The driving force
in refractories
Annual Report 2018
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102Financial Statements
104 Consolidated Statement
of Financial Position
105 Consolidated Statement
of Profit and Loss
106 Consolidated Statement
of Comprehensive Income
Consolidated Statement
of Cash Flows
107
108 Consolidated Statement
of Changes in Equity
Notes to the Consolidated
Financial Statements 2018
Independent Auditor’s Report
195
110
Other information
203 Alternative performance
measures (“APMs”)
204 Shareholder information
CONTENTS
02Strategic Report
04 Key financial and operating highlights
06 RHI Magnesita at a glance
Chairman’s statement
08
Market overview
10
Our business -
14
how we create value
Our value chain explained
Our strategic priorities
CEO’s review
Innovation
Operational review
Key performance indicators
Financial review
Risks, viability & internal controls
Sustainability
16
18
20
22
26
34
36
42
48
58Governance
60 Board of Directors
64
66
Executive Management Team
Chairman’s introduction to
Corporate Governance
Corporate Governance Report
Nomination Committee Report
Audit & Compliance
Committee Report
Remuneration Committee Report
Directors’ Remuneration Policy
Annual Report on Remuneration
67
76
78
80
84
92
RHI Magnesita (the “Company” or “Group”) is quoted with
a premium listing on the London Stock Exchange (symbol:
RHIM) and is a constituent of the FTSE 250 index. For more
information please visit: www.rhimagnesita.com
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 8
We are RHI Magnesita.
The driving force.
RHI Magnesita is the leading global supplier of high-
grade refractory products, systems and solutions.
With its high level of geographic diversification,
focus on innovation and a vertically integrated value
chain, from raw materials to refractory products and
full performance-based solutions, RHI Magnesita
serves customers around the world.
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.
Our culture themes
determine all our actions
¥ 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
0 1
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
0 2
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 8
02Strategic Report
04 Key financial and operating highlights
06 RHI Magnesita at a glance
Chairman’s statement
08
Market overview
10
Our business -
14
how we create value
Our value chain explained
Our strategic priorities
CEO’s review
Innovation
Operational review
Key performance indicators
Financial review
Risks, viability & internal controls
Sustainability
16
18
20
22
26
34
36
42
48
0 3
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 financial and
operating highlights
Our strong performance in 2018 was driven by
the successful integration process, with the continued
delivery of synergies, as well as the underlying
strength of the markets in which we operate.
Financial highlights
€3,081m
Revenue +21%
1.2x
Net debt/adjusted
EBITDA -0.7x
13.9%
Adjusted EBITA
margin +460bps
2018
2017
€3,081m
2018
1.2x
2018
13.9%
€2,550m¹
2017
1.9x2
2017
9.3%1
€428m
Adjusted EBITA +81%
15.4%
Working capital
intensity -680 bps
€1.50
Recommended final
dividend per share +100%
2018
€428m
2018
15.4%
2018
€1.50
2017
€236m1
2017
22.2%
2017
€0.75
1 Constant currency pro-forma
2 Net debt/Adjusted pro-forma EBITDA
3 Adjusted constant currency pro-forma
0 4
Read more on pages 36 to 41
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 8
Operating highlights
¥ Record safety performance with a lost time injury
frequency (“LTIF”) rate of 0.4, representing a 60%
improvement on 2017 and demonstrating our focus
on this critical aspect of the business.
Read more about Safety
on pages 54 to 55
¥ The integration of RHI and Magnesita continued to
be successful in 2018 and has been managed well,
with minimal disruption from a customer perspective
from day one and ensuring continuity throughout
the process. Synergies of €70 million were realised
during the Year with the €110 million 2020 target
remaining on track.
¥ Positive customer demand in the Group’s Steel
Division, with strong revenues of €2,204 million
+15%3 and a gross margin of 23.7%.
Read more about the Steel Division
on pages 27 to 29
¥ Industrial Division revenue of €877 million +33%3,
with a gross margin of 24.5%, benefitting from an
overall healthy level of industrial demand.
Read more about the Industrial Division
on pages 30 to 31
¥ Positive growth in the key markets of India
and China and demonstration of our focus on these
geographies, with the ongoing consolidation of
the Group’s business in India to capture growth
opportunities more effectively and efficiently, and
our investment in the mining and brick plant assets
in Chizhou, China, to strengthen our market position
and address global supply shortages.
Read more about the Growth markets
on pages 32 to 33
¥ Continued investment in R&D and Technical
Marketing (2018: c. €63 million) to further drive
innovation, with a commitment to devote 2.2%
of overall revenue per year. Key developments
included development of Automated Process
Optimisation, the establishment of our Technical
Advisory Committee, advances with the brick data
hub technology, progress in 3D printing and surface
properties functionalisation.
Read more about Innovation
on pages 22 to 25
0 5
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
€685m
22% revenue in North America
€472m
15% revenue in South America
Optimally positioned to provide products,
services and solutions for clients around the globe
+100
Countries shipped to
14,000
Employees in more
than 40 countries
€2,204m
2018 Steel revenue
13
Raw material sites in
four continents
35
Main production sites across
16 countries
€877m
2018 Industrial revenue
0 6
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 8
€880m
29% revenue in Europe
€437m
14% revenue in MEA CIS
€608m
20% revenue in Asia Pacific
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 our solutions offering.
Read more on pages 27 to 29
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 (“EEC”)
sector, providing a wide range of services required by the
complex demands of its customers.
Read more on pages 30 to 31
Refractory products are used in
all the world’s high-temperature
industrial processes, exceeding
1,200°C in a wide range of
industries including steel,
cement, non-ferrous metals
and glass.
As global leader, we aim to use our resources,
innovation, worldwide presence and expertise
to drive change in the refractory industry
for the benefit of our customers and all
our stakeholders.
Compelling investment case
Clear strategy and strong
competitive position
¥ 15% global market share (30% ex-China);
leadership in Americas, Europe and Middle East
with broad value-added solution offering
¥ Opportunity to develop and further leverage
technology across regions and portfolio
¥ Growth in key markets of India and China
¥ 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 generation
¥ Strong cash flow from operating business supported
by synergies and organic growth opportunities
¥ Rapid deleveraging since merger; net debt to
EBITDA reduced to 1.2x
¥ Capital flexibility to pursue both growth and
shareholder returns
Significant synergy delivery and potential
¥ €70 million synergies in 2018 and €110 million
in synergies to be achieved by 2020
¥ Additional “below the line” opportunities in
working capital and tax
¥ Cost saving potential beyond synergies from
further initiatives
0 7
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’s
statement
HERBERT CORDT
CHAIRMAN
€1.50
2018 dividend per
share proposed
My letter in the 2017
Annual Report was
written only two months
after your Company was
listed on the Premium
Segment of the London
Stock Exchange.
I remarked then that the formation of
RHI Magnesita was transformative, not only
in itself, but in the global refractory industry
in which it operates. I also highlighted
the importance of 2018 - the Company’s
first full year - in using its competitive
advantage to set the pace of innovation
and progress in our industry and to
deliver the best for both our customers
and our shareholders.
I trust that our 2018 Annual Report
outlines the strong start we have made
in our first full year since the formation
of RHI Magnesita, and that our all-round
progress demonstrates that the Group
has made a very good start and is on
track in its development, enabling us
to continue delivering on our strategy.
Our culture
The importance of culture, particularly
in the context of a merger, cannot be
overstated, and 2018 has seen the
Company make considerable strides
forward in terms of further defining,
developing and embedding our cultural
values. As part of these efforts, over
2,200 employees worldwide have
now undergone training to become
“culture champions”.
In 2018, employee surveys were
carried out which, I am delighted to note,
demonstrate that we are on the right path
in terms of living our values. Feedback
received via this survey is a valuable
tool for the Board and leadership team
as we continue to shape our future.
Our strategic priorities
In 2018, we further refined our strategic
priorities and have identified four pillars
which will support the Company’s long-
term growth and sustainability.
0 8
Key governance
actions in 2018
¥ Establishment of the Corporate
Sustainability Committee
¥ Development of an
enhanced Board and
Board Committee structure
¥ Achieving a greater level of
female representation on the
Board and EMT
For more, see page 66
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 8
These are: people, business model, markets
and competitiveness and they are covered
in detail on pages 18 and 19.
nature of the business, but we also have
certain targets in place to further improve
the balance of nationalities.
Focus on sustainability
The Group joined the UN Global Compact
in 2018, signalling our ongoing focus
on sustainability. In light of the world’s
fast-growing population, climate change
pressures and resource scarcity, we must
ensure the long-term sustainability of our
business and communities in which we
operate, while working within the
constraints of the planet.
From climate change and pollution
to gender diversity and safety, we are
addressing the topics that are most
material to us and our stakeholders.
We have established our first set of
sustainability targets and report on
our progress on pages 48 to 57.
We are working to drive progress in our
business in the areas of environment,
human rights, labour and anti-corruption,
as well as supporting societal goals.
To this end, we have set up new governance
structures, targets and programmes.
Our new Board-level Sustainability
Committee will oversee the Group’s
approach, ensuring that we meet our
commitments to the UN Global Compact.
The importance of diversity
Diversity is vital to business success in
the 21st century and a diverse workforce,
leadership team and Board support an
invaluable broadening of thought and
opinion. Our initial focus is to build gender
diversity, with a target to achieve a
minimum of 33% of female representation
on our Board and senior leadership
team. I am delighted by the proposed
appointment of two new female directors
to our Board.
Whilst we have seen encouraging progress
in the gender diversity of our Board and
senior leadership, we have more work
to do in order to achieve our targets.
Diversity goes beyond gender, of course,
and we will work on other aspects to
build the diversity of our Company with
regards to skills, age and nationality,
which is vital to our long-term success.
Our Company already enjoys significant
diversity of backgrounds, given the global
Board and Management
team appointments
The Board has been further strengthened
by the proposed appointment of two
Non-Executive Directors - Fiona Paulus
and Janet Ashdown. In April, our new
CFO, Ian Botha, will be joining the
Executive Management Team (“EMT”)
and Board. The composition of the EMT
was complemented during the Year by
the appointment of Jacqueline Knox as
General Counsel & Company Secretary
and post-Year end, Gustavo Franco as Chief
Sales Officer (“CSO”). Finally, the Group
has also established a dedicated Investor
Relations team in London.
Read more about the Board and
Management on pages 60 to 65
Returns to shareholders
Underpinned by the strong performance
of the business and its strong annual cash
generation, the Board has considered the
long-term dividend policy in the context
of its capital allocation strategy.
For 2018, the Board has recommended
a final dividend of €1.50 per share for
the full financial year, equating to an
increase of 100% over the previous year.
This represents a dividend cover of 3.5x
adjusted earnings per share.
Going forward, the Board’s dividend policy
will be to progressively increase ordinary
dividends and to target a dividend cover
of less than 3.0x adjusted earnings over
the medium term. Dividends will be paid
on a semi-annual basis with one third of the
prior year’s full year dividend being paid at
the interim.
Thank you
On behalf of the Board, I would like to
express our sincere gratitude to our
people for their continued efforts to
create value for all our stakeholders.
HERBERT CORDT
CHAIRMAN
0 9
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
Market
overview
Demand for our refractory solutions
is based on those industries requiring
advanced heat-resistant materials for
their production processes; being
predominantly steel, cement/lime,
non-ferrous metals, glass and the
EEC industries.
In the long term, demand for refractories
is driven by the production volumes of
these industries and, therefore, demand
for their end products is the central
driver of our business.
1 0
Our key demand drivers are
underpinned by technology
and innovation
A shift in customer demand towards more integrated
offerings is observable, with an intensifying demand
for a breadth of products covering the full refractory
portfolio, as well as an increased requirement for
overarching services and solutions.
Industrial processes are becoming more digitalised
and reliant on technology, presenting a significant
opportunity for innovation to derive benefit from
this trend.
Increasing pressure from environmental regulations
creates the demand for efficient products and
processes that can minimise negative impacts.
Forward thinking R&D capacity is vital to offer
solutions to these issues.
There is a mounting focus amongst our customers
on quality; this in turn requires innovation and
advancements in refractory products and processes.
Our strategy
RHI Magnesita has a significant opportunity
to redefine the customer model and solutions
offering beyond conventional refractory products
and services, towards integrated systems that
cover machinery, robotics, automation, sensors,
connectivity, Big Data, Artificial Intelligence
(“AI”) and digitalisation.
One of the fundamental drivers of our business
model and strategy bases itself on our internal
expertise in innovative technologies and
digitalisation, enabling us to provide inventive
solutions and industry-leading services to our
customers. Our overall R&D capabilities for the
full refractories portfolio are at the forefront of
the industry and we are committed to the
development of products and services which
enable energy and cost efficiency.
These are all key areas of focus which underpin
our goal of providing value-driving, customer-
focused business models which will enhance
our competitiveness and further consolidate
our position in the industry.
Read more about Innovation on pages 22 to 25
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 8
Key demand
drivers
01
Steel
production
02
Raw materials
pricing
03
Construction &
infrastructure
Steel production
Performance of the Steel Division is
correlated to steel production volumes
(rather than steel prices), which have
demonstrated a long-term resilience
and through-cycle consistency. Being an
obvious driver of steel demand, GDP growth
also directly impacts our Steel Division.
¥ Global steel demand continued to
show resilience in 2018, reaching
1,658 Mt. Demand is forcast to reach
1,681 Mt in 2019.
¥ Crude steel production increased
4.6% to reach 1,809 Mt in 2018.
¥ US steel production increased by 6.2%,
with key drivers being the Government’s
infrastructure plan, tariffs escalation with
China and raw material prices. Steel
demand growth in 2019 is expected to
slow, with only modest growth in auto
manufacturing and construction activity.
¥ China production increased by 6.6%.
Ongoing trade friction with the US
and a decelerating global economy
provide potential downside to 2019
demand levels, whilst Chinese
government stimulus measures
could in fact boost demand.
¥ India’s production increased by 4.9%,
enabling it to replace Japan as the
world’s second largest steel producing
country. Indian demand is expected
to continue to be supported by
infrastructure programmes in 2019
and onwards.
¥ There is a continued focus amongst
steel producers on improving
competitiveness as well as producing
higher quality steel products.
1,681 Mt
2019 global steel
demand forecast
Sources: World Steel Association, EY
Global steel demand continues to grow
Steel production volume growth (Mt)
2,000
1,800
1,600
1,400
1,200
1,000
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Steel production volume
Our strategy
The Company is the number one refractory
player in four out of the top ten steel markets
in the world, with a clear strategy to further
consolidate our market leader position in all
major basic markets.
Our high market share in Europe and the
Americas enables us to take advantage
of existing key mature geographies and
our strategy to grow in the key markets of
India and China reflects the end-market
growth of these geographies, and provides
significant potential given the size of these
markets and our current level of
representation.
Read more about our Growth markets
on pages 32 to 33
The Group’s diversified production and
client base protects its business to a
significant extent from the impact of
demand or supply chain shifts brought
about by developments such as trade tariff
impositions. Our movement to increasing
our full services and solutions provision has
the potential to provide insulation against
oscillations in steel demand. As a result of
our focus on innovation, we are able to take
advantage of increases in requirement for
higher-quality steel.
Key geographical drivers of
refractory demand
The ten largest steel
producing countries:
China
India
Japan
United States
South Korea
Russia
Germany
Turkey
Brazil
Iran
2018 (Mt)
928.3
106.5
104.3
86.7
72.5
71.7
42.4
37.3
34.7
25.0
1 1
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
Market overview
continued
Key demand
drivers
01
Steel
production
02
Raw materials
pricing
03
Construction &
infrastructure
Raw material price comparison
Rebased to 100 in Q4 2016
600
500
400
300
200
100
2016 Q4
2017 Q2
2017 Q4
2018 Q2
2018 Q4
DBM high grade1
Alumina white
DBM medium grade1
Alumina brown
Bauxite
Graphite
70%
Self-sufficiency in
magnesite and dolomite
Our strategy
The Company has a high level of backward
integration, with unique mineral sources
and 70% self-sufficiency in magnesite and
dolomite and 50% for all raw materials,
which we believe to be a key competitive
advantage. The positive impact for
RHI Magnesita of the new, elevated raw
material pricing environment has still not
fully been noted in the Company’s 2018
results, potentially allowing further benefits
in 2019.
By increasing our production of raw
materials (for example by reopening the
Chizhou operation in China), the Group is
able to further consolidate and leverage its
market position.
Raw materials pricing
The Company is able to benefit from
fluctuations in refractory raw material
pricing as a result of its high level
of backward integration.
Generally, the prices of refractory products
depend on the price of raw materials, in
particular sintered and fused magnesia.
Other refractory raw materials such as
dolomite, alumina and bauxite, are also
influential for our business.
¥ A global scarcity of raw materials is
evident, predominantly a result of
Chinese environmental restrictions and
mining and processing regulations.
¥ Consequently, the refractory industry
has been faced with supply shortages,
leading to elevated raw material
prices (specifically higher grade
basic prices).
¥ As a result of potential further export
taxes, more restrictive allocation of
explosives and the nationalisation or
controlled consolidation of mining
operations in China, the structurally
altered raw materials pricing
environment is expected to remain in
2019, albeit with a calming of the market.
¥ Whilst current high price levels are not
expected to continue in the longer term,
prices are projected to settle at a much
higher level than that seen before 2017.
¥ Non-basic materials (bauxite, zirconia,
graphite) also experienced price
increases, albeit not to the same extent.
There is an expectation of non-basic cost
pressures in 2019.
Source: Asian Metal
1 Dead burned magnesia (“DBM”)
1 2
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 8
Key demand
drivers
01
Steel
production
02
Raw materials
pricing
03
Construction &
infrastructure
Construction & infrastructure
Global GDP growth is a leading indicator of
demand for our Industrial Division products,
with a strong correlation between real GDP
growth and cement consumption.
Demand for cement and glass is closely
linked to the construction industry.
Production of and demand for non-ferrous
metals are closely associated with their
market prices, with copper and zinc being
the most relevant to our business.
Construction markets are estimated
to account for c. 50% of overall
refractory demand.
¥ 2018 saw real global GDP growth of
3.7%, with a projection of 3.3% in 2019,
according to the OECD.
¥ From a global perspective, 2018 was a
year of relative stability for cement and
lime. Global cement demand in 2019 is
expected to grow by 1.5%.
¥ Having been weak in previous years,
from 2016 onwards demand for glass
has stabilised due to the renewed growth
in the flat glass segment propelled by
emerging Asian countries demand and
a stable European market.
¥ After a strong year in 2017, LME-listed
base metals continued their upward
trend at the beginning of 2018 but were
then impacted by international trade
disputes, the introduction of punitive and
counter duties and first signs of a cooling
global economy.
2018 LME-listed base metal prices
Rebased to 100 at the beginning of 2018
125
115
105
95
85
75
65
01/18
02/18
03/18
04/18
05/18
06/18
07/18
08/18 09/18 10/18
11/18
12/18
Al
Pb
Cu
Sn
Ni
Zn
Our strategy
The Company’s largest markets for cement
refractory products align with the world’s
largest cement producers: China and India.
We are also focusing on strengthening
our presence in the key growth markets
more broadly.
Our geographic diversification is vital in
managing the impacts of any regional
variances in GDP growth. Our Industrial
Division is also well diversified in terms of
industries, with 37% of revenue in cement/
lime, 25% of revenue in non-ferrous metals
and 39% of revenue in other process
industries in 2018.
3.7%
Global GDP growth
in 2018
3.3%
2019 projected
GDP growth
Sources: IMF, World Cement Association, Berenberg, OECD
1 3
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 business -
how we create value
We have the resources
...and the strategy
1 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.
2 Production facilities
and raw material sites
With a vertically integrated value
chain, RHI Magnesita serves
customers in more than 150
countries around the world.
3 Know-how and expertise
Our technical engineers across
90 countries work on-site with
customers to provide custom-
made solutions.
4 Skilled and motivated people
The comprehensive knowledge
and competency of our c. 14,000
employees, combined with
their innovation, commitment
and motivation, continue to
drive our success.
5 Strong relationships with
all our stakeholders
We operate with integrity, honesty
and reliability on a daily basis,
ensuring respectful relationships
amongst employees and with
all customers, shareholders and
business partners.
People
Hire, retain and motivate
talent and nurture a
meritocratic, performance-
driven, customer-focused
and friendly culture.
Business model
The leading service and
solution provider in the
refractory industry with an
extensive portfolio based
on innovative technologies
and digitalisation.
Markets
Worldwide presence with
strong local organisations
and solid market positions
in all major markets.
Competitiveness
Low-cost producer of
technically advanced
refractory materials with
safe production network.
Read more about our Strategic
priorities on page 18
Our cultural themes
determine all our actions
Act customer-focused
and innovatively
Have open decision-making
in a respectful environment
1 4
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 8
As the leading Company in the refractory
industry, RHI Magnesita has developed
a resilient business model to create value
sustainably for all our stakeholders.
...to add value through a full suite
of products and services
...to create benefits for
all our stakeholders
t i n u o u s r e s earch and developm
ent
n
o
C
Recycling
and disposal
o
O u r s
Raw materials
mining and
management
l u t ions offerin
g
Our
customers
Customer
application
and services
Production
(shaping
and firing)
Packaging and
logistics
throughout th e c y c l e
Our differentiators
Customer focus
A leading service and solutions
provider in the refractory industry, with
an extensive portfolio based on innovative
technologies and digitalisation; our
proposition is distinctive and designed
with our customers in mind.
Industry-leading expertise
We are a valued industry partner for our
clients on account of our industry-leading
in-house and on-site technical experts,
who consult, develop and deliver innovative
solutions directly to customers around
the world, 24 hours and 7 days a week.
Driving innovation
We drive innovation in every aspect of our
business, from materials, robotics and Big
Data, to offering bespoke value-driving
business models to our clients which cover
the entire product and process lifecycle.
Servicing full value chain
With the highest level of vertical
integration in the industry, including
significant self-sufficiency in all raw
materials, we have a unique ability to cover
and service every step of the value chain,
and offer distinctive customer solutions
based on our technological leadership,
expertise and cost competitiveness.
Operate cross-functionally,
collaboratively and
pragmatically
Be performance driven
and accountable
Our investors
Our clear objective is to create the maximum shareholder
value, supported by a solid strategy based on our strong global
market share, potential to develop and leverage technologies
as well as our vertical integration. With significant growth
opportunities, synergy targets, strong cash conversion and
a robust balance sheet, we have taken significant steps
forward in terms of integration and deleveraging.
€1.50 dividend per share proposed for 2018
Our customers
Whilst our products only account for around 1% to 5% of
customer production costs, their reliable performance is crucial
to the subsequent quality and stability of the end product.
As the most vertically integrated company in the industry,
our extensive portfolio, based on innovative technologies
and digitalisation, enables us to add value at every step of the
product and process lifecycle, providing optimal support and
overarching solutions to drive the success of our customers.
Presented with the “Outstanding Performance -
Customer Focus” award by Cemex in 2018
Our people
Our people are our most important resource and they
have a fundamental right to a safe and healthy workplace.
We are committed to providing equal opportunities and
aim to help employees fulfil their true potential. We have
training and development programmes in place to enable
this, alongside schemes to motivate and encourage innovation,
whilst driving success.
c. 14,000 people employed globally
Our environment
We have taken the lead in applying technology to make
refractory products more efficient to improve our
environmental footprint. We continue to drive environmental
impact improvements through the use of digitisation,
robotisation, automation, recycling and new materials.
We have established an integrated management system to
guarantee we are consistently meeting high standards.
Commitment to reduce CO2 emissions by
10% per tonne by 2025
Our communities
Our goal is to maximise our social impact in our local
communities and we aim to develop long-term partnerships to
enable this. We are committed to the responsible management
of our operations through compliance with pertaining laws and
regulations as well as striving for ethically sound practice in
everything we do. We have a long operating history within a
number of our host communities and are therefore fully
cognisant of our responsibility.
We joined the LBG framework in 20181
1 LBG is the global standard in measuring and
managing corporate community investment
1 5
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
RHI Magnesita covers all steps
throughout its entire value chain.
Our broad focus throughout the value
chain enables us to offer our customers
high-quality refractory products, supported
by industry-leading R&D, and underpinned
by our vertically integrated structure,
incorporating both a high level of raw
materials self-sufficiency as well as an
in-depth understanding of technical
customer processes.
The core constituents of the value chain
include mining, crushing, mixing, firing,
packaging, transportation, customer
application, recycling and disposal
according to legal requirements.
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
1 6
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 8
A key constituent of the Company’s
ability to add value to our customers lies
in our solutions offering, in which the
refractory products are installed by our
experienced employees. 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 is therefore
instrumental in the entire cycle from
raw material production to recycling
of finished products.
One of the basic materials for refractory
products is magnesite, a mineral that we mine
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 and, importantly, the material’s
density is increased. The bricks and mixes are
then mixed with binding agents, packaged
and shipped as repair materials and speciality/
technical additives are introduced to enhance
performance capabilities or pressed in
different sizes and shapes, employing a
pressure of up to 3,200 tonnes. Depending
on the application, the refractory bricks are
subsequently either subjected to heat
treatment at up to 350°C or fired at up
to 1,800°C in tunnel kilns for three days.
Unfired products are primarily used in the steel
industry, whilst the main applications of fired
products are in the cement, non-ferrous
metals, process and mineral industries.
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
1 7
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
After its first full year of
successful integration,
RHI Magnesita is now further
consolidating its position
as the driving force of the
refractory industry.
In 2018, we refined our key strategic priorities
and have identified the following four pillars
which will support the Company’s long-term
growth and sustainability.
As the industry leader, we will use our strategic
priorities as the framework from which to further
develop and grow our business.
To ensure the full focus of our Senior
Management, strategic priorities and
deliverables for 2019 have been allocated
to respective managers and linked
to remuneration.
Risks
Macroeconomic environment and
condition of customer industries
Regulatory and compliance risks
Fluctuations in exchange rates and
energy prices, increasing volatility
of raw material prices
Significant changes in the
competitive environment
or speed of disruptive innovation
Inability to execute a key strategic
initiative or necessary adjustments
to core operations
Business interruption and supply
chain disruption
Environment/Health & Safety risks
Cyber and information security risk
Read more about Risks on pages 42 to 47
1
2
3
4
5
6
7
8
1 8
People
Hire, retain and motivate talent
and nurture a meritocratic,
performance-driven,
customer-focused and
friendly culture.
Progress in 2018
Objectives
Link to risk
¥ We have developed, disseminated and promoted our culture
¥ Continue to work efficiently, being accountable
through workshops and the cultural champions programme
and performance-driven
¥ With a clear shared vision, RHI Magnesita is today, more than
¥ Drive innovation amongst employees
ever, a committed and focused team
¥ Focus on internal leadership development
¥ We have established initiatives to enhance international careers,
and external talent acquisition
4
2
7
taking advantage of our rich and diverse culture, and continue
to promote trust and openness
¥ We have stated targets in place to further broaden our diversity
Business model
The leading service and
solution provider in the
refractory industry with an
extensive portfolio based
on innovative technologies
and digitalisation.
Markets
Worldwide presence with
strong local organisations
and solid market positions
in all major markets.
Competitiveness
Low-cost producer of
technically advanced
refractory materials with
safe production network.
¥ As part of our post-merger strategic planning, a set of clear
customer models were defined to better fit their needs and follow
the market trends; we continue to promote and incentivise the use
of automation as well as encouraging diversity and differentiation
in our products and services
throughout the organisation
¥ Focus was placed on recycling in 2018, with the development
of new recipes and a thorough analysis of recycling practice
per region, as well as a global approach taken to our
recycling activities
¥ Our Technical Marketing and R&D teams will
continue to be a pivotal part of our business
model, as we aim to increase the share of
integrated services and solutions in the
Company’s performance
technical expertise to innovate in technology
for refractory applications as well as in systems
to improve our customers’ processes
¥ We will keep on building an autonomous
and profitable recycling business
¥ Our new customer models have been rolled out and communicated
¥ We will continue to use our unparalleled
¥ In the developed markets of North America, Europe and
¥ Further consolidate our market-leading position
South America, the Company is successfully positioned as
the most comprehensive solutions provider by capitalising
on the post-merger integration process and by realising
significant synergies
¥ Enhanced access to core markets, customer bases and
geographical regions as a result of the consolidation of our
global reach
¥ Successful growth achieved in China
¥ Reorganisation and rationalisation of Indian operations to
take advantage of the increasing local market demand
¥ Achieving merger-derived synergies
¥ Establishment of new structures to increase competitiveness
worldwide, including the global business services team
and the global supply chain management department
¥ A Sustainability Steering Committee was established
¥ In line with our stated focus on investment in R&D, 1.1% of
revenue was committed in 2018
in all major basic markets
¥ Continue optimisation of our global footprint
¥ Optimise our network through our global supply
chain management centre
¥ Take advantage of compelling consolidation
opportunities as they arise
¥ We will continue investing in R&D to create
products that have a distinct competitive
advantage by cost or by product performance
¥ We will continue to pioneer advanced refractory
operations through structured systems for the
intelligent management of our production network
¥ Our aim is to carry on improving operational
processes to deliver the lowest costs in the industry
¥ We will continue developing a full range of
the best products in the industry
3
5
7
3
5
8
3
5
7
1
4
6
8
1
4
6
1
4
6
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 8
People
Hire, retain and motivate talent
and nurture a meritocratic,
performance-driven,
customer-focused and
friendly culture.
Progress in 2018
Objectives
Link to risk
¥ We have developed, disseminated and promoted our culture
through workshops and the cultural champions programme
¥ With a clear shared vision, RHI Magnesita is today, more than
ever, a committed and focused team
¥ We have established initiatives to enhance international careers,
taking advantage of our rich and diverse culture, and continue
to promote trust and openness
¥ We have stated targets in place to further broaden our diversity
¥ Continue to work efficiently, being accountable
and performance-driven
¥ Drive innovation amongst employees
¥ Focus on internal leadership development
and external talent acquisition
4
2
7
Business model
The leading service and
solution provider in the
refractory industry with an
extensive portfolio based
on innovative technologies
and digitalisation.
Markets
Worldwide presence with
strong local organisations
and solid market positions
in all major markets.
Competitiveness
Low-cost producer of
technically advanced
refractory materials with
safe production network.
¥ As part of our post-merger strategic planning, a set of clear
customer models were defined to better fit their needs and follow
the market trends; we continue to promote and incentivise the use
of automation as well as encouraging diversity and differentiation
in our products and services
¥ Our Technical Marketing and R&D teams will
continue to be a pivotal part of our business
model, as we aim to increase the share of
integrated services and solutions in the
Company’s performance
¥ Our new customer models have been rolled out and communicated
¥ We will continue to use our unparalleled
throughout the organisation
¥ Focus was placed on recycling in 2018, with the development
of new recipes and a thorough analysis of recycling practice
per region, as well as a global approach taken to our
recycling activities
technical expertise to innovate in technology
for refractory applications as well as in systems
to improve our customers’ processes
¥ We will keep on building an autonomous
and profitable recycling business
¥ In the developed markets of North America, Europe and
¥ Further consolidate our market-leading position
South America, the Company is successfully positioned as
the most comprehensive solutions provider by capitalising
on the post-merger integration process and by realising
significant synergies
¥ Enhanced access to core markets, customer bases and
geographical regions as a result of the consolidation of our
global reach
¥ Successful growth achieved in China
¥ Reorganisation and rationalisation of Indian operations to
take advantage of the increasing local market demand
¥ Achieving merger-derived synergies
¥ Establishment of new structures to increase competitiveness
worldwide, including the global business services team
and the global supply chain management department
¥ A Sustainability Steering Committee was established
¥ In line with our stated focus on investment in R&D, 1.1% of
revenue was committed in 2018
in all major basic markets
¥ Continue optimisation of our global footprint
¥ Optimise our network through our global supply
chain management centre
¥ Take advantage of compelling consolidation
opportunities as they arise
¥ We will continue investing in R&D to create
products that have a distinct competitive
advantage by cost or by product performance
¥ We will continue to pioneer advanced refractory
operations through structured systems for the
intelligent management of our production network
¥ Our aim is to carry on improving operational
processes to deliver the lowest costs in the industry
¥ We will continue developing a full range of
the best products in the industry
3
5
7
3
5
8
3
5
7
1
4
6
8
1
4
6
1
4
6
8
1 9
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
CEO’s
review
We expect to deliver modest
organic revenue growth, continued
synergy generation and further
optimisation initiatives. In addition
to this we expect further growth
potential from acquisitions.
We remain focused on driving
margin improvement opportunities
and strong cash flow generation,
which will provide the foundation
to support our capital allocation
and dividend policy.
STEFAN BORGAS
CEO
Q Looking back at 2018, what has
the Company achieved?
A This was our first full financial year as
a new company and I am delighted by
the significant amount that we have
achieved. Underpinned by the strength
of the markets in which we operate,
we have reported very strong financial
results, successfully delivered on our
integration plans and benefitted from the
synergies of the combination. Previous
competitors have become colleagues
and we are now working together to build
the future of RHI Magnesita.
In 2018, RHI Magnesita has continued to
consolidate its position as the driving
force of the refractory industry and we
have made good progress in setting the
business on the right path to achieving
its full potential. The Group achieved
very strong results in its first full year,
following the combination of RHI and
Magnesita in 2017, with revenue growth
of 21%, and an increase in adjusted EBITA
of 81%. The growth in revenues, which
exceeded that of the underlying steel
and industrial markets, demonstrates
the continuing demand for the Group’s
breadth of technology, services and
products. Positive customer demand
was noted in the Steel Division in 2018,
with strong revenues of €2,204 million
2 0
and a gross margin of 23.7%. The
Industrial Division reported revenue of
€877 million, with a gross margin of
24.5%, benefitting from an overall
healthy level of industrial demand.
In addition to capturing a significant
proportion of this growth by virtue of
the vertically integrated model, the
Group has benefitted from its successful
integration process, with the realisation
of synergies and network optimisation
supporting a significant step up in
operating margins. Disappointingly, the
Group experienced some operational
and supply chain challenges in its
European business during H2 which
partially offset some of the margin gains.
The root cause of these issues has been
identified and improvement plans are in
place. Management is confident that
they will be substantially resolved in
the current year.
Overall, the Group’s integrated
model continues to derive benefit
from a structurally changed pricing
environment. However, it is our ability
to protect margin improvements,
regardless of the pricing environment,
that really matters. This can already be
demonstrated in our results and will be
further underpinned by the Company’s
solid growth strategy.
The Group has continued its successful
integration during 2018, achieving
synergies of €70 million, with a further
€20 million expected in the current
year, and remains on track to deliver
€110 million during the financial year
2020. The combination of top-line
growth, synergy implementation and
our vertically integrated model has led
to an adjusted EBITA margin of 13.9%,
representing a 460 basis points
improvement on 2017.
Read more in the Financial review
on pages 36 to 41
Q How has the Group’s financial
position evolved?
A The Company’s financial position
continues to strengthen, with growth
in operational cash flow generation,
materially improved working capital
intensity and a reduction in annualised
interest expense, as a result of the
refinancing carried out in 2018. This
has enabled the Group to significantly
reduce net debt to 1.2x adjusted EBITDA.
A long-term dividend policy has also
been approved with a 2018 final dividend
of €1.50 per share recommended.
Read more in the Chairman’s
statement on pages 8 to 9
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 8
Q How is the Company positioning
itself to achieve growth?
A As we adapt our business model to a
changing world, we are aiming for a
much higher share of sales in our
solutions offering, leveraging the
Company’s innovative technologies and
digitalisation, thereby creating additional
value for our customers. We place great
importance on developing and delivering
higher quality products and services,
which will in turn also enable our
customers to improve the quality of
their operations and products.
As the number one refractory player in
four out of the top ten steel markets, in
addition to maintaining our leadership
positions in the Americas, Europe and the
Middle East, we intend to grow our share
in key under-penetrated geographies.
We have seen significant success during
the Year with our dedicated, local
strategies for the Chinese and Indian
markets, resulting in high levels of growth
and market share gains. We will look to
accelerate these in 2019, as well as
applying focus to additional important
steel markets where the Group has a
limited presence.
Read more about the growth markets
of India and China on pages 32 to 33
With “People” being one of the Group’s
four strategic pillars, guaranteeing we
have the optimal team to deliver on the
Company’s ambitious growth plans is
central to our ongoing success.
Following the merger, the organisational
structure of the business was redesigned
and restructured to ensure that it
accurately reflects our strategy. This has
been a significant area of focus during
the Year and we have made important
changes to consolidate and optimise our
workforce, whilst upgrading the level of
skills and expertise throughout the Group.
Q What are your expectations for the
future growth of the business?
A Through the cycle, the Group expects
nominal organic growth of c. 1-3% per
year. Following the progress made in
the integration process, as well as the
much strengthened balance sheet and
continued strong cash generation, we
intend to initiate a number of targeted
capital investment programmes to
support the Group’s medium term
objectives. In addition to approximately
€110 million of annual maintenance
capital investment, we intend to deploy
approximately €65 million of additional
capital investment in 2019 to support
growth, increase raw material capacity
and improve efficiency. Of this,
approximately half relates to the Group’s
dolomite expansion project in Chizhou,
China and the remainder on smaller
projects in York (US) and India.
Q How is the Company maintaining
its leadership position in terms
of innovation
One of the fundamental drivers of our
business model and strategy bases itself
on our internal expertise in innovative
technologies and digitalisation. The
Group continues to drive innovation, with
significant opportunities in the fields of
automation, robotics and recycling, and
aims to devote 2.2% of total revenues per
year to R&D and Technical Marketing.
Investment in R&D and Technical
Marketing in 2018 was c. €63 million,
representing 2% of revenues, marginally
lower than the target as a result of foreign
exchange movements and the merger
combination process.
Read more about innovation on pages
22 to 25
Q How are you integrating
sustainability into the business?
A Our intense focus on safety has
already shown significant results,
with a 60% improvement in our LTIF
rate in 2018 to reach 0.4. However,
we will not be complacent; nothing
less than zero accidents is acceptable
and therefore our focus on this important
area will persist.
Read about our commitment to safety
on pages 54 to 55
We are also working hard to reduce
our environmental impacts, particularly
given the urgency of climate change.
In 2018, we made significant progress
in recycling and I am excited to note that
we will soon establish our first dedicated
recycling facility.
Read about our commitment to the
environment on pages 52 to 53
Our people are our most important
asset and therefore their continuous
development and motivation is vital
to the future success of the business.
We work hard to foster an environment
in which our employees can follow
their passions, innovate and progress.
They are accountable for their targets
and rewarded for performance. In
2018, we implemented a performance
management system with the aim of
encouraging our employees to reach
their full potential. Diversity and inclusion
are critical to the future success of our
workforce and our Chairman discusses
this further on page 9.
Read about our people
on pages 54 to 57
Demonstrating our focus on sustainability
the Group joined the UN Global
Compact in 2018, showing its
commitment to this important initiative.
Read about our commitment to
sustainability on pages 48 to 57
Q Do you have a vision for
the future?
A As the world’s population grows, there
will be new cities, infrastructure and
industries - all of which require steel,
cement and glass, and consequently
refractories. At the same time, refractories
are important in initiatives to reduce
pollution and mitigate the impacts of
climate change (by providing smarter
infrastructure and cleaner power) and lift
people out of poverty (by enabling, for
example, the construction of housing).
Whilst recognising that our innovation,
products and solutions are integral to
almost every aspect of modern life, and
therefore to the facilitation of global
development, we take our commitment
to sustainability seriously in terms of
responsibly managing the economic,
environmental and social impacts of
our business.
Q What is your business
outlook for 2019?
A 2018 has been a year of tremendous
progress and transformation, creating
the leading company in the global
refractories industry, successfully
delivering on our integration plans
and benefitting from the synergies of the
combination. More broadly, we continue
to navigate well the challenges of the
integration process and have set the
business on the right path to support
its ongoing strategic development.
We are expecting a more stable raw
material market in 2019. Whilst pricing
may ease from the current high levels,
a new higher base looks likely to be
maintained throughout the year on
account of the structurally changed
environment, especially in China.
Whilst some uncertainties exist in
the macroeconomic outlook for 2019,
robust customer markets in the medium
term (albeit with some uncertainty in the
short term) and positive trends in raw
material pricing support our expectation
to deliver modest organic revenue
growth, with improved operating margins
from 2018 levels, driven by continued
synergy generation and further
optimisation initiatives, in addition
to further growth potential from
acquisitions. We remain focused
on driving margin improvement
opportunities and strong cash flow
generation, which will provide the
foundation to support our capital
allocation and dividend policy.
I would like to thank our employees,
shareholders and customers for
your continued support in what
has been a critical year in the
Company’s development.
2 1
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
Taking innovation to
1,200°C and beyond
We are committed to
innovation in every aspect
of our business. We aim
to use data to develop
pioneering products,
new business models
including our solutions
offering, and efficient,
inventive processes that
will add real value to our
customers.
The Company’s technology leadership
is built on the ambition, dedication and
creativity of our employees. Innovation
management gives structure to this
creativity and ensures that ideas are
converted to marketable products,
services and new business models.
R&D underpins the Group’s strategy to
be the top service and solution provider
in the refractory industry with an extensive
portfolio based on innovative technologies
and digitalisation.
The Group expenditure on R&D and
Technical Marketing in 2018 was
c. €63 million.
Research and development
In 2018, R&D focused on integrating teams,
capturing synergies on G&A, production
network and cross selling, and leveraging
the innovation efforts, including the launch
of the Technical Advisory Committee
(“TAC”) (see further detail below) and
involvement with Open Innovation
platforms, to further extending our
technical network.
Innovation management
The improvement and further development
of manufacturing processes is one of the
main topics of innovation management at
RHI Magnesita.
2.2%
Annual commitment to R&D
and Technical Marketing1
1 As a percentage of overall revenue
2 2
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 8
Key developments in the R&D sphere
during the Year included:
¥ Establishment of the TAC: see case
study below
¥ Automated Process Optimisation
(“APO”): APO is being used to foster a
greater understanding of the correlation
between steel production parameters,
maintenance and refractory by analysing
data on a central master computer, using
AI methods. Further development of
APO technology has been applied to
RH degassers (a secondary refining
system that removes dissolved gases
such as hydrogen present in molten steel
to enable the production of high-grade
steel) and combined with the Agellis
Furnace safe solution (an infrared
monitoring of furnace shells that
minimises the risk of liquid steel
breakout and maximises the
operational furnace availability while
at the same time increasing safety)
¥ Brick data hub: This initiative aims
to collect data from every stage of
the process from tunnel kiln to brick
destruction. New cameras have been
installed on-site and the interface
between cameras and databases
has been prepared
Technical Advisory
Committee
The TAC was established in 2018 to:
¥ enable the Company to grow its business
by helping to identify new technologies
¥ advise on the optimal use of the current
technologies available in the Group
¥ support and challenge the Group’s
R&D team
¥ expand the Company’s technology
network into the external world
(universities, start-up companies,
partners)
w
The TAC is formed of senior, global R&D
and Technical Marketing experts and has
a strong EMT and Board-level presence.
Consultants are also invited to join
meetings when required to provide
external expertise.
The TAC held its first meeting in
September 2018 and key themes discussed
were automation and digitalisation,
functionalisation of refractory surfaces,
fast drying and low temperature sintering
technologies and innovation fostering
within the R&D organisation.
2 3
The Company’s clear objective is the
identification, development and utilisation
of new, high-performance production
technologies and services that lead to
a significant improvement in efficiency
and enable the manufacturing of products
with superior material properties and/or
functionalities. Through this approach
the Company 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, AI and
predictive maintenance are only a few
aspects which open up new opportunities
for the Company. The clear objective is to
align the Group’s activities to new trends
and to implement new business and
service models that fulfil the demands
of the Company’s stakeholders.
Our R&D capabilities
Our industry-leading R&D team is at the
centre of the Company’s ability to innovate.
The Research and Development division
consists of two R&D hubs, located in
Leoben (Austria) and Contagem (Brasil),
and three R&D centres in York (USA), Dalian
(China) and Bhiwadi/Visakhapatnam (India).
The R&D team is diverse in nature with
15 different nationalities being represented.
It comprises more than 250 people,
approximately a quarter of which are
female. Demonstrating the level of
expertise of our team, 98 people within the
global R&D team hold Master’s and PhDs.
R&D developments
€33 million, before subsidies and
including opex and capex, was committed
to R&D in 2018, representing 1.1% of total
Group revenue. We aim to commit 1.2%
of Group revenue to R&D and innovative
technologies development on an annual
basis. The minor reduction in 2018 was
due to the effect of foreign exchange
movements and also the merger
combination process.
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
continued
¥ 3D printing: 3D printed refractory
components will be produced on
a pilot scale in 2019 and sent for
application testing
¥ Surface properties functionalisation:
Several technologies which are aimed
at functionalising refractory grains
have been investigated, leading to
the development of a new refractory
formulation with improved properties
(mainly corrosion resistance, flexibility
(modulus of elasticity) and in some
cases thermal conductivity)
Intellectual property:
patents and trademarks
Given the industry-leading R&D capabilities
of the Group, we place great importance
on protecting its intellectual property.
The Company safeguards and protects its
new products, systems and technologies via
the effective use of trademarks and patents.
We continuously examine the patentability
of product developments, new raw
materials, systems and technologies in
order to provide targeted intellectual
property protection for the Group’s new
refractory solutions, thus strategically
supporting the Company’s market position
as a global leader in the refractory industry.
Seven priority patent applications
were filed in 2018; providing a competitive
advantage for the Company. They included
patent applications concerning the
geometries of refractory components,
automation and advanced refractory raw
materials. The Group’s patent portfolio
comprised 148 patent families with 1,723
patents and patent applications at the
end of the Year.
A new Group-wide patent evaluation
process has recently been rolled out
in line with the Company’s strategy.
The well-established patent monitoring
process is used to analyse competitors’
patent activities in the market and to
further secure legal compliance.
Significant achievements in 2018 include
the patenting of the IBOS Ladle Bottom
solution in its primary market - the US -
as well as the granting of a European
patent for the APO System.
2 4
The trademark portfolio has been
optimised and reduced to match the
needs of the market.
Our partnerships
RHI Magnesita has active programmes
with the following leading institutions:
¥ University of Leoben;
¥ Johannes Kepler University;
¥ Joanneum Research;
¥ University of Graz and the Graz
University of Technology;
¥ Vienna University of Technology;
¥ Federal University of São Carlos in Brazil;
¥ 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.
Fundamental research
A key focus of fundamental research is
to gain a better understanding of the
corrosion and erosion mechanisms of
our products within different customer
processes. We carry out this research,
often in collaboration with scientific
cooperation partners and within the
framework of subsidised competence
centres, with the use of simulation and
modelling methods. The aim of these is
to analyse flow conditions of liquid steel
from the steel ladle through the tundish
to solidification in the mould. Methods used
include the finite element method (“FEM”),
computational fluid dynamics (“CFD”),
the discrete element method (“DEM”),
thermochemical simulations and water
modelling. The simulation and modelling
then enables us to offer our customers
tailored refractory solutions which are based
on the research carried out and therefore
take the client’s process and specific
environment into account.
Innovation: enabling
customers to meet
their goals
Against a backdrop of the ever-
increasing focus on environmental,
health and safety issues, there is
growing demand in the steel industry
for zero-emission refractory bricks. Our
R&D team has been working to discover
ways of reducing the environmental
impact of the refractory process for years
and one of the latest developments is the
zero-emission magnesia carbon brick,
which undergoes a specific treatment
process to eliminate emissions.
The success of this product has been
proven in various customer trials and its
ability to provide significant benefit for
the customer has been demonstrated.
One long-standing customer was
required by its host Government to
significantly reduce its emissions and
therefore underwent a variety of trials
with alternative refractory products, with
either limited success or a significant
increase in costs noted, to achieve
this goal. The ladle lining concept
was then altered to enable the use of
our zero-emission bricks. In utilising
RHI Magnesita’s innovative products
and services, the customer was able
to reduce its environmental impact by
eliminating emissions and, critically, to
avoid any adverse regulatory impacts.
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 8
In 2018 in excess of 100 simulation projects
were carried out for both internal and
external customers, with some specific
examples being a CFD simulation of a tap
hole cooler design and a FEA simulation
of a new brick suspension system for
non-ferrous metals electric arc furnace
(“EAF”) roofs.
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 optimise the customer’s
total cost of ownership is one of the
fundamental activities of R&D.
New product and production
method development
Innovative raw materials and production
processes provide the basis for new
products. The Company has test plants
in Leoben and Contagem which are used
to develop new fused raw materials,
based on phase-theory considerations and
thermochemical calculations. These are
then further developed prior to undergoing
series production at our facilities. In addition
to classic oxidic raw materials, research
also deals with non-oxidic raw materials,
which have turned out to be promising.
Some of these new raw materials are
currently under investigation in order
to highlight their potential in terms of
improving thermo-mechanical properties
as well as corrosion resistance of selected
refractory formulations.
Existing product optimisation
and process improvements
The Company uses Big Data methods to
analyse and enhance existing production
processes. As an example of this, AI is
used to analyse and understand relevant
information and develop the basis of a
refractory wear model. AI methods are also
used to foster a greater understanding of
the correlation between steel production
parameters, maintenance and refractory.
In order to optimise our products and adapt
them to specific customer requirements,
used refractory materials are taken from
a variety of customer aggregates and
thoroughly studied at our R&D centres.
Based on this analysis, the Company is
able to develop optimised products and
techniques with the aim of enhancing
product performance and lowering
customer costs.
As an example, a new development
has been launched aimed at coating
refractory grains in order to improve
the thermochemical corrosion and
mechanical strength of refractory bricks,
which are exposed to highly demanding
environments. Bricks produced with this
new technology are currently undergoing
further testing in industrial kilns.
The close interdisciplinary cooperation
between material development, design
development in the simulation department
and production process development
Training
An important part of the R&D process, and
a key part of the Company’s ability to add
value to its clients, is to provide training
and knowledge sharing with our customers.
At the Training Centre in Leoben, Austria,
the Company holds seminars attended by
customers to help familiarise them with our
refractory products and lining techniques.
The participants can learn about and
practice handling refractory products
on a full-scale model of a cement rotary
kiln using modern lining machinery.
Digitalisation
Digitalisation is a key focus for the Company
as well as providing one of the Group’s
leading competitive advantages. In 2018,
further digitalisation and automation
initiatives across the Group’s entire value
chain were carried out and remain on track.
Radenthein, which is the Company’s first
digital pilot plant, enables the Group to
apply the power of digital analytics and AI.
Demonstrating the importance we place
on this area, in 2018, we appointed a Digital
Strategy Manager to establish our global
digital agenda, data/digital strategy and
governance process.
We have also developed a Supply Chain
Management (“SCM”) 4.0 team and have
initiated the SCM transformation process.
This includes projects which are focused on
digitalisation and AI to drive optimisation of
our entire supply chain.
Product portfolio
Following the merger, we commenced
a full analysis and review of the Group’s
product portfolio with the aim of unifying,
streamlining and optimising. As a result of
this process, we saw a significant reduction
of active brands and carried out a
streamlining of recipes.
Several successful product roll-outs
were achieved during the Year, including
“Q-mixes”, which were developed to ensure
short delivery times in spite of high plant
loads. Another benefit of these mixes
exists in reducing our consumption of
dead burned magnesia, enabling the
Group to further optimise its supply chain.
The development and optimisation
of reduced- and zero-emission bricks
continued successfully, with the creation
of new recipes as well as the further
optimisation of existing recipes to meet
ever-increasing environmental, health
& safety requirements. In slide gate
mechanics, the successful roll-out of the
“S-Gate” continued with a major focus on
South America in 2018, thereby securing
the Company’s patent-protected
technology leadership in slide gate
mechanics and ceramics.
In 2019, product roll-outs will continue
with examples including the introduction
of EAF hearth ramming mixes, produced
in Contagem (Brazil), and doloma-based
bricks, produced in Chizhou (China).
Technical Marketing training
We use innovative training methods to
disseminate knowledge of our product
portfolio both quickly and cost-efficiently
amongst our sales team. These processes
are supported by our dedicated “Academy”
department, within the Technical Marketing
organisation, as well as our e-learning
capabilities.
Recycling
The recycling of used refractory products
is a key strategic initiative for the Group on
the basis of the various benefits it carries.
Firstly, it enables us to secure a supply
of raw materials and therefore reduces
the requirement for their cost-intensive
procurement but also it enables a significant
reduction in energy consumption and CO2
emissions. In addition to this, by recycling
spent refractories, we can reduce the
volume of waste generated as well as
cutting disposal costs. By applying
alternative treatment methods, the
Company is aiming to increase the portion
of Secondary Raw Materials (“SRM”) that
can be recovered from the spent
refractories.
The Company uses over 100,000 tonnes
of recycled materials on an annual basis
and the development of products allowing
a higher SRM content is a priority for us.
2018 saw significant focus on the
development of our recycling strategy
and capabilities and, as part of this, the team
was enhanced during the Year. Our R&D
function developed recipes during the Year
which allowed significantly higher rates
of recycling, while still maintaining the
same functional performance in the final
customer application.
In 2019 we will continue to work in
close collaboration with our customers
to increase the percentage of SRM in
products, whilst retaining or even
improving their performance.
2 5
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
Operational
review
This operational review gives a
breakdown of performance by
division, as well as providing
some focus on our key growth
markets of India and China.
From a macro perspective, performance
in 2018 can be characterised by the
successful integration of RHI and
Magnesita, which has been managed
well throughout the Year, with minimal
disruption from a customer perspective
from day one and ensuring service
continuity throughout the process.
Detail on the macro perspective is provided in
the sections below, as well as in the Market
overview section on pages 10 to 13
2 6
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 8
Revenue split by geography
Europe
North America
Asia Pacific
South America
MEA-CIS
29%
24%
17%
17%
13%
Steel
Division
€2,204m
2018 Steel revenue
€522m
2018 Steel gross profit
Our Steel Division provides customers with
a broad range of customised refractory
solutions and services required in steel
production. These include basic and
non-basic mixes and bricks, as well as
machinery, flow control systems and our
solutions offering.
Refractory products used in the steel
industry are considered as consumable
products and therefore their service life
generally does not exceed one year.
They can therefore be classified as a
maintenance investment, with their
demand being correlated to output.
According to the World Steel Association,
global crude steel production increased
by 4.6% to 1,808.6 Mt in 2018 (+2.5%
excluding China), with increases noted
in all regions except the EU, providing a
positive customer demand backdrop for
the Group’s Steel Division.
72% of total Group revenue was attributable
to the Steel Division in 2018 (2017: 74%1),
amounting to €2,204.3 million, which
represents an increase of 15% on the
1 Pro-forma
2 Comparing against pro-forma 2017
3 Calculated based on 2017 reported figures
previous year2. Gross profit for the Steel
Division was €522.4 million, representing
a gross margin of 23.7% (2017: 23.1%3).
Whilst overall there was a gross margin
improvement in 2018, a deterioration was
noted in H2 as a result of some operational
and supply chain issues. The root cause
of these issues has been identified and
improvement plans are in place. We are
confident that they will substantially be
resolved in the current year.
Europe
The Group realised a good level of organic
growth, with revenue of €631.5 million,
in spite of the subdued level of steel
production in Europe and notwithstanding
the plant production challenges
encountered during the Year, which can be
characterised by raw material shortages
and long lead times (especially in dolomite).
This increase was driven by product
portfolio optimisation with a favourable
pricing impact, and also influenced by
our ability to pass on cost increases. The
Company successfully mitigated long lead
times and production/shipping delays (as a
result of unplanned ex China orders) by
close interdepartmental and customer
cooperation. Furthermore, coordinated
inventory measures were taken to reduce
excessive stock and thereby free up capital
employed without impacting customer
satisfaction with our supply reliability.
Steel production in the EU decreased
by 0.3% to 168.1 Mt. Steel consumption
levelled in H2 2018, according to the
European Steel Association (“Eurofer”),
showing a 2.2% increase at closing when
compared to 2017. High overall levels of
steel consumption and stock building
across the steel distribution chain drove
stable demand during the Year amidst
tensions over US tariffs on European steel
and serious discussions on safeguards and
tariff barriers in response to steel imports
in the region, especially from China and
other Asian producers.
As with North America, we see potential
positive benefits in Europe from the
reopening of the Chizhou plant and
expect 2019 to present a more stable
year in this region.
2 7
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
Operational review
continued
North America
Strong revenue of €534.6 million was
recorded in 2018, with particularly strong
performance in North America due to
crude steel production rising in the US
and Mexico, but also due to the Group’s
focus on key strategic initiatives, an
enhanced portfolio of products, and
market price adjustments, which
outpaced the cost development.
Given the limited raw material sourcing
options in North America, resulting in
a high reliance on imported goods and
raw materials, this region inevitably saw
challenges in 2018. Customer sentiment
was impacted by supply concerns on
account of raw material developments in
China, which significantly increased prices.
There were specific challenges in 2018 to
fulfil demand for dolomite-based shaped
products, which was impacted by
production capacities and increased
steel pour.
The Group was able to derive benefit from
its strong market position in North America,
driven by its very competitive product and
service offering across the full refractory
portfolio, and also from its high level of
backward integration for imported products
from Europe and South America.
North America demonstrated strong
growth in 2018, particularly when
considering the maturity of the market,
with steel production increasing by 4.1%
to 120.5 Mt. The US saw a particularly high
year-on-year increase of +6.2% to 86.7 Mt,
with key drivers being the Government’s
infrastructure plan, the tariffs escalation
with China and raw material prices.
In March 2018, 25% tariffs were imposed
on steel imports, leading to an increase
in US steel prices and steel customers
announcing new investments (as well as
the recommencement of previously halted
operations). However, as the Year-end
approached, prices began to fall back
to similar levels seen prior to the tariff
implementation. A 10% tariff was also
implemented on imported Chinese
goods in September 2018, which will rise
to 25% absent any future developments.
Capacity utilisation in the US (a key indicator
for the industry) passed the 80%1 reference
point and a number of steel producers
initiated investments to ramp up production
capabilities and upgrade facilities as the
economy gained momentum.
Looking forward to 2019, we are encouraged
by customer green- and brownfield projects
as well as the positive impact of increased
steel pour from those operations which
were restarted during the Year. We also
anticipate being in a position to derive
some of the latent benefit from increases
in Chinese raw material pricing that was
not yet fully felt during 2018.
The reopening of the Chizhou plant in
China is expected to free up dolomite
capacity in North American plants from the
end of 2019 onwards, enabling additional
deliveries to customers in the region.
Middle East & Africa (“MEA”),
CIS & Asia Pacific
The Group succeeded in outperforming
the market in India, China and Asia Pacific
in 2018, which itself saw strong steel growth
in all regions. Revenue reported for MEA
and CIS in 2018 was €286.1 million, with
€385.7 million in Asia Pacific, positively
impacted by price increases, with the
strongest improvements being seen in MEA.
The Group contended with the issue of a
limited level of backward integration in a
majority of these regions during the Year;
however, with a steadier raw material
supply flow expected in 2019, a further
improvement in performance is anticipated.
2 8
1 The American Iron and Steel Institute
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 8
The country-wide truckers’ strike in Brazil,
which occurred in May, hindered further
growth in steel sales in the domestic market
in 2018 and the US decision to restrict the
market to steel imports (Section 232),
triggered protectionist escalation on the
part of the other countries, jeopardising
growth in export volumes.
Apparent steel consumption is forecast
to rise by 6.2% to 22.4Mt1 on the basis of
optimistic expectations of the new Brazilian
Government measures. Whilst our internal
expectations take into account a certain
level of conservatism, this still has the
potential to drive further steel production
increases in 2019.
We will continue to reinforce the
commercial strategy of our solution-
oriented business in South America,
with a focus on supporting the recovery
of the steel industry.
Strong steel revenues in
2018 of €2,204 million
were underpinned by
positive customer demand.
Steel production in Asia grew by 5.6%
to 1,271.1 Mt. China increased by 6.6%,
with its share of global production rising
from 50.3% to 51.3%. India’s production
increased by 4.9%, overtaking Japan as
the world’s second largest steel producing
country. The Middle East saw a significant
increase in steel production of 11.7% to
38.5 Mt. Turkey decreased slightly to 37.3
Mt. Egypt, Morocco and Algeria increased
steel production by 9.3% to 9.8 Mt2.
Steel production in the CIS remained
largely flat; +0.3% to 101.3 Mt.
Ukraine production decreased by 1.1%
to 21.1 Mt, continuing to be impacted by
political instability and resultant lower
business activity.
The impact of lower steel prices and
higher iron ore production costs at the start
of 2019 is already being noted. There is an
increased risk to steel producers in these
regions on the basis of a growing preference
for steel imports from Russia, Ukraine and
China as opposed to utilising local steel
production. It is specifically likely that
regional EAF plants may suffer.
South America
The Group’s market position in South
America is strong, with a focus on the
solutions model, benefitting from long-
standing customer relationships and driving
value for these customers. Revenue, which
amounted to €366.3 million in 2018, was
negatively impacted by country-wide
industrial action of truck drivers in Brazil
in May as well as the political situation
in Venezuela, which has largely halted
steel production in the country. However,
profitability was increased in 2018 as a
result of improved product mix, better
technical results in performance contracts
as well as merger-related synergies. The
Company encountered some challenges
with its stand-alone installation model in
2018 which negatively impacted on margins
but we expect to generate positive gains in
2019, with a strong focus on a turnaround
of this area.
2018 saw average growth in steel
production, given the maturity of the
market, with an increase of 1.3% in Latin
America to reach 44.3 Mt. Brazil showed
a steady pace in its economic recovery
with steel production reaching 34.7 Mt
in 2018 (+1.1% year-on-year). The domestic
apparent consumption of steel products
in Brazil was 20.6 Mt, an increase of
7.3% over the previous year. Despite the
positive performance of the Brazilian
steel industry in 2018, domestic sales
and apparent consumption still remain
below the levels reached in 2013. Factors
affecting steel consumption in South
America include political uncertainty
latent in Brazil and Colombia due to the
electoral cycle, the financial crisis in
Argentina and the continuing uncertainty
in Venezuela regarding the resumption
of steel production.
1 Brazil Steel Institute
2 According to CRU statistics
2 9
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
Operational review
continued
with a revenue of €877.1 million (2017:
€658 million). Gross profit for the Industrial
Division was €214.5 million, representing
a gross margin of 24.5% (2017: 22.5%1).
Cement/Lime
Cement/Lime in 2018 amounted to
€321.3 million, driven by price increases
and portfolio optimisation. This segment
constituted 37% of Industrial Division
revenue in 2018 and 10% of overall
Group revenue.
The Company saw a successful turnaround
of its Cement/Lime business during the
Year, with positive effects from the
renegotiation of contract terms being
noted Magnesite and dolomite raw material
availability remained tight in 2018, with
Chinese DBM maintaining high price levels.
In H1, cement continued to be impacted
by long-term contracts and a very high
order level from 2017. Long lead times,
mainly in Europe, also led to delayed
margin improvements. However, the
Company took positive actions to
mitigate these issues, shortening the
impact of price increases by reducing
contracts and price validity, and
concentrating on the most profitable
business areas. From H2 onwards,
price increases were then evident in
improving margins.
2018 was a year of steady refractory
market growth and relative stability for
cement and lime from a global market
perspective, with some significant
variances on a regional basis. China, the
world’s largest cement producer, continued
its focus on environmental improvements
and consequently on reducing mainly
outdated cement capacities. Other
countries, such as Brazil and those in the
near Middle East, can be characterised by
their challenging economic environments,
whereas Eastern Europe, Central Asia and
North America all benefited from significant
increases in demand.
Industrial
Division
€877m
2018 Industrial revenue
€215m
2018 Industrial gross profit
The Industrial Division provides refractory
solutions for the cement, lime, non-ferrous
metals and glass industries as well as the
EEC sectors.
Refractory products for the cement
industries tend to be consumables, with a
replacement period of up to a year. Similar
to those used in the steel industry, they are
considered as maintenance investment,
with demand being correlated to output.
In the non-ferrous metals, lime, glass as
well as the EEC industries, the service life
of refractory products is generally longer.
Refractory investment in these industries is
therefore more project-oriented and subject
to longer replacement cycles, leading to
more volatile demand than that seen in
the steel and cement/lime industries.
With GDP growth in 2018 of 3.7% (of which
c. 3% is relevant to the business), the Group
was able to derive benefit from a healthy
overall industrial demand environment.
Sales to the Industrial Division accounted
for 28% of total Group revenue (2017: 26%),
1 Calculated on a statutory basis
2 Percentages equal over 100% due to rounding
3 0
Industrial Division revenue2
Cement/Lime
Non-ferrous metals
Other process industries
37%
25%
39%
The market demand for lime has been very
stable. However, as a result of fewer projects
in vertical shaft kilns - one of our key market
areas - we saw lower volume and revenue
compared to 2017. Nevertheless, we note an
encouraging projects pipeline and positive
current trend in early 2019. An additional
focus on rotary kilns is also expected to lead
to market growth, mainly in North America.
After the turnaround seen in this business
in 2018, further upside is anticipated in 2019
driven by our ability to fully capture the
positive effects of our backward integration.
Non-ferrous metals
Revenue contribution from the non-ferrous
metals business represented 7% of
the Group’s overall revenue in 2018
and 25% of the Industrial Division, with
strong revenue of €217.2 million in 2018,
outpacing the market, which itself retained
positive dynamics. The business unit
performed well during the Year and saw
the benefit of a number of projects with
long-standing customers.
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 8
After a strong year in 2017, the upwards
price trend of LME-listed base metals
continued at the start of 2018. Following
the implementation of tariffs and the
commencement of international trade
disputes, prices then decreased slightly
with the change in the macro-economic
environment, and the majority closed
2018 down on the previous year.
The business was predominantly driven by
major repairs and standard business with
existing customers. We saw strong orders
from certain customers - with an example
being greater orders than expected from
Kazakhstan’s ferro alloy industry, which
positively impacted our results.
The positive momentum seen in 2018 is
expected to continue in 2019 and, looking
forward, we see significant opportunities for
the non-ferrous metals business as a result
of the evolution of e-mobility technology.
With the growth of e-vehicles, the
increasing requirement for batteries and
also battery charging infrastructure, the
demand for metals used in this sphere is
likely to increase. The increasing demand
for copper in the e-mobility sector is likely
play a crucial role for new copper capacities
in coming years, on the basis it is needed in
batteries as well as engines and wiring for
e-vehicles and charging infrastructure.
Nickel, platinum and palladium are also
increasingly used in this area. Palladium
(the metal used in catalysts of gasoline
engines) prices gained over 18% in 2018.
Other process industries
Other process industries mainly comprises
glass, EEC and mineral industries. With
revenue of €338.6 million in 2018, this
segment accounted for 39% of the
Industrial Division sales and 11% of the
Company’s overall revenue.
The global demand of refractories for the
glass industry was high in 2018, enabling
us to fully utilise the production capacities
at all of our plants. Customer investments
were strong and, based on our backwardly
integrated portfolio for basic refractories,
we were able to support this trend. Strong
performance was recorded in this section
of the business, mainly driven by pricing.
The Company recorded growth which
outpaced that of the market.
In the first complete business year since
selling the non-profitable fused cast
product line, we were able to compensate
for the loss of fused cast revenue by
focusing on the bonded product portfolio.
Supported by new strategic measures and
alongside a robust pricing strategy the
glass business unit contributed strongly
to the overall business plan, and provided
significant improvements to margins.
In the EEC sector, revenue, shipments
and profitability increased in 2018,
albeit demand for most applications
was relatively flat year-on-year, driven
by volatile oil markets. 2018 saw strong
demand in the pelletising industry, mainly
in the Middle East, as well as an increase in
business with our special waste customers
worldwide. European and CIS demand
was strong throughout 2018. As a result
of the challenging oil and gas environment
in Canada in 2018, in which a large
proportion of investment projects were
halted, this market saw subdued demand
during the Year.
The Group derived benefit
from a healthy overall
industrial demand
environment and
recorded industrial
revenues of €877 million.
Opportunities in 2019 include the
further broadening of the product
portfolio, especially with regards to
non-basic products for glass furnaces.
The EEC market saw some positive
impetus at the end of 2018, which is
expected to continue in 2019.
3 1
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
Operational review
continued
Growth
markets: India
€251m
2018 India revenue1
1
Includes €6.2 million revenue from
Sri Lanka, Bangladesh, Nepal and Bhutan
Sources: World Steel Association,
JPC/Centrum Research
3 2
Consolidating and
strengthening our
Indian presence
By maximising our operational and SCM
excellence, we are working to optimise
our production footprint in India. In 2018,
we commenced the reorganisation of our
structure to combine three separate legal
entities, all with specific areas of focus and
expertise, thereby enhancing the business
and operational synergies via the pooling of
management expertise, technologies and
other resources between the businesses.
Orient Refractory Limited previously
concentrated on special refractory
products (such as flow control solutions)
and mainly sold to small steel manufacturing
companies, whereas RHI India P Ltd dealt in
basic refractories and lining business and
supplied to large steel manufacturers, and
lastly RHI Clasil P Ltd concentrated on
non-basic refractories (alumina bricks).
The combined business, which is
underpinned by the expertise and
experience of RHI Magnesita, creates a
larger asset base in India, and importantly
provides customers with one single
refractories solutions platform. This has
made the business more relevant and better
aligned with the larger steel manufacturers.
The Indian steel industry is undergoing
consolidation, which is expected to
underpin its strength but also to provide a
higher market share for industry leaders. As
a combined group in India, RHI Magnesita’s
business here will be in a strong position to
benefit from this consolidation on the basis
of the breadth of the combined organisation
as well as its long-standing relationships
with these market-leading customers.
The Group has a strong local presence in
India, with a leading market share, solid
revenue streams and continuous growth.
We operate through two production
facilities and two sales offices and
have long-standing relationships with
blue chip customers.
2018 has seen the Indian steel market
becoming the second largest in the world,
further reinforcing the necessity for our
continued emphasis on this geography.
The Indian Steel Ministry has set a 300 Mt
per annum steel capacity target by the
end of 2030 which underpins the future
of this industry.
Revenue for 2018 amounted to
€251.5 million1. In spite of the lack of
greenfield steel manufacturing projects
during the Year, the Group’s Indian
business continued to grow ahead of
steel market growth.
In order to address increased customer
demand, the Company has aligned its
Indian business units to meet requirements.
The Group has also increased capacity
at its operations in certain areas to
address demand. As a result of substantial
restructuring and consolidation in the
Indian steel industry, demand for higher
performance and better quality solutions
has increased - a development which
corresponds well to our strengths as a
Group and enables us to take advantage of
this position, whilst also working to further
strengthen our position in the market in terms
of cost competitive refractory solutions.
India’s steel production and demand
is expected to increase by 5% and 7%
respectively in 2019, backed by growth
in investment in infrastructure and
construction projects, complemented by
strong automotive demand. At present,
the Indian steel industry is running at
78% utilisation rate (current capacity
130 Mt per annum). The demand outlook
for next three to five years is likely to mirror
the current GDP growth rate of 7% (which
should enable India to overtake the UK
in becoming the world’s fifth largest
economy). Ahead of the 2019 general
election it is expected that Government of
India may take measures to boost overall
sentiment in the upcoming fiscal budget.
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 8
Growth
markets: China
€166m
2018 China revenue1
In order to develop and advance our
position in the key growth market of
China, we implemented a new business
plan and built up a stronger, locally-focused
management team as part of a ‘China for
China’ strategy developed in 2018.
We have been able to grow our market
presence here as a result of the newly
developed team, our tailor-made products
for China, increased capacities, enhanced
inventory management abilities and an
overall strong local focus on this geography.
Demonstrating our focus in 2018, revenue in
China amounted to €165.8 million1 in 2018.
Cognisant of the unique nature of the
Chinese market, our new R&D team
has developed specific, strategic and
environmentally friendly products in
cooperation with key customers.
The team also collaborates with local
universities and organisations. In addition
to this, we have carried out significant
efforts to increase our brand awareness
in China and have implemented the
Group’s first Virtual Reality (“VR”) project
here. This involved developing a VR video
of our fired magnesia brick operation in
Dalian to demonstrate this modern and
high-tech manufacturing site to our
customers around the globe. It is an
effective way of providing them with an
overview of the operation, demonstrating
the Group’s technology leadership as
well as enhancing the awareness of our
brand worldwide.
1
Includes €0.1 million revenue from
Hong Kong and Macau
Successful projects carried out in
2018 included:
¥ The ramp up of the Group’s brick plant
in Chizhou, which is being conducted in
a two phased process. Phase one is on
track, with trial production currently
underway and our first sales coming
onto the market in early 2019;
¥ Silo project: This project offers greater
flexibility in the production of carbon
bonded magnesia bricks for the domestic
market (previously production from the
carbon bonded magnesia bricks site was
predominantly exported). The Group
now has three sites in Dalian.
¥ ISO extension at Dalian sites: The
Company is developing technology in
the sphere of ISO bricks to enable it to
achieve higher growth than the market.
We are investing in additional capacity
at the ISO site to enable shipping to the
domestic market.
Given our local expertise in China, we are
able to adapt and strengthen our business
to overcome market challenges and adapt
to trends. As an example of this, we have
reorganised and widened the breadth of
the Chinese steel department. Against
the backdrop of a challenging automotive
industry, we still see good opportunities in
the steel sector. In addition to the increasing
demand for SUV and MPVs (which consume
more steel in their production), we are also
seeing strong demand for new energy
vehicles (“NEV”), with the overall sales of
NEV increasing 68% year-on-year for the
January to November period.
We also see significant opportunities
with the shift to EAF steel plants and
the consequent refractory demand.
Automation is a key focus in the Chinese
market and we are therefore concentrating
on creating solutions which will enable our
customers to increase the quality of their
products, whilst lowering energy and
production costs.
With the increasingly strict environmental
policy in China, recycling will play a key role
in our strategy for 2019 and, benefitting
from our local expertise and market access,
we are targeting our R&D work on creating
‘China for China’ products with increased
use of SRM.
Chizhou - our
strategy in action
Our investment in the Chizhou mining
and brick plant assets in 2018 marked
another important strategic step towards
improving our competitiveness and
supply security in the medium term.
By increasing our level of raw material
integration, we can improve our unique
position in the industry and offer our
customers in Asia shorter lead times.
We will also have additional dolomite-
based capacity for customers in North
America, Europe and Asia.
The Chizhou site includes an extensive
dolomite mine and raw material
production site, as well as facilities for
high-quality dolomite-based finished
products. After the completion of the
investment towards the end of 2019,
the Company will be able to offer a
fully backward-integrated dolomite
source in each of our key global regions.
The project is being conducted in a two
phased process. Phase one is on track,
with trial production currently underway
and our first sales coming onto the market
in early 2019.
3 3
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
performance
indicators
The Board and Management have
identified the following indicators
which it believes to reflect
the financial and non-financial
performance of the business.
Read more in our Financial review
on pages 36 to 41
Leverage
2018
1.2x
2017
1.9x
KPI relevance
A suitable leverage provides the business with headroom for
compelling investment opportunities but also enables distribution
to shareholders. Directors’ remuneration is directly linked to free
cash flow generation, which impacts Group leverage. The Board
has defined a long-term leverage target range of 0.5 to 1.5x across
the cycle.
How it is measured
Net debt to adjusted EBITDA.
Revenue growth
Adjusted EBITA margin
2018
21%
2018
13.9%
2017
11%¹
KPI relevance
2017
9.3%²
KPI relevance
This demonstrates the organic growth of the business. By
increasing our global refractory market share, continually enhancing
our product and service offering, the Company is focused on achieving
revenue growth and aims to outperform the refractories market on an
annual basis.
Margin expansion provides a measure of profitability and demonstrates
the successful execution of the integration and the Company’s
corporate strategy. Synergy targets, which impact EBITA margin
performance, are included in Directors’ remuneration.
Adjusted EPS
2018
2017
KPI relevance
€5.31
n/a
Reflecting the income statement in a clear way and taking the
equity structure into account, the Board believes adjusted EPS to
be one of the indicators which demonstrate value being created
for its shareholders.
How it is measured
Year-on-year percentage improvement; based on pro-forma revenue
at a constant currency.
How it is measured
Adjusted EBITA divided by revenue.
How it is measured
Earnings per share, excluding items such as FX effect, merger-related
costs, re-financing costs and other financial income and expenses.
2018 performance
2018 performance
2018 performance
2018 performance
Revenue for 2018 amounted to €3,081 million, 21% higher than
last year’s pro-forma revenue at constant currency. The significant
growth in revenue is underpinned by strong growth in the Group’s
Steel and Industrial Division’s results, as well as the favourable
market environment.
Based on an adjusted EBITA of €428.1 million, the 460bps
improvement in margin was predominantly driven by the significant
increase in revenue growth, higher efficiency in operations (leading
to better gross margins), the implementation of synergy benefits and
also due to the high fixed cost dilution in SG&A.
Adjusted EPS of €5.31 reflected solid performance of the business
as well as the achievement of synergies. A comparable adjusted
figure is not available for 2017.
Net debt at Year-end amounted to €638.9 million and the
Company’s leverage was 0.7x lower than in 2017 as a result of
the improved cash generation in 2018.
Safety: LTIF
2018
0.4
2017
1.1
KPI relevance
Safety is paramount to the successful running of our business and
therefore sits at the core of everything we do. LTIF is the main safety
KPI we use to measure the safety performance of the Company.
Directors’ remuneration is directly linked to safety objectives.
R&D & Technical Marketing spend
Voluntary employee turnover
Gender diversity in leadership
2018
2017
KPI relevance
€63m
n/a
This demonstrates our commitment to driving innovation and to being
the leading provider of services and solutions within the refractories
industries. Excellence in R&D and strong Technical Marketing
capabilities are key contributors to our competitiveness. The Company
aims to invest 2.2% per annum of revenue in R&D and Technical
Marketing going forward.
2018
2017
KPI relevance
12.5%
n/a
Voluntary employee turnover is considered to be one way of
measuring the Group’s success in retaining its people.
2018
2017
KPI relevance
12%
8%
Diversity is important in terms of maintaining the Group’s
competitiveness and economic success and gender diversity
is a key component of this. The Company has a target to increase
women on our Board and in senior leadership to 33%.
How it is measured
How it is measured
How it is measured
How it is measured
The number of accidents resulting in lost time of more than eight
hours per 200,000 working hours, determined on a monthly basis.
Annual spend on research and development, before subsidies and
including opex and capex.
The percentage of employees who voluntarily left the Company
during the Year and were replaced by new employees.
Number of women as a percentage of all those in leadership positions
(CEO, EMT and EMT direct reports).
2018 performance
2018 performance
2018 performance
2018 performance
LTIF reached an all-time low of 0.4 in 2018, with improvements in
all regions. This represents a 60% reduction compared to 2017,
far exceeding our 20% target.
Read more about Safety on pages 54 to 55
€63 million was committed to R&D and Technical Marketing in 2018,
equating to 2% of revenues, marginally lower than the target as a
result of foreign exchange movements and the merger combination
process (including restructuring of departments).
Read more about Innovation on pages 22 to 25
Voluntary employee turnover of 12.5% for 2018 was high as a result of
the integration following the merger in 2017.
Read more about our People on pages 54 to 57
Female representation at leadership level was greatly enhanced in
2018, increasing to 12% and demonstrating our focus on this area.
Diversity at Board level was also significantly improved, with the
nomination of two new female Non-Executive Directors to the Board.
Read more about Diversity on pages 56 to 57
3 4
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 8
These KPIs, which relate to the four underlying
strategic pillars of the Group, as demonstrated
in the key, are monitored and link to the
Company’s risk management process.
Some of the KPIs are also used as measures
for short- and long-term incentives. The Group
intends to report on Economic Profit as a KPI
from 2019 to measure the creation of long-
term value. The Company will also look to
further develop reporting of non-financial
KPIs in 2019.
Link to strategy
People
Business model
Markets
Competitiveness
1 Compared with the adjusted pro-forma revenue of €2,409 million in 2016
2 On an adjusted, pro-forma, constant currency basis
Read more about our Alternative Performance
Measures on our website www.rhimagnesita.com
2017
11%¹
KPI relevance
annual basis.
How it is measured
at a constant currency.
2018 performance
Safety: LTIF
2018
0.4
How it is measured
2018 performance
Revenue growth
Adjusted EBITA margin
2018
21%
2018
13.9%
Adjusted EPS
2018
2017
KPI relevance
€5.31
n/a
This demonstrates the organic growth of the business. By
increasing our global refractory market share, continually enhancing
our product and service offering, the Company is focused on achieving
revenue growth and aims to outperform the refractories market on an
Margin expansion provides a measure of profitability and demonstrates
the successful execution of the integration and the Company’s
corporate strategy. Synergy targets, which impact EBITA margin
performance, are included in Directors’ remuneration.
Reflecting the income statement in a clear way and taking the
equity structure into account, the Board believes adjusted EPS to
be one of the indicators which demonstrate value being created
for its shareholders.
Leverage
2018
1.2x
2017
1.9x
KPI relevance
A suitable leverage provides the business with headroom for
compelling investment opportunities but also enables distribution
to shareholders. Directors’ remuneration is directly linked to free
cash flow generation, which impacts Group leverage. The Board
has defined a long-term leverage target range of 0.5 to 1.5x across
the cycle.
Year-on-year percentage improvement; based on pro-forma revenue
Adjusted EBITA divided by revenue.
Revenue for 2018 amounted to €3,081 million, 21% higher than
last year’s pro-forma revenue at constant currency. The significant
growth in revenue is underpinned by strong growth in the Group’s
Steel and Industrial Division’s results, as well as the favourable
market environment.
Based on an adjusted EBITA of €428.1 million, the 460bps
improvement in margin was predominantly driven by the significant
increase in revenue growth, higher efficiency in operations (leading
to better gross margins), the implementation of synergy benefits and
also due to the high fixed cost dilution in SG&A.
How it is measured
Earnings per share, excluding items such as FX effect, merger-related
costs, re-financing costs and other financial income and expenses.
How it is measured
Net debt to adjusted EBITDA.
2018 performance
2018 performance
Adjusted EPS of €5.31 reflected solid performance of the business
as well as the achievement of synergies. A comparable adjusted
figure is not available for 2017.
Net debt at Year-end amounted to €638.9 million and the
Company’s leverage was 0.7x lower than in 2017 as a result of
the improved cash generation in 2018.
R&D & Technical Marketing spend
Voluntary employee turnover
Gender diversity in leadership
2017
9.3%²
KPI relevance
How it is measured
2018 performance
2018
2017
KPI relevance
12.5%
n/a
Voluntary employee turnover is considered to be one way of
measuring the Group’s success in retaining its people.
2018
2017
KPI relevance
12%
8%
Diversity is important in terms of maintaining the Group’s
competitiveness and economic success and gender diversity
is a key component of this. The Company has a target to increase
women on our Board and in senior leadership to 33%.
The number of accidents resulting in lost time of more than eight
hours per 200,000 working hours, determined on a monthly basis.
Annual spend on research and development, before subsidies and
The percentage of employees who voluntarily left the Company
during the Year and were replaced by new employees.
Number of women as a percentage of all those in leadership positions
(CEO, EMT and EMT direct reports).
How it is measured
How it is measured
LTIF reached an all-time low of 0.4 in 2018, with improvements in
all regions. This represents a 60% reduction compared to 2017,
far exceeding our 20% target.
Read more about Safety on pages 54 to 55
€63 million was committed to R&D and Technical Marketing in 2018,
equating to 2% of revenues, marginally lower than the target as a
result of foreign exchange movements and the merger combination
process (including restructuring of departments).
Read more about Innovation on pages 22 to 25
2018 performance
2018 performance
Voluntary employee turnover of 12.5% for 2018 was high as a result of
the integration following the merger in 2017.
Read more about our People on pages 54 to 57
Female representation at leadership level was greatly enhanced in
2018, increasing to 12% and demonstrating our focus on this area.
Diversity at Board level was also significantly improved, with the
nomination of two new female Non-Executive Directors to the Board.
Read more about Diversity on pages 56 to 57
3 5
2017
1.1
KPI relevance
Safety is paramount to the successful running of our business and
therefore sits at the core of everything we do. LTIF is the main safety
KPI we use to measure the safety performance of the Company.
Directors’ remuneration is directly linked to safety objectives.
2018
2017
KPI relevance
€63m
n/a
This demonstrates our commitment to driving innovation and to being
the leading provider of services and solutions within the refractories
industries. Excellence in R&D and strong Technical Marketing
capabilities are key contributors to our competitiveness. The Company
aims to invest 2.2% per annum of revenue in R&D and Technical
Marketing going forward.
How it is measured
including opex and capex.
2018 performance
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
EDUARDO GOTILLA
ACTING CHIEF
FINANCIAL OFFICER
2018 has seen strong financial
performance, benefitting from the
success of the integration process
and the underlying strength of
the markets in which we operate,
offset to an extent by some
operational underperformance
in H2.
3 6
Reporting approach
In addition to those figures reported
under IFRS, RHI Magnesita uses a number
of alternative performance measures
(“APMs”), which reflect the way in which
Management assesses the underlying
performance of the business. The Group’s
results are presented on an “adjusted”
and “pro-forma” basis, using APMs which
are not defined or specified under the
requirements of IFRS, but are derived from
the IFRS financial statements. The APMs
are used to improve the comparability of
information between reporting periods and
to meet investors’ requirements for further
clarity and transparency of the Group’s
underlying financial performance.
The APMs are also used internally in
the management of our business
performance, budgeting and forecasting.
A bridge table is presented on page 38
to show reconciliation of certain metrics
in order to demonstrate the underlying
performance of the business.
Read more about our APMs
on Page 203
The reported statutory results for 2017
presented the consolidation of ten months
of results for RHI and two months of results
for RHI Magnesita. As such, in an effort to
deliver comparable information in 2017,
the Directors considered it appropriate
to provide and analyse adjusted pro-forma
results for the combined Group for 2017
and 2016, taking into account a supposed
full 12 months contribution from both
companies for the entire period. See page
19 of the 2017 Annual Report & Accounts
for a detailed table on the reconciliation
between 2017 report results and the
adjusted pro-forma numbers. This
approach is considered to also be relevant
in 2018, with the 2017 pro-forma numbers
being the most comparable to the actual
2018 numbers.
All references to comparative 2017
numbers in this review are to adjusted
pro-forma figures at constant currency,
unless stated otherwise. Figures presented
at constant currency represent 2017
pro-forma amounts retranslated to
average 2018 exchange rates.
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 8
SG&A
Total selling general and administrative
expenses stood at €337 million
(2017: €350 million), representing
11.0% of revenue in 2018 (2017: 13.7%).
The implementation of the announced
synergies in SG&A for 2018 and the
higher fixed cost dilution in light of higher
revenues for the Year also contributed to
the overall performance. In 2019 we are
targeting incremental synergies of
€20 million, bringing the annualised total
to €90 million, and remain firmly on track
to deliver our €110 million synergy target.
Importantly, whilst progress has been
made throughout the Year in our efforts
to optimise the Company’s supply chain,
governance, controls and compliance
systems and to further develop the use
of automation and digitalisation, further
investments are required in order to build
the foundations that will support the
Group’s ongoing strategic development.
Adjusted EBITA
Adjusted EBITA for the Year was
€428 million, 81% above 2017 adjusted
EBITA (€236 million). Adjusted EBITA
margin for the Year was 13.9%, 460 bps
higher than 2017, driven by significant
revenue growth, greater operating
efficiencies in both CoGS and SG&A,
including the synergy benefits of €70
million brought about by the continued
successful integration of the business
and the benefits of our own raw material
supply, both from a cost control and
customer supply security perspective.
Revenue split by industry1
Steel
Industrial
Cement/Lime
Other process industries
Non-ferrous metals
72%
28%
37%
39%
25%
Revenue by geography
Europe
North America
Asia Pacific
South America
MEA – CIS
29%
22%
20%
15%
14%
1 Percentages equal over 100% due to rounding
2 Adjusted pro-forma
3 Based on 2017 reported figures
Revenue
Revenue for 2018 amounted to
€3,081 million, 21% higher than 2017.
The significant growth in revenue is
underpinned by strong growth in both
the Group’s Steel and Industrial Division
results, as well as the favourable market
conditions, with positive dynamics in
customer industries as well as the raw
material pricing environment.
Against this backdrop, with global steel
production growing 4.6% in 2018, the
Group’s Steel Division revenue increased
by 15% to €2,204 million, (20172:
€1,913 million). Given the Company’s
global position, with presence in all major
refractory markets, the Industrial Division
benefited from the positive global GDP
growth of 3.7% and was able to drive organic
growth, increasing revenue by 33% in 2018,
to €877 million (20172: €658 million.)
Continued government controls in China
have led to a significant reduction in raw
material production output, thereby
increasing market prices. Following the
significant price increases in H2 2017,
raw materials remained stable throughout
2018 and are expected to retain these new
levels in 2019. The Group is able to derive
benefit from this structurally altered
environment given its level of backward
integration, both in terms of cost control
and customer supply security.
Gross profit
The Company reported gross profit of
€737 million in 2018 (2017: €561 million),
as a result of elevated selling prices, a
high degree of vertical integration and
synergies, partially offset by operational
issues at certain plants and some supply
chain challenges in H2 2018 (which
will be an important focus in 2019). This
represented a gross profit margin of 23.9%,
190 bps higher than in the previous year.
On a divisional level, gross profit to steel
applications reached €522 million,
with 23.7% gross margin (2017: 23.1%3).
Gross profit for the Industrial Division was
€215 million, representing a gross
margin of 24.5% (2017: 22.5%3).
3 7
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
Earnings per share
This table provides a reconciliation from reported to adjusted figures and excludes the impact of foreign exchange effects, one-off non-cash
expenses related to the refinancing of the legacy debt, and other non-recurring financial income and expenses and amortisation.
2018
reported
Items excluded
from underlying
performance
0.9
28.6
76.6
(25.4)
427.2
(28.6)
(162.7)
10.1
246.0
(58.9)
187.1
158.1
44.9
€3.52
2018
adjusted
428.1
(86.1)
10.1
352.2
(84.3)
267.9
238.9
44.9
€5.31
Net financial expenses
Net financial expenses in 2018 amounted to
€163 million (2017: €82 million). This was
mainly due to foreign exchange and
derivative variances, the majority of which
were non-cash, amounting to €81 million.
These variances stem predominantly from:
¥ the mark-to-market of intercompany
loans with our Argentine subsidiaries
(€25 million), as the Peso devalued
c. 50% against the USD during the Year;
¥ as a result of the Group’s hedging policy,
which aims to match the currency
exposure of our net debt to that of
the EBITDA, the Group has incurred
€19.6 million in derivative losses in 2018;
¥ the mark-to-market of the foreign
currency debt owed by Magnesita
Refratários (€37 million), a Brazilian
Real reporting entity, which have now
been effectively all refinanced; and
¥ c. €6 million FX gain on cash in
foreign currencies held by Magnesita
Brazilian entities.
Total net interest expenses for 2018
amounted to €39 million and €43 million
was recognised in other net financial
expenses, which were predominantly
non-cash in light of the refinancing
completed in August and other non-cash
adjustments related to the provision for the
unfavourable contract required to satisfy the
EU remedies. The refinancing of the legacy
debt, concluded on August 2018, has
generated a reduction of approximately
€24 million in the Company’s annualised
net interest expense.
Taxation
Tax efficiencies have been achieved as a
result of the Group’s integration and by the
overall Group’s performance, in particular
of our mining operations in Brazil, thereby
lowering the Company’s effective tax rate
for the Year to 23.9%. RHI Magnesita’s
tax rate is sensitive to changes in the
geographical dispersion of our worldwide
profit or losses and tax regulations in each
jurisdiction. Other key factors affecting the
sustainability of the Group’s effective tax
rate are set out in note 44 to the financial
statements, which provides additional
information on the Group’s tax rate.
(€m)
EBITA
Amortisation
Net financial expenses
Share of profit in joint ventures
Profit before tax
Income tax (23.9%)
Profit after tax
Profit attributable to shareholders
Shares outstanding
Earnings per share
€283m
2018 adjusted profit after tax
€5.31
2018 adjusted EPS
3 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 8
Purchasing Price Allocation (“PPA”)
As announced on the Q3 trading update,
the Group completed the PPA in relation
to the merger between RHI and Magnesita.
The process reviewed the fair value of
fixed and intangible assets as a result of
the merger, causing depreciation and
amortisation to increase by €37 million
and €11 million respectively in 2018.
Profit after tax and earnings per share
On a reported basis, the Company recorded
a net profit of €187 million and earnings
per share (“EPS”) of €3.52 per share in
2018 (2017: €10.8 million net loss and
€0.43 loss per share respectively).
Cash outflow from financing activities
amounted to €245 million in 2018 as
the Group focused on improving the debt
amortisation profile and reducing recurring
interest expense payments. As part of the
previously announced debt restructuring
programme to substitute the legacy debt,
prepayments of the perpetual bond and
certain short-term facilities were made
during the Year, generating significant
interest expense savings. As a result,
the Company was able to negotiate
more flexible covenants and term out
its debt amortisation schedule, such that
more than 70% of the Group’s maturities
are due on or after 2022.
Operating and free cash flow
The below table demonstrates the
underlying operating and free cash flow
generation of the business.
Working capital
Working capital intensity in 2018 saw
significant improvements when compared
to 2017 pro-forma figures, both in absolute
terms and as a percentage of revenue. Cash
flow generation from working capital in 2018
amounted to €48.7 million, driven primarily
by improvements on accounts payable and
accounts receivable as a consequence of
improving our terms with both clients and
suppliers and factoring initiatives. The
overall positive impact on the balance
sheet was partially offset by the higher
inventory consumption in 2018, as a result
of increased sales volumes and higher
raw material costs. Working capital as an
absolute value stood at €511 million at the
end of 2018. As a percentage of revenue, it
was 15.4% at Year end (calculated using last
three months annualised revenue), 680bps
lower than the previous year (22.2%2).
Adjusted earnings per share for 2018 were
€5.31, which is stated after excluding the
following items, which predominantly
relate to the acquisition of Magnesita SA
and related refinancing and foreign
exchange effects:
¥ Other income and expenses
(€0.9 million);
¥ Amortisation (€28.6 million); and
¥ Net financial expenses (€76.6 million):
Impact of foreign exchange movements
on certain of the Group’s non-Euro
denominated debt balance of
€81 million, as detailed in the “Net
Financial Expenses” section above,
excluding the €19.6 million in derivative
losses; One-off non-cash expenses
related to the refinancing of the legacy
debt (€10.6 million); Other non-
recurring financial income and expenses
(€4.4 million).
These are represented in the table on
page 38.
Cash flow
Cash flow from operations amounted to
€462 million in 2018 (2017: €255 million),
with the 81% increase being driven by the
strong operating performance of the Group
as well as efficiencies in working capital
(with a 670bps year-on-year improvement
in working capital intensity) as well as an
overall higher profit for the Year.
Adjusted EBITA
Working capital
Changes in other assets/liabilities
Capex
Depreciation
Operating free cash flow1
Cash Tax
Net interest expense
Restructuring and transaction costs
Dividend payout
Free cash flow
2018
€m
428.1
48.7
(40.9)
(122.6)
124.8
438.2
(67.9)
(62.8)
(52.2)
(34.7)
220.5
Net debt
Net debt at Year-end amounted
to €639 million, comprising total debt of
€1,166 million, cash and cash equivalents
of €491 million and marketable securities
of €36 million. This compared to net debt
of €751 million in 2017. In line with the
Company’s commitment to deleverage,
net debt/EBITDA stood at 1.2x, 0.7x lower
than in 2017 1 as result of the improved
cash generation in 2018, despite the
outflows related to our restructuring
costs and the payout to Magnesita’s
minority shareholders. See further
detail on ongoing leverage target range
on page 40.
Capital expenditure
Cash flow from investing activities
registered an outflow of €101 million
and capital expenditure for 2018 stood
at €123 million (2017: €72 million).
The multiple of capital expenditure to
depreciation was 0.98x (2017: 1.09x) in
line with RHI Magnesita’s capital allocation
policy and investment profile. Maintenance
capex is guided at around €110 million
in 2019 and beyond. The Group will
continue to invest in its strategic priorities
aligned with its newly defined capital
allocation policy.
1 Operating free cash flow is presented to reflect
net cash inflow from operating activities before
certain items such as restructuring costs.
See APMs for further detail
2 Based on 2017 adjusted pro-forma last six
months annualised revenue
3 9
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
As a result of our ongoing
focus on cash generation,
the business has strongly
de-levered through the
Year providing a solid
financial position from
which to commence a
progressive dividend
policy.
Integrated Tender Offer
As previously announced, RHI Magnesita
launched an Integrated Tender Offer (“ITO“)
to the minority shareholders of Magnesita
in November 2018. At the end of the first
close of the ITO on 10 December 2018
RHI Magnesita owned 85.2% of Magnesita
and had issued a total of 3,518,008
new RHI Magnesita shares, along with
€85.2 million of cash consideration. As at
the final close of the ITO, on 10 March 2019,
RHI Magnesita owned 97.5% of Magnesita
and had issued a total of 4,657,408 new
RHI Magnesita shares, along with a total
€115.4 million of cash consideration.
Successful delivery of synergies
The integration of the two companies
led to significant cost saving synergies
via procurement and supply chain
management as well as SG&A efficiencies;
all of which exceeded initial expectations. In
August 2018, the Company announced an
increased synergy target of €110 million
(from €70 million) to be realised by 2020
and synergy benefits of at least €60 million
in 2018. In 2018, synergies of €70 million
were achieved.
Future growth plans
Through the cycle, the Group expects
organic growth to exceed the broader
refractories industry. In the short term this
expectation is supported by further market
share gains, the continued investment in
R&D and the opportunities in the growth
markets of China and India. In the medium
to long term, this expectation will also be
driven by new business models and
solutions. We anticipate that this nominal
organic growth should average 1-3% per
year through the cycle.
Alongside the organic growth opportunities,
there will be further growth from
acquisitions. Over time, we expect
acquisitions to deliver average growth
at levels similar to the organic growth.
Capital allocation policy
Since the merger, RHI Magnesita has made
good progress in terms of integration and
in the execution of its corporate strategy as
well as delivering on the targeted synergies.
This has led to leverage continuing to
reduce significantly, reaching 1.2x net
debt to adjusted EBITDA at Year-end.
The Board’s capital allocation objective
remains to support the long-term Group
strategy, providing flexibility for both
organic and inorganic investment
opportunities and increasing shareholder
returns over time. These opportunities
will be considered against a framework of
strategic fit, risk profile and rates of return,
in the context of acquisitions synergy
potential and balance sheet strength.
Going forward, the Group intends to
target leverage of between 0.5x and
1.5x net debt to adjusted EBITDA. Should
a highly attractive acquisition opportunity
present itself, the Group will consider
exceeding 1.5x leverage for larger
acquisitions, but with the intention to
de-lever quickly and back to the target
leverage range within 24 months. If the
Group leverage is consistently below
0.5x the Group will consider additional
shareholder returns, such as share buybacks
and special dividends, taking into account
the opportunities available to the Group.
4 0
Returns to shareholders
Underpinned by the strong performance
of the business and given its strong annual
cash generation, the Board has considered
the long-term dividend policy in the context
of its capital allocation strategy.
For 2018, the Board has recommended
a final dividend of €1.50 per share for
the full financial year, equating to an
increase of 100% over the previous year.
This represents a dividend cover of
3.5x adjusted earnings per share.
Going forward, the Board’s dividend policy
will be to progressively increase ordinary
dividends and to target a dividend cover
of less than 3.0x adjusted earnings over
the medium term. Dividends will be paid
on a semi-annual basis with one third of
the prior year’s full year dividend being
paid at the interim.
3.5x
dividend cover of
proposed dividend
1.2x
net debt to adjusted EBITDA
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 8
Reconciliation of pro-forma and reported results
2017 adjusted pro-forma results reconciliation
This table shows the impact of Purchasing Price Allocation (“PPA”) and other adjustments on the adjusted pro-forma results, as they were
presented in the 2017 Annual Report (i.e. taking into account a supposed full 12 months contribution from both companies), as well as
retranslating to average 2018 exchange rates (2017 constant currency pro-forma).
Revenue
COGS
Gross profit
SG&A
Other income and expenses
EBIT
Amortisation
EBITA
Adjusted EBITA
Depreciation
EBITDA
Adjusted EBITDA
2017
adjusted
pro-forma1
2,677.2
(1,999.3)
677.9
(399.8)
(0.0)
278.1
(26.0)
304.1
304.1
(84.7)
388.8
388.8
PPA
adjustment
P&L
reclassifications2
(49.5)
(49.5)
2.7
14.2
(32.6)
(3.1)
(29.6)
(43.8)
(41.1)
11.5
(2.7)
4.0
(31.4)
(27.4)
27.4
(0.1)
(0.0)
0.8
(0.8)
(0.7)
-
-
0.1
2017
adjusted
pro-forma3
2,681.2
2017
constant
currency
pro-forma
2,549.6
2018
Variance
3,081.4
(2,080.3)
(1,989.1)
(2,344.5)
600.9
(369.6)
14.1
245.5
(28.3)
273.7
259.6
(125.8)
400.3
386.2
560.5
(350.4)
14.2
224.2
(25.9)
250.1
235.9
(115.1)
365.3
351.1
736.9
(337.3)
(0.9)
398.6
(28.6)
427.2
428.1
(124.8)
552.1
553.0
2017 reported results reconciliation
This table shows the impact of PPA and other adjustments on the reported 2017 results.
Revenue
COGS
Gross profit
SG&A
Other income and expenses
EBIT
Amortisation
EBITA
Adjusted EBITA
Depreciation
EBITDA
Adjusted EBITDA
2017
Reported1
1,946.1
(1,485.6)
460.5
(292.5)
(124.9)
43.1
(13.6)
56.7
181.6
(59.9)
116.6
241.5
PPA
adjustment
P&L
reclassifications2
2017
Reported after
adjustments3
-
(30.5)
(30.5)
0.5
1.6
(28.4)
-
(28.4)
(30.0)
(6.3)
(22.1)
(23.7)
4.0
(27.3)
(23.3)
47.7
26.4
50.8
0.2
50.6
24.2
-
50.6
24.2
1 As reported in the 2017 Annual Report
2 P&L reclassification includes of reclassification of bad debt, commissions, FX gains and losses and interest expenses between the P&L line items
3 Including PPA and other reclassifications
21%
18%
31%
(4%)
(106%)
78%
11%
71%
81%
8%
51%
58%
1,950.1
(1,543.4)
406.7
(244.3)
(96.9)
65.5
(13.4)
78.9
175.8
(66.2)
145.1
242.0
4 1
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
Risks, viability &
internal controls
The Group has
developed 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.
Group risk chart
Impact
minor
low
moderate
high
critical
d
o
o
h
i
l
e
k
i
L
very likely
likely
possible
unlikely
rare
Velocity:
3
1
4
5
8
6
7
2
Rapid - within 3 months
Moderate - within 12 months
Slow - > 12 months
Key to principal risks
1
Macroeconomic environment and
condition of customer industries
Regulatory and compliance risks
Fluctuations in exchange rates and
energy prices, increasing volatility of
raw material prices
Significant changes in the competitive
environment or speed of disruptive
innovation (new)
Inability to execute a key strategic
initiative or necessary adjustments to
core operations (new)
Business interruption and supply
chain disruption
Environment, Health & Safety risks
Cyber and information security risk (new)
2
3
4
5
6
7
8
4 2
Risks
Risk management framework
This framework is based on an explicit
discussion about the nature and extent
of the risks acceptable to the Group
(“risk appetite”) and it relies on a formally
defined identification and assessment
process. The risk appetite and policy is
defined by the Board. Due to the far-
reaching implications of this risk appetite
on behaviours and decision-making, it has
been discussed thoroughly by management
and designed carefully. Communication
of the risk appetite and risk management
framework at all levels of the organisation is
considered important. The next steps for the
further development of the risk framework,
including the cascading of the approved
risk policy throughout the organisation,
have been agreed by the Board.
Development of the risk identification
and assessment process
The roll-out of the bottom-up risks
identification and assessment process
was completed in 2018. All functional
and operational managers involved in this
process received training on the structures
and methods within the Group’s risk
management process, as well as on the
usage of the reporting software.
In addition to this bottom-up process aimed
at ensuring that all material operational
risk issues are adequately monitored and
escalated, strategic risks were discussed
with senior executives in the course of the
strategy definition and mid-term planning
process. The further integration of risk
management processes in the existing
governance structures have been decided.
In order to further embed risk considerations
into decision-making, the Risk Management
function was integrated with the Investment
Planning function at the beginning of 2019.
Risk mitigation
All risks considered to be unacceptable
on account of their nature or their
potential financial or qualitative impacts
are mitigated by appropriate strategies.
The implementation and effectiveness
of the defined mitigation measures are
reviewed continuously and additional
actions are defined if necessary.
For this purpose, the impacts of risks
are considered before and after the
implementation of those mitigation
measures.
Our principal risks
The risks identified in the following are
those the Board considers to be principal
to the business 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 cases where they occur in
combination their impact may be reinforced.
This is not an exhaustive list of risks faced
by the Company but encompasses those
considered to be most material.
Given 2018 was the first full financial
year following the merger, it has been
considered more appropriate to report on
risk change throughout the Year in 2019.
However, the principal risks were reviewed
during the Year and amended to reflect the
current situation, with risks related to the
merger having been removed and the
addition of significant changes in the
competitive environment or speed of
disruptive innovation, inability to execute
a key strategic initiative or necessary
adjustments to core operations and
cyber and Information Security risk.
A risk appetite rating has been applied to
each risk, ranking from averse to minimal,
cautious and flexible.
We assess our principal risks in terms of
their potential impact on our ability to
deliver our strategic objectives, their
likelihood to occur and their potential
velocity. Those risks and their assessments
are reviewed regularly by the Board.
Management
“In-Control” Statement
The Board and EMT are responsible for
ensuring the Company has adequate
risk management and internal control
systems in place.
The core design of the internal control
systems is based on extensive work
conducted as part of the merger activity.
During 2017, the risk management and
internal control systems of both RHI and
Magnesita were reviewed by the EMT
and independently by third-party experts.
The respective reports, issued in October
2017, indicated no material deficiencies and
were reviewed by and extensively discussed
with the Board. These reports continue
to act as a guide for the evolution and
strengthening of internal controls to reflect
the integrated Company. The key internal
control measures during 2018 included
reviews of financial performance and key
control weakness at each Board meeting,
monthly and quarterly EMT review and
challenge of operational financial
performance, zero-based business
planning process, establishing enhanced
capabilities within the Group Finance
function, aligning the financial reporting
processes within the integrated Company,
continued deployment of the corporate
culture and values, reinforcement of the
Code of Conduct, assessment of leadership
capabilities, enhancing the whistle-blowing
process and strengthening the Internal
Audit, Compliance and Legal functions.
All key changes in the internal control
systems were reviewed by the EMT. Each
leader is accountable for the effectiveness
of the internal controls within their area of
responsibility. Measures are applied in each
functional area to assess the effectiveness
of internal controls and any identified issues
are escalated. Control weaknesses
identified by management and those
identified through the quality management
system reviews, risk management activity
and internal audit reports are escalated to
the EMT and the Audit Committee for
review and resolution.
In 2018 a bottom-up risk identification
and assessment process was conducted.
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 specialised software
and makes sure that material risks can be
discussed and monitored adequately by
the EMT and the Directors. The Audit
Committee was informed about the
outcome of this process and steps to
improve the effectiveness were defined.
In addition, the risk appetite was discussed
and approved by the Audit Committee
and the Board.
During 2019, the focus will be on
increasing the awareness on all
hierarchical levels about the defined risk
appetite. This includes creating a more
tangible definition of the risk appetite which
will be aligned with the Audit Committee
in the first half of 2019 and then applied to
the design of the relevant internal controls.
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 8
Viability statement
The Directors have assessed the
viability of the Group over a three year
period to December 2021, the period
covered by the latest business plan,
taking account of the Group’s current
position, individual asset performance
forecasts and the potential impact
of the principal risks disclosed on
pages 45 to 47.
The business plan considers
the Group’s cash flow, capital
commitments, financial resources,
debt covenants and other key financial
risks. It is based on the 2019 Budget and
projections for the following years. The
growth assumptions underlying the
Group’s projections are based on drivers
such as steel production, GDP growth
as well as strategic measures. Steel
production and GDP growth have been
sourced from external sources including
CRU and IMF.
On 27 November 2018, the 2019
Budget was presented to the Board of
Directors where the underlying growth,
profitability, cash flow, working capital
development and potential risks to the
business were discussed. Based on
the 2019 Budget, it is expected that
all relevant KPIs will improve when
compared to 2018 with leverage
projected to be below 1x.
Based on the Group’s 2018 financial
results and the projections for 2019,
projections for subsequent years
have also been extrapolated.
Based on the risk analysis conducted
in 2018, several stress overlays have
been defined and the financial impact
on the business plan has been
calculated. The following stress
overlays were presented to the Audit
Committee on 21 January 2019 and
are considered to be the principal
risks related to the Group’s business:
¥ Volume decrease due to
severe market changes
¥ Price decrease for Chinese
raw materials
¥ Loss of market share
¥ Failure to implement a key
strategic initiative
¥ Execution risk in regard to profitability
and capital allocation
¥ Financing risk - loss of ability to factor
and execute purchasing programme
The overlay of losing market share
combined with significant price pressure
on Basic products has been identified as
the most severe. The results of this overlay
showed increasing leverage and additional
cash demand. The Board believes that
by implementing capex and opex saving
programmes as well as financing activities,
this risk could be sufficiently mitigated.
The Group’s current financing facilities
provide flexibility including a covenant
leverage of 3.5x. None of the stress
overlays demonstrated a leverage of
greater than 3.5x.
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
2021. The Directors have determined that
the three year period to December 2021 is
an appropriate period having regard to the
Group’s business model, strategy, principal
risks and uncertainties, and viability.
The Directors believe that the above-
mentioned business plan and the conducted
risk analysis provide evidence of the viability
of the business over the next three years and
no material risk that could endanger the
viability or continuity of the business.
4 3
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
Risks, viability
& internal controls
continued
As part of the ongoing integration activity
the Audit Committee oversaw, in 2018,
a review of the capability of the Finance
leadership team. Following this review,
a number of organisation changes were
made to both align the Finance leadership
team more closely to the requirements
of the integrated business and enhance
capability. Work continued in 2018 to
harmonise systems and processes within
the Finance internal control framework.
The Group has an internal audit function,
with a reporting line to the Chair, Audit
Committee and a secondary reporting line,
for day-to-day operational matters, to the
CFO. The internal audit function provides
assurance to the Audit Committee and the
Board on the design and effectiveness of
the internal control framework.
The internal audit function conducts its
activities in a risk-based manner, developing
an annual internal audit plan, based on the
results of the risk assessment of various
business units and strategic priorities.
The Audit Committee conducts an
annual assessment of the effectiveness
and capability of internal audit. During
2018 the Audit Committee concluded that,
to meet the challenges and risk profile of
the Company, the capability of internal
audit required strengthening. A newly
created role in the integrated Company,
Group Head of Internal Audit was filled
in September 2018 and the two legacy
internal audit functions combined into
a new single global function. Additional
internal audit resource will be in place in
Americas, Europe and Asia in 2019. A fresh
approach to compiling the internal audit
programme has led to the Audit Committee
approving a more comprehensive annual
internal audit plan for 2019 with a greater
focus on strategic risks, global business
processes, IT and business transformation.
During 2018, the internal audit function
conducted 17 planned internal audits
and 20 special investigations, reporting
the most relevant observations and
recommendations to the Audit Committee.
In 2018, the Group has not identified any
individual material failings in its internal risk
management and control system; however
the reports by management and internal
audit facilitated consideration by the Audit
Committee and appropriate management
responses on the following key control
framework challenges in 2018:
¥ Improving awareness and controls
relating to externally originated
email-based fraud attempts
¥ Extending the coverage of
compliance training
¥ Continuing the development of the
whistle-blowing reporting process
¥ Improving the control framework for
the Services Business in South America
¥ Improving the consistency and execution
of stock management controls
¥ Addressing the wider challenge to
design and execute a consistent and
appropriate internal control framework
in an empowered, entrepreneurial,
dynamic, global corporate culture
still completing integration activities
Although the Board considers the
Company’s risk management and
internal control process are appropriate
and effective to give reasonable, but not
absolute assurance against material
misstatement or loss, given the recent
merger and decentralised nature of the
Group, the need for continued focus
on enhancing the internal control
environment remains.
Internal
control system
The Board is ultimately responsible
for maintaining effective corporate
governance, which includes the Group’s
risk management approach, the Group’s
system of internal controls and the
Group’s internal audit approach.
The Board reviews the effectiveness
of the system of internal financial,
operational and compliance controls
and the risk management framework.
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, supported by an
internal control guideline reflecting the
responsibility for risk management and
internal controls at all management levels.
The Group’s risk management framework
is designed to enable the application of
the Group’s risk appetite. This typically
seeks to avoid or mitigate risks rather than
to eliminate completely 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.
The Group has in place a specific risk
management approach and an internal
control framework 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.
For the accounting process, an accounting
handbook is available that addresses all
the internal control issues into the
accounting process.
4 4
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 8
Link to strategy
Appetite
Appetite
People
Business model
Markets
Competitiveness
Averse
Averse
Minimal
Minimal
Cautious
Cautious
Flexible
Flexible
Principal risk
Example of risks
Action taken
by management
1. Macroeconomic
environment and
condition of customer
industries
Link to strategy
Link to appetite
2. Regulatory and
compliance risks
Link to strategy
Link to appetite
Changes in the global economic
environment and adverse
political developments may
have an 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 volumes
have an impact on the utilisation
of the production capacities,
and consequently on the
Group’s profitability.
We strive to establish a culture
of compliance throughout the
organisation. Nevertheless, like
many other corporations which
operate internationally, we are
confronted with increasing
regulatory complexity and are
exposed to regulatory and
compliance risks which may
result in financial losses or
operational restrictions.
In addition to this, sudden
regulatory changes could impact
the profitability of our operations
and our need for investment.
3. Fluctuations in exchange
rates and energy prices,
increasing volatility of
raw material prices
Due to the Group’s global
sales and production activities,
revenue and profitability may
be impacted by currency
fluctuations.
Link to strategy
Link to appetite
The Group relies on external
supply of energy and raw
materials for its production
activities. Fluctuations in
demand and/or supply from
global markets (especially
from China) have a significant
impact on the prices and hence
on the production costs of
refractory products.
¥ Decreasing investment in
¥ Diversification in terms of
infrastructure (steel, cement
demand) leading to lower
refractory consumption
¥ Customer focus on low
cost products
¥ Decreasing fixed costs
coverage
geographies and industries
¥ Optimisation of the
production network through
complexity reduction and
efficiency increases
¥ Achieving lowest cost
G&A services
¥ Monitoring of economic
market drivers
¥ Failure to act in accordance
with our “Code of Conduct”
¥ Violation of anti-corruption
law by employees or
third-party representatives
¥ Violation of data privacy
regulations
¥ Code of conduct and
compliance policies and
procedures
¥ Internal control system,
in particular in exposed
processes
¥ Ethical values supported
by strong corporate culture
¥ Mid-term investment
planning
¥ Increasing volatility of
revenue and profit
¥ Loss of competitiveness of
operations outside China
¥ Increasing price pressure
and loss of margin
¥ Active balance sheet and
exposure management
¥ Improvement of energy
efficiency
¥ High level of vertical
integration
¥ Securing higher level of raw
material supply including
secondary raw materials
4 5
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
Risks, viability
& internal controls
continued
Principal risk
Example of risks
4. Significant changes
in the competitive
environment or speed
of disruptive innovation
Link to strategy
Link to appetite
5. Inability to execute a
key strategic initiative or
necessary adjustments
to core operations
Link to strategy
Link to appetite
6. Business interruption and
supply chain disruption
Link to strategy
Link to appetite
Customer demand for
environmental features,
digitalisation and services
may evolve more quickly than
expected. Increasing focus
on digitalisation and services
may lower the entry barriers for
existing and new competitors.
Depending on the capacity of
the Group to develop adequate
products and services, this may
present either an opportunity or
a threat by increasing pressure
on demand and margins.
The Group’s strategy includes
numerous strategic initiatives
including sales expansion,
new product and service
models, network optimisation
and M&A projects.
The failure to execute one of
several of those initiatives
because of external or internal
circumstances may lead to
lower than planned financial
performance including loss of
revenue and margin.
As a producing company, the
Group is exposed to business
interruption risk resulting either
from natural catastrophes,
fire, machinery breakdown,
supply chain disruptions or
cyber attacks.
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 capacity to produce
and deliver its products.
4 6
¥ Disruptive product
technology introduced by
a competitor (IP protected
disruptive technology)
¥ Disruptive production
process introduced by
a competitor
¥ Failure to cascade the
strategy to specific actions
¥ Failure to react timely to a
changing environment
¥ Resistance to change
Action taken
by management
¥ Create a climate allowing
innovation and “out of the
box” thinking
¥ Establishment of fast-acting
local R&D structure in all
major markets
¥ Continued investment
in R&D
¥ Accelerate digitalisation
across the value chain
¥ Prioritisation of projects and
resource allocation in an
approved project roadmap
¥ Introduction of a
performance driven
corporate culture supported
by a strong performance
measurement system
¥ Constant monitoring
of external market
circumstances
¥ Production interruption
at single source
manufacturing site
¥ Failure of single source
supplier
¥ Natural disaster or major
political crisis at one or
several manufacturing sites
¥ Loss of mining rights
¥ Diversified production
network in terms of
geographies
¥ Establishment of a
best in class integrated
supply chain
¥ Operational risk
management and
maintenance policies
¥ Risk-based investment
policy
¥ Global insurance coverage
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 8
Link to strategy
Appetite
Appetite
People
Business model
Markets
Competitiveness
Averse
Averse
Minimal
Minimal
Cautious
Cautious
Flexible
Flexible
Principal risk
Example of risks
¥ Fatal accident at
manufacturing site
¥ Uncontrolled emissions
¥ Inability to comply with
sustainability targets
Action taken
by management
¥ Secondary Raw
Material strategy
¥ Regular environmental
audits and risk monitoring
at all sites
¥ Regular legal
compliance checks
¥ Health & Safety objectives
defined as core Company
objective
7. Environment/Health
& Safety risks
Link to strategy
Link to appetite
8. Cyber and Information
Security risk
Link to strategy
Link to appetite
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 & Safety
hazards which cannot be
completely eliminated. Also our
products may potentially cause
accidents at the customers’ sites.
Our growth strategy (including
mergers and acquisitions,
entries into new geographies,
the design of new products
and digitalisation) results in a
growing risk exposure.
In addition, the Group is
confronted with a fast-evolving
cyber and Information Security
threat landscape.
The possible impact of cyber
and Information Security risks
could range from operational
disruptions, loss of intellectual
property, legal compliance
issues/frauds, or significant
reputation losses.
¥ Intellectual property or
confidential data breach
¥ Personal/private
data breach
¥ Customer or supplier
data breach
¥ Critical business
process interruption
¥ Loss of (user) productivity
¥ Loss of trustworthiness
of data
¥ Loss of proofing capability
¥ Dedicated Information
Security Organisation
¥ Worldwide Information
and Cyber Security Policies
¥ Continuous awareness
campaign and training
¥ Regular risk assessment and
annual penetration testing
¥ Cyber security detection
and response team
¥ Data classification and
protection implementation
4 7
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
Sustainability
Our business can only succeed if our communities thrive.
We must work together with industry, governments and
civil society to address diverse social and environmental
challenges and create shared value. To do so, we support
the UN Sustainable Development Goals (“SDGs”),
the blueprint for people, the planet and prosperity.
In 2018, we ramped up our approach
to sustainability, developing new
governance structures and strategy.
In addition, we have set ourselves
our first sustainability targets to 2025
and made commitments to the UN Global
Compact and other important initiatives.
As our business expands globally, we
aim to maximise the positive impacts
we bring and minimise the negative.
Given our industry leadership, we
have a responsibility to demonstrate
leadership in sustainability, too.
We focus on the key issues for our
stakeholders and our business. These
were identified through stakeholder
engagement and media analysis, building
on our most recent materiality assessment.
These issues include:
¥ Energy and climate
¥ Other emissions
¥ Waste and recycling
¥ Health and safety
¥ Diversity
¥ Community investment
¥ Ethics and governance
We engage with local stakeholders, too.
Working with local government and
communities, we support initiatives that
promote community development and
environmental protection. In 2018, our
Indian operations in Andhra Pradesh
were recognised as one of the best local
corporate participants in the Smart Village
- Smart Ward programme which promotes
inclusive and sustainable development.
Sustainability Governance
In 2018, we set up new governance bodies
to oversee our sustainability agenda.
Now that our merger is complete, we
will conduct another formal stakeholder
engagement session in 2019 and develop
a new materiality analysis. In addition,
we will map how our core business as well
as our community investment programmes
can best support the Sustainable
Development Goals (“SDGs”).
¥ Our new Sustainability Steering
Committee comprises senior
management and is responsible
for developing and implementing
sustainability strategy.
¥ At Board level, the new Corporate
Sustainability Committee reviews
progress on a quarterly basis.
Sustainable Development Goals
4 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 8
These committees drive progress
on our key issues, setting targets and
reviewing performance. They also work
to embed sustainability throughout
our business.
Targets
In 2018, we defined our first set of
sustainability targets. We report on these
commitments and our progress in the
following chapters. As we evolve our
sustainability programme, we will set
more far-reaching targets.
Milestones and 2025 targets1
CO2 emissions
Reduce by 10% per tonne by 2025
Start submissions to the Carbon
Disclosure Project
Energy
Reduce by 5% per tonne by 2025
NOx and SOx
emissions
Reduce by 30%, starting
with China by 2021
Recycling
Water
Safety
Diversity
Increase use of secondary raw
materials to 10% by 2025
Establish first dedicated
recycling facility
Conduct water risk assessment
at each plant by 2019
Maintain Lost Time Injury
Frequency Rate at below 0.5
(goal: zero accidents)
Transition all certified sites to
the new ISO 45001 by the end
of 2020
Increase women on our Board
and in senior leadership to 33%
by 2025
Launch new initiatives to address
gender diversity
Ethics and
Governance
Code of Conduct – expand
global training
Community
Supplier code of conduct –
build oversight and transparency
Launch new human rights
strategy in 2019
Develop strategic, impact-focused
programmes and partnerships to
match our growing global business
by 2025
1 Compared to a 2018 baseline
4 9
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
Integrated management system
The Company has developed an integrated
management system which covers
environment (ISO 14001), occupational
health and safety (OHSAS 18001) and
quality (ISO 9001). Following the merger,
we have integrated all existing systems
throughout the Group and will transition
to the new ISO 45001 by the end of 2020.
In 2018, a major focus of our quality
management programme was customer
satisfaction. We expanded the KPIs and
tools we use in our drive to meet and
exceed customer expectations.
External initiatives
In 2018, RHI Magnesita signed the UN
Global Compact, the world’s largest
corporate sustainability movement,
signalling our commitment to support
the UN Sustainable Development Goals.
In addition, we pledged to integrate the
principles of the Global Compact in
the areas of human rights, labour rights,
environment and anti-corruption into
our business strategy and operations.
On our journey, we are also guided by
other initiatives. During 2018, for example,
we joined Transparency International, the
global anti-corruption movement, and
the LBG network, the global standard
for measuring and managing corpowrate
community investment. We made our
first submission on gender diversity in
our Company to the Hampton-Alexander
Review in 2018 and will start submitting
environmental data to the Carbon
Disclosure Project (“CDP”).
Reporting
We report on our material issues.
The information in this Annual Report
and on our website comprise our GRI report.
This report was prepared in accordance
with the GRI Standards: Core option.
A GRI Content Index is available on our
website. This report also serves as our
Communication on Progress (CoP) to the
UN Global Compact, which we self-assess
as Active.
Lastly, the report complies with legislation in
the UK and the Netherlands implementing
the EU Non-Financial Reporting Directive.
Ethics and compliance
RHI Magnesita has a zero-tolerance
approach to corruption. Our Code of
Conduct makes this explicit, defining
how we expect employees and Directors
to conduct business.
More than 2,000 employees received
Code of Conduct training in 2018, mostly
in South America and India. In 2019, we will
expand training to China and Asia Pacific.
Suppliers to RHI Magnesita are required to
sign our Supplier Code of Conduct and we
are working to increase oversight and
transparency in this area.
An independently operated whistleblowing
system allows individuals to have
confidential and anonymous two-way
conversations about concerns they might
have. Contact details are publicised
throughout our operations. In 2019,
we will publish a new anti-corruption
policy and our Corporate Audit will
adopt an anti-corruption focus.
Sustainability
External initiatives
5 0
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 8
In 2018, our reporting system received
60 contacts. Most were not code violations
but workplace grievances resulting from
structural changes due to our merger.
We addressed these issues in workshops
on our new culture while raising awareness
of harassment and discrimination in
compliance training. Suspected code
violations are managed by a team
comprising the heads of Compliance,
HR and Internal Audit. Outcomes range
from redesigned processes, controls and
training to disciplinary action.
As our business grows, we are building a
robust compliance organisation in every
region. In 2018, we appointed a compliance
officer for South America and will assign
counterparts for India, China and North
America in 2019. These new positions will
report both to our chief compliance officer
and new regional Vice Presidents, who will
be held accountable for compliance in their
countries and regions.
>2,000
employees trained in our
Code of Conduct in 2018
5 1
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
Sustainability
Our Environment
The environmental
challenges facing our
planet have never been
greater. Climate change
poses the most urgent
threat of all.
Supported SDGs
5 2
As the world’s population grows, the
challenge is to meet the needs of future
generations while operating within the
constraints of the planet’s resources.
To prepare for a resource-constrained,
low-carbon economy, RHI Magnesita is
working to minimise our environmental
impacts. We are increasing use of
secondary raw materials, improving
energy efficiency and cutting CO2
and other emissions. During 2018, we
invested €13.3 million on improving
our environmental performance.
Energy and climate
Within the next 12 years, global warming
must be limited to 1.5°C to avert the most
serious consequences of climate change.
This was the stark warning of the
Intergovernmental Panel on Climate
Change (“IPCC”) in 2018.
We recognise that our operations contribute
to climate change. The refractory industry
is, by nature, an energy-intensive business.
We are therefore committed to reducing
our impacts, both in our operations and our
value chain. By 2025, we will reduce CO2
emissions by 10% per tonne and improve
energy efficiency by 5%, compared to 2018.
More than half (55%) of our direct emissions
(Scope 1 and 2) in 2018 were geogenic;
they were released by the processing of
raw materials. Magnesite (MgCO3) contains
CO2 which is released when the raw
material is converted to magnesium oxide
(MgO). Current technology cannot yet
reduce or prevent these emissions.
Our efforts therefore focus on improving
energy efficiency in our operations. We
are developing products that require lower
kiln temperatures and shorter firing times,
thereby using less energy to manufacture.
More energy-efficient machinery, such as
our improved kiln in Marktredwitz, improved
production strategy and continuous
improvement processes are also yielding
energy savings.
During 2018, our total energy consumption
was 5.7 TWh and our energy efficiency
improved by 0.5%. Our CO2 emissions
(Scope 1 and 2) amounted to 2.8
million tonnes.
Given the extremely high temperatures
(1,800°C and above) required to
manufacture refractory products,
renewables are not a viable source of
energy yet. Natural gas, the cleanest
fossil fuel, accounts for 53% of fuel used
by our business. In 2018, we stopped using
petroleum coke in India at our Bhiwadi
plant and plan to convert all oil-fired kilns
to run on gas instead. In some of our more
remote locations, however, piped natural
gas is not available.
By developing products which help
customers reduce their energy
consumption, we are reducing our indirect
emissions. Energy savings as a result of
these newly installed products average
236 GWh per year. We also endeavour to
capture and use excess heat energy. For
example, our Radenthein plant supplies the
local biomass heating plant with an average
of 3,000 MWh per year, which is sufficient
to power 200 households.
In 2019, we will conduct a full analysis of
the risks and opportunities presented by
climate change. As we further develop
our climate strategy, we engage with
industry, government agencies and others.
In addition, we will start submitting climate
data to the CDP.
Other emissions
We also work to minimise emissions of
sulfur and nitrogen oxides (SOx and NOx).
We have committed to reduce these
emissions by 30% in a phased approach.
Given the country’s severe air pollution,
our first priority is to achieve this reduction
in China by 2021. This will be followed by
the US by 2025 and the EU and South
America by 2027.
Our mining operations also generate
diffuse dust emissions. Minimising these
is another focus area of ISO 14001 and
we adopt a variety of measures to do so.
Waste and recycling
We recognise the importance of a circular
economy and are stepping up efforts to
close the loop of our product lifecycles.
When our products reach their end of life,
we aim to dismantle them, recycling as
much as possible into new applications.
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 8
613
hectares of land reforested by
our plants in Turkey and Brazil
By 2025, we aim to include 10%
secondary raw materials (SRM) per tonne
of production. Increasing recycled content
has proven challenging in terms of product
durability and customer acceptability. We
are therefore working to address both issues.
Reducing waste
In 2018, our business generated 109,500
tonnes of waste, of which 9% (9,700
tonnes) was hazardous. Instead, the bulk
of our waste (88%) was non-hazardous
ceramic and mineral waste.
We conduct ongoing activities at most
open-pit mines together with local partners.
For example, our plants in Brazil and Turkey
have reforested 613 hectares of land to date.
We aim to extend and systematise these
activities across our business.
Developing products with higher SRM
content is a major focus area for our
R&D department. In 2018, we devised
recipes that include significantly more
SRM while maintaining the same functional
performance in the final customer
application. As we work to increase recycled
content, we will partner with customers to
ensure optimum performance.
We are working across our sites to reduce
and recycle the waste we generate.
In 2017, for example, our Marktredwitz
plant sent 340 tonnes of phenol-containing
hazardous ceramic waste for disposal but by
2018, the plant had eliminated this source
of hazardous waste, first by rendering it
non-hazardous then recycling almost
one-quarter of the total.
To increase availability of SRM, we will
establish our first dedicated recycling
facility. In addition to supplying recycled
materials, the facility will develop and test
new recycling technologies. We will work
with partners in Europe and the US to
further expand local recycling while
exploring opportunities in India, China
and South America.
Reforestation and recultivation
Global biodiversity loss is happening at
an alarming rate. Nearly 40% of the world’s
forests have already been destroyed. Yet
forests not only provide food and shelter for
humans and wildlife; they can also play an
important role in mitigating climate change.
RHI Magnesita aims to rehabilitate all areas
that we mine to their original state -
or better - through recultivation
and reforestation.
Water
Of all the water on our planet, 99.5% is
sea water. The world’s growing population,
agriculture and industry rely instead on the
less than 0.5% that is freshwater. And with
the growth in demand, water scarcity
already affects every continent.
During 2018, RHI Magnesita used 15.6
million cubic metres of water. We aim to
minimise our water use, particularly in areas
of scarcity. Based on preliminary analysis,
six RHI Magnesita plants operate in water-
scarce areas: two each in Mexico, Brazil and
India. We adopt water-saving technologies
and closed-loop water circuit technology in
these plants, which account for less than
10% of our total water use. In 2019, we will
map every plant for water scarcity using the
new WWF water risk filter tool.
CO2 emissions
CO2 emissions by source
Direct CO2 emissions (Scope 1)
Of which geogenic emissions
Of which fuel-based emissions
Indirect CO2 emissions (Scope 2)1
2018 (tonnes)
2,563,000
1,416,000
1,147,000
207,000
Waste by type
Percentage
of total
Waste by type
93%
55%
45%
7%
Ceramic and mineral waste hazardous
Other hazardous waste
Ceramic and mineral waste non-hazardous
96,300
Other non-hazardous waste
2018 (t)
8,200
1,500
3,500
109,500
Percentage
of total
7%
1%
88%
3%
100%
Total CO2 emissions (Scope 1+2)
2,770,000
100%
Total waste
1 Assumption: Calculation based on the average EU CO2 intensity (295g/kWh)
due to a lack of reliable global data.
Energy use by source
Water withdrawals
Energy use by source
2018 (GWh)
Percentage
of total
Water withdrawals
Natural gas
Electricity
Fuel oil
Diesel/petrol
Liquid gas
Coal, coke & petcoke
3,000
700
1,000
70
20
910
53%
Asia
12%
18%
1%
0%
16%
Europe
North America
South America
Total water withdrawals
Of which in water-scarce areas2
2018 (m³)
642,000
9,282,000
4,797,000
876,000
15,597,000
929,000
Percentage
of total
4%
60%
31%
6%
100%
6%
Total energy consumption
5,700
100%
2 Preliminary assessment covering five of the six plants in identified water-scarce
areas in Mexico, Brazil and India.
5 3
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
Sustainability
5 4
Our People &
Communities
As an employer and
a neighbour, our goal is
to maximise the positive
social impact we bring.
We are committed to
promoting human rights,
health and safety,
diversity and inclusion.
We aim to help
employees achieve their
potential while partnering
with our communities
to help them thrive.
Supported SDGs
Safety first
A safe workplace is a fundamental right
of our employees. Our goal is to build a
strong safety culture with zero accidents.
Nothing less is acceptable.
Our intensive Safety First campaign is
already yielding benefits. In 2018, our Lost
Time Injury Frequency (“LTIF”) rate reached
an all-time low of 0.4, with improvements
in all regions. This represents a 60%
reduction compared to 2017, far exceeding
our 20% target. In September, we enjoyed
our best month ever, with only one lost time
incident (LTIF of 0.1).
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 8
Health and Safety: Lost time injury frequency
rate per 200,000 hours worked and lost days due to accidents
s
y
a
d
t
s
o
L
40
32
24
16
8
0
2016
2017
2018
Lost days
Lost time injury frequency rate
2.0
1.5
1.0
0.5
0.0
e
t
a
r
y
c
n
e
u
q
e
r
f
y
r
u
n
j
i
e
m
i
t
t
s
o
L
60%
reduction in lost time injury
frequency in 2018
2,200
“Culture Champions” trained
Yet we will not become complacent.
Safety is the responsibility of each and every
RHI Magnesita employee. To underline this,
our CEO begins every quarterly update to
employees with an update on safety
performance. Following the merger,
we have worked to ensure our corporate
safety programme is being implemented
consistently across our operations.
Behaviour-based safety is a major focus.
Since approximately 80% of accidents
are due to unsafe actions by individuals,
we began observation audits to identify
at-risk behaviours.
This led to fewer accidents and the
programme is now being rolled out
across our business. Another factor in our
improved performance was the new target
for reporting and mitigating at least one
near miss or unsafe situation per person.
We exceeded this target in 2018, achieving
1.48 across our business.
In addition, we are implementing
programmes that address specific job
roles and safety risks, such as Safety
Leadership Training for front-line leaders
and our Hand & Finger safety programme.
We also continue to roll-out Quickcheck,
which raises awareness of hidden hazards.
To date, 22 sites have been certified to
OHSAS 18001 as part of our integrated
management system. We will transition
all certified sites to the new ISO 45001
by the end of 2020.
We are implementing these themes in the
way we run our business. New systems for
performance management and variable
payment help drive accountability and
incentivise performance.
Our most recent survey found that one year
on from the merger, 76% of employees are
excited about RHI Magnesita’s future while
56% of employees believe that we are
already living our new culture.
Feedback on team spirit and relationships
with new colleagues was positive, but
employees said that cross-functional
collaboration needs to improve. One-fifth
of respondents say that work across
organisational units is not yet as effective
as it should be. We will continue to listen
to employees’ concerns and develop
programmes in response.
Engaging employees
As we merged two former competitors
to form RHI Magnesita, we have focused
on building a new corporate culture. We
engaged employees in the process through
internal communications, workshops,
team-building activities and pulse surveys.
To date, more than 2,200 employees were
trained to help bring our new culture to life.
At the heart of our corporate culture
are four themes:
¥ We assign accountability
and reward performance
¥ We collaborate globally and
cross-functionally
¥ We communicate directly and openly,
in a friendly and constructive way
¥ Customers are at the centre of
everything we do
5 5
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
Sustainability
Share of women in leadership
Executive Management Team (“EMT”)
EMT Direct reports
Total
Female
2
22%
5
10%
7
12%
Total
headcount
9
50
59
Male
7
78%
45
90%
52
88%
Worldwide, around 72% of RHI Magnesita
employees are represented by work
councils, trade unions or other bodies
and agreements. We support and work
with these bodies, in line with core
conventions of the International Labour
Organization (ILO).
Training & development
We aim to help employees fulfill their
potential. We intend to provide
opportunities for them to learn and grow,
while assigning accountability and
rewarding them for performance.
To facilitate this, we introduced a new
performance management system in 2018.
Called the People Cycle, the system applies
to all employees of RHI Magnesita. This
year-long cycle focuses on performance
and career management; talent management;
feedback and development. The process
will ensure that both employees and leaders
conduct regular planning and structured
performance reviews and will be supported
by annual talent committees.
We have also launched a series of
global training programmes, ranging from
programmes for operations to sales and
purchasing, to ensure we develop best-in-
class capabilities in our growing business.
In 2019, we will launch our new leadership
learning framework, #FitToLead.
As we become a global company, we
encourage employees to learn languages
used across our business. More than 1,000
employees have already registered to use
our new online language training courses
since mid-2018.
During 2018, we conducted 39,881 hours
of global development programmes. This
does not include training and development
conducted by local operations.
In 2019, our new global bonus system
will be rolled out. Designed to promote
collaboration and equality, the system is
also simple and transparent. At any time,
employees can calculate their expected
bonus payment, based on the Company’s
current performance against objectives.
Promoting diversity
Diversity and inclusion is critical to our
future success. In today’s globalised
business environment, diverse teams are
proven to be more productive and better
equipped to succeed.
Diversity is about welcoming and valuing
employees of every background. We are
committed to providing equal opportunities
to everyone, regardless of gender, race,
disability, ethnicity, sexual orientation,
age or any other difference.
We want our workforce to represent
the communities in which we operate.
We want our workplace to be free
from discrimination, harassment
and victimisation. And we want our
employees to fulfil their career ambitions.
Gender diversity
Our initial focus is to improve the gender
diversity of our Company. We have
committed to achieve 33% female
representation on our Board and our
senior leadership (Executive Management
Team and Direct Reports).
In 2018, a further two female directors
accepted their nomination to our Board.
This brings representation of women on
our Board to 25%1, a welcome improvement
compared to 10% in the previous year.
Our EMT also shows progress. By the end of
2018, women accounted for 22% of senior
management compared to 13% in 2017.
However, once Direct Reports to the
EMT are included, the proportion of
women in leadership in 2018 was only 12%,
showing that we have more work to do in
this area too.
In 2019, we aim to identify and address
the main barriers faced by women in what
is still a male-dominated industry and to
launch new initiatives to address these
issues. We are committed to recruiting,
retaining and promoting more women into
leadership positions. Following our listing
on the London Stock Exchange in 2017, we
adopted the Hampton-Alexander Review’s
target of 33% women in senior leadership.
Given our recent merger, we believe that
we will achieve the 33% target by 2025.
25%
female representation
on our Board
1. As at the date of this report and including
Directors nominated for appointment at the
2019 AGM. Does not include Employee
Representative Directors
5 6
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 8
Although women represent 23% of all
white-collar positions in our Company, they
occupy only 2% of blue-collar positions.
As a result, women represent only 11% of
our total workforce.
In addition, we will research and develop
other aspects of diversity to ensure that
the increasingly global nature of our
Company is reflected in our leadership.
Human rights
RHI Magnesita is committed to respecting
internationally recognised human rights
in line with the UN Universal Declaration
of Human Rights and the UN Guiding
Principles on Business and Human Rights.
Joining the UN Global Compact underlines
our commitment to human rights in our
business, supply chain and beyond.
We are ramping up our approach to
human rights. An introduction to human
rights was included in anti-corruption
training provided in 2018 to more than
2,000 employees. We will launch a new
human rights strategy in 2019.
In addition, we will focus on our suppliers.
Our suppliers must sign a Supplier Code
of Conduct that includes human rights
provisions and we are developing a more
rigorous means of supplier assessment.
We report on the measures RHI Magnesita
has taken to prevent modern slavery and
human trafficking in our business and our
supply chain. Statements in accordance
with the UK Modern Slavery Act 2015 and
the California Transparency in Supply
Chains Act are available on our website.
Investing in communities
RHI Magnesita aims to invest in local
communities wherever we operate.
To date, our projects have been highly
local in scope. As we take our support to
the next level, we are investing more,
focusing on impact and aligning the
themes with the Sustainable Development
Goals (“SDGs”). To maximise the impact of
our contributions, in 2018 we joined the
LBG network. The LBG framework is
the global standard for measuring,
benchmarking and reporting
on corporate community investment.
While our operations choose projects and
partners at a local level, the overarching
themes that we will support are:
¥ Education, especially science
technology, engineering and maths
(“STEM”) subjects, with a focus on
girls and disadvantaged groups
¥ Youth development, especially skills
training and enterprise education
¥ Environmental protection, especially
forests, climate and water
These themes contribute to the SDGs
we can best support.
We are keen to develop long-term
partnerships, developing programmes
that could become scalable. During 2018,
we developed two new partnerships in
Austria and will launch our first projects
in early 2019.
Firstly, we are partnering with Teach For
Austria, an NGO which aims to create a
more level playing field in educational
opportunities. More than any other EU
country, Austrian children’s educational
success depends on parental income,
status and education level. To kick off
our partnership, both our CEO and our
Chairman will teach a class during Teach
For Austria Week. During the first year of our
partnership, we will support the teaching of
250 children. Our second new partnership
is with Wissenfabrik (Knowledge Factory),
which aims to encourage more boys and
girls into STEM fields. In 2019, our
employees will start volunteering in
schools to support STEM-related classes.
Existing programmes in other countries are
also gaining traction. In Brazil, for example,
we support the Digital Inclusion project
which helps local residents near our
plant. This community space offers digital
training to the local community, especially
disenfranchised groups. To date, 2,000
people have taken courses at the centre.
Employee volunteers actively support these
and other projects we support. In 2019, we
will roll-out a global volunteering policy to
encourage employee participation in our
community projects.
Improving safety
To improve behavioural safety, our
Bonnybridge plant in Scotland uses
an innovative programme based on
football’s penalty cards. In addition
to issuing red and yellow cards for
safety hazards, the plant also hands
out green cards for positive safety
behaviours. The immediacy and
transparency of the programme have
proved popular and the plant has
reached its preventive rate target
ahead of schedule. The programme
received our internal Culture Award
and is now being trialled in other
parts of our business.
Investing in communities
5 7
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R H I M A G N E S I TA
58Governance
60 Board of Directors
64
66
Executive Management Team
Chairman’s introduction to
Corporate Governance
Corporate Governance Report
Nomination Committee Report
Audit & Compliance
Committee Report
Remuneration Committee Report
Directors’ Remuneration Policy
Annual Report on Remuneration
67
76
78
80
84
92
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 8
5 9
G O V E R N A N C E
R H I M A G N E S I TA
Board of
Directors
1
5
2
6
3
7
4
8
9
10
11
12
13
14
6 0
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 8
Board members by gender1
Board Committee members
Male
75%
N Nomination Committee
R
Remuneration Committee
Female
25%
A Audit & Compliance Committee
Chair of Committee
S Corporate Sustainability Committee
Chairman
Executive Directors
1. Herbert Cordt
Chairman
Appointment date: October 2017
Nationality: Austrian
N
2. Stefan Borgas
Chief Executive Officer
Appointment date: October 2017
Nationality: German
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,
a position he has held since 2013.
Herbert was a senior advisor at Citigroup
in London from 1999 to 2014. Since
1992, he has been Managing Partner at
CORDT & PARTNER Management- und
Finanzierungsconsulting GesmbH. He
was Managing Director at GASKOKS -
Österreichische Warenhandelsgesellschaft
mbH from 1991 to 1992. From 1979 to 1984,
he was Vice Governor at Österreichische
Postsparkasse. From 1984 to 1991 Herbert
was a member of the Executive Board of
Österreichische Länderbank, the second
largest commercial bank in Austria.
He worked as chief economic adviser for
the Federal Minister of Finance of Austria
from 1975 to 1979. Additionally, since
2015 he has been a member of the Board of
Advisors for the MSFS Program, School of
Foreign Service at Georgetown University,
Washington D.C. Herbert obtained a
Doctorate in Law from the University of
Vienna, graduated from the Diplomatic
Academy of Vienna (Diplomatische
Akademie Wien) and received a Master’s
Degree of Science in Foreign Service from
Georgetown University Washington D.C.
External appointments: Member of the
advisory board of Delta Partners, Dubai,
Citigroup Germany and Austria, Watermill
Group Boston, Georgetown University,
School of Foreign Service, MSFS Program,
Cooper & Turner, UK, The Plastics Group
Inc, USA, Quality Metalcraft Inc, USA and
Experi-Metal Inc, USA. Managing partner
of CORDT & PARTNER Management- und
Finanzierungsconsulting GesmbH.
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 as 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.
External appointments: Stefan is the owner
of SB Industry LLC.
Ian Botha
Chief Financial Officer
Appointment date: April 2019
Nationality: South African
Ian, currently CFO of Anglo American
Platinum, has been nominated as new
Chief Financial Officer and Finance Director
for appointment in the 2019 Annual General
Meeting. Ian will join our Company on 1 April
2019. Ian has enjoyed a highly successful
international career with Anglo American
in the related mining and metals industry.
He brings with him significant experience
in finance and accounting, investor relations
and governance, as well as his excellent
business acumen and track record in
financial and performance improvements.
Octavio Lopes
Chief Financial Officer from October 2017
to September 2018.
Nationality: Brazilian
Octavio stood down from the Board on
31 December 2018. Prior to the merger,
he held roles at Magnesita including
Chairman from July 2016 and Chief
Executive Officer from 2012 to 2016,
Non-Independent
Non-Executive Directors
3. David A. Schlaff
Non-Executive Director (Non-Independent)
Appointment date: October 2017
Nationality: Austrian
From 2004 to 2007, David was a member
of the management team at LH Financial
Services Corporation. 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.
External appointments: Chief Investment
Officer at M-Tel Holding GmbH since 2008.
4. Stanislaus Prinz zu
Sayn-Wittgenstein
Non-Executive Director (Non-Independent)
Appointment date: October 2017
Nationality: German
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
EON 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 between 2001 and 2017. Between
1. As at the date of this report and including Directors nominated for appointment at the 2019 AGM
Does not include Employee Representative Directors
6 1
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
Non-Independent
Non-Executive Directors
2000 and 2002, he was a member of
the supervisory board of Didier Werke AG.
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.
External appointments: Member of the
Supervisory Board of Endurance Capital
AG since 2016.
Fersen Lambranho
Non-Executive Director (Non-Independent)
of the Company with from October 2017
to January 2019.
Fersen stood down from the Board on
21 January 2019.
6 2
Independent Non-Executive Directors
5. James Leng
Deputy Chairman and Senior
Independent Director
Appointment date: October 2017
Nationality: British
N
R
7. Andrew Hosty
Independent Non-Executive Director
Appointment date: October 2017
Nationality: British
A
S
James was previously Chairman of Corus
Group plc (2001 to 2008), Chairman
of HSBC Bank plc (2010 to 2013) and
Chairman of Nomura European Holdings plc
(2015 to 2017). Other directorships have
included AON plc, Alstom SA, Pilkington
plc, Hanson plc, IMI plc, TNK-BP 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, and prior to that at Low & Bonar PLC.
His early career was spent at John
Waddington plc, where he was Managing
Director of a number of their subsidiaries.
External appointments: n/a
6. Celia Baxter
Independent Non-Executive Director
Appointment date: October 2017
Nationality: British
N
R
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. In 1988 she joined KPMG Peat
Marwick as a Human Resources consultant.
She started her professional career in 1982
at the Ford Motor Company where she held
several management positions. She holds
a PhD and BSc in botany from the University
of Reading.
External appointments: Non-Executive
Director at Bekaert SA and a Non- Executive
Director and Remuneration Chair of
Senior PLC. Partner of HR Tech LLP.
Andrew was Chief Executive of the
Sir Henry Royce Institute for Advanced
Materials from 2016 to 2018. Previously,
he was Chief Operating Officer at Morgan
Advanced Materials plc, an appointment
he held from February 2013 until January
2016. He also held a number of senior
positions within Morgan Advanced Materials
plc, including as Chief Executive Officer
of Morgan Ceramics. He was previously
a Non-Executive Director of Fiberweb plc
and past President of the British Ceramics
Confederation. 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.
External appointments: Andrew is senior
independent director of James Cropper plc,
Non-Executive Director of Consort Medical
plc, mOm Incubators Ltd and Rights and
Issues Investment Trust plc.
8. John Ramsay
Independent Non-Executive Director
Appointment date: October 2017
Nationality: British
A
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.
He is a Chartered Accountant and also
holds an Honours Degree in accounting.
External appointments: John has been
a member of the Supervisory Board at
Koninklijke DSM N.V. since May 2017. John
is also a Non-Executive Director of G4S plc.
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 8
9. Wolfgang Ruttenstorfer
Independent Non-Executive Director
Appointment date: October 2017
Nationality: Austrian
A
Wolfgang had served as a member of the
Supervisory Board of RHI AG from 2012
to 2017. Following the sickness related
absence of the CEO, he acted as the
Interim Chief Executive Officer of RHI AG
from 26 June 2016 until 30 November
2016. He started his professional career
in 1976 at OMV, becoming Chief Executive
Officer and Chairman of the Management
Board between 2002 and 2011. He served
as Secretary of State in the Austrian Federal
Ministry of Finance between 1997 and 1999.
He was a member of the Administrative
Board of Roche Holding from 2007 to 2011.
From 2010 to 2014 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 and at Telekom Austria from 2015
to 2018. He graduated from the Vienna
University of Economics.
External appointments: Wolfgang is a
member of the management board of
CollPlant Holdings Ltd. and a member
of the supervisory board of Flughafen
Wien Aktiengesellschaft, NIS a.d. Naftna
industrija Srbije, Novi Sad and Erne
Fittings GmbH.
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 worked in corporate
finance and export finance at Creditanstalt-
Bankverein. Karl holds a Master and
Doctorate Degree from the Vienna
University of Economics and Business
External appointments: Karl is a member of the
management board of Custos Privatstiftung
and a member of the supervisory board of
Siemens Aktiengesellschaft Österreich,
SIGNA Development Selection AG, SIGNA
Prime Selection AG, SIGMA Kreditbank AG.
S
11. Janet Ashdown
Janet has been nominated as Non-
Executive Director for appointment in the
2019 Annual General Meeting. Janet had a
distinguished career working for BP plc for
over 30 years, holding a number of
international positions. Until the end of
2012, Janet was Chief Executive Officer of
Harvest Energy Ltd. Janet also has a wide
range of board and committee experience
as a non-executive director.
External appointments: Janet is non-
executive director of the UK’s Nuclear
Decommissioning Authority, SIG plc,
Victrex plc and she is Senior Independent
Non-Executive Director at Marshalls plc
and Chair of the Remuneration Committee.
10. Karl Sevelda
Independent Non-Executive Director
Appointment date: October 2017
Nationality: Austrian
R
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
Management 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
S
12. Fiona Paulus
Fiona has been nominated as Non-
Executive Director for appointment
in the 2019 Annual General Meeting.
Fiona has over 37 years’ global investment
banking experience, having held senior
management roles with a number of leading
international investment banks based in
London, Europe and North America. Fiona
has specialised in the past 15 years in the
energy & resources sectors where she has
advised and financed companies on all
types of strategic & risk management
initiative. Since January 2018, Fiona has
been Managing Director at Redcliffe Advice,
an investing and consulting business.
External appointments: n/a
Employee Representative
Directors
13. Franz Reiter
Director/Employee representative since
November 2017.
Nationality: Austrian
Franz has been with the Group since 1977
and is Chairman of the Group Works
Council at Veitsch-Radex GmbH.
14. Michael Schwarz
Director/Employee representative since
December 2017.
Nationality: German
Michael has been with the Group since
1983 and is a member of the workers
council at Didier Werke A.G.
6 3
G O V E R N A N C E
R H I M A G N E S I TA
Executive
Management Team
1
4
7
2
5
8
3
6
9
EMT members by gender
Male
78%
Female
22%
6 4
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 8
1. Stefan Borgas
Chief Executive Officer
See biography on page 61.
2. Luis Rodolfo Bittencourt
Chief Technology Officer
Luis has been working for Magnesita for
32 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, and
the Latin America Refractory 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).
3. Gustavo Franco
Chief Sales Officer
Gustavo was appointed Chief Sales Officer
in January 2019. He joined Magnesita in
2001 as a Technical Marketing Engineer
after finishing his bachelor of Mechanical
Engineering, and has since then developed
his career in the refractory industry. He soon
became Sales Manager, Regional Sales
Manager, Sales Director, Sales & Marketing
VP for South America, then for North
America and finally Globally, being based
in three continents in the course of six years.
He was part of the Executive Committee of
Magnesita Refratarios from 2015 to 2017.
Since the merger of RHI Magnesita he has
been the Senior VP of Process Industries
and Minerals. In 2018 he completed the
Senior Executive Programme with the
London Business School.
4. Eduardo Gotilla
Acting Chief Financial Officer
Eduardo assumed the role of acting CFO of
RHI Magnesita on 21 September 2017 after a
brief period as the VP of Corporate Finance
and Investor Relations, where he played a
pivotal role in the integration of the finance
organisation into RHI Magnesita, and also
successfully led the refinancing of the
Company and its repositioning as a leading
company amongst other global industrial
companies in the FTSE 350. Previously
Eduardo served as CFO at Magnesita from
2014 to 2017. Eduardo has held diverse
finance positions in mostly private equity
led companies with experience in corporate
finance, tax, capital strategy, turnaround,
performance management and investor
relations. Eduardo has also served as a
Board member for BB Previdência, one of
Brazil’s largest multi-sponsored pension
funds, from 2013 - 2017.
5. 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.
6. Jacqueline Knox
Executive Vice President, General
Counsel & Company Secretary
Jacqueline has served as General Counsel
since December 2018. She came to
RHI Magnesita from VEON, an international
telecommunications and technology
business, where she was Associate General
Counsel M&A. Between 2011 and 2014,
Jacqueline was General Counsel and
Company Secretary of Ophir Energy plc,
a FTSE listed upstream oil and gas business.
She has also held positions with the law
firms of Herbert Smith Freehills in London
and Minter Ellison in Brisbane, Australia.
Having worked across different industries
and multiple regions, she brings broad
international experience and a strong
background in legal, compliance and
corporate governance. Jacqueline holds
a dual degree in law and international
relations (BA/LLB Hons) from the University
of Queensland. She is qualified to practise
in the UK and in Queensland, Australia
and is a dual British & Australian citizen.
7. Simone Oremovic
Executive Vice President People
and Culture Management
Simone is Executive Vice President People
and Culture Management at RHI Magnesita
since November 2017. 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 moved to Telekom
Austria Group as HR Director and then to
IBM Austria. From 2013 to 2017 she was a
member of the Management Board of Baxter
AG responsible for global HR of the plasma
production sites. Simone has a degree from
the European Business School (Paris) and of
the Economic University of Vienna.
8. Luiz Rossato
Executive Vice President
Corporate Development
Luiz Rossato was appointed Executive
Vice President and Head of Corporate
Development in October 2017. Luiz 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.
He worked in renowned law firms in Brazil,
including Mattos Filho, Veiga Filho, Marrey
Jr. and Quiroga Advogados. He was also a
corporate lawyer and company secretary
at Abyara Real Estate Planning until the
beginning of 2008. In 2012 Luiz received
the General Counsel of the Year - Latin
America Award by the International Law
Office - ILO, and in 2013 he attended the
Advanced Management Program at
Wharton University in the United States.
9. 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.
6 5
G O V E R N A N C E
R H I M A G N E S I TA
Chairman’s introduction
to Corporate Governance
I now wish to summarise the work of our
current standing committees.
The Nomination Committee has had a very
active and successful year. Their work
included the search for and success in
attracting Ian Botha as our new CFO, who
joins on 1 April 2019. The Committee also
led a rigorous search for two new Non-
Executive Directors, Janet Ashdown (who
will chair our Corporate Sustainability
Committee) and Fiona Paulus. The
establishment of this new committee also
delivers on our promise given at the time of
the listing. These appointments will be put
to shareholders for their approval at the
AGM to be held on 6 June 2019. Finally,
the Board agreed the appointment of
Jacqueline Knox as General Counsel and
Company Secretary.
The Remuneration Committee, under Celia
Baxter’s stewardship, has embraced the
amended Financial Reporting Council’s
Corporate Governance Code to reflect the
changes in new Terms of Reference aligning
our approach to reward with the core
elements of culture, purpose and values,
whilst not forgetting the remuneration of
the broader workforce.
The Audit & Compliance Committee has
also delivered on a very full agenda in 2018.
As Committee Chairman, John Ramsay led
the work of the Committee with meticulous
attention to detail across a range of complex
issues, including the work necessary for the
Purchase Price Allocation related to the
merger.
Towards the end of the Year, we conducted
our first Board Review and Evaluation. This
was the first year of a three year programme
aimed at examining our structure and
effectiveness.
The Board has considered the uncertain
regulatory environment that resulted from
the United Kingdom’s decision to withdraw
from the European Union. Due to these
uncertainties the Board has decided that it
is prudent for the Company to apply for a
secondary listing on a regulated market in
the European Union. While the Group is a
global business and has a strong presence
in many jurisdictions, it has its head office in
Vienna and was historically listed on the
Vienna Stock Exchange. The Board has
therefore decided that the most logical
secondary listing location for the Company
is Vienna. The Company will continue to
have a Premium Listing and be admitted to
trading on the London Stock Exchange,
which will remain its primary listing venue.
In conclusion, I would like to thank all my
Board colleagues, our CEO Stefan Borgas,
his executive team and indeed all our
employees in the countries in which we
operate all around the world for their
unwavering commitment, especially given
all the challenges that can be encountered
following the merger of two businesses.
The reality of creating a new company in
the form of RHI Magnesita could not have
been achieved without this strong effort
from the entire team.
I am more convinced than ever that we can
do more than meet the future - we can
shape it.
HERBERT CORDT
CHAIRMAN
I am more convinced than
ever that we can do more
than meet the future -
we can shape it.
Dear Shareholders
In this introductory letter I would like to
draw your attention to the initiatives we
have taken during 2018, our first full
financial year as a new Company, as well
as actions we plan for the future as part of
our commitment to applying the highest
Corporate Governance standards to
our business.
As you will be aware, on the basis that
RHI Magnesita N.V. is registered in the
Netherlands and listed on the London Stock
Exchange it adheres to both the Dutch and
UK Corporate Governance Codes to the full
extent possible, and this report sets out how
we have applied the principles and
provisions of both these codes.
Notable Corporate Governance matters
which we have addressed during the past
12 months include the establishment
of a new Board Committee, the Corporate
Sustainability Committee, the development
of an enhanced Board and Board
Committee structure and achieving a
greater level of female representation on the
Board and EMT. In addition, the forthcoming
Annual General Meeting (“AGM”) will
include a proposal to appointment two new
Independent Directors (in addition to a new
Chief Financial Officer) resulting in the
Board having a majority of independent
directors, on a strict independence test
basis (excluding the two employee
representative directors). It is important for
me to add that all my Board colleagues
bring a diverse and varied perspective to
our Board debates.
6 6
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 8
Corporate
Governance Report
Introduction
RHI Magnesita N.V. (the “Company” or
“RHI Magnesita”) 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
Corporate Governance Report, constitutes
the report of the Directors within the
meaning of Section 2:391 of the Dutch Civil
Code (the “DCC”) and has been approved
and signed by the Board of RHI Magnesita
(the “Board”).
The Board is committed to achieving
the highest standards of Corporate
Governance. The unique position of being
registered in the Netherlands and listed in
London requires the Company to take due
regard of both the Dutch Corporate
Governance Code (“DCGC” or the “Dutch
Corporate Governance Code”) and the UK
Corporate Governance Code (“UKCGC” or
the “UK Corporate Governance Code”).
The Board welcomed the Financial
Reporting Council’s update to the UKCGC
during 2018 and in particular supports the
developments around culture, diversity,
stakeholder engagement and better
alignment of reward structures to
management and the broader workforce.
Compliance with the Dutch Corporate
Governance Code and the UK Corporate
Governance Code
The Board has applied the principles of,
complies and intends to continue to comply
with the requirements of, both the DCGC
and the UKCGC to the fullest extent possible,
except for a limited number of deviations
set out below.
Deviations from the Dutch Corporate
Governance Code in 2018
As disclosed in last year’s report, the
Company did not comply with the following
provision of the DCGC in 2018:
Best practice provision 2.2.2 of the DCGC
The Board is non-compliant with best
practice provision 2.2.2 of the DCGC which
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 UKCGC
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 UKCGC recommends that directors
should seek re-election on an annual basis.
The general meeting of the Company (the
“General Meeting”) appoints the non-
executive Directors of the Company (the
“Non-Executive Directors”) (other than
Employee Representative Directors (as
defined below)) for a term of approximately
three years, subject to performance and
annual re-election, with an expectation
that the Board will then consider extending
tenure for a further three year period.
All Directors (other than Employee
Representative Directors) will seek
re-election on an annual basis.
Deviations from the UK Corporate
Governance Code in 2018
As disclosed in last year’s report, the
Company did not comply with the following
provision of the UK Corporate Governance
Code in 2018:
Code Provision A.3.1
The chairman of the Board (the “Chairman”)
is not considered to be independent for the
purposes of the UKCGC because he has
served on the Board of RHI AG (“RHI”), prior
to the merger, for more than nine years,
which constitutes non-compliance with
Code provision A.3.1. The Board believes
that Mr. Cordt continues to demonstrate
integrity and independence of character
and judgement, and that his experience
as Chairman of RHI AG’s supervisory board
is valuable to the Company and therefore
warrants his position as Chairman.
Board and management structure
The Company has a one-tier Board
structure, which consists of both executive
Directors (the “Executive Directors”) and
Non-Executive Directors ( collectively
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.
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”) to ensure a strong governance
framework for decision-making. During the
Year the Board also developed Terms of
Reference for a Corporate Sustainability
Committee to review safety, health,
environmental, community and other
corporate responsibility matters. In 2018 a
Technical Advisory Committee (“TAC”) was
established; the TAC is represented at Board
level by Andrew Hosty and Stefan Borgas
and other members include Luis Rodolfo
Bittencourt (CTO) and Luiz Rossato
(Corporate Strategy) as well as senior, global
R&D and Technical Marketing specialists.
6 7
G O V E R N A N C E
R H I M A G N E S I TA
Corporate Governance Report
continued
A summary of the role and responsibilities
of each Committee is shown on pages 72
to 73.
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.
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.
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.
Composition, appointment,
term and dismissal
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 Representative
Directors”) shall be appointed in
accordance with the reference terms
(referentievoorschriften) as referred to
in Section 2:333k (12)(13) of the DCC.
The exact number of Executive Directors
and Non-Executive Directors shall be
determined by the General Meeting.
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
Representative 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.
Pursuant to an agreement between the
Company and Alumina Holdings LLC
(“Alumina”), and its successor Alumina II
Holdings S.A.R.L, the vehicle through which
GP Investments, Ltd holds its entitlement
in the Company, Alumina is entitled to
nominate one person for appointment
as a Non-Executive Director.
Non-Executive Directors (other than
Employee Representative 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 Representative
Directors are appointed for a term of not
more than four years. The term of office
for each Director (other than Employee
Representative 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 Representative Directors) may
be offered a second term of three years,
at the expiry of which they will not ordinarily
be considered for re-appointment.
6 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 8
Board diversity
The Board 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 include, 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.
In addition to this, the Board has a target
to achieve a minimum of 33% female
representation on our Board and senior
leadership team. 50% of our Board
Committees are chaired by women,
when taking the nomination of the new
Non-Executive Directors for appointment
at the 2019 AGM into account.
As set out in the report of the Nomination
Committee, the Board is very glad to have
nominated two female candidates for
appointment at the 2019 Annual General
Meeting towards achieving “balanced
composition” required under Dutch law.
The Board is committed to encouraging
diversity and will continue to pursue its
programme in this regard.
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 more than 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.
The UKCGC requires that, excluding the
Chairman, at least half of the Board should
comprise of 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 on page 70 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:
Name of company
Function
Delta Partners, Dubai
Watermill Group
Boston
Member of the
advisory board
Member of the
advisory board
Georgetown University,
School of Foreign Service,
MSFS Program
Member of the
advisory board
CORDT & PARTNER
Management- und
Finanzierungsconsulting
GesmbH
Citigroup Germany
and Austria
Managing partner
Guest member of
the advisory board
As the senior independent director (the
“Senior Independent Director”), James
Leng’s role is 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 have failed to resolve or for which
contact with them is inappropriate.
During the year Octavio Lopes stood down
as CFO and resigned as an Executive
Director on 31 December 2018. In addition,
Fersen Lambranho resigned as a Non-
Executive Director on 21 January 2019.
The Board has nominated Ian Botha for
appointment as Executive Director with the
title of CFO who, together with nominations
of both Janet Ashdown and Fiona Paulus as
independent Non-Executive Directors, will
be considered at the Annual General
Meeting to be held in June 2019.
6 9
G O V E R N A N C E
R H I M A G N E S I TA
Corporate Governance Report
continued
At the date of this Annual Report, the Board is composed as follows:
Name
Herbert Cordt
Stefan Borgas
David A. Schlaff
Position
Non-Independent Non-Executive Director, Chairman1
Executive Director (CEO)
Non-Independent Non-Executive Director1
Stanislaus Prinz zu Sayn-Wittgenstein Non-Independent Non-Executive Director1
Celia Baxter
Andrew Hosty
James Leng
Independent Non-Executive Director2, 3
Independent Non-Executive Director2, 3
Independent Non-Executive Director2, 3
Deputy Chairman and Senior Independent Director
John Ramsay
Independent Non-Executive Director2, 3
Wolfgang Ruttenstorfer
Independent Non-Executive Director2, 4
Karl Sevelda
Franz Reiter
Independent Non-Executive Director2, 3
Employee Representative Director
Michael Schwartz
Employee Representative Director
Year of
birth
1947
1964
1978
1965
1958
1965
1945
1957
1950
1950
1962
1966
Date of
appointment
20 June 2017
20 June 2017
6 October 2017
6 October 2017
6 October 2017
6 October 2017
6 October 2017
6 October 2017
20 June 2017
6 October 2017
13 November 20175
8 December 20175
Expiry/
reappointment date
2019 AGM
2019 AGM
2019 AGM
2019 AGM
2019 AGM
2019 AGM
2019 AGM
2019 AGM
2019 AGM
2019 AGM
n/a
n/a
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
5 Delegation date
7 0
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 8
Meetings and decision-making
of the Board
The Board commits to meet 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.
In accordance with 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.
Attendance at Board meetings in 2018
(shown over a total number of meetings held):
Attended
Herbert Cordt
Stefan Borgas
Octavio Lopes
Fersen Lambranho
David A. Schlaff
Stanislaus Prinz zu
Sayn-Wittgenstein
Celia Baxter
Andrew Hosty
James Leng
John Ramsay
Wolfgang Ruttenstorfer
Karl Sevelda
Franz Reiter
Michael Schwartz
10/10
10/10
10/10
10/10
9/10
10/10
8/10
9/10
10/10
10/10
10/10
9/10
8/10
8/10
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.
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.
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.
Conflict of interests and
time commitment
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.
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” on
page 68.
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.
Company Secretary
Jacqueline Knox
Jacqueline Knox replaced
Robert K Moorhouse as Group
Company Secretary with effect
as of 1 December 2018.
The Company Secretary advises the
Board and ensures good information
flows and comprehensive practical
support is provided to the Directors.
She 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 whole.
7 1
G O V E R N A N C E
R H I M A G N E S I TA
Corporate Governance Report
continued
Performance of the Board, its
Committees and the Directors
During late 2018 the Chairman of the Board
and the Deputy Chairman introduced a
review of the Board’s effectiveness, its
Committees and individual Directors.
The evaluation was facilitated externally
and considered further at the meeting of
the Board in January 2019. As at the date of
this report, the Board is developing a series
of recommendations and is committed to
future annual reviews being facilitated
externally at least once every three years.
Read about the evaluation
on page 77
Committees
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.
All members of the Audit and Compliance
Committee are independent Non-Executive
Directors from a UKCGC 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 UKCGC and the DCGC.
Attendance at Audit and Compliance
Committee meetings in 2018
(shown over a total number of meetings held):
John Ramsay
Andrew Hosty
Wolfgang Ruttenstorfer
Attended
16/16
15/16
16/16
The Company confirms that it complied
with the provisions of the Competition and
Markets Authority’s Order for the financial
year under review.
Remuneration Committee
The Terms of Reference of the
Remuneration Committee, available in full
on the Company’s website are summarised
below:
¥ 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;
7 2
¥ within the terms of the agreed policy,
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;
¥ 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;
¥ oversee any major changes in employee
benefits structures throughout the
Group;
¥ reviewing the performance of any
retained advisers and the effectiveness
of the Remuneration Committee; and
¥ 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
UKCGC and DCGC.
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 8
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. The composition of the
Remuneration Committee is compliant
with the UKCGC and the DCGC.
Attendance at Remuneration
Committee meetings in 2018
(shown over a total number of meetings held):
Celia Baxter
James Leng
Karl Sevelda
Attended
6/6
6/6
6/6
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 also
provided executive search services to
the Company in 2018.
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 DCGC.
Attendance at Nomination
Committee meetings in 2018
(shown over a total number of meetings held):
Herbert Cordt
James Leng
Celia Baxter
Attended
8/8
8/8
8/8
Executive Management Team
At the date of this Annual Report, the
Executive Management Team of the
Company is composed as follows:
¥ Stefan Borgas, CEO;
¥ Eduardo Gotilla, Acting CFO;
¥ Gerd Schubert, COO;
¥ Gustavo Franco, CSO;
¥ Luis Bittencourt, CTO;
¥ Thomas Jakowiak, Executive VP
Integration Management;
¥ Luiz Rossato, Executive VP Corporate
Development;
¥ Simone Oremovic, Executive VP People
and Culture Management; and
¥ Jacqueline Knox, Executive VP General
Counsel & Company Secretary.
There is a clear division of responsibilities
between those reserved 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.
Outline of anti-takeover measures
No anti-takeover measures have been
implemented.
Share capital and major shareholdings
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:
Shareholder
MSP Stiftung1
Number of
shares
14,076,021
GP Investments IV Ltd2
4,258,905
E. Prinzessin zu
Sayn-Wittgenstein-
Berleburg3
K.A. Winterstein4
2,088,461
2,088,461
W. Winterstein5
1,590,000
%
28.45
8.61
4.22
4.22
3.21
Notes:
1
Information obtained from the Issuer: Held
directly by MSP Stiftung and through a subsidiary.
MSP Stiftung is a foundation under Liechtenstein
law, whose founder is Mag. Martin Schlaff
2 Information obtained from the Issuer: Held
through GP Capital Partners IV, L.P., Grafita
Holdings, Inc and Alumina II Holdings S.À.R.L.
3 The interest is held through Chestnut
Beteiligungsgesellschaft mbH (“Chestnut“).
Ms. Sayn-Wittgenstein made an agreement
with Mr. Winterstein which allows Chestnut
to exercise the voting rights of Silver
Beteiligungsgesellschaft mbH (“Silver“)
in the Issuer. Ms. Sayn-Wittgenstein and
Mr. Winterstein share a family relationship
4 The interest is held through Silver. Ms. Sayn-
Wittgenstein made an agreement with
Mr. Winterstein which allows Chestnut to
exercise the voting rights of Silver in the Issuer.
Ms. Sayn-Wittgenstein and Mr. Winterstein
share a family relationship
5 Held directly and through FEWI
Beteiligungsgesellschaft mbH
7 3
G O V E R N A N C E
R H I M A G N E S I TA
Corporate Governance Report
continued
Culture
The combination of RHI and
Magnesita in 2017 was 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 continued to
be a high priority in 2018. Key
cultural themes serve as guiding
principles and underpin the vision
and strategy of the Company and
for all employees. In the course of
2018 a group of employees, our
“culture champions”, supported 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 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.
74
There are no restrictions on voting rights
and no holders of any securities with
special control rights.
Shares may be issued pursuant to a
resolution of the General Meeting or of the
Board, if and insofar as the Board has been
designated for that purpose by a resolution
of the General Meeting. The General
Meeting shall, for as long as any such
designation of the Board for this purpose is
in force, no longer have authority to resolve
upon the issuance of shares. A designation
of the Board can be made for a fixed period,
not exceeding five years, and may be
extended, each time for a period not
exceeding five years. A designation must
specify the number of shares which may
be issued. This can be expressed in a
percentage of the issued capital. Unless the
designation provides otherwise, it may not
be withdrawn. Within eight days after a
resolution of the General Meeting to issue
shares or to designate the Board as the body
of the Company authorised to issue shares
or, if allowed, to withdraw such designation,
the Company shall deposit the full wording
of the resolution at the Dutch Trade
Register. Within eight days after the end
of each calendar quarter, the Company
shall notify each issuance of shares in the
relevant calendar quarter to the Dutch
Trade Register, stating the number of shares
issued. A resolution to issue shares shall
stipulate the price and the other conditions
of issue.
Transactions with majority shareholders
There have been no transactions between
the Company and MSP Stiftung within the
meaning of best practice provision 2.7.5 of
the DCGC. Since there are no other 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 DCGC has
to be published.
Communications with shareholders
and other stakeholders
Communication with the Company’s
investors is a priority for the Board and
there is focus on proactively maintaining
an open dialogue with shareholders as
well as providing accurate and complete
information in a timely and consistent way.
The Company runs an extensive investor
relations programme, and the CEO, CFO
and Head of Investor Relations hold
meetings with institutional investors as
well as regular briefings with analysts
throughout the year. The Company hosts
results presentations, webcasts, investor
roadshows, one-to-one meetings and
site visits. The Company also uses RNS
announcements, the Annual Report and
presentations as a way of disseminating
information.
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.
The Board receive regular updates on the
Company’s major shareholders and receive
reports on shareholder feedback. The
Non-Executive Directors are invited to
attend the Company’s results presentations.
Corporate governance declaration
The DCGC requires companies to publish
a statement concerning their approach to
corporate governance and compliance with
the DCGC. 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:
¥ the information concerning compliance
with the Dutch Corporate Governance
Code, as required by section three of
the Decree, can be found on page 67:
¥ 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 pages 42 and 43:
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 8
¥ 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 74:
¥ 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 pages 68 to 73:
¥ the diversity policy with regard to
the composition of the Board and
their Committees is referenced on
page 77; 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 73.
Listing Rules information
For the purposes of LR 9.8.4C R, the
information required to be disclosed by
LR 9.8.4 R is set out in the table below.
1
2
4
Interest capitalised
Publication of unaudited
financial information
Details of long-term
incentive schemes
5 Waiver of emoluments
by a Director
6 Waiver of future emoluments
by a Director
7
8
9
Non pre-emptive issues
of equity for cash
Item (7) in relation to major
subsidiary undertakings
Parent participation in a
placing by a listed subsidiary
10 Contracts of significance
11
12
13
Provision of services by a
controlling shareholder
Shareholder waiver of
dividends
Shareholder waiver of future
dividends
14 Agreements with controlling
shareholders
n/a
n/a
80-101,
181-182
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
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:
(a) select suitable accounting policies and
then apply them 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.
With reference to section 5.25c paragraph
2c of the Dutch Act on Financial
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 43
(the “Viability Statement”) of the integrated
report and accounts.
The financial statements on pages 102
to 194 were approved by the Board on
26 March 2019 and signed on its behalf
by Herbert Cordt and Stefan Borgas.
7 5
G O V E R N A N C E
R H I M A G N E S I TA
Nomination
Committee Report
Members
Herbert Cordt (Chairman)
James Leng
Celia Baxter
Committee purpose and responsibilities
The Nomination Committee reviews the
structure, size and composition of the Board
and its Committees. A summary of the
principal elements of its Terms of Reference
are set out in the Corporate Governance
Report on page 73. At the heart of its work
is an ongoing assessment of the Board’s
collective skills, knowledge, competencies
and experience whilst paying particular
attention to independence and diversity.
In spite of its long industrial heritage, in
many ways RHI Magnesita is still a young
company, and the Committee has been
dedicated to ensuring that the Board has
the competencies and depth of skills to
meet the demands of a growing global
business.
2018 was a year of intense activity for the
Committee, whose members met on eight
occasions. In addition, considerable time
was spent on the work associated with its
programme which is summarised in the
‘Activities’ section below.
Committee composition, skills and
experience
The Corporate Governance Report on
pages 67 to 75, details the Nomination
Committee members; Herbert Cordt,
James Leng and Celia Baxter. Details of
their skills and the experience of Committee
members can be found on pages 61 to 63.
Dependent on the specific nature of the
issue being considered by the Committee,
other members of the Board and Executive
Management Team attend meetings of the
Committee and during the year, attendees
included the Chairman of the Audit
Committee, the Chief Executive and Head
of Human Resources.
Activities during the Year
In 2018 the Committee considered
a number of Board matters including
executive and non- executive
appointments, Board diversity and
independence and the establishment
of a Corporate Sustainability Committee.
In addition, the Committee also led the
process of formulating a Board review
programme and a related action
programme focused on improving
the Board’s effectiveness.
Chief Financial Officer (“CFO”)
In June 2018 the Company’s CFO and
Executive Director, Octavio Lopes, informed
the Board of his intention to leave by the end
of 2018 and return to Brazil. The Nomination
Committee instigated a comprehensive
recruitment programme to identify his
successor, established key candidate criteria
and engaged consultants to assist with the
search both internally and internationally
for this strategically important appointment.
A diverse pool of candidates was identified
and interviewed, including candidates with
successful track records at UK listed
companies, operational exposure to
international, capital intensive industries,
M&A and the ability to act as a commercial
partner to the management team and
Board. A cultural fit complementary to
the Company was also required.
In September 2018, the Company was
pleased to announce Ian Botha, the CFO
of Anglo American Platinum, as its new
CFO and Finance Director for appointment
at the 2019 Annual General Meeting.
Until Ian Botha commences in April 2019,
Eduardo Gotilla, the VP of Corporate
Finance and Investor Relations is fulfilling
the position of acting CFO.
Non-Executive Directors
The Nomination Committee led the search
and selection for two new Non-Executive
Independent Directors to further strengthen
the Board and specifically support the
establishment of the Corporate
Sustainability Committee.
7 6
In November 2018 the Company was
pleased to announce that Janet Ashdown
and Fiona Paulus had accepted their
nomination as Independent Non-Executive
Directors. Details of their skills and
experience are set out on page 63. These
appointments will be put to shareholders for
approval at the AGM to be held on 6 June
2019. A detailed induction programme has
been developed for them which include
in-depth meetings with key members of the
Executive Management Team, site visits,
and detailed presentations on other key
matters including R&D, supply chain and
major product ranges.
These appointments demonstrate the
Board’s commitment to further enhance
its composition in terms of independence,
skills and experience as well as building
a balanced and diverse structure.
External search firm, Egon Zehnder, was
used in connection with the appointment
of the new Independent Non-Executive
Directors.
Corporate Sustainability Committee
The nominations of Janet Ashdown and
Fiona Paulus have enabled the Company to
comply with the undertaking included in its
listing prospectus to establish a Corporate
Sustainability Committee.
Janet Ashdown will Chair the Committee
and Fiona Paulus and Andrew Hosty will
be the other committee members. Terms
of Reference for the Committee include,
amongst other matters, the monitoring
of corporate sustainability goals and
targets, policies, standards, processes
and procedures. The Committee will also
review and report on all accidents, incidents
and compliance with legal and regulatory
environmental standards and requirements.
A Corporate Sustainability Committee
report will be included in the 2019 Annual
Report and Accounts.
General Counsel & Company Secretary
During the Year the Nomination Committee
also played a key role, together with the CEO,
in the search for a new Company Secretary
who would also be General Counsel and
a member of the Executive Management
Team. External headhunters supported
the process and the Company was pleased
to announce that on 1 December 2018
Jacqueline Knox joined 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 8
The Board received a presentation from
Lintstock of the Review’s output at its
meeting in November 2018. This was
followed at the January Board meeting with
a discussion between Directors of potential
action points, which Linstock facilitated.
As a result of the Review, the Board will
- amongst other things - develop plans for:
evolving its composition, its engagement
with investors and employees, making
improvements to the materials it receives,
and the allocation of time at its regular
meetings.
Diversity
As highlighted above, the Nomination
Committee supports the Board in pursuing
its diversity agenda. Although the Board
currently enjoys a rich mix of nationalities,
gender, skills, experience and expertise,
the Board recognises that it could go further
in placing greater emphasis ensuring that
its membership reflects diversity in the
broadest sense.
All new appointments are made on merit
and are underpinned by the specific skills
and experience which candidates can bring
to the overall Board composition. Subject
to the appointment of Janet Ashdown and
Fiona Paulus, female representation on
the Board will stand at 25%, with half of
the Board Committees chaired by women.
In addition, approaching a quarter of the
Executive Management Team is now female.
Board Evaluation
The Company engaged the services of
Lintstock, a corporate governance advisory
specialist, to assist the Board conduct a
review of its performance. The Company
has no other relationship with Lintstock.
The first stage of this review involved
Lintstock engaging with the Chairman
and Senior Independent Director to set
the context for the evaluation and to
tailor the survey content to the specific
circumstances of RHI Magnesita. All Board
members were then invited to complete an
online survey addressing the performance
of the Board and its Committees. In order
to promote an open and frank exchange of
views appropriate arrangement were made
to ensure the anonymity of the respondents.
The review was weighted to ensure that
core areas of the Board’s and Committee
performance were addressed, with
particular focus on the following:
¥ the evolution of the Board’s size and
composition, independent Director
representation and plans for Director
rotation, including the attributes the
Board should prioritise when seeking
new appointments;
¥ the performance of the Executive
Management Team, its key members
and their succession;
¥ the Board’s engagement with key
stakeholders, including investors and
employees, and Board site visits in
providing insight into the business;
¥ the continued development and
understanding of the UK listed
environment, the handling of conflicts of
interest, and any areas in which Directors
would benefit from receiving further
training and support;
¥ the Board’s Committee structure, the
performance of each of the Committees
over the past year and the effectiveness
with which the Committees report back
to the Board;
¥ the quality of the Board’s strategy
session, as well as the top strategic issues
that face RHI Magnesita over a three to
five year period; and
¥ the Board’s oversight of risk management
and the quality of reporting and metrics
provided in this area.
7 7
G O V E R N A N C E
R H I M A G N E S I TA
Audit & Compliance
Committee Report
Members
John Ramsay (Chairman)
Wolfgang Ruttenstorfer
Andrew Hosty
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 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.
Meetings attendance
The Committee meets as required, but not
less than three times a year. Other Directors,
including the CFO, attend Audit Committee
meetings. The Chairman of the Committee
has had regular private discussions with
the external auditor and the CFO during
the Year.
During 2018 the Committee met five times
and conducted 11 calls. The Committee
has also met three times and had two
calls since the end of the financial year,
and prior to the signing of this Annual
Report. The frequency of meetings and
calls was high as a result of 2018 being
the first year after the merger.
John Ramsay, as Chairman, and Wolfgang
Ruttenstorfer have attended all Audit
Committee meetings and calls in 2018.
Andrew Hosty attended all Committee
meetings and 10 calls. The external auditors
attended three Committee meetings and
three calls during the Year.
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 2017 and 2018 Annual
Report;
¥ Review of the quarterly trading updates;
¥ Review of the interim financial
statements;
¥ 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;
¥ Review of treasury guidelines;
¥ Review of financing options.
Responsibilities of the Audit Committee
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 supervision the
effects of 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 of
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;
7 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 8
Internal audit
The annual assessment of the effectiveness
and capability of internal audit identified
a need to strengthen the internal audit
function. A new role of Group Head of
Internal Audit was established and the
two legacy internal audit functions
integrated into a single global team with
enhanced coverage. Additional internal
audit resources will be put into place in
Americas, Europe and Asia in 2019.
Internal control
During the Year there have been several
internal and external activities focused on
the control environment of the Company.
These have included:
¥ The full year audit of the 12 months
ended 31 December 2018 of
RHI Magnesita N.V. performed
by PwC for the purpose of this
Annual Report and Accounts;
¥ Review of Magnesita’s updated
preliminary purchase price allocation
disclosed in the interim Accounts as
of 30 June 2018 performed by PwC;
¥ Review of Magnesita’s final purchase
price allocation performed by PwC;
¥ The internal audit function has
performed reviews at a number of
the Group’s sites during the Year;
¥ Bottom-up identification and assessment
of risks performed by the risk
management department.
¥ 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.
¥ 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.
The Audit Committee furthermore
maintains regular contact with and
supervises the external auditor.
External auditor
The Company’s external auditor,
PricewaterhouseCoopers (“PwC”), was
appointed at the Annual General Meeting
held on 7 June 2018.
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.
TheCommittee reviews and approves
requests for non-audit services on a
case by case basis.
During the Year, the Committee reviewed
the effectiveness of PwC as an external
auditor. The evaluation took the form of
a survey comprising a range of questions
covering quality and efficiency of audit.
This was completed by senior finance
managers of the RHI Magnesita Group.
The results of this survey and review
were assessed by the Committee and
discussed with PwC. The Committee
recommended that PwC should be
proposed for reappointment at the
upcoming Annual General Meeting.
RHI AG carried out an auditor tendering
process in 2016; given that the tender
occurred shortly before the merger,
the Audit Committee has considered
it unnecessary thus far for RHI Magnesita
to re-tender. The external auditors
are appointed for one year, with
re-appointment being required at
the Annual General Meeting.
Audit Committee evaluation
An internal evaluation of the performance
of the Audit Committee has been
undertaken. This review concluded that
the Audit Committee has been operating
effectively based on the subject matters
covered, the nature of the Committee
meetings, thoroughness of approach and
the business understanding, skills and
experience of the Committee members.
Assessment of the finance
leadership team
The Committee directly assessed the
capability of the finance leadership team.
The Committee reviewed presentations
from each finance leader outlining the
vision for their respective areas within
finance. The Committee also reviewed the
overall strategy to implement and transition
to shared service centres supported by IT
integration activities, which commenced in
Europe and will continue in the Americas in
2019. The Committee concluded that the
changes made to the Finance organisation
and leadership team have enhanced its
capabilities.
Corporate reporting review
During the Year, the Company’s 2017
financial statements were subject to a
routine review by the Dutch Financial
Market Authority (“AFM”). The Corporate
Reporting Review team had questions
related to the preliminary purchase price
allocation of Magnesita, impairment test
and financial instruments disclosures.
The review did not result in any material
findings that would require revision of the
2017 financial statements.
Purchase price allocation of Magnesita
The Company completed the purchase
price allocation of Magnesita within
12 months from the acquisition date
as required by IFRS. Deloitte has been
appointed as a principal advisor for the
project, additional specialists have been
engaged for mining rights and fixed assets.
PwC scrutinised the final purchase price
allocation during the interim audit and
completed the review without any findings.
7 9
G O V E R N A N C E
R H I M A G N E S I TA
Remuneration
Committee Report
Members
Celia Baxter (Chairman)
James Leng
Karl Sevelda
I am pleased to present the Report of the
Remuneration Committee for the financial
year ended 31 December 2018, providing
a summary of the Committee’s work during
the Year, as well as the context for the
decisions made.
This was the first full year of operation for
RHI Magnesita, following the combination
of the businesses of RHI and Magnesita,
under a new Dutch holding company and
admission to the London Stock Exchange
in October 2017. Being Dutch incorporated
and registered, whilst listed on the London
Stock Exchange, RHI Magnesita is required
to comply with both UK and Dutch
reporting requirements and their respective
Corporate Governance Codes. Our
Remuneration Report is therefore made on
this basis and recognising transparency of
reporting, certain additional voluntary
disclosures are also made.
We were pleased that at the 2018 Annual
General Meeting (“AGM”) all the resolutions
relating to the Directors’ Remuneration
Policy, the Annual Statement and Report
on Remuneration and the new long-term
incentive plan (‘LTIP’) were approved by
more than 99% of our voting shareholders.
The Directors’ Remuneration Policy, which
is intended to operate until 2021, was as
previously disclosed retrospectively applied
from 1 January 2018. The new LTIP became
operative following the 2018 AGM.
This all-round performance gives the
context for the Committee’s decisions
during the Year.
Incentive outcomes for the Year
As set out in the Annual Report of
Remuneration, remuneration outcomes
for the Year were as follows:
Annual Bonus Plan: Awards for the year
for the CEO with 88.0% of maximum and
for the CFO 98.7% as maximum reflect
the strong all-round performance of the
Company during the year. The operating
EBIT increased by 62.4%. The Company
generated €383.8 million of free cash flow
and the synergy targets were exceeded.
Further details of our performance against
2018 bonus targets can be seen on page 95.
Performance Share Plan: There were no
long-term incentives subsisting at the time
of Admission. The CEO in 2017 received a
phantom share award as part of his previous
remuneration package. This vested prior to
Admission and will be paid in three equal
tranches in 2018, 2019 and 2020. The
first Performance Shares under the new
long-term incentive plan were awarded
in 2018 and are not due to vest, subject
to performance, until 2021.
The Committee is satisfied that the
above outcome of the incentive plans
was a fair reflection of the performance
of the Company over the relevant period.
The above annual bonus plan outcome
was as calculated against quantitative
performance conditions, the Committee
did not use its discretion to modify the
outcome, as it was considered that the
Plan operated as intended.
Remuneration is closely
aligned with our strategy
Our Remuneration Policy continues to be
closely aligned to and supportive of our
strategy. The objective of combining two
companies to form RHI Magnesita was to
capture the strengths of each entity leading
to an enlarged portfolio of products and
services, greater proximity to customers
through a broader geographical footprint,
technology leadership, as well as more
effective raw material integration. Another
material benefit of this is the capturing
of synergies and efficiencies, leading
to immediate earnings improvements.
Our remuneration policy and practices are
in line with these objectives, with bonus
plans that incentivise growth, cash flow
generation and the achievement of synergy
targets and strategic projects. Our LTIP
rewards the creation of shareholder value
and earnings growth.
Before the combination of the two
companies, Magnesita used Economic Profit
Growth as a key performance indicator
(‘KPI’). Prior to the completion of the
Integrated Tender Offer to the minority
shareholders of Magnesita, it was difficult to
introduce this KPI to the combined business.
However, this will now be implemented as
a KPI from 2019 to measure the creation of
long-term value. Economic Profit Growth
has therefore been included as one of the
KPIs in the 2019 LTIP in place of EBIT.
RHI Magnesita’s performance during 2018
As laid out in the Chairman’s Statement
and the Chief Executive Officer’s Review,
RHI Magnesita delivered strong all round
performance during the Year under review:
¥ Group revenue increased by 21%
¥ Adjusted EBITA increase of 81%
¥ Adjusted EBITA margin increased to
13.9% demonstrating a 460 basis
points improvement on 2017
¥ Integration plans and increased
synergy targets were met, achieving
savings of €70 million
¥ Healthy cash generation and leverage
to 1.2 x net debt to adjusted EBITA.
8 0
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 8
Key Committee activities during 2018
In addition to the responsibilities of the
Committee (which are described in
summary on page 73), the Committee
spent time on the following matters
during the Year:
Further development of the
Remuneration Report
2018 represents the first full year of
remuneration reporting for the Company,
with the 2017 report only covering the
period from the date of Admission
(27 October 2017 to 31 December 2017),
therefore it should be noted that 2018
remuneration information is being
compared against a significantly shorter
period of 2017. The 2019 remuneration
report will be the first where year-on-year
comparators are for the same time period.
Remuneration issues related to the
change of the CFO
The Committee considered the impact
on remuneration of the past CFO,
Octavio Lopes, leaving the business on
31 December 2018. No payments were
made for loss of office. Details of Octavio
Lopes’ remuneration are laid out on page
94 and 99.
In order to secure the recruitment of Ian
Botha as a Director and CFO, an appropriate
remuneration package was developed
which is in line with the Company’s new
remuneration policy. The new CFO’s
remuneration package incorporates
a lower fixed remuneration but higher
variable performance-based pay than his
predecessor, who had retained his legacy
2017 remuneration package for 2018. Ian
Botha was recruited from Anglo American
and held a variety of long-term incentives
that will lapse when he leaves Anglo
American. To secure his appointment and
in line with the Company’s remuneration
policy, the Committee offered share-based
remuneration to mirror the forfeited
long-term incentives of his previous
employer but taking account of the
potential vesting. Full details of the
new CFO’s remuneration package
can be found on page 100.
Review of new UK codes and regulations
relating to remuneration
The Committee reviewed and considered
the impact of the 2018 UK Corporate
Governance Code (“the 2018 Code”)
and new regulation on RHI Magnesita’s
remuneration practices. Many areas
introduced were already part of
RHI Magnesita’s practices, for example,
workforce remuneration as a whole is
taken into consideration, holding periods
are in place on RHI Magnesita’s LTIP, the
Committee has the ability to exercise
discretion on remuneration plan outcomes
and comprehensive malus and clawback
provisions are in place. Also, a number of
Employee Directors sit on the Board and this
gives the Committee direct engagement
with the views of the wider workforce.
Last year in line with Dutch Regulations
and market practice we disclosed the
pay ratio of the CEO to the average salary
of all employees in the Group as 50:1.
Similarly, on page 91 this year’s ratio of
52:1 is calculated on the same basis.
RHI Magnesita only has 104 employees
in the UK and falls below the required
threshold for UK pay ratio reporting
requirements. As UK employees represent
less than 1% of RHI Magnesita’s employees,
the Committee is comfortable that the basis
of calculation comparing with all employees
is appropriate.
The UK gender pay gap reporting
requirement came into effect in April 2018
for companies employing more than 250
people in the UK and as described above,
RHI Magnesita’s UK employees represent
less than 1% of its employees. The Board
and leadership team recognises that
inclusion and diversity in all forms
are essential ingredients in creating
diversity of thought, experience and
skills within the Company (read more
on the Company’s approach to diversity
on page 56). The Committee will consider
the best way of monitoring gender pay over
the coming year.
The scope of the Terms of Reference of
the Committee has been revised to
determine and set remuneration for senior
management as well as the executive
directors and the Chairman. During 2019,
the Committee will develop a formal policy
for post-employment shareholding
requirements.
Policy amendment
For ease of reference we have included
again the Remuneration Policy within the
Annual Report on pages 84 to 91. This
policy which was approved by shareholders
at the 2018 AGM, included a number of
legacy items, relating in particular to the
past CFO’s remuneration, that were not in
line with UK market practice. As we stated
last year it was our wish to bring Executive
Directors’ remuneration packages within
the new remuneration strategy and we also
acknowledged that this may only be fully
achieved when new appointments were
made. The recruitment of a new CFO will
allow us to remove some of these legacy
elements from our Remuneration Policy
which we have highlighted within the
Policy. This will be done formally when the
Remuneration Policy is put to shareholders
for approval again in 2021.
Implementation of the
Remuneration Policy for 2019
The base salary of the CEO was increased
by 3.5% with effect from 1 January 2019.
This compares with an average of 4% for
the majority of Austrian-based employees.
The new CFO’s salary is lower than his
predecessor.
The bonus targets for 2019 are based 75%
on Group financial metrics (35% Operating
EBIT measured on a constant currency
basis; 30% Free Cash Flow; 10% Synergy
targets) and 25% on key strategic goals of
the business, which are critical to the future
profitability of the Group. Although the
Committee retained the same Group
financial metrics, the weighting of each
of the metrics was adjusted to reflect the
current business priorities. The performance
targets for the annual bonus are considered
by the Board to be commercially sensitive
and will be disclosed retrospectively in the
2019 Remuneration Report provided they
are not considered to be commercially
sensitive at that time.
8 1
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
Conclusion
This is the Committee’s first full year of
operation. We have worked diligently to
develop an appropriate Remuneration
Policy which we will continue to review
and refine. Furthermore, we believe that
the Directors’ Remuneration Policy and its
implementation for 2019 as well as the
remuneration outcomes for 2018 remain
strongly aligned to the Company’s business
strategy and long-term shareholder
interests.
At the 2019 AGM an advisory shareholder
resolution to approve this Annual Statement
and the Annual Report on Remuneration
will be presented to shareholders and we
look forward to your continued support.
CELIA BAXTER
CHAIRMAN OF THE
REMUNERATION COMMITTEE
The CEO and CFO will be granted a
long-term incentive Performance Share
award in 2019 with the potential to receive
in 2022, if performance targets are met,
shares with a market value at the date of
grant (in 2019) of 200% and 150% of salary
respectively. The performance targets that
will determine vesting of the share awards.
will be based as in 2018, on one-third on
adjusted earnings per share (“EPS”) targets,
one-third on relative Total Shareholder
Return (“TSR”) and the other third in 2019
will be based on Economic Profit Growth.
As mentioned above, from 2019 Economic
Profit Growth will be used as a KPI for
managing the long-term value of the
Company, having been used for a number
of years by Magnesita as a key management
tool for the business.
Cascade of policy
The principles of the Executive Directors’
Remuneration Policy, including
participation in the Group’s LTIP through
the grant of Performance Share awards,
have been cascaded to the Executive
Management Board and senior
management across the Company.
In addition, bonus structures throughout
the Company have been revised to
reflect those of the executive and senior
management to give a clear line of sight
of objectives, to support the building of
the new organisational culture and to
incentivise appropriate behaviours and
the success of our workforce.
8 2
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 8
At a Glance: Operation of remuneration policy
for the financial year ended 31 December 2018
Policy element
S Borgas (CEO)
Base salary from 1 January 2018
% increase from prior year
Retirement allowance
Annual bonus
Annual bonus metrics
€826,000
-13%1
O Lopes (CFO)
£550,000
0%
Allowance of 15% of base salary
Allowance of 30% of base salary
Up to 150% of base salary
Up to 120% of base salary
75% of the annual bonus 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 maximum 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
Actual bonus result for 2018 performance
€1,090,876 (88.0% of maximum)
£651,398 (98.7% of base salary)
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
Performance period & post vesting
holding period
Malus and clawback
3 years and 2 years respectively
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
200% of base salary to be met within five years
Shareholding as % of salary at 2018 year-end
40%
921%
1 Base salary reduced by 13% but 15% of base salary provided as a retirement allowance
8 3
G O V E R N A N C E
R H I M A G N E S I TA
Directors’
Remuneration Policy
The Remuneration Policy,
which complies with UK
and Dutch governance,
was approved by
shareholders in 2018.
This Directors’ Remuneration Policy
was approved by over 99% of voting
shareholders at the June 2018 AGM and
became effective from 1 January 2018.
Other than in the event of exceptional
circumstances, the Committee does not
intend to revert to shareholders with a
new Remuneration Policy before the end
of the three year period at the 2021 AGM.
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 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 was put in
place when the Company listed in 2017
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 in June 2018 for approval.
Certain aspects of this new policy are only
applicable to our past CFO, Octavio Lopes,
reflecting the historic structure of his
remuneration and legacy contract.
However, Octavio Lopes left the Company
on 31 December 2018 and these aspects
of the Policy are therefore no longer
applicable and will be removed when
the Policy is brought to shareholders
for approval in 2021 and are noted below
for ease of reference. The new CFO’s
remuneration is in line with the ongoing
new Remuneration Policy.
The remuneration policy for Executive
and Non-Executive Directors
For ease of reference we have included on
pages 84 to 91 the remuneration policy for
the Executive Directors and Non-Executive
Directors. We have emboldened sections
of the Policy that related to the legacy
arrangements for our past CFO who left
the business on 31 December 2018 and
which are not applicable going forward.
8 4
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 8
Please note, in the policy we have highlighted parts that were only legacy items for our past CFO, which are not applicable going forward.
Policy table for Executive Directors
Element and purpose
How it operates
Maximum opportunity
Performance-related framework and recovery
Salaries will be reviewed by the Committee
annually taking into account the various factors
noted in the “How it operates” section of the
policy.
There is no prescribed
maximum annual base
salary or salary increase.
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.
Base salary
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.
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
Retirement allowance
To provide competitive
retirement benefits
for recruitment and
retention purposes.
Directors may participate in a defined
contribution plan, and/or receive cash in lieu of
all or some of such benefit.
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.
Our past CFO received a cash payment in lieu
of pension of 30% of salary. This is a legacy
issue where the pension entitlement was set
on recruitment. This was valid for 2018 only.
For the CEO and new
Directors 15% of salary.
None
For our past CFO 30% of
salary valid for 2018 only.
NB: The new CFO will
receive 15% of salary, as
detailed above.
Exceptionally for Executive
Directors outside of the UK
an amount as required by
local regulation and in line
with industry norms.
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.
Benefits provided currently include: private
health insurance, life insurance, car/car
allowance and fuel allowance.
There is no maximum level
of benefits provided to an
Executive Director.
None
Our past CFO was 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.
8 5
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
The annual bonus is based on the Group’s
performance as set and assessed by the
Committee on an annual basis.
Up to 150% of base salary
maximum potential
opportunity.
The annual bonus is paid in cash and the
Executive Directors (except for our past 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.
Target potential
opportunity is 50% of
maximum opportunity.
For 2018 the CFO’s target
potential opportunity was
100% of salary which
is 83.3% of maximum
(on the basis that his
maximum potential
opportunity was 120%
of salary), and threshold
potential opportunity
was 66.6% of maximum
(being 80% of salary).
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.
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.
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.
8 6
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 8
Policy table for Executive Directors
Element and purpose
How it operates
PS 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
(“PS”) 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.
Maximum opportunity
Performance-related framework and recovery
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.
In exceptional
circumstances on
recruitment 250% of salary
(face value of award).
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.
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 PS award 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 PS award is appropriate.
PS 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 level of requirement
will be disclosed in
the Annual Report
on Remuneration.
None
The Committee normally expects this
requirement to be met within five years of
appointment or approval of this Policy, if later.
8 7
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
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.
Maximum opportunity
Performance-related framework and recovery
The level of requirement
will be disclosed in
the Annual Report
on Remuneration.
None
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
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.
Maximum opportunity
Performance-related framework and recovery
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.
8 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 8
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 PS
awards under share based plans in the
event of a change of control;
¥ making appropriate adjustments
required in certain circumstances (e.g.
rights issues, corporate restructuring
events, variation of capital and special
dividends); and
¥ 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).
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.
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 Executive Directors, Mr Borgas and
Mr Botha, 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.
Treatment of variable pay awards
on termination
Annual bonuses and PS 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.
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 PS
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.
8 9
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
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 PS 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 PS 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.
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.
Two of the Company’s major shareholders
act as directors on the Board and thus
regular consultation on all elements of
remuneration is ongoing. In addition,
the Committee consulted with other key
shareholders and took guidance from
shareholder representative bodies on
the terms of the remuneration policy
and the new LTIP which was brought
to shareholders at the 2018 AGM. The
resolutions put to the AGM relating to
remuneration all received more than 99%
support from voting shareholders. 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.
9 0
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 8
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.
Pay ratios
The Dutch Corporate Governance Code
recommends that from the financial year
2018, and the UK Directors’ Reporting
Regulations require that from 2019, that
the Committee report pay ratios including
changes from the prior year as part of its
determination of executive pay. Last year
RHI Magnesita reported the pay ratio of
the CEO to the average salary of all the
employees using a methodology which was
in line with Dutch market practice. The ratio
was calculated using the CEO’s Single Total
Figure of remuneration shown on page 94
and the total employee remuneration figure
(for the entire RHI Magnesita Group) shown
in the accounts on page 99. 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. RHI Magnesita only has around 104
employees in the UK and falls below the
required threshold for UK pay ratio reporting
requirements. As UK employees represent
less than 1% of RHI Magnesita’s employees,
the Committee considers that the above
approach is appropriate in the
circumstances and therefore the ratio has
been calculated on the same basis this year,
as shown below.
CEO pay ratio
2018
52 : 1
2017*
50 : 1
* As RHI Magnesita was admitted to trading on
27 October 2017, the 2017 CEO pay ratio is based
on the period 27 October to 31 December 2017
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. We have
also shown an assumed share price
appreciation of 50% for the Performance
Share award during the performance period
under the maximum payment scenario.
Assumptions
Minimum: Fixed pay only (base salary,
pension and benefits).
Target: Fixed pay plus 50% of 2019
maximum annual bonus opportunity for the
CEO and CFO with 50% vesting of the 2019
PS award.
Maximum: Fixed pay plus maximum annual
bonus opportunity and 100% vesting of
2019 PS award with an assumed share price
appreciation of 50% for the Performance
Share award during the performance period.
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.
CEO
€000
New CFO1
€000
Minimum
100%
€1,011
Minimum
100%
€581
Target
100%
26%
34%
€2,507
Target
100%
25%
42%
€1,767
Maximum
100%
36%
24%
12%
€3,576
Maximum
100%
30%
31%
15%
€2,081
Fixed pay
Annual bonus
Long-term
incentives
Share price
appreciation 50%
Fixed pay
Annual bonus
Long-term
incentives
Share price
appreciation 50%
1 This reflects annual remuneration of the new
CFO joining the business on 1 April 2019
9 1
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 transparency
of reporting. This Annual Report is compiled
on this basis.
The following section provides details
of how the Company’s Directors were
paid during the financial year to
31 December 2018.
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
on page 91 of the policy section of this report.
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 three times
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 (Code of Conduct),
were appointed by the Committee in
2017 having submitted a proposal which
demonstrated their skills and experience in
executive remuneration. KF provides advice
to the Committee on matters relating to
executive remuneration.
In 2018 KF also provided executive search
services to the Company. The Committee
was satisfied that the advice provided by
KF was objective and independent having
noted their commitment to the Code of
Conduct. KF’s fees in respect of the 2018
financial year were £109,597 KF’s fees were
charged on the basis of the firm’s standard
terms of business for advice provided.
Linklaters drafted the LTIP Rules and their
fees in respect of the 2018 financial year
were £33,600. Linklaters also provided
general legal advice to the Company.
9 2
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 8
Principal activities and matters addressed during 2018
Agenda items
One-off items
Review of Plan Rules for the Annual Bonus Scheme and
the approach for “Joiners and Leavers”
Review and approval of the draft Plan Rules for the
LTIP and the approach for “Joiners and Leavers”
LTIP: Review of rules for shareholder approval at
the AGM
Review of Regulatory News Statement, with details
of performance targets for PS awards
Review and consideration of proposed changes
to UK Corporate Governance Code and Directors’
Remuneration Reporting Regulations
February
Update on the investor consultation regarding the Remuneration Policy and new LTIP
Review of expected FY 2017 annual bonus outturn
Finalising target setting for FY 2018 annual bonus
Review of measures and targets for 2018 PS award
Review of Draft Remuneration Report
March
Update on the investor consultation
Review and approve FY 2017 annual bonus outturn for the Executive Directors
Approval of 2017 Remuneration Report
April
Update on the investor consultation
Approval of targets for 2018 PS award
August
Review and approval of remuneration arrangements for the past CFO, Octavio Lopes
on leaving the Company
Review of the 2018 AGM voting on remuneration-related resolutions
Review and approval of the Committee’s updated Annual Work Plan
Review and approval in broad terms of Remuneration package for a new CFO
Review and approval of proposed approach for treatment of leavers and joiners
to the LTIP
November Review of proposed update to the Terms of Reference, following the changes to
the UK Corporate Governance Code
Confirmation of new CFO’s remuneration package
FY 2018 bonus (outlook and projections of bonus payments for 2018, proposal
on bonus measures and targets for 2019)
Annual review and approval of salary/fixed compensation for Executive
Management Team
Review of projected performance of 2018 PS award
Proposal on measures and targets for 2019 PS award
Review of Chairman fee data
Statement of voting at AGM
At last year’s AGM, held on 7 June 2018, votes on the Directors’ Remuneration Policy, Annual Statement and Annual Report on
Remuneration and long-term incentive plan were cast as follows:
Voting
For
Against
Total Withheld
Annual Report on Remuneration
Votes for
27,204,121
2,404
27,273,696
%
99.99%
0.01%
100%
Directors’ remuneration policy
Votes for
27,204,121
134,556
27,273,696
Approval of long-term incentive plan
Votes for
27,173,549
100,146
27,273,696
%
99.63%
0.37%
%
99.51%
0.49%
67,171
N/A
1
N/A
1
N/A
Reason for
vote against
if known
Action
taken by
committee
N/A
N/A
N/A
N/A
N/A
N/A
The total voting rights of the Company on the day on which shareholders had to be on the register in order to be eligible to vote was 44,819,039.
A “Vote withheld” is not a vote in law and is not counted in the calculation of the % of shares voted “For” or “Against” a resolution.
9 3
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
Single total figure table (audited)
The following table shows a single total figure of remuneration in respect of qualifying services for the 2018 financial year for each
Executive and Non-Executive Directors of the Company, together with comparative figures for 2017 for the period from the date of
Admission 27 October to 31 December 2017 being 66 days.
Director1,2
Year
Executive Directors
Stefan Borgas
Octavio Lopes
Non-Executive Directors
Salary
2017
2018
Taxable benefits3
Bonus4
Pension
Legacy incentive
payments5
Total remuneration
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
€826,000 €171,780
€8,823
€1,539 €1,090,876 €171,437 €147,650
-
- €132,2255 €2,073,350 €476,981
£550,000
£99,452
£20,440
£3,696 £651,398 £100,447 £165,000
£29,836 £550,0007
Herbert Cordt (Chairman)
£220,000
£39,781
Celia Baxter
Andrew Hosty
£82,500
£14,918
£77,500
£14,014
Farsen Lambranho
£65,000
£11,753
James Leng
£102,500
£18,534
Stanislaus Prinz zu
Sayn-Wittgeinstein
£65,000
£12,658
John Ramsay
£77,500
£14,014
Wolfgang Ruttenstorfer
£72,500
£13,110
David A. Schlaff
£65,000
£11,753
Karl Sevelda
Janet Ashdown6
Fiona Paulus6
Franz Reiter1
Michael Schwarz1
£72,500
£13,110
£6,250
£5,833
-
-
N/A
N/A
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
£1,936,838
£233,431
£220,000
£39,781
£82,500
£14,918
£77,500
£14,014
£65,000
£11,753
£102,500
£18,534
£65,000
£12,658
£77,500
£14,014
£72,500
£13,110
£65,000
£11,753
£72,500
£13,110
£6,250
£5,833
-
-
N/A
N/A
-
-
1 Employee directors attending Board meetings do not receive remuneration for that role, they are remunerated as employees of the Group
2 All amounts for 2017 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 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 Benefits in 2018 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
4 For 2017 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 for 2017 are the pro-rating for the period 27 October
to 31 December 2017 of the total amounts payable
5 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 and accounted for in that year. 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
6 Janet Ashdown and Fiona Paulus have accepted their nomination as Non-Executive Directors and their appointment will be voted upon at the 2019 AGM
7 Octavio Lopes received the second half of his retention bonus in October 2018 of 100% of salary (as disclosed in the 2017 Remuneration Report) which was
awarded prior to Admission
No loans, advances or guarantees have been provided to any Director.
9 4
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 8
2018 Annual bonus performance against targets (audited)
The annual bonus for the Executive Directors - Stefan Borgas and Octavio Lopes - was determined following assessment of achievement
of qualitative and quantitative targets as set out below:
Performance
target for
threshold
vesting (0% of
salary for CEO
and 80% of
salary for CFO)
Performance
target for
target vesting
of 75% of
salary for CEO
and 100% of
salary for CFO
Performance
target for
maximum
vesting 150% of
salary for CEO
and 120% of
salary for CFO
Actual
performance
CEO (%
of total
for each
element)
CEO
Payment
(% of
salary)
Maximum
total pay
out 150%
of salary
CEO cash
bonus based
on salary of
€826.000
Past CFO
(% of total
for each
element)
Past CFO
Payment
(% of
salary)
Maximum
total
payout
120% of
salary
Past CFO
cash bonus
based on
salary of
£550.000
€302,9 million €329,6 million €409,7 million €399,6 million
93.6% 49.2% €406,060
97.9%
41.1% £226,101
€207 million €228,8 million €294,8 million €370,5 million 100.0% 37.5%
€309,750
100.0% 30.0% £ 65,000
€37,8 million €42,5 million €56,6 million
€97 million 100.0% 22.5%
€185,850
100.0%
18.0% £99,000
See tables below
61.1% 22.9%
€189,216
98.2% 29.3%
£61,297
88.0% 132.1% € 1,090,8764 98.7% 118.4% £651,398
Measure and
weighting
Operating
EBIT1 (35%)
Free Cash
Flow FCF2 (25%)
Net Synergy
Tracking3 (15%)
Strategic
Objectives4 (25%)
Total
1 At constant currency and w/o restructuring expenses
2 Operating cash flow at constant currency. EBTIDA w/o restructuring expenses + CapEx + ΔWK + cash tax
3 Synergies are (financial) benefits achieved through the merger of the two companies
4 The CEO is expected to purchase shares in the Company to the value of 50% of any bonus paid net of tax, for performance above Target
Chief Executive Officer
Strategic measures* and weighting
Performance
China Business plan objective 2018 (33.3%)
Performance measured against sales, EBIT and CAPEX targets
Score
100%
Development and implementation of new system (33.3%)
Performance measured against delivery timing and adherence to system
83.30%
Development and commencing implementation of
business plan for strategic initiative (33.3%)
Total score
Performance measured against sales, EBIT and CAPEX targets
0%
61.1%
* The CEO’s strategic objectives are market sensitive and details of all the specific initiatives are not therefore disclosed as the Board believes they would provide
information to competitors. They will remain market sensitive because they are an integral part of our on-going business operations. The Committee has
provided as much information as it is able given the nature of the objectives so that investors can be comfortable that the Committee has used a thorough
approach in setting the objectives and targets and measuring the outcome
Past Chief Financial Officer
Strategic measures and weighting
Performance
Restructuring of RHIM combined balance sheet (33.3%)
Performance measured against fund raising with maximum specified cost and
repayment of Magnesita bonds
Implementation of operational hub in the Netherlands (33.3%)
Performance measured against implementation timetable and annual savings
Score
100%
100%
GBS(IMO) implementation (33.3%)
Performance measured against target savings run rate, EBIT and build costs
94.40%
Total score
98.2%
No bonuses were awarded to Non-Executive Directors.
9 5
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
Share awards where vesting is based on performance periods ending during the financial year ended 31 December 2018 (audited)
There were no share awards where vesting is determined based on performance period during the financial year ended 31 December 2018.
Share awards awarded during the financial year ended 31 December 2018 (audited)
During 2018 our CEO was awarded Performance Shares with a value at the date of grant of 200% of salary. Details of the PS award and
the performance targets that will determine the extent to which the award vests are set out below. There was no award to our past
CFO Octavio Lopes.
Director
Stefan Borgas
Scheme
Basis of
award
Date of
award
Percentage
of Salary
Award
Share Price
used
€1
Face value
€000
Percentage
vesting at
threshold
performance
Number of
shares
End of
performance
period
LTIP Annual award
7 Jun 2018
200%
57.773
1,652
25%
28,594 31 Dec 2020
1 The face value of the awards was calculated using the average closing price for the five trading days prior to the PS award being granted being £50.62 converted to
€ (using average FX rate over the same 5 days period of €1.14 to £1 = €57.773)
The performance conditions and targets for the award are as follows:
Performance measure
Weighting
Threshold (25% vests)
Maximum (100% vests)
Performance period
Relative TSR1
Adjusted EPS
EBIT
33.3%
33.3%
33.3%
Equal to index
Index +25%2
€5.20 per share
€6.50 per share
€380m
€435m
3 financial years
commencing 20183
(+ 2 years holding
post vesting)
1 Measured against the FTSE 350 Index
2 Being 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%)
3 For EPS and EBIT Performance Conditions the period of three financial year commencing with 2018. For the TSR Performance Condition the period of three
financial year and one calendar month commencing with the financial year 2018
Awards vest on a straight-line basis between threshold and maximum.
Directors’ interests in RHI Magnesita’s long-term incentive plan
The table below details outstanding PS awards.
Director
Stefan Borgas
Scheme Award Date
Share awards
held at
1 January
2018
Awarded
during the
year
Vested
during the
year
Share awards
lapsed
during the
year
Share awards
held at
31 December
2018
Share value
at award
Vesting
date
PSP 7 June 2018
-
28,594
-
-
28,594
1,652,0001 7 June 2021
1 The face value of the awards was calculated using the average closing price for the five trading days prior to the PS award being granted being £50.62 converted to
EUR (using average FX rate over the same 5 days period of 1.14 EURO to £1 = €57.773)
9 6
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 8
Statement of Directors’ shareholding and share interests (audited)
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 2018 year-end, the Executive Directors
each held shares in the Company as detailed below. Shares are valued using the Company’s closing middle market share price on
31 December 2018 of £39.60.
The table below shows how each Director complies with the shareholder guidelines at 31 December 2018 was as follows:
Executive Directors
Stefan Borgas
Octavio Lopes
Non-Executive Directors
Herbert Cordt
Celia Baxter
Andrew Hosty
Fersen Lambranho1
James Leng
Stanislaus Prinz zu Sayn-Wittgenstein2
Franz Reiter
Wolfgang Ruttenstorfer
David A. Schlaff3
John Ramsay
Michael Schwarz
Janet Ashdown
Fiona Paulus
Karl Sevelda
Shares
held at 31
December
2018
Shares
held at 31
December
2017
Unvested
and subject
to a service
requirement
only
Unvested
and
subject to
performance
conditions
Shareholding
requirement
Current
shareholding
Requirement
met?
9,750
4,300
127,894
127,894
-
1,002
379
-
1,002
379
-
-
-
-
-
-
-
-
-
-
11,347,058
11,347,058
2,130
2,130
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
28,594 200% salary
- 200% salary
40%
921%
No
Yes
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1 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 2,088,461 ordinary shares
3 MSP Stiftung is a foundation under Liechtenstein law, whose founder is Mag. Martin Schlaff. Mr. 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 14,076,021 voting rights in the Issuer
There were no changes in the Directors’ shareholdings and share interests between the end of the year and 31 March 2019.
9 7
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
Review of past performance and CEO remuneration table (unaudited)
Share price performance
The closing middle market price of the shares at 31 December 2018 was £39.60 (2017: £39.05). During 2018, the shares traded in the
range of £33.18 to £53.50.
RHI Magnesita total shareholder return
The graph below compares the Total Shareholder Return of the Company with the FTSE 350 Index over the 14-month period from
Admission to 31 December 2018. 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.
180
160
140
120
100
80
)
d
e
s
a
b
e
R
(
)
£
(
e
u
l
a
V
60
10/17
12/17
02/18
04/18
06/18
08/18
10/18
12/18
RHI Magnesita
FTSE 350
Source: Datastream (Thompson Reuters)
Remuneration of the CEO
Single figure of total remuneration
Annual bonus pay-out as % of maximum
Long-term incentive vesting rates as % of maximum3
2017
2018
€476,9811 €2,073,350
83.16%2
88.04%
N/A
N/A
1 The 2017 Single figure of Total Remuneration relates to the period 27 October 2017 to 31 December 2017
2 The 2017 Annual bonus pay-out as a % of maximum relates to bonus targets set prior to the merger of the two companies that now form RHI Magnesita
3 A long-term incentive plan was introduced when the Company was formed in October 2017. The first awards are not due to vest until 2021 based on a performance
period ending 31 December 2020 (and shortly thereafter for the TSR element)
9 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 8
Percentage change in remuneration of the CEO (unaudited)
A comparison of the percentage change in Stefan Borgas’ salary, benefits and bonus against a relevant group of employees will be
provided in 2019 when the percentage change between 2018 and 2019 will be given. This will be the first year where full 12-month
comparative data will be available.
Relative importance of spend on pay (unaudited)
The following table sets out the change in dividends and overall spend on pay in the financial year ended 31 December 2018 compared
with the period from 27 October 2017 when the Company was admitted to trading and 31 December 2017.
Total gross employee pay
Dividends2
2018
€million
594,2
74,3
27 Oct 2017 -
31 Dec 2017
€million
82,2
33,6
1) Due to only having figures for 2017 from 27 October till year end we have not provided the % change with 12 months of 2018. The % of change between the full year
of 2019 against 2018 will be given in next year Annual Report
2) Dividend is subject to AGM approval and is not time apportioned
Payments to past Directors (audited)
There were no payments to past Directors in the period 1 January to 31 December 2018.
Payments for loss of office (audited)
No payments were made to any Director in respect of loss of office in the period 1 January to 31 December 2018.
As announced on 5 June 2018, the CFO, Octavio Lopes left the Company on 31 December 2018. Octavio Lopes received no compensation
for loss of office. Following his departure, all salary and benefit payments will cease with the following exceptions: as Octavio Lopes worked
the whole of 2018, he received a bonus in line with performance against the bonus targets, as described on page 95 and he will receive
tax advisory services in respect of his personal tax affairs; the total cost for such services is unlikely to exceed £3,000. There are no
outstanding long-term incentive awards.
2019 Remuneration (audited)
Set out below is how the Directors’ Remuneration Policy will be implemented during 2019.
Salaries and fees for 2019
Executives
Stefan Borgas
Ian Botha2
Non-Executives
Chairman (inclusive all Committee fees)
Non-Executive Directors
Deputy Chair/Senior Independent Director
Chairs of Audit Committee and Remuneration Committee
Membership of the Audit & Compliance, and Remuneration Committees
Chairs of Nomination Committee (unless held by the Chairman)
and Corporate Sustainability Committee
Membership of the Nomination and the Corporate Sustainability Committee
1 Base salary increased by 3,5% based on performance and aligned to salary increases of the workforce
2 Ian Botha will start 1 April 2019, and therefore in 2019 will receive €375,000 prorated from the full year annual salary as stated in the table
2019
2018
Percentage
change
€855,000
€826,000
€500,000
-
£ 220,000 £ 220,000
£ 65,000
£ 65,000
£ 25,000
£ 25,000
£ 17,500
£ 12,500
£ 7,500
£ 7,500
£ 17,500
£ 10,000
£ 5,000
£ 5,000
3.5%1
-
0%
0%
0%
40%
0%
75%
0%
9 9
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
Recruitment of new CFO
Ian Botha will join the Company on 1 April 2019 on an annual base salary of €500,000. The structure of Ian Botha’s remuneration package
is fully aligned to that of our CEO with the same annual bonus and long-term incentive targets and vesting schedules. Ian Botha’s annual
bonus maximum opportunity is aligned to our CEO at 150% of salary and for 2019 pro-rated for service from 1 April and his PSP award is
150% of salary (our CEO’s is 200% of salary). Half of any bonus in excess of target (50% of maximum bonus) must be used to acquire
shares in the Company and be held for at least three years. The PSP awards have a two year post vesting holding period. Ian Botha has
the same shareholding requirement as our CEO at 200% of salary and a retirement allowance of 15% of salary.
Ian Botha’s terms of appointment including his remuneration package were agreed and then an announcement made to the market on
21 September 2018. Ian Botha’s retirement allowance of 15% of salary was agreed to match the retirement allowance paid by his previous
employer, to be the same as our CEO’s allowance and in line with the current shareholder approved Directors’ Remuneration Policy. The
Committee has noted the provision of the updated UK Corporate Governance Code that executives’ pension provision should be aligned
with the workforce and will address this requirement as part of the next policy review as well as take it into account when making any new
Executive Director appointment.
To secure his appointment and in line with the remuneration policy, the Committee will grant Ian Botha on joining the Company the
following share awards to compensate for variable pay forfeited on leaving his previous employer. The expectation is that all the shares
will be retained post vesting net of tax towards Ian Botha’s shareholding requirement. Both awards vest over a longer time horizon than
the awards given up and the total value is less than the expected value of the awards forfeited.
1.
2.
A restricted share award over shares with a value at the date of grant of up to €750,000, vesting on the third anniversary of grant.
This award is to replace deferred bonus share awards forfeited with the actual value awarded determined once the exact value of
shares forfeited is known; this may result in a reduction in the value of shares awarded but no increase.
A PS award to replace a forfeited Performance Share award, over shares with a value at the date of grant of €750,000 and vesting
determined by the same performance targets and vesting schedule as those set for the “normal” annual 2019 PSP award and as
detailed on page 101. This award will have a two year post vesting holding period.
These awards will be subject to the same clawback provisions applicable to our other share awards.
Annual bonus for 2019
With the recruitment of Ian Botha as the new CFO, the bonus structure of the CEO and CFO will be aligned. The maximum potential
annual bonus opportunity for FY2019 will be 150% of salary for both the CEO and CFO.
The weighting of financial targets and strategic deliverables remains the same as in 2018, 75% of the annual bonus to be determined by
Group financial targets and 25% by strategic deliverables. However, the weighting of the financial targets has been amended to increase
the free cash flow weighting to 30% (2018: 25%) and the new synergy targets reduce to 10% (2018: 15%) as follows:
Performance criteria
Operating EBIT measured on a constant currency basis
Free Cash Flow
Net Synergy
Strategic deliverables1,2
Weighting (%)
2019
35%
30%
10%
25%
2018
35%
25%
15%
25%
1 No bonus will be payable for strategic goals unless the Threshold target for EBIT is met
2 The specific targets relating to the 2019 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
All other elements of the annual bonus structure remain unchanged and are in line with the approved Directors’ Remuneration Policy.
The CEO and the new CFO are 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.
1 0 0
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 8
2019 LTIP awards
Our CEO will be granted a PS award over shares with a value at grant of 200% and our new CFO 150% of salary. The performance
measures and targets for the 2019 awards are set out below.
Our 2018 LTIP awards were subject to relative TSR, adjusted EPS and EBIT targets. For 2019 the Committee has replaced the EBIT metric
with Economic Profit Growth. Economic Profit Growth was a key performance indicator (KPI) of the Magnesita business prior to the
Combination (of RHI and Magnesita) and has been introduced as a KPI for the combined businesses from 2019 onwards in order to manage
and measure the long-term value of the Company. The Committee therefore consider it important to include Economic Profit Growth as
one of the performance measures for the 2019 LTIP. The Committee has changed the measurement of TSR from the percentage growth
against the FTSE 350 index to reviewing its performance against a relevant group of FTSE 350 companies. This change of measurement is
seen to be no less challenging than the previous measurement. 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.
Performance measure
Relative TSR1 ranking
Adjusted EPS
Economic profit growth
Weighting
Threshold (25% vesting)
Maximum (100% vesting)
Performance period
33.30%
33.30%
33.30%
50th percentile
€7.8 per share
€600m
75th percentile
€9.0 per share
€670m
2019 to 2021
(+ 2 year holding
period post vesting)
1 Measured against the FTSE 350, excluding sectors with limited direct relevance to RHI Magnesita
2 Being 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%)
Awards vest on a straight-line basis between threshold and maximum.
Terminology for Performance Share awards
The RHI Magnesita long-term incentive plan (the Plan) was approved by shareholders at the AGM 2018. After approval Performance
Share awards may be granted under the Plan. 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).
This Report was reviewed and approved by the Board on 26 March 2019 and signed on its behalf by order of the Board.
CELIA BAXTER
CHAIRMAN OF THE REMUNERATION COMMITTEE
1 0 1
F I N A N C I A L S TAT E M E N T S
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
R H I M A G N E S I TA
1 0 2
1 0 2
R H I M A G N E S I TA
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 8
A N N U A L R E P O R T 2 0 1 8
102Financial statements
104 Consolidated Statement
of Financial Position
105 Consolidated Statement
of Profit and Loss
106 Consolidated Statement
of Comprehensive Income
Consolidated Statement
of Cash Flows
107
108 Consolidated Statement
of Changes in Equity
Notes to the Consolidated
Financial Statements 2018
Independent Auditor’s Report
195
110
Other information
203 Alternative performance
measures (“APMs”)
204 Shareholder information
1 0 3
1 0 3
F I N A N C I A L S TAT E M E N T S
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
R H I M A G N E S I T A
Consolidated Statement of
Financial Position
as of 31.12.2018
in € million
ASSETS
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Investments in joint ventures and associates
Other non-current financial assets
Other non-current assets
Deferred tax assets
Current assets
Inventories
Trade and other current receivables
Income tax receivables
Other current financial assets
Cash and cash equivalents
EQUITY AND LIABILITIES
Equity
Share capital
Group reserves
Equity attributable to shareholders of RHI Magnesita N.V.
Non-controlling interests
Non-current liabilities
Borrowings
Other non-current financial liabilities
Deferred tax liabilities
Provisions for pensions
Other personnel provisions
Other non-current provisions
Other non-current liabilities
Current liabilities
Borrowings
Other current financial liabilities
Trade payables and other current liabilities
Income tax liabilities
Current provisions
1 Adjusted to reflect the effects of the final purchase price allocation of Magnesita.
102
1 0 4
Notes
31.12.2018
31.12.20171)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
(24)
(25)
(26)
(27)
(17)
(28)
(29)
(30)
(31)
(26)
(27)
(32)
(33)
(34)
117.4
334.4
1,094.8
21.8
18.0
34.3
171.1
120.2
373.0
1,141.7
21.4
25.1
24.2
140.1
1,791.8
1,845.7
717.8
481.2
18.4
38.6
491.2
1,747.2
3,539.0
48.3
752.2
800.5
84.8
885.3
844.8
49.5
78.4
304.3
78.5
109.2
10.3
654.5
522.6
13.5
34.1
442.4
1,667.1
3,512.8
44.8
574.0
618.8
226.9
845.7
983.8
55.5
64.7
308.7
82.5
115.7
9.0
1,475.0
1,619.9
321.6
15.0
756.9
32.2
53.0
1,178.7
3,539.0
241.8
17.4
678.2
16.1
93.7
1,047.2
3,512.8
R H I M A G N E S I TA
R H I M A G N E S I T A
A N N U A L R E P O R T 2 0 1 8
A N N U A L R E P O R T 2 0 1 8
Consolidated Statement of
Profit or Loss
from 01.01.2018 to 31.12.2018
in € million
Revenue
Cost of sales
Gross profit
Selling and marketing expenses
General and administrative expenses
Other income
Other expenses
EBIT
Interest income
Interest expenses on borrowings
Net expense on foreign exchange effects and related derivatives
Other net financial expenses
Net finance costs
Share of profit of joint ventures and associates
Profit/(Loss) before income tax
Income tax
Profit/(Loss) after income tax
attributable to shareholders of RHI Magnesita N.V.
attributable to non-controlling interests
Notes
(35)
(36)
(37)
(38)
(39)
(40)
(41)
(42)
(43)
(14)
(44)
(25)
2018
3,081.4
(2,344.5)
736.9
(128.9)
(208.4)
43.9
(44.9)
398.6
9.7
(48.5)
(81.3)
(42.6)
(162.7)
10.1
246.0
(58.9)
187.1
158.1
29.0
20171)
1,950.1
(1,543.4)
406.7
(101.2)
(143.1)
10.4
(107.3)
65.5
5.6
(23.6)
(50.8)
(13.6)
(82.4)
11.0
(5.9)
(4.9)
(10.8)
(17.4)
6.6
in €
Earnings per share (basic and diluted)
(51)
3.52
(0.43)
1 Adjusted to reflect the effects of the final purchase price allocation of Magnesita and the changes in presentation.
103
1 0 5
F I N A N C I A L S TAT E M E N T S
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
R H I M A G N E S I T A
Consolidated Statement of
Comprehensive Income
from 01.01.2018 to 31.12.2018
in € million
Profit/(Loss) after income tax
Currency translation differences
Unrealised results from currency translation
Deferred taxes thereon
Current taxes thereon
Reclassification to profit or loss
Deferred taxes thereon
Current taxes thereon
Cash flow hedges
Unrealised fair value changes
Deferred taxes thereon
Reclassification to profit or loss
Deferred taxes thereon
Share of other comprehensive income of joint ventures and associates
Items that will be reclassified subsequently to profit or loss, if necessary
Remeasurement of defined benefit plans
Remeasurement of defined benefit plans
Deferred taxes thereon
Share of other comprehensive income of joint ventures and associates
Items that will not be reclassified to profit or loss
Other comprehensive (loss) after income tax
Total comprehensive income/(loss)
attributable to shareholders of RHI Magnesita N.V.
attributable to non-controlling interests
1 Adjusted to reflect the effects of the final purchase price allocation of Magnesita.
Notes
(7)
(17)
(53)
(17)
(53)
(17)
(14)
(28)
(17)
(14)
(25)
2018
187.1
(20.3)
0.9
0.0
0.0
0.0
0.0
(6.8)
1.8
0.0
0.0
0.1
20171)
(10.8)
(49.3)
1.7
(0.4)
40.7
(5.7)
(0.5)
0.6
(0.1)
0.5
(0.1)
0.0
(24.3)
(12.6)
(11.5)
3.0
0.0
(8.5)
(11.3)
2.9
(0.1)
(8.5)
(32.8)
(21.1)
154.3
137.9
16.4
(31.9)
(30.7)
(1.2)
104
1 0 6
R H I M A G N E S I TA
R H I M A G N E S I T A
A N N U A L R E P O R T 2 0 1 8
A N N U A L R E P O R T 2 0 1 8
Consolidated Statement of
Cash Flows
from 01.01.2018 to 31.12.2018
in € million
Notes
Profit/(Loss) after income tax
Adjustments for
income tax
depreciation
amortisation
impairment losses of property, plant and equipment and intangible assets
income from the reversal of investment subsidies
write-ups/ impairment losses on securities
losses from the disposal of property, plant and equipment
gains from the disposal of securities and shares
losses from the disposal of subsidiaries
net interest expense and derivatives
share of profit of joint ventures and associates
other non-cash changes
Changes in
inventories
trade receivables
other receivables and assets
provisions
trade payables
prepayments received on orders
other liabilities
Cash generated from operations
Income tax paid less refunds
Net cash inflow from operating activities
Investments in subsidiaries net of cash acquired
Proceeds from the sale of subsidiaries net of cash disposed of
Investments in property, plant and equipment and intangible assets
Cash inflows from the sale of property, plant and equipment
Investments in/ cash inflows from non-current receivables
Investments in securities
Cash inflows from the sale of securities and shares
Dividends received from joint ventures and associates
Investment subsidies received
Interest received
Net cash (outflow)/inflow from investing activities
Share issue costs
Capital contribution to associates
Proceeds from sale of non-controlling interests
Acquisition of non-controlling interests
Dividend payments to shareholders of the Group
Dividend payments to non-controlling interests
Proceeds from non-current borrowings and loans
Repayments of non-current borrowings and loans
Proceeds from current borrowings and loans
Repayments of current borrowings and loans
Changes in current borrowings
Interest payments
Cash flows from derivatives
Net cash (outflow)/inflow from financing activities
Total cash flow
Change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Foreign exchange impact
Cash and cash equivalents at year-end
1 Adjusted to reflect the effects of the final purchase price allocation of Magnesita.
(47)
(48)
(22)
2018
187.1
58.9
124.8
28.6
0.0
(0.5)
0.3
1.4
(0.7)
0.0
92.5
(10.1)
18.1
(56.7)
20.0
(29.5)
(59.4)
55.1
30.2
2.1
462.2
(67.9)
394.3
0.0
0.0
(122.6)
2.9
0.4
(121.2)
118.4
11.0
2.1
8.2
(100.8)
(6.2)
(1.4)
9.2
(80.1)
(33.6)
(1.1)
489.8
(650.9)
245.1
(151.0)
26.4
(71.1)
(20.1)
(245.0)
48.5
48.5
442.4
0.3
491.2
20171)
(10.8)
4.9
66.2
13.4
19.8
(1.2)
1.9
1.5
0.0
19.3
13.3
(11.0)
82.0
(89.3)
12.1
7.6
(15.2)
111.1
9.1
20.6
255.3
(41.9)
213.4
45.1
30.6
(72.0)
2.7
(0.2)
(11.8)
21.8
10.8
1.2
5.1
33.3
(3.0)
0.0
0.0
(0.6)
(29.9)
(1.1)
459.8
(375.6)
0.0
0.0
(8.3)
(24.9)
8.2
24.6
271.3
271.3
182.9
(11.8)
442.4
105
1 0 7
F I N A N C I A L S TAT E M E N T S
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
R H I M A G N E S I T A
Consolidated Statement of
Changes in Equity
from 01.01.2018 to 31.12.2018
in € million
Notes
31.12.20171)
Effects of initial application of IFRS 15 (net of tax)
Effects of initial application of IFRS 9 (net of tax)
01.01.2018
Profit after income tax
Currency translation differences
Market valuation of cash flow hedges
Remeasurement of defined benefit plans
Share of other comprehensive income of joint ventures and associates
Other comprehensive income after income tax
Total comprehensive income
Dividends
Issue of ordinary shares related to the mandatory tender offer of Magnesita
Sale of non-controlling interests without loss of control
Acquisition in non-controlling interests without change of control
Share-based payments
Transactions with shareholders
31.12.2018
1 Adjusted to reflect the effects of the final purchase price allocation of Magnesita.
in € million
Notes
01.01.2017
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
Share issue costs, net of tax
Change in non-controlling interests due to addition to consolidated companies
Transactions with shareholders
Disposal of defined benefit plans
Downstream merger from RHI AG to RHI Magnesita N.V.
Reclassifications
31.12.20171)
106
1 0 8
Share
capital
(23)
44.8
Additional
paid-in
capital
(24)
165.7
Mandatory reserve
(24)
288.7
44.8
165.7
288.7
-
-
-
-
-
-
-
-
3.5
-
-
-
3.5
48.3
Share
capital
(23)
289.4
-
-
-
-
-
-
-
-
5.0
-
-
5.0
-
(249.6)
(249.6)
44.8
-
-
-
-
-
-
-
-
139.8
-
-
-
139.8
305.5
Additional
paid-in
capital
(24)
38.3
-
-
-
-
-
-
-
-
174.5
(8.8)
-
165.7
-
(38.3)
(38.3)
165.7
-
-
-
-
-
-
-
-
-
-
-
-
-
288.7
Mandatory reserve
(24)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
288.7
288.7
288.7
R H I M A G N E S I TA
R H I M A G N E S I T A
A N N U A L R E P O R T 2 0 1 8
A N N U A L R E P O R T 2 0 1 8
Group reserves
Accumulated other comprehensive income
Currency translation
Equity attributable
to shareholders
of RHI Magnesita N.V.
Non-controlling
interests
Total equity
Retained earnings
Cash flow hedges
(24)
281.9
(6.0)
1.8
277.7
158.1
-
-
-
-
-
158.1
(33.6)
-
7.2
(59.4)
1.0
(84.8)
351.0
(24)
0.1
0.1
-
-
(5.2)
-
-
(5.2)
(5.2)
-
-
-
0.1
-
0.1
(5.0)
Defined
benefit plans
(24)
(107.7)
(107.7)
-
-
-
(6.6)
-
(6.6)
(6.6)
-
-
-
0.1
-
0.1
(114.2)
Retained earnings
Cash flow hedges
(24)
(54.7)
(54.7)
-
(8.5)
-
-
0.1
(8.4)
(8.4)
-
-
0.2
(10.9)
-
(10.7)
(73.8)
618.8
(6.0)
1.8
614.6
158.1
(8.5)
(5.2)
(6.6)
0.1
(20.2)
137.9
(33.6)
143.3
7.4
(70.1)
1.0
48.0
800.5
(25)
226.9
(0.6)
-
226.3
29.0
(10.9)
0.2
(1.9)
-
(12.6)
16.4
(1.2)
-
1.7
(158.4)
-
(157.9)
84.8
Group reserves
Accumulated other comprehensive income
Defined
benefit plans
(24)
(100.3)
-
-
-
(8.3)
(0.1)
(8.4)
(8.4)
-
-
-
-
-
1.0
-
1.0
Currency translation
Equity attributable
to shareholders
of RHI Magnesita N.V.
Non-controlling
interests
(24)
(49.0)
-
(5.7)
-
-
(5.7)
(5.7)
-
-
-
-
-
-
-
-
508.7
(17.4)
(5.7)
0.8
(8.3)
(0.1)
(13.3)
(30.7)
(29.9)
179.5
(8.8)
0.0
140.8
-
-
-
(25)
15.3
6.6
(7.8)
0.1
(0.1)
-
(7.8)
(1.2)
(1.2)
-
-
214.0
212.8
-
-
-
(24)
(0.7)
-
-
0.8
-
-
0.8
0.8
-
-
-
-
-
-
-
-
(24)
331.0
(17.4)
-
-
-
-
-
(17.4)
(29.9)
-
-
-
(29.9)
(1.0)
(0.8)
(1.8)
281.9
0.1
(107.7)
(54.7)
618.8
226.9
845.7
107
1 0 9
845.7
(6.6)
1.8
840.9
187.1
(19.4)
(5.0)
(8.5)
0.1
(32.8)
154.3
(34.8)
143.3
9.1
(228.5)
1.0
(109.9)
885.3
Total
equity
524.0
(10.8)
(13.5)
0.9
(8.4)
(0.1)
(21.1)
(31.9)
(31.1)
179.5
(8.8)
214.0
353.6
-
-
-
F I N A N C I A L S TAT E M E N T S
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
R H I M A G N E S I T A
Notes
to the Consolidated Financial Statements 2018
PRINCIPLES AND METHODS
1. General
RHI Magnesita N.V. (the “Company”), a public company with limited liability under Dutch law 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 Kranichberggasse 6, 1120 Vienna, Austria.
The Company and its subsidiaries, associates and joint ventures (the “Group”) is a global industrial group whose core activities comprise of
the development and production, sale, installation and maintenance of high-grade refractory products and systems used in industrial
high-temperature processes exceeding 1,200°C. The Group supplies customers in the steel, cement, lime, glass and nonferrous metals
industries. In addition, the Group’s products are used in the environment (waste incineration), energy (refractory construction) and chem-
icals (petrochemicals) sectors.
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 incorporated 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 financial year of RHI Magnesita N.V. and the Group corresponds to the calendar year. If the financial years of subsidiaries included in
the Consolidated Financial Statements do not end on 31 December due to local legal requirements, a special set of financial statements
are prepared for the purpose of consolidation. The reporting date of the Indian subsidiaries is 31 March.
The Consolidated Financial Statements for the period from 1 January to 31 December 2018 were drawn up in accordance with all Interna-
tional Financial Reporting Standards (IFRSs) mandatory at the time of preparation as adopted by the European Union (EU). The presenta-
tion 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 or if the Company does not have
an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. Inventories as well as trade receiv-
ables 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 derivative financial instruments and plan assets for defined benefit obligations, the Consoli-
dated Financial Statements are prepared on a historical cost basis.
The preparation of the Consolidated Financial Statements in agreement with generally accepted accounting 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 assets and liabilities as of the reporting date and the recognition of income and ex-
penses 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 authorised for issue on 26 March 2019 and is subject to adoption at the Annual General Meeting of shareholders
on 6 June 2019.
108
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A N N U A L R E P O R T 2 0 1 8
A N N U A L R E P O R T 2 0 1 8
2. Initial application of new financial reporting standards
In 2018, the Group has applied for the first time a number of new standards and interpretations as well as amendments to IFRSs issued by
the International Accounting Standards Board (IASB) that are mandatorily effective for an accounting period that begins on or after
1 January 2018.
Standard
Title
New standards and interpretations
IFRS 9
Financial Instruments
IFRS 15
Revenue from Contracts with Customers
IFRS 15
Clarifications to IFRS 15 Revenue from Contracts with Customers
IFRIC 22
Foreign Currency Transactions and Advance Consideration
Various
Annual improvements to IFRS Standards 2014-2016 Cycle
Amendments of standards
IAS 40
Transfers of Investment Property
IFRS 2
IFRS 4
Classification and Measurement of Share-based Payment
Transactions
Applying IFRS 9 Financial Instruments with IFRS 4 Insurance
Contracts
1 According to EU Endorsement Status Report of 11.02.2019.
Publication
(EU endorsement)1)
Effects on RHI Magnesita
Consolidated Financial Statements
24.07.2014
(22.11.2016)
28.05.2014/
11.09.2015
(22.09.2016)
12.04.2016
(31.10.2017)
08.12.2016
(28.03.2018)
08.12.2016
(07.02.2018)
08.12.2016
(14.03.2018)
20.06.2016
(26.02.2018)
12.09.2016
(03.11.2017)
No material effects
Timing differences in revenue recognition
Timing differences in revenue recognition
No effect
No effect
Not relevant
No effect
Not relevant
IFRS 9 “Financial Instruments”
IFRS 9 was published in July 2014 and endorsed by the European Union on 22 November 2016. It is to be applied effective 1 January
2018. 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 implemented IFRS 9 on 1 January 2018 using
the modified retrospective approach, meaning that the 2017 comparative numbers in the 2018 Consolidated Financial Statements are not
restated. The impact of IFRS 9 as of 1 January 2018 amounting to €1.8 million was recognised in equity - additional information on that
effect is disclosed in the table at the end of Note (2) summarising the effects of the initial application of IFRS 9 and IFRS 15. No reclassifi-
cations between different components of equity were required due to the initial application of IFRS 9.
With regard to the revised classification and measurement principles, IFRS 9 contains three classification categories: “measured at amor-
tised 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”. The resulting effect of the reclassification of the
financial assets due to the adoption of IFRS 9 was immaterial.
Subsequent accounting differences may arise due to the new classification under IFRS 9. Shares in investment funds that were previously
classified as “available-for-sale”, with respective changes in fair value accounted for through other comprehensive income, are now clas-
sified as “fair value through profit or loss” as the payments made in connection with the funds do not solely constitute payments of prin-
cipal and interest. Changes in fair value are therefore recognised in profit or loss. In addition, equity instruments from the “at amortised
cost” and “available-for-sale” categories were classified as “fair value through profit or loss”.
For the category “measured at amortised cost”, IFRS 9 replaces the previously applied incurred loss model under IAS 39 with the ex-
pected loss model. The expected loss model implies a three-stage model for financial assets. Stage 1 is applied when the credit risk has
not risen significantly and an investment grade rating exists. Consequently, a risk provision for credit losses expected from possible de-
fault events within the next twelve months has to be recognised. Stage 2 is applied when the credit risk of receivables has risen signifi-
cantly, in which case a risk provision amounting to the expected credit losses that result from all default events over the remaining term of
the instrument has to be recognised. Stage 3 is equivalent to default. IFRS 9 requires a simplified impairment approach for trade receiva-
bles and contract assets that do not contain a significant financing component. With this simplified approach, the risk provision is to be
109
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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
R H I M A G N E S I T A
Notes
continued
recognised according to Stage 2. Therefore, the expected credit losses are recognised over the remaining term of the instrument. The
initial application effect in equity resulting from the impairment of trade receivables after deduction of deferred taxes amounted to €1.8
million, which is shown in retained earnings.
In accordance with the transition provisions for hedge accounting laid out in IFRS 9, the Group applied the IFRS 9 hedge accounting
requirements prospectively from the date of initial application on 1 January 2018. The Group’s qualifying hedging relationships in place
as at 1 January 2018 also qualify for hedge accounting according to IFRS 9 and were therefore regarded as continuing hedging relation-
ships.
The following table provides information about the impact of IFRS 9 only. It states each class of financial assets and financial liabilities as
well as the respective carrying amounts under the original category IAS 39 compared to the new IFRS 9 category.
Original
measurement
category IAS 392)
Measurement
category IFRS 92)
Carrying amount as
per IAS 39
31.12.20173)
Carrying amount
as per IFRS 9
01.01.2018
AC
FVOCI
FVOCI
FVOCI
FVPL
-
AC
AC
AC
AC
FVPL
FVPL
AC
AC
AC
AC
AC
FVPL
AC
FVPL
AC
FVPL
FVPL
FVPL
FVPL
FVPL
-
AC
AC
AC
AC
FVPL
FVPL
AC
AC
AC
AC
AC
FVPL
AC
FVPL
AC
0.8
0.4
12.6
2.4
2.3
1.5
2.6
2.5
412.5
0.1
32.3
1.7
442.4
914.1
953.0
215.3
55.6
1.7
40.9
32.0
0.6
507.0
1,806.1
0.8
0.4
12.6
2.4
2.3
1.5
2.6
2.5
414.9
0.1
32.3
1.7
442.4
916.5
953.0
215.3
55.6
1.7
40.9
32.0
0.6
507.0
1,806.1
in € million1)
Interests in subsidiaries not consolidated (FAAC)
Available-for-sale investments (AfS)
Available-for-sale securities (AfS)
Available-for-sale shares (AfS)
Securities designated as fair value through profit or loss (FAFVTPL)
Interest derivatives designated as cash flow hedges
Non-current receivables from disposal of subsidiaries (LaR)
Other non-current financial receivables (LaR)
Trade and other current receivables4) (LaR)
Other current financial receivables (LaR)
Financial assets held for trading - securities (FAHfT)
Financial assets held for trading - derivatives (FAHfT)
Cash and cash equivalents (LaR)
Financial assets
Liabilities to financial institutions (FLAAC)
Perpetual bonds (FLAAC)
Senior notes (FLAAC)
Other financial liabilities (FLAAC)
Financial liabilities held for trading - derivatives (FLHfT)
Liabilities to fixed-term or puttable non-controlling interests (FLAAC)
Contingent consideration for acquired subsidiaries (FLFVTPL)
Trade payables and other current liabilities5) (FLAAC)
Financial liabilities
1 FAAC: Financial assets at amortised cost.
AfS: Available for sale financial instruments.
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 FVPL: Financial assets/financial liabilities measured at fair value through profit or loss.
AC: Financial assets/financial liabilities measured at amortised cost.
FVOCI: Financial assets measured at fair value through other comprehensive income.
3 Adjusted to reflect the effects of the final purchase price allocation of Magnesita.
4 Thereof non-financial receivables per 01.01.2018: €110.1 million.
5 Thereof non-financial liabilities per 01.01.2018: €171.2 million.
In addition to this table, a change took place for receivables from long-term construction contracts previously accounted for using the
percentage of completion method according to IAS 11. These receivables were reclassified from non-financial receivables to financial
receivables and are now included in trade and other current receivables in accordance with IFRS 15.
110
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A N N U A L R E P O R T 2 0 1 8
IFRS 15 “Revenue from Contracts with Customers”
IFRS 15 replaces IAS 18 “Revenue” and IAS 11 “Construction Contracts” as well as the corresponding interpretations. RHI Magnesita Group
applied IFRS 15 using the modified retrospective approach with effect as of 1 January 2018. The cumulative effect of initial application
was therefore recognised as an adjustment to the opening balance of retained earnings as of 1 January 2018 without restating the compa-
rable period. Changes from the initial application of IFRS 15 arose in the following areas:
Revenue from the delivery of products is recognised at the point in time when control over the products is passed to the customer,
which is determined based on the individual Incoterms rules agreed in the customer contract. In the course of contracts for the de-
livery of refractory products, control of the goods is passed to the customer typically when physical possession has been transferred
to the customer. Therefore, 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 than previously under IAS 18.
Therefore, the effect from the initial application of IFRS 15 resulted in a reduction of trade and other current receivables in the
amount of €28.4 million and in an increase of inventories in the amount of €19.9 million. The negative equity effect from the rever-
sal of revenue from the delivery of products, after deduction of deferred taxes, amounted to €6.6 million as of 1 January 2018.
Changes in presentation of expected penalty fees were necessary. Previously, expected penalty fees were recognised as provisions,
whereas according to IFRS 15 they are considered as variable consideration and therefore shown as either a contract liability or re-
fund liability. Consequently, a total amount of €4.3 million was reclassified from current provisions to trade payables and other cur-
rent liabilities as of 1 January 2018 in the Consolidated Statement of Financial Position.
Receivables from long-term construction contracts in the amount of €11.7 million were reclassified to trade receivables within the
same item of the Consolidated Statement of Financial Position trade and other current receivables as of 1 January 2018 because RHI
Magnesita’s right to consideration is unconditional.
The summary of the effects on the individual positions of the Statement of Financial Position from the initial application of IFRS 15 as of
1 January 2018 is shown in the table at the end of this Note. For the purpose of the transition to IFRS 15, the Group did not apply the avail-
able optional practical expedients.
The following tables show the effects of IFRS 15 for the Consolidated Statement of Financial Position as of 31 December 2018 and the
Consolidated Statement of Profit or Loss from 1 January to 31 December 2018.
in € million
Inventories
Trade and other current receivables
Current assets
ASSETS
Group reserves
Equity attributable to the shareholders
Non-controlling interests
Equity
Trade payables and other current liabilities
Income tax liabilities
Current provisions
Current liabilities
EQUITY AND LIABILITIES
31.12.2018
as reported
Adjustments
IFRS 15
31.12.2018
without application
of IFRS 15
717.8
481.2
1,747.2
3,539.0
752.2
800.5
84.8
885.3
756.9
32.2
53.0
1,178.7
3,539.0
(25.0)
25.6
0.6
0.6
5.5
5.5
0.1
5.6
(10.5)
1.7
3.8
(5.0)
0.6
692.8
506.8
1,747.8
3,539.6
757.7
806.0
84.9
890.9
746.4
33.9
56.8
1,173.7
3,539.6
111
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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
R H I M A G N E S I T A
Notes
continued
in € million
Revenue
Cost of sales
Gross profit
EBIT
Profit before income tax
Income tax
Profit after income tax
attributable to the shareholders
attributable to non-controlling interests
as reported
3,081.4
(2,344.5)
736.9
398.6
246.0
(58.9)
187.1
158.1
29.0
Adjustments
IFRS 15
without application
of IFRS 15
32.3
(25.0)
7.3
7.3
7.3
(1.7)
5.6
4.9
0.7
3,113.7
(2,369.5)
744.2
405.9
253.3
(60.6)
192.7
163.0
29.7
Summary of the effects of the initial application of IFRS 9 and IFRS 15
in € million
Deferred tax assets
Non-current assets
Inventories
Trade and other current receivables
Current assets
ASSETS
Group reserves
Equity attributable to the shareholders
Non-controlling interests
Equity
Deferred tax liabilities
Non-current liabilities
Trade payables and other current liabilities
Current provisions
EQUITY AND LIABILITIES
1 Adjusted to reflect the effects of the final purchase price allocation of Magnesita.
31.12.20171)
Effects of the initial
application of
IFRS 9
Effects of the initial
application of
IFRS 15
01.01.2018
140.1
1,845.7
654.5
522.6
1,667.1
3,512.8
574.0
618.8
226.9
845.7
64.7
1,619.9
678.2
93.7
3,512.8
(0.6)
(0.6)
0.0
2.4
2.4
1.8
1.8
1.8
0.0
1.8
0.0
0.0
0.0
0.0
1.8
1.7
1.7
19.9
(28.4)
(8.5)
(6.8)
(6.0)
(6.0)
(0.6)
(6.6)
(0.2)
(0.2)
4.3
(4.3)
(6.8)
141.2
1,846.8
674.4
496.6
1,661.0
3,507.8
569.8
614.6
226.3
840.9
64.5
1,619.7
682.5
89.4
3,507.8
112
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R H I M A G N E S I T A
A N N U A L R E P O R T 2 0 1 8
A N N U A L R E P O R T 2 0 1 8
3. Other changes in comparative information
Consolidated Statement of Financial Position
The Statement of Financial Position per 31 December 2017 was adjusted for the final fair values of the acquired assets and liabilities of
Magnesita. The details of the effects are shown in Note (5) Group of consolidated companies under Acquisition of Magnesita.
Consolidated Statement of Profit or Loss
The Statement of Profit or Loss 2017 was adjusted for the effects of the subsequent measurement of the values determined in the final
purchase price allocation of Magnesita.
Additionally, in order to improve comparability with other FTSE 350 companies and ensure better understanding of the entity’s financial
performance, certain items in the Statement of Profit or Loss 2017 were reclassified. As of 31 December 2017, the effect on revenue
amounted to €4.0 million, on gross profit to €(23.3) million, on EBIT to €50.8 million and on net finance costs to €(50.8) million. Varia-
ble commissions in the amount of €(27.3) million as of 31 December 2017 were reclassified from selling and marketing expenses to cost of
sales and the expenses for strategic and merger-related projects (2017: €24.4 million) are now presented in other expenses, instead of
general and administrative expenses. Variable commissions are costs directly linked with revenue. This reclassification should ensure
better interpretation of these costs. Foreign exchange gains and losses as well as the effects from derivatives were reclassified from other
income and expenses to a separate line item in net finance costs which is called “Net expense on foreign exchange effects and related
derivatives”. This reclassification was done because the majority of foreign exchange effects are incurred due to financing activities and
the effects from derivatives are related to foreign exchange effects.
Additionally, interest expenses on borrowings are now reported as a separate item due to its significance. Other net financial expenses
include all remaining financial income and expenses. The information for the previous year was adjusted accordingly.
Consolidated Statement of Cash Flows
Cash flows from derivatives in the amount of €8.2 million were reclassified from cash flow from operating activities to net cash flow from
financing activities because they are related to foreign exchange effects of financing activities.
Segment reporting
In 2018, RHI Magnesita reorganised its internal structure and reporting. The activities formerly concentrated in the Raw material segment
are now split between the Steel and Industrial segment. Each segment serves different customers and generates exclusively external
revenue. The gross profit serves the management of the RHI Magnesita Group for internal performance management. The profit of joint
ventures and associates, net finance costs and income taxes are managed on a group basis and are not allocated. The information for the
previous year was adjusted accordingly.
4. New financial reporting standards not yet applied
The Group has chosen to not early adopt the following new and revised IFRSs, that have been issued by the IASB, but are not yet manda-
tory:
Standard
Title
New standards
IFRS 9
Prepayment Features with Negative Compensation
IFRS 16
Leases
IFRIC 23
Uncertainty over Income Tax Treatments
Amendments of standards
IAS 28
Long-term Interests in Associates and Joint Ventures
1 According to EU Endorsement Status Report of 11.02.2019.
Publication
(EU endorsement)1)
Mandatory application for
RHI Magnesita
Expected effects on RHI
Magnesita Consolidated
Financial Statements
12.10.2017
(22.03.2018)
13.01.2016
(31.10.2017)
07.06.2017
(23.10.2018)
12.10.2017
(08.02.2019)
01.01.2019
No effect
01.01.2019
Material effects expected
01.01.2019
No effect
01.01.2019
No effect
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Notes
continued
IFRS 16 “Leases”
General impact of application of 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.
RHI Magnesita has chosen the modified retrospective application of IFRS 16 in accordance with IFRS 16:C5(b). Consequently, the Group
will not restate the comparative information.
RHI Magnesita will make use of the practical expedient available on transition to IFRS 16 not to reassess whether a contract is or contains a
lease. Accordingly, the definition of a lease in accordance with IAS 17 and IFRIC 4 will continue to apply to those leases entered or modi-
fied before 1 January 2019.
The change in definition of a lease mainly relates to the concept of control. IFRS 16 distinguishes between leases and service contracts
on the basis of whether the use of an identified asset is controlled by the customer. Control is considered to exist if the customer has:
The right to obtain substantially all of the economic benefits from the use of an identified asset; and
The right to direct the use of that asset.
RHI Magnesita will apply the definition of a lease and related guidance set out in IFRS 16 to all lease contracts entered into or modified on
or after 1 January 2019.
Impact on Lessee Accounting
IFRS 16 has no economic impact on the Group. It has no effect on how the business is run, nor on cash flows for the Group. It does how-
ever have a significant impact on the way the assets, liabilities and the Statement of Profit or Loss of the Group are presented, as well as
the classification of cash flows relating to lease contracts.
On initial application of IFRS 16, for all leases (except as noted below), RHI Magnesita will:
Recognise right-of-use assets and lease liabilities in the Consolidated Statement of Financial Position, initially measured at the
present value of the future lease payments;
Recognise depreciation of right-of-use assets and interest on lease liabilities in the Consolidated Statement of Profit or Loss;
Separate the total amount of cash paid into a principal portion (presented within financing activities) and interest (presented within
operating activities) in the Consolidated Statement of Cash Flows.
Furthermore, on initial application RHI Magnesita will make use of the following practical expedients:
Applying a single discount rate to a portfolio of leases with reasonably similar characteristics;
Relying on its assessment of whether leases are onerous immediately before the date of initial application as an alternative to per-
forming impairment review;
Treating leases for which the lease term ends within 12 months of the date of initial application as short-term leases.
For short-term leases (lease term of 12 months or less) and leases of low-value assets, the RHI Magnesita Group will opt to recognise a
lease expense on a straight-line basis as permitted by IFRS 16.
Based on a preliminary assessment, it is expected that the RHI Magnesita Group will recognise right-of-use assets and corresponding
lease liabilities of €62.0 million in respect of all these leases. The impact on profit or loss is estimated to be a decrease in other expenses
by €13.3 million, an increase in depreciation by €12.6 million and an increase in interest expense by €0.6 million.
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Under IAS 17, all lease payments on operating leases are presented as part of cash flows from operating activities. Under IFRS 16, the cash
generated by operating activities is expected to increase by €13.3 million and the net cash outflow in financing activities is expected to
increase by the same amount.
For existing finance leases RHI Magnesita does not expect an impact on the amounts recognised in the Group’s Consolidated Statement
of Financial Position.
The following financial reporting standards were issued by the IASB, but had not yet been adopted by the EU at the time of the prepara-
tion of the RHI Magnesita Consolidated Financial Statements:
Standard
Title
New standards and interpretations
IFRS 14
IFRS 17
Regulatory Deferral Accounts
Insurance Contracts
Amendments of standards
IAS 1, IAS 8
Definition of Material
IAS 19
IFRS 3
Various
Various
Plan Amendment, Curtailment or Settlement
Business Combinations
Amendments to References to the Conceptual Framework
in IFRS Standards
Annual Improvements to IFRSs 2015-2017 Cycle
1 According to EU Endorsement Status Report of 11.02.2019.
Publication1)
Mandatory application for
RHI Magnesita
Expected effects on RHI
Magnesita Consolidated
Financial Statements
30.01.2014
18.05.2017
31.10.2018
07.02.2018
22.10.2018
29.03.2018
12.12.2017
No EU endorsement
01.01.2021
Not relevant
Not relevant
01.01.2020
No material effects
01.01.2019
No material effects
01.01.2020
No effect
01.01.2020
01.01.2019
No effect
No effect
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Notes
continued
5. Group of consolidated companies
Changes in the group of consolidated companies in the previous year
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 Magnesi-
ta Refratários S.A. and its subsidiaries (Magnesita) after acquiring 50% plus one share and corresponding voting rights in Magnesita Re-
fratários S.A. The acquisition 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 fair values of the acquired assets and liabilities at the acquisition date have been adjusted according to IFRS 3 compared to the Con-
solidated Financial Statements 2017 over the course of the measurement period. The final fair values of the assets and liabilities recog-
nised as a result of the acquisition are presented as follows:
in € million
Property, plant and equipment
Other intangible assets
thereof customer relationships
thereof mining rights
Investments in joint ventures and associates
Other non-current financial assets
Other non-current assets
Deferred tax assets
Inventories
Trade and other current receivables
Income tax receivables
Other current financial assets
Cash and cash equivalents
Assets held for sale
Non-current financial liabilities
Deferred tax liabilities
Provisions for pensions
Other personnel provisions
Other non-current provisions
Other non-current liabilities
Current financial liabilities
Current derivative financial liabilities
Trade and other current liabilities
Income tax liabilities
Current provisions
Liabilities relating to assets held for sale
Net assets
Non-controlling interest
Proportional share of net assets acquired
Goodwill
Purchase price
Preliminary fair value
Adjustments made
Final fair value
439.0
161.4
122.0
0.0
9.9
4.3
16.3
49.9
244.7
175.6
9.2
42.7
166.2
33.6
(550.8)
(0.3)
(81.0)
(1.5)
(51.7)
(2.0)
(131.4)
(0.2)
(238.4)
(10.1)
(25.8)
(9.4)
250.2
(125.1)
125.1
171.7
296.8
251.2
160.2
(20.0)
185.1
(9.1)
0.0
0.0
(35.5)
1.0
(7.4)
0.0
0.0
0.0
0.0
0.0
(91.6)
0.0
0.0
(62.9)
0.0
0.0
0.0
(6.8)
0.0
(21.4)
0.0
177.7
(88.9)
88.8
(88.8)
0.0
690.2
321.6
102.0
185.1
0.8
4.3
16.3
14.4
245.7
168.2
9.2
42.7
166.2
33.6
(550.8)
(91.9)
(81.0)
(1.5)
(114.6)
(2.0)
(131.4)
(0.2)
(245.2)
(10.1)
(47.2)
(9.4)
427.9
(214.0)
213.9
82.9
296.8
The goodwill of €82.9 million essentially reflects expected synergies achieved by optimising production capacities and cost structure as
well as new business of the enlarged Group. Goodwill is not deductible for tax purposes. The goodwill has been allocated to cash-
generating unit Steel - Linings in the amount of €82.1 million and to cash-generating unit Industrial - Raw Material in the amount of
€0.8 million.
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The table below provides information on the carrying amount of goodwill:
in € million
Preliminary goodwill recognised per acquisition date as at 31 December 2017
Adjustments relating to business combination fair values
Exchange rate differences 2017
Goodwill recognised as at 31 December 2017
Exchange rate differences 2018
Goodwill recognised as at 31 December 2018
171.7
(88.8)
(1.4)
81.5
(1.7)
79.8
Non-controlling interests have been measured at their proportionate share of Magnesita’s identifiable net assets.
Material adjustments to final fair values since prior reporting date
Intangible assets arising from non-patented technology and customer relationships were recognised in the purchase price allocation to
the amount of €11.5 million and €102.0 million respectively. Discounted cash flow models were applied to value these intangible assets.
The reason for the fair value adjustment of customer relations was that higher quality information was obtained over the course of the
reporting period. Furthermore, since the valuation of property, plant and equipment was not completed as of 31 December 2017, valuation
of intangible assets arising from customer relationships could not be considered final. The increase in the value of property, plant and
equipment in the measurement period reduced the fair value of the customer relationships to a varying degree because of the associated
higher contributory asset charges.
As at the previous financial reporting date, the preliminary fair value of property, plant and equipment was approximated by using mainly
historical book values because the technical valuation was not completed at the majority of the production sites. After completion of the
valuation of property, plant and equipment within the measurement period, fair value amounts to €690.2 million and was determined by
external appraisers applying a replacement cost approach.
As part of the business combination, the Group recognised intangible assets for mining rights arising from three significant mines in Brazil
and the USA. These were initially not recognised as at 31 December 2017, as insufficient data was available at that time. After finalisation
of the purchase price allocation fair value of the mining rights amounts to €185.1 million. The intangible assets arising from mining rights
were valued using discounted cash flow models, based on the life-of-mine plans as at the acquisition date. Expected cash flows are
based on estimates of future production, margins, operating costs and forecast capital expenditure. The value of PPE items that form part
of the mines (but valued separately) was deducted from the value of the mining rights in order to avoid double counting.
The total amortisation of the acquired technology, mining rights, and customer relationships in the current reporting period amounts to
€11.2 million (11-12/2017: €2.2 million). The total depreciation of property, plant and equipment increased by €37.1 million in 2018
(11-12/2017: €6.3 million) as a result of the fair value adjustments.
A liability for an unfavourable contract was recognised as at the previous reporting date, the value of which has been adjusted and final-
ised during the measurement period. The fair value of the liability amounts to €109.3 million. This value was calculated using a discount-
ed cash flow model based on foregone profits compared to market conditions, the term of the contract, assumptions of future costs and
an appropriate discount rate. The provision for an unfavourable contract has been amortised by €10.0 million (11-12/2017: €1.6 million) in
other income and €(8.7) million (11-12/2017: €(1.0) million) were accrued as interest expense in the current reporting period.
The Group was required – in accordance with the share purchase agreement (SPA) and Brazilian laws and regulations – to make a man-
datory public offer in Brazil which had to be addressed to all remaining Magnesita shareholders and had to 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 (ITO) and has filed
with the Brazilian Securities Commission the respective request. The launch of the ITO was communicated to the minority shareholders
on 10 November 2018.
Magnesita shareholders received the option of selling each Magnesita share in exchange of:
(i) R$18.46, 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.
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Notes
continued
The consideration of the cash-only alternative offer was the highest between:
(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.
In the course of the first close of the ITO, the Group acquired an additional 35.2% of shares in Magnesita, increasing its ownership from
50% plus one share to 85.2% as of 31 December 2018. The fair value of the consideration is €228.5 million and includes a cash part in
the amount of €85.2 million, including transaction costs, and the issue of 3,518,008 new ordinary shares of RHI Magnesita N.V. These
shares were delivered to the minority shareholders and admitted to trading on the London Stock Exchange's main market on 17 December
2018. The closing price of £36.62 per share on that day was used for the determination of the fair value of the issued ordinary shares
totalling up to €143.3 million. The cash part of the consideration has been settled on 20 December 2018 and 35.2% of the Magnesita
shares were transferred to the Group. The carrying amount of Magnesita’s net assets in the Group’s Consolidated Financial Statements on
the date of acquisition was €450.0 million. Consequently, the carrying amount of non-controlling interests acquired amounts to €158.4
million. This transaction results in a decrease in equity attributable to shareholders of RHI Magnesita N.V. in the amount of €70.1 million.
Subsequent to the first close of the ITO, the remaining shareholders had three months to elect from the two options (‘‘Supervening Ac-
quisition Period“), which ended on 10 March 2019. These effects are disclosed in Note (63).
Companies of the RHI Magnesita Group
The main operating companies of the RHI Magnesita Group and their core business activities are as follows:
Name and registered office of the company
Didier-Werke Aktiengesellschaft, Germany
Magnesit Anonim Sirketi, Turkey
Magnesita Mineração S.A., Brazil
Magnesita Refractories Company, USA
Magnesita Refractories GmbH, Germany
Magnesita Refratários S.A., Brazil
Orient Refractories Limited, India
RHI Canada Inc., Canada
RHI Magnesita GmbH, Austria
RHI GLAS GmbH, Germany
RHI Refractories (Dalian) Co., Ltd., PR China
RHI US Ltd., USA
RHI-Refmex, S.A. de C.V., Mexico
Veitsch-Radex GmbH & Co OG, Austria
Country of
core activity
Germany
Turkey
Brazil
USA
Germany
International
India
Canada
International
International
PR China
USA
Core business activity
Production
Mining, production, sales
Mining
Mining, production, sales
Production
Production, sales
Production, sales
Production, sales,
provision of services
Sales, R&D, financing
Sales
Production
Production, sales,
provision of services
Latin America
Sales
Austria
Mining, production
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, or has rights, 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. The purchase price for shares 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. In-
tangible 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 technology, mining rights and customer rela-
tions, 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 acquisitions where less than 100% of shares in companies 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.
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This accounting policy choice can be exercised for each acquisition. For the acquisition of Magnesita, non-controlling interests have
been measured at their proportionate share of Magnesita’s identifiable net assets.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the
Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted within
twelve months of the acquisition to reflect new information about facts and circumstances that existed as of the acquisition date.
After completing the purchase price allocation, the determined goodwill is allocated to the relevant cash-generating unit and tested for
impairment. In accordance with the provisions of IFRS 3, negative goodwill is immediately recognised to profit or loss in other income
after renewed measurement of the identifiable assets, liabilities and contingent liabilities.
Net assets of subsidiaries not attributable to RHI Magnesita N.V. are shown separately under equity as non-controlling interests. The basis
for non-controlling interests is the equity 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. Contingent consideration included in the
purchase price is recorded at fair value at initial consolidation.
When additional shares are acquired in entities 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 recorded in equity unless they lead to a loss of control.
For step acquisitions the difference between the carrying amount to be transferred and the fair value at initial full consolidation, is real-
ised through profit or loss.
All intragroup results are fully 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
the investee’s financial and operating policy decisions without control or joint control. There is the rebuttable presumption that if a com-
pany 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 it has 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 lia-
bilities of the joint ventures and associates is determined and recognised as goodwill. Goodwill is shown as part of investments in joint
ventures and associates in the Statement of Financial Position.
The acquisition cost of investments accounted for using the equity method is adjusted 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 are
offset against the carrying amount of the investment on a pro-rata basis during consolidation, if material.
RHI Magnesita examines at every reporting date whether there exist any objective indications of an impairment of the shares in joint ven-
tures and associates. If such indications exist, the required impairment is determined as the 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.
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Notes
continued
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 Magne-
sita N.V.
The items included in the Financial Statements of each group company are 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 undernet ex-
pense on foreign exchange effects and related derivatives. Unrealised currency translation differences from monetary items which form
part of a net investment in a foreign operation 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 con-
sequently 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 pur-
chase price allocations of a subsidiary outside the European currency area are recognised as assets and liabilities of the respective sub-
sidiary and translated at the closing rate.
RHI Magnesita has evaluated the effect of applying IAS 29 “Financial Reporting in Hyperinflationary Economies” in Argentina with the
conclusion that the effect on the Consolidated Financial Statements is considered immaterial to the Group.
The Euro exchange rates of currencies important for the RHI Magnesita Group are shown in the following table:
Closing rate
Average rate1)
1 € =
ARS
BRL
CAD
CLP
CNY
INR
MXN
NOK
GBP
CHF
ZAR
USD
31.12.2018
31.12.2017
43.10
4.44
1.56
793.69
7.87
79.88
22.49
9.94
0.90
1.13
16.46
1.14
22.93
3.96
1.50
735.00
7.78
76.40
23.56
9.85
0.89
1.17
14.75
1.20
2018
32.58
4.29
1.53
753.18
7.81
80.45
22.70
9.62
0.89
1.15
15.45
1.18
2017
18.65
3.60
1.46
733.37
7.61
73.36
21.27
9.30
0.87
1.11
15.02
1.12
Currencies
Argentine Peso
Brazilian Real
Canadian Dollar
Chilean Peso
Chinese Renminbi Yuan
Indian Rupee
Mexican Peso
Norwegian Krone
Pound Sterling
Swiss Franc
South African Rand
US Dollar
1 Arithmetic mean of the monthly closing rates.
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8. Principles of accounting and measurement
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
Mining rights were recognised in the course of the purchase price allocation for Magnesita and are amortised based on the depletion of
the related mines. Depletion is calculated based on the volume mined in the period in proportion to the total estimated volume.
Customer relations were recognised in the course of purchase price allocations of acquired subsidiaries and are amortised on a straight-
line basis over the expected period of useful life.
Research costs are expensed in the year incurred and included under general and administrative expenses.
Development costs are only capitalised if the allocable costs of the intangible asset can be measured reliably during its development
period. Moreover, capitalisation requires that the product or process development can be clearly defined, is feasible in technical, eco-
nomic 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, with a maximum useful life 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 exten-
sion 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 a 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 amortisa-
tion 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:
Customer relationships
Patents
Brand rights
Land use rights
Software
6 to 15 years
7 to 18 years
20 years
30 to 65 years
4 years
Property, plant and equipment
Property, plant and equipment is measured at acquisition or production cost, less accumulated depreciation and accumulated impair-
ments. These assets are depreciated on a straight-line basis over the expected useful life, calculated pro rata from the month the asset is
available for use.
Leased property, plant and equipment that qualifies as a finance lease, 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 amount of property, plant and equipment
leased through finance leases is low. All other leases are treated as operating leases with payments expensed.
Production costs of internally generated assets comprise direct costs as well as a proportionate share of capitalisable overheads and
borrowing costs. If financing can be specifically allocated to an investment, 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 capitalisation rate due to the central
funding of the Group.
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Notes
continued
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. Depreciation of other material property, plant and equipment is based
on the following useful lives in the RHI Magnesita Group:
Factory and office buildings
Land improvement
Crusher machines and mixing facilities
Presses
Tunnel, rotary and shaft kilns
Other calcining and drying kilns
Cars, other plant, furniture and fixtures
15 to 50 years
8 to 30 years
8 to 20 years
10 to 12 years
50 years
20 to 30 years
3 to 35 years
The residual values and economic useful lives are reviewed regularly and adjusted if necessary.
When components of plant or equipment have to be replaced at regular intervals, the relevant replacement costs are capitalised as in-
curred if the criteria per 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 realisable value and
the carrying amount, are recognised as income or expense in the Consolidated Statement of Profit or Loss.
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 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 to 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 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 separately in the Statement of Profit or Loss.
If there is an indication for an impairment of a specific asset, only this specific asset will be tested for impairment. The recoverable amount
is determined through fair value. If the fair value is lower than the carrying amount, an impairment loss is recorded in EBIT or, in the case
of restructuring, in restructuring costs.
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. CGU's are determined based on group of assets that can generate cash inflows independent of other assets.
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, the knowledge of RHI Magnesita’s long-standing customer relationships or knowledge of the customer’s
production facilities and processes further support these units. 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
with the customer or the 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.
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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 line of business (glass, cement/lime, non-ferrous metals and environment, energy, chemicals)
forms a separate CGU. All raw material producing facilities with the exception of Norway are combined in one CGU.
The plant in Porsgrunn, Norway, is 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 optimisation measures due to the dimension and the special situa-
tion at the Porsgrunn plant. This organisation goes beyond plant management and also includes sub-tasks of the administration process-
es.
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 possi-
ble economic or other non-sustainable fluctuations in the detailed planning period and forms the basis for the calculation of the terminal
value. As in the previous year, 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 a discount rate that is calculated taking into account the weighted average cost of capital of
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 discount rate ranges between 10.1% and 13.0% in the
year 2018. In the previous year, the discount rates ranged between 5.7% and 8.6%. The increase of the discount rate resulted from annual
update of the peer group parameters as well as considering the location of the CGU’s assets (as a cash outflows originator) in the discount
rate determination methodology.
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 investments are only taken into account 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.
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 Long Term Plan 2019 to 2025, which was approved by the Board, and developed with the growth
rates used in the forward-looking business plan. To forecast the CGUs’ cash flows, management predicts the growth rate using external
sources for the development of the customer’s industries and expert assumptions. This includes forecasts about the regional growth of
the steel production and the output of the non-steel clients. In combination with the development of the specific refractory consump-
tion, which considers also technological improvements, the growth rates for the individual CGUs are determined.
Discount rate
before Tax
Perpetual annuity
growth rate
Goodwill
in € million
Discount rate
before tax
Perpetual annuity
growth rate
2018
Steel Division - Linings
Steel Division - Flow Control
11.3%
11.3%
0.9%
0.9%
88.4
27.3
8.6%
8.5%
0.9%
0.9%
2017
Goodwill
in € million
90.1
28.3
The remaining goodwill of €1.7 million (31.12.2017: €1.8 million) is spread among the remaining CGU's, all of them having sufficient head-
room.
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Notes
continued
Result of impairment test
Based on the impairment test conducted in the financial year 2018, the recoverability of the assets was demonstrated in all CGUs.
As in the previous year, no reversals of impairments were made in the financial year 2018.
Other financial assets and liabilities
Financial assets are classified as at amortised cost, if the contractual cash flows of the financial asset include solely payments of principal
and interest and they are held in order to collect the contractual cash flows. If the contractual cash flows of financial assets include solely
payments of principal and interest, but they are held in order to both collect the contractual cash flows and sell the financial asset, then
the financial assets are classified as at fair value through other comprehensive income. If the contractual cash flows of financial assets do
not solely include payments of principal and interest, then these financial assets are classified as at fair value through profit or loss.
The Group initially recognises securities on the trading date when the entity becomes a party to the contractual provisions of the instru-
ments. All other financial assets and financial liabilities are initially recognised on the date when they are originated. Financial instru-
ments, except for trade receivables, are initially recognised at fair value. Financial assets are derecognised if the entity transfers substan-
tially all the risks and rewards or if the entity neither transfers nor retains substantially all the risks and rewards and has not retained con-
trol. 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, investments in other companies as well as securities are classified as at fair value through profit
or loss in the RHI Magnesita Group. For materiality reasons if such financial assets are of minor significance cost serves as an approxima-
tion of fair value. 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 according to the impairment model
described below. Foreign currency receivables are translated at the closing rate.
Derivative financial instruments, which are not part of an effective hedging relationship in accordance with IFRS 9 or do not meet the
hedge accounting requirements, must be classified as at fair value through profit or loss 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 IFRS 9 and concern a long-term
power supply contract which provides for the purchase of fixed amounts of electricity at fixed 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 report-
ing 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 net expense of foreign exchange effects and related derivatives. 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 IFRS 9, 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 Mag-
nesita 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
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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 accumu-
lated 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 Consoli-
dated Statement of Financial Position in accordance with IAS 32. The liabilities are measured at amortised cost. The share of profit at-
tributable to non-controlling interests is recognised under other net financial expenses in the Statement of Profit or Loss. Dividend pay-
ments 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 fi-
nance costs.
Impairment of financial assets
Impairment of financial instruments is based on expected credit losses (ECL). Expected credit losses are defined as the difference be-
tween all contractual cash flows the entity is entitled to according to the contract and the cash flows that the entity expects to receive.
The measurement of expected credit losses is generally a function of the probability of default, loss given default and the exposure at
default.
RHI Magnesita recognises a loss allowance for expected credit losses on investments in debt instruments that are measured at amortised
cost, trade receivables and contract assets. The amount of expected credit losses is updated at each reporting date to reflect changes in
credit risk since initial recognition of the respective financial instrument.
The Group recognises lifetime ECL for trade receivables and contract assets by applying the simplified approach. The expected credit
losses on these financial assets are generally estimated using a provision matrix based on the Group’s historical credit loss experience for
customer groups located in different geographic regions. Forward-looking information is incorporated in the determination of the appli-
cable loss rates for trade receivables. For the Group, the general economic development of the countries in which it sells its goods and
services is the relevant for the determination if adjustment of the historical loss rates is necessary.
For all other financial instruments, the Group recognises lifetime ECL when there has been a significant increase in credit risk since initial
recognition. However, if the credit risk on the financial instrument has not increased significantly since initial recognition, the Group
measures the loss allowance for that financial instrument at an amount equal to 12-month ECL.
Lifetime ECL represents the expected credit losses that will result from all possible default events over the expected life of a financial
instrument. In contrast, 12-month ECL represents the portion of lifetime ECL that is expected to result from default events on a financial
instrument that are possible within 12 months after the reporting date.
RHI Magnesita takes use of the practical expedient that if a financial instrument has an ‘investment grade’ rating that it is assumed to be of
low credit risk and no significant increase in the credit risk took place and the expected credit loss is calculated using the 12 month ECL.
Among other factors the Group considers a significant increase in credit risk to have taken place when contractual payments are more
than 30 days past due.
The Group considers the following as constituting an event of default, hence leading to a credit-impaired financial asset:
significant financial difficulty of the issuer or the borrower;
a breach of contract;
the lender(s) of the borrower, for economic or contractual reasons relating to the borrower’s financial difficulty, having granted to
the borrower concessions that the lender(s) would not otherwise consider;
it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation;
the disappearance of an active market for that financial asset because of financial difficulties.
In addition to these factors, RHI Magnesita applies the presumption in regards to trade receivables, that a default event has occurred
when such receivables are 180 days past due unless the Group has reasonable and supportable information for anything different. 180
days past due are used as an objective evidence of default as this is presumed to reflect the Group’s customer industry.
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Notes
continued
For those financial instruments where objective evidence of default is present an individual assessment on expected credit losses takes
place.
Generally, financial instruments are written off when there is no reasonable expectation of recovery. Financial assets written off may still
be subject to enforcement activities under the Group’s recovery procedures, taking into account legal advice where appropriate. Any
recoveries made are recognised in profit or loss.
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 to the extent 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.
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 25.0%. Deferred tax assets and liabilities of
the Brazilian group companies are measured mainly at 34.0%. Tax rates from 12.5% to 34.9% (31.12.2017: 12.5% to 35.0%) 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 the lower of cost or net realisable value as of the reporting date. The determination of acquisition cost of pur-
chased inventories is based on the average cost. Finished goods and work in process are valued at fixed and variable production cost. The
net realisable 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 realisable value.
Trade and other current receivables
Trade receivables are initially measured at the transaction price according to IFRS 15 and subsequently carried at amortised cost minus
any valuation allowances. Valuation allowances are calculated in accordance with the simplified approach of the impairment model for
financial instruments (see impairment of financial assets above).
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, writ-
ten 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 certif-
icates.
Emission certificates allocated free of charge are not accounted for. Proceeds from the sale of these rights are recognised as income.
Cash and cash equivalents
Cash and cash equivalents includes cash on hand, cheques received and cash at banks with an original term of a maximum of three
months. 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.
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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.
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.
Borrowings and other 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 effec-
tive interest method. Financial liabilities in foreign currency are translated at the closing rate.
A financial liability is derecognised when the obligation under the liability is discharged (by payment or legal release), cancelled or ex-
pires.
When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an exist-
ing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the
recognition of a new liability. The terms are substantially different if the discounted present value of the cash flows under the new terms,
including any fees paid net of any fees received and discounted using the original effective interest rate, is at least 10% different from the
discounted present value of the remaining cash flows of the original financial liability. The difference in the respective carrying amounts
is subsequently recognised in the Statement of Profit or Loss, including any costs or fees.
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 discounting 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 depend-
ents, with a differentiation made between pension systems financed through provisions and pension systems financed by funds.
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 contribu-
tion 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 required to calculate these obligations, include the discount rate , increases in wages/salaries and pensions, re-
tirement starting age and probability of employee turnover and actual claims. The calculation is based on local demographic parameters.
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Notes
continued
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 termination pay-
ment 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
12 monthly salaries. These obligations are measured in accordance with IAS 19 using the projected unit credit method applying an accu-
mulation 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 employ-
ees to termination benefits are filed with the statutory 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.
In 2018, the Remuneration Committee of RHI Magnesita developed a new Remuneration Policy for the members of senior management
of the Group. Based on this new long-term incentive programme, share-options are granted. The fair value of these options as well as any
adjustments of the fair value are measured at every reporting date and recognised in equity.
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 the service has been
provided. The amounts of the provisions are based on the expected or actual warranty claims.
Provisions for restructuring are created providing 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.
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The Group recognises provisions for demolition and disposal costs and environmental damages. RHI Magnesita’s facilities and its refrac-
tory, 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 demoli-
tion 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.
A provision for a contract obligation is recognised when the expected benefits to be derived from a contract are lower than the unavoida-
ble cost of meeting its obligations under the contract. The non-current provisions are measured at the present value of the unavoidable
costs of meeting the obligation under the contract which exceed the economic benefits expected to arise from that contract.
Provisions for labour and civil contingencies are recognised for all risks referring to legal proceedings that represent probable loss. As-
sessment 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.
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 subsidised
expenses are incurred. In the RHI Magnesita Group, they mainly include grants for research and employee development. Grants for re-
search are recorded as income in general and administrative expenses.
Revenue and expenses
Revenue from the sale of goods and services is recognised at an amount that reflects the consideration to which the Group expects to be
entitled in exchange for those goods or services. The transaction price is the expected consideration to be received, to the extent that it is
highly probable that there will not be a significant reversal of revenue in future periods. If the consideration in a contract includes a varia-
ble amount, the Group estimates the amount of consideration to which it will be entitled in exchange for transferring the goods or ser-
vices to the customer. The variable consideration is estimated at contract inception and constrained until it is highly probable that a sig-
nificant revenue reversal in the amount of cumulative revenue recognised will not occur when the associated uncertainty with the varia-
ble consideration is subsequently resolved. The average credit term is 60 days upon transfer of goods or service. The Group is using the
practical expedient in IFRS 15 and does not adjust the promised amount of consideration for the effects of a significant financing compo-
nent if it expects, at contract inception, that the period between the transfer of the promised good or service to the customer and pay-
ment will be one year or less. At contract inception, the Group identifies the goods or services promised in the contract and assesses
which of the promised goods or services shall be identified as separate performance obligations. Promised goods or services give rise to
separate performance obligations if they are capable of being distinct. Revenue is recognised as control is transferred, either over time or
at a point of time. Control is defined as the ability to direct the use of and obtain substantially all of the economic benefits from an asset.
With regard to delivery contracts of refractory products the goods promised are distinct and control of the goods is passed to the custom-
er typically when physical possession has been transferred to the customer. The transport service does not give rise to a separate perfor-
mance obligation to which a part of revenue would have to be allocated, as this service is performed before control of the products is
transferred to the customer.
In consignment arrangements, RHI Magnesita Group ships products to a customer but retains control of the goods until a predetermined
event occurs. Revenue is not recognised on delivery of the products to the customer if the delivered products are held on consignment,
but generally when the withdrawal of the products from the consignment stock occurs. Most of the products within consignment ar-
rangements have a high stock turn rate.
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Notes
continued
The Group provides services (e.g. supervision, installation) that are either sold separately or bundled together with the sale of products to
a customer. Contracts for bundled sales of products and installation services are comprised of two performance obligations as the prom-
ises to transfer products and provide services are capable of being distinct and separately identifiable. Accordingly, the transaction price
allocated is based on the relative stand-alone selling prices of the product and services. Revenue from services is recognised over time,
using an input method to measure progress towards complete satisfaction of the service, because the customer simultaneously receives
and consumes the benefits provided by the Group.
Contracts for bundled sales of refractory products and non-refractory products (e.g. machines) provided to the customer free of charge
comprise two performance obligations that are separately identifiable. Consequently, the Group allocates the transaction price based on
the relative stand-alone selling prices of these performance obligations and also allocates revenue to the non-refractory product which
is delivered free of charge.
For contracts in the Steel segment with variable payment arrangements (transaction price depends on the customer’s production perfor-
mance) the management has determined that the promise to transfer each of the products and services to the customer is not separately
identifiable from all the other promises in the context of such contracts. Thus, only one single performance obligation, the performance
of a management refractory service, exists. Further information is provided under Note (10). With regard to these contracts, revenue is
recognised over time on the basis using the output-oriented method (e.g. quantity of steel produced in the customer aggregate serviced).
Expected penalty fees from guaranteed durabilities when using refractory products are considered as a variable consideration in the form
of a contract or a refund liability. Based on the expected value method, the amount of the variable consideration is estimated. The estima-
tion of the variable consideration is not subject to a constraint as the Group has significant experience with promising durabilities. Thus, it
is concluded that a significant reversal of revenue is highly unlikely once the uncertainty no longer exists. All other warranties guarantee
that the transferred products correspond to the contractually agreed specifications and are classified as assurance type warranties. Con-
sequently, no separate distinct performance obligation to the customer exists.
If transfer of goods or services to a customer is performed before the customer pays consideration or before payment is due, a contract
asset, excluding any amounts presented as a receivable is recognised. A contract asset is an entity’s right to consideration in exchange for
goods or services that the entity has transferred to a customer.
If a customer pays consideration before the entity transfers a good or service to the customer, the entity shall present the contract as a
contract liability when the payment is made or the payment is due (whatever is earlier). A contract liability is an entity’s obligation to
transfer goods or services to a customer for which the entity has received consideration (or an amount of consideration is due) from the
customer.
Contract costs are the incremental costs of obtaining a contract and must be recognised as an asset if the company expects to recover
those costs. As a practical expedient, RHI Magnesita expenses such costs when incurred, if the amortisation period would be 12 months or
less.
In general, the term of customer contracts in accordance with IFRS 15 is no longer than one year. Therefore, the Group decided, as a
practical expedient, not to disclose the remaining performance obligations for contracts with original expected duration of less than one
year.
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 rec-
ognised in the Statement of Profit or Loss unless they are related to items which were recorded directly in equity or in other comprehen-
sive income. In such a case, income taxes are also recorded in equity or other comprehensive income.
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RHI Magnesita GmbH, Vienna, Austria, acts as the head of a corporate tax group. A tax compensation agreement was concluded in 2017
between the head of the group and eight Austrian group members. According to the group and tax compensation agreement, the mem-
bers 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 VAT purposes with nine Ger-
man 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 VAT purposes.
9. Segment reporting
The RHI Magnesita Group comprises the operating segments Steel and Industrial. The segmentation of the business activities reflects the
internal control and reporting structures and is regularly reported to the Chief Executive Officer.
The Steel segment specialises 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 provid-
ing services at the customers’ sites.
The globally located manufacturing sites, which extract and process raw materials, are combined in one organisational unit. The alloca-
tion of manufacturing cost of the production plants to the Steel and Industrial Divisions is based on the supply flow.
Statements of Profit or Loss up to gross profit are available for each segment. The gross profit serves the management of the RHI Magnesi-
ta Group for internal performance management. Selling and marketing expenses, general and administrative expenses, other income and
expenses, profit of joint ventures, 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 man-
agement for control and measurement, as well as property, plant and equipment, goodwill and other intangible assets, which are allocat-
ed to the segments based on the capacity of the assets provided 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 (goodwill, intangible assets and prop-
erty, plant and equipment) are disclosed on the basis of the respective locations of the companies of the RHI Magnesita Group.
10. Critical accounting judgments and key sources of estimation uncertainty
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, reve-
nue and expenses are accounted for in the reporting period in which the change is made and in the affected future reporting periods.
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Notes
continued
Critical accounting judgments
Revenue recognition
For customer contracts in the Steel segment with variable payment arrangements where transaction price depends on the customer’s
production performance, (e.g. quantity of steel produced in the customer aggregate serviced) the management has determined that the
promise to transfer each of the products and services to the customer is not separately identifiable from the other promises in the context
of such contracts. The customer expects complete refractory management for the agreed product areas in the steel plant in order to
enable steel production. Thus, only one single performance obligation, performance of a management refractory service, exists.
There are no other critical accounting judgments made in the preparation of the Consolidated Financial Statements.
Key sources of estimation uncertainty
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.
If intangible assets are identified, estimates are necessary for the determination of fair values by means of discounted cash flows, includ-
ing the duration, amount of future cash flows, and 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 estimates 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
€1,427.4 million at 31 December 2018 (31.12.2017: €1,512.9 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 (CGUs).
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.
There was no triggering event in 2018.
Impairment of goodwill and other intangible assets with indefinite useful life
The effect of an adverse change by plus 10% in the estimated interest rates as of 31 December 2018 or by minus 10% in the contribution
margin would not result in an impairment of goodwill recognised (carrying amount 31.12.2018: €131.2 million, 31.12.2017: €38.7 million)
nor in an impairment charge to intangible assets with indefinite useful lives (carrying amount at 31.12.2018 and 31.12.2017: €1.8 million).
Intangible assets and property, plant and equipment
Management uses its experience to estimate the remaining useful life of an asset. The actual useful life of an asset may be impacted by
an unexpected event that may result in an adjustment to the carrying amount of the asset.
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 assump-
tions such as interest rates, future salary and pension increases as well as life expectancy. Due to the long-term orientation of these obli-
gations, 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 param-
eter 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).
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in € million
Present value of the obligations
Interest rate
Salary increase
Pension increase
Life expectancy
Change of assumption
in percentage points
or years
Pension plans
31.12.2018
Termination
benefits
Pension plans
31.12.2017
Termination
benefits
+0.25
(0.25)
+0.25
(0.25)
+0.25
(0.25)
+1 year
(1) year
506.6
(14.0)
15.0
0.9
(1.7)
10.3
(10.1)
17.2
(17.3)
55.5
(1.5)
1.5
1.5
(1.4)
-
-
-
-
517.1
(14.9)
15.7
0.8
(0.7)
10.6
(10.2)
18.3
(23.6)
58.1
(1.5)
1.6
1.6
(3.5)
-
-
-
-
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 €162.2 million (31.12.2017: €209.4 million) were based on the best possi-
ble 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.
The majority of the provisions refers to an unfavourable contract which was recognised in the course of the acquisition of Magnesita and
is mainly based on an estimate of forgone profit margins compared to market conditions which is further explained in Note (5) Group of
consolidated companies.
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 Consolidated Financial Statements may be subject to different interpretations by
local finance authorities.
RHI Magnesita is continually adapting its global presence to better serve its customers and maintain its competitive advantage. As a re-
sult, in this way the Group maintains discussions with tax authorities about functions transferred between related parties and their exit
value, however due to its nature, they do not impact the Group's accounts.
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 re-
porting date within the planning period defined for the accounting and measurement of deferred taxes, the net position of deferred tax
assets amounting to €92.7 million (31.12.2017: €75.4 million) would have to be increased by €0.6 million (31.12.2017: €0.8 million) or
reduced by €0.6 million (31.12.2017: €0.9 million).
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Notes
continued
NOTES TO THE CONSOLIDATED STATEMENT OF
FINANCIAL POSITION
11. Goodwill
Goodwill developed as follows:
in € million
At beginning of year
Acquisitions of subsidiaries (Note 5)
Reclassified as held for sale
Currency translation
Cost at year-end
Accumulated impairment at beginning of year
Currency translation
Reclassification as held for sale
Accumulated impairment at year-end
Carrying amount at year-end
2018
122.1
0.0
0.0
(2.8)
119.3
(1.9)
0.0
0.0
(1.9)
117.4
1 Adjusted to reflect the effects of the final purchase price allocation of Magnesita.
12. Other intangible assets
Other intangible assets changed as follows in the financial year 2018:
in € million
Cost at 01.01.20181)
Currency translation
Additions
Retirements and disposals
Reclassifications
Cost at 31.12.2018
Accumulated amortisation 01.01.2018
Currency translation
Amortisation charges
Retirements and disposals
Reclassifications
Accumulated amortisation 31.12.2018
Carrying amounts at 31.12.2018
Mining rights
179.2
(9.8)
0.0
0.0
0.0
169.4
0.8
0.0
3.9
0.0
0.0
4.7
164.7
Customer
relationship
100.0
(2.1)
0.0
0.0
10.8
108.7
1.1
0.0
6.5
0.0
10.2
17.8
90.9
Internally
generated
intangible assets
Other intangible
assets
47.6
0.0
2.9
0.0
0.0
50.5
30.2
0.0
3.9
0.0
0.0
34.1
16.4
143.1
(2.6)
1.2
(2.5)
(10.0)
129.2
64.8
(0.8)
14.3
(1.3)
(10.2)
66.8
62.4
1 Adjusted to reflect the effects of the final purchase price allocation of Magnesita.
20171)
40.2
85.3
(0.4)
(3.0)
122.1
(2.4)
0.1
0.4
(1.9)
120.2
Total
469.9
(14.5)
4.1
(2.5)
0.8
457.8
96.9
(0.8)
28.6
(1.3)
0.0
123.4
334.4
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Other intangible assets changed as follows in the previous year:
in € million
Cost at 01.01.2017
Currency translation
Acquisitions of subsidiaries
Additions
Retirements and disposals
Reclassifications
Reclassified as held for sale
Cost at 31.12.2017
Accumulated amortisation 01.01.2017
Currency translation
Amortisation charges
Impairment losses
Retirements and disposals
Reclassifications
Reclassified as held for sale
Accumulated amortisation 31.12.2017
Mining rights
Customer
relationship
Internally
generated
intangible assets
Other intangible
assets
0.0
(5.9)
185.1
0.0
0.0
0.0
0.0
0.0
(2.5)
102.5
0.0
0.0
0.0
0.0
179.2
100.0
0.0
0.0
0.8
0.0
0.0
0.0
0.0
0.8
0.0
0.0
1.1
0.0
0.0
0.0
0.0
1.1
45.9
(0.2)
0.0
4.1
0.0
(0.6)
(1.6)
47.6
27.7
(0.2)
3.8
0.8
0.0
(0.6)
(1.3)
30.2
17.4
114.0
(5.9)
36.1
1.5
(0.6)
(0.3)
(1.7)
143.1
61.1
(2.1)
7.7
0.0
(0.6)
0.2
(1.5)
64.8
78.3
Total1)
159.9
(14.5)
323.7
5.6
(0.6)
(0.9)
(3.3)
469.9
88.8
(2.3)
13.4
0.8
(0.6)
(0.4)
(2.8)
96.9
373.0
Carrying amounts at 31.12.2017
178.4
98.9
1 Adjusted to reflect the effects of the final purchase price allocation of Magnesita.
Internally generated intangible assets comprise capitalised software and product development costs.
The customer relations of Magnesita have a carrying amount of €90.0 million (31.12.2017: €116.1 million) and a remaining useful life of 10
to 14 years.
Other intangible assets include in particular acquired patents, trademark rights, software, and land use rights. The land use rights have a
carrying amount of €23.4 million (31.12.2017: €26.0 million) and a remaining useful life of 19 to 59 years.
There are no restrictions on the sale of intangible assets.
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Notes
continued
13. Property, plant and equipment
Property, plant and equipment developed as follows in the year 2018 and in the previous year:
Technical
equipment,
machinery
1,155.6
Other plant,
furniture and
fixtures
298.2
in € million
Cost at 01.01.20181)
Currency translation
Additions
Retirements and disposals
Reclassifications
Cost at 31.12.2018
Accumulated depreciation 01.01.2018
Currency translation
Depreciation charges
Retirements and disposals
Reclassifications
Accumulated depreciation 31.12.2018
Carrying amounts at 31.12.2018
Real
estate,
land and
buildings
630.1
(14.8)
2.9
(8.3)
8.5
618.4
256.8
(1.1)
12.8
(6.9)
0.2
261.8
356.6
Raw material
deposits
33.8
(0.7)
0.3
0.0
4.1
37.5
21.3
(0.1)
1.3
0.0
0.0
22.5
15.0
1 Adjusted to reflect the effects of the final purchase price allocation of Magnesita.
(22.8)
9.1
(12.4)
37.4
1,166.9
575.8
(1.5)
93.9
(11.3)
0.3
657.2
509.7
in € million
Cost at 01.01.2017
Currency translation
Acquisitions of subsidiaries
Additions
Retirements and disposals
Reclassifications
Reclassified as held for sale
Cost at 31.12.2017
Accumulated depreciation 01.01.2017
Currency translation
Depreciation charges
Impairment losses
Retirements and disposals
Reclassifications
Reclassified as held for sale
Accumulated depreciation 31.12.2017
Carrying amounts at 31.12.2017
Real
estate,
land and
buildings
Raw material
deposits
Technical
equipment,
machinery
453.7
(16.3)
224.7
6.5
(20.4)
7.3
(25.4)
630.1
285.6
(5.3)
8.7
9.4
(19.6)
0.4
(22.4)
256.8
373.3
32.1
(0.2)
4.5
1.5
0.0
1.0
(5.1)
33.8
24.5
0.0
0.4
0.0
0.0
0.0
(3.6)
21.3
12.5
877.9
(26.3)
390.8
13.6
(24.4)
16.5
(92.5)
1,155.6
639.3
(11.2)
42.8
7.9
(23.1)
0.0
(79.9)
575.8
579.8
Prepayments
made and
plant under
construction
99.4
(3.8)
99.4
0.0
(62.6)
132.4
0.8
0.0
0.0
0.0
(0.7)
0.1
132.3
Prepayments
made and
plant under
construction
43.8
(2.3)
54.4
34.4
0.0
(30.0)
(0.9)
99.4
0.9
(0.1)
0.0
0.3
0.0
0.0
(0.3)
0.8
98.6
Total
2,217.1
(45.1)
122.9
(27.4)
(0.8)
2,266.7
1,075.4
(3.8)
124.8
(24.5)
0.0
1,171.9
1,094.8
Total1)
1,701.7
(51.8)
690.3
64.8
(54.3)
0.9
(134.5)
2,217.1
1,179.9
(21.6)
66.2
18.7
(51.7)
0.4
(116.5)
1,075.4
1,141.7
(3.0)
11.2
(6.7)
11.8
311.5
220.7
(1.1)
16.8
(6.3)
0.2
230.3
81.2
Other plant,
furniture and
fixtures
294.2
(6.7)
15.9
8.8
(9.5)
6.1
(10.6)
298.2
229.6
(5.0)
14.3
1.1
(9.0)
0.0
(10.3)
220.7
77.5
1 Adjusted to reflect the effects of the final purchase price allocation of Magnesita.
In 2017, impairment losses of €18.7 million were mainly caused by the restructuring of operations in Germany and Brazil. They are related
to the Steel segment.
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A N N U A L R E P O R T 2 0 1 8
A N N U A L R E P O R T 2 0 1 8
The item prepayments made and plant under construction includes plant under construction with a carrying amount of €129.9 million
(31.12.2017: €96.5 million), with the modification of the smelter at the site in Radenthein, Austria, representing the largest investment
project under construction in 2018.
There are no restrictions on the sale of property, plant and equipment.
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:
in € million
Investments in joint ventures
Investments in associates
Carrying amount at year-end
31.12.2018
31.12.20171)
19.6
2.2
21.8
20.7
0.7
21.4
1 Adjusted to reflect the effects of the final purchase price allocation of Magnesita.
Joint ventures
The RHI Magnesita Group holds a share of 50% (2017: 50%) in MAGNIFIN Magnesiaprodukte GmbH & Co KG (“MAGNIFIN”), a private
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 available.
The following table summarises the income and expenses of MAGNIFIN:
in € million
Revenue
Profit before income tax
Depreciation
Interest expense
Other comprehensive income
Total comprehensive income
2018
38.8
17.9
1.5
0.2
0.0
17.9
2017
40.3
20.8
1.5
0.2
(0.2)
20.6
Income taxes on the share of profit of MAGNIFIN amounting to €2.4 million (2017: €2.7 million) are recognised by the head of the tax
group, RHI Magnesita 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:
in € million
Non-current assets
Current assets (without cash and cash equivalents)
Cash and cash equivalents
Non-current liabilities and provisions
Current provisions
Trade payables and other current liabilities
Net assets
31.12.2018
31.12.2017
8.9
11.2
16.5
(4.0)
(1.3)
(2.9)
28.4
9.3
10.2
19.7
(4.0)
(1.2)
(2.7)
31.3
137
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R H I M A G N E S I TA
R H I M A G N E S I T A
Notes
continued
The movement in the carrying amount of the share in MAGNIFIN in the RHI Magnesita Consolidated Financial Statements is shown be-
low:
in € million
Proportional share of net assets at beginning of year
Share of profit
Share of other comprehensive income (remeasurement losses)
Dividends received
Other changes in value
Proportional share of net assets at year-end
Goodwill
Carrying amount of investment at year-end
2018
15.7
9.4
0.0
(10.8)
0.0
14.3
4.9
19.2
2017
15.6
10.8
(0.1)
(10.7)
0.1
15.7
4.9
20.6
In the course of the acquisition of Magnesita in 2017 the Group acquired interests in an immaterial joint venture with a carrying amount of
€0.4 million as of 31 December 2018 (31.12.2017: €0.1 million). The Group’s share of the profit after income tax, other comprehensive
income and total comprehensive income in 2018 amounts to €0.3 million (November and December 2017: less than €0.1 million).
Associates
As part of the acquisition of Magnesita in 2017 the Group acquired two immaterial associated companies with a carrying amount of
€2.2 million as of 31 December 2018 (31.12.2017: €0.7 million). In the course of the purchase price allocation the fair value of one associ-
ate was determined as zero at the acquisition date. The Group’s share of the profit after income tax for 2018 amounts to €0.3 million (No-
vember and December 2017: €0.1 million). Total comprehensive income including other comprehensive income of €0.1 million amounts
to €0.4 million (November and December 2017: €0.1 million).
15. Other non-current financial assets
Other non-current financial assets consist of the following items:
in € million
Interests in subsidiaries not consolidated
Other investments
Marketable securities and shares
Interest rate swaps
Non-current receivables from disposal of subsidiaries
Other non-current financial receivables
Other non-current financial assets
31.12.2018
31.12.2017
0.7
0.0
15.0
0.6
0.0
1.7
18.0
0.8
0.4
17.3
1.5
2.6
2.5
25.1
Accumulated impairments on investments, securities and shares amounted to €4.3 million (31.12.2017: €3.8 million).
16. Other non-current assets
Other non-current assets include the following items:
in € million
Tax receivables
Prepaid stripping costs
Judicial deposits
Plan assets from overfunded pension plans
Prepaid expenses
Other non-current assets
138
1 4 0
31.12.2018
31.12.2017
20.7
6.8
3.7
2.1
1.0
34.3
9.9
8.0
3.7
2.0
0.6
24.2
R H I M A G N E S I TA
R H I M A G N E S I T A
A N N U A L R E P O R T 2 0 1 8
A N N U A L R E P O R T 2 0 1 8
Prepaid expenses for stripping costs arising from mining raw materials in a surface mine are included in non-current assets due to the
planned use of the mine.
Tax receivables relate 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:
in € million
Deferred tax assets
Deferred tax
liabilities
Expense/(Income)
Deferred tax assets
Deferred tax
liabilities
Expense/(Income)
31.12.2018
31.12.2018
2018
31.12.20171)
31.12.20171)
20171)
Property, plant and
equipment, intangible assets
Inventories
Trade receivables, other
assets
Pensions and other personnel
provisions
Other provisions
Trade payables, other
liabilities
Tax loss carried forward
Offsetting
Deferred taxes
20.1
33.3
7.7
69.6
26.1
18.0
96.1
(99.8)
171.1
159.7
5.6
7.1
(0.2)
1.6
4.4
(99.8)
78.4
(25.1)
(9.8)
(24.8)
2.3
(0.1)
10.6
29.9
(17.0)
52.1
20.5
6.4
70.2
25.9
26.6
134.6
(196.2)
140.1
219.8
(1.6)
38.4
0.3
(0.7)
4.7
-
(196.2)
64.7
(29.9)
(1.5)
(11.5)
6.4
3.9
(1.4)
8.4
-
(25.6)
1 Adjusted to reflect the effects of the final purchase price allocation of Magnesita.
As of 31 December 2018, 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 €47.8 million (31.12.2017: €26.0 million). Deferred Tax Assets have been recog-
nised because the companies concerned are expected to generate taxable income in the future.
Tax loss carryforwards totalled €467.7 million in the RHI Magnesita Group as of 31 December 2018 (31.12.2017: €609.7 million). A signifi-
cant part of the tax loss carryforwards originated in Austria and Brazil where their deduction can be carried forward indefinitely. The an-
nual compensation of tax loss carryforwards in Austria is limited to 75% and in Brazil to 30% of the respective taxable profits. Deferred
taxes on tax losses of €155.1 million (31.12.2017: €157.7 million) were not recognised. Of these losses, €5.8 million (31.12.2017: €3.4 mil-
lion) will expire in 2021, while the remainder will be carried forward indefinitely.
In addition, no deferred tax assets were recognised for temporary differences totalling €5.1 million (31.12.2017: €16.2 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 €1,085.7 million (31.12.2017: €667.0 million) and deductible temporary differences of €501.1 million
(31.12.2017: €295.6 million) were not recognised on shares in subsidiaries because the corresponding distributions of profit or the sale of
the investments are controlled by the Group and are not expected in the foreseeable future.
The maturity structure of deferred taxes is shown in the table below:
in € million
Deferred tax assets
Deferred tax liabilities
Current
Non-current
78.0
2.9
93.1
(81.3)
1 Adjusted to reflect the effects of the final purchase price allocation of Magnesita.
31.12.2018
Total
171.1
(78.4)
Current
Non-current
11.0
78.8
129.1
(14.1)
31.12.20171)
Total
140.1
64.7
139
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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
R H I M A G N E S I T A
Notes
continued
18. Inventories
Inventories as presented in the Consolidated Statement of Financial Position consist of the following items:
in € million
Raw materials and supplies
Work in progress
Finished products and goods
Prepayments made
Inventories
31.12.2018
31.12.20171)
176.8
140.8
391.9
8.3
717.8
183.7
122.1
331.5
17.2
654.5
1 Adjusted to reflect the effects of the final purchase price allocation of Magnesita.
Inventories include €2.3 million (31.12.2017: €9.0 million) carried at net realisable value. Net impairment losses amount to €2.6 million
(2017: €4.0 million).
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:
in € million
Trade receivables
Receivables from long-term construction contracts
Contract assets
Other taxes receivable
Receivables from joint ventures and associates
Prepaid expenses
Receivables from disposal of investments
Receivables from property transactions
Emission rights
Receivables from employees
Receivables from non-consolidated subsidiaries
Prepaid transaction costs related to financial liabilities
Receivables from personnel welfare foundation
Other current receivables
Trade and other current receivables
thereof financial assets
thereof non-financial assets
31.12.2018
31.12.20171)
349.9
0.0
1.9
87.6
11.3
3.0
2.6
2.2
1.7
1.7
0.3
0.0
0.0
19.0
481.2
367.2
114.0
394.9
11.7
0.0
77.0
12.0
3.7
0.0
2.5
1.6
1.3
0.3
2.5
0.8
14.3
522.6
412.5
110.1
1 Adjusted to reflect the effects of the final purchase price allocation of Magnesita.
Other taxes receivable include VAT credits and receivables from energy tax refunds, research, education and apprentice subsidies.
Trade receivables with a total nominal value of €34.0 million were assigned as security against financial liabilities as of
31 December 2018 (31.12.2017: €34.0 million).
20. Income tax receivables
Income tax receivables amounting to €18.4 million (31.12.2017: €13.5 million) are mainly related to tax prepayments and deductible with-
holding taxes.
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A N N U A L R E P O R T 2 0 1 8
A N N U A L R E P O R T 2 0 1 8
21. Other current financial assets
This item of the Consolidated Statement of Financial Position consists of the following components:
in € million
Marketable securities
Derivatives in open orders
Forward exchange contracts
Other current financial receivables
Other current financial assets
31.12.2018
31.12.2017
36.3
1.0
1.1
0.2
38.6
32.3
0.8
0.9
0.1
34.1
Accumulated impairments on other current financial receivables amounted to €1.1 million (31.12.2017: €1.1 million).
22. Cash and cash equivalents
This item of the Consolidated Statement of Financial Position consists of the following components:
in € million
Cash at banks
Money market funds
Cheques
Cash on hand
Cash and cash equivalents
31.12.2018
31.12.2017
426.7
61.9
2.5
0.1
491.2
373.2
67.5
1.4
0.3
442.4
Cash and cash equivalents include restricted cash totalling €42.5 million at 31 December 2018 (31.12.2017: €80.8 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. €23.8 million (31.12.2017: €75.8 million) are accounted for by sub-
sidiaries with non-controlling interests.
23. Share capital
In exchange for the cancellation of the RHI AG shares as a result of the merger in the year 2017, 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 consisted of 44,819,039 ordinary shares at €1 each share.
In the course of the first close of the Integrated Tender Offer (ITO) in 2018 and the acquisition of additional 35.2% of shares in Magnesita,
RHI Magnesita N.V. issued 3,518,008 new ordinary shares. Hence, share capital consists of 48,337,047 ordinary shares at €1 each share as
of 31 December 2018.
The authorised share capital of RHI Magnesita N.V. amounts to €100,000,000 divided into 100,000,000 ordinary shares, of which
48,337,047 ordinary shares are issued and outstanding as explained before.
All outstanding RHI Magnesita shares grant the same rights. The shareholders are entitled to dividends and have one voting right per
share at the Annual General Meeting. There are no RHI Magnesita shares with special control rights.
24. Group reserves
Additional paid-in capital
At 31 December 2018 as well as at 31 December 2017, additional paid-in capital comprised premiums on the issue of shares less issue
costs by RHI Magnesita N.V.
Mandatory reserve
The articles of association stipulate a mandatory reserve of €288,699,230.59 which was created in connection with the merger. No dis-
tributions, allocations or additions may be made and no losses of the company may be allocated to the mandatory reserve.
141
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R H I M A G N E S I TA
R H I M A G N E S I T A
Notes
continued
Retained earnings
Retained earnings includes the result of the financial year and results that were earned by consolidated companies during prior periods,
but not distributed.
Accumulated other comprehensive income
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.
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 2017, the Group reassessed its internal financing structure and as a result
reclassified accumulated losses of €38.9 million to the Statement of Profit or Loss. 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 in-
come of €6.2 million.
25. Non-controlling interests
Non-controlling interests in Magnesita
Non-controlling interests held a share of 50% minus one share in the company Magnesita Refratários S.A. and its subsidiaries (“Magnesi-
ta”) until 20 December 2018. After completion of the Integrated Tender Offer, the non-controlling interests were reduced to 14.8%. Total
comprehensive income of the year 2018 attributable to non-controlling interests of Magnesita reflects this development in ownership
structure. Detailed information of this transaction and the consequences of the change of the ownership interest in Magnesita that do not
result in a change of control are provided under Note (5). 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:
in € million
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Net assets before intragroup eliminations
Intragroup eliminations
Net assets
Percentage of non-controlling interests
Carrying amount of non-controlling interests
1 Adjusted to reflect the effects of the final purchase price allocation of Magnesita.
31.12.2018
969.7
561.0
(400.6)
(676.0)
454.1
(3.9)
450.2
14.8%
66.7
31.12.20171)
1,008.1
647.7
(734.4)
(498.4)
423.0
(0.1)
422.9
50.0%
211.5
142
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R H I M A G N E S I T A
A N N U A L R E P O R T 2 0 1 8
A N N U A L R E P O R T 2 0 1 8
The aggregate Statement of Profit or Loss and Statement of Comprehensive Income are shown below:
in € million
Revenue
Operating expenses, net finance costs and income tax
Profit after income tax before intragroup eliminations
Intragroup eliminations
Profit after income tax
thereof attributable to non-controlling interests of Magnesita
1 Adjusted to reflect the effects of the final purchase price allocation of Magnesita.
in € million
Profit after income tax
Other comprehensive income
Total comprehensive income
thereof attributable to non-controlling interests of Magnesita
1 Adjusted to reflect the effects of the final purchase price allocation of Magnesita.
The following table shows the summarised Statement of Cash Flows:
in € million
Net cash flow from operating activities
Net cash flow from investing activities
Net cash flow from financing activities
Total cash flow
2018
11-12/20171)
1,067.5
(1,011.4)
56.1
(3.4)
52.7
26.3
2018
52.7
(24.4)
28.3
14.2
172.2
(163.8)
8.4
0.0
8.4
4.2
11-12/20171)
8.4
(13.3)
(4.9)
(2.5)
2018
164.9
(10.2)
(258.5)
(103.8)
11-12/2017
46.5
18.7
(2.8)
62.4
Non-controlling interests in Orient Refractories Ltd.
Non-controlling interests hold a share of 33.5% (31.12.2017: 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. In August 2018, the Group sold 3.1% of the shares in ORL. The
carrying amount of ORL’s net assets in the Group’s Consolidated Financial Statements on the date of the sale was €53.9 million. Conse-
quently, the carrying amount of non-controlling interests sold amounts to €1.7 million. The cash part of the consideration received is
€9.1 million. This transaction results in an increase in equity attributable to shareholders of RHI Magnesita N.V. in the amount of
€7.4 million.
Based on the net assets of the company, the carrying amount of the non-controlling interests is determined as follows:
in € million
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Net assets before intragroup eliminations
Intragroup eliminations
Net assets
Percentage of non-controlling interests
Carrying amount of non-controlling interests
31.12.2018
31.12.2017
24.3
56.0
(6.3)
(19.6)
54.4
(0.4)
54.0
33.5%
18.1
25.6
48.8
(6.8)
(16.6)
51.0
(0.2)
50.8
30.4%
15.4
143
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R H I M A G N E S I TA
R H I M A G N E S I T A
Notes
continued
The aggregate Statement of Profit or Loss and Statement of Comprehensive Income are shown below:
in € million
Revenue
Operating expenses, net finance costs and income tax
Profit after income tax before intragroup eliminations
Intragroup eliminations
Profit after income tax
thereof attributable to non-controlling interests of ORL
in € million
Profit after income tax
Other comprehensive income
Total comprehensive income
thereof attributable to non-controlling interests of ORL
The following table shows the summarised Statement of Cash Flows of ORL:
in € million
Net cash flow from operating activities
Net cash flow from investing activities
Net cash flow from financing activities
Total cash flow
2018
91.0
(81.6)
9.4
(0.2)
9.2
2.7
2018
9.2
(2.3)
6.9
2.2
2018
9.5
(1.8)
(3.6)
4.1
2017
77.9
(70.1)
7.8
0.1
7.9
2.4
2017
7.9
(3.6)
4.3
1.3
2017
6.4
(1.0)
(3.8)
1.6
Net cash flow from financing activities includes dividend payments to non-controlling interests amounting to €1.2 million (2017:
€1.1 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:
in € million
Accumulated other comprehensive income 01.01.2018
Unrealised results from currency translation
Unrealised results from fair value change
Remeasurement of defined benefit plans
Transactions with non-controlling interests without change of control
Accumulated other comprehensive income 31.12.2018
Cash flow hedges
Defined benefit
plans
Currency
translation
0.1
-
0.2
-
(0.1)
0.2
(0.1)
-
-
(1.9)
(0.1)
(2.1)
(7.6)
(11.0)
-
-
10.7
(7.9)
144
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A N N U A L R E P O R T 2 0 1 8
26. Borrowings
Borrowings include all interest-bearing liabilities due to financial institutions and other lenders.
Borrowings have the following contractual remaining terms:
in € million
Syndicated Term Loan
Bonded loans ("Schuldscheindarlehen")
Export credits and investment financing
Other credit lines and other loans
Accrued interest
Total liabilities to financial institutions
Other financial liabilities
Capitalised transaction costs
Borrowings
in € million
Export credits and investment financing
Syndicated Financing
Bonded loans ("Schuldscheindarlehen")
Other credit lines and other loans
Accrued interest
Total liabilities to financial institutions
Perpetual bond
Senior notes
Other financial liabilities
Capitalised transaction costs
Borrowings
Total
Remaining term
31.12.2018
up to 1 year
2 to 5 years
over 5 years
0.0
0.0
34.4
278.9
6.9
320.2
2.3
(0.9)
321.6
479.9
216.0
171.9
278.9
6.9
1,153.6
16.6
(3.8)
1,166.4
Total
479.9
152.0
137.5
0.0
0.0
769.4
13.7
(2.9)
780.2
0.0
64.0
0.0
0.0
0.0
64.0
0.6
0.0
64.6
Remaining term
31.12.2017
up to 1 year
2 to 5 years
over 5 years
346.4
266.2
230.5
102.1
7.8
953.0
215.3
55.6
4.8
(3.1)
1,225.6
65.6
0.0
0.0
102.1
7.8
175.5
64.3
1.1
1.6
(0.7)
241.8
280.0
266.2
162.0
0.0
0.0
708.2
0.0
54.5
3.1
(2.4)
0.8
0.0
68.5
0.0
0.0
69.3
151.0
0.0
0.1
0.0
763.4
220.4
RHI Magnesita Group optimised its financial structure in 2018. In the first quarter, the Group refinanced the syndicated financial agree-
ment, which was concluded in July 2017, with a new €305.6 million five year term loan of the Austrian export credit agency (OeKB). The
refinancing extends the final maturity of the term loan by one year, from June 2022 to June 2023. This new syndicated term loan replac-
es the existing €477.2 million syndicated financial agreement for which only €266.2 million had been drawn down. Cash inflows from
the new term loan in the amount of €305.6 million are shown in the Consolidated Statement of Cash Flows in proceeds from non-
current borrowings and loans, whereas cash outflows from the redemption of the syndicated loan in the amount of €266.2 million are
included in repayments of non-current borrowings and loans. In addition, on 3 August 2018 the Group raised a new unsecured five year
term loan amounting to US$200 million and a revolving credit facility in the amount of US$400 million with a syndicate of 10 interna-
tional banks. The proceeds of the borrowings have been used to redeem the entire amount of the outstanding Magnesita Perpetual Bonds
and Senior notes and other export credits and investment financing, which will generate significant interest expense savings as well as
ensure higher liquidity.
€34.0 million (31.12.2017: €34.0 million) of the liabilities to financial institutions are secured by receivables. As at 31.12.2017 €2.6 million
were secured by cash and cash equivalents.
Net debt/adjusted EBITDA is the most important financial covenant of the loan agreements. Calculation of net debt/adjusted EBITDA is
shown under Note (55). Compliance with the covenants is measured predominantly on an annual or semi-annual basis. Covenant ratio is
limited at 3.5. Breach of covenant will lead to repay the debts prior to maturity. During 2018 and 2017, the Group met all covenant re-
quirements.
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Notes
continued
For liabilities of €1,052.6 million (31.12.2017: €1,109.9 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, 55% (31.12.2017: 34%) of the liabilities to financial institutions carry fixed interest and 45%
(31.12.2017: 66%) carry variable interest.
The following table shows fixed interest terms and conditions, taking into account interest rate swaps, without liabilities from deferred
interest:
Interest
terms
fixed until
Effective annual interest rate
2019
EURIBOR + margin
LIBOR + margin
Interbank Deposit Certificate
(CDI) + margin
Variable interest rate + margin
3.77%
Various - variable rate
2020
1.28%
2.30%
2022
1.74%
2023
2024
4.60%
1.56%
1.12%
3.94%
3.10%
Cur-
rency
EUR
USD
BRL
EUR
EUR
Var.
USD
EUR
EUR
EUR
EUR
EUR
USD
EUR
31.12.2018
Carrying amount
in € million
Interest
terms
fixed until
Effective annual interest rate
132.0 2018
EURIBOR + margin
221.7
113.9
34.0
3.0
16.5
2019
32.8 2020
12.4
62.0 2022
3.0
196.2
109.4
174.8
35.0 2024
1,146.7
LIBOR + margin
Interbank Deposit Certificate
(CDI) + margin
Variable interest rate + margin
4.11%
4.15%
Various - variable rate
Various - fixed rate
0.68%
0.72%
3.77%
1.59%
4.19%
4.98%
7.50%
1.74%
4.60%
3.10%
3.20%
4.00%
Cur-
rency
EUR
USD
BRL
EUR
USD
USD
Var.
Var.
EUR
EUR
EUR
EUR
USD
USD
BRL
EUR
EUR
EUR
EUR
EUR
31.12.2017
Carrying amount
in € million
369.6
54.4
145.5
34.0
18.3
13.4
16.0
10.5
10.0
7.1
3.0
4.0
70.7
62.4
8.2
63.0
3.0
37.0
5.5
9.6
945.2
In some cases, the terms to maturity of the contracts are substantially longer than the period during which interest terms are fixed.
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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:
31.12.2018
31.12.2017
in € million
Current
Non-current
Total
Current
Non-current
Derivatives from supply
contracts
Interest rate swaps
Derivatives in open orders
Derivative financial
liabilities
Fixed-term or puttable non-
controlling interests
Other financial liabilities
0.9
0.0
0.0
0.9
14.1
15.0
20.0
7.3
0.0
27.3
22.2
49.5
20.9
7.3
0.0
28.2
36.3
64.5
6.8
0.0
0.5
7.3
10.1
17.4
33.4
0.2
0.0
33.6
21.9
55.5
Total
40.2
0.2
0.5
40.9
32.0
72.9
Additional explanations on derivative financial instruments are provided under Note (54).
28. Provisions for pensions
The net liability from pension obligations in the Consolidated Statement of Financial Position is as follows:
in € million
Present value of pension obligations
Fair value of plan assets
Funded status
Asset ceiling
Net liability from pension obligations
thereof assets from overfunded pension plans
thereof pensions
The present value of pension obligations by beneficiary groups is as follows:
in € million
Active beneficiaries
Vested terminated beneficiaries
Retirees
Present value of pension obligations
The calculation of pension obligations is based on the following actuarial assumptions:
in %
Interest rate
Future salary increase
Future pension increase
These are average values which were weighted with the present value of the respective pension obligation.
31.12.2018
31.12.2017
506.6
(223.9)
282.7
19.5
302.2
2.1
304.3
517.1
(228.6)
288.5
18.3
306.8
1.9
308.7
31.12.2018
31.12.2017
101.4
68.7
336.5
506.6
107.9
71.9
337.3
517.1
31.12.2018
31.12.2017
3.3%
2.7%
2.2%
3.1%
2.8%
2.1%
147
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Notes
continued
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
and GBP 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.
The calculation in Austria was based on the AVÖ 2018-P (31.12.2017: AVÖ 2008-P) demographic calculation principles for salaried em-
ployees from the Actuarial Association of Austria. In Germany, the Heubeck 2018 G (31.12.2017: 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 €125.8 million (31.12.2017: €122.6 million) of the present value of pension obligations and for
€26.4 million (31.12.2017: €26.1 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 remu-
neration 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 com-
mitments. 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 com-
mitments 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 €155.1 million (31.12.2017: €158.6 million) of the present value of pension
obligations and for €0.7 million (31.12.2017: €0.7 million) of plan assets. The benefits included in company agreements comprise pen-
sions, invalidity benefits and benefits for surviving dependents. The amount of the pension depends on the length of service for the ma-
jority of the commitments and is calculated as a percentage of the average monthly wage/salary of the last 12 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 commit-
ments 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 €74.2 million (31.12.2017:
€73.7 million) of the present value of pension obligations and for €61.8 million (31.12.2017: €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 oppor-
tunity 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 predom-
inantly paid in the form of annuities and are adjusted annually based on the US consumer price index. The company's contributions for
the year ended 31 December 2018 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 €53.0 million
(31.12.2017: €60.7 million) of the present value of pension obligations and holds €69.6 million (31.12.2017: €76.5 million) of assets, alt-
hough only €53.0 million (31.12.2017: €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 adminis-
tered 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 rele-
vant beneficiaries and are responsible for the investment policy with regard to the assets plus the day to day administration of the bene-
fits. 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 follow-
ing 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. account for €62.6 million (31.12.2017: €62.3 million) of
the present value of pension obligations and for €34.6 million (31.12.2017: €36.3 million) of the plan assets. The pension plan qualifies as
an 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
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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:
in € million
Net liability from pension obligations at beginning of year
Currency translation
Acquisition of subsidiaries
Pension cost
Remeasurement losses
Benefits paid
Employers' contributions to external funds
Reclassifications
Net liability from pension obligations at year-end
The present value of pension obligations developed as follows:
in € million
Present value of pension obligations at beginning of year
Currency translation
Acquisition of subsidiaries
Current service cost
Past service cost
Interest cost
Remeasurement losses/(gains)
from changes in demographic assumptions
from changes in financial assumptions
due to experience adjustments
Benefits paid
Employee contributions to external funds
Reclassifications
Present value of pension obligations at year-end
The movement in plan assets is shown in the table below:
in € million
Fair value of plan assets at beginning of year
Currency translation
Acquisition of subsidiaries
Interest income
Administrative costs (paid from plan assets)
Income on plan assets less interest income
Benefits paid
Employers' contributions to external funds
Employee contributions to external funds
Fair value of plan assets at year-end
2018
306.8
(1.9)
0.0
11.6
12.2
(17.3)
(9.0)
(0.2)
2017
234.7
(2.3)
81.0
8.5
6.0
(17.8)
(3.3)
0.0
302.2
306.8
2018
517.1
(3.0)
0.0
3.9
(0.5)
15.2
7.8
(5.8)
2.7
(31.1)
0.5
(0.2)
506.6
2018
228.6
(1.2)
0.0
7.7
(0.3)
(6.6)
(13.8)
9.0
0.5
2017
289.2
(7.9)
240.3
3.3
0.0
7.2
(0.6)
6.1
2.2
(23.1)
0.4
0.0
517.1
2017
56.4
(5.9)
174.6
2.3
(0.2)
3.0
(5.3)
3.3
0.4
223.9
228.6
149
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R H I M A G N E S I T A
Notes
continued
The changes in the asset ceiling are shown below:
in € million
Asset ceiling at beginning of year
Currency translation
Acquisition of subsidiaries
Interest expense
Losses from changes in asset ceiling less interest expense
Asset ceiling at year-end
2018
18.3
(0.1)
0.0
0.4
0.9
19.5
At 31 December 2018 the weighted average duration of pension obligations amounts to 12 years (31.12.2017: 12 years).
The following amounts were recorded in the Consolidated Statement of Profit or Loss:
in € million
Current service cost
Negative past service cost
Interest cost
Interest income
Interest expense from asset ceiling
Administrative costs (paid from plan assets)
Pension expense recognised in profit or loss
The remeasurement results recognised in other comprehensive income are shown in the table below:
in € million
Accumulated remeasurement losses at beginning of year
Remeasurement losses on present value of pension obligations
Expenses/(Income) on plan assets less interest income
Losses from changes in asset ceiling less interest
Accumulated remeasurement losses at year-end
2018
3.9
(0.5)
15.2
(7.7)
0.4
0.3
11.6
2018
119.3
4.6
6.6
0.9
131.4
2017
1.9
(0.3)
15.3
0.1
1.3
18.3
2017
3.3
0.0
7.2
(2.3)
0.1
0.2
8.5
2017
113.3
7.7
(3.0)
1.3
119.3
The present value of plan assets is distributed to the following classes of investments:
in € million
Insurances
Equity instruments
Debt instruments
Cash and cash equivalents
Other assets
Fair value of plan assets
Active market
No active market
0.0
4.7
14.3
32.3
57.9
109.2
39.1
18.5
49.2
4.1
3.8
114.7
31.12.2018
Total
39.1
23.2
63.5
36.4
61.7
223.9
Active market
No active market
0.0
4.8
17.2
35.0
60.8
117.8
38.4
23.1
45.2
0.4
3.7
110.8
31.12.2017
Total
38.4
27.9
62.4
35.4
64.5
228.6
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The present value of the insurances to cover the Austrian pension plans corresponds to the coverage capital. Insurance companies pre-
dominantly 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 inde-
pendent 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 other assets is invested in pension reinsurance, which creates a low counterparty risk towards insurance compa-
nies. 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 2019, RHI Magnesita expects employer contributions to external plan assets to amount to €4.8 million and direct payments to enti-
tled beneficiaries to €17.1 million. In the previous year, employer contributions of €4.8 million and direct pension payments of €17.9 mil-
lion had been expected for the financial year 2018.
29. Other personnel provisions
Other personnel provisions consist of the following items:
in € million
Termination benefits
Service anniversary bonuses
Legacy share-based payment programme
Semi-retirements
Lump-sum settlements
Other personnel provisions
31.12.2018
31.12.2017
55.5
19.4
1.6
1.9
0.1
78.5
58.1
19.4
2.9
1.4
0.7
82.5
Provisions for termination benefits
Provisions for termination benefits were based on the following weighted average measurement assumptions:
in %
Interest rate
Future salary increase
31.12.2018
31.12.2017
2.1%
3.9%
1.7%
3.8%
The interest rate for the measurement of termination benefit obligations in the Euro area was determined taking into account the compa-
ny specific duration of the portfolio.
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R H I M A G N E S I T A
Notes
continued
Provisions for termination benefits developed as follows in the financial year and the previous year:
in € million
Provisions for termination benefits at beginning of year
Currency translation
Current service cost
Interest cost
Remeasurement losses/(gains)
from changes in demographic assumptions
from changes in financial assumptions
due to experience adjustments
Benefits paid
Reclassification
Reclassification as held for sale
Provisions for termination benefits at year-end
2018
58.1
0.0
1.6
0.9
1.1
(2.3)
0.5
(4.4)
0.0
0.0
55.5
2017
58.5
(0.1)
1.5
1.0
0.0
5.1
0.4
(4.1)
(0.4)
(3.8)
58.1
Payments for termination benefits are expected to amount to €3.5 million in the year 2019. In the previous year, the payments for termi-
nation benefits expected for the year 2018 amounted to €3.0 million.
The following remeasurement gains and losses were recognised in other comprehensive income:
in € million
Accumulated remeasurement losses at beginning of year
Remeasurement (gains)/losses1)
Reclassification as held for sale
Accumulated remeasurement losses at year-end
2018
27.9
(0.7)
0.0
27.2
2017
23.6
5.6
(1.3)
27.9
1
Including €0.0 million (2017: €0.1 million) from a joint venture accounted for using the equity method.
At 31 December 2018 the weighted average duration of termination benefit obligations amounts to 11 years (31.12.2017: 11 years).
Provisions for service anniversary bonuses
The measurement of provisions for service anniversary bonuses is based on an average weighted interest rate of 1.7% (31.12.2017: 1.4%)
and takes into account salary increases of 3.7% (31.12.2017: 3.6%).
Provisions for semi-retirement
The funded status of provisions for obligations to employees with semi-retirement contracts is shown in the table below:
in € million
Present value of semi-retirement obligations
Fair value of plan assets
Provisions for semi-retirement obligations
31.12.2018
31.12.2017
5.1
(3.2)
1.9
5.0
(3.6)
1.4
External plan assets are ring-fenced from all creditors and exclusively serve to meet semi-retirement obligations.
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30. Other non-current provisions
The development of non-current provisions is shown in the table below:
in € million
1.1.20181)
Currency translation
Utilised
Reversals
Additions
Additions interest
Reclassifications
31.12.2018
Contract
obligations
Labour and civil
contingencies
Demolition/
disposal costs,
environmental
damages
91.1
(9.7)
0.0
0.0
1.7
9.8
(9.1)
83.8
9.4
(1.0)
(0.4)
0.0
0.3
0.0
0.0
8.3
10.8
(0.2)
0.0
0.0
1.9
0.0
0.0
12.5
Other
4.4
(0.1)
(0.1)
(0.1)
0.5
0.0
0.0
4.6
Total
115.7
(11.0)
(0.5)
(0.1)
4.4
9.8
(9.1)
109.2
1 Adjusted to reflect the effects of the final purchase price allocation of Magnesita.
In November 2017, RHI Magnesita sold a plant located in Oberhausen, Germany, in order to satisfy the conditions imposed by the Europe-
an 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 non-current portion of this contract obligation amounts to €80.0 million as of 31.12.2018 (31.12.2017:
€87.8 million). Furthermore, provisions for contract obligations amounting to €3.2 million (31.12.2017: €1.9 million) are due to contracts
for logistics services and the procurement of raw materials.
The provision for labour and civil contingencies primarily comprises of labour litigation provisions against RHI Magnesita in a total of
323 cases amounting to €7.1 million (31.12.2017: €8.3 million).
The provision for demolition and disposal costs and environmental damages primarily includes provisions for the estimated costs of min-
ing site restoration of several mines in Brazil amounting to €5.9 million (31.12.2017: €4.6 million) and various sites in the United States
amounting to €6.1 million (31.12.2017: €5.8 million).
The other provisions primarily include provisions related to tax litigation procedures in Peru regarding corporate income tax of fiscal year
2009 amounting to €2.7 million (31.12.2017: €2.6 million) and judicial action filed in Colombia related to corporate income tax of fiscal
year 2010 amounting to €1.9 million (31.12.2017: €1.5 million).
31. Other non-current liabilities
Other non-current liabilities consist of the following items:
in € million
Deferred income for subsidies received
Liabilities to employees
Contingent consideration for acquired subsidiaries
Miscellaneous non-current liabilities
Other non-current liabilities
thereof financial liabilities
thereof non-financial liabilities
31.12.2018
31.12.2017
6.2
2.5
0.6
1.0
10.3
0.6
9.7
4.7
2.8
0.6
0.9
9.0
0.6
8.4
153
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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
R H I M A G N E S I T A
Notes
continued
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:
in € million
Trade payables
Contract liabilities
Prepayments received on orders
Liabilities to employees
Taxes other than income tax
Payables from commissions
Payables from property transactions
Customers with credit balances
Liabilities to joint ventures and associates
Liabilities to non-consolidated subsidiaries
Other current liabilities
Trade payables and other current liabilities
thereof financial liabilities
thereof non-financial liabilities
31.12.2018
31.12.20171)
502.5
467.6
64.8
0.0
99.6
30.0
13.0
9.2
7.3
5.4
1.0
24.1
756.9
539.3
217.6
0.0
24.1
99.2
23.2
13.2
4.8
6.5
9.1
1.6
28.9
678.2
507.0
171.2
1 Adjusted to reflect the effects of the final purchase price allocation of Magnesita.
Contract liabilities mainly consist of prepayments received on orders. Prepayments received on orders as of 31 December 2017 were rec-
ognised as revenue in the current reporting period.
The item liabilities to employees primarily consists of obligations for wages and salaries, payroll taxes and employee-related duties, per-
formance bonuses, unused vacation and flexitime credits.
Other current liabilities include €1.6 million (31.12.2017: €3.7 million) investment reimbursement obligation to the former subsidiary
Dolomite Franchi S.p.A.,and other accrued expenses.
33. Income tax liabilities
Income tax liabilities amounting to €32.2 million (31.12.2017: €16.1 million) primarily include income taxes for the current year and previ-
ous 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.
34. Current provisions
The development of current provisions is shown in the table below:
in € million
1.1.20181)
Currency translation
Utilised
Reversals
Additions
Reclassifications
31.12.2018
Restructuring
costs
Demolition/
disposal costs,
environmental
damages Warranties
Contract
obligations
Guarantees
provided
37.6
(0.4)
(25.2)
(7.0)
4.1
1.0
10.1
9.3
0.0
(2.9)
(0.7)
1.7
0.0
7.4
4.4
(0.2)
(3.3)
(0.2)
2.0
0.0
2.7
26.2
(2.0)
(18.7)
(2.4)
9.7
8.3
21.1
2.9
0.0
0.0
0.0
0.1
0.0
3.0
Other
9.0
(0.4)
(3.2)
0.0
1.9
1.4
8.7
Total
89.4
(3.0)
(53.3)
(10.3)
19.5
10.7
53.0
1 Adjusted to reflect the effects of the final purchase price allocation of Magnesita and of the initial application of IFRS 15.
Provisions for restructuring costs amount to €10.1 million as of 31 December 2018 (31.12.2017: €37.6 million) and primarily consist of
benefit obligations to employees due to termination of employment resulting from corporate reorganisation of RHI Magnesita.
154
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A N N U A L R E P O R T 2 0 1 8
A N N U A L R E P O R T 2 0 1 8
The item demolition and disposal costs, environmental damages includes an amount of €2.5 million (31.12.2017: €2.7 million) which
refers to the former site in Aken, Germany. It is assumed that this provision will be used up within the next 12 months.
Provisions for warranties include provisions for claims arising from warranties and other similar obligations from the sale of refractory
products.
Provisions for contract obligations include the current portion of the Oberhausen contract obligation amounting to €11.5 million
(31.12.2017: €16.9 million). The amortisation of this provision led to an income of €10.0 million in 2018. Furthermore, provisions for other
unfavourable contracts amounting to €6.7 million (31.12.2017: €6.9 million) and provisions for unfavourable contracts related to contracts
for logistics services and the procurement of raw materials totalling €2.9 million (31.12.2017: €2.4 million) are included.
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.
The item other provisions includes provisions for real estate transfer tax amounting to €1.3 million (31.12.2017: €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 (31.12.2017: €1.4 million).
In addition, provisions for legal proceedings including attorney’s fees amounting to €3.2 million (31.12.2017: €3.1 million) are included in
the item other provisions. It is currently uncertain when precisely the cash outflow is due.
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 12 months.
155
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R H I M A G N E S I TA
R H I M A G N E S I T A
Notes
continued
NOTES TO THE CONSOLIDATED STATEMENT OF PROFIT OR LOSS
35. Revenue
Revenue is essentially generated by product deliveries and by performing management refractory services. The distribution of revenue by
product group, division and country is given in the explanations to segment reporting under Note (50).
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 in-
tangible 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 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 totalled €32.6 million (2017: €24.0 million), of which development costs amounting to €8.3 mil-
lion (2017: €4.6 million) were capitalised. Income from research grants amounted to €3.8 million (2017: €3.8 million) in 2018. Amortisa-
tion and impairment of development costs amounting to €3.8 million (2017: €4.3 million) are recognised under cost of sales.
39. Other income
The individual components of other income are:
in € million
Result from derivatives from supply contracts
Amortisation of Oberhausen provision
Income from restructuring
Income from the disposal of non-current assets
Miscellaneous income
Other income
2018
19.6
10.0
5.4
2.2
6.7
43.9
20171)
4.9
1.6
0.3
0.9
2.7
10.4
1 Adjusted to reflect the effects of the final purchase price allocation of Magnesita and the changes in presentation.
Income from restructuring amounting to €5.4 million results from the reversal of acquisition-related provisions for redundancy pro-
grammes.
156
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40. Other expenses
Other expenses include:
in € million
Restructuring costs
Expenses for strategic projects
Losses from the disposal of non-current assets
Impairment losses
Miscellaneous expenses
Other expenses
1 Adjusted to reflect the changes in presentation.
2018
(22.3)
(13.5)
(3.0)
0.0
(6.1)
(44.9)
20171)
(62.7)
(24.4)
(7.6)
(2.1)
(10.5)
(107.3)
Restructuring costs primarily relate to costs incurred in connection with the corporate reorganisation of RHI Magnesita, including costs for
termination of employment amounting to €5.4 million. Furthermore, dismantling and demolition costs amounting to €3.7 million and
expenses for unused logistics services in the Porsgrunn plant, Norway, amounting to €3.9 million (2017: €4.4 million) are included. In
2017, restructuring costs included expenses incurred in connection with the acquisition-related global restructuring programme totalling
€35.3 million and the disposal of the dolomite and fused cast business amounting to €23.0 million.
Expenses for strategic projects amounting to €13.5 million mainly include legal and consulting fees for the acquisition and integration of
Magnesita and the related corporate reorganisation of RHI Magnesita. For the acquisition of Magnesita, costs totalling €33.5 million were
incurred in 2017. They were primarily related to legal and other advisory fees and fees for the consulting investment banks. Of the total
costs, €24.4 million were recognised in profit or loss 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. €3.0 million were cash-effective and formed part of capital ex-
penses for the issue of shares in the Consolidated Statement of Cash Flows.
41. Interest income
This item includes interest on cash at banks and similar income amounting to €8.8 million (2017: €2.8 million), interest income on finan-
cial receivables amounting to €0.2 million (2017: €0.2 million) and interest income on securities and shares amounting to €0.7 million
(2017: €2.5 million), of which €0.4 million (2017: €2.0 million) is accounted for by impaired securities.
42. Foreign exchange effects and related derivatives
The net expense on foreign exchange effects and related derivatives consists of the following items:
in € million
Foreign exchange gains
Gains from related derivative finanical instruments
Foreign exchange losses
Losses from from related derivative finanical instruments
Net expense on foreign exchange effects and related derivatives
2018
98.6
4.5
(160.2)
(24.2)
(81.3)
2017
68.2
14.2
(126.3)
(6.9)
(50.8)
The net expense on foreign exchange effects and related derivatives results mainly from the devaluation of the Euro, Argentine Peso and
Brazilian Real against the US Dollar, affecting both intercompany and third-party loans, accounts payable and accounts receivable.
157
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R H I M A G N E S I TA
R H I M A G N E S I T A
Notes
continued
43. Other net financial expenses
Other net financial expenses consist of the following items:
in € million
Interest income on plan assets
Interest expense on provisions for pensions
Interest expense on provisions for termination benefits
Interest expense on other personnel provisions
Net interest expense personnel provisions
Unwinding of discount of provisions and payables
Interest expense on non-controlling interests
Impairment losses on securities
Expenses from the valuation of put options
Gains from the disposal of securities and shares
Other interest and similar expenses
Other net financial expenses
1 Adjusted to reflect the effects of the final purchase price allocation of Magnesita and the changes in presentation.
44. Income tax
Income tax consists of the following items:
in € million
Current tax expense
Deferred tax expense/(income) relating to
temporary differences
tax loss carryforwards
Income tax
2018
7.3
(15.2)
(0.9)
(0.3)
(9.1)
(15.6)
(5.3)
(1.4)
(1.0)
0.7
(10.9)
(42.6)
2018
75.9
(46.7)
29.7
(17.0)
58.9
20171)
2.2
(7.2)
(1.0)
(0.3)
(6.3)
(0.9)
(3.3)
(1.9)
(0.9)
0.0
(0.3)
(13.6)
2017
30.5
(34.0)
8.4
(25.6)
4.9
The current tax expense of the year 2018 includes tax expenses for previous periods of €7.1 million (2017: €2.8 million) and income from
income tax relating to other periods of €0.5 million (2017: €8.6 million). In 2018, €3.8 million are related to an ongoing tax audit respec-
tively tax loss forfeit in Germany. In 2017, €6.7 million were attributable to the reversal of a provision related to a tax audit in Germany.
In addition to the income taxes recognised in the Statement of Profit or Loss, tax income totalling €5.7 million (2017: €4.1 million), which
is attributable to other comprehensive income, was also recognised in other comprehensive income. In 2017, tax expense totalling €6.3
million was reclassified from other comprehensive income to the Statement of Profit or Loss.
158
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A N N U A L R E P O R T 2 0 1 8
A N N U A L R E P O R T 2 0 1 8
The reasons for the difference between the 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:
in € million
Profit before income tax
Income tax expense calculated at 25% (2017: 25%)
Different foreign tax rates
Expenses not deductible for tax purposes, non-creditable taxes
Non-taxable income and tax benefits
Tax losses and temporary differences of the financial year not recognised
Utilisation of previously unrecognised loss carryforwards and temporary differences
Recognition of previously unrecognised loss carryforwards and temporary differences
Change in valuation allowance on deferred tax assets
Deferred tax expense due to tax rate changes
Deferred income tax relating to prior periods
Current income tax relating to prior periods
Other
Recognised tax expense
Effective tax rate (in %)
2018
246.0
61.5
1.8
10.1
(32.3)
9.5
(0.2)
(0.7)
1.2
(1.8)
2.4
6.7
0.7
58.9
23.9%
20171)
(5.9)
(1.5)
(0.7)
20.4
(7.1)
11.9
(1.2)
(5.8)
3.7
(12.9)
3.3
(5.8)
0.6
4.9
(83.1)%
1 Adjusted to reflect the effects of the final purchase price allocation of Magnesita.
Deferred tax expense due to tax rates changes is primarily attributable to the reduction of the corporate income tax rate in Norway from
24% to 23% (2018: €(0.9) million) and an increase in corporate income tax rate in Turkey from 20% to 22% (2018: €0.4 million). In 2017,
deferred tax expense due to tax rates changes was primarily attributable to the reduction of the corporate income tax rate in the United
States from 35% to 21% (2017: €(7.5) million) and in Norway (2017: €(1.1) million). Non-taxable income and tax benefits include the
SUDENE tax regime amounting to 20.4 million. This tax regime is calculated on profits from activities covered by the incentive tax treat-
ment for priority projects for the development of the SUDENE region in Brazil.
45. Expense categories
The presentation of the Consolidated Statement of Profit or Loss is based on the function of expenses. The following tables show a classi-
fication by expense category for 2018 and the previous year:
in € million
Changes in inventories, own work capitalised
Cost of materials
Personnel costs
Depreciation and amortisation charges
Other income
Other expenses
Total
Cost of sales
Selling and
marketing expenses
General and
administrative
expenses
Other income/
expenses
(79.2)
1,550.8
409.6
133.5
(27.5)
357.3
2,344.5
0.0
0.6
72.8
7.9
(0.2)
47.8
128.9
(2.8)
2.4
106.2
12.0
(4.2)
94.8
208.4
0.0
0.0
5.6
0.0
(9.9)
5.3
1.0
Total 2018
(82.0)
1,553.8
594.2
153.4
(41.8)
505.2
2,682.8
159
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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
R H I M A G N E S I T A
Notes
continued
in € million
Changes in inventories, own work capitalised
Cost of materials
Personnel costs
Depreciation and amortisation charges1)
Other income
Other expenses
Total2)
Cost of sales
Selling and
marketing expenses
General and
administrative
expenses
Other income/
expenses
Total 20172)
(27.3)
919.2
259.2
75.8
(8.5)
325.0
1,543.4
0.2
4.0
72.4
0.4
0.0
24.2
101.2
(3.9)
5.3
100.2
6.0
(6.9)
42.4
143.1
1.5
(0.3)
22.8
17.2
(10.5)
66.2
96.9
(29.5)
928.2
454.6
99.4
(25.9)
457.8
1,884.6
Including impairment losses on property, plant and equipment and intangible assets.
1
2 Adjusted to reflect the effects of the final purchase price allocation of Magnesita and the changes in presentation.
Cost of materials includes expenses for raw materials and supplies, and purchased goods of €1,321.3 million (2017: €759.0 million) as
well as expenses for services received, especially energy, amounting to €232.5 million (2017: €169.2 million).
Amortisation charges of intangible assets are largely recognised in cost of sales.
Other expenses mainly include freight costs, commissions, travel costs as well as consulting and other outside services.
46. Personnel costs
Personnel costs consist of the following components:
in € million
Wages and salaries
Pensions
Defined benefit plans
Defined contribution plans
Termination benefits
Defined benefit plans
Defined contribution plans
Other expenses
Social security costs
Fringe benefits
2018
474.0
3.7
5.2
1.6
1.5
2.9
73.7
31.6
2017
360.1
3.4
3.4
1.5
2.0
1.5
68.7
14.0
Personnel expenses (without interest expenses)
594.2
454.6
Personnel costs do not include amounts resulting from the interest accrued on personnel provisions. They amount to €9.1 million (2017:
€6.3 million) and are recorded in other net financial expenses.
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A N N U A L R E P O R T 2 0 1 8
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 oper-
ating 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 trans-
lated 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 State-
ment 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
Other non-cash expenses and income include mainly the net interest expenses for defined benefit pension plans amounting to
€9.1 million (2017: €6.3 million), net remeasurement losses of monetary foreign currency positions and derivative financial instruments of
€14.5 million (2017: €51.2 million). In 2017, other non-cash funding of provisions for restructuring amounted to €13.6 million.
48. Net cash flow from financing activities
The reconciliation of movements of financial liabilities and assets to cash flows arising from financing activities is shown in the tables
below:
in € million
01.01.2018
Changes in foreign
exchange rates
Interest expense
and other changes
Reclassification
31.12.2018
Cash changes
Non-cash changes
Liabilities to financial
institutions
Perpetual bond
Senior notes
Liabilities to fixed-term or
puttable non-controlling
interests
Other financial liabilities and
capitalised transaction costs
Prepaid transaction costs
related to financial liabilities
Trade payables
Changes of financial
liabilities and assets arising
from financing activities
953.0
215.3
55.6
32.0
1.7
(2.5)
0.0
164.8
(215.0)
(54.6)
(1.8)
(0.5)
0.0
(4.5)
(12.0)
1.3
0.6
(0.4)
(0.3)
0.0
0.0
60.3
(1.6)
(1.6)
6.5
(0.6)
2.5
6.3
(12.5)
0.0
0.0
0.0
12.5
0.0
0.0
1,153.6
0.0
0.0
36.3
12.8
0.0
1.8
1,255.1
(111.6)
(10.8)
71.8
0.0
1,204.5
161
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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
R H I M A G N E S I T A
Notes
continued
in € million
01.01.2017
Cash changes
Non-cash changes
Changes in foreign
exchange rates
Additions to
consolidated
companies
Interest expense
and other changes
Liabilities to financial
institutions
Perpetual bond
Senior notes
Liabilities to fixed-term or
puttable non-controlling
interests
Other financial liabilities and
capitalised transaction costs
Prepaid transaction costs
related to financial liabilities
Changes of financial
liabilities and assets arising
from financing activities
475.5
0.0
0.0
32.5
7.7
0.0
60.1
0.0
0.0
(3.2)
(3.4)
(2.5)
(13.3)
(5.6)
(1.4)
(1.7)
(0.1)
0.0
407.9
217.9
56.3
0.0
0.1
0.0
22.8
3.0
0.7
4.4
(2.6)
0.0
31.12.2017
953.0
215.3
55.6
32.0
1.7
(2.5)
515.7
51.0
(22.1)
682.2
28.3
1,255.1
49. Total interest paid and interest received
Total interest paid amounts to €72.4 million in the reporting period (2017: €25.6 million), of which €0.3 million (2017: €0.1 million) is
included in cash flow from operating activities, €1.0 million (2017: €0.6 million) in cash flow from investing activities and €71.1 million
(2017: €24.9 million) in cash flow from financing activities.
Total interest received amounts to €8.5 million for the financial year 2018 (2017: €5.1 million), of which €0.2 million (2017: €0.0 million)
are included in cash flow from operating activities and €8.3 million (2017: €5.1 million) in cash flow from investing activities.
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OTHER DISCLOSURES
50. Segment reporting
Segment reporting by operating company division
The following tables show the financial information for the operating segments for the year 2018 and the previous year:
in € million
Revenue
Gross profit
EBIT
Net finance costs
Share of profit of joint ventures and associates
Profit before income tax
Steel
Industrial
Group 2018
2,204.3
877.1
3,081.4
522.4
214.5
736.9
398.6
(162.7)
10.1
246.0
Depreciation and amortisation charges
(97.5)
(55.9)
(153.4)
Segment assets 31.12.2018
Investments in joint ventures and associates 31.12.2018
Reconciliation to total assets
1,666.3
948.0
2,614.3
21.8
902.9
3,539.0
Investments in property, plant and equipment and intangible assets (according to non-
current assets statement)
67.7
59.3
127.0
in € million
Segment revenue
Gross profit
EBIT
Net finance costs
Share of profit of joint ventures and associates
Profit before income tax
Steel
1,312.6
Industrial
637.5
Group 20171)
1,950.1
284.4
122.3
406.7
65.5
(82.4)
11.0
(5.9)
Depreciation and amortisation charges
(53.0)
(26.6)
(79.6)
Segment assets 31.12.2017
Investments in joint ventures and associates 31.12.2017
Reconciliation to total assets
1,941.9
742.2
2,684.1
21.4
807.3
3,512.8
Investments in property, plant and equipment and intangible assets (according to non-
current assets statement)
135.5
17.8
153.3
1 Adjusted to reflect the effects of the final purchase price allocation of Magnesita and the changes in presentation.
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R H I M A G N E S I TA
R H I M A G N E S I T A
Notes
continued
Revenue amounting to €317.5 million (2017: €195.5 million) was realised with one customer in 2018, which is included in the Steel seg-
ment. No other single customer contributed 10% or more to consolidated revenue in 2018 or 2017. Companies which are known to be
part of a group are treated as one customer.
When allocating revenue to product groups, a distinction is made between shaped products (e.g. hydraulically pressed bricks, fused cast
bricks, isostatically pressed products), unshaped products (e.g. repair mixes, construction mixes and castables), refractory management
services as well as other revenue. Other mainly includes revenue from the sale of non-group refractory products.
In the reporting year, revenue is classified by product group as follows:
in € million
Shaped products
Unshaped products
Management refractory services
Other
Revenue
In 2017, revenue was classified by product group as follows:
in € million
Shaped products
Unshaped products
Management refractory services
Other
Revenue
1 Adjusted to reflect the changes in presentation.
Steel
1,110.3
336.8
616.0
141.2
2,204.3
Steel
654.8
252.9
334.5
70.4
1,312.6
Industrial
Group 2018
580.5
196.2
0.0
100.4
877.1
1,690.8
533.0
616.0
241.6
3,081.4
Industrial
Group 20171)
436.0
123.6
0.0
77.9
637.5
1,090.8
376.5
334.5
148.3
1,950.1
Revenue from shaped and unshaped products is transferred to the customers at a point in time, whereas revenue from management
refractory services is transferred over time. Other revenue amounting to €100.9 million (2017: €67.9 million) is transferred over time and
an amount of €140.7 million (2017: €80.4 million) is transferred at a point of time.
Segment reporting by country
Revenue is classified by customer sites as follows:
in € million
Netherlands
All other countries
USA
Brazil
India
Germany
PR China
Mexico
Italy
Canada
Russia
Other countries, each below €62.9 million (2017: €44.8 million)
Revenue
1 Adjusted to reflect the changes in presentation.
164
1 6 6
2018
25.8
407.9
333.2
245.3
183.4
165.7
161.0
131.6
92.2
86.9
1,248.4
3,081.4
20171)
14.1
195.3
92.5
204.1
137.3
121.9
119.3
105.7
70.8
59.0
830.1
1,950.1
R H I M A G N E S I TA
R H I M A G N E S I T A
A N N U A L R E P O R T 2 0 1 8
A N N U A L R E P O R T 2 0 1 8
The carrying amounts of goodwill, other intangible assets and property, plant and equipment are classified as follows by the respective
sites of the group companies:
in € million
Brazil
USA
Austria
Germany
PR China
India
Mexico
France
Turkey
Other countries, each below €18.6 million (31.12.2017: €19.1 million)
Goodwill, intangible assets and property, plant and equipment
1 Adjusted to reflect the effects of the final purchase price allocation of Magnesita.
31.12.2018
31.12.20171)
520.7
233.1
220.6
198.6
160.1
58.0
34.5
31.8
30.6
58.6
595.6
236.4
214.0
210.0
158.7
58.8
33.4
37.1
31.8
59.1
1,546.6
1,634.9
51. 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 Magne-
sita N.V. by the weighted average number of shares outstanding during the financial year.
Profit after income tax attributable to the owners of the parent (in € million)
Weighted average number of shares
Earnings per share (in €)
1 Adjusted to reflect the effects of the final purchase price allocation of Magnesita.
2018
158.1
20171)
(17.4)
44,963,615
40,682,053
3.52
(0.43)
52. Dividend payments and proposed dividend
Based on a resolution adopted by the Annual General Meeting of RHI Magnesita N.V. on 7 June 2018, dividends totalling €33.6 million
were paid out to the shareholders in 2018 for 2017, which corresponded to a dividend of €0.75 per share.
For 2018, the Board of Directors will propose a dividend of €1.50 per share for the shareholders of RHI Magnesita N.V. The proposed divi-
dend is subject to the approval by the Annual General Meeting on 6 June 2019 and was not recognised as a liability in the Consolidated
Financial Statements 2018.
Dividend payments to the shareholders of RHI Magnesita N.V. have no income tax consequences for RHI Magnesita N.V.
165
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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
R H I M A G N E S I T A
Notes
continued
53. 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
Other non-current financial assets
Interests in subsidiaries not consolidated
Investments
Marketable securities
Shares
Shares
Interest derivatives designated as cash flow hedges
Non-current receivables from disposal of subsidiaries
Other non-current financial receivables
Trade and other current receivables2)
Other current financial assets
Marketable securities
Shares
Derivatives
Other current financial receivables
Cash and cash equivalents
Financial assets
Non-current and current borrowings
Liabilities to financial institutions
Perpetual bonds
Senior notes
Other financial liabilities and capitalised transaction costs
Non-current and current other financial liabilities
Derivatives
Interest derivatives designated as cash flow hedges
Liabilities to fixed-term or puttable non-controlling interests
Other non-current liabilities
Contingent consideration for acquired subsidiaries
Trade payables and other current liabilities3)
Financial liabilities
Aggregated according to measurement category
Financial assets measured at FVPL
Financial assets measured at amortised cost
Financial liabilities measured at amortised cost
Financial liabilities measured at FVPL
Measurement
category
IFRS 91)
Level
Carrying
amount
Fair value
Carrying
amount
Fair value
31.12.2018
01.01.2018
FVPL
FVPL
FVPL
FVPL
FVPL
-
AC
AC
AC
FVPL
FVPL
FVPL
AC
AC
AC
AC
AC
AC
FVPL
-
AC
FVPL
AC
0.8
0.4
14.9
1.9
0.5
1.5
-
-
-
32.3
0.0
1.7
-
-
966.1
217.0
55.6
1.7
40.9
0.0
32.0
0.6
-
3
3
1
1
3
2
-
-
-
1
1
2
-
-
2
1
2
2
2
2
2
3
-
0.7
0.0
14.5
0.0
0.5
0.6
0.0
1.7
367.2
35.2
1.1
2.1
0.2
491.2
915.0
0.7
0.0
14.5
0.0
0.5
0.6
-
-
-
35.2
1.1
2.1
-
-
0.8
0.4
14.9
1.9
0.5
1.5
2.6
2.5
426.6
32.3
0.0
1.7
0.1
442.4
928.2
1,153.6
1,165.6
953.0
0.0
0.0
12.8
20.9
7.3
36.3
0.6
539.3
1,770.8
54.1
860.3
1,742.0
21.5
0.0
0.0
12.8
20.9
7.3
36.3
0.6
-
215.3
55.6
1.7
40.9
0.0
32.0
0.6
507.0
1,806.1
52.5
874.2
1,764.6
41.5
1 FVPL: Financial assets/financial liabilities measured at fair value through profit or loss.
AC: Financial assets/financial liabilities measured at amortised cost.
2 Thereof non-financial receivables per 01.01.2018: €98.4 million.
3 Thereof non-financial liabilities per 01.01.2018: €175.5 million.
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R H I M A G N E S I T A
A N N U A L R E P O R T 2 0 1 8
A N N U A L R E P O R T 2 0 1 8
In the RHI Magnesita Group marketable securities, derivative financial instruments, shares, investments and interests in subsidiaries not
consolidated 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.
RHI Magnesita takes into account the availability of observable market prices in an active market and uses the following hierarchy to
determine fair value:
Level 1:
Level 2:
Level 3:
Prices quoted in active markets for identical financial instruments.
Measurement techniques in which all important data used are based on observable market data.
Measurement techniques in which at least one significant parameter is based on non-observable market data.
The fair value of securities, shares, investments and interests in subsidiaries not consolidated is based on price quotations at the reporting
date (Level 1), where such quotations exist. In other cases a valuation model (Level 3) would be used for such instruments with the excep-
tion that such instruments are immaterial to the group, in which case amortised cost serves as an approximation of fair value.
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).
The fair value of other derivative contracts corresponds to the market value of the forward exchange contracts and the embedded deriva-
tives 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 2015. These derivatives are measured using quoted for-
ward rates that are currently observable (Level 2).
The fair value of the contingent consideration liability amounting to €0.6 million recognised in 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. Apart from the initial application of IFRS 9, 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).
The financial receivables approximately correspond to the fair value as due to the amount of the existing receivables no material devia-
tion between the fair value and the carrying amount is assumed and the credit default risk is accounted for by forming valuation allow-
ances.
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.
167
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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
R H I M A G N E S I T A
Notes
continued
Net results by measurement category in accordance with IFRS 9/IAS 39
The effect of financial instruments on the income and expenses recognised in 2018 and 2017 is shown in the following table, classified
according to the measurement categories defined in IFRS 9/IAS 39:
in € million
Net gain from financial assets and liabilities measured at fair value through profit or loss
Net (loss)/gain from financial assets and liabilities measured at fair value through profit or loss designated on
initial recognition
Net loss from financial assets and liabilities measured at amortised cost
Net gain on available-for-sale financial assets recognised in profit or loss
Net loss from loans and receivables as well as financial liabilities at amortised cost
Net gain on financial assets and financial liabilities classified as held for trading
2018
1.4
(1.2)
(123.5)
0.0
0.0
0.0
2017
0.0
0.1
0.0
0.5
(87.7)
12.2
The net gain on available-for-sale financial assets recognised in the Consolidated Statement of Profit or Loss includes income from secu-
rities and shares, income from the disposal of securities and shares, as well as impairment losses and income from reversals of impairment
losses. According to IFRS 9 these financial instruments are now included in the fair value through profit or loss category, hence the corre-
sponding gains or losses are included in the gains or losses from financial assets measured at fair value through profit or loss.
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 op-
tions. According to IFRS 9 these financial instruments are now included in the amortised cost category, hence the corresponding gains or
losses are included in the gains or losses from financial assets and liabilities measured at amortised cost.
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. According to IFRS 9 these financial
instruments are now included in the fair value through profit or loss category, hence the corresponding gains/losses are included in the
gains/losses from financial assets and financial liabilities measured at fair value through profit or loss.
The net gain from financial assets and liabilities at fair value through profit or loss designated on initial recognition includes income relat-
ed to the measurement of securities and personnel obligations.
Net finance costs include interest income amounting to €9.5 million (2017: €5.0 million) and interest expenses of €69.5 million (2017:
€26.5 million), which result from financial assets and liabilities which are not carried at fair value through profit or loss.
54. Derivative financial instruments
Commodity forward
The RHI Magnesita Group concluded a commodity forward 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 IFRS 9 since 31 December 2015 because the “own-use
exemption” (exemption for own use in accordance with IFRS 9.2.6) 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
€20.9 million at 31 December 2018 (31.12.2017: €40.1 million). The corresponding present value of the cash flows for the agreed electric-
ity supply totals €71.3 million at 31 December 2018 (31.12.2017: €83.4 million); the present value of the cash flow at market price amounts
to €50.4 million (31.12.2017: €43.3 million).
Interest rate swaps
RHI Magnesita has concluded interest rate swaps to hedge the cash flow risk associated to financial liabilities carrying variable interest
rates. Variable interest cash flows of financial liabilities 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 hedg-
ing the cash flow from the financial liabilities. Ineffectiveness in the hedge relationship may arise due to credit risk, although this risk is
assessed to be very low.
168
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R H I M A G N E S I T A
A N N U A L R E P O R T 2 0 1 8
A N N U A L R E P O R T 2 0 1 8
In the year 2018, RHI Magnesita concluded an interest rate swap with a nominal volume of €305.6 million maturing in 2023. The interest
and compensation payments are due on a quarterly basis. Fixed interest rate amounts to roughly 0.28%, the variable interest rate is based
on the EURIBOR. Furthermore, one other interest rate swap has been concluded in 2018, with a nominal volume of US$200.0 million and
a term until 2023. The interest and compensation payments are also due on a quarterly basis. Fixed interest rate amounts to roughly 3.1%,
the variable interest rate is based on the USD LIBOR.
A hedging relationship with a nominal volume of US$50.0 million (31.12.2017: US$160.0 million) ends in the second half of 2020. The
interest and compensation payments for this hedging relationship are due semi-annually. Fixed interest rates amount to roughly 1.3%; the
variable interest rates are based on the LIBOR.
Two interest rate swaps measured at fair value through profit or loss with an original maturity until 2019 and with a nominal volume of
€12.2 million (31.12.2017: €17.2 million) were early settled in the current reporting period. Total expense in 2018 of this transaction
amounts of €0.3 million and is recognised within other net financial expenses.
In 2017, a hedging relationship with a nominal value of €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 within other net financial expenses.
The fair values of the interest rate swaps totalled €(6.7) million at the reporting date (31.12.2017: €1.3 million), which is shown within other
non-current financial assets in the amount of €0.6 million(31.12.2017: €1.5 million) and within other non-current financial liabilities in the
amount of €7.3 million (31.12.2017: €0.2 million) in the Consolidated Statement of Financial Position. For the year ended, €6.8 million
(2017: €0.2 million) have been recognised within other comprehensive income. In 2017, an expense amounting to €0.5 million has been
reclassified from other comprehensive income to profit or loss and recognised within other net financial expenses. No ineffectiveness has
been recognised in profit and loss.
Forward exchange contracts
As of 31 December 2017, there were no material open forward exchange contracts. The nominal value and fair value of forward exchange
contracts as of 31 December 2018 are shown in the table below:
Purchase
EUR
USD
Forward exchange contracts
Sale
USD
INR
31.12.2018
Nominal value
in million
Fair value in €
million
USD
EUR
182.0
890.0
1.1
0.0
1.1
55. 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 €915.0 million (31.12.2017: €914.1 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 as business transactions are generally
only carried out with financial institutions with a good credit rating.
To counteract the default risk related to these transactions, receivables from customers are hedged as far as possible through credit insur-
ance and collateral arranged through banks (guarantees, letters of credit), Credit and default risks are monitored continuously, and provi-
sions are formed for risks that have occurred and are identifiable.
In the following, the credit risk from trade receivables is shown classified by customer industry, by foreign currency and by term.
169
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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
R H I M A G N E S I T A
Notes
continued
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:
in € million
Segment Steel
Segment Industrial
Trade receivables
Credit insurance and bank guarantees
Net credit exposure
31.12.2018
31.12.2017
250.3
99.6
349.9
(139.8)
210.1
294.3
100.6
394.9
(158.1)
236.8
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
US Dollar
Euro
Pound Sterling
Other currencies
Other functional currencies
Trade receivables
31.12.2018
31.12.2017
75.4
11.6
5.8
7.0
250.1
349.9
96.0
9.9
3.8
7.9
277.3
394.9
The movement in the valuation allowance in respect of trade and other receivables and contract assets during the year was as follows.
Comparative amounts for 2017 represent the allowance account for impairment losses under IAS 39.
in € million
Accumulated valuation allowance at beginning of year under IAS 39
Adjustment on initial application of IFRS 9
Accumulated valuation allowance at beginning of year under IFRS 9
Currency translation
Addition
Use
Reversal
Net remeasurement of loss allowance
Reclassification as held for sale
Accumulated valuation allowance at year-end
2018
2017
Individually
assessed -
credit impaired
Collectively
assessed -
not credit impaired
34.4
(5.7)
28.7
(1.1)
5.0
(3.0)
0.0
-
0.0
29.6
0.0
3.3
3.3
0.0
0.0
0.0
0.0
(2.1)
0.0
1.2
35.2
-
35.2
(1.1)
11.2
(3.2)
(5.6)
0.0
(2.1)
34.4
170
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R H I M A G N E S I T A
A N N U A L R E P O R T 2 0 1 8
A N N U A L R E P O R T 2 0 1 8
For trade receivables and contract assets, for which no objective evidence of impairment exists, lifetime expected credit losses have been
calculated using a provision matrix as shown below:
in € million
Trade receivables - days past due
31.12.2018
Not past due
less than 30 days
between 31 and
60 days
between 61 and
90 days
between 91 and
180 days
more than 180 days
Total
Expected credit
loss rate in %
Gross carrying
amount
Life time
expected credit
loss
0.05 -
0.45%
0.11 - 1.08%
0.50 - 7.04%
1.39 - 13.33%
2.27 - 17.63%
5.86 - 33.81%
294.0
34.0
0.4
0.1
7.6
0.1
3.2
0.1
2.8
0.2
4.0
345.6
0.3
1.2
in € million
Trade receivables - days past due
01.01.2018
Not past due
less than 30 days
between 31 and
60 days
between 61 and
90 days
between 91 and
180 days
more than 180 days
Total
Expected credit
loss rate in %
Gross carrying
amount
Life time
expected credit
loss
0.02 -
0.32%
0.03 - 0.73%
0.11 - 5.63%
0.19 - 10.59%
0.28 - 14.06%
0.71 - 76.86%
310.5
46.2
0.4
0.1
19.3
0.2
7.2
0.2
4.2
0.2
9.6
397.0
2.3
3.4
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 2018, the RHI Mag-
nesita Group has a credit facility of €319.3 million (31.12.2017: €317.2 million) at its disposal, which is unused and available immediately.
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
minimise 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
Liabilities to financial institutions
fixed interest
variable interest
Other financial liabilities and capitalised transaction costs
Liabilities to fixed-term or puttable non-controlling
interests
Contingent consideration for acquired subsidiaries
Trade payables and other current liabilities
Non-derivative financial liabilities
Carrying amount
31.12.2018
Cash
outflows
up to 1 year
2 to 5 years
over 5 years
Remaining term
116.1
1,037.5
12.8
36.3
0.6
539.3
1,742.6
127.3
1,100.9
15.2
211.8
0.6
539.3
1,995.1
2.7
338.6
2.2
14.2
0.0
539.3
897.0
88.5
732.9
12.3
18.4
0.6
0.0
852.7
36.1
29.4
0.7
179.2
0.0
0.0
245.4
171
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F I N A N C I A L S TAT E M E N T S
F I N A N C I A L S TAT E M E N T S
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
R H I M A G N E S I T A
R H I M A G N E S I T A
Notes
Notes
continued
continued
This credit risk, which is hedged by existing credit insurance, letters of credit and bank guarantees, is shown by customer segment in the
Remaining term
following table:
in € million
in € million
Liabilities to financial institutions
Segment Steel
fixed interest
Segment Industrial
variable interest
Trade receivables
Perpetual bond
Credit insurance and bank guarantees
Senior Notes
Net credit exposure
Other financial liabilities and capitalised transaction costs
Carrying amount
31.12.20171)
Cash
outflows
up to 1 year
2 to 5 years
31.12.2018
over 5 years
31.12.2017
176.7
776.3
215.3
55.5
1.7
202.7
858.1
309.5
66.0
1.8
60.6
146.5
79.1
5.2
0.9
250.3
96.8
99.6
683.7
349.9
52.9
(139.8)
60.8
210.1
0.8
294.3
45.3
100.6
27.9
394.9
177.5
(158.1)
0.0
236.8
0.1
Liabilities to fixed-term or puttable non-controlling
interests
32.0
The following table shows the carrying amounts of receivables denominated in currencies other than the functional currencies of the
0.6
Contingent consideration for acquired subsidiaries
group companies. The carrying amounts of the receivables in the functional currency of the respective Group company are included
Trade payables and other current liabilities
507.0
under other functional currencies:
Non-derivative financial liabilities
in € million
1 Adjusted to reflect the effects of the final purchase price allocation of Magnesita.
US Dollar
907.9
31.12.2018
2,106.7
1,765.1
809.4
507.0
507.0
161.0
75.4
12.3
10.1
0.0
0.0
0.6
0.6
138.6
0.0
0.0
389.4
31.12.2017
96.0
Euro
Derivative financial instruments
Pound Sterling
The remaining terms of derivative financial instruments based on expected undiscounted cash flow as of 31 December 2018 and
31 December 2017 are shown in the table below:
Other currencies
11.6
7.0
5.8
9.9
3.8
7.9
Other functional currencies
Trade receivables
in € million
Carrying amount
31.12.2018
Cash flows
up to 1 year
2 to 5 years
over 5 years
250.1
349.9
277.3
Remaining term
394.9
The movement in the valuation allowance in respect of trade and other receivables and contract assets during the year was as follows.
Receivables from derivatives with net
settlement
Comparative amounts for 2017 represent the allowance account for impairment losses under IAS 39.
0.5
Interest rate swaps
0.6
0.6
0.1
0.0
Derivatives in open orders
Forward exchange contracts
Liabilities from derivatives with net settlement
in € million
1.0
1.1
Derivatives from supply contracts
20.9
Accumulated valuation allowance at beginning of year under IAS 39
7.3
Interest rate swaps
Adjustment on initial application of IFRS 9
1.0
1.1
22.2
8.1
2018
1.0
0.0
1.1
Individually
assessed -
credit impaired
1.0
34.4
2.4
(5.7)
0.0
Collectively
assessed -
not credit impaired
21.2
0.0
5.7
3.3
Accumulated valuation allowance at beginning of year under IFRS 9
Currency translation
Addition
Use
in € million
Reversal
Receivables from derivatives with net
Net remeasurement of loss allowance
settlement
Reclassification as held for sale
Interest rate swaps
Accumulated valuation allowance at year-end
Financial assets held for trading
Liabilities from derivatives with net settlement
Carrying amount
31.12.2017
Cash flows
1.5
1.7
1.5
1.7
Financial liabilities held for trading
40.9
43.5
28.7
(1.1)
5.0
3.3
0.0
0.0
(3.0)
up to 1 year
0.0
0.0
2 to 5 years
0.0
-
0.0
0.9
29.6
1.7
7.5
(2.1)
0.0
0.6
1.2
0.0
28.8
2017
0.0
0.0
0.0
35.2
0.0
-
35.2
(1.1)
Remaining term
11.2
(3.2)
over 5 years
(5.6)
0.0
(2.1)
0.0
34.4
0.0
7.2
Foreign currency risks
Foreign currency risks arise 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. Usually
the net position of the Group in the respective currency serves as the basis for decisions regarding the use of hedging instruments.
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Foreign currency risks 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 receiva-
bles 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.
The majority of foreign currency financial instruments in the RHI Magnesita Group result from operating activities, above all from in-
tragroup 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. Sig-
nificant 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 2018:
in € million
Financial assets
Financial liabilities, provisions
Net foreign currency position
USD
651.5
(938.6)
(287.1)
EUR
104.1
(241.7)
(137.6)
MXN
0.4
(21.5)
(21.1)
The foreign currency positions as of 31 December 2017 are structured as follows:
in € million
Financial assets
Financial liabilities, provisions
Net foreign currency position
USD
583.9
(727.5)
(143.6)
EUR
88.5
(218.6)
(130.1)
MXN
(0.1)
(18.6)
(18.7)
CAD
23.1
(6.8)
16.3
CAD
22.7
(2.4)
20.3
Other
71.4
(45.7)
25.7
Other
48.6
(47.1)
1.5
Total
850.5
(1,254.3)
(403.8)
Total
743.6
(1,014.2)
(270.6)
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 2018
would have had the following effect on profit or loss and equity (both excluding income tax):
in € million
US Dollar
Euro
Mexican Peso
Canadian Dollar
Other currencies
Appreciation of 10%
Devaluation of 10%
Gain/(loss)
27.0
12.4
1.9
(1.5)
(2.3)
Equity
27.0
12.4
1.9
(1.5)
(2.3)
Gain/(loss)
(33.0)
(15.1)
(2.3)
1.8
2.7
Equity
(33.0)
(15.1)
(2.3)
1.8
2.7
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Notes
continued
The hypothetical effect on profit or loss at 31 December 2017 can be summarised as follows:
in € million
US Dollar
Euro
Mexican Peso
Canadian Dollar
Other currencies
Appreciation of 10%
Devaluation of 10%
Gain/(loss)
20.3
11.9
1.7
(1.8)
(0.4)
Equity
20.3
11.9
1.7
(1.8)
(0.4)
Gain/(loss)
(24.8)
(14.5)
(2.1)
2.3
0.3
Equity
(24.8)
(14.5)
(2.1)
2.3
0.3
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 2018, interest rate hedges amounting to a nominal value of €305.6 million
(31.12.2017: €17.2 million) and a nominal value of US$250 million (31.12.2017: US$160.0 million) existed; a variable interest rate was con-
verted 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 2018 had been 25 basis points higher or lower, equity would have been €3.8 million (31.12.2017:
€0.5 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 in-
cluded in the calculation of the result-related sensitivities. If the market interest rate as of 31 December 2018 had been 25 basis points
higher or lower, the interest result would have been €0.1 million (31.12.2017: €0.5 million) lower or higher.
Other market price risk
RHI Magnesita holds certificates in an investment fund amounting to €12.0 million (31.12.2017: €12.6 million) to cover the legally re-
quired protection of personnel provisions of Austrian group companies. The market value of these certificates is influenced by fluctua-
tions of the worldwide volatile stock and bond markets.
In 2015, an energy supply contract with a term until the year 2023 was classified as a derivative financial instrument in and the fair value
of the financial liability amounts to €20.9 million at 31 December 2018 (31.12.2017: €40.1 million). If the quoted forward prices at 31 De-
cember 2018 had been 20% higher or lower, EBIT would have been €10.1 million (31.12.2017: €8.7 million) higher or lower. In contrast, if
the borrowing costs relevant for discounting had been 25 basis points higher or lower at the reporting date, EBIT would have been
€0.2 million (31.12.2017: €0.3 million) higher or lower.
56. 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.
As the Group optimised its financial structure in 2018 and there are only two months of Magnesita results in the Consolidated Statement
of Profit or Loss in 2017, the key figures of capital management for 2017 are not comparable. Therefore they are not included in the disclo-
sure.
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The capital structure key figures at the reporting date are shown below:
Net debt (in € million)
Net gearing ratio (in %)
Group leverage
31.12.2018
638.9
72.2%
1.16
Net debt, which reflects borrowings net of cash and cash equivalents and marketable securities, 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 optimising earnings and costs.
The net gearing ratio is the ratio of net debt to equity.
The key performance indicator for net debt in the RHI Magnesita Group is the group leverage, which reflects the ratio of net debt to ad-
justed EBITDA. It is calculated as follows:
in € million
EBIT
Amortisation
Depreciation
Other operating income and expenses
Adjusted EBITDA
Total debt
Cash and cash equivalents
Marketable securities
Net debt
Group leverage
31.12.2018
398.6
28.6
124.8
1.0
553.0
1,166.4
491.2
36.3
638.9
1.16
In both 2018 and 2017, 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.
57. Contingent liabilities
At 31 December 2018, warranties, performance guarantees and other guarantees amount to €43.0 million (31.12.2017: €39.8 million).
Contingent liabilities have a remaining term between two months and three years, depending on the type of liability. Based on experi-
ences of the past, the probability that contingent liabilities are used is considered to be low.
In addition, contingent liabilities from sureties of €0.3 million (31.12.2017: €0.5 million) were recorded, of which €0.3 million (31.12.2017:
€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 2018 or can potentially be exer-
cised 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 €169.0 million (31.12.2017: €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:
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Notes
continued
In 2011, the Brazilian Tax Authorities made an assessment regarding income tax and social contribution on tax goodwill deducted in the
years 2008 and 2009. The Tax Authority thus disallowed the deductibility of the amortisation of tax goodwill arising from operations
with subsidiaries. In 2016, the company was notified of the decision issued by CARF (Administrative Council of Tax Appeals), which can-
celled more than 90% of the tax assessment regarding the disallowed deductibility. However, this decision can still be changed as a
result of appeals filed by the company and by the General Counsel to the National Treasury (PGFN). The final decision is expected within
one to two years. The potential loss of this process amounts to €81.4 million (including interest and penalties) as of 31 December 2018
(31.12.2017: €87.8 million).
In 2016, the Brazilian tax authorities extended the above view for the years 2011 and 2012. In December 2016, the company filed a de-
fence against the assessment. The final decision is expected within two to three years. The potential loss of this process amounts to
€37.5 million (including interest and penalties) as of 31 December 2018 (31.12.2017: €40.0 million).
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 €4.8 million (includ-
ing interest and penalties) as at 31 December 2018 (31.12.2017: €6.0 million).
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 assess-
ment. The potential loss amounts to €10.7 million (including interest and penalties) as at 31 December 2018 (31.12.2017: €11.1 million).
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 €12.9 million (including interest and penalties) as at 31 December 2018 (31.12.2017: €13.9 million).
In 2018, the Brazilian Tax Authorities raised an assessment in respect of tax on the circulation of goods and services for the alleged non-
fulfillment of ancillary obligation and non-payment of tax in the period from 2013 to 2017. The decision by the Taxpayers Council is ex-
pected within the year 2019. Any decision taken by the Council will be subject to appeal. The potential loss from this proceeding
amounts to €4.1 million (including interest and penalties) as at 31 December 2018.
Magnesita Refratários S.A., Contagem, Brazil, is also involved in other minor lawsuits totalling €17.6 million (31.12.2017: €19.5 million)
which relate to a number of assessments concerning various taxes and related obligations.
Furthermore, Magnesita Refratários S.A., Contagem, Brazil, is party to a public civil action for damages caused by overloaded trucks in
contravention with the Brazilian traffic legislation. In 2017, a decision was rendered in favour of Magnesita in the trial court considering
the requests submitted by the Federal Public Attorney's Office to be completely devoid of legal merit. The decision taken by the trial
court was subject to appeal by the Public Ministry of Minas Gerais. The potential loss from this proceeding amounts to €12.1 million as at
31 December 2018 (31.12.2017: €7.1 million).
Other minor proceedings and lawsuits in which subsidiaries are involved have no significant negative influence on the financial position
and performance of the RHI Magnesita Group.
58. Other financial commitments
Other financial commitments consist of the following items:
in € million
31.12.2018
up to 1 year
2 to 5 years
over 5 years
Obligations from rental and leasing contracts
Capital commitments
Other financial commitments
73.7
5.4
79.1
16.3
5.4
21.7
27.7
0.0
27.7
29.7
0.0
29.7
Total
Remaining term
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in € million
31.12.2017
up to 1 year
2 to 5 years
over 5 years
Obligations from rental and leasing contracts
Capital commitments
Other financial commitments
56.9
5.9
62.8
16.1
5.9
22.0
24.2
0.0
24.2
16.6
0.0
16.6
Total
Remaining term
Other financial commitments are exclusively due to third parties. They are shown at nominal value.
Rental and leasing commitments for property, plant and equipment of €34.4 million (2017: €23.1 million) are recognised in the Consoli-
dated Statement of Profit or Loss for 2018.
The conditions of the most important operating rental and leasing agreements can be summarised as follows:
The old rental agreement of the company’s head office ended in 2018 and the Group’s headquarter moved into a new office in Vienna,
Austria. Another new office was opened in Oviedo, Spain. Both have a contractual term until 2028 and include a prolongation option.
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 commitments, the RHI Magnesita Group also has long-term purchase commitments 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 commitments of the nominal value of €96.2 million at the reporting date (31.12.2017:
€99.9 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 exam-
ple, when requirements fall below the agreed minimum purchase volume or when contractually agreed prices deviate from the current
market price level.
59. 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:
in € million
Audit of the Financial Statements
thereof invoiced by PwC Accountants N.V.
thereof invoiced by PwC network firms
Other audit-related services
Tax compliance services
Other non-audit services
Total fees
2018
2.7
0.2
2.5
0.1
0.9
0.0
3.7
2017
2.4
0.2
2.2
0.1
0.9
2.5
5.9
Other audit-related services, tax compliance services and other non-audit services were performed and invoiced by PwC network firms
outside of the Netherlands.
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.
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Notes
continued
60. Annual average number of employees
The average number of employees of the RHI Magnesita Group based on full time equivalents amounts to:
Salaried employees
Waged workers
Number of employees on annual average
2018
5,947
8,171
14,118
2017
3,788
4,781
8,569
Sixteen full time equivalents of salaried employees work in the Netherlands.
61. 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 24.9v, 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 their close family members. Since 26 October 2017, key management personnel comprises of 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 2018, the Group conducted the following transaction with its related companies:
in € million
Revenue from the sale of goods and services
Purchase of raw materials
Interest income
Asset purchase
Trade and other receivables
Loans granted
Trade liabilities
Dividends received
Joint ventures
Associates
Non-
consolidated
subsidiaries
2018
3.1
3.2
0.1
0.0
0.9
0.0
2017
3.4
2.5
0.1
0.0
1.3
0.0
2018
0.1
20.3
0.8
0.6
0.0
10.4
0.3
0.6
5.1
20171)
2018
20171)
0.4
3.8
0.0
0.0
1.1
9.6
8.5
0.3
0.1
0.0
0.0
0.2
0.1
0.9
0.1
0.0
0.0
0.0
0.2
0.1
1.6
10.8
10.7
0.2
0.0
0.0
0.0
1 Adjusted to reflect the effects of the final purchase price allocation of Magnesita.
In 2018 and 2017, 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 2018 and in November and December 2017, the associate Sinterco S.A., Name-
che, Belgium, sold sintered doloma to the RHI Magnesita Group. Furthermore, the Group has a financing receivable of €10.4 million
(31.12.2017: €9.6 million) from a loan agreement with Sinterco.
The balances at the end of 2018 are unsecured and will be paid in cash. All income and expenses 2017 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
(31.12.2017: €0.3 million). A resulting cash outflow is not expected. No guarantees were received.
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In 2018 and 2017, 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 wel-
fare 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 2018, no current account receivables existed (31.12.2017: €0.8 million). In the past reporting period, no em-
ployer contributions (2017: €0.5 million) were made to the personnel welfare foundation. The overfunding of the pension plan is recog-
nised as a non-current asset of €2.1 million (31.12.2017: €2.0 million).
Related persons
Remuneration of key management personnel of the Group, which is subject to disclosure in accordance with IAS 24, comprises the re-
muneration of the active Board of Directors and the Executive Management Team (EMT) in 2018 and from November to December 2017
as well as the former Management Board and Supervisory Board of RHI AG until October 2017.
For the financial year 2018, expenses for the remuneration of the Executive Directors and EMT members, active in 2018, recognised in the
Consolidated Statement of Profit or Loss total €10.1 million (2017: €12.6 million including also remuneration of the former Management
Board). The expenses, not including non-wage labour costs, amount to €9.1 million (2017: €11.8 million), of which €8.4 million (2017:
€9.8 million) were related to current benefits (fixed, variable and other earnings), €0.0 million (2017: €0.0 million) to benefits related to
the termination of employment and €0.7 million (2017: €1.9 million) to share-based remuneration. At 31 December 2018, liabilities for
performance-linked variable earnings and share-based payments for active members of the former Management Board of €5.6 million
(2017: €6.7 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 were also entitled to
share-based payments. The programme was terminated after RHI AG merged with and into RHI Magnesita N.V. and the provisioned
amount will be paid until 2020. In the financial year 2018, a payment of €1.4 million was made in this regard (2017: €1.2 million).
For Non-Executive Directors, remuneration totalling €1.0 million (2017: €0.8 million including remuneration for the former Supervisory
Board) was recognised through profit or loss in the year 2018. The compensation paid to the Non-Executive Directors and the members of
the former Supervisory Board only consists of short-term employee benefits.
Employee representatives acting as Non-Executive Directors of RHI Magnesita N.V. who are employed by the Group, do not receive com-
pensation for their activity as Non-Executive Directors. For their activity as employees in the Company and the activity of their close rela-
tives employed with RHI Magnesita, expenses of €0.8 million (2017: €0.7 million) are recognised.
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,in
the Remuneration Committee report and the Remuneration Policy on pages 80 to 101 of the Annual Report of the RHI Magnesita Group.
Earnings of former members of the former Management Board amounted to €2.6 million (2017: €3.5 million), of which €0.6 million
(2017: €1.4 million) are related to share-based remuneration.
RHI Magnesita and a close relative of a Non-Executive Director concluded a non-remunerated consultancy agreement to advise the
Group on the economic and political framework in countries in which it does not yet have strong business links.
Equity-settled share option plan (LTIP)
The Company has a share option plan for the members of senior management of the Group which was approved by shareholders at the
Annual General Meeting held on 7 June 2018.
Each share option converts into one ordinary share of the Company on exercise. No amounts are paid or payable by the recipient on re-
ceipt of the option. The options carry rights to dividends but no voting rights. Options may be exercised at any time from the date of vest-
ing to the date of their expiry.
179
1 8 1
F I N A N C I A L S TAT E M E N T S
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
R H I M A G N E S I T A
Notes
continued
The number of options granted is calculated in accordance with the performance-based formula approved by the shareholders at the
annual general meeting and is subject to approval by the remuneration committee.
The formula rewards employees to the extent of the Group’s achievements judged against quantitative criteria from the following
measures:
Group’s earnings per share,
Group’s earnings before interest and tax,
comparing the performance of the Group’s total shareholder return (TSR) against the FTSE 350.
The vesting period is three years. If the options remain unexercised after a period of seven years from the vesting date the options expire.
Options are forfeited if the employee leaves the Group before the options vest.
As at 1 January
Granted during the year
Exercised during the year
Forfeited during the year
As at 31 December
Vested and exercisable at 31 December
2018
2017
Number of options
Number of options
0
107,599
0
(13,494)
94,105
0
0
0
0
0
0
0
No options expired or were exercised during the periods covered by the above tables.
The options outstanding at 31 December 2018 have a weighted-average contractual life of 2.5 years.
The outstanding share options, which were granted on 7 June 2018, will expire on 7 June 2028. The share price at grant date for the
94,105 options was €53.13.
The assessed fair value at grant date of options granted during the year ended 31 December 2018 was €52.51 per option. The fair value of
share options with non-market performance conditions has been calculated using the Black-Scholes option pricing model. The fair value
of options with market-related performance conditions has been measured using the Monte Carlo model. The calculation takes into
account the exercise price, the term of the option, the share price at grant date and expected price volatility of the underlying share, the
expected dividend yield, the risk free interest rate for the term of the option and the correlations and volatilities of the peer group compa-
nies.
The requirement that the employee has to save in order to purchase shares under the share purchase plan has been incorporated into the
fair value at grant date by applying a discount to the valuation obtained. The discount has been determined by estimating the probability
that the employee will stop saving based on historical behaviour.
The inputs used in the measurement of the fair values at grant date of the equity-settled share-based payment plans were as follows:
in € million
Fair value at grant date
Expected volatility (weighted-average)
Expected life (weighted-average)
Expected dividends
Risk-free interest rate
2018
5.0
21.45%
36 Months
0.5
0.89%
2017
0.0
0.0%
0
0.0
0.0%
Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous years. The expected
life used in the model has been adjusted, based on management’s best estimate, for the effect of non-transferability, exercise restrictions,
and behavioural considerations.
180
1 8 2
R H I M A G N E S I TA
R H I M A G N E S I T A
A N N U A L R E P O R T 2 0 1 8
A N N U A L R E P O R T 2 0 1 8
62. Board of Directors of RHI Magnesita N.V.
The members of the Board of Directors are as follows:
Herbert Cordt, Chairman
Stefan Borgas, CEO
Octavio Lopes (until 31 December 2018)
Fersen Lambranho (until 22 January 2019)
David Schlaff
Stanislaus Prinz zu Sayn-Wittgenstein-Berleburg
Celia Baxter
Andrew Hosty
James Leng
John Ramsay
Wolfgang Ruttenstorfer
Karl Sevelda
Franz Reiter
Michael Schwarz
63. Material events after the reporting date
On 10 March 2019 the Supervening Acquisition Period of the Integrated Tender Offer (as described in Note (5) of the Consolidated Finan-
cial Statements) ended. RHI Magnesita N.V. via its indirect, wholly-owned subsidiary Dutch Brasil Holding B.V. received valid acceptanc-
es from holders of 6,167,636 Magnesita Refratários S.A. common shares, representing approximately 12.3% of the total share capital of
Magnesita Refratários S.A. increasing its total ownership to 97.5%. As a result, 1,139,400 new RHI Magnesita N.V. shares were issued. The
cash disbursement of this transaction amounts to €30.2 million.
After the reporting date on 31 December 2018, 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.
181
1 8 3
F I N A N C I A L S TAT E M E N T S
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
R H I M A G N E S I T A
Company Financial Statements
of RHI Magnesita N.V.
Company Balance Sheet as at 31 December 2018
(before appropriation of result)
in € million
ASSETS
Fixed assets
Financial fixed assets
Current assets
Receivables from Group companies
Cash and cash equivalents
Total current assets
Total assets
EQUITY AND LIABILITIES
Equity
Share capital
Additional paid-in capital
Legal and mandatory reserves
Other reserves
Result for the period
Shareholders' Equity
Current liabilities
Other current liabilities
Total current liabilities
Total equity and liabilities
1 Adjusted to reflect the effects of the final purchase price allocation of Magnesita.
Company Statement of Profit or Loss for the period 1 January to 31 December 2018
in € million
General and administrative expenses
Result before taxation
Income tax
Net result from investments
Net result for the period
1 Adjusted to reflect the effects of the final purchase price allocation of Magnesita.
182
1 8 4
Notes
31.12.2018
31.12.20171)
(A)
(B)
(C)
(D)
(E)
(H)
(F)
915.5
915.5
0.0
0.1
0.1
569.3
569.3
62.5
0.1
62.6
915.6
631.9
48.3
305.5
209.9
78.7
158.1
800.5
115.1
115.1
44.8
165.7
234.1
263.5
(89.3)
618.8
13.1
13.1
915.6
631.9
Notes
(G)
(H)
2018
(8.5)
(8.5)
0.0
166.6
158.1
20171)
(13.0)
(13.0)
0.0
(76.3)
(89.3)
R H I M A G N E S I TA
R H I M A G N E S I T A
A N N U A L R E P O R T 2 0 1 8
A N N U A L R E P O R T 2 0 1 8
Legal and mandatory reserves
Other reserves
Share
capital
Additional
paid-in
capital
Cash flow
hedges
Currency
translation
Mandatory
reserve
Retained
earnings
Net
result
Equity attributable to
shareholders
44.8
165.7
0.1
(54.7)
288.7
263.5
(89.3)
618.8
-
-
-
-
-
-
-
-
-
-
0.1
(10.7)
3.5
139.8
-
-
-
-
-
-
-
-
-
(5.2)
(5.0)
-
-
-
(8.4)
-
-
-
-
-
-
-
(6.0)
1.8
(89.3)
-
89.3
158.1
(52.1)
-
1.0
(33.6)
(6.6)
78.7
-
-
-
-
-
158.1
Movements in Shareholders’ Equity
in € million
31.12.20171)
Effects of initial application of IFRS 15
(net of tax)
Effects of initial application of IFRS 9
(net of tax)
Appropriation of prior year result
Net result
Transactions with non-controlling
interests without change of control
Issue of ordinary shares
Share-based payments
Dividends
Net income / (expense) recognised
directly in equity
01.01.2018
44.8
165.7
0.1
(54.7)
288.7
259.3
(89.3)
31.12.2018
48.3
305.5
(73.8)
288.7
1 Adjusted to reflect the effects of the final purchase price allocation of Magnesita.
Legal and mandatory reserves
Other reserves
Share
capital
Additional
paid-in
capital
Cash flow
hedges
Currency
translation
Mandatory
reserve
Retained
earnings
Net
result
Equity attributable to
shareholders
in € million
Incorporation 20 June 2017
Increase of equity
30.06.2017
Net result
Downstream merger from RHI AG
Issue of ordinary shares minus costs
Net income/ (expense) recognised
directly in equity
31.12.20171)
-
-
-
-
39.8
5.0
-
70.0
70.0
-
(70.0)
165.7
-
-
44.8
165.7
-
-
-
-
(0.1)
-
0.2
0.1
-
-
-
-
-
-
-
-
-
-
-
-
(71.2)
288.7
270.0
-
16.5
-
-
-
(6.5)
-
-
-
(89.3)
-
-
-
(54.7)
288.7
263.5
(89.3)
1 Adjusted to reflect the effects of the final purchase price allocation of Magnesita.
(6.0)
1.8
614.6
-
158.1
(62.7)
143.3
1.0
(33.6)
(20.2)
800.5
0.0
70.0
70.0
(89.3)
457.2
170.7
10.2
618.8
183
1 8 5
F I N A N C I A L S TAT E M E N T S
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
R H I M A G N E S I T A
Notes
to the Company Financial Statements 2018
General
RHI Magnesita N.V. (the “Company”), a public company with limited liability under Dutch law 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 Kranichberggasse 6, 1120 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 in-
cluded in the FTSE 250 Index.
On 16 October 2017, the general meeting of the Company decided to amend the articles of association of the Company and to fully ac-
cept them. With this amendment of the articles of association of the Company, it has been determined that the financial year of RHI
Magnesita N.V. corresponds to the calendar year. The current financial year is therefore the same as the calendar year, while the previous
year ran 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.
Changes in comparative information
The Company Balance Sheet as of 31.12.2017 and the Company Statement of Profit or Loss 2017 have been adjusted for the final fair
values of the acquired assets and liabilities of Magnesita and the effects of the subsequent measurement of the values determined in the
final purchase price allocation of Magnesita. Further information is included in Note (3) of the Consolidated Financial Statements.
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:
Name and registered office of the company
Didier Werke A.G., Wiesbaden, Germany
RHI Refractories Raw Material GmbH, Vienna, Austria
RHI Magnesita GmbH, Vienna, Austria
RHI Magnesita Trading B.V., Rotterdam, Netherlands
Country of core
activity
Germany
Austria
Austria
Netherlands
2018
2017
Share in %
Share in %
12.5
25.0
100.0
100.0
12.5
25.0
100.0
-
1 8 6
R H I M A G N E S I TA
R H I M A G N E S I T A
A N N U A L R E P O R T 2 0 1 8
A N N U A L R E P O R T 2 0 1 8
The investments have developed as follows:
in € million
At beginning of year
Effects of the initial application of IFRS 9 and IFRS 15
From downstream merger
Transactions with non-controlling interests without change of control
Capital contributions
Changes from currency translation and cash flow hedges
Changes from defined benefit plans
Equity settled transaction
Net result from investments
Balance at year-end
1 Adjusted to reflect the effects of the final purchase price allocation of Magnesita.
31.12.2018
31.12.20171)
569.3
(4.2)
0.0
(59.2)
262.1
(13.6)
(6.5)
1.0
166.6
915.5
0.0
0.0
457.2
0.0
179.5
16.7
(5.6)
(2.2)
(76.3)
569.3
The following list, prepared in accordance with the relevant legal requirements (Dutch Civil Code, Book 2, Sections 379), shows all com-
panies in which RHI Magnesita N.V. holds a direct or indirect share of at least 20% (with the exception of the RHISA Employee Trust):
Ser. no.
Name and registered office of the company
1.
RHI Magnesita N.V., Arnhem, Netherlands
31.12.2018
31.12.2017
Share-
holder
Share
in %
Share-
holder
Share
in %
185
1 8 7
F I N A N C I A L S TAT E M E N T S
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
R H I M A G N E S I T A
R H I M A G N E S I T A
F I N A N C I A L S TAT E M E N T S
Notes
Notes
Fully consolidated subsidiaries
to the Company Financial Statements 2018
to the Company Financial Statements 2018
Agellis Group AB, Sund, Sweden
Baker Refractories Holding Company, Wilmington, USA
Fully consolidated subsidiaries
Baker Refractories I.C., Inc., Wilmington, USA
Baker Refractories, Las Vegas, USA
Agellis Group AB, Sund, Sweden
Betriebs- und Baugesellschaft mit beschränkter Haftung, Wiesbaden, Germany
Baker Refractories Holding Company, Wilmington, USA
D.S.I.P.C.-Didier Société Industrielle de Production et de
Constructions, Valenciennes, France
Baker Refractories I.C., Inc., Wilmington, USA
Didier Belgium N.V., Evergem, Belgium
Baker Refractories, Las Vegas, USA
Didier Vertriebsgesellschaft mbH, Wiesbaden, Germany
Betriebs- und Baugesellschaft mit beschränkter Haftung, Wiesbaden, Germany
Didier-Werke Aktiengesellschaft, Wiesbaden, Germany
D.S.I.P.C.-Didier Société Industrielle de Production et de
Constructions, Valenciennes, France
Dutch Brasil Holding B.V., Arnhem, Netherlands
Didier Belgium N.V., Evergem, Belgium
Dutch MAS B.V., Arnhem, Netherlands
Didier Vertriebsgesellschaft mbH, Wiesbaden, Germany
Dutch US Holding B.V., Arnhem, Netherlands
Didier-Werke Aktiengesellschaft, Wiesbaden, Germany
FE "VERA", Dnepropetrovsk, Ukraine
Dutch Brasil Holding B.V., Arnhem, Netherlands
Feuerfestwerk Bad Hönningen GmbH, Hagen, Germany
Dutch MAS B.V., Arnhem, Netherlands
FireShark Refractories GmbH, Vienna, Austria
Dutch US Holding B.V., Arnhem, Netherlands
Full Line Supply Africa (Pty) Ltd., Sandton, South Africa; i.l.
FE "VERA", Dnepropetrovsk, Ukraine
GIX International Limited, Dinnington, United Kingdom
Feuerfestwerk Bad Hönningen GmbH, Hagen, Germany
INDRESCO U.K. Ltd., Dinnington, United Kingdom
FireShark Refractories GmbH, Vienna, Austria
INTERSTOP (Shanghai) Co., Ltd., Shanghai, PR China
Liaoning RHI Jinding Magnesia Co., Ltd., Dashiqiao City, PR China1)
Full Line Supply Africa (Pty) Ltd., Sandton, South Africa; i.l.
GIX International Limited, Dinnington, United Kingdom
LLC "RHI Wostok Service", Moscow, Russia
INDRESCO U.K. Ltd., Dinnington, United Kingdom
LLC "RHI Wostok", Moscow, Russia
INTERSTOP (Shanghai) Co., Ltd., Shanghai, PR China
Lokalbahn Mixnitz-St. Erhard Aktien-Gesellschaft, Vienna, Austria
Liaoning RHI Jinding Magnesia Co., Ltd., Dashiqiao City, PR China1)
LWB Holding Company, Las Vegas, USA
LLC "RHI Wostok Service", Moscow, Russia
LLC "RHI Wostok", Moscow, Russia
Lokalbahn Mixnitz-St. Erhard Aktien-Gesellschaft, Vienna, Austria
LWB Holding Company, Las Vegas, USA
56.
43.
100.0
100.0
3.
100.0
43.
56.
10.
43.
10.
3.
71.,104.
43.
10.
10.
1.,56.
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
56.
43.
100.0
100.0
3.
100.0
43.
56.
10.
43.
10.
3.
71.,104.
43.
10.
10.
1.,56.
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
10.
110.
100.0
100.0
10.
110.
100.0
100.0
71.,104.
10.
100.0
100.0
71.,104.
10.
100.0
100.0
10.
110.
100.0
100.0
1.,56.
56.
100.0
100.0
110.
115.
100.0
100.0
10.
74.
100.0
100.0
110.
83.
56.
116.
115.
18.
100.0
100.0
100.0
100.0
100.0
100.0
74.
109.
100.0
100.0
83.
56.
100.0
83.3
10.
110.
100.0
100.0
1.,56.
56.
100.0
100.0
110.
115.
10.
74.
110.
83.
56.
116.
115.
18.
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
74.
109.
100.0
100.0
83.
56.
100.0
83.3
116.
56.,74.
100.0
100.0
116.
56.,74.
100.0
100.0
18.
56.,74.
100.0
100.0
18.
56.,74.
100.0
100.0
109.
95.
56.
57.
56.,74.
100.0
100.0
83.3
100.0
100.0
109.
95.
56.
57.
56.,74.
100.0
100.0
83.3
100.0
100.0
56.,74.
100.0
56.,74.
100.0
95.
57.
100.0
100.0
95.
57.
100.0
100.0
2.
3.
4.
5.
2.
6.
3.
7.
4.
8.
5.
9.
6.
10.
7.
11.
8.
12.
9.
13.
10.
14.
11.
15.
12.
16.
13.
17.
14.
18.
15.
19.
16.
20.
17.
21.
18.
22.
19.
23.
20.
24.
21.
25.
22.
23.
24.
25.
186
1 8 8
186
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 T A
Notes
to the Company Financial Statements 2018
Betriebs- und Baugesellschaft mit beschränkter Haftung, Wiesbaden, Germany
Fully consolidated subsidiaries
Agellis Group AB, Sund, Sweden
Baker Refractories Holding Company, Wilmington, USA
Baker Refractories I.C., Inc., Wilmington, USA
Baker Refractories, Las Vegas, USA
D.S.I.P.C.-Didier Société Industrielle de Production et de
Constructions, Valenciennes, France
Didier Belgium N.V., Evergem, Belgium
Didier Vertriebsgesellschaft mbH, Wiesbaden, Germany
Didier-Werke Aktiengesellschaft, Wiesbaden, Germany
Dutch Brasil Holding B.V., Arnhem, Netherlands
Dutch MAS B.V., Arnhem, Netherlands
Dutch US Holding B.V., Arnhem, Netherlands
FE "VERA", Dnepropetrovsk, Ukraine
Feuerfestwerk Bad Hönningen GmbH, Hagen, Germany
FireShark Refractories GmbH, Vienna, Austria
Full Line Supply Africa (Pty) Ltd., Sandton, South Africa; i.l.
GIX International Limited, Dinnington, United Kingdom
INDRESCO U.K. Ltd., Dinnington, United Kingdom
INTERSTOP (Shanghai) Co., Ltd., Shanghai, PR China
Liaoning RHI Jinding Magnesia Co., Ltd., Dashiqiao City, PR China1)
LLC "RHI Wostok Service", Moscow, Russia
LLC "RHI Wostok", Moscow, Russia
Lokalbahn Mixnitz-St. Erhard Aktien-Gesellschaft, Vienna, Austria
LWB Holding Company, Las Vegas, USA
56.
43.
43.
10.
100.0
100.0
100.0
100.0
56.
43.
43.
10.
100.0
100.0
100.0
100.0
3.
100.0
3.
100.0
10.
100.0
10.
100.0
71.,104.
100.0
71.,104.
100.0
10.
100.0
10.
100.0
1.,56.
100.0
1.,56.
100.0
110.
100.0
10.
100.0
110.
100.0
56.
115.
74.
83.
100.0
100.0
100.0
100.0
116.
100.0
18.
100.0
109.
100.0
56.
83.3
110.
100.0
10.
100.0
110.
100.0
56.
115.
74.
83.
116.
100.0
100.0
100.0
100.0
100.0
18.
100.0
109.
100.0
56.
83.3
56.,74.
100.0
56.,74.
100.0
56.,74.
100.0
56.,74.
100.0
95.
57.
100.0
100.0
95.
57.
100.0
100.0
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
186
R H I M A G N E S I TA
R H I M A G N E S I T A
A N N U A L R E P O R T 2 0 1 8
A N N U A L R E P O R T 2 0 1 8
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
56.
57.
58.
59.
60.
61.
62.
63.
64.
65.
66.
67.
68.
69.
Ser. no.
Name and registered office of the company
LWB Refractories Belgium S.A., Liège, Belgium
LWB Refractories Beteiligungs GmbH & Co. KG, Hagen, Germany
LWB Refractories Hagen GmbH, Hagen, Germany
LWB Refractories Holding France S.A.S., Valenciennes, France
M.E. Refractories Company FZE i. l., Dubai, United Arab Emirates
Mag Data Participaçoes e Investimentos em Projetos de Mineração S.A.,
Contagem, Brazil
Magnesit Anonim Sirketi, Eskisehir, Turkey2)
Magnesita Asia Refractory Holding Ltd, Hong Kong, PR China
Magnesita Finance S.A., Luxembourg, Luxembourg
Magnesita Grundstücks-Beteiligungs GmbH, Hagen, Germany
Magnesita International Limited, London, United Kingdom
Magnesita Malta Finance Ltd., St. Julians, Malta
Magnesita Malta Holding Ltd., St. Julians, Malta
Magnesita Mineração S.A., Brumado, Brazil
Magnesita NAM Insurance Company, Wilmington, USA
Magnesita Refractories (Canada) Inc., Montreal, Canada
Magnesita Refractories (Dalian) Co. Ltd., Dalian, PR China
Magnesita Refractories Company, York, USA
Magnesita Refractories de Mexico S.A. de C.V., Monterrey, Mexico
Magnesita Refractories GmbH, Hagen, Germany
Magnesita Refractories Ltd., Dinnington, United Kingdom
Magnesita Refractories Middle East FZE, Dubai, United Arab Emirates
31.12.2018
31.12.2017
Share-
holder
Share
in %
Share-
holder
Share
in %
45.,115.
100.0
45.,115.
100.0
35.,57.
100.0
35.,57.
100.0
115.
115.
34.
100.0
100.0
100.0
-
100.0
56.
29.
50.
50.
50.
100.0
100.0
100.0
100.0
100.0
115.
115.
34.
50.
56.
29.
50.
50.
50.
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
38.,115.
100.0
38.,115.
100.0
45.,115.
100.0
45.,115.
100.0
34.,50.,120.
100.0
34.,50.,122.
100.0
25.
100.0
3.
100.0
34.
25.
100.0
100.0
3.,4.
100.0
115.
100.0
3.
100.0
34.
100.0
25.
100.0
3.
100.0
34.
25.
100.0
100.0
3.,4.
100.0
115.
100.0
3.
100.0
34.
100.0
Magnesita Refractories S.C.S., Valenciennes, France
29.,115.
100.0
29.,115.
100.0
Magnesita Refractories S.R.L., Milano, Italy
Magnesita Refratários S.A., Contagem, Brazil
Magnesita Resource (Anhui-Chizhou) Company. Ltd., Chizhou, PR China
Mezubag AG, Pfäffikon, Switzerland
Orient Refractories Limited, Mumbai, India
Premier Periclase Limited, Drogheda, Ireland
115.
100.0
11.
33.
85.2
100.0
115.
100.0
11.
33.
50.0
100.0
109.
100.0
109.
100.0
13.
13.
66.5
100.0
13.
13.
69.6
100.0
Producción RHI México, S. de R.L. de C.V., Ramos Arizpe, Mexico
87.,116.
100.0
87.,116.
100.0
Radex Vertriebsgesellschaft m.b.H., Leoben, Austria
Rearden G Holdings Eins GmbH, Hagen, Germany
Refractarios Argentinos S.A.I.C.M., Buenos Aires, Argentina
Refractarios Magnesita Chile S/A, Santiago, Chile
Refractarios Magnesita Colombia S/A, Sogamoso, Colombia
Refractarios Magnesita del Perú S.A.C., Lima, Peru
112.
100.0
34.
50.
58.
50.
50.
100.0
100.0
100.0
100.0
100.0
112.
34.
50.
58.
50.
50.
100.0
100.0
100.0
100.0
100.0
100.0
Refractory Intellectual Property GmbH & Co KG, Vienna, Austria
63.,74.
100.0
63.,74.
100.0
Refractory Intellectual Property GmbH, Vienna, Austria
Reframec Manutenção e Montagens de Refratários S.A., Matozinhos, Brazil
RHI Argentina S.R.L., San Nicolás, Argentina
RHI Canada Inc., Burlington, Canada
RHI Chile S.A., Santiago, Chile
RHI Clasil Private Limited, Mumbai, India1)
RHI Dinaris GmbH, Wiesbaden, Germany
74.
50.
100.0
100.0
74.
50.
100.0
100.0
13.,116.
100.0
13.,116.
100.0
116.
100.0
116.
100.0
18.,116.
100.0
18.,116.
100.0
116.
53.7
104.
100.0
116.
53.7
104.
100.0
187
1 8 9
F I N A N C I A L S TAT E M E N T S
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
R H I M A G N E S I T A
Notes
to the Company Financial Statements 2018
Ser. no.
Name and registered office of the company
70.
71.
72.
73.
74.
75.
76.
77.
78.
79.
80.
81.
82.
83.
84.
85.
86.
87.
88.
89.
90.
91.
92.
93.
94.
95.
96.
97.
98.
99.
RHI Finance A/S, Hellerup, Denmark
RHI GLAS GmbH, Wiesbaden, Germany
RHI India Private Limited, Navi Mumbai, India
RHI ITALIA S.R.L., Brescia, Italy
RHI Magnesita GmbH, Vienna, Austria
RHI Magnesita Distribution B.V., Rotterdam, Netherlands
RHI Magnesita Trading B.V., Rotterdam, Netherlands
RHI Marvo Feuerungs- und Industriebau GmbH, Gerbstedt, Germany
RHI MARVO Feuerungs- und Industriebau GmbH, Kerpen, Germany
RHI MARVO S.R.L., Ploiesti, Romania
RHI Normag AS, Porsgrunn, Norway
RHI Refractories (Dalian) Co., Ltd., Dalian, PR China
RHI Refractories (Site Services) Ltd., Dinnington, United Kingdom
RHI Refractories Africa (Pty) Ltd., Sandton, South Africa
RHI Refractories Andino C.A., Puerto Ordaz, Venezuela
RHI Refractories Asia Pacific Pte. Ltd., Singapore
RHI Refractories Egypt LLC., Cairo, Egypt
RHI Refractories España, S.L., Lugones, Spain
RHI Refractories France SA, Valenciennes, France3)
RHI Refractories Holding Company, Wilmington, USA
RHI Refractories Ibérica, S.L., Lugones, Spain
RHI Refractories Italiana s.r.l., Brescia, Italy; i.l.
RHI Refractories Liaoning Co., Ltd., Bayuquan, PR China1)
RHI Refractories Mercosul Ltda., Sao Paulo, Brazil
RHI Refractories Nord AB, Stockholm, Sweden
RHI Refractories Raw Material GmbH, Vienna, Austria
RHI Refractories Site Services GmbH, Wiesbaden, Germany
RHI Refractories UK Limited, Bonnybridge, United Kingdom
RHI Refratários Brasil Ltda, Belo Horizonte, Brazil
RHI Sales Europe West GmbH, Mülheim-Kärlich, Germany
100.
RHI Trading (Dalian) Co., Ltd., Dalian, PR China
RHI Ukraina LLC, Dnepropetrovsk, Ukraine
RHI United Offices America, S.A. de C.V., Monterrey, Mexico
RHI United Offices Europe, S.L., Lugones, Spain
RHI Urmitz AG & Co. KG, Mülheim-Kärlich, Germany
RHI US Ltd., Wilmington, USA
RHI-Refmex, S.A. de C.V., Ramos Arizpe, Mexico
RHISA Employee Trust, Sandton, South Africa4)
SAPREF AG für feuerfestes Material, Basel, Switzerland
Stopinc Aktiengesellschaft, Hünenberg, Switzerland
Veitscher Vertriebsgesellschaft m.b.H., Vienna, Austria
Veitsch-Radex America LLC., Wilmington, USA
Veitsch-Radex GmbH & Co OG, Vienna, Austria
Veitsch-Radex GmbH, Vienna, Austria
Veitsch-Radex Vertriebsgesellschaft m.b.H., Vienna, Austria
101.
102.
103.
104.
105.
106.
107.
108.
109.
110.
111.
112.
113.
114.
188
1 9 0
31.12.2018
31.12.2017
Share-
holder
Share
in %
74.
100.0
104.
100.0
Share-
holder
Share
in %
74.
100.0
104.
100.0
11.,116.
100.0
11.,116.
100.0
74.
100.0
1.
100.0
76.
100.0
1.
100.0
78.
10.
100.0
100.0
74.
100.0
1.
-
-
100.0
-
-
78.
10.
100.0
100.0
56.,110.
100.0
56.,110.
100.0
56.
56.
19.
100.0
100.0
100.0
56.
56.
19.
100.0
100.0
100.0
56.,107.
100.0
56.,107.
100.0
116.
74.
100.0
100.0
116.
74.
100.0
100.0
56.,110.
100.0
56.,110.
100.0
10.,12.
100.0
10.,12.
100.0
108.
100.0
116.
100.0
108.
108.
56.
100.0
100.0
66.0
108.
100.0
116.
100.0
108.
108.
56.
100.0
100.0
66.0
110.,116.
100.0
110.,116.
100.0
108.
100.0
108.
100.0
1.,56.,74.
100.0
1.,56.,74.
100.0
10.
10.
100.0
100.0
10.
10.
100.0
100.0
11.,116.
100.0
11.,116.
100.0
10.,108.
100.0
10.,108.
100.0
56.
100.0
56.,110.
100.0
56.
100.0
-
-
87.,103.
100.0
87.,103.
100.0
87.
100.0
87.
100.0
9.,10.
100.0
9.,10.
100.0
13.
100.0
13.
100.0
87.,116.
100.0
87.,116.
100.0
-
0.0
116.
100.0
-
0.0
116.
100.0
10.,56.
100.0
10.,56.
100.0
74.
100.0
105.
100.0
74.
100.0
105.
100.0
74.,113.
100.0
74.,113.
100.0
74.
74.
100.0
100.0
74.
74.
100.0
100.0
R H I M A G N E S I TA
R H I M A G N E S I T A
A N N U A L R E P O R T 2 0 1 8
A N N U A L R E P O R T 2 0 1 8
Ser. no.
Name and registered office of the company
115.
116.
117.
118.
119.
120.
121.
122.
123.
124.
125.
126.
127.
128.
129.
Vierte LWB Refractories Holding GmbH, Hagen, Germany
VRD Americas B.V., Arnhem, Netherlands
Zimmermann & Jansen GmbH, Düren, Germany
Subsidiaries not consolidated due to minor significance
Agellis Process AB, Lund, Sweden
Agellis Surface AB, Lund, Sweden
Araçuaí Holding S.A., São Paulo, Brazil
Dr.-Ing. Petri & Co. Unterstützungsgesellschaft m.b.H., Wiesbaden, Germany
Grayhill MDMM Holding Ltda., São Paulo, Brazil
Guapare S.A, Montevideo, Uruguay
Magnesita Australia PTY Ltd. i. l., Australia
Magnesita Refractories A.B., Köping, Sweden
Magnesita Refractories PVT Ltd, Mumbai, India
Magnesita Refractories S.A. (Pty) Ltd., Middleburg, South Africa
MAG-Tec Participações Ltda. Ltda., Contagem, Brazil
Metal Data Participações Ltda., Rio de Janeiro, Brazil
31.12.2018
31.12.2017
Share-
holder
Share
in %
Share-
holder
Share
in %
27.,57.
100.0
27.,57.
100.0
56.,74.
100.0
56.,74.
100.0
10.
100.0
10.
100.0
-
-
100.0
100.0
131.
100.0
10.
50.
50.
33.
100.0
100.0
100.0
100.0
115.
100.0
2.
2.
131.
10.
50.
-
33.
115.
100.0
100.0
100.0
100.0
100.0
-
100.0
100.0
57.,115.
100.0
57.,115.
100.0
45.
50.
50.
100.0
98.7
61.0
45.
50.
50.
100.0
98.7
61.0
130.
Metal Data S.A. – Mineração e Metalurgia, Contagem, Brazil
50.,129.
100.0
50.,129.
100.0
131.
132.
133.
134.
135.
136.
137.
138.
139.
140.
141.
142.
MMD Araçuaí Holding Ltda., São Paulo, Brazil
MPC, Metal Process Control AB, Lund, Sweden
Refractarios Especiales Y Moliendas S.A., Buenos Aires, Argentina
Refractarios Magnesita Uruguay S/A, Montevideo, Uruguay
RHI Réfractaires Algérie E.U.R.L., Sidi Amar, Algeria
Equity-accounted joint ventures and associated companies
Krosaki Magnesita Refractories LLC, York, USA
Magnesita Envoy Asia Ltd., Kaohsiung, Taiwan
MAGNIFIN Magnesiaprodukte GmbH & Co KG, St. Jakob, Austria
110.,142.
Sinterco S.A., Nameche, Belgium
Other immaterial investments, measured at cost
LLC "NSK Refractory Holding", Moskau, Russia
LLC "NSK Refractory", Novokuznetsk, Russia
MAGNIFIN Magnesiaprodukte GmbH, St. Jakob, Austria
57.
-
-
110.
50.
100.0
31.,50.
100.0
-
100.0
2.
100.0
58.
50.
88.
43.
3.
100.0
100.0
100.0
40.0
50.0
50.0
70.0
49.0
49.0
50.0
58.
50.
88.
43.
3.
110.,142.
57.
56.
56.
110.
100.0
100.0
100.0
40.0
50.0
50.0
70.0
49.0
49.0
50.0
In accordance with IAS 32, fixed-term or puttable non-controlling interests are shown under liabilities.
1
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
189
1 9 1
F I N A N C I A L S TAT E M E N T S
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
R H I M A G N E S I T A
Notes
to the Company Financial Statements 2018
Current assets
(B) Cash and cash equivalents
Cash and cash equivalents are at RHI Magnesita N.V.’s free disposal.
Equity
(C) Share capital
The Company’s authorised share capital amounts to €100,000,000, comprising 100,000,000 ordinary shares, each of €1 nominal
value. As at 31 December 2018, RHI Magnesita N.V.’s issued and fully paid-in share capital consists of 48,337,047 ordinary shares. (As at
31 December 2017: 44,819,039 ordinary shares).
(D) Additional paid-in capital
Additional paid-in capital comprises premiums on the issue of shares less issue costs by RHI Magnesita N.V.
(E) 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. Further information on
hedge accounting is included in Note (54) of the Consolidated Financial Statements.
A N N U A L R E P O R T 2 0 1 8
R H I M A G N E S I T A
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 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.
The cash flow hedges reserve and the currency translation reserve are legal reserves in accordance with the Dutch Civil Code 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, allocations or additions may be made and no losses of the Company may be allocated to the mandatory reserve.
Current liabilities
(F) Other current liabilities
in € million
Trade payables
Payables to group companies
Accrued liabilities
Total current liabilities
31.12.2018
31.12.20171)
5.1
105.6
4.4
115.1
2.8
0.0
10.3
13.1
1 Adjusted to reflect the effects of the final purchase price allocation of Magnesita.
The other current liabilities fall due in less than one year. The fair value of other current liabilities approximates the book value, due to
their short-term character.
(G) Net results from investments
In the year 2018 the full year results of the investments amount to a profit of €166.6 million and are recognised in the Company State-
ment of Profit or Loss.
In year 2017 the exact legal steps of the merger were reflected in the Company Financial Statements. Consequently the interests in the
investments were recognised as per date of the transaction, in this case 26 October 2017. The (adjusted) results of the investments for the
period from 26 October to 31 December 2017 amounted to a loss of €76.3 million.
The results of the investments for the period from 1 January to 25 October 2017 amounted to a profit of €71.9 million and were recognised
as an effect from the downstream merger under retained earnings.
(H) Net result for the period
190
In 2018, there are no differences in the result between the Company Financial Statements and the Consolidated Financial Statements.
1 9 2
In 2017, 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 Consolidated
Statement of Profit or Loss (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 Company Statement of Profit or Loss (the so called ‘car-
ryover accounting methodology). The difference in year 2017 between the Consolidated Financial Statements and the Company Finan-
cial Statements is shown in the table below:
in € million
Company’s net result for the period 1 July to 31 December 2017
Result of the investments for the period from 1 January 2017 to 25 October 2017 recognised in retained earning
Company’s consolidated results 2017 (attributable to shareholders of RHI Magnesita N.V.)
1 Adjusted to reflect the effects of the final purchase price allocation of Magnesita.
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.
Proposed appropriation of result
income statement be appropriated as follows:
in € million
Profit attributable to shareholders
In accordance with Article 27 clause 1 to be transferred to reserves
At the disposal of the General Meeting of shareholders
For 2018, the Board of Directors will propose a dividend of €1.50 per share for the shareholders of RHI Magnesita N.V. The proposed divi-
dend is subject to the approval by the Annual General Meeting on 6 June 2019.
20171)
(89.3)
71.9
(17.4)
2018
158.1
0.0
158.1
191
R H I M A G N E S I T A
A N N U A L R E P O R T 2 0 1 8
Current liabilities
(F) Other current liabilities
in € million
Trade payables
Payables to group companies
Accrued liabilities
Total current liabilities
31.12.2018
31.12.20171)
5.1
105.6
4.4
115.1
2.8
0.0
10.3
13.1
1 Adjusted to reflect the effects of the final purchase price allocation of 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 8
The other current liabilities fall due in less than one year. The fair value of other current liabilities approximates the book value, due to
their short-term character.
(G) Net results from investments
In the year 2018 the full year results of the investments amount to a profit of €166.6 million and are recognised in the Company State-
ment of Profit or Loss.
In year 2017 the exact legal steps of the merger were reflected in the Company Financial Statements. Consequently the interests in the
investments were recognised as per date of the transaction, in this case 26 October 2017. The (adjusted) results of the investments for the
period from 26 October to 31 December 2017 amounted to a loss of €76.3 million.
The results of the investments for the period from 1 January to 25 October 2017 amounted to a profit of €71.9 million and were recognised
as an effect from the downstream merger under retained earnings.
(H) Net result for the period
In 2018, there are no differences in the result between the Company Financial Statements and the Consolidated Financial Statements.
In 2017, 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 Consolidated
Statement of Profit or Loss (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 Company Statement of Profit or Loss (the so called ‘car-
ryover accounting methodology). The difference in year 2017 between the Consolidated Financial Statements and the Company Finan-
cial Statements is shown in the table below:
in € million
Company’s net result for the period 1 July to 31 December 2017
Result of the investments for the period from 1 January 2017 to 25 October 2017 recognised in retained earning
Company’s consolidated results 2017 (attributable to shareholders of RHI Magnesita N.V.)
1 Adjusted to reflect the effects of the final purchase price allocation of Magnesita.
20171)
(89.3)
71.9
(17.4)
Proposed appropriation of result
F I N A N C I A L S TAT E M E N T S
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:
R H I M A G N E S I T A
in € million
Profit attributable to shareholders
Notes
In accordance with Article 27 clause 1 to be transferred to reserves
At the disposal of the General Meeting of shareholders
2018
158.1
0.0
158.1
to the Company Financial Statements 2018
For 2018, the Board of Directors will propose a dividend of €1.50 per share for the shareholders of RHI Magnesita N.V. The proposed divi-
dend is subject to the approval by the Annual General Meeting on 6 June 2019.
Other notes
Number of employees
The average number of employees of RHI Magnesita N.V. during 2018 amounts to nil (2017: nil).
191
Other information
Information regarding auditor's fees, number of employees of RHI Magnesita Group and the remuneration of the Board of Directors is
included in Note (59) to (61) of the Consolidated Financial Statements.
Material events after the reporting date
On 10 March 2019 the Supervening Acquisition Period of the Integrated Tender Offer (as described in Note (5) of the Consolidated Finan-
cial Statements) ended. RHI Magnesita N.V. via its indirect, wholly-owned subsidiary Dutch Brasil Holding B.V. received valid acceptanc-
es from holders of 6,167,636 Magnesita Refratários S.A. common shares, representing approximately 12.3% of the total share capital of
Magnesita Refratários S.A. increasing its total ownership to 97.5%. As a result, 1,139,400 new RHI Magnesita N.V. shares were issued. The
cash disbursement of this transaction amounts to €30.2 million.
After the reporting date on 31 December 2018, there were no other events of special significance which may have a material effect on the
financial position and performance of RHI Magnesita N.V.
1 9 3
192
F I N A N C I A L S TAT E M E N T S
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
R H I M A G N E S I T A
R H I M A G N E S I T A
A N N U A L R E P O R T 2 0 1 8
Notes
to the Company Financial Statements 2018
Other notes
Vienna, 26 March 2019
Number of employees
The average number of employees of RHI Magnesita N.V. during 2018 amounts to nil (2017: nil).
Board of Directors
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 T A
Other information
Herbert Cordt, Chairman
Information regarding auditor's fees, number of employees of RHI Magnesita Group and the remuneration of the Board of Directors is
Stefan Borgas, CEO
included in Note (59) to (61) of the Consolidated Financial Statements.
David Schlaff
Stanislaus Prinz zu Sayn- Wittgenstein-Berleburg
Material events after the reporting date
Celia Baxter
On 10 March 2019 the Supervening Acquisition Period of the Integrated Tender Offer (as described in Note (5) of the Consolidated Finan-
Andrew Hosty
cial Statements) ended. RHI Magnesita N.V. via its indirect, wholly-owned subsidiary Dutch Brasil Holding B.V. received valid acceptanc-
James Leng
es from holders of 6,167,636 Magnesita Refratários S.A. common shares, representing approximately 12.3% of the total share capital of
John Ramsay
Magnesita Refratários S.A. increasing its total ownership to 97.5%. As a result, 1,139,400 new RHI Magnesita N.V. shares were issued. The
Wolfgang Ruttenstorfer
cash disbursement of this transaction amounts to €30.2 million.
Karl Sevelda
Franz Reiter
After the reporting date on 31 December 2018, there were no other events of special significance which may have a material effect on the
Michael Schwarz
financial position and performance of RHI Magnesita N.V.
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 Meet-
ing.
27.3 Distribution of profits shall be made after adoption of the annual accounts if permitted under the law given the contents of the annu-
al accounts.
27.4 The Board may resolve to make interim distributions and/or to make distributions at the 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 con-
cerns 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.
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192
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Independent
auditor’s report
To: the general meeting and the board of directors of
RHI Magnesita N.V.
Report on the financial and consolidated
financial statements 2018
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 2018 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 2018 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 2018
of RHI Magnesita N.V., Vienna (‘the Company’). The financial
statements include the consolidated financial statements of
RHI Magnesita N.V. together with its subsidiaries (‘the Group’)
and the company financial statements.
The consolidated financial statements comprise:
¥ the Consolidated Statement of Financial Position as at 31
December 2018;
¥ the following statements for 2018: the Consolidated Statement
of Profit or Loss and the Consolidated Statement of
Comprehensive Income, Consolidated Statement of Cash Flows
and Consolidated Statement of Changes in Equity; and
¥ the Notes to the Consolidated Financial Statements, comprising
significant accounting policies and other explanatory
information.
The company financial statements comprise:
¥ the company balance sheet as at 31 December 2018;
¥ the company statement of profit or loss for the year then ended;
¥ the notes, comprising the accounting policies applied and other
explanatory information.
The financial reporting framework 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. We have further described our
responsibilities under those standards 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 2018 was characterised by the integration of
Magnesita Refratários S.A., the in 2017 acquired Magnesita Group,
and by organisational changes throughout the Group. 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’.
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 board of
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 consolidated financial statements, the Company describes
the areas of judgement in applying accounting policies 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, final
accounting of the Magnesita acquisition, valuation of goodwill and
other intangible assets, we considered these matters as key audit
matters as set out in the section ‘Key audit matters’ of this report.
Furthermore we identified the implementation of IFRS 15, the new
revenue standard, as a key audit matter.
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auditor’s report
continued
Other areas of focus, that were not considered to be key audit
matters, were the disclosures as required by IAS 8 concerning the
transition to the new accounting standard IFRS 16 ‘Leases’. 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 board of directors that may represent a risk of material
misstatements due to fraud.
Overall group
materiality
Basis for determining
materiality
Rationale for
benchmark applied
We ensured that the audit teams at both group and component
level 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 IT and
corporate income tax, as well as experts in the areas of valuation
and employee benefits, in our audit team.
Component
materiality
The outline of our audit approach was as follows:
Materiality
¥ Overall materiality: €13.8 million.
Audit scope
¥ We conducted audit work in 42 locations.
¥ Site visits were conducted to 6
countries – Brasil, US, Canada,
China, India and Austria.
¥ Audit coverage: 93% of consolidated
revenue, 93% of consolidated total
assets, 97% of consolidated EBIT and
99% of consolidated EBITDA.
Materiality
Audit scope
Key audit
matters
Key audit matters
¥ Recoverability of deferred tax assets;
¥ Finalisation of the purchase price allocation in respect of
the acquisition of Magnesita Refratários S.A.;
¥ Valuation of goodwill and other intangible assets;
¥ Implementation of IFRS 15, the new revenue standard.
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 judgement, 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.
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€13.8 million (2017: €8.0 million).
We used our professional judgement to determine
overall materiality. As a basis for our judgement, we
used approximately 2.5% of earnings before interest,
taxes depreciation and amortisation (EBITDA).
We used EBITDA as the 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 €0.9
million and €11 million.
We also take misstatements and possible misstatements into
account that, in our judgement, are material for qualitative reasons.
We agreed with the board of directors that we would report to them
misstatements identified during our audit above €0.7 million (2017:
€0.4 million) as well as misstatements below that amount that, in
our view, warranted reporting for qualitative reasons.
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 component level by the Group
engagement team and by each component auditor.
We have audited the complete financial information of 20
components, of which 5 components are individually financially
significant to the Group:
¥ RHI Magnesita GmbH (formerly RHI Feuerfest GmbH), Austria
¥ Magnesita Refratários S.A., Brasil
¥ Magnesita Mineracao S.A., Brasil
¥ RHI US, USA
¥ Magnesita Refractories Company, USA
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The group engagement team at the head office audited the group
consolidation, financial statements disclosures, IFRS 15
adjustments, inventory valuation and a number of complex items.
These include acquisition accounting, impairment testing and
valuation of deferred tax assets.
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.
Our focus on fraud
Our objectives
We assess and respond to the risk of fraud in the context of our audit
of the financial statements. In this context and with reference to the
sections on responsibilities in this report, our objectives in relation
to fraud are:
¥ to identify and assess the risks of material misstatement of the
financial statements due to fraud;
¥ to obtain sufficient appropriate audit evidence regarding the
assessed risks of material misstatement due to fraud, through
designing and implementing appropriate audit responses;
¥ to respond appropriately to fraud or suspected fraud identified
during the audit.
However, because of the characteristics of fraud, particularly those
involving sophisticated and carefully organised schemes to conceal
it, such as forgery, deliberate failure to record transactions and
collusion, our audit might not detect instances of material fraud.
Our risk assessment
We obtained an understanding of the entity and its environment,
including the entity’s internal control. We made enquiries of group
and local management, the internal audit function, legal and
compliance departments and the audit committee. In addition, we
considered other external and internal information. As part of our
process of identifying fraud risks, we evaluated fraud risk factors
with respect to financial reporting fraud, misappropriation of assets
and bribery and corruption. Fraud risk factors are events or
conditions, which indicate an incentive or pressure, an opportunity,
or an attitude or rationalisation to commit fraud. We evaluated the
fraud risk factors to consider whether those factors indicated a risk
of material misstatement due to fraud.
As in all of our audits, we addressed the risk of management
override of internal controls, including evaluating whether there
was evidence of bias by the board of directors that may represent a
risk of material misstatement due to fraud.
We further performed specific risk-focussed audit procedures for 3
components as they include significant or higher risk areas:
¥ Magnesita Refractories Middle East, Dubai
¥ Magnesita Finance S.A., Luxembourg
¥ Dutch Brasil Holding B.V., Netherlands
Additionally, we selected 21 components for audit procedures to
achieve appropriate coverage on financial line items in the
consolidated financial statements and to build an element of
unpredictability in our audit.
In total, in performing these procedures, we achieved the following
coverage on the financial line items:
Revenue
Total assets
EBIT
EBITDA
93%
93%
97%
99%
None of the remaining components represented more than 1% 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.
The group engagement team performed the audit work for the
parent company RHI Magnesita N.V. and the Austrian entities in
scope for the group audit. For all other components, we used
component auditors who are familiar with the local laws and
regulations to perform the audit work.
Where component auditors performed the work, we determined
the level of involvement we needed to have in their audit work to be
able to conclude whether we had obtained sufficient appropriate
audit evidence as a basis for our opinion on the consolidated
financial statements as a whole.
We issued instructions to the component audit teams in our audit
scope. These instructions included amongst others our risk analysis,
materiality and scope of the work. We explained to the component
audit teams the structure of the Group, the main developments that
are relevant for the component auditors, the risks identified, the
materiality levels to be applied and our global audit approach. We
had individual calls with each of the in-scope component audit
teams during the year including upon conclusion of their work.
During these calls, we discussed the significant accounting and
audit issues identified by the component auditors, the reports of the
component auditors, the findings of their procedures and other
matters, which could be of relevance for the consolidated financial
statements.
wwThe group engagement team visits the component teams and
local management on a rotational basis. In the current year, the
group audit team visited the Magnesita finance functions in Brasil,
China and US given the importance of the judgements involved in
the final purchase price allocation resulting from the acquisition of
Magnesita Group, as well as the Chinese, Canadian, US, Austrian
and Indian operating locations. For each of these locations we
reviewed selected working papers of the component auditors.
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continued
Our response to the risk of fraud
We evaluated the design and the implementation and, where
considered appropriate, tested the operating effectiveness of
internal controls that mitigate fraud risks. In addition, we performed
procedures, which include journal entry testing and evaluating
accounting estimates for bias.
In particular, our procedures consisted of checking the results of
whistleblowing and complaints procedures with the entity, data
analysis of high-risk journal entries and evaluation of key estimates
and judgements by RHI Magnesita N.V. (including retrospective
reviews of prior year’s estimates). Where we identified instances of
unexpected journal entries or other risks through our data analytics,
we performed additional audit procedures to address each
identified risk. These procedures also included testing of
transactions back to source information. We also incorporated
elements of unpredictability in our audit.
We considered the outcome of our other audit procedures and
evaluated whether any findings or misstatements were indicative of
fraud. If so, we reevaluate our assessment of fraud risk and its
resulting impact on our audit procedures.
We refer to the key audit matters “Recoverability of deferred income
tax assets”, “Valuation of goodwill and other intangible assets” and
“Finalisation of the purchase price allocation in respect of the
acquisition of Magnesita Refratários S.A.”, which are examples of our
approach related to areas of higher risk due to accounting estimates
where management makes significant judgements.
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
board of directors. The key audit matters are not a comprehensive
reflection of all matters 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.
We addressed the key audit matters 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 made on the results of our procedures should be
read in this context.
Given the non-recurring nature of the restructuring following the
Magnesita acquisition in 2017, the key audit matter “Accounting for
restructuring” as considered in the 2017 auditor’s report, in our
opinion, does not longer warrant the classification of key audit
matter in 2018.
Key audit matter
Our audit work and observations
Recoverability of deferred tax assets
Refer to note 8, 10, 17 and 44 of the consolidated
financial statements
The Group capitalised deferred tax assets on tax loss carry-forwards and
deductible temporary differences arising on various items for the amount
of €171.1 million. Reference is made to note 17 of the financial statements.
Deferred tax assets are capitalised 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 estimated taxable results, and
any future measures implemented by the company in several jurisdictions
concerned that will have an effect on income tax. The Group also has
losses and other temporary differences for which no deferred tax asset
has been recognised in these consolidated financial statements.
Due to the inherent level of uncertainty, the potential limitations in
the recoverability of deferred tax assets and the significant judgement
involved, we considered the recoverability of deferred tax assets to be a
key audit matter for our audit.
We have requested and obtained confirmation letters from third party tax advisors to confirm the
existence and accuracy of the tax loss carry-forwards, taking into account the expiration dates per
jurisdiction. In addition, together with our tax specialists, we have assessed per tax jurisdiction the
level of potential offsetting of the deferred tax assets with the deferred tax liabilities.
Furthermore, we have critically assessed the underlying assumptions of the forecasted taxable
income through agreeing the forecasted future taxable profits with approved business plans in
a tax jurisdiction. We also assessed the past performance against the expected future tax profits
in the business plans used by the Group, by using our knowledge of the Group and the industry
in which it operates. In addition, we have considered the local expiry period 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.
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Key audit matter
Our audit work and observations
Finalisation of the Purchase Price Allocation in respect of
the acquisition of Magnesita Refratários S.A.
Refer to note 5 of the consolidated financial statements
On 26 October 2017, RHI Magnesita Group acquired Magnesita
Refratários S.A., the Magnesita Group. IFRS 3, Business Combinations,
requires recognising 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 recognised assets, and liabilities as goodwill.
The purchase price allocation (“PPA”) was finalised within the 12 months
period as required by the Standard. This acquisition was considered as a
significant purchase to the whole Group.
Management determined that the fair value of the net identifiable assets
acquired is € 427.9 million with €404.5 million relating to intangible
assets (incl. goodwill) that arose from the business combination. The
Executive Directors have engaged two independent valuators to issue a
final report on the 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 finalisation of the PPA exercise for Magnesita resulted in
goodwill, amounting to €82.9 million recognised at the acquisition date
(see note 5, Group of consolidated companies), representing a decrease
from the preliminary PPA of 88.8 million, mainly allocated to the fair value
of mining rights and property, plant and equipment offset by an increase
in the deferred tax liabilities and other non-current provisions.
We focused on the intangible assets arising from the business
combination as a significant area of judgement. The valuation
methodology, as well as the inputs and assumptions in the model, are
affecting the fair value of the intangible assets. The goodwill arising
from the acquisition is also highly dependent on the fair value of the
identifiable assets acquired and the liabilities assumed at the acquisition
date.
Valuation of goodwill and other intangible assets
Refer to note 8, 10, 11, and 12 of the consolidated
financial statements
The Group capitalised goodwill for €117.4 million of which €82.9 million
relates to the acquisition of Magnesita Group, the remainder mainly
related to goodwill from the Steel divisions Lining and Flow control. In
addition, the company capitalised intangible assets for €334.4 million
of which €275.5 million relates to the Magnesita acquisition. These
assets form part of cash-generating units (‘CGUs’) 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 sign for impairment, the recoverable amount is assessed. Annual
planning process data is used to make assumptions on the discount rates,
profitability as well as growth rates, and sensitivity analyses are carried
out with regard to any accounting effects. The assessment did not result
in an impairment.
We identified the impairment assessment as a key audit matter due
to significant estimates and assumptions about the discount rates,
profitability as well as growth rates.
We reviewed management’s assessment that the acquisition should be accounted for as a
business combination and determined that it was appropriately performed in accordance with the
definition set out in IFRS 3.
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 other management experts such as valuators and evaluated the work done.
Together with our valuation experts, we have assessed the completeness of the assets and
liabilities identified in the purchase price allocation. For the assets and liabilities acquired, of
which the most significant items relate to customer relationships, mining rights, property, plant
and equipment and the liability for an unfavourable contract, we have evaluated the models used
to derive the fair values of the assets and liabilities.
We engaged valuation experts to compare the valuation assumptions with external benchmarks
including a peer group analysis to assess the discount rates and to assess assumptions and
inputs underlying future cash flows based on our knowledge of the group and its subsidiaries.
We have further evaluated the fair values of the remaining assets and liabilities including the
reasonableness of any underlying assumptions in their respective valuation. These assumptions
and inputs include estimates on future production, (foregone) margins, operating cost and capital
expenditure. This also included the assessment on the reasonableness of the useful lives on the
tangible and intangible assets and the consideration given.
We assessed and corroborated the adequacy and appropriateness of the disclosure made in note
5 to the consolidated financial statements.
We have not identified any significant issues with the allocation of the intangible assets at the
balance sheet date and noted no significant exceptions in the accounting for the business
combination.
A major part of goodwill and intangible assets were identified as part of the Purchase Price
Allocation (“PPA”) from the Magnesita Acquisition. Procedures performed on the PPA are
described in the key audit matter Purchase Price Allocation for the acquisition of Magnesita
Refratários S.A.
As part of our audit procedures, we have evaluated and challenged the composition of
management’s future cash flow forecast and process applied to identity 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 directors.
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. 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 reasonable and supported by the available evidence.
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continued
Key audit matter
Our audit work and observations
Implementation of IFRS 15, the new revenue standard
Refer to note 2, 8, 10, 35 and 50 of the consolidated
financial statements
As described in note 2, 8 and 10 of the consolidated financial statements
the Group has adopted IFRS 15 Revenue from Contracts with Customers.
The application and adoption of this accounting standard is complex.
IFRS 15 establishes a comprehensive framework for determining whether,
how much and when revenue is recognised.
The Group has applied the modified retrospective approach and has
recognised the cumulative effect of initial application as an adjustment
to the opening balance of retained earnings as per 1 January 2018. The
Group applies several practical expedients in its implementation.
In relation to the recognition of revenue under IFRS 15 the Group has to
apply judgement in multiple areas, such as when control over refractory
products passes to the customer, bundling of contracts, identifying
performance obligations and allocating the transaction price to these
performance obligations and whether revenue should be recognised at a
point in time or over time.
As a result, we consider the adoption and implementation of IFRS 15 a key
audit matter.
We performed inquiries of Management to obtain an understanding of the process for the
revenue recognition under IFRS 15.
We evaluated the design and technical implementation of the processes of the Group,
surrounding the implementation and recording adjustments arising from the adoption of IFRS 15.
We have obtained a schedule of contract types with the underlying master agreements for the
Group. We evaluated the accuracy and completeness of the contract types in the schedule,
including the technical implementation thereon, based on our knowledge of the Group
and experience of the industry in which it operates. We analysed the existing contracts with
customers and considered the Group’s revenue recognition policies in respect of those revenue
streams. We evaluated the judgement applied by the Group, in particular with respect to when
control over refractory products passes to the customer, bundling of contracts, identifying
performance obligations and allocating the transaction price to these performance obligations
and whether revenue should be recognised at a point in time or over time.
We obtained a schedule of the cumulative effect and adjustments as at 1 January 2018 and for
the current year and evaluated the completeness and mathematical accuracy of the schedule
by assessing whether the schedule of adjustments is complete and reflects appropriate
consideration for the changes in the revenue accounting under IFRS 15. We have performed
substantive testing in order to verify that the accounting for the revenue transactions are
appropriately reflecting the revenue recognition policies in line with IFRS 15.
Furthermore, we have assessed the adequacy of the related (IFRS 15) disclosures in the financial
statements. Our audit procedures did not indicate material findings with respect to the application
of IFRS 15 and disclosures thereto.
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Report on the other information included in
the annual report
Responsibilities for the financial statements
and the audit
In addition to the financial statements and our auditor’s report
thereon, the annual report contains other information that
consists of:
Responsibilities of the executive directors for the
financial statements
The executive directors are responsible for:
¥ 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.
Report on other legal and regulatory
requirements
Our appointment
We were appointed as auditors of RHI Magnesita N.V. by the
supervisory board following the passing of a resolution by the
shareholders at the annual meeting held on 4 October 2017. Our
appointment has been renewed annually by shareholders
representing a total period of uninterrupted engagement
appointment of 2 years.
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 59 to the consolidated
financial statements.
¥ 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 executive 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 executive
directors are responsible for assessing the Company’s ability to
continue as a going concern. Based on the financial reporting
frameworks mentioned, the executive directors should prepare the
financial statements using the going-concern basis of accounting
unless the executive directors intend either to liquidate the
company or to cease operations, or have no realistic alternative but
to do so. The executive 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.
Amsterdam, 26 March 2019
PricewaterhouseCoopers Accountants N.V.
E.M.W.H. van der Vleuten RA MSc
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F I N A N C I A L S TAT E M E N T S
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
R H I M A G N E S I TA
Considering our ultimate responsibility for the opinion on the
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 board of 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 board of 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 board of 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.
Independent
auditor’s report
continued
Appendix to our auditor’s report on the financial
statements 2018 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 executive directors.
¥ Concluding on the appropriateness of the executive 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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R H I M A G N E S I TA
R H I M A G N E S I TA
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A N N U A L R E P O R T 2 0 1 8
Alternative performance
measures (“APMs”)
Adjusted EBITDA and EBITA
To provide further transparency and clarity to the ongoing,
underlying financial performance of the Group, adjusted
EBITDA and EBITA are used. Both measures exclude other
income and expenses as presented in Consolidated Statement
of Profit and Loss.
Adjusted earnings per share (“EPS”)
Adjusted EPS is used to assess the Company’s operational
performance per ordinary share outstanding. It is calculated using
adjusted EBITA (as described above) and removes the impact of
foreign exchange effects, amortisation, restructuring expenses,
one-off non-cash expenses related to the refinancing of the
legacy debt, and other non-cash financial income and expenses
that are not directly related to operational performance.
Operating cash flow and free cash flow
Alternative measures for cash flow are presented to reflect
net cash inflow from operating activities before certain items.
Free cash flow is considered relevant to reflect the cash
performance of business operations after meeting the usual
obligations of financing and tax. It is therefore measured before
all other remaining cash flows, being those related to acquisitions
and disposals, other equity-related and debt-related funding
movements, and foreign exchange impacts on financing and
investing activities.
Working capital
Working capital and intensity provides a measure how efficient
the Company is in managing operating cash conversion cycles.
Working capital is the sum of manageable working capital,
composed of inventories, trade receivables and trade payables
and other receivables and payables. Working capital intensity is
measured as a percentage of last three months annualised revenue.
Net debt
We present an alternative measure to bring together the various
funding sources that are included in the Consolidated Balance
Sheet and the accompanying notes. Net debt is a measure defined
in the Group’s principal financing arrangements and reflects the net
indebtedness of the Group and includes all cash, cash equivalents
and marketable securities; and any debt or debt-like items.
APMs used by the Group are reviewed
below to provide a definition and
reconciliation from each non-IFRS
APM to its IFRS equivalent, and to
explain the purpose and usefulness
of each APM.
In general, APMs are presented externally to meet investors’
requirements for further clarity and transparency of the Group’s
underlying financial performance. The APMs are also used
internally in the management of our business performance,
budgeting and forecasting.
APMs are non-IFRS measures. As a result, APMs allow investors
and other readers to review different kinds of revenue, profits and
costs and should not be used in isolation. Commentary within the
Annual Report, including the Financial Review, as well as the
Consolidated Financial Statements and the accompanying notes,
should be referred to in order to fully appreciate all the factors that
affect our business. We strongly encourage readers not to rely on
any single financial measure, but to carefully review our reporting
in its entirety.
Adjusted pro-forma results at a constant currency
Whilst the merger became effective on 27 October 2017, the
adjusted pro-forma results were prepared as if the combined
Group had existed since 1 January 2017. The pro-forma results
are, where appropriate, adjusted to reflect the purchase price
allocation (“PPA”) related to the acquisition of Magnesita and
other adjustments. This measure provides an estimation of the
historical financial performance of the current Group structure.
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 EBITA.
Figures presented at constant currency represent 2017 amounts
retranslated to average 2018 exchange rates.
EBITA
EBIT, as presented in Consolidated Statement of Profit and Loss,
excluding amortisation and impairments.
EBITDA
EBIT, as presented in Consolidated Statement of Profit and Loss,
excluding depreciation, amortisation and impairments.
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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
Shareholder
information
RHI Magnesita N.V. is a public company with limited liability
under Dutch law and was incorporated on 20 June 2017. It has its
corporate seat in Arnhem, the Netherlands, its administrative seat
in Vienna, Austria and its registered office at Kranichberggasse 6,
1120 Vienna, Austria.
Dividend
The Board of Directors has recommended a dividend of
€1.50 per share, for the year ended 31 December 2018.
Payment of this dividend is subject to approval at the
2019 Annual General Meeting.
The telephone number of the Issuer is +43 50 2136200.
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.
Investor relations department
Sackville House
40 Piccadilly
London W1J 0DR
United Kingdom
Ticker symbol: RHIM
ISIN Code: NL0012650360
T: +44 20 7292 6171
Email: investor.relations@rhimagnesita.com
Investor information
The Company’s website www.rhimagnesita.com provides
information for shareholders and should be the first port of call
for general queries. The investors section contains details on the
current and historical share price, Annual and Interim Reports,
analyst presentations, shareholder meetings as well as a
‘Shareholders FAQ’ section.
Corporate brokers
Peel Hunt LLP
Moor House
120 London Wall
London EC2Y 5ET
United Kingdom
You can also subscribe to an email alert service to automatically
receive an email when significant announcements are made.
Shareholding information
Please contact our Registrar, Computershare, for all administrative
enquiries about your shareholding, such as the loss of a share
certificate, dividend payments, or a change of address:
Computershare Investor Services PLC
The Pavilions,
Bridgwater Road
Bristol BS99 6ZZ
United Kingdom
Website: https://www-uk.computershare.com
T: +44 (0) 370 707 1402
Financial calendar
Q1 Trading Update
Annual General Meeting
Half Year Results
Q3 Trading Update
May 2019
6 June 2019
August 2019
November 2019
T: +44 20 7418 8900
www.peelhunt.com
Barclays
10 The North Colonnade
Canary Wharf
London E14 4BB
United Kingdom
T: +44 20 7623 2323
www.barclays.com
Auditor
PricewaterhouseCoopers Accountants N.V.
Thomas R. Malthusstraat 5
1066 JR Amsterdam
P.O. Box 90357
T: +31 88 792 00 20
www.pwc.nl
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RHI Magnesita
Headquarters
Kranichberggasse 6
1120 Vienna
Austria
www.rhimagnesita.com
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