) and deductible temporary differences of €295.6 million were not recognised on shares in subsidiaries because the corresponding distributions of profit or the sale of the investments are not expected in the foreseeable future. 31.12.2017 2017 31.12.20161) 20161) in € million Deferred tax assets Deferred tax liabilities Expense/(Income) Deferred tax assets Deferred tax liabilities Expense/ (Income) Property, plant and equipment, intangible assets 21.6 81.5 (4.7) 22.3 38.5 0.8 Inventories 16.1 1.1 5.7 16.9 1.0 (3.5) Trade receivables, other assets 6.3 38.3 (11.5) 1.6 3.1 (8.7) Pensions and other personnel provisions 70.2 0.3 6.4 53.1 0.4 2.6 Other provisions 20.5 1.2 3.0 3.9 0.7 (0.1) Trade payables, other liabilities 26.6 4.8 (1.4) 16.5 1.1 2.4 Tax loss carryforwards 134.6 - 8.4 61.8 - 10.8 Offsetting (115.5) (115.5) - (31.3) (31.3) - Deferred taxes 180.4 11.7 5.9 144.8 13.5 4.3 R H I M A G N E S I TA
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45 The maturity structure of deferred taxes is shown in the table below: (18) Inventories Inventories as presented in the Consolidated Statement of Financial Position consist of the following items: The inventories recognised as of 31 December 2017 totalled €676.6 million (31.12.2016: €365.3 million), of which €9.0 million (31.12.2016: €2.7 million) are carried at net realizable value. The impairment losses recorded in the financial year 2017, netted out against reversals of impairment losses, amount to €4.0 million (2016: €1.1 million). As in the previous year, there are no restrictions on the disposal of inventories. (19) Trade and other current receivables Trade and other current receivables as presented in the Statement of Financial Position are classified as follows: 31.12.2017 31.12.2016 in € million Current Non-current Total Current Non-current Total Deferred tax assets 50.9 129.5 180.4 39.0 105.8 144.8 Deferred tax liabilities 0.4 11.3 11.7 0.0 13.5 13.5 in € million 31.12.2017 31.12.2016 Raw materials and supplies 183.7 74.5 Unfinished products and unfinished services 122.1 99.4 Finished products and goods 353.6 184.9 Prepayments made 17.2 6.5 Inventories 676.6 365.3 in € million 31.12.2017 31.12.2016 Trade receivables 394.9 309.0 Receivables from long-term construction contracts 11.7 7.8 Receivables from other taxes 77.0 65.9 Receivables from joint ventures and associates 19.4 1.0 Prepaid expenses 3.7 2.8 Prepaid transaction costs related to financial liabilities 2.5 0.0 Receivables from property transactions 2.5 3.3 Emission rights 1.6 0.0 Receivables from employees 1.3 0.8 Receivables from personnel welfare foundation 0.8 0.8 Receivables from non-consolidated subsidiaries 0.3 0.0 Other current receivables 14.3 7.7 Trade and other current receivables 530.0 399.1 thereof financial assets 419.9 312.1 thereof non-financial assets 110.1 87.0 1 4 6
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2017 RHI Magnesita Group 46 Receivables from long-term construction contracts consist of the following components: Receivables from other taxes include input tax credits and receivables from energy tax refunds, research, education and apprentice subsidies. As in the previous year, trade receivables with a total nominal value of €34.0 million were assigned for financial liabilities as of 31 December 2017 (31.12.2016: €34.0 million). Accumulated valuation allowance to trade and other current receivables developed as follows: (20) Income tax receivables Income tax receivables amounting to €13.5 million (31.12.2016: €9.3 million) are mainly related to tax prepayments and deductible withholding taxes. (21) Other current financial assets This item of the Consolidated Statement of Financial Position consists of the following components: At 31 December 2017 accumulated impairments on other current financial receivables of €1.1 million (31.12.2016: €0.0 million) are recognised. in € million 31.12.2017 31.12.2016 Contract costs incurred up to the reporting date 13.2 10.0 Profits recognised by the reporting date 1.4 0.8 Prepayments received (2.9) (3.0) Receivables from long-term construction contracts 11.7 7.8 in € million 2017 2016 Accumulated valuation allowance at beginning of year 35.2 30.1 Currency translation (1.1) 0.4 Addition 11.2 7.4 Use (3.2) (0.3) Reversal (5.6) (2.4) Reclassification as held for sale (2.1) 0.0 Accumulated valuation allowance at year-end 34.4 35.2 in € million 31.12.2017 31.12.2016 Securities held for trading 32.3 0.0 Derivatives in open orders 0.8 1.1 Forward exchange contracts 0.9 0.4 Other current financial receivables 0.1 1.5 Other current financial assets 34.1 3.0 R H I M A G N E S I TA
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47 (22) Cash and cash equivalents This item of the Consolidated Statement of Financial Position consists of the following components: (23) Share capital At 31 December 2016, the fully paid-in share capital of RHI AG amounted to €289,376,212.84 and consisted of 39,819,039 zero par value bearer shares. One share granted a rounded calculated share of €7.27 in capital stock. In exchange for the cancellation of the RHI AG shares as a result of the merger, in which RHI AG merged with and into RHI Magnesita N.V., the shareholders of RHI AG received one newly issued ordinary share of RHI Magnesita N.V. for each RHI AG share. As part of the purchase price for the acquisition of control of Magnesita, RHI Magnesita N.V. issued 5,000,000 new ordinary shares to the sellers of Magnesita shares as at 26 October 2017. Following the merger and the acquisition of control and also at year-end 2017, RHI Magnesita N.V.’s issued and fully paid-in share capital therefore consists of 44,819,039 ordinary shares at €1 each share. The authorized share capital of RHI Magnesita N.V. amounts to €100,000,000 divided into 100,000,000 ordinary shares, of which 44,819,039 ordinary shares are issued and outstanding as explained before. All outstanding RHI Magnesita shares grant the same rights. The shareholders are entitled to payment of the dividend adopted and have one voting right per share at the Annual General Meeting. There are no RHI Magnesita shares with special control rights. No limitations regarding the voting rights of RHI Magnesita shares, including from agreements between shareholders, are known to the company. On 20 October 2017 the voluntary employee stock ownership programme “4 plus 1” for employees and executives of RHI AG as well as members of the management, executives and employees of RHI group companies was terminated. Until the termination of the plan employees received one RHI share free of charge for four RHI shares they purchased themselves. During 2017, 2,310 (2016: 7,998) shares were acquired over the stock exchange for the employee stock ownership plan and issued to employees. No own shares were held by RHI AG at the merger date and at 31 December 2016. (24) Group reserves Additional paid-in capital At 31 December 2017, additional paid-in capital comprises premiums on the issue of shares less issue costs net of tax by RHI Magnesita N.V.. The additional paid-in capital as of 31 December 2016, was eliminated in the course of downstream merger from RHI AG to RHI Magnesita N.V.. Mandatory reserves The articles of association stipulate a mandatory reserve of €288,699,230.59 which was created in connection with the merger. No distributions, allocations or additions may be made and no losses of the company may be allocated to the mandatory reserve. Retained earnings The item retained earnings includes the result of the financial year and results that were earned by consolidated companies during prior periods, but not distributed. in € million 31.12.2017 31.12.2016 Cash at banks 373.2 179.9 Money market funds 67.5 0.4 Checks 1.4 2.5 Cash on hand 0.3 0.1 Cash and cash equivalents 442.4 182.9 1 4 8
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2017 RHI Magnesita Group 48 Accumulated other comprehensive income The item cash flow hedges includes gains and losses from the effective part of cash flow hedges less tax effects. The accumulated gain or loss from the hedge allocated to reserves is only reclassified to the Statement of Profit or Loss if the hedged transaction also influences the result or is terminated. The item defined benefit plans includes the gains and losses from the remeasurement of defined benefit pension and termination benefit plans taking into account tax effects. No reclassification of these amounts to the Statement of Profit or Loss will be made in future periods. Currency translation includes the accumulated currency translation differences from translating the Financial Statements of foreign subsidiaries as well as unrealised currency translation differences from monetary items which are part of a net investment in a foreign operation, net of related income taxes. If foreign companies are deconsolidated, the currency translation differences are recognised in the Statement of Profit or Loss as part of the gain or loss from the sale of shares in subsidiaries. In addition, when monetary items cease to form part of a net investment in a foreign operation, the currency translation differences of these monetary items previously recognised in other comprehensive income are reclassified to profit or loss. In the financial year 2017, the Group reassessed its internal financing structure and as a result reclassified accumulated losses of €38.9 million to the profit or loss statement. Due to the disposal of Fused Cast accumulated foreign currency translation losses of €1.8 million were reclassified to the Statement of Profit or Loss. The corresponding tax effect led to an income of €6.2 million. (25) Non-controlling interests Non-controlling interests in Magnesita Non-controlling interests hold a share of 50% minus one share in the listed company Magnesita Refratários S.A. and its subsidiaries (Magnesita). Magnesita is a global group dedicated to the production and sale of an extensive line of refractory materials and industrial minerals and distinguishes itself through its vertically integrated operations. Based on the net assets of Magnesita, the carrying amount of the non-controlling interests is determined as follows: The aggregate Statement of Profit or Loss and Statement of Comprehensive Income are shown below: in € million 31.12.2017 26.10.2017 Non-current assets 660.8 680.8 Current assets 678.2 672.0 Non-current liabilities (619.6) (687.3) Current liabilities (471.1) (415.3) Net assets before intragroup eliminations 248.3 250.2 Intragroup eliminations (0.1) 0.0 Net assets 248.2 250.2 Percentage of non-controlling interests 50.0% 50.0% Carrying amount of non-controlling interests 124.1 125.1 in € million 11-12/2017 Revenue 172.2 Operating expenses, net finance costs and income tax (165.9) Profit after income tax before intragroup eliminations 6.3 Intragroup eliminations 0.0 Profit after income tax 6.3 thereof attributable to non-controlling interests of Magnesita 3.1 R H I M A G N E S I TA
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49 The following table shows the summarised Statement of Cash Flows: Non-controlling interests in Orient Refractories Ltd. Non-controlling interests hold a share of 30.4% (31.12.2016: 30.4%) in the listed company Orient Refractories Ltd. (in the following “ORL”), based in New Delhi, India. ORL is allocated to the Steel segment. Based on the net assets of the company, the carrying amount of the non-controlling interests is determined as follows: The aggregate Statement of Profit or Loss and Statement of Comprehensive Income are shown below: in € million 11-12/2017 Profit after income tax 6.3 Other comprehensive income (9.8) Total comprehensive income (3.5) thereof attributable to non-controlling interests of Magnesita (1.8) in € million 11-12/2017 Net cash flow from operating activities 46.5 Net cash flow from investing activities 18.7 Net cash flow from financing activities (2.8) Total cash flow 62.4 in € million 31.12.2017 31.12.2016 Non-current assets 25.6 28.9 Current assets 48.8 44.6 Non-current liabilities (6.8) (8.2) Current liabilities (16.6) (14.8) Net assets before intragroup eliminations 51.0 50.5 Intragroup eliminations (0.2) (0.2) Net assets 50.8 50.3 Percentage of non-controlling interests 30.4% 30.4% Carrying amount of non-controlling interests 15.4 15.3 in € million 2017 2016 Revenue 77.9 68.6 Operating expenses, net finance costs and income tax (70.1) (61.9) Profit after income tax before intragroup eliminations 7.8 6.7 Intragroup eliminations 0.1 (0.3) Profit after income tax 7.9 6.4 thereof attributable to non-controlling interests of ORL 2.4 1.9 in € million 2017 2016 Profit after income tax 7.9 6.4 Other comprehensive income (3.6) 0.8 Total comprehensive income 4.3 7.2 thereof attributable to non-controlling interests of ORL 1.3 2.2 1 5 0
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2017 RHI Magnesita Group 50 The following table shows the summarised Statement of Cash Flows of ORL: Net cash flow from financing activities includes dividend payments to non-controlling interests amounting to €1.1 million (2016: €0.6 million). Accumulated other comprehensive income attributable to non-controlling interests The development of accumulated other comprehensive income attributable to non-controlling interests is shown in the following table: (26) Financial liabilities Financial liabilities include all interest-bearing liabilities of the RHI Magnesita Group due to financial institutions and other lenders at the respective reporting date. The financial liabilities have the following contractual remaining terms: in € million 2017 2016 Net cash flow from operating activities 6.4 7.9 Net cash flow from investing activities (1.0) (0.5) Net cash flow from financing activities (3.8) (2.3) Total cash flow 1.6 5.1 in € million Cash flow hedges Defined benefit plans Currency translation Accumulated other comprehensive income 01.01.2017 0.0 0.0 0.1 Unrealised results from currency translation - - (6.0) Unrealised results from fair value change 0.1 - - Remeasurement of defined benefit plans - (0.1) - Accumulated other comprehensive income 31.12.2017 0.1 (0.1) (5.9) Total Remaining term in € million 31.12.2017 up to 1 year 2 to 5 years over 5 years Export credits and investment financing 346.4 65.6 280.0 0.8 Syndicated Financing 266.2 0.0 266.2 0.0 Bonded loans ("Schuldscheindarlehen") 230.5 0.0 162.0 68.5 Utilised other credit lines and other loans 102.1 102.1 0.0 0.0 Accrued interest 7.8 7.8 0.0 0.0 Liabilities to financial institutions 953.0 175.5 708.2 69.3 Perpetual bond 215.3 64.3 0.0 151.0 Senior notes 55.6 1.1 54.5 0.0 Other financial liabilities 1.7 0.9 0.7 0.1 Financial liabilities 1,225.6 241.8 763.4 220.4 R H I M A G N E S I TA
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51 RHI Magnesita Group adapted its financing structure in the context of the acquisition of Magnesita. In addition to obtaining acquisition financing for the purchase price of Magnesita, financial liabilities related to the bonded loans concluded in 2012 and 2014 were refinanced. The conclusion of changed and new loan agreements is dated as of July 2017 for the majority of the volume. The main loan agreements concluded relate to syndicated financing arrangements amounting to a total of €477.0 million and a bonded loan of €178.0 million. In addition, all existing export loans and one-off financing were also refinanced in the course of the transaction in the fourth quarter of 2017. Of the liabilities to financial institutions recognised at 31 December 2017 €34.0 million (31.12.2016: €34.0 million) are secured by assignment of receivables and €2.6 million (31.12.2016: €0.0 million) by assignment of cash and cash equivalents. In case the loan agreements are not met, the financing banks are entitled to inflows from the receivables and cash and cash equivalents assigned. Net debt/adjusted EBITDA is the most important financial covenant of the loan agreements. Depending on the facility, net debt/adjusted EBITDA is calculated either on the group level or on the respective RHI or Magnesita subgroup level. Compliance with the covenants is measured predominantly on an annual or semi-annual basis. During the reporting years 2017 and 2016, the Group met all covenant requirements. For liabilities of €1,109.9 million (31.12.2016: €383.0 million), lenders have a termination option in the case of a change of control. In the event that certain reasons for termination exist, the lenders may declare the loan due with immediate effect and demand immediate repayment of the principal including interest, as well as the payment of other amounts payable that may have been incurred. Taking into account interest swaps, 34% (31.12.2016: 61%) of the liabilities to financial institutions carry fixed interest and 66% (31.12.2016: 39%) carry variable interest. Total Remaining term in € million 31.12.2016 up to 1 year 2 to 5 years over 5 years Bonded loans ("Schuldscheindarlehen") 253.5 55.0 139.5 59.0 Export credits and one-time financing 154.5 29.0 116.9 8.6 Utilised other credit lines 65.9 65.9 0.0 0.0 Accrued interest 1.6 1.6 0.0 0.0 Liabilities to financial institutions 475.5 151.5 256.4 67.6 Other financial liabilities 7.7 4.5 3.1 0.1 Financial liabilities 483.2 156.0 259.5 67.7 1 5 2
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2017 RHI Magnesita Group 52 The following table shows fixed interest terms and conditions, taking into account interest rate swaps, without liabilities from deferred interest: In some cases, the terms to maturity of the contracts are substantially longer than the period during which interest terms are fixed. The financial liability from the perpetual bond bears fixed interest of 8.6%, financial liability from senior notes bears fixed interest of 7.9%. Interest terms fixed until Effective annual interest rate Cur- rency 31.12.2017 Carrying amount in € million Interest terms fixed until Effective annual interest rate Cur- rency 31.12.2016 Carrying amount in € million 2018 EURIBOR + margin EUR 369.6 2017 EURIBOR + margin EUR 125.1 Variable interest rate + margin EUR 34.0 Variable interest rate + margin EUR 34.0 LIBOR + margin USD 54.4 LIBOR + margin USD 10.2 4.11% USD 18.3 0.69% EUR 50.0 4.15% USD 13.4 Interbank Deposit Certificate (CDI) + margin BRL 145.5 Various - variable rate Var. 16.0 Various - variable rate Var. 15.0 Various - fixed rate Var. 10.5 Various - fixed rate Var. - 2018 1.13% EUR 30.0 2019 0.68% EUR 10.0 2019 0.68% EUR 15.0 0.72% EUR 7.1 0.72% EUR 10.7 3.77% EUR 3.0 1.42% + margin EUR 3.0 1.59% EUR 4.0 3.25% EUR 15.0 1.49% EUR 16.0 3.15% EUR 12.0 1.46% + margin EUR 10.0 2020 4.19% USD 70.7 2020 3.15% + margin EUR 24.5 4.98% USD 62.4 3.90% EUR 13.6 7.50% BRL 8.2 2021 1.97% EUR 17.0 2022 1.74% EUR 63.0 2022 4.50% EUR 6.0 4.60% EUR 3.0 2023 0.35% + margin EUR 13.8 2024 3.10% EUR 37.0 2024 3.00% EUR 53.0 3.20% EUR 5.5 4.00% EUR 9.6 945.2 473.9 R H I M A G N E S I TA
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53 (27) Other financial liabilities Other financial liabilities include the negative fair value of derivative financial instruments as well as fixed-term and puttable non-controlling interests in group companies. This item of the Consolidated Statement of Financial Position consists of the following items: Additional explanations on derivative financial instruments are provided under Note (56). (28) Provisions for pensions The net liability from pension obligations in the Consolidated Statement of Financial Position is derived as follows: The present value of pension obligations by beneficiary groups is structured as follows: The calculation of pension obligations is based on the following actuarial assumptions: These are average values which were weighted with the present value of the respective pension obligation. 31.12.2017 31.12.2016 in € million Current Non-current Total Current Non-current Total Liabilities from derivatives from supply contracts 6.8 33.4 40.2 5.9 43.1 49.0 Liabilities from interest rate swaps 0.0 0.2 0.2 0.5 0.4 0.9 Liabilities from derivatives in open orders 0.5 0.0 0.5 0.1 0.0 0.1 Derivative financial liabilities 7.3 33.6 40.9 6.5 43.5 50.0 Liabilities to fixed-term or puttable non-controlling interests 10.1 21.9 32.0 9.1 23.4 32.5 Other financial liabilities 17.4 55.5 72.9 15.6 66.9 82.5 in € million 31.12.2017 31.12.2016 Present value of pension obligations 517.1 289.2 Fair value of plan assets (228.6) (56.4) Funded status 288.5 232.8 Asset ceiling 18.3 1.9 Net liability from pension obligations 306.8 234.7 thereof assets from overfunded pension plans 1.9 2.1 thereof pensions 308.7 236.8 in € million 31.12.2017 31.12.2016 Active beneficiaries 107.9 71.2 Vested terminated beneficiaries 71.9 17.9 Retirees 337.3 200.1 Present value of pension obligations 517.1 289.2 in % 31.12.2017 31.12.2016 Interest rate 3.1% 1.9% Future salary increase 2.8% 2.2% Future pension increase 2.1% 1.3% 1 5 4
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2017 RHI Magnesita Group 54 The calculation of the actuarial interest rate for the European currency area is based on a yield curve for returns of high-quality corporate bonds denominated in EUR with an average rating of AA, which is derived from pooled index values. The calculation of the actuarial interest rate for the USD and GBP currency area is based on a yield curve for returns of high-quality corporate bonds denominated in USD with an average rating of AA, which is derived from pooled index values. Where there are very long-term maturities, the yield curve follows the performance of bonds without credit default risk. The interest rate is calculated annually at 31 December, taking into account the expected future cash flows which were determined based on the current personal and commitment data. As in the previous year, the calculation in Austria was based on the Pagler & Pagler AVÖ 2008 P biometric calculation principles for salaried employees. In Germany, the Heubeck 2005 G actuarial tables were used as a basis. In the other countries, country-specific mortality tables were applied. The main pension regulations are described below: The Austrian group companies account for €122.6 million (31.12.2016: €124.4 million) of the present value of pension obligations and for €26.1 million (31.12.2016: €26.3 million) of the plan assets. The agreed benefits include pensions, invalidity benefits and benefits for surviving dependents. Commitments in the form of company or individual agreements depend on the length of service and the salary at the time of retirement. For the majority of commitments the amount of the company pension subsidy is limited to 75% of the final remuneration including a pension pursuant to the General Social Insurance Act (ASVG). RHI Magnesita has concluded pension reinsurance policies for part of the commitments. The pension claims of the beneficiaries are limited to the coverage capital required for these commitments. Pensions are predominantly paid in the form of annuities and are partially indexed. For employees joining the company after 1 January 1984, no defined benefits were granted. Rather, a defined contribution pension model is in place. In addition, there are commitments based on the deferred compensation principle, which are fully covered by pension reinsurance policies, and commitments for preretirement benefits for employees in mining operations. The pension plans of the German group companies account for €158.6 million (31.12.2016: €123.4 million) of the present value of pension obligations and for €0.7 million (31.12.2016: €0.7 million) of plan assets. The benefits included in company agreements comprise pensions, invalidity benefits and benefits for surviving dependents. The amount of the pension depends on the length of service for the majority of the commitments and is calculated as a percentage of the average monthly wage/salary of the last twelve months prior to retirement. In some cases commitments to fixed benefits per year of service have been made. The pensions are predominantly paid in the form of annuities and are adjusted in accordance with the development of the consumer price index for Germany. The pension plans are closed for new entrants, except one contribution-based plan. There is no defined contribution model on a voluntary basis. Individual commitments have been made, with major part of them being retired beneficiaries. The pension plan of the US group company Magnesita Refractories Company, York, USA, accounts for €73.7 million of the present value of pension obligations and for €60.0 million of the plan assets. The pension plan is a non-contributory defined benefit plan covering a portion of the employees of the company. The plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). Effective 21 June 1999, the Company offered the participants the opportunity to elect to participate in a single enhanced defined contribution plan. Participants who make this election are no longer eligible for future accruals under this plan. All benefits accrued as of the date of transfer will be retained. Employees hired after 21 June 1999 and employees that did not meet the plan's eligibility requirements as of 21 June 1999 are not eligible for this plan. The pensions are predominantly paid in the form of annuities and are adjusted annually based on the U.S. consumer price index. The Company's contributions for the year ended 31 December 2017 met, or exceeded, the minimum funding requirements of ERISA. The pension plan of the UK group company Magnesita Refractories Ltd., Dinnington, United Kingdom, accounts for €60.7 million of the present value of pension obligations and holds €76.5 million of assets, although only €60.7 million of the plan assets are reflected on the balance sheet due to the application of IFRIC 14 (asset ceiling). The company sponsors a funded defined benefit pension plan for qualifying UK employees. The plan is R H I M A G N E S I TA
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55 administered by a separate board of trustees which is legally separate from the company. The trustees are composed of representatives of both the employer and employees, plus an independent professional trustee. The trustees are required by law to act in the interest of all relevant beneficiaries and are responsible for the investment policy with regard to the assets plus the day to day administration of the benefits. Under the plan, employees are entitled to annual pensions on retirement at age 65 of one-sixtieth of final pensionable salary for each year of service. Pensionable salary is defined as basic salary less the Lower Earnings Limit. Benefits are also payable on death and following other events such as withdrawing from active service. No other post-retirement benefits are provided to these employees. The pension liabilities of the Brazilian group company Magnesita Refratários S.A. accounts for €62.3 million of the present value of pension obligations and for €36.3 million of the plan assets and qualifies as optional benefit plan. Employees are entitled to contribute to the plan, with the company contributing 1.5 times this value. The agreed benefits include pensions, invalidity benefits and benefits for surviving dependents. Commitments in the form of company or individual agreements depend on the length of service and salary at the time of retirement. For the majority of commitments, the amount of the company pension obligation is limited to 75% of the final remuneration. At retirement the employee may choose to receive up to 25% of his/her amount at once or receive it on a pro-rata base with different options of monthly quotes. The following table shows the development of net liability from pension obligations: 1) preliminary The present value of pension obligations developed as follows: 1) preliminary in € million 2017 2016 Net liability from pension obligations at beginning of year 234.7 243.9 Currency translation (2.3) (2.2) Additions to consolidated companies1) 81.0 0.0 Disposals of consolidated companies 0.0 (5.6) Pension cost 8.5 9.3 Remeasurement losses/(gains) 6.0 9.0 Benefits paid (17.8) (17.2) Employers' contributions to external funds (3.3) (2.5) Net liability from pension obligations at year-end 306.8 234.7 in € million 2017 2016 Present value of pension obligations at beginning of year 289.2 304.9 Currency translation (7.9) (2.8) Additions to consolidated companies1) 240.3 0.0 Disposals of consolidated companies 0.0 (11.5) Current service cost 3.3 3.5 Interest cost 7.2 6.8 Remeasurement losses/(gains) from changes in demographic assumptions (0.6) (0.3) from changes in financial assumptions 6.1 10.3 due to experience adjustments 2.2 (1.1) Benefits paid (23.1) (21.0) Employee contributions to external funds 0.4 0.4 Present value of pension obligations at year-end 517.1 289.2 1 5 6
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2017 RHI Magnesita Group 56 The development of plan assets is shown in the table below: 1) preliminary The changes in the asset ceiling are shown below: 1) preliminary At 31 December 2017 the weighted average duration of pension obligations amounts to 12 years (31.12.2016: 11 years). The following amounts were recorded in the Consolidated Statement of Profit or Loss: The remeasurement results recognised in other comprehensive income are shown in the table below: in € million 2017 2016 Fair value of plan assets at beginning of year 56.4 63.8 Currency translation (5.9) (0.5) Additions to consolidated companies1) 174.6 0.0 Disposals of consolidated companies 0.0 (5.9) Interest income 2.3 1.1 Administrative costs (paid from plan assets) (0.2) (0.1) Income on plan assets less interest income 3.0 (1.1) Benefits paid (5.3) (3.8) Employers' contributions to external funds 3.3 2.5 Employee contributions to external funds 0.4 0.4 Fair value of plan assets at year-end 228.6 56.4 in € million 2017 2016 Asset ceiling at beginning of year 1.9 2.8 Currency translation (0.3) 0.1 Additions to consolidated companies1) 15.3 0.0 Interest expense 0.1 0.0 (Gains)/losses from changes in asset ceiling less interest expense 1.3 (1.0) Asset ceiling at year-end 18.3 1.9 in € million 2017 2016 Current service cost 3.3 3.5 Interest cost 7.2 6.8 Interest income (2.3) (1.1) Interest expense from asset ceiling 0.1 0.0 Administrative costs (paid from plan assets) 0.2 0.1 Pension expense recognised in profit or loss 8.5 9.3 in € million 2017 2016 Accumulated remeasurement losses at beginning of year 113.3 102.4 Reclassification due to disposal of defined benefit plans 0.0 1.9 Remeasurement losses/(gains) on present value of pension obligations 7.7 8.9 Income on plan assets less interest income (3.0) 1.1 (Gains)/losses from changes in asset ceiling less interest 1.3 (1.0) Accumulated remeasurement losses at year-end 119.3 113.3 R H I M A G N E S I TA
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57 The present value of plan assets is distributed to the following classes of investments: The present value of the insurances to cover the Austrian pension plans corresponds to the coverage capital. Insurance companies predominantly invest in debt instruments and to a low extent in equity instruments and properties. Plan assets do not include own financial instruments of the Group or assets utilised by the RHI Magnesita Group. RHI Magnesita works with professional fund managers for the investment of plan assets. They act on the basis of specific investment guidelines adopted by the pension fund committee of the respective pension plans. The committees consist of management staff of the finance department and other qualified executives. They meet regularly in order to approve the target portfolio with the support of independent actuarial experts and to review the risks and the performance of the investments. In addition, they approve the selection or the extension of contracts of external fund managers. The largest part of the assets is invested in pension reinsurance, which creates a low counterparty risk towards insurance companies. In addition, the Group is exposed to interest risks and longevity risks resulting from defined benefit commitments. The Group generally endows the pension funds with the amount necessary to meet the legal minimum allocation requirements of the country in which the fund is based. Moreover, the Group makes additional allocations at its discretion from time to time. In the financial year 2018, RHI Magnesita expects employer contributions to external plan assets to amount to €4.8 million and direct payments to entitled beneficiaries to €17.9 million. In the previous year, employer contributions of €2.4 million and direct pension payments of €15.1 million had been expected for the financial year 2017. (29) Other personnel provisions Other personnel provisions consist of the following items: 31.12.2017 31.12.2016 in € million Active market No active market Total Active market No active market Total Insurances 0.0 38.4 38.4 0.0 38.8 38.8 Equity instruments 4.8 23.1 27.9 5.0 0.0 5.0 Debt instruments 17.2 45.2 62.4 0.0 8.2 8.2 Cash and cash equivalents 35.0 0.4 35.4 0.0 0.3 0.3 Other assets 60.8 3.7 64.5 0.2 3.9 4.1 Fair value of plan assets 117.8 110.8 228.6 5.2 51.2 56.4 in € million 31.12.2017 31.12.2016 Termination benefits 58.1 58.5 Service anniversary bonuses 19.4 18.3 Share-based payments 2.9 1.4 Semi-retirements 1.4 1.7 Lump-sum settlements 0.7 0.7 Other personnel provisions 82.5 80.6 1 5 8
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2017 RHI Magnesita Group 58 Provisions for termination benefits Provisions for termination benefits were based on the following weighted average measurement assumptions: The interest rate for the measurement of termination benefit obligations in the Euro area was determined taking into account the company specific duration of the portfolio. Provisions for termination benefits developed as follows in the financial year and the previous year: Payments for termination benefits are expected to amount to €3.0 million in the year 2018. In the previous year, the payments for termination benefits expected for the year 2017 amounted to €1.9 million. The following remeasurement gains and losses were recognised in other comprehensive income: 1) Including €0.1 million (2016: €0.1 million) from a joint venture accounted for using the equity method At 31 December 2017 the weighted average duration of termination benefit obligations amounts to 11 years (31.12.2016: 11 years). Provisions for service anniversary bonuses The measurement of provisions for service anniversary bonuses is based on an average weighted interest rate of 1.4% (31.12.2016: 1.5%) and takes into account salary increases of 3.6% (31.12.2016: 3.8%). Provisions for semi-retirement The discount rate of provisions for semi-retirement amounts to 0.0% as of 31 December 2017 (31.12.2016: 0.0%). in % 31.12.2017 31.12.2016 Interest rate 1.7% 1.8% Future salary increase 3.8% 2.9% in € million 2017 2016 Provisions for termination benefits at beginning of year 58.5 60.1 Currency translation (0.1) 0.0 Current service cost 1.5 1.5 Interest cost 1.0 1.3 Remeasurement losses/(gains) from changes in financial assumptions 5.1 2.9 due to experience adjustments 0.4 (1.7) Benefits paid (4.1) (5.6) Reclassification (0.4) 0.0 Reclassification as held for sale (3.8) 0.0 Provisions for termination benefits at year-end 58.1 58.5 in € million 2017 2016 Accumulated remeasurement losses at beginning of year 23.6 22.3 Remeasurement losses1) 5.6 1.3 Reclassification as held for sale (1.3) 0.0 Accumulated remeasurement losses at year-end 27.9 23.6 R H I M A G N E S I TA
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59 The funded status of provisions for obligations to employees with semi-retirement contracts is shown in the table below: External plan assets are beyond the reach of all creditors and exclusively serve to meet semi-retirement obligations. (30) Other non-current provisions The development of non-current provisions is shown in the table below: 1) preliminary The provision for contract obligations amounting to €31.0 million (31.12.2016: €4.0 million) is related to a lease contract and to contracts for logistics services and the procurement of raw materials. In November 2017, RHI Magnesita sold a plant located in Oberhausen, Germany, in order to satisfy the conditions imposed by the European Commission in connection with their approval of the Acquisition of Control of Magnesita. As RHI Magnesita is obligated to provide raw materials at cost, the Group has recognised a provision for unfavourable contracts as part of the purchase price allocation to reflect the foregone profit margin. The preliminary fair value of this provision is based on current market prices and discounted over the contractual lifetime of 12 years. The non-current portion of this contract obligation amounts to €27.6 million as of 31.12.2017. The provision for labour and civil contingencies amounting to €9.4 million primarily comprises a provision relating to a public civil action that aims to condemn RHI Magnesita for damages caused by overloaded trucks in disagreement with the traffic legislation. In addition, a provision for a legal action is included where a supplier requires the condemnation payment of RHI Magnesita in connection with consulting services, advice and representations. The item provision for demolition and disposal costs and environmental damages amounting to €9.0 million primarily includes provisions for the estimated costs of mining site restoration of several mines in Brazil amounting to €3.8 million and various sites in the United States amounting to €4.8 million. The item other provisions includes provisions related to tax litigation procedures in Peru related to corporate income tax of fiscal year 2009 amounting to €2.6 million and judicial action filed in Colombia related to corporate income tax of fiscal year 2010 amounting to €1.5 million. Furthermore, several provisions are included that are individually immaterial and cannot be allocated to one of the above-mentioned categories. Currently, these provisions are expected to be used in a period from two to four years. in € million 31.12.2017 31.12.2016 Present value of semi-retirement obligations 5.0 5.1 Fair value of plan assets (3.6) (3.4) Provisions for semi-retirement obligations 1.4 1.7 in € million Contract obligations Labour and civil contingencies Demolition/ disposal costs, environmental damages Other Total 01.01.2017 4.0 0.0 0.5 0.0 4.5 Currency translation (1.1) (0.3) (0.3) (0.1) (1.8) Additions to consolidated companies1) 28.9 9.1 9.0 4.7 51.7 Use (1.7) 0.0 0.0 (0.2) (1.9) Reversal (0.5) 0.0 (0.2) 0.0 (0.7) Addition 2.4 0.6 0.0 0.0 3.0 Reclassifications (1.0) 0.0 0.0 0.0 (1.0) 31.12.2017 31.0 9.4 9.0 4.4 53.8 1 6 0
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2017 RHI Magnesita Group 60 (31) Other non-current liabilities Other non-current liabilities consist of the following items: (32) Trade payables and other current liabilities Trade payables and other current liabilities included in the Consolidated Statement of Financial Position consist of the following items: The item liabilities to employees primarily consists of obligations for wages and salaries, payroll taxes and employee related duties, performance bonuses, unused vacation and flexitime credits. Other current liabilities include €3.7 million investment reimbursement obligation to the former subsidiary Dolomite Franchi S.p.A., €1.3 million (31.12.2016: €0.0 million) liabilities from emission rights and other accrued expenses. (33) Income tax liabilities Income tax liabilities amounting to €16.1 million (31.12.2016: €18.4 million) primarily include income taxes for the current year and previous years which have not yet been definitively audited by domestic and foreign tax authorities. Taking into account a multitude of factors, including the interpretation, commenting and case law regarding the respective tax laws as well as past experiences, adequate liabilities have been recognised as far as apparent. in € million 31.12.2017 31.12.2016 Deferred income for subsidies received 4.7 4.7 Liabilities employees 2.8 1.3 Contingent consideration for acquired subsidiaries 0.6 0.0 Miscellaneous non-current liabilities 0.9 0.9 Other non-current liabilities 9.0 6.9 thereof financial liabilities 0.6 0.0 thereof non-financial liabilities 8.4 6.9 in € million 31.12.2017 31.12.2016 Trade payables 461.3 202.1 Prepayments received on orders 24.1 14.9 Liabilities to employees 99.2 51.8 Taxes other than income tax 23.2 16.5 Payables from commissions 13.2 5.9 Liabilities to joint ventures and associates 9.1 0.0 Customers with credit balances 6.5 6.0 Payables from property transactions 4.8 2.8 Liabilities to non-consolidated subsidiaries 1.1 0.1 Other current liabilities 28.9 12.6 Trade payables and other current liabilities 671.4 312.7 thereof financial liabilities 500.2 217.3 thereof non-financial liabilities 171.2 95.4 R H I M A G N E S I TA
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61 (34) Current provisions The development of current provisions is shown in the table below: 1) preliminary Provisions for restructuring costs amount to €37.6 million as of 31 December 2017 (31.12.2016: €2.1 million) and primarily consist of benefit obligations to employees due to termination of employment. The increase in the fiscal year 2017 results from the acquisition-related reorganisation of the Group. The item demolition and disposal costs, environmental damages includes provisions for the estimated demolition and disposal costs of plants and buildings, of which an amount of €2.5 million (31.12.2016: €2.8 million) refers to former sites in Duisburg, Germany and €2.7 million (31.12.2016: €1.0 million) in Aken, Germany. It is assumed that these provisions will be used up within in the next twelve months. Provisions for warranties include provisions for claims arising from warranties and other similar obligations from the sale of refractory products. Provision for contract obligations include provisions for unfavourable contracts from the sale of refractory products amounting to €4.7 million and provisions for unfavourable contracts related to a lease contract, to contracts for logistics services and the procurement of raw materials totalling €4.9 million. In November 2017, RHI Magnesita sold a plant located in Oberhausen, Germany, in order to satisfy the conditions of the merger control divestment imposed by the European Commission in connection with their approval of the Acquisition of Control of Magnesita. As RHI Magnesita is obligated to provide raw materials at cost, the Group has recognised a provision for unfavourable contracts as part of the purchase price allocation to reflect the foregone profit margin. The preliminary fair value of this provision is based on current market prices and discounted over the contractual lifetime of 12 years. The current portion of this contract obligation amounts to €2.5 million as of 31.12.2017. Provisions for guarantees provided include obligations from sureties and guarantees to banks and insurance companies in the country and abroad. The exact due date of the cash outflow is uncertain at present. The item other provisions include provisions for real estate transfer tax amounting to € 2.4 million resulting from corporate reorganisation of RHI Magnesita as well as a provision for the share-based remuneration programme of the members of the former Management Board of RHI AG of €1.4 million (31.12.2016: €0.7 million). in € million Restruc-turing costs Demolition/ disposal costs, environmental damages Warran-ties Contract obliga-tions Guaran-tees provided Other Total 01.01.2017 2.1 8.2 11.1 0.0 3.3 4.4 29.1 Currency translation (0.2) 0.0 (0.3) (0.2) 0.0 (0.2) (0.9) Additions to consolidated companies1) 19.5 0.0 0.1 2.6 0.0 3.6 25.8 Use (3.2) (0.5) (1.5) (1.9) 0.0 (2.4) (9.5) Reversal (0.8) (0.1) (1.5) (0.8) (0.4) (0.2) (3.8) Addition 18.6 1.7 3.9 4.3 0.0 4.0 32.5 Reclassifications 1.6 0.0 (3.0) 3.2 0.0 (0.1) 1.7 Reclassification from current liabilities 0.0 0.0 (0.1) 0.0 0.0 (0.1) (0.2) 31.12.2017 37.6 9.3 8.7 7.2 2.9 9.0 74.7 1 6 2
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2017 RHI Magnesita Group 62 In addition, provisions for legal proceedings including attorney’s fees amounting to €3.1 million are included in the item other provisions. It is currently uncertain when precisely the cash outflow is due. In the context of the legal proceedings to review the cash compensation of the former minority shareholders of Didier-Werke AG, Wiesbaden, Germany, a provision amounting to €0.6 million was in place at 31 December 2016. With a decision of 17 January 2017, the Frankfurt Higher Regional Court followed the amount of the adequate cash compensation according to an expert opinion and set the compensation at €102.37 per no-par share of Didier-Werke AG. This amount carried an interest rate of five percentage points above the base rate since 26 August 2010. In addition, the RHI Magnesita Group had to bear the court costs, costs of the legal counsel and the out-of-court costs of the claimant. No appeals were permitted. The decision is thus final. The payment was made in February 2017. Furthermore, several provisions, which are individually immaterial and cannot be allocated to one of the above-mentioned categories, are included in other provisions. A large part of these costs is expected to be paid within twelve months. R H I M A G N E S I TA
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63 NOTES TO THE CONSOLIDATED STATEMENT OF PROFIT OR LOSS (35) Revenue Revenue is essentially generated by product deliveries. The distribution of revenue by product group, division and country is given in the explanations to segment reporting under Note (52). Revenue includes revenues from long-term construction contracts amounting to €81.3 million (2016: €58.7 million). (36) Cost of sales Cost of sales comprises the production cost of goods sold as well as the purchase price of merchandise sold. In addition to direct material and production costs, it also includes overheads including depreciation charges on production equipment, amortisation charges of intangible assets as well as impairment losses and reversals of impairment losses of inventories. Moreover, cost of sales also includes the costs of services provided by the Group or services received. (37) Selling and marketing expenses This item includes personnel expenses for the sales staff, commissions, as well as depreciation charges and other operating expenses related to the market and sales processes. (38) General and administrative expenses General and administrative expenses primarily consist of personnel expenses for the administrative functions, legal and other consulting costs, expenses for research and non-capitalisable development costs. Research and development expenses totaled €24.0 million (2016: €23.9 million), of which development costs amounting to €4.6 million (2016: €4.8 million) were capitalised. Income from research grants amounted to €3.8 million (2016: €4.0 million) in the reporting year 2017. Amortisation and impairment of development costs amounting to €4.3 million (2016: €3.4 million) are recognised under cost of sales. For the acquisition of Magnesita, costs totaling €33.5 million were incurred in the financial year 2017 (2016: €12.1 million). They are primarily related to legal and other advisory fees and fees for the consulting investment banks. Of the total costs, €24.4 million (2016: €12.1 million) were recognised in profit or loss under general and administrative expenses and €9.1 million were accounted for as a deduction from equity since these costs were directly attributable to the issue of RHI Magnesita shares in 2017. Thereof €3.0 million were cash-effective and are shown in the Consolidated Statement of Cash Flows in the item capital expenses for the issue of shares. (39) Other income The individual components of other income are: In 2017, the valuation of the commodity futures contract for electricity for the fusion plant in Porsgrunn, Norway, led to an income of €4.9 million (2016: €10.1 million). Further information is presented in Note (56). in € million 2017 2016 Foreign exchange gains 68.2 85.0 Gains from derivative financial instruments 14.2 2.7 Result from derivatives from supply contracts 4.9 10.1 Income from restructuring 0.3 0.3 Income from the disposal of non-current assets 0.9 0.9 Miscellaneous income 2.7 3.7 Other income 91.2 102.7 1 6 4
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2017 RHI Magnesita Group 64 (40) Other expenses Other expenses include: Net foreign currency result The net foreign currency effects amount to €(58.1) million (2016: €8.1 million). The net amount of gains and losses from derivative financial instruments in the EBIT amounts to €7.3 million (2016: €(4.1) million). This amount includes realised effects from forward exchange contracts of €10.8 million (2016: €(3.6) million). Restructuring costs Merger related restructuring In order to achieve the expected synergies from the acquisition of Magnesita the Group initiated a global restructuring programme which led to €35.3 million expenses in 2017. Merger control divestments The European Commission approved the acquisition of Magnesita subject to the divestment of RHI’s entire dolomite business concerning the production sites in Marone, Italy, and Lugones, Spain, and Magnesita’s production, sale, and related activities of magnesia-carbon bricks concentrated in Oberhausen, Germany. Consequently, all related assets and liabilities were reclassified as a disposal group. At the end of November, the disposal resulted in expenses amounting to €13.6 million. Further details regarding this divestment are included in Note (5) on the changes in the group of consolidated companies. Sale of fused cast business The disposal of the Italian San Vito plant and the Russian Podolsk plant, which produce fused cast refractories for the use in the glass industry, resulted in expenses amounting to €9.4 million. Further details regarding this divestment are included in Note (5) on the changes in the group of consolidated companies. Porsgrunn plant, Norway The high-grade products manufactured at this site stand in direct competition with products available on the market. Due to the massive drop in raw material prices in 2016, external purchases were increased and the capacities for the Group’s own production restricted accordingly. This resulted in expenses for unused logistics services amounting to €4.4 million in 2017. In 2016 expenses amounting to €4.2 million were recorded, which comprised personnel costs of €1.4 million and costs from purchase contracts for the delivery of raw materials and provision of logistics services of €2.8 million. Sale RHI Monofrax LLC, USA The sale of RHI Monofrax LLC, Wilmington, USA, resulted in expenses amounting to €4.6 million in 2016. Further details regarding this deconsolidation are included in Note (5) on the changes in the group of consolidated companies in the previous year. Clydebank plant, United Kingdom The Clydebank site was closed at the end of the year 2016 and the activities for isostatically pressed products concentrated at the site in Bonnybridge. This resulted in personnel costs of €0.1 million in 2016. in € million 2017 2016 Foreign exchange losses (126.3) (76.9) Restructuring costs (62.7) (8.9) Losses from the disposal of non-current assets (7.6) (0.5) Losses from derivative financial instruments (6.9) (6.8) Impairment losses (2.1) (8.6) Miscellaneous expenses (10.5) (1.6) Other expenses (216.1) (103.3) R H I M A G N E S I TA
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65 Impairment losses The plants in San Vito, Italy, and Sherbinska, Russia, produce fused cast products. The production of such fused cast products is associated with high fixed costs, which combined with low capacity utilisation burden the achievable margins and led to an impairment of €8.0 million as of 31 December 2016 for the CGU Industrial/Fused Cast. In the first half of 2017, these two plants were classified as a disposal group, which led to an additional impairment of €1.8 million. The disposal group was sold in the fourth quarter. Additionally, other minor investments totalling €0.3 million (2016: €0.6 million) were fully impaired. Miscellaneous expenses The miscellaneous expenses include €6.5 million non-recoverable input tax (ICMS), of which the majority is related to the stream-lining of operations in Brazil. (41) Interest income This item includes interest on cash at banks and similar income amounting to €2.8 million (2016: €2.9 million), interest income on financial receivables amounting to €0.2 million (2016: €0.2 million) and interest income on available-for-sale securities and shares amounting to €2.5 million (2016: €1.0 million), of which €2.0 million (2016: €0.4 million) is accounted for by impaired securities. (42) Interest expenses This item includes interest expenses for bonded loans and bank loans less capitalised interest on borrowings, interest from interest rate swaps, tax-related interest, interest expenses attributable to non-controlling interests totalling €3.3 million (2016: €3.4 million) and other interest and similar expenses. (43) Other net financial expenses Other net financial expenses consist of the following items: (44) Income tax Income tax consists of the following items: The current tax expense of the year 2017 includes tax expenses for previous periods of €2.8 million (2016: €1.8 million) and income from income tax relating to other periods of €8.6 million (2016: €8.2 million). In 2017, in € million 2017 2016 Interest income on plan assets 2.2 1.1 Interest expense on provisions for pensions (7.2) (6.8) Interest expense on provisions for termination benefits (1.0) (1.3) Interest expense on other personnel provisions (0.3) (0.4) Net interest expense personnel provisions (6.3) (7.4) Reversal of impairment losses/(impairment losses) on securities (1.9) 0.5 Expenses from the valuation of put options (0.9) (1.8) Gains from the disposal of securities and shares 0.0 0.9 Other net financial expenses (9.1) (7.8) in € million 2017 2016 Current tax expense 30.5 25.6 Deferred tax expense/(income) relating to temporary differences (2.5) (6.5) tax loss carryforwards 8.4 10.8 5.9 4.3 Income tax 36.4 29.9 1 6 6
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2017 RHI Magnesita Group 66 €6.7 million were attributable to the reversal of a provision related to a tax audit in Germany. In 2016, the completion of a tax audit in Turkey led to the reversal of a provision of €6.3 million. In addition to the income taxes recognised in the Statement of Profit or Loss, tax income totalling €4.1 million (2016: €1.1 million), which is attributable to other comprehensive income, was also recognised in other comprehensive income. Tax expense totalling €6.3 million (2016: tax income of €0.5 million) was reclassified from other comprehensive income to the Statement of Profit or Loss. The administrative seat, place of effective management and registered office is located in Vienna, Austria. Consequently RHI Magnesita N.V. is considered tax resident in Austria under the tax rules of Austria and under the double taxation treaty between Austria and the Netherlands. The reasons for the difference between the arithmetic income tax expense, which would result from the application of the Austrian corporate tax rate of 25% on the profit before income tax, and the income tax reported are shown below: Deferred tax expense due to tax rates changes is primarily attributable to the reduction of the corporate income tax rate in the United States from 35% to 21% (€(7.5) million) and in Norway (2017: €(1.1) million, 2016: €(1.2) million). (45) Expense categories The presentation of the Consolidated Statement of Profit or Loss is based on the cost of sales method. The following table shows a classification by expense category for the financial year 2017 and the previous year: 1) Including impairment losses on property, plant and equipment and intangible assets in € million 2017 2016 Profit before income tax 23.5 105.8 Arithmetic tax expense with tax rate of 25% (2016: 25%) 5.9 26.5 Different foreign tax rates 1.0 1.2 Expenses not deductible for tax purposes, non-creditable taxes 20.4 12.5 Income not subject to tax and tax advantages (7.1) (2.2) Non-capitalised tax losses and temporary differences of the financial year 11.9 2.1 Utilisation of previously unrecognised loss carryforwards and temporary differences (1.2) (0.6) Capitalization of previously unrecognised loss carryforwards and temporary differences (5.8) (0.5) Change in valuation allowance on deferred tax assets 3.7 1.4 Deferred tax expense due to tax rate changes 9.5 1.3 Deferred income tax relating to prior periods 3.3 (4.4) Current income tax relating to prior periods (5.8) (6.4) Other 0.6 (1.0) Recognised tax expense 36.4 29.9 Effective tax rate (in %) 154.9% 28.3% in € million Cost of sales Selling and marketing expenses General and administrative expenses Other income/ expenses Total 2017 Changes in inventories, own work capitalised (50.4) 0.2 (3.9) 1.5 (52.6) Cost of materials 919.2 4.0 5.3 (0.3) 928.2 Personnel costs 259.2 72.4 100.2 22.8 454.6 Depreciation charges1) 68.4 0.9 6.0 17.2 92.5 Other income (8.5) 0.0 (6.9) (91.3) (106.7) Other expenses 297.7 47.5 66.8 175.0 587.0 Total 1,485.6 125.0 167.5 124.9 1,903.0 R H I M A G N E S I TA
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67 1) Including impairment losses on property, plant and equipment and intangible assets Cost of materials includes expenses for raw materials and supplies, and purchased goods of €759.0 million (2016: €620.3 million) as well as expenses for services received, especially energy, amounting to €169.2 million (2016: €165.4 million). Amortisation charges of intangible assets are largely recognised in cost of sales. (46) Personnel costs Personnel costs consist of the following components: Personnel costs do not include amounts resulting from the interest accrued on personnel provisions. They amount to €6.3 million (2016: €7.4 million) and are recorded in net finance costs. in € million Cost of sales Selling and marketing expenses General and administrative expenses Other income/ expenses Total 2016 Changes in inventories, own work capitalised 22.6 0.0 (4.8) 0.0 17.8 Cost of materials 781.4 0.4 2.7 1.2 785.7 Personnel costs 253.5 58.4 85.3 1.5 398.7 Depreciation charges1) 60.5 0.5 4.2 8.8 74.0 Other income (14.7) 0.0 (8.2) (92.3) (115.2) Other expenses 191.5 45.9 55.3 81.4 374.1 Total 1,294.8 105.2 134.5 0.6 1,535.1 in € million 2017 2016 Wages and salaries 360.1 305.8 Pensions Defined benefit plans 3.4 3.6 Defined contribution plans 3.4 3.1 Termination benefits Defined benefit plans 1.5 1.5 Defined contribution plans 2.0 1.9 Other expenses 1.5 4.1 Social security costs 68.7 68.3 Fringe benefits 14.0 10.4 Personnel expenses (without interest expenses) 454.6 398.7 1 6 8
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2017 RHI Magnesita Group 68 NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS The Statement of Cash Flows shows how cash and cash equivalents of the Group change through cash inflows and cash outflows during the reporting year. In accordance with IAS 7, cash flows from operating activities, from investing activities and from financing activities are distinguished. Cash flows from investing and financing activities are determined on the basis of cash payment, while cash flow from operating activities is derived from the Consolidated Financial Statements using the indirect method. The respective monthly changes in items of the Statement of Financial Position of companies that report in foreign currencies are translated at the closing rate of the previous month and adjusted for effects arising from changes in the group of consolidated companies or in other businesses. Therefore, the Statement of Cash Flows cannot be derived directly from changes in items of the Consolidated Statement of Financial Position. As in the Statement of Financial Position, cash and cash equivalents are translated at the closing rate. The effects of changes in exchange rates on cash and cash equivalents are shown separately. (47) Net cash flow from operating activities Net cash flow from operating activities is derived indirectly based on profit after income tax. Profit after income tax is adjusted for results which are allocable to the cash flows from investing or financing activities and for non-cash expenses and income. Other non-cash expenses and income include in particular the net interest expenses for defined benefit pension plans amounting to €6.3 million (2016: €7.4 million), net remeasurement losses of monetary foreign currency positions and derivative financial instruments of €51.2 million (2016: net remeasurement gain of €21.9 million) and non-cash funding of provisions for restructuring amounting to €13.6 million (2016: funding of €1.0 million). Taking into account the change in funds tied up in working capital as well as other operating assets and liabilities and income taxes paid, the result is net cash flow from operating activities. (48) Net cash flow from investing activities Net cash flow from investing activities shows the cash inflows and outflows for disposals of and additions to non-current assets. The cash outflows for investments in property, plant and equipment and intangible assets differ from the additions to assets primarily through additions to assets already capitalised, which will have a cash effect in the following year. Cash effects from business combinations or the sale of companies (net change in cash and cash equivalents from initial consolidations and deconsolidations) are shown separately. Total cash inflows due to the acquisition of subsidiaries net of cash acquired amount to €45.1 million in the reporting year. The acquisition of a share of 50.0% plus one share in Magnesita led to a cash inflow of €50.2 million (purchase price paid of €117.3 million less acquired cash and cash equivalents of €167.5 million). The purchase price paid for the acquisition of 100% of the shares of Agellis amounts to €5.1 million. The sale of Fused Cast and the merger control divestments in the financial year 2017 led to a total cash inflow of €30.6 million (purchase price received of €40.3 million less cash and cash equivalents disposed of amounting to €9.7 million).The sale of the subsidiary RHI Monofrax LLC, Wilmington, USA, as of 6 June 2016 led to a cash outflow of €4.6 million. Interest and dividends received are included under cash flow from investing activities. (49) Net cash flow from financing activities Net cash flow from financing activities includes outflows from dividend payments and interest payments. In contrast, interest on borrowings capitalised in accordance with IAS 23 is included in cash flow from investing activities, and tax-related interest is recognised in cash flow from operating activities. R H I M A G N E S I TA
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69 Inflows resulting from the proceeds and repayments of loans and other financial liabilities are classified as non-current or current according to the term of financing. The net cash flow from financing activities consists of payments to shareholders of the Group and non-controlling interests as well as changes in financial liabilities and assets. The reconciliation of movements of financial liabilities and assets to cash flows arising from financing activities is shown in the table below: (50) Total interest paid and interest received Total interest paid amounts to €25.6 million in the reporting period (2016: €17.5 million), of which €0.1 million (2016: €0.0 million) are included in cash flow from operating activities, €0.6 million (2016: €0.5 million) in cash flow from investing activities and €24.9 million (2016: €17.0 million) in cash flow from financing activities. Total interest received amounts to €5.1 million for the financial year 2017 (2016: €3.2 million), of which €0.0 million (2016: €0.2 million) are included in cash flow from operating activities and €5.1 million (2016: €3.0 million) in cash flow from investing activities. (51) Cash and cash equivalents Cash and cash equivalents as presented in the Consolidated Statement of Cash Flows correspond to the cash and cash equivalents recognised in the Consolidated Statement of Financial Position. They include restricted cash totalling €80.8 million at 31 December 2017 (31.12.2016: €19.8 million). Restricted cash is mainly related to cash and cash equivalents at subsidiaries (mainly in Brazil, India and China) to which the company only has limited access due to foreign exchange and capital transfer controls. €75.8 million (31.12.2016: €13.5 million) are accounted for by subsidiaries with non-controlling interests. Cash changes Non-cash changes in € million 01.01.2017 Changes in foreign exchange rates Additions to consolidated companies Interest expense and other changes 31.12.2017 Liabilities to financial institutions 475.5 60.1 (13.3) 407.9 22.8 953.0 Perpetual bond 0.0 0.0 (5.6) 217.9 3.0 215.3 Senior notes 0.0 0.0 (1.4) 56.3 0.7 55.6 Liabilities to fixed-term or puttable non-controlling interests 32.5 (3.2) (1.7) 0.0 4.4 32.0 Other financial liabilities 7.7 (3.4) (0.1) 0.1 (2.6) 1.7 Prepaid transaction costs related to financial liabilities 0.0 (2.5) 0.0 0.0 0.0 (2.5) Changes of financial liabilities and assets arising from financing activities 515.7 51.0 (22.1) 682.2 28.3 1,255.1 1 7 0
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2017 RHI Magnesita Group 70 OTHER DISCLOSURES (52) Segment reporting Segment reporting by operating company division The following tables show the financial information for the operating segments for the year 2017 and the previous year: in € million Steel Industrial Raw Materials Reconcil-iation Group 2017 External revenue 1,308.8 577.6 59.7 0.0 1,946.1 Internal revenue 0.0 0.0 228.8 (228.8) 0.0 Segment revenue 1,308.8 577.6 288.5 (228.8) 1,946.1 Gross profit 302.7 130.2 27.6 0.0 460.5 EBIT 26.4 9.8 6.9 0.0 43.1 Net finance costs 0.0 0.0 0.0 (30.6) (30.6) Share of profit of joint ventures and associates 0.1 0.0 10.9 0.0 11.0 Profit before income tax 23.5 Depreciation and amortisation charges (34.8) (18.1) (19.8) 0.0 (72.7) Segment assets 31.12.2017 1,131.7 445.5 835.3 843.1 3,255.6 Investments in joint ventures and associates 31.12.2017 9.2 0.0 21.3 0.0 30.5 3,286.1 Investments in property, plant and equipment and intangible assets (according to non-current assets statement) 36.7 21.0 12.7 0.0 70.4 in € million Steel Industrial Raw Materials Reconcil-iation Group 2016 External revenue 1,071.4 538.6 41.2 0.0 1,651.2 Internal revenue 0.0 0.0 224.8 (224.8) 0.0 Segment revenue 1,071.4 538.6 266.0 (224.8) 1,651.2 Gross profit 216.4 124.7 15.3 0.0 356.4 EBIT 76.3 32.0 7.8 0.0 116.1 Net finance costs 0.0 0.0 0.0 (21.2) (21.2) Share of profit of joint ventures 0.0 0.0 10.9 0.0 10.9 Profit before income tax 105.8 Depreciation and amortisation charges (31.3) (16.5) (17.3) 0.0 (65.1) Segment assets 31.12.2016 645.4 269.6 397.8 458.9 1,771.7 Investments in joint ventures 31.12.2016 0.0 0.0 20.5 0.0 20.5 1,792.2 Investments in property, plant and equipment and intangible assets (according to non-current assets statement) 28.7 16.7 20.9 0.0 66.3 R H I M A G N E S I TA
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71 Revenue amounting to €195.5 million (2016: €183.9 million) was realised with one customer in 2017, which is included in the Steel segment. No other single customer contributed 10% or more to consolidated revenue in 2017 or 2016. Companies which are known to be part of a group are treated as one customer. Segment assets include the external receivables and inventories which are reported to the management for control and measurement and which are available to operating segments, as well as property, plant and equipment, goodwill and other intangible assets which are allocated to the segments based on the capacity of the assets provided to the segments. Shares in joint ventures are allocated to the segments. All other assets are recognised under reconciliation. When allocating revenue to product groups, a distinction is made between shaped products (e.g. hydraulically pressed bricks, fused cast bricks, isostatically pressed products) and unshaped products (e.g. repair mixes, construction mixes and castables) as well as other revenue. Other includes revenue from the provision of services as well as the sale of non-group refractory products. In the reporting year, revenue is classified by product group as follows: In 2016, revenue was classified by product group as follows: Segment reporting by country Revenue is classified by customer sites as follows: in € million Steel Industrial Raw Materials Group 2017 Shaped products 826.3 435.0 0.2 1,261.5 Unshaped products 353.2 63.8 58.9 475.9 Other 129.3 78.8 0.6 208.7 Revenue 1,308.8 577.6 59.7 1,946.1 in € million Steel Industrial Raw Materials Group 2016 Shaped products 675.6 403.8 0.0 1,079.4 Unshaped products 314.8 61.5 40.9 417.2 Other 81.0 73.3 0.3 154.6 Revenue 1,071.4 538.6 41.2 1,651.2 in € million 2017 2016 Netherlands 14.1 14.7 All other countries India 204.3 170.7 USA 195.0 151.2 Germany 137.0 142.7 PR China 121.4 88.9 Mexico 118.6 113.6 Italy 105.9 93.2 Brazil 91.5 32.9 Canada 70.8 60.8 Russia 59.0 49.1 Other countries, each below €42.3 million (2016: €41.5 million) 828.5 733.4 Revenue 1,946.1 1,651.2 1 7 2
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2017 RHI Magnesita Group 72 The carrying amounts of property, plant and equipment and intangible assets are classified as follows by the respective sites of the group companies: (53) Earnings per share In accordance with IAS 33, earnings per share are calculated by dividing the profit or loss attributable to the shareholders of RHI Magnesita N.V. (2016: RHI AG) by the weighted average number of shares outstanding during the financial year. There are no options for the issue of new shares or other circumstances that may lead to diluting effects. Therefore, the basic and diluted earnings per share are identical. (54) Dividend payments and proposed dividend Based on a resolution adopted by the 38th Annual General Meeting of RHI AG on 5 May 2017, dividends totalling €29.9 million were paid out to the shareholders in the financial year 2017 for the year 2016, which corresponded to a dividend of €0.75 per share. For the financial year 2017, the Board of Directors will propose a dividend of €0.75 per share, which corresponds to a dividend payment of €33.6 million for the shareholders of RHI Magnesita N.V.. The proposed dividend is subject to the approval by the Annual General Meeting on 7 June 2018 and was not recognised as a liability in the Consolidated Financial Statements 2017. Dividend payments to the shareholders of RHI Magnesita N.V. have no income tax consequences for RHI Magnesita N.V.. (55) Additional disclosures on financial instruments The following tables show the carrying amounts and fair values of financial assets and liabilities by measurement category and level and the allocation to the measurement category in accordance with IFRS 13. In addition, carrying amounts are shown aggregated according to measurement category. in € million 31.12.2017 31.12.2016 Brazil 644.1 6.0 Austria 214.0 206.5 PR China 138.9 128.3 Germany 98.6 87.9 India 58.8 64.2 USA 56.6 6.2 Turkey 31.8 34.1 Mexico 28.8 28.4 Other countries, each below €19.1 million (31.12.2016: €20.8 million) 57.7 69.1 Property, plant and equipment and intangible assets 1,329.3 630.7 2017 2016 Profit after income tax attributable to the owners of the parent (in € million) (18.4) 74.0 Weighted average number of shares 40,682,053 39,819,039 Earnings per share (in €) (0.45) 1.82 R H I M A G N E S I TA
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73 IAS 39 Measurement category1) Level (Amortised) cost Fair value 31.12.20172) in € million recognised in profit or loss recognised in equity Carrying amount Fair value Interests in subsidiaries not consolidated FAAC - 0.8 - - 0.8 - Available-for-sale investments FAAC - 0.4 - - 0.4 - Available-for-sale securities AfS 1 - - 12.6 12.6 12.6 Available-for-sale shares FAAC - 2.4 - - 2.4 - Securities designated as fair value through profit or loss FAFVTPL 1 - 2.3 - 2.3 2.3 Interest derivatives designated as cash flow hedges - 2 - 1.5 1.5 1.5 Non-current receivables from disposal of subsidiaries LaR - 2.6 - - 2.6 - Other non-current financial receivables LaR - 2.5 - - 2.5 - Trade and other current receivables LaR - 419.9 - - 419.9 - Other current financial receivables LaR - 0.1 - - 0.1 - Financial assets held for trading - securities FAHfT 1 - 32.3 - 32.3 32.3 Financial assets held for trading - derivatives FAHfT 2 - 1.7 - 1.7 1.7 Cash and cash equivalents LaR - 442.4 - - 442.4 - Financial assets 921.5 Liabilities to financial institutions FLAAC 2 953.0 - - 953.0 966.1 Perpetual bond FLAAC 1 215.3 - - 215.3 217.0 Senior notes FLAAC 2 55.6 - - 55.6 55.6 Other financial liabilities FLAAC 2 1.7 - - 1.7 1.7 Financial liabilities held for trading - derivatives FLHfT 2 - 40.9 - 40.9 40.9 Liabilities to fixed-term or puttable non-controlling interests FLAAC 2 32.0 - - 32.0 32.0 Contingent consideration for acquired subsidiaries FLFVTPL 3 - 0.6 0.6 0.6 Trade payables and other current liabilities FLAAC - 500.2 - - 500.2 - Financial liabilities 1,799.3 Aggregated according to measurement category Loans and receivables LaR 867.5 - - 867.5 Available for sale financial instruments AfS - - 12.6 12.6 Financial assets designated as fair value through profit or loss FAFVTPL - 2.3 - 2.3 Financial assets at cost FAAC 3.6 - - 3.6 Financial assets held for trading FAHfT - 34.0 - 34.0 Financial liabilities measured at amortised cost FLAAC 1,757.8 - - 1,757.8 Financial liabilities held for trading FLHfT - 40.9 - 40.9 Financial liabilities measured at fair value through profit or loss FLFVTPL - 0.6 - 0.6 1 74
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2017 RHI Magnesita Group 74 1) FAAC: Financial assets at cost AfS: Available for sale financial instruments FAFVTPL: Financial assets measured at fair value through profit or loss LaR: Loans and receivables FAHfT: Financial assets held for trading FLAAC: Financial liabilities measured at amortised cost FLHfT: Financial liabilities held for trading FLFVTPL: Financial liabilities measured at fair value through profit or loss 2) The items trade and other non-current receivables and payables also include non-financial assets and liabilities; they are therefore not considered in the table of financial instruments. The reconciliation to the respective items of the Statement of Financial Position is provided in Notes ((19) and (31)). In the RHI Magnesita Group especially securities and derivative financial instruments are measured at fair value. Fair value is defined as the amount for which an asset could be exchanged, or a liability settled, between market participants in an arm's length transaction on the day of measurement. When the fair value is determined it is assumed that the transaction in which the asset is sold or the liability is transferred takes place either in the main market for the asset or liability, or in the most favourable market if there is no main market. RHI Magnesita considers the characteristics of the asset or liability to be measured which a market participant would consider in pricing. It is assumed that market participants act in their best economic interest. IAS 39 Measurement category1) Level (Amortised) cost Fair value 31.12.20162) in € million recognised in profit or loss recognised in equity Carrying amount Fair value Available-for-sale investments FAAC - 0.4 - - 0.4 - Available-for-sale securities AfS 1 - - 15.3 15.3 15.3 Available-for-sale shares FAAC - 0.5 - - 0.5 - Other non-current financial receivables LaR - 2.7 - - 2.7 - Trade and other current receivables LaR - 312.1 - - 312.1 - Other current financial receivables LaR - 1.5 - - 1.5 - Financial assets held for trading - derivatives FAHfT 2 - 1.5 - 1.5 1.5 Cash and cash equivalents LaR - 182.9 - - 182.9 - Financial assets 516.9 Liabilities to financial institutions FLAAC 2 475.5 - - 475.5 497.7 Other financial liabilities FLAAC 2 7.7 - - 7.7 7.7 Interest derivatives designated as cash flow hedges - 2 - - 0.9 0.9 0.9 Financial liabilities held for trading - derivatives FLHfT 2 - 49.1 - 49.1 49.1 Liabilities to fixed-term or puttable non-controlling interests FLAAC 2 32.5 - - 32.5 32.5 Trade payables and other current liabilities FLAAC - 217.3 - - 217.3 - Financial liabilities 783.0 Aggregated according to measurement category Loans and receivables LaR 499.2 - - 499.2 Available for sale financial instruments AfS - - 15.3 15.3 Financial assets at cost FAAC 0.9 - - 0.9 Financial assets held for trading FAHfT - 1.5 - 1.5 Financial liabilities measured at amortised cost FLAAC 733.0 - - 733.0 Financial liabilities held for trading FLHfT - 49.1 - 49.1 R H I M A G N E S I TA
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75 RHI Magnesita takes into account the availability of observable market prices in an active market and uses the following hierarchy to determine fair value: The fair value of available-for-sale securities, securities designated as fair value through profit or loss and securities held for trading is based on price quotations at the reporting date (Level 1). Due to the sale of securities in the year 2016, income of €0.1 million, which was previously recognised in other comprehensive income, had to be reclassified to the Statement of Profit or Loss. The fair value of interest derivatives in a hedging relationship (interest rate swaps) is determined by calculating the present value of future cash flows based on current yield curves taking into account the corresponding terms (Level 2). For two existing hedging relationships, which were previously included in an effective hedging relationship in accordance with IAS 39 and to which the rules of hedge accounting were applied, the requirements for hedge accounting were no longer given as of 30 June 2017. Consequently, the fair values of these interest derivatives have to be classified as financial liabilities held for trading. The fair value of financial assets and liabilities held for trading corresponds to the market value of the forward exchange contracts and the embedded derivatives in open orders denominated in a currency other than the functional currency, as well as the market value of a long-term power supply contract, which was classified as a derivative financial instrument since the financial year 2015. These financial assets and liabilities held for trading are measured based on quoted forward rates (Level 2). The fair value of the contingent consideration liability amounting to €0.6 million recognised in the year 2017 due to the acquisition of Agellis is determined by discounting the estimated earn-out with the transaction’s internal rate of return (Level 3). RHI Magnesita takes into account reclassifications in the measurement hierarchy at the end of the reporting period in which the changes occur. There were no shifts between the different measurement levels in the two reporting periods. Financial liabilities and liabilities to fixed-term or puttable non-controlling interests are carried at amortised cost in the Consolidated Statement of Financial Position; the fair values of the financial liabilities are only shown in the notes. The fair value of the perpetual bond is based on price quotations at the reporting date (Level 1), all other liabilities are calculated at the present value of the discounted future cash flows using yield curves that are currently observable (Level 2). Shares in non-consolidated subsidiaries of €0.8 million (31.12.2016: €0.0 million), available-for-sale investments of €0.4 million (31.12.2016: €0.4 million) and available-for-sale shares of €2.4 million (31.12.2016: €0.5 million) are equity instruments carried at cost for which there is no quoted price on an active market. It was not possible to derive a fair value based on comparable transactions. These investments and shares are immaterial in comparison with the total position of the Group. The financial receivables approximately correspond to the fair value as due to the amount of the existing receivables no material deviation between the fair value and the carrying amount is assumed and the credit default risk is accounted for by forming valuation allowances. The remaining terms of trade and other current receivables and liabilities as well as cash and cash equivalents are predominantly short. Therefore, the carrying amounts of these items approximate fair value at the reporting date. At the two reporting dates, no contractual netting agreement of financial assets and liabilities were in place. Level 1: Prices quoted in active markets for identical financial instruments. Level 2: Measurement techniques in which all important data used are based on observable market data. Level 3: Measurement techniques in which at least one significant parameter is based on non-observable market data. 1 7 6
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2017 RHI Magnesita Group 76 Net results by measurement category in accordance with IAS 39 The effect of financial instruments on the income and expenses recognised in the reporting years 2017 and 2016 is shown in the following table, classified according to the measurement categories defined in IAS 39: The net gain on available-for-sale financial assets recognised in the Consolidated Statement of Profit or Loss includes income from securities and shares, income from the disposal of securities and shares, income realised from changes in market value originally recognised in other comprehensive income as well as impairment losses and income from reversals of impairment losses. The net loss arising from loans and receivables as well as financial liabilities includes interest income and expenses, changes in valuation allowances and losses on derecognition, foreign exchange gains and losses as well as expenses related to the measurement of put options. The net gain of financial assets held for trading and financial liabilities includes unrealised results from the measurement of a long-term commodity futures contract as well as changes in the market value and realised results of forward exchange contracts and embedded derivatives in open orders in a currency other than the functional currency of RHI Magnesita, interest derivatives which do not meet the requirements of hedge accounting in accordance with IAS 39 and interest income from securities. The net gain from financial assets at fair value through profit or loss designated on initial recognition includes income related to the measurement of securities. Net finance costs include interest income amounting to €5.0 million (2016: €3.1 million) and interest expenses of €26.5 million (2016: €17.0 million), which result from financial assets and liabilities which are not carried at fair value through profit or loss. (56) Derivative financial instruments Commodity futures The RHI Magnesita Group concluded a commodity futures contract for electricity for the fusion plant in Porsgrunn, Norway, in November 2011 which has been accounted for as a financial instrument in accordance with IAS 39 since 31 December 2015 because the “own-use exemption” (exemption for own use in accordance with IAS 39.5) no longer applies. The measurement of the entire term of the contract until the end of the year 2023 at market price level leads to a financial liability of €40.1 million at 31 December 2017 (31.12.2016: €49.0 million). The corresponding present value of the cash flows for the agreed electricity supply totals €83.4 million at 31 December 2017 (31.12.2016: €97.5 million); the present value of the cash flow at market price amounts to €43.3 million (31.12.2016: €48.5 million). in € million 2017 2016 Net gain on available-for-sale financial assets recognised in the Statement of Profit or Loss 0.5 2.4 recognised in other comprehensive income 0.0 0.1 reclassified from other comprehensive income to the Statement of Profit or Loss 0.0 (0.1) 0.5 2.4 Net loss from loans and receivables as well as financial liabilities at amortised cost (87.7) (13.1) Net gain on financial assets and financial liabilities classified as held for trading 12.2 6.0 Net gain from financial assets at fair value through profit or loss designated on initial recognition 0.1 0.0 R H I M A G N E S I TA
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77 Interest rate swaps RHI Magnesita has concluded interest rate swaps to hedge the cash flow risk of financial liabilities carrying variable interest rates. Financial liabilities carrying variable interest were designated as hedged items. The cash flow changes of the hedged items, which result from the changes of the variable interest rates, are balanced out by the cash flow changes of the interest rate swaps. These hedging measures pursue the objective to transform variable-interest financial liabilities into fixed-interest financial liabilities, thus hedging the cash flow from the financial liabilities. Credit risks are not part of the hedge. The term of two hedging relationships with a nominal volume of €17.2 million at the reporting date (31.12.2016: €25.7 million) ends in the financial year 2019. The interest payments from the underlying transaction and the compensation payments from the two interest rate swaps are made quarterly at the end of the quarter. The refinancing of liabilities to financial institutions carried out in the course of the acquisition of Magnesita led to the early repayment of, among others, two financial liabilities carrying variable interest which are designated as the underlying transactions for these two hedging relationships. Due to the early repayment, the expected transaction, the future variable interest payments, was no longer expected to take place. Consequently, the expense of €0.3 million recognised in other comprehensive income was reclassified to profit or loss as of 30 June 2017 and recognised in interest expenses. The changes in the fair value of these interest rate swaps are now recognised through profit or loss. In the year 2016 no ineffectiveness had to be recognised through profit or loss for these two hedges. Fixed interest rates amount to roughly 0.7% as in the previous year. The variable interest rates are based on the EURIBOR. The term of two other hedging relationships, which were acquired in the course of the acquisition of Magnesita, with a total nominal volume of US$160.0 million at the reporting date ends in the second half of the financial year 2020. The interest and compensation payments for these hedging relationships are due semi-annually at the end of January respectively March and at the end of July respectively September. The interest expenses are recognised accordingly on a period basis. The effectiveness of a hedging relationship is tested on a prospective and retrospective basis. In the reporting year no hedge ineffectiveness had to be recognised through profit or loss. Fixed interest rates amount to roughly 1.3%; the variable interest rates are based on the LIBOR. A hedging relationship with a nominal value of €50.0 million (31.12.2016: €50.0 million) ended on 31 July 2017. The expense of €0.2 million recognised in other comprehensive income was reclassified to profit or loss and recognised under interest expenses. The fair values of the interest rate swaps totalled €1.3 million at the reporting date (31.12.2016: €(0.9) million). Forward exchange contracts As of 31 December 2017, there are no material open forward exchange contracts. The nominal value and fair value of forward exchange contracts as of 31 December 2016 are shown in the table below: 31.12.2016 Purchase Sale Nominal value in million Fair value in € million EUR ZAR ZAR 100.0 (0.1) EUR USD USD 90.0 0.4 EUR CNY EUR 21.7 0.1 EUR CAD CAD 10.0 0.0 MXN USD USD 10.0 0.0 EUR INR EUR 8.9 0.0 Forward exchange contracts 0.4 1 7 8
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2017 RHI Magnesita Group 78 (57) Financial risk management Financial risks are incorporated in RHI Magnesita’s corporate risk management and are centrally controlled by Group Treasury. None of the following risks have a significant influence on the going concern of the RHI Magnesita Group. Credit risks The maximum credit risk from recognised financial assets amounts to €921.5 million (31.12.2016: €516.9 million) and is primarily related to investments with banks and receivables due from customers. The credit risk with banks related to investments (especially cash and cash equivalents) is reduced by the fact that business transactions are generally only carried out with contractual partners with a good credit rating. In order to counteract the default risk related to these transactions, receivables from customers are hedged as far as possible through credit insurance and collateral arranged through banks (guarantees, letters of credit), even if the contractual partner has a top class credit rating. Credit and default risks are monitored continuously, and provisions are formed for risks that have occurred and for identifiable risks. In the following, the credit risk from trade receivables is shown classified by customer industry, by foreign currency and by term. This credit risk, which is hedged by existing credit insurance, letters of credit and bank guarantees, is shown by customer segment in the following table: The following table shows the carrying amounts of receivables denominated in currencies other than the functional currencies of the group companies. The carrying amounts of the receivables in the functional currency of the respective Group company are included under other functional currencies: in € million 31.12.2017 31.12.2016 Segment Steel 294.3 208.6 Segment Industrial 96.9 96.0 Segment Raw Materials 3.7 4.4 Trade receivables 394.9 309.0 Credit insurance and bank guarantees (158.1) (181.5) Net credit exposure 236.8 127.5 in € million 31.12.2017 31.12.2016 US Dollar 96.0 50.1 Euro 9.9 6.7 Pound Sterling 3.8 2.9 Other currencies 7.9 2.6 Other functional currencies 277.3 246.7 Trade receivables 394.9 309.0 R H I M A G N E S I TA
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79 The classification of receivables by days outstanding is shown below: With respect to receivables that were neither impaired nor overdue, there were no indications at the reporting date that the debtors would be unable to meet their payment obligations. No valuation allowance was recognised for overdue receivables amounting to €76.3 million at the reporting date (31.12.2016: €43.2 million) and impaired receivables of €35.4 million (31.12.2016: €48.8 million) because the risk of default is essentially covered by credit insurance, bank guarantees and letters of credit. Liquidity risk Liquidity risk refers to the risk that financial obligations cannot be met when due. The Group’s financial policy is based on long-term financial planning and is centrally controlled and monitored continuously at RHI Magnesita. The liquidity requirements resulting from budget and medium-term planning are secured by concluding appropriate financing agreements. As of 31 December 2017, the RHI Magnesita Group has a credit facility of €317.2 million (31.12.2016: €310.8 million) at its disposal, which is unused and available immediately. At 31 December 2016, unused credit lines from the sale of receivables amounted to €6.8 million. These lines of credit were concluded with different international banks in order to ensure independence of banks. The companies of the RHI Magnesita Group are integrated into a clearing process managed by Central Treasury and provided with financing limits in order to minimize the need of borrowings for the Group as a whole. Non-derivative financial instruments An analysis of the terms of non-derivative financial liabilities based on undiscounted cash flows including the related interest payments shows the following expected cash outflows: in € million 31.12.2017 31.12.2016 Neither impaired nor past due at reporting date 283.2 217.4 Not impaired at reporting date and past due in the following time frames Less than 30 days 36.6 20.5 Between 30 and 59 days 14.6 7.2 Between 60 and 89 days 5.7 2.7 More than 90 days 19.4 12.8 Impaired at reporting date 67.7 81.6 Valuation allowances (32.3) (33.2) Trade receivables 394.9 309.0 Remaining term in € million Carrying amount 31.12.2017 Cash outflows up to 1 year 2 to 5 years over 5 years Liabilities to financial institutions fixed interest 176.7 202.7 60.6 96.8 45.3 variable interest 776.3 858.1 146.5 683.7 27.9 Perpetual bond 215.3 309.5 79.1 52.9 177.5 Senior Notes 55.5 66.0 5.2 60.8 0.0 Other financial liabilities 1.7 1.8 0.9 0.8 0.1 Liabilities to fixed-term or puttable non-controlling interests 32.0 161.0 10.1 12.3 138.6 Contingent consideration for acquired subsidiaries 0.6 0.6 0.0 0.6 0.0 Trade payables and other current liabilities 500.2 500.2 500.2 0.0 0.0 Non-derivative financial liabilities 1,758.3 2,099.9 802.6 907.9 389.4 1 8 0
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2017 RHI Magnesita Group 80 Derivative financial instruments The remaining terms of derivative financial instruments based on expected undiscounted cash flow as of 31 December 2017 and 31 December 2016 are shown in the table below: Foreign currency risks Foreign currency risks arise especially where business transactions (operating activities, investments, financing) are conducted in a currency other than the functional currency of a company. They are monitored at the group level and analysed with respect to hedging options. The net position of the Group in the respective currency serves as the basis for decisions regarding the use of hedging instruments. Foreign currency risks according to IFRS 7 are created through financial instruments which are denominated in a currency other than the functional currency (in the following: foreign currency) and are monetary in nature. Important primary monetary financial instruments include trade receivables and payables, cash and cash equivalents as well as financial liabilities as shown in the Consolidated Statement of Financial Position. Equity instruments are not of a monetary nature and therefore not linked to a foreign currency risk in accordance with IFRS 7. Remaining term in € million Carrying amount 31.12.2016 Cash outflows up to 1 year 2 to 5 years over 5 years Liabilities to financial institutions fixed interest 214.6 237.6 26.0 140.6 71.0 variable interest 260.9 267.5 133.5 132.3 1.7 Other financial liabilities 7.7 7.8 4.5 3.2 0.1 Liabilities to fixed-term or puttable non-controlling interests 32.5 182.2 9.1 13.0 160.1 Trade payables and other current liabilities 217.3 217.3 217.3 0.0 0.0 Non-derivative financial liabilities 733.0 912.4 390.4 289.1 232.9 Remaining term in € million Carrying amount 31.12.2017 Cash flows up to 1 year 2 to 5 years over 5 years Receivables from derivatives with net settlement Interest derivatives designated as cash flow hedges 1.5 1.5 0.9 0.6 0.0 Financial assets held for trading 1.7 1.7 1.7 0.0 0.0 Liabilities from derivatives with net settlement Financial liabilities held for trading 40.9 43.5 7.5 28.8 7.2 Remaining term in € million Carrying amount 31.12.2016 Cash flows up to 1 year 2 to 5 years over 5 years Receivables from derivatives with net settlement Financial assets held for trading 1.5 1.5 1.5 0.0 0.0 Liabilities from derivatives with net settlement Interest derivatives designated as cash flow hedges 0.9 0.9 0.7 0.2 0.0 Financial liabilities held for trading 49.1 51.9 6.1 31.0 14.8 R H I M A G N E S I TA
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81 The majority of foreign currency financial instruments in the RHI Magnesita Group result from operating activities, above all from intragroup financing transactions, unless the foreign exchange effects recognised to profit or loss on monetary items, which represent part of a net investment in a foreign operation in accordance with IAS 21, are eliminated or hedged through forward exchange contracts. Significant provisions denominated in foreign currencies are also included in the analysis of risk. The following table shows the foreign currency positions in the major currencies as of 31 December 2017: The foreign currency positions as of 31 December of the previous year are structured as follows: The disclosures required by IFRS 7 for foreign exchange risks include a sensitivity analysis that shows the effects of hypothetical changes in the relevant risk variables on profit or loss and equity. In general, all non-functional currencies in which group companies enter into financial instruments are considered to be relevant risk variables. The effects on a particular reporting period are determined by applying the hypothetical changes in these risk variables to the financial instruments held by the Group as of the reporting date. It is assumed that the positions on the reporting date are representative for the entire year. The sensitivity analysis does not include the foreign exchange differences that result from translating the net asset positions of the foreign group companies into the group currency, the Euro. A 10% appreciation or devaluation of the relevant functional currency against the following major currencies as of 31 December 2017 would have had the following effect on profit or loss and equity (both excluding income tax): The hypothetical effect on profit or loss at 31 December 2016 can be summarised as follows: in € million USD EUR MXN CAD Other Total Financial assets 583.9 88.5 (0.1) 22.7 48.6 743.6 Financial liabilities, provisions (727.5) (218.6) (18.6) (2.4) (47.1) (1,014.2) Net foreign currency position (143.6) (130.1) (18.7) 20.3 1.5 (270.6) in € million USD EUR MXN CAD Other Total Financial assets 207.4 64.8 0.1 4.5 26.9 303.7 Financial liabilities, provisions (156.2) (37.8) (14.2) (0.1) (24.0) (232.3) Net foreign currency position 51.2 27.0 (14.1) 4.4 2.9 71.4 Appreciation of 10% Devaluation of 10% in € million Gain/(loss) Equity Gain/(loss) Equity US Dollar 20.3 20.3 (24.8) (24.8) Euro 11.9 11.9 (14.5) (14.5) Mexican Peso 1.7 1.7 (2.1) (2.1) Canadian Dollar (1.8) (1.8) 2.3 2.3 Other currencies (0.4) (0.4) 0.3 0.3 Appreciation of 10% Devaluation of 10% in € million Gain/(loss) Equity Gain/(loss) Equity US Dollar (4.8) (5.6) 5.9 6.9 Euro (2.8) 7.7 2.7 (10.1) Mexican Peso 1.3 1.3 (1.6) (1.6) Canadian Dollar (0.4) (1.5) 0.5 1.9 Other currencies (0.4) (0.4) 0.4 0.4 1 8 2
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2017 RHI Magnesita Group 82 Interest rate risks The interest rate risk in the RHI Magnesita Group is primarily related to financial instruments carrying variable interest rates, which may lead to fluctuations in results and cash flows. At 31 December 2017, interest rate hedges amounting to a nominal volume of €17.2 million (31.12.2016: €75.7 million) and a nominal volume of US$160.0 million existed; a variable interest rate was converted into a fixed interest rate through an interest rate swap. The exposure to interest rate risks is presented through sensitivity analyses in accordance with IFRS 7. These analyses show the effects of changes in market interest rates on interest payments, interest income and interest expense and on equity. The RHI Magnesita Group measures fixed-interest financial assets and financial liabilities at amortised cost, and did not use the fair value option. A hypothetical change in the market interest rates for these financial instruments at the reporting date would have had no effect on profit and loss or equity. Changes in market interest rates on financial instruments designated as hedges as a part of cash flow hedges to protect against interest rate-related payment fluctuations have an effect on equity and are therefore included in the equity-related sensitivity analysis. If the market interest rate as of 31 December 2017 had been 25 basis points higher or lower, equity would have been €0.5 million (31.12.2016: €0.2 million) higher or lower taking into account tax effects. Changes in market interest rates have an effect on the interest result of primary, variable interest financial instruments whose interest payments are not designated as hedged items as a part of cash flow hedge relationships against interest rate risks, and are therefore included in the calculation of the result-related sensitivities. If the market interest rate as of 31 December 2017 had been 25 basis points higher or lower, the interest result would have been €0.5 million (31.12.2016: €0.0 million) lower or higher. Other market price risk RHI Magnesita holds certificates in an investment fund amounting to €12.6 million (31.12.2016: €15.3 million) to cover the legally required protection of personnel provisions of Austrian group companies. The market value of these certificates is influenced by fluctuations of the worldwide volatile stock and bond markets. In the financial year 2015, an energy supply contract with a term until the year 2023 had to be classified as a derivative financial instrument in accordance with IAS 39 for the first time. The fair value of the financial liability amounts to €40.1 million at 31 December 2017 (31.12.2016: €49.0 million). If the quoted forward prices at 31 December 2017 had been 20% higher or lower, EBIT would have been €8.7 million (31.12.2016: €9.7 million) higher or lower. In contrast, if the borrowing cost relevant for discounting had been 25 basis points higher or lower at the reporting date, EBIT would have been €0.3 million (31.12.2016: €0.4 million) higher or lower. (58) Capital management The objectives of the capital management strategy of the RHI Magnesita Group are to secure going concern at all times by creating a solid capital base to finance growth, investments, to increase shareholders value on a sustained basis and to generate adequate returns to enable attractive dividend payments to the shareholders and to service debt. The RHI Magnesita Group manages its capital structure through careful monitoring and assessment of the overall economic framework conditions, credit, interest rate and FX risks and the requirements and risks related to operations and taking into account strategic projects. R H I M A G N E S I TA
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83 The capital structure key figures at the reporting date are shown below: Net debt, which reflects financial liabilities net of cash and cash equivalents and non-derivative other current financial assets, is controlled by Corporate Treasury. The main task of the Corporate Treasury department is to execute the capital management strategy as well as to secure liquidity to support business operations on a sustainable basis, to use banking and financial services efficiently and to limit financial risks while at the same time optimizing earnings and costs. The net gearing ratio is the ratio of net debt to equity. It amounts to 98.8% for the current financial year. In the previous year, the net gearing ratio amounted to 57.0%. The increase in net debt and gearing results primarily from the acquisition of Magnesita in the course of which additional debt was assumed. In the reporting year 2017 and in the previous year, all externally imposed capital requirements were met. The Group has sufficient liquidity headroom within its committed debt facilities. RHI Magnesita N.V. is subject to minimum capital requirements according to its articles of association. The articles of association stipulate a mandatory reserve of €288,699,230.59 which was created in connection with the merger. (59) Contingent liabilities At 31 December 2017, warranties, performance guarantees and other guarantees amount to €39.8 million (31.12.2016: €32.0 million). The terms of contingent liabilities range between two months and 11 years, depending on the type of liability. Based on experiences of the past, the probability that contingent liabilities are used is considered to be low. In addition, contingent liabilities from sureties of €0.5 million (31.12.2016: €0.7 million) were recorded, of which €0.3 million (31.12.2016: €0.3 million) are related to contingent liabilities to creditors from joint ventures. Individual proceedings and lawsuits which result from ordinary activities are pending as of 31 December 2017 or can potentially be exercised against RHI Magnesita in the future. The related risks were analysed with a view to their probability of occurrence. The Group is party to tax proceedings in Brazil with the estimated amount of €178.3 million for the following lawsuits, for which no provision was set up according to IFRS, as management classified risks of loss (based on the evaluation of legal advisors) as possible but not probable: In 2011, the Brazilian Tax Authorities raised an assessment in respect of corporate income tax and social contribution on tax goodwill referring to the years 2008 and 2009. The Tax Authorities are challenging the deductibility of the amortisation of the tax goodwill arising from mergers of subsidiaries. In 2016, the company was notified of the decision rendered by the CARF, which annulled over 90% of the tax assessment notice. However, this decision may still be amended due to appeals filed by the company and the General Counsel to the National Treasury (PGFN). The final decision is expected within one to two years. The potential loss from this lawsuit amounts to €87.8 million (including interest and penalties) as at 31 December 2017. In 2016, the Brazilian Tax Authorities extended their above review into the years 2011 and 2012. In December 2016 the company filed a defence against the tax assessment notice. The final decision is expected within two to three years. The potential loss from this lawsuit amounts to €40.0 million (including interest and penalties) as at 31 December 2017. 31.12.2017 31.12.2016 Net debt (in € million) 750.8 298.8 Net gearing ratio (in %) 98.8% 57.0% 1 8 4
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2017 RHI Magnesita Group 84 In 2013, the Brazilian Tax Authorities raised an assessment notice for allegedly failing to pay social security contributions in the period from January to December 2009. The company has appealed the assessment. Legal opinions demonstrate that the company has solid supporting documentation capable of reversing the assessment. The potential loss from this proceeding amounts to €6.0 million (including interest and penalties) as at 31 December 2017. Furthermore, the Brazilian Tax Authorities raised an assessment into a former holding company in Brazil in respect of federal taxes. The assessment relates to federal tax offsets made by the company up to and including 2008 which have not been approved by the Federal Revenue Service. Legal opinions demonstrate that the company has solid supporting documentation capable of reversing the assessment. The potential loss amounts to €11.1 million (including interest and penalties) as at 31 December 2017. In addition, the Brazilian Tax Authorities raised an assessment into the calculation basis of CFEM (Financial Compensation for Exploration of Mineral Resources). Based on the opinion of the legal advisors the company has appealed the assessment and the loss was considered possible due to jurisprudence of the Brazilian court. Additionally, recent changes on CFEM legislation, mostly adopting the company’s interpretation, also demonstrate that the interpretation taken is the most accurate, which is a fact judges can decide upon. The potential loss from this proceeding amounts to €13.9 million (including interest and penalties) as at 31 December 2017. Magnesita Refratários S.A., Contagem, Brazil, is also involved in other minor lawsuits totalling €19.5 million which relate to a number of assessments concerning various taxes and related obligations. Proceedings and lawsuits in which other subsidiaries are involved have no significant negative influence on the financial position and performance of the RHI Magnesita Group. (60) Other financial obligations Other financial obligations consist of the following items: Other financial obligations are exclusively due to third parties. They are shown at nominal value. Rental and leasing obligations for property, plant and equipment of €23.1 million (2016: €21.8 million) are recognised in the Consolidated Statement of Profit or Loss of the financial year 2017. The conditions of the most important operating rental and leasing agreements can be summarised as follows: At the company’s head office in Vienna, Austria, a rental agreement exists which has been renegotiated in 2017 and ends on 31 December 2018. Total Remaining term in € million 31.12.2017 up to 1 year 2 to 5 years over 5 years Obligations from rental and leasing contracts 56.9 16.1 24.2 16.6 Capital commitments 5.9 5.9 0.0 0.0 Other financial obligations 62.8 22.0 24.2 16.6 Total Remaining term in € million 31.12.2016 up to 1 year 2 to 5 years over 5 years Obligations from rental and leasing contracts 66.7 13.8 32.6 20.3 Capital commitments 2.5 2.5 0.0 0.0 Other financial obligations 69.2 16.3 32.6 20.3 R H I M A G N E S I TA
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85 Another rental contract for offices has a term until 30 April 2020. The tenant has a two-time optional right to extend the contract by three years each. The annual rent is coupled to the development of the consumer price index. At one production site, the area for operating a plant has been leased for the long term. The related contract ends in April 2062 and includes an extension option for another 30 years. The rent is subject to adaptation to inflation. The Group also rents numerous mining vehicles, diggers, forklifts and the like by cancellable leasing agreements. The contracts have terms ranging from two to seven years; most of them do not include a purchasing option after the contract ends. In addition to the aforementioned financial obligations, the RHI Magnesita Group also has long-term purchase obligations related to the supply with raw materials, especially for electricity, natural gas, strategic raw materials as well as for the transport of raw materials within the Group. This results in other financial obligations of the nominal value of €99.9 million at the reporting date (31.12.2016: €90.3 million). The remaining terms of the contracts amount to up to nine years. Purchases from these arrangements are recognised in accordance with the usual course of business. Purchase contracts are regularly reviewed for imminent losses, which may occur, for example, when requirements fall below the agreed minimum purchase volume or when contractually agreed prices deviate from the current market price level. (61) Expenses for the Group auditor The expensed fees for the activities of the Group auditor PwC that are included in the Consolidated Statement of Profit or Loss are shown in the following table: Other audit related services, tax compliance services and other non-audit services were performed and invoiced by PwC network firms outside of the Netherlands. In 2017, €0.5 million of the audit fees invoiced by PwC network firms of €2.2 million are related to the full audit of the half-year consolidated financial statements. The other non-audit services of €2.5 million in 2017 are mainly related to services in connection with the acquisition of Magnesita and listing on the London Stock Exchange. (62) Annual average number of employees The average number of employees of the RHI Magnesita Group based on full time equivalents amounts to: All but one of them work outside of the Netherlands. in € million 2017 2016 Audit of the Financial Statements 2.4 1.0 thereof invoiced by PwC Accountants N.V. 0.2 0.0 thereof invoiced by PwC network firms 2.2 1.0 Other audit related services 0.1 0.1 Tax compliance services 0.9 1.7 Other non-audit services 2.5 0.3 Total fees 5.9 3.1 2017 2016 Salaried employees 3,788 3,544 Waged workers 4,781 4,134 Number of employees on annual average 8,569 7,678 1 8 6
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2017 RHI Magnesita Group 86 (63) Transactions with related parties Related companies include subsidiaries that are not fully consolidated, joint ventures, associates and MSP Foundation, Liechtenstein, as a shareholder of RHI Magnesita N.V. since it exercises significant influence based on its share of more than 25% in RHI Magnesita N.V.. In accordance with IAS 24, the personnel welfare foundation of Stopinc AG, Hünenberg, Switzerland, also has to be considered a related company. Related persons are persons having authority and responsibility for planning, directing and controlling the activities of the Group (key management personnel) and close members of those persons’ families. Since 26 October 2017 key management personnel comprises members of the Board of Directors of RHI Magnesita N.V. and the Executive Management Team. Before that members of the Management Board and the Supervisory Board of RHI AG formed the key management personnel. Related companies In the financial year 2017, the Group conducted the following transaction with its related companies: In the financial years 2017 and 2016, the Group charged electricity and stock management costs to the joint venture MAGNIFIN Magnesiaprodukte GmbH & Co KG, St. Jakob, Austria, and purchased raw materials. In November and December 2017, the associate Sinterco S.A.,Nameche, Belgium, sold sintered doloma to the RHI Magnesita Group. Furthermore, the Group has a financing receivable of €17.0 million from a loan agreement with Sinterco. The balances at the end of the financial year are unsecured and will be paid in cash. For the financial year 2016, business transactions with non-consolidated subsidiaries are not listed as they were of minor significance. All income and expenses of the joint ventures, associates and non-consolidated subsidiaries acquired in the course of the acquisition of Magnesita relate to the periods November and December 2017. Before the acquisition of Magnesita the Group had no associates. To secure a pension claim of a former employee of MAGNIFIN, RHI Magnesita has assumed a surety amounting to €0.3 million (31.12.2016: €0.3 million). A resulting cash outflow is not expected. No guarantees were received. In the financial years 2017 and 2016 no transactions were carried out between the RHI Magnesita Group and MSP Foundation, with the exception of the dividend paid. A service relationship with respect to the company pension scheme of the employees of Stopinc AG exists between the personnel welfare foundation of Stopinc AG and the fully consolidated subsidiary Stopinc AG. Stopinc AG makes contribution payments to the plan assets of the foundation to cover pension obligations. The pension plan is recognised as a defined benefit plan and is included in Note (28). At 31 December 2017 current account receivables of €0.8 million (31.12.2016: €0.8 million) from the personnel welfare foundation exist, for which an interest of 2.5% (2016: 2.5%) is charged. In the past reporting period, employer contributions Joint ventures Associates Non-consolidated subsidiaries in € million 2017 2016 2017 2017 Revenue from the sale of goods and services 3.4 3.3 0.4 0.1 Purchase of raw materials 2.5 1.9 3.8 0.0 Interest income 0.1 0.1 0.0 0.0 Trade and other receivables 1.3 1.0 1.1 0.2 Loans granted 0.0 0.0 17.0 0.1 Trade liabilities 0.6 0.0 8.5 1.1 Dividends received 10.7 9.5 0.0 0.0 R H I M A G N E S I TA
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87 amounting to €0.5 million (2016: €0.5 million) were made to the personnel welfare foundation. The overfunding of the pension plan is recognised as a non-current asset of €2.0 million (31.12.2016: €2.1 million). Related persons Remuneration of key management personnel of the Group, which is subject to disclosure in accordance with IAS 24, comprises the remuneration of the active Board of Directors and the Executive Management Team (EMT) from November to December 2017 as well as the former Management Board and Supervisory Board of RHI AG until October 2017. After RHI AG merged with and into RHI Magnesita N.V. Stefan Borgas was appointed Executive Director and the other members of the former Management Board of RHI AG were appointed EMT Members. At the same time, the Group combined with Magnesita and Octavio Lopes was appointed second Executive Director, and additional EMT members were appointed. For the financial year 2017, expenses for the remuneration of the Executive Directors, EMT members and former Management Board, active in 2017, recognised in the Consolidated Statement of Profit or Loss total €12.6 million (2016: €10.1 million) The expenses, not including non-wage labour costs amount to €11.8 million (2016: €9.4 million), of which €9.8 million (2016: €4.6 million) were related to current benefits (fixed, variable and other earnings), €0.0 million (2016: €2.9 million) to benefits related to the termination of employment and €1.9 million (2016: €1.9 million) to share-based remuneration. At 31 December 2017, liabilities for performance-linked variable earnings and share-based payments for active members of the former Management Board of €6.7 million (2016: €1.6 million) are recognised as liabilities. There are no obligations arising from post-employment benefits and legally required termination benefits. In addition to the variable remuneration, the members of the former Management Board of RHI AG active in 2017 and 2016 were also entitled to share-based payments. This programme was a performance-linked and share-based compensation model, in which the vesting period per tranche extends over the respective financial year. At the beginning of the programme, a portion of the annual salary was defined for the members of the former Management Board of RHI AG, and was translated into a number of virtual shares using a reference price. The relevant reference price for the remuneration programme of the respective financial year corresponded to the average RHI AG share price from 1 December of the previous year to 31 January of the current reporting year. The actual, vested entitlement to virtual shares depended on the level of target achievement; financial criteria (adjusted EBIT, ROACE, adjusted for external costs related to the planned acquisition of Magnesita) determined 70% and other criteria 30% of the entitlement. The equivalent value of the number of virtual shares determined per tranche were paid in cash in the three equal portions in the following three financial years. This equivalent value in cash was determined on the basis of the average share price of the respective period from 1 December of the reporting year to 31 January of the following year. The programme was terminated after RHI AG merged with and into RHI Magnesita N.V. and the provisioned amount will be paid over the next three years. The effects of this compensation programme on the Consolidated Financial Statements are shown in the table below: In the financial year 2017, a payment of €1.2 million was made for the compensation programmes 2017, 2016 and 2015 (2016: € 0.1 million for the compensation program 2015). For members of the Non-Executive Directors as well as for the former Supervisory Board members (capital representatives), remuneration totalling €0.8 million (2016: €0.3 million) was recognised through profit or loss in the year 2017. The compensation paid to the members of the former Supervisory Board and Non-Executive Directors only consists of short-term employee benefits. Number of virtual shares Provision in € million Expense in € million 31.12.2017 31.12.2016 31.12.2017 31.12.2016 2017 2016 Compensation programme 2017 68,389 - 2.5 - 2.7 - Compensation programme 2016 44,020 73,042 1.6 1.7 0.5 1.8 Compensation programme 2015 6,022 14,781 0.2 0.4 0.1 0.1 Total 118,431 87,823 4.3 2.1 3.3 1.9 1 8 8
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2017 RHI Magnesita Group 88 Employee representatives acting as Non-Executive Directors of RHI Magnesita N.V. or as Supervisory Board members of the former RHI AG, who are employed by the Group, do not receive compensation for their activity as Non-Executive Directors or Supervisory Board members. For their activity as employees in the company and the activity of their close relatives employed with RHI Magnesita, expenses of €0.7 million (2016: €0.8 million) are recognised. This group of persons received zero (2016: 176) RHI AG shares in the reporting year as part of the employee stock ownership plan “4 plus 1” as the programme was terminated in 2017 No advance payments or loans were granted to key management personnel. The RHI Magnesita Group did not enter into contingent liabilities on behalf of the key management personnel. Directors Dealings reports are published on the websites of RHI Magnesita N.V. and of the London Stock Exchange. The members of the Board of Directors are covered by D&O insurance at RHI Magnesita. Detailed and individual information on the remuneration of the Board of Directors is presented in the Annual Report on Remuneration of the RHI Magnesita Group. Earnings of former members of the former Management Board amounted to €3.5 million (2016: €1.2 million), of which €1.4 million are related to share-based remuneration. From 16 October 2015 until 28 September 2016, a non-remunerated consultancy agreement with a close relative of a related person was in place for the support of the initiation of the transaction with the shareholders of Magnesita, which was terminated before the signing of the agreement regarding the acquisition of the company. (64) Corporate bodies of former RHI AG (until 25 October 2017) Members of the Management Board Stefan Borgas, Chairman Barbara Potisk-Eibensteiner (until 31 August 2017) Thomas Jakowiak Gerd Schubert Reinhold Steiner Members of the Supervisory Board Herbert Cordt, Chairman Helmut Draxler, Deputy Chairman Wolfgang Ruttenstorfer, Deputy Chairman Hubert Gorbach Alfred Gusenbauer Gerd Peskes Stanislaus Prinz zu Sayn-Wittgenstein-Berleburg David A. Schlaff Employee representatives: Walter Geier Christian Hütter Roland Rabensteiner Franz Reiter R H I M A G N E S I TA
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89 (65) Board of Directors of RHI Magnesita N.V. (from 26 October 2017) The members of the Board of Directors are as follows: Executive Directors Stefan Borgas, CEO Octavio Lopes, CFO Non-independent Non-Executive Directors Herbert Cordt, Chairman Fersen Lambranho David Schlaff Stanislaus Prinz zu Sayn-Wittgenstein-Berleburg Independent Non-Executive Directors Celia Baxter Andrew Hosty Jim Leng John Ramsay Wolfgang Ruttenstorfer Karl Sevelda Employee representatives: Franz Reiter (from 13 November 2017) Michael Schwarz (from 8 December 2017) (66) Material events after the reporting date On 26 January 2018, Magnesita redeemed US$70 million of its US$250 million 8.625% perpetual notes. On 30 January 2018, it was announced that Magnesita (through its fully-owned subsidiary Magnesita Refractories Company, York, USA) has given notice of the early redemption of the entire principal amount outstanding (US$63.3 million) of its US$400 million 7.875% Senior Notes due March 2020, to be effected on 30 March 2018, at a price equal to 100% of the principal amount plus accrued and unpaid interest. On 28 February 2018, RHI Magnesita N.V. decided to amend the cash-only alternative offer of the Integrated Tender Offer to ensure it is "at least" equivalent to Magnesita's shares' economic value. For further details refer to Note (5) – Acquisition of Magnesita. After the reporting date on 31 December 2017, there were no other events of special significance which may have a material effect on the financial position and performance of the RHI Magnesita Group. 1 9 0
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2017 RHI Magnesita Group 90 (67) Company Financial Statements of RHI Magnesita N.V. Company Balance Sheet as at 31 December 2017 (before appropriation of result) Company Statement of Profit or Loss for the period 1 July to 31 December 2017 in € million Notes 31.12.2017 30.06.2017 ASSETS Fixed assets Financial fixed assets (A) 571.5 0.0 571.5 0.0 Current assets Receivables from group companies 62.5 70.0 Cash and cash equivalents 0.1 0.0 Total current assets 62.6 70.0 Total assets 634.1 70.0 EQUITY AND LIABILITIES Equity Share capital (B) 44.8 0.0 Additional paid-in capital (C) 165.7 70.0 Legal and mandatory reserves (D) 237.3 0.0 Other reserves 263.5 0.0 Result for the period (F) (90.3) 0.0 Shareholders' Equity 621.0 70.0 Current liabilities Trade payables 2.8 0.0 Accrued liabilities 10.3 0.0 Total current liabilities 13.1 0.0 Total equity and liabilities 634.1 70.0 in € million Notes 2017 General and administrative expenses (13.0) Result before taxation (13.0) Income tax 0.0 Net result from investments (E) (77.3) Net result for the period (F) (90.3) R H I M A G N E S I TA
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91 Movements in Shareholder’s Equity Notes to the Company Financial Statements for the period ended 31 December 2017 General RHI Magnesita N.V. is a public company with limited liability under Dutch law. The company is registered with the Dutch Trade Register of the Chamber of Commerce under the number 68991665 and has its corporate seat in Arnhem, Netherlands. The administrative seat, place of effective management and registered office is located at Wienerbergstraße 9, 1100 Vienna, Austria. The shares of RHI Magnesita N.V. (ISIN code NL0012650360) are listed on the Main Market of the London Stock Exchange and are included in the FTSE 250 index. The first financial year of the Company ended on 30 June 2017. On 16 October 2017 the general meeting of the company resolved to amend and completely readopt the articles of association of the company. Upon the amendment of articles of association of the company, taking effect on 26 October 2017, the current financial year runs from 1 July 2017 up to and including 31 December 2017. Basis of preparation The Company Financial Statements have been prepared in accordance with the provisions of Part 9 of Book 2 of the Dutch Civil Code. The Company uses the option of Section 362, subsection 8, of Part 9, Book 2, of the Dutch Civil Code to prepare the Company Financial Statements on the basis of the same accounting principles as those applied for the Consolidated Financial Statements. Valuation is based on recognition and measurement requirements of accounting standards adopted by the EU (i.e. only IFRS that is adopted for use in the EU at the date of authorisation) as explained further in the Notes to the Consolidated Financial Statements. Legal and mandatory reserves Other reserves in € million Share capital Additional paid-in capital Cash flow hedges Currency transla-tion Manda-tory reserves Retained earnings Net result Equity attributable to shareholders Incorporation 20 June 2017 - - - - - - - 0.0 Increase of equity - 70.0 - - - - - 70.0 Balance as of 30 June 2017 - 70.0 - - - - - 70.0 Net result - - - - - - (90.3) (90.3) Downstream merger from RHI AG 39.8 (70.0) (0.1) (71.2) 288.7 270.0 - 457.2 Issue of ordinary shares minus costs 5.0 165.7 - - - - - 170.7 Net income/ (expense) recognised directly in equity - - 0.2 19.7 - (6.5) - 13.4 Balance as of 31 December 2017 44.8 165.7 0.1 (51.5) 288.7 263.5 (90.3) 621.0 1 9 2
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2017 RHI Magnesita Group 92 Significant accounting policies Financial fixed assets Investments in group companies in the Company Financial Statements are accounted for using the equity method. Net result from investments The share in the result of investments comprises the share of the company in the result of these investments. Fixed assets (A) Financial fixed assets The financial fixed assets comprise investments in: The investments have developed as follows: A list of investments in group companies, prepared in accordance with the relevant legal requirements (Dutch Civil Code, Book 2, Sections 379), is shown in Note 5 of the Consolidated Financial Statements. Equity (B) Share capital The company’s authorised share capital amounts to €100,000,000, comprising 100,000,000 ordinary shares, each of €1 nominal value. Following the merger and also at year-end 2017, RHI Magnesita N.V.’s issued and fully paid-in share capital consists of 44,819,039 ordinary shares. (C) Additional paid-in capital At 31 December 2017, additional paid-in capital comprises premiums on the issue of shares less issue costs net of tax by RHI Magnesita N.V.. The additional paid-in capital as of 30 June 2017 was eliminated in the course of the downstream merger from RHI AG to RHI Magnesita N.V.. (D) Legal and mandatory reserves Cash flow hedges The item cash flow hedges includes gains and losses from the effective part of cash flow hedges less tax effects. Currency translation Currency translation includes the accumulated currency translation differences from translating the financial statements of foreign subsidiaries as well as unrealised currency translation differences from monetary items which are part of a net investment in a foreign operation, net of related income taxes. If foreign companies are deconsolidated, the currency translation differences are recognised in the Statement of Profit or Loss as part of the gain or loss from the sale of shares in subsidiaries. In addition, when monetary items which are part of a net Name and registered office of the company Share in % Didier Werke A.G., Wiesbaden, Germany 12.5 RHI Refractories Raw Material GmbH, Vienna, Austria 25.0 RHI Feuerfest GmbH, Vienna, Austria 100.0 in € million Balance as at 30 June 2017 0.0 From downstream merger 457.2 Capital contributions 179.5 Changes from currency translation and cash flow hedges 19.9 Changes from defined benefit plans (5.6) Equity settled transaction (2.2) Net result from investments (77.3) Balance as at 31 December 2017 571.5 R H I M A G N E S I TA
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93 investment in a foreign operation are paid back, the currency translation differences of these monetary items previously recognised in other comprehensive income are reclassified to profit or loss. The cash flow hedges reserve and the currency translation reserve are legal reserves and are restricted for distribution. Mandatory reserve The articles of association stipulate a mandatory reserve of €288,699,230.59 which was created in connection with the merger. No distributions may be made from the mandatory reserve, no losses of the company may be allocated to the mandatory reserve and no allocation or addition may be made to the mandatory reserve. (E) Net results from investments The exact legal steps of the merger are reflected in the Company Financial Statements. Consequently the interests in the investments are recognised as per date of the transaction, in this case 26 October 2017. The results of the investments for the period from 26 October to 31 December 2017 amount to a loss of €77.3 million and are recognised in the Company Statement of Profit or Loss. The results of the investments for the period from 1 January to 25 October 2017 amount to a profit of €71.9 million and have been recognised as an effect from the downstream merger under retained earnings. (F) Net result for the period A different accounting treatment of the merger has been applied in the Consolidated Financial Statements and the Company Financial Statements. In the Consolidated Financial Statements the results of a full year have been recognised in the profit or loss account (the so called ‘pooling of interest methodology’), whereas in the Company Financial Statements the results of the period 26 October 2017 to 31 December 2017 have been recognised in the profit or loss account (the so called ‘carryover accounting methodology). The difference between the Consolidated Financial Statements and the Company Financial Statements is shown in the table below: Proposed appropriation of result It is proposed that pursuant to Article 27 clause 1 of the articles of association of the company the result shown in RHI Magnesita N.V. income statement be appropriated as follows: It is proposed that €33.6 million of retained earnings are distributed among the shareholders. Other notes Information regarding auditor's fees, number of employee’s and the remuneration of the Board of Directors is included in Note 61 to 63 of the Consolidated Financial Statements. in € million 2017 Company’s net result for the period 1 July to 31 December 2017 (90.3) Result of the investments for the period from 1 January 2017 to 25 October 2017 recognised in retained earning 71.9 Company’s consolidated results (attributable to shareholders of RHI Magnesita N.V.) (18.4) in € million 2017 Loss attributable to shareholders (90.3) In accordance with Article 27 clause 1 to be transferred to retained earnings (90.3) At the disposal of the General Meeting of Shareholders 0.0 1 9 4
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2017 RHI Magnesita Group 94 Material events after the reporting date On 28 February 2018, RHI Magnesita N.V. decided to amend the cash-only alternative offer of the Integrated Tender Offer to ensure it is "at least" equivalent to Magnesita's shares' economic value. For further details refer to Note 5 of the Consolidated Financial Statements – Acquisition of Magnesita. Vienna, 20 March 2018 Executive Directors Non-independent Non-Executive Directors Herbert Cordt, Chairman Independent Non-Executive Directors Employee representatives Stefan Borgas CEO Octavio Lopes CFO David Schlaff Stanislaus Prinz zu Sayn-Wittgenstein-Berleburg Fersen Lambranho Celia Baxter Andrew Hosty Jim Leng John Ramsay Wolfgang Ruttenstorfer Karl Sevelda Franz Reiter Michael Schwarz R H I M A G N E S I TA
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95 Other information Provisions of the articles of association on profit and distributions The stipulations of Article 27 and 28 of the Articles of Association concerning profit and distributions are: 27 Profit and distributions 27.1 The Board may resolve that the profits realised during a financial year will fully or partially be appropriated to increase and/or form reserves. With due regard to Article 26.2, a deficit may only be offset against the reserves prescribed by law to the extent this is permitted by law. 27.2 The allocation of profits remaining after application of Article 27.1 shall be determined by the General Meeting. The Board shall make a proposal for that purpose. A proposal to make a distribution of profits shall be dealt with as a separate agenda item at the General Meeting. 27.3 Distribution of profits shall be made after adoption of the annual accounts if permitted under the law given the contents of the annual accounts. 27.4 The Board may resolve to make interim distributions and/or to make distributions at ttie expense of any reserve of the Company, other than the Mandatory Reserve. 27.5 Distributions on Shares may be made only up to an amount which does not exceed the amount of the Distributable Equity. If it concerns an interim distribution, the compliance with this requirement must be evidenced by an interim statement of assets and liabilities as referred to in Section 2:105 paragraph 4 of the Dutch Civil Code. The Company shall deposit the statement of assets and liabilities at the Dutch Trade Register within eight days after the day on which the resolution to make the distribution is published. 27.6 Distributions on Shares payable in cash shall be paid in euro, unless the Board determines that payment shall be made in another currency. 27.7 The Board is authorised to determine that a distribution on Shares will not be made in cash but in kind or in the form of Shares, or to determine that Shareholders may choose to accept the distribution in cash and/or in the form of Shares, all this out of the profits and/or at the expense of reserves, other than the Mandatory Reserve, and all this if and in so far the Board has been designated by the General Meeting in accordance with Article 6.1. The Board shall set the conditions under which such a choice may be made. 28 Release for payment Distributions of profits and other distributions shall be made payable four weeks after adoption of the relevant resolution, unless the Board or the General Meeting at the proposal of the Board determine another date. 1 9 6
O T H E R I N F O R M AT I O N
R H I M A G N E S I TA
Global Reporting
Initiative G4 Index
General Standard Disclosures
Page Annual Report / Location
Remarks / Omissions
Strategy and Analysis
G4-1
Foreword
Organizational profile
6-7
G4-3
G4-4
G4-5
G4-6
G4-7
G4-8
G4-9
G4-10
Name of the organization
58, Shareholder Information
Important brands, products and services
4, 10-11, 48
Headquarters of the organization
Shareholder Information
Number and names of the countries in which
the organization operates
5
See also the world map at
www.rhimagnesita.com/about/
where-we-are/
Nature of ownership and legal form
65, Shareholder Information
Markets and industries served
4-5
Scale of the organization
4-5, 32, Balance Sheet
Employees by employment contract, gender
and region
32, 33, 37
G4-11
Percentage of employees covered by
collective bargaining agreements
38
G4-12
Supply chain
See the Responsibility / Reporting
section on the RHI Magnesita
website.
G4-13
G4-14
G4-15
Changes during the reporting period
Precautionary approach and principle
12
24-25
Advocacy of external charters, principles and
initiatives
26
See also page 5 of our Code of
Conduct.
G4-16
Membership in associations
27-28
Identified material aspects and boundaries
G4-17
G4-18
G4-19
G4-20
Entities included in the company’s
consolidated financial statements
Process for defining report content
Material aspects and topics
See the consolidated financial
statements.
27
27
Description of boundary of material aspects
within the organization
27, GRI Index
G4-21
Description of boundary of material aspects
outside the organization
GRI Index
G4-22
Restatement of information provided in
previous reports and reasons
G4-23
Changes in scope and aspect boundaries
Stakeholder engagement
G4-24
G4-25
G4-26
List of stakeholders
Basis for selection of stakeholders
Approach and frequency of stakeholder
engagement
27
27
27
Only employees of consolidated subsidiaries are taken into
account in the headcount. The number of employees working
at non-consolidated subsidiaries is not significant.
Temporary workers are not included in the headcount.
This information is indicated after each key RHI Magnesita topic.
The terms “internal” and “external” indicate whether a topic is
material within or outside the company.
This information is indicated after each key RHI Magnesita topic.
The terms “internal” and “external” indicate whether a topic is
material within or outside the company.
No restatements.
Due to the merger, the scope of companies included in the
consolidated financials statements has changed.
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
1 9 7
General Standard Disclosures
Page Annual Report / Location
Remarks / Omissions
G4-27
Key topics and concerns of stakeholders
Report profile
G4-28
G4-29
Reporting period
Date of the most recent previous report
27
26
G4-30
Reporting cycle
G4-31
G4-32
G4-33
Contact/imprint
Shareholder Information, Imprint
“In accordance” option, GRI Index
26
External audit of the report
Governance
This is the first report of RHI Magnesita. The Annual Report
2016 of RHI was published in April 2017.
The Annual Report is published annually.
The GRI disclosures were not audited externally.
G4-34
G4-38
G4-39
G4-41
G4-42
G4-43
Governance structure of the organization
58-59, 64
Composition of the highest governance body
and its committees
59-61, 62-64
Chair of the governance body
Avoidance of conflicts of interest
Role of the highest governance body in setting
values, strategies, etc.
Measures to develop competencies of the
governance body with respect to sustainability
topics
G4-44
Performance evaluation of the highest
governance body
G4-51
Remuneration policy
Ethics and integrity
G4-56
Values, principles, standards and norms of
behavior
G4-58
Reporting mechanisms
59
61, 62
30, 59
31
62
73-81
30
30-31
Specific Standard Disclosures / Key RHI Magnesita Topics
Page Annual Report / Location
Remarks / Omissions
Sustainable profitable growth (internal and external)
GRI aspect: Economic Performance
DMA
Management approach
G4-EC1
Direct economic value generated and
distributed
Innovation (internal and external)
DMA
RHIM
Management approach
Indicator: Priority patent applications
12-13
28, 39
47-48
47
Indicator was developed by RHI Magnesita.
Governance, business ethics and values (internal and external)
GRI aspects: Anti-corruption and Public Policy
DMA
Management approach
30, 58
G4-SO3 Operations with risks related to corruption
30
The risk assessment conducted as part of Risk & Opportunity
Reporting is not structured by operational sites. In the
framework of the Compliance Risk Assessment legal
entities and locations are also assessed. In the year 2017, the
Compliance Risk Assessment was updated to cover legal
entities and sites of the combined company. The focus of the
assessment was on anti-trust law.
1 9 8
O T H E R I N F O R M AT I O N
R H I M A G N E S I TA
Global Reporting
Initiative G4 Index
continued
Specific Standard Disclosures / Key RHI Magnesita Topics
Page Annual Report / Location
Remarks / Omissions
G4-SO4 Communication and trainings on corruption
31
prevention
G4-SO5
Confirmed incidents of corruption and actions
taken
G4-SO6
Political contributions
Communication (internal)
DMA
RHIM
Management approach
Indicator: share of employees reached via
internal digital channels
31
31
38
38
Product responsibility and quality management (internal and external)
DMA
Management approach
41
(IMS), 45 (Use of substitute
materials), 49 (R&D)
G4-EN6
Reduction of energy consumption
G4-EN27 Measures to mitigate the environmental
impacts of products and services
49
45, 49
G4-PR1
Products for which health and safety impacts
are assessed
45
G4-PR3
Legally required information on products
Due to the merger, the focus of compliance training was on
anti-trust and competition law. In the year 2018, an e-learning
on the Code of Conduct is planned to be introduced and
classroom trainings will be conducted. These training measures
will cover the topic of corruption prevention.
Internal communication was rated material as part of the
materiality analysis in the year 2015.
Indicator was developed by RHI Magnesita. The previously
used indicator, namely the number of intranet news items, was
replaced by a new indicator, since the use of internal digital
channels is getting more and more importance.
GRI aspects: Energy, Products and Services, Customer Health
and Safety, Product and Service Labeling
Safety data sheets provide information on safe storage,
transport, use and disposal of the products.
G4-PR5
Surveys measuring customer satisfaction
No surveys were conducted in the year 2017.
Raw materials and mining (internal and external)
GRI aspects: Materials, Biodiversity
DMA
Management approach
G4-EN1
Materials used
G4-EN13 Habitats protected or restored
41-42
41
42
Environmental protection and emissions (internal and external)
GRI aspects: Water, Emissions, Transport, Overall
DMA
Management approach
G4-EN8
Total water withdrawal by source
G4-EN15 Direct GHG emissions
G4-EN16 Indirect energy-related GHG emissions
G4-EN19 Reduction of GHG emissions
G4-EN21 Nox, Sox and other significant air emissions
G4-EN30 Significant environmental impacts of
transporting products
40
44
42, 43
42, 43
42
44
45
G4-EN31
Total environmental protection expenditures
40-41
Qualitative description of sustainable transport concepts.
Recycling and waste management (internal and external)
GRI aspects: Effluents and Waste, Products and Services
DMA
Management approach
42, 44
G4-EN2
Percentage of materials used that are recycled
input materials
This indicator cannot be reported for the year 2017 and for the
combined company. RHI Magnesita will work on compiling
reliable data for the next reporting cycle.
R H I M A G N E S I TA
A N N U A L R E P O R T 2 0 1 7
1 9 9
Specific Standard Disclosures / Key RHI Magnesita Topics
Page Annual Report / Location
Remarks / Omissions
G4-EN23 Total weight of waste by type and disposal
44, 45
method
G4-EN27 Measures to mitigate the environmental
42-43, 44
impacts of products and services
G4-EN28 Products and packaging materials that are
reclaimed
Energy efficiency (internal)
DMA
Management approach
G4-EN3
Energy consumption within the organization
G4-EN6
Reduction of energy consumption
Responsible employer (internal)
DMA
Management approach
G4-EC3
Coverage of defined benefit plan obligations
G4-EC6
Proportion of senior management hired from
local community
43
43
43
32-37
21
34
G4-LA1
New employee hires and employee turnover
33
G4-LA2
Benefits provided to full-time employees
G4-LA3
Return to work after parental leave
37
37
G4-LA5 Workforce represented in formal joint
36
management-worker health and safety
committees
G4-LA6
Injuries, occupational diseases, lost days,
absenteeism, fatalities
36, 37
G4-LA7 Workers with high incidence or risk of diseases
37
related to their occupation
G4-LA8
G4-LA9
Health and safety topics covered in formal
agreements with trade unions
37
Average hours of training per year per
employee
G4-LA10 Programs for skills management and lifelong
34-36
learning
This indicator cannot be reported for the year 2017 and for the
combined company. RHI Magnesita will work on compiling
reliable data for the next reporting cycle.
GRI aspect: Energy
GRI aspects: Economic Performance, Market Presence,
Employment, Occupational Health and Safety, Training
and Education, Diversity and Equal Opportunities, Equal
Remuneration for Women and Men
Exits of employees in Brazil due to short term fixed contracts in
sales services are not included in the turnover rate.
In the year 2018 a unified database will be developed at RHI
Magnesita to ensure reliable data for the combined company.
No global data can be reported, as regulations vary from
country to country. In Austria, 48 persons were on parental
leave in the reporting year, i.e. began their parental leave,
terminated it or both in 2017 or were on parental leave during
the whole year.
The Indian subsidiary Orient Refractories Ltd. is planned to be
included as of the year 2018.
In accordance with an international company agreement,
accidents are not reported by gender.
In the case of ten occupational accidents the employees were
still on sick leave at the time of data collection (end of January
2018), these occupational accidents were not included in the
calculation of the lost day rate.
These data are not reported for the year 2017. Due to merger
preparation measures, employees were mainly trained by
means of on-the-job development measures.
2 0 0
O T H E R I N F O R M AT I O N
R H I M A G N E S I TA
Global Reporting
Initiative G4 Index
continued
Specific Standard Disclosures / Key RHI Magnesita Topics
Page Annual Report / Location
Remarks / Omissions
G4-LA11
Performance and career development reviews 36
G4-LA12 Diversity of employees and governance bodies 33, 48, 61
Data for Austria and Germany cover all employees. Worldwide
data cover employees from professional level to managers and
directors.
G4-LA13
Ratio of salary by gender
Human rights (internal and external)
DMA
Management approach
G4-HR2
Employee training on aspects of human rights
34
31
31
31
G4-HR3
G4-HR4
Incidents of discrimination and corrective
actions taken
Risk of violation of the right to exercise freedom
of association and collective bargaining
30, 31
G4-HR5 Operations and suppliers having risk of child
30, 31
labor
G4-HR6 Operations and suppliers having risk of forced
30, 31
labor
G4-HR7
Training of security personnel
G4-HR8
Number of incidents of violations involving
rights of indigenous peoples
G4-HR9 Operations that have been subject to human
rights reviews
G4-HR11
Significant actual and potential negative
human rights impacts in the supply chain
G4-HR12 Grievances about human rights impacts filed
31
Due to the merger, the focus of compliance training was on
anti-trust and competition law. In the year 2018, an e-learning
on the Code of Conduct is planned to be introduced and
classroom trainings will be conducted. These training measures
will cover aspects of human rights.
The right to exercise freedom of association and collective
bargaining is covered in the Code of Conduct and the Supplier
Code of Conduct. In the year 2017 no incidents were known to
RHI Magnesita.
The prohibition of child labor is covered in the Code of Conduct
and the Supplier Code of Conduct. In the year 2017 no
incidents were known to RHI Magnesita.
The prohibition of forced labor is covered in the Code of
Conduct and the Supplier Code of Conduct. In the year 2017
no incidents were known to RHI Magnesita.
Not relevant
In the year 2017 no such incidents were known to RHI
Magnesita.
In the framework of regular internal audits human rights aspects
are also taken into account.
In the year 2017 no incidents were known to RHI Magnesita.
Good Corporate Citizenship (internal and external)
GRI aspect: Local Communities
DMA
Management approach
39
G4-SO1
Development programs for local communities 39
Disclosures on the Management Approach (DMA), indicators developed by RHI Magnesita as well as certain General Standard
Disclosures are not highlighted directly in the text but can be found on the page indicated.
The pages referred to regarding DMA disclosures cover narrative information on the materiality of the key CSR topics as well
as on their management.
Our Code of Conduct can be found on the Investor Relations website at:
https://ir.rhimagnesita.com/corporate-governance/code-of-conduct/
Shareholder Information
RHI Magnesita N.V. is a public company with limited liability
under Dutch law and was incorporated on June 20, 2017.
It has its corporate seat in Arnhem, the Netherlands, its
administrative seat in Vienna, Austria and its registered
office at Wienerbergstrasse 9, 1100 Vienna, Austria.
The telephone number of the Issuer is +43 50 2136200.
Ticker symbol: RHIM
ISIN Code: NL0012650360
Share’s price can be obtained on the Company’s website:
rhimagnesita.com
Investor Relations Department contacts:
22a St James’s Square
London
SW1Y 4JH
United Kingdom
T: +44 (0) 203 823 3661
Email: investor.relations@rhimagnesita.com
The shares of RHI Magnesita N.V. are listed on the
Premium Segment of the Official List on the Main
Market of the London Stock Exchange.
Company registrars
Enquiries on the following administrative matters can be
addressed to the Company’s registrars at:
Computershare Investor Services PLC
The Pavilions, Bridgwater Road
Bristol, BS99 6ZZ
United Kingdom
Website: https://www-uk.computershare.com
Telephone: 0370 707 1402
RHI Magnesita
Headquarters
Wienerbergstraße 9
1100 Wien
Austria
www.rhimagnesita.com
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